STATES –MEASURES AFFECTING TRADE IN LARGE CIVIL AIRCRAFT
Document: Report of the Panel BCI DELETED, AS INDICATED [***]
Date: 30 June 2010
Document codes: WT/DS316/R
Complainant: U.S.
Respondent: EU, France, Germany, Spain, United Kingdom
Third parties: Australia, Brazil, Canada, China, Japan, South Korea
Dispute stage: Retaliation & Arbitration
Agreements cited: Art. 3.1, 3.2, 5, 6.3  Subsidies and Countervailing Measures (SCM)Art. XVI:1  GATT 1994Art. 1, 2  Subsidies and Countervailing Measures (SCM)Art. III:4  GATT 1994

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

Report of the Panel

BCI DELETED, AS INDICATED

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I. INTRODUCTION
A. COMPLAINT OF THE UNITED STATES
1.1 On 6 October 2004, the United States request ed consultations with the European
Communities1 and certain EC member States (Germany, France, the United Kingdom, and Spain)
pursuant to Articles 1 and 4 of the Understanding on Rules and Procedures Governing the Settlement
of Disputes ("DSU"), Article XXIII:1 of the General Agreement on Tariffs and Trade 1994 ("GATT
1994") and Articles 4, 7 and 30 of the Agreement on Subsidies and Countervailing Measures
("SCM Agreement")(to the extent that Article 30 incorporates Article XXIII of the GATT 1994), with
regard to measures affecting trade in large civil aircraft. 2 Consultations were held on
4 November 2004, but the parties failed to resolve the dispute.
1.2 On 31 May 2005, the United States requested the establishment of a panel pursuant to
Article 6 of the DSU, Article XXIII:2 of th e GATT 1994, and Articles 4, 7 and 30 of the
SCM Agreement (to the extent that Article 30 incorporates Article XXIII of the GATT 1994). 3 In its
request for establishment of a panel, the United States requested that the Dispute Settlement Body (the
"DSB") initiate the procedures provided in Annex V of the SCM Agreement pursuant to paragraph 2
of that Annex.4
B. ESTABLISHMENT AND COMPOSITION OF THE PANEL
1.3 At its meeting on 20 July 2005, the DSB establis hed a Panel in accordance with Article 6 of
the DSU to examine the matter referred to the DS B by the United States in document
At that meeting, the parties to the dispute agr eed that the Panel should have standard terms of
reference. The terms of reference are, therefore, the following:
"To examine, in the light of the relevant provisions of the covered agreements cited
by the United States in document WT/DS316/2, the matter referred to the DSB by the
United States in that document, and to ma ke such findings as will assist the DSB in
making the recommendations or in giving the rulings provided for in those
agreements."
1.4 On 7 October 2005, the United States requested the Director-General to determine the
composition of the Panel, pursuant to paragraph 7 of Article 8 of the DSU, which provides:
"If there is no agreement on the panelists within 20 days after the date of the
establishment of a Panel, at the request of either party, the Director-General, in
consultation with the Chairman of the DSB and the Chairman of the relevant Council
or Committee, shall determine the com position of the panel by appointing the
panelists whom the Director-General consid ers most appropriate in accordance with
any relevant special or additional rules or procedures of the covered agreement or

1 On 1 December 2009, the Treaty of Lisbon amending the Treaty on European Union and the Treaty
establishing the European Community (done at Lisbon, 13 December 2 007) entered into force. On 29
November 2009, the WTO received a Verbal Note (WT/L/779) from the Council of the European Union and the
Commission of the European Communities stating that, by virtue of the Treaty of Lisbon, as of 1 December
2009, the European Union replaces and succeeds the European Community.
2 WT/DS316/1, attached at Annex A.
3 WT/DS316/2, attached at Annex B.
4 The United States reiterated its request in this regard at the DSB meetings held on 20 July, on 3 and
31 August and on 23 September 2005. See, documents WT/DSB/M/194, 195, 196 and 197, respectively.

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covered agreements which are at issue in th e dispute, after consulting with the parties
to the dispute. The Chairman of th e DSB shall inform the Members of the
composition of the panel thus formed no later than 10 days after the date the
Chairman receives such a request".
1.5 On 17 October 2005, Deputy Director-General Alejandro Jara, acting in place of the Director-
General, composed the Panel as follows:
 Chairman: Mr. Carlos Pérez del Castillo
 Members: Mr. John Adank
 Mr. Thinus Jacobsz.
5

1.6 Australia, Brazil, Canada, China, Japan and Kor ea reserved their rights to participate in the
Panel proceedings as third parties.
C. INFORMATION GATHERING PROCEDURE UNDER ANNEX V OF THE SCM AGREEMENT
1.7 At its meeting of 23 September 2005, the DSB ag reed to initiate the procedures provided for
in Annex V of the SCM Agreement ("Annex V Procedures") and designated Mr. Mateo Diego-
Fernández as a representative fo r this purpose ("Designated Representative" or "Facilitator"). On
30 September 2005, the Designated Representative adopted Working Procedures for the Annex V
Procedures, after consultation with the Unite d States and the European Communities. On
10 October 2005, pursuant to para graph 17 of those Working Proce dures, the European Communities
requested that the Facilitator adopt additional pr ocedures for the protection of business confidential
information ("BCI") and highly sen sitive business information ("HS BI"). Following consultations
with the parties, on 4 November 2005 the Facilitator adopted procedures for the protection of BCI and
HSBI for the Annex V Procedures.
1.8 On 24 February 2006, the Designated Representa tive submitted his report to the Panel. The
report of the Designated Representative, and the Working Procedures and additional procedures for
the protection of BCI and HSBI adopted by the Designated Representative for the Annex V
Procedures are attached at Annex C.
D. PANEL PROCEEDINGS
1.9 Following consultation with the parties, the Panel adopted Working Procedures on
9 November 2005.6 On 1 March 2006, before the established da tes for submissions by the parties, at
the request of both parties, the Panel set aside its timetable.7 At the request of the United States, made
on 4 September 2006, the Panel recommenced its work.
1.10 At the request of the parties, and followi ng consultations with them, the Panel adopted
additional procedures for the protection of BCI and HSBI for the panel proceedings on
19 October 2006 ("the BCI/HSBI procedures"). 8 The Panel issued several rulings over the course of
the proceedings with respect to the interpreta tion and application of the BCI/HSBI procedures,

5 WT/DS/316/4.
6 These procedures were modified on various occas ions, and are attached, in their final form, at
Annex D.
7 On 28 February 2006, the Panel had received an unsolicited communication from an individual. The
communication addressed a question that is not an aspect of the matter within the Panel's terms of reference.
The Panel therefore found it inappropriate to consider that communication and has rejected it.
8 These procedures were modified on various occas ions, and are attached, in their final form, at
Annex E.

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including regarding the designation of specific in formation as BCI or HSBI pursuant to those
procedures in the parties' submissions and exhibits.9
1.11 On 26 October 2005, the European Communities su bmitted a request for preliminary rulings,
which it subsequently updated on 7 N ovember 2006, in which it requested, inter alia, that the Panel
find that certain of the measures challenged by the Un ited States are not within the temporal scope of
this proceeding or are outside its terms of reference. Having carefully considered the views of the
parties and third parties, the Panel issued a pre liminary ruling concerning certain aspects of the EC
request to the parties and third parties on 11 July 2007. The ruling is set forth in the Panel's findings
at Section VII.C. The Panel addresses the remaini ng issues raised by the EC request for preliminary
rulings in its findings below.
1.12 On 9 November 2005, Brazil submitted a request fo r enhanced third party rights in this panel
proceeding; similar requests were received from Canada on 23 November 2005 and from Korea on
13 October 2006. After careful consideration of th is issue in light of all comments received from
parties and third parties, the Panel on 23 October 2 006 informed the parties and third parties of its
decision declining to grant enhanced third party right s to any third party. The Panel's reasons are set
out in its findings at Section VII.D.1.
1.13 The Panel met with the parties on 20 and 21 Marc h 2007 and on 25 and 26 July 2007. At the
request of the parties, and following consultations, the Panel adopted procedures for public sessions of
its meetings with the parties. Pursuant to those procedures, the Panel held a portion of its meetings
with the parties in public session, by means of a subsequent showing of video-recordings of the public
sessions. The parties were given an opportunity to re view the recordings to ensure no BCI or HSBI
had been disclosed, and the recordings were s hown in public on 22 March and 27 July 2007,
respectively. The Panel met with the third parties on 24 July 2007.
1.14 The Panel submitted its interim report to th e parties on 4 September 2009. The Panel
submitted its final report to the parties on 23 March 2010.
II. FACTUAL ASPECTS
A. P
RODUCT AT ISSUE
2.1 The parties agree that the product at issue in this dispute is large civil aircraft, as distinguished
from smaller (regional) aircraft and military aircraft. Large civil aircraft ("LCA") can generally be
described as large (weighing over 15,000 kilograms) "t ube and wing" aircraft, with turbofan engines
carried under low-set wings, designed for subsonic fl ight. LCA are designed for transporting 100 or
more passengers and/or a proportio nate amount of cargo across a range of distances serviced by
airlines and air freight carriers. LCA are covered by tariff classification heading 8802.40 of the
Harmonized System ("Airplanes and other aircraft, of an unladen weight exceeding 15,000 kg").
2.2 The design, testing, certification, production, marketing and after-delivery support of LCA is
an enormously complex and expe nsive undertaking. LCA are presently produced only by Boeing
and Airbus, which both sell a range of LCA models wo rld-wide, to serve the range of needs of their
customers, principally airlines and airplane leasing companies. Both companies engage in continued
development of LCA, which requires significant up-front investments over a period of 3-5 years
before any revenues are obtained from customers. Sales of LCA are relatively infrequent, but
generally very large in terms of the number of aircraft and dollar amounts involved (LCA sales are
made in USD), although deliveries are generally made over a period of years subsequent to the sale.

9 Selected rulings in this regard are attached, at Annex F.

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Customers choose among the various LCA models available those they conclude are most suitable for
their needs, generally considering a broad variet y of factors, including the physical and operating
characteristics of the available models, operating costs, existing fleet, routes to be served by the
aircraft, the structure of the existing fleet, and costs, with a view to minimizing costs and maximizing
revenues.
2.3 The parties disagree as to the scope of the subs idized product or products, and the scope of
the like product or products, at issue in this dispute. The United States contends that the subsidies at
issue in this dispute benefit the production and ma rketing of the full range of LCA manufactured by
Airbus, and that therefore the "subsidized product" is the Airbus LCA family as a whole, and that the
corresponding "like product" is the entire family of Boeing LCA. The European Communities, on the
other hand, contends there are four "families" of Airbus LCA, each constituting a separate allegedly
subsidized product, and that there are three Bo eing "like products" corresponding to three of the
Airbus families of LCA, and no Boeing "like product" corresponding to the Airbus A380 family.
2.4 These issues are addressed by the Panel in its findings at Section VII.F.4.
B. M
EASURES AT ISSUE
2.5 The United States, in its request for establishm ent, identified the measures at issue in this
dispute as including the following:
(a) The provision by certain member States of the European Communities (Germany,
France, the United Kingdom, and Spain ("the member States")) of financing for large
civil aircraft design and development to the Airbus companies
10 (referred to by the
United States as "Launch Aid"). 11 This financing is alleged to provide benefits to the
recipient companies including financing fo r projects that would otherwise not be
commercially feasible. The non-commercial terms of the financing may include no
interest or interest at below-market rat es and a repayment obligation that is tied to
sales. If the aircraft is not successful, some or all of the financing need not be repaid.
Specific examples of the financing at issue include:
(i) French financing for the Airbus A 300, A310, A320, A330/340, A330-200,
A340-500/600, A380, and A350;

10 The United States defined the "Airbus companies" to include Airbus SAS, its predecessor Airbus
GIE and current and predecessor affiliated companies, including each person or entity that directly, or indirectly
through one or more intermediaries or relationships, controls or controlled, is or was controlled by, or is or was
under common control with Airbus SAS or Airbus GIE, such as parent companies, sibling companies and
subsidiaries, including Airbus Deutschland GmbH, Airbus España SL, Airbus France S.A.S., Airbus UK
Limited, European Aeronautic Defence and Space Comp any (hereinafter "EADS"), and BAE Systems. The
European Communities disputes that the "Airbus companies", as defined by the United States, are recipients of
the alleged subsidies. For purposes of this description of the measures at issue, the Panel has used the
terminology of the United States' request for establishment. This should not be taken to have any significance
for the Panel's consideration of the substance of the dispute. This question is addressed further in the Panel's
findings at Section VII.E.1.
11 The European Communities and the member States concerned use different terms to describe the
type of financing at issue, such as member State financing, launc h aid, launch investment, avances
remboursables, Rückzahlbare Zuwendungen, Entwicklungsbeihilfen, Zuschüsse zur Entwicklung von zivilen
Flugzeugen, anticipo reembolsable, and prestamo reembol sable. The European Communities disputes that the
term "Launch Aid", as used by the United States, is an appropriate designation of these alleged subsidies. For
purposes of this description of the measures at issue, the Panel has used the terminology of the United States'
request for establishment. This should not be taken to have any significance for the Panel's consideration of the
substance of the dispute. This question is addressed further in the Panel's findings at paragraph 7.291

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(ii) German financing for the Airbus A300, A310, A320, A330/340, A380, and
A350;
(iii) United Kingdom financing for the Ai rbus A300, A310, A320, A330/340,
A340-500/600, A380, and A350; and
(iv) Spanish financing for the Airbus A300, A310, A320, A330/340, A340-
500/600, A380, and A350.
(b) In addition to Launch Aid, the provision by the EC and the member States, through
the European Investment Bank ("EIB"), to the Airbus companies, of financing for
large civil aircraft design, development, and other purposes. Specific examples of the
financing at issue include:12
(i) financing to British Aerospace for the A320 and the A330/A340;
(ii) financing to Aérospatiale for the A330/340;
(iii) financing to Construcciones Aeronauticas SA ("CASA") for the A320 and the
A330/340;
(iv) financing to Airbus Industrie for the A321;
(v) financing to Aérospatiale Super Transporteurs; and
(vi) financing to EADS for the A380.
(c) The provision by the EC and the member States of financial contributions to develop,
expand, and upgrade facilities and other infr astructure for the Airbus companies.
Specific instances include public investments by German authorities in Hamburg,
Nordenham, Bremen, and Varel, by French authorities in the Toulouse region, by UK
authorities at Broughton, Wales and by Span ish authorities at numerous locations in
Spain (such as Puerto Real, Illescas, Puerto de Santa Maria, and La Rinconada).
(d) The assumption and forgiveness by the EC a nd the member States of debt resulting
from Launch Aid and other financing for large civil aircraft development and
production, including debt accumulated by Deutsche Airbus that was forgiven by the
German government in 1997 and 1998 and debt assumed by the government of Spain
on behalf of CASA and not repaid.
(e) The provision by the EC and the member States of equity infusions and grants,
including through government-owned and government-controlled banks. Examples
include equity investment by the Germ an government through Kreditanstalt für
Wiederaufbau ("KfW") in Deutsche Airbus in 1989 and the return of the shares
acquired through this transaction to Deut sche Airbus' parent, the Daimler group,
without compensation, in 1992; equity infusions by the French Government into
Aérospatiale in 1987 and 1988; an equity infusion by French state-owned Crédit
Lyonnais into Aérospatiale in 1992; an e quity infusion by the French Government

12 EIB financing to airline customers for the purchase of new aircraft is not within the scope of the US
panel request.

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into Aérospatiale in 1994; and the gran t by the French Government of its
45.76 per cent share of Dassault Aviation's capital to Aérospatiale in 1998.
(f) The provision by the EC and the member States of financial contributions for
aeronautics-related research, development, and demonstration ("R&D"), undertaken
by Airbus, whether alone or with others, or in any other way to the benefit of Airbus,
including:
(i) EC funding for civil aeronautics-related R&D projects under the Second
(1987-1991), Third (1990-1994), Fourth (1994-1998), Fifth (1998-2002) and
Sixth (2002-2006) EC Framework Programs in which Airbus participated.
(ii) Funding from the German federal gove rnment and sub-federal entities for
civil aeronautics-related R&D projects in which Airbus participated,
including:
- federal government funding as set forth in the most updated version of
the government's Förderkatalog da tabase, including funding under the
federal aeronautics research programs Luftfahrtforschungsprogramm 1
(1995-1998), Luftfahrtforschungs programm 2 (1998-2002), and
Luftfahrtforschungsprogramm 3 (2003-2007);

- the regional Bremen Airbus Materials & System Technology Centre
Bremen (AMST) (2000-2002) and th e Airbus Materials & System
Technology Centre Bremen II (AMST) (2002-2006);

- the regional Bavaria "Hightechoffensive Bayern" program
(1999-2003); and

- the regional Hamburg Luftfa hrtforschungsprogramm (2001-2005).

(iii) Funding from the government of the United Kingdom since 1992 for civil
aeronautics-related R&D projects in which Airbus participated, including
funding under the Civil Aircraft Research and Development Program
(CARAD) and the Technology & Strategy Program.
(iv) Funding from the Spanish government, including regional and local
authorities, since 1993 for civil aeronau tics-related R&D projects in which
Airbus participated, including loans and other financial support provided
under the Plan Tecnológico Aeronáutico I and the Plan Tecnológico
Aeronáutico II.
(v) Funding from the French government, including regional and local
authorities, since 1986 for civil aeronau tics-related R&D projects in which
Airbus participated.
(vi) The provision by government-controlled and financed research institutions of
civil aeronautics R&D-related goods or services to Airbus and/or funding for
civil aeronautics-related R&D projects in which Airbus participated,
including by the German Deutsches Zentrum für Luft- und Raumfahrt
("DLR"), by the UK Defence Evaluation and Research Agency ("DERA")
and its successor Qinetiq, and by the French Office National des Études et

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Recherche Scientifique ("CNRS"), and the Centre National de la Recherche
Technologique ("CNRT").
(g) Any amendments, revisions, implementing or related measures to the measures
described above.
(h) Any other measures that involve a financial contribution by the EC or any of the
member States that benefit the Airbus companies.
III. PARTIES' REQUESTS FOR FINDINGS AND RECOMMENDATIONS
A. U
NITED STATES
3.1 The United States requests that the Panel find that:
(a) Launch Aid provided to Airbus for the A 380, the A340-500/600, and the A330-200
aircraft are export subsidies inconsistent with Articles 3.1(a) and 3.2 of the
SCM Agreement;
(b) The Launch Aid Program, individual prov isions of Launch Aid, and the other
measures at issue in this dispute are specifi c subsidies that cause or threaten to cause
adverse effects to the United States and, thus, are inconsistent with Articles 5(a), 5(c),
6.3(a), 6.3(b), and 6.3(c) of the SCM Agreement;
(c) The Launch Aid Program, individual prov isions of Launch Aid, and the other
measures at issue in this dispute are subsidi es that are inconsistent with Article XVI:1
of the GATT 1994; and
(d) the breaches of the SCM Agreement and the GATT 1994 set forth above nullify or
impair benefits accruing to the United States.
3.2 The United States further requests that the Pane l recommend, pursuant to Article 4.7 of the
SCM Agreement, that the European Communities, France, Germany, Spain, and the United Kingdom
withdraw their export subsidies without delay. Th e United States respectfully requests that the Panel
specify, pursuant to Article 4.7, that the time pe riod for withdrawal be 90 days after the DSB adopts
its recommendations and rulings in this dispute.
3.3 The United States further requests that the Pane l recommend, pursuant to Article 7.8 of the
SCM Agreement, that the European Communities, France, Germany, Spain, and the United Kingdom
take appropriate steps to remove the serious prejudi ce and the threat of serious prejudice or withdraw
their subsidies.
3.4 Finally, the United States asks the Panel to re ject all of the European Communities' requests
for preliminary rulings.
B. E
UROPEAN COMMUNITIES
3.5 The European Communities requests that the Pane l reject all claims advanced by the United
States in this dispute. As noted above, the Eur opean Communities separately requested the Panel to
find, as a preliminary matter, that certain of th e measures challenged by the United States are not
within the temporal scope of this proceeding or are outside its terms of reference.

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IV. ARGUMENTS OF THE PARTIES
4.1 The arguments of the parties are set out in their written and oral submissions to the Panel, in
their answers to questions and in additional comme nts submitted pursuant to the Panel's request. The
parties' arguments, as summarised by them are presented in this section. 13 The full non-confidential
text of certain EC submissions can be downloaded from the EC web site. 14 The full non-confidential
text of certain US submissions can be downloaded from the Government's web site.15
A. PRELIMINARY ISSUES RAISED BY THE EUROPEAN COMMUNITIES
1. Arguments of the European Communities
4.2 In its first written submission, the EC underlines: (i) the importance in this dispute of other
international aircraft related agreements, (ii) the f act that the EC is the proper respondent, (iii) the
need to properly identify the alleged recipients of the alleged subsidies and (iv) the fact that the US
has failed to make a prima facie case in a number of issues re lating to subsidization and adverse
effects. The EC argues that the Panel should not ma ke the case of the US, but dismiss its claims on
these grounds alone. The EC notes that third parties that address this issue, agree. 16 The EC also
responds to the US position on the Article 6.2 DSU issue that the EC rais ed in its Request for
Preliminary Rulings.17
(a) Relevance of Other International Aircraft Related Agreements
4.3 The EC asserts that despite the fact that it re lies on historic events, the US chooses to ignore
entirely the agreements that it has entered into w ith the EC concerning Large Civil Aircraft ("LCA")
during this period – notably the 1979 Agreement on Trade in Civil Aircraft ( "the 1979 Agreement" )
and the 1992 Agreement concerning the application of the GATT Agreement on Trade in Civil
Aircraft on trade in large civil aircraft ( "the 1992 Agreement" ).18 The EC seeks to correct the main
errors in the US story and in particular explains the importance of the above agreements to this
dispute. The EC particularly objects to the fact that the US seeks to impugn measures that it expressly
agreed and to apply new agreements retroactively to historical facts.19
4.4 The EC argues that the 1979 Agreement and the 199 2 Agreement are relevant for this dispute
for the following reasons. 20 First, these agreements provide essential factual background and

13 Pursuant to paragraph 13 of the panel's working procedures, the parties and third parties submitted
non-confidential executive summaries of their written and oral submissions. The Panel issued its draft
descriptive part to the parties on 4 March 2008, informing them that it intended to attach the executive
summaries of parties' and third parties' submissions to its report, as has been the practice of a number of panels.
Following comments received on 11 Ma rch 2008, the Panel drafted a revised descriptive part based on those
executive summaries, which it provided to the parties and third parties for comment on 20 October 2008 The
Panel received comments from the third parties on 27 Oct ober 2008 and from the parties, having granted the
EC's request for extension of time, on 4 November 2008.
14 See, http://trade.ec.europa.eu/wtodispute
15 See,
http://www.ustr.gov/Trade_Agreements/Monitoring_Enforcement/Dispute_Settlement/WTO/Section_Index.htm
l
16 Executive Summary of the First Written Submission of the European Communities, (hereinafter "EC,
FWS, Executive Summary"), para. 14 and Executive Summary of the Second Written Submission of the
European Communities (hereinafter "EC, SWS, Executive Summary"), para. 3.

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demonstrate that aircraft production has been treated as a special case in the GATT and the WTO ever
since detailed rules on subsidies were first promul gated in 1979 during the Tokyo Round of trade
negotiations.21
4.5 Second, according to the EC, these Agreements contain applicable law. 22 The EC explains
that the 1979 Agreement was confirmed and readopted as a plurilateral agreement as part of Annex IV
to the WTO Agreement. 23 Although it is not a covered agreement, it is an agreement specifically
relating to aircraft and it incorporates the s ubsidy disciplines of the 1979 Agreement and the Tokyo
Round Subsidies Agreement, which are relevant for assessing the legality of pre-1995 measures, rather
than the SCM Agreement. 24 Both the US and the EC are parties. The 1992 Agreement is a bilateral
agreement between the EC and the US, which expressly refers to and implements the 1979
Agreement.25 Moreover, according to the EC, the 1992 Agreement forms part of the applicable law in
this dispute under Article 7.2 of the DSU as it is not invoked by the EC to justify a countermeasure
against the US in the context of a broader dispute, as was the case in Mexico – Soft Drinks.26 The EC
points out that the MSF contracts for the A320 a nd A330/A340 programmes were concluded at the
time of the Tokyo Round Subsidies Code , and if at all, should be judged according to the standards
fixed in that agreement, i.e., the "cost to the government" benchmark. 27 The EC further explains that
the Tokyo Round Subsidies Code is still applicable law as referenced in the 1979 Agreement which is
still in force. Moreover, under ge neral international law, a juridical fact must be assessed against the
law contemporaneous to it. Hence, in the EC view, these contracts can only be assessed against the
standards of the Tokyo Round Subsidies Code, but not against the disciplines of the
SCM Agreement.28
4.6 Third, the EC submits that these Agreements provide essential context for the interpretation
of other applicable law, and in particular provisions of the SCM Agreement invoked by the US.29 The
1992 Agreement can serve as an interpretative tool for the SCM Agreement according to
Article 31(3)(c) of the Vienna Convention since the Appellate Body has, in the past, also applied other
non-covered Agreements to interpret notions contained in covered agreements.30
4.7 Last, the EC notes that the 1992 Agreement was not only adopted to implement the 1979
Agreement between the US and the EC, but also co nstituted a mutually agreed solution to a dispute
between these parties. A mutually agreed solutio n must at least give rise to estoppel preventing a
party to such an agreement from reneging on it s terms. Having negotiated, concluded, and
implemented the 1992 Agreement, the US cannot now challenge as prohibited or actionable subsidies
the very same elements of financing to which it acquiesced and, indeed, actively contributed to.31

24 Executive Summary of the Second Non-Confidential Oral Statement of the European Communities
(hereinafter "EC, SNCOS, Executive Summary"), para. 2.
31 Executive Summary of the First Non-Confidential Oral Statement of the European Communities
(hereinafter "EC, FNCOS, Executive Summary"), para. 2.

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(b) Extinction and Extraction of Subsidies
Relevance of the identity of the recipient or the continuity of benefit under the
SCM Agreement
4.8 The EC argues that by failing to demonstrate how the alleged subsidies to other companies
provide benefits to Airbus SAS, the US has failed to make a prima facie case of violation of the
SCM Agreement.32 The EC recalls the Appellate Body's observation that "a 'benefit' can be said to
arise only if a person, natural or legal, or a gr oup of persons, has in fact received something." 33 Put
simply, subsidies paid to entities that no longer exis t, much less manufacture and sell LCA, cannot be
assumed to benefit Airbus SAS, which has not , in the Appellate Body's words, "in fact received
something". Whether it has "in fact received something" is for the United States to prove. 34 The EC
explains that identity of recipient, extinction, extr action even 'pass through' are all different ways of
expressing the same principle. The US calls it the "con tinuity of benefit". In reality, the EC explains,
it is the requirement that the operator bene fiting from the subsidy must be identified. 35 The EC adds
that in accordance with the jurisp rudence, the US bears the burden of proving the "continuity of
benefit" from alleged subsidies to entities other than Airbus SAS, the current manufacturer of
European LCA, through to Airbus SAS.
36 The EC submits that the US – as the complaining party –
bears the burden of proving its clai ms. The fact that the EC adva nced certain facts about certain
transactions, described below, that the US should have advanced, does not shift the burden of proof.37
4.9 The EC notes that the main US argument seems to be that "{f}or a serious prejudice analysis,
it is necessary to establish that the product at issue is subsidized but not that the recipient of the
subsidy is one enterprise rather than another." In the EC view, the US logic omits a certain number of
essential steps. The EC explains that a product ma y be considered directly subsidised where an
amount is paid on each item produced or sold. Bu t where a subsidy is paid to a person before
products are produced or sold, or independently of production or sale, it is necessary to first establish
a benefit to the producer or seller of the product in order to establish that goods produced or sold by
that person are subsidised. As the Appellate Body made clear in Canada– Aircraft, "{a} 'benefit' does
not exist in the abstract, but must be received and enjoyed by a beneficiary or a recipient." 38
4.10 Taking into account this standard, the EC argues that it is necessary in analyzing the alleged
subsidies in this case to id entify the precise recipients. 39 And according to the EC, the US does not
address this issue at all in its first written submissi on and attempts to disguise the issue by sometimes
using the term "Airbus" to cover many different entities.40
4.11 The EC considers that the Appellate Body re quirements discussed above are all the more
important in this dispute, given the US approach to proving adverse effects. The US argues that the
principal harm of the challenged measures is that they provide cash flow relief to Airbus SAS ,
allowing it to price down aircraft today. Under many of the measures challenged by the US, however,
entities other than Airbus SAS – entities that no longer exist, much less make or sell LCA – "in fact
received" the cash. Thus, while entities other than Airbus SAS received the cash, the US

34 EC, SNCOS, para. 52.
35 Executive Summary of the Closing statement, of the European Communities at the Second Meeting
of the Panel, (hereinafter "EC, SCCS, Executive Summary"), para. 4.

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characterises the harm as consequent cash flow relief enabling subsidy-fuelled pricing behaviour by
Airbus SAS. Not only was much of the cash received by entities other than Airbus SAS, but it was
received by those entities decades ago.41
 Relevance of arm's length, fair market value transactions under the SCM Agreement
4.12 The EC provides evidence regarding a series of intervening transactions – identified at
paragraph 311 of its response to Question 111 – th at it argues were conducted at arm's length and for
fair market value. The EC argu es that these transactions interrupted the flow to Airbus SAS of any
monies received by entities other than Airbus SAS. 42 The EC adds that this position, supported by
Japan in its third party submission, is consistent with panel and Appellate Body jurisprudence holding
that the existence of a subsidy must be determ ined by assessing the benefit that it confers on the
relevant recipient and that a subsidy conferre d on a former owner of assets cannot be assumed to
confer a benefit on a subsequent owner. 43 In light of the transactions identified by the EC, the EC
maintains that the US has not demonstrated a link between cash "in fact received" decades ago by
entities other Airbus SAS, and current pricing behaviour by Airbus SAS.
44
4.13 The EC argues that the failure of the US to do so has implications for US adverse effects
claims: the US considers that the Panel may simply presume that cash provided decades ago to
entities other than Airbus SAS automatically translat es into cash flow relief for Airbus SAS today.
This presumption is not permitted by the SCM Agre ement. A series of intervening transactions
conducted at arm's length and for fair market value in terrupted the flow to Airbus SAS of any monies
received decades ago by entities other than Airbus SAS.45
4.14 The EC considers that the US is wrong to sugg est that the prior case law is only relevant to
countervailing duty cases. The EC explains that the rationale for these cases lies in the definition of
what is a subsidy and the definition of subsid y in the SCM Agreement is common to the whole
agreement. The principles recognised in this case law are as relevant to adverse effects cases as they
are to countervailing duty cases.46
4.15 In regard to the US argument that the various transactions that have occurred in the European
LCA industry over the last decade do not qualify as "full privatisations" or sufficient "changes of
ownership" and its further assertion that they were not in any event at arm's length or fair market
value
47, the EC argues that there is nothing in the SC M Agreement that provides for special rules for
privatisations and changes of control. 48 The EC further points out that the Appellate Body has held
that there was a rebuttable presumption that an arm's-length, fair market value privatisation precludes
the pass-through of benefit from seller to buyer of a state-owned firm. However, the EC notes, the
Appellate Body also reasoned that th is presumption would appear to be irrebuttable in private-to-
private sales.49
4.16 The EC adds that WTO case law further recognizes that subsidy benefits are extinguished in
cases of the sale of a portion of an enterprise. The Article 21.5 panel in US – Countervailing

41 EC, SNCOS, para. 53.
42 EC, SNCOS, para. 55.
44 EC, FNCOS, para. 55.
47 Executive Summary of the Closing statement, of the European Communities at the First Meeting of
the Panel, (hereinafter "EC, FCCS, Executive Summary"), para. 2, citing US Oral Statement, paras. 115-125.

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Measures on Certain EC Products examined the US imposition of countervailing duties on a
company that had been sold in tr anches, with all but a fraction of the sale admittedly having been at
arm's length. In that case, the US investigating aut hority had found that the sale of 5.16 percent of the
company's shares to company employees at less than fair market value "did not extinguish certain
allocable, nonrecurring, pre-privatisation subsidies" with regards to that portion of the company. As a
result, the US investigating authority found that "t he 5.16 percent of the allocated pre-privatisation
benefit was not extinguished" while "{t}he remaining 94.84 percent of the allocated benefit was found
to be extinguished.50 The panel reasoned that a portion or "segment" of subsidies did pass through to
the buyers of 5.16 per cent of the company. It also found, consistent with economic reality and
common sense, that this approach precluded chargi ng the buyer of that segment with the entire
amount of the subsidy. Consequently, the panel concluded that failure to consider the partial nature of
a privatisation was untenable, as "benefit" would nec essarily be limited to that portion of the original
subsidy left unextinguished by the sale. The EC ar gues that there is no textual or economic basis for
limiting this "segmented" approach to cases of partial privatisation, rather than extending it to private-
to-private sales. Whether a sale is private-to-private or public-to-private, the arm's-length fair market
value sale of a portion of a company precludes the pass through from seller to buyer of a
corresponding portion of any benefit the seller may have enjoyed.
51 (The EC notes, however, that
while the Appellate Body held that there was a rebuttable presumption that an arm's-length, fair
market value privatisation precludes the pass-through of benefit from seller to buyer of a state-owned
firm, the presumption would appear irrebuttable in private-to-private sales.52)
4.17 The EC argues that the series of transactions it has identified extinguish or extract any
benefits that could be said to have accrued to Ai rbus SAS. Under US and international accounting
standards, the purchaser of a company is required to adjust the balance of any loan carrying a below
market rate to reflect a market interest rate, ther eby recognizing that the seller extracted the value of
the below market rate loan in the price of the business. In other words, US and international
accounting standards recognize that the benefit of a below market rate loan rests with the seller, and
does not get passed on to the buyer.53
4.18 The EC states that the result of the transacti ons identified in paragraph 311 of the EC
response to Question 111 is that any prior subsid ies have already been "withdrawn", within the
meaning of Articles 4.7 and 7.8 of the SCM Agreement. 54 According to the EC, even if the US were
able to establish violations of Parts II or III of th e SCM Agreement with respect to alleged subsidies,
the EC would already, through these transactions, ha ve secured the "withdrawal" of such subsidies
and thus provided any remedy due the US under Articles 4.7 and 7.8.55
Specifics of transactions identified by the EC

4.19 The EC focuses on several significant transactions, listed in paragraph 311 of its response to
Question 111. The EC argues that as a result of these transactions, over the past eight years, the EC
LCA industry has been consolidated through a series of privatisations, private sales, public offerings,
and cash extractions. Today 79.26 percent of EADS and therefore Airbus SAS is in private hands.
The process of consolidating EC LCA production has o ccurred in a series of arm's-length fair market

51 EC, FWS, paras. 217-219.
52 EC, FWS, paras. 213-215.
53 EC, SNCOS, para. 56.

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value transactions that have ensured that no benef its could have been passed through from sellers to
new owners.56
4.20 The EC explains that the creation of EADS n ecessarily served to extinguish, extract, or repay
any "benefits" held by ASM, CASA, and DASA, as a result of alleged subsidies challenged by the US
in this dispute. In France, 50 percent of any subs idies that existed in Aéro spatiale were extinguished
with the 1999 creation of ASM and the accompanyi ng sale of assets to Lagardère and the general
public. In Spain, CASA repaid the government EUR 342.4 million in cash, reducing the company's
value by 26 percent. In Germany, at the time it spun-off the Airbus activities, DaimlerChrysler
extracted EUR 3,133 million in cash from DASA in 2000 for use in non-LCA activities, an amount
equal to 34.5 percent of the company's value. The US has not specifically alleged, nor could it
support a claim, that the net present value of the bene fit of any subsidies received by CASA or DASA
before 2000 would have exceeded those amounts. As such, the upper limit on any subsidies enjoyed
by EADS at the time of its creation would have b een 50 percent of any subsidy benefits in ASM in
2000.57
4.21 The EC adds that since that time, additional alleged subsidy benefits have been extracted
through the sale of EADS shares in conjunction with the (i) July 2000 IPO (6.47 percent plus
9.95 percent); (ii) January 2001 sale of additional shares by the French State (0.93 percent) and
Lagardère (2.07 percent); and (iii) July 2004 sale of 2.75 percent by DaimlerChrysler. As Airbus SAS
was created only in July 2001, and as EADS held 80 percent of Airbus SAS as of the July 2004 sale,
this equates to the extraction of a further 21.62 percent of any alleged subsidy benefits still enjoyed by
Airbus SAS by June 2004.
58
4.22 During 2006, founding shareholders Lagardère a nd DaimlerChrysler each sold 7.5 percent of
EADS, and BAe Systems sold its 20 percent stake in Airbus SAS. As EADS held 80 percent of
Airbus SAS at the time of the Lagardère and Da imlerChrysler sales, their transactions served to
extinguish 12 percent of any alleged subsidy benefits enjoyed by Airbus SAS. Taken together, these
three sales served to extract an additional 32 percent of any a lleged subsidy benef its still enjoyed by
Airbus SAS in 2006.59
4.23 With respect to the transactions identified by the EC, the EC considers that the US
misrepresents its argument as being that "transactions related to the establishment of Airbus SAS"
extinguish or extract any past subsidies. The EC explains that the establishment of Airbus SAS is
important background but is not one of the transactio ns, identified at paragraph 311 of its response to
Question 111, as extinguishing alleged subsidies.
60
4.24 The EC also considers that the US incorrectly asser ts that two of the transactions analysed by
the EC were not at arm's length and/or for fair market value. 61 First, with respect to the exercise of a
put option by BAe Systems, the US argues that it "amounted to the exact opposite of a privatization
carried out at arm's-length and for fair market va lue." The EC offers evidence from the transaction
that it argues demonstrates that BAe Systems' exer cise of its put option, and the negotiation of the
price at which that option was exercised, was en tirely at arm's length and for fair market value.
62
Second, the US argues that the privatisation of Aé rospatiale was not at arm's length and for fair

62 Second Written Submission of the European Comm unities (hereinafter "EC, SWS"), para. 98. See,
also, EC, Answer to Panel Question 113, paras. 321-324.

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market value, based on a press Article appearing sev en years after the transaction was concluded, and
comments by two French legislators that the EC argu es are taken out of context. The EC considers
that the US has ignored the contemporaneous assessments of Aérospatiale's value that were conducted
by a variety of investment banks, and the fact that the transaction involved a public offering of
Aérospatiale (or, rather, ASM) shares on the Pari s Bourse under the watchful eye of the world's most
respected financial and accounting advisers.63
4.25 The EC also responds to the US assertion that several of the transactions listed at
paragraph 311 of the EC response to Question 111 are not "actual sales of shares". The US arguments
concern the July 2004 sale by DaimlerChrysler of a 2.75 percent holding in EADS, as well as
the April 2006 sale by DaimlerChrysler and Lagardèr e of 7.5 percent each of their shareholdings in
EADS. With respect to the Lagardère transaction, the EC notes that Lagardère entered into a binding
agreement in April 2006 to sell its shares. 64 With respect to the Daimler transactions, the EC notes
that US SEC filings characterize them as reducing the company's "legal ownership percentage" in
EADS.65
4.26 The EC also rejects the US argument that because some of the transactions listed in paragraph
311 of the EC response to Question 111 occurred afte r establishment of the Panel, they must be
disregarded. The EC notes that in EC – Selected Customs Matters , the Appellate Body rejected a
similar US argument, explaining that "{e}vidence in support of a claim challenging measures that are
within a panel's terms of reference may pre-date or post-date the establishment of the panel." The EC
considers that the failure to consider the impact of post-establishment facts regarding the transactions
highlighted by the European Communities would be inconsistent with the requirement to conduct an
objective assessment of the facts, under Article 11 of the DSU.66
4.27 In regard to the US argument that under th e EC approach, subsidies to publicly-traded
companies "would constantly be in the process of being extinguished" by virtue of daily trading
activity, the EC points out that it has not contende d in these proceedings that daily trading activity
involving EADS' shares extinguishes prior subsidies. Th e EC explains that it has, instead, faulted the
US for its failure to address the significance of the disposition by large instit utional shareholders of
specifically identified stakes identified in paragra ph 311 of the EC responses. According to the EC,
those transactions demonstrate that companies othe r than Airbus SAS enjoy the benefits of any
subsidies, and in some cases, that any subsidy amount has been repaid to the government.67
4.28 Two of the transactions listed in paragraph 311 of the EC's response to Question 111 are
extractions of cash made by the Spanish State and Daimler in advance of the contribution of the LCA
assets of CASA and DASA, respectively, to EADS . The EC argues that the WTO treatment of
change of ownership is founded on economic common sense – that a company's value reflects the
residual value of any subsidies it may have receive d. Where the residual value of a subsidy is
removed from a company, the value of that comp any is reduced commensurately. Thus, the EC
asserts, the cash extractions by the Spanish State and Daimler extracted the residual value of any
remaining subsidies, ensuring that CASA's and DAS A's balance sheets were no longer enhanced by
the alleged subsidisation.68

63 EC, SWS, paras. 99, 559-563. See, also, EC, SNCOS, paras. 65-75.
64 EC, Answer to Panel Question 197, para. 231.
65 EC, Answer to Panel Question 197, para. 232.
66 EC, SNCOS, paras. 61-63.
68 EC, Answer to Panel Question 112, paras. 317-318.

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4.29 The EC notes that the US argues that there is no reason to believe that the amount of any
subsidy extinguished by the extractions by the Span ish State and Daimler is equal to the full amount
of the extractions and that according to the US, this "inexplicably assumes that every dollar moved
from the books of a subsidized entity … is a dollar of subsidy." 69 According to the EC, that argument
misses the point. For instance, in the formation of EADS, Daimler transferred assets with sufficient
value to acquire a 30 percent interest in the comp any. As DASA had a value that was DM 3.1 billion
more than was necessary to acquire the agreed interest, Daimler extracted DM 3.1 billion in cash from
the company. If DASA benefited from any past subsid ies, the benefit of those subsidies will exist in
the form of an enhancement of DASA's balance sheet. By extracting cash from DASA's balance
sheet, Daimler necessarily extracted a proportionate pa rt of the value that may have been present as
the result of any past subsidies. The US assertion that the EC cannot identify the source of the
extraction is specious.70
4.30 Simply put, "but for" the alleged subsidy, CA SA and DASA would have had a lesser value.
But for the extractions, the value of those allege d subsidies would have remained with CASA and
DASA, and been available for use and exploitation by the buyers to fuel the adverse effects alleged by
the United States. When cash was withdrawn from t hose entities by their sellers in advance of sale,
those payments served necessarily to extract fro m the company any value it otherwise may have
enjoyed, ensuring that any financial contribution at issue assuredly no longer conferred a benefit
within the meaning of Article 1.1 of the SCM Agre ement, and/or that any subsidies up to the amount
of those payments was no longer available to produce the adverse effects alleged by the
United States.71
4.31 The EC argues that it is not required to prove a tie between, e.g., each euro of the Spanish
State's cash extraction and each euro of value contributed to CASA by alleged prior subsidies, but that
if it is so required, this requirement must also impact the burden placed on the US. In that case, the
US must similarly be required to prove (rather th an merely to assume) that every euro of alleged
subsidy, no matter to whom and for what purpose it was provided, or how long ago it was received,
presently enables Airbus SAS to price down every one of the aircraft it offers for sale. In that case,
the US would indeed be under an obligation to prove a "continuity of benefit" from decades-old
alleged subsidies provided to entities other than Ai rbus SAS, the current manufacturer of European
LCA, through to Airbus SAS, as well as to prove the continuity of those benefits through to
Airbus SAS' current pricing behaviour.
72
4.32 The EC also argues that it not necessary to char acterise the cash extractions as repayments of
subsidy in order for them to extinguish any prior subsidies. While repayment of a subsidy to the
granting government is one means of withdrawing the subsidy, it is not the only way of doing so. The
Appellate Body has interpreted the term "withdraw", within the meaning of Articles 4.7 and 7.8 of the
SCM Agreement, to mean "remove" or "take away". Drawing subsidized value away from CASA
and DASA amounts to "removing" or "taking away" the incremental contribution of alleged prior
subsidies to the value of the company.73
(c) Temporal Scope of the SCM Agreement
4.33 The EC argues that the MSF lo ans provided in support of the A300, A310, and A320, as well
as most MSF loans for the A330/A340 programme, are not within the temporal scope of the

71 EC, Answer to Panel Question 112, para. 315.
72 EC, Answer to Panel Question 201, para. 254.
73 EC, Answer to Panel Question 198, 200 and 201, paras. 235, 245-248, 251.

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SCM Agreement.74 The EC considers that in any even t, these contracts do not cause any present
adverse effects.75
4.34 Finally, the EC notes that the US also negl ects to point out that the SCM Agreement only
entered into force on 1 January 1995 and does not explain how EC governments were expected to
anticipate the existence of its provisions when providing finance during the 1980's.76
4.35 According to the EC, pre-1995 measures fall outside the temporal scope of the
SCM Agreement due to the prohibition of retroactiv e application under Article 28 of the Vienna
Convention. The EC adds that third Parties have confir med that there is no different intention arising
from the SCM Agreement for individual subsidies. Moreover, the measures that are challenged by the
US are completed acts. And even if they were not, the US has failed to demonstrate any post-1994
benefits of pre-1995 measures.77
2. Arguments of the United States
(a) Relevance of Other International Aircraft Related Agreements
4.36 The US argues that the EC mistakenly attempts to have the Panel analyze the US claims
regarding Launch Aid according to rules set out in non-covered agreements. 78 The US notes that the
EC refers to the SCM Agreement almost as an af ter-thought and asks instead the Panel to focus on
agreements, such as the Tokyo Round Subsidy Code and the 1992 Agreement, that are not covered
agreements and that are outside the Panel's terms of reference.79 The US states that the EC theory that
the Panel should review Launch Aid for the A320, A330, and A340 under the Tokyo Round Subsidy
Code is baseless because the Tokyo Round Subsidy Code is not a covered agreement. The EC
concedes the Airbus governments did not seek a commercial return on the Launch Aid for these
aircraft, the relevant standard under the Uruguay Round SCM Agreement.80
4.37 The US further points out that by arguing that the Panel should review Launch Aid for the
A330-200, the A340-500/600, and the A380 under th e 1992 Agreement, the EC is seeking the
interpretation and enforcement of the 1992 Agreemen t, notwithstanding the Appellate Body's clear
statement in Mexico-Soft Drink Taxes that panels may not adjudicate non-WTO disputes.81 According
to the US, the EC ignores that the covered agreem ents listed in Appendix 1 to the DSU provide not
only the basis for entering the dispute settlement sy stem, but also the basis for resolving disputes
under that system.82
4.38 As to the argument of the EC that the 1992 Agreement forms part of the applicable law in this
dispute under Article 7.2 of the DSU , the US points out that Article 7.2 of the DSU provides no basis
for this approach. The US explains that Artic le 7.2 requires only that a panel address covered

78 Executive Summary of the Second Non-Confidential Oral Statement of the United States (hereinafter
79 Executive Summary of the Closing statement, of the United States at the First Meeting of the Panel
(hereinafter US, FCCS, Executive Summary), para. 2.
80 Executive Summary of the First Non-Confidential Or al Statement of the United States (hereinafter
82 Executive Summary of the Second Written Submissi on of the United States (hereinafter US, SWS,
Executive Summary, para. 4.

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agreements.83 The US also referred to its arguments on th ese issues made in the context of the EC's
request for preliminary rulings.84
4.39 In regard to the EC argument about estoppel, the US argues that WTO Members have not
consented to provide for the application of what the EC refers to as "estoppel" in WTO dispute
settlement. Not only do the panel and Appellate Bo dy reports on which the EC relies not support its
position, they actually undermine that position, inasmuch as they decline to recognize the applicability
of "estoppel" to WTO dispute settlement. And, ev en by its own terms, the EC "estoppel" argument
with respect to the 1992 Agreement must fail. Among other facts demonstrating the absence of any
basis for arguing "estoppel" is the fifth recital in the 1992 Agreement, which expresses the parties'
"intention to act without prejudice to their rights and obligations under the GATT and under other
multilateral agreements negotiated under the auspices of the GATT".85
4.40 The US explains that it has not engaged the EC argument regarding the merits of the 1992
Agreement because that agreement is not relevant to this dispute.86
(b) Extinction and Extraction of Subsidies
4.41 The US notes that as a defense, the EC argues that certain transactions extinguished subsidies
to Airbus. 87 The US observes that the EC has called atte ntion to several transactions which, in its
view, had the effect of eliminating subsidies to Airbus. However, the US argues, none of these
transactions involved a transfer of "all or substantially all" of the subsidized entity to private interests,
and none involved relinquishment of a "controlling interest in the privatized producer." Therefore, the
Panel need not and should not reach the question wh ether privatization could have extinguished the
subsidies at issue here. The US considers that th e EC arguments about "extinction" and "extraction"
are baseless.88
4.42 With regard to extinction, the US notes that the EC sought to rely on panel and Appellate
Body reports from disputes in the countervailing duty ("CVD") context concerning the effects of a full
privatization on pre-privatization subsidies. Tho se reports stand for the proposition that, in the CVD
context, a full privatization may result in the ex tinction of pre-privatization subsidies where the
privatization involves the sale of all or substantially all of the subsidized entity, at arm's length and for
fair market value, and where the seller relinquishes c ontrol of the entity. Since the transactions cited
by the EC do not meet these criteria, the reports do not help the EC argument.89
4.43 The US pointed out "while there may be a need for a 'pass-through' analysis in other contexts
- such as the CVD context (where there is a need to quantify the subsidy attributable to particular
entries of a good from a particular producer), or the context of a claim involving a subsidy provided
directly to a company that does not produce, and is not related to a producer of, the product at issue
(where there is a need to establish that it is su bsidies benefiting the merchandise at issue that are
causing adverse effects) - there is no such need in the context of determining whether subsidies

84 US, SWS, para 25 & n.31 (referencing US Response to Updated EC Preliminary Ruling Request
(29 November 2006), paras. 29-51).
86 Executive Summary of the Comments by the Unite d States on the Second Non-Confidential Oral
Statement of the European Communities (hereinafter US, Comments on EC, SNCOS, Executive Summary),
para. 1.

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provided directly to the producers of the merchandise at issue are causing adverse effects to the
interest of other Members."90
4.44 Moreover, according to the US, the EC ignores th e fact that when transactions have been
found to extinguish subsidies in past disputes, tho se transactions were not only at arm's length and for
fair market value, but also involved the transfer of all or substantially all of the assets of the
subsidized entity and relinquishment of control by th e seller. Relatedly, the EC fails to address the
logical implications of its argument for subsidies to publicly traded companies. Absent from the EC's
second submission is any support for its "extraction" defense.91
4.45 The US considers that the "extraction" argument is an EC invention. The US points out that
the EC has not proven the validity of its concepts of extinguishment or so-called extraction of
subsidies, nor has it demonstrated facts that might support its theories.92
4.46 The US first notes that while the EC makes va gue references to "{t}he WTO treatment of
change of ownership," "the test for cash extraction," and "the established WTO rules," it never states
where in the SCM Agreement this "treatment," "test," or "rules" can be found. In the US view, it does
not do so because it cannot do so. Second, the US notes that the EC asserts that "the test for cash
extraction is a 'but for' test," even though the SC M Agreement contains no such test, and elsewhere
the EC has insisted on interpreting and applying th e language actually used in the SCM Agreement.
Third, the US points out that as there is no treaty text to support its argument, the EC refers instead to
what it calls "economic common sense," but provi des no citation to a textbook or any other support
for this "economic common sense." In effect, the US explains, the EC invents a special accounting
rule whereby, when a subsidized entity transfers cash to the account of its owner, the transferred
money is first attributed to any subsidies provided to the entity and is attributed to non-subsidized
investment only after the amount transferred equals the amount of pre-transfer subsidies.
93
4.47 More fundamentally, the US argues, the EC "extraction" theory relies on a supposed
separation between a company and its shareholders – the very separation that the EC successfully
opposed in US –Countervailing Measures on Certain EC Products . If it is the case that money taken
out of an owner's pocket amounts to money taken out of the company, potentially eliminating
subsidies that reside in the comp any, then the converse must also be true: money that is simply
moved from the company to the owner's pocket has not really left the company-shareholder unit.
Indeed, following the EC logic, it would seem that a company "extracts" subsidies every time it buys
back stock or pays dividends to its shareholders – both types of transactions that involve a transfer of
cash from the company to its owners. Yet, if this were so, then opportunities to circumvent the
SCM Agreement would abound.
94
4.48 With regard to the EC "extinction" argument, the US notes that it is based on four sets of
transactions: (i) the 1999 corporate tie-up betw een Aérospatiale and Matra Hautes Technologies
("Matra"); (ii) the 2000 creation of EADS; (iii) the ex ercise by BAe of its put option in 2006; and (iv)
the offerings of small portions of EADS shares between 2000 and 2007. By the EC Commission's
own admission, the transactions resulting in the crea tion of EADS and Airbus SAS did not "affect the
quality or nature of control of Airbus." They represented nothing more than "a restructuring and
rationalisation of the existing lega l partnership between the parties {that previously had coordinated
their Airbus activities through Airbus GIE}." More over, it is telling that when asked how it responds

90 US, Answer to Panel Question 122, para. 384.

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to the US statement that "{n}one of {the pertin ent} transactions involved a transfer of 'all or
substantially all' of the subsidized entity to privat e interests," the EC simply ignored the phrase "all or
substantially all."95
4.49 The US asserts that in addition to the conceptu al flaws in the EC argument, certain of the
transactions alleged to result in the extinction of subsidies occurred after Panel establishment 96 and
therefore, have no bearing on the resolution of this dispute. 97 The US points out that the Appellate
Body report in EC – Selected Customs Matters does not support the EC reliance on those transactions.
In EC – Selected Customs Matters, the Appellate Body said that it is permissible to refer to facts post-
dating panel establishment as evidence to confirm the ex istence of facts alleged to exist at the time of
panel establishment. Here, the EC cites the transacti ons at issue not for their evidentiary value, but
for the mistaken proposition that they extinguished pre-existing subsidies.98
4.50 Moreover, several of the transactions are not even actual sales of shares. The US also points
out that all of the post-panel-establishment transactio ns and all but one of the remaining transactions
that the EC argues "extinguished" parts of the subs idies to Airbus concern between 1 percent and at
most 9.95 percent of the shares in the entities concer ned. In other words, they involved significantly
less than "all or substantially all" of the shares of those entities. Furthermore, the US notes that none
of the transactions cited by the EC resulted in th e seller "no longer {having} any controlling interest"
in the company at issue. The US considers that the EC has in no way demonstrated that the
transactions it cites occurred at arm's length and for fair market value.99
4.51 The US argues that, in the CVD context, the A ppellate Body has recognized the possibility of
subsidy extinction through an arms-length, fair-marke t-value transaction involving a transfer of all or
substantially all of the assets of the subsidized entity and a relinquishment of control. In the US view,
the EC is asking the Panel to alter these principles – not, as the EC asserts, extend them – so that it
would be irrelevant whether the transaction at issue i nvolves all or substantially all of the assets of the
subsidized entity or a relinquishment of control.100
4.52 The US also notes that the EC criticized the report of Ms Lauren D. Fox regarding the
transaction involving the Aérospatiale-Matra tie-up and subsequent minority flotation. The US
explains that the Fox report shows that reports by various investment banks do not demonstrate that
the transaction occurred at arms-length and for fair market value. In criticizing Fox, the EC (at
paragraph 71 of its SNCOS) quotes misleadingly from he r report. The full quote reads: "In situations
where insider knowledge of detailed historical financials and access to management for discussions of
likely trends are available , the most reliable indicator of long-term underlying economic value to
shareholders" is the discounted cash value method. The EC left out the entire first part of the
sentence. This intentional omission reflects the EC knowledge that the very reports it relies on were
not based on "detailed historical financials and access to management for discussions of likely
trends." Thus, as Ms Fox concl uded, the reports the EC relies on do not confirm that the transaction
was in accordance with the usual investment practice of private investors.101
4.53 The US notes that the EC repeatedly accuses it of failing to show that subsidies given to
Airbus predecessor companies passed through to Airbus SAS. In the US view, this argument is just a

96 United States, Comments on EC, SNCOS, Execu tive Summary, (hereinafter US, Comments on EC,
SNCOS, Executive Summary), para. 4.
98 US, Comments on EC, SNCOS, Executive Summary, para. 4.
100 US, Comments on EC, SNCOS, Executive Summary, para. 3.
101 US, Comments on EC, SNCOS, Executive Summary, para. 5.

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re-packaging of the EC's faulty "extinguishment" argument. According to the US, the EC pretends
that by changing names and re-g rouping subsidized entities, the resulting entity – Airbus SAS –
emerges subsidy-free.102
4.54 In any event, the US argues, the answer to the EC's false argument on pass-through was
summed up by the European Commission itself in 2000, in reviewing the creation of EADS. It said:
"Most of the parties' activities in commercial aircraft are already integrated through
Airbus. . . . There is no indication that the operation will affect the quality or nature
of control of Airbus. . . . Accordingly, there is no indication that the operation will
affect the competition position of Airbus."
103
In short, as the European Commission itself admitted, no economically significant transaction
occurred in the regrouping that led to the creation of EADS and, hence, the current-day Airbus SAS.
It simply was a matter of bringing together four subsidized producers under "a single unified
management." This bringing together under a single unified management did not cause the embedded
subsidies to magically disappear, as the EC would have the Panel believe.104

4.55 The US further notes that the EC seems to argue that the transfers of cash from CASA to the
government of Spain and from DASA to DaimlerChrysler were analogous to repayments of subsidies
and thus constituted withdrawals of subsidies within the meaning of Articles 4.7 and 7.8 of the
SCM Agreement. However, according to the US, the EC ignores an important distinction between
these transactions and actual repayments of subsidy. The US explains that when withdrawal of a
subsidy is effectuated by repayment, the governme nt that provided the subsidy in the first place
receives cash from the subsidized entity and gives up not hing in return. That is not what happened in
the CASA and DASA transactions. Both the gove rnment of Spain and DaimlerChrysler gave
something up in the sense that they received smaller stakes in EADS than they would have received if
the cash transfers had not occurred.105
(c) Temporal Scope of the SCM Agreement
4.56 Finally, in response to the EC arguments on th e temporal scope of the SCM Agreement, the
US points out that while the EC argues that La unch Aid for the A300, the A310, and the A320 is
outside the temporal scope of this dispute, it continues to withhold relevant evidence, such as the
A300 and A310 Launch Aid contracts and the disb ursement and repayment information for those
models. Since the A300/A310 program was expected to end in July 2007, it is likely that the
outstanding balances were about to become grants, which may explain the EC tactics.106
4.57 The US considers that the EC pursues a deeply flawed position that a subsidy is not covered
by the SCM Agreement if the subsidy first came into existence prior to January 1, 1995. According to
the US, the EC ignores entirely that the relevant question under the SCM Agreement is not when a
subsidy first came into existence, but whether th e Member providing the subsidy is causing, through
the use of the subsidy, adverse effects to the interests of other Members.
107

103 US, FCCS, Executive Summary, para. 10, citing European Commission, Decision of 11 May 2000,
COMP/M.1745 - EADS at paras. 15-16; see also, European Commission, Press Release, Commission Clears the
Creation of the Airbus Integrated Company (18 October 2000).

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B. WHETHER LAUNCH AID IS A SUBSIDY WITHIN THE MEANING OF ARTICLE 1 OF THE
SCM AGREEMENT
1. Arguments of the United States
(a) Launch Aid as a Program
4.58 The US challenges not only each individual grant of Launch Aid, but also the Launch Aid
program as a whole. The US argues that evidence of the Launch Aid program includes, inter alia,
intergovernmental agreements, the Launch Aid cont racts, the intergovernmental institutions, and the
dedicated bureaucracies. Further evidence is the "legally binding" commitments of Launch Aid for
the A350 XWB, as well as the value that market actors place on Launch Aid. The perception of
Launch Aid by rating agencies should leave no doubt that Launch Aid is a program. It "creates
expectations among the public and among private actor s," demonstrating that it has "normative value"
and should be considered as a measure in its own right.108
4.59 The US submits that the Airbus governments have provided between 33 and 100 percent of
the financing that Airbus has needed to develop its LCA family. Every time that Airbus asks for
further grants of Launch Aid under the Launch Aid regime, the Airbus governments provide it. As
former French Prime Minister Lionel Jospin st ated in a March 2000 speech before the French
Parliament, their purpose in providing the aid is to "give Airbus the means to win the battle against
Boeing."109
4.60 The US explains that the roots of the Airbus governments' Launch Aid program can be traced
to 1969, when the governments of France and Germ any entered into an agreement to "reinforce
European cooperation in the field of aeronautics." The 1969 agreement was only the first of a number
of agreements in which the Airbus governments have memorialized their program to support Airbus
with Launch Aid. In addition to the 1969 agreement, there were at least four additional agreements
relating to the A300 and A310 and their derivatives, an agreement relating to the A320, an agreement
relating to the A330/340, and a joint decision by the Airbus governments to provide Launch Aid for
the A380. Most recently, the Airbus government s made legally binding commitments to provide
Launch Aid for the A350.110
4.61 The US asserts that the Airbus governments ha ve created and maintain a set of formal
intergovernmental institutions that they use to oversee Airbus and to work with it to determine
whether and when to launch new Airbus aircraft. The US considers that th e core intergovernmental
institutions are the Airbus Intergovernmental Co mmittee, the Airbus Executive Committee, and the
Airbus Executive Agency, whic h the governments established in 1969 and which have been in
continuous operation ever since. Other institutions include the Airbus Ministers Conference and the
Permanent Working Group for Sales Financing.111
4.62 The US notes that in addition to the intergove rnmental institutions, the Airbus governments
also maintain dedicated bureaucracies at the national level. These bureaucracies perform the
administrative tasks involved in maintaining the Launch Aid system and coordinating the provision of
Launch Aid to Airbus. 112 In France, a special unit in the Direction des Programmes Aéronautiques

109 Executive Summary of the First Written Submission of the United States (hereinafter US, FWS,
Executive Summary), para. 7.

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Civils oversees Airbus and the Launch Aid system. The so-called "transport aircraft of more than 100
seats" unit participates in the Airbus intergovernmental institutions and administers the provision of
Launch Aid to Airbus for the company's new projects. The UK
 Launch Aid system is administered
by the "aerospace team" located within DTI's Aero space and Defence Unit, which is "responsible for
relations with civil aerospace companies, and launch investment." In Germany , the entity that is
responsible for administering the Launch Aid syst em is the office of the Coordinator for the
Aerospace Industry and for Aeronautics Research, an office within the Federal Ministry of Economics
and Technology. In Spain , the Ministry of Science and Technology is responsible for administering
the "system of reimbursable advances." It also "p articipates in the Council of Ministers of the four
countries, the {Airbus} Executive Committee and the other bodies that manage and coordinate the
system."113
4.63 The national Airbus bureaucracies work with th e intergovernmental institutions to "manage
and coordinate" the Launch Aid system. The Air bus governments also conclude agreements with
Airbus to facilitate their coordination of the syst em. The US discusses an agreement pertaining to the
A380, which is quite revealing of the pattern.114
4.64 The US points out that the European Commission and the Airbus governments have each
confirmed the integrated nature of the Launch Aid pr ogram that they use to ensure the success of the
Airbus enterprise. For example, on the same da y that President Chirac described the A380 as a
"success of European industrial policy," British Prim e Minister Blair described the aircraft as "the
result of unprecedented co-operation between the four countries... ." And on the day after the
ceremony, the European Commission stated that "for the EU, the A380 represents the fruit of
European state-level co-operation." Indeed, the former UK Secretary of Trade and Industry has stated
that the provision of Launch Aid:
"reflects our approach to industrial policy. We are not standing to one side and
leaving everything to the market... ."115
4.65 The US argues that it is also clear that the Air bus governments will continue to work together
to provide Launch Aid to Airbus. For example, a European Commission report on the future of the
European aerospace industry stated in October 2003 that member States will retain the "crucial
responsibility" of "providing support in term s of R&D programmes, repayable launch aid
 and
contributions to ESA programmes... ." In May 2005, the European Commission defended the
prospect of Launch Aid for the new Airbus A350 because Launch Aid is "part of the commercial
landscape of aircraft development" in Europe. That same month, the French Transport Minister stated
that "{t}he French state has given its financial support to the A380 program me and we expect to
continue in this vein ... ."
116
4.66 Similarly, in June 2006, an EADS spokesman st ated that "{l}aunch aid is the only available
system right now." In July 2006, the Airbus mini sters "reaffirmed their agreement to support Airbus
to continue to innovate and to develop programmes in the context of international competition." And
on November 14, 2006, the French Prime Minister Do minique de Villepin said the role of the State in
EADS (and thus Airbus) is "to defend a strategic l ong term vision, which is guarantor of jobs and
economic dynamism of the company. I can ensure you that the State will fully play its part." The
financial market standing of Airbus' parent company EADS hinges on these plans. The Moody's

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commercial rating service, for example, has explained that it takes the continued availability of
Launch Aid into account in determining EADS' debt rating.117
4.67 The US argues that in light of the Airbus govern ments' consistent and systematic approach to
their support of Airbus for over three decades, the institutional structures and bureaucracies they have
created to maintain and provide this support, and th eir statements and actions concerning this support,
the specific content of their Launch Aid program and the future conduct it will entail is clear.
According to the US, the Airbus governments will c ontinue to use Launch Aid to facilitate Airbus'
commercial strategy, without regard to their WTO obligations or the effects of the subsidies on
the US.118
4.68 The US asserts that Launch Aid is a subsid y within the meaning of Article 1 of the
SCM Agreement because it involves a financial contri bution within the meaning of Article 1.1(a)(1)
of the SCM Agreement that confers a benefit that is specific to Airbus within the meaning of the
SCM Agreement.119
(b) Launch Aid Constitutes a Financial Contribution to Airbus
4.69 The US notes that Article 1.1(a)(1)(i) of the SC M Agreement states that "there is a financial
contribution" by a government where "a government practice involves a direct transfer of funds ( e.g.,
grants, loans, and equity infusion)" or "potential direct transfers of funds or liabilities ( e.g., loan
guarantees)." According to the US, the Airbus governments' Launch Aid program is a government
practice that involves the direct transfer of funds or potential direct transfer of funds in the sense of
Article 1.1(a)(1)(i) – namely, success-dependent loans. Therefore, in the US view, "there is a
financial contribution" within the meaning of Article 1.1(a)(1)(i) of the SCM Agreement.
120
(c) Launch Aid Confers a Benefit on Airbus
4.70 The US argues that the Airbus governments have designed the Launch Ai d system to benefit
Airbus by providing the funds it needs to develop new models of LCA, carefully tailored to address
the extremely high costs and risks of LCA development, at interest rates that are substantially below
what the market would demand for financing with sim ilar characteristics. The US describes the ways
in which the Airbus governments have designed Launc h Aid to insulate Airbus from those risks and
the reasons why the financing confers a benefit within the meaning of the SCM Agreement.121
4.71 First, the US points out that developing new models of LCA is both extremely risky and
extraordinarily expensive. The development progr ams require huge up-front investments to fund the
development work that must be completed before deliveries can begin. Once this investment has been
made, very little can be recovered in the event the program fails. There are many uncertainties at the
time of commitment to launch an LCA program, and it is difficult to predict the prices that various
customers will pay for the aircraft over the life of the program. Since the initial development
investment is essentially a sunk cost and is incurre d well before revenues are received, the size of
these non-recurring costs is a key element affecting an aircraft program's risk and expected
profitability. If a program is successful, the up-front investment is eventually recovered with margins
earned on each aircraft delivery. Given the ty pical magnitude of program non-recurring costs,
however, hundreds of sales are usually required befo re a program reaches its break-even point. If a

121 US, FWS, Executive Summary, para. 19. See, also, US, FWS, Executive Summary, para. 5.

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program fails to reach break-even sales, the rema inder of the non-recurring costs must instead be
written off as a loss.122
4.72 Second, the US notes that repayment of Launch Aid is success-dependent. The US explains
that one of the principal ways in which the Airbus governments assume Airbus' risks in developing
new models of LCA is by allowing Airbus to repay the aid through "levies" on each delivery of the
financed product. The Launch Aid is unsecured, and the government has no recourse to obtain
repayment if the expected sales fail to materialize. Repayment is therefore "success dependent." A
company that receives financing on a "success-de pendent" basis enjoys the obvious benefit of no
down-side risk. As one UK scholar has observed, "the distinctive risk-sharing feature of Launch Aid
confers Airbus with an advantage over a rival who is constrained to debt and equity instruments
alone."123
4.73 Third, the US points out that repayment of Launc h Aid is back-loaded. The US explains that
the Airbus governments further assume Airbus' risk s by back-loading the repayment obligations.
First, levy-based repayment terms are inherently back -loaded. One inevitable consequence of tying
repayment to deliveries is that repayments only be gin once deliveries begin. For the ordinary LCA
program, this normally means there will be at least a five-year lag between disbursement of the aid to
Airbus and the first repayments (in the case of the A 380, the lag will be closer to ten years). Second

the Airbus governments further back-load the re payment schedules by allowing Airbus to make
relatively small levy payments on early deliveri es and progressively larger payments only on later
deliveries. Third, in some cases, the Airbus governments a llow Airbus to forego levies entirely on an
initial tranche of deliveries.124
4.74 In addition, the US asserts that Launch Aid carries below-market interest rates . The US
explains that the Airbus governments do not require Ai rbus to pay a commercial rate of interest that
reflects the substantial risks that the governments a ssume on its behalf. In some cases, the Airbus
governments have provided Launch Aid to Airbus inte rest-free. The US further notes that even the
Launch Aid contracts that purport to include an interest component do not actually require Airbus to
pay interest. Since the financing is success-depe ndent, the Airbus governments actually provide the
aid without requiring any return, even of principal. The "Ellis Report," included as an exhibit to the
US submission, compares the "potential returns" on Launch Aid with the actual returns that the
commercial market would demand for financing with similarly advantageous characteristics. It
concludes that Launch Aid borrowing rates are substantially below the rates that commercial investors
would demand for comparable project-specific and success-dependent loans.125
4.75 The US also points out that the WTO has already found that Launch Aid-type financing
confers a benefit. In the Canada – Aircraft subsidy dispute, the panel examined financing that was
virtually identical to Launch Aid and concluded that the financing conferred a benefit on the recipient,
and thus constituted a subsidy within the meaning of the SCM Agreement. In the US view, for the
same reasons that the Canada – Aircraft panel found that the financing at issue conferred a benefit on
the recipient, the Launch Aid that the Airbus gove rnments provide to Airbus confers a benefit on
Airbus.126

123 US, FWS, Executive Summary, para. 21. See, also, US, FWS, Executive Summary, para. 6.

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(d) Launch Aid is Specific
4.76 Lastly, the US submits that the Launch Aid program is specific to Airbus. According to the
US, the Airbus governments conceived and mainta in their Launch Aid program for the specific
benefit of Airbus. The US argues that they have used the program in a systematic and methodical
way since its very inception to provide Airbus the means to develop a full family of LCA to compete
against US producers in the LCA market. Accordingly, in the US view, the Launch Aid subsidies that
Airbus has received have always been, and remain, sp ecific to Airbus within the meaning of Article 2
of the SCM Agreement.127
(e) Other issues
4.77 The US notes that the EC asserted in its submission that the US had not challenged Launch
Aid "as a subsidy programme," and therefore declined to engage on that US claim at all. However,
the US argues that as it demonstrated in its statemen t at the first Panel meeting and in its responses to
the Panel's questions, that assertion is incorrect.128
4.78 The US notes that the EC argues against the u se of the term "launch aid," which it called a
"loaded term" 129 and accuses it of using "terminological devices" to advance its argument. 130
However, the US contends that it is the EC that is using "terminological de vices" by inventing a new
label – "MSF" – to distract from the unmistakably systemic nature of Launch Aid.131
4.79 The US also notes that in responding to the US showing that the Launch Aid Program is a
distinct measure breaching the EC obligations un der Article 5 of the SCM Agreement, the EC
conflates two distinct concepts: the concept of "m easure" and the concept of an "'as such' claim."
The US points out that rather than discuss the que stion of whether the Launch Aid Program is a
measure, the EC argues that the US has not substantiated an "as such" claim. The US has shown that
the Launch Aid Program is a measure, even according to the factors the EC says must be shown. The
precise content of the Launch Aid Program is the consistent provision of Launch Aid based on the
same core terms since 1969. The US argues that the EC attempt to dismiss this fact based on different
interest rates and different repayment amounts in different Launch Aid contracts simply goes to the
amount of benefit conferred. The EC assertion th at "market-based instruments" display the same
attributes as the Launch Aid Program is belied by ke y distinctions between the examples the EC gives
and the Launch Aid Program. In addition, the US notes that the EC also ignores the substantial
institutional apparatus that supports the Launch Ai d Program, and it misconstrues evidence showing
rating agencies' understanding that the Program exists.
132
4.80 Finally, the US argues that the EC fails to re but the US showing that the Launch Aid Program
has general and prospective applicability. That Ai rbus has not sought or has not accepted offers of
Launch Aid in particular instances does not affect that showing. Indeed, the Airbus governments
confirmed the general and prospec tive nature of the Launch Aid Program when they fulfilled market
expectations and made "legally binding" commitme nts to provide Launch Aid for the A350. The US
considers that the EC provides no evidence to show that these commitments are not legally binding.133

129 citing, EC First Oral Statement, para. 40.
130 citing, EC First Oral Statement, para. 114.

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4.81 In any event, "the standard for determining whether the Launch Aid Program is a measure is
not the EC's asserted test, but a standard based on the ordinary meaning of the term 'measure' in
context and in light of the object and purpose of the WTO Agreement, which standard must be
applied based on the facts. Following this standard, ev en if the Panel disagreed with the US that the
Launch Aid Program has general and prospective a pplication, it still should find that the Program
constitutes a challengeable measure, based on the totality of the evidence.
134
2. Arguments of the European Communities
4.82 The EC submits that the US has brought be fore the Panel a misconceived and grossly
exaggerated case that ignores relevant international ag reements and that is backed-up by limited and
often incorrect facts. 135 The EC begins its defense by recalling the history of the EC LCA industry
and distinguishing its participants over time. 136 By the mid-to-late 1960s, it became apparent that
individual EC LCA manufacturers, in large pa rt because of successful US industrial policy to
undermine their separate product offerings, could no t succeed on their own. These companies had
difficulty recovering the high development costs ass ociated with their separate LCA programmes, in
part also because, even if they could successfully build one aircra ft product, as many did, none of
them could expand their business to build the requ ired separate complementary product offerings that
would become the key to success in the LCA bus iness. Unless these companies pooled their
resources, they recognized that they stood no chan ce of competing in the global LCA market. The
creation of Airbus GIE allowed the EC LCA industr y to transcend these limitations. Airbus GIE was
established in 1970 as a consortium of two aeros pace companies — Aérospatiale and Deutsche
Airbus. Two other aerospace companies, CASA and BAe, joined Airbus GIE in 1971 and 1979,
respectively. Each of these "Associated Manufacturer s" held an ownership interest in Airbus GIE,
which was formed as a groupement d'intéret économique , or "GIE," under French law. The loose
collaboration permitted by the GIE structure ha d several advantages. The development and
production of aircraft was allocated between the A ssociated Manufacturers, enabling Airbus GIE to
harness each company's unique engineering talents and resources. This arrangement prevailed from
Airbus GIE's inception in 1970 until 2001. During this period, Airbus GIE launched most of its
aircraft families, including the A300, A310, A320, A330 and A340 families of LCA.137
4.83 Two events led to the creation of Airbus SA S, which heralded a fundamental change in
Airbus GIE's corporate structure. First, the French State privatized Aérospatiale in 1999. The French
defence contractor Matra Haute Technologies (" MHT") merged with Aérospatiale to form
Aérospatiale Matra ("ASM"). An initial public of fering ("IPO") of shares in the merged entity was
conducted simultaneously with the merger transaction. Second, the European Aeronautic Defence
and Space Company ("EADS") was created shortly thereafter. Through a complex series of
transactions, ASM, DaimlerChrysler Aerospace AG ("DASA"), and Construcciones Aeronauticas SA
("CASA") merged to form EADS with effect from July 2000, when shares in the company were sold
in an IPO. The merger yielded a company with a broad portfolio of civil aeronautic, military, and
space activities. In several steps between 2001 an d 2004, the LCA activities of each of the four
partners were placed into subsidiaries under the contro l of a single, integrated company, Airbus SAS.
The existing Associated Manufacturers (ASM, DASA, CASA, and BAe) were succeeded by wholly-
owned subsidiaries of Airbus SAS (Airbus France, Airbus Germany, Airbus Spain, and Airbus UK)
which are sometimes referred to collectively as the Airbus National Companies ("NatCos"). At the

134 US, Answer to Panel Question 136, para 8.

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time of its creation, 80 percent of Airbus SAS sh ares were owned by EADS, and 20 percent by BAe
Systems.138
4.84 Airbus SAS is an entirely different company fro m the Airbus GIE consortium. In particular
Airbus SAS wields broader powers than its pred ecessor, the GIE, which had no power to bind its
members and was a loose association of fully independe ntly cost-centred companies. Airbus SAS is
now responsible for managing the Airbus LCA bus iness; conducting sales, marketing, and certain
customer support functions; buying aircraft engines and nacelles; coordinatin g the transportation of
aircraft parts and components among its subsidiaries, the NatCos ; conducting flight tests; and
developing a production plan for Airbus programmes. Airbus SAS also takes or approves most of the
company's procurement decisions.139
(a) Member State Financing as a Programme
4.85 The EC does not accept the US descriptions of "launch aid programme" as a generic system
denoting "long-term unsecured loans at zero or be low-market rates of interest, with back-loaded
repayment schedules". The EC points out that "rat her than using the suggestive and oversimplifying
term "launch aid", the EC will refer to each of th e member States' measures separately. In the EC
view, if a generic term is suitable to cover measures from all the four member States together the EC
will denote them as "member State Financing" ("MSF").140
4.86 The EC refutes the US portrayal of MSF loan s as a cross-country "programme" or "system"
and explains that the US has not asserte d "as such" claims against these loans." 141 In this respect, the
EC notes that the US has clarified in its oral stat ement that it does not, after all, assert an "as such"
challenge to the so-called "Launch Aid programme." The EC welcomes this clarification.142
4.87 In addition, the EC does not agree that the term "launch aid" is in "general usage". The EC
notes that this term is used neither in the UK, nor in any of the other three member States (which use
terms such as avances remboursables, anticipos reembolsables and Rückzahlbare Zuwendungen). The
Article on UK "launch aid" by Mr. Kim Kaivanto a nd included as Exhibit US-2 to the US first written
submission records that the UK House of Commons Trade Committee considered that the term may
have been appropriate before the 1992 Agreement but was misleading thereafter and that a preferable
term would be "reimbursable launc h investment". Since both parti es to this dispute accept that
footnote 16 of the SCM Agreement describes and applies to what the US terms "launch aid", an
appropriately neutral term could be that used in footnote 16, i.e., "royalty based financing". The EC
also points out that both parties also accept that Article 4 of the 1992 Agreement describes and applies
to what the US calls "launch aid" and the term used in that provision is "development support".
143
4.88 The EC asserts that each instance of financing is memorialized in an MSF contract. The
terms on which MSF is provided are negotiated on a deal -by-deal basis; as a consequence, they vary
considerably depending on the Airbus LCA progra mme at issue, both within and as between member
States. In its condensed factual description of MSF, the EC describes some common attributes of
MSF. Those common attributes speak solely to the similarity of the type or form of financing
provided by the four member States. Each MSF contract is, however, a se parate and independent

142 EC closing statement, second meeting, Executive Summary, para. 6.

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measure.144 In its submissions, the EC describes the basic elements of MSF loans as financial
instruments, and their role in the developmen t of the A320, the A330/A340 (including the A330/340
basic, the A330-200, and the A340-500/600), and the A380 aircraft programmes.145
4.89 According to the EC, the US challenge of a "la unch aid programme" is without merit. In the
EC view, the US has failed to point to the precise content of the alleged measure. It has also not
shown that there is a norm of "general and pros pective" or "systematic" application. The EC
underlines that MSF is not always sought to finance development of Airbus LCA; that when MSF is
sought, it is not always provided; that when developm ent financing is sought, it is not always sought
in the form of MSF; and that when MSF is provided, it is provided on terms that vary widely, both as
between member States, and as between Airbus aircraft programmes.
146
4.90 The EC asserts that it corrects certain factual e rrors that the US mak es with respect to the
relevance of the existence of "intergovernment al institutions" and "ded icated bureaucracies". 147
Concerning the "intergovernmental institutions," th e EC notes that these do not set the terms of MSF,
nor play any role in administering individual MSF loans.148 Concerning the "dedicated bureaucracies"
specifically, the EC clarifies that these entities do not provide MSF loans, nor are they dealing
exclusively with "Airbus". Rather, it is the re levant ministry that provides MSF loans to the
respective national company. Those ministries ad opt procedures that vary from member State to
member State and over time. Moreover, MSF loan s are available to companies other than the
recipients at issue in this dispute.149 The EC submits that, whatever the relevance of these institutions,
they cannot overcome the failure of the US to dem onstrate the "precise content" and the "general and
prospective application" of the alleged MSF programme.150
(b) US Failure to Prove that A member State Financing "Programme" Constitutes a Financial
Contribution to Airbus
4.91 The EC argues that the US failure to establish the existence of a MSF programme also means
that this alleged programme cannot constitute a financial contribution. In any event, the US failed to
establish any financial contributions independent of individual applications of MSF loans.151
(c) US Failure to Prove that A member State Financing "Programme" Confers a Benefit on
Airbus
4.92 The EC argues that the US failure to establish the existence of a MSF programme also means
that this alleged programme cannot confer a benefit.152
4.93 Nonetheless, the EC also addresses the assertions on which the US bases its benefit arguments
in relation to the alleged MSF programme. In par ticular, the EC submits that the US erroneously
relies on a number of characteristics shared by certain of the MSF loans at issue – i.e., the long-term,
unsecured nature of MSF loans and their success-de pendent and back-loaded repayment terms – to
assert that the alleged measure confers a benefit. According to the EC, none of these characteristics,
either individually or collectively, are indicative of benefit.

147 EC, Answer to Panel Question 172, paras. 19-43.
148 EC, Answer to Panel Question 172, paras. 21-26.
149 EC, Answer to Panel Question 172, paras. 27-33.
150 EC, Answer to Panel Question 172, para. 18.
151 EC, Comments on US Answer to Panel Question 139, paras. 35-43
152 EC, Comments on US Answer to Panel Question 139, paras. 35-36, 44-53.

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4.94 First, the tenor of MSF loans is consistent with the tenors of other long-term financing
instruments available at market. 153 Second, unsecured financing instruments are common in the
market and do not, for that reason alone confer a benefit. 154 Third, financing with success-dependent
repayment terms is available to both Airbus a nd Boeing from commercial actors, including private
banks and risk-sharing suppliers. 155 While the success-dependent nature of the repayment does,
indeed, transfer risk from the borro wer to the creditor, this is a f eature shared by most financing
instruments. The degree of risk-sharing will be reflected in the price – i.e., the interest rate – charged
by the creditor for the financing instrument. Succ ess-dependent repayment terms are, therefore, not
indicative of benefit either. 156 Fourth, back-loaded repayments are common for many financing
instruments. Commercial bonds for example are repaid in total at the end of their tenor, i.e., their
repayment is entirely back-loaded.157
4.95 Thus, according to the EC, the only measure ag ainst which it can be determined whether
individual instances of MSF loans confer a benefit is the interest rate charged for that loan, compared
to what a market creditor would have charged. 158 The EC addresses this issue in the context of its
"benefit" arguments with respect to individual instances of MSF loans.
C. WHETHER EACH GRANT OF LAUNCH AID TO AIRBUS IS A SPECIFIC SUBSIDY TO AIRBUS
WITHIN THE MEANING OF ARTICLES 1 AND 2 OF THE SCM AGREEMENT
1. Arguments of the United States
4.96 The US argues that the Airbus governments ha ve provided or committe d to provide Launch
Aid for every major model of the Airbus LCA family – the A300, A310, A320, A330, A340, A380,
and A350 – and for the three major derivative mode ls of its family, the A330-200, A340-500, and
A340-600. In its submissions, the US argues that each grant of Launch Aid constitutes a specific
subsidy within the meaning of Articles 1 and 2 of the SCM Agreement because it involves a financial
contribution that confers a benefit on the recipient and is specific.159
(a) Benefit
4.97 The US notes that the EC concedes that Launch Aid is a subsidy. 160 The US points out that
the EC does not dispute that Launch Aid grants confer a benefit; it disputes only the amount.161
4.98 The US notes that the EC openly admits that for the A320 and A330/A340, Launch Aid was
provided either interest-free (Germany and Spain), at the rate of inflation (France), or at the
government's cost of borrowing (UK). The US points out that the panel in the Canada – Aircraft
dispute treated a similar admission by Canada with respect to the Technology Partnerships Canada
(TPC) program as dispositive with respect to the exis tence of a benefit and thus a subsidy. The US
also notes that the EC does not dispute that Launch Aid for the A300 and A310 was provided interest-
free and thus confers a benefit.
162

153 EC, FCOS, para. 15.
154 EC, Answer to Panel Question 65, paras. 72-76.
155 EC, Answer to Panel Question 64, paras. 58-66.
156 EC, FCOS, para. 18.
157 EC, FCOS, para. 16.
158 EC, FCOS, para. 19.

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4.99 This then leaves the A330-200, the A340-500/600, and the A380. For all of these models as
well – whether one uses the benchmark rates calcula ted by the US or those calculated by the EC –
Launch Aid confers a benefit on Airbus. In fact , the US notes that in responding the Panel's
questions, the EC acknowledged that Airbus soug ht Launch Aid for the A380 to "maximize{} the
programme's profitability."163
4.100 The US explains that the question in a benefit analysis under Article 1.1(b) of the
SCM Agreement is "whether the recipient has r eceived a 'financial contribution' on terms more
favorable than those available to the recipient in the market." 164 The US argues that the EC attempted
to show that in demonstrating that Launch Aid c onfers a benefit on Airbus the US had overstated the
relevant market benchmark and unde rstated the expected return assoc iated with Launch Aid. The US
argues that the EC is wrong on both counts.165
4.101 The US argues that the EC mischaracterizes its benchmark methodology by pretending that it
conceives Launch Aid as a pure debt instrument. In fact, the US asserts that its methodology
recognizes that Launch Aid is a hybrid instrument that has characteristics of both debt and equity. 166
In regard to the EC assertion that it underestimates the potential returns on Launch Aid contracts, the
US argues that it took the figures directly from th e Launch Aid contracts themselves, which clearly
state the relevant interest rates. In the US view, the EC's own submission confirms that the rates in
the US submission are correct.
167
4.102 The US points out that the EC wrongly conte nds that Launch Aid should be treated as pure
debt, ignoring its equity-like qualities, including th e governments' lack of entitlement to repayment
with interest over a specified period of time and lack of recourse in the event of non-repayment. 168
The US argues that investment bank reports the EC cites are irrelevant, as they do not purport to
evaluate the risk associated with Launch Aid. In the US view, the EC also misleadingly tries to
downplay the riskiness of an LCA launch. It makes the irrelevant observation that Airbus has "never
failed to certify a launched aircraft," and it ignor es substantial delays in the repayment of Launch
Aid.
169
4.103 The US argues that the EC also mischaracterizes its benchmark, which relies not on returns to
individual venture capital projects, but on the much lowe r returns to well-diversified portfolios that
contain venture capital investments. In addition, th e US argues that the EC fails to substantiate its
assertion that Launch Aid may entail costs not associated with market-based financing.170
4.104 The US notes that the EC consultant attempts to suggest that the US experts, Dr. Dorman and
Dr. Ellis, were performing comparable analyses, but using different benchmarks. In the US view, that
is simply false. The US explains that the Dorm an model examined the changes in profitability of a
generic LCA program resulting from variations in pr ices, costs and airplanes sold, and examined the
effect on profitability of Launch Aid. The discount ra te was ancillary to this analysis, independent of
the identity of the manufacturer and how the project was financed, and did not vary between the base
case and the various Launch Aid scenarios. In contra st, the Ellis analysis was specifically intended to

169 US, SNCOS, Executive Summary, para. 6. See, also, US comments on EC, SNCOS, Executive
Summary, para. 12.

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determine the interest rate that appropriately refl ected the risks borne by a supplier of capital with
Launch Aid terms.171
4.105 The US also notes that the EC consultant asserts that Dorman and Ellis were looking at the
same data. That too is false. In fact, the basis for the weighted average cost of capital used by Dr.
Dorman was data for six US aerospace companies ( not Airbus), while Dr. Ellis specifically examined
the loans granted to Airbus. Moreover, the EC c onsultant asserts that Dr. Dorman upwardly adjusts
his discount rate, which he claims will be higher than the company's average cost of capital, to reflect
individual project risk. In the US view, that statement is factually accurate, but inapposite. It in no
way undermines the validity of Dr. Ellis' benchmark. It was Dr. Ellis – not Dr. Dorman – who
examined the return that a supplier of capital w ith Launch Aid terms would expect in return for
providing such capital.
172
4.106 The US notes that the EC asserts that it is inappropriate to add what it calls "a project-specific
risk premium derived from equity returns" to Airbus' cost of debt. The US notes that the EC suggests
that an equity risk premium should be added only to the corporate cost of eq uity. However, the US
explains that adding the risk premium that Ellis identified to Airbus' corporate cost of debt was done
precisely to reflect the hybrid nature of Launch Aid.
173 In addition, the US notes that the EC alleges
that "use of an equity measure {for the risk premiu m} is at odds with the ri sk profile and terms of
MSF loans." In the US view, that statement ignores Launch Aid's equity-like qualities and assumes
incorrectly that the risk premium identified by E llis is "an equity measure" rather than a hybrid
measure.
174
4.107 The US points out that in addition to erring in its criticism of the market benchmark in the
Ellis report, the EC errs in criticizing the repor t's reference to the returns on Launch Aid actually
identified in the Launch Aid contracts as the basis for comparison to the benchmarks. The US first
notes that the EC calculation of an "internal rate of return" for the governments is based on the
governments eventually receiving royalties – a possib ility Ellis considered so remote that it "would
play a marginal role, at most, in a commercial lende r's financing decision." Second, the US notes that
although the EC criticizes Ellis for not taking account of tax effects, it fails to provide any evidence to
substantiate its assertion of tax effects, and, in any event, tax effects have no bearing on whether a
financial contribution confers a be nefit under the SCM Agreement. Ma rket-based lenders set interest
rates without regard to taxes that the recipients may subsequently pa y and, indeed, neither the US nor
the EC allows a party to adjust for tax effects when calculating the amount of the benefit under its
domestic countervailing duty regime. 175 In the US view, the EC criticism of the market benchmark
established in the Ellis Report (Exhibit US-80) is not well founded.176
4.108 The US asserts that the benchmark established in the Ellis report is confirmed by several
alternative cross-checks. Although the EC criticizes each of them, it fails to discredit any of them. In
the US view, its criticisms are flawed for reasons including their disregard of Launch Aid's equity-like
qualities and their reliance on studies about risk th at were unknown at the time that Launch Aid
financing was provided and do not represent a consensus view. 177 Nor do the EC's own cross-checks
undermine the Ellis benchmark. The first cross-check – a comparison to a contract between an Airbus
company and a group of banks for financing develo pment of an aircraft model – ignores important

171 US comments on EC, SNCOS, Executive Summary, para. 12.
172 US comments on EC, SNCOS, Executive Summary, para. 13.

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differences between that contract and gove rnment-provided Launch Aid, including, inter alia , the
relatively small amount pledged by the banks and the fact that the bank contract provided for full
repayment over a relatively small number of sales. The second EC cross-check – a comparison
between the Launch Aid risk premium established in the Ellis report and a supposed "equity ceiling" –
wrongly assumes that the risk of a single project cannot exceed the risk of a company's equity;
wrongly relies on a sample of companies whose sensitiv ity to economy-wide risk factors is likely to
be lower than that of LCA projects; and is b ased largely on very recent research that does not
represent a consensus approach to measuring equity risk.
178
4.109 The US considers that the EC's proposed "alte rnative benchmark rates" for Launch Aid are
seriously flawed. And even under the EC's "altern ative" approach, there is a substantial spread
between the borrowing rates in the Launch Aid contr acts and the EC's proposed "commercial" rates.
Similarly, the Unites States notes that the EC critic izes it for allegedly not accounting for the effects
of taxation. But even if the EC's alternative intere st rate calculations were valid, they are still below
the commercial benchmarks proposed by the US and the EC.179 The US maintains that even under the
EC's own flawed analysis, Launch Aid confers a benefit, and the EC does not dispute this.180
4.110 The US considers that the EC alternative to the US benchmark – based on project-specific
returns for certain Airbus "risk-sharing suppliers" is inapposite, because the situation of risk-sharing
suppliers is far different from that of an or dinary, market-based provider of Launch Aid-type
financing to Airbus. The US explains that invest ment capital provided by banks and other financial
entities is highly mobile, whereas a supplier's cap ital is relatively immobile in the short and
intermediate terms. Further, the return that a risk -sharing supplier demands is likely to be influenced
by a variety of factors that would have no relevance to an investor, including anticipated revenue from
future business, sales of replacement parts, and servicing of goods supplied. And, a supplier may
provide more than one component to Airbus and may adjust the rate it demands under one supply
contract according to the rate it demands unde r a different supply contract. Finally, some
suppliers may be shielded from risk by Airbus ' commitment to purchase a minimum quantity of
supplies regardless of actual aircraft deliveries.181
4.111 The US notes that mistakenly relying on footnot e 16 of the SCM Agreement, the EC asserts
that "the relevant test for determining whether a {Launch Aid} contract in the large civil aircraft
sector constitutes a subsidy is the reasonableness of the forecasts {of aircraft sales}." In that regard,
the US argues that whether forecasts are reasonable or not is irrelevant if the return the government
demands is lower than what a market creditor would demand. 182 But, even if sales forecasts are
reasonable, the US explains, if the interest rates demanded are below the rates that a market player
would demand for the same shifting of risk, the Launch Aid would still be a subsidy.183
4.112 The US points out that while the EC acknowledges that "{f}ootnote 16 does not . . . discuss
under which conditions royalty-based financing cons titutes a subsidy," it nevertheless insists that
footnote 16 is relevant to that inquiry. In effect, the EC seeks to take footnote 16 out of context and
elevate its status to that of a general rule a pplicable to all inquiries under the SCM Agreement,
contrary to customary rules of in terpretation of international law. 184 Footnote 16 does not even say
what the EC says it says. It does not say that "for ecast sales" are "the decisive factor of royalty-based

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financing."185 It says just the opposite. That is, it says that actual sales falling below forecast sales
"does not in itself constitute serious prejudice for the purposes of this paragraph."186
4.113 The US argues that if anything, the existen ce of footnote 16 is persuasive evidence that
Launch Aid does constitute a subsidy. The very fact that the drafters of the SCM Agreement saw a
need to clarify that a particular circumstance involving the implementation of Launch Aid contracts
"does not in itself" constitute deemed serious prej udice suggests that the drafters presumed that the
provision of Launch Aid confers a benefit and thus c onstitutes a subsidy. Additionally, footnote 16 is
evidence that the SCM Agreement app lies to the Launch Aid that Airbus received prior to January 1,
1995. At the time the agreement was being negotiate d, Airbus was "not fully repaying" the Launch
Aid it had received for the A300 and the A310 programs.187
4.114 In the US view, footnote 16 does not set the test fo r what constitutes a subsidy. It is attached
to Article 6 of the SCM Agreement, not Article 1, which is where the definition of "subsidy" is set
forth. If anything, the US contends, footnote 16 corroborates the understanding that Launch Aid is
indeed a type of subsidy covered by the SCM Agreement. 188 The EC theory that footnote 16 of the
SCM Agreement establishes a special rule for evaluating whether Launch Aid confers a benefit is
baseless. The US explains that repaying Launch Aid does not "exclude" a finding of serious
prejudice. Sales forecasts are not relevant to de termining the existence of a "benefit." The US
maintains that if the drafters of the SCM Agreem ent had wanted to make sales forecasts a relevant
factor under Article 1.1(b), they would have said so explicitly.
189
4.115 The US considers that the question of which be nchmark rate is used for determining whether
Launch Aid is a subsidy is not central to the ques tion of the existence of a subsidy, because both the
Ellis benchmark and the Whitelaw benchmark show a substantial subsidy to Airbus.190
4.116 The US argues that contrary to Professor White law's claim, Launch Aid differs from typical
corporate debt in at least two crucial respects. First, the Airbus governments have no recourse if the
repayments Airbus promises to make are never received because the corresponding sales are never
made. By contrast, corporate debt-holders do ha ve a claim on the debtor's assets in such a case.
Second, Launch Aid is dependent on the success of a single project. By contrast, typical corporate
debt is dependent on the success of the company in the aggregate.
191
4.117 In the US view, Professor Whitelaw's assessment assumes incorrectly that Launch Aid is
clearly less risky than equity in Airbus. The US asserts that one can readily identify scenarios in
which the Airbus governments will receive little or no repayment, while the equity shareholders get
returns from profits on other aircraft sales or other lines of business.192
4.118 Another problem with Professor Whitelaw's assess ment alleged by the US is that supplier
financing is not comparable to Launch Aid for reas ons it described in its statement. Curiously, if
financing with Launch Aid features is as typical in the market as Professor Whitelaw asserts, one
wonders why he chose to base his analysis on fina ncing provided to Airbus by certain suppliers,
whose relationship with Airbus necessarily is influe nced by factors other than the straightforward

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lending aspect of the transactions at issue. 193 In any event, repayment to the suppliers examined by
Professor Whitelaw is generally co ntingent on fewer deliveries than repayment to the government
providers of Launch Aid. The amounts of financi ng provided by these suppliers are significantly less
than the amounts provided by the Airbus governments. A number of these suppliers receive their own
support from the Airbus governments. And, the suppliers must take account of business
considerations other than the straightforward c oncern about return on financing they provide to
Airbus. And, according to the US, very little of the Whitelaw analysis of supplier financing is backed
up by any evidence the EC has supplied.194
4.119 In its comments on the EC statement at the sec ond Panel meeting, the US notes that one new
concept introduced in the EC statement is its so-called "adequate return" theory for assessing the
benefit conferred by Launch Aid. Under this theo ry, it is a government's "own view" regarding risk
that determines whether the Launch Aid rate of retu rn is "adequate" and, th erefore, whether Launch
Aid confers a benefit. This "adequate return" theory finds no support in the SCM Agreement.195
4.120 Alternatively, the US notes that the EC conti nues its attempt to defend a benchmark based on
Airbus' contracts with risk-sharing suppliers. It st ates that this "benchmark is based on returns from
the same project undertaken by the same company (Airbus) in the same market (LCA)." The US
argues that in addition to numerous other flaws, the latter statement ignores that precisely because
Airbus receives Launch Aid, the financing that risk -sharing suppliers provide to Airbus is unreliable
as a benchmark. The US explains that Launch Aid makes Airbus less risky, which means that risk-
sharing suppliers will demand a lower return on financ ing to Airbus than they would in the absence of
Launch Aid.196
(b) A350
4.121 In its first written submission, the US argues that in 2006, the Airbus Governments reaffirmed
their agreement to support Airbus in the development of new models of LCA. The US asserts that in
spite of Airbus' leading global position, the Air bus governments refuse to end their practice of
supporting Airbus with grants of Launch Aid. To the contrary, they have already agreed to provide at
least $1,700,000,000 in Launch Aid fo r Airbus' newest aircraft, the A350. The US notes that recent
events suggest that the final amount of the aid will be double or even triple that amount. Publicly
available information indicates that the aid is in fact Launch Aid, i.e., back-loaded, success-
dependent, preferential financing, just as has been provided since Airbus' inception.197
4.122 The US notes that Airbus has been quite explicit in stating that it has launched the A350 to
take orders that would otherwise go to the 787. Th e US also notes that Airbus has also made clear
that the A350 is intended to target the Boeing 777 as well as the 787. On May 23, 2005, for example,
the project manager for the A350 boasted that "{w}e are positioning our program to be a 777-200ER
killer." As one industry analyst has observed, the A350 "will threaten the entire Boeing 777 product
line, placing Boeing in the awkward predicament of having to figure out what to do at a time when the
787 program is entering production and plans are being made to design a successor to the 737."
198

195 US comments on EC, SNCOS, Executive Summary, para. 10.
196 US comments on EC, SNCOS, Executive Summary, para. 11.

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2. Arguments of the European Communities
4.123 The EC argues that no subsidies have been provided by member States under MSF contracts,
and even if such financing were c onsidered to constitute a subsidy ( quod non), any benefits are very
small.199
(a) 1992 Agreement
4.124 According to the EC, there is no benefit for Airbus within th e meaning of Article 1 of the
SCM Agreement as the four member States complied with the obligations of the EC under Article 4
of the 1992 Agreement. 200 The EC points out that the US has not made any serious attempt to show
non-compliance of the EC with Article 4. 201 The EC contends that it has explicitly demonstrated such
compliance in its first written submission.202
4.125 The EC contends that the US has adopted an inappropriate benchmark for determining
whether individual MSF financing agreements confer a "benefit" within the meaning of Article 1.1 of
the SCM Agreement. 203 In the EC view, the market benchm ark asserted by the US lacks merit. 204
The EC considers that the benchmark proposed by the US ignores the terms of the 1992 Agreement
between the EC and the US. This bilateral accord fixes the agreed benchmark between the parties for
determining whether government support for LCA pr ogrammes confers a benefit. The EC maintains
that all MSF granted since 1992 complied with th e terms of the agreement – terms which the US
explicitly agreed to. 205 The EC notes that the A330-200, A340-500/600 and A380 contracts were
concluded under terms and conditions which complied w ith its international obligations at the time of
granting i.e., the 1992 Agreement . The EC indicates that is well accepted that the existence of a
subsidy has to be established on the information re asonably available to the granting government at
the time it took the measure. The EC considers that th e US now attempts to revisit this matter many
years later and to construct an ex-post benchmark; it is effectively seeking a retrospective remedy.206
(b) Reasonableness of forecasts
4.126 The EC submits that even if the 1992 Agreement and its practical impact on the action of the
two parties to this dispute were to be ignored, th e benefit analysis of MSF must take account of the
reasonableness of forecasts under the SCM Agreement , and that in view of this there is no benefit
under the SCM Agreement.207
4.127 The EC explains that any decision to finan ce a new aircraft model inevitably involves a
calculation of the project risk and the relevant ec onomic environment for the LCA industry. Drawing
from footnote 16 to the SCM Agreement, the relevant test for determining whether a MSF contract in
the large civil aircraft sector constitutes a subsid y is the reasonableness of the forecasts. The EC
contends that it has complied with this SCM sta ndard. The EC argues that European Governments
lent money in the public interest, subject to clo se scrutiny and sought to secure an adequate return.
Accordingly, they used conservative assumptions for their forecasts, sometimes being even more
cautious than the relevant business case from the co mpany itself (which, in turn, has a responsibility

202 EC, FWS, para. 405.
204 EC closing statement, second meeting, Executive Summary, para. 7.
206 EC, FWS, paras. 401-404.
207 EC, FWS, Executive Summary, para. 37. See, also, EC, SWS, Executive Summary, para. 17.

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vis-à-vis its shareholders). 208 The EC contends that it has dem onstrated this in its first written
submission.209
4.128 The EC considers that member State govern ments have adopted conservative repayment
provisions based on reasonable forecasts. These re sult in a high probability of principal repayment
and a minimum return for the government at a point in the delivery stream that is lower than the
consensus number of deliveries forecast by various sources to occur over the life of the particular
Airbus LCA programme, including in the Airbus business case. That has allowed the governments to
agree to a structure of levies and repayment schedul es that removes a great deal of risk and ensures
adequate recoupment of its contributions over a reas onable period of time plus a real return at rates
that would not be rejected by the market.
210
4.129 In the EC view, the US misinterprets the SCM Agreement. First, although footnote 16 has
nothing to say about whether an individual MSF loan as an instrument is a subsidy, it does
demonstrate the key importance of the sales forecast for repayment purposes, a point confirmed by the
US' own DDA rules submission. If the repayment targ et is set for a sufficiently low number of sales,
thus removing most of the risk of non-repaymen t, the government, as a responsible investor, is
entitled to take its own view of the remaining risk a nd to set the interest rate accordingly in order to
ensure an adequate return.
211 In this regard, EC governments are not, as the US claims, required by the
SCM Agreement to behave like "mobile investors", putting their money where it will fetch the highest
return. Governments are not required to "play the ma rkets" ; they are not required to act as market
speculators.212
4.130 Second, member States have a proven track record in conservative forecasting. Actual sales
of Airbus aircraft are well ahead of those forecast in MSF contracts and member States have
consistently secured the returns they have sought ove r a lower number of deliver ies than that forecast
for the life of the LCA programme at issue.
(c) EC risk-sharing supplier benchmark and critique of US benchmark
4.131 The EC points out that the US proposed benchmark for MSF contracts is fundamentally
flawed.
213
4.132 First, the EC argues that the US overlooks the fact that government financing may impose
costs on the recipient that market instruments do not. This distinction, in the view of the EC, should
be taken into account when comparing MSF loans with a market benchmark.214
4.133 Second, the EC argues that the US mischaracterizes both the nature of MSF loans and the US
"Ellis" model. The EC explains that through the US ' consultant, Ellis, the US constructs a market
benchmark based on a study of high-risk venture capital returns. Venture capital returns relate to high
risk start-ups, but have no nexus to LCA markets, much less Airbus LCA programmes. 215 Moreover,
as the EC's expert, Professor Whitelaw, points out, the Ellis benchmark suffers from severe
methodological errors that render it useless. 216 Among others, the EC submits that Professor

209 EC, FWS, paras. 470-477.
212 EC, SNCOS, para. 86.
215 EC, SNCOS, paras. 94-98.
216 EC, SNCOS, paras. 102-105.

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Whitelaw's analysis shows that the US overstates the project-specific risk premium and generates
correspondingly inflated benchmark rates, 217 which are contradicted by another US expert, Dr.
Dorman.218 In addition, none of the alternative methodologies relied on by the US supports the
flawed Ellis model.219
4.134 The EC submits that it shows that attempts by the US to infer an exaggerated benchmark
from, e.g., an EC state aid decision, are wide of the mark. 220 First, the state aid decision cited by the
US applies a legal standard from th e standard in the SCM Agreement. 221 Second, the state aid
decision relates to a different time period than is at issue in the present dispute, and involves a
different product market – regional aircraft – that displays different conditions of competition than are
at play in the LCA market. 222 Specifically, the decision notes that the regional aircraft manufacturer
market in the EC was characterised as particularly "high risk" because of "overcapacity", "low market
demand", and the "obvious presen ce of excess production capacity". 223 These characteristics are not
found in the LCA market, where Airbus SAS stands as one of only two established global
competitors, with little suggestion of overcapacity burdening the market s in which the firm
operates.
224 The EC's expert, Professor Whitelaw, obser ves that the combination of low market
demand and severe overcapacity significantly increases both general corporate and product risk, such
that market lenders will demand a heightened risk premium.
225
4.135 The EC submits that the benchmark proposed by the US fails to reflect financing terms
available at market. 226 By contrast, when one looks to the retu rns obtained by market participants in
the LCA industry – Airbus risk-sharing suppliers investing in the same project – the benchmark
returns are far lower. These returns provide an ideal market benchmark, as both risk-sharing suppliers
and MSF lenders bear risk associated with the same market (LCA), same company (Airbus), and the
same project.227
4.136 Third, the EC submits that the US criticisms of the EC benchmark also fail. The EC
considers that the US belated atte mpt to construe these instruments as a kind of hybrid between debt
and equity is groundless. Nor does the Ellis model, which is predicated on venture capital returns,
offer a benchmark for a hybrid instrument. 228 Regardless of whether one characterizes MSF loans as
debt, equity, or hybrid securities, the risk profile of these instruments closely mirrors that of Airbus
risk-sharing supplier contracts. The US criticisms of the EC benchmark reflect a misunderstanding of
both the nature of Airbus risk-sharing supplier agreements and the procurement process.229
4.137 For example, the EC notes that the US asserts that the amount of money involved in the risk-
sharing supplier (RSS) contracts somehow renders th e returns obtained by these suppliers inapposite.
But a rate of return is calculated on a per-dollar basis; the rate of return is decidedly not a function of

218 EC, SNCOS, paras. 106-110.
221 EC, SWS, paras. 191-193.
222 EC, SWS, paras. 194-195.
223 EC, SWS, paras. 195-196.
224 EC, SWS, para. 199.
225 EC, SWS, para. 198.
227 EC closing statement, second meeting, Executive Summary, para. 7.

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the size of the contract at issue. Moreover, the amounts at stake were substantial, as the confidential
record shows.230
4.138 The EC also notes that the US asserts – without support, it argues – that certain RSS received
government funding. But even if these suppliers r eceived government financing, and even if that
financing conferred a benefit, there is no reason to be lieve that this benefit would affect the terms that
these RSS agreed to with Airbus. Why would these suppliers pass on the allege d benefit to Airbus?
The US offers nothing but speculation. 231 The EC offers evidence whic h it asserts shows that even if
these suppliers were to pass on 100per cent of any benefit from MSF to Airbus, the change to the EC's
benchmark rates would be negligible, and the prem ium would still be well below that asserted by the
US' Ellis.232 The EC considers that the US also speculat es, without a shred of evidence, that the terms
of these supply agreements were affected by the pros pect of obtaining additional future contracts with
Airbus. Yet, the bargaining power could well lie w ith the suppliers – not Airbus. Many of these
suppliers possess unique technology that makes them the only viable source for certain contracts.233
4.139 The EC also addresses a new argument asserted (without reasoning or evidentiary support) by
the US and Brazil at the second Panel meeting. The EC notes that the US appears to argue that MSF
granted to Airbus reduces the risk asso ciated with Airbus itself, and thus distorts the RSS benchmark.
In that regard, the EC points out that RSS are expo sed to two types of risk – development risk and
market risk. There is no reason why MSF provided to Airbus would in any way affect the amount or
nature of those risks. More fundamentally, RSS do not know whether or on what terms Airbus will
receive MSF loans. On what basis are we asked to conclude that RSS would take lower returns based
on the possibility that Airbus would receive MSF, and on terms and even amounts of which they are
not aware? The EC considers that there is no evidence to support such a speculative hypothesis, and it
should be rejected.234
4.140 Contrary to the US assertions, the EC presented documents associated with a commercial loan
to one of the Airbus Associated Manufacturers as ev idence that financing similar to MSF is available
on the commercial market. Thus, the member States are not the only providers of project financing
like MSF. The EC considers that the US is also not correct in arguing that there were sufficient orders
on the date of signing of the financing agreement to fully repay the bank. The EC contends that it
shows that the commercial lender did incur delivery ri sk. In addition, the EC does not claim that the
risk incurred by the bank offering this commercial loan is comparable to the risk incurred by the
member States for the A380. Moreover, the project specific risk premium measured by the EU is 2.5
times higher than the risk premium in the commercial loan agreement. The US would have the Panel
believe that it is approximately 6 times the amount.235
4.141 The EC welcomes the US' belated admission th at the government-related issuer ("GRI")
enhancement applied by Moody's does not reflect the impact of MSF loans. The 2007 Moody's
reports, which the EC considers have been cite d by the US in a misleading manner, discuss this
enhancement, but, in the US' words, are "not directly relevant to this dispute."
236
4.142 However, the EC notes that the US continues to attempt to distract the Panel's attention from
this concession by rehashing its failed argument th at EADS receives an enhanced baseline credit

232 EC, SCOS, para. 91.
234 EC closing statement, second meeting, Executive Summary, para. 8. See, also, EC, SCCS, para. 14.
236 EC, Answer to Panel Question 228, para. 3, quoting US, Answer to Panel Question 228, para. 22.

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rating as an additional benefit or "indirect effect " of MSF loans. First, the EC notes Professor
Whitelaw's statement that an improved credit rati ng would not be an "additional benefit" from MSF
loans; rather, the benchmark fully captures any bene fit from these alleged subsidies. The US does not
dispute that benchmark return represents the market pr ice of risk transfer associ ated with these loans,
and all associated benefits, direct and indirect, are "bought and paid for."237
4.143 Second, the EC rejects the US attempt to re -characterize this rating enhancement as an
"indirect effect" of MSF loans. 238 Moody's confirms that EADS' improved baseline credit rating
flows from the risk-sharing aspect of MSF loans, wh ich is equally present under market alternatives
such as risk-sharing supplier financing.239
4.144 Third, even assuming that (a) EADS experien ced a credit rating enhancement because of any
under-compensated risk-sharing element of MSF loans, and (b) this higher rating reduced EADS' cost
of capital, the EC notes that the US has fa iled to provide any evidence establishing the amount of this
reduction.240
4.145 Finally, the EC notes that the US credit rati ng argument does not enhance its ability to show
adverse effects from MSF. A statement provided by the US argues that tied "launch subsidies" are
more likely to generate adverse effects than untie d subsidies that simply generate additional cash
flow. But any cash allegedly generated by a reduction in EADS' cost of capital would not be tied to
any particular LCA programme, and would thus be unlikely to cause adverse effects.241
(d) Rates of return
4.146 The EC argues that the US understates the inte rnal rates of return demanded by European
Governments,242 and thus underestimates the expected returns associated with individual MSF
loans.243 First, US expert Ellis ignores the market an alysis and forecasts contained in the Airbus GIE
or Airbus SAS business case, which inform th e terms of individual MSF loan agreements.
Consequently, Ellis omits a large number of de liveries that would trigger payments to the
Governments and enhance their returns.244
4.147 Second, the US fails to take into account th e effect of taxation on expected returns. 245
Specifically, the EC notes that MSF receipts are subject to taxation, like any other form of corporate
income; when repaid, principal and interest are deducted in computing taxable income. 246 The result
is that EC member States loaned funds with one hand and took back a portion with the other.247 Since
the member States continued to assess interest on the gross amount of MSF provided, the effective
interest cost of the MSF that was actually left for use by Airbus was significantly higher than the
contract interest rate.248

237 EC, Comments on US Answer to Panel Question 228, para. 5.
238 EC, Comments on US Answer to Panel Question 228, para. 6.
239 EC, Comments on US Answer to Panel Question 228, para. 6.
240 EC, Comments on US Answer to Panel Question 228, para. 12.
241 EC, Comments on US Answer to Panel Question 228, para. 13.
244 EC, FWS, paras. 536-541.
245 EC, FWS, paras. 542-547.
246 EC, FWS, para. 543.
247 EC, FWS, para. 545.
248 EC, FWS, para. 545.

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(e) A350
4.148 Finally, the EC rebuts the US allegation that th ere is an existing measure for the A350. In a
nutshell, there was nothing more than a commitment to negotiate: never has an agreement to finance,
nor an MSF contract, nor any disbursement of money, ever existed or occurred for the A350. Indeed,
there is no A350 project; Airbus SAS has abandoned it in favour of the A350 XWB. 249 T h e E C
explains that member States have not provide d any MSF loans in connection with the A350
programme. US claims with respect to such loan s thus pertain to non-existent measures, and fall
outside the Panel's terms of reference.250
D. WHETHER THE LAUNCH AID THAT AIRBUS HAS RECEIVED FOR THE A380, THE A340-500/600,
AND THE A330-200 ARE PROHIBITED EXPORT SUBSIDIES
1. Arguments of the United States
4.149 The US argues that the Launch Aid that Airbus has received for the A380, the A340-500/600,
and the A330-200 are prohibited export subsidies. 251 The US observes that a finding of export
contingency involves three elements: (1) the "granting" of a subsidy; (2) that is "tied to" (3) "actual or
anticipated exportation or export earnings."252
(a) A380
4.150 The US turns first to its claim that the A380 subsidies are prohibited export subsidies. The
US explains that the UK, French, German, and Spanish governments have each granted Launch Aid
to their respective Airbus companies to support th e development of the Airbus A380. In each case,
the Launch Aid is a subsidy within the meaning of Ar ticle 1.1 of the SCM Agreement. Therefore, for
each provision of A380 Launch Aid, the first element for demonstrating export contingency is met.253
4.151 According to the US, the second element fo r demonstrating export contingency is the
existence of actual or anticipated exportation or export earnings. The US argues that the evidence
surrounding the Airbus governments' decision to provide Launch Aid for the A380 demonstrates not
only that the governments anticipated or expected that exportation or export earnings would result
from the project, but also that the governments knew Airbus was developing the A380 primarily for
the export market, and that export sales would be critical to the project's success.254
4.152 First, in 1999-2000, at the time that the Airbus governments were discussing Launch Aid for
the A380 with Airbus, Airbus was stating that it was developing the A380 primarily for the export
market. Second , the four Launch Aid agreements between the Airbus governments and Airbus each
anticipate a level of A380 sales that substantially exceeds the 247 aircraft with more than 400 seats
that Airbus was predicting it would sell in Eur ope, thus demonstrating that the governments
anticipated exports. Third, the four governments have specifically referenced the global nature of the
A380 project and Airbus' export sales. Fourth , when Airbus was seeking the Launch Aid, it pointed
to potential export earnings, and it stressed the impo rtance of export sales to the project's success.

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Fifth, in addition to the fact that the A380 is an export-oriented project, Airbus itself is a highly
export-oriented company.255
4.153 The third and final element for demonstrati ng that a subsidy is contingent on export
performance is that the subsidy must have been "tie d to" anticipated or expected exportation or export
earnings. The terms of the Launch Aid contract s themselves, as well as the evidence surrounding the
grant of the Launch Aid, demonstrates such a tie. First, a key feature of Launch Aid is that the Airbus
governments tie repayment of the aid to sales of the particular aircraft mode l that the Launch Aid is
funding. If sales of the aircraft fail to meet expe ctations, repayment of the aid is forgiven or
indefinitely postponed. However, Airbus has stated that total European demand for aircraft with more
than 400 seats is only 247 aircraft. This necessar ily implies that the Airbus governments tied the
grant of the Launch Aid to Airbus making substantial numbers of export sales.256
4.154 The US notes that the facts surrounding the grant of the A380 Launch Aid are quite similar to
the facts surrounding the grant contract that the Australia – Leather panel found contingent "in fact"
upon export performance. On the other hand, the facts that led the Australia – Leather panel to
conclude that the loan contract at issue in that dispute was not contingent "in fact" upon export
performance are entirely absent from the A380 contracts.257
(b) A340-500/600 and A330-200
4.155 The US next turns to its claims that the A 340-500/600 and A330-200 subsidies are prohibited
export subsidies. In its submission, the US asserts that the same types of facts that demonstrate export
contingency for the A380 Launch Aid also demons trate that the Launch Aid that the French and
Spanish governments provided for the A340-500/60 0 and the Launch Aid the French government
provided for the A330-200 is conti ngent upon export, and thus is pr ohibited under Articles 3.1(a) and
3.2 of the SCM Agreement.258
(c) Export contingency
4.156 In its opening statement at the first Panel meeting the US argues that the EC has failed to
rebut its prima facie case that the Launch Aid for the A380, A340-500/600, and A330-200 is
contingent upon export performance.259 The US contends that the EC misstates the legal standard for
"contingency" and fails to apply the evidence to that standard. 260 The US notes that the EC says the
UK took Airbus' sales forecasts into account in d eciding to provide the Launch Aid, and that the
government's decision to tie repayment of the Launc h Aid to sales served to allocate risk between the
company and the UK. But according to the US, th is only proves its point: the Airbus governments
provided unsecured, subsidized loans on the condition that Airbus repay the funds through levies on
sales. In the US view, the facts demonstrate that, due to the nature of the product and the nature of the
market for that product, the governments knew Airbus could only meet that condition by exporting.
Therefore, the US argues, the subsidies are tied to export performance.261
4.157 The US notes that the EC concedes that the La unch Aid is a subsidy even under its flawed,
alternative benchmarks,262 and that the Airbus governments exp ected Airbus to repay Launch Aid and

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therefore anticipated the fulfilment of the conditional payment. 263 In addition, the US notes that the
EC apparently concedes that the Airbus governments anticipated exportation or export earnings.264
4.158 The US asserts that the EC portrays it as arguing that the grant of Launch Aid is tied to
anticipated exportation or export earnings merely b ecause the Airbus governments expected that there
would be exports of the LCA models developed as a result of Launch Aid. But the US explains that it
does not argue that the governments' expectations of exportation or export earnings alone make the
provision of Launch Aid contingent upon expor t performance. The US submits that those
expectations unquestionably are an important part of th e picture. But an equally important part of the
picture is the fact that the governments' decision to provide Launch Aid was made in reliance on and
in return for a commitment by Airbus to unde rtake a course of action that necessarily involves
exports. The governments' expectations – informed by Airbus' Business Cases, Global Market
Forecasts, and Launch Aid applications and by the governments' own critical project appraisals – were
an essential precondition to the governments' decisions to provide Launch Aid.
265
4.159 The US clarifies that contrary to the EC sugg estion, it has never argued that any one of the
provisions in the Launch Aid contracts on its own makes the granting of Launch Aid export
contingent. The US explains that it has looked at all of the facts collectively and has shown that
together they demonstrate that the provision of Launch Aid is contingent upon export performance.
Relatedly, the EC notably omits any discussion of representations and warranties in certain of those
contracts making the tie to anticipated exportation unmistakable.266
4.160 The US argues that in responding to its showing that certain provisions of Launch Aid are
prohibited export subsidies, the EC makes several crit ical errors. According to the US, the EC adopts
the mistaken view that the relationship between export performance and provision of a subsidy must
be a condition-consequence or "if-the n" relationship in order for the subsidy to be prohibited within
the meaning of Article 3 of the SCM Agreement. However, the US argues that, not only is the term
"consequence" not used in Article 3.1(a) or f ootnote 4 of the SCM Agreement, but the express
reference to "anticipated exportation or export earnings" in footnote 4 means that a subsidy is
contingent upon export performance even if it is granted prior to – rather than as a "consequence" of –
"the future factual fulfilment" of exportation. The US adds that this understanding is supported by the
findings of the panels in Canada – Aircraft and Australia – Leather.267 In this regard, the US argues
that the EC misstates the findings in Canada – Aircraft, Australia – Leather and Canada – Autos.268
4.161 In the US view, the EC compounds its error by making a series of arguments seeking to show
the lack of a tie between the provision of Launch Aid and export performance. Its efforts ultimately
fail, as they rely on a combination of mischaracter ization of the US argument (for example, falsely
accusing the US of confusing anticipation of expo rt performance with a tie to export performance)
and insistence on various irrelevant points (such as the possibility of Airbus electing to prepay Launch
Aid amounts and the consistency of the governments' forecasts of LCA sales with prudent business
practices).269
4.162 The US asserts that its contention that it do es not confuse anticipation of export performance
with a tie to export performance is demonstrated by the wealth of evidence the US has brought to bear

266 US comments on EC, SNCOS, Executive Summary, para. 9.

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establishing the existence of such a tie in each of the Launch Aid contracts at issue. According to the
US, the contracts consist of a commitment by the government to disburse Launch Aid according to a
set schedule, which is undertaken in exchange fo r a commitment of perform ance by the company to
repay the Launch Aid amounts on the basis of a specified levy per sale over an agreed-to number of
sales. The number of sales over which Launch Aid is to be repaid is so large relative to demand in the
EC for the LCA model at issue as to necessarily in volve exportation in order to be achieved. The
repayment provisions of the Launch Aid contr acts establish that an essential condition for the
provision of Launch Aid is a commitment to expor t. Other provisions of the Launch Aid contracts
reinforce this point.270
4.163 The US notes that the EC concedes that the Ai rbus governments expected Airbus to repay
Launch Aid. Because of the levy-based nature of Launch Aid repayments and the repayment
schedules agreed to under the Launch Aid contracts, this would be possible for the A380, A340-
500/600, and A330-200 only with s ubstantial exports. Other evid ence, including other Launch Aid
contract provisions, also support a finding of export contingency. In response, the EC first argues that
exportation is anticipated only if it "will occur," t hus collapsing the concepts of "actual" exportation
and "anticipated" exportation. However, the US argues that as the Appellate Body explained in
Canada – Aircraft, "anticipated" means "expected."
271
4.164 According to the US, the EC compounds its error by reading new text into the
SCM Agreement, contending, for example, that a subsidy is contingent upon export performance only
if "the terms of the measure vary, in law or in f act, depending on whether sales performance is in the
domestic or export markets." And, it responds to arguments the US does not make, such as the
argument that the mere expectation that a recipien t of a subsidy will export renders the provision of
that subsidy export contingent.272
4.165 The US contends that the EC attempt to dismiss evidence demonstrating de facto export
contingency turns on its flawed premise that the te rms of an export contingent subsidy must vary
expressly according to the destin ation of a particular sale. 273 The US argues that in an effort to show
that it has somehow confused "export performance" with mere "performance," the EC misconstrues
the evidence. The US notes that the EC repeatedly asserts that the repayment terms of the Launch Aid
contracts are "origin neutral" and that the eviden ce does not show that these terms "vary at all by
reference to the EC and the rest of the world." But these observations are beside the point. Indeed,
they suggest a test that has absolutely no basis in the SCM Agreement. The SCM Agreement does not
provide that a subsidy is contingent upon expor t performance, and thus prohibited, only if the
instrument tying the subsidy to actual or anticipat ed exportation or export earnings makes an express
demarcation between domestic sales and export sales. Further, the Launch Aid contract repayment
terms are "origin-neutral" only if considered in a vacuum, without any reference to the realities of the
market in which the LCA models at issue are sold.
274
4.166 The US argues that, related to the EC mischa racterization of the US export contingency
argument is the EC assertion of an inconsistenc y between the US demonstration that Launch Aid
confers a benefit on Airbus and the US demonstration that the provision of Launch Aid is contingent
upon export performance. However, the fact that the Airbus governments anticipate a return on
Launch Aid does not contradict the demonstration th at Launch Aid confers a benefit. And the fact

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that the governments are not guaranteed a return does not contradict the demonstration that the
provision of Launch Aid is tied to anticipated exports.275
4.167 The US also argues that, also related to the EC mischaracterization of the US export
contingency argument is the assertion that following that argument "financial contributions that
foresee a return (such as loans) are more suscep tible to be found to contain a prohibited export
contingent subsidy than financial contributions in th e form of outright grants." However, it is not the
foreseeing of a return that makes Launch Aid export contingent but the conditioning of the provision
of Launch Aid on a commitment by Airbus to repay Launc h Aid over levels of sales that necessarily
involve exportation. An actual refutation of the EC argument is the panel report in Australia –
Leather, finding a grant contract to be export contingent, but not a loan contract to the same
recipient.276
4.168 The US considers that an additional aspect of th e EC's futile attempt to show the absence of a
tie between the provision of Launch Aid and anticipat ed exportation is its reference to Airbus' option
to prepay Launch Aid amounts. This point is irrelevant because, inter alia, unlike repayment over the
number of deliveries specified in the Launch Aid cont ract, prepayment is not an obligation. With
respect to the EC contention that Launch Aid is not contingent upon export performance, because
Airbus in theory could voluntarily accelerate its repa yments of Launch Aid, the US explains that the
mere fact that Airbus is allowed to repay Launch Aid at any time does not mean that repayment upon
delivery is not an obligation. 277 Likewise, the EC reference to the "guarantee" provided by entities
related to the company in certain Launch Aid cont racts does not help the EC argument, because these
guarantees are not guarantees of repayment of Launch Ai d. They merely provide that in the event the
company fails to make timely payment to the go vernment following delivery of an aircraft, the
government may turn to the company's parent for payment.278
4.169 In addition, the US notes that the EC offe rs certain "countervailing explanations" for the
Airbus governments' decision to condition the pr ovision of Launch Aid on Airbus' commitment to
repay Launch Aid over levels of sales that necessarily involve exports. However, the US argues that
these explanations do not address the existence of a contractual tie be tween Launch Aid and export
performance but, rather, governments' motivations for establishing a tie.279
4.170 The US considers that the EC misrepresents its arguments. For example, on the issue of the
relevance of a government's motivation to the determination of export contingency, the EC discussion
at paragraph 129 takes excerpts from the US second wr itten submission completely out of context. In
the passage at issue, the US was responding to the EC's so-called "countervailing explanations"
argument. The US considers that, even if th e governments had non-export-related motivations for
providing Launch Aid, that would not sever th e tie between the provision of Launch Aid and
anticipated exportation. That does not mean that the existence of a government motivation to support
exports would be irrelevant to a finding that the provision of Launch Aid is export contingent.280
4.171 The US notes that at paragraph 144 of its second oral statement, the EC professes confusion
over its use of the words "precondition" and "pre dicate" in its second written submission; it does
likewise, at paragraph 151 of its statement, with respect to the word "commitment." The US notes
that the EC states that these words do not appear in Article 3.1(a) or footnote 4 of the

280 US comments on EC, SNCOS, Executive Summary, para. 6.

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SCM Agreement. According to the US, the EC is rebutting an argument the US has not made. The
US points out that the key word that does appear in footnote 4 is the word "tied." The provision of a
subsidy must be "tied to" actual or anticipated exportation or export earnings. There may be any
number of ways in which that "tied to" relationshi p can be established. One would be, for example,
where anticipated exportation is a precondition or predicate to the provision of a subsidy. 281 The US
considers that in discussing the issue of export c ontingency, the EC would have the Panel ignore the
text of footnote 4 of the SCM Agreement and, in particular, the key terms "tied to" and "anticipated
exports."282
4.172 A further demonstration of the EC attempt to c onfuse the relevant issues and arguments is its
accusation at paragraph 148 of its second oral statement that the US has asserted "new claims"
regarding export contingency. What the EC calls "n ew claims" are nothing more than elaborations on
how certain evidence introduced in connection with the US first written submission establishes the tie
between the provision of Launch Aid and anticipated exportation.283
4.173 The US considers that the EC arguments are also tainted by its misreading of the panel report
in Australia – Leather. Contrary to the EC characterization, th e fact that the recipient of the subsidy
at issue there was the sole exporter of automotive leather was relevant but not dispositive (as was the
recipient's status as a participant in a prior progr am). And in any event, Airbus is the only EC
exporter of LCA. The EC also ignores key facts, including that one of the grant disbursements at
issue in Australia – Leather was made before any of the anticipated exportation had occurred. The
EC ignores the sale-based repayment obligations in the Launch Aid contracts, which make them
distinguishable from the loan contract in Australia – Leather . And it ignores that the guarantee of
repayment referred to by the Australia – Leather panel is entirely unlike the "guarantees" provided in
certain Launch Aid contracts.
284
4.174 Finally, the US argues that the EC recourse to portions of the preparatory work for the
SCM Agreement is misplaced. The US considers th at the EC assertion that the US approach to
Article 3.1(a) would lead to manifestly absurd or unreasonable results is based on arguments the US
has not made. 285 The US argues that contrary to the EC statement, it is not the case that, following
the US view, every loan in a globalized sector would be an export-contingent subsidy. Typical loans
are paid out of the debtor's general cash flow, not out of a particular revenue stream that necessarily is
tied to exports. The US argues that it is the fact that Launch Aid, under the terms of the Launch Aid
contract, is tied to levels of sales which can be met only through export that makes Launch Aid export
contingent.286
2. Arguments of the European Communities
4.175 The EC notes that the US claims that seven me asures at issue contain subsidies contingent, in
law or in fact, upon export performance, within the meaning of Article 3.1(a) and footnote 4 of the
SCM Agreement. The EC disagrees both with the US presentation of the legal framework and with
the inferences that the US attempts to draw from the facts it asserts and the evidence it adduces.287

281 US comments on EC, SNCOS, Executive Summary, para. 7.
282 US closing statement, first meeting, Executive Summary, para. 20.
283 US comments on EC, SNCOS, Executive Summary, para. 8.

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4.176 The EC rejects the US assertions that each of the seven measures constitutes an export
contingent subsidy. The EC maintains that it sets out the correct legal standard and demonstrates that
the US has not produced a single piece of evidence whic h could lead to the conclusion that any of the
seven measures contains an export contingent subsidy.288
(a) Preliminary Observations
4.177 According to the EC, in its prohibited subs idies claims, the US has neither asserted nor
demonstrated the existence and precise content of a single or general measure in the nature of a
subsidy programme, "as such" or otherwise, whether labelled "Launch Aid" or otherwise,
289 and even
if the relevant measures at issue would be found to contain subsidies to current EC producers of LCA
(quod non), they would not be export contingent subsidies. 290 Rather, according to the EC, the US
frames its claims by reference to each of the seven distinct and different measures identified by the
US,291 which the EC refers to by reference to the title of the particular measure. 292 The EC contends
that this is a consequence of the US decision to frame its claims by reference to alleged facts and
evidence particular to each of the seven measures.293 According to the EC, the Panel must assess each
of the US claims individually,294 by reference to the specific evidence adduced by the US with respect
to that claim and measure, and weighing the evid ence by reference to the specific US assertion the
evidence was adduced to support.295
4.178 The EC submits that the US repeatedly confir ms and emphasises that it makes its claims on
the basis of alleged subsidies allegedly contingent upon "anticipated" exports and makes no claims on
the basis of alleged subsidies contingent upon "act ual" exports. The EC argues that the Panel must
address only the claims made by the US and is not entitled to address any supposed subsidy
contingent upon "actual" exports.296
4.179 According to the EC, the US claims against the seven measures are both "in law" and "in
fact".297 The EC invites the Panel to approach the US claims (which the EC finds ambiguous and
unclear)298 and the legal interpretation of Article 3.1(a) and footnote 4 in a systematic and coherent
manner and having regard to the interpre tative rules in the Vienna Convention, 299 which takes into
account the overall design and architecture of the provi sion, giving meaning to all its terms, both in
the case of ad hoc subsidies and subsidy programmes.300 The EC argues that, because there is a single

288 EC, FWS, paras. 556 to 558.
289 EC, SWS, para. 218.
290 EC, FWS, paras. 557 to 558.
291 EC, FWS, para. 555.
292 EC, FWS, footnotes 478, 485, 487, 489, 490, 492 and 493.
293 EC, SWS, para. 219.
294 EC, FWS, para. 561.
295 EC, FWS, paras. 613, 614, 674 and 678. . NC EC, Answer to Panel Question 79 from the Panel
following the first hearing, paras. 132 and 142; EC, SNCOS, para. 133.
296 EC, FWS, para. 564.
297 EC, FWS, para. 562.
299 EC, FWS, para. 561; EC, FNCOS, paras. 70 and 73; EC, SNCOS, para. 114 and 116
300 EC, SWS, para. 244. EC, SNCOS, paras. 117 to 126; EC, Answer to Panel Question 216, paras. 520
to 527.

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standard,301 it is imperative to understand what the "in law" standard is before proceeding to consider
any "in fact" claim.302
4.180 The EC argues that, with respect to both the "in law" claims and the "in fact" claims, the US
has not demonstrated for any one of the seven me asures any one of the three elements cumulatively
required for there to be a subsidy contingent upo n export: subsidy; continge ncy; export performance.
Thus, if the Panel finds in favour of the EC with respect to any one of these three requirements, it may
exercise judicial economy with respect to the other two.303
4.181 With respect to subsidy , the EC does not accept that the US has demonstrated that any of the
seven measures are subsidies.304 Further, the EC argues that the c ontingency referred to in Article 3.1
relates to the subsidy, not to the financial contribution alone. The EC argues that given that the US
confirms that it attempts to demonstrate contingenc y with respect to the financial contribution alone,
its claims must therefore be dismissed.305
4.182 With respect to contingency, the EC recalls that the terms "c ontingent upon" and "tied-to" are
synonyms,306 and that these terms refer to an "if-then" c oncept, not a concept based on anticipation or
consideration or motivation. 307 The EC cites Black's Law Dictionary in support of its arguments
regarding the proper interpretation of the term "contingent" or "condition".308
4.183 The EC contends that the US is interpreting the term "actual" as if it means "real" – that is,
"actually" has taken place in the past or "actually" ta kes place in the future; and the term "anticipated"
(in juxtaposition to the term "actual") as if it m eans "potential", so that, according to the US, and
specifically in the case of an ad hoc subsidy, whether or not the "anticipated" export ever "actually"
takes place is irrelevant to the question of whethe r or not there is a subsidy contingent upon export
performance. Thus, for the US, the required condition is not export, but "the anticipating of" export;
this necessarily involves an enquiry into the hypotheti cal "state of mind" or "intent" of a natural
person whose thoughts are imputable to the de fending Member, with mere anticipation or
consideration or motivation being sufficient to dem onstrate contingency – an approach that the EC
considers inherently flawed and legally erroneous.309 The EC contends that the US bases its arguments
on terms such as "precondition" and "predicate" that are not found in the text of the
SCM Agreement.310
4.184 According to the EC, in order to properly a ppreciate the correct interpretation of the term
"actual or anticipated" it is appropriate to make a systematic analysis, distinguishing between the case
of an ad hoc subsidy and the case of a subsidy programme. For the EC, the term "actual or
anticipated" makes it clear that th e prohibition in Article 3.1(a) a nd footnote 4 captures all exports
occurring before or after the measure establishing th e contingency is enacted, if the fact of export
completes or would complete the right to a subs idy. The timing of any export or payment makes no
substantive difference.311 Thus, specifically in the case of an ad hoc subsidy, the EC argues that the

301 EC, FWS, para. 606.
302 EC, FNCOS, para. 71. and 74; EC, SNCOS, para. 117; EC, Answer to Panel Question 216,
paras. 520 to 527.
303 EC, FWS, paras. 557 to 558; EC, FNCOS, para. 74.
304 EC, FWS, para. 554.
306 EC, FWS, para. 581.
307 EC, FNCOS, para. 76.
309 EC, SWS, para 233; EC, Answer to Panel Question 217, paras. 528 to 530 and 533 to 535.
310 EC, SNCOS, para. 145.
311 EC, SNCOS, paras. 117 to 126 and 142.

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correct interpretation is that the term "actual" mean s an export that exists (that is, has already taken
place) at the moment when the subsidy is deemed to exist within the meaning of Article 1 of the
SCM Agreement, whilst the term "anticipated" (also juxtaposed to the meaning of the term "actual")
means an export that has not yet taken place at the moment when the subsidy is deemed to exist, but
will take place in the future. 312 The EC argues that its position is supported by the context and object
and purpose, and confirmed by the preparatory work.313
4.185 The EC submits that if the US interpretation was accepted, then findings of export contingent
subsidies would be more likely in the case of sma ll or export dependent economies, or in the case of
global markets314 because export would appear to loom larger in the set of potential considerations. 315
It is precisely the concept of contingency that guards against such an outcome. The EC considers that
the US pays lip service to this principle; but in practice ignores it for the purpose of its submissions to
the Panel.
316
4.186 The EC emphasises with particular reference to this issue that the US ignores the overall
design and architecture of Article 3.1(a) and footnote 4. The term "actual or anticipated" in footnote 4
confirms that the provision captures the whole range of possibilities, i.e., exports that currently exist at
the time of the initial grant (actual exports) as well as those that occur in the future (anticipated
exports); and the whole range of evidence. Foot note 4 does change the basic legal standard of
contingency from "if-then" to "because". "Becau seness" might (or might not) be evidence of
contingency, but it is not itself to be confused with contingency, just as "the anticipating of" export is
not to be confused with contingency. 317 In the EC view, the US makes no effort to demonstrate why
and how the evidence it adduces about alleged "b ecauseness" demonstrates th e existence and precise
content of a subsidy contingent upon export, not ably as regards any supposed subsidy programme.
By its own terms, therefore, the US makes no prima facie case, because it is based on this false
premise. The systemic implications of the US in terpretation, if accepted, would effectively empty the
requirement of contingency of meaning, converting a prohibition based on contingency into one based
on some sort of "motivation" or "effects" based test.318 This is not what the Members agreed. The EC
adds that its interpretation of Article 3.1(a) of th e SCM Agreement and footnote 4 is confirmed by the
preparatory work.319
4.187 The EC considers that the US, confounding different factual and legal issues, refers to certain
documents that may speak to the issue of anticipation or consideration or motivation and asserts that
it has thereby demonstrated the existence of export co ntingent subsidies. However, the EC submits, it
is impossible to discern in the US first written submission how the asserted facts and adduced
evidence actually support the alleged legal conclusi on, particularly with respect to the required
contingency. Indeed, what the US case boils down to is the assertion that anticipation of sales plus
export orientation in a global market demonstrates an export contingent subsidy, an assertion that has
been rejected by panels and the Appellate Body repeatedly in previous cases.320
4.188 The EC argues that mere anticipation, or even consideration or motivation, does not constitute
contingency. The EC contends that the provisions identified by the US in each of the seven measures

312 EC, SWS, paras. 232 to 250; EC, SNCOS, paras. 117 to 131 and para. 142; EC, Answer to Panel
Question 175, paras. 70 to 73.
313 EC, SWS, paras. 248-249.
314 EC, SWS, para. 229.
315 EC, SNCOS, para. 129.
316 EC, SWS, para. 230.
317 EC, FWS, paras. 630 to 633; EC, Answer to Panel Question 175, paras. 70 to 73.
318 EC, SWS, para. 245.
319 EC, FWS, paras. 559 .

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do not provide for a subsidy upon export, but a repayment upon sale, which is the reverse of a
subsidy. The EC explains that the repayment provision contains a contingency in the sense of a legally
described condition (sale) the future factual fulf ilment of which will entail a legal consequence
(agreement by the company to make a repayment to the government). However, the EC maintains
that this is not the contingency required by Article 3. 1(a) and footnote 4 of the SCM Agreement. It is
not by combining export orientation (or anticip ation in a global market) with an irrelevant
contingency that the US is going to generate export contingency. 321 The EC considers that the US
position is inconsistent with Australia – Automotive Leather II and Canada – Aircraft.322
4.189 In any event, however Article 3.1(a) and footno te 4 of the SCM Agreement are construed, the
EC contends that the facts asserted and evidence adduced by the US do not demonstrate that any one
of the seven measure is a subsidy contingent upon export.
4.190 With respect to export performance, according to the EC, the US is effectively arguing that a
subsidy contingent upon mere performance woul d be prohibited; whereas it is only subsidies
contingent upon export performance that are prohibited. The EC explains that the text of Article 3.1(a)
and footnote 4 refers repeatedly to export pe rformance, whereas the US argues that there is a
condition of performance. The EC finds support for its argument in the context of the Illustrative List
of Export Subsidies in Annex I of the SCM Agreement, which refers repeatedly to exports and/or the
"favouring" thereof; in Articles XVI:1 and XVI:II of the GATT 1994 (which refer respectively to the
effects of neutral subsidies and subsidies on exports ); and in Article 3.1(b) of the SCM Agreement,
which refers to subsidies contingent upon the use of domestic over imported goods. The EC finds
further support for its argument in the object an d purpose expressed in the preamble of the GATT
1994 and in the overall design and architecture of the SCM Agreement. According to the EC, export
contingent subsidies are prohibited because such measures are a particularly effective method for
partitioning markets, allowing Members to creat e an incentive for companies to export, whilst
avoiding that domestic prices are driven down, thus frustrating the basic objective of the WTO
Agreements to promote fair international trade. However, as the preparatory work also confirms, it
was not the intention of WTO Members that all subsidies to firms with both domestic and export sales
should be prohibited, as the final sentence of footnote 4 confirms. Any effects of neutral subsidies to
exporting companies remain subject to Parts III and V of the SCM Agreement.
323
4.191 More generally, the EC also argues that the existence and operation of the 1992 Agreement
are facts surrounding the adoption of the measures. In the present case, as the US would have it, the
US maintained with the EC for almost a decade an agreement permitting measures that the US knew
to be prohibited subsidies. Further, the US view would appear to be that, whilst the support agreed for
Boeing has not caused adverse effects to the interests of the EC, the support agreed for Airbus (that is,
the essential quid pro quo in the 1992 Agreement) is prohibite d. The EC submits that these are facts
that the Panel must take into consideration when assessing the credibility and plausibility of the
interpretation of Article 3.1(a) and footnote 4, and the assessment of the facts now advanced by the
US.324
4.192 For these reasons, the EC concludes that the US has failed to demonstrate any of the three
requirements of Article 3.1(a) and footnote 4 of the SCM Agreement. The EC emphasises that the
Panel should first consider the claims "in law", and th en the claims "in fact". The EC also emphasises
that the Panel should exercise particular rigour with respect to the existence and precise content of the

323 EC, FWS, paras. 570 to 577; EC, FNCOS, paras. 82 to 83; EC NC RPQ 79, paras. 138 to 140; EC,
SNCOS, paras. 121 and 155.
324 EC, SWS, paras. 251 to 257; EC, SNCOS, paras. 136 and 151.

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measures, especially with respect to the "in fact" claims, and should assess each of the seven measures
individually.325
(b) No subsidies contingent in law upon export performance
4.193 The EC comments on five issues of legal interpre tation: the existence of a subsidy within the
meaning of Article 1.1 of the SCM Agreement, the condition (export performance), consequence
(grant of a subsidy) and conti ngent relationship (or contingency) required by Article 3.1(a) and
footnote 4, and the fact that the burden of proof is on the US to demonstrate its claims. 326 The EC
considers that the US has not demonstrated that an y of the seven measures at issue contain a subsidy
contingent in law upon export performance. In this respect, the EC contends that the provisions cited
by the US do not even have the content asserted by the US, but merely contain an agreed schedule. 327
In any event, according to the EC, the US has failed to demonstrate the required condition (export
performance), the required consequenc e (grant of a subsidy), particularly since the consequence of
achieving certain LCA sales is to pay the member State, and not to receive a grant, or the required
contingency. Because these requirements are cumula tive, for any one of these reasons considered in
isolation the US claims must be rejected. 328
4.194 In the EC view, the US has also failed to dem onstrate that an export contingent subsidy can
be "necessarily implied from the measure". In Canada – Autos the grant of a subsidy in the form of an
import duty exemption was contingent upon a Cana dian vehicle manufacturer respecting a "ratio"
between the value of its production and the value of its domestic sales. For example, the ratio could
be fixed at 100:100, which could be respected by selling all production in Ca nada, without import or
export; or by exporting and importing equal value (f or example, 100 produced, of which 80 sold in
Canada and 20 exported; 20 importe d and sold). Thus, a ratio of 95:100 permitted import value to
exceed export value without loss of subsidy, but only up to the 5 percent limit fixed by the ratio. The
panel and the Appellate Body correctly reasoned th at, at the limit of the ratio, the only way for a
manufacturer to import (and thus obtain the subsidy) would be to export, thus maintaining the ratio.
The measure therefore provided for the grant of a su bsidy contingent in law upon export performance.
This could be deduced through elementary reas oning from the provisions of the measure itself. 329 The
EC points out that in the present case, the US re lies upon documents such as the contract, the GMF
and the project appraisal. According to the EC, th ese do not demonstrate a subsidy contingent in law
in the manner of the Canada – Autos case or otherwise. 330 According to the EC, the US has
acknowledged that the seven measures are "origin ne utral", and that the US arguments depend upon
the supposed "market context", thus confirming that the US "in law" claims are without merit.331
(c) No subsidies contingent in fact upon export performance
4.195 The EC argues that, however Article 3.1(a) and footnote 4 of the SCM Agreement are
construed, the US has failed to demonstrate a subs idy contingent in fact upon export performance.
The EC first explains that the legal standard is the same (only the relevant evidence is different), that
anticipation of (or consideration of or motivation by) (sales, including exports) does not, in itself,
demonstrate contingency, and that export-orienta tion is insufficient (all points with which the US
agrees).332 The EC then shows that a simple review of the facts and evidence re veals that the US has

325 EC, FWS, para. 584.
327 EC, FWS, paras. 584.
328 EC, FWS, paras. 557.
330 EC, SWS, paras. 258 to 295.
331 EC, SNCOS, para. 137.
332 EC, FWS, paras. 605 to 612.

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failed to demonstrate the require d condition (export performance), since the documents cited by the
US in support of its claim merely demonstrate a co ncern with profit, wherever it may be earned in a
global market, the required consequence (grant of a subsidy), or the required contingency. Indeed, not
only are the US claims not supported by the documents, they flatly contradict them, because under the
terms of the contracts the funds are advanced and re main with the recipient even if no export or for
that matter sale or delivery ever occurs.333 The EC argues that once again, because these requirements
are cumulative, for any one of these reasons considered in isolation the US claims must be rejected.334
4.196 The EC contends that a review of the documents adduced and cited to by the US, measure-by-
measure, and addressing the document by reference to the asserted fact in support of which it is
adduced, reveals that the US has failed to make a prima facie case. The EC begins with the UK
measure relating to the A380 and the thirteen documents adduced by the US to demonstrate
"anticipation", explaining that: the repayment provisi on of the contract is origin neutral; as are the
1999 and 2000 Global Market Forecasts, a 1999 Airbus briefing that re-iterates the 1999 forecast, the
project appraisal and the business case. The EC provi des similar explanations with respect to a UK
government press release, and press reports from AF X News Limited press report, AviationNow and
the Economist, and with respect to a "position pape r" entitled Aeronautics for Europe submitted to the
European Commission by the External Advisory Group for Aeronautics. 335 The EC provides a similar
analysis with respect to the three documents adduced by the US in support of its assertion that there is
contingency.336 The EC provides a comparable analysis, w ith the same result, for each of the seven
measures.337
4.197 The EC argues that reduced to its essence, the US case is that any royalty based financing
(allegedly on terms below a market benchmark) in a global market will always be a subsidy
contingent upon export performance, for two reasons . First, because, in the long term, a company
doing business in a truly global market is likely to have to sell into that global market (and not just its
home market) in order to survive. Second, becau se achieving a market-based return on royalty based
project finance is likely to include global sales, or in other words sales in both domestic and export
markets. Thus, the smaller or more export-depende nt an economy, or the more global a subsidised
product market, the more likely that there will be , according to the US, a subsidy contingent upon
exports. The EC submits that this approach is incorrect, and not supported by the facts.338
4.198 The EC explains that the repayment provisions cannot create contingency in the sense of
Article 3.1(a) and footnote 4. The prohibition in Article 3.1(a) is neutral as to the type of the subsidy,
meaning that it applies equally to all types of fi nancial contributions. The EC notes that the US
interpretation would create an incentive for Members to make outright subsidy grants, rather than
financial contributions that foresee a return. 339 The repayment provision in the contract does not
somehow magically convert the loan into an export contingent subsidy, by "necessary implication" or
by means of any other obscure assertion, not least in the light of the obvious countervailing
explanations as to the commercial rationale for the existence of such a repayment provision. In the
EC view, the US attempt to dismiss these explanati ons with the puff that "the EC is only proving our
point" is at once wholly inadequate and incomprehe nsible. In demonstrating that the reason for the
existence of the repayment provision has nothing to do with export markets – the neutrality point that

333 EC, FWS, para. 609.
334 EC, FWS, para. 557. .
335 EC, FWS, paras. 615 to 629.
336 EC, FWS, paras. 637 to 656.
337 EC, FWS, paras. 614 and 674 to 681.

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the US actually admits – the EC considers that it demonstrates that export contingency is not the
"necessary implication" of the repayment provision, as the US asserts.340
4.199 For example, with regard to the United Kingdom measure relating to the A380, the US asserts
that it has demonstrated the existence of a subs idy contingent in fact upon export performance
because "the evidence demonstrates that, from th e outset, the A380 was conceived primarily as a
product for export markets in Asia". According to the EC, this assertion is entirely without merit.
The United Kingdom did not influence Airbus' produc t design. Rather, demand, as reported in the
Airbus Global Market Forecasts is what influences Airbus' product design.341
4.200 The EC argues that there are perfectly rational countervailing explanations that justify the
existence of the repayment provision in each of the contracts, which have nothing to do with
exports.342 The EC contends that, in attempting to refu te these countervailing explanations with the
repeated affirmation that motivations are irrelevant to contingency, the US expressly confirms that its
case is entirely without merit.343
4.201 According to the EC, the US arguments are in consistent with, and th e EC's arguments are
consistent with, the panel report in Australia - Automotive Leather II. Contrary to what the US asserts,
the facts of the present case are diametrically op posed to those surrounding the grant contract in
Australia - Automotive Leather II ; and the panel's reasoning regarding the loan contract in that case
supports the EC position and disproves the US position. 344 The same is true with respect to the panel
and Appellate Body reports in the Canada – Aircraft case, in which almost all of the panel's
considerations related to a subsidy programme (the US makes no claim regarding a prohibited subsidy
programme in the present case 345), which exhibited both the required condition (export performance)
and the required contingency, and which thus ta inted the subsidy measures at issue, which were
instances of the application of the programme, irrespective of their form.346
4.202 The EC argues that, faced with the EC rebuttal, the US attempts to impermissibly alter and
enlarge the scope of its case with the late introduction of new arguments and new citations to evidence
regarding supposed "reciprocal commitments", and that these new arguments should be dismissed for
substantially the same reasons. None of the provi sions to which the US refers contains any
"commitment" to export, nor conditions the right to retain funds on export.347
4.203 In concluding, the EC invites the Panel to appr oach the US claims in a systematic manner,
based on the ordinary meaning, context and object and purpose of the relevant provisions, measure-
by-measure. The EC argues that by simply review ing the facts asserted and evidence adduced by the
US, it becomes immediately apparent that the US has failed to even make a prima facie case, and that
all its claims must be rejected.348
4.204 The EC concludes that one-by-one the various el ements of the US case have been challenged,
and the US has been forced to concede. 349 It is not the global market. 350 It is not the fact that Airbus

342 EC, FWS, paras. 657 to 666; EC, FNCOS, para. 80; EC, SNCOS, para. 158; EC, Answer to Panel
Question 217, paras. 531 to 533.
343 EC, SNCOS, paras. 130 to 131.
344 EC, FWS, paras. 667 to 673.
345 EC, SNCOS, para. 124.
346 EC, FNCOS, para. 79.
347 EC, SNCOS, paras. 149 to 154, 159 and 163 to 169.
348 EC, FWS, para. 561.
349 EC, SNCOS, para. 170.

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exports (or is an "export-oriented" company). 351 It is not the alleged "anticipating (or consideration)
of" exports. 352 It is not the alleged "motivation". 353 It is not performance that includes export
performance.354 It is not the fact that the measure foresees a return. 355 And it is not the repayment
provision.356 In the EC's view, it is just because the alle ged recipient is Airbus. That, the EC contends,
is the only reason why the US insists that some how "altogether" its assertions demonstrate the
existence and precise content of a subsidy continge nt upon export performance, when manifestly they
do not.
E. WHETHER CERTAIN LOANS FROM THE EUROPEAN INVESTMENT BANK SUBSIDIZED THE
DEVELOPMENT OF AIRBUS LARGE CIVIL AIRCRAFT
1. Arguments of the United States
4.205 The US argues that the European Investment Bank ("EIB") has repeatedly subsidized the
development of Airbus large civil aircraft. The US notes that the EIB has provided significant
financial support to Airbus for the development of its new models of large civil aircraft. The US
explains that the financial support has taken the form of loans – at least 11 to date – with a total
principal value of approximately EUR 1,600,000,000. The EIB provides the loans for the
development of specific models of Airbus LCA, usually as a supplement to the Launch Aid that the
various Airbus governments provide for the same mode ls. The US submits that each of the EIB loans
is a subsidy within the meaning of Article 1.1 of the SCM Agreement that is specific within the
meaning of Article 2 of the SCM Agreement.
357
4.206 The US sets out the factual background of the European Investment Bank. It explains that the
EIB, "the financing institution of the European Union, was created by the Treaty of Rome. The
members of the EIB are the member States of the Eu ropean Union, who have all subscribed to the
Bank's capital." According to the US, the EIB descri bes itself as "the EU's policy-driven Bank." It
has "close working relations with the other EU institu tions, in particular the European Parliament, the
European Council and the European Commission." It provides financing in support of EU policy
priorities. The projects it funds must "help achieve EU objectives such as making European industries
and small businesses more competitive." For all of these reasons, the EIB is, according to the US, a
"public body" within the meaning of Article 1.1(a)(1) of the SCM Agreement.358
4.207 The US contends that the loan that the EIB provided to EADS in 2002 is a specific subsidy
under Articles 1 and 2 SCM Agreement. The US states that in 2002, the EIB agreed to provide a
EUR 700,000,000 "individual loan" to EADS for R&D related to the Airbus A380. The loan is a
subsidy within the meaning of Article 1.1 of the SCM Agreement that is specific within the meaning
of Article 2 of the SCM Agreement.
359
4.208 First, according to the US, the EIB is a pub lic body, and the EUR 700,000,000 that it agreed
to provide to EADS for the A380 – like all of the other EIB measures that the US is challenging in

350 US, SWS, para. 253.
351 US, SWS, para. 253.
352 US, SWS, para. 135 and 220.
353 US, SWS, paras. 231 and 234.
354 US, SWS, para. 244.
355 US, SWS, para. 220.
356 US, SWS, para. 134.

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this dispute – is in the form of a loan. Accordi ngly, it is a financial contribution within the meaning
of Article 1.1(a)(i) of the SCM Agreement.360
4.209 Second, according to the US, the loan confers a benefit because it is on terms that are more
favourable than those available in the market. The US argues that the EIB readily admits that its
entire purpose is to support the EU's public policy objectives by providing loans on better terms than
the recipients could otherwise obtain, if they could obtain the loans at all. According to the US, the
EIB effectuates this benefit by passing on the inte rest rate it pays on its own (AAA-rated) capital
market borrowings to its non-AAA rated borrowers, a nd by lending the funds at cost. Thus, like the
Technology Partnerships Canada ("TPC") program at issue in the Canada – Aircraft dispute, the EIB
"neither seeks nor earns a commercial rate of return" on the loans it provides. The Canada – Aircraft
panel treated this factor as dispositiv e in determining the existence of a subsidy in that dispute. It is
equally dispositive with respect to the EIB.
361
4.210 Furthermore, the information that the EC pr ovided during the Annex V process confirms, in
the US view, that the EIB loan for the A380 confers a benefit because the interest rate on the loan is
below the risk-adjusted commercial borrowing rate that the market would have charged EADS in
2002 on an equivalent long-term loan. The loan is al so specific within the meaning of Article 2 of the
SCM Agreement. It is disproportionately large both in percentage and in absolute terms. Also, every
"individual loan" that the EIB provides is entirely discretionary.362
4.211 Finally, the US submits that the loans that the EIB provided to Airbus between 1988 and 1993
are specific subsidies. The EUR 700,000,000 that th e EIB agreed to provide for the A380 was not its
first loan to an Airbus project. Since 1988, the ba nk has provided at least eleven additional loans for
the development of specific Airbus models. The US contends that, like the EUR 700 million loan for
the A380, each of these additional loans is a specif ic subsidy to Airbus within the meaning of
Articles 1 and 2 of the SCM Agreement.363
4.212 In its second written submission, the US points out that the EC responded principally by
contesting that the EIB loans are specific and that they confer a benefit. First, with regard to
specificity, the US considers that among other flaw s, the EC argument relies heavily on an approach
to disproportionality for purposes of determining whether a subsidy is de facto specific that would
measure each loan provided by the EIB against the totality of EIB lending over its entire five-decade-
long history.364 The US argues that the EC argument that the Panel should judge the specificity of
EIB loans by examining all loans it has provided to all sectors since its founding would, if accepted,
enable massive circumvention of the SCM Agreement.365
4.213 The US considers that the EC is mistaken in its view that the EIB loans at issue are not
specific within the meaning of Article 2 of the SCM Agreement. 366 With almost no discussion, the
EC asserts that "{t}he challenged EIB loans... cannot be specific under Article 2.1(a)
SCM Agreement," apparently based on the absence of explicit limitations on eligibility for EIB loans.
However, the US asserts, if the unique terms an d conditions of a given subsidy contract are
sufficiently different from the terms and conditions of other contracts granted under the same subsidy
program, this can cause the subsidy at issue to fall outside the parameters of the broader program of

365 US, FNCOS, Executive Summary, para. 14. See, also, US, SWS, Executive Summary para. 30

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which it is a part. In that case, the US explains, the subsidy ought to be c onsidered separately from
the larger program for purposes of a de jure specificity analysis under Article 2.1(a) of the
SCM Agreement.367
4.214 The US argues that despite repeated assertions that eligibility for EIB lending is "objective"
and "automatic" (and therefore, in the EC view, non-specific as a matter of law), the EC position is
belied by its own explanation. In particular, th e US notes that the EC describes multiple layers of
review that must be completed in order for the EIB to approve a loan application, showing that
obtaining an EIB loan is anything but "automatic." Also, the factors considered during that process
show that the criteria or conditio ns governing eligibility – such as "improvement of the efficiency
and/or quality of the infrastructure" and "alleviation of social problems or exclusion" – are subjective
rather than objective. The US argues that while the EC calls the EIB Eligibility Guidelines "a very
good example of criteria which are economic in nature and horizontal in application, and which are
not favouring enterprises of any sector (or even any size)," it provides absolutely no demonstration of
why this characterization is accurate. And, indeed, it is not.
368
4.215 The US considers that in each case, the loans are discretionary, "individual" loans that are
disproportionately large.369 The US points out that the EC has refused to provide the information that
the Panel would need to evaluate the unique terms a nd conditions of most of the EIB loans at issue.
Moreover, the EC refused to provide information about other EIB lending that might allow for an
analysis of the manner in which the EIB exercised its discretion in providing loans to Airbus as
compared with other borrowers.
370 The US explains that the EC provides no evidence to show that
the EIB loans to Airbus are suffici ently similar to other loans granted by the EIB that they cannot be
considered subsidies that are specific within the meaning of Article 2.1(a).371
4.216 The US submits that the EC has failed to de monstrate that the EIB loans are non-specific
within the meaning of Article 2.1(b) of the SCM Agreement. According to the US, the EC's own
description of the EIB's loan approval process makes clear that its loans are discretionary, and the
facts further demonstrate that the challenged loans were specific to Airbus. 372 The US considers that
the EC argues without basis that the EIB loans to Airbus must be analyzed in comparison to all the
lending activity of the EIB over its entire 50-year history. In contrast, the US looks at de facto
specificity based on how the EIB itself describes its lending activity, comparing the 2002 loan to
EADS, for example, to the EIB's i2i program, wh ich involved a "dedicated" amount of money loaned
over a period of time with starting and ending points prescribed by the EIB.373
4.217 With regard to whether the EIB loans confer a benefit, the US considers that the EC is wrong
to suggest that EIB loans do not confer a benefit on Airbus because of supposed (but completely
unsubstantiated) "obligations imposed by the EI B" that, according to the EC, a commercial lender
does not impose on its borrowers.
374 The US has presented evidence showing that the EIB's very
purpose is to provide financing on terms more favourab le than those available in the market. The EC
misleadingly attempts to downplay the unmistakable import of statements about the EIB's mission.
For example, the EC asserts that the requirements th at EIB interest rates "be set at a level enabling
EIB 'to meet its obligations, to cover it s expenses and to build up a reserve fund '" and that the EIB

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"not grant any reduction in interest rates" mean that "the bank's Statute expressly prohibits the bank
from subsidising any borrower." But that is not wh at these provisions mean. All banks – regardless
of whether they are for-profit or (as the EIB) not -for-profit – are required "to meet ... obligations, to
cover ... expenses and to build up a reserve fund." What distinguishes a market lender from the EIB
is that a market lender, in addition to meeti ng obligations, covering e xpenses, and building up a
reserve fund, seeks a profit.375
4.218 Further, the US notes that the EC openly admits that the interest on EIB loans provided to
Airbus from 1988 to 1993 did not include a risk premium, making them preferential to those available
in the market by definition. Ev en with respect to the 2002 EIB loan to EADS for A380 development,
the EC is less than clear as to whether the interest rate actually included a risk premium. The US
argues its contention that EIB loans confer a bene fit on the recipient is further confirmed by a
comparison between the EIB loans to Airbus and ma rket benchmarks established on the basis of the
only two EIB loans for which the EC identified the precise terms and conditions.
376
4.219 In addition to lower-than-market interest rat es, the US argues that the EIB loans confer a
benefit by excluding a commitment fee. The EC asserti on that uncertainty about date of disbursement
and the final interest rate on an EIB loan explain the absence of a commitment fee ignores the purpose
of a commitment fee as compensating for providing a borrower the valuable option of drawing on
funding at a later date.
377 The US considers that the EC's pr oposed market benchmark for measuring
the benefit conferred by EIB loans is flawed for several reasons, including, inter alia, its reliance on
bonds issued in the US, notwithstanding known yi eld differences between such bonds and dollar-
denominated bonds issued by persons outside the US.378
4.220 At the second Panel meeting the US also asserted th at in trying to show that EIB loans do not
confer a benefit, the EC mistakenly focuses on the activities of international lending institutions in
general (rather than the EIB in particular), inappr opriately discounts the fact that the EIB does not
seek to maximize profits, and alludes vaguely to hypothetical "other lending conditions" that "can ...
outweigh{}" "{a}n advantageous interest rate" while providing no evidence of such conditions.379
4.221 In the US view, the EC's own words speak fo r themselves. According to the US, the EC
acknowledged that the EIB's decisions are "policy driv en," that they are "not determined by purely
commercial considerations," and that the EIB has no need to "maximize profits." 380 For the US, this
acknowledgment confirms that the financing provided by the EIB provides a benefit to Airbus as
compared to financing provided by commercial le nders – that is, lenders who do have a need to
"maximize profits." Accordingly, this financing constitutes a subsidy.381
4.222 Finally, the US asserts that the EC belief that loans for which the face amount has been repaid
cease to confer benefits and cause adverse effects ignores that those loans were below market, and so
the subsidy element has not been repaid.382

380 citing, EC First Oral Statement, paras. 12 and 98.

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2. Arguments of the European Communities
4.223 The EC rebuts the US assertions that the EIB repeatedly subsidised the development of
Airbus LCA through loans provided to EADS and other companies.383
4.224 First, the EC asserts that it corrects a number of factual misinterpretations put forward by the
US, and provides a corrected description of the EIB's status and functioning. 384 The EIB is a sui
generis multilateral financial institution established in 1957, by the Treaty establishing the European
Community (Treaty of Rome of 1957, hereinafter "EC Treaty") and created by sovereign
governments, sharing many similarities with the Wo rld Bank and other fina ncial institutions that
operate at a regional or internationa l level. The task of the bank is set forth in Article 267 of the EC
Treaty.
385 To achieve the objectives set out in Article 267 of the EC Treaty, the EIB formulates a
number of more specific priorities and objectives. 386 The US attempts to imply that EIB is controlled
by member State governments through the Board of Governors and the Board of Directors are
simplistic and misleading. The EIB enjoys legal personality and financial autonomy and is endowed
with its own decision-making bodies. The EIB funds its operations by borrowing on the capital
markets rather than by drawing on the budget of either the European Co mmunities or the member
States, in accordance with its Statute. Interest rates on loans provided by the bank are adjusted to
conditions prevailing on capital markets. The EIB is not allowed by its Statute to grant subsidies.
387
The EIB enjoys full independence in the conduct of financial operations pursued to further its
objectives, as confirmed by the European Court of Justice. 388 The EC also explains that the EIB does
not promote only "European industries" as the nationa lity of the borrower is not a relevant criterion
when granting a loan.389 Examples of large loans to "non-EC" companies can be found at Exhibit EC-
157 (Non-BCI) of the EC's first written submission in which the EC provides a complete list of all
EIB loans for the period 1957-2006.390
4.225 The EC explains that the EIB is, together with the World Bank, the European Bank for
Reconstruction and Development and others, in a category of international financial institutions which
all have the same common feature that they do not seek to maximise profit but rather pursue, through
their lending, wider developmental and socio-economic policy objectives. The EC submits that the
US argument that the EIB provid es subsidies just because it does not focus on profit maximization
would mean, if followed by the Panel, that any of these international lending institutions provides
subsidies. This would not only be legally inco rrect, it would also constitute a major obstacle to
developmental policies around the globe.391
4.226 The EC argues that the US failed to make a prima facie case with respect to those EIB loans
that already were repaid 392 (ten out of thirteen loans challenged by the US have been fully repaid). 393
The US has not explained how loans that have long been repaid constitute existing measures that the

385 EC, FWS, para. 1005.
386 EC, FWS, para. 1006.
387 EC, FWS, para. 1008.
388 EC, FWS, para. 1007.
389 EC, FWS, para. 1009.
390 EC, FWS, footnote 817.

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Panel should examine and determine how they cause present adverse effects to US interests. 394
Further, at least one of the challenged loans is not properly before the Panel.395
4.227 Next, the EC asserts that EIB financing is not sp ecific and that the Panel can therefore reject
the US claims on that ground alone. 396 In the EC view, the US entirely ignores that there are
international financial institutions which, although operating on a basis th at is actually very similar to
that of commercial banks, pursue broader public policy objectives and – by their very founding
charters – promote projects of all sizes in all sectors and without any discrimination. Financing by
such institutions is, by definition, non-specific a nd – also under the terms of the US domestic law –
does not constitute a subsidy.397
4.228 Furthermore, the EC argues that the US co mmits a legal error when it argues that EIB
financing is specific. As regards specificity de jure,398 the EC explains that under its founding statute
and the EC Treaty, the EIB provides financing across all economic sectors and promotes projects in
all areas of human activity. The facts also do not su pport the US allegation that EIB financing can be
misused to promote the interests of Airbus.
399 In accordance with Article 267 of the EC Treaty, the
EIB is legally required to extend fi nancing to projects for companies of all sizes and across all sectors
of the economy. All the terms of EIB contracts wh ich have any relevance for the finding of subsidy
(interest rate, maturity, repayment profile, etc) ar e set on the grounds of the same underlying criteria
and methodology that apply across the board to all projects (and borrowers). 400 These criteria are
neutral and economic in nature. 401 The eligibility determination made on the basis of these criteria is
automatic within the sense of Article 2.1(b) SCM Agreement.402 The EC has provided copies of all the
contracts at issue as well as the template of a standard EIB contract.403
4.229 The EC indicates that the US attempts to ove rcome these EC arguments by arguing that the
challenged loans are specific de facto. The EC argues that in doing so, the US commits both legal and
factual errors. On law, the US ignores the text of Article 2.1(c) SCM Agreement and tries to
artificially narrow the period of time of considerati on or the area of EIB lending as much as possible,
in order to succeed with its misconceived "dispr oportionality" analysis. However, neither the
existence of the EIB's Innovation 2010 Initiative (i 2i) as an individual policy objective, nor the EIB
reporting of its activities on a sectoral or on an an nual basis can be validly taken as evidence of a
separate programme allowing a separate and distin ct "disproportionality" analysis. Since the
eligibility criteria apply across sectors, and since a single loan may, and routinely does, satisfy a
number of policy objectives, any "disproportionality" analysis will always be artificial, unless one
would consider the entire portfolio of EIB le nding, across all EIB objectives and criteria, as a
"programme" in the sense of Article 2.1(c) of the SCM Agreement.
404 The EC provides ample
evidence showing that the US factual assertions in this respect – apart from being based on an
erroneous legal theory – are also contrary to the facts.405

394 EC, FWS, para. 1001.
395 EC, FWS, para. 1003.
401 EC, FWS, para. 1024.
402 EC, FWS, para 1031.
403 EC, SWS, paras. 418-419 and, in particular para. 420.
404 EC, FWS, para. 1039.

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4.230 The EC is of the view that the specificity of th e challenged EIB loans is to be examined at the
level of the EIB financing as a whole. The individu al loans "reflect the normal operation" of the EIB
and, further, the substantive terms of these loans, such as interest rate or security and risk pricing, are
set on the basis of horizontally applied criteria and methodologies which are not tailored to any
individual loans. The EC explains that it would be against the object and purpose of the
SCM Agreement, which is to encourage Members pr oviding financing to employ market disciplines,
including risk pricing or requiring external security , to renounce on such elem ents. An interpretation
of Article 2 that requires a Member to confer a subsidy to ensure that that subsidy is not specific must
be rejected. To determine whether a loan provided under a programme is de facto specific, funding
offered through the programme has to be considered, not an arbitrarily selected part of it.
406
4.231 The EC argues that in any event, the cha llenged EIB loans do not and did not confer
"benefits", and are therefore not "subsidies" , within the meaning of Article 1 of the
SCM Agreement.407 The EC considers that the "market" benchmarks proposed by the US are grossly
inaccurate and based on simplified assumptions. 408 The EC provides a detailed calculation of
properly-identified benchmarks with regard to all of the remaining lo ans. The benchmarks show that
the rates for the challenged loans are either at or above market terms 409 and demonstrate that none of
these loans actually conferred any benefit. In any event, the EC also highlights that when making a
comparison with the market, the US only takes into account one element of the loan – the interest rate
– and ignores other tangible as well as less tangible as pects of the EIB lending which are of additional
cost to the borrower.410 Borrowers would not incur such additional costs in the market,411 in particular
with respect to market benchmarks based on bonds, as bonds have distinct characteristics from
loans.412 Thus, the additional obligations placed on the EIB borrower have to be taken into account.413
4.232 The EC also explains that the US assertion that EIB provides subsidies merely because the
EIB does not seek to maximize profits is not releva nt for the determination whether a subsidy exists
under Article 1 of the SCM Agreement. 414 The EC maintains that the US approach contradicts the
well established WTO jurisprudence that a subsidy ex ists only if it confers a benefit on the recipient
(irrespective of whether the granting authority seeks profit or not). Hence, to determine the existence
of benefit, one has to compare each of the loans challenged by the US with a market benchmark.415
4.233 The EC also explains that every one of the ch allenged EIB loans has been collateralised or, in
case of the EADS loan for the A380 project, subject to a risk premium.416
4.234 The EC further argues that the fact that th e EIB does not charge a commitment fee is a
reflection of the fact that the EIB does not undert ake a commitment comparable to the one available
usually on the market.417
4.235 In addition, the EC asserts that the US argum ents that EIB loans "supplement" MSF or other
alleged subsides are fundamentally mistaken and expl ains at length that the EIB is an independent

407 EC, FWS, para. 1108.
411 EC, FWS, paras. 1056 and 1084.
412 EC, SWS, paras. 494-499.
414 EC, SWS, para. 490.
416 EC, SNCOS, para.368
417 EC, SNCOS, para. 192.

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institution and the decision of the Board of Director s approving a loan is based solely on business
consideration and the EIB Statute.418
4.236 The EIB financing cannot be said to "shift comme rcial risk of launch", as the United States
asserts, without any justification. Thus, the EC is of the view that the effects of the challenged EIB
loans can not be aggregated with other financing mechanisms concerned and that even if the EIB
loans were found to be a specific subsidy, they are, as such, not likely to create any adverse effects
within the meaning of the SCM Agreement.419
4.237 Finally, the EC submits that the US failed to make a prima facie case as it ignored the fact
that the challenged loans had been provided, to a large extent, to companies which no longer
manufacture LCA that is alleged to cause adverse eff ects to US interests and that, in any event, the
challenged EIB loans do not provide a benefit in the sense of Article 1.1(b) SCM Agreement.420
F. WHETHER THE GERMAN, FRENCH, UK, AND SPANISH GOVERNMENTS HAVE SUBSIDIZED
AIRBUS THROUGH THE PROVISION OF INFRASTRUCTURE AND INFRASTRUCTURE-RELATED
GRANTS.
1. Arguments of the United States
4.238 The US argues that the German, French, UK, and Spanish Governments have subsidized
Airbus through the provision of infrastructure and infrastructure-related grants
4.239 The US submits that in addition to Launch Aid and EIB loans, the Airbus governments have
provided massive subsidies to Airbus to develo p, expand, and upgrade infrastructure and other
facilities. These subsidies increased markedly in recent years in conn ection with the development of
the Airbus A380. The subsidies at issue were granted by German authorities in Hamburg,
Nordenham, and Bremen; by French authorities in Toulouse; by UK authorities in Broughton; and by
Spanish authorities in numerous locations in Spain. The US contends that each of the measures is a
specific subsidy to Airbus within the meaning of the SCM Agreement.
421
(a) Alleged infrastructure subsidies
(i) Hamburg
4.240 The US contends that when Airbus launched th e A380, it decided to establish one of its A380
assembly facilities at its Hamburg-Finkenwerder site. At the time that Airbus made this decision,
however, its existing facilities in Hamburg were lo cated on a peninsula, with the river Elbe and
wetlands on three sides, leaving no space on which to build the A380 facility. The US explains that
Hamburg authorities solved this issue by transf orming one of the wetlands – the internationally-
protected "Mühlenberger Loch" – into an industrial site, at a cost of approximately EUR 751,000,000.
The development of the Hamburg-Finkenwerder site a nd its provision to Airbus is a specific subsidy
to Airbus because the Hamburg authorities created a site that the market would not have created, and
because they have provided the site to Airbus for less than adequate remuneration. Hamburg also
subsidized Airbus by sharing the costs to construct the A380 assembly facilities.422

418 EC, SNCOS, para.370
419 Ibid.
422 US, FWS, Executive Summary, para. 45. The United States later withdrew this latter claim, US,

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4.241 The US notes that the EC concedes that Ham burg spent at least EUR 695 million to create an
industrial site for Airbus at Mühlenberger Loch. 423 The US also notes that there is no dispute between
the EC and the US that the City of Hamburg created the artificial land at the Mühlenberger Loch free
of charge and free of risk for Airbus – and thereb y allowed Airbus to expand its existing facilities to
accommodate A380 production. The US points out that the EC approach to addressing the undisputed
facts is to treat the creation of the site, the building of flood protection measures, and the building of
special-purpose facilities on the site as three separat e transactions, each distinct from one another, as
well as being distinct from and unconnected to the lease of the newly created land and special purpose
facilities to Airbus.
4.242 The US notes that the EC argues that the creation of the site, in and of itself, did not constitute
a financial contribution to Airbus but, rather, the provision of general infrastructure. The EC then
treats the lease to Airbus no differently from an ordinary commercial lease in which it was not
necessary to first create the artificial land. The US considers that this approach ignores the reality that
the City of Hamburg invested EUR 750 million into cr eating a site to the specifications of Airbus, an
amount that Airbus otherwise would have had to spend itself on the expansion of its existing site.
424
4.243 The US considers that the EC argument th at the creation of the land was "general
infrastructure" is based on a misinterpretation of the SCM Agreement and the false premise that
Hamburg's "law on the development of the port" required the City to reclaim the land from
Mühlenberger Loch. Hamburg spent EUR 751 million to transform a protected wetland area into an
industrial site for Airbus, knowing that the project would result in a several hundred million Euro loss.
A private investor would not have made such an investment.
425
4.244 The US explains that the EC assertion that creation of the Airbus site at the Mühlenberger
Loch amounted to the provision of general infrastructure is wrong for the following reasons. First, the
EC theory that land for industrial and residen tial use in Hamburg is limited because Hamburg is
"surrounded by water" is factually incorrect. Hambur g is located on the river Elbe, but it is certainly
not surrounded by water, and Hamburg's own Mi nister for the Economy has touted the "abundant
supply of office space and commercial real estate" in Hamburg.426
4.245 Second, the EC assertion that the creation of the new, artificial land in the Mühlenberger Loch
was motivated by the need for additional land for the harbor and thus undertaken to fulfil a public task
– the development of the harbor – is both legally irrelevant and factually wrong. It is legally
irrelevant because the test for whet her infrastructure is general is not whether it serves some "public
policy objective." As for the facts, a closer examina tion shows that the creation of the site for Airbus
does not serve the development of the Port of Hamburg, but was undertaken exclusively for Airbus.
As the EC grudgingly admitted in responding to th e Panel's questions, the entire site created from
wetland and river areas in the Mühlenberger Loch and Rüschkanal is located outside
 the Harbor Area
as defined by Hamburg's Port Development Act. The EC also errs in describing plans for expansion
of the Harbor Area.427

BCI deleted, as indicated [***]

4.246 Third, the EC ignores that the Mühlenberger Lo ch and the Rüschkanal were transformed into
artificial land exclusively for Airbus . This fact is confirmed by contemporaneous statements by the
European Commission, the Hamburg government, and the Hamburg Court of Appeals.428
4.247 The US considers that equally erroneous is the EC theory that the Airbus site amounts to
general infrastructure due to the remote possibility that one day the site might be used by another user,
as long as the City of Hamburg retains formal owne rship of the site. It would be very easy to
circumvent the SCM Agreement if the provision of infrastructure by a WTO Member to specific
companies or industries – even on a decades-long b asis – were excluded from the agreement by virtue
of being "general infrastructure" simply due to th e Member's retaining title to the infrastructure.
Moreover, the EC portrayal of the relevant facts is incorrect. German planning law prohibits any use
of the site other than for aircraft manufacturing a nd aviation purposes. And with respect to the dyke
lane that surrounds the site, the EC ultimately must admit that during the period of Airbus' lease, it is
open to use only by "Airbus employees and offici als of Hamburg with a responsibility for dyke
maintenance and security." Even assuming hypothe tically that the restrictions under German
planning law did not exist and that Airbus terminat ed its use of the newly created land, the site still
would not be suitable for users other than Ai rbus given the land's physical and geographical
situation.
429
4.248 The US considers that the dykes around the Air bus site – built at a cost of EUR 29.3 million
(about four percent of the total cost of creating th e artificial land) – are not general infrastructure,
because it would not have been necessar y to build them absent the creation of that land for Airbus in
the first place.430
4.249 Given that the site created for Airbus at the Mü hlenberger Loch is not general infrastructure,
its lease to Airbus on terms that do not include the in vestment in creating the site confers a benefit on
Airbus. And, in addition to ignoring the cost of creating the site, Hamburg assumed the entire risk
that the artificial land may subside, conferring an additional benefit on Airbus in the form of a
reduced lease price until 2019.431
4.250 The US notes that the EC argu es that the cost of turning th e wetland and water areas in the
Mühlenberger Loch and the Rüschkanal into a site fo r Airbus are irrelevant as a benchmark. In the
EC view, these costs do not reflect the benefit to Air bus, but the cost to Hamburg. However, in the
US view, the EC ignores that Hamburg's actions repr esent a substantial cost savings to Airbus. The
US explains that had it not been for the government's creation of the land, Ai rbus would have had to
make that investment itself.432
4.251 The US points out that even assuming, for the sak e of argument, that the value of pre-existing
land is the right basis for determining a market pr ice for Airbus' lease, the actual lease price still falls
below a market benchmark, as demonstrated by an analysis provided by local real estate experts
Dr. Ing. Keunecke and Dipl.-Ing. Stoehr.
433 The opinion to the contrary by the Hamburg Committee
of Experts for Property Values is flawed in part because it accepts the proposition that the risk that the
land will settle should be accounted for through a rent reduction, and in part because it uses the wrong
basis under German law for calculating a market inte rest rate. Finally, even assuming that the land
leased by the City of Hamburg had already existed (and that a market-based lease price would not,

433 E.g., US, FWS, paras. 432-433, Exhibit US-189.

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therefore, have reflected the cost of creating the land in the first place), a private landowner certainly
would have demanded a premium from Airbus over the lease price it would have charged any other
lessee, given that this site is adjacent to Airbus' existing facilities and is the only site that Airbus could
use to locate its A380 production in Germany.434
(ii) Bremen
4.252 The US argues that Germany provided DM 50 million in infrastructure subsidies to Airbus in
Bremen by agreeing to extend the main runway at Bremen airport to accommodate transport flights
for Airbus wings manufactured in Bremen. Th e governing SPD in the Bremen Parliament has
explicitly described the runway as a "Werksbahn" (o r "company runway") for Airbus. Airbus paid
nothing for this benefit.
435
4.253 The US notes that the EC argues that Airbus does not receive a benefit "because it is landing
heavier aircraft, and is in turn paying a highe r user fee." The US considers that the EC
misunderstands the fee regulation adopted by the City of Bremen. The US explains that under that
regulation, fees are based on maximum take-off weight, not actual take-off weight. And in any event,
regardless of the maximum take-off weight, users other than Airbus are not allowed to use the
extended runway. Absent an arrangement that ensures that the City of Bremen is compensated for the
runway infrastructure created specifically for Airbus and open for use only by Airbus, Airbus receives
a benefit from having been provided with this infrastructure.436
(iii) Toulouse
4.254 The US notes that Airbus decided to establish its second A380 assembly facility at its
Toulouse site. The US contends that French authorities expended EUR 200,000,000 to transform
agricultural land next to Airbus' Toulouse headquarters and the Blagnac airport into the
"AéroConstellation" site – an aeronautics industrial park that French authorities described as a "tailor-
made solution for the A380." The development of the AéroConstellation site and its provision to
Airbus is a subsidy within the meaning of Article 1.1 of the SCM Agreement that is specific within
the meaning of Article 2 of the SCM Agreement. First, the French authorities sold a portion of the
site to Airbus for less than adequate remunera tion. Second, the authorities are leasing the general
facilities on the site (the EIG facilities) to Airbus for less than adequate remuneration.
437
4.255 The US asserts that the Fren ch authorities spent at least EUR 78 million to develop the
AéroConstellation site, plus a nother EUR 80 million to develop facilities on the site. Airbus
purchased at least 51 hectares of the site, and the price Airbus supposedly paid is well below the
amount the French authorities spent to develop the site . In this way, the French authorities conferred
a subsidy on Airbus.438
4.256 The US notes that the EC's principal response is to argue that the goods the French authorities
provided to Airbus constitute general infrastructur e and therefore are excluded from the definition of
"subsidy." This is another example of the EC's flawed understanding of what constitutes "general
infrastructure." Moreover, as with the Hamburg site , the EC contention that the US has taken a cost-
to-the-government approach to showing the exis tence of a subsidy ignores the fact that by

BCI deleted, as indicated [***]

transforming agricultural land into an industrial site and then providing it to Airbus at a below-market
price, the French authorities have conferred a benefit on Airbus in the form of a cost savings.439
4.257 Also, Airbus does not pay a lease price reflecting market conditions for the so-called EIG
facilities (taxiways, parking, etc.) at the T oulouse site. The average annual lease price of
EUR 3.1 million demanded by Grand Toulouse for Ai rbus' use of the EIG facilities is substantially
below a market price of between EUR 9.9 million and EUR 12.1 million for the facilities and the land.
Other non-commercial aspects of the lease include the fact that Grand Toulouse allows for a deferral
of the lease payments.
440
(b) Regional Aid
(i) Nordenham
4.258 The US argues that in June 2002, the par liament of the German land of Lower Saxony
approved a EUR 6,000,000 grant to Airbus to help underwrite a EUR 49,000,000 expansion of
Airbus' production facility in Nordenham. The purpose of the expansion was to accommodate the
production of components for the A380. As a gr ant, the EUR 6,000,000 necessarily constitutes a
subsidy within the meaning of Article 1.1 of the SC M Agreement. The US considers that the grant is
also specific since it is an ad hoc grant exclusively to Airbus for the specific purpose of expanding its
A380 component production facility.
441
(ii) Broughton
4.259 The US asserts that on September 24, 2000, the Welsh Assembly announced that it had
agreed to provide a GBP 19,500,000 grant package to BAe Systems in support of its A380 wing
production work in Broughton. The package included GBP 15,000,000 from the Welsh Development
Agency for the "general infrastructure of a big site" and GBP 4,900,000 for the "development of
people." As a grant, the GBP 19,500,000 is a subsidy within the meaning of Article 1.1 of the
SCM Agreement. The grant is also specific because, inter alia, it was an ad hoc grant to Airbus.
442
4.260 The US notes that with respect to its claim concerning a GBP 19.5 million grant the Welsh
Assembly provided to BAe Systems in September 2000, the EC argues that the grant is not specific
within the meaning of Article 2 of the SCM Agreemen t. However, in the US view, the EC fails to
address the circumstances under which the grants we re provided. In particular, it ignores entirely
BAe Systems' application for a grant under the Welsh government's RSA scheme and the reaction
provoked by the rejection of that application, lead ing to the grant actually provided. Examining the
circumstances surrounding the Welsh grant in their totality reveals th at the grant indeed is specific
within the meaning of Article 2 of the SCM Agreement.
443
(iii) La Rinconada
4.261 The US argues that in April 2001, the Spanish Ministry of Economics issued an order
approving regional grants of EU R 2,200,000 to EADS-CASA at Sevilla and EUR 814,000 to EADS-
CASA at La Rinconada, Sevilla. As grants, the EUR 2,200,000 and EUR 814,000 are subsidies
within the meaning of Article 1.1 of the SCM Ag reement. The grants are also specific under

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Article 2.2 of the SCM Agreement because eligibility for the subsidies is explicitly limited to certain
designated geographical regions within the jurisd iction of the authority granting the subsidies
(Spain).444
(iv) Illescas
4.262 The US asserts that in March 2003, the Spanish Ministry of Economics approved a
EUR 37,900,000 grant to Airbus España. The grant covered 15 percent of the total investment costs
of an expansion of Airbus' parts and components production site in Illescas, in Toledo, Spain. The US
asserts that as a grant, the EUR 37,900,000 is a su bsidy within the meaning of Article 1.1 of the
SCM Agreement. The US contends that the gran t is specific for the same reasons that the La
Rinconada grants are specific.445
(v) La Rinconada
4.263 The US submits that in July 2003, the Spanish Ministry of Economics issued an order
approving another regional grant, this time in the amount of EUR 43,100,000, to EADS-CASA at La
Rinconada, in Sevilla. As a grant, the EUR 43,100,000 is a subsidy w ithin the meaning of Article 1.1
of the SCM Agreement. The grant is specific fo r the same reasons that the earlier La Rinconada
grants were specific.
446
(vi) Puerto de Santa Maria
4.264 The US asserts that in July 2003, the Spanish Ministry of Economics issued an order
approving a EUR 5,900,000 grant to EADS-CASA at Puerto de Santa Maria, in Cadiz. As a grant, the
EUR 5,900,000 is a subsidy within the meaning of Ar ticle 1.1 of the SCM Agreement. The grant is
specific for the same reasons that the La Rinconada grants were specific.
447
(vii) Puerto Real
4.265 The US asserts that in July 2003, the Spanish Ministry of Economics issued an order
approving a EUR 13,100,000 grant to EADS/Airbus España's facility at Puerto Real, in Cadiz. As a
grant, the EUR 13,100,000 is a subsidy within the meaning of Article 1.1 of the SCM Agreement.
The grant is specific for the same reasons that the earlier grants are specific.448
(viii) Puerto de Santa Maria
4.266 The US submits that in July 2001, the government of the Spanish region of Andalusia
provided a EUR 8,600,000 grant to CASA for a new pr oduction and maintenance facility in El Puerto
de Santa Maria, in Cadiz. As a grant, the EUR 8,600,000 is a subsidy within the meaning of
Article 1.1 of the SCM Agreement. In addition, th e grant is specific because it was provided as part
of an Andalusian government development plan for the Bahía de Cadiz, and thus was limited to a
designated geographical region of the authority granting the subsidies.
449

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(ix) Sevilla
4.267 The US asserts that in July 2002, the government of Andalusia authorized a grant of
EUR 35,700,000 for an investment by EADS-CASA in Sevilla. The US explains that the grant was
75 percent financed by the European Regional De velopment Fund and 25 percent financed by the
Andalusian government. As a grant, the EUR 35,700,000 is a subsidy within the meaning of
Article 1.1 of the SCM Agreement. The grant is also specific within the meaning of Article 2 of the
SCM Agreement. Subsidies under the European Regional Development fund are necessarily limited
to "certain enterprises located within a designated geographical region within the jurisdiction of the
granting authority," and thus are specific within the meaning of Article 2.2 of the SCM Agreement.
450
(x) Puerto Real
4.268 The US submits that in July 2003, the government of Andalusia authorized a further grant of
EUR 17,500,000 for the expansion and modernization of Airbus' facilities in Puerto Real, in Cadiz.
The European Regional Development Fund co-financed the grant. As a grant, the EUR 17,500,000 is
a subsidy within the meaning of Article 1.1 of the SCM Agreement. Additionally, the grant is
specific within the meaning of Article 2 of the SCM Agreement because it was provided under a
program that is limited to "certain enterprises lo cated within a designated geographical region within
the jurisdiction of the granting authority."451
(xi) Illescas
4.269 The US argues that in March 2004, the gove rnment of Castilla-La Mancha approved a
EUR 7,600,000 grant to Airbus España for the ex pansion and modernization of Airbus' parts and
components production site in Illescas, in Toledo . The European Regional Development Fund co-
financed the grant. As a grant, the EUR 7,600,000 is a subsidy within the meaning of Article 1.1 of
the SCM Agreement. The US considers that the grant is also specific within the meaning of Article 2
of the SCM Agreement because it was provided under a pr ogram that is limited to "certain enterprises
located within a designated geographical region within the jurisdiction of the granting authority."452
(xii) La Rinconada
4.270 Finally, the US submits that in October 2004, the government of Andalusia authorized a grant
of EUR 61,900,000 for an investment project by EADS-CASA in the municipalities of Sevilla and La
Rinconada, Sevilla. As a grant, the EUR 61,900,000 is a subsidy within the meaning of Article 1.1 of
the SCM Agreement. The grant is also speci fic within the meaning of Article 2 of the
SCM Agreement because it was provided under a pr ogram that was explicitly limited to "certain
enterprises" within the meaning of Article 2.1 of the SCM Agreement. The US notes that the EC
asserts that the grant is not being used for large civ il aircraft activities. However, the US argues, the
evidence it provides fails to substantiate this assertion.
453
(c) General infrastructure
4.271 In its second written submission the US notes th at the EC argument concerning US claims
relating to provisions of infrastructure rests largely on the position that much of what the US has
challenged constitutes "general infrastructure" with in the meaning of Article 1.1(a)(1)(iii) of the

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SCM Agreement and, therefore, is excluded from the definition of "subsidy." The US considers that
to make that argument, the EC asserts a broad de finition of "general infrastructure" that finds no
support in the SCM Agreement or, indeed, in the EC's own practice under its state aids regime.454
4.272 The US asserts that based on its ordinary mean ing, the term "general infrastructure" must
include, involve, or affect all or nearly all the parts of a whole territory or community; must be
completely or nearly universal, as opposed to partial, particular, or local. The US considers that the
EC has proffered a very different definition th at focuses on the fulfilment of broad public policy
goals, such as "enabl{ing} members of the public at large, thereby fulfilling a public policy objective."
Governments routinely act with the intention of "f ulfilling a public policy objective." If any grant of
infrastructure that met that test were deemed to be general infrastructure then virtually every grant of
infrastructure would be excluded from the SCM Agreem ent's definition of "subsidy." But that result
would deprive the word "general" in the phrase "gener al infrastructure" of any meaning. Nor do the
travaux préparatoires for the SCM Agreement help the EC pos ition. And, indeed, that position is
contradicted by the EC's own practice under its state aids regime.455
4.273 The US points out that the EC relies on the errone ous view that any infrastructure is "general"
as long as it is created for reasons of "public policy, " and that all infrastructure is presumed to be
general and becomes non-general only when limitations on its use are "clearly specified" and
"restricted by regulation." Even under this flawed theory, however, the infrastructure provided to
Airbus in Hamburg, Toulouse, and Bremen would not be "general infrastructure." Further, the
government's investment in creating the infrastructure reflects the savings to the recipient – that is, the
benefit – from receiving the infrastructure at a pri ce that ignores that investment. Focusing on this
fact does not represent, as the EC asserts, a cost-to-government approach to analyzing a subsidy.
456
4.274 The US notes that the EC accuses it of inventing a legal test for determining whether
infrastructure is general. However, what the EC re fers to as the US "test" is nothing more than an
application of the ordinary meaning of the term "g eneral." The EC also repeats its argument that
"knowledge about the first user does not render an infrastructure project non-general." But, once
again, the EC observation is entirely beside the po int. In the case of Hamburg and Toulouse, the
government authorities did not simply undertake infr astructure projects with knowledge that Airbus
would be the first user of that infrastructure. Rather, they undertook those projects expressly for
Airbus.457
4.275 The US notes that at paragraph 212 of its sec ond oral statement, the EC once again criticizes
the US demonstration that infrastructure provided to Airbus by French and German authorities confers
a benefit on Airbus. However, in each case, the governments involved undert ook substantial efforts
to alter the condition of certain land to make it suita ble for Airbus production. The value that Airbus
ultimately received was not simply the value of the bare land. The US asserts that a private
landowner would have charged for these additiona l improvements, but the French and German
authorities did not. According to the US, their provision of infrastructure to Airbus thus confers a
benefit and constitutes a subsidy.458
4.276 The US notes that the EC asserts that in seeki ng a return on the provision of infrastructure a
government need not obtain a market price if it expect s to receive other "remuneration" in the form of

457 US comments on EC, SNCOS, Executive Summary, para. 14.
458 US comments on EC, SNCOS, Executive Summary, para. 15.

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"higher tax revenues and increased employment." Howe ver, if this were the relevant rule there would
be virtually no SCM Agreement disciplines on the provision of infrastructure.459
(d) Specificity of regional aid
4.277 The US further notes that with respect to gran ts for the construction of Airbus and EADS
manufacturing and assembly facilities provided by a regional government in Germany and by
national, regional, and local governments in Spain, supported in some cases by the European Regional
Development Fund, the EC's principal defense is to argue that the grants are not specific within the
meaning of Article 2 of the SCM Agreement. The US considers that this argument rests on two
mistaken propositions: (1) that for a subsidy to meet the regional specificity test under Article 2.2, it
must be limited to a subset of enterprises within a designated geographical region, and (2) that even if
a subsidy meets this mistaken standard, it nevert heless may be found non-specific by virtue of
Article 2.1(b).
460
4.278 In the US view, the EC reading of Article 2.2 would reduce Articles 2.1(a) and 8.2(b) of the
SCM Agreement to redundancy or inu tility. Article 2.1(a) provides that a subsidy "shall be specific"
if access is "explicitly limit{ed}" to "certain enterp rises." Yet, the EC would read Article 2.2 to
provide the same thing. Article 8.2(b) made s ubsidies in the form of assistance to disadvantaged
regions non-actionable during the period when the Article was in force, as long as the subsidies met
certain criteria. One of those cr iteria was that the subsidies be " non-specific (within the meaning of
Article 2) within eligible regions." Yet, under the EC reading of Article 2.2, if a subsidy provided to a
particular region is non-specific within that region, then it is not specific under Article 2.2 in the first
place. Following that logic, it would have been unn ecessary to provide that a regional subsidy is non-
actionable if, inter alia , it is non-specific within the region. Similarly, under the EC reading of
Article 2.2, Article 8.1(b) would make no sense.461
4.279 The US notes that the EC professes to find support for its reading of Article 2.2 in the
SCM Agreement negotiating history. According to the US, the EC discussion of the history is
inaccurate and ultimately does not support the EC conc lusion. In particular, the EC ignores that the
focus of the debate on regional specificity was on whether the fact that a subsidy was limited to a
"designated geographical region" would automatically make it specific or whether, instead, regional
specificity would depend on the scope of the granting authority's jurisdiction. According to the US,
the EC's proposed construction of the regional specif icity provision in Article 2.2 is contrary to its
own practice in countervailing duty proceedings.462
4.280 Finally, the US points out that the SCM Agreement does not support the EC theory of a
hierarchical relationship between Articles 2.1(b) and 2.2, whereby a finding of non-specificity under
the former will prevail over a finding of specificity under the latter. The US highlights that when the
drafters of the SCM Agreement wanted to make one provision subject to another then knew how to do
so, but did not do so with respect to these two articles.
463

459 US comments on EC, SNCOS, Executive Summary, para. 16.
460 US, SWS, Executive Summary, para. 48. See, also, US, FNCOS, Executive Summary, para. 12 and

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2. Arguments of the European Communities
4.281 The EC rebuts the US allegations that certain infrastructure projects and regional aid
constituted a subsidy under the SCM Agreement.464
(a) General Infrastructure
4.282 The EC points to the fact that the Article 1.1 (a) (iii) of the SCM Agreement excludes general
infrastructure projects from its scope. Tracing back th e origins of that provision, the EC argues that
the provision of general infrastructure in Ham burg, Bremen and Toulouse are covered by that
exception. The EC argues that having established th is, to the extent that Airbus entities used, leased
or purchased parts of an industrial site, no benefit was conferred on them as these transactions were
done at commercial rates and backed up by independent expert assessments.
4.283 In its second written submission, the EC recalls that measures of general infrastructure are
excluded from the scope of the SCM Agreement. Referring to the submissions from Canada and
Korea on this issue, it explains that the phrase "g eneral" illustrates a broader concept than the one
advocated by the US. For something that is "general" to become "non-general", the limitation must be
clearly specified. In other words, infrastructur e does not become "non-general" because the public
does not use it de facto or because there is uneven use. Rather, the government must have specified
limitations on the general public's use.465
4.284 Moreover, concurring with Canada, the EC maintains that improvements of general
infrastructure are covered by this carve-out as well. Every improvement of general infrastructure may
initially have a particularly positive effect on certain immediate users. But that does not remove its
character of general infrastructure, as it benefits the public at large in the long run.
466
4.285 The EC notes that both Canada and Korea are of the view that limitations on the use of
general infrastructure do not deprive that infrastructur e of its general nature. That leads to the two-
step approach that the EC has advocated in its first written submission: First, the governments builds
general infrastructure. Second, it may decide to put it at the disposal of certain users. The second step
does not invalidate the first – rather, the second step has to be assessed on its own merits, since it is at
this stage that a benefit may or may not be conferred.467
4.286 The EC asserts that it shows that the reclam ation of land in Hamburg constitutes general
infrastructure.468 The EC argues that contrary to what the US alleges, Scott Paper is not relevant to
the Hamburg measure. Hamburg's measure involved the pure creation of land, in this case the
conversion of wetland into usable land, which is a typical task of governments as providers of general
infrastructure. Governments, unlike private actors, are bound by public law and public policy
considerations in such general infrastructure meas ures, and there is no market for such measures
where private investors act. Furthermore, Hamburg has not sold the land in the reclaimed area to
Airbus Germany. On the contrary, Hamburg retain s ownership of the property and the possibility to
use the newly created land for other purposes after a possible termination of the lease agreement with

468 EC, SWS, Executive Summary, para. 36. See, also, EC, SWS, Executive Summary, para. 37 and

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Airbus. The EC submits that, therefore, Hamburg's measures of land reclamation are not "financial
contributions" within the meaning of Article 1.1(a) of the SCM Agreement.469
4.287 The EC considers that the US relies on a mistaken legal test and misrepresents key facts. The
EC points out that Hamburg did not create a "tailo r-made industrial site" for Airbus Germany. It
turned wetland into usable land. The internal de velopment of the land was and is still being carried
out by Airbus Germany, and when the land is retu rned to Hamburg after termination of the lease
contract it must be undone. 470 Even under the US test on general infrastructure, the Hamburg project
would not be excluded from the notion of general infrast ructure. With regard to the US argument that
the Airbus site was created "exclusively" for Air bus, the EC argues that a government's knowledge of
the first user does not render an infrastructure project non-general.471
4.288 With regard to the US allegation that the Airbus site – apart from the quay facilities – is not
part of the harbour area, the EC notes that it neve r claimed that the area was covered by the Hamburg
Port Law. The EC's argument was that the ha rbour could easily be expa nded to cover the newly
created land, should Airbus Germany decide not to continue the lease agreement after its expiration.472
In addition, the US argument that German planni ng law restricts the use of the land to aircraft
manufacturing and aviation is misplaced. Under Ge rman Construction Law, a local "Bebauungsplan"
can easily be amended at any time, if the regi onal "Flächennutzungsplan" so permits. The latter
contains no restriction with regard to the airc raft industry and so the "Bebauungsplan" can be
amended when the need arises in the future.473
4.289 The EC submits that the creation of the Zone d'Aménagement Concertée (ZAC) in Toulouse
constitutes a measure of general infrastructure. 474 According to the EC, the Scott Paper case under
EC State aid law is not relevant to this measure, as the facts were assessed in the light of the State aid
regime of the EC, and not the SCM Agreement. The EC argues that for that reason alone, this case is
not relevant for the present dispute. Second, c ontrary to the US allegations, the facts in the Scott
Paper case bear no resemblance to the undisputed facts in Aéroconstellation. In the Scott Paper, the
authorities turned existing agricu ltural land into a tailor-made in dustrial site, by selling land and
building a factory warehouse for the benefit of a single company.
475 In the case of Aéroconstellation,
the French authorities developed a Zone d'Aménagement Concerté , like many other ZACs elsewhere
in France, which was then put for sale at what an appraisal confirms was a fair market price. Any
company that was interested in purchasing land in the ZAC could do so without restriction, and,
indeed, Airbus is only one of many companies that so purchased.
476
4.290 The EC argues that in Bremen, the extension of the runway falls under the notion of general
infrastructure and the specific use by Airbus of the extension is adequately remunerated. 477 The city
of Bremen is entitled to provide its citizens w ith modern transportation facilities and services,
including the development and operation of an airport, and to take measures to reduce noise. 478 There

469 EC, FWS, paras. 779-792.
470 EC, SNCOS, para. 202.
471 EC, SNCOS, para. 204.
472 EC, SNCOS, para. 205.
473 EC, SNCOS, para. 206.
474 EC, SWS, Executive Summary, para. 36. See, also, EC, SWS, Executive Summary, para. 37 and
475 EC, SWS, para.394.
476 EC FCCS para. 24.
478 EC, FWS, paras. 869-870.

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is no basis to the US claim that the lengthening of the runway was made for the "exclusive use" of
Airbus.479
(b) The challenged measures do not confer a benefit
4.291 The EC argues that with respect particular ly to the Mühlenberger Loch and the ZAC
Aéroconstellation, the US clings to the cost incu rred by government authorities in connection with
these projects as the basis for a sserting a "benefit". The cost-to-government standard has been
rejected, and Article 14(d) tells us how to apply the benefit to reci pient standard to the measures at
issue. Specifically, Article 14(d) directs the Pane l to assess whether "adequate remuneration" is paid
for a good with reference to "prevailing market conditi ons", or in other words the market value of the
good. Moreover, the EC notes that the US fails to cite a single provision of the SCM Agreement that
would support its "cost savings" theory. Instead, it la tches on to an EC state aid decision that reflects
the sui generis characteristics of EC state aid law and has no bearing on this dispute.480
(i) Hamburg
4.292 The EC argues that, even if the panel were to conclude that the land creation and flood
protection measures were not general infrastructure, the financial contribution reflected in the terms of
the land lease, and also the leases for the special purpose facilities, does not confer a "benefit". This is
because the lease rates were set at fair market va lue using accepted valuation principles, as affirmed
by the City of Hamburg Real Estate Experts Committee.481
4.293 According to the EC, the US argument that the land rent should be based, as a surrogate for a
market benchmark, on the cost to the City of Ha mburg of reclaiming the land and of constructing the
flood protection is without merit. It wrongly appli es a "cost to government" standard. Article 14(d)
of the SCM Agreement unambiguously sets the prope r standard for measuring the "benefit" from a
financial contribution as the benefit to the recipient.482
4.294 The EC notes, moreover, that the market value of the land, the fundamental value needed to
measure any benefit to Airbus, is not in dispute. The US real estate expert, Dr. Keunecke, and the
City of Hamburg Real Estate Experts Comm ittee agree on the market value of the land. 483 The EC
explains that the City of Hamburg Real Estate Experts Committee and Dr. Keunecke disagree only on
the required market-based return on that investme nt. The EC offers calculations which it asserts
demonstrate that when both proposed benchmarks are properly reconciled, the Experts Committee and
Dr. Keunecke agree on the base measure of return , before Dr. Keunecke's recommended additional
return premium of 3 percent. 484 The EC argues that, contrary to the US assertion, Dr. Keunecke's
report does not support the suggested additional retu rn premium by any market evidence and that he
justifies it by citing to market conditions th at are not relevant for the leases at issue. 485 The EC notes
that Dr. Keunecke does not dispute the appropriate method to measure lease rates on the land and the
special purpose facilities found to be at market by the City of Hamburg Real Estate Experts
Committee.486

479 EC, FWS, paras. 871-874.
481 EC, FWS, paras. 799-805.
482 EC, FWS, paras. 820-827;
483 EC, FWS, paras. 806-807.-
484 EC, Answer to Panel Question 267, paras. 115-132.
485 EC, Answer to Panel Question 267, paras. 115-132.
486 EC, FWS, paras. 808-817, 828-857; EC, Answer to Panel Question 267, paras. 115-132.

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4.295 Moreover, the EC submits that Dr. Keunecke's report does not endorse the US cost to
government measure of market rent. On the question of using cost rather than value as a measure of
benefit, Dr. Keunecke's report states only that if one accepts the US legal standard of cost to
government, the required lease rate paid by Airbus is too low. Dr. Keunecke does not state that cost is
the appropriate measure of market, and the EC notes that he cannot logically do so, as his report's
analysis of observed market rates of return on commercial real estate (before the recommended
premium for industrial real estate) is based on observed rents as a percentage of value, rather than
cost.
487
4.296 The EC posits, moreover, that the US argument – that the cost-to-government standard is
required because the government's investment in crea ting the infrastructure reflects the savings to the
recipient – rests on the flawed premise that Airbus would itself have borne the cost of reclaiming the
land and flood protection measures had the city of Hamburg not done so. In fact, the EC argues that
evidence it has provided demonstrates that had Ha mburg not performed the land reclamation project,
Airbus would have located the entire A380 FAL in Toulouse, [***].
488
4.297 According to the EC, this documentary eviden ce demonstrates not only that Airbus did not
benefit from the land reclamation and flood pr otection measures, but, additionally, that [***]. Airbus
located a portion of the final assembly in Hamburg in order to prevent loss of MSF for the A380.
Accordingly, [***].489
4.298 According to the EC, cost does not provide a reliable measure of benefit to the recipient
arising from government economic programs such as land reclamation, because, unlike the case of a
private investor, the rental cost to the lessee and th e total return to the lessor are not symmetrical. As
Dr. Keunecke observed in his report, no private investor (which would include Airbus) with returns
limited to lease income, would have reclaimed the land at the Mühlenberger Loch, because the cost
would far exceed the value created. However, as a government investor, the City of Hamburg could
anticipate other sources of return in addition to the lease payments, including returns generated from
the increased economic activity in the form of higher tax revenue generated from increased
employment and profits at Airbus and its many local suppliers. This, in turn, would accelerate
regional development, thereby generating even great er tax revenue. Accordingly, providing the land
to Airbus at market value could trigger economic ex pansion sufficient to justify the investment by the
City. The EC notes that this was not mere speculation on the part of the City of Hamburg, but the
finding of an economic consulting firm retained by the City before agreeing to the investment.
490
4.299 Finally, the EC argues that the US assertion that the City of Hamburg should at least have
extracted a rent premium above market because the reclaimed land was adjacent to an existing Airbus
facility is equally without merit. The US fa ils to note that Hamburg and Toulouse were in
competition for the location of the A380 final assembly line. In T oulouse, where sufficient land was
available to accommodate the entire fi nal assembly facility, Airbus paid [***] per square meter for
land. For the Hamburg site, Airbus agreed to pay rent on the basis of a [***] per square meter market
value. That is already a [***] premium over the value of comparable land in Toulouse. Competition
from Toulouse put a limit on any so-called "premium" that Hamburg could demand.491

487 EC, SCOS, para. 12. RPQ
488 EC, Comments on US Answer to Panel Question 155, paras. 154-156.
489 EC, Comments on US Answer to Panel Question 155, paras. 148-164;EC, Comments on US
Answer to Panel Question 219, paras. 380-387.
491 EC, SCOS, para. 23.

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4.300 The EC notes that the special-purpose facilities, however, are unlike raw land reclamation.
These facilities were built to the specifications requested by Airbus, and the value of the facilities will
be used up in whole or substantial part during th e lease. In that case, the fair market rent, and
accordingly any benefit, is best assessed based on a market return on the cost of constructing the
facilities. The EC observes that this is precisely th e approach followed by the Hamburg Real Estate
Experts Committee, which found the rent agreed to by Airbus to reflect market.492
(ii) Bremen
4.301 The EC argues that in Bremen, the specific use by Airbus of the extension of the runway is
adequately remunerated.493
4.302 The EC points out that as the US itself notes, Ai rbus pays fees for the use of Bremen airport
in accordance with the general fee schedule. The EC notes that the US has not argued that these fees
are not at market. Rather, the US seems to imply th at Bremen should calculate a fee for Airbus which
allows for a return on the costs of building the extension. However, for the reasons given in respect of
Hamburg, costs to the government are irrelevant for determining the benefit to the recipient.494
(iii) Toulouse
4.303 The EC argues that the US allegations that th e sale to Airbus France of a portion of the ZAC
Aéroconstellation and the lease of EIG was for less th an adequate remuneration is without merit. The
EC indicates that a commercial appraiser confirmed that the price of the land purchased by Airbus
France in the ZAC Aéroconstellation was consistent with market. As such, no benefit within the
meaning of Article 1.1(b) of the SCM Agreement w as thereby conferred. The EC considers that the
US offers no credible reason why the Pa nel should ignore direct evidence of the market price for
industrial land in the ZAC, in comparable ZACs or as provided in the Atisreal appraisal, in favour of
the cost incurred by French authorities. The EC considers, moreover, that in evaluating the EIG lease,
the US grossly overstated the amount of land includ ed in the lease and also overstated the required
lease rate of return.
495
4.304 The EC notes that the US nonetheless asserts "ben efits" to Airbus by reference to the cost
incurred by the French authorities to create the ZAC. However, it is not relevant to the "benefit"
inquiry whether the French authorities recover tho se costs by virtue of the purchase price paid by
Airbus for land. The Appellate Body has stressed th at the inquiry in Article 1.1(b) is whether a
financial contribution confers a "benefit" on a recipi ent, relative to a market benchmark. Moreover,
the Appellate Body has held that a cost-to-govern ment approach "is at odds with the ordinary
meaning of Article 1.1(b), which focuses on the " recipient and not on the government providing the
'financial contribution'".496
(iv) Regional infrastructure measures
4.305 The EC argues that certain of the regional infrastructure measures do not confer a benefit on
Airbus because they were given to a company other than Airbus and/or do not relate to LCA.

492 EC, Answer to Panel Question 92, para 240; EC, Answer to Panel Question 184, paras. 128-136;
EC, SWS, para. 364.
494 EC, FWS, paras. 871-874.
495 EC, FWS, paras. 922-938; EC, Answer to Panel Question 185, paras. 145-146; EC, Answer to Panel
Question 271, paras. 157-165.
496 EC, FWS, paras. 922-938; EC, SWS, paras. 368-398.

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(c) Specificity of regional aid
4.306 The EC submits that German, Spanish and Br itish authorities provided grants under generally
available schemes at EC, national or sub-national level. Those grants were not limited to "certain
enterprises" located within a designated region with in the jurisdiction of the granting authority.
Rather they were available for all companies in th at region, according to ob jective criteria. These
criteria conformed to the requirements of Article 2.1(b) of the SCM Agreement and footnote 2
thereto. Just as any other company in the designa ted region, Airbus could benefit from a regional aid
scheme that in itself is perfectly in line with the SCM Agreement.497
4.307 Further, the EC explains why in its view the grants for Airbus facilities in Nordenham
(Germany), Sevilla, La Rinconada, Toledo, Puerto de Santa Maria, Puerto Real (Spain) and
Broughton (United Kingdom) are not specific within the meaning of Article 2.2 of the
SCM Agreement. The EC notes in particular that Article 2.2 does not make regional aid, i.e., aid
generally available to all enterprises in specifically designated regions, specific.
498 In fact, such aid is
quite clearly non-specific under Article 2.2. With regard to the US argument concerning
Article 8.2(b), the EC explains that the US misunderstands the dynami cs of the Uruguay Round
negotiations. The "green lighting" of regional aid was a key EC policy objective, against the
background of a definition of specificity wh ich was changing throughout the negotiations. 499 The EC
argues that the US blatantly distorts the negotiating history of the provision, effectively claiming that
federal states should have an inbuilt advantage und er the SCM Agreement, an outcome agreed by
nobody.500
4.308 Finally, the EC points out that several of th e Spanish measures concern activities which are
not connected the manufacture of Airbus LCA ( e.g., military aircraft). The EC further explains that
the support to Broughton was not regional aid, but was granted under two schemes which are
generally available in Wales. The EC argues that the US is alleging specificity on the basis of a
previous application for a regional aid grant, which was refused.501
G. WHETHER THE GERMAN GOVERNMENT HAS SUBSIDIZED AIRBUS BY ITS DECISION IN 1998
FORGIVING AT LEAST DM 7.7 BILLION OF DEUTSCHE AIRBUS' GOVERNMENT DEBT
1. Arguments of the United States
4.309 The US argues that Deutsche Airbus relied al most entirely on Launch Aid and other German
government subsidies to underwrite its early participation in the Airbus project. The US observes that
by the late 1990s, the total accumulated debt that Deutsche Airbus owed to the German government
amounted to at least DM 11,000,000,000 (in pr incipal alone), including DM 9,400,000,000 related to
A300/A310 and A330/A340 La unch Aid and other, smaller loans ("repayable grants") that the
government had provided to the company. In 1998, the German government allowed Deutsche
Airbus to pay DM 1,735,000,000 to "settle" its DM 9,400,000,000 debt. The government forgave the
remaining DM 7,700,000,000.502
4.310 The US notes that the EC does not dispute these facts. Nevertheless, it would have the Panel
believe that the elimination of DM 7,700,000,000 in debt did not confer a benefit on the company. Its

497 EC, FNCOS, Executive Summary, para. 15. See, also, EC, FWS, Executive Summary, para. 51
498 EC, SWS, Executive Summary, para. 37. See, also, EC, SNCOS, Executive Summary, para. 7.
499 EC, SNCOS, para. 225.
500 EC, SNCOS, para.226.
501 EC, SNCOS, paras. 233-239.
502 US, FWS, Executive Summary, para. 60. See, also, US, SWS, Executive Summary, para. 57 and

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theory is that the 1998 transaction was a fair-v alue payment for the net present value of the
outstanding debt. 503 The US argues that whether this tran saction is called debt forgiveness or a
settlement for fair value does not matter. Either way, it is a subsidy.504
4.311 The US points out that as the panel stated in Korea – Commercial Vessels, debt forgiveness is
"comparable to a cash grant, as funds that were pr eviously provided as a loan, against interest, are
now provided for free, given the removal of the repayment obligation." Therefore, the German
government's forgiveness of Deutsche Airbus' repayment obligations constitutes a financial
contribution to Deutsche Airbus within the meaning of Article 1.1(a)(1)(i). It also confers a benefit
on Deutsche Airbus. The US submits that debt forgiveness is comparab le to a cash grant, and
therefore confers a benefit – and thus constitutes a subsidy – for the same reasons. Finally, the US
asserts that the debt forgiveness is specif ic because it was effectuated through an ad hoc agreement
between the German government and Deutsche Airbus.505
4.312 Although the US does not accept the EC characterization of the 1998 transaction, the
characterization does not change the fact that the transaction conferred a benefit. The US asserts that
under either characterization, the German government effectively turned potential benefits that
Deutsche Airbus might have enjoyed in the future from savings on debt provided interest-free by the
German government into an actual cash grant of DM 7.7 billion provided in 1998.506
4.313 The US considers that the EC wrongly accuses it of responding to the EC characterization of
the 1998 transaction by asserting a new claim. In fact, the US simply has responded to the EC on its
own terms, demonstrating that even if, arguendo, the EC characterization of the 1998 transaction were
accurate, the transaction still conferred a benefit. The EC theory that the US really is challenging the
German government's 1989 aid package to Deutsche Ai rbus rather than the 1998 debt settlement, and
that the aid package is outside the Panel's terms of reference because it was not identified in the US
panel request is mistaken. First, the US panel reque st refers, in relevant part, not only to the German
government's "forgiveness
" of debt owed by Deutsche Airbus but also to its earlier "assumption ... of
... debt accumulated by Deutsche Airbus."507
4.314 Second, the EC mistakes the relevance of the 1989 aid package to the US claim. The US
explains that it is not challenging the aid package in and of itself. It is challenging the 1998 debt
settlement transaction. That transaction appears to be a forgiveness of the approximately DM
7,700,000,000 difference between the face amount of the debt and the amount the company actually
paid the government. In light of the EC respon se, the US re-examined the transaction from the point
of view of the EC characterization. That necessa rily entailed consideration of the elements that
determined the fair value of the debt, notably its highly preferential repayment terms. This showed
that following the EC characterization leads economically to the same result as originally observed by
the US.
508
2. Arguments of the European Communities
4.315 The EC argues that the 1998 settlement of ou tstanding repayment ob ligations owed the
German Government by Deutsche Airbus does not constitute a subsidy.

507 US, SWS, Executive Summary, para. 59. See, also, US closing statement, first meeting Executive

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4.316 The EC argues, first, that the US failed to make a prima facie case showing that Airbus SAS –
the only company which is currently producing LCA in the EC and, in the US view, causing present
adverse effects to US interests – actually benefits from the alleged subsidy.509
4.317 Second, the EC argues that the premise on which the US argument is based – i.e., the
existence of DM 9.4 billion in debt owed the Germ an government – is factually incorrect. No such
debt existed on Deutsche Airbus' books, as confirmed by, inter alia , the company's financial
statements.510 The EC argues that, therefore, the US assertions that the 1998 settlement constituted
"debt forgiveness" fail.511 According to the EC, the 1998 settlement reflected the fair market value of
the repayment claims that the German government actually held in 1998 against Deutsche Airbus, i.e.,
claims for repayment of prior financial contributions subject to certain conditions.512 Accordingly, the
1998 settlement does not constitute a subsidy.
4.318 Specifically, the EC argues that the repayment claims at issue in the 1998 settlement were
valued by an independent international auditing fi rm, which set out its findings on the fair market
value of those claims in a report provided to the Panel. 513 The EC notes that the US has not
challenged the robustness of that valuation. 514 The contemporaneous valuations by independent
financial experts formed the basis for the 1998 settlement. 515 The settlement amount even exceeded
the value placed on the claims held by the Germ an government, which – the EC argues – precludes a
finding of a benefit.516
4.319 The EC further explains that the settlement am ount in excess of the value determined by the
international auditing firm can be seen as the appli cation to the projected cash flow stream of a lower
discount rate than used in the valuation. The EC argues that it shows that the actual settlement
amount implies a discount rate that equals th e risk free German government borrowing rate.
According to the EC, this means that the parties discounted the stream of likely future payments by
Deutsche Airbus to the Government as if those paym ents were certain. This results in assigning the
highest possible present value to the stream of future payments.517
4.320 The EC argues that, for these reasons, the 1998 settlement does not confer a benefit or
constitute a subsidy.
4.321 The EC also argues that instead of rebutting the contemporaneous evidence showing that the
1998 settlement was made on market terms, the US raises a legally and factually new claim,
challenging, in addition to the 1998 settlement, the terms of the 1989 restructuring by arguing that
Deutsche Airbus received a substantial financial bene fit "in the form of an interest rate of zero". 518
According to the EC, the US concedes that the allegedly "highly preferential repayment terms"
emanate from the terms of the 1989 restructuring, i.e., a legally and factually distinct measure from
the 1998 settlement.519 The EC points out that this new claim against a new measure appears neither
in the US first written submission, nor in its panel request, and thereby falls outside the jurisdiction of

510 EC, FWS, para. 1197.
511 EC, FWS, paras. 1175-1176.
512 EC, FWS, paras. 1175-1176.
514 EC, SNCOS, para. 243.
515 EC, FWS, para. 1176.
516 EC, FWS, paras. 1193, 1202.
517 EC, SNCOS, paras. 247-248.
518 EC, FNCOS, para. 108. EC, SWS, paras. 586-590.
519 EC, SNCOS, paras. 247-248. .

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this Panel. 520 The Panel cannot, therefore, make findings or recommendations concerning the 1989
restructuring as a measure at issue. 521 The EC notes that the US subsequently confirmed that it is not
challenging the 1989 restructuring "in and of itself" , but that it is challenging the 1998 settlement for
which the 1989 restructuring is "factual background". 522 Yet, the EC asserts that the US
characterization of its approach cannot distract from the fact that the new US challenge is not merely a
new argument, but rather a new claim which relates to a different measure that is outside the terms of
reference of the Panel.
523 According to the EC, the US cannot challenge, as conferring a subsidy
through the 1998 settlement, measures that were put in place in the 1989 restructuring. 524 In this
regard, the EC notes, again, that the 1998 settlement was based fully on the terms of the 1989
restructuring and did not provide any advantag e to Deutsche Airbus (as evidenced also by
contemporaneous documents).
525
4.322 Finally, the EC argues that even if the Panel were to find that the new US claim is within its
terms of reference or that it is entitled to assess th e 1989 restructuring of Deutsche Airbus as "factual
background" to its claim of subsidization fro m the 1998 settlement, the US claim would fail
nonetheless. The EC explains that it is the US burden to demonstrate that the 1989 restructuring itself
constitutes a subsidy and that the US has failed to so demonstrate. 526 Thus, even if the US approach
was correct as a matter of law, which it is not, the US claims regarding two "cherry-picked" elements
of the 1989 restructuring – the repayment terms and the KfW investment addressed below – must fail,
because in these proceedings the US neither established nor claimed that the 1989 restructuring
constitutes a subsidy. 527 The US decision to limit its challenge cannot alleviate it of its burden to
demonstrate that the 1989 restructuring constitutes a subsidy when challenging certain elements
thereof.528 The EC, moreover, submits that the 1989 r estructuring is consistent with the actions a
private investor in the shoes of the German gove rnment would have undertaken to minimize its
losses.529
H. WHETHER THE GERMAN GOVERNMENT 'S 1989 INVESTMENT IN DEUTSCHE AIRBUS OR THE
SUBSEQUENT 1992 TRANSFER OF ITS OWNERSHIP SHARE IN DEUTSCHE AIRBUS TO THE
DAIMLER GROUP IS A SPECIFIC SUBSIDY TO AIRBUS
1. Arguments of the United States
4.323 The US argues that the German government's tr ansfer of its ownership share in Deutsche
Airbus to the Daimler Group is a specific subsidy to Airbus. 530 The US submits that in 1989, the
German government agreed to make an equity infusion into Deutsche Airbus by purchasing a
20 percent share of the company for DM 505,000,000 (EUR 258,000,000). Three years later, the
German government agreed to give the shares to DAS A, without compensation. The US first asserts
that the equity infusion is a subsidy because the German government's deci sion to provide the DM
505,000,000 infusion to Deutsche Airbus was inconsis tent with the usual investment practice of
private investors in Germany. The US then asserts that the 1992 share transfer is a subsidy because it

520 EC, SWS, paras. 586-590.
521 EC, Answer to Panel Question 187, para. 150.
522 EC, SNCOS, para. 249.
523 EC, SWS, paras. 585-591.
524 EC, Answer to Panel Question 187, paras. 153-156.
525 EC, SWS, paras. 565-570, 593-594. See, also, EC closing statement, first meeting, para. 23.
526 EC, SNCOS, para. 255. See, also, EC, Answer to Panel Question 187, paras. 157-160, 165.
527 EC, Answer to Panel Question 187, para. 157.
528 EC, Answer to Panel Question 187, para. 162.
529 EC, FWS, paras. 1177-1180; EC, Answer to Panel Question 100, para. 276.

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was, in effect, a DM 505,000,000 (EUR 258,000,000) gr ant. The US also asserts that both subsidies
were specific to Airbus.531
4.324 The US contends that Airbus benefits fro m equity infusions provided by the German
government at moments when a market-oriented inve stor would not have made such investments due
to the dire financial condition of the German Airbus company.532 The US notes that the EC responded
that the government' action was consistent with th e usual practice of private investors. The US
considers that the EC relies on a false benchmark that it holds up as a market benchmark. The EC
asserts that "at the same time" that the government made its investment a private investor, "Daimler
(through MBB)," also made an investment in Deutsc he Airbus. However, the US asserts that the EC
omits the fact that Daimler's willingness to make its investment depended heavily on the government
first providing a substantial aid package which included the government's own investment.533
4.325 In addition, the US considers that the EC errs in its attempt to dis Crédit the evidence relied
upon by the US. In the US view, the EC incorrec tly suggests that the US based its assessment of
Deutsche Airbus' equity-worthiness solely on an assessment of the financial condition of the
company's parent (MBB). While noting the dire st ate MBB was in when Daimler invested in MBB,
the US points in particular to the financial distre ss that Deutsche Airbus was in at the time and was
expected to be in for the foreseeable future.534
4.326 The US points out that the EC's only basi s for calling the original stock purchase a
commercial transaction is a comparison to an investment by Daimler Benz. However, Daimler's
investment was not independent of the German government's equity infusion such that it might
corroborate the commercial nature of the infusion. As for the German governme nt's later return of
Deutsche Airbus shares to MBB, the US argues that the EC has yet to provide any explanation of why
both Daimler and the then-Director General for Trade at the European Commission described the
transaction as compensation for the withdrawal of the German exchange rate insurance scheme
following an adverse dispute settlement panel report.535
2. Arguments of the European Communities
4.327 The EC argues that neither the German govern ment's 1989 investment in Deutsche Airbus,
nor the 1992 transfer to MBB of its shares in Deutsche Airbus, constitutes a subsidy.
4.328 The EC explains, first, that the US failed to make a prima facie case and show that either of
the alleged subsidies benefits Airbus SAS, which today develops, manufactures and sells LCA alleged
to cause adverse effects to the US interests.536
4.329 Second, with respect to the 1992 share transfer, the EC explains that this transaction could not
have conferred a benefit on Deutsche Airbus because it was MBB that received the shares in Deutsche
Airbus held by the German government. 537 The EC notes that the US has not explained how a
subsidy to one company – which did not manufacture LCA at the time and does not do so today – can
morph into a subsidy to a company that does.538 The EC also explains that the participation of KfW in
Deutsche Airbus was conceived, from the very beginning, as a temporary measure and that Daimler,

536 EC, FWS, paras. 1203, 1212.
537 EC, FNCOS, para. 111
538 EC, FNCOS, para. 111.

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via MBB, exercised its commitment to take ove r KfW's 20 percent stake in Deutsche Airbus. 539 The
EC provides evidence showing that the determinati on of the value of KfW's shares in 1992 was based
on the advice of two independent international respected accounting auditing firms and that the
transfer of the KfW's shares to MBB w as not free of charge, as the US asserts. 540 In fact, in addition
to the market value of the shar es in 1992, the transfer price of KfW shares also included additional
compensation envisioned under the terms of the 1989 restructuring. 541 Therefore, contrary to the US
assertions, the transfer was not free of charge. It also did not benefit Deutsche Airbus. 542 Finally, the
EC notes that the US accepts that the 1992 share transfer was part of a transaction that amended
certain terms of the 1989 restructuring, and that the US agrees that, on balance, this transaction did
not affect positively or negatively the economic position of Deutsche Airbus. As such, the 1992
transfer cannot constitute a subsidy.543
4.330 The EC also reacts to the US conditional ch allenge to the 1989 investment by KfW in
Deutsche Airbus. 544 The EC explains that the investment did not constitute a subsidy as it was not
made on terms more favourable than those available at market, as evidenced by the fact that a private
investor – Daimler Benz, through MBB – invested in Deutsche Airbus at the same time and on the
same conditions. As such, the investment was consis tent with the usual investment practice of private
investors.545
4.331 The EC argues that this conclusion is not underm ined by the fact that the investments by the
German government and Daimler Benz in Deutsche Ai rbus were part of the 1989 restructuring of
Deutsche Airbus. While the US argues that the "sep aration of the alleged 'restructuring package' …
from the KfW capital injection is artificial", the EC argues that it is an artificiality that the US has
created by challenging only a particular aspect of the 1989 restructuring package. 546 In fact, it is an
artificiality that the US has created by "cherry-pic king" certain elements of the 1989 restructuring for
challenge, while ignoring others.547 Moreover, the EC submits that a financial restructuring is not per
se a subsidy. 548 As such, it is not possible to conclude that the investment by KfW is a subsidy
without a complete assessment of the 1989 restructuring of Deutsche Airbus. 549 The EC recalls its
arguments that the 1989 restructuring is outside the Panel's terms of reference and notes that the US
clarified that it is not challenging the 1989 restructuring "in and of itself". 550 Finally, the EC argues
that even if the Panel were to take account of the 1989 restructuring as factual background, the US
failed to demonstrate that the 1989 restructuring itself constitutes a subsidy. 551 The EC submits that
the 1989 restructuring is consistent with the actions a private investor in the shoes of the German
government would have undertaken to minimize its losses.552

539 EC, FWS, paras. 1206-1207. See, also, EC, FWS, para. 1213.
540 EC, FWS, paras. 1208-1209. See, also, EC, FNCOS, para. 112.
542 EC, SWS, para. 602.
543 EC, SWS, para. 603.
545 EC, FWS, paras. 1214-1216.
546 EC, Comments on US Answer to Panel Question 157, paras. 175-176.
547 EC, Answer to Panel Question 187, paras. 157-162.
548 EC, Comments on US Answer to Panel Question 224(a), paras. 405-411.
550 EC, SNCOS, para. 261.
551 EC, Answer to Panel Question 187, paras. 152, 157-160, 165. See, also, EC, Comments on US
552 EC, FWS, paras. 1177-1180; EC, SWS, para. 564; EC, Answer to Panel Question 100, para. 269;
Question 187, paras. 161. 163-166.

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4.332 Finally, the EC argues that, in case the Pane l agrees with the US attempt to revoke the
conditionality of its claim against the 1989 KfW in vestment, the Panel must deny the US assertion
that the DM 505 million invested by the German government can constitute a subsidy in 1989 and
again constitute a subsidy of the same amount in 1992.553
I. WHETHER CERTAIN CAPITAL CONTRIBUTIONS AND 1998 TRANSFER OF DASSAULT SHARES
TO AÉROSPATIALE ARE SPECIFIC SUBSIDIES TO AIRBUS SAS
1. Arguments of the United States
4.333 The US argues that the equity infusions that the French government provided to Aérospatiale
are specific subsidies. 554 The US explains that in the late 1980s and in the 1990s, the French
government made a series of equity infusions into th e French Airbus company Aé rospatiale. First, in
1987 and 1988, the French government made two infusions of FF 1,250,000,000, for a total of
FF2,500,000,000. Then, in 1992, the government injected another FF 1,400,000,000 into
Aérospatiale through the state-controlled bank Crédit Lyonnais. Two years later, in 1994, the French
government provided another FF 2,000,000,000 infusi on into Aérospatiale. Finally, in 1998, the
French government transferred its 45.76 percent share in the capital of Dassault Aviation S.A.
("Dassault") to Aérospatiale. The share transfer was worth approximately FF 5,280,000,000.
555
4.334 The US discusses Aérospatiale's financial cond ition and performance at the time of each of
the equity infusions and contends that each of the d ecisions to invest in the company was inconsistent
with the usual investment practice of private invest ors. Therefore, according to the US, each equity
infusion was a subsidy within the meaning of the SC M Agreement. The US also contends that each
infusion was specific to Airbus.556
4.335 In the US view, the EC fails to rebut the US showing that French equity infusions to
Aérospatiale from 1987 to 1994 were not consistent with the usual investment practice of private
investors. The US notes that the EC explains w hy Aérospatiale was in critical need of additional
funds in the 1987 to 1994 time period, but it does not explain why a private investor would have
provided them. Its discussion of the views of Bo eing's and Aérospatiale's management ignores that
the relevant test is the usual investment practice of private investors, not the views of management. 557
The US notes that to make its case with respect to the French infusions, the EC relies on evidence
such as statements by management (rather than potential private investors) and ex post information
about returns supposedly realized on those investme nts. The EC does not provide any evidence of
contemporaneous studies or analyses by the Fr ench government on the investment prospects of
Aérospatiale. It also looks selectively at indicator s of financial performance , ignoring Aérospatiale's
abysmal balance sheet, its troublesome financial ratios, and the poor prospects it would have faced if
it had not received very significant additional government financing.558
4.336 Furthermore, the US points out that the EC improperly relies on evidence newly included
with its second written submission, which is not "objec tive," as it consists almost entirely of internal
documents from Aérospatiale, Airbus GIE, and Crédit Lyonnais. Other evidence focuses on demand
for aircraft in general, rather than the prospects for Airbus in particular.559

553 EC, Comments on US Answer to Panel Question 161, paras. 206-210.

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4.337 With respect to the French government's December 1998 transf er to Aérospatiale of its
45.76 percent equity stake in Dassault Aviation, th e US notes that the EC argues that "nothing of
economic significance occurred," because the French government effectively did nothing more than
transfer its Dassault Aviation shares to itself.
560 The US contends that while the EC may believe this
is true from the government's perspective, th e transaction provided a significant benefit to
Aérospatiale.561 The US considers that the EC mistakenly assumes that the relevant perspective is that
of the French government rather than that of Aé rospatiale, which unquestionably received a valuable
asset for which it paid nothing.562
4.338 The US asserts that the main problem with the EC argument is that it focuses on the intentions
and perspective of the grantor of the infusions. The US explains that under the SCM Agreement, the
relevant perspective is that of the recipient. From that perspective, the infusions at issue in this
dispute unquestionably provide a benefit and, therefore, constitute subsidies.563
4.339 The US also notes that the EC argues that when Aérospatiale was later combined with Matra
Hautes Technologies to form ASM, the value of its "45.76 percent stake in Dassault was fully
captured in the price charged for ASM shares in the public offering that took place in 1999."
According to the US, neither argument is correct. The US explains that the problem with the EC's
first argument is that it assumes that the relevant point of view is that of the government rather than
that of Aérospatiale. Moreover, the EC assertion that "nothing of economic significance occurred" is
belied by the fact that in order to persuade the pr ivate owners of Dassault Aviation to consent to what
amounted to a tie-up with Aérospatiale, the French government had to give up the valuable double
voting rights associated with its shares in Dassault Aviation.564
4.340 As for the EC's second argument, the US not es that the EC ignores that the French
government received no compensation for giving up vo ting control in Dassault Aviation. Also, the
price charged for ASM shares in the 1999 public offering was based not on independent "fairness
opinions," but on valuations by investment banks (post-dating the actual Dassault Aviation
transaction) that sought to ratify a previously identified outcome.565
2. Arguments of the European Communities
4.341 The EC rebuts the US allegations that the f our subscriptions of new capital made by the
French State in Aérospatiale in years 1988, 1989, 1992 and 1994 and the transfer of Dassault shares to
Aérospatiale in 1998 constitute subsidies. The EC submits that the US did not establish that these
alleged subsidies have benefited Airbus SAS, which is the only company that produces Airbus LCA
(i.e., the product which, in the US view, causes a dverse effects to US interests) in the EC. 566
Additionally, the EC notes that the US ignores that the capital increases in Aérospatiale concerned a
company which no longer manufactures LCA.567
4.342 The EC also rebuts the US allegation that the f our subscriptions of new capital by the French
State in Aérospatiale in 1988, 1989, 1992 and 1994 were not in accordance with the usual investment
practice of private investors. 568 In the EC view, the US conclusi on that the French State did not act

563 US closing statement, first meeting Executive Summary, para. 25.

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consistently with "usual investment practice" is fundamentally wrong. This is because the US based
its analysis solely on data concerning Aérospatia le's past financial perfo rmance and did not take
account of Aérospatiale's future prospects at the ti me each investment was made. The data regarding
past performance put forward by the US also were exaggerated. 569 In the EC view, the US errs in
assuming that a "usual investor" invests solely on th e grounds of a company's past performance. The
EC also asserts that for industries, such as the LCA industry, with long and costly development
cycles, it is imperative to invest even during periods of weak performance.
570 The French State's
prospects of a favourable return on each of the invest ments into Aérospatiale at the time were very
good, which also is confirmed by later developments.571
4.343 The EC also argues that Boeing's own case underscores the forward-looking nature of
investors' behaviour and explains that poor fina ncial performance did not stop Boeing from investing
in its future. 572 The EC notes that despite abysmal fina ncial performance in the early 1990s, Boeing
dramatically increased its investment in comme rcial aircraft assets by 82per cent and assumed
significant additional debt. Boeing's assessment of positive future prospects driven by forecasts of
dramatic growth in LCA passenger demand led it a nd its investors to look beyond the firm's poor
performance in recent years and to increase investment in the future. 573 In the late 1980s and early
1990s, Aérospatiale and its shareholder drew the same conclusion.574
4.344 The EC explains that while the past performan ce of Aérospatiale may not have been as robust
as Aérospatiale or the French State might have wished, investors do not invest on the grounds of a
company's past performance – to the contrary, th ey assess, first and foremost, companies' future
prospects. While the US expressly acknowledged this approach as being correct (in its response to
Question 26 from the Panel, the US stated that "investors commit capital based on their assessment on
potential earnings in the years ahead" and "evaluate company's future prospects"), it seems to have
ignored the contemporaneous evidence of Aérospatiale 's future prospects that the EC provided. In
any event, in its second written submission, th e EC provides to the Panel an even more
comprehensive and detailed overv iew of the contemporaneous evidence of the very favourable
prospects for the LCA industry and expected high demand for Airbus planes that, according to the
EC, was available to informed investors, includi ng the French State, at the time of each of the
challenged capital contributions. The EC also provides evidence which it asserts shows that the
French State, Aérospatiale's so le shareholder, was closely info rmed about the business plans and
prospects of the company. It is in light of all of this evidence that the EC concludes that the US
position is untenable.575
4.345 With regard to the French State's 1998 tran sfer of its shares in Dassault Aviation to
Aérospatiale, the EC argues that it was not an "i nvestment" and did not have any economic effect on
Aérospatiale.576 The EC explains that unlike the four capital subscriptions, the contribution of the
Dassault Aviation shares by the French State was made to facilitate the consolidation and
privatization of the French aerospace industry and th at the French State was adequately compensated
for the transfer of its shares in Dassault Aviation to Aérospatiale. 577 The EC asserts that the French
state acted as any market investor would have – namely, by pooling assets in its different aerospace
holdings together before selling them, in order to r ealize a higher return. The EC points out that the

570 EC, FWS, para. 1139.
572 EC, FWS, para. 1142.
573 EC, SWS, para. 532.
574 EC, SWS, para 533.

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US has not established that this action would have been contrary to the usual investment practice of
private investors. Further, the EC submits that since the French State was fully compensated for the
value of Dassault Aviation shares in the context of Aé rospatiale's subsequent privatization, in which
Dassault Aviation shares were valued independently from those of Aérospatiale, the US also cannot
establish a subsidy on any other grounds.578
4.346 The EC also argues that with respect to the capital contributions and share transfer by the
French State, it presented voluminous contemporan eous evidence showing the capital contributions
and share transfer were consistent with the usual in vestment practice of private investors. The French
State did not secure the 30 percent control premium on the transfer of Dassault Aviation shares
because it was legally impossible for the State to sell its control.
579
4.347 Finally, the EC points out that the US assertion th at "while Aérospatiale was able to obtain
billions of francs in subsidized capital, Boeing was forced to assume 'significant additional debt'"
speaks volumes about the arguments brought by the US in this case. Boeing's additional debt is
irrelevant to the question of whether a specific capital increase in Aérospatiale constitutes a subsidy or
not. There is ample evidence that each of the ch allenged investments was done with the expectation
of a significant return.580
J. WHETHER RESEARCH AND DEVELOPMENT FUNDING THAT THE EUROPEAN COMMISSION AND
THE MEMBER STATES PROVIDE TO AIRBUS ARE SPECIFIC SUBSIDIES
1. Arguments of the United States
4.348 The US argues that the EC and the Airbus governments also subsidize Airbus by helping to
fund its research and development efforts. The US e xplains that the subsidies primarily take the form
of straight cash grants, although in some cases th ey have taken the form of non-commercial loans.
The primary vehicles for the subsidies at the European Commission level are the so-called EC
Framework Programs, which the EC has maintained for many years. At the member State level, and
at the sub-national level, the vehicles are dedicat ed programs that the governments have established
for the specific purpose of funding aeronautics research.
581
(a) EC Framework Programs
4.349 First, the US argues that the R&D funding th at the EC provides to Airbus under the EC
"Framework Programs" are specific subsidies. Th e US submits that for many years, the EC has
provided grants to Airbus under the so-called EC Framework Programs to assist the company in
funding its research and development efforts. The EC provides the grants to research consortia that
Airbus leads or in which it is a key participant. Each grant is for an individual, discrete research
project focusing on a particular aeronautics technology or production process. A primary goal of the
grants is to "improv{e} the competitiveness of the European aeronautical industries... ."
582
4.350 The US notes that the EC has confirmed that all of the funding that the EC provides to Airbus
under the Framework Programs takes th e form of grants. Article 1.1(a)(1)(i) of the SCM Agreement

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includes grants among the types of "direct transfers of funds" that constitute financial contributions
within the meaning of the SCM Agreement.583
4.351 The US argues that grants confer bene fits because, as the panel stated in US – Cotton , they
"place the recipient in a better position than th e recipient otherwise would have been in the
marketplace." Therefore, since EC Framework Program funding takes the form of grants, it
necessarily confers benefits – and thus cons titutes subsidies – under Article 1.1 of the
SCM Agreement. In addition, the US argues that the subsidies are specific to Airbus and/or the
aeronautics industry because each Framework Program has a sub-budget that is specific to the
aeronautics industry, and because research proposals must be aeronautics-related.584
(b) German funding
4.352 Second, the US argues that the R&D funding that German Federal Authorities provide to
Airbus under their research and development programs are specific subsidies. The US explains that
for many years, the German Federal Government and the sub-federal ("Länder") governments of
Hamburg, Bremen, and Bavaria have provided grants to Airbus to help fund its civil aeronautics
research and development efforts. The Federal government has provided at least EUR 695,000,000 –
including EUR 217,000,000 since 1995 under a series of Aeronautics Research Programs
("Luftfahrtforschungsprogramme" or "Lufo" 1, 2, and 3). The Länder governments have provided
tens of millions of euros of additional funds.
585
4.353 The US notes that the EC concedes that all of the civil aeronautics R&D funding that the
German Federal and sub-fe deral governments provide to Airbus tak es the form of grants. Therefore,
for the same reasons that the EC framework grants are subsidies, the German Federal and sub-federal
grants are subsidies. In addition, the US ar gues that the subsidies ar e specific because Germany
disburses the subsidies pursuant to programs that are dedicated specifically to aeronautics.586
(c) French funding
4.354 Third, the US argues that the R&D funding that French authorities provide to Airbus under
their research and development program are specific subsidies. The US explains that between 1986
and 2005, the French Government budgeted over EUR 1.2 billion in gr ants to the aeronautics industry
for civil aeronautics research and development (" recherche amont de l'aéronautique"). Based on
public information, DPAC budgeted EUR 391,0 00,000 from 1986 to 1993, and EUR 809,000,000
from 1994 to 2005. During the Annex V process, the EC conceded that Airbus received a substantial
amount of the DPAC funding from 1994 to 2005, a lthough it refused to provide any information
regarding the 1986 to 1993 time period.587
4.355 The US notes that the EC confirms that all of the R&D funding that French authorities
provide to Airbus takes the form of grants. Ther efore, for the same reasons that the EC framework
grants are subsidies, the French government's grants are subsidies. In addition, the US argues that the
subsidies are specific because France provides the gran ts pursuant to a budget that is dedicated to

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"aeronautic construction," and the government limits access to the gr ants to aeronautics
manufacturing companies.588
(d) UK funding
4.356 Fourth, the US argues that the R&D funding that UK authorities provide to Airbus under their
research and development programs are specific subsidies. The US explains that for many years, the
UK Department of Trade and Industry ("DTI") has provided aeronautics-related research and
development grants to Airbus research consortia that Ai rbus leads or in which it is a key participant.
Since 1992, DTI has agreed to provide tens of m illions of pounds in grants to Airbus research
consortia under the CARAD program (subsequently renamed the Aeronautics Research Programme
("ARP")). In addition, in 2004, the UK re placed the CARAD program with the so-called
"Technology Program" ("TP"). DTI has committed add itional millions of pounds to Airbus under the
TP program.589
4.357 The US notes that the EC concedes that all of the funding the DTI has agreed to provide to
Airbus research consortia under CARAD/ARP and TP h as taken the form of grants. Therefore, the
UK's grants under CARAD/ARP and TP are subsidies for the same reasons that the EC framework
grants are subsidies. In addition, the subsidi es are specific because CARAD/ARP grants are limited
to entities carrying out research in aeronautics technologies and TP grants are awarded through calls
for proposals that are limited to aeronautics-related technologies.
590
(e) Spanish funding
4.358 Fifth, the US argues that the R&D funding that Spanish authorities provide to Airbus under
their research and development program are specific subsidies. The US submits that like the German,
French, and UK governments, the Spanish Government provides funding to Airbus to help underwrite
Airbus' R&D efforts. The US explains that the funding takes the form of loans with better than
commercial terms. The US explains that the Spanish government disburses the funding through two
programs, the Plan Tecnológico Aeronáutico ("PTA "), and the Programa de Fomento de Innovación
Técnica ("PROFIT"). Airbus received the PTA lo ans between 1993 and 2003, and the PROFIT loans
between 2000 and 2007.591
4.359 Article 1.1(a)(i) of the SCM Agreement includes loans among the types of "direct transfers of
funds" that constitute financial c ontributions within the meaning of the SCM Agreement. Thus, the
loans are financial contributions under the SCM Agre ement. In addition, they confer benefits on
Airbus because Spain provides the loans on better than commercial terms. Thus, the loans are
subsidies within the meaning of Article 1.1 of th e SCM Agreement. In addition, they are specific
because the government explicitly limited access to funding under the programs to aeronautics
companies involved in the manufacturing, design, s upply and maintenance of aircraft and aircraft
parts, and to engineering services companies and research institutions and universities developing
specific technologies with aeronautics use.592

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(f) Relevant amounts and specificity
4.360 The US notes that the EC admits that Ai rbus has received EUR 648.9 million in R&D
subsidies. However, that number understates the amount actually received, as it reflects an arbitrary
determination that certain recipients of LCA-re lated R&D subsidies are "relevant companies" and
others are not.593 The US notes that the EUR 648.9 million figure includes only the subsidies granted
to what the EC describes as the "relevant companies"; it does not in clude the subsidies received by
other Airbus entities, such as Airbus' parent comp any EADS, and the EC has not explained why the
Panel should disregard those subsidies.594
4.361 The US clarifies that it is not saying that the benefit of grants to non-Airbus companies went
to Airbus. However, because the EC has refused to provide information on grants to companies that
are Airbus companies, it has given the Panel an incomplete number in describing the amount of R&D
subsidy. The number is higher than the EUR 650 million the EC asserts. But, because the EC has
withheld relevant information, it is not possible to know how much higher.595
4.362 The US points out that the EC deems grants to certain entities to be "not relevant," based on
its mistaken view that the US had to show that subsidies benefiting Airbus LCA models continued to
benefit those models following corporate restruct urings leading to the creation of Airbus SAS. 596
Adding back in the amounts the EC arbitrarily excl udes, the total R&D subsidies Airbus actually has
received under both the EC Framework Programs ( FPs) and national and regional programs likely
exceeds EUR 3 billion.597
4.363 Further, the US notes that the EC responds to its showing that FP grants are specific by
arguing that "{t}he Second, Third, Fourth and Fi fth Framework Programmes do not have sub-budgets
specific to the aeronautics industry." The EC does not dispute the existence of such a sub-budget in
the Sixth Framework Programme . With respect to the Second through Fifth Framework Programs,
the EC seems to be arguing semantics. Although it does not acknowledge the existence of formal
"sub-budgets," it does seem to acknow ledge that the programs "allocate . . . portions of their budget
to research activities such as 'aeronautics and space' or 'aeronautics.'"598
4.364 The US notes that in addition to making a sema ntic argument, the EC argues that specificity
should be analyzed not at the level of the sub- budget but at the level of the entire Framework
Program. The US explains that accepting that argument, however, would lead to absurd results. A
Member could make virtually any subsidy to "cer tain enterprises" non-specific simply by formally
joining it under one roof with other subsidies to other certain enterprises and calling the combined
subsidies a "program." The US argues that the SCM Agreement does not support such a formalistic
approach. With respect to the de facto specificity of aeronautics R&D grants under the Framework
Programs, the relevant numbers show predominant use by Airbus (as well as showing Airbus' receipt
of disproportionately large amounts of FP aeronautics funding).
599 The US considers that the EC
contention that grants under certain programs are not specific is based on an artificial and
unsubstantiated theory that specificity under Article 2 of the SCM Agreement must be determined at
the broadest level of aggregation of the activities of the granting authority.600

595 US comments on EC, SNCOS, Executive Summary, para. 18.

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4.365 The US notes that with respect to R&D subsidies provided by member State governments, the
EC admits certain grant amounts but asserts that other amounts are "not relevant." As it gives no
explanation for its assertion of what is relevant and what is not, its argument should be rejected.
601
4.366 In the case of grants under Germany's LuFo pr ogram, the EC contends that certain amounts
are not relevant because they were only committed but not yet received by July 1, 2005. However, a
subsidy within the meaning of Article 1 of the SC M Agreement includes "potential direct transfers of
funds" as well as an actual direct transfer of f unds. Thus, even if the EC were correct in its
characterization of the grants at issue that would not be a basis for excluding those amounts from the
Panel's consideration.
602
4.367 The US also notes that the EC argues that the US has not shown that loans provided to Airbus
by the Spanish government under the PTA program confer a benefit on Airbus because the US has not
performed a comparison to a market benchmark. Ho wever, in view of the terms of the loans as
demonstrated by the US, they are, by definition, pr eferential to terms available in the market. In the
US view, the EC also errs in arguing that loan s provided by Spanish authorities under the PROFIT
program are outside the Panel's terms of reference, as such loans plainly were covered by the US
panel request. The US considers that the EC argum ent that PROFIT loans are not specific is equally
erroneous. In addition, as with the EC Framew ork Programs, the EC mistakenly argues that for
specificity purposes, PROFIT should be analyzed at the level of the broad "umbrella" under which it
is implemented, rather than at the individual program level.
603
4.368 Finally, with regard to the UK's Technology Programme, the EC itself has acknowledged that
the program is sub-divided into 43 "research themes" targeting a limited set of industries. Each of the
research themes has its own budget and tends to be highly industry-specific. The R&D funding
provided to Airbus and the aeronautics industr y under the Technology Programme is therefore
specific within the meaning of Article 2.1 of the SCM Agreement.604
2. Arguments of the European Communities
4.369 The EC considers that it demonstrates that the US overstated the amount of support that the
EC, Germany and its Länder Bavaria, Hamburg and Bremen, France, the United Kingdom and Spain
provided to Airbus SAS under research and technol ogy ("R&T") programmes. The EC examines the
US allegations with regard to every R&T progr amme challenged and demonstrates that the US
inflated the amount of R&T support in four ways.605
4.370 First, the EC makes clear that the US allega tions with regard to R&T funding by France and
one of the Spanish R&T programmes are outside the Panel's terms of reference. The EC asserts that
in its panel request, the US has not properly id entified the challenged French R&T funding and has
not mentioned the relevant Spanish programme at all.606
4.371 Second, the EC shows that the US includes s upport for companies other than Airbus SAS or
its subsidiaries, despite the fact that the latter ar e the only producers of LCA in the EC. The EC points
out that the US included in its estimates: (1) ot her participants in collaborative research projects 607,

607 EC, SWS, paras. 615-619.

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(2) the non-Airbus activities of companies with wide-ranging activities 608 and (3) other recipients
other than Airbus SAS. 609 The EC argues that the US does not explain how such funding passed
through to Airbus SAS. This applies to la rge parts of the support provided under the R&T
programmes of the EC (EC Framework Programmes) , Bavaria, Hamburg, Bremen, France and the
UK.610
4.372 Third, the EC asserts that th e US includes support which falls outside the temporal scope of
Article 5 of the SCM Agreement 611 since it was provided before 1995. 612 This concerns two of the
challenged EC Framework Program mes and parts of the R&T support provided by the German
Federal government613, France, the United Kingdom and Spain.614
4.373 Fourth, the EC maintains that the US incl uded support under R&T programmes that are not
specific within the meaning of Article 2 of the SCM Ag reement. The EC explains that this applies to
the EC Framework Programmes and to certain R&T programmes of the United Kingdom and
Spain.615 The EC considers that the US includes pa yments made under R&T programmes that are not
specific since they are extremely broad, cover varyin g research areas and are open to a broad range of
sectors.616
4.374 The EC concludes that the total amount of R&T support provided to Airbus SAS between
1995 and 2005 under the programmes in question, a nd within the scope of the panel request, is de
minimis when considered in light of Airbus SAS' annual research budget, R&T expenditure and its
turnover.617
4.375 The EC argues that the US inflates the actual R&T support for Airbus by including support
for recipients other than Airbus SAS. 618 The EC states that the US has inflated the amount of R&T
support to EUR 3 billion, around 5 times higher than the precise information on payments to Airbus
provided by the EC. 619 The EC explains that the US included in its EUR 3 billion figure amounts
provided not only to the current producer of LCA in Eu rope, Airbus SAS, but also to a wide range of
other recipients and also inflated the amount of French R&D support. Airbus SAS received only a de
minimis level of support.620
4.376 In its second written submission, the EC contends that the US still fails to substantiate its
vastly inflated figures with regard to R&T support to Airbus SAS in the EC. The EC points out that
the US has, in particular, not demonstrated how R&T support to companies other than Airbus SAS
was passed on to Airbus SAS.
621

608 EC SOS, para. 287.
609 EC SOS, para. 288.
613 With regard to support by the German federal government, the EC provided information on the
amounts Germany had disbursed to Airbus SAS by 1 July 2005 and on the amounts Germany had committed by
617 EC, FWS, Executive Summary, para. 64, see also, EC, FNCOS, Executive Summary, para. 19.
619 EC SOS para. 283.

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4.377 In its closing statement at the second Panel mee ting, the EC stated that it welcomed the US
statement that "it is not saying that the benefit of grants to non-Airbus companies went to Airbus."
The EC therefore presumes that the US had dropped its allegation of EUR 3 billion of R&T support to
Airbus.622
4.378 With regard to the EC Framework Programmes, the EC maintains that they are neither de jure
nor de facto specific. According to the EC, the US allegation that " aeronautics-specific sub-budgets
exist under each Framework Program" is factually incorrect and cannot serve as a basis for finding de
jure specificity. 623 Concerning the US claim on de facto specificity that " within each FP's
aeronautics sub-budget, Airbus is the predominant user of the grants ", the EC points out that
specificity must be assessed for the programme as a whole. This also applies to the assessment of de
jure specificity.624 At the level of the programme, it is clear that aeronautics companies, and even less
so Airbus SAS, are not the predominant users of R&T support.625
4.379 The EC also contends that new US exhibits relating to the UK Technology Programme do not
indicate its specificity within the meaning of Article 2.1 of the SCM Agreement. In the same way, the
EC also contends that the Spanish PROFIT progra mme, in addition to not being within the scope of
the panel request, is also clearly non-specific.626
4.380 Finally, concerning these and the remaining R&T programmes of Germany, Bavaria,
Hamburg, Bremen, France, the UK and Spain, the EC sets out in detail why the actual level of R&T
support to Airbus SAS is just a fraction of the infl ated US estimate and confirms that it has reported
all payments to Airbus SAS under the relevant R&T programmes.627
K. WHETHER THE SUBSIDIES HAVE CAUSED ADVERSE EFFECTS TO THE INTERESTS OF THE
UNITED STATES
1. Arguments of the United States
4.381 The US argues that for over thirty years, th e governments of France, Germany, the United
Kingdom, and Spain (the "Airbus governments") have been giving Airbus the means to "win the
battle" against its US competitors in the market for la rge civil aircraft ("LCA"). The US explains that
they have done so systematically and methodically in pursuit of a "European industrial policy" to
create the world's largest producer of LCA. Th e US claims that they have succeeded. The US
indicates that in less than four decades, Airbus has gone from a zero percent market share to its
current position as the world's largest producer. 628 The US asserts that the Airbus governments
maintain a formal and institutionalized "European in dustrial policy" toward Airbus. A core part of
that policy has been the systematic and coordinate d provision of massive subsidies that Airbus has
used to develop a family of LCA targeted at its US competitors.629
4.382 The US points out that since Airbus delivered its first LCA in 1974, two US producers
(Lockheed and McDonnell Douglas) have been driven from the market, and in 2003 Airbus displaced
Boeing as the world's largest LCA producer. By 2005, Airbus' share of the world market had
increased to 57 percent while Boeing's fell to 43 percen t – a drop of 25 percentage points over the last

624 EC, SWS, para. 626.

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decade and 19 percentage points in the last five years. 630 Tens of thousands of US workers have lost
their jobs. 631 Further, the subsidization of Airbus jeopardizes the durability of any recent
improvement in Boeing's competitive situation. Indeed, the Airbus governments have recently
"reaffirmed their agreement to support Airbus."632
4.383 The US states that if the losses that it has suffered were the result of fair competition, it would
not be pursuing this dispute. The US values competition and acknowledges Europe's right to pursue
its own interests in the LCA sector in a WTO-comp atible manner. But the US maintains that its
losses are not the result of fair competition. The Ai rbus governments created and fuel Airbus' success
with massive amounts of WTO-inconsistent subsidies.
633 The US argues that the provision of these
subsidies to Airbus by the EC and the Airbus govern ments is inconsistent with Article 5 because, as
demonstrated in its submissions, they have cau sed both injury to the US domestic LCA industry
within the meaning of Article 5(a) and serious prej udice to the interests of th e US within the meaning
of Article 5(c).634
(a) Conditions of Competition in the LCA Market
4.384 The US explains that Boeing and Airbus ar e the world's only remaining LCA producers.
Both companies compete head to head for virtually every LCA sale in the world in a largely "zero
sum" competition – a win for one producer is almost always a loss for the other. Competition
between Boeing and Airbus is driven by the performance characteristics of their aircraft and the price
(net of all concessions) at which they offer their respective LCA.
635
4.385 The US argues that Boeing and Airbus develop, produce, and market families of aircraft to
supply demand for LCA that operate efficiently over a variety of different routes. The long-term
viability of an LCA producer depends on continue d innovation and periodic laun ches of new aircraft.
Yet to do so, the producer must incur enormous up -front designing, engineering, and testing costs
over a period of years before a single aircraft can be delivered to a customer. For an LCA
manufacturer, decisions with respect to product la unches drive its subsequent pricing and production
decisions.
636
4.386 The US notes that the EC has plainly different views about how competition in the LCA
market occurs and which aspects of that competition are most relevant to the Panel's analysis. The US
also notes that on virtually every significant point, the statement of Mr. Christian Scherer of Airbus
coincides with its view of these matters, rather than the EC's.
637 Mr. Scherer explained how Airbus
and Boeing "compete to develop new and improved aircraft." This level of Airbus-Boeing
competition – the competition to create the family of LCA that will best match customer needs –
fundamentally shapes the day-to-day competition on sales and price. The US agrees. Yet Mr. Scherer
also explained that, Boeing had, until quite recently, e xperienced a "failure to develop new aircraft."
Mr. Scherer perceives that Airbus, not Boeing, h as been dominant in new product launches in recent
decades, and this perception is in fact quite broadl y shared in the industry. Although Mr. Scherer did

630 US, FWS, Executive Summary, para. 77. See, also, US, FWS, Executive Summary, para. 2.
632 US, FWS, Executive Summary, para. 77. See, also, US, FWS, Executive Summary, para. 2.
637 US, Comments on EC, SNCOS, Executive Summary, para. 19

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not say so, it is quite clear that Launch Aid has played an important role in giving Airbus this
competitive advantage at this most fundamental level of competition.638
4.387 The US notes that in a spontaneous remark, Mr. Scherer explained that both Airbus and
Boeing had an incentive to try to maintain stable production rates in the down market cycle that began
in 2001. As the US has shown in its submission, Ai rbus was successful in this, while Boeing was not.
In Mr. Scherer's words, Boeing "fell off a cliff." Th is shift in deliveries is what drove the enormous
shift in the market share of Airbus, which Airbus has mostly maintained.639
4.388 The US points out that Mr. Scherer also explains why, in his view, Airbus was successful in
maintaining production (and gaining market share) in a period of falling demand, while Boeing was
unsuccessful. He tells of hearing from customers "that Boeing was responding very slowly to
requests for technical assistance and concessions " – in his view, giving customers "not as much
attention as we would have," and that Boeing salesp eople were far less flexible in negotiations on
price with customers than the Airbus sales force. In short, Airbus was willing and able to use price to
win orders, when Boeing was not. Further, according to Mr. Scherer, this s ituation reversed only in
2004, when Boeing finally got tired of losing sales to Airbus and reluctantly capitulated on price
concessions. The SCM Agreement has a term for this: "price depression."640
4.389 The US notes that it was in this period that Airbus was completing the launch of and
delivering the first A340-500/600s, beginning the e normously expensive and risky launch of the
A380, and preparing for the coming launch of the A 350, and in this same period that Airbus took
sales and market share from Boeing through more flexib le pricing. And, as the US explained in its
opening statement at the second Panel meeting, the evidence shows that, especially during this period,
Airbus would have faced significantly greater financ ial constraints if not for Launch Aid. The US
wonders: How is it that Airbus was the producer th at was launching all the new aircraft, winning all
the new customers, gaining all the new market share, winning more competitions on price, in a period
when it faced real financial constraints? The US co ncludes that it is inconceivable that Launch Aid
did not play a key causal role in this.
641
4.390 The US points out that as Mr. Scherer noted, "when demand decreases . . . there tends to be
much greater competition by producers to win sales on price." The US explains that the downcycle
that began in 2001 provided Airbus with the opportuni ty to complete its full LCA family, launch the
A340-500/600, A380, and A350 in rapid succession, a nd gain nearly 20 points of market share at
Boeing's expense. At that point, the US initiate d these proceedings against the EC and the Airbus
governments for providing the subsidies to Airbus that are the cause of this situation.642
4.391 If the EC had its way, this harm would be ig nored as "historical" adverse effects, of purely
academic interest, if one focuses only on a short-term snapshot of the LCA market in which the surge
in demand in the last two years is used to portray everything as just fine. But everything is not fine.
The adverse effects manifested during the 2001-2005 period are continuing in the form of ongoing
losses of follow-on orders by customers captured by Airbus during this period, sustained lower
pricing, and unrecovered market share. Moreover, Airbus is launching a new aircraft – the A350 –
which Mr. Scherer confirmed is positioned to compete aggressively with the 787 and 777 on both
technology and price. And it is absolutely clear th at, if this Panel does not confirm that Launch Aid
has impermissibly distorted the LCA market in favor of Airbus and caused adverse effects in

638 US, Comments on EC, SNCOS, Executive Summary, para. 20.
639 US, Comments on EC, SNCOS, Executive Summary, para. 21.
640 US, Comments on EC, SNCOS, Executive Summary, para. 22.
641 US, Comments on EC, SNCOS, Executive Summary, para. 23.
642 US, Comments on EC, SNCOS, Executive Summary, para. 24.

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contravention of the EC and Airbus government s' commitments under the SCM Agreement, the
Launch Aid already committed for the A350 will be e nhanced and the adverse effects will continue.
The current surge in demand will not last forever. Mr. Scherer reminded us that the LCA industry is
cyclical and that demand can turn down suddenly and unexpectedly.643
4.392 Finally, the US points out that Mr. Scherer not only confirms the basic US explanation for
how Launch Aid was causing adverse effects in th e 2001-2004 period, but also confirms the views
that underlie the US subsidized product arguments. According to Mr. Scherer, two aircraft models
will compete with one another if they have seating cap acities within 15 to 20 percent of each other.
The LCA market therefore forms a continuum in wh ich all aircraft compete with their neighbours on
the spectrum but in which there are no sharp dividing lines.644
(b) Subsidized and like product
4.393 The US asserts that "as early as 1973, Airbus Industrie proposed the development over time
of five related aircraft types." The US argu es that the EC and the Airbus governments have
subsidized, and Airbus has developed, a family of ai rcraft in order to compete against the family of
aircraft offered by Boeing. Airbus' business stra tegy has, accordingly, focused heavily on its
integrated family. The US submits that because s ubsidies are provided to Airbus for the development
of an LCA family, and because subsidies for the development of each major Airbus LCA model
benefit the production and marketing of its full LCA family, the "subsidized product" is the Airbus
LCA family as a whole.
645
4.394 The US argues that Launch Aid benefits the Airbus family as a whole in at least six ways:
(1) it enables Airbus to be present in all segme nts of the LCA market, as the EC agrees any
competitive LCA producer must; (2) technologies or production facilities developed as part of the
launch of one Airbus LCA model are used for ot her models; (3) Airbus uses "commonality," or
common elements among different LCA models that reduce the cost of operating multiple Airbus
LCA models, as a central feature in selling the entire Airbus LCA fleet to customers; (4) Airbus uses
one Airbus LCA model to sell other LCA models in "package" deals, either simultaneously or
consecutively; (5) Launch Aid reduces the debt bur den on Airbus of building each individual LCA
model, which in turn allows Airbus to move on to launch the next model much more easily and
quickly; and (6) Launch Aid provides Airbus with add itional cash flow that allows it to reduce prices
of any LCA model whenever it concludes that a pr ice reduction is necessary to capture orders that
would otherwise have gone to Boeing. Thus, each provision of Launch Aid benefits the entire Airbus
LCA family and has adverse effects on the entire like Boeing family. Accordingly, the "subsidized
product" for each of the subsidies, and for all of the subsidies taken together, is Airbus LCA.646
4.395 The US asserts that Airbus markets its LCA products as a whol e and prominently features the
commonality between its different LCA types. The US notes that the EC submission acknowledges
that an LCA producer cannot succeed by producing a single LCA model that competes independently
in a particular segment of the LCA market. Rather, to succeed in any segment of the LCA market, a
producer must offer a range of products to meet the diverse needs of customers. The Airbus
governments have therefore subsidized the full range of Airbus LCA so that each individual model
could compete successfully. The "subsidized product," therefore, is Airbus LCA as a whole.
647

643 US, Comments on EC, SNCOS, Executive Summary, para. 25.
644 US, Comments on EC, SNCOS, Executive Summary, para. 26.

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4.396 The US argues that the panel in US – Softwood Lumber Dumping found that the identical
definition of "like product" that appears in the Antidumping Agreement has no relevance for
determining what may or may not be included in a single "product under consideration." Further, it is
well established that a range of related, if not necessarily like, products can be grouped as a single
"subsidized product" or "product under considera tion" under the SCM Agreement, and likewise under
the Antidumping Agreement. The recently circulated panel decision in Japan – DRAMS CVD
provides an example in addition to those previously identified.648
4.397 The US notes that the EC insists that, as a legal matter, when each individual item that
benefits from a subsidy is not a "like product" to ev ery other such item, then there must be several
separate "subsidized products" and several separate "like products" that corre spond to them. The US
considers that the EC confuses the definition of th e subsidized product with the definition of the like
product.649 The EC also argues that not every Airbus LCA model is "like" every other Airbus LCA
model or every Boeing LCA model. In the US vi ew, the EC confuses the identification of the "like
product" with the identification of the "subsidized pr oduct." This confusion is particularly evident in
the EC discussion of the panel report in Indonesia – Autos , where the identity of subsidized product
was undisputed. Indeed, the reasoning of the Indonesia – Autos panel, which defines the "like
product" narrowly with respect to the "subsidized product," would support a broader approach to the
definition of the "subsidized product."650
4.398 The US asserts that the EC argues that the Panel must define the subsidized products based on
whether the various items meet the "like product" test or compete with one another directly, and
specifically not with reference to the way in which the US has shown these particular subsidies to
have provided benefits to Airbus' production and sales. But, it cannot be overlooked that the subsidies
at issue in this dispute have been provided to facilitate the development of the Airbus LCA family as a
whole. The US believes that assessing the effect of the subsidy by breaking up the object of
subsidization – the Airbus LCA family – into sever al distinct products fails to be "reasonable and
coherent."651 The US argues that "there are no clear dividing lines between the five categories
proposed by the EC." 652 The US argues that even if it were useful or reasonable to divide the LCA
market into a number of submarkets, the EC's proposed division is not supported by the evidence. The
US observes that "in its own documents Airbus itself does not follow the particular five-market
segmentation that the EC advocates here." 653 And even if the Panel were to find any merit whatsoever
in the EC market segmentation, the EC contentio n that no Airbus models compete with the Boeing
747 is manifestly erroneous.654
4.399 The US argues that just as the "subsidized produc t" in this dispute is the Airbus LCA family,
the "like product" produced in the US is the Boeing LCA family. The Boeing and Airbus LCA
families, however, have "characteristics closely resembling" one another within the meaning of
footnote 46 to the SCM Agreement. This is unsur prising, given that Airbus has purposely developed
its LCA family to compete directly with the Boeing LCA family.655

652 US, SWS, para. 650.
653 US, SWS, para. 651.

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(c) Reference period
4.400 The US considers that the EC focus on mark et developments after Panel establishment is
legally and factually misplaced. The US submits that it has demonstrated the validity of its claim, set
forth in its request for the establishment of this Panel, that the challenged subsidies have caused
adverse effects to the interests of the US. The US considers that the EC has chosen not to rebut this
showing. Instead, the EC contends that the only question for the Panel is whether the adverse effects
referred to in the US panel request have ceased to exist. Most of the trends that demonstrate the
adverse effects to the interests of the US over the 2001-2005 period have c ontinued unabated through
2006 and, to the extent data are available, into 2007. Where the trends s how small improvements in
2006 when compared to 2005, these are largely due to temporary factors such as the 2006 delays in
A380 production and A350 design rather than any elimination of the effects of the subsidies. In any
event, the EC's exclusive focus on data for 2006 s hows that it cannot contest that adverse effects had
existed in the period through 2005; the EC certainly makes no effort to do so.
656 The US considers
that the EC wants the Panel to believe that the EC subsidies to Airbus are not causing adverse effects
to the interests of the US, because Bo eing is still alive. But, being alive is not relevant to the issue of
adverse effects. What is releva nt, among other things, is that Boeing has suffered a 20-point market
share loss and price erosion due to Airbus subsidies.657
4.401 The US considers that the EC argument is al so legally incorrect. The US notes that in EC –
Biotech, the EC asked the panel to decline to rule on a disputed measure on the basis that the measure
had allegedly ceased to exist after the establishment of the panel. The panel refused, finding that (1) it
had the authority to make findings on the WTO-cons istency of the measure even if it had ceased to
exist subsequent to the establishment of the panel, (2) that such findings would help "secure a positive
solution" to the dispute, and (3) that it did not n eed to make findings on whether the measure was still
in existence in order to make the recommendati on required by Article 19.1 of the DSU. The
reasoning of the Biotech panel applies equally in the present dispute.658
4.402 The US finds no support for the EC view that the US claims that the contested measures in
this dispute have breached the EC obligations u nder Article 5(a) and 5(c) of the SCM Agreement
must be evaluated "at the time when a panel makes its decision" rather than at the time of panel
establishment. To the contrary, the Panel's te rms of reference require it to examine "the matter
referred to the DSB by the US" in its 2005 request for panel establishment. The "matter" includes the
"claims" contained in the panel request. Therefore, the Panel must examine the claim of the US that
the subsidies were causing adverse effects in 2005. Any assertion by the EC that material injury
ceased to exist after the establishment of the Panel should be left to the compliance stage.659
4.403 In addition, the US notes that the EC contends that the appropriate starting point for the
Panel's adverse effects analysis is 2004, not 2001. The US points out that the 2001-2003 period was
not aberrational, as the EC claims; if anything, it is the increase in LCA demand in 2005 and 2006 that
is historically anomalous. Moreover, if the EC were correct in its contention that changes in market
share from 2001 to 2003 were due to temporary ph enomena unrelated to subsidization, one would
expect the relative market shares of Boeing and Air bus to return to their "normal" levels after the
market recovered in 2004. Yet this has not occurred.660

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4.404 Indeed, the LCA market and industry operat e under unusually long time horizons. It takes
several years to develop a new aircraft and bring it to market. Similarly, LCA sales typically are for
deliveries over several years with options to purch ase additional aircraft over a time frame that is
longer still. The subsidies at issue are long-term loans intended to fund the launch of LCA that are
produced and sold over a period of decades; any measur ement of their effects must therefore take into
account their long-term nature.
661
4.405 The US notes that, in its report in the US – Cotton Subsidies (Article 21.5) dispute, "the
Appellate Body reasoned that where subsidies have been found to insulate producers from market
signals over a long period of time, trends in mark et share and prices in the most recent period are not
dispositive as to whether there is present serious prejudice." 662 According to the US, "this reasoning
would apply even more strongly in the present dispute, where the effect of the subsidy is to facilitate
Airbus launch decisions that, by their nature, have even more long-term effects on Airbus production
and pricing in the LCA market than could subsidies to an agricultural commodity with a single year's
growing cycle."663 "Accordingly, under the approach of the Appellate Body, the Panel is entitled to
consider all facts, especially the nature of the subsidies and the market at issue, in determining
whether the EC and Airbus government subsidies have caused adverse effects. More particularly, the
application of the Appellate Body 's reasoning would lead the Panel to reject the EC's efforts to
artificially restrict the Panel's focus to trends in the 2004-2006 period, without reference to what
occurred before 2004 or the particular supply-creating effects of these subsidies."664
(d) Injury Within the Meaning of Article 5(a)
4.406 The US asserts that since 2001, Airbus has significantly increased its share of the LCA
market relative to total US demand. Airbus in creased its share of US LCA deliveries from 30 percent
in 2001 to 48 percent in 2005. Measured by valu e (at list prices), Airbus' share of the US market
increased from 28 percent in 2001 to 53 percent in 2005, or by 25 percentage points over the period.
By any measure, this increase in the relative volume of LCA imports is significant, even after taking
into account the overall decline in US demand during the period. For example, if Boeing had simply
been able to maintain its 2001 share of the US LC A market by value, its LCA sales in the US would
have been 54 percent greater in 2005 than they were.
665
4.407 The US notes that a significant share of the Ai rbus LCA delivered in the US market during
the 2001-2005 period were sold to customers new to Airbus, including both start-up airlines and
previous Boeing customers. In each case, Boeing was a strong competitor for the initial order.
Although the actual price that each airline paid to Airbus, taking into account all concessions on the
sale, is not available to the US, publicly available information indicates that Airbus price undercutting
played a key role in winning these customers. Boei ng also lost the most significant campaigns that
did occur in the US market during this period on the basis of price undercutting by Airbus.666
4.408 The US argues that the pricing pressures of these campaigns has had a direct and measurable
impact on the prices Boeing has been able to obtain for those sales that it has made in the US market.
Indexed pricing data for 2001-2005 provided as business confid ential information ("BCI") by Boeing
shows that the average price for B737s fell during this period. In addition, while the price of each
LCA is contractually agreed at the time of a firm order, Boeing had to reduce prices on undelivered

662 US, Comments on Appellate Body Report in US – Upland Cotton, para. 7.
663 US, Comments on Appellate Body Report in US – Upland Cotton, para. 7.
664 US, Comments on Appellate Body Report in US – Upland Cotton, para. 8.
665 US, FWS, Executive Summary, para. 83. See, also, US, SWS, Executive Summary, para. 98.

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aircraft for certain major customers because of dow nward trends in market pricing under pressure
from Airbus. Pricing trends for B747 and B777 sales in the US market were similar. The US points
out that one would ordinarily expect that in the absence of price suppression, producers would over
time increase prices generally in line with increases in their costs. Both Airbus and Boeing typically
include price escalation clauses in their sales contracts to reflect cost increases from the year of order
to the year of delivery. However, Boeing has been unable to maintain its US pricing for its LCA in
line with cost increases.
667
4.409 In the US view, these data demonstrate that Bo eing has experienced price depression (actual
price decreases) and price suppression (price increases lower than what would be expected) for its US
LCA sales. Given the evidence of aggressive Airbus pricing in US sales campaigns, the price
depression and price suppression are attributable to subsidized imports.668
4.410 The US points out that data provided by Boeing relating to the factors enumerated in
Article 15.4 of the SCM Agreement show a steep d ecline in the financial results of Boeing's LCA
business over the past five years. This decline h as occurred despite deep cuts in costs and steady
gains in productivity.669
4.411 The US asserts that Airbus' gains in its share of the US market have come at the expense of
Boeing, thus linking the subsidized imports to the significant adverse impact on Boeing's LCA
production and sales figures. Moreover, the decline in Boeing's prices is a function of the pricing of
subsidized imports from Airbus. The deterioration in the other relevant indicators of the economic
health of Boeing's LCA operations follows directly from this loss of market share and loss of revenue.
Any injury resulting from the decline in total demand – a factor that affected both Airbus and Boeing
– is distinguishable from injury resulting from loss of market share to Airbus. As Airbus recognized,
"For our competitor, the effects of loss of market share and the contraction of the market itself are
cumulative." According to the US, no other factors have caused the material injury to Boeing.
670
4.412 The US notes that material injury is defined to include a threat of material injury. The
evidence also shows that a threat of material injury is "clearly foreseen and imminent."671
4.413 The US argues that the improvement in Bo eing's financial performance in 2006 does not
undermine the US material injury claim. In 2006, Ai rbus could not effectively market either its A380
(because of production problems) or its A350 (which had to be redesigned). What 2006 shows is how
the absence of a subsidized and aggressively market ed new Airbus aircraft improves the fortunes of
the US LCA industry – and, by contrast, how significant the adverse effects of Launch Aid and the
other Airbus subsidies have been. However, Air bus can be expected to overcome the technical
problems with A380 production, and the A350 with fu lly revised technical specifications will be back
in the market in the very near future. If Launch Ai d is permitted to continue, the adverse effects seen
in recent years will continue as well.672
4.414 The US notes that the EC discusses at length th e improvement in Boeing's financial condition
in 2006 (while neglecting to mention that Airbus, t oo, had record deliveries and performance in the
same year) and argues that, whatever may have been the case in the past, Boeing cannot be said to be
experiencing material injury at the present time. However, the relevant question for an adverse effects

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claim under the DSU and the SCM Agreement is whether the EC was in breach of its obligation under
Article 5(a) when the Panel was established. Moreover, the improvement in the financial condition of
Boeing must be placed in the context of unusuall y high demand in 2005 and 2006 in this cyclical
industry. Indeed, the events of 2006 demonstrate how significantly relief from subsidized competition
improves the fortunes of the US LCA industry.673
(e) Serious Prejudice to the Interests of the US
4.415 The US submits that adverse effects from subs idies also include "serious prejudice to the
interests of another Member" as provided in Article 5(c). Article 6.3 further provides that serious
prejudice "may arise in any case where one or several" particular market effects of the subsidy are
demonstrated. The US argues that several of the effects of the subsidies described in Article 6.3 apply
in this dispute.674
(i) Subsidized Airbus LCA Have Displaced or Impe ded Imports of US-Produced LCA in the EC
Market
4.416 The US notes that Airbus increased its share of the EC LCA market by 9 percentage points
from 2001 to 2005 measured by volume675 and maintained all of its increased market share in 2006. 676
By value, Airbus increased its share by 12 percenta ge points over the period. The growth in Airbus'
market share – and concomitant decline in Boeing' s share – demonstrates that Airbus LCA have
displaced Boeing LCA in the EC market. 677 According to the US, a signi ficant portion of the shift in
EC market share is attributable to two particular campaigns – easyJet and Air Berlin. Both airlines
were Boeing customers looking to expand their fleets, the competitions were directly between Boeing
and Airbus, and the wins for Airbus were losses fo r (and significant displacements of) Boeing. Other
lost sales campaigns have resulted in additional displacement of Boeing LCA in the EC market.678
4.417 The US considers that the EC fails to respond to its argument; instead it segments and breaks
up the data in a way that magnifies random fluctuations and obscures trends. In the US view, the data
speak for themselves – significantly fewer Boeing LC A are being imported into the EC than was the
case just a few years ago.679
4.418 The US notes that the EC contends that the Panel should evaluate the US displacement and
impedance claims under Article 6.3(a) and Article 6.3(b) by examining the market share of orders
rather than the market share for actual deliveries. However, the text of Article 6.3(a) refers to the
displacement or impedance of "i mports" and "exports" of a like product of a Member. The ordinary
meaning of the terms "imports" and "exports" includes actual Articles or things that cross international
borders – that is, deliveries. 680 The US argues that the EC focus on orders rather than deliveries is
erroneous: the US notes that the EC agrees that the ordinary meaning of the terms "imports" in
Article 6.3(a) and "exports" in Article 6.3(b) carries "the notion of movement of goods." As contracts
for the future "movement of goods," orders are certainly relevant to an analysis of likely future trends
in the LCA market, but the "movement of goods" th at has actually occurred and is now occurring is
captured by data on actual deliveries. Mo reover, an exclusive analytical focus on order data leads to
factually inaccurate conclusions, particularly in third-country markets where there are a relatively

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small number of transactions. This can be seen, for example, in an examination of the LCA market in
Mexico.681
(ii) Subsidized Airbus LCA Have Displaced or Impe ded Exports of US-Produced LCA in Third-
Country Markets
4.419 The US observes that from 2001 to 2005 Airbus has increased its share in markets other than
the US and the EC by a 20 percentage points (measured by volume) or 19 percentage points
(measured by value). In the two largest third-count ry markets in the 2001-2005 period, Airbus gained
24 percentage points of market share at Boeing's expense in China and 18 percentage points in
Australia. Other significant markets where Air bus significantly increased market share include
Singapore, Korea, Brazil, the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu
("Chinese Taipei"), Mexico, and India. Large new or ders in third-country markets, most evidently
India, threaten further displacement of Boeing exports to these markets for years to come.
682
4.420 Boeing regained only five percentage points of its share of these markets in 2006 and remains
well below its share in 2001 and 2002. These mark ets other than the EC and the US have grown
substantially over the 2001-2005 pe riod and have continued to grow in 2006. Total deliveries by
Boeing and Airbus have increased in each year (except for a very small drop from 2003 to 2004).
Thus, the shift in market share in third-country ma rkets largely results from Airbus gaining more of
the increased demand than Boeing. With respect to particular third-country markets identified in the
US first written submission, Boeing's loss of market share to Airbus continued in 2006 in most
markets.
683
(iii) Subsidized Airbus LCA Have Undercut Prices and Taken Sales of Boeing LCA
4.421 The US argues that from the late 1990s through at least 2005, Airbus won a series of
campaigns at major low-cost carriers in the US, Eu rope, and Asia. Public and confidential evidence
shows that aggressive Airbus pricing was the key factor in Airbus' winning, and Boeing's losing, these
key campaigns.684 Airbus has captured market share thr ough a strategy of aggressive product launch
and aggressive pricing at key, strategic campaigns. In many cases, Airbus h as succeeded in capturing
key customers from Boeing. Even where Boeing has b een able to maintain customers, the increased
competition from Airbus on the basis of price has resulted in depressed market prices and,
accordingly, reduced revenues. Th e public evidence, which is larg ely confirmed by the confidential
evidence provided by the EC, is that Airbus, not Bo eing, took the lead in driving prices downward in
recent years.685
4.422 According to the US, that Airbus uses price undercutting to increase its share of the LCA
market is well recognized in the industry. The US points out that Airbus admits that retaining its
targeted market share is more important to it th an profitability, stating that "one percent in
profitability matters more than one percent in ma rket share, provided it remains at an average
50 percent market share."686
4.423 The US argues that a number of significant sales campaigns can be identified, based on
available information, in which the customer was in the market for new aircraft, invited Boeing and

686 US, FWS, Executive Summary, para. 94. See, also, US, SWS, Executive Summary, para. 98.

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Airbus to bid against one another, chose the Air bus LCA over an equally qualified Boeing LCA, and
did so because of the Airbus price. For example, ea syJet officials remarked that "it surprised all of us
to see just how aggressive Airbus was in the final round of sealed bids." Public data from easyJet
indicates a purchase price of $19.36 million per aircraft in 2001 US dollars, a discount of 56 percent
off the $44 million list price. Taking into account additional guarantees and services to be provided
by Airbus, easyJet concluded that "the offer received from Airbus ... was significantly better value
than the offer received from Boeing." Other majo r identifiable lost sales campaigns included Air
Berlin/NIKI, AirAsia, Iberia Airlines, South Afri can Airways, Thai Airways International, Singapore
Airlines, Emirates Airlines, Qantas, and Czech Airlines.
687
4.424 The US asserts that prices of A380 aircraft so ld by Airbus in competition with Boeing were
so low, in fact, that the impact of recently a nnounced delivery delays has turned them into loss-
making contracts. EADS has announced publicly that "A380 loss making contracts" would result in a
EUR 600,000,000 reduction in its 2006 pre-tax earnings.
688 Airlines that ordered the A380 would
otherwise have expanded their fleets with Boeing LCA.689
4.425 With respect to A340-500/600 sales, the US notes that the EC argues that Airbus had the right
plane at the right time, while Boeing did not. Once again, however, this concedes the causal link; in
the absence of Launch Aid, Airbus would not have been in a position to offer what it claims was the
right plane at the right time. According to the US , the evidence therefore confirms that the significant
lost sales identified by the US were lost primarily because of subsidies.
690
4.426 The US submits that when the evidence shows – as it does here – that Airbus has not only
taken numerous large sales from Boeing, several of th em worth billions of dollars, but also that it has
done so primarily by offering a lower price than Boeing, that evidence demonstrates not only
"significant ... lost sales," but also the existence of "significant price undercutting" within the meaning
of Article 6.3(c). In the course of a sales campaign, each customer engages in a detailed and
painstaking review of every contractual term, incl uding the value of proposed concessions contingent
on future events (such as residual value guarant ees). When the evidence establishes that, in a
particular LCA transaction, a customer concludes th at Airbus, all other things being equal, offered a
lower price than Boeing, this constitutes prima facie evidence of price undercutting within the
meaning of Article 6.5 and, therefore, of Article 6.3(c).
691
4.427 The US notes the EC assertion that many LCA sales do not involve "competition" between
Airbus and Boeing, and that where sales are not "c ompetitive" there is no possibility for subsidies to
cause adverse effects. According to the US, the EC definition of a "competitive" sale excludes many
sales in which price competition between Airbus and Boeing is highly relevant. The US points out
that a customer may not conduct a formal bidding process, but only if it believes that it is getting a
market price. If a customer thinks that holding a competition will drive down the price, it will do
so.
692
4.428 The US also rebuts the EC interpretation of "the term 'non-subsidized like product' as used in
Article 6.4 and 6.5 to mean that, if the like pr oduct of the complaining Member benefits from any
specific subsidy – no matter how small or indirect – that Member is affirmatively prevented from

692 US, SWS, Executive Summary, para. 84. See, also, US closing statement, first meeting, Executive
Summary, para. 5.

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showing that the effect of another Member's s ubsidy – no matter how large or direct – has caused
displacement or impedance of its exports to a thir d country under Article 6.3(b) or significant price
undercutting under Article 6.3(c)." 693 According to the US, "nothing in Articles 6.3, 6.4, or 6.5
suggests that these provisions are intended to deal with subsidies other than the challenged subsidies –
whether those other subsidies are provided by th e responding Member, the complaining Member, or
other Members."694
(iv) Boeing Has Experienced Price Suppression and Price Depression for Its LCA Sales in the
World Market
4.429 The US argues that in the context of this case, the world market is the appropriate market for
measuring the price effects of the Airbus subsid ies. Boeing provided as BCI the indexed annual
prices of all actual, worldwide Boeing LCA orde rs for the period 2001-2005 for the B737, B767,
B747, and B777. These figures show negative trends in Boeing's prices for each aircraft type over the
period. Post-order price adjustments further demonstrate the price depressing effects of Airbus'
pricing practices. Airbus LCA was the only compet ition and Airbus was engaged in widespread and
aggressive price undercutting during the period. T hus, the evidence demonstrates significant price
depression and price suppression in the world LCA market.
695
4.430 The US contends that prices for Boeing LCA in the world market fell, or failed to rise in
keeping with cost inflation, in the period fro m 2001-2005. Despite two years of unprecedented high
demand for LCA, prices for the Boeing 737, 747, and 767 continue d to be seriously depressed in
2006. The US argues that aggressive Airbus pricing has altered price expectations of customers in the
market and continues to prevent prices from rising. Price trends for the 777 were somewhat different
both in 2001-2005 and in 2006. The US argues that its contention that the price suppression and
depression is the effect of the subsidy is confirmed by the fact that the effect of price suppression and
depression recedes first – and, so far, only – wher e Airbus' product offering has proven the weakest
and at the time when Airbus' ability to leverage its s ubsidies to lower price to offset the difference is
most strained.
696
(v) Subsidies Cause These Adverse Market Effects
4.431 The US considers that with respect to the issu e of adverse effects, the first question is: How
do the subsidies work? How do they affect the mark et and how Airbus acts in the market? The US
argues that it has shown that the subsidy distorts the market in two principal ways. It allows Airbus to
launch aircraft it could not have la unched on the scale and at the pace it has without subsidies. And,
its impact on Airbus' cash flow and costs allows it to price aggressively to buy market share, all while
maintaining its pace of product development.697
4.432 The US notes that the EC does not really contest the first point. And the EC largely avoids
responding to the second point through its arguments a bout the subsidized product. By deciding in
advance that there are five separate product markets, the EC decides in advance that, for example, the
Launch Aid provided for the A320 can only affect sales of the A320. But this does not respond to the
question of how the subsidy works; rather, the EC begs the question.698

693 US comments on EC, Answer to Panel Question 202, para. 225.
694 US comments on EC, Answer to Panel Question 202, para. 226.

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4.433 This leads to the second step in the analysis: what is the product that benefits from the
subsidy? Given the way the subsidy works, the analys is must be of the effect of the subsidies on all
LCA as a whole. The US notes that the EC says that it is necessary to take account of the differences
among the various LCA models. The US agrees. Wher e the US differs with the EC is in how the US
takes account of these differences. According to th e US, the EC approach is wrong, because it would
force the Panel to ignore how the subsidy actually works.699
4.434 After identifying how the subsidies work and the subsidized product, the third and final step
in the analysis is whether the adverse effects – the various types of serious prejudice and the material
injury – are the result of the subsidies. With regard to displacement a nd impedance, the subsidy
affects what Airbus has to sell, and thus certainly ha s an effect on market share. With regard to lost
sales, price undercutting, and price depression and suppression, the subsidy effects are plainly of
sufficient magnitude, and the market is sufficiently competitive, that the effects on Boeing have been
significant.
700
4.435 According to the US, the key facts demonstrating adverse effects are not seriously disputable.
First, Airbus increased its share of the world LC A market from 39 percent in 2001 to 57 percent in
2005, and has maintained most of these gains in 2006 and, according to available data, in 2007. 701
Airbus deliveries in 2006 broke the company record set in 2005, and in 2006 it built and delivered
more LCA than Boeing for the fourth consecutive year. 702 Second, Boeing lost significant sales to
Airbus during this period, often as a result of dem onstrable price undercutting by Airbus. Third, the
prices that Boeing has been able to receive for the LCA that it did se ll during this period have fallen,
or failed to increase in keeping with inflation, and largely have not recovered to this day.703
4.436 The US notes that none of these facts, as such, are disputed. In addition, the US notes that the
EC concedes that the launches of the A300, A310, A320, A330, and A340 – that is, the base model
for every LCA that Airbus had ever delivered to a customer before October 2007 – would not have
occurred, at least not when and how they did, if the Airbus governments had not provided Launch Aid
or other subsidies.704
4.437 The US argues that while Launch Aid has been th e primary tool that the EC and the Airbus
governments have used to subsidize the Airbus LCA fa mily, the other subsidies also shift the costs of
LCA development to the governments as part of the same broad strategy. 705 The US asserts that
subsidies other than Launch Aid, when provided in combination with Launch Aid, have the effect of
amplifying and reinforcing the market-distorting im pact of Launch Aid. To the extent that these
subsidies to Airbus have effects that are comple mentary to Launch Aid, their effects should be
considered together with Launch Aid. 706 Because the volume and price effects of the various
subsidies Airbus has received to develop and market its LCA family "manifest themselves
collectively," it is permissible – as the panel stated in US – Cotton Subsidies , to "treat them as a
'subsidy' and group them and their effects together."
707

701 US, SNCOS, Executive Summary, para. 16. See, also, US, FNCOS, Executive Summary, para. 26.
703 US, SNCOS, Executive Summary, para. 16. See, also, US, FNCOS, Executive Summary, para. 26.
704 US, SNCOS, Executive Summary, para. 16. See, also, US, FNCOS, Executive Summary, para. 26.

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4.438 The US argues that subsidies have facilitated and accelerated the introduction of every major
Airbus model, precisely as the EC and th e Airbus governments designed them to do. 708 The US notes
that while it has demonstrated that the Airbus gove rnments provided subsidies that were decisive to
the launch of every Airbus LCA model, the EC c ontests this showing only for the A380. The US
asserts that Launch Aid played an indispensable role in the development of the A380. Nonetheless,
the EC, by its silence, has left uncontested one of the most important elements of the US adverse
effects case – that Airbus and its entire product line would not be what it is today, but for the
provision of Launch Aid and other subsidies.
709
4.439 The US considers that the EC claim in this dispute that Launch Aid was not necessary for the
launch of the A380 is contradicted by the eviden ce. For example, the stated policy of the UK
government is to provide Launch Aid only if the recipient demonstrates, inter alia, "that Government
investment is essential for the project to proceed on the scale and in the time-scale specified in the
application." For the French government, the prob lem was "above all" the crushing financial impact
of private financing for the A380, even assuming it could be found, on the balance sheet of Airbus. 710
In addition, the US points out that the British g overnment concluded that the development of the
A380 "would not have been possible if it had not been for the commitment of the British
Government," and the French government found it "doubtful that the enterprise would be in a position
to find outside financing" for the A380.711
4.440 Further, the US submits that each new aircraft model that Airbus has added to its LCA family
has targeted US LCA models. The US notes that Airbus claims that its aircraft models were designed
to "attack" or "kill" competitive US products or "really hurt" a US competitor. The US points out that
the fact that the EC and the Airbus governments provide subsidies to help Airbus take actions
intended to cause adverse effects to the US LCA indust ry is strong corrobora ting evidence that those
adverse effects, which have in fact occurred, are caused by the subsidies. Indeed, Airbus and the
Airbus governments have, through their own admiss ions, confirmed each major element of the US
adverse effects case.712
4.441 The US argues that the provision of Launch Aid by the Airbus governments distorts the
fundamentals of competition among LCA producers by shifting the enormous costs and risks of
aircraft development from the producer to the governme nts – as a French Senate report puts it, "a sort
of insurance policy for the company against industrial risk."713
4.442 The US argues that "Launch Aid commits Eur opean governments to absorbing much of any
possible losses, so even if Airbus is risk averse, it has little incentive not to adopt a risky, aggressive
strategy." According to the US, the Airbus governme nts thus enable Airbus to launch aircraft at an
otherwise unsustainable scale and pace , if it could have la unched them at all. Thus, they expand the
range of the Airbus product family against which US producers must compete and lower the price at
which Airbus is able to offer those products.
714 In the US view, the effect of Launch Aid is not only –
and not even primarily – to bestow extra money on the LCA manufacturer when it launches. The
effect is also to shift much of the risk of launc h to the government – and therefore to make the very
fact of launch more likely.715

713 US, FWS, Executive Summary, para. 99. See, also, US, FNCOS, Executive Summary, para. 20.
714 US, FWS, Executive Summary, para. 99. See, also, US, FNCOS, Executive Summary, para. 20.

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4.443 The US argues that Launch Aid also has a second and independent market-distorting effect on
the costs and cash flow of Airbus that gives Airbus an advantage in pricing, particularly in LCA
campaigns of strategic importance. The impact of the subsidies on the market's perception of the
creditworthiness of Airbus is substantial. The subsid ies thus have a direct impact on Airbus' ability to
raise additional capital, and thus on its marginal cost of capital. Launch Aid also reduces the cash
drain of launch, allowing Airbus to be more flexible in pricing all of its LCA while still maintaining a
rapid pace of project development. 716 The US argues that as the subsid ies have been instrumental in
creating Airbus' LCA product family, they necessarily create supply-side pressure on market prices.
Further, the impact of Launch Aid on the overall fina ncial performance of Air bus allows Airbus to
keep to an aggressive launch schedule, while simu ltaneously following its publicly stated policy of
pursuing market share, even at the cost of short-term profitability.717
4.444 The US points out that what the EC calls th e "US cash flow argument" is something else
entirely – an alleged US argument that the effect of the subsidy is to give Airbus cash that it somehow
"uses" in order to "price down" its aircraft. But this is an argument the US has not made.718
4.445 The US further explained that Launch Aid also affects "the marginal production costs and
marginal revenue that Airbus receives from each LCA sold and delivered. This occurs in at least two
ways. First, ... Launch Aid improv es Airbus's overall credit rating and therefore lowers its marginal
cost of capital. Given the long lead times between investment at the time of launch and order and
customer payment mostly at delivery, lowering Air bus's cost of borrowing has a direct impact on its
marginal cost of production. Second, ... if Airbus had obtained a loan with all of the same terms as
Launch Aid, except a commercial interest rate, each individual per-aircraft repayment would have to
be substantially increased. The EC even calls this increased per-aircraft repayment the 'benefit per
aircraft.' .... The lower per-aircraft repayment due to subsidized Launch Aid directly results in greater
marginal revenue (or lower marginal costs) for each sale, and does so at the time of delivery for as
long as the loan is outstanding.719
4.446 The US observes that the report of Dr. Gary Dorman presents an economic model of the
business case for a typical aircraft program and s hows how the success-dependant, back-loaded, and
below-market aspects of Launch Aid fundamental ly change the economics of an LCA launch
decision.720 In this model, the present value of the extra profits received because of Launch Aid if the
"base case" assumptions turn out exac tly as expected is more than $1 billion, or 77 percent of the net
present value without Launch Aid. More importantly , when Launch Aid is provided, the decision to
launch a new aircraft model is much less sensitive to the level of confidence in the accuracy of the
target assumptions.721
4.447 The US considers that the EC attempt to rebut the economic model of Dr. Gary Dorman fails,
and in any event, the EC has chosen not to contest that Launch Aid was decisive in most of Airbus'
key launch decisions. The US argues that the economis t selected by the EC to review Dr. Dorman's
model, Dr. Wachtel does not consider the particular importance that economies of scale play in the
LCA industry. The US points out that as a 1995 study for the British government states, "scale

716 US, FNCOS, Executive Summary, para. 23. See, also, US, SWS, Executive Summary, para. 82.
719 US, Answer to Panel Question 230, para. 33 (footnotes deleted).
720 US, FWS, Executive Summary, para. 99. See, also, US, FNCOS, Executive Summary, para. 20.

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economies are so important in this t echnology that, if a producer enters a market at all, it will always
do so at a scale of production that makes a significant difference to its competitors' sales."722
4.448 The US argues that nothing in the EC argumen t detracts from Dr. Dorman's conclusion that
Launch Aid significantly affects the probability that a launch will be profitable and therefore
significantly influences the recipient's decision on whether to launch at all. However, the EC argues
that the existence of aircraft that would not have been launched without subsidies is part of the
"conditions of competition" in the LCA market, a fait accompli that the US, and the Panel, have to
accept as given. But some subsidies give their r ecipients a competitive advantage within the market
as it exists, while other subsidies fundamentally change the dynamics of the market. Both types of
subsidy have an impact on the pricing and marke ting decisions of the subsidized entity, just in
different ways. And so both types of effect must be actionable under Part III of the SCM Agreement.
Launch Aid lets Airbus do more than it could othe rwise do given its financial constraints, first in
terms of bringing new aircraft models into production, and second in terms of having the pricing
flexibility to gain market share with those aircraft models.723
4.449 The US provided a statement by Professors Joseph E. Stiglitz and Bruce C. Greenwald of
Columbia University that "discusses differences in the effects of different types of subsidies to LCA
producers. Their conclusion is that subsidies, like Launch Aid, that directly influence the
development, production, or sale of specific aircraft are the subsidies that are most likely to affect
competition generally and market pricing in particul ar. Their statement confirms that Launch Aid,
because it has a direct impact on the supply of LC A that Airbus can produce and sell, has a causal
relationship with the market behavior of Airbus and its impact on its competitor."724
4.450 The US also considers its approach to the effect of the subsidy in this dispute to be consistent
with the approach of the Appellate Body in US – Cotton Subsidies (Article 21.5) . "According to the
Appellate Body, an analysis of whether the 'effect of the subsidy' is significant price suppression (or,
presumably, any of the other types of effects de scribed in Article 6.3 of the SCM Agreement)
properly includes not only an analysis of the effect of the subsidy on short-term production levels, but
a longer-term analysis of whether producers would even be present in a particular market at all in the
absence of subsidies." 725 "Thus, ... significant price suppression (or, presumably, another form of
serious prejudice) can be caused not only by a subsidy that directly impacts the recipient's short-term
production or pricing decisions, but also by a subsid y that facilitates the entry or exit of the subsidy
recipient into or out of a particular market and t hus the presence or absence of the subsidy recipient in
that market over time." 726 "If the Appellate Body's approach is valid with respect to a commodity
product such as upland cotton, it would appear to be even more appropriate in the LCA industry,
which has vastly longer production cycles and signifi cantly greater barriers to entry than does the
production of upland cotton. The United States has demonstrated that the nature and magnitude of the
EC and Airbus government subsidies to Airbus are su ch as to directly affect the outcome of Airbus's
individual launch decisions, and therefore the entry of Airbus into various segments of the LCA
market, which in turn has effects on the marketability of the entire Airbus LCA family."727
4.451 The US notes that the EC response to the US demonstration of the distorting effects of
Launch Aid is not to contend that Launch Aid has had no impact on Airbus' launch decisions. Rather,
the EC contends that the US, by arguing that subsid ies created the existing supply, in fact argues that

724 US, Answer to Panel Question 230, para. 32 (footnotes deleted).
725 US, Comments on Appellate Body Report in US – Upland Cotton, para. 2.
726 US, Comments on Appellate Body Report in US – Upland Cotton, para. 2.
727 US US, Comments on Appellate Body Report in US – Upland Cotton, para. 3.

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Boeing should have a monopoly in the LCA market; it then rebuts this straw man by arguing that even
without the subsidized Airbus entry, there would ha ve been another competitor with exactly the same
product line as Airbus. The US considers that the EC argument is pure speculation devoid of
evidentiary support.
728
4.452 The US notes that the EC argues that even if Airbus was not able to launch any of its LCA
models when it did, sooner or later Airbus or so me other competitor would have done so. But it does
not say when that "other competitor" would have entered the market, or what the technical capabilities
and prices of the LCA produced by that "other comp etitor" would be. Moreover, at the time Airbus
launched the A300, A310, A320, A 330, and A340, there already was "another competitor" to Boeing,
namely McDonnell Douglas, a US company.729
4.453 The US notes that the EC further complains th at the US has not demonstrated that the
subsidies have caused adverse effects because it fa ils to quantify with pr ecision the benefit that
Launch Aid provides to Airbus and asserts that the magnitude of the benefit of Launch Aid and
certain other subsidies is too small to produce signifi cant adverse effects. The US considers that the
EC contention is incorrect for several reasons. Fi rst, the US is under no obligation to provide a
detailed quantification and allo cation of the subsidy benefit. 730 The US points out that nothing in the
SCM Agreement requires a precise quantification of th e subsidy benefit in the context of a claim of
serious prejudice; what matters is whether the subsid y is of sufficient magnitude to have caused the
claimed effects.731
4.454 Second, the EC attempt to show a small curre nt benefit from Launch Aid is riddled with
significant errors. 732 The US argues that it has shown that the magnitude of the subsidy was large
enough to have materially affected all of Airbus' launch decisions because it did affect Airbus' launch
decisions – that is a point that the EC mostly does not dispute. 733 The US considers that the EC
calculation of the subsidy benefit therefore is not credible. How is it possible that government support
played the instrumental role that it has throughout the growth of Airbus, as the EC recognizes, if the
magnitude of the support is de minimis?734
4.455 The US argues that "any reasonable calculation of the magnitude of the subsidy demonstrates
that it is – contrary to the EC's claims – very large." 735 The US notes that "the identification of a
'benefit' is only the beginning, not the end, of the inqu iry into the effect of the subsidy. In particular,
as the panel in US – Cotton Subsidies recognized, it is 'common economic sense' that 'the effects of a
subsidy may vary depending upon the nature of the subsidy.'" 736 To the extent that a rough
calculation of the overall benefit is a useful way to determine the general magnitude of the subsidy,
the impact of Launch Aid, over the life of Airbus, is well over $100 billion. This figure represents the
additional cost that Airbus would have incurre d if it had obtained financing on the terms and
conditions of Launch Aid at commercial interest rates fo r that type of financing. In the US view, the
magnitude of the subsidy is more than sufficient to draw the conclusion that Airbus could not have
done this.

735 US, SWS, para. 599.
736 US, Answer to Panel Question 232, para. 48 (quoting US – Cotton Subsidies (Panel), para. 7.1208).

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(vi) Conclusions
4.456 According to the US, the EC looks at this dispute through the lens of the "specific
characteristics" of the LCA industry, including it s status as "one of the last mass-employment
industries in economically developed countries, with a highly skilled workforce" and "an industry in
which a lot of pride is invested, which is consider ed strategic and is closely interwoven with defence
industries." The US further notes that in the EC view, the massive subsidies provided to Airbus' LCA
development and production are justified by these "s pecific characteristics" of the LCA industry –
though, of course, this view has no basis in the SC M Agreement. Perhaps realizing this weakness in
its argument, the EC has offered up a number of other defenses, none of which are any more
persuasive.737
4.457 The US points out that in its statement at the first Panel meeting, the EC reminded it of the
Appellate Body's admonition that "'{t}he procedural rules of WTO dispute settlement are designed to
promote, not the development of litigation techniqu es, but simply the fair, prompt and effective
resolution of trade disputes.'" Yet, the US argues, on that day the Panel saw a perfect example of the
EC disregard of that admonition. The US considers that the EC has improperly designated
information as highly sensitive business information (" HSBI") when it did not deserve that status. A
concern the US had when the HSBI rules were estab lished was that they could be manipulated in a
way that would put the US at a disadvantage in ma king its case. Regrettably, that concern was borne
out by the EC's first submission, and was borne out again at the Panel's first meeting.738
4.458 The US considers that the EC oral statement at the first meeting was remarkable both for what
it omitted and for its window into how the EC want s the Panel to think about this dispute. Key
omissions include the following: (a) The EC refers to the SCM Agreement almost as an after-thought
and asks instead that the Panel focus on agreements , such as the Tokyo Round Subsidy Code and the
1992 Agreement, that are not covered agreements and that are outside the Panel's terms of reference;
(b) The EC disregards the concerted, systema tic, deliberate aspect of the Launch Aid Program;
(c) The EC never mentions the $15 billion in Launch Aid that has been provided to Airbus; (d) The
EC never mentions the below-market interest rates that are characteristic of Launch Aid; (e) The EC
never mentions the amount of Launch Aid debt that is outstanding; (f) The EC never mentions the
$4.2 billion in Launch Aid provided for the A380; (g ) The EC never mentions explicit commitments
of Launch Aid for the A350; (h) The EC never ment ions Boeing's 20-point market share loss; (i) The
EC never mentions sales campaigns that Boeing lost.739
4.459 The US believes that the EC statement was rev ealing in several respects of how the EC wants
the Panel to think about this dispute. The EC notes that much of the EC view is summed up in
paragraph 5 of its opening statement. The US notes that there, the EC acknowledges that its support
for the LCA industry is driven by a variety of so cial, non-commercial factors, such as maintaining
"mass-employment" and preserving the "pride" invested in the industry. The EC would have the
Panel believe that because the LCA industry is special, it is subject to a different set of rules. But that
assuredly is not the case. The SCM Agreement is the only relevant standard for the dispute at hand,
regardless of the factors that may make the LCA industry different from other industries.740
4.460 Curiously, the EC acknowledgment of the LCA industry's exceptional characteristics does not
carry over into the EC understanding of the returns that a market player providing Launch Aid type

738 US, FCCS, Executive Summary, para. 1 quoting EC First Oral Statement, para. 38 (quoting US -
FSC (AB), para. 166).

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financing would demand. In any event, whatever the exceptional features of the LCA industry, they
do not exempt it from the disciplines of the SCM Agreem ent. Quite the contrary, the very fact that
the SCM Agreement discusses LCA issues in certain foot notes, makes clear that the drafters thought
about the Agreement's applicability to LCA and found it applicable.741
4.461 Finally, the US notes that in its oral statement, the EC repeatedly appealed to the concept of
"fairness."742 The US points out that what is fair is that the rules that the US and the EC agreed to in
the SCM Agreement apply even-handedly. These ar e rules the EC voluntarily undertook, not rules
that would be "forcibly applied" to it, as it argued at the first Panel meeting.743
2. Arguments of the European Communities
4.462 The EC submits that to sustain its adverse effects claims, the US must show that the alleged
subsidies at present ( i.e., the end of 2007) cause adverse effects to its LCA-related interests. The EC
maintains that the US failed to establish the requi red "genuine and substan tial relationship of cause
and effect" between the alleged subsidies and the specific forms of adverse effects listed in these
provisions.744 In particular, the EC argues that the US fa iled to establish all necessary elements of the
"chain of causation" between the alleged subsidies and the alleged specific forms of adverse effects.745
4.463 The EC remarks that under the SCM Agreement, subsidies are, apart from export and local
content subsidies, only actionable if they are demonstr ated to cause adverse effects. Otherwise, they
are legitimate public policy instruments that WTO Members are free to use.746 The EC also highlights
its view that the 1992 Agreement should be the basis against which to judge the existence of adverse
effects.
4.464 The EC submits in an introductory section to its submission, and indeed throughout its
submission, that the US simply highlights the raw amounts of financing provided to various
participants in the EC aerospace industry by EC governments, over a period of four decades.
747 The
EC argues that while the US exposition of figures may make for good story-telling, it is a story
entirely devoid of either context or the specific c ontent required to state a claim of adverse effects
under Articles 1, 5 and 6 of the SCM Agreement, including of (i) significant price suppression and
depression, (ii) significant lost sales and price undercu tting, or (iii) displaced or impeded US market
share.
4.465 The EC argues that given that the US rai ses claims based on allegedly subsidy-lowered
Airbus prising, the US must show that Airbus SAS, the entity that today develops, sells and
manufactures Airbus LCA, somehow has subsidies at its disposal with which to cause price
suppression, lost sales, displacement, impedance, or material injury. The EC argues that it is not
enough for the US to show that some company that does not sell LCA has received those subsidies;
the US must show that Airbus SAS, the compan y that sells LCA, benefits from those subsidies.
748
According to the EC, the burden to show that Airbus SAS receives subsidies is a first critical step in
showing that those subsidies cause adverse effects – a first step the US fails to take.

742 See, e.g., EC First Oral Statement, para. 25.
743 US, FCCS, Executive Summary, para. 7, citing EC First Oral Statement, para. 6.
744 EC, FWS, paras. 7, 43, 2015, 2149, 2248.
745 EC, Comments on US – Upland Cotton, paras. 35-38.
746 EC, FCOS, para. 39.
748 EC confidential closing statement, first meeting, para. 9.

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4.466 According to the EC, the US adverse effects causation analysis has many deficiencies.749 The
EC considers that the US avoids critical issues, including by refusing to (i) discuss the 1992
Agreement, (ii) demonstrate that the EC producer of LCA benefits from any subsidies that may exist,
(iii) recognize the market realities in relation to the definition of the subsidized and like products at
issue, (iv) put a proper figure on any alleged subsid isation, or (v) assess how long benefits or effects
from any subsidisation may last. According to the EC, the US furthermore fails to demonstrate that
the alleged subsidies cause price undercutting, price depression or lost sales taking into account the
required legal standards, nor does the US address any of the myriad of non-attribution factors, such as
9/11, Boeing's own admitted mismanagement of cust omer relations and significant changes in the
conditions of competition.
4.467 The EC maintains that the US overly simplistic approach would allow most subsidies to be
condemned as causing adverse effects. The EC contends that this is not the approach permitted or laid
out in the SCM Agreement. In light of these deficiencies, the EC submits that the US does not show a
causal link between subsidies and adverse effects, as required by Articles 5 and 6 of the
SCM Agreement. Rather, in the EC's view, the US reasoning boils down to saying that any sales by
Airbus necessarily take sales away from Boeing and prevents Boeing from obtaining monopoly
profits.
750
(a) 1992 Agreement – "Volenti non fit Injuria"
4.468 The EC argues that, in bringing its claim, the US ignores the agreement concluded with the
EC that regulates the type and amount of government support that may be offered to the LCA industry
– i.e., the 1992 Agreement. 751 The EC consider this to be a fu ndamental obstacle to the US claims.
According to the EC, the US cannot argue that it su ffers adverse effects as a result of measures that
were granted on terms that the US expressly consented to: Volenti non fit Injuria .752 T h e E C
considers that this principle is implicit in Artic les 5 and 6 SCM Agreement as well as Article 3 DSU,
all of which thus support a conclusion that tho se measures cannot be considered to cause adverse
effects.753
4.469 In providing financing, the EC respected the te rms and conditions set out in Article 4 of the
1992 Agreement and consider that the US has not even attempted to rebut this argument. 754 The EC
explains that WTO law should not be interpreted in clinical isolation from the rest of international
law. It considers that there can be no conflict betw een two international agreements if one of the two
contains more specific rules. Lex specialis prevails over the "later-in-time" rule in such a case.755
4.470 The EC also points out that Article 10.1 of the 1992 Agreement provides that parties shall
seek to avoid any trade conflict "on matters covered by the present Agreement". 756 The 1992
Agreement, voluntarily signed by the US, makes a careful distinction between pre-1992 and post-
1992 government support. The EC considers that the continued application and reliance on the
Agreement following the entry into force of the SCM Agreement justifies the EC's reliance on the fact
that MSF granted in accordance with the terms of Article 4 of the 1992 Agreement would be

749 See, e.g., EC, FWS, paras. 7, 1375-1506. EC, SWS, paras. 755-914.
750 EC, closing statement, first meeting, Executive Summary, para. 24.
751 EC, FWS, paras. 1353-1359, EC, SWS, para. 676.
753 EC, SCCS, para. 3.
754 EC, FWS, paras. 1353-1359 and EC, SWS, para. 676.
755 EC, SNCOS, paras. 14-15.
756 EC, Answer to Panel Question 59 and 60.

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acceptable to the US. 757 Since 1992, the EC has acted in a tr ansparent manner, regularly consulting
with the US and providing the information required by the agreement.758
4.471 In this situation, the US should be estoppe d from claiming adverse effects under Articles 5
and 6.3 of the SCM Agreement. It would run agai nst a fundamental principle of fairness and good
faith if the US were allowed to first encourag e the EC to adopt certain MSF practices as being
compatible with the 1992 Agreement and then challenge these very same practices as being
incompatible with the SCM Agreement.759
4.472 Moreover, the EC notes that the 1992 Agreem ent allowed the US to provide billions of
dollars in research and development subsidies to Boeing. These US subsidies are among the many
factors that have played a major role in shaping the present conditions of competition.760
4.473 Finally, the EC submits, in the alternative, that the US still bears the burden of proving that
the alleged subsidies cause adverse effects. The EC submits a host of arguments that demonstrate that
the US claims of adverse effects must fail.
761
(b) Reference Period
4.474 The EC notes that the US argues that the Panel' s "present" adverse effects analysis is limited
to determining whether adverse effects existed as of the date of establishment of the Panel – i.e.,
more than three years ago, on 20 July 2005. 762 According to the EC, the US errs. 763 It explains that
the disciplines of Part III of the SCM Ag reement deal with subsidies that cause present adverse
effects in the form of serious prejudice and material injury. 764 That is, according to the EC, in
examining the US claims under Articles 5 and 6.3 of the SCM Agreement, the Panel must determine
whether there are any present adverse effects, based on current factual conditions.765 The Panel must
make this assessment based on an appropriate reference period. 766 Citing the panel decision in US –
Upland Cotton, the EC argues that "the most recent peri od for which data are available will be the
appropriate period."767
4.475 Any adverse effects that might have been caused 5, 10, 20 or 30 years ago do not constitute a
present violation of Part III of the SCM Agreement.768 Rather, a complaining Member must show that
the use of challenged subsidy measures causes adverse effects today.769 Only with such a showing
would the US be entitled to remedy provided in Article 7.8 of the SCM Agreement.770

757 EC, FWS, paras. 1353-1359 and EC, SNCOS, paras. 11-13.
758 EC, Answer to Panel Question 59 and 60.
759 EC, Answer to Panel Question 59 and 60.
760 EC, SWS, para. 659.
761 See, e.g., EC, SCOS, para. 23 and EC, FWS, paras. 1999-2259, EC, SWS, paras. 755-914.
762 US, FWS, note 916.
763 EC, FWS, paras. 1468-1506.
764 EC, FWS, paras. 1491-1506.
765 EC, Comments on US – Upland Cotton (21.5), para. 20.
766 EC, FWS, paras. 1468-1506; EC, FNCOS, paras. 134-141.
767 EC, FWS, para. 1479.
768 EC, FWS, paras. 1792-1794; 1799, 2019-2020, 2073-2075.
769 EC, Comments on US – Upland Cotton (21.5), paras. 8-28.
770 EC, Comments on US – Upland Cotton (21.5), paras. 27-28.

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4.476 The EC cites to the panel and Appellate Body Reports in US – Upland Cotton (Article 21.5 –
Brazil) in support of its position. 771 The EC also explains that the prevailing US arguments in that
dispute are directly contrary to the arguments the US advances in this dispute.772
4.477 The EC notes that, before the panel in US – Upland Cotton (Article 21.5 – Brazil) , the US
argued that the relevant time period for the panel to examine Brazil's claims of significant price
suppression was "the immediate present rather than a historical period." 773 The United States in that
dispute urged the panel to use marketing year 2006774 – i.e., a time period extending well after the date
of the establishment of the panel in that dispute (28 September 2006). 775 The panel in US – Upland
Cotton (Article 21.5 – Brazil) agreed with the United States that it was required to assess data and
evidence from marketing year 2006 in making its findings on Brazil's present adverse effects
claims.776
4.478 The EC also notes that the compliance panel in US – Upland Cotton (Article 21.5 – Brazil)
further reasoned that
{t}he claim of Brazil under Article 6.3(c) of the SCM Agreement requires an analysis
by the Panel as to whether "the effect of the subsidy … is … significant price
suppression." While the SCM Agreement does not contain a specific provision on the
period to be considered for this purpose, th e use of the present tense logically implies
the need to make a determination with respect to the present period.777
4.479 Moreover, the compliance panel held that it was required to examine the most current factual
information in making its assessment of Brazil's adverse effects claims. Specifically, the panel noted
that it saw "no reason to exclude data relating to MY 2006 to the extent that it is available." 778 The
panel continued its reasoning, stating that a
failure to take into account relevant and available data placed before us pertaining to
the period since July 2006 would not be consistent with the requirement under
Article 11 of the DSU that a panel 'make an objective assessment of the matter before
it, including an objective assessment of the facts of the case …. 779
4.480 Relying on the panel and Appellate Body decisions in US – Upland Cotton (Article 21.5 –
Brazil), the EC also refutes the US reliance on the EC – Biotech case.780 The United States cites to
EC – Biotech as allegedly mandating the Panel to examine only whether adverse effects existed at the
time of the panel request. 781 The EC argues that the EC – Biotech decision is not relevant for
purposes of this dispute because the case did not involve a claim of present adverse effects under
Articles 5 and 6 of the SCM Agreement .782 T h e US – Upland Cotton decisions have firmly

771 EC, SWS, paras. 677, 679, 695-696; EC, Comments on US – Upland Cotton (21.5), paras. 27- 28.
772 EC, Comments on US – Upland Cotton (21.5), paras. 9-11.
773 EC, Comments on US – Upland Cotton (21.5), note 2.
774 MY 2006 began on 1 August and continued through 31 July 2007. EC, Comments on US – Upland
Cotton (21.5), para. 10.
775 The date of the establishment of the panel in that dispute was 28 September 2006. EC, Comments
776 EC, Comments on US – Upland Cotton (21.5), para. 11.
777 EC, Comments on US – Upland Cotton (21.5), para. 14.
778 EC, Comments on US – Upland Cotton (21.5), para. 16.
779 EC, Comments on US – Upland Cotton (21.5), para. 17.
780 EC, Comments on US – Upland Cotton (21.5), paras. 25-26.
781 US, SWS, paras. 673-684.
782 EC, Comments on US – Upland Cotton (21.5), paras. 25-26.

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established that claims of adverse effects under Articles 5 and 6 of the SCM Agreement are particular
because they require the establishment – at the time of briefing before the Panel – as to whether
adverse effects are present. Adverse effects claims necessarily focus on present effects of subsidies –
not past effects predating the period of time before the briefing before the panel.783 Both US – Upland
Cotton panels have noted that the text of Article 6.3 ("the effect of the subsidy … is significant price
suppression") "logically implies the need to make a determination with respect to the present
period."784
4.481 Second, the EC – Biotech case is also inapplicable because it dealt with the question of
whether the panel had jurisdiction to rule on whether there was a measure existing at the time of the
establishment of the panel and whether that me asure continued to exist at the end of the
proceedings.785 In this case, there is no dispute co ncerning any change to the alleged subsidy
"measures" at issue since September 2005 (except th at time has confirmed the absence of any alleged
subsidies for the A350). 786 But even if those measures had been withdrawn or expired, the question
before this Panel would be whether there are continuing adverse effects today from those measures.787
That is the essence of an Article 5 and 6.3 claim involving "present" adverse effects as confirmed by
both US – Upland Cotton panels and the Appellate Body. 788 Moreover, in EC – Selected Customs
Matters, the Appellate Body emphasized that "{e}vidence in support of a claim challenging measures
that are within a panel's terms of reference may pre-date or post-date the establishment of the
panel."789
4.482 The EC identifies data and evidence from the 2004-2007 period as reflecting current factual
conditions under which, according to the EC, the Panel must assess whether the alleged subsidies
cause present adverse effects. Both US – Upland Cotton panels have noted that past effects may be
relevant but only if they reflect conditions of co mpetition that are similar to present conditions of
competition.790
4.483 The US adverse effects claims are based, to a large extent, on evidence of alleged adverse
effects from the period 1999-2003. Yet, sales cam paigns during that time period were conducted
under very different conditions of competition that tho se in effect today. Therefore, these historic
sales campaigns provide the Panel with little, if any, information about the effects of any subsidies
under present conditions of competition.
4.484 The EC argues that use of data from the 2001-2003 period to substantiate a finding of
displacement or impedance in the European Community market or third country markets under
Articles 6.3(a) and 6.3(b) of the SCM Agreement would be inconsistent with Article 6.7(c).
Therefore, the EC considers that the Panel is le gally precluded from using such information as a basis
for assessing the US' displacement or impedance claims . With respect to the remaining US claims of
serious prejudice or its claim of material injury, it is not the position of the EC that the Panel is
precluded, as a matter of law, from consideri ng information from 2001-2003, or from any other
period. Instead, the EC questions the relevance of information from a historical period exhibiting

783 This contradicts the US arguments at paragraph 678 of its second written submission where the
United States argues – contrary to what it argued before the panel in US – Upland Cotton (Article 21.5 – Brazil)
– that the word "is" allows panels to make findings that adverse effects may have existed at any time, even
presumably in the distant past.
784 EC, Comments on US – Upland Cotton (21.5), para. 14.
785 EC, Comments on US – Upland Cotton (21.5), paras. 25-26.
786 EC, Comments on US – Upland Cotton (21.5), paras. 25-26.
787 EC, Comments on US – Upland Cotton (21.5), paras. 25-26.
788 EC, Comments on US – Upland Cotton (21.5), paras. 25-26.
789 EC, Comments on US – Upland Cotton (21.5), para. 26.
790 EC, Comments on US – Upland Cotton (21.5), para. 25.

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conditions of competition that are very different from those prevailing in the LCA industry today to
establishing the existence or absence of present adverse effects. 791 The EC points out that both US –
Upland Cotton panels have noted that past effects may be relevant to an assessment of present effects,
but only if they existed under conditions that resemble current factual conditions.792
4.485 The EC argues that in presenting its claim, the US ignores that there have been fundamental
changes in the LCA markets since 2003. The EC argues that these changed economic circumstances
(i) make pre-2004 data largely irrelevant to the Pane l's assessment and (ii) have eliminated any basis
for finding, on that basis, that adverse effects exist presently.793 Specifically, the EC considers
relevant the following facts.794
4.486 First, the nature and extent of de mand for LCA has changed significantly. 795 The 2001-2003
period following the events of 9/11 was characterized by extraordinarily low demand, few deliveries,
low revenues, and significant reductions in LCA prices for new and used LCA. 796 Mr. Christian
Scherer, Executive Vice President of Airbus, c onfirms that this period was a "buyers' market ," in
which both Airbus and Boeing had every incentive to compete vigorously to win sales campaigns on
pricing considerations or other competitive parameters. 797 In comparison, Mr. Scherer confirms that
today's conditions of competition in the LCA markets reflect a "sellers' market ."798 Today, demand
for LCA has exploded to record highs in line with de mand for air travel, and as a result of air traffic
liberalization and the economic boom in China, India and the Middle East. 799 Mr. Scherer explains
that part of this demand-side development is the rapid growth and success of low-cost carriers in
North America, Europe and Asia. The importance and market presence of low-cost carriers has
expanded exponentially, as the low fares offered by such airlines have created additional demand for
air travel.
800 In the current market conditions reflec ting very high demand, Airbus and Boeing
generally have less of an incentive to heavily discount LCA prices, including an incentive to use
subsidy funds, if available.801
4.487 Second, both manufacturers' order backlog has increased dramatically. 802 In the buyers'
market following 9/11, Mr. Scherer notes that bot h Boeing and Airbus had difficulties securing
sufficient orders to keep their production lines filled. 803 This has changed since the beginning of
2004. Since then, both Boeing and Airbus have experienced sustained, exponential growth in
orders.804 Mr. Scherer explains that this growth h as been far greater than both manufacturers'
capability to meet demand. Although Boeing and Airbus are producing at full capacities, at

791 EC, Answer to Panel Question 204, paras. 279-289.
792 EC, Comments on US – Upland Cotton (21.5), para. 25.
793 EC, Comments on US – Upland Cotton (21.5), para. 33.
794 EC, Comments on US – Upland Cotton (21.5), paras. 25-26.
795 EC, Comments on US – Upland Cotton (21.5), paras. 25-26.
796 For further details on the effects of 9/11 on the conditions of competition in the LCA markets, see
EC, FWS, paras. 1440-1467; EC, Answer to Panel Question 116, paras. 355-368; EC, SWS, paras. 1092-1099;
EC, SNCOS, paras. 314, 316, 325, 334; EC, Answer to Panel Question 286, 288, 292, paras. 241-256, 280, 284,
292, 318.
797 EC, SNCOS, para. 334.
798 EC, SNCOS, para. 335.
799 EC, SNCOS, para. 335.
800 EC, SNCOS, paras. 337-338.
801 EC, SWS, paras. 1072-1076; EC, SNCOS, para. 316.
802 EC, Comments on US – Upland Cotton (21.5), para. 33.
803 EC, SNCOS, paras. 314, 325.
804 EC, FWS, paras. 1361-1364.

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increasing rates, both manufacturers' order backlog is ever increasing. 805 For example, the value of
Boeing Commercial Airplane's backlog is now $255 billion – it increased by 46 percent in 2007 to
more than seven times BCA's revenue in that year .806 Similarly, Mr. Scherer confirms that the time
until delivery for new orders constantly increases. Boeing's new customers must wait four to six years
between an order and delivery of its 737NG, 787, and 777 family LCA.807
4.488 Third, there have been significant changes in LCA products competing in sales campaigns
through the introduction of new LCA and the abandonment of other LCAs. 808 Mr. Scherer explains
that the period since the beginning of 2004 is dis tinct from earlier periods because of changes in the
LCA product offerings of Boeing and Airbus that compete in sales campaigns. These changes affect
the competitive position of both manufacturers and include the launch of Boeing's 787809 and 747-8,810
the launch of Airbus' A350XWB811 and the entry into service of Airbus' A380.812 Other LCA, such as
Boeing's 717 and 757 and Airbus' A300 and A310, were phased out.813 Similarly, the Boeing 767 has
effectively been replaced by the 787.814
4.489 Fourth, critically, Boeing's change in business strategy altered the conditions of competition
in the LCA markets since 2004. 815 Over the 1999-2003 period, Boeing CFO James Bell
acknowledged that Boeing – as the incumbent LC A supplier – had an "entitlement mentality." 816
Boeing officials readily acknowledge that Boeing had lost its customer focus and had poorly marketed
its products, which led the company to lose market share. 817 This changed in 2004, when Boeing
replaced its head of sales with Scott Carson. Mr . Scherer notes that under Carson, Boeing started
engaging in a noticeable, widespread standardized pricing policy change. 818 Mr. Scherer testified that
the "new" BCA was much more price-aggressive in sales campaigns, offering steep discounts to all its
customers to a much greater extent than had been observed in the past.819
4.490 Finally, changes in the regulatory environment affecting the LCA industry have changed
conditions of competition.820 Mr. Scherer explains that through the de-regulation and liberalization of
air traffic, the air transportation business ha s undergone – and is still undergoing – significant
changes.821 Mr. Scherer notes that the de regulation of state-owned airlines in many countries, as well
as the growth of "open sky" agreements, ha ve opened a considerable number of routes. 822 Many new
airlines were formed, particularly in China, India, and other parts of Asia, but also in Europe and in
the Middle East. Those airlines are now attempting to meet rapidly increasing demand for air travel,

805 EC, Answer to Panel Question 210 and 211, paras. 467-504; EC, Comments on US Answer to Panel
Question 240, paras. 192-220.
806 EC, Comments on US – Upland Cotton, para. 33.
807 EC, SNCOS, para. 417.
808 EC, Comments on US – Upland Cotton (21.5), para. 33.
809 EC, FWS, paras. 2000-2010, 2191 and 2300 for a discussion of the effect of the launch of the 787 in
the 200-300 seat LCA market.
810 EC, FWS, paras. 1689-1700 for a discussion of the launch of the 747-8.
811 EC, FWS, para. 2301.
812 EC, SNCOS, para. 321.
813 EC, FWS, note 2011; US, FWS, note 904.
814 EC, FWS, paras. 2000-2010 and 2026.
815 EC, Comments on US – Upland Cotton (21.5), para. 33.
816 EC, FWS, para. 1462.
817 EC, FWS, paras. 1459-1466. 244;
818 EC, SNCOS, paras. 325-326.
819 EC, SNCOS, paras. 325-326.
820 EC, Comments on US – Upland Cotton (21.5), para. 33.
821 EC, SNCOS, para. 322, 335.
822 EC, SNCOS, para. 322, 335; EC, FWS, paras. 1745-1746.

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and to build in expectations for future growth. In addition, regulatory pressu res increase the need to
replace older aircraft, in particular noise constraints and emissions constraints.823
(c) Subsidized and like product
4.491 The EC asserts that it corrects the artificial US grouping of all Airbus LCA into a single
"subsidized" product and all Boeing LCA into a single like product. 824 The EC argues that the
product and market analyses must be based on objective facts taking into account the physical,
performance and price characteristics, and the perc eption of market participants of the products
involved.825
4.492 The EC presents evidence – including statem ents from Airbus Executive Vice President
Christian Scherer, airline expert Rod Muddle, fina nciers, airline customers and Boeing itself – to
demonstrates that the US single subsidized and single like product theory conflicts with market
realities.826 The EC submits that technologically adva nced, sophisticated and made-to-order LCA are
not fungible commodities. 827 According to the EC, the differences in physical – particularly seating
capacity and range – performance and price characteri stics, the perception of market participants,
including Boeing and Airbus, and the actual competitive relationships between these products confirm
there to be different Airbus LCA competing in different LCA markets.828
4.493 The EC identifies five different LCA product markets. 829 Airbus "subsidized" products
almost exclusively compete with Boeing "like" products in three of these five product markets. 830 In
his testimony, Mr. Scherer confirms the multitude of evidence supporting the existence of the
following five LCA markets: 831 (i) the single-aisle (100-200 seat) LCA market, where the Airbus
A320 and Boeing 737NG family LCA compete; 832 (ii) the 200-300 seat LCA market, where the
Airbus A330 family and A350XWB-800 LCA and Boeing 767 and 787 family LCA compete;833 (iii)
the 300-400 seat market, where the Airbus A 340 family, A350XWB-900 and -1000XWB and Boeing
777 family LCA compete; 834 (iv) the 400-500 seat LCA market, where Boeing offers its 747 family
LCA with no competing Airbus product; 835 and (v) the 500+ seat LCA market, where Airbus offers
its A380 LCA, with no competing Boeing product. 836 The EC also argues that Boeing itself divides
its product portfolio into the same separate markets as those proposed by the EC.837
4.494 In addition, the EC adduces statements of Boei ng executives confirming that the 747-8 is "the
only airplane serving the 400- to 500-seat market." 838 Further, the EC provides evidence to
demonstrate that the Airbus A380 is not "like" th e Boeing 747-8 and that both are sold and marketed

823 EC, SNCOS, para. 322, 335.
824 US, FWS, para. 1554.
825 EC, FWS, paras. 1507-1568.
826 EC, FWS, paras. 1347-1351, 1427-1439, 1526-1550.
827 EC, SNCOS, para. 351.
828 EC, FWS, paras. 1523-1568.
829 EC, FWS, paras. 1539-1550.
830 EC, FWS, paras. 1542-1549.
831 EC, SNCOS, paras. 319-332.
832 EC, SNCOS, para. 318.
833 EC, SNCOS, paras. 328-330.
834 EC, SNCOS, para. 331.
835 EC, SNCOS, para. 332-333.
836 EC, SNCOS, para. 332-333.
837 EC, FWS, paras. 1535-1536.
838 EC, SWS, para. 730.

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in different LCA markets. 839 According to the EC, Boeing executives concur with the EC
assessment.840 The EC adduces the following remark by Boeing's then Vice President Marketing,
Randy Baseler, to that effect: "You'll probably see a lot of coverage in which the A380 is compared
side-by-side with the Boeing 747-8. So, just to be clear, these two airplanes serve different markets -
the 747-8 has about 100 fewer seats. We think there's a market there for both airplanes."841
4.495 The EC notes that, to overcome these facts, the US relies on the alleged importance of
commonality between Airbus LCA 842 and "bundled" sales (also called "package" deals). 843 The EC
argues that the US grossly overstates the importance of commonality and bundled sales. 844 The EC
provides evidence to demonstrate that these two factors are not significant enough to warrant
conflating different aircraft families into one single LCA market. 845 In addition, the EC submits that
these factors do not affect the way in which Boeing, airlines, leasing companies, and other market
participants perceive the various Airbus product, i.e., as belonging to different LCA markets. 846
4.496 With regards to the legal arguments regarding "subsidized" and like" products, the EC asserts
that it corrects the inaccurate US assertion that the Panel is required to slavishly adhere to the US
definition of a single subsidized and like product. 847 The EC argues that Article 11 of the DSU
requires the Panel to conduct an objective assessment of the facts and matter before it – not merely
rubber-stamp one Member's arguments. 848 The EC asserts that it is fundamentally a question of fact
for the Panel to determine the identity and com position of the "subsidized" product and the like
product.849 The EC submits that this is confirmed by the panel's approach in Korea – Commercial
Vessels.850 In that dispute, the panel did not find that its causation analysis must slavishly follow a
complaining Member's assertions regardi ng "subsidized product" and "like" product. 851 Instead, that
panel concluded after "having considered this question carefully" that "we should make separate
serious prejudice findings in respect of each product category {which is} necessary for analytical
coherence, i.e., the scope of our final conclusions on seri ous prejudice will be consistent with the
scope of our analysis of price suppression/price depression."
852
4.497 The EC argues that this objective assessment must be based largely on the physical
characteristics of the products, principally their seating capacity and range, and how those differences
are perceived in the marketplace. 853 The EC argues that this market-b ased analysis is consistent with
footnote 46 of the SCM Agreement. 854 This provision requires the "like" product to have, inter alia,
"characteristics closely resembling those of the product under consideration," as confirmed by the
panel in Indonesia – Autos .855 The panel in that dispute furthermore emphasized that "innumerable

839 EC, FWS, paras. 1731-1738; EC, FCCS, paras. 26-28; EC, SWS, paras. 727-736.
840 EC, FCCS, para. 25; EC, SWS, paras. 729-730.
841 EC, FCCS, para. 25.
842 US, FNCOS, para. 162; US, Answer to Panel Question 39, paras. 228-234; US, SWS, para. 365.
843 US, FCOS, paras. 65-67. US, Answer to Panel Question 131, paras. 422-428.
844 EC, SWS, paras. 703-726.
845 EC, SWS, paras. 705-706; EC, Answer to Panel Question 131; EC, SWS, paras. 720-726; EC,
SNCOS, paras. 354-355.
846 EC, FWS, paras. 1523-1550; EC, SWS, para. 711.
847 EC, SWS, paras. 737-743; EC, SNCOS, paras. 352-353.
848 EC, Answer to Panel Question 128-130, paras. 404-419.
849 EC, SWS, paras. 737-742.
850 EC, Answer to Panel Question 128-130, paras. 409-410.
851 EC, Answer to Panel Question 128-130, para. 409.
852 EC, Answer to Panel Question 128-130, para. 409.
853 EC, Answer to Panel Question 128-130, paras. 404-419.
854 EC, Answer to Panel Question 128-130, para. 409.

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differences among passenger cars and … the identificati on of appropriate dividing lines between them
… does not … justify lumping all such products together where the differences among the products
are so dramatic." 856 The EC argues that similar to the panel in Indonesia – Autos , the Panel should
consider and rely on Boeing, Airbus, airlin es, leasing companies and LCA industry experts'
perceptions concerning the various LCA markets.857
4.498 In addition, the EC argues that a decision rega rding subsidized and like product must give
meaning not only to the physical similarities require d by footnote 46, but also whether those products
are in actual competition to each other .858 The Appellate Body in US – Upland Cotton confirmed that
"two products would be in the same market if they were engaged in actual or potential competition in
that market."859 Thus, allegedly subsidized aircraft may r easonably be considered to be in the same
market if they are engaged in actual or potential competition with each other.860 According to the EC,
the US reliance on AD jurisprudence, in particular US – Softwood Lumber, for the definition of "like"
product ignores that the primary focus of an a dverse effects cl aims under Part III of the
SCM Agreement is the effects of subsidies on actual or potential competition in particular product
and/or geographic markets.861
4.499 Finally, the EC argues that, in any event, the causation analysis must be conducted on the
foundation of appropriate groupings of products that compete in th e relevant markets at issue. 862
Indeed, the EC notes that the US presents its ow n sales-campaign-based causation arguments largely
with reference to exactly the same product gro upings and markets advocated by the European
Communities.863 Ultimately, determining whether subsidy effects exist or not must be conducted by
examining their impact on actual competition between Airbus and Boeing LCA. 864 That actual
competition takes place in the competitive LCA markets identified by the EC.
(d) Material Injury
4.500 The EC argues that a claim unde r Article 5(a) involves two cu mulative steps: First, an
assessment of whether the domestic industry of anot her Member is suffering from "material injury;"
and, second, whether the identified material injury f ound in the first step is caused by reason of the
"use of any subsidy."865
4.501 The EC argues that, given the lack of any credib le evidence of material injury to Boeing over
the period 2001-2007 or 2004-2007, the Panel need not move on to the second step in the enquiry, i.e.,
whether the material injury was caused by the effects of the alleged subsidies. 866 The EC explains
that, for purposes of its material injury claim, th e US agrees with the EC and properly adopted a
bifurcated approach, i.e., it first sought to attempt to demonstrat e the existence of material injury to
Boeing, and in a second step, attempted to prove su ch material injury was caused by the alleged

856 EC, Answer to Panel Question 128-130, para. 417.
857 EC, Answer to Panel Question 129, paras. 437-441.
858 EC, Answer to Panel Question 129, para. 442; EC, Answer to Panel Question 128 and 130,
paras. 406, 411-414.
860 EC, Answer to Panel Question 128 and 130, para. 406.
861 EC, FWS, para. 1518; EC, Answer to Panel Question 129, paras. 423-427; EC, SWS, paras. 751-
753.
862 EC, FWS, paras. 1518-1519; EC, Answer to Panel Question 128 and 130, paras. 408-410.
863 EC, Answer to Panel Question 128 and 130, para.413 citing US, FWS, paras. 779-787, 804, 806-
808.
864 EC, FWS, paras. 1518-1519; EC, Answer to Panel Question 128 and 130, paras. 408-410.
865 EC, FWS, para.2146.
866 EC, Comments on US Answer to Panel Question 240, para. 195.

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subsidies.867 According to the EC, this means that, if th ere is no present "decline{}in the state of the
domestic industry, " the Panel need not assess "wha t factors caused" that state, including alleged
subsidies.868
4.502 The EC refers to its arguments that the Panel is required to assess the existence of present
adverse effects from the alleged subsidies. Accordi ng to the EC, the US must, therefore, demonstrate
present material injury on the basis of the most recent data available that is complete and reliable.
The EC submits that complete and reliable data on the condition of Boeing is available through the
end of 2007. 869 Thus, the US cannot meet its burden of demonstrating material injury by relying
exclusively on data from the 2001-2004 period.870
4.503 The EC adduces extensive evidence to demonstr ate that Boeing is not presently materially
injured or threatened with material injury. 871 The following table, prepared by the EC, summarizes
data regarding Boeing's financial and commercial performance:

867 EC, Answer to Panel Question 288, paras. 273-275; US, Answer to Panel Question 241, paras. 95-
96.
868 EC, Comments on US Answer to Panel Question 240, para. 195.
869 EC, Comments on US Answer to Panel Question 240, paras. 192-200.
870 EC, Comments on US Answer to Panel Question 240, para. 194.
871 EC, FWS, paras. 2137-2246.

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Trends in Boeing's LCA Operations – 2001-2007872

 2001 2002 2003 2004 2005 2006 2007 Change
(2004 –
2007)
Sales (LCA
ordered)
316 251 249 277 1,025 1,052 1,421 +414%
Share of global
market (by LCA)
50% 47% 47% 45% 51% 56% 50% +5%
Share of global
market (by seats)
41% 51% 35% 46% 55% 59% 49% +3%
Share of US
market
(by LCA)
48% 59% 43% 35% 57% 69% 50% +15%
Share of US
market
(by seats)
47% 54% 40% 33% 55% 73% 51% +18%
Contractual
backlog at year
end
(US
dollars, millions)
75,850 68,159 63,929 70,449 124,132 174,276 255,200 +262%
Backlog units at
year
end (LCA)
1,228 1,098 1,066 1,058 1,796 2,455 3,427 +224%
Production
(LCA delivered)
527 381 281 285 288 396 440 +54%
Net earnings
(US
dollars, millions)
1,911 2,107 707 753 1,432 2,733 3,584 +376%
Operating
margin
5.45% 7.41% 3.31% 3.78% 6.70% 9.60% 10.74% +184%
Return on assets
(LCA Division-
only)
15.9% 20.2% 8.1% 10.2% 19.9% 26.5% 31.2% +206%
Return on assets
(US method)

Cash flow
(US
dollars, millions)
2,244 2,345 977 839 1,206 2,158 2,943 +251%
Employment,
applying US
exclusions
January
December

Wages per
employee
[***] [***] [***] [***] [***] [***] n/a n/a
Utilization of
capacity
n/a n/a n/a ~100% ~1 00% ~100% ~100% -
Productivity (US
dollars,
thousands)

872 EC, Comments on US Answer to Panel Question 240, table at para. 199.

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4.504 The EC explains that the required assessment of the overall picture of the domestic industry,
as demonstrated by the above data, establishes that Boeing is not presently materially injured.873 The
2004-2007 period data demonstrates Boeing's LCA bus iness remains vibrant, with Boeing achieving
record profit levels (operating profits up 184per cent), record order levels (up 414per cent), and a
record order backlog (up 224per cent). In light of th is data, the EC argues that the US depiction of
"the poor state of the domestic industry," 874 which the US attributes to "decreased revenues due to
dramatically reduced production and sales volume and lower unit prices," 875 is wildly out of touch
with reality.876
4.505 The EC explains that this current sales and financial data evidences that Boeing is neither
experiencing present material injury nor is threatened with material injury. 877 In particular, the EC
points out that, at 3,427 aircraft orders, the 2007 level of the Boeing's backlog – nearly eight times the
total number of aircraft Boeing produced in 2007 – is evidence that this robust health is not
temporary.
878 In addition to the above empirical data , the EC quotes the remarks of former Boeing
Vice President Marketing, Randy Baseler, characteri zing the future of Boeing's LCA business in the
following glowing terms: "The Future's So Bright, I Gotta Wear Shades."879
4.506 The EC further argues that 2006 data provide d by the US also corroborates the absence of
material injury in that year. 880 The EC also notes that the US recognition that "the state of the
domestic industry has improved since the establishment of the Panel" 881 in mid-2005 and explains
that this statement implies that the US accepts the absence of present material injury to Boeing.882
4.507 The EC argues that, given the lack of material injury to Boeing, the Panel need not move on
to the second step in the enquiry, i.e., whether the material injury w as caused by the effects of the
alleged subsidies. 883
4.508 In any event, the EC argues that the US has failed to demonstrate a causal link and that the
EC arguments rebutting the existence of the various forms of serious prejudice would apply similarly
to rebut any causal link between the alleged subsidies and the alleged material injury.884
4.509 Finally, the EC notes that the US provided data relating to Boeing's LCA operations as a
whole, but fails to provide data relating to each of the properly separated US domestic industries
producing LCA for the various separate product markets at issue – i.e., the single-aisle 100-200 seat
LCA market, the 200-300 seat LCA market, the 300- 400 seat LCA market, and the 400-500 seat LCA

873 EC, Answer to Panel Question 261, paras. 82-94; EC, Comments on the US, Answer to Panel
Question 240; EC, Comments on US Answer to Panel Question 242, paras. 230-232.
874 US, Answer to Panel Question 241, para. 96; EC, Comments on US Answer to Panel Question 240,
para. 205.
875 US, Answer to Panel Question 241, para. 96; EC, Comments on US Answer to Panel Question 240,
para. 205.
876 EC, Comments on US Answer to Panel Question 240, para. 205.
877 EC, FWS, paras. 2137-2246; EC, SWS, paras. 1175-1193; EC, SNCOS, paras. 293-310; EC,
Comments on US Answer to Panel Question 240, paras. 192-220; EC, Answer to Panel Question 261,
paras. 82-94.
878 EC, Comments on US Answer to Panel Question 240, table at para. 199; EC, Comments on US –
Upland Cotton (21.5), para. 33.
879 EC, FWS, para. 2234.
880 EC, Comments on US Answer to Panel Question 240, para. 197.
881 EC, Comments on US Answer to Panel Question 240, para. 197.
882 EC, Comments on US Answer to Panel Question 240, para. 197.
883 EC, FWS, paras. 2146-2148.
884 EC, FWS, paras. 2138, 2148-2158, 2260-2324.

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market.885 According to the EC, the US also failed for this reason to make a prima facie case that the
alleged subsidies cause material injury.886
(e) Causation
(i) Magnitude of the Subsidy
4.510 The EC argues that the US causation arguments fail to address the crucial issue of the present
magnitude and age of the alleged subsidies.887
4.511 The EC points out that WTO panels and the Appellate Body have repeatedly stressed the
importance of determining the magnitude of the su bsidy for an objective assessment of an adverse
effects claim. Specifically, the Appellate Body expl ained that "{t}he magnitude of the subsidy is an
important factor" in determining whether a subsidy causes effects that are remediable under Part III of
the SCM Agreement.888 In US – Upland Cotton , the Appellate Body also found "that a panel should
have regard to the magnitude of th e challenged subsidy" and that "it might be difficult to decide this
question {whether adverse effects are caused} in the absence of such an assessment." 889 T h e
Appellate Body further held that "{a}ll things being equal, the smaller the subsidy for a given product,
the smaller the degree to which it will affect the cost or revenue of the recipient, and the smaller its
likely impact on the prices charged by the recipient for the product."890 And the panel in US – Upland
Cotton found that "with the passage of time a subsidy' s effects may diminish. For example a subsidy
granted 9 or 10 years ago would indubitably be less li kely to affect producer decisions now than it did
8 years ago."891
4.512 The EC submits that the US ignores this jurisp rudence and fails to provide the annual or per-
aircraft magnitude of the alleged subsidies during the relevant reference pe riod. The EC points out
that the US fails even to establish that the benef it of subsidies actually passed through Airbus SAS.
The US causation theory requires proof that, notwith standing share transfers leading to the extinction
of subsidies, cash extractions and the passage of time, subsidies (most of which were conferred
decades ago) provide Airbus SAS with the fina ncial cushion necessary to cause present adverse
effects.892
4.513 According to the EC, the US failure to provide annual or per-aircraft subsidy magnitudes is
telling. The EC explains that it assessed the magn itude of the alleged MSF and R&T subsidies to
Airbus and its predecessor companies based on US CVD methodology, as informed by Boeing, and
based on the overstated US benchmarks. 893 Even with the overstated US benchmarks, the results of
the EC analysis show that the magnitude of any "tied" and allocated subsidies for the A320, A330,
A340, family LCA are at de minimis levels, i.e., significantly below 1 percent ad valorem. Combined
with the fact that most of the alleged subsidies were granted 15-25 years ago, th e de minimis levels of

885 EC, Comments on US Answer to Panel Question 240, para. 220; EC, Answer to Panel
Question 225, paras. 571-592.
886 EC, FWS, para. 2137.
887 EC, FWS, para. 1569.
888 EC, FWS, para. 1571,1576-1585.
889 EC, FWS, para. 1576.
890 EC, FWS, para. 1577.
891 EC, SWS, para. 947.
893 EC, FWS, paras. 1572.

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these subsidies could not possibly cause the alleged adverse effects. 894 Accordingly, the EC argues,
the magnitude of these subsidies strongly militates against the existence of current adverse effects.895
4.514 The EC notes that, rather than presenting evid ence of any alleged per-aircraft magnitude of
subsidies, at the first hearing, the US offered the Panel a subsidy figure of well over $100 billion,
allegedly representing the present value of the benefits to any of the recipient companies. With its
second written submission, the US provides the Pane l with a report by its economic consultants,
NERA, which concludes that the December 2006 present value of alleged MSF subsidies was
between $122 billion and $205 billion.896
4.515 The EC argues that the US approach, which led it to calculate first $100 billion and then $200
billion in present benefits to Air bus SAS, is fundamentally flawed. 897 According to the EC, rather
than assessing the magnitude of alleged subsidies presently available to Airbus SAS to cause adverse
effects (or at the some other time when alleged a dverse effects were caused), the US provides flawed
information on what it considers to be the present value of all alleged MSF subsidies ever granted.
That is, the US achieves the unrealistically larg e subsidy magnitudes that it does by compounding
interest on alleged subsidies dating back as far as the 1970s – as if the alleged subsidies lay in a
virtual bank account, unused and perp etually accumulating compound interest. The EC explains that
under this US compounding methodology, the calculated benefits increase with age, ad infinite ;
thereby, assigning the greatest present competitive impact to the oldest measures. MSF loans
provided in the 1970s and early 1980s for the A300 and A310 programmes – aircraft no longer
produced – account for approximately 70 percent of the alleged US $200 b illion in present subsidy
benefits.
898
4.516 The EC considers that the US results are manif estly absurd and incons istent with panel and
Appellate Body precedent. The EC argues that by compounding, rather than expensing and allocating
decades-old subsidies, the US methodology is inc onsistent with Part III of the SCM Agreement,
which is based on the "use," not virtual banking, of subsidies. 899 As such, it is even inconsistent with
the US own causation theory, which is based on th e alleged use of subsidies to cause launch LCA
products and provide cash flow to use in sales campaigns, not their being put in a bank account.
Specifically, that theory asserts that the subsidi es allegedly associated with the MSF loans provide
Airbus SAS and its predecessors with a financial "c ushion" that it can use to launch and price down
aircraft. In other words, the US theory assumes that the company has spent and continues to spend
the subsidies that it receives.
900 Finally, the EC submits that the US compounding methodology
defies economic logic, resulting in alleged subsidy amounts that ar e many times larger than the
present market capitalization and net assets of Airbus SAS' parent company, EADS.901
4.517 The EC submits that, while arguing that the alleged subsidies provide Airbus with a cash flow
"cushion", allowing it to price down aircraft, the US fails to quantify the per-aircraft magnitude of that
alleged cushion.902 The EC argues that, when quantifying the alleged present cash flow effects, their
magnitude is de minimis – in 2007, for example, they were c onsiderably less than one percent – and
similar to the magnitude obtained under the US/Boeing CVD methodology. According to the EC, this

894 EC, FNCOS, para. 155; EC, FWS, paras. 1588-1633.
895 EC, FWS, para. 1575.
897 EC, SWS, paras. 923-971; EC, Comments on US Answer to Panel Question 230, paras. 63-64.
898 EC, SWS, paras. 923-971 ; see also, EC, Comments on US Answer to Panel Question 230,
paras. 63-64.
899 EC, SWS, para. 927, 940-946.
900 EC, SWS, para. 933.
901 EC, SWS, para. 928, 953-962.
902 EC, SWS, para. 916.

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is true regardless of whether the inflated US E llis benchmark or the corrected benchmark developed
by Professor Whitelaw is applied, and regardless whet her the alleged subsidies are properly treated as
tied to particular programmes or improperly treated as untied. The resulting present per-aircraft
magnitude of the subsidy in 2007 is too small to cause present adverse effect to US interest.903
4.518 The EC also responds to the US assertion th at the cash flow benefit from the MSF loans
exceeded EADS profits during the 1997-2007 period. The EC explains that, in making its
comparison, the US erroneously relies on the princi pal of the loan, rather than any benefit from
alleged below-market interest rates. Moreover, the EC points out that the US errs in its calculation by
analyzing EADS' profits, rather than Airbus SA S' profits, and by comparing EADS' actual profit
stream with an alleged cash benefit stream based on aircraft deliveries, as projected in the original
1980s business case, rather than actual deliveries. The EC explains that, once these US errors are
corrected, the alleged cash flow be nefit related to the MSF loans is shown to be much less than
one percent of Airbus SAS' revenue, i.e., de minimis.904
4.519 Further, the EC argues that, to show remediab le effect from the alleged subsidies, the US
must show that, absent the subsidy, Airbus could not or would not have priced its LCA as it did. 905
The EC submits that the corrected cash flow calculation demonstrates that removing the alleged
subsidies over the past seven years would have allowed Airbus SAS to price in the exact same manner
and to earn a return sufficient to meet its cost of equity. 906 Specifically, if one assumes that, rather
than passing the alleged cash flow benefit on to its customer via lower prices, Airbus retained it as
increased earnings for its shareholders, the effect of removing these cash flow benefits on Airbus'
earnings over the 2001-2007 period was insignificant. Airbus SAS' average return on equity during
this period remains at a robust leve l of approximately 13 percent even after this reduction to earnings.
Alternatively, if Airbus did pass the entire benefit on to its customers in the form of reduced prices
(i.e., without affecting its earnings), any present be nefits from these price reductions would be too
small to cause the present adverse effects alleged by the US.907
4.520 Finally, the EC submits that, rather than quan tifying the per-aircraft magnitude of any alleged
subsidies benefiting Airbus LCA, the US imprope rly relies on affixing the term "subsidized" on each
Airbus LCA and using this as its basis for claiming causation. While this approach is tactically
understandable given the de minimis magnitude of the alleged subsidies, it is legally insufficient to
demonstrate the required causal link between the a lleged subsidies and the alleged specific forms of
adverse effects.908
(ii) US Causation Theories
4.521 The EC submits that, to meet the standard of Articles 5 and 6.3 of the SCM Agreement, the
US must establish the required "ge nuine and substantial relationship of cause and effect" between the
alleged subsidies and the specific forms of adverse effects listed in these provisions. 909 This involves
demonstrating that, absent the alleged subsid ies, Boeing's present prices would be higher, 910 Boeing

903 EC, SWS, paras. 1015, 1016-1024; EC, Comments on US Answer to Panel Question 230, paras. 56-
62.
904 EC, Comments on US – Upland Cotton (21.5), paras. 48-50.
905 EC, Comments on US – Upland Cotton (21-5), paras. 48.
906 EC, Comments on US – Upland Cotton (21-5), para. 54.
907 EC, Comments on US – Upland Cotton (21-5), para. 50-57.
908 EC, SNCOS, para. 398.
909 EC, Comments on US – Upland Cotton, paras. 35-38.
910 EC, FWS, paras. 1798-1819, 1999, 2058-2064; EC, Answer to Panel Question 206, paras. 314-321;
EC, Comments on US – Upland Cotton, paras. 39-42.

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would currently have significantly more sales, 911 or Boeing's present market share in specific markets
would be significantly higher.912 According to the EC, the US fails to meet the standard. Specifically,
the EC argues that the US fails to establish causa tion under (i) its historic product launch causation
arguments913 and (ii) its cash flow causation arguments, 914 as well as (iii) under any "cumulation" of
the two causation theories it develops.915
US historical product launch causation theory
4.522 The EC responds to what the US te rms its "primary" causation argument – i.e., that MSF
loans enabled all of Airbus' product launches over a period of four decades and that those product
launches allegedly created "additional supply" that is causing competitive harm to Boeing. 916
According to the EC, to succeed in its argument the US must causally link the alleged "additional
supply" to the specific forms of present advers e effects listed in Articles 5 and 6.3 of the
SCM Agreement, including significant price suppression or depression, specific instances of
significant lost sales and price undercutting, and di splacement or impedance, amounting to serious
prejudice.
917 The EC submits that the US "additional supply" argument based on historic product
launches fails to sustain this burden.
4.523 First, the EC argues that the US fails to prove present adverse effects, i.e., that today Boeing
would be better off with a non-Airbus competitor, and absent Airbus and the products it launched over
the past four decades.918 The EC argues that, in practice, "today" refers to the period ending at the end
of 2007.919 According to the EC, the US concedes th at, absent Airbus and its various LCA products,
Boeing would face active competition in the LCA ma rkets through the various reference periods
identified by each party.920 The EC submits that the acknowledged presence of a viable competitor to
Boeing means that Boeing would lose a substantial number of sales, would obtain far less than
100 percent market share, and – as the US recogni zes – that competition would have the effect of
lowering prices.
921 Against this background, the EC argues th at the US failed to show that there is a
significant difference – amounting to adverse eff ects – between the acknowledged competition that
Boeing would face in the LCA markets from a non-Airbus competitor, and today's LCA markets, in
which Airbus and its various LCA exist.922
4.524 Second, the EC argues that, with very few ex ceptions, the US makes no attempt to attribute
specific instances of lost sales, price undercutting, price suppression or depression, and displacement
or impedance to the alleged product launch effects.
923 The US cites four instances in which alleged
product effects led to lost sales. Yet, even in these limited instances – i.e., sales campaigns involving
the A340-500/600 (Thai Airways)924 and the A380 (Singapore Airlines, Qantas, and Emirates)925 – the

911 EC, FWS, paras. 1820-1834, 2058-2064.
912 EC, FWS, paras. 1933-1948, 2024-2036, 2058-2064.
913 SWS, paras. 837-914; EC, SNCOS, paras. 364-365, 403-408
914 EC, Answer to Panel Question 288, paras. 276-284.
915 EC, Comments on US Answer to Panel Question 230, 231 and 232, paras. 26-95,
916 EC, SWS, paras. 665, 758, 762, 755-795, 837-869.
917 EC, SWS, paras. 755-795.
918 EC, SWS, paras. 837-857.
919 EC, FWS, paras. 1468-1506; EC, Answer to Panel Question 115, paras. 334-354; EC, SNCOS,
paras. 343-349.
920 EC, Answer to Panel Question 209, paras. 462-464.
921 EC, FWS, paras. 1391, 1396-1400.
922 EC, SWS, paras. 858-869.
923 EC, SWS, paras. 755-762, 796-798.
924 EC, FWS, paras. 2198-2211.
925 EC, Answer to Panel Question 291, para. 196.

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EC explains that the evidence disproves the US clai ms for one simple reason: it shows that alleged
MSF subsidies for these products were not instru mental in the launch of either aircraft. 926 Thus, the
US fails to show how product effects – in the form of product attr ibutes, early availability, increased
supply, or the like – have resulted in specific instances of competitive harm.
4.525 Based on either of these two deficiencies of th e US causation theory, the Panel should end its
analysis and find an absence of a causal link. 927 Nonetheless, the EC also addresses the substance of
the US arguments. The EC identifies as the centr epiece of the US historic product launch causation
argument an economic analysis (the "Dorman report") that allegedly demonstrates that but for MSF
loans, there would be no Airbus LCA.928 The EC maintains that certain key assumptions on which the
Dorman report is based are unrealistic and result in severely understating LCA programme's expected
financial return, as explained in a report by Professor Wachtel. 929 This makes the Dorman model
hypersensitive to small changes in budgeted costs or revenues.
4.526 The EC provides additional analysis supporting Professor Wachtel's finding. This additional
analysis, according to the EC, demonstrates that the low revenue, profits and fi nancial return forecast
by Mr. Dorman's model are driven by his obsolete assumption of 850 programme lifetime deliveries
for an allegedly "typical" middle-of-the-market wi de-body aircraft programme launched in 2004 with
estimated development costs of approximately 10 bil lion dollars. According to evidence provided by
the EC, that number of expected deliveries should be between 1400 and 1750 aircraft, rather than
850.930 The EC notes that Boeing itself publicly contra dicted Mr. Dorman's delivery estimate when it
announced that its new aircraft the 787 – which preci sely fits Mr. Dorman's criteria – was launched
with expected deliveries of 1750 aircraft.931
4.527 The EC submits that, when Mr. Dorman's mode l is run with a more realistic but still
conservative assumption of 1375 aircraft deliveries it results in expected programme returns that are
robust and [***].932 The EC notes that the capital budget for the A380, which was prepared by the
company prior to the launch of the aircraft in D ecember 2000, concluded that the most likely return
from the A380 programme was [***].933 The EC points out that that the capital budget finds that, if
MSF for the A380 were not available, there would be [***].934 By contrast, Mr. Dorman finds that
returns would be halved.935 Like Mr. Dorman, the [***]. In contrast to Mr. Dorman, however, [***]
of a [[HSBI]] cost of capital, i.e., the investment remains viable. 936 The EC also relies on the capital
budgeting studies for the A330-200 and A340-500/600 to show the same point.937
4.528 Thus, in contrast to the Dorman theory, the assessment underlying the actual launch decisions
by Airbus GIE/SAS with respect to the A330- 200, the A340-500/600, the A380, and the likely
assessment by Boeing with respect to its decision to launch the 787, [***].938 Thus, the EC submits
that Mr. Dorman – at Boeing's request – prepar ed a model for these proceedings that makes the
achievement of viable returns on the LCA programme in all but the most fortuitous circumstances

926 EC, Comments on US Answer to Panel Question 230, para. 35;
927 EC, SWS, paras. 755-795.
928 EC, FWS, paras. 2306-2316.
929 EC, SWS, paras. 796-836.
930 EC, SWS, paras. 799-821.
931 EC, SWS, paras. 814.
932 EC, SWS, paras. 817.
933 EC, SWS, paras. 767-780.
934 EC, SWS, para 767.
935 EC, SWS, para. 803.
936 EC, FCCS, paras. 35-38.
937 EC, SWS, paras. 781-794.
938 EC, SWS, (HSBI), paras. 45-71.

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dependent on extremely favourable MSF terms. 939 Given unrealistic assumptions of the Dorman
report, its conclusions cannot support the US argum ent that, absent MSF, none of Airbus' products
would have been launched.940
4.529 The EC also addresses the alleged effect of MSF loans on two groups of LCA launches, and
any resulting implications for the US ability to demonstrate causation. With respect to alleged
product launch effects on Airbus LCA launches afte r the 1992 Agreement, the EC submits that the
evidence shows that no such effects existed. According to the EC, [***] would have been launched
even without MSF loans. 941 The EC argues that these analyses re present the best and most relevant
evidence regarding the economics of each launch d ecision, remain un-rebutted by the US, and are
supported by additional contemporary evidence.
4.530 The EC notes that the US attempts to challe nge these contemporaneous analyses, by relying
on a collection of quotes regarding the alleged inabilit y of Aérospatiale, one of the four Associated
Manufacturers, to finance the A340-500/600 or A380 without MSF loans. 942 The EC explains that the
US distorts the meaning and import of these st atements, which in any event cannot rebut the
quantitative evidence provided in the la unch business cases for these programmes. 943 Crucially, the
EC points out that these statements ignore what th e US accepts – namely, that Airbus could have
turned to risk-sharing supplier financing as an alte rnative source of financing, which means that the
alleged inability to obtain finance did not exist.944
4.531 With respect to alleged product launch effects on Airbus LCA prior to the 1992 Agreement,
the EC explains that even if, arguendo, Airbus would not have been able to launch these pre-1992
LCA without MSF loans, including those launched as long ago as the 1970s, this would not enable the
US to demonstrate the existence of present adverse effects, i.e., that Boeing's current commercial
position would be better but for the a lleged subsidies. According to th e EC, this is due to the crucial
US admission that absent Airbus, there would nonetheless be competition in the LCA markets at issue
today.945 The EC agrees with the US that it is this competition "that holds prices down." 946 The EC
submits that by accepting the existence of a comp etitive duopoly absent Airbus, the US also accepts
that each duopolist will secure roughly half of the sa les and market share; ot herwise, the commercial
viability of the other competitor would be negatively impacted over the long-run.947
4.532 Against this background, the EC submits that, to demonstrate causation, the US would need to
demonstrate how Boeing's present prices and market share in the face of non-subsidized non-Airbus
competition would differ from its present prices, sal es and market shares in the face of competition
from Airbus. The US would need to show that this "difference" in prices, sales and market shares
fulfils the conditions of the specific forms of a dverse effects enumerated in Articles 5 and 6.3, i.e.,
that Boeing's present prices, sales, and market share would be significantly higher.948
4.533 The EC argues that assessing the difference in competition between Airbus and a hypothetical
non-subsidized Boeing competitor is hopelessly specu lative. This is because, for decades, Boeing's
product launches shaped Airbus' product launches and vice versa. As a consequence, it is impossible

939 EC, FCCS, paras. 35-38.
940 EC, SWS, paras. 664-666.
941 EC, SWS, paras. 763-795.
942 EC, SWS, paras. 767-791.
943 EC, SWS, paras. 767-791.
944 EC, SWS, paras. 781-782; 792-794.
945 EC, SWS, paras. 858-879.
946 EC, Comments on US Answer to Panel Question 292, para. 421.
947 EC, SWS, paras. 828-836, 837-857, 858-869.
948 EC, Answer to Panel Question 206, paras. 314-321.

BCI deleted, as indicated [***]

to determine what competition in the various pr oduct markets at issue would look like in a
counterfactual with a non-Airbus competitor. 949 Accordingly, the EC argues that the US leaves the
Panel guessing as to how to link its primary causation argument, which relates to historic product
launches 20-40 years ago, with its claim of specific forms of present adverse effects resulting from
alleged Airbus price undercutting.950 The US requires the Panel to take unwarranted speculative leaps
that would be inconsistent with the requirement to find a "genuine and substantial relationship of
cause and effect", 951 under Articles 5 and 6.3 of the SCM Agreement. Such speculation is also
inconsistent with the Panel's requirement to conduct an objective assessment of the facts under
Article 11 of the DSU.952
4.534 Moreover, the EC emphasizes that, had the US been concerned with Airbus' existence and
product launches as long ago as the 1970s, it could have challenged these alleged subsidy-enabled
product launch much earlier, under Article XVI:1 of the GATT 1947, the Tokyo Round Subsidies
Code, or even the SCM Agreement when it entered into force in 19 95. Instead, the US chose to
negotiate the 1992 Agreement with the European Co mmunities, in which it expressly agreed to MSF
financing on certain terms and conditions. Accord ingly, the US should be estopped from challenging
those alleged past effects today.953
4.535 The EC argues that, in any event, any product effects would be short-lived. 954 LCA do not
retain a performance advantage indefinitely. In the dynamic LCA industry, competitive conditions
change over time and do not remain static over a period of 20-37 years. The EC explains that, within,
on average, two to three years after any allegedl y subsidy-enabled Airbus launch, any enhanced
performance advantage enjoyed by those LCA was effectively eliminated through the launch of
competing LCA by Boeing, and vice versa. According to the EC, once those competitive advantages
are extinguished, and with them the ability of a su bsidy-enabled product to cause adverse effects, a
"launch" subsidy can cause adverse effects only through subsidy-enabled pricing, if any.955
4.536 Finally, the EC notes that the US belatedly submits a study by Professors Greenwald and
Stiglitz. The US uses this generic report in an a ttempt to bolster its product launch arguments. The
EC explains, however, that the study does not support the US contention the MSF causes present
adverse effects. Asked to address a hypothetical extreme case of subsidy enabled product launches,
the authors come to the unremarkable conclusion th at these would have effects on supply and prices.
The EC notes that, not surprisingly, however, the US did not ask Professors Greenwald and Stiglitz to
examine the specific facts of this case, includi ng the evidence that post 1992 launches were not
dependent on MSF. Moreover, the EC notes that the Greenwald/Stiglitz study similarly does not
address other critical factors such as passage of time and its effect on competitive advantage and the
continued existence of any effects of a product launch subsidy, the dec lining magnitude of MSF
subsidies, or any other elements that break the chai n of causation in the present dispute. This renders
the study's conclusions irrelevant for the present dispute.956
US cash-flow price effects causation theory
4.537 The EC also responded to US arguments related to its second general theory of causation, the
so-called "cash flow" theory. Under its cash flow causation theory, the US asserts that the alleged

949 EC, SWS, paras. 837-914.
950 EC, SWS, pars. 837-914, 858-869.
951 EC, Comments on US – Upland Cotton, paras. 35-38.
952 EC, SWS, para. 839.
953 EC, SWS, paras. 659 and 855-857.
954 EC, SWS, paras. 870-912.
955 EC, SWS, paras. 875-878.
956 EC, Comments on US Answer to Panel Question 230, paras. 45-49.

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subsidies enhance Airbus GIE/SAS' cash flow, permitting it to undertake a strategy of aggressive
pricing that results in present competitive harm to Boeing and US interests in the form of significantly
suppressed or depressed prices, significant price undercutting, significant lost sales, displacement or
impedance, and in injury to the US domestic industry.
957 Given the wholly speculative nature of the
US product launch theory, and given the US reli ance on "price undercutting" as evidence supporting
all of its serious prejudice claims, the EC submits that the US must demonstrate (i) that the alleged
subsidies provided Airbus with the ability to pri ce down its aircraft, (ii) that Airbus had the
opportunity and (iii) the incentive to use the alleged s ubsidies to price down its aircraft, and (iv) that
further evidence suggests that it actually did so.
958 The EC notes the US agreement that "{t}he mere
fact that subsidies provide a recipient with additio nal cash is not sufficient, in and of itself, to
demonstrate a causal link between the subsidy and any particular form of serious prejudice".959
4.538 The EC argues that the chief flaw in the US cash flow price effects argument is the US failure
to demonstrate that a sufficient per-aircraft magnit ude of subsidy was available for, and used in,
individual sales campaigns to price aggressively during the reference period.960 The EC posits that the
evidence shows conclusively that the alleged subs idies are not the cause of any significant price
effects.
4.539 With respect to Airbus' ability to price down its aircraft, the EC notes the US claim that the
alleged MSF subsidy provides two be nefits: (i) a lower cost of capital, and (ii) below market MSF
repayments on the delivery of each aircraft. Neither alleged "benefit" supports a finding of present
price effects.961
4.540 The EC observes that the first of these "benefits" is neither a "benefit" nor even the effect of a
subsidy. It is not a benefit because the same risk reduction and accompanying improvement in the
credit rating can be obtained from market financing. The EC explains that Boeing enjoys the same
"benefit" from its heavy reliance on risk-sharing supplie rs. It is also not an effect of the subsidy
because the effect of risk-sharing financing in impr oving credit ratings exists, whether that financing
is provided at market or at below market terms. In any event, the EC notes that the US has not
demonstrated any price effect arising from the improved credit rating, let alone that those price effects
are caused by allegedly subsidized MSF loans.
962
4.541 The EC notes, the entire benefit, if any, is captured in the difference between the benchmark
rate and the anticipated MSF return, the second basis fo r the US price effects clai m. The EC refers to
its arguments on the magnitude of any subsidies and notes that the US agrees that the magnitude of
the benefit is the reduction in marginal cost – me asured as the difference between what Airbus would
have had to repay at market on each actual aircraft delivery and what it did repay. 963 The EC recalls
that the US has failed to even quantify the increas ed cash flow arising from below market financing
on present sales of aircraft. 964 The EC undertook this calculation and shows that any benefit from
MSF loans for the A320, A330, and A340 airc raft during 2004-2007 is either zero or de minimis ,
whether measured on the basis of the US/Boeing methodology or the US cash flow methodology. 965

957 EC, Comments on US Answer to Panel Questi on 288, paras. 347-385; EC, Comments on US
Answer to Panel Question 290, paras. 396-399.
958 EC, Answer to Panel Question 289, 191-197.
959 EC, Comments on US Answer to Panel Question 230, para. 26.
960 EC, SWS, paras. 1010-1024, 1031-1034.
961 EC, Comments on US Answer to Panel Question 228, paras. 4-13; EC, Comments on US Answer to
Panel Question 230, para. 54.
962 EC, Comments on US Answer to Panel Question 230, para. 55; EC, SWS, paras. 1036-1046.
963 EC, Comments on US Answer to Panel Question 230, para. 58.
964 EC, Comments on US Answer to Panel Question 230, para. 58.
965 EC, SWS, paras. 1010-1024, 1031-1034.

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The EC further argues that any price effects fro m alleged MSF subsidies exist only for as long as
there remain outstanding repayment obligations, whic h at present is not the case for the discontinued
A300 and A310, and for orders of the A320, A330, A340-300.966
4.542 The EC asserts that even if the Panel were to make the extreme assumption that the size of the
price effect was the full amount of any subsidy, the per-aircraft subsidy is simply too small to cause
significant price effects. And even here, the EC observes, the US concedes that the effect on price
will be less than dollar-for-dollar.967
4.543 Further, the EC argues that even if, at presen t, Airbus had available cash flow from alleged
subsidies, the company has no incentive to use any a lleged subsidies to lower its prices, in light of
present high levels of demand and subs tantial and growing order backlogs. 968 Moreover, in certain of
the challenged sales campaigns, Airbus did not even have the opportunity to lower its price in
response to available subsidies, because Airbus was not involved in that sale.969
4.544 Finally, the EC recalls that, in the context of its subsidy magnitude related arguments, it
established that Airbus could and would have be haved in a similar commercial manner during the
2001-2007 period, even if it had not received the alle ged subsidies. As such, the alleged subsidies
cannot have changed Airbus' commerc ial behaviour and, therefore, ca nnot be the cause of any price-
based adverse effects.970
Cumulative US causation arguments
4.545 The EC notes that the US, in various instan ces alleges further caution arguments that are
based on a cumulation of product launch and price effects. These arguments are, however, simply
variations of their two constituent arguments, and therefore fail for the same reasons.971
(iii) Serious Prejudice
4.546 The EC argues that, in additional to its failure to establish causation on a general level, the US
also fails to meet its burden of demonstrating that the effects of the alleged subsidies caused the four
types of serious prejudice asserted by the United States – significant price undercutting, significant
lost sales, significant price suppression or depression, and impedance or displacement. The EC recalls
the Appellate Body's finding that "the effect – {serious prejudice} – must result from a chain of
causation that is linked to the impugned subsidy."972
Intervening Events and Non-Attribution Factors
4.547 The EC explains that, as a general matter, each of the US serious prejudice claims fail to take
account of a number of important developments in the LCA markets that had a significant impact on
sales and prices of Airbus and Boeing LCA during the reference periods advocated by the parties. 973
These developments took place not only historically – beginning with launch of Airbus and Boeing
LCA decades ago, but also in the most recent re ference period of 2004-2007. The EC submits that

966 EC, Comments on US Answer to Panel Question 230, paras. 59-60.
967 EC, Comments on US Answer to Panel Question 230, paras. 55-62.
968 EC, SNCOS, paras. 390-391.
969 EC, SWS, para. 1064-1076.
970 EC, Comments on US, Comments on US – Upland Cotton (21.5), paras. 46-55.
971 EC, Comments on US Answer to Panel Question 230, para. 66.
972 EC, Comments on US – Upland Cotton (21.5), para. 36.
973 EC, FWS, paras. 2077-2136; EC, SWS, paras. 1090-1099, 1148-1174.

BCI deleted, as indicated [***]

these "intervening events" or "non-attribution" factors, coupled with the passage of time 974 and the
diminishing magnitude of the subsidies, 975 collectively strain and then break the causal link between
Airbus LCA launches and alleged present adverse e ffects. The EC considers that these intervening
events are further evidence that th e US "historic/product launch causation" 976 and "cash flow" 977
theories cannot be sustained. And more specifically , these intervening events break the causal chain
for the various forms of serious prejudice ass erted by the US – price undercutting, price
suppression/depression, lost sales, and displacement/impedance. 978 The EC considers that among the
relevant intervening events that break the causal link are the following:
• Boeing's own launches of new LCA reduced or negated any competitive advantage enjoyed
by Airbus at the time of an a llegedly subsidy-enabled LCA launch.979 The EC considers that
any enhanced performance-based competitive advantage from Airbus' LCA launches was
short-lived.980 Even assuming, arguendo, that the alleged subsidies provided Airbus GIE with
a competitive advantage over Boeing at the ti me of launch of the A300, A310, A320 and
A340, the EC notes that Boeing generally responded within two to three years 981 with its own
technological advances that allowed it to regain market share and, in some cases, even obtain
a dominant market share. It claims that over a number of decades, these reactive Boeing
launches put Boeing on either an equal or better footing than Airbus.982

• Boeing's replacement of older version LCA. The EC argues that in the 200-300 seat LCA
market, Boeing's 767 has effectively been replaced by the 787. 983 Similarly, the EC argues
that the evidence from the 400-500 seat LCA market demonstrates that the 747-400 has
effectively been replaced by the 747-8.
984 And in the 100-200 seat LCA market, earlier
versions of the 737 have been replaced by th e 737NG family. The EC considers that those
launches of new Boeing LCA have been the cause of any negative effects on earlier versions
of Boeing products in the same markets – not decades old alleged subsidies to Airbus.985

• Boeing's abandonment of LCA. The EC notes that it was Boeing's commercial decision –
not allegedly subsidized competition from Ai rbus – to discontinue the technologically
outdated 757 programme. 986 Similarly, the EC notes that shortly after its merger with
McDonnell Douglas in 1997, Boeing decided to discontinue the performance-plagued 300-
400 seat MD-11. 987 These Boeing aircraft were discontinued long before even the US
proposed reference period in this dispute.988 Thus, the EC considers that with respect to these
Boeing LCA, the US cannot claim now – long after Boeing decided to discontinue these

974 EC, FWS, paras. 1792-1794; 1799, 2019-2020, 2073-2075.
975 EC, FWS, paras. 1800-1805, 2019-2023, 2073-2076.
976 SWS, paras. 837-914.
977 EC, Answer to Panel Question 288, paras. 276-284; EC, Comments on US Answer to Panel
Question 288, paras. 347-385
978 EC, SWS, paras. 870-914.
979 EC, Comments on US – Upland Cotton (21.5), para. 33.
980 EC, SWS, para. 877.
981 EC, SWS, para. 877.
982 EC, SWS, paras. 870-878, 884, 891-893, 901-906.
983 EC, FWS, paras. 2000-2010 and 2026.
984 EC, FWS, paras. 1693-1700.
985 EC, FWS, paras. 2000-2010.
986 EC, SWS, paras. 881-884.
987 EC, SWS, paras. 897-900.
988 EC, SWS, paras. 881-884, 897-900.

BCI deleted, as indicated [***]

respective LCA – that it is presently seriously prejudiced for an LCA that was removed from
the market by a US company. 989

• Airbus' abandonment of LCA. The EC notes that since 2003, Airbus has effectively phased
out its A300 and A310 LCA. 990 It emphasizes that abandoned LCA programmes – even if
they were launched decades before as an effect of alleged subsidies – cannot cause present
adverse effects.991

• Airbus' launch of new LCA. The EC argues that a launch by Airbus of new or modified
versions of LCA that are either not subsidized or which reflect far lower levels of alleged
subsidization than earlier Airbus LCA diminishes the effects of any earlier Airbus
subsidies.992

• Enormous order backlog and Boeing's unw illingness – or inability – to meet demand.
The EC alleges that since 2004, both Boeing a nd Airbus are experiencing an exponential and
sustained growth in orders, in particular in the single-aisle and 200-300 seat LCA markets. 993
At the end of 2007, the value of BCA's or der backlog stood at $255 billion, representing
many times its annual revenue and production capacity. 994 Despite Boeing's moderate
increases in production capacity, this backlog is a clear indication that the company is unable
to meet demand. 995 The EC considers that the US th erefore cannot claim present adverse
effects from historic lost sales when Boeing is presently producing at full capacity, suggesting
that all production slots at issue in the allege d lost sales campaigns have subsequently been
sold, potentially at higher prices.
996 Indeed, the company is reportedly turning down orders
for its 737NG. 997 The EC also notes that Boeing itself put a limit on its increases in
production capacity.998 In these circumstances, no lost sales can be significant, as required by
Article 6.3(c).

• Surge in fuel prices. The dramatic rise in jet fuel prices since late 2004, the EC contends,
has greatly reduced the market appeal of the four-engine A340 compared to the twin-engine
Boeing 777.999 Given the market dominance of Boeing's 777, 1000 there is no basis for the US
to claim adverse effects with respect to that pr oduct. Similarly, the surge in fuel prices and
Boeing's offering of the fuel-efficient 787 have greatly reduced the market appeal of its
technologically outdated 767.1001

4.548 Moreover, the EC considers that with respect to each form of serious prejudice asserted by the
US, there are a number of non-attribution factors that further disprove the existence of any causal link.
These are addressed in the following sections.

989 EC, SWS, para. 900.
990 EC, FWS, notes 1401 and 2011; EC, SWS, paras. 890-891.
991 EC, SWS, para. 879.
992 EC, FWS, paras. 2000-2010.
993 EC, FWS, paras. 1361-1364.
994 EC, Answer to Panel Question 286, para. 247.
995 EC, SNCOS, para. 417.
996 SNCOS, para. 308.
997 EC, SWS, paras. 864-865, 885-887, 906.
999 EC, SWS, para. 907.
1000 EC, SWS, para. 907.
1001 EC, FWS, paras. 2000-2010, 2017-2018.

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EC Responses to US Allegations of Price Undercutting
4.549 With respect to the US claims of significant price undercutting, the EC notes that each of US
allegations of serious prejudice is based on the assertion that Airbus undercut Boeing prices. 1002 As a
result of such alleged price undercutting, the US argues, Boeing's prices were suppressed/depressed,
Boeing allegedly lost sales, and Boeing lost third country market shares.1003
4.550 In response, the EC argues that the US allega tions of price undercutting are invalid for three
fundamental reasons: First, the US failed to demonstrate that Boeing's LCA in competition with
Airbus LCA were non-subsidized for the purposes of any claims under Articles 6.3(c) and 6.5 of the
SCM Agreement.
1004 Second, the US failed to demonstrate that, based on actual LCA prices, the
Airbus prices did, in fact, undercut the Boeing LCA prices. 1005 And third, that a detailed analysis
from the sales campaign evidence demonstrated both the absence of price undercutting, and of any
causal connection between alleged EC subsidies and Airbus pricing.1006
4.551 First, the EC maintains that the US claims of significant price undercutting fail because the
US like products – Boeing LCA – are subsidized. The US like products, therefore, fails the "non-
subsidized like product" requirement in Article 6.5 of the SCM Agreement.1007
4.552 Second, the EC argues that actual transaction prices are key for the US to prove that Airbus
undercut, i.e., offered a lower price, than Boeing.1008 The EC notes that the US agrees that "the {price
undercutting} analysis must be based upon evidence regarding the actual price , including all the
relevant elements in a particular transaction."1009
4.553 Thus, the EC submits that the issue in a pri ce undercutting claim is whether Airbus undercut
Boeing's price, not whether Airbus made a higher value offer. 1010 The EC considers that the US
improperly conflates the concepts of price and NPV. 1011 It implies that price undercutting is
demonstrated simply by evidence that the customer decided to order from Airbus due to the better
value of the Airbus offer.1012
4.554 The EC explains that pricing data is th e required basis for an assessment of price
undercutting, and that merely demonstrating that the NPV of the Airbus offer was better than the NPV
of the Boeing offer, in and of itself, does not demonstrate price undercutting, unless it has been
established that no non-price factor impacted the NPV calculation. 1013 According to the EC, in the
LCA industry, non-price factors can and do play an important factor in many customers' NPV
assessment.1014 As Mr. Muddle and Mr. Scherer explain, the actual price of an aircraft is but one of

1002 EC, FWS, paras. 1340, 1621, 1820-1821, 2058, 2089.
1003 EC, FWS, paras. 1798-1819, 1820-1834, 1933-1948, 1999, 2024-2036, 2058-2064.
1004 EC, SWS, paras. 1100-1137.
1005 EC, Comments on US Answer to Panel Question 281, paras. 280-298.
1006 EC, FWS, (HSBI), 1829-1833, 1837-1842, 1844-1847, 1850, 1854, 1855-1857, 1859-1862, 1864,
1866-1868, 1870-1873, 1875-1901, 1903-1913, 1915-1920, 1923-1931, 2095-2099, 2101-2108, 2109-2112.
1007 EC, SWS, paras. 1106-1110.
1008 EC, Answer to Panel Question 281, paras. 190-203; EC, Comments on US Answer to Panel
Question 281, paras. 280-298.
1009 EC, Comments on US Answer to Panel Question 281, para. 283.
1010 EC, Answer to Panel Question 281, paras. 190-203; EC, Comments on US Answer to Panel
Question 281, paras. 280-298.
1011 EC, Comments on US Answer to Panel Question 235, para. 115.
1012 EC, Comments on US Answer to Panel Question 235, para. 115.
1013 EC, Comments on US Answer to Panel Question 281, paras. 280-298.
1014 EC, Answer to Panel Question 281, para. 198; EC, Answer to Panel Question 282, paras. 204-210.

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the many elements that is taken into consideration together with many non-price related factors when
a customer evaluates the total Net Present Value of an offer.1015 Customers order aircraft, not only on
the basis of the aircraft price, but on the basis of th e offers' total value, incl uding the aircraft revenue
capacity, operating costs, maintenance co sts, delivery slots, financing, etc. 1016 As a result, a clear
distinction must be made between "price" and "value".1017
4.555 Consequently, in the view of the EC, the fact that the value of the Airbus offer is better than
the value of the Boeing offer, does not necessarily mean th at Airbus is offering its aircraft at a lower
price.1018 Airbus may very well be offering its aircraft at a significantly higher price than Boeing, yet
still be making the better value offer because, for example, it managed to offer the airline earlier
delivery slots.1019
4.556 The EC considers that, contrary to its asserti ons, the US has not "presented evidence with
respect to customers' evaluations of the actual price offered by Airbus and Boeing, taking into
account all price concessions and all relevant attributes of the models in question." 1020 For example,
the US has not submitted any evaluations of actual prices, instead limiting its evidence to press
speculation and statements about NPVs. 1021 Nor did the US take into account the relevant attributes
(including operating performance and economics, size , technology, etc.) of the LCA in question in
discussing that NPV – or more importantly prices properly adjusted, as required by Article 6.5 of the
SCM Agreement.
1022 Indeed, the EC is of the view that th e US approach to rely on alleged evidence
of better NPVs is inconsistent with the US acknowledgement that, in making their fleet decisions,
customers consider a large number of factors, all of which can have an effect on the final NPV of an
offer.1023
4.557 The EC stresses that if the Panel were to uncr itically use NPV as the proxy for price, as urged
by the US, it would assume price undercutting in every sale won by either Airbus or Boeing. The EC
submits that only in those particular instances wh ere non-price factors have played no role in the
value of the transaction for the purchaser could NPV substitute for "price."1024
4.558 Third, the EC submits that the US does not meet the final step in establishing its price
undercutting claim, i.e., the establishment of the causal link between alleged subsidies and the
significant price undercutting.1025 The EC submitted extensive evidence from contemporaneous sales
campaign documents refuting the US assertions that "product" or "price" effects of any alleged
subsidies caused Airbus to offer the price it did in each and every one of the sales campaigns at issue
in this dispute.
1026 Thus, according to the EC, based on th e evidence existing at the level of a sales
campaign, the US did not establish the required cau sal link between the alleged subsidies and any

1015 EC, FWS, paras. 1427-1439.
1016 EC, FWS, paras. 1427-1439; EC, Comments on US Answer to Panel Question 235, para. 115.
1017 For a discussion on the distinction of "price" and "value", see EC, Comments on US Answer to
Panel Question 235, para. 110-119.
1018 EC, FWS, paras. 1427-1439.
1019 EC, Comments on US Answer to Panel Question 235, para. 110-119; EC, Comments on US
Answer to Panel Question 236 120-178 relating to Czech Airlines and Air Asia respectively.
1020 EC, Comments on US Answer to Panel Question 282, para. 305.
1021 EC, Comments on US Answer to Panel Question 236, paras. 120-178. EC, Comments on US
Answer to Panel Question 281, paras. 280-298.
1022 EC, Comments on US Answer to Panel Question 236, paras. 124-178.
1023 EC, Comments on US Answer to Panel Question 282, paras. 299-310.
1024 EC, Answer to Panel Question 281, paras. 198-203.
1025 EC, FWS, (HSBI), 1829-1833, 1837-1842, 1844-1847, 1850, 1854, 1855-1857, 1859-1862, 1864,
1866-1868, 1870-1873, 1875-1901, 1903-1913, 1915-1920, 1923-1931, 2095-2099, 2101-2108, 2109-2112.
1026 EC, Comments on US Answer to Panel Question 236, paras. 124-178.

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alleged lower Airbus pricing. No r does the EC consider that the ge neral US historical/product launch
and cash-flow causation arguments demonstrate su ch a causal link in these individual sales
campaigns, particularly in light of the non-existent or de minimis levels of alleged subsidization.1027
4.559 Because the EC considers that the US price unde rcutting claim fails – given the failure of the
US to sustain either required step in its price undercutting claims – the US price suppression, price
depression and lost sales claims must also fail. This is because all of the US serious prejudice claims
are all based on the same "evidence," namely the US alleged evidence of price undercutting.1028
4.560 Finally, with respect to the alleged "significance" of the price undercutting, the EC argues that
the appropriate legal standard fo r assessing whether the alleged pri ce undercutting is "significant" is
whether but for the undercutting, Boeing would have secured the sale. 1029 The EC notes that when
asked by the Panel for evidence of "significant" pr ice undercutting, the US provided no information
regarding the JetBlue, Frontier Airways, America West, Virgin America or Thai Airways sales
campaigns.1030 The EC points out that for these sales cam paigns, there is therefore no evidence that
the product or price effects alleged by the US were the cause of any alleged price undercutting.1031 In
fact, the EC believes that the considerable weight of the evidence before the Panel demonstrates that
Airbus did not undercut the Boeing price in any of the sales campaigns at issue, including the A320
sales campaigns involving JetBlue, Frontier Airlin es, America West, Virgin America, easyJet, Air
Berlin, Air Asia, Czech, the A340 sales campaigns invol ving Air Asia, Iberia Airways, South African
Airways, and the A380 sales campaigns involving Qantas, Singapore Airlines and Emirates.
1032
EC Arguments Responding to US Lost Sales Allegations
4.561 The EC has offered extensive evidence and argumentation which it asserts rebuts each and
every US claim of significant lost sales.1033
4.562 The EC considers that the legal standard fo r establishing a lost sale requires the US to
demonstrate that but for the effect of the subsidy, Boeing would have won the sale – i.e., everything
else being equal, the effect of the subsidy was the determining factor in the loss of the sale. 1034
Therefore, if Boeing would have lost the sale even if Airbus had raised its prices by the amount of
available alleged subsidy, there is no basis fo r finding that the subs idy caused the lost sale. 1035 Given
the conditions of the LCA markets, the EC consid ers that the Panel can only determine whether the
subsidy is the "but for" cause of a lost sale by conducting a detailed assessment of the facts and
circumstances of each sales campaign claimed to have been "lost." 1036 The rebuttal evidence offered
by the EC, accordingly, is largely focused on such sales campaigns.
4.563 The EC argues that each of the alleged "los t" sales campaigns involved numerous "non-price"
and, hence, non-subsidy factors, and that it estab lished that in each of the sales at issue such non-

1027 EC, Comments on US Answer to Panel Question 288, paras. 347-385; EC, Comments on US
Answer to Panel Question 290, paras. 396-399.
1028 EC, Answer to Panel Question 282, paras. 193-194.
1029 EC, Comments on US Answer to Panel Question 236, paras. 120-178.
1030 EC, Comments on US Answer to Panel Question 236, para. 122.
1031 EC, Comments on US Answer to Panel Question 236, para. 122.
1032 EC, Comments on US Answer to Panel Question 236, paras. 124-178.
1033 EC, Answer to Panel Question 206, paras. 314-321; EC, Answer to Panel Question 291, paras. 307-
314; EC, Comments on US – Upland Cotton, paras. 39-42.
1034 EC, Answer to Panel Question 206, para. 318.
1035 EC, Answer to Panel Question 206, para. 318.
1036 EC, Answer to Panel Question 206, para. 318.

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subsidy factors were the cause of Boeing not securing the sale. 1037 Examples of relevant
considerations include the availability of delivery slots, Boeing's mismanaged customer relationships,
product preferences for Airbus products, political co nsiderations, among many other factors discussed
in detail in the EC submissions and in the contemporaneous evidence provided.1038
4.564 The EC also argues that, given the de minimis magnitude of any alleged subsidies available to
Airbus, the US cannot establish a causal link between any subsidies and the claimed lost sales. Even if
Airbus had reduced its sales prices by the full amount of any allegedly availabl e per-aircraft subsidy,
that change in prices would have been so insignificant as to not impact the outcome of the sales
campaign at issue. 1039
4.565 The EC recalls that, as a legal matter, the Pa nel is called upon to determine whether the
alleged subsidies cause present adverse effects, including present serious prejudice. 1040 The EC also
considers that the Panel must asses s whether any past lost sales, should it find that these were caused
by the alleged subsidies, continue to constitute a "significant" lost sale, amounting to present serious
prejudice to US LCA-related interests.1041
4.566 The EC argues that, as a factual matter, it establishe d that, in light of the particular conditions
of competition that have existed in the LCA market s since 2005, any "lost" sale that the US might be
able to demonstrates during the period 1999-2005 would no longer constitute prejudice to Boeing. 1042
This is because the huge increase in orders in 2005-2007 resulted in Boeing's production capacity
being sold out for years to come, and in an accompanying record large order backlog. 1043 According
to the EC, this evidence shows that any delivery slot at issue in an allegedly "lost" sales campaign has
been subsequently sold by Boeing. 1044 The EC also refers to the testimony of Christian Scherer who
explained that, in periods of extremely high demand such as that existing since 2005, Airbus and
Boeing can command premium prices for early delivery slots.
1045 Accordingly, the delivery slots
subsequently sold were likely sold at even higher prices than those offered in the sales alleged lost
sales campaigns at issue. 1046
4.567 The EC considers that these facts means that, ev en if it were established that Boeing lost a
sale of a delivery slot during 1999-2005 due to alleged subsidies, this open delivery position
constitutes a valuable asset at times of very high demand. 1047 This delivery slot would give Boeing a
relative advantage over Airbus in the next sales campaign because Boeing could offer earlier delivery
slots to customers that need new LCA quickly to e ither reduce operating cost or to increase capacity,

1037 EC, Answer to Panel Question 291, paras. 307-314; EC, SCOS, paras. 118-149, 157-167. See,
also, EC, FWS, paras. 1427-1439.
1038 EC, Answer to Panel Question 291, paras. 307-314; EC, FWS, paras. 1427-1439.
1039 EC, Answer to Panel Question 205, paras. 290-313; EC, Comments on US – Upland Cotton (21.5),
para. 70.
1040 EC, FWS, paras. 1491-1506; EC, FNCOS, para. 134; EC, Answer to Panel Question 115, paras.
334-354; EC, Answer to Panel Question 133(b), paras. 485-487; SWS, paras. 678-681; EC, Comments on US –
Upland Cotton (21.5), paras. 8-28.
1041 SWS, paras. 837-914; EC, Answer to Panel Question 210, paras. 467-488; EC, Answer to Panel
Question 287, paras. 266-268; EC, Answer to Panel Question 288, paras. 285-290; EC, Comments on US
Answer to Panel Question 234, paras. 102-109; EC, Comments on US – Upland Cotton, paras. 43-73.
1042 EC, Answer to Panel Question 210, paras. 467-488.
1043 EC, FWS, pars. 1360-1374; EC, Answer to Panel Question 210, paras. 467-488.
1044 EC, Answer to Panel Question 210, paras. 467-488; EC, Comments on US Answer to Panel
Question 210, paras. 333-350.
1045 EC, SNCOS, paras. 317-318.
1046 EC, Answer to Panel Question 204, paras. 287.
1047 EC, SNCOS, para. 308.

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or both. And when Boeing eventually sold each a nd every one of the present and future delivery slots
at issue in the alleged "lost" sales, it most likely did so at higher prices than it would have secured
during the earlier competitive sales campaigns challenged by the US.
 1048
4.568 The EC emphasizes that it is undisputed that neither Boeing nor Airbus could meet demand
by increasing capacity. As Mr. Scherer explained "because both producers use thousands of aircraft
components from hundreds of suppliers – including many of the same suppliers – to manufacture their
products, supply chain constraints can make it difficult and time-consuming to ramp up
production."1049 The EC notes that the US agrees with this assessment that "production capacity at
any point in time is limited by the capacity of the supply chain" 1050 and that "it takes time to ramp up
existing capacity."1051 In addition to these limitations on Boei ng's ability to significantly and rapidly
increase production capacity, there are limitations on Boeing's willingness to do so. 1052 I n d e e d ,
Boeing has repeatedly indicated that it is unwilling to increase its LCA production beyond the
increase currently underway. 1053
4.569 Thus, according to the EC, Boeing's (and Airbus ') growing and record-high backlog by the
end of 2007 is a key fact to consider in obj ectively assessing whether the alleged subsidies cause
present significant lost sales.1054 Randy Baseler, former Vice President for Marketing for Boeing puts
it succinctly: "if a customer came to us and said we want a 777 or a 747 and here's a big pile of
money, we couldn't meet the demand."1055
4.570 The EC notes that in response, the US argued that the sales that it lost in the 2001-2004 period
still cause serious prejudice to Boeing today because "Airbus has been able to win further follow-on
orders from some of these airlines." 1056 The EC responds by arguing that whether an airline ordered
Airbus aircraft in 2001-2004 and made a follow- on order in 2006, in no way demonstrates how
Boeing is suffering present serious prejudice, given that Boeing was more than able to "sell out" all of
its slots in the period 2005-2007 and has a huge a nd increasing backlog of orders by the end of
2007.
1057 In addition, the EC notes that the US asser tion is based on a false premise – that these
airlines would never again order Boeing aircraft. 1058 The EC argues that the evidence demonstrates
that many of these airlines, including Air Berlin , Thai Airways, Singapore Airways, Emirates
Airlines, Qantas Airlines and Czech Airlines are not lost to Boeing but continue to order Boeing
aircraft.1059 Thus, the US suggestion that these airlin es are somehow "lost" to Airbus, and that,

1048 EC, Answer to Panel Question 204, paras. 287.
1049 EC, SNCOS, para. 316.
1050 EC, Answer to Panel Question 210, para. 483.
1051 EC, Answer to Panel Question 210, para. 483.
1054 EC, FWS, pars. 1360-1374; EC, Answer to Panel Question 210, paras. 467-488.
1055 EC, FWS, para. 2202.
1056 EC, Comments on US Answer to Panel Question 234, para. 106.
1057 EC, FWS, pars. 1360-1374; EC, SWS, paras. 651, 864, 885-886, 893, 908, 1171, 1175; EC,
SNCOS, paras. 416-423. EC, Answer to Panel Question 204, para. 287; EC, Answer to Panel Question 210,
paras. 467-488; EC, Comments on US Answer to Panel Question 210, paras. 333-350. EC, Comments on US
Answer to Panel Question 234, paras. 102-109.
1058 EC, Comments on US Answer to Panel Question 234, para. 107. See, also, EC, Comments on US
Answer to Panel Question 234, paras. 102-106, 108-109.
1059 EC, Comments on US Answer to Panel Question 234, para. 107. See, also, EC, Comments on US
Answer to Panel Question 234, paras. 102-106, 108-109.

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therefore, there is some kind of "continued effect" 1060 of a sale that Boeing lost in the 2001-2004
period, is inconsistent with the evidence.1061
EC Responses to US Allegations of Displacement or Impedance
4.571 The EC argues that it has set forth consider able contemporaneous documentary evidence to
rebut the US claims of displacement or impedance in its various submissions.1062
4.572 The EC argues that there are, however, a number of legal flaws in the US displacement and
impedance claims. First, the EC maintains that the US claims of impedance and displacement of
Boeing LCA in certain third country markets fail because the US like products – Boeing LCA – are
subsidized.1063 The US like products, therefore, fails the "non-subsidized like product" requirement in
Article 6.4 of the SCM Agreement.1064
4.573 A second legal flaw is that to the extent th at the US relies on delivery data from the 2001-
2003 period,1065 the EC views the severe market impacts resulting from 9/11, which remained in effect
through 2003, as force majeure.1066 Therefore, it claims that use of delivery data from that severely
distorted period to support a finding of displacement or impedance under Articles 6.3(a) or 6.3(b) is
inconsistent with Article 6.7(c).
4.574 A third legal flaw asserted by the EC is the bundling by the US of all LCA into one single
LCA product market.1067 The EC has initially rebutted the US claims of displacement and impedance
by examining evidence and data using the appr opriate different LCA product markets (100-200 seat,
200-300 seat, and 300-400 seat) where competitive sales between Airbus and Boeing take place. 1068
The EC examined and rebutted US arguments usi ng evidence of market share and causation-related
evidence in each of the third country markets where the US claimed displacement and impedance.1069
4.575 Alternatively, the EC accepted, for purposes of argument, the single LCA product market, and
rebutted the US displacement and impedance ar guments in the various third country markets. 1070 The
EC argues that it provided extensive evidentiary an alysis further demonstrating that, even when
engaging in the wholly distorted single subsid ized product/single like product/single LCA product
market analysis, the US cannot sustain a displace ment or impedance claim in any third country
market.1071 The EC argues that in conducting that singl e-market LCA analysis, it showed that in a
number of the third country markets a ddressed, Boeing's market share actually increased over the
2001-2006 period.1072 For these countries, there simply is no evidence of displacement.

1060 EC, Comments on US Answer to Panel Question 234, para. 105.
1061 EC, Comments on US Answer to Panel Question 234, paras. 102-109.
1062 EC, SCOS, paras. 168-172; EC, Answer to Panel Question 207, paras. 322-427; EC, Answer to
Panel Question 288, paras. 349-361.
1063 EC, SWS, paras. 1100-1137; EC, Answer to Panel Question 202, paras. 255-270; EC, Answer to
Panel Question 207, paras. 322-323.
1064 EC, SWS, paras. 1100-1105; EC, Answer to Panel Question 202, paras. 256-270; EC, Answer to
Panel Question 207, para. 421.
1065 EC, Answer to Panel Question 207, para. 422.
1066 EC, FWS, paras. 1494-1496; EC, Answer to Panel Question 207, para. 422.
1067 EC, Answer to Panel Question 207, para. 423.
1068 EC, SCOS, paras. 168-172; EC, Answer to Panel Question 207, paras. 322-427.
1069 .EC, SCOS, paras. 168-172; EC, Answer to Panel Question 207, paras. 322-427.
1070 EC, Answer to Panel Question 207, paras. 340-427.
1071 EC, Answer to Panel Question 207, paras. 342-420.
1072 EC, Answer to Panel Question 207, paras. 340-427.

BCI deleted, as indicated [***]

4.576 Regarding causation, the EC asserts that the appropriate counterfactual for this causation
assessment is whether, but for the alleged subsidy, Boeing's deliveries would have been higher. In
other words, what extra sales would Boeing have won, and how many more deliveries would it have
made, but for the alleged subsidies? 1073 The EC states that by not examining each and every sales
campaign in the various third country markets whic h form the statistical b asis for its claims of
displacement or impedance, the US has failed to make a prima facie case of a causal link between the
alleged subsidies and the displace ment or impedance claimed. Si mply examining raw numbers of
market share movement (involving a distorted singl e LCA product market) does not constitute a basis
for the Panel to sustain a finding that such a causal link exists today – or that it existed at any time
throughout the 2001-2007 period.1074
4.577 The EC argues that whether the third country market shares are examined on a single LCA or
multiple LCA basis, that the US claims of displacement or impedance fails to demonstrate, as required
by Article 6.4 of the SCM Agreement, clear trends in the market share development because as the
US acknowledged, "most individual third-country markets import only a small number of LCA in any
given year, and it is therefore sometimes difficult to identify a 'representative period sufficient to
demonstrate clear trends in the de velopment of the {LCA} market.'" 1075 The sporadic, erratic and
very small numbers of deliveries in many third co untry markets make it very difficult to draw any
firm conclusions about meaningful, subsidy-affected , changes in market share – certainly when only
deliveries to that market are examined.1076
4.578 The EC argues that the US has also failed to demonstrate that Boeing's exports to the third
country markets discussed above were displaced or impeded due to "the effect of the subsidy."1077 In
those third country markets in which Boeing did lo se market share, the EC pointed out that the
evidence demonstrates that it did so, not because of any alleged Airbus subsidies, but because of a
variety of market-based factors, including the bank ruptcy of airlines, the specific fleet choices of
airlines, and geopolitical considerations, all of which had nothing to do with the decades old and de
minimis alleged subsidies benefiting Airbus.1078
4.579 The EC rebuts the US arguments that the alle ged historical 2001-2005 decline in Boeing's
third country market shares in some countries is due to a single factor – alleged subsidies benefiting
Airbus. The EC argues that the US has failed to demonstrate causation, even apart from the specific
non-attribution factors, for the following reasons:
• It does not meet its burden of establishing how Boeing's market share of deliveries in 2001-
2005 would have been "different" or less adversely affected, if, according to the US "historic
causation" theory, Airbus did not exist during that time period but some other LCA competitor
did. 1079

• It fails to establish (much less rebut evidence to the contrary) that the magnitude of any
additional cash flow from alleged MSF subsidies was the cause of Boeing losing orders/sales

1073 EC, Answer to Panel Question 206, paras. 314-321.
1074 EC, Answer to Panel Question 206, paras. 314-321; EC, Answer to Panel Question 207, paras. 322-
427.
1075 EC, Answer to Panel Question 207, para. 337.
1076 EC, Answer to Panel Question 207, para. 337.
1077 EC, Answer to Panel Question 207, para. 426.
1078 EC, Answer to Panel Question 207, paras. 342-420.
1079 EC, Answer to Panel Question 288, paras. 285-290; EC, Comments on US Answer to Panel
Question 288, paras. 347-385; EC, Comments on US – Upland Cotton, paras. 43-73.

BCI deleted, as indicated [***]

during 1998-2002 that resulted in Boeing losing ma rket share of deliveries three years after
those orders, during 2001-2005.1080

• It does not assert, much less prove, that any subsidized product advantage from any Airbus
LCA was the cause of Boeing's loss of delivery market share in 2001-2005. Moreover, the EC
has established that any such product effects ha ve been superseded by numerous launches of
enhanced-performance Boeing LCA since the 1970s and the drastically changed conditions of
competition between 2001-2003 and 2004-2007, among other factors.1081

• And even if the US had demonstrated those poi nts, its focus on historic 2001-2005 events fails
to satisfy the requirement to demonstrate present adverse effects.1082

4.580 With respect to the specific evid ence relating to Boeing's loss of market share in various third
country markets, the EC claims that an objective assessment of that eviden ce reveals that Boeing's
market share declined during 2001-2005 for reasons not causally linked to any alleged subsidies. In
short, the EC argues that:
• The evidence adduced by the US fails to link Boeing's loss of delivery market share to
specific sales it lost to Airbus.1083

• By contrast, the evidence s hows that Boeing's loss of market share in 2002/2003 was the
result of Boeing having to cancel, defer or reschedule many more deliveries than Airbus.1084

• More broadly, several other factors explain Boeing's overall loss of market share during the
2001-2005 period.1085

4.581 In addition, the EC asserts that it produced evidence showing that there were other factors that
were holding down Boeing's delivery market shar e during the 2001-2005 peri od. These include over
1000 LCA deliveries on Boeing's order books that had to be cancelled or rescheduled as a result of
9/11 as confirmed by Boeing officials.
1086 This volume of deferrals is enormous – equivalent to
nearly the entirety of Boeing's or der backlog in 2001 or 2002 – an d understandably had a detrimental
impact on Boeing's absolute number of deliveries by 2002. 1087 The EC points out that the events of
9/11 had a much less severe impact on the number of Airbus deliveries which remained relatively
stable over the 2001-2004 period, in particular due to Airbus' more limited exposure to US legacy
carriers affected the most by the crisis and by its much larger share of leasing company customers that
did not cancel or reschedule their delivery positions.
1088
4.582 Second, the EC asserts that Boeing officials th emselves admitted that their drop in market
share was due to their mismanagement of customer relationships. 1089 These statements are

1080 EC, Answer to Panel Question 206, paras. 314-321.
1081 EC, SWS, para. 663.
1082 EC, SWS, paras. 678-681; EC, Comments on US – Upland Cotton (21.5), paras. 8-28.
1083 EC, FWS, paras. 2260-2324; EC, Answer to Panel Question 291, paras. 307-314; EC, SCOS,
paras. 118-149; 168-172
1084 EC, FWS, paras. 1440-1458.
1085 EC, Answer to Panel Question 207, paras. 322-427.
1086 EC, FWS, paras. 1440-1467; EC, Answer to Panel Question 116, paras. 355-369; EC, SWS,
para. 672; EC, SNCOS, paras. 314-316.
1087 US, FWS, para. 1446.
1088 EC, Answer to Panel Question 116, paras. 355-369; EC, SWS, para. 672; EC, SNCOS, paras. 314-
316.
1089 EC, FWS, paras. 1459-1466; EC, Answer to Panel Question 288, paras. 370-371.

BCI deleted, as indicated [***]

corroborated by, and entirely consistent with, wh at Airbus heard from its airline customers, as
testified to by Christian Scherer. 1090 Consistent with Boeing's own recognition of its customer
management failures, in 2004, Boeing opted to re -organize the entire LCA Division sales team, and
fired its sales chief Toby Bright.1091
4.583 Third, EC claims that geopolitical factors such as state-owned airlines splitting orders
between Boeing and Airbus, and other non-commercia l-based decisions explained Boeing's failure to
win specific sales campaigns and/or explain its losses of market share in various geographic
markets.
1092
4.584 The EC argues that the US has improperly attribut ed to the effects of subsidies its loss of
market share in various countries where such non-price, non-product-based factors are decisive in
Airbus winning a sale.1093
4.585 Apart from these general non-attribution factors that impacted many sales campaigns (and
hence market share in many third countries), there were particular non-attribution factors that
influenced particular sales campaign results. For exam ple, the EC argues that there is no basis for the
US claim that it lost market share, and failed to launch the 747X, because of Airbus price undercutting
in the A380 Singapore Airlines, Qantas and Emirates sales campaigns.
1094 The US' assertion is that,
but for the alleged subsidies, Boeing would have launched the 747X in 2000. 1095 Yet, the EC notes
that even if the US were correct, the first deliv ery of the 747X would have been in 2005, at the
earliest. Thus – based on the US own assertion – even if Boeing had won these three sales, the EC
argues that this would have had no impact on Bo eing's market share decline in the 2001-2004
period.
1096
4.586 In addition, the EC recalls that it rebutted US cl aims that Boeing lost market share because of
Airbus price undercutting at easyJet (2002), South African Airways (2002), Thai Airways (2003),
Iberia (2003), Air Berlin (2004) and Air Asia (2005).
1097 The EC notes that it has provided numerous
rebuttals of the US allegations regarding these transactions.1098 And it claims that the US has failed to
demonstrate that Airbus significantly undercut Boei ng's price and has failed to demonstrate that any
price undercutting (and resulting displacement or impedance) was the effect of the subsidies. 1099
4.587 The EC also rebuts US legal and factual clai ms that there is allegedly a world-wide
displacement or impedance of Boeing's LCA market shares. The EC notes that there is no legal basis
for the US claims regarding because impedance or displacement is only recognized in third country
markets in the case of Article 6.3(b) and the EC market under Article 6.3(a).1100

1090 EC, SNCOS, para. 322.
1091 EC, SNCOS, para. 325.
1092 EC, Answer to Panel Question 288, paras. 372-374.
1093 EC, Answer to Panel Question 206, paras. 314-321; EC, Answer to Panel Question 288, paras. 272-
290.
1094 EC, FWS, paras. 1701-1725. See, also, EC, FWS, paras. 1660-1725.
1095 EC, FWS, paras. 1670-1672.
1096 EC, FWS, paras. 1660-1725.
1097 EC, FWS, paras. 1874-1898, 1902-1913, 1921-1932, 2094-2112.
1098 EC, FWS, paras. 1874-1898, 1902-1913, 1921-1932, 2094-2112.
1099 EC, FWS, paras. 1829-1833, 1837-1842, 1844-1847, 1850, 1854, 1855-1857, 1859-1862, 1864,
1866-1868, 1870-1873, 1875-1901, 1903-1913, 1915-1920, 1923-1931, 2095-2099, 2101-2108, 2109-2112.
1100 EC, Answer to Panel Question 285, paras. 234-240; EC, Comments on US Answer to Panel
Question 285, paras. 315-320.

BCI deleted, as indicated [***]

4.588 The EC notes that while the US focuses its disp lacement or impedance claims on deliveries in
the 2001-2005 period, it never produced evidence of the effect of subsidies on the orders that
generated those deliveries, i.e., three years earlier in the 1998-2002 time period. 1101 The EC contends
that the absence of any temporal coinciden ce between alleged MSF subsidies and Boeing's
maintenance of its delivery market share in the 199 6-2000 period refutes US arguments that Airbus'
alleged subsidy-enabled predatory market activity in the post 9/11 (2001-2003) period allowed it to
allegedly use subsides to seize market share.1102
4.589 This lack of temporal coincidence is impor tant, the EC asserts, because Airbus received MSF
and launched the A320, A330, a nd A340 models starting in 1984. 1103 By 1996, all of the alleged
subsidized A320, A330, and A340 models had been la unched, had received or ders, and had been
delivered for years.1104 Yet, the EC stated that undisputed data from the 1996-2003 period shows that
Boeing had a commanded market share of approximate ly 60 percent of the US-imagined single LCA
market during the 1996-2000 period.1105 The EC points out that the same alleged subsidy effects must
have been present in the 1996-2000 period as exis ted during the 2001-2003 and during the 2004-2007
period.1106 Yet, the EC notes that Boeing's share of the orders and deliveries remained in the
60 percent range during the 1996-2000 period.1107 It points out that during this period, the magnitude
of alleged MSF subsidies were also higher than they were during the 2001-2003 period. 1108 The EC
noted that the US has never explained how, although the same alleged subsidies and their effects were
present during the 1996-2000 period, there were no apparent negative impacts on Boeing's market
share of orders or deliveries during that period.1109
4.590 Finally, the EC argues that US assertions that Airbus has allegedly maintained a "dominant
position over Boeing" since 2001 are false. 1110 Airclaims data through 2007 shows that in a single
LCA market, Airbus' average shar e of total LCA deliveries between 2004-2007 is 51 percent while
Boeing's is 49 percent.1111 Boeing and Airbus' average share of total LCA orders between 2004-2007
is 50 percent. 1112 When the individual competitive LCA markets in the 200-300 seat, and 300-400
seat market are examined, it is Boeing, rather than Airbus, that has more of a competitive advantage
in recent years. In the 100-200 single-aisle market, Airbus and Boeing have achieved rough
equivalence that would be expected from equa lly matched duopoly producers in orders and
deliveries.1113 This competitive situation between Boeing and Airbus over the past four years in both
orders and deliveries is one of a series of key f acts (along with Boeing's record profits and order
backlog as of the end of 2007) suggesting that Boeing is not suffering present displacement or
impedance.1114

1101 EC, Answer to Panel Question 207, paras. 322-427.
1102 EC, Answer to Panel Question 287, paras. 257-271; EC, Comments on US Answer to Panel
Question 287, paras. 333-346.
1103 EC, Answer to Panel Question 287, paras. 257-271; EC, Comments on US Answer to Panel
Question 287, paras. 333-346; EC, Comments on US, Comments on US – Upland Cotton (21.5), paras. 23-27.
1104 EC, Comments on US, Comments on US – Upland Cotton (21.5), paras. 23-27.
1105 EC, Comments on US, Comments on US – Upland Cotton (21.5), figure 5 at para. 23.
1106 EC, Comments on US, Comments on US – Upland Cotton (21.5), para. 24.
1107 EC, Comments on US, Comments on US – Upland Cotton (21.5), para. 24.
1108 EC, Comments on US, Comments on US – Upland Cotton (21.5), para. 24.
1109 EC, Comments on US, Comments on US – Upland Cotton (21.5), para. 25.
1110 EC, Comments on US, Comments on US – Upland Cotton (21.5), para. 15.
1111 EC, Comments on US, Comments on US – Upland Cotton (21.5), para. 17, figure 1 at para. 16.
1112 EC, Comments on US, Comments on US – Upland Cotton (21.5), para. 17, figure 1 at para. 16.
1113 EC, Comments on US, Comments on US – Upland Cotton (21.5), figure 2 at para. 18.
1114 EC, Comments on US, Comments on US – Upland Cotton (21.5), para. 19.

BCI deleted, as indicated [***]

4.591 Finally, the EC argues that Boeing's current operating performance by the end of 2007 is a
key factor in determining whether Boeing is suffering present serious prejudice. In light of the fact
that all of Boeing's delivery slots are sold out for th e next four years, and considering that Boeing is
producing at maximum capacity, the US claim of serious prejudice by reason of impedance and
displacement in the EC and in certain third country markets must fail.
EC Responses to US Allegations Regarding Price Suppression and Depression

4.592 The EC argues that the US significant price suppression and depression claims involving
Boeings various LCA – the 737, 767, 777, and 747 – are unfounded because the US fails to establish
that the alleged effects on prices are caused by any alleged EC subsidies or are "significant". 1115 In
particular, the EC pointed to the very small magn itude of the alleged subsidies throughout the period
2001-2007 and the decades old age of the subsidi es, among other reasons, that explain why the
alleged subsidies could not have caused significant price suppression or depression. 1116 And in light
of the US acknowledgement that, but for Airbus, there would be other competition,1117 the EC asserts
that it is utterly speculative for the US to assu me that competition from a non-Airbus competitor
would be different and would not have suppressed or depressed Boeing prices to a similar degree. 1118
The EC notes that this is, after all, the essence of competition.1119
4.593 Among the many non-attribution factors that cau sed lower prices in each of the LCA markets
where the US claims significant price suppression, th e EC points, first, to the collapse of demand
following 9/11, the resulting cancellations of deliveries and the lack of orders that were recognized by
market participants to have resulted in lower or stagnant prices. 1120 The EC introduces substantial
evidence, including the un-rebutted testimony of Christian Scherer, Airbus SAS Executive Vice
President,1121 establishing that other factors, such as Boeing's pricing strategy and launch of
competing, low-priced LCA such as the 787, have be en primarily or largely responsible for the lower
LCA pricing alleged by the US. 1122 The EC notes that there is a close temporal correlation between
9/11 and the resulting collapse in demand, and declines in LCA prices between 2001 and 2002. 1123
Boeing's former CEO declared this period as the "worst downturn" in the history of commercial
aviation.1124
4.594 Second, the EC considers that another key non-subsidy factor that had a significant impact on
LCA pricing in all LCA markets was [***].1125 The EC notes that US itself has acknowledged that
[***] had a significant impact on LCA pricing in all LCA.1126
4.595 Third, the EC argues that during the 2001-2002 pe riod, the relatively favourable Euro to US
dollar exchange rate granted Ai rbus a pricing advantage because , although LCA are priced in US

1115 EC, Answer to Panel Question 213, paras. 506-511; EC, Answer to Panel Question 290, paras. 298-
306; EC, Comments on US Answer to Panel Question 237, paras. 179-188; EC, Comments on US Answer to
Panel Question 289, paras. 386-390; EC, Comments on US Answer to Panel Question 290, paras. 391-399.
1116 EC, FWS, paras. 1792-1805, 2019-2023, 2073-2076; EC, SWS, paras. 1031-1034.
1117 EC, SWS, paras. 870-879; EC, Answer to Panel Question 209, paras. 462-464. See, also, EC,
SWS, paras. 858-869.
1118 EC, SWS, paras. 837-914.
1119 EC, Comments on US, Comments on US – Upland Cotton (21.5), para. 71.
1120 EC, Answer to Panel Question 116, paras. 355-369.
1121 EC, SCOS, paras. 173-177.
1122 EC, SWS, paras. 1064-1076, 1148-1161, 1166-1174.
1123 EC, SNCOS, para. 325; EC, Answer to Panel Question 288, paras. 279-281.
1124 EC, Answer to Panel Question 116, paras. 357.
1125 EC, SNCOS, para. 326.
1126 EC, SNCOS, para. 326.

BCI deleted, as indicated [***]

dollars, Airbus keeps its financial accounts, incurs much of its costs, and accounts for its profits, in
Euros.1127 The EC notes that the Euro to US dollar exchange rate in 2000-2002 was over 30 percent
better than the rate in 2004-2006. 1128 Indeed, the EC stresses that the exchange rate advantage was
exponentially larger than any alleged MSF subsidy magnitude available for aggressive pricing in sales
campaigns.1129
4.596 When coupled with the lack of demand in th e 2001-2003 period, these factors are a far more
likely explanation for Boeing's lower prices than the zero or de minimis magnitude of alleged
subsidies.1130
4.597 The EC also argues that the US benchmark for assessing the alleged existence of price
suppressing and depressing effects of subsidies – th e US Aircraft Manufactures Producer Price Index
– was flawed.1131 The EC considers that the US errs in c oncluding that the US PPI is both a measure
for cost increases faced by Boeing and a proxy for expected LCA pricing. 1132 In fact, the US PPI is
neither. According to the EC, the US PPI is a th eoretical construct that provides little information
about Boeing's actual aircraft manufacturing costs, but considers general cost increases for materials
and US labour relevant to LCA. 1133 That is, it does not take into account in which country Boeing's
actual sourcing takes place, nor does it reflect Boeing's actual cost developments affected by
efficiency improvement measures.
1134 Indeed, the EC argues notes that despite Boeing's cost
reductions over the last decade, th e US PPI has consistently increased. 1135 As such, the EC submits,
the US PPI cannot be used to assess costs or be th e baseline for determining whether Boeing's prices
are suppressed or depressed.1136
4.598 Moreover, the EC explains that, the US PPI in creases in line with inflation, while actual LCA
pricing is "based on supply and demand." 1137 As a logical consequence, LCA pricing may not
increase at the same rate as the US PPI. 1138 The EC notes that the US acknowledges as much when it
argues that, "{b}ecause demand has increased substan tially {in 2006-2007}, on e would expect that
prices would have increased substantially."1139 Thus, the EC concludes that with LCA pricing being a
function of a number of factors and fluctuating from one year to the next, it cannot be said to be
"suppressed" – i.e., prevented or inhibited from rising – simply because it does not increase in line
with the US PPI. 1140 Nor can the US PPI be relevant for assessing price depression. In fact, the EC
recalls that, as recognized by the Appellate Body , price depression is an observable phenomenon:

1127 EC, Answer to Panel Question 205, paras. 307-308.
1128 EC, Answer to Panel Question 205, para. 307.
1129 EC, Answer to Panel Question 205, para. 307.
1130 EC, Answer to Panel Question 116, paras. 355-369; EC, SWS, paras. 1031-1034.
1131 EC, Answer to Panel Question 213, paras. 506-511; EC, Comments on US Answer to Panel
Question 237, paras. 179-188.
1132 EC, Answer to Panel Question 213, paras. 508-511.
1133 EC, Answer to Panel Question 213, paras. 506-511.
1134 EC, Answer to Panel Question 213, para. 510.
1135 EC, Answer to Panel Question 213, paras. 506-511; EC, Comments on US Answer to Panel
Question 237, paras. 179-188.
1136 EC, Answer to Panel Question 213, paras. 506-511; EC, Comments on US Answer to Panel
Question 237, paras. 179-188.
1137 EC, Comments on US Answer to Panel Question 237, para. 388.
1138 EC, Answer to Panel Question 213, paras. 506-511; EC, Comments on US Answer to Panel
Question 237, paras. 179-188.
1139 EC, Answer to Panel Question 213, paras. 506-511; EC, Comments on US Answer to Panel
Question 237, paras. 179-188.
1140 EC, Comments on US, Comments on US – Upland Cotton (21.5), para. 67.

BCI deleted, as indicated [***]

actual prices fall.1141 No alleged cost-related index is necessary for assessment the direction in which
actual prices move.1142
4.599 And even if the US PPI were the correct measure by which to compare actual pricing, the US
must prove that Boeing's prices did not increase in line with the US PPI because of the alleged
subsidies.1143 As the Appellate Body concluded " {t}he effect – price suppression {or price
depression} – must result from a chain of causation that is linked to the impugned subsidy." 1144 The
EC concludes that the US has failed to establish this chain of causation. 1145 It simply assumes that
Boeing's failure to increase prices in line with the US PPI is the result of the alleged subsidies. 1146
Specifically, when LCA prices do not increase at the same rate as the US PPI, the US attributes the
price disparity to the alleged subsidies. 1147 Yet, when LCA prices increase at a higher rate than the
US PPI, the US does not attribute this to a lack of subsidies impacting the market, but readily
attributes that price increase to favourable market conditions. 1148 The US cannot square these two
positions.1149
4.600 Turning to the US price suppression claims with respect to individual Boeing LCA, the EC
explains that uncontested evidence shows that Bo eing's launch of the 787, a replacement for the
outdated Boeing 767, had a depressi ng effect on Boeing 767 pricing. 1150 In addition, the EC
emphasizes that the lack of causation is further demonstrated by the fact that there was no competition
between the A330 and the Boeing 767 during 2004-2006. 1151 Thus, the EC asserts that any prices
secured by Boeing for the 767 – and hence, any alle ged price suppression or depression – were due to
other, non-subsidy related factors.1152
4.601 With respect to the 747's allegedly suppressed /depressed prices, the EC argues that the
evidence demonstrates that other non-subsidy related factors were the cause for the failure of Boeing's
747 prices to grow at the same rate as the US PPI over the 2001-2006 period. 1153 In addition to
submitting evidence demonstrating that Airbus was not even involved in most of the 747 orders that
were allegedly secured at suppressed prices, 1154 the EC has provided a significant amount of (un-
rebutted) evidence that demonstrates that any pricing pressure felt on the Boeing 747 was caused
by:1155
• The fact that the 747 is almost at the end of its product life;1156

• The fact that global air traffic has changed over the last decade to deemphasize long-haul,
hub-to-hub services;1157 and

1141 EC, Comments on US, Comments on US – Upland Cotton (21.5), para. 58.
1142 EC, Comments on US, Comments on US – Upland Cotton (21.5), para. 67.
1143 EC, Comments on US, Comments on US – Upland Cotton (21.5), para. 69.
1144 EC, Comments on US, Comments on US – Upland Cotton (21.5), para. 69.
1145 EC, Comments on US, Comments on US – Upland Cotton (21.5), para. 69.
1146 EC, Comments on US, Comments on US – Upland Cotton (21.5), para. 69.
1147 EC, Comments on US, Comments on US – Upland Cotton (21.5), para. 69.
1148 EC, Comments on US, Comments on US – Upland Cotton (21.5), para. 69.
1149 EC, Comments on US, Comments on US – Upland Cotton (21.5), para. 69.
1150 EC, FWS, paras. 2000-2010.
1151 EC, FWS, paras. 2011-2015.
1152 EC, FWS, paras. 2000-2023.
1153 EC, FWS, paras. 1726-1758.
1155 EC, FWS, paras. 1739-1757.
1156 EC, FWS, paras. 1752-1756.
1157 EC, FWS, paras. 1745-1751.

BCI deleted, as indicated [***]

• The effect of geopolitical events such as the 1991 Gulf War, the 1997 Asian financial crisis
and the terrorist attacks of September 2001 on demand for 747s.1158

4.602 Regarding 777 prices, the EC notes the US acknowledgement that the "combination of
particular market factors … appear to have been of sufficient magnitude as to [***]."1159 T h u s ,
having looked at the conditions of competition in the industry, the EC argues that the US
acknowledges that Boeing 777 prices are not significantly suppressed or depressed in 2006.1160
4.603 The lack of a causal link for the US price suppression/depression claims is further
demonstrated, according to the EC, by Boeing's record profits and the projected future profits at the
end of 2007. The EC recalls that Boeing's profits during 2005-2007 were based on prices secured for
LCA orders in the period 2001-2004, reflecting the average three year gap between order and delivery
that existed at that time. The EC considers th at Boeing's record-high profit margins during the 2006-
2007 period are inconsistent with the US argument th at Boeing's prices were significantly suppressed
during the earlier 2002-2004 period. Indeed, Boeing's 2006 operating margins exceeded those of any
previous year since 1995, and Boeing's 2007 and 2008 margins are expected to reach "record"
level.1161
4.604 Nor is there any evidence, the EC asserts, of significant price suppression caused with respect
to orders in the most recent 2006-2007 period. Indeed, it notes that sales prices for Boeing LCA have
[***]. In April 2007, Boeing's CEO stated that Boeing 's LCA pricing today is "better than it was 2-3
years ago."1162 In June 2007, a Boeing executive explained that Boeing is "happy with where we are
with prices now." 1163 In line with improving prices, Boeing predicted near the end of 2007 that its
record-setting operating margins will not only continue, but continue to increase. 1164 These
increasing prices are consistent with the record leve ls of demand for Boeing 737, 787, and 777 LCA
during the 2005-2007 period. In view of this st rong demand, the EC considers that Airbus had no
incentive to lower its sales prices in sales campaigns with Boeing during the 2005-2007 period. And
even if it had, the zero or de minimis magnitude of any allegedly available per-aircraft subsidies
would be too small to cause any significant price effects.
4.605 Finally, even if the Panel were to conclude that significant price suppression existed in the
2001-2005 period, that price suppression is no longer "significant," i.e., "important or meaningful," in
light of Boeing's current financial performance. And even if Boeing were experiencing some minor
prejudice in the form of lower revenue today from suppressed prices in historic sales – which it is not
– this prejudice could not be considered "serious," within the meaning of Articles 5(c) and 6.3 of the
SCM Agreement.1165
(f) Conclusions
4.606 The EC contends it has demonstrated that, today (as of the end of 2007), there are no present
adverse effects to US interests, including Boeing. Boeing's generally dominant share of LCA markets
at a time of sky-rocketing demand, its record-hi gh backlog and lengthy wait for open aircraft delivery

1158 EC, FWS, paras. 1741-1745.
1159 EC, Comments on US Answer to Panel Question 282, para. 308.
1160 EC, Comments on US Answer to Panel Question 282, para. 308.
1161 See, e.g., EC, SWS, paras. 1148-1174, EC, Answer to Panel Question 261.
1162 EC, SNCOS, paras. 424-431.
1163 EC, SNCOS, paras. 424-431.
1164 EC, Answer to Panel Question 210 and 214, EC, Comments on US Answer to Panel Question 210.
1165 See, e.g., EC, SNCOS, paras. 424-431.

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positions, its high and anticipated reco rd profit margins, its record level of orders, the rising prices it
receives for its LCA, and its many other rapidly rising financial and commercial indicators
conclusively demonstrate this. 1166 The EC argues that it has shown that the present per-aircraft
magnitude of any alleged MSF subsidies availabl e to Airbus SAS for the A320, A330, and A340
models is de minimis, or even non-existent, and, in light of their nature and the present conditions of
competition, cannot be the cause of the alleged adve rse effects. Alleged subsidies for the A380,
which does not compete with any Boeing product, cannot cause present adverse effects. And the
A350-XWB is non-subsidized.1167 In any event, Airbus frequently had neither the incentive – given,
for example, Airbus' five-year backlog of single-aisle LCA orders – nor the opportunity – given wide-
spread non-competition for LCA sales – to use any av ailable subsidy to aggressively price its LCA.
Moreover, the EC asserts it has demonstrated that , given the impact of num erous non-subsidy factors,
the effects of any alleged subsidized pricing were not the determining factor in the sales campaigns
raised by the US as evidence of adverse effects.1168
4.607 But even assuming, arguendo, that the effect of any alleged subsidies to Airbus caused
Boeing to lose certain sales between 1999-2005, th ose alleged "lost sales" are not today significant
given the huge order backlog and the fact that Boei ng sold all the early "lost" order slots to other
customers at what were likely higher prices. Si milarly, historic price suppression is no longer
"significant" both because prices have generally increased between 2004- 2005 and 2006-2007 and
because Boeing's 2006-2007 operating margins, largely reflecting present deliveries from orders made
in the years 2002-2005, are at or near record levels. 1169 Meanwhile, the US steadfastly refuses to
show how – in light of their age, nature, and magn itude – the alleged subsid ies caused the particular
lost sales, price suppression, and displacement it claims existed during 19 99-2005. Instead, its
causation arguments – including the hopelessly sp eculative "historical product launch causation"
counterfactual, wishing away Airbus and 40 year s of LCA market developments – boil down to
affixing a "subsidized" label on all Airbus products and then presuming that, so tainted, they cause the
competitive harms alleged.1170
4.608 The EC argues that the US raises sweeping claims against more than 70 measures and alleges
these to be prohibited subsidies or subsidies causing a dverse effects to the US LCA interests. At the
same time, however, the US chooses to ignore the sp ecifics of the LCA market and the relevant legal
framework it agreed to, namely th e 1979 Agreement and the 1992 Ag reement which specifically deal
with LCA. On numerous occasions, the US fails to id entify proper recipients of the alleged subsidies
and, in so doing, fails to make a prima facie case demonstrating how the alleged subsidies benefit the
EC producer of LCA that is alleged to cause adverse effects to US interests. Finally, the EC considers
that the US fails to demonstrate a "genuine and substantial relationship of cause and effect" between
the alleged subsidies and the adverse effects it cl aims – a claim which is at odds with economic
reality, as Boeing is in excellent financial health.1171
4.609 The EC considers that the US arguments in this dispute are based on unfounded presumptions
and evidentiary shortcuts.1172 As the Panel assesses whether the US has met its burden of establishing

1166 EC closing statement, second meeting, Executive Summary, para. 11.
1167 EC closing statement, second meeting, Executive Summary, para. 12.
1168 EC closing statement, second meeting, Executive Summary, para. 13.
1169 EC closing statement, second meeting, Executive Summary, para. 14.
1170 EC closing statement, second meeting, Executive Summary, para. 15.
1172 EC, SCCS, para. 23.

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causation by positive evidence, the EC respectfully requests it to keep in mind some of the more
consequential and unwarranted inferential leaps taken by the US.1173 In particular, the US:
• Selects a grouping of subsidized products and lik e products with no basis in the evidence of
physical, performance and price characteristics, the perception of market participants,
including Boeing and Airbus, and the actual competitive relationships between these
products;

• Ignores the dissimilar nature, age, magnitude, a nd impact of individual MSF loans from four
different governments over a 40-year period, in favour of an alleged effect from a non-
existent "Launch Aid Program";

• Ignores the dissimilar nature, age, magnitude, and impact of alleged subsidies in the form of
infrastructure measures, EIB loans, research & technology grants, capital contributions and
restructuring measures, alleging that these measure s all have the same effect as, and merely
augment the effect of, the "Launch Aid Program";

• Ignores the changing conditions of competition in LCA markets and focuses its claims almost
exclusively on sales campaigns, prices and mark et share data from the historical 1999-2005
period, rather than the appropriate 2006/2007 reference period;

• Fails to undertake the required sales campaign-specific assessment of causation, thereby
glossing over the many factors that affect the outcome and pricing of an LCA sale;

• Refuses to determine the magnitude of any subsidies on a per-aircraft basis allegedly
available, today, to Airbus to affect pric ing decisions in individual sales campaigns, and
instead ignores well-accepted allocation and am ortization principles, the SCM Agreement,
CVD practice, and logic in employing a "compounding" methodology to derive a nebulous
subsidy amount of "well over $100 billion"; and

• Concedes there would be active competition, but th en fails to take into account the impact of
competition when assuming that every sale Boeing fa ils to win is a "lost sale" due to alleged
Airbus subsidies and that every price that is lower than the US' "expected price" is so
exclusively as a result of alleged Airbus subsidies.
1174

4.610 In combination with the affirmative evidence offered by the EC – demonstrating, among other
things, the absence of present adverse effects and the absence of a causal link between the challenged
measures and any alleged effects – the US cannot overcome this rebuttal.
1175
4.611 The EC requests that the Panel reject all claims advanced by the US in this dispute.1176
V. ARGUMENTS OF THE THIRD PARTIES
5.1 The arguments of the third parties Australia, Br azil, Canada, China, Japan and Korea are set
out in their written and oral submissions to the Pane l, and in their answers to questions. The third

1173 EC, SCCS, para. 23.
1174 EC closing statement, second meeting, Executive Summary, para. 16. .
1175 EC closing statement, second meeting, Executive Summary, para. 17.
1176 EC, SWS, Executive Summary, para. 75. See, also, EC, FWS, Executive Summary, para. 94..

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parties' arguments, based on the summaries submitted by them pursuant to paragraph 13 of the Panel's
working procedures, are presented in this section.1177
A. AUSTRALIA
5.2 In its Third Party Submission, Australia stat es that these proceedings raise significant
systemic issues as well as important questions of legal interpretation. In its submission Australia
focused on a select few issues. However, Australia po ints out that the fact that it has not commented
on a particular issue should not be taken as an indi cation that it accepts the views of either party on
that issue.1178
1. The 1979 and 1992 Agreements
(a) The 1979 and 1992 Agreements as applicable law
5.3 Australia considers that the EC argument th at the 1979 and 1992 Agre ements constitute law
that is applicable to this dispute invites an exam ination of the position of these agreements in relation
to the WTO Agreement. 1179 Australia notes that the 1979 Agreement is one of the Plurilateral Trade
Agreements listed in Annex 4 to the WTO Agreemen t. The Plurilateral Trade Agreements are listed
in Appendix 1 to the DSU as falling within the coverage of the DSU, provided that the parties to each
Agreement have taken a decision setting out the te rms for the application of the DSU to that
Agreement. Australia notes that the parties to th e 1979 Agreement have not taken such a decision.
Accordingly, the 1979 Agreement is not a covered agreement under the DSU.1180
5.4 Australia notes that the EC as serts that the 1992 Agreement can be invoked as a defence in
this dispute, arguing that Article 7.2 of the DSU permits defences to be drawn from non-WTO law.
However, Article 7.2 deals only with defences ba sed on covered agreements cited by parties to a
dispute, and not with defences based on non-covered agreements. 1181 Australia points out that the
Appellate Body has made it clear, in light of DSU Article 7.2 that the DSU operates in relation to
covered agreements only. It is not the function of panels to seek to clarify the provisions of non-
covered agreements. The 1979 Agr eement falls into the latter category. The 1992 Agreement also
falls into the latter category. In Australia's view, the Panel in this dispute should decline to use the
WTO dispute settlement system to determin e rights and obligations in the 1979 and 1992
Agreements.1182
(b) The 1979 and 1992 Agreements as aids to interpretation of the SCM Agreement
5.5 Australia notes that the EC relies on Article 31( 3)(c) of the Vienna Convention in support of
its argument that the 1979 and 1992 Agreements can be drawn on to assist with interpreting the
SCM Agreement.1183 Australia does not consider that the ru les of international law contained in the
1979 and 1992 Agreements, which are only applicable in the relations between subsets of parties to
the SCM Agreement, can be taken into account unde r Article 31(3)(c) of the Vienna Convention in

1177 China and Korea did not submit executive summaries of their oral statements. The presentation
therefore refers to the full text of their oral submissions.
1178 Executive Summary of the Third Party Submission of Australia (hereinafter Australia Third Party
Submission Executive Summary), para. 1.
1179 Australia Third Party Submission Executive Summary, para. 2.
1180 Australia Third Party Submission Executive Summary, para. 3.
1181 Executive Summary of the Opening Statement of Australia at the Meeting with Third Parties
(hereinafter Australia Opening Statement Executive Summary), para. 3.
1182 Australia Third Party Submission Executive Summary, para. 4.
1183 Australia Third Party Submission Executive Summary, para. 5.

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interpreting the SCM Agreement. More generally, gi ven that the application of Article 31(3)(c) has
potentially significant systemic implications fo r the WTO dispute settlement system, Australia
submits that the Panel in this dispute should approach the issue with a degree of caution.1184
5.6 At the Panel meeting with the third parties Aust ralia noted that the Panel did not consider it
necessary to determine whether the 1992 Agreement1185 fell within the scope of Article 31(3)(c) of the
Vienna Convention on the Law of Treaties 1969 . Should the Panel have cause to consider the
application of that provision, Australia reiterates its view that the 1979 Agreement 1186 and the
1992 Agreement are not covered by Article 31(3)(c). Neither agreement is a rule of international law
which is applicable in the relations between all the parties to the SCM Agreement, as required by
Article 31(3)(c).1187 Australia notes that the Panel's prelim inary ruling expressly states that it does not
address certain arguments made by the EC in rela tion to the relevance of Article 4 of the 1992
Agreement.1188 In Australia's view, the Panel should reject these arguments. 1189 Finally, Australia
observes that the Panel's preliminary ruling dealt at some length with the EC argument that the 1992
Agreement gives rise to an estoppel. Australia point s out that no claim of estoppel has been accepted
by a panel or the Appellate Body. Australia does not accept the EC position on estoppel in this
dispute.1190
2. Applicability of the SCM Agreement to Pre-1995 subsidies
5.7 Australia notes that the US asserts that subsidies have been provided by the EC over a number
of decades, beginning with the provision of Launch Ai d for the development of the first large civil
aircraft (LCA) in the Airbus family, the A300, in the 1970s. 1191 Australia contends that as a number
of these alleged subsidies were provided prior to the entry into force of the SCM Agreement on
1 January 1995, the question arises as to whether those alleged subsidies properly fall within the scope
of the SCM Agreement.1192
5.8 Australia notes that Article 28 of the Vienna Convention provides that, absent a contrary
intention, a party is not bound by a treaty in relatio n to 'any situation which ceased to exist' before
entry into force of the treaty for that party. The use of the word 'situation' suggests something that
subsists and continues over time. Article 28 also ne cessarily implies that, absent a contrary intention,
treaty obligations do apply to any 'situation' which has not ceased to exist. 1193 Australia considers that
the Panel in this dispute should draw on guidance provided by the Appellate Body in relation to
Article 28 of the Vienna Conventio n in determining whether payments made prior to the entry into

1184 Australia Third Party Submission Executive Summary, para. 6.
1185 Australia Opening Statement Executive Summary, para. 1 citing, the Agreement between the
Government of the US and the European Economic Community Concerning the Application of the GATT
Agreement on Trade in Civil Aircraft on Trade in Large Civil Aircraft 1992
1186 Australia Opening Statement Execu tive Summary, para. 1 citing, the Agreement on Trade in Civil
Aircraft 1979
1187 Australia Opening Statement Executive Summary, para. 1.
1188 Australia Opening Statement Executive Summary, para. 2 citing, the Preliminary Ruling
(WT/DS316), 11 July 2007, para. 58.
1189 Australia Opening Statement Executive Summary, para. 2.
1190 Australia Opening Statement Executive Summary, para. 4 citing, the Second Written Submission of
the EC, para. 41.
1191 Australia Third Party Submission Executive Summary, para. 7.
1192 Australia Third Party Submission Executive Summary, para. 8.
1193 Australia Third Party Submission Executive Summary, para. 9.

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force of the SCM Agreement can be properly character ised as forming part of a 'situation' or subsidy
continuum which continued to exist after entry into force of the SCM Agreement.1194
3. In Fact Export Contingency
5.9 Australia notes that the US alleges that the La unch Aid granted to Airbus for the A380, the
A340-500/600, and the A330-200 models was c ontingent in fact on export performance, and
accordingly, is a prohibited subsidy under Article 3.1(a) of the SCM Agreement. Australia considers
that in making this argument the US focuses primarily on the export propensity of the LCA product at
the expense of an examination of the total configurati on of the facts. In Australia's view, this leads to
a misapplication of the Appellate Body guidance on export contingency and the Panel's findings in
Australia – Automotive Leather II.
1195
5.10 Australia recalls that, in establishing export co ntingency three elements must be established:
(1) the granting of a subsidy; (2) that is 'tied to'; (3) actual or anticipated exportation or export
earnings. The second element is at the very heart of the legal standard and must be considered
independently from the third element and evidence of export orientation. Consequently, evidence of
the export nature of a product supports the establishm ent of a relationship of conditionality but is not
conclusive of this second element.1196
5.11 The second sentence of footnote 4 to Article 3.1(a) explicitly states that the mere fact that a
subsidy is granted to enterprises which e xport cannot by itself support a finding of export
contingency. This does not mean that export propens ity is irrelevant to the analysis of contingency—
it simply means that it is only one of several facts to be taken in to account. Careful consideration
needs to be given in the present case to the ev idence used to support export contingency and the
weight it should be accorded. If disproportionate em phasis is given to export propensity, this would
undermine the second sentence of footnote 4.1197
5.12 In Australia's view there are tw o main deficiencies with the US analysis of in fact export
contingency in the present case. First, by focu sing on export propensity the US conflates product
sales generally with export sales. This leads to the erroneous conclusion that sales performance is
export performance. Second, the US focuses on the c ontractual requirement to repay the loan and its
connection with sales performance. However, it is not clear on the facts presented the extent to which
the repayment of Launch Aid is mandatory. Moreover, it appears that Airbus receives payment of
Launch Aid whether or not there are any sales. Th erefore, the US has failed to explain why a link
between the requirement to repay the loan and sales performance establishes a tie between the grant of
an alleged subsidy and export performance.
1198
5.13 Australia points out that in meeting the legal st andard of export contingency under footnote 4
of Article 3.1, the relationship of conditionalit y between the granting of the subsidy and export
performance is paramount. Australia ob serves that the Appellate Body in Canada – Aircraft noted
that to establish export contingency, the re quisite relationship of contingency 'must be inferred from
the total configuration of the facts constituting and surrounding the gr anting of the subsidy, none of
which on its own is likely to be decisive in any given case'. 1199 In Australia's view, such relevant facts
could include: an analysis of the nature of the pr oduct; the design and form of the subsidy; the export

1194 Australia Third Party Submission Executive Summary, para. 10.
1195 Australia Third Party Submission Executive Summary, para. 11.
1196 Australia Third Party Submission Executive Summary, para. 12.
1197 Australia Third Party Submission Executive Summary, para. 13.
1198 Australia Third Party Submission Executive Summary, para. 14.

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propensity of the product; performance requirements or conditions attached to the granting of the
subsidy; any distinction made between domes tic and export sales in relation to repayment
requirements; the level of sales requirements relativ e to domestic demand; and official statements by
governments indicating the intention behind the gran ting of the subsidies. The possibility that
there may also be some sales that do not involve exportation may not sever the tie to anticipated
exportation.1200
5.14 Australia considers that the US characterizati on of export performance as an 'exchange of
commitments'1201 is a lesser standard than that required under footnote 4 of Article 3.1. The Panel's
analysis of the relationship of conditionality between the granting of the subsidy and export
performance should be based on the total configuration of facts. The loan contracts may contain
provisions whereby Airbus promises to make loan repayments based on sales. The issue is therefore
to what extent the text of these contracts is represen tative of the true nature of the loans, and to what
extent it can be said that the granting of the subs idy is conditional upon the promise to repay based on
export sales.
1202
5.15 Australia considers that one relevant factor in determining to what extent sales or production
targets amount to export performance is the point at which repayment of the loans is due. For
instance, if the loans require a certain level of sales that could only be achieved by exporting, then that
would indicate that the performance requirements necessitate exports.1203
5.16 Australia does not agree that 'motivations' or 'reasons' are necessarily irrelevant to the test for
in fact export contingency. 1204 Such 'motivations' or 'reasons' may be objectively ascertained from
official statements by a government and may shed light on whether the granting of the subsidy is tied
to exportation.1205
5.17 Australia considers that the EC approach, namely that to be contingent upon export
performance a subsidy must be a 'consequence of' export performance, 1206 seriously undermines the
standard for in fact export contingency in the first sen tence of footnote 4 to Article 3.1. The fact that
the grant of a subsidy is not the consequence of ac tual exportation does not mean that the grant of a
subsidy is not tied to export performance and ther efore contingent upon export performance within
the meaning of the SCM Agreement.1207
5.18 Australia notes that the EC has raised some legitimate concerns in relation to the likelihood of
export propensity in the case of small export de pendent economies or in the case of a global
market.1208 Australia considers that the second sentence in footnote 4 of the SCM Agreement has
relevance in this regard. Export propensity is only one element in demonstrating the requisite
relationship of conditionality or dependence between the gran ting of a subsidy and export

1200 Australia Opening Statement Executive Summary, pa ra. 6, citing, Second Submission of the US of
28 June 2007, paras. 244.
1201 Australia Opening Statement Executive Summary, pa ra. 7, citing, Second Submission of the US of
28 June 2007, paras. 134, 142, & 161-167 and 136, & 210-214.
1202 Australia Opening Statement Executive Summary, para. 7.
1203 Australia Opening Statement Executive Summary, para. 8.
1204 Australia Opening Statement Executive Summary, pa ra. 9, citing, Second Submission of the US of
28 June 2007, paras. 231-232.
1205 Australia Opening Statement Executive Summary, para. 9.
1206 Australia Opening Statement Executive Summary, para. 10, citing, Second Submission of the US
of 28 June 2007, paras. 144, 148-160.
1207 Australia Opening Statement Executive Summary, para. 10.
1208 Australia Opening Statement Executive Summary, para. 11, citing, the Second Written Submission
of the EC, paras. 228-231.

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performance. Contingency must still be established. Export propensity must not be confused with
export contingency and must be assessed on an analys is of the total configuration of the facts.
Establishing a relationship of con tingency allows a differentiation to be made between situations
where the size of a country's economy, and its ge neral dependence on exports, would lead to a
positive finding of export propensity and thereby discrimination against small export dependent
economies.1209
5.19 Australia notes that for the EC, the term 'an ticipated' in footnote 4 of the SCM Agreement
means an export that has not yet taken place at the moment when the subsidy is deemed to exist but
will occur subsequently.1210 Australia considers that this interp retation is problematic as it requires an
analysis after the fact and renders 'anticipated' exportation as 'actual' exportation. The ordinary
meaning of the term 'anticipate' involves an elemen t of probability, that is, exportation is likely to
occur but it may not occur. Further, the Appellate Body has found that it does not suffice to
demonstrate solely that a government granting a subsidy anticipated that exports would result.
1211,1212
4. Adverse Effects
5.20 Australia notes that the US claims that the provi sion of the alleged subsidies to Airbus by the
EC and the Airbus Governments has caused adverse effects to its interests under Article 5 of the
SCM Agreement.1213
(a) Temporal issues regarding the US claim of adverse effects
5.21 Australia considers that there are two temporal issues in relation to the US claim of adverse
effects. First, whether adverse effects should be assessed at the time when the panel makes a decision
or at the time of the panel establishment. Sec ond, what is an appropriate representative period for
assessing adverse effects. According to Australia, in addressing these issues the Panel in this dispute
should draw on guidance in US – Upland Cotton .1214 Australia notes that Part III of the
SCM Agreement provides minimal direction as to th e specific time period within which to conduct an
evaluation of adverse effects. US – Upland Cotton refers to a 'recent period '1215 but does not specify
how long that period should be. However, the case does seem to suggest that consideration of
developments over a period longer than one year pr ovides a more robust basis for evaluation and puts
developments in a broader temporal context.1216
5.22 In Australia's view, the appropriate reference period for adverse effects must be assessed on a
case-by-case basis taking into account all the relevant facts and circumstances. Relevant factors
include: (a) that subsidization is a lleged to have occurred for over thir ty years; (b) the nature of the
alleged subsidies, including long te rm loans; (c) that product development and sales in the large civil
aircraft industry occur over long timeframes; (d) that the average useful life of an aircraft is over 20
years; (e) that neither the SCM Agreement nor the DSU preclude the Panel from considering evidence
of adverse effects subsequent to the date of panel establishment ( i.e., 20 July 2005), provided that the

1209 Australia Opening Statement Executive Summary, para. 11.
1210 Australia Opening Statement Executive Summary, para. 12, citing, the Second Written Submission
of the EC, paras. 232-250.
1212 Australia Opening Statement Executive Summary, para. 12.
1213 Australia Third Party Submission Executive Summary, para. 15.
1214 Australia Third Party Submission Executive Summary, para. 16.
1215 Australia Opening Statement Executive Summary, para. 17, citing, Third Party Submission of
Australia, 7 May 2007, paras. 35-36.
1216 Australia Opening Statement Executive Summary, para. 17, citing, US – Upland Cotton , Panel
Report, para. 7.1199.

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evidence relates to measures that were within the panel's terms of reference; and (f) the reference in
Article 6.4 of the SCM Agreement to 'an appropriate ly representative period sufficient to demonstrate
clear trends in the development of the market for the product concerned, which, in normal
circumstances, shall be at least one year'.1217
(b) Causation
5.23 Australia considers that, depending on the fact s and circumstances of a particular case,
aggregation of subsidies to assess whether they ar e causing adverse effects is permissible under the
SCM Agreement. In such circumstances a complainan t is not required to demonstrate adverse effects
with respect to each subsidy individually.1218
(c) Magnitude of the subsidy and methodology
5.24 Australia notes that in terms of methodology, Part III and Part V of the SCM Agreement serve
different purposes. 1219 As stated by the Appellate Body in US – Upland Cotton , the provisions of
Part V 'must not be automatically transposed into Part III'. 1220 Those provisions may nevertheless
provide context for the interpretation on Part III in appropriate cases.1221
5.25 Australia does not consider that Part III of the SCM Agreement calls for a precise
quantification or allocation of the subsidy benefit. 1222 The magnitude of a subsidy benefit is only
relevant to a serious prejudice claim to the extent th at it confirms whether the subsidy is of sufficient
magnitude to cause the claimed effects.1223 Accordingly, there is no basis for the EC to suggest in this
dispute that the US is required to allege a precise per-aircraft magnitude of subsidy.1224
(d) Relevance of the concepts of 'subsidized product' and 'like product'
5.26 Australia notes that in light of Articles 5( a), 5(c), 6.3, 15.1, and footnote 46 of the
SCM Agreement, it is clear that when assessing the US claim of adverse effects, it is necessary to
identify both the 'subsidized product' ( i.e., 'product under consideration' ) and the corresponding 'like
product'. Further, Australia notes that, in ela borating on the requirements for establishing serious
prejudice under Articles 6.3(b) and 6.3(c), the SCM Agreement refers to 'non-subsidized like product'
in Articles 6.4 and 6.5 respectively.1225

1217 Australia Opening Statement Executive Summary, para. 18.
1218 Australia Opening Statement Executive Summary, para. 19, citing, US – Upland Cotton , Panel
Report, 7.1290-7.1307, s ee also, Third Party Written Submission of Braz il, 7 May 2007, para. 56; and Third
Party Submission of Canada, 7 May 2007, paras. 61 & 62.
1219 Australia Opening Statement Executive Summary, para. 14, citing, Second Submission of the US
of 28 June 2007, para. 600-601; and Third Party Written Submission of Brazil, 7 May 2007, para. 37-38
1220 Australia Opening Statement Executive Summary, para. 14, citing, US – Upland Cotton, Appellate
Body Report, para. 438.
1221 Australia Opening Statement Executive Summary, para. 14.
1222 Australia Opening Statement Executive Summary, pa ra. 13, citing, Second Submission of the US,
28 June 2007, para. 600-602; and Third Party Written Submission of Brazil, 7 May 2007, para. 37-38.
1223 Australia Opening Statement Executive Summary, para. 13, citing, US – Upland Cotton , Panel
1224 Australia Opening Statement Executive Summary, para. 13.
1225 Australia Third Party Submission Executive Summary, para. 17.

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(e) US' characterization of the 'subsidized product' and the 'like product'
5.27 Australia notes that in order to demonstrate its claim of adverse effects the US has grouped all
the Airbus LCA models together under the banner of the Airbus LCA family. According to the US
the 'subsidized product' for the purposes of this disput e is the Airbus LCA family. Similarly, the US
has grouped all the Boeing LCA models together and asserted that the 'like product' for the purposes
of this dispute is the Boeing LCA family. Austra lia notes that the EC acknowledges the existence of
some sort of 'family concept' in relation to LCA.1226
5.28 In Australia's view, one of the key issues for the Panel in this dispute is whether the US
characterisation of the 'subsidized product' and th e 'like product' provides an appropriate point of
comparison for the purposes of assessing whether the alleged subsidies have caused adverse effects to
the interests of the US.1227
(f) Legal considerations in determining the 'subsidized product' and the 'like product'
5.29 Australia argues that in assessing a claim of advers e effects it is necessary to first identify the
'subsidized product' before identifying the 'like pr oduct'. However, the two concepts are obviously
closely related.1228 Australia notes that there appears to be little guidance in the SCM Agreement or
WTO cases regarding the complaining WTO Member's determination of the 'subsidized product'.
However, given that the definition of 'like produc t' under the SCM Agreement in footnote 46 requires
that the 'like product' be 'identical' or have 'characteristics closely resembling' the subsidized product it
seems reasonable to assume that there must be limitations on the scope of the 'subsidized product'.
1229
Australia has highlighted a number of WTO cases which provide guidance on the determination of
'like product'. Indonesia – Autos seems to be of particular relevance to the present dispute.1230
5.30 In light of the relevant WTO cases, Australia submits that the Panel should satisfy itself of the
following issues when examining th e US characterisation of the 'subsidized product' and the 'like
product':
(i) Is it reasonable for the US, having predominantly sought to establish the existence of
subsidies on the basis of particular models of Airbus LCA, to shift focus, in relation to
its claim of adverse effects, to the Airbus LCA family as the 'subsidized product'? In
other words, does a claim under the SCM Agre ement require a consistent approach in
establishing the existence of a subsidy and in establishing adverse effects?
(ii) In terms of physical characteristics ( e.g., length, height, wingspan, seating capacity,
cargo capacity, and range) and price, is it appr opriate to suggest, for example, that the
Boeing 747 (as the notional 'like product') ha s 'characteristics closely resembling'
those of the Airbus A320 (as the notional 'subsidized product')?
(iii) How does the LCA industry analyse market segmentation? What are the airlines'
(i.e., consumers') tastes and habits in purchasi ng a range of LCA models to form their
fleet?

1226 Australia Third Party Submission Executive Summary, para. 18.
1227 Australia Third Party Submission Executive Summary, para. 19.
1228 Australia Third Party Submission Executive Summary, para. 20.
1229 Australia Third Party Submission Executive Summary, para. 21.
1230 Australia Third Party Submission Executive Summary, para. 22.

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(iv) How widely should the 'accordion of likeness ' be stretched in terms of the definition
of 'like product' under the SCM Agreement?
(v) Does the US grouping of various LCA models together result in individual product
characteristics being ignored so that it could affect the outcome of the case?
(vi) Would it be appropriate to disaggregate th e US grouping of products on the basis of
the physical characteristics ( e.g., length, height, wingspan, capacity and range), end-
uses, and consumers' perceptions?1231
5.31 Australia points out that contrary to what the EC has suggested, 1232 Australia's third party
submission does not 'urge this Panel to follow the findings of the panel in Indonesia – Autos' .
Australia considers that in assessing a claim of ad verse effects it is necessary first to identify the
'subsidized product' before identifying the 'like product'. 1233 Australia also reiterates that in Japan –
Alcoholic Beverages II the Appellate Body highlighted that the concept of likeness was flexible and
depends on 'the particular provision… as well as...the context and the circumstances that prevail in any
given case'.1234 In addition, Australia recalls that the A ppellate Body has held that the grouping of
products may be an acceptable analytical tool when assessing likeness.1235
5.32 Finally, Australia notes that in Korea – Commercial Vessels the Panel indicated that it was
always for the complaining party in a WTO disput e to determine the basis and nature of its own
complaint, including the breadth or narrowness of the description of the 'subsidized product'. The
Panel stated that it was then up to the complain ant to demonstrate causation in relation to this
'subsidized product'.1236
5. General Infrastructure
5.33 Australia considers that Article 1.1(a)(1)(iii) excludes "general infrastructure" from what is
deemed a financial contribution in the context of the provision of goods and services by government.
The Appellate Body has noted in regard to sub- paragraph (iii), that general infrastructure is
infrastructure of a general nature. 1237 Australia submits that the Panel should take into account its
observation that 'general infrastructure' in this context means the provision, by government, of goods
and services that are generally available or multi-user.1238
5.34 Australia considers that a broad definiti on, as advocated by the EC, of 'general
infrastructure'1239 as infrastructure that fulfils public policy goals finds no support in the

1231 Australia Third Party Submission Executive Summary, para. 23.
1232 Australia Opening Statement Executive Summary, para. 15, citing, Second Written Submission by
1233 Australia Opening Statement Executive Summary, para. 15, citing, Korea – Commercial Vessels ,
paras. 7.555-7.556.
1234 Australia Opening Statement Executive Summary, para. 15, citing, Japan – Alcoholic Beverages II,
Appellate Body Report, pp.19-21.
1235 Australia Opening Statement Executive Summary, para. 15, citing, Korea – Alcoholic Beverages ,
Appellate Body Report, paras. 141-144.
1236 Australia Opening Statement Executive Summary, para. 16, citing, Korea – Commercial Vessels ,
paras. 7.559-7.560; see also, Third Party Written Submission of Brazil, 7 May 2007, paras. 52-53.
1237 Australia Opening Statement Executive Summary, para. 20 citing, US – Softwood Lumber IV ,
Appellate Body Report, para. 60. See, also, Australia Third Party Submission Executive Summary, para. 24.
1238 Australia Third Party Submission Executive Summary, para. 24.
1239 Australia Opening Statement Executive Summary, para. 21, citing, First Written Submission of the
EC, paras. 710-724.

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SCM Agreement. If this were the test, then virt ually every financial contribution by government
towards infrastructure would be excluded from the definition of 'subsidy' in the SCM Agreement,
even if granted to a specific en terprise. Such an interpretatio n would seriously undermine the
discipline of the SCM Agreement.1240
5.35 Further, Australia does not accept that '{ a}s long as the infrastructure is potentially accessible
by the public or providing common goods to the public , it should be treated as "general
infrastructure"'.1241 Such a test would be too broad.1242
5.36 Australia submits that the Panel needs to analy se whether the infrastructure is for exclusive or
limited use by enterprises. Australia does not consid er that sub-paragraph (iii) requires a presumption
that government funded infrastructure is general unl ess evidence demonstrates that its use is limited
exclusively to certain users. Fu rther, infrastructure is not necessarily of a general nature simply
because limitations on its use to certain users are temporary. Ultimately, any analysis of infrastructure
needs to be undertaken on a case-by-case basis, taking into account all the relevant facts and
circumstances, including the terms and conditions relating to its use.1243
5.37 According to Australia, the 'general infrast ructure' exclusion under Article 1 of the
SCM Agreement should be distinguished from specific ity analysis under Article 2. It is also a
separate consideration from the question of whethe r a benefit has been conferred by government
which is required in order to complete the analysis of the existence of a subsidy.1244
6. Regional Specificity
5.38 Australia notes that the EC argues that Article 2.2 involves a two- step test: (i) the subsidy is
limited to a designated geographic region; and (ii) th e subsidy is limited to certain enterprises within
that designated geographic region. However, Austra lia draws the Panel's attention to the fact that
under such a two-step test for regional specificity it is difficult to envisage a situation covered by
Article 2.2 that would not already be covered by Article 2.1(a).1245
7. Extinguishment of Subsidies
5.39 Australia notes that the EC argues that any be nefit conveyed by a financial contribution is
presumptively 'extinguished' for purposes of the SCM Agreement when the recipient firm (or
segments thereof) is sold at 'arms length' and for 'fair market value'. In Australia's view, in addressing
this issue, the Panel should examine all relevant facts in this dispute, including any provisions made in
loan contracts between governments and Airbus SAS in relation to the transfer of obligations to
successor entities.1246

1240 Australia Opening Statement Executive Summary, para. 21.
1241 Australia Opening Statement Executive Summary, para. 22, citing, Third Party Submission of
Korea, 23 April 2007, para. 47.
1242 Australia Opening Statement Executive Summary, para. 22.
1243 Australia Opening Statement Executive Summary, para. 23.
1244 Australia Opening Statement Executive Summary, para. 24.
1245 Australia Third Party Submission Executive Summary, para. 25.
1246 Australia Third Party Submission Executive Summary, para. 26.

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8. Withdrawal of the subsidy
5.40 Finally, Australia notes that the EC states errone ously that Article 4.7 requires the withdrawal
of the subsidy in terms of withdrawal of the benefit amount, not the subsidy. 1247 However, Article 4.7
is clear that it is the subsidy that must be withdrawn, not the benefit.1248
B. BRAZIL
1. Introduction
5.41 In its third party submission, Brazil discusses the following specific issues of particular
importance to Brazil in this dispute:
• The rights and obligations under the SCM Agreemen t apply in all respects to the aircraft
sector.

• Subsidies provided before 1 January 1995 sh ould be excluded from the scope of the
proceeding.

• Failure of the EC to cooperate in the Anne x V information gathering process threatens to
undermine the WTO dispute settlement process and should result in the application of
inferences, including adverse inferences, where appropriate.

• "Launch aid" severely distorts the competitive c onditions in the market for civil aircraft.
Upon considering all of the characteristics of la unch aid, the Panel should find that launch aid
confers a benefit and should examine carefully the EC arguments regarding the duration or
expiration of the benefit of launch aid subsidies.

• The Panel should avoid a narrow interpretation of de facto export contingency under
Article 3.1(a) of the SCM Agreement.

• In evaluating whether the subsidies to Airbus ar e causing adverse effects or the threat thereof,
the Panel should (a) take into account the c onditions of competition in the LCA market,
(b) give substantial discretion to the US to define the "subsidized product," and (c) examine
other critical legal issues relevant to its consid eration of the US claims of serious prejudice
and material injury.1249

2. The SCM Agreement applies in all respects to the aircraft sector
5.42 Brazil considers that the SCM Agreement establis hes the rights and obligations applicable to
assessing the US claims in this dispute. In Brazil's view, the 1979 Agreement and the 1992
Agreement are outside the Panel's terms of reference. To the extent relevant to the Panel's review, the
1979 Agreement actually places an additional burden on th e EC not to cause further distortions in the
civil aircraft market. Moreover, the 1992 Agreement ca nnot serve to carve EC subsidies to its aircraft

1247 Australia Opening Statement Executive Summary , para. 25, citing, Second Written Submission of
the EC, para. 224.
1248 Australia Opening Statement Executive Summary, para. 25.
1249 Executive Summary of the Third Party Submissi on of Brazil (hereinafter Brazil Third Party
Submission Executive Summary), para. 1.

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industry out of the obligations under the SCM Agre ement, in particular because it is not a WTO
covered agreement to which all WTO Members are a party.1250
5.43 At the Panel meeting with the third parties, Br azil noted that in its preliminary ruling, the
Panel found no basis for applying the 1992 Agreem ent to the temporal scope of the dispute 1251 but did
not address whether the 1992 Agreement was relevant to other substantive issues. 1252 Among other
things, the Panel's conclusion was based on lack of jurisdiction and on its finding that the
SCM Agreement prevails over the 1992 Agreement. 1253 For the same reasons, Brazil considers that
the Panel should find no basis for applying the 19 92 Agreement to the substantive claims under the
SCM Agreement in this dispute.1254
5.44 Brazil also objects to the use of the 1992 Ag reement to interpret provisions of the
SCM Agreement. A bilateral treaty such as the 1992 Agreement simply does not reflect the common
intentions of all WTO Members, and as a result, it cannot be used to inform what WTO Members
intended when drafting the SCM Agreement. Any other interpretation would lead to absurd and
prejudicial results, with third parties seeing their WTO rights affected by a bilateral treaty to which
they were not a party and with the provisions of the SCM Agreement poten tially being interpreted
differently for different WTO Members. Alterna tively, any interpretation of the SCM Agreement
based on the 1992 Agreement can only apply to the bilateral relations between the US and the EC.1255
3. Subsidies provided before 1 January 1995 should be excluded from the scope of this
proceeding
5.45 Brazil notes that the US has presented a number of claims based on subsidies provided prior
to 1 January 1995, the date the SCM Agreement entered into force. Consistent with the text and as
interpreted in accordance with customary rules of interpretation of public international law, Brazil
maintains that the SCM Agreement cannot bind a WT O Member in relation to any act that has taken
place before 1 January 1995.1256
5.46 Accordingly, Brazil considers that the temporal scope of any dispute under the
SCM Agreement is limited to subsidies actually gran ted or maintained on or after 1 January 1995.
One-time grants provided prior to 1 January 1995, for example, should be excluded. Recurring
subsidies and subsidy programmes in which cont ributions are actually provided on or after
1 January 1995 should be covered, including any contributions provided on or after 1 January 1995
that are pursuant to commitments, decisions, or othe r actions taken prior to that date. Brazil also
considers that launch aid that was granted prior to 1 January 1995 and that remains subject to the
repayment of interest or principal after that date s hould be within the scope of this dispute, including,
under certain circumstances, situations where th e relevant launch aid was fully repaid after
1 January 1995.1257

1250 Brazil Third Party Submission Executive Summary, para. 2.
1251 Executive Summary of the Opening Statement of Brazil at the Meeting with the Third Parties
(hereinafter Brazil Opening Statement Executive Summary), para. 5, citing, Preliminary Ruling, para. 89.
1253 Brazil Opening Statement Executive Summary, para. 5, citing, Preliminary Ruling, footnote 141.
1254 Brazil Opening Statement Executive Summary, para. 5.
1255 Brazil Opening Statement Ex ecutive Summary, para. 6. See, also, Brazil Opening Statement,
para. 7.
1256 Brazil Third Party Submission Executive Summary, para. 3.
1257 Brazil Third Party Submission Executive Summary, para. 4.

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4. The EC failure to cooperate in the Anne x V process threatens to undermine the WTO
dispute settlement process and should result in the application of inferences, including
adverse inferences, where appropriate
5.47 In Brazil's view, the Annex V process is particularly critical in cases such as this one in which
the relevant information is almost exclusively contained in confidential documents held by the
subsidizing Member.
1258 Brazil points out that Annex V of the SCM Agreement establishes an
information gathering process that is a critical and integral part of the SCM Agreement. In Brazil's
view, the Annex V process is mandatory.
1259 In the interest of the timely and efficient resolution of
disputes and consistent with the text of Annex V, Members should consent to the initiation of
Annex V procedures and should full y cooperate in providing request ed information, particularly
because information about subsidies is often only available to the subsidizing Members.1260
5.48 Brazil notes that at the outset of this proceeding, the EC refused to consent to three requests
by the US to initiate the procedures under Annex V of the SCM Agreement. The EC also failed to
respond fully to questions and "follow-up" questions from the Annex V Facilitator. In Brazil's view,
the EC actions in withholding evidence in the Annex V process severely prejudiced the rights of third
parties to protect their interests in this proceeding within the meaning of Article 10 of the DSU.1261
5.49 To the extent that the EC continues to withhold relevant evidence, Brazil encourages the
Panel to use its discretion under paragraph 7 of Annex V of the SCM Agreement to draw adverse
inferences where appropriate and thereby adopt effective sanctions to ensure that Annex V remains an
effective tool for the resolution of disputes under the SCM Agreement.1262
5. "Launch aid" severely distorts the market s for aircraft and constitutes a specific
subsidy
5.50 Brazil considers that launch aid is a particularly distortive type of subsidy because it shifts the
enormous up-front expense and commercial risk of developing new aircraft to taxpayers. Although
Brazil agrees with the EC that the LCA industry h as special characteristics, it rejects the notion that
this justifies subsidies inconsistent with a Member's WTO obligations.1263
5.51 Brazil agrees with the legal test articulated by the US for determining whether a benefit was
conferred, i.e., a benefit corresponds to some form of adva ntage and can be identified by determining
whether the recipient has received a financial c ontribution on terms more favourable than those
available to the recipient in the commercial market . Launch aid takes the form of a loan for which
repayment is success-dependent and, thus, may not earn a commercial rate of return if relevant aspects
are taken into account, including the risks inherent in the development and mark eting of new aircraft,
the nature of the launch aid (including its success- dependent and back-loaded features and lack of
security), the relevant interest rates (including the na ture of any obligation to pay interest), the fact
that credit ratings are affected by the expectati on of continuing government support, and any other
preferential features, including the waiver of normal fees. The Panel should account for these aspects
in establishing an appropriate commercial benc hmark for determining whether the launch aid

1258 Brazil Opening Statement Executive Summary, para. 2.
1260 Brazil Third Party Submission Executive Summary, para. 5.
1261 Brazil Third Party Submission Executive Summary, para. 6.
1262 Brazil Third Party Submission Executive Summary, para. 7. See, also, Brazil Opening Statement
Executive Summary, para. 5.
1263 Brazil Third Party Submission Executive Summary, para. 8.

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subsidies in this proceeding have conferred a benefit within the me aning of Article 1.1(b) of the
SCM Agreement.1264
5.52 Based on the evidence provided by the US, Brazil considers that the US has presented a prima
facie case that launch aid granted without any inte rest obligation confers a benefit on Airbus.
Moreover, when the launch aid does require the paym ent of interest or royalties, the EC admission
that such launch aid was granted on terms and condi tions more favourable than even its own proposed
commercial benchmarks means that the US has es tablished that launch aid confers a benefit on
Airbus. Brazil considers that the additional statemen ts by officials from member States of the EC and
by Airbus further demonstrate that launch aid confers a benefit on Airbus.1265
5.53 Brazil disagrees with the EC assertion that the t est for whether launch aid confers a benefit
should be based solely on the reasonableness of sales forecasts. 1266 This test has no support in the
SCM Agreement. Based on its reference to governments secu ring an "adequate rate of return" and
ensuring "adequate recoupement of its contribution," 1267 the EC is attempting to resurrect the "cost to
government" approach to examining the existence of a benefit, which has been rejected in past
cases.1268 Brazil also objects to the use of risk-sha ring suppliers in determining the appropriate
commercial benchmark for assessing the benefit of launc h aid to a civil aircraft producer. The terms
and conditions for risk-sharing suppliers are substa ntially distorted by the government subsidies for
the underlying project and would not reflect the situation without government intervention.1269
5.54 Regarding the duration and expiration of the bene fits of subsidies to Airbus, Brazil urges the
Panel to examine the issues carefully and to ensure that its findings in this dispute do not lead to
interpretations that would undermine the disciplines set out in the SCM Agreement. In the absence of
guidance in the SCM Agreement regarding the quantification of subsidies, the Panel should not, as the
EC argues, require the US to allege a precise per aircraft subsidy rate in accordance with strict
methodologies or thresholds. Moreover, although th e general magnitude of the subsidies may be
relevant, the Panel should also consider the nature of launch aid, which necessarily distorts the market
and facilitates the ability of Airbus to launch aircraft that would not otherwise be developed or at least
not developed at the same time or at the same cost.1270
5.55 At the Panel meeting with the third parties, Braz il asserted that absent launch aid, certain new
aircraft would not be developed and sold in the market or would be developed and sold much later at a
higher cost. Therefore, a beneficiary of launch aid is able to be more a ggressive in producing and
marketing aircraft than a competing producer without launch aid.1271
5.56 Brazil also notes that subsidies are not a requi rement for the development and launch of new
aircraft, even if a producer is located in a devel oping country. For example, to finance the design and

1264 Brazil Third Party Submission Executive Summary, para. 9.
1265 Brazil Third Party Submission Executive Summary, para. 10.
1266 Brazil Opening Statement Executive Summary, para. 7, citing, First Written Submission of the EC,
paras. 442-478 and Second Written Submission of the EC, paras. 151-157.
1267 Brazil Opening Statement Executive Summary, para. 7, citing, Second Written Submission of the
EC, paras. 154 and 157.
1268 Brazil Opening Statement Executive Summary, para. 7, citing, Canada-Aircraft I (AB), para. 156.
1269 Brazil Opening Statement Executive Summary, para. 8.
1270 Brazil Third Party Submission Executive Summary, para. 11. See, also, Brazil, Third Party
1271 Brazil Opening Statement Executive Summary, para. 3.

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development of its EMBRAER 170/190 family of airc raft with four models ranging from 70 to 118
seats, EMBRAER did not rely on launch aid.1272
6. The Panel should avoid a narrow interpretation of de facto export contingency
5.57 In examining US claims that certain launch aid constitutes prohibited export subsidies under
Article 3.1(a) and footnote 4 of the SCM Agreemen t, Brazil considers that the Panel should not
interpret the applicable provisions so narro wly as to effectively prevent a finding of de facto export
contingency in certain sectors where there may in deed be a global market or in industries with
substantial export orientation.1273 In particular, the Panel should examine export contingency as of the
date the subsidy is granted. In the re levant agreements to provide launch aid ( i.e., to provide the
subsidy) in this proceeding, each government require d a certain rate of return, and thus, the provision
of the launch aid was contingent on agreement be tween the government and Airbus to the specified
contractual rate of return and the projected sales. If this return could only be reached through actual
or anticipated exportation or export earnings as eviden ced by, for example, market data in the launch
aid agreement itself, Brazil considers that this may be sufficient to demonstrate de facto export
contingency. Likewise, the relevant launch aid co ntracts were concluded in the expectation that a
certain amount of sales would occur, according to "reasonable forecasts". If this amount could only
be reached through actual or anticipated exportation, this should also be sufficient to demonstrate de
facto export contingency.
1274
5.58 At the Panel meeting with the third parties, Brazil stated that based on the information
available to it, certain instances of launch aid in this dispute do appear to constitute prohibited
subsidies because they are contingent on export perf ormance within the meaning of Article 3.1(a) of
the SCM Agreement. If the evidence demonstrates that the launch aid contracts were concluded on
the basis of a rate of return that could only be achieved through sales forecasts that inevitably imply
exportation of subsidized products, the Panel should find that such evidence may be sufficient to
demonstrate de facto export contingency.1275
5.59 Brazil notes that in Canada-Aircraft, the Panel stated that, in order to rebut Brazil's prima
facie case, Canada should have, inter alia, "adduce{d} ... evidence demonstrating that TPC assistance
to the Canadian regional aircraft industry would have been granted irrespective of anticipated
exportation or export earnings." 1276 Likewise, in order to rebut the US prima facie case here, the EC
must present evidence demonstrating that the same launch aid would have been granted irrespective
of anticipated exportation or export earnings .1277 Brazil concludes that if the launch aid at issue here
is endorsed by the Panel, it will open a loophol e for Members to provide export incentives under the
guise of "royalty-based" or similar de facto export performance based financing. In Brazil's view, the
Panel should ensure that its findings do not open such a loophole, and it should not otherwise interpret
Article 3.1(a) of the SCM Agreement so narrowly that a finding of de facto export contingency is no
longer possible.1278

1272 Brazil Opening Statement Executive Summary, para. 4.
1273 Brazil Third Party Submission Executive Summary, para. 12.
1274 Brazil Third Party Submission Executive Summary, para. 13.
1275 Brazil Opening Statement Executive Summary, para. 9.
1276 Brazil Opening Statement Executive Summary, para. 10, citing, Canada-Aircraft I (Panel) ,
para. 9.344.
1277 Brazil Opening Statement Executive Summary, para. 10.
1278 Brazil Opening Statement, para. 18.

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7. The US has made a prima facie case that the subsidies to Airbus cause adverse effects or
the threat thereof
5.60 Brazil considers that the conditions of competition in the LCA market are critical to the
Panel's analysis of adverse effects under Article 5 of the SCM Agreement. Brazil disagrees with the
EC argument that there is often a lack of competition in the LCA market. Given that Boeing and
Airbus are the only surviving LCA producers, if Airbus wins a sales campaign, Boeing necessarily
loses a sale, even if Boeing was not asked to compete for the sale.1279
5.61 Brazil also agrees with the US description of the competitive conditions in the LCA market,
including the large but infrequent orders of LCA and the likelihood that airlines purchasing subsidized
aircraft will continue purchasing the same model or models from the same family due to commonality
of spare parts, pilot and crew training, special tooling, and ground support equipment. Accordingly,
subsidies that distort a customer's purchasing decisions have adverse effects that are far greater than in
most other sectors and are also likely to affect future aircraft sales.1280
5.62 Moreover, the nature of aircraft production is such that the continued development of new
aircraft and technology is necessary to remain comp etitive. Brazil agrees with the US and with the
logic contained in the Dorman Report that subsid ies significantly distort the market because they
enable a producer to reduce the risk of launching new ai rcraft, lower its costs, divert internal funds to
other uses, and otherwise make decisions th at are inconsistent with normal commercial
considerations.1281
5.63 Regarding the determination of the "subsidized pr oduct" in this dispute, Brazil considers that
the Panel should afford the US substantial discretion as the complaining party to define the subsidized
product or products to which its claims apply. 1282 Brazil also agrees with the criteria proposed by the
US for determining the "like prod uct" in this dispute, althou gh Brazil does not take a position
regarding whether the entire Boeing family of LCA is the appropriate like product or products in this
case.1283 Brazil notes that the SCM Agreement provid es no definition for "subsidized product" and no
textual support for the proposition that the subsidi zed product has to conform to a particular
configuration, be it narrow or wide.1284
5.64 In its Third Party submission and at the Panel meeting with the third parties, Brazil provided
the following comments on some of the important issues regarding the US adverse effects-related
claims and arguments:
• Brazil notes that the SCM Agreement does not specify what type of market (monopoly,
duopoly or a perfectly competitive market) should prevail in any given context of
international trade. If the evidence shows, for example, that a certain aircraft would not exist
but for a subsidy and that the entire market for that kind of product would be supplied by a
single non-subsidized firm, there are strong grounds for a prima facie case that the subsidy
causes serious prejudice within the meaning of Article 6.3.

1279 Brazil Third Party Submission Executive Summary, para. 14.
1280 Brazil Third Party Submission Executive Summary, para. 15.
1281 Brazil Third Party Submission Executive Summary, para. 16.
1282 Brazil Third Party Submission Executive Summary, para. 17. See, also, Brazil Opening Statement
Executive Summary, para. 11
1283 Brazil Third Party Submission Executive Summary, para. 17
1284 Brazil Opening Statement Executive Summary, para. 11.

BCI deleted, as indicated [***]

• Brazil submits that contrary to the EC position, price need not be the only reason for lost
sales, provided it is one of the material factors causing the lost sales.

• Brazil disagrees with the EC assertion that adve rse effects are extinguished, for example, by
the launch within two or three years of a technol ogically equal or superior competing aircraft
by Boeing. The continuing distortive effect of subsidies in the market does not disappear
with the launch of a competing aircraft.

• Brazil disagrees with the EC position that Boeing's healthy financial and market position at
the peak of the business cycle precludes the po ssibility that the US is suffering serious
prejudice caused by the subsidy. The relevant issue is whether Boeing's market share would
be greater absent the subsidized Airbus product.

• Brazil agrees with the US that if data on exports to certain third country markets is
insufficient, the Panel may conduct an anal ysis of displacement or impedance under
Article 6.3(b) of the SCM Agreement based on the aggregate of all third country markets.

• Brazil considers that the effect of subsidies may be gauged not only as aircraft are physically
delivered to customers, but also as orders ar e secured by manufacturers subsidized by their
governments.

• Brazil disagrees with the EC two-step anal ysis of displacement or impedance under
Article 6.3(b) of the SCM Agreement requiring pr oof first that 'displacement' or 'impedance'
is caused by the effects of challenged subsid ies and second that such displacement or
impedance rises to the level of serious prejudice. Brazil notes that displacement or impedance
in the sense of Article 6.3(b) is an instance of "serious prejudice" within the meaning of
Article 5(c). There is no additional requirement to show that such displacement or impedance
rises to the level of serious prejudice. The panel in US-Cotton made it clear that a finding of
an effect under Article 6 is sufficient for a finding of serious prejudice under Article 5(c). In
Indonesia-Autos, the panel found that "{i}f the type of analysis set forth in Article 6.4 is
appropriate in this case, then the complainants arguably could make a prima facie case of
displacement or impedance simply by demonstrating that the market share of a subsidized
product has increased over an appropriately re presentative period." Thus, Brazil considers
that if the demonstration require d by Article 6.4 is made for a single third country market (or
for third country markets considered as a whol e) under Article 6.4, this amounts to a prima
facie case of serious prejudice within the meaning of Article 5(c) of the SCM Agreement.
 1285

• With respect to material injury under Article 5( a) of the SCM Agreement, Brazil agrees with
the US that evidence that Boeing's performan ce was improving in 2006 does not mean that
the US did not suffer adverse effects from subsidized Airbus products.1286

5.65 Brazil points out that the precise quantification of subsidies is not required in a dispute under
Part III of the SCM Agreement. In addition to the findings of the Appellate Body in US-Cotton (AB)
directly on this point,
1287 the absence of a de minimis provision under Part III of the SCM Agreement
and the use of the language "effect of the subsidy" in Article 6.3 of the SCM Agreement support the
lack of any requirement to quantify the subsidy. Thus, the Panel should not adopt any specific

1285 Brazil, Third Party Submission, paras. 63-64, citing, Indonesia-Autos (Panel) , paras. 14.208-
14.211. See, also, Brazil Third Party Executive Summary, para. 18.
1286 Brazil Third Party Submission Executive Summary, para. 18.
1287 Brazil Opening Statement Executive Summary, para. 13, citing, US-Cotton (AB), paras. 464-467.

BCI deleted, as indicated [***]

calculation or allocation methodologies for purposes of this case and should not require the US to
demonstrate a precise per-aircraft subsidy rate.1288
5.66 Brazil notes that the EC contends that Airbus LCA would have been viable without the
challenged launch aid. 1289 In Brazil's view, the EC arguments are not relevant in demonstrating
causation in this case. The possibility that certain aircraft would have b een launched without the
preferential terms provided by launch aid does not unde rmine arguments in relation to the effects of
alleged subsidies on the pace and conditions by which such aircraft were actually introduced into the
market.1290
5.67 Brazil points out that according to the EC, the competitive advantage enjoyed by Airbus in
launching a more technologically advanced aircraft earlier than it would have done absent subsidies
was quickly neutralized or eliminated when Bo eing launched a competing or superior aircraft. 1291 As
a legal matter, Brazil objects to th e EC argument that the actions of a producer of the like product to
remedy the adverse effects caused by subsidies either breaks the causal link between the subsidies and
the adverse effects or removes the adverse effects. Such an interpretation is not supported by the
SCM Agreement and would lead to the absurd result that a commercial response to reduce the adverse
effects of subsidization would lessen the likelihood that the subsidizing Member would be found to
violate its WTO obligations, despite causing the adverse effects in the first place.1292
5.68 Brazil notes that the EC would have the Pane l require the US to provide evidence showing
that funds received in the past under launch aid cont racts is directly linked to cash flow or "free
money" that Airbus has chosen at the time of sal e to spend on reducing prices in each and every sales
campaign. Given the fungible nature of the funds provided and the fact that the subsidies benefited
Airbus far in advance of the actual sale of any partic ular aircraft, such test is not required and would
impose an impossible evidentiary burden on a complainant.1293
5.69 Moreover, the EC argues that the US must al so prove that Airbus had the incentive and
commercial opportunity to use the additional cash flow from subsidies to lower sales prices. Brazil
considers that the EC approach lacks th e common sense that the EC advocated in Korea-Vessels.1294
It follows from basic principles of economics and, in fact, from common sense that a significant
magnitude of subsidy-induced cash flow would re duce a producer's costs and affect prices. A
complainant should not be required to further de monstrate that the subsidized producer had the
incentive and commercial opportunity to lower prices for its products.1295
5.70 Brazil disagrees with the EC assertion that the lower development costs provided by launch
aid do not affect pricing. Because it lowers per unit costs of aircraft and improves the recipient's cash
flow, launch aid enables Airbus to offer more aggressive pricing on its products.
5.71 Brazil notes that the EC contends that to s how that displacement or impediment under
Articles 6.3(a) and 6.3(b) of the SCM Agreement is caused by the "effect of the subsidy," the US must

1288 Brazil Opening Statement Executive Summary, para. 13.
1289 Brazil Opening Statement Executive Summary, para. 14, citing, Second Written Submission of the
EC, paras. 757-795.
1290 Brazil Opening Statement Executive Summary, para. 14.
1291 Brazil Opening Statement Executive Summary, para. 15, citing, Second Written Submission of the
EC, para. 914.
1292 Brazil Opening Statement Executive Summary, para. 15.
1293 Brazil Opening Statement Executive Summary, para. 16.
1294 Brazil Opening Statement Executive Summary, para. 17, citing, Korea-Vessels, Annex F-1 (Second
Oral Statement of the EC, para. 41).
1295 Brazil Opening Statement Executive Summary, para. 17.

BCI deleted, as indicated [***]

conduct a sales-campaign by sales-campaign analysis. 1296 Such an approach lacks any support under
the SCM Agreement or past practice. It is simp ly not a requirement for the complainant to present
evidence relating to each sale of a subsidized produ ct (whether aircraft or any other product) and
demonstrate that the subsidy caused the relevant displacement or impediment on a sale-by-sale
basis.1297
5.72 Brazil agrees that the challenged subsidies s hould be cumulated in examining whether they
are causing adverse effects to US interests if such subsidies "manifest themselves collectively."
5.73 Brazil notes that the EC argues that the US cannot meet its burden of demonstrating serious
prejudice under Articles 6.3(b) and 6.3(c) of the SCM Agreement because the various like Boeing
products are subsidized and because Articles 6.4 a nd 6.5 refer to comparisons only with the "non-
subsidized like product."1298 The drafters' use of "non-subsidized like product" in Articles 6.4 and 6.5
(as well as in paragraph 5 of A nnex V), however, was intended merely to ensure that the analysis
excluded the like product of third countries and was li mited to a comparison of the subsidized product
and the like product of the complainant. In short, Brazil considers that alleged subsidies to Boeing are
no defence to the US claims in this dispute.1299
5.74 In Brazil's view, the Panel should disregard the EC attempts to use US subsidies to Boeing as
a defence against the US claims. Alleged claims re garding US subsidies to Boeing will be considered
by the panel in DS353.
C. CANADA
1. Introduction
5.75 Canada states that it is participating in this proceeding because of its role as one of the world's
major producers of civil aircraft and its syst emic interest in the interpretation of the
SCM Agreement.1300
2. De facto Export Contingency
5.76 Canada considers that the US has faile d to accurately apply the test for de facto export
contingency set out in footnote four of the SCM Agreement. 1301 Canada argues that instead of
applying this test, the US attempts to establish only that repayment of the financing was tied to actual
or anticipated exportation or export earnings. 1302 Canada notes that the US paraphrases the test as:
"(1) the 'granting' of a subsidy; (2) that is 'tie d to' (3) 'actual or anticipated exportation or export
earnings'." By inserting the word "that" the US h as obscured the locus of the inquiry. In Canada's

1296 Brazil Opening Statement Executive Summary, para. 18, citing, Second Written Submission of the
EC, paras. 1142-1143.
1297 Brazil Opening Statement Executive Summary, para. 18.
1298 Brazil Opening Statement Executive Summary, para. 19, citing, Second Written Submission of the
EC, para. 1100-1137.
1299 Brazil Opening Statement Executive Summary, para. 19.
1300 Executive Summary of the Third Party Submission of Canada (hereinafter Canada Third Party
Submission Executive Summary), para. 1.
1301 Canada Third Party Submission Executive Summary, para. 2. Canada asserts that this standard is
met when the facts demonstrate that the granting of a subsidy, without having been made legally contingent
upon export performance, is in fact tied to actual or anticipated exportation or export earnings. The mere fact
that a subsidy is granted to enterprises which export shall not for that reason alone be considered to be an export
subsidy within the meaning of this provision.
1302 Canada Third Party Submission Executive Summary, para. 2.

BCI deleted, as indicated [***]

view, the text is clear in establishing the locus of the "tied to" i nquiry as "the granting of the subsidy".
Therefore, the relevance of repayment is limited to the light it sheds on whether the granting of the
subsidy was export contingent. Repayment is not dispositive.
1303
5.77 Canada asserts that the SCM Agreement locates the "tied to" inquiry in the granting of the
subsidy rather than its repayment for good reason. A tie between repayment of a subsidy and sales
can provide governments with an effective mech anism for establishing when repayments are due
without creating any incentive to export. Indeed, requiring repayment of a subsidy only when export
sales are made could be a device for using subsidi es to develop domestic sales in preference to export
sales.1304
5.78 According to Canada, the US errs in confla ting the terms "export performance", "exportation"
and "export earnings", with the term "sales". By conflating these terms, the US would have it that any
subsidy provided in the form of royalty-based fina ncing is prohibited if the level of anticipated
repayment factored in even a single export sale. This nullifies the final sentence of footnote four.1305
5.79 Canada considers that if the US is arguing th at the granting of the financing was conditioned
on full repayment, it has provided no evidence. Ev en if such evidence was provided, it would be
absurd to characterize a full repayment requirement as an export contingency. Every prior finding of
a prohibited export subsidy was based on a positive, direct correlation between subsidization and
exportation. Here, the correlation is the inverse: repayments triggered by export sales only reduce
any benefit to Airbus.1306
5.80 Canada notes that the US argues that the cont ractual commitments to repay Launch Aid on a
per plane basis are sufficient in this globalized mark et to establish that the granting of the alleged
subsidies is export contingent. This turns Article 3. 1 on its head. As is clear from footnote four, the
locus of the inquiry in Article 3.1 is the granting of the subsidy, not the repayment of the financial
contribution.1307
5.81 The US further asks the Panel to accept the proposition that the per plane repayment
requirements in the member State financing at issue are "like" the b est endeavours performance
targets set out in the grant contract in Australia – Leather . However, the two cases are in no way
analogous. Australia – Leather involved targets that, if met, would result in additional subsidization.
In the case before the Panel, each sale, export or dom estic, when made, only triggers repayment of the
financial contribution.1308
5.82 Canada points out that by its own admission, the entire US case on export contingency
depends on the repayment schedules in the relevant financial contribution agreements. Canada notes
that in its second submission, for example, the US claims that "{i}t is this contractual tie that
distinguishes the provision of Launch Aid from the provision of a subsidy based on the mere
expectation that the subsidy would result in exportation."
1309 However, the simple fact that the
repayment schedules are incorporated into the fina ncial contribution agreements does not make the
granting of the alleged subsidies con tingent upon export performance. In Australia – Leather , the

1303 Canada Third Party Submission Executive Summary, para. 3.
1304 Canada Third Party Submission Executive Summary, para. 4.
1305 Canada Third Party Submission Executive Summary, para. 6.
1306 Canada Third Party Submission Executive Summary, para. 7.
1307 Executive Summary of the Oral Statement of Canada at the Meeting with the Third Parties
(hereinafter Canada Oral Statement Executive Summary), para. 2.
1308 Canada Oral Statement Executive Summary, para. 3. See, also, Canada Third Party Submission
Executive Summary, para. 5.
1309 Canada Oral Statement Executive Summary, para. 4.

BCI deleted, as indicated [***]

panel took into account a number of circumstances to find that export performance was one of the
conditions of the granting of the subsidies. The two cases are dissimilar, since the per plane
repayment schedules in this case are based on a ll sales – export and domestic – and therefore the
agreements are neutral as to export performance . This neutrality sugg ests no tie between export
performance and the granting of the alleged subsidy.1310
5.83 Canada asserts that the repayment terms c onfer no subsidy on Airbus based on its export
performance. Indeed, if Airbus failed to make a si ngle export sale of the relevant planes, the Airbus
governments would have no recourse against Airbus under these contracts. Further, repayments
triggered by export sales can only reduce the conferral of benefit to Airbus. These facts alone are
sufficient to dispose of the US claim.1311
5.84 Canada notes that the US complains that th e EC ignores its arguments in respect of the
repayment terms and answers an argument that the US did not make. But in fact it is the US that
misunderstands the importance of the contractual term s of repayment for the granting of the subsidies
in question. The most that these terms can show in respect of the granting of the subsidy is an
expectation of export sales. In Canada's view, as is clear from the last sentence of footnote four to the
SCM Agreement, mere expectation of export sales is not sufficient to establish that a subsidy is export
contingent.1312
5.85 Canada notes that in its second written submission, the EC elaborated on its argument that the
test for export contingency in Article 3.1 requires a finding of contingency in respect of both elements
of the definition of subsidy in Article 1– the fina ncial contribution and the be nefit conferred by that
financial contribution. 1313 In Canada's view, the reference in Article 3.1 to subsidies "within the
meaning of Article 1" supports the EC view that export contingency must be proven in respect of both
the financial contribution requireme nt established by Article 1.1(a) and the benefit thereby conferred
element established by Article 1.1(b). Canada has previously noted the importance of the words "the
granting of" in footnote four for identifying the relevant locus for the export contingency inquiry. The
reference to "the granting of" also serves to emph asize the importance of conducting the contingency
inquiry in respect of the conferral of benefit element of a subsidy.1314
5.86 Canada points out that a failure to examine whether an export contingency relates to the
conferral of benefit would lead to the absurd result that an alleged export contingency, which
withdraws benefit rather than confers benefit on export, is sufficient to qualify a subsidy as prohibited.
That interpretation of export contingency would r un counter to every prior finding of a prohibited
export subsidy in WTO dispute settlement cases , all of which relied on a positive and direct
correlation between subsidization and exportation. Ye t that is exactly the interpretation advanced by
the US in this dispute. The Panel should reject that interpretation.1315
3. Infrastructure
5.87 Canada notes that the US claims that certain in frastructure projects are subsidies, but fails to
first establish that they are not excluded from th e SCM Agreement as "general infrastructure" by
Article 1.1(a)(1)(iii).1316 Canada identifies problems with the US definition of general infrastructure

1310 Canada Oral Statement Executive Summary, para. 5.
1311 Canada Oral Statement Executive Summary, para. 6.
1312 Canada Oral Statement Executive Summary, para. 7.
1313 Canada Oral Statement Executive Summary, para. 8.
1314 Canada Oral Statement Executive Summary, para. 9.
1315 Canada Oral Statement Executive Summary, para. 10.
1316 Canada Third Party Submission Executive Summary, para. 8.

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and elaborates on the principles it identified in its written submission as relevant to the Panel's
analysis of the US infrastructure claims.1317
5.88 In Canada's view, the most relevant ordinary m eaning of "general" is "not specifically limited
in application; relating to a whole class of objects, cases, occasions, etc". According to Canada it is
possible to say therefore, that where a government provides infrastructure and does not specifically
limit its public availability, there is no financial contri bution. Canada considers that this meaning of
"general" is confirmed by the exclusion's roots in proposals that infrastructure available "for general
public use" be excluded from the SCM Agreement.1318
5.89 In Canada's view, the context of the term "gen eral infrastructure" supports a presumption that
infrastructure is general unless a government specifically restricts usage by the general public. First,
the term is in Article 1. It is the only exclusi on in the SCM Agreement where the legal analysis can
be completed without any consideration of whethe r the measure confers a benefit. Second, the
drafters only reference infrastructure in an exclusi on, indicating their primary purpose was to ensure
that general infrastructure was excluded, rather than ensuring that certain infrastructure was
included.1319 Finally, the object and purpose of Article 1 supports a presumption that infrastructure is
general unless specifically limited. As the panel in US – Export Restraints found, the Article 1
subsidy definition "was drafted w ith the express purpose of ensuring that not every government
intervention in the market would fall within the c overage of the Agreement." Article 1.1(a)(1)(iii)
should not be interpreted to unduly broaden the scope of the Agreement.1320
5.90 Canada notes that the US claims that public road network improvements constitute "the
provision of goods or services other than general infrastructure". However, the US identifies no limits
on the use of the roads at issue by the public as a result of the improvements. The Bremen runway
extension could raise different issues if the ne w portion is indeed for exclusive use by Airbus.
Restrictions on the use of a distinguishable element of infrastructure can justify separate consideration
of that element.1321
5.91 Canada submits that limitations on the use of infrastructure to certain users do not necessarily
deprive infrastructure of its general nature if ther e is a reasonable expectation that general use will
resume in the foreseeable future. A temporary right of exclusive use may, however, require
independent consideration to dete rmine if an exclusive right itself constitutes provision of a good (or
service).1322
5.92 Canada notes that the US first written s ubmission merely asserted its view that the
infrastructure at issue was "other than general". At the prompting of the Panel, the US finally offered
a definition of general infrastructure in its answer to Panel question 20. 1323 Canada points out that in
this definition, the US restricted the concept of general infrastructure to infrastructure that "must
include, involve or affect all or nearly all the parts of a whole territory or community; must be
completely or nearly universal, as opposed to partial, particular or local in order to qualify as general
infrastructure." According to Cana da, this is an impossible standard. For one thing, it would create a
host of new definitional problems such as what c onstitutes a "whole territory or community". But
more fundamentally, it would be an impossible sta ndard to meet. Infrastructure such as a harbour

1317 Canada Oral Statement Executive Summary, para. 11.
1318 Canada Third Party Submission Executive Summary, para. 9.
1319 Canada Third Party Submission Executive Summary, para. 10.
1320 Canada Third Party Submission Executive Summary, para. 11.
1321 Canada Third Party Submission Executive Summary, para. 13.
1322 Canada Third Party Submission Executive Summary, para. 14.
1323 Canada Oral Statement Executive Summary, para. 12.

BCI deleted, as indicated [***]

facility might never satisfy this definition. And for WTO Members as geographically large as
Canada, or either of the disputing Parties, it is hard to imagine any element of the physical
infrastructure that could be said to include, involve or affect all or nearly all of its territory or
community.1324
5.93 The guiding principles identified by Canada in its written submission are more consistent with
the margin of appreciation that WTO Members acco rded themselves for determining what constitutes
general infrastructure. This margin of appr eciation has appropriate boundaries. As Canada
demonstrated in its written submission, the concept of general infrastructure is closely tied to its
availability for use by the public and covers th e provision of basic goods and services underpinning
the economy.1325
5.94 While public policy considerations are at the core of any government decision to provide
general infrastructure, Canada is not arguing that a public policy justification is by itself sufficient.
The fact that infrastructure is provided exclusivel y to one company for public policy reasons does not
preclude another Member from establishing, through ev idence, that it is something other than general
infrastructure because it is not a basic good or ser vice underpinning the economy or because there is
no actual or potential general availability. 1326 Canada argues that the presumption that government-
provided infrastructure is "general" absent proof to the contrary reflects the standard rule under the
DSU that "the burden of proof rests upon the party, whether complaining or defending, who asserts
the affirmative of a particular claim or defence". In this case, the US has the burden to establish that
the infrastructure it is challenging is "other than general infrastructure".
1327
5.95 Canada disagrees with the proposition advanced by Australia that the facts and circumstances
surrounding the provision of general infrastructure need to be examined to determine whether it
confers a benefit to an enterprise. General infrastru cture, by its nature, is presumed to have wide-
ranging benefits and so the fact of benefit to an ente rprise is not relevant to the question of whether it
constitutes a financial contribution. Australia is blending the 'benefit' and 'financial contribution' tests,
something the Appellate Body has repeatedly cautioned against. In the structure of Article 1, it is
only once infrastructure has been determined to be a financial contribution – that is to say
infrastructure "other than general infrastructure" – that the analysis proceeds to the question, under
Article 1.1(b), as to whether it also confers a benefit on a recipient.1328
5.96 Canada considers that the concept of dispro portionate or predominant use by certain
enterprises is an issue to be considered under Artic le 2 of the SCM Agreement and is not appropriate
in the context of Article 1.1(a)(iii). As noted in Canada's written submission, this concept is not
appropriate because it would introduce an element of redundancy to the analysis under Articles 1 and
2 and would disadvantage Members with little economic diversification. Also, establishing whether
infrastructure is general or not based on subsequent private use would make the status of the measure
at the time of its creation uncertain. Whether a government action will result in a subsidy should be
clear before, not after, a government takes action.1329
5.97 Similarly, the US has challenged the AéroCons tellation industrial site, in part, because it was
a site "tailor-made" for a specific s ector of the economy. Caution needs to be exercised with this line

1324 Canada Oral Statement Executive Summary, para. 13.
1325 Canada Oral Statement Executive Summary, para. 14.
1326 Canada Oral Statement Executive Summary, para. 15.
1327 Canada Oral Statement Executive Summary, para. 16.
1328 Canada Oral Statement Executive Summary, para. 17.
1329 Canada Oral Statement Ex ecutive Summary, para. 18. See, also, Canada Third Party Submission
Executive Summary, para. 12.

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of reasoning, as an airport or harbour could also be classified as "tailor-made" for a specific sector of
the economy, even though they are more properly understood as basic goods underpinning the
economy and available for public use. In regard to the US argument that the French Government
should have sold land at the AéroC onstellation site at a price that reflected its own costs, Canada
considers that a more appropriate benchmark for the sale of land is the market value of the land as
determined by reference to prevailing market rates in accordance with Article 14(d) of the
SCM Agreement.
1330
5.98 In respect of land reclamation, it is hard to conceive of a more durable asset than land. Any
reasonable consideration of possible use and availa bility by the public of new lands, where title is
retained by the state, must necessarily take a very long view. In the case of the Mühlenburger Loch
facility, the lease terms to Airbus provide the Panel w ith a valuable encapsulation of that aspect of the
project that is exclusive to Airbus. In Canada's view, the lease provides a useful basis for determining
whether Airbus has received terms more favourab le than those it would have received on a
comparable commercial lease in the prevailing market.1331
5.99 Canada notes that the US also argues that EC State Aid rules offer guidance in defining when
infrastructure is a subsidy. However, those rules represent the internal practice of the EC and are in
no way related to the SCM Agreement. As such , they have no relevance at all to the proper
interpretation of Article 1.1(a)(iii) of the SCM Agreement.1332
4. Serious Prejudice
5.100 Canada considers that there are two fundament al deficiencies in the US serious prejudice
analysis. First, the US approach to "like product" is, on the facts of this case, incorrect. Second,
assessing the effect of all the alleged subsidies in the aggregate does not account for differences in
their nature and effect.1333
(a) Like Product
5.101 Canada notes that the US claims of serious prejudice are premised on its assertion that there is
only one subsidized product at issue in this disp ute, which is the entire family of LCA aircraft
produced by Airbus. However, this ignores the mark et realities in the civil aircraft sector which
recognize that the family of LCA aircraft include a number of different and distinct products.
Recognizing the vulnerability of its position, the US has asked the Panel to de fer to the US in its
identification of the subsidized product.1334
5.102 Canada sees no basis in the SCM Agreement to require deference by this Panel to either of the
disputing parties' views on subs idized product and corresponding like product. Whether the dispute
implicates one or several subsidized products is a matter for the Panel to determine, as the trier of fact.
As trier of fact, the Panel acts pursuant to its ob ligation under Article 11 of the DSU to make "an
objective assessment of the facts of the case and the a pplicability of and conform ity with the relevant
covered agreements".1335

1330 Canada Oral Statement Executive Summary, para. 19.
1331 Canada Oral Statement Executive Summary, para. 20.
1332 Canada Oral Statement Executive Summary, para. 21.
1333 Canada Third Party Submission Executive Summary, para. 15.
1334 Canada Oral Statement Executive Summary, para. 23.
1335 Canada Oral Statement Executive Summary, para. 24.

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5.103 In this regard, and contrary to the assertions of the US, Canada considers the definition of like
product in footnote 46 of the SCM Agreement is hi ghly relevant context fo r determining whether
there are one or more subsidized products at issue. In particular, the requirement in footnote 46 that
there be a close correspondence between the s ubsidized product and like product, based on the
characteristics of the like product, would be rendere d meaningless if the complainant could simply
assert that a number of discrete products with very different characteristics were a single subsidized
product.
1336
5.104 Canada notes that to support its request for deference to its unilateral grouping of all LCA
into a single product, the US relies on a case deci ded under the Anti-Dumping Agreement. However
Anti-Dumping jurisprudence is inapposite – sin ce, in the context of the AD Agreement, the
determination of dumped and like product only arises for a panel in a review of determinations
already made by a domestic investigating authority. In reviewing a determina tion of an investigating
authority, a panel may not engage in a de novo review and may not substitute its views for that of the
investigating authority. Those strictures do not apply here.1337
5.105 According to Canada, it is not accurate to claim, as the US does here, that "because subsidies
are provided to Airbus for the development of an LCA family…. the 'subsidized product' is the
Airbus LCA family as a whole." Canada explains that the identification of a "like product" and its
corresponding subsidized product in the serious prejudi ce analysis, is, by virtue of the definition in
footnote 46, focused on the characteristics of the pr oducts at issue, not the characteristics of the
subsidy.
1338 It follows that the fact that a complainant has challenged multiple subsidies in one panel
request does not justify aggregating a number of discrete products into a single "like product". To
consider otherwise would be to bl ur the distinction between the scope of a panel proceeding, which is
set by the panel request, and the definition of "like product", which is set by footnote 46.1339
5.106 In Canada's view, the US misses the point when it seeks to support its "like product" claim by
noting that royalty-based financing for individual Airbus models actually benefit the entire Airbus
LCA production because the "subsidies for the developm ent of each major Airbus LCA model benefit
the production and marketing of its full LCA family". It is the characteristics of the products being
compared that are relevant to whether they are " like". Company-wide bene fits of a subsidy have
nothing to do with the actual characteristics of the products produced by that company.1340
5.107 Canada notes that the US 'family'-related argumen ts essentially propose that the Airbus 380 is
somehow 'like' the Boeing 737. However, the 737 is a narrow body aircraft with a seating capacity of
approximately 120 to 200 seats and a range of approx imately 3,000 to 6,000 km. The A380 is a wide
body aircraft of over 500 seats and a range of 15,0 00 km. It is inconceivable that an A380 could
displace or impede or price undercut a 737 as they are simply not considered by the market to be in
competition.
1341
5.108 Canada points out that the panel in Indonesia – Autos dismissed a similar argument. A key
reason why that panel rejected the argument that all passenger cars should be considered a "like

1336 Canada Oral Statement Executive Summary, para. 25.
1337 Canada Oral Statement Executive Summary, para. 26.
1338 Canada Third Party Submission Executive Summary, para. 16, citing, Footnote 46: "Throughout
this Agreement the term "like product" ("produit similaire") shall be interpreted to mean a product which is
identical, i.e., alike in all respects to the product under consideration, or in the absence of such a product,
another product which, although not alike in all respect s, has characteristics closely resembling those of the
product under consideration."
1339 Canada Third Party Submission Executive Summary, para. 17.
1340 Canada Third Party Submission Executive Summary, para. 18.
1341 Canada Third Party Submission Executive Summary, para. 19.

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product" of the "Timor" car was the lack of s ubstitutability between the Timor, a small budget car,
and passenger cars at the high end of the market, for example a Rolls-Royce. The Indonesia – Autos
panel found that it was "almost inconceivable" that a subsidy for Timors could displace or impede
Rolls-Royces or that there could be any meaningful price undercutting analysis between these two
models.1342
5.109 Canada notes that the panel in Indonesia – Autos found that "one reasonable way" to approach
the like product issue is to look at the manner in which the industry at issue has analyzed market
segmentation. Canada agrees that industry analyses of market segmentation can be a useful tool in
conducting a like product analysis and would urge the Panel to conduct its analysis in a manner that
distinguishes among products based on characteristics that the market itself considers significant and
distinctive.1343
(b) Causation and the US Aggregated Analysis
5.110 In Canada's view, the US errs by examining only whether a causal link exists between the
aggregated grouping of subsidies and the aggregated grouping of effects set out in Article 6.3(a) to
(c). There are two aspects to this error. First, subsidies were a ggregated without regard for their
nature and effect. Second, the US failed to est ablish a nexus between a lleged subsidies and the
adverse effects claimed.1344
(i) Aggregation of Subsidies
5.111 Canada notes that the US serious prejudice claim remains predicated on the aggregated effects
of all alleged subsidies, regardless of the amount, ag e, nature or type of benefit in respect of all
Boeing LCA. In Canada's view, this approach is not consistent with the approach of prior panels,
particularly the panel in US – Upland Cotton , and it is inconsistent with the rigour required by
Article 6.3 of the SCM Agreement.1345 Canada states that the aggregation of a number of subsidies for
a serious prejudice analysis is appropriate to the extent the subsidies that are aggregated share a
similar nature and effect in relation to the like product. Canada notes that the US – Upland Cotton
panel aggregated certain subsidies and declined to aggregate others because of what it considered to
be their different nature and effect.1346
5.112 Canada considers that the caution exercised by the US – Upland Cotton panel in recognizing
that "due attention must be paid to each subsidy at issue" was appropriate because of the dangers of
any cumulative assessment. An aggregate assessment may result in a finding of serious prejudice
even if not all of the subsidies result in serious pr ejudice. Overly broad aggregation can, therefore,
leave Parties with inadequate gui dance as to what actions are required by a subsidizing Member to
comply with a recommendation from the DSB to wit hdraw the adverse effects caused by subsidies in
the aggregate.
1347
5.113 Canada argues that in this case, it is not appropriate for the US to aggregate: 1. the effect of
four decades of subsidies regardless of when they were granted and expended; and 2. research and

1342 Canada Third Party Submission Executive Summary, para. 20.
1343 Canada Third Party Submission Executive Summary, para. 21.
1344 Canada Third Party Submission Executive Summary, para. 22.
1345 Canada Oral Statement Executive Summary, para. 27.
1346 Canada Third Party Submission Executive Summary, para. 23.
1347 Canada Third Party Submission Executive Summary, para. 24. See, also, Canada Oral Statement
Executive Summary, para. 28.

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development programs with other forms of subsidies without considering how such subsidies relate to
the subsidized products and the adverse effects claimed.1348
(ii) Aggregation of Subsidies Regardless of When Granted and Expended
5.114 It is highly speculative that royalty-based financing granted and expended between 1969 and
2001 could have any continuing effect on Airbus pric ing decisions, and therefore on Boeing LCA.
This is particularly true as repayment obligations are triggered by each sale. Canada questions
whether the receipt of such subsidies, in what is the distant past from a corporate standpoint, could
trigger current price undercutting or establish an ongoing risk of price undercutting.1349
5.115 Canada notes that the EC submission lays out what it refers to as the "US/Boeing
methodology" for allocating subsidies over time. According to Canada, whether or not the Panel
adopts this methodology, the Panel should decline to aggregate subsidies granted prior to the review
period with more recent subsidies absent persuasi ve evidence from the US th at the earlier subsidies
have an ongoing effect.1350
(iii) Aggregation of Research and Development (R&D) Programs
5.116 Similarly, Canada considers that R&D program s should only be aggregated after analyzing
their nature and effects to determine if they are sufficiently similar to other alleged subsidies to
warrant aggregation. Canada notes that there is no such analysis in the US first submission.1351
5.117 Canada points out that R&D frequently results in benefits that go beyond the particular
interests of a producer. R&D programs may therefore not be appropriate to aggregate with financing
for the launch of a new aircraft. The view that R& D is distinctive is supported by Part IV of the
SCM Agreement on non-actionable subsidies. The provisi ons of this Part have lapsed by operation of
Article 31 of the SCM Agreement and Members have taken no action to extend its application.
However, as the US – Upland Cotton panel and the Arbitrator in US – FSC (Article 22.6 – US) found,
these provisions "can nevertheless be instructiv e in understanding the overall architecture of the
Agreement with respect to the different types of subsidies it sought and seeks to address."1352
5.118 Canada notes that Part IV, Article 8.2(a) est ablished that "assistance for research activities
conducted by firms or by higher e ducation or research establishments on a contract basis with firms"
qualified conditionally for non-actionable status. Thus , Article 8(2)(a) indicates that, for the drafters
of the SCM Agreement, these R&D programs were di stinctive. Automatic protection for qualifying
subsidies under this provision has lapsed, but the provision does support giving separate consideration
to R&D programs from other subsidies.
1353
5.119 Canada notes that the R&D programs are also distinctive in this proceeding as they involved a
number of different entities, many with no direct connection to Airbus. In such circumstances, the US
has the burden of demonstrating how the benefits were passed through to Airbus.1354

1348 Canada Third Party Submission Executive Summary, para. 25.
1349 Canada Third Party Submission Executive Summary, para. 26.
1350 Canada Third Party Submission Executive Summary, para. 27.
1351 Canada Third Party Submission Executive Summary, para. 28.
1352 Canada Third Party Submission Executive Summary, para. 29.
1353 Canada Third Party Submission Executive Summary, para. 30.
1354 Canada Third Party Submission Executive Summary, para. 31.

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(iv) The US fails to demonstrate the causal link required under Article 6.3
5.120 Canada maintains that Article 6.3 requires that there must be a link between the subsidy and
its effect. If an allegation of displacing imports under Article 6.3(a) is made, the "causal link",
between the subsidy and the displacing of the impor ts must be demonstrated. If an allegation of
significant price undercutting under Article 6.3(c) is made, the causal link between the subsidies and
the price undercutting must be demonstrated, and so on for each effect alleged.1355
5.121 This was the approach in US – Upland Cotton . That panel conducted one examination to
determine whether all the elements of the allegati on under Article 6.3(c) were fulfilled and a separate
examination to determine whether all the elements of the allegation under Article 6.3(d) were
fulfilled. The panel identified the causal link between the alleged effect and the alleged subsidies as
one of the elements to be demonstrated under Article 6.3(d).1356
5.122 Canada submits that here, the US is required to demonstrate the causal link for each of
Article 6.3(a) to Article 6.3(c) since it alleges each of these effects. Further, for its allegation relating
to Article 6.3(c), the US is required to demonstrat e that the requisite causal link exists between the
subsidies and each of the alleged effects of si gnificant price suppression, significant price depression
and lost sales. Canada argues that by simply ex amining the existence of a causal link between the
aggregated grouping of subsidies and the aggregated grouping of effects, the US has failed to perform
a causal analysis for each alleged effect in Article 6.3(a) to Article 6.3(c). Rather, by adopting a
global causal analysis the US has obscured the elements required to be demonstrated under
Article 6.3.
1357
5.123 According to Canada, the US global causal theory is two-fold: 1. the cumulative effect of the
subsidies allowed the development of Airbus LCA, "tha t would not have been undertaken at all, or at
the same pace, without subsidies"; and 2. the cumu lative effect of the subsidies provides Airbus with
a financial cushion that permits it "to further a po licy of pricing its LCA in order to obtain market
share." In respect of the first aspect, it is specula tive to assert that, absent subsidies, there would be
no competition affecting the US producer. Canada notes that the US has not substantiated such a
claim. Moreover, the focus in Article 6.3 is on de termining the effects of subsidies in the relevant
markets on the complainant's products. The benchmar ks for this exercise ar e not the markets absent
the products of the subsidizing Member, but the market s absent the effects of th e subsidies at issue.
The second aspect of the US causal theory – that su bsidies support an Airbus pricing policy designed
to obtain market share – does, in theory, relate dir ectly to each inquiry in Article 6.3(a) to (c).
However, the US never engages in this analysis with respect to each of the effects it has alleged.1358
5.124 Last, Canada agrees with the views of Japan th at a non-attribution analysis is important in
respect of other known factors that could be causing the alleged serious prejudice. As Japan's written
submission explained, while the SCM Agreement doe s not provide an explicit requirement to conduct
a non-attribution analysis in serious prejudice cases, it is an implicit obligation of any causal test.
Previous WTO reports have recognised the importance of ensuring that the effects of other factors are
not improperly attributed to the challenged subsidies in the context of Article 5.3(c). In this regard,
the requirements identified for a non-attribution analysis in Part V of the SCM Agreement, and related
jurisprudence, establish a reasonable roadmap for this Panel to follow.1359

1355 Canada Third Party Submission Executive Summary, para. 32.
1356 Canada Third Party Submission Executive Summary, para. 33.
1357 Canada Third Party Submission Executive Summary, para. 34.
1358 Canada Third Party Submission Executive Summary, para. 35.
1359 Canada Oral Statement Executive Summary, para. 29.

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5. Conclusion
5.125 Canada takes the view that the application of the SCM Agreement to specific measures
requires rigorous analysis that cannot be abbrevia ted because of the complexity of the dispute.
Canada argues that the US serious prejudice claim is so general that it fails the legal tests provided for
in Part III of the SCM Agreement. In regards to de facto export contingency under Article 3.1(a) and
the test for determining whether infrastructure is subject to the SCM Agreement pursuant to
Article 1.1(a)(1)(iii), the US has not tied its analys is to the text of these provisions, considered in
context and in the light of the Agreement's object and purpose.1360
D. CHINA
1. Introduction
5.126 In its third party submission and at the Panel me eting with the third parties China presents its
views on the following two legal issues: (i) in fact export contingency under Article 3.1(a) of the
Agreement on Subsidies and Countervailing Measures ("SCM Agreement"); and (ii) the non-
attribution analysis under Article 15.5 of the SC M Agreement in the context of joint claims under
Article 5(a) and (c).1361
2. In fact export contingency under Article 3.1(a) of the SCM Agreement
5.127 China notes that in this dispute, the US seems to argue that certain Launch Aids – in the form
of loans – are in fact contingent upon export perfo rmance in that (i) the Airbus governments tied the
repayment of such aids to the sales of LCA, and (ii) given the limited demand in the European market,
the repayment was necessarily tied to substantial exports. 1362 In China's view, the finding of in fact
export subsidies in the form of loans, as a matter of rules under footnote 4 to Article 3.1(a) of the
SCM Agreement, shall be focused on the "granting" – instead of the "repayment" – of the loans.1363
5.128 First, in accordance with Article 3.1(a) and footnote 4 thereto of the SCM Agreement, three
elements must be demonstrated in orde r to find in fact export contingency, i.e., (i) "the granting of a
subsidy"; (ii) "is … tied to …"; and (iii) "actua l or anticipated exportation or export earnings". 1364 In
this regard, China recalls that the Appellate Body in Canada – Aircraft further clarified the above
three elements in finding in fact export contingency. As to "the granting of a subsidy", the Appellate
Body held, inter alia , that the initial inquiry must be on whether the granting authority imposed a
condition based on export performance in providing the subsidy, and that the prohibition under
Article 3.2 and footnote 4 of the SCM Agreement is on the " granting of a subsidy" and not on
receiving it. 1365 Based upon the above quoted and other holdings by the Appellate Body, China
submits that in finding in fact export c ontingency, the focus should be placed on the granting of a

1360 Canada Third Party Submission Executive Summary, para. 36.
1361 Executive Summary of the Third Party Submission of China (hereinafter China Third Party
Submission Executive Summary), para. 2.
1362 China Third Party Submission Executive Summary, para. 3. See, also, Opening Statement of China
at the Meeting with the Third Parties (hereinafter China Opening Statement), para. 2.
1363 China Third Party Submission Executive Summary, para. 4.
1364 China Third Party Submission Executive Summary, para. 5. See, also, China Opening Statement,
para. 3.
1365 China Third Party Submission Executive Summary, para. 6. See, also, China Opening Statement,
para. 4.

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subsidy and it must be demonstrated by the total configuration of the facts that there is a
conditionality between the granting of a subsidy and the actual or anticipated export.1366
5.129 Second, in China's view, the same rule well applies to a subsidy in the form of a loan. In such
a case, in order to determine whether the loan cons titutes a subsidy in fact contingent upon export, it
must be established that the granting authorit y imposes a condition based on export performance
when providing the loan. In reality, the actors of gr anting and repaying the loan are different,
respectively the government and the subsidy recipient. Therefore, in light of the above quoted
holdings of the Appellate Body, China submits that Article 3.1(a) is not intended to prohibit the
repayment of a loan contingent upon export performan ce. In any event, when considering in fact
export contingency, the granting of a loan has nothi ng to do with how the debtor will repay the loan
subsequently, which is more closely related to the fi nding of a benefit. Thus, one should not blur the
distinction between the granting of a loan and the re payment of a loan when discussing the issue of in
fact export contingency.
1367
5.130 Furthermore, after observing two relevant WTO cases, Canada – Aircraft and Australia –
Leather, China submits that the relevant facts of a particular case must sufficiently prove the "tie"
between the "granting of a subsidy" and the "actua l or anticipated exportation" and that the export
orientation of a subsidy recipient alone does not su fficiently demonstrate the existence of in fact
export contingency.1368
3. Non attribution analysis in the context of joint claims under Article 5 (a) and (c)
5.131 China notes that in its first written submission, the US claims the adverse effects under both
paragraphs (a) and (c) of Article 5 of the SCM Agre ement. As to its Article 5(a) claim, the US
submits that the subsidized imports of Airbus LCA into the US market have caused injury to the US
domestic LCA industry.1369
5.132 At the outset, in view of the cross-reference to Part V in footnote 11 to Article 5(a), China
submits that, when a complaining party files an Artic le 5(a) claim and asserts injury, it is obligated to
firstly demonstrate on a prima facie basis that the subsidized imports, through the effects of subsidies,
cause injury to the domestic industry, in accordance with Article 15 of the SCM Agreement.1370
5.133 As to the non-attribution analysis under Article 15.5, China submits that a complaining party
filing an Article 5(a) claim is also required to condu ct such an analysis. Th e US also shares such a
position. In addition, recalling the Appellate Body's interpretation in US – Hot-Rolled Steel of the
parallel provision of Article 3.5 of the AD Agreement, China submits that a complaining party is
obligated under Article 15.5 of the SCM Agreement to separate and distinguish the injurious effects
of the other known factors from those of the subsidized imports. 1371 Furthermore, China submits that

1366 China Third Party Submission Executive Summary, para. 7. See, also, China Opening Statement,
para. 5.
1367 China Third Party Submission Executive Summary, para. 8. See, also, China Opening Statement,
para. 6.
1368 China Third Party Submission Executive Summary, para. 9.
1369 China Third Party Submission Executive Summary, para. 10.
1370 China Third Party Submission Executive Summary, para. 11. See, also, China Opening Statement,
para. 7.
1371 China Third Party Submission Executive Summary, para. 12. See, also, China Opening Statement,
para. 8.

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the non-attribution requirement under Article 15.5 is particularly relevant when a Member files claims
under both paragraphs (a) and (c) of Article 5 of the SCM Agreement for the following reasons.1372
5.134 First, an Article 5(c) claim requires the demonstration of any scenario of serious prejudice as
prescribed under Article 6.3, any of which is a manifest indication of a downturn of the export
performance of the complaining Member's domestic industry. Accordingly, if the complaining
Member allegedly establishes the existence of any serious prejudice scenario, it seems appropriate to
infer that the relevant domestic indus try must have been, more or less, adversely affected or "injured"
by its poor export performance.1373
5.135 Second, Article 15.5 of the SCM Agreement exp licitly requires the investigating authority (in
this case, the complaining Member) not to attribute the injury caused by export performance to that
caused by subsidized imports. Thus, it is obvi ous that when a Member makes joint claims under
Article 5(a) and (c), it is manifestly obligated to conduct a non-attribution analysis on the injury
caused by the downturn of the export performance of its domestic industry.1374
5.136 Third, "injury to the domestic industry" a nd "serious prejudice" are two different legal
concepts. "Injury to the domestic industry" under Article 5(a) is the injury caused by subsidized
imports to the domestic industry in the home market of the complaining Member. While "serious
prejudice" under Article 5(c) as elaborated in Article 6.3 are the adverse situations caused by " the
effect of the subsidy " in the market of the subsidizing Member, in a third country market, or in the
same market, as the case may be.1375
5.137 Fourth, there are separate legal requirements under the SCM Agreement on how to find injury
and how to establish the various cases of serious pr ejudice respectively. Therefore, an Article 5(a)
claim is legally distinct and independent from an Article 5(c) claim.1376
4. Conclusion
5.138 In conclusion, China submits that,
1. in order to determine the existence of in fact export contingency under Article 3.1(a) of the
SCM Agreement, it must be demonstrated based on all relevant facts that the granting –
instead of repayment or anything else – of a subs idy is in fact tied to or contingent upon actual
or anticipated exports. Meanwhile, the export or ientation of a subsidy recipient alone does not
sufficiently demonstrate the existence of in fact export contingency; and

2. a complaining Member filing an Article 5(a) cl aim shall be subject to the obligations under
Part V, which includes, inter alia , the non-attribution requirement under Article 15.5 of the
SCM Agreement. This is particularly important where the complaining Member also files an
Article 5(c) claim, knowing that the export perfo rmance of its domestic industry, besides the
subsidized imports, is also causing injury to the domestic industry.1377

1372 China Third Party Submission Executive Summary, para. 13.
1373 China Third Party Submission Executive Summary, para. 14. See, also, China Opening Statement,
para. 9
1374 China Third Party Submission Executive Summary, para. 15. See, also, China Opening Statement,
para. 10.
1375 China Third Party Submission Executive Summary, para. 16. See, also, China Opening Statement,
para. 11.
1376 China Third Party Submission Executive Summary, para. 17. See, also, China Opening Statement,
para. 12.
1377 China Third Party Submission Executive Summary, para. 18.

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E. JAPAN
1. Subsidy measures that came into existence pr ior to January 1, 1995 are subject to the
SCM Agreement if they provided a benefit on or after that date
5.139 In its Third Party Submission, Japan points out that an important threshold question before the
Panel is whether the SCM Agreement applies to s ubsidy measures that came into existence prior
to January 1, 1995, the date on which the SCM Agreem ent entered into force. Japan explains below
that Article 28 of the Vienna Convention supports the conclusion that subsidies granted prior to 1995
are not automatically beyond the reach of the SCM Agreement.1378
5.140 Japan notes that Article 28 of the Vienna Convention provides that, "{u}nless a different
intention appears from the treaty or is otherwise established, its provisions do not bind a party in
relation to any act or fact which took place or any situation which ceased to exist before the date of
the entry into force of the treaty w ith respect to that treaty" (emphasis supplied). As applied to the
alleged subsidies conferred on Ai rbus before 1995, the Panel shoul d consider two key questions:
(1) whether the SCM Agreement contains any provision indicating the intention of the WTO
Members with respect to the temporal limitations of the Agreement, and, (2) whether the alleged EC
and member state subsidy measures under challenge were "situations" that continued "to exist"
on January 1, 1995 or thereafter.
1379
5.141 Japan notes that the text of the SCM Agreement demonstrates that its drafters did not intend
its disciplines to be limited only to subsidies that we re granted on or after January 1, 1995. Japan's
position accords with the Panel's preliminary analysis of this issue. 1380 For example, the language of
Article 28.1 of the SCM Agreement implies that Members could challenge pre-WTO programs after
the grace period had expired. It also appears that individual subsidies granted before January 1, 1995
could be challenged under Part II of the SCM Ag reement even during the grace period, because
Article 28.1 refers only to "subsidy programmes" and not to individual subsidies. Similarly, Annex
IV, paragraph 7, recognizes that Members may allo cate benefits to future production arising from
"{s}ubsidies granted prior to the date of entry into force of the WTO Agreement " (emphasis supplied)
and that are being challenged under Part III of th e SCM Agreement. Further, the provisions most
directly at issue here – Articles 1, 5, 6, and 7 1381 – contain no temporal limitations whatsoever. The
absence of any such limitation for pre-1995 subsidies is significant.1382
5.142 Japan notes that the Appellate Body has app lied Article 28 on a number of occasions in
finding that pre-1995 measures were covered by other WTO Agreements, and these findings are
directly relevant to the present dispute. For example, in Canada – Patent Term , the Appellate Body
concluded that "treaty obligations do apply to 'any situation' which has not ceased to exist – that is, to

1378 Executive Summary of the Third Party Statement of Japan (hereinafter Japan Third Party
Submission Executive Summary), para. 1.
1379 Japan Third Party Submission Executive Summary, para. 2.
1380 Japan Third Party Submission Executive Summary, para. 3. See, Panel Letter to Parties to Third
Participants (11 January 2007).
1381 Japan Third Party Submission Executive Summary, para. 3. Japan considers that these provisions
are most directly at issue here because, in this dispute, the US advances its claim on prohibited subsidies only in
relation to certain Launch Aids (US First Written Submissi on, para. 321), all of which the US argues came into
existence on or after January 1, 1995.
1382 Japan Third Party Submission Executive Summary, para. 3. Japan notes that Article 27 of the
SCM Agreement, concerning the special and differential treatment of developing countries, contains several
such temporal limitations.

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any situation that arose in the past, but continues to exist under the new treaty." 1383 The facts of
Canada – Patent Term are directly analogous to the present dispute because the patent protection at
issue, which came into effect before the TRIPS Ag reement entered into force for Canada, remained in
place and thus had continui ng "effects" after entry into force of the TRIPS Agreement – just as
alleged subsidies that came into effect remained in place and thus had continuing effect on or
after January 1, 1995.1384
5.143 Japan submits that the Panel should determin e whether each alleged pre-1995 EC or EC
member state subsidy is covered by the SCM Agreement by evaluating whether the subsidy
"situation," to use the terms of Article 28 of the Vienna Convention, "ceased to exist" prior to 1995, or
if it continued into 1995 or beyond. In this rega rd, Japan would like to express to the Panel its views
as to the appropriate test for the Panel to apply in conducting this analysis.1385
5.144 Japan explains that under the logic of the SC M Agreement's provisions, a subsidy "situation"
is ongoing so long as the benefit of that subsidy con tinues to exist. For example, the benefits of a
subsidy bestowed prior to 1995 might be properly allocated over future production extending into or
beyond 1995. 1386 In this case the subsidy would be s ubject to the SCM Agreement, because the
subsidy "situation" had continued to exist.1387
5.145 In Japan's view, the analysis should begin by reviewing the SCM Agreement's definition of a
subsidy, set forth in Article 1.1. As the Appella te Body has observed, "Ar ticle 1.1 does not address
the time at which the 'financial contribution' and/ or the 'benefit' must be shown to exist." 1388 Indeed,
the Appellate Body goes on to state that normally it "may {be} presume{d} … that a 'benefit'
continues to flow from an untied, non-recurring 'financial contribution'." 1389 This supports the
provisions of Part III, mentioned above, which indi cate that, in certain circumstances, "benefits" may
extend over a period of time subsequent to the confer ral of the underlying financial contribution. For
example, Annex IV, which provides guidelines for the calculation of subsidy rates for purposes of
Article 6.1(a), at paragraph 7 requires the inclus ion of subsidy benefits "allocated to future
production."1390
5.146 Interpreting the SCM Agreement definition of s ubsidy in light of Article 28 of the Vienna
Convention, Japan notes that the concept of "situ ation" in Article 28 corresponds closely to the
concept of "benefit" in the sense that a subsidy "situation" would continue should the benefits

1383 Japan Third Party Submission Executive Summary, para. 4, citing, Canada – Patent Term,
Appellate Body Report, at para. 72 (emphasis in original).
1384 Japan Third Party Submission Executive Summary, para. 4.
1385 Japan Third Party Submission Executive Summary, para. 5.
1386 Japan Third Party Submission Executive Summary, para. 6. Japan notes that Annex IV to the
SCM Agreement, at para. 7, anticipates that some benefits may properly be allocated to future production. As
explained by the panel in US – Upland Cotton, Panel Report, at para. 7.1179, that the benefit methodologies set
forth in Part V of the SCM Agreement are not binding in an analysis conducted under Part III. Nevertheless,
benefit calculation methodologies set forth in Part V suggest methodologies that may serve as a reference for
Part III analyses as well.
1387 Japan Third Party Submission Executive Summary, para. 6.
1388 Japan Third Party Submission Executive Summary, para. 7, citing, US – Lead Bar, Appellate Body
Report, at para. 60 (emphasis in original).
1389 Japan Third Party Submission Executive Summary, para. 7, citing, US – Lead Bar, Appellate Body
Report, at para. 62.
1390 Japan Third Party Submission Executive Summary, para. 7. Japan recognizes that Article 6.1 of
the SCM Agreement and Annex IV are no longer in force. However, as noted by the panel in the US– Upland
Cotton, provisions of the SCM Agreement that have lapsed can be useful in understanding the "overall
architecture" of the SCM Agr eement with respect to the different type s of subsidies it sought and seeks to
address. US– Upland Cotton, Panel Report, at para. 7.907, n.1086.

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accruing from that subsidy continue as well. Accordingl y, the task of the Panel is to determine, for
each alleged subsidy that was confer red prior to January 1, 1995, whet her the benefits of that subsidy
continued in effect on or after that date.1391
2. The Panel is authorized to take into acco unt evidence of any continuing adverse effects
after the date of establishment of the Panel
5.147 Concerning the adverse effects which the Panel sh ould examine, Japan is of the view that
nothing in the SCM Agreement or the DSU pr ecludes the Panel from considering evidence of
continuing adverse effects (or absence thereof) s ubsequent to the date of panel establishment,
provided that the evidence related to measures that were within the Panel's terms of reference. Japan
notes that the US acknowledges that a panel may ex amine evidence that pre-dates or post-dates the
establishment of a panel,1392 in line with the position it has taken in prior cases.1393
5.148 Japan's position is that the Panel is authorized to consider evidence concerning continuing
adverse effects, beyond the date of panel establishmen t, of a subsidy measure within the Panel's terms
of reference. The Appellate Body has indicated that evidence that post-dates the panel establishment
is not precluded from the panel's assessment. 1394 The same logic can be applied by the Panel in this
dispute to evaluate evidence generated after the date of panel establishment concerning any
continuing adverse effects of the challenged subsidy measures.1395
5.149 Japan respectfully requests the Panel to caref ully examine post-panel establishment evidence
that it considers relevant to the evaluation of clai med adverse effects and, where the Panel considers
such evidence probative, to provide a detailed e xplanation of its reasoning. Given the rapidly
evolving conditions of competition for the US and EC LCA industries, it is possible that highly
probative evidence concerning continuing adverse eff ects (or the lack thereof) will come to light for
the period following the date of panel establishmen t. In analogous scenarios, the Appellate Body has
stressed the importance of consideration of the most recent available evidence.1396 As explained in the
next section, such post-panel establishment evid ence may assist the Panel in determining, among
other things, possible causes of the adverse effects other than the alleged subsidies.1397
5.150 At the Panel meeting with the third parties Japan reiterated that it has observed that neither
the SCM Agreement nor the Understanding on Rules and Procedures Governing the Settlement of
Disputes ("DSU") precludes a panel from considering ev idence of continuing adverse effects (or the
absence thereof) subsequent to the date of panel est ablishment, provided that the evidence relates to
measures that were within the panel's terms of reference. 1398 Japan clarified its position by noting

1391 Japan Third Party Submission Executive Summary, para. 8.
1392 Japan Third Party Submission Executive Summary, para. 9, citing, Opening Statement of the US,
First Meeting of the Panel (March 20, 2007), at para. 182.
1393 Japan Third Party Submission Executive Summary, para. 9, citing, EC – Customs Matters , at
para. 183.
1394 Japan Third Party Submission Executive Summary, para. 10, citing, EC – Customs Matters , at
1395 Japan Third Party Submission Executive Summary, para. 10.
1396 Japan Third Party Submission Executive Summary, para. 11, citing, as an example Mexico –Rice,
1397 Japan Third Party Submission Executive Summary, para. 11.
1398 Executive Summary of the Oral Statement of Japan at the M eeting with the Third Parties
(hereinafter Japan Oral Statement Executive Summary), para. 7, citing, Third-Party Submission of Japan,
paras. 12-14.

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that, consistent with the Appellate Body's finding in EC – Customs Matters ,1399 this Panel is
authorized to examine evidence both that pre-dat es – as well as post-dates – the establishment of the
Panel. In this regard, with reference to pa ragraph 694 of the EC second written submission, Japan
also makes clear that while it believes that the Pa nel may consider post-panel establishment evidence
of claimed adverse effects, it is not required to do so.1400
3. Demonstrating causation requires detailed analysis of relevant facts and economic data
5.151 Japan expresses its views on the analysis require d to determine whether the claimed adverse
effects were caused by the subsidies the US has allege d, or by other factors. Such a determination is
required under Article 5 of the SCM Agreement. In the case of adverse effects through injury to the
US domestic industry, pursuant to Article 5(a) , the SCM Agreement requires application of the
causation test set forth in Article 15.5, which re quires a demonstration of a causal relationship
between the subsidized imports based on an examin ation of all relevant evidence and of any known
factors other than the subsidized imports that are injuring the domestic industry.1401
5.152 Japan notes that in the case of adverse e ffects resulting from serious prejudice, under
Articles 5(c) and 6 of the Agreement, the SCM Agreement does not provide an express test for
evaluating the causes of the serious prejudice. However, the Appellate Body in US – Upland Cotton
explained that in evaluating claims of serious pr ejudice under Article 6.3 of the SCM Agreement, it is
"necessary to ensure that the effects of other fact ors on prices are not improperly attributed to the
challenged subsidies."1402 Japan respectfully submits that the Panel should refer to the causation tests
set forth in Article 15.5 of the SCM Agreement and in the other WTO Agreements as relevant context
for its examination of the US claims in this case, as the Appellate has found previously.1403
5.153 Finally, Japan also submits that the analysis required to evaluate the causes of the claimed
adverse effects for purposes of Article 5 is closely related to the selection of the appropriate reference
period, as addressed above. In Japan's view, the Panel should, in its causation analysis, take into
account the features of the market for the goods at issue during the entire reference period . As
explained in Section II, there is no doctrine requiring panels to reject evidence of adverse effects
subsequent to the date of panel establishment, and there may be compelling reasons why it may be
appropriate for panels to consider such evidence.
1404

1399 Japan Oral Statement Executive Summary, para. 7, citing, EC – Selected Customs Matters ,
WT/DS315/AB/R, adopted 11 December 2006, para. 188.
1400 Japan Oral Statement Executive Summary, para. 7, citing, Third Party Submission of Japan,
paras. 12-14.
1401 Japan Third Party Submission Executive Summary, para. 12.
1402 Japan Third Party Submission Executive Summary, para. 13, citing, US – Upland Cotton ,
Appellate Body Report, para. 437.
1403 Japan Third Party Submission Executive Summary, para. 14, citing, US – Hot-Rolled Steel ,
Appellate Body Report, at para. 228; US – Lumber ITC Investigation , Appellate Body Report (21.5), at
1404 Japan Third Party Submission Executive Summary, para. 15.

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4. The Panel is authorized to examine alleged subsidies whose adverse effects have ceased
to exist
5.154 Japan agrees with the US that the Panel has th e authority to examine and to issue findings
concerning an alleged subsidy even where the adver se effects of that subsidy have ceased to exist,
provided that they existed at the time the Panel was established.1405
5.155 Japan considers that the first st ep in interpreting a WTO Agreement is, of course, to examine
the text of the Agreement itself. 1406 Articles 7.1, 7.4 and 7.5 of the SCM Agreement, which provide
for the rules on consultations and a panel establis hment as remedies for actionable subsidies, do not
indicate that a panel may not examine and rule upo n an alleged subsidy where the adverse effects
have ceased to exist between the time of the panel request and the issuance of the report.1407
5.156 This conclusion is supported by the jurisprudence. The Appellate Body in US – Upland
Cotton ruled that measures that had expired prior to the date of panel establishment could be
challenged, provided that benefits accruing to the complaining Member under the covered agreements
were still being impaired by the measures at the time of the panel request .1408 Thus, it is the time of
the panel request that governs, and the possibility that adverse effects may have ceased after the
establishment of the panel does not impair the ability of the panel to rule on the consistency of the
alleged subsidy with the SCM Agreement.1409
5.157 Japan further notes that there are also numer ous GATT and WTO decisions in which panels
have made findings with respect to measures that had been withdrawn after the establishment of the
panel.1410 These analogous cases further show that the cessation of adverse effects after the
establishment of a panel does not affect the panel's authority to issue findings concerning the alleged
subsidies.1411
5.158 Japan notes that an important reason for this do ctrine is that it may help to secure a positive
solution to the dispute, which is the aim of the WTO dispute settlement system as expressed in
Article 3.7 of the DSU. In EC – Biotech, the panel, in line with the decisions referred to above, held
that it had authority to make findings on a measure w ithin its terms of reference even if that measure
had subsequently ceased to exist. 1412 It observed that the challenged measure, even if it had ceased to
exist, might subsequently be re-introduced, and that a finding that it was inconsistent with WTO
obligations might help to prevent this from occurri ng. In the present case, if any cessation of adverse
effects of the subsidies at issue is due to temporar y phenomena, the adverse effects could reappear if
conditions change. A remedy based on a ruling th at the subsidies were inconsistent with the

1405 Japan Oral Statement Executive Summary, para. 8, citing, US Second Submission, para. 670.
Japan does not express a view as to whether, as a factua l matter in this dispute, alleged adverse effects are still
occurring.
1406 Japan Oral Statement Executive Summary, para. 9, quoting the Appellate Body statement, "{a}
treaty interpreter must begin with, and focus upon, the te xt of the particular provision to be interpreted." US –
Import Prohibition of Certain Shrimp and Shrimp Products , WT/DS58/AB/R, adopted November 6, 1998,
para. 114.
1407 Japan Oral Statement Executive Summary, para. 9.
1408 Japan Oral Statement Executiv e Summary, para. 10, citing, US – Subsidies on Upland Cotton,
WT/DS267/AB/R (2005), adopted March 21, 2005, para. 270.
1409 Japan Oral Statement Executive Summary, para. 10.
1410 Japan Oral Statement Executive Summa ry, para. 11, citing, cases cited in Upland Cotton, at n.214;
Indonesia – Certain Measures Affecting the Automobile Industry, WT/DS64/R, adopted July 23, 1998, at n.642.
1411 Japan Oral Statement Executive Summary, para. 11.
1412 Japan Oral Statement Executive Summary, para. 12, citing, EC – Measures Affecting the Approval
and Marketing of Biotech Products, WT/DS291/R, adopted November 21, 2006, para. 7.1308.

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SCM Agreement might therefore help to secure a positive outcome by preventing the recurrence of
adverse effects.1413
5.159 It is of course true that the withdrawal of a s ubsidy or the ending of adverse effects after the
establishment of the panel could affect the nature of the recommendation made by the panel, as noted
by the Appellate Body in US – Upland Cotton.1414 However, as also observed by the Appellate Body
in that case, this is not dispositive of the question whether the panel has authority to address claims
with respect to the measure before it.1415
5. Arm's-length, fair market value transactions extinguish alleged subsidies
5.160 Japan notes that many of the subsidies alleged by the US in this dispute were bestowed upon
corporate entities that were predecessors to Airbus SAS.1416 Japan respectfully submits that the Panel
should closely examine whether the EC has demons trated that the privatizations have been
accomplished at arm's length and for fair market va lue and any alleged benefits have in fact been
extinguished, based on the specific fact s pertinent to the current case. Japan sets out below relevant
precedents in this regard.1417
5.161 Japan points out that the Appellate Body h as indicated in its analysis of possible
extinguishment of subsidies – that a benef it flowing from a financial contribution is presumptively
extinguished when the firm that received the subsidy is sold at "arm's length" and for "fair market
value."1418 The Appellate Body, in this respect, has indi cated an important limitation in the context of
the privatization of government-owned assets. As the Appellate Body held in that case,
"{p}rivatization at arm's length for fair market value may result in extinguishing the benefit," but does
not necessarily do so. 1419 The outcome of the analysis will depend on the unique factual
circumstances of each case.1420
5.162 According to Japan, there is no basis in the SCM Agreement, in the applicable jurisprudence,
or in logic, for the proposition that a partial tran sfer should not be subject to the same rebuttable
presumption of extinguishment as set forth by the Appellate Body in US – CVDs on EC Products .
Thus, in the Article 21.5 phase of that case, the pane l reviewed a revised determination in which the
US Department of Commerce found that a subsidy w as partially extinguished where the majority, but
not all, of the company's shares were sold at arm's length and for fair market value.1421

1413 Japan Oral Statement Executive Summary, para. 12.
1414 Japan Oral Statement Executive Summary, para. 13, citing, US – Upland Cotton, para. 272.
1415 Japan Oral Statement Executive Summary, para. 13, citing, US – Upland Cotton, para. 272.
1416 Japan Third Party Submission Executive Summary, para. 16, citing, EC, FWS, (5 April 2007), at
paras. 192-97.
1417 Japan Third Party Submission Executive Summary, para. 16.
1418 Japan Third Party Submission Executive Summary, para. 17, citing, US – CVDs on EC products ,
1419 Japan Third Party Submission Executive Summary, para. 17, citing, US – CVDs on EC products ,
Appellate Body Report, at para. 127 and US – Lead Bar , Appellate Body Report, at para. 62. Japan notes that
the applicable jurisprudence examined the issue of extinguishment in the context of countervailing measures.
However, because the definition of subsidy set forth in Article 1 of the SCM Agreement (including the concept
of "benefit") applies equally to the provisions governing prohibited and actionable subsidies, Japan considers
that the principles enunciated in those cases apply equally in the present dispute.
1420 Japan Third Party Submission Executive Summary, para. 17, citing, US – CVDs on EC products ,
1421 Japan Third Party Submission Executive Summary, para. 18, citing, US – CVDs on EC Products ,
Panel Report, at paras. 7.130-7.158.

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6. Mere anticipation of exports is not proof of de facto export contingency
5.163 Japan expresses its views on the applicable sta ndard for determining whether an alleged
export subsidy is "contingent … in fact … upon export performance" for purposes of
SCM Agreement Article 3.1(a). Japan is of the view that mere anticipation of future exports at the
time of subsidy bestowal does not, by itself, pr ove that the subsidy is contingent upon export
performance. Japan also notes that while the term "contingent" in Article 3.1(a) has the same
meaning as applied to both de jure and de facto export contingency, dem onstrating the latter is
inherently more difficult.1422
5.164 Japan considers that Footnote 4 to SCM Agreemen t Article 3.1(a) is central to the Panel's
analysis in determining whether the alleged expor t subsidies are contingent in fact upon export
performance. In Japan's view, the Panel's task in applying footnote 4 is to determine whether the
granting of the alleged export subsidies at issue was tied to actual or anticipated export activity. As
described by the Appellate Body in Canada – Aircraft , the footnote 4 test for de facto export
contingency "requires proof of thr ee different substantive elements". 1423 Each test must be
independently applied to the relevant facts. The mere fact of anticipated export activity, standing
alone, cannot suffice to establish de facto export contingency for a given subsidy. 1424 Similarly, like
mere anticipation of export performance, an e xporter's export orientati on, standing alone, is
insufficient.1425
5.165 Japan further observes that the de facto export contingency analysis is necessarily fact-
intensive, and will differ based on the unique facts of each case. The Appellate Body in Canada –
Aircraft, for example, cautioned that, in performing the analysis required by footnote 4, "there can be
no general rule as to what facts or what kinds of facts must be taken into account," 1426 none of which
facts had been given undue emphasis. 1427 Japan submits that a similarly broad approach is warranted
in this dispute and that the Panel should examin e the specific factual elements pertinent to this
case.1428
5.166 At the Panel meeting with the third parties, Japan pointed out that Article 1.1 of the
Agreement on Subsidies and Countervailing Measures ("SCM Agreement") provides that a subsidy
shall be deemed to exist if:
(a) (1) there is a financial contribution…where: …
(i) a government provides goods or service s other than general infrastructure …;
and…
(b) a benefit is thereby conferred. (Emphasis added.)

1422 Japan Third Party Submission Executive Summary, para. 19, citing, as an example Canada –
Aircraft, Appellate Body Report, at para. 167.
1423 Japan Third Party Submission Executive Summary, para. 20, citing, Canada – Aircraft, Appellate
Body Report, at para. 169 (emphasis in original).
1424 Japan Third Party Submission Executive Summary, para. 20, citing, Canada – Aircraft, Appellate
Body Report, at para. 171.
1425 Japan Third Party Submission Executive Summary, para. 20, citing, Canada – Aircraft, Appellate
Body Report, at para. 173.
1426 Japan Third Party Submission Executive Summary, para. 21, citing, Canada – Aircraft, Appellate
Body Report, at para. 169.
1427 Japan Third Party Submission Executive Summary, para. 21, citing, Canada – Aircraft, Appellate
Body Report, at paras. 169-70.
1428 Japan Third Party Submission Executive Summary, para. 21.

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The SCM Agreement does not define the term "gener al" in this regard, but the plain language of
Article 1 makes clear that the exception applies only to "general infrastructure" and does not apply to
infrastructure of any kind.1429

5.167 Japan notes that Canada in its third-party submission presents its views on how the Panel
should determine whether alleged subsidies constitut e "general infrastructure." Japan agrees with
Canada that analysis of whether a "subsidy" ex ists under Article 1 and whether that subsidy is
"specific" under Article 2 are distinct issues and re quire separate analyses under the SCM Agreement.
Japan is not, however, sure if Canada's argument is correct when it asserts that the tests for de facto
specificity under Article 2.1(c), such as predominant use or disproportionate benefit, are not relevant
at all to the analysis of whether an alleged subsidy constitutes "general infrastructure" under
Article 1.1(a)(1)(iii), and that the fundamental test is whether the government has limited use of the
infrastructure "exclusively to certain users."1430 Japan believes that, under some circumstances, the de
facto specificity analysis under Article 2 could help inform the Panel's determination of whether
infrastructure is "general" under Article 1. The Panel should analyze all relevant information –
including the de facto specificity criteria under Article 2, where warranted – when determining
whether the infrastructure at issue is "general."1431
5.168 Moreover, Canada's proposed test of whet her the government has limited use of the
infrastructure "exclusively to certain users" essentially seems to be equal to the de jure specificity test
set out in Article 2.1(a). 1432 In effect, therefore, Canada seems to be arguing that the de jure
specificity criteria set out in Article 2.1(a) – whet her the granting authority "explicitly limits access to
a subsidy to certain enterprises" – are relevant to the identification of "general" infrastructure under
Article 1, but that the de facto specificity criteria set out in Article 2.1(c) are not relevant to that same
determination. Japan believes that there is no textual support for differentiating application of the de
jure and de facto specificity criteria in this regard.1433
5.169 Japan points out that pursuant to the Vienna Convention on the Law of Treaties, the Panel
should interpret the phrase "general infrastructure" in accordance with the ordinary meaning of the
term. The ordinary meaning of the term "gener al" could support the Panel's examination of the de
facto specificity criteria for the purposes of determining whether infrastructure is "general" or not.
The word "general" is defined as " (1) involving or belonging to the whole of a body, group, class, or
type: applicable or relevant to the whole rather t han to a limited part…(2) involving or belonging to
every member of a class, kind or group: applicable to everyone in the unit referred to, applicable or
pertinent to the majority of individuals involved …" 1434 T h e de facto specificity criteria, including
predominate use or disproportionate use, thus coul d be relevant to a determination of whether the
infrastructure at issue is "applicable or pertinent to the majority of individuals involved," or is
"applicable to everyone in the unit referred to."1435
5.170 Japan addresses another aspect of the test for de termining whether infrastructure is "general."
Japan notes that the EC would include within the meaning of "general" infrastructure those projects
that fulfill a "public policy objective (e.g., unemp loyed workers may participate in a government

1429 Japan Oral Statement Executive Summary, para. 1.
1430 Japan Oral Statement Executive Summary, para. 2, citing, Third-Party Submission of Canada,
paras. 33 and 39.
1431 Japan Oral Statement Executive Summary, para. 3.
1432 Japan Oral Statement Executive Summary, para. 4, citing, Third-Party Submission of Canada,
paras. 27 and 39.
1433 Japan Oral Statement Executive Summary, para. 4.
1434 Japan Oral Statement Executive Summary, para. 5, citing, the Webster's Third New International
Dictionary (Merriam-Webster, 1971), p. 944.
1435 Japan Oral Statement Executive Summary, para. 5.

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training scheme…)," and states that WTO members left "a large margin of appreciation to decide for
themselves what they consider to constitute 'general infrastructure'." 1436 Japan notes that there is no
textual support in the SCM Agreement for this pos ition. Nor is it consistent with the ordinary
meaning of the term "general." Japan considers that such a broad test would make it effectively
impossible to distinguish between "general infrastructure" and "infrastructure.1437
F. KOREA
1. Introduction
5.171 In its Third Party Submission, the Republic of Korea ("Korea") focuses on:
• the standard of proof required to establish a prima facie case in a subsidy dispute;

• the meaning of general infrastructure under Article 1.1(a)(1)(iii) of the SCM Agreement;

• the interpretation of "benefit" within the mean ing of Article 1.1(b) of the SCM Agreement;
and

• de facto contingency of export subsidies under Article 3.1(a) of the SCM Agreement.1438

2. The standard of proof required to establish a prima facie case in a subsidy dispute
5.172 Korea observes that while it does not wish to take a particular side in this proceeding, it
would like to set out the standard of proof, in its view, required to establish a prima facie case in a
subsidy dispute.1439
(a) The legal standard to establish a prima facie case
(i) "Evidence sufficient to demonstrate"
5.173 Korea submits that as a basic rule, a Member claiming a violation of a provision of WTO
Agreements by another Member must "assert and pr ove its claim" by putting forward "evidence and
legal argument sufficient to demonstrate" the inconsistency of the challenged action with the
defending Member's obligations under the WTO Agre ements. Korea asserts that a submission is
insufficient where only facts or only legal arguments are provided. 1440 Korea further notes that the
legal standard the Appellate Body sets for prima facie evidence is relatively high and clearly excludes
mere allegations and conjectures of the facts. Li kewise, mere claims that certain measures violate
relevant WTO Agreements without further substantiations are also insufficient.1441

1436 Japan Oral Statement Executive Summary, para. 6, citing, EC First Written Submission, paras. 712,
716.
1437 Japan Oral Statement Executive Summary, para. 6.
1438 Executive Summary of the Third Party Submissi on of Korea (hereinafter Korea Third Party
Submission Executive Summary), para. 2.
1439 Korea Third Party Submission Executive Summary, para. 3.
1440 Korea Third Party Submission Executive Summary, para. 4. See, also, Korea Opening Statement,
para. 2.
1441 Korea Third Party Submission Executive Summary, para. 5.

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(ii) Prima facie evidence sets a higher standard than Article 6.2 of the DSU
5.174 Korea points out that established case law shows that prima facie evidence is a higher
standard than that required under Article 6.2 of the DSU for the establishment of a Panel. 1442 In
Thailand – H Beams the Panel elaborated that Article 6.2 of the DSU does not relate directly to the
sufficiency of the subsequent written and oral s ubmissions of the parties in the course of the
proceedings, which may develop the arguments in suppor t of or against the claims set out in the panel
request. Nor does the Article determine whether or not the complaining party will manage to
establish a prima facie case of violation of an obligation under a covered agreement in the actual
course of the panel proceedings.1443
(b) Other factors relevant to prima facie evidence
5.175 Having established the basic standard for prima facie evidence, there are several other
relevant issues to consider.1444
(i) Difficulty of collecting information to prove a case
5.176 According to established case law, the burden of proof and consequently the standard for
establishing prima facie evidence are not lowered where the co mplaining Member has difficulties in
obtaining relevant information. The complain ing Member must nevertheless prove its claim. 1445
Therefore, if a Member cannot obtain sufficient information to establish a prima facie case, its claim
should fail. In Korea's view, this rule is of particular importance to this proceeding.1446
(ii) The Panel's obligation to investigate under Ar ticle 13 of the DSU does not override the
party's obligation to establish prima facie evidence
5.177 The Appellate Body held in Japan – Agricultural Products II that the Panel's authority under
Article 13 of the DSU to engage in fact-finding does not relieve the complaining party of the
requirement to present a prima facie case on its own.1447 A Member cannot rely on the Panel to find a
violation of WTO Agreements and the Panel should refrain from deciding the issue if the party fails to
establish prima facie evidence. Korea submits that this ru ling is of significant importance in this
proceeding as well.1448
(iii) Summary
5.178 The DSU does not allow derogation from the above described standard of proof simply
because relevant evidence is difficult to obtain. Ko rea argues that while the Panel is free to make a
decision based on the facts before it, this does not relieve the complaining Member of the requirement
to first establish a prima facie case.1449

1442 Korea Third Party Submission Executive Summary, para. 6.
1443 Korea Third Party Submission Executive Summary, para. 7.
1444 Korea Third Party Submission Executive Summary, para. 8.
1445 Korea Third Party Submission Executive Summary, para. 9. See, also, Korea Opening Statement,
para. 3.
1446 Korea Third Party Submission Executive Summary, para. 10.
1447 Korea Third Party Submission Executive Summary, para. 11.
1448 Korea Third Party Submission Executive Summary, para. 12.
1449 Korea Third Party Submission Executive Summary, para. 13.

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(c) Standard of Review by the Panel under Article 11 of the DSU
5.179 Further to the arguments concerning prima facie evidence, Korea believes that established
case law ( EC – Hormones ) requires the Panel to review and evaluate each and all evidence on the
record carefully to determine whether the measu res challenged by the US do constitute financial
contributions by the EC and the Airbus Governments that confer benefits specifically on Airbus.1450
3. The meaning of general infrastructure under Article 1.1(a)(1)(iii) of the
SCM Agreement
5.180 Korea notes that the US alleges that the Airbus Governments have provided subsidies to
Airbus in the form of expanding and upgrading infr astructure, as well as other facilities, within the
meaning of Article 1.1(a)(1)(iii) of the SCM Agreem ent. Korea notes that the US thereby fails to
analyse whether the infrastructures at issue ar e "general" in accordance with the meaning of
Article 1.1(a)(1)(iii) of the SCM Agreement.1451
5.181 Korea requests the Panel to interpret th e term "general infrastructure" under
Article 1.1(a)(1)(iii) of the SCM Agreement carefu lly, based on general rules of treaty interpretation
as stipulated in the 1969 Vienna Convention. Such interpretation, Korea believes, dictates 1452 that
goods and services, to the extent they constitute infrast ructure and either affect all or most people or
things or are not specialised or limited, must be considered to be "general infrastructure" in the
meaning of Article 1.1(a)(1)(iii) of the SCM Agreem ent and not to constitute a subsidy. Once these
conditions have been satisfied, whether such "general infrastructure" is, in th e specific circumstances,
used by a limited number of people or enterprises is irrelevant. As long as the infrastructure is
potentially accessible by the public or providing common goods to the public, it should be treated as
"general infrastructure", hence no financial contribution by the government.1453
4. The interpretation of "Benefit" within the meaning of Article 1.1(b) of the
SCM Agreement
5.182 Korea notes that the US claims that the EC and the Airbus Governments provide subsidies
within the meaning of Article 1 of the SCM Agre ement to Airbus, through measures such as Launch
Aid, corporate restructurings, share transfer, debt forgiveness and equity infusions. The EC argues
that these measures did not confer benefits in the meaning of Article 1.1(b) of the SCM Agreement on
Airbus.1454 It is Korea's view that measures as those at issue only constitute a subsidy if they clearly
confer a benefit on the recipient. This requir es a thorough analysis of the relevant factual
circumstances.1455
5.183 In Canada – Aircraft, the Appellate Body confirmed that a financial contribution only confers
a "benefit", if it is provided on more advantageous terms than those available to the recipient on the
market. The Panel in Brazil – Aircraft further elaborated that the beneficiary must be the producer not
a third party and that "market" to which reference must be made is the commercial market.1456

1450 Korea Third Party Submission Executive Summary, para. 14.
1451 Korea Third Party Submission Executive Summary, para. 15.
1452 Opening Statement of Korea at the Meeting with the Third Parties (her einafter Korea Opening
Statement), para. 5.
1453 Korea Third Party Submission Executive Summary, para. 16.
1454 Korea Third Party Submission Executive Summary, para. 17.
1455 Korea Third Party Submission Executive Summary, para. 18.
1456 Korea Third Party Submission Executive Summary, para. 19. See, also, Korea Opening Statement,
para. 6.

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5.184 It is Korea's view that, in order to demonstr ate that a contribution confers a benefit, the
contribution must be (1) provided to the recipien t (2) on terms more advantageous than (3) those
available on the market. All three criteria must be fulfilled separately and individually.1457
5.185 Regarding the first element, Korea agrees that a benefit within the meaning of Article 1.2 of
the SCM Agreement only exists where an enterpri se targeted by an investigation is the actual
beneficiary. The second element, "on terms more advantageous", requires a detailed inquiry including
the circumstances under which a financial contribution is provided. A benefit is not conferred where
the recipient provides adequate commercial considera tion. With regard to the third element, Korea
generally agrees that the commercial market will provide an appropriate benchmark for the
comparison of terms available for a certain investment or transaction. Nevertheless, it is necessary to
acknowledge that under particular circumstances, the general market may encounter a systematic
failure or that an undistorted commercial market does not exist in a particular sector, as acknowledged
by the Appellate Body in US – Certain Products from the EC.1458
5.186 Korea is of the view that a finding of bene fit should include a detailed analysis of the
conditions established in Canada – Aircraft. The US must establish a prima facie case as to all three
criteria and cannot plainly state that a benefit is conferred.1459
5. De facto contingency of export subsidies under Article 3.1(a) of the SCM Agreement
5.187 Korea notes that the US argues that the Launch Ai ds that Airbus has received for the aircrafts
A380, A340-500/600 and A330-200 are prohibited e xport subsidies under Article 3.1(a) of the
SCM Agreement. The EC contests that claim.1460
5.188 Korea notes that the Panel and the Appellate Body have previously addressed the issue of a de
facto export subsidy on various occasions. In particular, the Appellate Body in Canada – Aircraft set
out a three elements test for demonstrating de facto export contingency. Accordingly, (1) the
"granting of a subsidy" must be (2) "tied to" (3) "actual or anticipated exportation or export
earnings".1461
5.189 Korea is of the view that, in order to est ablish that the Launch Aid is "tied to" export
performance, the US has to prove that the Launch Ai d would not have been granted to Airbus if the
Airbus Governments had known that no export sales may ensue from the Launch Aid. In other words,
the US has to prove that the grant of a subsidy is contingent upon export sales, and not mere sales.1462
5.190 Korea respectfully submits that the Panel reviews evidence on the record carefully and
determines whether the US has duly satisfied various legal thresholds in setting forth its legal claims
in accordance with applicable jurisprudence.1463

1457 Korea Third Party Submission Executive Summary, para. 20. See, also, Korea Opening Statement,
para. 7.
1458 Korea Third Party Submission Executive Summary, para. 21.
1459 Korea Third Party Submission Executive Summary, para. 22. See, also, Korea Opening Statement,
para. 8.
1460 Korea Third Party Submission Executive Summary, para. 23.
1461 Korea Third Party Submission Executive Summary, para. 24. See, also, Korea Opening Statement,
para. 9.
1462 Korea Third Party Submission Executive Summary, para. 25. See, also, Korea Opening Statement,
para. 10.
1463 Korea Opening Statement, para. 11.

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VI. INTERIM REVIEW
A. INTRODUCTION
6.1 On 4 September 2009, we submitted our Interim Report to the parties. On 16 October 2009,
the United States and the European Communities submitted written requests for review of precise
aspects of the Interim Report. On 6 November 2009, the United States and the European
Communities submitted written comments on each other's requests for interim review. Neither party
requested an additional meeting with the Panel.
6.2 Due to changes as a result of our review, th e numbering of paragraphs and footnotes in the
final report has changed from the Interim Report. The text below refers to the paragraph and footnote
numbers in the Interim Report regarding which the parties requested review. Where we have made
changes, a reference to the corresponding paragraph or footnote number in the final report is included
(in parentheses) for ease of reference. We have also corrected a number of typographical and other
non-substantive errors throughout the report, including those identified by the parties, which are not
referred to specifically below.
6.3 In order to facilitate understanding of the in terim review comments and changes made, the
following section is structured to follow the organizati on of the report itself, with the review requests
of the parties, and their comments, addressed sequentially.
B. G
ENERAL COMMENTS
1. Use of the term "EC"
6.4 The European Communities notes that the term "EC" is used in the Interim Report when
referring to the European Communities, while the term "United States", which the European
Communities describes as a "full referen ce", is used when referring to the United States of America.
In light of this, the European Communities requests the Panel to replace the term "EC" by the term
"European Communities" in all instances where the European Communities is mentioned or used as a
noun, referring in support to a footnote in its answ ers to the Panel's questions filed 30 April 2007,
which states "{t}he European Communities would also ask the Panel to avoid adopting the irritating
US habit of systematically abbreviating the European Communities to "EC"."1464
6.5 The United States did not comment on this aspect of the European Communities' request.
6.6 Although we have referred to the European Communities variously, using both the term
"European Communities" and the abbreviated term "EC" throughout these proceedings and the use of
the abbreviated term "EC" is common in WTO dispute settlement and other areas, we have
determined to grant the European Communities' re quest, and will refer to the European Communities
by its preferred designation.
6.7 In this context, we note that as a result of the entry into force of the Lisbon Treaty, the
European Union succeeds and replaces the European Community with respect to all rights and
obligations of the latter in the WTO. However, al l the arguments and presentations in this dispute,
including the requests for interim review and commen ts thereon predate the entry into force of that

1464 Comments of the European Communities on the Panel's Interim Report (hereinafter "EC, Request
for Interim Review"), p. 2, citing, EC, Replies to Questi ons of the Panel Following the Panel's First Substantive
Meeting with the Parties, footnote 2. The European Communities implies that it made more than one request in
this regard, but refers only to this submission.

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treaty. Therefore, we have not referred to the European Union in our final report. However, we
recognize the significance of the entry into force of the Lisbon Treaty, and have included the
following footnote in the final report at the beginning of the report, and, in view of the length of the
document, again at the beginning of our findings:
"On 1 December 2009, the Treaty of Lisbon amending the Treaty on European Union
and the Treaty establishing the European Community (done at Lisbon, 13 December
2007) entered into force. On 29 November 2009, the WTO receiv ed a Verbal Note
(WT/L/779) from the Council of the European Union and the Commission of the
European Communities stating that, by virtue of the Treaty of Lisbon, as of 1
December 2009, the European Uni on replaces and succeeds the European
Community."
2. Specific references to BCI/HSBI exhibits
6.8 The European Communities comments that there are numerous references to BCI/HSBI
Exhibits in which the Panel does not precisely indi cate the source and/or the specific location of the
information used by the Panel, and requests the Pa nel to provide specific references to page numbers,
paragraphs, bullet points, etc. when referring to BCI/HSBI information.
1465
6.9 The United States requests that the Panel declin e the European Communities' request, stating
its view that where the Panel has relied on HSBI ev idence, it has adequately identified the location of
the relevant information, particularly when citations to HSBI documents are considered in conjunction
with the text of the report, such that the parties are aware of the context in which the HSBI document
in question is considered relevant by the Panel.1466
6.10 The European Communities cites only one inst ance as an example of "missing" specific
references, and identifies no instance in which the lack of more specific references to pages or
paragraphs of BCI or HSBI exhibits has affected its ability to comprehend the Panel's analysis. We
have, in each instance where we refer to BCI or HS BI exhibits, specifically identified the relevant
exhibits and sources, and in some, but not all cases, indicated specific page or paragraph numbers.
There is, however, no rule or consistent practice in this regard. We agree with the United States that
the relevant information is adequately identified when considered in context with the analysis set out
in the Interim Report, and consider that the de gree of precision sought by the European Communities
is not, in all instances, necessary. This is par ticularly the case as the European Communities does not
even suggest that any particular reference is, in its view, insufficiently clear to allow it to understand
the relevance of the cited information to the Pane l's decision. We therefore deny the European
Communities' request to systematically provide more detailed references for all citations of BCI/HSBI
exhibits throughout the report. However, we have added such specific references to the extent
possible in light of our consideration of such ev idence in the context of the interim review, and
particularly where references to HSBI information were made by the parties in their requests for
interim review or comments thereon.
3. Consistency and accuracy in names
6.11 The European Communities contends that the Inte rim Report is inconsiste nt in its references
to "BAe" and "BAE Systems", argues that those entiti es are distinct companies that existed at various

1465 EC, Request for Interim Review, p. 2.
1466 US, Comments on EC Request for Interim Review, para. 7.

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points in time and requests that the Panel "review its report and amend it" such that it accurately
reflects the particular companies at issue.1467
6.12 The United States did not comment on this issue.
6.13 As we noted in footnote 1764 of the Interi m Report (now footnote 2057), the "original"
British Airbus partner in 1979 was the crown corporation, British Aerospace Corporation. 1468 The
successor entity to British Aerospace Corpora tion was the public limited company, British
Aerospace PLC. The European Communities refers to this company as "BAe" in its submissions. 1469
In 1999, this company merged with Marconi Electronic Systems to become BAE Systems PLC. We
have revised the Interim Report to use the term "British Aerospace" to refer to British Aerospace
PLC, the UK Airbus partner prior to the 1999 merger , and the term "BAE Systems" to refer to BAE
Systems PLC, the UK Airbus partner following the 1999 merger.
6.14 The European Communities also requests that the Panel use the term "Broughton, Wales"
consistently when referring to "Broughton", and use the term "UK Department" rather than the term
"British Department".
1470
6.15 The United States did not comment on this request.
6.16 With the exception of one inst ance of usage of "British Department" at paragraph 7.1906
(now paragraph 7.1917) of the Interim Report, the European Communities did not provide any
specific indications as to where in the Interim Report it noted the inconsistencies to which it refers in
this regard. Nonetheless, we have reviewed the In terim Report and made every effort to ensure that
that consistent references to "Broughton, Wales" and "UK Department" are made, as appropriate.
4. Text in French or Spanish
6.17 The European Communities observes that the In terim Report contains references to text
provided in Spanish or French, referring in this re gard to paragraphs 7.418 and 7.547 of the Interim
Report. The European Communities notes that in other WTO disputes an English translation has been
provided in the report itself under similar ci rcumstances, referring to Panel Report, Mexico –
Telecoms at, inter alia , paragraph 7.93, where the Spanish versi on of text cited in the body of the
Report in English was provided in a footnote.
1471 In view of this, the European Communities requests
the Panel to include a translation of any Spanish or French text included in the Interim Report.1472
6.18 The United States did not comment on the European Communities' request in this regard.
6.19 The Interim Report quotes in the original Spanis h and French language the text of exhibits
that were submitted by the parties only in those languages, which are, we recall, working languages of
the WTO.1473 In Mexico – Telecoms , the English text in the body of the report was quoted from a
WTO document, the English version of Mexico's schedule, while the footnote quoted from another
WTO document, the authentic Spanish version of that schedule submitted by Mexico – that is to say,

1467 EC, Request for Interim Review, p. 2.
1469 EC, FWS, para. 60.
1470 EC, Request for Interim Review, p. 2.
1471 Panel Report, Mexico – Measures Affecting Telecommunications Services ("Mexico – Telecoms"),
WT/DS204/R, adopted 1 June 2004, DSR 2004:IV, 1537, para. 7.93.
1472 EC, Request for Interim Review, p. 2.
1473 We recall that the Panel did require the translati on by the parties of exhibits in non-WTO working
languages, principally German, into English, where it deemed necessary.

BCI deleted, as indicated [***]

both versions already existed. In this case, we considered exhibits submitted by both parties in
original French and Spanish versions in our deliber ations, without translation into English. Thus,
references to text in Spanish and French accurately reflect our deliberations, and form part of our
findings. Therefore, we have determined not to tr anslate into English those sections of the Interim
Report that quote text in Spanish or French prior to issuance of the final report to the parties.
However, we do note that those sections will be translat ed prior to circulation of the final report to the
Members and the public, such that the Spanish versi on of the final report will be entirely in Spanish,
the French version of the final report will be entirel y in French, and the English version of the final
report will be entirely in English.
C. PRELIMINARY RULING
1. Paragraph 7.46
6.20 According to the United States, the last sentenc e of paragraph 7.46 of the Interim Report may
be read to suggest that the Pane l is applying Article 28 of the Vienna Convention on the Law of
Treaties (VCLT) as a rule of international law to adjudicate the rights and obligations of Members
under the covered agreements. The United States ar gues that panels and the Appellate Body cannot
apply rules of international law other than the prov isions of the WTO Agreemen t. The United States
submits that, pursuant to Article 3.2 of the DSU, pa nels do not clarify rules of international law that
are not found in the covered agreements, although such rules may be relevant to clarifying the
provisions of the covered agreements under the customary rules of interpretation of public
international law, specifically as reflected in Article 31.3(c) of the VCLT.
1474 The United States
suggests that the Panel replace the last sentence in paragraph 7.46 of the Interim Report with a
proposed text it considers to be a more appropriate formulation of the relationship between Article 5
of the SCM Agreement and Article 28 of the VCLT.1475
6.21 The European Communities objects to the United St ates' request to modify the last sentence
of paragraph 7.46 of the Interim Report. 1476 First, the European Co mmunities considers that the
United States' concern is fully addressed in footnot e 1536 at the end of paragraph 7.46 of the Interim
Report, which states that the Appellate Body has said in previous disputes that the principle codified
in Article 28 of the VCLT is relevant to the inte rpretation of the covered agreements. Second, the
European Communities argues that the Appellate Body has qualified Article 28 of the VCLT as a
"general principle of international law", with the result that the United States is mistaken in arguing
that Article 28 can only be taken into account in the context of Article 31.3(c) of the VCLT.1477
6.22 The principle of non-retroactivity embodied in Article 28 of the VCLT has been recognized
by the Appellate Body to be a "general principle of international law" relevant to the interpretation of
obligations contained in the WTO Agreements in many disputes. The United States' comment
appears to have given rise to a disagreement betwee n the parties as to the basis on which Article 28 of
the VCLT may be applied by the Panel. The Unite d States maintains that Article 28 can only be
given effect as a rule of interpretation through Ar ticle 31.3(c) of the VCLT, while the European
Communities appears to consider this approach to o narrow and suggests that Article 28 of the VCLT

1474 US, Request for Interim Review, para. 3.
1475 US, Request for Interim Review, para. 3. The Unite d States also suggests that the Panel may need
to make conforming edits to the remaining paragraphs in this section, but does not specify where or what
changes it would consider necessary or appropriate.
1476 EC, Comments on US Request for Interim Review, p. 2.
1477 EC, Comments on US Request for Interim Review, p. 2. The European Communities cites to the
Appellate Body Report in Panel Report, Brazil – Measures Affecting Desiccated Coconut ("Brazil – Desiccated
Coconut"), WT/DS22/R, adopted 20 March 1997, upheld by Appellate Body Report WT/DS22/AB/R,
DSR 1997:I, 189, p. 15.

BCI deleted, as indicated [***]

may be given effect as a general principle of interna tional law, independently of Article 31.3(c) of the
VCLT. In our view, it is unnecessary to engage in this debate, as neither party disputes that the
interpretation of Article 5 of the SCM Agreement should be consistent with the principle of non-
retroactivity embodied in Article 28 of the VC LT. We therefore have made revisions to
paragraph 7.46 and footnote 1536 (paragraph number ing unchanged, now footnote 1829) to clarify
that we interpret Article 5 of the SCM Agreement c onsistently with the principle of non-retroactivity
embodied in Article 28 of the VCLT, in accordance w ith the approach taken by the Appellate Body in
prior disputes.
2. Paragraph 7.92 and footnote 1613
6.23 The United States requests that the Panel remove footnote 1613 of the Interim Report in its
entirety.1478 According to the United States, footnote 1613 might be read as applying Article 30 of the
VCLT when it is not a provision of the covered agr eements, and thus cannot be applied to adjudicate
rights and obligations of members in WTO disp ute settlement proceedings. The United States
considers that Article 30 of the VCLT could only be relevant if it were being relied upon in order to
apply a customary rule of interpretation reflected in Article 31.3(c) of the VCLT. The United States
considers that footnote 1613 of the Interim Report does not purport to interpret anything in the WTO
Agreement, and so the discussion of Article 30 in footnote 1613 of the Interim Report is not relevant
to any application by the Panel of customary rules of interpretation of public international law to the
text of the WTO Agreement.
6.24 The European Communities considers that the Un ited States' request to remove footnote 1613
of the Interim Report is without merit and should be rejected. 1479 The European Communities
contends that the footnote appears in the context of the Panel's interpretation of Article 23 of the DSU
in paragraph 7.92 of the Interim Re port and that the United States is therefore wrong to assert that the
footnote does not interpret anything in the text of the WTO Agreement. 1480 Moreover, the European
Communities asserts that conflict rules, such as th ose embodied in Article 30 of the VCLT, always
apply in the context of international litigation. Finally, the European Communities observes that if
footnote 1613 of the Interim Report is removed, the text of 7.92 of the Interim Report would be
deprived of reasoning that supports the Panel's conclusions in that paragraph.
6.25 Our view, as expressed at the end of paragraph 7.92 of the Interim Report, is that in the
absence of a reservation concerning the interpreta tion or application of Article 23 of the DSU, a
Member cannot be considered to have "waived" it rights under Article 23 of the DSU to initiate a
WTO dispute by means of an agreement that it entered into prior to entry into force of the DSU. This
view is consistent with the prin ciple embodied in Article 30 of the VCLT, rather than an application
of Article 30 of the VCLT by the Panel. We ha ve revised footnote 1613 (now footnote 1906) to
clarify our position in this regard.
D. IDENTITY OF THE ALLEGED SUBSIDY RECIPIENT AND PASS -THROUGH, EXTINCTION AND
EXTRACTION OF SUBSIDIES
1. Paragraph 7.248
6.26 The United States requests that the first sentence of paragraph 7.248 of the Interim Report be
modified to remove any suggestion that reports of the Appellate Body are binding except with respect

1478 US, Request for Interim Review, para. 4.
1479 EC, Comments on US Request for Interim Review, p. 2.
1480 EC, Comments on US Request for Interim Review, p. 2.

BCI deleted, as indicated [***]

to resolving the particular dispute between the parties to that dispute.1481 The United States also notes
that, consistent with Article 17 of the DSU, it woul d be more accurate to refer to "reports" of the
Appellate Body, rather than "d ecisions". The United States identifies a number of references
throughout the Interim Report to "decisions" of the A ppellate Body which it requests be modified to
"reports".1482
6.27 The European Communities does not agree with th e United States' request to modify the first
sentence of paragraph 7.248 of the Interim Report. 1483 According to the European Communities, the
United States' request omits reports subsequent to Japan – Alcoholic Beverages II in which the
Appellate Body clarified its reasoning about the relevance of adopted Appellate Body reports in
subsequent proceedings. The European Commun ities considers that the current wording of
paragraph 7.248 of the Interim Report properly reflects the Appellate Body's position on this issue.1484
6.28 The question of the relevance of Appellate Body reports is highly contentious among
Members, and it is not necessary for us to address it in order to resolve the dispute before us. The
changes requested by the United States do not affect or undermine our reasoning on the substantive
issues before us. We therefore have amende d paragraph 7.248 (numberi ng unchanged), and made
conforming changes, both where identified by th e United States, and where identified by us,
throughout the final report, to refer to Appellate Body "report" rather than "decision".
2. Paragraph 7.275 and Footnote 1925
6.29 The European Communities requests that the Panel revise footnote 1925 of the Interim Report
in order to acknowledge the effect of the public offering of EADS shares on the ownership interests of
the former partners in Airbus Industrie. 1485 According to the Europ ean Communities, the Panel's
statement, at footnote 1925 of the Interim Report, that Dasa and SEPI effe ctively held the same
proportional interests in Airbus Industrie, only through EADS and the contractual partnership, ignores
the effect of the public offering of EADS shares. The European Communities proposes a
modification of footnote 1925 of the Interim Repor t which it considers more accurately depicts the
ownership structure of Airbus following the reorganization of Airbus Industrie in 2001.
6.30 The United States disputes the European Comm unities' assertion that footnote 1925 of the
Interim Report ignores the effect of the public offering of EADS shares, referring to various
paragraphs of the Interim Report which indicate that the Panel was aware of the contractual relations
between the various Airbus entities an d the public offering of EADS shares. 1486 The United States
submits that the details of the Airbus ownership st ructure that existed following the reorganization of
Airbus Industrie ( i.e., the information that the European Co mmunities seeks to include in footnote
1925 of the Interim Report) were not critical to the Panel's analysis because the new structure
maintained the overall interests of DaimlerChrysler and the Spanish government in Airbus Industrie
as a whole. According to the United States, the Pa nel does not ascribe to the new ownership structure

1481 US, Request for Interim Review, para. 5.
1482 US, Request for Interim Review, para. 6; referring to paras. 7.73, 7.75, 7.82, 7.86, 7.203, 7.212,
7.225, 7.226, 7.233, 7.236, 7.239, 7.241, 7.250, 7.25 5, 7.1295, 7.1637, 7.1664, 7.1678, 7.1695, 7.1740, 7.1835
and 7.2066 of the Interim Report (now paragraphs 7.73, 7.75, 7.82, 7.86, 7.203, 7.212, 7.225, 7.226, 7.233,
7.236, 7.239, 7.241, 7.250, 7.255, 7.1305, 7.1648, 7.1675, 7.1689, 7.1706, 7.1751, 7.1846 and 7.2077).
1483 EC, Comments on US Request for Interim Review, p. 2.
1484 EC, Comments on US Request for Interim Review, p. 2.
1485 EC, Request for Interim Review, p. 3.
1486 US, Comments on EC Request for Interim Review, paras. 8 - 10.

BCI deleted, as indicated [***]

of Airbus following the EADS transaction the sa me significance that the European Communities
does.1487
6.31 In our view, the modification proposed by the European Communities is unnecessarily
complicated and confusing. Paragraph 7.275 of the Interim Report explains why we rejected the
European Communities' argument (described at pa ragraph 7.274 of the Interim Report) that as
"minority shareholders" of EADS, DaimlerChrysler and the Spanish government would be unlikely to
re-inject into EADS the cash that they had allegedly "extracted" prior to the transactions that led to the
creation of EADS. The point that is made in paragr aph 7.275 of the Interim Report is simply that it is
inaccurate to portray DaimlerChrysler and the Span ish government as "minority shareholders" in the
newly-created EADS when the EADS transactions were structured in such a way as to preserve the
status quo among the former Airbus partners and both DaimlerChrysler and the Spanish government
were part of the contractual partnership that controlled EADS and Airbus. However, it is possible that
that footnote 1925 of the Interim Report could be unde rstood to suggest that DaimlerChrysler and the
Spanish government held the same overall ownership interest in Airbus through EADS as they did
through the Airbus Industrie partnership. This was not the case of course, owing to the public
offering of approximately 30 percent of the EADS shares. However, as the United States notes, the
fact that DaimlerChrysler and the French government may each have indirectly held only 24 percent
of the shares in Airbus SAS following the EADS transactions is immaterial, because through the
EADS contractual partnership, DaimlerChrysler, the French government and the Spanish government
jointly exercised voting rights with respect to 65.48 percent of the shares of EADS (and thus Airbus
SAS). For practical purposes, the nature of contro l that the former Airbus partners exercised over
Airbus SAS through EADS was the same as the control that they had previously exercised through
Airbus Industrie. In light of the foregoing, we have revised footnote 1925 (now footnote 2218) in
order to more accurately set forth the facts.
3. Section VII.E.1 Attachment: Corporate History of Airbus, paragraph 2
6.32 The European Communities requests the Panel to change the statement that a GIE does not
have as its goal the making of profits, with the statement that a GIE does not have as its goal the
retaining of profits.
1488 According to the European Communities, this modification more accurately
reflects the fact that a GIE distributes profits to its members, and in that sense, may in fact have the
goal of making profits, although it is to distribute them, rather than retain them.
6.33 The United States has not made any comments in respect of this request.
6.34 We have made the requested change.
4. Section VII.E.1 Attachment: Corporate History of Airbus, paragraph 3
6.35 The European Communities notes its view that certain transactions and changes are not
reflected in the graph following paragraph 3 of the Attachment in the Interim Report, specifically:
(a) the 1989 acquisition of Deutsche Airbus by Daimler;
(b) the 1999 merger of British Aerospace with Marconi Electric Systems to become BAe
Systems; and

1487 US, Comments on EC Request for Interim Review, para. 10.
1488 EC Request for Interim Review, p. 3.

BCI deleted, as indicated [***]

(c) the 1999 merger between Aérospatiale a nd Matra Hautes Technologies, to create
Aérospatiale Matra.1489
6.36 The United States notes that the Panel has in fact recognized each of the above three
corporate transactions in the Interim Report. 1490 According to the United States, the graph following
paragraph 3 of the Attachment in the Interim Report reflects the Panel's determination, inherent in its
findings, that those specific corporate transactions, wh ich did not alter the ownership interests of the
Airbus partners, were not relevant to its analysis.1491 The United States requests that the Panel decline
the European Communities' request on the basi s that the request amounts to the European
Communities' disagreement with the Panel's conclusi on as to the relevance of information proffered
by the European Communities.
6.37 We agree with the United States that each of th e specific corporate transactions is noted in the
Interim Report, specifically at footnotes 1762, 17 61 and 1764 of the Interim Report (now footnotes
2054, 2055 and 2057), and again at footnotes 2232, 2233 and 2235 of the Attachment, albeit they are
not explicitly noted in the diagram following paragr aph 3. Nonetheless, for the sake of clarity, we
have added a reference to each of the transacti ons as part of the diagram following paragraph 3
(numbering unchanged) of the Attachment.
5. Section VII.E.1 Attachment: Corporate History of Airbus, paragraph 6
6.38 The European Communities requests that the Pane l cite to the source for the lower portion of
the graph, below the box for EADS.
1492
6.39 The United States submits that, if the Panel were to consider that a specific citation for the
source of the information in the lower part of the graph is necessary, paragraph 7.183 of the Interim
Report and the sources cited therein would serve the purpose.1493
6.40 We have made the change requested by the Eu ropean Communities. However, we have not
relied on paragraph 7.183 of the In terim Report, as suggested by the United States, but rather have
reviewed the relevant submissions and exhibits for the additional references.
E. THE ALLEGED LA/MSF MEASURE FOR THE A350
1. Paragraph 7.300
6.41 The European Communities considers that para graph 7.300 of the Interim Report does not
properly reflect the arguments it made in respect of the United States' claim concerning the alleged
LA/MSF commitment for the A350. In particular , the European Communities recalls that its
submissions referred to the alle ged A350 LA/MSF "commitment" in quotation marks. Moreover, the
European Communities asserts that the paragraphs of its submissions cited in the Interim Report only
referred to "financing for the A350" not LA/MSF fo r the A350. Finally, the European Communities
notes that the same paragraphs cited in the Interim Report also mention that "{n}ot a single Euro of
MSF has been disbursed or scheduled for future di sbursement in support of A350 development". The

1489 EC Request for Interim Review, p. 3.
1490 US Comments on EC Request for Interim Review, pa ra. 11; referring to the following footnotes of
the Interim Report: footnote 1762 (Daimler-Benz and Deutsche Airbus); footnote 1761 (Aérospatiale and Matra
Hautes Technologies) and footnote 1764 (British Aerospace and Marconi Electronic Systems).
1491 US Comments on EC Request for Interim Review, para. 11, referring to paras. 7.199 and 7.275 of
the Interim Report.
1492 EC Request for Interim Review, p. 4.
1493 US Comments on EC Request for Interim Review, para. 12.

BCI deleted, as indicated [***]

European Communities asks that these details be refl ected in the characterisation of its arguments in
paragraph 7.300 of the Interim Report.1494
6.42 The United States considers that paragraph 7.300 of the Interim Report correctly reflects the
arguments the European Communities advanced in r espect of its claim concerning the alleged A350
LA/MSF measure. The United States cites sever al passages from the European Communities'
submissions, which it argues support the characteris ation of the European Communities' arguments
found in paragraph 7.300 of the Interim Report. Thus, the United States asks the Panel to dismiss the
European Communities' request for modifications to paragraph 7.300 of the Interim Report.1495
6.43 The European Communities was not always consistent in how it referred to the "commitment"
in question and how it described the type of fi nancing being negotiated between Airbus and the
relevant European Communities member States in respect of the A350. For instance, in
paragraph 132 of its second wr itten submission, the European Communities uses the word
"commitment" both with and without quotation ma rks. Moreover, while the European Communities
refers in this paragraph to ne gotiations between Airbus and the relevant European Communities'
member States on the "terms for fi nancing of the A350", it also refers to negotiations on the "terms of
these agreements", citing a discussion in its first writt en submission about the terms and conditions of
LA/MSF. Similarly, in the same paragraph, the European Communities mentions "the price at which
A350 MSF would be provided".
6.44 In our view, it can reasonably be understood that in this paragraph, the European
Communities described the type of financing be ing negotiated between Ai rbus and the French,
German, Spanish and UK governments as "MSF", not unlike other LA/MSF "agreements" it
described in its first written submission. We ther efore decline the European Communities' request to
amend paragraph 7.300 of the Inte rim Report by placing the word "commitment" in quotation marks,
and by removing the reference to "LA/MSF" in the characterisation of its argument.
6.45 On the other hand, we consider it appropriate to make the additional change requested by the
European Communities, to ensure completeness in presenting its arguments, and have revised
paragraph 7.300 (numbering unchanged) to do so.
2. Paragraph 7.307
6.46 The European Communities asks the Panel to de lete the language in pa ragraph 7.307 of the
Interim Report indicating that it had argued that financing in the form of LA/MSF for the A350 was
being negotiated with Airbus as of 20 July 2005.1496
6.47 The United States observes that paragraph 7.307 of the Interim Report contains an expression
of the Panel's own views, not a summary of the European Communities' argument. Therefore,
according to the United States, there is no basis fo r making the change requested by the European
Communities.
1497
6.48 Paragraph 7.307 of the Interim Report sets out our findings of fact concerning the existence of
the alleged A350 LA/MSF commitment measure. As or iginally drafted, it might be understood to
imply that the European Communities shares the Panel' s view that the facts before it demonstrate that
"the EC member States had in principle agreed to provide Airbus with financial assistance for the

1494 EC, Request for Interim Review, p. 4.
1495 US, Comments on EC Request for Interim Review, paras. 13-16.
1496 EC, Request for Interim Review, p. 4.
1497 US, Comments on EC Request for Interim Review, para. 17.

BCI deleted, as indicated [***]

A350 in the form of LA/MSF on terms and conditions to be negotiated ." Given the European
Communities' argument about what it actually argued in this regard, we consider it appropriate to
avoid implying that the European Communities agrees with the Panel's conclusion in this regard, and
have revised paragraph 7.307 (numbering unchanged) accordingly.
F. WHETHER EACH OF THE INDIVIDUAL GRANTS OF LA/MSF FOR THE A300, A310, A320,
A330/A340, A330-200, A340-500/600 AND A380 MODELS OF LCA CONSTITUTES A SUBSIDY
WITHIN THE MEANING OF ARTICLE 1 OF THE SCM AGREEMENT
1. Paragraph 7.374 and footnote 2155
6.49 The European Communities requests that the second sentence of paragraph 7.374 and
footnote 2155 of the Interim Report be modified to more accurately reflect what it asserts is the fact
that for two of the challenged LA/MSF contracts, re venues generated from aircraft sales were not the
only means through which repayment of the respective loans was required.1498
6.50 The United States argues that the two contractual provisions cited in footnote 2155 of the
Interim Report, as understood by the Panel, describe "minor" mechanisms that supplemented, rather
than supplanted, the basic levy-based repayment sch eme. Therefore, according to the United States,
even if one were to accept that those mechanisms may have existed for two of the LA/MSF contracts,
the primary repayment mechanism h as always been per-aircraft levies. 1499 The United States also
argues that it is far from unambiguous that Article 6.5 of the German A380 contract provides for
[***].1500 Thus, the United States submits that th e European Communities' requests should be
rejected.
6.51 In addition, the United States requests that the words "in almost all cases" be deleted from the
third sentence of paragraph 7.374 of the Interim Report in order to more accurately reflect what it
asserts is the fact that the primary repayment mechanism under the challenged LA/MSF contracts has
always been per-aircraft levies.
1501
6.52 The European Communities argues that the two departures referenced in footnote 2155 of the
Interim Report are not "minor", as the United States describes, but rather an integral part of the
repayment schedules specified in the respective LA/M SF contracts. Thus, according to the European
Communities, making the changes to paragraph 7.37 4 of the Interim Report requested by the United
States would result in an incomplete description of the repayment requirements under each of the
relevant contracts.1502
6.53 In order to set out the relevant characteris tics of the LA/MSF contracts in question more
specifically, we have modified paragraph 7.374 and footnote 2155 (parag raph numbering unchanged,
now footnote 2449).

1498 EC, Request for Interim Review, pp. 4-5.
1499 Comments of the United States of America on the EC's Request for Review of Precise Aspects of
the interim Report (hereinafter "US, Comment on EC, Re quest for Interim Review"), paras. 18-19, referring to
Request by the United States of America for Review of Pr ecise Aspects of the Interim Report (hereinafter "US,
1500 US, Comment on EC, Request for Interim Review, paras. 20-22.
1501 US, Request for Interim Review, para. 7; US , Comment on EC, Request for Interim Review,
paras. 18-23.
1502 Comments of the European Communities on the US Request for Review of Precise Aspects of the
Panel's Interim Report (hereinafter "EC, Comments on US Request for Interim Review"), p.3.

BCI deleted, as indicated [***]

2. Paragraph 7.375
6.54 The United States requests that the phrase "as a general matter" be deleted from the
penultimate sentence of paragraph 7.375 of the Inte rim Report. The United States asserts that this
language is superfluous and does not accurately refl ect what the United States demonstrated in its
submissions. In particular, the United States su bmits that it has shown that Airbus' repayment
obligations under each of the LA/MSF contracts are de pendent on the success of the particular LCA
project, not just "as a general matter".1503
6.55 The European Communities argues that the ch ange requested by the United States would
render the relevant sentence in paragraph 7.375 of the Interim Report "simply incorrect" because it
asserts that the facts contained in that paragraph demonstrate that Airbus repayment obligations are
not "entirely" dependent on the success of the particular LCA project.1504
6.56 We have revised the penultimate sentence of paragraph 7.375 (num bering unchanged) to
more clearly reflect our views.
3. Table 1 (following paragraph 7.380) and footnote 2172
6.57 The European Communities requests that the sour ce of each of the figures contained in Table
1 following paragraph 7.380 of the Interim Report be identified, and asks the Panel to change its
factual finding in respect of the amount of "financial contribution" associated with the challenged
Spanish A380 LA/MSF contract, which is explained in original footnote 2172 of the Interim Report.
The European Communities alleges that there is evidence before the Panel, including HSBI, which
confirms that the appropriate amount of the financial contribution was EUR [***] million or at least
that this was the "maximum" amount of funding associated with the Spanish A380 contract.
1505
6.58 The United States argues that the European Comm unities' request should be rejected, because
the European Communities failed to provide any evidence in support of its factual assertion during the
appropriate phase of this panel proceeding, including in response to a specific Panel question. In any
case, the United States submits that the other evidence, including HSBI, which the European
Communities now refers to in support of its request , has not been demonstrated by the European
Communities to more accurately represent the amount of Spanish LA/MSF for the A380.1506
6.59 Turning first to the European Communities' requ est that the source of the figures contained in
Table 1 be identified, we have made the requested modification in order to more clearly identify the
source of each of the relevant values. As a resu lt of our review of those sources, we have also
corrected three of the figures in Table 1.
6.60 As regards the European Communities' requ est concerning footnote 2172 of the Interim
Report, we note that the Panel explicitly asked the European Communities, in Panel Question 259, to
explain the differences between the amounts of "finan cial contribution" referred to in the Spanish
A380 contract and in the European Communities' fi rst written submission. The explanation provided
by the European Communities in re sponse to that question was less detailed and referred to fewer
pieces of evidence than the explanation now given in its request for interim review. Even assuming
we were willing to consider the newly cited evid ence, however, in our view, that evidence does not
advance its cause any further. In particular , we note that the European Communities places

1503 US, Request for Interim Review, para. 8.
1504 EC, Comments on US Request for Interim Review, p. 3.
1505 EC, Request for Interim Review, pp. 5-6.
1506 US, Comment on EC, Request for Interim Review, paras. 24-26.

BCI deleted, as indicated [***]

considerable reliance on the amount of non-recurring costs identified in the Airbus A380 business
case, and argues that, in the light of other info rmation contained in the Spanish A380 LA/MSF
contract, it is possible to conclude that the "finan cial contribution" associated with the Spanish A380
contract was even less than the EUR [***] million figure it had initially asserted to be the correct
amount in its first written submission. Although we have been able to verify all of the numbers the
European Communities has referred to in its request for interim review, we note that the non-recurring
cost figure the European Communities relies upon pre-dates the Spanish A380 LA/MSF contract by
approximately one year. 1507 Absent a substantiated explanati on as to why reliance should be placed
on cost information contained in Airbus A380 bu siness case, which pre-dates the Spanish A380
contract by more than 12 months, we would in an y case reject the European Communities' argument
in this regard.
6.61 Therefore, we dismiss the European Communities' request. However, we have revised Table
1 following paragraph 7.380 and footnotes 2171 and 2172 (paragraph numbering unchanged, now
footnotes 2465 and 2484) so as to clearly identify that the EUR [***] million we have considered as
being provided for the Spanish A380 LA/MSF is a "maximum" amount.
4. Paragraph 7.407
6.62 The United States asks that a footnote be added to the first sentence of paragraph 7.407 of the
Interim Report explaining that it contests the view advanced by the European Communities that the
rates of return of the LA/MSF contracts must be de termined by taking into account the "internal rate
of return" ("IRRs"). The United States also request s that the we reflect its arguments regarding the
lack of substantiation for the European Communities' IRR calculations.1508
6.63 The European Communities considers that the additional references requested by the United
States would be duplicative and confusing, noting that the United States' arguments concerning the
relevance of royalty payments to the calculations of the IRRs are already reflected elsewhere in the
Interim Report. In addition, the European Communities submits it has substantiated the IRR
calculations it has advanced in this dispute.
1509
6.64 In order to fully reflect the United States' ar guments, we have modifi ed paragraph 7.407, and
made a consequential change to footnote 2205 (paragraph numbering unchanged, now footnote 2518).
5. Paragraph 7.409
6.65 The United States submits that it did not argue, as it asserts is described in paragraph 7.409 of
the Interim Report, that potential royalty payment oblig ations are "relevant" or "play only a marginal
role" in determining the rate of return expect ed by the EC member State governments providing
LA/MSF. The United States requests that the last sentence of paragraph 7.409 of the Interim Report
be replaced with proposed language it asserts more correctly describes its argument.1510
6.66 The European Communities opposes the United St ates' request. The European Communities
submits that it is inaccurate for the United States to now argue that it "did not accept" that royalty
payments "play only a marginal role" given that th is is precisely what the United States expert, Ellis,

1507 The A380 business case – Exhibit EC-362 (HSBI) – is dated 8 December 2000. The Spanish A380
LA/MSF contract – Exhibit US-73 (BCI) – is dated 27 December 2001.
1508 US, Request for Interim Review, paras. 9-10.
1509 EC, Comments on US Request for Interim Review, pp. 3-4.
1510 US, Request for Interim Review, paras. 11-13.

BCI deleted, as indicated [***]

stated to the Panel and precisely the element of th e Ellis statement that the United States chose to
repeat verbatim in its second written submission.1511
6.67 First, we note that paragraph 7.409 of the Interim Report does not say that the United States
considers that royalty payment obligations are relevant to the determination of the appropriate IRRs of
the LA/MSF contracts. Rather, it states that the United States does not consider " expectations of
royalty payments to be irrelevant". Second, although the United States now submits that it did not
argue that they play a "marginal role", this is not, in our view, what ca n reasonably be understood
from its submissions. For instance, when discussing royalty payments required under the UK A380
contract, the United States concluded that they were "essentially meaningless", not because the
payment of royalties fell outside of the UK governme nt's expectations, but because according to the
government's expectations, reflected by the deliver y schedule, there would be only a few sales that
could actually generate such payments.
1512 Similarly, the United States submitted that "{e}ven for the
other Launch Aid contracts at issue, royalties become due only after a number of deliveries that,
according to Airbus' and the governments' own forecasts, at best will be achieved only by the very end
of the 17-year period described in the European Communities' ITR report as the life of a plane."
1513
Thus, the United States did not negate the relevance of royalty payments to the governments' expected
returns from LA/MSF. Rather, the United States mini mized the importance of such payments to the
overall expected return. Thus, we do not consid er that paragraph 7.409 of the Interim Report
erroneously describes the United States' argument.
6.68 However, we recognize that in addition to making these statements, the United States has also
observed that it was likely that a ma rket investor would not take such royalty payments into account,
but instead look to recover its investment and make a commercial return over a much shorter period of
time.1514 Therefore, while we decline to make the ch anges requested by the United States, we have
modified paragraph 7.409 (numbering unc hanged) so as to include the latter additional perspective of
the United States, which is not reflected in the interi m report. We have also added a footnote to the
end of paragraph 7.412 (numbering unchanged) to reflect a further consideration relevant to our
evaluation of the effect of royalty payments on the IRR.
6. Paragraph 7.416
6.69 The European Communities asks the Panel to recons ider its findings in respect of the internal
rate of return ("IRR") of the French A340-5 00/600 LA/MSF contract. The European Communities
explains that Articles 6.2 and 6.4 of this contract prescribe [***] – one intended to reimburse the
principal loaned plus interest for the A340-500/600 project, [***]. The European Communities notes
that [***] were taken into account and separately identif ied in the ITR Report, submitted as Exhibit
EC-13 (BCI). However, for the purpose of the calculations shown in Exhibit EC-597 (HSBI), the
European Communities [***] in order "to preserve space to demonstrate the alleged effect of
taxation" on LA/MSF. The European Communities s uggests that this explains why the Panel was
unable to match the repayment values used to calculate the internal rate of return contained in Exhibit
EC-597 (HSBI) with those derived from Article 6.2 of the A340-500/600 LA/MSF contract.
According to the European Communities, [***] must be taken into account in order to determine the
IRR the French government expected to obtain from the A340-500/600 contract. Finally, the
European Communities observes that, for the French A330-200 LA/MSF contract, the Panel accepted
an IRR that was calculated taking into account a similar repayment structure involving [***] – one to
repay the principal loaned plus interest for the A330-200 project, [***]. The European Communities

1511 EC, Comments on US Request for Interim Review, pp. 4-5.
1512 US, Answer to Panel Question 142.
1513 US, Answer to Panel Question 142.
1514 US, Answer to Panel Question 142.

BCI deleted, as indicated [***]

therefore asks the Panel to take a consistent approach in respect of the French A340-500/600 contract
and equally accept the internal rate of return calculated on the basis of the [***] contractually
prescribed repayment streams.1515
6.70 The United States recalls that in its answer to Panel Question 42 it had observed that:
"{a}ccording to the French A340-500/600 La unch Aid contract, Airbus was required
[***]."
Thus, the United States disputes the Eu ropean Communities' inclusion of the [***] into its calculation
of the IRR for LA/MSF provided for the A340-500/600, and asks the Panel to reject the European
Communities' request.
1516

6.71 In its first written submission, the European Co mmunities explained that in return for French
government LA/MSF for the A330-200 and A340-500/600, Airbus was required to pay "a levy for the
MSF (including interest) invested in the variant [***]".1517 The IRR calculations relied upon by the
European Communities for both LA/MSF measures were first presented in the ITR Report, Exhibit
EC-13 (BCI). The ITR Report identified [***] in the cash-outflows column of its calculations for
each LA/MSF measure, [***]. The only contractual provision specifically referred to in these
submissions was Article 6.4 of the French A340-500/600 contract.1518
6.72 The European Communities was asked in Pane l Question 69 to explain how the "implicit"
rates of return it had presented with its first written submission were calculated, "with reference to all
of the relevant data used in their calculation". In addition to the written response provided to that
question, the European Communities presented E xhibit EC-597 (HSBI), which it described as
measuring "the rate of return for the MSF cont racts covering the A320, A330/A340 basic, A330-200,
A340-500/600, and A380". 1519 For the French A330-200 and French A340-500/600 LA/MSF
contracts, this Exhibit [***], which was labelled "MSF repayments". The European Communities'
response did not explain how the IRR was specifically determined for either of the French A330-200
and French A340-500/600 LA/MSF contracts. In th is respect, the European Communities' Answer to
Panel Question 69 provided little, if any, additional insight into what was set out in its first written
submission.
6.73 In the Interim Report, we rejected the IRR calculated by the European Communities for the
A340-500/600 because, on the basis of the inform ation contained in Exhibit EC-597 (HSBI), the
repayment amounts used to determine the IRR we re greater than those derived from the actual
LA/MSF contract, when read in the light of the sche dule of forecast deliveries. In other words, we
rejected the European Communities' inclusion of [***] it argues were called for under the French
A340-500/600 LA/MSF contract. However, we accepted the IRR the European Communities
calculated for the French A330-200 LA/MSF contract , even though this also appears to have been
determined taking into account [***].
6.74 In light of the arguments in the European Communities' request for interim review, we have
reconsidered our findings in respect of the IRRs of these LA/MSF contracts. We note that, even
accepting the European Communities' explanations and IRRs for both the French A330-200 and
A340-500/600 LA/MSF contracts, our findings on wh ether such measures constitute subsidies do not

1515 EC, Request for Interim Review, pp. 6-7.
1516 US, Comment on EC, Request for Interim Review, para. 27.
1517 EC, FWS, paras. 335 and 336.
1518 EC, FWS, footnote 250.
1519 EC, Answer to Panel Question 69.

BCI deleted, as indicated [***]

change. The only impact of accepting both IRR calculations would be on the amount of benefit
associated with the French A340-500/600 contract. However, as we never quantified this amount
precisely, the difference of approximately 2 per centage points between the IRR proposed by the
European Communities and that identified in th e Interim Report makes little difference. Thus,
ultimately, even accepting the entirety of the European Communities' submissions on the IRRs
associated with these two LA/MSF measures, our findings effectively remain the same.
6.75 In view of the foregoing, we have modified the report by adding new paragraphs 7.416-7.421
to describe and evaluate how th e European Communities determined the IRRs for, primarily, the
French A340-500/600 LA/MSF contract (and by implication the French A330-200 LA/MSF contract),
concluding that, despite having some doubt as to th e appropriateness of the European Communities'
methodology for determining the IRR (discussed belo w at paragraphs 7.412 to 7.414, we need not
come to a firm conclusion on the question, as even accepting the entirety of the European
Communities' arguments, the measures would nevert heless constitute subsidies for the purpose of
Article 1.1 of the SCM Agreement. We have also made consequential amendments to
paragraph 7.415 (numbering unchanged) and 7.1959 ( now paragraph 7.1970) and to Tables 5 and 7
setting out our findings on the rates of return for the LA/MSF measures.
7. Paragraph 7.426
6.76 The European Communities requests the Pane l to insert footnotes next to each figure
contained in Table 5 referring to the precise source of information used by the Panel to make its
finding, as well as, where appropriate, an explanation as to how the figure was calculated.1520
6.77 The United States considers there to be no reason for the Panel to add references to sources
underlying the findings set out in paragraph 7.426 of the Interim Report and Table 5. In its view, the
explanations already provided are detailed enough to understand the basis of the Panel's findings.1521
6.78 In order to more clearly explain our findings, and the sources for the figures referred to in
Table 5, we have revised paragraph 7.426 (now paragraph 7.431) and Table 5.
8. Paragraph 7.429
6.79 The United States requests that the first sentence of paragraph 7.429 of the Interim Report be
modified because, in its view, it incorrectly ch aracterizes the "dispute" between the parties on the
question of the market interest rate benchmark for the challenged LA/MSF measures to be centred on
the appropriate project-specific risk premium. Th e United States submits that while the European
Communities' objection to this issue related only to the value of the risk premium, the United States
noted that the risk premium could not be considered in isolation. Specifically, the United States
observes that it argued that the risk premium must be considered together with the corporate
borrowing rate, and that these together represent the hybrid-equity nature of LA/MSF. Accordingly,
the United States asks that the first sentence of para graph 7.429 of the Interim Report be modified to
reflect this understanding of the parties' arguments.1522
6.80 The European Communities considers the Panel' s characterisation of the "dispute" between
the parties in the first sentence of paragraph 7.429 of the Interim Report to be accurate, and therefore
asks the Panel to reject the United States' request. The European Communities recalls that the parties
agreed that a benchmark would properly include three components: the relevant risk-free rate, a

1520 EC, Request for Interim Review, p. 7.+
1521 US, Comment on EC, Request for Interim Review, paras. 28-30.
1522 US, Request for Interim Review, para. 14.

BCI deleted, as indicated [***]

corporate risk premium and a project-specific risk premium. The European Communities submits that
the nature of the loans at issue – equity, debt or hybrid – was a central part of the disagreement
between the parties as to the correct project-specific risk premium.1523
6.81 The text in paragraph 7.429 of the Interim Re port with which the United States takes issue
states that the dispute between the parties as to th e appropriate market interest rate benchmark "...is
focused on only one aspect of the particular benchmar ks that have been proposed – the value of the
project specific risk premium". It is true that the parties were also in disagreement about whether
LA/MSF was essentially a hybrid financing instrume nt or debt-like, and that the United States'
proposed project-specific risk premium was advanced in the context of its view that LA/MSF was a
hybrid financing instrument. However, the Un ited States' submissions on these points, and the
European Communities' difference of opinion, are reco rded in the paragraphs describing each parties'
arguments on the appropriate project-specific risk premium. Therefore, we do not consider it is
necessary to make the modification requested by the United States. Nevertheless, we have modified
paragraph 7.429 (now paragraph 7.434), in order to avoid creating the impression that the level of the
project-specific risk premium was the only aspect of the benchmark issue on which the parties held
differing views.
9. Paragraphs 7.430 – 7.464
6.82 The United States asks that, "in the interests of completeness", a footnote be added at the end
of paragraph 7.457 of the Interi m Report reflecting the emphasis placed by the United States and its
expert on the high-risk nature of aircraft development and the risk-shifting nature of LA/MSF.
1524
6.83 The European Communities submits that the information the United States requests be
included at the end of paragraph 7.457 of the Inte rim Report is already reflected in paragraphs 7.432
and 7.433 of the Interim Report. Accordingly, th e European Communities asks the Panel to reject the
United States' request.1525
6.84 The particular passage from the Ellis Report that the United States asks the Panel to insert in a
footnote at the end of paragraph 7.457 of the Inte rim Report is already quoted in paragraph 7.433
(now paragraph 7.438). We therefore reject the United States' request.
10. Paragraph 7.476
6.85 The United States requests that paragraph 7.476 of the Interim Report be drafted so as to
express the full range of reasons supporting the Panel's decision to reject the European Communities'
project-specific risk premium.
1526
6.86 The European Communities submits that the a dditional text requested by the United States
serves no additional purpose not already met by paragraph 7.475 of the Interim Report, which
according to the European Commun ities, already expresses the statemen ts the United States requests
should be included in paragraph 7.476. The Euro pean Communities therefor e objects to the United
States' request.
1527

1523 EC, Comments on US Request for Interim Review, p.5.
1524 US, Request for Interim Review, para. 15.
1525 EC, Comments on US Request for Interim Review, pp.5-6.
1526 US, Request for Interim Review, para. 16.
1527 EC, Comments on US Request for Interim Review, p.6.

BCI deleted, as indicated [***]

6.87 We have amended paragr aph 7.476 (now paragraph 7.481) in order to more fully reflect the
reasons underlying our rejection of the European Communities' project-specific risk premium.
11. Paragraph 7.483
6.88 The European Communities asks the Panel to in sert a footnote next to each figure shown in
Table 7 explaining how it was calculated and citing the specific source of information relied upon.1528
6.89 The United States submits that the data containe d in Table 7 is adequately referenced, but
considers that it may be useful to reflect in th e accompanying footnotes some additional information
on the sources of the listed values.1529
6.90 We have revised Table 7 and related footnotes w ith a view to providing a clearer and more
precise understanding of how each figure was calculat ed and the information on which it was based.
As a result of our review, certain figures in the table have also been revised.
G. WHETHER LA/MSF AS A PROGRAMME IS A SUBSIDY WITHIN THE MEANING OF ARTICLE 1 OF
THE SCM AGREEMENT
1. Paragraphs 7.495 and 7.508
6.91 The United States argues that paragraphs 7.495 and 7.508 of the Interim Report incorrectly
describe the argument it advanced in respect of the alleged LA/MSF Programme as being premised on
the alleged Programme having "normative value". The United States asserts, however, that its
analysis of whether the alleged LA/MSF Programme is a "measure" was premised on the ordinary
meaning of the word "measure", in context and in the light of the object and purpose of the WTO
Agreement. The United States recalls that it also ar gued, "as a separate and distinct matter", that even
assuming that the "test" the European Communities derives from Appellate Body Reports such as US
– Zeroing(EC) is appropriate, that "test" has been satis fied by the United States' description of the
alleged LA/MSF Programme. Accordingly, the Unite d States requests that paragraphs 7.495 and
7.508 of the Interim Report be modified to more accu rately reflect the full scope of the United States'
argument in respect of the alleged LA/MSF Programme, in particular as set out in the United States'
answer to Panel Question 136.
1530
6.92 The European Communities consid ers that paragraphs 7.495 and 7.508 of the Interim Report
do not suggest that the United States' argument in respect of the alleged LA/MSF Programme was
premised on it having "normative value". Moreover, it notes that paragraph 7.495 of the Interim
Report expressly refers to the United States' answ er to Panel Question 136. Thus, the European
Communities opposes the United States request for m odifications to paragrap hs 7.495 and 7.508 of
the Interim Report.
1531
6.93 The United States' interim review request appears to rest on the view that the "test" set out in
US – Zeroing(EC) should not have been at the centre of the Panel's evaluation of its claim because it
is a "test" relevant only in disputes where an unwr itten measure is challenged "as such". The United
States emphasizes that it did not challenge the alle ged LA/MSF Programme "as such", but rather as a
"measure" that is opposable in WTO dispute settle ment proceedings. Although the United States
acknowledges that it also argued, "as a separate and distinct matter", that even assuming that the US –

1528 EC, Request for Interim Review, p.8.
1529 US, Comment on EC, Request for Interim Review, paras. 31-32.
1530 US, Request for Interim Review, para. 17.
1531 EC, Comments on US Request for Interim Review, p6.

BCI deleted, as indicated [***]

Zeroing(EC) "test" were relevant, the LA/MSF Programme satisfied its criteria because it possessed
inter alia "normative value", it asserts that this line of argument was not its primary position. Rather
the United States' characterizes this as its response to the European Communities' arguments.
6.94 In the Interim Report, we explicitly recognized that the United States is not challenging the
alleged LA/MSF Programme "as such", explaining th at, in evaluating the United States' claim, our
first step taken was to assess whether the United States had established the existence of the alleged
LA/MSF Programme as a "measure". Therefore, we did not treat the United States' complaint as an
"as such" claim. We did, however, apply the criteria in US – Zeroing(EC) to evaluate the United
States' claim, but only to determine whether the "measure" the United States characterised as having
"normative value" actually exists. In other words, we relied upon the "test" in US – Zeroing(EC) as
guidance for what must be established in order to demonstrate the existence of an unwritten measure
with "normative value". We did not rely upon this "test" for the purpose of evaluating the merits of
any "as such" claim.
6.95 In its first written submission, the United Stat es concluded that in the light of the evidence
introduced, "the specific content of {the}Launch Ai d program and the future conduct it will entail
{was} clear".
1532 In other words, the United States expressed the view in its first written submission
that the evidence before the Panel clearly demons trated that the unwritten measure it was challenging
unavoidably necessitated certain future conduct. Mo reover, in its first oral statement, the United
States confirmed that it was making a complain t against an unwritten LA/MSF Programme in
response to the European Communities' suggestion to the contrary, characterizing it as a measure that
"creates expectations among th e public and among private acto rs" demonstrating that it has
"normative value".1533 In its second oral statement, the United States asserted:
"In the present dispute, we have shown that a measure that is not set forth in a single
written instrument – the Launch Aid Program – is in fact a measure and in fact
possesses the qualities the Appellate Body identified in US – Zeroing (EC)".
Neither of these oral statements was prefaced by any explanation that the United States was only
responding to the European Communities' counter-ar gument. Later in its second oral statement and
again in its answer to Panel Question 136, the Un ited States explained that it considered it was not
necessary to show that the measure possessed "nor mative value" in order to show it existed as a
"measure". However, in light of its previous submis sions, it was not apparent that this was in fact the
United States' primary argument. Nevertheless, both of the United States' lines of argument are
recognized in the Interim Report, which addresses and rejects each one.

6.96 Thus, in light of the foregoing, we see no n eed to make the changes the United States
requests, and therefore deny the United States' request. However, in order to ensure that our views in
this regard are clear, we have modified the f ootnotes to paragraphs 7.495, 7.508, 7.513 and 7.570
(now paragraphs 7.500, 7.513, 7.518 and 7.575).
2. Footnote 2469
6.97 The European Communities asks the Panel to m odify footnote 2469 of the Interim Report so
that it properly describes the repayment terms contai ned in Article 6.5 of the German A380 LA/MSF
contract, as the European Communities describes those terms.
1534

1532 US, FWS, para. 106.
1533 US, FNCOS, para. 25.
1534 EC, Request for Interim Review, p. 8.

BCI deleted, as indicated [***]

6.98 The United States argues that Article 6.5 of the German A380 LA/MSF contract does not
unambiguously support the European Communities' read ing of that provision. It therefore asks the
Panel to remove any discussion of this provision from footnote 2469 of the Interim Report or to bring
it into conformity with the language used in footnote 2155 of the Interim Report.1535
6.99 We have revised footnote 2469 (now footnote 28 07), albeit not in the terms proposed by the
European Communities, to bring it into conformity with the description of the same provision in
footnote 2155 (now footnote 2449).
3. Footnote 2473
6.100 The United States requests that the last senten ce in footnote 2473 of the Interim Report be
removed because it considers that there was no reason to expect the United States to have been able to
know that Airbus had not sought LA/MSF in respect of certain models, given that the European
Communities provided only one LA/MSF application, which was for the German A380 contract.
Moreover, the United States submits that had it obtained access to all the relevant documents, it would
not likely have been able to establish the nega tive proposition that Airbus had not sought LA/MSF
from the German, Spanish and UK governments for the A330-200.
1536
6.101 The European Communities argues that the Un ited States misconstrues footnote 2473 of the
Interim Report and Panel Question 3(a), on whic h it is based. According to the European
Communities, the Panel is entitled to assume that, ha ving introduced in its answer to Panel Question
3(a) a distinction between instances in which Ai rbus sought LA/MSF and instances in which it did
not, the United States considered that there were indeed instances in which Airbus did not seek
LA/MSF. Accordingly, the European Communitie s opposes the United States' request, and suggests
that at most, footnote 2473 of the Interim Report could be clarified by placing the Panel's view in the
context of the United States' answer to Panel Question 3(a).
1537
6.102 We have modified footnote 2473 (now footnote 2811) and moved it to the end of the first
sentence of paragraph 7.522 (now paragraph 7.527) in order to clarify the meaning of the last sentence
of that paragraph.
4. Footnote 2478
6.103 The European Communiti es asks the Panel to delete footnote 2478 of the Interim Report
because it considers that it is "speculative" to asser t that the terms of any LA/MSF provided by the
UK government for the A340-500/600 would have been "non-commercial". The European
Communities argues that footnote 2478 of the Interim Report refers to a measure that never existed,
and according to the European Communities, the Panel should not make findings on non-existent
measures. In addition, the European Commun ities asserts that the proposed agreement was not
finalised, implying that it cannot demonstrate the term s that would have been finally negotiated and
agreed between the parties. The European Commun ities also asserts that the final agreement might
not have been concluded in 1998, a fact that would be relevant to identifying the appropriate market
interest rate benchmark.1538
6.104 The United States disagrees with the European Communities' request. According to the
United States, the European Communities' request is not only based on an incorrect understanding of

1535 US, Comment on EC, Request for Interim Review, para. 33.
1536 US, Request for Interim Review, para. 18.
1537 EC, Comments on US Request for Interim Review, pp.6-7.
1538 EC, Request for Interim Review, p.8.

BCI deleted, as indicated [***]

the relevance of footnote 2478 of the Interim Report to the Panel's analysis, but is itself based only on
speculation.1539
6.105 In our view, the European Communities has misunderstood footnote 2478. The footnote does
not indicate a view that any LA/MSF provided by the UK government for the A340-500/600 would
have been "non-commercial", but rather simply that the UK government's LA/MSF proposal or offer
was "non-commercial" at the time it was made . We therefore deny the European Communities'
request.
H. WHETHER LA/MSF FOR THE A380, A340-500/600 AND THE A330-200, CONSTITUTES , IN
EACH CASE , A PROHIBITED EXPORT SUBSIDY WITHIN THE MEANING OF ARTICLE 3 OF THE
SCM AGREEMENT
1. Paragraph 7.583, second sentence
6.106 The European Communities asks the Panel to revi se the description of its argument set out in
the second sentence of paragraph 7.583 of the In terim Report, by replacing the words "will actually"
with "may". The European Comm unities states that it does not argue that the export must occur in
order for there to be a finding that a measure pr oviding for a subsidy contingent upon export exists.
In addition, the European Communities submits that it does not use the term "actually" in the manner
advocated by the United States.1540
6.107 The United States observes that the passage the European Communities requests be revised is
taken verbatim from the European Communities' own second written submission. Thus, the United
States requests that the Panel decline the European Communities' request to modify paragraph 7.583
of the Interim Report.1541
6.108 Although the European Communities now contends that its argument on what constitutes an
"anticipated" export should be understood to mean that it holds the view that an "anticipated" export is
an export that "may" take place in the future, the actual language used in the European Communities'
submissions indicates that it argued that an "anticipated" export is one that " will" take place in the
future, not one that " may" take place. 1542 This view is reflected in the first sentence of
paragraph 7.583 of the Interim Report, where the st atement in this regard made by the European
Communities in its second written submission is quot ed. Therefore, we reject the European
Communities' request to replace the verb "will" with "may" in the second sentence of paragraph 7.583
of the Interim Report, because to do so would misrep resent what was explicitly stated in the European
Communities' own submissions.
6.109 The European Communities contends that it do es not use the word "actually" in the sense
advocated by the United States, and for this r eason, this word should be removed from the second
sentence of paragraph 7.583 of the Interim Report. However, the second sentence of paragraph 7.583
of the Interim Report does not suggest that the Eu ropean Communities considers the term "actually"
in the same manner as the United St ates. Rather it merely explai ns what we understand to be the

1539 US, Comment on EC, Request for Interim Review, paras. 34-37.
1540 EC, Request for Interim Review, p.9.
1541 US, Comment on EC, Request for Interim Review, paras. 38-40.
1542 EC, SWS, paras. 235 ("...the term 'anticipated' (als o juxtaposed to the meaning of the term 'actual')
means an export that has not yet taken place at the moment when the subsidy is deemed to exist, but will take
place in the future.") and 238 ("an 'an ticipated' export is one that has not yet occurred at the moment when the
subsidy is deemed to exist, and by definition is therefore envisaged to be one that will occur subsequently.")
(Emphasis added).

BCI deleted, as indicated [***]

European Communities' view of the meaning of "anticipated exportation or export earnings" in
footnote 4 of the SCM Agreement.1543
6.110 Our understanding of the European Communities' interpretation of the term "anticipated
exportation or export earnings" as articulated in th e Interim Report was developed not only from the
European Communities' explanations of wh at it considered this term to mean, 1544 but also from the
arguments it advanced to reject the United States' interpretation of the same language, particularly in
paragraphs 233 to 235 of its second written submission:
"Thus, the United States is interpreting the term 'actual' as if it means 'real' – that is,
'actually' has taken place in the past or 'act ually' takes place in the future; whilst it is
interpreting the term 'anticipated' (in juxta position to the term 'actual') as if it means
'potential', so that, according to the Unite d States, whether or not the 'anticipated'
export ever 'actually' takes place is irrelevant to the question of whether or not there is
a subsidy contingent upon export performance. Thus, for the United States, the
required condition is not export, but 'the anticipating of' export; this necessarily
involves an enquiry into the hypothetical 'state of mind' or 'intent' of a natural person
whose thoughts are imputable to the defe nding Member; with mere anticipation or
consideration being sufficient to demonstrate contingency.
The European Communities submits that, on any interpretation, including that
advanced by the United States, the facts evidently do not support a finding of export
contingency.
However, quite apart from this factual poi nt, the European Communities additionally
submits that the United States' arguments are also based on a legally erroneous
interpretation of the term 'actual or an ticipated'. The correct interpretation, as
indicated in the submissions of the European Communities, is that the term 'actual'
means an export that exists (that is, has al ready taken place) at the moment when the
subsidy is deemed to exist within the meaning of Article 1 of the SCM Agreement;
whilst the term 'anticipated' (also juxtapo sed to the meaning of the term 'actual')
means an export that has not yet taken place at the moment when the subsidy is
deemed to exist, but will take place in the future."
1545
Nonetheless, we recognize that the European Comm unities did not use the adverb "actually" when
explaining that it understood an "anticipated" export to be an export that is not a 'potential' export, but
one that will take place in the future. We th erefore have removed it from the second sentence of
paragraph 7.583 (now paragraph 7.588).

1543 In this regard, we note that Australia appears to have taken a similar view of the European
Communities' argument. See Australia, Third Party Oral St atement, 24 July 2007, para. 15. ("The fact that the
grant of a subsidy is not the consequence of actual exportation does not mean that the grant of a subsidy is not
tied to export performance and therefore contingent upon export performance within the meaning of the SCM
Agreement".) (Emphasis added.)
1544 In addition to EC, SWS, paras. 235 and 238, see also EC, SNCOS, paras. 126 ("Correctly
interpreted, the term 'actual or anticipated' in footnote 4 simply confirms that the provision captures the whole
range of possibilities, that is, exports that currently exist at the time of the initial grant (actual exports) as well as
those that occur in the fu ture (anticipated exports) ") and 144 ("Furthermore, as the EC has already
explained, and contrary to what the United States appears to believe, a measure may be a subsidy contingent
upon export regardless of whether the export occurs before or after the initial grant"). (Emphasis added.)
1545 EC, SWS, paras. 233 - 235 (Footnote omitted, emphasis added).

BCI deleted, as indicated [***]

2. Paragraph 7.625, third, fourth, fifth and fina l sentences; paragraph 7.626 first sentence;
paragraph 7.627; and paragraph 7.628, fourth and fifth sentences
6.111 The European Communities asks the Panel to "more precisely and accurately" state its
arguments concerning the interpretation of Article 3.1(a) and footnote 4 of the SCM Agreement in
several sentences in paragraphs 7.625 to 7.628 of the Interim Report, and further requests that the
Panel then re-consider the conclusions drawn from those arguments. In particular, the European
Communities asks the Panel to "more precisely and accurately" state its arguments in paragraphs
7.625 of the Interim Report, third, fourth, fifth an d final sentences and 7.62 6 of the Interim Report,
first sentence. It indicates that "it cannot recogni ze its submissions" in paragraph 7.627 of the Interim
Report, and asks the Panel to re-consider the stat ements made in paragraph 7.628 of the Interim
Report, fourth and fifth sentences. To this end, the European Communities presents alternative text
which it considers could be used to replace the text it considers misrepresents or misunderstands its
arguments.1546
6.112 The United States asks that the Panel reject the changes requested by the European
Communities. The United States argues that to the extent that the Interim Report does not describe
the European Communities' argument in terms that European Communities would prefer, the
European Communities has only its own failure to present a single and coherent argument on export
contingency to blame. According to the United St ates, the Interim Report faithfully reflects the actual
text of the European Communities' own submissi ons, often by quoting a nd citation to European
Communities' submissions. Moreover, the United States submits that the European Communities'
requests to replace the Panel's understanding of its ar gument in several of the relevant passages with
the verbatim language of Article 3.1(a) of the SCM Agreement is tautological.1547
6.113 In the Interim Report, we set out and evalua ted two characterisations of the European
Communities' interpretation of Article 3.1(a) a nd footnote 4 of the SCM Agreement. One is the
Panel's own, which the European Communities now ask s be revised (paragraphs 7.625 to 7.628 of the
Interim Report). The other is that put forward by the United States (paragraphs 7.632 and 7.633 of the
Interim Report). After carefully reviewing and r econsidering the European Communities' arguments
concerning the interpretation of Article 3.1(a) a nd footnote 4 of the SCM Agreement, we deny the
European Communities' requests to alter the description of its arguments in the manner requested.
6.114 There are essentially two reasons for our decisi on. First, subject to certain clarifying
adjustments, the language used in the Interi m Report to describe the European Communities'
submissions accurately reflects the core of its argumen ts in respect of the meaning of Article 3.1(a)
and footnote 4 of the SCM Agreement as made in its submissions. Second, the alternative text the
European Communities proposes in its request for inte rim review, for the most part, does not provide
any additional insight into its interpretation of Artic le 3.1(a) and footnote 4, and would, in any case,
alter the meaning of relevant passages of the Report in ways we consider would not accurately convey
our understanding.
6.115 In its first written submission, the European Communities argued that Article 3.1(a) and
footnote 4 contain three "requirements" – "the required condition: actual or anticipated export
performance, exportation or export earnings; the required consequence: the grant of a subsidy; and the
required contingent relationship (or conti ngency) between condition and consequence". 1548 In its first
non-confidential oral statement, the European Co mmunities argued that the United States had "failed

1546 EC, Request for Interim Review, pp.9-11.
1547 US, Comment on EC, Request for Interim Review, paras. 38-52.
1548 EC, FWS, para. 567. The EC explained the three "requirements" in paragraphs 570-582. EC,
FNCOS, para. 73.

BCI deleted, as indicated [***]

to demonstrate any of the requirements of Article 3.1(a) and footnote 4 of the SCM Agreement: the
United States has not demonstrated any condition of export performance; neither that the grant of a
subsidy is the consequence of that condition being fulfilled; nor the required contingency". 1549
Similarly, in its answer to Panel Question 79, the European Communities recalled that "consistent
with the case law, it distinguishes three elements of the prohibition on export subsidies: the required
condition (export performance or exportation or export earnings); the required consequence (the grant
of a subsidy); and the required re lationship between the first two th ings (the required contingency)"
and that "{i}n order to assess the United States claims , and to fully appreciate the arguments of the
European Communities made in its first written submi ssion (and eventually also in its rebuttal), it is
essential to keep the distinctions between these three elements constantly in mind".1550
6.116 This presentation of the legal framework of Article 3.1(a) and footnote 4 is one that cannot be
found in previous WTO dispute settlement proceedings dealing with prohibited export subsidies. In
our view, it is a novel understanding of the elements of Article 3.1(a) and footnote 4, and for this
reason, we reject the modifications to paragr aph 7.625 of the Interim Report requested by the
European Communities. However, we have made some modifications to this paragraph (now
paragraph 7.630) in order to more precisely articulate the European Communities' arguments.
6.117 The European Communities is also concerned a bout certain statements in paragraphs 7.627
and 7.628 of the Interim Report which it considers i ndicate that it is arguing that "the existence of a
subsidy contingent in fact upon export performance can only be demonstrated by adducing a
document pursuant to which a recipient is legally required to satisfy a performance obligation that
cannot be achieved without exports". The Europ ean Communities submits that it never made this
argument.1551
6.118 Paragraph 7.627 of the Interim Report states that "according to the European Communities,
contingency in fact upon anticipated export perform ance arises when the measure granting a subsidy
legally requires the recipient to satisfy a perfo rmance condition that cannot be achieved without
exports, irrespective of whether those exports (o r that performance) actually takes place". In
paragraph 7.628, we concluded that "we see nothing in the ordinary meaning of the word 'contingent'
to support the view that the required link betw een the anticipation of export performance and the
granting of a subsidy can only be established by provi ng the existence of a legal obligation to achieve
that anticipated performance." Thus, in the Interi m Report, we did not indicate that the European
Communities argued that it is necessary to adduce a document pursuant to which a recipient is legally
required to satisfy a performance obligation that cannot be achieved without export in order to
establish that a subsidy is, in fact, granted conti ngent upon anticipated export performance. Rather,
the focus of the relevant paragraphs was our understanding of the circumstances the European
Communities considered would show that a subsidy is granted contingent, in fact, upon anticipated
export performance. They did not address the type of evidence that could be used to demonstrate
those circumstances.
6.119 In this regard, we note that, in its second no n-confidential oral statement, the European
Communities presented what it described as "a succinct and simple re-statement of how the European
Communities sees the overall design and architecture of Ar ticle 3.1(a) and footnote 4", in particular at
paragraphs 116-122. The European Communities e xpressed the "hope{} that the Panel may return to
this statement as a point of reference to guide it in its future deliberations". 1552 The European
Communities drew from the contents of this oral statement to answer Panel Question 175.

1549 EC, FNCOS, para. 68.
1550 EC, Answer to Panel Question 79.
1551 EC, Request for Interim review, pp. 10 and 11.
1552 EC, SNCOS, para. 115.

BCI deleted, as indicated [***]

Paragraph 7.626 of the Interim Report quotes passag es from both submissions which are relevant for
the purpose of understanding the European Communities' interpretation of Article 3.1(a) and footnote
4 of the SCM Agreement.
6.120 In order to fully appreciate the European Commun ities' "re-statement" of its interpretation of
Article 3.1(a) and footnote 4, it is important to understand the meaning it gives to "actual or
anticipated" exports. The European Communities submitted a detailed expositi on of its view on the
meaning of this term in its second written submissi on, in particular at pa ragraphs 233, 235, 237-238
and 244-245. Based on that exposition, it is in our view clear that the European Communities is of the
view that an "anticipated" export is not an export that is "anticipated" in the sense that it is expected
by a granting authority at the time of the granting of a subsidy. Rather, according to the European
Communities, an "anticipated" export is one that has not yet occurred but will take place in the future.
6.121 We find it difficult to understand how it would ever be possible to show, at the time of the
granting of a subsidy, that an export that has not yet taken place will occur, if not by demonstrating
the existence of an obligation or requirement to e xport at that very same moment. This leads us to
conclude that the European Communities must be arguing that the grant of a subsidy that is contingent
upon anticipated export performance can only be demonstrated by showing that a subsidy has been
granted pursuant to a measure requiring the recipient to satisfy a performance condition that cannot be
achieved without exports, irrespective of whether those exports (or that performance) actually takes
place. Although rejecting this characterisation of its arguments in the Interim Report, the text
proposed by the European Communities to replace the description of its arguments found in the
Interim Report provides little, if any, clarification of how its views differ from the description in the
Interim Report. 1553 Moreover, we observe that in its own submissions the European Communities
stated:
"By arguing that the required condition is th e "anticipating of" exports – whether or
not the "anticipated" export ever "actually" (as that term is understood by the United
States) takes place - the United States is ar guing that the requireme nt of contingency
that is at the heart of the provision can be replaced by mere consideration – that is,
consideration by the granting Member that exports might occur in the future, rather
than imposition by the granting Member of a requirement that the recipient export in
order to obtain the subsidy."1554
"...the EC is saying that the measure enacting the initial grant must provide that the
subsidy is granted contingent upon export, and that the measure must also provide
that it is only export (whether in the past or in the future) that completes the grant and
triggers the right to receive or retain the funds unconditionally."1555

1553 For instance, the EC requested that we replace th e sentence "In other words, according to the EC,
contingency in fact upon anticipated export performance arises when the measure granting a subsidy legally
requires the recipient to satisfy a performance condition that cannot be achieved without exports, irrespective of
whether those exports (or that performance) actually ta kes place" appearing in para graph 7.627 with "In other
words, according to the EC, contingency in fact upon anticipated export performance arises when the facts
demonstrate the existence of a measure granting a subsidy contingent upon export performance. The EC
requested similar modifications elsewhere in this paragr aph, and asked the Panel to take them into account in
paragraph 7.628, where we evaluated the EC' argument. However, merely replacing the characterisation of its
argument with text that essentially repeats the languag e of Article 3.1(a) does little to clarify what the EC
understands that provision to mean.

BCI deleted, as indicated [***]

"To succeed, the United States had to cite a provision in the measure stating that if the
condition referred to in Article 3.1( a) (export performance) is fulfilled then the legal
consequence referred to in Article 3.1(a) (the grant of the subsidy) results".1556
"The United States has "failed to de monstrate any of the requirements of
Article 3.1(a) and footnote 4 of the SCM Agreement: the United States has not
demonstrated any condition of export performan ce; neither that the grant of a subsidy
is the consequence of that condition being fulfilled; nor the required contingency".1557
6.122 Having carefully reviewed the European Communiti es original arguments in this context, and
taking as a whole its arguments on the meaning of Article 3.1(a) and footnote 4 of the SCM
Agreement, and in particular its interpretation of "anticipated" export performance, we can only
understand its legal argument to express the view th at a subsidy will be contingent upon anticipated
export performance only when the measure granting the subsid y requires the recipient to satisfy a
performance condition that cannot be achieved withou t exports, irrespective of whether those exports,
or that performance, actually takes place. Thus , we believe we have correctly understood and
accurately described the European Communities' arguments on this issue.
6.123 For all of the above reasons, we deny the Eur opean Communities' request to make changes to
paragraphs 7.626 to 7.628 of the Interim Report. Ho wever, in the light of our reconsideration of its
arguments, we have modified para graphs 7.625-7.631 (now paragra phs 7.630 – 7.637) in order to
more clearly articulate our understanding of the European Communities' arguments.
3. Paragraph 7.633
6.124 The European Communities argues that the final sentence of paragraph 7.633 of the Interim
Report, and consequently paragraph 7.636 of the Interim Report, are not an appropriate
characterisation of its arguments. In particular , the European Communitie s asserts that it "has
repeatedly stated that a measure providing for a s ubsidy contingent upon expo rt is WTO-inconsistent
whether or not exports occur, as the Panel itself records in para. 7.626 of the interim report".1558
6.125 The United States notes that paragraphs 7.633 and 7.636 of the Interim Report accurately
reflect the United States' understanding of the Eu ropean Communities' arguments. Therefore, the
United States argues that there is no reason to amend these paragraphs, and asks the Panel to reject the
European Communities' request.1559
6.126 As noted above, 1560 the characterisation of the European Communities' arguments on the
meaning of Article 3.1(a) and footnote 4 of the SC M Agreement set out and evaluated in paragraphs
7.633 to 7.636 of the Interim Report was that advanced by the United States. Th is is explicitly stated
in the relevant passages. To avoid any confusion, we have made some modifications to paragraphs
7.633 and 7.636 (now paragraphs 7.639 and 7.642) reiterating this fact.
4. Paragraph 7.645, second bullet point and paragraph 7.655, seventh bullet point
6.127 The European Commun ities asserts that the United Kingdom government sought repayment
of LA/MSF for the A380 over [***] deliveries, and not the [***] deliveries mentioned in

1558 EC, Request for Interim Review, p.11.
1559 US, Comment on EC, Request for Interim Review, para. 53.
1560 See paragraph 6.113 above.

BCI deleted, as indicated [***]

paragraph 7.645 of the Interim Report, second bullet point, and paragraph 7.655 of the Interim Report,
seventh bullet point. The European Communiti es requests that these passages be corrected
accordingly.1561
6.128 The United States does not oppose the European Communities' request, and proposes specific
language which it considers could give effect to the European Communities' request.1562
6.129 We have carefully reviewed the facts, and have revised the second bullet point of
paragraph 7.645, and the seventh bullet point of paragraph 7.655 (now paragraphs 7.651 and 7.661) to
more clearly reflect the facts.
5. Paragraph 7.655, fourth bullet point, items (h) and (i)
6.130 The European Communities requests that additiona l text be inserted into paragraph 7.655 of
the Interim Report, fourth bullet point, items (h) and (i) in order to ensure that the Report records its
response to the United States' allegations concerning the evidence identified in those passages.1563
6.131 The United States submits that th e European Communities' request s seek to have reflected in
items (h) and (i) of paragraph 7.655 of the Inte rim Report arguments that either do not, or do not
entirely, match the matters discussed therein. Ac cordingly, the United States asks that should the
Panel make any modification to these passages of the Interim Report, it should mirror the limited
focus of the matters set out in those passages.1564
6.132 We have reviewed the European Communities' arguments and consider that much of the
language it requests be inserted in the relevant passages does not constitute a specific response to the
precise evidence identified by the Un ited States, but rather a genera l response to the United States'
reliance on this and other "additional" evidence overa ll. Therefore, it does not belong in the passages
the European Communities asks to modify. Ne vertheless, we have included the European
Communities' arguments in paragraph 7.655 (now paragraph 7. 661) in order to ensure that they are
recorded in the Report, and have in addition modi fied paragraph 7.655 (now paragraph 7.661), fourth
bullet point, item (i), so as to capture what we understand to be the European Communities' specific
response to the evidence identified therein.
6. Paragraphs 7.674 - 7.682
6.133 The United States requests that, "in the interest of completeness", a footnote be added to the
end of paragraph 7.673 of the Interim Report notin g the European Communities' alleged refusal to
provide the French, Spanish, and UK A380 LA/MSF applications, and the German and Spanish A380
project appraisals, as well as the absence of any e xplanation for the European Communities' alleged
refusal. The United States declares that it does not understand the European Communities to dispute
the fact that it did not provide these documents.1565
6.134 The European Communities submits it is incorrect to state that it "refused to provide" the
French, Spanish and UK A380 LA/MSF applications because such documents were never requested
by either the United States (in the Annex V process) or the Panel. Accordingly, the European
Communities asks the Panel to not only reject the Un ited States' request, but also to revise footnotes

1561 EC, Request for Interim Review, p.11.
1562 US, Comment on EC, Request for Interim Review, para. 54.
1563 EC, Request for Interim Review, pp.11-12.
1564 US, Comment on EC, Request for Interim Review, paras. 55-56.

BCI deleted, as indicated [***]

2745, 2760, 2816 and 2908 and paragraph 7.677 of the Interim Report, which record the United
States' assertion that the European Communitie s "refused to provide" a particular LA/MSF
application, with text it considers would provide a more even-handed account. As regards the United
States' comments concerning the "critical project appraisals", the European Communities explains that
Germany and Spain [***]. The European Communities recalls th at in its response to Question 13(f)
of the Facilitator during the Annex V process, it ex plained that it had provided all copies of "the
available critical project appraisals". Thus, the European Communities asks the Panel to reject the
United States' request because it submits that it is inco rrect to assert that (i) it "failed to provide" the
German and Spanish "critical project appraisal" doc uments for the A380, when there were no such
documents available; and that (ii) it "offered no explanation" for not providing these documents, given
that it noted in its answer to Question 13(f) of the Facilitator that it had provided all "available"
copies.1566
6.135 No questions posed during the Annex V process specifically requested the European
Communities to provide copies of the relevant LA /MSF applications. Although it could be argued
that the relevant A380 LA/MSF applications fell wi thin the scope of the information requested under
the more general questions asked by the Facilitator, 1567 in our view, such questions were too broad to
conclude that the European Communities should have realised that the United States was requesting it
to provide copies of the A380 LA/MSF applications. This is particularly so when such questions are
considered in the context of the many specific que stions asked by the United States for particular
documents. In this light, the United States' a llegation that the European Communities failed to
provide the LA/MSF application for the German A 380 contract, recorded in footnotes 2745, 2760 and
2816, and paragraph 7.677 of the Interim Report, is not entirely accurate. While these passages of the
Interim Report do not express any view on the part of the Panel as to whether the United States is
correct, leaving them as they are may create the impression that the Panel agrees with the United
States. Thus, we have made several changes to footnotes 2745, 2760 and 2816, and paragraph 7.677
(now footnotes 3087, 3103, and 3163, and paragraph 7.683) in order to clarify this point.
6.136 On the other hand, the European Communities was specifically asked by the Facilitator to
provide copies of "any 'critical project appraisals'", in Question 13(f). 1568 The European Communities
notes that in answering this question, it explicitly st ated that it had provided "a copy of the available
critical project appraisals", which included th e French and UK government "critical project
appraisals" for the A380. However, it did not ex plain, as it has now in its comments to the United
States request for interim review, that the reason no German and Spanish "critical project appraisals"
were provided was that these governments applied a "continuous" approach to critically appraising the
projects. Had the European Communities explained this in its answer to Question 13(f), the United
States would have at least known that the German and Spanish "critical project appraisals" were
recorded in various documents. The United States could thereafter have asked the Panel to request the
European Communities to produce these documents dur ing the course of the Panel proceeding. In
this light, we have modified footnotes 2901 and 2904 (now footnotes 3248 and 3251) to reflect the
United States' concerns.

1566 EC, Comments on US Request for Interim Review, pp.7-9.
1567 For instance, Question 23 reads: "Please provide information and documents that relate to Airbus
member State support for the development and/or production of the A380, including but not limited to: (a) ...
(b)". EC, Answers to Questions by the Facilitator under Annex V, Exhibit US-5 (BCI).
1568 Question 13(f) reads: "Please pr ovide information and documents that relate to the implementation
and use of launch aid by Airbus, broken down by Airbus entity, Airbus member State, Airbus model, including,
but not limited to: ... (f) all risk assessments performed with respect to that gove rnment support, including any
"critical project appraisals". EC, Answers to Questions by the Facilitator under Annex V, Exhibit US-5 (BCI).

BCI deleted, as indicated [***]

7. Paragraph 7.677
6.137 The United States argues that the Panel's conclusion in paragraph 7.677 of the Interim Report,
that the UK A380 LA/MSF contract was concluded at least in part on the condition or because of the
UK government's anticipation of exportation, does not reflect any consideration of the UK A380
Project Appraisal or the related HSBI comments pr ovided by the United States. The United States
requests that paragraph 7.677 of the Interim Report be modified to reflect consideration of this
evidence.1569
6.138 The European Communities submits that the HSBI comments the United States refers to in
support of its request asserted that the UK A380 cr itical project appraisal established that the UK
government anticipated exportation or export earnings. The European Communities submits that the
United States provides no basis for the Panel to ta ke these comments into account for the purpose of
the conclusion reached in paragraph 7.677 of the Interim Report, and therefore asks the Panel to reject
the United States requested amendment.1570
6.139 The United States' HSBI appendix to its firs t written submission raised the UK A380 critical
project appraisal in order to support two of its assertions: (i) that the UK government anticipated
exports; and (ii) that the UK government contractually "tied" repayment of LA/MSF to Airbus making
a number of sales that must have necessarily invo lved exports. The United States' reliance on the UK
critical project appraisal in this regard is alread y noted and considered in paragraphs 7.645 (footnote
2741) (anticipated exports), footnote 2813 and 7. 672 (footnote 2897) (export contingency) of the
Interim Report. Paragraph 7.677 of the Interi m Report evaluates the evidence and arguments the
United States advanced that were "additional" to those already set out and addressed in the previous
paragraphs of the Interim Report in respect of th e question of export contingency. We therefore
consider the changes requested by the United Stat es to be unnecessary and redundant, and decline to
make them.
8. Paragraph 7.679
6.140 The United States submits that the first sentence of paragraph 7.679 of the Interim Report is
incorrect when it states that "{t}he only other sp ecific piece of evidence the United States relies upon
is the statement reportedly made by French Prim e Minister, Lionel Jospin in March 2000 ....". The
United States submits that this statement does not reflect any consideration of the French A380
Project Appraisal or the related HSBI comments provided by the United States in its first written
submission. The United States requests that paragr aph 7.679 of the Interim Report be modified to
reflect consideration of this evidence.1571
6.141 The European Communities contends that the HSBI comments the United States refers to in
support of its request asserted that the French A380 critical project appraisal established that the
French government anticipated exportation or export earnings. The European Communities notes that
these comments have already been taken into account by the Panel at paragraphs 7.645-7.646 of the
Interim Report. Thus, the European Communities asks the Panel to reject the United States' requested
amendment.
1572
6.142 The United States relies on the French government critical project appraisal for the A380 in
essentially the same way that it relies upon the UK gove rnment's critical project appraisal for the

1569 US, Request for Interim Review, para. 20.
1570 EC Comment on US, Request for Interim Review, p.9.
1571 US, Request for Interim Review, para. 21.
1572 EC Comment on US, Request for Interim Review, p.9.

BCI deleted, as indicated [***]

A380, that is, to support two of its assertions: (i) that the French government anticipated exports; and
(ii) that the French government contractually "tied" repayment of LA/MSF to Airbus making a
number of sales that must have necessarily involv ed exports. The Interim Report notes and considers
the United States' reliance on the French governme nt's critical project appraisal for the A380 in
paragraphs 7.645 (footnote 2741) (anticip ated exports) and 7.672 (footnote 2897) (export
contingency) of the Interim Report. Moreover, th e particular paragraphs of its HSBI appendix the
United States requests be reflected in paragraph 7. 679 of the Interim Report deal with the question
whether the French government anticipated exports. However, this is not what paragraph 7.679 of the
Interim Report is about. Paragra ph 7.679 of the Interim Report eval uates the evidence and arguments
the United States advanced that were "additional" to those already set out and addressed in the
previous paragraphs of the Interim Report in respect of the question of export contingency. In this
light, we decline to make the changes requested by the United States, as we did with respect to the
United States' request concerning para graph 7.677 of the Interim Report. 1573 However, we have
modified paragraph 7.679 (now paragraph 7.685) in order to clarify our views.
9. Paragraphs 7.690-7.710
6.143 The European Communities asks the Panel to evaluate the United States' in law export
contingency claims before its in fact export c ontingency claims. According to the European
Communities, "one cannot measure indirect evidence against a standard without first having a precise
and clear understanding of what that standard is. In the present case, that precise and clear
understanding would be the meaning of in law contingency."1574
6.144 The United States argues that the European Co mmunities has provided no explanation as to
what aspects of the claims compel the Panel to fo llow its preferred order of analysis. The United
States recalls that, as the European Communiti es has recognized throughout these proceedings, the
legal standard for de jure and de facto export contingency claims is th e same. In its view, the Panel
does not need to conduct an analysis of de jure claims first in order to "understand" the standard it
must apply to de facto claims.1575
6.145 The European Communities' request presupposes that the legal standard applicable to claims
of in fact export contingency cannot be ascertained without first determining what the legal standard
is for in law export contingency claims. Howeve r, as we note in the Report, the legal standard
applicable to in law and in fact export contingency claims under Article 3.1(a) of the SCM Agreement
is the same. 1576 The only difference between the two types of claims is the evidence that may be
relied upon for the purpose of their substantiation. Mo reover, we note that in other dispute settlement
proceedings, panels faced with in fact export contingency claims ha ve not evaluated them by first
determining what the legal standard is for in law export contingency and then assessing whether the
facts before them satisfied this standard. Indeed, gi ven that the legal standard is the same, it would in
our view make little sense to do so. We therefore deny the European Communities' request.

1573 See paragraph 6.139 above.
1574 EC, Request for Interim Review, p.12.
1575 US, Comment on EC Request for Review, para. 57.
1576 See below, paras. 7.696 - 7.701 (corresponding to paras. 7.690-7.695 of Interim Report).

BCI deleted, as indicated [***]

I. WHETHER CERTAIN EUROPEAN INVESTMENT BANK LOANS TO AIRBUS ARE SPECIFIC
SUBSIDIES WITHIN THE MEANING OF ARTICLES 1 AND 2 OF THE SCM AGREEMENT
1. Paragraphs 7.744, 7.747, 7.781, 7.795, 7.814, 7.854, 7.856, 7.857, 7.862 and 7.875
6.146 The European Communities argues that the Interi m Report incorrectly characterised the EIB's
lending activities as "not-for-profit" in paragraphs 7. 744, 7.747, 7.781, 7.795, 7.814, 7.854, 7.856,
7.857, 7.862 and 7.875 of the Interim Report. A ccording to the European Communities, all of the
evidence before the Panel only confirms that the EIB is "a not-for-profit institution". In the view of
the European Communities, nowhere in the evidence before the Panel was there any reference that the
"lending activities" of the bank ha ve a "non-profit nature". The European Communities argues that
the Interim Report confuses the non-profit nature of the EIB as an institution with the nature of its
lending activities . Accordingly, it asks the Panel to rectif y this alleged error of assessment in the
relevant paragraphs.1577
6.147 The United States considers that the European Communities' requests are based on a highly
selective reading of the Interim Report and the relevant evidence. The United States points to various
pieces of evidence reviewed by the Panel that it argu es show that the interest rates charged to EIB
clients cover only the costs of EIB borrowing and op erations but do not provide for any profit, and
which, when combined, lead the Panel to conclude in paragraph 7.747 of the Interim Report that EIB
lending is non-commercial.1578
6.148 Our finding concerning whether the evidence about the nature and function of the EIB
(beginning at paragraph 7.741 of the Interim Report) demonstrates that the EIB's loans are provided at
non-commercial interest rates, is set out in pa ragraph 7.747 of the Interim Report. This
paragraph does not draw any conclusion about whet her the EIB's lending activities are not-for-profit.
Rather, it concludes that "... the evidence ... review ed on the nature of the EIB's lending activities
(especially its non-profit-making nature) indirectly suppor ts the view that the rate of return it obtains
on the loans it grants to borrowers (including those challenged by the United States in this dispute) is
below the rate of return that would be demanded by a commercial lender, thereby conferring a benefit
within the meaning of Article 1.1(b) of the SCM Agreement." Eight of the nine remaining paragraphs
identified by the European Communiti es all refer to the findings made in respect of the "nature of the
EIB's lending activities" in paragraph 7.747 of the In terim Report, namely, that the evidence before
the Panel indirectly supports the view that the EIB's loans are provided at non-commercial interest
rates. Thus, contrary to the European Communities' view that all 10 of the cited paragraphs refer to
the EIB's not-for-profit lending activities , only paragraph 7.744 of the Interim Report explicitly
describes the EIB's lending activities as not-for-profit.
6.149 While it is true that there is no eviden ce that explicitly characterises the EIB's lending
activities as not-for-profit, the evidence th at has been submitted, in our view, strongly suggests this to
be the case. In this regard, we note particularly Exhibits US-160 and US-151 (both referred to in the
Interim Report). In both exhibits, statements aut hored by the EIB indicate that as a "not-for-profit
institution" it is able to pass on the benefits of its ability to borrow funds on the capital markets at
AAA credit rating levels to its clients at "fine rates" . The statements explain that the interest rates
charged include only "a small margin {above its borrowing cost} to cover operating expenses",
namely, "administrative expenses and other costs". Thus, in describing the level of interest charged
on its client loans, the EIB makes no mention of an y profits. On the contrary, the EIB's statements
indicate that the interest rates charged to clients only cover costs. This is consistent with Article 19 of
the EIB Statute, which provides that:

1577 EC, Request for Interim Review, pp.12-13.
1578 US, Comment on EC, Request for Interim Review, paras. 58-60.

BCI deleted, as indicated [***]

"Interest rates on loans to be granted by the Bank and commission on guarantees shall
be adjusted to conditions prevailing on the capital market and shall be calculated in
such a way that the income therefrom shall enable the Bank to meet its obligations, to
cover its expenses and to build up a reserve fund as provided for in Article 24."1579
6.150 While the European Communities contests the ch aracterisation of the EIB's lending activities
as "not-for-profit", it has not at any stage during these proceedings asserted that the EIB includes a
profit margin in the interest rates charged on its clie nt loans. Neither has the European Communities
pointed to any evidence before us that could substantia te such an assertion. It is true that in addition
to needing to cover expenses, the EIB must, accordi ng to Article 19 of its Statute, also "build up a
reserve fund". The European Communities explained during the proceedings in this dispute that "{i}f
the EIB's reserve is reduced (for ex ample as a result of loan losses and/or the use of funds sitting on
EIB's reserve fund to finance a capita l increase) then the EIB may need to increase its interest rate in
order to ensure compliance with its obligations under Article 24 of the EIB Statute which requires it to
build up a 10% reserve fund". 1580 Thus, in addition to covering its costs, the interest rates charged by
the EIB on its loans may also contain a margin fo r its reserve fund. However, even assuming,
arguendo, that any such reserve fund margin could be viewed as akin to a profit margin, it is clear
from the European Communities' own description that it will not always be included in the interest
rate charged by the EIB.
6.151 In view of the foregoing, we deny the Europ ean Communities' request to amend paragraphs
7.744, 7.747, 7.781, 7.795, 7.814, 7.854, 7.856, 7.857, 7.862 and 7.875 of the Interim Report.
However, we have modified para graph 7.744 (now paragraph 7.750) , in order to more accurately
reflect the evidence.
2. Paragraph 7.753 and footnote 3041
6.152 The European Communities requests that the l ast sentence in footnote 3041 of the Interim
Report, where it contends the Panel "speculated" that the funds used to finance the 2002 loan to
EADS might well have been sourced from the Eurodollar bond market, be deleted.1581
6.153 The United States considers that the statement at issue reflects an appropriate exercise of the
Panel's discretion when evaluating the evidence and should therefore not be deleted as the European
Communities requests. Nevertheless the United States suggests that footnote 3041 of the Interim
Report could be modified to clarify that the stat ement in the last sentence, while not based on
evidence specifically on the point being made, is an appropriate inference to draw from the evidence
that is before the Panel.1582
6.154 At paragraph 7.753 of the Interim Report, we considered the relevance of the Eurodollar
Bond Index relied upon by the United States for the pur pose of constructing its market interest rate
benchmark for the 2002 loan to EADS. Footnote 3041 of the Interim Report reflects one aspect of our
thinking with respect to that issue, and therefore, we decline to make the change requested.
3. Paragraphs 7.760 and 7.779
6.155 The European Communities requests that referenc es to "project-specific" obligations and
costs in paragraphs 7.760 and 7.779 of the Interi m Report be deleted. According to the European

1579 Exhibit EC-157.
1580 EC, Answer to Panel Question 179.
1581 EC, Request for Interim Review, p.13.
1582 US, Comment on EC, Request for Interim Review, paras. 61-65.

BCI deleted, as indicated [***]

Communities, its submissions on the obligations and costs discussed in these paragraphs used the term
"project-related". Moreover, the European Communiti es argues that the word "specific" has a distinct
meaning in the context of the SCM Agreement as a result of which the term used in the Interim
Report may be misunderstood.1583
6.156 The United States submits that the change in terminology requested by the European
Communities would not accurately reflect the nature of those obligations and costs and is therefore
not warranted. Accordingly, the United States asks the Panel to reject the proposed changes.1584
6.157 We recognize that, overall the European Commun ities did not use the term "project-specific",
but rather the term "project-related" in its su bmissions when describing the "additional" costs it
argued are incurred in connection with EIB fina ncing. However, in responding to Panel
Question 176, the European Communities explained that the costs associated with EIB financing were
additional to those incurred with bond financing instruments because the latter "were made for
'general corporate purposes' and were not pr oject-specific". Thus, although the European
Communities generally described the costs at issue as "project-related", when comparing them to the
costs associated with the bond instruments used by the United States to establish the proposed interest
rate benchmark, the European Communities also indirec tly described them as "project-specific" costs.
In light of the foregoing, we have replaced the term "project-speci fic" with the term "project-related"
in paragraphs 7.760 and 7.779 (now paragraphs 7.766 and 7.785), except where the former is used in
the context of explaining the European Communities' argument in respect of the costs associated with
bond financing.
4. Paragraphs 7.783, 7.791 and 7.793
6.158 The European Communities does not agree with the conclusion expressed at paragraph 7.791
of the Interim Report that one of the purposes of a commitment f ee is to compensate a lender for the
risk that a borrower's credit rating will deteriorate betw een the time the interest rate is set in a loan
contract and the disbursement of funds to that bor rower. According to th e European Communities,
the evidence before the Panel, and the position of the European Communities, only confirmed that a
commitment fee is requested in return for tying up the capital of the lender and to compensate the
lender for committing to a loan. Thus, the European Communities asserts that there is no connection
between the commitment fee and the creditworthin ess evolution of the borrower. In its view, a
commitment fee has to do with the lender's liquidity constraint, not the borrower's credit standing.1585
6.159 The United States submits that there is no mer it to the European Communities' request. The
United States points out that both the NERA EIB Report and Brealey and Myers support the view that
commitment fees are intended to compensate lenders for agreeing, at the time of the conclusion of a
loan contract, to provide funding at a late r date on interest rate terms reflecting, inter alia, the credit
worthiness of the borrower at the time the loan cont ract was concluded. Thus, the United States
suggests that should the Panel decide to make any changes to the relevant paragraphs, it should be
only to remove any reference to the European Communities' agreement with this proposition.1586
6.160 During the proceedings in this dispute, when asked to elaborate its view on the meaning of
"commitment fee", the European Communities drew support from the same passage of the Brealey
and Myers text relied upon by the United States. 1587 This passage, which also informed our own

1583 EC, Request for Interim Review, p.13.
1584 US, Comment on EC, Request for Interim Review, paras. 66-68.
1585 EC, Request for Interim Review, p. 13.
1586 US, Comment on EC, Request for Interim Review, paras. 69-72.
1587 EC, Answer to Panel Question 179.

BCI deleted, as indicated [***]

understanding, explained that a commitment fee was an extra cost charged by banks in exchange for
which a borrower:
"receives a valuable option: It has guaranteed access to the bank's money at a fixed
spread over the general level of interest ra tes. This amounts to a put option, because
the firm can sell its debt to the bank on fi xed terms even if its own creditworthiness
deteriorates or the cost of credit rises". (emphasis added)
As we understand it, this passage suggests that a co mmitment fee is not only related to the risk
associated with a lender's "liquidity constraint" (" cost of credit"), as the European Communities now
argues, but also the creditworthiness of the borrower. Moreover, in explaining that a commitment fee
is a cost "associated with commercial loans gua ranteeing the borrowing entities immediate access to a
lending bank's money 'at a fixed spread over the ge neral level of interest rates'", the European
Communities noted:

"By contrast to the types of loans consid ered by Brealey, the challenged EIB loans
extended under 'open-rate' contracts do not guarantee the entities access to EIB funds
at a fixed spread over a general level of inte rest. This is true irrespective of whether
or not the borrower's 'credit worthiness deteriorates' or 'cost of credit rises'."1588
6.161 Thus, while the European Communities argued th at commitment fees are ordinarily charged
on commercial loans when a borrowi ng entity is offered "immediate access" to a loan "at a fixed
spread over the general level of interest rates", it is less than clear, on the basis of the arguments
advanced during the proceeding, that the European Communities did not consider such fees to, at least
in part, compensate for the risk that the borrower's credit rating might deteriorate, in addition to the
possibility that the cost of credit for the bank might increase.
6.162 Nevertheless, as it has now clarif ied its argument in this rega rd, we have made changes to
paragraphs 7.784, 7.791 and 7.793 (now paragraphs 7. 790, 7.797, and 7.799) to accurately reflect the
European Communities' position. Despite this cl arification, we have le ft unchanged our overall
conclusion on the purpose of a commitment fee.
5. Paragraphs 7.733-7.833
6.163 The European Communities expres ses its disagreement with the benefit/benchmark analysis
for the EIB loans contained in paragraphs 7.733 to 7.883 of the Interim Report. The European
Communities contends that the evidence it had a dvanced was wrongly dismissed, and that more
credibility and weight was unjustifiably ascribed to the United States' proposed benchmarks. 1589
Apart from making this statement, the European Communities has neither identified any particular
error in the Interim Report, nor asked for any speci fic changes to the text of any of the relevant
paragraphs.
6.164 The United States did not comment on this aspect of the European Communities' request for
interim review.
6.165 Given that the weighing of evidence, including its credibility, is the task of the Panel, and in
the absence of any substantiated arguments s upporting any specific requests from the European
Communities, we consider that there is no need to make any changes in response to the European
Communities' comments in this regard.

1588 EC, Answer to Panel Question 179 (emphasis added, footnotes omitted).
1589 EC, Request for Interim Review, p.13.

BCI deleted, as indicated [***]

6. Paragraph 7.966
6.166 The European Communities requests that the word "would", used twice in the last sentence of
paragraph 7.966 of the Interim Report, be replaced with the word "may", in order to, in its view,
ensure consistency between the analyses made in paragraphs 7.966 and 7.963 of the Interim
Report.1590
6.167 The United States considers that the European Communities' request appears to be premised
on a misunderstanding of the Panel's reasoning. According to the United States, the analyses set out
in paragraphs 7.966 and 7.963 of the Interim Report do not raise any questions of consistency.
1591
6.168 We consider it useful to modify the explanati on in paragraph 7.966 of the Interim Report to
avoid any confusion about our views. To this end, we have revised paragraph 7.966 (now paragraphs
7.792 – 7.793), albeit not in the terms proposed by the European Communities.
7. Paragraphs 7.983-7.984 and 7.987-7.989
6.169 The United States considers that the Panel coul d assist the positive resolution of this dispute
by providing alternative findings that complete the specificity analysis under the assumption that, as
the United States proposed, "disproportionately large amounts of subsidy" and "predominant use"
should be examined in the light of the i2i Programme.1592
6.170 The European Communities opposes the United St ates' request, noting that the Panel has
already thoroughly addressed and assessed the United States' arguments and factual assertions on this
issue. The European Communities submits that based on that assessment, the Panel concludes that the
i2i was not a "programme" and was not a correct basi s for the specificity analysis in the context of
Article 2.1(c) of the SCM Agreement.1593
6.171 The United States' contention that the i2i is the relevant "programme" for the purpose of
performing a de facto specificity analysis under Article 2.1(c) of the SCM Agreement is described and
evaluated in paragraphs 7.971 to 7.982 of the Inte rim Report. Our conclusi on leave leaves little, if
any, room for doubt that we rejected the United St ates' contention. The Un ited States asserts that
alternative findings would contribute to a positive resolution of the dispute, but has not explained how
such alternative findings would have this effect.1594 In light of the above, we consider there is no need
to prepare alternative findings on this question, and we deny the United States' request that we do so.
8. Paragraphs 7.983, 7.987 and 7.998
6.172 The European Communities proposes the insertion of a new footnote in paragraphs 7.983,
7.987 and 7.998 of the Interim Report to give mo re support to the observations made in those
paragraphs.1595
6.173 The United States considers that the language proposed by the European Communities finds
no support in the Panel's evaluation of specificity und er Article 2.1(c), nor the evidence on the record

1590 EC, Request for Interim Review, p.14.
1591 US, Comment on EC, Request for Interim Review, paras. 73-76.
1592 US, Request for Interim Review, para. 22.
1593 EC, Comments on US Request for Interim Review, p.10.
1594 Assuming the United States is concerned with the ability of the Appellate Body to "complete the
analysis" were it to overturn the Panel's finding and consider that the i2i is the relevant "programme", there are,
in our view, sufficient facts discussed in paragraphs 7.971 to 7.982 of the Interim Report to enable it to do so.
1595 EC, Request for Interim Review, p.14.

BCI deleted, as indicated [***]

or even Article 2.1(c) of the SCM Agreement. Equally, the United States submits that the European
Communities' own submissions do not provide sup port for the language it requests be added to
paragraphs 7.983, 7.987 and 7.998 of the Interim Report.1596
6.174 In our view, there is no need to add the proposed text to paragraphs 7.983, 7.987 and 7.998 of
the Interim Report in order to strengthen the observa tions made therein, and we therefore deny the
European Communities' request.
9. Paragraph 7.996
6.175 The European Communities asserts that the funding amounts referred to in paragraph 7.996
and footnote 3449 of the Interim Report (citing Exhibits US-176 to US-181) refer to "signed" amounts
of funding within the European Communities, rather than "disbursed amounts of funding".1597
6.176 The United States argues that the European Communities has provided no evidence to support
the assertions it now makes, and notes that it is not entitled to introduce new evidence at the interim
review stage of these proceedings.1598
6.177 We agree with the United States that the European Communities' position is an assertion
without supporting evidence. Nevertheless, without modifying the text of paragraph 7.996 (now
paragraph 7.1003), we consider it useful to insert a footnote in the relevant passage to reflect the
European Communities' assertion.
J. WHETHER THE GERMAN, FRENCH, UK, AND SPANISH GOVERNMENTS HAVE SUBSIDIZED
AIRBUS THROUGH THE PROVISION OF INFRASTRUCTURE AND INFRASTRUCTURE-RELATED
GRANTS
1. Paragraphs 7.1012 and 7.1035
6.178 The European Communities requests that the Pa nel amend its description of the European
Communities' argument concerning the evaluation of general infrastructure in paragraphs 7.1012 and
7.1035 of the Interim Report to more accurately reflect the European Communities' argument as
presented, referring in this regard to paragra ph 340 of the European Communities' second written
submission.1599
6.179 The United States did not comment on the European Communities request in this regard.
6.180 The change proposed by the European Comm unities would amend our paraphrasing of its
argument to incorporate the wording actually u sed in the European Communities' second written
submission, which is the source referred to in the relevant footnotes. We therefore grant the European
Communities' request, and have modified the relevant text in both paragraphs 7.1012 and 7.1035 (now
paragraphs 7.1019 and 7.1042, respectively).

1596 US, Comment on EC, Request for Interim Review, paras. 77-82.
1597 EC, Request for Interim Review, p.14.
1598 US, Comment on EC, Request for Interim Review, para. 83.
1599 EC, Request for Interim Review, p. 15.

BCI deleted, as indicated [***]

2. Paragraph 7.1036
6.181 The European Communities further requests, in view of its comments on paragraphs 7.1012
and 7.1035 of the Interim Report, that the Panel amend paragraph 7.1036 of the Interim Report to
delete the phrase "a proposition with which both parties appear to agree".1600
6.182 The United States asks that the Panel deny the Eu ropean Communities' request in this regard,
asserting that nothing in the comments referred to would support finding that the European
Communities does not agree with the notion that there is no infrastructure that is inherently
"general".
1601 Moreover, the United States notes that th e European Communities does not object to
the final sentence of footnote 3529 of the Interim Report which is appended to the phrase to which the
European Communities objects. That footnote notes the Panel's understanding that the European
Communities is not arguing that certain types of infrastructure are general per se , and that the
European Communities argues that three factors should be consid ered in determining whether
infrastructure is "general", and that the type of infrastructure is only one of those three.
6.183 In our view, the mere fact that the European Communities argues for a two-stage approach in
determining whether limitations on the use of infrast ructure are relevant to the determination whether
it is general does not demonstrate that it disagrees w ith the proposition that there is no infrastructure
that is inherently general. The European Communities points to no submission or argument it made
during the proceedings which would demonstrate its disagreement with this proposition. Moreover,
the European Communities argues that the term "in frastructure" means "basic goods and services in a
society which underpin its economic performance" and that "general infrastructure" is provided for
the benefit of the public at large, where the rele vant good or service is accessible by the public at
large, or where it "enables" members of the publ ic at large, thereby fulfilling a public policy
objective.
1602 The European Communities argues that dete rmining whether infrastructure is "general"
requires consideration of three factors:
"(i) the substance of government action re lated to basic installations, facilities and
services needed to support social as well as economic development; (ii) their public
policy objective and (iii) their designation for public use by either being publicly
accessible, by enabling access by members of the public at large, or by providing
common goods to the public".
1603
Based on the foregoing, its seems clear to us that the European Communities did not argue that the
nature of infrastructure is determinative of whether it is general. Thus, we maintain our interpretation
of the European Communities' position as appearing to agree with the proposition that there is no
infrastructure that is inherently "general" per se, and deny the requested amendment.

3. Paragraph 7.1044, footnote 3547
6.184 The European Communities requests the Panel to amend its description of the facts
concerning the upgrading of existing and building of new dykes in footnote 3547 to paragraph 7.1044
of the Interim Report, to reflect the European Communities' factual assertions.1604
6.185 The United States did not comment on this aspect of the European Communities comments.

1600 EC, Request for Interim Review, pp. 15-16.
1601 US, Comments on EC Request for Interim Review, paras. 84-88.
1602 EC, FWS, para. 716.
1603 EC, Answer to Panel Questions 90, 186 and 221; EC, FWS, para. 724.
1604 EC, Request for Interim Review, p. 16.

BCI deleted, as indicated [***]

6.186 The European Communities seeks to include, in the Panel's description of the factual
background of the Mühlenberger Loch project, its assertions that the upgrading of existing and
building of new dykes around the existing Airbus f acility and the reclaimed land "were part of the
federal and regional flood protecti on programme for the whole of the river Elbe for the period 2002-
2012. The programme, which was started in the early 1990s, required the authorities to make
improvements to the existing dykes." 1605 However, the European Comm unities cites no evidence in
support of these assertions. Paragraph 756 of the European Communities' first written submission,
where these assertions are first made, cites Exhib its EC-545 and EC-549, albeit not as support for
these specific assertions of fact. In any event, ne ither of these documents refers to the federal and
regional flood protection programme, or links the work undertaken in the Mühlenberger Loch area
with any required improvements to flood protection in the area. Indeed, both documents indicate that
most, if not all, of the flood protection measures were necessary as a result of the land reclamation
project. Thus, while we do not doubt that the wo rk was undertaken in a manner consistent with the
need for flood protection in the area and with the applicable standards, and that it was carried out
consistently with the general flood protection programme, we see no basis for the conclusions
proposed by the European Communities, and therefore deny this aspect of its request.
4. Paragraph 7.1059
6.187 The European Communities requests that the Pa nel amend paragraph 7. 1059 of the Interim
Report to add a footnote describing the Hamburg Real Estate Experts Committee and specifically its
independence and autonomy, asserting that this would be commensurate with the Panel's description
of the United States' real estate experts in footnote 3560 to paragraph 7.1048 of the Interim Report.
1606
6.188 The United States observes that it understands that the fact that the Panel did not include the
European Communities' assertions in this regard refl ects that they were not relevant to the Panel's
ultimate analysis. 1607 The United States does not specifically object to the European Communities'
request, but requests that, should the Panel grant it, it should clearly indicate that these are the
European Communities' arguments, not undisputed fact s, and refer in addition to the United States'
counterarguments at paragraphs 365-371 of its second written submission.
6.189 We grant the European Communities' requ est in part, by adding a footnote to
paragraph 7.1059 (now paragra ph 7.1066) describing the functi on of the Experts Committee.
However, we have not included the European Co mmunities' assertions as to the independence and
autonomy of the Experts Committee, which the Unite d States specifically disputed, and as to which
we made no findings.
5. Paragraph 7.1061
6.190 The European Communities requests the Pa nel to add a sentence at the end of
paragraph 7.1061 of the Interim Report summa rizing the European Communities' argument
concerning possible returns other than rent that jus tified Hamburg's investment in the creation of the
land.1608
6.191 The United States did not comment on this aspect of the European Communities' request.

1605 EC, Request for Interim Review, p. 16.
1606 EC, Request for Interim Review, p. 16.
1607 US, Comments on EC Request for Interim Review, para. 90.
1608 EC, Request for Interim Review, p. 16.

BCI deleted, as indicated [***]

6.192 We have added a sentence to paragraph 7.1061 (now para graph 7.1069) summarizing the
European Communities' arguments in this regard , which were already partially reflected in
paragraph 7.1055 of the Interim Re port (now paragraph 7.1062 below) , albeit in terms different from
those proposed by the European Communities.
6. Paragraph 7.1080
6.193 The European Communities requests an amendment to paragraph 7.1080 of the Interim
Report to more fully reflect the European Communitie s' argument that the amount the United States
asserted Hamburg authorities invested in the creatio n of land at Mühlenberger Loch was an early
estimate, and that the aggregate co sts were lower, to indicate speci fic evidence relied upon in this
regard, with a footnote reference to Exhibit EC-548, and to add a parenthetical indicating that these
were the total costs foreseeable in 2006.1609
6.194 The United States considers that the first part of the European Communities' request is
unnecessary, since the panel rejected the estimat e cited by the European Communities as not
representing all the relevant costs. 1610 The United States further requests that if the Panel grants the
first part of the European Communities' request, it also include a more detailed explanation of the
United States' argument and evidence relied upon in this regard. 1611 Finally, the United States objects
to the second part of the European Communities' request, asserting that the assertion made by the
European Communities is new, and that the Eu ropean Communities has offered no evidentiary
support for it.
6.195 We have modified paragraph 7.1080 (now paragraph 7.1088) to more fully reflect both
parties' arguments, and the evidence relied upon by th em, albeit in different terms than suggested by
either party.
7. Paragraph 7.1087
6.196 The European Communities requests that the Panel amend the second sentence of
paragraph 7.1087 of the Interim Report to reflect the "equal importance" the European Communities
asserts it ascribed to the two aspects of its argument discussed in this paragraph.1612
6.197 The United States objects to the European Comm unities' request, asserting that the sentence
in question reflects the Panel's characterization of the extent of the European Communities' reliance
on a particular argument, and that while the European Communities may not agree with that
characterization, it has provided no explanation for why that characterization is unfounded.1613
6.198 The sentence which the European Communitie s seeks to amend clearly describes our
understanding as to the extent of the European Communities' reliance on the view that land
reclamation is a government task. As the Eur opean Communities has made no argument now, and
refers to none made previously, that would s uggest that our understanding in this respect is
unwarranted, we deny the European Communities' request.

1609 EC, Request for Interim Review, p. 16.
1610 US, Comments on EC Request for Interim Review, para. 93.
1611 US, Comments on EC Request for Interim Review, para. 94.
1612 EC, Request for Interim Review, p. 17.
1613 US, Comments on EC Request for Interim Review, para 98.

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8. Paragraph 7.1086, footnote 3652
6.199 The European Communities request s the Panel to amend footnote 3652 of the Interim Report
to reflect the correct source, and supplement the text of the footnote to more fully reflect the European
Communities' argument.1614
6.200 The United States did not comment on this aspect of the European Communities' comments.
6.201 The European Communities is corre ct that the footnote as originally drafted cites the wrong
source. The text the European Communities seeks to add to the footnote is based on the correct
source which should have been cited, and therefor e reflects the European Communities' argument as
originally presented. We therefore grant the European Communities' request, and have amended
footnote 3652 (now footnote 4004) to refer to the correct source and adding additional text.
9. Paragraph 7.1087, footnote 3655
6.202 The European Communities requests that the Pa nel supplement footnote 3655 of the Interim
Report to cite paragraphs 107 9-1089 of the European Communities' second written submission in
addition to the cited reference.1615
6.203 The United States objects to this request, asserting that the paragraphs to which the European
Communities seeks to add a reference do not deal with the question whether land reclamation
conferred a benefit within the meaning of Article 1. 1(a) of the SCM Agreement, but with the adverse
effects caused by the provision of the infrastruct ure in question, noting the location of those
paragraphs in the European Communities' second wr itten submission, and the location of the Panel's
consideration of those paragraphs in its Interim Report.
6.204 The European Communities provides no justifi cation for its request. The reference in
footnote 3655 of the Interim Report is the specific source for the text quoted in paragraph 7.1087 of
the Interim Report, to which the footnote is appe nded. Moreover, we agree with the United States
that the paragraphs referred to by the European Communities do not address the question of benefit,
which is the subject of this section of the Interim Report, and thus are not relevant to the Panel's
analysis here. We therefore deny the European Communities' request.
10. Paragraph 7.1120
6.205 The European Communities disagre es with the Panel's conclusion in paragraph 7.1120 of the
Interim Report that the cost of the runaway extension was DM 40 million, arguing that it did not
accept the amount of DM 40 million "as an accurate est imate, as the cost of the runway extension".
The European Communities argues that there is evidence on the record showing that the actual cost of
the runway extension was much lower. Conseque ntly, the European Communities requests the Panel
to revisit the evidence in the record on this matter and concludes that the City of Bremen actually paid
[***] or at least an amount not exceeding [***].
1616

1614 EC, Request for Interim Review, p. 17.
1615 EC, Request for Interim Review, p. 17.
1616 EC, Request for Interim Review, pp. 17-18.

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6.206 The United States objects to the European Commun ities' request in this regard, asserting that
the statement that the parties do not disagree about the accuracy of the DM 40 million figure as an
estimate of the cost of the runway extension is correct as a matter of fact.1617
6.207 Our conclusion in paragraph 7.1120 of the Interim Report was not that the European
Communities accepted the amount of DM 40 million as the cost of the runway extension, but merely
that that the European Communities did not dispute that this figure represented the planned
expenditures, i.e., an accurate estimate of the cost of the runway extension as of the date of the
estimate. We continue to understand the European Communities not to dispute the accuracy of this
figure as an estimate at the time of the costs of the runway extension. The European Communities
argued, and maintains, that the estimate turned out to be wrong, and that the actual cost of the runway
extension was a different, lesser amount. We cons idered those arguments, and concluded that the
evidence presented by the European Communities di d not demonstrate what the actual costs of the
runway extension alone were, distinct from other as pects of the project. We therefore accepted the
estimated amount, rather than the amount the Eur opean Communities asserted was the actual cost, for
purposes of our analysis.
6.208 In arguing that we should revise our findings in paragraph 7.1120 of the Interim Report, the
European reiterates its argument, which we reject ed in the Interim Report, relying on the same
exhibits, and suggesting no further relevant analysis . Taking the evidence proffered by the European
Communities at face value, Exhibits EC-621 and EC-622 are, respectively, undated excerpts from
(1) a budgetary plan showing amounts expensed in 1988, amounts budgeted for 1989 and 1990, and
amounts committed for 1990 and (2) an overview from the City of Bremen showing actual payments
for the "Relocation of the River Ochtun /extension of the runway" between 1987 and 1994. Since the
latter document does not distinguish between the am ounts spent for the extension of the runway, the
measure at issue in this dispute, the amounts spent for the restoration of the runway and amounts
spent on other aspects of this project, it is, in our view, insufficient to substantiate the European
Communities' argument as to the actual cost of the runway extension. And since the former document
does not show the actual expenditures for the extensi on of the runway, but a combination of expensed
amounts for 1988, budgeted amounts for 1989 and 1990, and commitments for 1990, it is similarly
insufficient to substantiate the European Communities' argument as to the actual cost of the extension.
Moreover, the figures in the columns labelled "co mmitments" "budgeted" and "expensed" in Exhibit
EC-621 do not sum to the total in the note referring to the "total costs of the extension", and the
figures in that note do not sum to the total referred to in the heading of the note as the total costs of the
extension. While the European Communities argu es that the evidence dem onstrates that the total
amounts expended were less than the estimated amount, we simply cannot reach a conclusion as to the
actual amount expended on the basis of the evidence before us. We therefore conclude that nothing in
the European Communities' argument as now formul ated, or the evidence relied upon, substantiates
the amount of the actual expenditure on the runway extension, and therefore deny the European
Communities' request to revisit the evidence and change our conclusion.
6.209 However, we recognize that the phrase "accurate estimate" is not clear in context, given the
European Communities' position that the actual costs were lower, implying that the estimate was not
"accurate", since it turned out to be wrong. Ther efore, we have modified paragraph 7.1120 (now
paragraph 7.1128) to clarify its meaning in this regard.
11. Paragraph 7.1124
6.210 The European Communities requests the Pa nel to modify the third sentence of
paragraph 7.1124 of the Interim Report, to reflect that it argued that "aircraft weight bears a

1617 US, Comments on EC Request for Interim Review, paras. 100-102.

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relationship to use of the runway extension, for th e simple reason that heavier aircraft require longer
runways".1618
6.211 The United States objects to the European Communities' request, asserting, inter alia, that the
cited European Communities' statement concerns th e need for longer runways in the abstract, and
does not address the question whether heavier Airbus aircraft actually required the use of the extended
Bremen runway.1619
6.212 The point made in paragraph 7.1124 of the In terim Report is that the European Communities
did not argue, and did not provide any evidence, that Airbus aircraft use the extended runway because
they are heavier than other aircraft landing at Brem en airport. On the other hand, the United States
submitted evidence indicating that other aircraft, h eavier than Airbus aircraft using the extended
runway, did not, barring emergencies, use the extende d runway. Thus, we concluded that Airbus paid
fees on the basis of aircraft weight – as did all other users of the Bremen airport – but that the fees
paid by Airbus did not relate to the use of th e extended runway. The European Communities does not
now assert that it provided evidence that heavier ai rcraft require use of the extended runway, but
merely that it argued that this was the case in ge neral. Since this general proposition, even accepting
it as true, does not demonstrate that Airbus paid f ees for the use of the extended runway, we see no
basis for the European Communities' request. We therefore deny the European Communities' request,
but have modified paragraph 7.1124 (now paragraph 7.1131) to make our point more clearly.
12. Paragraph 7.1131
6.213 The European Communities requests the Pa nel to modify the first sentence of
paragraph 7.1131 of the Interim Report by deleting the phrase "and particularly with the development
and production of the A380 aircraft", asserting that the cited reference, EC, FWS, paragraph 916,
while noting that Airbus France, Air France, SIDMI, CUS-Elyo, Exxon Mobil, STTS and 3R
purchased land at the site, does not state that all of these companies, at the Aéroconstellation site or
otherwise, were engaged "particularly with the development and production of the A380".
1620
6.214 The United States considers that the statemen t in question is not properly understood as
indicating that the companies that purchased the land were engaged particularly with the development
and production of the A380, but rather that the st atement reflects the Panel's understanding based on
evidence submitted by the United States that, inter alia, the site was designed and built specifically
for Airbus and related business, particul arly in connection with A380 production. 1621 Accordingly,
while the United States agrees with the European Communities' that the reference to paragraph 916 of
the European Communities' first written submi ssion may not sufficiently reference the facts
underlying the Panel's statement, it suggests that ra ther than deleting the statement, which the United
States considers factually correct as drafted, the Panel could reflect the United States' evidence in
support of this statement in footnote 3741 of the Interim Report.
6.215 We note in this regard that paragraph 7.1131 of the Interim Report does not state that land in
the ZAC Aéroconstellation was sold to companies "engaged particularly with the development and
production of the A380" but rather that the land w as sold to companies "involved in the aeronautical
industry, and particularly with the developmen t and production of the A380 aircraft" (footnote
omitted). This statement reflects our understanding, based on, inter alia, evidence referred to by the
United States in its Comments on the EC request fo r Interim Review, that the development of the

1618 EC, Request for Interim Review, p. 18, referring to EC, Answer to Panel Question 96, para. 257.
1619 US, Comments on EC Request for Interim Review, para. 103.
1620 EC, Request for Interim Review, pp. 18-19.
1621 US, Comments on EC Request for Interim Review, para. 107.

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ZAC Aéroconstellation was undertaken to provide a su itable site for Airbus A380 final assembly line,
and related businesses, i.e., companies involved in the aeronautical industry, and involved in the
development and production of the A380. We therefore deny the European Communities' request, but
have modified paragraph 7.1131 (now paragraph 7.1139) to more clearly explain our views.
13. Paragraph 7.1167, footnote 3840
6.216 The European Communities request s the Panel to delete the phrase "the production of A380
aircraft" from the second sentence of footnote 3840 of the Interim Report, arguing that the cited
reference, the European Communities' second confid ential oral statement at paragraph 31, does not
state that all of the companies, at the Aéroconstellation site or ot herwise, were engaged in "the
production of A380 aircraft".
1622
6.217 The United States suggests that the European Communities appears to misunderstand the
statement in that footnote, which it considers to in dicate that, had the French authorities not done so,
"Airbus could have created the EIG facilities itself because they are necessary for its A380 production
activities and for those of the other companies pur chasing land in the ZAC that participate in the
production of A380 aircraft." The United States propo ses alternative text should the Panel agree with
the United States' understanding and decide to modify the footnote.1623
6.218 The European Communities seems to be of the vi ew that because we cited a reference, that
reference must itself reflect the entirety of the statem ent in connection with which it is cited. This is
not the case here. The source referenced in f ootnote 3840 of the Interi m Report, the European
Communities' second confidential oral statement at para graph 31, is cited to reflect that the European
Communities itself recognized that had the French authorities not created the EIG facilities, Airbus
would have done so itself. The remainder of the sentence reflects our view as to why Airbus would
have done so – because those facilities were neces sary to its activities in the production of A380
aircraft, and those of other companies also involved in production of that aircraft at the ZAC site.
Therefore, we deny the European Communities' re quest, but we have modified footnote 3840 (now
footnote 4192) to more accurately reflect our views.
14. Paragraph 7.1171
6.219 The European Communities observes that paragr aph 7.1171 of the Interim Report states that
the Aéroconstellation project "was undertaken to suit Airbus' needs (…)", while at paragraphs 7.1131
and 7.1169, and footnotes 3839 and 3840 of the Interim Report, the Panel notes the project's utility for
Airbus France as well as the other companies purchasing land at the site, and requests that the Panel
"adopt a consistent approach to this question".
1624
6.220 The United States does not consider there to be any inconsistency in the passages referred to
by the European Communities, and therefore asks the Panel to decline the European Communities'
request.1625
6.221 Paragraph 7.1171 of the Interim Report sets out our conclusion that the ZAC
Aéroconstellation was not a measure of general infrast ructure, which rests on our consideration of the
facts concerning its creation and provision, which in our view demonstrated that "the development of
the ZAC Aéroconstellation was undertaken to suit Ai rbus' needs, and in particular its needs in

1622 EC, Request for Interim Review at p. 19.
1623 US, Comments on EC Request for Interim Review, paras. 110-111.
1624 EC, Request for Interim Review at p. 19.
1625 US, Comments on EC Request for Interim Review, para. 114.

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connection with the assembly and testing of A380 aircra ft." This conclusion is not inconsistent with
the other statements referred to by the Europ ean Communities, which merely reflect that other
companies located at the site are also involved in the assembly and testing of A380 aircraft, and thus
the development of the ZAC is useful to them in t hose activities, as well as in their other aeronautical
industry activities at the site. We therefore deny the European Communities' request and make no
changes.
15. Paragraph 7.1193
6.222 The European Communities requests the Pa nel to replace the first sentence of
paragraph 7.1193 of the Interim Report with text quoted from the second sentence of the European
Communities' first written submission at paragraph 73 9, which states "However, even if regional aid
programmes were considered to limit access to the subsidy under Article 2.1(a) of the SCM
Agreement to those enterprises located in the designated area, such programmes could be non-specific
within the meaning of Article 2.1(b) of the SC M Agreement". The European Communities further
requests, "for the same reason" that the Panel repl ace the reference to Article 2.2 at the end of the
second sentence of paragraph 7.1193 of the Interi m Report by "Article 2.1(a)". The European
Communities notes that at paragraphs 896-907 (N ordenham) and 970-973 (July 2003 grant in
Andalusia) of its first written submission, it explai ned its view that these regional aid grants are non-
specific under Article 2.1(b), and requests the Panel to reflect this in paragraph 7.1193 of the Interim
Report.
1626
6.223 The United States requests the Panel to reject the European Communities' request to amend
paragraph 7.1193 of the Interim Report, arguing th at the requested change would not accurately
reflect the European Communities' arguments as made. 1627 The United States notes that the Panel did
not cite only the second sentence of paragraph 739 of the European Communities' first written
submission, but the paragraph as a whole, which in th e United States' view, taken in context, confirms
that the Panel's description of the European Comm unities' argument is accurate. The United States
considers that no change is necessary, but proposes alternative text should the Panel decide to amend
paragraph 7.1193 of the Interim Report.1628
6.224 While the United States is correct that we did not rely on only the second sentence of the cited
reference, and that therefore simply quoting that sentence would not accurately reflect the European
Communities' argument summarized in this paragraph, we do consider that the summary as originally
drafted may not fully reflect the European Communities' argument. However, the European
Communities' proposed text does not, in our view , accurately summarize the European Communities'
argument in this regard. We therefore have made certain clarifying changes to paragraph 7.1193 (now
paragraph 7.1201), albeit in different terms from those proposed by the European Communities.
16. Paragraph 7.1227 and footnote 3920
6.225 The European Communities requests that the Pane l reconsider the statement in footnote 3920
of the Interim Report that:
"Although the EC asserts that the progra mme under which the Andalusian grants
were made was generally available throughout Andalusia, the information before us
supports the United States' assertions c oncerning the limitation to a "designated

1626 EC, Request for Interim Review, p. 19.
1627 US, Comments on EC Request for Interim Review, paras. 116-118.
1628 US, Comments on EC Request for Interim Review, para. 119.

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geographical region within the jurisdiction of the granting authority. Exhibits US-
240, US-242."
The European Communities considers this statem ent to be incorrect as a matter of fact. 1629 T h e
European Communities reviews eviden ce it submitted on this question, and requests the Panel to find
that the July 2001 grant to Puerto Santa Maria and the July 2002 grant to Sevilla were not specific
subsidies within the meaning of Article 2.2 of the SCM Agreement.

6.226 The United States opposes the European Commun ities' request, noting that the European
Communities does not provide any new explanation or point to other evidence in the record, but rather
asks the Panel to review, de novo, the arguments and evidence before the Panel, on the basis that the
European Communities disagrees with the Panel's conclusion, which the United States, referring to
evidence and arguments it submitted, considers to be correct.
1630
6.227 With respect to paragraph 7.1227 of the In terim Report, the European Communities notes
that, in the case of the EUR 7.6 million grant from Castilla-La Mancha in March 2004, it had argued
that this grant was made under a programme pr oviding funds throughout the granting authority, i.e.,
the government of Castilla-La Mancha, citing its fi rst written submission as paragraphs 979-981 and
Exhibits EC-136 and EC-137. The European Co mmunities further notes that the United States
appears not to dispute this. 1631 The European Communities considers that this should be reflected in
this paragraph and the subsequent analysis, and requests the Panel to find that the EUR 7.6 million
grant from Castilla-La Mancha was not specific w ithin the meaning of Article 2.2 of the SCM
Agreement.
6.228 The United States opposes this aspect of the European Communities' request, again asserting
that the European Communities asks the Panel to conduct a de novo review of arguments and
evidence it has already reviewed before coming to its conclusion. 1632 The United States points out
that the EUR 7.6 million Castilla-La Mancha gr ant is co-funded by the European Regional
Development Fund, citing the second to last paragraph of the preamble of Exhibit EC-136, and asserts
that it is, as such, specific under Article 2.2 of the SCM Agreement, referring to arguments at
paragraph 511 of its first written submission. The United States notes that the European Communities
has not disputed the participation of the European Regional Development Fund in this grant, and
therefore requests the Panel to reject the European Communities' request to modify paragraph 7.1227
of the Interim Report and its subsequent analysis.1633

1629 EC, Request for Interim Review, pp. 19-20.
1630 US, Comments on EC Request for Interim Review, paras. 121-122.
1631 EC, Request for Interim Review, p. 20. The EC asserts in particular, that United States did not
contest that the legal bases for the grant from Castilla-La Mancha are the Decree 53/1998 and the Orden 25 July
2002, and that under these the regional government may grant subsidies throughout the region of Castilla-La
Mancha to companies active in all economic sectors. EC, Request for Interim Review, p. 20, footnote 15.
1632 US, Comments on EC Request for Interim Review, para. 123.
1633 The United States also recalls that the EC had opportunity to clarify any aspect of the Castilla La
Mancha grant, as it did with the other subsidies at issue in this dispute, in response to questions posed by the
Annex V Facilitator. The Facilitator asked the EC and the Airbus governments to provide numerous categories
of information regarding each of the grants, including the reasons for approval of the grants, all agreements or
other documents providing the legal basis for the grants, and whether the grant "was part of a broader support
program run by the Spanish, Castilla-La Mancha or Andalusian government, as the case may be, and, if so, a
complete description of each such program, including the terms and conditions for access to funding under such
program." Question 76(f), Exhibit US-4 (BCI). The EC did not respond to these questions. See Exhibit US-5
(BCl). US, Comments on EC Request for Interim Review, para. 123, footnote 60.

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6.229 Although the United States objects to the Panel reviewing de novo the evidence on which its
conclusions in the Interim Report were based, in our view , it is appropriate for us to do just that in the
face of a request for interim review asserting a factua l error in the Interim Report. We therefore have
reconsidered the evidence and arguments presented by the parties in this regard.
6.230 The European Communities, referring to its firs t written submission and supporting exhibits,
maintains that the July 2001 gran t to Puerto Santa Maria and the July 2002 grant to Sevilla were both
made under a scheme of the Andalusian government , and that the applications and disbursements
were managed by the Consejería de Trabajo e Industria de la Junta de Andalucía . The United States
acknowledged that the government of Andalusia "pr ovided" the grant to Puerto Santa Maria, and
"authorized" the grant to Sevilla. 1634 Citing information submitted by the United States, Exhibits US-
240 and US-242, we originally concluded that these grants were provided as part of an Andalusian
government development plan for a particular ge ographic region within Andalusia, the Bahía de
Cadiz, and thus were limited to "enterprises locat ed within a designated geographical region within
the jurisdiction of the granting authority".
6.231 Having reconsidered the evidence, we are pers uaded that this conclusion was incorrect as a
matter of fact. Page 14,291 of Exhibit US-240, c ited by the United States, provides that the funds
were granted "for a plan of action for the Bahía de Càdiz Centre (Polígono Parque Industrial Bahía)".
Having carefully considered the evidence again, we cannot conclude that the "Plan" referred to in
Exhibit US-240 is an Andalusian government development plan for the Bahia de Cadiz.1635 It appears
that the facts surrounding this grant were confounded with the facts surrounding the July 2003 grant
to Puerto Real, which was made pursuant to a progr amme directed toward aiding development in the
Bahia de Cadiz area, and which the European Co mmunities acknowledged is not generally available
throughout Andalusia. 1636 However, that programme did not come into effect until after the
application for the July 2001 Puerto Santa Maria gran t had been made, and thus is not relevant to the
question of specificity of that grant. The Unite d States did not assert any other basis of specificity
with respect to this grant. 1637 In the absence of any other argumen ts or evidence of specificity, we
have changed our conclusion, a nd determine that the 2001 grant to Puerto Santa Maria was not
provided to an enterprise in a designated geograp hical region within the territory of the granting
authority, and is therefore not specific under Article 2.2 of the SCM Agreement.
6.232 Turning to the 2002 grant to Sevilla, we recall that this grant was co-financed by the
government of Andalusia and the Eu ropean Regional Development Fund. 1638 The United States
asserted specificity on the basis that "subsidies under the European Regional Development Fund
{ERDF} are necessarily limited to "certain ente rprises located within a designated geographical
region within the jurisdiction of the granting authorit y," and thus are specific within the meaning of
Article 2.2 of the SCM Agreement". 1639 The European Communities did not dispute the fact that the
grant was co-financed by the ERDF. However, th e European Communities asserted that this grant
was made under the same programme as the 2001 Pu erto Santa Maria grant, and asserted that it was
similarly not limited to "certain enterprises located within a designated geographical region within the
jurisdiction of the granting authority", that is, th e government of Andalusia. As noted above, the

1634 US, FWS, para. 505-506.
1635 Exhibit US-242, also originally cited in this regard, does not even mention the Bahia de Cadiz,
since it concerns the 2002 grant to Sevilla, with respect to which the United States did not assert this basis of
specificity, and is therefore irrelevant.
1636 EC, FWS, paras. 970-971.
1637 As noted above, in footnote 1635, Exhibit US-242, also originally cited in this regard, concerns the
2002 grant to Sevilla, and is therefore irrelevant to the qu estion of specificity with respect to the grant to Puerto
Santa Maria.
1639 US, FWS, para. 507.

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United States acknowledged that the government of Andalusia authorized the grant to Sevilla.1640 The
United States' assertion of specificity thus implies that the fact of co-financing makes the ERDF, in
effect, the granting authority, within the meaning of Article 2.2 of the SCM Agreement, with respect
to the portion of this grant it financed, despite that the government of Andalusia administered the
provision of the grant. The European Communitie s did not address this implication of the United
States' argument, and, as noted, did not dispute the fact of co-financing.
6.233 In our view, it is reasonable to conclude that, while "authorized" by the government of
Anadalusia, in the sense that the government of Anad alusia processed the applications and handed out
the funds, the ERDF may be considered a granting au thority within the meaning of Article 2.2 of the
SCM Agreement for the 75 percent of this grant wh ich it financed. As the United States noted, and
the European Communities did not dispute, the purpose of the ERDF is "to provide investment in
socially and economically challenged areas of Europe."
1641 Were we to accept the European
Communities' position that this grant was not specifi c because it was authorized by the government of
Andalusia under a progamme generally available in Andalusia, this would imply that European
Communities' funds directed to particular regions in the European Communities, which can clearly be
considered "designated geographical region{s} with in the jurisdiction of the {ERDF}", could be
sheltered from a finding of specificity under Article 2.2 by putting the administration of such grants in
the hands of local governments. In our view, such an outcome would create a loophole in the SCM
Agreement disciplines on regional subsidies, ther eby undermining the object and purpose of that
Agreement. We therefore deny the European Comm unities' request that we find that this grant was
not specific under Article 2.2 of the SCM Agreement.
6.234 With respect to the 2004 grant to Castilla-L a Mancha, the sole basis for a finding of
specificity asserted by the United States was the fa ct that the ERDF co-financed the grant, a fact
which is not disputed by the European Communities. For the reasons just discussed, we maintain our
conclusion that this grant was specific and deny th e European Communities' request that we find that
this grant was not specific under Article 2.2 of the SCM Agreement.
6.235 In view of the above, we have amended para graph 7.1227 and footnote 3920 (now paragraphs
7.1235 – 7.1237 and accompanying footnotes) to clar ify our views and conclusions concerning these
grants. In addition, we have made consequen tial conforming changes to paragraphs 7.1234 (now
paragraph 7.1244), 8.1(b)(iv) and 8.3(c) (numbering unchanged) reflecting our amended conclusions.
K. W
HETHER THE GERMAN GOVERNMENT'S TRANSFER OF ITS OWNERSHI P SHARE IN DEUTSCHE
AIRBUS TO THE DAIMLER GROUP IS A SPECIFIC SUBSIDY TO AIRBUS
1. Paragraph 7.1235
6.236 The European Communities considers that the ph rase "various transactions" in the first
sentence of paragraph 7.1235 of the Interim Report is imprecise and requests that the sentence be
reworded.1642
6.237 The United States has not made any comment in respect of this request.
6.238 We have made the changes requested by Eu ropean Communities in paragraph 7.1235 (now
paragraph 7.1245).

1640 US, FWS, para. 505-506.
1641 US, FWS, para. 506, footnote 608, citing, e.g., UK Government ERDF website, Exhibit US-245.
1642 EC, Request for Interim Review, p. 20.

BCI deleted, as indicated [***]

L. WHETHER THE GERMAN GOVERNMENT HAS SUBSIDIZED AIRBUS BY FORGIVING AT LEAST DM
7.7 BILLION OF DEUTSCHE AIRBUS' GOVERNMENT DEBT
1. Paragraph 7.1302 and footnote 4060
6.239 The European Communities requests the Panel to add to its summary of the European
Communities' argument at the end of paragraph 7.1302 of the Interim Report to describe it fully. In
this regard, the European Communities suggests speci fic changes to paragraph 7.1302 of the Interim
Report and the addition of a reference in footnote 4060 of the Interim Report. 1643
6.240 The United States has not made any comment in respect of this request.
6.241 At paragraphs 297 – 301 of its Response to Panel Question 103, the European Communities
explained the due process concerns that it alleges would arise if the United States were permitted to
broaden the scope of the dispute to include a chal lenge to an element of the 1989 restructuring of
Deutsche Airbus. We recall that the European Co mmunities argued that the United States' argument,
that the question whether the 1998 settlement could be considered a settlement for fair market value
should involve a consideration of the terms of the original debt obligation in 1989 (specifically, the
interest rate that the original debt carried), was in fact an attempt by the Un ited States to enlarge the
scope of the dispute to challenge an element of the 1989 restructuring of Deutsche Airbus. According
to the European Communities, this constitutes a "new claim against a different measure" to the 1998
settlement that was not covered by the U.S. pane l request or addressed in the United States' First
Written Submission.1644 At paragraphs 297-298 of its Respon se to Panel Question 103, the European
Communities contended that it would be "serious ly prejudiced and injured in its rights, as a
defendant" if it were required to defend itsel f against "such a new and complex" claim. 1645
Specifically, the European Commun ities stated that it had never understood the United States to be
challenging the terms of the 1989 restructuring, noting that "the terms of reference of a panel are not a
moving target that can be adjusted as the compla inant likes, and at the expense of the defending
party."1646 In addition, the European Communities refe rs to the factual complexity of the 1989
restructuring (including difficulties that arise from the fact that the measure occurred some 17 years
previously), as well complex legal issues concerni ng the scope, meaning and temporal application of
Article 6.1 of the SCM Agreement, and submitted that it cannot be expected to form a position on
such issues overnight.1647
6.242 We have revised paragraph 7.1302 (now paragr aph 7.1312) in order to more fully reflect
European Communities' arguments as outlined above. However, we have used different language
from that proposed, in order to more closely refl ect the arguments actually made by the European
Communities in paragraphs 297 – 298 of its Response to Panel Question 103.
2. Paragraph 7.1304
6.243 The European Communities requests an addition to paragraph 7.1304 of the Interim Report
describing the European Communities' responses to the United States' arguments concerning the

1643 EC Request for Interim Review, pp. 20-22.
1644 EC, Answer to Panel Question 103, para. 301.
1645 EC Answer to Panel Question 103, para. 298.
1646 EC Answer to Panel Question 103, para. 297 and footnote 179.
1647 EC Answer to Panel Question 103, paras. 299 and 300.

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nature of the benefit conferred on Deutsche Ai rbus by the 1998 settlement. The European
Communities does not explain why it makes this request.1648
6.244 The United States takes the view that the a dditions proposed by the European Communities
do not accurately reflect the European Communities' arguments as presented in paragraphs 245 and
246 of its Second Oral Statement.1649 Indeed, the United States submits that much of what is reflected
in the text proposed by the European Communities is nowhere to be found in the paragraphs of the
European Communities' submissions to which the European Communities refers; i.e., paragraphs 245-
246 of European Communities' second non-confidential oral statement. 1650 The United States
therefore requests that, if the Panel decides to m odify paragraph 7.1304 of the Interim Report, it do so
in a way that more accurately reflects the ar guments that the European Communities actually
made.1651 1652
6.245 Assuming that the reason for its request is th at the European Communities wishes to have
additional elements of its arguments on this particular issue reflected in the Report, we are of the view
that the European Communities' proposed text does not accurately summarize the arguments that it
made at paragraphs 245 – 246 of its second non-confidential oral statement, although it generally
reflects those arguments. Therefore, we have re vised paragraph 7.1304 (now paragraph 7.1314) in
different terms than those suggested by the Eu ropean Communities, to more fully reflect its
arguments.
3. Footnote 4074
6.246 The European Communities considers that f ootnote 4074 of the Interim Report imprecisely
identifies the scope of the United States' claims concerning elements of the 1989 restructuring and
requests that the Panel modify it. 1653
6.247 The United States has not made any comment in respect of this request.
6.248 The European Communities' request appears to be related to the request that it makes to
modify paragraph 7.1235 of the Interim Report 1654 in order to clarify that the United States has
challenged only two elements of the 1989 restruct uring of Deutsche Airbus. While we do not
consider that there is any reason to deny the Europ ean Communities' wish for clarity on this point, in
our view the European Communities' suggested m odification incorrectly narrows the universe of
transactions underlying the total DM 9.4 billion in accumulated claims outstanding to the German
government that are being challenged by the United St ates to the two particular elements of the 1989
restructuring. The United States has, in fact, cha llenged transactions other than those arising from the
1989 restructuring that are also reflected in the DM 9.4 billion amount outstanding in 1998. The first
two sentences of paragraph 7.1310 of the Interim Report distinguish between two levels of potential

1648 EC Request for Interim Review, pp. 20-21.
1649 US, Comments on EC Request for Interim Review, para. 124.
1650 US, Comments on EC Request for Interim Review, para. 126.
1651 US, Comments on EC Request for Interim Review, para. 126.
1652 We note it may be that the United States mistakenly referred to the version of the European
Communities' second non-confidential oral statement s ubmitted on 27 July 2007, which contained different
paragraph numbering to the versions submitted on 14 November 2007 and 7 December 2007. The relevant
version of the European Communities' second non-co nfidential oral statement is that submitted on
7 December 2007, following a series of communications between the parties and the Panel between 7 August
2007 and the submission of the revised version of th e European Communities' second non-confidential oral
statement on 7 December 2007.
1653 EC Request for Interim Review, p. 21.
1654 See paragraphs 6.236 - 6.238 above.

BCI deleted, as indicated [***]

subsidies; namely, the original transactions be tween Deutsche Airbus and the German government,
the principal amounts of which amounted to DM 9.4 billion by 1998, and the settlement of those
claims in 1998 for a payment of DM 1.75 billion. F ootnote 4074 of the Interim Report explains that
some of the transactions that are part of the first le vel of transactions have in fact been challenged by
the United States as subsidies in this dispute. It further explains that elements of the 1989
restructuring arrangement fall within this first leve l category of transactions. The footnote also
makes clear that the United States does not challe nge all of the transactions comprising the 1989
restructuring, and thus, appears to address the Eu ropean Communities' concern. In light of the
foregoing, we have revised footnote 4074 (now f ootnote 4434) in order to make this point more
clearly.
M. W
HETHER THE EQUITY INFUSIONS THAT THE FRENCH GOVERNMENT PROVIDED TO
AEROSPATIALE ARE SPECIFIC SUBSIDIES
1. Paragraph 7.1315
6.249 The European Communities request s that the Panel revise its findings that the initial FF 1.25
billion capital contribution to Aérospatiale was made in 1987 (rather than 1988) and that the "second"
capital contribution of FF 1.25 billion was made in 1988 (rather than 1989) to conclude that either: (i)
the two contributions were made, respectively, in 19 88 and 1989; or (ii) as a matter of cash flow, both
contributions were in 1988. 1655 The European Communities contends that it correctly reported the
capital contributions as taking place in 1988 and 1989 , as these were the years in which the respective
contributions were approved by Aérospatiale's Assemblée Générale and recorded as permanent capital
by the company. 1656 The European Communities asserts th at both contributions were actually
received in 1988, should the Panel wish to record the capital contributions on a cash basis.1657
6.250 The United States requests that the Panel dec line the European Communities' request to
modify its finding in paragraph 7.1315 of the Interim Report. 1658 The United States notes that the
arguments presented by the European Communities as to the timing of the capital contributions were
considered and rejected by the Panel in paragra ph 7.1315 of the Interim Report, noting that in
footnote 4083 of the Interim Report, the Panel refe rs to the paragraph of the European Communities'
first written submission that cites to Exhibits EC -172 and EC-173. The United States notes that the
European Communities' only reference to Exhibit EC-746 in its submissions was in connection with
its arguments concerning the benefit conferred by the capital contributions. 1659 Moreover, the United
States submits that this exhibit simply evidences a de cision by Aérospatiale's Assemblée Générale to
increase the capital of the company, reflecting one of the steps in the chain of events following the
capital contribution made by the French government in 1987, but not altering the underlying evidence
that the French government made the capital contribution in 1987.
1660

1655 EC, Request for Interim Review, p. 21.
1656 EC, Request for Interim Review, p. 21; referring to the following exhibits: Procès-Verbal de
l’Assemblée Générale Extraordinaire du 27 avril 198 8, Exhibit EC-746 (BCI); Aérospatiale Comptes de
l’Exercice 1988, Exhibit EC-172, p. 17; Rapport du Conseil D’Administration à l’Assemblée Générale
Extraordinaire du 10 février 1989, Exhibit EC-747 (BCI); Aérospatiale Comptes de l’Exercice 1989, Exhibit
EC-173, p. 43.
1657 EC, Request for Interim Review, p. 22.
1658 US, Comments on EC Request for Interim Review, para. 131.
1659 US, Comments in EC Request for Interim Review, para. 129; referring to EC, SWS, para. 549. In
addition, we note that reference to Exhibit EC-747 was made in the context of the European Communities’
arguments concerning the benefit conferred by the financial contributions; see EC, SWS, para. 548.
1660 US, Comments on EC Request for Interim Review, para. 130.

BCI deleted, as indicated [***]

6.251 The fourth sentence of paragraph 7.1315 of the Interim Report states: "The exhibits to which
the EC refers in support of its assertions that the relevant dates of the two capital contributions are
1988 and 1989, rather than 1987 and 1988 as alleged by the United States, actually record the capital
contributions as having been made in 1987 and 1988. " The exhibits in question, Exhibit EC-172,
Aérospatiale Comptes de l'Exercice 1988 (at p. 32) and Exhibit EC-173, Aérospatiale Comptes de
l'Exercice 1989 (at p. 43) are referred to in paragr aph 1132 of the European Communities' first
written submission. Exhibits EC-746 and EC-747, to which the European Communities now refers in
support of its arguments that the dates of the rele vant capital contributions were 1988 and 1989, refer
to the actions of Aérospatiale, the recipient of th e capital contributions by the French government, to
increase its outstanding share capital as a result of th e French government's financial contributions.
There is no reason why the dates on which Aérosp atiale undertook this corporate action should be
indicative of the dates on which the funds were actually provided to it. In short, there is nothing in
the two exhibits to which the European Communitie s now refers (Exhibits EC-746 and EC-747) that
contradicts or calls into question our factual conclusions concerning the dates of the capital
contributions by the French government based on E xhibits EC-172 and EC-173. We therefore deny
the European Communities' request.
2. Paragraph 7.1332 and footnote 4125
6.252 The European Communities requests that the Panel delete footnote 4125 of the Interim Report
in favour of a substantially expanded description of evidence addressed by the European Communities
at paragraphs 1110-1124 and 1131-11 60 of its first written submissi on, paragraphs 531-541 of its
second written submission, and in Exhibits EC-166, EC-167 (BCI), EC-169 through EC-181, EC 184
through EC-186 and EC-723 through EC-745. 1661 In addition, the European Communities requests
that, to fully reflect the arguments made and ev idence provided by the European Communities, the
Panel add to paragraph 7.1332 of the Interim Report or elsewhere, a description of the evidence
provided by the European Communities at pa ragraphs 545 through 5 50 of its second written
submission.1662
6.253 The United States has not made any comments in respect of these requests.
6.254 The European Communities appears to object to what it considers to be the Panel's
"relegation" of evidence it provided in support of its arguments concerning future prospects for
Aérospatiale and for the aerospace industry more generally to a one-sentence footnote. 1663 However,
the discussion of the European Communities' arguments in the paragraphs that follow
paragraph 7.1332 of the Interim Report (i.e., paragraphs 7.1333 through 7.1340 of the Interim Report)
make extensive and detailed reference to the same sections of the European Communities'
submissions that the European Communities now re quests be included in the substantially expanded
discussion that it proposes. The evidence referred to at paragraphs 545 through 550 of the European
Communities' second written submission indicates information relating to the condition and prospects
of Aérospatiale that the French government w as legally entitled to receive in its capacity as a
shareholder of the company. This evidence appear s to have been submitted in order to demonstrate
that the French government, as sole shareholder of Aérospatiale, was closely informed about the
business plans and prospects of the company. In light of the foregoing, rather than the expanded
discussion requested by the European Communities, we have revised footnote 4125 (now footnote
4485) to indicate that the evidence in question is discussed further in paragraphs 7.1334 through
7.1340, 7.1355, 7.1359 and 7.1363 (now paragraphs 7.1344 through 7.1350, 7.1365, 7.1369, and

1661 EC, Request for Interim Review, p. 22.
1662 EC, Request for Interim Review, p. 22.
1663 EC, Request for Interim Review, p. 22.

BCI deleted, as indicated [***]

7.1373), and have revised the footnotes in those para graphs to explicitly identify the exhibits to which
the European Communities' refers in support of the arguments described in those paragraphs.
3. Paragraph 7.1336
6.255 The European Communities requests that, to fu lly reflect the arguments made and evidence
provided by the European Communities, the Panel in sert several sentences in a footnote at the end of
paragraph 7.1336 of the Interim Report.
6.256 The United States has not made any comment in respect of this request.
6.257 We have revised footnote 4133 (now footnote 4493) to more fully reflect the arguments of the
European Communities.
4. Paragraph 7.1364
6.258 The European Communities requests that the Pane l include a citation to the "very pessimistic
statements made by management in its annual reports about prospect s for recovery in the short to
medium term" referred to in paragraph 7.1364 of the Interim Report.
6.259 The United States has submitted a list of eviden ce referred to in the submissions which the
Panel might refer to in this regard.1664
6.260 The pessimistic statements of Aérospatiale's management in its annual reports that are
referred to in paragraph 7.1364 of the Interim Report are those that are specifically described in
paragraph 7.1362 of the Interim Report, and referenced in footnotes 4166, 4167, 4168 and 4169 of the
Interim Report, which may have been inadvertently overlooked. Given that we did, in fact, address
the matters raised by the European Communities, we deny the request, and make no changes in this
regard.

1664 US, Comments on EC Request for Interim Review, paras. 132-133. Specifically, the United States
points to the following:
- Message from Louis Gallois, the Chairman of Aérospatiale, in Aérospatiale's 1993 Annual Report, that
"Economic conditions will remain very difficult in 1994." US, FWS, para. 603; Aérospatiale Annual
Report 1993, Message from the Chairman, Exhibit US-300, p. 3/3.
- Statement by Airbus management, as reflected in a press report, that there was a "poor outlook for
military and civil sales for the next two years." US, FWS, para. 603; France rules out Aérospatiale sell-
off, Flight International, 9 March 1994, Exhibit US-299.
- Statement in the Aérospatiale Annual Report for 1994 that "An upturn in orders remains uncertain for
1995, particularly new aircraft orders", Exhibit EC-293; and that "The outlook was gloomy in the
short-term due to the fragile financial health of airline customers."; " Aérospatiale posts FFr 2.3bn
loss", Financial Times, 26 March 1993, Exhibit US-295.
- Statement from a 1994 report of the U.S. National Research Council to the effect that long-term
optimism about the market for new commercial aircraft contrasts with considerable pessimism
concerning the next several years, in which most obs ervers believe that sales will continue to decline
from their 1992 peak for several more years, perhaps through 1996. EC, FWS, para. 1119; National
Research Council, High Stakes Aviation: U.S.-Japan Technology Linkages in Transport Aircraft, 1994,
pp. 65-66, Exhibit EC-170.

BCI deleted, as indicated [***]

N. WHETHER RESEARCH AND TECHNOLOGICA L DEVELOPMENT FUNDING THAT THE EUROPEAN
COMMISSION AND THE MEMBER STATES PROVIDE TO AIRBUS ARE SPECIFIC SUBSIDIES
1. Paragraph 7.1410
6.261 The European Communities requests that a sentenc e be added to the end of paragraph 7.1410
of the Interim Report, recalling that it had expr essed the view, in answering question 279 of the
Facilitator during the Annex V process, that the Un ited States' claims against the PROFIT scheme
were outside of the Panel's terms of reference.
6.262 The United States did not comment on the European Communities' request.
6.263 We have revised paragraph 7.1410 (now pa ragraph 7.1421) to record the European
Communities' position.
2. Paragraph 7.1413, third sentence and footnote 4292
6.264 The European Communities notes th at the third sentence of paragraph 7.1413 of the Interim
Report states that the European Communities did not provide information requested during the Annex
V process "in respect of all of the alleged measur es" because it considered some of the challenged
measures to be outside of the temporal scope of the dispute. The European Communities asks that
this sentence be amended to more accurately reflect what it asserts is the fact that it did not provide
requested information during the A nnex V process in respect of only two of the challenged R&TD
measures for the reason that it considered these to be outside of the temporal scope of the dispute.
1665
6.265 The United States did not comment on the European Communities' request.
6.266 During the Annex V process, the European Comm unities refused to provide information in
respect of five groups of R&TD measures: (i) grants made under the 2 nd FP; (ii) loans provided under
the PROFIT; (iii) the French government R&TD gr ants between 1986 and 1994; (iv) various R&TD
measures relating to the A350; and (v) various alleged R&TD measures i nvolving German länder
governments.1666 The United States in its first written submission pursued its claims only in respect of
the first three groups of measures. While the language in used in paragraph 7.1413 is not inaccurate,
we have revised that paragraph (now paragraph 7.1424) to be more precise by explicitly identifying
the measures for which the European Communitie s refused to provide information during the
Annex V process.
3. Paragraphs 7.1419, 7.1425, 7.1431, 7.1437 and 7.1443
6.267 The European Communities requests that the st atements contained in paragraphs 7.1419,
7.1425, 7.1431, 7.1437 and 7.1443 of the Interim Report indicating that it did not contest the publicly
available information submitted by the United States in Exhibits US-317, US-319, US- 314, US-322
and US-324 be deleted. The European Comm unities considers they wrongly suggest that the
European Communities accepted that the publications submitted by the United States give an accurate
account of the projects in which Airbus participated . The European Communiti es justifies its request
by pointing to paragraph 1231 of its first written submission and Exhibit EC-194 (BCI).1667

1665 EC, Request for Interim Review, p.23.
1666 EC, Answers to Questions by the Facilitator under Annex V, Exhibit US-5 (BCI).
1667 EC, Request for Interim Review, p.23.

BCI deleted, as indicated [***]

6.268 The United States argues that the only disagreement reflected in paragraph 1231 of the
European Communities' first written submission and Exhibit EC-194 (BCI) appears to be with the
companies the European Communities considers to be "relevant", and not with the facts reflected in
the evidence submitted by the United States and refe rred to in paragraphs 7.1419, 7.1425, 7.1431,
7.1437 and 7.1443 of the Interim Report.1668
6.269 In our view, paragraph 1231 of the European Communities' first written submission and
Exhibit EC-194 (BCI) do not specifically contest th e publicly available information submitted by the
United States in Exhibits US-317, US-319, US-314, US-322 and US-324. Rather the European
Communities' submissions set out the European Communities' own account of the projects and the
payments it considers were provided to the "relev ant" Airbus entities under the Second to Sixth EC
Framework Programmes.
1669 In other words, the European Co mmunities' submissions do not contest
that, for example, MBB received funding under the Second Framework Programme for the ASANCA
project, as indicated in Exhibit US-317. Rather, th ey reject the view that the "relevant" Airbus
companies, as defined by the European Communities, participated in and received funding under this
project. We therefore decline to make the chang es to paragraphs 7.1419, 7.1425, 7.1431, 7.1437 and
7.1443 of the Interim Report requested by the Eur opean Communities. However, in light of the
European Communities comments, we have modified paragraphs 7.1416, 7.1422, 7.1428, 7.1434 and
7.1440 (now paragraphs 7.1427, 7.1433, 7.1439, 7.1445 and 7.1451), to ensure the European
Communities' arguments are not misunderstood.
4. Paragraphs 7.1416-7.1445
6.270 The European Communities asserts that the proj ects identified in footnotes 4307, 4325, 4340,
4356 and 4373 of the Interim Report do not relate to LCA, and for this reason they should be
excluded from the findings concerning payments ma de to Airbus under the Second to Sixth EC
Framework Agreements. The European Commun ities asks the Panel to instead focus on the
information contained in Exhibits EC-969, 970, 971, 972 and 993 (all BCI).1670
6.271 The United States argues that the European Communities' request merely reasserts the
argument that it made in response to Panel Question 277, and should for this reason alone be rejected.
In addition, the United States argues that, like that response, the European Communities' request does
not point to any submission from European Comm unities discussing evidence before the Panel that
would substantiate its assertion of non-relevance. The United States ther efore asks the Panel to reject
the European Communities' request.1671
6.272 We recall that we asked the Europ ean Communities in question 277 to, inter alia, "provide a
breakdown of all LCA-related projects" under each of the EC Framework Programmes at issue. In
response, the European Communities first referre d to Exhibits EC-189 through EC-193 (all BCI),
which it had already submitted, stating that the in formation contained therein was over-inclusive in
the sense that it included "all projects in which the relevant companies have participated – whether or
not they have been judged to be LCA relevant". However, it did not explain which of projects listed
in these exhibits were not "LCA relevant". The European Communities then referred to Exhibits EC-
968 to EC-972 (all BCI), stating that these contained "payment information ... with regard to other

1668 US, Comment on EC, Request for Interim Review, paras. 134-136.
1669 In Exhibit EC-194, the EC provided information for both "Airbus entities" (Airbus UK, Airbus
France, Airbus Deutschland, Airbus Spain, Airbus S.A.S and the "Airbu s" operations of their predecessor
companies) as well as "non-Airbus entities such as " (EADS Deutschland, GIE EADS CCR, GIE Airbus
Industrie and BAE Systems).
1670 EC, Request for Interim Review, p.23.
1671 US, Comment on EC, Request for Interim Review, para. 137.

BCI deleted, as indicated [***]

entities ... detailing the EC contribution for each project and the amounts received by each of those
entities". Again, the European Communities did not specifically identify which of the projects listed
were (or were not) "LCA relevant". Comparing the two sets of Exhibits, we note that the only
difference between them is that the latter disclo se funding paid to entities the European Communities
does not consider to be "relevant" Airbus entities. In other words, the same projects are identified in
both sets of Exhibits.
6.273 The European Communities asks the Panel to rely upon Exhibits EC-969 through EC-972 and
EC-993 for the purpose of identifying the relevant LC A-related projects. However, these Exhibits list
several projects the European Co mmunities now asserts were in fact not LCA-related, namely:
EUROMESH and All Electric Aircraft (2
nd Framework Programme); BRAIN,
CRASHWORTHINESS and IMAGES 2000 (3 rd Framework Programme); ENHANCE, EDAVCOS,
ELGAR, EUROSUP, ISAWARE and PROFOCE (4 th Framework Programme); C-WAKE (5 th
Framework Programme); and TATEM and SMIST (6 th Framework Programme). The remaining
projects listed in footnotes 4307, 4325, 4340, 4356 and 4373 of the Interim Report, and which the
European Communities now asserts were not LCA re lated, cannot be found in Exhibits EC-189 to
EC-193, even though the European Communities described these latter Exhibits to be "over-inclusive"
in the sense that they identified projects that were not LCA-related.
6.274 Almost all of the projects identified in footnotes 4307, 4325, 4340, 4356 and 4373 of the
Interim Report are listed in Exhibit EC-194 (BCI). However, the European Communities did not refer
to this Exhibit in its answer to Panel Question 277. Moreover, in the introductory page of this
Exhibit, the European Communities seeks to explai n the discrepancies between the lists contained in
this Exhibit and the Exhibits submitted by the Un ited States. However, the European Communities'
explanation does not identify any of the listed projects as not being related to LCA.
6.275 Thus, having carefully reviewed the European Communities' submissions, and in view of the
above discussion, we deny the European Communitie s' request to revise footnotes 4307, 4325, 4340,
4356 and 4373 of the Interim Report.
5. Paragraphs 7.1425, 7.1427, 7.1430, 7.1431, 7.1433, 7.1442, 7.1443 and 7.1445
6.276 The European Communities asserts that it subm itted the total amounts of funding received by
"all relevant companies" and "all additional entities re quested by the Panel" under the Third, Fourth
and Sixth EC Framework Programmes in Exhibits EC-193 (BCI), EC-969 (BCI), EC-970 (BCI), EC-
972 (BCI) and EC-993 (BCI). The European Communities asserts that these Exhibits confirm that the
contributions identified in footnotes 4324, 4325, 4326, 4340, 4341, 4372, 4373 and 4374 of the
Interim Report were not actually made. It therefore asks that the references to " inter alia " the
BRAIN, IMAGES 2000, ENHANCE, EDAVCOS, ELGAR, EUROSUP, ISAWARE, PROFOCE,
SMIST and TATEM projects be removed from these f ootnotes and, consequently, that an amendment
be made to the relevant numbers of and values of projects and contributions identified in paragraphs
7.1425, 7.1427, 7.1430-7.1433 and 7.1445 of the Interim Report.1672
6.277 The United States argues that the European Comm unities' request is essentially a restatement
of the argument it made in response to Panel Ques tion 277. The United States recalls that in its
comments on the European Communities' response to this question, it noted that the European
Communities had not disclosed amounts of funding provided to several Airbus entities in allegedly 64
of 145 R&TD projects funded through the Framewor k Programmes. The United States notes that the

1672 EC, Request for Interim Review, pp.23-24.

BCI deleted, as indicated [***]

Interim Report at least partially agrees with its ass essment of the facts. Accordingly, the United
States asks the Panel to reject the European Communities' request.1673
6.278 As explained in the Interim Report, the starting point of our findings on the values of
contributions received by Airbus under the Third, Fourth and Sixth EC Framework Programmes was
the list of projects submitted by the United States in Exhibits US-314, 317 an d 319. These Exhibits
contained synopses published by the European Co mmission of the aeronautics-related projects
supported under each of the relevant EC Fram ework Programmes, listing for each project, the
individual participants, endorsers, coordinators a nd partners. The projects listed in footnotes 4324,
4325, 4326, 4340, 4341, 4372, 4373 and 4374 of the Interim Report, which the European
Communities requests be disregarded and deleted from the Interim Report, were identified in Exhibits
US-314, 317 and 319; and in each case, one or more Airbus entities were listed as a participant,
endorser, coordinator and/or partner. However, the European Communities did not provide any
details of any payments received by these Air bus entities under those programmes. While the
European Communities contends that these Airbus entities did not receive any contributions under the
relevant projects, it has not explained why they we re listed in the publicly available project synopses
authored by the European Commis sion. In the absence of any substantiated explanation from the
European Communities, the Interim Report treated each identified entity as being a beneficiary of
R&TD funding provided under each relevant project. Accordingly, we deny the European
Communities' request to amend footnotes 4324, 432 5, 4326, 4340, 4341, 4372, 4373 and 4374 and
paragraphs 7.1425, 7.1427, 7.1430-7.1433 and 7.1445 of the Interim Report.
6. Paragraphs 7.1436, 7.1437 and 7.1439
6.279 The European Communities explains that the c ontributions listed in Exhibits EC-968 to EC-
972 (all BCI) that were received by "BAE Systems" corresponds to all contributions received by all
divisions of BAE Systems (including BAE (Operations) Ltd.), as they existed at the relevant time. In
particular, it notes that a grant of EUR [***] to BAE Systems for the C-Wake project under the Fifth
Framework Programme appears in Exhibit EC-971 (BC I). Accordingly, it asks that the reference to
"C-Wake" be deleted from paragraph 7.1436 and fo otnotes 4356 and 4357 of the Interim Report, with
a consequential amendment being made to the re levant numbers of proj ects and contributions
identified in paragraphs 7.1437 and 7.1439 of the Interim Report.1674
6.280 The United States asks the Panel to reject the European Communities' request for the same
reasons it argues the Panel should reject the European Communities' previous request.1675
6.281 The European Communities' request relates to what is effectively a difference in how the
European Communities has described the BAE co mpanies receiving funds under the Framework
Programme ("BAE Systems") and how the relevant BAE company is named in the publicly available
information ("BAE (Operations) Ltd"). We accept the European Communities' explanation and have
modified our findings to reflect the amount for BAE (Operations) Ltd, which is referred to in Exhibit
EC-971 (BCI) as "BAE Systems".
7. Paragraph 7.1461
6.282 The European Communities submits that instead of attributing to Airbus the total amount of
French government aeronautics research funding pr ovided to all recipients between 1986 and 1993, it
would be more appropriate to "fill the perceived 'e videntiary gap'" concerning the amount of French

1673 US, Comment on EC, Request for Interim Review, paras. 138-139.
1674 EC, Request for Interim Review, p.24.
1675 US, Comment on EC, Request for Interim Review, paras. 138-139.

BCI deleted, as indicated [***]

government support provided to Air bus, by attributing to Airbus [***] of the total amount of funds
provided to all recipients between these years. This would represent the same proportion of the
French government's total funding to aeronautics projects in the years 1994 to 2005 that was actually
received by Airbus in those years, which the Eur opean Communities submits is confirmed in Exhibit
EC-209 (BCI).
1676
6.283 The United States did not comment on the European Communities' request.
6.284 We recall that the European Communities was sp ecifically asked in Panel question 278 to
provide a "break-down of all LCA-related projects funded by the French government between 1986 to
1993". The European Communities failed to do so because it said that neither the French government
nor Airbus was able to locate the relevant cont racts. Instead, the Eur opean Communities submitted
that the proportion of total government funding that Airbus would have received would have been "far
less" than the EUR 391 million alleged, citing the fact that Airbus had only received EUR [***]
million out of the EUR 809 million provided to all recipients between 1994 to 2005 as supporting this
conclusion. At paragraph 7.146 1 of Interim Report we dismis sed the European Communities'
response, observing, inter alia, that:
"the explanation the EC has provided for its failure to submit the requested
information and the approach it suggests might be adopted by the Panel in order to
arrive at an appropriate R&TD figure are less than satisfactory. ... we recall that
where a party refuses to supply information re quested by a panel, it is open to that
panel to draw inferences from the full configuration of facts that are before it. "
6.285 The European Communities now asks the Panel to re consider its findings and conclude that it
would be appropriate to attribute to Airbus [***] of the total amount of funds provided to all
recipients between 1986 and 1993, that is, [***] of EUR 391 million, instead of the entire amount.
However, in making this request, the European Communities points to no facts that would suggest
that the funding Airbus received during the releva nt period (1986-1993) re presented the same or a
similar proportion of total funds granted to all reci pients as the proportion of total funding it actually
received in the subsequent period (1994-2006). Thus, the European Communities refers to no facts to
support its view that it would be appropriate to allocate to Airbus [***] of total funds granted by the
French government between 1986 and 1993 as opposed to any other proportion that is less than 100%.
We therefore deny the European Communities' request.
8. Paragraph 7.1481
6.286 The European Communities requests that paragraph 7.1481 of the Interim Report be amended
to reflect what it asserts was an argument "directly relevant to the benefit analysis" conducted in
paragraph 7.1491 of the Interim Report, whic h made in paragraph 630 of its second written
submission.
1677
6.287 The United States did not comment on the European Communities' request.
6.288 The focus of the European Communities' reque st is on the underlined statement in the
following excerpt from paragraph 630 of the European Communities' second written submission:
"The European Communities confirms that the total amount of R&T support that has
been committed to Airbus SAS under the Luftfahrtforschungsprogramm (LUFO) I to

1676 EC, Request for Interim Review, p.24.
1677 EC, Request for Interim Review, p.24.

BCI deleted, as indicated [***]

III by 1 July 2005 for the period until 2007 is [***].{} However, there is no guarantee
of funding to Airbus SAS . The amount disbursed depends on the amount of eligible
costs incurred by Airbus Germany." (underline added, footnote omitted).
In our view, nothing in this statement can be reaso nably understood to be "directly relevant" to the
question of benefit addressed in paragraph 7.1491 of the Interim Report. Indeed, there is no
indication at all in this paragraph that the stat ement now referred to by the European Communities
was intended to articulate its views on the questi on of whether funding committed under the LuFo III
programme, but not disbursed, confe rred any benefit of Airbus. We therefore decline to make the
requested changes.

9. Paragraphs 7.1502, 1551 and 1552
6.289 The European Communities asks that the refere nce to "...and the EC member States ... " be
removed from paragraphs 7.1502, 7.1551 and 7.1552 of the Interim Report, noting in this regard that
the EC Framework Programmes are funded solely from the EC budget and disbursed by the European
Commission.1678
6.290 The United States did not comment on the EC request.
6.291 We have modified paragraphs 7.1502, 7.1551 and 7.1552 (now paragraphs 7.1513, 7.1562
and 7.1563) to delete the reference to "...and the EC member States ... ".
O. ADVERSE EFFECTS
1. Paragraph 7.1610
6.292 The European Communities requests the Pa nel to modify the second sentence of
paragraph 7.1610 of the Interim Report to indicat e that BAe, a UK company, and not the United
Kingdom, joined the Airbus consortium in 1979. The European Communities also requests the Panel
to modify the third sentence of this para graph by omitting the United Kingdom, because BAE
Systems did not merge into EADS.
6.293 The United States did not comment on this request.
6.294 The European Communities is correct as a matter of fact with respect to both aspects of its
request, and we therefore have modified paragraph 7.1610 (now paragraph 7.1621) to correctly reflect
the facts.
2. Paragraph 7.1664
6.295 The United States requests that, in order to co rrectly reflect the cited panel report, the
references to "subsidized product" in lines 10 an d 12 of paragraph 7.1664 of the Interim Report
should both be modified to read "dumped product."1679
6.296 The European Communities agrees with the United States' request.1680

1678 EC, Request for Interim Review, pp.24-25.
1679 US, Request for Interim Review, para. 23.
1680 EC, Comments US, Request for Interim Review, p. 11.

BCI deleted, as indicated [***]

6.297 The Panel report at issue concerned a US Depa rtment of Commerce inv estigation of alleged
dumping, and therefore we have made the requested changes to paragraph 7.1664 (now
paragraph 7.1675), in order to correctly reflect the facts of that dispute.
3. Paragraph 7.1693, footnote 4785
6.298 The European Communities requests that the Panel amend footnote 4785 of the Interim
Report to indicate that the last A300 was delivered in July 2007, whereas the last A310 was delivered
in 1993, asserting that this change reflects more a ccurately the timing of the last deliveries of these
aircraft, and requests a similar clarification in paragraph 7.1963 of the Interim Report.1681
6.299 The United States did not comment on this request.
6.300 The European Communities cites no source for the date of 1993 for the last delivery of the
A310. According to the Airclaims information submitted by the European Communities, there were 7
orders for A310 aircraft in 1993 and 1995, and 9 A3 10 aircraft were delivered to customers between
1994 and 1998.1682 Moreover, footnote 4785 and paragraph 7.1963 of the Interim Report do not refer
to delivery dates, but rather to production dat es. The European Communities gives no reason for
proposing to change the reference to delivery dates, rather than the production dates mentioned. In
the absence of any evidence to su pport the European Communities' assertion as to the last delivery
date for the A310, which is contradicted by info rmation before the Panel, and the absence of any
justification for consideration of the last delivery da te, rather than the last production date referred to
by the Panel, we deny the European Communities' request.
4. Paragraphs 7.1741-1747
6.301 The United States notes that, as part of the assessment of whether imports of Boeing LCA
were displaced in the EC market, paragraphs 7. 1742-7.1747 of the Interim Report reproduce data
presented by the United States on the quantity of LC A deliveries. However, the United States points
out that, although the Panel noted, at paragraph 7.1729 of the Interim Report, that the United States
also presented data on the value of LCA deliveries (as measured by list prices) in the EC market, the
analysis at paragraph 7.1741 of the Interim Report does not reflect the consideration of this data,
while paragraph 7.2103 of the Interim Report makes clear that the Panel did consider comparable data
on market share measured by value in the context of its material injury analysis.
1683 The United States
reiterates its view, as explained during the proceeding, that "the similarity of estimated market shares
by value and by volume suggests that the companie s are selling relatively similar mixes of high-value
and low-value aircraft at any given time."1684 Accordingly, the United States asserts that the similarity
of the trends in market share whether measured by quantity of aircraft or estimated value (at list
prices) of aircraft corroborates the validity of the data on units delivered relied upon by the Panel and
confirms that the Panel's analysis, which is based on units delivered, is not distorted by changes in the
relative mix of high-value and low-value aircraft within the single LCA product category. The United
States suggests that the displacement analysis in the Interim Report would be strengthened by taking
note of the market share data based on value.1685
6.302 The European Communities agrees with the United States on the need for alternative factual
findings regarding market shares in the EC market , recalling its own request for alternative factual

1681 EC, Request for Interim Review, p. 25.
1682 Exhibit EC-21.
1683 US, Request for Interim Review, para. 24.
1685 US, Request for Interim Review, para. 26.

BCI deleted, as indicated [***]

findings.1686 However, the European Communities consid ers that the Panel should make alternative
factual findings on market shares based on value not only for the EC market, as requested by the
United States, but also for the third country mark ets at issue in the dispute for specific product
groupings, reiterating its view that such alternative factual findings would assist the Appellate Body in
completing the analysis in the event it would reverse the Panel's findings. To this end, the European
Communities submitted, in its Comments on the United States' Request for Interim Review, a series
of tables presenting market share data measured by value. The European Communities explains the
methodology it used in preparing those tables, and cites the sources of the data it presents. The
European Communities requests the Panel to make a lternative factual findings based on that data for
all country markets at issue (i) covering all LCA and (ii) broken down by the LCA product groupings
that the European Communities suggested.
6.303 With respect to the United States' request, we not e that in our analysis of displacement or
impedance in the EC market, we focussed on deliv eries of LCA as the appropriate measure, as had
been argued by the United States, rather than on orders, as had been argued by the European
Communities.
1687 The United States had submitted deliver y information based on both quantities of
LCA delivered, and value as measured by list prices, in support of its asserti on that both Airbus and
Boeing "are selling relatively similar mixes of hi gh-value and low-value aircraft at any given
time."1688 This assertion was not disputed by the Eu ropean Communities. Nor did the European
Communities argue that the trends in market shar e measured by numbers of deliveries was distorted
by changes in the relative mix of high-value and low-value LCA within the single like product
considered in the Panel's analysis. Therefore, we did not find it necessary to, and did not, make any
findings concerning market share in the EC market on the basis of the value of LCA delivered.
Moreover, as discussed elsewhere in the Interim Re port, the list prices of LCA are not an accurate
measure of the price of LCA actually sold and delivered, and thus it is less than clear that market
share value information, measured by list price of LCA delivered, is particularly meaningful. We
therefore deny the United States' request.
6.304 With respect to the European Communities' re quest, we deny it for the same reasons as
discussed below in connection with our decision to deny the European Communities' other request in
this regard.
1689
5. Paragraphs 7.1762-7.1781
6.305 The European Communities notes that the Interi m Report sets out market share developments
between 2001 and 2006 in individual third country markets on an aggregate basis in paragraphs
7.1762-7.1781 of the Interim Report. The Euro pean Communities requests that the Panel make
alternative findings with respect to market share developments in individual third country markets
based on the product groupings that it suggested dur ing the course of the proceedings. The European
Communities asserts that such alternative factual findings would enable the Appellate Body to
complete the analysis were it to disagree with th e Panel's product-related findings. The European
Communities considers that its arguments should be fully presented in the report in a fair and
balanced manner, and submits that this necessitat es presentation of the data by product grouping in
tabular form. The European Communities also indi cates that it was unaware of criticisms stated by
the Panel in the Interim Report concerning its pr esentation of data. Specifically, the European
Communities refers to the Panel's comments that (i) that the European Communities did not count
deliveries of Boeing 747 aircraft, (ii) that the European Communities did not count deliveries of

1686 EC, Comments on US Request for Interim Review, pp. 25-30. See paragraphs 6.305 - 6.314 below.
1687 Interim Report at paragraphs 7.1734- 1739.
1689 See below, beginning at paragraph 6.309

BCI deleted, as indicated [***]

Boeing 757 aircraft into the EC market and (iii) th at the European Communities treated deliveries to a
leasing company as deliveries to the country of the leasing company and not as deliveries to the
country of the operating airline. the European Co mmunities notes that the Panel did not request it to
present data in this form.
6.306 The European Communities submitted, in its Request for Review of the Interim Report, tables
setting out market share developments in individua l country markets by product grouping, correcting
for the Panel's criticisms described above, and asks th at the Panel use this data, or derive the same
data itself from the record evidence, to (i) record the European Communities' arguments and (ii) make
alternative factual findings regarding market shar e developments in the country markets at issue
broken down by products. 1690 The European Communities observe s that the source of the data it
presents, Airclaims, has never been contested, and that both parties, and the Panel, have relied on data
from this source.
6.307 The United States objects to the European Co mmunities' request, and asks that the Panel
decline to incorporate the tables submitted by th e European Communities in the final report, and
decline to make alternative factual findings based on these tables. 1691 The United States contends that
the Panel's criticisms of the European Communities' counting methodology coul d not have come as a
surprise to the European Communities, given th at these methodological issues were matters of
contention between the parties. The United States notes in this regard, for example, that the European
Communities argued specifically that deliveries made through leasing companies should be excluded
from the market share calculation,
1692 and that whether deliveries of the Boeing 747 were relevant to
claims of displacement and impedance, or indeed any claims of serious prejudice at all, was addressed
at length by both parties. 1693 Thus, the United States considers that the Panel did not deny the
European Communities a fair opportunity to present its case, but rather decided that the European
Communities' methodological approach to presenting aircraft delivery data was not appropriate.
6.308 The United States notes that, as the European Communities states, the data underlying the
tables the European Communities has now presented is not in dispute and is on the record before the
Panel. In the United States' view, however, to pr esent that data tabulated according to one set of
methodological assumptions rather than another is not simply to rearrange the evidence, but, in effect,
to make an argument about the meaning of the eviden ce in a particular legal context. In the United
States' view, that the Panel rejected the European Communities' arguments in the Interim Report does
not entitle the European Communities to another opportu nity to reframe its ar guments at the interim
review stage or to present its arguments in a differe nt way, in light of the Panel's decisions on the
methodological issues. 1694 The United States considers that to include the tables submitted by the
European Communities with its Request for Interim Re view would imply, wrongly, that the European
Communities made arguments with respect to Articl e 6.3(a) and 6.3(b) during the proceedings on the
basis of that data, as presented in the newly-s ubmitted tables, which the European Communities did

1690 EC, Request for Interim Review, pp. 25-30. While the paragraphs referred to in the EC's
Comments set out the Panel's consideration of market share developments in individual third country markets,
the EC also submitted newly tabulated data for the EC market, which the panel addressed at paragraphs 7.1727-
7.1747 of the Interim Report, without any further discussion concerning that data in its Request for Interim
Review.
1691 US, Comments on EC Request for Interim Review, para. 140.
1692 US, Comments on EC Request for Interim Review, para. 141, citing, e.g., EC, Answer to Panel
Question 207, paras. 333-334, 350, 35 7-358, 364, 382, 389. The United States disagreed. US, Comments on
EC Answer to Panel Question 207, paras. 275-277.
1693 US, Comments on EC Request for Interim Review, para. 141, citing, e.g., EC, FWS, paras. 1670-
1757; U.S. SWS, paras. 654-656.
1694 US, Comments on EC Request for Interim Review, para. 142.

BCI deleted, as indicated [***]

not do. Thus, the United States respectfully request s the Panel to reject the European Communities'
request.1695
6.309 While the European Communities characterizes th e presentation of market share data in the
Interim Report as "reflect{ing} the arguments by the United States" 1696, in fact it is clear that the
presentation of market share data reflects our own conclusions as to the relevant subsidized and like
product in this dispute. Having concluded that the relevant subsidized and like product is all Airbus
and all Boeing LCA, respectively, 1697 we went on to examine the evid ence on the basis of that single
product, as indicated in paragraph 7.1731 of the Interim Report. We followed the same approach with
respect to our consideration of market share in individual third country markets, as set out in
paragraph 7.1749 of the Interim Report. In consider ing the question of market share, we relied on the
data presented by the United States, whose accuracy was not disputed by the European Communities,
as this data accorded with our own view of the re levant subsidized and like product, while the data
presented by the European Communities did not. The European Communities had submitted market
share data broken down by the product groupings it asserted the Panel should find to be separate
subsidized and like products in this dispute. Having rejected that approach, the European
Communities' data as presented was not suitable as a basis for our analysis of market share.
Nonetheless, we reviewed the Eu ropean Communities' data, and concluded that "it provides an
inaccurate and incomplete picture of LCA deliv eries to the EC market between 2001 and 2006",
noting specific concerns with the European Communities' counting methodology in presenting the
data in question.1698
6.310 While the European Communities indicates that it was surprised by our criticisms concerning
the data it presented, those criticisms did not relate to the presentation of data on the basis of the
product groupings advocated by the European Comm unities during the proceedings, but rather to the
European Communities' counting methodology in preparing the tables of data submitted. 1699
Moreover, some of these methodological issues were the subject of arguments from the parties,
including extensive argument concerning whether th e Boeing 747 and Airbus A380 were relevant to
the consideration of the United St ates' claims at all. The Eur opean Communities argued throughout
that the Panel should not consider the Boeing 747 to be like any Airbus LCA, and should not consider
the Airbus A380 to be like any Boeing LCA, view s disputed by the United States, and ultimately
rejected by us in finding a single subsidized and a single like product. Further, the European
Communities suggested that deliveries by leasing co mpanies should not be included in calculating
market share,
1700 while the United States took the opposing view. 1701 For the European Communities

1695 US, Comments on EC Request for Interim Review, para. 143.
1696 EC, Request for Interim Review, p. 25.
1697 Interim Report, paras. 7.1639-7.1669.
1698 Interim Report, para. 7.1745. See also, Interim Report, para 7.1767, where we noted that "the data
presented by the EC in respect of deliveries to thir d country markets presents the same concerns as the
information it presented on deliveries to the EC market."
1699 We note that we have spot-checked the newly-submitted figures on numbers of LCA delivered, and
when aggregated to comport with our conclusions regarding subsidized and like product, they do not yield the
same figures as the data on deliveries we relied on in the Interim Report. The European Communities never
disputed the figures on deliveries presented by the United States on which we relied. In our consideration of the
data as originally submitted by the European Communities, we undertook a similar exercise of aggregations.
That exercise resulted in greater differences from the data submitted by the United States, on which we relied,
than the aggregation of the newly-submitted data, but th e latter still shows differences. Thus, in order to serve
as the basis for factual findings, we believe the newly-submitted data would have to be carefully examined in an
effort to determine the reason(s) for these discrepancies. That effort should, in our view, necessarily include the
views of the United States, were we to undertake such a task.
1700 E.g., EC, Answer to Panel Question 207, paras. 333-334, 350, 357-358, 364, 382 and 389,
1701 US, Comments on EC Answer to Panel Question 207, paras. 654-656.

BCI deleted, as indicated [***]

to now submit data in which it includes deliver ies of the Boeing 747 and deliveries by leasing
companies in its tabulation of deliveries to the differe nt markets being considered is inconsistent with
the positions it took throughout the proceedings. In our view, this demonstrates that the newly
tabulated data does not, in fact, record the Eu ropean Communities' arguments as made during the
proceeding.
6.311 We agree with the United States that the presentatio n of data on the basis of a particular set of
underlying assumptions is effectively the presentation of an argument in a particular legal context, not
simply a question of organizing data. It is clear to us that the presentation of new arguments, which is
what the European Communities' ne wly tabulated data effectively does, is not permissible at this
interim review stage of the proceedings. As th e European Communities itself argues in a different
context, a party cannot change its arguments at this stage of the proceeding, nor is the Panel entitled to
mischaracterise a party's arguments in its report. 1702 It would, in our view, be entirely inappropriate
for us to make alternative findings on the basis of these newly-submitted data, as any such findings
would necessarily be based on evidence and arguments not previously before us, and to which the
United States has had only the most minimal opportunity to respond. To include such newly-
submitted evidence, thereby allowing it to appear as if the arguments based on that evidence had been
made during the proceeding, would in our view be unfair, and would deprive the United States of the
due process to which it entitled in dispute settlement in the WTO. Thus, even were we inclined to
make alternative findings on the basis of the product groupings asserted by the European
Communities, at most such findings would involve consideration of the evidence originally put before
the Panel by the European Communities, and not th ese newly-submitted tables. However, we do not
consider alternative findings on the question of market share developments on the basis of the product
groupings proposed by the European Communities to be necessary in any event.1703
6.312 The European Communities suggests that alte rnative findings would allow the Appellate
Body to "complete the analysis" in the event it di sagreed with our product-related findings. However,
regardless of the evidence on which alternative finding s might be made, it is not clear to us, and the
European Communities provides no elaboration, as to how such findings would allow the Appellate
Body to "complete the analysis". Even were we to make alternative findings with respect to market
share developments on the basis of the product grou pings asserted by the European Communities, this
would not allow for the independent resolution of the dispute by the Appellate Body. Our finding of a
single subsidized and like product is a fundamental premise of our entire analysis of serious prejudice,
including the analysis of causation, and our overall findi ngs. Thus, it is not apparent to us how, if at
all, factual findings concerning market share for separate product groupings c ould be related to our
findings regarding causation based on the premise of a single subsidized and like product. We can see
little to be gained from making such alternative findi ngs, as they would not be sufficient, in our view,
to allow resolution of this dispute on the basis of the European Communities' view of distinct product
categories.
6.313 The question whether to consider LCA as a single subsidized and like product or to consider
different products on the basis of the distinctions argued by the European Communities was a critical,
and hotly disputed, issue in this dispute. That we might decide that issue in line with the United
States' position was clearly a possibility from the outset, one of which the European Communities
must have been well aware. That the European Communities chose, d espite that possibility, to argue

1702 See, EC, Comments on US Request for Interim Review, p. 21.
1703 We note that the most significant alternative findings we made concern the question of
interpretation of the term "benefit" in the context of th e EC's pass-through argument, which is a matter of legal
interpretation that has not previously been definitively addressed. That is a very different matter from making
alternative factual conclusions based on a legal argument that has been rejected by the Panel for reasons
grounded in the text of the Agreement and previous dispute settlement reports.

BCI deleted, as indicated [***]

its entire case on the basis of its own view of the appropriate subsidized and like products, that is, on
the basis of multiple distinct subsidized a nd corresponding like products, rather than presenting
arguments and evidence responding directly to the claims as formulated by the United States and the
evidence it presented in support of those claims, re presents a strategic and tactical choice by the
European Communities which it was entitled to make. However, its exercise of this choice, and its
presentation of evidence and argument based on its own view of the underlying issue of like and
subsidized product does not, in our view, mean that, having rejected the European Communities'
position, we are nonetheless required to make altern ative findings regarding the United States' claims
of displacement and impedance as if we had decide d the product issues in line with the European
Communities' position.
6.314 For all of the foregoing reasons, we deny the European Communities' request to include in the
final report the newly presented tabulations of data on deliveries of LCA to the EC and third country
markets,
1704 and decline to make alternative findings with respect to market share on the basis of the
product groupings put forward by the European Communities, either on the basis of the newly
presented data, or on the basis of the originally-submitted evidence.
6. Paragraph 7.1773
6.315 The European Communities requests the Panel to amend the sixth sentence of
paragraph 7.1773 of the Interim Report to correct a misstatement.1705
6.316 The United States did not comment on this request.
6.317 The European Communities is correct, and we have therefore corrected paragraph 7.1773
(now paragraph 7.1784) to reflect , as shown in Table 28, that Airbus' 100 percent market share in
2004 reflects orders for two aircraft, not one aircraft as originally stated.
7. Paragraph 7.1790
6.318 The United States requests a modification of the penultimate sentence of paragraph 7.1790 of
the Interim Report to more accurately reflect its position. 1706 The United States recalls that it
explained, in response to a question from the Panel, that
"{W}hen the evidence demonstrates that a cu stomer, after making an "analytical and
exhaustive review" of all {relevant} factors, found a difference in price that was
significant enough to have a major impact on the outcome of the sale , the evidence
demonstrates the existence of price undercutting within the meaning of Articles 6.3(c)
and 6.5."
1707

In other words, the United States asserts it did not contend that the simple fact that a customer chose
one LCA model over another is sufficient evidence of price undercutting. Rather, the United States'
argument was that when a customer monetizes all relevant factors, it is making a price comparison
that, in the words of Article 6.5, is "made at th e same level of trade and at comparable times, due
account being taken of any other factor affecting price comparability."
1708 If, having made this price

1704 As discussed above, for these same reasons, we deny the European Communities' request to include
newly-presented tabulations of data on value of de liveries to the EC and third country markets. See
paragraphs 6.301 to 6.304.
1705 EC, Request for Interim Review, p. 30.
1706 US, Request for Interim Review, paras. 27-30.
1707 US, Answer to Panel Question 235, para. 62 (emphasis added).
1708 SCM Agreement, art. 6.5.

BCI deleted, as indicated [***]

comparison, it finds that one LCA model has a lower net price than a competing LCA model, all such
factors having been taken into consideration, the Un ited States argued that the customer's analysis is
relevant evidence of the existence of price underc utting within the meaning of Articles 6.3(c) and
6.5.1709 The United States contends that the differe nce between its actual argument and the argument
attributed to it in paragraph 7.1790 of the Inte rim Report is not immaterial. Although one might
conclude from the mere fact that a customer c hose one LCA model over a competing LCA model, the
customer determined that the LCA model it chose offered better value , this would not – as the text in
paragraph 7.1790 of the Interim Report would seem to suggest – necessarily mean that the chosen
LCA model had a lower price . According to the United States, airlines do not always make their
decisions among competing LCA solely on the basis of price, and therefore an airline's choice of one
LCA model over another does not necessarily indicate price undercutting. But where a customer
specifically finds that, having taken all relevant factors into account, one LCA model is in fact offered
at a lower price than another – and where such pr ice difference has a major impact on the outcome of
the sale – then the customer's finding is relevant evidence of "significant pr ice undercutting," as that
term is used in Articles 6.3(c) and 6.5 of the SCM Agreement.
1710 The United States therefore
requests that the Panel revise the penultimate sentence of paragraph 7.1790 of the Interim Report.

6.319 The European Communities did not comment on this request.
6.320 Having reviewed the submissions cited by th e United States in support of its request, we
consider that its proposed text does more accurately represent the thrust of its argument in this regard,
and in the absence of any objection from the Europ ean Communities, we therefore have modified the
penultimate sentence of paragraph 7.1790 (now paragraph 7.1801).
8. Paragraph 7.1856
6.321 The United States requests that the Panel amend the first sentence of paragraph 7.1856 of the
Interim Report to more accurately reflect its argument.
1711 That sentence notes that the United States
presented, "as evidence of the magnitude of the s ubsidy," a report by NERA Economic Consulting.
The United States notes that, as stated elsewhere in the Interim Report, the figures calculated by
NERA represent an estimate of the additional debt burden, in 2006 dollars, that Airbus would have
had to carry if it had obtaine d financing on commercial terms. 1712 The United States considers that
such a figure, while clearly relevant to the ques tion of whether the magnitude of the subsidies is
sufficient to cause the alleged effects, does not n ecessarily represent the amount of the "benefit" of
LA/MSF, as that term is used in Articles 1.1(b) a nd 14 of the SCM Agreement. In the United States'
view, while the use of the term "benefit" in conjunction with an explanation of the actual
methodology used in the NERA quantification report, as in paragraph 7.1954 of the Interim Report, is
not necessarily inappropriate, the use of the term "benefit" in paragraph 7.1856, without further
explanation, could be misleading.
6.322 The European Communities agrees with the Un ited States' request to replace the term
"benefit" in the first sentence of paragraph 7.1856 of the Interim Report. 1713 However, the European

1709 The United States also considered that, if the difference in price was significant enough to have a
major impact on the outcome of the sale, then the pri ce undercutting would be “significant price undercutting”
within the meaning of Article 6.3(c).
1710 The United States notes that paragraph 8.1824 {sic} correctly summarizes the U.S. argument on
this point. US, Request for Interim Review, footnote 24. We presume this to be a reference to paragraph 7-
1824 of the Interim Report.
1711 US, Request for Interim Review, paras. 31-32.
1712 US, Request for Interim Review, para. 31, citing Interim Report, para. 7.1937, footnote 5305.
1713 EC, Comments on US Request for Interim Review, pp. 20-21.

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Communities disagrees that the language proposed by the United States represents an accurate
description of the way in which the United States and NERA have characterised these figures. The
European Communities maintains that the Unite d States itself described NERA's figures as
calculations "express{ing} [***] uniformly in current dollars"
1714, and that NERA describes its
figures as the "cumulative amount of cash that Airbus saves over time by paying less than
market".1715 Moreover, the European Communities notes that in describing the relevance of these
figures to its arguments, the United States stated that "the relevant counterf actual for determining the
effect of the subsidy is not to consider what the LCA market w ould be like if Airbus had launched all
of its aircraft when it did and was an additional $178.2 billion in debt" 1716, but rather that that these
figures were evidence that Airbus could not have launched its products as and when it did absent
LA/MSF.1717 Thus, in the European Communities' vi ew, the United States did not frame the
relevance of these figures in terms of "the net pr esent impact of LA/MSF on the balance sheet of
Airbus" – i.e., the United States did not make the argument that it now asks the Panel to include in the
description of the United States' arguments. The European Communities asserts that the United States
cannot change its arguments at this stage of the proceeding, nor is the Panel entitled to mischaracterise
the United States' arguments in its report.
6.323 While the United States asserts that the figures it presented based on the NERA report are
relevant to the question whether the magnitude of the subsidies is sufficient to cause the alleged
effects, it argues that they do not necessarily represen t the amount of the "benefit" of LA/MSF, as that
term is used in Articles 1.1(b) and 14 of the SCM Agreement. However, the NERA report states that
"{t}he analysis performed in the Ellis Re port shows the existence of a benefit to
Airbus under each provision of launch ai d, because in every case the benchmark
commercial rate exceeded the stated launch aid rate. That analysis, however, did not
quantify the benefit in "dollar" terms nor s how the total benefit to Airbus over time.
The purpose of this report is to do so."1718
In introducing that report during the Panel's second meeting, the United States stated:

"Because the ITR methodology does not accurately measure the full magnitude of the
subsidy benefit, the economis ts at NERA Consulting have made an estimate of the
total benefit to Airbus from Launch Aid".
1719
Thus, it seems clear to us that, even if not a measure of "benefit" as that term is used in Articles 1.1(b)
and 14 of the SCM Agreement, the NERA calculations were intended as evidence of the benefit of the
LA/MSF subsidies to Airbus, measured, as the United States put it, in terms of "the impact of Launch
Aid on the present financial condition of Airbus".
1720 In light of the foregoing, we have modified the
first sentence of paragraph 7.1856 (now paragraph 7.1867) to more closely reflect the United States'
argument, albeit not in the terms suggested by either party.

1714 EC, Comments on US Request for Interim Review, pp. 20-21, citing, US, SWS, para. 612.
1715 EC, Comments on US Request for Interim Review, pp. 20-21, citing, Exhibit US-606 (BCI).
1716 EC, Comments on US Request for Interim Review, pp. 20-21, citing, US, SWS, para. 614
(emphasis and underlining added).
1717 EC, Comments on US Request for Interim Review, pp. 20-21, citing, US, SWS, para. 614.
1718 NERA Economic consulting, Quantification of Benefit of Launch Aid (24 May 2007), Exhibit US-
606 (BCI)
1719 US, SWS, para. 611.
1720 US, SWS, para. 612.

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9. Paragraph 7.1861
6.324 The European Communities requests that the Pane l replace the term "benefit" in the last
sentence of paragraph 7.1861 of the Interim Report with the term "effect" to properly reflect the
European Communities' argument.1721
6.325 The United States did not comment on this request.
6.326 Although the European Communities cites no sour ce for its requested correction, we agree
that, in context, the term "effect" is more appropr iate to reflect the European Communities' argument,
and in the absence of any objection from the Unite d States, we grant the European Communities'
request, and have made the requested change to make the change to paragraph 7.1861 (now
paragraph 7.1872).
10. Paragraph 7.1863
6.327 The United States requests that the Panel ame nd the second sentence of paragraph 7.1863 of
the Interim Report to reflect the United States' view that the European Communities' benefit
calculation methodology referred to does not accu rately reflect U.S. countervailing duty law. 1722 The
United States recalls its argument in this regard:
"The EC tendentiously refers to the ITR approach as the "US/Boeing methodology,"
e.g., EC FWS para. 1588-1590, although it is in fact no such thing. The United States
does not endorse the erroneous benefit calculation and allocation methodologies
developed by ITR; indeed, many of these e rrors are at direct variance with the CVD
methodologies used by the EC and the United States. Further, Boeing's 1997
comments on the U.S. CVD regulations s ubmitted to the U.S. Department of
Commerce, submitted by the EC as Exhibit EC-325, cannot plausibly be read to
endorse the many errors in the ITR methodology."
1723

6.328 The European Communities asks the Panel to de ny the United States' request, and the United
States' request with respect to paragraph 7.1 952 of the Interim Report, which the European
Communities considers deals with essentially the same issue.
1724 The European Communities
contends that it did, in fact, apply the Unite d States' CVD methodology, drawing on Boeing's 1997
comments to the US Government concerning propo sed CVD regulations) for insights on applying the
methodology to LCA and specifically to LA/MSF. The European Communities notes that it identified
the specific provisions of the United States' CVD regu lations applied in the ITR report, described the
manner in which it applied Boeing's comments on tho se regulations and provided detailed worksheets
showing its calculations. 1725 In the European Communities' vi ew, the United States relies, in its
request for interim review, on an unsubstantiated f ootnote to the US Answer to Panel Question 42,
which the European Communities notes does not re fer to any United States' CVD regulation or
practice that the European Communities allegedly fa iled to apply or allegedl y applied incorrectly.

1721 EC, Request for Interim Review, p. 30.
1722 US, Request for Interim Review, para. 33.
1723 US, Request for Interim Review, para. 33, citing, US, Answer to Panel Question 42, para. 250,
footnote 313.
1724 EC, Comments on US Request for Interim Review, p. 21.
1725 EC, Comments on US Request for Interim Review, p. 21, citing, EC, SWS, paras. 948-950, 997-
1008. ITR Subsidy Magnitude Report , 5 February 2007. Exhibit EC-13 (BCI/HSBI). ITR Response to US
Assertions that ITR’s Method of Calculating the Magnitude of Subsidies is Flawed , 21 May 2007. Exhibit EC-
660 (BCI/HSBI).

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The European Communities also notes that the US Response to Question 42 set out an alternative
calculation for one grant of LA/MSF which assertedly illustrated a correct "CVD-style", but without
references to the United States' CVD regulations or practice. The European Communities disputed
this calculation as containing various factual errors regarding the grant of LA/MSF in question, and
failing to follow United States' CVD regulations or practice. 1726 Thus, in the European Communities'
view, the United States has failed to substantiate its assertions that the European Communities did not
apply United States' CVD methodology, and the Panel should deny the United States' requests
regarding paragraphs 7.1863 and 7.1952 of the Interim Report.
6.329 While the European Communities is correct that the United States did not cite to specific
provisions of US law and regulations in disputin g the European Communities' arguments in this
regard, the United States clearly disagreed with the European Communities' allocation methodology,
which it asserted contained numerous errors, which the United States contended "are at direct variance
with the CVD methodologies used by the Eur opean Communities and the United States." 1727 T h e
United States then went on at some length to give examples of these errors, in the course of which it is
made clear that the United States ' interpretation of an appropria te allocation methodology under its
own laws and regulations differs from that on wh ich the European Communities' calculations were
based.
6.330 Having found that there was no requirement to allocate the subsidies at issue in this dispute
on a per-aircraft basis, we did not attempt to adj udicate the disagreement between the parties on the
appropriateness of the allocations presented by the European Communities. Thus, there is no finding
as to the correct interpretation of US law and regulation in this context. In order to make explicit the
parties' positions on this question, we have m odified the second sentence of paragraph 7.1863, and
footnote 5166 (now paragraph 7.1874and footnote 5524), and made conforming modifications to
paragraph 7.1952 (now paragraph 7.1963)1728, to reflect that the European Communities relied on its
own interpretation of United States' countervailing du ty law and regulations, which interpretation the
United States did not accept as correct.
11. Paragraph 7.1891
6.331 The European Communities requests the Panel to clarify the context of the phrase "allegedly
designated BCI" in the fourth sentence of paragrap h 7.1891 of the Interim Report. Specifically, the
European Communities requests the Panel to indicate th at this phrase refers to the sources of the data
that Dorman used in his cash-flow analysis, wh ich the European Communities contends the United
States never disclosed. According to the European Communities, this failure made it impossible to
assess the confidentiality designation of the data.1729
6.332 The United States considers that the senten ce should be corrected, but not in the way
suggested by the Eu ropean Communities. 1730 According to the United States, the "cash flows"
addressed in paragraph 7.1891 of the Interim Re port are the inflows of LA/MSF disbursements, and
the outflows of LA/MSF repayments. The simulatio n of the French A380, A340-500/600, and A330-
200 LA/MSF packages are based on the cash flows that Dr. Dorman "derived from documents

1726 EC, Comments on US Request for Interim Review, p. 21, citing, ITR Response to US Assertions
that ITR’s Method of Calculating the Magnitude of Subsidies is Flawed , 21 May 2007, paras. 25-29. Exhibit
EC-660 (BCI/HSBI)
1727 US, Answer to Panel Question 42, para. 250, footnote 313.
1728 See below, paragraphs 6.340 - 6.345.
1729 EC, Request for Interim Review, p. 30.
1730 US, Comments on EC Request for Interim Review, para. 144.

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designated as BCI." 1731 The United States contends that, although Dr. Dorman does not say so
explicitly, the only possible documents "designa ted as BCI" that could contain confidential
information related to these LA/MSF packages at the time his report was prepared, before any of the
written submissions to the Panel, would be the documents provided by the European Communities
during the Annex V process, which the United States provided to the Panel, together with the Dorman
Report, with its first written submission. 1732 Thus, the United States contends that the source of the
information was provided and disclosed, allowing for any person with access to the relevant BCI to
examine and verify the cash flow data used by Dr . Dorman, and notes that the final two sentences of
this paragraph of the Interim Report state that the Panel did precisely this.1733
6.333 We have reviewed the Dorman report in this regard, and having reconsidered the description
of how Dr. Dorman undertook to conduct his simu lation, it now seems clear that he relied on
information drawn from LA/MSF contracts, designated BCI during the Annex V process, made
available to him for purposes of preparing his report, and which the United States submitted with its
first written submission. Given that we have been able to confirm the United States' explanation of
the source of the data, and that it was designated BCI, we deny the European Communities' request.
However, we have modified paragraph 7.1891 (now paragraph 7.1902) to clarify the facts.
12. Paragraph 7.1893
6.334 The European Communities requests that th e Panel modify the first sentence of
paragraph 7.1893 of the Interim Report, so as to avoid the implication that the European Communities
endorsed the Ellis benchmark as a market benchmar k, which the European Communities maintains it
does not.
1734
6.335 The United Stated did not comment on this request.
6.336 While it is not apparent to us that the para graph as originally drafted gives rise to the
implication that concerns the European Communities, in order to alleviate those concerns, we have
modified paragraph 7.1893 (now pa ragraph 7.1904) in order to clarify it, albeit in somewhat different
terms than proposed by the European Communities.
13. Paragraphs 7.1917-7.1918, 7.1919-7.1920, 7.1926-7.1927, and 7.1928
6.337 The United States observes that, with respect to the business cases for the A340-500/600 and
A330-200, the European Communities' "cash flow analysis" for the A320, and the A330/A340 launch
documents provided by the European Communities, these paragraphs of the Interim Report do not
appear to reflect the Panel's consideration of the comments provided by the United States. 1735
Because the European Communities designated the information discussed in these paragraphs as
HSBI, the United States' comments are necessarily la rgely HSBI as well. The United States requests
that the Panel's consideration of the United States ' comments with respect to each of these aspects be
incorporated in the final report, although it makes no specific suggestions in this regard.

1731 US, Comments on EC Request for Interim Review, para. 145, citing, Dorman Report at 5 n.13
(Exhibit US-70).
1732 US, Comments on EC Request for Interim Review, pa ra. 145, citing, Exhibits US-35, US-36, US-
78, US-116. The United States notes that Dr. Dorman's use of the term, "designated as BCI", should be
understood as referring specifically to documents that ha ve been "designated as BCI " within the meaning given
to that term in this dispute. US, Comments on EC Request for Interim Review, footnote 77.
1733 US, Comments on EC Request for Interim Review, para. 145.
1734 EC, Request for Interim Review, p. 31.
1735 US, Request for Interim Review, paras. 34 - 37, citing US, Comments on EC Answer to Panel
Question 262 (HSBI Appendix), paras. 10-12, 7-9, 3 and 4-6.

BCI deleted, as indicated [***]

6.338 The European Communities expresses no view on these aspects of the United States'
request.1736
6.339 The submission referred to by the United States comments on and criticizes various aspects of
the European Communities' arguments concerning th e evidence discussed in these paragraphs of the
Interim Report. That submission is designated as HSBI almost in its entirety, and is not susceptible of
meaningful non-confidential summary. In the absence of any objection from the European
Communities these aspects of the United States' request, and given that we did, in fact, consider the
United States' comments in making our decision, we have added footnote references to the relevant
paragraphs of those comments to paragraphs 7.1917-7.1918, 7.1919-7.1920, 7.1926-7.1927, and
7.1928 (now paragraphs 7.1928 - 7.1929, 7.1930 - 7. 1931, 7.1937 - 7.1938 and 7.1939) to reflect that
consideration.
14. Paragraph 7.1952
6.340 The European Communities requests the Panel to add, at the end of paragraph 7.1952 of the
Interim Report, a reference to the European Commun ities' calculation of the potential cash flow effect
of the alleged subsidies, in order to properly reflect the European Communities' argument.1737
6.341 The United States does not object to this request , but suggests an alternative formulation to
that proposed by the European Communities in order to make clear that any addition reflects the
European Communities' argument, and not a conclusion of the Panel.1738
6.342 We have no objection to expanding the summary of the European Communities' argument in
this respect, but agree that it should be clear that the statement refers to European Communities'
argument, and not a Panel conclusion. We have therefore modified paragraph 7.1952 (now
paragraph 7.1963) to reflect the European Communities' argument, albeit in different terms than those
proposed by the European Communities.
6.343 The United States also requests a modification to paragraph 7.1952 of the Interim Report. 1739
As it noted in its comments with respect to paragr aph 7.1863 of the Interim Report, the United States
considers the assertion that the Eu ropean Communities' benefit calc ulation methodology is based on
"United States' law and regulations governing the calculation and allocation of subsidy amounts in
countervailing duty investigations" to be erroneous. In the United States' view, the final report should
reflect that this is merely an assertion by the European Communities, one that the United States
strongly disputes.
6.344 The European Communities objects to this request, for the same reasons that it objected to the
United States' request with respect to paragraph 7.1863 of the Interim Report, discussed above.1740
6.345 For the same reasons as discussed above at paragr aph 6.329 with respect to paragraph 7.1863
of the Interim Report, we have modified the second sentence of paragraph 7.1952 and footnote 5335
(now paragraph 7.1963 and footnote 5701), in or der to make clear the disagreement between the
parties on US law and regulations in the CVD context as relied on by the European Communities in
this case.

1736 EC, Comments on US Request for Interim Review, p. 21.
1737 EC, Request for Interim Review, p. 31.
1738 US, Comments on EC Request for Interim Review, para. 147.
1739 US, Request for Interim Review, para. 38.
1740 EC, Comments on US Request for Interim Review, p. 21. See paragraph 6.328, above.

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15. Paragraph 7.1954
6.346 The European Communities requests the Panel to delete the parenthetical describing the
benchmark rates used in its calculation of the magnit ude of the subsidies in paragraph 7.1954 of the
Interim Report. The European Communities consid ers that this parenthetical suggests that the
European Communities endorsed the United States' benchmark rates, which it did not.1741
6.347 The United States objects to this request, noting that the statement does not suggest that the
European Communities endorsed the relevant figures, but merely reports the fact that ITR "used"
those figures. The United States considers th is an accurate statement which the European
Communities does not dispute. 1742 Moreover, the United States notes that this paragraph summarizes
the United States' argument, which indicated th at the NERA and ITR reports used the same
benchmark rates, which the United States considers an important point.
6.348 In our view, the parenthetical phrase in questi on simply states the fact, which the European
Communities does not dispute, that the ITR report "used" the Ellis Report benchmark rates in its
calculations, a point made by the United States in its argument. We do not consider that this
statement of fact can be reasonably understood as implying that the European Communities endorsed
those rates in any way. We therefore deny the European Communities' request.
6.349 The United States notes that, in assessing the Un ited States' arguments with respect to the
magnitude of the subsidy, the Interim Report appears not to reflect the United States' arguments based
on the amount by which per-delivery repayments would have had to increase in order to repay
LA/MSF at benchmark interest rates.
1743 According to the United States, the Panel does appear to
have recognized elsewhere in its report (e.g., in paragraph 7.1997 of the Interim Report) that
repayments of LA/MSF would have been greater if LA/MSF had been provided on commercial terms,
and states that this consideration would also seem to be relevant to the issue of the magnitude of the
subsidy, although it makes no specific suggestions for action by the Panel.
6.350 The European Communities did not comment on this aspect of the United States' request.
6.351 Having considered the United States' co mments, we have added a footnote to
paragraph 7.1954 (now pa ragraph 7.1965) to indicate that the United States presented arguments
concerning the benefit from LA/MSF calculated on the basis of the amount by which each per-aircraft
repayment would have to be increased in order to repay the LA/MSF at a commercial rate.
16. Paragraph 7.1958
6.352 The European Communities requests the Panel to modify its finding, in the second sentence
of paragraph 7.1958 of the Interim Report, that the European Communities focused on the interest rate
differentials and failed to take into ac count the financial contribution at issue.
1744 The European
Communities contends it discussed at length the prope r interest rates that should be applied to
determine the amount and magnitude of any subsid y, and did take the principal amount of LA/MSF
into account when calculating subsidy magnitudes. The European Communities asserts that its
calculations are based on the difference between (i) the amount of interest paid under the MSF

1741 The EC notes that it consistently described these rates as "inflated", "overstated" and "flawed". EC,
Request for Interim Review, p. 31, citing, e.g., EC, FWS, paras 551, 553 and 1590.
1742 US, Comments on EC Request for Interim Review, para. 148.
1743 US, Request for Interim Review, para. 39, citing, US, SNCOS, paras. 184-186; US, Comments on
EC Answer to Panel Question 289, paras. 221-225.
1744 EC, Request for Interim Review, p. 31.

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agreement and (ii) the amount of interest that would be paid at the benchmark rate, which calculations
are a function of both the applicable interest rates and the amount of loan principal.1745 Consequently,
the European Communities requests th at the Panel delete paragraph 7.1958 of the Interim Report,
save for the first sentence, and adapt the numbering of the issues addressed in subsequent paragraphs
accordingly.
6.353 The United States objects to the European Comm unities' request, asserting that the European
Communities' objection misses the point that the Pane l develops in paragra ph 7.1958 of the Interim
Report.1746 The United States notes that it is undisputed that the ITR report contains purported values
for the amount of the subsidy benefit in Euros, and not simply in basis points, but considers that the
text the European Communities proposes to delete do es not suggest otherwise. Rather, in the United
States' view, the text proposed for deletion states th at an assessment of the magnitude of the subsidy
for purposes of a serious prejudice analysis requires more than a simple calculation of the benefit,
whether in Euros or in basis points, explaining that an analysis of the nature and effects of the subsidy
- such as whether the total amount of subsidized LA/MSF provided equals 1 percent or 100 percent of
the total development costs - is also relevant to determining the magnitude of the subsidy's effects.
1747
The United States maintains that, as it argued during th e dispute, one of the flaws in the ITR analysis
is that it treats the subsidy as if it were a lump-sum grant disbursed in the year an aircraft model is
launched, thus ignoring the effect of the subsidy in, for example, shifting programme risk from Airbus
to the governments and enabling aircraft launches that would not otherwise occur. 1748 In the United
States' view, this is the point that the Panel mak es in the paragraph 7.1958 of the Interim Report, and
the point is correct. The United States proposes that the Panel modify the paragraph to clarify this
point.
6.354 We consider that the United States has correctly understood the import of paragraph 7.1958 of
the Interim Report. We therefore deny the Eu ropean Communities' request, and have modified
paragraph 7.1958 (now paragraph 7.1969) to clarify our views.
17. Paragraph 7.1961
6.355 The European Communities requests that the Panel modify the EUR [***] million figure for
the subsidy amount from the extension of the runway at Bremen airport referred to in
paragraph 7.1961 of the Interim Report, so as to conform it to paragraph 7.1120 of the Interim Report,
where the Panel concluded that the subsidy amount was DM [***] million, or approximately EUR
[***] million. The European Communities further requ ests that, if the Panel accepts the European
Communities' request for changes in paragraph 7.1120 of the Interim Report, it also modify
paragraph 7.1961 of the Interim Report accordingly.1749
6.356 The United States recalls that it objected to th e proposed changes to paragraph 7.1120 of the
Interim Report, and therefore disagrees with this aspect of the European Communities' request.1750
6.357 We have corrected paragraph 7.1961 (now para graph 7.1972) to conform to our finding set
out in paragraph 7.1120 (now para graph 7.1128) that the amount of the financial contribution in

1745 EC, Request for Interim Review, p. 31, citing, EC, FWS, paras 1593-1595. ITR Subsidy Magnitude
Report, exhibit EC-13 (HSBI and BCI). EC, SWS, para . 1012. ITR Cash Flow Effect of Member State
Financing, 20 May 2007, Exhibit EC-661 (BCI).
1746 US, Comments on EC Request for Interim Review, para. 149.
1747 US, Comments on EC Request for Interim Review, para. 150.
1748 US, Comments on EC Request for Interim Review, para. 151, citing, e.g., US, SNCOS, paras. 182-
183.
1749 EC, Request for Interim Review, p. 32.
1750 US, Comments on EC Request for Interim Review, para. 153.

BCI deleted, as indicated [***]

connection with the Bremen airport runway extension was [***], and not "over EUR 40 million". We
do not see any reason to convert the amount stated in DM to an amount in EUR, and the European
Communities has not suggested any.
P. C
ONCLUSIONS AND RECOMMENDATION
1. Paragraph 8.6
6.358 The United States suggests that, for greater certainty, and in light of the Panel's findings
reflected in paragraphs 7.169 through 7.177 of the Interim Report, the recommendation in
paragraph 8.6 of the Interim Report should be expressed in the active voice (as is the recommendation
in paragraph 8.7 of the Interim Report).
6.359 The European Communities did not comment on this request.
6.360 A change to the active voice would more closel y track the text of Article 4.7 of the SCM
Agreement, and would parallel the recommendation in pa ragraph 8.7 of the report. In the absence of
any objection from the European Co mmunities, we grant the United States' request, and have revised
paragraph 8.6 (numbering unchanged) accordingly.
Q. BCI/HSBI
 DESIGNATIONS
1. Footnote 2158 and paragraph 7.410
6.361 The European Communities requests that the list of contracts containing royalty provisions
identified in footnote 2158 of the Interim Report and those referred to in paragraph 7.410 of the
Interim Report should be placed in square brackets in order to maintain cons istency with the Panel's
square bracketing of the number of such contracts in paragraph 7.374 of the Interim Report.1751
6.362 The United States did not comment on the European Communities' request.
6.363 We grant the European Communities' request and have modified footnote 2158 and
paragraph 7.410 (now footnote 2452, paragraph numbering unchanged) accordingly.
2. Paragraphs 7.426 and 7.483 (tables 5 and 7)
6.364 The United States asks the Panel to remove th e square brackets from the interest rates
identified in Tables 5 and 7 of the Interim Report for the Spanish A320 and A330/A340 LA/MSF
contracts, because it considers the two interest rates to be information that is in the public domain.
The United States points in particular to its paragr aph 223 of its first written submission, which cites
Exhibit US-19.1752
6.365 The European Communities did not comment on this request.
6.366 The Spanish A320 and A330/A340 LA/MSF interest rate information identified in Tables 5
and 7 of the Interim Report comes from Exhib it EC-597 (HSBI), which contains the European
Communities' IRR calculations using information that is HSBI, in particular the forecast delivery
schedule. The European Communities' calculation is confirmed in the text of the contracts
themselves, which are designated BCI. Thus, the brack eted interest rates contained in Tables 5 and 7

1751 EC, Request for Interim Review, p.5.
1752 US, Comment on EC, Request for Interim Review, para. 154.

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were not derived from the information contained in Exhibit US-19, but from BCI. Moreover, in
revealing that Spanish government support for CA SA's involvement in the development of Airbus
LCA was provided in the form of reimbursable adva nces at zero interest, the information in Exhibit
US-19 does not explicitly refer to the Spanish A3 20 and A330/A340 LA/MSF contracts. Rather, it
refers to funding provided by the Spanish g overnment for Airbus LCA models pursuant to
Intergovernmental Agreements entered into by th e Spanish government since 1969. While it may be
inferred from this information that the interest rate information disclosed in Exhibit US-19 referred to
the Spanish A320 and A330/A340 contracts, in th e absence of any explicit connection with these
contracts, and given that the interest rates identified in Tables 5 and 7 were sourced from BCI, we
have taken a cautious approach and deny the United States' request.
3. Paragraph 7.1916
6.367 The United States asserts that, in the text immediately prior to footnote 5259 in
paragraph 7.1916 of the Interim Re port, the bracketed text ("thus [***]") is simply a conclusion
drawn from publicly available information and is not BCI.1753
6.368 The European Communities did not comment on this request.
6.369 Given that the information originally brack eted pertains to the sales and financial
performance of the A380, and that the European Communities did no t object to the United States'
view that this information is not BCI, we conclude that the statement is not properly designated as
BCI and have deleted the brackets from paragraph 7.1916 (now paragraph 7.1927).
4. Paragraph 7.1960
6.370 The European Communities requests the Pa nel to bracket as BCI the amounts of [***] and
[***] as well as the figures [***] and [***] in the second sentence of paragraph 7.1960 of the Interim
Report. The European Communities asserts that to leave these figures would enable a reader to
reverse-engineer the data designated BCI in the LA/MSF section of the report.1754
6.371 The United States did not comment on this request.
6.372 In order to ensure the confidentiality of in formation designated as BCI elsewhere in the
report, by precluding calculations that would allow that information to be derived from information
not designated as BCI, and in the absence of any objection from the United States, we grant the
European Communities' request and have modified paragraph 7.1960 (now paragraph 7.1971) to
designate this information as BCI by enclosing it in brackets.

1753 US, Request for Interim Review, para. 55.
1754 EC, Request for Interim Review, p. 31.

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VII. FINDINGS
A. GENERAL INTRODUCTION
7.1 The United States' complaint in this dispute alleges more than 300 separate instances of
subsidization, over a period of almost forty years, by the European Communities 1755 and four of its
member States, France, Germany, Spain and the Unite d Kingdom, with respect to large civil aircraft
("LCA") developed, produced and sold by the co mpany known today as Airbus SAS. The measures
that are the subject of the United States' complain t may be grouped into fi ve general categories:
(i) "Launch Aid" or "member State Financing"; (ii) loans from the European Investment Bank;
(iii) infrastructure and infrastructure-related gran ts; (iv) corporate restructuring measures; and
(v) research and technological development funding. The United States claims that each of the
challenged measures is a specific subsidy within the meaning of Articles 1 and 2 of the
SCM Agreement, and that the European Communities and the four member States, through the use of
these subsidies, cause adverse effects to the United States' interests within the meaning of Articles 5
and 6 of the SCM Agreement. In addition, the United States claims that seven of the challenged
"Launch Aid" or "member State Financing" measu res are prohibited export subsidies within the
meaning of Article 3 of the SCM Agreement.
7.2 On 6 October 2004, the United States request ed consultations with the European
Communities and certain EC member States (Franc e, Germany, Spain and the United Kingdom) with
regard to the challenged measures.
1756 The United States requested the establishment of this Panel on
31 May 2005.1757 Following the 24 February 2006 submission of the report of the Designated
Representative in the information-gathering pro cedure under Annex V of the SCM Agreement, the
Panel temporarily set aside its time-table, recommencing its work in September 2006.
7.3 This Report addresses the United States' claims in fo ur parts. First, in parts VII.C and VII.D,
we set forth our decision of 11 July 2007 with r espect to the European Communities' request for
preliminary ruling of 25 October 2005 and address other preliminary matters. Next, in part VII.E, we
evaluate the United States' claims with respect to whether each of the challenged measures is a
specific subsidy within the meaning of Articles 1 an d 2 of the SCM Agreement, and whether seven of
those challenged measures are export subsidies. Fina lly, with respect to those measures we find to be
specific subsidies, we address in part VII.F the Un ited States' claims that the European Communities
and the four member States, through the use of tho se subsidies, cause the clai med adverse effects to
the United States' interests within the meaning of Articles 5 and 6 of the SCM Agreement. We set
forth our conclusions and recommendation in Section VIII.
B. RELEVANT PRINCIPLES REGARDING STANDARD OF REVIEW, TREATY INTERPRETATION, AND
BURDEN OF PROOF
1. Standard of Review
7.4 Article 11 of the DSU provides the standard for decision-making by WTO panels, requiring
them to make an "objective assessment" of the ma tter, including an objective assessment of the facts,

1755 As previously noted, see footnote 1 above, on 1 December 2009, the Treaty of Lisbon amending the
Treaty on European Union and the Treaty establishing the European Community (done at Lisbon, 13 December
2007) entered into force. On 29 November 2009, the WTO received a Verbal Note (WT/L/779) from the
Council of the European Union and the Commission of the European Communities stating that, by virtue of the
Treaty of Lisbon, as of 1 December 2009, the European Union replaces and succeeds the European Community.
1756 WT/DS316/1, attached at Annex A.
1757 WT/DS316/2, attached at Annex B.

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and the applicability of and conformity with the relevant covered agreements, and to "make such other
findings as will assist the DSB in making the recommenda tions or in giving the ruling provided for in
the covered agreements."
2. Relevant Principles of Treaty Interpretation
7.5 With respect to the question of legal interpre tation, Article 3.2 of the DSU provides that
Members recognise that the dispute settlement system serves to clarify the provisions of the covered
agreements "in accordance with customary rules of interpretation of public international law".
Article 31.1 of the Vienna Convention on th e Law of Treaties ('Vienna Convention')", 1758 which is
generally accepted as such a customary rule, provides:
"A treaty shall be interpreted in good faith in accordance with the ordinary meaning
to be given to the terms of the treaty in th eir context and in the light of its object and
purpose."
7.6 There is a considerable body of WTO case law dealing with the application of these
provisions on treaty interpretation in dispute settlement in the WTO. It is clear that interpretation
must be based above all on the text of the treaty, 1759 but that the context of the treaty also plays a role.
It is also well-established that these principles of interpretation "neither require nor condone the
imputation into a treaty of words that are not there or the importation into a treaty of concepts that
were not intended."
1760 Furthermore, panels "mus t be guided by the rules of treaty interpretation set
out in the Vienna Convention, and must not add to or diminish rights and obligations provided in the
WTO Agreement."1761
3. Burden of Proof
7.7 While the parties have not generally raised burde n of proof as an issue, we have kept in mind
the general principles applicable to burden of proo f in WTO dispute settlement, which require that a
party claiming a violation of a provision of a WTO Agreement by another Member must assert and
prove its claim.
1762 In this dispute, the United States, wh ich has challenged certain measures and their
effects, thus bears the burden of demonstrating that the disputed measures are specific subsidies, and
in some cases export subsidies, and that throug h the use of those subsidies, the European
Communities and certain member States cause adverse e ffects to the United States' interests. It is
generally for each party asserting a fact to provide proof thereof. 1763 Therefore, it is also for the
European Communities to provide evidence for the facts which it asserts.
7.8 We have also kept in mind that a prima facie case is one which, in the absence of effective
refutation by the other party, requires a panel, as a matter of law, to rule in favour of the party

1758 Done at Vienna, 23 May 1969, 1155 United Nations Treaty Series 331 (1980); 8 International
Legal Materials 679 (1969).
1759 Appellate Body Report, Japan – Taxes on Al coholic Beverages ("Japan – Alcoholic
Beverages II "), WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996,
DSR 1996:I, 97, p. 11.
1760 Appellate Body Report, India – Patent Protection for Pharmaceutical and Agricultural Chemical
Products ("India – Patents (US) "), WT/DS50/AB/R, adopted 16 January 1998, DSR 1998:I, 9, para. 45.
1761 Appellate Body Report, India – Patents (US), para. 46.
1762 Appellate Body Report, United States – Measure Affecting Imports of Woven Wool Shirts and
Blouses from India ("US – Wool Shirts and Blouses") , WT/DS33/AB/R and Corr. 1, adopted 23 May 1997,
DSR 1997:I, 323, p. 337.
1763 Appellate Body Report, US – Wool Shirts and Blouses, p. 337.

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presenting the prima facie case.1764 Finally, we recall that the Appellate Body also stated that "{a}
complaining party may not simply submit evidence a nd expect the panel to di vine from it a claim of
WTO-inconsistency. Nor may a complaining party si mply allege facts without relating them to its
legal arguments."1765
C. PRELIMINARY RULING1766
1. Introduction
7.9 On 6 October 2004, the United States requested consultations with the Governments of
Germany, France, the United Kingdom and Spain, a nd with the European Communities, pursuant to
Articles 1 and 4 of the DSU, Article XXIII:1 of GATT 1994 and Articles 4, 7 and 30 of the
SCM Agreement, with regard to measures affecting tr ade in large civil aircraft. Pursuant to this
request, the United States held consulta tions with the European Communities on
4 November 2004.1767
7.10 On 31 May 2005, the United States requested the establishment of a panel pursuant to
Article 6 of the DSU, Article XXIII:2 of GATT 1994 and Articles 4, 7 and 30 of the
SCM Agreement.1768
7.11 On 20 July 2005, the DSB established the Panel with the following terms of reference:
"To examine, in the light of the relevant provisions of the covered agreements cited
by the United States in document WT/DS316/2, the matter referred to the DSB by the
United States in that document, and to ma ke such findings as will assist the DSB in
making the recommendations or in giving the rulings provided for in those
agreements."1769
7.12 On 25 October 2005, the European Communitie s submitted a request to the Panel for
preliminary rulings addressing two distinct sets of issues. First, the European Communities asks the
Panel to find that certain measures alleged by th e United States to constitute prohibited or actionable
subsidies fall outside the 'temporal scope' of th ese proceedings. Second, the European Communities
asked the Panel to find that certain measures fall out side the Panel's terms of reference because the
measures did not exist at the time of the establishmen t of the Panel, were not identified in the request
for consultations, or were not identified in the re quest for the establishment of a panel in accordance
with Article 6.2 of the DSU.
1770
7.13 The first set of issues involves a considerati on of the temporal scope of application of
Article 5 of the SCM Agreement and the relevance, if any, of the Agreement between the European
Community and the Government of the United Stat es concerning the Application of the GATT
Agreement on Trade in Civil Aircraft on Trade in Large Civil Aircraft (the 1992 Agreement) to the

1764 Appellate Body Report, EC Measures Concerning Meat and Meat Products (Hormones) ("EC –
Hormones"), WT/DS26/AB/R, WT/DS48/AB/R, adopted 13 February 1998, DSR 1998:I, 135, para. 104.
1765 Appellate Body Report, United States – Measures Affecting the Cross-Border Supply of Gambling
and Betting Services ("US – Gambling") , WT/DS285/AB/R, adopted 20 April 2005, DSR 2005:XII, 5663
(Corr.1, DSR 2006:XII, 5475), para. 140.
1766 Originally transmitted to the parties and third parties on 11 July 2007.
1767 WT/DS316/1;G/L/697; G/SCM/D62/1, 12 October 2004.
1768 WT/DS316/2, 3 June 2005.
1769 WT/DSB/M/194.
1770 European Communities, Request for Preliminary Rulings, 25 October 2005, (hereinafter "EC,
Original Request"), para. 8.

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determination regarding measures which are properly w ithin the scope of this dispute. We address
these issues first, before turning to consider those related to the alleged non-existence of the measures,
alleged lack of consultations, and alleged failure to comply with Article 6.2 of the DSU.
2. Issues relating to the temporal scope of this dispute
(a) Background
7.14 On 7 November 2006, the European Comm unities submitted an updated request for
preliminary rulings, updating and partially replacing its request of 26 October 2005 in relation to its
arguments concerning the 'temporal scope' of this dispute. 1771 In its updated request, the European
Communities submits that the measures included in the United States' Panel request which pre-date
1 January 1995 (the effective date of the SCM Agreem ent) and/or 17 July 1992 (the effective date of
the 1992 Agreement) fall outside the temporal scope of this dispute.
7.15 As modified by the updated request for pr eliminary rulings, the European Communities
requests the Panel to rule that:
(a) all alleged prohibited and ac tionable subsidies granted by the European Communities
before 1 January 1995 are excluded from the temporal scope of the proceedings; and
(b) any alleged government support committed prior to 17 July 1992 is excluded from the
temporal scope of the proceedings.
7.16 On 22 December 2006, the Panel issued a communication, the relevant parts of which are set
forth below:
"1. After carefully considering the Par ties' and Third Party submissions and
responses to written questions concerning the European Communities' preliminary
ruling request to exclude certain challenged measures from the temporal scope of this
proceeding, the Panel informs the Parties as follows:
2. The Panel understands that the European Communities, in the light of the
content of the United States' First Writte n Submission, are no longer pursuing their
claims regarding the temporal scope of Artic le 3 of the SCM Agreement. Therefore,
on the basis of the facts and arguments presented by the Parties to date, the Panel
considers that, for the moment, it is not neces sary for it to rule on this aspect of the
European Communities' request for a preliminary ruling.
3. The Panel also understands that the European Communities has
acknowledged that the alleged measures iden tified in paragraphs 34-36, 38, 39, 41,
42, 44, 45, 49, 51, 53, 55 and 56 of the European Communities' response of
8 December 2006 to Panel Question 3, fall en tirely or "partially" within the temporal
scope of this proceeding; and that the European Communities' request for a
preliminary ruling is, to this extent, limite d to the other alleged measures identified,
in paragraphs 23-38, 40, 41, 43, 47, 48 , 50 and 54 of the European Communities'
response of 8 December 2006 to Panel Question 3, as allegedly falling entirely or
"partially" outside of the temporal scope of this proceeding.

1771 European Communities, Updated Request for Pre liminary Rulings, 7 November 2006, (hereinafter
"EC, Updated Request"), para. 3.

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4. On the basis of the facts and arguments that the Panel has thus far considered,
and without prejudice to any views that it may develop during the course of this
proceeding in the light of additional facts and arguments that may be introduced by
the Parties and Third Parties, the Panel is not convinced by the European
Communities' assertions that (i) as a genera l matter, "subsidies granted" or "brought
into existence" prior to 1 January 1995, cannot fall within the scope of Article 5 of the
SCM Agreement; and (ii) "alleged gove rnment support committed prior to
17 July 1992" is outside of the temporal scope of this proceeding, because of the
Agreement between the European Community and the Government of the United
States concerning the Application of the GATT Agreement on Trade in Civil Aircraft
on Trade in Large Civil Aircraft . Furthermore, the Panel considers that it is not
currently in a position to determine whether the measures identified in paragraphs 23-
38, 40, 41, 43, 47, 48, 50 and 54 of the European Communities' response of
8 December 2006 to Panel Question 3, fall out side of the scope of Article 5 of the
SCM Agreement. The Panel therefore invites the Parties and Third Parties to proceed
on the understanding that all of the alleged measures challenged by the United States
continue to fall within the scope of this proceeding.
5. The reasons for the Panel's view s on this aspect of the European
Communities' request for a preliminary ruling will be disclosed to the Parties in due
course."
1772
7.17 We recall that in response to a question from the Panel concerning the temporal scope of
application of the SCM Agreement, the European Communities confirmed that the measures that are
alleged by the United States to be prohibited subs idies under Part II of the SCM Agreement (namely,
the LA/MSF in respect of the Airbus A380, A340-500/600 and the A330-200) all came into existence
after 1 January 1995.
1773 The Panel further notes that the United States has made no claims under
Article 3 with respect to subsidies granted prior to 1 January 1995. Therefore, it is not necessary for
the Panel to address the European Communities' re quest for a preliminary ruling on the temporal
scope of application of Part II of the SCM Agreement.
7.18 Also in response to a question from the Pane l, the European Communities has accepted that
certain of the measures challenged by the United St ates fall within the scope of Article 5 of the
SCM Agreement because the sums were disbursed after 1 January 1995. 1774 At issue, however, are
the remaining challenged measures which the Europ ean Communities maintains are outside the scope
of Article 5 of the SCM Agreement. The Europ ean Communities requests the Panel to exclude these
remaining measures from this dispute on the basis that , to the extent that th ey were 'granted' or
'brought into existence' prior to 1 January 1995, th ey are outside the 'temporal scope' of Article 5 of
the SCM Agreement.

1772 Panel Communication to the parties, 22 December 2006 (footnotes omitted).
1773 European Communities, Answer to Panel Question 1 of 8 Decem ber 2006 (hereinafter "EC,
Answer to Panel Question X of 8 December 2006"), paras. 4-6. During the First Meeting of the Panel, the
European Communities objected to the use by the United States of the term 'launch aid' to describe the provision
by the member States of the European Communities of financing for large civil aircraft design and development
to the Airbus companies. The European Communities refers to such financing as 'member State Financing'
(MSF). For purposes of this Preliminary Ruling, we use the term LA/MSF to refer to the financing described by
the United States as 'launch aid' and by the European Communities as 'MSF'. This question is addressed further
in the Panel's findings at paragraph 7.291.
1774 EC, Answer to Panel Question 3 of 8 December 2006, paras. 22-57. The measures in question are
set forth in Section VII.C Attachment, following para. 7.158.

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(b) Article 5 of the SCM Agreement
(i) Arguments of the European Communities
7.19 The European Communities submits that the tem poral scope of the SCM Agreement must be
determined in accordance with Article 28 of the Vienna Convention on the Law of Treaties (VCLT),
which sets out the general rule that treat y provisions do not apply retroactively. 1775 The European
Communities' principal argument is that, consistent with the principle of non-retroactivity embodied
in Article 28 of the VCLT, Article 5 of the SCM Ag reement applies to subsidies that were granted
after 1 January 1995, while subsidies granted prior to 1 January 1995 fall outside the temporal scope
of Article 5.1776
7.20 The European Communities contends that the focus of the obligation contained in Article 5 of
the SCM Agreement is on the conduct, or act of a Member in bringing about adverse effects through
the use of subsidies. 1777 The European Communities argues that, co nsistent with the principle of non-
retroactivity reflected in Article 28 of the VCLT, in order to be subject to Article 5 of the
SCM Agreement, a Member's conduct in bringing a bout adverse effects to the interests of other
Members must have occurred after 1 January 1995. 1778 The European Communities contends that the
conduct or act of the Member to which Article 5 is addressed may be the "bringing into existence of a
subsidy within the meaning of Article 1 of the SCM Agreement." 1779 Therefore, according to the
European Communities, Article 5 of the SC M Agreement does not apply to government conduct in
bringing into existence a subsidy if that conduct occurred prior to 1 January 1995.
7.21 The European Communities notes that a subsidy within the meaning of Article 1.1 of the
SCM Agreement consists of two elements; name ly, a financial contribution, which confers a
benefit.1780 According to the European Communities, a subsidy is only is 'brought into existence' when
the financial contribution has been made and the benefit has been conferred. 1781 For the European
Communities, it is not sufficient to subject a Member to the obligations of Article 5 that the adverse
effects of a subsidy granted by a Member prior to 1 January 1995 are felt by Members subsequent to
1 January 1995. Nor is it sufficient to bring a subsidy within the scope of Article 5 that the 'benefit' of

1775 EC, Updated Request, paras. 10-13.
1776 Consistent with this approach, the European Communities argues that LA/MSF committed and paid
prior to 1 January 1995 is outside the temporal scope of Article 5 because the grants of LA/MSF constitute
completed 'acts' for purposes of Article 28 of the VCLT. The European Communities also argues that EIB loans
to EADS and the Airbus companies which were provided in full prior to 1 January 1995 are outside the temporal
scope of Article 5. In relation to the measures that the Un ited States has challenged as infrastructure subsidies,
the European Communities argues that the extension of the runway at Bremen Airport, which occurred in 1988
and 1989, falls outside the temporal scope of Article 5 because the 'financial contribution' ( i.e., the provision of
the runway) was a completed act by 1 January 1995. Subsidies alleged to have arisen out of certain share
transfers and equity infusions relating to the Airb us companies are also, acc ording to the European
Communities, outside the temporal scope of Article 5 to the extent that such transf ers or infusions took place
before 1995, because at that point, they became comple ted 'acts'. In relation to research and development
funding which the United States has challenged as involving actionable subsidies, the European Communities
argues that grants or disbursements made after 1 January 1995 pursuant to programmes established prior to
1 January 1995 are within the temporal scope of Article 5, while grants or disbursements which were made prior
to 1 January 1995 are outside the temporal scope of Article 5 and should be excluded from these proceedings.
1777 EC, Updated Request, paras. 27-28. Reiterated in the Second Written Submission of the European
1778 EC, Updated Request, para. 27.
1779 EC, Answer to Panel Question 2 of 8 December 2006, para. 18. EC, SWS, para. 11 (emphasis
added).
1780 EC, SWS, para. 16.
1781 EC, SWS, para. 16.

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the financial contribution was conf erred subsequent to 1 January 199 5 if the financial contribution
was made prior to that date. 1782 The consequence of this approach is that, in order to be subject to
Article 5 of the SCM Agreemen t, the financial contribution and the benefit components of a subsidy
(and obviously, the adverse effects) must take place subsequent to 1 January 1995.1783 The European
Communities characterises the obligation contained in Article 5 in the following manner:
"The drafters of the SCM Agreement creat ed the (negative) duty to abstain from
granting new actionable subsidies after 1995. Had they intended also to create an
additional (positive) duty for Members to re vise all their pre-1995 subsidies because
of their possible economic effect as 'conti nuing benefits' after 1995 they would have
done so in Part IX on transitional arrangements."1784
7.22 The European Communities argues that for th e Panel to determine otherwise would be
contrary to the non-retroactivity principle because it would effectively require Members to carry out
full reviews of all individual subsidies that they had granted prior to 1 January 1995 in order to
determine whether "they could produce 'continuing be nefits' and could retroactively fall foul of
Article 5 of the SCM Agreement."1785
7.23 The European Communities submits that, alt hough the conduct of a Member in bringing a
subsidy into existence may result in economic ef fects which continue after completion of that
conduct, this circumstance does not transform what is properly characterised as a completed "act" for
purposes of Article 28 of the VCLT into a "situation" which continues to exist. 1786 The European
Communities contends that a "situation" of a con tinuing character, for purposes of Article 28 of the
VCLT "asks for more than bringing a subsidy in to existence pre-1995 with economic effects post-
1995."1787 The European Communities posits a subsidy programme involving recurring grants of
subsidies as an example of a 'situation' of a continuing character in the field of subsidies. 1788 T h e
European Communities contrasts such programmes with the one-off granting of a subsidy, which the
European Communities contends would not fall within the temporal scope of Article 5 if the conduct
in question had occurred before 1 January 1995, ev en if the adverse effects caused by that conduct
arise subsequent to that date.1789
7.24 The European Communities considers that its interpretation of Article 5 is indirectly
confirmed by paragraph 7 of A nnex IV of the SCM Agreement which sets forth the method for
calculating the total ad valorem subsidization of a product for purposes of the presumption of serious
prejudice in Article 6.1(a). 1790 The European Communities regards paragraph 7 of Annex IV as

1782 In other words, the European Communities argues that if a Member made a financial contribution
before 1 January 1995, part or all of the benefits of which are conferred after 1 January 1995, this conduct
would not, consistently with the principle of non-retroactivity, be subject to Article 5 of the SCM Agreement.
1783 EC, Updated Request, para. 30; EC, Answer to Panel Question 5 of 8 December 2006, para. 67.
1784 EC, Answer to Panel Question 5 of 8 December 2006, para. 67.
1785 EC, SWS, para. 17.
1786 EC, Answer to Panel Question 2 of 8 December 2006, paras. 19 and 20. See, also, Answer of the
European Communities to Panel Question 57 (hereinafter "E C, Answer to Panel Question X"), paras. 5-8; EC,
SWS, paras. 12 and 16.
1787 EC, Answer to Panel Question 2 of 8 December 2006, para. 20.
1788 EC, Answer to Panel Question 2 of 8 December 2006, para. 20; EC, Answer to Panel Question 57,
paras. 6-7. The European Communities argues theref ore that, post-1995 grants made pursuant to subsidy
programmes which were established prior to 1 January 1995 would be subject to Article 5 of the
SCM Agreement because such grants effectively constitute new state conduct.
1789 EC, Updated Request, para. 27.
1790 EC, Updated Request, pa ra. 29; EC, Answer to Panel Questi on 5 of 8 December 2006, paras. 66-
67.

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addressing an exceptional situation in which subsidie s granted prior to 1 January 1995 are included in
the ad valorem subsidization calculation, provided their benefits are allocated to future production.1791
According to the European Communities, if Artic le 5 had been intended generally to apply to
subsidies granted prior to 1 January 1995, this specific exception would not have been necessary.
7.25 The European Communities also argues that Artic le 5, in obligating Members not to cause
adverse effects "through the use of any subsidy w ithin the meaning of Article 1" necessarily requires
reference to the definition of 'subsidy' in Artic le 1 of the SCM Agreement and therefore excludes
subsidies provided prior to 1 January 1995.
(ii) Arguments of the United States
7.26 As an initial matter, the United States notes that it is not a party to the VCLT. 1792 However,
the United States does not regard this circumstance as problematic to the resolution of the issues
raised by this request for preliminary rulings becau se it is not seeking to interpret Article 5 of the
SCM Agreement in a retroactive manner. 1793 The United States submits that Members undertook the
obligation contained in Article 5 as of the date of entry into force of the WTO Agreement and that the
relevant issue is how the Panel determines the precise content of that obligation.
7.27 The United States argues that the act, fact or s ituation that is the focus of the obligation
contained in Article 5 of the SCM Agreement is the causing of adverse effects to the interests of a
Member through the use of subsidies and that this ac t, fact or situation of causing adverse effects to
the United States through the use of the subsidy measu res at issue in this dispute has continued to
exist after 1 January 1995. 1794 The United States supports its construction of Article 5 of the
SCM Agreement on the basis that the "positioning of 'through the use of' as a subordinate, modifying
clause accords with the focus of the provision, which is the causation of adverse effects, and not on
the grant of a subsidy."
1795 The United States contrasts the structure of the obligation in Article 5 with
the prohibition in Article 3.2 which, in providing that a Member "shall neither grant nor maintain"
prohibited subsidies, focuses squarely on the grant or maintenance of a prohibited subsidy, rather than
on causing certain effects through the use of the subsidy.1796
7.28 The United States notes that the term 'use' in Article 5 appears as a noun which names a fact
or situation; namely, the 'act of using, fact of being used', rather than as a verb. 1797 According to the
United States, the term 'use' as it appears in Artic le 5 does not carry any temporal connotation to
indicate that the obligation in Article 5 applies only at the time at which the subsidy is initially
granted.1798 On the contrary, the United States contends that Article 5, in focusing on the act, fact or
situation of causing adverse effects through the use of subsidies, reflects that there may be a lag

1791 EC, Updated Request, para. 29.
1792 United States, Comments on EC, Answer to Panel Question 2 of 8 December 2006, ("US,
Comments on EC, Answer to Panel Question X of 8 December 2006"), para. 2. The United States notes that the
European Communities itself is also not a party to the VCLT.
1793 US, Comment on EC, Answer to Panel Question 2 of 8 December 2006, para. 2.
1794 United States, Answer to Panel Question 2 of 8 D ecember 2006, (hereinafter "US, Answer to Panel
Question X of 8 December 2006"), para. 1; US, Comments on EC Answer to Panel Question 2 of 8 December
2006, para. 6.
1795 US, Answer to Panel Question 2 of 8 December 2006.
1796 US, Answer to Panel Question 2 of 8 December 2006, para. 2, at footnote 1.
1797 US, Answer to Panel Question 2 of 8 December 2006, para. 2.
1798 US, Answer to Panel Question 2 of 8 December 2006, para. 2.

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between the initial commitment of a subsidy and the adverse effects it causes, and that the subsidy and
the adverse effects caused thereby need not be contemporaneous.1799
7.29 The United States submits that its interpretation of Article 5 is consistent with Part III of the
SCM Agreement generally, which it argues is addr essed to an ongoing 'situation' in which adverse
effects are being caused over time through the use of subsidies, rather than the discrete 'act' of making
a financial contribution.1800 In support, the United States notes that Article 6.4 provides that claims of
displacement or impedance for purposes of Article 6.3(d) of the SCM Agreement are required to be
examined 'over an appropriately representative peri od sufficient to demonstrate clear trends in the
development of the market for the product concerne d, which, in normal circumstances, shall be at
least one year.' In addition, Article 6.3(d) requi res that the effects in question follow a consistent
trend over a period when subsidies have been granted.1801
7.30 The United States argues that the text of Article 5 of the SCM Agreement does not distinguish
between subsidy measures that came into existence prior to 1 January 1995 and those that came into
existence after 1 January 1995.1802 The United States contends that contextual support for this position
can be found in the provisions of Article 28 dealing with transitional arrangements. According to the
United States, Article 28.1, which conditionally exempts subsidy programme s established before
1 January 1995 from Part II of the SCM Agreement fo r a three-year transition period, confirms that
the only obligations in the SCM Agreement that did not apply to subsidy programmes established
before 1 January 1995 were those of Part II.1803
7.31 In response to the European Communities' argu ment that paragraph 7 of Annex IV of the
SCM Agreement should be regarded as an exceptiona l circumstance where subsidies granted prior to
1 January 1995 may be taken into account in de termining whether a subsidy has caused adverse
effects for purposes of Article 5, the United Stat es argues that paragraph 7 of Annex IV actually
confirms the United States' conclusion that the SCM Agreement does not exclude subsidy measures
that came into existence prior to 1 January 1995 from its temporal scope.1804 The United States argues
that this provision is not an 'exception' to a ge neral rule of non-retroactivity in Part III of the
SCM Agreement; it simply sets out a methodology for determining which subsidies granted prior to
1 January 1995 should be taken into account for purposes of Article 6.1.1805
(iii) Arguments of Third Parties
7.32 Australia observes that, in considering the app lication of Article 28 of the VCLT to Article 5
of the SCM Agreement, the Panel may be called on to determine whether "payments made prior to the
entry into force of the SCM Agreement can be characterised as forming part of a 'situation' or subsidy
continuum which continued to exist after entry into force of the SCM Agreement." 1806 In this regard,
Australia submits that the Panel should draw on the guidance provided by the Appellate Body on the

1799 US, Answer to Panel Question 2 of 8 December 2006, para. 3.
1800 US, Comments on EC Answer to Panel Question 2 of 8 December 2006, para. 6.
1801 US, Comments on EC Answer to Panel Question 2 of 8 December 2006, para. 6.
1802 United States, Response to Updated Request for a Preliminary Ruling Submitted by the European
Communities, 29 November 2006, (hereinafter "US, Answer to EC, Updated Request"), para. 15.
1803 US, Answer to Panel Question 8 of 8 December 2006, para. 20.
1804 US, Answer to EC, Updated Request, para. 17.
1805 US, Answer to Panel Question 6 of 8 December 2006, para. 14.
1806 Third Party Submission of Australia, 7 May 2007, (hereinafter "Australia Third Party Submission")
para. 24.

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application of Article 28 of the VCLT to 'situations'.1807 Australia also notes that the SCM Agreement
contains provisions which require an examin ation of a representative period for purposes of
establishing the effects of subsidization, and that, depending on the nature of the subsidy granted,
such effects may continue to exist through the ongoing conferral of a benefit to the subsidized
product.1808
7.33 Brazil argues that the relevant 'act' in the subs idies context is the provision of the subsidy by
the government 'in the form of a financial contri bution conferring a benefit within the meaning of
Article 1 of the SCM Agreement'. 1809 According to Brazil, a single 'act' cannot constitute a 'situation'
that continues over time "without more, such as th e continuing application of a WTO-inconsistent
measure."1810
7.34 Based on this approach, single grants made pr ior to 1 January 1995 would be excluded from
the temporal scope of Article 5, while 'recu rring subsidies' and contributions made after
1 January 1995 would fall within the scope of Ar ticle 5, even where they are made pursuant to
commitments, decisions or actions taken prior to 1 January 1995.1811 Brazil supports this interpretation
of Article 5 by noting that the obligation 'not to cause adverse effects' contained in Article 5 is
qualified by reference to the Me mber's 'use' of any subsidy referred to in paragraphs 1 and 2 of
Article 1.1812 In addition, Brazil argues that active verbs 'g rant,' 'maintain,' and 'use' suggest that the
drafters intended that the SCM Agreement would cover only subsidies within the meaning of Article 1
that were actually provided after 1 January 1995.1813
7.35 Finally, Brazil considers that the absence of any transition provisions expressly according
WTO Members the right to challenge pre- WTO subsidies under Parts II and III of the
SCM Agreement further supports Brazil's interpretation of the temporal scope of Article 5.1814
7.36 Japan submits that the text of the SCM Agreement demonstrates that its drafters did not
intend its disciplines to be limited only to subsidies granted on or after 1 January 1995. 1815 In this
regard, Japan notes that Article 28.1 of the SCM Agreement, by providing a three-year grace period
during which Members could not challenge certa in subsidy programmes under Part II of the
SCM Agreement "implies that Members could challenge such pre-WTO programmes after the grace
period had expired."1816

1807 Australia, Third Party Submission, para. 24. Australia refers to the Appellate Body Report, Canada
– Term of Patent Protection ("Canada – Patent Term "), WT/DS170/AB/R, adopted 12 October 2000,
DSR 2000:X, 5093 in this regard.
1808 Australia, Third Party Submission, para. 24. The provisions of the SCM Agreement to which
Australia refers are Article 6.3(d) and Article 6.4, discussed below.
1809 Brazil, Third Party Comments regarding the Requ est for Preliminary Rulings by the European
Communities, 5 December 2006, ("hereinafter Brazil, Third Party Comments"), para. 17.
1810 Brazil, Third Party Comments, para. 13; Third Party Written Submission of Brazil, 7 May 2007,
("hereinafter Brazil Third Party Submission"), para. 13.
1811 Brazil, Third Party Comments, para. 18; Brazil, Third Party Submission, paras. 10-15.
1815 Third Participant Submission of Japan, 7 May 2007 (hereinafter "Japan Third Party Submission"),
para. 4. Brazil and Japan were the only Third Parties to specifically address the question of the temporal scope
of Article 5 of the SCM Agreement.
1816 Japan Third Party Submission (emphasis in original). The European Communities and the United
States also addressed the significance of Article 28 and Annex IV, paragraph 7 to the contextual interpretation
of Article 5. These arguments are considered below.

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7.37 Similarly, Japan notes that paragraph 7 of A nnex IV of the SCM Agreement recognizes that
members may allocate benefits to future production arising from "subsidies granted prior to the date
of entry into force of the WTO Agreement" that are being challenged under Part III of the
SCM Agreement.
7.38 Finally, Japan notes that the relevant provisi ons of the SCM Agreement in this dispute;
namely, Articles 1, 5, 6 and 7, contain no temporal limitations, and contends that the absence of such
limitations is significant, as the drafters expressly pr ovided for temporal limitations in other parts of
the SCM Agreement, such as Article 27.
1817
7.39 According to Japan, the relevant inquiry for th e Panel in the present dispute is to determine
whether each alleged pre-1995 subsidy 'situation' had 'ceased to exist' prior to 1995, or whether it
continued into 1995 or beyond. 1818 Japan submits that, in conducting this analysis, the Panel should
consider a subsidy situation to be ongoing "so lo ng as the benefit of that subsidy continues to
exist."1819
(iv) Responses of the Parties to the Arguments of Third Parties
7.40 The United States argues that Brazil has erroneous ly equated the 'provision' of a subsidy to
the making of a 'financial contribution' in dete rmining whether a subsidy was 'provided' before
1 January 1995. According to the United States, to the extent that it is even relevant to determine
when a particular subsidy was 'provided' for purpo ses of the application of Article 5, the analysis
cannot be limited to the point in time when the fi nancial contribution was made. The United States
refers in support to the observation of the Appellate Body in US – Lead and Bismuth II that the
definition of subsidy in Article 1.1 does not address the time at which the 'financial contribution'
and/or 'benefit' must be shown to exist.1820
7.41 The United States also disputes Brazil's charact erization of the obligation contained in
Article 5 of the SCM Agreement as essentially an obligation to avoid 'providing' certain subsidies. 1821
The United States contends that the obligation contai ned in Article 5 is rather, an obligation not to
cause adverse effects through the use of a subsidy; an obliga tion which the United States argues is of
a fundamentally different nature to the obligation no t to 'grant' prohibited subsidies in Article 3.2.
The United States contends that the provisions of Parts II and III of the SCM Agreement "each apply
in their own way upon the entry into force of the SCM Agreement, obliga ting Members henceforth
not to grant or maintain a certain class of subsid ies and not to cause adverse effects through a broader
group of subsidies." 1822 According to the United States, th e absence of any transition provisions
expressly according Members the right to challenge pre-WTO subsidies under Parts II and III of the
SCM Agreement is "completely consistent with the di fferent character of the obligations in Parts II

1820 United States, Comments on the Third Party Comme nts of Brazil, 18 December 2006 (hereinafter
"US, Comments on the Third Party Comments of Brazil"), para. 5; referring to Appellate Body Report, United
States – Imposition of Countervailing Duties on Certain Hot-Rolled Lead and Bismuth Carbon Steel Products
Originating in the United Kingdom ("US – Lead and Bismuth II "), WT/DS138/AB/R, adopted 7 June 2000,
DSR 2000:V, 2595, para. 60. The United States notes that, in the US – Lead and Bismuth II dispute, the alleged
subsidies countervailed involved financial contributions (principally equity infusions) made by the British
government during 1977-1978 and 1985-1986, the benefits of which were allocated by the USDOC over the
subsequent 18 years. No party to that dispute contested that a pre-1995 financial contribution resulting in post-
1995 benefits could amount to an actionable subsidy under Part V of the SCM Agreement (at footnote 11).
1821 US, Comments on the Third Party Comments of Brazil, para. 6.
1822 US, Comments on the Third Party Comments of Brazil, para. 8.

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and III and in no way suggests that the obligations must be read in a way that is contrary to their
express meaning."1823
7.42 In response to Japan's comment s, the European Communities disagrees with what it regards
as Japan's unsupported contention that individual s ubsidies could have been challenged during the
grace period provided for subsidy programmes in Article 28.1. According to the European
Communities, there is no contrary intention expr essed in the SCM Agreement that the drafters
intended to overcome the presumption of non-retroactivity for individual subsidies granted prior to
1 January 1995.
1824
7.43 With respect to Japan's argument that express temporal scope limitations are contained in
other provisions of the SCM Agreement, such as Article 27, the European Communities responds that
Article 27 does not concern the question of specific temporal rules for past conduct, but exempts
developing countries for a period after entry into force of the SCM Agreement. According to the
European Communities, if subsidies provided prior to 1 January 1995 had been intended to be subject
to Article 5, the exemption concerning special and differential treatment of developing countries
contained in Article 27.3 would ha ve covered subsidies provided prior to 1 January 1995, when it did
not.
1825
(v) Evaluation by the Panel
7.44 We recall that Article 5 of the SCM Agreement provides, in relevant part:
"No Member should cause, through the use of any subsidy referred to in paragraphs 1
and 2 of Article 1, adverse effects to the interests of other Members..."
7.45 There is nothing in the text of Article 5 of th e SCM Agreement to indicate that the obligation
it sets forth should operate in a retroactive manner. We consider that Members undertook to be bound
by the obligation contained in Article 5 of the SCM Agreement as of 1 January 1995. It is important
to emphasize, however, that accepting to be bound by the obligation contained in Article 5 as of
1 January 1995 is not necessarily the same as agreeing that only subsidies granted after
1 January 1995 may be subject to adverse effect s claims under Part III of the SCM Agreement.
Whether or not this is so depends on the content of the obligation contained in Article 5.
7.46 Based on its ordinary meaning, Article 5 im poses an obligation on Members not to cause
adverse effects to the interests of other Memb ers through the use of subsidies as defined in
Article 1.
1826 As the United States observes, the predicat e of the sentence in Article 5 is to 'cause
adverse effects to the interests of other Members' , while the phrase 'through the use of' is an adverbial
phrase that describes the manner in which the Member should not cause the adverse effects. 1827
Article 5 thus comprises an obligation not to cause certain results through a sp ecific causal pathway,
rather than an obligation not to engage in certain conduct. This is reflected in the remedy envisaged
for subsidies which have been dete rmined to have resulted in adverse effects within the meaning of
Article 5: Members shall either withdraw the subsidy or shall take appropriate steps to remove the

1823 US, Comments on the Third Party Comments of Brazil.
1824 EC, SWS, para. 14.
1825 EC, SWS, para. 14.
1826 We note that, in contrast to Artic le 5, Article 3 is formulated as a prohibition on the act of granting
or maintaining export subsidies, as these subsidies are regarded as harmful per se. Article 5 is directed towards
the adverse effects which can be shown to have been caused by the use of subsidies by a Member, including by
use of the narrow class of subsidies whose grant or maintenance is prohibited in Article 3.
1827 US, Answer to Panel Question 2 of 8 December 2006, para. 2.

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adverse effects.1828 The Appellate Body has indicated in previous disputes that the principle codified
in Article 28 of the VCLT is a general principle of international law that is relevant to the
interpretation of the covered agreements.1829 In our view, it is the obligation not to cause, through the
use of any subsidy referred to in pa ragraphs 1 and 2 of Article 1, a dverse effects to the interests of
other Members, that is to be interpreted consistently with the principle of non-retroactivity reflected in
Article 28 of the VCLT.
7.47 Article 28 of the VCLT, entitled 'Non-retroactivity of treaties' provides:
"Unless a different intention appears from the treaty or is otherwise established, its
provisions do not bind a party in relation to any act or fact which took place or any
situation which ceased to exist before the da te of the entry into force of the treaty
with respect to that party."1830
7.48 In Canada – Patent Term , the Appellate Body explained the application of Article 28 of the
VCLT in the following terms:
"Article 28 of the Vienna Convention covers not only any 'act', but also any 'fact' or
'situation which ceased to exist'. Articl e 28 establishes that, in the absence of a
contrary intention, treaty provisions do not apply to 'any situation which ceased to
exist' before the treaty's entry into force fo r a party to the treaty. Logically, it seems
to us that Article 28 also necessarily impli es that, absent a contrary intention, treaty
obligations do apply to any 'situation' which has not ceased to exist – that is, to any
situation that arose in the past, but continues to exist under the new treaty."1831
7.49 As the above statement makes clear, the non-retro activity principle reflected in Article 28 of
the VCLT distinguishes between discrete 'acts' and 'facts' on the one hand, and 'situations' on the
other. It is not a violation of the non-retroactivity principle for a treaty to apply to situations that are in
existence when the treaty comes into force, even if they first arose at an earlier date.1832

1828 In contrast, where a Member is determined to have granted or maintained a prohibited subsidy
contrary to Article 3, the remedy contained in Article 4 calls for the Member to withdraw the subsidy without
delay.
1829 Appellate Body Report, Brazil – Measures Affecting Desiccated Coconut ("Brazil – Desiccated
Coconut"), WT/DS22/AB/R, adopted 20 March 1997, DSR 1997:I, 167, p. 14; Appellate Body Report, Canada –
Patent Term , paras. 71-72; Appellate Body Report, EC – Hormones , para. 128; Appellate Body Report,
European Communities – Trade Description of Sardines ("EC – Sardines "), WT/DS231/AB/R, adopted
23 October 2002, DSR 2002:VIII, 3359, para. 200.
1830 Article 28 of the VCLT has been described as refl ecting a general principle of international law, or
according to the Panel in Brazil – Desiccated Coconut, "an accepted principle of customary international law";
Panel Report, Brazil – Measures Affecting Desiccated Coconut ("Brazil – Desiccated Coconut "), WT/DS22/R,
adopted 20 March 1997, as upheld by Appellate Body Report WT/DS22/AB/R, DSR 1997:I, 189, para. 279. We
therefore see no need to co ncern ourselves with the question of whethe r the Article 28 itself is binding on the
United States. In any case, the United States does not appear to dispute the application of the principle, whether
its source is in customary law, general principles or th e VCLT. The Panel notes that the United States was the
complaining party in Canada – Patent Term in which the Appellate Body applied Article 28 of the VCLT to
obligations under the TRIPS Agreement.
1831 Appellate Body Report, Canada – Patent Term, para. 72.
1832 International Law Commission Commentary on the draft Vienna Convention, Yearbook of the ILC,
1966, Vol. II, Comment 3 on draft Article 24, p. 212; referred to by the Appellate Body in Canada – Patent
Term, para. 73.

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7.50 We note that the dictionary definition of 'act' includes "a thing done; a deed". 1833 When
considering the manner in which Article 28 of the VCLT applied to provisions of the TRIPS
Agreement, the Appellate Body in Canada – Patent Term , described the term 'act' (in the context of
interpreting Article 70.1 of the TRIPS Ag reement) as "something that is 'done'". 1834 By contrast, a
'situation', for purposes of Article 28 of the VCLT has been defined as "a set of circumstances; a state
of affairs".1835 In Canada – Patent Term , the Appellate Body described the concept of 'situation' in
Article 28 of the VCLT as suggesting "something that subsists and continues over time".1836
7.51 Both the European Communities and the Un ited States agree that nothing in the
SCM Agreement reveals an intention on the part of the drafters to apply Article 5 (or any other
provision of the SCM Agreement) to an "act or fact which took place or a situation which ceased to
exist" prior to 1 January 1995. 1837 Where they differ is over the characterisation of the obligation
contained in Article 5 as addressing either the discrete 'act' of bringing a subsidy into existence, or the
'situation' of causing adverse effects through the use of subsidies, for purposes of the non-retroactivity
analysis. The European Communities argues that, in the context of Article 5, the non-retroactivity
principle applies to the 'act' of a Member in bri nging into existence a subsidy. As this conduct is
necessarily completed when the subsidy is brought in to existence, subsidies brought into existence
prior to 1 January 1995 are 'completed acts' a nd are therefore outside the temporal scope of
application of Article 5, even if the 'economic effe cts' of such subsidies may continue to be felt
subsequently.1838 We do not agree.
7.52 We consider that Article 5 addresses a set of circumstances or state of affairs ( i.e., a
'situation') rather than specific acts of a Member. Wh ile 'cause' is used as a verb in Article 5, it does
not connote specific action on the part of a Member . Rather, it describes a particular relationship
between the antecedent conduct of a Member and subsequent events which ultimately are attributed to
that Member. To the extent that Article 5 involves 'acts' or conduct, they relate to the 'use' of the
subsidy, and not the 'bringing into existence' or granting of the subsidy. We consider that our
characterisation of the obligation in Article 5 as a 'situa tion' rather than an 'act' is consistent with other
provisions of Part III of the SCM Agreement ( e.g., Article 6.3(d) and Article 6.4) which require an
examination of a representative period for the purpo ses of establishing the effects of subsidization.
These provisions suggest that Part III generally is concerned with a situation that subsists and
continues over time, rather than with specific acts performed by Members.
7.53 The European Communities argues that, because the obligation in Article 5 relates to the use
of a "subsidy referred to in para graphs 1 and 2 of Article 1", th e temporal scope of Article 5

1833 Shorter Oxford English Dictionary, 5th ed., Oxford, OUP 2002, p. 21.
1834 Appellate Body Report, Canada – Patent Term, para. 58.
1835 Shorter Oxford English Dictionary, 2002, p. 2852.
1836 Appellate Body Report, Canada – Patent Term , para. 72. The panel in that dispute had
characterised the protection accorded to inventions by patents granted under a pre-1989 Canadian patent regime
as a 'situation which has not ceased to exist' at the date of the applicati on of the TRIPS Agreement for Canada,
and found that this situation could not be related to ' acts which occurred' before that date, and thereby brought
within the scope of Article 70.1 of the TRIPS Agreement.
1837 EC, Updated Request, para. 13.
1838 In this regard, the European Communities argues that a 'continuing situation' for purposes of the
SCM Agreement is a subsidy programme involving recurri ng grants of subsidies. Thus, for the European
Communities, grants made subsequent to 1 January 1995, even if pursuant to a pre-1995 programme, would be
subject to Article 5 of the SCM Agreement, while grants made prior to 1 January 1995 would not. EC, Answer
to Panel Question 57, paras. 6-7. However, as we have indicated, it is the obligation contained in Article 5 of
the SCM Agreement that must be char acterised as either an 'act' or 's ituation' in order to be construed
consistently with the non-retroactivity principle reflected in Article 28 of the VCLT.

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necessarily depends on the bringing into existence of such a 'subsidy'. 1839 We understand the
European Communities to be arguing that, through the definition of 'subsidy' in Article 1.1, the
temporal scope of the obligation contained in Article 5 is limited to adverse effects caused through the
use of financial contributions conferring benefits that came into existence after 1 January 1995.
7.54 Article 1.1 of the SCM Agreement provides as follows:
"For the purpose of this Agreement, a subsidy shall be deemed to exist if:
(a)(1) there is a financial contribution by a government or any public body within
the territory of a Member (referred to in this Agreement as "government"), i.e.,
where:
(i) a government practice involves a direct transfer of funds ( e.g.,
grants, loans, and equity infusion), potential direct transfers of funds
or liabilities (e.g., loan guarantees);
(ii) government revenue that is otherwise due is foregone or not
collected (e.g., fiscal incentives such as tax credits);
(iii) a government provides goods or services other than general
infrastructure, or purchases goods;
(iv) a government makes payments to a funding mechanism, or
entrusts or directs a private body to carry out one or more of the type
of functions illustrated in (i) to (iii) above which would normally be
vested in the government and the pr actice, in no real sense, differs
from practices normally followed by governments;
 o r
 (a)(2) there is any form of income or price support in the sense of Article XVI of GATT
1994;
 a n d

 (b) a benefit is thereby conferred."
1840

7.55 We do not read the reference in Article 5 to th e definition of 'subsidy' in Article 1 as limiting
the application of the SCM Agreement to financ ial contributions made and benefits conferred
subsequent to 1 January 1995. Article 1.1 sets fort h the circumstances in which a 'subsidy' is 'deemed
to exist' for purposes of the SCM Agreement. It does not impose on Members an obligation to which
the non-retroactivity principle reflected in Article 28 of the VCLT could apply.
7.56 We recall further that 'subsidy' in Artic le 1.1 of the SCM Agreement is a compound
definition. As the Appellate Body observed in Brazil – Aircraft, the issues and respective definitions
of 'financial contribution' and 'benefit' are separate legal elements in Article 1.1, which together

1839 EC, SWS, paras. 18 and 19. Brazil makes a similar argument in its Third Party Comments at
para. 19.
1840 Footnote omitted.

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determine whether a 'subsidy' exists.1841 In US – Lead and Bismuth II, the Appellate Body rejected an
argument that the use of the present tense of the verb 'is conferred' in Article 1.1(b) of the
SCM Agreement indicated that an investigating aut hority must demonstrate the existence of 'benefit'
only at the time the 'financial contribution' is made . In rejecting this argument, the Appellate Body
observed in particular that "Article 1.1 does not address the time at which the 'financial contribution'
and/or the 'benefit' must be shown to exist."1842
7.57 In addition, there are significant contextual f actors that militate against the interpretation of
Article 5 advocated by the European Communities. Specifically, paragraph 7 of Annex IV to the
SCM Agreement indicates that the drafters did not regard the temporal scope of Part III of the
SCM Agreement as confined to financial contribu tions made, or subsidies otherwise brought into
existence, after 1 January 1995. We recall that paragraph 7 of Annex IV to the SCM Agreement,
which sets forth the method for calculating the total ad valorem subsidization of a product for
purposes of the presumption of serious prejudice in Article 6.1(a) of the SCM Agreement, required
that certain subsidies granted prior to 1 January 1995 be included in the total ad valorem subsidization
calculation. Paragraph 7 of Annex IV provided:
"Subsidies granted prior to the date of en try into force of the WTO Agreement, the
benefits of which are allocated to future production, shall be included in the overall
rate of subsidization."
This is an express textual recognition that the 'adverse effects' that are the subject of Article 5 can be
'caused' through the use of subsidies granted prior to 1 January 1995, at least to the extent that the
benefits of such subsidies can be allocated to the period subsequent to 1 January 1995. Although
Article 6.1 and Annex IV have now expired (pursuant to the provisions of Article 31 of the
SCM Agreement), they did form part of the orig inal framework for determining when a Member
could be considered to have caused 'adverse effects' ( i.e., serious prejudice to the interests of another
Member) through the use of a subsidy for purposes of Article 5.1(c), and thus provide an important
indication of the intended scope of Article 5.1843

7.58 The European Communities argues that paragra ph 7 of Annex IV should be regarded as an
exception which proves the general rule that only post-1995 subsidies can be subject to adverse
effects claims. According to the European Comm unities, paragraph 7 of Annex IV concerned the
'allocation' of a subsidy to 'future production'; a c oncept which it contends is "different from the idea
that a pre-1995 subsidy 'continues to confer a be nefit' post-1995." The European Communities argues
that paragraph 7 of Annex IV provided a valuation rule "in the narrow circumstance that any benefits
incurred in relation to {pre-WTO} subsidies are allocated to future production" ,
1844 and in this sense,
the relevant conduct for purposes of determining the temporal scope of paragr aph 7 of Annex IV is

1841 Appellate Body Report, Brazil – Export Financing Programme for Aircraft ("Brazil – Aircraft "),
WT/DS46/AB/R, adopted 20 August 1999, DSR 1999:III, 1161, para. 157.
1842 Appellate Body Report, US – Lead and Bismuth II, para. 60.
1843 We recall that the Panel in US – Upland Cotton noted that provisions of the SCM Agreement that
have lapsed may nevertheless be useful in understanding the overall architecture of the SCM Agreement with
respect to the different types of subsidies it sought and seeks to address; Panel Report, United States – Subsidies
on Upland Cotton ("US – Upland Cotton"), WT/DS267/R, Corr.1, and Add.1 to Add.3, adopted 21 March 2005, as
modified by Appellate Body Report WT/DS267/AB/R, DSR 2005:II, 299, para. 7.907 (footnote 1086). A similar
view was expressed in the Decision by th e Arbitrator, Decision by the Arbitrator, United States – Tax Treatment
for "Foreign Sales Corporations" – Recourse to Arbitration by the United States under Article 22.6 of the DSU and
Article 4.11 of the SCM Agreement ("US – FSC (Article 22.6 – US) "), WT/DS108/ARB, 30 August 2002,
DSR 2002:VI, 2517, footnote 66.
1844 EC, SWS, para. 21.

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the allocation of the subsidy to future production. 1845 The European Communities contends that if
Part III of the SCM Agreement had been intended to apply generally to subsidies granted prior to
1 January 1995 "irrespective of their benefit allocati on", a provision such as paragraph 7 of Annex IV
would have been unnecessary and redundant. 1846 The European Communities therefore considers that
Annex IV and Article 6.1(a) are unique and excep tional provisions of the SCM Agreement which
include specific rules on the quantification of a subsidy which are normally found in Part V.1847
7.59 We do not agree. Paragraph 7 of Annex IV recognises that a subsidy granted prior
1 January 1995 may, in certain circumstances ( i.e., where its benefits are allocated to future
production) be relevant to the serious prejudice determ ination in Article 5(c) and thus, may give rise
to adverse effects under Article 5. Its significance to the present dispute is as a rebuttal of the
European Communities' core argument that Article 5 was intended to apply only to subsidies brought
into existence subsequent to 1 January 1995. Pa ragraph 7 of Annex IV is a clear indication that
subsidies granted prior to the entry into force of the SCM Agreement are considered subject to the
obligation concerning adverse effects contained in Article 5.
7.60 Moreover, we disagree with the European Co mmunities that the purpose of paragraph 7 of
Annex IV was to set forth exceptional circumstanc es that would be deemed to constitute serious
prejudice for purposes of the adverse effects determin ation in Article 5. We can conceive of no
plausible reason why the drafters would provide that serious prejudice could be presumed on the basis
of pre-1995 subsidies while precluding the possibility that serious prejudice arising from pre-1995
subsidies could be affirmatively demonstrated
. We consider that the role of Annex IV was to specify
an agreed methodology for the total ad valorem calculation contemplated by Article 6.1(a).
Paragraph 7 of Annex IV set forth how pre-1995 subsidies were to be included in that calculation. In
this context, we consider paragraph 7 of Annex IV to be indicative of, rather than an exception to, the
drafters' intentions regarding the subsidies that would be subject to the obligations of Part III.
7.61 As regards the contextual significance of Article 28.1 of the SCM Agreement to the temporal
scope of Article 5, the European Communities argu es that the fact that Article 28.1(b) grants
Members a transitional period of three years in which to bring their existing subsidy programmes into
conformity with the SCM Agreement, "shows a fortiori that individual cases of subsidization before
1995 are not covered by the SCM Agreement at all."1848
7.62 According to the United States, Article 28.1 of the SCM Agreement makes clear that subsidy
programmes established before the date of entry into force of the SCM Agreement are subject to the
SCM Agreement; however, it grants Members a wi ndow of three years to bring inconsistent
programmes into conformity with the obligations of Part II. 1849 The United States contends that the
necessary implication of this temporary exemption of inconsistent measures from the obligations of
Part II of the SCM Agreement, is that such programmes are otherwise subject to Part I and to Parts III
through XI.1850

1845 EC, SWS, para. 22.
1846 EC, Updated Request, para. 29.
1847 EC, SWS, para. 22.
1848 EC, Updated Request, para. 25. See, also, EC, Answer to Panel Question 8 of 8 December 2006,
para. 77.
1849 Japan makes a similar argument in its Third Party Submission, 7 May 2007, para. 4.
1850 US, Answer to EC, Updated Request, para. 16.

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7.63 We recall that Article 28 provides:
"28.1 Subsidy programmes which have been established within the territory of any
Member before the date on which such a Member signed the WTO Agreement and
which are inconsistent with the provisions of this Agreement shall be:
 (a) notified to the Committee not later than 90 days after the date of
entry into force of the WTO Agreement for such Member; and
 (b) brought into conformity with the provisions of this Agreement within
three years of the date of entry into fo rce of the WTO Agreement for such Member
and until then shall not be subject to Part II.
28.2 No Member shall extend the scope of any such programme, nor shall such a
programme be renewed upon its expiry."
We do not consider Article 28.1 to be of contextual assistance in deciding whether subsidies granted
prior to 1 January 1995 may be subject to the obligations of Article 5. The wording of
Article 28.1(b), particularly the final phrase " until then shall not be subject to Part II," indicates that
the three year period during which Members were required to bring their WT O-inconsistent measures
into conformity with the SCM Agreement opera ted only as a temporary exemption from the
application of the provisions of Part II.
1851 In other words, it may be inferred from Article 28 that
WTO-inconsistent subsidy programmes, established prior to 1 January 1995 and continuing in effect
after that date, were generally in tended to fall within the temporal scope of Part II, subject to the
three-year grace period granted by Article 28.1. If such subsidy programmes were generally intended
to fall within the temporal scope of th e SCM Agreement for purposes of Part II ( i.e., as regards the
prohibition on the granting or maintaining of prohib ited export subsidies) then, in the absence of any
contrary intention expressed in the text or implie d from the structure of the SCM Agreement, they
would likewise fall within the temporal sc ope of Part III of the SCM Agreement ( i.e., for purposes of
the obligation not to cause, through the use of subs idies, adverse effects to the interests of other
Members). Thus, Article 28.1 suggests that subsi dy programmes established prior to 1 January 1995
and maintained subsequent to this date are subject to Part III - it does not tell us whether subsidies
granted by Members prior to 1 January 1995 are subject to Part III.

7.64 Based on the foregoing, we construe the obligation contained in Article 5 of the
SCM Agreement as an obligation not to cause adver se effects to the interests of other Members
through the use of subsidies as defined in Artic le 1. For purposes of the application of the non-
retroactivity principle reflected in Article 28 of the VCLT, we characterise Article 5 as addressing a
'situation'; namely, causing adverse effects through the use of subsidies. Consistent with Article 28 of
the VCLT, Article 5 applies to any such "situation" which exists as of the effective date of the
SCM Agreement, even if that situa tion arose as a result of the granting of a subsidy prior to that date.
In other words, our interpretation of the temporal scope of application of Article 5 is based on the
ordinary meaning of the terms of Article 5 in their context and in the light of the object and purpose of
the SCM Agreement. In this regard, we note in par ticular that paragraph 7 of Annex IV demonstrates
that subsidies granted prior to 1 January 1995 were considered relevant to the serious prejudice
determination in Article 5(c) and thus, could give rise to adverse effects under Article 5.

1851 Part II of the SCM Agreement relates to prohib ited export subsidies. Article 3.2, which is
contained in Part II of the SCM Agreement, prohibits Members from granting or maintaining export subsidies
referred to in Article 3.1. Article 4.7 provides that, should a panel find that a Member has granted or maintained
a prohibited export subsidy in contra vention of Article 3.2, it shall re commend that the subsidizing Member
withdraw the subsidy without delay.

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7.65 In conclusion, we therefore reject the European Communities' request for a preliminary ruling
that all alleged prohibited and actionable subsidi es granted by the European Communities prior to
1 January 1995 be excluded from the temporal scope of these proceedings.
(c) Relevance of the 1992 Agreement Between the European Communities and the United States
to the Temporal Scope of These Proceedings
(i) Introduction
7.66 In its updated request for preliminary rulings , the European Communities asks the Panel to
rule that any alleged government support committed prior to 17 July 1992, the effective date of the
1992 Agreement, is excluded from the temporal sc ope of these proceedings. In support of this
request, the European Communities advances various arguments regarding the relevance of the
1992 Agreement to the rights and obligations of the par ties in this dispute. In this Preliminary Ruling,
we address only those which relate to the Eur opean Communities' claims regarding the temporal
scope of Article 5 of the SCM Agreement made in its request and updated request for preliminary
rulings. These arguments concern the relevance of Articles 2 and 10 of the 1992 Agreement to the
question whether alleged governme nt support committed prior to the effective date of the
1992 Agreement is outside the temporal scope of a pplication of Article 5 of the SCM Agreement, and
should therefore be excluded from these proceedi ngs. We do not address in this Preliminary Ruling
the European Communities' 'defence' that Article 4 of the 1992 Agreement constitutes the appropriate
'benchmark' for the assessment of LA/MSF under the SCM Agreement. 1852 Nor do we consider the
European Communities' arguments that Article 4 of the 1992 Agreement is relevant to the questions
of the existence of a subsidy under Article 1 of the SCM Agreement, and th e causation of adverse
effects under Article 5 of the SCM Agreement.1853
7.67 However, before turning to consider the Eur opean Communities' arguments, we consider it
useful to provide a brief description of the provi sions of the 1992 Agreement. The 1992 Agreement
was concluded by the United States and the European Communities on 17 July 1992. 1854 It had been
negotiated against a background of differences between the Euro pean Communities and the United
States over support measures to their respective large civil aircraft industries. 1855 In the preamble to
the 1992 Agreement, the parties recognised the need to promote a more favourable environment for
international trade in large civil aircraft and to reduce trade tensions in the area. They also
acknowledged that the disciplines in the GATT Agre ement on Trade in Civil Aircraft should be
strengthened with a view to progressively reduci ng the role of government support. The parties
expressed their agreement as being in pursuit of their common goal of preventing trade distortions
resulting from direct or indirect government support for the development and production of large civil

1852 First Written Submission of the European Communities (hereinafter "EC, FWS"), paras. 394-404.
1853 EC, SWS, paras. 148-157.
1854 On 6 October 2004, the United States notified the European Communities that it was abrogating the
1992 Agreement ; Note verbale No. 55 of the US mission to the EU to the General Secretariat of the Council of
the EU, 6 October 2004. However, the European Communities considers that the 1992 Agreement is still in
force between the parties. We need not resolve this issue in order to decide the European Communities'
preliminary ruling request, and therefore express no views on it.
1855 One manifestation of these differences was the United States' challenge to an exchange rate
guarantee Agreement between the German Government and Deutsche Airbus as an export subsidy inconsistent
with Article 9 of the Agreement on Interpretation and Application of Articles VI, XVI, and XXIII of the General
Agreement on Tariffs and Trade (the "Tokyo Round Subsidies Code"). On 4 March 1992, a GATT Panel
concluded that the exchange rate guarantee scheme resulted in a subsidy granted on exports and that the scheme
was prohibited by Article 9 of the Tokyo Round Subsidies Code, as an export subsidy covered by Item (j) of the
Illustrative List. GATT Panel Report, German Exchange Rate Scheme for Deutsche Airbus , SCM/142,
4 March 1992, unadopted.

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aircraft, introducing greater disciplines on such support, and encouraging the adoption of such
disciplines multilaterally within the GATT. The fifth recital to the preamble noted the parties':
"{I}ntention to act without prejudice to their rights and obligations under the GATT
and under other multilateral Agreements negotiated under the auspices of the
GATT..."
In Article 1, the parties agreed to act in conformi ty with the interpretative note to Article 4 of the
GATT Aircraft Agreement on Trade in Civil Aircraft. Article 2 of the 1992 Agreement, entitled 'Prior
government commitments' specified the following:

"Government support to current large civil aircraft programmes, committed prior to
the date of entry into force of this Agreemen t, is not subject to the provisions of this
Agreement except as otherwise provided belo w. The terms and conditions on which
support is granted shall not be modified in such a manner as to render it more
favourable to the recipients: however, de minimis modifications shall not be deemed
inconsistent with this provision."
7.68 Article 3 imposed a prohibition on the grant of direct government support to both existing and
future large civil aircraft programmes "other than what has already been firmly committed for the
production of large civil aircraft." Article 4 established qualitative and quantitative parameters for the
provision of support for the development of new large civil aircraft programmes or derivative
programmes. Article 5 set limitations for the pr ovision of indirect government support and Article 6
restricted the parties from assuming liability fo r specific loans made available by aircraft
manufacturers to airlines, other than through offici al export credit financing consistent with OECD
guidelines. Article 7 excluded equity infusions fro m the scope of the 1992 Agreement. Article 8 was
a transparency provision which required the parties to regularly and systematically exchange all
public information of a kind governments make av ailable to their respective national elected
assemblies relating to matters covered by the 1992 Agre ement. Article 8.2 provided that, in relation
to prior government commitments for large civil ai rcraft programmes described in Article 2, the
parties shall separately provide a complete list of such commitments already disbursed or committed,
and shall each notify the other part y of any changes which render the terms and conditions of such
support commitments more favourable to the recipi ent. Article 9 permitted a party, in certain
unforeseen, exceptional circumstances, and subject to the fulfilment of certain conditions, to derogate
temporarily from the disciplines laid down in the 1992 Agreement.
7.69 Article 10 of the 1992 Agreement provided as follows:
"Avoidance of trade conflicts and litigation
10.1 Parties shall seek to avoid any trade conflict on matters covered by the
present Agreement.
(3)
10.2 They will not self-initiate action under their national trade laws with respect
to government supports granted in conform ity with this Agreement for as long as this
Agreement is in force. However, nothing in this paragraph shall prevent a Party from
abrogating this Agreement on grounds of non-compliance by the other Party.
10.3 In order to avoid trade conflict they will strongly encourage private parties to
request the use of the provisions of Article 11 to resolve any disputes on matters
covered by this Agreement. If, however, private petitioners request that action be
taken under national laws on matters covered by this Agreement, the petitioners'

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government will immediately inform the other Party and offer to enter into
consultations in accordance with Article 11. The Party against whom such action is
brought shall have the right either to susp end the application of some or all of the
provisions of the present Agreement or to terminate the Agreement 15 days after the
conclusion of consultations.
10.4 In the conduct of any investigations of trade allegations concerning products
covered by this Agreement that have been initiated under national trade laws as the
result of private petitions, Parties shall, c onsistent with their law take account of
representations concerning compliance with the terms of this Agreement.
(3) Action with respect to 'matters covered by the present Agreement' refers to trade
actions relating to direct and indirect government support as defined by this
Agreement. It does not include actions relating to dumping, intellectual property
protection, or anti-trust or competition laws."
(ii) Arguments of the European Communities
7.70 The European Communities argues that, without prejudice to its arguments regarding the
temporal scope of the SCM Agreement, the European Communities and the United States have agreed
to limit the temporal scope of the SCM Agreement inter se in relation to pre-1992 government
support measures for large civil aircraft. Accordin g to the European Communities, this agreement
between the parties as to the temporal scope of disputes related to the application of the
SCM Agreement to measures of support to large civil aircraft is embodied in the 1992 Agreement.1856
The 1992 Agreement as 'applicable law'
7.71 The European Communities argues that, in its exam ination of the matter referred to it in this
dispute, the Panel should directly apply the provisions of the 1992 Agreement. 1857 The European
Communities contends that Article 2 of the 1992 Agreement constitutes an agreement between the
European Communities and the United States to 'gra ndfather' all government support to large civil
aircraft programmes committed prior to the entry into force of the 1992 Agreement. The effect of this
'grandfathering' provision is, according to the Europ ean Communities, that all such support is deemed
to be compatible with the 1979 Agreement on Civil Aircraft and the Tokyo Round Subsidies Code.
Moreover, the European Communities argues that, by continuing to apply the 1992 Agreement after
the entry into force of the SCM Agreement on 1 Janua ry 1995, the parties ther eby also deemed such
measures to be compatible with that subsequent Ag reement, and consequently, have agreed that such
measures would not be challenged in WTO dispute settlement proceedings.
The 1992 Agreement as a "relevant rule of interna tional law" applicable to the interpretation
of the SCM Agreement
7.72 The European Communities also argues that the Panel should take into account the
1992 Agreement in its interpretation of the SCM Ag reement as a "relevant rule of international law

1856 EC, Updated Request, paras. 36 and 37.
1857 This broader argument regarding the significance of the 1992 Agreement to the determination of
the present dispute was made by the European Communitie s in its Updated Request, at paras. 34-71 and was
reiterated by the European Communities in its Answer to Panel Question 9 of 8 December 2006, para. 79.

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applicable in the relations between the parties". 1858 Specifically, the European Communities argues
that the 1992 Agreement can be used to interpret an 'outer temporal scope' for this dispute, applicable
between the United States and EC. 1859 In this regard, the European Communities argues that the 1992
Agreement, as an agreement between the United St ates and the European Communities not to re-open
their settled dispute on pre-1992 measures of support to the large civil aircraft industry, 'informs' the
interpretation of the SCM Agreement.1860
7.73 The European Communities points to Article 31( 3)(c) of the VCLT as the basis on which the
Panel may use the 1992 Agreement in order to interpre t an outer temporal scope for this dispute. The
European Communities submits that the 1992 Agreement, as a bilateral agreement between the United
States and the European Communities, is a relevant rule of international law applicable in the
relations between the parties within Article 31(3)(c ) because the term 'parties' in Article 31(3)(c) of
the VCLT should be taken to refer to parties to the pa rticular dispute only, rather than parties to the
Agreement being interpreted (in this case, the SCM Agreement). 1861 The European Communities
disagrees with the view expressed by the panel in EC – Biotech , that Article 31(3)(c) of the VCLT
requires that the rules of international law to be taken into account in interpreting the WTO
Agreements at issue are those applicable in the relations between the WTO Members, rather than
those Members that are parties to the dispute in question. 1862 The European Communities refers the
Panel to the reports of the Appellate Body in US – Shrimp, US – FSCs and EC – Computer Equipment
in support of its contention that the term 'parties' in the text of Article 31(3)(c) of the VCLT refers to
the parties to the particular dispute only, and not the entire membership of the WTO.1863 In this regard,
the European Communities also refers the Panel to the Report of the Study Group of the International
Law Commission on Fragmentation of International Law, the International Law Commission's
Commentaries on the Draft Articles on the Law of Treaties, and the practice of other international
bodies.
1864
The 1992 Agreement as giving rise to an estoppel against the United States
7.74 In addition, the European Communities argu es that the 1992 Agreement was part of a
'mutually agreed solution' to a dispute between the European Communities and the United States over

1858 EC, Original Request, paras. 122-146. We note that, although Section IV of this request was
updated and replaced by the European Communities' Up dated Request for Prelimin ary Rulings (pursuant to
para. 3 of EC, Updated Request) which did not contain the argument made in the original request that the
1992 Agreement is a "relevant rule of international law" applicable in the relations between the parties within
the meaning of Article 31(3)(c) of the VCLT, the Europ ean Communities has clarified in its Answers to the
Panel's questions that it intended to retain the argument based on Article 31(3)(c) of the VCLT as a narrower
and alternative claim to the broader argument as to the applicability of the 1992 Agreement which it advanced in
the Updated Request for Preliminary Rulings, in the event that the Panel were to reject the broader claim: EC,
Answer to Panel Question 9 of 8 December 2006, paras. 78 and 79. The European Communities also reiterated
the argument based on Article 31(3)(c) of the VCLT in its FWS, paras. 95, 134, 150, in its non-confidential
opening statement at the first meeting with the Panel, (hereinafter, "EC, FNCOS"), para. 24 and in its second
written submission, paras. 42-68.
1859 EC, Original Request, para. 151.
1860 EC, Original Request, para. 152.
1861 EC, Original Request, paras. 127-129; EC, Answer to Panel Question 10 of 8 December 2006,
paras. 81-87.
1862 EC, Answer to Panel Question 10 of 8 December 2006, para. 81; Panel Report, European
Communities – Measures Affecting the Approval and Ma rketing of Biotech Produc ts ("EC – Approval and
Marketing of Biotech Products") , WT/DS291/R, WT/DS292/R, WT/DS293/R, Add.1 to Add.9, and Corr.1,
adopted 21 November 2006, DSR 2006:III-VIII, para. 7.68.
1863 EC, Original Request, paras. 127-128; EC, Answer to Panel Question 10 of 8 December 2006,
para. 82.
1864 EC, Answer to Panel Question 10 of 8 December 2006, paras. 83-85.

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support to large civil aircraft. 1865 According to the European Co mmunities, the mutually agreed
solution between the parties involved an agreement, embodied in Article 10.1 of the 1992 Agreement,
to avoid trade conflicts on matters covered by the 1992 Agreement ( i.e., government measures of
support to large civil aircraft committed subsequent to 17 July 1992) and an agreement, embodied in
Article 2, to 'grandfather' government measur es of support committed prior to 17 July 1992. 1866 The
European Communities contends that the mutually agreed solution evidenced by the 1992 Agreement
"must at least give rise to an estoppel preventing a party to such an agreement from reneging on its
terms."1867 The European Communities contends that the parties, through their conduct, continued to
apply the 1992 Agreement after the entry into for ce of the SCM Agreement by continuing to measure
their respective measures of support to large ci vil aircraft against the benchmarks of the
1992 Agreement rather than against the SCM Agreement.1868 The European Communities states:
"It would run against a fundamental prin ciple of fairness and good faith if the
United States were allowed to first enc ourage the European Communities to adopt
certain MSF practices as being compa tible with the 1992 Agreement and then
challenge these very same practices as being incompatible with the
SCM Agreement."1869
7.75 In response to a question from the Panel con cerning the legal basis on which we may apply
the principle of estoppel in the present dispute, the European Communities submits that in EC –
Export Subsidies on Sugar, the Appellate Body accepted that it is reasonable to analyse the good faith
obligation contained in Article 3.10 of the DSU in li ght of the general international law principle of
estoppel.1870 The European Communities submits that, based on the reports of the panels in Argentina
– Poultry Anti-Dumping Duties1871 and Guatemala – Cement II,1872 the principle of estoppel applies in
the context of WTO dispute settlement proceedin gs where (i) there is a clear and unambiguous
statement of fact; (ii) that statement was made voluntarily, unconditionally and is authorised by one
party; and (iii) is relied on in good faith by another party.
1873
7.76 The European Communities argues that the United States collaborated in the conclusion and
implementation of the 1992 Agreement as the practical way in which the legality of support to large
civil aircraft would be determined between the par ties. According to the European Communities, the
United States should not now be permitted to challenge as prohibited or actionable subsidies under the

1865 EC, FNCOS, para. 25; EC, SWS, paras. 39-41.
1866 EC, SWS, para. 39.
1867 EC, FNCOS, para. 25. In addition, the European Communities argues that, through the 1992
Agreement, the parties agreed upon certain benchmarks for government support for large civil aircraft going
forward, however, as we have indicated, this Preliminary Ruling addresses only the issue of the relevance of the
1992 Agreement to the temporal scope of this dispute.
1868 EC, Answer to Panel Question 60, para. 35.
1869 EC, Answer to Panel Question 60, para. 35.
1870 EC, Answer to Panel Question 59, para. 22. Th e European Communities c ontends therefore that
the mutually agreed solution embodied in the 1992 Agreement gives rise to estoppel under Article 3.10 of the
DSU; EC, SWS, para. 41.
1871 Panel Report, Argentina – Definitive Anti-Dumping Duties on Poultry from Brazil ("Argentina –
Poultry Anti-Dumping Duties"), WT/DS241/R, adopted 19 May 2003, DSR 2003:V, 1727, para. 7.38.
1872 Panel Report, Guatemala – Definitive Anti-Dumping Measures on Grey Portland Cement from
Mexico ("Guatemala – Cement II "), WT/DS156/R, adopted 17 November 2000, DSR 2000:XI, 5295,
paras. 7.71-7.72.
1873 EC, Answer to Panel Question 60, para. 23.

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SCM Agreement the very same measures in which it "acquiesced and, indeed, actively contributed to
(if not encouraged)".1874
(iii) Arguments of the United States
7.77 The United States makes several arguments in response to the European Communities'
arguments regarding the relevance of the 1992 Agreement to the present dispute.
The 1992 Agreement as 'applicable law'
7.78 First, the United States argues that there is no express provision in the SCM Agreement
establishing its temporal scope of application, and no legal basis for the Panel to use the
1992 Agreement to impute a temporal scope into the SCM Agreement. 1875 In this regard, the
United States notes that the covered Agreements which it cited in its request for the establishment of a
panel include the DSU, the GATT 1994, and the SCM Agreement. Further, the United States notes
that the definition of 'covered Agreements' in Artic le 1.1 of the DSU; namely, Agreements listed in
Appendix 1 to the DSU, is a closed list which does not include the 1992 Agreement and that the
1992 Agreement is also not one of the instru ments included within GATT 1994 according to the
GATT incorporation clause. Thus, according to the United States, it is the SCM Agreement and the
GATT 1994, and not the 1992 Agreement, that contain the relevant obligations of the parties to this
dispute.
1876 The United States argues that, where the dr afters of the SCM Agreement intended to
exclude a particular matter from its disciplines, or qualify the disciplines applicable to a particular
matter, they did so explicitly. 1877 The United States notes that there is no exemption, qualification or
safe harbor with respect to the challenged measur es in this dispute which were provided prior to
1992.1878 The United States draws contextual support fo r this position from footnotes 15, 16 and 24 of
the SCM Agreement, which carve out civil aircraft from the 'deemed' serious prejudice provision in
Article 6.1 of the SCM Agreement and the 'non-acti onable' subsidy provision in Article 8.2 of the
SCM Agreement. According to the United States, these specific carve-outs relating to civil aircraft
confirm that, in other respects, the SCM Agreement applies to civil aircraft subsidies.1879
7.79 The United States also points to Article 32 of the SCM Agreement in support of its contention
that the 1992 Agreement does not establish an outer te mporal scope for this dispute. Article 32.2 of
the SCM Agreement requires that reservations to the SCM Agreement obtain the consent of the
Members. The United States notes that the Europ ean Communities neither sought a reservation with
respect to the alleged subsidies granted to Airbus prior to 17 July 1992, nor did the United States (or
any other Member) consent to any such reservation. 1880 The United States notes that there is nothing
in the SCM Agreement to indicate that Article 32.5, which obliges each Member to take all necessary
steps to ensure the conformity of its laws, re gulations and administrative procedures with the
provisions of the SCM Agreement, does not apply to the alleged subsidy measures granted to Airbus
prior to 17 July 1992, or to matters addressed by the 1992 Agreement in general.1881

1874 EC, FNCOS, para. 26.
1875 US, Answer to EC, Updated Request, paras. 31, 34-40, 41-45.
1876 US, Answer to EC, Updated Request, para. 30.
1877 US, Answer to EC, Updated Request, para. 35. The United States refers to the following
provisions of the SCM Agreement in this regard: Articles 3.1, 5. 6.9 and 7.1; Article 8; Articles 27.2 and 27.3;
Article 29 and the second paragraph of item (k) in Annex I.
1878 US, Answer to EC, Updated Request, para. 35.
1879 US, Answer to EC, Updated Request, para. 36.
1880 US, Answer to EC, Updated Request, para. 38.
1881 US, Answer to EC, Updated Request, para. 39.

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7.80 The United States also notes that, to the extent that Article 1.2 of the DSU provides for its
rules and procedures to apply subject to such sp ecial or additional rules and procedures on dispute
settlement as are contained in the covered Agreements or identified in Appendix 2 to the DSU, neither
Article 1.2 of the DSU, nor Appendix 2, makes any reference to the 1992 Agreement or to the alleged
subsidy measures granted to Airbus prior to 17 July 1992.1882
7.81 Further, the United States contends that accep tance of the European Communities' argument
that the 1992 Agreement constitutes applicable law in this dispute would effectively mean, either that
the SCM Agreement can be interpreted different ly as between the Europ ean Communities and the
United States than as between other Members, or that the interpretation of the SCM Agreement
depends not on what Members had negotiated in th at Agreement, but on the terms of a separate
bilateral Agreement between two Members. 1883 According to the United States, neither of these
outcomes can be supported.
The 1992 Agreement as a "relevant rule of interna tional law" applicable to the interpretation
of the SCM Agreement
7.82 The United States argues that the 1992 Agreemen t does not constitute a relevant rule of
international law 'applicable in the relations between the parties' within the meaning of
Article 31(3)(c) . The United States agrees with the views expressed by the panel in EC – Biotech,
that Article 31(3)(c) of the VCLT should be interp reted as requiring consideration of those rules of
international law which are applicable in the relati ons between all parties to the treaty which is being
interpreted.1884 As the 1992 Agreement is not applicable in the relations between all parties to the
SCM Agreement, the United States argues that Artic le 31(3)(c) of the VCLT does not provide a basis
for it to be taken into consideration by th e Panel when interpreting the SCM Agreement. 1885 T h e
United States submits that none of the Appellate Bo dy reports cited by the European Communities in
relation to the interpretation of Article 31(3)(c) of the VCLT suggests that the term 'parties' in
Article 31(3)(c) refers to parties to the particular dispute only, and not all of the Members of the
WTO.1886
The 1992 Agreement as giving rise to an estoppel against the United States
7.83 The United States submits that the Panel should reject the European Communities' arguments
regarding estoppel as having "absolutely no basis in the covered Agreements." 1887 The United States
notes that Article 3.10 of the DSU does not use the term 'estoppel' and submits that the provision does
not even implicitly support the European Communities' argument that the principle of estoppel can be
grounded in the 'good faith' obligation embodied in Article 3.10.
1888 The United States also
challenges the European Communities' reliance on the panel and Appellate Body reports in EC –

1882 US, Answer to EC, Updated Request, para. 40.
1883 US, Answer to EC, Updated Request, para. 45.
1884 United States, Answer to the Request for a Preliminary Ruling submitted by the European
Communities, 15 November 2006 (hereinafter "US, Answer to EC, Original Request"), para. 98. Panel Report,
EC – Approval and Marketing of Biotech Products, paras. 7.68-7.70. United States, Answer to Panel Question 1,
(hereinafter "US, Answer to Panel Question X"), paras. 2-3.; US, Comments on EC, Answer to Panel Question
10 of 8 December 2006, para. 54
1885 US, Comment on EC Answer to Panel Question 10, paras. 50-56; US, Answer to Panel Question 1,
para. 2.
1886 US, Answer to Panel Question 1, para. 13.
1887 Second Written Submission of the United States (hereinafter, "US, SWS"), para. 37.
1888 US, SWS, para. 38.

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Export Subsidies on Sugar in support of its estoppel argument. According to the United States, these
reports actually undermine the European Communities' position.1889
7.84 In addition, the United States argues that the European Communities' estoppel argument
should fail on its own terms, as the 1992 Agreem ent does not constitute a 'clear and unambiguous
statement of fact' that the measures covered by th at Agreement would not be subject to WTO dispute
settlement.1890 The United States argues that, contrary to the European Communities' assertions, the
text of the 1992 Agreement actually confirms that pre-1992 subsidies are not immune from challenge
under the SCM Agreement. 1891 Moreover, the United States argues that the fifth recital in the
preamble to the 1992 Agreement confirms that the United States and th e European Communities
expressly reserved their rights under the GATT when they entered into the 1992 Agreement.1892
7.85 According to the United States, Article 2 of the 1992 Agreement simply provides that the
provisions of the 1992 Agreement do not apply to government support committed prior to
17 July 1992, not that such support was deemed to be consistent with the 1979 Agreement on Trade in
Civil Aircraft or the Tokyo Round Subsidies Code, or that pre-1992 subsidies are exempted from the
GATT/WTO disciplines. 1893 The United States considers that the commitment of the parties in
Article 10.1 to seek to avoid trade conflict on matte rs covered by the 1992 Agreement relates to the
self-initiation of actions under national trade laws, as is made clear by Article 10.2.1894
(iv) Arguments of Third Parties
7.86 Australia considers that, on the issue whether the 1992 Agreement may constitute applicable
law to this dispute, the Panel should take full acco unt of the statement of the Appellate Body at
paragraph 56 of its report in Mexico – Taxes on Soft Drinks that the DSU operates in relation to
covered Agreements only. 1895 In this regard, Australia notes that the 1992 Agreement is not a
covered Agreement under the DSU. In addition, Australia does not consider that the rules of
international law contained in the 1992 Agreement, which are only applicable in the relations between
a subset of parties to the SCM Agreement, can be taken into account under Article 31(3)(c) of the
VCLT in interpreting the SCM Agreement. 1896 Australia urges the Panel to approach the question of
the application of Article 31(3)(c) of the VCLT to the SCM Agreement with "a degree of caution",
given its "potentially significant systemic implications for the WTO dispute settlement system."1897
7.87 Brazil disagrees with the European Communities th at the 1992 Agreement is relevant to this
dispute.1898 Moreover, Brazil considers that Article 6.1 of the 1979 Agreement on Trade in Civil
Aircraft does not authorize the Panel to apply a less re strictive standard for government support in the
civil aircraft sector. Brazil considers that the 199 2 Agreement does not qualify as a "relevant rule of

1889 US, SWS, para. 38.
1890 US, SWS, para. 45.
1891 US, Answer to EC, Updated Request, para. 46.
1892 US, Answer to EC, Updated Request, para. 47.
1893 US, Answer to EC, Updated Request, para. 48.
1894 US, Answer to EC, Updated Request, para. 49.
1895 Australia, Third Party Submission, paras. 8 and 9. The statement in question is: "We see no basis
in the DSU for panels and the Appellate Body to adjudicate non-WTO disputes. Article 3.2 of the DSU states
that the WTO dispute settlement system 'serves to preserve the rights and obligations of Members under the
covered Agreements, and to clarify the existing provisions of those Agreements.' (emphasis added)."

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international law applicable in the relations between the parties" within Article 31(3)(c) of the VCLT
because it is not binding on all of the parties to the SCM Agreement.1899
(v) Evaluation by the Panel
The 'application' of the 1992 Agreement
7.88 We recall that Article 3.2 of the DSU provides that the WTO dispute settlement system
"serves to preserve the rights and obligations of Members under the covered Agreements , and to
clarify the existing provisions of those Agreements."1900 The jurisdiction of a panel is established by
that panel's terms of reference, which are governed by Article 7 of the DSU.1901 In the present dispute,
the Panel's terms of reference are:
"To examine, in the light of the relevant provisions of the covered Agreements cited
by the United States in document WT/DS316/2, the matter referred to the DSB by the
United States in that document, and to ma ke such findings as will assist the DSB in
making the recommendations or in giving the rulings provided for in those
Agreements."
7.89 Article 7.2 of the DSU requires panels to "a ddress the relevant provisions in any covered
Agreement or Agreements cited by the parties to the dispute." The 'covered Agreements' cited by the
United States in document WT/DS316/2 include th e DSU, the GATT 1994 and the SCM Agreement.
As the 1992 Agreement is not a covered Agre ement cited by the United States in document
WT/DS316/2, or contained in the list of covered Agr eements in Appendix 1 to the DSU, or one of the
instruments included in the GATT 1994, we do not ha ve jurisdiction to determine of the rights and
obligations of the parties under the 1992 Agreement.
7.90 However, the European Communities argues that, although the 1992 Agreement is not a
covered Agreement, and a determination of the rights and obligations of the parties under the
1992 Agreement is therefore beyond the jurisdiction of the Panel, the
1992 Agreement may nevertheless constitute law that the Panel may apply in order to resolve the
claims under the covered Agreements.
1902
7.91 Whether presented as the direct application of what the European Communities contends is an
agreement to 'grandfather' support measures to large civil aircraft committed prior to 17 July 1992, or
as a rule relevant to the 'interpretation' of a modifi ed temporal scope of application of Article 5 of the
SCM Agreement for disputes between the parties con cerning support measures to large civil aircraft,
the European Communities is effectively inviting th e Panel to find that the United States agreed, in
the 1992 Agreement, to waive its rights under the WT O Agreements to challenge certain measures in
WTO dispute settlement proceedings.1903 In essence, we are confronted with the question whether it is
possible for a Member to have waived its rights unde r the WTO Agreements in an agreement which it

1900 Emphasis added.
1901 Appellate Body Report, India – Patents (US), para. 92.
1902 The European Communities notes the distinction between jurisdiction and applicable law; arguing
that although this Panel does not have jurisdiction to adjudicate a dispute between the parties under the 1992
Agreement, whether as a preliminary question or as part of a broader dispute, it may nonetheless examine the
1992 Agreement as part of the law applicable to its re solution of the claims under the covered Agreements: EC,
SWS, paras. 80-84.
1903 The estoppel claim is si milarly a claim that the United States should, in light of the waiver of its
rights under the WTO Agreements and the detrimental reliance of the European Communities on such waiver,
be prevented from reasserting those rights.

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entered into prior to entering into the WTO Agreements, a nd if so, whether and on what basis a WTO
panel could enforce such a waiver.1904
7.92 We recall that Article 23 of the DSU states that Members shall have recourse to the rules and
procedures of the DSU when they "seek the redress of a violation of obligations or other nullification
or impairment of benefits under th e covered Agreements." As the A ppellate Body has stated, the fact
that a Member may initiate a WTO dispute whenever it considers that any benefits accruing to it are
being impaired by measures taken by anothe r Member implies that that Member is entitled to a ruling
by a WTO panel. 1905 Assuming, for the sake of argument, that a Member can waive its rights under
the WTO Agreements pursuant to a non-WTO Agreemen t, we cannot conceive that a Member can be
considered to have waived such rights by means of an agreement which it entered into prior to
entering into the WTO Agreements. The SCM Agreement, which came into effect on 1 January 1995,
does not make any reference to the antecedent 1992 Agreement, and as the United States points out,
the European Communities has not ma de any reservations regarding th e application or interpretation
of the SCM Agreement.1906
7.93 The European Communities argues that the 'c ontinued application' of the 1992 Agreement
after the entry into force of the SCM Agreement evidences the parties' intention to apply the
provisions of the 1992 Agreement (particularly Article 2 which, according to the European
Communities, deems all pre-1992 support measures to be compatible with the Tokyo Round
Subsidies Code) to the SCM Agreement. We consider that the fact that the parties may have
continued to engage in the exchanges of informa tion required under Article 8 of the 1992 Agreement
subsequent to the entry into force of the SCM Ag reement, and that the United States had refrained
from initiating a complaint against the European Co mmunities concerning the compatibility of certain
EC measures with the SCM Agreemen t, is insufficient to constitute a subsequent Agreement between
the European Communities and the United Stat es which modifies the application of the
SCM Agreement between them.
7.94 Even if it were somehow possible to find that a Member had prospectively waived certain of
its rights under the WTO Agreements in a prior Agreement in the manner contended for by the
European Communities (a contention which we reject ), and assuming such waiver were enforceable
in WTO dispute settlement (an issue which we need not and do not decide), any such waiver would
need to be clear and unambiguous. Here we come to the fundamental weakness of all of the European
Communities' arguments regarding the relevance of the 1992 Agreement to the present dispute: we
are simply unable to construe the 1992 Agreemen t, and Article 2 in particular, as constituting an
agreement that the parties would not challenge su pport measures to large civil aircraft committed
prior to 17 July 1992 in subsequent WTO dispute settlement proceedings.

1904 As noted above, see footnote 1854, the parties disagree wh ether the 1992 Agr eement is in force
between them, an issue we need not resolve and do not address.
1905 Appellate Body Report, Mexico – Tax Measures on Soft Drinks and Other Beverages ("Mexico –
Taxes on Soft Drinks"), WT/DS308/AB/R, adopted 24 March 2006, DSR 2006:I, 3, para. 52.
1906 Moreover, we note that Article 30(3) of the VCLT provides that, when all of the parties to an
earlier treaty are also parties also to the later Agreement but the earlier treaty is not suspended in operation, the
earlier treaty applies only to the extent that its provisions are compatible with those of the later treaty . This is
also consistent with our view that, even if the 19 92 Agreement could be consid ered a bilateral Agreement
expressly modifying the application of the GATT/Tokyo Round subsidies rules in the way for which the
European Communities contends, it precedes the SCM Agreement, and in the absence of any provision in the
SCM Agreement to the effect that the SCM Agreement is subject to, or not to be considered incompatible with,
the 1992 Agreement, the SCM Agr eement would prevail over the 1992 Agreement to the extent of any
inconsistency between them.

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7.95 We understand Article 2 of the 1992 Agreemen t as drawing a line between new support
measures for large civil aircraft, which would be subject to the limitations agreed in the 1992
Agreement, and previously existing commitments, which would not be subject to the limitations
agreed in the 1992 Agreement and therefore did not need to be modified to conform to the
requirements of Articles 3 through 7 of the 1992 Agre ement, but equally could not be modified to
provide even greater benefits to the recipients. In other words, we construe Article 2 of the
1992 Agreement as providing that, with the exception of the notification obligation contained in
Article 8.2, the relevant measures of support committed prior to the effective date of the
1992 Agreement were to be outside the scope of the 1992 Agreement.
 Moreover, the context of
Article 2 suggests that the parties in fact inte nded to preserve their rights to challenge pre-1992
measures for inconsistency with the GATT/WTO subsid ies disciplines. We note in particular that the
fifth preambular paragraph of the recitals indicated that the 1992 Agreement was intended to operate
without prejudice to the parties' rights and obligations under the GAT T and other multilateral
Agreements negotiated under the auspices of the GATT, which would include the SCM Agreement.
7.96 The European Communities contends that, while the fifth paragraph of the recitals may be
read as preserving the right of either side to challenge both pre-1992 and post-1992 measures as being
inconsistent with the parties' GA TT-related rights and obligations, th is is qualified once the preamble
is read in the context of the rest of the 1992 Agreement. 1907 Specifically, the European Communities
contends that the obligation of the parties in Article 10.1 to 'seek to avoid' trade conflict, preserved the
parties' rights to avail themselves of GATT dispute settlement only in respect to the 'matters covered
by the present Agreement ' ( i.e., support measures committed after 17 July 1992), because Article 2
made clear that support measures committed prio r to 1992 were outside the scope of the
1992 Agreement (because "Article 2 of the 19 92 Agreement already contained the negotiated
settlement between the parties on pre-1992 governmental support measures") 1908. We are not
persuaded by this argument. We consider it unc onvincing because it depends on the prior acceptance
of the very issue that it ultimately seeks to establish ( i.e., that Article 2 deemed pre-1992 measures to
be compatible with the GATT/WTO subsidies rule s). Moreover, we disagree with the European
Communities that Article 10 of the 1992 Agreement re lated to GATT/WTO dispute settlement at all.
We note that, in Article 10.1 of the 1992 Agreement, the parties agreed to "seek to avoid any trade
conflict" on "matters covered by the present Agreement". 1909 It is clear from Articles 10.2 through
10.4, however, that the obligation to "avoid any tr ade conflict" in Article 10.1 related to action by
government or private parties under national trade laws , not GATT/WTO dispute settlement
proceedings. For example, in Article 10.2, the part ies agreed not to 'self-initiate' action under their
national trade laws with respect to government supports granted in conformity with the 1992
Agreement. Article 10.3 concerned the parties' conduct in the event that private parties petitioned for
specific action under national trade laws, and Articl e 10.4 dealt with the conduct of the parties in
investigations which, notwithstanding Articl es 10.1 through 10.3, were nonetheless initiated under
national trade laws.1910
7.97 The object and purpose of the 1992 Agreement al so fails to support an interpretation of
Article 2 as an agreement to 'grandfather' pre- 1992 measures of support to large civil aircraft for
purposes of the GATT/WTO subsidies rules. Whil e the object and purpose of the 1992 Agreement

1907 EC, Original Request, paras. 139-142.
1908 EC, Original Request, paras. 141-142.
1909 The footnote to Article 10.1 defines the latter phase as "trade actions relating to direct and indirect
government support as defined by this Agreement ".
1910 Thus, Article 10.1 does not even preclude national trade law actions, much less GATT trade actions
or WTO dispute settlement. It is merely an obligation to 'seek to avoid' trade conflicts on a particular subject,
which the parties discharge by taking certain actions (and refraining from taking others, i.e., self-initiation) in
the context of investigations and other actions initiated under their respective national trade laws.

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appears to have been to establis h agreed (reduced) levels of govern mental support measures to large
civil aircraft in an effort to reduce trade tensions between the parties, the 1992 Agreement is silent on
the status under the GATT and the Tokyo Round Subsidies Code of governmental supports
committed prior to 17 July 1992 and we find no evidence that the object and purpose of the
1992 Agreement was additionally to grandfather meas ures of support to large civil aircraft committed
prior to 17 July 1992 for purposes of GATT/WTO disciplines.
7.98 In conclusion, we consider that there is no b asis for directly applying the provisions of the
1992 Agreement to determine a particular temporal scope for this dispute in the manner for which the
European Communities contends. Moreover, we do not consider that the 1992 Agreement contains
any agreement that the parties would not invoke th eir rights under the WTO Agreements to challenge
support measures to large civil aircraft committed prior to 17 July 1992.
The 1992 Agreement as a relevant rule of international law applicable to the interpretation of
the SCM Agreement.
7.99 The European Communities argu es that the Panel should take the 1992 Agreement into
consideration in its interpretation of the temporal scope of application of the SCM Agreement for
purposes of this dispute. The European Comm unities argues that Article 31(3)(c) of the VCLT
provides a basis for us to do so, because the 1992 Agreement constitutes a relevant rule of
international law applicable in the relations be tween the parties. Although presented as an argument
relating to the 'interpretation' of the SCM Agreem ent, the European Communities has not specifically
indicated how the 1992 Agreement should influence our interpretation of the actual terms in Article 5
of the SCM Agreement, other than to argue that we should 'interpret' a particular temporal scope of
application of the SCM Agreement for this disput e because the parties agreed in Article 2 of the
1992 Agreement to exclude pre-1992 measures from GATT/WTO dispute settlement proceedings. In
reality, this is an argument that a particular group of measures ( i.e., support measures for large civil
aircraft committed by either of the parties prio r to 17 July 1992) should be excluded from the
disciplines of the SCM Agreement based on the 1992 Agreement, rather than an argument about the
interpretation of provisions of the SCM Agreement, or of specific terms within those provisions.
7.100 It is not necessary for us to determine whether, for purposes of Article 31(3)(c) of the VCLT,
the 1992 Agreement constitutes applicable law between the parties that we must take into account in
interpreting the SCM Agreement.1911 Even if it were (and we emphasize that on this issue we express
no view), as we have previously indicated, we do not agree with the European Communities that the
1992 Agreement constitutes an agreement between th e parties to 'grandfather' pre-1992 measures of
support for large civil aircraft for the pur poses of subsequent GATT/WTO proceedings. 1912

1911 In EC – Approval and Marketing of Biotech Products , the European Communities argued that
provisions of the Convention on Biological Diversity and the 2000 Cartagena Protocol on Biosafety to the
Convention on Biodiversity informed the meaning and effect of va rious provisions in the SPS Agreement and
the GATT 1994. The Panel rej ected this argument because not all of the parties to the dispute were parties to
the conventions in question. That situation is different fr om the one before this Panel, where both parties to the
dispute are parties to the 1992 Agreement. We note that, in EC – Approval and Marketing of Biotech Products,
the Panel expressed the view (at para. 7.68 and footnote 243) that the term 'the parties' in Article 31(3)(c) of the
VCLT suggests that the rules of international law to be taken into account in interpreting the WTO Agreements
at issue in a dispute are those whic h are applicable in the relations between the WTO Members (and not merely
the parties to the dispute). Panel Report, EC – Approval and Marketing of Biotech Products, para. 7.68 and
footnote 243.
1912 We recall that Article 2 of the 1992 Agreement provides:
"Government support to current larg e civil aircraft programmes, committ ed prior to the date of entry
into force of this Agreement, is not subject to the pr ovisions of this Agreement except as otherwise provided
below. The terms and conditions on which support is granted shall not be modified in such a manner as to

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Consequently, even if we were to interpret the temporal scope of the SCM Agreement 'taking into
account' the 1992 Agreement pursuant to Article 31( 3)(c) of the VCLT, there is nothing in the
1992 Agreement that would lead us to 'interpret' the SCM Agreement as not applying to measures of
support to large civil aircraft committed by the parties prior to 17 July 1992.
The 1992 Agreement gives rise to an estoppel preventing consideration of measures of
support provided prior to the effective date of the 1992 Agreement
7.101 The European Communities also argues that the conclusion and implementation of the
1992 Agreement between the European Commun ities and the United States, in which the
United States agreed to the European Communities provi ding a certain level and type of support to its
large civil aircraft industry, "must at least give rise to an estoppel" preventing the United States from
subsequently challenging such support in WTO dis pute settlement proceedings. In response to a
question from the Panel concerning the basis on which we are to apply the principle of estoppel in
WTO dispute settlement proceedings, the European Communities argues that the good faith obligation
contained in Article 3.10 of the DSU, can reasonably be analysed "in the light of the general
international law principle of estoppel."1913
7.102 In the present dispute, the European Commun ities argues that, based on the established case
law of previous panels, 1914 the principle of estoppel applies in WTO dispute settlement proceedings
where: (i) there is a clear and unambiguous statement of fact; (ii) that statement was made voluntarily,
unconditionally and is authorized by one party; (iii) and is relied on in good faith by another party.1915
7.103 The European Communities argues that Article 2 of the 1992 Agreement "constitutes the
definitive settlement on any outstanding controve rsy between the European Union and the United
States over {pre-1992 government support to the LCA industry}." 1916 According to the European
Communities, "by grandfathering pre-1992 measures in Article 2 of the 1992 Agreement read in

render it more favourable to the recipients: however, de minimis modifications shall not be deemed inconsistent
with this provision."
1913 The European Communities refers to the statement in the Panel Reports, European Communities –
Export Subsidies on Sugar, Complaint by Australia ("EC – Export Subsidies on Sugar (Australia)"), WT/DS265/R,
adopted 19 May 2005, as modified by Appellate Body Report WT/DS265/AB/R, WT/DS266/AB/R,
WT/DS283/AB/R, DSR 2005:XIII, 6499, para. 7.74, Panel Report, European Communities – Export Subsidies on
Sugar, Complaint by Brazil ("EC – Export Subsidies on Sugar(Brazil)"), WT/DS266/R, adopted 19 May 2005, as
modified by Appellate Body Report WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R, DSR 2005:XIV,
6793 and Panel Report, European Communities – Export Subsidies on Sugar, Complaint by Thailand ("EC –
Export Subsidies on Sugar(Thailand)") , WT/DS283/R, adopted 19 May 2005, as modified by Appellate Body
Report WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R, DSR 2005:XIV, 7071), and subsequently
confirmed in the Appellate Body Report, European Communities – Export Subsidies on Sugar ("EC – Export
Subsidies on Sugar "), WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R, adopted 19 May 2005, DSR
2005:XIII, 6365, para. 312, that the principle of good faith em bodied in Article 3.10 of the DSU applies to the
initiation (as well as conduct and implementation) of dispute settlement proceedings. According to the
European Communities, a Member therefore acts inconsisten tly with Article 3.10 of the DSU if it requests the
establishment of a panel in violation of the principle of good faith. EC, Answer to Panel Question 59, para. 21.
1914 Citing the panel reports in Argentina – Poultry Anti-Dumping Duties , para. 7.38 and Guatemala –
Cement II, para. 7.71-7.72. In our view, these panels did not establish that the principle of estoppel applies in
WTO dispute settlement proceedings; rather, the respective panels proceeded on the basis that, even if arguendo
a principle of estoppel in the terms contended for did ex ist, it was not established on the specific facts of the
case.
1915 EC, Answer to Panel Question 59, para. 23.
1916 EC, Answer to Panel Question 59, para. 27.

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conjunction with Article 10 ( e contrario) the United States made a clear and unambiguous statement
that it will not attack these measures anymore."1917
7.104 However, as already discussed, we do not consider that Article 2 of the 1992 Agreement can
be interpreted as an agreement between the parti es that pre-1992 support measures are deemed to be
compatible with the GATT/WTO subs idies disciplines, or that the pa rties thereby waived their rights
to challenge pre-1992 measures as being inconsis tent with those disciplines. Even assuming
arguendo that the Panel were to accept the European Communities' submission s as to the basis for
applying the principle of estoppel in the context of WTO dispute settlement (on which we express no
view), we would also reject the European Communities' request for preliminary rulings on this ground
because we consider that Article 2 falls far short of being a "clear and unambiguous statement" in the
sense required by the first element of the European Communities' own definition of the principle of
estoppel. We also note that, although the European Communities asserts that it has complied with its
obligations under the 1992 Agreement concerning the le vel of support it has provided to its large civil
aircraft industry, it has not identified any behavi our that would amount to detrimental reliance on the
alleged representation made by the United States.
7.105 In conclusion, we reject the European Commun ities' request for a preliminary ruling that any
alleged government support committed prior to 17 July 1992 is exclude d from the temporal scope of
these proceedings.
3. Non-Temporal Scope Issues
(a) Background
7.106 As part of its 26 October 2005 request for pr eliminary rulings, the European Communities
asked the Panel to rule that alleged subsidies to support the Airbus A350, along with five other
alleged subsidy measures, are outside the Panel's terms of reference. 1918 In addition to LA/MSF for
the A350, the alleged subsidy measures the subject of this request for preliminary rulings are: (i) EIB
financing to Aérospatiale for the Super Transporte urs; (ii) funding from the French government for
civil aeronautics-related R&D projects in which Air bus participated; (iii) the provision by certain
enumerated German, French and UK research institu tions of civil aeronauti cs R&D-related goods or
services to Airbus; (iv) financial contributions to develop, expand, and upgrade facilities and other
infrastructure for the Airbus companies in certain locations in Germany, France, Spain and the United
Kingdom; and (v) the assumption of debt by the Spanis h government on behalf of the Spanish Airbus
company, CASA.1919
7.107 The European Communities purports to identify three general flaws in the United States'
request for the establishment of a panel. First, the European Communities as serts that the measures
concerning LA/MSF for the A350 are outside the Panel's terms of reference because they did not exist
at the time of the request for the establishment of a panel. 1920 Second, the European Communities
argues that LA/MSF for the A350 and various othe r measures were not subj ect to consultations. 1921
Finally, the European Communities argues that th e United States' descriptions of certain of the

1917 EC, Answer to Panel Question 59, para. 28.
1918 EC, Original Request, para. 8.
1919 This Preliminary Ruling does not address the Eu ropean Communities' objection that the argument
made by the United States in its Opening Oral Statemen t that Deutsche Airbus received a benefit from the 1998
debt settlement, on the basis that the fair value of the German Government's claims "already embedded a
substantial benefit to Deutsche Airbus in the form of an interest rate of zero", constitutes a new claim that falls
outside the Panel's terms of reference.
1920 EC, Original Request, para. 12.
1921 EC, Original Request, paras. 12 and 36.

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measures in the panel request failed to satisfy th e requirements of Article 6.2 of the DSU to identify
the specific measures at issue.1922
(b) Support for the Airbus A350
(i) Arguments of the European Communities
7.108 The European Communities claims that the LA/MSF measures for the Airbus A350 identified
by the United States in Section (1) of its panel request fall outside the Panel's terms of reference
because these measures did not exist at the time of the establishment of the Panel.1923
7.109 The European Communities recalls that in EC – Chicken Cuts, the Appellate Body confirmed
that "{t}he term 'specific measures at issue' in 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."1924 The European Communities al so notes that the Panel in US – Upland
Cotton excluded from its terms of reference a measure th at was not yet in existence at the date when
the panel request was submitted to the DSB, even though the measure had come into existence by the
time that the panel was established.1925
7.110 According to the European Communities, Airbus ' shareholders approved the industrial launch
of the A350 on 7 October 2005. 1926 The European Communities c ontends therefore, that no
government measures relating to the financing of the A350 existed at the time of the establishment of
this Panel by the DSB on 20 July 2005.1927
(ii) Arguments of the United States
7.111 The United States argues that the existence or non-existence of the challenged measures is a
question of fact that is not an appropriate issue for a preliminary ruling.1928
7.112 The United States notes that in EC – Chicken Cuts, the Panel examined the complainants' and
respondents' arguments on the issue of the existenc e of the measure and reached its decision in its
final report, not in a preliminary ruling. 1929 The United States submits that a more relevant report for
present purposes is the Panel report in the EC – Biotech dispute. In that dispute, the existence or non-
existence of the challenged measure was one of the central issues that the parties addressed over the
course of the proceeding, and the Panel reached its de cisions on the issue in its final report after fully
developing the factual record during the proceeding.1930

1922 EC, Original Request, para. 52.
1923 EC, Original Request, para. 29. The European Communities also contends that launch aid for the
A350 was not identified in the request for consultations, paras. 22-23.
1924 Appellate Body Report, European Communities – Customs Classification of Frozen Boneless
Chicken Cuts ("EC – Chicken Cuts "), WT/DS269/AB/R, WT/DS286/AB/R, adopted 27 September 2005, and
Corr.1, DSR 2005:XIX, 9157, para. 156.
1925 EC, Original Request, para. 20.
1926 EC, Original Request, para. 21,
1927 EC, Original Request, para. 21.
1928 US, Answer to EC, Original Request, para. 26.
1929 US, Answer to EC, Original Request, para. 26.
1930 The United States recalls that, despite the European Communities' denials regarding the existence
of the measure in that dispute, the Panel in that di spute found that the facts demonstrated the European
Communities did, in fact, maintain a de facto moratorium.

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7.113 Moreover, the United States contends that the measures relating to LA/MSF for the A350 do
exist, and that they existed at the ti me of the establishment of this Panel. 1931 The United States argues
that, while it is true that Airbus' shareholde rs approved the industria l launch of the A350 on
7 October 2005, Airbus typically ensur es that LA/MSF measures are committed before it decides on
the industrial launch of an aircraft, as the measures are an important part of the financing that makes
the launch possible.1932 According to the United States, LCA manufacturers make at least two 'launch'
decisions when deciding to develop a new model of LC A. In addition to the 'industrial' launch (when
the manufacturer confirms its decision to begin development of the model), there is also an earlier
'commercial' launch, the purpose of which is to determine whether there are enough potential
customers for the new aircraft to merit an indu strial launch. The United States notes that the
'commercial' launch of the A350 took place on 10 December 2004; more than seven months prior to
the establishment of this Panel.
1933
7.114 The United States also points to facts which it contends contradict the European
Communities' assertion that no government measures re lating to the financing of the A350 existed on
7 October 2005; namely, media comments from the CEO of Airbus on the day of the industrial launch
"confirming that Airbus had in fact already received {LA/MSF} commitments from all four
governments, and that the commitments were 'leg ally binding'"; EADS's 2005 financial statements
which state that certain EU countries had alread y committed to fund the development of the A350
commercial aircraft programme; and a stat ement by the German Economics Minister
in December 2004, confirming that state subsidie s for the A350 were already included in the
budget.1934 The United States contends that, prior to the date of establishment of the Panel, the Airbus
governments had made a legally binding commitment to provide LA/MSF for the A350, and that this
commitment to make a financial contribution, as a ' potential direct transfer of funds', is a subsidy
capable of being challenged in WTO dispute settlement.1935
7.115 The United States also questions the Europ ean Communities' refusal to respond to the
Facilitator's specific request for information and doc uments relating to LA/MSF for the A350 as part
of the Annex V process in this dispute. 1936 The United States contends that it would have been
relatively simple for the European Communities to ha ve stated that no such measures existed, rather
than refusing to provide information about them. The United States considers that, by so refusing, the
European Communities "appears to concede that the measures do in fact exist."1937
(iii) Evaluation by the Panel
7.116 We do not understand there to be a dispute ove r the question whether measures included in a
panel's terms of reference must be in existence at the time of the establishment of the panel. 1938 What

1931 US, Answer to EC, Original Request, paras. 31-38.
1932 US, Answer to EC, Original Request, para. 31 . Therefore, according to the United States, the
significance of the industrial launch of the A350 on 7 October 2005 is that it demonstrates that LA/MSF
measures for the A350 were in place prior
 to that date, not subsequently
1933 US, Answer to EC, Original Request, para. 32, footnote 12. By way of example, the United States
notes that the UK government's contract for LA/MSF for the A380 was dated 12 March 2000, some nine months
prior to the industrial launch of the A380 in December 2000; at para. 34.
1934 US, Answer to EC, Original Request, para. 31. The European Communities contends that the
evidence provided by the United States does not establish the existence of LA/MSF to the A350; EC, FWS,
paras. 345-360.
1935 US, Answer to Panel Question 2, paras. 15-18.
1936 US, Answer to EC, Original Request, para. 36.
1937 US, Answer to EC, Original Request, para. 36.
1938 We recall that the Appellate Body has indicated that the term "specific measures at issue" in
Article 6.2 of the DSU suggests that, as a general rule, the measures included in a panel's terms of reference

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the parties do dispute is the factual issue of whet her or not LA/MSF for the A350 was in existence at
the time of the establishment of this Panel.
7.117 We consider that the issue of whether or not th ere were any 'measures' in existence regarding
LA/MSF for the A350 at the time of the establishment of the Panel is a disputed question of fact in
this case. Both parties have presented evidence and argument on this issue in the written submissions,
which we will be required to assess in order to resolve this issue. 1939 We agree with the United States
that, where the existence or non-existence of a challe nged measure is a disputed question of fact, it is
not an appropriate matter for determination in a pre liminary ruling. We therefore reject the European
Communities' request for a preliminary ruling on whether or not LA/MSF for the A350 falls within
the scope of our terms of reference on the grounds th at the measure allegedly did not exist at the time
of the establishment of the Panel.
(c) Measures Allegedly Not Previously Subject to Consultations
(i) Arguments of the European Communities
7.118 Alternatively, and in addition to its argument concerning the non-existence of the measure,
the European Communities argues that the LA/M SF measures for the A350 should be excluded from
the Panel's terms of reference because they have not been subject to consultations, as required by
Articles 4.4 and 6.2 of the DSU.1940
7.119 The European Communities also requests that we exclude other measures from our terms of
reference on the same grounds. These measures re late to: financing to Aérospatiale Super
Transporteurs as described in Section (2)(f) of the United States' panel request; funding from the
French government for civil aeronautics-related R&D projects in which Airbus participated (Section
(6)(e) of the United States' panel request); and th e provision by certain enumerated German, French
and UK research institutions of civil aeronautics R&D -related goods and services to Airbus (Section
(6)(f) of the United States' panel request).1941
7.120 The European Communities argues that only measur es that have been subject to consultations
can properly be included in a request for the establishm ent of a panel. In support of this contention,
the European Communities refers the Panel to statements of the Appellate Body in US – Upland
Cotton and EC - Chicken Cuts.1942 Relying on the Appellate Body Report in US - Upland Cotton, the
European Communities argues that even though there does not have to be a "precise and exact
identity" between the scope of the consultations a nd the request for the establishment of a panel, the
complaining party cannot include additional measur es in its panel request and thereby "expand the
scope of the dispute".1943

must be measures that are in existence at the time of the establishment of the panel; Appellate Body Report, EC
– Chicken Cuts, para. 156.
1939 We recall that, in Korea –Alcoholic Beverages , the Panel considered that the issue before it was
"one that requires a weighing of evidence" and "{a}s such it is not an issue appropriate for a preliminary ruling
in this case." Panel Report, Korea – Taxes on Alcoholic Beverages ("Korea –Alcoholic Beverages") ,
WT/DS75/R, WT/DS84/R, adopted 17 February 1999, as modified by Appellate Body Report, WT/DS75/AB/R,
WT/DS84/AB/R, DSR 1999:I, 44, para. 10.16.
1940 EC, Original Request, para. 12.
1941 EC, Original Request, paras. 88-89.
1942 EC, Original Request, paras. 31-32; citing the Appellate Body, US – Upland Cotton, para. 293 and
Appellate Body, EC – Chicken Cuts, para. 156 (footnote 315).
1943 Appellate Body Report, US – Upland Cotton, para. 293.

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(ii) Arguments of the United States
7.121 The United States contends that it is well establis hed that it is the panel request, and not the
consultation request, that establishes a panel's terms of reference.1944 The United States also notes that
the Appellate Body has said that it does not believe "Articles 4 and 6 of the DSU . . . require a precise
and exact identity between the specific measures that were the subject of consultations and the
specific measures identified in th e request for the establishment of a panel," provided that the
"essence" of the challenged measures had not changed.1945
7.122 In relation to LA/MSF for the A350, the United States notes that its panel request specifically
refers to LA/MSF for the A350. The United States also contends that, contrary to the European
Communities' assertions, it did ask questions about LA/MSF for the A350 during the initial round of
consultations on 4 November 2004, and that during the second round of consultations on
23 March 2006, it provided the European Commun ities with written questions concerning LA/MSF
for the A350, which th e European Communities refused to answer.1946 Moreover, the United States
argues that, in its first written submission, it has established a prima facie case that the LA/MSF
which the Airbus governments have committed to provide for the A 350 is the same in its essential
respects to all of the LA/MSF they provide to Airbus.1947
7.123 The United States has indicated that it does not in tend to pursue its claim with respect to the
1997 EIB loan to Aérospatiale for the Super Tr ansporteurs programme owing to the European
Communities' confirmation that this loan was neve r drawn by Aérospatiale. However, the United
States is still pursuing its claim in relation to a 1993 EIB loan to Aérospatiale for the Super
Transporteurs programme.1948 As regards the challenge to this measure the United States notes that its
panel request refers specifically to financing from th e EIB to Aérospatiale Super Transporteurs, that
its request for consultations made specific refere nce to the provision by the EIB "to the Airbus
companies" of "research and development and other loans on preferential terms, including financing
for the A320, the A321, the A330/A340, and the A380," and that its request for consultations also lists
financing by the EIB "to the Airbus companies" fo r "large civil aircraft design, development, and
other purposes" before then listing sp ecific examples of such financing.
1949 According to the United
States, the 'essence' of the challenged measures; na mely, subsidized loans from the EIB to the Airbus
companies for the development of Airbus aircraft, is the same in both the consultation request and the
panel request. 1950 The United States also contends that it raised the issue of the EIB's loans for
Aérospatiale Super Transporteurs during the c onsultations with the European Communities on
4 November 2004.1951 Moreover, the United States contends th at its Statement of Available Evidence
included a reference to a portion of the EIB webs ite entitled "Loans activity, Breakdown by Sector –

1944 US, Answer to EC, Original Request, para. 39, referring to Appellate Body Report, US – Upland
Cotton, para. 293.
1945 US, Answer to EC, Original Request, para. 39, citing Appellate Body Report, US – Upland Cotton,
para. 285 (emphasis in original); Appellate Body Report, Mexico – Definitive Anti-Dump ing Measures on Beef
and Rice, Complaint with Respect to Rice ("Mexico – Anti-Dumping Measures on Rice "), WT/DS295/AB/R,
adopted 20 December 2005, DSR 2005:XXII, 10853, para. 137, citing Appellate Body Report, Brazil – Aircraft,
para. 132.
1946 US, Answer to EC, Original Request, para. 37.
1947 US, Answer to EC, Original Request, para. 39.
1948 US, Answer to Panel Question 12, para. 80, an d First Written Submission of the United States
(hereinafter "US, FWS"), para. 407.
1949 US, Answer to EC, Original Request, para. 72.
1950 US, Answer to EC, Original Request, para. 72.
1951 US, Answer to EC, Original Request, para. 73.

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Industry" in which all loans to Airbus companies, including two loans for the Aérospatiale Super
Transporteur project, are listed.1952
7.124 As regards the provision by certain enumerated German, French and UK research institutions
of civil aeronautics R&D-related goods or services to Airbus (Section (6)(f) of the panel request), the
United States advises that, although it considers its pa nel request in respect of the measures described
in Section (6)(f) of its panel request to conform with the requirements of Article 6.2 of the DSU, it has
decided not to pursue its claims with respect to these measures in this dispute. Accordingly, there is
no need for the Panel to address the European Communities' arguments concerning the measures
described in Section (6)(f) of the panel request.1953
(iii) Evaluation by the Panel
7.125 We recall that Article 4.4 of the DSU reads in relevant part:
"Any request for consultations shall be submitted in writing and shall give the reasons for the request,
including identification of the measures at issu e and an indication of the legal basis for the
complaint."

Article 6.2 of the DSU provides:

"The request for the establishment of a pane l shall be made in writing. It shall
indicate whether consultations were held, identify the specific measures at issue and
provide a brief summary of the legal basis of the complaint sufficient to present the
problem clearly. In case the applicant re quests the establishment of a panel with
other than standard terms of reference, th e written request shall include the proposed
text of special terms of reference."
7.126 We recall that the Appellate Body has stated that Articles 4 and 6 of the DSU "set forth a
process by which a complaining party must request consultations, and consul tations must be held,
before a matter may be referred to the DSB for the establishment of a panel".
1954 It is well established
that Articles 4 and 6 of the DSU do not "require a precise and exact identity between the specific
measures that were the subject of consultations a nd the specific measures iden tified in the request for
the establishment of a panel." 1955 In this regard, we recall that Ar ticle 4.4 of the DSU requires only
that the request for consultations must identif y "the measures at issue", as opposed to the " specific
measures at issue" as required by Article 6. 2 of the DSU. As the Appellate Body in Brazil - Aircraft
stated:
"We do not believe, however, that Articles 4 a nd 6 of the DSU, or paragraphs 1 to 4
of Article 4 of the SCM Agreement, require a precise and exact identity between the
specific measures that were the subject of consultations and the specific measures
identified in the request for the establishment of a panel. As stated by the Panel,
'{o}ne purpose of consultations, as set forth in Article 4.3 of the SCM Agreement, is
to 'clarify the facts of the situation', and it can be expected that information obtained

1952 US, Answer to EC, Original Request, para. 74.
1953 US, Answer to EC, Original Request, para. 75.
1954 Appellate Body Report, Brazil – Aircraft, para. 131.
1955 Appellate Body Report, Brazil – Aircraft, para. 132.

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during the course of consultations may enable the complainant to focus the scope of
the matter with respect to which it seeks establishment of a panel."1956
We are also mindful of the Appellate Body's statement in US – Upland Cotton:

"We also note that Article 4.2 of the DS U calls on a WTO Member that receives a
request for consultations to 'accord sympathe tic consideration to and afford adequate
opportunity for consultation regarding any re presentations made by another Member'.
As long as the complaining party doe s not expand the scope of the dispute , we
hesitate to impose too rigid a standard for the 'precise and exact identity' between the
scope of consultations and the request for the establishment of a panel, as this would
substitute the request for consultations for the panel request. According to Article 7
of the DSU, it is the request for the estab lishment of a panel that governs its terms of
reference, unless the parties agree otherwise."1957
Finally, we recall that in US – Upland Cotton , the Appellate Body indicated that a panel's
determination of the scope of the consultations should be limited to an analysis of the request for
consultations.1958

7.127 With these considerations in mind, we now tu rn to examine the text of the consultation
request and the panel request in order to determin e whether there is a sufficient degree of identity
between the measures that were the subject of consultations and the specific measures identified in the
request for the establishment of the panel to warra nt a conclusion that the challenged measures were
subject to consultations as required by Article 4 of the DSU.
Launch aid for the Airbus A350 (Section (1) of the panel request)

7.128 The sections of the consultation request pertaining to LA/MSF read:
"The provision by the member States of fi nancing for large civil aircraft design and
development to the Airbus companies (her einafter "launch aid"). This financing
provides benefits to the recipient compan ies including financing for projects that
would otherwise not be commercially feasible. The non-commercial terms of the
financing include no interest or interest at below-market rates and a conditional
repayment obligation that is tied to the success of the aircraft model being financed; if
a model is not successful, some or all of the financing is forgiven.…
The subsidies in question include those re lating to Airbus models A300, A310, A320
family, A330/340, A330-200, A340-500/600, and most recently the A380."
1959
The section of the United States' panel request pertaining to LA/MSF in respect of the A350 reads:

"The provision by the member States of fi nancing for large civil aircraft design and
development to the Airbus companies (herei nafter "launch aid"). This financing

1956 Appellate Body Report, Brazil – Aircraft, para. 132. In this connection, we recall that the Panel on
Brazil - Aircraft stated (at para. 7.9) "...to limit the scope of the panel proceedings to the identical matter with
respect to which consultations were held could undermine the effectiveness of the panel process."
1957 Appellate Body Report, US – Upland Cotton, para. 293 (footnotes omitted, emphasis added).
1958 Appellate Body Report, US – Upland Cotton, para. 287.
1959 European Communities and Certain Member States – Measures Affecting Trade in Large Civil
Aircraft, Request for Consultations by the United Stat es, WT/DS316/1-G/L/697-G/SCM/D62/1 (12 October
2004) (footnotes omitted) (hereinafter "US, Consultation Request").

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provides benefits to the recipient compan ies including financing for projects that
would otherwise not be commercially feasible. The non-commercial terms of the
financing may include no interest or inter est at below-market rates and a repayment
obligation that is tied to sales. If the aircraft is not successful, some or all of the
financing need not be repaid. Specific examples of the financing at issue include:
(a) French financing for the Airbus A300 , A310, A320, A330/340, A330-200, A340-
500/600, A380 and A350;
(b) German financing for the Airbus A300, A310, A320, A330/340, A380 and A350;
(c) United Kingdom financing for the Airbus A300, A310, A320, A330/340, A330-200,
A340-500/600, A380 and A350; and
(d) Spanish financing for the Airbus A300, A310, A320, A330/340, A330-200, A340-
500/600, A380 and A350."
1960
7.129 We consider that there is a sufficient identit y between the measures described in the request
for consultations and the specific measures as descri bed in the panel request. We note that the
consultation request indicates that the measures in qu estion 'include' LA/MSF relating to the aircraft
models specified therein. The consultation request th erefore indicates that the alleged subsidies to the
specific aircraft models are part of a class or cate gory of measures identified as 'launch aid' for large
civil aircraft design and development to the Airbus companies. In the panel request, the United States
provides particular examples of the specific measures it identifies as 'launch aid' for large civil aircraft
design and development to the Airbus companies. We do not consider that the United States has
'broadened the scope of the dispute' by including in the panel request 'launch aid' for the A350 as one
of the examples of the specific measures that are d escribed in the same terms in both the consultations
and panel requests. We consider that the essence of the challenged measures; namely, 'launch aid' for
large civil aircraft design and development to the Airbus companies, is the same in both requests.
EIB financing to Aérospatiale for the Supe r Transporteurs (Section (2)(e) of the panel
request).
7.130 The section of the United States' consultation re quest dealing specifically with EIB financing
refers to:
"The provision by the EC and the member States, through the European Investment
Bank ("EIB"), to the Airbus companies, including Airbus' parent company EADS, of
research and development and other loans on preferential terms, including financing
for the A320, the A321, the A330/340, and the A380."
1961
Section (2)(e) of the United States' panel request, pertaining to EIB financing to Aérospatiale Super
Transporteurs reads:

"(2) In addition to launch aid, the pr ovision by the EC and the member States,
through the European Investment Bank ("EIB"), to the Airbus companies, of

1960 European Communities and Certain Member States – Measures Affecting Trade in Large Civil
Aircraft, Request for the Establishment of a Panel by the United States, WT/DS316/2 (3 June 2005) (footnotes
omitted), (hereinafter "US, Panel Request").
1961 US, Consultation Request.

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financing for large civil aircraft design, development, and other purposes. Specific
examples of the financing at issue include: ...

 (e) Financing to Aérosp atiale Super Transporteurs;"
1962

7.131 In our view, the United States has not "broadened the scope of the dispute" by specifying EIB
financing to Aérospatiale Super Transporteurs in the panel request. We note that the consultation
request specifically refers to the provision by the EIB "to the Airbus companies" of "research and
development and other loans on preferential terms, including financing for the A320, the A321, the
A330/A340, and the A380". The panel request al so lists financing by the EIB "to the Airbus
companies" for "large civil aircraft design, de velopment, and other purposes" and then provides
specific examples of the financing at issue. We consider that the essence of the challenged measures;
namely, subsidized loans from th e EIB to the Airbus companies for the development of Airbus
aircraft (which category includes Aérospatiale Super Transporteurs), is the same in both requests.
Funding from the French government for civil aeronautics-related R&D projects in which
Airbus participated (Section (6)(e) of the panel request).
7.132 Section (6)(e) of the United States' panel request refers to:
"The provision by the EC and the member States of financial contributions for
aeronautics-related research, development, and demonstration ("R&D"), undertaken
by Airbus, whether alone or with others, or in any other way to the benefit of Airbus,
including: …
(e) Funding from the French government, including regional and local
authorities, since 1986 for civil aeronautics-related R&D projects in which Airbus
participated."
1963
7.133 The European Communities argu es that the measures described in Section (6)(e) are not
included in the consultation request.1964
7.134 We recall, however, that there is a section of the request for consultations dealing specifically
with funding for civil aeronautics-related R&D projects in the following terms:
"The provision by the EC and member Stat es of research and development loans and
grants in support of large civil aircraft de velopment. These loans and grants directly
benefit the Airbus companies."1965
7.135 We consider that the specific measures identifie d in Section (6)(e) of the United States' panel
request fall within the scope of this description of the measure in the request for consultations.

1962 US, Panel Request.
1963 US, Panel Request.
1964 EC, Original Request, para. 73.
1965 US, Consultation Request.

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Provision by certain enumerated German, Fren ch and UK research institutions of civil
aeronautics R&D-related goods and services to Airbus (Section (6)(f) of the United States'
panel request).
7.136 The United States advises that it has decided not to pursue its claims with respect to these
measures in this dispute. 1966 Accordingly, there is no need for us to address the European
Communities' objections to these measures.
7.137 In conclusion, for the reasons stated above, we reject the European Communities' request for
a preliminary ruling that the measures identified in Se ctions (1), (2)(e) and (6)(e) of the United States'
panel request be excluded from our terms of reference on the grounds that they were not subject to
consultations.
(d) Measures Allegedly not Adequately Identified in the Panel Request
(i) Arguments of the European Communities
7.138 The European Communities challenges a numbe r of other measures as being outside the
Panel's terms of reference on the grounds that, in its request for the establishment of a panel, the
United States described these measures in an ove rly broad, ambiguous or overly inclusive manner. 1967
According to the European Comm unities, the United States has thereby failed to comply with the
basic obligation under Article 6.2 of the DSU to iden tify the 'specific measures at issue' in its request
for the establishment of a panel.1968
7.139 Where a measure is not explicitly identified in the text of a request for the establishment of a
panel, the European Communities contends that WT O jurisprudence has estab lished that there must
be a description of the specific measures at issue in the panel request that effectively achieves the same
result.1969 According to the European Communities, the complainant is under a duty to identify, with
sufficient precision, the 'specific measures at issue' in its panel request, and a respondent is not
required to engage in research or guesswork in de termining what the specific measures are supposed
to be, particularly in complex cases potentially involving numerous measures. 1970 M o r e o v e r , t h e
European Communities argues that with respect to programmes and schemes subject to the disciplines
of the SCM Agreement, WTO jurisprudence indicat es that broad descriptions of measures at issue
"may be acceptable as long as the group of measures in question has clearly been limited by some
restricting or specifying reference(s) which, in light of the circumstances of the case , nonetheless
enable the 'specific measures at issue' to be ascertained." 1971 According to the European
Communities, depending on the specific circumstances and type of measure, "other specifying
elements may be necessary, such as the nature of th e financial contribution, the amount thereof or the

1966 US, Answer to EC, Original Request, para. 75.
1967 EC, Original Request, para. 36.
1968 EC, Original Request, para. 36.
1969 EC, Original Request, para. 45; citing Panel Report, Canada – Measures Relating to Exports of
Wheat and Treatment of Imported Grain ("Canada – Wheat Exports and Grain Imports "), WT/DS276/R,
adopted 27 September 2004, upheld by Appellate Body Report, WT/DS276/AB/R, adopted 27 September 2004,
DSR 2004:VI, 2739, para. 6.10, (subpara. 20 of the preliminary ruling reproduced therein).
1970 EC, Original Request, para, 47.
1971 EC, Original Request, para. 48. The European Co mmunities cites the following reports in support:
Appellate Body Report, United States – Countervailing Duties on Certain Corrosion-Resistant Carbon Steel
Flat Products from Germany ("US – Carbon Steel"), WT/DS213/AB/R and Corr.1, adopted 19 December 2002,
DSR 2002:IX, 3779, para. 127; Panel Report, Canada – Wheat Exports and Grain Imports , para. 6.10,
subpara. 20 of the preliminary ruling reproduced therein; Panel Report, US – Upland Cotton, para. 7.123-7.128.

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date on which it was provided, the purpose of the grant, or the recipient." 1972 The European
Communities notes that the inclusion or non-inclusion of a measure in the panel's terms of reference
must be demonstrated "on the face (text) of the panel request."1973
(ii) Arguments of the United States
7.140 The United States argues that its panel request identifies the specific measures at issue in
accordance with Article 6.2 of the DSU.
7.141 According to the United States, the Appellate Body report in US – Carbon Steel made clear
that a panel reviewing a panel request under Article 6.2 must consider the panel request as a whole,
and may take into account the attendant circumstances. 1974 Such 'attendant circumstances' are the
circumstances surrounding the filing of the pane l request, such as the consultation request, the
consultations, the Statement of Available Evidence, the DSB's consideration of the panel requests and
such other facts. 1975 The United States also argues that the European Communities has not been
prejudiced in any way by the description of the measures in the panel request. 1976 Specifically, the
United States points to the fact that the European Communities received a first set of questions from
the facilitator in the Annex V process on 7 October 2005, following an earlier exchange of draft
questions on 23 September 2005. The United States contends that, given the level of detail in the
questions, and the fact that its first written submi ssion was not due until February 2007, the European
Communities cannot seriously assert that it has been unable to begin preparing its defence.1977
7.142 The United States also refers to the procedural history of this dispute as indicating that the
European Communities' request for preliminary ru lings "had nothing to do with addressing alleged
shortcomings in the US panel request, and everyt hing to do with increasing the complexity of the
matter, avoiding the need to provi de information on the challenged measures in the Annex V process,
and forcing delay." 1978 The United States also raises the Eur opean Communities' refusal to provide
details of its concerns regarding the lack of speci ficity in the United States' panel request when the
request was considered by the DSB as demonstrating that the European Commun ities' approach to its
concerns regarding the United States' panel requ est is "strikingly different from the approach
suggested by the Appellate Body and prior panels." 1979 Finally, the United States points to the fact

1972 EC, Original Request, para. 50.
1973 EC, Original Request, para. 51; citing the Panel Report, US – Upland Cotton , para. 7.123-7.128;
7.137-7.144; 7.145-7.152; 7.172-7. 181; and Appellate Body Report, EC – Export Subsidies on Sugar ,
paras. 145-156, particularly para. 154.
1974 US, Answer to EC, Original Request, para. 45; referring to Appellate Body Report, US - Carbon
Steel, paras. 128-133.
1975 US, Answer to EC, Original Request, para. 60; citing Panel Report, United States – Safeguard
Measures on Imports of Fresh, Chilled or Frozen Lamb Meat from New Zealand and Australia ("US – Lamb"),
WT/DS177/R, WT/DS178/R, adopted 16 May 2001, as modified by Appellate Body Report, WT/DS177/AB/R,
WT/DS178/AB/R, DSR 2001:IX, 4107, para. 5.32.
1976 US, Answer to EC, Original Request, para. 41.
1977 US, Answer to EC, Original Request, para. 78.
1978 Specifically, the United States refers to th e further consultations which were held on
23 March 2006 and the second request for the establishment of a panel in this dispute which it filed on
10 April 2006. The United States contends that, since the time at which the United States filed the second panel
request that ultimately led to the composition of a panel in DS347, the European Communities has fully
understood the nature of the United States' case and has b een able to prepare its defe nce in this dispute. US,
Answer to EC, Original Request, para. 79.
1979 US, Answer to EC, Original Request, para. 82; referring to the Appellate Body Report,
United States – Tax Treatment for "Foreign Sales Corporations" ("US – FSC "), WT/DS108/AB/R, adopted
20 March 2000, DSR 2000:III, 1619, para. 166, and Panel Report, Canada – Wheat Exports and Grain Imports,
para. 6.10, subpara. 65.

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that it consented to the European Communities receiving extended time during which to prepare its
first written submission (12 weeks compared to the two to three weeks proposed in the DSU) as
demonstrating the lack of prejudice to the EC.1980
(iii) Evaluation by the Panel
7.143 A panel's terms of reference are based on the request for establishment of a panel. We recall
that, when faced with an issue relating to the scope of its terms of reference, a panel is required to
scrutinize carefully the request fo r establishment of a panel to ensure its compliance with both the
letter and the spirit of Article 6.2 of the DSU.1981 Article 6.2 of the DSU provides:
"The request for the establishment of a pane l shall be made in writing. It shall
indicate whether consultations were held, identify the specific measures at issue and
provide a brief summary of the legal basis of the complaint sufficient to present the
problem clearly. In case the applicant requests the establishment of a panel with other
than standard terms of reference, the written request shall include the proposed text of
special terms of reference."1982
7.144 We recall that the requirement of precision in the request for establishment of a panel flows
from the two essential purposes of the terms of reference; namely, to define the scope of the dispute,
and to serve the due process objective of notifying th e parties and third parties of the nature of a
complainant's case.
1983 Compliance with the requirements of Article 6.2 must be determined on the
merits of each case, after a consideration of the pa nel request as a whole, and in light of attendant
circumstances.1984 Moreover, such compliance must be dem onstrated on the face of the request for
establishment of a panel, and defects in the request for the establishment of a panel cannot be cured in
the subsequent submissions of the parties during the panel proceedings.1985
7.145 In the sections that follow, we set forth the specific measure contained in the United States'
panel request which the European Communities cha llenges on the basis that it fails to meet the
requirements of Article 6.2 of the DSU, followe d by the arguments advanced by the European
Communities and the United States, respectively, in relation to the specific measure. Finally, we set
out our analysis, based on the foregoing principles, and our conclusion with respect to each specific
measure.
Funding from the French government for civ il aeronautics-related R&D projects in which
Airbus participated (Section (6)(e) of the United States' panel request)
7.146 Section (6)(e) of the panel request refers to:
"The provision by the EC and the member States of financial contributions for
aeronautics-related research, development, and demonstration ("R&D"), undertaken

1980 US, Answer to EC, Original Request, para. 80.
1981 Appellate Body Report, US – Carbon Steel , para. 126; Appellate Body Report, European
Communities – Regime for the Importa tion, Sale and Distri bution of Bananas ("EC – Bananas III "),
WT/DS27/AB/R, adopted 25 September 1997, DSR 1997:II, 591, para. 142.
1982 Emphasis added.
1983 Appellate Body Report, US – Carbon Steel, para. 126.
1984 Appellate Body Report, US – Carbon Steel, para. 127. "Attendant circumstances" that a panel may
examine when evaluating a panel request include the cons ultations that were held concerning the measure and
the DSB's consideration of the requests for a panel and the establishment of the Panel; Panel Report, US –
Lamb, para. 5.32.
1985 Appellate Body Report, US – Carbon Steel, para. 127.

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by Airbus, whether alone or with others, or in any other way to the benefit of Airbus,
including: ...
 (e) Funding from the French government, including regional and local
authorities, since 1986 for civil aeronautics-related R&D projects in which Airbus
participated."
7.147 The European Communities argues that the phrase 'research, development, and demonstration'
used by the United States in its pane l request is unclear and overly broad. 1986 The reference to
'funding' could, in the European Communities' view, relate to any funding ever provided by French
authorities.1987 According to the European Communities, 'funding' by the 'French government,
including regional and local authorities' could c over any of the hundreds, if not thousands, of
authorities in France. The European Communi ties submits that the failure to specify which
governmental institutions or authorities are of pa rticular concern creates unacceptable uncertainty,
especially in larger countries with complex admi nistrations and wide ne tworks of sub-national
authorities.1988 The European Communities argues that it is impossible for it to know which alleged
actions taken by which French authorities over the past 20 years the United States is interested in
pursuing.1989
7.148 The United States disputes the European Communities' contention that the phrase 'funding for
civil aeronautics-related R&D projects in which Airbus participated' could be understood to mean 'any
funding ever provided by French authorities'. The Un ited States contends that it used the same term;
namely, 'funding for civil aeronautics-related R&D pr ojects in which Airbus participated' to describe
the European Communities, German, UK and Spanish R&D measures, in Section (6)(a) through (d) of
its panel request and notes that the European Co mmunities has not raised concerns over compliance
with Article 6.2 in that context, nor has the European Communities explained why the term was
sufficiently clear with respect to the Europ ean Communities, German, United Kingdom and Spain
R&D measures, and unclear and broad with respect to the French R&D measures.1990
7.149 The United States also raises attendant circ umstances surrounding the filing of its Panel
request. In this regard, the United States contends that it raised the issue of French R&D subsidies
during consultations and provided the European Co mmunities with five specific written questions
about French funding for R&D projects related to civ il aircraft in which Airbus participated between
1986 and 2003.1991 The United States notes that the Statement of Available Evidence appended to its
consultation request included several documents addressing French government funding for R&D for
civil aircraft projects, including funding to Airbus. 1992 In addition, the United States notes that, when
the United States' panel request was first on the ag enda of the DSB, the United States made specific
reference to the nature of the R&D subsidies in its statement to the DSB.1993

1986 EC, Original Request, para. 57.
1987 EC, Original Request, para. 57.
1988 EC, Original Request, para. 59.
1989 EC, Original Request, para. 61.
1990 US, Answer to EC, Original Request, para. 63. We note that in its first written submission, the
European Communities responded that in Sections (6)(a) through (d) of the panel request, the United States has
included additional specifying elements, such as th e name of the R&D programme, which the European
Communities claims helped it to identify the specific measures at issue; EC, FWS, para. 183.
1991 US, Answer to EC, Original Request, para. 64.
1992 US, Answer to EC, Original Request, para. 64.
1993 US, Answer to EC, Original Request, para. 65; Minutes of Meeting held in the Centre William
Rappard, 13 June 2005, WT/DSB/M/191, 28 June 2005, para. 3.

BCI deleted, as indicated [***]

7.150 In the Panel's view, Section (6)(e) of the panel request, considered as a whole and in light of
attendant circumstances, identifies the measures at issue in a manner sufficient to present the problem
clearly. We do not consider that the reference to funding for "civil aeronautics-related R&D projects
in which Airbus participated" can be read as covering any funding ever provided by French
authorities. In addition, while the terms "funding" by "the French government, including regional and
local authorities" might, if read in isolation, c over "hundreds if not thousa nds of 'authorities' in
France", we do not consider that funding for "civ il aeronautics-related R&D projects in which Airbus
participated" can be so broadly construed, especially when considered in the light of the attendant
circumstances described in the arguments of the United States.1994
Financial contributions to deve lop, expand, and upgrade facilities and other infrastructure for
the Airbus companies in certain locations in German, France, Spain and the United Kingdom
(Section (3) of the United States' panel request).
7.151 Section (3) of the United States' panel request reads:
"The provision by the EC and the member States of financial contributions to
develop, expand, and upgrade facilities and other infrastructure for the Airbus
companies. Specific instances include public investments by German authorities in
Hamburg, Nordenham, Bremen, and Varel, by French authorities in the Toulouse
region, by UK authorities at Broughton, and by Spanish authorities at numerous
locations in Spain (such as Puerto Real, Illescas, Puerto de Santa Maria, and La
Rinconada)."
7.152 The European Communities challenges the descrip tions of "public investments by French
authorities in the Toulouse region", and "public in vestments" by "German authorities in Hamburg,
Nordenham, Bremen, and Varel"; by "UK author ities at Broughton" and "by Spanish authorities at
numerous locations in Spain (such as Puerto Real, Illescas, Puerto de Santa Maria, and La
Rinconada)" as insufficiently clear in light of the fact that local administrations undertake an immense
number of infrastructure measures of varying scale and scope each year and the specification of the
United States' claim is insufficient to enable the European Communities to identify the specific
measures the United States seeks to challenge.
7.153 The United States contends that the European Communities' assertion that the description of
the measures in Section (3) of the United States pane l request is insufficient under Article 6.2 of the
DSU is not credible, particularly in light of the attendant circumstances.
1995 The United States gives
the example of the public investments by German authorities in Hamburg: According to the United
States, the measure in question is the expenditure by Hamburg of approximately EUR 751 million to
develop land and expand facilities at Airbus' Hamburg production facility. 1996 The United States notes
that it listed this measure in its consultation request, it submitted two written questions on the
Hamburg project in advance of the consultations between the parties on 4 November 2004 and it
discussed the measure at length with the Eu ropean Communities during the consultations. 1997 T h e
United States notes that it appended to its consulta tion request no fewer than nine different Hamburg
government documents describing the Hamburg infrastructure project in detail. 1998 I n a d d i t i o n , t h e
United States notes that, at the first DSB meeting at which the United States panel request was on the
agenda, the US representative made specific reference to the City of Hamburg spending

1994 US, Answer to EC, Original Request, paras. 64-67.
1995 US, Answer to EC, Original Request, para. 56.
1996 US, Answer to EC, Original Request, para. 56.
1997 US, Answer to EC, Original Request, para. 56.
1998 US, Answer to EC, Original Request, para. 56.

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EUR 751 million to fill in a protected wetland on the River Elbe to create additional land for Airbus's
use at its production cite in Hamburg.1999
7.154 With respect to the other alleged infrastructur e subsidies, the United States notes that it
submitted specific written questions about the No rdenham, Varel, Bremen, Toulouse, Broughton,
Wales, Illescas, Puerto de Santa Maria, Puerto Real and La Rinconada measures to the European
Communities in advance of the c onsultations on 26 October 2004.2000 The United States notes that it
also included documents about these other infrastru cture subsidies in the Statement of Available
Evidence appended to its request for consultations.2001
7.155 In the Panel's view, the 'public investments' re ferred to in Section (3) of the panel request
relate to the development, expansion and upgrading of facilities and other infrastructure for the Airbus
companies. Infrastructure 'for the Airbus companies' is clearly narrower than infrastructure that might
in some way benefit the Airbus companies. For example, contrary to the European Communities'
suggestion, we do not consider that it is plausible to read the reference to "infrastructure for the
Airbus companies" as potentially covering insigni ficant infrastructure measures such as a new stop
sign near an Airbus company plant. Moreover, we consider that this section of the panel request,
when considered in the light of attendant circum stances, identifies the measures at issue in a manner
sufficient to present the problem clearly.
The assumption of debt by the Spanish government on behalf of the Spanish Airbus company
CASA (Section (4) of the United States' panel request).
7.156 The United States advises that, although it consid ers its request under this section consistent
with the requirements of Article 6.2 of the DSU, it ha s decided not to pursue its claims with respect to
these measures. Accordingly, there is no need fo r the Panel to address the European Communities'
contentions on these measures.2002
The provision by certain enumerated German, French, and UK research institutions of civil
aeronautics R&D-related goods or services to Airbus (Section (6)(f) of the United States'
panel request).
7.157 The United States advises that, although it cons iders its panel request in respect of these
measures to conform with the requirements of Article 6.2 of the DSU, it has decided not to pursue its
claims with respect to th ese measures in this dispute. 2003 Accordingly, there is no need for us to
address the European Communities' objections to these measures.

1999 US, Answer to EC, Original Request, para. 57; referring to WT/DSB/M/191, 28 June 2005, para. 3.
2000 US, Answer to EC, Original Request, para. 59. The United States contends that neither the
European Communities, France, German, Spain nor the United Kingdom expressed confusion about the nature
of the measures at issue at that time.
2001 US, Answer to EC, Original Request, para. 59.
2002 US, Answer to EC, Original Request, para. 75.
2003 US, Answer to EC, Original Request, para. 75.

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7.158 In conclusion, for the reasons stated above, we reject the European Communities' request for
a preliminary ruling that the measures identified in Sections (6)(e) and (3) of the United States' panel
request be excluded from our term s of reference on the grounds that the descriptions of these
measures fail to meet the requirements of Article 6.2 of the DSU.

BCI deleted, as indicated [***]
Section VII.C Attachment: Annex A to the Preliminary Ruling of the Panel

Measures which the European Communities Agrees Are Subject
to Article 5 of the SCM Agreement
because they came into existence after 1 January 1995

Nature of Measure

Alleged amount of financial
contribution
Details of Existence
MSF for A330/A3402004

Germany

DM 126.8 million and DM
66.7 million

Disbursed in 1995 and 1996, respectively.
France €75.93 million and €21.518 million Disbursed in 1995 and 1996, respectively.

Spain €19.28 million Disbursed in 1995.

EIB Loans

EIB loan to EADS for R&D related to the Airbus A380 €700 million Granted in 2002 2005
EIB loan to Aérospatiale for Super Transporteur program (Super
Transporteur A) 1993
€112,614,303 Some disbursements were made in 1996.
EIB loan to Aérospatiale for Super Transporteur program (Super
Transporteur B) 1997

€38,098,547 EC says this loan was never drawn on and was
therefore cancelled.
2006
Infrastructure

Alleged infrastructure support provided by the City of Hamburg to
Airbus Deutschland

 EC concedes this is within the temporal scope of
the SCM Agreement (see EC, Response to Panel
Questions of 8 December 2006 on Preliminary
Ruling Request by the European Communities,
para. 42).

2004 Based on EC, Answer to Panel Questions of 8 December 1996, paras. 22-38.
2005 The European Communities concedes that this loan is within the temporal scope of the SCM Agreement: see EC, Answer to Panel Questions of 8 December 1996,
para. 39.
2006 EC, Answer to Panel Questions of 8 December 1996, para. 40. It remains however, within the temporal scope of the dispute, eve n on the European Communities'
definition.

BCI deleted, as indicated [***]
Nature of Measure

Alleged amount of financial
contribution
Details of Existence

Alleged infrastructure support provided by French authorities by
creating the AéroConstellation Industrial Site in Toulouse

 EC concedes this is within the temporal scope of
the SCM Agreement (see EC, Response to Panel
Questions of 8 December 2006 on Preliminary
Ruling Request by the European Communities,
para. 44).

Grant by German Land of Lower Saxony for Airbus's Nordenham Site
(US, FWS, para.488)

€6 million Grant approved in June 2002.

EC concedes within temporal scope: see EC,
Response to Panel Questions of 8 December
2006 on Preliminary Ruling Request by the
European Communities, para. 45

Grant by Welsh Assembly to BAE Systems for Airbus's Broughton,

£19.5 million Announcement made 24 September 2000.

EC concedes within temporal scope: see EC,
Response to Panel Questions of 8 December
2006 on Preliminary Ruling Request by the
European Communities, para. 45

Regional grants by Spanish Government to EADS-CASA's Sevilla and
La Rinconada Facilities
(US, FWS, para 494)
€2.2 million to EADS-CASA in
Sevilla

Rinconada

Announced April 2001.

EC concedes within temporal scope: see EC,
Response to Panel Questions of 8 December
2006 on Preliminary Ruling Request by the
European Communities, para. 45.

Spanish government grant to Airbus España for Airbus España's
Toledo Facility
(US, FWS, para 496)

€37.9 million Approved March 2003.

EC concedes within temporal scope: see EC,
Response to Panel Questions of 8 December
2006 on Preliminary Ruling Request by the
European Communities, para. 45.

BCI deleted, as indicated [***]
Nature of Measure

Alleged amount of financial
contribution
Details of Existence
Regional grant by Spanish Government for EADS-CASA's La

€43.1 million Order approving grant issued July 2003.

EC concedes within temporal scope: see EC,
Response to Panel Questions of 8 December
2006 on Preliminary Ruling Request by the
European Communities, para. 45.

Grant by Spanish Government for EADS-CASA's Puerto de Santa

€5.9 million Order approving grant issued July 2003.

EC concedes within temporal scope: see EC,
Response to Panel Questions of 8 December
2006 on Preliminary Ruling Request by the
European Communities, para. 45.

Grant by Spanish Government for EADS/Airbus España's Puerto Real
Facility (US, FWS, para 502)

€13.1 million Order approving grant issued July 2003.

EC concedes within temporal scope: see EC,
Response to Panel Questions of 8 December
2006 on Preliminary Ruling Request by the
European Communities, para. 45.

Grant by Government of Andalusia for EADS-CASA's Puerto de
Santa Maria Plant (US, FWS, para 504)

€8.6 million Grant provided July 2001.

EC concedes within temporal scope: see EC,
Response to Panel Questions of 8 December
2006 on Preliminary Ruling Request by the
European Communities, para. 45.

Grant by Andalusian Government for EADS-CASA's Sevilla facility
(US, FWS, para 506)

€35.7 million Grant authorized July 2002.

EC concedes within temporal scope: see EC,
Response to Panel Questions of 8 December
2006 on Preliminary Ruling Request by the
European Communities, para. 45.

BCI deleted, as indicated [***]
Nature of Measure

Alleged amount of financial
contribution
Details of Existence
Grant by Andalusian Government for EADS/Airbus España's Puerto

€17.5 million Grant authorized in July 2003.

EC concedes within temporal scope: see EC,
Response to Panel Questions of 8 December
2006 on Preliminary Ruling Request by the
European Communities, para. 45.

Grant by Government of Castilla-La Mancha for Airbus España's

€7.6 million Grant approved March 2004.

EC concedes within temporal scope: see EC,
Response to Panel Questions of 8 December
1996 on Preliminary Ruling Request by the
European Communities, para. 45

Alleged Forgiveness of Debt of Deutsche Airbus by German
Government (US, FWS, para. 515 et seq)
Forgiveness of DM7.7 billion in debt
owed by Deutsche Airbus
Decision taken in 1998.

EC concedes within temporal scope: see EC,
Response to Panel Questions of 8 December
1996 on Preliminary Ruling Request by the
European Communities, para. 46.

French Government's transfer of its 45.76% share in Dassault to
Aérospatiale (US, FWS, para. 607 et seq)
Translated into equity infusion of
FF5.28 billion
Transfer effected December 1998.

EC concedes within temporal scope: see EC,
Response to Panel Questions of 8 December
1996 on Preliminary Ruling Request by the
European Communities, para. 49.

R&D Funding

Alleged measures of support under the Fourth Framework Program At least €195.3 b illion EC concedes within temporal scope: see E C,
Response to Panel Questions of 8 December
1996 on Preliminary Ruling Request by the
European Communities, para. 51.

BCI deleted, as indicated [***]
Nature of Measure

Alleged amount of financial
contribution
Details of Existence
Alleged measures of support under the Fifth Framework Program

€509 million EC concedes within temporal scope: see EC,
Response to Panel Questions of 8 December
1996 on Preliminary Ruling Request by the
European Communities, para. 51.

Alleged measures of support under the Sixth Framework Program

€450 million EC concedes within temporal scope: see EC,
Response to Panel Questions of 8 December
1996 on Preliminary Ruling Request by the
European Communities, para. 51.

German government civil aeronautics R&D grants under Aeronautics
Research Programs: LuFo 1, LuFo 2 and LuFo 3.
(US, FWS, para 663)
€217 million 1995-2007
EC concedes within temporal scope: see EC,
Response to Panel Questions of 8 December
1996 on Preliminary Ruling Request by the
European Communities, para. 52.

Länder R&D Grants (US, FWS, para. 667)

€44 million All are post 1995

EC says that Airbus did not benefit from any
R&T funding from Bavaria, but concedes that
the claims themselves fall within the temporal
scope: see EC, Response to Panel Questions of 8
December 1996 on Preliminary Ruling Request

French Government R&D Funding (US, FWS, para 678) €262 million Grants between 1995 and 2005

EC says that the French R&D funding from
1995 to 2005 is properly before the Panel: see
EC, Response to Panel Questions of 8 December
1996 on Preliminary Ruling Request by the
European Communities, para. 54

BCI deleted, as indicated [***]
Nature of Measure

Alleged amount of financial
contribution
Details of Existence
UK R&D (US, FWS, para 686)
- CARAD program
-TP program (established 2004)

£28 million disbursed since 1992
£5.5 million committed since 2004
EC says any disbursements made post 1 January
1995 under these programs are within the
temporal scope of Article 5: see EC, Response to
Panel Questions of 8 December 1996 on
Preliminary Ruling Request by the European
Communities, para. 55.

Spanish authorities' R&D Funding programs (US, FWS, para 692 et
seq)
- PTA (1993-2003)
- PROFIT (2000-2003; 2004-2007)
Airbus alleged to have received PTA
I loans between 1993 and 1998 and
PTA II loans between 1999 and
2003.

Airbus alleged to have received
€1.5 million under PROFIT I

EC says that payments under these programs
occurring after 1 January 1995 are within
temporal scope: See EC, Response to Panel
Questions of 8 December 1996 on Preliminary
Ruling Request by the European Communities,
para. 56.

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D. OTHER PRELIMINARY MATTERS
1. Requests for Enhanced Third Party Rights
7.159 On 9 November 2005, Brazil submitted a request fo r enhanced third party rights in this panel
proceeding; similar requests were received from Canada on 23 November 2005 and from Korea on
13 October 2006. After careful consideration of th is issue in light of all comments received from
parties and third parties, on 23 October 2006 we inform ed the parties and third parties of our decision
declining to grant enhanced third party rights to an y third party. We indicated in our communication
of that date that we would issue our reasons in due course. We set out the reasons for our decision
below.
(a) Arguments of the Parties and Third Parties
7.160 Brazil seeks "enhanced" third party rights in this proceeding, including specifically, the rights
to: 1) attend the entirety of all substantive meeti ngs of the Panel with the Parties; 2) present oral
statements and oral observations at the substantive m eetings of the Panel with the Parties; 3) receive
copies of all submissions to the Panel, including an swers to the questions posed by the Panel or the
parties; and 4) review and comment on the interim Pa nel Report, in particular the summary of Brazil's
arguments in the draft descriptive part of the Panel report.2007
7.161 Brazil argues that it has a significant economic intere st in this dispute because it is the fourth
largest aircraft manufacturer in the world. Brazil dr aws attention to the unique nature of the aircraft
industry, which develops a few product types at very high costs. According to Brazil, the impact of
WTO-inconsistent subsidies on aircraft manufacturers is greater than that of subsidies given to other
sectors. Brazil notes that it was a party to three prior dispute settlement proceedings in the WTO
involving subsidies in the aircraft sector, and submit s that it has concerns regarding the interpretation
of certain provisions of the SCM Agreement as app lied to the aircraft sector. Brazil considers that
fundamental fairness requires that it be granted enha nced third party rights in this dispute because
absent such rights it cannot fully present its views to the Panel. In Brazil's view, the systemic
implications of the outcome of the dispute for de veloping countries should also be considered.
Finally, Brazil argues that granting of the enhanced rights it is seeking in this case will not blur the
line between the rights of parties and those of third parties.
7.162 Canada considers that, if the Panel chooses to grant enhanced third pa rty rights to Brazil,
fundamental fairness dictates that the same e nhanced rights should be granted to Canada. 2008 Canada
asserts that, like Brazil, it has a significant economic in terest in the aircraft sector, and notes that it
was a party to the same three previous dispute se ttlement proceedings concerning subsidies in the
aircraft sector as Brazil. To the extent that this Panel's findings may ha ve consequences for the
development and production of civil aircraft, they ar e just as likely to have a significant impact on
Canada's aircraft sector as Brazil's. Moreover Canada asserts that, like Brazil, it has interests and
perspectives on the WTO disciplines governing the civil ai rcraft sector that are distinct from those of
the United States and the European Communities.
7.163 Korea has no objection to Panel's granting Brazil and Canada the requested rights given their
substantial commercial and systemic interests, but contends that should the Panel decide to grant
enhanced third party rights to Brazil and Canada the same rights should be accorded to Korea and
other third parties, as a matter of due process.
2009 Korea is concerned that differentiated application of
third party rights could result in discrimination am ongst third parties, which would adversely affect

2007 Letter from Brazil to the Panel, dated 9 November 2005, para. 12.
2008 Letter from Canada to the Panel, dated 23 November 2005.
2009 Letter from Korea to the Panel, dated 13 October 2006.

BCI deleted, as indicated [***]

the integrity of the WTO dispute settlement syst em. Korea asserts that it has strong economic
interests in the aircraft sector, and that therefore, the outcome of this case could have implications for
Korea. Moreover, Korea asserts that it also has a signi ficant systemic interest in this dispute, as it has
been, and is currently, involved, as a primary party, in several WTO disputes on subsidies.
7.164 Both parties ask the Panel to de ny the requests for enhanced thir d party rights. The European
Communities asserts that enhanced third party rights ar e justified only in very special circumstances,
and maintains that this case does not present su ch circumstances as to warrant their grant.
2010 The
European Communities disagrees with Brazil's a ssertion that Brazil has a significant economic
interest in these proceedings and that past panels have granted enhanced th ird party rights in such
circumstances. In the European Communities' vi ew past panel proceedings show that a third
party may be granted enhanced rights only if the impugned measure had a direct economic impact
upon it. This is not the case with Brazil in the dis pute at hand, since it is neither benefiting from any
EC measure nor operating a similar scheme. A gene ral "economic interest" is simply not enough.
Second, the European Communities as serts that the grant of enhanced third party rights to Brazil
would disturb the rights of other third parties. As a matter of due process, it is appropriate to provide
the same procedural rights to all third parties in th is dispute. Yet, only Canada, which expressly made
its request conditional upon the Panel's decision to grant enhanced third party rights to Brazil 2011, had
requested enhanced third party rights in this case and there is no reason to grant such rights. Third,
the European Communities points out that enhanced third party rights are closely connected to the
issue of access to highly confidential information. 2012 Given that Canada made its request conditional
upon Brazil's request, the European Communities request s the Panel to refuse the grant of enhanced
third party rights to Canada as well.
7.165 The United States asserts that none of the rational es that existed for previous panels to grant
enhanced third party rights exist in this case. 2013 The effect of the disputed measures cannot be an
issue, as the dispute does not cover the aircraft sect or as a whole, but is limited to subsidies provided
for the development and production of large civil airc raft, namely, passenger aircraft with more than
100 seats and analogous air freighters. The aircraft producers in Brazil and Canada produce regional
jets, which are both smaller than large civil aircraft and have a shorter range. There is no claim that
the economic benefits of the measures derive from an in ternational agreement, or that there is relevant
past practice in the aircraft sector. And, Brazil and Canada are entirely ordinary third parties; they are
not complaining parties in a dispute regarding the measures covered by this dispute. Brazil does not
claim to apply measures similar to the disputed measures and, in fact, emphasizes the differences
between its situation and the situations of the European Communities and the United States. Thus,
Brazil has no direct economic interest in the outcome of the dispute, and its trade policy interest is no
different from that of any other Member that has a stake in the analysis of Members' rights and
obligations under the SCM Agreement. As such, th ere is no reason for the Panel to grant the requests
for enhanced third party rights. The United Stat es also notes that the European Communities has
indicated its willingness to allow public viewing of the reading of oral statements, and that both the
European Communities and the United States have a practice of making their WTO submissions
publicly available. Therefore, there is little need to enhance third parties rights to attend panel
meetings or receive submissions. Finally, the Un ited States notes the admonition to guard against an

2010 Letter from the European Communities, dated 29 September 2006.
2011 At the time the European Communities filed its submission in this regard, Korea had not yet made
its request. The European Communities did not seek to file any subsequent additional comments on this matter.
2012 At the time the European Comm unities filed its submission in this regard, we had not yet adopted
procedures for the handling of confidential information in this dispute. The procedures ultimately adopted,
which are attached to our Report at Annex E, contain provisions governing third party rights with respect to
such information.
2013 Letter from the United States, dated 29 September 2006, para. 18.

BCI deleted, as indicated [***]

inappropriate blurring of the distinction drawn in the DSU between parties and third parties, and
asserts that granting Brazil's request would be inconsistent with that principle.
(b) Evaluation by the Panel
7.166 The DSU establishes the rights of third parties in panel proceedings in paragraphs 2 and 3 of
Article 10 of the DSU and paragraph 6 of Appendi x 3 to the DSU. Under these provisions, third
parties have the right to receive the submissions ma de by the parties up to the first meeting of the
panel, to make submissions to the panel, to present their views during a session of the first substantive
meeting of the panel set aside for that purpose, and to be present during the entirety of such a
session.
2014 It is well-established that panels have the discretion to grant additional rights to third
parties, subject to the requirements of due process and the need to guard against an inappropriate
blurring of the distinction drawn in the DSU between the rights of parties and those of third
parties.
2015 However, all third parties in a panel pro ceeding may be presumed to have a "substantial
interest" in the matter before the panel2016, and additional third party rights have so far been granted in
panel proceedings for specific reasons only. 2017 Previous panels have gr anted enhanced third party
rights on the basis of, inter alia, the significant economic effect of the measures at issue on certain
third parties 2018, the importance of trade in the produc t at issue to certain third parties 2019, the
significant trade policy impact that the outcome of the case could have on third parties maintaining
measures similar to the measures at issue 2020, at least one of the parties agreeing that enhanced third

2014 We also note that, in accordance with Article 10.4 of the DSU, nothing precludes a Member
participating as a third party in a panel proceeding from requesting the establishment of another panel to
examine the measures at issue.
2015 Panel Report, EC – Export Subsidies on Sugar (Australia), Panel Report, EC – Export Subsidies on
Sugar (Brazil), Panel Report, EC – Export Subsidies on Sugar (Thailand), para. 2.7; Panel Report, US – Upland
Cotton, para. 9; Panel Report, European Communities – Conditions for the Granting of Tariff Preferences to
Developing Countries ("EC – Tariff Preferences "), WT/DS246/R, adopted 20 April 2004, as modified by
Appellate Body Report WT/DS/246/AB/R, DSR 2004:III, 1009, Annex A, para. 7; Appellate Body Report,
United States – Anti-Dumping Act of 1916 ("US – 1916 Act "), WT/DS136/AB/R, WT/DS162/AB/R, adopted
26 September 2000, DSR 2000:X, 4793, para. 150; Panel Report, United States – Anti-Dumping Act of 1916,
Complaint by the European Communities (" US – 1916 Act (EC) "), WT/DS136/R and Corr.1, adopted
26 September 2000, as upheld by Appellate Body Report WT/DS136/AB/R, WT/DS162/AB/R, DSR 2000:X,
4593, Panel Report, United States – Anti-Dumping Act of 1916, Complaint by Japan ("US – 1916 Act (Japan) ")
WT/DS162/R and Add.1, adopted 26 September 2000, as upheld by Appellate Body Report WT/DS136/AB/R,
WT/DS162/AB/R, DSR 2000:X, 4831,para. 6.32; Appellate Body Report, EC – Hormones , para. 154; Panel
Report, European Communities – Regime for the Importation, Sale and Distribution of Bananas, Complaint by
Ecuador ("EC – Bananas III (Ecuador) "), WT/DS27/R/ECU, adopted 25 September 1997, as modified by
Appellate Body Report WT/DS27/AB/R, DSR 1997:III, 1085, Panel Report, European Communities – Regime for
the Importation, Sale and Distribution of Bananas, Complaint by Guatemala and Honduras ("EC – Bananas III
(Guatemala and Honduras)"), WT/DS27/R/GTM, WT/DS27/R/HND, adopted 25 September 1997, as modified by
Appellate Body Report WT/DS27/AB/R, DSR 1997:II, 695, Panel Report, European Communities – Regime for
the Importation, Sale and Distribution of Bananas, Complaint by Mexico ("EC – Bananas III (Mexico) "),
WT/DS27/R/MEX, adopted 25 September 1997, as m odified by Appellate Body Report WT/DS27/AB/R,
DSR 1997:II, 803, Panel Report, European Communities – Regime for the Importation, Sale and Distribution of
Bananas, Complaint by the United States ("EC – Bananas III (US) "), WT/DS27/R/USA, adopted
25 September 1997, as modified by Appellate Body Report WT/DS27/AB/R, DSR 1997:II, 943, para. 7.9.
2016 Article 10.2 of the DSU indicates that the term "third party" is used throughout the DSU to refer to
a Member that has "a substantial interest" in a matter be fore a panel, and which has notified its interest to the
DSB.
2018 Panel Reports, EC – Bananas III , para. 7.8; Panel Report, EC – Tariff Preferences , Annex A,
para. 7. See, also, Panel Reports, EC – Export Subsidies on Sugar, para. 2.5.
2019 Panel Reports, EC – Export Subsidies on Sugar, para. 2.5.
2020 Panel Report, EC – Tariff Preferences, Annex A, para. 7.

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party rights should be granted
2021, claims that the measures at issue derived from an international
treaty to which certain third parties were parties 2022, third parties having previously been granted
enhanced rights in related panel proceedings 2023, and certain practical considerations arising from a
third party's involvement as a party in a parallel panel proceeding.2024
7.167 In this case, Brazil has not presented us with an y similar reasons in support of its request for
enhanced third party rights. As noted, the re quests of Canada and Korea are conditional upon the
granting of Brazil's request, and do not contain any ad ditional arguments in support of those requests.
While we accept that Brazil, and Canada, have an in terest in the aircraft sector, we consider this
interest to be insufficient to justify granting enhanced third party rights. 2025 Neither manufactures
large civil aircraft, and neither has claimed that it has any trade interests in large civil aircraft, for
instance as a supplier to producers of large civil aircra ft. Brazil has not claimed that regional aircraft
produced in Brazil compete with large civil aircraft, or that it maintains any measures similar to those
at issue in this dispute. To the contrary, Braz il claims that it does not confer subsidies for the
development and production of new aircraft products. 2026 While Brazil has been a party, either as
complainant or defendant, in several WTO disputes involving the aircraft sector, these disputes
involved a product – regional aircraft – and measures that are not at issue in this dispute. Brazil has
not explained how, in the light of the foregoing, th e measures at issue have a significant economic or
trade policy effect on Brazil. While we accept that Brazil has a general systemic interest in the
interpretation of the SCM Agreement, this does not differentiate Brazil from any other WTO Member,
whether appearing as a third party in this dispute or not. Finally, both parties agree that enhanced
third party rights are not warranted in this case.
7.168 We therefore decline Brazil's request for "enha nced" third party rights in these proceedings,
and the requests of Canada and Korea.2027

2021 Panel Reports, EC – Bananas III, para. 7.8.
2022 Panel Reports, EC – Bananas III, para. 7.8.
2023 Panel Reports, EC – Bananas III, para. 7.8.
2024 Panel Report, EC Measures Concerning Meat and Meat Products (Hormones), Complaint by Canada
("EC – Hormones (Canada) "), WT/DS48/R/CAN, adopted 13 February 1998, as modified by Appellate Body
Report WT/DS26/AB/R, WT/DS48/AB/R, DSR 1998:II, 235, para. 8.17.
2025 Brazil notes that it is a manufacturer of aircraft , albeit not the LCA at issue in this dispute, and
submits that it has a significant economic interest in "the aircraft sector" (Letter from Brazil to the Panel, dated
9 November 2005, para. 6), that any findings concerning the relevant provisions of the SCM Agreement "in
relation to the aircraft sector" are necessarily of direct and substantial economic interest to Brazil (IbId., para. 6),
that trade-distorting subsidies in "the aircraft sector" ar e considerably greater than the impact of similar policies
on other industries ( IbId., para. 7), and that the interpretation of the SCM Agreement "as applied to the aircraft
sector" may affect the way Brazil and other Members appl y the relevant disciplines of the SCM Agreement to
the "civil aircraft sector" (IbId., para. 8). Canada makes similar claims. Letter from Canada to the Panel, dated
23 November 2005. Korea makes a general claim of "stron g economic interests in the aircraft sector", although
it does not assert that it has any LCA manufacturing op erations. Letter from Ko rea to the Panel, dated
13 October 2006.
2026 Letter from Brazil to the Panel, dated 9 November 2005, para. 7.
2027 Brazil has requested the Panel to grant it the "enh anced" third party right "to review and comment
on the interim Panel Report, in particul ar the summary of Brazil' s arguments in the draft descriptive part of the
Panel report". In EC – Bananas III , the panel referred to the "normal practice" of permitting third parties to
review the draft of the summary of their arguments in the descriptive pa rt of the report (Panel Reports, EC –
Bananas III, para. 7.9). Insofar as Brazil is merely requesting the Panel to permit Brazil to review and comment
on the summary of its arguments contained in any descriptive sections of the Panel's draft report, the Panel sees
no reason to depart from the normal practice in WTO panel proceedings. We note that, while both the
United States and the European Communities oppose Brazil's request for "enhanced" third party rights, the
United States considers that "the ability to comment on th e description of its arguments in the draft descriptive

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2. Decision on Proper Respondent
7.169 The Panel takes note of the letter from the European Communities dated 23 May 2008, in
which the European Communities requ ests that the Panel "decide, prior to the issuance of an interim
report, who is the proper respondent in this dispute". 2028 The Panel notes that this request brings
before it once more a matter that first arose in 2005 during the Annex V process for gathering
information, and was raised before the Panel as we ll at that time. The European Communities states
that it "has consistently pointed out that the onl y proper respondent in this case is the European
Communities, which represents itself in these proceedi ngs (and it is not therefore correct to speak of
the European Communities 'repr esenting' its member States)." 2029 The European Communities is
"concerned that the identity of the respondent, and ev entually the identity of the entity to which any
recommendations might or might not be addressed, could give rise to significant legal ambiguity,
potentially adverse to the interests of the European Communities."2030
7.170 We recall that on 12 October 2004, the United Stat es filed a request for consultations "with
the Governments of Germany, France, the Unite d Kingdom, and Spain (the "member States"), and
with the European Communities ("EC"), ... with rega rd to measures affecting trade in large civil
aircraft."2031 The subsequent request for establishment of this Panel noted that "The United States
held consultations with the European Commun ities and the member States on 4 November 2004.
These consultations provided some helpful clarifi cations, but unfortunately did not resolve the
dispute."2032 The claims set forth in that request concern, inter alia, alleged subsidies provided by the
governments of Germany, France, Spain and the United Kingdom, and by the EC.
7.171 When questions concerning the role of the memb er States in this dispute first arose in the
Annex V process, the United States noted that its panel request
"was directed to all four individual member States in their own right as Members of
the WTO, and the EC has insisted on repr esenting their interests in the dispute to
date. ... If the EC is unable to represen t the member States in this Annex V
proceeding, the United States requests the F acilitator to direct questions concerning
member State measures (as well as any further correspondence and submissions
concerning these measures) directly to the member States, which, it should be
recalled, are WTO Members in their own right."
2033
The European Communities responded that it "has neve r said that it "represents" its member States
but takes full responsibility in these proceedings for the actions of its member States and will to the
best of its ability provide documents that are prope rly requested wherever they may be located..." and
went on to request that the term "and certain member states" be dropped from the name of the case.2034

7.172 On 23 November 2005, the European Communities submitted a request to the Panel, asking
that this dispute be designated "European Comm unities – Measures Affecting Trade in Large Civil

part of the report" is "a right routinely provided to third parties, not an "enhanced right"." (Letter from the
United States to the Panel, dated 29 September 2006, footnote 20).
2028 Letter from the European Communities, 23 May 2008.
2029 Id.
2030 Id.
2031 US, Consultations Request.
2032 US, Panel Request.
2033 Letter from the United States, 3 October 2005.
2034 Letter from the European Communities, 6 October 2005

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Aircraft (DS316)" to reflect that the Eu ropean Communities "was the only respondent".
2035 I n
response, the United States reiterated that it had:
"requested consultations, and the establishm ent of a Panel, with respect to the
governments of Germany, France, Spain, and the United Kingdom, in addition to the
EC. Therefore, all five WTO Members are properly respondents in this dispute.
While the EC is representing the interests of the member States in the dispute, that
representation does not change their legal status as respondents".2036
The United States further noted that although it had "addressed its submissions in a way that has
respected the EC's wish that it serve as the repres entative of the member St ates, {it} repeatedly made
clear during the Annex V process that the US questions were directed to the member States as well as
the EC." In response, the European Communities stated that it:

"is entirely false to claim that the Eur opean Communities "represents" its member
States in this dispute or that these member States have the status of respondents. The
violations that are alleged by the United States all relate to matters for which the
European Communities bears responsib ility in the WTO and the European
Communities is therefore the only proper respondent."2037
The European Communities went on to state that it would "fully understand if the Panel did not wish
to take a position on this matter immediately, esp ecially since this may not be necessary for the
purposes of resolving the dispute."2038 The Panel did not take any action with respect to the European
Communities' request.

7.173 Since this exchange of views in 2005, as well as prior to it, the European Communities has
made all submissions and communications in this di spute to the Panel. Representatives of the EC
member States in question (France, Germany, Spai n, and the United Kingdom) appeared before the
Panel at the two meetings it held with the parties, and the meeting it held with third parties, but did
not speak or make any submissions.
2039 In addition to representatives of the European Communities
and outside advisors, representatives of these four member States have been designated as "Approved
Persons" with access to Business Confidential Information and Highly Sensitive Business Information
submitted in this dispute, in accordance with the pr ocedures adopted by the Panel in this regard.
Individuals designated as "Approved Persons" have c ontacted the Secretariat to arrange access to the
confidential information submitted in this dispute in accordance with the applicable procedures, but
have made no substantive submissions or representations at any time to the Panel. Thus, it is clear to
us that, whatever the interests of the four member St ates in this dispute, they have taken no actions to
make those interests known to the Panel directly.
2040
7.174 On 23 May 2008, as noted above, the European Communities requested that the Panel resolve
the "outstanding issue" of "who is the proper respondent in this dispute." 2041 Fundamentally, in our

2035 Letter from the European Communities, 23 November 2005.
2036 Letter from the United States, 9 December 2005.
2037 Letter from the European Communities, 13 December 2005
2038 Id.
2039 For example, the "EC Delegation list" provided to the Panel before the first meeting identifies
representatives of France, Germany, Spain and the United Kingdom, as well as representatives of other member
States of the European Communities who also appeared at that meeting.
2040 Of course, what their role may be in the contex t of preparations for thes e proceedings is unknown
to us. However, we do not consider this of any relevance to the question before us, but rather a purely internal
matter between the European Communities and the governments of its member States France, Germany, Spain,
and the United Kingdom.
2041 Letter from the European Communities, 23 May 2008.

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view, there is no issue to be resolved. Th e United States requested consultations and the
establishment of this Panel asserting claims concerning, inter alia, alleged subsidies provided by the
European Communities and by the governments of each of four EC member States, France, Germany,
Spain, and the United Kingdom, which subsidies allege dly cause adverse effects to the interests of the
United States. Each of these five is, in its own ri ght, a Member of the WTO, with all the rights and
obligations pertaining to such membership, including the obligation to respond to claims made against
it by another WTO Member. 2042 The Dispute Settlement Body established this Panel on the basis of
the United States' request, establishing our terms of reference, which thus encompass claims against
the five Members of the WTO identified by the United States in its request. The fact that four of
those Members are member States of the European Communities, wh ich is itself a Member of the
WTO, does not affect their individual status as Members of the WTO against whom another Member,
the United States, has brought claims of violatio n of various provisions of the WTO Agreements.
Whether these four WTO Members choose to appear and actively defend their interests before the
Panel separate from the actions of the European Communities is a matter entirely within their
discretion, subject to the obligations of their stat us as member States of the European Communities.
However, those obligations do not affect their status in this dispute.
7.175 We note that the European Communities informed the Panel, on 8 July 2008, that "the four
member States referred to by th e United States share the European Communities' view that they are
not the proper parties to this dispute – and have acted in reliance on this fact".
2043 The views of the
four member States, and of the European Communities, in this regard, do not change our conclusions.
Nor does the fact, asserted by th e European Communities, that Fr ance, Germany, Spain the United
Kingdom "acted in reliance" on their own, and/or th e European Communities' view as to their status.
As Members of the WTO, identified as having violated various provisions of the WTO Agreements in
the requests for consultations and for establishment of this Panel, they ar e respondents in this dispute.
The European Communities has indicated to this Pane l that "the violations that are alleged by the
United States all relate to matters for which th e European Communities bears responsibility in the
WTO..."
2044 However, it does not follow from this, as the European Communities asserts, that it is the
only "proper respondent." 2045 Whatever responsibility the Eu ropean Communities bears for the
actions of its member States does not diminish th eir rights and obligations as WTO Members, but is
rather an internal matter concerning the relations between the European Communities and its member
States.
7.176 That the member States against whom the United States has made claims have chosen not to
participate in this dispute directly by making oral and written submissions does not affect their rights
or status as respondent parties to this dispute. Si milarly, the fact that the European Communities has
made all submissions in this dispute does not affect the rights and status of the four member States as

2042 We recognize that Article IX:1 of the Marra kesh Agreement establishes limitations on the
cumulative number of votes of the European Communities and its member States, in the event a matter is
decided by a vote of WTO Members. This provision does not, in our view, have any relevance to our
conclusions here.
2043 Comments by the European Communities on Comments by the United States on the Panel and
Appellate Body Reports in US – Upland Cotton (Article 21.5 – Brazil ), 8 July 2008, para. 94. Brazil). We note
the suggestion of the United States that we disregard this portion of the European Communities' submission as
"not within the scope of the comments that the Panel invited." Letter from the United States, 9 July 2008.
While this is strictly speaking true, we nonetheless ta ke note of these comments, as well as the subsequent
letters regarding this matter submitted by both parties. We are not inclined to disregard any relevant
submissions on a matter which requires some action or decision from us. To do so would, in our view, be
inconsistent with our obligations in resolving this dispute.
2044 Letter from the European Communities, 13 December 2005.
2045 Id.

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respondent parties to this dispute.
2046 The manner of any WTO Member's participation in dispute
settlement is up to it to decide. We need not and do not decide whether the European Communities
"represents" the member States in this dispute in some formal sense. Nor does the title given to the
dispute have any legal significance with respect to the rights and obligations of Members against
whom claims are made, or with respect to their individual or direct participation in the dispute.2047
7.177 Finally, we note the statement by the European Communities that,
"{s}hould the Panel, in spite of the position of the four member Sates and the
arguments of the European Communities, nevertheless decide to address
recommendations to those four member States, it follows logically that they would be
entitled to defend their interests individually, inter alia , by commenting on the

2046 Thus, for instance, the four member States may, if they wish, comment on the interim report of the
Panel when it is issued. To date, the Panel has not communicated directly with the member States, acting on the
understanding that the European Communities was transm itting the Panel's communications to them insofar as
necessary and relevant, was coordinating their participation in this dispute, and was communicating their
concerns to the Panel. Should this not be the case, the member States are free to re quest that the Panel provide
copies of the interim report directly to their representatives, mindful of the limitations imposed by the special
procedures for confidential information in this case. As noted above, how a WTO Member chooses to
participate in WTO dispute settlement is, from the perspective of the WTO Agreements, a matter entirely within
its own discretion, although of course, it may be subject to non-WTO obligations such as those that may exist
between the European Communities and its member States.
2047 In this context, we note that there is no consis tent practice in the titles of disputes concerning
measures taken by the European Communities and/or one or more of its member States. It is not unusual for a
dispute to name only the European Communities, despite the fact that the claims concern a measure of a single
member State, while other disputes name only the member State concerned, yet organs of the European
Communities participate actively in the dispute. See, e.g., DS7 - European Communities — Trade Description
of Scallops (concerning a French measure, mutually agreed solution communicated by Canada and the European
Commission); Denmark – Measures Affecting the Enfor cement of Intellectual Property Rights (concerning
Denmark's alleged failure to make provisional measures available in the context of civil proceedings involving
intellectual property rights, mutually agreed solution communicated by the United States, Denmark and the
European Commission); DS86 - Sweden – Measures Affecting the Enfor cement of Intellectual Property Rights
(concerning Sweden's alleged failure to make provisional measures available in the context of civil proceedings
involving intellectual property rights, mutually-agr eed solution communicated by the United States, the
European Commission and Sweden); DS124 - European Communities — Enforcement of Intellectual Property
Rights for Motion Pictures and Television Programs (concerning lack of enforcem ent of intellectual property
rights by Greece, mutually agreed solution communicat ed by the United States and the European Commission);
DS125 - Greece – Enforcement of Intellectual Property Right s for Motion Pictures and Television Programs
(mutually agreed solution communicated by the United States, Greece and the European Commission); DS135 -
European Communities — Measures Affecting Asbestos and Asbestos-Containing Products; (concerning
measures imposed by France, submissions made by the European Communities) Belgium – Administration of
Measures Establishing Customs Duties for Rice (mutually agreed solution notified by United States and the
European Commission); DS291 - European Communities — Measures Affecting the Approval and Marketing of
Biotech Products, Panel Report, (concerning measures taken by the European Communities and by its member
States affecting imports of agricultural and food impor ts, submissions made by the European Communities);
DS301 - European Communities — Measures Affecting Trade in Commercial Vessels (concerning certain
measures taken by the European Communities and by its member States, submissions made by the European
Communities).
We are unaware of any dispute involving claims against the European Communities and one or more of
its member States in which the member State has made submissions and representations separate from or in
addition to those made by the European Communities. We are also unaware of an y case in which a question
such as the one before us was raised.

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interim report. In addition, France and Spain would request to receive the interim
report in French and Spanish, respectively".2048
Whatever may be the extent of the right of a WTO Member to participate in dispute settlement in its
preferred WTO working language, in our view, this is not a right that can be exercised in this dispute
at this late stage of the proceedings. As not ed above, the European Communities has made all
submissions and representations throughout this proceeding, both during the Annex V process, and
before this Panel. All such subm issions and representati ons have been in English – there have been
no requests for translation, and there were no requests for interpretation at any of the Panel's meetings
with the parties and third parties. The Panel h as communicated with the parties and third parties
exclusively in English. To provide the interi m report in all three WTO working languages would
significantly delay these proceedings, which, due to the number and complexity of the claims, and the
volume of materials submitted, have already gone on for much longer than is the norm in WTO
dispute settlement. We consider this situ ation to be analogous to that addressed in United States –
Continued Dumping and Subsidy Offset Act of 2000,2049 where the Appellate Body found that the right
to issuance of separate panel reports, which is expl icitly provided for in Article 9.2 of the DSU, was
not unqualified, and concluded that the Panel in that case did not act inconsistently with Article 9.2 in
denying a request for separate reports that was not made in a timely manner. 2050 Similarly, we
consider that the request made by the European Co mmunities in this case is not timely. In addition,
we note that the request made by the European Communities in this case does not concern a right
explicitly provided for in the DSU or any other provision of the WTO Agreements, and is in any event
conditional on whether we address recommendations to th e member States involved in this dispute, a
decision that will be known only when we have co mpleted our decision-making process. Moreover,
the Members whose right to defend their interests would assertedly be served by receiving our interim
report in translation have not previously participated directly in this dispute, and even now have not
made any requests directly to the Panel. In light of the foregoing, we therefore deny the European
Communities' conditional request for translated versions of the interim report.

E. W
HETHER THE CHALLENGED MEASURES ARE SPE CIFIC SUBSIDIES WITHIN THE MEANING OF
ARTICLES 1 AND 2 OF THE SCM AGREEMENT
1. Identity of the Alleged Subsidy Recipient and pass-through, extinction and extraction of
Subsidies
(a) Introduction
7.178 The European Communities submits that the Unite d States' claim of adverse effects in this
dispute cannot be sustained because the United States has failed to demonstrate that Airbus SAS, the
legal entity responsible for the development and ma nufacture of Airbus LCA since 2001, benefited or
continues to benefit from a large number of the a lleged subsidies that are the focus of the United
States' complaint. 2051 The European Communities raises three lines of argument in support of this
submission.
7.179 First, the European Communities argues that the United States h as failed to establish that the
alleged benefits conferred by various financia l contributions received by entities other than

2048 Comments by the European Communities on Comments by the United States on the Panel and
Appellate Body Reports in US – Upland Cotton (Article 21.5 – Brazil), 8 July 2008, para. 95.
2049 Appellate Body Report, United States – Continued Dumping and Subsidy Offset Act of 2000 ("US –
Offset Act (Byrd Amendment)"), WT/DS217/AB/R, WT/DS234/AB/R, adopted 27 January 2003, DSR 2003:I, 375.
2050 Id., para. 314.
2051 EC, FWS, paras. 42, 161-162, 194; EC, FNCO S, paras. 28-32; European Communities, non-
confidential oral statement at the second meeting with the Panel (hereinafter "EC SNCOS"), paras. 50-76.

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Airbus SAS and its subsidiaries prior to 2001 "passed through" to Airbus SAS. According to the
European Communities, it is for the United States to affirmatively demonstrate, as part of its prima
facie case, how the benefit conferred by such financia l contributions "passed through" to Airbus SAS.
The European Communities contends that, absent this demonstration, none of the financial
contributions at issue can be considered to have conferred a benefit on Airbus SAS and they should
therefore be excluded from the Panel's adverse effects analysis.
7.180 Second, the European Communities submits that certain transactions involving the shares of
the Airbus partner, Aérospatiale, the parent compan y of Airbus SAS, European Aeronautic Defence
and Space Company EADS N.V. (EADS), and Airbus SAS, have "extinguished" any benefits that
could be said to have accrued to Airbus SAS in r espect of subsidies received by entities other than
Airbus SAS and its subsidiaries.
2052
7.181 Third, the European Communities asserts that tw o particular transactions in which "cash" was
paid to shareholders of certain Airbus partners in connection with the consolidation of Airbus
Industrie under EADS in 2000 "extracted" a correspondi ng portion of the benefit conferred by alleged
financial contributions provided to those specific Airbus partners, thereby also "extinguishing" a
portion of any subsidies that Airbus SAS could currently enjoy. The European Communities argues
that it is also possible to regard the cash "ext ractions" as withdrawals of subsidies pursuant to
Articles 4.7 and 7.8 of the SCM Agreement.
7.182 Before turning to evaluate these three lines of ar gument, we believe it is useful to describe the
forms of industrial organization used by the various Airbus partners since the constitution of Airbus
Industrie in 1970 to develop and manufacture Airbus LCA.
7.183 Prior to 2001, no single legal entity produced th e family of Airbus LCA as a "product", or for
that matter, any of the individual Airbus LCA that are the subject of this dispute. The family of
Airbus LCA was produced by a consortium of French, German, Spanish and (from 1979) United
Kingdom aerospace companies (the Airbus partners), operating in a form of partnership arrangement
through the French entity, Airbus GIE.
2053 The Airbus Industrie consortium was originally established
in 1970 between the French aerospace manufacturer, Aérospatiale Société Nationale Industrielle
(Aérospatiale)2054 and the German aerospace manufacturer, Deutsche Airbus GmbH (Deutsche
Airbus).2055 The Spanish aerospace manufacturer, Construcciones Aeronáuticas S.A. (CASA) became

2052 EC, SNCOS, para. 56.
2053 Airbus Industrie GIE was regist ered under French law as a " Groupement d'intérêt économique "
(GIE) which is a French legal framework that allows its members to carry out collectively certain economic
activities while maintaining their separate legal identities, and which does not have as its goal the retaining of
profits. A GIE has a separate legal personality from its members, although in other respects, it resembles a
partnership. For example, the sharing of Airbus Industrie's profits and losses among the Airbus partners is
based on their membership rights ; see GATT Panel Report, German Exchange Rate Scheme for Deutsche
Airbus ("EEC – Airbus"), 4 March 1992, unadopted, SCM/142, para. 2.6.
2054 Aérospatiale was founded in 197 0 through the merger of three French aeros pace companies, Sud
Aviation, Nord Aviation and Société d'Etudes et de Réalisation d'Engins Balistiques. It was owned directly and
indirectly by the French government until its merger with Matra Hautes Technologies in 1998 to form
Aérospatiale-Matra S.A. (Aérospatiale-Matra). The Fr ench government sold a portion of its shares in
Aérospatiale-Matra in a public offering in 1999. In 20 00, Aérospatiale-Matra joined with Dasa and CASA to
form EADS. In connection with the formation of Airbus SAS in 2001, the LCA business of Aérospatiale-Matra
was transferred to an Airbus SAS subsidiary, Airbus France SAS. Therefore, from 1998 until its liquidation in
2001, the French Airbus partner was Aérospatiale-Matra; EC, FWS, paras. 52-53.
2055 Deutsche Airbus was founded in 1967 to assume work for the development of a European
widebody aircraft that had originally begun in 1965 as a joint venture among five German companies: Blohm-
Hamburger Flugzebau GmbH, Messerschmitt AG, Vereinigte Flugtechnische Werke (VFW), Siebel and
Dornier. By 1969, the first three of these companie s had merged to form Messerschmitt-Bölkow-Blohm GmbH
(MBB); Exhibit EC-26. MBB originally held 60 percent of the interests in Deutsche Airbus, with Dornier and

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a member of the consortium in 1971. 2056 British Aerospace Corporation, a United Kingdom aerospace
manufacturer, subsequently joined the consortium in 1979. 2057 Through this partnership arrangement,
the Airbus partners in France, Germany, Spain and the United Kingdom produced specific parts of
Airbus LCA, which were then assembled in France by Aérospatiale. 2058 The entity Airbus GIE did
not carry out any production activities; rather, it coordinated the production efforts of the Airbus
partners, allocated revenues and profits to each of the partners and assumed responsibility for areas
such as marketing, sales, aircraft delivery and cu stomer service. In 2000, the Airbus partners
consolidated their LCA-related activities under EA DS. This consolidation involved each of the
French, German and Spanish Airbus partners pl acing their Airbus-related design, engineering,
manufacturing and production assets and activities (including their corresponding membership
interests in Airbus Industrie GIE) into legal entitie s that would become wholly owned subsidiaries of
the newly formed EADS, in return for shares in EADS representing the agreed values of the Airbus
partners' corresponding contributions. 2059 In 2001, EADS and BAE Systems placed their Airbus-
related assets and operations and their membership rights in Airbus GIE under the common control of
a newly-created holding company, Airbus SAS. 2060 Finally, in 2006, EADS purchased BAE Systems'

VFW each holding 20 percent. MBB took over VFW in 1981. Prior to Daimler-Benz AG acquiring control of
MBB in 1989, the German federal states of Bavaria, Hamburg and Bremen held 52.3 percent of the capital stock
of MBB; Monopolkommission, Zusammenschlussvorhaben der Daimle r Benz AG mit der Messerschmitt-
Bolkow-Blohm GmbH, Sondergutachten 18, 1989 (hereinafter " Monopolkommssion Report"), Exhibit US-30,
para. 138. In late 1989, as part of the German government's plans to restructure Deutsche Airbus, Daimler-Benz
A.G. acquired control of MBB by merg ing its subsidiary Deutsche Aerosp ace AG (Dasa) with MBB. Deutsche
Airbus has been a wholly owned subsidiary of Dasa since 1992. In 2000, Dasa merged with Aérospatiale-Matra
and CASA to form EADS. In 2001, EADS transferred Dasa's LCA operations to an Airbus SAS subsidiary,
Airbus Deutschland GmbH; EC, FWS, paras. 54-56.
2056 CASA was founded in 1923 and was Spain's la rgest aerospace and defence manufacturer. CASA
was 99 percent owned by Sociedad Estatal de Participaciones Industriales (SEPI), a Spanish government
holding company entrusted with the management and privatisation of certain Spanish government controlled
companies. In 2000, CASA was merged into the E ADS structure. In 2001, CASA's LCA activities were
transferred to an Airbus SAS subsidiary, Airbus España SL; EC, FWS, paras. 57-58.
2057 British Aerospace Corporation was fo rmed in 1977 as a Crown corp oration without shares, wholly
owned by the United Kingdom government. Its formation was the result of the merger of the United Kingdom
aerospace companies Hawker Siddeley Aviation Ltd, Ha wker Siddeley Dynamics Ltd, Scottish Aviation Ltd
and the British Aircraft Corporation (Holdings) Ltd. In 1981, the assets and business of the British Aerospace
Corporation were transferred to the newly incorporated British Aero space PLC, a United Kingdom public
limited company. The United Kingdo m government sold 51.57 percent of its shares in British Aerospace PLC
in a public offering in 1981 and, subject to retaining a share to ensure that the company remained under
United Kingdom control, sold the re mainder of its shares in British Ae rospace PLC in 1985 . In 1999, British
Aerospace PLC merged with Marconi Electronic Systems to become BAE Systems PLC (BAE Systems). In
2001, BAE Systems placed its LCA business into Airbus UK Limited in exchange for a 20 percent share in
Airbus SAS. EC, FWS, paras. 59-61.
2058 By 1999, Aérospatiale was the partner responsible for flight control systems, cockpits, power plant
integration, ground and flight testing, complex structural sections, equipped subassemblies and technical
publications. Dasa produced the major fuselage sections containing hydraulic equipment, secondary flight
control systems, wing assemblies and commercial furnishing, as well as equipping the wings furnished by BAE
Systems. Dasa also carried out final assembly of A321 and A319 aircraft, as well as some cabin outfitting and
customization of the cabins of the A300/A310 and the A320 family. BAE Systems was the partner in charge of
the wings for the entire Airbus product line, and equipped wings for the A320 family by installing hydraulic,
electrical and environmental control system hardware. CASA's role in the Airbus consortium was to produce
the carbon fibre horizontal tails used in all Airbus aircraft, including integrated fuel tanks. CASA also designed
fuselage panels and interior panels for the A320 family and produced nose and landing gear doors for the
A300/A310 family and passenger doors for the A330/A340 family ; see Aérospatiale-Matra Offering
Memorandum, 25 May 1999, Exhibit EC-53, pp. 90-91.
2059 These subsidiaries are Airbus France S.A.S., Airbus Deutschland GmbH and Airbus España SL.
2060 Airbus SAS, a société par actions simplifiée (a joint stock or limited liability company)
incorporated under French law, was created in 2001 in order to hold all of the LCA-related design, engineering,

BCI deleted, as indicated [***]

20 percent interest in Airbus SAS, and Airbus SAS became a wholly-owned subsidiary of EADS. A
history of the Airbus Industrie consortium and the legal steps through which the LCA operations
conducted by the Airbus partners through Airbus I ndustrie were consolidated under EADS, and then
reorganized under Airbus SAS (as a wholly-own ed subsidiary of EADS) is set forth in
Section VII.E.1 Attachment, following para. 7.289.
7.184 In the evaluation that follows, we use the term "Airbus Industrie" to refer to the Airbus
consortium as it operate d between 1970 and 2001; i.e., each of the four Airbus partners: Aérospatiale
(subsequently Aérospatiale Matra), Deutsche Airbus,
2061 CASA, and British Aerospace (subsequently
BAE Systems), and Airbus GIE collectively. Where we refer to the Airbus GIE as an entity distinct
from the Airbus partners, we use the term "Airbus GIE".
(b) "Pass-through"
(i) Arguments of the Parties
European Communities
7.185 According to the European Co mmunities, the United States has failed to establish that many
of the alleged subsidies "in fact benefit the only EC producer of LCA, Airbus SAS". 2062 T h e
European Communities contends that "the United States posits claims against "Airbus", which it
defines as Airbus SAS, a company whic h has existed only since July 2001". 2063 According to the
European Communities, as Airbus SAS has existed only since 2001, subsidies allegedly granted prior
to that date cannot possibly have been grante d to Airbus SAS. The European Communities
acknowledges the possibility that subsidies provi ded to predecessor producers of LCA in the
European Communities (and their related companies) , and to companies related to Airbus SAS, might
provide a relevant benefit to Airbus SAS; howev er, the European Communities contends that this
must be affirmatively demonstrated.2064 The European Communities argues that the United States has
failed to make a prima facie case because it has not shown that alleged subsidies provided to the
Airbus LCA operations of the Airbus partners, or to Airbus GIE prior to 2001 "passed through" to
Airbus SAS when the Airbus partners restructured their relationships to one another and established
Airbus SAS in 2001. The European Communities alleges that the United States has therefore failed to
make a prima facie case in respect of the following claims:
(a) "Launch Aid"/"member State Financing" granted to the following entities: Airbus
France S.A.S. (in respect of the A380); Airbus Deutschland GmbH (in respect of the
A380); EADS Airbus S.L. (in respect of the A380); BAE Systems (in respect of the
A380); Aérospatiale (in respect of the A340-500/600); CASA (in respect of the
A340-500/600); and Aérospatiale (in respect of the A330-200);
2065

manufacturing and production activities of the former Airbus Industrie consortium located in France, Germany,
Spain and the United Kingdom (organized into French, German, Spanish and British operating subsidiaries) and
all of their membership interests of the Airbus partners in Airbus GIE.
2061 Deutsche Airbus AG was a subsidiary of MBB until MBB's merger with Daimler Benz's subsidiary
Deutsche Aerospace AG (Dasa) in 1992, after which it wa s an indirect subsidiary of Daimler-Benz. Although
Dasa was originally founded as Deutsche Aersopace AG in 1989, its name was changed to Daimler-Benz
Aerospace AG in 1995, and then to DaimlerChrysler Aero space AG in 1998 (following the merger of Daimler-
Benz AG with Chrysler Corporation). We refer to this entity as "Dasa" throughout this report.
2062 EC, FNCOS, para. 28.
2063 EC, FWS, para. 194.
2064 EC, FNCOS, para. 31.
2065 EC, FNCOS, para. 67

BCI deleted, as indicated [***]

(b) Loans for the development of new models of Airbus LCA provided by the European
Investment Bank (EIB) to various Airbus partners between 1988 and 1993;2066
(c) Research and technological development (R &TD) support provided to "Airbus" and
"Airbus research consortia" under the Europ ean Communities' Second, Third, Fourth,
Fifth and Sixth Framework Programmes, wh ere the participant entities were entities
other than Airbus SAS and its subsidiaries;2067
(d) R&TD support provided by the German fe deral government and by the governments
of Bavaria, Hamburg and Bremen to entities other than Airbus Germany, as the
relevant subsidiary of Airbus SAS;
2068
(e) R&TD funding provided by the French government between 1986 to 2005 to entities
other than Airbus France as the only relevant subsidiary of Airbus SAS;2069
(f) Capital increases made by the French State in Aérospatiale between 1987 and 1994
and the French State's transfer of its inter est in Dassault Aviation to Aérospatiale in
1998;2070 and
(g) The 1998 settlement of outstanding payment ob ligations of Deutsche Airbus to the
Federal German government, the 1989 KfW i nvestment in Deutsche Airbus, and the
1992 transfer of KfW's interest in Deutsche Airbus to MBB.2071
7.186 The European Communities argues that the Unite d States has the burden of establishing, as
part of its prima facie case, that alleged subsidies granted to the recipients pursuant to the above-
referenced transactions "currently benefit Airbus SAS or have an y causal connection to the adverse
effects alleged by the United States." 2072 According to the European Communities, this requirement
follows from the obligation contained in Article 5 of the SCM Agreement, not to cause adverse effects
to the interests of other Members. The European Communities contends that the "adverse effects"
which are the focus of Articles 5 and 6 are defined as particular types of competitive harm that are the
effect of the subsidy and which are transmitted through a recipient company's products.
2073 According
to the European Communities, this explains why the Appellate Body has stated that a prerequisite to
finding causation is that the challenged subsidy do es, in fact, benefit the product identified by the
complaining Member as subsidized. 2074 In the context of the present dispute, the European
Communities argues that the United States is thus re quired to establish (i) that the alleged subsidies

2066 EC, FWS, paras. 1056-1059. The EIB loans in question are those provided to: Aérospatiale in
1993 for the Super Transporteur programme; Aérospatiale in 1988 and 1992 for production of the A330/340;
British Aerospace in 1988 and 1989 for the A320; British Aerospace in 1990 and 1991 for the A330/340; CASA
in 1989 and 1990 for the A320 and A330/340; and Airbus GIE in 1990 for the A321.
2067 The European Communities requests the Panel to disregard grants made to entities other than
Airbus SAS, Airbus Germany, Airbus France, Airbus Spain and Airbus UK under each of the Second, Third,
Fourth, Fifth and Sixth Framework Programmes; EC, FWS, paras. 1233-1242.
2068 EC, FWS, paras. 1253 - 1272.
2069 EC, FWS, para. 1276.
2070 EC, FWS, para. 1109.
2071 EC, FWS, paras. 1172-1173, 1203 and 1212.
2073 EC, Answer to Panel Question 121, para. 375.
2074 EC, Answer to Panel Question 121, para. 375, referring to Appellate Body Report, US – Upland
Cotton, para. 472.

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are provided, or "passed through" to Airbus SAS, as the entity presently developing, producing and
selling LCA, and (ii) that the challenged measures benefit the particular subsidized products.
2075
United States
7.187 The United States argues that the concept of "pass-through" does not apply to the particular
circumstances at issue in this dispute. According to the United States, "pass-through" is a concept that
applies, for example, in the countervailing duty co ntext, where the focus is on establishing the precise
ad valorem rate of subsidization benefiting the recipi ent so that an offsetting or "countervailing"
duty may be imposed on imports of the recipient's products. 2076 The United States also considers the
concept of pass-through to apply in the context of a claim under Part III of the SCM Agreement in
circumstances where a subsidy is provided directly to an entity that does not produce (and is not
related to an entity that produces) the product alleged to be involved in causing adverse effects. In
such a case, it would be necessary to show that the subsidy "passed through" to the producer of the
product at issue, in order to demonstrate that the product at issue is a "subsidized product".2077
7.188 According to the United States, the only b asis on which the European Communities argues
that "pass-through" is required to be demonstrated in the present dispute is that the legal form through
which Airbus LCA were produced was restructur ed from a consortium to a company limited by
shares.2078 The United States contends that there is not hing in the text of Article 5 that requires a
complaining Member to show that subsidies provided to producers of the product at issue continue to
benefit (or "pass through" to) a new corporate entity established by the restructuring and
rationalization by the recipient producers of their existing legal relationship.
2079
7.189 The United States argues that, for purposes of dete rmining the existence of a subsidy within
the meaning of Article 1 of the SCM Agreement, "not hing changed" with the creation of Airbus SAS.
The subsidies that had been provided to the Airbus partners as members of the Airbus Industrie
consortium benefit the development and production of various Airbus LCA models which continue to
be produced and sold by Airbus SAS. 2080 According to the United States, the reorganization in 2000
of the Airbus LCA activities of the four Air bus partners and Airbus GIE under EADS, and the
subsequent integration of those activities under Airbus SAS in 2001, does not necessitate a "pass-
through" analysis.
(ii) Evaluation by the Panel
7.190 In its request for the establishment of a Pane l, the United States challenges certain measures
provided "to the Airbus companies", which it defines to include:
"Airbus SAS, its predecessor Airbus GIE and current and predecessor affiliated
companies, including each person or entity that directly, or indirectly through one or
more intermediaries or relati onships, controls or controlled, or is or was controlled
by, or is or was under common control with Airbus SAS or Airbus GIE, such as
parent companies, sibling companies and subsidiaries, including Airbus Deutschland
GmbH, Airbus España SL, Airbus France S.A.S., Airbus UK Limited, European
Defence and Space Company ("EADS"), and BAE Systems."
2081

2076 US, Answer to Panel Question 16, para. 110.
2077 US, Answer to Panel Question 16, para. 111.
2078 US, Answer to Panel Question 16, para. 112.
2079 US, Answer to Panel Question 16, para. 114.
2080 US, Answer to Panel Question 16, para. 118.
2081 WT/DS316/2, 3 June 2005.

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7.191 In its submissions, the United States indicates that it uses the term "Airbus" to refer
"interchangeably to the various Airbus companies." 2082 Thus, we disagree with the European
Communities that the "United States posits cl aims against "Airbus", which it defines as
Airbus SAS".2083 It is clear from the United States' panel re quest that the United States' claims in this
dispute relate to measures provided "to the Airbus companies", by which it means not only
Airbus SAS, but also "its predecessor Airbus GI E and current and predecessor affiliated companies"
of both Airbus SAS and Airbus GIE.
7.192 The United States presents its claims on the basis that the "subsidi zed product" at issue in this
dispute is the family of Airbus LCA. 2084 We consider that the "producer" of this subsidized product
prior to 2001 was the consortium Airbus Industrie; i.e., each of the Airbus partners and their
respective affiliates, and Airbus GIE. We base this conclusion on the fact that, between 1970 and
2001, Airbus LCA were produced by a consortium of European aerospace manufacturers (the Airbus
partners) whose LCA activities were integrated through Airbus GIE.
2085 In other words, each of the
Airbus partners was, through its participation in the Airbus Industrie consortium, a manufacturer of
Airbus LCA. Based on the foregoing, we cons ider that, for purposes of our analysis of the
United States' claims in this dispute, a financia l contribution provided to any Airbus partner or
affiliated entity, or to Airbus GIE, in relation to the development and/or production of an Airbus LCA,
potentially confers a benefit on the Airbus Industrie consortium, as the "producer" of Airbus LCA.
Indeed, we do not understand the European Communities to contend otherwise.
7.193 The European Communities argues, however, th at the United States must demonstrate that
financial contributions which conferred a be nefit on the Airbus Industrie consortium ( i.e., financial
contributions provided to any of the Airbus pa rtners, their affiliates or to Airbus GIE) currently
benefit Airbus SAS. According to the European Communiti es, "there is a threshold requirement for
the complaining Member to establish that the producers alleged to be the source of the adverse effects
actually enjoy a subsidy." 2086 The European Communities argues, th erefore, that the United States
must establish that the alleged subsidies that we re provided to the Airbus Industrie consortium
"passed through" to Airbus SAS, the only entity that currently produces Airbus LCA in the European
Communities. We have already rejected the Eu ropean Communities' attempt to characterize the
United States' claims as confined to subsidies th at were granted to Airbus SAS, rather than
Airbus SAS and its predecessor Airbus GIE and their respective affiliated companies. It will, of
course, be necessary for us to be satisfied that any subsidies which we may find to exist, do in fact
subsidize Airbus LCA, in order to find that the ef fects of such subsidies are the various forms of
adverse effects alleged. Howeve r, we do not consider that Artic les 5 and 6 of the SCM Agreement
require that causation be demonstr ated through the type of "pass-through" analysis that has been
applied by panels in the specific context of Part V of the SCM Agreement. Nor do we consider that a
"pass-through" analysis is necessary in the circum stances at issue here; namely, where the direct
recipient of the financial contribution is the producer of the subsidized product.
7.194 The question whether it is necessary to conduc t a "pass-through" analysis in WTO law has
previously arisen in situations where a financial c ontribution is provided to an entity in respect of a
product but the "benefit" is a lleged to be conferred on an unrelated entity producing a different
product. Article VI:3 of the GATT and footnote 36 of Article 10 of the SCM Agreement have been
held to require an investigating authority in a countervailing duty investig ation to conduct a pass-
through analysis where the recipient of the subsidy is not the producer of the product under
investigation, but a producer of a product upstream in the produ ction process of the product under

2082 US, FWS, para. 44.
2083 EC, FWS, para. 194.
2084 See, Section VII.F.4 of this Report.
2085 EC, FWS, para. 45.

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investigation.
2087 The dispute in US – Softwood Lumber IV concerned countervailing duties levied by
the United States on imports of softwood lumber, including remanufactured lumber, from Canada to
offset subsidies granted to timber harvesters in relation to the harvesting of timber ( i.e., the input into
the production of lumber). The Appellate Body uphe ld the panel's findings that Article 10 of the
SCM Agreement and Article VI:3 of the GA TT required the USDOC to conduct a pass-through
analysis in circumstances in which a subsidy is received by a producer of an input product and the
imported product subject to the countervailing duty investigation is a different, downstream product
produced by an unrelated producer using the subsidized input.
2088 We note that the source of the
obligation to conduct a pass-through analysis in US – Softwood Lumber IV is Article VI:3 of the
GATT and Article 10 of the SCM Agreement, provisions of Part V of the SCM Agreement, which are
not directly relevant to our consideration of the United States' claims in this dispute.2089
7.195 More recently, in Mexico – Olive Oil , another dispute involving the provisions of Part V of
the SCM Agreement, the panel rejected an argum ent that whenever there is any arm's length
transaction between unrelated companies in the chain of production of an imported product subject to
a countervailing duty investigation, a p ass-through analysis must be conducted. 2090 The panel in
Mexico – Olive Oil noted that, given that the Appellate Body in US – Softwood Lumber IV found that
where an input product and a further manufactured product are both covered by the definition of the
product subject to the countervailing duty in vestigation, a pass-through analysis is not required, even
if the producers of the respective products are unrelated and operating at arm's length, then a fortiori,
the mere existence of an arm's length tran saction between firms involving the product under
investigation somewhere between the receipt of th e subsidy and the export of the merchandise should
not, by itself, give rise to an obligation to conduct a pass-through analysis under Article VI:3 of the
GATT 1994 and Article 10 of the SCM Agreement.2091
7.196 In US – Upland Cotton, a dispute involving the provisions of Part III of the SCM Agreement,
the panel rejected the United States' argument that Brazil was required to establish the precise extent
to which United States subsidies provided in resp ect of "upland cotton" production were actually
"passed through" to the exporter, after "upland cotton" been processed and sold, before being
traded.2092 The panel considered that, given the text ual differences between Parts III and V of the
SCM Agreement, "pass-through" principles deve loped in the context of Part V of the
SCM Agreement were not directly applicable to the panel's examination of serious prejudice under
Articles 5(c) and 6.3(c) of the SCM Agreement. 2093 The Appellate Body found that the panel had not

2087 GATT Panel Report, United States – Countervailing Duties on Fresh, Chilled and Frozen Pork
from Canada ("US – Canadian Pork"), adopted 11 July 1991, BISD 38S/30; Panel Report, United States – Final
Countervailing Duty Determination with Respect to Certain Softwood Lumber from Canada ("US – Softwood
Lumber IV"), WT/DS257/R and Corr.1, adopted 17 February 2004, as modified by Appellate Body Report,
WT/DS257/AB/R, DSR 2004:II, 641.
2088 Appellate Body Report, United States – Final Countervailing Duty Determination with Respect to
Certain Softwood Lumber from Canada ("US – Softwood Lumber IV"), WT/DS257/AB/R, adopted 17 February
2004, DSR 2004:II, 571, para. 167. The Appellate Body reversed the Panel's finding that USDOC's failure to
conduct a pass-through analysis in re spect of arm's length sales of lumber by tenured harvesters/sawmills to
unrelated remanufacturers was inconsistent with Article s 10 and 32.1 of the SCM Agreement and Article VI:3
of the GATT 1994.
2089 See, also , Panel Report, Mexico – Definitive Countervailing Measures on Olive Oil from the
European Communities ("Mexico – Olive Oil"), WT/DS341/R, adopted 21 October 2008, para. 7.142.
2090 Panel Report, Mexico – Olive Oil, para. 7.143.
2091 Panel Report, Mexico – Olive Oil, para. 7.143. The panel also considered that it is not necessary to
identify the particular recipient or r ecipients of the benefit, and the particular manner in which the subsidy is
bestowed, in order to determine that a "benefit" has been conferred, and therefore that a subsidy exists within the
2092 Panel Report, US – Upland Cotton, para. 7.1180.
2093 Panel Report, US – Upland Cotton, para. 7.1181.

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erred in its assessment of the amount of the subsidies for the purpose of its analysis under
Article 6.3(c) of the SCM Agreement.2094 The Appellate Body said:
"As we have already noted, the requirement in Article VI:3 of the GATT 1994 and
Article 19.4 of the SCM Agreement that countervailing duties on a product be limited
to the amount of the subsidy accruing to that product finds no parallel in the
provisions on actionable subsidies and pe rtinent remedies under Part III of the
SCM Agreement. Therefore, the need for a "pass-through" analysis under Part V of
the SCM Agreement is not critical for an assessment of significant price suppression
under Article 6.3(c) in Part III of th e SCM Agreement. Nevertheless, we
acknowledge that the "subsidized product" must be properly identified for purposes
of significant price suppression under Article 6.3(c) of the SCM Agreement. And if
the challenged payments do not, in fact, s ubsidize that product, this may undermine
the conclusion that the effect of the subsidy is significant suppression of prices of that
product in the relevant market."
2095
7.197 We understand the Appellate Body to mean th at, in order to demonstrate causation under
Article 6 (in that dispute, that the effect of a subsidy which had been found to exist was significant
price suppression within the meaning of Article 6. 3(c)), it is necessary to link the subsidy to the
product alleged to be involved in causing the serious prejudice. In situations where a subsidy is
provided directly to an entity that does not produce, and is not related to an entity that produces, the
product alleged to be involved in causing the seri ous prejudice, a complaining party will need to
demonstrate how such a product is in fact, subs idized, for purposes of the causation analysis under
Article 6.
7.198 In arguing that "subsidies paid to entities that no longer exist, much less manufacture and sell
LCA, cannot be assumed to benefit Airbus SAS" , the European Communities essentially asks the
Panel to treat the Airbus Industrie consortium (and the various legal entities which comprised the
consortium), as a different producer of Airbus LCA from Airbus SAS. We are unable to do so.
7.199 We acknowledge that the change in legal organization of the producer of Airbus LCA, from a
groupement d'intérêt économique to a société par actions simplifiée is legally significant as a matter
of corporate law. The legal rights and obligations of the Airbus partners (and their respective owners)
changed from those of aerospace manufacturers and members of a consortium, to those of
shareholders of a publicly listed company (EADS) wh ich, through its subsidiary Airbus SAS, owned
the LCA-related assets and conducted the LCA-related activities of the former Airbus partners and
Airbus GIE. However, based on the economic realities of the production of Airbus LCA, we
consider the Airbus Industrie consortium ( i.e., each of the Airbus partners, their respective affiliates
and Airbus GIE) to be the same producer of Airbus LCA as Airbus SAS. In this regard, we recall that,
in response to a question from the Panel, the Euro pean Communities indicated that all of the LCA
operating assets and all of the LCA design, manufact uring and marketing activities of the former
Airbus partners and Airbus GIE were gr ouped in Airbus SAS and its subsidiaries.
2096 Moreover, in
granting merger clearance to the proposed combin ation of Aérospatiale-Matra, Dasa and CASA to
form EADS, the European Commission expressed th e view that there was no indication that the
operation would affect the quality or nature of control of Airbus Industrie, nor would it have any
impact on the work share distribution between the Airbus partners.2097

2094 Appellate Body Report, US – Upland Cotton, para. 473.
2095 Appellate Body Report, US – Upland Cotton, para. 472.
2096 EC, Answer to Panel Question 81, para. 165.
2097 European Commission, Merger Procedure Article 6(2) Decision, Case No. COMP/M.1745 –

BCI deleted, as indicated [***]

7.200 In other words, for purposes of our analysis of the United States' claims under Articles 5 and
6 of the SCM Agreement, we do not consider that the changes to the corporate structure of the
producer of Airbus LCA are such as to require the United States to demonstrate, as part of its prima
facie case, the "pass-through" to the entity Airbus SAS of benefits conferred by financial
contributions that had been provided to the Airbus Industrie consortium. If we find that any of the
alleged financial contributions provi ded to the Airbus Industrie cons ortium conferred a benefit within
the meaning of Article 1.1(b), and thus constitute subs idies, we would be satisfied that those subsidies
do, in fact, subsidize Airbus LCA for purposes of our adverse effects analysis under Articles 5 and 6.
7.201 We now turn to the European Communities' ar guments that various transactions nonetheless
had the effect of "extinguishing" a portion of any alleged subsidies that we may otherwise find to have
been bestowed on Airbus SAS.
(c) Extinction of benefit
(i) Arguments of the parties
European Communities

7.202 The European Communities contends that, quite apart from the issue which it identifies as
"pass-through", it has demonstrated that "most" of th e alleged subsidies at issue in this dispute "have
been extinguished, repaid, withdrawn or extracted in a series of arm's length, fair market value
transactions" with the result that Airbus SAS does not "currently enjoy subsidies that could cause the
adverse effects alleged by the United States."2098
7.203 According to the European Communities, WT O panels and the Appellate Body have
consistently made clear that any benefit that may ha ve been conferred by a financial contribution (and
therefore a subsidy which is deemed to exist) is presumptively "extinguished" for purposes of the
SCM Agreement when the recipient firm (or segments thereof) is sold at "arm's-length" and for "fair
market value".2099 In this regard, the European Communiti es refers to the reports of the panels and
Appellate Body in US – Lead and Bismuth II and US – Countervailing Measures on Certain EC
Products as establishing the "principle" that the sale of a company at arm's-length and for fair market
value presumptively "removes any benefit of prior subsidies" to the purchaser of that company. 2100
Although the above-referenced cases arose out of countervailing duty dete rminations challenged
under Part V of the SCM Agreement, the Euro pean Communities argues that the "extinction
principle" enunciated in those cases is based on the definition of "subsidy" in Article 1.1, and that it is
therefore as relevant to Part III of the SCM Agreement as it is to Part V. 2101 While also
acknowledging that the aforementioned cases involve d the privatization of formerly state-owned

2099 EC, FWS, para. 198. According to the European Communities, this "principle" is "rooted in the
"benefit to the recipient" principle" and is part of the definition of "subsidy" in Article 1.1.; EC, SNCOS,
2100 EC, FWS, paras. 198-202; Answer to Panel Question 197, para. 223; Panel Report, United States –
Imposition of Countervailing Duties on Certain Hot-Rolled Lead and Bismuth Carbon Steel Products
Originating in the United Kingdom ("US – Lead and Bismuth II "), WT/DS138/R and Corr.2, adopted
7 June 2000, upheld by Appellate Body Report, WT/DS138/AB/R, DSR 2000:VI, 2623; Panel Report,
United States – Countervailing Measures Concerning Certain Products from the European Communities ("US –
Countervailing Measures on Certain EC Products "), WT/DS212/R, adopted 8 January 2003, as modified by
Appellate Body Report, WT/DS212/AB/R, DSR 2003:I, 73; Panel Report, United States – Countervailing
Measures Concerning Certain Products from the Europe an Communities, Recourse to Article 21.5 of the DSU
by the European Communities ("US – Countervailing Mea sures on Certain EC Products (Article 21.5 –
European Communities)"), WT/DS212/RW, adopted 27 September 2005.
2101 EC, Answer to Panel Question 197, para. 222.

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enterprises, the European Communities contends that a statement of the Appellate Body in US –
Countervailing Measures on Certain EC Products extends the application of the principle to private-
to-private sales.2102
7.204 Based on the "extinction" principle that the European Communities argues was established in
the aforementioned cases, and the asserted extension of that principle to private-to-private sales, the
European Communities argues that (i ) the French State's sale of shares in Aérospatiale-Matra through
a public offering in 2000; (ii) the combination of the LCA-related assets and activities of the Airbus
partners to form EADS and the public offering of EADS shares in 2000; (iii) market sales of EADS
shares by various EADS shareholders (including the French State) between 2001 and 2006; and (iv)
the sale by BAE Systems of its interest in Airbus SAS to EADS in 2006, each effectively
"extinguished" a portion of any subsidies currently en joyed by Airbus SAS. The specific transactions
which the European Communities alleges have resu lted in the "extinction" of a portion of any
subsidies to Airbus SAS are set forth below:
2103

Date Transaction Percentage Sold Percentage of
benefit extinguished
1999 and
2000

Alleged privatization of Aérospatiale through
combination of Aérospatiale with Matra Hautes
Technologies to form Aérospatiale-Matra and
the sale by the French State of a portion of its
shares in Aérospatiale Matra to the public

50% 50 % of benefit to
Aérospatiale
extinguished
2000

Combination of Aérospatiale-Matra, Dasa and
CASA to form EADS and the public offering
of EADS shares2104

16.42% 16.42 % of benefit to
EADS extinguished
2001

Sales by both Lagardère and the French State
of their respective direct shareholdings in
EADS on the market

3% 3 % of benefit to
EADS extinguished
2004

Hedged forward sale by DaimlerChrysler of its
direct shareholdings in EADS
2.75% 2.20 % of benefit to
Airbus SAS
extinguished
2006 Irrevocable forward sale by DaimlerChrysler of
indirect EADS shareholding

7.5% 6 % of benefit to
Airbus SAS
extinguished (80% of
7.5%)
2006 Issuance by Lagardère of mandatory
exchangeable bonds (convertible into its
2.5% (2007)
2.5% (2008)
6 % of benefit to
Airbus SAS

2102 EC, FWS, paras. 213-215; Answer to Panel Question 197, para. 223. The European Communities
also contends that the compliance Panel in US – Countervailing Measures on Certain EC Products (Article 21.5
– European Communities ) established the principle that a partial (rather than full) sale of a company may
remove a corresponding part of the subsidy; EC, FWS, paras. 216-219; Panel Report, US – Countervailing
Measures on Certain EC Products (Article 21.5 – European Communities), at paras. 7.88-7.176.
2103 EC, Answer to Panel Question 111, para. 316.
2104 The combination of the French, German and Spanish Airbus partners to form EADS was preceded
by the "extraction" of cash by DaimlerChrysler (as the owner of Dasa) and the Spanish government (as the
owner of CASA). The European Communities argues that these "cash extractions" extinguished (or constituted
repayment of) a portion of the benefits of subsidies received by Dasa and CASA, respectively. The "extraction"
arguments are considered separately in Section VII.E.1(e) below.

BCI deleted, as indicated [***]

indirect EADS shareholding on specified dates)

2.5% (2009) extinguished (80% of
7.5%)
2006 Exercise of put option and sale by BAE
Systems of its 20 % interest in Airbus SAS to
EADS

20 % 20 % of benefit to
Airbus SAS
extinguished

United States
7.205 According to the United States, the European Communities' "extinction" argument is built on
a flawed attempt to analogize the aforementioned transactions to the transactions at issue in US –
Lead and Bismuth II and US – Countervailing Measures on Certain EC Products . The United States
argues that the transactions identified by the Eu ropean Communities as "extinguishing" a portion of
the benefit of any subsidies currently enjoyed by Ai rbus SAS lack some or all of the features that
were essential to the findings regard ing subsidy extinction in those cases. 2105 The United States notes
that US – Lead and Bismuth II and US – Countervailing Measures on Certain EC Products dealt with
the effects of full privatizations on the extent to which subsidies granted to enterprises prior to their
privatization may be countervailed under Part V of the SCM Agreement. 2106 According to the United
States, an essential feature of the privatization tran sactions at issue in those disputes was that they
involved the transfer of all or substantially all of th e state's interest in an entity to a buyer at arm's
length and for fair market value, including a complete transfer of control.
7.206 Second, the United States argues that the European Communities fails to address the
significance of the fact that the cases on which it relies for the "principle" of extinction involved
reviews of countervailing duty determinations by an investigating authority under Part V of the
SCM Agreement.2107 According to the United States, the European Communities has failed to take
account of the differences between the nature of the inquiry in a countervailing duty dispute under
Part V of the SCM Agreement and a dispute under Part III of the SCM Agreement.2108
7.207 Specifically, the United States notes that an i nvestigating authority in a countervailing duty
proceeding is required to determine whether a counter vailable subsidy exists and, if so, the amount of
subsidy to be offset through countervailing duties. By contrast, a panel in a dispute under Part III of
the SCM Agreement is required to determine whet her the respondent Member, through the use of
subsidies, has caused adverse effects to the interests of a complaining Member. 2109 The United States
contends that, even if a transaction may ( arguendo) result in a previously provided subsidy no longer
being countervailable for purposes of Part V of the SCM Agreement, this does not necessarily mean
that it is no longer capable of causing adverse effects under Part III of the SCM Agreement.2110
7.208 The United States further submits that the Eu ropean Communities' arguments regarding the
"extinction" and "extraction" of the alleged subsidies are completely irrelevant to the United States'
causation argument. 2111 According to the United States, its causation case is essentially that the
alleged subsidies in this dispute (namely, LA/MSF, together with other subsidies) distort the LCA
market by (i) permitting the launch of LCA models that could not otherwise have been launched;
(ii) enabling Airbus to invest in multiple LCA launc hes more quickly than it otherwise could; and (iii)

2105 US, Answer to Panel Question 56, para. 321.
2106 US, Answer to Panel Question 16, para. 121.
2107 US, Answer to Panel Question 56, para. 322.
2108 US, Answer to Panel Question 56, para. 323.
2109 US, Answer to Panel Question 56, para. 342.
2110 US, Answer to Panel Question 56, para. 343.
2111 US, Answer to Panel Question 169, para. 221.

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enabling Airbus to use its limited funds to reduce prices for already launched LCA models. 2112
Therefore, according to the United States, at any given moment, the impact of the alleged subsidies
includes both (i) the existence of Airbus LCA models that would not have been launched in the past
without the alleged subsidies; and (ii) the present impact of subsidies that are currently being provided
for the development of new Airbus LCA models on th e financial constraints currently experienced by
Airbus as a whole.2113
7.209 Finally, the United States argues that the Eu ropean Communities has failed to demonstrate
that the specific transactions which it contends "e xtinguished" a portion of prior subsidies to the
Airbus partners and Airbus SAS were sales of shar es that occurred at arm's length and for fair market
value.2114
(ii) Arguments of Third Parties
Australia
7.210 Australia argues that the elements for establishi ng the existence of "benefit" are the same in
the context of Part III and Part V of the SCM Agreement and that both Parts III and V rely on the
continuing existence of benefit as the basis fo r establishing the further element of injury. 2115
Consequently, Australia contends that the rebutta ble presumption that a privatization on arm's-length
terms and for fair market value results in the extinguishment of benefit, as recognized by the
Appellate Body in US – Countervailing Measures on Certain EC Products, in the context of Part V of
the SCM Agreement, likewise applies to the existence of benefit under Part III of the
SCM Agreement.2116 Australia also argues that the question whether a subsidy is partially or
completely extinguished upon the sale of shares in a subsidized entity depends on the nature and
consequences of that sale.2117
Brazil
7.211 According to Brazil, the panel and Appellate Body findings in US – Countervailing Measures
on Certain EC Products relate to the existence of a benefit for purposes of finding subsidization under
Article 1.1 and applying countervailing duties unde r Part V of the SCM Agreement. Because the
identification of the "subsidized product" (including the existence of benefit under Article 1.1) is also
a necessary first step in an analysis of serious prejudice under Part III, Brazil contends that past

2112 US, Answer to Panel Question 169, para. 222.
2113 US, Answer to Panel Question 169, para. 222. The United States also argues that the 2006
transactions, and DaimlerChrysler's 2004 hedged forward arra ngement, which could not take place until 2007,
occurred after the establishment of this Panel and therefore can have no bearing on the resolution of this dispute;
US, SWS, paras. 529-530.
2114 In relation to this issue, the United States argues (i) that several of the transactions in question are
not actual sales of shares; (ii) that several of the transactions were sales for between one percent and
9.95 percent of the entities concerned, and therefore involve d significantly less that "all or substantially all" of
the shares in the relevant entities; (iii) that none of the transactions resulted in the seller no longer having any
controlling interest in the relevant companies; and (v ) that several of the transactions occurred after the
establishment of this Panel and therefore have no bearing on the resolution of this dispute; US, SWS, paras. 529-
536.
2115 Australia Answers to Third Party Questions, 10 September 2007, at 2. Australia notes that the only
real difference between Parts III and V is that nothing in Part III calls for a precise quantification or allocation of
the benefit of the subsidy.
2116 Australia Answers to Third Party Questions, 10 September 2007, at 2.
2117 Australia Answers to Third Party Questions, 10 September 2007, at 2. In this regard, Australia
contends that the Panel will need to examine all relevant facts, including provisions made in loan contracts
between the governments and Airbus SAS in relation to th e transfer obligations to successor entities; Australia,

BCI deleted, as indicated [***]

interpretations of Article 1.1 in re lation to determining subsidization w ould appear to be applicable in
the context of any disputes under the SCM Agreement, including those relating to prohibited subsidies
under Part II and actionable subsidies under Part III.
2118
7.212 Brazil argues that the relevant transactions cited by the European Communities are not
privatizations and thus do not appear to raise the presumption that the benefit of prior subsidies was
extinguished.2119 Brazil also notes that the reports of the panel and Appellate Body in US – Lead and
Bismuth II and US – Countervailing Measures on Certain EC Products addressed the question
whether privatization of the recipient extinguished the benefit for purposes of imposing countervailing
duties under Part V of the SCM Agreement. Braz il contends that Part V of the SCM Agreement
requires the calculation of the precise amount of the subsidy in order to ensure that countervailing
duties are not levied in excess of the amount of the subsidy under Article 19.4 of the
SCM Agreement, while precise quantification of th e amount of the subsidy is not required in cases
under Parts II and III of the SCM Agreement. 2120 According to Brazil, given the absence of any
requirement to precisely quantify the subsidy, and given the absence of any de minimis provision
under Parts II and III of the SCM Agreement, a "par tial" extinguishment of the benefit would still
mean that the recipient is benefiting from the subsidi es, albeit arguably to a lesser extent. Therefore,
even assuming arguendo that partial share transfers may extin guish a portion of the benefit to the
recipient in certain circumstances, such a finding should not affect the Pane l's findings regarding the
existence of benefit.2121
Japan
7.213 Japan submits that the Panel should closely examine whether the Eu ropean Communities has
demonstrated that the privatizations have been accomplished at arm's length and for fair market value,
and that any alleged benefits have in fact been extinguished, based on the specific facts of the case.2122
Japan argues that there is no basis in the SCM Agreement, in the applicable jurisprudence, or in logic,
for the proposition that a partial transfer of a fi rm should not be subject to the same rebuttable
presumption of extinguishment as set forth by the Appellate Body in US – Countervailing Measures
on Certain EC Products.2123
(iii) Evaluation by the Panel
7.214 The European Communities argues that most of the alleged subsidies which the
Panel may find to exist have been "extinguished" by a series of allegedly arm's length, fair market
value transactions involving changes in ownership of Aérospatiale, or EADS, with the result that
"Airbus SAS does not currently enjoy subsidies that could cause the adverse effects alleged by the
United States." 2124 This argument raises a threshold ques tion; namely, whether a subsidy which is
found to exist must additionally be found to confer a present, or continuing, benefit on the recipient
firm producing the subsidized product in order for th at subsidy to be potentially capable of causing
adverse effects for purposes of Article 5 of the SCM Agreement.

2118 Brazil Answers to Third Party Questions, 10 September 2007, para. 5.
2119 Brazil Answers to Third Party Questions, 10 September 2007, para. 7.
2120 Brazil Answers to Third Party Questions, 10 Se ptember 2007, paras. 6-7; Third Party Written
Submission, para. 37.
2121 Brazil Answers to Third Party Questions, 10 September 2007, para. 7.
2123 Japan Third Party Submission, para. 22, citing the Panel Report in US – Countervailing Measures
on Certain EC Products (Article 21.5 – European Communities), paras. 7.130-7.158.

BCI deleted, as indicated [***]

7.215 We recall that Article 5 of the SCM Agreement provides, in relevant part:
"No Member should cause, through the use of any subsidy referred to in paragraphs
1 and 2 of Article 1, adverse effects to the interests of other Members, i.e.….." 2125
The concept of "adverse effects" under Article 5 of the SCM Agreement is concerned with effects to
the "interests of other Members". Paragraphs (a), (b) and (c) of Article 5, describe these effects as:

(i) "injury to the domestic industry of another Member;
(ii) nullification or impairment of benefits accruing directly or indirectly to other
Members under GATT 1994 in particular th e benefits of concessions bound under
Article II of GATT 1994;
(iii) serious prejudice to the interests of another Member."2126
Article 6.3 provides that serious prejudice in the sense of paragraph (c) of Article 5 may arise in any
case where one or several of the following apply:

(a) "the effect of the subsidy is to displ ace or impede the imports of a like product of
another Member into the market of the subsidizing Member;
(b) the effect of the subsidy is to displace or impede the exports of a like product of
another Member from a third country market;
(c) the effect of the subsidy is a significant price undercutting by the subsidized product
as compared with the price of a like product of another Member in the same market
or significant price suppression, price depression or lost sales in the same market;
(d) the effect of the subsidy is an increase in the world market share of the subsidizing
Member in a particular subsidized primary product or commodity as compared to the
average share it had during the previous period of three years and this increase
follows a consistent trend over a period when subsidies have been granted."
7.216 Implicit in the European Communities' argument is the assumption that a "subsidy referred to
in paragraphs 1 and 2 of Article 1" can only cause adverse effects pursuant to Article 5 if it can be
shown to presently confer a "benefit" on a recipient. This assumption appears to rest on an analogy
with the countervailing duty context, in which a Member's right to impose countervailing duties on a
product is limited to the amount of the subsidy accruing to that product. The European Communities
argues that the present existence of the benefit co nferred by a financial contribution is likewise a
prerequisite to a determination that a Member has caused, through the use of a subsidy, adverse
effects to the interests of another Member pursuant to Article 5 of the SCM Agreement.
7.217 We do not agree. In order to make a successful claim under Article 5 of the SCM Agreement,
a complaining Member must establish that a Memb er has caused, through the use of any subsidy
referred to in paragraphs 1 and 2 of Article 1, one or more of the enumerated adverse effects to the
interests of another Member. One element of a complaining Member's adverse effects claim will
therefore be establishing the existence of a "subsidy re ferred to in paragraphs 1 and 2 of Article 1".
We note the following statement by the Appellate Body in Canada – Aircraft regarding the definition
of "subsidy" in Article 1.1 and the meaning of the term "benefit" in Article 1.1(b):

2125 Emphasis added.
2126 Footnotes omitted.

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"The definition of "subsidy" in Article 1. 1 has two discrete elements: "a financial
contribution by a government or any pub lic body" and "a benefit is thereby
conferred". The first element of this definition is concerned with whether the
government made a "financial contribution", as that term is defined in Article 1.1(a).
The focus of the first element is on the action of the government in making the
"financial contribution". That being so, it seems to us logical that the second element
in Article 1.1 is concerned with the "benef it… conferred" on the recipient by that
governmental action. Thus, subparagraphs (a) and (b) of Article 1.1 define a
"subsidy" by reference, first, to the acti on of the granting authority and, second, to
what was conferred on the recipient....
We also believe that the word "benefit", as used in Article 1.1(b), implies some kind
of comparison. This must be so, for there can be no "benefit" to the recipient unless
the "financial contribution" makes the recipi ent "better off" than it would otherwise
have been, absent that contribution. In our view, the marketplace provides an
appropriate basis for comparison in determining whether a "benefit" has been
"conferred", because the trade-distorting potential of a "financial contribution" can be
identified by determining whether the recipient has received a "financial contribution"
on terms more favourable than those available to the recipient in the market."
2127
7.218 Article 1.1 is phrased in the present tense; i.e., a subsidy "shall be deemed to exist" where
there "is a financial contribution" and "a benefit is thereby conferred". The grammatical construction
of Article 1.1 suggests that the "financial contribu tion" and the "benefit" come into existence at the
same time. This construction is supported by the ad verb "thereby", the ordinary meaning of which is
"by that means".2128 As the Appellate Body in Canada – Aircraft made clear, the focus of the inquiry
into the existence of a "benefit" pursuant to Article 1.1(b) is whether the financial contribution places
the recipient in a more advantageous position than would have been the case but for the financial
contribution. We therefore have difficulty un derstanding the coherence of a concept such as
"continuing benefit" within the legal framework of Article 1 of the SCM Agreement. To the extent
that a concept such as "continuing benefit" relates to how the effect of a subsidy is to be analyzed over
time, we consider this to be an aspect of the cau sation analysis to be undertaken pursuant to Articles 5
and 6 of the SCM Agreement and part of the assessm ent of the "effects" of a subsidy under those
provisions. If a financial contribution is provided on better terms than would have been available in
the market, a benefit is "thereby" conferred, a subsid y is deemed to exist, and there is the possibility,
which the complaining Member may proceed to estab lish, that the "use" of this subsidy has caused
adverse effects to the interests of other Members.
7.219 The European Communities' concept of "continuing benefit" appears to conflate the concepts
of "benefit", which relates to the terms on which a financial contribution was provided compared with
a market benchmark, and "effects" which relate to the impact of the subsidy in the marketplace at a
point in time which is typically subsequent to th e time when the subsidy was granted. We note the
observations of the panel in US – Upland Cotton on this interpretational error:
"The concept of "benefit" is a definiti onal element of a subsidy pursuant to
Article 1.1(b) of the SCM Agreement. Inas much as we are not required to calculate
an amount of "benefit", we cannot logically be required to conduct any sort of precise

2127 Appellate Body Report, Canada – Measures Affecting the Export of Civilian Aircraft ("Canada –
Aircraft"), WT/DS70/AB/R, adopted 20 August 1999, DSR 1999:III, 1377, paras. 156-157.
2128 The New Shorter Oxford English Dictionary defines "thereby" as "by that means, as a result of that;
through that"; New Shorter Oxford English Dictionary, Oxford University Press, Oxford, 1999, p. 3275. Black's
Law Dictionary defines "thereby" as "by that means; in consequence of that"; Black's Law Dictionary , Sixth
Edition, West Publishing Co., St. Paul, 1990, p. 1478.

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"expensing" of the "benefit". Moreover, we see no textual basis for reading the
different terms – "benefit" and "adverse effects"/"serious prejudice" – synonymously.
Were we to discern an identity between the c oncept of "benefit" to a recipient and the
concept of "adverse effects" to another Member's interests, we would effectively
reduce the provisions of Part III to redundancy. As a treaty interpreter, the Panel is
precluded from doing so."
2129
7.220 We also recall the different context in wh ich investigating authorities are required to
demonstrate the existence, during the relevant period of investigation or review, of a continued benefit
from a prior financial contribution, pursuant to Pa rt V of the SCM Agreement. This requirement
arises from Article VI:3 of the GATT and Article 10 of the SCM Agreement which permit offsetting,
through countervailing duties, no more than the ad valorem amount of the subsidy determined to have
been granted on the manufacture or production of a product.2130 In addition, Articles 19.4 and 21.1
limit the imposition of countervailing duties to the amount of the subsidy found to exist, calculated in
terms of the subsidization per un it of the subsidized and exported product. The provisions of Part V
of the SCM Agreement thus give rise to a pragmatic need to link a subsidy to imported products in
order to assess the effect of the subsidized imports. As the panel in US – Upland Cotton observed:
"In view of the contrast in the text, c ontext, legal nature and rationale of the
provisions in Part III of the SCM Agreemen t relating to a multilateral assessment as
to whether a Member is causing, through the use of any subsidy, "adverse effects" in
the form of "serious prejudice to the interests of another Member" and Part V of the
Agreement relating to obligations of a Member in conducting unilateral
countervailing duty investigati ons, we decline to transpo se directly the quantitative
focus and more detailed methodological obliga tions of Part V into the provisions of
Part III of the SCM Agreement."
2131
7.221 As we have explained, we do not suggest that , under Article 5 of the SCM Agreement, it is
unnecessary to link a subsidy provided to a recipient to a particular product or products in order to
demonstrate that a Member has caused, through the use of that subsidy, the asserted adverse effects to
the interests of the complaining Member. 2132 However, this does not mean that a complaining
Member is required to establish that the "benefit" to the recipient is "current" or "continuing" in order
to establish that link and demonstrate that use of that subsidy has caused adverse effects to the
complaining Member's interests. 2133 There may well be circumstances where, given the nature of the
subsidy, the passage of time between its receipt and the alleged adverse effects, the recipient's position
in the market and exogenous market considerations, it is difficult to demonstrate more than a tenuous
causal link between the subsidy and the alleged adverse ef fects. However, this is an inherent part of
the causation analysis to be undertaken pursuant to Articles 5 and 6, and does not entail an obligation
to demonstrate the "continuity of benefit" of a previously granted subsidy.

2129 Panel Report, US – Upland Cotton, para. 7.1179 (footnotes omitted).
2130 Article VI:3 of the GATT and footnote 36 of Ar ticle 10 of the SCM Agreement provide that the
term "countervailing duty":
"{S}hall be understood to mean a special duty levied for the purpose of offsetting any bounty or
subsidy bestowed, directly, or indirectly, upon the manufacture, production or export of any merchandise".
2131 Panel Report, US – Upland Cotton, para. 7.1177.
2132 See, paras. 7.194 - 7.200.
2133 In this regard, we recall that the panel in US – Upland Cotton regarded the fact that the legal and
regulatory provisions governing the payment of many of the subsidies at issue in that dispute had expired as
immaterial to its serious prejudice analysis; Panel Report, US – Upland Cotton , para. 7.1201. See, also, Panel
Report, Indonesia – Certain Measures Affecting the Automobile Industry ("Indonesia – Autos") , WT/DS54/R,
WT/DS55/R, WT/DS59/R, WT/DS64/R and Corr.1 and 2, adopted 23 July 1998, and Corr. 3 and 4, DSR 1998:VI,
2201, para. 14.206.

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7.222 We conclude that, provided the United States, as the complaining Member, establishes (i) the
provision of a financial contributi on in accordance with Article 1.1(a)(1); (ii) which thereby confers a
benefit, within the meaning of Article 1.1(b) an d (iii) specificity, in acco rdance with Article 2, a
subsidy that is actionable under Part III of the SC M Agreement will be "deemed to exist", and the
United States will successfully ma ke out a claim under Article 5; pr ovided it is able to demonstrate
that the European Communities a nd certain member States have caused, through the use of that
subsidy, adverse effects to the interests of the Un ited States. We can find nothing in Article 5 of the
SCM Agreement that would require the United States to establish additionally that all or part of the
"benefit" found to have been conferred by the provi sion of a financial contribution continues to exist,
or presently exists.
7.223 We therefore dismiss the European Communities' arguments that particul ar alleged subsidies
have been extinguished through a series of arm's le ngth, fair market value transactions as unfounded,
resting as they do upon a flawed interpretation of Article 5 of the SCM Agreement.
(d) Alternative findings
7.224 We consider that the foregoing findings are suffi cient to resolve this issue. Nonetheless, and
in the interest of ensuring a positive resolution of th is dispute in the event the foregoing findings are
reversed on appeal, we consider it appropriate to make alternative findings on the European
Communities' arguments that, in the context of a claim under Part III of the SCM Agreement, the
existence of a benefit conferred by a financial c ontribution provided to a recipient is presumptively
extinguished by the subsequent sale of the recipient to an arm's-length purchaser for fair market value.
7.225 The European Communities asks us to interpre t Article 5 as requiring a complaining Member
to establish not only the existence of a subsidy pur suant to Article 1.1 of the SCM Agreement, but
also that the financial contribution confers a "pre sent" or "continuing" benefit on the recipient, as a
prerequisite to demonstrating that a Member has caused, through the use of that subsidy, adverse
effects to the interests of another Member. Had we accepted the European Communities' view, then it
would be necessary for us to address the European Communities' arguments that it is possible to
derive from the prior panel a nd Appellate Body reports in US – Lead and Bismuth II and US –
Countervailing Measures on Certain EC Products the principle that sale of a producer on arm's-length
terms and for fair market value presumptively rem oves the benefit of any prior subsidies to the
purchaser of that producer. We would also have to consider the European Communities' argument
that application of this principle to certain tran sactions involving changes in ownership of the Airbus
partners, EADS and Airbus SAS results in the "extinction" of a portion of any subsidies to
Airbus SAS. We consider these questions, in the alternative, below.
7.226 The disputes in US – Lead and Bismuth II and US – Countervailing Measures on Certain EC
Products involved the WTO-consistency of countervaili ng duties imposed or maintained by the
United States on products imported from formerly st ate-owned producers to offset subsidies received
by those producers prior to their privatization. The European Communities ar gues that the reports of
the panels and Appellate Body in these cases establis h the "principle" that "the sale of a company at
arm's length and for fair market value removes any benefit of prior subsidies to the buyer."2134
7.227 According to the United States, the panel in US – Countervailing Measures on Certain EC
Products found that a subsidy may be extinguished as th e result of a sale of the subsidized entity
where (i) the sale is at arm's length and for fair market value, and (ii) the sale involves all or
substantially all of the subsidized entity and results in a relinquishment of any controlling interest the
seller had in the entity. 2135 The United States contends that none of the transactions identified by the

2134 EC, Answer to Panel Question 197, para. 223.
2135 US, Answer to Panel Question 168, para. 203.

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European Communities satisfies this second require ment, and that the European Communities, in
purporting to apply the principle enunciated by the pa nel in that dispute, is actually formulating a new
principle in which it is only necessary to satisfy the requirements in (i) above in order for a subsidy to
be extinguished.
7.228 The European Communities, for its part, argu es that the United States has confused the
principle enunciated in US – Countervailing Measures on Certain EC Products with the facts to
which that principle was applied in that dispute. 2136 The European Communities rejects the United
States' assertion that the "Airbus governments" nevert heless retain controlling interests in Airbus SAS
sufficient to enable them to exert control over the company. 2137 According to the European
Communities, the transactions that it has identified (w hich are set forth in paragraph 7.204 of this
Report) cumulatively have resulted in the transfer to private owners of 79.26 percent of Airbus SAS,
with the result that none of Aérospatiale-Matra , Dasa, CASA nor BAE Systems today produces LCA
or has a "controlling interest" in Airbus SAS. 2138 The European Communities argues that the Panel
Report in US – Countervailing Measures on Certain EC Products (Article 21.5 – European
Communities) extends the "principle of extinguishment" from single event changes of control to cover
graduated sales undertaken in tranches over a period of time.2139
7.229 Before beginning our evaluation of the European Communities' arguments, we set forth below
our understanding of the issues in dispute and conc lusions of the panels and Appellate Body in the
two cases on which the European Communities relies.
7.230 In US – Lead and Bismuth II, the panel found that the changes in ownership of the subsidized,
state-owned producer which lead to the creation of the privatized producers should have caused the
USDOC to examine whether the production of leaded bars by those privatized producers, and not the
state-owned producer, was subsidized. 2140 It therefore found that the countervailing duties imposed
pursuant to the USDOC's 1995, 1996 and 1997 administrative reviews were not in accordance with
Articles 19.1, 19.4 and 21.2 of the SCM Agreemen t, Article VI:3 of the GATT 1994 and the object
and purpose of countervailing duties as expressed in footnote 36 to Article 10 of the SCM Agreement,
and were therefore inconsistent with Article 10.2141
7.231 On appeal, the United States argued that subsidies are bestowed on production, and that a
mere change in ownership of the recipient of a fi nancial contribution does not have an automatic or
immediate effect on production. Rather, legal succes sorship to a subsidized producer is sufficient to
maintain the connection between the subsidies and th e recipient. The Appellate Body rejected this

2136 EC, Comments on US Answer to Panel Question 168, para. 313.
2137 US, Answer to Panel Question 168, paras. 216- 217. The European Communities notes that neither
the United Kingdom nor German governments hold any shares in EADS or Airbus SAS, while the French and
Spanish governments own minority stakes in EADS (15.2 percent and 5.54 percent, respectively), and can
hardly be said to be in a position to exert control over EADS or Airbus SAS; European Communities,
Comments on US, Answer to Panel Question 168, paras. 322-323.
2138 EC, Comments on US, Answer Question 168, para. 320.
2139 Panel Report, US – Countervailing Measures on Certai n EC Products (Article 21.5 – European
Communities), paras. 7.119, 7.175.
2140 Panel Report, US – Lead and Bismuth II , para. 6.70. The subsidies countervailed were equity
infusions made by the British government to a state-owned entity, British Steel Corporation (BSC) between
1977 and 1986. BSC was privatized in 1988 and shares of the newly formed entity, British Steel plc (BSplc),
were sold in a public offering that was agreed to be at arm's length, for fair market value and consistent with
commercial considerations. The countervailing duty dete rminations were made against United Engineering
Steels Limited (UES), an entity that was originally a joint venture between BSC and a privately-owned entity,
and in 1995, became a wholly-owned subsidiary of BSplc. UES was renamed British Steel Engineering Steels
(BSES) in 1995.
2141 Panel Report, US – Lead and Bismuth II, para. 6.86.

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argument, and affirmed the panel's finding that, given the changes in ownership leading to the
creation of the privatized producers, in order to determine whether any subsidy was bestowed on
production by these entities, it was necessary under Artic le 21.2 of the SCM Agreement to determine,
based on information relating to the changes in owne rship, whether a "benefit" accrued to each of the
privatized producers.
2142 The Appellate Body also found that, given the panel's factual findings that
the privatized producers had each paid fair mark et value for the productive assets and goodwill they
acquired from the state-owned producer, there was no error in the panel's conclusion that, in the
specific circumstances of the case, the "financial contributions" that had been bestowed on the state-
owned producer between 1977 and 1986 could not be de emed to confer a "benefit" on the privatized
producers.2143
7.232 In US – Countervailing Measures on Certain EC Products , the panel considered the WTO-
consistency of 12 countervailing dut y determinations against impor ts of certain steel products
originating in the EC. 2144 The European Communities challenged the application by the USDOC of
two different methodologies to determine whether non-recurring subsidies granted to state-owned
recipients prior to their change in ownership (thr ough privatization) remained countervailable against
imports from the privatized producer. 2145 The panel noted that the changes of ownership in question
concerned privatizations of state-owned companies, and that the privatizations involved full changes
of ownership, in the sense that the governments had so ld all, or substantially all, of their ownership
interests and no longer had any controlling interests in the privatized producers.2146
7.233 The United States argued that the relevant "recipient" for purposes of determining the
existence of a "benefit" following a change in owners hip is the legal person that received the financial
contribution. According to the United States, if the privatized producer can properly be considered
the successor entity to the state-owned producer, the benefit of subsidies conferred on the latter should
be regarded as passed-through to the former. 2147 The United States argued that there was no reason
why payment of fair market value for shares in the legal entity that was the recipient of the subsidy
should be regarded as "extinguishing" the benefit of any subsidy conferred on the recipient legal
entity. The United States based this argument on what it considered to be the fundamental distinction
in corporate law between a company and its owne rs, a distinction which it contended was supported
by the Appellate Body's reports in Canada – Aircraft and US – Lead and Bismuth II.2148
7.234 The panel held that privatization at arm's length and for fair market value rebuts any
presumption that the benefit from prior financial cont ributions (or subsidization) continues to accrue
to the privatized producer. 2149 According to the panel, where subsidization improves a company's
profitability, it thereby improves its ability to generate returns for its shareholders. In this sense, the
panel could see no distinction between the advantage or benefit conferred by a financial contribution

2142 Appellate Body Report, US – Lead and Bismuth II, para. 62.
2143 Appellate Body Report, US – Lead and Bismuth II, para. 68.
2144 Panel Report, US – Countervailing Measures on Certain EC Products, para. 2.1.
2145 The methodologies were (i) the "gamma" methodology, under which the USDOC determines the
extent (if any) to which the privatization transaction pr ice can be considered to have repaid unamortized pre-
privatization subsidies, and countervails the remainder; and (ii) the "same person" methodology, under which
the USDOC first determines whether the state-owned prod ucer and the privatized pr oducer are distinct legal
persons and if not, the benefit of the subsidy granted to the pre-privatization producer is presumed to reside in
the post-privatization producer.
2146 Panel Report, US – Countervailing Measures on Certain EC Products, para. 2.3.
2147 The United States argued that money taken out of the new owner's pocket should not be considered
as coming out of the company, potentially eliminating subsidies that reside in that company; Panel Report, US –
Countervailing Measures on Certain EC Products, para. 7.49.
2148 Panel Report, US – Countervailing Measures on Certain EC Products, paras. 7.35-7.36.
2149 Panel Report, US – Countervailing Measures on Certain EC Products, para. 7.82.

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provided to the company, and the benefit ther eby enjoyed by the company's shareholders. 2150 T h e
panel therefore rejected the relevance of the legal distinction between a company and its shareholders
for purposes of determining the existence of bene fit under the SCM Agreement. According to the
panel:
"The concept of benefit is independent of the legal business structure established
pursuant to national corporate law. This is so because the SCM Agreement is
concerned with identified adverse trade e ffects of subsidization on the domestic
industry producing the like product. The production and export of goods is done by a
producer for the purpose of generating an ec onomic benefit to its owners. When the
existence of a subsidy improves the ability of a producer to produce and export a
good, it necessarily impacts on its profitability, and, therefore, on the rate of return to
shareholders."
2151
7.235 On appeal, the United States argued that the pane l's determination that the "recipient" of a
benefit should be regarded as the company and its ow ners together contradicted the Appellate Body's
findings in Canada – Aircraft and US – Lead and Bismuth II , which, according to the United States,
established that the recipient of a subsidy cannot be both the legal person and its shareholders.
Therefore, the United States argued, the sale of the shares of the recipient-producer can never
extinguish the benefit of financial contributions provided to that producer because the producer and its
shareholders are different persons.
7.236 The Appellate Body stated that the Unite d States had misconstrued its reports in Canada –
Aircraft and US – Lead and Bismuth II .2152 The Appellate Body explained that when, in Canada –
Aircraft,2153 it had described the "recipient" of a benefit as a "person, natural or legal, or a group of
persons" it had not excluded the possibility that a "recipient" could include both a "firm" ( i.e., forms
of business organizations including corporate associat ions, partnerships, limited liability partnerships,
unincorporated entities) and its owner (i.e., including shareholders, members, proprietors, partners and
all other holders of equity interests in the releva nt business organization). According to the Appellate
Body:
"In sum, the legal distinction between firm s and their owners that may be recognized
in a domestic legal context is not necessarily relevant, and certainly not conclusive,
for the purpose of determining whether a "b enefit" exists under the SCM Agreement,
because a financial contribution bestowed on those investing in a firm may confer a

2150 Panel Report, US – Countervailing Measures on Certain EC Products, para. 7.51. As we discuss in
7.241, we are unable to agree with the panel on this issu e. Although an owner may indirectly "benefit" in a
financial sense from its investment in a subsidized producer, we do not consider that this indirect "benefit" to an
owner of a subsidized producer is the same as the "benefit" conferred by the provision of a financial
contribution to the subsidized producer on better than market terms.
2151 Panel Report, US – Countervailing Measures on Certain EC Products, para. 7.50.
2152 Appellate Body Report, United States – Countervailing Measures Concerning Certain Products
from the European Communities (US – Countervailing Measures on Certain EC Products), WT/DS212/AB/R,
2153 Appellate Body Report, Canada – Aircraft , para. 154. The Appellate Body also noted that its
statements in US – Lead and Bismuth II were made in the context of responding to the United States' arguments
in that dispute that the analysis of the existence of a "benefit" should be on "legal or natural persons" and not on
"productive operations"; Appellate Body Report, US – Countervailing Measures on Certain EC Products ,
para. 110.

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benefit "upon the manufacture, production or export of any merchandise, as provided
for in paragraph 3 of Article VI of GATT 1994.""
2154
7.237 However, the Appellate Body also considered that the panel had gone too far in asserting that,
for purposes of the benefit determination, no dist inction should be made between a firm and its
owners. The Appellate Body noted that the panel should have conf ined its findings to the specific
circumstances before it, which involved one kind of change in ownership ( i.e., a privatization at arm's
length and for fair market value where the government transfers all or substantially all the property
and retains no controlling interest in the firm) and only one kind of benefit (i.e., a benefit conferred by
a non-recurring financial contribution to a stat e-owned enterprise before privatization). 2155 T h e
Appellate Body also disagreed with the panel's findi ng that a privatization at arm's length and for fair
market value necessarily always extinguished any benefit accruing to the privatized producer from
prior financial contributions. 2156 Specifically, the Appellate Body disputed the implication that a
benefit could never continue to exist for a new owner following a priv atization at arm's length and for
fair market value.2157
7.238 In short, while the Appellate Body recognized, in the context of a dispute under Part V of the
SCM Agreement, that there was a "rebuttable presumption" that a benefit ceases to exist following the
privatization of a subsidized producer at arm's-length and for fair market value,2158 the Appellate Body
explicitly confined its analysis and findings (as we ll as those of the panel) to the specific facts and
circumstances before it:
"As we explained, the "core legal questi on" before the Pane l was to determine
whether a "benefit", within the meaning of the SCM Agreement, continues to exist
following privatization at arm's length and for fair market value. In considering this
core legal question, the Panel examined a very precise set of facts and circumstances,
namely, a benefit resulting from a prior non-recurring financial contribution bestowed
on a state-owned enterprise where, following a privatization at arm's length and for
fair market value, the government transfer s all or substantially all the property and
retains no "controlling interest in the pr ivatized producer." The Panel did not
examine other situations, for instance, s ituations where a "benefit" is conferred
through recurring financial contributions, or where the seller retains a controlling
interest in the firm following its change in ownership. The Panel had to consider only
one kind of change in ownership (that is, a privatization at arm's length and for fair
market value where the government transfers all or substantially all the property and
retains no controlling interest in the firm ) and only one kind of benefit (that is, a
benefit originating from a non-recurring financial contribution bestowed to the state-

2154 Appellate Body Report, US – Countervailing Measures on Certain EC Products , para. 115
(footnote omitted).
2155 Appellate Body Report, US – Countervailing Measures on Certain EC Products , paras. 116-117.
The Appellate Body was concerned that the panel's overly broad finding that a firm and its owners are, for all
purposes of the SCM Agreement, virtually the same, could be interpreted as entitling investigating authorities to
assume, in all cases that, where a subsidy is bestowed on a firm indirectly ( i.e., by providing a financial
contribution to a firm's owners), the firm will receive a "benefit" equivalent to the full amount of the financial
contribution, irrespective of the means and conditions imposed by a government for the provision of that
financial contribution to owners of a firm; at para. 118.
2156 Appellate Body Report, US – Countervailing Measures on Certain EC Products, para. 121,
2157 Appellate Body Report, US – Countervailing Measures on Certain EC Products , para. 121. The
Appellate Body considered that this is because market c onditions may be such that the actual exchange value of
the continuing benefit of past non-recurring financial contributions bestowed on a state-owned enterprise are not
in fact reflected in the market price; at para. 122.
2158 Appellate Body Report, US – Countervailing Measures on Certain EC Products, para. 127.

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owned enterprise before privatization). Th e Panel should have confined its findings
to those specific circumstances."2159
7.239 Returning to the issues in the dispute before us, we recall that the European Communities
asks us to recognize, on the basis of the reports di scussed above, the existence of a "principle" that the
sale of a producer at arm's-length and for fair ma rket value presumptively extinguishes the "benefit"
conferred by any financial contribut ions previously provided to that producer. In light of the
Appellate Body's clear indication that the panel's findings in US – Countervailing Measures on
Certain EC Products should be confined to the "very precise se t of facts and circumstances" at issue
in that dispute, we do not consider that it would be appropriate for us to do so.
7.240 Moreover, for reasons that we will proceed to explain, we are unable to agree with the
reasoning underlying the panel's decision in US – Countervailing Measures on Certain EC Products
and are likewise unable to find specific support for that reasoning in the Appellate Body's report. As
we see it, the panel's assessment of the post-p rivatization "benefit" conferred by financial
contributions provided to a state-owned pr oducer prior to its privatization in US – Countervailing
Measures on Certain EC Products was based on two core legal considerations. The first was that the
privatized firm and its new owners together should be considered to be the "recipient" of the benefit
to be assessed. 2160 The second was that the relevant inqui ry for assessing the "benefit" to this
"recipient" ( i.e., the privatized firm and its new owners, c onsidered together) is to ask what this
recipient "gets for free"; i.e., the value of any subsidy that the new owners of the privatized firm
cannot be considered to have "paid for" in the fair market price.2161
7.241 As to the first consideration, the panel appeared to explain its assessment of "benefit" from
the perspective that the relevant "recipient" co mprised the privatized firm and its new owners
together, on the basis that (i) the value of a company is based on its ability to generate returns for its
shareholders, and (ii) when a subsidy improves th e profitability of a company, it thus improves the
rate of return to its shareholders. 2162 However, we can find nothing in the Appellate Body's reports in
Canada – Aircraft or in US – Lead and Bismuth II to support the panel's contention that a firm and its
owners must necessarily together be considered the "recipient" for purposes of evaluating the effect of
a change of ownership of a firm on the existence of subsidies previously granted to that firm. 2163 A
firm's general economic interests ma y be aligned with those of many other actors, but this does not
mean that such other actors, along with the firm, should necessarily be considered to be the recipient
for purposes of determining the benefit conferred by a financial contribution provided to the firm.
For example, if we assume that a subsidy improves a firm's profitability, which in turn enhances its
ability to meet its debt obligations (thereby lowering its risk of defa ulting on its debt obligations), the
firm's unsecured creditors might also be said to "benefit" from a subsidy granted to a firm. If a
general alignment of economic interests between a firm and its owners were a sufficient basis for
concluding that the benefit conferred by a financial contribution provided to a firm be necessarily
assessed from the perspective of the firm and its owne rs together, as the recipient, then it would seem
to follow that the general alignment of economic in terests between a firm and its creditors (or any
other actors whose economic interests are aligned with the firm) should likewise be relevant to
assessing the benefit conferred by a financial contribu tion provided to a firm. In our view, nothing in
the SCM Agreement or reports of the Appellate Body suggests that this would be appropriate.

2159 Appellate Body Report, US – Countervailing Measures on Certain EC Products, para. 117.
2160 Panel Report, US – Countervailing Measures on Certain EC Products, para. 7.54. We note that the
panel in US – Lead and Bismuth II adopted a similar approach to the identity between a company and its owners
in the context of determining the existence of "benefit" under Article 1.1(b); Panel Report, US – Lead and
Bismuth II, para. 6.82.
2161 Panel Report, US – Countervailing Measures on Certain EC Products, para. 7.72.
2162 Panel Report, US – Countervailing Measures on Certain EC Products, para. 7.51.
2163 Moreover, the Appellate Body in US – Countervailing Measures on Certain EC Products explicitly
did not support this contention; at paras. 116-117.

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7.242 As to the second consideration; namely, that the "benefit" is to be measured according to what
the subsidized producer and its new owners, considered together, "get for free", the panel explained:
"When a state-owned company/producer r eceives subsidies from the government, the
advantage conferred by the subsidy should be reflected in the fair market value (sale
price) of the state-owned enterprise to be pr ivatized. Thus, if upon privatization, fair
market value is paid for all productive asset s, goodwill, etc. employed by the state-
owned producer, the Panel fails to see how the subsidies bestowed to the state-owned
producer could subsequently be considered to still confer a "benefit" on the privatised
producer (in the sense of the company togeth er with its owners) who has paid fair
market value for all the shares and assets, reflecting, we must assume, the value of
past subsidization."
2164
7.243 In our view, the fact that the purchaser of a s ubsidized producer pays fair market value to
acquire that producer indicates that the acquisition transaction itself was not on terms more
advantageous than those that would have been available to the purchaser on the market for
comparable investment opportunities, and therefore did not involve a (new) subsidy to the purchaser.
However, we fail to see the relevance of the fact th at a purchaser of a subsidized producer pays fair
market value to acquire that producer to the questio n of the continued existence of a benefit conferred
by the original provision of a financial contributio n to the subsidized producer. The panel indicates
that the new owner, having effectively "paid for" th e benefit of any financia l contribution previously
provided to the producer would, as a profit-maximi zer, ultimately recoup its investment in the
privatized producer by obtaining a "market return" on the entirety of its investment in the privatized
producer.
2165 We do not see why the fact that new owners may cause a previously subsidized
producer to compete in a market-oriented manner should necessarily eliminate the benefit which that
producer may nonetheless enjoy from prior financial contributions that were provided on non-market
terms. Much will depend on the nature of the pr ior subsidization and the markets in which the
producer competes. Indeed, the fact that "the owne rs' investment in the privatized company will be
recouped through the privatized company providing its owners a market return on the full amount of
their investment" suggests that the "benefit" confe rred by prior financial contributions is ultimately
not in fact "paid for" by the new owner.
7.244 In this regard, in assessing the existence of benefit on the basis of what a particular "recipient"
can be said to "get for free", the panel appears to us to conflate the two different financial
contributions (the financial contribution original ly provided to the producer and the financial
contribution involved in the sale of an interest in that firm to the new owner) and the two relevant
markets according to which the benefit conferred by the respective financial contributions is to be
assessed. As the Appellate Body has indicated, a fina ncial contribution will only confer a "benefit" if
it is provided on terms that are more advantageous th an those that would have been available in the
market.2166 Article 14 of the SCM Agreement provides guidance as to how the relevant market should
be identified.2167 It is clear from the terms of Article 14 that the "relevant market" is related to the
type of the financial contribution under consideration. 2168 A conclusion that, on a change in

2164 Panel Report, US – Countervailing Measures on Certain EC Products, para. 7.72.
2165 Panel Report, US – Countervailing Measures on Certain EC Products, para. 7.60.
2166 Appellate Body Report, Canada – Aircraft, para. 149.
2167 Appellate Body Report, Japan – Countervailing Duties on Dynamic Random Access Memories from
Korea ("Japan – DRAMs (Korea)"), WT/DS336/AB/R and Corr.1, adopted 17 December 2007, para. 173.
2168 For example, Article 14(b) provides that a financial contribution in the form of a loan shall not be
considered as conferring a benefit on the recipient firm unless there is a difference between the amount that the
firm receiving the loan pays on the governmen t loan and the amount the firm would pay on a comparable
commercial loan which the firm could actually obtain on the market. In other words, the terms of Article 14(b)
suggest that the relevant "market" for assessing whethe r a benefit was conferred by a financial contribution in
the form of a loan is a commercial loan market.

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ownership of a subsidized producer, the "benefit" conf erred by previous financial contributions is to
be re-evaluated on the basis of whether the new owner acquired the producer on arm's length terms
and for fair market value, appears to us to invol ve a re-evaluation of the benefit conferred by the
original financial contribution provided to the produc er based on a different market that is unrelated
to that financial contribution; i.e., the market in which the new owners compete, with other potential
investors, to acquire the producer. It is not cl ear to us why, simply as a result of a change of
ownership of the producer, the "relevant market " for re-assessing the benefit conferred by earlier
financial contributions to a producer, whatever their original form and the original market
benchmarks, should become the market of potential investors in the producer's equity securities or
assets.2169 The approach adopted by the panel in US – Countervailing Measures on Certain EC
Products to determining the benefit in such circumstances therefore appears to us to be at odds with
the approach to benefit contemplated in Article 14 of the SCM Agreement.
7.245 The United States argues that the consequen ce of accepting the Eu ropean Communities'
argument would be the constant extinction of subs idies provided to publicly traded corporations,
opening a major loophole in the SCM Agreement that Members could not possibly have
contemplated.2170 The European Communities notes that it h as not claimed that public trading in
EADS shares has reduced the amount of any subsidy; it has instead, confined its extinction arguments
to "significant sales by government, industry or in stitutional shareholders, analogous to the kinds of
sales which have already been found to exti nguish or reduce benefit from past financial
contributions."2171 The European Communities argues that th e question whether sales of shares in a
publicly traded corporation will reduce the amount of "benefit" conferred on that corporation for
purposes of the SCM Agreement will depend on factors such as: whether the price of the shares fully
reflects the residual value of any subsidy; whether the sellers and purchasers form part of an economic
unit with the corporation or are revenue seeking in vestors; whether the sellers completely exit the
corporation or continue to shar e ownership of the economic unit; and whether the former or new
owners have other economic activities to which the benefit could be transferred.2172
7.246 We agree with the United States that, if one acc epts the "principle" for which the European
Communities argues; namely, that the sale of a pro ducer at arm's-length and for fair market value
presumptively removes any benefit conferred by fina ncial contributions previously provided to that
producer, there is no meaningful basis for dis tinguishing the transactions which the European
Communities alleges have resulted in the extinction of a portion of the benefit conferred by financial
contributions provided to the various Airbus-relate d entities in this dispute, on the one hand, from
daily trading in the shares of a subsidized producer, on the other. 2173 Recognition of a principle
according to which changes in the underlying owners hip of a subsidized producer automatically or
presumptively eliminate the benefit conferred by prio r financial contributions to that producer where

2169 We are therefore unable to agree with the panel in US – Countervailing Measures on Certain EC
Products that the market conditions under which privatizations occur "serve as a benchmark for assessing the
benefit to the privatized producer, as envisaged by Article 14."; para. 7.72.
2170 US, Comments on EC Answer to Panel Question 197, para. 177. The implications of re-evaluating
the existence of "benefit" in the case of a partial change in ownership were discussed by the United States and
the European Communities in US – Countervailing Duties on Certain EC Products , however, the panel in that
case did not consider it necessary to address the issue; Panel Report, US – Countervailing Duties on Certain EC
Products, para. 7.62.
2171 EC, Answer to Panel Question 197, para. 225.
2172 EC, Answer to Panel Question 197, para. 225. The European Communities notes that the Panel is
not called upon to solve all possible problems or to promulgate general rules on these matters.
2173 US, Answer to Panel Question 168, para. 214. A lthough the United States had raised the issue of
changes in ownership of publicly traded corporations before the panel in US – Countervailing Measures on
Certain EC Products , the panel considered it unnecessary to addr ess the issue because all of the challenged
determinations before it involved sales by a government of all or substantially all of their ownership interests in
the relevant subsidized producers; at para. 7.62.

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the new owners can be said to have acquired their interest in the producer on arm's-length terms and
for fair market value would, in our view, poten tially eviscerate the subsidies disciplines of the
SCM Agreement. This is particularly evident wh ere the subsidized producer is a corporation whose
shares are publicly traded.
7.247 For the foregoing reasons, we are unable to agr ee with the reasoning adopted by the panel in
US – Countervailing Measures on Certain EC Products . Moreover, we do not consider that the
reasoning of the panel in this respect was endorsed by the Appellate Body, beyond the specific facts
and circumstances that were before it; namely, "a benefit resulting from a prior non-recurring
financial contribution bestowed on a state-owned en terprise where, following a privatization at arm's
length and for fair market value, the government tr ansfers all or substantially all the property and
retains no "controlling interest in the privatized producer.""
2174
7.248 Therefore, in the context of these alternative findi ngs, to the extent that prior reports of the
Appellate Body support the conclusion that, in a dispute under Part III of the SCM Agreement,
changes in the ownership of a subsidized producer give rise to a rebuttable presumption that the
benefit conferred by prior subsidies is extinguished , we consider that this would only be where
(i) benefits resulting from a prior non-recurring financ ial contribution, (ii) are bestowed on a state-
owned enterprise, and (iii) following a privatization at arm's length and for fair market value, (iv) the
government transfers all or substantially all the pr operty and retains no controlling interest in the
privatized producer.
7.249 The European Communities does not argue that th e transactions that it alleges have resulted
in the "extinction" of subsidies bestowed on Airbus SAS fulfil all of the above criteria. For example,
the European Communities does not argue, much less demonstrate, that the transactions in question
(with the exception of the stock exchange sales of EADS shares) were on arm's length terms. 2175
More significantly, none of the transactions in ques tion involved transfers by a government of all or
substantially all of a state-owned producer, including a complete relinquishment of control. It is clear
that the public offerings of shares in Aérospatiale-Matra and EADS were not transactions in which the
governments in question retained "no controlling interest in the privatized producer."2176
7.250 We are unable to agree with the European Co mmunities' argument that the compliance Panel
in US – Countervailing Measures on Certain EC Products (Article 21.5 – EC) extended the extinction
"principle" to "graduated and partial sales undertaken in tranches rather than single-event changes of

2174 Appellate Body Report, US – Countervailing Measures on Certain EC Products , para. 117; Panel
Report, US – Countervailing Measures on Certain EC Products, para. 7.62.
2175 The concept of "arm's length" is not defined in the SCM Agreement. However, the compliance
panel in US – Countervailing Measures on Certain EC Products (Article 21.5 – EC) considered various
dictionary definitions of the term, all of which highlighted the independence of parties in arm's length
transactions; paras. 7.133-7.134. We are not persuaded, on the basis of the evidence presented to us, that any of
the transactions to which the European Communities refers in paragraph 7.204 (other than the stock exchange
sales of EADS shares) were "arm's length" transactions.
2176 Although the French government sold a portion of its shares in Aérospatiale-Matra to the public in
1999, it retained (directly or indirectly) a shareholding of approximately 48 percent. Moreover, the French
government exercised control over Aérospatiale-Matra through a shareholders' agreement with Lagardère
(which held 33 percent of the shares of Aérospatiale-Matra immediately after the public offering) in addition to
holding a so-called "Golden Share" ( action spécifique ) giving it special veto rights. Similarly, the French
government and DaimlerChrysler continued to control the operations of Airbus Industrie following the public
offering of shares in the newly formed EADS in 2000. Immediately following the public offering of shares in
EADS, 60 percent of the sh are capital of EADS was held in equal proportions by SOGEADE (in which the
French state held a 50 percent interest) and DaimlerChrysler, which jointly controlled EADS through a
contractual partnership, in which the Spanish government (through SEPI) also exercised voting rights; EADS
Offering Memorandum, Exhibit EC-24, p. 132.

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control".2177 We recall that the compliance Panel in US – Countervailing Measures on Certain EC
Products (Article 21.5 – EC) considered the consistency of the USDOC's new privatization
methodology and its application to three sunset revi ew re-determinations with Article VI:3 of GATT
1994 and Articles 10, 14, 19.4, 21.1 and 21.3 of the SCM Agreement. One of the privatizations at
issue was the French government's privatization of Usinor, which occurred in incremental stages over
a three year period through four types of share offerings to four different classes of purchasers. 2178
The USDOC had separately considered the sales transactions pertaining to the four different
categories of share offerings, and applied its ne w privatization methodology to each of the four
categories of share offerings in order to evaluate whether the sales transactions in each share offering
occurred at arm's-length and for fair market valu e. In response to the European Communities'
argument that the original panel had discussed the arm's length and fair market value factors in the
context of the privatization of a firm as a whole, the compliance panel found that there was nothing in
the original panel's report that would require an i nvestigating authority to examine the conditions of a
privatization by looking at the company as a whole .2179 The compliance panel concluded that it did
not consider the USDOC's segmented analysis of the French government's privatization to be
unreasonable given the circumstances of the privatization and found that it was applied in a
transparent manner.
2180 We are unable to find anything in the compliance panel's reasoning or report
that purports to extend or modify the express hol ding of the Appellate Body by suggesting that
transactions in which a government transfers less than all of substantially all of the privatized
producer or retains a controlling interest in the privatized producer are presumed to extinguish the
benefit conferred by financial contributions provided to that producer.2181

2177 EC, SNCOS, para. 59.
2178 US – Countervailing Measures on Certain EC Products (Article 21.5 – EC) , paras. 7.107. The
offerings were to each of the followi ng groups (i) French resident na tionals and European Communities or
European Economic Area nationals in France; (ii) current and qualifying former employees of Usinor
throughout the world; (iii) stable shareholders comp rising various institutional investors, both public and
private; and (iv) the general public in the French and international financial markets. The USDOC had
determined that the Usinor privatization was at arm's length and for fair market value with the exception of the
employee/former employee offering, which constituted 5.16 percent of the sale.
2179 US – Countervailing Measures on Certain EC Products (Article 21.5 – EC), paras. 7.117-7.118.
2180 US – Countervailing Measures on Certain EC Products (Article 21.5 – EC), paras. 7.119, 7.122.
2181 We note that the reasoning of the panel in US – Countervailing Measures on Certain EC Products
itself does not support the extension of the "extinction" principle for which the European Communities contends
to cases of partial, rather than full, changes of ownership of a subsidized producer. We recall that the panel's
analysis was based on the following legal conclusions: First, the benefit conferred by a financial contribution
provided to the subsidized firm (which translates into increased profitability) is commensurate with the benefit
conferred by that financial contribution on the subsidized firm's owners (in the form of improved returns on the
investment in the subsidized firm), so the existence of "benefit" should be based on an assessment of the benefit
to the "recipient" (in the sense of the owners of the subsidized firm and the subsidized firm together); and
second, the new owner of the subsidized firm has effectivel y paid for the value of the subsidy as part of the fair
market price paid, so there can be no "benefit" remaining in the "recipient" owner-firm unit. The second
conclusion can only be valid where there has b een a complete sale of a subsidized firm; i.e., where new owners
replace old owners. This is because, in the case of a "p artial" sale of a firm, the "recipient" in the above
analytical framework would, presumably, be the subsidized producer plus the new owner plus the existing
(selling) owner, as this existing owner would continue to be an owner (although with a reduced interest in the
firm) following the transaction. From the perspective of this "recipient" owner-firm unit, there would be no
change in the net benefit when a new owner purchases a pa rt of a firm for fair market value because the fair
market value paid by the new owner for its interest in the firm (a sum which would include a proportionate
value of the subsidization) is paid to the selling owner and thus remains with the "recipient" owner-firm unit.
Where there is a new issuance of shares in a subsidized fi rm, rather than the sale by an owner of less than all of
its equity in a producer, the fair market value of the equity interests paid by new subscribers (a sum which,
according to the analytical frame work adopted by the panel in US – Countervailing Measures on Certain EC
Products, includes a proportionate value of the subsidization) is paid to the firm, and thus also remains with the
"recipient" owner-firm unit.

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7.251 Moreover, certain of the transactions identifie d by the European Communities at paragraph
7.204 were not transfers of ownership interests by a government, but by private persons. The
European Communities contends that the "extinction" principle applies equally in the case of private-
to-private sales. In particular, the European Comm unities refers to a statement by the Appellate Body
in US – Countervailing Measures on Certain EC Products that the fact that a sale is a privatization
weakens the conclusion that the benefit of prior subsidies is always extinguished, noting that while a
conclusion that a benefit has been extinguished "may be defensible in the context of transactions
between two private parties taking place in reasonabl y competitive markets", it should not give rise to
an irrebutable presumption in the context of a privatization.
2182 According to the European
Communities, the Appellate Body's statement suggests th at in private-to-private sales, where it is less
likely that the sale price could be influenced by th e seller's intervention in the market, an arm's-length
sale for fair market value can be irrebutably presumed to extinguish the benefit of prior subsidies.
7.252 We do not consider that this can be what the Appellate Body intended. As we have already
discussed, a principle that subsidies bestowed on a producer are extinguished whenever there is a
change in ownership of the producer would poten tially eviscerate the subsidies disciplines of the
SCM Agreement. Moreover, we have difficulty u nderstanding, in the abstract, how a government's
capacity to influence the market in which the sale of the subsidi zed producer occurs impacts the
question of the continued existence of the "benefit" conferred by a financial contribution previously
provided to that producer. The former pertains to the question whether the sale transaction is actually
for "fair market value" and thus whether any fi nancial contribution provided by the transaction in
which the government sold its interest in the subsidized producer conferred a benefit on the purchaser.
7.253 What arguably distinguishes privatizations fro m private-to-private sales, however, is the
implications of a change from state to private ownership. As the panel in US – Countervailing
Measures on Certain EC Products observed, a privatization is a ve ry particular and complex change
in ownership, which involves a fundamental tran sformation of a government-owned and controlled
entity into a privately-owne d, market-oriented company. 2183 Following a privatization, there is no
longer an identity (in a legal or economic sense) be tween the authority bestowing the subsidy on the
producer, the owner of the subsidized producer and the subsidized producer itself.
7.254 It may even be possible to characterize a priva tization as the "realization" by a Member of the
market value of its "investments" in a partic ular enterprise. We note that the panel in US –
Countervailing Duties on Certain European Communities Products , recognized the unique nature of
privatizations in this regard:
"Furthermore, since the fair market value paid to the state-owned producer is deemed
to include (de facto) the value of the advantage or benefit already received, the Panel
considers that the privatization transaction for fair market value includes the
repayment to the government of the subsidy as valued by the mark et at the time of
privatization."
2184
7.255 We would, therefore, reject the European Co mmunities' argument that the reports of the
panels and Appellate Body in US – Lead and Bismuth II and US – Countervailing Duties on Certain
European Communities Products established a "principle" that an arm's-length, fair market value sale
of all or part of a subsidized producer, whethe r by a government or private owner, presumptively
extinguishes the benefit (or a portion thereof) conferre d by prior financial contributions provided to
that entity. Accordingly, we consider that there is no basis for finding that the transactions specified

2182 Appellate Body Report, US – Countervailing Duties on Certain EC Products, para. 124.
2183 Panel Report, US – Countervailing Duties on Certain EC Products, para. 7.60.
2184 Panel Report, US – Countervailing Duties on Certain EC Products, para. 7.72.

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in paragraph 7.204 of this Report extinguish or otherwise reduce the "benefit" to Airbus SAS
conferred by financial contributions provided to Airbus Industrie or Airbus SAS.
7.256 We now turn to the European Communities' rela ted argument, that the "extraction" of cash
from a subsidy recipient can, in certain circumst ances, "extinguish" a portion of the "benefit"
conferred by financial contributions previously provided to the recipient, and the additional argument
that such "extractions" nonetheless amount to the withdrawal of a subsidy pursuant to Articles 4.7 and
7.8 of the SCM Agreement.
(e) Extraction of benefit and withdrawal of subsidies
(i) Introduction
7.257 The European Communities argues that two transactions that occurred in conjunction with the
formation of EADS in 2000 had the effect of "e xtracting" or removing a portion of the benefit
conferred by any financial contri butions that may have been provided to Dasa and CASA. The
European Communities also argues that the cash "extracted" as a r esult of these two transactions can
be regarded as "withdrawals" of the equivalent va lue of previously provided subsidies for purposes of
Articles 4.7 and 7.8 of the SCM Agreement.
7.258 The transactions that involved the so-called "cash extractions" are (i) the retention by
DaimlerChrysler, as shareholder of Dasa, of cash and cash equivalents immediately prior to the
transfer by Dasa of its LCA-related assets and activities to EADS;
2185 and (ii) the retention by SEPI
(as the shareholder of CASA) of cash and cash equi valents immediately prior to CASA's combination
in EADS. 2186 The so-called "extractions" formed part of the series of transactions leading to the
combination of Aérospatiale-Matra, Dasa and CASA in 2000 to form EADS and were a consequence
of the Airbus partners' agreement that the activ ities of Aérospatiale-Matra, Dasa and CASA in the
aeronautics, space and defence sectors would be contributed to EADS in return for shares representing
agreed proportions of interests in EADS. 2187 By way of background, the European Communities
explains that the transactions occurred because the "value" of Dasa's LCA-related assets and

2185 The United States challenges the accuracy of the European Communities' assertion that the Dasa
"cash extraction" amounted to EUR [***]; US, Comments on EC's Answer to Panel Question 200, para. 207.
The United States notes that the EADS Offering Memorandum states that, as part of the implementation of the
agreements regarding the creation of EADS, "Dasa cash and cash equivalents" of EUR 1,749 million were to be
"retained by DaimlerChrysler"; Exhibit EC-24, pp. F-12 (Note G) and F-79. According to the United States, the
figure of EUR [***] appears to be based on a description in the EADS Offering Memorandum of the internal
reorganization of Dasa in which all of the assets and lia bilities of Dasa, other than certain excluded assets, were
contributed to a Dasa subsidiary which Dasa would then contribute to EADS. One group of "excluded assets"
(i.e., assets retained by Dasa) was "a cash amount of Euro 3,133 million"; Exhibit EC-24, p. 142.
2186 According to the EADS Offering Memorandum, SEPI extracted an amount of EUR 340 million
from CASA "by way of distribution of reserves and reduction of capital". The cash extraction corresponding to
CASA's shareholders other than SEPI amounted to EUR 2.45 million; EADS Offering Memorandum, dated
9 July 2000, Exhibit EC-24, p. 143.
2187 The legal steps through which the LCA operations conducted by the Airbus partners through
Airbus Industrie were consolidated under EADS and then reorganized under Airbus SAS are set forth in
Section VII.E.1 Attachment, following para. 7.289. Although the European Communities refers to the
"contribution of Dasa to EADS", the evidence before us indicates that the entity Dasa was not itself contributed
to EADS. Dasa remained a subs idiary of DaimlerChrysler and a shareholder of EADS; EADS Offering
Memorandum, dated 9 July 2000, Exhibit EC-24, p. 143. Prior to the EADS combination, the LCA-related
assets and activities of Dasa were reorganized into various subsidiaries, including (i) a subsidiary called
DaimlerChrysler Aerospace Beteiligungs GmbH, which held 99.99 percent of the shar es in DaimlerChrysler
Aerospace Airbus GmbH, which in turn held 37.9 percent of the membership rights in Airbus GIE; and (ii) a
subsidiary called EADS Deutschla nd GmbH, to which various other assets and liabilities of Dasa were
contributed. These Dasa subsidiaries were then contributed to EADS.

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activities, and of CASA, each as contributed to EADS , needed to reflect the corresponding percentage
interests that DaimlerChysler and the Spanish government were to hold in EADS.
2188 As a result,
DaimlerChrysler (as the shareholder of Dasa) and SEPI (as the shareholder of CASA) retained cash
and cash equivalents of Dasa and CASA, respectively, so that the adjusted values of the Dasa and
CASA contributions to EADS reflected the respecti ve proportionate interests of DaimlerChrysler and
the Spanish government in EADS (i.e., 37.3 percent and 6.2 percent) that had been agreed upon by the
Airbus partners.
(ii) Arguments of the Parties
European Communities
7.259 The European Communities submits that an economically analogous situation to one in which
the benefit or advantage conferred by a financial contribution is "extinguished" by the arm's-length,
fair market value purchase of a subsidized producer , is where cash is "extracted" from a subsidized
producer "in a manner that ensures that it is no longer used to advantage production in the industry at
issue".
2189 In support of this argument, the European Communities submits that the decisions of the
panels and Appellate Body in the US – Lead and Bismuth II and US – Countervailing Measures on
Certain EC Products are founded on "economic common sense – that a company's value reflects the
residual value of any subsidies it may have received"2190 and that, based on this proposition, where the
residual value of a subsidy is removed from a compan y, the value of that subsidy is correspondingly
reduced.2191 According to the European Communities:
"In economic terms, the position of the entity from which cash is extracted is no
longer improved in any sense by the prior subsidization. As such, it no longer enjoys
the enhanced ability to compete or to generate returns for its shareholders. Consistent
with economic common sense, such 'cash ex traction' from a recipient such that it no
longer enjoys prior advantage, is necessarily also a form of elimination of benefit
within the meaning of the SCM Agreement."
2192
7.260 The European Communities argues that the tr ansactions in which cash from Dasa and CASA
was "extracted" by their respective shareholders (DaimlerChysler and SEPI) prior to the contribution
of Dasa and CASA to EADS, "reduce any subsidy benefits in CASA and Dasa up to the full amount
of the extraction". 2193 According to the European Communities, it is appropriate to regard those
transactions as involving "value drawn away" from those entities and therefore cash retained by the
shareholders of those entities for activities unrelat ed to LCA production. Specifically, the European
Communities argues that (i) the extraction by DaimlerChrysler of [***] from Dasa, by way of the
retention of cash and cash equivalents;2194and (ii) the extraction by SEPI (the entity through which the
Spanish government held its stake in CASA) of EUR 342 million from CASA, by way of distribution
of reserves and reduction of capital,2195 reduced by a corresponding amount any subsidy "benefit" that
Dasa and CASA, respectively, may have enjoyed as of July 2000.2196

2188 EC, FWS, paras. 253-254.
2189 EC, FWS, para. 224.
2190 EC, Answer to Panel Question 112, para. 317.
2191 EC, Answer to Panel Question 112, para. 317.
2192 EC, FWS, para. 225.
2193 EC, FWS, para. 263.
2194 As previously indicated, the United States considers the relevant amount to be only
EUR 1,749 million; US, Comments on European Communities' Answer to Panel Question 200, para. 207.
2195 A further EUR 2.4 million was retained and distributed to CASA's shareholders other than SEPI.
2196 EC, FWS, para. 255.

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7.261 The European Communities contends that, prio r to these transactions, DaimlerChrysler was
the sole shareholder of Dasa, and the Spanish government (through its holding company SEPI) was
the sole shareholder of CASA. According to th e European Communities, following the transactions,
DaimlerChrysler and SEPI effectively became mi nority owners of the assets of Dasa and CASA
respectively, because their interest s in those assets came to be held indirectly through their
shareholding in EADS, which (from 2001 onwards) held interests in Airbus SAS, which in turn, held
the interests in the LCA-related assets and activities of Dasa and CASA (as Airbus Deutschland and
Airbus España, respectively).
2197 The European Communities cont ends that DaimlerChrysler and
SEPI thus "had a strong disincentive to re-inject the extracted cash into EADS, because doing so
would require that they share it with each other a nd all other EADS shareholders, rather than keeping
it to themselves."2198
7.262 In addition, the European Communities argues that the repayment or "extraction" of a subsidy
constitutes a withdrawal of a subsidy for purposes of Articles 4.7 and 7.8 of the SCM Agreement.
The European Communities contends that, although the Dasa cash extraction did not "repay" to the
German government subsidies that had been provi ded to Dasa or Deutsche Airbus by the German
government or other German government granting aut horities, the "benefit" of those subsidies has,
nonetheless, been removed or taken away. The Eur opean Communities argues that such removal or
taking away, while not a "repayment" as such, is a form of "withdrawal" of a subsidy under
Articles 4.7 and 7.8 of the SCM Agreement.
2199
7.263 On the other hand, the European Commun ities argues that the CASA "extraction" is clearly a
repayment to the Spanish government of previously conferred subsidies and therefore constitutes a
withdrawal of those subsidies pursuant to Articles 4.7 and 7.8. 2200 The European Communities
contends that it does not matter whether the Span ish government specifically received the cash from
CASA as the "repayment" of prior alleged subsidies as such ( i.e., in its capacity as grantor of those
alleged subsides), or as a distribution of dividends ( i.e., in its capacity as a shareholder of CASA).
According to the European Comm unities, "drawing subsidized va lue away from CASA still amounts
to withdrawal of prior subsidies, because it amounts to "removing" or "taking away" the incremental
contribution of alleged prior subsidies to the value of the company."
2201
United States
7.264 The United States argues that the European Commun ities' "extraction" theory is inconsistent
with one of the basic tenets of the decisi ons of the panels a nd Appellate Body in US – Lead and
Bismuth II and US – Countervailing Measures on Certain EC Products , which is that subsidized
entities and shareholders should ordinarily be cons idered as a single "recipient" for purposes of the
SCM Agreement. The United States contends that th e European Communities' argument that cash is
removed from the subsidized entity when it is paid to that entity's shareholder shows that the
European Communities is actually treating the subsid ized entity and its shareholder as distinct from
each other. 2202 The United States contends that the European Communities' "unsubstantiated
assertion" that the Spanish government and DaimlerC hrysler would have a strong disincentive, as
minority shareholders in EADS, to re-inject the extr acted cash into EADS is insufficient justification
for breaking the shareholder-company unit for purp oses of this aspect of the subsidy analysis. 2203
Moreover, the United States argues that accepting th e European Communities' argument would make

2197 EC, Answer to Panel Question 199, para. 242.
2198 EC, Answer to Panel Question 199, paras. 241-243.
2199 EC, Answer to Panel Question 200, para. 247.
2200 EC, SNCOS, para. 6.
2201 EC, Answer to Panel Question 200, para. 251.
2202 US, Comments on EC Answer to Panel Question 199, para. 197.
2203 US, Comments on EC Answer to Panel Question 199, para. 203.

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it a relatively simple matter to artificially "extr act" subsidies in connection with a non-arm's length
sale of a company in which the selling shareholder retains a controlling interest. This would be
accomplished by the shareholder attributing more cas h to the subsidized entity before "extracting"
it.
2204
7.265 The United States also disputes the European Communities' assertion that the transfer of
funds or other assets by the recipient of a subsidy to an entity other than the granting authority can
constitute the "withdrawal" of the subsidy for pur poses of the SCM Agreement. According to the
United States, Articles 4.7 and 7.8 are not drafted in the passive voice; they do not require merely that
the subsidies shall be withdrawn. Rather, they require that the subsidizing Member withdraw the
subsidy in the sense that the "Member must affirm atively do something by "remov{ing}" or "taking
away" the subsidy."
2205
(iii) Evaluation by the Panel
Cash "extractions" and the extinction of benefits conferred by prior financial contributions
7.266 The European Communities' argument that th e "extraction" of cash from Dasa and CASA
prior to the contribution of those entities to EADS extinguished a portion of the benefit conferred on
Airbus SAS by financial contributions provided to those entities rests on the same approach to
Article 5 of the SCM Agreement as the European Co mmunities' extinction argument; namely, that in
order for a subsidy to be potentially capable of causing adverse effects within the meaning of
Article 5, a complaining Member must have demons trated that a subsidy which is found to exist
additionally confers a present or "continuing" benefit on a recipient. We have already indicated that
we reject this approach to evaluating clai ms of adverse effects under Article 5 of the
SCM Agreement.
2206 We consider our findings in this re gard sufficient to resolve the issue.
Nonetheless, and in the interest of ensuring a posit ive resolution of this dispute in the event our
findings are reversed on appeal, we consider it appropriate to make alternative findings on the
European Communities' arguments that, in th e context of a claim under Part III of the
SCM Agreement, the existence of a benefit conf erred by a financial c ontribution provided to a
recipient may, under certain conditions, be extinguished by a demonstration that the residual value of
prior subsidization has been "extracted" from the subsidized recipient.
7.267 Accordingly, we set forth below our alternative findings on the basis of an interpretation of
Article 5 that would require a complaining Member to establish not only the existence of a subsidy
pursuant to Article 1.1 of the SCM Agreement, but also that the financial contribution confers a
"present" or "continuing" benefit on the recipient, as a prerequisite to demonstrating that a Member
has caused, through the use of that subsidy, adverse effects to the interests of another Member.
Alternative finding on cash "extractions"
7.268 We therefore consider whether the cash and cash equivalents retained by DaimlerChrysler
and SEPI, the parent companies of Dasa and CASA, r espectively, prior to the combination of Dasa's

2204 US, Comments on EC Answer to Panel Question 199, para. 199. The United States also notes that
the European Communities' extraction theory offers no reason why the value of the subsidies should be assumed
to have been extracted (on a Euro for Euro basis) when cash is transferred to the shareholder. The United States
notes that the European Communities' argument implicitly assumes that each Euro of cash extracted by
DaimlerChrysler and CASA eliminates a Euro's worth of LCA subsidies, even though the value of Dasa and
CASA prior to their contributions to EADS included more than the alleged subsidies they received ( e.g.,
retained earnings, non-subsidized contributions to capital, appreciated assets); US, Comments on EC Answer to
Panel Question 199, paras. 200-202.
2205 US, Answer to Panel Question 222, para. 292.
2206 See, paras. 7.194 - 7.200.

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aerospace-related assets and activities, and the shares of CASA, in EADS, can be considered to have
"removed the incremental contribution of alleged prior subsidies to the value of" Dasa and CASA, and
can be regarded as "extinguishing" the benefit to Airbus SAS conferred by prior financial
contributions provided to Dasa and CASA.
7.269 The European Communities does not argue that every time cash leaves a company for reasons
other than expenditure on production ( e.g., through payments of divide nds to shareholders) it is
appropriate to consider the benef it of prior financial contributions to that company to have been
correspondingly diminished. Indeed, the European Communities posits that there are circumstances
in which a cash extraction would not remove the benefit of a subsidy; namely, where the cash
distribution would have occurred in the absence of the subsidy, or where the distribution constitutes
nothing more than a "transfer of resources between a company and its sole owner, forming an
economic entity", especially where the owner does not have other businesses to which the benefit
could be transferred.
2207
7.270 While agreeing with the United States that mone y that is simply moved from the company to
the owner's pocket has not really left the comp any-shareholder unit, the European Communities
observes that the Appellate Body in US – Countervailing Measures on Certain EC Products had
rejected the panel's conclusion that, for pur poses of the benefit determination under the
SCM Agreement, no distinction should be drawn between a company and its owners.2208 According to
the European Communities, there may be instances where a shareholder's interest in a company
changes to such an extent that, although it rema ins a shareholder, an extraction of cash from the
company in favour of the shareholder "effectiv ely moves the money beyond the reach of the
"company-shareholder unit.""2209
7.271 We understand the European Communities to argue that, in order for a cash disbursement to
reduce the benefit of prior financial contributions to a company, (i) there must be a causal relationship
of some sort between the cash "extraction" and the subsidy and (ii) the "extraction" must effectively
move the money beyond the reach of the "company-shareholder unit". 2210 We have difficulty
accepting the proposition that a cash disbursement by a company reduces the benefit conferred by
prior financial contributions to that company in the circumstances descr ibed by the European
Communities. However, even if we were to accept, arguendo, that the benefit conferred by prior
financial contributions could be reduced or eliminat ed by "extractions" of cash in the circumstances
suggested by the European Communities, we do not consider that the Dasa and CASA "extractions"
fall within those circumstances, and we would ther efore reject the European Communities' arguments
in any case.
7.272 The European Communities argues, in accordan ce with the two requirements it posits as
relevant to determining when subs idy benefits will be extinguished by cash "extractions" that: (i) the
incremental value of Dasa and CASA depended on th e alleged subsidies (and could not have been
extracted in the absence of those alleged subsidi es); and (ii) the cash was removed from the company-
shareholder unit in both cases because the intere sts of both DaimlerChrysler and the Spanish
government in EADS following the combination were as minority shareholders in a larger entity (in
which they could be presumed to have a "strong disincentive" to re-inject the extracted cash).
7.273 However, the European Communities has not pr ovided any evidence to substantiate its
assertion that the incremental value of Dasa and CASA could not have been extracted in the absence
of the alleged subsidies. We are unconvinced by the European Communities' argument that, when

2207 EC, Answer to Panel Question 198, para. 236.
2208 EC, Answer to Panel Question 199, para. 240.
2209 EC, Answer to Panel Question 199, para. 241.
2210 EC, Answer to Panel Question 199, para. 241.

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cash was withdrawn from those entities in advance of their contribution to EADS, the payments
"served necessarily to extract from the company any value it otherwise may have enjoyed, ensuring
that any financial contribution at issue assuredly no longer conferred a benefit within the meaning of
Article 1.1 of the SCM Agreement."
2211 As the United States observes, this reasoning assumes that
the "extracted" cash represented the subsidies prev iously provided to Dasa and CASA, rather than
contributions to a company's cash position from other (non-subsidized) sources.2212
7.274 As regards the second criterion, the European Communities argues that DaimlerChrysler and
the Spanish government extracted the cash from Dasa and CASA while each was the sole shareholder
of the relevant entity. 2213 Moreover, the European Communities argues that after extracting the cash,
DaimlerChrysler and the Spanish government each sold the remaining assets of Dasa and CASA to
EADS and "were no longer the sole shareholders of those assets". 2214 The European Communities
contends that as minority shareholders of EADS (with DaimlerChrysler owni ng 30 percent of EADS
and the Spanish government owning 5.5 percen t of EADS), DaimlerChrysler and the Spanish
government had a "strong disincentive to re-inject the extracted cash into EADS, because doing so
would require that they share it with each other a nd all other EADS shareholders, rather than keeping
it to themselves."2215
7.275 We consider this to be an incomplete and inaccurate assessment of the economic realities of
the two transactions. Although the European Co mmunities characterizes DaimlerChrysler as a
"minority shareholder" in EADS following the co ntribution of Dasa's aerospace-related assets and
activities to EADS, DaimlerChrysler and a grouping of the French government, Lagardère and French
financial institutions were to jointly control EADS through a contractual partnership, to which the
Spanish government, through SEPI, was also a party. 2216 The former "owners" of the aeronautics-
related assets and activities of Dasa and CASA ( i.e., DaimlerChrysler and the Spanish government,
respectively), were to jointly control the ne w "owner" of those assets and activities (EADS and
subsequently Airbus SAS) through the EADS cont ractual partnership, to which both Dasa and SEPI
were parties.2217 Although the EADS transaction altered the legal ownership of the aeronautics-related
assets and activities of Dasa and CASA, it was structur ed so as to maintain the overall interests of
DaimlerChrysler and th e Spanish government in Airbus Industrie as a whole .2218 Therefore,
considered from the perspective of the economic un it engaged in the production of Airbus LCA, we
reject as a factual matter the assertion that the cash "extractions" by DaimlerChrysler and the Spanish
government moved the cash out of the "company-shareholder unit".

2211 EC, Answer to Panel Question 112, para. 320.
2212 US, SWS, para. 542.
2213 As a factual matter, the evidence presented to us indicates that the Spanish government was not the
sole shareholder of CASA. At the time of the EADS tr ansaction, Dasa owned 0.71 percent of the shares in
Casa, which it contributed to EADS; EADS Offering Memorandum, 9 July 2000, Exhibit EC-24, page. 142.
2214 EC, Answer to Panel Question 199, para. 242. We assume that the European Communities uses the
term "assets" in a general sense to refer to the LCA- related assets and operations of Dasa and CASA. The
evidence before us indicates that th e Spanish government exchanged its shares in CASA (not assets of CASA)
for shares in EADS, while Dasa (rather than DaimlerC hrysler) contributed shares in Dasa's reorganized
subsidiaries and Dasa's shareholding in CASA to EADS in exchange for shares in EADS; EADS Offering
Memorandum, 9 July 2000, Exhibit EC-24, page. 140.
2215 EC, Answer to Panel Question 199, para. 243.
2216 EADS Offering Memorandum, 9 July 2000, Exhibit EC-24, pp. 132-133.
2217 See, Section VII.E.1 Attachment, following para. 7.289.
2218 Rather than holding and exercising their membership interests in Airbus Industrie directly through
subsidiaries such as Dasa and CASA, DaimlerChrysle r (through Dasa) and the Spanish government (through
SEPI) were members of a contractual partnership that exercised voting rights in respect of 65.48 percent of the
outstanding shares of EADS. As a practical matter, the nature of control that DaimlerChrysler and the Spanish
government exercised over the LCA activities of Airbus through EADS was substantially the same as the
control that they had previously exercised over the LCA activities of Airbus as members of the Airbus Industrie
consortium.

BCI deleted, as indicated [***]

7.276 Thus, even assuming arguendo that a cash disbursement by a subsidy recipient could
potentially reduce the benefit conferred by prior fina ncial contributions to that recipient under the
conditions specified by the European Communities, we do not consider that the Dasa and CASA
"extractions" satisfy those conditions. As a resu lt, we would ultimately reject the European
Communities' "extraction" arguments even if we were to accept the European Communities' more
general arguments as to the conditions under whic h the benefit conferred by prior financial
contributions provided to a subsidized producer could be reduced or eliminated by "extracting" cash
from that producer.
7.277 It is not necessary for us to decide on the mer its of the European Communities' more general
arguments as to whether, and if so, the conditio ns under which, the benefit conferred by prior
financial contributions provided to a subsidized producer could be considered to have been reduced or
eliminated by "extracting" cash from that entity. However, we make the final observation that in US –
Countervailing Measures on Certain EC Products , the Appellate Body acknow ledged that a financial
contribution provided to the owners of a firm ma y nonetheless confer a benefit upon the manufacture,
production or export of any merchandise, as pr ovided for in Article VI:3 of the GATT 1994. 2219 This
being so, it is difficult to see how a firm could eliminate a subsidy simply by transferring funds to its
owners.
2220
Cash "extractions" and the "withdrawal" of subs idies within the meaning of Articles 4.7 and
7.8 of the SCM Agreement
7.278 We now consider whether the cash and cash e quivalents retained by DaimlerChrysler and
SEPI, respectively, prior to the combination of Dasa 's aerospace-related assets and activities, and the
shares of CASA, in EADS, can be treated as being e quivalent to the "withdrawal" of subsidies to
Dasa or CASA within the meaning of Articles 4.7 and 7.8 of the SCM Agreement.2221
7.279 In relation to the so-called "extraction" of cash from Dasa which the European Communities
contends is equivalent to the withdrawal of a subs idy, we note that the cash and cash equivalents were
retained by DaimlerChrysler ( i.e., Dasa), and were not transferre d to the German government. The
European Communities indicates that it is not arguing that the cash "extraction" by DaimlerChrysler
constitutes the "repayment" of subsidies grante d to Dasa and Deutsche Airbus by the granting
authority; i.e., the German government. 2222 However, the European Communities contends that there
are circumstances in which the transfer of funds or other assets by the recipient of a subsidy to an
entity other than the granting authority could nevertheless constitute "withdrawal" of the subsidy for
purposes of the SCM Agreement. 2223 Such circumstances would include, the European Communities
contends, distributions of cash from a previously-subs idized firm to the owners of that firm, provided
the transfer results in the removal of the "incre mental value contributed to the recipient by the
subsidy."2224
7.280 According to the United States, "withdrawal" of a subsidy requires the subsidizing Member to
affirmatively act to remove or take away the subsidy. The United States notes that, although the Panel
in Australia – Automotive Leather II (Article 21.5 – US) found that repayment of a subsidy by the
recipient was one way to "effectuate withdrawal of the subsidy by a subsidizing Member", the

2219 Appellate Body Report, US – Countervailing Measures on Certain EC Products, para. 115.
2220 In this regard, the United States observes, correctly in our view, that to find that subsidies are
"extracted" by a transfer of money from a subsidized fi rm to its owner would be to create opportunities for the
laundering of subsidies; US, SWS, para. 549.
2221 EC, FWS, paras. 253-254; EC, Answer to Panel Question 200, paras. 248-249.
2222 European Communities, confidential oral statement at the second meeting with the Panel
("EC, SCOS"), para. 5.
2223 EC, Answer to Panel Question 222, para. 558.
2224 EC, Answer to Panel Question 222, para. 559.

BCI deleted, as indicated [***]

"repayment" in question was a payment back to the granting government, with the government
providing nothing in return.
2225 The United States notes also that its interpretation of "withdraw" for
purposes of Article 4.7 and 7.8 does not exclude other ways in which Members may come into
compliance with the SCM Agreem ent; for example, under 7.8 of the SCM Agreement, a Member
whose use of subsidies has been found to cause adve rse effects may also "take appropriate steps to
remove the adverse effects." In addition, the Unite d States contends that the sale of a subsidized
entity at arm's length for fair market value involving all or substantially all of the entity could result in
the "extinction" of subsides, and thus be a situa tion which would "obviate the need for a Member to
take further action to come into compliance with its SCM Agreement obligations."
2226
7.281 The "withdrawal" of a subsidy is the remedy envisaged by Article 4.7 (in relation to
prohibited subsidies) and one of two possible re medies available under Article 7.8 (in relation to
actionable subsidies). In Australia – Automotive Leather II (Article 21.5 – US), the Panel found that a
recommendation to "withdraw the subsidy" provided fo r in Article 4.7 of the SCM Agreement is not
limited to prospective action, and may encompass repayment of the prohibited subsidy.2227
7.282 In Brazil – Aircraft (Art. 21.5 – Canada) , the Appellate Body analysed the meaning of the
term "withdraw" in Article 4.7 of the SCM Agreement as follows:
"{W}e observe first that this word has been defined as "remove", or "take away", and
as "to take away what has been enjoyed; to take from." This definition suggests that
"withdrawal" of a subsidy, under Article 4.7 of the SCM Agreement, refers to the
"removal" or "taking away" of that subsidy.
2228
In Australia – Automotive Leather II (Article 21.5 – US) , the Panel determined that the ordinary
meaning of "withdraw the subsidy" in Article 4.7 could encompass "taking away" or "removing" the
financial contribution that had been found to give rise to a prohibited subsidy.
2229

7.283 We do not consider it necessary to address in detail the United States' arguments as to
situations that would constitute the "withdrawal" of a subsidy for purposes of Articles 4.7 and 7.8 of
the SCM Agreement. We are not persuaded by the European Communities' contention that a
"withdrawal" of a subsidy could arise where a previously subsidized firm distributes cash to its
owners provided the transfer results in the removal of the "incremental value contributed to the
recipient by the subsidy". In any case, we do not consider that, as a factual matter, the Dasa cash
"extraction" can be said to have "removed the in cremental value" of subsidies granted to Dasa and
therefore Airbus Industrie. As discussed earlier, given the circumstances surrounding the contribution
of the LCA-related assets and activities of Dasa to EADS, and more particularly, the relationship
between DaimlerChrysler, Dasa and Airbus Industrie prior to the "extraction", and DaimlerChrysler,
Dasa, and EADS, immediately following the "extr action" and EADS contributions, we can see no
basis for concluding that the "incremental value" of any subsidy granted to Dasa and therefore Airbus
Industrie was removed by the cash "extraction".

2225 US, Answer to Panel Question 222, para. 293.
2226 US, Answer to Panel Question 222, para. 292, footnote 382.
2227 Panel Report, Australia – Subsidies Provided to Producers and Exporters of Automotive Leather,
Recourse to Article 21.5 of the DSU by the United States ("Australia – Automotive Leather II (Article 21.5 – US)"),
WT/DS126/RW and Corr.1, adopted 11 February 2000, DSR 2000:III, 1189, para. 6.39.
2228 Appellate Body Report, Brazil – Export Financing Programme for Aircraft – Recourse by Canada to
Article 21.5 of the DSU ("Brazil – Aircraft (Article 21.5 – Canada)"), WT/DS46/AB/RW, adopted 4 August 2000,
DSR 2000:VIII, 4067, para. 45.
2229 Panel Report, Australia – Subsidies Provided to Producers and Exporters of Automotive Leather
("Australia – Automotive Leather II"), WT/DS126/R, adopted 16 June 1999, DSR 1999:III, 951, para. 6.27.

BCI deleted, as indicated [***]

7.284 We also reject the European Communities' withdr awal argument as regards the cash and cash
equivalents retained by SEPI (as shareholder of CA SA) prior to the contribution of CASA to EADS.
The European Communities has acknowledged that a tran sfer of funds to a granting authority by the
recipient of a subsidy should not be considered to be the "repayment" or withdrawal of a subsidy
where: (i) "a granting authority provides something of equal value in exchange for cash or other assets
from the recipient of a subsidy"; or (ii) the granti ng authority owns the subsidized entity and has not
"left the company-shareholder unit". 2230 We consider that the CASA cash extraction clearly falls
within both of the specific circumstances that the Eu ropean Communities has itself identified as not
resulting in the withdrawal of a subsidy for purposes of Articles 4.7 or 7.8.
7.285 First, the so-called "extraction" of EUR 340 million from CASA was made by SEPI in return
for a reduction in the equity of CASA (in order to value CASA appropriately for purposes of its
combination into EADS). In other words, the Spanish government (through SEPI) "provided
something of equal value" ( i.e., the reduction of capital in its subs idiary CASA) in exchange for the
cash from CASA. Second, based on the circumstan ces of the consolidation of the French, German
and Spanish Airbus partners under EADS (in whic h SEPI continued to exercise the same control
through the contractual partnershi p controlling EADS as it did through its membership interest in
Airbus GIE held by CASA) we do not regard th e "extracted" cash as having "left the company-
shareholder unit" in any economically meaningful sense.
(f) Conclusion
7.286 In summary, for purposes of our assessment of the United States' claims under Article 5 of the
SCM Agreement, we consider Airbus SAS to be the same producer of Airbus LCA as the consortium
Airbus Industrie. We do not consider it necessary for the United States to affirmatively demonstrate
the "pass-through" to Airbus SAS of the benefit conf erred by financial contributions that had been
provided to Airbus Industrie (incl uding the Airbus partners and Air bus GIE and their affiliates) prior
to 2001 in order to make out a prima facie case under Article 5 of the SCM Agreement.
7.287 Nor do we consider it necessary for the United States to demonstrate the "continuity" of
benefits conferred by prior financ ial contributions provided to Airbus Industrie or Airbus SAS as a
prerequisite to establishing that the European Communities has caused, through the use of a subsidy
referred to in paragraphs 1 and 2 of Article 1, adverse effects to the interests of the United States,
pursuant to Article 5 of the SCM Agreement.
7.288 We therefore reject the European Communities' arguments (i) that the benefits conferred by
certain financial contributions provi ded to Airbus Industrie or Airbus SAS have been extinguished by
the series of allegedly arm's-length, fair market valu e transactions set forth in paragraph 7.204 of this
Report; and (ii) that the so-calle d "extractions" of cash and cash equivalents of Dasa and of CASA,
by DaimlerChrysler and SEPI, respectively, effect ively extinguished a portion of the benefits
previously conferred by financial contributions that had been provided to Dasa and CASA.
7.289 Finally, we reject the European Communities' argument that the retention of cash and cash
equivalents of Dasa and CASA, by DaimlerChrysler and SEPI, respectively, constituted a
"withdrawal" or "repayment" of subsidies previously provided to those entities within the meaning of
Articles 4.7 and 7.8 of the SCM Agreement.

2230 EC, Answer to Panel Question 222, para. 560.

BCI deleted, as indicated [***]

SECTION VII.E.1 ATTACHMENT: CORPORATE HISTORY OF AIRBUS

1. The Airbus Industrie consortium: 1970 - 2000
2231

1. From its inception in 1970 until the creation of Airbus SAS in 2001, the "Airbus companies"
were organized as a consortium of national European aerospace manufacturers. The Airbus
consortium (Airbus Industrie) was originally established in 1970 as a Groupement d'intérêt
économique (Airbus GIE) between the French aerospace manufacturer, Aérospatiale Société
Nationale Industrielle (Aérospatiale)
2232 and the German aerospace manufacturer, Deutsche Airbus
GmbH (Deutsche Airbus). 2233 The Spanish aerospace manufacturer, Construcciones Aeronáuticas
S.A. (CASA) became a member of Airbus Industrie in 1971. 2234 British Aerospace Corporation, a
United Kingdom aerospace manufacturer, subsequently joined the consortium in 1979.2235

2. Airbus Industrie was registered under French law as a " Groupement d'intérêt économique "
(GIE) which is a French legal framework that allo ws its members to carry out collectively certain

2231 For purposes of the following discussion, the term "Airbus Industrie" refers to the Airbus
consortium; i.e., Airbus GIE and the Airbus partners collectivel y. Where we refer to the legal entity Airbus
GIE, separately from the Airbus partners, we use the term "Airbus GIE".
2232 Aérospatiale was founded in 197 0 through the merger of three French aeros pace companies, Sud
Aviation, Nord Aviation and Société d'Etudes et de Réalisation d'Engins Balistiques. It was owned directly and
indirectly by the French government until its merger with Matra Hautes Technologies in 1998 to form
Aérospatiale-Matra S.A. (Aérospatiale-Matra). The French government sold a portion of its shares in
Aérospatiale-Matra in a public offering in 1999. In 20 00, Aérospatiale-Matra joined with Dasa and CASA to
form EADS. In connection with the formation of Airbus SAS in 2001, the LCA business of Aérospatiale-Matra
was transferred to an Airbus SAS subsidiary, Airbus France SAS. Therefore, from 1998 until its liquidation in
2001, the French Airbus partner was Aérospatiale-Matra S.A. (Aérospatiale-Matra); EC, FWS, paras. 52-53.
2233 Deutsche Airbus was founded in 1967 to assume work for the development of a European
widebody aircraft that had originally begun in 1965 as a joint venture among five German companies: Blohm-
Hamburger Flugzebau GmbH, Messerschmitt AG, Vereinigte Flugtechnische Werke (VFW), Siebel and
Dornier. By 1969, the first three of these companie s had merged to form Messerschmitt-Bölkow-Blohm GmbH
(MBB); Exhibit EC-26. MBB originally held 60 percent of the interests in Deutsche Airbus, with Dornier and
VFW each holding 20 percent. MBB took over VFW in 1 981. Prior to Daimler-Benz AG acquiring control of
MBB in 1989, the German federal states of Bavaria, Hamburg and Bremen held 52.3 percent of the capital stock
of MBB; Monopolkommssion Report, Exhibit US-30, para. 138. In late 1989, as part of the German
government's plans to restructure Deutsche Airbus, Daimler-Benz A.G. acquired control of MBB by merging its
subsidiary Deutsche Aerospace AG (Dasa) with MBB. Deutsche Airbus has been a wholly owned subsidiary of
Dasa since 1992. In 2000, Dasa merged with Aérospatiale-Matra and CASA to form EADS. In 2001, EADS
transferred Dasa's LCA operations to an Airbus SAS subsidiary, Airbus Deutschland GmbH; EC, FWS,
paras. 54-56.
2234 CASA was founded in 1923 and was Spain's la rgest aerospace and defence manufacturer. CASA
was 99 percent owned by Sociedad Estatal de Participaciones Industriales (SEPI), a Spanish government
holding company entrusted with the management and privatisation of certain Spanish government controlled
companies. In 2000, CASA was merged into the E ADS structure. In 2001, CASA's LCA activities were
transferred to an Airbus SAS subsidiary, Airbus España SL; EC, FWS, paras. 57-58.
2235 British Aerospace Corporation was fo rmed in 1977 as a Crown corp oration without shares, wholly
owned by the United Kingdom government. Its formation was the result of the merger of the United Kingdom
aerospace companies Hawker Siddeley Aviation Ltd, Ha wker Siddeley Dynamics Ltd, Scottish Aviation Ltd
and the British Aircraft Corporation (Holdings) Ltd. In 1981, the assets and business of the British Aerospace
Corporation were transferred to the newly incorporat ed British Aerospace PLC, a United Kingdom publicly
limited company. The United Kingdo m government sold 51.57 percent of its shares in British Aerospace PLC
in a public offering in 1981 and, subject to retaining a share to ensure that the company remained under United
Kingdom control, sold the remainder of its shares in British Aerospace PLC in 1985. In 1999, British
Aerospace PLC merged with Marconi Electronic Systems to become BAE Systems PLC (BAE Systems). In
2001, BAE Systems placed its LCA business into Airbus UK Limited in exchange for a 20 percent share in
Airbus SAS; EC, FWS, paras. 59-61.

BCI deleted, as indicated [***]

economic activities while maintaining their separate legal identities, and which does not have as its
goal the retaining of profits. A GIE has a separ ate legal personality from its members, although in
other respects, it resembles a partnership. For exampl e, the sharing of Airbus Industrie's profits and
losses among the Airbus partners is based on their membership rights. 2236 Through this partnership
arrangement, the Airbus partners in France, Germany, Spain and the United Kingdom produced
specific parts of Airbus LCA, which were then assembled in France by Aérospatiale. 2237 The entity
Airbus GIE did not carry out any production activities; rather, it coordinated the production efforts of
the Airbus partners, allocated revenues and profits to each of the partners and assumed responsibility
for areas such as marketing, sales, aircraft delivery and customer service.

3. Between 1979 and 2000, the four members of Ai rbus Industrie (hereafter, the Airbus partners)
held the following interests in the Airbus Industrie consortium (directly or indirectly, through various
entities incorporated in the jurisdictions of the Ai rbus partners): Aérospatiale (37.9 percent);
Deutsche Airbus AG (37.9 percent); CASA (4.2 percent); and British Aerospace PLC (20 percent).2238
The structure of Airbus GIE from 1979 until 2000 is illustrated in the diagram below.

Corporate structure of Airbus Industrie from 1979 to 20002239

2236 See, GATT Panel Report, German Exchange Rate Scheme for Deutsche Airbus ("EEC – Airbus"),
4 March 1992, unadopted, SCM/142, para. 2.6.
2237 By 1999, Aérospatiale was the partner responsible for flight control systems, cockpits, power plant
integration, ground and flight testing, complex structural sections, equipped subassemblies and technical
publications. DASA produced the major fuselage sections containing hydraulic equipment, secondary flight
control systems, wing assemblies and commercial furnishing, as well as equipping the wings furnished by BAE
Systems. DASA also carried out final assembly of A321 and A319 aircraft, as well as some cabin outfitting and
customization of the cabins of the A300/A310 and the A320 family. BAE Systems was the partner in charge of
the wings for the entire Airbus product line, and equipped wings for the A320 family by installing hydraulic,
electrical and environmental control system hardware. CASA's role in the Airbus consortium was to produce
the carbon fibre horizontal tails used in all Airbus aircraft, including integrated fuel tanks. CASA also designed
fuselage panels and interior panels for the A320 family and produced nose and landing gear doors for the
A300/A310 family and passenger doors for the A330/A340 family ; see Aérospatiale-Matra Offering
Memorandum, 25 May 1999, Exhibit EC-53, pp. 90-91.
2238 Two other European aerospace comp anies, Fokker and Belairbus, pa rticipated in certain Airbus
programmes as associated manufacturers, although they did not become partners in Airbus GIE.
2239 In 1998, Aérospatiale merged with Matra Hautes Technologies to form Aérospatiale-Matra S.A.;
see footnote 2054. In 1989, Daimler-Benz acquired control of Deutsche Airbus' parent company, MBB; see
footnote 2055. In 1999, British Aerospace merged with Marconi Electronic Systems to become BAE Systems;
see footnote 2057.
Aérospatiale
37.9%
Deutsche Airbus
37.9%
CASA
4.2%
British Aerospace
20%

Airbus GIE

BCI deleted, as indicated [***]

2. Consolidation of the activities of the Airbus partners under EADS in 2000

4. In July 2000, the French, German and Spanis h Airbus partners merged their activities in the
aeronautic, space and defence sectors by contributing all of the shares of the subsidiaries of
Aérospatiale-Matra and Dasa, respectively, and al l of the shares of CASA, to the newly formed
European Aeronautic Defence and Space Company EADS N.V. (EADS), a public limited liability
company ( naamloze vennootschap ) organized under the laws of the Netherlands.
2240 Prior to these
contributions, Aérospatiale-Matra and Dasa had each conducted in ternal reorganizations of the
subsidiaries in which they held the assets and lia bilities related to their Airbus-related and non-
Airbus-related activities.2241 The contributions were made in exch ange for shares in EADS issued in
proportion to the relative values of the respective contributions of Aérospatiale-Matra, Dasa and
SEPI.2242 Immediately following these transactions, approxima tely 60 percent of the share capital of
EADS was held in equal proportions by DaimlerChrysler and SOGEADE,2243 which jointly controlled
EADS through a Dutch law contractual partnership.2244

5. Immediately following these transactions, EADS owned all of the subsidiaries of
Aérospatiale-Matra and Dasa that had previously conducted the Airbus-related design, engineering,
manufacturing and production activities located in France and Germany, and all of the shares of
former Spanish Airbus partner, CASA. EADS also held (through its subsidiaries) the membership
interests in Airbus GIE that had previously been held by Aérospatiale-Matra, Dasa and CASA. EADS
in turn, was controlled, through a contractual partne rship, by the former owners of Aérospatiale-
Matra, Dasa and CASA. BAE Systems continued to hold its 20 percent interest in Airbus GIE.

2240 Shares of EADS are listed on the Paris, Frankfurt and Spanish Stock Exchanges.
2241 Aérospatiale Matra Airbus was the Aérospatiale-Mat ra subsidiary which held Aérospatiale Matra's
Airbus-related assets and liabilities, including its 37.9 percent membership interest in Airbus GIE. Other
Aérospatiale-Matra subsidiaries held assets that were not related to Aérospatiale-Matra's LCA activities, such as
Aérospatiale-Matra's helicopter, defen ce, space transport, satellite and tel ecommunications businesses. Dasa's
Airbus-related activities had been grouped into a subsidiary called DaimlerChrysler Aerospace Airbus
Beteiligungs GmbH, which held a 99.99 percent of the shares of DaimlerChrysler Aerospace Airbus GmbH,
which in turn held a 37.9 percent membership interest in Airbus GIE. Dasa separately held a direct 0.71 percent
interest in CASA, which it also contributed to EADS pursuant to the combination transactions. Assets and
liabilities relating to activities other than the Airbus-related activities were grouped into other Dasa subsidiaries,
with the exception of (i) liabilities relating to Dornier aircraft; (ii) all claims and liabilities relating to the Fokker
group; (iii) Dasa AG's participating interests in MT U, Temic Telefunken microelectronic GmbH and debis
AirFinance B.V.; and (iv) a cash amount of Euro 3,133 million; EADS Offering Memorandum, 9 July 2000,
Exhibit EC-24, pp. 140-144.
2242 Aérospatiale-Matra was subsequently wound up, so that the EADS shares issued to Aérospatiale-
Matra were distributed by Aérospatiale-Matra to its ow n shareholders simultaneously with the liquidation of
Aérospatiale-Matra on the basis of one EADS share for every one Aérospatiale-Matra share. Simultaneously
with these transactions, EADS issued shares, and the French government, Lagardère and the French financial
institutions BNP PARIBAS and AXA sold EADS shares, in a public offering; EADS Offering Memorandum,
9 July 2000, Exhibit EC-24, pp. 140-144.
2243 Société de gestion de l'aéronautique, de la défense et de l'éspace (SOGEADE) is a French
partnership limited by shares ( société en commandite par actions ). SOGEADE is 50 percent owned by the
French government (through a French government-owned holding company, Société de Gestion de
Participations Aéronautique (SOGE PA)) and 50 percent owned by Lagardère Group; EADS Offering
Memorandum, 9 July 2000, Exhibit EC-24, pp. 137-138.
2244 SEPI's voting rights in respect of its 5.48 percent interest in EADS were also exercised through this
contractual partnership; EADS Offering Memorandum, 9 July 2000, Exhibit EC-24, p. 132.

BCI deleted, as indicated [***]

6. The ownership structure of EADS, and of th e former Airbus partners and Airbus GIE,
immediately following these transactions is represented below.2245

2245 EADS Offering Memorandum, 9 July 2000, Exhibit EC-24, p. 132. The portion of the diagram
illustrating the ownership interests in Airbus GIE is compiled from information presented in the EADS Offering
Memorandum, 9 July 2000, Exhibit EC-24, at pp. 38, 65, 74, 141 and 142.
Daimler
Chrysler

Public
BAE Systems
93.83%
French
State Lagardère
BNP PARIBAS
and AXA
Spanish
State
Désirade
SOGEADE SEPI Dasa
SOGEPA
Contractual
Partnership

EADS
Aérospatiale
Matra Airbus
DaimlerChrysler
Aerospace Airbus
Beteiligungs
CASA
DaimlerChrysler
Aerospace Airbus

Airbus GIE
50%
1.14%
74%

50%
30%
26%
5.48%
65.48%
30%
2.73%
30.65%
37.9%
99.9%
37.9%
4.2% 20%

BCI deleted, as indicated [***]

3. Termination of Airbus Industr ie and integration of the activities of Airbus Industrie in
Airbus SAS in 2001

7. In 2001, EADS and BAE Systems placed their Airbus-related design, engineering,
manufacturing and production activities located in France, Germany, Spain and the United Kingdom
(organized into French, German, Spanish and Britis h operational companies, respectively), and all of
their membership rights in Airbus GIE, under the common control of a newly-created holding
company, Airbus SAS, a société par actions simplifiée under French law. EADS held an 80 percent
interest in Airbus SAS (and had effective contro l over its operations) while BAE Systems, with the
remaining 20 percent interest, enjoyed specific minority rights. Finally, in October 2006, EADS
purchased BAE Systems' 20 percent interest in Air bus SAS, so that Airbus SAS became a wholly
owned subsidiary of EADS.

Corporate structure of Airbus SAS from 2001 to 2006

Corporate structure of Airbus SAS since 2006

EADS

BAE Systems
Airbus SAS
80% 20%

Airbus
France
SAS

Airbus
Deutschland
GmbH

Airbus
España
SL

Airbus
UK
Limited

EADS

Airbus
France
SAS

Airbus
Deutschland
GmbH

Airbus
España
SL

Airbus
UK
Limited

Airbus SAS
100%

BCI deleted, as indicated [***]

2. Launch Aid / member State Financing
(a) Introduction
7.290 The United States challenges a form of LCA de velopment funding, which it calls "Launch
Aid" ("LA"), allegedly provided by four member States of the European Communities to Airbus over
a period of 37 years from 1969 to 2006. According to the United States, LA is a form of highly
preferential financing that amounts to a specific subs idy within the meaning of Articles 1 and 2 of the
SCM Agreement. The United States challenges the a lleged provision of LA for the development of
seven different models and three variants of Ai rbus LCA, as well as an alleged LA Programme
implemented by the same EC member States. The alleged product-specific LA measures that are the
subject of the United States' complaint are:
(i) LA for the A300, as evidenced by inter alia, the -
Agreement of 29 May 1969 between the Govern ment of the Republic of France and the
Government of the Federal Republic of German y regarding the realization of the Airbus
A-300-B ("1969 A300 Agreement");2246

Agreement of 23 December 1971 between the Gove rnments of the Spanish State, the French
Republic, the Federal Republic of Germany, a nd the Kingdom of the Netherlands concerning
the realization of the Airbus A300B ("1971 A300 Agreement");2247

(ii) LA for the A310, as evidenced by inter alia, the -
Agreement between the Governments of the Federal Republic of Germany, the French
Republic, the United Kingdom of Great Britain and Northern Ireland, and Spain concerning
the Airbus programme (the "1981 A310 Agreement");2248

(iii) LA for the A320, as evidenced by inter alia, the -

2246 Exhibit US-11.
2247 Exhibit EC-992 (BCI). Other documents evidencing LA/MSF for the A300 include: (i) 29 separate
Agreements, Protocols and Conventions, and amendments thereto, between the French government and
Aérospatiale, Exhibit EC-603 (BCI); and (ii) 16 separate Contracts and amendments thereto, between the
Spanish government and Construcciones Aeronáuticas S. A., Exhibit EC-605 (BCI). Initially, the European
Communities submitted a series of (German language) contracts, and amendments thereto, entered into between
the German government and Deutsche Airbus GmbH, in respect of LA/MSF granted for the A300. Because of
the amount of time the European Communities alleged it would take to translate all 661 pp. of these documents
into English, the European Communities withdrew its original submission and replaced it with a shorter "model
contract". EC Letter to the Panel of 15 May 2007. We understand the contract contained in this new Exhibit
(EC-601 (BCI)) to be representative of the German LA/MSF contracts for the A300, including relevant
amendments.
2248 Exhibit EC-942 (BCI). Other documents evidencing LA/MSF for the A310 include: (i) 10 separate
Protocols and Conventions between the French government and Aérospatiale, Exhibit EC-604 (BCI); and (ii)
eight separate Contracts and amendments thereto, between the Spanish government and Construcciones
Aeronáuticas S.A., Exhibit EC-606 (BCI). Initially, the European Communities submitted a series of (German
language) contracts, and amendments thereto, entered into between the German government and Deutsche
Airbus GmbH, in respect of LA/MSF granted for the A3 10. Because of the amount of time the European
Communities alleged it would take to translate all 357 pp. of these documents into English, the European
Communities withdrew its original submission and replaced it with a shorter "model contract". EC Letter to the
Panel of 15 May 2007. We understand the contract contained in this new Exhibit (EC-602 (BCI)) to be
representative of the German LA/MSF contracts for the A310, including relevant amendments.

BCI deleted, as indicated [***]

Final Contract for the termination and liquida tion of the cooperation agreements between the
Ministry of Industry, Trade and Tourism and Construcciones Aeronáuticas, S.A. relating to
the provision of repayable funds for the financ ing of development costs for the Airbus A320,
1 September 1992 ("Spanish 1992 A320 contract");
2249

Memorandum of Understanding between the French State and Aérospatiale Société Nationale
Industrielle concerning the development of th e Airbus A320, 8 July 1987 ("French A320
contract");2250

Allocation Contract between the Federal Repub lic of Germany and Deutsche Airbus GmbH
for the implementation of the A320 developm ent programme, 11 December 1985 ("German
A320 contract");2251

Agreement A28B/385 of 21 March 1985 between H.M. Secretary of State for Defence and
British Aerospace PLC for Launch Aid for the A320 Work Programme, ("UK A320
contract");
2252

Agreement between the Governments of the French Republic, the Federal Republic of
Germany, the United Kingdom of Great Britain and Northern Ireland, the Kingdom of Spain
and the Kingdom of Belgium concerning the programme Airbus A320, done in Bonn on
6 February 1991 ("1991 A320 Agreement");
2253

(iv) LA for the A330/A340, as evidenced by inter alia, the -
Cooperation Agreement between the Ministry of Industry and Construcciones Aeronáuticas,
S.A. relating to the provision of a repayabl e, interest-free advance for the financing of
development costs for the Airbus A330/A 340, 1 June 1988 ("Spanish 1988 A330/A340
contract");2254

Agreement AE12B/75 between the Secretary of State for Defence and British Aerospace PLC
governing the investment by H M Government in the United Kingdom workshare of the
Programme to Launch the A330 and A340 Aircraft, 1988 ("UK A330/A340 contract");
2255

Memorandum of Understanding between the St ate and Aérospatiale concerning the
programme A330/340, 26 March 1993 ("French A330/A340 contract");2256

2249 Exhibit EC-93 (BCI). One of several earlier contracts entered into for the same purpose and
referred to in this Exhibit was: Contrato de colaboración entre el Ministerio de Industria y Energía y
financiación de los gastos de desarrollo del nuevo avión Airbus A20, 28 February 1984 (hereinafter "Spanish
1984 A320 contract"), Exhibit EC-946 (BCI).
2250 Exhibit EC-83 (BCI), as amended on the same day by Avenant au Protocole d'Accord entre l'État
Français et l'Aérospatiale Société Nationale Industrielle concernant le développement de l'Airbus A320,
8 July 1987, Exhibit EC-945 (BCI).
2251 Exhibit EC-95 (BCI). (Original German la nguage title: Zuwendungsvertrag zwischen der
Bundesrepublik Deutschland vertreten durch den Bundesminister für Wirtschaft und der Deutsche Airbus
GmbH zur Verwirklichung des Entwicklungsprogramms AIRBUS A 320, 11 December 1985).
2252 Exhibit EC-94 (BCI).
2253 Exhibit US-16
2254 Exhibit EC-84 (BCI), supplemented by a second contract: Contrato de colaboración entre el
Ministerio de Industria y Energía y Construcciones Aeronáuticas, S.A. para la aportacion de un anticipo
30 July 1990 (hereinafter "Spanish 1990 A330/A340 contract"), Exhibit EC-947 (BCI).
2255 Exhibit EC-86 (BCI).

BCI deleted, as indicated [***]

Agreement between the Governments of the French Republic, the Federal Republic of
Germany, the United Kingdom of Great Britain and Northern Ireland, the Kingdom of Spain
and the Kingdom of Belgium concerning the program AIRBUS A330/A340 signed in Madrid
on 26 July 1995 ("1995 A330/A340 Agreement");2257

(v) LA for the A330-200, as evidenced by inter alia, the -
Agreement between the signatory authority of the agreement acting on behalf and for the
account of the State, on the one hand, and Aé rospatiale, on the other hand, concerning the
development of the Airbus A330-200, 28 November 1996 ("French A330-200 contract");2258

(vi) LA for the A340-500/600, as evidenced by inter alia, the -
Memorandum of Understanding between the Stat e and Aérospatiale concerning the program
A340-500 and A340-600, 15 January 1999 ("French A340-500/600 contract"),2259

Framework Cooperation Agreement between the Ministry of Industry and Energy and the
company Construcciones Aeronáuticas S.A. on financing the participation of the said
company in the development of the progr am Airbus A 340-500 and A 340-600 ("Spanish
A340-500/600 contract");2260

(vii) LA for the A380, as evidenced by inter alia, the -
Agreement (of 20 March 2002) between the aeronautical program service (SPAé) as signatory
authority of the agreement acting on behalf and for the account of the State, on the one hand,
and the company Airbus France, on the other hand ("French A380 contract"),2261

Loan Contract between the Federal Republic of Germany, represented by the Federal Ministry
of Economics and Technology, and Airbus Deutschland GmbH ("German A380 contract"),2262

Cooperation Agreement between the Ministry of Science and Technology (MCYT) and the
company EADS Airbus S.L. on financing the participation of the said company in the
development of the Airbus A-380 family program ("Spanish A380 contract"),
2263

2256 Exhibit EC-96 (BCI), which took into account payments made to Aérospatiale under three previous
Conventions, including Convention No. 8890024 dated 9 December 1988, Exhibit EC-948 (BCI).
2257 Exhibit US-28 (BCI). Although asked to provide a copy of the German LA/MSF contract for the
A330/A340 in Panel Question 253, the European Communities did not do so. The European Communities
instead referred the Panel to another document, Exhibit EC-887 (HSBI), which it asserts incorporated the same
"repayment provisions" as the requested contract. Thus, the European Communities does not contest, and
indeed, its Answer to the Panel's question recognizes, that the German government entered into a LA/MSF
contract with Deutsche Airbus GmbH for the A330/A340.
2258 Exhibit US-78 (BCI), also evidenced by Protocole d'Accord Entre L'État et Aérospatiale relatif au
programme Airbus A330-200, 23 December 1996, Exhibit EC-90 (BCI).
2259 Exhibits US-35 (BCI) and EC-91 (BCI), also evidenced by Convention (du 29 Décembre 1998)
Aérospatiale (hereinafter "French A340-500/600 convention"), Exhibit US-36 (BCI).
2260 Exhibit US-37 (BCI); Exhibit EC-87 (BCI).
2261 Exhibit US-116 (BCI).
2262 Exhibit US-72 (BCI).
2263 Exhibit US-73 (BCI).

BCI deleted, as indicated [***]

Agreement of 12 March 2000 between the Secret ary of State for Trade and Industry; BAE
Systems (Operations) Limited; and British Aerospace Public Limited Company ("UK A380
contract");
2264 and

(viii) LA for the A350.2265
7.291 The European Communities contests the United States' claims of subsidization on various
grounds. In doing so, it asks the Panel not to refe r to the challenged measures as "Launch Aid".
According to the European Communities, the term "Launch Aid" is "sugges tive and oversimplifying"
and should therefore be replaced with what it cons iders is a more neutral term – "member State
Financing" ("MSF").2266 We have decided that for the purpose of evaluating the United States' claims,
it is not necessary for us to take a view on th e appropriateness of using one or other of the
nomenclatures advanced by the parties. Thus, in th e analysis that follows we refer to the challenged
measures as "LA/MSF" or, when referring to a specifi c contract or measure, we use the relevant short
titles, e.g., the "UK A380 contract" or the "A380 contract".
7.292 The parties' submissions on the question whether the challenged LA/MSF measures amount
to specific subsidies give rise to two matters that we believe it is useful to resolve before proceeding
to decide the merits of the United States' complaint under the provisions of the SCM Agreement.
7.293 The first matter relates to the question whether an alleged LA/MSF measure for the A350
existed at the time this panel was established. As noted in our preliminary ruling, we see this issue as
involving a disputed question of fact that should be resolved in the context of our evaluation of the
substance of the United States' claims. 2267 Thus, in the sections that follow, we begin our assessment
of the United States' complaint by first turning to examine whether the alleged LA/MSF measure for
the A350 existed at the time of the establishment of this panel, and whether any such measure
amounts to a subsidy within the meaning of Article 1 of the SCM Agreement.
7.294 The second matter relates to another issue that wa s also, in part, addressed in our preliminary
ruling, namely, the question whether it is appropriate to evaluate the legitimacy of LA/MSF contracts
concluded prior to 1995 under the rules of the SC M Agreement. In our preliminary ruling, we
rejected two of the arguments advanced by the Euro pean Communities in the context of this question,
in particular, the submissions that LA/MSF me asures pre-dating the entry into force of the
SCM Agreement cannot be evaluated in terms of their compliance with th e SCM Agreement because
they: (i) do not fall within the temporal scope of Article 5 of the SCM Agreement; and (ii) were
"grandfathered" under the 1992 Agreement. 2268 A third argument, that was not advanced in the
European Communities' request for a preliminary ruling, is taken up after our assessment of the
question relating to the alleged LA/MSF measure for the A350. This argument concerns the
relevance of the 1979 Tokyo Round Subsidies a nd Countervailing Measures Code to our assessment
of the legality of a number of LA/MSF meas ures pre-dating the entry into force of the
SCM Agreement.
7.295 Thereafter, and with a view to evaluating the merits of the United States' claims on a measure-
by-measure basis, we turn to examine the parties' arguments in respect of the extent to which the
challenged LA/MSF measures are specific subsidies within the meaning of Articles 1 and 2 of the
SCM Agreement.

2264 Exhibit US-79 (BCI).
2265 The evidence the United States contends demonstrat es the existence of a LA contract for the A350
is described and evaluated in the following section of this report.
2266 EC, FWS, para. 289.
2267 See, Section VII.C.2 above.
2268 See, paras. 7.98 - 7.105 above.

BCI deleted, as indicated [***]

(b) The alleged LA/MSF Measure for the A350
7.296 Airbus launched the newest of its mode ls of LCA, the A350, in December 2004. 2269 Press
reports described the A350 as a "long-range, fuel-effici ent version of Airbus' A330 airliner and a rival
to the {Boeing} 7E7" ( i.e., the Boeing 787). 2270 The development cost of the A350 was initially
budgeted at approximately EUR 4 billion. 2271 On 1 December 2006, just over one year after the
industrial launch of the A350,2272 Airbus launched a redesigned version of the A350. This new model
of LCA was called the A350XWB, and like the A350, it was designed to be a long-range, fuel-
efficient aircraft (featuring advanced technol ogies such as a "Carbon Fibre Reinforced Plastic
panelled fuselage") intended to compete with Boeing's 777 and 787. 2273 Press reports indicated that
the A350XWB would cost Airbus approximately EUR 10 billion.2274
7.297 The United States argues that, prior to the estab lishment of this panel, the French, German,
Spanish and UK governments had each individually agreed to support the development of the A350
by lending Airbus "at least" USD 1,700 million in the form of LA/MSF. 2275 The United States
characterizes LA/MSF as a particular form of long- term preferential financing granted to Airbus by
the above-mentioned four EC member State govern ments for the development of each new Airbus
model of LCA on unsecured, back-loaded, success- dependent and below-market interest rate
repayment terms.2276 The United States claims that the alleged A350 LA/MSF measure amounts to a
specific subsidy within the meaning of Articles 1 and 2 of the SCM Agreement.
7.298 To substantiate its assertions in respect of the alleged A350 LA/MSF measure, the United
States relies upon numerous press Articles and statements attributed to Airbus, the European
Commission and government Ministers and officials re ported in publicly available media sources, as
well as a copy of the German government's "Feder al Budget Plan" for 2005 and EADS' Financial
Statements. These include the following examples:
a report published by Bloomberg on 3 December 2004, quoting the German Economy
and Labour Minister, Wolfgang Clement, as responding to a question asking "whether
state subsidies for the Airbus A350 are alr eady included in the budget" by answering
"'Yes, of course."'2277

2269 EC, FWS, footnotes 57 and 58.
2270 Laurence Frost, Airbus Plans New Rival to Boeing's “Dreamliner”, Associated Press & Local Wire
(23 November 2004) Exhibit US-132.
2271 See, e.g, Bundeshaushaltsplan (Federal Budget Plan) 2005, Budget Plan 09 (Economics Ministry),
Chapter 02, Part 09, Item 870 93-634, Exhibit US-17MM; and Jean-Michel Belot and Tim Hepher, Airbus A350
Unleashes New War with Boeing, Reuters (10 December 2004) Exhibit US-139.
2272 The industrial launch of the A350 took place on 7 October 2005. The commercial launch took
place on 4 December 2004. See, e.g., Jean-Michel Belot and Tim Hepher, Airbus A350 Unleashes New War
with Boeing, Reuters (10 December 2004) Exhibit US-139; and Robert Wall, Airbus Gets Go-Ahead for A350 ,
Aviation Week & Space Technology (9 October, 2005) Exhibit US-47.
2273 See, e.g., EC, FWS, para. 88.
2274 See, e.g., Ross Tieman, Airbus finds Pounds 6.7bn for wide-body jet , The Evening Standard,
(1 December 2006) Exhibit EC-671
2275 In particular, the United States alleges th at the German government committed at least
EUR 390 million and possibly as much as EUR 650 million; the Spanish government at least EUR 110 million
and possibly as much as EUR 130 million; and the UK government at least GBP 379 million. The United States
asserts that the French government had also entered into a loan commitment, but that it had not publicly
disclosed the amount. US, FWS, para. 305.
2276 US, FWS, para. 306. A more detailed exposition of the United States' description of LA/MSF is
provide in paras. 7.329-7.331 of this Report.
2277 Claudia Rach, Germany's Clement Comments on Regulator Law, Subsidies, EADS , Bloomberg
(3 December 2004), Exhibit US-446.

BCI deleted, as indicated [***]

a report published by AFX News Limited on 13 April 2005 quoting France's Transport
Minister, Gilles de Robien, as saying that the French government was "again studying
... the A350 project within the framework of reimbursable loans";
2278
a report published by Agence France Press on 19 May 2005 quoting European
Commission spokeswoman, Francoise Le Bail, as stating that in the context of the
A350 that "the launch investment is WTO lega l and as things currently stand it is part
of the commercial landscape for aircraft development in the EU";2279
a report in the 7 October 2005 edition of The Associated Press – Business News that
Airbus CEO, Gustav Humbert, had stated that "Airbus has received 'legally binding'
pledges of government aid to develop its new A350 plane";2280
a report in the 9 October 2005 edition of Aviation Week that "{a}ll four 'Airbus
governments' – Britain, France, Germany and Spain – have set aside funds for such
loans and expressed backing for the project in writing";2281
a report in the 21 October 2005 edition of Cinco Días that "El Ministerio de Industria
euros a que ...";2282
a statement found in EADS' 2005 "Financial Statements and Corporate Governance"
indicating that "certain EU countries have already committed to fund the development
of the A350 commercial aircraft program";2283
an entry in the 2005 German "Federal Budge t Plan" ("Bundeshaushaltsplan") making
a EUR 650 million provision for the A350 project;2284
a report in the 11 April 2006 edition of Flight International indicating that the UK
Trade and Industry Secretary had reiterated that the UK government was "keen to do
launch investment for the A350, as we did for the A380";
2285
a report in the 6 July 2006 edition of the Daily Post (North Wales) recounting that
"{t}he UK government has already said it will give £379m in repayable loans for the

2278 France's Robien sees little risk for Airbus if subsidies case goes to WTO , AFX News,
FinanzNachrichten.de (13 April 2005) Exhibit US-138.
2279 EU backs new Airbus aid request, despite US opposition , Agence France Presse (19 May 2005)
Exhibit US-60.
2280 Airbus says government aid pledges are 'legally binding', Associated Press (7 October 2005)
Exhibit US-48.
2281 Robert Wall, Airbus Gets Go-Ahead for A350 , Aviation Week & Space Technology
(9 October 2005) Exhibit US-47.
2282 Antonio Ruiz del Árbol, Germany wants to steal part of Spain's manufacturing rights for the A-
350, Cinco Días (21 October 2005) Exhibit US-135.
2283 EADS Financial Statements and Corporate Governance (2005), Registration Document - Part 1,
Risk Factors, Availability of Government Financing, at 11, Exhibit US-77
2284 Bundeshaushaltsplan (Federal Budget Plan) 2005, Budget Plan 09 (Economics Ministry), Chapter
02, Part 09, Item 870 93-634, Exhibit US-17MM.
2285 Murdo Morrison, EADS vows UK Airbus jobs secure , Flight International (11 April 2006) Exhibit
US-134.

BCI deleted, as indicated [***]

A350 carbon composite wing work at the Welsh site and more may be needed with a
major redesign of the jet on the cards";2286
a report in the 19 April 2006 edition of Cinco Días that "{t}he {Spanish}
Government will have to increase its invest ment in the plane's development costs in
amount up to 130 million euros";2287
a report in the 5 October 2006 edition of Reuters Update that "France has agreed to
pay aid for the development costs of Airbus's A350 aircraft but will not pay anything
immediately ...";2288 and
a report published by AFP on 9 March 2007 quoting Airbus Chief Executive, Louis
Gallois, as stating that "{w}e are not putting away refundable launch investment".2289
7.299 The United States recalls that the European Co mmunities refused to provide any information
or documents on the alleged LA/MSF measure for the A350 during consultations or in response to the
Facilitator's questions during the Annex V Process. It describes this refusal as an attempt by the
European Communities to shield its measure from panel review. 2290 Nevertheless, the United States
asserts that the publicly available information it has presented is sufficient to establish the existence of
a challengeable measure for the A350 in the form of a "financial contribution" that "confers a benefit"
upon Airbus, thereby constituting a subsidy within the meaning of Article 1.1 of the SCM Agreement.
In particular, the United States submits that each of the alleged commitments to provide LA/MSF for
the A350 is a "potential direct transfer of funds", within the meaning of Article 1.1(a)(1)(i) of the
SCM Agreement,2291 which "confers a benefit" because: (i ) "the very moment that the Airbus
governments commit the Launch Aid, Airbus knows it will receive below-market financing for at
least 33 percent of its development costs ... {and it} can then take that knowledge into account in its
pricing decisions"; (ii) the commitment to provi de LA/MSF "demonstrates to customers that the
Airbus product line will be further extended"; and (iii) it "affects the perceptions of credit rating
agencies, assuring them that a source of financial support is readily available".2292

2286 David Jones, Give Airbus Cash to Beat the Spanish , Daily Post (North Wales) (6 July 2006)
Exhibit US-133.
2287 Antonio Ruiz del Árbol, The changes in the A350 design will cost Spain 130 million , Cinco Días
(19 April 2006) Exhibit US-136. Other Articles and evidence referred to by the United States included: Airbus
CEO: 7E7 rival would have more seats, Reuters (28 Sept. 2004) Exhibit US-131; Laurence Frost, Airbus Plans
New Rival to Boeing's “Dreamliner” , Associated Press & Local Wire (23 November 2004) Exhibit US-132;
Robert Wall, A350 Faces Busy Time Until Industrial Launch , Aviation Week & Space Technology
(20 June 2005) Exhibit US-83; Kevin Done and Peter Spiegel, EADS firm on launch aid for the A350, Financial
Times (14 Sept. 2005) Exhibit US-84; Jean-Michel Belot and Tim Hepher, Airbus A350 Unleashes New War
with Boeing, Reuters (10 December 2004) Exhibit US-139; Ro bert Wall, Michael Mech am and Andy Nativi,
Counterattack; Airbus fights back. The manufacturer re defines A350, eyes 100-plus orders at Paris air show ,
Aviation Week & Space Technology (23 May 2005) Exhibit US-140; Scott Hamilton, A350 Redesign Threatens
Boeing 777; Boeing prepares 787 for Challenge , Leeham Co. LLP, at 1 (6 June 2006) Exhibit US-141; Jane
Wardell, Emirates airlines is looking at revamped Airbus A350XWB and Boeing Dreamliner , Associated Press
(17 May 2006) Exhibit US-142; Andrea Rothman, Airbus to Spend $12 Billion to Develop A350 Jet, People Say
(Update 1), Bloomberg (3 November 2006) Exhibit US-143; and Communiqué text, Airbus Ministerial meeting
at Farnborough International (17 July 2006), reprinted in UK House of Commons Hansard Written Answers
(24 July 2006) (pt. 1989, Column 1014W) Exhibit US-63.
2288 France clears A350 aid, no immediate payment, Reuters (5 October 2005) Exhibit US-137.
2289 AFP, Airbus weighing up state-backed loans for A350: Gallois (9 March 2007) Exhibit US-449
2290 US, Answer to EC Preliminary Ruling Request, para. 40.
2291 US, Answer to Panel Questions 2 and 4.
2292 US, Answer to Panel Question 2.

BCI deleted, as indicated [***]

7.300 The European Communities rejects the United St ates' claim, arguing that no commitment of
the kind alleged to exist by the United States was in place at the time of the establishment of this
panel. At most, the European Communities submit s that the only commitment that existed at the
relevant time was a general in principle agreement to negotiate the terms of LA/MSF for the A350.
2293
However, the European Communities emphasizes that no interest rates, repayment schedules or other
terms were ever actually agreed or comm itted and no funding contracts ever concluded. 2294
Furthermore, the European Communities asserts that not a single EUR of LA/MSF has been disbursed
or scheduled for future disbursement in support of A350 development. Absent any agreement on the
"price" at which A350 LA/MSF would be provided, the European Communities argues that "there is
no basis for asserting that this hypothetical funding could have conferred a benefit".2295
7.301 A "subsidy" is defined in Article 1.1 of th e SCM Agreement by reference to two discrete
elements: a "financial contribution by a government or any public body within the territory of a
Member" (Article 1.1(a)(1)) and the conf erral of a "benefit" (Article 1.1(b)).
2296 It follows that in
order for the United States' claim of subsidization to succeed, it must in the first instance establish that
each of the alleged LA/MSF commitments for the A350 existed in the form of a "financial
contribution" at the time that this panel was established, that is on 20 July 2005. 2297 Second, the
United States must show that any such financial c ontribution "confers a benefit" upon Airbus. Thus,
we start our evaluation of the United States' cl aim by reviewing the definition of "financial
contribution" contained in Article 1.1(a)(1)(i) of the SCM Agreement, which reads:
"For the purpose of this Agreement, a subsidy shall be deemed to exist if:
(a)(1) there is a financial contribution by a government or any public body within
the territory of a Member (referred to in this Agreement as "government"), i.e.,
where:
(i) a government practice that involves a direct transfer of funds
(e.g., grants, loans, and equity infu sion), potential direct transfers of
funds or liabilities (e.g., loan guarantees)".
7.302 The United States considers that each the allege d financing commitments made by the four
EC member State governments amounts to a "potential direct transfer{} of funds". Article 1.1(a)(1)(i)

2294 EC, FWS, para. 358.
2296 It is also defined as "any form of income or price support in the sense of Article XVI of GATT
1994" (Article 1.1(a)(2)) that confers a "benefit" (Article 1.1(b)).
2297 In EC – Chicken Cuts , the Appellate Body stated that "{t}he term 'specific measures at issue' in
Article 6.2 suggests that, as a general rule, the measures included in a panel's terms of reference must be
measures that are in existence at th e time of the establishment of the panel. However, measures enacted
subsequent to the establishment of the panel may, in cer tain limited circumstances, fall within a panel's terms of
reference." Appellate Body Report, EC – Chicken Cuts , para. 156. We do not understand there to be any
disagreement between the parties on the relevance of the general principle pronounced by the Appellate Body to
the present set of circumstances. Indeed, the United St ates' claim against the alle ged A350 measure involves
arguments and factual circumstances that are distinctly different from those that confronted the Appellate Body
in EC – Chicken Cuts, which focussed on the question whether two subsequent measures taken by the European
Communities amended two original measures that fell clearly within the panel's terms of reference. Appellate
Body Report, EC – Chicken Cuts, para. 158. Similarly, in Chile – Price Band System , an original measure was
found to have been merely amended by a subsequent meas ure in such a way that did not change "its essence",
thereby bringing the subsequent measure (adopted after the establishment of the panel) within the panel's terms
of reference. Appellate Body Report, Chile – Price Band System and Safeguard Measures Relating to Certain
Agricultural Products ("Chile – Price Band System "), WT/DS207/AB/R, adopted 23 October 2002,
DSR 2002:VIII, 3045 (Corr.1, DSR 2006:XII, 5473), para. 139.

BCI deleted, as indicated [***]

defines a financial contribution as including "pot ential direct transfers of funds or liabilities ( e.g., loan
guarantees)". The explicit identification of "loan guarantees" as an example of "potential direct
transfers of funds or liabilities" is instructive for the purpose of understanding the types of measures
that may constitute "potential direct transfers of funds or liabilities". A loan guarantee may be
described as a legally binding promise to repay th e outstanding balance of a loan when the loan
recipient defaults on its repayments. Thus, it is th e promise to repay an outstanding loan in the event
of default that is the financial contribution ( i.e., the potential direct transfer of funds), not the funds
that may be transferred in the future in the event of default.
7.303 Article 14(c) of the SCM Agreement establis hes guidelines for calculating the amount of a
subsidy in terms of the benefit conferred by a loan guarantee for the purpose of countervailing duty
investigations. Although not intended to define the circumstances when a loan guarantee will confer a
benefit in disputes involving Part III of the SCM Agreement, Article 14(c) does provide useful
context for the present analysis. This provision describes the benefit of a loan guarantee as the
difference in the amount that a recipient pays for a loan guaranteed by the government and a
comparable commercial loan absent the loan guarantee:
"a loan guarantee by a government shall not be considered as conferring a benefit,
unless there is a difference between the amount that the firm receiving the guarantee
pays on a loan guaranteed by the government and the amount that the firm would pay
on a comparable commercial loan absent the government guarantee. In this case the
benefit shall be the difference betw een these two amounts adjusted for any
differences in fees;"
7.304 In our view, the fact that a loan guarantee will confer a benefit on a recipient when it enables
that recipient to obtain the guaranteed loan at a below market price implies that the benefit of a
potential direct transfer of funds arises from the mere existence of an obligation to make a direct
transfer of funds in the event of default. Thus, when assessing whether a transaction involves a
"potential direct transfer{} of funds", the focus should be on the existence of a government practice
that involves an obligation to make a direct transfer of funds which, in and of itself , is claimed and
capable of conferring a benefit on the recipient that is separate and independent from the benefit that
might be conferred from any future transfer of funds. This can be cont rasted with financial
contributions in the form of direct transfers of f unds, which will result in a be nefit being conferred on
a recipient when there is a government practice that involves a direct transfer of funds.
7.305 We recall that the United States considers that the alleged LA/MSF commitment for the A350
"confers a benefit" because (i) "the very mome nt that the Airbus governments commit the Launch
Aid, Airbus knows it will receive below-market fina ncing for at least 33 percent of its development
costs ... {and it} can then take that knowledge in to account in its pricing decisions"; (ii) the
commitment to provide LA/MSF "demonstrates to cu stomers that the Airbus product line will be
further extended"; and (iii) it "affects the perceptio ns of credit rating agencies, assuring them that a
source of financial support is readily available".
2298 In other words, the United States considers that it
is the commitment to provide the alleged LA/MSF, and not the LA/MSF itself, which confers a benefit
upon Airbus.2299 As we see it, such a commitment (if it could be established as a matter of fact) might

2298 US, Answer to Panel Question 2.
2299 We note that, in its FWS, the United States' focus appeared to be on the alleged benefit accruing to
Airbus from an actual grant of LA/MSF for the A350, as opposed to the benefit associated with a commitment to
provide the alleged LA/MSF. US, FWS, paras. 308 and 309, where it states and refers to examples it contends
demonstrate that "Airbus officials have already confirme d that the A350 Launch Aid will confer a benefit on
Airbus". However, the United States clarified its positio n in its answers to Panel Questions 2 and 4, indicating
that its complaint, including its arguments in respect of benefit, was focused on the alleged commitment to
provide LA/MSF on the same essential terms and conditions as previous grants of LA/MSF.

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well amount to a potential direct transfer of fu nds in terms of Article 1.1(a)(1)(i) of the
SCM Agreement. However, the facts advanced by the United States do not persuade us that a
commitment to provide LA/MSF for the A350 on the terms and conditions asserted by the
United States actually existed at the relevant time.
7.306 The evidence submitted by the United States to s upport its claim includes no letters of intent,
loan contracts or other legally binding documents attesting to the alleged commitments or their
content. Although one of the media reports the United States relies upon quotes Airbus' then CEO as
stating in October 2005 that it had received "'legally binding' pledges of government aid to develop its
new A350 plane", the same report also quoted the Ai rbus CEO as adding that "the details of this
support should be and will be negotiated throughout the next two months".
2300 Likewise, the evidence
relating to the provision made in the German government's 2005 budget plan suggests that it had
made a commitment to support the development of the A350 with LA/MSF. However, it also makes
clear that the precise terms and conditions of the fina ncing were subject to negotiation, stating that the
maximum "amount of the loan ... under discussion" at the time would be 33% of the "assumed" total
development costs. 2301 We believe the message conveyed th rough the entry found in EADS' 2005
Financial Statements and Corporat e Governance document indicating that "certain EU countries have
already committed to fund the development of the A350 commercial aircraft program" should be
understood in the same vein. 2302 In other words, at some point during 2005 (which the European
Communities appears to accept pre-dated the establishm ent of this panel), the relevant EC member
State governments each agreed to support the deve lopment of the A350, but the precise details and
content of this support were still to be finalised in October 2005 and remained subject to negotiations.
This is consistent with other ev idence we have reviewed such as the report in the 9 October 2005
edition of Aviation Week that "{a}ll four 'Airbus governments' – Britain, France, Germany and Spain
– have set aside funds for such loans and expressed backing for the project in writing". 2303 Thus,
although a commitment on the part of the relevant EC member States to support the development of
the A350 appears to have existed prior to 20 July 2005, the precise details and content of this support
remained to be settled.
7.307 We recall that it is not merely an alleged co mmitment to provide government support of any
kind that is the subject of the United States' compla int, but a commitment to provide a specific sum of
money through LA/MSF granted for the developmen t of Airbus LCA on unsecured, back-loaded,
success-dependent and below-market interest rate repa yment terms. To substantiate its assertion that
it was LA/MSF of this kind that was committed by the EC member State governments, the
United States advances evidence of reports and statem ents describing the support being considered as
"reimbursable loans" 2304, "launch investment" 2305, "loans" 2306, "repayable loans" 2307 or "refundable

2300 Exhibit US-48.
2301 Exhibit US-17MM (English translation, emphasis added).
2302 Exhibit US-77.
2303 Robert Wall, Airbus Gets Go-Ahead for A350 , Aviation Week & Space Technology
(9 October 2005) Exhibit US-47. While the industrial launch of the A350 took place on 7 October 2005, Airbus
was reported on 10 December 2004 to have already "won approval from its sh areholders" to seek orders for the
A350; and on 23 May 2005, it was reported that Airbus Chief Commercial Officer, John Leahy, had said that
orders for the A350 would be approaching 200 by the end of 2005. The commercial launch of the A350 had
therefore taken place well in advance of 20 July 2005, implying that all of the relevant EC member States
governments were aware of Airbus' intentions and therefore in a position to provide commitments of in principle
financial support before the establishment of th is panel. Jean-Michel Belot and Tim Hepher, Airbus A350
Unleashes New War with Boeing, Reuters (10 December 2004) Exhibit US-139. Robert Wall, Michael Mecham
and Andy Nativi, Counterattack; Airbus fights back. The manufacturer redefines A350, eyes 100-plus orders at
Paris air show, Aviation Week & Space Technology (23 May 2005) Exhibit US-140.
2304 Exhibit US-138.
2305 Exhibits US-60 and US-134.
2306 Exhibit US-47.

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launch investment".2308 In addition, it is apparent that the United States relies upon the arguments and
evidence it has presented in respect of LA/MSF provided for Airbus' other models of LCA. 2309
However, in our view, this evidence is not enough to establish that, as a matter of fact , prior to
20 July 2005 the EC member States had committed to providing Airbus with the funding amounts
identified by the United States on unsecured, b ack-loaded, success-dependent and below-market
interest rate repayment terms. At most, the facts th at are before us at most demonstrate that the EC
member States had in principle agreed to provide Ai rbus with financial assistance for the A350 in the
form of LA/MSF on terms and conditions to be negotiated.
7.308 As we explain in more detail in the following Sections of our Report, 2310 although the other
instances of LA/MSF challenged by the United Stat es in this proceeding share a number of key
features, their terms and conditions are not identical. Moreover, there is nothing inherent in the nature
of LA/MSF that renders it a form of financing that will always involve below-market interest rates.
Indeed, for each of the individual grants of LA/MSF challenged by the United States for models of
LCA other than the A350, the United States has presented a considerable volume of argument and
evidence to support its claims on a measure-by-measure basis. The United States has not simply
suggested that all such grants of LA/MSF involve be low-market interest rates by their very nature.
2311
It follows that a commitment to provide LA/MSF on terms and conditions subject to negotiation,
cannot be automatically equated, as a matter of fact , with a commitment to provide long-term
financing on unsecured, back-loaded, success-depende nt and below-market interest rate repayment
terms. This implies that not only has the Unite d States misunderstood the commitments made by the
EC member State governments prior to 20 July 2005, but also that the commitments actually made
could not have conferred the first of the three be nefits alleged by the United States, namely, the
assurance that Airbus "will receive below-market fina ncing for at least 33 percent of its development
costs".
2312 Obviously, in the absence of knowing the precise interest rate terms applicable on
whatever LA/MSF was finally agreed, Airbus could not have known with certainty that it would have
obtained below-market interest rate financing at the time of the commitments. Indeed, on the basis of
the evidence before us, there is nothing to suggest th at Airbus could have even been certain that the
negotiations on the provision of LA /MSF would have been fruitful. 2313 In our view, a commitment to
provide LA/MSF on undisclosed interest rate term s cannot, alone, confer a benefit of the kind the
United States asserts to exist.

2307 Exhibit US-133.
2308 Exhibit US-449.
2309 We address the United States' claims of subsidiza tion in respect of each of the individual LA/MSF
grants for all models of Airbus LCA preceding the A350 in the next section of our Report.
2310 See, paras. 7.372, 7.375 and 7.525 below.
2311 The United States has, however, argued that the European Communities applies a LA/MSF
Programme (that involves the granting of long-term loans to Airbus for the development of each new model of
LCA on unsecured, backloaded, success-dependent and below market interest rate terms) and that the existence
of this alleged Programme amounts to a subsidy. We address this claim below at paras. 7.498 et seq.
2312 In addition, we question whether mere knowledge that a loan will be issued at below-market
interest rates is sufficient to establish that a commitmen t to provide the loan confers a benefit for the purpose of
Article 1.1(b) of the SCM Agreement.
2313 In this regard, we note it was reported on 1 December 2006 that Airbus was "expected" to obtain
financing for the A350XWB (which replaced the A350 project) without accessing LA/MSF. Ross Tieman,
Airbus finds Pounds 6.7bn for wide-body jet , The Evening Standard, (1 D ecember 2006) Exhibit EC-671.
Moreover, the European Communities has argued that British Aerospace did no t avail itself of LA/MSF offered
by the UK government for the A340-500 /600 because of the "restrictive" num ber of aircraft sales over which
UK authorities demanded repayment. Instead, British Aerospace chose to finance its share of the work tasks for
this derivative model of LCA by taking out a loan with a private bank. See, e.g., EC, FWS, paras. 474 and 505-
506.

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7.309 The United States considers that the commitment to provide LA/MSF also conferred a benefit
upon Airbus, within the meaning of Article 1.1(b) , because it "demonstrates to customers that the
Airbus product line will be further extended"; and it "affects the perceptions of credit rating agencies,
assuring them that a source of financial support is readily available". We have doubts about whether
such effects, even if they could be substantia ted, demonstrate that the commitment to provide
LA/MSF for the A350, subject to negotiation, conferred a benefit.
7.310 Article 1.1(b) of the SCM Agreement does not de fine the notion of "benefit". However, it is
well established that a "financial contribution" will confer a "benefit" upon a recipient when it places
that recipient in a more advantageous position comp ared with the position of that recipient in the
absence of the "financial contribution".
2314 In Canada – Aircraft , both the panel and the Appellate
Body considered that the basis for making this co mparison was the market. Thus, the panel observed
that:
"a financial contribution will only confer a 'benefit', i.e., an advantage, if it is
provided on terms that are more advantage ous than those that would have been
available to the recipient on the market".2315
7.311 Similarly, the Appellate Body explained that:
"the marketplace provides an appropriate basis for comparison in determining
whether a 'benefit' has been 'conferred', because the trade distorting potential of a
'financial contribution' can be identified by determining whether the recipient has
received a 'financial contribution' on terms more favourable than those available to
the recipient on the market."
2316
7.312 Thus, when examining whether the commitment to provide Airbus with LA/MSF on terms to
be negotiated conferred a benefit, a comparison mu st be made between Airbus' situation with the
commitment, and the situation that Airbus would have faced in the absen ce of the commitment.
Although we can accept that it is highly probable that a commitment on the part of the EC member
State governments to finance the development of the A350 on terms and conditions subject to
negotiation signals "to customers that the Air bus product line will be further extended", the
United States has not explained why such a demonstra tion might not also be probable in the light of a
comparable financing commitment from the market. In this regard, we note that the United States
does not suggest that Airbus could not have obtained financing for the A350 from the market. Indeed,
as we have already noted in footnote 2313, a D ecember 2006 press Article reported that at the time
Airbus was "expected" to obtain financing for the A350XWB (which was to replace the A350)
without accessing LA/MSF.2317
7.313 With respect to the perception of credit ra ting agencies, the United States has presented
evidence in the form of a report published by Fitc h Ratings agency in November 2006 which states
that "launch aid {for the A350XWB} would be view ed favourably from a credit perspective". The
first point to note about this statement is that it refe rs to "launch aid", without any explanation. It is

2314 Panel Report, Canada – Measures Affecting the Export of Civilian Aircraft ("Canada – Aircraft "),
WT/DS70/R, adopted 20 August 1999, as upheld by Appellate Body Report WT/DS70/AB/R, DSR 1999:IV, 1443
para. 9.112, cited with approval in Appellate Body Report, Canada – Aircraft, para. 149.
2315 Panel Report, Canada – Aircraft , para. 9.112; Appellate Body Report, Canada – Aircraft ,
paras. 157-158.
2316 Appellate Body Report, Canada – Aircraft, para. 157.
2317 In addition, we note that a 15 November 2006 report by FitchRatings indicates that Airbus was
considering issuing "hybrid bonds" in order to finance the A350XWB project. Fitch Ratings, Special Report –
Diverging Flight Paths: Boeing and Airbus, Large Commercial Aircraft Update , 15 November 2006, p. 6.
Exhibit US-451.

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therefore less than clear that Fitch Ratings is referring to a commitment to provide LA/MSF, subject
to negotiation. In any case, in the same paragraph, Fitc h Ratings reserves its view on the credit rating
effect of another form of financ ing apparently being considered by Airbus at the time (hybrid bonds)
because of a lack of information about the particular structure and amount of any such bonds. In other
words, Fitch Ratings does not automatically discount the possibility that market financing (in the form
of hybrid bonds) for the purpose of funding the development of the A350 might also have had a
positive effect on EADS' credit rating.
7.314 Thus, in conclusion, after carefully reviewi ng the evidence and arguments advanced by the
parties, we are not convinced that a clear a nd identifiable commitment to provide LA/MSF on the
terms and conditions specified by the United States exis ted on the date of establishment of this panel.
While the evidence we have examined does suggest that an in principle commitment on the part of the
four EC member State governments to support th e development of the A350 through LA/MSF did
exist, this commitment did not take the form of LA/MSF on backloaded, success-dependent and
below market interest rate repayment terms, as the United States alleges, but rather LA/MSF on terms
and conditions subject to negotiation. The United St ates has therefore failed to demonstrate that the
LA/MSF measure it challenges existed at the time of the establishment of this panel. Moreover, for
the reasons we have outlined above, we consider that the commitments which did exist, did not confer
any of the benefits the United States asserts were enjoyed by Airbus. Accordingly, we dismiss the
United States' complaint against the alleged USD 1,700 million LA/MSF measure for the A350.
(c) Consistency of LA/MSF with th e 1979 Tokyo Round Subsidies and Countervailing Measures
Code
(i) Arguments of the Parties
European Communities
7.315 The European Communities submits that, pursuant to the inter-temporal rules of international
law, a fact can only be properly assessed in the light of the law contemporaneous to it. 2318 It follows,
according to the European Commun ities, that the legality of the LA/MSF contracts for the A320 and
A330/A340, which were concluded between 1985 and 1993, must be de termined in the light of the
international subsidy disciplines in force at the time of their conclusion, namely, the 1979 Tokyo
Round Subsidies and Countervailing Measures Code ("Tokyo Round Subsidies Code"). The
European Communities maintains that the same inter-temporal rule is reflected in Articles 14(a) and
14(b) of the SCM Agreement, which it argues require that the existence and amount of subsidies must
be established on an ex-ante basis, not an ex-post basis. In particular, the European Communities
notes that Article 14(a) prescribes that the govern ment provision of equity capital shall not be
considered to confer a benefit unless the investment decision can be regarded as inconsistent with the
usual investment practice at the time the decision is made , not at the time the investment decision is
reviewed in dispute settlement proceedings. Simi larly, the European Communities observes that the
assessment envisaged under Article 14(b) requires a comparison between the cost of a government
loan to a recipient and the cost of a comparable commercial loan at the time the government loan is
granted.2319 Thus, the European Communities contends that should any of the relevant LA/MSF

2318 EC, Answer to Panel Question 61; EC, SWS, para. 145, referring in both cases to the
pronouncement of Judge Huber in the Island of Palmas Arbitration that "{a} juridical fact must be appreciated
in the light of the law contemporary with it, and not of the law in force at the time when a dispute with regard to
it arises or falls to be settled", 2 R. Int'l Arb. Awards (1928) 829 at 845. Exhibit EC-672.
2319 EC, Answer to Panel Question 61. (Emphasis added).

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measures "fall into the temporal scope of the SCM Agreement", they s hould "at least be assessed
against the standards of the Tokyo Round Subsidies Code".
2320
7.316 The European Communities recalls that the Tokyo Round Subsidies Code did not explicitly
define a subsidy. However, the European Co mmunities argues that guidance for understanding the
types of measures that amounted to subsidies at the relevant time could be found in the "Illustrative
List of Export Subsidies" contained in Code's Annex. In particular, the European Communities
asserts that the general principle that could be draw n from the "Illustrative List" was that, at the time
of the conclusion of the LA/MSF contracts for the A320 and A330/A340, a subsidy was limited to
measures involving a cost to the granting government.
2321 The European Communities argues that
such a measure cannot be found in the LA/MSF c ontracts for the A320 and A330/A340, which it
contends were agreed on terms that secured retu rns to the governments that were not "manifestly
inadequate" to cover their costs. 2322 Thus, according to the Eur opean Communities, the LA/MSF
contracts for the A320 and A330/A340 complied with the relevant international subsidy disciplines
that were in force at the time of their conclusion.
7.317 The European Communities submits that the To kyo Round Subsidies Code remains in effect
between the parties and is applicable to the assess ment of the existence of subsidies in the civil
aircraft sector granted prior to 1 January 1995 because of the cross-reference to Articles 8.3 and 8.4 of
the Code that is found in Article 6.1 of the 1979 Agreement on Trade in Civil Aircraft. 2323 Moreover,
although the European Communities recognizes that the Tokyo Round Subsidies Code is not a
"covered agreement", the European Communities argues that it is nevertheless relevant to the present
dispute because it falls within the scope of the "agr eements" that parties are entitled to cite under the
terms of Article 7.2 of the DSU.
2324 In any case, according to the European Communities, if the only
international agreements that could be prope rly brought before a panel were the "covered
agreements", all of the disputes in which the Appe llate Body has referred to non-covered agreements
would have been erroneously decided.2325
United States
7.318 The United States submits that there is no le gitimate basis for the European Communities'
assertion that the Panel must evaluate the relevant LA/MSF measures under the terms of the Tokyo
Round Subsidies Code. The United States recalls that th e Panel's task in this dispute is defined by its
terms of reference, and that these require the Panel to examine the United States' claims in the light of
the "covered agreements" cited in the panel request, which do not include the Tokyo Round Subsidies
Code.
2326
7.319 According to the United States, the "covered agreements" provide not only the basis for
seizing the WTO dispute settlement system, but also the basis for resolving disputes. Thus,
compliance with any non-covered agreement cannot be the subject of a panel's work in a dispute
under the DSU. The United States maintains that this principle is expressed in Articles 7.1 and 11 of
the DSU, which direct the Panel to resolve the matt er before it on the basis of the relevant "covered
agreements", not non-covered agreements.
2327 Moreover, the United States notes that it is panel
findings and recommendations under the "covered agre ements" that are envisaged under Articles 3.2,

2320 EC, Answer to Panel Question 61.
2321 EC, FWS, para. 384.
2322 EC, FWS, para. 388.
2323 EC, SWS, paras. 143-144.
2324 EC, SWS, para. 146.
2325 EC, SWS, para. 146.
2326 US, FCOS, paras. 30-31; US, SWS, paras. 27-34.
2327 US, SWS, para. 30.

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3.4 and 19.1 of the DSU, not findings and recomme ndations in respect of non-covered agreements.2328
Finally, the United States notes that the only place in the DSU that recognizes the relevance of non-
covered agreements for the purpose of dispute settle ment is Article 3.11. This provision stipulates
that disputes for which consultation requests were made under the "GATT 1947 or any other
predecessor agreement to the covere d agreements" must be resolved through application of "the
relevant dispute settlement rules and procedures in e ffect immediately prior to the date of entry into
force of the WTO Agreement". 2329 According to the United States , the absence of any reference to
non-covered agreements or "predecessor agreements" elsewhere in the DSU (apart from Article 8.1,
which refers to "predecessor agreements" in the context of describing pers ons "well qualified" to
serve on panels), confirms that such agreements are not relevant other than in the circumstances
referred to in Article 3.11.2330
(ii) Evaluation by the Panel
7.320 The European Communities maintains that, pursuant to the inter-temporal rules of
international law, the LA/MSF contracts for the A320 and A330/A340 cannot be assessed for
compliance with the SCM Agreement, but must inst ead be measured against the standards of the
Tokyo Round Subsidies Code, the international le gal framework it asserts was in force when the
challenged measures were adopted. When consid ered in this light, the European Communities
contends that the LA/MSF contracts were in full c onformity with the obligations on the European
Communities and the relevant member States at the time of their conclusion. Thus, the European
Communities asks the Panel to dismiss the United Stat es' complaint. On the other hand, the United
States argues that the European Communities' reque st finds no support in the DSU, which it submits
makes clear that a panel can only rule on the cons istency of challenged measures with the provisions
of the WTO covered agreements. Because the To kyo Round Subsidies Code is not a WTO covered
agreement, the United States contends that there is no legal basis for any evaluation of the consistency
of the relevant LA/MSF measures with the provisions of the Code.
7.321 The main question that is raised by the Eur opean Communities' defence is whether, in our
evaluation of the United States' claims, we must, pur suant to the inter-temporal rules of international
law, apply international subsidy di sciplines that were in force at the time of the conclusion of the
challenged contracts (the Tokyo Round Subsidies Code), or apply the rules in existence at the time of
the present dispute (the SCM Agreement).
7.322 As we understand it, the doctrine of inter-tempor al application of international law, as it was
pronounced in the Island of Palmas Arbitration , has two elements: first, that acts should be judged in
the light of the law contemporary with their creation; and second, that rights acquired in a valid
manner according to the law contemporaneous with th eir creation may be lost if not maintained in
accordance with changes in international law.
2331 Although doubts have been expressed about the
status of the second element as a principle of international law, 2332 the first element, which is the

2328 US, SWS, para. 31.
2329 US, SWS, para. 32.
2330 US, SWS, para. 32.
2331 Island of Palmas Arbitration , 2 R. of Int'l Arb. Awards (1928) 829, 845. The doctrine, in one or
more of its manifestations, also appears to have been applied in e.g., The Grisbadarna Case, 11 R. Int'l Arb.
Awards 155 (1909); The North Atlantic Coast Fisheries Case, 11 R. Int'l Arb. Awards 167 (1910); The
Fisheries Case, (United Kingdom v Norway), ICJ Reports 1951, p. 116; The Minquiers and Encrehos case, ICJ
Reports 1953, p. 47; and The Aegean Sea Continental Shelf Case, ICJ Reports 1978, p. 3.
2332 See, e.g., A. D'Amato, International Law, Intertemporal Problems in Encyclopaedia of Public
International Law, 1992, pp. 1234-1236 at 1235; and P. C. Jessup, The Palmas Island Arbitration , (1928) 22
AJIL pp. 735-752, p. 740.

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foundation of the European Communities' argument , appears to have obtained wide acceptance.
2333
However, in the circumstances of the present case, we find the Eu ropean Communities' reliance on
this aspect of the doctrine to be misguided.
7.323 We recall that in our preliminary ruling, we concluded that Article 5 of the SCM Agreement
establishes an obligation on Members not to cause adverse effects to the interests of other Members
through the use of subsidies. In doing so, we di smissed the European Communities' contention that
Article 5 does not apply to subsidies granted prior to 1 January 1995. In this light, the European
Communities' reliance on the doctrine is misconceived. 2334 The very fact that Article 5 addresses
adverse effects caused by the use of subsidies, whic h may have been granted prior to 1 January 1995,
means that such measures must necessarily fall with in the scope of the SCM Agreement and therefore
be assessed on the basis of the rules of that agreem ent. In other words, because Article 5 of the
SCM Agreement applies to pre-1995 subsidies that cau se adverse effects after entry into force of the
WTO Agreement, the doctrine of inter-temporal app lication of international law cannot operate to
preclude the application of the SCM Agreement to such subsidies.
7.324 We are also not convinced by the European Communities' argument that the Tokyo Round
Subsidies Code is relevant to the panel's evaluati on of the United States' claims because, even though
it is not a WTO covered agreement, it nevertheless fa lls within the scope of the "agreements" referred
to in Article 7.2 of the DSU. In the first instance, we recall that the Tokyo Round Subsidies Code was
terminated one year after the entr y into force of the SCM Agreement. 2335 Second, it is clear to us that
the word "agreements" in Article 7.2, which is joined to the words "covered agreement" that
immediately precede it by the conjunction "or", refers to the plural of a "covered agreement".
Therefore, it should not, as the European Communities suggests, be understood as referring to
international agreements that are not WTO covered agreements. As we have already noted in our
preliminary ruling, Article 7.2 does not give us juri sdiction to determine the rights and obligations of
the parties under non-covered agreements for th e purpose of the recommendations or rulings
envisaged under Article 11 of the DSU.
2336 Such recommendations or rulings must relate to the
parties' rights and obligations under the WTO covere d agreements, not the rights and obligations of
parties under international agreements that are not WTO covered agreements. Additional support for
this view is found in Articles 3.2, 3.4 and 19.1 of the DSU, which, as noted by the United States, also
envisage panel findings and recommendations in respect of WTO covered agreements, not non-
covered agreements. There is therefore no le gal basis to support the European Communities'
contention that, in the context of the present dispute, the challenged measures must be evaluated under
the terms of the Tokyo Round Subsidies Code.
2337

2333 See, e.g., T.O. Elias, The Doctrine of Intertemporal Law , (1980) 74 AJIL 2 pp 285-307; A.
D'Amato, International Law, Intertemporal Problems in Encyclopaedia of Public International Law, 1992,
pp. 1234-1236 at 1235; I. Brownlie, Principles of Public International Law, 5th Ed. 1998, pp. 126-128.
2334 See, para. 7.64-7.65 above.
2335 See, Article 3, Decision on the Transitional Co-Existence of the Agreement on Interpretation and
Application of Articles VI, XVI and XXIII of the Gene ral Agreement on Tariffs and Trade and the Marrakesh
Agreement Establishing the World Trade Organization , adopted by the GATT Committee on Subsidies and
Countervailing Measures on 8 December 1994 ( SCM/186); subsequently taken note of in the WTO Committee
on Subsidies and Countervailing Measures at its meeting of 22 February 1995 (G/SCM/M/1).
2336 See, 7.89 - 7.105 above.
2337 In reaching this conclusion, we are not saying that non-covered agreements cannot be relied upon
for the purpose of interpreting the rights and obliga tions of parties under the WTO covered agreements. ( See,
e.g., Appellate Body Report, EC – Chicken Cuts , paras. 195-199, where the Harmonized System was used as
context for interpreting the European Communities' Schedul e of tariff commitments.) However, in the present
instance, the European Communities is not asking us to use the Tokyo Round Subsidies Code as interpretative
context for one or more provisions of a WTO covered agreement. Rather, it considers that the Panel should

BCI deleted, as indicated [***]

7.325 Accordingly, for all of the above reasons, we dismiss the European Communities' submission
that the LA/MSF contracts for the A320 and A 330/A340 cannot be assessed for compliance with
Article 5 of the SCM Agreement, but must instead be examined in the light of the 1979 Tokyo Round
Subsidies Code.
(d) Whether each of the individual grants of LA/MSF for the A300, A310, A320, A330/A340,
A330-200, A340-500/600 and A380 models of LCA constitutes a subsidy within the meaning
of Article 1 of the SCM Agreement
(i) Arguments of the Parties
United States

7.326 The United States asserts that the governments of France, Germany, Spain and the UK have
provided LA/MSF to Airbus for each new model and major derivative of Airbus LCA developed
since 1969 – in particular, the A300, A310, A320, A330/A340, 2338 A330-200, A340-500/600 2339 and
A380. The United States describes LA/MSF as a highly preferential form of loan financing that the
EC member States designed and use to offset the co sts and risks associated with the development of
Airbus LCA. It submits that the "face value" of the combined amount of funding made available to
Airbus through LA/MSF between 1969 a nd 2002 is approximately USD 15 billion. 2340 According to
the United States, each one of the challenged LA/MSF grants evidences a "financial contribution" that
confers a "benefit" on Airbus, and therefore amounts to a subsidy, within the meaning of Article 1.1
of the SCM Agreement.
Financial Contribution
7.327 The United States argues that each of the individual LA/MSF contracts involves a financial
contribution in the form of a direct transfer of funds or a potential direct transfer of funds, within the
meaning of Article 1.1(a)(1)(i) of the SCM Agreement. 2341 Specifically, the United States argues that
the LA/MSF contracts for the A300, A310, A320, A330/340, A330-200 and the A340-500/600
constitute direct transfers of funds inasmuch as the funding amounts foreseen under those contracts
have today been disbursed. 2342 As regards the LA/MSF contracts for the A380, the United States
contends that these contracts evidence both direct tran sfers of funds and, to the extent that certain
committed funding amounts have yet to be disbursed, potential direct transfers of funds.2343

apply the substantive disciplines of the Tokyo Round Subsidies Code in order to determine the legality of the
challenged measures for the purpose of this dispute.
2338 The European Communities has explained that the notwithstanding the different characteristics and
market profile of the A330 and A340, the basic versions of these LCA models are sometimes referred to
collectively as the "A330/A340", refl ecting the fact that they were launched at the same time. EC, FWS,
footnote 53.
2339 The European Communities points out that the A340 -500/600 are in fact two different variants of
the A340. However, because of their similarities, they are often referred to collec tively as "A340-500/600".
EC, FWS, footnote 53.
2340 US, FWS, paras. 81 and 89; United States, non-con fidentical oral statement at the first meeting
2341 US, FWS, paras. 109, 173, 214, 236, 244, 254, 266, 274, 283 and 291.
2342 US, Answer to Panel Question 4.
2343 US, Answer to Panel Question 4.

BCI deleted, as indicated [***]

Benefit
7.328 Recalling certain observations of the Appellate Body in Canada – Aircraft and US – Lead and
Bismuth II ,
2344 the United States submits that a financial contribution will confer a benefit on a
recipient, within the meaning of Article 1.1(b) of the SCM Agreement, when provided on terms better
than those available to the same recipient in the market. The United States asserts that the financial
contributions made available through the LA/MSF c ontracts confer a benefit on Airbus because they
involve loans at interest rates that are substantially below what the market would demand for
financing with similar characteristics.
7.329 The particular loan characteristics that are the focus of the United States' allegations are what
it describes as the success-dependent, unsecured and b ack-loaded repayment terms that can be found
in each of the challenged LA/MSF contracts. The Un ited States argues that these particular features
of LA/MSF transfer a large part of the "substantial risks"
2345 or "extremely high risks" 2346 associated
with LCA development from Airbus to the EC member States; a transfer of risks which it contends is
not properly accounted for in the level of interest rates charged for this type of financing.
7.330 The United States explains that, under the LA/M SF contracts, Airbus is required to make
repayments through a levy on each delivery of the fi nanced product. This levy is established as a
fixed amount per aircraft over a specified number of deliveries. For example, a government providing
EUR 1 billion for a new aircraft model might require Airbus to repay the financing, plus any return on
the financing, via levies on the first 400 deliveries of the aircraft in question. Full repayment of the
loan is therefore dependent on Airbus making 400 sales. However, according to the United States,
because each loan is success-dependent and unsecu red, the government has no recourse to obtain
repayment if the expected 400 deliveries fail to mate rialize. Repayment is entirely dependent on the
success of the particular LCA model to which the funding applies.
2347 The United States argues that
this means that Airbus receives financing with th e obvious benefit of no down-side risk. In other
words, when Airbus launches a new aircraft programme, it knows from the outset that it is the
government – and not itself – that is assuming the risk that the project will not generate enough sales
to repay the government funds. If actual sales are less than expected, Airbus has no obligation to
repay the government money.2348
7.331 Likewise, the United States argues that the LA /MSF lender governments assume a large part
of the risks associated with LCA development by back-loading loan repayments. According to the
United States, the EC member States back-load LA/MSF repayments in the following three ways:
(i) by tying repayments to aircraft delivery; (ii) by allowing Airbus to make relatively small levy
repayments on early deliveries of aircraft and progr essively larger repayments on later deliveries; and
(iii) by sometimes foregoing levies entirely on an in itial tranche of deliveries. The United States
argues that the effect of such repayment terms is to initially remove, and then subsequently minimize,
the debt service burden on Airbus in the early year s of its LCA programmes when costs are still high
and revenues from first deliveries – typically highly di scounted – are relatively low. In other words,
the effect of back-loaded repayment terms is to delay repayment to a moment in the LCA business
cycle that best suits Airbus' competitive needs.2349

2344 US, FWS, para. 110, citing Appellate Body Report, Canada – Aircraft , para. 153 and Appellate
Body Report, US – Lead and Bismuth II, para. 68.
2345 US, FWS, para. 137.
2346 US, FNCOS, para. 6.
2347 US, FWS, para. 117.
2348 US, FWS, para. 121.
2349 US, FWS, paras. 125-128.

BCI deleted, as indicated [***]

7.332 The United States presents a simulation it ar gues quantifies the effect of the success-
dependent and back-loaded repayment terms of LA/MSF on the profitability of LCA programmes. 2350
The United States argues that the results of this simulation demonstrate the extent to which such terms
alter the risk/reward trade-off faced by an airc raft manufacturer by transforming net present value
losses for an aircraft programme in scenarios in which fewer than the forecast number of deliveries
are achieved, into net present value profits for the same programme. The United States maintains that
the same simulation shows that, even in cases wh ere the programme remains loss-making, LA/MSF
significantly reduces the magnitude of the net presen t value loss suffered as a consequence of the
failed programme.2351 Furthermore, the United States submits that the simulation also indicates that
the net present value of an aircraft progra mme supported by LA/MSF rises as repayments are
increasingly back-loaded (both in terms of minimum numbers of deliveries before repayment
obligations commence, and in terms of the "pro gressivity" of the repayment schedule). Thus,
according to the United States, the further repayment is pushed out in time, the greater the commercial
and financial benefit to Airbus.
2352
7.333 Relying upon the conclusions reached in two studies commissioned from NERA Economic
Consulting,2353 the United States contends that the rates of return that a commercial investor would
demand for project-specific loans with success-de pendent, unsecured, back-loaded repayment terms
comparable to those contained in the challenge d LA/MSF contracts, would be well above what it
asserts were the rates of return associated with each of the challenged measures. In particular, the
United States submits that the interest rate di fferentials between the ch allenged LA/MSF measures
and comparable market financing fall within the range of [***] and 24.52 percentage points. 2354
According to the United States, the European Comm unities' own market interest rate benchmarks
arrive at the same conclusion, identifying only marginally smaller interest rate differentials.2355
7.334 The United States finds support for its view that the challenged LA/MSF measures confer a
benefit on Airbus in the Canada – Aircraft dispute, where, the United States submits, financing that
was virtually identical to LA/MSF was found to confer a benefit because of the non-commercial
interest rates charged to the recipient.2356 Moreover, the United States argues that both Airbus and the
Airbus governments have conceded that LA/MSF confer s a benefit. For instance, the United States
identifies a line in [***].2357 The United States also quotes a number of government statements that it
suggests explain the advantages of LA/MSF to Airbus.2358 Finally, the United States contends that the
view that LA/MSF confers a benefit upon Airbus is also substantiated by a series of EC State Aid

2350 Gary J. Dorman, The Effect of Launch Aid on the Economics of Commercial Airplane Programs,
6 November 2006 (hereinafter "Dorman Report") , Exhibit US-70 (BCI). Dr. Dorman is Senior Vice President
and Chair of NERA's Global Anti-Trust Practice. His educational credentials include a PhD in Economics,
University of California, Berkeley, and a BA, with High Distinction and High Honours in economics, University
of Michigan.
2351 US, FWS, para. 123.
2352 US, FWS, para. 135.
2353 NERA Economic Consulting (Dr David M. Ellis , Artur J. Bonifaciuk and Dr James Jordan),
Economic Assessment of the Benefit of Launch Aid , 10 November 2006, (herinafter "Ellis Report"), Exhibits
US-80 (BCI) and US-80 (HSBI), an d NERA Economic Consulting, Answer to Whitelaw Report , 24 May 2007,
(hereinafter "Ellis Answer to Whitelaw"), Exhibit US-534 (HSBI) and US-534a (BCI).
2354 US, FWS, paras. 116-147 (LA/MSF generally); 178-185 (A300/A310); 195-205 (A320); 219-228
(A330/A340); 237-240 (A330-200); 245-250 and 255-257 (A340-500/600); and 267-270, 275-279, 284-287,
292-296 (A380).
2355 US, FNCOS, paras. 15-16; US, SWS, paras. 72-77, referring to Exhibit US-448, p. 2.
2356 US, FWS, paras. 148-151, referring to the up-front provision of funds to Bombardier for aircraft
development under the Technology Partnerships Canada pr ogramme and the panel's finding in that case that, as
a general matter, Canada did not "seek a commercial rate of return on its contributions". Panel Report,
Canada – Aircraft, paras. 9.313-315.
2357 US, FWS, para. 152, citing a [***]. Exhibit US-68.
2358 US, FWS, paras. 154-156.

BCI deleted, as indicated [***]

decisions, which reviewed funding provided by the French and Spanish governments, respectively, to
CASA and Aérospatiale for aircraft development projects.
2359
European Communities
7.335 The European Communities rejects the United States' claim that each of the disputed LA/MSF
measures amounts to a subsidy within the meaning of Article 1 of the SCM Agreement. However, in
doing so, it does not contest the United States' alle gations in respect of LA/MSF being a "financial
contribution", within the meaning of Article 1.1(a)(1 )(i) of the SCM Agreement. Rather, the focus of
the European Communities' rejection of the Unite d States' complaint against the challenged LA/MSF
measures is the question whether each confers a "b enefit" upon its recipient, within the meaning of
Article 1.1(b) of the SCM Agreement. In this context, the European Communities has advanced
several lines of defence.
Benefit
Article 4 of the 1992 Agreement
7.336 The European Communities submits that the assessment of whether LA/MSF measures
concluded after the entry into force of the SCM Ag reement confer a "benefit" must be informed by
Article 4 of the 1992 Agreement . According to the European Communities, Article 4 of the 1992
Agreement established the partie s' agreed benchmark for levels of acceptable government LCA
development support at the time the rele vant LA/MSF contracts were concluded. 2360 The European
Communities maintains that this alleged benchmark must be taken into account as relevant context
when interpreting the notion of "benefit" under Article 1.1(b) of the SCM Agreement, 2361 because it
considers the 1992 Agreement to be an instrument containing rules of international law applicable
between the parties, within the meaning of Article 31(3)(c) of the VCLT. 2362 Thus, the European
Communities argues that any financial contributi ons provided through the post-1995 LA/MSF
measures may be found to have conferred a "benefit" on Airbus only if incompatible with Article 4 of
the 1992 Agreement. In this regard, the European Communities alleges that each of the challenged
LA/MSF measures complied with the terms of dom estic support established under Article 4 of the
1992 Agreement, and therefore did not confer a benefit upon Airbus, within the meaning of
Article 1.1(b) of the SCM Agreement.2363
"Reasonableness of repayment forecasts"
7.337 According to the European Communities, the Appellate Body in US – Countervailing
Measures on Certain EC Products explained that "fair" market transactions are not always the
appropriate benchmarks for the purpose of est ablishing the existence of subsidies under the
SCM Agreement. Quoting from the Appellate Body 's ruling, the European Communities argues that
in particular situations, it is necessary when cons idering whether a financial contribution confers a
benefit to take account of "the ability of govern ments to obtain certain results from markets by

2359 US, FWS, paras. 158-163, referring to Decision 97/807/EC of 30 April 1997, OJ (1997) L 331/10,
Aid granted by Spain to the Aerospace Company Construcciones Aeronáuticas, SA , (Spanish government
funding for development of a new 70/80 seat turboprop aircraft), Exhibit US-81; Press Release, The Commission
Approves a French R&D Scheme for the Aeronautics Sector , IP/96/665 of 18 July 1996, (French government
funding for Aérospatiale's development of the A330-200), Exhibit US-89; and Letter from Karel Van Miert to
Hubert Vedrine, Reimbursable Advance to Aérospatiale for the Airbus A340-500/600 Program , Aid No.
N369/98, (French government funding for Aérospatiale's development of the A340-500/600), Exhibit US-3.
2360 EC, FWS, paras. 395-404; EC, SWS, paras. 148-150.
2361 EC, FWS, paras. 398, 399 and 441.
2362 EC, FWS, paras. 131-150.
2363 EC, FWS, paras. 405-441.

BCI deleted, as indicated [***]

shaping the circumstances and conditions in which markets operate" and to remember that markets
can be "severely affected" by government policies. 2364 Because of the LCA industry's alleged close
association with heavy government inte rvention and international regulation, 2365 the European
Communities suggests that it is a sector where consid erations of the kind expressed by the Appellate
Body need to be taken into account when eval uating whether government support in the form of
LA/MSF amounts to subsidization under the SCM Agreement. Thus, the European Communities
submits that the appropriate methodology for de termining whether LA/MSF for the A330-200, A340-
500/600 and A380 confers a "benefit", within the mean ing of Article 1.1(b) of the SCM Agreement,
should not involve assessing whether each of the cha llenged contracts conforms to "'perfect' market
conditions".2366 Rather, the European Communities argues th at this determination should be made by
testing the reasonableness of the forecast number of sales over which repayments are intended to
secure the rate of return agreed to in each of the relevant contracts.2367
7.338 The European Communities finds "indirect" support for its view that the reasonableness of the
repayment forecasts is the "decisive factor"2368 for determining whether LA/MSF constitutes a subsidy
in footnote 16 of the SCM Agreement. Although a ttached to an expired provision (Article 6.1), the
European Communities considers that it provid es relevant context for understanding whether
LA/MSF amounts to a subsidy within the meaning of Ar ticle 1 of the SCM Agreement. In particular,
the European Communities argues that the text of f ootnote 16 envisages a situation where there is less
than full repayment of a royalty-based financing in strument – a situation where actual sales fall below
the level of forecast sales. According to the European Communities, footnote 16 provides that the
failure to achieve the sales fo recast envisaged under a royalty-based financing instrument ( i.e., less
than full repayment of royalty-based financing) cannot in itself be deemed to cause serious
prejudice.2369 By implication, the European Communities submits, it follows that when actual sales
match or exceed the level of forecast sales under a royalty-based financing instrument, there can be no
finding of serious prejudice. 2370 The European Communities maintain s that this result represents a
recognition by the drafters of the SCM Agreement that the relevant test for determining whether
LA/MSF constitutes a subsidy is the reas onableness of the repayment forecast.2371 Thus, to the extent
that a repayment forecast is reasonable, the Eu ropean Communities argues that full repayment of
LA/MSF will be achieved, thereby generating its ta rgeted rate of return. It is only when the
repayment forecast is not a reasonable one that, acc ording to the European Communities, a benefit
will be conferred.2372

2364 EC, FWS, para. 445, referring to Appellate Body Report, US – Countervailing Measures on
Certain EC Products, paras. 123-124.
2365 The European Communities maintains that this is reflected not only in the alleged "billions of
dollars" of government support (allegedly including royalty-based financing) enjoyed by Boeing, the only other
credible producer of LCA, but also in Article 6.1 of the 1979 Trade in Civil Aircraft Agreement , which reads:
"They { i.e., the Signatories} shall take into account the speci al factors which apply in the aircraft sector, in
particular the widespread governmenta l support in this area, their intern ational economic interests, and the
desire of producers of all signatories to participate in the expansion of the world civil aircraft market." EC,
FWS, paras. 444-447.
2366 EC, FWS, para. 447; EC, Answer to Panel Question 73; EC, SNCOS, para. 86.
2367 EC, FWS, paras. 442-478; EC Answers to Panel Questions 62 and 63; EC, SWS, paras. 151-157.
The European Communities asks the Panel to treat this argument as equally relevant to showing that certain pre-
1995 LA/MSF measures (specifically , the A320 and A330/A340 contracts) were not subsidies within the
meaning of the SCM Agreement, should it dismiss the European Communities' specific defences advanced in
relation to these measures based on the temporal scop e of the SCM Agreement and the relevance of the Tokyo
Round Subsidies Code. EC, Answer to Panel Question 62.
2368 EC, FWS, para. 455; EC Answers to Panel Questions 62 and 63.
2369 EC, FWS, para. 451.
2370 EC, FWS, para. 452.
2371 EC, FWS, paras. 455-456; EC, Answer to Panel Question 63.
2372 EC, FWS, para. 455.

BCI deleted, as indicated [***]

7.339 In the European Communities' view, the United States shares its interpretation of Article 1,
citing the following extract from a communication made by the United States to the WTO Negotiating
Group on Rules on 19 March 2003 as support for the proposition that the United States considers
LA/MSF would be a subsidy only if the market fo recasts on which repayment obligations are based
are not reasonable:
"As to the definition of subsidy, more e xplicit rules are needed as to royalty-based
schemes. These programmes provide governme nt funds with a repayment obligation
based on future sales. Similar to the granti ng of government loans or the government
purchase of equity, these schemes need to be judged against a market or commercial
standard. Obviously, if royalty-based fi nancing is based on assumptions and sales
projections that would be rejected by the market a benefit has been bestowed."
2373
7.340 The European Communities asserts that all of the LA/MSF granted for the A330-200, A340-
500/600 and A380 was provided on the basis of "very prudent" sales forecasts, with full repayment of
principal plus interest, set at least 25 basis point s above the government cost of funds, being required
from a number of sales that was less than Airbus' expectations over a maximum of 17 years
(consistent with Article 4 of the 1992 Agreement). 2374 The European Communities explains that
while the Airbus business case informed and set the out er limits of the returns expected by the EC
member States over the life of each aircraft, 2375 it was not automatically reflected in the terms of the
contracts. Moreover, the European Communities ma intains that because Airbus had to fund 67% of
the A330-200, A340-500/600 and A380 projects itself, its busin ess case for each of these LCA
projects was "realistic and sober", implying that the EC member States' forecasts were "conservative"
and intended to ensure faster repayment. 2376 This allowed the EC member State governments to
"agree to a structure of levies and repayment sche dules that ensures adequate recoupement of ...
contributions plus a real return at rates which would not be rejected at the market".2377
"Alternative Legal Argument"
7.341 In a final set of submissions, the European Communities presents what it characterizes as an
"alternative legal argument", that it asks the Panel to consider in the event that it were to dismiss all of
its other arguments on the question whether LA/MSF amounts to a subsidy. 2378 Pursuant to this
"alternative" argument, the Europ ean Communities proceeds on the "hyp othesis" that the Panel were
to find that the market provides the appropriate benchmark for determining the existence of a
"benefit" under Article 1.1(b) of the SCM Agreemen t. In this context, the European Communities
argues that the financing provided under th e challenged LA/MSF measures does not involve
subsidization within the meaning of the SCM Agreemen t because the cost of such financing to Airbus
was at least the same, if not greater, than the cost of similar financing available on the market.2379
7.342 The European Communities describes LA/MSF as repayable, project-specific debt financing
granted to Airbus for the purpose of developing LC A. According to the European Communities, the
terms and conditions of the challenged LA/MSF contracts vary considerably, both within and between
the relevant EC member States, depending upon the particular Airbus LCA project supported. 2380

2373 EC, FWS, paras. 457-458; and EC, SNCOS, para. 80, both submissions quoting Subsidies
Disciplines Requiring Clarification and Improvement , Communication from the United States dated
19 March 2003, TN/RL/W/78, p. 5.
2375 EC, FWS, paras. 465 and 469.
2376 EC, FWS, para. 464-477; EC, SCOS, paras. 46-56.
2377 EC, SWS, para. 157; EC, SNCOS, paras. 80-86.
2378 EC, Answer to Panel Question 67.
2379 EC, FWS, paras. 479-553; EC, SWS, paras. 158-214; EC, Answer to Panel Question 170.
2380 EC, FWS, paras. 291, 302.

BCI deleted, as indicated [***]

However, it recognizes that in general, a number of si milarities can be identified in terms of the type
or form of financing provided under each contract. For instance, the European Communities explains
that repayments under each of the LA/MSF contracts are, in general, linked to aircraft deliveries in the
sense that they are made through the application of graduated, per-aircraft, levies that increase over
the course of the repayment period.
2381 Moreover, the European Comm unities asserts that for certain
LA/MSF contracts, royalty payments are required on ce the full amounts of principal and interest have
been amortized through the operation of the per-a ircraft repayment levies. Thus, the European
Communities explains that through the operation of per-aircraft levies and/or royalties, the repayment
mechanism established in the LA/MSF contract s does not depend upon Airbus making profits but
relies on there being a sufficient number of deliveries of the financed LCA.
7.343 The European Communities recognizes that these features of LA/MSF result in member
States assuming a portion of the risk that would otherwise fall on the aircraft manufacturer. However,
the European Communities notes that, in contrast to the manufacturers themselves, the lender
governments do not face the risks associated with s ecuring profitable sales in a competitive market.
In other words, instead of the risk of a return dependent on profits, the lenders of LA/MSF face only
the risk that the borrower will fail to build and de liver a sufficient number of aircraft to repay the
agreed principal and interest. The European Communities describes this as "development risk" and
"market risk", and argues that it is no different fro m the type of risk faced by Airbus "risk-sharing
suppliers".
2382
7.344 The European Communities presents its own economic studies, addressing all but the
LA/MSF contracts for the A300 and A310, which it c ontends dismiss the conclusions reached in the
studies presented by the United States. The European Communities argues that the studies
commissioned from Professor Robert Whitelaw of Ne w York University's Stern School of Business
and International Trade Resources LLC, 2383 show that the United States both underestimates the rate
of return associated with each instance of financing and inflates the appropriate market interest rate
benchmarks for loans comparable to LA/MSF. 2384 According to the European Communities, the
effective rate of return associated with each of the challenged measures should be properly
determined as a function of the delivery forecasts contained in Airbus' business case as well as
taxation, considerations which together did not play a role in the calculations of the rates of return
advanced by the United States.
2385 Moreover, the European Commun ities asserts that the appropriate
market interest rate benchmark for all LA/MSF contracts should apply a project-specific risk premium
derived from "risk-sharing supplier" contracts for the A380 that is less than half the value used by the
United States. 2386 Nevertheless, the European Commun ities recognizes that even accepting the
entirety of the conclusions reached in the economic studies it has presented, the effective rates of
return associated with the LA/MSF contracts are, in most cases, below the market benchmark for
comparable financing. However, it argues that when the costs associated with the public policy

2381 EC, FWS, paras. 319-321.
2382 EC, FWS, paras. 303-307.
2383 Robert Whitelaw, Economic Assessment of member State Financing , 3 February 2007 (hereinafter
"Whitelaw Report"), Exhibit EC-11 (BCI/HSBI); Robert Whitelaw, Rebuttal Report, 24 May 2007 (hereinafter
"Whitelaw Rebuttal Report"), Exhibit EC-656 ( BCI/HSBI); International Trade Resources LLC, Calculating
Magnitude of the Subsidies Provided to the Recipient Entities , 5 February 2007 (hereinafter "ITR Report"),
Exhibit EC-13 (BCI/HSBI); International Trade Resources LLC, Answer to US Assertions that ITR's Method of
Calculating the Magnitude of Subsidies is Flawed , 21 May 2007 (hereinafter "ITR Report (Answer)"), Exhibits
EC-660 (BCI/ HSBI); and Inte rnational Trade Resources LLC, Updated Subsidy Magnitude and Cash-Flow
Calculations, 12 July 2007) (hereinafter "ITR Report (Update"), Exhibit EC-839 (BCI).
2384 EC, FWS, paras. 487-498; EC, SWS, paras. 168- 198; EC, SNCOS, paras. 88-111. The European
Communities argues that the same methodological errors exist in resp ect of the benchmark rates of return
calculated for the LA/MSF contracts relating to the A300 and A310. EC, Answer to Panel Question 77.
2385 EC, FWS, paras. 482, 536-547.
2386 EC, FWS, paras. 481, 483-535.

BCI deleted, as indicated [***]

obligations of each contract are taken into account, th e difference between the effective rates of return
and market interest rate benchmarks set out in its own economic studies is eliminated.
2387 Thus, the
European Communities concludes that any financ ial contributions made through the challenged
LA/MSF measures do not confer a "benefit" on Airbus, within the meaning of Article 1.1(b) of the
SCM Agreement.
(ii) Arguments of Third Parties
Australia
7.345 Australia agrees with Br azil that other Airbus risk sharing suppliers are not appropriate as an
element in determining a commercial benchmark for assessing benefit because the terms for risk-
sharing suppliers may be distorted by the govern ment finance contributed for the underlying
project.2388
7.346 Australia rejects Korea's argument about market failure situations. The major implication of
accepting Korea's statement for Australia, is to allo w different standards for establishing subsidisation
within narrowly defined goods markets that have been distorted by widespread market intervention.
Therefore, Australia does not agree that because a market is distorted, a government measure may not
constitute a financial contribution conferring a benefit. 2389
7.347 Australia contends that the Panel should avoid reading additional requirements into the text of
Article 14(b) and defining the market too narrowl y. Article 14(b) establishes benefit based on a
"comparable commercial loan" actually obtainable on th e market. It further contends that in the
narrowly defined market of LCA production in Eu rope, government intervention has distorted the
terms and conditions of loans available to Airbus co mpanies, so that most transactions are not purely
commercial. However, Australia argues that it ma y be possible to find comparable commercial loans
in the market for engineering projects involving long term, high-risk loans for large amounts of
capital and that operate on a commercial basis. Australia specifically refers to the Panel Report in
Japan – DRAMs (Korea) which provides some guidance on the evidentiary standard for determining
the existence of "benefit" in circumstances wher e there are no comparable commercial loans which
could actually be obtained on the market.
2390
Brazil
7.348 Brazil first observes that in this proceedi ng, the European Commun ities refused to consent
to three requests by the United States to in itiate the procedures under Annex V of the
SCM Agreement, and that it also failed to respond fully to questions and "follow-up" questions from
the Annex V Facilitator. This, according to Brazil, severely prejudiced the rights of third parties to
protect their interests in this proceeding wi thin the meaning of Article 10 of the DSU. 2391
7.349 Brazil submits that in the interest of the ti mely and efficient resolution of disputes and
consistent with the text of Annex V, Members s hould consent to the initiation of Annex V procedures
and should fully cooperate in providing requested in formation, particularly because information about
subsidies is often only available to the subsidizing Members. Thus, Brazil encourages the Panel to use

2387 EC, SWS, paras. 162-167; EC, Answer to Panel Question 170.
2388 Australia, Answers to Third Party Panel Questions, para.1 .
2389 Australia, Answer to Third Party Panel Questions, para.2 .
2390 Australia, Answer to Third Party Panel Questions, para. 3 referring to Panel Report, Japan –
Countervailing Duties on Dynamic Random Access Memories fr om Korea ("Japan – DRAMs (Korea)") ,
WT/DS336/R, adopted 17 December 2007, as modifi ed by Appellate Body Report WT/DS336/AB/R,
para 7.276.

BCI deleted, as indicated [***]

its discretion under paragraph 7 of Annex V of the SCM Agreement to draw adverse inferences where
appropriate and thereby adopt effective sanctions to ensure that Annex V remains an effective tool for
the resolution of disputes under the SCM Agreement. 2392
7.350 Brazil submits that, through "LA/MSF", Airbus governments provide below-market interest
rates loans for the development of new Airbus aircraft or new models of existing aircraft. 2393 It
contends that the repayment of principal (and possi bly repayment of interest) on the LA/MSF loans is
contingent on the successful sale of a specified number of the finished aircraft. 2394
7.351 Brazil submits that repayment schedules fo r LA/MSF are back-loaded by the Airbus
governments, which assume Airbus's risks by a llowing smaller levy paym ents on earlier deliveries
and progressively larger payments on later deliverie s. In some cases, the Airbus governments have
allowed Airbus to forego levies entirely on an initial tranche of deliveries. This, according to Brazil,
minimizes the debt service during the early years of Airbus's programmes. In addition, Brazil argues
that the tie between repayments and deliveries results in a significant lag between the granting of the
LA/MSF and the first repayment. Thus, LA/MSF conf ers a "grace period" to the beneficiary during
the crucial and costly stages of development. Mo reover, if the expected delivery schedule slips and
further repayment is pushed out in time, the commercial and financial benefits to Airbus increase.2395
7.352 Brazil asserts that LA/MSF is a subsidy that is particularly distortive to competition 2396
because it shifts the up-front expense and commercial risk of developing new aircraft to taxpayers,
allowing its beneficiary to move more aggressively forward on investment and production decisions
that would otherwise be abandoned or postponed, and to offer discounted commercial terms to
customers. 2397
7.353 Brazil rejects the European Communities' conten tion that the special characteristics of the
LCA industry justify subsidies inconsistent with a Member's WTO obligations. It asserts that
LA/MSF is not a necessary condition for participa tion in the aircraft market and should not be
sanctioned when it violates the SCM Agreement. 2398 Instead, Brazil acknowledges that an aircraft
that is developed with assistance provided by LA /MSF would not necessarily, in the counterfactual
situation, be introduced in the market without th e subsidy, because the aircraft market without the
existence of LA/MSF would not be the same as the market which is severely distorted by this type of
subsidy.2399
7.354 Brazil agrees with the United States that a benefit corresponds to some form of advantage and
that it can be identified by determining whether th e recipient has received a financial contribution on
terms more favourable than those available to the recipient in the commercial market. 2400 However,
Brazil finds no support in the SCM Agreement for the European Communities' proposition that

2392 Brazil, Third Party Submission, para. 5 and 7.
2393 Brazil, Third Party Submission, paras. 26-27.
2394 Brazil, Third Party Submission, para. 32. US, FWS, paras. 129-135.
2395 US, FWS, paras. 129-135.
2396 Brazil, Third Party Submission, paras. 26-27.
2398 Brazil generally observes that subsidies are not a requirement for the development and launch of
new aircraft, even if a producer is located in a develo ping country. By way of an example, it notes that, to
finance the design and development of its 70-118 seat family of aircraft, EMBRAER did not rely on government
support, but funded the USD 1 billion in development costs with an initial public offering of stock, contributions
from risk-sharing partners, and its retained earnings. Brazil, Third Party Submission, para. 28.
2400 US, FWS, para. 110.

BCI deleted, as indicated [***]

assessment of benefit be based solely on the reasonableness of sales forecasts.
2401 Brazil considers
that the European Communities' proposition that th e recipient does not receive any benefit because
"his repayment obligations (...) provide the government with sufficient guarantees of return", does not
address the correct standard to determine the existence of a benefit. 2402
7.355 According to Brazil, the Panel should find that LA/MSF confers a benefit if the terms and
conditions on which it is provided, are more favourable than available in the commercial market, or if
no such aid would, in fact, be available in the commercial market. 2403 For Brazil, the terms set out in
Article 4 of the 1992 Agreement may give an indica tion of the cost to the granting government only,
but cannot be taken as context for the interpretati on of the term "benefit" in Article 1 of the
SCM Agreement. In addition, Brazil finds nothing in the text of Article 4 (like Article 14 of the
SCM Agreement, for example) that could, according to the WTO jurisprudence, have a bearing on the
interpretation of the term "benefit".2404
7.356 Brazil maintains that the terms and cond itions of LA/MSF are not comparable to
commercially available financing 2405 because they do not reflect the risks associated with the
development of new aircraft, particularly the risk s in deciding whether to launch a new aircraft
family.2406 In fact, Brazil considers that the United States has presented a prima facie case that
LA/MSF granted without any interest obligation c onfers a benefit on Airbus. Specifically, Brazil
argues that LA/MSF confers a benefit because the Ai rbus governments do not require Airbus to pay a
commercial rate of interest giving due consideration to the credit risk of Airbus, the development risk,
i.e., the risk that Airbus will fail in its attempt to design and build the new aircraft, and the market
risk, i.e., the risk that Airbus will fail to deliver en ough completed aircraft to repay principal and
interest. Given the nature of LA/MSF, the comme rcial benchmark, according to Brazil, should take
into consideration the risks inherent in the devel opment and marketing of new aircraft, the nature of
the LA/MSF (including its success-dependent and b ack-loaded features and lack of security), the
relevant interest rates (including the nature of a ny obligation to pay interest), the fact that credit
ratings are affected by the expectation of con tinuing government support, and any other preferential
features, including the waiver of normal fees.2407
7.357 Brazil further argues that when the LA/MSF does re quire the payment of interest or royalties,
that aid confers a benefit on Airbus. Brazil consid ers that the additional statements by officials from

2401 Brazil, Third Party Submission, para. 29 citing to the European Communities Oral Statement,
para. 61.
2402 Brazil, Third Party Submission, para. 29 citing to the European Communities Oral Statement,
para. 61. For Brazil, "sufficient guarantees of return" for a government may not be – and most likely are not –
sufficient guarantees of return for an institution co nstrained by market disciplines. Brazil, Third Party
Submission, paras. 26-27.
2404 Brazil, Third Party Submission, para. 30. To this end, Brazil relies on the Appellate Body finding
in Canada – Aircraft, that Article 14 of the SCM Agreement provides relevant context for determining whether
a benefit was conferred within the meaning of Article 1.1(b) of the SCM Agreement. Appellate Body Report,
Canada – Aircraft I, paras. 153, 155, and 158. Brazil also agrees with the Panel's finding in Canada – Aircraft I
that a financial contribution in the form of LA/MSF confers a benefit if the provider of such aid "neither seeks
nor earns a commercial rate of return." Panel Report, Canada-Aircraft, para. 9.314.
2406 Brazil notes that the development of LCA is ri sky and expensive, requiring significant up-front
investments to be undertaken with returns contingent on sales far in the future. Moreover, there is a risk that the
predicted manufacturing costs, performance criteria, and sale s prices will not be achieved. If the project fails,
the initial up-front investments or non-recurring costs are lost. Brazil, Third Party Submission, para. 31.

BCI deleted, as indicated [***]

member States of the European Communities and by Airbus further demonstrate that LA/MSF confers
a benefit on Airbus.2408
7.358 Brazil takes issue with Korea's argument that in determining what is the appropriate market
benchmark against which to measure whether a give n financial contribution confers benefit, "it is
necessary to acknowledge that under particular circ umstances, the general market may encounter a
systematic failure or {that} an undistorted commercial market does not exist in a particular sector".2409
It contends that market failure occurs where, fo r example, a market cannot operate because the goods
or services cannot be provided on a commercial basis or where the market, left to its own, yields an
allocation of resources that is sub-optimal. It explains, relying on the general economic theory, that in
the former situation, the government takes on the ro le of provider of the goods or services involved,
and, in the letter, the private sector may provi de the goods or services, with the government
intervening as regulator to ensure that resource allocation becomes optimal.2410
7.359 Brazil maintains that there is no "market failure" in the aircraft industry, and points that the
parties do not allege it either. Thus, even if the existence of "market failure" has any relevance under
the SCM Agreement as Korea posits, the Panel does not need to address the possible implications of
this issue in the present dispute.
7.360 In Brazil's view, the existence of a benefit should be determined based on a comparison of the
financial contribution to a comparable benchmark available in the commercial market, normally of the
subsidizing Member. Where a comparable commercia l benchmark, does not exist, for example, the
domestic market may be so distorted by governme nt intervention that an objective, comparable
commercial benchmark is not available, this, accord ing to Brazil, should not be prejudicial for the
recipient of the challenged financial contribution (and should not, in and of itself, lead to an
affirmative benefit determination). Rather, unde r these circumstances, a panel may rely on a
reasonable and unbiased estimate of a comparable commercial benchmark, including based on a
benchmark available in the international market.
 2411
Canada
7.361 Canada rejects the Brazil's argument that subsid ies for the underlying project distort the terms
and conditions for risk-sharing suppliers such that they cannot be considered appropriate as an
element in determining a commercial benchmark for assessing the question of benefit with respect to
LA/MSF, as this approach is not supported by the te xt of the SCM Agreement. If followed, it would
leave WTO Members with little, if any, guidance as to how they should benchmark public sector
financing if they wish to ensure it does not provide a subsidy. Canada recalls that a similar argument
was advanced by the United States in US – Softwood Lumber IV , that the term "market conditions" as
used in Article 14(d) necessarily implies a mark et undistorted by the government's financial
contribution. In that dispute the Appellate Body stated: "
In our view, the United States' approach
goes too far. We agree with the Panel that "{t}he text of Article 14 (d) {of the} SCM Agreement
does not qualify in any way the 'market' conditions which are to be used as the benchmark …

2408 Brazil, Third Party Submission, para. 35 referring to US, FWS, paras. 152-157.
2409 In its Third Party Submission, Korea argues that when a panel is confronted with the factual
circumstances of market failure, "the benchmark to determine whether a government action at that particular
time confers a benefit should be different from one that is based on the action of a private investor operating in a
normal and fully functional market. ... {and} As a result, a government measure may not constitute a financial
contribution conferring a benefit in that pa rticular context, as it might otherwise do." Korea, Third Party
Submission, para. 63.
2410 Brazil, Answer to Third Party Panel Question 2, para. 1 referring to Brian R. Binger and Elizabeth
Hoffman, Microeconomics With Calculus (Glenview: Illi nois, 1988), p. 542 (stating that "competitive markets
do not allocate externalities and public goods efficiently").
2411 Brazil, Answer to Third Party Panel Question 2, para. 2-4.

BCI deleted, as indicated [***]

{a}s such, the text does not explicitly refer to a 'pure' market, to a market 'undistorted by
government intervention', or to a 'fair market value'."2412
Korea
7.362 Korea relies on the Appellate Body report in Canada – Aircraft, and the Panel report in Brazil
– Aircraft in arguing that, in order to demonstrate that a contribution confers a benefit, the
contribution must be (1) provided to the recipien t (2) on terms more advantageous than (3) those
available on the market. All three criteria mu st be fulfilled separately and individually. 2413 With
regard to the first element, Korea considers that a benefit exists only where an enterprise targeted by
an investigation is the actual beneficiary. It considers that the second element requires a detailed
inquiry, which would include examination of the ci rcumstances under which a financial contribution
is provided. With regard to the third element, Korea generally considers that the commercial market
will provide an appropriate benc hmark for the comparison of the terms available for a certain
investment or transaction, unless, as acknowledged by the Appellate Body in US – Certain Products
from the EC , in particular circumstances, the general ma rket encounters a systematic failure, or an
undistorted commercial market does not exist in a particular sector. 2414
7.363 Korea argues that in determining what is the appropriate market benchmark against which to
measure whether a given financial contribution co nfers benefit, it is necessary to acknowledge that
under particular circumstances, the general market may encounter a systematic failure or that an
undistorted commercial market does not exist in a par ticular sector. It asserts that when a panel is
confronted with such factual circumstances, the benchmark to determine whether a government action
at that particular time confers a benefit should be different from one that is based on the action of a
private investor operating in a normal and fully functional market. As a result, a government
measure may not constitute a financial contribution conferring a benefit in that particular context, as it
might otherwise do.2415
7.364 Accordingly, Korea argues that the United Stat es cannot plainly state that a benefit is
conferred, rather the Panel should closely ex amine whether the United States has established a prima
facie case as to three criteria set forth by the Appellate Body in Canada – Aircraft. 2416
(iii) Evaluation by the Panel
7.365 As we have previously noted, a "subsidy" is de fined in Article 1.1 of the SCM Agreement by
reference to two discrete elements: a "financial contribution by a government or any public body
within the territory of a Member" (Article 1.1(a)(1)) and the conferral of a "benefit"
(Article 1.1(b)).
2417 Although the United States has addressed both elements of this definition in
presenting its complaint, the European Communi ties has focused its defence entirely upon the
question whether LA/MSF confers a "benefit". Thus, the European Communities has not contested
the United States' allegation that each of the challenged LA/MSF measures involves a "financial
contribution" within the meaning of Article 1.1(a)(1)(i) of the SCM Agreement.
7.366 We are mindful that pursuant to Article 11 of th e DSU, we are required to make an objective
assessment of the matter identified in our terms of reference. This includes assessing whether the

2412 Canada, Answer to Third Party Panel Questions, para. 1-2, referring to Appellate Body Report, US
– Softwood Lumber IV, para 87.
2417 It is also defined as "any form of income or price support in the sense of Article XVI of GATT
1994" (Article 1.1(a)(2)) that confers a "benefit" (Article 1.1(b)).

BCI deleted, as indicated [***]

United States has presented a prima facie case demonstrating that the challenged LA/MSF measures
are subsidies within the meaning of the SCM Ag reement, irrespective of whether the European
Communities contests any one or more of the United States' allegations. 2418 Thus, we begin our
evaluation of the merits of the United States' co mplaint by examining whether it has established a
prima facie case that the challenged LA/MSF measures are "financial contributions". In this context,
we recall that "a prima facie case is one which, in the absence of effective refutation by the defending
party, requires a panel, as a matter of law, to rule in favour of the complaining party presenting the
prima facie case".
2419 Thereafter, we examine whether the Un ited States has demonstrated that each
of the "financial contributions" we find to exis t confers a "benefit" on the recipients, within the
meaning of Article 1.1(b) of the SCM Agreement. However, before embarking upon this evaluation,
we believe it is useful to first provide a brief overview of the economic and competitive context in
which LCA are developed as well as the key features of LA/MSF.2420
Overview of LCA Development and Key Features of LA/MSF
7.367 Both parties agree that an outstanding feature of LCA development is that significant start-up
costs must be incurred a long time before revenues fr om the projects associated with those costs are
generated.2421 Consequently, bringing a new LCA model to market requires long-term planning and
advance assessment of a wide variety of factors, in cluding future manufacturing needs, market trends,
customer demand and prices. This means that at the time a decision is taken to develop a new LCA
model and to incur start-up costs, the eventual succe ss of the project remains subject to a high degree
of uncertainty. According to th e European Communities, the fortun es of a new LCA project may be
affected by unexpected market slow-downs, e xogenous price movements of complementary goods
(e.g., fuel), exchange rate fluctuations, political de velopments, terrorist attacks, war and other security
issues and even human health risks such as SARS.
2422 Thus, the development of LCA is an endeavour
that requires "huge up-front investments" 2423 and a commitment of "tremendous resources" 2424 in the
face of a business environment that is shaped by factors "whose ve ry foreseeability is impossible by
definition".2425 The European Communities asserts that these "unique" features of the LCA industry
have made it susceptible to a high degree of gove rnment intervention both in terms of financial
support and international regulation. Indeed, th e European Communities suggests that given the
nature of the LCA industry, such levels of gove rnment intervention "may even be considered
natural".2426
7.368 At present, the worldwide market for LCA is divided between essentially two manufacturers
– Airbus and Boeing. 2427 This effective duopoly has existe d since 1997 when Boeing merged with

2418 See, Panel Report, United States – Anti-Dumping Measure on Shrimp from Ecuador ("US – Shrimp
(Ecuador)"), WT/DS335/R, adopted on 20 February 2007, paras. 7.1-7.11.
2419 Appellate Body Report, EC – Hormones, para. 104, citing Appellate Body Report, US – Wool Shirts
and Blouses, p.14.
2420 A more detailed exposition of the LCA industry's economic and competitive landscape is set out at
paras. 7.367-7.372 and in Section VII.F of this Report, where we evaluate the United States' claims of adverse
effects under Article 5 of the SCM Agreement.
2421 US, FWS, paras. 112-115; EC, FWS, paras. 27-32; Dorman Report, Exhibit US-70 (BCI), pp. 1-2.
Airbus launched the A380 on 19 December 2000 and made its first delivery on 15 October 2007.
2422 EC, FWS, paras. 28 and 32.
2423 US, FWS, para. 112.
2424 EC, FWS, para. 31.
2425 EC, FWS, para. 30.
2426 EC, FWS, para. 33.
2427 The United States asserts that although limited LCA production has continued in Russia, Russian
LCA producers do not seriously compete with Airbus and Boeing for sales outside of the former Soviet bloc,
leaving Airbus and Boeing as the only credible competitors operating in the LCA market. US, FWS, para. 711,

BCI deleted, as indicated [***]

McDonnell Douglas, one of two other United States ' companies active in the manufacture of LCA
over the past 30 years.
2428
7.369 As we have previously noted, Airbus has existed, in one corporate form or another, as a single
economic entity active in the LCA business for over 35 years. 2429 Since its establishment in 1970, the
governments of France, Germany, Spain and the UK have to varying degrees entered into LA/MSF
agreements with Airbus for the purpose of funding the development of six new models of LCA (the
A300, A310, A320, A330, A340 and A380) as well as three variants (the A330-200 and A340-
500/600).
2430 The proportion of development costs fina nced through LA/MSF has diminished over
the years, from close to 100% for the early projects (the A300 and A310) 2431 down to a maximum of
33% of development costs for LCA projects financed after the entry into force of the 1992 Agreement
(the A330-200, A340-500/600 and A380).2432
7.370 Initially, funding for Airbus' first LCA models (the A300 and A310 – respectively launched in
1969 and 1978 2433) was contracted at the inter-governmental level through a series of agreements
between participating EC member States. 2434 These first inter-governmental agreements not only
expressed the relevant EC member States' commi tment to fund the development of the A300 and
A310, but also some of the key terms and conditions attached to the provision of financing, such as
the amount of funds to be disbursed and the mode of repayment. 2435 Separate contracts implementing
the agreements, in the context of one or more different aspects or phases of the two LCA projects,
were entered into at the national level between each financing EC member State and the Airbus
"associated manufacturer" locat ed within its territory. 2436 Similarly, LA/MSF for the A320 and

footnote 875. A more detailed description of the conditions of competition in the LCA market and the
competitive positions of Airbus and Boeing is set out in Section VII.F of this Report.
2428 Apart from McDonnell Douglas, the only other credible United States' manufacturer of LCA was
Lockheed, which abandoned its LCA activities in 1981. US, FWS, para. 711.
2429 See, Section VII.E.1(a), para. 7.183 and Attachment to Section VII.E.1 of this Report, following
para. 7.289 above.
2430 Other variants of Airbus LCA models that we understand are not the subj ect of the United States'
complaint against LA/MSF include the A318, A319 and A321.
2431 The French and Spanish governments funded approximately 100%, and the German government
90%, of the development costs of the A300 and A310 (basic versions). The same three governments funded
between 64% and 85% of the development costs of the derivatives of these two models of LCA. EC, Answer to
Panel Question 254. See, also , ITC Hearing, Inv-No. 332-332, Global Competitiveness of US Advanced
Technology Manufacturing Industries: Large Civil Aircraft , testimony of Michel D echelotte, Director of
International Affairs, Airbus G. I.E., at 208 (15 April 1993), lines 11, 12 and 20-23, Exhibit US-46; 1997 Sénat
Report, at 63, 68, Exhibit US-18; and Boletín Oficial de las Cortes Generales, Congreso de los Diputados,
Cuenta General del Estado de 1992, Serie A, Núm. 34, at 122 (13 January 1997), Exhibit US-19.
2432 See, e.g., French A330-200 contract, Article 3, Exhibit EC-90 (BCI); French A340-500/600
contract, Article 3, Exhibit EC-91 (BCI); French A380 contract, Article 3, Exhibit EC-92 (BCI); German A380
contract, Article 5.3, Exhibit EC-85 (BCI); Spanish A340-500/600 contract, Preamble, Recital 9, Clause 2,
Exhibit EC-87 (BCI); Spanish A380 contract, Preamble, Recital 4, Clause 2, Exhibit EC-88 (BCI); UK A380
contract, Clause 5.6, Exhibit EC-89 (BCI).
2433 US, FWS, paras. 169-171; EC, FWS, para. 76.
2434 1969 A300 Agreement, Exhibit US-11; 1971 A300 Agreement, Exhibit EC-992 (BCI); 1981 A310
Agreement, Exhibit EC-942 (BCI).
2435 1969 A300 Agreement, Articles 6 and 7, Exhibit US-11; 1971 A300 Agreement, Exhibit EC-992
(BCI); 1981 A310 Agreement, Articles 8 and 9, Exhibit EC-942 (BCI). A more detailed description of the
provisions found in these Agreements is set out at paras. 7.533 - 7.554 below.
2436 In Answer to Panel Question 78 asking it to s ubmit copies of the LA/MSF contracts for the A300
and the A310, the European Communities submitted copies of: (i) 29 separate Agreements, Protocols and
Conventions, and amendments thereto, between the French government and Aérospatiale relating to the A300,
Exhibit EC-603 (BCI), and 10 separate Protocols and Conventions between the same parties relating to the
A310, Exhibit EC-604 (BCI); (ii) two "model contracts" evidencing th e German government's provision of
LA/MSF to Deutsche Airbus GmbH for the A300, Exhibit EC-601 (BCI), and the A310, Exhibit EC-602 (BCI);

BCI deleted, as indicated [***]

A330/A340 projects, respectiv ely launched in 1984 and 1987, 2437 was agreed between the
participating governments, 2438 and implemented at the national level through separate contracts
between each relevant EC member State and the Ai rbus "associated manufacturer" located within its
territory.2439 However, unlike the inter-governmental ag reements for the A300 and A310, the inter-
governmental agreements for the A320 and A330/A34 0 were less prescriptive. For instance, they did
not specify precise repayment terms, leaving these to be determined through the individual contracts
negotiated at the national level.2440
7.371 No inter-governmental agreements were concluded in the context of the LA/MSF provided by
the governments of France and Spain for the A330-200 and A340-500/600 projects (respectively
launched in 1995 and 1997 2441), nor in the context of the LA/MSF provided by the governments of
France, Germany, Spain and the UK for the A380 (launched in 2000). 2442 Instead, for these projects it
appears that the EC member States entered into se parate national-level contracts, setting forth all
relevant terms and conditions, w ith Aérospatiale and CASA (in respect of the A330-200 and A340-
500/600 projects) and with Airbus France, Airbus Deutschland GmbH, EADS Airbus S.L. (Spain),
BAE Systems (Operations) Ltd and British Aerospace PLC (in respect of the A380).2443

and (iii) 16 separate Contracts and amendments theret o, between the Spanish government and Construcciones
Aeronáuticas S.A. relating to the A300, Exhibit EC-605 (BCI), and eight separate Contracts between the same
parties relating to the A310, Exhibit EC-606 (BCI). We note that some of the national-level contracts were
entered into, and involved the transfer of funding to Airbus, before the formal launch of the respective LCA
models or conclusion of the relevant inter-governmental agreement.
2437 US, FWS, paras. 189 and 211; EC, FWS, paras. 79, 82 and 84.
2438 1991 A320 Agreement, Exhibit US-16; 1995 A330/A340 Agreement, Exhibit US-28 (BCI).
2439 The national-level contracts include: the French A320 contract, Exhibit EC-83 (BCI); the German
A320 contract, Exhibit EC-95 (BCI); the 1992 Spanish A320 contract, Exhibit EC-93 (BCI); the UK A320
contract, Exhibit EC-94 (BCI); the French A330/A340 contract, Exhibit EC-96 (BCI); the 1988 Spanish 1988
A330/A340 contract, Exhibit EC-84 (BCI); and the UK A330/A340 contract, Exhibit EC-86 (BCI). As we have
previously noted (footnote 2257 above), the European Communities has recognized that the German
government entered into a LA/MSF contract with Deutsche Airbus GmbH for the A330/A340 project.
Although asked by the Panel to submit a copy of this contract (Panel Question 253), the European Communities
did not do so. In addition, we note that in at least one instance – French LA/MSF for the A320 – funding was
provided to Airbus for "preliminary work" undertaken in the context of the A320 before it was actually launched
and prior to the conclusion of the relevant inter-governmental agreement.
2440 See, 1991 A320 Agreement, Articulo 8, Exhibit US-16; 1995 A330/A340 Agreement, Articulo 8,
Exhibit US-28 (BCI).
2441 US, FWS, paras. 234 and 243; Exhibit EC-597 (HSBI).
2442 US, FWS, para. 260; EC, FWS, para. 85. The Un ited States suggests that the four EC member
States financing the A380 entered into an inter-governmental agreement concerning the A380 in June 2003 – the
Agreement of 16 th June 2003 signed at Paris-Le Bourget between the Ministers of the Four Principal Airbus
Countries and Airbus, Exhibit US-122 (BCI). US, FWS, paras. 271, 280, 288 and 297. However, we note that
the Agreement cited by the United States does not deal with the A380 project in the same way that previous
inter-governmental agreements specifically addressed the development of Airbus' predecessor LCA models. To
begin with, Airbus is a party to the 2003 Agreement, whereas it was not party to the previous inter-
governmental agreements. Moreover, no specific obligation to fund Airbus projects is actually undertaken by
the governments. The recitals of the Agreement only express the governments' "willingness ... to continue to
provide support to Airbus such as launch investment, research and technology investment and aircraft export
sales financing". The same recitals also reveal Airbus' "willingness to provide information to {the
governments} for the purpose of enabling them to formulate policy relating to Airbus and to ensure that
obligations incurred when support is provided are met". Thus, we do not consider it appropriate to characterize
the 2003 Agreement as an "inter- governmental agreem ent" of the same kind as the inter-governmental
agreements that existed in respect of the previous models of Airbus LCA. See, further, paras. 7.549 - 7.554
below.
2443 French A330-200 contract, Exhibit US-78 (BCI); French A340-500/600 contract, Exhibits US-
35 (BCI) and EC-91 (BCI); French A340-500/600 convention, Exhibit US-36 (BCI); and Spanish A340-

BCI deleted, as indicated [***]

7.372 Thus, in summary, the contractual framewor k of the challenged LA/MSF measures takes
essentially two forms: (i) inter-governmental agre ements implemented th rough individual national-
level contracts or other legal instruments entered into by each relevant EC member State government
in favour of the Airbus entity located in its territory ; or (ii) individual contracts between each relevant
EC member State government and the Airbus entity located in its territory. Although the terms and
conditions of each of the legal instruments maki ng up the contractual framework of the challenged
LA/MSF measures can vary significantly, we agree w ith the parties that numerous similarities in the
type and form of financing can be found.
2444
7.373 In terms of the disbursement of funds, the contr acts that are before us appear to envisage two
mechanisms. First, in many cases, funds are transfer red in advance of actual development costs being
incurred, usually on the basis of projected expenditu re. When funds are disbursed in advance, costs
actually incurred may be subsequently audited or reviewed by the governments and the funding
amounts adjusted to ensure that total borrowing do es not exceed the level of development costs it was
agreed would be financed. 2445 Second, disbursements up to the agreed amounts may be made after
actual costs have been incurred.2446
7.374 Repayment of LA/MSF takes essentially the same form under each contract. 2447 In almost all
cases, Airbus is required to reimburse all funding cont ributions, plus any interest at the agreed rate,
exclusively from revenues generated by deliv eries of the LCA model that is financed. 2448 S u c h
repayments are made in the form of per-aircr aft levies and follow a pre-established repayment
schedule.2449 Usually, repayments start with the delivery of the first aircraft. However, in some
instances, repayment begins only after Airbus has made a specified number of aircraft deliveries. 2450

500/600 contract, Exhibits US-37 (BCI) and EC-87 (BCI); French A380 contract, Exhibit US-116 (BCI);
German A380 contract, Exhibit US-72 (BCI); Spanish A380 contract, Exhibit US-73 (BCI); and UK A380
contract, Exhibit US-79 (BCI). In 1999, British Aerospace merged with Marconi Electronic Systems to become
BAE Systems, see footnote 2057.
2444 US, FWS, paras. 116-136; EC, FWS, paras. 291, 308-327.
2445 EC, FWS, paras. 316-318. See, in particular, French A380 contract, Article 3 and Annex 4;
German A380 contract, Articles 4.2, 4.3 and 5.3; Spanis h A380 contract, Tercera an d Quinta Clausula; French
A340-500/600 contract, Article 4 and Annex 4; Spanish A340-500/600 contract, Segunda and Tercera Clausula;
French A330-200 contract, Article 4 and Annex 4; French A330/A340 contract, Article 4; Spanish 1988
A330/A340 contract, Clausula 4; French A320 contract, Article 3; Spanish 1992 A320 contract, Primera
Clausula. The European Communities asserts that the same disbursement mechanism was applied in respect of
the French A300 and A310 LA/MSF contracts; the German A330/A340, A320, A310 and A300 LA/MSF
contracts; and the Spanish A300 and A310 LA/MSF contracts. EC, Answer to Panel Questions 255 and 256.
2446 UK A380 contract, Article 5; UK A330/A340 contract, Article 2.2; and UK A320 contract,
Article 2.2.
2447 US, FWS, paras. 116-136, 173-177 (A300/A310), 190-194 (A320), 214-218 (A330/A340), 236
(A330-200), 244-245 and 254-255 (A340-500/600); and 266-267, 275, 284 and 292 (A380). EC, FWS, paras.
319-323.
2448 French A380 contract, Annexe 2, Article 6; German A380 contract, Article 7; Spanish A380
contract, Septima Clausula; UK A380 contract, Article 8, Schedule 3; French A340-500/600 contract, Article 6;
Spanish A340-500/600 contract, Quinta Clausula; French A330-200 contract, Article 6; 1995 A330/A340
Agreement, Articulo 8; 1991 A320 Agreement, Articulo 8; 1981 A310 Agreement, Article 9; and 1969 A300
Agreement, Article 7. The German government's re payment claims in respect of LA/MSF provided for the
A300, A310, A320 and A330/A340 were [***] under a Settlement Agreement that was negotiated in 1989
between the German government, Daimler Benz, MBB and Deutsche Airbus. As we read it, this Settlement
Agreement [***] the German government's outstandi ng repayment claims at the time [***]. Article 12, EC-
887 (BCI) and Articles 14(1) and 14(2), EC-887 (HSBI).
2449 In addition to repayment through progressive per-aircraft levies, the UK A320 contract [***].
2450 Spanish A380 contract, [***]; UK A380 contract, [***]. In addition, we note that one of the
Spanish A330/A340 contracts required repayments to the Spanish government [***]. Spanish 1990 A330/A340
contract, Article 5, Exhibit EC-947 (BCI). Evidence before us suggests that this was also the case in respect of
the Spanish A320 contract. See, Boletín Oficial de las cortes Generales, Congreso de los Diputados, Cuenta

BCI deleted, as indicated [***]

Although the amount of the per-aircraft levies varies be tween the different contracts, it appears in all
cases to be graduated, such that repayment am ounts at the beginning of the repayment period are
lower than at the end. 2451 In addition, for [***] of the contracts, royalty payments on a per-aircraft
basis are called for on deliveries made in excess of the number needed to secure repayment of the
disbursed principal plus any interest.2452
7.375 LA/MSF is provided without any guarantee of repayment in the event that Airbus fails to
make the number of deliveries needed to reimburse the full amount of financing obtained from the EC
member States. In other words, the scheduled repayments are not secured by any lien on Airbus
assets nor are they guaranteed by any third party. The European Communities points out that the
governments' claims on revenues generated from the delivery of LCA are, in some cases, guaranteed
by one of the companies forming part of the Airbus economic entity.
2453 However, notwithstanding
this form of guarantee there is no obligation on Airbus (or any company forming part of the Airbus
economic entity) to fully (and sometimes even par tially) repay LA/MSF in the event that the delivery
targets stipulated in the contractual repayment schedules are not achieved.
2454 Thus, we agree with the
United States that Airbus' obligation to fully re pay the loans provided under the challenged LA/MSF
measures is entirely dependent upon the success of th e particular LCA project. The fact that it is
possible, under certain contracts, 2455 for Airbus to make voluntary repayments notwithstanding the
number of sales achieved, does not, in our view, alter this conclusion.
Do the Challenged Measures involve a "Financial Contribution"?
7.376 The United States argues that each of the cha llenged LA/MSF measures involves a "financial
contribution" in the form of either a direct transfer of funds or both direct and potential direct transfers
of funds, within the meaning of Article 1.1(a)(1 )(i) of the SCM Agreement. In particular, the
United States argues that the LA/MSF contracts for the A300, A310, A320, A330/340, A330-200 and
the A340-500/600 constitute direct transfers of funds inasmuch as the funding amounts foreseen
under those contracts have been disbursed as of the date of the establishment of this panel.
2456 As far
as the LA/MSF contracts for the A380 are concerned, the United States contends that these measures
evidence both direct transfers of funds and, to the extent that certain committed funding amounts have
yet to be disbursed, potential direct transfers of funds. 2457 The United States has submitted various
pieces of evidence it argues substantiate these assertions. 2458 As we have already observed, the

General del Estado de 1992, 13 January 1997, p.122, Exhibit US-19; Spanish A320 contract, Clausula Segunda,
Exhibit EC-93 (BCI).
2451 French A380 contract, Annex 2, Article 6; German A380 contract, [***]; Spanish A380 contract,
Septima Clausula; UK A380 contract, Schedule 3; French A340-500/600 contract, Article 6; French A330-200
contract, Article 6; French A330/A340 contract, Article 6; UK A330/A340 contract, Article 2.4; French A320
contract, Article 5; German A320 co ntract, Article 18; UK A320 contract, [***]; 1981 A310 Agreement,
Article 9; and 1969 A300 Agreement, Article 7. The European Communities asserts that a similar graduated
repayment structure was applied in respect of the Spanish A340-500/600, A330/A340 and A320 LA/MSF
contracts. EC, Answer to Panel Question 250; ITR Report, Exhibit EC-597 (HSBI). As regards the German
A330/A340 contract, the European Communities has submitted information which suggests that repayments
were graduated. Settlement Agreement, Article 14(2), Exhibit EC-887 (HSBI).
2452 [***].
2453 German A380 contract, [***]; UK A380 contract, [***]. EC, Answer to Panel Question 65.
2454 However, we recall that under th e UK A320 contract, Airbus was [***]; and that pursuant to the
German A380 contract, it appears that Airbus was [***].
2455 German A380 contract, Article 8; Spanish A 380 contract, Septima Clausula; UK A380 contract,
Article 5.9 and Schedule 3, paragraph 9.
2456 US, Answer to Panel Question 4.
2457 US, Answer to Panel Question 4.
2458 US, FWS, paras. 173-177 (A300/A310), 190-194 (A320), 214-218 (A330/A340), 236 (A330-200),
244 and 253 (A340-500/600), 266, 274, 283 and 291 (A380), citing inter alia, German Federal Budget 1980,
Budget Plan 09 (Economics Ministry), Part 02, Chapter 09, Line Item 892 91 - 634, comment to title group 09,

BCI deleted, as indicated [***]

European Communities does not dispute the United St ates' contention that the challenged measures
involve "financial contributions". Moreover, we note that the evidence the European Communities
relies upon for the purpose of establishing the amounts of funding provided under several of the
challenged measures is identical to that submitted by the United States.
2459
7.377 On the basis of the arguments and evidence that both parties have presented, it appears to us
that all of the funds committed under the A300, A310, A320, A330/A340, A330-200, A340-500/600
and the UK A380 contracts have already been provided to Airbus. To this extent, we believe there is
no doubt that, as the United States argues, these measures involved direct transfers of funds, and
therefore, the provision of a "financial contribution by a government or any public body", within the
meaning of Article 1.1(a)(1)(i) of the SCM Agreement.
7.378 However, we note that not all of the funds committed under the French, German and Spanish
A380 contracts have been paid out. In particular , the French A380 contract envisages that certain
specific funding amounts would be transferred to Airbus [***].2460 Similarly, the German and
Spanish A380 contracts both provide for [***].2461 In all three cases, the outstanding instalments
reflect the expected development co sts of the A380 at the time of the conclusion of the contracts,
subject to [***] in the year of disbursement. 2462 In other words, the outs tanding instalments represent
a part of the total (and maximum) amount of fundi ng that it was agreed and planned would be
transferred to Airbus for the A380 project. Thus , although the payments under the three contracts
have not all been made, it is clear that it was envisaged that the specified funding amounts would be
transferred and that Airbus maintains a contractual right to receive them at a predetermined moment
in the future so long as it continues to develop the A380.
7.379 The United States argues that the French, Germ an and Spanish A380 contracts exhibit the
characteristics of both direct transfers of funds (to the extent that funds committed have already been
disbursed) and potential direct transfers of funds (to the extent that a commitment exists for funds to
be disbursed in the future). However, in our vi ew, although a number of the disbursements have not
yet been effected, it is more appropriate to char acterize the relevant LA/MSF contracts as direct
transfers of funds (and in particular "loans") w ithin the meaning of Article 1.1(a)(1)(i) of the
SCM Agreement. On the basis of the facts that ar e before us, it is apparent that the undisbursed

Exhibit US-17N; German Federal Budget 1987, Budget Plan 09 (Economics Ministry), Part 02, Chapter 09,
Line Item 892 91-634, comment to Chapter 09 through Federal Budget 1996 Exhibits US-17U through US-
17DD; Bundesregierung, 12
th Subsidy Report (1987-1990), at 108, Finanzhilfe 63, and all subsequent Subsidy
reports until the 16 th (1995-1998) Exhibits US-91H through -91L; BT-Drs. 12/1080, at 46 Exhibit US-26;
Monopolkommission, at 71, para 118, table 11 Exhibit US-30; 1997 French Senate Report, at 67-68 Exhibit US-
18; Collin (Yvon), Senate Report No. 89, Commission des Finances, Projet de Loi de Finances pour 2000, Tome
III, Annexe No. 25, Équipment, Transport et Logement: III. - Transports: Transport Aérien et Météorologie et
Aviation Civile, at 83 Exhibit US-33; Airbus, Cuadernos CDTI, Centro para el Desarollo Tecnológico Industrial
(CDTI) (prepared by the State Secretariat of Industry, Ministry of Science and Technology), July 1993 (at 91, et
Gobierno, Serie D, Núm. 547, at 153 (5 June 2003) Exhibit US-27; Balance del Segundo Año del Ministerio de
Ciencia y Technología, at 29 (June 2002) Exhibit US-96; House of Lords written answers for 25 February 1997
and 19 March 1997 (question to Mr. Greg Knight) Exhibits US-97 and US-98; Memorandum submitted by the
Department of Trade and Industry, Appendix 1, Annex 2 Exhibit US-99; House of Lords written answers for 25
February 1997 Exhibit US-97; Britain Plans Airbus Aid , N.Y. Times, at D16 (15 May 1987) Exhibit US-110;
and British Agree on Launch Aid for A330/A340 , Aviation Week & Space Technology, at 33 (18 May 1987)
Exhibit US-111.
2459 See, e.g., EC, FWS, paras. 364-366 (A300 and A310) and 369-379 (A320).
2460 French A380 contract, Annexe 3. Exhibit US-116 (BCI).
2461 German A380 contract, clause 4.2; and BT-Drs. 14/10002, at 3. Exhibits US-72 (BCI) and US-124
(English translations). Spanish A380 contract, Tercera Clausula. Exhibit US-73 (BCI).
2462 French A380 contract, Article 3; German A380 contract, clause 4.2-4.3; Spanish A380 contract,
Tercera Clausula.

BCI deleted, as indicated [***]

funding amounts formed part of the total amount of principal that it was envisaged under the French,
German and Spanish A380 contracts would be directly transferred (loaned) to Airbus over a set period
of time, as agreed and planned when the respective contracts were concluded. In this sense, the
relevant A380 LA/MSF contracts can be contrasted with an open line of credit. A line of credit is not
an ex ante agreement about the disbursement of specific funding amounts at a pre-determined moment
in the future, but rather a lending facility in the form of a promise on the part of a lender to make
funding available (in possibly one or more instalme nts) to a borrower in the event it is requested.
2463
Thus, irrespective of whether all of the funds co mmitted under the French, German and Spanish A380
contracts have been paid out, it is in our view clear from the particular facts that are before us that
each of the LA/MSF contracts evidences the existe nce of a "government practice {that} involves a
direct transfer of funds" in amounts and at moments agreed and planned at the conclusion of each
contract.
2464 Therefore, we find that the French, German and Spanish A380 contracts are "financial
contributions", within the meaning of Article 1.1(a)(1)(i) of the SCM Agreement.
7.380 In terms of the amount of the relevant "financi al contributions", there is very little difference
between the parties' positions,2465 which we summarize in the following table:

2463 One such example is the EUR 700 million credit line granted by the European Investment Bank to
EADS in 2002. The salient features of this particular credit line are described further at paras. 7.730 - 7.738,
where we examine the United States' claim that it amounted to a subsidy within the meaning of Article 1 of the
SCM Agreement.
2464 We note that this finding is consistent with how the European Communities has itself treated the
undisbursed funding amounts under the French, German and Spanish A380 contracts for the purpose of
determining the internal rate of return of each contract. See, paras. 7.404-7.406 below; and Exhibit EC-
597 (HSBI).
2465 See, e.g., US, FWS, paras. 175-177, 191-194, 215-218, 234, 244, 253, 265, 272, 282 and 290; US,
Answer to Panel Question 226; EC, FWS, paras. 332-337, 364-366, 369-372 and 375-378; EC, Answer to Panel
Question 258.

BCI deleted, as indicated [***]

Table 1 – Approximate amount of funding provided for under the challenged LA/MSF measures

Amount (Millions) Aircraft
Model France Germany Spain UK
A300 FF 3,012 2466 Ptas 3,829 2468 -
A310 FF 3,180 2469
DM 2,4002467
Ptas 7,8082470 -
A320 FF 4,133 2471 DM 1,330 2472 Ptas 10,800 2473 GBP 250 2474
A330/A340 FF 7,800 2475 DM 2,930 2476 Ptas 29,400 2477 GBP 447 2478
A330-200 FF 330 2479 - - -
A340-500/600 FF 2,110 2480 - Ptas 11,348 2481 -
A380 EUR [***] 2482 EUR [***] 2483 EUR [***] 2484 GBP [***] 2485

2466 US, FWS, para. 176; 1997 Senate Report, at 67, Exhibit US-18; EC, FWS, para. 365.
2467 Amount for both the A300 and A310. US, FWS, para. 175; Sundergutachten der
Monopolkommission, table 11, Exhibit US-30; EC, FWS, para. 364.
(CDTI) July 1993, at 91, Exhibit US-54; EC, FWS, para. 366.
2469 US, FWS, para. 176; 1997 Senate Report, at 67, Exhibit US-18; EC, FWS, para. 365.
(CDTI) July 1993, at 91, Exhibit US-54; EC, FWS, para. 366.
2471 US, FWS, para. 192; 1997 Senate Report, at 68, Exhibit US-18; US, Answer to Panel Question 226; EC, FWS,
para. 370; EC, Answer to Panel Question 258; Exhibit EC-949 (BCI).
2472 US, FWS, footnote 194; Sundergutachten der Monopolkommission , table 11, Exhibit US-30; US,
Answer to Panel Question 226; EC, FWS, para. 369; EC, Answer to Panel Question 258; Exhibit EC-949 (BCI).
(CDTI) July 1993, at 91, Exhibit US-54; US, Answer to Panel Question 226; EC, FWS, para. 371; EC, Answer
to Panel Question 258; Exhibit EC-949 (BCI).
2474 US, FWS, para. 194; House of Lords written answers for 25 February and 19 March 1997 (Question to Mr
Greg Knight), Exhibits US-97 and US-98; Memorandum submitted by the Department of Trade and Industry , Exhibit US-
99; UK A320 contract, Article 2.1.1, Exhibit EC-94 (BCI); EC, FWS, para. 372; EC, Answer to Panel Question 258; Exhibit
EC-949 (BCI).
2475 US, FWS, para. 217; 1997 Senate Report , at 67, Exhibit US-18; US, Answer to Panel Question
226; EC, FWS, para. 376; EC, Answer to Panel Question 258; Exhibit EC-949 (BCI).
2476 US, FWS, para. 215; Bundesregierung, 12 th Subsidy Report (1987-1990) , and all subsequent
Subsidy reports until the 16 th (1995-1998) Exhibits US-91H to 91L; US, Answer to Panel Question 226; EC,
FWS, para. 375; EC, Answer to Panel Question 258; Exhibit EC-949 (BCI).
2477 US, FWS, para. 217; US, Answer to Panel Question 226; EC, FWS, para. 177; EC, Answer to
Panel Question 258; Exhibit EC-949 (BCI).
2478 US, FWS, para. 218; House of Lords written answers for 25 February and 19 March 1997
(Question to Mr Greg Knight), Exhibits US-97 and US-98; US, Answer to Panel Question 226; EC, FWS, para.
378; EC, Answer to Panel Question 258; Exhibit EC-949 (BCI).
2479 US, FWS, para. 234; 1997 Senate Report , at 67, Exhibit US-18; French A330-200 contract,
Article 4.2, Exhibit US-78 (BCI); US, Answer to Panel Question 226; Exhibit EC-949 (BCI).
2480 US, FWS, para. 244; French A340-500/600 contract, Artic le 4, Exhibits US-35 (BCI) and EC-91 (BCI);
Exhibit EC-949 (BCI).
2481 US, FWS, para. 253; Spanish A340-500/600 contract, Segunda Clausula, Exhibits US-37 (BCI) and
EC-87 (BCI); US, Answer to Panel Question 226; Exhibit EC-949 (BCI).
2482 US, FWS, para. 265; French A380 contract, Article 2, Exhibit US-116 (BCI); EC, FWS, para. 339;
Exhibit EC-949 (BCI).
2483 US, FWS, para. 273; German A380 contract, preamble, Exhibit US-72 (BCI); Exhibit US-124; EC,
2484 The European Communities asserts that the actual amount of the "financial contribution" provided
for under the Spanish A380 contract was only EUR [***]. EC, Answer to Panel Question 259. According to
the European Communities, the maximum amount of EUR [***] set out in the Spanish A380 contract was set on
the basis of: (i) a development cost estimate that was greater than the actual estimate assessed by Airbus GIE
after conclusion of the contract; and (ii) an expected share in the develo pment costs for CASA that was greater
than what was allegedly agreed subs equently. However, in making these factual assertions, the European

BCI deleted, as indicated [***]

7.381 We next turn to consider whether the above "f inancial contributions" confer a "benefit" upon
Airbus, within the meaning of Article 1.1(b) of the SCM Agreement.
Do the Challenged Measures confer a "benefit"?
7.382 We recall that Article 1.1(b) of the SCM Agre ement does not define the notion of "benefit".
However, it is well established that a "financial contribution" will confer a "benefit" upon a recipient
when it places that recipient in a more advantag eous position compared with the position of that
recipient in the absence of th e "financial contribution". 2486 In Canada – Aircraft , both the panel and
the Appellate Body considered that the basis for making this comparison was the market. Thus, the
panel opined that:
"a financial contribution will only confer a 'benefit', i.e., an advantage, if it is
provided on terms that are more advantage ous than those that would have been
available to the recipient on the market".2487
Similarly, the Appellate Body explained that:

"the marketplace provides an appropriate basis for comparison in determining
whether a 'benefit' has been 'conferred', because the trade distorting potential of a
'financial contribution' can be identified by determining whether the recipient has
received a 'financial contribution' on terms more favourable than those available to
the recipient on the market."
2488
7.383 In essence, the United States' argues that each of the "financial contributions" made available
through the challenged LA/MSF measures confers a "benefit" on Airbus, within the meaning of
Article 1.1(b) of the SCM Agreement, because each w as provided on interest rate terms that are more
advantageous than would otherwise be the case if financing on the same or similar terms and
conditions had been sought by Ai rbus from a market lender. In other words, the United States
contends that LA/MSF confers a "benefit" because ma rket lenders faced with a request to finance
Airbus LCA projects on the same or similar te rms and conditions as LA/M SF would demand that
Airbus pay a higher rate of interest than did the EC member State governments.
7.384 The European Communities has presented sever al lines of defence to the United States'
allegations. In the first instance, the European Communities rejects the view that the appropriate
standard against which to measure whether LA/MSF c onfers a "benefit" may be found in the interest
rates associated with market financing on the same or similar terms and conditions as LA/MSF. For
all LA/MSF measures post-dating the entry into force of the 1992 Agreement, the European
Communities argues that the question of "benefit" should be resolved by testing whether each relevant
LA/MSF contract involves government support that is consistent with Article 4 of the 1992
Agreement. In addition, for all instances of LA/MSF challenged by the United States, with the
exception of LA/MSF for the A300 and A310, th e European Communities submits that the

Communities refers to no evidence that supports its stated position. Therefore, we have no choice but to reject
the European Communities' factual assertion and rely on the maximum amount of funding actually prescribed in
the Spanish A380 contract.
2485 US, FWS, para. 290; UK A380 contract, Article 5, Exhibit US-79 (BCI); Exhibit EC-949 (BCI).
2486 Panel Report, Canada – Aircraft , para. 9.112, cited with approval in Appellate Body Report,
Canada – Aircraft, para. 149.
2487 Panel Report, Canada – Aircraft , para. 9.112; Appellate Body Report, Canada – Aircraft ,
paras. 157-158.
2488 Appellate Body Report, Canada – Aircraft, para. 157.

BCI deleted, as indicated [***]

reasonableness of the repayment forecasts used to establish the repayment terms of each contract
should be the focus of our "benefit" analysis.
7.385 Second, and in the alternative, the European Communities contends that, assuming the market
is the appropriate benchmark against which to measure whether LA/MSF confers a "benefit", the
interest rates advanced by the United States for this purpose overestimate the rates of interest
associated with market financing that is compar able with LA/MSF. According to the European
Communities, when the full cost of LA/MSF is comp ared with appropriate market interest rate
benchmarks, the challenged LA/MSF measures do not confer a "benefit" upon Airbus.
Article 4 of the 1992 Agreement
7.386 For LA/MSF measures adopted after the en try into force of the 1992 Agreement
(17 July 1992), the European Communities contends that the notion of "benefit" under Article 1.1(b)
must be interpreted in the light of Article 4 of the 1992 Agreement . According to the European
Communities, the 1992 Agreement is an instrument containing relevant rule s of international law
applicable between the parties, within the meaning of Article 31(3)(c) of the VCLT, and therefore
must be taken into account in the present dispute as relevant context when interpreting the notion of
"benefit" under Article 1.1(b) of the SCM Agreement.
2489 The European Communities characterizes
Article 4 of the 1992 Agreement as a rule prescribi ng the extent to which the United States and the
European Communities agreed that "development support" could be legitimately provided to their
domestic LCA manufacturers. The European Commun ities contends that this rule "influences in
particular the interpretation of the appropriate benchmark when determin ing whether a financial
contribution has conferred a benefit on the recipient". 2490 To this end, the European Communities
argues that compliance with th e "development support" standards established under Article 4 is
dispositive of the question whether LA/MSF provid ed to Airbus after 17 July 1992 conferred a
"benefit", within the meaning of Article 1.1(b) of the SCM Agreement.2491
7.387 Article 4 of the 1992 Agreement reads as follows:
"4.1. Government shall provide support fo r the development of a new large civil
aircraft programme only where a critical project appraisal, based on conservative
assumptions, has established that there is a reasonable expectation of recoupment,
within 17 years from the date of first disbursement of such support, of all costs as
defined in Article 6(2) of the Aircra ft Agreement, including repayment of
governments supports on the terms and conditions specified below.
4.2. As of entry into force of this Ag reement, direct government support committed
by a Party for the development of a new large civil aircraft programme or derivative
shall not exceed:
(a) 25 % of that programme's total development costs as estimated at
the time of commitment (or of actual development costs whichever is
lower); royalty payments on this tranche shall be set at the time of
commitment of the development support so as to repay this support at
an interest rate no less than the cost of borrowing to the government
within no more than 17 years from first disbursement; plus

2489 A more detailed description of the European Communities' arguments in this regard is set out in our
preliminary ruling, at paras. 7.70 - 7.76 above.
2490 EC, FWS, para. 399.
2491 EC, FWS, paras. 394-441.

BCI deleted, as indicated [***]

(b) 8 % of that programme's total development cost as estimated at
the time of commitment (or of actual development costs, whichever
is lower); royalty payments on this tr anche shall be set at the time of
commitment of the development support so as to repay such support
at an interest rate no less than the cost of borrowing to the
government plus 1 % within no more than 17 years from
disbursement.
These calculations shall be made on the basis of the forecast of
aircraft deliveries in the critical project appraisal.
4.3. Royalty payments per aircraft shall be calculated at the time of commitment of
the development support to be repaid on the following basis:
(a) 20 % of aggregate payments calculated in accordance with
Article 4.2 is payable on the basis of the delivery of a number of
aircraft corresponding to 40 % of forecast deliveries;
(b) 70 % of aggregate payments calculated in accordance with
Article 4.2 is payable on the basis of the delivery of a number of
aircraft corresponding to 85% of forecast deliveries."
2492
7.388 Although the European Communities argues that Ar ticle 4 serves as relevant context for the
interpretation of the notion of "benefit", it has not explained exactly how it informs the meaning that
must be given to this term. Rather, a large part of the European Communities' submissions on this
subject are devoted to demonstrati ng that the post-1992 LA/MSF measures comply with the terms of
Article 4 of the 1992 Agreement. 2493 In this light, it is not entirely clear to us how the European
Communities believes the meaning of the word "benefit" in Article 1.1(b) of the SCM Agreement is
informed by Article 4 of the 1992 Agreement.
7.389 As we have previously noted, Article 4 est ablishes a set of qualitative and quantitative
parameters for the provision of support for the development of new LCA or derivative
programmes.2494 It identifies the dividing line that was agreed between the United States and the
European Communities for acceptable and prohibited "development support" under that Agreement.
It contains no definition of a "subsidy" nor does it make any reference to the notion of "benefit".
Thus, we see nothing in the language of Article 4 to suggest that it informs the meaning of
Article 1.1(b) of the SCM Agreement. Moreover, we cannot simply assume, on the basis of the
arguments presented by the European Communities, that "development support" measures taken in
compliance with Article 4 of the 1992 Agreement do not have the characteristics of "financial
contributions" that confer a "benefit", within the meaning of Article 1.1 of the SCM Agreement.
Thus, even assuming that the 1992 Agreement were an instrument containing relevant rules of
international law applicable between the parties, wi thin the meaning of Article 31(3)(c) of the VCLT
(and once again, we emphasize that on this question, we express no view), 2495 we are not convinced
that Article 4 of that Agreement provides any guida nce on how to interpret the concept of "benefit"
under Article 1.1(b) of the SCM Agreement. Cons equently, we dismiss the European Communities'

2492 Agreement between the European Economic Community and the Government of the United States
of America concerning the Applicatio n of the GATT Agreement on Trade in Civil Aircraft on Trade in Large
Civil Aircraft, Official Journal of the European Communities of 17.10.1992, No. L 301, p. 32, EC, Request for
Preliminary Ruling, 26 October 2005, Exhibit EC-4 (submitted with Request Preliminary Ruling).
2493 EC, FWS, paras. 405-441.
2494 See, para. 7.68 above.
2495 See, para. 7.100 above.

BCI deleted, as indicated [***]

argument that the benchmark to be applied wh en assessing whether LA/MSF confers a "benefit"
should, in effect, be Article 4 of the 1992 Agreement.
"Reasonableness of the repayment forecasts"
7.390 The European Communities asserts that the "decisive factor" for determining whether
LA/MSF measures for the A330-200, A340-500/600 and the A380 confer a benefit is the
reasonableness of the repayment forecasts. Alt hough, initially, the European Communities advanced
this argument in respect of only the LA/MSF measures for the A330-200, A340-500/600 and the
A380, it subsequently declared that it could be of equal relevance to certain pre-1995 LA/MSF
measures (specifically, the A320 and A330/A340 contract s) if the Panel were to reject its specific
defences advanced in relation to these measures ba sed on the temporal scope of the SCM Agreement
and the relevance of the Tokyo Round Subsidies Code.
2496 Because we have dismissed these two
defences, the following evaluation should be understood as addressing the European Communities'
arguments as they relate to all of these measure s, namely, LA/MSF for the A320, A330/A340, A330-
200, A340-500/600 and the A380.
7.391 The European Communities contends that the reasonableness of the repayment forecasts used
to establish the repayment terms in each of the ch allenged LA/MSF contracts is the most relevant
benchmark for assessing the question of benefit because it has a direct impact on the extent to which
repayments will be made. Thus, if the repayment terms of LA/MSF are based on a reasonable
forecast of LCA sales, it is more likely that it will be repaid in full, and consequently, that the target
rate of return will be achieved. It is only when the repayment for ecast is not a reasonable one – that
is, unreasonably optimistic, spreading repayment ove r an unreasonably large number of sales, and
thereby delaying the point at which the target rate of return is achieved – that a benefit will be
conferred.
2497 According to the European Communities, this view is indirectly supported by footnote
16 of the SCM Agreement, which it argues suggests that the drafters of the SCM Agreement were
aware of the fact that royalty-based financing in the LCA sector needs to be assessed against the
reasonableness of the sales forecast used to establi sh its terms of repayment. Thus, the European
Communities submits that the reasonableness of th e repayment forecast contained in the LA/MSF
contracts should be "at the heart of any legal assessment [***] under the SCM Agreement".2498
7.392 The United States disputes the European Communities' contentions. In the view of the United
States, the argument that the reasonableness of repa yment forecasts is the appropriate benchmark for
determining whether LA/MSF confers a benefit ignor es the fact that a subsidy may exist irrespective
of the reasonableness of a government's expectations about the number of sales needed to secure full
repayment of LA/MSF. In particular, the United States argues that if the rate of return obtained by the
government for the financing of an LCA project is set at, for example, its own borrowing rate, a
LA/MSF recipient will receive an advantage notwith standing the fact that the repayment terms may
be based on a reasonable estimate of the number of sales needed to achieve full repayment of that
LA/MSF.
2499 Moreover, according to the United States, footnote 16 of the SCM Agreement does not
support the European Communities' argument. In its vi ew, if anything, the very fact that the drafters
of the SCM Agreement saw a need to clarify that a particular circumstance involving the
implementation of royalty-based fi nancing "does not in itself" cons titute deemed serious prejudice,
suggests that they presumed the provision of LA/MSF confers a benefit and therefore constitutes a

2496 EC, Answer to Panel Question 62.
2497 EC, FWS, paras. 442-463; EC, SWS, paras. 151-157.
2498 EC, Answer to Panel Question 63.

BCI deleted, as indicated [***]

subsidy. The United States considers that there w ould have been no need to make the clarification
otherwise.2500
7.393 The United States also notes that footnote 16 is no longer in effect, and in any case that it
"explicitly deals not with 'benefit' but with one cat egory of adverse effects – serious prejudice – and
then only 'for the purposes of this subparagraph'". 2501 Thus, the United States argues that any
relevance of footnote 16 is limited to the specifi c context in which it is found – the question of
"serious prejudice" under Article 6.1(d) of the SCM Agreement. Had the drafters of footnote 16 also
intended it to be relevant to the question of "ben efit", the United States submits that they could have
easily included a footnote to Article 1.1(b) of the SCM Agreement making that point. 2502 However,
the drafters did not; and according to the United St ates, the European Commun ities' interpretation of
the lack of any footnote or cross-reference am ounts to a "distortion of customary rules of
interpretation of international law".2503
7.394 Finally, the United States rejects the Eu ropean Communities' assertion that its
Communication to the Negotiating Group on Rules in March 2003 indicates that it supports the
European Communities' interpretation of Article 1. The United States explains that the
Communication did not purport to identify the "only" circumstance in which royalty-based financing
would bestow a benefit, but rather, only one such ci rcumstance where that result would be "obvious".
Moreover, the United States notes that its statemen t referred to "assumptions and sales projections",
which it explains encompass "the very factors the EC ignores: the rate of return and other key terms"
of LA/MSF.2504
7.395 We believe it is useful to start our evalua tion of the European Communities' defence by
examining the text of footnote 16 in the immediate cont ext in which it appears, that is, in the light of
Article 6.1(d) of the SCM Agreement. The relevant language reads:
"6.1 Serious prejudice in the sense paragrap h (c) of Article 5 shall be deemed to
exist in the case of:

(d) direct forgiveness of debt, i.e., forgiveness of government-held debt, and
grants to cover debt repayment.16
16 Members recognize that where royalty- based financing for a civil aircraft
programme is not being fully repaid due to the level of actual sales falling below the
level of forecast sales, this does not in itself constitute serious prejudice for the
purposes of this subparagraph."
Thus, Article 6.1(d) identifies one form of gove rnment action that is deemed to cause serious
prejudice within the meaning of Article 5(c) – direct debt forgiveness. Although the legal effect of
this provision, including footnote 16, has lapsed, we do not preclude that it could nevertheless be
useful to understanding the different types of measures that the SCM Agreement was intended to
address.2505

2500 US, SWS, para. 62.
2501 US, FNCOS, para. 38.
2502 US, FNCOS, para. 38.
2503 US, SWS, para. 59.
2504 US, SWS, para. 61.
2505 We recall that we have already noted that paragraph 7 of Annex IV of the SCM Agreement (which
like Article 6.1(d) is no longer in force) provides an important indication of the intended scope of Article 5. See,
para. 7.64 above.

BCI deleted, as indicated [***]

7.396 When read together with Article 6.1(d), f ootnote 16 indicates a recognition on the part of
Members that, in the context of royalty-based financ ing for civil aircraft programmes, the mere fact
that actual aircraft sales may fall below the level of forecast sales cannot, in itself, be taken as
evidence of direct debt forgiveness, and therefore cannot be deemed to cause serious prejudice for the
purposes of Article 6.1(d). In other words, the f act that royalty-based financing for civil aircraft
programmes may not be fully repaid because of a shortfall in actual aircraft sales compared with sales
forecasts is not, on its own, enough to characterise lo wer than expected levels of royalty payments as
a form of direct debt forgiveness that must be deem ed to cause serious prejudice. To the extent that
the effect of footnote 16 is expressly limited to th e purposes of Article 6.1(d) – that is, determining
whether direct debt forgiveness can be deemed to cause serious prejudice – it is clear that it was not
intended to inform the meaning of "benefit" under Ar ticle 1.1(b). This is confirmed by the absence of
any cross-reference to footnote 16 (or any other text) qualifying the language of Article 1.1(b). In this
regard, we note that elsewhere in the SCM Agre ement, where Members considered it was necessary
to modify the language of a particular obligation to account for civil aircraft, they did so by inserting
appropriate footnotes.
2506
7.397 At most, we consider that the language of footnote 16 may be read to imply that when actual
aircraft sales do not fall below the level of forecast sales under a royalty-based financing instrument
(i.e., the situation the European Communities sugg ests evidences the existence of a "reasonable
repayment forecast"), it would be inaccurate to char acterise that instrument as providing for direct
forgiveness of debt. However, this is not the same as saying that all instances of royalty-based
financing granted on the basis of a "reasonable repaym ent forecast" do not confer a benefit within the
meaning of Article 1.1(b) of the SCM Agreement. In our view, a reasonable repayment forecast, in
the terms advanced by th e European Communities – i.e., a reasonable number of sales over which a
market lender could expect full repaymen t of loaned principal plus interest 2507 – cannot alone be
determinative of whether a royalty-based financing instrument (in this case LA/MSF 2508) confers a
benefit for the purpose of the SCM Agreement. While we can accept that an unreasonable repayment
forecast may signal that a loan confers a benefit, 2509 we do not believe the opposite will necessarily be
the case when LA/MSF is grounded on a reasonable repayment forecast. This is because the number
of sales over which full repayment is expected says little, if anything, about the appropriateness of the
rate of return that will be achieved by the lender.
7.398 As we see it, the rate of return attached to a LA/MSF contract may be viewed as the "price"
the contractual parties agreed to pay/receive fo r the particular rights and obligations established
thereunder, including those defined by the repayment schedule. Therefore, the rate of return earned
on each LA/MSF contract represents not only the envi saged financial gain for the lender (the EC
member State governments), but also the apparent fina ncial cost for Airbus. Bearing in mind that it is
now well established that the question of benefit un der Article 1.1(b) of the SCM Agreement should
be resolved by comparing the situation of the reci pient of a financial cont ribution with and without

2506 The SCM Agreement contains two other footnotes that refer to civil aircraft – footnotes 15 and 24.
Footnote 15 reads: "Since it is anticipated that civil airc raft will be subject to specific multilateral rules, the
threshold in this subparagraph does not apply to civil aircraft." Footnote 24 reads: "Since it is anticipated that
civil aircraft will be subject to specific multilateral rules, the provisions of this subparagraph do not apply to that
product." Together with footnote 16, these are th e only parts of the SCM Agreement that make specific
reference to civil aircraft.
2507 EC, Answer to Panel Question 73.
2508 We note that neither party has distinguished the challenged LA/MSF measures from "royalty-based
financing" falling within the scope of footnote 16. Howe ver, strictly speaking, not all of the LA/MSF contracts
at issue in this dispute envisage the payment of "royalties" in the sense that we have described at para. 7.374
above, and analysed in more detail at paras. 7.410 below et seq.
2509 For instance, where full repaymen t is expected over an unrealisti cally high number of LCA sales,
such that no market lender would be willing to agree to make a loan on the same or similar repayment
conditions.

BCI deleted, as indicated [***]

that contribution, 2510 we believe that it makes sense to fo cus the assessment of whether LA/MSF
confers a benefit on whether the rate of return of the challenged measures is lower than the rate of
return that would be sought by a market lende r for financing on the same or similar terms and
conditions, taking into account a comparable schedule of repayment. So, for example if a government
LA/MSF contract envisaged a zero rate of return on the basis of a reasonable repayment forecast, it
would obviously confer a benefit, if in the absence of the zero-interest loan, Airbus could only obtain
the same or similar financing from a market lender at a rate of interest of 3%.
7.399 However, the European Communities submits that in the context of LA/MSF, the question of
benefit should not be determined through a strict co mparison of LA/MSF rates of return with the rates
of return attached to comparable market financing instruments. As we understand it, under this line of
argument, the European Communities considers reliance on a "'perfect' market"2511 benchmark for this
purpose would be inappropriate because of the h eavy government intervention and international
regulation it alleges is found in the LCA industry. The European Communities draws support for its
position from certain observations ma de by the Appellate Body in US – Countervailing Measures on
Certain EC Products , which the European Communities argues stand for the proposition that "fair"
market transactions may not always be the mo st appropriate benchmarks for the purpose of
establishing the existence of subsidies under the SCM Agreement, particularly where the market for
those transactions has been distorted by government action. 2512 According to the European
Communities, the LCA industry is one sector of the economy where the Appellate Body's
observations find considerable relevance.
7.400 We are not persuaded by the European Communities' arguments on this point. Even
assuming that the particular observations of th e Appellate Body relied upon by the European
Communities were directly applicable to the present factual circumstances,
2513 the European
Communities has provided no evidence or explanatio n of how alleged government intervention in the
LCA industry distorts the behaviour of market lenders such that it renders the rate of return they
would ask for financing comparable to LA/MSF an inappropriate benchmark upon which to base a
benefit analysis. While we recognize that the LCA industry has particular features that sets it apart
from many other industrial sectors, 2514 in the absence of clear arguments and evidence of government
action distorting non-government loan market s, we cannot accept the European Communities'
assertion that the "reasonableness of repayment forecast s" used to construct LA/MSF contracts is the
"decisive factor"2515 for determining whether a LA/MSF contr act confers a benefit and constitutes a
subsidy under the SCM Agreement. We therefore dismiss the European Communities' contention.
7.401 Having closely reviewed and considered the arguments and evidence submitted by the parties,
we believe that it is appropriate to resolve the question whether LA/MSF confers a benefit by

2510 See, paras. 7.310-7.312 and 7.382.
2511 EC, Answer to Panel Question 73.
2512 EC, FWS, para. 445, referring to Appellate Body Report, US – Countervailing Measures on
Certain EC Products, paras. 123-124.
2513 The particular observations at issue were made by the Appellate Body in US – Countervailing
Measures on Certain EC Products in the context of a case where, as we have already explained, the "core legal
question" before the panel was whether the benefit re sulting from a prior non-recurring financial contribution
bestowed on a state-owned enterprise continued to exist following its privatization at arm's length and at fair
market value, the government having transferred all or substantially all property and controlling interest.
Appellate Body Report, para. 117. Given this "very narrow set of facts and circumstances", it is not apparent to
us that the guidance of the Appellate Body the European Communities relies upon is as directly relevant to the
question we are faced with under the present set of arguments ( i.e., whether the rate of return for comparable
market financing is an appropriate benchmark for determining whether LA/MSF confers a benefit) as the
European Communities contends.
2514 See, paras. 7.367-7.368 and paras. 7.1883 - 7.1893.
2515 EC, Answers to Panel Questions 62 and 63.

BCI deleted, as indicated [***]

examining whether the cost of the challenged LA/MSF contracts to Airbus is less than the cost that
Airbus would be faced with if it sought financ ing on the same or similar terms and conditions as
LA/MSF from the market. We therefore begin our be nefit analysis by examining whether the rate of
return obtained by the relevant EC member State governments when providing LA/MSF is less than
the rate of return that would be asked by a mark et-based lender for financing on the same or similar
terms and conditions as each provision of LA/MSF. It is to this question that we next turn our
attention.
Whether the Rates of Return of the LA/MSF Measures are less than the Rates of
Return of comparable Market-Based Financing
7.402 The parties have made extensive arguments a nd submitted much detailed evidence, including
expert studies and reports, on the question whether the rates of return obtained by the EC member
State governments for the provision of LA/MSF are le ss than the rates of return that would be
required by a market lender for financing on the sam e or similar terms and conditions as LA/MSF. In
doing so, they have presented two very different perspectives and conclusions.
7.403 In its first written submission, the United St ates identified what it considers to be the
"actual"2516 rates of return that each EC member St ate government expected to obtain from each
provision of LA/MSF in the event that it was fully repaid. The United States explains that in a
number of instances, it derived these rates from information contained in the LA/MSF contracts
themselves. However, where the United States did not have access to the relevant LA/MSF contracts,
it estimated the rates of return on the basis of information obtained during the Annex V process or
information publicly available.
2517 As we understand it, the United States did not factor potential
royalty payments foreseen under any of the contract s into its calculations. The rates of return
advanced by the United States are the following:2518

2516 The United States argues that "its determination of the benefit conferred by Launch Aid relies on a
comparison between a market benchmark and the actual interest rates set out in the Launch Aid contracts". US,
SWS, para. 121. (Underline added).
2517 The United States recalls that during the Annex V process, the European Communities refused to
provide any information at all, including copies of th e LA/MSF contracts, in respect of the challenged A300,
A310, A320 and A330/A340 LCA projects. The United Stat es argues that the logical inference that should be
drawn from this failure to provide information, in the light of paragraph 7 of Annex V of the SCM Agreement,
is that the missing contracts would de monstrate that each grant of LA/MSF is a subsidy. US, FWS, paras. 167-
168. We note that the European Communities subsequently submitted copies of what it considered to be all of
the relevant contracts and business cases as Exhibits to its first written submission and in Answer to Panel
Questions 78, 246, 248, 249, 252 and 262.
2518 Ellis Report, Table 4, p. 25. Exhibit US-80 (BCI).

BCI deleted, as indicated [***]

Table 2 – LA/MSF rates of return proposed by the United States

 Aircraft
Model France Germany Spain UK
A300 0% 0% 0% -
A310 0% 0% 0% -
A320 0% or below
market
0% or below
market
0% [***]
A330/A340 [[HSBI]] 0% 0% [***]
A330-200 [[HSBI]] - - -
A340-500/600 [***] - [***] -
A380 [***] [***] [***] [***]

7.404 The European Communities rejects the rates of return established by the United States,
arguing that they underestimate the actual returns an ticipated by the EC member State governments.
In the European Communities' view, the rates of return that the EC member State governments
expected to obtain from each of the challenged LA /MSF measures must be determined taking into
account the contractual repayment terms, including an y anticipated royalty payments that would be
due over the life of the financed aircraft, a nd, where relevant, the effects of taxation. 2519 The
European Communities describes this as the "implicit rate of return" of each of the LA/MSF contracts
– i.e., the percentage rate of return the EC member State governments anticipated from the projected
LA/MSF cash-flows at the time the LA/MSF contracts were concluded. 2520 The European
Communities calculated an "implicit rate of retu rn" for each of the A320, A330/A340, A330-200,
A340-500/600 and A380 LA/MSF contracts.2521
Implicit Rates of Return Before Taxation
7.405 The European Communities explains that the firs t step in arriving at the "implicit rates of
return" of the LA/MSF measures involves determini ng each contract's internal rate of return
("IRR").2522 The European Communities calculated an IRR for each of the challenged LA/MSF
contracts (with the exception of the A300 and A310 c ontracts) by identifying the interest rate that sets
at zero the net present value ("NPV") of actual or anticipated LA/MSF receipts 2523 ( i.e., LA/MSF-
inflows) and expected repayments (includi ng any lump sum payments and royalties) ( i.e., LA/MSF-
outflows) on the basis of the aircraft delivery forecasts contained in the relevant Airbus business case.
7.406 In particular, for LA/MSF contracts that did not foresee the payment of royalties, 2524 the
European Communities identified the IRR as the disc ount rate that set the NPV of all programmed

2519 EC, FWS, paras. 537-541; EC, Answer to Panel Question 69; EC, Comment on United States
Answer to Panel Question 142.
2520 EC, Answer to Panel Question 69.
2521 ITR LLC Report, pp. 4-5, Exhibits EC-13 (BCI) and EC-13 (HSBI); and Table presented in Exhibit
EC-597 (HSBI). The European Communities has not submit ted any calculation of the rates of return associated
with the challenged A300 and A310 LA/MSF measures.
2522 EC, Answer to Panel Question 69.
2523 The European Communities appears to have relied upon what it asserts were the actual LA/MSF
receipts in respect of th e UK A320 contract ( [***]), the UK A330/A340 contract ( [***]) and the Spanish A380
contract ([***]). Compare Exhibit EC-597 (HSBI) with Exhibits EC-94 (BCI), EC-86 (BCI) and US-73 (BCI).
In the case of the two UK contracts, [***], and in any case the European Communities appears to have taken
account of the slight variances by adju sting the repayment schedules applied in its analyses. However, in the
case of the Spanish A380 contract, we consider the difference to be signi ficant and recall that the European
Communities has failed to substantiate its assertion that the amount originally provided for under the relevant
contract [***] was not in fact transferred to Airbus. See, footnote 2484.
2524 The LA/MSF contracts that do not contain any royalty provisions are the [***].

BCI deleted, as indicated [***]

disbursements over time and all repayments at ze ro, taking into account the number and timing of
deliveries projected in the relevant Airbus bus iness case. Essentially the same methodology was
applied to those measures containing royalty provisions,
2525 with the only difference being that the
value of royalty payments anticipated in the light of the number, timing and (for some contracts) the
forecast prices of deliveries 2526 projected by Airbus in its busin ess case were taken into account. For
instance, the European Communities explains that the UK A330/A340 contract requires full
repayment of LA/MSF contributions [***].2527 However, according to the European Communities,
the Airbus business case for this aircraft projects fe wer than this number of deliveries over the entire
life of the aircraft. 2528 In this light, the European Comm unities calculated the IRR for the UK
A330/A340 contract on the basis of the total repa yments (including royalties) anticipated over the
number and timing of aircraft deliveries projected in the Airbus business case. 2529 On this basis, the
European Communities determined the following IRRs:2530
Table 3 – LA/MSF implicit rates of return before taxation proposed by the EC

Alleged LA/MSF Rates of Return Before Taxation (EC) Aircraft
Model France Germany Spain UK
A320 [***] [***] [***] [***]
A330/A340 [***] [***] [***] [***]
A330-200 [***] - - -
A340-500/600 [***] - [***] -
A380 [***] [***] [***] [***]

7.407 Although the United States contests the European Communities' view that the rates of return
expected by member States from each of the challenged LA/MSF measures must be determined
taking into account the IRR for each LA/MSF contract, 2531 we do not understand the United States to
contest the general NPV of cash-flows methodolog y applied by the European Communities to
determine these IRRs. Indeed, where it had access to information on LA/MSF disbursements and
repayments, the United States appears to have reli ed upon a similar methodology to derive the values
of the interest rates it submits were actually charged by the EC member States for LA/MSF. 2532
Moreover, we note that the United States has itself id entified the same rates of return as the European
Communities for the Spanish A320, A330/A340 and A380 contracts. Nevertheless, the United States
does take issue with at least two particular aspec ts of the European Communities' calculation. The
first is its reliance on projected aircraft deliveries, as opposed to actual deliveries, in order to establish

2525 The LA/MSF contracts that require royalty payments are the [***]. Although royalty payments are
envisaged under the [***], the IRR determined by the European Co mmunities for these contracts did not take
any such payments into account because they were due [***].
2526 Under the French A330/A340, A330-200, A340-500/600 and A380 contracts, the value [***] is
calculated on the basis of [***]. The European Communities explains that it used the [***]. EC, Answer to
Panel Question 247.
2527 UK A330/A340 contract, Articles 2.4.1-2.4.5.
2528 The precise number was designated by the European Communities as HSBI. See, Exhibits EC-
775 (HSBI) and EC-944 (HSBI).
2529 EC, Answer to Panel Question 69.
2530 ITR LLC Report, pp. 4-5, Exhibit EC-13 (BCI); and Table presented in Exhibit EC-597 (HSBI).
We recall that the European Communities did not undertake any such calculation for the A300 and A310
LA/MSF measures.
2531 US, SWS, paras. 120-130; US, Comments on EC Answer to Panel Question 249.
2532 The Ellis Report explains that the interest rate identified for the UK A320 contract was calculated
on the basis of "disbursements and repayments until the end of 1999"; the UK A330/A340 contract on the basis
of "available disbursements, repayments and delivery data "; and the UK A380 contract on the basis of "initially
estimated delivery schedule disclosed in association wi th the Launch Aid Agreements and interest rates as
defined" in the contract. Ellis Report, p.26, Exhibit US-80 (BCI).

BCI deleted, as indicated [***]

the amount and timing of LA/MSF repayments; and the second is the European Communities'
consideration of royalty payments.2533
7.408 To the extent that the IRRs determined by the European Comm unities are based on the
number, timing and (for some contracts) the forecast prices of deliveries projected in the relevant
Airbus business case, they are entirely dependent upon the credibility of the Airbus business plan, and
therefore inherently contain an element of specu lation. Thus, as the United States appears to note, 2534
the IRRs calculated by the European Communities do not result from an absolute legal obligation on
Airbus to make repayments over a set period of time at a given interest rate. Rather, they are based on
a repayment obligation that is conditional upon Airbus' business plan actually being met.
7.409 As regards the European Communities' consideration of royalty payments,
2535 the United
States argues that the royalties for eseen under the LA/MSF contracts are [***] – between [***] – and
are due only after a large number of deliveries have been made. Because of what the United States
argues is "the very substantial uncertainty attached to any royalties due this far out into the future and
depending entirely on Airbus successfully selling mo re planes than the sp ecified royalty-based
thresholds",
2536 it contends that royalty payment expectations must have played only a marginal role,
at most, in the government lenders' financing decisions. 2537 Thus, the United States does not argue
that royalty payment expectations are irrelevant, but merely that they must play only a marginal role
in determining the rate of return that the EC me mber State governments anticipated at the moment of
concluding the LA/MSF contracts. Moreover, for th e United States, a commercial investor would be
unlikely to take into account the prospects of any such potential royalty returns, but would instead
look to recover its investment and make a commercial return over a much shorter period of time.2538
7.410 Royalty payments were factored into the Eu ropean Communities' IRR calculations for the
[***] contracts, the [***]contracts, and the [***] contract. As we understand it, the royalties foreseen
under these contracts represent a share in the reve nues generated from sales of the financed LCA,
after the full amount of LA/MSF has been repaid. In our view, the fact that such payments were
expressly provided for in these contracts indicates that the EC member State governments to some
degree anticipated they could enhance the rate of return that would otherwise be achieved on their
LA/MSF investment. However, exactly how much the EC member State governments expected their
returns to improve depends upon the number and timi ng of aircraft deliveries they anticipated would
attract the specified royalty payments.

2533 The United States also asserts that the European Communities has not properly substantiated its
calculations because it: (i) failed to disclose the calcula tions on which its alternative rates were based and the
underlying data; (ii) redacted the delivery schedules used in its calculations; and (iii) refused to provide the
underlying business cases. According to the United States, such information would have been essential for the
United States and the Panel to critically examine its cal culations. US, FNCOS, paras. 56-57; US, Comments on
EC Answer to Panel Question 249. We recall that the European Communities submitted copies of what it
considered to be all of the relevant contracts and busi ness cases as Exhibits to its FWS and in its Answer to
Panel Questions 78, 246, 248, 249, 252 and 262. While we consider that the information submitted by the
European Communities to support its calculations of the I RR should have been presented in its entirety with the
European Communities' first written submission, when the European Communities first revealed its analysis on
the LA/MSF rates of return; and although the information the European Communities submitted throughout this
proceeding was not as complete as we would have liked, overall it was sufficient to permit us to verify and
evaluate the European Communities' assertions in respect of the appropriate IRRs. See, paras. 7.408 - 7.424.
2534 US, Answer to Panel Question 42.
2535 In the sense we have described at para. 7.374.
2536 US, SWS, para. 122. See also, US, comments on EC Answer to Panel Question 249 ("the [***]
play only a very minor role in the overall return that the government may have expected").
2537 US, SWS, paras. 121-123; US, Answer to Panel Question 142; US Comment to EC, Answer to
Panel Question 249.
2538 US, Answer to Panel Question 142.

BCI deleted, as indicated [***]

7.411 The European Communities argues that the answer to this question lies in the aircraft delivery
forecast that the Airbus business case predicts woul d be achieved over the life of the particular LCA
project.
2539 This is because, according to the Europ ean Communities, Airbus' business case delivery
forecasts informed the parties' repayment expectati ons in respect of each of the relevant LA/MSF
measures, an assertion the European Communities cons iders can be substantiated by comparing the
IRR calculated for the UK A320 and A330/A340 c ontracts on the basis of the Airbus delivery
forecasts (as we understand it, not in cluding royalty payments), with the rate of return actually
specified in those contracts. The European Communities explains that both the UK A320 and
A330/A340 contracts explicitly envisage a rate of re turn to the UK government, after full repayment
of its LA/MSF contributions, of [***]. When the per-aircraft levies specified under these contracts
are considered in the light of the delivery forecast s contained in the relevant Airbus business cases,
the European Communities argues that the resulting IRRs are virtually identical.2540
7.412 As we see it, even if the European Comm unities were correct in its factual assertion, 2541 the
extent to which the repayment terms of the LA/M SF contracts were set by reference to Airbus'
business case delivery forecasts is not the only fact or that must be taken into account when
considering whether royalty payments should form part of the actual rate of return anticipated by the
EC member State governments. Another important fact or to consider is the credibility of the Airbus
business case. Because of the graduated levy-b ased and success-dependent nature of LA/MSF
repayments, Airbus has an economic incentive to stre tch the life of each aircraft project as much as
possible. The greater the number of sales over which principal repayments and royalties must be
paid, the less likely it is that Airbus will have to make those payments if the business plan estimates
prove to be optimistic. Thus, although ostensibly required by th e terms of the LA/MSF agreements,
royalty payments may never be made if attached to a number of aircraft sales, which although
identified in the business plan that formed the basis of the parties' expectations on concluding the
LA/MSF contracts, cannot realistically ever be achieved.2542
7.413 The European Communities argues that the Airbus business case is the product of "an
exhaustive internal analysis of the programme's t echnical and commercial prospects" and "relies on a
host of conservative assumptions and methodologies". 2543 In addition, because Airbus has had to find
its own sources of funding for the majority (67%) of LCA development costs since the entry into
force of the 1992 Agreement, the European Co mmunities submits that its business case delivery
forecasts have been, by definition, "realistic and sober".
2544 So much so that they have been "often

2539 EC, FWS, paras. 537-541; EC, Answer to Panel Questions 68 and 69.
2540 EC, FWS, para. 549; EC, Answer to Panel Question 69, where it asserts that the IRRs would be
[***] and [***], respectively.
2541 We note that apart from the question whether the EC member States actually relied upon the Airbus
business cases when developing their own repayment expectations, it is not entirely clear to us that the schedule
of forecast deliveries used by the European Communities in its calculati ons, Exhibit EC-597 (HSBI), matched
the information on projected deliveries contained in th e Airbus business cases submitted for the A330-200 and
the A330/A340. The A330/A340 business case identified the same number of to tal forecast deliveries over the
same years as Exhibit EC-597 (HSBI), but differed in respect of the numbers of deliveries expected in
individual years. The business case for the A330-200 id entified a slightly lower number of total forecast
deliveries, and did not contain a delivery forecast for indi vidual years. Compare Exhi bits EC-597 (HSBI) with
EC-775 (HSBI), EC-776 (HSBI), EC-944 (HSBI) and EC-956 (HSBI). Nevertheless, for the purpose of the
present analysis, we have assumed that the schedules of forecast deliveries used by the European Communities
are approximately accurate and therefore reasonably reliable.
2542 Moreover, for certain contracts, the payment of royalties is limited in time, meaning that even a
delay in meeting the business plan sales objectives could result in Airbus not having to make any royalty
payments. For instance, Airbus' obligation to pay ro yalties under the French and German A380 contracts is
limited in time to [***]. German A380 contract, Section 10.1, Ex hibit US-72 (BCI); French A380 contract,
Article 7.3, Exhibit US-75 (BCI).
2543 EC, FWS, para. 466.
2544 EC, FWS, paras. 465 and 467.

BCI deleted, as indicated [***]

met, and indeed exceeded." 2545 Nevertheless, the European Communities does not suggest that
Airbus' business case delivery forecasts are infallible . Indeed, the European Communities recognizes
that forecasts are, by their very nature, "informe d judgements about how events that have not yet
occurred will unfold in the future", and therefore not always reliable.2546
7.414 In our view, the further in time the events that are the subject of a forecast are anticipated to
take place, the more likely it is that one or more in tervening events may impede their fulfilment. In
the specific context of the LCA industry, where, as the European Commun ities notes, the business
environment is shaped by factors "whose very foreseeablity is impossible by definition", 2547 the
element of uncertainty that is attached to aircraft delivery forecasts that sometimes projected events
over multiple decades2548 cannot be ignored. In this regard, we note that like the IRRs determined for
contracts that did not provide for royalties, the I RRs established on the basis of royalty payments are
inherently speculative and depend upon achieving th e number, timing and (for some contracts) the
forecast prices of deliveries projected in the releva nt Airbus business case. Thus, while we recognize
that the inclusion of royalty payment provisions in to the LA/MSF contracts is itself evidence of a
certain expectation that royalties would be paid, we nevertheless consider that the IRRs established by
the European Communities, taking royalty payments into account, could only represent, at most, the
outer limit of what the EC member State government s could have reasonably expected at the time of
concluding the contracts.
7.415 Subject to this understanding, and notwithsta nding certain deficiencies in the evidence the
European Communities has presented to substantiate its submissions, 2549 we believe that for the
purpose of the present analysis all but two of the IRRs established by the European Communities may
serve as reasonable proxies for the maximum rates of return that the EC member State governments
could have reasonably anticipated when enteri ng into the LA/MSF agreements. The two IRRs
calculated by the European Communities that we cannot accept are those it determined for the
Spanish A340-500/600 contract, and the French A330/ A340 contract. Before setting out our reasons
for rejecting these IRRs, we first address an add itional criticism the United States has advanced in
respect of the European Communities calculation of the IRR for the French A340-500/600 contract.
7.416 In its first written submission, the European Co mmunities explained that in return for French
government LA/MSF funding for the A340-500/600, Air bus was required to pay "a levy for the MSF
(including interest) invested in the variant [***]".2550 The European Communities' IRR calculations
for this LA/MSF measure identified [***] in the cash-outflows column of its calculations, [***].2551
In other words, the European Communities took [***] into account when identifying the IRR for the
French A340-500/600 LA/MSF contract – [***]. The United States argu es that the European
Communities' inclusion of the [***] repayment stream in its calculations of the IRR for the A340-
500/600, instead of the IRR for the A330/A340, is erroneous.2552 We disagree.
7.417 That revenues from the sale of derivatives of the A330/A340 would [***] French LA/MSF
for this aircraft is provided for in Article 6.2 of the French A330/A340 contract. This provision

2545 EC, FWS, para. 467. For instance, as of 31 December 2006 Airbus had sold approximately 3000
A320 aircraft, well above the original business case projections. EC, FWS, para. 331.
2546 EC, FWS, para. 467.
2547 EC, FWS, para. 30.
2548 For instance, the delivery forecas t used in the business case for the A380 projected events over
multiple decades. Exhibit EC-362 (HSBI).
2549 See above, footnotes 2533 and 2541.
2550 EC, FWS, para. 336.
2551 Exhibit EC-13 (BCI).
2552 US, Answer to Panel Question 42.

BCI deleted, as indicated [***]

prescribes that for each [***] Airbus must make a repayment equivalent to [***].
2553 Article 6.4 of
the French A340-500/600 contract recalls this obligation2554 and identifies the [***].2555 Thus, reading
the provisions of the French A340-500/600 and A330/A340 LA/MSF contracts together, it can be
inferred that [***] were envisaged under the French A340-500/600 contract – [***]. Although the
[***] repayment stream was formally intended to [***], it was not specifically known how much this
repayment would be, if any, at the time that the French A330/A340 LA/MSF contract was concluded.
As already noted, Article 6.2 of the French A330/A340 contract sets out [***]. Thus, the French
A330/A340 contract does not specify precisely how much the [***] would be, making such
repayment entirely speculative at the time the contract was concluded. It follows that the government
of France could not have had a clear expectati on of how much any derivative aircraft would
contribute to the return it received for the A330/A 340 contract when it was concluded. Indeed, no
consideration of the amount of any expected cont ribution to repayment of the A330/A340 contract
from sales of the A340-500/600 derivative can be found in the A330/A340 cash-flow analysis.
2556
7.418 In our view, it would be incorrect to include the repayment amounts foreseen only in 1998
(when the French A340-500/600 contract was concl uded) in the calculation of the IRR expected by
the French government on the A330/A340 contract at the time it was concluded in 1993 . We are
therefore not persuaded by the United States' argument that the [***] repayment stream envisaged
under the A340-500/600 contract should form part of the calculation of the returns associated with the
French A330/A340 contract. While we can see the merit of this position for the purpose of
determining the IRR associated with the French A330/A340 contract at the time of the conclusion of
the A340-500/600 LA/MSF contract, we consider that it would not make sense when identifying the
IRR expected by the French government at the time of the conclusion of the A330/A340 LA/MSF
contract.
7.419 The [***] prescribed in Article 6.4 of the French A340-500/600 contract was not formally
earmarked to repay the principal loaned under that contract. However, the funds were clearly a return
for the French government that was specifically pr ovided for in the A340-500/600 financing contract.
In other words, it was agreed at the time the loan cont ract was concluded that the French government
would receive [***]. In our view, it could be argued that , in practice, a market-based lender in a
similar situation to the French government would have included [***] into its calculation of the
overall return it expected from its participation in the A340-500/600 project at the time of the
conclusion of the loan contract. However, it could equally be argued that because the [***] was not
strictly intended to be used to repay the funding provided for the A340-500/600 project, a market-
based lender would not have taken it into account wh en calculating the returns it expected to achieve
from that specific loan at the time of the conclusion of the contract.
7.420 For present purposes, it is not necessary for us to come to a definitive conclusion about which
of these two arguments should prevail, because in ei ther case, our findings in respect of whether the
French A340-500/600 LA/MSF measure amounts to a subsidy would not change. Moreover, had the
United States raised the same cr iticism in respect of the European Communities' calculation of the
IRR for the French A330-200 contract, (which we note was also based on cash-outflows derived from
[***]2557 ), we would have come to the same conclu sion for the same reasons. Thus, while not
rejecting the IRRs calculated by the European Communities for the French A330-200 and A340-
500/600 LA/MSF contracts, we will take them into account in the evaluation that follows bearing in
mind the views we have expressed about their appropriateness in the preceding paragraphs.

2553 Article 6.2 [***]. The A340-500/600 is not listed in Annexes 1 and 1 bis of this contract. Exhibit
EC-96 (BCI).
2554 Article 6.4 [***] Exhibit EC-91 (BCI).
2555 Article 6.4 [***] Exhibit EC-91 (BCI).
2556 Exhibit EC-944 (HSBI).
2557 EC, FWS, para. 335; Exhibit EC-13 (BCI).

BCI deleted, as indicated [***]

7.421 We next set out our reasons for rejecting th e IRRs the European Communities calculated for
the French A330/A340 and Spanish A340-500/600 LA/MSF contracts.
7.422 When determining the IRR for the French A330/A340 contract, the European Communities
used the repayment schedule set out in the 1988 contract submitted as Exhibit EC-948 (BCI).
However, Articles 1 and 6 of this contract i ndicate that its repayment terms were provisional. 2558 The
final repayment provisions for the French A 330/A340 LA/MSF contract were established in a
Protocole d'Accord concluded in 1993, which the European Communities submitted as Exhibit
EC-96 (BCI). The schedule of repayment that was finally agreed involved an initial repayment levy
that was about 50% lower than the one used by the European Communities in its calculations. For
this reason, we cannot accept the IRR advanced by the European Communities and instead rely upon
the interest rate submitted by the United States, whic h represents the rate of return specified in a 1997
Note prepared by the French Direction des Progr ammes Aéronautiques Civils, without taking into
account possible royalty payments. 2559 We note that this interest ra te is marginally above the IRR
calculated by the European Communities in Exhibit EC-597 (HSBI).
7.423 Finally, as regards the Spanish A340-500/600 co ntract, the European Communities explains
that it calculated an IRR of [***] for this contract by using the methodology it asserts was applied in
the contract. In particular, the European Communities identified the relevant [***] and added to this
[***].2560 Thus, contrary to what the Europ ean Communities has previously stated, 2561 the IRR of the
Spanish A340-500/600 contract it relies upon was not determined by identifying the IRR that set the
NPV of anticipated LA/MSF inflows and outflows at zero, but rather it was calculated on the basis of
an interest rate formula which the European Co mmunities asserts was applied in the contract. The
relevant interest rate formula reads:

2562
7.424 When averaged over the entire amount of the lo an, it is our understanding that this formula
results in an overall interest ra te that is equivalent to the [***]. The United States seems to contend
that the application of this formul a results in an interest rate of [***].2563 On the other hand, relying
on estimates of the cost of Spanish government borrowing at the time of the launch of the A340-
500/600 in the Ellis Report, the Europe an Communities arrives at an IRR of [***].2564 In our view,
both parties' submissions are inappropriate. We note that the Spanish A340-500/600 contract was
concluded on 28 December 1998, therefore the relevant government cost of borrowing should be that
which existed in 1998, not 1997 when the A340-500/600 was launched. 2565 The Ellis Report
estimates this to have been 4.83%. 2566 Adding a premium of [***] to this figure results in an interest

2558 Exhibit EC-948 (BCI), Article 1 ("The terms relatin g to this financing are of a provisional nature")
and Article 6 ("Reimbursement shall be obtained by [***]).
2559 Exhibit EC-HSBI-0001143, p. 25, submitted during the A nnex V proceedings; cited by the
United States in the Ellis Report, Exhibit US-80 (HSBI).
2560 EC, Answers to Panel Questions 249 and 251.
2561 EC, Answer to Panel Question 69.
2562 Spanish A340-5007600 contract, Quinta Clausula, Exhibit EC-87 (BCI).
2563 Ellis Report, Table 5, Exhibit US-80 (BCI).
2564 EC, Answer to Panel Question 249.
2565 We note that the first disbursement covered by the Spanish A340-500/600 contract was made in
1998. Tercera Clausula, Spanish A340-500/600 contract . In the absence of clear contractual language
supporting the European Communities' pos ition, it is difficult to accept that the Spanish government agreed on
28 December 1998 to provide LA/MSF fo r the A340-500/600 at an interest ra te calculated on the basis of its
cost of borrowing in the previous year. The European Communities has provided no particular justification for
its approach.
2566 Ellis Report, Exhibit 3, Exhibit US-80 (BCI). On the other hand, the Spanish government's cost of
borrowing for 1997 that was used by the European Communities was estimated in the Ellis Report to be 6.40%.

BCI deleted, as indicated [***]

rate of only [***], more than 150 basis points below the inte rest rate advanced by the European
Communities; and approximately 30 basis points above the rate advanced by the United States. Thus,
on the basis of our own assessment of the facts, we cannot accept the IRR submitted by the European
Communities, nor the interest rate advanced by the United States. In our view, the appropriate
interest rate to use for the Spanish A340-500/600 contract is [***].
Implicit Rates of Return After Taxation

7.425 The European Communities argues that the effects of taxation on both LA/MSF contributions
and repayments must be taken into account when ar riving at the "implicit rate of return" associated
with all instances of LA/MSF that preceded devel opment of the A380. The European Communities
explains that prior to the launch of the A380, the EC member State governments classified LA/MSF
as taxable income. According to the European Co mmunities, this meant that the EC member State
governments not only received interest repayments on the principal of their LA/MSF contributions,
but also that they received an additional return through taxation. Conversely, the European
Communities argues that this increased the cost of LA/MSF to Airbus and "considerably" decreased
the amount of available funds to dedicate to aircraft development. Thus, in arriving at the "implicit
rate of return" for the LA/MSF contracts pre-dati ng the A380, the European Communities argues that
the diminished LA/MSF receipts for Airbus, and th e increased returns to the governments must be
taken into account. 2567 Accordingly, the European Commun ities determined the following "implicit
rates of return", adjusted for tax effects:
Table 4 – LA/MSF implicit rates of return after taxation proposed by the EC

 Aircraft
Model
A320 [***] [***] [***] [***]
A330/A340 [***] [***] [***] [***]
A330-200 [***] - - -
A340-500/600 [***] - [***] -
A380 [***] [***] [***] [***]

7.426 The United States argues that the European Co mmunities' submission on taxation effects is
seriously flawed for both factual and legal reasons. 2568 From a factual perspective, the United States
argues that the European Communiti es has failed to substantiate its assertion with any real evidence,
characterizing its answer to the Panel's specific requ est for evidence of the alleged taxation effects as
a "non-response". As a legal matter, the United Stat es contends that taxation effects have no bearing
on whether a financial contribution c onfers a benefit, because the standard that must be applied is the
market. In this regard, the United States explains th at market-based lenders set interest rates without
regard to taxes that recipients may subsequently pay to their governments. Moreover, the United
States contends that the EC member State governme nts could not be aware of the precise tax effects
of LA/MSF because factors affecting future levels of taxation, such as depreciation and the carrying
forward of losses from prior years, could not be known at the time the LA/MSF contracts are
concluded. Therefore, according to the United Stat es, it would be inappropriate to adjust the actual
LA/MSF rates of return upwards to account for the effects of taxation. The United States considers
that this conclusion is also supported by the Eu ropean Communities' own practice of not taking
taxation effects into account when conducting CVD inv estigations. To this end, the United States

2567 EC, FWS, paras. 542-545; EC, Answer to Panel Questions 69 and 71; EC, Comment on the United
States Answer to Panel Question 141.
2568 US, SWS, paras. 124-131; US, Answer to Panel Question 141.

BCI deleted, as indicated [***]

cites the following passage from the EU Commis sion's findings in a 2004 CVD case explaining why
taxation effects should be disregarded:
"According to the information available, it can indeed not be excluded that these
grants, at a later stage, may increase a company's overall tax liability. However, this
would be a future event, and will depend on many factors, most of which are
influenced by commercial decisions made by the company itself. Such factors do not
only relate to pricing and sales issues, but also concern other issues that determine
overall tax liability, such as decisions concerning depreciation rates, the carrying
forward of losses and many other factors. All these decisions influence the tax
bracket that will finally be applied to the company in a specific tax year. It is
therefore not possible to determine exactly to what extent benefits obtained from
DEPB sales have contributed to the applicable tax rate".2569
7.427 The implication of the European Communities' argument is that the EC member State
governments (and Airbus) knew at the time they entered into the LA/MSF contracts that part of the
disbursed principal would be returned to the governments through taxation, thereby effectively
diminishing the amount of funds available to Airbus . However, there is little, if any, evidence that
demonstrates that this was the case. First, the Eu ropean Communities has pointed to no clause in any
of the relevant LA/MSF contracts to indicate th at the EC member State governments and Airbus
contemplated the effect of taxation on the costs of the LA/MSF arrangements. Moreover, had Airbus
believed taxation to be a genuine i ssue, one would expect that it would have been highlighted in the
one document addressing the aircrafts' commercial viability – the Airbus business case. However, the
European Communities has pointed to no such con cern being expressed in any of the Airbus business
cases that have been submitted.
7.428 Second, in response to the Panel's request th at it provide evidence of the alleged taxation
requirements and payment by Airbus, 2570 the European Communities furnished the taxation rates
allegedly applied in the EC member States at the ti me of the relevant contracts and a statement from
an Airbus executive responsible for taxation matters confirming that Airbus paid all corporate taxes
"that were due" in the relevant tax periods. 2571 In our view, this is insufficient to demonstrate that
Airbus paid all of the taxes on the amounts of LA/MSF which the European Communities argues were
subject to taxation. In other words, the European Communities has not substantiated its assertion that
the relevant tax rates were applied directly to the amounts of LA/MSF at issue, and that Airbus made a
corresponding tax payment. In any case, even ac knowledging that corporate taxes were paid by
Airbus, we understand that they were of a general nature and not specifically attached to LA/MSF.
Thus, we agree with the United States 2572 that the extent to which the LA/MSF amounts received had
any impact on Airbus' tax burden cannot be determined through the straightforward application of the
corporate tax rates in force at the time of the relevant LA/MSF contributions. Although it may well
be that some part of the funds received throug h LA/MSF measures would return to the EC member
State governments through the effect of general co rporate taxation, identifying this amount would
seem to be a more complicated endeavour than im plied by the methodology used by the European
Communities to derive the tax-adjusted "implied rates of return".

2569 Council Regulation (EC) No. 74/2004 of 13 January 2004 imposing a definitive countervailing duty
on imports of cotton-type bed linen in India , recital 50, (emphasis added by the United States), Exhibit US-538,
referred to in US, SWS, para. 129.
2570 Panel Question 71.
2571 See, also , EC, Comments on the United States Answer to Panel Question 142,and Exhibit EC-
658 (BCI).
2572 US, SWS, para. 129.

BCI deleted, as indicated [***]

7.429 Finally, even if we were to understand th e European Communities' argument on taxation
effects differently, that is, as the argument that the taxation of income generated through economic
activity facilitated by LA/MSF must be taken into acc ount, we would also reject it. In our view, there
is no basis in the SCM Agreement to support the view that the amount of a financial contribution may
be reduced for any tax payments made to th e government on income generated from economic
activity that is facilitated by that financial contribution.
7.430 We are therefore not convinced by the argument that the taxation effects described by the
European Communities should be taken into account in setting the "implicit rate of return" for the
relevant LA/MSF contracts pre-dati ng the A380. Consequently, we re ject the tax-adjusted "implicit
rates of return" determined by the European Comm unities, and find that they cannot be relied upon to
identify the actual rates of return associated with the challenged LA/MSF measures.
7.431 In the light of the foregoing, the LA/MSF interest rates that we will consider in the remainder
of our benefit analysis, and which we be lieve may serve as reasonable proxies for the maximum rates
of return that the EC member State governments could have reasonably anticipated when entering into
the LA/MSF agreements, are the following:
Table 5 – LA/MSF Rates of Return
2573

 Aircraft
Model France Germany Spain UK
A3002574 0% 0% 0% -
A3102575 0% 0% 0% -
A320 [***] [***] [***] [***]
A330/A340 [[HSBI]] 2575 [***] [***] [***]
A330-200 [***] - - -
A340-500/600 [***] - [***] 2576 -
A380 [***] [***] [***] [***]

Rates of Return of Comparable Market-Based Financing
7.432 Relying on separate studies prepared specifically for the purpose of this dispute by different
economic experts,2577 the parties have submitted their own indivi dual estimates of the rates of return
they consider a market lender would have require d to provide financing to Airbus on the same terms
and conditions as the relevant provisions of LA/MSF. According to the United States, such rates
should reflect both the risks associated with Airbus ' general borrowing activities and the specific risks
associated with LCA development and the features of LA/MSF. Thus, the United States submits that
the commercial rates of return for financing whic h is comparable to LA/MSF may be constructed on
the basis of: (i) ten-year long-term government borrowing rates (representing the general risk-free cost
of capital); (ii) ten-year company-specific genera l borrowing rates (representing the general level of
risk associated with lending to Airbus); and (iii) a project-specific risk premium (representing the risk

2573 Unless otherwise indicated, the maximum rates of re turn identified in this table are sourced from
Exhibit EC-597 (HSBI) (see "IRR Without the Effects of Taxation").
2574 See above, Table 2. See also further below, paragraph 7.484.
2575 See above, paragraph 7.422.
2576 See above, paragraphs 7.423 - 7.424.
2577 The studies the United States has presented for th is purpose are: The Ellis Report, Exhibits US-
80 (BCI) and US-80 (HSBI), and Ellis Answer to White law, Exhibits US-534 (H SBI) and US-534a BCI. The
studies the European Communities has presented for this purpose are the Whitelaw Report, Exhibit EC- 11
(BCI/HSBI) and the Whitelaw Rebuttal Report, Exhibit EC- 656 (BCI/HSBI).

BCI deleted, as indicated [***]

profile of LCA development and the features of LA/MSF). 2578 The borrowing rates established by the
United States in this manner are identified in the following table. For various reasons, the
United States argues that they are based on conser vative assumptions and therefore understate what it
considers would be the true level of market borrowing rates for financing comparable to LA/MSF.2579
Table 6 – Market Rates of Return Proposed by the United States

 Aircraft
Model France Germany Spain UK
A300 16.52% 15.18% 16.60% -
A310 18.88% 13.99% 18.88% -
A320 20.49% 15.95% 24.52% 19.59%
A330/A340 17.86% 14.52% 21.19% 17.97%
A330-200 17.22% - - -
A340-500/600 14.47% - 15.29% -
A380 13.89% 13.75% 14.07% 13.54%

7.433 The European Communities does not reject the en tirety of the United States' construction of
the proposed interest rate benchmarks, and ap plies the same general government and corporate
borrowing rates used in the United States' calcula tions when deriving its own proposed market-based
rates of return.
2580 However, the European Communities doe s take issue with the value that the
United States proposes for the project-specific risk premium, arguing that it is overstated because, in
the European Communities' view, it is based on the returns that would be expected from equity-based
financing. The European Communities presents its own alternative project-specific risk premium
based on what it asserts are the re turns expected by the risk-sharing suppliers participating in the
A380 project. The European Communities argues that this benchmark is more appropriate than the
one advanced by the United States because it more closely reflects the debt-like characteristics of
LA/MSF. Accordingly, the Eur opean Communities established its own estimates of the rates of
return for market financing comparab le to LA/MSF on the basis of HSBI. 2581 All of the European
Communities' proposed market rates of return are lo wer than those advanced by the United States; in
some cases the difference between the two parties' submissions is considerable.
7.434 Thus, although the parties have presented different overall view s on the appropriate rates of
return that a market lender would demand when prov iding financing to Airbus on the same or similar
terms and conditions as LA/MSF, their disagreement in terms of the overall levels of the relevant
market interest rate benchmarks is focused on the valu e of the project-specific risk premium. It is to
this aspect of their calculations that we next turn our attention.

2578 Ellis Report, pp. 1-23.
2579 For instance, one of the conservative assumptions that the United States asserts has been adopted in
the Ellis Report analysis is the use of government and corp orate borrowing rates with a maturity of ten years.
The United States argues that the use of a ten year maturity understates the actual credit spreads associated with
the LA/MSF contracts, which are open-ended or have a maturity that is significantly longer than ten years. Ellis
Report, pp. 7-8, 11.
2580 EC, FWS, paras. 489-490.
2581 Whitelaw Report, Exhibit 3, Exhibit EC-11 (HSBI). The European Communities has provided no
estimate of any market-based borrowing rates relating to the A300 and A310 contracts.

BCI deleted, as indicated [***]

Project-specific risk premium advanced by the United States

7.435 The United States submits that LA/MSF is a "hybrid" finance instrument that has
characteristics of both debt and equity.
2582 According to the United States, LA/MSF is debt-like in
that it contains a schedule of promised repayments, and in some cases a stated interest rate. However,
the United States explains that like equity and unlike debt, LA/MSF does not entitle the EC member
State governments to repayment with interest over a specified period of time; it has no fixed maturity,
and repayments depend entirely on sales which ma y or may not occur according to a scheduled
forecast. Moreover, like shareholders and unlike ordi nary creditors, the United States asserts that in
the event that Airbus fails, the EC member State governments have no recourse to obtain repayment,
whereas corporate bondholders may declare the debtor company to be in default and pursue whatever
remedies they have to recover their initial invest ment. In addition, the United States notes that while
LA/MSF is dependent upon the success of a single pr oject, typical corporate debt is dependent upon
the success of the whole company. It is because of pr ecisely this type of repayment structure that the
United States contends Fitch Ratings agency has declared that it "'does not treat launch aid as
debt'".2583
7.436 Given its alleged "hybrid" nature, the United St ates argues that the most appropriate market
interest rate benchmark for LA/MSF is one th at reflects both its debt-like and equity-like
characteristics. The United States submits that th e benchmarks presented in the Ellis Report reflect
precisely these characteristics.
7.437 The market interest rate benchmarks identified in the Ellis Report are constructed by adding a
700 basis point project-specific risk premium to the su m of the relevant Airbus entity's cost of debt
calculated in the Ellis Report for each of the challe nged LA/MSF contracts. This risk premium was
derived from the results of a 2004 empirical st udy of venture capital investments undertaken by
Kerins, Smith and Smith ("KSS Study"). 2584 Ellis explains that the KSS Study found returns on
venture capital investments to range from 16.7% to 57.5%, depending on the diversification of the
investor. The project-specific risk premium of 700 basis points was derived from the lowest return in
this range ( i.e., 16.7%), which represents the return obtaine d by a "well diversified investor in both
venture capital projects and other, less risky, equity investments represented by a stock market
index".
2585 The United States characterizes the Ellis Report project-specific risk premium as the
opportunity cost of capital for a well-diversified por tfolio of venture capital investments including
both debt and equity instruments. 2586 In its view, the risk premium is itself "hybrid", which not only
matches the essential characteristics of LA/MSF, but also means that the overall Ellis Report market
interest rate benchmark "if anything, is biased towards debt and thus too conservative".2587
7.438 According to the United States, reliance on the risk associated with venture capital funding
for the purpose of establishing the project-specifi c risk premium for LA/MSF is appropriate for

2582 US, FNCOS, paras. 44-49; US, SWS, paras. 89-94; Ellis Answer to Whitelaw Report, pp. 3-5,
Exhibit US-534a (BCI).
2583 US, FNCOS, para. 48, referring to Fitch Ratings, Special Report, Diverging Flight Paths: Boeing
and Airbus Large Commercial Aircraft Industry Update, (15 November 2006) p. 6, Exhibit US-451.
2584 Frank Kerins, Janet Kiholm Smith and Richard Smith, Opportunity Cost of Capital for Venture
Capital Investors and Entrepreneurs, Journal of Financial and Quantitative Analysis , vol. 39(2), (June 2004),
(hereinafter "KSS Study"), Exhibit US-470.
2585 Ellis Answer to Whitelaw Report, p.7, Exhibit US-534a (BCI).
2586 US, Answer to Panel Questions 8 and 9.
2587 US, Answer to Panel Question 9. In its SWS, th e United States explains that the Ellis Report
interest rate benchmark is conservative for two additi onal reasons: because Ellis selected the lowest risk
premium indicated in the KSS Study and because it used the corporate debt rate rather than the equity rate or
weighted average cost of capital, US, SWS, para. 90. See, also, Ellis Answer to Whitelaw Report, p.7, Exhibit
US-534a (BCI).

BCI deleted, as indicated [***]

various reasons. In particular, the United States considers LA/MSF to be comparable with venture
capital financing because of its project-specific and highly speculative nature. 2588 In this regard, the
Ellis Report points to a July 2000 press Article quoting Airbus' then Executive Vice President of
Strategy, Philippe Delmas, as saying that: "{g}ove rnment support for the A3XX should be thought of
as 'venture capital'".2589 The Ellis Report also asserts that "like a provider of {LA/MSF}, {a provider
of venture capital} is willing to assume a significant pa rt of the business risk of a project or company
... {and} will provide a significant proportion of the required start-up funds without the certainty or
security of a certain level of return". 2590 Moreover, referring to an article appearing in the Review of
Economic Studies and an economic finance textbook , the Ellis Report affirms that "venture
capital may also take the form of high-yield loan s or even levy-based financing comparable to
{LA/MSF} loans provided to Airbus".2591
7.439 The United States advances a number of confirmations or cross-checks to corroborate the
order of magnitude of the 700 basis point project-specific risk premium used in the Ellis Report.
First, the proposed 700 basis point risk premium is compared with Ibbotson Associates data on the
historical average risk premia associated with i nvestments in the equity of large United States
companies.
2592 According to Ellis, Ibbotson Associates is a widely used source of data on equity
market risk premia that is accepted and ta ught in business schools and economics curricula. 2593 Ellis
explains that the Ibbotson data show that between 1926 and 2005 the market risk premium for
investments in low-risk large company stocks over returns on long-term government bonds has
averaged 7.08%.2594
7.440 A second cross-check advanced by the United St ates is the 1997 European Commission State
Aid Decision concerning support provided to CASA , allegedly in the form of LA/MSF, by the
Spanish government for the developmen t of a regional 70-80 seat aircraft. 2595 According to the
United States, in its assessment of the alleged State Aid, the European Commission identified a
comparable market interest rate benchmark by applying a risk premium of at least 8% over the ten
year Spanish government (risk-free) borrowing rate for a financing package for a project to develop
commercial aircraft the repayment of which, as in the case of LA/MSF for LCA, was success
dependent.2596 A third cross-check the United States iden tifies is the range of discount rates that
[***]. The United States shows that its own benchmark (including the 700 basis point risk premium)
is in the lower portion of this range of discount rates.2597

2588 US, Answer to Panel Question 9, referring to explanations given in the Ellis Report.
2589 Airbus gets risk free loans; European Plane Maker Doesn't have to Pay Governments Back if A3XX
Superjumbo Fails, Seattle Post-Intelligencer , 25 July 2000, referred to in NERA Economic Consulting,
Economic Assessment of the Benefit of Launch Aid, 10 November 2006, (Ellis Report) p. 19, footnote 25,
Exhibit US-80.
2590 Ellis Report, pp. 19-20, Exhibit US-80 (BCI).
2591 Ellis Report, pp. 19-20, Exhibit US-80 (BCI), referring to Francesca Cornelli and Oved Yosha,
Stage Financing and the Role of Convertible Securities , Review of Economic Studies (2003) 70, p. 1, and Karl
F. Seidman, Economic Development Finance, Sage Publications Inc., 2005, p. 260.
2592 Ellis Report, p. 21, Exhibit US-80 (BCI). Ibbotson Associates uses the total return of the S&P 500
(which includes the 500 common stocks with the larges t market capitalization that are actively traded in the
United States) as its market benchmark when calculating the equity risk premium.
2593 Ellis Report, p. 21, Exhibit US-80 (BCI); Ellis Answer to Whitelaw Report, p. 19, Exhibit US-
534a (BCI).
2594 Ellis Report, p 21 and Exhibit 8, Exhibit US-80 (BCI).
2595 Ellis Report, p. 21, Exhibit US-80 (BCI).
2596 US, SWS, para. 98; US, Answer to Panel Questio n 8; Ellis Report, p. 21, Exhibit US-80 (BCI);
Ellis Answer to Whitelaw Report p. 16, Exhibit US-534a (BCI).
2597 US, SWS, para 100; Ellis Answer to Whitelaw Report, p.13-16, Exhibit US-534 (HSBI).

BCI deleted, as indicated [***]

7.441 Relying on HSBI, the United States argues that the [***] analysis undertaken by the
Department of Trade and Industry ("DTI") in the UK government's critical project appraisal for the
A380 also confirms the Ellis Report project-specific risk premium and United States' market interest
rate benchmarks.
2598 In addition, again relying upon HS BI, the United States submits that the
discount rates employed in the Airbus business case for the A380 confirm its proposed project-
specific risk premium.2599
7.442 The European Communities does not accept the project-specific risk premium proposed by
the United States. Relying upon the arguments, an alyses and conclusions described in two studies
commissioned from Professor Robert Whitelaw, 2600 the European Communities argues that the
proposed 700 basis point project-specific risk premium is grossly inflated, and cannot be supported by
the United States' cross-checks.2601
7.443 The European Communities characterizes LA/MSF as project-specific debt, rather than equity
or a hybrid between debt and equity, implying that the risk premium advanced by the United States is
inapposite. In the European Communities' view, th e fact that LA/MSF loans are project-specific does
not render them equity-like. 2602 The project risk associated with LA/MSF is a function of
development risks and market risks – both insignifi cant in the European Communities' view – which
are qualitatively different from the risk borne by equity holders.2603 The European Communities notes
that equity returns depend on the profitability of the company as a whole, which is subject to wide
fluctuations. By comparison, the European Communities asserts that LA/MSF contracts involve
amortizing loans repaid out of project revenue. Thus, in the view of the European Communities,
equity is generally riskier than debt. Moreove r, the European Communities argues that LA/MSF
creditors are not guaranteed a share in the upside rewa rds afforded to equity holders when profits are
high, nor are they required to bear losses when th e market is weak. According to the European
Communities, these and other differences between LA/MSF and equity investments confirm that
LA/MSF is a form of debt that is distinct from equity. 2604 In support of its view, the European
Communities quotes several market analysts who have characterized LA/MSF loans as a form of debt,
and distinguished them from equity. 2605 For instance, in a 2003 report, Morgan Stanley observed that
"{o}nce aircraft start to be delivered, launch aid is repayable. It has no sensitivity to the profitability
of the deliveries. It looks like debt; correspondingly, we treat it as such."2606
7.444 In any case, the European Communities contends that the United States' project-specific risk
premium fails to reflect the characteristics of hybr id financing instruments because it relies upon the
KSS Study, which the European Communities alleges uses data relating to returns from risky venture
capital investments in the form of Initial Public Offerings ("IPOs") by high-tech firms. 2607 According
to the European Communities, venture capital return s do not reflect the risk profile of LA/MSF.
Professor Whitelaw asserts that the launch of an Air bus LCA bears risk that is several orders of

2598 Ellis Report, Exhibit US-80 (HSBI).
2599 Ellis Answer to Whitelaw Report, Exhibit US-534 (HSBI).
2600 Whitelaw Report, Exhibit EC- 11 (BCI/HSBI); Whitelaw Rebuttal Report Exhibit EC- 656
(BCI/HSBI), para. 16.
2601 EC, FWS, paras. 483-486; EC, Answer to Panel Question 66; EC, SWS, paras. 168-200, EC,
SNCOS, paras. 89-112; EC, SCOS, paras. 58-70.
2602 EC, SWS, para. 171
2603 EC, FWS, paras. 304-306; EC, SWS, para. 172.
2604 EC, SWS, para. 174
2605 The European Communities provides quotations to that effect from Morgan Stanley, see text at
footnote 2606 below, Deutsche Bank, Exhibit EC-674 , Citigroup Smith Barney, Exhibit EC-675, and Goldman
Sachs, Exhibit EC-676; EC, SWS, footnote 146.
2606 Morgan Stanley, "Little Scope for Further Downside Risk" 20 June 2003, p. 13, Exhibit EC-673.
2607 EC, SWS, para. 176; EC, Comments on United States Answer to Panel Question 143.

BCI deleted, as indicated [***]

magnitude lower than venture capital investment. 2608 In support of this assertion, Professor Whitelaw
quotes an economic study that describes venture capital projects as "high-risk, potentially high-reward
projects";2609 and refers to a paper by Cochrane, cited by the United States in support of its venture-
capital-based risk premium, who notes that the "ave rage arithmetic return to IPO or acquisition is
698% with a standard deviation of 3282%" and that "{v}enture capital investments are like options;
they have a small chance of a huge payoff." 2610 Professor Whitelaw recalls that Airbus and Boeing
have never experienced a significant commercial failure, asserting that to date, Airbus has never failed
to repay an EC member State due to the failure of an aircraft programme.2611
7.445 Professor Whitelaw also argues that the Ellis Report risk premium suffers from severe
methodological flaws. According to Professor Whitela w, the Ellis Report appears to have derived the
venture capital risk premium by deducting the estimat ed market cost of capital identified in the KSS
Study from the gross return achieved by a venture capital fund before fees and expenses . However,
Professor Whitelaw submits that the premium embedded in the 16.7% gross return identified in the
KSS Study is not a risk premium, noting that the KSS Study authors describe it as a fee "to
compensate for investment of effort" by the venture capital fund managers. 2612 In Professor
Whitelaw's view, this fee applies to venture capital funds that require the expertise and effort of a fund
manager – but it would not appl y to commercial borrowing rates. Thus, Professor Whitelaw
concludes that not only is the fee not project-specific (that is, the fee is applied at the fund level, not
the project level), but it is also not a risk premium at all.2613
7.446 In his rebuttal report, Professor Whitelaw also denies that the combination of a debt-based
general corporate risk premium and an equity-based project-specific risk premium reflects the hybrid
character of LA/MSF loans. In particular, Professor Whitelaw argues that the concept of
deconstructing the relevant interest rate into co mpensation for general corporate risk and project-
specific risk works only for debt-like securities. 2614 According to Professor Whitelaw, this approach
cannot work in the context of equity financing because no project-specific risk premium will exist in a
required return on equity.2615
7.447 Furthermore, the European Communities argues that the evidence submitted by the United
States to corroborate its proposed project-specific risk premium does not "cure the fatal deficiencies in
the Ellis report", nor call into question its ow n proposed market interest rates benchmarks.
2616 The
European Communities first criticizes the United Stat es' reliance on Ibbotson Associates' historical
measure of the risk premium associated with inv estments in equity. Professor Whitelaw argues that
these data fail to support the project-specific risk premium advanced in the Ellis Report because they
are drawn entirely from equity returns and measure ma rket risk associated with equity investments,
while the Ellis Report risk premium is not a risk premium at all because it represents a fee to
investment managers.
2617 Professor Whitelaw also notes that even if one were to consider the cost of
equity investment to be an appropriate cross-check for the project-specific risk premium associated
with LA/MSF, the Ibbotson Associates data would not be suitable because they substantially overstate
the equity investment risk premium. Professor White law alleges that there are three reasons for this:

2608 Whitelaw Rebuttal Report, para. 20, Exhibit EC-656 (BCI) .
2609 P. Gompers and J. Lerner, The Venture Capital Revolution , Journal of Economic Perspectives,
2001, vol. 15(2), p. 145, Exhibit EC-677.
2610 J. Cochrane, The Risk and Return of Venture Capital , Journal of Financial Economics, 2005, vol.
75, pp. 4-5, Exhibit US-471.
2611 Whitelaw Rebuttal Report, para. 20, Exhibit EC-656 (BCI).
2612 EC, SNCOS, para. 102, referring to KSS Study, p. 401, Exhibit EC-112.
2613 Whitelaw Report, paras. 4-10, Exhibit EC-11 (BCI).
2614 Whitelaw Rebuttal Report, para. 16, Exhibit EC-656 (BCI).
2615 Whitelaw Rebuttal Report, para. 16, Exhibit EC-656 (BCI).
2616 EC, FWS, para. 512.
2617 EC, SCOS, paras. 59-60.

BCI deleted, as indicated [***]

(i) that Ibbotson's historical equity investment risk premium is based on a simple average of widely
fluctuating historical returns, which implies the existence of an error rate that is "enormous"
2618; (ii)
that Professor Aswath Damodaran, who is desc ribed by the European Communities as "a world-
renowned scholar whom Ellis and th e United States repeatedly cite", 2619 concludes that based on ex-
post data of the type Ibbotson uses, the hist orical equity risk premium should be 4.8%; 2620 and (iii),
that current academic literature identifies a variet y of reasons why the historical difference between
the return on equity investment and the risk-free ra te is not an appropriate measure of the expected
market equity investment risk premium. 2621 In particular, referring to 15 different academic studies,
Professor Whitelaw argues that a substantial body of research now confirms that historical measures
such as those used in the Ibbot son Associates data systematica lly overstate the equity risk
premium.2622
7.448 Similarly, the European Communities contests the United States' reliance on the discount
rates proposed by [***] for the purpose of the [***] to confirm the magnitude of its proposed risk
premium, the so-called " [***] measure". According to the European Communities, the Ellis Report
concedes that the [***] measure captures the risk of equity rather than debt, which Professor
Whitelaw considers is an inappropriate me asure of the risk associated with LA/MSF. 2623 Moreover,
even if one were to consider that a measure of th e risk of equity investment were appropriate, the
European Communities contends that the [***] measure overstates the cost of equity. The European
Communities notes that in identifying the appropriate discount rate, [***] relied upon the Capital
Assets Pricing Model ("CAPM"). Professor Whitelaw e xplains that this model equates the expected
return on a proposed investment with the interest rate attached to a risk-free security (such as a
government security or a treasury bill) plus a risk premium calculated as the market risk premium
multiplied by a "beta" factor. 2624 The market risk premium is defined in the Whitelaw Report as an
estimate of the difference between the expected retu rn investors demand to invest in the so-called
market portfolio and the return they would ob tain on risk-free government bonds; and the "beta"
factor is defined as the relative perceived risk of the particular investment in question. 2625 Professor
Whitelaw argues that in applying the CAPM, [***] used a market risk premium from Ibbotson
Associates, which for reasons already explained, the European Communities considers to overstate
the equity risk premium. In addition, according to Professor Whitelaw, the "beta" factor applied by
[***] was also too high for reasons explained using HSBI. 2626 Finally, the European Communities
rejects the [***] measure on the basis that it was proposed by [***] in a negotiation where [***] had
an interest in adopting an inflated discount rate , which an auditing firm rejected as excessive and
which [***] itself decided to abandon at a later stage.2627
7.449 The European Communities is also critical about the United States' reliance on the [***]
analysis conducted by the DTI in the UK critical project appraisal for the A380 project. The
European Communities rejects the view that this appraisal confirms the United States' project-specific
risk premium on various grounds. First, Pr ofessor Whitelaw alleges that the Ellis Report
misunderstands the [***] analysis carried out in th e UK critical project appraisal.
2628 Second,
according to Professor Whitelaw, the Ellis Report's assessment of the [***] analysis carried out in the
UK critical project appraisal fails to take into acc ount how the distinctive repayment characteristics of

2618 EC, SCOS, para. 61.
2619 EC, SWS, para. 188.
2620 Aswath Damodaran, Damodaran on valuation, 41 (2d ed 2006), Exhibit EC-678.
2621 Whitelaw Report, para 23, Exhibit EC-11 (BCI).
2622 EC, SCOS, para 63.
2623 EC, FWS, para. 517.
2624 Whitelaw Report, paras. 15-16 and 43-44, Exhibit EC-11 (BCI).
2625 Whitelaw Report, paras. 44 and 16, Exhibit EC-11 (BCI).
2626 EC, FWS, para. 518; EC, SCOS, para. 64; Whitelaw Report, paras. 18-19, Exhibit EC-11 (HSBI).
2627 EC, FWS, paras. 519-521; and EC, SCOS, para. 64.
2628 EC, FWS, para. 524.

BCI deleted, as indicated [***]

LA/MSF loans affect the recovery rate. Professor Wh itelaw submits that, together with the expected
default rate, a loan's recovery rate enters the cal culation of the expected loss which is the critical
determinant of relative bond yields across rating categories. 2629 Professor Whitelaw argues that the
Ellis Report implicitly assumes that LA/MSF has a rec overy rate equal to the historical averages for
bonds in certain rating categories. However, Prof essor Whitelaw argues that in reality there is no
reason to expect LA/MSF to have the same rec overy rate as a bond with a similar probability of
default. For bonds, the entire principal balance fa lls due at maturity. If a bond defaults one day
before maturity, the principal is lost, except for wh at may eventually be recovered in bankruptcy or
settlement proceedings. By contrast, Professor Wh itelaw asserts that LA/MSF is typically repaid
incrementally on each delivery of an aircraft. If Airbus defaults by ending a project after making 95%
of the anticipated deliveries, the loss to a member State is trivial. 2630 Thirdly, the European
Communities argues that because of the context in which it was prepared, the UK government's
critical project appraisal employs very conservative forecasting methodologies. The European
Communities submits that the approach chosen refl ects a desire to ensure that the UK government
would structure LA/MSF loans for the A380 so as to comply with the terms of the 1992 Agreement,
which the European Communities recalls requires gove rnments to prepare a critical appraisal of the
project based on conservative assumptions. The Eu ropean Communities asserts that the critical
project appraisal was also intended to assist the UK government in its negotiations with BAE over the
structure and terms of this financing.
2631 Fourthly, the European Communities observes that, as noted
by the United States itself, the UK government ultim ately "disregarded" the advice in the appraisal
regarding how to structure the repayment schedule. 2632 In any case, the European Communities
emphasizes that the delivery projections in the a ppraisal have no bearing on the French, German and
Spanish LA/MSF agreements for the A380. 2633 Finally, in the light of certain HSBI, the European
Communities argues the [***] analysis found in the UK critical project appraisal, once correctly
modified and reinterpreted by Professor Whitelaw, does not in fact support the United States' project-
specific risk premium or its market interest rate benchmarks.2634
7.450 The European Communities disputes the United St ates' contention that the CASA State Aid
Decision supports its project-specific risk premium, arguing that the 8% risk premium applied by the
European Commission in its decision is obiter dicta, in the sense that it was ir relevant to the outcome
of the case.
2635 More generally, the European Communities ar gues that the risk premium used in that
case was specific to the particular facts before the European Commission and would not necessarily
be applied by the European Commission for the purpose of evaluating LA/MSF for LCA activities.2636
The European Communities submits that the 8% risk premium applied to the CASA loan also reflects
the crisis in the regional aircraft industry during the early-to-mid 1990s. According to the European
Communities, extreme market conditions prompted the European Commission to propose an elevated
risk premium. 2637
7.451 The European Communities also criticizes the Un ited States' assertion that the similarity
between the discount rates used in the Airbus business case for the A380 and the Ellis Report
benchmark confirm the credibility of the United Stat es' proposed project-specific risk premium. In
this regard, the European Communities' main argument is that the discount rates used in the business

2629 Professor Whitelaw explains that the recovery rate for bonds is the percent of the principal that an
investor recovers (through bankruptcy or other mean s of settlement) when a bond issuer defaults on its
obligation. Whitelaw Report, Exhibit EC-11 (HSBI) , para. 31.
2630 Whitelaw Report, Exhibit EC-11 (HSBI) , para. 34.
2631 EC, FWS, paras. 526-527.
2632 EC, FWS, para. 528.
2633 EC, FWS, para. 530.
2634 Whitelaw Rebuttal Report, Exhibit EC-656 (HSBI) , paras. 40-45.
2635 EC, SWS, para. 193.
2636 EC, FWS, para. 535.
2637 EC, SWS, paras. 194-199.

BCI deleted, as indicated [***]

case reflect the risks borne by shareholders, which differ in kind from the risks borne by LA/MSF
lenders.
2638
7.452 Other evidence the European Co mmunities relies upon to support its view that the project-
specific risk premium applied by the United States is inflated includes a [***].2639 According to the
European Communities, the repayment terms of this contract were, like LA/MSF, tied to aircraft
deliveries. The European Communities explains that the agreed interest rate for this loan was [***]
basis points above the London Interbank Offered Ra te ("LIBOR"). Thus, the European Communities
submits that if a loan had been granted to Airbus by a market lender at the time of the launch of the
[***], the interest rate would have been no higher than [***].2640 This is less than the 15.41%
benchmark predicted by the Ellis Repor t for this model. Moreover, when in 2003, the parties to the
contract agreed to eliminate the risk sharing provision and converted the instrument into an instalment
loan with a fixed repayment schedule, the loan margin was [***] from [***] to [***] basis points.
According to the European Communities, th e difference between these two margins, i.e., [***] basis
points, corresponds to the project-specific risk premium charged by the [***], and represents only a
fraction of the 700 basis point risk premium advanced by the United States.
7.453 Moreover, the European Communities asserts that ev en if one were to assume that the cost of
equity were an appropriate basis from which to de rive the project-specific risk premium for market
financing comparable to LA/MSF, the risk prem ium advanced by the United States would still
overstate the true value of what such a premium should be for LA/MSF. 2641 Relying on the CAPM
the Whitelaw Report arrives at an upper limit (a "cei ling") for the cost of equity, which the European
Communities considers the United States' benchmark should not exceed. 2642 In particular, the
Whitelaw Report presents three different estimates of the equity market risk premium drawn from
recent academic literature, coming to the conclusion th at taken together, they suggest a conservative
estimate of the equity market risk premium of approximately 4.5%.
2643 The Whitelaw Report argues
that as illustrated by the KSS Study, beta factors for projects or firms that are undiversified and have
high total risk are not necessarily high. Using a beta factor of one and an equity market risk premium
of 4.5%, Professor Whitelaw finds a total risk premium of 450 basis points, which he adds to the
country-specific risk free rates in the Ellis Report to arrive at country-specific costs of equity capital

2638 EC, SCOS, paras. 66-67.
2639 Exhibit EC-113 (BCI); EC, FWS, paras. 505-506; EC, Answer to Panel Question 64.
2640 As explained in footnote 388 of the European Communities' first written submission,
in December 1997, the 1-year LIBOR was at 6.079%. [***] to this rate yields approximately [***].
2641 EC, FWS, paras. 507-508.
2642 Whitelaw Report, Exhibit EC-11 (BCI), paras. 41-54.
2643 Whitelaw Report, Exhibit EC-11 (BCI), paras. 45-49, referring to G. Donaldson, M. Kamstra and
L. Kramer, Estimating The Ex-Ante Equity Premium , working paper, 2006; L. Pastor, M. Sinha and B.
Swaminathan, Estimating The Intertemporal Risk-Return Tradeoff Using The Implied Cost Of Capital , working
paper, 2006; J. Claus and J. Thomas, Equity Premia As Low As Three Percent? Evidence From Analysts'
Earning Forecasts For Domestic And International Stock Markets, Journal of Finance, 2001, vol. 56; J. Graham
and C. Harvey, The Equity Risk Premium In January 2006: Evidence From The Global CFO Outlook Survey ,
working paper, 2006. See, also, EC-Second BCI/HSBI Oral Statement, para 63, referring in addition to Oliver
J. Blanchard, Movements in the equity premium , Brookings Papers on Economic Activity, 1993, vol. 2, pp.75-
138; Lubos Pástor and Robert Stambaugh, The Equity Premium and Structural Breaks , Journal of Finance ,
2001, vol. 56 (1), pp.1207-1239; William R. Gebhardt , Charles M. C. Lee, and Bhaskaran Swaminathan,
Toward an implied cost of capital, Journal of Accounting Research, 2001, 39, 135–176; Irwin Friend, Randolph
Westerfield, and Michael Granito, New evidence on the capital asset pricing model , Journal of Finance, 1978,
vol. 33, pp.903–917; Steven N. Kaplan and Richard S. Ruback, The valuation of cash flow forecasts: An
empirical analysis , Journal of Finance, 1995, vol. 50, pp.1059–1093; Alon Brav, Reuven Lehavy, and Roni
Michaely, Using expectations to test asset pricing models, Financial Management, Autumn 2005; Charles M.C.
Lee, David Ng, and Swaminathan, B, International Asset Pricing: Evidence from the Cross Section of Implied
Cost of Capital (November 1, 2003). 14th Annual Conference on Financial Economics and Accounting (FEA).

BCI deleted, as indicated [***]

for the aerospace industry. In the European Communities' view, these values are not suitable
benchmarks for LA/MSF but they can be viewed as reliable upper bounds.2644
7.454 The United States refutes all of the European Communities' criticisms of the evidence it
advances to confirm the value of its proposed 700 basis points project-specific risk premium. 2645 The
United States rejects the European Communities' argument that LA/MSF is project-specific debt,
rather than a hybrid between debt and equity on the grounds that LA/MSF has equity-like qualities.
The United States recalls that repayment of LA/MSF depends entirely on sales and the providers of
LA/MSF hold a shareholder's risk with respect to non-repayment. The United States considers the
European Communities' claim that the [***] contract illustrates that financing comparable to LA/MSF
is properly characterized as debt to be inapposite. 2646 According to the United States, the [***]
contract has many more debt-like characteristics than LA/MSF so that if it were characterized as debt,
it would have no bearing on the proper characterizati on of LA/MSF. The United States also rejects
the European Communities' assertion that it has added an equity risk premium to the cost of debt,
which the European Communities argues would be in appropriate. The United States recalls that its
proposed project-specific risk premium is a hybrid it self, not a pure equity premium, and that for this
reason it reflects the hybrid nature of LA/MSF.
2647
7.455 Additionally, the United States defends its re liance on the project-specific risk premium
derived from the KSS Study on various grounds. In the United States' view, LA/MSF has equity like
qualities and thus its risk profile is comparable to that of venture capital investments. 2648 T h e
United States argues that the results of the KSS Stud y are relevant to estimating the cost of capital for
private venture capital investment whether in the form of debt, equity or hybrid financing. 2649
According to the United States, this is confirme d in the KSS Study itself where it states that the
authors used "a database of high tech IPOs to est imate opportunity cost of capital for venture capital
investors and entrepreneurs". 2650 The United States contests the Eu ropean Communities' attempt to
suggest that the returns on venture capital invest ments are too extreme to serve as the basis for
establishing a risk premium for LA/MSF. In this respect, the United States argues that the calculation
of the Ellis Report project-specific risk premium re lies on the returns to well-diversified portfolios
that contain venture capital investments. The United States asserts that such portfolios generate much
lower returns – on average about 16.7% – than the 698% average arithmetic return to IPO or
acquisition quoted by the EC.2651 Finally, although recognizing that the 16.7% figure identified in the
KSS Study represents a gross return on an investment in a venture capital fund, including fees paid to
the fund managers, the United States nevertheless argu es that it is appropriate to derive the project-
specific risk premium from this figure, noting that KSS defined this return as "... the cost to an
entrepreneurial venture of raising capital from a venture capital fund".2652
7.456 The United States also rejects the European Communities' criticisms of its confirmatory
analyses. With regard to the Ibbotson Associates data, the United States contends that the project-
specific, delivery-contingent and non-recourse natu re of LA/MSF gives it equity-like risk exposure
which is certainly higher than the risk associated with investing in the large, established United States

2644 EC, FWS, para. 508.
2645 United States, confidential oral statement at the first meeting with the Panel (hereinafter "US,
2646 US, SWS, para. 88.
2647 US, SWS, para. 93; Ellis Answer to Whitelaw Report, Exhibit US-534a (BCI) , pp. 10-11.
2648 US, Answer to Panel Question 143, paras. 40-43.
2649 US, SWS, para. 94; US, Answer to Panel Question 143.
2650 KSS Study, Exhibit US-470, p. 385.
2651 United States, non-confidential or al statement at the second meet ing with the Panel (hereinafter
"US, SNCOS"), para. 59.
2652 Ellis Answer to Whitelaw Report, Exhibit US-534a (BCI) , pp. 11-12.

BCI deleted, as indicated [***]

companies surveyed in the Ibbotson Associates data.
2653 The United States also rejects the academic
literature which the European Co mmunities relies upon to argue that the Ibbotson Associates data
overstate the equity risk premium. In the view of the United States, the literature advanced by the
European Communities is extremely recent and thus would not have been known to managers when
the LA/MSF was provided. In addition the United States argues that it does not represent a consensus
approach to measuring equity risk. The United States rejects the European Communities' criticisms of
the [***] measure because of its equity-like nature and reliance on Ibbotson Associates data for
essentially the same reasons. 2654 The United States also defends its comparison of the Ellis Report
project-specific risk premium with the [***] measure on the ground that it reflects a methodology
relied upon by an actual market participant in an actual transaction. Moreover, the United States
argues that the European Communities' point concerning the rejection of the [***] measure by an
auditing firm is irrelevant, because the question r esolved by the auditing firm was whether the figure
was an appropriate discount rate for the Germ an government not whether the same value was
appropriate in the context of LA/MSF to Airbus. 2655 The United States also responds to Professor
Whitelaw's criticism of the beta factor used in its analysis relying on HSBI.2656
7.457 In terms of the CASA State Aid Decision, th e United States consider s that the European
Communities is not only wrong to dismiss the 8% risk premium on the ground that it was "obiter
dicta",2657 but also that the European Communities grossly overstates the relative risk associated with
regional aircraft projects compared to projects for new LCA. 2658 The United States also rejects the
European Communities' criticisms of its cross-ch eck based on the UK government's critical project
appraisal of the A380 project.2659
7.458 As regards the [***] contract, the United States does not consider it to be an example of
commercial, success-dependent financi ng that is comparable to LA/MSF. 2660 In the United States'
view, the risk premium in the [***] case is lower than in the case of LA/MSF because [***] did not
accept the same level of risk as the governments di d under the LA/MSF contracts. According to the
United States, this is borne out by many key differences between the terms of the [***] contract and
the terms of LA/MSF granted by the governments of France and Spain for the same project. These
include: (a) that the participants in the [***] pledged only [***], in contrast to the French government
which provided EUR 321 million for the same project; (b) that the [***] required repayment over
[***] deliveries, almost [***] deliveries less than the French gov ernment accepted; (c) on the day
when the [***] contract was signed, [***] knew that Airbus had already sold enough A340-500/600
to repay the loan over the [***] scheduled deliveries; (d) [***] the back-loaded repayment terms
which are typical of the LA/MSF contracts; (e) the repayment schedule in the [***] was structured so
that [***] would receive full repayment after [***] years instead of [***] years under the French and
Spanish LA/MSF contracts; (f) the interest rate on the [***] is substantially [***] than the interest rate
on the corresponding French and Spanish contracts; (g) the [***] contract contained [***]; and (h) the
[***] provides for a significant step up in the [***].2661
7.459 The European Communities denies the correctness of the United States' assertion that the
[***] loan agreement had little or no downside risk, ar guing that it did in fact incur delivery risk.
According to the European Communities, Airbus had only [***] firm orders at the time it entered into

2653 Ellis Answer to Whitelaw Report, Exhibit US-534 (HSBI) , p. 19; US, SWS, para. 98.
2654 US, SWS, para. 100.
2655 US, FCOS, paras. 30-31.
2656 Ellis Answer to Whitelaw, Exhibit US-534 (HSBI) , p. 14.
2657 United States, confidential oral st atement at the second meeting w ith the Panel (hereinafter "US,
SCOS"), para. 16.
2658 US, FCOS, para. 33.
2659 Ellis Answer to Whitelaw Report, Exhibit US-534 (HSBI) , pp. 16-18; and US SCOS, para 21.
2660 US, FCOS, paras. 5-15.
2661 US, SWS, paras. 103-109.

BCI deleted, as indicated [***]

the [***] contract. Thus it had no guarantee that [***] deliveries would ultimately be made. 2662
However, the European Communities does r ecognize that the risk incurred by the [***] is not fully
comparable with the risk incurred by the EC me mber State governments granting LA/MSF for the
A380, identifying two differences – fewer tec hnological advances in the A340-500/600 as compared
with the A380, and repayment over fewer deliveries under the [***] contract. Nevertheless, the
European Communities considers these distinctions do not explain the large disparity between the risk
premium applied to the [***] and the one calculated in the Ellis Report. 2663
7.460 Finally, the United States criticizes the cost of equity ceiling advanced by the European
Communities because, in its view: (i) the equity ceiling wrongly assumes that the risk of a single
project cannot exceed the risk of a company's equity; ( ii) the beta factors used in the calculation of the
equity ceiling are based on the risk associated wi th a sample of diversified companies engaged in
multiple projects or of companies not primarily engaged in the commercial aircraft business, as
opposed to LCA-focused companies or projects; an d (iii) the European Communities' determination
of an equity risk premium is largely based on ve ry recent research that does not represent a consensus
approach to measuring equity risk. 2664 Furthermore, the United States argues that the European
Communities is incorrect in assuming that debt canno t have a risk level greater than the Whitelaw
equity ceiling. For its part, the European Comm unities objects to the United States' criticism of the
sample of companies used for the purpose of deriving the beta factors, arguing that there is in excess
of 40% overlap between the basket of aerospace companies Professor Whitelaw employs and the
companies the Ellis Report uses in support of the [***] cross-check.
2665 Moreover, the European
Communities notes that while it may be possible to locate instances in which debt could be riskier
than equity when considering firms with different risk profiles, Airbus SAS' risk profile is similar to
that of the companies used to calculate the ceiling.2666
7.461 Having closely reviewed and carefully consider ed the parties' detailed arguments, counter-
arguments and the various expert economic studies a nd opinions that have been submitted, we believe
there are a number of deficiencies with the project-specific risk premium advanced by the
United States which, in our view, imply that it pr obably overstates the appropriate level of project-
specific risk that may be reasonably associated with LA/MSF provided for at least a number of the
challenged Airbus LCA projects.
7.462 In essence, the project-specific risk premium advanced by the United States is based on the
alleged risk associated with holding a diversified portfolio of venture capital investments. While it
would not be inaccurate to characterize LA/MSF, because of its unsecured, success-dependent and
graduated repayment terms, as a form of financing that is inherently speculative, we do not consider
this renders it entirely comparable with venture capital investments. There are several reasons to
believe that the level of risk associated with ventur e capital financing is typically higher than the risk
associated with LA/MSF. We find that Professor Wh itelaw has convincingly argued that virtually all
venture capital financing consists of equity or equity-like instruments,
2667 which we believe do not
entirely match the characteristics of LA/MSF. As Professor Whitelaw explains, venture capitalists
typically provide financing through instruments th at are convertible to equity because they are
interested in the high equity returns associated with successful ventures. Such instruments ensure an
equity return in the event the financed venture is successful, leaving the investor in a preferential
position in case the venture fails.
2668 By contrast, while LA/MSF may be considered to have some

2662 EC, Answer to Panel Question 63.
2663 EC, Answer to Panel Question 63.
2664 US, SWS, paras. 110-113; Ellis Answer to Whitelaw Report, Exhibit US-534 (HSBI) , pp 20-21.
2665 EC, SWS, para. 210.
2666 EC, SWS, paras. 213-214.
2667 Whitelaw Rebuttal Report, Exhibit EC-656 (BCI) , paras. 8-14.
2668 Whitelaw Rebuttal Report, Exhibit EC-656 (BCI) , para. 12.

BCI deleted, as indicated [***]

equity-like qualities, such as the fact that lende r governments have no recourse in the event of non-
repayment, LA/MSF contracts are generally concei ved as amortizing loans repaid out of project
revenue.
7.463 Moreover, as explained in an Article appeari ng in the Journal of Economic Perspectives,
venture capital is provided to firms that are "typica lly small and young, plagued by high levels of
uncertainty and large differences between what entrepreneurs and investors know. ... {T}hese firms
typically possess few tangible assets and operate in mark ets that change very rapidly. Venture capital
organizations finance these high-risk, potentially hi gh-reward projects, purchasing equity or equity-
linked stakes while the firms are still privately held."
2669 By contrast, by the time of the launch of the
A380, Airbus had developed into a relatively larg e firm with over 30 years experience, substantial
capital assets and revenues, and a track record of successful LCA development, sometimes even
exceeding expectations (although it is equally apparent that it is not entirely clear yet whether several
of the Airbus LCA models developed immediately prior to the A380 will be as successful as initially
expected).
2670,2671
7.464 One of the reasons the United States advances to support its assertion that the project-specific
risk premium identified in the Ellis Report is conser vative is that it reflects the risk associated with
holding a well-diversified venture capital portfolio as opposed to the risk associated with financing
individual venture capital projects. However, as we have already noted, there are reasons to believe
that venture capital financing is inherently more risky than LA/MSF, even when considered in the
form of a portfolio. In addition, it is not entirel y clear to us that the figure of 700 basis points the
United States derives from the "cost of venture capital financing" 2672 identified in the KSS Study
captures only the risk associated with venture capital financing. As the European Communities points
out, KSS describe this "cost" to include "management fees".
7.465 The United States views the various cross-ch ecks it has presented as evidence supporting the
alleged conservative nature of its proposed project -specific risk premium. However, we are not
convinced that they fully corroborate the 700 basis points advanced by the United States.
7.466 First, we note that there appear to be good r easons to believe that the Ibbotson Associates
historical risk premium for investing in large company stocks is overstated. We recall that Ibbotson
Associates' data was not only used by the United States to cross-check its proposed project-specific
risk premium, but it was also relied upon in the construction of the [***] measure. Estimates based
on ex-post data of the type Ibbotson Associates u ses in its database show that the risk premium
associated with an investment in equity may be below 7.08%.
2673 Moreover, Professor Whitelaw
points out that current academic literature identifies a variety of reasons why the historical difference
between the market return for an investment in equ ity and the risk-free rate may not be an appropriate

2669 P.Gompers and J. Lerner, "The venture capital revolution", Journal of Economic Perspectives, 15-
2, (2001), Exhibit EC-677, at 145, quoted in Whitelaw Rebuttal Report, Exhibit EC-656 (BCI), para. 18.
2670 EC, SCOS paras. 47-48; EC, Answer to Panel Question 171; EC, Comments on US, Answer Panel
Question 142.
2671 US, Comments on EC Answer to Panel Question 171, indicating that the Airclaims CASE database
shows that, by end of 2006, Airbus had made 419 deliveries of the A330/A340 and 95 deliveries of the A340-
500/600. However, according to the forecast delivery information submi tted by the European Communities,
Exhibit EC-597 (HSBI), there is a si gnificant difference between Airbus' delivery expectations at the time these
LCA were launched and the position which in reality wa s achieved in 2006, with actual deliveries falling far
short of expectations.
2672 Underline added.
2673 Professor Aswath Damodoran concludes that based on ex post data, the equity risk premium should
be 4.8%. Aswath Damodaran, Damodaran on Valuation, Exhibit EC-678.

BCI deleted, as indicated [***]

measure of the expected equity investment risk premium. 2674 According to the European
Communities, a substantial body of research also co nfirms that historical measures such as Ibbotson
Associates systematically overstate the premium abov e the risk-free interest rate that should be paid
for equity investment. 2675 Second, we are inclined to agree with the European Communities that the
8% risk premium identified in the CASA State Ai d Decision is context specific, as it relates to
financing for regional aircraft development at a particular moment in time. The European
Communities convincingly argues that the risk prem ium identified in that Decision was elevated
because of the severe overcapacity and low demand confronted by the European regional aircraft
industry in the early 1990s. 2676 Third, turning to the United States reliance on the [***] analysis
undertaken in the UK government's critical project appraisal for the A380, we agree with the
European Communities that the UK government's fa ilure to take into account how the distinctive
repayment characteristics of LA/MSF affect its recovery rate undermines the United States'
submission that the appraisal supports its market in terest rate benchmark and project-specific risk
premium.2677
7.467 We also note that the equity risk premium u sed in the European Communities' calculation of
the equity ceiling, which is based on relatively recen t scientific evidence, supports the view that the
Ellis Report estimate may be on the higher side. We are also not persuaded that the differences
identified by the United States between the [***] loan and LA/MSF explain the entirety of the [***]
basis points difference between the 700 basis point s Ellis Report project-specific risk premium and
the [***] basis points risk premium applied in the [***] contract.
7.468 Finally, we note that the United States seeks to apply one and the same project-specific risk
premium to construct the market interest rate benchmarks associated w ith all models of LCA

2674 Whitelaw Report, Exhibit EC-11 (BCI) , paras. 21-29, citing L. Calvet, M. Gonzalez-Eiras and
P. Sodini, Financial Innovation, Market Participation, and Asset Prices , Journal of Financial and Quantitative
Analysis, 2004, vol. 39, pp. 431-459; E. Fama and K. French, The Equity Premium, Journal of Finance, 2002,
vol. 57, pp. 637-659; R. Jagannathan, E. McGrattan and A. Scherbina, The Declining US Equity Premium ,
Federal Reserve Bank of Minneapolis Quarterly Review, 2000, vol. 24, pp. 3-19; M. Lettau, S. Ludvigson and
J. Wachter, The Declining Equity Premium: What Ro le Does Macroeconomic Risk Play ? , Review of Financial
Studies, 2008, vol. 21, 1653-1687; J. Siegel, The Shrinking Equity Premium, Journal of Portfolio Management,
1999, vol. 26, pp. 10-16.
2675 EC, SCOS, para. 63, citing L. Calvet, M. Gon zalez-Eiras and P. Sodini, 2004, "Financial
Innovation, Market Particip ation, and Asset Prices," Journal of Financial and Quantitative Analysis , 39, 431-
459; E. Fama and K. French, 2002, "The Equity Premium," Journal of Finance , 57, 637-659; M. Lettau, S.
Ludvigson and J. Wachter, 2006, "The Declining Equity Premium: What Role Does Macroeconomic Risk
Play?" Review of Financial Studies , forthcoming; J. Siegel, Fall 1999, "The Shrinking Equity Premium,"
Journal of Portfolio Management , 26, 10-16; R. Jagannathan, E. McGrattan and A. Scherbina, Fall 2000, "The
Declining U.S. Equity Premium," Federal Reserve Bank of Minneapolis Quarterly Review, 24, 3-19; E. Dimson,
P. Marsh and M. Staunton, 2003, "Global Evidence on the Equity Risk Premium," Journal of Applied Corporate
Finance, 15, 27-38; W. Goetzmann and P. Jorion, 1999, "Global Stock Markets in the Twentieth Century,"
Journal of Finance , 54, 953-980; Elton, Edwin J., 1999, "Expected return, realized return, and asset pricing
tests", Journal of Finance 54, 1199–1220; Brown Stephen J., William N Goetzmann, and Stephen Ross, 1995,
Survival, Journal of Finance 50, 853-873; Mehra, Rajnish and Edward C. Prescott, 1985, The Equity Premium:
A Puzzle, Journal of Monetary Economics 15, 145-161; Kocherlakota, Narayana R., 1996, The Equity
Premium: It's Still a Puzzle, Journal of Economic Literature 34 (1), 42-71; Cochrane John H., 1997, Where is
the market going? Uncertai n facts and novel theories, Economic Perspectives 21, 3-37; Siegel, Jeremy J. and
Richard H. Thaler, 1997, Anomalie s: The Equity Premium Puzzle, Journal of Economic Perspectives 11 (1),
191-200; Burr, Barry B., 1998, 20% + again? Keep dreaming, Pensions and Investments 26, 33-34; Benore,
Charles, 1983, A survey of investor attitudes toward the electrical power industry, Paine Webber Mitchell
Hutchens, Inc., New York; Siegel, Jeremy J., 1992, The equity premium: Stock and bond returns since 1802,
Financial Analysts Journal January/February, 28-38.
2676 EC, SWS, paras. 194-199.
2677 See, paragraph 7.449 above.

BCI deleted, as indicated [***]

developed by Airbus. Although the European Comm unities has not disputed this aspect of the Ellis
Report project-specific risk premia, we are not convinced that it is the best approach to identifying the
most appropriate project-specific risk premium for each of the challenged LA/MSF contracts.
Various pieces of evidence and arguments presented by the parties indicate that the risk associated
with LCA development will vary over time depe nding upon a variety of factors. These factors
include the conditions of competition in the airc raft industry and differences in the levels of
technology associated with developing different models of LCA.
2678 In our view, a project-specific
risk premium may even vary over time because of the levels of risk that the finance industry is willing
to accept at different moments in its own economic cycle. Moreover, if the project-specific risk
premium is intended to relate to the risk of default attached to LA/MSF for a particular LCA
development project, it would seem to follow that, a ll things being equal, it should be greater for
earlier LCA development projects, when Airbus ha d relatively less experience – or conversely, the
risk premium associated with development of a later model of LCA should be lower in the light of
successful prior experience. The Ellis Report appears to recognize this when it explains that the 700
basis points project-specific risk premium relates to LA/MSF in the aggregate, asserting that "a
40 percent risk premium or something of that order of magnitude would probably be quite appropriate
for the earlier years of Airbus' existence given the high-risk of LA/MSF and the project-specific
repayment during the early life of the company".
2679
7.469 All of the above considerations lead us to c onclude that the United States' proposed project-
specific risk premium may not be an appropriate pr oxy for the project-specific risk premium that a
market lender would ask Airbus to pay in return for financing on the same or similar terms and
conditions as LA/MSF for all of the challenged LA/MSF contracts. In our view, in order to evaluate
the suitability of the United States' proposed project-sp ecific risk premium, it is important to bear in
mind the nature of and circumstances surrounding each of the different LCA development projects
financed under the challenged LA/MSF measures. Thus , in respect of the earliest models of Airbus
LCA, namely, the A300 and A310, when Airbus was in its very early stages of existence, a project-
specific risk premium derived from the risk associated with investing in a well-diversified portfolio of
venture capital investments, appeals to us as a reasonable proxy for the minimum project-specific risk
premium that it would be appropriate to associate w ith market financing comparable with LA/MSF.
However, for subsequent models of Airbus LCA, and in particul ar, the A320, A330/A340, A330-200
and A340-500/600, the project-specific risk prem ium proposed by the United States' probably
overstates the maximum that we believe the evidence before us suggests would be appropriate;
whereas, because of the acknowledged technological challenges associated with the A380 project, our
sense is that the United States' project-specifi c risk premium could be reasonably accepted to
represent the outer limit of the risk premium that a market lender would ask Airbus to pay for
financing on the same or similar terms and conditions as the A380 LA/MSF contracts.
Project-specific risk premium advanced by the EC

7.470 The European Communities presents its own project-specific risk premium, constructed by
Professor Whitelaw on the basis of th e returns the Airbus "risk-sharing suppliers" expected to achieve
on the financing they provided for the purpose of developing the A380.
2680 According to the
European Communities, WTO jurisprudence confirms that the Panel should prefer a more specific
market interest rate benchmark over one that is of a more general nature. Thus, the European

2678 See, e.g., EC, FWS, paras. 305 and 484 (identifying "development risk" – "the risk that Airbus will
fail to design and build the aircraft" and "market risk" – "t he risk that Airbus will not deliver enough completed
aircraft to repay {LA/MSF} principal and interest"); and EC, SWS, paras. 19 5-198 (discussing risk factors that
apparently affected the European regional aircraft industry between 1991 to 1993).
2679 Ellis Report, Exhibit US-80 (BCI), footnote 28.
2680 Whitelaw Report, Exhibit EC-11 (HSBI) , paras. 36-54; Whitelaw Rebuttal Report, Exhibit EC-
656 (HSBI) , paras. 21-36.

BCI deleted, as indicated [***]

Communities calls upon the Panel to reject the more general project-specific risk premium advanced
by the United States in favour of its own proposed project-specific risk premium, derived from the
returns expected by Airbus' "ris k-sharing suppliers" from their financial participation in the same
project (A380) undertaken by the same comp any (Airbus) in the same market (LCA). 2681 Like the
United States, the European Communities proposes one and the same project-specific risk premium
for each of the challenged LA/MSF measures, with the exception of the A300 and A310, for which
the European Communities has pre sented no market interest rate benchmark. The value of the
European Communities' proposed project-specific risk premium is less than [***] the 700 basis points
proposed by the United States.
7.471 The European Communities advances various reas ons to justify reliance on the Airbus A380
risk-sharing supplier contracts for the purpose of id entifying an appropriate project-specific risk
premium for LA/MSF, including because, in its view , they are widely used in the LCA industry,
contain similar terms and conditions and involve co mparable risk. In particular, the European
Communities asserts that "financing through risk-shari ng suppliers is an important funding source for
the development of Airbus and Boeing aircraft", al legedly covering an "estimated 60 percent of the
development costs for the Boeing 787." 2682 Moreover, the European Communities notes that in the
case of both LA/MSF and risk-sharing supplier fi nancing, one party finances a fraction of
development costs in return for repayment with re venues generated from the delivery of aircraft, not
profits.2683 Indeed, in this respect, Professor Whitela w asserts that "the terms of the risk-sharing
supplier agreements are similar to those of the member states" LA/MSF contracts, 2684 noting however
that risk-sharing suppliers face two sources of risk not faced by the EC member States, namely,
uncertainty in respect of their own developm ent costs; and uncertainty on the timing of
repayments.2685
7.472 The methodology used by Professor Whitelaw to construct the proposed project-specific risk
premium involved the following steps: (i) computing the internal rate of return anticipated for each
contract in a selected sample of A380 risk-sharing supplier contracts; (ii) calculating the weighted
average internal rate of return of the sampled co ntracts; and (iii) subtracting the interest rate
associated in the Ellis Report with average risk -free government borrowing and the average Airbus
general corporate borrowing risk premium for the year 2001, thereby arriving at the project-specific
risk premium.
2686 Thus, Professor Whitelaw first selected a sa mple of risk-sharing supplier contracts.
For each selected contract, Professor Whitelaw calculate d the internal rate of return as the discount
rate that equates the present value of the risk-sha ring supplier's investment in the development work
on the A380 and the present value of Airbus' antici pated repayment of those development costs.
Professor Whitelaw then computed the weighted average return for the selected contracts, arriving at a
single overall benchmark rate of return for the A 380. Professor Whitelaw justifies a single rate of
return for all of the A380 LA/MSF on the following basis:
"{b}y the time of the launch of the A380, Airbus was controlled 80% by EADS, and
the Airbus GIE was in the process of combini ng into the single entity, Airbus S.A.S.
Therefore, country-specific rates are less ju stified. Also, due to the creation of the
Euro and the European Central Bank, th e risk-free rates of France, Germany and

2681 EC, SNCOS, para. 89, referring to Panel Report, Canada – Aircraft (no paragraph citation provided
by the European Communities).
2682 EC, FWS, para. 501.
2683 Whitelaw Report, Exhibit EC-11 (BCI), para. 36.
2684 European Communities, confidential oral statement at the first meeting with the Panel (hereinafter
"EC, FCOS"), para. 23.
2685 EC, FCOS, para. 23.
2686 Whitelaw Report, Exhibit EC-11 (BCI), para. 39.

BCI deleted, as indicated [***]

Spain were converging and that of the UK was virtually identical to the average of the
other three."
2687
7.473 To finally arrive at the project-specific risk premium, Professor Whitelaw subtracted the Ellis
Report risk-free rate and the Ellis Report average general Airbus corporate borrowing rate from the
single rate of return calculated for all A380 LA/MSF contracts.
7.474 The European Communities advances three alte rnative cross-checks to confirm its proposed
project-specific risk premium. The European Comm unities' arguments in respect of two of these, the
[***] financing agreement and the cost of equity ceiling, have already been set out and discussed. 2688
The third cross-check is the [***] analysis performed by the DTI in the UK critical project appraisal
for the A380, as modified and reinterpreted by Professor Whitelaw. 2689 This measure is presented and
discussed by the parties in their HSBI submissions.2690
7.475 The United States considers the European Co mmunities' proposed project-specific risk-
premium to be unreliable for several reasons. Fi rst, the United States argues that the European
Communities has failed to provide sufficient eviden ce to support its proposed risk premium, noting
that the European Communities submitted only five pages from one single contract between one risk-
sharing supplier and Airbus. 2691 Second, the United States argues that the sample of risk-sharing
supplier contracts used by Professor Whitelaw is selec tive, biased and too small, and for this reason
renders Professor Whitelaw's calculation subject to errors. 2692 For instance, the Ellis Report declares
that the "{s}ample selection bias due to the particular business environment for these suppliers of the
A380 is enough to disqualify the use of the Whitela w analysis, let alone the substantial inclusion in
that small sample of subsidized suppliers."
2693 Third, according to the Ellis Report, the limited
information provided by the European Communities on the repayment terms of one of the risk-sharing
supplier contracts, though not strictly sufficient to satisfactorily assess its relative risk, shows that it
involves significantly lower risk than LA/MSF contr acts. Thus, the Ellis Report argues that the lower
risk attached to the supplier contracts results in a sharp downward bias in Professor Whitelaw's
project-specific risk premium.2694
7.476 Apart from different repayment terms, the Ellis Report identifies another alleged feature of
the risk-sharing supplier contracts that indicates acce ptance of a lower level of risk compared with
LA/MSF, namely, minimum purchase obligations undert aken by Airbus. To support this contention,
the Ellis Report relies on a report by Fitch Ratings agency suggesting that many of the Airbus
suppliers are shielded from risk by contractua l commitments requiring Airbus to make minimum
purchases of supplies, thus assuming some of the risk from delays or project failure. 2695 The Ellis
Report also argues that for various reasons, the inte rnal rates of return on the supplier contracts are
typically lower than the true expected rates of return to the suppliers. The Ellis Report bases this view
on the assertion that the expected return on a manuf acturing project typically includes a number of
potential sources of return, such as future business opportunities that increase the expected return of
the project above the calculated internal rate of re turn and reduce its risk. Firms also engage in
bidding strategies such that the price bid for a particular contract may reflect other opportunities with
the same customer. Also, unlike the capital provided by banks or fi nancial institutions, a supplier's

2687 Whitelaw Report, Exhibit EC-11 (BCI), footnote 31.
2688 See, paras. 7.452-7.453 and 7.459.
2689 EC, SWS, para. 357; EC, Comments on US Answer to Panel Question 215.
2690 See, also, Whitelaw Rebuttal Report, Exhibit EC-656 (HSBI) , paras. 40-45.
2691 US, SCOS, para. 31; US, Comments on EC Answ er to Panel Question 171; Ellis Answer to
Whitelaw Report, Exhibit US-534a (BCI) , p. 22.
2692 Ellis Answer to Whitelaw Report, Exhibit US-534a (BCI) , pp 21-22.
2693 Ellis Answer to Whitelaw Report, Exhibit US-534a (BCI) , p. 28.
2694 Ellis Answer to Whitelaw Report, Exhibit US-534 (HSBI) , pp. 23-24.
2695 Ellis Answer to Whitelaw Report, Exhibit US-534 (HSBI) , p. 23.

BCI deleted, as indicated [***]

capital is tied up to the input that the supplier is manufacturing. Because suppliers have a narrower
range of choices than investors, their required rate of return will be lower than that of investors. 2696
Ellis also suggests that many suppliers received government funding to underwrite their cost of
participating in the A380 project, implying that th e returns on their contracts cannot be viewed as
fully commercial.2697 Finally, the United States adopts Brazil's argument that LA/MSF reduces the
risk associated with Airbus itself, and therefore, for this reason alone, distorts the risk-sharing supplier
benchmark.2698
7.477 The United States rejects the proposition that the European Comm unities' cross-checks
substantiate its project-specific risk-premium . The United States' arguments against the [***]
financing agreement and the cost of equity ceiling have been set out and discussed previously.2699 The
United States also advances two objections to the revised UK [***] analysis presented in Professor
Whitelaw's Rebuttal Report. 2700 In particular, the United Stat es argues that in presenting this
information, the European Communities was offering new factual evidence not as a rebuttal, but as an
attempt to bolster its flawed criticism of the Unite d States' benchmark. The United States considers
the introduction of this evidence contravenes para graph 15 of the Panel's Working Procedures, and
accordingly asks the Panel to reject both the new evidence and the argument the European
Communities has made in reliance on that new evid ence. The second United States' objection relates
to its inability to verify the accuracy of the new information submitted in the Whitelaw Rebuttal
Report.2701
7.478 The European Communities reject s the United States' criticisms. 2702 Professor Whitelaw
responds to the United States' criticisms regarding the sampling of risk-sharing supplier contracts,
asserting that the sample used comprised 100% of the contracts for which an internal rate of return
could be calculated. In addition, Professor Wh itelaw notes that the total agreed amount of A380
development costs assumed by the risk-sharing suppliers included in the sample represents
42.09 percent of total value of development co sts for all A380 risk-sharing suppliers contracts. 2703
Second, referring mostly to HSBI evidence, th e European Communities argues that there are only
modest differences between the repayment terms of the risk-sharing supplier contracts and LA/MSF,
and that these differences are offset by two s ources of risk not faced by the member States: i.e., the
risk of cost overruns and the risk in the timing of their receipts. 2704 The European Communities also
dismisses the United States' reliance on the Fitch Rati ngs agency report, arguing that the latter did not
know whether the A380 suppliers received minimum purchase commitments. 2705 Third, the European
Communities rejects the idea that the risk-sharing s uppliers are not fully-fledged market actors.
Moreover, according to the European Communities, the notion that the risk-sharing suppliers have
fewer options for their investment capital than investors such as banks and pension funds is irrelevant.
In the view of the European Co mmunities, what matters is that risk-sharing suppliers provide
alternative sources of market financing. Sim ilarly, the European Communities does not see any
reason to believe that the prospect of obtaining futu re contracts with Airbus would have affected the
terms of the supply agreements. In this regard , the European Communities alleges that the United
States does not offer any evidence for this argume nt and the European Communities does not see any
aftermarket for the sort of products sold by the risk-sharing suppliers nor any incentive for them to

2696 Ellis Answer to Whitelaw Report, Exhibit US-534 (HSBI) , p. 25; US, SWS, paras. 115-118.
2697 Ellis Answer to Whitelaw Report, Exhibit US-534 (HSBI) , p. 24.
2698 US, SCOS, para. 40.
2699 See, paras. 7.454, 7.458 and 7.460.
2700 US, SCOS, paras. 23-24.
2701 United States, HSBI Appendix to US, SCOS (hereinafter "US, SCOS-HSBI Appendix"), para. 24.
2702 EC, FNCOS, paras. 14 to 17.
2703 EC, SOS (HSBI), paras. 84-88.
2704 EC, SOS (HSBI), paras. 78-80; EC, FCOS, para 23.
2705 EC, SOS (HSBI), para. 83.

BCI deleted, as indicated [***]

reduce their returns.
2706 Fourth, the European Communities ar gues that the United States has offered
no evidence that government financing for the risk-s haring suppliers affects the terms of the finance
contracts agreed with Airbus. Moreover, the Europ ean Communities argues that even if this were the
case, the resulting change to the benc hmark rate would be negligible. 2707 Fifth, with regard to the
argument that LA/MSF reduces the risk associated with Airbus, the European Communities argues
that there is no evidence to support the hypothesis th at the risk-sharing suppliers would accept lower
returns based on the possibility that Airbus would receive LA/MSF on terms and amounts unknown to
them.2708
7.479 Having closely reviewed and carefully consider ed the parties' detailed arguments, counter-
arguments and the various expert economic studies a nd opinions that have been submitted, we believe
there are a number of deficiencies with the project-s pecific risk premium advanced by the European
Communities which, in our view, imply that it un der-estimates the appropriate level of project-
specific risk that may be reasonably associated with LA/MSF for all of the challenged measures.
7.480 In principle, we agree with the view that the returns associated with market financing actually
provided to Airbus for the same project as LA/MSF would serve as an appropriate basis from which
to derive the relevant project-specific risk premium. Indeed, such an approach would be preferable to
the one used by the United States to calculate its own proposed project-specific risk premium.
However, we are not persuaded that the project-s pecific risk premium advanced by the European
Communities is derived from data having these character istics. In the first instance, we note that
Professor Whitelaw used information from only a samp le of the risk-sharing supplier contracts to
construct the proposed project-specific risk premium. 2709 Although Professor Whitelaw asserts that
the contracts used amounted to 100% of those for which an internal rate of return could be calculated,
we have no way of verifying this assertion becau se the European Communities has submitted little if
any of the underlying data used in Professor Whitelaw's calculati ons. Specifically, the European
Communities has provided a table summarizing various pieces of information that appear to be taken
and derived from the sampled risk-sharing supplier contracts, and five pages of one of those
contracts.2710 Even on the basis of only the number of risk-sharing supplier contracts actually sampled
we find this to be clearly insufficient to substan tiate the European Communitie s' assertions in respect
of the appropriate project-specific risk premium. Moreover, we note that the one contract that the
European Communities has submitted shows that ther e is at least one major difference between the
repayment terms under this contract and LA/MSF wh ich we believe reduces its relative level of
risk.2711 We are also of the view that there is so me logical merit to the United States' arguments
suggesting that the risk-sharing suppliers had incen tives to lower their expected rates of return. 2712
We furthermore agree with the view expressed by Brazil and the United States that government
support for the A380 in the form of LA/MSF reduces the level of risk associated with risk-sharing
supplier financing, thereby limiting its comparability with LA/MSF. Moreover, there is information

2706 EC, SOS (HSBI), paras. 94-97.
2707 EC, SOS (HSBI), paras. 89-91.
2709 We note that the Ellis Answer to Whitelaw Report appears to assert that the Whitelaw sample of
risk-sharing supplier contracts was sel ected from "thousands" of contracts. Ellis Answer to Whitelaw, Exhibit
US-534a (BCI) , p.22.
2710 Whitelaw Report, Exhibit EC-11 (HSBI) , Exhibit 1; and Risk-Sharing Supplier Contract Re A380,
Exhibit EC-117 (HSBI).
2711 Compare repayment provisions of the Risk-Sharing Supplier Contract Re A380, Exhibit EC-
117 (HSBI), with e.g., UK A380 LA/MSF contract, Schedule 3, para. 3, Exhibit US-79 (BCI).
2712 US, Comments on EC Answer to Panel Question 174.

BCI deleted, as indicated [***]

contained in the Airbus A380 business case which suggests that the risk-sharing participants'
involvement in the A380 project may not have been on strictly market terms for all participants.2713
7.481 Thus, notwithstanding its potential, the shortcomings in the evidence relied upon by Professor
Whitelaw to derive the European Communities pr oposed project-specific risk premium and the
notable differences between the risks assumed by th e risk-sharing suppliers compared with the EC
member State governments, lead us to conclude th at the European Communities' project-specific risk
premium for the A380 is unreliable and understates the risk premium that a market operator would
have reasonably demanded Airbus pay for financing on the same or similar terms as LA/MSF for this
particular model of LCA. In addition, we note that as with the United States, the European
Communities seeks to apply one and the same projec t-specific risk premium to construct the market
interest rate benchmarks associated with all m odels of LCA developed by Airbus. For reasons
already explained, we are not convinced that this is the best approach to identifying the most
appropriate project-specific risk premium for each of the challenged LA/MSF contracts. 2714 As we
observed in the context of our evaluation of the proposed project-specific risk premium advanced by
the United States, in order to ass ess the suitability of a project-specific risk premium for market
financing comparable to LA/MSF, it is important to bear in mind the nature of and circumstances
surrounding each of the different LCA developmen t projects financed under the challenged LA/MSF
measures. Thus, while we consider it reasonable to conclude that the earliest models of Airbus LCA,
namely, the A300 and A310, would have attracted a project-specific risk premium at least matching
the project-specific risk premium advanced by the United States, for subsequent models of Airbus
LCA, and in particular, the A320, A330/A340, A 330-200 and A340-500/600, the project-specific risk
premium proposed by the United States' probably overstates the maximum project-specific risk
premium we believe the evidence before us suggests would be appropriate. Conversely, we find that
the project-specific risk premium advanced by the European Communities for the same models
underestimates the reasonable project-specific risk premium that a market lender would have asked
Airbus to pay for financing on the same or simila r terms and conditions as LA/MSF for all of these
models of LCA, as well as the A380.
Conclusion on Whether the Financial Contributions Confer a Benefit
7.482 We recall that in order to determine whethe r the financial contributions made under the
LA/MSF agreements confer a benefit on Airbus, w ithin the meaning of Article 1.1(b) of the
SCM Agreement, we must focus on whether LA/M SF places Airbus in a more advantageous position
than would otherwise be the case if it were left to find financing on the same or similar terms and
conditions on the market. In the light of the par ties' arguments and the particular circumstances of
this dispute, we consider it appropriate to resolve this question by examining whether the cost of the
challenged LA/MSF contracts to Airbus is less than th e cost that Airbus would be faced with if it
sought financing on the same or similar terms and conditions as LA/MSF from market lenders.2715
7.483 In terms of the cost of LA/MSF to Airbus, we have found that the estimates advanced by the
European Communities, before alleged taxation effects, are in almost all cases an appropriate basis for
conducting the required comparison, bearing in mind that we consider they represent the maximum
rate of return that the EC member State government s could have reasonably expected at the time they
entered into the LA/MSF contracts. In one instance, we have relied upon the rates of return proposed

2713 Exhibit EC-362 (HSBI), p. 29. Similarly, the Ellis Answer to Whitelaw Report asserts that a
number of the suppliers used in the Whitelaw analysis received "launch aid-like financing or other government
subsidies which reduces their cost of capital and therefore the returns required on contracts with Airbus". Ellis
Report to Whitelaw Report, Exhibit US-534 (HSBI) , p. 24.
2714 See, para. 7.468 above.
2715 See, para. 7.401 above.

BCI deleted, as indicated [***]

by the United States,
2716 and in one other case, we have id entified the most appropriate value
ourselves.2717
7.484 For the six A300 and A310 LA/MSF measures fo r which the European Communities did not
submit an estimate of the relevant rates of return, we believe the estimates of [***] for each contract
advanced by the United States accurately reflect th e EC member State governments' expectations in
respect of these contracts. In this regard, we note that although the European Communities has
presented extensive, multi-layered, arguments on th e questions surrounding the actual rates of return
associated with LA/MSF, at no stage has it specifically contested the [***] interest rate allegation
advanced by the United States for these contracts. Moreover, we have found nothing in the relevant
agreements that undermines the argument that the EC member State governments did not expect to
obtain any particular return on the full repaymen t of their LA/MSF contributions for the A300 and
A310 at the time they concluded the respective contracts.2718
7.485 However, as far as the cost of market fina ncing comparable to LA/MSF is concerned, we
have found that neither of the proposals made by th e parties on the appropriate project-specific risk
premium can be reasonably applied as the perfect st andard against which to measure whether all of
the challenged LA/MSF contracts confer a benefit. Starting with LA/MSF provided for the A300 and
A310, we have found that the project-specific risk premium advanced by the United States represents
a reasonable proxy for the minimum project-specific risk premium that it would be appropriate to
associate with market financing comparable to LA /MSF. We recall that the European Communities
has not advanced any alternative project-specific risk premium for these Airbus LCA models. It
follows that the appropriate market interest rate for determining whether the French, German and
Spanish government LA/MSF contracts for these Airbus LCA models confer a benefit is the market
interest rate benchmark advanced by the United States, which we view as representing a reasonable
estimate of the lowest interest rate that a co mmercial lender would have demanded in return for
financing the same LCA projects on comparable terms and conditions to LA/MSF.
7.486 In terms of the models of LCA developed between the A310 and the A380, our findings on
the appropriate project-specific risk premium lead us to conclude that the most appropriate market
interest rate benchmarks against which to measure whether the challenged LA/MSF measures
conferred a benefit lie in the range of interest rates advanced by both of the parties – that is, above the
interest rate benchmarks proposed by the Eur opean Communities but belo w the benchmark levels
submitted by the United States.
7.487 Finally, we recall that we have found the Unite d States' project-specific risk premium for the
A380 could be reasonably accepted to represent the out er limit of the risk premium that a market
lender would ask Airbus to pay for financing comp arable with LA/MSF; whereas, we consider the
project-specific risk premium advanced by the Eu ropean Communities to understate the appropriate
level of risk associated with financing such a project on terms and conditions comparable with
LA/MSF. Accordingly, we find that the most appr opriate market interest rate benchmarks against
which to measure whether the challenged A380 LA/MSF contracts conferred a benefit lie in the range
of interest rates above those submitted by the Eur opean Communities and up to the values advanced
by the United States.
7.488 Our specific findings may be illustrated in tabular form as follows:

2716 See, paras. 7.416-7.422 above.
2717 See, paras. 7.423-7.424 above.
2718 See, 1969 A300 Agreement, Articles 6 and 7; French A300 Protocole D'Accord, Article 5,
Exhibit EC-603 (BCI); 1981 A310 Agreement, Article 9, Exhibit EC-942 (BCI). We note that the latter
Agreement envisaged royalty payments after repayment of the loan principal.

BCI deleted, as indicated [***]

Table 7 – LA/MSF Rates of Return Compared with Market Rates of Return

 LA/MSF
Contract
LA/MSF Rate of
Return2719
Market Rate of
Return2720
Differential
A300 0% at least 16.52% at least 16.52%
A310 0% at least 18.88% at least 18.88%
A320 [***] above 13.49% 2721 but less
than 20.49%
more than [***] +
[[HSBI]]2722 but less than

A330/A340 [[HSBI]] above 10.86% 2722 but less
than 17.86%
more than [[HSBI]]2723
but less than [[HSBI]]2724
A330-200 [***] above 9.2% 2722 but less
than 17.22%
more than [[HSBI]]2725
but less than [***]
A340-500/600 [***] above 7.47% 2722 but less
than 14.47%
more than [***] +
[[HSBI]]2723 but less than

FRANCE
A380 [***] more than 6.89% 2722 and
up to 13.89%
from ([***] +
[[HSBI]]2723) to [***]
A300 0% at least 15.18% at least 15.18%
A310 0% at least 13.99% at least 13.99%
A320 [***] more than 8.95% 2722 but
less than 15.95%
more than ([***] +
[[HSBI]]2723) but less
than [***]
A330/A340 [***] more than 7.52% 2722 but
less than 14.52%
more than ([***] +
[[HSBI]]2723) but less
than [***]
GERMANY
A380 [***] more than 6.75% 2722 and
up to 13.75%
from ([***] +
[[HSBI]]2723) to [***]
A300 0% at least 16.60% at least 16.60%
SPAIN A310 0% at least 18.88% at least 18.88%

2719 See above, Table 5.
2720 All figures that are not marked with a footnote in this column are sourced from Table 6.
2721 This figure is intended to represent the market interest rate benchmark proposed by the European
Communities. However, because the European Communities has designated its market interest rate benchmarks
HSBI, they cannot be revealed in the text of our Report. In order to disclose an approximate measure of the
relevant range of market interest rate benchmarks, we have substituted the EC market interest rate benchmark
based on HSBI with the "Market based General Corp orate Borrowing Rates for the Airbus Companies"
identified in Exhibit 6 of the Ellis Report (which we note were relied upon by the European Communities in
establishing its benchmarks). See. e.g., Whitelaw Report, Exhibit EC-11 (BCI), para. 40. In all cases, the actual
market interest rate benchmark advanced by the European Communities is less than [***] of 700 basis points
greater than the relevant value taken from the "Market based General Corporate Borrowing Rates for the Airbus
Companies" identified in Exhibit 6 of the Ellis Report.
2722 This HSBI figure is the project-specific risk premium calculated by the European Communities,
which can be found in Exhibits 2 and 3 of the Whitelaw Report, Exhibit EC-11 (HSBI).
2723 10.86% plus the European Communities' proposed project-specific risk premium, minus the
[[HSBI]] rate of return shown in the second column.
2724 17.86% minus the [[HSBI]] rate of return shown in the second column.
2725 9.2% plus the European Communities' proposed project-specific risk premium, minus [***].

BCI deleted, as indicated [***]

 LA/MSF
Contract
LA/MSF Rate of
Return2719
Market Rate of
Return2720
Differential
A320 [***] more than 17.52% 2722 but
less than 24.52%
more than ([***] +
[[HSBI]]2723) but less
than [***]
A330/A340 [***] more than 14.19% 2722 but
less than 21.19%
more than ([***] +
[[HSBI]]2723) but less
than [***]
A340-500/600 [***] more than 8.29% 2722 but
less than 15.29%
more than ([***] +
[[HSBI]]2723) but less
than [***]

A380 [***] more than 7.07% 2722 and
up to 14.07%
from ([***] +
[[HSBI]]2723) to [***]
A320 [***] more than 12.59% 2722 but
less than 19.59%
more than ([***] +
[[HSBI]]2723) but less
than [***]
A330/A340 [***] more than 10.97% 2722 but
less than 17.97%
more than ([***] +
[[HSBI]]2723) but less
than [***]
UK
A380 [***] more than 6.54% 2722 and
up to 13.54%
from [[HSBI]]2726 to [***]

7.489 According to the United States, all of the LA/MSF contributions provided to Airbus at a zero
rate of interest do not seek a commercial rate of return, and therefore must confer a benefit. 2727
Although it is not necessary, for the purpose of resolving this dispute, to decide whether the
United States is correct as a general matter,
2728 it is possible to confirm from the above table that in
the cases where LA/MSF was provided to Airbus at no interest cost, the same financing could have
been obtained from the market only at positive rates of interest. Thus, we find that the financial
contributions made available through the A300 and A310 agreements, and the Spanish A320 and
A330/A340 contracts, conferred a benefit upon Airbus and therefore constitute subsidies within the
meaning of Article 1.1 of the SCM Agreement.
7.490 We come to the same conclusion in respect of all of the other challenged LA/MSF measures.
Indeed, even relying on the European Communities' own estimates of the rates of return and market
interest rate benchmarks, it is clear that the fina ncial contributions provided in the form of LA/MSF
conferred a benefit on Airbus. 2729 Moreover, had we not rejected the taxation-adjusted LA/MSF rates
of return advanced by the Europ ean Communities, the same would also be true for all but the French
A330-200 LA/MSF contract.
7.491 The European Communities argues that the fact th at the interest rates associated with the
challenged LA/MSF measures might be less than those that would be attached to comparable market-
based financing instruments does not automatically imply that they confer a benefit. According to the

2726 6.54% plus the European Communities' proposed project-specific risk premium, minus [***].
2727 US, FWS, paras. 184 (A300 and A310 contracts), 198 and 200 (Spanish 1992 A320 contract), 223
and 225 (Spanish A330/A340), asserting that such a result follows from the panel's finding in Canada – Aircraft
that loans made under the Technology Partnership Canada programme conferred a benefit because, "as a matter
of policy, {they did} not seek a commercial rate of return". Panel Report, Canada – Aircraft, paras. 9.313-315.
2728 Nevertheless, in our view, a situation where market-based financing for LCA development is
provided at a zero rate of return to the lender would be extraordinary and highly unlikely.
2729 Compare the third column of Table 7 with Exhibit EC-597 (HSBI).

BCI deleted, as indicated [***]

European Communities, the public polic y obligations attached to "most" 2730 of the relevant contracts
must also be taken into account. In particul ar, the European Communities contends that the
challenged LA/MSF measures may contain public policy obligations that are not present in
commercial loans.2731 Thus, the European Communities explains that "to enable an 'apples-to-apples'
comparison between a MSF loan and a commercial lo an, the effective price paid under the MSF loan
must reflect the additional obligations for the reci pient that would not be present in a commercial
loan. In return for accepting these obligations, Airbus Ams/NatCos, as commercial operators, would
logically expect to pay less for other elements of the MSF contract." 2732 When the costs associated
with such public policy obligations are taken in to account, the European Communities submits that
the rates of return associated with the challenge d LA/MSF contracts would need to be significantly
adjusted to a level that would "ca ll into question the existence of the de minimis benefit indicated" by
the values found in Whitelaw and ITR Reports.2733
7.492 The United States argues that the European Comm unities' reliance on the alleged existence of
public policy obligations to increase the effective rates of return associated with the LA/MSF
contracts is "extremely vague and not supported by any evidence". 2734 In addition, the United States
submits that even if there were a theoretical justification for the European Communities' position, it
would be inappropriate to take account of supposed obligations associated with LA/MSF while
ignoring other obligations and costs associated with commercial financing (e.g., bank fees, regulatory
and credit agency fees, and costs associated with em ployees engaged on an ongoing basis in financing
related activities).2735
7.493 It is a well established principle in WTO dispute settlement that the party asserting a
particular fact, claim or defence must prove that assertion with evidence and/or legal argument. 2736 In
the present case, the European Communities states that it has "substantiated its position on the
matter",2737 noting that it has provided copies of all of the challenged LA/MSF contracts to the Panel.
Thus, the European Communities urges the Panel to take the alleged public policy obligations into
account when performing the benefit analysis.2738 In our view, the European Communities' arguments
are clearly not enough to fulfil its burden of proof on this matter.
7.494 The European Communities asks th e Panel to accept that "public policy obligations", that
would not be found in comparable market-based financ ing instruments, were contained in "most" of
the challenged LA/MSF contracts and that these impo sed a level of costs on Airbus that at least
cancels out the difference between the LA/MSF rates of return and market interest rate benchmarks
presented in the economic studies it relies upon. However, apart from the case of one draft
contract,2739 it does not specifically indicate which of the re levant contracts contains such obligations,
nor where they might be found. Neither does it quan tify or even suggest how to quantify the resulting

2730 EC, Answer to Panel Question 170.
2731 EC, SWS, paras. 162-167.
2732 EC, SWS, para. 167.
2733 EC, Answer to Panel Question 170.
2734 US, SNCOS, para. 60; US, Answer to Panel Qu estion 140; US, Comments on the EC's Answer to
Panel Question 170.
2735 US, Answer to Panel Question 140; US, Comments on the EC's Answer to Panel Question 170.
2736 Appellate Body Report, US – Wool Shirts and Blouses, p.14.
2737 EC, Comments on the United States' Answers to Panel Question 140.
2738 EC, Answer to Panel Question 170; EC, Comments on the United States' Answers to Panel
Question 140.
2739 The European Communities discusses the alleged [***] imposed on British Aerospace by the UK
government in the draft LA/MSF contract for the A340-500/600, Exhibit EC-874 (BCI). It is less than clear to
us that an obligation to provide the UK government with [***] amounts to a "public policy obligation". In any
case, we note that the particular draft LA/MSF contr act discussed by the European Communities was never
concluded and is not the subject of the United States' complaint.

BCI deleted, as indicated [***]

adjustment it argues must be made to the LA/MSF rat es of return, stating only that this "would be a
matter for commercial negotiation or an independent assessment".
2740 Furthermore, the only
description it provides of the type of obligations it is talking about is that they are "e.g., requirements
for Airbus to maintain employment levels and to accept rather burdensome reporting
requirements".2741 Thus, in effect, the European Communitie s urges us to review each of the over
202742 relevant LA/MSF contracts that have been subm itted in this dispute and: (i) determine which
ones contain the type of "public policy obligations" it has described; (ii) come to a view about how
much additional cost such obligations would im pose on Airbus; and (iii) determine whether this
additional cost would be enough to demonstrate th at the financial contributions made available
through those LA/MSF measures do not confer a benefit. In our view, such a task would amount to
the Panel making the case for the European Communities. Therefore, even assuming that we were to
accept the premise that any public policy obligatio ns contained in the challenged LA/MSF contracts
should be taken into account when considering th e question of benefit (a premise upon which we
make no ruling), 2743 we find that the European Communities has failed to adduce sufficient factual
arguments to persuade us that it has reasonably substantiated its assertion.
7.495 In any case, we note that the European Co mmunities raises the costs of public policy
obligations as a factor that may alter the benefit anal ysis solely in the contex t of the (tax adjusted)
LA/MSF rates of return it has relied upon. Because we have rejected these rates, we question the
continued relevance of the European Communities' argument. Finally, we agree with the United
States that if our benefit analysis were to take th e costs associated with pub lic policy obligations into
account, we would also need to consider whether to factor costs that ar e unique to market-based
financing into our determination.
7.496 For all of the above reasons, we therefore dism iss the European Communities' contention that
the costs of public policy obligations contained in "most" of the challenged LA/MSF measures are
enough to call into question the existence of a bene fit indicated by our comparison of LA/MSF rates
of return with the rates of return associated with market financing on the same or similar terms as
LA/MSF.
Whether the LA/MSF subsidies are specific wi thin the meaning of Article 2 of the
SCM Agreement
7.497 The United States considers that each of the subsidies conferred upon Airbus through the
LA/MSF contracts is specific, within the mean ing of Article 2 of the SCM Agreement because inter
alia, each individual grant of LA/MSF is made pursuan t to a specific contract between the relevant
EC member State government and Airbus. 2744 The European Communities has not contested the

2740 EC, Answer to Panel Question 170.
2741 EC, Answer to Panel Question 170; EC, SWS, pa ra. 166. Again, the European Communities also
discusses certain [***] appearing in the draft UK LA /MSF contract for the A340-500 /600 in the same context.
However, as we have previously noted, it is less than clear to us how such obligations amount to "public policy
obligations". In any case, we note that the particular draft LA/MSF contract discussed by the European
Communities was never concluded and is not the subject of the United States' complaint.
2742 Excluding the over 45 LA/MSF contracts for the A300 and A310 submitted by the EC.
2743 The extent to which the cost of public policy obligations should be taken into account when
identifying a market interest rate benchmark for the purpose of determining whether a loan granted by a public
entity amounts to a subsidy under the SCM Agreement is a matter that merits serious reflection. This is
particularly so in the case of public policy obligations connected with the establishment or continuation of
economic activity that impacts international trade. In our view, subsidies containing public policy obligations of
this kind may be precisely the types of measures that the adverse effects provisions of the SCM Agreement are
intended to address. Thus, to take such "public policy co sts" into account when establishing the existence of a
subsidy would seem to be incompatible with the objectives of Part III of the SCM Agreement.
2744 US, FWS, paras. 186-188, 206-210, 229-233, 251, 258, 271, 280, 288 and 297.

BCI deleted, as indicated [***]

United States' submission. We agree with the Un ited States. Each of the challenged LA/MSF
contracts involves a unique transfer of funds at below- market interest rates to one particular company,
Airbus. It follows that the subsidies granted un der each of the contracts are explicitly limited to
Airbus – explicitly limited to "certain enterprises" within the meaning of Article 2.1(a) of the
SCM Agreement. We therefore find that each of the subsidies granted pursuant to the challenged
LA/MSF contracts is specific within the meani ng of Article 2 of the SCM Agreement, and can
therefore be challenged under Part III of the Agreement.
3. Whether LA/MSF as a Programme is a Subsidy Within the Meaning of Article 1 of the
SCM Agreement
(a) Arguments of the United States
7.498 The United States alleges that the governments of France, Germany, Spain and the UK (the
"Airbus governments") 2745 have maintained a formal and ins titutionalized industrial policy towards
Airbus, a central part of which has been the "s ystematic and coordinated" provision of LA/MSF
subsidies to assist Airbus develop a family of LCAs. 2746 The United States considers that this record
of support evidences the existence of a LA/MSF Pr ogramme, which as a distinct measure, separate
from the individual grants of LA/MSF that it challenges, is a subsidy that causes adverse effects to the
United States' interests within the meaning of Articles 5 and 6 of the SCM Agreement. 2747 T o t h i s
end, the United States argues that the alleged LA/MSF Programme is a "financial contribution" (in the
form of "a government practice {that} involves ... dir ect transfers of funds or potential direct transfers
of funds") that confers a benefit, "for example by enhancing {Airbus'} credit rating". According to
the United States, this alleged subsidy causes adver se effects to its interests by enabling Airbus to
launch new aircraft more quickly and simultaneously reduce prices to gain market share.
2748
7.499 The United States recognizes that there is no si ngle written instrument that sets forth the
alleged LA/MSF Programme. However, it asserts th at the existence of the LA/MSF Programme can
be established on the basis of several alleged facts, which considered together demonstrate that the
Airbus governments have systematically provided Airbus with a significant portion of the capital
needed and sought by Airbus to develop each and every new LCA model through unsecured loans
granted on back-loaded and success-dependent repaym ent terms, at below-market interest rates. 2749
The alleged facts the United St ates relies upon include: (i) the existence of institutional apparatus
established under various inter-governmental agreem ents to support the systematic application of
LA/MSF; (ii) the provision of LA/MSF on essentially the same terms and conditions in respect of
each new model of LCA developed by Airbus; (iii) st atements by officials of the Airbus governments
expressing their alleged commitment to the continuity of the LA/MSF Programme, (iv) statements by
executives of Airbus and EADS allegedly evidencing reliance on LA/MSF; and (v) the perceptions of
LA/MSF held by different credit rating agencies.2750
7.500 The United States considers that the alleged LA/MSF Programme is a measure with
"normative value", possessing the qualities of the types of unwritten measures that the Appellate Body
in US – Zeroing (EC) found can be challenged "as such" in WTO dispute settlement proceedings. 2751
However, the United States does not challenge th e alleged LA/MSF Programme "as such", asserting

2745 US, FWS, para. 1.
2746 US, FWS, paras. 85-89.
2747 US, SNCOS, paras. 34 and 36.
2748 US, SNCOS, para. 36; US, Answer to Panel Questions 138 and 139.
2749 US, FWS, para. 87; US, FNCOS, para. 20; US, Answer to Panel Question 3.
2750 US, Answer to Panel Question 3.
States concludes that "{i}n the light {of the evidence}, the specific content of {the}Launch Aid program and the
future conduct it will entail is clear}". (Emphasis added).

BCI deleted, as indicated [***]

that nothing in the Appellate Body report suggests that an unwritten measure with "normative value"
may only exist in the context of an "as such" challenge.
2752 Moreover, the United States argues that it
need not necessarily establish the existence of the alleged LA/MSF Programme by satisfying the test
identified by the Appellate Body in that dispute. 2753 In its view, like the panels in Japan – Apples and
EC – Biotech , the Panel in the present controversy shoul d examine the merits of its claim in
accordance with Articles 3.2 and 11 of the DSU – that is, by interpreting the ordinary meaning of the
word "measure" in context and in the light of the object and purpose of the WTO Agreement, and by
conducting an objective assessment of the evidence submitted in support of the alleged measure's
existence.
2754 In any case, the United States considers that even assuming that the test set out by the
Appellate Body in US – Zeroing (EC) were relevant, it has established the existence of the alleged
measure, having demonstrated: (i) the precise conten t of the alleged LA/MSF Programme; (ii) that it
is attributable to the four Airbus governments; and (iii) that it is of general and prospective application
in the sense that whenever Airbus seeks LA/MSF to support the development of a new model of LCA,
the Airbus governments provide it on the same core terms.2755
7.501 The United States describes the precise content of the alleged LA/MSF programme as
consisting of "the consistent, up -front provision by the Airbus governments of a significant portion of
the capital that Airbus needs to develop each ne w LCA model through loans that are (a) unsecured,
(b) repayable on a success-dependent basis ( i.e., through per sale levies), (c) with the levy amounts
greater for later sales than earlier sales (i.e., back-loaded), and (d) with interest accruing at rates below
what the market would demand for the assumption of similar risk". 2756 According to the
United States, each and every LA/MSF contract h as featured these core characteristics. While
accepting that differences exist among the specific terms and conditions of the various LA/MSF
contracts, the United States argues that these do no t mean that the LA/MSF Programme does not have
a precise content because, in its view, differences in the details of one LA/MSF contract compared
with another have only a marginal impact on the bene fit conferred by the particular subsidy at issue,
and in any case, do not change the core content and essence of the alleged LA/MSF Programme.2757
7.502 The United States asserts that the alleged LA/MSF Programme is incontestably attributable to
the Airbus governments - France, Germany, Sp ain and the UK - pointing to the relatively
sophisticated intergovernmental institutions a nd national bureaucracies allegedly set up by these
countries to oversee the funding and development of Airbus, as well as various statements made by
government representatives and heads of State.2758
7.503 The United States argues that the alleged LA/M SF programme is of general and prospective
application, and that this is demonstrated not only by the consistent funding of Airbus LCA
development on the same core terms and conditions , but also by the "A380 Launch Aid Agreement",
certain statements made by the member State governments and the European Commission, and the
actions of market analysts such as Moody's and Fitch Ratings, that the United States asserts, in
responding to the statements of the member Stat e governments, have put a value on the alleged
LA/MSF Programme and rely on its availability in making their projections of Airbus' financial
health.2759

2752 US, SNCOS, paras. 35 and 36.
2753 US, SNCOS, para. 39; US, Answer to Panel Ques tion 136; US Comments to EC, Answer to Panel
Question 173.
2754 US, Answer to Panel Question 136; US Comments to EC, Answer to Panel Question 173.
2755 US, Answer to Panel Question 3; US Comments to EC, Answer to Panel Question 173.
2756 US, Answer to Panel Question 3
2757 US, Answer to Panel Question 3.
2758 US, FWS, paras. 95-101.
2759 US, FWS, paras. 102-106; US, FNCOS, paras. 22-25; US, Answer to Panel Questions 3 and 137.

BCI deleted, as indicated [***]

7.504 Finally, the United States submits that even if the Panel disagreed with its view that the
alleged LA/MSF Programme has general and prospective value, it should still find, on the basis of the
totality of the evidence, that the alleged Programme constitutes a challengeable measure.2760
(b) Arguments of the European Communities
7.505 The European Communities rejects the United States' contention that the four Airbus
governments have maintained an unwritten LA/M SF Programme pursuant to which development
funding for each new model of Airbus LCA has been provided on the same essential terms and
conditions. According to the European Communities, the facts do not support the existence of such a
Programme because they show that: (i) LA/MSF has not always been sought to finance development
of Airbus LCA; (ii) when development financing h as been sought, it has not always been in the form
of LA/MSF; (iii) when LA/MSF has been sought, it has not always been provided; and (iv) when
LA/MSF has been provided, it has been on terms and conditions that vary widely both as between
member States and as between the different Airbus LCA projects.
2761
7.506 The European Communities submits that given the nature of its claim, in order for the United
States to make out its case, it must establish: (i) that the EC member States concerned did, in fact,
adopt a "Launch Aid Program"; and (ii) the preci se content of the challenged programme, including
its alleged prospective application. The Eur opean Communities argues that the United States has
failed to make any such demonstration.2762
7.507 In terms of the evidence advanced by the Un ited States for the purpose of substantiating the
first element, the European Communities considers th at it has, at most, referred to certain inter-
governmental agreements concerni ng co-operation and co-ordination in respect of new Airbus LCA
models. However, the European Communities points out that none of these agreements contain any
undertakings committing the four EC member Stat e governments to granting subsidized LA/MSF,
either for the LCA models covered under the individu al agreements or any future models of Airbus
LCA. The European Communities considers that ne ither of the two inter-governmental agreements
whose text it alleges was discussed by the United States (the 1969 Agreement and the 2003
Agreement) advances its claim. In particular, the European Communities ch aracterizes the contents
of the 2003 Agreement as evidence of merely a general expression of support, not any commitment on
the part of the Airbus governments to provide LA/MSF loans for any existing or future LCA
development programme on subsidized terms. Si milarly, the European Communities notes that the
governments of Spain and the UK were not party to the 1969 Agreement, implying that it cannot
speak to concerted action involving all four Ai rbus governments. Moreover, the European
Communities recalls that under that Agreement, Fr ance and Germany affirmed their commitment to
"'European cooperation in the field of aeronautics'" only in "very general terms". According to the
European Communities, such a "vague commitment to cooperate in unspecified ways" does not
represent an expression of the two governments' joint intention to grant LA/M SF loans on particular
terms and conditions. In any case, the European Co mmunities submits that any affirmation made in
1969 by the two governments does not constitute prima facie evidence of the same two governments'
joint intention with respect to aeronautics today.
2763
7.508 The European Communities argues that the evidence advanced by the United States in respect
of the alleged inter-governmental institutional structures does not establish any "grand" structure
surrounding and supporting past grants of LA/MSF . The European Comm unities explains that

2760 US, Answer to Panel Question 136.
2761 EC, SWS, paras. 120-129.
2762 EC, FWS, paras. 342-344; EC, FCOS, paras. 2-10; EC, SWS, paras. 107-129; EC, Comments on
US Answer to Panel Questions 136 and 137.
2763 EC, Comments on US Answer to Panel Questions 136 and 137.

BCI deleted, as indicated [***]

although the four governments meet in various framewo rks to discuss a range of matters relating to
the aerospace industry, none of the institutions identified by the United States is dedicated to
LA/MSF. According to the European Communities, none of the institutions are responsible for
granting LA/MSF or fixing its terms and conditions. Neither is the provision of LA/MSF or its terms
and conditions ever discussed by the EC member States in these fora.
2764 In any case, even if an inter-
governmental institutional structure did once exist, th e European Communities asserts that its past use
for the purpose of discussing LA/MSF does not infer that the member States have collectively adopted
an overarching general rule in the form of a LA/MSF Programme.2765
7.509 Similarly, the European Communities submits that the statements made by private actors the
United States refers to in support of its claim do not show that the EC member State governments
have collectively adopted a general rule governin g the provision of LA/MSF. In particular, the
European Communities characterizes one of the statements made by Moody's Ratings agency as being
merely an expression of its expectation that past individual instances of "government support" might
be repeated in the future. Howe ver, according to the European Co mmunities, neither the repetition of
governmental action over time nor private expecta tions regarding that action prove that the
government has adopted a general rule governing its future conduct. Moreover, the European
Communities contends that the statement made by Moody's does not suggest that the terms of any
"government support" would be below-market. In any case, the European Communities argues that
the United States overstates the importance of privat e parties' expectations in assessing the existence
of an unwritten rule of general application, suggesting in the light of US – OCTG from Argentina, that
such evidence may be probative when concerned with a written statement of government policy.2766
7.510 On the question whether the United States has de monstrated the precise content of the alleged
LA/MSF Programme, the European Communities cons iders the evidence adva nced by the United
States does not support its position. First, the Eur opean Communities points to what it contends are
significant differences between the LA/MSF contracts, arguing that this undermines the United States'
assertion that LA/MSF was granted on the same four uniform "core terms". 2767 In addition, the
European Communities contends that the "core" co ntractual terms and conditions identified by the
United States cannot support the existence of an unwritten norm to provide LA/MSF because, in its
view, they are too generic. Thus, the European Communities argues that "there is nothing 'precise'
about a description that is generic enough, and at a hi gh enough level of abstraction, to apply to many
different forms of financing other than MSF".2768
7.511 The European Communities consid ers that the United States has failed to demonstrate how
the alleged LA/MSF Programme actually operates, and what conduct it requires of the four
governments. Without demonstrating these and othe r key elements of the alleged unwritten LA/MSF
Programme, the European Commun ities submits that the United St ates cannot be found to have
established its existence. 2769 Moreover, the European Communities notes that three models of LCA,
the A321, A319 and A318, were developed without LA/MSF; and that Airbus' rejection of the UK
government's offer to finance development of the A340-500/600 shows that, contrary to what the
United States argues, LA/MSF is not automatic, but subject to terms and conditions negotiated
separately with each of the four member State gove rnments. In the Euro pean Communities' view,

2764 EC, Answer to Panel Question 172.
2765 EC, Comments on US Answer to Panel Questions 136 and 137.
2766 EC, Comments on US Answer to Panel Questions 136 and 137.
2767 EC, SWS, paras. 116-117.
2768 EC, SWS, para. 119.
2769 EC, Comments on US Answer to Panel Questions 136 and 137.

BCI deleted, as indicated [***]

these facts also undermine the existence of the unw ritten LA/MSF Programme that is defined by the
United States.2770
7.512 Finally, the European Communities submits that the reality of how the EC member States
may provide LA/MSF to Airbus for any future LCA pr ojects is very different from what is implied by
the United States' alleged unwritte n LA/MSF Programme. If Airbus were to seek LA/MSF in the
future from one or more of the four governments, the European Communities argues that each of the
governments would consider the reque st on its own merits, in light of the situation at the time, and
according to criteria to be developed by each gove rnment. Thus, the European Communities asserts
that there are no general and prospective rul es governing the provision of LA/MSF by the four
governments, and therefore that the United States has failed to prove its case.2771
(c) Evaluation by the Panel
7.513 The United States claims that the alleged LA/MSF Programme is a measure with "normative
value" that satisfies the definition of a "subsidy" fo und in Article 1 and causes adverse effects to its
interests within the meaning of Article 5 of the SCM Agreement. 2772 However, the United States does
not challenge the alleged LA/MSF Programme "as such", explaining that the focus of its claim is not
"on something about a measure that mandates or n ecessarily results in a breach each time the measure
is applied, which is the essence of an 'as such' claim".2773 Indeed, the United States questions whether
"it is even possible to successfully claim that a measure 'as such' breaches Article 5 of the
SCM Agreement, as that would require showing that the measure will mandate particular effects in
the future, such as displacement and impedance, wh ich involve marketplace factors independent of
the measure".2774 Thus, as we understand it, the United States' claim is rooted in the very existence of
the alleged LA/MSF Programme, which it contends, in and of itself , constitutes a subsidy to Airbus
that causes adverse effects. For this claim to succeed, we consider that the United States must
demonstrate: (i) the existence of the alleged LA/MSF Programme; (ii) that the alleged Programme is a
subsidy within the meaning of Article 1 of the SCM Agreement; and (iii) that the subsidy causes
adverse effects within the meaning of Article 5 of the SCM Agreement. We start our evaluation by
addressing the first of these elements.
(i) Does the alleged LA/MSF Programme exist?
7.514 The United States describes the alleged measur e at issue as a "Programme" operated by the
Airbus governments that involves the systematic and coordinated provision of unsecured long-term
loans covering a significant amount of the capital that is needed and sought by Airbus for the
development of each and every new model of LC A on back-loaded and success-dependent repayment
terms and at below-market interest rates. 2775 Although it acknowledges that there is no single written
document that attests to the existence of such a deliberate system of financing, the United States
argues that the alleged measure's existence is neve rtheless evidenced by a series of alleged facts or
"individual components that could themselves be considered measures". 2776 These include the alleged
existence of institutional appara tus established under various inte r-governmental agreements to
support the systematic application of LA/MSF, the provision of LA/MSF on essentially the same
terms and conditions in respect of each new model of LCA developed by Airbus, various statements

2770 EC, SWS, para. 121.
2771 EC, Comments on US Answer to Panel Questions 136 and 137.
States concludes that "{i}n the light {of the evidence} , the specific content of {t he} Launch Aid program and
the future conduct it will entail is clear". (Emphasis added).
2773 US, SNCOS, para. 37
2774 US, SNCOS, para. 37.
2775 US, FWS, para. 87; US, FNCOS, para. 20; US, Answer to Panel Question 3.
2776 US, SNCOS, para. 34.

BCI deleted, as indicated [***]

made by officials of the Airbus governments and executives of Airbus and EADS, and the perceptions
held by different credit rating agencies and one bank.
2777
7.515 It is now well established that "In principle, any act or omission attributable to a WTO
Member can be a measure of that Member for purposes of dispute settlement proceedings." 2778 Thus,
the fact that the alleged existence of the LA/MSF Programme is not evidenced in any single written
document does not mean that it cannot amount to a "measure" that may be challenged in WTO dispute
settlement proceedings. Indeed, as the United Stat es points out, acts attributable to WTO Members
not expressed in written form have previously been the subject of WTO dispute settlement.
7.516 In Japan – Apples, the panel treated nine inter-related and cumulative legal and administrative
requirements imposed by the government of Japan on the importation of United States' apple fruit as
comprising one single sanitary and phytosanitary measure for the purpose of evaluating the United
States' complaint against those requirements.
2779 In following the same approach, the implementation
panel explained that the original panel had treat ed "the requirements imposed by Japan as several
elements of one single measure, essentially because all the requirements were presented as part of a
systemic approach".2780 Similarly, in EC – Biotech , the panel agreed with the complainants that the
European Communities had applied a "general de facto moratorium on the approval of biotech
products between June 1999 and August 2003". Notw ithstanding the absence of any single document
explicitly establishing its existence, the panel found that the alleged de facto moratorium existed as "a
measure which is the result of other measures (decisions)". 2781 It arrived at this conclusion after
conducting a detailed assessment (covering approximately 190 pa ges) of various facts the
complainants had argued demonstrated the existen ce of the alleged moratorium. These included the
operation of the European Communities' relevant approval procedures, documents and statements
made by European Communities and EC member St ate officials, and the histories of individual
applications for the approval of biotech products over the period in question.2782
7.517 In US – Zeroing (EC) , the panel found that the United States' "zeroing methodology", which
was not expressed in written form, represented a well-established and well-defined norm that was
challengeable as a measure in WT O dispute settlement proceedings, and that this measure was "as
such" inconsistent with the United States' obligations under the Anti-Dumping Agreement. 2783 Th e
panel reached this conclusion after closely examin ing the parties' arguments and various pieces of
evidence on the existence and application of the zeroing methodology over time, including the
United States' recognition that it had been unable to identify an instance where the USDOC had not
applied the methodology, the standard computer programmes used by the USDOC to calculate
margins of dumping in investigations, and expert op inions regarding the use and the content of the
zeroing methodology. The panel also noted that the United States had not contested that the zeroing

2777 See, para. 7.499 above.
2778 Appellate Body Report, United States – Sunset Review of Anti-Dumping Duties on Corrosion-
Resistant Carbon Steel Flat Products from Japan (" US – Corrosion-Resistant Steel Sunset Review "),
WT/DS244/AB/R, adopted 9 January 2004, DSR 2004:I, 3, para. 81.
2779 Panel Report, Japan – Measures Affecting the Importation of Apples ("Japan – Apples "),
WT/DS245/R, adopted 10 December 2003, as upheld by Appellate Body Report WT/DS245/AB/R, DSR 2003:IX,
4481, paras. 8.5-8.20.
2780 Panel Report, Japan – Measures Affecting the Importation of Apples – Recourse to Article 21.5 of the
DSU by the United States ("Japan – Apples (Article 21.5 – US) "), WT/DS245/RW, adopted 20 July 2005, DSR
2005:XVI, 7911, paras. 8.28-8.30.
2781 Panel Report, EC – Approval and Marketing of Biotech Products, paras. 7.1292.
2782 Panel Report, EC – Approval and Marketing of Biotech Products, paras. 7.438-7.1295.
2783 Panel Report, United States – Laws, Regulations and Methodology for Calculating Dumping
Margins ("Zeroing") ("US – Zeroing (EC) "), WT/DS294/R, adopted 9 May 2006, as modified by Appellate
Body Report WT/DS294/AB/R, DSR 2006:II, 521, paras. 7.91-7.106.

BCI deleted, as indicated [***]

methodology was a deliberate policy. 2784 On appeal, the Appellate Body upheld the panel's finding,
concluding inter alia, that the evidence before the panel was sufficient to establish that the "zeroing
methodology" was a "measure" that could be challenge d "as such". In doing so, the Appellate Body
made the following observations:
" ... a panel must not lightly assume the existence of a 'rule or norm' constituting a
measure of general and prospective applicati on, especially when it is not expressed in
the form of a written document. If a panel we re to do so, it would act inconsistently
with its obligations under Article 11 of th e DSU to 'make an objective assessment of
the matter' before it.
When an 'as such' challenge is brought agains t a 'rule or norm' that is expressed in the
form of a written document—such as a la w or regulation—there would, in most
cases, be no uncertainty as to the existence or content of the measure that has been
challenged. The situation is different, however, when a challenge is brought against a
'rule or norm' that is not expressed in the form of a written document. In such cases,
the very existence of the challenged 'rule or norm' may be uncertain.
In our view, when bringing a challenge agains t such a 'rule or norm' that constitutes a
measure of general and prospective appli cation, a complaining party must clearly
establish, through arguments and supporting evidence, at least that the alleged 'rule or
norm' is attributable to the responding Member; its precise content; and indeed, that
it does have general and prospective applicati on. It is only if the complaining party
meets this high threshold, and puts forward sufficient evidence with respect to each of
these elements, that a panel would be in a position to find that the 'rule or norm' may
be challenged, as such. This evidence may include proof of the systematic
application of the challenged 'rule or norm'. Particular rigour is required on the part
of a panel to support a conclusion as to the existence of a 'rule or norm' that is not
expressed in the form of a written document. A panel must carefully examine the
concrete instrumentalities that evidence the existence of the purported 'rule or norm'
in order to conclude that such 'rule or norm' can be challenged, as such.
2785
7.518 We recall that the United States has explicitly described the alleged LA/MSF Programme as a
measure with "normative value" in the sense that it "'creates expectations among the public and
among private actors'";2786 a measure that "possesses the qualities the Appellate Body identified in US
– Zeroing (EC)".2787 To this extent, we believe that the situa tion before us is similar to that faced by
the panel and the Appellate Body in US – Zeroing (EC) , in the sense that as with the European
Communities in US – Zeroing (EC), the United States in the present controversy complains about the
existence of an alleged unwritten measure with "normative value" that it considers to be WTO-
inconsistent independent of its application. However, the United States e xplains that unlike the claim
at issue in US – Zeroing (EC) , its complaint against the LA/MSF Programme is not based on the
typical subject of an "as such" complaint, name ly, something about a measure that mandates or

2784 Panel Report, US – Zeroing (EC), paras. 7.103.
2785 Appellate Body Report, US – Zeroing (EC), paras. 196-198, (footnote omitted).
2786 US, FNCOS, para. 25, citing Appellate Body Report, United States – Sunset Reviews of Anti-
Dumping Measures on Oil Country Tubular Goods from Argentina ("US – Oil Country Tubular Goods Sunset
Reviews"), WT/DS268/AB/R, adopted 17 December 2004, DSR 2004:VII, 3257, para. 187.
2787 US, SNCOS, para. 36. See also US, FWS, para. 106, where the United States concludes that "{i}n
the light {of the evidence}, the specific co ntent of {the} Launch Aid program and the future conduct it will
entail is clear". (Emphasis added).

BCI deleted, as indicated [***]

necessarily results in WTO-inconsistent conduct. Rather, the United States' claim is focussed on a
breach "resulting from the Launch Aid Program itself".
2788
7.519 We are mindful that the distinction between "as such" and "as applied" claims "does not
define exhaustively the types of measures that may be subject to challenge in WTO dispute
settlement".2789 A measure "need not fit squarely within one of these two categories" in order to be
susceptible to WTO dispute settlement. 2790 However, in order to be the proper subject of WTO
dispute settlement proceedings, a challenged measure must first be shown to actually exist. Given the
United States' explicit characterisation of the alleged LA/MSF Programme as a measure with
"normative value" in the sense that it "'creates expectations among the public and among private
actors'";
2791 a measure that "possesses the qualities the Appellate Body identified in US – Zeroing
(EC)",2792 we find the Appellate Body's guidance in that case on how to establish the existence of such
a measure to be particularly instructive. As bot h parties appear to recognize, the existence of a
challenged measure must be established on the basis of an objective assessment of all relevant facts
and circumstances;2793 and as we read it, the Appellate Body's guidance in US – Zeroing (EC) explains
how to undertake such an assessme nt for the purpose of demonstrating the existence of an unwritten
measure that is claimed to have general and prospective application in the sense of a "rule or norm".
7.520 It follows that regardless of the nature of a complaint, when challenging the WTO-
consistency of an alleged unwritten measure that is alleged to have normative value, the criteria laid
down by the Appellate Body in US – Zeroing (EC) will be relevant to determining whether any such
measure actually exists. Therefore, when confront ed with a complaint against an unwritten measure
that is considered to have genera l and prospective application, as we are here faced with in respect of
the alleged LA/MSF Programme, a panel must not lightly assume its existence. The arguments and
evidence advanced by the complaining party to de monstrate its existence must be carefully and
rigorously examined with a view to assessing whethe r the complainant has clearly established at least
the precise content of the alleged unwritten measure, th at it is attributable to the responding Member
and that it has general and prospective application. It is only by satisfying this "high threshold" that a
complainant will succeed in establishing the existen ce of the challenged measure. Conversely, where
any one of the above elements cannot be established, the complaining party will have failed to make
its case.
7.521 We recall that the United States describes th e precise content of the alleged unwritten
LA/MSF Programme as consisting of the consistent up-front provision, by the Airbus governments, of
a significant portion of the capital that is needed and sought by Airbus to develop each new LCA
model, through unsecured loans granted on back-l oaded and success-dependent repayment terms and
at interest rates below what the market would demand for the assumption of similar risk.
2794 T h e
United States considers that the alleged unwritten LA/MSF Programme is incontestably attributable to
four EC member States – France, Germany, Spain and the UK 2795 – and that it has general and
prospective application in the sense that "whe never an Airbus company seeks Launch Aid from an
Airbus government for development of a new LCA model, it receives Launch Aid consisting of the
same essential terms."2796 According to the United States, the ev idence that confirms the existence of

2788 US, SNCOS, para. 37.
2789 Appellate Body Report, United States – Continued Existence and Application
of Zeroing Methodology ("US – Continued Zeroing "), WT/DS350/AB/R, adopted 19 February 2009, para. 179.
2790 Appellate Body Report, US – Continued Zeroing, para. 179.
2791 US, FNCOS, para. 25, citing Appellate Body Report, US – Oil Country Tubular Goods Sunset
Reviews, para. 187.
2792 US, SNCOS, para. 36.
2793 US, Answer to Panel Question 136; EC, Comments on US Answer to Panel Questions 136 and 137.
2794 US, Answer to Panel Question 3; US, FNCOS, paras. 19-26; US, SNCOS, paras. 39-46.
2795 US, Answer to Panel Question 3.
2796 US, Answer to Panel Question 3.

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an unwritten measure of this kind includes the challenged LA/MSF contracts, inter-governmental
institutional structures and national bureaucracies al legedly charged with s upporting the operation of
the alleged LA/MSF Programme, various statements made by European Communities, EC member
State and Airbus officials, and the alleged percep tions of different credit rating agencies and one bank
that the challenged LA/MSF Programme is an established part of the financial landscape in which
Airbus operates.
2797 We review each of these categories of evidence together with the parties'
arguments in the following sections.
The LA/MSF contracts
7.522 One of the main EC criticisms of the Unite d States' description of the alleged LA/MSF
Programme is that it is not "precise" enough to confirm its status as an unwritten measure. 2798 The
European Communities notes that significant differe nces exist between the terms and conditions of
the challenged LA/MSF contracts, both as between the various LCA projects that received LA/MSF,
as well as between the various EC member States that funded them.
2799 In its view, these differences
serve to undermine the United States' submission that all LA/MSF contracts included the same four
"core terms", and therefore that the alleged Programme exists. 2800 Similarly, the European
Communities argues that the four "core terms" of LA/MSF that are the focus of the United States'
description are too generic to support the existe nce of an unwritten measure as the "very same
attributes are displayed by market-based instrume nts such as development financing offered by
Boeing and Airbus risk-sharing suppliers, as well as by loans secured from commercial banks". 2801
According to the European Communities, "there is no thing 'precise' about a description that is generic
enough, and at a high enough level of abstraction, to apply to many different forms of financing other
than MSF".2802 The European Communities maintains that the content of a subsidy programme would
usually include some or all of a series of "key elements", including information on "how and when
requests for support must be made"; "the terms a nd conditions governing eligibility for support"; and
"how satisfaction of these cond itions must be demonstrated".
2803 It argues that the United States'
description of the alleged LA/MSF Programme fails to identify any of these elements.
7.523 We do not consider there to be any generally appli cable standard or particular set of facts that
define the precise content of a "subsidy programme". The "key elements" identified by the European
Communities may usefully circumscribe the genera l contours of one or more subsidy programmes,
but not even the European Communities contends that all subsidy programmes must exhibit such
features. Thus, the fact that the United States' description of the precise content of the LA/MSF
Programme does not explicitly refer to the "key el ements" identified by the European Communities
does not, for that reason, render it inadequate.
7.524 In principle, we see no reason why the precise content of an unwritten measure alleged to
have "normative value" has to arrive at a certain level of specificity in order to be susceptible to
challenge in WTO dispute settlement under the SC M Agreement. If a WTO Member considers in
good faith that a measure exists that nullifies or impairs benefits that accrue to it under the
SCM Agreement, then regardless of how generic it s content may be, the WTO Member is entitled to

2797 US, SNCOS, paras. 39-66.
2798 EC, SWS, paras. 116-119; EC, Comments on US Answer to Panel Question 136.
2799 EC, SWS, para. 117.
2800 EC, SWS, paras. 116-117.
2801 EC, SWS, para. 119.
2802 EC, SWS, para. 119.
2803 EC, Comments on US Answer to Panel Question 136. The other "key elements" identified by the
European Communities are: "the nature and duration of any support granted"; "the purposes for which any
support can be used by the recipient"; "the terms and conditions governing any repayments"; and "whether the
government is obliged to provide support when eligibility conditions are met".

BCI deleted, as indicated [***]

seek redress through WTO dispute settlement.
2804 Of course, it may be more difficult to establish that
a measure which possesses a generic content breach es a WTO obligation compared with a measure
that is more specific. However, we see no reason to exclude the possibility that even measures with
generic content might be WTO-inconsistent. In an y case, the United States' description of the precise
content of the alleged LA/MSF Programme includes more than just a reference to LA/MSF contracts
granted on the same four "core terms". Rather, it is the Airbus governments' consistent up-front
provision of a significant portion of the capital that is needed and sought by Airbus to develop each
new LCA model, in the form of long-term loans on the same four "core terms", that defines the
precise content of the alleged LA/MSF Programme at the centre of the United St ates' complaint. In
our view, this description is sufficiently detailed to permit a clear understanding of the precise content
the United States asserts defines the alleged unw ritten LA/MSF Programme measure. Indeed, were
such a Programme described in a written document, we would have no doubt a bout its existence as a
matter of fact.
7.525 As to the differences that exist between th e terms and conditions of the various LA/MSF
contracts, it is true that the EC member States di d not adopt a standard approach or apply the same
contractual template when entering into LA/MSF agreem ents. Overall, the vast majority of terms and
conditions of each LA/MSF contract are different, re flecting not only the individual characteristics of
the Airbus entity and LCA development project bei ng funded, but also the policy objectives, legal
culture and particular demands of the relevant EC member State funding the project. For instance, the
financing provided under the first series of LA/MSF contracts represented a much larger proportion of
development costs compared with the LA/MSF contract s entered into after the entry into force of the
1992 Agreement.
2805 Not all of the EC member State governments required the payment of royalties;
and when royalties were called for, they were envi saged in different forms and over varying periods
of time.2806 Moreover, the structure of the back-loaded and success-dependent repayment terms found
in each contract was not always the same; 2807 and in terms of interest rates, where these were
identified in the contracts, they were usually set at different levels, at times through the application of
different formulas. 2808 There are other terms and conditions that vary between the contracts.
However, in the light of our findings in respect of the individual LA/MSF measures, there is no doubt
that all of the challenged LA/MSF contracts may be characterised as unsecured loans granted to
Airbus on back-loaded and success-dependent repayment terms, at below-market interest rates, for the
purpose of developing various new models of LC A. While not demonstrating that the LA/MSF

2804 Article 3.3 of the DSU provides that the WTO dispute settlement system exists to address
"situations in which a Member consider s that any benefits accruing to it direc tly or indirectly under the covered
agreements are being impaired by meas ures taken by another Member". In US – Corrosion-Resistant Steel
Sunset Review the Appellate Body addressed the scope of "measures" that may be subject to WTO dispute
settlement, observing that "in principle, any act or omission attributable to a WTO Member can be a measure of
that Member for purposes of dispute settlement proceedings. The acts or omissions that are so attributable are,
in the usual case, the acts or omissions of the organs of the state, including those of the executive branch."
Appellate Body Report, US – Corrosion-Resistant Steel Sunset Review, para. 81. Article 7.1 of the
SCM Agreement provides that "{e}xcept as provided in Article 13 of the Agreement on Agriculture, whenever a
Member has reason to believe that any subsidy referred to in Article 1, granted or maintained by another
Member, results in injury to its domestic industry, nu llification or impairment or serious prejudice, such
Member may request consultations with such other Member."
2805 See, paras. 7.369,7.2100, 7.2102, 7.2104 and 7.2106.
2806 See, para. 7.410.
2807 See, para.7.374. Thus, for example, each of th e four LA/MSF contract s for the A380 requires
repayment in different ways and amounts. The German A380 contract appears to require Airbus to make
interest payments [***]. In addition to those payments, [***]. The French A380 contract fixes a [***]. The
Spanish A380 contract envisages repayment of [***]. The UK A380 contract identifies [***].
2808 For example, compare Spanish A380 contract, Septima Clausula, with the UK A380 contract,
Schedule 3, German A380 contract, Article 6.

BCI deleted, as indicated [***]

Programme described by the United States actually exists, the contracts do show that every time
LA/MSF was provided in the past, it involved the four "core terms" the United States identifies.
7.526 The European Communities argues that a nother reason why the United States cannot
demonstrate the existence of the alleged LA/MSF Pr ogramme is that Airbus has not always sought
LA/MSF to finance the development of LCA. 2809 In particular, the European Communities notes that
"for example" no LA/MSF was sought from any of the Airbus governments for the A318, A319 and
A321 models; that no German, Spanish and UK LA /MSF was requested for the A330-200; and that
no German government LA/MSF was asked for in order to develop the A340-500/600.2810
7.527 Although we consider that the United States' desc ription of the precise content of the alleged
LA/MSF Programme has not always been crystal clear, it is apparent from the entirety of its
arguments and submissions that the United States ch aracterizes the precise content of the alleged
LA/MSF Programme in the terms we have expressed above, that is, as the consistent provision of
LA/MSF on the same essential conditions whenever sought by Airbus.2811 Because LA/MSF was not
sought by Airbus from the above-mentioned EC memb er State governments for the relevant LCA
projects,2812 it follows that the absence of LA/MSF for these models from the same Airbus
governments does not undermine the existence of th e LA/MSF Programme descr ibed by the United
States. However, we note that the UK governme nt did not conclude a LA/MSF agreement with
British Aerospace for the purpose of developing th e A340-500/600, even though British Aerospace
had initially requested LA/MSF from the UK government.
7.528 According to the United States, the absen ce of UK LA/MSF for the A340-500/600 does not
detract from its assertion that an alleged LA/M SF Programme exists, beca use LA/MSF for this
derivative was in fact offered by the UK government. Thus, according to the United States, the fact
that British Aerospace ultimately declined to avail itself of the LA/MSF offered by the UK
government "does not change the fact that the government made the commitment".2813
7.529 The Heads of Terms Agreement the European Communities has submitted as evidence of the
draft contract negotiated between British Aerospace and the UK government offered financial support

2809 EC, SWS, paras. 121 and 128.
2810 EC, SWS, para. 121. In addition, we note that LA/MSF for the first model of Airbus LCA, the
A300, was provided by only the French, German and Spanish governments, but not the UK government. See,
para. 7.369. We have also found that as of 20 July 2005 no LA/MSF had been committed by the Airbus
governments for the A350, notwithstanding the fact that it had been launched.
2811 When asked to explain what conclusions it considered could be drawn about the existence of the
alleged LA/MSF Programme from the absence of German, Spanish and UK LA/MSF for the A330-200 (Panel
Question 3), the United States argued that French government LA/MSF for the A330-200 was essentially
additional French government LA/MSF for the A330/A340. We are unclear as to why the United States did not
point out, or at least suggest, that Airbus had not sought or asked for LA/MSF for this model, (which would
have been consistent with its overall description of the content of the alleged LA/MSF Programme), given that it
has challenged this contract as a LA/MSF measure that is separate and distinct from the LA/MSF provided for
the A330/A340.
2812 In its answer to Panel Ques tion 173, the European Communities suggests that Deutsche Airbus
"turned to a risk-sharing supplier" financing for the A340-500/600 only after it realized that it could not obtain
LA/MSF from the German government. However, the European Communities has submitted no specific
evidence demonstrating that Deutsche Airbus had actually requested the German government to provide
LA/MSF for the A340-500/600.
2813 US, Answer to Panel Question 3, referring to various pieces of evidence including House of
Commons Hansard Written Answers, 2 February 1998, (statement of Mrs. Beckett), Exhibit US-467; and House
of Commons Hansard Written Answers, 15 December 1998, (statement of Mr. Battle) ("{T}he Government
agreed on 2 February 1998 to invest up to GBP 123 million in a public-private partnership with British
Aerospace on the development of the Airbus A340-500/600") Exhibit US-468.

BCI deleted, as indicated [***]

for the A340-500/600 on unsecured, back-l oaded and success-dependent repayment terms.
2814
Moreover, although nothing in the Heads of Terms Agreement suggests that the [***] internal rate of
return2815 requested by the UK government represented a belo w-market interest rate for the risk being
assumed under the proposed contract, when compared with a market interest rate benchmark
constructed on the basis of the same methodology applied by the European Communities to identify
appropriate market benchmarks for other LA/MSF contracts, it is evident that the [***] rate of interest
was non-commercial. 2816 The European Communities has emphasized that the [***] interest rate
charged by the UK government was equivalent to the interest rate obtained by British Aerospace on
the [***] commercial loan that was ultimately used to finance the A340-500/600 project. However,
as we have previously noted, the level of risk ta ken on by the commercial le nder under this contract
was less than that assumed generally under the Airbus governments' LA/MSF contracts.
2817 It follows
that the Heads of Terms Agreement drafted for the purpose of British Aerospace's participation in the
A340-500/600 project featured the same four "core terms" found in other LA/MSF contracts.
7.530 Thus, while we understand that the Airbus governments did not provide LA/MSF for each
and every model of LCA develope d by Airbus, the evidence we have reviewed does show that
whenever Airbus sought LA/MSF it was offered by each of the Airbus governments on the same four
"core terms", and in all but one case, the terms a nd conditions of that LA/MSF were agreed between
the parties.
7.531 It is important to note, however, that although it was possible to establish on the basis of the
express terms of each of the LA/MSF contracts that they were granted on unsecured, back-loaded and
success-dependent repayment terms, it was not equally apparent from the face of each contract that
the rate of return asked by the relevant EC me mber State government was below-market. The non-
commercial nature of the interest rates charged for the LA/MSF contracts was a fact we established
only after reviewing the extensive evidence and arguments submitted by the parties on appropriate
market interest rate benchmarks for the LA/MSF cont racts. In other words, below-market interest
rates are not an explicit feature of the LA/MSF contracts. Moreover, we see nothing inherent in the
LA/MSF contracts which, in and of itself, renders them a form of financing that by definition will
always involve below-market interest rates. Indeed, it is clear that the interest rate advantage obtained
by Airbus varied across the different LA/MSF contracts, in general diminishing with every new model
of LCA, suggesting that LA/MSF is not synonymous with any particular degree of subsidy intensity
(or level of below-market interest rates). In our view, this fact undermines the existence of the alleged
unwritten LA/MSF Programme because it shows that to the extent that past instances of LA/MSF
might be argued to evidence a broader co-ordinated financing programme, they do not support a
conclusion that such a programme would necessarily i nvolve the provision of loans in the future at
below-market interest rates.
7.532 In any case, even if LA/MSF were granted in the future on the same four "core terms"
identified by the United States, this would not, on its own, demonstrate the existence of the unwritten
LA/MSF Programme. We agree with the European Communities that past governmental action may

2814 Exhibit EC-874 (BCI), Heads of Terms Agreement for the A340-500/600.
2815 Exhibit EC-874 (BCI), Article 10.2 and Schedule 5.
2816 As we have previously explained, the market interest rate benchmarks proposed by the European
Communities for the purpose of determining whether the LA/MSF contracts involved subsidization were
constructed by adding the individual project-specific ri sk premium identified by the European Communities to
the general corporate borrowing rate identified in the Ellis Report for the relevant Airbus borrowing entity. See,
paras. 7.433 and 7.470 - 7.473 above. In 1998, the year in which the Heads of Terms Agreement was prepared,
the Ellis Report identified the genera l corporate borrowing rate for Britis h Aerospace as 6.24%. Adding the
project-specific risk premium proposed by the European Communities to this interest rate brings it above [***],
therefore showing that even by the European Commun ities' own standards, the UK government's proposed
LA/MSF for the A340-500/600 was at non-commercial interest rates.
2817 See, paras. 7.452, 7.458 and 7.467 above.

BCI deleted, as indicated [***]

be repeated in the future simply because, on the individual merits of a future case, the government
reaches the same decision as it did in the past. The repetition of government action over time does not
necessarily prove that the government has adopted a general rule governing its future conduct. 2818
Thus, even assuming arguendo that it could be concluded from the LA/MSF contracts we have
reviewed that each LA/MSF contract is by definiti on a form of financing that involves below-market
interest rates, something more than the repeat ed conduct evidenced by the provision of LA/MSF to
Airbus each time it sought support for LCA developmen t would be needed to prove the existence of
the unwritten LA/MSF Programme that is the subject of the United States' complaint.
Inter-governmental Institutional Structures
7.533 The United States asserts that its description of the alleged LA/MSF Programme is supported
by the existence of "entire institutio nal structures that have been creat ed and that continue to operate
with the sole and express purpose of administering the Launch Aid Program". 2819 The United States
identifies the "core" institutions forming part of these alleged structures as the "Airbus Inter-
governmental Committee", the "Airbus Executive Committee" and the "Airbus Executive Agency". It
also points to the "Airbus Ministers Conference" and the "Permanent Working Group for Sales
Financing" as other relevant institutions. Accordi ng to the United States, the alleged structures were
first established under the 1969 A300 Agreement, in or der to "work with Airbus to ensure the success
of each new LCA model, including through the provision of Launch Aid"; 2820 a "mission" which the
United States contends was reinforced and con tinued through the conclusion of successive inter-
governmental agreements and decisions.
The 1969 Agreement
7.534 As its title and preamble suggest, the 1969 Agre ement evidences an intention on the part of
the governments of France and Germany to co-operate in the field of aeronautics and, in particular, to
support Sud-Aviation 2821 and Deutsche Airbus GmbH ("Associated Manufacturers") in the
development of a single LCA, the Airbus A300-B. This intention is given effect over thirteen
Articles addressing various aspects of the devel opment and production of the A300, including its
financing.2822 The 1969 Agreement envisaged that the French and German governments would
provide a specified amount of funding for the development of the A300 in the form of loans ("avances
remboursables") to be repaid through a series of graduated levies on the sale of each aircraft, the value
of which (as a percentage of sales revenue) was explicitly identified.
2823 Both development and
production of the A300 was to be divided between the two Associated Manufacturers involved, in
proportion to each government's respective contribu tion to development costs through "avances
remboursables".2824 However, the costs of A300 series production were not financed under the
Agreement, which explicitly provided that these woul d be the responsibility of each of the Associated
Manufacturers.2825 The Agreement left the choice of engin es subject to the approval of the Parties 2826

2818 EC, Comments on US Answer to Panel Questions 136 and 137.
2819 US, SNCOS, para. 43.
2820 US, SNCOS, para. 43.
2821 At the time of the conclusion of the 1969 Agreement, Sud-Aviation was a government-owned
2822 The Agreement is structured ar ound the following six chapter headings: "Organisation"; "Division
of Work"; "Financial Provisions"; "Engines and Equipment"; "Participation of Third Country Industries"; and
"Final Provisions".
2823 Articles 6 and 7. The total amount of funding identified in the Agreement was set on the basis of
price conditions ("conditions de prix") existing on 1 January 1968, and was subject to revision in the light of any
evolution in the general economic conditions ("conditi ons économiques générales") since 1 January 1968.
Article 6.
2824 Articles 3.1 and 4.2.
2825 Article 9.

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and envisaged that outsourcing to enterprises in third countries would be possible.
2827 It also required
the "Work Coordinator" 2828 to invite all competent suppliers based in the Signatory countries to
participate in possible equipment supply opportunities.2829
7.535 An organisational apparatus was established to oversee the Agreement's implementation.
This consisted of three bodies: the Inter-govern mental Committee ("AIC"); the Executive Committee
("AEC"); and the Executive Agency ("AEA"). The management of the governments' participation in
the project was delegated to the AIC, which was spec ifically tasked with informing the parties of the
"technical, industrial, commercial a nd financial developments in th e project and to guard over or
ensure the application of the provisions of {the} agreement, defining when needed the necessary
procedures and examining with the companies th e problems that occur during the life of the
programme".2830 The AIC was also mandated with establishing the AEC, a body "composed of one
member per country and charged with those r esponsibilities that the parties delegate to it". 2831 It was
envisaged that both committees would be supported by the AEA, established within the French
government administrative service, which would act as the Committees' executi ve arm and source of
information regarding "any part of the programme".
2832 One of the main tasks specifically attributed
to the AEA was to enter into a Framework Agreem ent with the Work Coordinator implementing all
relevant provisions of the Agreement. 2833 The Work Coordinator was dir ected to enter into a similar
agreement with each of the Associated Manufacturers assuring their functions vis-à-vis the AEA and
defining, in particular, the division of work and responsibilities, mutual pricing rules, risk sharing
conditions between the Associated Manufacturers and joint profits.2834
7.536 Other particular tasks identified in the Ag reement for the relevant Committees included
monitoring that a balanced division of work was achieved 2835, declaring the final amounts of "avances
remboursables" transferred by each government fo r the purpose of identifying the final sums to
reimburse2836, agreeing with the Work Coordinator on the "modalities" for supervising
implementation of the repayment provisions2837, and the preparation of an annual report to the parties,
including an analysis of the financial situation.2838

2826 Article 10.
2827 Article 12.
2828 At the time of the conclusion of the 1969 A300 Agreement, the "Work Coordinator" was Sud-
Aviation. However, this position was shortly thereaf ter transferred to Airbus Industrie GIE, which was
constituted on 18 December 1970. Exhibit US-11.
2829 Article 11.
2830 Exhibit US-11, Article 1. English translation pr ovided by the United Stat es of original French
language, which reads: "an Intergovernmental Committee" was created to: "inform them of technical, industrial,
commercial and financial developments in the project and to guard over or ensure the application of the
provisions of this present agreement, defining when ne eded the necessary procedur es and examining with the
companies the problems that occur during the life of the programme".
2831 Exhibit US-11, Article 1. English translation pr ovided by the United Stat es of original French
language, which reads: "an Executive Committee composed of one member per country and charged with those
responsibilities that the Parties delegate to it".
2832 Exhibit US-11, Article 1. English translation pr ovided by the United Stat es of original French
language, which reads: "any part of the programme".
2833 Article 2.1.
2834 Article 2.2.
2835 Article 3.2 (AIC).
2836 Article 7.1 (AIC).
2837 Article 7.1 (AEA).
2838 Article 8 (AIC).

BCI deleted, as indicated [***]

7.537 The 1969 Agreement was extended to th e government of the Netherlands on
28 December 1970, and the government of Spain on 23 December 1971. 2839 The latter agreement
indicates that the entry of both governments into the A300 project resulted in them receiving a
representative on the AIC. 2840 It also indicates that the government of Spain was represented on the
AEC.2841 Apart from three specific questions considered to directly affect the interests of the Spanish
government and its industry, the vote of the Sp anish government representative on the AIC was
limited to consultation ("voix consultative"). 2842 In terms of substance, the 1971 A300 Agreement
inter alia, declared CASA2843 to be an Associated Manufacturer, and conferred upon it both a portion
of A300 series production and, [***].2844 The Agreement also indi cated that any "avances
remboursables" from the government of Spain would be repaid with [***] of the repayments
identified in Article 7 of the 1969 Agreement. 2845 Finally, another element of note is that the
Agreement [***].2846
The 1981 Agreement
7.538 The governments of France, Germany, Spain a nd the UK entered into an agreement on
28 September 1981 confirming the continued rele vance of the 1969, 1970 and 1971 Agreements for
the development and production of the A300 and exte nding the key principles of those agreements to
the development and production of the A310. 2847 The 1981 Agreement comprised fourteen
Articles addressing essentially the same matte rs contained in the 1969 Agreement. 2848 As with the
financing provided for development of the A300, the 1981 Agreement envisaged that certain specified
amounts of funding would be made available for the de velopment of the A310 in the form of loans to
be repaid through a series of graduated levies on the sale of each aircraft, the value of which (as

2839 The Agreement between the Governments of the Ki ngdom of the Netherlands, the Federal Republic
of Germany, and the French Republic concerning the realization of the Airbus A300B (1970); cited inter alia, in
Article 3 of Exhibit US-16; and the Agreement of the 23 rd of December 1971 betwee n the Governments of the
Spanish State, the French Republic, the Federal Republic of Germany, and the Kingdom of the Netherlands
concerning the realization of the Airbus A300B, Exhibit EC-992 (BCI). The parties have not submitted a copy
of the former 1970 Agreement between the governments of France, Germany and the Netherlands.
2840 1971 A300 Agreement, Article 2, para. 4 ("The re presentatives of the four Contracting Parties on
the Intergovernmental Committee ...").
2841 1971 A300 Agreement, Article 2, para. 7. As the parties have not submitted a copy of the 1970
A300 Agreement, we cannot conf irm whether the government of th e Netherlands was also granted
representation on the AEC. However, an organisatio nal chart submitted by the United States as Exhibit
US-49 (BCI) suggests that this may have been the case. The 1981 A310 Agreemen t (discussed below) appears
to confirm this.
2842 Article 2. As the parties have not submitted a copy of the 1970 A300 Agreement, we cannot
confirm whether it contained the same or a similar provision in respect of the voting rights of the government of
the Netherlands.
2843 At the time, CASA was a publicly-owned enterprise of the Spanish government. See,
footnote 2234.
2844 Article 4. As the parties have not submitted a copy of the 1970 A300 Agreement, we cannot
confirm whether it contained the same or a similar provision.
2845 Article 5.
2846 Article 6.
2847 The Agreement between the Governments of the Federal Republic of Germany, the French
Republic, the United Kingdom of Great Britain and Northern Ireland, and Spain concerning the Airbus
programme (the "1981 Agreement"), Exhibit EC-942 (BCI).
2848 The Agreement is structured around the following seven ch apter headings: "General";
"Organisation"; "Pursuit of the Airbus A300 Programme and Distribution of Work in the Airbus A310
Programme"; "Financing of the A310 Programme"; "Equipment"; "Participation of Third Country Industries";
"Final Provisions".

BCI deleted, as indicated [***]

a percentage of sales revenue) was explicitly identified.
2849 It also provided that a specified amount of
the development costs of the A310 would be as sumed by the governments of Belgium and the
Netherlands (carried out respectively by Belairbus and Fokker), and that an agreement would be
signed with the two governments in due course. 2850 An agreement was concluded with the
governments of Belgium and the Netherlands in 1982.2851
7.539 Development work was divided in proportion to each government's respective contribution to
development costs through "avances remboursables". 2852 The Associated Manufacturers (which now
included British Aerospace 2853) were given responsibility for series production of the element of the
A310 each had developed.2854 However, again, the costs of A310 series production were not financed
under the Agreement, which explicitly provided that these would be the responsibility of each of the
Associated Manufacturers.2855 As with the previous agreements, the 1981 Agreement also envisaged
that outsourcing to enterprises in third countries would be possible. 2856 Moreover, Airbus Industrie
was required to invite all competent suppliers based in the Signatory countries to participate in
possible equipment supply opportunities and to provide a list of the invited s uppliers and the reasons
underlying their eventual selection to the AEA.2857
7.540 The same organisational apparatus consisting of the AIC, AEC and AEA that was established
under the previous agreements was maintained. 2858 The UK government's participation in the AIC
and AEC was recalled; 2859 and the AEA was opened to include representation from not only the
French government, but also the governments of Germany and the UK. 2860 The French, German and
UK governments were given full voting rights in the committees. However, the Spanish government's
voting rights were limited to f our specific areas that essentially mirrored those found in the 1971
Agreement.2861
7.541 As the implementing agency, the AEA was once ag ain tasked with entering into a Framework
Agreement ("Accord Cadre") with Airbus Industrie GIE in order to give effect to all relevant
provisions of the Agreement. The Framework Agre ement was required to stipulate: that Airbus
Industrie and the Associated Manufacturers undertook to satisfactorily complete the development of
the A310 and obtain the necessary certificates; that all additional development costs would be borne
by Airbus Industrie and the Associated Manufacturer s; and that Airbus Industrie would conclude a
contract with each of the Associated Manufacturers, by virtue of which the latter would share
responsibility of Airbus Industrie before the AEA, and which would define division of work and

2849 Exhibit EC-942 (BCI), Articles 8-10. The speci fied funding amounts were set on the basis of the
economic conditions ("conditions économiques") prevailing in January 1978, and were subject to revision in the
light of any cost variations from January 1978 to the date of disbursement, on the basis of a formula to be
developed by each granting country. Article 8.3.
2850 Exhibit EC-942 (BCI), Article 8.6.
2851 The Agreement between the Governments of the Kingdom of Belgium, the Federal Republic of
Germany, Spain, the French Republic, the Kingdom of the Netherlands, and the United Kingdom of Great
Britain and Northern Ireland concerning the program Airbus (1982) , referred to in Article 3 of US-16. The
parties have not submitted a copy of this agreement.
2852 Article 8.2.
2853 Preamble. At the time, British Aerospace was a public company. See, footnote 2057.
2854 Article 5.1.
2855 Article 10.1.
2856 Article 12.
2857 Article 11.
2858 Exhibit EC-942 (BCI), Articles 2.1, 2.6 and 2.7.
2859 Exhibit EC-942 (BCI), Articles 2.2 and 2.6. The UK government's participation in the AIC
commenced as of 1 January 19 79 as a result of British Aerospace's entr y into Airbus Industrie GIE with a 20%
share. See, e.g., Exhibit EC-941 (BCI).
2860 Article 2.7.
2861 Article 2.4.

BCI deleted, as indicated [***]

responsibilities.2862 Other particular tasks identified in the Agreement for the relevant committees
included: reporting on progress in respect of various phases of the project; 2863 declaring the final
amounts of the "avances remboursables" transf erred by each government for the purpose of
identifying the final sums to reimburse; 2864 and agreeing with Airbus Industrie GIE on the
"modalities" for supervising implementation of the repayment provisions. 2865 The Permanent
Working Group on Sales Finance was reconfirmed (having been established by Decision of the AIC
in 1973), and opened to participation of the Spanish and UK governments.2866
The 1991 Agreement
7.542 On 6 February 1991, the governments of France, Germany, Spain, the UK and Belgium
concluded another agreement con cerning the development, producti on and sales financing of the
A320.2867 This Agreement comprised seventeen Arti cles addressing essentially the same matters
contained in the previous agreem ents relating to the A300 and A310, but with respect to the A320,
and with the addition of a more detailed oblig ation on support for export sales financing and a
provision on the possibility of extending the Agreement to the A321 and other derivatives of the
A320.2868 Each government's expected financial c ontribution ("aportacíones nacionales") to the
Associated Manufacturers (which now included Belairbus2869) for the purpose of developing the A320
was identified, 2870 and it was prescribed that repayments would be made from aircraft sales
revenues.2871 However, unlike the previous agreements, the 1991 Agreement did not specify the form
or value of such repayments.
7.543 Development work and production was divided between the five national actors, in proportion
with the work undertaken in each territory and each government's respective contribution to
development costs.2872 However, again, the costs of production of the A320 were not financed under
the Agreement, but left to the Associated Manufacturers.2873 As with the previous agreements, it was
envisaged that outsourcing to enterprises in third countries would be possible. 2874 Moreover, Airbus
Industrie and the Associated Manufacturers were requ ired to invite all competent suppliers, especially
those based in the Signatory countries, to partic ipate in possible equipment supply opportunities and
to provide a list of the invited suppliers and th e reasons underlying their eventual selection to the
AEA.2875 The Agreement also prescribed that the gove rnments of France, Germany, Spain and the
UK would support A320 export financing (the Span ish government's obliga tion being limited to

2862 Article 3.
2863 Article 8.6 (AEA).
2864 Article 9.1 (AIC).
2865 Article 9.5 (AEA).
2866 Article 10.2.
2867 The Agreement between the Governments of th e French Republic, the Federal Republic of
Germany, the United Kingdom of Great Britain and Northern Ireland, the Kingdom of Spain and the Kingdom
of Belgium concerning the Airbus A320 programme (the "1991 Agreement") Exhibit US-16..
2868 The Agreement is structured around the following nine chapter headings: "General
Considerations"; "Organisation"; "Development"; "Equipm ent"; "Production"; "Partic ipation of Third Country
Industries"; "Financing of Export Sales "; "Derived Versions"; and "Final Provisions".
2869 Preamble.
2870 Articulo 5. The specified funding amounts were set on the basis of the economic situation
("situación económica") in January 1982, and were subject to revision in accordance with an adjustment formula
that reflects the corresponding national indexes. Article 6.1.
2871 Articulo 8 ("The respective national contributions to development costs shall be reimbursed by
Airbus Industrie from aircraft sales revenues").
2872 Articulo 5.2, 5.3 and 11.
2873 Articulo 12.
2874 Articulo 13 and 14.
2875 Articulo 10.

BCI deleted, as indicated [***]

purchases made by Spanish airlines).
2876 The responsibilities of the Permanent Working Group on
Sales Financing were extended to include the A320.2877
7.544 The AIC, AEC, AEA and Permanent Working Group on Sales Financing were maintained
and their mandate and responsib ilities extended to cover the A320. 2878 The government of Belgium
was granted representation on the AIC and AEC for the purpose of the A320 project; while it was
clarified that the government of the Netherlands would not be represented in committee meetings for
the purpose of the A320. 2879 Once again, the French, German and UK governments were given full
voting rights in the committees; whereas the Spanish and Belgian government's voting rights were
limited to four specific areas.
2880
7.545 Finally, the AEA was once again tasked w ith entering into a Framework Agreement
("Acuerdo Marco") with Airbus Industr ie GIE in order to give effect to all relevant provisions of the
Agreement. The Framework Agreement was required to contain: a commitment from Airbus
Industrie and the Associated Manufacturers that they undertook to satisfactorily complete the
development of the A320 and to obtain the necessar y certificates; a definition of development work,
costs and technical stages; an explanation of how reimbursement amounts would be made by Airbus
Industrie to the Associated Manufacturers, a nd a plan of these repayments; a commitment from
Airbus Industrie that it would conclude a contract with each of the Associated Manufacturers, by
virtue of which the latter would share responsibility of Airbus I ndustrie before the AEA; and a
commitment from Airbus Industrie that it would i mmediately inform the AEA in the event of any
change to the development work.
2881 Other particular tasks identi fied in the Agreement for the
relevant committees included monitoring the pr ogress of the various phases of the project, 2882 and
discussion of compensation proposals in the event that a balanced divisi on of production was not
achieved.2883
The 1994 Agreement
7.546 The same five governments concluded a very si milar agreement concerning the development,
production and sales financing of the A330/A340 on 25 and 26 April 1994. 2884 The Agreement
comprised fourteen Articles covering essentially the sa me matters set out in the 1991 Agreement, but
applying them to the A330/A340. 2885 It identified each government's maximum expected financial
contribution to the development project,2886 and prescribed that final amounts would be determined by
the AIC, in the light of estimates obtained from Airbus Industrie. 2887 Like all previous agreements,
the 1994 Agreement stipulated that repayments of the amounts advanced by the governments would

2876 Articulo 15.1.
2877 Articulo 15.2.
2878 Articulo 3.1, 3.5 and 12.
2879 Articulo 3.1.
2880 Articulo 3.2, 3.3 and 3.4.
2881 Articulo 4.
2882 Articulo 11 (AIC).
2883 Article 9.1 (AIC).
2884 Agreement between the Governments of the French Republic, the Federal Republic of Germany,
the United Kingdom of Great Britain and Northern Ireland, the Kingdom of Spain and the Kingdom of Belgium
concerning the program Airbus A330/A340 of 25/26 April, 1994 (the "1994 Agreement") Exhibit US-28.
2885 The Agreement is structured around the following eight chapter headings: "General
Considerations"; "Organization"; "D evelopment"; "Equipment"; "Production; "Financing of the export sales";
"Derived versions"; and "Final Dispositions".
2886 Articulo 5.
2887 Articulo 6.1. The funding amounts specified in the contract were to be readjusted following a re-
adjustment formula containing respective national indexes. Article 6.2.

BCI deleted, as indicated [***]

be made from aircraft sales revenues. 2888 However, it did not specify the form or value of such
repayments.
7.547 Production was divided between the five national industries, to the extent possible, in
proportion with each government's respectiv e contribution to development costs. 2889 However, again,
the costs of production of the A330/A340 were not financed under the Agreement, but left to the
Associated Manufacturers.2890 As with the previous agreements , it was envisaged that outsourcing to
enterprises in third countries would be possible. 2891 Moreover, Airbus Industrie and the Associated
Manufacturers were required to invite all competent suppliers, especially those based in the Signatory
countries, to participate in possible equipment suppl y opportunities and to provide a list of the invited
suppliers and the reasons underlying their eventual selection to the AEA. 2892 The Agreement also
prescribed that the governments of France, Germ any, Spain and the UK would support A330/A340
export financing (the Spanish government's obliga tion being limited to purchases made by Spanish
airlines).2893 Finally, the Agreement explained that c onsultations would be undertaken to decide the
modalities for extending its provisions to derivatives of the A330/A340.2894
7.548 In terms of organisational apparatus, the sa me committees identified in the 1991 Agreement
were maintained for the purpose of implementing the governments' participation in the A330/A340
project.2895 The AEA was again tasked with enteri ng into a Framework Agreement ("Acuerdo
Marco") with Airbus Industrie GIE in order to give e ffect to all relevant provisions of the Agreement.
The Framework Agreement was required to contai n: a commitment from Airbus Industrie that,
together with the Associated Ma nufacturers, it undertook to satisfactorily complete the development
of the A330/A340 and to obtain the necessary certif icates; a definition of development work and
technical stages so that the AEA could supervise and evaluate the project's implementation; a
commitment from Airbus Industrie to provide a document, agreed with the Associated Manufacturers,
which would define respective national contributions to the development costs, as well as a calendar
of predicted expenses; a commitment from Airbus I ndustrie to provide various pieces of information
including all information necessary for the superv ision over the development programme, including
its financial statement; a commitment from Airbus Industrie that it would immediately inform the
AEA in the event of any change to the developm ent work; and the conclusion as soon as possible of
contracts between Airbus Industrie and each of the Associated Manufacturers, by virtue of which the
latter would share responsibility of Airbus Industrie before the AEA.
2896 Other particular tasks
identified in the Agreement for the relevant co mmittees included monitoring the progress of the
various phases of the project, 2897 and consideration of claims rela ting to unbalanced distribution of
production work.2898
The 2003 Agreement
7.549 The French, German, Spanish and UK governme nts entered into an agreement with
Airbus SAS on 16 June 2003 setting out certain principles and obligations applicable to the four

2888 Articulo 8 ("The respective national contributions to development costs shall be reimbursed by
Airbus Industrie from aircraft sales revenues").
2889 Articulo 10.
2890 Articulo 11.
2891 Articulo 7.
2892 Articulo 9.
2893 Articulo 12.
2894 Articulo 13.
2895 Articulo 3.
2896 Articulo 4.
2897 Articulo 11 (AIC).
2898 Article 9.1 (AIC).

BCI deleted, as indicated [***]

governments' continued support for Airbus LCA programmes.
2899 The Agreement's preamble
describes its context in the following three recitals:
"Having regard to the change in the structur e of Airbus to an integrated company and
the investment of the Four Principal Airbus Countries in Airbus national companies;
Having regard to the willingness of the Four Principal Airbus Countries to continue to
provide support to Airbus such as la unch investment, research and technology
investment and aircraft export sales financing; {and}
Having regard to Airbus' willingness to provi de information to the Four Principal
Airbus Countries for the purpose of enabling them to formulate policy relating to
Airbus and to ensure that obligations incurred when support is provided are met".
7.550 It then sets out an obligation on Airbus, upon request, to provide the AIC and/or AEC with
various pieces of information "relating to Airbus and to the Airbus Programmes", defined as "the
A380 programme, programmes launched on or after the date of this Agreement and their derivatives,
and any other Airbus programmes not covered by specific Framew ork Agreements with Airbus". 2900
The Agreement states that the purpos e of the information transfer is to enable "each of the Four
Principal Airbus Countries to formulate policy in re lation to Airbus and to ensure that obligations
incurred when support is provided are met".2901 A non-exhaustive list of ten pieces of information that
must be provided on request is included, describing information such as "financial updates relating to
each Airbus Programme and to the financial status of Airbus", "reports on Airbus Programmes
technical developments", "forecasts and effective aircraft sales detailed by customers and comparisons
with aircraft sales of Airbus' competitors", and "Airbus' business and product development
strategy".2902 A series of provisions are also included relating to confidentiality.2903
7.551 Unlike previous inter-governmental agreemen ts, the 2003 Agreement does not concern any
one particular Airbus LCA development project. It s main focus is the A380, but other unspecified
projects launched on or after the date of the Agreem ent and their derivatives were also covered. In
addition, other Airbus projects not dealt with unde r specific Framework Agre ements concluded prior
to the 2003 Agreement also fell within its scope. 2904 The Agreement takes note of the four
governments' willingness to continue to support Airbus LCA developmen t with "launch investment".
While it does not define "launch investment", the references to past Airbus LCA development projects
strongly suggests that what is intended is LA/MSF in the terms we have previously described.
However, it is clear that no commitment is made by the governments to provide "launch investment"
for any particular model of LCA.
7.552 As far as the A380 is concerned, the United States asserts that the Airbus governments had
already decided at the end of 2000 to support its de velopment by means of LA/MSF. To substantiate
its assertion, the United States points to a press release dated 15 March 2002 issued by the French
Ministre de l'Equipement, des Transports et du Logement. This press release in part reads:

2899 Agreement of 16 th June 2003 signed at Paris-Le Bourget between the Ministers of the Four
Principal Airbus Countries and Airbus, Exhibit US-122 (BCI).
2900 Articles 1 and 3.
2901 Article 3.1.
2902 Article 3.2.
2903 Article 6.
2904 We understand the latter to be a reference to th e Framework Agreements that were called for under
prior inter-governmental agreements between the AEA and Airbus Industrie.

BCI deleted, as indicated [***]

"Agreement on the financing of the Airbus A380
Jean-Claude Gayssot welcomes the signing of the protocol under which the State will
advance EUR 1,213 million to Airbus France for the development of the future A380
LCA.
For France, this signature is the realization of the decision taken at the end of the year
2000 by the various European countries con cerned to support this programme in
proportion to their respective industries' involvement in the development of the new
aircraft.
The advance is granted at market rate and will be repayable as the aircraft are
delivered. This financing therefore co mplies with all the provisions of the
European/US agreement of July 1992 gove rning support for over-100-seater aircraft
programmes ...".
2905
7.553 The United States considers that the underlined part of the above press release evidences the
existence of an accord between the Airbus gove rnments on the provision of LA/MSF for the A380.
The United States notes that during the Annex V process, the European Communities denied the
existence of any such agreement, and "did not attempt to resolv e the discrepancy between their
assertion and the French Transport Ministry's press release".2906
7.554 In terms of the A350, the United States argu es that the Airbus governments committed to
providing LA/MSF for this project by the time this panel had been established. However, we have
concluded elsewhere that the United States' asser tion cannot be substantiated on the basis of the
evidence and arguments before us.2907
Airbus Ministers Conference
7.555 The United States argues that the Airbus Ministers Conference is part of the inter-
governmental institutional structure established "t o operate for the sole and express purpose of
administering the Launch Aid Program".2908 However, the United States has advanced no evidence or
additional arguments to explain exactly how it co nsiders this body operates as a matter of fact.
According to the European Communities, the Airbus Ministers Conference is a "meeting held at the
annual aircraft shows in Le Bourget, Berlin and Farnborough" where Ministers from France,
Germany, Spain and the UK meet "to discuss a range of topics with Airbus officials – such as the
company's financial condition, the status of exis ting LCA programmes, and plans for future Airbus
LCA".
2909 While the European Communities has also no t submitted any evidence to substantiate its
factual assertions, the United States appears to accept this aspect of th e European Communities'
explanation of the Airbus Ministers Conference functions. 2910 On the other hand, the United States
does not accept the European Communities' contenti on that neither the provision of LA/MSF nor its
terms and conditions are discussed or coordinated in this body.2911

2905 Press Release, Accord pour le Financement de l'Airbus A380 , French Ministry of Transport
(15 March 2002), Exhibit US-45, (underline added).
2906 US, FWS, footnote 84.
2907 The United States' assertion that the Airbus governments had committed to providing LA/MSF of
the A350 is examined at paras. 7.296 and 7.314 of this Report above.
2908 US, SNCOS, para. 43.
2909 EC, Answer to Panel Question 172.
2910 US, Comments on EC Answer to Panel Question 172.
2911 EC, Answer to Panel Question 172; US Comments to EC, Answer to Panel Question 172.

BCI deleted, as indicated [***]

Overall assessment of the inter-governmental institutional structures
7.556 The European Communities asserts that none of the inter-gove rnmental institutions identified
by the United States provide LA/MSF or fix its terms.
2912 Moreover, according to the European
Communities, the provision of LA/MSF or its te rms and conditions are never discussed by the EC
member States governments in the various fora. The European Communities describes the present-
day function of the AIC, which it notes meets twice per year, as a "forum for Airbus GIE/SAS and the
member States to exchange information on a range of issues" including Airbus' financial status, sales
financing, technical developments, export credits, avia tion emissions and air traffic. It explains that
"in some cases, the AIC may work with Airbus GIE/SAS to allocate development work (known as
'work share') with respect to specific LCA programmes." 2913 It also asserts that the role of the AEC
has steadily declined since the late 1980s, and that its functions have now largely been subsumed
within the AIC. 2914 As regards the AEA, the European Communities discloses that it is today
"defunct", and that the Framework Agreements it used to negotiate with Airbus Industrie on behalf of
the AEC are no longer concluded. Similarly, the European Communities describes the Airbus
Ministers Conference as a meeting held once a year between Ministers from the France, Germany,
Spain and the UK, to discuss "a range of topics with Airbus officials – such as the company's financial
conditions, the status of existing LCA programmes, and plans for future Airbus LCA".
2915 Finally, the
European Communities alleges that the Permanent Working Group for Sales Financing has no nexus
with LA/MSF loans, as it addresses issues relating to aircraft sales financing and export credits.2916
7.557 According to the United States, the functions of the institutional fora identified by the
European Communities support the existence of a LA/MSF Programme with the precise content it has
defined because they all "facilitate the ultimate d ecisions by the Airbus governments to provide
Launch Aid and on what terms". 2917 The United States emphasizes that "{e}ven if the EC were
correct in its assertions {that the inter-governmental entities do not decide whether to grant LA/MSF
or its terms}", the European Communities has its elf confirmed that they "provide the support
necessary for the responsible officials to make" su ch decisions, thereby supporting the existence of
7.558 We are not persuaded by the United States' argu ments. Since their creation in 1969, the inter-
governmental institutions have played a role in admi nistering the EC member States' participation in
Airbus LCA development projects. However, this role has varied between different LCA projects in
both substance and form, becoming increasingly lim ited. For instance, whereas the Committees'
functions in respect of the earliest projects covered aspects including entering into Framework
Agreements and the establishment of "modalities" th rough which to monitor the execution of specific
repayment provisions; by the time of the A380, the role of the Committees that continued to exist 2919
was reduced to essentially the exchange of informati on. Indeed, the role of the Committees in the
development of the A380 was not prescribed in any inter-governmental ag reement because no inter-
governmental agreement was ever concluded for th e A380. Instead, an agreement requiring the
exchange of information between Airbus and the AIC and/or AEC was concluded between the Airbus
governments and Airbus SAS.

2912 EC, Answer to Panel Question 172.
2913 EC, Answer to Panel Question 172.
2914 EC, Answer to Panel Question 172.
2915 EC, Answer to Panel Question 172.
2916 EC, Answer to Panel Question 172.
2917 US Comments and EC, Answer to Panel Question 172.
2918 US Comments and EC, Answer to Panel Question 172.
2919 We note that the United States has not contested the European Communities' assertion that the
AEA is "now defunct".

BCI deleted, as indicated [***]

7.559 Over time, participation in the Committees has also fluctuated. Although invited, 2920 the UK
government did not initially participate in the Committees for the purpose of the A300 project. The
UK government was only afforded representation on the Committees in 1979, when it joined the
governments of Spain and the Netherlands, each respectively represented in the AIC since 1970 and
1971. Subsequently, the government of Belgium jo ined the A310, A320 and A330/A340 projects,
contributing development funds on the same terms ag reed with other participants in the respective
inter-governmental agreements, and accordingly recei ving representation on at least two of the three
Committees. On the other hand, the government of the Netherlands did not participate in projects
after the A310, and its representation on the Committees was limited accordingly. Thus, at most, the
evidence before us suggests that if the Committ ee's operations point to the existence of any
"Programme" of support, it would be a Programme involving the governments of Belgium (which was
granted essentially the same voting rights as Spain in respect of the A320 and A330/A340 projects)
and the Netherlands.
7.560 The agreements at issue say nothing about whether the three Airbus Committees were
involved in the development of the A330-200 a nd the A340-500/600, two models which received
LA/MSF, and therefore according to the United States ' own description, models that must fall within
the scope of the alleged LA/MSF Programme. 2921 Likewise, there is no evidence indicating that the
Committees or the Airbus Ministers Conference were involved in Airbus' launch of the A350. Indeed,
we have already concluded that the United States h as failed to demonstrate that any commitment to
provide LA/MSF for this LCA model had been made by the Airbus governments by the time of the
establishment of this Panel.2922
7.561 Like the European Communities, we see no a pparent connection between the Permanent
Working Group for Sales Financing and the provisi on of LA/MSF or the existence of the alleged
LA/MSF Programme. Moreover, on the basis of the ev idence that is before us, we cannot conclude
that the Airbus Ministers Conference is more th an what the European Communities says it is – a
forum where information is exchanged between the Airbus governments and Airbus executives.
While we have some sympathy with the United St ates' view that "it is implausible that the
governments and Airbus meet at least three times each year to discuss matters including 'the
company's financial status' but never discuss the provision of billions of Euros of government
financing representing one-third of the cost of developing an LCA model",
2923 the United States has
pointed to no evidence that directly substantiates its position. In any case, even if there were evidence
demonstrating that the Airbus governments "discu ss" the provision of LA/MSF loans in the Airbus
Ministers Conference, the weight given to such evidence would depend upon to extent to which it
could substantiate the precise content of the alle ged unwritten LA/MSF Programme. In other words,
evidence of mere discussions on the provision of LA /MSF would not alone establish the existence of
the unwritten LA/MSF Programme defined by the United States.
7.562 Finally, we note that the scope of the inter- governmental agreements that were the source of
the Airbus Committees' existence, mandates and ope rations, went beyond the provision of LA/MSF
for the purpose of LCA development. The Agreem ents also covered LCA production, outsourcing of
development and production work, equi pment supplies, sales financing, and in some cases, rules on
the purchase of engines and commitments to purchase LC As. Thus, contrary to the submission of the
United States, the Airbus Committees were not create d or continued for "the sole and express purpose
of administering the Launch Aid Program". If, in fact, the Committees do have a "sole" purpose, it

2920 See, preamble of the 1969 A300 Agreement.
2921 Although Articulo 13 of the 1994 Agreement provided that consultations would be undertaken to
decide the modalities for extending its provisions to derivatives of the A330/A340, the United States has not
argued or advanced any evidence suggesting that any such consultations or extension actually took place.
2922 See, para. 7.314 above.
2923 US, Comments on EC Answer to Panel Question 172.

BCI deleted, as indicated [***]

could perhaps be better characterized as the gene ral management and administration of the varying
participation of individual EC member States in Airbus LCA development on a project-by-project
basis.
National Bureaucracies

7.563 The United States asserts that the Airbus gove rnments maintain "ded icated bureaucracies"
that perform the administrative tasks involved in maintaining the LA/MSF "system" and which
coordinate the provision of LA/MSF to Airbus. In th e case of France, the United States argues that "a
special unit" exists (the "cellule d'avions de tr ansport de plus de 100 places") in the "Direction des
Programmes Aéronautiques Civils", which monitors Airbus and the LA/MSF "system"; participates in
the inter-governmental institutions; and admi nisters the provision of LA/MSF to Airbus. 2924 In
Germany, the United States asserts that the office of the Coordinator for the Aerospace Industry and
for Aeronautics Research, within the Federal Mini stry of Economics and Technology, is responsible
for administering the LA/MSF "system". 2925 In Spain, the United States points to the Ministry of
Science and Technology, which it contends is r esponsible for administering the "'system of
reimbursable advances'" and participating in the "'Council of Ministers of the four countries, the
{Airbus} Executive Committee and the other bodies that manage and coordinate the system'". 2926
Finally, the United States argues that the "UK Laun ch Aid system" is administered by the "aerospace
team" located within the Aerospace and Defence Unit of the Department of Trade and Industry. The
United States contends that this Unit is responsible for "'relations with civil aerospace companies, and
launch investment'".2927
7.564 According to the European Comm unities, the "cellule d'avions de transport de plus de 100
places" that exists within the Direction des Progra mmes Aéronautiques Civils ("DPAC") consists of
one staff member. DPAC functions within the Di rection Générale de l' Aviation Civil, and is
responsible for international co-operation in aeron autics and civil aviation, air safety, air traffic
management, R&T for the aerospace sector a nd external communications. The European
Communities asserts that the single staff member working in the "cellule d'avions de transport de plus
de 100 places" passes 40% of his time on matters relating to LA/MSF loans for Airbus, with the
remainder being devoted to a range of policy and other issues relating to the LCA industry. 2928 In
Germany, the European Communities explains th at the "aerospace industry and technology" unit
within the Coordinator for Aeronautics and Spa ce, is responsible for various tasks including
evaluating requests for government financing such as LA/MSF and export credits, providing
information to Parliament and the public on aer onautics matters, administering existing financing
instruments, implementing the federal R&T progra mme, and addressing an array of issues relating to
national and international air transport. The European Communities states that 10 staff members
work in this unit, with two devoting approximate ly 30% of their time to the LA/MSF loans provided
to Airbus and other entities.
2929 In Spain, the European Communities asserts that approximately 50%
of the work carried out by one of eight staff member s in the Aeronautics Department of the Centre for
the Development of Industrial Technology ("CDIT") , located within the Ministery of Industry,
Tourism and Trade, relates to LA/MSF loans for Airbus. The European Communities notes that the
CDIT is responsible for the promotion of R&D activities in all sectors of the economy. 2930 Finally,
the European Communities explains that out of a to tal of 18 staff working for the Aerospace, Marine
and Defence unit of the UK Department of Bu siness, Enterprise and Regulatory Reform, the

2924 US, FWS, para. 97; US, SNCOS, para. 44; US, Answer to Panel Question 137; Exhibit US-50.
2928 EC, Answer to Panel Question 172.
2929 EC, Answer to Panel Question 172.
2930 EC, Answer to Panel Question 172.

BCI deleted, as indicated [***]

equivalent time of 1.4 staff members is spent on LA/MSF loans for Airbus, and 1 staff member on
LA/MSF loans for other entities. In addition to va rious forms of government support to the aerospace
industry, the Aerospace, Marine and Defence unit is responsible for aviation emission issues, military
and marine procurement, industrial and strategic planning and aerospace research.2931
7.565 The European Communities considers that it is not surprising to find that the member States
act through "bureaucrats" when fulfilling their obligations under the LA/MSF contracts. In this sense,
the European Communities describes th e role of the national bureaucrats as "no different than that of
the 'dedicated' loan officers at a bank", declaring that "the fact that banks have employees dedicated to
considering loan requests and reviewing the on going performance of existing loans does not say
anything about the terms on which those loans are pr ovided, or suggest that future loans will be
conferred to the same recipient".2932 Thus, the European Communities explains that the essence of the
functions of the national bureaucrats is to administ er and monitor LA/MSF loans to all recipients, not
only those provided to Airbus. According to the European Communities, this involves reviewing
requests for development cost reimbursement; ensu ring that disbursements occur on time and in
accordance with contractual terms; processing repa yments; and analyzing technical and commercial
information provided by recipients, in line with the loan contracts. The European Communities
emphasizes that the bureaucrats serve only to unde rtake these functions, conduct analyses and make
recommendations. They do not decide whether to provide LA/MSF to Airbus.
2933
7.566 The evidence and arguments submitted by the pa rties on the existence and functions of the
alleged "dedicated bureaucracies" makes clear that each of the four Airbus governments currently
direct a limited amount of resources within their national civil service to th e task of managing their
participation in Airbus' LCA development projects th rough LA/MSF. In our view, it is not surprising
to find civil servants managing and monitoring th e implementation of the LA/MSF contracts. As the
lending contractual party, each government providing LA/MSF will want to ensure that its decisions
are well informed, obligations maintained and rights en forced. The fact that each of the four Airbus
governments go about doing so by engaging their r espective national civil ser vants does not, in our
view, provide support for the existence of th e unwritten LA/MSF Programme the United States
describes. The resources the four EC member States have allocated are not exclusively dedicated to
LA/MSF for Airbus, and it is clear that this is not the focus of the administrative entities housing the
relevant bureaucracies. Moreover, there is nothing in the evidence to indicate that the relevant civil
servants co-ordinate their actions, or assist in co -ordinating the actions of their governments, in
respect of LA/MSF provided to Airbus. Neither is it apparent from the evidence and arguments that
they participate in any "system" of LA/MSF. Thus , while the existence of bureaucrats involved in
managing each government's participation throu gh LA/MSF in Airbus' LCA development activities
does not contradict the existence of the allege d unwritten LA/MSF Programme, we consider that, on
its own, this fact provides little, if any, support for the United States' position.
Statements by EC, EC member State and Airbus officials and employees

7.567 The United States submits that various statements made since 2000 by the EC member States,
the European Commission and Airbus officials confirm the existence of the challenged LA/MSF
Programme.2934 In particular, the United States identifies the following statements by:

2931 EC, Answer to Panel Question 172.
2932 EC, Answer to Panel Question 172.
2933 EC, Answer to Panel Question 172.
2934 US, FWS, paras. 102-104.

BCI deleted, as indicated [***]

French President Jacques Chirac, January 2005 –
"The A380 is the success of European industrial policy, which has
helped make Airbus the world's leading aircraft manufacturer",
reported in Aviation Week & Space Technology,
24 January 2005.
2935
British Prime Minister Tony Blair, January 2005 (same day as President Chirac) –
"The A380 is the result of unprecedented co-operation between the
four countries ... ", reported in Airbus Press Release dated
18 January 2005.
2936
European Commission, 19 January 2005 –
"... for the EU, the A380 represents the fruit of European state-level
co-operation"2937
UK Secretary of Trade and Industry, Stephen Byers, 2000 –
"This is the largest ever Government investment in a project of this
kind, and reflects our approach to industrial policy. We are not
standing to one side and leaving everything to the market, nor
intervening to prop up failing industries ... ", reported in Daily
Record, 14 March 2000.
2938
European Commission, October 2003 –
"However, the member States will retain a crucial responsibility for
providing support in terms of R&D programmes, repayable launch
aid and contributions to ESA programmes, as well as remaining the
industry's major customers through defence procurement."
2939
European Commission, May 2005 –
"In the view of the Commission, the launch investment is WTO legal
and as things stand it is part of the commercial landscape for aircraft
development in the EU", reported by Agence France Press,
19 May 2005.
2940
French Transport Minister, Gilles de Robien, May 2005 –
 "The French state has given its financial support to the A380
programme and we expect to continue in this vein thanks to the help
of the European Union which is using all means at its disposal

2935 Exhibit US-58.
2936 Exhibit US-44.
2937 Exhibit US-43
2938 Exhibit US-64.
2939 Exhibit US-59.
2940 Exhibit US-60.

BCI deleted, as indicated [***]

against American pressure", reported by AFX News Limited,
24 May 2005.2941
EADS spokesman, Rainer Ohler, June 2006 –
"'As far as we can see, the negotiati ons have not led to anything,' ...
He stopped short of saying that Airbus would request the aid – which
could run into billions of euroes – but called the money
'indispensable' for establishing what he called a level playing field
with Boeing. 'Launch aid is the only available system right now', he
said", reported in International Herald Tribune, 19 June 2006.
2942
Airbus Ministers, 24 July 2006 –
"reaffirmed their agreement to support Airbus to continue to innovate
and to develop programmes in the context of international
competition."
2943
French Prime Minister, Dominique de Villepin, 2006 –
On the role of the state in EADS, "{the state is there} to defend a
strategic long term vision, which is guarantor of jobs and economic
dynamism of the company. I can ensure you that the State will fully
14 November 2006.
2944
Airbus CEO, Louis Gallois, March 2007 –
"We are not putting away refundable launch investment" (in the
context of the A350XWB), reported by AFP.2945
7.568 The European Communities rejects the United States' reliance on these statements, arguing
that they do not demonstrate the four EC member State governments adopted any rules of general and
prospective application governing the grant of LA/MSF, and thus any unwritten LA/MSF
Programme.2946
7.569 A first observation that may be made in respect of the above statements is that none contains
any explicit reference to the existence of any type of unwritten LA/MSF Programme. Second, the
particular context of each statement is, for the most part, either the A380 or the possibility of LA/MSF
for the A350. So, for example, the statements ma de by the UK Secretary of Trade and Industry,
Stephen Byers, and the French Minister for Trans port, Gilles de Robien, relate to the respective
government's decisions to provide LA/MSF for one project – the A380.
2947 Likewise, the statements
made by President Chirac, Prime Minister Blair and the European Commission referring to "European

2941 Exhibit US-61.
2942 Exhibit US-62.
2943 Exhibit US-63.
2944 Exhibit US-638, English translation provided by the United States.
2945 Exhibit US-449.
2946 EC, Comments on US Answer to Panel Questions 136 and 137.
2947 The declaration made by Louis Gallois, Airbus CEO, that Airbus was "not putting away refundable
launch investment" can be viewed in a similar light, name ly, as a statement that Airbus considered LA/MSF to
be a possible source of financing for one project – the A350.

BCI deleted, as indicated [***]

industrial policy", "unprecedented co-o peration between the four countries"
2948 and "the fruit of
European state-level co-operation" 2949 do not suggest the existence of any coordinated system of
LA/MSF funding for Airbus LCA projects. Rather, th ey simply disclose that four EC member State
governments co-operated with each other for the purpose of realizing one project – the A380.
Moreover, these statements do not single out the pr ovision of LA/MSF by each individual member
State as the tool through which they cooperated. Indeed, given the variety of support measures taken
for the A380 by each of the four EC member States 2950, it is quite plausible that what the authors of
the statements had in mind was co-operation in th e sense of support, in all its guises, for the A380.
We see the reaffirmation of the Airbus governments' "agreement to support Airbus to continue to
innovate and to develop programmes in the context of international competition" in essentially the
same light, that is, as a statement expressing ongoing support, in general, for Airbus LCA
development projects. Thus, at most, the above statements seem to reflect only a shared desire to
support the A380 and A350 projects and Airbus' LCA business in general.
7.570 The European Commission's 2003 observation that "member States will retain a crucial
responsibility for providing support in terms of R&D programmes, repayable launch aid and
contributions to ESA programmes, as well as re maining the industry's major customers through
defence procurement"
2951 was made in the context of a Communication expressing the Commission's
point of view on how the EU could play a role in fostering an improved environment for the purpose
of enhancing the operation of the EC aerospace industry in genera l. In terms of LA/MSF, the
Communication notes only that, in the Commission's vision, the EC member States would "retain a
crucial responsibility for providing" "repayable launch aid". To read this statement as support for the
existence of the unwritten LA/MSF Programme describe d by the United States would, in our view, be
stretching its intended meaning beyond what may be reasonably inferred from its plain language and
context. Similarly, the statement made by French Prime Minister, Dominique De Villepin, quoted by
the United States, was made in r esponse to a question asking him wh ether, in the light of recent
setbacks, the French government would use its repr esentative on the board of EADS to exercise more
rigorous control.2952 In this light, it is difficult to understand the French Prime Minister's statement as
providing any support at all for the existence of the alleged unwritten LA/MSF Programme measure.
7.571 Finally, the statements that perhaps do lend a degree of support to the United States' factual
assertion, in the sense that they could be underst ood to be consistent with the existence of an
unwritten LA/MSF Programme measure, without substantiating its existence, are those made by the
EC Commission and the EADS spokesman identifying LA/MSF as "part of the commercial landscape
for aircraft development in the EU" or "the only av ailable system right now'". However, because the
time horizon of the "commercial landscape" or "system" considered in these statements is not
revealed, it is difficult to attribute to them any positive probative value for the purpose of
substantiating the United States' allegations.
Perceptions of Credit Rating Agencies

7.572 The United States submits that the existence of the LA/MSF Programme is also evidenced by
what it asserts is the fact that credit rating agenci es see it as an established feature of the financial

2948 Exhibit US-44.
2949 Exhibit US-43.
2950 Apart from LA/MSF for the A380, other support measures applied by the four EC member States
that are the subject of th is dispute include various research and development grants, the provision of
infrastructure and one loan from the European Investme nt Bank. The United States complaint against these
measures is evaluated in the following sections of this Report.
2951 Exhibit US-59.
2952 Exhibit US-638 ("In the light of recent setbacks, will the State use its representative on the board of
the aeronautic and defence group to exercise more rigorous control over EADS?")

BCI deleted, as indicated [***]

landscape that informs their projections of Airbus' financial health. 2953 In particular, the United States
points to the following statements made by:
Moody's, 15 March 2002 –
"The new rating also reflects the forecast that Government support in
the form of refundable advances will continue for the development
programs of Airbus for up to 1/3 of the development cost of each
new aircraft program; thus offsetting some of the pressure on the
company's cash flows over the near-term".
2954
Moody's, 6 February 2003 –
"EADS's A3 long-term debt rating reflects the leading worldwide
market positions held by several of its businesses, as well as the
company's strong balance sheet, wh ich should remain solid during
the current severe downcycle in the commercial aircraft market. The
rating also considers the expect ation for continuing government
support, which is primarily in the form of refundable advances for up
to 1/3 of the development cost of each new aircraft program on the
Airbus level."
2955
Moody's, 9 March 2007 –
"Moody's considers EADS as a Government Related Issuer (GRI)
and as part of its rating review has increased the level of support for
EADS to High from Medium. The change in the support assessment
reflects the higher degree of government support for EADS that has
become evident in the course of the company's current financial
challenges. ... "
2956
Moody's, 12 March 2007 –
"Moody's has raised the level of potential support from medium-high
to high to reflect the accumulation of indices that Airbus is perceived
as economically, socially and politically critical for a wide range of
stakeholders" noting "an entren ched inclination for state
protection".
2957
Fitch Ratings, 15 November 2006 –
"With the A380 delays significantly reducing cash generation, and
the deferrals and cancellations to further reduce it, combined with the
buyout of BAE and the increased co sts associated with designing the
all-new A350XWB versus the origin al A350 concept, Airbus may be
forced to seek additional launch aid for the A350XWB. In a vacuum,
additional launch aid would be viewed favourably from a credit

2953 US, FWS, para. 104; US, FNCOS, paras. 24-25; US, SNCOS, para. 46; US Answer to Panel
Question 137.
2954 Exhibit US-57.
2955 Exhibit US-56.
2956 Exhibit US-464.
2957 Exhibit US-450.

BCI deleted, as indicated [***]

perspective, as well. Unfortunate ly, the continuing trade dispute
between the United States and the EU regarding Boeing and Airbus
subsidies continues, and additional launch aid to Airbus would only
increase tensions and reduce the likelihood of a negotiated
settlement".
2958
Credit Suisse, 15 June 2006 –
"Airbus is the second largest civil ai rcraft manufacturer after Boeing,
with a market share within the range of 50% and rising. Supported
by a European government launch aid, Airbus has developed an
extremely competitive product range, competing with Boeing in all
segments..."
2959
7.573 The European Communities argues that the credit rating agencies' statements do not support
the existence of the unwritten LA/MSF Programme de fined by the United States because they do not
take into account the specific terms of individual LA/MSF contracts. In its view, the credit rating
agencies' statements represent br oad assessments of LA/MSF without any consideration of its precise
details,2960 that express an expectation that past individual instances of "government support" might be
repeated in the future. 2961 However, the European Communities considers that an expectation that
past government action might be repeated in the future does not demonstrate the existence of a
general rule taking the form of the unwritten LA/MSF Programme challenged by the United States.
7.574 We find the above statements provide little, if any, support for the existence of the unwritten
LA/MSF Programme defined by the United States. Fi rst, we note that two of the statements do not
even mention LA/MSF. In particular, the two Moody's statements made in 2007 indicate only a
general expectation of government support for EADS and Airbus. As we have previously noted,
LA/MSF is but one of the instruments used by th e EC governments to support Airbus' LCA business.
Moreover, it would not be unreasonable to read th e Moody's statements as referring to support from
all EU public entities, not only the governments of France, Germany, Spain and the UK. Certainly,
there is no indication that their focus was limited to support provided only by these four governments.
To the extent that the other statements do mention LA/MSF, we agree with the European
Communities that the fact that the credit rating agen cies and Credit Suisse could not have been aware
of its precise details, and in particular, the extent to which any contract may involve below-market
interest rate terms, reduces their probative value. Because LA/MSF does not involve non-commercial
financing by definition, it does not automatically follow that the statements should be understood as
referring to LA/MSF on the same four "core" terms identified by the United States. In any case, as
regards the two Moody's statements from 2002 and 2003, the perception articulated is that LA/MSF
would continue for "each new aircraft program".
2962 It is a forward looking assessment, that does not
address whether or not instances of LA/MSF received in the past were part of a broader unwritten
LA/MSF Programme. Similarly, the Fitch Ratings statement speculates only that additional LA/MSF
might be a possibility for the A350. Finally, the statement from Credit Suisse simply observes that
the Airbus family of LCA was developed with the support of LA/MSF. The statement does not reveal
or suggest whether LA/MSF support was provided individually by the relevant EC member States or
through the application of any kind of LA/MSF Pr ogramme. Thus, we do not consider the Credit
Suisse statement to demonstrate a perception that the four relevant EC member States have acted
through the unwritten LA/MSF Programme measure that is challenged by the United Sates.

2958 Exhibit US-451.
2959 Exhibit US-465.
2960 EC, SWS, paras. 111-112.
2961 EC, Comments on US Answer to Panel Questions 136 and 137.
2962 Emphasis added.

BCI deleted, as indicated [***]

(ii) Conclusion
7.575 We have explained that in order to establis h the existence of the alleged unwritten LA/MSF
Programme it has described, the United States must dem onstrate at least its precise content, that it is
attributable to governments of France, Germany, Spain and the UK, and that it has general and
prospective application.2963 Although the United States argues that the Panel need not necessarily find
that the alleged LA/MSF Programme has general and prospective application in order to establish its
existence,2964 we recall that the United States has e xplicitly described the challenged LA/MSF
Programme as a measure that "' creates expectations among the public and among private actors',
demonstrating that it has 'normative value'". 2965 In other words, the alleged "normative value" of the
challenged LA/MSF Programme is a central element of the alleged measure that the United States
describes. In our view, this alleged "normative valu e" must therefore be demonstrated as a matter of
fact in order for us to find in favour of the United States.
7.576 Overall, having carefully reviewed and consid ered the evidence and arguments advanced by
the United States, we are not convinced that the Un ited States has met the "high threshold" that must
be overcome in order to establish the existence of the alleged unwritten LA/MSF Programme.
7.577 Individually, no piece or category of evidence relied upon by the United States positively
demonstrates the existence of the alleged unwr itten LA/MSF Programme. Some pieces of evidence
appear not to be inconsistent with the existence of an unwritten Programme of the kind described by
the United States. However, other evidence is clearly contradictory. Thus, while the facts
surrounding the development of Airbus LCA show a history and general policy to support Airbus
through LA/MSF, this support has not always been expressed by the same four EC member States or
for the same LCA projects. Likewise, the institu tions created under the first inter-governmental
agreements to manage the different Members' participation in vari ous Airbus LCA projects have at
different times involved fewer or more countries th an the four EC member States the United States
asserts systematically operated the unwritten LA /MSF Programme. Importantly, the functions of
these institutions evolved over the years, becoming more limited by the time of the A380. Apparently
the institutions were not used at all to manage LA/MSF provided for the A330-200 and A340-500/600
projects.
7.578 As we have previously explained, the eviden ce and arguments advanced by the parties do not
lead us to conclude that LA/MSF, by definition, involves below-market financing. Therefore, in our
view, it cannot be concluded with the degree of certa inty needed to overcome the "high" evidentiary
threshold that the United States must satisfy that any LA/MSF granted in the future will involve non-
commercial interest rates. In addition, we note that several of the statements relied upon by the
United States evidence a general perception that Ai rbus has been and will be supported in its LCA
operations by the EC member States. However, in our view, a perception that government support
will be available for Airbus does not prove that th is support will be implemented by means of the
unwritten LA/MSF Programme described by the United St ates. Moreover, it is less than clear that the
temporal horizon of many of the statements referre d to by the United States covered all Airbus LCA
projects since 1969. Indeed, many of the statements were expressly focussed on only the A380 or the
A350.

2963 See, paras. 7.514 - 7.521 above.
2964 US, Answer to Panel Question 136.
2965 US, FNCOS, para. 25, citing Appellate Body Report, US – Oil Country Tubular Goods Sunset
Reviews, para. 187. See also US, SNCOS, para. 36, and US, FWS, para. 106, where the United States concludes
that "{i}n the light {of the evidence}, the specific content of {the} Launch Aid program and the future conduct
it will entail is clear". (Emphasis added).

BCI deleted, as indicated [***]

7.579 Thus, for all of the above reasons, we find that the totality of the evidence and arguments the
United States has advanced does not demonstrat e the existence of the alleged unwritten LA/MSF
Programme.
7.580 Had we found that the United States did not ha ve to establish the general and prospective
application of the alleged unwritten LA/MSF Pr ogramme, our conclusion would be the same –
namely, that the United States has not demonstr ated that such an unwritten LA/MSF Programme
exists. First, we note that in general terms, a "programme" may be described as a planned series of
events. Thus, we query whether a "programme" of any kind can exist without having general and
prospective application. Second, it is not entirely clear to us what the Un ited States means when it
argues that the evidence it has adduced supports the existence of an unwritten LA/MSF Programme
that is not of general and prosp ective application. If the focus of the United States' position is the
repetition of the same government acti on over a limited period of time, ( i.e., the Airbus governments'
provision of LA/MSF to Airbus, whenever sought, on the same four core terms between 1969 and
2002), we recall our view that the mere repetition of the same government action over time does not
necessarily demonstrate that the government acted pursu ant to a rule that applied generally over that
same period.
2966 Moreover, there is evidence that points to the non-existence of any such unwritten
LA/MSF Programme, including: the fact that between 1969 and 2002 the same four EC member
States did not always participate, or participated with other EC member States, in Airbus LCA
projects funded through LA/MSF; the evolving role and function of the inter-governmental
institutions; and the fact that the latter were not apparently used for the purpose of the LA/MSF
provided for the A330-200 and A340-500/600. Thus , on the basis of our understanding of the United
States' argument, we find that the facts do not substantiate its claim.
7.581 Having concluded that the United States has not demonstrated the existence of the alleged
unwritten LA/MSF Programme, we need not evaluate the United States' claims that the alleged
Programme is a subsidy that causes adverse effects to its interests within the meaning of Article 5 of
the SCM Agreement. Accordingly, we dismiss the United States' complaint against the alleged
unwritten LA/MSF Programme.
4. Whether LA/MSF for the A380, A340-500/600 and the A330-200, constitutes, in each
case, a prohibited export subsidy within the meaning of Article 3 of the SCM Agreement
(a) Arguments of the United States
7.582 The United States claims that the LA/MSF cont racts for the A380, the A340-500/600 and the
A330-200 constitute prohibite d subsidies under Article 3 of the SC M Agreement. In particular, the
United States submits that each of these instances of LA/MSF involves a subsidy that is contingent,
both in law and in fact, upon anticipated export perf ormance within the meaning of Article 3.1(a) and
footnote 4 of the SCM Agreement, and therefore, pursuant to Article 3.2 of the SCM Agreement,
must not be granted or maintained. According to the United States, irrespective of whether its claim
is viewed as one of in law or in fact export conti ngent subsidies, the elements are the same: the EC
member State governments provide subsidies in the form of financing for the development of LCA
models on terms that are better than what Airbus could obtain in the market; these subsidies are
provided through contracts in which funding is tie d to Airbus making repayments over a specified
number of sales of the LCA model being financed; and, in each case, the number of sales that must be
made for Airbus to fulfil its repayment commitment cannot be reached without exporting.
2967
7.583 Relying on the Appellate Body's findings in Canada – Aircraft, the United States argues that
a determination that a subsidy is contingent upon export performance involves proving three

2966 See, para. 7.532 above.
2967 US, FWS, paras. 343-386; US, Answer to Panel Question 10.

BCI deleted, as indicated [***]

elements: (i) the "granting" of a subsidy; (ii) that is "tied to"; (iii) "actual or anticipated exportation or
export earnings". 2968 To the extent that it has demonstr ated that each of the challenged LA/MSF
measures amount to subsidies within the meani ng of Article 1 of the SCM Agreement, the
United States asserts that the first elem ent of this test has been satisfied. 2969 As regards the third
element, the United States submits that for each of the challenged LA/MSF measures, the EC member
State governments anticipated that the financed projects would result in exportation or export earnings
because they were fully aware of the global nature of the LCA market and the fact that Airbus is a
highly export-oriented company, as evidenced by, inter alia, information contained in Airbus' Global
Market Forecasts, Airbus' LA/MSF applications and the governments' own market appraisals.
2970
7.584 In terms of establishing the second element – the existence of contingency between the
granting of a subsidy and actual or anticipated export performance – the United States argues that the
legal standard that must be applied is the same for subsidies that are alleged to be contingent in law,
or contingent in fact, upon export performance. Th us, recalling certain observations of the Appellate
Body in Canada – Aircraft , the United States submits that when examining whether the grant of a
subsidy is "tied to" export performance , either in law or in fact, it is necessary to assess whether it is
"conditional" on export performance or "dependent for its existence" on export performance.
Consistent with the views of the Appellate Body, the United States notes that the type of evidence
that may be employed to demonstrate the two types of contingency will be different.2971
7.585 In respect of in law contingency, the United States concurs with the views it asserts were
expressed by the Appellate Body in Canada – Autos , where it found that contingency in law upon
export performance may be establishe d "when the existence of that condition can be demonstrated on
the basis of the very words of the relevant legisla tion, regulation or other legal instrument constituting
the measure".2972 The United States recalls, however, that th e Appellate Body explained that this did
not mean that in law conti ngency could only be established expressis verbis, but that it could also be
found "by necessary implication from the words actually used in the measure". 2973 Thus, the
United States argues that the terms and conditi ons of each of the challenged LA/MSF contracts
demonstrate in law contingency because, when read in the light of the number of LCA sales the EC
member State governments expected would be achie ved in Europe and abroad, the "words actually
used" in those contracts – in particular, the c ontractual terms tying the provision of LA/MSF to
repayment over a specific number of LCA sales – gi ve rise to the "necessary implication" that the
provision of LA/MSF is contingent, in law, upon export performance.2974
7.586 In contrast, the United States notes that a finding that a subsidy is in fact contingent upon
export performance must be " inferred from the total configurati on of facts constituting and
surrounding the granting of the subsidy, none of whic h is likely to be decisive in any given case". 2975
The United States observes that pursuant to footnot e 4 of the SCM Agreement, such facts must
establish that "the granting of a subsidy, without having been made legally contingent upon export

2969 US, FWS, paras. 344 (A380 contracts); 362 (A340-500/600 contracts); and 377 (A330-200
contract).
2970 US, FWS, paras. 345-351 (A380 contracts); 363-371 (A340-500/600 contracts); and 378-382
(A330-200 contract).
2972 Appellate Body Report, Canada – Certain Measures Affecting the Automotive Industry ("Canada –
Autos"), WT/DS139/AB/R, WT/DS142/AB/R, adopted 19 June 2000, DSR 2000:VI, 2985, para. 100, cited in US,
FWS, para. 328.
2973 Appellate Body Report, Canada – Autos, para. 100, cited in US, FWS, para. 328 (emphasis added
by the United States); and US, Answer to Panel Question 146.
2974 US, Answer to Panel Questions 10 and 146; US, FWS, paras. 352-357 (A380 contracts); 372-373
(A340-500/600 contracts); and 384 (A330-200 contract).
2975 US, FWS, para. 329, referring to Appellate Body Report, Canada – Aircraft, para. 167.

BCI deleted, as indicated [***]

performance, is in fact tied to actual or anticipated exportation or export earnings".
2976 In this regard,
the United States notes that the existence of a " tie" between the granting of a subsidy and export
performance may be demonstrated when there is a relationship of "conditionality" or "dependence"
between the subsidy and exports. 2977 The United States submits that such a relationship can be found
in the facts surrounding the decisions to provide the challenged LA/MSF measures, and in particular:
(i) the existence of a contractual tie between th e provision of LA/MSF and Airbus' commitment to
repay LA/MSF through revenues generated from LCA sales necessarily involving exports; and (ii) the
EC member State governments' anticipation of export performance.2978
(b) Arguments of the European Communities
7.587 The European Communities rejects the United States' claims, contesting both the United
States' legal argument and the inferences it has drawn from the facts it asserts and evidence it adduces.
According to the European Commun ities, in order to find that a measure is a prohibited export
subsidy within the meaning of Article 3.1(a) a nd footnote 4 of the SCM Agreement, the following
three elements must be established: (i) the requi red condition (export performance); (ii) the required
consequence (grant of a subsidy); and (iii) the required contingent relationship (contingency).2979
7.588 In respect of the first element – the require d condition of export performance – the European
Communities considers that when it comes to a ssessing whether the EC member State governments
"anticipated exportation or export earnings", within the meaning of footnote 4 of the SCM Agreement,
the term "anticipated" must be understood as meanin g "an export that has not yet taken place at the
moment when the subsidy is deemed to exis t, but {that} will take place in the future". 2980 T h u s ,
contrary to what the European Communities allege s the United States to have argued, the European
Communities contends that an "anticipated" export is not a "potential" export, but one that will take
place in the future. 2981 According to the Europ ean Communities, if this we re not the case, the export
performance condition would be fulfilled on the basi s of the mere "consideration by the granting
Member that exports might occur in the future". 2982 Therefore, were the United States correct, it
would be possible to apprehend subsidies simply because they have effects in a global market, even
though the object and purpose of Article 3.1 is to prohibit subsidies that create an incentive for
companies to favour exports and thereby distort international trade. In this regard, the European
Communities notes that the SCM Agreement addresses the adverse effects of subsidies on the interests
of other Members, including export interests, under Part III, not Part II.
2983 Thus, the European
Communities contends that the United States has based its claim on an erroneous understanding of
what "anticipated exportation or export earnings" is intended to mean. In any case, the European
Communities argues that the evidence the United St ates relies upon to prove the existence of the
required export performance condition, including the terms of the disputed LA/MSF contracts and the
market forecasts contained in various document s, shows only a concern with performance, not export
performance.2984

2976 US, FWS, para. 330.
2977 US, FWS, para. 331, referring to Appellate Body Report, Canada – Aircraft, paras. 170-171.
2978 US, FWS, paras. 352-357 (A380 contracts); 372-373 (A340-500/600 contracts); and 384 (A330-
200 contract); US, SWS, paras. 135-144; 161-209.
2979 EC, FWS, paras. 556, 567-582; EC, Answer to Panel Question 79.
2980 EC, SWS, para. 236.
2981 EC, SWS, paras. 232-250.
2983 EC, FWS, paras. 575-576 and 686-688; EC, SWS, paras. 245-249.
2984 EC, FWS, paras. 615-629 (A380 contracts), 674-677 (A340-500/600 contracts), and 678-682
(A330-200 contract) arguing, in the context of the United States' in fact export subsidy claim, that the evidence
relied upon by the United States, if at all relevant, show s "only a concern with profit, wherever it may be earned
in the global market".

BCI deleted, as indicated [***]

7.589 As far as the required consequence – the grant of a subsidy – is concerned, the European
Communities submits that in order to demonstrate the existence of a subsid y contingent upon export
performance, that subsidy must be granted as a consequence, that is, as a result of, export
performance. The European Communities argues that the United States has failed to establish that
any such subsidy was granted through the LA/M SF measures because "the consequence of the
condition being fulfilled is that {Airbus} agrees to pa y" the EC member State governments. In other
words, according to the European Communities, th e consequence of any export sale under the terms
of the LA/MSF contracts is not the grant of a s ubsidy, but "the reverse ... a 'negative subsidy'". 2985
Thus, the European Communities argues that the Unit ed States has failed to demonstrate the required
consequence because its legal argument is "ill c onceived". Moreover, the European Communities
submits that the United States errs because it allegedly bases its claim on the notion that the subsidy at
issue is the LA/MSF contract itself, when it is instead "the difference between the terms of the loan
and the relevant benchmark". 2986 The European Communities finds support for this view in the fact
that Article 4.7 of the SCM Agreement requires Me mbers found to have granted an export contingent
subsidy to withdraw the subsidy without delay. The European Communities argues that in the case of
a subsidy provided through a loan at below-market interest rates, Article 4.7 does not require the
withdrawal of the financial contribution transferre d as the loan, but only the amount represented by
the subsidy "benefit".2987
7.590 On the third element – contingency between the required condition (export performance) and
the required consequence (the grant of a subsidy) – the European Communities, like the United States,
submits that the legal standard that must be applie d is the same for subsidies that are alleged to be
contingent, either in law or in fact, upon export performance. The European Communities also agrees
with the United States that when examining whether the grant of a subsidy is contingent upon export
performance, it is necessary to assess whether it is "conditional" on export performance. 2988
Moreover, like the United States, the European Co mmunities notes that while the legal standard for
proving contingency doesn't change, the evidence re quired to demonstrate in fact or in law export
contingency may be different. 2989 In this regard, the Europ ean Communities emphasizes that
demonstrating the existence and precise content of an in fact contingency claim is "a much more
difficult task" compared with an in law claim.2990
7.591 The European Communities contends that the Un ited States has, for various reasons, failed to
demonstrate the required in fact contingency between the conditi on (export performance) and the
consequence (the grant of a subsidy). First, the European Communities submits that contrary to what
it alleges is argued by the United States, the exis tence of sales-dependent repayment terms that are
neutral as to the origin of those sales, or the fact that the EC member State governments envisaged a
return from their LA/MSF investment, cannot prove the existence of any contingency. 2991 Second, the
European Communities argues that unlike the position it contends is advanced by the United States,
the anticipation of export sales, the export orientation of Airbus, or the fact that Airbus operates in a

2985 EC, FWS, paras. 630-635 (A380 contracts), 599-601, 676-677 (A340-500/600 contracts), and 603-
604, 680-681 (A330-200 contract); EC, SWS, paras. 220-226.
2986 EC, FWS, paras. 630-635 (A380 contracts), 676-677 (A340-500/600 contracts), and 680-681
(A330-200 contract).
2987 EC, SWS, paras. 223-224, citing in support, Decision by the Arbitrator, Canada – Export Credits
and Loan Guarantees for Regional Aircraft – Recourse to Arbitration by Canada under Article 22.6 of the DSU
and Article 4.11 of the SCM Agreement ("Canada – Aircraft Credits and Guarantees (Article 22.6 – Canada)"),
WT/DS222/ARB, 17 February 2003, DSR 2003:III, 1187, paras. 3.60-3.64.
2988 EC, FWS, paras. 581.
2989 EC, FWS, para. 606.
2990 EC, FWS, para. 607, citing Appellate Body Report, Canada – Aircraft, paras. 167-168.
2991 EC, FWS, paras. 642-645 (A380 contracts), 676-677 (A340-500/600 contracts), and 680-681
(A330-200 contract).

BCI deleted, as indicated [***]

global market, are all factors that do not demonstrate contingency.
2992 Moreover, the European
Communities argues that all of these factors taken to gether cannot prove the existence of contingency
because, inter alia, the United States' assertion that full repayment of the LA/MSF contributions can
only be obtained by making the required number of sal es specified in the contracts (which themselves
can only be achieved through exports) is false due to the possibility of early repayment. 2993 In this
regard, the European Communities submits that the sales-dependent delivery terms of the LA/MSF
contracts "have nothing to do with export contingent subsidies", but rather reflect two "legitimate
commercial" considerations: (i) that deliveries of aircraft provide the most reliable indication that
sufficient cash-flow will be on hand to make repayments;
2994 and (ii) that timing repayment with
deliveries allocates the risk between Airbus and th e EC member State government in accordance with
the parties' agreement. 2995 Thus, the European Communities co ncludes that the fact that "some
deliveries will be exports is not the result of any condition imposed by {the EC member State
governments}, but is instead the result of the partic ular sources of demand in the marketplace. Any
'choice' {Airbus} has between export versus domestic sales is driven not by the measure but instead
by the location of the customers". 2996 In any event, the European Communities notes that none of the
provisions that the United States relies upon as evidence of a commitment to export oblige Airbus to
make any sales at all, let alone export sales. According to the European Communities, Airbus' right to
retain the funds advanced under each of the LA/MSF c ontracts is not subject to any condition that it
sell aircraft. Thus, the European Communities submits there can be no export contingency.
2997
7.592 The European Communities relies upon many of th e same legal and factual arguments when
contesting the United States' in law export contingent subsidy claims. 2998 Thus, the European
Communities contends that the United States has fa iled to demonstrate that the language of the
LA/MSF contracts, either on its own or by necessary implication, 2999 proves the existence of: (i) the
required export performance condition, because the te rms of the relevant measures "refer only to
sales, without favouring either domestic or export sales"; 3000 (ii) the required consequence, because
the contract terms secure repayment of the loan, and therefore do not amount to a subsidy, but rather a
"negative subsidy";3001 and (iii) the required contingency, b ecause there is no obligation on Airbus to
repay LA/MSF, 3002 and in any case, repayments may be made on an accelerated basis with income
that is not generated from LCA sales. 3003 In addition, to the extent that the United States pursues its
complaint in reliance on documents and information th at cannot be found in the text of the challenged

2992 EC, FWS, paras. 646-651 (A380 contracts), 676-677 (A340-500/600 contracts), and 680-681
(A330-200 contract).
2993 EC, FWS, paras. 653-656 (A380 contracts), 676-677 (A340-500/600 contracts), and 680-681
(A330-200 contract).
2994 EC, FWS, paras. 657-661 (A380 contracts), 676-677 (A340-500/600 contracts), and 680-681
(A330-200 contract).
2995 EC, FWS, paras. 662-664 (A380 contracts), 676-677 (A340-500/600 contracts), and 680-681
(A330-200 contract).
2996 EC, FWS, paras. 665 (A380 contracts), 676-677 (A340-500/600 contracts), and 680-681 (A330-
200 contract). Additional submissions on the arguments and evidence presented by the United States in support
of its in fact export contingent subsidy claims are set out at EC, SWS, 296-325.
2997 EC, SNCOS, para. 153; EC, Comment on United States Answer to Panel Question 145.
2998 EC, FWS, paras. 584-598 (A380 contracts), 599-602 (A340-500/600 contracts), and 603-604
(A330-200 contract); EC, SWS, paras. 258-295.
2999 EC, FWS, para. 592; EC, SWS, paras. 258-295.
3000 EC, FWS, paras. 585-588, 594-598 (A380 contracts), 599-602 (A340-500/600 contracts) and 603-
604 (A330-200 contract).
3001 EC, FWS, paras. 589, 594-598 (A380 contracts), 599-601 (A340-500/600 contracts) and 603-604
(A330-200 contract).
3002 EC, SNCOS, para. 153; EC, Comment on United States Answer to Panel Question 145.
3003 EC, FWS, paras. 590, 594-598 (A380 contracts), 599-601 (A340-500/600 contracts) and 603-604
(A330-200 contract).

BCI deleted, as indicated [***]

measures, the European Communities asks the Panel to dismiss the United States' allegations on the
ground that they are not properly constituted in law contingency claims.3004
7.593 Finally, the European Communities asks the Pane l to dismiss several allegedly "new claims"
made by the United States after the first substan tive meeting of the parties. According to the
European Communities, the United St ates, for the first time in its second written submission and then
again in its answer to Panel Question 144, referre d to various provisions of the challenged LA/MSF
contracts in support of its new "claim{} that a co mmitment to provide {LA/MSF} was given in return
for a commitment on the part of Airbus to export, and that for this reason the measure should be
construed as a subsidy contingent upon export".
3005 The European Communities submits that the
Panel is not "entitled, at this stage of the proceed ings, to re-arrange the evidence, and change or
broaden the seven distinct claims set out in th e US first written submission, which the European
Communities has rebutted".3006 Thus, the European Communities asks the Panel to set these allegedly
new claims aside on the grounds that they are inconsis tent with: (i) "Article 4 of the DSU (as regards
the inadequacy of consultations)"; (ii) "Article 6.2 of the DSU (as regards the inadequacy of the panel
request)"; and (iii) "paragraphs 5, 6 and 15 of the Working Procedures, according to which the
United States is deemed to have already presented the facts of the case and its arguments, no good
cause being even asserted let alone shown for the atte mpt at such a radical enlargement of the case at
this late stage".3007
(c) Arguments of Third Parties
(i) Australia
7.594 In Australia's view, the focus by the United States on the export propensity of the LCA
product leads to a misapplication of the Appella te Body guidance on export contingency and the
Panel's findings in Australia – Auto motive Leather II . Recalling the three elements necessary to
establish export contingency, Australia notes that evidence of the export nature of a product supports
the establishment of a relationship of conditionalit y but is not conclusive of this second element. 3008 It
further submits that the second sentence of footnote 4 to Article 3.1(a) explicitly states that the mere
fact that a subsidy is granted to enterprises which export cannot by itself support a finding of export
contingency. This, according to Australia, means that export propensity is only one of several facts to
be taken into account. Careful consideration needs to be given in the presen t case to the evidence
used to support export contingenc y and the weight it should be accorded. Australia submits that if
disproportionate emphasis is given to export propensity, this would undermine the second sentence of
footnote 4.
 3009
7.595 According to Australia, there are two main defici encies with the United States' analysis of in
fact export contingency in the present case. First, by focusing on export propensity the United States
conflates product sales generally with export sales, whic h leads to the erroneous conclusion that sales
performance is export performance. Second, the United States focuses on the contractual requirement
to repay the loan and its connection with sales performance. 3010 Australia notes that the United States
relied, inter alia, on the findings on the grant contract in Australia – Automotive Leather II to support

3004 EC, SWS, para. 268.
3005 EC, SNCOS, para. 151.
3006 EC, Comments on US Answer to Panel Question 144.
3007 EC, SNCOS, para. 149.

BCI deleted, as indicated [***]

its claim that contingency has been established. In Australia's view, the United States has misapplied
the panel's findings in Australia – Automotive Leather II.
3011
7.596 Australia argues that it is not clear on the facts presented the extent to which the repayment of
LA/MSF is mandatory. Instead, it appears that Airbus receives payment of LA/MSF whether or not
there are any sales. Therefore, the United Stat es has failed to explain why a link between the
requirement to repay the loan and sales performance establishes a tie between the grant of an alleged
subsidy and export performance.3012
7.597 Australia further contends that in fact expor t contingency must be inferred from the total
configuration of the facts constituting a nd surrounding the granting of the subsidy. 3013 Such relevant
facts could include, among other things, the motiva tions or reasons for granting a subsidy, once
objectively ascertained. For instance, according to Australia, the motivation or reason of the
government in granting the loan with a repayment requirement linked to sales performance may be a
relevant fact in determining whether any production targets in the loan contracts are linked to exports.
Hence, for Australia, the weight that should be acco rded to motivations or reasons should be assessed
on the basis of where they sit in relation to all the other evidence relating to whether subsidies were in
fact export contingent.3014
(ii) Brazil
7.598 Brazil agrees with the panel and the Appellate Body in Canada-Aircraft I . The Panel's
analysis of de facto export contingency should be based on the total configuration of the facts
constituting and surrounding the granting of the subsid y. For Brazil, to the extent supported by
relevant evidence, the motivations or reasons for granting the subsidies should be taken into
consideration by the Panel as part of this total configuration of the facts. 3015
(iii) Canada
7.599 Canada submits that the United States has failed to accurately apply the test for de facto
export contingency set out in footnote four of the SCM Agreement. 3016 In Canada's opinion, instead
of applying this test, the United States attempts to establish only that repaym ent of the financing was
tied to actual or anticipated exportation or export earnings.3017
7.600 Canada considers that the United States has obscured the locus of the inquiry when it
paraphrased the test and inserted the word "that" into it, i.e.: (1) the 'granting' of a subsidy; (2) that is
'tied to' (3) 'actual or anticipated exportation or expo rt earnings'. Canada argues that the text is clear
in establishing the locus of the "tied to" inquiry as "the granting of the subsidy". Therefore, according
to Canada, the relevance of repayment is limited to the light it sheds on whether the granting of the
subsidy was export contingent, and that repayment is not dispositive. 3018
7.601 Canada maintains that the reason why the SCM Agreement locates the "tied to" inquiry in the
granting of the subsidy rather than its repayment is because a tie between repayment of a subsidy and
sales can provide governments with an effective mechanism for establishing when repayments are due
without creating any incentive to export. It conte nds that requiring repayment of a subsidy only when

3012 Australia, Third Party Submission, paras.28-30.
3013 Australia, Third Party Oral Statement 24 July 2007, para 9, quoting Canada-Aircraft at para 167.
3014 Australia, Third Party Answer to Panel question 6 .
3015 Brazil, Third Party Answers to Questions, Para 11.

BCI deleted, as indicated [***]

export sales are made could be a device for using subsidies to develop domestic sales in preference to
export sales.3019
7.602 Canada rejects United States' attempt to associate its approach with the approach taken by the
panel in Australia – Leather . For Canada, the facts surrounding th e two cases are different because
the contract at issue in the Australia – Leather conditioned continuing grants to the beneficiary on the
satisfaction of sales targets, whic h were effectively export performance targets, where as in this case,
continuing grants are not conditioned on meeting ex port performance targets. Canada contends that
the United States errs in conflating the term s "export performance", "exportation" and "export
earnings" with the term "sales". By conflating these terms, the United States would have it that any
subsidy provided in the form of royalty-based fina ncing is prohibited if the level of anticipated
repayment factored in even a single export sale. Canada maintains that this nullifies the final sentence
of footnote four. 3020
7.603 Canada submits that the United States has pr ovided no evidence that the granting of the
financing was conditioned on full repayment. Even if such evidence was provided, for Canada, it
would be "absurd" to characterize a full repaymen t requirement as an expor t contingency. Canada
argues that every prior finding of a prohibited export subsidy was based on a positive, direct
correlation between subsidization a nd exportation. Here, the correla tion is the inverse: repayments
triggered by export sales only reduce any benefit to Airbus. 3021
7.604 In addition, Canada submits that inferring mo tivations can be a highly subjective matter,
particularly when the motivations at issue are those of a government. It refers in this context to the
Appellate Body in Japan – Alcoholic Beverages II .3022 It contends that it may be extremely difficult
for a panel to weigh the relative significance of t hose reasons to establish legislative or regulatory
intent and a panel should exercise great care in tryi ng to do so. According to Canada, a panel should
consider many relevant factors in assessing whethe r a subsidy is in fact contingent upon export
performance, depending on the circumstances of a partic ular case, based on "the total configuration of
the facts constituting and surrounding the granting of the subsidy".3023
(iv) China
7.605 China contends that the finding of in fact expor t subsidies in the form of loans, pursuant to
footnote 4 to Article 3.1(a) of the SCM Agreement, must focus on the " granting" - instead of the
"repayment" - of the loans, and that it must be shown, based on the total confi guration of the facts,
that there is a conditionality between the granting of a subsidy and the actual or anticipated export. In
this connection, China refers the Pa nel to the Appellate Body Report in Canada – Aircraft, which
clarified the three elements relevant to the finding of an in fact export contingency.3024
7.606 China adds that in case of a loan, in order to determine whether the loan constitutes a subsidy
in fact contingent upon export, it must be estab lished that the granting authority imposes a condition
based on export performance when providing the loan. Therefore, according to China, Article 3.1(a)
is not intended to prohibit the repayment of a loan contingent upon export performance. In any event,
the manner in which a debtor will repay the loan sub sequently is not relevant to the consideration of

3022 Canada, Answer to Third Party Panel Questions, para. 4 referring to Appellate Body Report, Japan
– Alcoholic Beverages II, para. 119.
3023 Canada, Answer to Third Party Panel Questions, para. 5 referring to Appellate Body Report,
Canada – Aircraft, para. 167.
3024 China, Third Party Submission, paras. 5-13.

BCI deleted, as indicated [***]

in fact export contingency of a granted loan. Rather , this issue is more relevant to the finding of a
benefit, and is not to be blurred with the granting of a loan.
 3025
7.607 Lastly, China submits that the relevant facts of a particular case must sufficiently prove the
"tie" between the "granting of a subsidy" and the "actual or anticipated exportation" and that the
export orientation of a subsidy recipient alone does not sufficiently demonstrate the existence of in
fact export contingency. 3026
(v) Japan
7.608 Japan contends that mere anticipation of future exports at the time of subsidy bestowal does
not, by itself, prove that the subsidy is continge nt upon export performance. It notes that while the
term "contingent" in Article 3.1(a) ha s the same meaning as applied to both de jure and de facto
export contingency, demonstrating the latter is inherently more difficult.3027
7.609 Japan argues that footnote 4 to SCM Agreement Article 3.1(a) is central to the Panel's
analysis in determining whether the alleged expor t subsidies are contingent in fact upon export
performance. It refers to the Appellate Body Report in Canada – Aircraft, noting that the footnote 4
test for de facto export contingency requires proof of three different substantive elements,3028 each of
which must be independently applied to the relevant facts.3029
7.610 Finally, Japan observes that the de facto export contingency analysis is necessarily fact-
intensive, and will differ based on the unique facts of each case. It notes that the Appellate Body in
Canada – Aircraft cautioned that, in performing the analysis required by footnote 4, "there can be no
general rule as to what facts or what kinds of facts must be taken into account," 3030 none of which
facts had been given undue emphasis. 3031 Hence, Japan submits that a similarly broad approach is
warranted in this dispute and that the Panel should examine the specific factual elements pertinent to
this case. 3032
(vi) Korea
7.611 Korea recalls that panels and the Appellate Body have previously addressed the issue of de
facto export subsidy on various occasions. In particular, the Appellate Body in Canada – Aircraft set
out a three element test for demonstrating de facto export contingency. Accordingly, (1) the "granting
of a subsidy" must be (2) "tied to" (3) "actual or anticipated exportation or export earnings". Korea is
of the view that, in order to establish that th e LA/MSF is "tied to" export performance, the United
States has to prove that the LA/MSF would not have been granted to Airbus, if the Airbus
Governments had known that no expo rt sales may ensue from the LA/MSF. In other words, the

3025 China, Third Party Submission, paras. 14-15.
3026 China, Third Party Submission, paras. 16-22 referring to Appellate Body Report, Canada – Aircraft
(WT/DS70/AB/R), para. 175, and Panel Report, Australia – Automotive Leather II, paras. 9.66-71.
3027 Japan, Third Party Submission, para. 23 referring to Appellate Body Report, Canada – Aircraft ,
para. 167.
3028 Japan, Third Party Submission, para. 25 referring to Appellate Body Report, Canada – Aircraft ,
para. 169 (emphasis in original).
3029 Japan, Third Party Submission, para. 25 referring to Appellate Body Report, Canada – Aircraft ,
para. 173.
3030 Japan, Third Party Submission, para. 26 referring to Appellate Body Report, Canada – Aircraft ,
para. 169.
3031 Japan, Third Party Submission, para. 26 referring to Appellate Body Report, Canada – Aircraft ,
paras. 169-70.

BCI deleted, as indicated [***]

United States has to prove that the grant of a subsidy is contingent upon export sales, and not mere
sales.3033
(d) Evaluation by the Panel
(i) The European Communities' Request to Dismiss Certain Allegedly New Claims made in the
United States' Second Written Submission
7.612 The European Communities asks the Panel to di sregard a series of allegedly "new claims"
made by the United States over a series of paragraphs of its second written submission 3034 as well as
its answer to Panel Question 144 because it considers th em to be incompatible with the United States'
obligations under Article 4 of the DSU (as regards th e inadequacy of consultations), Article 6.2 of the
DSU (as regards the inadequacy of the panel requ est), and paragraphs 5, 6 and 15 of our Working
Procedures. It is not entirely clear to us whethe r the European Communities' submissions in respect
of Articles 4 and 6.2 of the DSU are grounded in the view that the United Stat es' has advanced "new
claims" not already set out in its request for consultations and panel request, or (in the case of
Article 6.2 of the DSU) the alleged absence of any indication in the United States' panel request of the
precise evidence it relies upon to make out its in fact export contingency claims.
3035 For the reasons
articulated in the following sections, we decline th e European Communities' request on either of these
grounds. Moreover, we are also not persuaded by the European Communiti es' contention that the
relevant passages of the United States' second wr itten submission and answer to Panel Question 144
contravene paragraphs 5, 6 and 15 of our Working Procedures.
New claims allegedly not identified in the request for consultations and the panel request
7.613 We find it useful to begin our analysis by r ecalling how "claims" and "arguments" have been
defined and distinguished in previous dispute settlement proceedings. In Korea – Dairy , the
Appellate Body explained that:
"By ' claim' we mean a claim that the respondent party has violated, or nullified or
impaired the benefits arising from, an identif ied provision of a particular agreement.
Such a claim of violation must, as we have already noted, be distinguished from the
 arguments adduced by a complaining party to demonstrate that the responding
party's measure does indeed infringe upon th e identified treaty provision. Arguments
supporting a claim are set out and progressively clarified in the first written
submissions, the rebuttal submissions and the first and second panel meetings with
the parties. ...
... Both 'claims' and 'arguments' are di stinct from the 'evidence' which the
complainant or respondent presents to support its assertions of fact and
arguments."
3036
7.614 The Appellate Body has also observed that it has:

3033 Korea, Third Party Submission, para. 69-74, referring to Appellate Body Report, Canada –
Aircraft, para. 169 and 173.
3034 In particular, paragraphs 163 to 209. EC, SNCOS, paras. 148 and 153.
3035 EC, Comments on US Answer to Panel Question 14 4 where it states: "Just as a panel request must
include the identification of the measure, so, in the case of an 'in fact' claim, it must include the identification of
the precise evidence on which the in fact claim is based."
3036 Appellate Body Report, Korea – Definitive Safeguard Measure on Imports
of Certain Dairy Products ("Korea – Dairy "), WT/DS98/AB/R, adopted 12 January 2000, DSR 2000:I, 3, para.
139 (footnotes omitted).

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"... consistently distinguished between the claims of a Member regarding the
application of the various provisions of the WTO Agreement , and the arguments
presented in support of those claims. Clai ms, which are typically allegations of
violation of the substantive provisions of the WTO Agreement , must be set out
clearly in the request for the establishment of a panel. Arguments, by contrast, are
the means whereby a party progressively deve lops and supports its claims. These do
not need to be set out in detail in a panel request; rather, they may be developed in
the submissions made to the panel."
3037
7.615 In its second written submission, the United States introduces the paragraphs which the
European Communities asserts present "new claims", describing them as "an extended discussion of
the actual U.S. argument {on export contingency} to eliminate any confusion that may have been
engendered by the European Communities' res ponse to the U.S. first written submission". 3038 It then
explains its view that LA/MSF involves an excha nge of performance commitments on the part of the
parties, whereby "the government commits to di sburse Launch Aid according to a set schedule in
exchange for which the company commits to repay the Launch Aid amounts on the basis of a
specified levy per sale over an agreed-to number of sales". 3039 Finally, the United States proceeds to
"elaborate on the demonstration in its first writte n submission that the provision of the Launch Aid
subsidy is contractually tied to anticipated exportation". 3040 For each of the seven LA/MSF measures
the United States claims to be export subsidies, it fi rst recalls how in its first written submission, it
discussed their respective repayment provisions, dem onstrating how by conditioning the provision of
LA/MSF on a specific number of LCA sales that could not be achieved without exporting, the
governments "necessarily tied the aid to substantial exports". Thereafter, the United States identifies
and discusses various contractual te rms and conditions it asserts "co rroborate the existence of this
tie".3041
7.616 The United States' answer to Panel Question 144 explains the extent to which it relies upon
the same evidence to demonstrate "anticipated exportation or export earnings" and in fact contingency
upon export performance. In doing so, the United St ates repeats its view that the exchange of
performance commitments in the LA/MSF contract s demonstrates the existence of a "tied to"
relationship, and therefore export contingency. It also refers to the discussion in its second written
submission of various contractual provisions of the seven challenged LA/MSF contracts.
7.617 In our view, the passages that are the focus of the European Communities' concern do not
introduce new claims, but merely expand and explain the United States' arguments on the issue of
contingency by further articulating the United Stat es' theory of contingency and discussing various
aspects of the evidence submitted with its first writt en submission. The United States does not, in the
relevant paragraphs, complain that the European Communities "has violated, or nullified or impaired
the benefits arising from, an identified provision of a particular agreement" that was not previously
mentioned in its consultations re quest or its panel request. Indeed, the United States makes no
reference at all in the relevant passages to any pr ovision of any WTO covered agreement. Thus, to
the extent that the European Communities' concern w ith the contents of paragraphs 163 to 209 of the
United States' second written submission and its answ er to Panel Question 144 is that it introduces
"new claims" not identified in the United States' re quest for consultations a nd its panel request, we
find that it cannot be sustained.

3037 Appellate Body Report, Dominican Republic – Measures Affecting the Importation and Internal
Sale of Cigarettes ("Dominican Republic – Import and Sale of Cigarettes "), WT/DS302/AB/R, adopted
19 May 2005, DSR 2005:XV, 7367, para. 121 (footnote omitted).
3038 US, SWS, para. 162.
3039 US, SWS, para. 164.
3040 US, SWS, para. 167.
3041 US, SWS, paras. 168, 175, 182, 188, 193, 199 and 204.

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United States' alleged failure to identify in its panel request the precise facts relied upon to
make out its in fact export contingency claims
7.618 It is now well established that Article 6.2 e xplains how a complainant wanting to bring a
matter to WTO dispute settlement is required to requ est the establishment of a panel. In particular,
Article 6.2 imposes an obligation on a complaining Me mber to ensure that its panel request: (i) is
made in writing; (ii) indicates whether consultations were held; (iii) identifies the specific measures at
issue; and (iv) provides a brief summary of the le gal basis of the complaint sufficient to present the
problem clearly.3042
7.619 Apart from requiring the identification of the sp ecific measures at issue, Article 6.2 does not
call upon a complainant to additionally set out or describe the precise facts relied upon for the purpose
of establishing the merits of its claim(s). 3043 The precise facts a complainant relies upon to
substantiate its claims will typically constitute the evidence submitted in support of its complaint
during the course of a panel proceeding. Article 6. 2 of the DSU is not concerned with how or when
such evidence must be presented, but only the proper identification of "claims" and "measures" for the
purpose of ensuring that a panel request is "sufficient to present the problem clearly". In this light, we
see no legal basis to support the European Commun ities' allegation that the United States' panel
request failed to comply with Article 6.2 of the DSU because, in resp ect of its claims under
Article 3.1(a) of the SCM Agreement, the United St ates did not identify in this document the precise
facts it considers demonstrate that the alleged subsidies are in fact contingent upon export
performance.
New facts and arguments allegedly introduced in contravention of the Working Procedures
7.620 The European Communities consid ers that the United States' discussion in paragraphs 163 to
209 of its second written submission and in its an swer to Panel Question 144 introduced new
arguments and factual evidence in contravention of its obligations under paragraphs 5, 6 and 15 of our
Working Procedures. These paragraphs read:
"5. Before the first substantive meeting of the Panel with the parties, the parties
to the dispute shall transmit to the Pane l written submissions in which they present
the facts of the case, their arguments and their counter-arguments, respectively. Third
parties may transmit to the Panel written submissions after the first written
submissions of the parties have been submitted.
6. At its first substantive meeting with the parties, the Panel shall ask the United
States to present its case. Subsequently, and at the same meeting, the European
Communities will be asked to present its point of view. Third parties will be asked to
present their views thereafter at the separat e session of the same meeting set aside for
that purpose. The parties will then be allowed an opportunity for final statements,
with the United States presenting its statement first.
15. Parties shall submit all factual eviden ce to the Panel no later than during the
first substantive meeting, except with resp ect to evidence necessary for purposes of
rebuttals or answers to questions. Exceptions to this procedure will be granted upon a

3042 For example, Appellate Body Report, Korea – Dairy , para. 120; Appellate Body Report, US –
Carbon Steel , para. 125; Appellate Body Report, European Communities – Selected Customs Matters ("EC –
Selected Customs Matters"), WT/DS315/AB/R, adopted 11 December 2006, DSR 2006:IX, 3791, para. 129.
3043 This is in contrast to the provisions of Article 4.2 of the SCM Agreement, which require a Member
to include a "statement of available evidence" with a request for consultations regarding such a subsidy. We
note the European Communities makes no claim under Article 4.2.

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showing of good cause. The other party shall be accorded a period of time for
comment, as appropriate, on any new factual evidence submitted after the first
substantive meeting."
7.621 The Panel's Working Procedures used in this dispute were adopted, in accordance with
Article 12.1 of the DSU, after consultations with both the United States and the European
Communities. Apart from the references to third parties, paragraphs 5 and 6 broadly follow the
provisions set out in the Working Procedures contained in Appendix 3 of the DSU, explaining what is
expected of the parties (and third parties) in terms of the submissions that must be made leading up to
and during the first substantive meeting of the part ies. Neither of the two paragraphs requires the
parties to make all
 arguments and counter-arguments and present all supporting facts by the time of
the first substantive meeting of the parties. Whet her complaining or responding party, the arguments
and counter-arguments in respect of the claims at is sue will be first set out in the parties' first written
submission and explained orally through the statemen ts made during the first substantive meeting of
the parties. However, as para graphs 8 and 9 of our Working Pr ocedures make clear, the parties'
submissions do not end with the first substantive mee ting of the parties, and arguments will continue
to be progressively clarified and developed in the rebuttal submissions, the parties' oral statements
made at the second substantive meeting of the parti es and in response to the Panel's questions. These
paragraphs read:
"8. Formal rebuttals shall be made at a second substantive mee ting of the Panel.
The European Communities shall have the right to take the floor first, to be followed
by the United States. The parties shall submit, prior to that meeting, written rebuttals
to the Panel.
9. The Panel may at any time put questions to the parties and to the third parties
and ask them for explanations either in th e course of the substantive meeting or in
writing. Answers to questions shall be s ubmitted in writing by the date(s) specified
by the Panel. Answers to questions after the first meeting shall be submitted in
writing at the same time as the written re buttals, unless the Panel specifies a different
deadline."
7.622 There is therefore no basis in the Working Pro cedures of this Panel proceeding to support the
European Communities' contention that the United Stat es was required to present all of its arguments
by the time of the first substantive meeting of the parties.
7.623 Paragraph 15 of our Working Procedures establis hes certain rules and a precise deadline for
the submission of factual evidence. In particular, it stipulates that "all factual evidence" must be
submitted no later than during the fi rst substantive meeting, with the exception of evidence necessary
for the purpose of rebuttals or answers to questions, and any other instance where "good cause" can be
shown. Moreover, where any new evidence is admitt ed after the first substantive meeting on showing
"good cause", an appropriate period of time must be set aside for the party that did not submit that
evidence to provide its comments. One of objectives of paragraph 15 is to secure both parties' due
process rights by: (i) setting a deadline for the subm ission of "all factual evidence" supporting or
rebutting either party's claims and arguments; ( ii) allowing for the possibility that new factual
evidence may be accepted after this deadline if "good cause" is shown; and (iii) clarifying that the
acceptance of any new evidence will give rise to an appropriate period of time being afforded to the
other party to comment.
7.624 We recall that the passages in the United St ates' second written submission and answer to
Panel Question 144 that are at the centre of the European Communities' concern expand and explain
certain arguments first presented by the United Stat es in its first written submission by discussing
various aspects of evidence already submitted with its first written submission. In particular, the

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focus of the United States' discussion in the relevant passages is on various contractual provisions of
each of the LA/MSF contracts it considers to be a prohibited export subsidy. There is therefore no
doubt that the factual evidence discussed by the Un ited States had already been submitted by the time
of the first substantive meeting of the parties. More over, while it is true that the United States did not
refer to or discuss precisely the same contractual pr ovisions in submissions made prior to its second
written submission, this does not amount to the presen tation of new factual evidence, but rather the
elaboration of arguments in the light of different aspects of evidence already submitted. In our view,
the process of highlighting, examining and testing different aspects of duly submitted evidence by
either party for the purpose of supporting or rebuttin g each other's claims and arguments is a central
and indispensable element of the panel process. We can see no reason why parties should be
precluded from developing their arguments over the course of a panel proceeding on the basis of
different aspects of evidence submitted in good time.
7.625 In any case, paragraph 8 of our Working Procedur es makes clear that "rebuttals" include the
parties' second written submission presented prior to the second substantive meeting of the parties. It
follows that even assuming arguendo that it were incorrect to concl ude that the relevant passages of
the United States' second written submission and an swer to Panel Question 144 did not refer to
evidence already submitted by the first substantive meeting of the parties, the United States would not
have acted inconsistently with paragraph 15 of our Working Procedures because it was entitled to
introduce factual evidence after the first substantive meeting of the pa rties "with respect to evidence
necessary for purposes of rebuttals".
7.626 Finally, we note that the European Communiti es did in fact respond to the United States'
discussion of the various contractual provisions in its second written submission when making is oral
statement at the second substantive meeting of the pa rties. Moreover, it also had occasion to do so
when commenting on the United States' answer to Panel Question 144.
7.627 For all of the above reasons, we therefore dec line the European Communities' request to set
aside and disregard the arguments presented and evidence referred to by the United States in
paragraphs 163 to 209 of its second written submission and its answer to Panel Question 144.
(ii) Whether the LA/MSF Measures Amount to Subsid ies that are In Fact Contingent upon
Anticipated Export Performance
7.628 Although the United States makes both in law and in fact export contingent subsidy claims, it
describes its complaint as "principally a claim of de facto contingency".
3044 In addition, the United
States has explained that it is not pursuing clai ms based on the allegation of contingency upon actual
export performance. Accordingly, we begin our evaluation of the United States' challenge by
focusing on the claim that the LA/MSF measures for the A380, A340-500/600 and A330-200 amount
to subsidies that are in fact contingent upon anticipated export performance.
7.629 The prohibition on subsidies that are contingent upon export performance is contained in
Article 3.1(a) of the SCM Agreement. This Article reads:
"3.1 Except as provided in the Agreement on Agriculture, the following subsidies,
within the meaning of Article 1, shall be prohibited:
(a) subsidies contingent, in law or in fact
4, whether solely or as one of several
other conditions, upon export performance, including those illustrated in Annex I5 ...

3044 US, Answer to Panel Question 10.

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4 This standard is met when the facts demonstrate that the granting of a subsidy,
without having been made legally continge nt upon export performance, is in fact tied
to actual or anticipated exportation or export earnings. The mere fact that a subsidy is
granted to enterprises which export shall not for that reason alone be considered to be
an export subsidy within the meaning of this provision.
5 Measures referred to in Annex I as not constituting export subsidies shall not be
prohibited under this or any other provision of this Agreement."
7.630 In Canada – Aircraft , the Appellate Body held that the language of footnote 4 indicates that
"satisfaction of the standard for determining de facto export contingency … requires proof of three
different substantive elements: first, the ' granting' of a subsidy; second, 'is ... tied to ...'; and third,
'actual or anticipated exportation or export earnings". 3045 The United States relies on this guidance as
the starting point of its legal argument. 3046 Although the European Communities presents its own
interpretation of the obligations contained in Artic le 3.1(a) and footnote 4 using slightly different
terminology,3047 it shares the view that a finding of de facto export contingency requires proof of the
three elements identified by the Appellate Body. Thus, there appears to be no disagreement between
the parties as to the legal standard that must be applied when determining whether a subsidy is
contingent in fact upon export performance.3048 However, the parties' views diverge when it comes to
explaining what it means to satisfy this standa rd, and therefore, what the United States must
demonstrate in order to prove its case. Whereas the position advanced by the United States appears to
us, in general, to follow the findings and observa tions made by the Appellate Body in previous
dispute settlement proceedings,3049 in certain respects, the European Communities' analysis proposes a
somewhat different picture of how the obligations set out in Article 3.1(a) and footnote 4 of the SCM
Agreement must be understood and applied.
7.631 In its second non-confidential oral statement, the European Communities presented what it
described as "a succinct and simp le re-statement of how the Eu ropean Communities sees the overall
design and architecture of Article 3.1(a) and f ootnote 4". The European Communities expressed the
"hope{} that the Panel may return to this statement as a point of reference to guide it in its future
deliberations".3050 The European Communities drew from the contents of this oral statement to
answer Panel Question 175. The salient passages from these submissions are reproduced below:
"The European Communities invites the Panel to consider first the case of an 'ad hoc'
subsidy contingent in law upon export performance. The evid ence consists of the text
of the measure. The text of the measure provides that a subsidy is granted contingent
upon export performance. In other words, the text of the measure provides that if
there is export performance, then a subsidy is granted. That is the essence of
contingency. The measure itself constitutes the initial grant of the subsidy. The fact
of export fulfils the condition and thus completes the grant . The export occurs after
the initial grant. At the time of the initial grant, the export is an 'anticipated' export, in
the sense that it is in the future.

3045 Appellate Body Report, Canada — Aircraft, para. 169.
3046 US, FWS, para. 343.
3047 As described above at paras. 7.587 to 7.590, the European Communities argues that Article 3.1(a)
and footnote 4 contain three "requirements" – "the required condition: actual or anticipated export performance,
exportation or export earnings; the require d consequence: the gran t of a subsidy; and the required contingent
relationship (or contingency) between condition and consequence". See also, EC, FWS, paras. 567, 570-582;
EC, FNCOS, paras. 68 and 73; EC, Answer to Panel Question 79.
3048 EC, FWS, paras. 567-583.
3049 See, paras. 7.583-7.586 above; and, in particular, US, FWS, paras. 325-333; US, SWS, paras. 132-
136 and 148-160.
3050 EC, SNCOS, para. 116.

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As soon as such measure exists (that is, th e initial grant is in place), it could be the
subject of panel proceedings, and would be found to be a prohibited subsidy in law. It
would be immaterial whether or not export had occurred."3051
"... At the moment when the measure is enacted (that is, the initial grant is made) the
export might already exist or have occurred (t hat is, be actual), or the export might be
expected in the future (that is, be anticipa ted). In either case, if there is a subsidy
contingent in law upon export, it is prohibited, and this already from the moment of
initial grant
. This remains so even if the export is anticipated, but never occurs. Faced
with such a prohibited measure, a complaining Member does not have to wait for the
measure to be used before commencing panel proceedings.
Thus, the European Communities is not say ing that the export must occur before
there is a prohibited measure and panel proceedings are brought. Rather, the
European Communities is saying that the measure enacting the initial grant must
provide that the subsidy is granted continge nt upon export, and that the measure must
also provide that it is only export (whether in the past or in the future) that completes
the grant and triggers the right to receive or retain the funds unconditionally. That is
what contingency ("ifness") means. Anticipa tion or consideration or motivation (that
is, the Member grants the subsidy because it anticipates exports) is not contingency.
"'Becauseness" is not "ifness" and is not to be confused with it."
3052
In order to fully appreciate the European Communiti es "re-statement" of its interpretation of Article
3.1(a) and footnote 4, it is important to understa nd the meaning it gives to "actual or anticipated"
export performance. The European Communities su bmitted a detailed expositi on of its view on the
meaning of this term in its second written submission, where inter alia it stated:

"... the term "actual" means an export that ex ists (that is, has already taken place) at
the moment when the subsidy is deemed to exist within the meaning of Article 1 of
the SCM Agreement; whilst the term "anticipated" (also juxtaposed to the meaning of
the term "actual") means an export that has not yet taken place at the moment when
the subsidy is deemed to exist, but will take place in the future.

Dictionary meanings do not by themselves determine, but are relevant to, assessing
ordinary meaning. The Shorter Oxford English Dictionary (fifth edition 2002)
provides two non-obsolete meanings of the te rm "actual" (when used as an adjective,
as in footnote 4) : "Existing in act or fact; real" and "In action or existence at the time;
present, current.". The second of these unequivocally confirms the European
Communities' interpretation. As regards th e first meaning, the United States might
attempt to glean support for its position from th e term "real", but the term "existing",
especially when read together with the sec ond meaning, also brings the first meaning
closer to the European Communities' position. On balance, therefore, the dictionary
meanings of the term "actual" support the European Communities, not the United
States : an "actual" export is one that alr eady exists at the moment when the subsidy
is deemed to exist.
The same dictionary does not contain an entry for the precise term "anticipated"
(including when used as an adjective, as in footnote 4 of the SCM Agreement). It does

3051 EC, SNCOS, paras. 117 and 118.
3052 EC, Answer to Panel Question 175 (footnote omitted).

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contain entries for the term "anticipate" (when used as a verb) and "anticipation"
(when used as a noun).
219 All of the several dictionary meanings under the entries
"anticipate" and "anticipation" indicate a temporal connotation : "before the due
time"; "too soon"; "in advance of the time"; "future event"; "beforehand"; "earlier";
"look forward to"; "in advance of the expect ed time". This strongly supports the view
that an "anticipated" export is one that h as not yet occurred at the moment when the
subsidy is deemed to exist, and by definition is therefore envisaged to be one that will
occur subsequently.
European Communities, the grant of a subsidy that is contingent upon anticipated export performance
should be understood to mean a subsidy granted contingent upon an export that has not yet occurred at
the time of the grant of the subsidy but that will occur in the future.
7.633 Reading the entirety of the European Communities' submissions together leads us to conclude
that it is arguing that a subsidy will be contingent , in fact, upon anticipated export performance when
the total configuration of the facts show that the measure granting a subsidy requires the recipient to
satisfy a performance condition that cannot be achieved without exports, irrespective of whether those
exports (or that performance) actually takes place. Where a subsidy is granted subject to such an
obligation to perform, it is legally certain at the time of the grant of the subsidy that the recipient must
perform in order to obtain the subsidy. If it can th en be inferred from the total configuration of the
facts that the granting authority, at the same moment, anticipated that the satisfaction of the
performance obligation would involve exports, then the subsidy would be contingent in fact upon that
anticipated export performance. In the light of the European Communities' rejection of the possibility
that an "anticipated" export may be one that is expected by the granting authority, we find it difficult
to see how else an export that has "not yet taken pla ce at the moment when the subsidy is deemed to
exist, but {that} will take place in the future" can be demonstrated to exist at the time of the granting
of a subsidy. In this regard, we observe that in its own submissions, the European Communities
states:
"By arguing that the required condition is th e "anticipating of" exports – whether or
not the "anticipated" export ever "actually" (as that term is understood by the United
States) takes place - the United States is ar guing that the requireme nt of contingency
that is at the heart of the provision can be replaced by mere consideration – that is,
consideration by the granting Member that exports might occur in the future, rather

3053 EC, SWS, paras. 235 and 237-238.

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than imposition by the granting Member of a requirement that the recipient
export in order to obtain the subsidy."3054
Thus, we understand the European Communities to argue that contingency in fact upon anticipated
export performance arises when the measure granting a subsidy legally requires the recipient to
satisfy a performance condition that cannot be achieved without exports, irrespective of whether those
exports (or that performance) actually takes place. In our view, this interpreta tion of the relvant legal
standard finds no basis in the language of Article 3.1( a) or footnote 4 or the jurisprudence of previous
panels and the Appellate Body.

7.634 The ordinary meaning of the word "contingent" has been held in previous dispute settlement
proceedings to be "conditional" or "depe ndent for its existence on something else".
3055 Likewise, the
expression "tied to" has been interpreted as conno ting to "limit or restrict as to ... conditions". 3056 In
our view, these meanings do not suggest that a rela tionship of contingency between the granting of a
subsidy and anticipated exportation can only be demonstrated, in fact, when a subsidy recipient is
required to satisfy a performance obligation that ca nnot be achieved without exports. To put it
another way, we see nothing in the ordinary mean ing of the word "contingent" to support the view
that the required link between the anticipation of export performance and the granting of a subsidy
can only be established by proving the existence of a requirement to achieve that anticipated
performance. In this regard, it is instructive to recall that the subsidies found to be contingent in fact
upon anticipated export performance in the Canada – Aircraft and Australia – Leather cases were not
granted based on a requirement that exports take place in the future.
7.635 In Canada – Aircraft , the panel was asked to determine wh ether the "actual application" of
the Technology Partnerships Canada ("TPC") progr amme constituted a subsidy contingent in fact
upon export performance. The "TPC assistance" at issue involved the provision of royalty-based
financing for a number of "high technology" project s in the Canadian regional aircraft sector. The
royalty-based repayment terms of the financing cont racts before the panel required the recipients to
make repayments only if they made sales. The contracts did not require the recipients to achieve any
particular level of sales performance. Nevert heless, even in the ab sence of any such legal
performance obligations, the panel found that the "TPC assistance" constituted a subsidy contingent in
fact upon anticipated export performance. In doing so, it re lied upon 16 considerati ons derived from
the materials and arguments submitted by the parties, none of which included the existence (or not) of
any requirement or obligation to make sales. 3057 S i m i l a r l y , i n Australia – Leather , the panel was
asked to determine whether three subsidy paymen ts made under a grant contract to Howe, an
Australian automotive leather manufacturer, were con tingent in fact upon export performance. Under
the grant contract, payments were scheduled to occur in three instalments, with the first payment upon
conclusion of the contract and subsequent paymen ts to be made on the basis of Howe meeting
performance targets, including a "best endeavours" sales target. Thus, again, the subsidies at issue in
Australia – Leather did not involve a requirement to achieve any particular sales performance.
Nevertheless, the panel found, on th e basis of all the facts before it (none of which pointed to the
existence of any requirement to make sales), that the grants were contingent in fact upon anticipated
exportation.3058
7.636 In our view, limiting the scope of the prohibition on subsidies that are contingent in fact upon
anticipated exportation to only those subsidies that are granted subject to the existence of a

3055 See, Panel Report, Canada – Aircraft , para. 9.331; Appellate Body Report, Canada – Aircraft ,
para. 166.
3056 Appellate Body Report, Canada – Aircraft, para. 170.
3057 Panel Report, Canada – Aircraft, paras. 9.316-9.348.
3058 Panel Report, Australia – Automotive Leather II, paras. 9.46-9.72.

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performance obligation that can only be achieved through export sales, would create significant
potential for circumvention. It would mean that so long as Members did not include any legal
performance obligation in a contract granting a su bsidy, they could escape the disciplines of the
prohibition in Article 3.1(a), even if it could be est ablished on the basis of the facts that the grant of
the subsidy depended upon the granting authority's anticipation of export performance – that is, when
it is clear from the facts surrounding the granting of the subsidy that it was provided to a particular
enterprise precisely because of the granting authority's anticipation of exportation. For instance, a
government subsidy programme that is ostensibly open to all businesses may provide subsidies only
to those applicants indicating in their application th at exports are likely to arise. Such a programme
would not involve subsidization contingent upon any export performance requirement. However, the
fact that subsidies would be granted to only t hose entities holding export performance expectations
shows that the anticipation of export performance was in fact a condition for the granting of each
subsidy. Under the European Communities' theory of contingency, such a subsidy programme would
escape the prohibited subsidy disciplines of the SC M Agreement. In our view, the text of
Article 3.1(a) and footnote 4 does not envisage such an outcome.
7.637 Thus, we find that the European Communities' interpretation of the legal standard for
determining whether a subsidy is contingent in fact upon anticipated export performance pursuant to
Article 3.1(a) and footnote 4 cannot be sustained.
7.638 The United States has advanced a second interpre tation of the European Communities' theory
of contingency, which it argues is "deeply flawed". The United States explains:
"... the EC's theory of the two steps involved in the granting of a subsidy tied to
anticipated exportation amounts to a different legal standard for de jure export
contingency and de facto export contingency ... The EC asserts that 'if there is a
subsidy contingent in law upon export, it is prohibited, and this already from the
moment of initial grant'
. However, following the EC's reasoning, a subsidy
contingent in fact upon export performan ce – in particular, a subsidy tied to
anticipated exportation or export earnings – would be prohibited only on the basis of
the 'completing {of} the grant'. This is because it would be impossible to determine,
solely on the basis of what the EC calls the 'initial grant', whether any consequence
will flow from the occurrence or non-occurre nce of exportation; therefore, it would
be impossible to determine whether the subs idy is, in fact, tied to exportation that
'will occur'.
By contrast, an interpretation of 'anticipat ed exportation' according to its ordinary
meaning, in context, and in light of the object and purpose of the SCM Agreement is
consistent with a single legal standard for de jure and de facto export contingency.
Following that interpretation, there simply is a 'granting of a subsidy' – not an initial,
conditional grant followed by a 'completing' of the grant, whereby the grant is made
unconditional. Based on the granting of a s ubsidy, the subsidy may be found to be
contingent, either in law or in fact, upon export performance. At that point, it is
possible to determine whether the granting of the subsidy is tied to 'anticipated
exportation' – i.e., exportation that is 'expected' – whether as a matter of law or as a
matter of fact. There is no need to wait for the subsequent occurrence or non-
occurrence of exportation to determine wh ether the subsidy is in fact tied to
exportation that 'will occur'."
3059
7.639 Thus, according to the United States, the Europ ean Communities' theory of what must be
demonstrated in order to prove contingency in f act upon anticipated exportation would require it to

3059 US, Comments on EC Answer to Panel Question 175 (footnotes omitted).

BCI deleted, as indicated [***]

demonstrate that the challenged LA/MSF measures e ach involve the granting of a subsidy only once
any anticipated export performance is realized. In effect, the United States argues that the European
Communities' "if-then" 3060 standard of contingency may be u nderstood to mean contingency in the
following sense: if anticipated export performance is realized, then a subsidy will be granted. We are
not convinced that this is how Article 3.1(a) a nd footnote 4 of the SCM Agreement are intended to
operate.
7.640 In Canada – Aircraft the Appellate Body held that the standard of contingency set out in
footnote 4 requires a demonstration of "a re lationship of conditionality or dependence" 3061 between
the granting of a subsidy and export performance. One way of describing this standard may well be in
terms of an "if-then" relationship between export performance (either actual or anticipated exportation
or export earnings) and the granting of a subsidy. However, it would be wrong to conclude that this
means that the contingency standard focuses on a relationship between the realization of anticipated
export performance and the granting of a subsidy.
7.641 Among the meanings of the verb "anticipate" is "{t}ake into consideration before due time",
"{o}bserve ... before due time", "look forward to", 3062 "be aware of (a thing) in advance and act
accordingly" and "expect, foresee, regard as probable". 3063 In our view, all of these meanings suggest
the same thing: to "anticipate" exportation means to consider, expect or fores ee that exports will take
place in the future. Thus, in the specific context of footnote 4 of the SCM Agreement, "anticipated"
exportation may be understood to be exportation that a granting authority considers, expects or
foresees will occur after it has granted a subsidy. We find support for this interpretation in Canada –
Aircraft, where the Appellate Body observed that:
"The dictionary meaning of the word 'anticip ated' is 'expected'. The use of this word,
however, does not transform the standard for 'contingent … in fact' into a standard
merely for ascertaining 'expectations' of expor ts on the part of the granting authority.
Whether exports were anticipated or 'expected ' is to be gleaned from an examination
of objective evidence. This examination is quite separate from, and should not be
confused with, the examination of whether a subsi dy is 'tied to' actual or anticipated
exports. A subsidy may well be granted in the knowledge, or with the anticipation,
that exports will result. Yet, that alone is not sufficient, because that alone is not
proof that the granting of the subsidy is tied to the anticipation of exportation."3064
7.642 In our view, this passage confirms that the rela tionship of "conditionality or dependence" that
must be established is not a relationshi p between the granting of a subsidy and the realization of
anticipated export performance, but rather a relati onship of "conditionality or dependence" between
the granting of a subsidy and those expectations themsel ves. In this regard, we note that the subsidies
found to be contingent in fact upon anticipated export performance in the Canada – Aircraft and
Australia – Leather cases were not granted as a consequence of the actual realization of anticipated
exportation. In both cases, the subsidies found to be prohibited under Article 3.1(a) existed in
advance of any actual export performance being achieved. 3065 Thus, contrary to what is implied by

3060 EC, NCSOS, para. 127.
3061 Appellate Body Report, Canada – Aircraft, para. 171.
3062 The New Shorter Oxford English Dictionary, (Clarendon Press 1993), Vol. I, p. 88.
3063 The Concise Oxford Dictionary, Ninth Edition, (Clarendon Press 1995), p.53.
3064 Appellate Body Report, Canada – Aircraft, para. 172 (footnote omitted, emphasis original).
3065 In Canada – Aircraft , the panel determined that the "assistance" provided under the Technology
Partnerships Canada ("TPC") programme amounted to subsidization that was contingent in fact upon anticipated
export performance after examining whether "the factua l evidence adduced ... demons trate{d} that had there
been no expectation of export sales (i.e., no 'exportation ' or 'export earnings ') 'ensuing' from the subsidy, the
subsidy would not have been granted". The panel reje cted Canada's argument that no export contingency
existed because TPC assistance was "not conditional on ex ports taking place" by stating that "{w}hile this

BCI deleted, as indicated [***]

the United States' characterization of the European Communities' legal argument, it is not necessary to
show that expected exportati on or export earnings have actually materialized in order to establish a
relationship of contingency in fact between the granting of a subsidy and anticipated export
performance. What must be demonstrated for th is purpose is that the grant of a subsidy is
"conditional" to, or "dependent" upon, th e granting authority's export performance expectations.
Thus, the legal theory the United States considers to be advanced by the European Communities can
find no basis in the language of footnote 4.
7.643 The European Communities contends that an interpretation of footnote 4 that results in
finding that anticipated exportation may be establis hed on the basis of mere "consideration by the
granting Member that exports might occur in the future"
3066 would "effectively convert a prohibition
based on contingency into one based on some sort of 'motivation' or 'effects' based test". 3067
According to the European Commun ities, the Uruguay Round negotiators rejected the "United States'
attempts ... to secure a prohibition on subsidies having effects on exports" in Part II of the
SCM Agreement, agreeing instead to regulate the a dverse effects of subsidies on the interests of
Members, "notably via exports", under Part III of the SCM Agreement. 3068 Moreover, the European
Communities submits that such a reading "would render findings of prohibition more likely in the
case of global markets or small or export depe ndent economies, because exports would appear to
loom larger in the set of potential considerations".
3069
7.644 We disagree. In our view the European Co mmunities is confusing the question of what
contingency means with the question of what the subs idy is contingent upon. In concluding that the
reference to "anticipated exportation or export earni ngs" in footnote 4 means to consider that exports
will take place before they actually do, or to envisag e that exports may take place in the future, we are
not saying that the required contingency between the granting of a subsidy and anticipated exportation
or export earnings may be demonstrated by merely showing that a granting authority anticipated
export performance. Rather, we are saying that the required contingency may be demonstrated where
the subsidy was granted because the granting authority anticipated export performance. As the
Appellate Body noted in the Canada – Aircraft , the meaning of anticipated exportation "does not
transform the standard for 'contingent … in fact' in to a standard merely for ascertaining 'expectations'

argument may be relevant in determining whether a subsidy would not have been granted but for actual
exportation or export earnings, we find this argument insufficient to rebut a prima facie case that a subsidy
would not have been granted but for anticipated exportation or export earnings." Panel Report, Canada –
Aircraft, paras. 9.339 and 9.343, respectively, (emphasis original).
In Australia – Automotive Leather II , the panel's finding related to three grant payments provided for
under a contract between the Australian government and Howe. The first payment was made at the time the
contract was concluded ( i.e., before any actual exportation). The remaining two payments were to be made
subsequently on the condition that Howe satisfy a "best endeavours" obligation to meet certain specific sales
performance targets. Australia accep ted that each of the payments provi ded for under the contract was a
subsidy, and the panel found that each subsidy had been granted contingent in fact upon anticipated export
performance. Panel Report, Australia – Automotive Leather II , paras. 9.45 and 9.71. In coming to this
conclusion, the panel noted that it was "clear ... that continued exports, that is, anticipated exportation, was an
important condition in the provision of" the subsidies. In addition, it observed that
"{a}t the time the contract was entered into, the government of Australia was aware of {Howe's
necessity to continue and probably increase exports}, and thus anticipated contin ued and possibly increased
exports by Howe. In our view, these facts effectivel y transform the sales perfor mance targets into export
performance targets. We thus consider that Howe's anticipated export performan ce was one of the conditions
for the grant of the subsidies."
Panel Report, Australia – Automotive Leather II, paras. 9.66 and 9.67.
3067 EC, SNCOS, para. 129.
3068 EC, SWS, para. 245.
3069 EC, SNCOS, para. 129.

BCI deleted, as indicated [***]

of exports on the part of the granting authority".3070 It is clear to us, as it was to the Appellate Body in
Canada – Aircraft , that establishing whether a granting authority anticipates export performance, or
whether a relationship of "conditionality" or "depende nce" exists between the grant of a subsidy and
any such anticipation, involves two separate inquiries. We do not understand the United States to
argue anything different. Indeed, the United States has expressly stated that it "does not argue that the
governments' expectations of e xportation or export earnings alone make the provision of {LA/MSF}
contingent upon export performance".3071
7.645 Finally, another aspect of the European Comm unities' legal argument that we do not find
convincing is the view that the subsidy provided through the challenged LA/MSF contracts is the
difference between the interest rate charged under each contract and th e interest rate that would be
demanded by a market lender offering financi ng on the same or similar terms and conditions. 3072 The
European Communities relies on this argument to al lege that the United States cannot "demonstrate
that the consequence of the anticipated export" is the granting of a "subsidy" (as opposed to the
measure itself or the principal amount of the loan). 3073 According to the European Communities, the
United States cannot make out this case because the consequence of any anticipated export
performance is the repayment of the financial contributions, which does not amount to the granting of
a subsidy, but is instead a "negative subsidy".3074
7.646 We recall that Article 1.1 of the SCM Ag reement defines a "subsidy" as a financial
contribution that confers a benefit. 3075 A "subsidy" is, therefore, constituted by both a financial
contribution and a benefit. In the first section of our Repor t, we concluded that the United States has
demonstrated that each of the challenged LA/MSF m easures constitute a subsidy within the meaning
of Article 1.1. 3076 In other words, we have already found that by entering into the LA/MSF
agreements with Airbus, the EC member State governments provided Airbus with a subsidy.
Therefore, for the purpose of Article 3.1(a), the "gra nting of a subsidy" refers to the provision of
LA/MSF by the EC member State governments. It does not refer to the moment when, pursuant to
the LA/MSF contracts, Airbus is required to make loan repayments.
7.647 Thus, to the extent it is grounded in a con ception of contingency and anticipated export
performance, and a notion of what it means to grant a subsidy (in the context of a loan), that is not
contemplated in the text of Article 3.1(a) and f ootnote 4, the European Communities' interpretation of
the legal standard for determining whether a subs idy is contingent in fact upon anticipated export
performance cannot be sustained.
7.648 Correctly interpreted, the legal standard set out in footnote 4 indicates that a subsidy may be
found to be contingent in fact upon anticipated export performance, and therefore prohibited under
Article 3.1(a), when there is evidence demonstrating the existence of three di stinct elements: (i) the
granting of a subsidy; (ii) that is tied to; (iii) an ticipated exportation or export earnings. At the heart
of this legal standard is the second element, wh ich reflects the notion of contingency set out in
Article 3.1(a).3077 The meaning of "contingent" in Article 3. 1(a) is "conditional" or "dependent for its
existence upon".3078 Thus, in order to qualify as a prohibited export subsidy, the grant of the subsidy
must be conditional or dependent upon actual or anticipated export performance; or as we have put it
above, a subsidy must be granted because of actual or anticipated export performance. Article 3.1(a)

3070 Appellate Body Report, Canada – Aircraft, para. 172 (footnote omitted, emphasis original).
3071 US, SWS, paras. 135, 211-214.
3072 EC, FWS, para. 634.
3073 EC, FWS, para. 634.
3074 EC, FWS, para. 579; EC, FWS, paras. 589, 594-604.
3075 See, paras. 7.301 and 7.365.
3076 See, paras. 7.482 - 7.490.
3077 Appellate Body Report, Canada — Aircraft, para. 171.
3078 Appellate Body Report, Canada – Aircraft, para. 166.

BCI deleted, as indicated [***]

further provides that such export contingency may be the sole condition governing the grant of a
prohibited subsidy or it may be "one of several other conditions".
3079 However, it is clear that mere
anticipation of export performance on the part of a granting authority – that is, the expectation or
consideration that exportation or export earnings will take place in the future – is not enough to show
that a subsidy was granted contingent upon anticipated export performance. Similarly, the language
of the last sentence of footnote 4 indicates that the mere fact that an ente rprise exports cannot, alone,
be used to establish the required contingency. Nevertheless, the fact that a company is export-
oriented "may be taken into account as a relevant fact, provided it is one of several facts which are
considered and is not the only fact supporting a finding" of export contingency. 3080 Finally, we note
that for the purpose of establishing a case of in fact contingency, each of the three elements identified
above must be separately " inferred from the total configuration of facts constituting and surrounding
the granting of the subsidy, none of which is likely to be decisive in any given case".3081
7.649 With this legal standard in mind, we now turn to examine the United States' factual assertions
in respect of each of the challenged LA/MSF contracts on a measure-by-measure basis.
"Granting of a subsidy"
7.650 We have already found that in entering into each of the challenged LA/MSF agreements with
Airbus, the EC member State governments provided Airbus with a subsidy. The United States has
therefore established the first of the three elements it must demonstrate in order to make out its case
under Article 3.1(a). For its claim to succeed, the Un ited States must also show that the provision of
LA/MSF by each of the relevant EC member State governments ( i.e., the "granting of a subsidy") was
contingent in fact upon anticipated exportation or export earnings.
Whether the EC member State governments "anticipated exportation or export earnings"

A380
7.651 The United States argues that the evidence surr ounding the decisions of the EC member State
governments to provide LA/MSF for the A380 de monstrates not only that the governments
anticipated or expected that exportation or export earnings would result from the project, but also that
the governments knew Airbus was developing the A 380 primarily for the export market, and that
export sales would be critical to the project's success. 3082 The evidence the United States relies upon
to support its assertions,3083 and the European Communities' responses thereto,3084 are set out below:
• The United States argues that in 1999 and 2000, at the time it asserts the Airbus governments
were discussing A380 LA/MSF with Airbus, Airbus was stating publicly in its Global Market
Forecast ("GMF") that it was developing the A380 primarily for the export market by, for
example, asserting that the Asia-Pacific region would account for 55% (1999) and 57%

3079 Appellate Body Report, United States – Tax Treatment for "Foreign Sales Corporations" – Recourse
to Article 21.5 of the DSU by the European Communities ("US – FSC (Article 21.5 – EC) "), WT/DS108/AB/RW,
3080 Appellate Body Report, Canada – Measures Affecting the Export of Civilian Aircraft – Recourse by
Brazil to Article 21.5 of the DSU ("Canada — Aircraft (Article 21.5 — Brazil)") , WT/DS70/AB/RW, adopted
4 August 2000, DSR 2000:IX, 4299, paras. 48, 51.
3081 Appellate Body Report, Canada – Aircraft, para. 167.
3082 US, FWS, para. 345.
3083 US, FWS, paras. 345-351; United States, HSBI Appendix to US, FWS (h ereinafter "US, FWS,
HSBI Appendix"), paras. 29-32, 34-36; US, SWS, paras. 137-140; US, Answer to Panel Questions 10 and 144.
3084 EC, FWS, paras. 615-629; EC, SWS, paras. 298-299, 308-313; European Communities, HSBI
Appendix to EC, SWS, "EC, SWS, HSBI Appendix"), paras. 35-44.

BCI deleted, as indicated [***]

(2000) of orders, while "Europe" woul d account for 23% (1999) and 20% (2000). 3085 The
United States considers that essentially the same message was communicated in the Third
Quarter 1999 edition of the Airbus A3XX Briefing, which noted that "{t}he market for large
passenger aircraft will be concentrated: both geographically, with over half the projected
deliveries expected to go to airlines domiciled in the Asia-Pacific region, and in terms of
customers, with 20 airlines taking more than 75% of the aircraft." 3086 Moreover, the
United States submits that Airbus repeated the assertions made in the 1999 GMF in [***],
noting in particular, that [***].3087 Finally, the United States identifies "other relevant
information" in the French governme nt's "critical project appraisal". 3088 The European
Communities argues that the GMF is "simply an analytical global market forecast, regularly
prepared as part of the company's normal commercial operations, and for reasons entirely
unrelated to the matter at hand". Moreover, the European Communities points out that the
GMF refers to "Europe" (a broader market th an the "EC"). According to the European
Communities, it is impossible to infer from th e GMF that the terms of any of the A380
LA/MSF contracts vary by reference to geographical region. The European Communities
explains that the same observations are applicab le in respect of the United States' reliance on
the Third Quarter 1999 edition of the Airbus A3XX Briefing. Finally, the European
Communities notes that the 2000 GMF post-dates the conclusion of the UK A380 LA/MSF
contract.
3089

• The United States argues that the repayment provisions of the four LA/MSF contracts
anticipate a level of A380 sales substantially exceeding the 247 sales Airbus predicted in the
2000 GMF for aircraft with more than 400 seats in Europe between 2000 and 2019. Thus, the
United States notes that an annex to the German A380 contract refers to [***] forecast A380
deliveries in 20 years; 3090 and that the Spanish A380 contract refers to the expectation that
there will be deliveries of [***] passenger versions of the A380, and [***] cargo versions.3091
The United States also identifies [***] set out in the French and UK A380 "project
appraisals", as well as the Airbus business case for the A380. 3092 Moreover, the United States
also notes that the French, German, Spanish and UK LA/MSF contracts required Airbus to
make full repayment over, respectively, [***], [***], [***] and [***]
3093 A380 sales.3094 The
European Communities argues that the repaymen t provisions are origin-neutral, the company
being free to repay from the proceeds of any sal e, regardless of destination, or from other
sources, and even in advance of delivery. Moreover, the European Communities argues that
there is no requirement under the LA/MSF cont racts for any sales performance at all. 3095 In
responding to the United States reliance on the "critical project appraisals", the European

3085 Exhibits US-356 and US-358.
3086 Exhibit US-359.
3087 Exhibit US-357 (BCI). The United States note s that the European Communities did not provide
copies of the A380 LA/MSF appli cation submitted by any of the other Airbus companies. We observe,
however, that the questions asked by the Facilitator during the Annex V process did not specifically request the
European Communities to provide copies of the A380 LA/MSF applications.
3088 US, FWS, HSBI Appendix, paras. 34 and 36.
3089 EC, FWS, paras. 617-619.
3090 Exhibit US-357 (BCI).
3091 Spanish A380 LA/MSF contract, Septimo, Exhibit US-73 (BCI).
3092 French A380 project appraisal, DS316-EC-HSBI-00011434, at 9-10; UK A380 project appraisal,
DS316-EC-HSBI-0001211, at 35-36, discussed in US, FWS, HSBI Appendix, paras. 29-32. Airbus A380
business case, DS316-EC-HSBI-0001261.
3093 In fact, the UK government sought full repayment of the principal plus interest loaned under the
A380 LA/MSF contract over [***] sales. An additional [***] payment was required for sales between [***] to
[***], with [***] being owed for sales in excess of [***]. EC, FWS, paras. 432-439.
3094 US, Answer to Panel Question 10.
3095 EC, FWS, paras. 616, 620 and 621.

BCI deleted, as indicated [***]

Communities points out that the exercise of ea ch government's judgment as to the market
prospects of a particular investment is exac tly the sort of market discipline that the
SCM Agreement is in place to encourage.
3096

• According to the United States', the EC memb er State governments "specifically referenced
the global nature of the A380 project and Airbus' export sales" in various documents. 3097 In
particular, the United States refers to: (i) la nguage in the Spanish contract revealing the
[***];3098 (ii) a DTI press release stating that "{w}ithin 25 years Airbus has grown to take
55% of the civil aircraft production market and contributes £1 billion to the UK's trade
balance";
3099 and (iii) the statement reportedly made by Prime Minister Blair at the ceremony
unveiling the first A380 to the public "{t}he e xport gains will run into the billions of
pounds".3100 The European Communities argues that the media sources cited by the United
States are of low reliability (the European Communities does not admit the accuracy of any of
the press statements relied upon by the United States). The European Communities points out
that the reports cite only certain components (wi ngs) destined for other parts of the European
Communities, i.e., not exported outside of the European Communities, and that the statement
from Prime Minister Blair post-dates the contracts. As with the other documents submitted as
evidence by the United States, the European Co mmunities argues that it is impossible to infer
from the two media releases that the terms of the A380 LA/MSF contracts vary by reference
to the European Communities and the rest of the world.
3101

• The United States submits that when Airbus w as seeking LA/MSF, "it pointed to potential
export earnings and stressed the importance of the export sales to the project's success".3102 In
support of this submission, the United States asserts that [***];3103 that Airbus Senior Vice
President for Marketing John Leahy was reported in February 2000 as stating that "{a}bout
half the demand for the A3XX will come from Asia. ... I am sure that we would not be
launching it if there were not key Asian airlines on board";
3104 and that a March 2000
Article in The Economist noted Leahy's view that Asia would account for around half of the
sales of the A380, reporting that Leahy hoped "t o win launch orders from two Asian carriers,
one European or Middle Eastern airline and one American. ... encouraged by the responses
from Singapore Airlines, Cathay Pacific, Malaysia Air Lines and Emirates." 3105 T h e
European Communities argues that the cited report is of low reliability (the European
Communities does not admit the accuracy of any of the press statements relied upon by the
United States), and that it is impossible to infer from it any differentiation in the terms of the
LA/MSF contracts between the European Communities and the rest of the world.
3106

• The United States contends that the A380 is an export-oriented project and that Airbus itself
is a "highly export-oriented company", w ith over 84% of total 1992-2005 sales going to

3097 US, FWS, para. 348.
3098 Spanish A380 LA/MSF contract, Sexto, Exhibit US-73 (BCI).
3099 Exhibit US-360.
3100 Exhibit US-361.
3101 EC, FWS, paras. 622-623.
3102 US, FWS, para. 349.
3103 Exhibit US-357 (BCI). In citing this Exhib it, the United States recalls that the European
Communities did not provide copies of any other A380 LA /MSF applications. We observe, however, that the
questions asked by the Facilitator during the Annex V process did not specifically request the European
Communities to provide copies of the A380 LA/MSF applications.
3104 Exhibit US-362.
3105 Exhibit US-363.
3106 EC, FWS, para. 625.

BCI deleted, as indicated [***]

export.3107 In support of this assertion, the United States submits a chart prepared on the basis
of information derived from the Airclaims CASE database showing that between 1992 and
2005 an average of 84% of total Airbus sales of aircraft of all sizes have been export sales.3108
In addition, the United States refers to the 2000 Airbus GMF, which it asserts indicated that
"{t}he biggest share (35 per cent) of deliveries will go to airlines in North America.
European airlines will take 30 per cent, and Asia -Pacific (including PRC) airlines 24 per cent,
leaving just 11 per cent for airlines in Latin America, Africa and the Middle East." 3109 The
United States also points to a position paper pr epared by the External Advisory Group for
Aeronautics which states that the aeronautics industry in Europe "employs a huge workforce
and, through exports, contributes strongly to Europe's ability to fund other changes and to
develop the quality of life of its citizens." 3110 The European Communities argues that even
the United States recognizes that export-orientation is insufficient to demonstrate
contingency. Moreover, in respect of th e position paper, the European Communities notes
that it post-dates the UK A380 contract, and th e United States has not demonstrated how its
contents are imputable to the European Co mmunities. And, finally, the European
Communities submits that it is impossible to infer from the documents submitted by the
United States any differentiation in terms of the LA/MSF contracts between the European
Communities and the rest of the world.
3111

7.652 Having carefully reviewed and considered the evidence and related arguments advanced by
the parties, as they concern each of the challe nged LA/MSF measures, we have no doubt that at the
time that Airbus and the EC member State govern ments concluded the A380 LA/MSF contracts, the
latter were fully aware that Airbus was a global company operating in a global market, and that the
A380 project would involve Airbus selling much if not most of its production in export markets. This
is most apparent from the publicly available market forecasts cited by the United States,3112 the Airbus
A3XX Briefing, the A380 business case, the French and UK government's "critical project
appraisals", Deutsche Airbus' A380 LA/MSF applica tion, the sales expectations described in the
German and Spanish A380 contract, the langua ge in the Spanish contract revealing the [***], and the
repayment schedules of the contracts themselves, wh ich clearly envisaged that repayment would be
made over a number of sales that exceeded the Airbus market forecasts for "Europe" over a
comparable period of time. The Airclaims data s howing that the vast majority of Airbus sales
between 1992 to 2005 were made on export markets provides further support for our conclusion.
7.653 One of the main arguments made by the European Communities in responding to the
evidence advanced by the United States is that the challenged A380 LA/MSF contracts contained no
obligation on Airbus to make any export sales, or any sales at all. In addition, the European
Communities has repeatedly argued that it is impossi ble to infer from the evidence that the terms of
the LA/MSF measures varied in any way as a function of whether a sale is destined for the European
Communities or elsewhere. We do not consider this line of argument to be directly relevant to
whether the EC member State governments "anticip ated exportation or export earnings", but rather
whether the subsidy granted under those contracts was contingent on that anticipation.

3107 US, FWS, para. 350.
3108 Airclaims CASE database.
3109 Exhibit US-358.
3110 Exhibit US-364.
3111 EC, FWS, paras. 626-629.
3112 Although the European Communities notes that the 2000 GMF post-dated the conclusion of the UK
A380 contract, we note that the French, German and Sp anish A380 contracts were concluded respectively in
2002, 2002 and 2001. Moreover, we r ecall that the United States also re lies upon market forecast information
contained in the 1999 GMF that was similar to that in the 2000 GMF, and that the former document was
published in advance of the UK entering into the A380 LA/MSF contract with Airbus.

BCI deleted, as indicated [***]

7.654 Thus, even accepting that the GMF 2000 post-dated the conclusion of the UK A380 contract,
and assuming, arguendo, that the press reports and media Articles relied upon by the United States
have a relatively low probative value given th at the European Communities does not accept their
accuracy, we nevertheless conclude that the ev idence advanced by the United States clearly
establishes that at the time each of the A380 LA/M SF contracts were entered into, each of the EC
member State governments "anticipated exportation or export earnings", within the meaning of
footnote 4 of the SCM Agreement, in the sense that they expected or considered that exportation or
export earnings would result from the development of the A380.
A340-500/600
7.655 As with the A380, the United States argues th at the evidence surrounding the decisions of the
French and Spanish governments to provide LA/M SF for the A340-500/600 demonstrates that the
governments anticipated or expected that expor tation or export earnings would result from the
project.
3113 The evidence the United States relies upon to support its assertions, 3114 and the European
Communities' responses thereto,3115 are set out below:
• The United States asserts that the Spanish A340-500/600 LA/MSF contract [***].3116
Similarly, the United States argues that the Fr ench government's "critical project appraisal"
contained other relevant information, for exam ple, with respect to sales projections and
customer lists.3117

• According to the United States, in 1997-1998, Airbus was predicting that the substantial
majority of its sales of aircraft of all types over the next 20 years would be for export. In
support of this assertion, the United States points to the 1997 and 1998 GMFs, which,
respectively, predicted that European airlines would represent 25 to 29 percent of its total
orders during the period 1997 to 2016, and 25 to 28 percent of its total orders during the
period 1997 to 2017.
3118

• The United States notes that on the date of the LA/MSF contracts for the A340-500/600 were
signed, almost half of the firm orders that Airbus had already received were export sales:
Virgin Atlantic, Lufthansa and Swissair had ordered a total of 29 A340-500/600s; and Air
Canada, Emirates, ILFC (based in the United St ates), and Egyptair had ordered a total of 23
aircraft.3119 The United States points to other relevant information in the French government's
"critical project appraisal".3120

• The United States also refers to an EC State Aid decision concerning the French government's
LA/MSF for the A340-500/600, arguing that this decision noted the French government's
expectation that the development of the aircra ft would allow Airbus to compete for sales
throughout the world. In particular, the Un ited States cites the follo wing passage from that
decision: "{f}rom a global standpoint, th e A340-500/600 program will have only one

3113 US, FWS, para. 363.
3114 US, FWS, paras. 363-371; US, FWS, HSBI Appendix, paras. 46 and 48; US, SWS, paras. 137-140;
US, Answer to Panel Questions 10 and 144.
3115 EC, FWS, paras. 674-677; EC, SWS, paras. 314-316, 318-320.
3116 Spanish A340-500/600 LA/MSF contract, at 2, Exhibit US-37 (BCI).
3117 US, FWS, para. 365, referring to Exhibit DS316-EC-HSBI-0001143; US, FWS, HSBI Appendix,
para. 46.
3118 Exhibits US-366 and US-367.
3119 US, FWS, para. 367 referring to Exhibit US-368, containing data derived from the Airclaims
database.

BCI deleted, as indicated [***]

competitor- Boeing. The A340-500/600 will be able to compete with the 747-400 and 777-
300. The A340-500 will be able to compete with the Boeing 777-200GW."3121

• Finally, the United States argues, once again, that Airbus is an export-oriented company,
noting that the table of orders derived from the Airclaims database shows that in the 1992 to
1997 period ( i.e., the period predating the French and Spanish decisions to provide LA/MSF
for the A340-500/600) 86% of total Airbus sales of aircraft were export sales.3122

• The European Communities argues that the United States has provided no evidence to
demonstrate that the number of A340-500/600 de liveries needed to fully repay principal and
interest exceeds projections of demand in the European Communities for the aircraft.
According to the European Communities, th e United States has introduced no evidence
whatsoever regarding potential demand in the Eu ropean Communities for this aircraft. The
European Communities submits that for this reas on alone, the United States' claims in respect
of the A340-500/600 must be rejected.3123

7.656 Having carefully reviewed and considered the evidence and related arguments advanced by
the parties, as they concern the two challenged LA/MSF measures, we have no doubt that at the time
that Airbus and the French and Spanish gove rnments concluded the A340-500/600 LA/MSF
contracts, the latter were fully aware that Airbus was a global company operating in a global market,
and that the A340-500/600 project would involve Air bus selling much if not most of its production in
export markets. This is most apparent from the Spanish LA/MSF contract which as the United States
has noted, [***]; and information from the French government's "critical project appraisal" referred to
and discussed by the United States in the HSBI Appendix to its first written submission. The market
forecasts for "Europe" (compared with other re gions) made in the 1997 and 1998 GMFs and the
Airclaims data showing that the vast majority of Airbus sales between 1992 to 1997 were made on
export markets provides further support for our conclusion.
7.657 The European Communities submits that the United States has failed to establish "anticipated
exportation or export earnings" because it has advanced no data to demonstrate that the number of
deliveries needed to fully repay principal and in terest under the LA/MSF loans exceeds projections of
demand in the European Communities for the A3 40-500/600. Although the United States has not
specifically advanced this information, the evidence discussed in the pr evious paragraph, in our view,
clearly demonstrates that at the time each of th e A340-500/600 LA/MSF contracts were entered into,
each of the EC member State governments "anticip ated exportation or export earnings", within the
meaning of footnote 4 of the SCM Agreement, in th e sense that they expected or considered that
exportation or export earnings would result from the development of the A340-500/600.
A330-200
7.658 Again, the United States argues that the ev idence surrounding the decision of the French
government to provide LA/MSF for the A330-200 demons trates that it anticipat ed or expected that
exportation or export earnings would result from the project.
3124 The evidence the United States relies
upon to support its assertions, 3125 and the European Communities' responses thereto, 3126 are set out
below:

3121 US, FWS, para. 368 citing from Exhibit US-3.
3122 US, FWS, para. 369, referring to information derived from the Airclaims CASE database.
3123 EC, FWS, para. 675.
3124 US, FWS, para. 382.
3125 US, FWS, paras. 378-382; US, FWS, HSBI Appendix, paras. 55-56; US, SWS, paras. 137-140; US,
Answer to Panel Questions 10 and 144.

BCI deleted, as indicated [***]

• The United States points to certain information in the French government's "critical project
appraisal" for the A330-200, which it argues show s that the French government expected that
LA/MSF for the A330-200 would lead to substantial exportation or export earnings.
3127

• In addition, the United States notes that in 1995 and 1996, Airbus was already predicting that
the substantial majority of its sales of aircraft of all types over the next 20 years would be for
export. In this connection, the United Stat es refers to the 1995 GMF where it was predicted
that European airlines would represent only 28 percent of its total orders during the 1995-
2014 period.3128

• Moreover, the United States asserts that on the date that the French government signed the
A330-200 LA/MSF contract, 100 percent of the firm orders that Airbus had already received
for the A330-200 were export sales.3129

• The United States also includes, as evidence it submits shows that Airbus is an export
oriented company, the evidence it presented in th e context of its claim against the A380. In
particular, this evidence is that over 84% of total Airbus sales between 1992 and 2005 were
export sales.3130

• The European Communities argues that the United States has provided no evidence to
demonstrate that the number of A330-200 deliv eries needed to fully repay principal and
interest exceeds projections of demand in the European Communities for the aircraft.
According to the European Communities, th e United States has introduced no evidence
whatsoever regarding potential demand in the Eu ropean Communities for this aircraft. The
European Communities submits that for this reas on alone, the United States' claims in respect
of the A330-200 must be rejected.3131

7.659 Our conclusion in respect of the evidence subm itted to support the contention that the French
government "anticipated exportation or export ear nings" at the time it entered into the A330-200
LA/MSF contract with Airbus is the same as our c onclusion in respect of the LA/MSF contracts for
the A380 and A340-500/600. After careful review a nd consideration of the evidence and the parties'
arguments, we have no doubt that at the time that Airbus and the French government concluded the
A330-200 LA/MSF contract, the French government was fully aware that Airbus was a global
company operating in a global market, and that the A330-200 project would involve Airbus selling
much if not most of its production in export market s. This is most apparent from the information
contained in the French government's "critical pr oject appraisal" highlighted by the United States in
the HSBI Appendix to its first written submission. The market forecasts for "European airlines" made
in the 1995 GMF and the Airclaims data showing that the vast majority of Airbus sales between 1992
to 2005 were made on export markets provides further support for our conclusion.
7.660 Again, the European Communities submits that the United States has failed to establish
"anticipated exportation or export earnings" because it has adduced no data to demonstrate that the
number of deliveries required under each contract to fully repay principal and interest under the
LA/MSF loans exceeds projections of demand in the European Communities for the A330-200.
Although the United States has not specifically advan ced this information, th e evidence discussed in

3126 EC, FWS, paras. 678-679; EC, SWS, paras. 322-324.
3127 US, FWS, para. 379; and US, FWS, HSBI Appendix, paras. 55-56.
3128 US, FWS, para. 380, citing Exhibit US-369.
3129 US, FWS, para. 381, citing Airclaims database data contained in Exhibit US-368.
3130 US, FWS, para. 378, incorporating by cross-re ference the arguments and evidence presented in
Section IV.B.2.c of its FWS.
3131 EC, FWS, para. 679.

BCI deleted, as indicated [***]

the previous paragraph, in our view, clearly de monstrates that at the time the A330-200 LA/MSF
contract was concluded, the French government "an ticipated exportation or export earnings", within
the meaning of footnote 4 of the SCM Agreement, in the sense that it expected or considered that
exportation or export earnings would result from the development of the A330-200.
Whether the granting of the LA/MSF was "tied to" anticipated exportation or export earnings
7.661 The United States submits that various provisions of the challenged LA/MSF contracts, when
considered in the light of other relevant inform ation, demonstrate that the grant of each subsidy
measure was in fact "tied to" anticipated expor tation or export earnings, within the meaning of
footnote 4 of the SCM Agreement. The main argument advanced by the United States in support of
this submission is focussed on an alleged excha nge of commitments between Airbus and the EC
member States that necessarily involves Airbus having to make "substantial" exports. In particular,
the United States asserts that each time Airbus co ntracted with the EC member States under the
challenged LA/MSF measures, the two parties ex changed performance commitments, pursuant to
which the EC member States agreed to provide Ai rbus with development funding in accordance with
a set schedule, and in return Airbus agreed to make repayments with revenue generated from a
specified number of LCA sales that could only be achieved through exports. The United States argues
that other information corroborates this alleged "tie" between the subsidy measures and the EC
member States' anticipated exportation or export earni ngs. This includes: the preambular language of
a number of the LA/MSF contracts; various provis ions in the LA/MSF contracts setting out Airbus'
repayment obligations, representations and warran ties, and reporting requirements; contractual
termination and adjustment provisions; Airbus' c ontractual undertaking to complete the development
projects; various statements reportedly made by gov ernment officials; and information contained in
the UK and French governments' "critical project a ppraisals" for a number of the aircraft models. 3132
The European Communities argues that the United St ates grossly distorts the terms of the LA/MSF
contracts and latches onto a host of irrelevant pr ovisions that have no conceivable connection to
export performance, much less est ablish a "necessary" relationship between the alleged subsidy and
export. At most, according to the European Co mmunities, these provisions confirm the member
States' concern with ensuring the commercial a nd technical viability of the programme they are
financing.3133 The evidence identified by the United States, and the European Communities' specific
responses thereto,3134 are set out below:
• The United States notes that Articles 6.2 and 6.3 of the French A380 LA/MSF contract
require Airbus to repay the loaned pr incipal through per-aircraft levies on the [***] sales.
The United States observes that if sales are fewe r than expected, the French government has
no other recourse to obtain repayment. A ccording to the United States, these repayment
provisions show that the French government conditioned the provision of LA/MSF on
repayment over [***] sales, a level of sales that could not be achieved without substantial
exports. In particular, on the basis of evidence it has submitted showing that Airbus had, in
2000, forecast a total size of the market segme nt for aircraft with more than 400 seats in
"Europe" of 247 aircraft, the United States argues that it follows that the French government

3132 US, FWS, paras. 352-360 (A380), 372-375 (A340-500/600) and 383-386 (A330-200); US, FWS,
HSBI Appendix, paras. 39-42, 50-53, 57-60; US, FNCO S, paras. 65-75; US, SWS, paras. 141-143, 161-192
(A380), 193-203 (A340-500/600) and 204-209 (A330-200); US SOS-HSBI Appendix paras. 2-7; US, Answer to
Panel Questions 10, 144, 145 and 217; US, Comments on EC Answer to Panel Question 217.
3133 EC, SNCOS, para. 163.
3134 EC, FWS, paras. 636-673, 676-677 and 680-681; EC, SWS, paras. 296-325; EC, SNCOS, paras.
158-168; EC, SWS, HSBI Appendix, paras. 35-44; EC, Answers to Panel Questions 79 and 217; Comments on
US, Answer to Panel Questions 144, 145 and 217.

BCI deleted, as indicated [***]

"tied" its grant of LA/MSF for the A380 to Airbus making at least [***] export sales. Indeed,
the United States argues that Airbus' actual expor t requirements are even greater, noting that
the Airbus 2000 Global Market Forecast defin es the more than 400 seat market segment as
including the A340-600 and the Boeing 747 and 777-300. Thus, when the French
government [***] it necessarily [***].
3135 The European Communities asserts that the
repayment provisions impose no obligation on the company to sell, let alone export, a single
aircraft. According to the European Comm unities, the repayment provisions are origin-
neutral, Airbus being free to repay from proceed s of any sale, regardless of destination.
Airbus retains full commercial freedom and the choice of export versus domestic sale is made
according to the demands of the market. Thus , the European Communities contends that the
repayment provisions do not demonstrate that the terms of the LA/MSF contract vary at all by
reference to the European Communities and the rest of the world.
3136

• The United States submits that other terms and conditions found in the French A380 LA/MSF
contract corroborate the existence of the alle ged "contingent" relations hip between the grant
of the subsidy and anticipated exportation or export earnings. In this regard, the United States
points to:

(a) Article 6.1, which the United States asserts [***]. The United States submits that this
obligation confirms that the contract re presents a commitment on the part of the
government in exchange for a commitment on the part of Airbus.3137
(b) Article 1.3, which the United States argues stipulates that Airbus undertakes [***].
The United States submits that this provisi on further demonstrates the "tie" between
the government's commitment to provide LA/MSF and Airbus' commitment to

3138 The European Communities argues that a provision in a contract governing
the terms of development financing, that requires the borrower to do its best to
develop, is hardly surprising, and shows nothing more than the cred itor's interest in
the viability of its investment.3139
(c) Article 8.2, which the United States asserts obligates Airbus to [***]. The United
States submits that this shows that the French government did not simply provide
LA/MSF in the hope that it would lead to export performance but that it was provided
contingent upon performance by Airbus – to be demonstrated to the government
through, inter alia, [***] – which performance necessarily involves exportation. 3140
The European Communities responds by sta ting that when governments ask Airbus
companies to provide periodic progress reports, they are not implicitly (or
"necessarily") asking whether Airbus has exported aircraft. Instead, they seek
information on how development costs are being incurred, whether milestones in the
development process have been reached, and whether the project remains viable. In
this respect, governments are simply pe rforming due diligence – like any market-
based creditor.
3141

3135 US, FWS, paras. 353-357, citing Exhibits US-358 and US-365 (BCI); US, FWS, HSBI Appendix,
paras. 39-41.
3136 EC, FWS, paras. 614, 616 and 637; EC, Comments on US Answer to Panel Question 145.
3137 US, SWS, para. 183.
3138 US, SWS, para. 184.
3139 EC, SNCOS, para. 163.
3140 US, SWS, para. 185.
3141 EC, SNCOS, para. 164.

BCI deleted, as indicated [***]

(d) Article 9.1, which the United States contends stipulates that in the event that Airbus
breaches its contractual obligations, the French government [***]. According to the
United States, this provision further corroborates the link between the French
government's performance and Airbus' performance.
3142 The European Communities
argues that this provision does not call for termination and discontinuation of
LA/MSF funding if the company fails to export. Instead, it only states that if the
company does not use the funding received to make best endeavours to develop the
aircraft as planned, the government will cease providing LA/MSF. Thus, the
European Communities contends that the only contingency established through this
provision is between the continued receipt of LA/MSF and the obligation on the
company to use best endeavours to develop an aircraft.
3143
• The United States notes that Section 7 of the German A380 LA/MSF contract requires Airbus
to make repayments of the loaned principal through per-aircraft levies on the [***] sales. The
United States observes that if sales are fewer than expected, the German government has no
other recourse to obtain repayment. Acco rding to the United States, these repayment
provisions show that the German governme nt conditioned the provision of LA/MSF on
repayment over [***] sales, a level of sales that could not be achieved without substantial
exports. In particular, on the basis of evidence it has submitted showing that Airbus had, in
2000, forecast a total market size for aircraft with more than 400 seats in "Europe" of 247
aircraft, the United States argues that it follows that the German government "tied" its grant of
LA/MSF for the A380 to Airbus making at least [***] export sales. Indeed, the United States
argues that Airbus' actual export requirements are even greater, noting that the Airbus 2000
Global Market Forecast defines the more than 400 seat market segment as including the
A340-600 and the Boeing 747 and 777-300. Thus, when the German government [***] it
necessarily [***].
3144 The European Communities asserts that the repayment provisions
impose no obligation on the company to sell, let al one export, a single aircraft. According to
the European Communities, the repayment provisio ns are origin-neutral, Airbus being free to
repay from proceeds of any sale, regardless of destination. Airbus retains full commercial
freedom and the choice of export versus domestic sale is made according to the demands of
the market. Thus, the European Communities contends that the repayment provisions do not
demonstrate that the terms of the LA/MSF contract vary at all by reference to the European
Communities and the rest of the world.3145

• The United States submits that other terms and conditions found in the German A380
LA/MSF contract corroborate the existence of the alleged "contingent " relationship between
the grant of the subsidy and anticipated exporta tion or export earnings. In this regard, the
United States points to:

(a) Section 1, clause 5, which the United States submits identifies certain [***].
Moreover, the United States notes that the prea mble to the contract reveals that the
German government was in possession of [***]. The United States asserts that this
[***] showed that the German government was [***]. In particular, the United States
points to several pages in the [***] where it was stated that [***]; and which describe
[***]. The United States also relies upon a [***].3146 The European Communities

3142 US, SWS, para. 186.
3143 EC, SNCOS, para. 168.
3144 US, FWS paras. 353-357, citing Exhibits US-358 and US-72 (BCI).
3145 EC, FWS, paras. 614, 616 and 637; EC, Comments on US Answer to Panel Question 145.
3146 US, SWS, para. 176, citing Exhibit US-357 (BCI); US, Answer to Panel Question 145.

BCI deleted, as indicated [***]

responds by questioning the validity of a single statement made by Airbus Germany
(and not an EC member State) in a several-hundred page application as purported
evidence of export contingency. The European Communities argues that such
statements reveal nothing about any conditions imposed by the government on a
recipient.
3147
(b) Section 12, which the United States asserts provides that [***]. The United States
maintains that this further demonstrat es that the German government relied on
[***].3148
(c) Section 12, clause 3(b), which the United States submits sets out the right of the
government to [***]. According to the United States, this also demonstrates reliance
on that information (for instance, the overview provided [***]) and hence a tie
between the provision of LA/MSF and the performance necessarily implied by that
information.3149 The European Communities argues th at this provision does not call
for termination and discontinuation of LA/MSF funding if the company fails to
export. Instead, it states only that if the company does not use the funding received to
make best endeavours to develop the aircra ft as planned, the government will cease
providing LA/MSF. Thus, the European Communities contends that the only
contingency established through the provisi on is between the continued receipt of
LA/MSF and the obligation on the company to use best endeavours to develop an
aircraft.
3150
(d) Section 2, clause 5, which the United States contends describes [***].3151
(e) Appendix 14, referred to in Article 12, clause 3(b) (termination provision), entitled
[***].3152 The European Communities notes that the provisions cited by the United
States do not call for termination and discontinuation of LA/MSF funding if the
company fails to export.
3153
• The United States notes that Séptima clausula of the Spanish A380 LA/MSF contract requires
Airbus to make repayments of the loaned principal through per-aircraft levies on the [***].
The United States observes that if sales are fewe r than expected, the Spanish government has
no other recourse to obtain repayment. A ccording to the United States, these repayment
provisions show that the Spanish government conditioned the provision of LA/MSF on
repayment over [***] sales, a level of sales that could not be achieved without substantial
exports. In particular, on the basis of eviden ce it has submitted showing that Airbus had in
2000 forecast a total market size for aircraft with more than 400 seats in "Europe" of 247
aircraft, the United States argues that it follows that the Spanish government "tied" its grant of
LA/MSF for the A380 to Airbus making at least [***] export sales. Indeed, the United States
argues that Airbus' actual export requirements are even greater, noting that the Airbus 2000
Global Market Forecast defines the more than 400 seat market segment as including the
A340-600 and the Boeing 747 and 777-300. Thus, when the Spanish government [***] it

3147 EC, SNCOS, para. 164.
3148 US, SWS, para. 177.
3149 US, SWS, para. 178.
3150 EC, SNCOS, para. 168.
3151 US, SWS, para. 179.
3152 US, SWS, para. 180.
3153 EC, SNCOS, para. 168.

BCI deleted, as indicated [***]

necessarily [***].3154 The European Communities asserts that the repayment provisions
impose no obligation on the company to sell, let al one export, a single aircraft. According to
the European Communities, the repayment provisio ns are origin-neutral, Airbus being free to
repay from proceeds of any sale, regardless of destination. Airbus retains full commercial
freedom and the choice of export versus domestic sale is made according to the demands of
the market. Thus, the European Communities contends that the repayment provisions do not
demonstrate that the terms of the LA/MSF contract vary at all by reference to the European
Communities and the rest of the world.
3155

• The United States submits that other terms and conditions found in the Spanish A380
LA/MSF contract corroborate the existence of the alleged "contingent " relationship between
the grant of the subsidy and anticipated exporta tion or export earnings. In this regard, the
United States points to:

(a) The Séptimo preambular paragraph, which the United States quotes as stating that
[***]. According to the United States, this rec ognition in the preamble of the contract
shows that the Spanish government [***] information in providing the LA/MSF. In
its view, this statement demonstrates th at the Spanish government's expectation
[***].3156
(b) The Primera clausula, which the Untied St ates asserts establishes an obligation on
Airbus [***]. The United States submits that this obligation confirms that the contract
represents a commitment on the part of the government in exchange for a
commitment on the part of Airbus.3157
UK A380 contract
• The United States notes that Schedule 3, paragraph 3, of the UK A380 LA/MSF contract
requires Airbus to make repayments of the lo aned principal through per-aircraft levies on the
[***].3158 The United States observes that if sales are fewer than expected, the UK
government has no other recourse to obtain repayment. According to the United States, these
repayment provisions show that the UK government conditioned the provision of LA/MSF on
repayment over [***] sales, a level of sales that could not be achieved without substantial
exports. In particular, on the basis of eviden ce it has submitted showing that Airbus had in
2000 forecast a total market size for aircraft with more than 400 seats in "Europe" of 247
aircraft, the United States argues that it follo ws that the UK government "tied" its grant of
LA/MSF for the A380 to Airbus making at least [***]3159 export sales. Indeed, the United
States argues that Airbus' actual export requirement s are even greater, noting that the Airbus
2000 Global Market Forecast defines the more than 400 seat market segment as including the
A340-600 and the Boeing 747 and 777-300. Thus, when the UK government [***] it

3154 US, FWS, paras. 353-357, citing Exhibits US-358 and US-73 (BCI).
3155 EC, FWS, paras. 614, 616 and 637; EC, Comments on US Answer to Panel Question 145.
3156 US, SWS, paras. 189-190.
3157 US, SWS, para. 191.
3158 In fact, the UK government sought full repayment of the principal plus interest loaned under the
A380 LA/MSF contract over [***] sales. An additional [***] payment was required for sales between [***] to
[***], with [***] being owed for sales in excess of [***]. EC, FWS, paras. 432-439.
3159 We note that as the UK government sought full repayment of the principal loaned plus interest
under the A380 LA/MSF contract over [***] sales, it could not have "tied" full repayment of LA/MSF to Airbus
making at least [***] aircraft sales. Following the United States' logic, the UK government "tied" full
repayment of LA/MSF to [***] A380 sales.

BCI deleted, as indicated [***]

necessarily [***].
3160 The European Communities asserts that the repayment provisions
impose no obligation on the company to sell, let al one export, a single aircraft. According to
the European Communities, the repayment provisio ns are origin-neutral, Airbus being free to
repay from proceeds of any sale, regardless of destination. Airbus retains full commercial
freedom and the choice of export versus domestic sale is made according to the demands of
the market. Thus, the European Communities contends that the repayment provisions do not
demonstrate that the terms of the LA/MSF contract vary at all by reference to the European
Communities and the rest of the world.
3161

• The United States submits that other terms and conditions found in the UK A380 LA/MSF
contract corroborate the existence of the alle ged "contingent" relations hip between the grant
of the subsidy and anticipated exportation or export earnings. In this regard, the United States
points to:

(a) Article 3.1, which the United States asserts shows that BAE Systems (Operations)
Ltd and its corporate parent (BAE Systems) made certain representations and
warranties to the UK government. Among these was the representation and warranty
that [***]. The United States submits that such an affirmation would be irrelevant if
the relationship between the provision of LA/MSF and Airbus' commitment to
performance (which cannot be fulfilled without exportation) were not one of
conditionality or dependence.
3162 In other words, according to the United States, the
provision shows that in committing to provide LA/MSF, the UK government relied
on [***].3163 The United States contends that the same reliance can also be seen in
[***].3164
(b) Article 4.1, which the United States ar gues sets out a commitment by BAE Systems
(Operations) Ltd to [***]. The United States notes that the [***]. Thus, according to
the United States, to obtain LA/MSF, the company had to commit to [***].3165 The
European Communities argues that a provision in a contract governing the terms of
development financing, that requires the borrower to do its best to develop, is hardly
surprising, and shows nothing more than the creditor's interest in the viability of its
investment.3166
(c) Article 6, which the United States assert s provides that the UK government may
[***]. The United States maintains that this further demonstrates that the UK
government's performance (its provision of LA/MSF) is tied to Airbus' performance,
which cannot be accomplished without exportation. 3167 The European Communities

3160 US, FWS, paras. 353-357, citing Exhibits US-358 and US-79 (BCI); US, FWS, HSBI Appendix,
para. 42.
3161 EC, FWS, paras. 614, 616 and 637; EC, Comments on US Answer to Panel Question 145.
3162 US, Answer to Panel Question 145.
3163 US, SWS, paras. 169-171. The United States alleges that during the Annex V process, the
European Communities refused to provide BAE Systems' [***]. However, it notes that on the basis of the
Airbus Deutschland [***], the German government was well aware of , and relied upon, anticipated exportation
in deciding to provide LA/MSF. In the light of the European Communities' alleged refusal to provide the a copy
of BAE Systems' [***], the United States asks the Panel to draw the "logical inference .. that [***]". As we
have previously observed, the questions asked by the Facilitator during the Annex V process did not specifically
request the European Communities to provide copies of the A380 LA/MSF applications.
3164 US, SWS, para. 171; US, FWS, HSBI Appendix, para. 30, referring to UK A380 "critical project
appraisal" DS316-EC-HSBI-00121, at section 2.3 and pp. 35-36.
3165 US, SWS, para. 172.
3166 EC, SNCOS, para. 163.
3167 US, SWS, para. 173.

BCI deleted, as indicated [***]

argues that this provision does not call for termination and discontinuation of
LA/MSF funding if the company fails to export. Instead, it states only that if the
company does not use the funding received to make best endeavours to develop the
aircraft as planned, the government will cease providing LA/MSF. Thus, the
European Communities contends that the only contingency established through the
provision is between the continued receipt of LA/MSF and the obligation on the
company to use best endeavours to develop an aircraft.3168
(d) Article 7.1(a), which the United States argues provides for the Company to [***].
The United States submits that this show s that the UK government did not simply
provide LA/MSF in the hope that it would lead to export performance, but that it
provided LA/MSF contingent upon performance by Airbus – to be demonstrated to
the government through, inter alia, [***] – which performance necessarily involves
exportation.3169 The European Communities responds by asserting that when
governments ask Airbus companies to provide periodic progress reports, they are not
implicitly (or "necessarily") asking whether Airbus has exported aircraft. Instead,
they seek information on how development costs are being incurred, whether
milestones in the development process have been reached, and whether the project
remains viable. In this respect, governme nts are simply performing due diligence –
like any market-based creditor.3170
• The United States notes that Articles 6.2 and 7 of the French A340-500/600 LA/MSF contract
require Airbus to make repayments of the loan ed principal through per-aircraft levies on the
[***] sale. The United States observes that if sales are fewer than expected, the UK
government has no other recourse to obtain repayment. According to the United States, the
French government's project appraisal makes clear that [***].
3171 The European Communities
asserts that the repayment provisions impose no obl igation on the company to sell, let alone
export, a single aircraft. According to the European Communities, the repayment provisions
are origin-neutral, Airbus being free to repa y from proceeds of any sale, regardless of
destination. Airbus retains full commercial freedom and the choice of export versus domestic
sale is made according to the demands of th e market. Thus, the European Communities
contends that the repayment provisions do not demonstrate that the terms of the LA/MSF
contract vary at all by reference to the European Communities and the rest of the world.3172

• The United States submits that other terms and conditions found in the French A340-500/600
LA/MSF contract corroborate the existence of the alleged "tie". In this regard, the United
States points to:

(a) Article 7, which the United States argues obligates Airbus [***]. According to the
United States, this obligation confirms that the contract represents a commitment on
the part of the government in exchange for a commitment on the part of Airbus.3173

3168 EC, SNCOS, para. 168.
3169 US, SWS, para. 174.
3170 EC, SNCOS, para. 164.
3171 US, FWS, para. 373, citing Exhibit US-36 (BCI); US, FWS, HSBI Appendix, paras. 50-53,
referring to Exhibit DS316-EC-HSBI-0001143; US, SCOS, HSBI Appendix, paras. 2-7.
3172 EC, FWS, paras. 614, 616 and 637; EC, Comments on US Answer to Panel Question 145.
3173 US, SWS, para. 194.

BCI deleted, as indicated [***]

(b) Article 9, which the United States asserts obligates Airbus to [***]. The United
States submits that this shows that the French government did not simply provide
LA/MSF in the hope that it would lead to export performance, but that it provided it
contingent upon performance by Airbus – to be demonstrated to the government
through, inter alia, [***] – which performance necessarily involved exportation.
3174
The European Communities responds by asserti ng that when governments ask Airbus
companies to provide periodic progress reports, they are not implicitly (or
"necessarily") asking whether Airbus has exported aircraft. Instead, they seek
information on how development costs are being incurred, whether milestones in the
development process have been reached, and whether the project remains viable. In
this respect, governments are simply pe rforming due diligence – like any market-
based creditor.
3175
(c) Annex 5 of the Protocole, which the United States contends requires Airbus [***].
The United States argues that this requireme nt further reinforces the contractual tie
between the provision of LA/MSF and Airbus' export performance.3176 The European
Communities argues that these provisions enable the government to verify, including
through contact with the buyer if necessary, that the company is indeed making the
required payments on each delivery. The European Communities emphasizes that the
provisions do not require that the company repay a greater percentage of LA/MSF, or
repay a higher interest rate, if the buyer ha ppens to be in a domestic as opposed to an
export market. Thus, the European Communities considers that the periodic
statements of deliveries do not imply export contingency.
3177
(d) Article 10, which the United States asserts requires that in the event that Airbus
breaches its obligations, the French government [***] further corroborating the link
between the government's performan ce and Airbus's performance. 3178 The European
Communities argues that this provision does not call for termination and
discontinuation of LA/MSF funding if the company fails to export. Instead, it states
only that if the company does not use the funding received to make best endeavours
to develop the aircraft as planned, the government will cease providing LA/MSF.
Thus, the European Communities contends that the only contingency established
through this provision is between the continued receipt of LA/MSF and the obligation
on the company to use best endeavours to develop an aircraft.
3179
• The United States notes that Octavo preambular paragraph and the Quinta clausula of the
Spanish A340-500/600 LA/MSF contract require Air bus to make repayments of the loaned
principal through per-aircraft levies. The Unite d States recalls that all of the numbers from
the LA/MSF agreement's repayment schedule were redacted, so it was not possible for it to
determine over how many deliveries Airbus must repay the financing. However, it asserts
that the contract anticipates [***] worldwide sales of the aircraft over a 20 year period. In the
light of the European Communities' refusal to provide the actual information from the
repayment schedule, the United States asks the Panel to draw the reasonable inference that

3174 US, SWS, para. 195.
3175 EC, SNCOS, para. 164.
3176 US, SWS, para. 196.
3177 EC, SNCOS, para. 165.
3178 US, SWS, para. 197.
3179 EC, SNCOS, para. 168.

BCI deleted, as indicated [***]

Airbus must repay the loan over a similar number of sales. 3180 The European Communities
asserts that the repayment provisions impose no obl igation on the company to sell, let alone
export, a single aircraft. According to the European Communities, the repayment provisions
are origin-neutral, Airbus being free to repa y from proceeds of any sale, regardless of
destination. Airbus retains full commercial freedom and the choice of export versus domestic
sale is made according to the demands of th e market. Thus, the European Communities
contends that the repayment provisions do not demonstrate that the terms of the LA/MSF
contract vary at all by reference to the European Communities and the rest of the world.3181

• The United States submits that other terms and conditions found in the Spanish A340-500/600
LA/MSF contract corroborate the existence of the alleged "tie". In this regard, the United
States points to:

(a) The United States argues that, as in the Sp anish LA/MSF contract for the A380, the
contract for the A340-500/600 contains certain representations in the preamble
evidencing the information on which the Sp anish government relied in deciding to
provide LA/MSF. In particular, the United States points to the statement that [***].
Thus, by making this statement, the United States notes that the Spanish government
states explicitly that in providing LA/MSF for the A340-500/600 it is [***].
3182
(b) Article 1, pursuant to which the Unite d States argues that Airbus commits [***].
According to the United States, this obligati on confirms that the contract represents a
commitment on the part of the government in exchange for a commitment on the part
of Airbus.3183
• The United States notes that Articles 6.2 of the French A330-200 LA/MSF contract requires
Airbus to make repayments of the loaned pr incipal through per-aircraft levies on the first
[***] sales. The United States observes that if sales are fewer than expected, the French
government has no other recourse to obtain repayment. According to the United States, the
French government's project appraisal makes clear that [***].3184 The European Communities
asserts that the repayment provisions impose no obl igation on the company to sell, let alone
export, a single aircraft. According to the European Communities, the repayment provisions
are origin-neutral, Airbus being free to repa y from proceeds of any sale, regardless of
destination. Airbus retains full commercial freedom and the choice of export versus domestic
sale is made according to the demands of th e market. Thus, the European Communities
contends that the repayment provisions do not demonstrate that the terms of the LA/MSF
contract vary at all by reference to the European Communities and the rest of the world.3185

3180 US, SWS, para. 373, citing Exhibit US-37 (BCI). In the light of the missing information on
repayment terms, the United States requested the Panel to either use its authority under Article 13 of the DSU to
request the European Communities and Spain to provide the necessary info rmation or else draw the adverse
inference that Airbus must repay the aid over [***] sales.
3181 EC, FWS, paras. 614, 616 and 637; EC, Comments on US Answer to Panel Question 145.
3182 US, SWS, paras. 200 and 201, referring to Exhibit US-37 (BCI) – the first and fourth paragraphs
under "Primero".
3183 US, SWS, para. 202, referring to Exhibit US-37 (BCI) – third paragraph under "Primero".
3184 US, FWS, para. 384, citing Exhibit US-78 (BC I); US, FWS, HSBI Appendix, paras. 57-60; US,
SCOS, HSBI Appendix, paras. 2-7.
3185 EC, FWS, paras. 614, 616 and 637; EC, Comments on US Answer to Panel Question 145.

BCI deleted, as indicated [***]

• The United States submits that other terms a nd conditions found in the French A330-200
LA/MSF contract corroborate the existence of the alleged "tie". In this regard, the
United States points to:

(a) Article 6, which the United States asserts obligates Airbus [***]. According to the
United States, this obligation confirms that the contract represents a commitment on
the part of the government in exchange for a commitment on the part of Airbus.
3186
(b) Article 7, which the United States argues requires Airbus to [***]. The United States
argues that this shows that the French government did not simply provide LA/MSF in
the hope that it would lead to export performance but that it provided LA/MSF
contingent upon performance by Airbus – to be demonstrated to the government
through, inter alia, [***] – which performance necessarily involves exportation.
3187
The European Communities responds by asserti ng that when governments ask Airbus
companies to provide periodic progress reports, they are not implicitly (or
"necessarily") asking whether Airbus has exported aircraft. Instead, they seek
information on how development costs are being incurred, whether milestones in the
development process have been reached, and whether the project remains viable. In
this respect, governments are simply pe rforming due diligence – like any market-
based creditor.
3188
(c) The United States also points to Annex 5, which it argues requires Airbus [***]. The
United States contends that this requirement further reinforces the contractual tie
between the provision of LA/MSF and Airbus' export performance.3189 The European
Communities argues that these provisions enable the government to verify, including
through contact with the buyer if necessary, that the company is indeed making the
required payments on each delivery. The European Communities emphasizes that the
provisions do not require that the company repay a greater percentage of LA/MSF, or
repay a higher interest rate, if the buyer ha ppens to be in a domestic as opposed to an
export market. Thus, the European Communities considers that the periodic
statements of deliveries do not imply export contingency.
3190
(d) Article 8, which the United States asserts shows that in the event that Airbus breaches
its obligations, the French government [***]. According to the United States, this
further corroborates the link between the government's performance and Airbus's
performance.3191 The European Communities argues that this provision does not call
for termination and discontinuation of LA/MSF funding if the company fails to
export. Instead, it states only that if the company does not use the funding received to
make best endeavours to develop the aircra ft as planned, the government will cease
providing LA/MSF. Thus, the European Communities contends that the only
contingency established through this provisi on is between the continued receipt of
LA/MSF and the obligation on the company to use best endeavours to develop an
aircraft.
3192

3186 US, SWS, para. 205, referring to Exhibit US-78 (BCI).
3187 US, SWS, para. 206, referring to Exhibit US-78 (BCI).
3188 EC, SNCOS, para. 164.
3189 US, SWS, para. 207, referring to Exhibit US-78 (BCI).
3190 EC, SNCOS, para. 165.
3191 US, SWS, para. 208, referring to Exhibit EC-90 (BCI).
3192 EC, SNCOS, para. 168.

BCI deleted, as indicated [***]

Whether the sales-dependent repayment provisions of the challenged LA/MSF measures
amount to exchanges of commitments that ev idence contingency in fact upon anticipated
exportation or export earnings
7.662 Apart from the above-mentioned arguments, th e European Communities makes a series of
additional submissions it considers demonstrate that the United States has failed to substantiate its
claims. The first of these concerns what the Eur opean Communities considers to be the implications
of the United States' alleged exchange of commitment s theory for the types of subsidies that may be
caught by the prohibition on export subsidies under Article 3.1(a) of the SCM Agreement.
7.663 The European Communities construes the United States' focus on the repayable nature of
LA/MSF as the articulation of a "thesis ... that financ ial contributions that foresee a return (such as
loans) are more susceptible to be found to c ontain a prohibited export contingent subsidy than
financial contributions in the form of outright grants". 3193 However, the European Communities
argues that Article 3.1(a) applies equally to all typ es of financial contributions, with no particular type
of subsidy being more susceptible to eith er escaping or being cau ght by the prohibition. 3194 I n t h e
view of the European Communities, accepting the United States' thesis "would create an incentive for
Members to make outright subsidy gr ants, rather than financial contri butions that foresee a return, in
order to avoid the prohibition" and thereby "encourage Members to depart from the market disciplines
that the SCM Agreement meant to foster". 3195 Thus, the European Communities argues that the
United States asks the Panel to adopt an interpretati on of Article 3.1(a) of the SCM Agreement that is
not only contrary to its text, but also "manifestly absurd and unreasonable".3196
7.664 The United States rejects the European Communities' characterization of its arguments,
emphasizing that it is "not the foreseeing of a return that makes {LA/MSF} export contingent but the
conditioning of the provision of {LA/MSF} on a commitment by Airbus to repay {LA/MSF} over
levels of sales that necessarily involve exportation".
3197 Thus, the United States explains that:
"In committing to provide {LA/MSF}, the Airbus governments could have insisted
on any number of conditions or no conditions at all. They could have insisted on
repayment over much smaller numbers of sales than actually are set out in the
{LA/MSF} contracts (e.g ., numbers that could be reached without necessarily
exporting). They could have insisted on repayment over a fixed schedule, regardless
of sales. They could have foregone repa yment – effectively treating {LA/MSF} as a
grant. But instead of taking any of these possible approaches, the Airbus
governments took the approach of cond itioning the provision of {LA/MSF} on
repayment over levels of sales derived from Airbus's own Business Case and Global
Market Forecasts and the governments' own project appraisals and other analyses,
which levels of sales would necessarily involve exportation. Because the provision of
{LA/MSF} is tied to export performance in this way it is a prohibited subsidy under
Article 3.1(a) of the SCM Agreement."
3198
7.665 We do not understand the United States' argument to be based on the fact that the EC member
States expected to obtain a return from their LA/MSF contributions. Rather, it is the nature of how
the EC member States structured th at return that is at the centr e of the United States' claim.
Therefore, it does not follow from the United States' exchange of commitments theory that "financial

3193 EC, FWS, para. 569.
3194 EC, SNCOS, para. 160.
3195 EC, SNCOS, para. 161.
3196 EC, FWS, para. 569.
3197 US, SWS, paras. 219 and 220.
3198 US, SWS, para. 143.

BCI deleted, as indicated [***]

contributions that foresee a return (such as loans) " would be more susceptible to fall foul of the
prohibition of export subsidies established under Article 3.1(a) of the SCM Agreement.
7.666 A second argument the European Communities a dvances challenges the United States' focus
on sales-dependent repayment terms as the sole m eans available to Airbus to repay LA/MSF.
According to the European Communities, each of the challenged LA/MSF contracts, either expressly
or by implication, envisages the possibility of re payment via cash-flows ge nerated through business
activities other than sales of the aircraft.
3199 In particular, the European Communities notes that the
contracts do not prevent the possibility of early repayment at any time. Moreover, the European
Communities asserts that other related companies guaranteed Airbus' repayment obligations, implying
that "{i}n all cases there are related companies or commercial activities that guarantee alternative
sources of repayment".
3200
7.667 Accelerated repayment provisions are expressly provided for under th e German, Spanish and
UK A380 LA/MSF contracts, and the Spanish A340-500/600 LA/MSF contract. 3201 The parties'
arguments have focussed on the provisions appeari ng in two of these contracts – the German and UK
A380 agreements. The German A 380 contract allows Airbus to [***]. However, in this event,
Airbus must pay [***].3202 The right to make prepayments under the UK A380 contract is [***] of
the funding received under the loan. 3203 Should Airbus exercise this right, it would be required to
[***].3204 The United States characterizes these as [***] that actually reinforce the "tie" between
LA/MSF and export performance by [***].3205 The European Communities rejects this
characterization, arguing that the provisions "ensure that the government does not face dilution of its
return if the company elects to prepay", reflec ting the government's aim to protect its return. 3206
Although not defined in detail, the prepayment provi sions under the German A380 contract appear to
envisage that the German government [***]. At the very least, this suggests that the German A380
contract creates a [***].3207
7.668 In any case, we note that the accelerated re payment possibilities expressly provided for under
the German, Spanish and UK A380 LA/MSF contr acts, and the Spanish A340-500/600 LA/MSF
contract, are only optional. On the other hand, the per-aircraft levies expressly called for under each
of the challenged contracts are mandatory and ther efore must be complied with after each and every
relevant aircraft sale. Thus, we are doubtful about the extent to which the mere possibility of early
repayment on the part of Airbus from an income stream unassociated with aircraft sales influenced the
EC member State governments' decisions to provide LA/MSF. In this regard, we see some merit in
the United States' contention that because "there is nothing uncommon about the possibility of
accelerating repayment of a loan", were an option to voluntarily prepay a loan enough to sever a "tie"
between the provision of a loan and export performance, "it would be virtually impossible to ever find

3199 EC, FWS, paras. 323, 514, 590 and 673.
3200 EC, FWS, footnote 570.
3201 German A380 contract, Section 8, Exhibit US-72 (BCI); Spanish A380 contract, Séptima Clausula,
Exhibit US-73 (BCI); UK A380 contract, Article 5.9, Exhibit US-79 (BCI); and Spanish A340-500/600
contract, Quinta Clausula, Exhibit US-37 (BCI).
3202 German A380 contract, Section 8, para. 2, Exhibit US-72 (BCI).
3203 UK A380 contract, Article 5.9, Exhibit US-79 (BCI).
3204 UK A380 contract, Schedule 3, para. 9.1, Exhibit US-79 (BCI).
3205 US, SWS, paras. 225-226.
3206 EC, SNCOS, para. 168.
3207 Although the United States asserts that applica tion of the accelerated repayment provisions under
the UK A380 contract would result in [***] (US, SWS, para. 225), we have been unable to confirm or reject this
assertion on the basis of the UK A380 LA/MSF contract or the facts and arguments the parties have presented.

BCI deleted, as indicated [***]

a subsidy provided through a loan contract to be contingent upon export performance within the
meaning of Article 3.1(a) of the SCM Agreement".3208
7.669 The European Communities states that the repa yments of all of the relevant LA/MSF
contracts were guaranteed, implying that sources of funding for the repayment LA/MSF other than
revenue from aircraft sales were available. Th e European Communities focuses its analysis on the
German and UK A380 contracts. 3209 Under both contracts, the European Communities asserts that
[***].3210 The European Communities considers that these guarantees place Airbus in the same
position as the Howe Leather company in Australia – Leather , where the European Communities
argues the fact that the assets of Howe's parent company guaranteed a loan provided by the Australian
government to Howe was an important factor relie d upon by the panel to conclude that it was not a
prohibited export subsidy. 3211 The United States argues that because the guarantee under the UK
A380 contract "does not ensure repayment of {LA/ MSF} regardless of whether Airbus succeeds in
delivering [***] copies of the A380, it does not sever the tie between the provision of {LA/MSF} and
Airbus' commitment to a level of performance that necessarily involves exportation". 3212 Moreover, it
considers the European Communities' reliance on the Australia – Leather to be inapposite because in
that dispute it alleges "the security provided by Howe's parent (in the form of a lien on assets and
undertakings) was a true guarantee of repayment of the government loan, as opposed to a 'guarantee'
to pay levies due to the government on a per sale basis".3213
7.670 The guarantee provided under the UK A380 contract relates to [***].3214 Similarly, under the
German A380 contract, [***].3215 The European Communities expl ains that both guarantees will
operate when the borrowing Airbus entity [***]. We agree with the United States that this type of
guarantee is different from the guarantee considered in Australia – Leather . In Australia – Leather ,
one of the factors that led the panel to find th at a 15-year preferential loan from the Australian
government to the Howe Leather company was no t a prohibited export subsidy was that it was
"secured by a lien on the assets and undertakings of ALH {Howe's parent company}, which is itself
responsible for repayment of the loan, and not merely on the assets and undertakings of Howe." 3216
The guarantees provided under the German and UK A380 contracts are clearly of a different kind as
they will only come into play if the loan reci pients do not make a required repayment following
delivery of an aircraft.
7.671 Finally, the European Communities identifies two "countervailing explanations" or
"legitimate commercial reasons" that it submits explain why the challenged LA/MSF contracts
contain delivery-dependent repayment provisions, which the European Communities submits "have
nothing to do with export contingent subsidies". 3217 First, the European Communities notes that
Airbus' revenues are generated by and large from LC A sales, with between 83% and 85% of the gross
price paid on delivery. According to the Europ ean Communities, this makes aircraft deliveries the
most reliable indication that sufficient cash-flow will be on hand to make repayments, giving both
Airbus and the EC member States a strong commercia l incentive to time repayments to coincide with
delivery of LCA. 3218 Second, the European Communities submits that timing repayment with

3208 US, SWS, para. 224.
3209 EC, FWS, para. 673; EC, Answer to Panel Question 65.
3210 EC, Answer to Panel Question 65.
3211 EC, FWS, para. 673.
3212 US, SWS, para. 228.
3213 US, SWS, para. 228.
3214 UK A380 contract, Article 20, Schedule 4, Exhibit US-79 (BCI).
3215 German A380 contract, Section 14, Exhibit US-72 (BCI).
3216 Panel Report, Australia – Automotive Leather II, para. 9.75.
3217 EC, FWS, paras. 657-666; EC, FNCOS, para. 80; EC, SNCOS, para. 157; EC, Answer to Panel
Question 217; EC, Comments on US Answer to Panel Question 217.
3218 EC, FWS, para. 659.

BCI deleted, as indicated [***]

deliveries allocates the risk between Airbus and the EC member State governments in accordance
with the risk each party agreed to accept. A re payment schedule based on repayment dates fixed at
the time when the contracts were concluded would result in a distribution of risk that is different from
that agreed between the parties.
3219 Thus, the European Commun ities argues that the Airbus
governments agreed to allow repayment upon delivery – "not to induce Airbus to export, but to
accommodate the company's cash flow needs and allocate risk".3220
7.672 According to the European Communities, the commercial validity of both "countervailing
explanations" it advances is confir med by the fact that Airbus' risk-sharing suppliers use the same
repayment term structure as the EC member State governments. 3221 The European Communities
emphasizes that such market-based lenders "care only about securing their return, and not whether
that return is secured via exports rather than domestic sales". 3222 In its view, the "fact that some
deliveries involve exportation was not the parties' reason for constructing the repayment terms {of the
LA/MSF contracts} by reference to deliveries. Rath er, exports are an incident al feature that results
from an exogenous factor – marketplace demand, wh ich turns both Airbus and Boeing into export-
oriented firms".3223 Thus, the European Communities submits th at the EC member States' motivations
for using deliveries as the trigger for repaymen t were based on the same legitimate commercial
considerations that motivate market actors, and not any desire to grant export contingent subsidies.
7.673 The United States notes that neither of the European Communities' "countervailing
explanations" address the level of sales over which LA/MSF is to be repaid, even though in its view
this is an essential element of Airbus' contract ual obligation that demonstrates that LA/MSF is
provided in exchange for an undertaking by Airbus th at can be fulfilled only if it exports. Moreover,
the United States alleges that the European Commun ities has advanced no evidence to substantiate its
assertions.3224 In any case, the United States submits that even if the EC member State governments
had held non-export-related motivations when ag reeing to the repayment terms of the LA/MSF
contracts, the "possible existence of additional, non-export-related motivations that could (according
to the EC) explain the design of Airbus' obligations ... does not sever the tie between the provision of
{LA/MSF} and actual or anticipated exportation or export earnings".3225
7.674 Quoting from the Appellate Body Report in Canada – Aircraft, the United States recalls that
"th{e} relationship of contingency, between the subsidy and export performance, must be inferred
from the total configuration of the facts constituting and surrounding the granting of the subsidy, none
of which is likely to be decisive in any given case". 3226 According to the Unit ed States, "the total
configuration of the facts" may include "official statements by governments indicating the intention
behind the granting of the subsidies". 3227 In the present dispute, the United States alleges that it has
adduced ample evidence demonstrating that increasing exports is among the motivations of the Airbus
governments for providing LA/MSF. In particular, the United States points to:
(a) the statement by French Prime Minister Lionel Jospin that the French government
"will give Airbus the means to win the battle against Boeing";3228

3219 EC, FWS, paras. 662-663.
3220 EC, Answer to Panel Question 217.
3221 EC, FWS, paras. 660 and 664; EC, Comments on US Answer to Panel Question 217.
3222 EC, SNCOS, para. 157.
3223 EC, FWS, para. 665.
3224 US, Answer to Panel Question 217.
3225 US, Answer to Panel Question 217.
3226 US, Answer to Panel Question 217, quoting Appellate Body Report, Canada – Aircraft, para. 167
(italicized emphasis original; underline emphasis added by the United States).
3227 US, Answer to Panel Question 217, quoting from Australia Third Party Oral Statement, para. 10.
3228 Exhibit US-1, discussed in US, FWS, paras. 1 and 92.

BCI deleted, as indicated [***]

(b) the UK government's statement, upon announcing the provision of LA/MSF for the
A380, that "{w}ithin 25 years Airbus has gr own to take 55% of the civil aircraft
production market and contributes £1 billion to the UK's trade balance";3229
(c) the British Prime Minister's statement, upon the public unveiling of the A380, that
"{t}he export gains will run into the billions of pounds".3230
(d) the communiqué issued by ministers of the Airbus governments at the July 2006
Farnborough air show in which they "reaffirm ed their agreement to support Airbus to
continue to innovate and to develop progr ammes in the context of international
competition";3231
(e) the Spanish A380 LA/MSF contract's identification of [***];3232
(f) the acknowledgment in the preamble to th e Spanish A340-500/600 LA/MSF contract
that [***];3233
(g) the statement by Airbus, in its application to the German government for LA/MSF for
the A380, that a benefit of providing the requested LA/MSF would be an [***];3234
and
(h) other evidence that the European Communities has designated as HSBI.3235
7.675 In our view, a government's motivation for grantin g a particular subsidy, to the extent it can
be established from the evidence and arguments presen ted by the parties in dispute, will be highly
relevant when evaluating whether a subsidy has been granted contingent in fact upon export
performance within the meaning of Article 3.1(a) of the SCM Agreement. In the present instance, the
United States has presented evidence of alleged mo tivations which, in light of all the facts and
circumstances, it considers demonstrates that th e challenged LA/MSF contracts were entered into
contingent in fact upon anticipated export perform ance. We examine the probative value of this
evidence in conjunction with the remainder of th e evidence advanced by the United States in the
paragraphs that follow.3236
7.676 Quite apart from our views on the relevance of the motivations behind the provision of
LA/MSF, we do not consider the European Communiti es to have done enough to substantiate that the
two "countervailing explanations" it has advanced actually explain why the EC member States
required each of the challenged LA/MSF contracts to be repaid with reve nue generated from LCA
sales. First, we note that the European Commun ities has only specifically addressed the relevance of
the two "countervailing explanations" in the context of the UK A380 contract,3237 stating that the same
arguments apply mutatis mutandis to the other challenged LA/MSF contracts. 3238 Second, even in the
context of the UK A380 LA/MSF contract, the Eur opean Communities has pointed to no evidence
that substantiates the "commercial reasons" it a lleges were behind the UK government's provision of
LA/MSF on sales-based repayment terms. The one document the European Communities does rely

3229 Exhibit US-360.
3230 Exhibit US-361.
3231 Exhibit US-63.
3232 Spanish A380 contract, Exhibit US-73 (BCI).
3233 Spanish A340-500/600 contract, Exhibit US-37 (BCI).
3234 Exhibit US-357 (BCI).
3235 US, FWS, HSBI Appendix, paras. 34-36, 55; US SCOS, paras. 5-6.
3236 See, at paras. 7.679-7.690 below.
3237 EC, FWS, paras. 657-666.
3238 EC, FWS, para. 614.

BCI deleted, as indicated [***]

upon is a French Senate Report concerning the French government's support for civil aircraft
construction over the period 1996 to 1997, an extract of which was submitted by the United States in
Exhibit US-337.
3239 However, the particular passages of this Report cited by the European
Communities in support of its allega tions cannot be found in the extract contained in Exhibit US-337.
In any case, the French Senate Report predates th e French government's LA/MSF contracts for the
A380 and A340-500/600. Third, the European Co mmunities refers to evidence and arguments it has
submitted in respect of the "nearly identical" fina ncing arrangements between Airbus and its risk-
sharing suppliers to show that the EC member Stat es acted according to market principles. However,
even if we were to accept that su ch contracts are sufficiently comp arable to the LA/MSF contracts at
issue (which we do not), 3240 it does not automatically follow that the EC member States and the risk-
sharing suppliers held the same objectives when th ey agreed to finance development of the A380
through sales-dependent repayment terms.
7.677 In any case, even assuming arguendo that the EC member State governments agreed to the
particular repayment terms of LA/MSF for commercia l reasons, this fact alone would not settle the
question whether the LA/MSF subsidies were granted contingent in fact upon export performance,
because such motivations would need to be consider ed together with all other relevant facts and
circumstances. In this regard, we recall that "th{ e} relationship of continge ncy, between the subsidy
and export performance, must be inferred from the total configuration of the facts constituting and
surrounding the granting of the subsidy, none of whic h is likely to be decisive in any given case". 3241
Moreover, we note that Article 3.1(a) of the SC M Agreement provides that export contingency may
be the sole condition governing the grant of a prohib ited export subsidy or it may be "one of several
other conditions".3242 Thus, even if we were to accept th e "countervailing explanations" advanced by
the European Communities, this would not necessarily preclude a finding of export contingency, if it
could be inferred from the "total configuration of th e facts" that at least one of the conditions or
reasons for the provision of LA/MSF was the anticipation of export performance.
7.678 Turning to the exchange of commitments them selves, we note that under each of the seven
LA/MSF contracts at issue, Airbus was required to repay the loaned principal plus any interest from
the proceeds of the sale of a specified number of LC A developed with the financing provided by the
EC member States. Although the text of the repaym ent provisions is neutral as to the origin of the
required sales, it is clear from various pieces of information that achieving the level of sales needed to
fully repay each loan would require Airbus to make a substantial number of exports.
3243 Exports were
therefore not merely incidental to full repayment of the loans; and they could not be replaced with
domestic sales in order to achieve the number of sal es necessary to fully repay the loans. Moreover,
while it is true that the contracts impose no oblig ation on Airbus to make any sales at all, the
European Communities has explained that the EC member States expected their LA/MSF
contributions would be fully repaid and achieve their target rate of return.3244 Indeed, it is on the basis

3239 Collin (Yvon), Senate Report No. 367 (1996-1997), Rapport d'Information "Mission de contrôle
3240 See, para. 7.480 above.
3241 Appellate Body Report, Canada – Aircraft , para. 167 (Italicized emphasis original; underline
emphasis added).
3242 Appellate Body Report, US – FSC (Article 21.5 – EC), para. 111 (emphasis added).
3243 French A380 contract, Exhibits US-358 and US-365 (BCI); US, FWS, HSBI Appendix, paras. 39-
41. German A380 contract, Exhibits US-358 and US-72 (BCI). Spanish A380 contact, Exhibits US-358 and
US-73 (BCI). UK A380 contract, Exhibits US-358 and US-79 (BCI); US, FWS, HSBI Appendix, para. 42.
French A340-500/600 contract, Exhibit US-36 (BCI); US, FWS, HSBI Appendix, paras. 50-53, Exhibit DS316-
EC-HSBI-0001143; US, SCOS, HSBI Appendix, paras. 2-7. Spanish A340-500/600 contract, Exhibits US-
37 (BCI), US-366 and US-367. French A330-200 contract, Exhibit US-78 (BCI); US, FWS, HSBI Appendix,
paras. 57-60; US, SCOS, HSBI Appendix, paras. 2-7.
3244 EC, FWS, para. 638.

BCI deleted, as indicated [***]

of the EC member States' expectations of full re payment over the number of LCA sales predicted in
the Airbus business cases for each of the relevant LCA models, that the European Communities
argues the relevant contractual rates of return should be calculated. 3245 The EC member States also
knew that Airbus was a highly export-oriented company. 3246 It follows that the EC member States
must have been counting on Airbus to make LCA sales that necessarily included a substantial number
of exports when concluding the LA/MSF contracts. This means that the EC member States, fully
expecting to be repaid, must have held a high degree of certainty that the provision of LA/MSF would
result in Airbus making those export sales. In our view, without being decisive, this evidence
supports the view that the provision of LA/MSF on sales-dependent repayment terms was, at least in
part, "conditional" or "dependent for its exis tence" upon the EC member States' anticipated
exportation or export earnings.
Other "additional" evidence
7.679 We recall that in addition to the evidence de monstrating that each of the LA/MSF contracts
involved an exchange of commitments between Airb us and the EC member St ates, the United States
points to various other pieces of information a nd evidence it alleges corroborate the alleged "tie"
between each of the subsidy measures and the EC member States' anticipated exportation or export
earnings.
7.680 Starting with the A380, we find the additiona l evidence advanced by the United States in
respect of the German LA/MSF to be compelling. In particular, the preamble to the LA/MSF contract
shows that the German government was [***]. Moreover, Section 2.5 of the contract obligates Airbus
Deutschland [***].3247 In addition, Section 12 of the LA/MSF contract provides that the German
government would be entitled to [***]. Section 12 also envisages that the German government may
[***]. We are satisfied that together with the ev idence the United States has advanced concerning the
exchange of commitments between Airbus and the German government, the evidence discussed in
this paragraph demonstrates that the German A380 LA /MSF contract was, in fact, concluded at least
in part on the condition or because of the German government's anticipation of exportation.3248
7.681 We also find persuasive the additional evidence th e United States has pointed to in respect of
the Spanish A380 contract. In particular, we note th at the sixth preambular paragraph that is cited by
the United States explicitly states that the Spanish government's support for the A380 project is
[***].3249 The seventh preambular paragraph then goes on to identify that the [***].3250 We are
satisfied that together with th e evidence the United States has adva nced concerning the exchange of
commitments between Airbus and the Spanish gove rnment, the evidence discussed in this paragraph

3245 See, also, paras. 7.404-7.406 above.
3246 In making this point, we recognize that pursuant to footnote 4 of the SCM Agreement, "{t}he mere
fact that a subsidy is granted to ente rprises which export shall not for that reason alone be considered to be an
export subsidy within the meaning of {Article 3.1(a)}". Thus, we take Airbus' export orientation into account in
conjunction with the other evidence that is before us.
3247 Exhibit US-72 (BCI) (emphasis added).
3248 In arriving at this conclusion, we have reviewed and considered all of the facts and circumstances
surrounding the granting of the German A380 LA/MSF subsidies to Airbus that were presented and argued by
the parties. We have also taken into account the United States' observation that the European Communities did
not provide a copy of any German government "critical project appraisal" for the A380, despite being asked to
provide a copy of "any 'critical project appraisal" documents in Facilitator Question 13(f) during the Annex V
process. To the extent that any such evidence is not explicitly referred to in this paragraph as support for our
conclusion, we consider that it does not detract from the United States' case or our findings in respect of this
LA/MSF measure.
3249 Exponen Sexto.
3250 Exponen Séptimo.

BCI deleted, as indicated [***]

demonstrates that the Spanish A380 LA/MSF contract was, in fact, concluded at least in part on the
condition or because of the Spanish government's anticipation of exportation.
3251
7.682 As regards the UK A380 contract, the United States identifies various pieces of other
evidence it argues supports its case. Among these is a statement reportedly made by Prime Minister
Blair in January 2005 when speaking at the public unveiling of the A380 where he stated that "{t}he
export gains will run into the billions of pounds". 3252 In addition, the United States points to a press
release published by the UK Department of Trad e and Industry in March 2000 announcing that the
UK government had agreed to invest GBP 530 million in the A380 project, explaining that "{w}ithin
25 years Airbus has grown to take 55% of the civi l aircraft production market and contributes GBP 1
billion to the UK's trade balance". 3253 On their own, we consider these reported statements to have
only a relatively low probative value. Having committed large amounts of public monies to the A380
project, it is in our view only natural to find pub lic officials emphasizing the perceived benefits of
government participation in the Airbus project in their public statements, which in the present case,
the UK government expected would involve exports. Thus, when read in isolation, the above two
statements provide only little support for the United States' submissions.
7.683 The United States also relies upon the representation and warranty made by BAE Systems in
Article 3 of the UK LA/MSF contract that [***].
3254 The United States alleges that the European
Communities refused to provide a copy of BAE Systems' [***]. However, it notes that on the basis of
the Airbus Deutschland [***], the German government was well aware of, and relied upon,
anticipated exportation in deciding to provide LA/M SF. In the light of the European Communities'
alleged refusal to provide a copy of BAE Systems' [***], the United States asks us to draw the
"logical inference ... that [***]".3255 In our view, the warranty provided by BAE Systems is
significant as it shows that the UK government pl aced contractual reliance on the accuracy of the
representations (and in particular [***]) made by BAE Systems in its LA/MSF application when
entering the A380 LA/MSF. Thus, overall, although not as clear as in the case of the German and
Spanish A380 contracts, we are satisfied that together with the evidence the United States has
advanced concerning the exchange of commitme nts between Airbus and the UK government, the
contractual warranty and the two above-mentione d statements demonstrate that the UK A380
LA/MSF contract was, in fact, concluded at least in part on the condition or because of the UK
government's anticipation of exportation.3256

3251 In arriving at this conclusion, we have reviewed and considered all of the facts and circumstances
surrounding the granting of the Spanish A380 LA/MSF subsidies to Airbus that were presented and argued by
the parties. We have also taken into account the United States' observation that the European Communities did
not provide a copy of any Spanish government "critical project appraisal" for the A380, despite being asked to
provide a copy of "any 'critical project appraisal" documents in Facilitator Question 13(f) during the Annex V
process. To the extent that any such evidence is not explicitly referred to in this paragraph as support for our
conclusion, we consider that it does not detract from the United States' case or our findings in respect of this
LA/MSF measure.
3252 Exhibit US-361.
3253 Exhibit US-360.
3254 Article 3.1.4, UK A380 LA/MSF contract, Exhibit US-79 (BCI).
3255 US, SWS, paras. 169-171. As we have previously observed, the questions asked by the Facilitator
during the Annex V process did not specifically request the European Communities to provide copies of the
A380 LA/MSF applications.
3256 In arriving at this conclusion, we have reviewed and considered all of the facts and circumstances
surrounding the granting of the UK A380 LA/MSF subsidies to Airbus that were presented and argued by the
parties. To the extent that any such evidence is not explicitly referred to in this paragraph as support for our
conclusion, we consider that it does not detract from the United States' case or our findings in respect of this
LA/MSF measure.

BCI deleted, as indicated [***]

7.684 Finally in respect of the A380, the United States refers to four provisions of the French A380
contract and one statement reportedly made by Fr ench Prime Minister, Lionel Jospin in March 2000,
as additional evidence supporting its case that the Fr ench A380 LA/MSF contract is a prohibited
export subsidy. The first of the contractual provisi ons relied upon by the United States is Article 6.1.
This basically establishes Airbus' repayment oblig ations, stipulating that Airbus has to make
repayments [***]. We find it difficult to see what more this adds to Articles 6.2 and 6.3, which the
United States relies upon to demonstrate the excha nge of commitments. The other contractual
provisions the United States submits support its complaint require Airbus to [***] (Article 1.3); [***]
(Article 8.2); and provide the government with the right to [***] if Airbus breaches its obligations
(Article 9.1). In our view, these provisions are to be understood as concerning the proper
advancement of the A380 programme, in the sense of developing the A380 and bringing the project to
the point where the particular aircraft is ready for commercial production and sale. The evidence and
argument presented by the United States has not persuaded us that the [***] should be given a broader
meaning, encompassing the attainment or maintena nce of any level of LCA deliveries or exports.
Thus, we agree with the European Communities that the provisions in the French A380 contract the
United States relies upon do not support its complaint.
7.685 The only other specific piece of additional ev idence the United States relies upon is the
statement reportedly made by French Prime Mini ster, Lionel Jospin in March 2000 when, responding
to questions in French Parliament, he said "{w}e w ill give Airbus the means to win the battle against
Boeing".3257 The question posed to the Prime Minister is not disclosed. However, the report goes
onto say that "{w}ith the creation of ... EADS, Josp in and his government and its European partners
had made a commitment to build a strong European aeros pace industry". It also explains that Airbus
was "currently in the process of securing government s upport, in the form of low-interest loans" for
the A380. We do not believe this statement adds much in the way of support to the United States
export contingent subsidy allegati ons. Thus, overall, on the basis of the total configuration of the
facts constituting and surrounding the provision of French LA/MSF for the A380, including the
evidence the United States has advanced on the exchange of commitments between Airbus France and
the French government, we find that the United St ates has failed to demonstrate that the French
government provided LA/MSF, even in part, on the condition or because of its anticipation of exports.
7.686 Moving on to the French government's provision of LA/MSF for the A340-500/600, the
United States identifies four provisions of the Fr ench A340-500/600 contract and certain information
found in the French government's critical project appraisal as additional evidence supporting its case
that this measure is a prohibited export subsidy. Three of these provisions are very similar to
Articles 6.1, 1.3 and 9.1 of the French A380 contr act to the extent they establish repayment and
reporting obligations on Airbus and grant the French government the right to terminate the contract in
the event of breach. In particular, Article 7 requires Airbus to [***]; pursuant to Article 9 Airbus
must [***]; and under Article 10, the government is given the right to [***] if Airbus breaches its
obligations. We tend to agree with the Europ ean Communities that these three provisions do not
support the United States' position. The United St ates also relies upon Annex 5 of the A340-500/600
contract, which requires Airbus [***]. Again, we find it difficult to see how this obligation, alone or
taken together with evidence on exchange of commi tments, demonstrates that the French government
provided LA/MSF for the A340-500/600 on the condition or because of its anticipated export
performance. Similarly, we are not persuaded by the information referred to by the United States in
the HSBI Appendix to its first written submissi on on the French government's critical project
appraisal. In our view, this information does not advance the United States' case on the question of
contingency. Thus, on the basis of the total configuration of the facts constituting and surrounding the
provision of French LA/MSF for the A340-500/600, including the evidence the United States has
advanced on the exchange of commitments between Aérospatiale and the French government, we find

3257 Exhibit US-1.

BCI deleted, as indicated [***]

that the United States has failed to demonstrate th at the French government provided LA/MSF for the
A340-500/600, even in part, on the condition or because of its anticipation of exports.
7.687 The United States relies on two references in the Spanish A340-500/600 contract as additional
evidence supporting its case that this measure is a prohibited export subsidy. In particular, the
United States relies upon the first preambular paragraph, which in relevant part reads [***]. The
United States points out that the same preambular paragraph goes on to state: [***]. The United States
argues that this latter statement means that in providing LA/MSF for the A340-500/600, the Spanish
government is [***].
3258 In our view, when read together as a whole, the two statements made in the
first preambular paragraph are close (but not identic al) to those made in the Spanish A380 contract.
One particular difference is that unlike the statemen ts referred to by the United States in the Spanish
A380 contract, they do not explicitly identif y the Spanish governments' justification for entering into
the A340-500/600 contract. Moreover, it is appa rent that the information referred to is [***] for the
purpose of arriving at the conclusion that [***]. In addition to the preambular language, the
United States relies upon Article 1 of the Spanish A340-500/600 contract. However, as we read it,
this simply repeats CASA's obligation to [***]. Again, we find it difficult to see how this obligation,
alone or taken together with evidence on excha nge of commitments, demonstrates that the Spanish
government provided LA/MSF for the A340-500/600 on the condition or because of its anticipated
export performance. Thus, on the basis of the to tal configuration of the facts constituting and
surrounding the provision of Spanish LA/MSF for the A340-500/600, including the evidence the
United States has advanced on the exchange of commitments between CASA and the Spanish
government, we conclude that the United States has failed to establish that the Spanish government
provided LA/MSF for the A340-500/600, even in part, on the condition or because of its anticipation
of exports.
7.688 Finally in respect of the provision of French LA/MSF for the A330-200, the United States
identifies four provisions of the French contract and certain information contained in the French
government's critical project appraisal as additional evidence supporting its case that this measure is a
prohibited export subsidy. The provisions set out essentially the same obligations the United States
relies upon in the context of the French A340-500/ 600 contract. In particular, Article 6 requires
Airbus to [***]; pursuant to Article 7 Airbus must [***]; under Article 8, the government is given the
right to [***] if Airbus breaches its obligations; and pursuant to Annex 5, Airbus must [***]. As with
the appearance of these provisions in the French A340-500/600 contract, we tend to agree with the
European Communities that they do not support the United States' position, whether considered alone
or together with the evidence on the exchange of commitments. The information referred to by the
United States in the HSBI Appendix to its first written submission on the French government's critical
project appraisal also does not advance its case on the question of contingency. Thus, on the basis of
the total configuration of the facts constituting and surrounding the provision of French LA/MSF for
the A340-500/600, including the evidence the Unite d States has advanced on the exchange of
commitments between Aérospatiale and the French government, we find that the United States has
failed to demonstrate that the French government provided LA/MSF for the A330-200, even in part,
on the condition or because of its anticipation of exports.
Conclusion

7.689 Having carefully reviewed and considered the evidence and related arguments advanced by
the parties as they concern each of the challenge d LA/MSF measures, we find that the United States
has demonstrated that the German, Spanish a nd UK A380 contracts amount to prohibited export
subsidies within the meaning of Article 3.1(a) a nd footnote 4 of the SCM Agreement. However, we
consider that the United States has not shown th at the granting of the other challenged LA/MSF

3258 US, SWS, paras. 200 and 201.

BCI deleted, as indicated [***]

subsidies was contingent in fact upon anticipated e xport performance, within the meaning of the same
provisions.
7.690 The European Communities has argued in this dispute that if the United States' "interpretation
of the legal standard {were} accepted, then findi ngs of export contingent subsidies would be more
likely in the case of small or export dependent econom ies ... or in the case of global markets, such as
the various types of LCA commercialized by both Airbus and Boeing". 3259 However, we note that the
United States has been clear in explaining that it does not consider the concept of export contingency
to vary according to the size of an economy, its dependency on exports or the degree to which the
market for the allegedly subsidized product is globalized. 3260 Moreover, we do not accept that the
scenario advanced by the European Communities is a consequence of our findings in respect of the
German, Spanish and UK A380 LA/MSF measures. Indeed, although all of the seven challenged
LA/MSF contracts were concluded for the purpose of financing the development of a globalized
product manufactured by an export-oriented compan y for primarily a global market, and subject to
sales-dependent repayment terms that could only be satisfied through Airbus making an important
number of exports, we have found that the United States has demonstrated that only three of the
challenged measures constitute subsidies grante d contingent in fact upon anticipated export
performance. Our conclusion that the German , Spanish and UK A380 LA/MSF contracts were
prohibited export subsidies is based on what we have objectively inferred from the "total
configuration of the facts constituting and surrounding the granting of the subsidy". 3261 These facts
included not only evidence showing that compliance with the sales-dependent contractual repayment
terms would necessarily involve exportation, but also evidence of the three go vernments' anticipation
of export performance, the fact that they counted up on and expected Airbus to fully repay the loaned
principal plus interest, as well as other contractual provisions and information advanced by the United
States that revealed at least part of the respec tive government's motivation for entering into each
contract.3262
7.691 We now turn to examine the United States' sec ond claim in respect of these measures, namely
that the LA/MSF contracts for the A380, A340-500/600 and A330-200 constitute subsidies contingent
in law upon anticipated export performance, within the meaning of Article 3.1(a) of the
SCM Agreement.
(iii) Whether the LA/MSF Measures Amount to Subs idies that are Contingent In Law upon
Anticipated Export Performance
7.692 In addition to claiming that the provision of LA/MSF for the A380, A340-500/600 and A330-
200 was contingent in fact upon anticipated export performance, within the meaning of Article 3.1(a)
and footnote 4 of the SCM Agreement, the United States claims that the same measures were also
contingent in law upon anticipated export performance, within the meaning of the same legal
provisions. The United States presents this add itional claim making essentially the same legal
argument used to advance its in fact export contingency claims, namely, that each of the seven
LA/MSF measures is a prohibited export subsidy be cause it involved (i) the granting or maintenance
of a subsidy; (ii) that is tied to; (iii) anticipated exportation or export earnings.3263
7.693 The United States recalls that the Appellate Body in Canada – Aircraft noted that the legal
standard expressed by the term "contingent" in Artic le 3.1(a) of the SCM Agreement is the same for
subsidies that are contingent in law and those that ar e contingent in fact, but that the type of evidence

3259 EC, SWS, para. 229.
3260 US, Answer to Panel Question 11.
3261 Appellate Body Report, Canada – Aircraft, para. 167.
3262 See, para. 7.680 - 7.683 above.
3263 US, FWS, para. 343.

BCI deleted, as indicated [***]

that can be employed to demonstrate the two types of export contingency is different.
3264 Thus, in
advancing its claim that each of the cha llenged LA/MSF measures was granted contingent in law
upon anticipated export performance, the United St ates relies upon essentially the same evidence we
have reviewed above to establish that the provisi on of LA/MSF involved the granting of a subsidy,
and that the relevant EC member States anticip ated exportation or export earnings at the time
LA/MSF was provided.3265 However, reflecting the nature of its in law contingency claim, the United
States focuses particular attention on the terms a nd conditions of the challe nged LA/MSF contracts to
support its submission that the granting of the subsidies was contingent in law upon anticipated export
performance. In this regard, the United States ar gues that the terms and conditions of each of the
challenged LA/MSF contracts implicitl y substantiate its claim because, when considered in the light
of the number of LCA sales the EC member St ate governments expected would be achieved in
Europe and abroad, they demonstrate that the "words actually used" in those contracts – in particular,
the contractual terms tying the provision of LA/M SF to repayment over a specific number of LCA
sales – give rise to the "necessary implication" that the provision of LA/MSF is contingent in law
upon anticipated export performance. 3266
7.694 The European Communities rejects the United Stat es' claim, relying upon many of the same
legal and factual arguments raised in the context of the United States' in fact export contingency
claim. In addition, to the extent that the Unite d States pursues its complaint in reliance on documents
and information that cannot be found in the te xt of the challenged measures, the European
Communities asks the Panel to dismiss the United Stat es' allegations on the ground that they are not
properly constituted in law contingency claims. 3267
7.695 As we have understood it, the United States' co mplaint raises two threshold questions that we
believe must be resolved before we can turn to evaluate its substantive merits. These two questions
are: (i) whether Article 3.1(a) and footnote 4 envisage the possibility of bringing a claim of
subsidization contingent in law upon anticipated export performance; and (ii) whether the United
States is entitled to rely upon more than just the text of the instrument granting the LA/MSF subsidies
in order to demonstrate that they were granted contingent in law upon anticipated export performance.
Contingency in law upon anticipated export performance

7.696 We recall that Article 3.1(a) and footnote 4 of the SCM Agreement provide as follows:
"3.1 Except as provided in the Agreement on Agriculture, the following subsidies,
within the meaning of Article 1, shall be prohibited:
(a) subsidies contingent, in law or in fact 4, whether solely or as one of several
other conditions, upon export performance, including those illustrated in Annex I5;

3265 US, FWS, paras. 344-351; 361-371; 377-382; US, SWS, paras. 137-140.
3266 See, para. 7.585.
3267 See, para. 7.592.

BCI deleted, as indicated [***]

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."3268
7.697 Article 3.1(a) speaks in general terms of subs idies "contingent, in law or in fact, ... upon
export performance". Footnote 4, which is placed after the word "fact" in Article 3.1(a), clarifies that
"{t}his standard is met when the facts de monstrate that the granting of a subsidy, without having been
made legally contingent upon export performance , is in fact tied to actual or anticipated exportation
or export earnings".3269 In our view, when read in isolation, the language of footnote 4 suggests that
the concept of "anticipated" exportation or export earnings is limited to claims of "in fact" export
contingency.
7.698 Relying upon certain Appellate Body observations in Canada – Autos , both parties have
expressed the view that the legal standard for the de termination of whether a su bsidy is contingent in
fact or in law upon export performance is the same , and that only the type of evidence that may be
relied upon differs. According to the United States, this means that the text of Article 3.1(a) and
footnote 4 equate the concepts of "contingent upon" and "tied to", as well as "export performance"
and "actual or anticipated exportation or export ear nings" for the purpose of both types of claims. 3270
The European Communities appears to agree with the United States.3271
7.699 The particular passage from the Appellate Body Report in Canada – Autos that both parties
rely upon explains:
"Although we are not examining whether the subsidy in this case is contingent 'in
fact' upon export performance, we note that footnote 4 to Article 3.1(a) uses the
words 'tied to' as a synonym for 'contingent' or 'conditional'. As the legal standard is
the same for de facto and de jure export contingency, we believe that a 'tie',
amounting to the relationship of contingency, between the granting of the subsidy and
actual or anticipated exportation meets the legal standard of 'contingent' in
Article 3.1(a) of the SCM Agreement." 3272
7.700 In our view, this Appellate Body statement wa s more directed to explaining that the legal
standard for "contingency" does not vary between an in fact or in law contingency claim, than to
affirming that the notion of anticipated exportation or export earnings in footnote 4 applies equally to
in law and in fact contingency claims. Nevertheless , when read in the context of footnote 4, we agree
with the parties that the concept of export perform ance described in Article 3.1(a) can be properly
understood to refer to actual or anticipated exportation or export earnings.
7.701 As we have noted above, footnote 4 clarifi es the circumstances wh en the granting of a
subsidy will be contingent in f act upon export performance for the purpose of Article 3.1(a). This
contingent relationship is described in terms of the granting of a subsidy being in fact "tied to" actual
or anticipated exportation or export earnings. Thus, in the context of a claim that a subsidy is granted
contingent in fact upon export performance, footnot e 4 equates "tied to" with "contingent", and
"actual or anticipated exportation or export earni ngs" with "export performance". The Appellate
Body has noted that footnote 4 does not alter the contingency standard between in fact and in law
contingent subsidy claims. 3273 In other words, although not directly applicable to in law contingent

3268 Underline added.
3269 Emphasis added.
3270 US, FWS, para. 327; US, Answer to Panel Question 216.
3271 EC, FWS, para. 606; EC, Answer to Panel Question 216.
3272 Appellate Body Report, Canada – Autos, para. 107 (footnote omitted, underline added).
3273 See, para. 7.699 above.

BCI deleted, as indicated [***]

subsidy claims,
3274 the Appellate Body has read footnote 4 as informing the notion of what amounts to
contingency for the purpose of an in law contingent subsidy claim. In our view, it is equally
appropriate to read footnote 4 as informing the m eaning of "export performance" for the purpose of in
law contingent subsidy claims under Article 3.1(a) . Accordingly, we see no obstacle to the United
States raising its in law export contingency co mplaint against the seven LA/MSF measures under
Article 3.1(a) of the SCM Agreement.
Evidence the United States asserts demonstrates that the LA/MSF subsidies were granted
contingent in law upon anticipated export performance
7.702 To a large extent, the evidence the United States relies upon when making its claim of in law
export contingency overlaps with the evidence it presents for the purpose of its in fact export
contingency claim. As already noted above, the United States uses essentia lly the same evidence to
argue that the provision of LA/MSF involved the gran ting of a subsidy, and that the relevant EC
member States anticipated exportation or export ear nings at the time LA/MSF was provided. In
addition, under both sets of claims the United St ates relies upon the sales-dependent repayment terms
of the LA/MSF contracts, in c onjunction with Ai rbus' Global Market Forecasts and the project
appraisals prepared by the Airbus governments, to establish the elements of in law contingency. 3275
For example, the United States notes that Airbus' 2000 Global Market Forecast projected that orders
for aircraft with more than 400 seats by European airlines would total only 247.3276 Yet, the UK A380
LA/MSF contract requires Airbus to make repayments over [***] sales; the German contract requires
Airbus to repay over [***] sales; the French contract requires Airbus to repay over [***] sales; and
the Spanish contract requires Airbus to repay over [***] sales.3277 Given a forecast of 247 European
sales for all aircraft with more than 400 seats (a segment the United States submits includes not only
the A380, but also the Boeing 747 and 777-300), the United States asserts that these numbers translate
into UK subsidies tied to at least [***] export sales; German subsidies tied to at least [***] export
sales; French subsidies tied to at least [***] export sales; and Spanish subsidies tied to at least [***]
export sales. 3278 The United States presents similar evid ence and arguments in respect of the
challenged A340-500/600 and A330-200 contracts. 3279 Thus, the United States submits that, when
read in the light of the Airbus Global Market Fo recasts and the government project appraisals, the
sales-dependent repayment provisions of each of the LA/MSF contracts necessarily imply a tie to
export performance.
7.703 The United States argues that its reliance on documents extraneous to the challenged LA/MSF
measures is supported by the Appe llate Body observations in Canada – Autos . In particular, the
United States recalls that in Canada – Autos, the Appellate Body stated that a subsidy is contingent in
law upon export performance not only when "the exis tence of that condition can be demonstrated on
the basis of the very words of the relevant legisla tion, regulation or other legal instrument constituting
the measure", but also "where the condition to expo rt is clearly, though implicitly, in the instrument
comprising the measure."
3280 In that case, the Appellate Body c oncluded that "for a subsidy to be de
jure export contingent, the underlying legal inst rument does not always have to provide expressis
verbis that the subsidy is available only upon fulfilment of the condition of export performance. Such
conditionality can also be derived by necessary im plication from the words actually used in the

3274 We recall in this regard that footnote 4 explicitly confines its direct relevance to situations when
"the facts demonstrate that the granting of a subsidy, without having been made legally contingent upon export
performance, is in fact tied to actual or anticipated export performance ...".
3275 US, Answer to Panel Question 10.
3276 Airbus, Global Market Forecast 2000, at 37, Exhibit US-358; US, FWS, para. 346; US, Answer to
Panel Question 10.
3277 US, FWS, para. 353; US, Answer to Panel Question 10.
3278 US, FWS, para. 354; US, Answer to Panel Question 10.
3279 US, FWS, paras. 372-375, 383-386; US FWS, HSBI Appendix; US, Answer to Panel Question 10.
3280 Appellate Body Report, Canada – Autos, para. 100.

BCI deleted, as indicated [***]

measure".3281 Thus, the United States argues that when examining whether a subsidy has been granted
contingent in law upon export performance, it is appr opriate to consider not only the text of the
measure, but also how the measure "actually work{s}". 3282 Therefore, according to the United States,
reliance on the Global market forecast and the governme nt project appraisals, to the extent they help
to understand how the LA/MSF measures actually work, is permissible for the purpose of
substantiating its claim of in law export contingency.
7.704 In Canada – Autos, the European Communities and Japan brought a complaint against an
import duty exemption regime applie d by Canada to certain imports of motor vehicles. Two aspects
of the regime that were challenged by the complain ants concerned: (i) a limitation on imports eligible
for duty exemption that was set according to the ratio between a manufacturer's domestic vehicle
production and its sales in Canada; and (ii) a requireme nt that each manufacturer meet certain levels
of Canadian value added ("CVA") in order to obtain the duty exemption. The first aspect was
challenged as constituting a subsid y granted contingent in law up on export performance within the
meaning of Article 3.1(a) of the SCM Agreement; whereas the second was challenged as a prohibited
import substitution subsidy under the terms of Article 3.1(b) of the SCM Agreement.3283
7.705 Under the prohibited export subsidy claim, th e panel was asked to rule upon whether an
import duty exemption, granted under the Motor Vehi cles Tariff Order ("MVTO") and a number of
Special Remission Orders ("SROs"), was contingent in law upon export performance. The MVTO
and the SROs established a series of domestic production-to-domestic sales ratios that served to
identify the extent to which companies were entitled to import motor vehicles into Canada duty-free.
Pursuant to these ratios, car manufacturers were en titled to import cars duty-free to the extent that
their domestic production fell short of their domestic sales. Thus, for example, a manufacturer with a
production-to-sales ratio of 75:100 would be entitled to import cars duty-free to a value of 25.
However, a manufacturer with a 100:100 producti on-to-sales ratio was not entitled to import cars
duty-free. The only way such a manufacturer could take advantage of the duty-free treatment was to
export cars, thereby reducing the number of sales of Canadian-made cars in Canada and
simultaneously filling this difference with the imported cars.
3284 The panel concluded that the subsidy
granted pursuant to the ratio requirements establis hed under the MVTO and the SROs was contingent
in law on export performance, noting that:
"... it is the law ... that creates this construct, i.e., an import duty exemption upon
condition of meeting certain ratio requirements. It is the law that determines what a
particular manufacturer beneficiary's ratio requirement will be. And, in the case of a
ratio requirement lower than 100:100, a lthough the manufacturer beneficiary has a
choice as to the amount of the import duty exemption it wishes to access, it is the law
that determines the consequences of that c hoice for the manufacturer beneficiary, or,
otherwise put, it is the law that then establishes contingency upon export
performance."3285

3281 Appellate Body Report, Canada – Autos, para. 100.
3282 US, Answer to Panel Question 146, citing Appellate Body Report, Canada – Autos, para. 128.
3283 In fact, the CVA requirements were also challenged by the European Communities under
Article 3.1(a). However, the panel did not make any findings in respect of this claim.
3284 Panel Report, Canada – Certain Measures Affecting the Automotive Industry ("Canada – Autos "),
WT/DS139/R, WT/DS142/R, adopted 19 June 2000, as modified by Appellate Body Report WT/DS139/AB/R,
WT/DS142/AB/R, DSR 2000:VII, 3043, paras. 10.184-10.189.

BCI deleted, as indicated [***]

In agreeing with the panel, the Appellate Body explained:

"We start with what we have held previously . In our view, a subsidy is contingent 'in
law' upon export performance when the existence of that condition can be
demonstrated on the basis of the very words of the relevant legislation, regulation or
other legal instrument constituting the measure. The simplest, and hence, perhaps,
the uncommon, case is one in which the cond ition of exportation is set out expressly,
in so many words, on the face of the law, regulation or other legal instrument. We
believe, however, that a subsidy is also properly held to be de jure export contingent
where the condition to export is clearly, though implicitly, in the instrument
comprising the measure. Thus, for a subsidy to be de jure export contingent, the
underlying legal instrument does not always have to provide expressis verbis that
the subsidy is available only upon fulfilme nt of the condition of export performance.
Such conditionality can also be derived by necessary implication from the words
actually used in the measure."
3286
The Appellate Body went on to conclude that "f or the amount exceeding the duty-free 'allowance'
there is ... a clear relationship of contingenc y between the import duty exemption and export
performance"3287, finding, inter alia, that:

"Regardless of the actual ratio specified for a particular manufacturer, the MVTO ...
and the SROs operate , as a matter of law, in such a manner that the more motor
vehicles a manufacturer exports, the more motor vehicles the manufacturer is entitled
to import duty-free"
3288
7.706 Under the prohibited import subs titution subsidy claim, the panel was asked to determine
whether the CVA requirements rendered the availab ility of the same import duty exemption a subsidy
contingent upon the use of domestic over imported goods within the meaning of Article 3.1(b) of the
SCM Agreement.3289 The CVA requirements were a second cond ition that beneficiaries had to satisfy
in order to qualify for the import duty exemption on motor vehicles. They were prescribed for certain
manufacturers in the MVTO and the SROs, and define d to include parts and materials of Canadian
origin, direct labour costs, manufacturing overh eads, general and administrative expenses and
depreciation. The panel found that "depending upon the factual circumstances, a manufacturer might
well be willing and able to satisfy a CVA re quirement without using any domestic goods
whatsoever".3290 On this basis, the panel concluded th at the CVA requirements did not render the
measure a prohibited import substitution subsidy.
7.707 The Appellate Body found the panel to have erred in its assessment. In doing so, it first
recalled that:
"In our discussion of Article 3.1(a) in Secti on VI of this Report, we recalled that in
 Canada – Aircraft we stated that 'the ordinary connotation of 'contingent' is
'conditional' or 'dependent for its existence on something else'.' Thus, a subsidy is
prohibited under Article 3.1(a) if it is 'conditional' upon export performance, that is, if
it is 'dependent for its existence on' export performance. In addition, in Canada –

3286 Appellate Body Report, Canada – Autos, para. 100.
3287 Appellate Body Report, Canada – Autos, para. 105.
3288 Appellate Body Report, Canada – Autos, para. 106 (underline added).
3289 Article 3.1(b) of the SCM Agreement reads: "Except as provided in the Agreement on Agriculture,
the following subsidies, within the meaning of Article 1, shall be prohibited: ... (b) subsidies contingent, whether
solely or as one of several other conditions, upon the use of domestic over imported goods."

BCI deleted, as indicated [***]

Aircraft, we stated that contingency 'in law' is demonstrated 'on the basis of the
 words of the relevant legislation, regulation or other legal instrument.' (emphasis
added) As we have already explained, such conditionality can be derived by
necessary implication from the word s actually used in the measure . We believe that
this legal standard applies not only to 'con tingency' under Article 3.1(a), but also to
'contingency' under Article 3.1(b) of the SCM Agreement."3291
7.708 It went on to conclude that:
"The Panel's failure to examine fully the legal instruments at issue here and their
implications for individual manufacturer s vitiates its conclusion that the CVA
requirements do not make the import duty ex emption contingent 'in law' upon the use
of domestic over imported goods. In the absence of an examination of the operation
of the applicable CVA requirements for individual manufacturers , the Panel simply
did not have a sufficient basis for its finding on the issue of 'in law' contingency.
Thus, we conclude that the Panel erred in conducting its 'in law' contingency
analysis."
3292
7.709 The United States argues that the Appellate Body's findings in respect of the panel's
assessment of the claim against the CVA requi rements supports its reliance upon Airbus' Global
Market Forecasts and other evidence (including the French and UK government's critical project
appraisals) to show that the challenged LA/MSF cont racts constitute subsidies granted contingent in
law upon export performance because their repayment terms are linked to a number of LCA deliveries
that cannot be achieved wit hout substantial exportation. 3293 The European Communities argues that
the United States is not entitled to rely upon any do cuments other than the legal instruments pursuant
to which the subsidies at issue were granted. 3294 In its view, the Appellate Body's findings in Canada
– Autos do not support the United States' position.
7.710 The starting point of the Appellate Body's ex amination of the appeals against the panel's
findings under both Articles 3.1(a) and 3.1(b) of the SCM Agreement in Canada – Autos was the
same, namely, that "contingency 'in law' is demonstrated 'on the basis of the words of the relevant
legislation, regulation or other legal instrument.'"3295 It then went on to note that "such conditionality
can be derived by necessary implication from the words actually used in the measure".3296
7.711 As we read it, the Appellate Body's confirmation of the panel's findings in respect of the in
law export contingency claim under Article 3.1(a) did not involve looking into facts extraneous to the
text of the ratio requirements. The panel and th e Appellate Body both established the operation of the
ratio requirements by looking to the text of the challenged measure. Likewise, in the context of the
prohibited import substitution subsidy claim under Artic le 3.1(b), the Appellate Body focussed on the
panel's failure to fully examine "the speci fic CVA requirements for specific manufacturer
beneficiaries",
3297 "the legal instruments at issue ... and their implications for individual
manufacturers".3298 Thus, the Appellate Body observed:
"Although the Panel did explain what types of costs could be used to satisfy the CVA
requirements, the Panel did not, for any MVTO manufacturer or for particular SRO

3291 Appellate Body Report, Canada – Autos, para. 123 (footnotes omitted, underline added).
3292 Appellate Body Report, Canada – Autos, para. 132 (underline added).
3293 US, Answer to Panel Question 10.
3294 EC, Answer to Panel Question 216.
3295 Appellate Body Report, Canada – Autos, paras. 100 and 123.
3296 Appellate Body Report, Canada – Autos, paras. 100 and 123.
3297 Appellate Body Report, Canada – Autos, para. 128.
3298 Appellate Body Report, Canada – Autos, para. 132.

BCI deleted, as indicated [***]

manufacturers (with the exception of CAMI), make any findings as to the actual
level of CVA required. The Panel's statement that 'value-added requirements' are 'not
synonymous' with a condition to use domes tic over imported goods seems to have
been based on 'value-added requirements' considered in the abstract as opposed to the
actual CVA requirements for the MVTO and SRO manufacturer beneficiaries.
... the Panel reached its conclusion here without examining the specific CVA
requirements in the MVTO 1998 and the SROs . The Panel simply speculated that
'depending upon the factual circumstances', a manufacturer ' might well be willing
and able to satisfy a CVA requirement without using any domestic goods whatsoever'.
(emphasis added) The Panel did not, however, scrutinize the actual CVA
requirements for MVTO and SRO manufacturers to see whether they could indeed be
satisfied without using domestic goods.
... It seems to us that whether or not a par ticular manufacturer is able to satisfy its
specific CVA requirements without using an y Canadian parts and materials in its
production depends very much on the level of the applicable CVA requirements. For
example, if the level of the CVA requirement s is very high, we can see that the use of
domestic goods may well be a necessity a nd thus be, in practice, required as
a condition for eligibility for the import duty exemption. By contrast, if the level of
the CVA requirements is very low, it w ould be much easier to satisfy those
requirements without actually using domestic goods; for example, where the CVA
requirements are set at 40 per cent, it might be possible to satisfy that level simply
with the aggregate of other elements of Ca nadian value added, in particular, labour
costs. The multiplicity of possibilities for compliance with the CVA requirements,
when these requirements are set at low levels, may, depending on the specific level
applicable to a particular manufacturer, make the use of domestic goods only one
possible means (means which might not, in f act, be utilized) of satisfying the CVA
requirements."
3299
7.712 Thus, the Appellate Body faulted the panel's fa ilure to consider what could be necessarily
implied from the actual CVA requirements prescribed for each of the beneficiary entities. Notably, in
making this finding, the Appellate Body at no stage referred to the panel's failure to take into account
any facts extraneous to the instrument being cha llenged. Indeed, the Appellate Body emphasizes at
the beginning of its analysis th at a claim under Article 3.1(b) ma y involve reviewing not only the
words of the challenged measure, but also what those words necessarily imply.
7.713 We note that the arguments the United States has advanced in support of its claims are based
on more than simply the text of the LA/MSF contr acts, or the implications that can be necessarily
drawn from that text. The United States clearly relies upon f acts that are extraneous to the LA/MSF
contracts themselves, most notably, information contained in the Global Market Forecasts and the
government project appraisals. In our view, by relying upon such facts, the United States' claim strays
from a complaint about what can be understood from the legal obligations written into the LA/MSF
contracts, to a complaint about how th ose legal obligations can be understood in the light of relevant
facts and circumstances. Whereas the former represents what we consider to be the essence of an in
law export contingency claim, the latter, in our vi ew, defines the contours of a claim that a subsidy
measure is contingent in fact upon export perfo rmance. Thus, we agr ee with the European
Communities that the United States' claims of in law export contingency against the challenged
LA/MSF measures are improperly constituted. Accord ingly, we dismiss the United States' claim that
the provision of LA/MSF for the A380, A340-500/600 and A330-200 was contingent in law upon

3299 Appellate Body Report, Canada – Autos, paras. 128-130.

BCI deleted, as indicated [***]

anticipated export performance, w ithin the meaning of Article 3.1(a) and footnote 4 of the
SCM Agreement.
7.714 In any case, as we explain in the following secti on, even assuming we were incorrect in our
assessment of the types of evidence that may be re lied upon for the purpose of bringing a claim of in
law export contingency under Article 3.1(a) and footnote 4, we would nevertheless dismiss the
United States' claims as, even taking into account the evidence it has adduced that is extraneous to the
LA/MSF contracts, we do not believe it has establishe d that the subsidies were granted contingent in
law upon anticipated export performance.
Whether the evidence the United States relies upon demonstrates that the LA/MSF subsidies
were granted contingent in law upon anticipated export performance
7.715 We recall that by entering into each of the challenged LA/MSF contracts, the EC member
States provided Airbus with a financial contribution that conferred a benefit. In other words, the
subsidy made available under the LA/MSF contract s was granted when each EC member State
provided the LA/MSF. It follows that for the United States' claim to succeed, it must demonstrate that
the provision of LA/MSF was, as a matter of law , conditional or dependent, at least in part, upon the
EC member States' anticipation of export performance.
7.716 The text of the challenged LA/MSF contracts provides no explicit support for the
United States' claim. Moreover, after examini ng how the contractual repayment provisions were
intended to operate in the light of the evidence a dduced by the United States, the EC member States'
anticipated export performance does not, as a matter of law , appear to have been a condition for the
granting of the subsidies. In this regard, we recall that while it is true that the EC member States must
have been counting on Airbus to make LCA sales that necessarily included an important number of
exports when concluding the LA/MSF contracts, th e fact that Airbus was under no legal obligation to
actually sell any LCA means that, on the basis of ho w the repayment terms we re intended to operate,
the EC member States could have at most held only a high degree of certainty that each grant of
LA/MSF would induce Airbus to make an important number of export sales. The other contractual
provisions which the United States appears to rely upon do not add anything to this understanding of
how the repayment provisions operate. 3300 Thus, on the basis of the evidence the United States has
advanced, the way the LA/MSF repayment provisions were intended to operate shows that, as a
matter of law, the EC member States provided the LA/MSF on the basis of their expectation (but not
the condition) that Airbus would export. Acco rdingly, even assuming that the United States was
entitled to bring its case relying upon evidence that is extraneous to the LA/MSF contracts, we find
that it has failed to demonstrate that the LA/M SF subsidies were granted contingent in law upon
anticipated export performance.

3300 The United States appears to rely upon the same additional contractual provisions described above
in the context of the in fact conti ngency claim for the purpose of its in law contingency claim. US, SWS,
paras. 163-209.

BCI deleted, as indicated [***]

5. Whether certain European Investment Bank loans to Airbus are specific subsidies
within the meaning of Articles 1 and 2 of the SCM Agreement
(a) Introduction
7.717 The United States claims that at least 12 loan s provided by the European Investment Bank
("EIB") to various Airbus entities between 1988 a nd 2002 constitute specific subsidies within the
meaning of Articles 1 and 2 of the SCM Agreement. The 12 loans at issue are:
3301
(i) the 2002 loan to EADS for research and development activities related to the A380
(No. 21650/FR);3302
(ii) the 1993 loan to Aérospatiale for produc tion of the Super Transporteurs (No.
6832/FR);3303
(iii) the 1992 loan to Aérospatiale for the cons truction of buildings and installation of
industrial equipment for the A330/A340 (No. 16086);3304
(iv) the 1991 loan to British Aerospace for the design, development and manufacture of
wing boxes for the A330/A340 (No. 15119/UK);3305
(v) the 1990 loan to CASA for the design and production of various parts of the A320
and A330/A340 (Loan No. 1.4711/ES);3306

3301 The United States had also challenged a thirteenth loan, the 1997 loan to Aérospatiale for the Super
Transporteurs. However, the US withdrew its compla int against this measure after the European Communities
confirmed in its first written submission and Exhibit EC-154 (BCI) that the loan at issue was never granted. US,
Answer to Panel Question 12; EC, FWS, footnote 807.
3302 Contrat de Financement entre La Banque Européenne d'investissement et European Aeronautic
Defence and Space Company, EADS N.V., Munich, le 2 août 2002 US-158 (BCI), as amended by Avenant
Relatif au Contrat de Financement en date du 2 août 2002 entre La Banque Européenne d'investissement et
European Aeronautic Defence and Space Company, EADS N.V., Paris, le 5 mai 2004, Luxembourg le
10 mai 2004 Exhibit EC-879 (BCI).
3303 Aérospatiale Super Transporteur A, Contrat de financement entre La Banque Européenne
d'investissement et Aérospatiale Société Nationale Industrielle, Luxembourg, le 4 octobre 1993, Exhibit EC-
695 (BCI); and Aérospatiale Super Transporteur A, Accord 3 entre La Banque Européenne d'investissement et
European Aeronautic Defence and Sp ace Company, EADS France, Paris, le 7 novembre 2002, Exhibit EC-
699 (BCI).
d'investissement et Aérospatiale Société Nationale Indus trielle, Paris, le 20 juillet 1992 et Luxembourg, le
d'investissement et European Aeronautic Defence and Space Comp any, EADS France, Paris, le
7 novembre 2002, EC-698 (BCI).
3305 British Aerospace-Airbus A330/340 – B, Finance Contract between European Investment Bank and
[***] and British Aerospace Public Limited Company, London, 15 March 1991, EC-706 (BCI); British
Aerospace-Airbus A330/340 – B bi s, Finance Contract between Eu ropean Investment Bank and [***] and
British Aerospace Public Limited Compan y, London, 26 June 1991, Luxembourg 26 June 1991, EC-707 (BCI);
as amended by Amendment Agreement between European Investment Bank and British Aerospace Public
Limited Company and [***] and British Aerospace (Operations) Li mited, London, 9 September 1999,
Luxembourg, 10 September 1999, EC-708 (BCI); Deed of Novation, Amendment and Release between
European Investment Bank and BAE Systems PLC and [***] and BAE (Operations) Limited, 23 July 2001
Exhibit EC-709 (BCI); and Deed of Amendment between European Investment Bank and BAE Systems PLC,
17 May 2004 Exhibit EC-710 (BCI).

BCI deleted, as indicated [***]

(vi) the 1990 loan to CASA for the design and production of various parts of the A320
and A330/A340 (No. 1.4712/ES);3307
(vii) the 1990 loan to British Aerospace for the design, development and manufacture of
wing boxes for the A330/A340 (No. 14999/UK);3308
(viii) the 1990 loan to Airbus Industrie GIE for research, design and development of the
A321 (No. 15007);3309
(ix) the 1989 loan to CASA for the design and production of various parts of the A320
and A330/A340 (14081/ES);3310
(x) the 1989 loan to BAE Systems for the design and development of wings for the A320
(No. 13802/UK);3311
(xi) the 1988 loan to British Aerospace for the design and development of wings for the
A320 (No. 13588/UK);3312 and
(xii) the 1988 loan to Aérospatiale for a ne w assembly plant for the A330/340, and
administrative and services buildings (No. 13764/FR).3313

3306 Proyecto Casa Airbus A320/330/340-B, Contracto de Financiación entre El Banco Europeo de
Inversiones y Construcciones Aeronáuticas, S.A. (CASA), Madrid, a 29 junio de 1990, Luxemburgo, a
2 julio de 1990, No. 4711/ES, EC-701 (BCI).
3307 Proyecto Casa Airbus A320/330/340-C, Contracto de Financiación entre El Banco Europeo de
Inversiones y Construcciones Aeronáuticas, S.A. (CASA), Madrid, a 29 junio de 1990, Luxemburgo, a
2 julio de 1990, No. 1.4712/ES, EC-702 (BCI). We note that the United States did not initially identify this loan
in its first written submission. It was disclosed for th e first time by the European Communities in Exhibit EC-
154 (BCI).
3308 BAE-Airbus A330/340 – A, Finance Contract between European Investment Bank and [***] and
British Aerospace Public Limited Co mpany, London, 21 D ecember 1990, Luxembourg, 21 December 1990,
EC-705 (BCI).
3309 Airbus Industrie A321 Development Project, Finance Contract between European Investment Bank
and Airbus Industrie Financial Services and Airbus Industrie G. I.E., Toulouse, 21 December 1990, EC-
692 (BCI).
3310 Proyecto Casa Airbus A320/330/340-A, Contracto de Financiación entre El Banco Europeo de
Inversiones y Construcciones Aeronáuticas, S.A. (CASA), Luxemburgo, a 20 de Julio de 1989, No. 1.4081/ES,
EC-700 (BCI).
3311 BAE-Airbus A320 Project B, Finance Contract between European Investment Bank and BAE
Systems p.l.c., London, 2 February 1989, as amended on 14 February 1991, 8 April 1994, 22 October 1996, and
9/10 September 1999, and as novated and amended on 23 July 2001, EC-704 (BCI); as amended by Amendment
Agreement between European Investment Bank a nd British Aerospace Public Limited Company and [***] and
British Aerospace (Operations) Limited, London, 9 Sept ember 1999, Luxembourg, 10 September 1999, EC-
708 (BCI); Deed of Novation, Amendment and Release between European Investment Bank and BAE Systems
PLC and [***] and BAE (Operations) Limited, 23 July 2001 Exhibit EC-709 (BCI); and Deed of Amendment
between European Investment Bank and BAE Systems PLC, 17 May 2004 Exhibit EC-710 (BCI).
3312 BAE-Airbus A320, Finance Contract between European Investment Bank and [***] and British
Aerospace Public Limited Company, Luxembourg, 18 October 1988, EC-703 (BCI); as amended by
Amendment Agreement between Eur opean Investment Bank and British Aerospace Public Limited Company
and [***] and British Aerospace (Operations) Limited, London, 9 September 1999, Luxembourg,
10 September 1999, EC-708 (BCI); Deed of Novation, Amendment and Release between European Investment
Bank and BAE Systems PLC and [***] and BAE (Operations) Limited, 23 July 2001 Exhibit EC-709 (BCI);
and Deed of Amendment between European Investment Bank and BAE Systems PLC, 17 May 2004 Exhibit
EC-710 (BCI).

BCI deleted, as indicated [***]

7.718 The European Communities contests the United St ates claims on various grounds. In a first
series of arguments, the European Communities asks th e Panel to dismiss the United States claims in
respect of certain loans because it contends th at: (i) the loans granted between 1988 and 1993 are
outside the temporal scope of the SCM Agreemen t; (ii) the loans granted between 1988 and 1993
were granted to Airbus entities other than Airbus SAS or its subsidiaries and the United States has
failed to demonstrate that the alle ged benefits of these loans "passed through" to Airbus SAS; (iii)
eight of the loans have been fully repaid, and ther efore do not constitute "existing measures"; and (iv)
in respect of one of the loans (to British Aerosp ace), an entity that is no longer active in the
production of Airbus LCA or that is not part of Airbus SAS [***]. The European Communities also
disputes the United States' specific subsidization cl aims by arguing that the loans at issue did not
confer a benefit on Airbus, and that in any case, th e alleged subsidies were not specific within the
meaning of the SCM Agreement.
7.719 Elsewhere in this report, we have examined and dismissed the first two of the European
Communities' arguments relating to the temporal sc ope of the SCM Agreement and the issue of "pass
through".
3314 In the evaluation that follows, we begin by addressing the two remaining EC arguments
that do not relate to the question whether the challe nged loans are specific subsidies, before turning to
consider the merits of the United States specifi c subsidy claims under Articles 1 and 2 of the
SCM Agreement.
(i) Loans Already Repaid
7.720 The European Communities asks the Panel to rej ect the United States claims in respect of all
but three of the EIB loans due to the fact that th ey have already been fully repaid, in many cases
before the establishment of this panel. 3315 According to the European Communities, in order to
challenge loans that have been fully repaid, th e United States must explain why the Panel should
examine them, and how it could make recommendations and findings, when they are measures that no
longer exist. In addition, the European Commun ities argues that the United States must explain how
the non-existing loans cause present adverse effects to its interests.3316
7.721 Recalling the Appellate Body's statement in US – Upland Cotton where it observed that "there
could be a time-lag between payment of a s ubsidy and any consequential adverse effects" 3317, the
United States argues that a subsidized loan may cont inue to provide a benefit or cause adverse effects
after it is repaid, just as a subsidy grant may con tinue to provide a benefit or cause adverse effects
after it is granted.3318
7.722 In essence, the European Communities' argume nts raise two questions: whether alleged
subsidy measures that have expired may be challe nged under Article 5 of the SCM Agreement, and
whether the United States has done enough to demons trate that any such expired subsidy measures
(i.e., the relevant EIB loans) cause present adverse eff ects to its interests. In respect of the first
question, we understand the European Communities to argue that once a subsidized loan has been
fully repaid, the subsidy no longer exists as a me asure and therefore cannot cause adverse effects

d'investissement et Aérospatiale Société Nationale Indu strielle, Paris, le 21 décembr e 1988, EC-693 (BCI); and
Projet Aérospatiale Gramont A330/340, Accord 1 entre La Banque Européenne d'investissement et European
Aeronautic Defence and Space Company, EADS France, GIE Saint Martin Ba il, GIE Gramont Bail, Paris, le 7
novembre 2002, EC-697 (BCI).
3314 See, paras. 7.44 - 7.65 setting out Panel's findings on temporal scope arguments and paras. 7.192 -
7.200 setting out Panel's findings on the pass-through argument.
3315 The three loans that have not been fully repaid are the [***], the [***] and the [***].
3317 Appellate Body Report, US – Upland Cotton, para. 273.
3318 US, Answer to Panel Question 18; US, SWS, footnote 301.

BCI deleted, as indicated [***]

under Article 5 of the SCM Agreement. This line of argument implies that subsidized loans cannot
cause adverse effects beyond the date on which they have been fully repaid. We are unable to accept
the European Communities' contention. As the Appellate Body has observed:
"... Article 7.8 of the SCM Agreement provides that, where it has been determined
that 'any subsidy has resulted in adverse effects to the interests of another Member',
the subsidizing Member must 'take appropriate steps to remove the adverse effects or
... withdraw the subsidy'. (emphasis added) The use of the word 'resulted' suggests
that there could be a time-lag between the payment of a subsidy and any
consequential adverse effects. If expire d measures underlying past payments could
not be challenged in WTO dispute settleme nt proceedings, it would be difficult to
seek a remedy for such adverse effects. Fu rther—in contrast to Articles 3.7 and 19.1
of the DSU—the remedies under Article 7.8 of the SCM Agreement for adverse
effects of a subsidy are (i) the withdrawal of the subsidy or (ii) the removal of
adverse effects. Removal of adverse effects through actions other than the
withdrawal of a subsidy could not occur if the expiration of a measure would
automatically exclude it from a panel's terms of reference."
3319
Similarly, the panel in Indonesia – Autos noted:

"If we were to consider that past subsidi es were not relevant to our serious prejudice
analysis as they were 'expired measures' while future measures could not yet have
caused actual serious prejudice, it is hard to imagine any situation where a panel
would be able to determine the existence of actual serious prejudice."3320
7.723 Although the subsidies that were the focus of the above statements did not involve the
granting of loans, 3321 the observations of the Appellate Body an d the panel are, in our view, of equal
application and relevance to the EIB loans at issue in the present dispute. Thus, while the European
Communities may be correct in characterizing a fully repaid EIB loan as a measure that no longer
exists, the nature of an adverse effects claim do es not preclude the possibility of finding that it may
have a consequential impact on the relevant mark et after its full repayment and, as such, cause
adverse effects within the meaning of Article 5 of the SCM Agreement. There is therefore no legal
basis to support the European Communities' submission that fully repaid loans that are alleged to be
subsidies cannot be challenged unde r Article 5 of the SCM Agreement. Thus, in light of the above,
and consistent with our findings in respect of the temporal scope of this dispute, we reject the
European Communities' request to exclude all but three of the EIB loans at issue from our
consideration of the United States' claims on the grounds that they are expired measures.
7.724 The second question raised by the European Communities relates to whether the United States
has demonstrated that any EIB loans found to be sp ecific subsidies cause present adverse effects to its
interests. We will address the European Communi ties' concerns, to the extent necessary, in the
section of our Report that examines the merits of the United States' adverse effects claims.3322

3319 Appellate Body Report, US – Upland Cotton, para. 273. (Footnote omitted, emphasis original).
3321 The Appellate Body's statement in US – Upland Cotton was made in the contex t of Brazil's claims
against subsidy payments to United States cotton farmers under the "production flexibility contract" and "market
loss assistance" programmes. The panel's statement in Indonesia – Autos related to subsidies provided under the
National Car programme in the form of an import duty tax exemption and a luxury sales tax exemption.
3322 Section VII.F of this Report.

BCI deleted, as indicated [***]

(ii) 1991 Loan to British Aerospace
7.725 The European Communities asserts that [***] continues to [***], even after it transferred all
Airbus LCA-related design, engineering, manuf acturing and production activities to Airbus SAS
subsidiaries in 2001 and sold its 20% shareholding in Airbus SAS to EADS in October 2006. Thus,
according to the European Communitie s, it follows that any benefit c onferred by this loan could not
have been transferred to Airbus SAS and be causing present adverse effects to United States
interests.
3323
7.726 The United States contends that the European Communities' assertion shows only that Airbus
received the entire benefit of a subsi dy provided for the A330/A340, while the [***]. The United
States argues that to assess whether the alleged subsid y caused adverse effects to its interests within
the meaning of Article 5 of the SCM Agreement, it suffices to show that the recipient of the loan
enjoyed a benefit, thus conferring a subsidy, a nd that the subsidy was for the development and
production of LCA. In any case, the United States notes that even assuming that [***], it must be
recalled that [***]. Thus, whatever the current [***] of the 1991 EIB loan, the United States contends
that the loan is properly before the Panel; that Ai rbus and the A330/A340 in pa rticular have benefited
from below-market EIB borrowing rates for 15 years; and that throughout that period, the loan's
beneficial terms have contributed to the causation of adverse effects to the interests of the United
States' producers.3324
7.727 We recall that we have already dismissed th e European Communities' argument that the
United States must demonstrate that any benefit conferred to entities forming part of the Airbus
Industrie consortium via the challenged financial c ontributions was "passed through" to Airbus SAS
or any of its subsidiaries for the purpose of establishing adverse effects.3325 In doing so, we concluded
that the European Communities' reliance on the concep t of "pass-through", in the light of the facts of
this dispute, was misplaced. In particular, we f ound that based on the economic realities of Airbus
LCA production, the Airbus Industrie consortium is the same producer of Airbus LCA as Airbus SAS.
We therefore concluded that it was unnecessary for th e United States to show that any benefit of each
of the alleged financial contributions to entities fo rming part of the Airbus Industrie consortium was
passed through to Airbus SAS. Thus, for the pe riod from 1991 to October 2006, when either British
Aerospace or its successor BAE Systems continued to be involved in Airbus LCA production, it is
clear to us that any benefit (in the form of belo w market interest rates) of the 1991 EIB loan was
conferred on the same producer of Airbus LCA.
7.728 We note that publicly available information indicates that the funds obtained by British
Aerospace for the A330/A340 under the 1991 EIB loan amounted to EUR 141,274,864. 3326
Moreover, according to the European Communities, as of January 2007, [***] of the loaned principal
[***].3327 Thus, to the extent that the EIB loan conferre d any benefit, it was for the most part enjoyed
between 1991 and October 2006, and can therefore be di rectly connected with Airbus LCA. As we
understand it, the United States argues further th at the fact that BAE Systems currently [***] means
that Airbus received the entire benefit of the EIB loan subsidy provided for the A330/A340. Although
we believe that it would not be unreasonable to view the [***] of the EIB loan by BAE Systems

3324 US, Answer to Panel Question 17.
3325 See, paras. 7.190 - 7.200 above.
3326 Exhibit US-157.
3327 Exhibit EC-154 (BCI). This Exhibit contains an overview prepared by the EIB of the status of the
loans challenged by the United States, as of January 2007. It reveals information including the relevant loan
contract numbers, disbursement dates, loan currencies, interest rates and outstanding principal amounts. We do
not understand the United States to challenge the accuracy or reliability of the information set out in this Exhibit
as it relates to the amount of principal outstand ing on the 1991 EIB loan to British Aerospace as
of January 2007.

BCI deleted, as indicated [***]

after October 2006 as at least suggesting that Airbus SAS received the amount of loan principal
outstanding at the time of BAE Systems' withdrawal from Airbus SAS free of charge ( i.e.,
transforming this portion of the loan into a grant of funds), we do not consider it necessary to come to
a firm conclusion on the merits of the United States ' position. In our view, the fact that any benefit
conferred by the loan would have been enjoye d for the most part between 1991 and October 2006,
and therefore directly connected with Airbus LCA, is enough to dispose of the European
Communities' argument that any benefit conferred by the 1991 EIB loan to British Aerospace could
not have been transferred to Airbus SAS and therefore be causing present adverse effects to the
United States interests. Accordingly, we reject the European Communities' request to dismiss the
United States' complaint against th e 1991 EIB loan to British Aerosp ace because of the fact that BAE
Systems has [***] while no longer taking part in Airbus LCA production.
(b) Whether Each of the Challenged EIB Loans Am ounts to a Subsidy within the Meaning of
Article 1 of the SCM Agreement
(i) Are the Loans "Financial Contributions"?
7.729 The United States argues that all of the challenged EIB loans involve direct or potential direct
transfers of funds within the meaning of Article 1. 1(a)(1)(i) of the SCM Agreement, and are therefore
financial contributions.
3328 The European Communities does not dispute the United States' contention
that all of the measures at issue involve financial c ontributions in the form of loans. However, in
respect of the 2002 loan to EADS for the A380, the European Communities contests the amount of
the financial contribution that is at stake. Be fore turning to examine the European Communities'
assertions in respect of the 2002 loan to EADS, we recall that Article 1.1(a)(1)(i) of the
SCM Agreement explicitly identifies a "loan" as an example of a "government practice {that}
involves a direct transfer of funds", and therefore a financial contribution. Thus, we agree with the
parties that to the extent that the EIB finance c ontracts evidence the exis tence of loans they are
financial contributions within the meaning of Article 1.1(a)(1)(i) of the SCM Agreement.
- The 2002 loan to EADS
7.730 The finance contract entered into between the EIB and EADS on 2 August 2002 opened a
EUR 700 million ("crédit") credit line for the purpose of research and development activities related
to the A380 project.
3329 Under the terms of this contract, EADS was entitled to request the EIB to
provide it with all or part of the cred it line in loan amounts no smaller than [***] over a period of two
years.3330 The essential terms and conditions of any even tual disbursement of funds, including the
interest rate charged on repayments, were described in the same contract. 3331 EADS requested one
disbursement of [***], which it received on [***].3332 The remaining credit of [***] was cancelled on
[***].3333
7.731 According to the European Communities, the fi nancial contribution provided to EADS under
the 2002 finance contract is the one disbursement obtained in [***], which was provided in the form
of a loan of [***]. The European Communities argues that the remaining undisbursed credit line of
[***] is irrelevant because it was cancelled in [***].3334 On the other hand, the United States argues
that the relevant amount should not be limited to the [***] disbursement, and that it should include the

3328 US, FWS, paras. 396 and 409; US, Comments on EC Answer to Panel Question 181.
3329 Article 1.02.A, Exhibit US-158 (BCI).
3330 Article 1.02.B, Exhibit US-158 (BCI).
3331 As amended by Exhibit EC-879 (BCI).
3332 Exhibit US-162 (BCI).
3333 Article 1.05A, Exhibit US-158 (BCI ). EC, Answer to Panel Questio n 178, referring in addition to
Exhibits EC-162 and EC-880 (BCI).
3334 EC, FWS, para. 1092; EC, SWS, para. 452; EC, Answers to Panel Questions 178 and 181.

BCI deleted, as indicated [***]

EUR 700 million credit line. In this regard, the Un ited States identifies two alleged benefits of the
finance contract, one arising from the "eventual u se of the loan" (by which we understand the United
States to be referring to the [***] loan), and the other from the "ability to draw on a Euro 700,000,000
line of credit" (i.e., the EUR 700 million credit line).
3335
7.732 The United States argues that the latter benefit arises from "the very fact" 3336 that the EIB
provided EADS with a EUR 700 million credit line. In particular, the Unit ed States argues that
"EADS ability to draw on a Euro 700,000,000 lin e of credit gave it valuable liquidity". 3337
Consequently, the United States considers that the European Communities errs when it suggests that
the relevant value of the financial contribution at issue should be limited to the amount of funds
ultimately disbursed under the 2002 finance contract . The United States argues that the European
Communities' approach is contradicted by the SCM Agreement's reference to "potential direct
transfers of funds" as a category of "financial cont ribution" that may confer a "benefit" and thereby
constitute a subsidy. The United States observes that a specificity analysis of a subsidy consisting of
a potential direct transfer of funds necessarily occurs in advance of any knowledge as to how much of
the funds (if any) will actually be disbursed. 3338 Thus, when referring to the alleged benefit arising
from EADS' "ability to draw on a Euro 700,000,000 line of credit", we understand the United States
to focus on the alleged benefit conferred by what it c onsiders to be a potential direct transfer of funds
in the form of the [***] credit line.
7.733 Article 1.1(a)(1)(i) defines a financial contribution as including "potential direct transfers of
funds or liabilities ( e.g., loan guarantees)". As we have previously explained, 3339 the explicit
identification of "loan guarantees" as an example of a "potential direct transfers of funds or liabilities"
is instructive for the purpose of understanding the types of measures that may constitute "potential
direct transfers of funds or liabilities". A loan guarantee may be described as a legally binding
promise to repay the outstanding balance of a loan wh en the loan recipient defaults on its repayments.
Thus, it is the promise to repay an outstanding loan in the event of default that is the financial
contribution (i.e., the potential direct transfer of funds), not the funds that may be transferred in the
future in the event of default.
7.734 Article 14(c) of the SCM Agreement establis hes guidelines for calculating the amount of a
subsidy in terms of the benefit conferred by a loan guarantee for the purpose of countervailing duty
investigations. We have previously noted that although not intended to define the circumstances
when a loan guarantee will confer a benefit under Artic le 1.1(b) in disputes involving Part III of the
SCM Agreement, Article 14(c) does provide useful context. 3340 This provision describes the benefit
of a loan guarantee as the difference in the amount th at a recipient pays for a loan guaranteed by the
government and a comparable commercial loan absent the loan guarantee:
"a loan guarantee by a government shall not be considered as conferring a benefit,
unless there is a difference between the amount that the firm receiving the guarantee
pays on a loan guaranteed by the government and the amount that the firm would pay
on a comparable commercial loan absent the government guarantee. In this case the
benefit shall be the difference betw een these two amounts adjusted for any
differences in fees;"

3335 US Comments to EC, Answer to Panel Question 181.
3336 US Comments to EC, Answer to Panel Question 181.
3337 US Comments to EC, Answer to Panel Question 181.
3338 US Comments to EC, Answer to Panel Question 181.
3339 See, para. 7.302 above.
3340 See, para. 7.303 above.

BCI deleted, as indicated [***]

7.735 In our view, the fact that a loan guarantee will confer a benefit on a recipient when it enables
that recipient to obtain the guaranteed loan at a below market price implies that the benefit of a
potential direct transfer of funds arises from the mere existence of an obligation to make a direct
transfer of funds in the event of default. T hus, as we have concluded elsewhere in this Report, 3341
when assessing whether a transaction involves a "pot ential direct transfer{} of funds", the focus
should be on the existence of a government practi ce that involves an obligation to make a direct
transfer of funds which, in and of itself, is claimed and capable of conferring a benefit on the recipient
that is separate and independent to the benefit that might be conferred from any future transfer of
funds. This can be contrasted with financial contributions in the form of direct transfers of funds,
which will result in a benefit being conferred on a re cipient when there is a government practice that
involves a direct transfer of funds.
7.736 It is not entirely clear to us whether the Unite d States intended that its arguments should be
understood as suggesting that the 2002 finance c ontract between the EIB and EADS evidences the
existence of two types of financial contributions – a direct transfer of funds (the [***] loan) and a
potential direct transfer of funds (the EUR 700 mi llion credit line). However, in our view, this
appears to be the natural implication of what it is saying when it alleges that the finance contract
results in EADS receiving two very different types of benefit.
7.737 We recall that between 2 August 2002 (the da te of the conclusion of the contract) and [***]
(the date of the [***] disbursement), EADS was entitled to draw down on the EUR 700 million credit
line. The United States has argued that the very existence of this credit facility provided EADS with a
benefit. In other words, the United States claims that the EIB's obligation to lend money to EADS, in
and of itself, conferred a benefit upon EADS. From this pe rspective, we agree with the United States
that the finance contract, at least until [***], evidences the existence of a potential direct transfer of
funds in the amount of EUR 700 million. 3342 Similarly, the United States has argued that the
"eventual use of the loan", that is, the actual disbursement of [***] on the terms and conditions set out
in the finance contract, conferred a different benefit upon EADS. Thus, as with the European
Communities, the United States is also of the view th at the finance contract evidences the existence of
a financial contribution in the form of a loan amounting to [***]. We agree that the [***]
disbursement amounts to a loan, and therefore a financial contribution within the meaning of
Article 1.1(a)(1)(i) of the SCM Agreement.
7.738 Thus, in the light of the foregoing analysis, we find that the 2002 finance contract between the
EIB and EADS evidences the existence of a financial contribution, in the form of a loan, within the
meaning of Article 1.1(a)(1)(i) in the amount of [***]. In addition, in the light of the United States'
characterisation of the alleged benefit resulting from the mere existence of the EUR 700 million credit
line, we also find that the 2002 finance contract ev idences the existence of a po tential direct transfer
of funds within the meaning of Article 1.1(a)(1)(i). We now turn to consider whether these and other
financial contributions provided by the EIB to Ai rbus conferred a benefit within the meaning of
Article 1.2 of the SCM Agreement.

3341 See, para. 7.304 above.
3342 Once EADS obtained the disbursement of [***], the amount of the credit line made available under
the contract was [***]. The United States has not explained whether its claim extends to this residual amount of
the credit line.

BCI deleted, as indicated [***]

(ii) Do the Challenged EIB Loans Confer a "Benefit" on Airbus?
Arguments of the United States

7.739 The United States argues that the very purpose of the EIB is to provide financing on terms
more favourable than those available fo r comparable financing in the market. 3343 In particular, the
United States notes that Article 18 of EIB Statute explicitly limits EIB lending to situations where
"funds are not available from other sources on reas onable terms". Moreover, the United States
submits that the EIB operates by using the EC member States' AAA credit rating to obtain large
amounts of funds from the money market at advantageous rates, and then passing these rates onto
non-AAA credit rated loan recipients. Thus, th e United States argues that, like the Technology
Partnerships Canada Progra mme that was at issue in Canada – Aircraft , the EIB "neither seeks nor
earns a commercial rate of return"
3344 on the loans it provides. Like the panel in that dispute, the
United States urges the Panel in the present dispute to find that all of the EIB loans at issue confer a
benefit on Airbus.3345
7.740 The United States argues that the interest rate charged by the EIB on each of the relevant
loans confirms that they were more advantage ous than comparable loans offered by a commercial
bank. For two of the loans at issue – the 2002 EIB lo an to EADS and the 1992 loan to Aérospatiale –
the United States has submitted its own market interest rate benchmark analysis and compared this to
the interest rate charged by the EIB. In both cases, the United States concludes that the interest rates
for comparable commercial financing would be less advantageous than the interest rates charged on
the loans from the EIB.3346 In respect of the remaining loans, the United States did not have access to
the actual interest rates charged by the EIB until it received the European Communities' first written
submission, when the European Communities submitte d a one page overview of the status of the
relevant loans.3347 The European Communities submitted copies of the loan contracts in its second
written submission, together with its own analys is of whether the loans were provided at non-
commercial interest rates. 3348 Prior to the European Communities' disclosures, the United States had
presented information in its first written submission showing that the average annual interest rates
charged by the EIB to its customers, as published in the EIB's annual reports from 1996 to 2004, were
lower than the contemporaneous market-based cor porate borrowing rates determined in the Ellis
Report.3349 The United States argued that in the light of the European Communities' refusal to provide
the actual terms of the loans during the Annex V pr ocess, the reasonable inference for the Panel to
draw is that the nine remaining EIB loans, provi ded to Airbus between 1988 and 1993, were similarly
beneficial.3350
7.741 In addition to the interest rate benefit that the EIB allegedly provides to recipients of its loans,
the United States submits that the EIB's loans confer another benefit, because the EIB does not charge

3343 US, FWS, paras. 397-402; US, SWS, paras. 260-268.
3345 US, FWS, para. 400.
3346 In particular, the United States asserts that the interest rates charged on the 2002 EIB loan to EADS
and the 1992 loan to Aérospatiale were, respectively, [***] and [***] basis points below the level of interest that
would be charged by a commercial lender on comparable loans. US, SWS, paras. 275-276, referring to the
study prepared by NERA Economic Consulting, The EIB Loans to Airbus, Exhibit US-542 (BCI).
3347 Exhibit EC-154 (BCI).
3348 EC, SWS, paras. 420-421 and 491-508, Exhibit EC-722 (BCI). The United States had (through the
Facilitator) requested the European Communities to provide a copy of the contracts during the Annex V process,
but the European Communities refused because inter alia, it considered they were outside of the temporal scope
of the SCM Agreement. See, EC Reply to Question 81, Exhibit US-5 (BCI).
3349 US, FWS, paras. 410-416 referring to certain pa rts of the Ellis Report, Exhibit US-80 (BCI); US,
SWS, para. 271; US, Answer to Panel Question 149.
3350 US, FWS, para. 416.

BCI deleted, as indicated [***]

its borrowers "commitment fees" to compensate for committing to the loans, nor "non-utilization fees"
in cases where the borrowers do not use the credit lines the EIB has provided. 3351 M o r e o v e r , t h e
United States argues that the EUR 700 million credit line opened for EADS in 2002 confers a benefit
because in the view of the United States, the "abilit y to draw on a Euro 7 00,000,000 line of credit
gave {EADS} valuable liquidity".3352 Finally, the United States contends that all of the loans at issue
granted prior to 1999 conferred a benefit upon Ai rbus because the EIB did not impose a risk
premium.3353
Arguments of the European Communities
7.742 The European Communities rejects the United Stat es contention that, by its very nature, EIB
lending confers a benefit on loan r ecipients, and in this case, Airbus. The European Communities
points to Articles 19(1) and 24 of EIB Statute, which it explains require the EIB to set interest rates at
a level enabling it "to meet its obligations, to cover its expenses and to build up a reserve fund" that is
10% of the prescribed capital. In addition, the European Communities notes that pursuant to
Article 19(2) of the EIB Statute, "the bank shall not grant any reduction in interest rates". Thus,
according to the European Commun ities, the EIB does not pass on to borrowers financing that it
borrowed in the capital markets "at cost". 3354 Moreover, any suggestion that the EIB's lending results
in subsidization due to its opera tions being run on a not-for-profit basis should be dismissed because
profitability is irrelevant to the question whether a measure is a financial contribution that confers a
benefit within the meaning of Article 1.1 of the SCM Agreement.3355
7.743 The European Communities argues that, contrary to the United States' assertions, the EIB
does not structure its loans in a way that confers a benefit on recipients. The European Communities
explains that the EIB uses standard form loan agreements and a standard methodology for the
calculation of interest rates. In respect of the latter, the European Communities indicates that the EIB
establishes interest rates for each loan that it grants on the basis of three separate elements: a base rate
(reflecting the EIB's cost of refinancing on the cap ital markets); a "mark-up" (in order to meet its
obligations to cover expenses and build up a reserve fund); and, as of 1999, a risk premium (reflecting
a loan's credit risk and replacing the form al requirement of providing a guarantee). 3356 Moreover, the
European Communities contends that the fact th at the EIB does not charge commitment fees or non-
utilization fees is justified because inter alia, (i) for "open-rate" contracts ( i.e., contracts where the
rates are not fixed ex ante), there is no certainty as to the timing of availability of funds, and the EIB
does not commit to a precise interest rate; and (ii) for "single disbursement" contracts, there is no open
commitment as such because the contract is signed and one or more disbur sements typically take
place a few days later. 3357 The European Communities notes that if a borrower cancels a requested
disbursement, then it must pay compensation to the EIB.
7.744 The European Communities argues that th e approach taken by the panel in Canada – Aircraft
should not be applied in the present instance because in that dispute, Canada had refused to provide
relevant information on the terms and conditions of the challenged contracts. In contrast, the
European Communities points out that in the present dispute, it has disclosed all of the relevant
contractual terms and conditions.3358

3351 US, FWS, para. 402, referring to an EIB statement submitted as Exhibit US-160.
3352 US Comments to EC, Answer to Panel Question 181.
3353 US, SWS, para. 269.
3354 EC, FWS, paras. 1061-1062.
3355 EC, Answer to Panel Question 86; EC, SWS, paras. 485-490.
3356 EC, FWS, paras. 1069-1070; EC, SNCOS, para. 191.
3357 EC, Answers to Panel Questions 87 and 179; EC, SNCOS, para. 192.
3358 EC, Answer to Panel Question 86.

BCI deleted, as indicated [***]

7.745 The European Communities rejects the interest rate benchmark analyses presented by the
United States for various reasons,
3359 and presents its own analysis showing that in most instances, the
EIB loans at issue were not granted at below-market interest rates, when ad justed for the cost of
certain alleged additional obligations present in EIB loan contracts. 3360 Where the European
Communities' own analysis shows that certain EIB loan s were granted at below-market interest rates,
the European Communities contends that the Pa nel should assess whether such loans conferred a
benefit by checking whether the interest rate di fferences fall within the range of 20-50 basis points
above or below the relevant benchmark. In the European Communities' view, a benefit could only
exist if the interest rates requested by the EIB were convincingly outside of this spread of rates.3361
7.746 Finally, the European Communities argues that the general operations of the EIB are similar
to those of the World Bank to the ex tent that the latter can allegedly only lend if it "is satisfied that in
the prevailing market conditions the borrower would be unable otherwise to obtain the loan under
conditions which in the opinion of the bank are reasonable for the borrower".
3362 The European
Communities contends that the same type of prov isions define the lendi ng operations of other
international lending institutions such as the Asian Development Bank, the European Bank for
Reconstruction and Development, the Internationa l Bank for Reconstruction and Development, the
Inter-American Development Bank and the Internati onal Finance Corporation. Thus, the European
Communities submits that to find that the EIB's le nding operations involve subsidization would mean
that loans from all of these other international lending institutions would also, by definition, amount to
subsidies.
Evaluation by the Panel
7.747 The United States' allegations in respect of the question of benefit are grounded in essentially
two lines of argument: First, that the nature of the EIB's lending operations demonstrates that it grants
loans on the basis of non-commercial considerations ; and second, that the actual terms and conditions
attached to the EIB's loans to Air bus show that they were more favourable to Airbus than comparable
market financing because granted at lower interest rates and with no requirement to pay commitment
or non-utilization fees. As regards the EUR 700 million credit line opened for EADS in 2002, the
United States also considers that a benefit was conferred because it provided EADS with "valuable
liquidity".3363 We evaluate each of the United States' lines of argument in turn.
The EIB's lending operations
7.748 The EIB was established in 1957 pursuant to Article 266 of the Treaty of Rome ("EC Treaty")
as the long-term lending arm of the European Comm unities. As described in Article 267 of that
Treaty, the EIB's task is:
"... to contribute, by having recourse to the capital markets and utilising its own
resources, to the balanced and steady de velopment of the common market in the
interest of the Community. For this purpose the Bank shall, operating on a non-
profit-making basis, grant loans and give guarantees which facilitate the financing of
the following projects in all sectors of the economy:

3359 EC, FWS, paras. 1073-1089 and EC, SWS, paras. 494-499 (as regards the interest rate benchmarks
based on the Ellis Report); EC, SNCOS, paras. 188-189 a nd Exhibit EC-857 (BCI) (as regards the interest rate
benchmarks derived in the NERA Economic Consulting Report).
3360 EC, FWS, paras. 1090-1103; EC, Answer to Panel Question 89; EC, SWS, paras. 500-508; Exhibit
EC-722 (BCI); EC, Answer to Panel Question 176; Exhibit EC-876 (BCI).
3361 EC, SWS, para. 507.
3362 EC, FWS, para. 1064.
3363 US Comments to EC, Answer to Panel Question 181.

BCI deleted, as indicated [***]

(a) projects for developing less-developed regions;
(b) projects for modernising or converting undertakings or for
developing fresh activities called for by the progressive establishment
of the common market, where these projects are of such a size or
nature that they cannot be entirely financed by the various means
available in the individual member States;
(c) projects of common interest to several member States which are
of such a size or nature that they cannot be entirely financed by the
various means available in the individual member States.
In carrying out its task, the Bank shall facilitate the financing of investment
programmes in conjunction with assistance from the Structural Funds and other
Community Financial Instruments."
3364
7.749 The Statute of the EIB further provides:
 "Article 2
The task of the Bank shall be that defined in Article 267 of {the EC Treaty}.
 Article 18
1. Within the framework of the task set out in Article 267 of this Treaty, the Bank
shall grant loans to its members or to priv ate or public undertakings for investment
projects to be carried out in the European territories of member States, to the extent
that funds are not available from other sources on reasonable terms.
2. As far as possible, loans shall be granted only on condition that other sources of
finance are also used.
3. When granting a loan to an undertaking or to a body other than a Member State,
the Bank shall make the loan conditional either on a guarantee from the Member
State in whose territory the project w ill be carried out or on other adequate
guarantees.
4. The Bank may guarantee loans contracted by public or private undertakings or
other bodies for the purpose of carrying out projects provided for in Article 267 of
this Treaty.
5. The aggregate amount outstanding at any time of loans and guarantees granted by
the Bank shall not exceed 250% of its subscribed capital.
6. The Bank shall protect itself against ex change risks by including in contracts for
loans and guarantees such clauses as it considers appropriate.

3364 Exhibit EC-157. The European Communities notes that the objective set out in subparagraph (b)
"has progressively been abandoned as measures to create the EC Single Market were of a transitory nature".
The European Communities explains that "it has been used for the last time in Spain, during the first years of its
accession to the EC". EC, FWS, footnote 809.

BCI deleted, as indicated [***]

 Article 19
1. Interest rates on loans to be granted by the Bank and commission on guarantees
shall be adjusted to conditions prevailing on the capital market and shall be calculated
in such a way that the income therefrom sh all enable the Bank to meet its obligations,
to cover its expenses and to build up a reserve fund as provided for in Article 24.
2. The Bank shall not grant any reduction in interest rates. ... "
3365
7.750 Thus, the EIB may be characterised as a public purpose supranational banking institution that
acts to further EU policy objectives by providing loans across a broad array of economic sectors, "to
the extent that funds are not available from other sources on reasonable terms", at interest rates that
cover its expenses and enable it to build up a reserve fund. The EIB has described its lending
activities in the following terms:
"{B}acking by the member states gives th e EIB the highest possible credit rating
(AAA) on the money markets, where it can therefore raise very large amounts of
capital on very competitive terms. This in tu rn enables the Bank to invest in projects
of public interest that would otherwise not get the money – or would have to borrow
it more expensively."
3366
"With an excellent 'AAA' credit reputati on and operating as a major international
borrower on financial markets, EIB is able to raise funds at advantageous rates. Being
a not-for-profit institution, the Bank passes on the benefits to its clients in the form of
loans at fine rates. Interest rates ar e based on EIB's borrowing cost and a small
margin to cover administrative expenses and other costs."3367
7.751 In practice, the funds lent by the EIB are therefore first obtained on the money market by the
EIB at interest rates reflecting its AAA credit rating. These funds are then passed on to borrowers at a
marked-up interest rate which enables the EIB "to m eet its obligations, to c over its expenses and to
build up a reserve fund". We understand that the inte rest rate charged to borrowers has also, since
1999, included a risk premium to reflect the perceived level of a loan's "expected loss". 3368 Prior to
the introduction of this risk premium, the European Communities asserts that a loan's credit risk was
in general taken into account by the EIB through a requirement for loan guarantees.3369
7.752 The United States argues that these features of the EIB's lending operations demonstrate that
EIB loans are non-commercial and therefore, in the same way that the non-commercial nature of the
loans at issue in Canada – Aircraft were found to confer a benefit to their recipients, the EIB loans
that are at issue in the present dispute must also confer a benefit on Airbus, within the meaning of
Article 1.1(b) of the SCM Agreement. On the other hand, the European Communities rejects the view
that the general nature of the EIB's lending activities necessarily means that the EIB did not earn a
rate of return on its loans to Airbus that is sim ilar to the rate that would be sought by commercial
banks. The European Communities argues that a de termination of whether a measure is a subsidy
should not be made by focussing on whether the grantor "as an abstract matter 'seeks' a certain rate of

3365 Exhibit EC-157.
3366 EIB, What Does the Bank Do? Exhibit US-153. A similar statement is also made in the EIB
Annual Report for 2004, submitted as Exhibit US-159.
3367 EIB, FAQs, Project & Loans , Exhibit US-160. A similar statement is also made in another
document submitted by the United States as Exhibit US-151.
3368 EC, FWS, para. 1070; Exhibit EC-842, p. 149.
3369 EC, SNCOS, para. 191. This alleged aspect of the EIB's lending operations is examined in more
detail at paras. 7.815-7.819 below.

BCI deleted, as indicated [***]

return", but rather through "a comparison of the terms on which the challenged financial contribution
was extended with the terms available for the recipient at market".3370
7.753 We recall that in order to understand whether a fi nancial contribution, in the form of a loan,
confers a benefit, an assessment must be made of whether that loan places the recipient in a more
advantageous position compared to the position it woul d have been in had a comparable loan been
obtained from a commercial lender. 3371 In making this assessment, we see the non-profit-making
nature of the EIB's operations and its mandate to provide financing to the extent funds are not
otherwise available "on reasonable terms" as featur es of the EIB's lending activities that suggest its
loans are granted for projects that would be mo re difficult to successfully realize, or simply
unfeasible, on the basis of commercial financing. To this extent, we believe that the evidence we
have reviewed on the nature of the EIB's lendi ng activities (especially its non-profit-making nature)
indirectly supports the view that the rate of retu rn it obtains on the loans it grants to borrowers
(including those challenged by the United States in this dispute) is below the rate of return that would
be demanded by a commercial lender, thereby c onferring a benefit within the meaning of
Article 1.1(b) of the SCM Agreement. However, the parties have submitted other evidence that goes
directly to the terms and conditions that the pa rties assert commercial lenders would have asked
Airbus to agree to in order to obtain loans compar able to the EIB loans at issue. The United States
has submitted this evidence for the purpose of confirming that the EIB loans confer a benefit on
Airbus; whereas the intention behind the European Communities' submission is to rebut the United
States' allegations and demonstrate that the loans do not confer a benefit. We evaluate the parties'
submissions in the following sections.
Terms and conditions of the loans to Airbus
The 2002 loan to EADS
7.754 The 2002 EIB loan to EADS was granted for the purpose of one particular project – the
development of the A380. It was effe cted through one disbursement of USD [***] at an interest rate
of [***], payable annually, on a non-amortizing loan with a final maturity of [***] years (i.e., loaned
capital plus final year interest payment due on [***]).3372 The United States alleges that the loan to
EADS conferred a benefit for two reasons: (i) because it was granted on interest rate terms that were
more advantageous than comparable market financing; and (ii) because EADS did not have to pay any
commitment fees or non-utilization fees. We examine each of the United States' allegations in turn.
Interest rate terms
7.755 Initially, the market interest rate benchmarks presented by the United States for all of the EIB
loans were based on the country-specific general co rporate borrowing rates determined in the Ellis
Report.3373 For the 2002 EIB loan to EADS, the Un ited States asserted that the risk-adjusted
commercial borrowing rate that the market would have charged EADS in 2002 on an equivalent long-
term loan would have been "in the range of [***] percent, plus applicable commitment and non-
utilization fees".3374 In its second written submission, the United States submitted a revised market
interest rate benchmark analysis for this loan, prepared by NERA Economic Consulting (the "NERA
EIB Report"). 3375 On the basis of this revised analysis , the United States concludes that "the
commercial rate for a loan with the characteristi cs of the 2002 EIB loan to EADS (European

3370 EC, Answer to Panel Question 86.
3371 See, para. 7.382 above.
3372 Exhibits US-158 (BCI), US-162 (BCI), EC-168 (BCI) and EC-879 (BCI).
3373 US, FWS, paras. 404 and 415, referring to Ellis Report, Exhibit 6, Exhibit US-80 (BCI).
3374 US, FWS, para. 404.
3375 NERA, The EIB Loans to Airbus (hereinafter "NERA EIB Report"), Exhibit US-542 (BCI).

BCI deleted, as indicated [***]

borrower, rated A3/A-, loan in Eurodollars, 10-ye ar maturity) would have been 5.68 percent in
[***]."
3376
7.756 The European Communities criticises the United St ates' market interest rate benchmark on
various grounds. In an assessment of the find ings of the NERA EIB Report, the European
Communities alleges that the United States' benc hmark for the 2002 loan to EADS suffers from
numerous deficiencies making it unreliable:
"In relation to the 2002 EIB loan, the EIB h as identified the following crucial errors
affecting NERA's assessment:
• the entire 57 basis points 'benefit' claimed by NERA is wholly
based on {the} NERA assert{ion}, without evidence, that the USD
capital market is so inefficient that it would have cost EADS
approximately 63 basis points more to borrow USD than an
equivalently rated US corporation{}.
• NERA assumes that EADS would have chosen what NERA claims
to be the most expensive option to borrow USD (the Eurobond
market) even though, according to NERA, it would have been
cheaper for a European corporati on such as EADS to borrow in the
so-called Yankee market.
• NERA ascribes {a} wrong credit rating to EADS – in [***], EADS
was rated A by S&P, and not A-.
• the 57 basis points 'benefit' claimed by NERA simply does not
stand up to any analysis with pricing achieved by other comparable
European corporate borrowers at the time of the 2002 EIB loan or,
indeed, pricing levels that EADS could have achieved in the swap
market or through the USD syndicated loan market."
3377
7.757 As we understand it, the market interest rate benchmark identified in the NERA EIB Report
for the 2002 loan to EADS is based on the interest rate that a non-United States corporate borrower
with allegedly the same credit rating as EADS woul d have had to pay on a 10 year "Eurodollar" bond
issued on [***].3378 Eurodollar bonds are USD bonds issued by companies outside of the United
States. They may be compared with either "Ya nkee" bonds, which are USD bonds issued within the
United States by companies that are not domiciled in the United States, or domestic USD corporate
bonds, which are issued by United States compani es in the United States. NERA asserts that
in August 2004, the yield on A rated 10 year Eurodollar bonds exceeded Yankee bonds by around 30
basis points; while the yield on A rated Yank ee bonds exceeded domestic 10 year USD corporate
bonds by about 33 basis points.
3379 In other words, the NERA EIB Report submits that
in August 2004, 10 year USD denominated bonds were approximately 63 basis points more expensive
for non-United States A rated corporations to issue outside of the United States than A rated
United States corporations issuing within the Unite d States. This price difference is explained by
NERA as a function of factors such as "cross-border risks (the fact that a foreign company borrowing
in USD is exposed to currency risk, plus that if the borrower is outside of the U.S., it may be more

3376 US, SWS, para. 275.
3377 EIB Analysis of NERA EIB Report, p. 1, Exhibit EC-857 (BCI) (hereinafter "EIB Analysis of
NERA EIB Report"). See, also, EC, Answer to Panel Question 180.
3378 NERA EIB Report, p. 7.
3379 NERA EIB Report, pp. 3-4.

BCI deleted, as indicated [***]

difficult to enforce provisions of the bond indenture, etc) and liquidity differences in the three
markets".3380
7.758 The first EC criticism of the NERA EIB Report goes to the appropriateness of using the yield
associated with a 10 year Eurodollar bond index in August 2004 as the basis of the appropriate market
interest rate benchmark. The European Comm unities notes that NERA does not cite any specific
evidence or data sources to substantiate its assertion in respect of the levels of the 10 year Eurodollar
or Yankee bond yields on [***]. In addition, the European Comm unities argues that if the indices
used by NERA were the Bloomberg 10 year Singl e A USD Yankees Industrial index and the 10 year
Single A EuroDollar EMU index, NERA's assessme nt cannot be relied upon because the two indices
represent "a sort of interpolation between existing bonds" that are not homogeneous. 3381 T h e
European Communities explains that the 10 year Single A USD Yankees Industrial index includes
bonds issued by "the State of Israel, Bank of Chin a, the National Bank of Hungary, Poland and BHP".
Reflecting the heterogeneity of these bond issuers, the European Communities notes that the range in
the spread between 10 year USD bonds issued by A rated domestic industrial issuers and 10 year USD
Yankee bonds issued by A rated industrial users show ed "extreme volatility with a minimum value of
21 bps and a max value of 35 bps". Likewise, th e European Communities observes that the 10 year
Eurodollar bond index "currently contains issuers su ch as the Republic of Italy, the Italian Regione
Campania, the Greek subsidiary of Coca Cola and so me special entity vehicles related to Transneft,
the Russian oil pipeline provider". 3382 The spread between 10 year USD Yankee bonds issued by
A rated industrial users and the 10 Year Eurodolla r bond issued by EMU A rated industrial users is
equally "very volatile with a range of between – 19 bps and 39 bps". Given that the issuers of the
bonds used to compile these indices are not all indu strial corporations, the European Communities
argues that they are unreliable proxies for assessing wh at the market would have asked a corporation
such as EADS to pay in 2004 for USD financing similar to the EIB loan.3383
7.759 We agree with the European Communities that the use of a USD bond index that is derived
from information about the yields of bonds issued in August 2004 by entities that include
governments and other non-industrial corporations does not provide a perfect benchmark for assessing
the precise interest rate that a company, like EADS, would have had to pay for this type of USD bond
financing in August 2004.
3384 However, in our view, the Eurodollar bond index that the United States
appears to have relied upon is not entirely irrelevant. 3385 First, we note that Eurodollar bonds are a
form of USD financing available to entities that like EADS are domiciled and operate outside of the
United States.3386 Therefore, Eurodollar bond financing was an option available to EADS at the time

3380 NERA EIB Report, footnote 5, Exhibit US-542 (BCI). See, also, US, Comments on EC Answer to
Panel Question 180, where the United States notes that the fact that Eurodollar bonds are not registered with the
United States Securities and Exchange Commission means that new issues cannot immediately be sold in the
United States, making them less liquid.
3381 EIB Analysis of NERA EIB Report, p. 3.
3382 EIB Analysis of NERA EIB Report, p. 3.
3383 EIB Analysis of NERA EIB Report, p. 3.
3384 We note that the Eurodollar bond index that the European Communities suggests was relied upon
in the NERA EIB Report included companies active in the consumer (n on-cyclical), consumer (cyclical),
communications, utilities and financial industry sectors. Only two of the 13 borrowing entities included in the
index were public administrations – the Republic of Italy and the Italian region of Campania. EIB Analysis of
NERA EIB Report, Annex I.
3385 Although NERA did not attach a copy of the Eurodolloar bond price information it relies upon in
the EIB Report, it did explicitly note that the information was drawn from Bloomberg. NERA EIB Report, p.7,
Exhibit US-542 (BCI). The United States has not contes ted the assertion in the EIB Analysis of the NERA EIB
Report that NERA relied upon the Bloomberg 10 year Single A EuroDollar EMU index to establish its
benchmark.
3386 "Eurodollar bonds are 1. Denominated in U.S. dolla rs 2. Issued and traded outside the jurisdiction
of any single country 3. Underwritten by an international syndicate 4. Issued in bearer (unregistered) form".

BCI deleted, as indicated [***]

the EIB loan was disbursed. Second, although not specific to EADS, the Eurodollar bond index might
nevertheless be viewed as representing the average cost of Eurodollar bonds for the group of similarly
rated entities that make up that index, onl y two of which were public administrations.
3387 I n o t h e r
words, the 10 year Single A EuroDollar EMU inde x which the United States appears to have relied
upon acts as a signal of the average cost of 10 year Eurodollar bond financing on the market for
A rated entities at the relevant moment.3388
7.760 The second EC criticism relates more specifically to the question whet her the United States'
revised market interest rate benchmark overstates the cost of financing that would have been available
to EADS on 20 August 2004. In particular, the Eu ropean Communities argues that by relying on data
from a Eurodollar bond index, the United States assu mes that EADS would have chosen what the
NERA EIB Report recognizes was the more expensive USD funding option available to EADS
compared with Yankee bonds.
3389 The United States explains th at NERA used a Eurodollar bond
index because it represents "a loan denominated in the same currency as the EIB loan and provided
under comparable market circumstan ces in the same place as the EIB loan was issued", and therefore
achieves an "apples-to-apples comparis on" with the 2002 loan to EADS. 3390 Thus, the United States
argues that "like the EIB loan to E ADS, the U.S.- proposed benchmark is a [***] loan provided by a
non-U.S. lender to a non-U.S. borrower."3391
7.761 Fabozzi and Mann describe the Yankee bond ma rket as encompassing "those foreign-
domiciled issuers who register with the SEC and borrow dollars via issues underwritten by a U.S.
syndicate for delivery in the United States."3392 In other words, Yankee bonds involve USD financing
in the United States for entities that are not domiciled in the United States. This compares with
Eurodollar bonds, which involve USD financing outside of the United States for entities that are not
domiciled in the United States. 3393 It is clear to us that the 2002 EIB loan to EADS, as a non-
amortizing USD loan issued to a European corpor ate outside of the United States, bears closer
resemblance to the latter than the former. In a ddition, we note that Eurodollar bonds pay interest
(coupons) annually, like the EIB loan; wherea s Yankee bonds pay interest semi-annually. 3394 Thus,
while we recognize that Yankee bond financing may ha ve been available to EADS in August 2004,
we agree with the United States that financing th rough a Eurodollar bond would be a better proxy for
the 2002 EIB loan to EADS.

Frank J. Fabozzi and Steven Mann: The Handbook of Fixed Income Securities , Seventh Edition, McGraw-Hill,
pp. 396-397. Exhibit US-673.
3387 See, footnote 3384 above.
3388 Furthermore, we note that the EIB has been declared to be "consistently among the top borrowers"
in the Eurodollar bond market (Fabozzi and Mann, p. 397, Exhibit US-673). The EIB described its USD
borrowing activities for 2004 (the year in which the loan to EADS was disbursed) in the following terms: "In
USD, the Bank was unique among international borrowers in issuing {bonds} in all key benchmark maturities,
involving six new global issues for USD 14.5 bn in total, via benchmark transactions in 2, 3, 5 and 10-year
maturities and a callable bond. The EIB remained the largest and most frequent USD issuer among
supranationals and is the only issuer in its class to offer such a comprehensive yield curve, with maturities
ranging from 2005 to 2014". EIB, Activity Report 2004, p. 39, Exhibit EC-714. Recalling that the EIB operates
by borrowing funds from the money market and on-lending these to its borrowers, it is possible to speculate on
the basis of this information (although we emphasize that th ere is no evidence before us to confirm) that the
Eurodollar bond market might well have been the source of the USD funds disbursed to EADS under the 2002
loan contract.
3389 EIB Analysis of NERA EIB Report, pp. 2-3, Exibit EC-857 (BCI).
3390 US, Comments on EC Answer to Panel Question 180.
3391 US, Comments on EC Answer to Panel Question 180.
3392 Frank J. Fabozzi and Steven Mann, p. 398, Exhibit US-673.
3393 Frank J. Fabozzi and Steven Mann, pp. 396-398, Exhibit US-673.
3394 Frank J. Fabozzi and Steven Mann, p. 396, Exhibit US-673.

BCI deleted, as indicated [***]

7.762 The third EC criticism is that the United States ' benchmark applies a Standard & Poors credit
rating for EADS of A-, when in fact, on [***], EADS had a Standard & Poors credit rating of A.
According to the European Communities, the di fference means that the United States' proposed
benchmark overstates the market interest rate by 6.5 basis points. 3395 The United States responds by
noting that even accepting the Europ ean Communities' factual assertion and proposed adjustment, the
revised market interest rate benchmark would be 5.6138%, still [***] basis points [***] the interest
rate paid on the EIB loan. 3396 We agree with the European Co mmunities that EADS' credit rating on
the date of the EIB loan disbursement ( [***]) should be used when identifying the appropriate market
interest rate benchmark.
7.763 Finally, the European Communities argues that the United States Eurodollar bond-based
benchmark "does not stand up to any comparison with pricing achieved by other comparable
European corporate borrowers at the time of th e 2002 EIB loan" in alternative USD financing
markets.3397 The European Communities presents these alternatives as appropriate market interest rate
benchmarks, and argues that when properly adjusted and examined together, they demonstrate that the
interest rate attached to the 2002 loan to EADS fe ll within the range of commercial financing options
available to EADS at the time and, therefore, did not confer a benefit.
7.764 Initially, the European Commun ities proposed a market interest rate benchmark of 5.10%,
constructed using the value, on [***], of the 10 year Constant Maturity Treasury rate from the United
States Treasury Yield Curve (4.24%) (representing the risk-free rate for borrowing in USD at the time
when EADS drew down on the EIB loan) and adding to this the "Reuters' 10 year Corporate Bond
Spread for Industrials" with the same A3 credit ra ting as EADS (0.86%) (reflecting the general credit
risk of the specific borrower). 3398 Subsequently, the European Co mmunities added an additional 5
basis points to this rate in order "to take into account the valid comment contained in the {NERA EIB
Report} with regard to the frequency of interest payments" on US Treasury bonds. 3399 In addition, the
European Communities presented three other possible ma rket interest rate benchmarks based on: (i)
the interest rate paid by a comparable European corporate borrower (Norsk Hydro A/S) on the USD
Yankee bond market; (ii) the interest rate paid by a comparable European corporate borrower
(Pearson Plc) in the USD syndicated lo an market; and (iii) the interest rate that could have been paid
by EADS on the corporate bond "swap market". 3400 Finally, the European Communities adjusted
three of these benchmarks to reflect "additional fi nance-related project cost/obligations" that are
"expressly acknowledged by the ratings agencies" to affect the market prices of bonds and loans, 3401
arriving at the following result:

3395 EIB Analysis of NERA EIB Repo rt, p. 4, Exibit EC-857 (BCI). See, also, EC, Answer to Panel
Question 180.
3396 US, Comments on EC Answer to Panel Question 180.
3397 EIB Analysis of NERA EIB Report, p. 4, Exibit EC-857 (BCI); EC, Comments on US Answer to
Panel Question 149.
3398 EC, FWS, paras. 1097-1099; Exhi bit EC-168 (BCI). The European Communities did not submit a
copy of the relevant "Reuters' 10 year Corporate Bond Spread for Industrials" Index. In subsequent
submissions, the European Communities states that it used the "Moody's index for A3 rated corporates" to
determine the relevant spread, Exhibit EC-722 (BCI)) or that it relied upon the "relevant Merril Lynch index"
(EC, Answer to Panel Question 180). However, we und erstand that the credit spread actually used by the
European Communities was based on the "Reuters' 10 year Corporate Bond Spread for Industrials" index for
corporations with an A3 credit rating, reflecting the fact that Moody's had assigned EADS an A3 credit rating on
15 March 2002. Exhibit EC-168 (BCI).
3399 EC, Answer to Panel Questions 176 (footnote 62) and 180.
3400 EIB Analysis of NERA EIB Report, Exhibit EC -857 (BCI), pp. 4-6; EC, Answer to Panel
Question 176.
3401 EC, Answer to Panel Question 176, referring to a Moody's publication which states inter alia, that
"{i}n order to equalize losses across similarly rated loans and bonds, upward adjustments on loan ratings {of

BCI deleted, as indicated [***]

Table 8 – EC Benchmark Analysis for the 2002 EIB Loan

Benchmark EIB Rate Benchmark Rate Adjusted
Benchmark Rate
USD Treasury Bond plus
Relevant Spread for A3
Corporations
[***] 5.15% 5.08%
Norsk Hydro Yankee Bond [***] 5.26% 5.20%
Pearson USD Syndicated
Loan
[***] LIBOR/Swaps plus
35.5 basis points
No adjustment
EADS EUR bonds
swapped into USD bonds
[***] 5.20% 5.14%

7.765 The European Communities asserts that the a bove four interest rates represent "EADS'
alternative cost of funding for a loan equivalent" to the 2002 loan from the EIB, and should therefore
all be considered relevant to the benchmarking exercise. 3402 In this regard, the European
Communities argues that "the commercial reality is that it is simply not possible to argue credibly that
for any one borrower at any point in time there exists (to the nearest one hundred of one percent) a
market benchmark consisting of " one single interest rate. 3403 Thus, in recognition of this alleged
reality, the European Communities concludes that all of the four funding options it has identified must
be taken into account. When this is done, the European Communities notes that the difference
between the interest rate charged by the EIB and th e various (adjusted) commercial market interest
rate benchmarks, is between minus three and plus nine basis points – on average, a difference of plus
1.5 basis points or 0.015%.
3404
7.766 The European Communities also considers that any assessment of whether the EIB loans to
EADS confer a benefit must take into account wh at it alleges are the additional costs of various
project-related and administrative obligations found in the EIB loans that would not normally be
present in the bond instruments used by the Un ited States or the European Communities for
benchmarking.3405 The European Communities describes at least nine such project- related
obligations,3406 and identifies where each is found in each of the EIB loans in dispute. 3407 T h e
European Communities explains that costs of this kind are not typically found in bond instruments
because, as illustrated by an EADS bond issued in 2005, bond financing is not project-specific, but for
"general corporate purposes". 3408 In respect of administrative costs, the European Communities
argues that the main additional administrative cost faced by a borrower taking an EIB loan is time –
the time needed to undertake the a dditional procedural steps, most importantly project appraisal, that

about 0.5 to 1.5 alpha-numeric rating notches}, rather than downward adjustments on bond ratings, appear more
appropriate". Moody's Investor Service, Special Comment 'Credit Loss Rates on Similarly Rated Loans and
Bonds', December 2004, Summary, Exhibit EC-878.
3402 EC, Comments on US Answer to Panel Question 149.
3403 EC, Comments on US Answer to Panel Question 149.
3404 EC, Answer to Panel Question 176.
3405 EC, FWS, paras. 1081-1089; EC, Answer to Panel Question 176.
3406 These are the obligation to: (i) participate in project appraisal; (ii) carry out a project; (iii) use funds
solely for the financing of the project; (iv) prepay in the event project costs co me under expectations; (v)
maintain and insure the project; (vi) not dispose of project assets; (vii) comply with EIB procurement
requirements; (viii) comply with project reporting requirements; and (ix) permit EIB project visits. EC, Answer
to Panel Question 176.
3407 Exhibit EC-876 (BCI).
3408 EC, SWS, paras. 494-495; EC, Answer to Panel Question 176; Exhibit EC-721.

BCI deleted, as indicated [***]

are not required when funding is sought from the bond market. 3409 Taking all such additional costs
into account, the European Communities submits that the interest rate offered by the EIB for the 2002
loan to EADS fell within the range of ma rket interest rates at EADS' disposal on [***], and therefore,
did not confer a benefit.3410
7.767 The United States rejects the benchmarks est ablished by the European Communities for
various reasons. As we understand it, the United St ates' particular criticism of the first of the
European Communities' benchmarks is focussed on the appropriateness of using the Reuters'
Corporate Bond Spread for Industrials with an A3 credit rating. According to the NERA EIB Report,
the European Communities erred in the construction of its first benchmark because it used the "yield
on A-3 rated bonds issued by US domestic borrowers, not European borrowers." 3411 Thus, we
understand the United States to argue that the u se of the Reuters' Corporate Bond Spread for
Industrials with an A3 credit rating in the construc tion of the market interest rate benchmark means
that it is less useful as a proxy for the EIB loan to EADS (which was a USD loan granted by a lending
institution outside of the United States to a non-United States corporation) than its own benchmark.
7.768 We recall that the European Communities has not submitted a copy of the "Reuters' 10 year
Corporate Bond Spread for Industrials" index that w as allegedly used to construct the first of its
market interest rate benchmarks for the 2002 loan to EADS. Neither has it explained the extent to
which the spread data relied upon was limited (or not) to USD bonds issued in the United States.
Moreover, although asked to specifically respond to the United States' criticism of its benchmark, the
European Communities did not contest the asserti on that it relied upon the "yield on A-3 rated bonds
issued by US domestic borrowers". 3412 In this light, we find the European Communities' benchmark
to be less relevant to the benchmarking exercise than information on the yields attached to USD bonds
issued by European A3-rated companies outside of the United States.
7.769 The second benchmark presented by the European Communities was derived from the yield,
on [***], of a Yankee bond issued by Norsk Hydro A/S, maturing in 2014. The European
Communities adjusted this yield (5.145%) three tim es: (i) adding 6.5 basis points to account for the
fact that EADS had a "slightly lower" credit rating than Norsk Hydro (which at the time was a single
A rated European corporation); (ii) adding a further 5 basis points to reflect the fact that Yankee
bonds pay interest semi-annually, whereas the EIB lo an to EADS required annual interest payments;
and (iii) detracting 6.5 basis points as the cost of the "additional finance-related project
cost/obligations" "expressly acknowledged by the rati ngs agencies" to affect the market prices of
bonds and loans.
3413
7.770 In our view, the European Communities' reliance on data from the Yankee bond market
renders its second proposed benchm ark a less appropriate commercial proxy for the EIB loan to
EADS than the benchmark advanced by the Unite d States. We recall that Yankee bonds are USD
bonds issued in the United States to non-United St ates entities that pay interest semi-annually. In
addition, according to Fabozzi and Mann, Yankee bonds are usually issued by high credit quality
sovereign and sovereign-guaranteed issuers – wh ereas Eurodollar bonds are issued mostly by
corporations.3414 Thus, we see interest rates associated with Yankee bond financing to be less
appropriate as a proxy for the EIB's USD loan to E ADS than bonds issued in the Eurodollar market.
Although we recognize the merits of seeking to est ablish a market interest rate benchmark on the

3409 EC, SWS, para. 497; EC, Answer to Panel Question 176.
3410 EC, SNCOS, para.189; EC, Comments on US Answer to Panel Question 149.
3411 NERA EIB Report, p. 3. (Emphasis original.) US, SWS, para. 279.
3412 EC, Answer to Panel Question 180.
3413 EIB Analysis of NERA EIB Report, Exhibit EC-8 57 (BCI), p. 4; EC, Answer to Panel Question
176.
3414 Frank J. Fabozzi and Steven Mann, p. 396, Exhibit US-673.

BCI deleted, as indicated [***]

basis of actual Yankee bond financing with the same maturity as the 2002 loan to EADS obtained by
a European corporation having a similar credit rating to EADS, we consider the European
Communities' benchmark to be a less appropriate proxy for the interest rate that a commercial lender
would have charged EADS in August 2004 for a loan having the same characteristics as the 2002 EIB
loan to EADS than the revised benchmark advanced by the United States.
7.771 The third European Communities benchmark is based on a syndicated USD loan to a BBB+
rated European publishing company, Pearson Plc, in July 2004, adjusted to account for EADS better
credit rating and the 5 year duration of the loan (compared with the 10 year loan to EADS).
3415 The
United States argues that the features of this benchmark, like that derived from Yankee bond
information, differ from the EIB loan to EADS to the extent that it involves USD lending by United
States lenders.3416 The European Communities has not disclo sed the source of the information on the
Pearson Plc syndicated loan. Therefore, we cannot verify whether the syndicate involves only United
States lenders. However, in our view, there are several other features of the Pearson syndicated loan
which render it less appropriate to use as a commercial proxy for the 2002 EIB loan to EADS than the
revised benchmark proposed by the United States. In particular, the recipient of the syndicated loan is
a publishing company, whose activities are by their nature very different from those of EADS and
Airbus. In this regard, we recall that the 2002 EIB loan to EADS was granted for the purpose of the
A380 development programme, a project of largel y unprecedented proportions in the field of LCA
development. Furthermore, the Pearson loan w as syndicated, meaning that the risks were spread
between different lenders; and as the European Communities has itself noted,
3417 the Pearson loan
involved revolving credit of five years, whereas the EIB loan to EADS involved a "10-year bullet".
These features render the syndicated loan quite diffe rent from the EIB loan to EADS for the A380.
This leads us to conclude that it is a less appropria te proxy for the EIB loan at issue than the revised
benchmark proposed by the United States.
7.772 The last commercial interest rate benchm ark the European Communities proposes for the
2002 EIB loan to EADS is based on what the European Communities submits it would have cost
EADS to "swap" (convert) a Euro denominated bond issued on [***] into US dollars. Using
historical secondary market trading data for two Euro denominated bonds issued by EADS that were
outstanding on [***] – one maturing in 2010 and another in 2018 – the European Communities
arrives at an approximate market price "for a th eoretical spread to swaps of a 10-year EADS bond
issue as at the date on which the EIB interest rate was fixed".
3418 It then converts this spread into "an
approximate spread to USD swaps by subtracting th e relevant cross country swap level and adding an
estimated level of transaction costs". Because no da ta were available on USD to EUR cross currency
swaps for 10 year maturities on [***], the European Communities derived the relevant cross currency
swap from historical "ICAP" data available on Bloomberg. 3419 Transaction costs were estimated on
the basis of "ICAP" information to be "half of the bid offer spread on a 10 yr basis swap". 3420 Thus,
the European Communities concludes that "EADS USD funding through a hypothetical EUR issue
{on [***]} would have cost 5.205%".3421

3415 EIB Analysis of NERA EIB Report, Exhibit EC-857 (BCI), pp. 4-5.
3416 US Comments to EC, Answer to Panel Question 180.
3417 EIB Analysis of NERA EIB Report, Exhibit EC-857 (BCI), footnote 8.
3418 The European Communities defines "spread to swaps" as "the differential between the yield of the
bond and the corresponding swap". EIB Analysis of NERA EIB Report, Exhibit EC-857 (BCI), footnote 9.
3419 The European Communities describes "ICAP" as "a major broker in the derivatives business and
has a strong presence in interest rate swaps and cro ss currency swaps". EIB Anal ysis of NERA EIB Report,
Exhibit EC-857 (BCI), footnote 13.
3420 EIB Analysis of NERA EIB Report, Exhibit EC-857 (BCI), footnote 15. The European
Communities describes the "bid offer spread" as "the difference between the pric e at which the financial
intermediary is willing to purchase – sell the swap".
3421 EIB Analysis of NERA EIB Report, Exhibit EC-857 (BCI), pp. 5-6.

BCI deleted, as indicated [***]

7.773 In commenting on this benchmark, the United States notes that "a hypothetical 'swap' into
[***] bonds issued by EADS ... bears no resemblanc e to the loan actually issued by the EIB." 3422 We
are also not convinced that the proposed benchmark is an appropriate commercial proxy for what the
cost of USD financing comparable with the 2002 EIB loan would have been for EADS.
7.774 Brealey and Myers explain that a typical cr oss currency swap transaction involving the
issuance of a bond would result in the exchange of a series of cash-flows between two parties. In the
first instance, the bond issuer would swap funds obt ained in one currency on the bond market at a set
interest rate with an equivalent amount of financing from a counterpart in another currency. Each
year until the bond reaches maturity, the counterpart would provide the bond issuer with the funds
needed to make interest payments to the bondholde rs in the bond currency. In return, the bond issuer
would make interest payments in the swap currenc y on the funds swapped with its counterpart. On
maturity of the bond, the counterpart would transfer a sufficient amount of funds in the bond currency
to enable the bond issuer to make the final paymen t of interest and principal to its bondholders.
Likewise, the bond issuer would make the last paymen t of interest and principal in the swap currency
to the counterpart.
3423
7.775 Thus, in essence, as we understand it, the benc hmark proposed by the European Communities
is based on a theoretical agreement between two parties (EADS and a counterpart) to exchange
principal and interest payments in separate currenci es. It would involve the exchange of principal
denominated in EUR (obtained by EADS from a bond issue) for an equivalent amount in USD. In
each year until the bond issue reaches maturity, EADS and the counterpart would exchange interest
payments – EADS would make USD interest payments to the counterpart at the rate of interest
attached to the USD "swap"; and the counterpart would make EUR interest payments to EADS in an
amount to cover the interest payments required on th e bond. At maturity, the final interest payments
would be made and the principals would be re-exchanged between the two parties. In our view, these
features of the European Communities' fourth propo sed benchmark show that it is a very different
type of financing instrument than the 2002 EIB loan to EADS. We are therefore not convinced that it
represents a better proxy for the commercial interest rate that EADS would have been asked to pay for
USD financing with the same characteristics as the 2002 loan from the EIB than the revised
commercial benchmark advanced by the United States.
7.776 The parties' submissions show that establishing an appropriate market interest rate benchmark
for the 2002 loan to EADS is a complex exercise. While we accept that EADS would have had a
range of options available to it in August 2004 to obtain funding in USD from the market, the options
that the parties have advanced involve financial in struments offering different levels of comparability
with the loan from the EIB. We recall that in order to determine whether the 2002 loan to EADS
conferred a benefit, we must identify which, if any, of the interest rate benchmarks proposed by the
parties can serve as the most appropriate proxy for the interest rate that a commercial lender would
charge Airbus for financing having the same or similar charact eristics as the 2002 loan to EADS .
Thus, contrary to what is suggested by the Eur opean Communities, the fact that EADS may have
sought USD financing in August 2004 from a variety of market sources does not necessarily mean
that all such sources represent a range of commercial financing options that are equally comparable
with the 2002 loan to EADS.
7.777 Overall, on the basis of the arguments and eviden ce submitted by the parties, we consider that
the market interest rate proxy that comes closest in terms of key characteristics and features to the
2002 EIB loan to EADS, and which would be appropr iate to use as a commercial benchmark for the
purpose of our benefit analysis, should be based on the 10 year Eurodollar bond interest rate advanced

3422 US, Comments on EC Answer to Panel Question 180.
3423 Richard A. Brealey a nd Steward C. Myers, Principles of Corporate Finance , Fourth Edition, Mc-
Graw Hill Inc., 1991, pp. 642-643.

BCI deleted, as indicated [***]

by the United States, adjusted to account for EADS' credit rating on [***]. As we have already
observed, this benchmark represents the average annual interest rate cost of 10 year USD bond
financing outside of the United States on [***] for entities with the same credit rating as EADS that
are not domiciled in the United States. It therefor e bears close resemblance to the 2002 EIB loan to
EADS, which was a 10 year non-amortizing USD loan attracting annual interest payments granted
outside of the United States to a European company. In contrast, to the extent that the two bond-
based benchmarks presented by the European Communities were based on the cost of USD bond
financing obtained (i) within the United States by United States corporations ; or (ii) within the United
States by a European company (Yankee bond), they represen t USD financing options that have less in
common with the EIB loan to EADS than Eurodollar bond market financing.
7.778 The differences between the 2002 EIB loan to EADS and the European Communities' two
other proposed market benchmarks are more pr onounced. As we have noted, the USD syndicated
loan option would involve multiple banks taking on the risk of E ADS' default; whereas the EIB loan
to EADS involves only one bank. Moreover, it is unclear whether the USD financing under the
syndicated loan would be provided from within th e European Communities or elsewhere. Likewise,
compared with the EIB loan to EADS, a EUR de nominated bond swapped into USD is a relatively
complex finance instrument that would be given effect through a two step process: first, EADS would
need to issue a EUR denominated bond; and second, EADS would have to enter into an agreement
with a counterpart to exchange principal and inte rest payments connected with the EUR denominated
bond into USD. Thus, whereas the EIB loan to EADS involves one core contractual relationship
(between the EIB and EADS), the hypothetical EUR bond USD swap transaction would involve at
least two core contractual relationships – one between EADS and its bondholders and another
between EADS and its swap counterpart. In our vi ew, this type of financial instrument bears little
resemblance to the 2002 EIB loan to EADS. It is therefore a less reliable proxy, compared with the
United States Eurodollar bond benchmark, for the inte rest rate that a commercial lender would charge
EADS for USD financing having the same characteristics as the loan from the EIB.
7.779 Having concluded that the most appropriate commercial interest rate benchmark against
which to measure whether the 2002 EIB loan to EADS conferred a benefit is the Eurodollar bond
interest rate advanced by the United States adjusted to account for EADS' credit rating in [***], we
believe that it is not necessary for us to make an y definitive findings on whether further adjustments
are required to account for the three types of add itional costs the European Communities asserts were
incurred under the EIB loan contract, but not in co nnection with the bond instruments used to derive
the parties' interest rate benchmarks. This is because even accepting the en tirety of the European
Communities' arguments and adjusting the United Stat es' market interest benchmark accordingly, our
overall assessment is that the EIB loan to EADS would still be advantageous compared with
comparable commercial financing.
7.780 The first of the alleged additional costs are th e so-called "additional finance-related project
cost/obligations". According to the European Communities, "additional finance-related project
cost/obligations" reflect "the fact that different fi nancial instruments have different features and that
these features are reflected in the market -pricing of these financial instruments". 3424 The European
Communities explains that:
"It is, for example, generally accepted that lo ans are priced cheaper than bonds. This
is because, inter alia , (i) lenders have a direct re lationship with, and have much
greater information on, a borrower, whereas bond investors invest through a financial
intermediary (typically an investment bank) (ii) a bilateral loan agreement allows
lenders to maintain a constant dialogue w ith their borrowers, something that a bond
issuer does not and cannot do with potentiall y tens of thousands of bondholders (iii)

3424 EC, Answer to panel Question 176.

BCI deleted, as indicated [***]

loan documentation tends to have many more protective covenants than bond
documentation and (iv) ultimately, recovery ra tes in the event of default are typically
higher in the case of a loan than in the case of a bond."3425
7.781 Relying on Moody's assessment of the differences in three-year cumulative loss rates between
similarly rated loans and bonds, the European Comm unities submits that it is possible to quantify the
"pricing impact of using bonds to benchmark a loan that has more stringent terms and conditions than
the benchmark bonds" 3426, and calls for a 6.5 basis point reduc tion in the benchmark interest rates
derived from bond market information.
7.782 The United States does not specifically contest the European Communities' reliance or
interpretation of the Moody's information. However, it notes that even after making the adjustment to
the European Communities' benchmarks to account fo r the alleged "additional finance-related project
cost/obligations" between bonds a nd the EIB loan, two of the European Communities benchmark's
continue to show that the 2002 EIB loan to EADS was non-commercial.3427
7.783 We agree with the European Communities that, in general, the differences between loan and
bond instruments may well translate into differences in the price of borrowing that should be taken
into account in the present benefit analysis. Howe ver, even assuming that the European Communities
is correct in asking for a 6.5 basis point adjustment to be made to the parties' bond-based benchmarks,
the interest rate attached to th e EIB loan to EADS (5.11%) would still be below the level of the
United States' adjusted interest rate benchmark (5.5488%). Thus, even accepting the European
Communities' submission that "additional finance-relate d project cost/obligations" must be taken into
account in order to identify an appropriate commer cial interest rate benc hmark against which to
measure whether the EIB loan to EADS conferred a bene fit, the interest rate at tached to the EIB loan
to EADS would still be non-commercial, confirming th at it confers a benefit within the meaning of
Article 1.1(b) of the SCM Agreement.
7.784 The two further cost adjustments called for by the European Communities are to account for
what it alleges are the "additional project specific costs/obligations" and "additional administrative-
related project costs/obligations" incurred by EADS under the EIB loan. The European Communities
recognizes that such costs are not easily quantifie d. Nevertheless, in the benchmark analyses
presented in Exhibit EC-722 (BCI), the European Communities estimates what it considers they might
have been, when added to the alleged cost of a dditional financial obligations, for a number of the
challenged EIB loans. For instan ce, in respect of the 1988 EIB loan to Aérospatiale for the
A330/A340,
3428 the European Communities submits that the "additional project obligations, financial
obligations and administrative obligations " would have cost Airbus at least [***] basis points.
Conversely, the European Communities considers th at the "additional project obligations, financial
obligations and administrative obligations" connected with the 1993 EIB loan to Airbus for the Super
Transporteurs3429 (a contract sharing the same type of "p roject-related additional obligations" as the
1988 loan to Aérospatiale for the A330/A340 3430) would have cost Airbus less than [***] basis
points.3431 For another contract, the European Communities notes that "{e}ven if the other {non-
financial} additional obligations are di fficult to value precisely, they can definitely be valued at over
[***] basis point". 3432 Thus, it is clear to us that whatever their precise value, the European

3425 EC, Answer to panel Question 176.
3426 EC, Answer to panel Question 176; see also, footnote 3401 above.
3427 US, Comments on EC Answer to Panel Question 176.
3428 Exhibit EC-693 (BCI).
3429 Exhibit EC-695 (BCI).
3430 Exhibit EC-876 (BCI).
3431 Exhibit EC-722 (BCI).
3432 Exhibit EC-722 (BCI), analysis prepared in re spect of the 1991 EIB lo an to British Aerospace for
the A330/A340, Exhibit EC-707 (BCI).

BCI deleted, as indicated [***]

Communities is not suggesting that the alleged additio nal project and administrative costs incurred by
EADS under the 2002 EIB loan for the A380 project were significant in terms of basis points, and
certainly not sufficient to reduce a margin of approximately [***] basis points to zero – the difference
between the actual interest rate charged on the EI B loan (5.11%) and the United States' adjusted
benchmark (5.5488%).
7.785 Moreover, in order to properly take into account the cost of the alleged additional project-
related or administrative obligations imposed on EI B borrowers, we believe that it would also be
necessary to take into account any similar types of project- related or administrative costs associated
with market financing that are not incurred when borrowing from the EIB. The United States submits
that seeking to take all such alleged differences in to account "would make a benefit analysis virtually
impossible". The United States asks how "would one compare the burden associated with applying
for EIB loans with the burden (including the efforts of lawyers, bankers, and others) associated with
obtaining financing from the market? Or ... how would one compare project-specific
'costs/obligations' identified by the European Comm unities with the 'costs/obligations' of a borrower
having dedicated personnel to main tain relations with investment banks for purposes of regular bond
issuances?"
3433 In any event, the United States notes th at the European Communities merely asserts
that the alleged additional costs "would not normally be present" in the market finance instruments
referred to by the United States. According to the United States, had the European Communities
undertaken a comparison of the actual "costs/obligations" incurred under the individual EIB loans
compared with commercial financing, it would have found that, in fact, the actual costs a company
incurs in issuing bonds or raising capital through other market channels do not support its assertions.
In this regard, the United States not only points to Boeing's own alleged experience in respect of bond
issues,
3434 but also a 2003 study of allegedly several thousand issues between 1990 and 1994 cited in
the NERA EIB Report, showing total costs ranging from 0.475% to 1.75% for bond offerings and
even higher for other types of commercial financing.
3435 Given this latter evidence, which the
European Communities has not contested, we are not convinced that it would be appropriate to take
the alleged additional project- related and administ rative costs into account in the manner that is
suggested by the European Communities. However, as noted above, even if we were to accept the
European Communities' proposition, the interest ra te charged on the 2002 EIB loan to EADS would
still be below the interest rate charged for comparable market funding.
7.786 The European Communities contends that becau se a borrower will typically consider the
terms and conditions offered by different finance provi ders before taking out a loan, a market interest
rate benchmark should be a spread of rates and not a single interest rate. According to the European
Communities, it follows that "a difference of 20 to 50 basis points above or below the single
benchmark rate" should not be taken as a sign of benefit. 3436 Thus, it would only be where the EIB
rate were "convincingly outside this spread of rat es" that it could be found to confer a benefit within
the meaning of Article 1.1(b) of the SCM Agreement.3437
7.787 We agree with the European Communities that it would not be unreasonable to expect that
two or more different commercial lenders may charge slightly different rates of interest for loans
having the same terms and conditions. There are many factors that might affect the level at which a

3433 US, Comments on EC Answer to Panel Question 176.
3434 US, Comments on EC Answer to Panel Questio n 176, revealing that Boeing estimates that
investment bank, regulatory and other fees on a USD 1 billion dollar bond issue would be between USD 10 and
20 million (1% and 2%). According to the United States, other costs incurred by Boeing would include costs
related to maintaining its credit rating (including cred it agency rating fees), maintaining compliance with
securities regulations, and engaging employees on an ongoing basis in related activities.
3435 NERA EIB Report, p. 5 (citing Richard A. Breal ey, Stewart C. Myers, and Franklin Allen,
Principles of Corporate Finance, p. 399), Exhibit US-542 (BCI).
3436 EC, SWS, para. 507.
3437 EC, SWS, para. 507; EC, Comments on US Answer to Panel Question 149.

BCI deleted, as indicated [***]

commercial lender will set its interest rates to customers. These might include the level of any reserve
requirements, differences between lenders in the assess ment of the risk associated with a particular
loan, access to liquidity, the lender's desired ri sk exposure and business model, as well as the
commercial relationship it has or wants to build with the potential customer. Because these factors
might be valued differently by different commercial lenders, it would not be unreasonable to expect to
find different lenders offering comparab le loans to the same customer at a different interest rate. In a
given set of circumstances, all such offers might represent an appropriate range of market interest
rates for a comparable loan.
3438 However, in our view, when such a contention is made in WTO
dispute settlement, it is up to the party that adva nces the existence of a range of relevant market
interest rates to present credible evidence and convinc ing argument to establish its parameters. In this
instance, we believe the European Communities has fa iled to make any such presentation. First, the
European Communities appears to suggest that the benchmark it has advanced should be considered
to be the middle-point in a range of available market interest rates that oscillates "20 to 50 basis points
above or below the single benchmark rate". Howe ver, it has failed to explain why we should accept
this proposition, instead of considering that the benchmarks advanced by the European Communities
may fall at the high or low end of the range. S econd, the European Communities has not explained
exactly why the range of market interest rates that competing lenders would offer for a loan that is
comparable with the 2002 EIB lo an to EADS should be between 20 and 50 basis points, instead of
another set of values. In the absence of any justif ication for its contention, and in particular, in the
light of our findings on the nature of the EIB's lending activities 3439, we are not convinced that it
would be appropriate to accept that market lenders would have offered a loan to EADS that is
comparable with the loan obtained from the EIB in 2002 at an interest rate as much as 50 basis points
below the adjusted United States' benchmark.
Commitment fees and non-utilization fees
7.788 We recall that the United States asserts that EADS benefited from the 2002 loan not only
because of the below market interest rates charged by the EIB, but also because it did not have to pay
any commitment fees or non-utilisation fees. In support of this assertion, the United States refers to
the following statement made by the EIB in a document published on its website:
"In addition to its usually advantageous lending rates, the EIB charges neither
commitment fees nor non-utilization fees, but may charge fees for a project's
appraisal and required legal services in appropriate cases."
3440
7.789 The United States, argues that when a lender co mmits to provide a borrower with funding at a
later date (as the EIB did in respect of the 2002 lo an to EADS) it is giving the borrower a "valuable
option".3441 According to NERA, this "valuable option" manifests itself as the right of a borrower to
"access ... funds on agreed terms regardless of whethe r its credit worthiness deteriorates or market
conditions change".3442 NERA submits that in return for tyin g up its capital in this way, a lender will

3438 That a range of interest rates may be charged on comparable commercial loans appears to also have
been recognized by the Appellate Body in Brazil – Aircraft , where in addressing an alleged claim of export
subsidization within the meaning of item (k) of Annex I of the SCM Agreement, it observed that "{i}n any
given case, whether or not a government payment is used to secure a ' material advantage', as opposed to an
'advantage' that is not 'material', may well depend on where the net interest rate applicable to the particular
transaction at issue in that cas e stands in relation to the range of commercial rates available ." Appellate Body
Report, Brazil – Aircraft, para. 182 (italics original, underline added).
3439 See, para. 7.753 above.
3440 Exhibit US-160.
3441 US, SWS, para. 278, referring to the explanation of commitment fees provided in the NERA EIB
Report, p.4, Exhibit US-542 (BCI).
3442 NERA EIB Report, p.4, footnote 7, Exhibit US-542 (BCI), paraphrasing Richard A. Brealey,
Stewart C. Myers, and Franklin Allen, Principles of Corporate Finance, pp.856-857, Exhibit US-161.

BCI deleted, as indicated [***]

require compensation which will usually take th e form of a "commitment fee", quoted as an
annual percentage rate paid on the same basis as the loan (annual, semi-annual etc), and calculated on
the amount of the loan facility not yet drawn down.
3443 The United States estimates that by not paying
commitment fees, Airbus saved "an amount of up to USD 910,000 annually".3444
7.790 The European Communities accepts that commitme nt fees are typically charged by banks on
the unused amounts of credit lines granted to borrowers "at a fixed spread over the general level of
interest rates".
3445 However, it asserts that the challenged EIB loans did not involve the kind of
"valuable option" that would normally attract the payment of such fees. 3446 The European
Communities explains that the EIB enters into two t ypes of loan contracts: (i) "single disbursement"
contracts, which provide for one disbursement of a fi xed amount of funds in a currency, at an interest
rate and on a date that is agreed at the time of signature; and (ii) "open-rate" contracts, where the
borrower is granted a loan facility with the right to request disbursements within a certain period, in
different currencies, maturities, interest rate re gimes (fixed or floating) and amounts, pursuant to a
framework that is pre-defined in the contract.3447 The European Communities submits that to charge a
commitment fee for the first type of loan contr act would not be standard market practice because,
given that such contracts involve the disbursement of funds typically within a few days of signature,
there is no "open" commitment. With regard to "open-rate" contracts, like the 2002 loan contract with
EADS, the European Communities argues that the EIB does not offer the kind of contractual
assurances that would merit the application of a commitment fee. This is because "open-rate"
contracts do not guarantee entities access to funds at a fixed level of interest, irrespective of whether
or not a borrower's "credit worthiness deteriorates" or the "cost of credit rises".
3448 Moreover, the
European Communities notes that under such contr acts the EIB does not guarantee immediate access
to its disbursements.3449
7.791 In the particular case of the 2002 EIB loan to EADS, the European Communities explains that
the EIB committed to provide EADS with funds at an interest rate to be determined by the EIB in
accordance with its internal rules at the time of disbursement, not at the time of signature. The
European Communities states that thes e internal rules require the EIB's board of directors to comply
with Article 19.1 of the EIB Statute, which provides that interest rates shall be set to "enable the Bank
to meet its obligations, to cover its expenses and to build up a reserve fund". Thus, according to the
European Communities, on entering the 2002 loan contract with the EIB, EADS had no certainty or
protection in respect of the interest rate that w ould be charged on any requested disbursement because
it had no knowledge of what the EIB's cost of fund s, administrative expenses or the level of the EIB's
reserve fund, would be at the time of disburseme nt. Moreover, the European Communities notes that
the EIB did not commit to provide EADS with any re quested funds within a matter of "one or two
days", but expressly reserved the right to take up to 120 days.
3450
7.792 The European Communities contrasts the above features of the 2002 loan to EADS with a
credit facility obtained by EADS in [***] from a syndicate of commercial banks which did charge a
commitment fee. This credit facility involved a EUR [***] revolving credit line to be [***] at a an
interest rate set at a [***] notwithstanding any changes in the relevant banks' cost of funds or the
interest rate setting methodology. In addition, pursuant to the credit facility, the bank syndicate was

3443 NERA EIB Report, p.4, Exhibit US-542 (BCI).
3444 NERA EIB Report, p. 7, Exhibit US-542 (BCI).
3445 EC, Answers to Panel Questions 87 and 179.
3446 EC, Answers to Panel Questions 87 and 179.
3447 EC, Answer to Panel Question 87.
3448 EC, Answer to Panel Question 179.
3449 EC, Answer to Panel Question 179.
3450 EC, Answer to Panel Question 179, referring to Article 1.02 A b of the 2002 EADS loan contract,
Exhibit EC-167 (BCI). See, also, EIB Analysis of NERA EIB Report, pp.7-8, Exhibit EC-857 (BCI).

BCI deleted, as indicated [***]

required to provide funding within thr ee business days of a request from EADS. 3451 The European
Communities argues that these differences show that the "valuable option" that the United States
contends is the reason why banks charge a commi tment fee was not present in the 2002 EIB loan to
EADS.3452
7.793 Under the terms of the original loan contract, 3453 the EIB agreed to lend EADS a maximum of
EUR 700 million, in up to [***] tranches of no less than EUR [***] each, at an interest rate to be
determined at the time of EADS' request for disburse ment, in accordance with the particular interest
rate regime chosen by EADS. 3454 EADS was granted the right to choose between three different
interest rate regimes: a fixed interest rate ("Ta ux Fixe"), and two types of variable rates ("Taux
Variable – Ecart Variable", "Taux Variable – Ecart Fixe"). 3455 The regime chosen by EADS was the
fixed rate regime. Article 3.01A of the original contract describes the methodology that would be
employed to arrive at the fixed rate of interest charged by the EIB in the following terms:

7.794 This provision was subsequently modified by amendment of May 2004 (before EADS had
requested its first disbursement), which replaced Article 3.01A(ii) with the following text:
"(ii) increased by a margin of 20/100 per centage points (0.20%) if the Tranche in
question is a ‘Tranche A’ ".3456
7.795 The original contract further stipulated that after requesting a disbursement, EADS would be
notified of the applicable interest rate (and the da te upon which the disbursement would be made) ten
to 15 days prior to the disbursement actually being made. 3457 Thus, at the time of concluding the loan
contract, EADS was aware that the interest rate that it would have to pay on any requested
disbursement would be composed of two parts: (i) th e interest rate applied by the EIB, on the date of
EADS' request for disbursement, to loans pr esenting the same characteristics as the requested
disbursement in terms of currency, repayment sc hedule, and length and periodicity of interest
payments; and (ii) a margin of [***] basis points representing the risk premium charged by the
EIB.3458 Apart from the value of the [***] basis points risk premium, the prescribed methodology for
calculating the fixed interest rate (general EIB lendi ng rate applicable to comparable loans plus an

3451 EC, Answer to Panel Question 179, referring to various provisions of the EADS [***] Credit
Facility, Exhibit EC-881 (BCI), withdrawn and replaced by a similar EUR [***] credit facility in [***], Exhibit
EC-882 (BCI).
3452 EC, Answers to Panel Questions 87 and 179.
3453 Exhibits EC-167 (BCI), US-158 (BCI)
3454 Article 1.02, Exhibits EC-167 (BCI), US-158 (BCI).
3455 Article 3.01, Exhibits EC-167 (BCI), US-158 (BCI).
3456 Article 1.05, Exhibit EC-879 (BCI). The original contract divided each potential disbursement into
two equal parts "Sous Tranche A" and "Sous Tranche B" (Article 1.02E, Exhibits EC-167 (BCI),
US-158 (BCI)). However, by amendment of May 2004, this division was replaced by another which separated
the available credit into two parts: any disbursement that alone or added together with previous disbursements
did not exceed [***] would be designated "Tranche A"; and any other disbursement that alone or added together
with previous disbursements exceeded [***] would be designated "Tranche B". (Article 1.03, Exhibit
EC-879 (BCI)). In accordan ce with these terms, the [***] disbursement requested by EADS was designated
"Tranche A" and therefore subject to the [***] basis points risk premium.
3457 Article 1.02C, Exhibit US-158 (BCI). We note that in the context of "single disbursement"
contracts, the European Communities argues that a ten to 15 day delay between the conclusion of a contract and
disbursement does not justify payment of a commitment fee. EC, Answer to Panel Question 179, footnote 70.
The United States has not argued that the 10 to 15 day notice period is sufficiently long enough to warrant the
EIB demanding the payment of a commitment fee.
3458 EC, Answer to Panel Question 89; Exhibits EC-722 (BCI) and EC-842.

BCI deleted, as indicated [***]

additional margin) is the same that is set out in the EIB's standard form contract.
3459 Therefore, the
interest rate setting mechanism agreed to under th e contract was not unique to EADS, but one that
was applied generally by the EIB to other lending activities.
7.796 The United States argues that without knowing more about the precise methodology applied
by the EIB in setting interest rates, "it is impossi ble for the Panel to determine the degree to which
interest rates may vary according to date of disbur sement and, therefore, the degree of uncertainty a
borrower from the EIB actually faces compared with a borrower from a commercial lender". 3460
Moreover, the United States notes that the European Communities has not indicated which factors the
EIB does not take into account when it sets interest rates at the date of disbursement. In particular, the
United States observes that wher eas the European Communities has identified factors such as the
EIB's cost of funds, its administrative expenses, a nd its reserve fund as variables that may affect the
interest rates set by the EIB on the date of dis bursement, it has said nothing about whether the EIB
takes into consideration a deteriorati on in the creditworthiness of the borrower. 3461 In making this
observation, we understand the United States to suggest that to the extent that the EIB does not take
into account any deterioration in the creditworthiness of a borrower between the time a loan is granted
and the date of disbursement, it acts like a commerc ial bank that offers a credit facility on agreed
terms and therefore, at least to this extent, would be expected to charge a commitment fee. Thus, the
fact that EADS did not pay a commitment fee mean s that the EIB loan was more advantageous to
EADS than comparable market financing.
7.797 In our view, the evidence and arguments before us indicate that the purpose of a commitment
fee is to compensate a lender for agreeing, at the ti me of the conclusion of a loan contract, to provide
funding at a later date on in terest rate terms reflecting inter alia, the credit rating of a borrower at the
time the loan contract was concluded.3462 In other words, a commitment fee is at least in part required
to compensate a lender for the risk that a borrower's credit rating will deteriorate between the time that
it is relied upon to set the contract interest rate a nd the actual disbursement of funds. We find support
for this conclusion in the following passage from Brealey and Myers, upon which both parties have
relied:
"Credit lines are relatively expensive, for in addition to paying interest on any
borrowings the company must pay a comm itment fee on the unused amount. In
exchange for this extra cost, the firm r eceives a valuable option: It has guaranteed
access to the bank's money at a fixed spread ove r the general level of interest rates.
This amounts to a put option, because the firm can sell its debt to the bank on fixed
terms even if its own creditworthiness deteriorates or the cost of credit rises".3463
7.798 We recall that the EIB charged EADS a fixed inte rest rate made up of two components. It is
unclear to us, from the European Communities' description of how the EIB sets interest rates 3464 and
the evidence that is before us, whether the first of these components took into account EADS'
creditworthiness. However, our unde rstanding of the second component, the [***] basis point risk
premium, is that it was in fact (at least in pa rt) established in the light of EADS' creditworthiness at
the time of signature . In its 2006 Annual Report, the EIB explains that it applies a loan grading

3459 Article 3.01A, EIB Standard Form Contract 2001, Exhibit EC-609 (BCI). Apart from the risk
premium text, essentially the same language is used in Article 3.01A of the Standard Form Contract that existed
prior to 2001, Exhibit EC-711 (BCI).
3460 US, Comments on EC Answer to Panel Question 179.
3461 US, Comments on EC Answer to Panel Question 179.
3462 US, SWS, para. 278, referring to NERA EIB Report, p.4, Exhibit US-542 (BCI); US, Comments on
EC Answer to Panel Question 179; EC, Answer to Panel Question 179.
3463 Exhibit US-161, US, SWS, para 278, NERA EIB Report, p. 4, footnote 7, Exhibit US-542 (BCI);
EC, Answer to Panel question 179 (quoting all but the first sentence of the above-quoted passage.).
3464 EC, FWS, paras. 1067-1069.

BCI deleted, as indicated [***]

system to determine the credit risk of ea ch loan. This involves consideration of inter alia, the
borrower's credit rating, the value of any guaran tee instruments and securities, the contractual
framework and the loan's duration, with a view to establishing the level of general or specific
"provisioning" required. Operations with a loan grading of "A-" will attract a 0.20% risk premium,3465
[***].3466
7.799 By applying a fixed risk premium of [***] basis points to the disbursement of funds requested
by EADS, irrespective of any possible deteriora tion in EADS' creditworthiness, the EIB provided
EADS with at least part of the "valuable optio n" that we understand would ordinarily justify
commitment fees charged by commercial lenders. It follows that to the exte nt that the EIB did not
require EADS to pay a fee to compensate for its commitment to make funding available at a fixed risk
premium, irrespective any deterioration in its creditworthiness, its loan to EADS was more
advantageous than a comparable loan from a commercial lender.
7.800 Turning to the United States' claim that the EIB loan to EADS conferred a benefit because the
EIB did not charge non-utilization fees, 3467 we note that apart from making this allegation, the United
States has advanced no specific explanation nor adduced any particular evidence or expert opinion (as
it did in respect of the EIB's failure to charge a commitment fee) 3468 that suggests a commercial lender
would have required EADS to pay a non-utilization fee for the same type of financing it obtained
from the EIB under the 2002 loan contract – namely, a credit line with only a risk premium of [***]
basis points being fixed at the time of signature (as o pposed to, e.g., the full interest rate applicable to
the entire disbursement). In the absence of any such evidence or relevant explanation, and given that
the European Communities does not accept that the payment of a non-utilization fee was
warranted,3469 we are not convinced that the United States has done enough to establish that the 2002
loan to EADS conferred a benefit because the EIB did not require EADS to pay a non-utilization fee.
Conclusion in respect of the 2002 loan to EADS
7.801 On the basis of the foregoing analysis, and in the light of our findings on the nature of the
EIB's lending activities, 3470 we find that the United States has est ablished that the 2002 EIB loan to
EADS conferred a benefit within the meaning of Ar ticle 1.1(b) of the SCM Agreement because: (i)
the interest rate charged by the EIB was less than what a market lender would have asked EADS to
pay for comparable financing; and (ii) EADS was not required to pay a commitment fee, even though
a fixed [***] basis points risk premium was charged on part of the loan, irrespective of any possible
future deterioration of EADS' credit rating. On the other hand, we find that the United States has
failed to demonstrate that the 2002 EIB loan to EADS also conferred a benefit upon EADS because of
the EIB's failure to charge non-utilization fees.

3465 Exhibit EC-842, pp. 149-152.
3466 See, footnote 3456 above.
3467 The United States describes non-utilization fees as fees charged "in cases where borrowers do not
use the credit lines the EIB has provided". US, FWS, para. 402. The European Communities initially described
non-utilization fees as "a basis point charge on the amount undrawn". EC, Answer to Panel Question 87.
However, in its later submissions, the European Communities suggests that non-utilization fees and commitment
fees are essentially two ways of referring "interchange ably" to the same compensation that a bank may seek for
"guaranteeing borrowing entities immediate access to a lending bank's money 'at a fixed spread over the general
level of interest rates'". EC, Answer to Panel Question 179.
3468 Indeed, in presenting its revised benefit anal ysis for the 2002 EADS loan contract, the
United States does not repeat its allegation that the loan conferred a benefit because it did not provide for non-
utilization fees, focusing only on the absence of commitment fees. US, SWS, paras. 275 and 278. See, also,
NERA EIB Report, p.4, Exhibit US-542 (BCI), where the alleged failure of the EIB to charge EADS non-
utilization fees is not identified as a benefit of the 2002 loan contract.
3469 EC, Answers to Panel Question 87 and 179.
3470 See, para. 7.753 above.

BCI deleted, as indicated [***]

The 1992 loan to Aérospatiale
7.802 The 1992 EIB loan to Aérospatiale was gr anted pursuant to a contract concluded on
21 July 1992 for the purpose of financing Aérospatiale 's construction of buildin gs and the installation
of industrial equipment to be used in the commercialization of the A330/A340. The loan was effected
through one disbursement of FRF [***] at an interest rate of [***], payable annually, with a maturity
of [***] years in [***], amortizing in the last eight years from [***] ( i.e., only interest payments
required in the [***] years of the loan; principal plus interest being paid annually only from the [***]
year).3471 The United States alleges that this loan c onferred a benefit on Aérospatiale because: (i) it
was granted on interest rate terms that were more advantageous than comparable market financing;
and (ii) the EIB did not charge Aérospatiale any commitment fees or non-utilization fees.
Interest rate terms
7.803 As already noted, the United States presented ma rket interest rate benchmarks for all of the
EIB loans at issue based on the country-specific general corporate borrowing rates calculated in the
Ellis Report for each of the relevant Airbus entities. 3472 These benchmarks were constructed by
adding: (i) the average annual interest rate attach ed to 10-year government bonds issued in France,
Germany, Spain and the UK in the years correspondi ng to the conclusion of the EIB loan contracts
(i.e., the risk-free rate of interest); to (ii) the "credit spread" for the Airbus borrower at issue ( i.e., an
interest rate premium reflecting the additional ri sk associated with each individual Airbus entity's
general borrowing). For Aérospatiale, the United St ates estimated the "credit spread" in 1992 through
the use of a regression model. In essence, this model relied upon information on the actual credit
spreads of two 10-year bonds allegedly issued by Aérospatiale in 1993 to estimate what Aérospatiale's
credit spreads would have been in each of the years from 1970 to 1992. 3473 Applying this
methodology, the United States initially advanced a ma rket interest rate benchmark for the 1992 EIB
loan to Aérospatiale of [***].3474 In its second written submission, the United States revised this
benchmark to "incorporate market data on the date of the loan", in response to the European
Communities' criticism of its reliance upon annual averages.
3475 On the basis of its updated analysis,
the United States submits that the relevant market in terest rate benchmark for a loan having similar
characteristics to the EIB loan woul d be "10.46 percent, approximately [***] basis points [***] than
the actual rate the EIB charged {Aérospatiale} of [***] percent".3476
7.804 The European Communities criticizes the United States' revised benchmark for being based
on what it considers to be an erroneous regressi on model which relies on too few data points and
assumes maturities that are not comparable with the actual maturity of the 1992 EIB loan to

3471 Exhibits US-167 (BCI), EC-694 (BCI) and EC-698 (BCI).
3472 See, para. 7.755 above.
3473 Ellis Report, pp. 11-16, Exhibit US-80 (BCI). (" Regressions to establish parameters of the credit
spread model for Aérospatiale ... were based on yield-to -maturity data on two bonds issued by Aérospatiale in
1993. ... Using the coefficients arrived at in this way, together with data from th e French yield curve for the
period 1970 to 1992, we were able to construct values of the credit spread for ten year general corporate
borrowings for Aérospatiale for those years.") We un derstand that the United States relied upon the actual
credit spreads for the two Aérospatiale bonds in years after 1992. ("The same procedure used to construct credit
spreads for the French operating company was follo wed in the case of the Un ited Kingdom: actual BAE
Systems credit spreads were used for the years 1991-2006, and the regression parameters derived were used in
those years for which out-of-sample yield curve data were available.")
3474 US, FWS, para. 411.
3475 US, SWS, paras. 274-277; NERA EIB Report, pp 3 and 6 ("We agree with th e EC's assertion that
market conditions fluctuate and that consequently the rate on the loan must be compared with a benchmark 'at
the relevant point in time and in the relevant year the EIB loan was made'".) Exhibit US-542 (BCI).
3476 US, SWS, para. 276.

BCI deleted, as indicated [***]

Aérospatiale.3477 In particular, the European Communiti es notes that although the chosen explanatory
variables are "significant" because "they p ass the so called F test", the model's "R 2" value is "only
0.43 in range of 0 to 1, where 1 is the most accurate". 3478 Moreover, the European Communities
argues that the regression model does not take into acc ount the relevant features of the relevant loans,
observing that whereas the EIB loan to Aérospatiale is [***], the benchmark established by NERA
relies upon a "10-year government bond and is assuming a 10-year bullet loan, ignoring the impact of
its amortization schedule".
3479
7.805 The European Communities considers that the flaw ed nature of the United States' regression
model for the 1992 EIB loan to Aérospatiale is confirmed by the fact that the credit spreads associated
with two 10-year bonds actually issued by Aéro spatiale in September 1991 and October 1992 were
respectively [***] and [***] basis points, less than half the [***] basis points spread estimated by the
United States' model, even though there wa s "no significant news/improvement on the
creditworthiness of Aérospatiale to jus tify such a sharp reduction in spreads". 3480 Accordingly, the
European Communities advances its own market inter est rate benchmark, constructed on the basis of
the actual [***] basis point credit spread that existed in September 1991 and the interest rate it asserts
was attached to French government long-term bor rowing having allegedly the same maturity as the
EIB loan on the actual date of the EIB di sbursement to Aérospatiale, 27 July 1992. 3481 Applying this
methodology, the European Communities arrives at a market interest rate benchmark for the 1992 EIB
loan to Aérospatiale of [***].3482
7.806 Information contained in Aérospatiale's annual reports suggests that the credit spreads derived
from the United States' regression model may indeed be overstated. The two 10-year bonds the
European Communities asserts were issued by Aérospatiale in Sept ember 1991 and October 1992
were "domestic bonds" that each raised FRF 1 b illion at an interest rate of 9.4% and 8.7%,
respectively.3483 Aérospatiale issued three additional 10-year "foreign bonds" in 1992 and 1993: one
in March and June 1992 raising FRF 1.8 billion at an interest rate of 9.125%;3484 one in February 1993
raising FRF 1 billion at an interest rate of 8.375%; and another in July 1993 raising FRF 1.5 billion at
an interest rate of 7%. 3485 As the European Communities notes, the September 1991
and October 1992 bonds were issued with a credit spr ead above the interest rate paid by the French
government on its long-term borrowing (according to the European Communities, respectively [***]
and [***] basis points). Thus, when compared with the actual credit spreads on the corporate bonds
Aérospatiale issued in 1991 and 1992, the credit spread outcome of the United States' regression
model for Aérospatiale in July 1992 (136 basis point s) appears to overestimate what Aérospatiale's

3477 EC, FWS, para. 1078; EIB Analysis of the NERA EIB Report, p.7, Exhibit EC-857 (BCI).
3478 EC, FWS, para. 1078. The Ellis Report descri bes the "adjusted R2" and "F" statistic as "two
summary statistics frequently used to assess the validity of a regression ... : adjusted R2 measures the fraction of
the variance of the dependent variable explained by the independent variable(s) adjusted for degrees of freedom,
and the F statistic is used to test the hypothesis that a ll of the slope coefficients are zero." Ellis notes that "in
this instance the adjusted R2 is relatively high and the F statistic is highly statistically significant; this shows
that the regression model does a good job of estimating the credit spread for Aérospatiale's bonds". Ellis Report,
p. 14, Exhibit US-80 (BCI).
3479 EIB Analysis of the NERA EIB Report, p.7, Exhibit EC-857 (BCI).
3480 EIB Analysis of the NERA EIB Report, p.7, Exhibit EC-857 (BCI).
3481 Exhibit EC-722 (BCI); EIB Analysis of the NERA EIB Report, p.7, Exhibit EC-857 (BCI).
3482 Exhibit EC-722 (BCI).
3483 Aérospatiale 1992 Annual Report, p.61, Exhibit EC-174. We note that Aérospatiale's 1992 Annual
Report indicates that a 10-year "domestic bond" for FRF 1 billion was issued in November 1992,
not October 1992. The European Communities has not submitted a copy of either of these bond instruments.
3484 Aérospatiale 1992 Annual Report, p.61; Aérospatiale 1993 Annual Report, p.77; and Aérospatiale
1994 Annual Report, p.75, Exhibits EC-174, 175 and 186.
3485 Aérospatiale 1993 Annual Report, p.77; and Aérospatiale 1994 Annual Report, p.75, Exhibits EC-
175 and 186.

BCI deleted, as indicated [***]

cost of financing would have been on the market. Nevertheless, overall, we do not find the evidence
submitted by the United States to be insufficient for the purpose of establishing that the 1992 EIB loan
to Aérospatiale conferred a benefit.
7.807 First, we note that the risk-free rate of interest used in the construction of the United States'
revised market interest rate benchmark is 9.10%,
3486 the same risk-free borrowing rate applied by the
European Communities to derive its ow n market interest rate benchmark, 3487 which is [***] rate of
interest charged by the EIB on the loan to Aérospatia le. In other words, both of the parties agree that
the 1992 EIB loan to Aérospatiale was provided at a contract interest rate [***] to the risk-free rate of
interest associated with French government long- term borrowing. There is no doubt, however, that
the market would have required Aérospatiale to pay a premium above the risk-free rate of borrowing
for such funding, a premium that the European Communities contends was as much as 62 basis points
in October 1992 (just three months after conclusion of the EIB loan contract).
7.808 Second, the alternative benchmark presented by the European Communities implies that the
1992 EIB loan to Aérospatiale provided an advantage of [***] basis points relative to comparable
financing available on the market. Moreover, even if we were to accept th e European Communities'
contention that the actual level of the interest char ged by the EIB should take into account the cost of
the loan guarantee required from Air bus (allegedly having a value of [***] basis points), 3488 the
difference between the adjusted inte rest rate charged on the EIB loan [***] and the European
Communities' market interest rate benchmark [***] would still show an advantage to Airbus of [***]
basis points. According to the European Communiti es, this advantage could not be reduced to below
zero by the alleged "additional project obligati ons, financial obligations and administrative
obligations" associated with the 199 2 loan compared with the bond in struments used to construct the
benchmark.3489 Thus, on its face, the European Commun ities' own benchmark analysis confirms the
United States' claim that the inte rest rate charged by the EIB on the 1992 loan to Aérospatiale was
more advantageous than what Aérospatiale could have found on the market.
7.809 The European Communities argues that this interest rate differential is not enough to establish
the existence of benefit. In particular, the European Communities argues that the difference of [***]
basis points is exceptional and should not be taken as demonstrating that the loan confers a benefit
upon Airbus. The European Communities submits th at a "likely explanation for the substantial
divergence{}... is that the EIB might have fixed its conditions prior to or following an important
movement in the rate". 3490 The European Communities explains th at "if in the morning the EIB fixes
its condition for a disbursement and the risk free ra te increases in the afternoon, then the EIB rate
could appear particularly attractive compared to the new risk free rate of that afternoon." 3491
However, the European Communities has presented no evidence demonstrating that the difference of
[***] basis points was attributable to any such volatility in daily interest rates, noting that
"{u}nfortunately past data is recorded only once per day and therefore it is often impossible to take
account of same-day movements in the risk-free rate". 3492 Thus, the European Communities does not
assert, as a matter of fact, that any actual volatility in the level of the risk-free rate of interest on
27 July 1992 explains the interest rate differential of [***] basis points.

3486 I.e., the difference between the Unite d States proposed benchmark [***] and the [***] basis points
credit spread calculated for Aérospatiale.
3487 Exhibit EC-722 (BCI).
3488 Exhibit EC-722 (BCI).
3489 Exhibit EC-722 (BCI).
3490 EC, SWS, para. 506.
3491 EC, SWS, para. 506.
3492 EC, SWS, para. 506.

BCI deleted, as indicated [***]

7.810 Finally, we recall that in the case of the 1992 EIB loan to Aérospatiale, the contract rate of
interest was set at [***] as the risk-free interest rate attached to French government long-term
borrowing. Therefore, to accept that the loan to Aérospatiale was not granted at below-market interest
rate terms, in the context of the European Commun ities' own market interest rate benchmark, would
mean that we would have to accept that a commercia l lender would have granted Aérospatiale a loan
at an interest rate that did not take into account Aérospatiale's own discrete credit risk. However, we
cannot accept this to be a plausible outcome as it implies that a commercial lender would have been
prepared to lend funds to Aérospatiale at a rate of return that at most was [***] the rate of return it
could have obtained from lending to the French gove rnment at a time when even according to the
European Communities' own evidence, Aérospatiale 's borrowing carried a risk premium above the
risk-free rate of French government lending.3493
Commitment fees and non-utilization fees
7.811 The United States relies on the sa me evidence advanced in resp ect of the 2002 loan to EADS
to claim that the 1992 loan to Aérospatiale also conferred a benefit upon Airbus because it did not
require Aérospatiale to pay any commitment fees or non-utilisation fees. 3494 The European
Communities refutes the United States' allegation, on the basis of the same arguments we have
already described above.3495
7.812 We recall that the 1992 loan to Aérospatiale was concluded on [***]. It provided for one
single disbursement on [***], to be repaid at an interest rate of [***], agreed and fixed in the contract
on the date of signature. 3496 Thus, under the 1992 loan contract, the EIB legally committed itself to
providing Aérospatiale with a loan on certain fixed terms and conditions [***] before actually
transferring the borrowed funds to Aérospatiale. Conversely, Aérospatiale undertook an obligation to
take possession of the prescribed funding amount on [***] on terms and conditions fixed when the
contract was concluded.
7.813 According to the European Communities, it woul d not be in accordance with market practice
for the EIB to demand the payment of a fee for making this type of commitment. 3497 The United
States has not contested the European Communities' assertion. Indeed, the characterisation of
commitment fees used in the NERA EIB Report that is relied upon by the United States suggests that
commitment fees would not normally be demanded by a bank when a borrower has undertaken an
obligation to borrow, as opposed to merely an option to borrow under an open credit line.
3498 In this
light, and given the particular circumstances of the 1992 loan to Aérospatiale, which included the EIB
making funds available to Aérospatiale at a fixed interest rate merely [***] after the loan contract was
concluded, the United States has failed to advance sufficient evidence and argument to persuade us
that the EIB's failure to charge a commitment fee conferred a benefit upon Aérospatiale.
7.814 On the issue of non-utilization fees, once again we note that apart from alleging that the 1992
loan to Aérospatiale (like all EIB loans) confe rred a benefit because the EIB did not charge non-
utilization fees, the United States has advanced no specific explanation nor adduced any particular
evidence or expert opinion suggesting that a comme rcial lender would have re quired Aérospatiale to

3493 See, para. 7.806 above.
3494 US, FWS, para. 414, citing Exhibits US-160 and US-161.
3495 See, para. 7.790 above.
3496 See, para. 7.802 above.
3497 See, para. 7.790 above.
3498 The relevant passage of the NERA EIB Report reads: "an important feature of the EIB Loan
Contract signed in 2002 is the fact that it gave the European Communities [***]. This means that the EIB
committed itself to make that amount of funds available to EADS. This is a common occurrence in commercial
lending, but banks require compensation for tying up their capital, usually in the form of what is called a
'Commitment Fee'". NERA EIB Report, p.4, Exhibit US-542 (BCI).

BCI deleted, as indicated [***]

pay a non-utilization fee for the same type of financing it obtained from the EIB under the 1992 loan
contract. In the absence of any su ch evidence or relevant explanation, and given that the European
Communities does not accept that the paymen t of a non-utilization fee was warranted,
3499 we are not
convinced that the United States has done enough to establish that the 1992 loan to Aérospatiale
conferred a benefit because the EIB did not require Aé rospatiale to pay a non- utilization fee. In any
case, were we to understand non-utilization fees as co mpensation charged by commercial lenders on
unused amounts of credit lines, as the parties have suggested,3500 we would note that the entirety of the
amount of financing that was the subject of the 1992 loan agreement was, in fact, transferred to
Aérospatiale as stipulated in the contract. 3501 On this basis, there would be no justification for
requiring Aérospatiale to pay non-utilization fees.
Absence of a risk premium
7.815 In its second written submission, the United St ates argued that the European Communities
admitted in its first written submission that the EIB did not charge a risk premium on any loans
granted prior to 1999. According to the United Stat es, the absence of a risk premium means that the
EIB's loans were "by definition preferential to those available in the market, because the EIB (unlike a
market lender) did not charge a premium to compen sate the risk it assumed in providing financing to
the borrower".
3502
7.816 The European Communities does not contest the United States' view that market lenders
would normally charge a premium in return fo r assuming the risks associated with lending to a
particular borrower. However, it rejects the Un ited States' assertion that the EIB's introduction of
"risk pricing" in 2000 necessarily implies that all pr e-2000 loans conferred a benefit because they did
not involve the EIB charging a risk premium. The European Communities explains that the EIB's
introduction of "risk pricing" in 2000 was the r esult of its ongoing efforts to apply "best banking
practices" in the area of risk management. The European Communities asserts that following a
review of its credit policies, the EIB decided to in troduce "risk pricing" as "an alternative (total or
partial) to {the} external {loan} guarantees" requi red under Article 18.3 of its Statute. Thus, the
application of a risk premium on a particular lo an as of 2000 was intended to place the EIB "in a
position similar to that it would have been if the lo an benefited from an external guarantee". In other
words, the European Communities submits that the introduction of risk premia did "not entail a
relaxation of (or variation to) a consistent existing credit policy". Rather, it merely represented
another option for the bank to apply in the context of managing the risk associated with its loans.
3503
7.817 To support its assertions, the European Communities submits four pages from the EIB's 2006
Annual Report, which describe its risk management practices. 3504 We have closely reviewed this
document and find that it does not substantiate th e totality of what the European Communities is
alleging. While it states that the EIB does attempt to "align its risk management systems to changing
economic conditions and evolving re gulatory standards" with a view to following "best market
practice", it says nothing about why the EIB decide d to introduce a risk premium in 2000 or whether
it was intended, as the European Communities contends, to operate as a partial or total alternative to
the loan guarantees required under Article 18.3 of its Statute. Thus, although we consider the
European Communities' explanation to make some intuitive sense, we cannot accept it as a matter of
fact on the basis of the evidence that has been presented.

3499 EC, Answers to Panel Question 87 and 179.
3500 See, footnote 3467 above.
3501 See, para. 7.802 above. Exhibits EC-167 (BCI) and EC-698 (BCI) confirm that the amount of
agreed funding was transferred to Aérospatiale on [***].
3502 US, SWS, para. 269.
3503 EC, SNCOS, para. 190.
3504 Exhibit EC-842.

BCI deleted, as indicated [***]

7.818 Moreover, while the European Communities' e xplanation of why the EIB introduced a risk
premium suggests that risks associated with EIB lending prior to 2000 were taken into account by
means of "external guarantees", the European Co mmunities has not explained how the particular
guarantee provided under the 1992 loan to Aérospatiale served to compensate the EIB for the risks
associated with lending to Aérospatiale in the sa me way that a market lender would have sought
compensation for the same risks under a commercial loan.
7.819 In this light, we find that the European Comm unities has failed to advance sufficient evidence
and argument to persuade us that the absence of a risk premium on the EIB 1992 loan to Aérospatiale
did not confer a benefit upon Airbus. We therefore uphold the United States' claim that the 1992 loan
to Aérospatiale conferred a benefit, within the meaning of Article 1.1(b) of the SCM Agreement,
because it did not include a risk premium.
Conclusion in respect of the 1992 loan to Aérospatiale
7.820 On the basis of the foregoing analysis, and in the light of our findings on the nature of the
EIB's lending activities, 3505 we find that the 1992 loan to Aérospatiale conferred a benefit on
Aérospatiale, within the meaning of Article 1.1( b) of the SCM Agreement, because it was granted:
(i) at an interest rate [***] to the cost of borrowing for the French government and was therefore more
advantageous than the interest rate that would have been available to Aérospatiale on the market for
comparable financing; and (ii) on interest rate terms that did not include a risk premium. On the other
hand, we find that the United States has failed to establish that the 1992 loan to Aérospatiale also
conferred a benefit because the EIB did not require Aérospatiale to pay any commitment fees or non-
utilization fees.
The other EIB loans
7.821 We recall that in addition to the 2002 loan to EADS for the A380 and the 1992 loan to
Aérospatiale for the A330/A340, the United States clai ms that ten other loans provided by the EIB to
various Airbus entities were subsidies within the m eaning of the SCM Agreement. These loans are:
(i) the 1993 loan to Aérospatiale for the Super Tran sporteurs; (ii) the 1991 loan to British Aerospace
for the A330/A340; (iii) the 1990 loan to CA SA for the A320 and A330/A340 (No. 14711/ES);
(iv) the 1990 loan to CASA for the A320 and A330/A340 (No. 14712/ES); (v) the 1990 loan to
British Aerospace for the A330/A340; (vi) the 1990 loan to Airbus Industrie GIE for the A321;
(vii) the 1989 loan to CASA for the A320 and A330/A340; (viii) the 1989 loan to British Aerospace
for the A320; (ix) the 1988 loan to British Aero space for the A320; and (x ) the 1988 loan to
Aérospatiale for the A330/340. The United States ar gues that all of these loans conferred a benefit on
Airbus because: (a) each loan was granted on interest rate terms that were more advantageous than
comparable market financing; (b) the EIB did not charge the respective borrowers any commitment
fees or non-utilization fees; and (c) the EIB did not charge a risk premium on each loan.
Interest rate terms

7.822 During the Annex V process, the United Stat es (through the Facilitator) requested the
European Communities to provide information on the terms and conditions of the each of the
challenged EIB loans, including all of the relevant loan contracts. 3506 The European Communities
responded by providing information only with respect to two of these loans: the 2002 loan to EADS

3505 See, para. 7.753 above.
3506 See, e.g., Questions 81 and 82 for the EC Pursuant to Annex V of the SCM Agreement,
7 October 2005, Exhibit US-4 (BCI).

BCI deleted, as indicated [***]

for the A380 and the 1992 loan to Aérospatiale for the A330/A340.
3507 In the absence of information
on the actual terms and conditions of the remaini ng ten loans, the United States endeavoured to
substantiate its claims on the basis of publicly ava ilable information. On the question of benefit, the
United States presented information in its first wr itten submission demonstrating that in each of the
years between 1996 and 2004, the average annual inte rest rates charged by the EIB to its borrowers
were lower than the general corporate borrowing rat es for the different Airbus entities calculated in
the Ellis Report.3508 This information was presented in the form of the following table:
Table 9 – US EIB Average Interest Rate Information

 1996 1997 1998 1999 2000 2001 2002 2003 2004
EIB
Average
7.87 7.21 6.70 5.91 6.06 5.64 4.74 4.06 3.82
Germany 8.04 7.53 6.56 6.48 7.14 6.75 6.75 6.14 6.11
France 8.13 7.47 6.63 6.60 7.27 6.89 6.83 6.20 6.17
UK 9.25 8.41 6.82 6.21 6.54 6.20 6.10 5.76 6.12
Spain 10.56 8.29 6.82 6.72 7.41 7.07 6.93 6.19 6.17

7.823 The United States argues that in the light of the European Communities' refusal to disclose the
actual terms and conditions of the loans, the reasonabl e inference for the Panel to draw on the basis of
the information set out in this table is that the re maining ten EIB loans it challenges were provided to
Airbus on beneficial interest rate terms.3509
7.824 The European Communities disclosed the interest rates it alleges were charged by the EIB for
the first time in Exhibit EC-154 (BCI) to its first wr itten submission. The inte rest rates were listed in
a one page overview of the status of the challenge d loans as of January 2007 prepared by the EIB,
which also included information on the relevant lo an contract numbers, disbursement and repayment
dates, loan currencies and outstanding principal amounts. 3510 In its second written submission, the
European Communities submitted copies of the EIB lo an contracts it considered to be relevant,
together with its own benefit analysis for all of the loans. 3511 According to the information contained
in the European Communities' analys is, the remaining ten EIB loans involved the transfer of funds to
Airbus through 22 disbursements at different interest rates, sometimes under separate contracts. The
European Communities performed a distinct benef it analysis for each individual disbursement of
funds, in effect treating each disbursement as a sepa rate loan. Overall, in the light of all of its
arguments, including the contention that a proper bene fit analysis must take into account a 20 to 50
basis points range of market interest rates above and below the relevant market interest rate
benchmark, the European Communities concludes th at none of the 22 disbursements conferred a
benefit on Airbus.
7.825 In the following sections, we examine the argume nts and evidence the parties have advanced
on whether the ten loans cited above in paragraph 7.821 confer a bene fit in more detail, focussing in

3507 See, e.g., Questions 81 and 82 for the EC Pursuant to Annex V of the SCM Agreement,
7 October 2005, Exhibit US-5 (BCI).
3508 Prior to 1996, the EIB's Annual Reports did not contain any information on the average interest
rates charged to its borrowers. US, FWS, para. 415, footnote 491 citing EIB Annual Reports from 1997 to 2004,
Exhibits US-168 to US-175.
3509 US, FWS, paras. 410-416; US, SWS, para. 271; US, Answer to Panel Question 149.
3510 Exhibit EC-154 (BCI).
3511 Previously, in Answer to Panel Question 89, the European Communities had set out its own benefit
analysis in respect of the 1988 loan to Aérospatiale for the A330/A340 and the 1990 loan to British Aerospace
for the A330/A340. However, on that occasion, the European Comm unities provided no evidence to
substantiate the facts used as the basis for its analysis.

BCI deleted, as indicated [***]

the first instance on the European Communities' disclo sure of what it asserts were the actual interest
rates charged by the EIB. We then review the par ties' positions on the relevant market interest rate
benchmarks, before turning to conclude on the merits of the United States' claims.
What were the interest rates charged by the EIB?
7.826 According to the European Co mmunities, the interest rates charged by the EIB for the
relevant disbursements were either fixed for the entire duration of the contract ( single interest rate
disbursements), or revised during the course of the lo an through the application of an interest rate
revision clause or simply due to the loan contracts being modified or restructured ( revised interest
rate disbursements).
7.827 The European Communities' benefit analysis i ndicates that 13 of the disbursements under the
challenged loans were made at a single interest rate. For these disbursements, the European
Communities took the interest rate set by the EIB as the starting point of its benefit analysis. Where
necessary, the European Communities adjusted each rate to account for the alleged basis points value
of the securities provided under the relevant lo ans. The European Communities argues that
adjustments for loan securities we re necessary because the bonds used in the establishment of the
market interest rate benchmarks were unsecured. Therefore, in order to ensure a proper comparison,
the European Communities submits th at the basis points value of the loan securities had to be taken
into account in the benefit analysis.
7.828 The European Communities made loan security adjustments to the single interest rate
disbursements effected under two loans to British Aerospace
3512 and two loans to Airbus Industrie and
Aérospatiale3513. In the case of British Aerospace, the Eur opean Communities asser ts that the loans
from the EIB were [***].3514 The European Communities valued this security at [***] basis points
because it alleges that this was the amount by which the EIB increased the relevant interest rate when
it agreed to release the security in [***].3515 The two loans to Airbus Industrie and Aérospatiale 3516
were secured, respectively, by a loan guarantee and an assignment of receivables. The European
Communities valued each security at [***] basis points, explaining that "the security is given a
relatively low value, to reflect the fact that stat e-ownership of the relevant companies had already
ensured a relatively high rating profile (and th e higher rating profile the less valuable the
security)".3517 It therefore made an upward adjustment of [***] basis points to the corresponding
interest rates.
7.829 After carefully reviewing the arguments and evidence submitted by the European
Communities in respect of the above-mentioned loan security adjustments, 3518 we are satisfied that
both the need for and the value attributed by the European Communities to each security is reasonable

3512 In particular, the European Communities made a s ecurity adjustment to one of two disbursements
under each of the 1990 and 1991 loans to British Aerospace for the A330/A340.
3513 Both disbursements under the 1990 loan to Airbus Industrie for the A321, and one disbursement
under the 1993 loan to Aérospatiale for the Super Transporteurs.
3514 EC, Answer to Panel Question 89; Exhibit EC-722 (BCI).
3515 EC, Answer to Panel Question 89.
3516 The two EIB loans to Aérospatiale were: the 1989 loan for the A330/A340 and the 1993 loan for
the Super Transporteurs.
3517 Exhibit EC-722 (BCI), p.2.
3518 EC, Answer to Panel Question 89; Exhibits EC -154 (BCI); EC-722 (BCI); EC-705 (BCI),
Article 7.01(ii) and Annexure III-A, Revenues Assignme nt Agreement; EC-706 (BCI), Articles 6.09 and 7.02;
EC-695 (BCI), Article 7.01; and EC-692 (BCI), Article 7.01.

BCI deleted, as indicated [***]

and can be accepted.
3519 We note that the United States has not specifically contested these
adjustments.
7.830 For the nine remaining disbursements, the in itial interest rates set by the EIB were
subsequently modified due to the loans being amende d, or because of interest rate revisions mandated
under the contracts. For these disbursements, th e European Communities used the interest rate
charged by the EIB at the time of the revision or amendment as the starting point of its analysis. For
example, according to the European Communitie s, the 1990 loan to British Aerospace for the
A330/A340 was initially effected through two disbursements under separate contracts.
3520 T h e
interest rate terms of one of these disbursements we re subsequently modified when amended in 1999,
resulting in a reduction of the applicable inter est rate on the outstanding loan principal from [***] to
[***].3521 For this particular disbursement, the Europ ean Communities used the interest rate charged
by the EIB following the restructuring ([***]) as the starting point of its analysis.
7.831 The European Communities made loan security adjustments to the revised interest rate
disbursements effected under two loans to Aérospatiale. 3522 The European Co mmunities asserts that
two of the three disbursements under the 1988 loan for the A330/A340, and one disbursement under
the 1993 loan for the Super Transporteurs were s ecured by a loan guarantee from EADS NV as well
as real estate mortgages. 3523 Because these securities were offered after 2002, the European
Communities decided to value them at [***] basis points each because [***] by the EIB for the 2002
loan to EADS, which was [***].3524 For the third disbursement under the 1988 loan for the
A330/A340, the European Communities made an upward adjustment of [***] basis points, reflecting
the value it attributed to the loan security, which was in the form of an assignment of receivables. As
we understand it, the European Communities justifies this [***] basis point adjustment explaining that
"the security is given a relatively low value, to reflect the fact that state-ownership of the relevant
companies had already ensured a relatively high ratin g profile (and the higher rating profile the less
valuable the security)".
3525
7.832 We have carefully reviewed the argumen ts and evidence submitted by the European
Communities in respect of the these loan security adjustments, 3526 and are satisfied that both the need

3519 As we have previously noted (at para. 7.783 above), we agree with the European Communities that,
in general, differences between loan and bond instrume nts may well translate into differences in the price of
borrowing that should be taken into account in the present benchmarking exercise. It seems to us that the value
of a security provided under a loan agreement should be taken into account when comparing the interest
attached to that loan with the price of unsecured bond financing.
3520 The first disbursement of [***] being made on [***] at a fixed interest rate of [***], Exhibit EC-
706 (BCI). A second disbursement of [***] was made on [***] at a revisable interest rate of [***], Exhibit EC-
707 (BCI).
3521 Exhibit EC-708 (BCI).
3522 All three disbursements under the 1989 loan to Aérospatiale for the A330/A340, and one
disbursement under the 1993 loan to Aérospatiale for the Super Transporteurs. As we understand it, the
European Communities did not make a security adjustment to the two revised interest rate disbursements
granted under each of the 1990 and 1991 loans to British Aerospace because the revised interest rates charged
on these disbursements were above the relevant Ellis Repo rt market interest rate be nchmarks. In other words,
although securities were provided for the purpose of both disbursements (Article 7, Exhibits EC-722 (BCI), EC-
705 (BCI) and EC-706 (BCI)), the Eu ropean Communities took their alleged value into account only for the
purpose of adjusting the interest rates charged for one of two disbursements under each loan. See, para. 7.828
above.
3523 Exhibit EC-722 (BCI), pp. 11 and 13.
3524 Exhibit EC-722 (BCI), p.2.
3525 Exhibit EC-722 (BCI), p.2.
3526 Exhibits EC-154 (BCI); EC-722 (BCI); EC-695 (BCI), Article 7.01; EC-699 (BCI), Articles 2.02
and 2.03; EC-697 (BCI), Articles 2.01 and 2.02.

BCI deleted, as indicated [***]

for and the value attributed by the European Co mmunities to each security is reasonable and can be
accepted. Again, we note that the United States has not specifically contested these adjustments.
7.833 The United States does not explicitly dispute the European Communities' assertions in respect
of the values of the interest rates charged by the EIB for each of the relevant disbursements. Indeed,
to the extent that these values correspond to tho se found in Exhibit EC-154 (BCI), we note that the
United States has itself relied upon information cont ained in the same exhibit: (i) to confirm its
assertion that the EIB provided a loan to British Aerospace for the A330/A340 in 1991; 3527 and (ii)
when it withdrew its complaint against the allege d 1997 EIB loan to Aérospatiale for the Super
Transporteurs.3528 The United States does, however, critic ize the European Communities' decision to
conduct its benefit analysis for certain loans on the basis of revised interest rates, arguing that it
ignores the interest rates applicable from each relevant loan's inception, thereby rendering it
incomplete.3529
7.834 We agree with the United States that to the ex tent that the European Communities' benefit
analysis is based on the alleged interest rate applicable following the most recent contractual
modification or interest rate revision, without also taking into account interest charged over the
previous life of the loan, it is only partially re levant to assessing whether the EIB loans conferred a
benefit. For example, in the case of the 1990 loan to British Aerospace for the A330/A340, the
European Communities' benefit analysis for one of the two [***] disbursements made in 1991 relies
upon the alleged interest rate ([***]) charged on the amount of debt outstanding ([***]) at the time the
loan was amended (1999). 3530 It says nothing about whether the [***] interest rate charged on the
same disbursement between 1991 a nd 1999 conferred a benefit. Thus, the European Communities'
focus on revised interest rates means that its an alysis does not determine whether the relevant
disbursements, as a whole , conferred a benefit. Nevertheless, to the extent that the revised interest
rates represent the interest rate terms associated with a particular disbursement for at least part of the
life of a loan, they are in our view relevant for the purpose of determining whether the disbursement
was provided on beneficial interest rate terms over that same period. With this qualification in mind,
we believe that it would be appropriate, in the light of the evidence and arguments that are before us,
to rely upon the EIB interest rates disclosed in the European Communities' benefit analysis as the
starting point of our own evaluation of the United States' claims. These interest rates, and other
related information drawn from our understanding of Exhibit EC-722 (BCI), are set out in the
following table:

3527 US, Answer to Panel Question 17.
3528 At footnote 481 of its FWS, the United States noted that it would not be necessary for the Panel to
determine whether the alleged 1997 loan to Aérospatia le for the Super Transporteurs was a subsidy if the
European Communities confirmed that the alleged loan was never drawn by Aérospatiale. Information in
Exhibit EC-154 (BCI) indicated that the loan had been [***]. The Panel asked the United States (Panel
Question 12) whether it intended to continue to pursue its claim against this alleged measure "in the light of this
information". The US answered that it did not intend to do so. US, Answer to Panel Question 12.
3529 US, SWS, paras. 272-273.
3530 The actual amount of debt outstanding at the time was [***], Exhibit EC-708 (BCI), Article 2.4.

BCI deleted, as indicated [***]

Table 10 – EIB Interest Rates (as reported in Exhibit EC-722 (BCI))

 1988 loan to British Aerospace for the A320 (Loan No. 13588)
Column (a) (b) (c) (d) (e) (f)
Disb. No. EIB Interest
Rate
EIB Interest
Rate
Applicable
From
Security
Adjustment
Adjusted EIB
Interest Rates
Loan
Principal
Subject to
EIB Interest
Rate
(Millions)
1 [***] [***] [***] - [***]

 1989 loan to British Aerospace for the A320 (Loan No. 13802)
Disb. No. EIB Interest
Rate
EIB Interest
Rate
Applicable
From
Security
Adjustment
Adjusted EIB
Interest Rates
Loan
Principal
Subject to
EIB Interest
Rate
(Millions)
1 [***] [***] [***] - [***]

 1990 loan to British Aerospace for the A330/A340 (Loan No. 14999)
Disb. No. EIB Interest
Rate
EIB Interest
Rate
Applicable
From
Security
Adjustment
Adjusted EIB
Interest Rates
Loan
Principal
Subject to
EIB Interest
Rate
(Millions)
1 [***] [***] [***] - [***]
2 [***] [***] [***] [***] [***]

 1991 loan to British Aerospace for the A330/A340 (Loan No. 15119)
Disb. No. EIB Interest
Rate
EIB Interest
Rate
Applicable
From
Security
Adjustment
Adjusted EIB
Interest Rates
Loan
Principal
Subject to
EIB Interest
Rate
(Millions)
1 [***] [***] [***] - [***]
2 [***] [***] [***] [***] [***]

 1990 loan to Airbus Industrie for the A321 (Loan No. 15007)
Disb. No. EIB Interest
Rate
EIB Interest
Rate
Applicable
From
Security
Adjustment
Adjusted EIB
Interest Rates
Loan
Principal
Subject to
EIB Interest
Rate
(Millions)
1 [***] [***] [***] [***] [***]
2 [***] [***] [***] [***] [***]

BCI deleted, as indicated [***]

 1988 loan to Aérospatiale for the A330/A340 (Loan No. 13764)
Disb. No. EIB Interest
Rate
EIB Interest
Rate
Applicable
From
Security
Adjustment
Adjusted EIB
Interest Rates
Loan
Principal
Subject to
EIB Interest
Rate
(Millions)
1 [***] [***] [***] [***] [***]
2 [***] [***] [***] [***] [***]
3 [***] [***] [***] [***] [***]

 1993 loan to Aérospatiale for the Super Transporteurs (Loan No. 6832)
Disb. No. EIB Interest
Rate
EIB Interest
Rate
Applicable
From
Security
Adjustment
Adjusted EIB
Interest Rates
Loan
Principal
Subject to
EIB Interest
Rate
(Millions)
1 [***] [***] [***] [***] [***]
2 [***] [***] [***] [***] [***]

 1989 loan to CASA for the A320 and A330/A340 (Loan No. 14081)
Disb. No. EIB Interest
Rate
EIB Interest
Rate
Applicable
From
Security
Adjustment
Adjusted EIB
Interest Rates
Loan
Principal
Subject to
EIB Interest
Rate
(Millions)
1 [***] [***] [***] - [***]
2 [***] [***] [***] - [***]
3 [***] [***] [***] - [***]

 1990 loan to CASA for the A320 and A330/A340 (Loan No. 14711)
Disb. No. EIB Interest
Rate
EIB Interest
Rate
Applicable
From
Security
Adjustment
Adjusted EIB
Interest Rates
Loan
Principal
Subject to
EIB Interest
Rate
(Millions)
1 [***] [***] [***] - [***]
2 [***] [***] [***] - [***]
3 [***] [***] [***] - [***]

BCI deleted, as indicated [***]

 1990 loan to CASA for the A320 and A330/A340 (Loan No. 14712)
Disb. No. EIB Interest
Rate
EIB Interest
Rate
Applicable
From
Security
Adjustment
Adjusted EIB
Interest Rates
Loan
Principal
Subject to
EIB Interest
Rate
(Millions)
1 [***] [***] [***] - [***]
2 [***] [***] [***] - [***]
3 [***] [***] [***] - [***]

Market interest rate benchmarks advanced by the United States
7.835 Although the EC had disclosed all of the alle ged interest rates charged by the EIB and
provided copies of what it asserts were all of the relevant loan c ontracts by the time of its second
written submission, the United States did not revise the market interest rate benchmarks advanced in
its first written submission. We recall that the be nefit analysis presented by the United States in its
first written submission compared the average annua l interest rates charged by the EIB to its
borrowers in each year between 1996 and 2004 with the general corporate borrowing rates for the
different Airbus entities calculated in the Ellis Re port in those same years. Given the European
Communities' disclosure, it is now possible to identif y the Ellis Report interest rate benchmarks that
correspond more precisely with the information set ou t in the European Communities' benefit analysis
about the challenged loans. These are reported in the following table:
Table 11 – Ellis Report Benchmarks

Loan Disb.
No.
Ellis Report
Benchmark
Loan Disb.
No.
Ellis Report
Benchmark
1988 loan to British
Aerospace
1 6.21% 1 8.49%
1989 loan to British
Aerospace
1 6.21%
1993 loan to Aérospatiale
2 6.17%
1 11.51% 1 9.46% 1990 loan to British
Aerospace 2 11.51% 2 9.46%
1 6.21%
1989 loan to CASA
3 None 1991 loan to British
Aerospace 2 11.51% 1 None
1 None 2 None 1990 loan to Airbus
Industrie 2 None
1990 loan to CASA
(No. 14711)
3 None
1 6.20% 1 None
2 6.20% 2 None
1988 loan to Aérospatiale
3 6.63%
1990 loan to CASA
(No. 14712)
3 None

7.836 In considering the evidentiary value of the Ellis Report benchmarks, we believe it is important
to bear in mind that they were constructed on the basis of lending in local currencies, not USD. As
such, to the extent that the EI B loans at issue involved USD financing, the Ellis Report provides no
relevant market interest rate benchmark. Moreover, as we have explained elsewhere, 3531 the Ellis

3531 See, para. 7.803 above.

BCI deleted, as indicated [***]

Report benchmarks were partly de rived from interest rate inform ation relating to government bonds
with a 10 year maturity. However, the bond-comparable maturity of most of the EIB loans at issue
was of a different duration. Finally, we recall that the Ellis Report market interest rate benchmarks
were calculated using annual average interest ra te data. In the case of the 1992 EIB loan to
Aérospatiale, the United States revised the Ellis Report benchmarks precisely because NERA agreed
with the European Communities that, for the purpo se of assessing whether the EIB loans conferred a
benefit, the interest rate charged by the EIB "mus t be compared with a benchmark 'at the relevant
point in time and in the relevant year the EIB loan was made'". 3532 It follows that, by its own logic,
the United States' failure to revise the market intere st rate benchmarks calculated in the Ellis Report
for the remaining EIB loans, after the European Co mmunities' disclosure of the interest rates charged
by the EIB, means that the Ellis Report interest ra te benchmarks for the EI B loans are less accurate
than a benchmark based upon interest rate informati on for comparable market financing in the same
currency, with the same maturity and on the same date as the challenged loans.3533
Market interest rate benchmarks advanced by the EC
7.837 The European Communities did not establish a mark et interest rate benchmark for each of the
challenged EIB loans, but only those to Airbus companies othe r than British Aerospace. This is
because, according to the European Communities, the interest rates charged by the EIB on its loans to
British Aerospace, adjusted where relevant to account for the cost of the security and other financial,
project and administrative obligations, were above the general corporate borrowing rates calculated
for British Aerospace in the Ellis Report.3534
7.838 For the EIB loans to other Airbus entities, the European Communities constructed market
interest rate benchmarks through the application of a methodology similar to that used in the Ellis
Report: an estimated credit spread for the relevant Airbus borrowing entity was added to the interest
rate attached to government risk-free borrowing at the time (or as close as possible to the time) of
each disbursement. The European Communities' benc hmarks also took into account the maturity of
each disbursement and the fact that a certain number of the loans were made in USD.3535
- EC Benchmarks for loans to Airbus Industrie and Aérospatiale
7.839 In the case of the two USD dis bursements made under the 1990 loan to Airbus Industrie for
the A321, the risk-free rate used by the European Communities was the rate associated with a relevant
United States treasury bond having a maturity comparable to that of the two disbursements. 3536 The
European Communities then added a credit spread which it based on actual credit spread information
relating to a USD bond issued by Elf Acquitaine. The European Communities asserts that Elf
Acquitaine "was the only French issuer in the [***] market close to the relevant date with a similar
rating profile" compared with Airbus Industrie.3537

3532 NERA EIB Report, p.3, Exhibit US-542 (BCI), (underline added).
3533 In its second non-confidential or al statement, the United States di d in fact respond to the benefit
analysis presented by the European Communities in its s econd written submission. However, the United States'
comments were limited to criticizing the European Comm unities' assertion that certain alleged additional loan
obligations taken on by EIB borrowers make EIB loan s more expensive than commercial loans, and must
therefore be taken into account in the benefit analysis. US, SNCOS, para. 122.
3534 Exhibit EC-722 (BCI), p.2.
3535 Exhibit EC-722 (BCI).
3536 The European Communities explains that "{w}here there was no risk free rate available reflecting
the precise maturity profile of the re levant EIB loan available, the risk free rate has been derived by linear
interpolation of relevant treasury rates". Exhibit EC-722 (BCI), p.2.
3537 Exhibit EC-722 (BCI), pp 2, 11-13.

BCI deleted, as indicated [***]

7.840 The market interest rate benchmarks agains t which the European Communities compared the
interest rates charged by the EIB on the disburse ments under the two loans to Aérospatiale were
constructed in much the same manner. The disbur sement-date value of the credit spread (taken from
an actual FRF bond issued by Aérospatiale or the Merrill Lynch Index for A rated or AAA rated
corporate bonds) was added to the interest rate attached to a French government FRF bond having a
maturity comparable to that of the disbursement.
3538 For one of the disbursements under the 1993
loan for the Super Transporteurs, we understand th e European Communities to have added the credit
spread identified in the Merrill Lynch Index for A ra ted corporate bonds having a maturity of 3 to 5
years (similar to the alleged maturity of the di sbursement at issue) to the relevant EURIBOR
(European Interbank Offer Rate) at the time of the disbursement.3539
7.841 The European Communities' market interest rate benchmarks for loans to Airbus Industrie
and Aérospatiale are shown in the following table:
Table 12 – EC Market Interest Rate Benchmarks (Loans to Airbus Industrie and Aérospatiale)

Loan Disb.
No.
EC
Benchmark
Loan Disb.
No.
EC
Benchmark
1 8.79% 1 6.53% 1990 loan to Airbus
Industrie 1 7.70%
1993 loan to Aérospatiale
2 Euribor +
0.26%
1 4.09%
2 3.55%
1988 loan to Aérospatiale
3 3.98%

- EC Benchmarks for loans to CASA
7.842 For the nine disbursements made under the loans to CASA, the European Communities
constructed a market interest ra te benchmark on the basis of the cost of borrowing for the Spanish
government. The European Communities asserts that th is was justified because each of the relevant
disbursements was " [***] through budgetary allocations". 3540 Thus, in respect of the two
disbursements made to CASA in PTAS, the European Communities' market interest rate benchmark is
equivalent to the interest rate attached to Span ish government borrowing in PTAS at the time of the
relevant disbursements. Because it would have be en more expensive for the Spanish government to
borrow in USD than for the United States government to borrow in USD at the relevant time, the
European Communities determined the market in terest rate benchmarks for the seven USD
disbursements by adding a "Spain spread" to the va lue of the relevant United States treasuries. The
"Spain spread" was derived from the "spread at i ssuance (the only data available) on a 10 year
maturity Kingdom of Spain bond issue". 3541 The European Communities' market interest rate
benchmarks for the loans to CASA are listed in the following table:

3538 Exhibit EC-722 (BCI), p.2.
3539 Exhibit EC-722 (BCI), pp. 2 and 13.
3540 Exhibit EC-722 (BCI), p.3.
3541 Exhibit EC-722 (BCI), p.3.

BCI deleted, as indicated [***]

Table 13 – EC Market Interest Rate Benchmarks (Loans to CASA)

Loan Disb.
No.
EC
Benchmark
Loan Disb.
No.
EC
Benchmark
1 9.17% 1 9.12%
2 9.17% 2 8.78%
1989 loan to CASA
3 9.28%
1990 loan to CASA
(No. 14711)
3 9.38%
1 8.67%
2 8.39%
1990 loan to CASA
(No. 14712)
3 8.41%

- EIB interest rates compared with the market interest rate benchmarks
7.843 We recall that in order to determine whether a financial contribution in the form of a loan
confers a benefit, an assessment must be made of whether that loan places the recipient in a more
advantageous position compared with the position the recipient would have been in had a comparable
loan been obtained from a commercial lender. 3542 To this end, both parties' submissions have
focussed on showing that the interest rates charged by the EIB were either above or below the interest
rates that they consider would have been charged fo r a comparable loan to the relevant Airbus entity
on the commercial lending market. Below we evaluate the merits of the parties' submissions, using
the final (adjusted or unadjusted) EIB interest rates identified by the European Communities
(reproduced in columns (b) and (e) of Table 10) as the starting point of our assessment. We conduct
our evaluation on a disbursement-by-disbursement b asis, in the same way the European Communities
presented its own benefit analysis in Exhibit EC-7 22 (BCI). In this regard, we agree with the
European Communities that to the extent that each of the challenge d loans was effected through more
than one disbursement of funds on different dates a nd interest rates, it mak es sense to assess whether
the entirety of the loan conferred a benefit upon Air bus by examining the interest rates charged on
each of the disbursements individually. We begin our evaluation by focusing on the loans to British
Aerospace.
- The loans to British Aerospace
7.844 The four EIB loans to British Aerospace that the United States challenges (the 1988 and 1989
loans for the A320 and the 1990 and 1991 loans for the A330/A340) were given effect through three
single interest rate disbursements and three revised interest rate disbursements, all in GBP.
Comparing the interest rates charged by the EIB on each of these disbursements, as presented and
where relevant as adjusted in Exhibit EC-722 (BC I), with the market inte rest rate benchmarks
established in the Ellis Report gives the following result
3543:

3542 See, para. 7.753 above.
3543 We recall that the European Communities did not establish its own market interest rate benchmarks
for the loans to British Aerospace. See, para. 7.837 above.

BCI deleted, as indicated [***]

Table 14 – EIB Loans to British Aerospace vs. Ellis Report Market Interest Rate Benchmarks

Loan Disb.
No.
EIB Interest
Rate
Ellis Report
Benchmark
Variance
1988 loan to British
Aerospace
1 [***] 6.21% [***]
1989 loan to British
Aerospace
1 [***] 6.21% [***]
1 [***] 11.51% [***] 1990 loan to British
Aerospace 2 [***] 11.51% [***]
1 [***] 6.21% [***] 1991 loan to British
Aerospace 2 [***] 11.51% [***]

7.845 For five of the six disbursements, Table 14 show s that the interest rates charged by the EIB
were above the market interest rate benchmarks established in the Ellis Report. Two of these were the
single interest rate disbursement s made under the 1990 loan for the A330/A340. On this basis, it is
possible to conclude that the 1990 loan for th e A330/A340 was provided to British Aerospace on
interest rate terms that were not more advantage ous than the interest rate terms the United States
asserts would have been available to British Aerospa ce on the market for a comp arable loan. For the
three other disbursements (both disbursements under the 1988 and 1989 loans and one of the two
disbursements under the 1991 loan), the EIB intere st rates in Table 14 reflect those in force after the
relevant loan contracts had been amended in 1999.3544
7.846 As we have previously explained, a benefit anal ysis that focuses on only the latest applicable
interest rate following a contract revision, without also taking into account interest charged by the EIB
up to the date of the interest rate revision, is only partially relevant to determining whether the
disbursement, as a whole , confers a benefit. Thus, although Table 14 indicates that the interest rates
charged by the EIB for the three revised interest rate disbursements were higher than the market
interest rate benchmarks established in the Ellis Report, the same result does not automatically follow
for the interest rates charged by the EIB on the same disbursements prior to being revised.
7.847 The contract that first amended the interest rates charged on these three disbursements was
submitted in Exhibit EC-708 (BCI). On the basis of the information in this contract amendment and
other evidence that is before us, 3545 we can make the following findings about the interest rates that
were in effect prior to the relevant contractual amendment:

3544 Exhibit EC-708 (BCI).
3545 Exhibits EC-154 (BCI); EC-703 (BCI); EC-704 (BCI); EC-706 (BCI); and EC-708 (BCI).

BCI deleted, as indicated [***]

Table 15 – EIB Loans to British Aerospace (Interest Rates Charged Prior to 1999 Restructuring)

Loan Disb.
No.
EIB Interest
Rate
EIB Interest
Rate Applicable
From
Ellis Report
Benchmark
Variance
1988 loan to British
Aerospace
1 [***] [***] 9.67% [***]
1989 loan to British
Aerospace
1 [***] [***] 10.19% [***]
1991 loan to British
Aerospace
1 [***] [***] 11.51% [***]

7.848 Thus, the initial interest rates charged by the EIB on both disbursements under the 1988 and
1989 loans for the A320 were above the corresponding Ellis Report benchmarks. For the
disbursement under the 1991 loan for the A330/A340, th e initial interest rate charged by the EIB was
below the relevant Ellis Report benchmark. However, we recall that Airbus had provided a particular
security under this loan, which the European Communities valued at [***] basis points.
3546 Adding
this to the interest rate charged by the EIB, it is possible to arrive at an adjusted interest rate of [***],
which is [***] basis points above the corresponding Ellis Report benchmark.
7.849 The interest rates charged on the three disbur sements to British Aerospace were revised once
again by amendment of 17 May 2004. 3547 The interest rates charged on the two disbursements made
under the 1988 and 1989 loans were increased, with retroactive effective from 16 October 2003, to
[***]. Similarly, the interest rate charged on the disbursement made under the 1991 loan was
increased to [***], with retroactive effect from 11 March 2003. In 2003, the corresponding Ellis
Report market interest rate benchmark was 5.76%.
7.850 All this confirms the information contained in Table 14 and makes it possible to conclude that
the financing provided to British Aerospace under the 1988, 1989 and 1991 loans was agreed on
interest rate terms that were not more advantageous than what th e Ellis Report suggests would have
been available to British Aerospace on the market for comparable loans.
7.851 Finally, we note that Table 14 shows that one single interest rate disbursement was provided
to British Aerospace at an interest rate that was [***] below the relevant Ellis Report market interest
rate benchmark. However, given the complexities a ssociated with establishing market interest rate
benchmarks for the above EIB loans, and in the light of our comments on the relatively low
evidentiary value of the Ellis Report benchmarks, 3548 we believe that a [***] difference between the
interest rate charged by the EIB and the market inte rest rate benchmark calcul ated in the Ellis Report
is not enough to confirm the United States' contention that the interest rate charged by the EIB on this
disbursement was more advantageous than comparable market financing.
- The loans to Airbus Industrie and Aérospatiale
7.852 The three EIB loans to Airbus Industrie and Aérospatiale that the United States challenges
(the 1990 loan for the A321, the 1988 loan for the A330/A340 and the 1993 loan for the Super
Transporteurs) were given effect through two single interest rate disbursements in USD, one single
interest rate disbursement in FRF, and four revised interest rate disbursements in FRF. Comparing the
interest rates charged by the EIB on each of these disbursements, as presented and where relevant as

3546 See, para. 7.828 above.
3547 Exhibit EC-710 (BCI).
3548 See, para. 7.836 above.

BCI deleted, as indicated [***]

adjusted in Exhibit EC-722 (BCI), with the market interest rate benchmarks advanced by both parties
gives the following result:
Table 16 – EIB Loans to Airbus Industrie and Aérospatiale vs. Market Interest Rate Benchmarks

Loan Disb.
No.
EIB
Interest
Rate
Ellis Report
Benchmark
Variance EC
Benchmark
Variance
1 [***] None - 8.79% [***] 1990 loan to
Airbus Industrie 2 [***] None - 7.70% [***]
1 [***] 6.20% [***] 4.09% [***]
2 [***] 6.20% [***] 3.55% [***]
1988 loan to
Aérospatiale
3 [***] 6.63% [***] 3.98% [***]
1 [***] 8.49% [***] 6.53% [***] 1993 loan to
Aérospatiale 2 [***] 6.17% [***]‡ Euribor +
0.26%

‡ Although the European Communities did not disclose the relevant EURIBOR rate, we note that on [***], EURIBOR rates
ranged between 2.064% (one week) and 2.388% (12 months). 3549 It is therefore reasonable to conclude that the difference
between the Ellis Report market interest rate benchmark of 6.17% and the EIB interest rate was [***].

7.853 Table 16 shows that the interest rates charged by the EIB on several of the disbursements
made under the three loan contracts were below the market interest rate benchmarks established by
both parties. However, the interest rate differen tials vary considerably de pending upon which party's
benchmark is used in the analysis.
7.854 Compared with the European Communities' benc hmarks, the Ellis Repor t benchmarks have a
more remote temporal connection with the loans at issue because they are based on annual average
interest rate information. On the other hand, the European Communities' benchmarks are based on
interest rate information taken from the date, or as close as possible to the date, of the actual loan
disbursement or interest rate revision. To this extent, and as we have already noted, 3550 the Ellis
Report benchmarks are likely to be less accurate th an the benchmarks established by the European
Communities, a result we believe the United Stat es acknowledged when it revised the Ellis Report
benchmark for the 1992 EIB loan to Aérospatiale in the light of the European Communities' criticism
of its reliance on annual average interest rates. 3551 Moreover, we recall that whereas the Ellis Report
benchmarks for all of the loans reflect the interest rate terms associated with 10 year borrowing, the
European Communities' benchmarks are based on th e alleged interest rates charged for borrowing
over a term that matches more closely the actual matu rity of the loans at issue. In this light, we
believe that, for the purpose of determining wh ether the EIB loans to Airbus Industrie and
Aérospatiale conferred a benefit, it would be appropriate to rely upon the market interest rate
benchmarks established by the EC.
7.855 Taking the European Communities' market interest rate benchmarks as the relevant point of
comparison, we note that the interest rates charged by the EIB were below the relevant benchmarks in
respect of both disbursements made under th e 1993 loan for the Super Transporteurs (by [***] and
[***] basis points), and disbursements 1 and 3 made under the 1988 loan for the A330/A340 (by

3549 Euribor Historical Data, www.euribor.org/html/download/euribor_2004.txt, visited by the WTO
Secretariat on 3 July 2008.
3550 See, para. 7.836 above.
3551 See, para. 7.803 above.

BCI deleted, as indicated [***]

[***] basis points each). Despite th is result, the European Commun ities considers that it cannot be
concluded that these four disbursements were granted at below-market interest rates.
7.856 First, as we have previously noted, the Eur opean Communities contends that in assessing
whether the EIB loans conferred a benefit, we mu st determine whether the rate charged by the EIB
was convincingly outside a spread of interest rate s "20 to 50 basis points above or below the single
benchmark".3552 While we accept the reasonableness of the principle underlying the European
Communities' contention – namely that market lenders may offer slightly different rates of interest for
loans granted on the same or comparable terms a nd conditions – we have found that the European
Communities has failed to properly substantiate its position.3553 Thus, we cannot accept that the range
of market interest rate benchmarks advanced by the European Communities is an appropriate basis for
finding that the above four disbursements were not granted on beneficial interest rate terms.
7.857 Second, and only in respect of disbursements 1 and 3 under the 1988 loan, the European
Communities asserts that the [***] basis points difference between the alleged rate charged by the
EIB and its own market interest rate benchmarks would fall to below zero, after taking into account
the cost of additional project, financial and admini strative obligations attached to EIB loans that
would not normally be found in the bond instrume nts used to establish its market interest rate
benchmarks.3554 Relying on Moody's assessment of the differences in three-year cumulative loss rates
between similarly rated loans and bonds, the Euro pean Communities submits that it is possible to
quantify the "pricing impact of using bonds to benc hmark a loan that has more stringent terms and
conditions than th e benchmark bonds" 3555, and calls for a 6.5 basis point reduction in the benchmark
interest rates derived from bond market information.3556
7.858 As we have previously noted, we find the logi c of the European Communities' position to be,
in general, persuasive.3557 Moreover, we note that the United States has not specifically contested the
European Communities' reliance on Moody's assess ment, nor has it specifically challenged the
European Communities' assertion that on the basis of Moody's assessment, an adjustment of 6.5 basis
points would be appropriate. 3558 In this light, we find that when properly adjusted by 6.5 basis points
to account for differences between the inherent ch aracteristics of loan instruments compared with
bonds, the interest rates charged by the EIB fo r disbursements 1 and 3 under the 1988 loan do not
appear to have conferred a benefit upon Aérospatiale.
7.859 However, we note that the interest rates that are identified in Table 16 as being charged on
disbursements 1 and 3 under the 1988 loan reflect the effective interest rates after a series of interest
rate revisions. 3559 Again, we recall our view that a benefit analysis that focuses on only the latest
applicable interest rate following an interest rate revision, without also taking into account interest
charged by the EIB up to the date of that revision, is only partially relevant to determining whether the

3552 EC, SWS, para. 507.
3553 See, para. 7.787 above.
3554 Exhibit EC-722 (BCI).
3555 EC, Answer to Panel Question 176; see also, footnote 3401 above.
3556 See, para. 7.780 above.
3557 See, para. 7.783 above.
3558 US, Comments on EC Answer to Panel Question 176.
3559 The two disbursements at issue gr anted under the 1988 loan were first transferred to Aérospatiale
on [***] and [***] at a respective annual interest rate of [***] and [***] Exhibit EC-697 (BCI). The 1988 loan
contract envisaged that the interest rate on outstanding disbursement amounts would be revised [***] Exhibit
EC-693 (BCI), Article 3.01. The interest rates disclosed by the European Communities in its benefit analysis
(which we have used as the basis of the values identified in Table 16) were those in force on [***] and [***],
see, Table 10 above. It follows that the original interest rate applicable to disbursement 1 must have been
revised at least twice between [***] and [***]; and at least once in respect of disbursement 3 between [***] and

BCI deleted, as indicated [***]

terms of the disbursement, as a whole
, confer a benefit. Thus, although Table 16 indicates that the
revised interest rates charged by the EIB on disbursements 1 and 3 under the 1988 loan were above
the European Communities' market interest rate be nchmarks (when adjusted by 6.5 basis points), the
same result does not automatically follow for the interest rates charged by the EIB on the same
disbursements prior to the interest rate revision.
7.860 In order to determine whether market interest ra te terms were applied to each of the relevant
disbursements as a whole , we would need to know the interest ra te (or interest rates) charged prior to
each revision. However, the European Communitie s has advanced no information about the precise
number of revisions the EIB actually effected. Neith er do we know the values of all of the previously
applicable interest rates, or the outstanding disburse ment values to which they applied. In our view,
this is information that the European Communities could have disclosed in answering Panel Question
89, or at the very least, when th e European Communities presented its own benefit analysis in respect
of each of the challenged loans in Exhibit EC-722 (BCI). In this light, and bearing in mind our
findings on the nature of the EIB's lending activities, 3560 we conclude, on the basis of the entirety of
the information that is before us, that the inter est rates charged by the EIB on disbursements 1 and 3
under the 1988 loan prior to, respectively, [***] and [***] were below-market. Moreover, given that
the (below-market) interest rates previously applicable on disburseme nt 1 would have been in force
for 14 years and that this loan disbursement had a 15 year maturity, we also find that the interest rate
terms of this disbursement c onferred a benefit on Aérospatiale for almost its entire life. 3561 Similarly,
we find that the (below-market) interest rate terms applicable to disbursement 3 ensured that
Aérospatiale benefited for approximately eight years of this loan disbursement's 15 year maturity.3562
7.861 Turning to the two disbursements made by th e EIB to Aérospatiale under the 1993 loan for
the Super Transporteurs, we see from Table 16 that both appear to have been provided on interest rate
terms that were below-market. One of these disbursements (disbursement 1) was a single interest rate
disbursement. It is therefore possible to conclude that this disbursement was provided to Aérospatiale
on interest rate terms that were more advantageous than the interest rate terms that the European
Communities believes would have been available on the market. However, in respect of the second
disbursement, we note that the EIB interest rate shown in Table 16 reflects the interest rate charged by
the EIB after the last of a series of interest rate revisions.
3563 Again, we recall our view that a benefit

3560 See, para. 7.753 above.
3561 Disbursement 1 was transferred to Aérospatiale on [***] at an initial interest rate of [***]. This
interest rate was subject to revision [***] Exhibit EC-693 (BCI), Article 3.01. The interest rate disclosed by the
European Communities in its benefit analysis (which we have used as the basis of the values identified in
Table 16) was the interest rate in force on [***], see, Table 10 above. The disbursement was fully repaid in
advance ("remboursement anticipé") on [***]. Exhibit EC-154 (BCI). Thus, disbursement 1 under the 1988
loan was repaid over [***]. Exhibits EC-154 (BCI), EC-693 (BCI), EC-697 (BCI) and EC-722 (BCI). Given
that we have held the interest rates charged by the EIB on this disbursement prior to [***] to be below-market, it
is possible to conclude that Aérospatiale paid below-market interest rates for approximately [***] out of the
[***] years of life of this disbursement.
3562 Disbursement 3 was transferred to Aérospatiale on [***] at an initial interest rate of [***]. This
interest rate was subject to revision [***], Exhibit EC-693 (BCI), Article 3.01. The interest rate disclosed by the
European Communities in its benefit analysis (which we have used as the basis of the values identified in
Table 7) was the interest rate in force on [***]. See, Table 10 above. We understand from Exhibit
EC-722 (BCI) and EC, Answer to Panel Question 89 that this was the last applicable interest rate, which
remained in place until [***], when the loan was repaid in full., Exhibit EC-154 (BCI) Thus, disbursement 3
under the 1988 loan was repaid over [***] years, Exhibits EC-154 (BCI), EC-693 (BCI), EC-697 (BCI) and
EC-722 (BCI). Given that we have held the interest rates charged by the EIB on this disbursement prior to [***]
to be below-market, it is possible to conclude that Aérospatiale paid below-market interest rates for
approximately [***] out of the [***] years of life of this disbursement.
3563 Disbursement 2 under the 1993 loan was transferred to Aérospatiale on [***] at a [***] interest rate
subject to [***] Exhibit EC-695 (BCI), Article 3.01B; and Exhibit EC-699 (BCI). The interest rate disclosed by

BCI deleted, as indicated [***]

analysis that focuses on only the latest applicable in terest rate following an interest rate revision,
without also taking into account interest charged by the EIB up to the date of that revision, is only
partially relevant to determining whether the terms of the disbursement, as a whole , confer a benefit.
Thus, although Table 16 indicates that the revised interest rate charged by the EIB on disbursement 2
under the 1993 loan was below the market interest rate benchmarks established by the European
Communities, the same result does not automatically follow for the inte rest rates charged by the EIB
on the same disbursement prior to the interest rate revision.
7.862 In order to determine whether favourable interest rate terms were applied to this disbursement
as a whole , we would need to know the interest rate (or in terest rates) charged pr ior to the revision.
However, again, we note that the European Co mmunities has advanced no information about the
precise number of revisions the EIB actually effect ed. Neither do we know the values of all of the
previously applicable interest rates, or the outsta nding disbursement values to which they applied. In
our view, this is information that the European Communities could have disclosed in answering Panel
Question 89, or at the very least, when the Eur opean Communities presented its own benefit analysis
in respect of each of the challenged loans in Exhibit EC-722 (BCI). In this light, and bearing in mind
our findings on the nature of the EIB's lending activities, 3564 we conclude, on the basis of the entirety
of the information that is before us, that all of the prior interest rates charged by the EIB on
disbursement 2 under the 1993 loan to Aérospatiale were also below-market.
7.863 Finally, we note that for three of the seven disbursements identified in Table 16 (both
disbursements made under the 1990 loan for the A321 and one under the 1988 loan for the
A330/A340), the interest rate charged by the EIB was greater than the European Communities' market
interest rate benchmarks. Both disbursements unde r the 1990 loan for the A321 were single interest
rate disbursements made in USD, for which the United States did not present any market interest rate
benchmarks. The other disburseme nt is the second of the three revised interest rate disbursements
made under the 1988 loan to Aérospatiale for the A330/A340.
3565 The European Communities has
explained that the interest rate applied to this la tter disbursement was revised three times. In other
words, four different interest rates were charged by the EIB on this disbursement. 3566 However, the
European Communities has disclosed neither the value of the four interest rates, nor the dates of the
interest rate revisions or the outstanding disburseme nt amounts to which they applied. Again, this is
information that was in the possession of only th e European Communities; information which we
consider could have been disclosed by the Eu ropean Communities when answering Panel Question
89, or at the very least, when th e European Communities presented its own benefit analysis in respect
of each of the challenged loans in Exhibit EC-722 (BCI). In this light, and bearing in mind our
findings on the nature of the EIB's lending activities, 3567 we conclude, on the basis of the entirety of
the information that is before us, that all of the prior interest rates charged by the EIB on disbursement
2 under the 1988 loan were below-market. Moreover, given that the below-market interest rates
applicable on disbursement 2 under the 1988 contr act were in force for 14 out of the loan

the European Communities in its benefit analysis (which we have used as the basis of the value identified in
Table 16) was the interest rate applicable on [***], see, Table 10 above.
3564 See, para. 7.753 above.
3565 This disbursement was transferred to Aérospatiale on [***] at an annual interest rate of [***]
Exhibit EC-697 (BCI). The 1988 loan contract envisaged that the interest rate on outstanding disbursement
amounts would be revised [***] Exhibit EC-693 (BCI), Article 3.01. The interest rate disclosed by the
European Communities in its benefit analysis (which we ha ve used as the basis of the values identified in Table
16) was the interest rate in force on [***], see , Table 10 above. It follows that the original interest rate
applicable to this disbursement must have been revised at least twice between [***] and [***].
3566 EC, Answer to Panel Question 89.
3567 See, para. 7.753 above.

BCI deleted, as indicated [***]

disbursement's 19 year expected maturity, we also find that the interest rate terms of the disbursement
conferred a benefit on Aérospatiale for approximately three quarters of its expected life.
3568
- The loans to CASA
7.864 The EIB loans to CASA challenged by the Un ited States (the 1989 and 1990 loans for the
A320 and A330/A340) were given effect through two revised interest rate disbursements in PTAS and
seven single interest rate disbursements in USD. Comparing the interest rates charged by the EIB on
each of these disbursements, as reported in Exhibit EC-722 (BCI), with the market interest rate
benchmarks established by the parties gives the following result3569:
Table 17 – EIB Loans to CASA vs. Market Interest Rate Benchmarks

Loan Disb.
No.
EIB
Interest
Rate
Ellis Report
Benchmark
Variance EC
Benchmark
Variance
1 [***] 9.46% [***] 9.17% [***]
2 [***] 9.46% [***] 9.17% [***]
1989 loan to CASA
3 [***] None - 9.28% [***]
1 [***] None - 9.12% [***]
2 [***] None - 8.78% [***]
1990 loan to CASA
(No. 14711)
3 [***] None - 9.38% [***]
1 [***] None - 8.67% [***]
2 [***] None - 8.39% [***]
1990 loan to CASA
(No. 14712)
3 [***] None - 8.41% [***]

7.865 We recall that the market interest rate benc hmarks constructed by the European Communities
for the EIB loans to CASA were based on the cost of borrowing to the Spanish government because
of the loan guarantees provided by INI, the Span ish government's industrial holding company. By
equating the market interest rate benchmarks to the cost of Spanish government borrowing in PTAS
and USD, the European Communities is, in effect, suggesting that CASA's credit worthiness, as a
separate and independent entity from the Spanish gove rnment, and the risk associated with the funded
projects, did not affect the EIB's interest rate setting decisions. In other words, the European
Communities' benchmarks imply that because of th e INI loan guarantees, the loans to CASA should
be compared with market financing available to the Spanish government.
7.866 The United States has not challenged the European Communities' approach to establishing the
relevant interest rate benchmarks. Neither h as it argued that the loan guarantees provided by INI

3568 The disbursement at issue was made to Aérospatiale on [***]. The European Communities
explains that the interest rate originally applied to th is disbursement was revised three times, the last time on
[***], when it was set at [***]. This last interest rate was intend ed to remain in pl ace until maturity on [***].
Thus, it was expected that the disbursement would be fully repaid over [***] y e a r s . E C , A n s w e r t o P a n e l
Question 89 and Exhibits EC-154 (BCI), EC-693 (BCI), EC-697 (BCI) and EC-722 (BCI). Given that we have
held the interest rates charged by the EIB on this disbursement prior to [***] to be below-market, it is possible
to conclude that Aérospatiale paid below-market interest rates for approximately [***] out of the [***] years of
its maturity.
3569 The United States has not advanced any market interest rate benchmarks for the EIB loans
disbursed in USD.

BCI deleted, as indicated [***]

afforded CASA with any particular advantage that was inconsistent with the European Communities'
obligations under the SCM Agreement. 3570 In our view, it follows fro m the European Communities'
own logic that, at least for the purpose of setting the applicable interest rate, the INI loan guarantees
transformed the loans to CASA into loans that are akin to loans to the Spanish government. This
being the case, a market interest rate benchmark that is based on the cost of Spanish government
borrowing would seem to be appropriate.
7.867 Turning to the data presented in Table 17, we note that the revised interest rates charged by
the EIB for the two disbursements made in PTAS under the 1989 loan were below the Ellis Report
and EC market interest rate benchmarks by comparable margins, respectively, [***] and [***] basis
points. However, it does not automatically follow th at the previous interest rates charged by the EIB
on the same disbursements were also below-market. In order to determine whether favourable interest
rate terms were applied to each disbursement as a w hole, we would need to know the interest rate (or
interest rates) charged prior to the revision.
7.868 The two disbursements made in PTAS under the 1989 loan were first transferred to CASA on
[***].3571 The loan contract indicates that the interest rates charged on the two disbursements were to
be determined through application of the EIB's standa rd interest rate setting mechanism, and that they
would be subsequently revised to the extent that the loaned principal remained outstanding on

3572 We understand that it is these revised interest rates ( i.e., the interest rates applicable to the
outstanding loan principal as of [***]) that the European Communities has used in its benefit analysis,
and which we have also relied upon as the basis of th e relevant EIB interest rate values identified in
Table 17. However, the European Communities has not disclosed the initial interest rates charged by
the EIB, and neither are these evident from the loan contract. Again, we consider this to be
information that was in the possession of only th e European Communities; information which we
believe could have been disclosed by the Europ ean Communities when answering Panel Question 89,
or at the very least, when the Eu ropean Communities presented its own benefit analysis in respect of
each of the challenged loans in Exhibit EC-722 (BCI). In this light, and bearing in mind our findings
on the nature of the EIB's lending activities, 3573 we conclude, on the basis of the entirety of the
information that is before us, that the prior inter est rates charged by the EIB on the two disbursements
in PTAS made under the 1989 loan contract were also below-market.
7.869 Table 17 indicates that a third, single interest rate, disbursement was made under the 1989
loan in USD. As already noted, unlike the European Communities, the United States has not
submitted a comparable market interest rate be nchmark for this disbursement. The European
Communities' market interest rate benchmark indi cates that this disbursement was not granted on
interest rate terms that were more advantage ous than what CASA could have obtained from a
commercial lender for a comparable loan. Therefore, we find that the third, single interest rate, USD,
disbursement made under the 1989 loan did not confer a benefit upon CASA.
7.870 Bearing in mind that the funds transferred vi a the first and second disbursements under the
1989 loan amounted to more than half of the prin cipal made available under the 1989 loan contract, it
is possible to conclude that the majority of the f unds lent to CASA under the 1989 loan were obtained
at preferential interest rates co mpared with the market, thus c onferring upon it a benefit within the
meaning of Article 1.1(b) of the SCM Agreement.

3570 We recall that loan guarantees are explicitly identified in Article 1.1(a)(1)(i) of the
SCM Agreement as one type of "potential direct transf er of funds or liabilities", and as such, under certain
circumstances, they may amount to subsidies falling within the scope of the SCM Agreement.
3571 Exhibit EC-154 (BCI).
3572 Exhibit EC-700 (BCI), Article 3.01.
3573 See, para. 7.753 above.

BCI deleted, as indicated [***]

7.871 Of the six single interest rate USD disbursements made to CASA under the two 1990 loans,
Table 17 indicates that one was made at an interest rate that was [***] basis points below the
European Communities' market interest rate benchm ark. We note that the principal transferred to
CASA under this disbursement represented approximately [***] of the funds made available under
loan No. 14711.
3574 On this basis, it is possible to conclude that just over [***] of the funds borrowed
by CASA from the EIB under loan No. 14711 was subj ect to below-market interest rates, thus
conferring a benefit within the meaning of Article 1.1(b) of the SCM Agreement.
7.872 Finally, as we have previously observed, the European Communities contends that in
assessing whether the EIB loans conferred a benefit, we must determine whether the rate charged by
the EIB was convincingly outside a spread of intere st rates "20 to 50 basis points above or below the
single benchmark".3575 However, for the same re asons we have outlined above, 3576 we cannot accept
that the range of market interest rate benchmar ks advanced by the Eur opean Communities is an
appropriate basis for finding that the relevant disbursement under the 1990 loan to CASA was not
granted on beneficial interest rate terms.
Commitment fees and non-utilization fees
7.873 Once again, the United States relies on the sa me evidence advanced in respect of its
complaint against the 2002 loan to EADS and the 1 992 loan to Aérospatiale to claim that each of the
remaining challenged EIB loans also conferred a benefit because the EIB did not charge commitment
fees or non-utilisation fees.
3577 The European Communities refute s the United States' allegation, on
the basis of the same arguments we have already described above.3578
7.874 Of the 22 disbursements made under the ten loans reviewed in this section of our Report, the
precise disbursement amounts, interest rate valu es and disbursement dat es were, among other terms
and conditions, agreed and fixed at the time of signa ture in respect of seven disbursements. Four of
these were disbursements made under each of the f our loan contracts between the EIB and British
Aerospace.3579 The other three were the disbursement s made under the 1990 loan between the EIB
and CASA (No. 14711). 3580 In each case, the EIB legally committed itself to providing British
Aerospace and CASA with loans on certa in fixed terms and conditions either [***], or on a specified
date, ranging between [***] and [***] after the date of signature. 3581 In return, not only did British
Aerospace and CASA undertake an obligation to take possession of the prescribed funding amounts
on the dates and interest rate terms fixed in the cont ract, but they also agreed to being liable to pay a

3574 See, Table 10 above.
3575 EC, SWS, para. 507.
3576 See, paras. 7.787 and 7.856 above.
3577 US, FWS, para. 414, citing Exhibits US-160 and US-161.
3578 See, para. 7.790 above.
3579 All disbursements made under the 1988 and 1989 loans to British Aerospace for the A320; and one
of two disbursements made under each of the 1990 loans to British Ae rospace for the A330/A340 Exhibits EC-
703 (BCI), EC-704 (BCI), EC-705 (BCI) and EC-706 (BCI).
3580 All disbursements made under the 1990 loan to CASA for the A320 and A330/A340 (No. 14711)
Exhibit EC-701 (BCI).
3581 For each disbursement, the delays between cont ract signature and disbursement date were: [***]
under the 1988 loan to Br itish Aerospace, Article 1.02 , Exhibit EC-703 (BCI); [***] under the 1989 loan to
British Aerospace, Article 1.02, Exhibit EC-704 (BCI); [***] in respect of disbursement 2 under the 1990 loan
to British Aerospace, Article 1. 02A, Exhibit EC-705 (BCI); [***] in respect of disbursement 1 under the 1990
loan to British Aerospace, Article 1.02B, Exhibit EC-706 (BCI); and respectively [***], [***] and [***] for the
disbursements made under the 1990 loan to CASA (No. 14711), Article 1.02, Exhibit EC-701 (BCI).

BCI deleted, as indicated [***]

fee to the EIB in the event that they were to eith er: (i) request the EIB to defer the disbursements to
another date;3582 or (ii) annul the disbursements altogether.3583
7.875 We recall that the United States has not contest ed the European Communities' assertion that it
would not be in accordance with market practice fo r the EIB to demand the payment of a fee for the
type of commitment it made in respect of the above seven disbursements. 3584 Indeed, as we have
already noted, the characterisation of commitment fe es used in the NERA EIB Report that is relied
upon by the United States suggests that commitment fees would not normally be demanded by a bank
when a borrower has undertaken an obligation to borrow, as opposed to merely an option to borrow
under an open credit line.3585 In this light, we are not convinced, given the particular terms (including
penalty provisions) applicable to the above seven disbursements, that the United States has done
enough to establish that a commitment fee would have been charged by a commercial lender for
comparable financing, and therefore that the EIB's failure to charge a commitment fee in each of the
above cases conferred a benefit upon British Aerospace and CASA.
7.876 The remaining 15 disbursements made under the ten loan contracts reviewed in this section of
our Report, were granted on what the European Communities has described as "open-rate" terms. 3586
However, unlike the 2002 loan to EADS (which was al so an "open-rate" contr act) the interest rate
formulae applied to each of these disbursements did not include a fixed risk premium component.
Thus, at the time of the conclusion of each releva nt loan, the only commitment made by the EIB in
terms of interest rates was to apply one or more contractually specified interest rate calculation
methodologies when the time came to set the rele vant interest rate for any requested funding
disbursement.
3587 As such, the circumstances that both pa rties have described, which would normally
push a commercial lender to require the payment of commitment fees were not present. 3588 It follows
that the EIB's failure to charge the relevant Ai rbus entities a commitment fee under each of the loans
at issue did not place Airbus in a position more adva ntageous than it would otherwise have been in
had it obtained comparable financing from the market.

3582 Article 1.04 ("Deferment Commission"), Exhibits EC-703 (BCI) and EC-704 (BCI); Article 1.05
("Deferment Commission") Exhibits EC-705 (BCI) and EC-706 (BCI); and Article 1.04 ("Comisión de
aplazamiento") Exhibit EC-701 (BCI).
3583 Article 1.05 ("Annulment of Credit"), Exhibits EC-703 (BCI) and EC-704 (BCI); Article 1.06
("Annulment of Credit"), Exhibits EC-705 (BCI) and EC-706 (BCI); and Article 1.05 ("Anulación de la apertura
de crédito"), Exhibit EC-701 (BCI).
3584 See, para. 7.790 above.
3585 See, footnote 3467 above.
3586 The relevant disbursements are: disbursement 1 unde r the 1990 loan to British Aerospace for the
A330/A340 (No. 14999), Exhi bit EC-705 (BCI); disbursement 2 unde r the 1991 loan to British Aerospace for
the A330/A340 (No. 15119), Exhibit EC-706 (BCI); both disbursements under the 1990 loan to Airbus
Industries for the A321 (No. 15007), Exhibit EC-692 (BCI); all three disbursements under the 1988 loan to
Aérospatiale for the A330/A340 (No. 13764), Exhibit EC-697 (BCI); both disbursements under the 1993 loan to
Aérospatiale for the Super Transporteurs (No. 6832), Exhibit EC-695 (BCI); and all six disbursements made
under both the 1989 and 1990 loans to CASA for the A320 and A330/A340 (Nos 14081 and 14712), Exhibits
EC-700 (BCI) and EC-702 (BCI)
3587 See, in particular, Articles 1 and 3, disbursement 1 under the 1990 loan to British Aerospace for the
A330/A340 (No. 14999), Exhibit EC-705 (BCI); Articles 1 and 3, disbursement 2 under the 1991 loan to British
Aerospace for the A330/A340 (No. 15119 ), Exhibit EC-706 (BCI); Articles 1 and 3, both disbursements under
the 1990 loan to Airbus Industries for the A321 (No. 15007), Exhibit EC-692 (BCI); Articles 1 and 3, all three
disbursements under the 1988 loan to Aérospatiale for the A330/A340 (No. 13764), Exhibit EC-697 (BCI);
Articles 1 and 3, both disbursements under the 1993 loan to Aérospatiale for the Super Transporteurs (No.
6832), Exhibit EC-695 (BCI); and Articles 1 and 3, all six disbursements made under both the 1989 and 1990
loans to CASA for the A320 and A330/A340 (Nos 14081 and 14712), Exhibits EC-700 (BCI) and EC-
702 (BCI).
3588 See, paras. 7.789,7.790 and 7.797 above.

BCI deleted, as indicated [***]

7.877 Finally, on the issue of non-utilization fees, we repeat the same observations made when
examining the United States' complaint in respect of the 1992 loan to Aérospatiale – namely, that
apart from alleging that all EIB loans conferred a benefit upon Airbus because the EIB did not charge
non-utilization fees, the United States has adva nced no specific explanation nor adduced any
particular evidence or expert opinion suggesting that a commercial lender would have required the
relevant Airbus entities to pay a non-utilization fee for the same type of financing obtained from the
EIB under each of the relevant loan contracts. In the absence of any such evidence or relevant
explanation, and given that the European Comm unities does not accept that the payment of a non-
utilization fee was warranted,
3589 we are not convinced that the United States has done enough to
establish that the remaining ten loans conferred a benefit for this reason.
Absence of a risk premium
7.878 The parties' arguments and submissions concer ning the United States' allegation that the EIB
failed to charge a risk premium on any loans granted prior to 1999, including the ten loans that we
have focused upon in this section of our Report, are se t out above in our analysis of the United States'
claims in respect of the 1 992 EIB loan to Aérospatiale.
3590 We emphasized in that part of our Report
that although the European Communities' explanati on of why the EIB did not charge risk premia on
loans prior to 2000 made some intuitive sense, we coul d not accept it as a matter of fact in the light of
the evidence and argument presented to support the Eu ropean Communities' position. In particular,
we found that the evidence advanced by the Eu ropean Communities showed that the EIB does
attempt, as the European Communities asserts, to "a lign its risk management systems to changing
economic conditions and evolving re gulatory standards" with a view to following "best market
practice". However, the information presented says nothing about why the EIB decided to introduce a
risk premium in 2000 or whether it was intended, as the European Communities asserts, to operate as
a partial or total alternative to the loan guar antees required under Article 18.3 of its Statute. 3591 Thus,
although we consider the European Communities' e xplanation to make some intuitive sense, we
cannot accept it as a matter of fact on the basis of the evidence that has been presented.
7.879 Moreover, while the European Communities' e xplanation of why the EIB introduced a risk
premium suggests that risks associated with EIB lending prior to 2000 were taken into account by
means of "external guarantees", the European Co mmunities has not explained how the particular
guarantees or securities provided under the ten loans ex amined in this section of our Report served to
compensate the EIB for the risks associated with lend ing to the relevant Airbus entities in the same
way that a market lender would have sought co mpensation for the same risks under a commercial
loan.
7.880 In this light, we find that the European Comm unities has failed to advance sufficient evidence
and argument to persuade us that the absence of a risk premium on the ten loans examined in this
section of our Report did not confer a benefit upon Airbus. We therefore uphold the United States'
claim that the each of the ten loans at issue conferred a benefit, within the meaning of Article 1.1(b) of
the SCM Agreement, because it did not include a risk premium.
Conclusion in respect of the "other" loans to Airbus
7.881 On the basis of the foregoing analysis, and in th e light of our finding that the nature of the
EIB's lending activities, 3592 we find that each of the ten EIB lo ans examined in this section of our
Report conferred a benefit upon the re levant Airbus entities, within the meaning of Article 1.1(b) of

3589 EC, Answers to Panel Question 87 and 179.
3590 See, paras. 7.815-7.816 above.
3591 See, para. 7.817 above.
3592 See, para. 7.753 above.

BCI deleted, as indicated [***]

the SCM Agreement, because: (i) it was either in part or in total granted on below-market interest rate
terms;3593 and/or (ii) the EIB did not charge the relevant Airbus entity a risk premium.3594
7.882 On the other hand, we find that the United St ates has failed to demonstrate that the ten EIB
loans examined in this section of our Report indivi dually conferred a benefit upon the relevant Airbus
entities because each did not require payment of commitment fees or non-utilization fees.3595
The EUR 700 million credit line
7.883 The United States considers that the EUR 700 million credit line opened for EADS at below-
market interest rates conferred a benefit upon Airb us because "the very fact" of its existence gave
EADS "valuable liquidity".3596
7.884 We recall that we have found the EUR 700 million credit line to be a potential direct transfer
of funds, and that in order to understand whether a pot ential direct transfer of funds confers a benefit,
the focus should be on whether th e existence of the promise to provide the direct transfer confers a
benefit.3597 The United States has submitted evidence wh ich we have accepted demonstrates that the
[***] EIB loan to EADS was granted at a below-mark et interest rate, thereby conferring a benefit
upon Airbus. Moreover, the United States has also de monstrated that the same loan benefited EADS
due to the absence of commitment fees. Howeve r, it has adduced no evidence nor advanced any
particular argument to identify and explain the alleged benefit of the promise to obtain liquidity on
favourable terms for EADS. We are not convinced that simply showing that a credit line has been
granted on beneficial terms is enough to establish th at it has placed its recipient in a better position
than it otherwise would have been in absent availab ility of the particular credit line. In our view,
something more is required to demonstrate th at a promise to provide "cheap" financing, in and of
itself, confers a benefit. Thus, while we are sympathetic to the notion that a potential direct transfer of
funds taking the form of a credit line on favourable te rms may confer a benefit upon its recipient, we
believe that in the context of the EUR 700 million credit line to EADS, the United States has failed to
substantiate its claim.
Overall conclusion
7.885 In summary, we conclude that the United States has established that:
(i) the 2002 EIB loan to EADS for the A380 c onferred a benefit on EADS within the
meaning of Article 1.1(b) of the SCM Agreement, and therefore constituted a
subsidy under Article 1.1 of the SCM Agre ement, because: (a) the interest rate
charged by the EIB was less than what a market lender would have asked EADS to
pay for comparable financing; and (b) E ADS was not required to pay a commitment
fee;3598
(ii) the 1992 loan to Aérospatiale for the A330/A340 confe rred a benefit on
Aérospatiale, within the meaning of Artic le 1.1(b) of the SCM Agreement, and
therefore constituted a subsidy under Article 1.1 of the SCM Agreement, because:
(a) it was granted at an interest rate [***] to the cost of borrowing for the French

3593 These loans are: the 1988 loan to Aérospatiale for the A330/A340; the 1993 loan to Aérospatiale
for the Super Transporteur; the 1989 loan to CASA for the A320 and A330/A34; and the 1990 loan to CASA for
the A320 and A330/A340 (No. 14711). See, paras. 7.852-7.872 above.
3594 See, paras. 7.878-7.880 above.
3595 See, paras. 7.873-7.877 above.
3596 US Comments to EC, Answer to Panel Question 181.
3597 See, para. 7.735 above.
3598 See, para. 7.801 above.

BCI deleted, as indicated [***]

government and was therefore more advantage ous than the interest rate that would
have been available to Aérospatiale on the market for comparable financing; and (b)
it was granted on interest rate terms that did not include a risk premium;
3599
(iii) the 1988 loan to Aérospatiale for the A330/A340, the 1993 loan to Aérospatiale for
the Super Transporteur, the 1989 loan to CASA for the A320 and A330/A340, and
the 1990 loan to CASA for the A320 and A330/A340 (No. 14711), each conferred a
benefit on the relevant Airbus entity, with in the meaning of Article 1.1(b) of the
SCM Agreement, and therefore constitute d a subsidy under Article 1.1 of the
SCM Agreement, because each loan: (a) was either in part or in total granted on
below-market interest rate terms; and (b) was granted on interest rate terms that did
not include a risk premium;3600 and
(iv) the 1991 loan to British Aerospace for A330/A340, the 1990 loan to CASA for the
A320 and A330/A340 (No. 1.4712/ES), the 199 0 loan to British Aerospace for the
A330/A340, the 1990 loan to Airbus Industrie GIE for the A321, the 1989 loan to
British Aerospace for the A320, the 1988 lo an to British Aerospace for the A320,
each conferred a benefit on the relevant Airbus entity, within the meaning of
Article 1.1(b) of the SCM Agreement, and therefore constitu ted a subsidy under
Article 1.1 of the SCM Agreement, because each loan was granted on interest rate
terms that did not include a risk premium.3601
7.886 On the other hand, we find that the United St ates has failed to demonstrate that the 2002 EIB
loan to EADS also conferred a benefit upon EADS because of the EIB's failure to charge non-
utilization fees;3602 or that the remaining eleven challenge d loans conferred a benefit because the EIB
did not charge the relevant Airbus entity either commitment fees or non-utilization fees.3603
7.887 Finally, we recall that we have concluded that the United States has failed to demonstrate that
the EUR 700 million credit line provided to EADS unde r the 2002 loan contract conferred a benefit
upon Airbus, and was therefore a subsidy within the meaning of Article 1 of the SCM Agreement.3604
7.888 In finding, for one or more reasons, that each of the twelve challenged loans constitutes a
subsidy, it does not automatically follow, as the European Communities appears to suggest,3605 that all
loans granted by the EIB and other multilateral fi nance institutions (such as those cited by the
European Communities – the Asian Development Ba nk, the European Bank for Reconstruction and
Development, the Inter-American Development Bank a nd the International Finance Corporation) will
always amount to subsidies within the meaning of the SCM Agreement. The extent to which any loan
provided by one or more of these funding institution s involves the provision of a subsidy is obviously
a question that can only be answered in the light of the particular facts surrounding the alleged
instance of subsidization. However, as a general matter, it is not entirely clear to us whether such
entities may all be properly considered to be "a gove rnment or any public body within the territory of
a Member" for the purpose of Article 1.1(a)(1). In any case, it is important to bear in mind that
although the provision of financial assistance on be neficial terms and conditions of one kind or
another would seem to fall squarely within the objectives and raison d'être of such organizations, not
all cases of support may involve subsidization that is actionable under the SCM Agreement.

3599 See, para. 7.820 above.
3600 See, para. 7.881 above.
3601 See, para. 7.881 above.
3602 See, para. 7.801 above.
3603 See, paras. 7.820 and 7.882 above.
3604 See, para. 7.884 above.
3605 See, para. 7.746 above.

BCI deleted, as indicated [***]

7.889 We now turn to evaluate the United States' allegation that the EIB loans which we have found
to be subsidies are "specific" within the meaning of Article 2 of the SCM Agreement.
(c) Whether the EIB loan subsidies are specific within the meaning of Article 2 of the
SCM Agreement
(i) Introduction
7.890 The United States argues that each of the cha llenged EIB loans to Airbus was "specific"
within the meaning of Articles 2.1(a) and 2.1(c) of the SCM Agreement, and therefore actionable
under Part III of the SCM Agreement. The Europ ean Communities rejects th e United States' claims,
and submits that rather than being "specific" within the meaning of these two provisions, the EIB
loans were in fact "non-specific" under Article 2. 1(b) of the SCM Agreement. Consequently, the
European Communities argues that the EIB loans cannot be challenged under Part III of the
SCM Agreement.
7.891 Below we review and evaluate the parties' arguments as they relate to the EIB loans which we
have found to be subsidies. We start our analys is by addressing the United States' contention that the
EIB loans are "specific" under the terms of Articles 2.1(a) and 2.1(c) of the SCM Agreement. Should
we find that the subsidies are not specific within the meaning of these provisions, the United States
will have failed to establish that th e subsidies are subject to Part II I of the SCM Agreement, and there
will therefore be no need to address the European Communities' assertion that they are non-specific
under Article 2.1(b).
(ii) Whether the Loans to Airbus were Specific under Article 2.1(a)
Arguments of the United States
7.892 The United States contends that each of the EI B loans it challenges is specific within the
meaning of Article 2.1(a) because the EIB's lending activities are entirely "discretionary", with loans
being negotiated individually with each relevant borro wer, and granted on the basis of criteria that it
alleges the EIB admits are "tailored to each individual project". 3606 To this extent, the United States
submits that the challenged EIB loans are not unlike the subsidy measures at issue in the Japan –
DRAMS dispute, which were found to be specific b ecause "tailored to the needs of the recipient
company" rather than being provided "on pre-determ ined terms (that are therefore not tailored to the
recipient company)".3607
7.893 In response to a Panel question asking the parties to elaborate their views on the extent to
which a subsidy granted on unique terms and co nditions to an individual enterprise under a non-
specific subsidy programme could be found to be specific within the meaning of Article 2.1(a),3608 the
United States answered that such a subsidy could still be specific under this provision, if granted on
terms and conditions sufficiently different from the terms and conditions of other subsidies granted
under the same non-specific subsidy programme. Acco rding to the United States, the unique terms
and conditions of such a subsidy could cause it to fall outside the parameters of the broader non-
specific subsidy programme. In such an event, th e United States argues that the granting authority,

3606 US, FWS, paras. 406 and 419, citing Exhibit US-166 (EIB, The Project Cycle at the European
Investment Bank, at 4-5, 12 July 2001).
3607 US, Answer to Panel Question 150, citing Panel Report, Japan – DRAMs (Korea), paras. 7.372 and
7.374.
3608 Panel Question 117 ("What are the parties' views on the extent to which a subsidy granted, through
a contract including one or more unique terms and conditions, to an individual enterprise pursuant to a subsidy
programme that does not explicitly limit access to subsidie s to certain enterprises, may be specific within the
meaning of Article 2.1(a) of the SCM Agreement?")

BCI deleted, as indicated [***]

through the unique terms and cond itions of the subsidy, "explic itly limits access to a subsidy to
certain enterprises".
3609
7.894 The United States argues that in order to assess wh ether the EIB loans to Airbus were granted
on terms and conditions that were sufficiently unique to take them outside of the EIB's broader
lending programme, the Panel would need to review a representative sample of other EIB loans.
However, the United States submits that the Europ ean Communities has failed to disclose this, or any
other, information that would be needed to determ ine the extent to which the terms and conditions of
the EIB loans to Airbus differed from those in the EIB's loans to other enterprises. The United States
recalls that the European Communities did not provi de the information requested during the Annex V
process. Furthermore, in the view of the United St ates, the standard contract templates submitted by
the European Communities indicate nothing about how core terms may differ between loans to Airbus
and other companies. Indeed, the United States cont ends that the EIB's standard contract templates
show that it is precisely the core terms of the EIB' s loan contracts – the terms that, according to the
United States, may cause a loan to confer a benef it and thus constitute a subsidy – that vary from
contract to contract. In particular, the United States asserts that the templates show that elements such
as [***] are not pre-determined. The United States also notes that other provisions, such as those
[***].3610 Without information from actual contracts, th e United States argues that it is impossible to
know the extent to which the variables highlighted by the template differ as between the Airbus loans
and loans to other companies.
7.895 The United States considers the European Communi ties' refusal to provide information that
would allow the Panel to make a comparison between the EIB loans to Airbus and those to other
enterprises is an instance of non-cooperation in the information-gathering process that is the subject of
Annex V of the SCM Agreement. The United States recalls that pursuant to paragraph 7 of that
Annex, a panel should draw adverse inferences fr om instances of non-cooperation by any party
involved in the information-gathering process. Thus, the United States argues that the reasonable
inference to be drawn from the European Communities' alleged lack of cooperation is that the missing
information would confirm that the terms and conditi ons of the EIB's loans to Airbus are sufficiently
different from the terms and conditions of other EI B loans as to cause the loans to be specific under
Article 2.1(a).
3611
Arguments of the European Communities
7.896 The European Communities asserts that the EIB is a public purpose lending institution
offering loans of a general character that are not limited to any enterprise, industry or group within the
meaning of Article 2 of the SCM Agreement. It recalls that the United States Department of
Commerce has found EIB loans to be neither de facto nor de jure specific under United States law.3612
The European Communities calls upon the Panel to come to the same conclusion under the
SCM Agreement.
7.897 The European Communities explains that the EI B provides loans to companies of all sizes,
with respect to projects across all sectors of th e economy, and without any discrimination as to the
"nationality" of the borrowers. According to the European Communities, any company may qualify
for financing from the EIB as long as it is suffici ently credit-worthy and the underlying project

3609 US, Answer to Panel Question 117; US, SWS, para. 294.
3610 US, Answer to Panel Question 150.
3611 US, Answer to Panel Question 150.
3612 EC, FWS, paras. 1014-1016, quoting passages from United States Department of Commerce final
determination in the Belgian Steel countervailing duty investigation, Exhibits EC-158 and EC-159, and citing
the United States Department of Commerce final determination in the Certain Pasta from Italy countervailing
duty investigation (C-475-819).

BCI deleted, as indicated [***]

contributes to the attainment of one of the EIB' s policy objectives and its eligibility criteria are
satisfied.3613
7.898 The European Communities rejects the United States' contention that the EIB loans are
tailored to the needs of each individual project in such a way that renders them specific within the
meaning of Article 2.1(a) of the SCM Agreement. According to the Europ ean Communities, the fact
that a loan agreement is negotiated with and limit ed to a particular borrower is standard banking
practice. The European Communities argues that th e EIB acts like any other bank when it negotiates
loan contracts individually with different borrowe rs. However, unlike other banks, the EIB Statute
and the EIB Eligibility Guidelines underpin all aspects of its lending operations by defining the
financial, administrative and policy-related limits of the EIB, the context of the finance agreements to
be agreed upon with the borrowers, the objectives to which the funded projects must contribute, the
appraisal process for each loan application, and the interest rate setting methodology. 3614 Thus, the
terms and conditions of the negotiated loans, wh ich the European Communities submits matter for
finding that there is subsidization (such as interest rate, maturity, repayment profile), are offered to
borrowers on the basis of neutral and universally applied financial, technical, methodological and
policy criteria, irrespective of the identity or nati onality of the borrower and its corporate needs, in
line with the prevailing market conditions.3615
7.899 To the extent that any unique terms and cond itions do exist in the EIB loans, the European
Communities contends that they do not evidence specificity. Rather, the European Communities
submits that they result from the application of th e same principles and objective criteria to different
projects and borrowers. For instance, the European Communities asserts that interest rate differences
arise from the fact that each interest rate is set according to the same methodology applied in the
context of financial markets that are constantly moving. 3616 In terms of differences in loan maturities,
the European Communities explains th at these arise from the application of the general principle that
the maximum maturity of the loan depends upon th e economic life of the assets being financed – a
large scale, long-term transport infrastructure project has a different financing requirement than
funding for the purchase of new equipment for a small environmental project undertaken by a
medium-sized firm.3617
7.900 Thus, the European Communities argues that the challenged EIB loans are not like the
measure that was found to be specific in Japan – DRAMS because they are not tailored to each
particular borrower, but are based on generally applicable and horizontally set methodologies and
criteria which are pre-determined and independent of each borrower's request for financing. The
unique terms and conditions that the European Communities submits matter for a finding of the
existence of a subsidy (such as interest rate, ma turity, repayment profile), do not depart from the
standard criteria and methodology applied to all EIB projects. The European Communities asserts
that such a departure would be in contradiction with the EIB Statute, which it asserts rests on the
principle of non-discrimination among borrowers.3618
Evaluation by the Panel
7.901 Before turning to evaluate the merits of the Un ited States' claims, we believe it is useful to
first describe the EIB's lending activities in more detail.

3613 EC, FWS, paras. 1022, 1051-1053; EC, SWS, para. 426.
3614 EC, Comments on US Answer to Panel Question 150.
3615 EC, Comments on US Answer to Panel Question 150; EC, SWS, para. 424.
3616 EC, Comments on US Answer to Panel Question 150.
3617 EC, Comments on US Answer to Panel Question 150.
3618 EC, SWS, para. 423.

BCI deleted, as indicated [***]

The EIB's lending operations
7.902 Since its establishment in 1957, the EIB has pr ovided loans with a total value close to
EUR 600 billion for over 10,000 projects undertak en in a wide array of economic sectors.
3619 T h e
EIB's lending is not limited to entities having EU na tionality. However, the location of the funded
project is important as the EIB's task is to "contri bute ... to the balanced and steady development of
the common market in the interest of the Community". 3620 Thus, funded projects are typically
executed within the territory of the EC member St ates, although the EIB has also funded projects in
countries acceding to the EU or in neighbouring States.3621
7.903 The EIB grants two types of loans, described by the European Communities as "individual"
loans and "global" loans. Acco rding to the European Communiti es, the "main (only)" difference
between the two is the method of delivery of the EIB funds to the ultimate borrower, with "individual"
loans being negotiated and disbursed directly by the EIB, and "global" loans provided through a
financial intermediary (a bank) unde r mandate from the EIB to apply funds to EIB-eligible projects.
Typically, the EIB grants "individual" loans only in relation to projects with an investment cost of at
least EUR 25 million. Projects valued at less th an this amount are financed through global loans. 3622
We note that all of the loans challenged by the United States were "individual loans".
7.904 The EIB's Eligibility Guidelines indicate that in order to qualify for loan financing, a proposed
project must contribute to the EIB's policy objectives. 3623 In keeping with its mandate under the EC
Treaty, the EIB sets these objectives in a way that reflects the goals and priorities of the EU. One
expression of the EIB's objectives is found in the Annex to another EIB publication – The Project
Cycle at the European Investment Bank (the "Project Cycle Document"):
"PROJECTS ELIGIBLE FOR BANK FINANCING
WITHIN THE EUROPEAN UNION
, projects considered for EIB financing must
contribute to one or more of the following objectives:
Balanced economic development of the Union and its less favoured regions;
Enrichment of human capital: health and education;
Information technology and communications networks;
Research and development;
Diffusion of innovation;

3619 Exhibit EC-163 lists all loans granted by the EIB between 1 January 1958 and 31 December 2006.
3620 Article 267, EC Treaty. Similar language is also found in Article 20.1(b) of the EIB Statute (the
EIB "may grant loans or guarantees only where execution of the project contributes to increased economic
productivity in general and promotes the attainment of the common market").
3621 EIB Statute, Article 18.1, Exhibit EC-158. See, also, Exhibit EC-163. The neighbouring states that
the EIB has financed include Albani a, Algeria, Bosnia Herzegovina, Egypt, Serbia and Montenegro,
Switzerland and Tunisia. The European Communities expl ains that approximately 10% of the EIB's lending is
made outside of the European Communities pursuant to external mandates. We understand that this includes
lending to numerous ACP States.
3623 EC, FWS, para. 1025. EIB, Eligibility Guidelines – Checking Consistency of EIB Operations with
EU Objectives, Projects Directorate, Ma y 2004, (hereinafter " Eligibility Guidelines") Exhibit EC-161, pp 1, 6,
11, 14, 18, 21, 27, 31 and 34.

BCI deleted, as indicated [***]

Transport, telecommunications and Trans-European Networks (TENs);
Environment: protection and improvement of the natural and urban environment,
projects with a positive impact on the regi onal or global environment (sustainable
development and prevention of climate change);
Increasing the competitiveness and integration of European industry;
Development of small and medium-scale en terprises (venture capital funding aimed
at stimulating innovation by SMEs and entrepreneurship is undertaken by the
European Investment Fund).
Securing the energy supply base and conserving energy."3624
7.905 A more recent formulation of the EIB's "main operational objectives" is described in the
Eligibility Guidelines:
"(i) EU economic and social cohesion and regional development; (ii) Implementation
of the Innovation 2010 Initiative; (iii) Envi ronment; (iv) TENS and other projects of
common interest; and (v) human capital."3625
7.906 For each of the EIB's five "main operational objectives", the Eligibility Guidelines identify
the various types of projects that may fall within the scope of each objective in more detail. For
instance, the "Environment" objective is expanded into what appear to be five sub-objectives:
"Tackling Climate Change"; "Protecting Nature / Biodiversity & Natural Resources"; Improving
Environment and Health"; "Promoting Sustainable Use of Natural Resources; Waste Management";
and "Enhancing Urban Environment". The features of the types of projects eligible for EIB funding
under each of these sub-objectives are further speci fied under the "Categories of Investment/
Indicators" heading. Overall, the Eligibility Guidelines identify 27 sub-objectives and 95 "Categories
of Investment/Indicators".
3626
7.907 The EIB's operations are directed and mana ged by a Board of Governors, a Board of
Directors and a Management Committee. 3627 The Board of Governors consists of Ministers
designated by the EC member States. In addition to setting the general credit policy of the EIB, the
Board of Governors is responsible for inter alia, appointing the Board of Directors and the
Management Committee.3628 The Board of Directors is comprised of at least one director nominated
by one of each of the EC member States, and one director nominated by the Commission. 3629
Members of the Board of Directors are "persons whose independence ... is beyond doubt" and who are
"responsible only to the Bank". 3630 The Board of Directors has the sole power to take decisions in
respect of granting loans, 3631 and acts on the basis of proposals prepared by the Management
Committee. The Management Committee is responsible for the current business of the EIB, including
examining whether loan applications comply with the provisions of the Statute, 3632 delivering an
opinion to the Board of Directors on proposals for granting loans and preparing decisions of the Board

3624 The Project Cycle at the European Investment , Annex, p. 9, 12 July 2001 (hereinafter " Project
Cycle Document") Exhibit EC-608.
3625 EIB, Eligibility Guidelines, p. 3, Exhibit EC-161.
3626 Exhibit EC-161, Tables 1 to 8.
3627 Exhibit EC-167, Article 9.1.
3628 Exhibit EC-167, Article 9.2-9.4.
3629 EIB Statute, Article 11.2, Exhibit EC-158.
3630 EIB Statute, Article 11.2, Exhibit EC-158.
3631 EIB Statute, Article 11.1, Exhibit EC-158.
3632 EIB Statute, Article 21.4, Exhibit EC-158.

BCI deleted, as indicated [***]

of Directors.
3633 Management Committee opinions on whethe r to grant a loan are delivered to the
Board of Directors only after the proposed proj ect has been appraised by the EIB's technical
experts.3634
7.908 As we understand it, the purpose of the EIB's proj ect appraisal is to assess the extent to which
a proposed project is economically, financially and technically sound and that the potential borrower
is able to service the potential loan. 3635 The European Communities argues that this reflects the fact
that the EIB is obliged under its Statut e to employ funds as rationally as possible. 3636 The EIB
undertakes appraisals of each loan application using a "standard" set of "criteria", which it explains
are "tailored to each individual project". 3637 In addition to checking a project's eligibility in terms of
contributing to one or more of the EIB's objectives, the appraisal involves assessing a proposed
project's business rationale and economic viability , the technical soundness of the project, its
environmental impact and the financial and credit risk attached to the lending. 3638 The full set of
appraisal criteria that are applied by the EIB are described in the Project Cycle Document in the
following terms:
"5.1. Rationale for Bank financing: e ligibility, value added of the operation.
The project's contribution to European Union objectives supported by the EIB {} is
ascertained. The analysis also reveals how the Bank's input brings "value added" to
the project: this may be apparent in the financial terms offered, in the EIB's active
and "catalytic" role in structuring the finance plan, or in the improvement of the
project's technical specifications.
5.2. Market and sector:
This analysis is based on the information gathered during project appraisal and on the
sectoral studies regularly, carried out by the Projects Directorate. It looks at the
sector in question, establishes worst a nd best-case scenarios based on reasonable
projections and assesses the promoter's qualities in relation to the project and the
project's ability to meet existing demand.
5.3. Technical description, capacity:
The Bank's analysis looks at the project's technical soundness and the promoter's
ability to implement the technical solutions adopted. It also examines the technical
risks and measures taken to attenuate these.

3633 EIB Statute, Articles 13.3 and 13.4, Exhibit EC-158.
3634 EC, FWS, para. 1028. The European Commun ities asserts that these will typically include
economists, engineers, lawyers and financial analysts.
3635 The Project Cycle Document , Exhibit US-166, pp. 4-7. We understand that the EIB conducts its
own appraisal of projects seeking financing in the form of "individual loans". However, it is unclear from the
evidence that is before us whether the same appraisal process is applied to individual projects that seek
financing from the intermediaries that receive and on-lend the EIB's "global" loans.
3636 EC, FWS, para. 1026.
3637 The Project Cycle Document, Exhibit US-166, p.4.
3638 The Project Cycle, Exhibit US-166, pp.5-6. The application of the "standard" set of "criteria" also
involves reviewing the "total investment cost" of the project, its "implementation", its "operation" and the
"prices, tariffs and financial return from the project".

BCI deleted, as indicated [***]

5.4. Investment cost:
The EIB examines the total investment cost . the main project costs compared with
those of similar schemes financed by th e Bank, the margins for contingencies and
price inflation adopted and the impact of taxes on the project and promoter.
5.5. Implementation:
The Bank's analyses cover the following points:
- Technical: establishment of a "technical description" of the project to be
appended to the contract and serve as a basis for future monitoring.
- Procurement: compliance with current procedures; percentage of project cost
subject to international competitive bidding; acceptability to the Bank of procedures
envisaged.
5.6. Operation:
Management; measures taken to meet particular risks; evaluation of operating costs;
employment.
5.7. Environmental impact:
Environmental situation with and without the project; where appropriate, review of
studies of alternative solutions; project 's impact on the natural and human
environments; definition of the measures a dopted to prevent, reduce or mitigate any
adverse effects; compatibility with current or proposed environmental legislation;
existence of an environmental management plan and promoter's ability to implement
and manage it; examination of environmen tal aspects over the life of the project;
project's compatibility with sustainable development objectives - including
prevention of climate change - to which the European Union is committed.
In performing the environmental part of its appraisal, the Bank makes use of the
variety of studies carried out by the prom oter or by independent consultants on its
behalf (EIAs, SEAS, SISs, etc.). Th e Bank examines the mitigating measures
proposed, reserving the right to ask for furt her studies to be undertaken by competent
external consultants. In any event, the EIB ensures compliance with adequate
project related conditionality.
5.8 Prices, tariffs and financial return from the project:
- Calculation of the expected cash flow in real terms.
- Where appropriate, the forecasts and analyses of certain financial ratios may
serve as a basis for formulating appropriate tariff policies.
- Sensitivity and/or risk analysis.
5.9. Economic benefits:
Economic justification of the project; ec onomic appraisal of value added of the
project and the Bank's input; calculation of the project's economic rate of return;

BCI deleted, as indicated [***]

estimation of external costs/benefits, su ch as environmental protection, regional
development, etc; sensitivity analysis.
5.10. Financial and credit risk analysis:
The Directorate General for Lending Operations performs a detailed financial
analysis of the borrower - as well as of the guarantor if the operation is backed by
a commercial guarantee. This can of c ourse be simplified for the EIB's repeat
borrowers.
Where public borrowers promoting infrastructure projects are concerned (e.g., regions
or municipalities), a different type of fi nancial analysis is performed, based on
documents of a budgetary nature.
The Credit Risk Department casts an objective eye on the financial viability of the
borrower and guarantor, with whom it has no business relationship."
3639
7.909 According to the United States, the EIB's admission that its appraisal criteria are "tailored to
each individual project" confirms that the loans it grants are assessed against criteria that are unique to
each project proposal. On the other hand, the European Communities contends that the EIB's
statement should be understood as meaning that the EI B adjusts its general appraisal criteria "to take
account of the specifics of the project (the 'input data')". 3640 In our view, when considered in its
proper context, the EIB's explanation of how it applies the "standard" appraisal criteria does not
appear to be an admission that it conducts appraisal s on the basis of criteria that are unique to each of
the projects for which a loan has been requested. The Project Cycle Document indicates that the EIB
reviews project proposals against the same set of gene ral appraisal criteria, which "are all covered by
the report submitted to the Board of Directors for a financing decision". 3641 However, given the wide
variety of projects financed by the EIB, it is only natural to expect that the application of these general
criteria may involve asking and answering slightly different questions depe nding upon the particular
project proposal being reviewed. It is this process of applying the general appraisal criteria, taking
into account the particular characteristics of the project under review, that we believe the EIB is
referring to when it states that its "standard" appraisal criteria are "tailored to each individual project".
7.910 For instance, the first of the EIB's "standard" a ppraisal criteria is described as "Rationale for
Bank financing: eligibility, value added of the op eration". As we have already noted, the starting
point of the EIB appraisal of a project is an assessme nt of its eligibility in terms of contributing to its
main operating objectives. Obviously, a project w ith an environmental scope will be assessed in
terms of how it corresponds with the EIB's envi ronmental objectives. Other EIB objectives may not
be relevant. Moreover, when examining the e nvironmental features of the proposed project, the
appraisal may involve an assessment in terms of one or more of the environmental sub-objectives or
"Categories of Investment/Indicators" that are listed in the Eligibility Guidelines.3642 In our view, the
fact that part of the EIB's appraisal of this particular project would involve assessing how closely it
matches one or more of its environmental prioriti es, without also examining the extent to which it
fulfils other objectives and priorities, does not impl y that the EIB applies assessment criteria that are
unique to the project being reviewed, thereby placing a limitation on the entities entitled to receive the
same type of loan.

3639 The Project Cycle, Exhibit US-166, pp.4-5 (footnote omitted) (emphasis original).
3641 The Project Cycle, Exhibit US-166, p.4.
3642 These are briefly discussed at para. 7.906 above.

BCI deleted, as indicated [***]

7.911 A similar conclusion may be reached in respect of the other "standard" appraisal criteria
applied by the EIB. Because they are of a genera l nature, they may not necessarily be applied in the
same way or have the same rele vance to all project proposals. This does not mean that the EIB
applies different appraisal criteria and standards when determining whether to fund different projects.
Rather, it shows that when the EIB applies its genera l appraisal criteria, it does so taking into account
the particular characteristics of the proposed project.
7.912 In order to be granted, a loan application that obtains a favourable opinion from the
Management Committee must be approved by a qualif ied majority of the Board of Directors. In
considering a request for funding, the Board of Di rectors must also take into account any opinion
delivered by the Commission or the EC member Stat e in whose territory the project will be carried
out. Where the concerned EC member State deliver s an unfavourable opinion, the Board of Directors
cannot grant the loan. 3643 Likewise, where an unfavourable opinion is provided by both the
Management Committee and the Commission, the Board of Directors may not grant the loan. 3644
However, where an unfavourable opinion is de livered by the Management Committee or the
Commission, the Board of Directors may still grant the loan, but only on the basis of a unanimous
decision.3645 Thus, under its formal decision-making proce dure, it is possible for the EIB to decide
not to grant loans to projects that satisfy all elig ibility requirements and appraisal criteria. We note,
however, that the European Comm unities asserts that between 1988 and 2006, the Board of Directors
decided not to grant only two out of over 5,000 loan proposals submitted by the Management
Committee for approval.
3646 The United States has not cont ested the European Communities'
assertion.
7.913 Finally, once a loan is approved by the Board of Directors, the EIB prepares the finance
contract.3647 As we understand it, this process begins with the use of a standard contract template as
the basis for the loan agreement, which is then adjusted to reflect the characteristics of each loan. The
European Communities notes that the standard contra ct template applied by the EIB has changed over
the years "essentially to reflect 'technical' developments in law or EIB lending practice". 3648 It has
submitted copies of two such templates, prepared by the EIB in 1994 and 2001. 3649 We understand
the European Communities to consider both templates to be representative of the contractual
provisions relied upon by the EIB around the time of the "individual" loans granted to Airbus that are
the subject of the United States' complaint. Ho wever, it is unclear from the evidence before us
whether the same templates are equally representativ e of the contractual provisions found in the EIB's
"global" loans.
3650
7.914 Each of the contract templates is comprised of an introduction (identifying the parties), a
preamble and 12 Articles, elaborated over more than 20 pages and 40 clauses, 3651 addressing both
procedural and substantive features of the EIB's loans. 3652 The 2001 template also includes two

3643 Statute, Article 20.6.
3644 Statute, Article 21.7.
3645 Statute, Articles 21.5 and 21.6.
3646 EC, FWS, para. 1028.
3647 The Project Cycle Document, Exhibit US-166, p.7.
3648 EC, Answer to Panel Question 85.
3649 Exhibits EC-609 (BCI) and EC-711 (BCI).
3650 We note that the European Communities has provided no copies of loans granted by the EIB's
intermediaries when on-lending "global" loans to qua lifying projects. Neither has the European Communities
argued that the EIB's intermediaries issue loans on the basis of the same contract templates used by the EIB
when granting "individual" loans.
3651 There are 43 clauses under the 12 Articles contai ned in the 1994 template, which runs over 24
pages; and 45 clauses under the 2001 template, which has 26 pages.
3652 The Article headings used in each contract template are essentially the same: Article 1 –
"Provisions Relating to Payment"; Article 2 – "The Loan"; Article 3 – "Interest"; Article 4 – "Reimbursement";

BCI deleted, as indicated [***]

annexes.
3653 In most instances, the provisions found in the templates are detailed, precise and
mandatory. However, as the United States observ es, there are certain provisions where precise
amounts, dates or values are left unspecified. This is true in respect of clauses dealing with, for
example, [***]. Moreover, the inclusion of one provision found in the 2001 template pertaining to
mandatory anticipated repayment will depend upon the particular project to be financed.3654
7.915 Where the contract templates leave certain provisions or parts of provisions unspecified, these
are finalized in the light of the choices made by th e borrower and the particular characteristics of the
financed project and loan transaction. For instan ce, both the 1994 and 2001 templates indicate that
borrowers may choose between fixed, variab le or floating interest rate regimes. 3655 Specific formulae
describe how the interest rates a ttached to each regime should be calculated. Irrespective of the
borrower's choice, the same principle is applied u nder each formula. Whether fixed, variable or
floating, the interest rate will be the same as that o ffered by the EIB at the date of the disbursement
notice for loans to be made under the same interest rate regime, in the same currency, and on the same
repayment terms including amortization and maturity, as the loan at issue. Although this principle is
expressed in slightly different language in the prov isions covering the three interest rate regimes, 3656
its application would seem to guarantee that borrowers obtaining comparable loans from the EIB at
the same time and under the same interest rate regime are treated in the same manner. In other words,
EIB financing is available on the same interest rate terms for all borrowers seeking funding for
comparable projects at the same time. Thus, the fact that comparable projects financed by the
EIB may be charged different interest rates can be explained by differences in the conditions on the
relevant financial markets used by the EIB to finance its lending.
7.916 Borrowers are also given a choice of different loan currencies. The 1994 template offered the
possibility of lending in FRF, USD and DM, depe nding upon the chosen interest rate regime.
3657 The
currency options under the 2001 contract template we re either EUR or another currency available to
the EIB and negotiated on one of the main financial marketplaces.3658

Article 5 – "Payments"; Article 6 – "Specific Commitmen ts"; Article 7 – "Sureties"; Article 8 – "Information
and Visits"; Article 9 – "Charges and Costs"; Article 10 – "Acceleration of Loan Maturity"; Article 11 – "Legal
Regime Governing the Contract"; and Article 12 – "Final Clauses".
3653 The annexes are: "A" "Technical Description" – a t echnical description of the project (which is left
blank); and "B" "Definition of EURIBOR and LIBOR" (a textual definition of the two types of bank offer rates).
3654 Exhibit EC-609 (BCI), Article 4.03.
3655 Exhibits EC-609 (BCI), Article 3.01; and EC-711 (BCI), Article 3.01 ("Taux Fixe", "Taux
Variable" and "Taux Revisable").
3656 The different formulations include: "for th e FIXED-RATE TRANCHE, fixed-rate interest
calculated at the annual rate applicable, for each currency, upon each NOTIFICATION … to those operations of
THE BANK having the same features, in terms of monies disbursed, amortization regime and term, as the
payment in question"; "for the VAR IABLE-RATE TRANCHE, … The variable rate, determined by THE
BANK for each of the reference periods in accordance with the procedures established by its Board concerning
variable-rate loans financed through the resources in question, applicable to those operations of THE BANK
having the same features, in terms of monies disbursed, amortization regime and term, as the payment in
question"; "for the FLOATING-RATE TRANCHE :…{the} annu al rate applicable to the currency of payment,
upon each NOTIFICATION …, to those operations of THE BA NK carried out in the same currency as that of
the payment concerned, for a term iden tical to that between the dates of each payment." Exhibit EC-711 (BCI),
Article 3.01. Very similar language is also found in Exhibit EC-609 (BCI).
3657 Exhibit EC-711 (BCI), Article 1.03.
3658 Exhibit EC-609 (BCI), Article 1.03.

BCI deleted, as indicated [***]

7.917 Guidance is provided in the templates on how to set a loan's amortization schedule. 3659
However, the precise periods of amortization and loan maturity are not prescribed. 3660 Finally, loan
amounts and conditions precedent are also not specified in the contract templates. In respect of the
former, we note that the amount of the EIB's lending is not subject to any specific budgetary
restrictions or allocations for distinct loans or po licy objectives. However, pursuant to its Statute, it
must ensure that the aggregate amount of outstanding loans and guarantees at any time does not
exceed 250% of its subscribed capital, and that it has sufficient reserves to cover 10% of its
subscribed capital.
3661 Moreover, the EIB applies a policy of only providing part of the funding for a
project.3662 Subject to these limitations, it appears that the amount of funds loaned by the EIB will
depend upon the particular characteristics of the pr oject. Likewise, conditions precedent used in any
particular loan agreement will depend upon the feat ures of the loan transaction and the project being
financed.3663
Whether the Airbus loans are specific under Article 2.1(a) because allegedly
negotiated individually and granted on a di scretionary basis on terms and conditions
that are not pre-determined
7.918 We begin our assessment of the United States' claim by reviewing the language of
Article 2.1(a) of the SCM Agreement, which reads in pertinent part:
"2.1 In order to determine whether a subsidy, as defined in paragraph 1 of
Article 1, is specific to an enterprise or industry or group of enterprises or industries
(referred to in this Agreement as 'certain en terprises') within the jurisdiction of the
granting authority, the following principles shall apply:

3659 The 1994 template specifies that an amortization schedule is to be established on the basis of
constant annual repayments of capital and interest (under a fixed interest rate regime) and annual repayments of
capital in equal instalments (under a variable interest rate regime). Exhibit EC-711 (BCI), Article 4.01A. The
2001 template reveals a similar approach – amortization on the basis of annual or semi-annual repayments of
capital in equal instalments under fixed, variable or floating interest rate regimes. Exhibit EC-609 (BCI),
Article 4.01A. Pursuant to Article 2.04 of both templa tes, the amortization schedule is established by the EIB
and provided to the borrower after it has executed each disbursement under the contract.
3660 Two repayment options are provided for in the 1994 template under fixed and variable interest rate
regimes: (i) a one-time repayment, at the earliest, after four years, or at the latest, af ter 10 years; or (ii) annual
repayments, with the first repayment after five years and the last after 15 years. Exhibit EC-711 (BCI),
Article 4.01. The 2001 template provides that repayments may be made through a one-time payment or through
annual or semi-annual instalments, irrespective of intere st rate regime. Exhibit EC-609 (BCI), Article 4.01.
Neither template prescribes the precise maturity of a lo an. The European Communities asserts that the EIB sets
the maturity of a loan through the application of "the general principle that the maximum maturity of the loan
depends on the economic life of the assets to be fina nced". EC, Comments on US Answer to Panel Question
150. However, the European Communities has advanced no evidence to substantiate its assertion, and the terms
of the templates do not confirm that this is how the EIB actually operates.
3661 EIB Statute, Articles 18.5 and 24.1, Exhibit EC-158.
3662 EIB Statute, Article 18.2 ("As far as possible, loans shall be granted only on condition that other
sources of finance are also used"), Exhibit EC-158.
3663 A condition precedent is a provision that requir es one party to a contract to fulfil a certain
obligation (satisfy a condition) before the other party to the contract is required to execute its own contractual
obligation. The 2001 template leaves the conditions prece dent blank. Exhibit EC-609 (BCI), Article 1.04. Two
conditions precedent are identified in the 1994 template: (i) that documents attesting the establishment of any
loan guarantee required under a loan be provided to the EIB by the time of the first request for disbursement of
the agreed funding; and (ii) that none of the situations (defined in Article 10 of the contract) that would require a
borrower to make an anticipated repayment has occurred. Exhibit EC-711 (BCI), Article 1.04.

BCI deleted, as indicated [***]

(a) Where the granting authority, or the legislation pursuant to
which the granting authority opera tes, explicitly limits access to a
subsidy to certain enterprises, such subsidy shall be specific."
7.919 The specificity principle set out in Article 2.1( a) focuses on whether the granting authority, or
the legislation pursuant to which the granting auth ority operates, explicitly limits access to a subsidy
to certain enterprises. It follows from the ordinary meaning of the word "explicit" that it is not any
limitation on access to a subsidy to certain enterprises that will make it specific within the meaning of
Article 2.1(a), but only a limitation that "{d}istinct ly express{es} all that is meant; leaving nothing
merely implied or suggested"; a limita tion that is "unambiguous" and "clear".
3664 I n US – Upland
Cotton, the panel observed that the concept of speci ficity under Article 2.1 of the SCM Agreement
has to do with whether a subsidy is "sufficiently broadly available throughout an economy as not to
benefit a particular limited group of producers of certain products".
3665 While we can broadly agree
with this statement (particularly in the context of the facts at issue in US – Upland Cotton), we would
add that it is not only a limitation to a "group of pr oducers of certain products" that is the focus of the
concept of specificity. In our view, the notion of specificity extends to understanding whether a
subsidy is sufficiently broadly available throug hout an economy so as not to benefit "certain
enterprises" as defined in Article 2.1 – that is, a pa rticular enterprise or industry or a particular group
of enterprises or industries. Thus, a finding of specificity under Article 2.1(a) requires the
establishment of the existence of a limitation that expressly and unambiguously restricts the
availability of a subsidy to "certain enterprises", and thereby does not make the subsidy "sufficiently
broadly available throughout an economy".
7.920 The first and main argument adva nced by the United States to substantiate its claim that the
EIB loans to Airbus are specific, within the meani ng of Article 2.1(a), is grounded on the view that
the EIB explicitly limits access to its loans by nego tiating them individually, and by granting them on
a discretionary basis on terms and conditions that are not pre-determined, but "tailored to each
individual project". In essence, we understand the United States to argue that the EIB loans
(including those to Airbus) are all one-off, discrete lending transactions and, to this extent, explicitly
limited to the counterpart involved in the loan transaction.
7.921 The United States considers that the panel findings in Japan – DRAMS support its claim.
3666
At issue in that dispute were a number of determin ations made by the Japanese investigating authority
("JIA") in a countervailing duty investigation into ce rtain restructurings of Hynix, a Korean semi-
conductor manufacturer, under the Corporate Restruct uring Promotion Act. The United States notes
that Korea had argued that the subsidies provided th rough the restructurings were not specific because
"the same basic rules that governed Hynix's rest ructurings – as embodied in the Workout Agreement
and later in the Corporate Restructuring Act {" CRPA"} – were the same rules that governed the
restructuring of other Korean companies." 3667 However, the panel rejected Korea's submission,
upholding the finding made by JIA that "the CRPA merely provided the procedural framework within
which the October 2001 and December 2002 restru cturings took place, rather than actually
determining the terms of those restructurings". 3668 The United States recalls that after making this
finding, the panel set out its own views on when it believed a subsidy granted to an individual
company under a generally available subsidy progra mme would not be specific, explaining that in

3664 New Shorter Oxford English Dictionary, Vol. 1, 1993, p.888.
3665 Panel Report, US – Upland Cotton, para. 7.1142.
3666 US, Answer to Panel Question 150.
3667 Panel Report, Japan – DRAMs (Korea), para. 7.364.
3668 Panel Report, Japan – DRAMs (Korea), para. 7.372.

BCI deleted, as indicated [***]

order to avoid a finding of specificity, such a subsidy had to be granted "on pre-determined terms (that
are therefore not tailored to the recipient company)".3669
7.922 The United States asserts that, like the restructurings at issue in Japan – DRAMS , the loan
subsidies provided to Airbus were granted pursu ant to a "procedural framework" set forth in
documents such as the EIB Statute and the Eligibility Guidelines. According to the United States, this
"procedural framework" does not set "pre-determined terms", but identifies steps the EIB follows in
exercising its discretion to provide loans. Thus , the United States contends that the EIB loan
subsidies to Airbus were not granted "on pre-determ ined terms (that are therefore not tailored to the
recipient company)", but rather "t ailored to each individual project". 3670 Like the restructuring
measures at issue in Japan – DRAMS, the loans to Airbus are therefore specific.
7.923 Having carefully reviewed and considered the arguments and evidence submitted by the
parties, we believe that it would not be inaccu rate to characterize the EIB's lending activities as
constituting a discretionary programme of financing, which involves the granting of loans to entities
of all nationalities for activities contributing to the balanced development of a wide array of economic
sectors across the EU, on terms and conditions that ar e not all pre-determined. However, there are
various reasons why we consider that th e conclusion reached by the panel in Japan – DRAMs is not
justified in the present case.
7.924 First, in expressing its view on the circumstances needing to be established in order to avoid a
determination that a subsidy granted to an indivi dual company under a generally available subsidy
programme is specific, the panel in Japan – DRAMs was not pronouncing on the correct interpretation
of the principle of specificity contained in Article 2.1( a). When read in its full context, it is clear that
the panel's statement relates to how it considered the notion of sp ecificity must be understood under
Article 2.1 as a whole:
"As a general matter, ... if an investigati ng authority were to focus on an individual
transaction, and that transaction flowed from a generally available support
programme whose normal operation would gene rally result in financial contributions
on pre-determined terms (that are therefore not tailored to the recipient company),
that individual transaction would not, in our view, become 'specific' in the meaning of
Article 2.1 simply because it was provided to a specific company. An individual
transaction would be 'specific', though, if it resulted from a framework programme
whose normal operation (1) does not generally result in financial contributions, and
(2) does not pre-determine the terms on whic h any resultant financial contributions
might be provided, but rather requires (a) c onscious decisions as to whether or not to
provide the financial contribution (to one applicant or another), and (b) conscious
decisions as to how the terms of the financ ial contribution should be tailored to the
needs of the recipient company."
3671
7.925 Our characterization of the panel's statement is supported by the fact that Korea's complaint
against the JIA's finding of specificity was focuse d on Article 2, without specifying the precise
paragraph(s) or sub-paragraph(s) forming the basis of its claim. 3672 In addition, we note that at the
heart of the opinion expressed by the panel is the vi ew that the determinative fact for finding that a

3669 US, Answer to Panel Question 150, citing Panel Report, Japan – DRAMs (Korea), para. 7.374.
3670 US, Answer to Panel Question 150.
3671 Panel Report, Japan – DRAMs (Korea), para. 7.374 (underline added).
3672 Panel Report, Japan – DRAMs (Korea) , para. 7.363. The panel noted in the same paragraph that
Japan identified the legal basis of the JIA's specificity decision as Article 2.1(a) of the SCM Agreement.
However, the panel at no stage stated that its finding upholding the JIA's determination was limited to this
provision.

BCI deleted, as indicated [***]

subsidy granted to an individual company under a generally available subsidy programme is specific
will be the existence of discretion ( i.e., a conscious decision) to grant the financial contribution and
set its terms and conditions. If th is were the correct standard for finding a subsidy specific under
Article 2.1(a) of the SCM Agreement, the implicatio n would be that all subsidies granted pursuant to
the exercise of discretion to certain enterprises would be explicitly specific within the meaning of
Article 2.1(a), irrespective of how that discretion was actually exercised. However, it is clear from
Article 2.1(c) of the SCM Agreement that the manner in which a granting authority exercises any
discretion to grant subsidies is a consideration that is relevant to determin ing whether a subsidy is de
facto specific. Article 2.1(c) reads:
"(c) If, notwithstanding any appearance of non-specificity resulting from the
application of the principles laid down in subparagraphs (a) and (b), there are reasons
to believe that the subsidy may in fact be specific, other factors may be considered.
Such factors are: use of a subsidy programme by a limited number of certain
enterprises, predominant use by certain ente rprises, the granting of disproportionately
large amounts of subsidy to certain enterp rises, and the manner in which discretion
has been exercised by the granting author ity in the decision to grant a subsidy .3 In
applying this subparagraph, acc ount shall be taken of the extent of diversification of
economic activities within the jurisdiction of the granting authority, as well as of the
length of time during which the subsidy programme has been in operation.
Therefore, we cannot accept that the pr inciple pronounced by the panel in Japan – DRAMS provides
the support the United States contends for its claim under Article 2.1(a) of the SCM.
7.927 Second, the facts underlying the panel's decision in Japan – DRAMS are in several important
respects different from those of the present dis pute. The restructuring measures at issue in Japan –
DRAMS ("new loans", "debt-to-equity swap" and "e xtension of maturity and interest rate
reduction"3674) did not follow from the normal operation of the framework programme (the CRPA)
that Korea had argued provided the legal basis of th e intervention. The panel noted that Article 1 of
the CRPA indicated that its purpose was merely "to facilitate the ordinary corporate restructuring
under the market functions by (1) enhancing the accounting transparency of enterprises and setting the
systems for efficiently managing credit risks by the financial institutions, while (2) prescribing
matters necessary to make the corporate restructuring facilitated swiftly and smoothly." 3675 It was an
instrument addressing "procedural matters such as enhanced transparency and facilitation", whose
normal operation did not, as a general matter, spec ifically result in financial contributions. 3676 I n
contrast, the provision of financial contributions (in the form of loans or loan guarantees) is the raison
d'être of the EIB.

3673 Underline added.
3674 Panel Report, Japan – DRAMs (Korea), para. 7.55.
3675 Panel Report, Japan – DRAMs (Korea), para. 7.372.
3676 Panel Report, Japan – DRAMs (Korea), para. 7.372.

BCI deleted, as indicated [***]

7.928 The panel in Japan – DRAMS also found that evidence on the JIA's record indicated that the
substantive terms of the restructurings at issue in that case were the prerogative of the Councils for
Creditor Financial Institutions, bodies which were specifically established for each restructured
company separately. Moreover, the panel noted th at Korea had been unable to identify any record
evidence indicating that the terms of the restructur ings were determined by the provisions of the
CRPA per se. Rather, the panel observed that Korea ha d in fact emphasized the company-specific
nature of the restructuring process. 3677 On the other hand, in the present case, we are faced with a
very different set of facts. The EIB's loans are av ailable for essentially all projects that contribute to
one or more of its broad policy objectives. Th e EIB's lending activities are guided by a generally
applicable operational framework that sets both pro cedural, and also, in many important respects,
clear substantive disciplines on the terms and conditions of its loans. All project proposals are
reviewed by essentially the same body, examined subj ect to the same general appraisal criteria, and
the same decision-makers decide on whether to provide the requested funds. Thus, unlike the
measure at issue in Japan – DRAMS, there is no special decision-making authority set up for each of
the loans granted by the EIB.
7.929 Moreover, the contractual terms and conditi ons, including many of those relating to
substantive rights and obligations, are to a large degree prescribed ex ante in the EIB's standard
contract templates. Where dates and values are left blank in the contract templates, methodologies are
in some cases described for arriving at the releva nt figure(s), or other general guidance is given in
order to finalise the relevant clauses. For instan ce, interest rate terms are determined through the
application of the same interest rate formulae for each interest rate regime, irrespective of the
applicant.
3678 The same loan currency options are of fered; and general guidance is provided on
repayment terms.3679 Although subject to a degree of discretion, EIB loans are, in our view, financial
contributions of a clearly different kind to the one-off and uniquely conceived restructuring measures
at issue in Japan – DRAMS.
7.930 Finally, contrary to the situation in Japan – DRAMS , where the panel found that the JIA's
determination was based, in part, on an intermediate factual conclusion that the Government of Korea
had the political intent to save a singl e company, Hynix, from insolvency, 3680 there is no evidence
before us to suggest that the loan s at issue were granted because of an y intention to provide that type
of assistance only to Airbus.
7.931 We recall that the specificity principle set out in Article 2.1(a) focuses on whether the
granting authority "explicitly limits access to a subsid y to certain enterprises". As we have already
noted, it follows from the ordinary meaning of the word "explicit" that it is not any limitation on
access to a subsidy that will make it specific within the meaning of Article 2.1(a), but a limitation that
"{d}istinctly express{es} all that is meant; leaving nothing merely implied or suggested"; a limitation
that is "unambiguous" and "clear".
3681 Above we have found that the normal operation of the EIB's
lending programme involves the granting of loans, with a degree of discretion, to entities of all
nationalities, on terms and conditions that, to varying degrees, reflect the particular characteristics and
features of the funded project and finance transaction, for activities contributing to the development of
a wide array of economic sectors across the EU. While it could be argued that the EIB lending
objectives, although very broad, do establish an explicit limitation on its lending activities, we do not
consider these to result in a limitation on the availability of its loans to " certain enterprises". In our
view, the wide array of economic sectors covered by the EIB's explicit lending objectives means that
its operations are expressly intended to benefit recipients well beyond a particular enterprise or

3677 Panel Report, Japan – DRAMs (Korea), para. 7.372 and footnote 564.
3678 Discussed at para. 7.914 above.
3679 Discussed at para. 7.935 above.
3680 Panel Report, Japan – DRAMs (Korea), para. 7.373.
3681 New Shorter Oxford English Dictionary, Vol. 1, 1993, p.888.

BCI deleted, as indicated [***]

industry or group of enterprises or industries. More over, the fact the EIB loans to Airbus (and other
borrowing entities) may contain one or more terms and conditions that are not exactly the same, does
not render access to those loans explicitly limited to the particular recipients. This is because the
normal operation of the EIB's lending programme places no explicit limitation on access to the same
financing opportunity for any other recipient having the same funding needs for a comparable project.
Thus, contrary to what the United States has argued, the fact that the subsidy loans to Airbus were
negotiated individually between the EIB and Airbus , and granted on terms and conditions that were
not always identical to other loans granted by the EI B, does not mean that they are specific within the
meaning of Article 2.1(a) of the SCM Agreement. Bearing in mind that the concept of specificity
under Article 2.1 of the SCM Agreement has to do with whether a subsidy is sufficiently broadly
available throughout an economy so as not to benef it "certain enterprises", we believe there is, in
principle, no express, "unambiguous" and "clear " limitation on access to EIB lending to "certain
enterprises". Accordingly, we dismiss the United States claim that the EIB loans to Airbus are
specific, within the meaning of Article 2.1(a), because the EIB's lending activities are discretionary,
and result in loans being negotiated individually an d granted on terms and conditions that are not
entirely pre-determined.
Whether the Airbus loans are specific unde r Article 2.1(a) because allegedly granted
on terms and conditions that ta ke them outside of the para meters of the EIB's lending
programme
7.932 The United States advances a second line of argum ent to support its contention that the EIB
loans to Airbus are specific under Article 2.1(a). In particular, the United States argues that the
Airbus loans could be found to be specific within the meaning of Article 2.1(a) if granted on terms
and conditions sufficiently different from the terms a nd conditions of loans granted to other recipients
under the same programme. However, because of th e European Communities' alleged failure to
provide information requested on the EIB's lendi ng activities during the Annex V process, the United
States considers that the Panel does not have e nough information before it to undertake a proper
comparison of the terms and conditions of the EIB loan s granted to Airbus with loans granted to other
recipients. The United States submits that the European Communities' failure to provide the requested
information is an instance of non-cooperation, and pursuant to paragraph 7 of Annex V, calls on the
Panel to draw the adverse inference that had su ch information been available, it would have
confirmed the United States' claims.
3682
7.933 The United States' position focuses on the potentia l differences in the terms and conditions
attached to the loans granted to Airbus compared with loans to other recipients. As we have
previously observed, although the EIB's loans are generally structured to reflect the terms and
conditions found in the EIB's standard contract te mplates, not all loan terms and conditions are
identical. Typically, the final content of sev eral provisions will depend upon the particular
characteristics of the proposed project and the finance transaction.
3683 There may well be other
reasons to explain differences in terms and conditi ons, including, for example, motives more closely
tied to the exercise of the EIB's discretion to grant loans and evaluate the particular finance needs of
any given project. However, having carefully compar ed the terms and conditions in the EIB loans to
Airbus with those in the standard contract templates, it is clear to us that the terms and conditions of
the loans at issue closely follow th e terms and conditions found in the standard contract templates.
Thus, in the absence of any allegation on the part of the United States that the EIB does not use its
standard contract templates when setting the terms and conditions of all of its loans, it follows that the
loans to Airbus were not granted on terms and cond itions outside of the general parameters of the
EIB's overall lending programme.

3682 See, paras. 7.893-7.895 above.
3683 See, paras. 7.913-7.917 above.

BCI deleted, as indicated [***]

7.934 Nevertheless, even assuming, arguendo, that the loan subsidies to Airbus were, as the
United States suggests, provided on terms and cond itions outside of the parameters of the EIB's
lending programme, this would not, in our view, render them specific under Article 2.1(a). This is
because, on the basis of the facts that are before us, differences in the contractual terms and conditions
offered to Airbus compared with other recipients would not evidence the existence of any express,
unambiguous and clear limitation on access to such subsidies, but rather only the EIB's decision to
exercise its discretion to grant loans on those particular terms and conditions to Airbus.
7.935 We recall that the manner in which a granting authority exercises its discretion to grant a
subsidy is a relevant consideration when inquiring into whether a subsidy is in fact specific within the
meaning of Article 2.1(c) of the SCM Agreement. Thus, the fact that a granting authority may have
exercised its discretion to grant a subsidy under a generally available subsidy programme on terms
and conditions that are more favourable than those attached to all other subsidies granted under the
same programme may be enough to demonstrate that it has, in fact , limited access to a subsidy to
certain enterprises within the meaning of Article 2.1( c). However, we do not believe that this course
of action evidences that it has explicitly limite d access to a subsidy within the meaning of
Article 2.1(a).
3684 We therefore dismiss the United States cl aim that the EIB loans to Airbus were
specific within the meaning of Article 2.1(a) of the SCM Agreement beca use allegedly granted on
terms and conditions outside of the parameters of the EIB's overall lending programme.
(iii) Whether the Airbus loans were specific under Article 2.1(c)
Arguments of the United States
7.936 The United States claims that the EIB loans to Airbus are specific, within the meaning of
Article 2.1(c) of the SCM Agreement, because they involve amounts of funding that are allegedly
"disproportionately large", and because it consider s that Airbus was the "predominant user" of the
EIB's subsidy programme.
3685
7.937 According to the United States, in order to determine whether the amount of a subsidy is
"disproportionately large" for the purpose of Article 2.1(c), it is first necessary to establish a
"baseline" against which to measure disproportionality.3686 The United States submits that identifying
a relevant baseline is a fact-dependent exercise. In its view, such a baseline must, in the first instance,
reflect the manner in which the granting au thority classifies its subsidization activities. 3687 When
subsidies are provided under the auspices of a particular subsidy programme, the progamme may
serve as the appropriate baseline. However, wher e there is no such subsidy programme, the United
States argues that other ways in which a granting authority classifies its provision of subsidies should
be examined, including any relevant categorisat ion of subsidization activities on the basis of
objectives.3688
7.938 The United States considers that an appropriate baseline must also take into account the
element of time referred to in the last sentence of Article 2.1(c), that is, "the length of time during
which the subsidy programme has been in operation" . The United States explains that taking this
latter time element into account does not mean that one must compare the amount of subsidy at issue

3684 While the United States has advanced a claim that the loans to Airbus are specific under
Article 2.1(c), it has not argued that the reason for the alleged de facto specificity is the existence of differences
in the terms and conditions attached to the Airbus loans compared with loans to other recipients. The
United States has raised this argument only in the context of its claim under Article 2.1(a). US, Answer to Panel
Question 150.
3685 US, FWS, paras. 405 and 420; US, Answer to Panel Questions 13, 14 and 151.
3686 US, Answer to Panel Question 119.
3687 US, Answer to Panel Questions 13 and 119.
3688 US, Answer to Panel Questions 119, 151 and 218.

BCI deleted, as indicated [***]

to all subsidies granted during the entire life of a subsidy programme. According to the United States,
such a position would ignore the substantial chang es that take place in an economy over a period of
decades. It would ignore that technologies ch ange, sectors decline, new sectors emerge, and
government priorities evolve. Subsidies targeted towards certain enterprises in an emerging sector
might not appear to be disproportionate or otherwise specific when compared with an extremely broad
universe that includes subsidies to enterprises in sectors that do not play as significant a role in the
economy today as they did fifty years ago. However, the United States argues that looked at in the
context of the current economy, the same subs idies may well stand out as disproportionate or
otherwise specific.
3689 Thus, when a subsidy programme has been in operation for a relatively long
period of time, the United States contends that taking account of the duration of the subsidy
programme means identifying a shorter period for analysis that will lead to a more meaningful
assessment of disproportionality than an assessment of all subsidies granted during the entire life of
the programme.
3690 If this were not the case, the United St ates argues that subsidies granted pursuant
to programmes operating for long periods of tim e could escape SCM Agreement disciplines even
though they may have been disproportionately larg e relative to other subsidies granted during the
same distinct periods.3691
7.939 The United States submits that once an appropria te baseline is identified, the amount of the
subsidy at issue must be compared with the subsidies granted to other enterprises in the baseline being
examined. The amount of a subsidy will not be "d isproportionately large" when "the relationship
between the subsidy to certain enterprises ... and su bsidies to all enterprises in the baseline group is
comparable to the relationship between the certa in enterprises and all enterprises in the group
(measured by indicators that are appropriate in th e light of the circumstances, which could include
economic output, employment, or other indicators)". 3692 In other words, the United States is of the
view that "the subsidy granted to certain enterpri ses constitutes an appropriate share of the relevant
baseline if its relationship to the baseline corresponds to the relationship of certain enterprises to the
entire group of enterprises covered by the baseline being examined".3693
The 2002 loan to EADS
7.940 The United States submits that the relevant baseline for the 2002 EIB loan to EADS is all EIB
lending under the research and development object ive of the "Innovation 20 00 Initiative" ("i2i"),
because it was under the auspices of this objective of this alleged lending programme that the EIB
granted the EUR 700 million credit line to EADS.
7.941 The United States argues that the ordinary mean ing of the word "programme" implies that a
subsidy programme may be found to exist when there are factors indicating that a series of subsidies
is circumscribed in a way that distinguishes them as a planned series of subsidi es. The United States
considers that such factors could include: (i) designation by the granting authority of a series of
subsidies as a programme; (ii) a common set of objectives; and (iii) dedicated funding.
3694 According
to the United States, various pieces of evidence conf irm that all of these factors are present in the
EIB's i2i lending. 3695 For instance, the United States notes th at the EIB explicitly described i2i as a
"dedicated EUR 12-15 billion lending programme" and that, in early 2003, the EIB declared it "had

3689 US, Comments on EC Answer to Panel Question 183.
3690 US, Answer to Panel Questions 13, 119, 151 and 218.
3691 US, Answer to Panel Question 13; US, FNCOS, para. 101; US, SNCOS, para. 129.
3692 US, Answer to Panel Question 119.
3693 US, Answer to Panel Question 119.
3694 US, Answer to Panel Question 218.
3695 US, Answer to Panel Questions 14, 151 and 218.

BCI deleted, as indicated [***]

fully achieved its i2i objectives" upon having comm itted EUR 14.4 billion in loans by the end of
2002.3696
7.942 The United States argues that its focus on research and development lending under the i2i is
consistent with the way the EIB analysed its ow n activities. The United States notes that the EIB
described its i2i lending as being made pursuant to one of five "economic sectors": "development of
SMEs and entrepreneurship"; "diffusion of in novation"; "research and de velopment"; "information
and communications technology networks "; and "human capital formation". 3697 M o r e o v e r , t h e
United States asserts that the EIB discusses its lending activities under each sector in its annual
activity reports. Thus, the United States observes that in its 2002 Activity Report, the EIB explained
that in "2002, the EIB ploughed {Euro} 2.1 billi on into 15 R&D projects spanning 6 EU countries,
with one pan-European international cooperation project partly located in Switzerland ... ".3698
7.943 From a temporal perspective, the United States considers that the relevant baseline for the
2002 loan to EADS should not be set, as the Eur opean Communities contends, to correspond with the
period of time over which the EIB has conducted all of its lending activities ( i.e., since the EIB's
establishment in 1957). In the view of the United States, a more meaningful length of time for the
baseline would be either the year in which the lo an to EADS was granted (2002) or the years from
2000 to 2003, covering the period during which the alleged i2i programme was in existence.3699
7.944 The United States asserts that the EUR 700 million credit line represented one third of EIB
lending for research and development needs under i2i in 2002, and 18% of its lending for research and
development under i2i from 2000 to the end of 2002. 3700 The United States argues that these facts
take on particular significance in the light of th e high degree of economic diversification within the
European Communities, supporting the conclusion th at the 2002 loan to EADS is specific under
Article 2.1(c) of the SCM Agreement. 3701 Moreover, the United States alleges that the credit line to
EADS was the single largest provided to any one company under the alleged i2i programme taken as
a whole,3702 over the period 2000 to 2003 or even between 2000 and 2006. 3703 Thus, the United States
also submits that EADS was the predominant user of the alleged i2i subs idy programme, therefore
making the EIB loan specific within the meaning of Article 2.1(c) also for this reason.3704
The loans granted to Airbus between 1988 and 1993
7.945 As regards the other EIB loans to Airbus gr anted between 1988 and 1993, the United States
notes that during the relevant period the EIB classi fied its lending activities by economic sectors and
lending objectives. The two broad economic sector s used were: (1) "energy and infrastructure,"
which contained mostly state-owned-and-operated sect ors like petroleum, electricity, railways, roads,
telecom, water, and sewage; and (2) "industry, services, and agriculture", which includes, inter alia,
"transport equipment" (the sector for aeronautical e ngineering). There were eight different lending

3696 US, Answer to Panel Questions 14 and 218, referring to European Investment Bank, Annual Press
Conference 2003, Background Note No. 1: Innovation and Knowledge-Based Economy, p.1, Exhibit US-164.
3697 US, Answer to Panel Questions 14 and 218, the latter referring to The Innovation 2000 Initiative,
Actively promoting a European economy based on knowledge and innovation , European Investment Bank,
pp. 2-3, Exhibit US-154.
3698 US, Answer to Panel Question 14, referring to The EIB Group, Activity Report 2002, p.14, Exhibit
US-165.
3699 US, FWS, para. 405; US, Answer to Panel Questions 13 and 14.
3700 US, FWS, para. 405, referring to Exhibit US- 164, p.2 and The EIB Group, Activity Report 2002,
p.14, Exhibit US-165; US, Answer to Panel Question 14.
3701 US, FWS, para. 405; US, Answer to Panel Questions 13, 14 and 119.
3702 US, FWS, para. 405; US, Answer to Panel Question 14, referring to Exhibit US-474.
3703 US, Answer to Panel Question 151, footnote 156.
3704 US, Answer to Panel Question 218.

BCI deleted, as indicated [***]

objectives, with the loans to Airbus falling with in the "international competitiveness and European
integration of large firms" objective. In the light of the EIB's own description of its activities, the
United States argues that the appropriate baselin es for the 1988 to 1993 loans could be the EIB's
lending to the "industry, services and agriculture" sect or and also its lending under the "international
competitiveness and European integration of large firms" objective.
3705 In terms of the appropriate
length of time of the baseline, the United States s ubmits that the period 1988 to 1993 could be used,
covering the five years during which the relevant loans were granted to Airbus.3706
7.946 The United States asserts that, during the period from 1988 to 1993, Airbus received
approximately 10% of all EIB loans granted to th e "industry, services and agriculture" sector and
approximately 20% of loans under the "internationa l competitiveness and European integration of
large firms lending objective". 3707 In addition, the United States not es that over the same five years,
Airbus was the largest private recipient of EIB individual loans; that among private enterprises, EIB
loans to Airbus were 44% greater than loans gran ted to the next largest recipient; and that the
EUR 1.06 billion in loans to Airbus exceeded the EIB's lending to any industrial sector, with the
exception of chemicals and other transport equipment.
3708 On this basis, the United States concludes
that the EIB loans granted to Airbus between 1988 and 1993 were "disproporti onately large", within
the meaning of Article 2.1(c), and therefore de facto specific.
Arguments of the European Communities
7.947 The European Communities rejects the United St ates' claims and argu es that the EIB loans
were not "disproportionately large", and therefore not de facto specific, within the meaning of
Article 2.1(c) of the SCM Agreement.
7.948 The European Communities submits that in orde r to determine whether the challenged loans
were granted in disproportionately large amounts for the purpose of Article 2.1(c), it is first necessary
to identify the proper universe of funding agains t which they can be compared. The European
Communities argues that the two alternatives advanc ed by the United States – EIB policy objectives
or EIB-supported economic sectors – do not properly constitute distinct universes of funding for this
purpose.3709 According to the European Communities, the appropriate universe of funding that should
be used to determine whether the EIB loans i nvolved disproportionately large amounts is all EIB
lending ( i.e., all "individual" and "global" loans) since 1957. When this is done, the European
Communities argues that it is clear that the EIB lo ans at issue do not involve disproportionately large
subsidy amounts. Moreover, the European Comm unities submits that the same result holds even
when examining the relevant loans under different analytical frameworks involving a smaller universe
of funding.
The 2002 loan to EADS
7.949 The European Communities submits that th e EIB's lending activities under the i2i do not
amount to a subsidy programme and cannot therefor e be used as an appropriate baseline for the
purpose of conducting a disproportionality analysis . The European Communities asserts that the
United States has misinterpreted the facts relating to the i2i, arguing that rather than being a subsidy
programme, the i2i is merely a manifestation of one of the objectives of the EIB's overall lending

3705 US, Answer to Panel Question 15.
3706 US, FWS, para. 420; US, Answer to Panel Questions 13 and 15.
3707 US, FWS, para. 420, referring to EIB, Annual Report 1988, Tbl. 24, Exhibit US-176; EIB, Annual
Report 1989, Tbl. E, Exhibit US-177; EIB Annual Report 1990, Tbl. E, Exhibit US-178; EIB, Annual Report
1991, Tbl. E, Exhibit US-179; EIB, Annual Report 1992, Tbl. E, Exhibit US-180; and EIB, Annual Report
1993, Tbl. E, Exhibit US-181.
3708 US, FWS, para. 420; US, Answer to Panel Questions 13, 15 and 119.
3709 EC, FWS, para. 1034; EC, Answer to Panel Question 182.

BCI deleted, as indicated [***]

programme.3710 The European Communities explains that the i2i was launched to reflect the Lisbon
Strategy formulated by the European Council in 2000, a strategy which has the goal of making Europe
the most competitive and dynamic knowledge based economy in the world by 2010. 3711 According to
the European Communities, the i2 i was established in order to gr oup together under one name the
various elements of EIB policy objectives that were already in place and contributing to the
attainment of the Lisbon Strategy in order to dem onstrate the EIB's involvement. Thus, the European
Communities argues that the i2i is "essentially a su ccessor to the {EIB's} 'industrial competitiveness'
and 'advanced technology' objective{s}", 3712 with the "industrial competitiveness" objective being
formally replaced by the i2i as a separate EIB eligibility criteria in 2003.3713
7.950 The European Communities asserts that the EIB does not ring-fence pools of money for its
lending activities under any of its individual policy objectives. As regards the sum of EUR 12-15
billion the United States argues was dedicated to the i2 i, the European Communities explains that this
figure reflects a lending target based on the EIB's assessment of the possible contribution it could
make to the Lisbon Strategy over an initial three-y ear period based on its experience in the relevant
sectors.3714 The European Communities asserts that as long as the EIB complies with its Statutory
obligation to ensure that the aggregate amount of loans and guarantees outstanding at any time does
not exceed 250% of its subscribed capital, it can ha ve recourse to the capital markets in order to
increase its lending activities. Thus, the European Communities contends that there is no financial
ceiling for any of the EIB's objectives and no appli cation for a loan is rejected on such grounds.3715 In
this regard, the European Communities indicates that by April 2003, the EIB Group had in fact lent
almost EUR 17 billion under the i2i, more than the EUR 15 billion that had been originally
targeted.3716
7.951 The European Communities recalls that the EIB provides loans that routinely meet several
objectives at the same time. For instance, the Eu ropean Communities notes th at the 2002 loan to
EADS, like several other research and development loans granted under the i2i, satisfied multiple EIB
policy objectives. In addition to being classified under the i2i objective, the 2002 loan to EADS fell
within the scope of the "common inter est" and "industrial competitiveness" objectives. 3717 T h e
European Communities argues that th e fact that the loans granted under the i2i satisfied multiple
objectives provides additional confirmation that the i2i was not a distinct lending programme as the
United States argues.
3718
7.952 The European Communities submits that, to the extent that any of the challenged loans are
found to be subsidies, the relevant subsidy progra mme is the EIB's entire portfolio of lending since
1957.3719 When examined in the light of this b aseline, the European Co mmunities notes that the
EUR 700 million credit line to EADS represents only one of 8,400 contracts that together involved a
financing commitment amoun ting to EUR 591.5 billion.
3720 In terms of amounts actually disbursed,
the European Communities discloses that betw een 1957 and 2006, the EIB actually disbursed
EUR 497 billion. The European Communiti es recalls that EADS drew down on only [***] of the

3710 EC, SWS, para. 437.
3711 EC, SWS, paras. 445-449.
3713 EC, SWS, para. 459.
3714 EC, SWS, para. 449.
3715 EC, SWS, para. 449.
3716 EC, SWS, para. 450, referring to information contained in Exhibit US-164.
3717 EC, FWS, paras. 1037-1039.
3718 Answer to Panel Questions 182 and 218; EC, SWS, para. 439.
3719 Answers to Panel Questions 182 and 218.
3720 EC, FWS, para. 1044; EC, Comments on United States Answer to Panel Question 151. Exhibits
EC-163 and EC-165.

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EUR 700 million commitment (i.e, [***]); and that it is only this dis bursed amount that is relevant for
the purpose of a disproportionality analysis under the SCM Agreement.
3721
7.953 Even using the EIB's i2i lending as the appr opriate baseline, the European Communities
contends that the 2002 loan to EADS would still not be disproportionately large. Contrary to what is
asserted by the United States, the European Communities argues that the EIB's i2i lending did not end
in 2003. Although initially conceive d for a term of 3 years, the i2i was "extended" to 2010, with its
lending aim increased to EUR 50 billion by the end of the decade. Its name was also formally
changed to the "Innovation 2010 Initiative", reflecting th e target date of the Lisbon Strategy (2010) as
opposed to the year of the Strategy's adoption (2000). 3722 When examined over the period from its
establishiment in 2000 to 31 December 2006, the EUR 700 million represents 1.5% of the EIB's total
funding under the i2i policy objective, whic h amounted to EUR 45.7 billion and covered 288
projects.3723 In terms of actual disbursements, the European Communities notes that the [***]
received by EADS must be compared with the EUR 37 billion disbursed under the i2i as of
8 May 2007, demonstrating that EADS received less than [***] of all i2i funding.
3724
7.954 The European Communities arrives at the same conclusion after examining the loan to EADS
in the context of research and development lendi ng under the i2i. Although it contests the United
States' use of all research and develo pment lending as an appropriate baseline, 3725 the European
Communities nevertheless notes that total EIB co mmitments in relation to i2i research and
development lending during the period 2000 to Janua ry 2007 were EUR 22.7 billion. The European
Communities notes that the credit line opened for EADS accounts for 3.1% of this total, even before
taking into account the fact that EADS only drew down on [***] of the available funds.3726
7.955 Finally, the European Communities disputes th e relevance of the United States' contention
that the EADS contract was the largest single cr edit line to any one company under the i2i, arguing
that it fails to take account of the fact that wh ile EADS received one large loan in one year, many
other borrowers under i2i (such as Ford) received a number of significant loans across a number of
years, which when aggregated, were la rger than the 2002 EADS loan contract. 3727 In any case, the
European Communities asserts that EADS was only the 11th largest recipient; and that when examined
in terms of disbursed amounts, only the joint 30th largest recipient of funds under the i2i objective.3728
The loans granted to Airbus between 1988 and 1993
7.956 The European Communities argues that the "industry, services and agriculture sector
category" and the "international competitiveness a nd European integration of large firms lending
objective" are policy objectives, and not programmes th at can be used as appropriate baselines for the
purpose of a disproportionality analysis under Article 2.1(c). 3729 According to the European
Communities, in seeking to use data relating to lo ans falling within the scope of these objectives, the
United States relies upon classifications made by the EIB for the purpose of periodically reporting to

3721 EC, Answer to Panel Question 181.
3722 EC, SWS, paras. 450-452.
3723 EC, FWS, para. 1041; EC, SWS, para. 452; EC, Answer to Panel Question 181. Exhibit EC-715.
3724 EC, Answer to Panel Question 181. Exhibit EC-883 (BCI).
3725 EC, SWS, paras. 453-454.
3726 EC, SWS, para. 454; EC, Comments on United States Answer to Panel Question 151.
3727 EC, SWS, para. 457.
3728 EC, Answer to Panel Question 181, referring to Exhibit EC-883 (BCI); Comments on United States
Answer to Panel Question 151.
3729 EC, FWS, paras. 1042-1043; EC, SWS, para. 464.

BCI deleted, as indicated [***]

stakeholders and analysts. In the view of the Eu ropean Communities, such an approach leaves the
question of specificity to be resolved in the light of how a granting authority drafts its reports.3730
7.957 Moreover, the European Communities contends that the 1988 to 1993 time-frame advanced
by the United States is artificial and self-serving. 3731 In this respect, the European Communities
argues that the United States has pr ovided no valid explanation for why data relating to total loan
amounts reported in this five year period should be accepted instead of data from any other period of
time, for example, 10 years, one year, one month or even one week. 3732 In addition, the European
Communities considers that a period of time that is shorter than the actual length of the subsidy
programme that is at issue would be inconsistent with the wording of Article 2.1(c), which it argues
expressly envisages that length of the duration of the "programme" as a whole must be taken into
account, and not any part or segment thereof.3733
7.958 Thus, the European Communities considers that all of the EIB's lending since 1957 must be
taken into account when examining whether the loans to Airbus between 1988 to 1993 are de facto
specific within the meaning of Article 2.1(c). Howe ver, if another approach were to be taken, the
European Communities submits that a methodology that would be more objective to the one proposed
by the United States would be to compare the loans to Airbus provi ded in each year with the total
value of loans provided by the EIB in the five preceding years. The European Communities asserts
that such a comparison shows that the disputed lo ans did not represent, in any one year, more than
1.6% (on average 0.9%) of total EIB lending over the preceding five years.3734
Evaluation by the Panel
7.959 We begin our evaluation of the United States claims by reviewing Article 2.1(c) of the
SCM Agreement, which reads:
"2.1 In order to determine whether a subsidy, as defined in paragraph 1 of
Article 1, is specific to an enterprise or industry or group of enterprises or industries
(referred to in this Agreement as "certain en terprises") within the jurisdiction of the
granting authority, the following principles shall apply:

(c) If, notwithstanding any appearance of non-specificity
resulting from the application of the principles laid down in
subparagraphs (a) and (b), there are reasons to believe that the
subsidy may in fact be specific, other factors may be considered.
Such factors are: use of a subsidy programme by a limited number of
certain enterprises, predominant use by certain enterprises, the
granting of disproportionately large amounts of subsidy to certain
enterprises, and the manner in which discretion has been exercised by
the granting authority in the decision to grant a subsidy.
3 In applying
this subparagraph, account sha ll be taken of the extent of
diversification of economic activiti es within the jurisdiction of the
granting authority, as well as of the length of time during which the
subsidy programme has been in operation.

3730 EC, SWS, para. 461.
3731 EC, SWS, para. 469; EC, Answer to Panel Question 183.
3732 EC, SWS, paras. 455 and 469.
3733 EC, Answers to Panel Questions 119 and 183.
3734 EC, Answer to Panel Question 183.

BCI deleted, as indicated [***]

Articles 2.1(a) and 2.1(b), but "there are reasons to believe that the subsidy may in fact be specific".
When such a situation arises, the first sentence of Ar ticle 2.1(c) stipulates that "other factors may be
considered". The second sentence of Article 2.1(c) elaborates four "{s}uch factors". In essence, the
United States' allegation that the EIB loans to Air bus are in fact specific under Article 2.1(c) is
grounded in one of these factors – "the granting of disproportionately large amounts of subsidy to
certain enterprises". However, it is also based upon reliance on another factor – "predominant use by
certain enterprises".
"the granting of disproportionately large subsidy amounts to certain
enterprises"
7.961 Something may be said to be "dispropor tionate" when it is "lacking proportion". 3735 T h e
ordinary meaning of the word "proportion" includes "a portion, a part, a share, esp. in relation to a
whole", "a relative amount or number", "a compar ative relation or ratio between things in size,
quantity, number, etc.". 3736 These meanings suggest that the in quiry that must be undertaken when
assessing whether the amount of a subsidy is "dispr oportionately large" will involve identifying the
relationship between the amount of the subsidy at i ssue and something else that is "a whole", and
determining whether that relations hip demonstrates that the amount of subsidy is greater than the
amount it would need to be in order to be proportionate – i.e., not lacking proportion. The
United States refers to the "something else" agains t which the amount of the subsidy at issue should
be compared as a "baseline"; the European Commun ities as a "universe" of funding or "reference
data".3737
7.962 According to the European Communities, the "uni verse" of funding or "reference data" that
should be used for the purpose of a disproportionality analysis under Article 2.1(c) must be drawn
from the subsidy programme pursuant to which the challenged subsidy is granted. The European
Communities argues that this follo ws from the fact that Article 2.1(c) identifies the "use of a subsidy
programme by a limited number of certain enterprises" as one of the factors that may be considered
when assessing whether a subsidy is in fact specific. 3738 Moreover, the European Communities notes
that the last sentence of Article 2.1(c) explicitly requires that, in applying Article 2.1(c), "the length of
time during which the subsidy programme has been in operation" must be taken into account. 3739
Thus, the European Communities emphasizes that the language of Article 2.1(c) calls for the
consideration of data pertaining to an entire subs idy programme, not a part, component or element of
that programme. In its view, a disproportionality analysis must therefore involve comparing the
amount of the subsidy at issue with the total am ount of subsidies granted under an entire subsidy
programme.
7.963 The United States does not share the European Communities' view that the relevant "baseline"
for a disproportionality analysis must in all situati ons be a subsidy programme. In this regard, the

3735 The New Shorter Oxford Dictionary, Fourth Edition, p.700.
3736 The New Shorter Oxford Dictionary, Fourth Edition, p.2381.
3737 US, Answer to Panel Question 119; EC, FWS, para. 1034; EC, Answer to Panel Question 182.
3738 EC Answers to Panel Questions 119 and 182. Emphasis added by the EC.
3739 EC, Answer to Panel Question 119.

BCI deleted, as indicated [***]

United States notes that the third and fourth factors described in the second sentence of Article 2.1(c)
do not refer to a subsidy programme.3740 According to the United States, this textual difference means
that Article 2.1(c) permits the use of a frame of reference that may be different from a subsidy
programme when considering these two factors.
7.964 In our view, the language of Article 2.1(c), when interpreted in its proper context and in the
light of its object and purpose, suggests that where the subsidy at issue has been granted pursuant to a
subsidy programme, that programme should normall y be used for the purpose of identifying the
"baseline" or "reference data" needed to perform a disproportionality analysis. However, as the
United States points out, the absence of any expl icit reference to "a s ubsidy programme" in the
language of Article 2.1(c) suggests that it does not require that a subsidy programme be used for this
purpose in each and every factual circumstance.
7.965 The "granting of disproportionately large amount s of subsidy to certain enterprises" is the
third of four specificity factors that Article 2. 1(c) identifies as having possible relevance for the
determination of whether a subsidy is in fact specific. Contrary to the first factor ("use of a subsidy
programme by a limited number of certain enterprises") and the second factor ("predominant use by
certain enterprises"), the third factor makes no direct or indirect reference to a subsidy programme.
Likewise, the fourth factor ("the manner in wh ich discretion has been exercised by the granting
authority in the decision to grant a subsidy") includes no reference to a subsidy programme. In our
view, it would not have been difficult for the drafters of the SCM Agreement to include a reference to
a subsidy programme in the text of the third speci ficity factor, as they did for the first and second
specificity factors. However, the drafters chose not to do so. Thus, on its own, the text of the third
specificity factor listed in the second sentence of Article 2.1(c) does not support the view that a
disproportionality analysis must involve comparing the amount of a subsidy granted under a given
subsidy programme with the entire amount of subsidies granted under the same subsidy programme.
7.966 Important context for the interpretation of the f our specificity factors can be found in the last
sentence of Article 2.1(c). This sentence requ ires that consideration of "the granting of
disproportionately large amounts of subsidy to certa in enterprises" (or consideration of any one or
more of the remaining three specificity factors) must take into account two matters: (i) "the extent of
diversification of economic activities within the juri sdiction of the granting authority"; and (ii) "the
length of time during which the subsidy programme has been in operation". For present purposes, it
is instructive to note that th e last sentence of Article 2.1(c) calls for the duration of " the subsidy
programme" to be taken into account. The use of the definite Article "the " denotes one particular
subsidy programme. It is apparent from the text of the first and second specificity factors that " the
subsidy programme" stands for the programme that must be considered when evaluating whether
there has been "use of a subsidy programme by a limited number of certain enterprises" or
"predominant use by certain ente rprises". In other words, " the subsidy programme" is the subsidy
programme pursuant to which the subsidy at issue has been granted.
7.967 As we have already observed, the third and fourth specificity factors make no direct or
indirect reference to a subsidy programme. In our view, this implies that there may be situations
when the third specificity factor ("the granting of disproportionately large amounts of subsidy to
certain enterprises") may be considered in the light of a frame of reference that is different from a
subsidy programme.
3741 However, where the subsidy at i ssue is granted pursuant to a subsidy

3740 US, Comments on EC Answer to Panel Question 182.
3741 While we recognise that determining whether a subsidy is specific within the meaning of
Article 2.1 involves a case-by-case asse ssment of the particular facts surrounding the subsidy at issue, in
general, we believe that to the extent that a subsidy not granted under a subsidy programme may be
characterised as a one-off subsidy, it would be found to be specific within meaning of Article 2.1(a), rendering
an assessment of specificity under Article 2.1(c) unnecessary.

BCI deleted, as indicated [***]

programme, the language of the last sentence of Article 2.1(c) implies that the duration of that subsidy
programme be taken into account when performing a disproportionality analysis. It follows that when
the subsidy at issue is granted pursuant to a subsidy programme, the "baseline" or "reference data"
needed to conduct a disproportionality analysis should be drawn from that same subsidy programme.
7.968 The European Communities submits that taking into account "the length of time during which
the subsidy programme has been in operation", in the context of a disproportionality analysis,
involves comparing the amount of the subsidy at issue with the amount of all of the subsidies granted
under the same programme for its entire duration. In other words, the European Communities argues
that the relevant "baseline" or "reference data" n eeded to conduct a disporportionality analysis is the
total amount of subsidization provided over the entire life of the relevant subsidy programme. On the
other hand, the United States considers that taking th is time element into account means identifying a
period of time that will lead to a meaningful asse ssment of disproportionality. According to the
United States, this period may not always coincide with the entire duration of the relevant subsidy
programme.
7.969 The last sentence of Article 2.1(c) provides that: "In applying this subparagraph, account shall
be taken of ... the length of time during which the subsidy programme has been in operation". To take
something into account means to take something into reckoning or consideration; to take something
on notice.
3742 Therefore, in the context of the thir d specificity factor, the last sentence of
Article 2.1(c) requires that the length of time dur ing which the relevant s ubsidy programme has been
in operation must form part of the consideration or reckoning of whether the amount of a subsidy
granted to certain enterprises pursuan t to that same subsidy programme is disproportionately large. It
follows that the total amount of subsidization pr ovided over the entire life of the relevant subsidy
programme does not have to be used as the relevant "baseline" or "reference data" when conducting a
disporportionality analysis.
7.970 We recall that the notion of specificity has to do with whether a subsidy is sufficiently
broadly available throughout an economy so as not to benefit "certain enterprises". 3743 In our view,
this understanding of what specificity means serves as the beacon which guides the interpretation of
the entirety of Article 2, including Article 2.1(c). What it means to take account of "the length of time
during which the subsidy programme has been in operation" when performing a disproportionality
analysis must be understood in this context. Thus, using the total amount of subsidies granted under a
subsidy programme over its entire life as the "baseline" or "reference data" for the purpose of
determining whether the amount of a subsidy is "disproportionate ly large" may not always be
appropriate if, for example, the subsidy progra mme has not operated long enough to understand its
full impact on an economy. Likewise, establishing a "baseline" or identifying "reference data" on the
basis of the total amount of subsidies granted unde r a long-standing subsidy programme may also be
inappropriate if, for example, there has been a mate rial change in the importance of the subsidized
activities in the wider economy and/or the granting au thority's economic priorities over the life of the
subsidy programme. In this regard, we agree with the United States that s ubsidies targeted towards
certain enterprises in an emerging sector might not appear to be disproportionately large when
compared with an extremely broad universe that includes subsidies to enterprises in sectors that do not
play as significant a role in the economy today as th ey did over previous decades. However, in the
context of the present economy, the same subsidi es may well stand out as disproportionately large.
3744
Thus, in our view, where a subsidy to certain ente rprises has been granted pursuant to a long-standing
subsidy programme, identification of the proper "b aseline" or "reference data" against which to
measure whether the subsidy is granted in "dispro portionately large amounts" will involve taking into
account the extent to which it would be reasonable and appropriate to determine whether the subsidy

3742 The New Shorter Oxford Dictionary, Fourth Edition, p.15.
3743 See, para. 7.919 above.
3744 US, Comments on EC Answer to Panel Question 183.

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at issue is in fact sufficiently broadly available throughout an economy so as not to benefit "certain
enterprises" on the basis of the entire duration of the subsidy programme or some shorter period of
time.
7.971 According to the United States, once the correct "baseline" is identified, the relationship
between the amount of the subsidy granted to certa in enterprises and the total amount of subsidies
provided to the "baseline" group of enterprises must be compared with the relationship between the
"certain enterprises and all enterp rises in the {'baseline'} group (measured by indicators that are
appropriate in the light of the circumstances, wh ich could include economic output, employment, or
other indicators)".3745
7.972 We agree with the United States that identifying the relationship between the amount of the
subsidy at issue and the "baseline" is not enough to determine whether th e challenged subsidy is
"disproportionately large". For example, a subsid y granted to certain enterprises in an amount that
represents 50% of the total amount of subsidies gr anted under a relevant subsidy programme says
little, if anything, about whether that amount is "dis proportionately large". As we have previously
explained,3746 assessing whether the amount of a subsidy is "disproportionately large" involves
determining whether the relationship between the amount of the subsidy at issue and a relevant
"baseline" demonstrates that the amount of subsidy is greater than the amount that it would need to be
in order to be proportionate. Thus , determining whether a 50% share of the total amount of subsidies
granted under a particular subsidy programme to certain enterprises is "disproportionately large"
involves considering whether the 50% share is greater than what it would need to be in order to say
that the certain enterprises received a proportionate amount of all subsidies granted under that same
programme. There is no explicit guidance in Article 2.1(c) for how to make this determination.
However, the fact that the last sentence of Article 2. 1(c) requires that "the extent of diversification of
economic activities within the jurisdiction of the gr anting authority" be taken into account, suggests
that evidence of the diversity of economic activity must be considered in the analysis.
7.973 One relevant measure of the extent of economic diversification within the jurisdiction of the
granting authority is the proportion of economic activ ity attributable to the subsidy recipient(s).
Taking such evidence into account in the "dispropor tionality" analysis required under Article 2.1(c)
would, in our view, involve comparing the share of the total amount of subsidies granted under a
generally available subsidy programme to one or more recipients, with the proportion of economic
activity attributable to the same recipient(s) within the jurisdiction of the granting authority. Where
the amount of a subsidy granted to one or more recipients under a broadly available subsidy
programme represents a proportion of total subs idies granted under the same programme that
significantly exceeds the economic activity attributab le to the same recipient(s) in the broader
economy, the amount of the subsidy at issue would be "disproportionately large". In our view, such a
subsidy would not be sufficiently broadly ava ilable throughout an economy and would therefore
benefit "certain enterprises".
3747
"predominant use"
7.974 The second specificity factor identified in Article 2.1(c) is "predominant use by certain
enterprises". As we have already noted, when read in the light of the first specificity factor ("use of a
subsidy programme by a lim ited number of certain enterprises"), it is clear that this factor indirectly
refers to "predominant use" of "a subsidy pr ogramme". The ordinary meaning of the word
"predominant" includes "constituting the ma in or strongest element; prevailing". 3748 T h u s ,

3745 US, Answer to Panel Question 119.
3746 See, para. 7.961 above.
3747 Panel Report, US – Upland Cotton, para. 7.1142.
3748 The New Shorter Oxford Dictionary, Fourth Edition, p.2329.

BCI deleted, as indicated [***]

"predominant use {of a subsidy programme} by certain enterprises" may be simply understood to be a
situation where a subsidy programme is mainly, or for the most part, used by certain enterprises.
7.975 In considering whether there is "predominan t use {of a subsidy programme} by certain
enterprises" for the purpose of making a finding of specificity, the last sentence of Article 2.1(c)
requires that account be taken of: (i) "the extent of diversification of economic activities within the
jurisdiction of the granting authority"; and (ii) "the length of time during which the subsidy
programme has been in operation". As with dete rmining whether a subsidy has been granted in
"disproportionately large amounts", the relevance of these two factors to understanding whether there
has been "predominant use {of a subsidy progra mme} by certain enterprises" will depend upon the
particular facts. Thus, for example, where a s ubsidy programme operates in an economy made up of
only a few industries, the fact that those industries may have been the main beneficiaries of a subsidy
programme may not necessarily demonstrate "predominant use". Rather, use of the subsidy
programme by those industries may simply reflect the limited diversification of economic activities
within the jurisdiction of the granting authority. On the other hand, the same subsidy programme
operating in the context of a highly diversified economy that is used mainly, or for the most part, by
only a few industries would tend to indicate "predominant use".
7.976 Likewise, when taking into account "the length of time during which the subsidy programme
has been in operation", the use of a subsidy pr ogramme by certain enterprises may not necessarily
indicate "predominant use" in the context of a re latively new subsidy programme that has not yet
operated for enough time to understand its full impa ct on an economy. Moreover, it may not always
make sense to determine whether there has been "p redominant use" over the entire life of a subsidy
programme, where that programme has operated for decad es that have witnessed a material change in
the importance of the subsidized activities in the wider economy and/or the granting authority's
economic priorities. As with determining whethe r a subsidy has been granted under a long-standing
subsidy programme in "disproportionately large amo unts", a determination of whether there has been
"predominant use" of a long-standing subsidy pr ogramme should involve taking into account the
extent to which it would be reasona ble and appropriate to determine wh ether the subsidy at issue is in
fact sufficiently broadly available throughout an econo my so as not to benefit "certain enterprises" on
the basis of the entire duration of the subsidy programme or some shorter period of time.
7.977 With the above understanding of how to de termine whether a subsidy is granted in
"disproportionately large amounts" to certain enterp rises or whether there is "predominant use" of a
subsidy programme by certain enterprises in mind, we now turn to examine the United States' specific
allegations in respect of the measures at issue.
The 2002 loan to EADS
7.978 The United States claims that the 2002 loan gran ted to EADS is specific within the meaning
of Article 2.1(c) because in its view: (i) it repr esents a disproportionately large amount of subsidy
granted to certain enterprises when measured against (a) all of the loans granted by the EIB for the
purpose of research and development projects under the "Innovation 2000 Initia tive" ("i2i") in 2002,
or (b) all of the loans granted by the EIB for th e purpose of research and development projects under
the i2i between 2000 and the end of 2002, in the light of the highly diversified nature of the EU
economy; and (ii) it evidences predominant use of the i2i subsidy programme by EADS.
7.979 Before evaluating the merits of the United States' claims, we recall that we have already
found that the 2002 finance contract between the EIB and EADS evidences the existence of two
financial contributions: a direct tran sfer of funds in the form of the [***]
 loan; and a potential direct
transfer of funds in the form of the EUR 700 million credit line. 3749 Of the two financial

3749 See, para. 7.738 above.

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contributions, we have found that the United Stat es has established that only the former confers a
benefit upon Airbus, and ther efore constitutes a subsidy. 3750 Thus, for the purpose of our specificity
analysis, the relevant subsidy that must be examined is that conferred by the [***] loan, as evidenced
by the 2002 finance contract between the EIB and EADS.
"the granting of disproportionately large amounts of subsidy to certain
enterprises"
7.980 Both parties have advanced their arguments on whether the 2002 loan to EADS involved "the
granting of disproportionately large amounts of s ubsidy to certain enterprises" by equating the
financial contribution provided under the 2002 loan contract with the "amounts of subsidy" referred to
in Article 2.1(c). In our view, when the subsidy at issue is provided in the form of a loan granted on
below market interest rate terms, the amount of the subsidy benefit – i.e., the amount of the subsidy –
will be a function of the interest rate advantage, the amount of the loan principal and the period of
repayment. Thus, the amount of principal transfer red under a loan may be a useful indicator of the
amount of a subsidy, particularly where, as in th e present case, there is evidence showing that the
interest rate terms of loans provided by the gran ting authority followed a standard methodology, and
the parties in dispute have not argued there to be, in general, any material difference in the subsidy
intensity between loans. Thus, given the particular facts that are before us, we believe that the actual
amount of principal transferred to the recipients of subsidized loans granted by the EIB may serve as a
reasonable proxy of the "amounts of subsidy".
7.981 A "disproportionality analysis" requires the id entification of an appropriate "baseline". 3751
The United States argues that the rele vant baseline to use for this purpose is the total amount of funds
lent by the EIB for research and development pr ojects under the i2i in 2002, or between 2000 and the
end of 2002. According to the United States, such an approach mirrors the EIB's own description of
its lending activities, which it considers demonstrates that the EIB had set up the i2i as a distinct
lending programme with one of its particular objectives being the funding of research and
development projects. In this regard, the United St ates notes that at its launch, the EIB had explicitly
described the i2i as "a practical programme ai med at building a Europe based on knowledge and
innovation"; a "dedicated EUR 12-15 billion lending programme", which in February 2003 the EIB
declared "had fully achieved its objectives" upon having committed EUR 14.4 million in loans by the
end of 2002. The United States justifies its focus on i2i lending for research and development by
recalling that "research and development" was one of five alleged "economic sectors" targeted by i2i;
and because "research and development" was a headi ng used by the EIB for the purpose of reporting
the progress of its lending activities in its Activity Reports. Moreover, the United States submits that
the distinct research and development focus of the i2i is also evidenced by the fact that the EIB used
research and development lending under the i2i as the "principal tool" with which it implemented the
formal agreement that existed between the Europ ean Commission and the EIB to cooperate "with the
aim of optimising their action in the field of research and the exploitation of its results".3752
7.982 We are not convinced by the United States' su bmission. The United States places significant
reliance on the EIB's own characterisation of the i2 i as a "programme" to conclude that it should be
treated as such for the purpose of Article 2.1(c). As a general matter, we doubt whether a granting
authority's own description of the nature of its activ ities can always be given the probative value that
the United States attributes to the EIB's statements. Nevertheless, we recognize that the statements of

3750 See, paras. 7.885 and 7.887 above.
3751 See, paras. 7.961-7.970 above.
3752 US, Answer to Panel Question 14, citing the Joint Memorandum establishing a framework for co-
operation between the community research framework programme and the "Innovation 2000 Initiative" between
the European Community represented by the Commission of the European Communities and the European

BCI deleted, as indicated [***]

the authority responsible for granting subsidies that are alleged to be specific will be relevant to
determining whether those subsidies are in fact specific within the meaning of Article 2.1(c).
However, their probative value needs to be assessed on a case-by-case basis. In the present instance,
when considered in their proper context, the EIB statements provide little, if any, support for the
contention that the i2i was a "programme" in the sense that is argued by the United States.
7.983 The first statement the United States relies upon was taken from an undated three page EIB
publication introducing the i2i. The first sentence of this publication reads:
"In order to support the guidelines laid down by the Heads of Government, the EIB is
implementing its Innovation 2000 Initiative, a practical programme
 aimed at building
a Europe based on knowledge and innovation. " 3753
We note, however, that in the very next sentence, the EIB describes the i2i as an "initiative":

"Adopted by the EIB's Board of Governors at its Annual Meeting in June 2000, this
initiative covers a number of operational principles intended to target lending by the
EIB Group towards the following five objectives: ..." 3754
The United States also refers to the EIB's description in the same document of the i2i as a "dedicated
EUR 12-15 billion lending programme". This statement is drawn from the following passage:

"Over the next three years, EIB support fo r these areas will take the form of a
dedicated EUR 12-15 billion lending progra mme, plus a further EUR 1 billion for
developing venture capital operations. Rath er than increasing the volume of finance ,
the Innovation 2000 Initiative will mark a qualitative shift of emphasis in the EIB
Group's activities towards sectors of the future with high technological value
added."
3755
In our view, this statement shows that the i2i w as not intended to represent a new "programme" in the
sense that is argued by the United States, but rather only a "qualitative shift of emphasis" in the EIB's
ongoing finance activities without increasing their overa ll volume. In other words, as we read it, the
statement suggests that the i2i was intended to ope rate as an "innovation"-focused continuation of the
EIB's ongoing lending activities.

7.984 According to an EIB press releas e, the i2i was "put in place by the EIB to support the 'Lisbon
Strategy', as chartered by the European Counc il in March 2000, for building a 'European economy
based on knowledge and innovation'".
3756 Similarly, the EIB Eligibility Guidelines explain that "{t}he
Bank's 'Innovation 2000 Initiative' ... is the Bank's contribution to the Lisbon process, which itself was
launched at the Extraordinary EU Summit in Lisbon in March 2000." 3757 The overall goal of the
Lisbon Strategy was for Europe "to become the most competitive and dynamic knowledge-based
economy in the world capable of sustainable growth with more and better jobs and greater social
cohesion'" through a series of actions including increased support for research and development,
competitiveness and innovation. In 2004, the EIB d escribed its involvement in the implementation of
the Lisbon Strategy through the i2i in the following terms:

3753 Exhibit US-154 (Underline added).
3754 Exhibit US-154 (Underline added).
3755 Exhibit US-154 (Underline added).
3756 Exhibit US-164.
3757 EIB Eligibility Guidelines, Exhibit EC-161, p. 8 (emphasis original).

BCI deleted, as indicated [***]

"The EIB Group has been involved in the pr eparation and in the implementation of
{the Lisbon Strategy}, focusing its efforts on those innovation areas where particular
investment efforts were most required and where supporting EIB loans or EIF venture
capital (and guarantees) could be best deployed. Accordingly, in 2000, the Bank
launched the 'Innovation 2000 Initiative'. To some extent, i2i built upon the
experience gained within the {EIB's} 'Amsterdam Special Action Programme'
(ASAP), which ran from 1997-2000 and introduced or reinforced lending for
education, health and R&D, as well as investment in venture capital."
3758
7.985 With this description, the EIB explicitly acknow ledges that the lending activities carried out
under the i2i were "to some extent" a more focu sed continuation of lendi ng activities undertaken
between 1997 to 2000. Indeed, other evidence confir ms that of the five lending objectives targeted
under the i2i ("development of SMEs and entreprene urship"; "diffusion of innovation"; "research and
development"; "information and communications technology networks"; and "human capital
formation"3759), at least four (if not all five) were alr eady the subject of the EIB's lending activities
prior to i2i.3760
7.986 That the i2i was not a "programme" in the sen se argued by the United States is also supported
by evidence showing that loans, including the 2002 lo an to EADS, were routinely considered by the
EIB to satisfy multiple lending "objectives", not only the i2i. 3761 Indeed, the EIB identifies the
relevant "eligibility" criteria for the 2002 loan to EADS to be "i ndustrial competitiveness" not i2i. 3762
It is difficult to understand, and indeed, the Unite d States has said little to explain, how the i2i may be
characterised as a "programme" distinct from the EIB's other lending in the light of the fact that loans
granted thereunder were counted by the EIB for its own reporting requirements as satisfying multiple
lending objectives.3763
7.987 The United States considers that the EIB's exp licit description of the i2i as a "dedicated
EUR 12-15 billion lending programme" suggests that it maintained a dedicated budget for i2i lending,
thereby supporting the view that the i2i was a "p rogramme" of lending separate to the EIB's other
lending activities.3764 The United States asserts that the EIB's declaration in early 2003 that it "had

3758 EIB Eligibility Guidelines, Exhibit EC-161, p. 8. "ECOFIN" is the Economic and Financial Affairs
Council of the EU. It is composed of the Economics a nd Finance Ministers of the EU Member States, as well
as Budget Ministers when budgetary issues are discussed.
3759 US, Answer to Panel Questions 14 and 218, the latter referring to The Innovation 2000 Initiative,
Actively promoting a European economy based on knowledge and innovation , European Investment Bank,
pp. 2-3, Exhibit US-154.
3760 The EIB has consistently provided funding to "European communications infrastructure", "human
capital" and "industrial competitiveness" projects since well before launching the i2i. Exhibit EC-713.
Moreover, the Eligibility Guidelines reveal that the EIB started lending fo r "ex ante research and development"
projects in 1995, and in the area of "education" ( i.e., "human capital") in 1981. Exhibit EC-161, pp 11 and 18.
As regards the "diffusion of innovation", we see no reason why the same or similar types of projects may not
have also been funded by the EIB prior to the launch of the i2i under one of its other lending objectives.
3761 Exhibit EC-163 indicates that the 2002 loan to EA DS fell within three of the EIB's lending policy
objectives: "Common Interest (267 – c)", "i2i" and "Int. Compet. and EU. Int." Exhibit EC-163 also identifies
many other projects financed by the EIB that were classified under multiple policy objectives, including i2i.
One such example is the 2001 EUR 100 million loan for the "Big Education Infrastructure" project, described as
falling within five policy objectives: "Economic and Social Cohesion (267a)", "Common Interest (267 – c)",
"i2i", "Environment" and "Human Capital". See, also, EC, Answer to Panel Question 182, footnote 92.
3762 Exhibit US-157; and EC, SWS, footnote 418, referring to Exhibit EC-163.
3763 Exhibit EC-713 contains a table breaking down the individual loans provided by the EIB within the
EU in 2002 by six headings, which broadly correspond with its lending objectives. A footnote to this table
reads: "As certain financing operations meet several obje ctives, the totals for the various headings cannot be
meaningfully added together."
3764 US, Answer to Panel Questions 14 and 218

BCI deleted, as indicated [***]

fully achieved its i2i objectives" upon having committed EUR 14.4 billion in loans by the end of 2002
supports its position.
3765 We recall, however, that neither the EC Treaty nor the EIB Statute place any
legal limits on the amount of lending that the EIB may undertake (apart from requiring that the
aggregate amount of outstanding loans and guara ntees at any time does not exceed 250% of its
subscribed capital, and that its reserves are maintain ed at a level that covers 10% of its subscribed
capital).3766 Therefore, the "dedicated" funding amount that is referred to in the EIB statement is
probably more accurately to be understood as the ta rget volume of lending the EIB's management set
for projects supporting the i2i policy objective in 2 002. Because projects considered to fall within the
i2i may also satisfy other EIB policy objectives, 3767 it follows that the EIB's declared "dedicated"
funding amount covered projects that satisfied different and multiple EIB policy objectives that
included i2i. In other words, even as an expression of the goals of EIB management for the volume of
i2i lending to be achieved in 20 02, the "dedicated EUR 12-15 billion" was, in effect, not a target
limited to only i2i projects.
7.988 Finally, we note that the United States does not argue that loans granted under i2i were
approved under a different applica tion, review or decision-making procedure compared with other
EIB loans. Nor does it contend that the loans gr anted under the i2i were granted on contractual terms
and conditions that distinguished them from other lo ans granted by the EIB. However, in our view,
an understanding of the legal regime pursuant to whic h an alleged subsidy is gr anted is a relevant and
important consideration when making a specificity determination under Article 2.1(c) as it helps to
define the relevant "programme". In this respec t, we note that no evidence has been presented to us
showing that i2i loans were granted pursuant to a le gal regime that is different from that created by
Article 267 of the EC Treaty and the provisions of th e EIB Statute; or that these loans were approved
using a review procedure that is different from that described in the EIB's Project Cycle Document.
7.989 Having carefully considered the detailed eviden ce and arguments presented by the parties, we
believe that the i2i cannot be properly characterised as a "programme" for the purpose of
Article 2.1(c). The EIB was established under the EC Treaty, which gave it a general mandate to lend
funds "to all sectors of the economy" for the purpo se of contributing "to the balanced and steady
development of the common market in the interest of the Community". This mandate is explicitly
recalled and implemented through the EIB Statute. Like the EC Treaty, the EIB Statute indicates that
the focus of the EIB's lending should be on projects that contribute to an increase in economic
productivity in general and promote the attainment of the common market. EIB funding is intended to
support and contribute to the attainment of EU pol icy objectives, which the EIB has consistently
identified in various documents including the Project Cycle Document and the Eligibility Guidelines.
Funded projects may qualify for one or more of th ese objectives and are reported as such in the EIB's
Annual Reports. This and other evidence tends to support the view that the "programme" in the
present instance is EIB lending as a whole, which constitutes one single discretionary programme of
financing.
3768 Thus, the relevant subsidy programme from wh ich to derive the "baseline" must be the
entire programme of EIB lending as mandated under the EC Treaty and the EIB Statute, not all of the
EIB's lending under the i2i.
3769

3765 US, Answer to Panel Questions 14 and 218, referring to European Investment Bank, Annual Press
Conference 2003, Background Note No. 1: Innovation and Knowledge-Based Economy, p.1, Exhibit US-164.
3766 See, para. 7.917 above.
3767 See, para. 7.986 above.
3768 See, para. 7.923 above.
3769 We note that the parties have not argued that we should limit our consideration of the EIB's lending
activities to data that relates only to loans grante d for the purpose of the production or sale of goods. However,
in our view, the fact that the SCM Agreement is intended to deal exclusively with subsidies to goods, could be
understood to mean that the baseline for a disproportionality analysis should ignore any subsidies granted for the
provision of services.

BCI deleted, as indicated [***]

7.990 However, this does not mean that we agree with the European Communities when it argues
that the relevant "baseline" should be the value of the EIB's entire lending activities since 1957. As
we have previously explained, when assessing whether a subsidy granted under a long-standing
subsidy programme is specific unde r Article 2.1(c), the identification of the proper "baseline" will
involve taking into account the extent to which it would be reasonable and a ppropriate to determine
whether the subsidy at issue is in fact sufficiently broadly available throughout an economy so as not
to benefit "certain enterprises" on the basis of the entire duration of the subsidy programme or a
shorter period of time. Although the parties in the present dispute have not submitted any data
specifically for this purpose, evidence of the EIB' s total lending in 2004, the year in which the 2002
loan to EADS was disbursed, indicates that the [***] loan represented approximately [***] of the all
loans disbursed in that year. 3770 Excluding "global" loans from this calculation, which between 1957
and 2006 accounted for approximately 27% of the EIB's loans, 3771 it is possible to estimate that the
[***] financing received by EADS under the 2002 loan represented [***] of all "individual" loans
disbursed by the EIB in 2004. Essentially the same r esult holds if the loan to EADS is considered in
the light of the total amount of all lo ans disbursed in 2002 (EUR 35,214 million) 3772 or even all
"individual" loans, which we can estimate w ould have been approximately EUR 25,700 million. 3773
Given that we have found the i2i to be an "innovation"-focused continuation of the EIB's existing
lending, using the amount of all EIB lending (actual disbursements) in one calendar year is perhaps
too short a period within which to assess whether the amount of the loan to EADS was
"disproportionately large". Nevertheless, even when using calendar year data from the year in which
the loan was disbursed (2004) or when the loan facility was first agreed (2002), the amount of the loan
to EADS represents at most [***] of total EIB lending in the form of "individual" loans in each of
those two years. Obviously, considering the amount of the loan to EADS in the light of EIB lending
data over a longer period would render this pr oportion smaller. Accepting that the European
Communities has a highly diversified economy, we do not believe that these data imply that the 2002
loan to EADS represents a disproportionately large amount of subsidy.
7.991 Thus, in conclusion, we find that the United States has failed to establish that the 2002 loan to
EADS involves "the granting of disproportionately large amounts of subsidy to certain enterprises"
within the meaning of Article 2.1(c) because the [***] loan to EADS was not disproportionately large
when considered in the light of the total value of the EIB's lending programme over a period of time
that we believe is reasonable and appropriate for the purpose of conducting a disproportionality
analysis.
"predominant use"
7.992 The United States relies upon essentially the same f acts and arguments advanced in respect of
its allegation of "disproportionalit y" to support its claim that the 2002 loan to EADS evidences
"predominant use" of a subsidy programme, maki ng it a specific subsidy within the meaning of
Article 2.1(c). Again, the United States' arguments are framed in terms of the amount of the financial
contribution received by EADS under the loan compared with: (a) all of the loans granted by the EIB
for the purpose of research and development projects under the i2i in 2002, or (b) all of the loans
granted by the EIB for the purpose of research and development projects under the i2i between 2000
and the end of 2002, in the light of the highly divers ified nature of the EU economy. In addition, the
United States also asserts that the loan granted to EADS was the single largest provided to any one

3770 EIB Annual Report 2004, Volume I Activity Report , p. 4, indicating that "Loans disbursed" in 2004
amounted to EUR 38 547 million (excluding EUR 93 million of loans disbursed via the EIB's "Investment
Facility"). Exhibit EC-714.
3772 EIB Group Activity Report 2002, p. 2. Exhibit EC-712.
3773 (73% of EUR 35,214 million = EUR 25,706 million)

BCI deleted, as indicated [***]

company under the alleged i2i programme taken as a whole, over the period 2000 to 2003 or even
between 2000 and 2006.
3774
7.993 We recall that "predominant use {of a subsidy programme} by certain enterprises" may be
simply described as the situation where a subsidy prog ramme is mainly, or for the most part, used by
certain enterprises. "Predominant use {of a subs idy programme} by certain enterprises" may indicate
that a subsidy is in fact specific, within the meani ng of Article 2.1(c), when in the light of (i) "the
extent of diversification of economic activities with in the jurisdiction of the granting authority"; and
(ii) "the length of time during which the subsidy programme has been in operation", such predominant
use suggests that the subsidy at issue is not sufficiently broadly available throughout an economy so
as not to benefit "certain enterprises". 3775 In our view, when cons idering whether there is
"predominant use" of a subsidy programme within these terms, the starting point should be the
identification of the relevant subsidy programme.
7.994 For the same reasons advanced to support its allegations of "disproportionality", the United
States contends that the relevant subsidy progra mme for the purpose of determining whether the 2002
loan to EADS evidences "predominant use" is the i2i. We have already dismissed the United States'
contention, and found instead that the relevant subsidy programme is the EIB's entire lending
activities as mandated under the EC Treaty and EIB Statute. 3776 Moreover, we have also concluded
that when measured against the estimated value of all "individual" loans disbursed by the EIB in only
one year – 2002 or 2004 – the amount of the loan to EADS represents at most [***].3777 Bearing in
mind that the European Communities has a highl y diversified economy, and considering that
this percentage would be even sm aller if the EADS loan amount were measured in the light of EIB
lending data over a longer period, we do not consider the 2002 loan to EADS to evidence
"predominant use" of a subsidy programme by "certain enterprises".
7.995 We come to the same conclusion when consid ering the United States' allegations about the
size of the loan granted to EADS compared with the size of loans granted to other recipients. 3778
Although there is no precise data before us on the value of EIB loan disbursements per corporate
recipient for its entire lending programme (which would have been our preferred level of
comparison), we do have information on the value of disbursements made by the EIB to projects
qualifying under the i2i between 2000 and 2006 by recipient.3779 Perusing this information, we cannot
see any corporate borrower 3780 that received an "individual" loan that was greater in amount than the
[***] disbursement received by EADS in 2004. Ho wever, there are at least six companies that
received seven "individual" loan disbursements in 2000, 2001, 2003, 2005 and 2006 that were greater
than [***].3781 Thus, even when examining the comparativ e size of the 2002 loan to EADS at the
level of the i2i, it does not appear to us that the [***] loan disbursement to EADS evidences
"predominant use" by EADS, irrespective of whether we review the data from 2000 to 2002 (which
the United States asserts would be correct)
3782 or the period 2000 to 2006 (which the European
Communities suggests could be used).3783 Although, as already mentioned, we have no precise details

3774 See, para. 7.944 above.
3775 See, para. 7.974-7.976 above.
3776 See, para. 7.989 above.
3777 See, para. 7.990 above.
3778 We recall that our specificity analysis is concerned with the [***] loan that was actually disbursed,
not the EUR 700 million credit line. See, para. 7.979 above.
3779 Exhibit EC-883 (BCI).
3780 Excluding banks and public entities or public corporations.
3781 The companies and respective disbursements, in cluding dates, are: Telefonica Finanzas SA [***];
Wind Telecomunicazioni SPA [***]; Deutsche Telekom AG [***]; ENEL Distribuzione SPA [***]; One 2 one
Personal Communications [***]; and Vodafone Group PLC [***]. Exhibits EC-883 (BCI) and EC-163.
3782 E.g., US, Comments to EC, Answer to Panel Question 181.
3783 E.g., EC, Answer to Panel Question 181.

BCI deleted, as indicated [***]

on the value of EIB loan disbursements per corpor ate recipient for its entire lending programme in
any given year, we strongly suspect that considering the loan to EADS within this broader comparison
group between 2000 and 2006, or even 2000 and 2003, would render it even less significant compared
with other "individual" loans granted to corporate recipients in the same years.3784
7.996 Thus, we conclude, on the basis of the foregoing analysis, that the United States has failed to
establish that the 2002 loan to EADS involves "pre dominant use by certain enterprises" of the EIB's
lending programme, within the meaning of Article 2.1(c), and is therefore not specific under the terms
of this provision.
The loans granted to Airbus between 1988 and 1993
7.997 The United States claims that the loans grante d to Airbus between 1988 and 1993 are specific
within the meaning of Article 2.1(c) of the SCM Ag reement because, in its view, the sum-total of the
financial contributions provided thereunder repr esent a disproportionately large amount of subsidies
granted to certain enterprises when measured agains t: (a) the value of all EIB loans granted between
1988 and 1993 and falling within the then-existing "industry, services and agriculture" category used
by the EIB to describe its lending activities; or (b) the value of all of the EIB loans granted between
1988 and 1993 and falling within the EIB's then-existing "international competitiveness and European
integration of large firms" objective, in the light of the highly diversified nature of the EU economy.
In addition, the United States argues that the ch allenged loans involved disproportionately large
amounts of subsidies because it alleges that: (i) Air bus was the largest recipient of EIB "individual"
loans between 1988 and 1993; (ii) among private en terprises, the EIB loans to Airbus from 1988 to
1993 were approximately 44% more than to the next largest recipient; and (iii) the amount of loans
received by Airbus between 1988 and 1993 exceeded EIB lending to any entire industrial sector
during this period, with the exception of chemicals and other transport equipment.3785
7.998 As with the arguments advanced in respect of the 2002 loan to EADS, both parties have
presented their positions on the question whether the challenged EIB loans granted to Airbus between
1988 and 1993 involve the granting of disproportionately large amounts of subsidy by focusing on the
amount of financial contributions. Although the amount of a financial contribution in the form of a
loan is not the amount of the subsidy granted pursuant to that loan, we believe that the amount of
principal transferred under a loan may be a useful i ndicator of the amount of a subsidy, particularly
where, as in the present case, there is evidence showing that the inter est rate terms of loans provided
by the granting authority followed a standard methodol ogy, and the parties in dispute have not argued
there to be, in general, any material diffe rence in the subsidy intensity between loans.
3786 Thus, given
the particular facts that are before us, we believe that the actual amount of principal transferred to the
recipients of subsidized loans granted by the EIB may serve as a reasonable proxy for the "amounts of
subsidy".
7.999 The United States contends that publicly availa ble information shows that the entire sum of
the financial contributions transferred to Ai rbus under the challenged loans amounted to
EUR 1,061 million.
3787 The figure advanced by the European Communities is essentially the same.3788

3784 Historically, the EIB disburses around 84% of the loan amounts agreed under contract. EC,
Answer to Panel Question 181. On this basis, it is possible to identify from Exhibit EC-163 at least 40
"individual" loans "signed" by the EIB between 2000 and 2006 that involved estimated disbursed funding
amounts in excess of [***] – i.e., individual loans with a "signed" value greater than [***].
3785 US, Answer to Panel Question 15, referring to inter alia, Exhibit US-475.
3786 See, para. 7.980 above.
3787 US, FWS, para. 420, Exhibit US-475. The same amount is arrived at by adding the individual loan
values identified in Exhibit US-157 (subtracting the 1997 loan to Aérospatiale for the Super Transporteur,
against which the United States no longer pursues its complaint).

BCI deleted, as indicated [***]

Thus, there is no apparent disagreement between the parties as to the approximate value of all of the
funding amounts received by Airbus under the challenged loans. Moreover, we note that the
European Communities has not disputed the United Stat es' decision to present its claims of specificity
against the challenged loans on an aggregate basis, as opposed to addressing each loan individually, as
it did in respect of the 2002 loan to EADS. Indeed , in its response to the United States' claims, the
European Communities has to varying degrees adopted the same approach.
7.1000 In our view, where a series of loans conferring a benefit upon the same recipient has been
granted under a single long-standing subsidy progra mme, it may be appropriate to examine whether
the provision of such loans involved the granting of disproportionately large amounts of subsidy,
within the meaning of Article 2.1(c), by aggregating the subsidy amounts, particularly where there is a
close temporal connection between each loan. Howeve r, the fact that all such subsidy amounts have
been aggregated must be taken into account in identifying the appropriate duration of the subsidy
programme.
3789 Thus, it is conceivable that a party invo king Article 2.1(c) in WTO dispute settlement
proceedings may want to conduct a disproportion ately analysis by cumulating subsidy amounts
granted in, for example, the first two years of a ten year subsidy programme. In this event, it would
not, in our view, be appropriate to compare the su m total of these subsidy amounts with all subsidies
granted under the programme in only its first or sec ond year of existence. Moreover, in the same
factual circumstance, it may also not make sense to compare the cumulated subsidy amount with
subsidies that include amounts granted in the last two years of the subsidy programme if there has
been a material change in the importance of the subsidized activities in the wider economy.3790 In this
context, we see no contradiction (and certainly , the European Communities has not drawn our
attention to any) between the approach adopted by the United States in presenting its allegations of
specificity against the 2002 loan to EADS and its appro ach to the eleven other loans, the last of which
was granted in 1993.
7.1001 Turning to the substance of the United States' cl aim, we recall once again, that in order to
examine whether the amount of subsidy grante d under a particular subsidy programme is
disproportionately large for the purpose of Article 2.1(c), an appropriate "baseline" or "reference data"
must be chosen. 3791 Moreover, where the subsidy amount at issue is granted pursuant to a subsidy
programme, the "baseline" or "reference data" mu st be derived from that subsidy programme. 3792 In
the case of the challenged loans, the United States id entifies two possible "baselines": (a) the value of
all EIB loans granted between 1988 and 1993 that fall within the then-existing "industry, services and
agriculture" category used by the EI B to describe its lending activities; or (b) the value of all of the
EIB loans granted between 1988 and 1993 that fall within the EIB's then-existing "international
competitiveness and European integration of large firm s" objective. We are not convinced by either
of these options.

3788 The European Communities notes on several occasions that the valu e of the EIB loans (including
the full EUR 700 million credit line opened in favour of EADS in 2002) amounts to approximately 0.3% of the
EIB's total lending from 1957 to 2006, which it discloses was EUR 591.5 billion. Thus, excluding the
EUR 700 million credit line agreed with EADS, the value of the remaining challenged EIB loans the European
Communities considers is at stake is approximately EU R 1,075 million. EC, SWS, para. 478; EC, SNCOS,
para. 195; EC, Comments on US Answer to Panel Question 151.
3789 We recall that in considering whether a subsidy has been granted in disproportinately large
amounts for the purpose of Article 2.1( c), "account shall be taken ... of th e length of time during which the
subsidy programme has been in operation". See, paras. 7.966-7.970 above.
3790 Our observations on the effect that material changes in the importance of subsidized activities in
the wider economy may have on determining whether a subsidy has been granted in disproportionately large
amounts for the purpose of Article 2.1(c) of the SCM Agreement are set out at para. 7.970 above.
3791 See, paras. 7.961-7.970 above.
3792 See, para. 7.967 above.

BCI deleted, as indicated [***]

7.1002 As the United States acknowledges, the "industry, services and agriculture" and "international
competitiveness and European integration of larg e firms" are not separate subsidy programmes
operated by the EIB, but rather merely classificati on descriptions used by the EIB when reporting its
overall lending activities.3793 This is clear from the extracts of the EIB Annual Reports submitted by
the United States in Exhibits US-176 to US-1 81. Using these headings as the focus of a
"disproportionality" analysis would ignore that, at the time of the challenged loans, the scope of the
EIB's lending programme extended beyond the two partic ular headings chosen by the United States.
In particular, the "industry, services and agricu lture" heading was one of two economic sectors; 3794
and the "international competitiveness and European in tegration of large firms" one of five lending
objectives,3795 used by the EIB to describe its operations. As we have already found, it is the EIB's
entire lending programme as mandated under the EC Tr eaty and EIB Statute that must be used as the
starting point for the identification of the corre ct "baseline" to perform a "disproportionality"
analysis.3796
7.1003 The total value of "individual" loans granted by the EIB within the European Communities
between 1988 and 1993 amounted to ECU 62,057 million. 3797 It is unclear from the evidence that is
before us whether this amount represented "signed" or "disbursed" amounts of funding. 3798 I f t h e
former, then bearing in mind that the EIB has hi storically disbursed 84% of its "signed" loan
amounts,3799 the value of "individual" loans actually disbursed between 1988 and 1993 could be
estimated to be ECU 52,142 million. This means that the EUR 1,061 million loan amount received by
Airbus represents approximately 2% of the EIB' s entire "individual" loan disbursements over the
period between 1988 to 1993. However, in our view, given that the subsidy amount at issue relates to
eleven loans granted over a period of six years, and because the EIB operates a lending programme
that is long-standing, it would be reasonable and appropriate to consider the relative importance of the
loans to Airbus over a longer period than the si x years between 1988 and 1993. When doing so, we
note that even with the addition of data from just one additional year, the loan amounts granted to
Airbus would represent a proportion of all EIB "indivi dual" loan disbursements that is smaller than
2%. Considering that the European Communities has a highly diversified economy, we do not believe
that these data support the conclusion that the el even challenged loans to Airbus evidence the
existence of a subsidy that is, in fact, specific within the meaning of Article 2.1(c).
7.1004 Finally, the United States contends that the el even challenged loans to Airbus involved the
granting of disproportionately large amounts of subs idy because: (i) Airbus was the largest recipient
of EIB individual loans between 1988 and 1993; ( ii) among private enterprises, the EIB loans to
Airbus from 1988 to 1993 were appr oximately 44% more than to the next largest recipient; and (iii)
the amount of loans received by Airbus between 1988 and 1993 exceeded EIB lending to any entire
industrial sector during this period, with the exception of chemicals and other transport equipment. In
particular, the United States argues that "these add itional facts show that even looking at the EIB

3793 See, e.g., US, Answer to Panel Question 15.
3794 The other being "energy and infrastructure".
3795 The other four lending objectives were: "regional development"; "Community infrastructure";
"energy"; and "protection of the environment and urban development". We note that the extracts of the Annual
Reports submitted by the United States do not identify "international competitiveness and European integration
of large firms" as an EIB lending objective for the year 1988. See, Exhibit US-176.
3796 See, para. 7.989 above.
3797 Exhibits US-176 to US-181.
3798 The European Communities asserts that the fundi ng amounts identified in Exhibits US-176 to
US-181 represent "signed" amounts of funding within the European Communities. EC, Request for Interim
Review, p. 15.
3799 See, footnote 3784 above.

BCI deleted, as indicated [***]

loans from perspectives other than those suggested in {its first written submission}, {the loans to
Airbus} still were disproportionately large".
3800
7.1005 We have doubts about whether the United States ' factual assertions necessarily imply that the
funding amounts obtained by Airbus between 1988 and 1993 involved the granting of
disproportionately large amounts of subsidy, within the meaning of Article 2.1(c). For instance, we
can see no apparent reason why the simple fact that Airbus may have been the largest private recipient
of funds over this period demonstrates, in the light of the highly diversified nature of the European
Communities' economy and the long-standing duratio n of the EIB lending programme, that the EIB's
subsidies are in fact not sufficiently broadly available throughout an economy to warrant a finding of
specificity. Moreover, we are not entirely convinced that it is appropriate, given that many of the
loans the United States is challenging in this dis pute were to entities that were at least partly
government owned, 3801 to remove all information about loans to publicly owned entities from
consideration in the analysis. Indeed, the Unite d States has not done so in the other analyses of
"disproportionality" it has presented.
7.1006 However, even apart from these doubts, we cannot accept the United States' contention. This
is because it is premised on "baseline" information that is drawn exclusively from the EIB's activities
in the years in which the loans at issue were granted to Airbus. The United States has not explained
why the duration of the "baseline" should be limited to these years, other than to point to the fact that
these were the years in which the Airbus loans were agreed. Moreover, as we have articulated above,
we believe that given the subsidy amount at issue re lates to eleven loans granted over a period of six
years, and in the light of the long-standing nature of the EIB lending programme, it would be
reasonable and appropriate to take into account information from years in which Airbus did not
participate in the EIB's lending programme. Incl uding data on the EIB's lending activities from, for
instance, the four years after 1993 into the analysis ( i.e., using a ten year "baseline" period from 1988
to 1997) would show that FIAT received more in loans from the EIB than Airbus. 3802 It would also
diminish the importance of the loans received by Airbus over this period compared with other
industry sectors.3803
7.1007 Thus, for all of the above reasons and, in the light of the highly diversified nature of the
European Communities' economy and the long-standing duration of the EIB's lending programme, we
find that the United States has not established that the three additional facts it points to (described
above)3804 demonstrate that the loans granted to Air bus between 1988 and 1993 were specific within
the meaning of Article 2.1(c).

3800 US, Answer to Panel Question 15, referring to inter alia, Exhibit US-475.
3801 The European Communities points out that "all of the recipients of the challenged loans (other than
British Aerospace and Airbus Industrie)" were companies "owned by state". EC, SWS, para. 473.
3802 See, Exhibit EC-163, showing that FIAT recei ved loans worth EUR 83 million (1995),
EUR 180 million (1996) and EUR 210 million (1997). In 1998, FIAT obtained an additional loan of
EUR 250 million.
3803 The European Communities argues that had the United States' analysis taken into account the EIB's
lending via "global" loans, it would have discovered that value of the loans to Airbus between 1988 and 1993
was less than the value of the loans granted to not only the "Transport equipment" and "Chemicals" sectors, but
also "Metalworking and mechanical engineering", "Foodstuffs", "Paper and pulp, printing", "Electrical
engineering and electronics" and "Rubber and plastics processing". EC, SWS, para. 476 and Exhibit EC-720.
However, we cannot accept this proposition as it suggests th at the EIB's "global" loans are granted pursuant to
the same decision-making process and on the same essential terms and conditions as "individual" loans, when
the evidence before us suggests otherwise. See, paras. 7.903 and 7.913 above.
3804 See, para. 7.1004 above.

BCI deleted, as indicated [***]

(d) Overall conclusion
7.1008 In summary, we conclude that the United Stat es has failed to establish that each of the 12
challenged EIB loans we have found constitute subsidies 3805 is specific within the meaning of
Articles 2.1(a) and 2.1(c) of the SCM Agreement. Accordingly, we dismiss the United States'
complaint against these measures and will not consider them further in this dispute.
6. Whether the German, French, UK, and Spani sh Governments Have Subsidized Airbus
Through the Provision of Infrastructure and Infrastructure-Related Grants
(a) Introduction
7.1009 In this section of our report, we address the United States' claims concerning infrastructure-
related measures provided by German authorities in Hamburg, Nordenham, and Bremen; by French
authorities in Toulouse; by UK authorities in Broughton, Wales; and by Spanish authorities in
numerous locations in Spain.
3806
7.1010 The United States asserts that the provision by the governments of Germany, France, the UK,
and Spain of infrastructure and infrastructure–relate d grants constitutes specific subsidies within the
meaning of Articles 1.1 and 2 of the SCM Agreement. The United States specifically refers to the
provision of the Mühlenberger Loch industrial site near Hamburg, 3807 certain grants towards the costs
of constructing the A380 assembly line in Hamburg, 3808 the provision of the lengthened runway at
Bremen airport, 3809 the provision of the ZAC Aéroconstellation site, 3810 access roads to the ZAC
Aéroconstellation site and a linking road between the Aéroconstellation site and the "Itinéraire à grand
gabarit" (IGG), 3811 a grant by the German Land of Lowe r Saxony for the expansion of Airbus'
Nordenham facility;3812 a grant by the Welsh government for Airbus' Broughton, Wales site; 3813 and
grants by Spanish local and regional governments fo r the expansion and modern ization of Airbus and
EADS plants in Puerto de Santa Maria, Illescas, Puerto Real, Sevilla and La Rinconada.3814
7.1011 The United States argues that each of these measu res involves a financial contribution within
the meaning of Article 1.1(a)(1)(i) or (iii) of th e SCM Agreement, each of which confers a benefit on
Airbus within the meaning of Article 1.1(b) of the SCM Agreement. The United States argues that
the Mühlenberger Loch, Bremen airport, a nd ZAC Aéroconstellation and access roads are the
provision of goods and services other than "general infrastructure", and the remaining measures are
outright grants, and thus there is a financial contribution by a government in each case. The United
States further asserts that each subsidy asserted is specif ic, either in law or in fact, or both, to Airbus.
In asserting that they confer a benefit, the United States argues that the governments provided the
infrastructure in question on better than commercial terms, based on comparison with asserted market
benchmarks, or that the measures were grants, and thus conferred a benefit.

3805 See, para. 7.885 above.
3806 US, FWS, para. 421.
3807 US, FWS, para. 423.
3808 US, FWS, para. 446. The United States did not pursue its claim in this regard, US, Answer to
Panel question 24, para. 167. We therefore do not address this claim further, and make no findings with respect
to it.
3809 US, FWS, paras. 450-51.
3810 US, FWS, para. 456.
3811 US, FWS, para. 456.
3812 US, FWS, para. 488.
3813 US, FWS, para. 490.
3814 US, FWS, para. 486.

BCI deleted, as indicated [***]

7.1012 The European Communities argues that the Mühl enberger Loch, Bremen runway extension,
and the ZAC Aéroconstellation site and access roads constitute "general infrastructure" within the
meaning of Article 1.1(a)(1)(iii), and thus there is no financial contribution, such that these measure
are not subsidies and are not properly before the Panel.
3815 In addition, the European Communities
argues that assuming these measures did involve a fina ncial contribution, they did not confer a benefit
on the recipients.3816 The European Communities does not make any arguments regarding specificity
in connection with these measures.
7.1013 With respect to the measures that are outri ght grants, the European Communities does not
dispute that each involves a financial contribution and confers a benefit on the respective recipient,
but generally argues that they are not specific. 3817 The European Communities asserts that certain of
them are not specific because they are generally available to enterprises in the particular region, 3818
and certain of them are not specific because the re levant governing legislation establishes objective
criteria governing the eligibility for, and the amount of, the grants in question. 3819 In addition, the
European Communities argues with respect to certa in of these measures that the recipient was not
Airbus or that the grant in question was not provided in connection with LCA.3820
7.1014 We begin our analysis of the United States' claims by addressing a question which is common
to our analysis of the Mühlenberger Loch, Brem en airport, and ZAC Aéroconstellation measures:
when does the provision of goods or services in the fo rm of infrastructure constitute the provision of
infrastructure which is " other than general" within the meaning of Artic le 1.1(a)(1)(iii) (emphasis
added), such that there is a financial contribution by a government. It is not disputed that these
measures were provided by a "government" within th e meaning of Article 1.1(a)(1). Therefore,
should we conclude that these measures involve fi nancial contributions, we shall then go on to
determine whether each measure confers a benefit on Ai rbus and, to the extent disputed, is specific.
Finally, we will address the questions of whether the challenged grant measures provided by regional
authorities are subsidies and were received by Airbus, and are specific within the meaning of
Article 2. With respect to these latter measures, th ere is no dispute as to the existence of a financial
contribution by a government, or as to benefit.
(b) When does the provision of goods or services in the form of infrastructure constitute the
provision of infrastructure which is "other than general infrastructure" within the meaning of
Article 1.(1)(a)(1)(iii)?
(i) Arguments of the Parties
7.1015 The United States asserts that the infrastruct ure-related measures in question constitute
financial contributions within the meaning of Ar ticle 1.1(a)(1)(iii) in that these measures provide
infrastructure which is "other than general". The United States asserts that the ordinary meaning of
the term "general infrastructure", in context and in light of the object and purpose of the
SCM Agreement, leads to an interpretation that "g eneral" infrastructure is infrastructure that is
accessible to all or nearly all users on a universal, non-discriminatory basis, where there are no de jure
or de facto limitations on use. 3821 The United States argues that in order to be excluded from
Article 1.1(a)(1)(iii) of the SCM Agreement as "gen eral" infrastructure, infrastructure must include,
involve, or affect all or nearly all the parts of a whole territory or community; or must be completely

3815 EC, FWS, paras. 750, 875, 908, and 940.
3816 EC, FWS, paras. 751, 876 and 909. The European Communities also argues that the provisions of
roads is not specific. EC, FWS, para. 945.
3817 EC, FWS, paras. 709, 948.
3818 EC, FWS, paras. 892, 962, 967 and 980.
3819 EC, FWS, paras. 898, 963, 969 and 971.
3820 EC, FWS, paras. 975-997.
3821 US, FNCOS, para 79.

BCI deleted, as indicated [***]

or nearly universal, as opposed to partial, particular, or local. Conversely, the United States contends,
infrastructure that includes, involves, or affects only a certain enterprise or group of enterprises, or
that is open only to a limited number of enterprises or group of enterprises ("specifically limited in
application") does not constitute "general" infrastructure. 3822 The United States goes on to argue that
the provision of goods is "general infrastructure" "if it is available to all members of the public on the
same terms and conditions". 3823 In this context, the United States contends that the mere fact that a
government creates infrastructure for reasons of "pub lic policy" or to "foster economic development"
or to perform a public task does not make it "general ". Thus, for the United States, universal use is
the determinative factor of whether certain infrastru cture can be regarded as "general infrastructure"
for the purpose of Article 1.1(a)(1)(iii) of the SCM Agreement.3824
7.1016 The European Communities does not disagree wi th the view of the United States that
universal use is an important factor when determin ing whether certain infrastructure can be regarded
as "general infrastructure" for the purpose of Article 1.1(a)(1)(iii) of the SCM Agreement. However,
the European Communities does not accept that this element is the only, or the determinative,
factor.3825 According to the European Communities, th e term "general" given its ordinary meaning,
in context and in light of its object and purpose, means the opposite of "specific", and the term
"infrastructure" means basic goods and services in a society which underpin its economic
performance.
3826 Read together, in the European Comm unities' view, this means that "general"
infrastructure is infrastructure provided for the benefit of the public at large, where the relevant good
or service is accessible by the public at large, or where it "enables" members of the public at large,
thereby fulfilling a public policy objective. 3827 Thus, the European Communities concludes that
infrastructure is general because it "benefits so ciety as a whole and reflects legitimate economic
development policies".3828 In support of its view that the challenged measures constitute the provision
of "general infrastructure", the European Comm unities argues that these measures are (i) government
actions, related to basic installations, facilities a nd services needed to support economic development;
(ii) further public policy objectives and (iii) ar e designated for public use by because they are
publicly accessible, because they "enable" members of the public at large, or because they provide
common goods to the public. 3829
7.1017 The European Communities considers that the reason general infrastructure measures are
carved out from the SCM Agreement is because the negotiators were concerned that the
SCM Agreement not interfere with legitimate gove rnment choices to pursue public policies for the
benefit of the population as a whole. 3830 The European Communities a sserts that the provision of
general infrastructure is a public function of gove rnments, being one of the important tools for
fostering of economic, social and cultural development. 3831 Therefore, the European Communities
argues that the negotiators of the SCM Agreement accorded themselves a large margin of appreciation
for what they consider to constitute "general infrastructure".3832

3822 US, Answer to Panel Question 20, para. 137.
3823 US, SWS, para 310.
3824 US, SWS, para. 304.
3825 EC, Answer to Panel Question 90, paras. 221-222.
3826 EC, FWS, paras. 714-715.
3827 EC, FWS, para. 716; see also, Id., para. 719 (referring to goals of "raising standards of living" and
"ensuring full employment," as expressed in preamble to the WTO Agreement, as object and purpose relevant to
interpretation of the term "general infrastructure").
3828 EC, FWS, para. 909.
3830 EC, FWS, para. 711.
3831 EC, FWS, para. 711.
3832 EC, FWS, para. 712.

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7.1018 According to the European Communities, th e negotiating history of the SCM Agreement
confirms its interpretation.
3833 The European Communities asserts that many interventions were made
in the framework of discussions about the list of non-actionable subsidies (what later became Article 8
of the SCM Agreement), but that the draft text of the Chairman of 2 November 1990 put the "general
infrastructure" exception into the definition of the subsidy (what is today Article 1.1(a)(1)(iii) of the
SCM Agreement).3834 The European Communities considers that this attests to a recognition of the
fact that measures of general infrastructure could foster a broad range of public policy objectives and
should therefore be excluded from the scope of the SCM Agreement.
3835
7.1019 The European Communities does acknowledge the re levance to the determination whether it
is "general" infrastructure of "clearly specifi ed" limitations on use of, or access "restricted by
regulation" to, the infrastructure provided. 3836 However, the European Communities argues that
merely because the public does not actually use the in frastructure provided, or because use is in fact
limited, does not suffice to disqualify the infrast ructure in question as "general" infrastructure. 3837
Rather, the European Communities considers that tw o steps must be distinguished: first, governments
may build general infrastructure, and second, governments may limit the use of that general
infrastructure to certain companies. 3838 In the European Communities' view, the second step makes
the infrastructure non-general, but does not invalidate the fact that the first step constitutes provision
of general infrastructure. The European Commun ities argues that the second step must be evaluated

3833 EC, FWS, para. 721. The European Communities first refers to the Note by the Secretariat, listing
issues for Negotiators in which the Secretariat had advi sed negotiators to make a "clear distinction between
trade distorting subsidies and subsidies which are designed to enhance efficiency, facilitate the development of
infrastructure for industrialization or facilitate structural adjustment". (Note by the Secretariat, Checklist of
Issues for Negotiators, 22 October 1987, MTN.GNG/NG10/W/9, Rev. 2, p. 10.) The European Communities
also refers to the Statement made by the delegation of Canada at the meeting held on 28-29 June 1988,
MTN.GNG/NG10/W/22, 7 July 1988, p. 2., which stated that certain subs idy practices should be accepted,
specifically mentioning subsidies for infrastructure, re search and development and regional development. In
addition, the European Comm unities recalls that at that time, the European Communities felt that measures
concerning "for instance, education, culture, health, soci al welfare and general infras tructure" are normally not
subsidies, because they merely contribute to setti ng the terms and conditions of a country's economic and
business environment, but do not alter the competitive position of firms. (Submission by the European
Communities, 27 November 1989, MTN.GNG/NG10/W31, p. 6.). The European Communities further notes
that Korea emphasized that subsidies should be non-actionable which supply "social overhead capital" such as
harbour facilities, electric power, or transportation systems. Measures for establishing such social infrastructure
should not be regarded as subsidies to be disciplined. (Submission by the Republic of Korea, 18 January 1990,
MTN.GNG/NG10/W34, p. 4.). The European Communities highlights the understanding of several Members
that general infrastructure is characterized by its de signation for public use. To this end, the European
Communities refers to the submission by the United States in which it sought to list certain practices as non-
actionable, among them "basic in frastructure where there are no de jure or de facto limitations on use".
(Submission by the United States, Elements of the Framework for negotiations, 22 November 1989,
MTN.GNG/NG10/W/29, p. 6.) Similarly, it refers to the submissions by Canada and India who wished to
exclude basic infrastructure "for general public use" from the scope of actionable subsidies. (Submission by
Canada, 27 June 1989, MTN.GNG/NG10/W/25, p.7; Submission by India, 30 November 1989,
MTN.GNG/NG10/W/33, p. 2.).
3834 EC, FWS, para. 723, citing, Draft Text by the Chairman, 2 November 1990,
MTN/GNG/NG10/W/38/Rev. 2, p.1.
3835 In this connection, the European Communities contrasts interventions by the Members relating to
general infrastructure made in the context of the discussions about the list of non-actionable subsidies (what
later became Article 8 of the SCM Agr eement), with the draft text of the Chairman of 2 November 1990, which
put the "general infrastructure" exception into the definition of the subsidy (what today is Article 1.1(a)(1)(iii) of
the SCM Agreement). EC, FWS, para. 723, referring to the Draft Text by the Ch airman, 2 November 1990,
MTN/GNG/NG10/W/38/Rev. 2, p.1.
3836 EC, SWS, paras. 333 and 339.
3837 EC, SWS, para. 333.
3838 EC, SWS, para. 340.

BCI deleted, as indicated [***]

on its own, because the existence of limitations on use or access to the infrastructure provided does
not effect the general character of the infrastruct ure, but only the question of whether there is any
benefit to the recipient in a limited or exclusive right of use or access.3839
7.1020 The United States contends that the public-p olicy-focused approach suggested by the
European Communities' argument does not comport with the ordinary meaning of the term "general
infrastructure", read in context and in light of the object and purpose of the SCM Agreement. 3840 In
the United States' view, the European Commun ities' position would create an extremely broad
exception, undercutting the basic rule that a subsid y may consist of government-provided goods or
services that confer a benefit. 3841 The United States maintains that if any grant of infrastructure were
deemed to be general infrastructure, so long as it was "fulfilling a public policy objective", then
virtually every grant of infrastructure would be excluded from the SCM Agreement's definition of
"subsidy."3842 According to the United States, th e phrase "general infrastructure" in
Article 1.1(a)(1)(iii) cannot be interpreted to in clude any infrastructure "fulfilling a public policy
objective" because that would render redundant the word "general".3843
(ii) Arguments of Third Parties
Australia
7.1021 Australia notes that Article 1.1(a)(1)(iii) of the SCM Agreement carves out "general
infrastructure" from the definition of a "financial contribution". For Australia "general infrastructure"
in this context means the provision, by government , of goods and services that are generally available
or multi-user. Notwithstanding the carve-out of "general infrastructure" from sub-paragraph (iii),
Australia considers that the Panel should exam ine whether a benefit has been conferred by
government. Australia notes that Article 14(d) of the SCM Agreement provides the standard for
determining whether the provision of goods or ser vices confers a benefit, and asserts that if the
provision of infrastructure relieves an enterprise of a cost it would otherwise have to pay, then it
should be considered that a subsidy exists. Th e facts and circumstances surrounding the provision of
"general infrastructure" need to be examined to determine whether the provision of infrastructure
confers a benefit to an enterprise. Australia offers the following example by way of illustration: in
establishing an industrial park, a government may provide general infrastructure to the site. However,
it is necessary to assess whether there will be more th an one enterprise located on the site. If there
will only be a single enterprise then, in Australia's view, the industrial park cannot be deemed to be
general infrastructure. In addition, Australia does not consider that the mere fact that a government
creates infrastructure for public policy reasons in order to "enable members of the public at large" 3844
(e.g., combating unemployment, fostering econom ic development, raising living standards)
necessarily makes it "general infrastructure".3845
7.1022 In response to questions from the Panel, Australia asserted that it is not possible to
exhaustively list factors that are relevant to the de termination as to whether infrastructure is "general"
for purposes of Article 1.1(a)(1)(iii), but consider ed that one relevant factor is whether the
infrastructure is for exclusive or dominant use by a particular enterprise or enterprises, and that the
question must be addressed on a case-by-case basis, taking into account all the relevant facts and
circumstances. Australia further commented that while the Article 2 specificity test is separate and

3839 EC, SWS, para 340.
3840 US, SWS, para. 306.
3841 US, SWS, para 307.
3842 US, SWS, para 307.
3843 US, SWS, para 308.
3844 Australia, Third Party Submission, para. 54, referring to EC, FWS, paras. 716 and 724.
3845 Australia, Third Party Submission, paras. 53-54.

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distinct, the concept of specificity may be releva nt in determining whether infrastructure is of a
general nature.
3846 Australia noted that, in assessing whether limiting the provision of goods or
service only to certain persons or entities might still constitute "general infrastructure", one relevant
consideration may be the nature of the infrastru cture provided, e.g., whether the infrastructure
provided allows for its use by a number of entities. In Australia's view, any such limitation would
tend to militate against a determination of "general infrastructure" . Australia also suggested that the
provision of infrastructure, and the terms and conditi ons attached to use of infrastructure are separate
questions, e.g., in the establishment of an i ndustrial park involving the provision of goods and
services, the nature of the infrastructure provided may be a separate consideration by government
from the terms and conditions by which entities make use of the industrial park.3847
Brazil
7.1023 Brazil considers that, to give full effect to the text of the SCM Agreement, if the Panel finds
that a government provides a financial contribution under Article 1.1(a)(1)(iii) of the SCM Agreement
in the form of non-general infrastructure and determ ines that such contribution confers a benefit, it
must also determine whether such subsidy is sp ecific under Article 2 of the SCM Agreement. In
Brazil's view, the Panel should not interpret the re levant provisions to preclude the possibility that
there may be infrastructure that is not "general" w ithin the meaning of Article 1.1(a)(1)(iii) of the
SCM Agreement and that is also not specific within the meaning of Article 2 of the SCM Agreement.
Such infrastructure may not be "general" becau se access is limited to certain entities based on de jure
or de facto conditions, such as, for example, requirements in relation to the licensing and qualification
of users, quotas on total use, or restrictions intended to protect public health and safety or the
environment. However, Brazil considers that a finding that the provision of this non-general
infrastructure constitutes a subsidy does not necessarily mean that the subsidy is specific within the
meaning of Article 2 of the SCM Agreement. In Brazil's view, the Panel must conduct an objective
assessment of the facts to determine whethe r the provision of this infrastructure is de jure or de facto
specific.
3848
7.1024 In Brazil's view, infrastructure to which access is de jure or de facto limited to certain persons
or entities would normally not constitute "gener al infrastructure" within the meaning of
Article 1.1(a)(1)(iii) of the SCM Agreement. The fact that particular infrastructure is used
predominantly or disproportionately by certain us ers (and other users do not face any restrictions on
access) would normally not preclude a finding that the infrastructure is "general" within the meaning
of Article 1.1(a)(1)(iii) of the SCM Agreement. Brazil considered that th e Panel should make its
determination regarding whether limitations on access indeed exist, however, on a case-by-case
basis.
3849
Canada
7.1025 Canada agrees with the European Communities that the term "infrastructure" denotes "basic
goods and services in a society that underpin its economic performance". 3850 Canada notes that the
word "general" has a number of ordinary meanings, the most relevant of which, in its view, is " not
specifically limited in application ; relating to a whole class of objects, cases, occasions, etc ".3851
(emphasis added). Canada considers that, for so mething to be transformed from "general" to non-

3846 Australia, Answer to Panel Third Party Question 8.
3847 Australia, Answer to Panel Third Party Question 9.
3848 Brazil, Answer to Panel Third Party Question 8, paras. 13-14.
3849 Brazil, Answer to Panel Third Party Question 9, para. 15.
3851 Canada, Third Party Submission, para. 32, citing, Shorter Oxford English Dictionary , 5th ed.
(Oxford: Oxford University Press, 2002), pp. 1081-82, Exhibit CDA-1.

BCI deleted, as indicated [***]

general or restricted application, the limitation mu st be clearly specified. Canada considers this
understanding of "general" is confirmed by the ne gotiating history of the SCM Agreement. Canada
thus considers that, that where a government provi des infrastructure and does not specifically limit its
availability to the public, there is no financial c ontribution for the purposes of the SCM Agreement.
Moreover, Canada argues that context supports a broad interpretation which presumes that
government-provided infrastructure is general unless a gove rnment specifically limits its use so that it
is not available to the general public. In this rega rd, Canada notes that, by virtue of its position in
Article 1 of the SCM Agreement, this is the only exclusion in that Agreement where the legal analysis
regarding the SCM Agreement's application to a go vernment measure can be completed without any
consideration of whether the measure confers a benef it. Second, Canada considers that the fact that
general infrastructure is excluded indicates that th e drafters' primary purpose was to ensure that
exclusion, rather than ensuring that certain infrast ructure was included. Fina lly, Canada asserts that
the object and purpose of the broader provision supports a presumption that government-provided
infrastructure is general unless its availability is specifically limited.
3852
7.1026 Canada argues that because "subsidy" and "speci ficity" determinations constitute discrete and
sequential findings under the SCM Ag reement, it follows that a findi ng under Article 1.1(a)(1)(iii)
that government-provided infrastructure is not general, cannot be equa ted with a finding under
Article 2.1 of the Agreement that a resulting subsid y is specific, as this would introduce an element of
redundancy to the analysis. Therefore, Canada considers that the test for de facto specificity in
Article 2.1(c) of the SCM Agreement is not the releva nt test in an analysis under Article 1.1(a)(1)(iii),
as the application of the de facto specificity test to government-provided infrastructure available to the
public would give rise to systemic inequities, disadvantaging Members whose lack of national or
regional economic diversification r esults in predominant use of government-provided infrastructure
by certain enterprises.
3853
7.1027 Canada also argues that improvements to genera l infrastructure that benefit a limited number
of users do not change the status of that infrastruct ure so long as it remains generally available to the
public. Canada asserts that the public reasonably expects that a government will maintain general
infrastructure in the public interest, and that impr ovements to general infrastructure that initially
benefit a single or limited number of users fre quently end up benefiting new economic actors and
activities that may not have been fo reseen when the improvements were made. On this basis, Canada
asserts that the United States has identified no limit ations on the use by the general public of roads
related to the Aéroconstellation i ndustrial site as a result of the improvements, suggesting that these
are therefore not "the provision of goods or servi ces other than general infrastructure" within the
meaning of Article 1.1(a)(1)(iii). 3854 Canada notes that different considerations are raised by the
Bremen runway extension, as specific restricti ons on the use of a distinguishable element of
infrastructure to certain enterprises could, in appropr iate circumstances, justify separate consideration
of that element, whether or not it is attached or otherwise connected to general infrastructure. 3855 In
contrast, Canada considers that temporary limitations on the use of infrastructure to certain users do
not necessarily deprive that infrastructure of its genera l nature if there is a reasonable expectation that
general use will resume in the foreseeable future (e.g ., an exclusive use agreement for a period before
public use is practicable or covering a particular season when public use is not practicable). A
temporary right of exclusive use may, however, requi re independent consideration to determine if that
conferral of an exclusive right itself constitutes provision of a good (or service).3856

3853 Canada, Third Party Submission, paras. 33-34.

BCI deleted, as indicated [***]

7.1028 On the basis of this analysis, Canada proposes that government-provided infrastructure should
be presumed to be general infrastructure unless th e evidence demonstrates that a government has
limited its use exclusively to certain users; that Government-provided infrastructure that a government
has reserved for exclusive use by certain users is not "general" for the purpose of Article 1.1(a)(1)(iii)
of the SCM Agreement; that the fact that certain enterprises are significant or predominant users of
government-provided infrastructure does not establish th at such infrastructure is not "general" for the
purposes of Article 1.1(a)(1)(iii) of the SCM Agre ement; and that government-provided infrastructure
which is limited to certain enterprises may s till qualify as "general" for the purpose of
Article 1.1(a)(1)(iii) if the limitations on its use are temporary and where general use is likely to
resume in the foreseeable future.
3857
7.1029 In response to a question from the Panel, Canada emphasized that the fo cus of the inquiry in
Article 1.1(a)(1)(iii) is on what a government actuall y "provides" to a recipient. In cases where a
government has provided something less than comple te and exclusive rights to a given item of
infrastructure, the focus of the determination whether the government has provided a financial
contribution to a recipient should not be on the totality of the infrastructure, but on the part of it that is
actually being provided by the government to the r ecipient. In the case of the Mühlenberger Loch
facility, for example, Canada considers that the l ease agreements establish what has been provided to
Airbus and therefore provide an appropriate basis for determining whether Airbus has received terms
consistent with those it would have received fro m comparable commercial leases in the prevailing
market.3858
Japan
7.1030 Japan considers that Article 1 of the SCM Agreement does not indicate a presumption that
"infrastructure" is "general" unless it is specifica lly provided for limited persons or its use is
specifically limited to such persons. Japan believes that being "specific" as an antonym of being
"general" could help inform the determination of whether infrastructure is "general" for the purpose of
Article 1.1(a)(1)(iii), in light of the ordinary meani ng of the term "general". Japan further notes that
the notion of being "specific" do es not necessarily exclude the concept of "specificity" prescribed
under Article 2 of the SCM Agreement.3859
(iii) Evaluation by the Panel
7.1031 We begin our analysis with the text of the treaty. We recall that Article 3.2 of the DSU
provides that Members recognise that the dispute settle ment system serves to clarify the provisions of
the covered agreements "in accordance with customar y rules of interpretation of public international
law". Article 31.1 of the Vienna Convention on the Law of Treaties ('Vienna Convention'), 3860 which
is generally accepted as such a customary rule, provides:
"A treaty shall be interpreted in good faith in accordance with the ordinary meaning
to be given to the terms of the treaty in th eir context and in the light of its object and
purpose."
7.1032 We further recall that, pursuant to Article 32 of the Vienna Convention, if interpretation of the
text of a provision in accordance with Article 31 of the Vienna Convention leaves the meaning of that
provision "ambiguous or obscure" or "leads to a resu lt which is manifestly absurd or unreasonable",

3858 Canada, Answer to Panel Third Party Question 9, para. 9.
3859 Japan, Answer to Panel Third Party Question 8.
3860 (1969) 8 International Legal Materials 679.

BCI deleted, as indicated [***]

recourse may be had to the supplementary means of treaty interpretation within the meaning of
Article 32 of the Vienna Convention. 3861
7.1033 Article 1 of the SCM Agreement provides, in pertinent part:
"1.1 For the purpose of this Agreement, a subsidy shall be deemed to exist if:
(a)(1) there is a financial contribution by a government or any public body within
the territory of a Member (referred to in this Agreement as "government"), i.e.,
where: ...
(iii) a government provides goods or services other than general
infrastructure, or purchases goods; ...
and
(b) a benefit is thereby conferred."
7.1034 In this case, it is not disputed that the a lleged financial contribu tions in question were
provided by a "government" within the meaning of Article 1.1(a)(1). In addition, the European
Communities does not dispute that the measures in question constitute the "provision" of "goods and
services", in the form of "infrastructure", within the meaning of Article 1.1(a)(1)(iii). The
disagreement between the parti es centers on the meaning of " general infrastructure" in the context of
Article 1.1(a)(1)(iii), and in particular on the f actors or circumstances that distinguish between
infrastructure which is "general" and infrastructure which is "other than general". In order to establish
a framework for our analysis of the facts in this di spute, we must therefore first consider the meaning
of the term "general infrastructure".
7.1035 The meaning of the term "general infrastructure" has not been considered in any detail in any
WTO dispute. In US – Softwood Lumber IV , the Appellate Body emphasized that it is not the
provision of "infrastructure" per se that is carved out of the scope of a financial contribution under
Article 1(a)(1)(iii), but the provision of "general infra structure" -- that is, infrastructure of a "general"
nature:
"In Article 1.1(a)(1)(iii), the only explicit exception to the general principle that the
provision of "goods" by a government will r esult in a financial contribution is when
those goods are provided in the form of "gen eral infrastructure". In the context of
Article 1.1(a)(1)(iii), all goods that might be used by an enterprise to its benefit—
including even goods that might be considered infrastructure—are to be considered
"goods" within the meaning of the provision, unless they are infrastructure of a
general nature."
3862 (emphasis original)
However, this statement does not directly address th e central question at issue here, which is how to
determine whether the particular provisions of infrastructure by governments in this case are the
provision of infrastructure that is "other than gene ral infrastructure", and thus whether there has been
a financial contribution by a government.

7.1036 Dictionaries define the term "infrastructure" as, inter alia, "installations and services (power
stations, sewers, roads, housing, etc.) rega rded as the economic foundation of a country," 3863 the

3861 Vienna Convention, Article 32(a) and (b).
3862 Appellate Body Report, US – Softwood Lumber IV, para. 60.
3863 New Shorter Oxford English Dictionary, (1993).

BCI deleted, as indicated [***]

"underlying foundation or basic framework (as of a system or organization),"
3864 and the "system of
public works of a country, state, or region." 3865 The term "general" is defined as "including,
involving, or affecting all or nearly all the parts of a (specified or implied) whole as a territory,
community, organization, etc.; completely or near ly universal; not partial, particular, local, or
sectional"
3866 and "involving, applicable to, or affecting the whole; involving, relating to, or applicable
to every member of a class, kind, or group". 3867 We consider that the term " general infrastructure",
taken in its ordinary and natural m eaning, refers to infrastructure that is not provided to or for the
advantage of only a single entity or limited group of entiti es, but rather is available to all or nearly all
entities. In our view, this interpretation is consiste nt with the ordinary meaning of the term "general"
when used to modify the word "infrastructure." However, we consider that it is difficult if not
impossible to define the concept of "general infrastructure" in the abstract.3868
7.1037 For us, the existence of limitations on access to or use of infrastructure, whether de jure or de
facto, is highly relevant in determining whether that infrastructure is "general infrastructure".
However, we are not persuaded by the United States' argument that the existence of de jure or de facto
limitations on access or use is the only legally relevant consideration, and one that will always be
determinative. We find no support for such a test in the words of Article 1.1(a)(1)(iii), and we see no
reason why other considerations concerning the prov ision of the infrastructure in question should be
categorically excluded from the analysis. In ou r view, such additional factors could include, inter
alia, the circumstances under which the infrastructure in question was created and the nature and type
of infrastructure in question.
7.1038 We do not, however, consider all of the a dditional factors relied upon by the European
Communities in this case to be relevant. The European Communities proposes three factors as
relevant to determining whether infrastructure is "general":
 "(i) the substance of government action related to basic installations, facilities and
services needed to support social as well as economic development; (ii) their public
policy objective and (iii) their designation fo r public use be either being publicly

3864 Merriam-Webster Dictionary online.
3865 Merriam-Webster Dictionary online.
3866 New Shorter Oxford English Dictionary, (1993).
3867 Merriam-Webster Dictionary online.
3868 Other disputes involving questions of interpre tation of Article 1.1(a)(1) of the SCM Agreement
have similarly not resulted in precise or absolute defin itions of terms, in the abstract. Thus, the Panel in US –
FSC, para. 6.7, addressing the definition of "otherwise due" in Article 1.1(a)(1)(ii) noted that "the application of
the concept of "otherwise due" in other disputes would require panels to apply their best judgement on a case-
by-case basis" and at paragraph 7.93 observed "In the fore going sections, we have concluded that whether
revenue foregone is "otherwise due" is to be determined on the basis of an examinati on of the fiscal treatment
that would be applicable "but for" the measures in question. Of course, as in other areas under the WTO
Agreement, the application of this te st requires panels to apply their best judgement on a case-by-case basis."
Panel Report, United States – Tax Treatment for "Foreign Sales Corporations" ("US – FSC "), WT/DS108/R,
adopted 20 March 2000, as modified by Appellate Body Report WT/DS108/AB/R, DSR 2000:IV, 1675 (emphasis
added). Similarly, in US – DRAMS, para. 116, the Appellate Body acknowledged the difficulty in formulating
precise, abstract definition of "entrusts or directs" in the context of Article 1.1(a)(1)(iv)("It may be difficult to
identify precisely, in the abstract, the types of government actions that constitute entrustment or direction and
those that do not. The particular label used to descri be the governmental action is not necessarily dispositive.
Indeed, as Korea acknowledges, in some circumstances, "guidance" by a government can constitute direction.
In most cases, one would expect entrustment or direction of a private body to involve some form of threat or
inducement, which could, in turn, serve as evidence of entrustment or direction. The determination of
entrustment or direction will hinge on the particular facts of the case. " (emphasis added, footnote omitted)
Appellate Body Report, United States – Countervailing Duty Investigation on Dynamic Random Access Memory
Semiconductors (DRAMS) from Korea ("US – Countervailing Duty Investigation on DRAMS "),
WT/DS296/AB/R, adopted 20 July 2005, DSR 2005:XVI, 8131

BCI deleted, as indicated [***]

accessible, by enabling access by members of the public at large, or by providing
common goods to the public."3869
In our view, the first two factors proposed by the European Communities do not provide useful
guidance in distinguishing general infrastructure from infrastructure which is not general, and
certainly cannot be determinative. The provision of any infrastructure by a government will generally
relate to installations, facilities and services needed to support social or economic development of the
polity, and will have some public policy objective. Indeed, it would be expected that governments do
not, as a rule, undertake to grant specific subsidies, whether in the form of providing infrastructure or
otherwise, without such objectives. Thus, to base the exclusion of "general" infrastructure from the
scope of the SCM Agreement disciplines on these cons iderations would result in an exception that
swallows the principle to which it pertains : that the provision of goods or services other than general
infrastructure constitutes a financial contribution by a government. We also agree with the United
States, and consider that the phrase "general infr astructure" in Article 1.1(a)(1)(iii) cannot be
interpreted to include all infrastructure "fulf illing a public policy objective", because that would
render redundant the word "general."

7.1039 Thus, we do not consider that there is any form or type of infrastructure which is inherently
"general" per se. For instance, in our view, such things as railroads or electrical distribution systems
do not necessarily constitute "general infrastructure".
3870 Rather, the determination whether the
provision of the good or service in question is "general infrastructure" or not must be made on a case-
by-case basis, taking into account the existence or absence of de jure or de facto limitations on access
or use, and any other factors that tend to demonstr ate that the infrastructure was or was not provided
to or for the use of only a single entity or a limited group of entities. Such factors may relate to the
circumstances surrounding the creation of the infrastru cture in question, consideration of the type of
infrastructure, the conditions and circumstances of the provision of the infrastructure, the recipients or
beneficiaries of the infrastructure, and the legal regi me applicable to such infrastructure, including the
terms and conditions of access to and/or limitations on use of the infrastructure. If an evaluation of
relevant facts concerning such factors demonstrates that the infrastructure was provided to a single
entity or a limited group of entities, then we be lieve it cannot properly be considered "general"
infrastructure, and consequently falls within the scope of Article 1.1(a)(1) of the SCM Agreement,
necessitating further analysis to determine whether a subsidy exists.
7.1040 We recognize that our interpretation may involve consideration of facts that may be relevant
to a determination of specificity under Article 2. However, we note that the question being addressed
for purposes of Article 1.1(a)(1)(iii) is not whethe r the government is limiting access to a subsidy to
certain enterprises, but whether it is providing a good or service in the form of general infrastructure
or not, and thus whether or not there is a financia l contribution by a government, such that a subsidy
may exist. In our view, the fact that similar c onsiderations are relevant to the separate inquiry
required under Article 2 does not preclude their re levance to the question of determining whether
infrastructure is "general".
7.1041 Our conclusion that the determination whether the provision of the good or service in
question is "general infrastructure" or not must be made on a case-by-case basis, based on all the facts
and circumstances concerning relevant factors, flows from the ordinary meaning of the terms of
Article 1.1(a)(1)(iii), and is supporte d by consideration of their immediate context. As the Appellate
Body has observed, Article 1.1(a)(1)(iii) concerns the provision of goods by a government that might

3869 EC, Answer to Panel Questions 186 and 221, paras. 148 and 555, respectively
3870 Take as an extreme example a 2 kilometer stretch of railway from a mine to a mineral processing
plant, used for transporting raw ore for processing, on land owned by the mining company. It seems clear to us
that the provision by a government of such a railway cannot properly be considered "general infrastructure"
simply because it is a railway.

BCI deleted, as indicated [***]

be used by an enterprise to its benefit. In addition, this interpretation is consistent with Articles 1.1(b)
and 2, insofar as it does not blur distinct legal elements of "financial contribution", "benefit", or
"specificity".
3871 Moreover, Articles 1.1(a)(1)(i) and ( ii) of the SCM Agreement each illustrate
specific instances of financial contributions by exam ples. Thus, Article 1.1(a)(1)(i) illustrates the
concept of a "direct transfer of funds" by referring to " e.g., grants, loans, and equity infusion", and
illustrates the concept of a "potential direct transfer of funds or liabilities" by referring to " e.g., loan
guarantees". Article 1.1(a)(1)(ii) illustrates the con cept of a "government reve nue that is otherwise
due ... foregone or not collected" by referring to " e.g., fiscal incentives such as tax credits". The
absence of any examples of "general infrastructur e" suggests to us that the negotiators of the
SCM Agreement did not consider that the concep t could be illustrated with concrete examples,
otherwise they would have done so, as they did with the other concepts in the preceding two
provisions. Moreover, the practical impossibility, in our view, of classifying every type of
infrastructure as "general" or "other than general", in the abstract, compels this conclusion. Finally,
interpreting the term "general infrastructure" so as to exclude from the scope of Article 1 the provision
of infrastructure that is provided to or for the benefi t of a single entity or a limited group is consistent
with the object and purpose of the SCM Agreement: inter alia, to establish disciplines on the use of
government intervention in the form of subsidies th at distort, or have the potential to distort,
international trade.
3872 In our view, the provision of "general infrastructure" is excluded from the
disciplines of the SCM Agreement because the genera l nature of qualifying infrastructure implies a
lack of such distortion.
7.1042 The European Communities does acknowledge the relevance of "clearly specified" limitations
on use of, or government specified limitations on use of, the infrastructure provided to the
determination whether it is "general" infrastructure.
3873 Thus, both parties apparently accept that
de jure limitations on use is a critical, potentially determinative, factor in establishing whether
infrastructure provided by a government is "gen eral infrastructure". However, the European
Communities argues that merely because the public do es not actually use the infrastructure provided,
or because use is in fact limited to a single en tity does not suffice to qualify the infrastructure in
question as other than "general" infrastructure. 3874 The European Commun ities considers that two
steps must be distinguished: first, a government may build general infrastructure, and second, a
government may limit the use of that general infrastructure to certain companies. In the European
Communities' view, the second step may make the infrastructure non-general (depending on an
assessment of benefit), but does not invalidate the fact that the first step constitutes provision of
general infrastructure. The European Communities argues that the second step must be evaluated on

3871 As noted, merely because the separate analysis under Article 2 may involve consideration of the
same facts or similar factors as the determination whether infrastructure is "general" does not in our view render
Article 2 redundant.
3872 Panel Report, Canada – Aircraft, WT/DS70/R, para. 9.119.
We note in this regard that, during the negotiation of the SCM Agreement, the European Communities
proposed that such measures as education, culture, health, social welfare and general infrastructure be treated as
"non-actionable". The European Communities explained its rationale as follows:
"Action in these fields may have an effect on the economy of a country, and thus on the
international economy, but they are not normally subsidies, because they merely contribute to
setting the terms and conditions of a country's economic and business environment.
{T}herefore they do not alter the competitive position of firms."
Elements of the Negotiating Framework, Submission by the European Community,
MTN.GNG/NG10/W/31 (27 November 1989) p. 8.
We consider that subsidies that "alter the competitive position of firms" do, in fact, distort or have the
potential to distort, international trade, and thus properly fall within the scope of the SCM Agreement
disciplines.
3873 EC, SWS, para. 333.
3874 EC, SWS, para. 333.

BCI deleted, as indicated [***]

its own,3875 because the existence of limitations on use or access to the infrastructure provided does
not effect the general nature of the infrastructure. 3876 The United States contends that where the
government creates infrastructure adapted to the part icular needs of one company and then provides
the infrastructure to that company fo r its exclusive or preferential use, it is not general infrastructure,
and it is subject to the SCM Agreement rules.3877
7.1043 Given our view that there is no infrast ructure that is inherently "general" per se – a
proposition with which both parties appear to agree 3878 – it logically follows for us that it is not
possible to determine whether certain infrastruct ure is "general" or not without assessing whether
there exist any de jure or de facto limitations on access to or use of the infrastructure. That is
because, in our view, whether access to or use of infr astructure is actually limited is a highly relevant
consideration in determining whether the infrastruct ure in question is "general". Thus, we are not
convinced by the European Commun ities' argument that a distincti on must be drawn between, and a
two-step analysis conducted in respect of, the "provision" of infrastructure in the sense, as we
understand it, of creating the infrastructure in questi on, and subsequent limitations on use or access.
This would imply that the "general" nature of some infrastructure is inherent and that circumstances
surrounding the provision of that infrastructure do not change its general nature. We, however,
consider that if an evaluation of the circumst ances surrounding the creation of the infrastructure
demonstrates that it was provided to a single entity or a limited group of entities, this supports the
conclusion that the infrastructure created is not prope rly considered general. This is, in our view,
particularly the case where the infrastructure in qu estion was created for the particular needs of the
entity or group which has the right to access or use of that infrastructure.
7.1044 Finally, if it is correct, as we have concluded, that there is no infrastructure that is "general"
per se, then it also follows logically, in our view, th at certain infrastructure may be "general" within
the meaning of Article 1.1(a)(1)(iii) at some point in time, but not at another. Thus, for instance, we
consider that a government may provide infrastructure that is not general when first provided, because
use or access to it is limited, but may subsequently make that same infrastructure available for public
use or access, such that it would then become provision of general infrastructure. 3879 The opposite
situation may also obtain – a government may provide general infrastructure, and subsequently limit
use or access to it, either permanently or for a pe riod of time, during which it would, in our view,
cease to be "general" infrastructure. Such situations would have to be carefully evaluated, based on
all the relevant facts in each case, in order to de termine whether the provision of the infrastructure in
question is general or not, and whet her that determination changes over time. Thus, we consider that
the proper point of reference in determining whethe r a provision of goods or services is "other than
general infrastructure" is the time when the act of provision that is allege d to constitute a subsidy
takes place. That may be at the time the infrastru cture in question is created, in the sense of being
brought into existence, or a subsequent point in time, when the conditions surrounding the provision
of that infrastructure are changed by the governme nt providing it. Moreover, the determination of

3875 EC, SWS, para. 340.
3876 EC, SWS, para. 340.
3877 US, SWS, para 311.
3878 We note in this regard that the European Comm unities has referred to public roads as "the example
par excellence of a work of 'general infrastructure' within the meaning of Article 1.1(a)(1)(iii) of the
SCM Agreement." EC, FWS, para. 940. The European Communities also argues that the question of whether
the infrastructure is "basic" to be re levant, but recognizes the relevance of public access. EC, Answer to Panel
Question 184 at para 131. However, we do not, ov erall, understand the European Communities to be arguing
that certain types of infrastructure are per se general infrastructure. See, EC, Answer to Panel Question 186,
paras. 148-149.
3879 Of course, any such changes would have to be evaluated on the basis of the facts – it seems clear
that a purely formalistic change cannot be determinative. Returning to our extreme example from footnote 3870
above, merely that the government providing the railway described makes it de jure available to everyone would
change nothing, if in fact no one else can or does use it.

BCI deleted, as indicated [***]

whether a provision of goods or services is "other than general infrastructure" may involve a time
period of limited or indefinite duration.
3880
7.1045 We now turn to the alleged subsidies concerni ng the Mühlenberger Loch industrial site, the
Bremen airport runway extension and associated noise reduction measures, and the ZAC
Aéroconstellation site. We address first in each cas e the question of whether the measure in question
is one of general infrastructure, in which case we will conclude it does not constitute a financial
contribution within the meaning of Article 1.1 of th e SCM Agreement. However, if we conclude that
any of these three measures is not one of general infrastructure, we will go on to address whether a
benefit is conferred upon Airbus by the subsidy in question, and to the extent relevant, specificity.
(c) Mühlenberger Loch
7.1046 According to the United States, when Airbus launched the A380, it decided to establish two
assembly facilities, one at Toulouse and one at Hamb urg, where Airbus already had existing facilities,
so as to utilize synergies with the existing facilitie s. The United States asserts that the existing
Hamburg facilities, located at Finkenwerder, had no real potential for expansion, as the site was on a
peninsula in the Elbe river, surrounded by wetlands. 3881 The United States argues that the
transformation of a portion of these wetlands, in th e "Mühlenberger Loch" and "Rüschkanal", into an
industrial site, including building flood protection, erecting a quay with Roll-on/Roll-off installations,
and building other facilities and infrastructure required by Airbus on the site, and the provision of that
site to Airbus for less than adequate remuneration, is a financial contribution that confers a benefit on
Airbus within the meaning of Article 1.1 of the SCM Agreement that is specific within the meaning of
Article 2 of the SCM Agreement.
7.1047 The European Communities argues in its request for preliminary ruling that the United States'
request for establishment with regard to the allege d subsidy in connection with the Hamburg facilities
lacks the requisite specificity concerning the me asure subject to challenge. The European
Communities considers that the United States' firs t written submission continues to fail to reveal
exactly what measure is subject to the United States' challenge. 3882 The European Communities
contends that it is unclear whether the United States is concerned with the "creation" of the industrial
site, i.e., the turning of the wetlands into an industrial s ite, or the "provision" of the site to Airbus,
including its creation and the allegedly inadequate remuneration received.3883
7.1048 According to the European Communities, the Mühlenberger Loch project includes three
distinct elements: (1) turning wetlands into usable land; (2) building flood protection measures; and
(3) building special-purpose facilities on the reclai med usable land. The European Communities
asserts that it is uncertain which of these measur es is the subject of the United States' challenge. 3884
Assuming that the United States challenges the turnin g of the wetlands into usable land and the lease
of this land and the special-purpose facilities to Airbus Germany, the European Communities argues
that the turning of the wetlands into usable la nd and the provision of flood protection constituted
"general infrastructure" within the meaning of Artic le 1.1(a)(1)(iii) of the SCM Agreement, and that
these measures do not constitute a subsidy. 3885 The European Communities further argues that
Hamburg, the owner of the land, receives a market-b ased rent from Airbus Germany for the lease of

3880 The provision of infrastructure th e use of or access to which is li mited in time may complicate the
assessment of the benefit, if any, of the measure in question, but that is a different issue from determining
whether the infrastructure is general or not.
3881 US, FWS, para. 423.
3882 EC, FWS, para. 746.
3883 EC, FWS, para. 747. We have previously explained our reasons for rejecting the European
Communities' arguments in this regard in our preliminary ruling, see. paragraphs 7.153, 7.155 and 7.158 above.
3884 EC, FWS, para. 749.
3885 EC, FWS, para 750.

BCI deleted, as indicated [***]

the land and the special-purpose facilities, which thus does not confer any benefit on Airbus Germany
within the meaning of Article 1.1(b) of the SCM Agreement.3886
(i) Factual background
7.1049 In 2000, the City of Hamburg undertook to turn 20 percent of the wetlands in the
Mühlenberger Loch and Rüschkanal, adjacent to Airbus' existing facilities in Finkenwerder, into
usable land. Hamburg also undertook to constr uct a number of special-purpose facilities on the
reclaimed land, and built dykes for the purpose of flood protection. 3887 Hamburg set up a company,
the Realisierungsgesellschaft GmbH ("ReGe") for the management of the land reclamation project
and the special-purpose facilities.3888 On completion of the project, Hamburg transferred ownership of
the land and facilities to a government-owned entity, Projektierungsgesellschaft Finkenwerder GmbH
& Co. KG ("ProFi").3889 ProFi, the titleholder of the proper ties, and Airbus Germany entered into a
series of lease agreements for the land and the special-purpose facilities.3890
7.1050 As the Mühlenberger Loch was a protected wild life sanctuary, in order to go ahead with the
land reclamation, the German government was ob liged to, and did, apply for approval from the
European Commission to undertake the reclamation project. 3891 On 19 April 2000, the Commission,
conditional upon the undertaking of compensatory me asures, approved the project, finding that there
were imperative reasons of public interest for the project, including job creation. 3892 A s
compensation, Hamburg was obliged to provide substitute wetland areas elsewhere in Germany.3893 It
was also required to defend against lawsuits by environmental groups seeking to halt the project.3894
7.1051 Work on draining and filling the land began in February 2001, and was carried out in
stages.3895 The city of Hamburg upgraded the height of dykes around the existing Airbus facility, and
built new dykes to protect the reclaimed land. 3896 Hamburg also constructed special-purpose facilities
on the reclaimed land, consisting of (1) a quay facility, (2) a sluice and pump building, (3) a drainage
ditch, (4) a roll-on roll-off ("RoRo") facility, and (5) a sternfender.
3897 The European Communities
asserts that the aggregate cost of land-filling, fl ood protection, and special-purpose facilities, was
EUR 693.679 million,3898 asserting that the figure cited by the United States for this work, {EUR 751
million} is an earlier, now-outdated 2003 estimate.
7.1052 As noted above, the City of Hamburg - thr ough ProFi - leases the reclaimed land and special-
purpose facilities to Airbus Germany. The Lease ag reement for the reclaimed land indicates that the

3886 EC, FWS, para. 751.
3887 EC, FWS, paras. 752-753.
3888 EC, FWS, para. 753, citing Bürgerschaft der Fr eien und Hansestadt Hamburg, Drs. 16/4734,
Exhibit EC-545, p. 12..
3889 EC, FWS, para. 753, citing Bürgerschaft der Fr eien und Hansestadt Hamburg, Drs. 16/4734,
Exhibit EC-545, p. 12.
3890 EC, FWS, para. 753, citing Bürgerschaft der Fr eien und Hansestadt Hamburg, Drs. 16/4734,
Exhibit EC-545, p. 13.
3891 EC, FWS, para. 754.
3892 Commission decision of 19 April 2000, Exhibit EC-547 (BCI) p. 3.
3893 US, FWS, para. 425, citing A REA, A380-Werkserweiterung im Mühlenberger Loch – Eine Bilanz,
at 20, 23 (10 August 2004), Exhibit US-182
3894 US, FWS, para. 425, citing Injunction Sought in Germany's Highest Court to Stop Airbus'
Destruction of Protected Habitat, PR Newswire, Hamburg (25 April 2001) Exhibit US-185.
3895 EC, FWS, para. 755.
3896 EC, FWS, para. 756.
3897 EC, FWS, para 757. Hamburg also constructed extensions to the existing runway at the
Finkenwerder site. Id. citing Bürgerschaft der Freien und Hansestadt Hamburg, Drs. 16/4734, Exhibit EC-545,
p. 3.
3898 Bürgerschaft der Freien und Hansestadt Hamburg, Drs. 18/4115, p. 8, Exhibit EC-548.

BCI deleted, as indicated [***]

lease is for [***].
3899 The Lease Agreement establishes an annual rent of EUR 3,60/m 2, to be adjusted
annually on the basis of changes in the German c onsumer price index. The lease foresees a gradual
increase in the total rent, as successive parcels of the reclaimed land are taken over by Airbus
Germany, starting with the first parcel of land s ubject to the lease on 1 October 2002, with possession
of the whole area scheduled for the end of 2009.
3900 As the reclaimed land was subject to settling, and
thus was not immediately fully usable by Airbus Ge rmany, an initial reduction in the rent was agreed,
with the rent to be gradually increased to the full amount as the land fully settled. 3901 The full rent of
EUR 5,156,588 per annum will therefore only be achieved gradually.3902
7.1053 ProFi and Airbus Germany also concluded four lease agreements for six special-purpose
facilities.3903 The term of each of these agreements is 20 years. According to the European
Communities, the amount of rent is set to provide th e City of Hamburg with a return of 6.5 % on its
investment in each of the facilities, including a return on capital for the portion of each facility's
economic life depleted during the 20 year lease term. 3904 The annual rent over the 20 year period for
the special purpose facilities is EUR 5,619,200, ag ain, to be adjusted upwards in line with
inflation.3905 The European Communities argues that these rental amounts for the land and the
special-purpose facilities are consistent with market conditions in Hamburg.3906
(ii) Arguments of the parties
United States
7.1054 The United States notes that Article 1.1(a )(1)(iii) of the SCM Agreement includes the
provision of goods or services other than general infrastructure among the types of measures that
constitute financial contributions. The United States argues that the provision of the site to Airbus,
including the transformation of the Mühlenberger Loch into land fit for production facilities, the
putting into place and provision of a flood protecti on system, a new quay wall, an extension of the
runway, other facilities and infrastructure on the s ite, etc., constitutes the provision of "goods or
services other than general infrastructure," and t hus constitutes a financial contribution within the
meaning of Article 1.1(a)(1) of the SCM Agreement.3907
7.1055 The United States also argues that the provision of the Hamburg-Finkenwerder site to Airbus
confers a benefit on Airbus within the meaning of Article 1.1(b) of the SCM Agreement, because
Hamburg created a site that the market would not ha ve created, and provided th at site to Airbus for
less than adequate remuneration. 3908 The United States asserts that Hamburg spent approximately
EUR 751,000,000 to create the 1.4 square kilometer (or 1,400,000 square meter) site, an investment of
approximately EUR 536.43 per square meter. Relying on a report by the German real estate surveyor
firm Dr. Keunecke & Stoehr, the United States asserts that the fair market value for land in the

3899 Exhibit EC-551 (BCI). [***].
3900 EC, FWS, para. 760.
3901 EC, FWS, para. 761.
3902 EC, FWS, para. 761, citing Bürgerschaft der Freien und Hansestadt Hamburg, Drs. 18/33, pp. 6,
Annex 1, Exhibit EC-562.
3903 EC, FWS, para. 762. [***] Addendum No. 1, Exhibit EC-552 (BCI); [***] Addendum No. 3,
Exhibit EC-554 (BCI), [***] Addendum No. 7, Exhibit EC-558 (BCI); [***] Addendum No.8, Exhibit EC-559
(BCI).
3904 EC, FWS, para. 762, citing Bürgerschaft der Freien und Hansestadt Hamburg, Drs. 18/33, pp. 6-7,
Exhibit EC-562.
3905 EC, FWS, para. 763, citing Bürgerschaft der Freien und Hansestadt Hamburg, Drs. 18/33, p. 7,
Exhibit EC-562.
3906 EC, FWS, paras. 764-771.
3907 US, FWS, para 430.
3908 US, FWS, para 431.

BCI deleted, as indicated [***]

immediate vicinity of the Hamburg site in 2000, the year in which the government decided to create
and develop the site, ranged between EU R 51.13 and EUR 61.36 per square meter. 3909 T h e r e f o r e ,
according to the United States, the Hamburg governme nt spent EUR 751,000,000 to create a site that
was worth between EUR 71,600,000 and EUR 85,900,000. 3910 The United States maintains that a
commercial investor in real property in Germany wo uld not have made such an investment, and thus,
if Airbus had wanted to expand its facilities at Ha mburg-Finkenwerder, it would have had to spend
the EUR 751,000,000 to create the site itself, thus signi ficantly increasing the costs of the A380
project.3911 Consequently, the United States argues, the Hamburg government's decision to create the
land and provide it to Airbus confers a benefit on Air bus within the meaning of Article 1.1(b) of the
SCM Agreement. The United States notes that a September 2000 report that the Hamburg
government provided to the Hamburg Parliament analyzed the project under SCM Agreement rules
and concluded that the project was a subsidy:
"It is true that the improvements to the infrastructure of the area and its subsequent
lease to AI is, in principle, a subsidy with in the meaning of Article 1 (1) (iii) of the
GATT Subsidy Agreement. ..."3912
7.1056 The United States asserts that its approach to analyzing the benefit to Airbus from the
Hamburg project is virtually identical to the a pproach the European Commission uses to determine
whether the sale of land constitutes state aid under EU state aid rules.3913 In Scott Paper SA Kimberly-
Clark, for example, the Commission explained that th e sale of land does not confer an "advantage"
under EU state aid rules if:

3909 US, FWS, para. 432, citing Expert Opinion No. 27649/06, Benchmarks for Land Values concerning
Hamburg Airbus Site "Mühlenberger Loch," Kreekslag 10, 21129 Hamburg Finkenwerder, 9 October 2006
(hereinafter "Keunecke Report"), Exhibit US-189. The relevant portion of the report is on page 5, Exhibit US-
189). The United States notes that th e office of Dr. Keunecke & Stoehr is on e of the most respected real estate
surveyors in Germany, whose two partners, Dr. Klaus-Peter Keunecke and Eberhard Stoehr, have been
appointed and sworn in as public surveyors by the Berlin Chamber of Commerce for the appraisal of developed
and undeveloped plots of real estate and of leases.
3910 The United States observes that 1.4 million square meters at EUR 51.13 to EUR 61.36 per square
meter equals EUR 71,582,000 to EUR 85,904,000. US, FWS, footnote 516. The United States further notes
that the Hamburg government's own reports estimated that the land Hamburg created had a maximum value of
EUR 61.35 per square meter, citing Hamburgische Bürgerschaft, Drucksache 16/4734, Mitteilung des Senats an
die Bürgerschaft, at 12 (5 September 2000)., Exhibit US -183 (explaining that "all the parcels of land that are
later to be leased, including those owned by the City of Hamburg and those that must still be acquired from the
German Government, will be transferred to the GmbH & Co. DG as contributions in kind (fair market value of
about DM 50 million based on a commercial land value of DM 120/m2)"). The United States converted the
amount to Euros using the official Euro/DM conversion rate. Exhibit US-183.
3911 In this sense, the United States maintains that the creation of the site is akin to a EUR 665-679
million grant to Airbus, since Airbus would have spent EUR 751 million to create a site worth only EUR 71.6-
85.9 million. US, FWS, footnote 517.
3912 US, FWS, para 441, citing Hamburgische Bürgerschaft, Drs. 16/4734, at 3 (in the original German,
"Bei der infrastrukturellen Herrichtung der Fläche und der anschliessenden Vermietung an AI handelt es sich
{…} grundsätzlich { …} um eine Subvention im Sinne des Artikel 1 Absatz 1 (iii) des GATT-
Subventionsübereinkommens"), Exhibit US-183.
3913 The United States observes that a government measure constitutes state aid under the EC state aid
rules when it "confers an economic advantage on a reci pient", and asserts that a re quirement to show that a
measure "confers an economic advantage on the recipi ent" is virtually identical to the SCM Agreement's
requirement to show that a financial contribution confers a "benefit" on the recipient. Therefore, according to
the United States, a DG-Competition finding that a particular measure is state aid is tantamount to a finding that
the measure is a subsidy within the meaning of the SCM Agreement. US, FWS, footnote 518.

BCI deleted, as indicated [***]

"a private investor, on the basis of fo recast potential profitability and ignoring any
social, regional or sectoral policy considera tions, would have invested in the land and
then sold the plot at the same price as that asked by the local authorities."
3914
According to the United States, when the Ham burg authorities committed to spend EUR 751 million
to transform a portion of the Mühlenberger Loch site into an industrial site, they knew the project
would result in a loss of several hundred million Euro, an action a private investor would not have
undertaken. Relying on the Scott Paper SA Kimberly-Clark decision, the United States argues that, by
enabling Airbus to avoid spending the EUR 751,000, 000 itself, the Hamburg authorities granted a
subsidy conferring a benefit on Airbus.
3915

7.1057 The United States asserts that another basis for determining whether the government is
providing the infrastructure for less than adequate remuneration is to determine whether the rent
Airbus is paying under the lease will allow Hamburg to recoup its investment plus a market-based rate
of return. According to the United States, the Ke unecke report explains that commercial investors in
real estate in Germany expect to receive an annual re turn on their net investment (including financing
costs) of between 9 and 12 percent. 3916 To obtain even a 9 percent return, the United States asserts
that Hamburg would need to charge Airbus at le ast EUR 67.5 million per year in rent; to achieve a
12 percent return, the lease price would need to be set at over EUR 90 million per year.3917
7.1058 In its first written submission, the United States noted that European Communities and
Germany had refused to provide a copy of the Leas e to the Annex V Facilitator, so the United States
did not know the precise amount of rent that Airbus is paying, but asserted that it was "highly
unlikely" that Hamburg was charging Airbus an ywhere near the amount required to constitute
adequate remuneration.3918 In this regard, the United States cited a statement by Hamburg's former
minister for economic affairs: "The investment woul d in fact be unprofitable based on the rent alone.
The whole thing must be viewed in terms of the public economy." 3919 The United States also relied
on reports by the Hamburg government to the Ha mburg Parliament in late 2003 and early 2006
regarding the creation of the site which state that the government expects Airbus to pay a total of
EUR 29 million in rent through 2007, only EUR 4.9 - 7.25 million per year, assertedly less than a one
percent annual return, before inflation. 3920 The United States also observed, as noted above, that the
Hamburg government had considered the project to be a subsidy within the meaning of the
SCM Agreement.3921
7.1059 The United States argued that the refusal of the European Communities and Germany to
provide any of the information requested by the F acilitator during the Annex V process relating to the
creation of the site, including the total costs that Ha mburg incurred to create the site; the terms and

3914 European Commission, Decision of July 12, 2000, Aid to Scott Paper SA Kimberly-Clark, OJ
(2002) L 12/1, Exhibit US-190, para. 149.
3915 US, FWS, para. 436, citing European Commission, Decision of July 12, 2000, Aid to Scott Paper
SA Kimberly-Clark, OJ (2002) L 12/1, paras. 165 (emphasis added), Exhibit US-190.
3916 US, FWS, para. 438, citing Keunecke Report at 9-10, Exhibit US-189; Immobilienstandort
Metropolregion Hamburg: Die Logistikbranche boomt dank dem Hafen , Frankfurter Allgemeine Zeitung
(June 3, 2005) (explaining that German investors expect recovery of their investments, not including financing
costs or profits, to take 13 years), Exhibit US-191.
3917 US, FWS, para. 438.
3918 US, FWS, para 439.
3919 US, FWS, para. 439, citing, Airbus! Hark Bohm, Verlegen Bauer, Senator Uldall streiten beim
Abendblatt, Hamburger Abendblatt (March 2003), Exhibit US-192, at 3.
Senats an die Bürgerschaft (18 April 2006), Exhibit US-184, at 8; Hamburgische Bürgerschaft, Drücksache
17/3641, Mitteilung des Senats an die Bürgerschaft (11 November 2003), Exhibit US-186, at 8.
3921 US, FWS, para. 441.

BCI deleted, as indicated [***]

conditions of any sale or lease of any portion of th e site to Airbus; and information regarding any
payments by Hamburg to create the facilities that Ai rbus located on the site gave, rise to a logical
inference that the information would have supporte d the US claim that the measure is a specific
subsidy. The United States suggested that the Panel draw such a logical inference. In addition, the
United States suggested that, in accordance with paragraph 7 of Annex V, the Panel would be
justified in drawing an adverse inference that the withheld information demonstrates that the measure
is a specific subsidy and the United States requested that the Panel so infer.3922
7.1060 Finally, the United States asserts that the subsid ies are specific to Air bus within the meaning
of Article 2 of the SCM Agreement (i) because the Hamburg authorities custom-built the Hamburg-
Finkenwerder site to Airbus's sp ecifications in order to provide space for Airbus' A380 assembly
facility (specificity "in law) and (ii) because Airbus is the only company located on the site, Airbus is
the only company that can use the site (the site is surrounded by water on three sides and by Airbus's
existing facilities on the land side), and the Hamburg authorities exercised their discretion to create
the site especially for Airbus (specificity "in fact").3923
European Communities
7.1061 The European Communities considers that the recl amation of land in the Mühlenberger Loch
and Rüschkanal does not fall within the scope of the SCM Agreement. The European Communities
maintains that conversion of wetlands into usable land is a typical task of public authorities, and
constitutes the provision of general infrastructure, and is therefore outside the scope of Article 1 of the
SCM Agreement.3924 The European Communities asserts that, under the constitution of Hamburg, the
port is of specific importance to the city of Hamburg, 3925 noting that the "law on the development of
the port" ( Hafententwicklungsgesetz) states that the development of the port is a public task.
According to the European Commun ities, industrial sites are scarce in Hamburg, and the reclaimed
land in the Mühlenberger Loch is an economic asset for the city, whet her used by Airbus Germany or
others.3926 The European Communities maintains that upon the expiry or termination of the lease
agreement between Airbus Germany and Hamburg, Hamburg can open the land for public use or
choose to rent it to another industrial investor, who could use it for instance as a container terminal or
a car loading facility.3927
7.1062 Thus, the European Communities argues that the Un ited States' allegation that an investor in
"the market" would not have created the reclaimed land is beside the point, since a private company is
neither bound by public law to implement certain ta sks, nor charged with expending public resources
to achieve public policy goals.3928 Moreover, the European Commun ities maintains that in evaluating
such projects, cost and the projected return in stri ct monetary terms is not of paramount importance.
Governments may chose to spend more or less public resources on general infrastructure projects, and
to frame the expected return in so mething other than mere monetary te rms, for instance, job creation.
For the European Communities, under Article 1.1(a )(1)(iii) of the SCM Agreement, the question is
whether or not the goods or services provided pertain to general infrastructure goals. Whether or not
"the market" would have created a similar site is irrelevant. 3929 In the European Communities' view,

3922 US, FWS, para. 445.
3923 US, FWS, para. 444.
3924 EC, FWS, paras. 775-778.
3925 EC, FWS, para. 777, citing Preamble of the Co nstitution of the Freie and Hansestadt Hamburg,
Exhibit EC-569.
3926 EC, FWS, para. 778.
3927 EC, FWS, para. 778.
3928 EC, FWS, para. 779.
3929 EC, FWS, para. 780.

BCI deleted, as indicated [***]

the conversion of wetland into generally usable la nd by Hamburg did not confer an advantage on
Airbus.
3930
7.1063 The European Communities notes th at the statement of the Hamburg Senate that the creation
and leasing of the Mühlenberger Loch site constitu tes a subsidy reflects the possibility that Hamburg
contemplated of renting the reclaimed land to Airbus at a price below the market. 3931 However, the
European Communities asserts that the final lease pr ice reflects the full market rent for the land, and
the Senate statement is therefore outdated. 3932 The European Communiti es also argues that WTO
subsidy rules and EC State aid rules are not the sam e, and that therefore, any analogy between EC
State aid practice and Article 1 of the SCM Agreement is not accurate.3933 In particular, the European
Communities rejects the United States' assertion th at "a DG-Competition finding that a particular
measure is State aid is tantamount to finding that a measure is a subsidy within the meaning of the
SCM Agreement".3934 Thus, for the European Communities, the United States' reliance on the
decision in the Scott Paper case is misleading. In any case, the European Communities notes that
there is no Commission decision that the Hamburg project constituted State aid under EC competition
rules.3935 The European Communities also asserts that the situations in Scott Paper and Mühlenberger
Loch are also substantially different, as Scott Paper did not deal with measures of general
infrastructure like the pure creation of land, but rather concerned the transformation of existing
agricultural land into a tailor-mad e industrial site for the company. 3936 According to the European
Communities, rather than providing general infrastructure, in Scott Paper, the French authorities acted
in favour of one specific company to whom owne rship of the tailor-made industrial site, including
specific buildings for the factory, was transferred wi th a sales price that did not cover the investment
costs. No private investor would have acted in such a manner. In the case of Mühlenberger Loch
however, the European Communities asserts that Ham burg's land reclamation is a measure of general
infrastructure, and that for such measures a mark et where private investors act does not exist.
Furthermore, the European Communities notes that Hamburg has not sold the reclaimed land to
Airbus Germany, but rather retains ownership of the property and the possibility to use the reclaimed
land for other purposes after termination of the lease agreement with Airbus, and receives a market-
based return on its investment in leasing special purpose facilities to Airbus.
3937
7.1064 The European Communities also argues that the construction of flood protection measures,
i.e., the dykes, constitutes general infrastructure whic h falls outside the scope of Article 1 of the
SCM Agreement. According to the European Co mmunities, the flood protection measures serve a
basic infrastructure purpose for the citizens of Hambur g, as part of the public task of the City to
ensure the safety of its citizens against natural catastrophes according to section 55 of the Water Law
of Hamburg ( Hamburger Wassergesetz ).3938 The European Communities asserts that the flood
protection measures implemented around the reclaime d land were part of the federal and regional
flood protection programme implemented from 2000 to 2002. 3939 According to the European
Communities, all dykes must be seen as a measure for the protection of all inhabitants of Hamburg,
and there is no specific benefit to single proprietors.

3930 EC, FWS, para. 781.
3931 EC, FWS, para. 782.
3932 EC, FWS, para. 782.
3933 EC, FWS, para. 784.
3935 EC, FWS, paras. 784-787.
3936 EC, FWS, paras. 789-790, citing, European Commission, Decision of 12 July 2000, Aid to Scott
Paper SA Kimberly-Clark, OJ 2002, L12, 1, Exhibit US-190, para 165.
3937 EC, FWS, paras. 789-792.
3938 EC, FWS, para. 794, referring to Hamburger Wassergesetz (Water Law of Hamburg), Exhibit EC-
575.
3939 EC, FWS, para. 795.

BCI deleted, as indicated [***]

7.1065 For the European Communities, whether or not Hamburg granted a subsidy to Airbus
Germany within the meaning of the SCM Agreement depends solely on the terms under which
Hamburg removed the publicly-owned reclaimed land in the Mühlenberger Loch area from public use
by renting it to a private company. 3940 The relevant inquiry must therefore, in the European
Communities' view, focus on the terms of the lease, and not on the costs of the creation of the site.
7.1066 The European Communities recalls that a benefit is only conferred if the recipient received a
financial contribution on terms more advantageous than those that would have been available to the
recipient at market. 3941 The European Communities asserts that, under the terms of the land lease
agreements with Airbus Germany, no such advantag eous terms exist, relyin g in this regard on the
contemporaneous opinion of the Hamburg real estate Experts Committee 3942, as well as the Keunecke
report relied on by the United States.3943
7.1067 The European Communities points out that at the request of the City of Hamburg, the Experts
Committee concluded that the value for industrial land in the vicinity was [***]. As the leased land is
approximately 1,577,388 m² and thus that the total value of the land was approximately [***].3944 The
Experts Committee then concluded that an acceptable market-based rate of return for the Land Lease
Agreement was [***].3945 The European Communities notes that the United States' expert reached
the same conclusion with regard to the value of the land, concluding that the land value is between
EUR 1.13/m² and EUR 61.36/m².3946 Based on these figures, the Eu ropean Communities asserts that
a market rent would be EUR 3.70/m 2 per year, or EUR 0.30/m 2 per month, which it asserts is in
accordance with the rent paid by Airbus Germany.3947
7.1068 Thus, according to the European Communities, the difference between the conclusions
reached by the Experts Committee, and the United States' position, derives from different assumptions
concerning the applicable rate of return on real est ate, set at 9 to 12% in the Keunecke Report, as
opposed to [***] set by the Experts Committee. In the European Communities' view these two
percentage values do not measure the same thing and cannot be directly compared, as they result from
two different definitions of "return." The Eur opean Communities asserts th at when these values are
restated and expressed in the same economic terms, there is very little difference between them. Any
remaining difference is the result of assertions by Dr. Keunecke that are unsupported and not relevant
to the industrial land and facilities at hand. 3948 Thus, the European Communities argues, the
difference between the results of the Keunecke Report and the European Communities' position lies in
the United States' view that Hamburg should not only demand a fair price for the current value of the
land, but should also recover the full costs for the development of the site.3949 However, the European
Communities considers this to be erroneous, since t hose costs are related to the creation of general

3940 EC, FWS, para. 781.
3942 Real Estate Experts Committees are established by German federal law. The Hamburg Experts
Committee issues appraisals regarding th e market value of real property, on request by the City of Hamburg or
its courts. EC, FWS, paras 766-767, Exhibit EC-567.
3943 EC, FWS, para. 798.
3944 EC, FWS, para. 801, citing, Gutachterausschuss für Grundstückswerte in Hamburg, Gutachten G
03.0058 M 21, 23 October 2003, p. 4-6, Exhibit EC-563 (BCI).
3945 EC, FWS, para. 804. The European Communities notes that the estimate of [***] coincides with
the Expert Committee's yearly estimations of property value in Hamburg, referring to Gutachterausschuss für
Grundstückswerte in Hamburg, Der Grundstücksmarkt in Hamburg 2002, 2003, 2004, 2005, Exhibit EC-565,
which sets an average return on real estate for the relevant area at 6,2 %. EC, FWS, footnote 680.
3946 EC, FWS, para. 806.
3947 EC, FWS, para. 807.
3948 EC, FWS, para. 809.
3949 EC, FWS, para. 818.

BCI deleted, as indicated [***]

infrastructure, and therefore, the European Communi ties maintains, fall outside the scope of Article 1
of the SCM Agreement.
3950
7.1069 The European Communities further argues that, even if the Panel does not agree that the land
reclamation was a measure of general infrastructur e, the difference between Hamburg's costs for the
project and the rent paid by Airbus Germany does not constitute a "benefit" within the meaning of
Article 1.1(b) of the SCM Agreement, because the re levant standard for dete rmining benefit is the
benefit to the recipient, and not the cost to the government. 3951 The European Communities notes that
these principles, set out in Part V of the SCM Ag reement, are equally valid with respect to the
definition of a subsidy in Article 1. The ques tion under Article 1.1(b) of the SCM Agreement is
whether a financial contribution confers a "benefit" on a recipient, relative to a market benchmark,
and not whether the government covers the cost s of delivering that financial contribution. 3952 Thus,
the European Communities argues, the market benchmark serves as a floor in determining whether a
financial contribution constitutes a benefit, but also serves as a ceiling on the amount of "benefit" that
can be found to exist under Article 1.1(b) of the SCM Agreement. 3953 While the government is
entitled to a market-based return , the European Communities argues that it can only earn a market-
based return on the value of the good leased, whic h may or may not be lower than its cost. The
European Communities argues, how ever, that the government can earn returns through increased
employment and other returns that private investors cannot capture.3954
7.1070 The European Communities argues that the Unite d States' approach ignores this fundamental
point, and would require that Airbus Germany agree to pay the City rent considerably in excess of
what the market would demand, based on the cost to reclaim the land. 3955 That is, the European
Communities argues, effectively a resort to a "c ost to government" standard. According to the
European Communities, the United States considers th at, regardless of the rental agreement Airbus
Germany could have received at market, it should pa y rent sufficient for the government to recover
the costs it incurred in creating the reclaimed land, which position the European Communities argues
rest on the "cost to government" standard rejected by the Appellate Body. The European
Communities urges the Panel to do so as well in this dispute.3956
7.1071 Turning to the special purpose facilities, the European Communities notes that Hamburg also
requested the Experts Committee to examine the ma rket consistency of the Quay Facility Lease
Agreement.3957 The Experts Committee concluded that the ag reed rent for the facilities covered in the
Quay Facility Lease Agreement was consistent with market; and second, that the other terms of the
Quay Facility Lease Agreement we re consistent with market. 3958 The other special purpose facility
lease agreements were based on the same pattern, an d the European Communities asserts that they are
also consistent with the market.3959

3950 EC, FWS, para. 819.
3951 EC, FWS, para. 821, referring to Article 14(d) of the SCM Agreement and the decision of the
Appellate Body in Canada – Aircraft.
3952 Appellate Body Report, Canada – Aircraft, para. 155.
3953 EC, FWS, paras. 823-824.
3954 EC, SWS, para. 1083, footnote 326, EC Comments on US Answers to Panel Questions 154 and
155, para. 164.
3955 EC, FWS, para. 826. The European Communities notes that the United States suggests, at
paragraph 438 of its first written submission, that Ai rbus Germany should pay an annual rent of EUR 90
million. EC, FWS, footnote 687.
3956 EC, FWS, para. 826.
3957 EC, FWS, para. 828.
3958 Gutachterausschuss für Grundstückswerte in Hamburg, Gutachten G 03.0059 M 21,
23 October 2003, Exhibit EC-564 (BCI) p. 4.
3959 EC, FWS, paras. 829-845.

BCI deleted, as indicated [***]

(iii) Evaluation by the Panel
7.1072 In order to resolve this aspect of the United St ates' claims, we will address first the European
Communities' contention that the conversion of the Mühlenberger Loch site from wetlands into usable
land constitutes a measure of general infrastructur e, and thus does not c onstitute a subsidy under
Article 1 of the SCM Agreement. An underlying premise of the European Communities' argument is
that the various aspects of the development of the industrial site must be analyzed separately, in
contrast to the United States' view, which treats th e entire project as an integrated whole for purposes
of analysis. Should we conclude that part or all of the provision to Airbus of the site is not a measure
of general infrastructure, we will then go on to assess whether the financial contribution represented
by that measure confers a benefit on Airbus.
General infrastructure

7.1073 As we concluded above, 3960 in our view, the question of whether the provision of a good or
service constitutes a provision of "general infrastruct ure" cannot be answered in the abstract, but
rather must take into account the existence or absence of de jure or de facto limitations on access or
use, and any other factors that tend to demonstrate that the infrastructure was or was not provided to
or for the use of only a single entity or a limited group of entities, which may include factors relating
to the circumstances surrounding the creation of the infrastructure in question, consideration of the
type of infrastructure, the conditions and circum stances of the provision of the infrastructure, the
recipients or beneficiaries of the infrastructure, and the legal regime applicable to such infrastructure,
including the terms and conditions of access to a nd/or limitations on use of the infrastructure.
Consideration of these factors in this instance le ads us to conclude that the provision of the
Mühlenberger Loch/Rüschkanal site does not constitute a measure of general infrastructure.
7.1074 Before addressing these factors, we consider th e issue raised by the European Communities'
argument that the Mühlenberger Loch project consis ted of three distinct elements, (1) turning of
wetlands into usable land, (2) building of flood protection measures, and (3) building of special
purpose facilities, and that these three elements must be considered separately in assessing the issue of
whether they constitute a provision of general infrastructure.
3961 The United States, on the other hand,
contends that the creation of the site, and its provisi on to Airbus, are not distinct transactions having
nothing to do with one another, but are integrally linked. 3962 For the United States, the lease of the
land and special purpose facilities to Airbus cannot be separated from the creation of the land,
including the flood protection measures and buildi ng of the special purpose facilities, because it was
necessary to create the land in the first place in orde r to allow the remainder of the project, including
the building of the special purpose facilities, to be undertaken.
7.1075 The European Communities does not, in our unde rstanding, contend that the land reclamation
was undertaken for reasons unrelated to the needs of Airbus, and then, afterwards, independently, the
land was rented to Airbus. The European Communities has submitted no evidence that would suggest
that the Hamburg authorities would have undertaken the reclamation of wetlands in the Mühlenberger
Loch and Rüschkanal but for the fact that it was necessary to reclaim the land in order to make
possible the expansion of Airbus' existing facilities in Hamburg to enable Airbus to assemble the
A380 at that facility. Indeed, in its second written submission, the European Communities

3960 See, discussion at paras. 7.1036 to 7.1044 above.
3961 EC, FWS, para. 748.
3962 US, SWS, para. 315.

BCI deleted, as indicated [***]

acknowledges that the land reclamation was undertak en to accommodate Airbus' needs in connection
with assembly of the A380.
3963
7.1076 The European Communities argues that the fact that the Hamburg authorities "were aware of
the fact that Airbus would be the first user of th e newly-created land" is not surprising, and considers
that the United States errs in attaching importance to this undisputed fact. 3964 The European
Communities refers to the law governing the developmen t of the port of Hamburg, suggesting that the
reclamation was part of that development, but acknowl edges that the site is not, in fact, within the
harbour area as defined by the port law. 3965 The European Communities also suggests that land for
industrial use is limited in Hamburg, implying that land reclamation is undertaken in a general effort
to provide additional sites for industrial, and residential, use.3966
7.1077 In our view, none of these elements supports th e basic premise of the European Communities,
that we must consider as distinct elements the la nd reclamation, the building of the dykes, and the
lease of the land and special purpose facilities. We agree with the United States that the lease of the
land and special purpose facilities to Airbus cannot be separated from the creation of the land,
including the flood protection measures and the build ing of the special purpose facilities, because it
was necessary to create the land in the first place in order to allow the remainder of the project,
including the building and subsequent lease of the special purpose facilities, to be undertaken. Merely
because land reclamation and flood control are "typic al task{s} of public authorities, as providers of
general infrastructure" 3967 does not constitute a sufficient basis to conclude that they must be
considered as distinct elements of the provision of th e Mühlenberger Loch site to Airbus. In fact, the
European Communities' argument in this respect is somewhat circular: because the land reclamation
and flood control aspects are, in the European Comm unities' view, measures of general infrastructure,
they must be considered separately from the lease of the land to Airbus, and considered separately,
they constitute measures of general infrastructure. However, as noted above, despite the European
Communities' arguments to the contrary, 3968 it is clear to us that the United States' claim is that the
entire transaction of creating and providing an industr ial site to Airbus constitutes the alleged subsidy,
which it asserts is not a provision of general infrastructure.3969
7.1078 We consider that there is no legal requirement that we separate the various elements of the
project for purposes of our analysis, and indeed, the European Communities has not proposed one.
Nor are we persuaded that there is any factual b asis that necessitates separating the elements as
proposed by the European Communities. It is cl ear from the evidence before us that the land
reclamation in question was undertaken in order to make possible the expansion of Airbus' existing
facilities, and not for any independent purpose. Thus, it is part of an integrated project to provide a
site adjacent to Airbus' existing Finkenwerder site for expansion of its facilities. We therefore
proceed on the basis of an analysis of the entire project as a single measure.

3963 "Hamburg agreed, ... to fill in wetlands adjacent to the Deutsche Airbus facility (and owned by the
City) to accommodate the A380 {final assembly line}". EC, SWS, para. 1083.
3964 EC, SWS, para. 353.
3965 EC, Answer to Panel Question 93, para 244. The United States points to evidence that the site was
specifically excluded from the Harbor Area through an amendment to the Ac t in 1999, because the creation of
land for the purpose of expanding Airbus' site, accord ing to the Hamburg governm ent, does "not serve any
harbor purposes." US, SWS, para. 237, referring to Ha mburgische Bürgerschaft, Mitteilung des Senats an die
Bürgerschaft, Achtes Gesetz zur Änderung des Hafenentwicklungsgesetzes, hier: Änderung des Hafengebiets im
Mündungsbereich des Rüschkanals und vor der Aufhöhungsfläche des Mühlenberger Lochs, Drs. 16/2646, p. 1,
Exhibit US-552).
3966 EC, Answer to Panel Question 91, para 225.
3967 EC, FWS, para. 775.
3968 EC, FWS, paras. 747-749.
3969 See, paras. 7.153, 7.155 and 7.158 above.

BCI deleted, as indicated [***]

7.1079 We recall our interpretation of the term "general infrastructure", where we concluded that that
the term " general infrastructure", taken in its ordinary and natural meaning, refers to infrastructure
that is not provided to or for the advantage of only a single entity or limited group of entities, and that
there is no type or form of infrastructure which is inherently "general" per se.
3970
7.1080 It is clear from the evidence before us that the reclamation of the wetlands adjacent to the
existing Airbus facility in Finkenwerder was undertak en not merely in the awareness that Airbus
would be the "first user", as argued by the European Communities, but specifically in order to enable
Airbus to expand its existing facilities in a way it could not do without the creation of the new
land.3971 The decision of the EC Commission granting approval for the draining of the wetlands
notes the [***].3972 The flood control measures, i.e., the new dyke, for the reclaimed land would not
have been undertaken had the land reclamation not taken place. While the European Communities
asserts that the existing flood protection system for the existing Airbus facility in Finkenwerder was
insufficient, it acknowledges that the land reclamation project provided "a timely opportunity to
upgrade" those facilities, in line with the 2002-2012 flood protection programme for the river Elbe.
3973
The special purpose facilities, the quay, the ro ll-on-roll-off facility, sluice and pump building,
drainage ditch, and sternfender, all form part of the creation of an industrial site suitable for the
expansion of Airbus' existing fac ilities. There is simply no evidence to suggest that any of this
development would have been undertaken at the time were it not necessary in order to enable Airbus
to expand its existing facilities to allow for assembly of the A380 at that site.
7.1081 We do not doubt that the Hamburg authorities were pursuing a public interest or public policy
goal in undertaking this large project. Indeed, th is is clear from the EC Commission decision, which
granted approval for a project which would destroy a protected wildlife sanctuary in part on the basis
that it would counterbalance job losses in Hamburg and would have a positive effect on the economic
and social situation in the region.3974 However, merely that the Hamburg authorities were furthering a
public interest does not suffice to demonstrate that the project, starting with the reclamation of the
land, and including the remaining elements of flood protection and special purpose facilities,
constitutes general infrastructure. To the contrary, as we have noted, it is in any event always likely
to be the case that public authorities will have reasons of public policy when expending public funds.
7.1082 The European Communities also argues that ther e is public access to the reclaimed land, and
a potential for other uses, allegedly demonstrating th at that aspect of the project constitutes provision
of general infrastructure. 3975 As discussed above, we do not consider it appropriate to analyse the
elements of provision of the Mühlenberger Loch site separately. However, even if we were to do so,
we would not find the European Communities' argument s in this regard persuasive. With respect to
its assertion of public access, the European Communiti es relies primarily on photographic evidence to
argue that the site is accessible via a publicly owned road, i.e., the dyke lane, which functions as the
normal traffic road between the Airbus facilities and the village of Cranz, without crossing the Airbus
facilities.3976 However, at best, the dyke lane provides limited access to the circumference of the site,

3970 See, discussion at paras. 7.1036 to 7.1044 above.
3971 See, EC, SWS, para. 1083. We note, moreover, that on 9 July 2004, the City of Hamburg and
Airbus Deutschland GmbH concluded a contract under which Airbus promised to undertake all investments
needed for the production and delivery of the A380 Freighter, including investments in the buildings on the
newly created artificial land in the Mühl enberger Loch. In addition, Airbus agreed to rent the land needed for
this purpose, and to pay damages to Hamburg for, inter alia , investments to provide the site, should Airbus
ultimately not locate A380 production there. US, SWS, para. 337, see Exhibits US 562, 563, 564 and 565.
3972 Commission decision of 19 April 2000, Exhibit EC-547 (BCI).
3973 EC, FWS, para. 756. The European Communities provides no evidence to suggest that such an
"upgrade" would have taken place at that time but for the entire project being undertaken.
3974 EC, FWS, para. 754.
3975 EC, Answer to Panel Question 91, paras. 227-229, 233 and 242-246.
3976 Exhibit EC-616.

BCI deleted, as indicated [***]

and not to any of the land leased by Airbus.
3977 More pertinently, as the European Communities
acknowledges, the dyke lane is open to use only by Airbus employees and city officials responsible
for maintenance of the dyke, at least fo r as long as the land is leased to Airbus. 3978 Moreover, the
European Communities has not rebutted the United St ates' arguments concerning the inadequacy of
the dyke lane as a means of access to the site, other than for limited purposes.3979 The mere possibility
that at some future time, if Airbus no longer leases the land, there might be access to the site via an
improved dyke lane, does not, in our view, suffice to demonstrate that any part of the Mühlenberger
Loch project constitutes a measure of general infrastructure.
7.1083 With respect to the assertion that there are pot entially other uses for the site, the European
Communities argues that if the lease agreement with Airbus were term inated, the site could be leased
to another company, and specifically, could be used as a container terminal. 3980 Our review of the
lease for the site leads us to conclude that any potenti al other use of the site is, at best, a fairly distant
future possibility.3981 Moreover, we are not persuaded by the European Communities' arguments that
there are alternative uses for th e site. The European Communiti es relies on the land use plan for
Hamburg (Flächennutzunsplan) to argue that the site is not rest ricted to use by aviation industries, 3982
and asserts that due to scarcity of land in Ha mburg, the site constitutes a valuable asset. 3983 However,
the European Communities' argument relies prim arily on the overall land use plan and does not
address the subsidiary land construction plan ( Bebauungsplan Finkenwerder 37), which, as argued by
the United States, imposes limitations on the use of the Mühlenberger Loch site for any purpose other
than Airbus' aircraft assembly facilities. 3984 While it is true that these plans are subject to revision by
the Hamburg authorities, that possibility is not sufficient, in our view, to support the European
Communities' position, and does not justify a conclusion that the site is available, in any meaningful
sense, for use by any entity other than Airbus or for any use other than by aviation industries. 3985
Moreover, merely that land is a valuable asset a dds nothing to the European Communities' argument,
particularly in view of the evidence rebutting th e European Communities' assertion that there is a
shortage of land for industrial use in Hamburg.3986
7.1084 The circumstances surrounding the creation of the Mühlenberger Loch site, including all of
aspects discussed above, clearly demonstrate to us that the Hamburg authorities were not simply
"aware" that Airbus would be the first user of the site, but undertook the entire project specifically in

3977 We note that the Land Lease Agreement contains two specific provisions relating to access to the
site by parties other than Airbus. In particular, Article 11.3 states that "the lessee is obliged to allow agents of
the lessor or representatives of the utilities companies afte r prior agreement with the lessee to enter the leased
area and undertake any work he consid ers necessary (surveys, building inspections, maintenance, repairs etc.),"
and Article 11.4 provides that "Contractors of the dyke authority or from other responsible authorities must be
given access over the leased area to the flood defences at any time in connection with dyke maintenance and
dyke defence functions." See, Exhibit EC-551 (BCI).
3978 EC, Answer to Panel Question 91, para. 229.
3979 US, SWS, para. 347-348.
3980 EC, FWS, para. 778, referring to Exhibit EC-571
3981 The Lease agreement, Exhibit EC-551 (BCI), indicates that the lease is for [***].
3982 EC, Answer to Panel Question 91, para. 233, Exhibit EC-617.
3983 EC, Answer to Panel Question 91, para. 225.
3984 US, SWS, para 343-344 and references therein.
3985 We also note that the fact that Hamburg required Airbus to agree to pay damages, including for the
investment made in the site required by Airbus, should the latter decide not to locate A380 freighter operations
in Hamburg supports the conclusion that the city author ities did not consider that there were any other uses for
the newly created site than the expansion of Airbus' existing operations. US, SWS, para 337 and footnote 411,
referring to Exhibits US-562, US-563, US-564, and US-565.
3986 Prior to the decision to create the Mühlenberger Loch site, three alternative sites of comparable
size in Hamburg were considered. US, SWS, para 320. This supports the US contention that there is no
shortage of industrial land, and thus rebuts the impli cation that creation of the Mühlenberger Loch site was
somehow necessary apart from enabling Airbus to expand its existing facilities at that location.

BCI deleted, as indicated [***]

order to enable Airbus to expand its existing f acilities. The project, including the special purpose
facilities, was tailor-made for Airbus, enabling it to expand its existing facilities so as to be able to
benefit from the resulting synergies. No other bene ficiary was considered at any time – the project
was undertaken exclusively for Airbus. Moreover, the terms of the lease agreements, as well as the
then-existing legislation governing use of the land, li mit the use of the site fo r the foreseeable future
to Airbus. In light of these facts, we conclude that the creation and provision of the Mühlenberger
Loch industrial site is not a provision of genera l infrastructure, but rather constitutes a financial
contribution in the form of the provision of goods or services other than general infrastructure, within
the meaning of Article 1.1(a)(1)(iii) of the SCM Ag reement. We therefore go on to consider whether
it conferred a benefit on Airbus.
Benefit
7.1085 The United States asserts that the provision of the Mühlenberger Loch site confers a benefit
on Airbus (i) because Hamburg authorities created a site that the market would not have created, 3987
and (ii) because the site is provided to Airbus for less than adequate remuneration.3988
7.1086 In its first written submission, the United States identified the alleged costs of the
Mühlenberger Loch project and addressed the que stion of benefit based on publicly available
information, because, it noted, the European Communities and Germany had refused to provide
information, as requested by the Facilitator durin g the Annex V process, concerning the creation of
the site, including total costs incurred by Hamburg to create the site, as well as information on the
terms and conditions of any sale or lease of the site to Airbus, and information regarding any
payments by Hamburg to create the facilities located on the site by Airbus. 3989 The United States
argued that the logical inference to be drawn from this refusal was that the information would have
supported the United States' claim that the measure is a specific subsidy, and that the Panel would be
justified in drawing an adverse inference pursuant to paragraph 7 of Annex V to that effect.
7.1087 Paragraph 7 of Annex V provides that a panel "should draw adverse inferences from instances
of non-cooperation by any party involved in th e information-gathering process". Although the
European Communities failed to provide all of the information requested on the Mühlenberger Loch
project during the Annex V process, it has, duri ng the course of this panel proceeding, submitted
additional information. Thus, we are not here faced with a situation where a party has failed to supply
any part of the requested information. As a c onsequence, we cannot simply accept, as the United
States suggests, that the failure to provide the requested information during the Annex V process
warrants drawing an adverse inference against the European Communities. Rather, we consider that it
is appropriate to address the evidence that has been put before us on the issue of benefit.
7.1088 The United States argues, based on publicly av ailable information, that the Hamburg
authorities invested EUR 751,000,000 in the creation a nd development of the site, including the land
reclamation, dykes, and special purpose facilities. The United States asserts that Hamburg estimated
that the total cost of the project would be EUR 693,700,000 3990 but that "{t}he Hamburg Accounting
Office criticised this estimate and predicted that the total costs to Hamburg would amount to EUR
751,000,000".3991 The European Communities, on the other hand, argues that this amount represents

3987 US, FWS, paras. 431-436.
3988 US, FWS, paras. 437-442.
3989 US, FWS, para 445.
Senats and die Bürgerschaft (18 April 2006), Exhibit US-184, at 11-12 (annex 1) and 13 (annex 2).
3991 US, FWS, para. 428, citing Hamburgische Burgerschaft, DRs. 17/2267, Report from the Audit
Office to the Burgerschaft (19 February 2003), Exhibit US-188, at 155, para. 385.

BCI deleted, as indicated [***]

an early estimate of the cost of the project, and th at the aggregate costs for the project foreseeable in
2006 were EUR 693,679,000.
3992
7.1089 Although the European Communities has now provid ed information concerning the total cost
of creating the Mühlenberger Loch site that was not presented during the Annex V process, the United
States continues to argue that the real costs were approximately EUR 750 million. 3993 T h e U n i t e d
States argues that the European Communities' cont ention that its calculation is based on a earlier,
outdated estimate is wrong, and asserts that the Eu ropean Communities fails to include the cost of
certain interim financing incurred by ProFi, which it contends should be included, based on the Court
of Auditors report on which the United States relies. 3994 We agree with the United States that the
European Communities' cost estimates do not in clude the interim financing costs to ProFi. 3995 We
further agree that those costs are appropriately included in the total. Together with the fact that the
European Communities did not provide the inform ation requested during the Annex V process, we
therefore consider it appropriate to accept the Unite d States' assertion, based on publicly available
information, that the cost of the development of the Mühlenberger Loch site, including the land
reclamation, flood protection, and special purpose facilities was approximately EUR 751 million. The
site is leased to Airbus under a series of leases for the land and the special purpose facilities, for a
period of [***]. The full rent for the land, which will only be achieved after 2009, after all parcels are
suitable for use, and the reductions for settling ar e eliminated, will be EUR 5,619,588 per annum,
while the rent for the special purpose facilitie s is EUR 5,619,200 per annum, both subject to
adjustment for inflation.
7.1090 We recall that Article 1.1(b) of the SCM Agre ement does not define the notion of "benefit".
However, it is well established that a "financial contribution" will confer a "benefit" upon a recipient
when it places that recipient in a more advantag eous position compared with the position of that
recipient in the absence of th e "financial contribution". 3996 In Canada – Aircraft , both the panel and
the Appellate Body considered that the basis for making this comparison was the market. Thus, the
panel observed that:
"a financial contribution will only confer a 'benefit', i.e., an advantage, if it is
provided on terms that are more advantage ous than those that would have been
available to the recipient on the market".3997
Similarly, the Appellate Body explained that:

"the marketplace provides an appropriate basis for comparison in determining
whether a 'benefit' has been 'conferred', because the trade distorting potential of a
'financial contribution' can be identified by determining whether the recipient has

Senats and die Bürgerschaft (18 April 2006), Exhibit EC-548, at 8.
3993 US, SWS, footnote 367 and paras. 352, 356.
3994 US, SWS, footnote 439.
3995 In its report, the Court of Auditors noted that the Hamburg government had not included in its cost
information certain interim financing cost incurred by the government-owned developer ProFi that should be
included in the cost. See, Hamburgische Bürgerschaft, Jahresbericht 2003 des Rechnungshofs (2003 Annual
Report of the Court of Auditors), Drs. 17/2267, para. 385, Exhibit US-188).
3996 Panel Report, Canada – Aircraft , para. 9.112, cited with approval in Appellate Body Report,
Canada – Aircraft, para. 149.
3997 Panel Report, Canada – Aircraft , para. 9.112; Appellate Body Report, Canada – Aircraft , paras.
157-158; Appellate Body Report, US – Countervailing Measures on Certain EC Products, para. 102.

BCI deleted, as indicated [***]

received a 'financial contribution' on terms more favourable than those available to
the recipient on the market."3998
7.1091 Thus, a benefit will be conferred whenever a financial contribution is granted to a recipient on
terms more favourable than those available to the reci pient in the market. In the context of a financial
contribution in the form of provision of goods or services other than general infrastructure, we
consider that the appropriate question to be addressed in resolving the question of benefit is whether a
market actor would have provided the good or service to the recipient at the time, on the same terms
and conditions as the government provision at issue.
7.1092 In this regard, the European Communities argues that it is incorrect to assess benefit to Airbus
on the basis of the difference between the cost to the Hamburg government of the project, and the rent
paid by Airbus for the site.
3999 The United States does not dispute th e basic premise that cost to the
government is not an appropriate basis for assessme nt of benefit. However, the United States does
argue that the circumstances of the case require consideration of the total amount invested by
Hamburg to create the site in order to determine th e existence and amount of any benefit. The United
States argues that this is not a case where the governme nt simply rented an existing parcel of land to
Airbus. Rather, in this case the Hamburg author ities specifically created the land that was necessary
for Airbus' expansion next to its ex isting site at Finkenwerder, and then rented that land to Airbus.
The United States does not, in the first instance, dis pute that the rent for the land and special purpose
facilities may well be commensurate with a market benchmark for rental of existing land in the
area,4000 but considers that the underlying investment in reclaiming the land must be included in the
calculation in this case in order to arrive at a r ealistic approximation of a market benchmark for the
value of the particular land in question, which must reflect the investment in land . In the United
States' view, a calculation of the lease price which does not take into consideration the investment in
creating the site effectively turns that amount into a grant to Airbus.
7.1093 The European Communities, on the other hand, argues that Hamburg did not create an
industrial site for Airbus, but "c onducted mere land reclamation", 4001 and then rented that land to
Airbus at a market-based price, and that no bene fit was conferred upon Airbus thereby. We have
already rejected the argument that "mere land reclam ation" is exempt from consideration as a subsidy
in this dispute, and are considering the entire Mühl enberger Loch project as a whole. Therefore, we
consider that the investment by Hamburg in brin ging the site into existence is relevant in our
assessment of whether a benefit was conferred on Ai rbus. This does not constitute, as argued by the
European Communities, a determination of the amount of benefit on the basis of cost to the
government. Rather, we consider that it is simply a reflection, in the particular circumstances of this
measure, of the basis on which a market actor woul d determine the amount of rent to be charged for
that particular parcel of land, and thus the appropriate "market" benchmark.
7.1094 While the parties agree that, in this case, no co mmercial investor would have undertaken the
project, it is clear to us that this is because the investment necessary in reclaiming the land was
disproportionately large in comparison to any potentia l returns. The parties are in general agreement
as to the market value of industrial land in Hambur g, and the value of the Mühlenberger Loch land -
between EUR 71,600,000 and EUR 85, 900,000, according to the United States, 4002 or approximately

3998 Appellate Body Report, Canada – Aircraft, para. 157.
3999 EC, FWS, para. 820.
4000 The United States does, as a second line of argum ent, assert that the rent is insufficient by
comparison to a market benchmark. In light of our conclusion, we do not consider it necessary to address this
line of argument.
4001 EC, SWS, para. 357.
4002 US, FWS, para. 432, and Exhibit US-183.

BCI deleted, as indicated [***]

[***], according to the EC.
4003 It is clear that a market-based rental on land of that value is
necessarily far less than would be a market based rental on an investment in land worth EUR 750
million. Indeed, the European Co mmunities does not even suggest that the rental paid by Airbus
provides a market return on the investment in reclai ming the land. Yet, in our view, a market actor
who invested EUR 750 million in land, whether by purchasing it or by creating it through
reclamation, would, in renting the property, seek a re turn on that investment. In this situation, the
"investor" was the Hamburg city authorities, who di rected public funds to create an asset that the
market would not have created. To argue, as the Eu ropean Communities effectively does, that in this
situation, no benefit can be found, would, in our estimation, result in a wholesale circumvention of the
fundamental purpose of the SCM Agreement's di scipline on subsidies. Under the European
Communities' view, the more a financial contribu tion by a government distorted the allocation of
resources that the market would otherwise produce, the less it could be found to be a subsidy.4004 This
is not an acceptable outcome, as it perverts a fundamental goal of the SCM Agreement.
7.1095 The European Communities argues that for the United States to successfully argue that the
cost of the project should be taken into account it must demonstrate that, absent the actions of the
Hamburg authorities, Airbus would have reclaimed th e land itself, in which case the costs incurred by
Hamburg would represent the "cost savings" for Airbus. 4005 While the European Communities argues
that Airbus would not have done so, this appears la rgely to be based on its view that land reclamation
is a government task, and that absent the action of Hamburg to reclaim the land, Airbus would simply
have sited its new facility elsewhere. While it may be true that land reclamation is most commonly
undertaken by governments, there is nothing in principle that would preclude a private party from
undertaking such a project, and thus nothing in principle that would have precluded Airbus from
reclaiming the Mühlenberger Loch site on its own account.
4006 That the cost of the project might have
persuaded Airbus not to u ndertake it, but rather to site its asse mbly facility elsewhere, as argued by
the European Communities, in our vi ew simply underscores the fact that the reclamation of this land
involved, as the European Communities itself sugg ested, a "cost of reclamation that no rational
investor, including Airbus, would incur for land that Airbus did not need." 4007 The fact that Airbus
had other options, but chose to expand its existi ng facilities at Finkenwerder once the necessary land
was made available to it thus supports our view that the financial contribution of the Hamburg
authorities in reclaiming the land and building speci al purpose facilities for Airbus' use conferred a
benefit on Airbus.4008

4003 EC, FWS, para. 801 and Exhibit EC-563 (BCI) p. 4-6.
4004 The European Communities agrees that there are instances where cost can serve as a surrogate for a
market price. However, it asserts that cost may be used to estimate market prices only in instances where it is
apparent that generally prevailing market prices at the time of the investment are sufficient to induce private
investors to undertake the project. The European Communities argues that cost does not provide a reliable
measure of market value where it is apparent that no pr ivate investor would undert ake the investment because
the rent or price required to provide a market return exceeds the market value of the resulting asset. EC,
Comments on US Answer to Panel Questions 154 and 155.
4005 See, EC, SNCOS, paras. 30 & 212.
4006 Provided, of course, that necessary permission was granted to undertake such a project. In our
view, had Airbus sought to undertake the land reclamation on its own account, and been denied permission by
the Hamburg authorities, which then undertook the project at government expense and provided the reclaimed
land exclusively to Airbus, this would demonstrate that the provision of the land conferred a benefit, as it would
be clear that the government had, by its own action, enabled Airbus to save the expense of reclaiming the land.
4007 EC, SCOS, para. 20.
4008 Moreover, not only did the Hamburg authorities have incentive to keep Airbus active at its existing
facility, which might not have been the case had the expansion for purposes of the A380 project not been
possible, but Airbus had incentive to site A380 production operations at the site, in order to ensure that it
obtained LA/MSF from the German government. The European Communities acknowledges that [***] was one
of the reasons Airbus set up two production sites, despite the asserted [***] that resulted. EC, SWS, para. 1079.

BCI deleted, as indicated [***]

7.1096 Finally, the European Communities argues that Airbus pays rent for the land and special
purpose facilities that is commensurate with market rates for like land and facilities in Hamburg, and
therefore that there is no benefit conferred on Airbus. However, the European Communities'
argument is premised on its view that the land recl amation aspect of the project does not constitute a
financial contribution, which we have rejected. It is clear, and the European Communities does not
argue otherwise, that the rent paid by Airbus for the reclaimed land and special purpose facilities does
not provide a market rate of return on the whole of the investment by the Hamburg authorities to
create the Mühlenberger Loch site. Thus, in our vi ew, whether the rent paid by Airbus for the land
and special purpose facilities is commensurate with a ma rket rate for rental of existing industrial land
and facilities in Hamburg is simply not relevant to our analysis of benefit. We consider that the
subsidy granted by Hamburg by creating and leasing the Mühlenberger Loch site conferred a benefit
on Airbus in an amount equivalent to the extent of the difference between the actual rent paid by
Airbus for the land and facilities in question, and a r easonable rate of return on the investment of the
Hamburg authorities in creating that land and those facilities. That investment was many times
greater than the value of the site reflected in th e actual rental amounts, and thus in our view, the
provision of the site conferred a very large benefit to Airbus.
7.1097 Therefore, in our view, the conclusion that the provision of the Mühlenberger Loch site to
Airbus confers a benefit on Airbus, for whom th e project was undertaken, and thus constitutes a
subsidy within the meaning of Article 1 of th e SCM Agreement is inescapable. The European
Communities does not dispute that the provision of the site was specific to Airbus. As Airbus is the
only user of the site, which was developed to fulfil Airbus' needs, we find that the subsidy in question
is specific to Airbus within the meaning of Article 2.1(a) of the SCM Agreement.
(d) Bremen Airport Runway
7.1098 The United States argues that the main runway at Bremen airport was extended by German
authorities in 1988-89 to accommodate transport fli ghts for Airbus wings manufactured in Bremen.
According to the United States, the authorities extended the runway specifically for Airbus'
requirements, and use of the extended portions of th e runway is restricted by regulation to flights
transporting Airbus parts. The United States conte nds that the provision of the extended runway to
Airbus for its exclusive use for less than adequate remuneration is a financial contribution that confers
a benefit on Airbus within the meaning of Article 1.1 of the SCM Agreement that is specific within
the meaning of Article 2 of the SCM Agreement.
4009
7.1099 According to the European Comm unities, the United States' claim fails to adequately identify
the presumed beneficiary, and falls outside the scope of the SCM Agreement. 4010 The European
Communities argues that the extension of the Br emen airport runway, and the associated noise
reduction measures, constitute measures of general infrastructure, and therefore do not constitute a
financial contribution within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement. 4011 T h e
European Communities acknowledges that allowing only Airbus to use the full length of the extended
runway may constitute the provision of a service with in the meaning of Article 1.1(a)(1)(iii) of the
SCM Agreement, but contends that granting Airbus a right to use the full length of the runway does
not confer a benefit on Airbus because Airbus pays for this use in accordance with the general fee
schedule applicable at Bremen Airport.
4012

4009 US, FWS, para. 451.
4010 EC, FWS, paras. 860-861.
4011 EC, FWS, paras. 864, 869.
4012 EC, FWS, paras. 872-873.

BCI deleted, as indicated [***]

(i) Factual Background
7.1100 According to the European Communities, German authorities require a safety margin at either
end of commercial runways, consisting of a 300 me ter area free of all obstacles. In Bremen, the
implementation of this requirement had resulted in the shortening of the usable length of the
runway.
4013 In May 1988, an extension of the runway by 300 meters at either end was authorized. 4014
Consequently, in 1989-90, the runway was extended fr om its existing length of 2,034 meters to 2,634
meters.4015 At the same time, noise reduction measures were put in place. 4016 It is undisputed that,
with the exception of emergencies, only 2,034 meters of the runway's length is available for general
aviation use. Regular use of the entire length of th e runway, including the 600 meters of extension, is
permitted only for flights transporting Airbus wings from Bremen.
7.1101 The cost of the runway extension and noise reduction measures was borne by the City of
Bremen. The United States asserts that Bremen paid DM 40 million to extend the runway and a
further DM 10 million for noise reduction measures. 4017 The European Communities disputes the
amounts in question, asserting that Bremen paid [***] for the extension of the runway and [***] for
noise reduction.4018
(ii) Arguments of the Parties
7.1102 The United States argues that the extension of the Bremen airport runway and the provision of
the runway to Airbus for its exclusive use, incl uding the implementation of noise reduction measures,
constitutes the provision of goods and services other than general infrastructure within
Article 1.1(a)(1)(iii) of the SCM Agreement, and confers a benefit on Airbus.4019
7.1103 In response, the European Co mmunities asserts first that th e United States' challenge is
"overly vague", as it fails to adequately identify th e presumed beneficiary of the alleged subsidy. In
this regard, the European Comm unities notes that, at the time of the runway extension, neither
Airbus SAS nor Airbus Germany existed. 4020 We recall our findings that, for the purpose of this
dispute " a financial contribution provided to any Air bus partner or affiliated entity, or to Airbus GIE,
in relation to the production of an Airbus LCA, c onfers a benefit on the Airbus Industrie consortium,
as the producer of Airbus LCA" and that the Unite d States is not required to demonstrate "the "pass-
through" to Airbus SAS of bene fits conferred by financial cont ributions provided to the Airbus
Industrie consortium."4021 Therefore, we conclude that the United States has sufficiently identified the
beneficiary of the alleged subsidy. The European Communities also maintains that this measure falls
outside the temporal scope of Article 5 of the SC M Agreement and was grandfathered by Article 2 of
the 1992 Agreement. These issues we re addressed and the European Communities' arguments in this

4013 EC, FWS, para. 863.
4014 EC, FWS, para. 863.Senatsbeschluss of 31 May 1988, Exhibit EC-577) (Non-BCI).
4015 This involved, inter alia, rerouting the river Ochtum, which flowed past the end of the runway.
Senatsbeschluss of 31 May 1988, Exhibit EC-577) (Non-BCI).
4016 EC, FWS, para. 863.
4017 US, FWS, para 453 referring to Bremische Bürgerschaft, Antrag (Entschließung) der Fraktion der
SPD, Drucksache 12/194, para. 13 (16 May 1988), Exhibit US-195). The Bremen Parliament approved the
extension and related expenditures on 18 May 1988. See, Bremische Bürgerschaft, Plenarprotokoll, 18.
Sitzung, 12. Wahlperiode, at 1018, 1028, 1032 (18 May 1988), Exhibit US-196).
4018 EC, FWS, para. 864.
4019 US, FWS, para. 451.
4020 EC, FWS, para. 860.
4021 See, paras. 7.192 - 7.200 above.

BCI deleted, as indicated [***]

regard were rejected in our Preliminary Ruling. 4022 We therefore will not address these arguments
further in this section.
7.1104 Substantively, the European Communities argues that the extension of the Bremen airport
runway, and the associated noise reduction measures, constitute measures of general infrastructure,
and therefore do not constitute a financial contributi on within the meaning of Article 1.1(a)(1)(iii) of
the SCM Agreement.4023 The European Communities argues that the runway extensions fall "within
the notion of general infrastructure", asserting th at Bremen may provide modern transportation
facilities, including an airport, whose proper function is subject to questions of capacity, and thus the
extension of the runway to match demand cons titutes the provision of general infrastructure. 4024 The
European Communities acknowledges that allowing only Airbus to use the full length of the extended
runway may constitute the provision of a service with in the meaning of Article 1.1(a)(1)(iii) of the
SCM Agreement,4025 but contends that granting Airbus a right to use the full length of the runway
does not confer a benefit on Airbus because Airbus pays for this use in acco rdance with the general
fee schedule applicable at Bremen Airport.4026
7.1105 The United States maintains that the extension of the runway and the implementation of noise
reduction measures do not constitute the provision of general infrastructure. 4027 The United States
argues that the extension of the runway was undertaken by the city of Bremen specifically for Airbus,
to accommodate its need to transport large parts, i.e., aircraft wings, by air, to other Airbus facilities
elsewhere. In support of its argument, the United States relies, inter alia, on statements made in the
Bremen Parliament that described the r unway as a "company runway" for Airbus. 4028 The United
States further argues that the use of the full length of the extended runway is limited to Airbus by
regulation.4029 In this regard, the United States cites, inter alia, an order of the Administrative Court
of Bremen which limits the use of the full length of the runway to specific aircraft types carrying
freight consisting of wings for Airbus A330/A340 and future models.4030

4022 See, paras. 7.88 - 7.105 (findings on temporal scope arguments) and paras. 7.138 - 7.158 (findings
on adequacy of US request for panel establishment) above.
4023 EC, FWS, paras. 869-870.
4024 EC, FWS, para 870.
4025 EC, FWS, para. 872.
4026 EC, FWS, para. 873. The European Communities argues that fees for runway usage are based on
objective criteria (such as the weight and type of aircraft, number of passengers). According to the European
Communities, the fact that the fees are not calculated ba sed on the length of runway used by a plane does not
mean that Airbus should pay an add itional fee simply because it uses th e full length of the runway. The
European Communities asserts that aircraft weight is related to the use of the runway extension because heavier
aircraft require longer runways. In other words, th e European Communities argues that because the fees are
levied in part based on the weight of the aircraft, Air bus is paying a higher user fee when it uses the runway
extension to land heavier aircraft. EC, Answer to Panel Question 96, para. 257.
4027 US, SWS, para. 416.
4028 US, FWS, para. 451, citing Bremische Bürgerschaft, Plenarprotokoll, 18, Sitzung, 12, Wahlperiode
(18 May 1988) at 1016 (stating also that the expenditure amounts to a subsidy of DM 250,000 per take-off),
Exhibit US-196; Bremische Bürgerschaft, Antrag (Entschließung) der Fraktion der SPD, Drucksache 12/194
(16 May 1998), Exhibit US-195.
4029 US, Answer to Panel Question 20, para. 153, refe rring to the ruling of the Bremen Administrative
Court concerning the operating restrictions for the use of the extended runway, which provide that it can only be
operated for take-offs and solely for transporting airfreight consisting of the wings of Airbus A330 and A340
aircraft, as well as successive versions thereof, a nd only using Aero Spaceliner 377 Guppy/Super Guppy or
aircraft with noise levels not exceeding those of these models. See, pp. 9-13 of the judgment, Exhibit EC-578
and pp. 9-12 of the translation submitted by the Eu ropean Communities, and Verwaltungsgericht Bremen
(Administrative Court) (20 December 2001), case no. 2K 2787/00, Exhibit US-199, at 3.
4030 US, FWS, para 451, referring to the descriptio n in Verwaltungsgericht Bremen (Administrative
Court) (20 December 2001), case no. 2K 2787/00, Exhibit US-199, at 3; see also, the maps published by the

BCI deleted, as indicated [***]

7.1106 The European Communities acknowledges that there are limitations on use of the runway, but
argues that these limitations are based on environm ental concerns about increased air traffic and
pollution, as well as noise-related concerns.
4031 The European Communities also acknowledges that
in deciding to extend the runway, the Senate intende d to allow Airbus to u se the extended runway for
the transport of parts, so as to ensure the maintenance of an Airbus facility, and 500 associated jobs, in
the region.4032 In light of this, the European Commun ities acknowledges that allowing only Airbus to
use the full length of the extended runway may c onstitute the provision of a service within the
meaning of Article 1.1(a)(1)(iii) of the SCM Agreement. 4033 However, the European Communities
contends that this right does not confer a benef it on Airbus, because Airbus pays for this use in
accordance with the general fee schedule applicable at Bremen Airport. 4034 The European
Communities also asserts that in practice, the runw ay extensions can be used by any aircraft in
emergency situations such as interrupted take-o ffs and emergency landings, can be used for the
transport of parts and components by the aerospace i ndustry and, in particular cases, can be used by
any private airline. 4035 Therefore, the European Communities asserts, all users of the Bremen
airport may benefit from the extensions.4036
7.1107 The United States argues that the use of the ex tended runway is limited to Airbus for the
transport of aircraft parts by law, referring first to the decision of the Bremen government to extend
the runway.4037 In that decision, the United States argues, the Bremen government explicitly rejected
the possibility that the extended runway could be used for general, non-Airbus related air transport.
Second, the United States refers to the December 2001 judgment by the Bremen Administrative
Court, which confirmed that the use of the extende d runway was limited to Airbus, and only for the
transport of wings for the A330/A340 or future models.4038 The United States maintains that, contrary

German air traffic control agency Deutsche Flugsicherung in the German AIP (14 and 28 October 2004),
Exhibit US-193; see also, http://www.fluglaerm.de/bremen/flughafenvertrag _seite_1.htm for a description of
the history of the extension, Exhibit US-194. See, also, United States, Answer to Panel Question 20, para. 152.
4031 The European Communities notes that in January 1989, Bremen concluded a contract with the
Bremen airport company with the aim of permanently restricting noise and pollution from the runway, as
extended, which governs the use of th e runway extensions. Following a co mplaint about use of the extension
contrary to the applicable restrictions, the Bremen Administrative court in December 2001 confirmed the terms
of the user restrictions, obliging the city of Bremen not to use the extensions beyond the agreed level. EC,
FWS, paras. 865-867, referring to Verwaltungsgericht Bremen, Az.2 K 2787/00, pp. 5-13, Exhibit EC-578) and
Oberverwaltungsgericht Bremen Az 1A159/02, p.1, Exhibit EC-579.
4032 EC, FWS, para. 872.
4033 EC, FWS, para. 872.
4034 EC, Answer to Panel question 96, para. 257. See, footnote 4026 above.
4035 EC, FWS, para. 868.
4036 EC, FWS, para. 868.
4037 US, Answer to Panel question 20, para.153 referring to Senatsbeschluss of 31 May 1988, Exhibit
EC-577, at paras. 1 and 3 (English translation by the European Communities).
"{1.} The Senate hereby endorses its decision of 8 May 1973, that Bremen Airport, after full
availability of the existing 2,034m l ong runway has been restored, duly sa tisfies the requirements to be placed
on it in the interest of ensuring the safety of flight operations and achieving optimum integration with the
domestic and European operations network through short and medium haul flights with the exception of minor
restrictions on load capacity. The rejection of an extension to the existing runway for general air traffic remains
the unchanged foundation of Bremen's airport policy and the subject of Bremen Airport's operating licence in its
revised form of 7 February 1985. ... {3.} The Senate resolves, for the purposes of safeguarding Airbus wing
assembly operations in Bremen in the long-term and the 500 jobs which are dependent on such operations, to
extend the paved runway to the west and east of the airport by 300m in each direction by Summer 1990 for the
exclusive use of super guppy take-offs or take-offs by similarly quiet freight aircraft for MBB intra-factory
flights."
4038 US, Answer to Panel Question 20, para. 153:
"The operating restrictions set forth in the following nos. 1 to 4 provide, inter alia, that the special
runway can only be operated for take-offs and solely for transporting airfreight consisting of the wings of Airbus

BCI deleted, as indicated [***]

to the European Communities' assertions, the comp lainant in that case was concerned that the use
restrictions, i.e., the limitation to use in transporting Airbus wings, had not been, and might in the
future not be, strictly enforced. 4039 Third, the United States refers to the adoption by the Bremen
Parliament of a motion reaffirming that the runway extension was undertaken exclusively for use by
Airbus to transport Airbus wings.4040
7.1108 In response to a question from the Panel, the European Communities confirmed that use of
the full length of the extended runway is "curren tly open only to certain freighters from Airbus and
not to other companies". 4041 The European Communities noted that the general conditions to use the
runway of the Bremen airport, including the extens ion, are laid down in the January 1989 contract
between the City of Bremen and the airport company ("the Flughafenvertrag"), and that in the process
of extending the runway, Bremen committed to use th e extended runway only in accordance with the
agreed user restrictions. Departures exceeding tho se restrictions can only be authorised with the
consent of the neighbours concerned, with the exception of emergency situations.4042
7.1109 In this context, the European Communities sought to distinguish the provision of a service
from limitations on access to a service. The Europ ean Communities asserts that the SCM Agreement
"is not concerned with questions of access to services provided by governments". 4043 F o r t h e
European Communities, under Article 1.1(a)(1)(iii) of the SCM Agreement, the provision of a service
constitutes a financial contribution, but the Agreem ent is not concerned with potential government

models A 330 and 340 as well as successive versions thereof and only using Aero Spaceliner 377 Guppy/Super-
Guppy or one with noise levels not exceeding those of such model. The implementation order of the Senator for
Building Affairs, which conform with the settlement, was issued on January 14, 1992. Subsequently, the special
runways were built, i.e., the main runway was extended by 300m at each end."
Verwaltungsgericht Bremen (Administr ative Court) (20 December 2001), case no. 2K 2787/00, at 3,
Exhibit US-199).
4039 US, Answer to Panel Question 20, para.153. The United States argues that the European
Communities omits relevant pages from the Court's decision and that its also omits details and modifies the facts
to suit its purposes. For instance, the United States observes that at para. 867 of its first written submission, the
European Communities asserts that the complainant had "complained that a Boeing 747 (!) had used the
extended runway." The United States argues that in fact, the complaint was triggered primarily by the use of the
extended runway by Airbus for six test flights with an aircraft of the type VFW614-ATD. The complainant was
concerned, and the Court agreed, that th is regular use of the runway by Airbus for test flights, rather than the
transport of wings as provided for, indicated that the restriction on the use of the extension was no longer being
fully enforced. See, pp. 9-13 of the judgment, Exhibit EC-578 and pp. 9-12 of the English translation. The one
instance in which the extension of the runway was used by a Boeing 747 was, according to the United States,
irrelevant to the judgment. It appears that the runway extension was not used in that instance for either take off
or landing, but only for a turning manoeuvre after landing was complete, and the Court did not rely on this event
in its ruling. Id. at pp. 5 & 8-9 (English version).
4040 US, Answer to Panel Question 20, para. 153. The United States notes that, in a motion submitted
by the governing party, the SPD, to the Bremen Parliament on 16 May 1988, the Parliament was asked to
approve the runway extension. The motion noted that "{t}he extension of the takeoff and landing runway as a
company runway at the Bremen Airport is being done exclusively for use in the industrial transport of MBB
{i.e., the corporate parent of Deutsche Airbus} Bremen to transport the Airbus wings ." (emphasis added). The
motion was adopted on 18 May 1988. US, Answer to Panel 20, para.153, citing Bremische Bürgerschaft,
Antrag (Entschließung der Fraktion der SPD), Drs. 12/194, Exhibit US-195 and Bremische Bürgerschaft, 18.
Sitzung am Mittwoch, dem 18 Mai 1988, Plenarprotokoll, p. 1032, paras. (B) and (C), Exhibit US-196.
4041 EC, Answer to Panel Question 269, para 146.
4042 The European Communities clarified that other airport users could request the airport company to
receive slots for using the extended runway as well. In order to respond positively, th e contract would have to
be modified by mutual agreement betw een the City of Bremen and the airp ort company. The City of Bremen
can only agree to such modifications, if and to the extent commitments vi s-à-vis the neighbours not to exceed a
fixed number of allowed departures on the extended runway would be kept. EC, Answer to Panel Question 269,
paras. 144-145.
4043 EC, Answer to Panel Question 269, para. 147.

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services or with regulating under which conditions governments may or may not grant exclusive
rights to companies. Thus, the Eu ropean Communities maintains, it is immaterial that only a certain
company can have access to a government service, wh ereas other cannot. According to the European
Communities, the SCM Agreement establishes disc iplines on the granting of subsidies, and the
relevant test is whether the actual
 provision of the service to a certain company is done on favourable
terms as compared with market conditions so as to confer a benefit to the company. Thus, the
European Communities argues that the relevant an alysis requires a comparison of the user fees
Bremen collects from Airbus for the service of allo wing it the use of the full length of the extended
runway, with the fees collected from other compan ies for the service of allowing the use of the
ordinary length of the runway.4044
7.1110 The United States asserts that the SCM Ag reement does not support the European
Communities' position, but rather flatly contradicts it. The United States argues that Article 2 of the
SCM Agreement makes clear that "limit{ing} access to a subsidy to certain enterprises" renders that
subsidy specific and that Article 14(d) provides that the "availability" of, i.e., access to, a government-
provided service is one factor to be considered when examining adequacy of remuneration in the
context of a benefit determination. Therefore, th e United States maintains that, where the subsidy at
issue is, as provided for in Article 1.1(a)(1)(iii), the provision of a service by a government, the extent
to which other users may access that service is critical to any inquiry under the SCM Agreement.4045
7.1111 With respect to the noise reduction measures, the European Communities argues that these
measures are general infrastructure on the grounds that it is a constitutional duty of the city of Bremen
to protect the public health of its citizens. Th e European Communities contends that in performing
this task, the city of Bremen may construct noise reduction measures for the benefit of the public at
large and may also chose where su ch measures need to be located to be most effective. More
specifically, it asserts that construction of the no ise reduction measures in the area surrounding an
airport is for the benefit of citizens living in the immediate neighbourhood, and is a legitimate choice
that falls outside the ambit of the SCM Agreement.4046
7.1112 The United States contends that the noise reduction measures implemented by the Bremen
government at the time of the runway extension cannot be seen as general infrastructure measures.
The Unites States argues that these noise reducti on measures were necessary only because of the
runway extension, which itself was undertaken excl usively for Airbus for the transport of aircraft
wings.
4047 Thus, rather than protecting the areas adjace nt to the airport against noise from the airport
generally, these measures were prompted exclusively by the extension of the runway and are, as such,
for the exclusive benefit of Airbus. In support of its view, the United States refers to the Bremen
government's decision authorizing the extension, which describes the government's motivation in
undertaking the noise reduction measures. 4048 In addition, the United States refers to the
16 May 1988 motion of the SPD, which indicates that, while additional noise reduction measures
were not formally required, the extension of the runway should be accompanied by an extended noise
reduction area. 4049 A Bremen Parliamentarian therefore called the cost of the noise reduction

4044 EC, Answer to Panel Question 269, paras. 147-148.
4045 United States, Comments on EC's Answer to Panel Question 269, para. 133.
4046 EC, FWS, para. 869.
4047 US, Answer to Panel Question 22, para. 158.
4048 "With a view to protecting the resident population living within the proximity of the airport from
aircraft noise and to improving the general airport environment in its location near to the city, the Senate
resolves, as a voluntary measure, to reimburse, on application, future expenditure on structural noise protection
within the existing noise protection zone 2."
Senatsbeschluss of 31 May 1988, para. 5, Exhibit EC-577.
4049 US, Answer to Panel Question 22, para. 159, citing, Bremische Bürgerschaft, Antrag
(Entschließung der Fraktion der SPD), Drs. 12/194, Exhibit US-195.

BCI deleted, as indicated [***]

measures "follow-up costs for noise reduction." 4050 The above evidence, in view of the United States,
demonstrates that the additional noise reduction measures were prompted exclusively by the extension
of the runway.
(iii) Evaluation by the Panel
General infrastructure
7.1113 We consider first the European Communities' argument that the provision of the runway
extension for the exclusive use of Airbus to transport aircraft wings, and the noise reduction measures,
constitute measures of general infrastructure. In order to address that question, however, we must
first determine whether the noise reduction measures must be considered separately from the
extension of the runway per se , and if so, whether the former constitute, as the European
Communities argues, a measure of general infrastruct ure. The United States ma intains that the noise
reduction features were undertaken only as a result of the extension of the runway, and that therefore
they constitute a single measure.
7.1114 We agree with the United States. The eviden ce before us supports the conclusion that the
noise reduction measures were considered only as a result of the decision to extend the runway, and
even in that context were not considered necessar y, but were undertaken as a matter of choice in
connection with the runway project.
4051 The European Communities has provided no evidence to
suggest that the noise reduction measures in question would have been undertaken but for the decision
of the Bremen authorities to extend the runway. While we recognize that measures to reduce noise in
the area of an urban airport may well benefit the public at large, this does not, in our view, suffice to
demonstrate that the measures at issue here must be considered general infrastructure, independently
from the runway extension. It would be putting the cart before the horse, in our view, to consider
whether the noise reduction measures constitute ge neral infrastructure and therefore should be
considered separately from the runway extension. We will therefore consider whether the runway
extension and associated noise reduction measures c onstitute the provision of general infrastructure
together in our analysis.
7.1115 As we concluded above,4052 in our view, the determination whether the provision of a good or
service constitutes a provision of "general infrastruct ure" cannot be answered in the abstract, but
rather must take into account the existence or absence of de jure or de facto limitations on access or
use, and any other factors that tend to demonstrate that the infrastructure was or was not provided to
or for the use of only a single entity or a limited group of entities, which may include factors relating
to the circumstances surrounding the creation of the infrastructure in question, consideration of the
type of infrastructure, the conditions and circum stances of the provision of the infrastructure, the
recipients or beneficiaries of the infrastructure, and the legal regime applicable to such infrastructure,
including the terms and conditions of access to and/or limitations on use of the infrastructure.
7.1116 It is clear from the evidence before us that the extension of the runway at Bremen airport, and
the associated noise reduction measures, were undertaken by the Bremen city authorities specifically
for Airbus' needs. The records of the decision to extend the runway by 600 meters make it clear that
this was undertaken in order to enable Airbus to use the runway to transport aircraft wings from its
Bremen facility to other facilities in the production of LCA. For instance, the January 1989 contract
relating to the airport specifies that that the use of the runway extensions should be limited to ensuring
the transport of Airbus wings assembled in Br emen. It goes on to provide that should the

4050 US, Answer to Panel Question 22, para. 159, Br emische Bürgerschaft, 18. Sitzung am Mittwoch,
dem 18. Mai 1988, Plenarprotokoll, Exhibit US-196, p. 1016, para. (B).
4051 See, exhibits cited at footnotes 4038, 4040 and 4048 above.
4052 See, discussion at paras. 7.1036 to 7.1044 above.

BCI deleted, as indicated [***]

transportation of wings cease, transportation of othe r goods of the Bremen air and space industry is
possible to a limited extent, if such transport can not be carried out without use of the "special"
runway, that is, the extensions, and that should su ch take-offs not be necessary in the future, no other
take-offs are to be carried out.
4053 A motion in the Bremen Parliament concerning the extensions cited
costs of DM 40 million for the construction of the "company runway" and DM 9 million for the
"voluntary additional noise protection measures". The motion referred to the extension of a "company
runway at the Bremen Airport ... being done excl usively for use in the industrial transport of MBB
Bremen to transport the Airbus wings".4054 The motion notes that "{a}ll other proposed and examined
alternatives for transport of the wings have b een ruled out" and goes on to observe that while
"{a}dditional noise protection ... is not necessary ... voluntary additional noise protection measures
should be completed now". 4055 During discussions in the Bremen Parliament prior to the eventual
approval of this motion, it was noted that the plan ned "restrictions in use" limited the use of the
extensions "only for MBB". 4056 The European Communities does not dispute this evidence, and has
presented no evidence to suggest that the extension of the runway was not undertaken exclusively for
Airbus' use.4057
7.1117 We do not doubt that the Bremen authorities we re pursuing a public interest in undertaking
the project – indeed, it is clear from the evidence before us that one motivation for the runway
extension was the desire to ensure that Airbus' Bremen facility, and the associated 500 jobs, would be
able to continue operations. However, a public interest in maintaining jobs in the region is simply not
sufficient to demonstrate that the project constitutes ge neral infrastructure. As we have noted, it is in
any event always likely to be the case that public authorities will ha ve reasons of public policy when
expending public funds. Particularly in the face of evidence to the contrary, a public purpose cannot,
in our view, be enough to justify a finding that a measure constitutes general infrastructure.
7.1118 Moreover, not only was the extension of the runw ay undertaken explicitly to enable Airbus to
transport wings by air, but it is clear from the eviden ce before us that the use of the full length of the
extended runway is limited to Airbus by regulation.4058

4053 Exhibit US-194.
4054 Bremische Bürgerschaft, Antrag (Entschließung) der Fraktion der SPD, Drucksache 12/194
(16 May 1998), Exhibit US-195, para. 2.
4055 Bremische Bürgerschaft, Antrag (Entschließung) der Fraktion der SPD, Drucksache 12/194
(16 May 1998), Exhibit US-195, paras. 6, 11-12.
4056 Bremische Bürgerschaft, 18. Sitzung am Mittwoch, dem 18 Mai 1988, Plen arprotokoll, p. 1032,
paras. (B) and (C), Exhibit US-196. We recall our decision that the United States need not demonstrate a "pass
through" to Airbus, see paras. 7.192 and 7.200 above.
4057 Thus, for instance, although the European Communities alludes, para. 870 of its first written
submission, to "questions of capacity" and the "extension of the runways to match demand", it has submitted no
evidence to suggest that there were any capacity concer ns regarding the Bremen airp ort at the time the decision
to extend the runway was undertaken. Certainly, none of the records concerning the decision to extend the
runways before us suggest the existence of any capacity concerns, other than Airbus' need for a longer take-off
runway to transport wings manufactured in the region to other facilities.
4058 US, FWS, para 451, referring to the descriptio n in Verwaltungsgericht Bremen (Administrative
Court) (20 December 2001), case no. 2K 2787/00, at 3, Exhibit US-199; see also, the maps published by the
German air traffic control agen cy Deutsche Flugsicherung in the German AIP (14 October and
28 October 2004), Exhibit US-193); see also, http://www.fluglaerm.de/bremen/flughafenvertrag _seite_1.htm
for a description of the history of the extension, Exhibit US-194. See, also, US, Answer to Panel Question 20,
paras. 152-153, referring to the ruling of the Bremen Ad ministrative Court concerning the operating restrictions
for the use of the extended runway, which provide that it can only be operated for take-offs and solely for
transporting airfreight consisting of the wings of Airbus models A330 and A340, as well as successive versions
thereof, and only using Aero Spacelin er 377 Guppy/Super Guppy or aircra ft with noise levels not exceeding
those of these models.

BCI deleted, as indicated [***]

7.1119 Indeed, the European Communities does not disp ute that the limitation on use of the full
length of the extended runway may constitute a subsid y, but rather argues that Airbus pays fees for
this usage and that therefore no benefit is conf erred on Airbus. The European Communities suggests
that the right to exclusive use of the full length of the runway, should be considered access to a
service, and should be distinguished from the provision of a service by a government.4059 It goes on to
argue that that the exclusive access provided to Airbus does not confer a benefit.4060
7.1120 Our understanding of the United States' position is that it challenges the provision of the
extended runway as a good, rather than the provisi on of access to the extended runway as a service,
and thus the European Communities' argument is ina pposite. In any event, however, we see no basis
in the text of the SCM Agreement for the dis tinction the European Communities seeks to draw
between access to a service or provision of a service, in the context of Article 1.1(a)(1)(iii) of the
SCM Agreement. We see no reason why the provision of a service by a government to a company
should be distinguished from the establishment, by a government, of limitations on access to a service
– in our view, these two slightly different government actions have the same consequences, and thus
fall within our understanding of a government providing services as set out in Article 1.1(a)(1)(iii).
7.1121 Having found, as a matter of fact, that the runway extension was undertaken to fulfil Airbus'
specific needs, and that use of the extended runway is de jure limited to Airbus for the purpose of
transporting aircraft wings, we do not agree with the European Communities that only the right to
exclusive use of the extended runway is at issu e here. Rather, the entire project, extending the
runway, the associated noise reduction measures, and th e right of exclusive use, constitute a financial
contribution to Airbus, within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement. Thus, in
view of the specific limitations on access to, i.e., use of the extended runway, and the clear evidence
demonstrating that the runway extension was undertak en for the use of Airbus, we conclude that it
does not constitute a measure of general infrastructure but rather constitutes a financial contribution in
the form of the provision of goods or services other than general infrastructure, within the meaning of
Article 1.1(a)(1)(iii) of the SCM Agreement. We therefore turn to the question of benefit.
Benefit

7.1122 The United States asserts that the provision of the runway confers a benefit on Airbus,
because (i) Airbus did not reimburse the Bremen aut horities for the costs of extending the runway and
creating the noise reduction measures, and (ii) Air bus does not pay any additional landing fees for use
of the extended runway.4061
7.1123 We recall that Article 1.1(b) of the SCM Agre ement does not define the notion of "benefit".
However, it is well established that a "financial contribution" will confer a "benefit" upon a recipient
when it places that recipient in a more advantag eous position compared with the position of that
recipient in the absence of th e "financial contribution". 4062 In Canada – Aircraft , both the panel and
the Appellate Body considered that the basis for making this comparison was the market. Thus, the
panel observed that:

4059 EC, Answer to Panel Question 269, para. 147.
4060 EC, Answer to Panel Question 270.
4061 US, FWS, para. 453.
4062 Panel Report, Canada – Aircraft , para. 9.112, cited with approval in Appellate Body Report,
Canada – Aircraft, para. 149.

BCI deleted, as indicated [***]

"a financial contribution will only confer a 'benefit', i.e., an advantage, if it is
provided on terms that are more advantage ous than those that would have been
available to the recipient on the market".
4063
Similarly, the Appellate Body explained that:

"the marketplace provides an appropriate basis for comparison in determining
whether a 'benefit' has been 'conferred', because the trade distorting potential of a
'financial contribution' can be identified by determining whether the recipient has
received a 'financial contribution' on terms more favourable than those available to
the recipient on the market."
4064
7.1124 Thus, a benefit will be conferred whenever a financial contribution is granted to a recipient on
terms more favourable than those available to the reci pient in the market. In the context of a financial
contribution in the form of provision of goods or services other than general infrastructure, we
consider that the appropriate question to be addressed in resolving the question of benefit is whether a
market actor would have provided the good or service to the recipient at the time, on the same terms
and conditions as the government provision at issue.
7.1125 We note that, during the Annex V process, th e Facilitator asked the European Communities
and the Airbus governments to provide information re garding the cost of the runway extensions and
noise reduction measures at the Bremen airport, but that the European Communities refused to
provide any of the information that the Facilitato r requested. The United States asks the Panel, in
accordance with paragraph 7 of Annex V, to draw adverse inferences that the withheld information
supports the contentions of the United States. 4065 The United States has supported its contentions
concerning benefit with publicly available information. During the proceedings before the Panel, the
European Communities also provided some informati on concerning the costs of the runway extension
and associated noise reduction measures.
7.1126 Relying on the records of the Bremen Parlia ment approving the runway extension and noise
reduction measures, the United States asserts that th e City of Bremen paid DM 40 million to extend
the runway, and DM 10 million for noise reduction measures. 4066 The European Communities does
not dispute that these figures represent the plan ned expenditures, but contends that the actual
construction costs were lower than planned. 4067 Thus, the European Communities contends that the
City of Bremen actually paid [***] for the extension of the runway and [***] for noise reduction. 4068
While the European Communities did not origin ally submit any supporting evidence for these
assertions, in response to a question from the Panel, the European Communities submitted a document
indicating that the runway extension accounted for 25.9% of the total amount budgeted for the

4063 Panel Report, Canada – Aircraft , para. 9.112; Appellate Body Report, Canada – Aircraft ,
paras. 157-158; Appellate Body Report, US – Countervailing Measures on Certain EC Products, para. 102.
4064 Appellate Body Report, Canada – Aircraft, para. 157.
4065 US, FWS, para 455 referring to Questions 48- 55 from the Facilitator to the EC, Exhibit US-4
(BCI), as well as to EC Answer s to Questions 38-45 from the F acilitator, Exhibit US-5 (BCI). See, also, US
4066 US, FWS, para 453 referring to Bremische Bürgerschaft, Antrag (Entschließung) der Fraktion der
SPD, Drucksache 12/194, para. 13 (16 May 1988), Exhibit US-195. The Bremen Parliament approved the
extension and related expenditures on 18 May 1988. See, Bremische Bürgerschaft, Plenarprotokoll, 18.
Sitzung, 12. Wahlperiode, at 1018, 1028, 1032 (18 May 1988), Exhibit US-196. The United States also refers
to statements in the Bremen Parliament that the City of Bremen expenditure amounts to a subsidy of DM
250,000 per take-off. US, FWS, para 451 referring to Exhibit US-196, Bremische Bürgerschaft,
Plenarprotokoll, 18, Sitzung, 12, Wahlperiode (18 May 1988) at 1016.
4067 EC, Answer to Panel Question 94, para. 250.
4068 EC, FWS, para 864.

BCI deleted, as indicated [***]

Bremen runway project. According to the Eur opean Communities, the entire project included the
restoration of the full original length of the runway, as well as the extension. 4069 Thus, the European
Communities estimated the actual costs of the extension by applying the 25.9% portion of the total
estimate accounted for by the extension to the final actual costs for the runway project as a whole, and
arrived at the [***] figure cited above.
4070 The European Communities argues that "{r}ather than
basing itself on early estimates, the Panel should base its findings on actual data submitted by the
European Communities in its first written submission...".4071
7.1127 While we are perturbed that the European Co mmunities did not substantiate its contentions
until specifically asked by the Panel, the United St ates does not dispute, and we do accept, as a matter
of fact, that the actual cost of the noise reduction measures was [***] as shown in Exhibit EC-6224072.
7.1128 On the other hand, while we understand the calculation on which the European Communities
has based its contentions regarding the actual cost of the runway extension, we are not satisfied that
this calculation is sufficient to substantiate the [***] figure cited by the European Communities as the
actual cost of the extension. We recall that the "runway project" included the restoration of the full
length of the runway and rerouting of the river, as well as the extension. The European Communities
asserts that the restoration of the runway and the extension were "financed under the same budget
line, which does not specifically distingui sh between restoration and extension". 4073 Thus, the
European Communities' contention rests on applying the percentage of estimated costs accounted for
by the extension, 25.9 %, to the actual costs of the entire runway project, to arrive at the [***] figure.
The European Communities indicates that actual costs of the construction were less than the originally
estimated costs.4074 In these circumstances, we cannot simply accept that the percentage of the actual
costs of the entire runway project attributable to the runway extension is necessarily the same as the
portion of the estimated costs. The actual expenditu res were less than the estimated expenditures, and
we cannot rule out the possibility that the proporti on of the actual expenditures represented by the
different aspects of the entire project also change d, since we do not know why the costs were lower
than estimated. We further note that the failure of the European Communities to respond at all to the
Facilitator's questions in this regard, and the Eu ropean Communities' failure to substantiate its
assertions concerning the costs of the runway extens ion until directly asked to do so by the Panel,
warrants our accepting the figure proposed by the United States. We therefore accept the United
States' allegation of DM 40 million, which as not ed, the European Communities accepts reflects the
originally estimated cost of the runway extension, as the cost of the runway extension for purposes of
our consideration of benefit.
4075 Thus, we conclude that the investment by the City of Bremen in the

4069 EC, Answer to Panel Question 94, para. 249 and Exhibit EC-621 (English translation). The exhibit
shows budgeted amounts for "Reinstatement of the full use of the runway ... Extension of the runway ... Loan
to Bremen Airport ... Grant to Br emen Airport for investments ... and Noise protection for Airport" The
reference to "reinstatement of the full use of the runway" is somewhat perplexing, as the European Communities
elsewhere stated that the runway was restored to its full length in 1973, EC, FWS, para. 863, citing
Senatbeschluss of 8 May 1973, Exhibit EC-576, while, the extension of the runway was only undertaken in
1988-89. In any event, the European Communities does not dispute th at the amounts cited by the United States
relate only to the extension of the runway and the noise reduction measures.
4070 EC, Answer to Panel Question 94, paras. 250-252 and Exhibit EC-622. The European
Communities relies on this latter exhibit to substantiate its contention regarding the costs of the noise reduction
measures.
4071 EC, Comments on US Answer to Panel Question 245, paras. 247-248.
4072 Exhibit EC-622.
4073 EC, Answer to Panel Question 94, para. 247.
4074 EC, Answer to Panel Question 94, para. 250.
4075 We note that the European Communities argues that, for the same reasons as in connection with
Mühlenberger Loch, cost to the government is irrelevant for determining benefit. EC, FWS, para. 873. For the
same reasons as expressed previously in paragraph 7.1093, we consider that whether the provision of the

BCI deleted, as indicated [***]

extension of the runway, including the associated noise reduction measures, constitutes a financial
contribution in the amount of [***].
7.1129 The European Communities does not argue that the Bremen authorities receive a market
return on their investment in extending the runway , but only that the exclusive right to use the
extended runway given to Airbus is not on more favourable terms than those in the market, and
therefore confers no benefit on Airbus. The European Communities argues that since Airbus pays for
the runway use, including the use of the extens ion, in accordance with the general fee schedule
applicable at Bremen Airport, there is no benefit to Airbus.
4076 The European Communities maintains
that the fact that Airbus is the only company allo wed to use the extended runway is irrelevant for
determining the benefit.4077 The United States maintains that, absen t an arrangement that ensures that
the City of Bremen is compensated for the cost of the runway infrastructure created specifically for
Airbus and available for use only by Airbus, Ai rbus receives a benefit from having been provided
with this infrastructure.4078
7.1130 The European Communities observ es that the user fees are calculated on the basis of a
number of factors including weight of the aircraft, but not on the basis of the length of runway used
by a plane when taking off or landing. The Eur opean Communities asserts that because Airbus is
landing heavier aircraft, it is paying the highest user fees under the applicable fee schedule. 4079 The
United States acknowledges that the fee is based on the maximum take-off weight of the aircraft, but
argues that maximum take-off weight has nothing to do with the actual take-off weight, and it is this
latter fact that determines the actual length of runway needed for take-offs. 4080 Therefore, the United
States asserts that the maximum take off weight, on which the fees are calculated, it is not dispositive
of whether or not a departing or landing aircraft uses the extended runway. Moreover, United States
argues that regardless of the maximum take-off weight of Airbus aircraft using the extended runway,
users other than Airbus are not allowed to use the extended runway. Finally, the United States asserts
that the European Communities mist akenly suggests that the maximum take-off weight of the aircraft
used by Airbus to transport wings from Bremen is particularly high.4081

extended runway and noise reduction meas ures to Airbus confers a benefit is properly evaluated on the basis of
the investment by the government in the measure.
4076 EC, FWS, para 873. Fees for runway usage are based on objective criteria such as the weight and
type of aircraft, number of passengers, etc.. According to the European Communities, the fact that the fees are
not calculated based on the length of runway used by a plane does not mean that Airbus should pay an
additional fee simply because it uses the full length of the runway. The European Communities asserts that
aircraft weight is related to the use of the runway extens ion because heavier aircraft require longer runways. In
other words, because the fees are levied in part based on the weight of the aircraft , Airbus is paying a higher
user fee when it uses the runway extension to land heavier aircraft; EC, Answer to Panel Question 96, para. 257.
See, also, EC, Answer to Panel Question 269, para. 146.
4077 EC, Answer to Panel Question 270, para. 156 ; see also, the European Communities' answer to
Panel Question 269, paras. 147-148.
4078 US, SWS, para 418.
4079 EC, Answer to Panel Question 96, para. 257.
4080 US Comment on EC, Answer to Panel Question 270
4081 US, SWS, para 419. The United States observes that the Boeing Super Guppy has a maximum
take-off weight of 77 tonnes; the Airbus Super Transporteur (Beluga) has a maximum take-off weight of 155
tonnes. By way of comparison, the A300-600 Freighter has a maximum take-off weight of 170.5 tonnes; the
A330-200 Freighter has a maximum take-off weight of 233 tonnes; and the A340-200 has a maximum take-off
weight of 275 tonnes. See, Airbus, Product Viewer, 18 May 2007, Exhibit US-590; Flugzeuginfo.net, B-377 SG
Super Guppy, 2006, available at www.flugzeuginfo.net, Exhibit US-591. The United States observes that the
European Communities' "implicit fee" theory would only make sense if the maximum weight of the Airbus-
owned aircraft allowed to use the extended runway - th e Beluga and the Super Guppy - were so extraordinarily
high that Airbus would have to pay, by definition, a higher fee than any other user of the airport (which is not
allowed to use the extension). If so, the difference between the fee charged for the Beluga and the Super Guppy

BCI deleted, as indicated [***]

7.1131 The United States maintains that Airbus' exclusive use of the extended runway is relevant to
the determination of benefit, because if Airbus pays less than adequate remuneration for that exclusive
use, it is receiving a benefit, referring to Article 14 (d) of the SCM Agreement. In sum, the
United States argues that Airbus continues to enjoy the use of the extended runway to the exclusion of
all other users for a nominal fee that in no way compensates Bremen airport for that use.4082
7.1132 The European Communities provided no evidence to support the suggestion that the take-off
weight of Airbus aircraft trans porting wings and using the extended runway is higher than that of
other aircraft, which are not allowed to and do not use the extended runway. Thus, there is no factual
basis on which we could conclude that Airbus pays a higher fee for use of the extended runway than
other users pay for the use of the non-extended runway. Moreover, the European Communities has
provided no evidence, or even argued, that heavie r Airbus aircraft actually require the use of the
extended runway – indeed, evidence submitted by the United States suggests that aircraft heavier than
those used by Airbus on the extended runway use the Bremen airport, but these do not, barring
emergencies, use the extended runway. Thus, no connection has been established suggesting that
Airbus pays fees relating to the use of the extended r unway. It is clear to us that the fees paid by
Airbus do not relate to the use of the extended runway per se , but are based on the weight of the
aircraft in question, and thus are indistinguishable fr om the fees paid by other users of the airport for
the use of the non-extended runway.
7.1133 As we have already concluded that the subsidy is not limited to simply the use of the extended
runway, but rather encompasses the entire investment by the City of Bremen in extending the runway
and the associated noise reduction measures, for the be nefit of Airbus, we do not consider that an
evaluation of the fees paid by Airbus for runway use at Bremen airport affects our analysis of benefit.
It is undisputed that Airbus pays runway fees in accordance with the regular fee schedule, applicable
to all users of the airport, with no additional char ges for the use of the runway extensions, which only
Airbus is permitted to use, and onl y for certain flights. Airbus pays no other fees or charges in
connection with the extended runway. Thus, it is clear that there is no return to the City of Bremen on
its investment in the runway extension and no ise reduction measures, and a benefit to Airbus
conferred by the provision of that extension and noise reduction measures.
7.1134 Therefore, in our view, the conclusion that the provision of the runway extension and
associated noise reduction measures confers a benefit on Airbus, for whom the project was
undertaken, and which is by regulation the exclusive user, is clear. As Airbus is the only company
entitled to regular use of the extended runway, and in view of the fact that the extension was
undertaken by the Bremen authorities explicitly to fu lfil Airbus' needs in transporting aircraft wings,
we find that the subsidy in question is specific to Ai rbus within the meaning of Article 2.1(a) of the
SCM Agreement.
(e) ZAC Aéroconstellation
7.1135 The United States asserts that the provision of th e Aéroconstellation site to Airbus, which it
asserts includes the sale of a portion of the site and the lease of another portion of the site,
 and
including the provision of certain specialized f acilities (the EIG facilities), constitutes a subsidy
within meaning of the SCM Agreement because it invol ves a financial contribution in the form of the
provision of goods and services other than ge neral infrastructure within the meaning of

(which may use the extension) and "usual" aircraft of other users (which may not use the extension) might be
seen as an implicit fee for the extension. The compar ison submitted by the United States shows, however, that
the maximum weights of the Beluga and the Super Guppy are not such as to carry an implicit fee. US Comment
on EC, Answer to Panel Question 270, para.137. Thus, it appears that weight of the aircraft is not relevant to
the use of the extended runway.
4082 US Comment on EC, Answer to Panel Question 270, para.139.

BCI deleted, as indicated [***]

Article 1.1(a)(1) of the SCM Agreement,
4083 that confers a benefit within the meaning of
Article 1.1(b) of the SCM Agreement. 4084 The United States claims that the subsidies provided are
specific within the meaning of Article 2.1(a) ("specifi city in law") and Article 2.1(c) (specificity "in
fact").4085 The United States also claims that the impr ovement of roads linking the Aéroconstellation
site to the "Itinéraire à Grand Gabarit" ("IGG") (t he extra-wide highway) constitutes a subsidy within
the meaning of Article 1 of the SCM Agreement, which is specific within the meaning of Article 2.4086
7.1136 The European Communities argues that the creation of industrial land such as the
Aéroconstellation site is not a financial contri bution for purposes of Article 1.1(a) of the
SCM Agreement because the provision by the govern ment of any goods or services in the context of
the creation of the site, including the improvement of the roads, constitutes the provision of general
infrastructure.4087 As regards the EIG facilities, the European Communities contends that the lease for
these facilities does not confer a benefit within Article 1.1(b) because it is at market rates.4088
(i) Factual Background
7.1137 In 1999, French government authorities signed a protocol on the development of a site located
near Toulouse, adjacent to the Toulouse Blagnac ai rport, to be known as th e Aéroconstellation site,
and to be dedicated to aeronautical activities. 4089 The site is designated as a "zone d'aménagement
concertée" ("ZAC") under French law, a zone in which a public authority buys, improves, and sells
land for economic development. 4090 ZACs of different sorts, e.g., for industrial, housing, and various
tertiary services, exist throughout France, created under the same general legal provisions.4091
7.1138 The development of the ZAC Aéroconstellation required first that the agricultural land in
question be made suitable for industrial use. Th is included the creation of drainage, sewage, water
circulation systems, fencing, fire protection, land scaping and lighting. Second , in order to make the
site suitable for the aeronautical activities for wh ich it was intended, certain additional elements,
including taxiways and roads on the site, aircraft parking areas, underground technical galleries and
service areas, were created. These specialized facilities are collectively known as "équipement
d'interet général" ("EIG") facilities.4092
7.1139 After the Aéroconstellation site was prepared , the government-established company charged
with implementing the project the " Société d'Equipment Toulouse Midi Pyrénées " ("SETOMIP") sold
all but 11 hectares of the land to different compan ies involved in the aeronautical industry, including
with the development and production of the A380 aircraft that were to be assembled there. 4093
Purchasers of land in the ZAC included Airbus Fran ce, Air France Industries, the Société industrial
aéronautique du Midi (SIDMI), CUS-Elyo, Exxon Mobil and STTS. 4094 These companies are all

4083 US, FWS, para. 463.
4084 US, FWS, para. 464.
4085 US, FWS, para. 479.
4086 US, FWS, para. 483. We note that the United Status has not challenged the IGG itself in this
dispute.
4087 EC, FWS, para. 922.
4088 EC, FWS, para 925.
4089 US, FWS, para. 456 and footnote 544, citing Exhibits US-201 and US-205.
4090 EC, FWS, para. 923 and note 747, citing Ar ticle L.311-1 of the French urban code (" Code de
l'Urbanisme"), http://www.legifrance.gouv.fr/WAspad/ListeCodes.
4091 EC, FWS, para. 923.
4092 US, FWS, para. 458, EC, FWS, paras. 912-914.
4093 EC, FWS, para. 915; US, FWS, paras. 459-460; US, Answer to Panel Question 20; US, SNCOS,
para. 91; Exhibits US-200, 206-207, 498, 532 and 640.
4094 EC, FWS, para. 915, footnote 738 and web-site referred to therein, consulted by Secretariat on
various dates.

BCI deleted, as indicated [***]

involved, in various ways, with different aspects of the construction, assembly, testing, maintenance,
etc. of aircraft. All purchasers of land in the ZAC paid the same price per square meter for the
different sized plots purchased.
4095 In addition, an association of users, the " Association Foncière
Urbaine Libre" ("AFUL") comprising all the companies that bought land in the ZAC, was created. 4096
The EIG facilities were leased by the Toulouse authorities to the AF UL. Only AFUL members have
access to the EIG facilities, and each member of th e AFUL pays rent for the EIG facilities on a pro-
rata, user pays basis, at the same rate per unit of use.4097
7.1140 At the same time as the Aéroconstellation site was being developed, the French authorities
undertook the improvement of several public roads around the site, specifically, the RD901, the
RD902 and the RD963. These roads serve, inter alia, as access roads linking the Aéroconstellation
site to the IGG, the extra-wide highway that enables Airbus to transport A380 components
manufactured elsewhere from the French coast to Toulouse. The improvement of these roads was
financed and supervised by the French authorities.4098
(ii) Arguments of the Parties
Provision of the ZAC Aéroconstellation site and EIG facilities
United States
General Infrastructure
7.1141 The United States argues that the ZAC Aérocons tellation site, including the EIG facilities, is
not "general infrastructure", asserting that it has be en tailor-made for Airbus, its suppliers and Air
France. The United States claims that the Fren ch authorities transformed agricultural land in
Toulouse into a site suitable for use by Airbus as a production, testing, and delivery site for the A380,
and then sold the site to Airbus at a belo w-market price, thereby conferring a benefit. 4099 The United
States argues that, even accepting the European Communities' allegations regarding the price paid for
the land, that price is lower than the French authorities' investment in preparing the site, including the
development of the EIG facilities. 4100 In addition, the United States ass erts that Airbus appears to be
the predominant user of the site and the pre dominant or exclusive user of the EIG facilities, 4101 noting
that Airbus occupies the largest single space on the s ite, 51 hectares, more than half of the total 95
hectares made available for sale. 4102 Almost all other occupants are suppliers to Airbus. 4103 T h e

4095 EC, FWS, para. 916.
4096 EC, FWS, para. 917.
4097 EC, FWS, para. 917.
4098 The improvement of these roads was originally discussed in July 1996. The Révision du Schéma
Directeur de l'Agglomération Toulousaine , discussing the improvement was finalised on 12 July 1996 and
submitted to the Syndicat Mixte D'Études de l'Agglomération Toulousaine (SMEAT) for its approval on
11 December 1998. Révision du Schéma directeur, p. 216, Exhibit EC-125. The general council of the
Département de la Haute-Garonne took the relevant decision on the ro ads in January 1998 to accommodate
traffic and congestion caused by industrial growth in the Toulouse-Blagnac region. See, e.g., Décision du
Conseil Général du Département de la Haute-Garonne, 29 January 1998, Exhibit EC-126).
4099 US, SWS, para. 399.
4100 US, SWS, para. 401.
4101 US, Answer to Panel Question 20, para. 144.
4102 US, Answer to Panel Question 20, para. 144, referr ing to Atisreal study provided by the European
Communities as Exhibit EC-18 (BCI) p. 10.
4103 In support of its position, the United Stat es refers to maps which can be found at
http://www.grandtoulouse.org/admin/upload/fichier/aeroconstellation.htm (Carte interactive), Exhibit US-218,
and in particular to the descriptions of the activities of these companies in the maps entitled "La société
Capelle", "Le centre technique" and "La station carburant". See, also, press releases published by ELYO,

BCI deleted, as indicated [***]

United States contends that, as with the Hamburg site, had the French authorities not created the
Aéroconstellation site for and provided it to Ai rbus, the company would have had to make the
investment itself.
4104 The United States also argues that the fact that the site is a ZAC, created under
the same legal authority as other similar sites elsewhere in France, lends no support to the European
Communities' position that provision of the site is a measure of general infrastructure. 4105 The United
States asserts that the site was created specifically as a location for Airbus A380 facilities, its use is
expressly limited to the aeronautics industry, and it is used almost exclusively by Airbus and its
suppliers.
4106 The United States also refers to th e European Commission's decision in the Scott Paper
case, arguing that the Commission's conclusion that purchase and transformation of agricultural land
to industrial use, and its sale at a price that did not recoup costs, would not have been undertaken by a
private investor, and therefore constituted state aid, supports its view that the provision of the
Aéroconstellation site constitutes a subsidy.4107
7.1142 The United States alleges that the revenue from the sale of land in the ZAC constituted less
than adequate remuneration, thereby conferring a benefit on Airbus, because it does not cover (a) the
cost of the land improvements, (b) the value of th e unimproved land, and (c) an unspecified return.
The United States asserts that a private investor would not have improved th e land and sold it at a
loss. The United States argues th at the European Communities' fo cus on the market price for
improved land in the area as the benc hmark ignores that fact that th e site was created expressly for
Airbus, and that a private investor who prepared land for a particular buyer would not exclude the
value of its investment in developing the land from its selling price, which is what the government did
in providing the Aéroconstellation site to Airbus.
4108
7.1143 The United States also contends that most of the taxiways on the site exclusively connect
Airbus assembly and testing facilities to the airport. 4109 The only other users of taxiways on the
Aéroconstellation site are Air France and STTS, whic h use the taxiways to access their buildings.
The United States, referring to the official map of the site, notes that these build ings are located at the
entrance to the site from Toulouse-Blagnac Airport at the very southern end of the site, and argues
that these taxiways used by Air France and STTS do not account for even 10 percent of the total
length of the taxiways.4110 Similarly, Airbus is the exclusive user of most of the aircraft parking space
on the site. The United States asserts that the large space in front of Airbus's production hall labelled
"infrastructure publique" and marked red on the map available from the website of Grand Toulouse is
used exclusively by Airbus as a testing site for the A380. Airbus owns the land used for the actual
testing facilities, marked blue on the map. 4111 The United States asserts th at this evidences that the
infrastructure improvements are not "general" in the sense of Article 1.1.(a)(1)(iii).

Exhibit US-221, and ExxonMobil, Exhibit US-222,, describing the role of ELYO, ExxonMobil and Spie
Batignolle.
4104 US, SWS, para. 402.
4105 US, SNCOS, para 90.
4106 US, SNCOS, para 91.
4107 European Commission, Decision of 12 July 2000, Aid to Scott Paper SA Kimberly-Clark, OJ 2002
L 12, Exhibit US-190, (hereinafter "Scott Paper"). US, FWS para. 435-436.
4108 US, SNCOS, para 92.
4109 US, Answer to Question 20 of the First Panel Questions, para. 145.
4110 The United States refers in this regard to the previously cited maps which can be found at
http://www.grandtoulouse.org/admin/upload/fichier/aeroconstellation.htm (Carte interactive), and which the
United States submitted as Exhibit US-218. On the maps, the sites marked in blue are the private facilities (each
marked with the name of the occupant; the areas mark ed in red are the "public" infrastructure: the roads,
taxiways and airplane parking spaces on the site. See, also, the satellite photographs of the site at
http://maps.google.com, Exhibit US-481.
4111 See, map at http://perso.orange.fr/franceaero/plan/planaccueil.htm, Exhibit US-219. See, also, the
maps at http://www.grandtoulouse.org/admin/upload/fich ier/aeroconstellation.htm (Carte interactive), Exhibit

BCI deleted, as indicated [***]

Benefit
7.1144 The United States made its assertions concerning the alleged benefit associated with the
provision of the Aéroconstellation site and the EIG on the basis of publicly available information, as
the European Communities had not provided any of the information requested in this regard during
the Annex V process. The United States provides a ra nge of figures for the expenditures to develop
the Aéroconstellation site, from EUR 158 million 4112 to EUR 200 million. 4113 The United States also
asserts that French authorities spent approximately EUR 77.9 million, that is, EUR 82 per square
meter, on internal development measures to turn 95 0,000 square meters of agricultural land into land
fit for industrial use, not including the EIG facilities. 4114 The European Communities does not dispute
these figures. The United States contends that a commercial owner of the land either would have sold
the land "as is" or would have asked for a commercial return on the owner's investment in turning the
land into an industrial site, in addition to a price reflecting the value of the land.4115 The United States
argues that the EUR 158 million in site preparation is akin to a grant, since the French authorities
spent funds to create a site that Airbus would otherwise have had to create itself. 4116 The United
States originally asserted, based on public information, that the French authorities sold the land in the
ZAC to Airbus for between EUR 14 and EUR 27 per square meter, 4117 while they sold the remaining
commercial surfaces in the ZAC for EUR 45.73 per square meter. 4118 The United States also points
out that at the same time that they created th e Aéroconstellation site, the French authorities also
created the near-by ZAC Andromède, a mixed residential and commercial area developed primarily to
respond to the residential and commercial needs ar ising from the Aéroconstellation project, and sold
land in the ZAC Andromède at EUR 200 per square meter. 4119 Thus, in the United States' view, the
sale of the land in the ZAC Aéroconstellation was fo r less than adequate remuneration, and thus
confers a benefit on Airbus.
7.1145 Again relying on publicly available information,4120 the United States asserts that the lease for
the EIG facilities was based on the total cost of the facilities, as originally estimated in 2002,
EUR 53.4 million. The lease, with a term of 40 y ears, was concluded in June 2002. The rental
amount was determined by analogy to a loan with a 2.2 percent annual interest rate, with repayment of
the principal and interest spread over the 40 year term of the lease. The lease payments were
progressive, with lower payments in the early years and higher amounts later. 4121 By 2003, however,

US-218, in particular the maps entitled "Les aires indu strielles" and "Les postes extérieurs". Finally, see the
[***] the Atisreal study provided by the European Communities as Exhibit EC-18 (BCI) p. 11.
4112 US, FWS para. 467, footnote 568.
4113 US, FWS para 456.
4114 EUR 77.9 million is the difference between the total EUR 158 million that French authorities spent
to develop the Aéroconstellation site (US, FWS, para. 468) and the 80.1 million of that amount attributable to
4115 US, SWS, para. 406.
4116 US, FWS, para.468.
4117 US, FWS, paras. 467-468.
4118 US, FWS, para.469 referring to Agence d'Urba nisme et d'Aménagement du Territoire Toulouse
Aire Urbaine, Atlas des Parcs d'Activités de la Haut e-Garonne, available at http://www.auat-toulouse.org,
Exhibit US-223; see also, Airbus entame la construction de l'usine Star de l'A380 à Blagnac , Les Echos No.
18555, at 12 (19 December 2001) (re porting that, as of December 2001, 37 hectares were still available at
EUR 45.73 per square meter), Exhibit US-212.
4119 US, FWS, para 470, referring to Atlas des Parcs d'activités de la Haute-Garonne, Blagnac, ZAC
Andromède, available at http://www.auat-toulouse.org/cdza_trav/Rcs_swf/loader.php, Exhibit US-224.
4120 US, FWS, paras. 474, referring to Conseil de Communauté du Grand Toulouse, Délibération no.
2004-05-ADU-01, 28 May 2004, Exhibit US-214; see also, Les collectivités locales ont investi 172 millions
4121 The United States clarifies that when the original cost for the EIG facilities was estimated at
EUR 53.4 million, the annual rent was expected to be between EUR 1.6 million (in 2007) and EUR 2.8 million
(in 2042).

BCI deleted, as indicated [***]

the total estimated cost of the project had increased to EUR 69.2 million, resulting in a modification
of the lease, under which EUR 56 million of the cost s were treated like a 40 year loan with a 2.2
percent annual interest rate, while a 4.5 percent inte rest rate, again over 40 years, was applied to the
remaining EUR 13.2 million. In 2004, after costs in creased again, to EUR 80.1 million in total, the
lease agreement was again modified, to treat EUR 62. 6 million like a 40-year loan with a 2.2 percent
annual interest rate in accordance with the original lease terms, and applying a 4.5 interest rate to the
remaining EUR 17.5 million.
4122
7.1146 The United States argues that these terms are not commercial. According to the United
States, a commercial investor in industrial real estate in the region at the time (2002-2004) would have
required an initial net return of between 9 and 11 percent on its investment in building the EIG
facilities, EUR 80.1 million, for a lease price of between EUR 7.2 million and EUR 8.8 million. 4123
The United States also contends that other aspects of the lease demonstrate its non-commercial nature:
(a) the lease price calculation ignores the value of the 119 hectares of land on which the EIG facilities
were built; (b) the lease price increases progressive ly, further reducing the effective net initial
return,4124 and (c) the lease price is not subject to [***], but remains [***] over the 40 years. 4125
According to the United States a commercial investor would not have acted this way, but would have
asked for an [***] of the lease price to reflect the [***] of money.4126 The absence of an [***] clause
results in an additional, very large advantage for Airbus.4127
7.1147 Finally, the United States asserts that the Eur opean Communities' own consultant, Mr. Miller,
came to the conclusion that the lease agreement conferred a benefit as compared with a market
benchmark. According to the United States, Mr. Miller concluded that a commercial investor would
have asked for a lease price of EUR 4.4 million per year for the EIG facilities plus an additional
EUR 1.5 million for the land on which these facilities were built, for a total of EUR 5.9 million per
year.
4128 However, the United States asserts, on aver age, Airbus pays an annual lease price of
EUR 3.1 million, 4129 therefore, on average, Airbus pays EUR 2.8 million less per year than what a
commercial investor would have required it to pay.4130
7.1148 Responding to the European Communities' argument that the cost of Airbus debt should be
used as a benchmark, the United States asserts th at, accepting the European Communities' approach,

4122 US, FWS, paras. 474-476, also referring to the Conseil de Communauté de Grand Toulouse,
Délibération no. 2004-05-ADU-01 (28 May 2004), Exhibit US-214.
4123 US, SWS, para. 410.
4124 US, FWS, para. 473.
4125 US, SWS, paras. 411-413.
4126 US, SWS, para. 413, citing INSEE, Informations Rapides, Série "Principaux Indicateurs", Indice du
coût de la construction, 12 January 2007, p. 2: "The cost of construction index is used, in particular, to adjust
lease prices agreed in lease agreemen ts for commercial property." ("L'Indice du coût de la construction est
4127 US, SWS, para. 413. The United States notes that, from the third quarter of 1997 to the third
quarter of 2006, lease prices indexed to the INSEE cost of construction index increased annually by 2.86 percent
on average, citing INSEE, L'Indice du Coût de la Construction, Exhibit US-589. Based on the terms of the
lease agreement as modified in 2004, the United States contends that Airbus pays, on average, EUR 3.1 million
over the course of 40 years. If one ties the annual pa yment of these EUR 3.1 milli on to the INSEE cost of
construction index, as a private investor would have done, and assumes an average annual increase of cost of
construction by 2.86 percent, the United States asse rts that the annual lease price would increase to
EUR 4.00 million by 2012; EUR 5.30 million by 20 22; EUR 7.02 million by 2023; and EUR 9.31 million
by 2042. US., SWS, footnote 517.
4128 US, Comment on EC, Answer to Panel Question 185, para. 123, referring to EC, SCOS,
paras. 31-32.
4129 US, SWS, paras. 408-414.
4130 US, Comment on EC Answer to Panel Question 185, para. 123.

BCI deleted, as indicated [***]

and taking Airbus' cost of debt at 6.83 percent, 4131 a market-based lease price should have been
EUR 5.5 million per year 4132 – almost double the amount paid by Airbus. Thus, according to the
United States, even using the European Communities' approach to analyzing the lease, including the
benchmark proposed by it, the United States contends that Airbus saves at least EUR 2.7 million per
year from the beneficial terms of the lease of the EIG facilities.4133
7.1149 The United States also defends its benchmark lease price of between EUR 7.2 million and
EUR 8.8 million, based on an initial net return of at least between 9 and 11 percent. 4134 T h e
United States asserts that the EIG f acilities lease is no different from any other lease, and if anything,
its risks are higher than for typical real estat e because the ZAC Aéroc onstellation site and EIG
facilities are tailor-made for Airbus and the aerona utics industry's needs and are thus extremely
specialized facilities for which there exists virtually no other market than Airbus and the associated
companies that occupy the ZAC. 4135 The United States also asserts that while Airbus France credit
rating may have been A1 in 2007, it was rated onl y A2 in 2001 and was downgraded even further to
A3 in early 2002, when the lease terms were negotiate d and agreed, and that this rating persisted until
about 2 years past the start date of the EIG facilities lease.4136
7.1150 The United States considers the European Comm unities' assertion that Airbus France would
not have agreed to an investor return on the lease that exceeded its own borrowing cost to be at odds
with economic reality. In particular, the United States maintains that comp anies regularly prefer
leases over purchases because a lease keeps the debt in volved off their balan ce sheets. The United
States also recalls that the lease was entered into as part of the same package as the Aéroconstellation
site purchase by Airbus and the other aeronautics companies using it.4137 Thus, it is not clear if Airbus
even had a choice whether to construct and/or purchase the EIG facilities itself. Indeed, the
United States argues that the Eur opean Communities' assertion is di fficult to reconcile with actual
practice in the market, where lease prices are fre quently higher than purchase prices based on a
company's cost of borrowing.
7.1151 In respect of indexation, the United States clarifies that: (i) due to the time-value of money,
the fact that larger lease payments are not made un til later results in a lower rate of return for the
investor/lessor; and (ii) the lack of [***] exposes the investor to the additional risk of further reducing
his return because of [***]. A [***] lease price would typically demand a premium to compensate for
this additional risk (in particular in light of the long term of the lease), but the 3.9% return that is
achieved through the EIG lease does not include su ch a premium. In the United States' view,

4132 US, Comment on EC, Answer to Panel Question 271, para. 143 and footnote 193, referring to the
United States' calculation in Exhibit US-686. The United States observes that it fails to understand how the
European Communities arrived at the amount of EUR 4.4 million used in EC Answer Panel Question 271,
para. 161, noting that the European Communities has not explained its calculation method, nor has it revealed its
calculation.
4133 US, Comment on EC, Answer to Panel question 271, para. 143. The United States observes that
the European Communities suggests that 6.83 percent was Airbus France's average cost of debt throughout the
entire period (EC Answer Panel Question 271, para. 160), the United States has used previously 6.83 percent for
the EUR 62.6 million share agreed in 2002 and 6.17 percent for the EUR 17.5 million share agreed in 2004 (US,
SWS, para. 411, n.512). Even if calculated on this more conservative basis, the United States considers that the
lease price would have been EUR 4.3 million for the EUR 62.6 million share and EUR 1.1 million for the
EUR 17.5 million share (totaling EUR 4.4 million per year, or EUR 2.2 million per year more than the lease
price agreed), referring to the calculation in Exhibit US-686.
4134 US, SWS, para. 411; US, Comments on EC Answer to Panel Question 271, paras. 141 – 150.
4135 US, Comment on EC, Answer to Panel Question 271, para. 147.
4136 US Comment on EC, Answer to Panel Question 271, para. 148, referring to Moody's screen-print,
Exhibit US-688.
4137 US Comment on EC, Answer to Panel Question 271, para. 149, referring to EC, FWS, n.726.

BCI deleted, as indicated [***]

characterization of the lease as debt fina ncing does not "obviate" the need for [***], it simply means
that while [***] is usually made explicit in lease contracts, it is usually implicit in debt financing. It
also means, that, in the case of a 40-year arra ngement like the EIG facilities lease, such "implicit
[***]" would need to take account of the [***] that comes with a longer term loan, i.e., that the
premium would be far higher than on the average borrowing of the company.
4138
7.1152 Thus, the United States maintains that Airbus receives a benefit of at least EUR 4 million to
EUR 5.6 million per year from the EIG lease, and, in fact, much more. 4139 In any event, however, the
United States notes that the European Communities has admitted that Airbus receives a benefit from
the terms and conditions of the EIG lease agreement that is worth at least EUR 2.3 million per
year.4140
7.1153 The United States claims that the provision of th e site is a subsidy specific "in law" because
the entire site, including the EIG facilities, was "t ailor-made" for A380 produc tion operations, and is
explicitly dedicated to the aeronautics industry as a "parc d'activités aéronautiques". It also claims
that the provision of the site is a subsidy specifi c "in fact," because only aeronautics companies and
their suppliers are located on the Aéroconstellation site, and Airbus is the primary or predominant
user of the site, including the EIG facilities.4141
European Communities
General Infrastructure
7.1154 The European Communities assert that industrial parks like the ZAC Aéroconstellation
constitute general infrastructure within the meani ng of Article 1.1 of the SCM Agreement because
creation of such facilities benefits society as a whole and reflects legitim ate economic development
policies. According to the European Communities, the creation of an industrial site is a legitimate
policy choice open to every WTO member. 4142 It argues that the creation of an industrial site is
therefore a public investment for the benefit of the population at large. The European Communities
states that any member of the public can participate in the tenders for the sale of the land and lease of
the EIG facilities, and that such tenders are open an d non-discriminatory. In return, the companies
who use the ZAC are then expected to invest and produce at it, with a positive spill-over for
employment and tax income in the region. T hus, the European Communities asserts that ZAC
Aéroconstellation site, like ZACs all over France, is a typical example of public-private partnership
for the economic development of the country at large and constitutes general infrastructure. 4143 I n
addition, the European Communities observes that all of the companies which bought land in the ZAC
Aéroconstellation paid the same price for that land, [***] per square meter, a price the European
Communities argues is commensurate with ma rket prices for improved land in the area. 4144 T h e
European Communities also argues that Airbus did not lack alternatives to the ZAC Aéroconstellation
– according to the European Comm unities, Airbus bought "undifferen tiated" industrial land, with
basic infrastructure allowing it to be used for indus trial purposes, and that similar land is available
throughout Europe. Moreover, the European Communities asserts that the return to the government is
not limited to the purchase price of the land, but may include "other forms" of remuneration such as
higher tax revenues and increased employment, whic h may make it willing to incur what appears to
be a loss in providing the land in question. The European Communities maintains that consideration

4138 US, Comment on EC, Answer to Panel Question 272.
4139 See, US, Comment on EC, Answer to Panel Question 272.
4140 US, Comment on EC, Answer to Panel Question 271, paras. 141 – 150.
4141 US, FWS, para. 479.
4142 EC, FWS, para 923.
4143 EC, FWS, para 925.
4144 EC, FWS, paras. 927-935, citing Attestation de vente, [***], Exhibit EC-123 (BCI).

BCI deleted, as indicated [***]

of the cost incurred by the French authorities in preparing the site for industrial use is irrelevant to the
question of benefit.4145
7.1155 The European Communities does not argue th at the EIG facilities constitutes general
infrastructure and their provision is therefore not a financial contribution. Rather, the European
Communities asserts that the terms of the lease for these facilities is commensurate with a market
benchmark, and therefore does not confer a be nefit within the meaning of Article 1.1(b). 4146 The
European Communities asserts that the EIG f acilities enable owners of land in the ZAC
Aéroconstellation to exploit the efficiencies of using a single, integrated network of facilities, instead
of each company constructing its own redundant and potentially incompatible infrastructure. 4147 I t
argues that [***], and that the land in the ZAC would have been worthless to Airbus France without
facilities such as taxiways and aircraft service are as, because these shared f acilities are indispensable
to Airbus France's A380 final assembly operations. 4148 The European Communities further contends
that [***].4149 The European Communities also points out that [***].4150
Benefit
7.1156 The European Communities asserts that the pri ce paid by Airbus to purchase land in the ZAC
Aéroconstellation was at or above prices charged in other similarly-improved ZACs in France. For
instance, at the ZAC de Saint Martin du Touch, wh ich is similarly located near the Toulouse-Blagnac
airport, the price of comparable industrial land is [***]. 4151 The European Communities disputes the
appropriateness of the United States' comparison wi th the ZAC Andromède, because the latter does
not have an industrial purpose, but is dedicated to housing and services, and is thus considerably more
expensive than land in an industrial ZAC. 4152 The European Communities contends that the findings
of Atisreal, an independent commercial appraisal firm, confirm that the price of the land purchased by
Airbus France in the ZAC Aérocons tellation was consistent with mark et terms. Atisreal, employing
both comparative and land cost valuation met hodologies, allegedly in accordance with industry
standards, concluded that the market price of improved land of the sort purchased by Airbus France
was between EUR 24/m2 and EUR 27/m2 in 2001. 4153
7.1157 In this context, the European Communities ar gues that in instances where the government's
costs are particularly high relative to the value of the economic resources transferred to the recipient,
the "benefit to the recipient," market benchmark st andard still applies, and serves as a ceiling on the
amount of "benefit" that can be assessed under Article 1.1(b) of the SCM Agreement. This, according
to the European Communities, means that the gove rnment can only earn a market-based return on the
value of the thing, which may or may not be lower than its cost. 4154 The European Communities
maintains that the United States erroneously reli es on Article 14(a) of the SCM Agreement, which
relates to government equity infusions and accord ing to which a benefit is not conferred unless an
equity infusion is conferred contrary to the "usual investment practice … of private investors in the
territory of that Member." Article 14(d) of the SCM Agreement prescribes a different standard for the
provision of goods and services, one that is tied to "prevailing market conditions," such as "price."

4145 EC, SNCOS, paras. 216-217.
4146 EC, FWS, para 925.
4147 EC, FWS, para. 922.
4148 EC, FWS, para. 919.
4149 EC, FWS, para. 919 referring to [***] declaration, paras. 4-6, Exhibit EC-17 (BCI); ZAC Protocole
d'Accord, [***], Exhibit EC-130 (BCI) [***].
4150 EC, FWS, para. 919 referring to [***] declaration, paras. 4-6, Exhibit EC-13 (BCI); AFUL: Statuts,
[***], Exhibit EC-124 (BCI).
4151 EC, FWS, para. 928, citing Attestation de [***], Exhibit EC-127 (BCI).
4152 EC, FWS, para. 928.
4153 EC, FWS, para. 929, citing [***], Valuation Certificate [***], Exhibit EC-18 (BCI).
4154 EC, FWS, para. 933.

BCI deleted, as indicated [***]

Where "prevailing market conditions" dictate a price for the good or service – as with improved
industrial land – that price serves as the appropria te benchmark for determining whether a "benefit"
has been conferred. The European Communities rejects the United States' argument that a benefit was
conferred because a private investor would not have provided the financial contribution in the first
place, or in the exact form that it ultimately took (e.g., as a sale of improved versus unimproved
land).
4155 The European Communities disputes the re levance of the EC Commission's decision in
Scott Paper to the analysis in this case, as it asserts that EC state aids rules impose different
disciplines than the SCM Agreement. 4156 According to the European Communities, a government
may incur higher costs than a private investor would, and even sell land for a loss, without conferring
a subsidy, because a government can realize othe r forms of remuneration – such as higher tax
revenues and increased employment.4157
7.1158 The European Communities acknowledges that th e EIG facilities are indispensable to the
A380 final assembly operations and were central to Airbus France's decision to move to the ZAC
Aéroconstellation. The European Communities notes that [***].4158 Each member pays the same
amount per unit of use of a given EIG. 4159 The European Communities argues that the United States
has not provided sufficient evidence to show that th e terms of the lease of the EIG facilities were not
commercial,4160 although it does not dispute the United States' allegations concerning the calculation
of the lease price.
7.1159 In response to the argument of the United Stat es that the lease price calculation ignores the
value of the land on which the EIG facilities were built, the European Communities asserts, relying on
the expert conclusion of Mr. Miller, that the benc hmark initial return employed by the United States
(9-11%) is significantly inflated, and is based on an inapposite report analyzing initial net returns for
industrial real estate. 4161 According to the Eur opean Communities, the EIG facilities are not typical
industrial real estate, but are akin to facilities/equi pment project financing. Therefore, the European
Communities asserts, unlike a typical industrial real estate lease, the EIG l ease presents a very low
risk to investors, first because the lease financing is effectively secured by the EIG equipment itself,
and second because the lease covers the entire economic life of the facilities investment. 4162 T h e
European Communities further asserts that Airbus Fr ance and Air France provide investors with very
low credit/default risk. 4163 Taken together, the European Co mmunities contends that these factors
mean that any risk premium applied to the EIG lease would be low. By contrast, the return on typical
industrial real estate must capture occupancy and de fault risk. Moreover, according to the European
Communities, the long-term nature of the EIG lease makes comparison to a benchmark based on
initial net returns for industrial real estate par ticularly inappropriate. The European Communities
argues that long-term capital leases for the life of an asset are simply a means of financing what is, in
effect, an asset purchase. Thus, in the European Communities' view, Airbus France would not agree
to an investor return that ex ceeded its own borrowing cost ( i.e., the cost of financing the purchase of
these assets), which it asserts the United States recognizes was only 6.83% during the relevant

4155 EC, SWS, paras. 386-391.
4156 EC, SCOS, para. 394.
4157 EC, SWS, para. 389.
4158 EC, FWS, para. 918, referring to Association de Foncière Urbaine Libre de la ZAC
Aéroconstellation, Statuts [***], Exhibit EC-124 (BCI)
4159 EC, FWS, para. 918.
4160 EC, FWS, paras. 936-938.
4161 EC, SCOS, para. 29.
4162 EC, Answer to Panel Question 271, para. 159. According to the European Communities, this
means that, at the end of the lease term, investors do not incur occupancy risk – i.e., the risk that, if there is
residual value at the end of a lease, the investor will not be able to recover this value by finding a new lessee.
4163 EC, Answer to Panel Question 271, para. 159, citing Moody's Investor Service, EADS,
12 March 2007, Exhibit EC-835.

BCI deleted, as indicated [***]

period.4164 Thus, the European Communities maintain s that Airbus France could have simply
borrowed the EUR 80.1 million required to construct th e EIG facilities, and then sublet a portion of
the facilities to the other AFUL members. For a fi nancial lease covering the entire useful life of the
assets, the European Communities maintains that th e lessor cannot demand a return higher than the
cost of funds available to the lessee through readil y-available alternative financing mechanisms. On
the basis of the above, the European Communities ar gues that the appropriate benchmark for the EIG
lease is Airbus France's borrowing cost, which refl ects the most likely alternative source of market
financing.
7.1160 The European Communities therefore concludes th at under this cost of debt benchmark, the
average annual lease payment would be approximate ly EUR 4.4 million, far less than the amounts
asserted by the United States (EUR 7.2 to EUR 8.2 million). The European Communities argues that
since debt financing is not indexed (because the borro wing rate captures the total return to the lender),
any shortfall between this benchmark and the act ual return on the lease would capture the entire
amount of any "benefit" received by Airbus France.4165
7.1161 The European Communities also disputes the Un ited States' view that the lease confers a
benefit because the lease price increases progressively , further reducing the effective net initial return
to far below the 3.9 percent nominal rate and is not subject to [***], but remains [***] over the
course of 40 years, on three grounds. The Europ ean Communities maintains that the "benefit" inquiry
does not hinge on the structural features of a financing instrument. 4166 The European Communities
considers that there is nothing inherently non-comme rcial about instruments that do or do not possess
features such as a progressive repayment structure or indexation. The European Communities argues
that these characteristics are only relevant to the extent that they affect the investor's rate of return,
while the "benefit" inquiry asks whether the resu lting effective return on such instruments is
consistent with a market rate. Second, the Eu ropean Communities argues that the United States'
reliance on these two structural features, progressive repayments and the absence of indexation, is
incoherent because, on the one hand, the Unite d States criticizes the EIG lease's "progressive"
repayment structure, while on the other, it asserts th at these repayments should, in fact, increase over
time through indexation to account for the decreasing value of money. 4167 Third, the European
Communities argues that even if the EIG lease could be viewed as not incorporating indexation, this
would not render the lease "non-commercial." In th is context the European Communities maintains
its position that use of a cost of debt benchmark obviates the need for indexation; debt financing is not
indexed.4168
7.1162 The European Communities does not argue the question of specificity beyond its assertion
that the provision of the site per se constitutes general infrastructure, and thus is not a financial
contribution and not within the scope of the SCM Ag reement. With respect to the EIG facilities, the
European Communities does not make any additional arguments regarding specificity.
Provision of roads
United States
7.1163 The United States claims that the improvements to the RD901, RD902 and RD963 do not
constitute provision of general infrastructure. Th e United States asserts that these improvements are

4164 EC, Answer to Panel Question 271, para. 160.
4165 EC, Answer to Panel Question 271, para. 161.
4166 EC, Answer to Panel Question 271, para. 163, referring to EC, FWS, paras. 1640-41; EC, FCOS,
paras. 14-18 (Statement of Prof. Whitelaw); EC, Answer to Panel Question 65, para. 71.
4167 EC, Answer to Panel Question 272, paras. 163-164..
4168 EC, Answer to Panel Question 272, para. 165..

BCI deleted, as indicated [***]

for use only by Airbus and its suppliers.
4169 In support of its assertion, the United States refers to a
statement by French authorities descr ibing "the access roads for the site", 4170 as well as to satellite
images of the site which, it asserts, demonstrat e that Air France, STTS and SIDMI access the site
from the south, via the RD901, while improvements cr eated at the site's northern perimeter (at the
RD963) and at its eastern perimeter (at the RD902, including the "Diffuseur de Pinot") are for the
exclusive use of Airbus and its suppliers. The United States argues that the improvements to the
roads became necessary as a result of the prepara tion of the Aéroconstellation site. Thus, the
United States asserts that the road works were not undertaken to create general infrastructure, but are
specifically related to the development of the site, undertaken to provide access to the site for Airbus
and its suppliers. 4171 The United States disputes the Eur opean Communities' assertion that the
decision to develop the Aérocons tellation site merely brought forward the schedule for road
improvements in the whole region. According to the United States, the construction work on the
RD901, RD902 and RD963 was either triggered exclusively by the development of the
Aéroconstellation site for A380 assembly, testi ng and delivery, or the plans were amended
significantly for that purpose.4172
7.1164 The United States asserts that the publicly ava ilable information indicates that the French
authorities spent at least EUR 49 million (approximately EUR 17 million to rebuild the RD901
through and beneath the Aéroconstellation site, and EUR 33 million to adapt the RD902 to Airbus'
needs), and provided them to Airbus free of charge.
4173 The United States indicates that it was unable
to locate any information on the costs of the work on the RD963. 4174 In essence, the United States
argues that the provision of the road improvements is a grant to Airbus, and thus confers a benefit,
and thus constitutes a subsidy within the meaning of Article 1 of the SCM Agreement.4175
7.1165 The United States asserts that the improvements to the RD901, RD902, and RD963 in
connection with establishment of the Aéroconstellation site are de facto specific to Airbus, within the
meaning of Article 2.1(c) of the SCM Agreement. The United States argues that (i) the overpasses for
taxiways at the RD901 are, in fact, used exclusiv ely by the users of the Aéroconstellation site and
primarily by Airbus, and that (ii) the access infrastructure, in particular the traffic circles created at the
RD902 and RD963, is used, in fact, exclusively or primarily for access to the Airbus A380
facilities.
4176
European Communities
7.1166 The European Communities argues that building of the access roads linking the
Aéroconstellation site to the IGG is a classic exam ple of provision of general infrastructure, an
example " par excellence " of general infrastructure and is, therefore, outside the scope of
Article 1.1(a)(1)(iii).4177 According to the European Communiti es, the road works were necessary in
order to alleviate existing traffic congestion, and the decision to develop the ZAC Aéroconstellation

4169 US, Answer to Panel Question 153, para. 10 7. Thus, the United States does not accept the
European Communities' view of its position as based on an assertion of predominant use by the companies
located in the ZAC.
4170 US, FWS, para. 482.
4171 US, SNCOS, paras. 93-95.
4172 US, Answer to Panel Question 20, para. 150.
4173 US, FWS, para. 484, citing Flash Aéroconstellation, Bulletin d'information des riverains, No. 11
(November/December 2002), available at http://www. grandtoulouse.org/index.php?pagecode=20, Exhibit
US-208.
4174 US, FWS, para. 481.
4175 US, FWS, para. 484.
4176 US, Answer to Panel Question 20, paras. 149-151.

BCI deleted, as indicated [***]

merely brought forward the schedule for road improvements in the whole region. 4178 The European
Communities further notes that there is no restricti on on the use of the roads in question, and that
companies located in the Aéroconstellation site do not have privileged access to the roads.
7.1167 The European Communities also disputes that th e users of Aéroconstellation site obtain more
benefit from the improvements than any other users of the roads. In this connection, the European
Communities argues that, considering the practical effects of building a public road, it cannot be
established that the users of the Aéroconstellation site, let alone one specific user, benefit from the
improvements more than other users of the roads, because, according to th e European Communities,
the road improvements were necessary to alleviate existing traffic congestion, with the establishment
of several ZACs, noting that access to the ZAC Andr omède is from the same roads. The European
Communities also contends that the RD901 and RD902 are central transportation arteries for the
Département de Haute-Garonne, a nd their improvement was planned long before the decision to
develop the ZAC Aéroconstellation was taken.
4179
7.1168 The European Communities refers to counter vailing duty practice in the United States in
support of its position. In particular, it argues that in Stainless Steel Sheet and Strip in Coils from the
Republic of Korea , the US Department of Commerce ("DOC") concluded that the construction of a
public highway in the Kwangyang Bay area was not a countervailable subsidy. 4180 The DOC found
that "the reason for the public highway was not to serve [***], but to provide general infrastructure to
the area as part of the [***] continuing development of the count ry and to relieve a transportation
bottleneck."4181 The DOC observed that the road "is utilized by both industries in the area to transport
goods and by residents living in the Kwangyang Bay area." 4182 The same reasoning, according to the
European Communities, applies with respect to the improvements to the RD901, RD902 and
RD963.4183
7.1169 The European Communities contends that the clai m of the United States really only concerns
the two traffic circles, i.e., the improvements at the site's norther n perimeter (at the RD963) and at its
eastern perimeter (at the RD902, in particular the "Diffuseur de Pinot"). 4184 The European
Communities also argues that the two overpasses (a t the RD901 on the southern perimeter) link
taxiways on the Aéroconstellation site to the Toulous e airport, and that when a government creates an
industrial site for the aerospace industry, an important feature is its interconnection with the airport. It
therefore believes that theses two elements are confounded with the general infrastructure of the
public roads RD902 and RD963.4185 In this connection it observes that the traffic circles related to the
RD902 and RD963 may be seen as an integral part of the French road network - the fact that these are
used more often by companies located in ZAC Aéroconstellation is only normal.4186

4178 EC, FWS, paras. 921 and 944.
4179 EC, FWS, para. 944.
4180 EC, FWS, para. 941, citing Final Affirmative Count ervailing Duty Determination: Stainless Steel
Sheet and Strip in Coils from the Republic of Korea, 64 Fed. Reg. 30636, 30648-49 (18 June 1999) (" Korean
Stainless Steel").
4181 EC, FWS, para. 941, citing Korean Stainless Steel at 30648-49. Contrary to the suggestion of the
DOC in Korean Stainless Steel , the status of a measure as "general infrastructure" does not hinge on the
subjective intent of public authorities (which is notoriously difficult to establish). See, e.g., Statement of
Administrative Action accompanying the Uruguay Round Agreements Act, H.R. 5110, H.R. Doc. 316, Vol. 1,
103d Congress, 2d sess. (1994), reprinted in 1994 USCCAN 4040, 4242 ("{I}t has long been established that
intent to target benefits is not a prerequisite for a countervailable subsidy . . . .").
4182 Korean Stainless Steel at 30648-49.
4183 EC, FWS, para. 941.
4184 EC, SWS, para. 370.
4185 EC, SWS, para. 372.
4186 EC, SWS, para. 373.

BCI deleted, as indicated [***]

7.1170 The European Communities argues that even if the building of the roads constituted a
financial contribution, the United States has failed to establish that this alleged subsidy is specific
within the meaning of Article 2.1 of the SC M Agreement, because the improvements are not specific
to Airbus France, or even to the entire gr oup of companies in the ZAC Aéroconstellation.
4187 Noting
that according to Article 2.1 of the SCM Agreement, a subsidy is specific if "the granting authority, or
the legislation pursuant to which the granting auth ority operates, explicitly limits access to a subsidy
to certain enterprises", the European Communities observes that RD901, RD902 and RD963 are
public roads accessible to anyone, and that French la w requires that departmental roads remain open
to public traffic.
4188
7.1171 The European Communities does not appear to dispute the United States' allegations
concerning the amounts spent by the French authorities on road improvements.
(iii) Evaluation by the Panel
7.1172 In order to resolve this aspect of the United St ates' claims, we will address first the European
Communities' contention that the provision of the ZAC Aéroconstellation site constitutes a measure of
general infrastructure, and thus does not constitute a subsidy under Article 1 of the SCM Agreement.
In this connection we will evaluate whether it is appropriate to consider the provision of the EIG
facilities separately, as suggested by the European Co mmunities' argument, or as an integral part of
the creation of the site and its provision to Air bus and other companies, as suggested by the United
States' argument. We will then address whet her the improvements to the access roads around the
ZAC Aéroconstellation site, specifically the RD901, RD902, and RD963, and including the Diffuseur
de Pinot and the underpasses beneath the taxiways wh ich connect the ZAC Aéroconstellation with the
Toulouse-Blagnac airport over the RD901, constitute measures of general infrastructure. Should we
conclude that any of these is not a provision of gene ral infrastructure, we will then go on to assess the
financial contribution re presented by that measure, and whether that measure confers a benefit on
Airbus, including consideration of the appr opriate benchmark for comparison in assessing the
question of benefit.
Provision of the ZAC Aéroconstellation site and EIG facilities
General infrastructure
7.1173 As we concluded above, 4189 in our view, the determination whether the provision of a good
constitutes a provision of "general infrastructure" ca nnot be answered in the abstract, but rather must
take into account the existence or absence of de jure or de facto limitations on access or use, and any
other factors that tend to demonstrate that the infrast ructure was or was not provided to or for the use
of only a single entity or a limited group of entities, including factors relating to the circumstances
surrounding the creation of the infrastructure in questi on, consideration of the type of infrastructure,
the conditions and circumstances of the provision of th e infrastructure, the recipients or beneficiaries
of the infrastructure, and the legal regime applicab le to such infrastructur e, including the terms and
conditions of access to and/or limitations on use of the infrastructure.
7.1174 Before addressing these factors with respect to the ZAC Aéroconstellation site and the EIG
facilities, we consider it appropriate to address wh ether the EIG facilities should be evaluated as a
separate measure, as implied by the European Co mmunities' argument. The European Communities

4187 EC, SWS, para. 373.
routière, Art. L131-2, http://www.legifrance.gouv.fr; Code de la Voirie Routière, Art. L111-1, L131-1,
http://www.legifrance.gouv.fr/WAspad/ListeCodes.
4189 See, discussion at paras. 7.1036 to 7.1044 above.

BCI deleted, as indicated [***]

does not argue that the provision of the EIG facilitie s does not constitute a financial contribution, and
thus does not argue that the provision of those fac ilities constitutes general infrastructure. Rather, the
European Communities' argument with respect to the se facilities is that they are rented at a market
price to the owners of the sites in the ZAC, and t hus there is no benefit to Airbus. The United States,
while it also disputes the European Communities' conten tion that the rental of the EIG facilities is at a
market price, considers the provision of the ZAC Aéroconstellation, including the EIG, is not a
measure of general infrastructure, and constitutes a specific subsidy to Airbus.
7.1175 In our view, the EIG facilities constitute an integral part of the Aéroconstellation site. Indeed,
the European Communities' own arguments indicate that the EIG facilities were a necessary part of
the development of the site, in order to make it suitable for its intended use by the aeronautics
industry, including particularly A380 production. Thus, for instance, the European Communities
itself asserts that the purchasers of the land in the ZAC [***],4190 and that the land in the ZAC would
have been worthless to Airbus without EIG faciliti es such as taxiways and aircraft service areas,
because these shared facilities are indispensable to Airbus France's A380 final assembly operations.
Moreover, the European Communities itself contends that [***].4191 Thus, we see no basis for an
analysis of the EIG facilities separate from our consid eration of the provision of the Aéroconstellation
site as a whole.4192
7.1176 We recall our interpretation of the term "general infrastructure", where we concluded that that
the term " general infrastructure", taken in its ordinary and natural meaning, refers to infrastructure
that is not provided to or for the advantage of only a single entity or limited group of entities, and that
there is no infrastructure which is inherently "general" per se .4193 Thus, merely because the
development of industrial sites such as the ZAC Aéroconstellation "benefits society as a whole" and
"reflects legitimate economic developm ent policies", as argued by the EC, 4194 does not demonstrate
that the provision in this case of the site constitutes provision of general infrastructure. Similarly, the
fact that the ZAC Aéroconstellation was develo ped under the same legislation as other ZACs
throughout France does not inform our consideration of this issue. 4195 The European Communities
does not argue, as it did in connection with the reclamation of land in the case of the Mühlenberger
Loch development, that developm ent of industrial land is a "typical task of public authorities, as
providers of general infrastructure",
4196 but merely that the creation of an industrial site is a
"legitimate policy choice". 4197 We do not disagree. However, this fact provides no basis for a
conclusion that the development of the particular site in question, the ZAC Aéroconstellation, is a

4190 EC, FWS, para. 919, citing [***] declaration, paras. 5-6, Exhibit EC-17 (BCI). The European
Communities notes that the [***]. Exhibit EC-130 (BCI).
4191 EC, FWS, para. 919 referring to [***] declaration, paras. 4-6, Exhibit EC-17 (BCI); ZAC Protocole
d'Accord, [***], Exhibit EC-130 (BCI) [***].
4192 We note that the Europ ean Communities asserts, in discussing the question of benefit, that an
appropriate market benchmark for the EIG lease is Airbus' cost of debt . This is because, the European
Communities appears to recognize, had the French authori ties not created the EIG facilities, Airbus could have
done so itself, as they are necessary to its activities in the production of A380 aircraft, as well as those of the
other companies purchasing land in the ZAC and involved in the production of that aircraft. This supports our
view that the provision of the site a nd the EIG facilities should be considered together, as it is clear that Airbus,
as well as the French authorities, considered the EIG facilities an integral part of the site.
4193 See, discussion at paras. 7.1036 to 7.1044 above.
4194 EC, FWS, para. 909.
4195 It may be that the provision of other ZACs constitutes the provision of general infrastructure, or the
provision of infrastructure which is not general. As we have previously concluded, whether a provision of
infrastructure is "general" or not must be assessed in each instance on the basis of th e particular facts of the
specific measure at issue. Thus, we are not making any ruling concerning the status of any ZAC except the
ZAC Aéroconstellation which is before us in this dispute.
4196 EC, FWS, para. 775.
4197 EC, FWS, para. 923.

BCI deleted, as indicated [***]

measure of general infrastructure. The provision of specific subsidies
4198 is equally a legitimate policy
choice of governments – however, it is one that has potential consequences under the
SCM Agreement.
7.1177 The European Communities does not, in our understanding, seriously contend that the
development of the site was undertaken for reasons unrelated to the needs of Airbus. There is no
evidence before us to suggest th at the French authorities would ha ve undertaken the development of
the site and the construction of the EIG facilities bu t for the fact that it was desirable in order to
provide a suitable site for Airbus' A380 final assembly line, adjacent to the Toulouse-Blagnac airport.
Indeed, it is clear to us that the development of the ZAC Aéroconstellation site and the construction of
the EIG facilities was undertaken specifically to enable Airbus to situate an A380 final assembly line
in an advantageous location, in France. 4199 The ZAC Aéroconstellation is specifically designated as a
site for aeronautics-related activities, and the sale of land in the ZAC was limited to companies in the
aeronautics industry, and the purchasers are compani es concerned specifically with the assembly and
testing of the A380. 4200 The EIG facilities are, as the Europ ean Communities itself argues, necessary
to the efficient and effective operation of the A380 assembly operations for which the site was
developed, as well as for other aeronautics related act ivities undertaken at the site. Moreover, we do
not accept the European Communities' view that Air bus purchased "undifferen tiated" industrial land,
and that similar land is available throughout Europe. It is clear to us that the ZAC Aéroconstellation
site was, from the outset, uniquely adapted to Airbus ' needs, from its situation next to and connection
to the Toulouse-Blagnac airport, to the highly specific EIG facilities.
7.1178 We do not doubt that the French authorities c onsidered that they were pursuing a public
interest in undertaking the development of the Aéroco nstellation site. However, this interest does not
suffice to demonstrate that the project, starting wi th the development of agricultural land into an
industrial site, and including the c onstruction of the EIG facilities, constitutes a provision of general
infrastructure. As we have noted previously, it is in any event always likely to be the case that public
authorities will have reasons of public policy when expending public funds. However, when the
circumstances of such expenditure demonstrate that it was provided to or for the use of only a single
entity or a limited group of entities, we do not consider that it can be found to be "general"
infrastructure.
7.1179 The European Communities makes no other arguments with respect to the ZAC
Aéroconstellation site that might suggest that it wa s not created and provided specifically for the use

4198 With the exception of subsidies prohibited under Article 3.
4199 Indeed, the European Communities argues that the decision by Airbus to establish two A380
assembly facilities rather than the single site in Toulouse originally contemplated resulted in [***], implying
that the ZAC Aéroconstellation site was the most advantageous location. EC, SWS, para. 1079. See, also, Les
28 September 1999 ("This project is a credible and a ttractive alternative to Aérospatiale-Matra's solution for
integration of the Airbus A3XX for which Toulouse is a candidate.") Exhibit US-205; Airbus, press release,
Airbus' A380 Final Assembly Facility inaugurated by French President , 16 July 2000, Exhibit US-200;
http://www.aeroconstellation.com, "Le Programme Constellation, Quelques Chiffres, La ZAC
AéroConstellation", Exhibit US-201.
4200 Exhibit US-218 contains excerpts from the interactive map on the Grand Toulouse web-site,
http://www.grandtoulouse.org/admin/upload/fichier/aeroconstellation/aeroconstellation.htm describing the
companies, installations, and activities planned for the site. That map shows that these include, in addition to
the "pôle logistique" where aircraft parts are received on the site and stored, the large Airbus assembly building
and outside stations for final testing of A380 aircraft, a building for the Société Capelle, responsible for road
transport of A380 fuselage parts, a fuel supply insta llation (Exxon), a building for Air France Industries, active
in aircraft and engine maintenance, a building for S TTS, which paints and waterproofs aircraft, underground
galleries linking the various sectors and supplying heating, fire suppression, compressed air, communications,
etc., and taxiways linking the various parts of the site and linking the site to the Toulouse-Blagnac airport.

BCI deleted, as indicated [***]

of Airbus, its suppliers, and companies associated with the aeronautics industry for, initially, the
assembly and testing of A380 aircraft. The circ umstances surrounding the development of the site,
including the limitation on the use of the site as a "parc d'activités aéronautiques", and the connections
between the purchase of land and the required particip ation in the lease of the EIG facilities, makes it
clear that the development of the ZAC Aéroconste llation, including the EIG facilities, was undertaken
to suit Airbus' needs, and in particular, its needs in connection with the assembly and testing of A380
aircraft. In light of these facts, we concl ude that the creation and provision of the ZAC
Aéroconstellation site and EIG fac ilities is not a measure of general infrastructure within the meaning
of Article 1.1(a)(1)(iii) of the SCM Agreement. We therefore will go on to consider whether the
financial contribution of the French authorities in this respect conferred a benefit on Airbus.
Benefit
7.1180 The United States contends that the provision of the ZAC Aéroconste llation site and EIG
facilities confers a benefit on Airbus because (i) th e French authorities sold the land for less than
adequate remuneration, and (ii) because the authoriti es are leasing the EIG facilities to Airbus for less
than adequate remuneration.4201
7.1181 We recall that Article 1.1(b) of the SCM Agre ement does not define the notion of "benefit".
However, it is well established that a "financial contribution" will confer a "benefit" upon a recipient
when it places that recipient in a more advantag eous position compared with the position of that
recipient in the absence of th e "financial contribution". 4202 In Canada – Aircraft , both the panel and
the Appellate Body considered that the basis for making this comparison was the market. Thus, the
panel observed that:
"a financial contribution will only confer a 'benefit', i.e., an advantage, if it is
provided on terms that are more advantage ous than those that would have been
available to the recipient on the market".4203
Similarly, the Appellate Body explained that:

"the marketplace provides an appropriate basis for comparison in determining
whether a 'benefit' has been 'conferred', because the trade distorting potential of a
'financial contribution' can be identified by determining whether the recipient has
received a 'financial contribution' on terms more favourable than those available to
the recipient on the market."
4204
7.1182 Thus, a benefit will be conferred whenever a financial contribution is granted to a recipient on
terms more favourable than those available to the reci pient in the market. In the context of a financial
contribution in the form of provision of goods or services other than general infrastructure, we
consider that the appropriate question to be addressed in resolving the question of benefit is whether a
market actor would have provided the good or service to the recipient at the time, on the same terms
and conditions as the government provision at issue.
7.1183 In its first written submission, the United States identified the alleged costs of the
Aéroconstellation site and EIG fa cilities based on publicly available information, because, it noted,

4201 US, FWS, para. 464.
4202 Panel Report, Canada – Aircraft , para. 9.112, cited with approval in Appellate Body Report,
Canada – Aircraft, para. 149.
4203 Panel Report, Canada – Aircraft , para. 9.112; Appellate Body Report, Canada – Aircraft ,
paras. 157-158; Appellate Body Report, US – Countervailing Measures on Certain EC Products, para. 102.
4204 Appellate Body Report, Canada – Aircraft, para. 157.

BCI deleted, as indicated [***]

the European Communities and France had refused , during the Annex V process, to provide the
requested information relating to the site, which included a copy of the agreement in which the French
national and regional authorities agreed to develo p the site, a detailed description of the site
development project, a list of the measures that French authorities undertook and the costs they
incurred to develop the site, information regard ing the terms and conditions of any purchase by
Airbus or any other entities of any portion of the si te, and information on Airbus' use of the site.
4205
The United States contends that the logical infere nce to be drawn from these refusals is that the
information would have supported the United States' claim that the measure is a specific subsidy. The
United States suggests that the Panel draw such a logical inference. 4206 In addition, the United States
asserts that in this situation, the Panel would be ju stified, in accordance with paragraph 7 of Annex V,
in drawing an adverse inference that the withheld information demonstrates that the measure is a
specific subsidy, and respectfully requests that the Panel so infer. 4207 The United States contends that
since the European Communities a nd France refused the request for the terms and conditions of the
lease and the terms and conditions of equivalent comme rcial leases, it is not possible to calculate the
exact amount of the benefit to Airbus.4208
7.1184 Paragraph 7 of Annex V provides that a panel "should draw adverse inferences from instances
of non-cooperation by any party involved in th e information-gathering process". Although the
European Communities failed to provide any of the information requested concerning the
Aéroconstellation site during the Annex V process, it has, during the course of this panel proceeding,
submitted some information, in particular concerning the price paid by purchasers for land in the ZAC
and a valuation of that land by Atisreal. Howeve r, it has not provided any information concerning the
costs associated with the development of the site. Nor has it disputed the United States' allegations
concerning those costs, and it has not contested th e United States' allegations concerning the costs
associated with the creation of the EIG facilities and the terms of the lease for those facilities. Thus,
while we are not here faced with a situation where a party has fa iled to supply any part of the
requested information, much of the information before us on the question of benefit is factual
allegations by the United States based on public in formation which are unchallenged by the European
Communities. To the extent reliance on that information may be adverse to the European
Communities' position in this dispute, we consider that such reliance, which is not in itself an adverse
inference, is entirely justified. Moreover, to th e extent the information publicly available to the
United States and submitted in suppor t of its arguments is insufficient, we consider that inferences
favourable to the United States' view are warranted to the extent necessary to reach conclusions, in
view of the lack of cooperation by the European Communities during the Annex V process.
7.1185 The European Communities contends that the United States' argument concerning benefit
conferred by the provision of land in the ZAC effectively is based on a "cost to government" standard,
as it is based on the premise that regardless of the ma rket price for industrial land in the area, Airbus
France should have paid a price sufficient for the government to recover the costs incurred in
developing the ZAC. Because the "cost to government" standard has been rejected by the Appellate
Body, the European Communities asks the Panel to do so in this dispute.4209
7.1186 The United States does not dispute the basic prem ise that cost to the government is not an
appropriate basis for assessment of benefit, but does argue, as it did with respect to the Mühlenberger
Loch project, that consideration of the total amount invested by the French authorities is appropriate
in order to determine the amount of any benefit. The United States contends that a commercial owner

4205 Questions 56-72 from the Facilitator to the EC, Exhibit US-4 (BCI); EC Answers to Questions 56-
72 from the Facilitator, Exhibit US-5 (BCI).
4206 Our understanding is that this position does not extend to the development of the roads.
4207 US, FWS, para 480.
4208 US, FWS, para 476.
4209 EC, FWS, para. 935.

BCI deleted, as indicated [***]

of the land on which the ZAC Aéroconstellation was developed either would have sold the land "as
is", i.e., in its raw agricultural state, or would have asked for a commercial return on the owner's
investment in turning the land into an industrial site , in addition to a price reflecting the value of the
land. Thus, the United States' argument is that th e amount of the investment should be considered in
determining the appropriate market-based benc hmark for assessing the existence of benefit.
Moreover, the United States argues that the EUR 158 m illion invested in site preparation is akin to a
grant, since the French authorities spent funds to create a site that Airbus would otherwise have had to
create itself.4210
7.1187 We have already rejected the European Co mmunities' view that the provision of the
Aéroconstellation site constituted a measure of general infrastructure. The European Communities'
arguments concerning the price of the land in th e ZAC Aéroconstellation do not address the question
of the amount invested in developing raw agricultural land into land suitable for industrial use, but
focus on the market price for industrial land in the region, and the fact that all purchasers paid the
same price per hectare for land in the ZAC. Howe ver, neither of these arguments directly addresses
the question before us here. As we concluded with respect to the Mühlenberger Loch project,
4211 we
consider that the investment by the French authoriti es in developing the site to make the land suitable
for industrial use is the relevant basis for assessing whether a benefit was conferred on Airbus.
7.1188 As previously discussed, this does not constitu te, as argued by the European Communities, a
determination of the amount of benefit on the basis of cost to the government. Rather, it is simply a
reflection, in the particular circumstances of th is case, of the basis on which a market actor would
determine the price to be charged for the land to be sold, and thus the appropriate "market"
benchmark. In our view, based on the eviden ce provided by the European Communities, the
"prevailing market conditions" in the region woul d have led to a sales price for land in the ZAC
Aéroconstellation that would have been insufficien t to provide an adequate return to cover the
investment in developing the land for industrial use. Thus, in our view, a commercial land developer
would not have undertaken the project. In th ese circumstances, to argue, as the European
Communities does, that the market price for improved industrial land is the appropriate benchmark for
determining whether a benefit has been conferred would, in our estimation, result in a wholesale
circumvention of the fundamental purpose of the SCM Agreement's discipline on subsidies. Under
the European Communities' view, the more a fina ncial contribution by a government distorts the
allocation of resources that the market would othe rwise produce, the less it could be found to be a
subsidy. This is not an acceptable outcome, as it perverts a fundamental goal of the SCM Agreement.
7.1189 The European Communities asserts that the retu rn to the government is not limited to the
purchase price of the land, but may include "other forms" of remuneration such as higher tax revenues
and increased employment, which may make it willing to incur what appears to be a loss in providing
the land in question.4212 We do not agree. In the first pl ace, the European Communities has provided
no evidence to substantiate the possibility of such other forms of remuneration in this case, or that any
such other forms of remuneration would make up the difference between the amount invested by
French authorities in developing the land to be su itable for use by the aeronautics industry, including
the investment in the EIG fac ilities, and the sales price for th e land and lease price for the EIG
facilities. More importantly, we do not consider that the possibility of higher tax revenues or
increased employment has any relevance in assessing whether a financial contribution by a
government confers a benefit on the recipient. As we have previously noted, government authorities
would be expected to have a public policy purpo se in making a financial contribution – higher tax
revenues and increased employment might be among the factors considered in deciding whether a
particular financial contribution by the government is in the public inte rest. But the fact that such a

4210 US, FWS, para. 468.
4211 See, paragraph 7.1093 above.
4212 EC, SWS, para. 389.

BCI deleted, as indicated [***]

contribution is in the public interest, for instance because the government, or the locality, or the public
at large may benefit from it, simply does not affect whether the recipient of that financial contribution
benefits from it, which is the question before us he re. If a financial contri bution confers a benefit on
the recipient, then it constitutes a subsidy under Ar ticle 1 of the SCM Agreement. That others,
including the public at large, may also benefit does not alter that conclusion.
7.1190 Finally, as discussed above, we consider that the provision of the Aéroconstellation site is
appropriately considered together with the provisi on of the EIG facilities. It is clear, and the
European Communities does not argue otherwise, that the price paid by Airbus for land in the ZAC
Aéroconstellation, and the lease for the EIG facilities, does not provide a market rate of return on the
investment by the French authorities to develop the site, including the EIG facilities. Thus, whether
the lease for the EIG facilities is commensurate with a market benchmark does not save the provision
of the site, including the EIG facilities, from conferring a substantial benefit on Airbus. Therefore, we
conclude that the provision of the ZAC Aéroconste llation, including the EIG facilities, constitutes a
subsidy within the meaning of Article 1 of the SCM Agreement.
7.1191 The European Communities does not dispute the United States' allegations of specificity,
other than arguing that the measure constitutes genera l infrastructure, a view we have rejected. While
it is true that Airbus is not the sole occupant of th e ZAC or user of the EIG, it is clear that it is the
main beneficiary, as the other purchasers of land in the ZAC are all suppliers or contractors connected
to Airbus' activities in producing LCA, in particul ar the A380. Moreover, the ZAC is specifically
designated as a site for aeronautics-related activities, and the sale of land (and consequently use of the
EIG facilities) is limited to companies in the aeronau tics industry. We therefore consider that the
provision of the ZAC, including the EIG facilities, is specific within the meaning of Article 2.1(a) of
the SCM Agreement.
Provision of Roads

7.1192 We recall once more our interpretation of th e term "general infrastructure", where we
concluded that that the term "general infrastructure", taken in its ordi nary and natural meaning, refers
to infrastructure that is not provided to or for the advantage of only a single entity or limited group of
entities, and that there is no form or type of infrastructure which is inherently "general" per se.
4213 In
the context of the road improvements alleged to co nstitute subsidies in this case, the United States
argues that the improvements to the RD901, RD902, and RD963, were triggered exclusively by, or
were amended significantly as a result of, the development of the ZAC Aéroconstellation site, and that
these improvements were undertaken for the use of Airbus and its suppliers in the ZAC
Aéroconstellation. In support of this position, the United States relies on the fact that the
improvements provide access to the Aéroconstellation site at two points, on the northern perimeter
from the RD963, and on the eastern perimeter, from the RD902, and the that the construction of
underpasses on the southern perimeter for the RD901 allo ws taxiways on the Aéroconstellation site to
link to the Toulouse-Blagnac airport.
4214 The United States asserts that the access at the northern and
eastern perimeters is exclusively for Airbus and its suppliers, while the taxiways are principally used
by Airbus.

4213 See, paragraphs 7.1035 to 7.1044 above.
4214 While it is not entirely clear from the arguments, we understand the taxiways themselves to
constitute part of the development of the ZAC site itself, including the EIG facilities, rather than a part of the
road improvements. Of course, the need for taxiways linking a site for the assembly of aircraft to the airport, or
in general, to a runway, is obvious, and given the existence of a perimeter road, either level crossings or under-
or over-passes will have to be created to allow traffi c to flow on the road. Thus, the road aspect, the
underpasses, and the taxiway "bridges" are inextricably linked.

BCI deleted, as indicated [***]

7.1193 The European Communities has put before us evid ence that improvements to the roads in the
area, including the RD901, RD902, and RD963, were under consideration by the local authorities in
1998, before the decision to develop the ZAC Aéro constellation site was made in September 1999.4215
Thus, while the specific details of the improvements and the timing of the works appears to have been
affected as a result of the decision to develop th e Aéroconstellation site, we cannot agree with the
United States that the road improvements it challenges were "triggered" by that development.
7.1194 Nor do we agree with the United States' view that those improvements are exclusively for
Airbus and its suppliers situated on the site. Even assuming the United States is correct that Airbus
and the other aerospace companies located at the Aéroconstellation site are the primary or
predominant users of the road improvements, it is clear that there are no express or implied
restrictions or limitations on the use of the roads, or an y part thereof. As a matter of French law, they
are open to all traffic. Moreover, their use is not limited as a matter of fact to Airbus or the other
companies located on the site. Rather, the improve ments to the roads, lik e the roads themselves,
allow for through traffic, and access to other sites in the region and beyond. The European
Communities observes, and the United States does not dispute, that the RD901 and RD902 are central
transportation arteries for the region. The Diffuseur de Pinot, the roundabout from which the
Aéroconstellation site is accessed from the east, al so provides access to the ZAC Andromède, located
directly across from the entrance to the ZAC Aéroconstellation site. 4216 Similarly, while the
underpasses at the southern perimeter permit aircra ft assembled on the site to access the Toulouse-
Blagnac airport, they also allow traffic on the RD901 to continue to move freely.
7.1195 Unlike the case of an industrial site developed for a particular purpose and for the use of a
particular company or industry, in the case of publ icly accessible and publicly used roads that form
part of the general network of roads in a region, very strong evidence woul d be necessary to support
the conclusion that improvements to such roads do no t constitute general infrastructure. Merely that
some users may benefit more directly or more i mmediately from such improvements than others does
not, in our view, suffice in this regard. Moreover , it is not clear that companies situated on the
Aéroconstellation site use the road improvements more than other traffic, given that the roads and
roundabouts in question are part of the general ne twork of roads, allowing and/or improving access to
all sites in the region, including the other ZACs and the airport itself. Thus individuals and businesses
in the entire region are likely to use the improved roads to a similar degree. We simply do not
consider that the United States has submitted suff icient evidence to demonstrate that the road
improvements were provided to or for the use of only Airbus and/or companies located on the ZAC
Aéroconstellation site.
7.1196 We therefore conclude that the road improve ments challenged by the United States in this
case constitute the provision by the French authorities of general infrastructure within the meaning of
Article 1.1(a)(1)(iii) of the SCM Agreement. Th erefore, there is no financial contribution by a
government in connection with these road improvement s, and they do not constitute a subsidy within
the meaning of Article 1 of the SCM Agreement. We will not consider these measures further in this
dispute.
(f) Regional grants
(i) Arguments of the Parties
7.1197 These measures concern grants for the constr uction of manufacturing and assembly facilities
provided by the German Land of Lower Saxony and the German government to Airbus in Nordenham
in Germany, grants provided by the Spanish government and regional and local governments in Spain,

4215 Exhibit EC-126. See, also, Exhibit US-201. pg. 2.
4216 Exhibit US-203. pg. 3.

BCI deleted, as indicated [***]

supported in some cases by the European Regiona l Development Fund, to Airbus in Sevilla, La
Rinconada, Illescas (Toledo), Puerto de Santa Maria a nd Puerto Real in Spain, and grants provided by
the Welsh government to Airbus in Broughton, Wales.
4217 The United States asserts that these grants
are specific to Airbus under Article 2 of the SCM Agreement 4218 and Article 2.2 of the SCM
Agreement4219 because they were provided to "certain enterprises located within a designated
geographical region within the jurisdiction of the granting authority".
7.1198 The United States notes that, during the Annex V process, the Facilitator asked the European
Communities and the Airbus governments to provide numerous categories of information regarding
each of the grants referred to above, including the am ount of the grant; the reasons for approval of the
grant; the terms and conditions of the grant; how Air bus used the grant money; and all agreements or
other documents providing the legal basis for the gran t, but that the European Communities refused to
provide any of the information that the Facilitator requested. The United States asserts that the logical
inference to be drawn from this refusal is that the information would have supported the United States'
claim that the measures were specific subsidies, and suggests that the Panel draw such a logical
inference. In addition, the United States considers that this would appear to be a situation in which, in
accordance with paragraph 7 of Annex V, the Pane l would be justified in drawing an adverse
inference that the withheld information demonstrates that the measures are specific subsidies and the
United States requests that the Panel draw such an inference.4220
7.1199 The European Communities argues that under Artic le 2.2 of the SCM Agreement, a subsidy
that is limited to certain enterprises within a designated geographical region within the jurisdiction of
the granting authority shall be specific (emphasis of the European Communities). 4221 The European
Communities asserts that, a contrario, a subsidy would appear to be non-specific if it is available to
all enterprises located within a designated geographical region under the jurisdiction of the granting
authority.4222 Thus, the European Communities argues, the United States is wrong when it alleges that
Article 2.2 of the SCM Agreement renders all regional aid schemes per se specific without inquiring
whether or not access is limited to certain enterprises located within the designated regions.4223
7.1200 The European Communities relies, in addition to its parsing of the text of Article 2.2, on the
negotiating history of Article 2 in support of its view. The European Communities argues that
proposed Article 2.1(d) of the Chairman's draft te xt of 6 November 1990 would have rendered all
subsidies granted by sub-federal authorities specifi c, even if the subsidy was available to all
enterprises within the authority's territory:
"A subsidy which is available to all enterprises located within a designated
geographical region shall be specific irr espective of the nature of the granting
authority." (emphasis added)4224
The European Communities asserts that this provisi on eventually became Article 2.2, which does
away with the idea that designation of a geographical region alone leads to specificity. Rather, the
European Communities asserts, there is the additi onal limitation that such regional aid must be
"limited to certain enterprises ", which establishes that regional aid programmes that are available to

4217 US, FWS, para. 486.
4218 US, FWS, para. 489 (Nordenham); US, FWS, paras. 491-493 (Broughton).
4219 US, FWS, paras. 495, 497, 499, 501, 503, 505, 507, 509, 511 and 513 (Spanish grants).
4220 US, FWS, para. 514.
4221 EC, FWS, para. 733.
4222 EC, FWS, para. 733.
4223 EC, FWS, para. 737.
4224 EC, FWS, para. 735, citing Draft Text by the Chairman, 2 November 1990,
MTN/GNG/NG10/W/38/Rev. 2, p.3.

BCI deleted, as indicated [***]

all enterprises located within a designated region w ithin the jurisdiction of the granting authority are
non-specific.4225

7.1201 As noted, the European Communities asserts that regional aid programmes that are available
to all enterprises (as distinct from certain enterp rises) in designated regions are non-specific under an
e contrario reading of Article 2.2. In the European Communities' view, even if regional aid
programmes were specific under Article 2.1(a) of the SCM Agreement, such programmes could be
non-specific within the meaning of Article 2.1(b).
4226 Thus, the European Communities asserts that
even if a regional subsidy were found to be sp ecific under Article 2.2, it could nonetheless be non-
specific within the meaning of Article 2.1(b) of the SCM Agreement. That is, the European
Communities perceives a hierarchical relationshi p, whereby a finding of non-specificity under
Article 2.1(b) prevails over a finding of specific ity under Article 2.2. The European Communities
goes on to assert that the decisive test is whethe r the programme satisfies the "objective criteria"
element of Article 2.1(b), and maintains that th e regional programmes in questions do satisfy this
element, and that therefore none of the challenged grants constitutes a specific subsidy.4227
7.1202 The United States disputes the European Commun ities' proposed interpretation of Article 2 of
the SCM Agreement, which the United States cons iders rests on two mistaken propositions. The
United States asserts that the Eu ropean Communities errs in arguing that, under Article 2.2, a subsidy
is only specific if it is limited to a subset of en terprises within a designated geographical region, and
in arguing that a subsidy which is specific unde r Article 2.2 may nevertheless be found to be non-
specific under Article 2.1(b). 4228 The United States argues that the European Communities'
interpretation is not supported by the text of the pr ovision, understood in context and in light of the
object and purpose of the SCM Agreement, by the negotiating history of Article 2.2, or by European
Communities' practice under its own countervailing duty law.
4229
(ii) Arguments of Third Parties
Australia
7.1203 Australia disagrees with the European Communities' view that a subsidy is non-specific if it is
available to all enterprises located within a designated geographic re gion under the jurisdiction of the
granting authority.4230 Referring to the European Communities' argument that Article 2.2 involves a
two-step test, requiring assessment first whether th e subsidy is limited to a designated geographic
region and second whether the subsidy is limited to certain enterprises within that designated
geographic region, 4231 Australia notes that if such a two-st ep test for regional specificity were
adopted, it would be difficult to envisage a situation covered by Article 2.2 that would not already be
covered by Article 2.1(a).4232
Japan
7.1204 In response to a question from the Panel, Japan asserts that the first sentence of Article 2.2
confirms that a subsidy provided by a local gove rnment is treated in the same way as a subsidy

4225 EC, FWS, para. 736.
4226 EC, FWS, para. 739.
4227 EC, FWS, para. 740.
4228 US, SWS, para. 373.
4229 US, SWS, para. 374.
4231 Australia, Third Party Submission, para. 56, referring to EC, FWS, paras. 733-737.

BCI deleted, as indicated [***]

provided by a central government if the subsidy provided by a local government is specific. Thus, in
Japan's view, Article 2.1(a) covers situations stipulated in the first sentence of Article 2.2.
4233
(iii) Evaluation by the Panel
Factual background
7.1205 With respect to the United States' allegations c oncerning regional grants in Germany, Spain,
and Wales, we note that, except as specifically indi cated below, the factual allegations of the United
States concerning the dates, amounts, and recipients of the challenged grants are not disputed by the
European Communities.
Nordenham
7.1206 The European Communities ac knowledges that on 14 May 2002, the government of the
German Land of Lower Saxony awarded a grant, co-financed from the EU budget and the special
federal budget " Gemeinschaftsaufgabe", of EUR 6 million to Airbus for the extension of Airbus
Germany's existing manufacturing site in Nordenham. 4234 According to the European Communities,
the grant was made because it contributed to impr oving economic infrastructure in a region struggling
with structural difficulties and created additional jobs, complied with the requirements of both
Objective 2 under the EU Regional Development Funds ("ERDF") and the German Framework
Programme No. 31.4235 The European Communities acknowledges that the eligibility for the grant is
restricted to those companies located in specifically designated areas, both under the EU wide
regional programme and the German "Gemeinschaftsaufgabe".4236
Sevilla, La Rinconada, Illescas (Toledo), Puerto de Santa Maria, Puerto Real
7.1207 The European Communities acknow ledges the provision in 2001 of a grant of EUR 2.2
million to the EADS-CASA's facility at Tablad a (Sevilla), and the provision of a grant of
EUR 814,000 linked to an investment at the EADS CASA facility of San Pablo (Sevilla). 4237 T h e
European Communities also acknow ledges that in March 2003, the Spanish Ministry of Economics
granted EUR 37.9 million to Airbus Spain for its plant of Illescas (Toledo).4238
7.1208 The European Communities also acknowledges that the Spanish Ministry of Economics
granted EUR 5.9 million to EADS CASA to invest in a new facility of Puerto Santa Maria and
approved a grant of EUR 13.1 million for the Airbus Spain's facility in Puerto Real.
4239 T h e l e g a l
basis for all these grants was the Spanish Law 50/ 1985 on less favourable geographical zones, and,
with respect to the co-financed part in Toledo, the ERDF regulation.4240
7.1209 The European Communities further acknowledges that the government of Andalusia
in July 2001provided a grant of EUR 8.6 million to the EADS CASA facility in Puerto Santa Maria,
and in July 2002 provided another grant of EUR 35.7 million to EADS CASA for its new facility at

4233 Japan Answer to Panel Third Party Question 5.
4234 EC, FWS, para. 881.
4235 EC, FWS, para. 895.
4236 EC, FWS, para. 897.
4237 EC, FWS, para. 949. The United States identified this grant as having been made to EADS
CASA's facility at La Rinconada. US, FWS, para. 494. We do not consider this to undermine the adequacy of
the United States' allegations regarding this grant.
4238 EC, FWS, para. 950.
4239 EC, FWS, paras. 952-953.
4240 EC, FWS, paras. 949-954.

BCI deleted, as indicated [***]

Sevilla.4241 The legal basis for these grants was the Orden of 10 March 2000. The European
Communities acknowledges that in July 2003, th e Andalusian government provided a EUR 17.5
million grant, co-financed by the ERDF, to Airbus Spain for the Puerto Real facility under a regional
Andalusian scheme for most depressed areas in Andalusia and the ERDF.4242
7.1210 Finally, the European Communities acknowledg es that in March 2004, the government of
Castilla-La Mancha, under a regional aid scheme for the entire region of Castilla-La Mancha,
provided a grant of EUR 7.6 million, co-financed by the ERDF, with respect to investment in the
Airbus, Spain plant in Illescas, Toledo.4243
7.1211 The European Communities disputes the provision of a Spanish government grant of
EUR 43.1 million to EADS CASA for the facility at La Rinconada in July 2003, asserting that there
exists no such EADS CASA facility at La Rinconada. 4244 The European Communities asserts that
EADS CASA received the EUR 43.1 million grant in connection with the building of a new facility in
the area of Sevilla rather than La Rinconada.
4245 The European Communities acknowledges that the
Andalusian Government provided a EUR 61.9 milli on grant in October 2004 for the purpose of the
new EADS CASA facility in Sevilla. 4246 However, the European Communities asserts that EADS
used the proceeds from this grant for purposes unconnected with Airbus LCA.4247
Broughton, Wales
7.1212 The European Communities acknowledges that, in 2000, the Welsh government provided two
grants, of GBP 4.9 million and GBP 14.6 million, to Airbus UK in respect of its facility in Broughton,
Wales.4248
Evaluation by the Panel
Existence of a subsidy under Article 1 of the SCM Agreement
7.1213 To the extent that the European Communities has not disputed the United States factual
allegations, as indicated above, we consider that with respect to each of the measures described in
paragraphs 7.1206 to 7.1212 above, th e United States has made out a prima facie case that a subsidy
exists under Article 1 of the SCM Agreement. The European Communities does not dispute that these
measures all consisted of cash grants benefiting Airbus, with the exception of the October 2004 grant
by the government of Andalusia, which we addr ess below. Nor does the European Communities
dispute that these measures constitute subsidies.
7.1214 With respect to the October 2004 grant by the government of Andalusia, we must resolve
certain factual issues under Article 1 of the SCM Agreement before addressing the question whether it
is specific under Article 2 of the SCM Agreement. The European Communities does not dispute that

4241 EC, FWS, para. 955. The European Commun ities asserts that this latter grant amount is
erroneously attributed to La Rinconada by the United Stat es. However, the US asserted that this grant was in
connection with the EADS CASA facility in Sevilla. US, FWS, para. 506.
4242 EC, FWS, para. 957.
4243 EC, FWS, para. 959.
4244 EC, FWS, para. 951.
4245 EC, FWS, para. 951.
4246 EC, FWS, para. 958, and Exhibit EC-140 (BCI). The European Communities asserts that this latter
grant amount is erroneously attributed to La Rinconada by the United States. However, the US identified this
grant as being made in connection with the EADS CASA "Sevilla/La Rinconada facility". US, FWS, para. 512.
4247 Specifically, the European Communities asserts that the grant funds were used to [***]. EC, FWS,
para. 958.
4248 EC, FWS, para. 986, 989.

BCI deleted, as indicated [***]

this measure consists of a direct transfer of funds that confers a benefit, but it does dispute the United
States' allegation that the grant conferred a benefit on the subsidized product, large civil aircraft. The
European Communities argues that th e United States has not established as a matter of fact that this
grant benefits Airbus Spain's large civil aircra ft activities, asserting that it was provided for the
purpose of the EADS CASA facilities in Sevilla/La Rinconada, and used exclusively for non-large
civil aircraft-related activities.
4249
7.1215 With respect to this issue, we observe that th ese factual allegations were first raised in the
European Communities' first written submission, in response to the arguments made by the United
States in its first written submission, expanding on its request for establishment. We further note that
the United States attempted, during the Annex V info rmation gathering process, to seek more specific
and detailed information concerning each of these grants, including the amount of the grant, the
reasons for approval of the grant, the terms and conditions of the grant, how the grant money was
used, and all agreements or other documents providi ng the legal basis for the grant. The European
Communities refused to respond to the United States' questions. In its first written submission, the
United States identified the measures in dispute and the respective amounts of funding at stake,
relying on information that was publicly availa ble. Although the European Communities has now
provided information that was not presented durin g the Annex V process, we understand the United
States to continue to be of the view that the Eur opean Communities has failed to disclose all relevant
information and that the Panel should draw adverse inferences when establishing the facts
surrounding a number of its claims.
7.1216 Paragraph 7 of Annex V provides that a panel "should draw adverse inferences from instances
of non-cooperation by any party involved in th e information-gathering process". Although the
European Communities failed to provide informa tion requested during the Annex V process, it has
subsequently, during the course of this panel proceed ing, provided much of that information, which
largely corresponds to the publicly available informat ion relied on by the United States. Thus, we are
not here faced with a situation where we cannot draw factual conclusions based on the information
before us. We therefore do not consider it necessary to draw adverse inferences.
7.1217 In any event, the evidence that the European Communities provid es fails to substantiate its
factual assertions concerning the October 2004 grant. Having reviewed the information before us, it
is clear to us that the United States has demonstrat ed that the grant in question benefited the EADS
CASA facilities in question. Information provided by European Communities demonstrates that work
is done at the Tablada facility on large civ il aircraft, specifically, A320 and A380 aircraft. 4250 We
note that the European Communities itself asserts that the "overwhelming majority" of activities in
Tablada concerns military activities, thus ac knowledging that there are LCA activities as well. 4251
Even assuming, as the European Co mmunities asserts, that only a "minor portion" of revenues is
derived from sales to Airbus Spain involving the A320 and A380 models, this fails to demonstrate
that the grant in question does not benefit Airbus Spain's LCA activities. In addition, the European
Communities asserts that the San Pablo facility is "vir tually entirely" dedicated to military activities,
thus acknowledging that there are some LCA-related activities undertaken as well. 4252 None of the
evidence submitted by the European Communities c oncerning this facility provides any information
about the grant money or how it was invested or u sed, but it does confirm that work at that facility

4249 Specifically, the European Communities asserts that the grant funds were used to [***]. EC, FWS,
para. 958.
4250 Exhibit EC-139 (BCI) consists of a series of slides dated December 2006, showing the layout of the
EADS-CASA Tablada plant and summarizing certain projects apparently undertaken at that plant. Two of the
slides indicate that work at this plant is done for Airbus's A380 and A320 models.
4251 EC, FWS, para. 975-976.
4252 EC, FWS, para. 975-977.

BCI deleted, as indicated [***]

includes LCA-related activities. 4253 Thus, we conclude that the European Communities has failed to
rebut the United States' prima facie case that, as a matter of fact, this grant benefits Airbus.
7.1218 Our review of the information provided by the parties, and particularly the facts set out by the
European Communities itself, leads us to conclude that each of the challenged regional grants is a
financial contribution in the form of a direct tr ansfer of funds and that each confers a benefit on
Airbus in connection with the production of LCA. Therefore, each constitutes a subsidy within the
meaning of Article 1 of the SCM Agreement.
Specificity
7.1219 Having concluded that the measures challenge d by the United States constitute subsidies
within the meaning of Article 1 of the SCM Agreemen t, we now turn to the question of specificity.
The European Communities raises two arguments in this regard. First, the European Communities
makes a legal argument with respect to the meani ng of Article 2.2 of the SCM Agreement, and the
question whether subsidies provided to enterprises in certain geographic regions within the territory of
the granting authority are specific. Second, th e European Communities makes a factual and legal
argument with respect to the grants by the Welsh government, arguing that they are not specific under
Article 2. We turn first to the legal question under Article 2.2.
Interpretation of Article 2.2 of the SCM Agreement
7.1220 We recall that Article 3.2 of the DSU provi des that Members recognise that the dispute
settlement system serves to clarify the provisions of the covered agreements "in accordance with
customary rules of interpretation of public interna tional law". Article 31.1 of the Vienna Convention
on the Law of Treaties ('Vienna Convention')", 4254 which is generally accep ted as such a customary
rule, provides:
"A treaty shall be interpreted in good faith in accordance with the ordinary meaning
to be given to the terms of the treaty in th eir context and in the light of its object and
purpose."
7.1221 There is a considerable body of WTO case law dealing with the application of these
provisions on treaty interpretation in dispute settlement in the WTO. It is clear that interpretation
must be based above all on the text of the treaty, 4255 but that the context of the treaty also plays a role.
It is also well-established that these principles of interpretation "neither require nor condone the
imputation into a treaty of words that are not there or the importation into a treaty of concepts that
were not intended."
4256 Thus, all language must have a mean ing. Furthermore, panels "must be
guided by the rules of treaty interpretation set out in the Vienna Convention, and must not add to or
diminish rights and obligations provided in the WTO Agreement." 4257 Finally, the Appellate Body has
noted that, if after applying Article 31 of the Vie nna Convention, the meaning of a term of the treaty
remains ambiguous or obscure, or leads to a resu lt which is manifestly absurd or unreasonable,

4253 Specifically, the document indicates that work at this plant involves [***]. Exhibit EC-138 (BCI).
There is no evidentiary basis for apportioning the amount of the grant between LCA and other activities, and the
European Communities has not suggested otherwise.
4254 Done at Vienna, 23 May 1969, 1155 United Nations Treaty Series 331 (1980); 8 International
Legal Materials 679 (1969).
4255 Appellate Body Report, Japan – Alcoholic Beverages II , p. 11.
4256 Appellate Body Report, India – Patents (US), para. 45.
4257 Appellate Body Report, India – Patents (US), para. 46.

BCI deleted, as indicated [***]

Article 32 of the Vienna Conventio n allows a treaty interpreter to have recourse to supplementary
means of interpretation, including the preparatory work of the treaty, i.e., its negotiating history.
4258
7.1222 Article 2.2 of the SCM Agreement provides as follows:
"2.2 A subsidy which is limited to certa in enterprises located within a designated
geographical region within the jurisdiction of the granting authority shall be specific.
It is understood that the setting or change of generally applicable tax rates by all
levels of government entitled to do so shall not be deemed to be a specific subsidy for
the purposes of this Agreement."
Thus, Article 2.2 establishes that a subsidy " shall be specific" if it is "lim ited to certain enterprises
located within a designated geographical region within the territory of the granting authority." In
order to resolve the question before us, we must interpret the latter phrase.

7.1223 Article 2.2 is not particularly clearly drafted. It could be understood, based on the text alone,
as establishing specificity on the basis of a geogra phical limitation on the recipients ("within a
designated region"), which is the United States' position. It could also be understood to establish
specificity on the double basis posited by the European Communities – "certain", i.e., not all,
enterprises, "within a designated region". While th e text, standing alone, is not unambiguous in this
respect, when the text is considered in its context and in light of its object and purpose, it is clear to us
that Article 2.2 is properly understood to provide that a subsidy available in a designated region
within the territory of the granting authority is specific, even if it is available to all enterprises in that
designated region.
7.1224 We recall that the European Communitie s argues that under Article 2.2 of the
SCM Agreement, only a subsidy that is limited to certain enterprises within a designated geographical
region within the jurisdiction of the granting authority shall be specific.
4259 The European
Communities' proposed interpretation would entail that, in order to be specific, a subsidy granted by a
regional authority must not only be limited to a desi gnated region within the territory of the granting
authority, but must in addition be limited to only a subset of enterprises within that region. However,
if a national authority grants a subsidy to a subset of enterprises within its territory, whether that
subset of enterprises is located in a designated re gion or not, such a subsidy would, by definition,
already be specific under Article 2.1, which provides, in pertinent part:
"2.1 In order to determine whether a subsidy, as defined in paragraph 1 of
Article 1, is specific to an enterprise or industry or group of enterprises or industries
(referred to in this Agreement as "certain en terprises") within the jurisdiction of the
granting authority, the following principles shall apply:
(a) Where the granting authority, or the legislation pursuant to which the
granting authority operates, explicitly limits access to a subsidy to certain enterprises,
such subsidy shall be specific.
(b) Where the granting authority, or the legislation pursuant to which the
granting authority operates, establishes objective criteria or conditions 2 governing the
eligibility for, and the amount of, a subsidy, specificity shall not exist, provided that
the eligibility is automatic and that such criteria and conditions are strictly adhered to.

4258 Appellate Body Report, European Communities – Customs Classification of Certain Computer
Equipment ("EC – Computer Equipment "), WT/DS62/AB/R, WT/DS67/AB /R, WT/DS68/AB/R, adopted
22 June 1998, DSR 1998:V, 1851, para. 86.
4259 EC, FWS, para. 733.

BCI deleted, as indicated [***]

The criteria or conditions must be clearly spelled out in law, regulation, or other
official document, so as to be capable of verification.
Thus, the European Communities' proposed reading of Article 2.2 merely replicates the standard set
out in Article 2.1(a), and thereby makes Article 2.2 redundant. As the Appellate Body has stated:

"A fundamental tenet of treaty interpre tation flowing from the general rule of
interpretation set out in Article 31 is the principle of effectiveness (ut res magis valeat
quam pereat).
21 I n United States - Standards for Reformulated and Conventional
Gasoline, we noted that "{o}ne of the corollaries of the 'general rule of interpretation'
in the Vienna Convention is that interpretation must give meaning and effect to all the
terms of the treaty. An interpreter is not free to adopt a reading that would result in
reducing whole clauses or paragraphs of a treaty to redundancy or inutility".
22
21
 See also (1966) Yearbook of the Internationa l Law Commission, Vol. II, p. 219:
"When a treaty is open to two interpreta tions one of which does and the other does
not enable the treaty to have appropria te effects, good faith and the objects and
purposes of the treaty demand that the former interpretation should be adopted."
22 United States - Standards for Reformulated and Conventional Gasoline, WT/DS2/9,
adopted 20 May 1996, p. 23."
7.1225 The European Communities appears to recognize that its reading of Article 2.2 has the effect
of making it redundant of Article 2.1(a), but dismisses this as a "structural overlap," which it describes
as "not uncommon" in treaty-making. 4260 However, in our view, there is a perfectly reasonable
reading of Article 2.2 which avoids this problem, and we consider it appropriate to eschew a reading
of that provision which raises it. On this b asis alone, we consider the European Communities'
proposed interpretation of Article 2.2 to be unsatisfact ory, as it fails to give full effect to the text of
Article 2 as a whole.
7.1226 In addition, as the United States points out, 4261 the European Communities' reading of
Article 2.2 also creates a redundancy with Article 8.2(b). Although Article 8.2(b) has expired
(pursuant to the provisions of Article 31 of the SCM Agreement), it did form part of the original
"traffic light" architecture of the SCM Agreement, and thus provides us with important context for
understanding the intended sc ope of other provisions.
4262 Article 8.2(b) specifically rendered
assistance to disadvantaged regions within the terr itory of a Member non-actionable, as long as that
assistance met certain criteria. On e of those criteria was that the assistance be "non-specific (within

4260 EC, Answer to Panel Question 97, para. 263.
4261 US, SWS, para 380.
4262 The Panel in US – Upland Cotton noted that provisions of the SCM Agreement that have lapsed
may nevertheless be useful in understanding the overall architecture of the SCM Agreement with respect to the
different types of subsidies it sought and seeks to address; Panel Report, US – Upland Cotton , para. 7.907
(footnote 1086). A similar view was expressed in the Decision by the Arbitrator, US – FSC (Article 22.6 – US),
footnote 66.

BCI deleted, as indicated [***]

the meaning of Article 2) within eligible regions ." Under the European Communities' reading of
Article 2.2, a regional subsidy that is not "limited to certain enterprises" within the region is not
specific. Thus, the European Communities' reading of Article 2.2 would have rendered Article 8.2(b)
redundant and unnecessary from the outset. Moreover, Article 8.1(b) provided that subsidies which
were specific within the meaning of Article 2, but which met all the conditions of Article 8.2, would
be non-actionable. Thus, Article 8.2(b) carved out as non-actionable regiona l development subsidies
which, presumably, would otherwise have been actiona ble, in part because they were specific. Given
that the establishment of particular types of s ubsidies as non-actionable under Article 8, including
assistance to disadvantaged regions, was a significant achievement of the Uruguay Round
negotiations, an interpretation of Ar ticle 2.2 which would have rendere d one of the key provisions of
Article 8 in this regard redundant and useless from the outset makes no sense to us, and we reject such
an interpretation.
7.1227 Thus, in our view, the ordinary meaning of Article 2.2 of the SCM Agreement, read in
context and in light of its object and purpose, is clear. As a consequence, there is no need for
consideration of the negotiating history of the SCM Agreement.
7.1228 However, even assuming, arguendo, that there were some ambiguity in the interpretation of
Article 2.2, in our view, the European Commun ities' description of the negotiating history is
inaccurate and does not lend weight to its position. An important issue during the negotiation of the
SCM Agreement was the treatment of subsidies by sub-national authorities – e.g., states or provinces
in a federal system. Some delegations considered that all subsidies granted by sub-national authorities
should be treated as automatically specific, simp ly because the subsidies were only available to
enterprises within the geographical region in question.
4263 The European Communities was one of the
proponents of this view:
"Indeed, there is no difference, as to their economic effect, between a subsidy granted
by a regional or local government to all firms in that region on one hand, and the
same subsidy granted to the same firms in the same region but by the central
government on the other hand."4264
Others delegations argued that subsidies granted by sub-national authorities should be treated as
specific only if they were limited to enterpri ses in a designated geographical region within the
jurisdiction of the sub-national authority in question.

7.1229 The 7 November 1990 draft text of the Ne gotiating Group on Subsidies and Countervailing
Measures reflected the first approach, providing, in Article 2.1(d) that a regional subsidy is specific
"irrespective of the nature of the granting authorit y." In other words, regardless of whether the
granting authority was national or regional, the fa ct that a subsidy was limited to a "designated
geographical region" would automatically make it specifi c. The text of Article 2.2 in the Draft Final
Act also reflected this approach, providing:
"A subsidy which is available to all en terprises located w ithin a designated
geographical region shall be specific irr espective of the nature of the granting
authority. It is understood that the setting or change of generally applicable tax rates

4263 US, SWS, para. 383
4264 Elements of the Negotiating Framework, Submission by the European Community,
MTN.GNG/NG10/W/31, at 6 (November 27, 1989).

BCI deleted, as indicated [***]

by all levels of government entitled to do so shall not be deemed to be a specific
subsidy for the purposes of this Agreement." 4265
7.1230 However, the adopted text of the SCM Agreemen t reflects the other approach, that a subsidy
meets the regional specificity test only if it is "limited to certain ente rprises located within a
designated geographical region within the jurisdiction of the granting authority."
7.1231 The European Communities argues that the adopted text of Article 2.2 eliminates the notion
of aid to a designated region as a singular basis of a finding of specificity. However, the European
Communities ignores the change from a text wh ich established that any regional assistance,
irrespective of the granting authority, would always be specific, to a text which linked specificity to
availability within the jurisdiction of a particul ar granting authority. This change reflects a
compromise which accomplished the goal of those dele gations who opposed the text of Article 2.2 in
the Draft Final Act, and who sought to ensure that, if the granting authority was a regional
government, a subsidy available to enterprises thro ughout the territory over which that regional
government had jurisdiction would not be specifi c. The European Communities argues that the
negotiators went even further, and added an a dditional limitation that regional aid granted by a
regional authority would be specific only if it was limited to less than all enterprises within the region.
There does not seem to be any basis for this outco me in the negotiating history, and the European
Communities has put forward no evidence or argumen ts suggesting reasons why it would have been
sought by or acceptable to the negotiators.
7.1232 The United States also points out that the Eu ropean Communities' proposed construction of
the regional specificity provision in Article 2.2 is contrary to its own practice in countervailing duty
investigations.
4266 In response to a question from the Pane l, the European Communities asserts that
this is not the case.4267 However, the only evidence it provides is the EC Basic Regulation governing
countervailing duty investig ations. As the European Commun ities recognizes, the Basic Regulation
transposes the relevant provisions from the SCM Ag reement into EC law. It does not, however,
elaborate on how they are to be interpreted or app lied in practice. The United States has submitted as
exhibits decisions of the EC Commission, the inv estigating authority in the European Communities,
and the Council of the European Communities, imposing countervailing duties, finding that aid to
designated regions within the territory of a sub-na tional granting authority is countervailable, based
on finding that such a subsidy is specific.
4268 For instance, the European Communities found that
certain incentives granted by the regional government in the Indian state of Maharashtra to enterprises
in developing and backward regions of that state were specific, even though they were not limited to a
subset of enterprises, stating:
"The scheme is only available to companies having invested within certain designated
geographical areas within the State of Mahar ashtra. It is not available to companies
located outside these areas. The level of benefit is different according to the area

4265 Draft Final Act Embodying the Results of the Uruguay Round of Multilate ral Trade Negotiations,
MTN.TNC/W/FA, at I.3 (20 December 1991)
4266 US, SWS, para 388.
4267 EC, Answer to Panel Question 98, paras. 267-269..
4268 US, SWS, para. 477, referring to Council Regulation (EC) No 1338/2002 of 22 July 2002 imposing
a definitive countervailing duty and collecting definitively the provisional countervailing duty imposed on
imports of sulphanilic acid originating in India, OJ L 196/1, 25.7.2002, recital 32, Exhibit US-581. The United
States also points to Council Regulation (EC) No 1891/97of 26 September 1997 imposing a definitive
countervailing duty on imports of farmed Atlantic salmon originating in Norway, OJ L267/19, 30.9.1997, recital
26 ("With regard to the business development grants in central regions, investment grants in assisted areas and
business development grants in assisted areas, access to th e subsidy is limited to ente rprises in certain regions
and specificity therefore exists."), E xhibit US-582 and recital 28 ("{T}he gr ants which are restricted to certain
regions are by definition specific.").

BCI deleted, as indicated [***]

concerned. The scheme is therefore specifi c in accordance with Article 3(2)(a) and
Article 3(3) of the basic Regulation."
4269
While it is clear, as the European Communities asserts, that its countervailing duty determinations are
not the subject of this Panel, 4270 and we are not here addre ssing the consistency of those
determinations with the SCM Agreement, it is nonetheless clear that the European Communities has
not, in its own practice, followed the interpretation it urges on us in this dispute.

7.1233 Finally, with regard to the European Comm unities' "hierarchy" argument, we note that
Article 2.2 provides, "A subsidy which is limited to certain enterprises located within a designated
geographical region within the jurisdiction of the granting authority shall be specific ." There is no
indication in the text of the SCM Agreement that a finding of specificity under Article 2.2 is somehow
subject to further examination under Article 2.1(b). There is thus no basis for the inference of a
hierarchy posited by the European Communities, a nd a reading of the provisions of Article 2 as
potentially conflicting in this manner is to be avoi ded. Moreover, non-specificity under Article 2.1(b)
is based on the existence and application of criteri a or conditions governing eligibility for and amount
of a subsidy which are neutral, "do not favour cer tain enterprises over others, and which are economic
in nature and horizontal in application, such as number of employees or size of enterprise." The
European Communities asserts that "the regional ai d programmes themselves satisfy the criteria of
Article 2.1(b) of the SCM Agreement".
4271 Essentially, the European Communities appears to be
arguing that because the criteria for designation of the region within which challenged subsidies are
granted are objective, and the criteria for eligib ility for those subsidies within that region are
objective, the subsidies granted within that region are non-specific.
7.1234 If this position were accepted, it would mean th at Article 8.2(b)(ii) of the SCM Agreement
was redundant from the outset. That Article provided that, in order for assistance to a disadvantaged
region to be considered non-actionable, inter alia, the region in question must be determined "on the
basis of neutral and objective criteria", defined in footnote 32 as "criteria which do not favour certain
regions beyond what is appropriate for the eliminat ion or reduction of regional disparities within the
framework of the regional development policy." Ther e would have been no need for this provision if
the European Communities' "hierarchy" argument were correct. Of course, Article 8 has now expired,
and thus there is no longer a category of non-actio nable subsidies to disadvantaged regions. The
European Communities' position effectively woul d re-introduce the expired provisions of
Article 8.2(b), making regional assistance subsidi es non-actionable on the basis of being non-specific
under Article 2.1(b), which is not a justifiable outcome.
7.1235 The European Communities does not contest, and the information before us substantiates, that
the grants provided by the German Land of Lower Saxony and the German government to Airbus in
Nordenham in Germany, and the grants provided by the Spanish government to Airbus in Sevilla, La
Rinconada, Illescas (Toledo), Puerto de Santa Maria a nd Puerto Real in Spain, and grants provided by
the government of Andalusia to Airbus in Sevilla and Puerto Real in July 2002, July 2003 and
October 2004, and by the government of Castilla-La Ma ncha to Airbus in Illescas (Toledo) in March
2004, were provided to enterprises in designated ge ographical regions within the territory of the
respective granting authorities.

4269 See, Commission Regulation (EC) No 573/2002 of 3 April 2002 imposing a provisional
countervailing duty on imports of sulphanilic acid originat ing in India, OJ L87/5, 4.4.2002 ("Sulphanilic Acid
from India Provisional CVD Regulation"), recital 68, Exhibit US-580. This finding was confirmed in the
regulation imposing a definitive countervailing duty. .
4270 EC, Answer to Panel Question 98, para. 267.
4271 EC, FWS, para. 897. See, also, paras. 948, 981-83.

BCI deleted, as indicated [***]

7.1236 In this regard, we note that the grants provide d by the government of Andalusia to Airbus in
Sevilla and Puerto Real in 2002 and 2003, respectively, and by the government of Castilla-La Mancha
to Airbus in Illescas (Toledo) in 2004, were co-financed by the European Regional Development
Fund (ERDF).4272 The United States asserts that "subsidi es under the {ERDF} are necessarily limited
to "certain enterprises located within a designated geographical region within the jurisdiction of the
granting authority," and thus are specific within the meaning of Article 2.2 of the SCM
Agreement".
4273 The European Communities does not dispute that these grants were co-financed by
the ERDF. However, the European Communities do es not address the United States' assertion that
grants co-financed by the ERDF are necessarily sp ecific within the meaning of Article 2.2. The
European Communities relies entir ely on its assertion that the programmes under which these grants
were made were generally ava ilable throughout Andalusia and C astilla-La Mancha, respectively to
dispute the United States' assertion of speci ficity with respect to these grants. 4274 Even accepting this
as fact 4275, it does not undermine the United States' specificity argument. In our view, the
United States' argument implies that the ERDF is the granting authoritiy, within the meaning of
Article 2.2 of the SCM Agreement, for the portions of these grants which it financed, and that the
ERDF-financed portions of these grants were th erefore provided to enterprises in designated
geographical regions within the territory of the granting authority. Based on the foregoing, we
consider that the portions of these grants finan ced by the ERDF were provided to enterprises in
designated geographical regions within the territory of the granting authority, and therefore, we
conclude that they are specific under Article 2.2 of the SCM Agreement.4276
7.1237 Turning to the grant provided by the government of Andalusia to Airbus in Puerto Santa
Maria in July 2001, we reach a different conclusi on. Although the United States asserts that the grant
to Puerto Santa Maria was made pursuant to an Andalusian government development plan for the
Bahía de Cadiz, the evidence cited by the United States does not support this conclusion. 4277 The
United States did not assert any other basis for a findi ng of specificity with respect to this grant.
Based on the foregoing, we conclude that the gran t provided by the government of Andalusia to
Airbus in Puerto Santa Maria in July 2001 w as not provided to an enterprise in a designated
geographical region within the territory of the gran ting authority, and is therefore not specific under
Article 2.2 of the SCM Agreement.
GBP 19.5 million grant in 2000 by the government of Wales
7.1238 With respect to the alleged 2000 grant by th e Welsh government, the European Communities
asserts that two grants were actually provided, unde r two programmes the terms of which make clear
that they were not specific within the meaning of Article 2 of the SCM Agreement. The United States
asserts that BAE Systems originally applied for a grant under Welsh Assembly's Regional Selective

4272 US, FWS, paras. 506, 508 and 510.
4273 US, FWS, paras. 507, 509 and 511.
4274 EC, FWS, paras. 967, 980.
4275 The United States does not dispute that the governments of Andalusia and Castilla-La Mancha
"authorized" and "approved" those grants, respectively. US, FWS, paras. 506, 508 and 510.
4276 We note in this regard that the information before us indicates that 75 percent of the grant to Sevilla
was financed by the ERDF, but does not indicate what po rtion of the grants to Puer to Real and Illescas was
financed by the ERDF. Thus, the amount of specific subsidy to Puerto Real and Illescas is less than the total
amount of those grants, EUR 17.5 and 7.6 million, respectively. Given our conclusions with respect to the
magnitude of the subsidies, see paras. 7.1963 - 7.1976, we consider that the lack of precise quantification of the
amount of these subsidies does not affect our overall conclusions.
4277 Page 14,291 of Exhibit US-240, cited by the United States in this regard, states that that the funds
were granted "for a plan of action for the Bahía de Càdiz Centre ( Polígono Parque Industrial Bahía)". Having
carefully reviewed the evidence, we cannot conclude th at the "Plan" referred to in Exhibit US-240 is an
Andalusian government development plan for the Bahia de Càdiz.

BCI deleted, as indicated [***]

Assistance ("RSA") scheme, which application was denied.
4278 The United States asserts that the
Welsh Assembly, in the face of pressure, 4279 in September 2000 agreed to provide ad hoc a total of
GBP 19,500,000, in lieu of the assistance initially requested, to BAE Systems in support of A380
wing production work in Broughton, Wales. 4280 The United States argues that Article 2 of the UK
A380 Launch Aid contract, [***].4281 further demonstrates that these measures are specific.4282
7.1239 The United States maintains that the circum stances surrounding the GBP 19.5 million grant
are important to understanding wh y it is a specific subsidy. 4283 The United States notes that the
original grant application was under the RSA progr amme, and asserts that grants under that scheme
are specific within the meaning of Article 2.2 of the SCM Agreement, as they are limited to certain
"assisted areas" in Wales. 4284 The United States asserts that an "uproar" following the Welsh
Assembly's rejection of that original application, including, inter alia, the threat by BAE Systems to
move A380 wing production from Wales to Germany, 4285 led the Welsh Assembly to provide the
GBP 19.5 million to BAE Systems, albeit formally under schemes other than the RSA scheme under
which the original application had been made. 4286 In the United States' view, the European
Communities' approach fails to take into account th e totality of the evidence, focusing only on events
starting with BAE Systems' application for the grants that ultimately were provided, and further fails
to address the [***].4287
7.1240 The European Communities argues that the Un ited States' allegation that the grant of
GBP 19.5 million to Airbus UK in Broughton, Wales is specific is based on an application for a grant
that Airbus UK did not actually receive, and simply assumes, without evidence, that the amount
actually received was an ad hoc replacement for that denied grant. 4288 According to the European
Communities, the United States' allegation of specifi city is based entirely on its assumption that the
amounts actually received were a direct substitute fo r the RSA grant that had been originally sought
but denied, and argues that the United States has failed to make a prima facie case of specificity. 4289
The European Communities denies, in any even t, that the RSA programme provides specific
subsidies.4290 The European Communities disputes the implication that the grants actually received by
Airbus UK in 2000 replaced the denied RSA grant. 4291 Therefore, the European Communities
considers that the A380 contract is not relevant, be cause that contract refers to an amount for RSA,
which Airbus UK did not receive. The European Communities argues that, whether RSA is a
programme that provides specific subsidies (which the European Communities contends it is not) is
not the point, as Airbus received two grants pursuan t to two different programmes, both of which are

4278 US, FWS, para. 491.
4279 According to the United States, inter alia , BAE Systems threatened to move the A380 wing
production work from Wales to Germany. US, FWS, para. 493.
4280 The package included GBP 15,0 00,000 from the Welsh Development Agency for the "general
infrastructure of a big site" and GBP 4,900,000 for the "development of people." US, FWS para. 492.
4281 A380 LA/MSF Contract, Art. 2.1.2, DS -316-EC-BCI-0000556, 0 000562 (blank space in
parentheses in original). The United States indicates that it did not know [***] referenced in the contract,
because the European Communities redacted the relevant informati on from the copy of the contract that it
provided to the Annex V Facilitator. Exhibit US-79 (BCI).
4282 US, FWS, para. 492.
4283 US, SWS, paras. 426-31.
4285 US, FWS, para. 492.
4286 US, FWS, para. 492.
4287 US, FWS, para. 493.
4288 EC, FWS, para. 984.
4289 EC, FWS, para. 984.
4290 EC, FWS, footnote 793.
4291 EC, SWS, para. 408.

BCI deleted, as indicated [***]

generally available in Wales. 4292 Neither of these programmes is RSA, which is limited to assisted
areas, whereas the programmes under which grants we re actually provided are applicable throughout
Wales.4293 The European Communities considers that th ese grants must be evaluated on the basis of
the terms and conditions of the programmes under which they were actually provided, and not as
replacements or surrogates for RSA, which was not granted.4294
7.1241 While we agree with the United States that the circumstances surrounding the provision of a
subsidy are relevant to our evaluation of the qu estion of specificity, the starting point for that
evaluation must, in our view, be the programme(s) pursu ant to which the subsidy at issue is granted.
Only if, notwithstanding an appearance of non-specificity in the grant of a particular subsidy, there are
reasons to believe it may nonetheless be specific, do we consider it appropriate to focus our attention
on the factual circumstances surrounding the provision of that subsidy to determine the question of
specificity. In this regard, the European Comm unities has provided us with evidence, which the
United States does not dispute, that the GBP 19. 5 million was granted pursuant to two programmes
that do not meet the test set forth in Article 2.2. There is no indication, and the United States does not
argue otherwise, that subsidies granted under these programmes are limited by sector, region or
enterprise. It follows that subsidies provided under those programmes are not "limited to certain
enterprises located within a designated geographical region within the jurisdiction of the granting
authority", and are therefore not specific under Article 2.2 of the SCM Agreement. The United States
has made no other allegations of specificity with respect to the GBP 19.5 million grant.
4295
7.1242 We therefore conclude that the GBP 19.5 milli on provided to Airbus UK in respect of its
operations in Broughton, Wales, is not a specific s ubsidy within the meaning of Article 2.2 of the
SCM Agreement.
7.1243 Based on the foregoing, we therefore concl ude that grants for the construction of
manufacturing and assembly facilities in Nordenham, Germany, and Sevilla, La Rinconada, Toledo,
and Puerto Real, Spain, are subsidies within the meaning of Article 1 that are specific within the
meaning of Article 2.2. The European Communities does not dispute the amounts in question.
(g) Conclusion
7.1244 In summary, we conclude that the provision of the Mühlenberger Loch industrial site, the
provision of the extended runway at Bremen Airpor t, the provision of the ZAC Aéroconstellation and
EIG facilities, as well as regional grants by German authorities in Nordenham and Spanish authorities
in Sevilla, La Rinconada, Toledo, Puerto Real, cons titute specific subsidies to Airbus. We further
conclude that the provision of road improvements by French authorities, the grant provided by the
government of Andalusia to Airbus in Puerto Sa nta Maria in July 2001 and the grant of GBP 19.5
million to Airbus UK in respect of its operations in Broughton, Wales, are not specific subsidies to
Airbus, and we will not consider them further in this dispute.

4292 EC, FWS, para 985.
4293 EC, SWS, para. 410.
4294 EC, SWS, para. 409-410.
4295 We therefore do not address the question of specificity under Article 2.1, or the European
Communities' arguments concerning de facto specificity. EC, FWS, paras. 994, 996.

BCI deleted, as indicated [***]

7. Whether the German government's transfer of its ownership share in Deutsche Airbus
to the Daimler Group is a specific subsidy to Airbus
(a) Background to the Capital Restructuring of Deutsche Airbus
7.1245 In this section, we address the United States' cl aims that two specific transactions arising out
of the Federal German government's restructuring of Deutsche Airbus in the late 1980s constitute
subsidies to Airbus. We begin by describing the events that led to the restructuring of Deutsche
Airbus in 1989, and the specific transactions at issue before us, before considering in greater detail the
arguments of the United States and the responses of the European Communities.
7.1246 Deutsche Airbus GmbH (Deutsche Airbus), the German partner in the Airbus GIE
consortium, was founded in 1967 to assume work for the development of a European wide-body
aircraft that had originally begun in 1965 as a joint venture among five German aerospace
companies.
4296 By 1989, as a result of the consolidation of various German aerospace firms, Deutsche
Airbus had become a wholly owned subsidiary of Messerschmitt-Bölkow-Blohm GmbH (MBB),
itself the largest aerospace company in West Germany.
4297 The German share of the Airbus Industrie
consortium's development and series production work was performed by MBB and Dornier, with
Deutsche Airbus paying MBB and Dornier for services provided. 4298 Deutsche Airbus had been
insufficiently capitalized by its parent company, MBB, and was largely dependent on financial aid
from the German government, including guarantees of its private debt.4299
7.1247 The German government had, for a number of years prior to 1989, been encouraging MBB to
obtain additional capital for Deutsche Airbus by finding new investors, although MBB's attempts on
this front had been unsuccessful. 4300 By 1989, the German government had committed DM 10.7
billion to Deutsche Airbus in LA/MSF and financial aid for sales and series production. 4301 Deutsche
Airbus also anticipated that it would require a dditional financing for the A320 programme, and the
start-up of the A330/A340 programme. 4302 During this time, a significant depreciation of the
US dollar relative to the DM, combined with a vari ety of other factors, had brought Deutsche Airbus
to the brink of bankruptcy.4303 It is against this background that the German government implemented
the 1989 plan to restructure Deutsche Airbus. The objective of the restructuring plan was to gradually
shift the risks associated with participation in Ai rbus GIE to the private sector. According to the
German Federal Ministry of Economics, the restructuring of Deutsche Airbus was designed to create a

4296 The original companies in question were: Blohm-Hamburger Flugzegbau GmbH (HFB),
Messerschmitt AG, Vereinigte Flugtechnische Werke (VFW), Siebel and Dornier.
4297 By 1969, Messerschmitt, Bölkow AG and HFB had merged to form Messerschmitt-Bölkow-Blohm
GmbH (MBB). MBB originally held 60 percent of the interests in Deutsche Airbus, with Dornier and VFW
each holding 20 percent. MBB took over VFW in 1981. Prior to Daimler-Benz AG acquiring control of MBB
in 1989, the German federal states of Bavaria, Hamburg and Bremen held 52.3 percent of the capital stock of
MBB; Monopolkommission, Zusammenschlussvorhaben der Daimler Benz AG mit der Messerschmitt-Boilkow-
Blohm GmbH, Sondergutachten 18, 1989 (Monopolkommission Report), Exhibit US-30, para. 138.
4299 Monopolkommission Report, Exhibit US-30, para. 116. According to the German Federal Cartel
Office, the German government bore most of the financial risk associated with development and series
production of the German share of Airbus GIE, with Deutsche Airbus functioning as "a liability and risk barrier"
for MBB.
4303 EC, FWS, para. 1177.

BCI deleted, as indicated [***]

"realistic chance of placing the Airbus program under full private industry responsibility over the
longer term and thus reducing the level of state financial assistance for Airbus." 4304
7.1248 The restructuring plan involved the industr ial group Daimler-Benz AG (Daimler-Benz)
acquiring control of MBB (and thus Deutsche Airbus ) through a newly created aerospace subsidiary,
Deutsche Aerospace AG (Dasa). 4305 The restructuring also involved a series of commitments by the
German government that significantly limited any risk to Daimler-Benz associated with its acquisition
of the German share of the Airbus consortium. 4306 These transactions were set forth in a Framework
Agreement among the Federal Repub lic of Germany, Daimler-Ben z, MBB and Deutsche Airbus. 4307
The principal elements of the restructuring tr ansactions were as follows: First, the German
government repaid, on behalf of Deutsche Airbus, DM 1.9 billion of Deutsche Airbus outstanding
bank debt which had been guarant eed by the German government. 4308 In addition, the German
government agreed to pay up to DM 750 million of Deutsche Airbus' guaranteed debt in respect of the
A300/A310 programmes that was still outstanding at the end of 1994. 4309 Second, the German
government established an exchange rate loss in surance programme under which it agreed to cover
future exchange rate losses incurred by Deutsche Airbus. 4310 Third, the German government provided
a DM 165 million loan to finance production of the A320. 4311 Fourth, the German government
rescheduled repayments of LA/MSF previously granted in connection with its financing of
development costs for the A300, A310, A320 and A 330/A340 pursuant to a (profit-based) income
adjustment bond, or "debtor warrant". 4312 Fifth, the German government, through the government
development bank, Kreditanstalt für Wiederaufbau (KfW) agreed to make a DM 505 million equity
infusion to Deutsche Airbus, representing 20 percent of the equity in Deutsche Airbus. KfW's

4304 Handelsblatt No. 212, November 3, 1988, p. 24 "Dai mler-Benz-MBB / Statement of the German
Federal Ministry of Economics on the Restructuring of the Aviation Industry," Exhibit US-259.
4305 In 1989, MBB, Dornier and two other companies, Motorenund Turbinen Union and Telefunken
System Technik were merged into a newly created aer ospace subsidiary of the German automaker Daimler-
Benz AG (Daimler-Benz), called Deutsche Aerospace AG (Dasa), as one part of the restructuring of the German
aerospace industry; Exhibit EC-26, p. 2.
4307 The Framework Agreement, dated as of 23 March 1989, as amended on 2 September 1989 (the
"Framework Agreement"), Exhibit EC-887-HSBI. Th e Framework Agreement was amended a further three
times between 1992 and 1998. The la st of those amendments occurred in December 1998, when the parties
agreed to settle of all of the German government's outst anding repayment claims under the debtor warrant for a
one-off compensatory payment of DM 1.75 billion. The United States claims that the 1998 settlement of
Deutsche Airbus debt to the German government was itself a specific subsidy to Airbus. We address this claim
in Section VII.E.8
4310 Monopolkommission Report, Exhibit US-30, para. 131. This aspect of the restructuring programme
was determined to be a subsidy on exports prohibited under the Tokyo Round Subsidies Code, by a GATT
panel. GATT Panel Report, EEC – Airbus, 4 March 1992, unadopted, SCM/142.
4312 The European Communities translates Besserungsschein as "debtor warrant"; EC, FWS,
para. 1179, and we use the same term to refer to the Besserungsschein. We note that in one exhibit, the
United States has translated the term Besserungsschein as "(profit-based) income-adjustment bond": Exhibit
US-31, p. 14. Under the terms of the debtor warrant, the Ge rman government's repayment claims against
Deutsche Airbus' were to be met from Deutsche Airbus' annual profits ( i.e., the repayment obligations were
contingent on Deutsche Airbus ha ving earned pre-tax profits in the preceding year); Daimler-Benz Annual
Report 1997, Exhibit US-262, p. 96. Moreover, Deutsche Airbus profits were first to be applied to increasing its
equity capital to DM 1.755 billion and to providing a special reserve for exchange rate losses and a revenue
reserve. According to the Federal Cartel Office, the arrangement for the government's repayment obligations to
be made pursuant to the terms of the debtor warrant meant that the repayment claims of the German government
were delayed far into the future, leading to a considerable interest rate subsidy; Monopolkommission Report,
Exhibit US-30, para. 132.

BCI deleted, as indicated [***]

acquisition of the 20 percent stake in Deutsche Airbus was originally envisaged to be for a period of
10 years, with MBB agreeing to purchase the 20 pe rcent stake from KfW by the end of 1999 at the
latest.
7.1249 The United States' subsidy claims relate to the fifth element of the restructuring of Deutsche
Airbus; namely, the acquisition by KfW of the 20 per cent equity interest in Deutsche Airbus in 1989,
and the subsequent sale of that interest to MBB in 1992.
4313
(b) Arguments of the parties
(i) United States
The purchase by KfW of 20 percent of the shares of Deutsche Airbus
7.1250 The United States argues that the acquisition by KfW of 20 percent of the shares of Deutsche
Airbus constitutes a "financial contribution" by the German government in the form of a "direct
transfer of funds" within the meaning of Article 1.1(a)(1)(i) of the SCM Agreement. The United
States argues that the acquisition by KfW of 20 percent of the shares of Deutsche Airbus is an equity
infusion by the German government in Deutsche Airbus, and that Article 1.1(a)(1)(i) of the
SCM Agreement includes equity infusions among th e types of "direct transfers of funds" that
constitute financial contributions under Article 1.1(a)(1).
4314 The United States also contends that this
financial contribution conferred a be nefit on Deutsche Airbus within the meaning of Article 1.1(b) of
the SCM Agreement. The United States submits th at, while Article 1.1(b) of the SCM Agreement
does not establish a standard for determining whethe r an equity infusion confers a benefit on the
recipient, Article 14(a) provides relevant context for such a determination. In light of Article 14(a),
the United States submits that if a government's decision to provide equity to a company is
inconsistent with the usual investment practice of private investors in the Member's territory, the
equity infusion confers a benefit within the meaning of Article 1.1(b).4315
7.1251 Accordingly, the United States argues that th e German government's decision to make the
DM 505 million equity infusion in Deutsche Airbus was inconsistent with the usual investment
practice of private investors in Germany. The Un ited States contends that Deutsche Airbus' financial
position at the time of the investment by KfW was exceedingly poor. 4316 In particular, the United
States notes that in Deutsche Airbus' 1990 Annual Report, the company reported significant liabilities
on its balance sheet, that it continued to face busin ess risks from the DM/dollar exchange rate, lacked
capital to finance the DM 2 billion costs of prod ucing the A320, A321 and A330/A340 and would not
be able to borrow the necessary additional fund s without first obtaining additional equity.
4317 T h e
United States also points to the fact that the KfW in fusion was itself part of a package of financial aid

4313 Although the parties to the Framework Agreement had originally agreed that MBB would purchase
KfW's interest in Deutsche Airbus in 1999, this date was brought forward to 1996 by a September 1989
amendment to the Framework Agreement. In 1992, following the adverse GATT Panel Report in EEC – Airbus,
and the German government's decision to terminate the exch ange rate loss insurance programme at issue in that
dispute, the Framework Agreement was further amended, inter alia, to require that MBB purchase KfW's 20
percent equity stake in Deutsche Airbus by 30 September 1992 at the latest, for the purchase price of
DM [[HSBI]], the consideration to take the form of a repaym ent claim pursuant to the terms of the debtor
warrant; EC, FWS, para. 1182.
4314 US, FWS, paras. 543.
4315 US, FWS, para. 545.
4316 In this regard, the United States notes that at the end of 1988, Deutsche Airbus' parent, MBB, had
reported shareholders' equity of less than DM 900 mill ion, compared to total liabilities in excess of DM 3.6
billion. MBB had also reported a consolidated net loss of DM 83.3 million in 1987; US, FWS, para. 546; MBB
Consolidated Annual Report 1989, Exhibit US-267, p. 51.
4317 US, FWS, para. 546 ; Deutsche Airbus, Annual Report 1990, p. 18, Exhibit US-268.

BCI deleted, as indicated [***]

to MBB (that was a precondition to Daimler-Benz's agreement to acquire control of MBB) as an
additional relevant fact that confirms the non- commercial nature of the German government's
investment.4318
7.1252 Finally, the United States argues that the equi ty infusion is specific to Airbus within the
meaning of Article 2 of the SCM Agreement, as an exercise of discretion by the German government
to provide equity to a single company, Deutsche Ai rbus, as part of a broader aid package for that
company.4319
The 1992 sale of KfW's 20 percent interest in Deutsche Airbus to MBB
7.1253 The United States claims that the 1992 sale by KfW of its 20 percent interest in Deutsche
Airbus to MBB also constitutes a subsidy to Airbus . The United States argues that the transfer of
shares in Deutsche Airbus to MBB is a "financial contribution" because it involves the "direct transfer
of funds" (i.e., share capital), within the meaning of Article 1.1(a)(1) of the SCM Agreement. 4320 The
United States asserts that, based on publicly available information, MBB did not appear to have paid
any consideration for the Deutsche Airbus shares acqui red from KfW, and that the share transfer was,
effectively, a DM 505 million grant.4321
7.1254 The United States also points to the background of the share transfer to MBB as evidence of
its non-commercial nature. In this regard, the Un ited States notes that that when KfW acquired the
20 percent stake in Deutsche Airbus in 1989, it ha d been agreed that MBB would purchase that stake
from KfW by 1999 at the latest. In 1990, this ag reed date was changed to 1996. However, the
United States alleges that the date for the acqui sition by MBB was then brought forward to 1992
directly as a result of the findings of the 1992 GA TT panel that the German government's exchange
rate guarantee scheme was a prohibite d export subsidy to Deutsche Airbus. 4322 According to the
United States, the German government agreed to eliminate the exchange rate guarantee scheme,
whereupon Daimler-Benz demanded that it be comp ensated, and the German government agreed to
return its 20 percent stake in Deutsche Airbus to MBB (which had been renamed Dasa) in 1992
"apparently free of charge". 4323 The United States argues that KfW's uncompensated return of
Deutsche Airbus shares could be considered as conve rting its original provision of a DM 505 million
equity infusion to Deutsche Airbus into an outright grant. 4324 In support of its contention that the
share transfer to MBB was non-commercial in natu re, the United States also relies on statements by
Daimler-Benz and the former head of DG Trade of th e European Commission, to the effect that the
terms of the 1992 transfer of Deutsche Airbus shar es to MBB was intended to "compensate" Daimler-

4318 United States, FWS, para. 547. The United States also points to a published Answer by the Deputy
Secretary of Parliament to a question concerning the "subsidies" granted by the Federal government to Airbus,
which specifically lists the equity infusion as one such subsidy. US, FWS, para. 540; BT-Drs. 13/8409, Exhibit
US-31, pp. 13-14.
4319 US, FWS, para. 548.
4320 US, FWS, para. 553.
4321 US, FWS, para. 555.
4322 GATT Panel Report, EEC – Airbus, 4 March 1992, unadopted, SCM/142.
4323 US, FWS, para. 550. The United States notes th at in a 1992 Report, Daimler-Benz explained that,
following the decision of the GATT Panel, the German government and Daimler-Benz entered into negotiations
"with a view to achieving an equally satisfactory solution when the present assistance ceases. In the resulting
agreement, it was decided that, as on e of the compensatory measures, the shares held by the Reconstruction
Loan Corporation will be transferred to Deutsche Airb us at an earlier date than scheduled…"; Daimler-Benz
Consolidated Interim Report, January 1-June 30, 1992, p. 7, Exhibit US-272.
4324 US, Answer to Panel Question 161, para. 160. Th is is why, if the Panel accepts that the 1992 KfW
transfer of its 20 percent stake in Deutsche Airbus to MBB was made "free of charge", the United States
considers it unnecessary for the Panel to make a separate finding regarding the original DM 505 million equity
infusion; see also, US, FWS, para. 552, footnote 668.

BCI deleted, as indicated [***]

Benz for the German government's withdrawal of the exchange rate guarantee scheme following the
adverse GATT Panel decision.
4325
7.1255 The United States also argues that, if the Pane l were to find that KfW's transfer of its
20 percent equity interest in Deutsche Airbus to MBB was not free of charge, we should find (i) that
the original equity infusion constitutes a subs idy (inasmuch as providing that infusion was
inconsistent with the usual investment practice of private investors and thus confers a benefit); and (ii)
"that, even assuming arguendo, the payment the European Commun ities says KfW received when it
sold its Deutsche Airbus shares to MBB in 1992, that equity infusion also constitutes a subsidy
(inasmuch as providing that infusion was inconsistent with the usual investment practice of private
investors and thus confers a benefit)."4326
7.1256 The United States argues that in other disputes concerning restructuring of financially
distressed companies, panels have considered the absence of independent assessments or going-
concern analyses of the company to be relevant to the commercial reasonableness of government
provision of equity to such companies. The United States notes that the European Communities has
not offered any evidence that the German government based its decision to provide additional capital
to Deutsche Airbus on independent assessment stud ies, such as studies comparing the going-concern
value of Deutsche Airbus with its liquidation value.
4327 The United States also notes that the
European Communities had refused to respond to qu estions about the terms and conditions of the
1992 transfer by KfW of its 20 percent equity intere st in Deutsche Airbus posed by the Facilitator
during the Annex V process. 4328 According to the United States, the logical inference to be drawn
from such a refusal is that the information woul d have supported the United States' claim that the
measure is a specific subsidy. The United States requ ests the Panel to draw such an inference, and in
addition, requests the Panel to draw an adverse infe rence that the withheld information demonstrates
that the measure is a specific subsidy.4329
7.1257 Finally, the United States argues that the 1992 shar e transfer is specific to Airbus within the
meaning of Article 2 of the SCM Agreement b ecause it resulted from a negotiation between the
German government and a single company to compensate the company from the effects of
withdrawing the exchange rate guarantee scheme that was found to be inconsistent with the Tokyo
Round Subsidies Code.4330
(ii) European Communities
The purchase by KfW of 20 percent of the shares of Deutsche Airbus
7.1258 The European Communities argues that the Unite d States "fails to distinguish between the
recipient of the alleged subsidy in 1989 and today's LCA manufacturer - Airbus SAS." 4331 According

4325 US, FWS, paras. 550-552, 554. The United States refers to an excerpt from an interview with the
then head of DG Trade, Peter Carl, in which Carl is quoted as saying:
"We lost the export subsidy case…But it was settled immediately afterwards. We agreed with the
Germans that they had to change their system. But what happened in reality was the way the German
government simply changed the way in which it handed out very substantial amounts of money to Deutsche
Airbus. Instead of going by route A, it went by route B"; Stephen Aris, Close to the Sun , at 166-167 (2004),
Exhibit US-23.
 US, Answer to Panel Question 32, paras. 209-212.
4326 US, Answer to Panel Question 161, para. 162.
4327 US, Answer to Panel Question 224, para. 313-317.
4328 US, Answer to Panel Question 32, para. 206; Exhibit US-5 (BCI).
4329 US, Answer to Panel Question 32, para. 212.
4330 US, FWS, para. 556.
4331 EC, FWS, para. 1212.

BCI deleted, as indicated [***]

to the European Communities, th e United States has attempted to demonstrate that the 1989
investment by KfW is a subsidy, "without showing how that alleged subsidy passed on to Airbus SAS
to benefit the production of LCA alleged by the United States to be causing present adverse
effects."4332 The European Communities submits that the Panel should reject the United States' claim
on this basis.
7.1259 The European Communities argues that KfW's equi ty investment in Deutsche Airbus did not
confer a benefit on Deutsche Airbus. The Europ ean Communities agrees with the United States that
Article 14(a) of the SCM Agreement offers contextu al guidance for determining whether a benefit is
conferred in the context of an equity infusion. 4333 Contrary to the assertions of the United States
however, the European Communities argues that the KfW investment was not inconsistent with the
usual investment practice of private investors in Germany because Daimler-Benz, "through MBB"
also acquired shares in Deutsche Airbus at that time and for the same nominal price per share. The
European Communities also conte nds that the evidence adduced by the United States of MBB's
financial position at the time of the investment is irrelevant to an assessment of Deutsche Airbus'
equityworthiness. According to the European Communities, Deutsch e Airbus was equityworthy at
the relevant time, as is confirmed by Daimler-Benz's simultaneous purchase of Deutsche Airbus'
shares following Deutsche Airbus' restructuring.
4334
The 1992 transfer of KfW's 20 percent interest in Deutsche Airbus to MBB
7.1260 The European Communities contends that the sale by KfW of its 20 percent interest in
Deutsche Airbus to MBB did not c onfer a benefit on Deutsche Airbus , because the transfer of a
company's shares from one shareholder to another is of no economic consequence to the company
itself.4335 In addition, the European Communities argues that MBB, as the purchaser of KfW's
20 percent interest in Deutsche Airbus (and ther efore as the recipient of any alleged financial
contribution), did not develop, manufacture or sell any Airbus LCA in 1992 or subsequently. 4336
According to the European Communities, the Un ited States has failed to demonstrate how the
acquisition of shares in Deutsche Airbus could have conferred a benefit on Deutsche Airbus, let alone
"how the alleged subsidy (benefit) passed from MBB to "Deutsche Airbus" (which was manufacturing
LCA in the past) or, more pertinently, to Airbus SAS, which today devel ops, manufactures and sells
LCA that is alleged to impose present adverse effects on United States' interests."4337
7.1261 Moreover, the European Communities contends that the share transfer to MBB was not in fact
"free of charge" as alleged by the United States. The European Communities points to independent
valuations of KfW's 20 percent interest in Deutsche Airbus by [***] and contends that the fact that the
value of KfW's 20 percent stake in Deutsche Airbus in 1992 was less than its initial value at the time
KfW subscribed the shares does not indicate that there was a subsidy.
7.1262 The European Communities notes that one of th e terms of the 1989 restructuring was that,
should the value of KfW's 20 percen t interest in Deutsche Airbus [***].4338 Since the 1992 valuation

4332 EC, FWS, para. 1212.
4333 The European Communities argues that Appellate Body case law on the relevance of Article 14 to
the interpretation of Article 1.1(b) of the SCM Agr eement "neither calls for no r suggests a mechanistic,
automatic and literal application of tests in Article 14 to the issue of determination of existence of benefit in the
sense of Article 1.1(b)." However, the European Communities also indicates that in the context of an equity
contribution by a government, it is implicit in the notion of "benefit" in Article 1.1(b) to inquire into the usual
investment practice of private investors; EC, Answer to Panel Question 101, paras. 277, 280.
4334 EC, FWS,para. 1217.
4336 EC, FWS, para. 1203.
4337 EC, FWS, para. 1203.
4338 EC, FWS, para. 1209.

BCI deleted, as indicated [***]

of the 20 percent stake by [***] was less than DM 505 million, the German government thereby
became entitled, above and beyond the [[HSBI]] value ascribed to the 20 percent stake by [***], to
an additional amount of [[HSBI]]. According to the Europ ean Communities, the German
government, Daimler-Benz, MBB and Deutsche Airbus agreed that an amount of [[HSBI]],
corresponding to the value of the shares by [***], plus an additional amount of [[HSBI]], be paid by
Deutsche Airbus under the terms of the debtor warrant.
4339 The transfer by KfW of its 20 percent
interest in Deutsche Airbus to MBB was therefore not "free of charge" and, according to the European
Communities, did not confer a benefit on Deutsche Airbus.
7.1263 The European Communities also contends that the United Stat es has agreed that the 1992
amendment to the 1989 Framework Agreement did not affect the economic position of Deutsche
Airbus and that, since the 1992 sale of KfW's 20 percent equity interest in Deutsche Airbus to MBB
was an element of the 1989 Framework Agreemen t and the 1992 amendment, it likewise cannot be
held to confer a benefit on Deutsche Airbus.
4340 In addition, the European Communities argues that, if
the Panel were to find that the KfW acquisition of a 20 percent equity interest in Deutsche Airbus in
1989 were tantamount to a grant to Deutsche Airbus, it could not then conclude that the 1992 transfer
of that equity interest to MBB constitutes a sec ond subsidy, because to do so would amount to double
counting.4341
(c) Evaluation by the Panel
(i) Additional factual background to KfW's acquis ition and subsequent sale of the 20 percent
equity interest in Deutsche Airbus
7.1264 Before proceeding to evaluate the arguments of th e parties, we consider it helpful to set forth
additional information concerning the terms on which KfW initially acquired the 20 percent interest in
Deutsche Airbus in 1989, and the terms on which it ultimately transferred that interest to MBB in
1992. As previously indicated, these transactions were elements of the 1989 restructuring of
Deutsche Airbus which involved Daimler-Benz acqui ring a majority shareholding in MBB and thus,
indirectly, Deutsche Airbus' 37.9 percent interest in Airbus Industrie.
7.1265 In conjunction with the Daimler-Benz acquisition of a majority interest in MBB, MBB agreed
to contribute additional capital of approxi mately DM 1 billion to Deutsche Airbus. 4342 A l s o i n
conjunction with the Daimler-Benz acquisition of a majo rity interest in MBB, KfW agreed to make a
capital contribution of DM 505 million to Deutsche Airbus, representing 20 percent of the outstanding
equity capital of Deutsche Airbus. In addition, the German government agreed that, during the 10
year period in which KfW was orig inally expected to hold its equity interest in Deutsche Airbus, any
profits generated by Deutsche Airbus would, for at least the first eight years, be used first to build up
Deutsche Airbus' capital base and to form a speci al reserve to compensate Deutsche Airbus for
exchange rate losses.4343

4339 EC, FWS, para. 1209.
4340 EC, Comments on US Answer to Panel Question 225, para. 208; referring to US, Answer to
Question 32, paras. 209-211.
4341 EC, Comments on US Answer to Panel Question 225, para. 209.
4342 Of this amount, DM 800 million was to be provided in cash, DM 5 million was to be provided in
the form of an in-kind contribution of MBB's transport and commercial aircraft division, and DM 195 million
was to consist of a special payment to be allocated to a special capital reserve in order to compensate Deutsche
Airbus for US dollar exchange rate losses. According to the German Federal Cartel Office, DM 800 million of
the DM 1 billion additional capital provided by MBB was attributable to Daimler-Benz's DM 993 million
capital injection to MBB as part of its acquisition of a majority interest in MBB; Monopolkommission Report,
Exhibit US-30, paras. 125, 126, 128.

BCI deleted, as indicated [***]

7.1266 It was originally agreed among the parties to the Framework Agreement that KfW's
investment in Deutsche Airbus was to be of 10 y ears' duration, with MBB agreeing to acquire the
20 percent equity interest in Deutsche Airbus from KfW by the end of 1999. 4344 The parties to the
Framework Agreement had agreed that, [***].4345
7.1267 In 1992, the Framework Agreement was amende d to, among other things, bring forward to
1992 the date of MBB's purchase of KfW's 20 percent equity interest in Deutsche Airbus, and to
provide that the purchase price for that stake [***] DM [[HSBI]] million. The European
Communities has provided evidence suggesting that the amount of DM [[HSBI]] million was
negotiated between the German government an d MBB based on advice fr om two independent
accounting firms, [***], and that the value of KfW's 20 percent equity interest in Deutsche Airbus in
1992 was DM [[HSBI]] million.4346 This means that the sale price of DM [[HSBI]] million negotiated
in 1992 represents [*** [[HSBI]] ***].
(ii) Was the 1992 transfer of KfW's 20 percent equity interest in Deutsche Airbus to MBB "free of
charge"?
7.1268 The United States argues that both the acquisition by KfW of the 20 percent interest in
Deutsche Airbus and the subsequent sale of that inte rest to Deutsche Airbus' parent MBB, are specific
subsidies. In its first written submission, the United St ates indicated that if the Panel were to find that
the 1992 sale by KfW of its 20 percent interest in Deutsche Airbus to MBB amounted to a grant in the
amount of DM 505 million, it would not be necessary for the Panel to determine whether the original
acquisition of the 20 percent stake by KfW in 1989 was also a subsidy.
4347 In response to a question
from the Panel, the United States subsequently explained that the argument which it had formulated in
its first written submission was based on publicly available information regarding the purchase and
subsequent sale by KfW of its equity interest in Deutsche Airbus, because the European Communities
had not provided any information concerning the 1992 transfer by KfW in the Annex V process. 4348
According to the United States, the logical infe rence to be drawn from the publicly available
information was that KfW's shares in Deutsche Airbus had been acquired in 1989 for DM 505 million
and had then effectively been returned to MBB wit hout payment. As a result, according to the United
States, the uncompensated return of shares could be considered to have converted the original
provision of a DM 505 million equity infusion to Deutsche Airbus into an outright grant. 4349 On this
basis, the United States considered that it woul d be unnecessary for the Panel to make a separate
finding as to whether the 1989 KfW acquisition of shares in Deutsche Airbus amounted to a subsidy.
7.1269 According to the United States, if the Pane l were to accept the European Communities'
subsequent contention that the 1992 transfer by KfW of its 20 percent interest in Deutsche Airbus to
MBB was made for consideration (a contention wh ich the United States regards as unsubstantiated),
then the Panel should make findings regarding both the original DM 505 million acquisition by KfW
of a 20 percent equity interest in Deutsche Airbus a nd the subsequent transfer of that interest to MBB
in 1992.4350

4344 As previously noted, the Framework Agreement was amended in September 1989 to bring forward
the date at which MBB was required to purchase KfW's 20 percent interest in Deutsche Airbus to 1996, before
that date was once again brought forward to 1992.
4345 EC, FWS, para 1209; Framework Agreement; Exhibit EC-887 HSBI.
4346 The evidence in question is a letter, dated 1 July 1992, from the accounting firm [***] which
corroborates the European Communities' contention that [***] had agreed on a [***[[HSBI]] ] ; EC, FWS,
paras. 1208-1209; SWS, para. 601; Exhibit EC-752 HSBI.
4348 US, Answer to Panel Question 161, para. 159.
4349 US, Answer to Panel Question 161, para. 159.
4350 US, Answer to Panel Question 161, para. 160.

BCI deleted, as indicated [***]

7.1270 We are not persuaded that the 1992 transfer of KfW's equity interest in Deutsche Airbus to
MBB was "free of charge" as alleged by the United States. We base this factual finding on the terms
of the Framework Agreement, as amended in 1992, which provided that the consideration to be
provided for the transfer of the shares was DM [[HSBI]] [***].
4351 As we explain further below, we
are not in a position to calculate with precision what would have been the present value, in 1992, [***
[[HSBI]]***]. However, we are satisfied that the value would have been greater than zero. We are
therefore unable to conclude that the 1992 transfer by KfW of its 20 percent equity interest in
Deutsche Airbus was made "free of charge", or th at it could be considered to have converted the
whole of KfW's original provision of a DM 505 m illion equity infusion to Deutsche Airbus into a
grant.4352 This being so, it is necessary for us to co nsider whether the 1989 acquisition by KfW of a
20 percent stake in Deutsche Airbus and the 1992 sale of that stake to MBB, each constitutes a
specific subsidy to Airbus.
7.1271 Although we will examine both the 1989 and th e 1992 transactions in order to establish
whether either can be said to amount to a subsidy, we note that the two transactions are related to one
another and that this circumstance should be taken into account in our assessment of each of them.
For example, in assessing whether the 1989 acquisition by KfW of a 20 percent equity interest in
Deutsche Airbus constitutes a subsidy, we consider not only the purchase price paid by KfW
(DM 505 million) but the fact that one of the terms on which that stake was acquired was that MBB,
the only other shareholder of Deutsche Airbus, was obligated to purchase that stake from KfW by
1999 according to a particular pricing formula designed to [***].
4353 Similarly, in assessing whether
the 1992 transfer by KfW of its 20 percent interest in Deutsche Airbus to MBB constitutes a subsidy,
we consider the 1992 amendments to the terms of the debtor warrant [***].
(iii) KfW's acquisition of a 20 percent equity interest in Deutsche Airbus in 1989
7.1272 We consider that the 1989 acquisition by KfW of a 20 percent equity interest in Deutsche
Airbus constitutes a direct transfer of funds in the form of an e quity infusion and is therefore a
financial contribution pursuant to Article 1.1(a)(1)(i) of the SCM Agreement.
7.1273 In relation to the existence of a benefit confe rred by that financial contribution, we note the
European Communities' contention that the United States has failed to demonstrate how any "alleged
subsidy passed on to Airbus SAS to benefit the produ ction of LCA alleged by the United States to be
causing present adverse effects." 4354 By this, we understand the European Communities to argue that
the United States has failed to demonstrate how a ny benefit conferred on Deutsche Airbus by the
financial contribution "passed through" to Airbus SAS. For reasons which we fully explain elsewhere
in this report, we reject the European Commun ities' arguments that it is necessary for the United
States to affirmatively demonstrate the "pass-through" to Airbus SAS of the benefit conferred by a
financial contribution which is provided to Airbus GIE or one of the Airbus partners (such as
Deutsche Airbus). 4355 In short, if we find that KfW's acquisition of 20 percent of the shares of
Deutsche Airbus conferred a benefit on Deutsche Ai rbus, we consider that it will have conferred a
benefit on the Airbus Industrie c onsortium and thus, Airbus SAS, w ithout requiring the United States
to affirmatively establish the "pass-through" of any be nefit to the Airbus Industrie consortium, or to
Airbus SAS.

4351 Second amendment to the Framework Agreement; Exhibit EC-889 HSBI.
4352 Moreover, we note that this claim to repayment was settled by the German government in 1998,
along with the other debt outstanding under the debtor warrant, as part of the 1998 debt settlement. See, paras.
7.1315 - 7.1322.
4353 As originally negotiated, the latest date for the purchase of KfW's stake by MBB was 1999. The
first amendment to the Framework Agreement amended that date to 1996, and the third amendment to the
Framework Agreement amended the date once again, to 1992.
4354 EC, FWS, para. 1212.
4355 See, paras. 7.190 - 7.200 above.

BCI deleted, as indicated [***]

7.1274 As to whether KfW's acquisition of a 20 percent equity interest in Deutsche Airbus conferred
a "benefit" on Deutsche Airbus, we note that the SCM Agreement does not set forth when a financial
contribution in the form of an equity infusion will be considered to confer a "benefit" for purposes of
Article 1.1(b). However, it is well established that a financial contribution confers a benefit within the
meaning of Article 1.1(b) where the terms on whic h the financial contribution was provided to the
recipient are more favourable than the terms available to the recipient in the market. 4356 Although
Article 14 of the SCM Agreement sets forth guidelin es for investigating authorities in countervailing
duty investigations to follow when calculating the amount of benefit to the recipient for purposes of
Part V of the SCM Agreement, the Appellate Body has held that Article 14 also constitutes relevant
context for the interpretation of "benefit" in Article 1.1(b). 4357 Article 14(a) of the SCM Agreement
provides:
"{G}overnment provision of equity capital shall not be considered as conferring a
benefit, unless the investment decision can be regarded as inconsistent with the usual
investment practice (including for the provision of risk capital) of private investors in
the territory of that Member."4358
7.1275 Both the United States and th e European Communities agree that, in assessing whether the
KfW equity infusion conferred a benefit on Deutsche Airbus, it is appropriate for us to consider
whether providing the equity infusion was consiste nt with the usual investment practice of private
investors in Germany.4359 Our approach to the issue of benefit in the context of KfW's acquisition of a
20 percent equity interest in Deutsche Airbus is to ask whether the United States has demonstrated
that a reasonable private investor would not have made this investment on the same terms and
conditions based on the information available at that time.
7.1276 We note that the financial position of Deutsche Ai rbus at the time of the KfW investment was
exceedingly poor. For the financial year ended 31 December 1988, Deutsche Airbus reported a loss
of DM 270.1 million. 4360 Deutsche Airbus had also accumulated losses from previous years that,
together with the 1988 loss, comprised an aggr egate loss of DM 3.37 billion. The European
Communities itself acknowledges that in the la te 1980s, "despite Deutsche Airbus' favourable
commercial prospects (especially as regards the number of orders received for the A320), a variety of
external and internal factors, and especially the extreme collapse in the va lue of the US dollar,
brought Deutsche Airbus to the verge of bankruptcy." 4361 In order to avoid insolvency, Deutsche
Airbus was availing itself of a provision of German law that permitted creditors to waive claims in

4356 See, e.g., Appellate Body Report, Canada – Aircraft, paras. 157-158; Panel Report, United States –
Countervailing Duty Investigation on Dynamic Random Access Memory Semiconductors (DRAMS) from Korea
("US – Countervailing Duty Investigation on DRAMS" ), WT/DS296/R, adopted 20 July 2005, as modified by
Appellate Body Report, WT/DS296/AB/R, DSR 2005:XVII, 8243, para. 7.179; Panel Report, European
Communities – Countervailing Measures on Dynamic Ra ndom Access Memory Chips from Korea ("EC –
 Countervailing Measures on DRAM Chips") , WT/DS299/R, adopted 3 August 2005, DSR 2005:XVIII, 8671,
paras. 7.173-7.175; Panel Report, Japan – DRAMs (Korea), para. 7.256.
4357 Appellate Body Report, Canada – Aircraft, para. 155.
4358 Emphasis added.
4359 US, FWS, paras. 554-555, 561-564; EC, FWS, para. 1215; EC, Answer to Panel Question 101,
para. 280.
4360 Jahresabschluss 1988 Daimler-Benz Aerospace Airbus (Deutsche Airbus Situation Report for the
1988 Financial Year), Exhibit EC-886. Management noted that this result (an improvement on the
DM 778.6 million loss report in 1987) as due to the pro-rata assumption of responsibility for the losses of
Airbus GIE (amounting to DM 336.6 million). However, management also noted that the 1988 figure was
improved by DM 160.7 million due to the German government's remission of LA/MSF repayments.
4361 EC, FWS, para. 1177.

BCI deleted, as indicated [***]

respect of government-guaranteed debt to the ex tent necessary to limit the company's losses to the
amount of subscribed capital.
4362
7.1277 We note in addition evidence that the German government had, by its own account, been
seeking to obtain private capital for Deutsche Airbus for a number of years prior to 1989. 4363
According to the German government, Daimler-Benz was the only private investor that could be
secured for long-term industrial management of Deutsche Airbus while accepting a simultaneous
reduction in state financial aid. 4364 In a statement in 1988 announcing the planned restructuring of
Deutsche Airbus, the German Ministry of Econom ics noted that the German government currently
bore all of Deutsche Airbus' risk through its provision of guarantees for the costs of the A300/A310
programmes, and indicated that its overall policy obj ective was to transfer the management and risk
associated with Deutsche Airbus' operations to the private sector over the long term. 4365 In response
to a Parliamentary question asking why MBB's own negotiations with prospective private investors
had not resulted in a private investor acquiring an equity interest in MBB/Deutsche Airbus, the
German government explained that, while Deut sche Airbus' sales prospects had "improved
considerably" over the 20 years since its establishm ent, the production of civil aircraft presented
substantial risks (since invested capital can generally only be amortized over project terms of up to 20
years), along with factors such as exchange rate risks.
4366 In addition, statements of the German
Ministry of Economics indicate that it considered th at the relatively small market share that Airbus
Industrie enjoyed at that time, coupled with the cu rrency risks, would continue to present difficulties
for the future profitability of Deutsche Airbus.4367
7.1278 The European Communities reje cts the United States' arguments that KfW's 1989 acquisition
of a 20 percent equity interest in Deutsche Airbus was inconsistent with the usual investment practice
of private investors in Germany. According to the European Communities, the commercial nature of
KfW's equity infusion is eviden t from the fact that Daimler-Benz also purchased an interest in
Deutsche Airbus "on the same terms and conditions as KfW". 4368 In other words, the European
Communities argues that Daimler-Benz is an appr opriate "private investor" whose acquisition
"through MBB" of an interest in Deutsche Ai rbus on the same terms and conditions as KfW's
investment demonstrates that the KfW investment was consistent with the usual investment practice
of private investors in Germany and thus did not confer a benefit on Deutsche Airbus.
7.1279 The European Communities appears to base its argument that Daimler-Benz invested in
Deutsche Airbus "through MBB" on the same terms and conditions as KfW on the fact that, pursuant
to the Framework Agreement, MBB had agreed that, of the DM 993 million it received from Daimler-
Benz (as the subscription price for 258 million newly issued shares of MBB), it would use
DM 800 million to purchase 294 million newly issued shares in Deutsche Airbus. 4369 We recall that
the Framework Agreement provided that (i) MBB would contribute DM 800 million in capital to
Deutsche Airbus to purchase 294 million newly issued Deutsche Airbus shares (representing a

4362 Creditor banks had waived claims agains t Deutsche Airbus worth DM 2.92 billion;
Jahresabschluss 1988 Daimler-Benz Aerospace Airbus, Exhibit EC-886, notes 9 and 13.
4363 BT-Drs 11/4375 (German government Answer to a Parliamentary Question), Exhibit US-14.
4364 BT-Drs 11/4375 (German government Answer to a Parliamentary Question), Exhibit US-14.
4365 Handelsblatt No. 212, 3 November 1988, p. 24 "Dai mler-Benz-MBB / Statement of the German
Federal Ministry of Economics on the Restructuring of the Aviation Industry," Exhibit US-259.
4366 BT-Drs 11/4375 (German government Answer to a Parliamentary Question), Exhibit US-14.
4367 Handelsblatt No. 212, 3 November 1988, p. 24 "Dai mler-Benz-MBB / Statement of the German
Federal Ministry of Economics on the Restructuring of the Aviation Industry," Exhibit US-259.
4368 EC, FWS, para. 276.
4369 Monopolkommission Report, Exhibit US-30, para. 128; MBB Consolidated Annual Report, Exhibit
US-267, p. 51. MBB also agreed to contribute another DM 5,000,000 to Deutsche Airbus through a
contribution in kind of one of its operating subsidiaries at a book value of DM 5,000,000; Monopolkommission
ReportMonopolkommission ReportMonopolkommission Report, Exhibit US-30, para. 126.

BCI deleted, as indicated [***]

nominal value of DM 2.72 per share) and (ii) KfW would contribute DM 505 million in capital to
Deutsche Airbus to purchase 186 million newly i ssued Deutsche Airbus shares (representing a
nominal value of DM 2.72 per share). We understand that it is on the basis of the above analysis that
the European Communities contends that KfW a nd Daimler-Benz "through MBB" invested in
Deutsche Airbus on the same terms and conditions. We are not persuaded by this analysis.
7.1280 The fact that Daimler-Benz paid DM 993 m illion to acquire 258 million newly issued MBB
shares suggests that it paid DM 3.849 per share of MBB. As previously mentioned, MBB owned
Deutsche Airbus, in addition to significant defen ce technology operations conducted through other
MBB subsidiaries. Although MBB was required to make the DM 800 million capital contribution to
Deutsche Airbus, in return for the issuance by Deutsche Airbus of 294 million shares to MBB, there is
no evidence to suggest that Daimler-Benz, in payi ng DM 3.489 per newly-issued MBB share, could
be deemed (based on the relative valuations of th e operations of Deutsche Airbus and those of the
other subsidiaries of MBB) to have thereby indirectly paid the equivalent of DM 2.72 per share for the
newly issued shares in Deutsche Airbus. The terms of MBB's capital contribution to Deutsche Airbus
under the Framework Agreement represent a negotia ted allocation of MBB's funds for purposes of
building Deutsche Airbus' capital ba se as part of the restructuring arrangement. They are not
indicative of the value of MBB's Deutsche Airbus subsidiary relative to the other MBB subsidiaries,
or of the price that an arm's length private invest or would have been prepared to pay to directly
acquire shares in Deutsche Airbus.
7.1281 We reject the European Communities' argument that the 1989 acquisition by KfW of a
20 percent equity interest in Deutsche Airbus was c onsistent with the usual investment practice of a
private investor in Germany because Daimler-Benz invested in Deutsche Airbus on the same terms
and conditions as KfW. First, we cannot equate Kf W's direct investment in Deutsche Airbus with
Daimler-Benz's indirect investment in Deutsche Airbus through its acquisition of a majority interest in
MBB. The transaction that the European Communi ties describes as an investment by Daimler-Benz
in Deutsche Airbus "through MBB" was, in fact , a transaction in which Daimler-Benz acquired a
majority interest in MBB, the parent company of Deutsche Airbus, not shares in Deutsche Airbus.
We note in this regard that MBB was not a mere holding company for Deutsche Airbus. MBB was at
that time West Germany's largest aerospace and defence contractor, active in both the aerospace and
defence technology sectors. MBB's defence technol ogy operations were profitable, its aerospace
operations (i.e., Deutsche Airbus) were not.
4370 Daimler-Benz's acquisition of shares of MBB was not
the same, in legal or economic terms, as KfW's acquisition of shares of Deutsche Airbus.
7.1282 We also consider that, for purposes of asses sing whether the government's investment
decision can be regarded as inconsistent with the usual practice of private investors, any comparison
of the terms and conditions on which a government a nd a private investor each invest in a company
should take account of the differe nt obligations undertaken by the respective parties in connection
with those investments. When the specific terms of the KfW investment are considered, it is clear to
us that Daimler-Benz can in no sense be considered to have invested in Deutsche Airbus on the same
terms and conditions as KfW. The Framework Ag reement provided that the German government
would instruct KfW to acquire the 20 percent equity interest in Deutsche Airbus and that MBB would
then acquire that shareholding from KfW by a specific date. 4371 In other words, it was contemplated
from the outset that the KfW equity infusion would be of a temporary duration. At the time at which
KfW acquired the 20 percent interest in Deutsche Air bus, which we consider to be the relevant time
for purposes of assessing whether the investment decision was consistent with the usual investment
practice of private investors, KfW's shareholding in Deutsche Airbus was to be purchased by MBB in

4370 The United States contends that at the time of Daimler-Benz's investment in MBB, approximately
75 percent of MBB's total turnover and 100 percent of its profits were generated by its non-Airbus-related
activities; US, Answer to Panel Question 156, para. 138.
4371 Framework Agreement, Exhibit EC- 887 HSBI.

BCI deleted, as indicated [***]

ten years ( i.e., with effect from the end of 1999 at the latest ) at an agreed market-based valuation of
the 20 percent equity interest at that time, [***]. In addition, the German government had agreed that
during the time that KfW was originally expected to hold its interest in Deutsche Airbus, any profits
generated by Deutsche Airbus would, for at least the first eight of the 10 years of the investment, be
used first to build up Deutsche Airbus' capital base and to form a special reserve to compensate
Deutsche Airbus for exchange rate losses. In light of all of the above, it is inconceivable to us that
Daimler-Benz can be considered to have invest ed in Deutsche Airbus on the same terms and
conditions as KfW, or that KfW's investment decision can be considered to have been consistent with
the usual investment practice of private invest ors in Germany on the basis of Daimler-Benz's
investment in Deutsche Airbus "through MBB".
7.1283 The European Communities has also presented various arguments throughout its submissions
suggesting that the KfW and Daimler-Benz investments "took place following the financial
restructuring of Deutsche Airbus".
4372 According to the European Communities, provided that,
following a financial restructuring, a government injects capital on equal terms with a private investor,
the capital injection does not confer a benefit on the recipient company, within the meaning of
Article 1.1(b).4373 Therefore, the European Communities ar gues that (i) the terms on which Daimler-
Benz, via its subsidiary MBB, invested in Deutsch e Airbus reflect the terms on which a commercial
investor was willing to put fresh equity capital into the financially restructured Deutsche Airbus, and
(ii) the fact that KfW paid the same price as Daimle r-Benz for the newly issued shares in a financially
restructured Deutsche Airbus, confirm the consiste ncy of that equity infusion with the ordinary
investment practice of private investors.
7.1284 In our view, it is not appropriate to approach the question whether the KfW equity investment
conferred a benefit on Deutsche Airbus by treating that transaction as an equity investment in a
restructured Deutsche Airbus ( i.e., as a transaction that occurred subsequent to the restructuring of
Deutsche Airbus). The KfW investment was an in tegral element of the restructuring of Deutsche
Airbus as set forth in the Framework Agreemen t and as described by the German government. 4374 It
is clear to us that Daimler-Benz would not have made the investment in Deutsche Airbus at all absent
the restructuring arrangement (one component of which was the KfW investment, with significant
other components being the foreign exchange risk loss insurance programme and the rescheduling of
Deutsche Airbus debt). 4375 Daimler-Benz agreed to invest in Deutsche Airbus provided that the
German government (i) restructured Deutsche Airbus ' existing debt obligations, delaying the German
government's repayment claims far into the future, (ii) agreed to assume a portion of Deutsche Airbus'
exchange rate risk through an insurance program, and (iii) provided additional equity capital to
Deutsche Airbus for (an initially contemplated period of) 10 years, while agreeing to forego rights to

4372 EC, SWS, para. 608 (emphasis added) ; see also, EC, Answer to Panel Question 188, paras. 170-
171.
4373 EC, Answer to Panel Question 100, para. 273.
4374 Handelsblatt No. 212, 3 November 1988, p. 24 "D aimler-Benz-MBB / Statement of the German
Federal Ministry of Economics on the Restructuring of the Aviation Industry," Exhibit US-259. We note that the
European Communities acknowledges elsewhere in its submissions that the 20 percent equity infusion by KfW
in Deutsche Airbus is part of the 1989 restructuring arrangement; EC, Answer to Question 187, paras. 152 and
158.
4375 The Report of the Federal Cartel Office states: "Daimler-Benz linked its stake in MBB to a series of
commitments by the federal government, and they significantly limit any risk to Daimler-Benz which is
associated with the acquisition of the German share of Airbus ", Exhibit US 30, para. 129 (emphasis added). In
a German government Answer to a Parliamentary questio n concerning alternative op tions for raising additional
capital for Deutsche Airbus, the government responded th at "Daimler-Benz is the only company that could be
secured for a long-term industrial management in the Airbus program whilst accepting a simultaneous reduction
in state financial aid ."; BT-Drs 11/4375 (German government Answer to a Parliamentary Question), Exhibit
US-14.

BCI deleted, as indicated [***]

payment of dividends from profits for the first eight years of that investment, in order for Deutsche
Airbus to rebuild its capital base.4376
7.1285 The European Communities itself acknowledges that, had the German government required
Daimler-Benz to assume fully Deutsche Airbus' re payment obligations and government-guaranteed
debt, neither Daimler-Benz nor any other bu yer would have purchased Deutsche Airbus. 4377
However, the European Communities also contends that the German government's behaviour was
consistent with that of a rational investor in similar circumstances; i.e., it acted to minimize its losses
"while providing certain contributions to reba lance the value of Deutsche Airbus' assets and
liabilities."4378 The European Communities therefore argues that the United States has not established
that the 1989 restructuring was inconsistent with th e practice of a similarly-situated private creditor of
Deutsche Airbus, faced with the imminent insolvency of a debtor company.
7.1286 We make the following observations regarding this argument. First, we note that the
European Communities has provided no evidence to support it; for example, contemporaneous,
objective evaluations of the German government's prospects of minimizing its losses and/or
maximizing its recovery if Deutsche Airbus were to be restructured in the manner described rather
than liquidated. Second, we fail to understand, on the basis of the evidence before us, how the terms
of the restructuring could have minimized the Ge rman government's losses and/or maximized its
returns as the major creditor of a financially dist ressed Deutsche Airbus. Under the restructuring
arrangement, the German government paid Deutsc he Airbus' outstanding bank debt, rescheduled
Deutsche Airbus' government debt pursuant to the [***] "debtor warrant", provided Deutsche Airbus
with an additional DM 165 million loan to finan ce production of the A320, established an exchange
rate loss insurance programme (for which the Germ an government had either appropriated in the
federal budget, or included in its planning estimates, approximate ly DM 4.1 billion to cover its
anticipated obligations over the period 1989 to 2000) 4379 and provided additional equity capital to
Deutsche Airbus for an (initially contemplated) peri od of 10 years. In a 1998 statement announcing
the planned restructuring of Deutsche Airbus, the German Ministry of Economics noted that the
German government currently bore all of Deutsche Airbus' risk through its provision of guarantees for
the costs of the A300/A310 programmes, and indicated that its overall policy objective was to transfer
the management and risk associated with Deutsche Airbus' operations to the private sector over the
long term. 4380 The Ministry also stated that the pursuit of this overall aim, to gradually move
Deutsche Airbus into private sector management and responsibility, "now justifies an additional
substantial financial effort" in order to bring it about. 4381 The terms of the 1989 restructuring
arrangement and the German government's comments app ear to us to be far more consistent with a
government providing a final round of assistance in order to reduce a company's dependence on
subsidization over the long term than with a ma jor creditor of a financially distressed company
seeking to minimize its losses and/or maximize its returns.
7.1287 Finally, we regard the European Communities' argument, that the United States has failed to
demonstrate that the 1989 restructuring is inconsiste nt with the practice of a similarly-situated private
creditor of Deutsche Airbus, faced with the imminent insolvency of a debtor company, as irrelevant to
the United States' arguments as to "benefit". Th e United States does not argue that the KfW equity
infusion is a subsidy because it is part of the 1989 restructuring arrangement. Nor do we understand it

4377 EC, Answer to Panel Question 187, para. 163.
4378 EC, Answer to Panel Question 187, para. 164.
4380 Handelsblatt No. 212, 3 November 1988, p. 24 "Dai mler-Benz-MBB / Statement of the German
Federal Ministry of Economics on the Restructuring of the Aviation Industry," Exhibit US-259.
4381 Handelsblatt No. 212, 3 November 1988, p. 24 "Dai mler-Benz-MBB / Statement of the German
Federal Ministry of Economics on the Restructuring of the Aviation Industry," Exhibit US-259.

BCI deleted, as indicated [***]

to argue that the 1989 restructuring arrangement as a whole constitutes a subsidy.
4382 T h e U n i t e d
States argues that no private investor would have i nvested in Deutsche Airbus at the relevant time,
and that KfW's investment was therefore inconsiste nt with the usual investment practice of private
investors and conferred a benefit on Deutsche Airbus within the meaning of Article 1.1(b) of the
SCM Agreement. The European Communities atte mpted to rebut the United States' argument by
demonstrating that the KfW investment was not inc onsistent with the usual investment practice of
private investors because a private investor, namely , Daimler-Benz, invested in Deutsche Airbus at
the same time and on the same te rms and conditions as KfW. It wa s in response to the European
Communities' rebuttal argument that the United Stat es asserted that the Daimler-Benz investment was
linked to the restructuring in a way that signi ficantly limited the risk to Daimler-Benz of the
investment, and thus that the Daimler-Benz invest ment cannot be considered a market benchmark for
the purpose of assessing the existence of benefit. 4383 In the context of a response to the European
Communities' rebuttal argument, it is not necessary fo r the United States to establish that the German
government's conduct in regard to the 1989 restruct uring arrangement as a whole was inconsistent
with the conduct of a similarly-situated private creditor of Deutsche Airbus.
7.1288 We therefore reject the European Communities' argument the KfW investment in Deutsche
Airbus was consistent with the usual investment practice of private investors because Daimler-Benz
had invested in Deutsche Airbus, "through MBB", on the same terms and conditions as KfW. In light
of the evidence of Deutsche Airbus' perilous financial condition at the time of the KfW investment, its
serious exposure to adverse movements in the US dollar/DM exchange rate in the absence of a
government exchange rate insurance programme, its substantial dependence on government aid for at
least the short to medium term, evidence that, while Airbus Industrie's sales prospects were
improving, its future profitability would remain "diffi cult" due to its relatively small market share of
20 percent, and its inability to attract private inv estment in the absence of government investment and
rescheduling of government-related debt, we are satisfied that KfW's investment decision was
inconsistent with the usual investment practice of private investors in Germany, because no private
investor seeking a reasonable rate of return on its i nvestment would have made the equity investment
in Deutsche Airbus which KfW made. We accordi ngly find that KfW's acquisition of 20 percent of
the shares of Deutsche Airbus conferred a "benef it" on Deutsche Airbus within the meaning of
Article 1.1(b) and thus constitutes a subsidy to Deutsche Airbus.4384
7.1289 For the reasons set forth above, we conclude that KfW's 1989 acquisition of a 20 percent
equity interest in Deutsche Airbus was a financial contribution within the meaning of
Article 1.1(a)(1)(i) of the SCM Agreement, which conferred a benefit on Deutsche Airbus within the
meaning of Article 1.1(b), and thus constitutes a s ubsidy to the Airbus Indus trie consortium and to
Airbus SAS.
7.1290 The United States argues that KfW's acquisition of a 20 percent equity interest in Deutsche
Airbus is a specific subsidy to Airbus within the meaning of Article 2 of the SCM Agreement because
it was an exercise of discretion by the German gove rnment to provide equity to a single company,

4382 US, Comments on EC Answer to Panel Question 187, para. 133.
4383 The United States has pointed out clearly, "the relevance of the fact that the KfW equity infusion
was part of the broader aid package to Deutsche Airbus is that it undermines the European Communities'
attempt to use Daimler's investment in MBB (the parent company of Deutsche Airbus) as a market benchmark.
Daimler would not have made its investment without the aid package that included the equity infusion at issue".
US, Comments on EC's Answer to Question 187, para. 129. See, also , US, Answer to Panel Question 157,
para. 141.
4384 We have reached our factual conclusions without drawing inferences, logical or adverse, from the
European Communities' failure to provide information requested by Questions 46, 73-76, 77 and 85-90 of the
Annex V Facilitator, Exhibit US-4 BCI. We consider it unnecessary to decide whether the Panel would have
been entitled to draw such inferences.

BCI deleted, as indicated [***]

Deutsche Airbus, as part of a broader aid package for that company. 4385 Although the United States
has not identified a particular sub-paragraph of Ar ticle 2 as the basis of its claim, we understand from
the nature of the argument it advances that its claim is grounded in Article 2.1(a) of the
SCM Agreement. Evidence submitted by the United St ates as to the terms of the KfW investment in
Deutsche Airbus and of the 1989 restructuring a rrangements more generally confirms the United
States' assertion that the KfW investment in De utsche Airbus was explicitly limited to Deutsche
Airbus and was thereby "specific" within the mean ing of Article 2.1(a) of the SCM Agreement. The
European Communities does not contest the United Stat es' allegation. We therefore find that KfW's
1989 acquisition of a 20 percent equity interest in Deutsche Airbus constitutes a specific subsidy to
Airbus SAS.
(iv) KfW's transfer of its 20 percent equity interest in Deutsche Airbus to MBB in 1992
7.1291 We now turn to the United States' claim that the 1992 acquisition by MBB of KfW's
20 percent equity interest in Deutsche Airbus was also a subsidy. We first consider whether the
transfer by KfW of its shares in Deutsche Airbus to MBB is a "financial contribution" in the sense of
Article 1.1(a)(1)(i) of the SCM Agreement. The A ppellate Body has indicated that the term "funds"
in Article 1.1(a)(1)(i) encompasses not only "money" but also financial resources and other financial
claims more generally.
4386 We regard shares in a company as financial claims to a stream of income
(in the form of dividends paid out of a company's profits) and to a share in the capital of the company
on its liquidation. Therefore, we consider that shar es in a company fall within the scope of the term
"funds" in Article 1.1(a)(1)(i), and that a transfer of shares falls within the sc ope of the term "direct
transfer of funds". We thus conclude that the tr ansfer by KfW of its 20 percent equity interest in
Deutsche Airbus to MBB was a "financial contribution" within the meaning of Article 1.1(a)(1)(i).
7.1292 Our approach to the issue of benefit in the cont ext of KfW's transfer of its 20 percent equity
interest in Deutsche Airbus to MBB is to ask whethe r the terms of that transfer are more favourable to
MBB than those that would have been available in the market? To the extent that they are, then the
financial contribution in question ( i.e., the transfer by KfW of its 20 percent equity interest in
Deutsche Airbus) will have conferre d a benefit on MBB within the meaning of Article 1.1(b) of the
SCM Agreement.
7.1293 The European Communities argues that th e United States has failed to make a prima facie
case that the KfW transfer of its 20 percent equity in terest in Deutsche Airbus conferred a benefit on
Deutsche Airbus or on Airbus. According to th e European Communities, the United States has failed
to demonstrate whether and how any alleged subs idy benefit passed from MBB to Deutsche Airbus,
as the former manufacturer of LCA, or for that matter, to Airbus SAS, as the present day
manufacturer of LCA. The European Communities ar gues that neither in 1992 nor subsequently did
MBB develop, produce or sell LCA.
4387 Moreover, the European Communities contends that, from
Deutsche Airbus' perspective, the transf er of its shares from one shareholder ( i.e., KfW) to another
(i.e., MBB) is of no economic consequence.4388
7.1294 We note that prior to 1989, development and series production of the German share of the
Airbus consortium was performed by MBB on behalf of Deutsche Airbus. 4389 Even accepting the
European Communities' assertion that the corporate entity MBB did not itself develop, produce or sell

4385 US, FWS, para. 548.
4386 Appellate Body Report, Japan – DRAMs (Korea), para. 250.
4387 EC, FWS, para. 1203.
4388 EC, FWS, para. 1203.
4389 Monopolkommission Report, Exhibit US-30, para. 116. The German Federal Cartel Office notes
that German federal government subsidies to Deutsche Airbus were passed on to MBB and Dornier;

BCI deleted, as indicated [***]

LCA from 1992 onwards, we are not persuaded by the proposition that the United States must
demonstrate that any benefit conferred on MBB by the transfer to MBB of KfW's 20 percent equity
interest in Deutsche Airbus passed through to Deutsch e Airbus and ultimately, to Airbus SAS. We
recall that, prior to KfW's 1989 investment in Deut sche Airbus, Deutsche Airbus was a wholly-owned
subsidiary of MBB. MBB thereafter continued to ow n an 80 percent interest in Deutsche Airbus until
1992, when MBB re-acquired KfW's 20 percent stak e in Deutsche Airbus and Deutsche Airbus once
again became a wholly-owned subsidiary of MBB. As we have previously explained, MBB's re-
acquisition of a 20 percent stake in Deutsche Ai rbus was undertaken for the sole purpose of
facilitating the restructuring of Deutsche Airbus. Th ere is therefore no doubt that it was inherently
linked with Deutsche Airbus' ability to continue to operate in LCA business. When Daimler Benz
merged MBB into Daimler-Benz's aerospace subsidiary, Dasa, later in 1992, Deutsche Airbus became
a wholly-owned subsidiary of Dasa. Dasa has since been the parent company of Deutsche Airbus,
and following the reorganization of the Airbus consortium in 2000, a controlling shareholder of
EADS. Thus, in the light of these facts, we are of the view that absent a demonstration by the
European Communities that the financial contribu tion which allegedly conf erred a benefit on MBB
was unrelated to the production of Airbus LC A, MBB along with Deutsche Airbus should be
considered to be a producer of Airbus LCA for purpo ses of our analysis of the existence of a subsidy
under the SCM Agreement.
4390
7.1295 As regards our determination of a benefit conferred by the 199 2 transfer of KfW's 20 percent
equity interest in Deutsche Airbus to MBB, we have already indicated that we are satisfied that the
transfer was not "free of charge". However, th e fact that consideration was provided to KfW in
respect of the transfer does not necessarily mean that the transfer did not confer a benefit: whether it
did or did not depends on whether the terms of the transfer were consistent with what could have been
obtained in the market.
7.1296 We note that the price at which KfW sold its 20 percent equity interest in Deutsche Airbus
consisted of two components. The first was the ag reed value of the shares as of 1 January 1992, as
evaluated by two independent accounting firms according to a market-based methodology. The
second was the [***]. This price was to be paid, [***[[HSBI]] ***].
4391 We recall the [***] nature of
the Deutsche Airbus debt payable pursuant to the debtor warrant; namely, such debt was repayable
[***]. In addition, [***].4392
7.1297 Given the [***], it is necessary for us to evaluate whether the principal amount of DM
[[HSBI]] of Deutsche Airbus [***] was equivalent to the market value of KfW's 20 percent interest in
Deutsche Airbus. Although we are unable to arrive at a precise estimate, we have no doubt that the
present value in 1992 of the principal amount of DM [[HSBI]] of Deutsche Airbus [***] would have
been heavily discounted from its face amount in light of the fact that repayments would not become
due before 2001 and in any case, would be contin gent on, and paid from 40 percent of, Deutsche
Airbus' annual pre-tax profits. Indeed, we are of the view that the principal amount of DM [[HSBI]]
of Deutsche Airbus [***] would have been less than the apprai sed cash value of the 20 percent stake

4390 See, further on the question of pass-through our general discussion and conclusions set out at paras.
7.190 - 7.200 above.
4391 In response to a question from the Panel asking why or how Deutsche Airbus assumed obligations
which appear to have been MBB's as purchaser of th e Deutsche Airbus shares from KfW, the European
Communities replied that, following the German government's cancellation of the exchange rate insurance
mechanism in 1992, the parties agreed to amend certain repayment provisions, including the terms of the debtor
warrant, and to transfer KfW's 20 percent stake in Deutsche Airbus in exchange for Deutsche Airbus
'
commitment to pay the agreed purchase price under the amended debtor warrant, in order to "maintain the
balance of rights and obligations negotiated in the 1989 restructuri ng agreement"; EC, Answer to Panel
Question 192, para. 190.
4392 Second Amendment to the Framework Agreement dated 23 March 1989, dated as of 14 July 1992;
Exhibit EC-888 HSBI.

BCI deleted, as indicated [***]

in Deutsche Airbus of DM [[HSBI]]. We therefore consider that the transfer by KfW of its 20 percent
interest in Deutsche Airbus to MBB was made on terms considerably more favourable to MBB than
the market and thus conferred a benefit on MBB. Our conclusion in this regard is confirmed by
evidence relating to the context in which the 1992 transfer occurred.
7.1298 As noted in our discussion of the background to the capital restructuring of Deutsche Airbus,
KfW's time-limited equity investment in Deutsch e Airbus was one element of a comprehensive
restructuring plan for Deutsche Airbus that was desi gned to gradually shift the risks associated with
participation in the Airbus GIE to the privat e sector. Another element of the restructuring
arrangement as it had originally been envisaged was the establishment of an exchange rate loss
insurance programme under which the German governme nt agreed to guarantee against exchange rate
losses incurred by Deutsche Airbus. The German gove rnment had either appropriated in the federal
budget, or included in its planning estimates, approximately DM 4.1 billion to cover its anticipated
obligations under the exchange rate loss insura nce programme over the period 1989 to 2000. 4393
When the German government subsequently cancelled the exchange rate loss insurance programme in
1992, it had already made payments under the programme of approximately DM 1.48 billion. 4394 We
consider it reasonable to infer that the cancellati on of the exchange rate loss guarantee programme
resulted in Deutsche Airbus potentially losing appr oximately DM 2.6 billion in assistance that it had
anticipated in 1989 that it would receive through to 2000. The European Communities acknowledges
that the 1992 amendments to the Framework Agreem ent, including the amendments to the terms of
the debtor warrant and the transfer of KfW's 20 percen t equity interest in Deutsche Airbus to MBB in
exchange for Deutsche Airbus' commitm ent to pay the agreed purchase price [***] were agreed
between the parties in order to "maintain the rights and obligations negotiated in the 1989
restructuring agreement".
4395 In addition, the United States points to statements by Daimler-Benz to
the effect that the early transfer of KfW's 20 per cent equity interest in Deutsche Airbus to MBB was
one of the measures designed to compensate Deut sche Airbus/Daimler-Benz for the loss of assistance
which had been anticipated under the exchange rate loss insurance scheme.4396
7.1299 As we have previously noted, we are unable, on the basis of the evidence before us, to find
that the sale of the KfW stake in Deutsche Airbus to MBB was "essentially for free". However, on
the basis of the [***], we conclude that KfW transferred its 20 percent equity interest in Deutsche
Airbus to MBB for considerably less than its market value, which we consider to be [[HSBI]] in
accordance with the appraisal performed by [***]. We therefore find that the 1992 transfer by KfW
of its 20 percent equity interest in Deutsche Air bus to MBB conferred a benefit on MBB within the
meaning of Article 1.1(b) of the SCM Agreement.4397
7.1300 We therefore conclude that KfW's 1992 transfer of a 20 percent equity interest in Deutsche
Airbus to MBB was a financial contribution with in the meaning of Article 1.1(a)(1)(i) of the
SCM Agreement, which conferred a benefit on MBB w ithin the meaning of Article 1.1(b) and thus
constitutes a subsidy to the Airbus Industrie consortium and to Airbus SAS.
7.1301 The United States argues that KfW's transfer of its 20 percent equity interest in Deutsche
Airbus to MBB is a specific subsidy to Airbus within the meaning of Article 2 of the SCM Agreement

4395 EC, Answer to Panel Question 192, para. 190.
4396 US, FWS, para. 550; Daimler-Benz, Consolidated Interim Report, January 1-June 30, 1992, Exhibit
US-272, at 7. The United States refers to similar statements attributed to Peter Carl, then head of the European
Communities' DG-Trade; Stephen Aris, Close to the Sun, Exhibit US-23, at 166-167.
4397 We have reached our factual conclusions without drawing inferences, logical or adverse, from the
European Communities' failure to provide information requested by Questions 46, 73-76, 77 and 85-90 of the
Annex V Facilitator, Exhibit US-4 (BCI). We consider it unnecessary to decide wh ether the Panel would have
been entitled to draw such inferences.

BCI deleted, as indicated [***]

because it resulted from a negotiation between th e German government and a single company to
compensate the company for the effects of withdraw ing the exchange rate guarantee scheme that was
found to be inconsistent with the Tokyo Round Subsidy Code.
4398 Although the United States has not
identified a particular sub-paragr aph of Article 2 as the basis of its claim, we understand from the
nature of the argument it advances that its claim is grounded in Article 2.1(a) of the SCM Agreement.
Evidence before us as to the terms of the 1992 share transfer confirms the United States' assertion that
share transfer to MBB was explicitly limited to M BB and was thereby "specifi c" within the meaning
of Article 2.1(a) of the SCM Agreement. The European Communities does not contest the United
States' allegation. We therefore find that KfW's 1992 transfer of its 20 percent equity interest in
Deutsche Airbus to MBB constitutes a specific subsidy to Airbus SAS.
(d) Conclusion
7.1302 In conclusion, we find that the 1989 acquisitio n by KfW of a 20 percent equity interest in
Deutsche Airbus constitutes a subsidy to Airbus b ecause it involves a financial contribution, in the
form of a direct transfer of funds, pursuant to Article 1.1(a)(1)(i) of the SCM Agreement, which
conferred a benefit on Deutsche Airbus because the investment decision was inconsistent with the
usual investment practice of private investors in Ge rmany. We further find that this subsidy is
specific within the meaning of Article 2 of the SCM Agreement. We also find that the 1992 transfer
by KfW of its 20 percent equity interest in Deut sche Airbus to MBB constitutes a subsidy to Airbus
because it involves a financial contribution, in the form of a direct transfer of funds, within the
meaning of Article 1.1(a)(1)(i) of the SCM Agreement which conferred a benefit on MBB because the
consideration provided in respect of the transfer wa s less than the market value of the shares. We
further find that this subsidy is specific within the meaning of Article 2 of the SCM Agreement.
7.1303 We now consider the parties' arguments concerning the 1998 settlement of the German
government's outstanding claims against Deutsche Airbus.
8. Whether the German government has subsidized Airbus by forgiving at least
DM 7.7 billion of Deutsche Airbus' government debt
(a) Background to the 1998 debt settlement
7.1304 We recall our previous discussion of the key el ements of the 1989 restructuring of Deutsche
Airbus.4399 In particular, we note that, pursuant to the 1989 Framework Agreement, the German
government (i) paid DM 1.9 billion in Deutsche Ai rbus' guaranteed bank debts and agreed to pay up
to DM 750 million of LA/MSF debt in respect of the A300/A310; 4400 (ii) made a loan of DM
165 million to finance production of the A320; (iii) agreed to reschedule repayments of government
financing of development costs for the A300, A310, A320, A330/A340; and (iv) made a time-limited
equity investment in Deutsche Airbus through KfW. 4401 The payments made by the German
government in items (i) through (iii), as well as am ounts owed to the German government as a result
of the exchange rate insurance mechanism be tween 1989 and 1992, were to be conditionally
repayable by Deutsche Airbus, in that they would give rise to claims to repayment to the German
government pursuant to the terms of the debtor wa rrant. Under the debtor warrant, Deutsche Airbus'
repayment obligations were to be contingent on De utsche Airbus recognizing pre-tax profits, were to
be payable only from such profits, and were to be payable from such profits only after any profits had

4398 US, FWS, para. 556.
4399 See, paras. 7.1264 - 7.1302 above.
4400 Exhibit US-30, paras. 121 and 131. Of the DM 750 million, only DM 426 million was actually
paid, bringing the total of Deutsche Airbus bank debt which was paid by the German government to
4401 Exhibit US-31, p. 14.

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first been applied to rebuilding Deutsche Airbus' capital base and to fu nding a reserve to cover future
exchange rate losses.4402
7.1305 In 1992, following the GATT Panel report in EEC- Airbus , KfW transferred its 20 percent
equity interest in Deutsche Airbus to MBB, in re turn for the German government holding a claim to
repayment against Deutsche Airbus, in the amount of [[HSBI]], [***]. In addition, the repayment
terms of the debtor warrant were themselves amende d to provide that Deutsche Airbus would only be
required to begin making repayments from 2001, and then only from 40 percent of its pre-tax profits,
with the annual repayment obligation being con tingent on Deutsche Airbus having earned pre-tax
profits in the previous year, and such pre-tax prof its being subject to reduction by the application of
prior years' cumulative loss carryforwards.4403
7.1306 In 1997, pursuant to the third amendment to the 1989 Framework Agreement, the German
government agreed to accept a payment of DM 1.4 bi llion from Deutsche Airbus to fully discharge all
of the German government's repayment claims in respect of development financing for the A320.4404
7.1307 Finally, pursuant to the fourth amendment to the Framework Agreement, the German
government agreed, on 30 December 1998, to treat as satisfied the rema inder of the German
government's existing and/or projected payment and ot her claims against Deutsche Airbus pursuant to
the Framework Agreement, and in respect of de velopment financing for the A300 and A310 from
2001 onwards, and for the A330/A340 from July 20 04 onwards, in return for a one-off compensation
payment of DM 1.75 billion, representing the present value of those claims on 1 January 1999.4405
7.1308 The United States argues that the total accumulated principal amount of debt which Deutsche
Airbus owed the German government by the time of the 1998 transaction was at least DM 9.4
billion.4406 According to the United States, settlement of DM 9.4 billion in debt for a payment of DM
1.735 billion equates to debt forgiveness in the amount of DM 7.7 billion. 4407 The United States
therefore argues that the 1998 transaction should be ch aracterized as "debt forgiveness" and therefore,
a financial contribution within Article 1.1(a)(1)(i) of the SCM Agreement.4408

4402 Exhibit US-30, para. 132.
4403 Daimler-Benz Annual Report 1997, Exhibit US-262, p. 96.
4404 EC, FWS, para. 1183; Third Amendment to the Framework Agreement of 23 March 1989, dated
22 December 1997, Exhibit EC-889 HSBI. The United Stat es does not challenge the 1997 settlement effected
by the Third Amendment to the Framework Agreement in this dispute; US, Answer to Panel Question 30,
para. 195.
4405 Fourth Amendment to the Framework Agreement of 23 March 1989, dated as of
30 December 1998, Exhibit EC-890 HSBI; EC, FWS, para. 1187.
4406 US, FWS, para. 516. The United States alleges th at this debt consisted of DM 5.4 billion principal
amount of debt in respect of LA/MSF for the A300/A310 and A330/A340 programs; a DM 165 million loan
provided by the German government in 1988 to underwrite the costs of producing the A320, which was
repayable pursuant to the debtor warrant; and DM 3.8 billion in additional loans arising out of the 1989
restructuring; US, FWS, paras. 518-521.
4407 US, FWS, para. 531.
4408 US, FWS, paras. 532-533. The United States refers to the Panel Report in Korea – Commercial
Vessels, where the Panel stated that debt forgiveness is comparable to a cash grant, as funds that were previously
provided as a loan, against interest, are now provided for free, given the removal of the repayment obligation;
Panel Report, Korea – Measures Affecting Trade in Commerc ial Vessels ("Korea – Commercial Vessels "),
WT/DS273/R, adopted 11 April 2005, DSR 2005:VII, 2749, para. 7.413.

BCI deleted, as indicated [***]

(b) Arguments of the parties
(i) United States
7.1309 The United States alleges that in 1998, the German government agreed to accept a payment of
DM 1.735 billion from Deutsche Airbus in full settlement of DM 9.4 billion outstanding debt owed by
Deutsche Airbus to the German government. The Un ited States contends that in 1997, Deutsche
Airbus and the German government entered into an agreement pursuant to which the German
government agreed to accept a payment of DM 1.4 billion to settle the outstanding amount of DM 1.5
billion outstanding debt of Deutsc he Airbus in respect of LA/MSF for the A320. Then in 1998,
Deutsche Airbus and the German government entere d into another agreement in which the German
government agreed to accept a further payment of DM 1.735 billion to settle the remainder of
Deutsche Airbus' DM 9.4 billion outstanding debt. According to the United States, both the 1997 and
1998 debt settlements were designed to strengthen Deutsche Airbus' balance sheet in anticipation of a
merger of the Airbus partners to form an Airbus single corporate entity.
4409 The United States argues
that the 1998 settlement thus constitutes debt fo rgiveness in the amount of DM 7.7 billion (excluding
interest), and is a financial contribution with in the meaning of Article 1.1(a)(1)(i) of the
SCM Agreement.4410
7.1310 The United States argues that the 1998 settlement also confers a benefit on Deutsche Airbus
within the meaning of Article 1.1(b) of the SCM Agreement. According to the United States, because
debt forgiveness is comparable to a cash grant, it likewise places the recipient in a better position than
it otherwise would have been in the marketplace. 4411 The United States further argues that
Article 6.1(d) of the SCM Agreement confirms th at debt forgiveness confers a benefit, and thus
constitutes a subsidy, as debt forgiveness is one of only four types of transactions that are explicitly
defined as subsidies which are deemed to cause serious prejudice. 4412 According to the United States,
Deutsche Airbus received an additional "intangibl e" benefit from the 1998 settlement, in the sense
that the 1998 settlement removed the commercial uncertainty as to the period of time over which
Deutsche Airbus was to be able to enjoy the bene fit of DM 9.4 billion of debt interest free, as
Deutsche Airbus' repayment obligations were subject to Deutsche Airbus' post-2001 profitability.4413
7.1311 Finally, the United States argues that the 1998 se ttlement is specific within the meaning of
Article 2 of the SCM Agreement. The Unite d States contends that the 1998 settlement was
effectuated through an ad hoc agreement between the German g overnment and Deutsche Airbus to
settle all of the company's outstanding repayment oblig ations for all of the support it had previously
received from the government. The United States not es that this debt forgiveness was specifically
limited to Deutsche Airbus and no other company participated in the transaction.4414
(ii) European Communities
7.1312 The European Communities argues th at there was no forgiveness of debt arising out of the
1998 settlement; rather, the settlement amount represen ts the present value in 1998 of the obligation
to repay outstanding debt negotia ted as part of the 1989 restructuring, as modified in 1992.
According to the European Communitie s, even if a "benefit" had been conferred on Airbus as a result

4409 US, FWS, paras. 530-531.
4410 US, FWS, para. 515. The United States refers to the Panel's determination in Korea – Commercial
Vessels, that debt forgiveness is "comparable to a cash grant, as funds that were previously provided as a loan,
against interest, are now provided for free, given the removal of the repayment obligation"; Panel Report, Korea
– Commercial Vessels, para. 7.413.
4411 US, FWS, para. 534.
4412 US, FWS, para. 535.
4413 US, Answer to Panel Question 30, para. 200.
4414 US, FWS, para. 536.

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of the 1989 restructuring (which it denies), all th at Deutsche Airbus received in 1998 was the present
value (in 1998) of the benefits that had been conferred pursuant to the 1989 restructuring. 4415
According to the European Communities, the 1998 se ttlement did not constitute the "forgiveness" of
outstanding debt owed by Deutsche Airbus to the German government; rather, the 1998 settlement
simply fixed the present fair value (in 1998) of th e debt that would become due under the repayment
obligations that had been negotiated in 1989. 4416 The European Communities contends that in
purporting to challenge the 1998 settlement as debt forgiveness of DM 7.7 billion, the United States is
in reality seeking to challenge the terms of the 1989 restructuring arrange ment, which constitutes a
new claim that is outside the te rms of reference of this Panel. 4417 In addition, the European
Communities argues that it would be seriously prejudiced and injured in its rights, as a defendant, if it
were required to defend itself against such a legally and factually complex claim that was being raised
for the first time after the first written submissions had been filed and the first substantive meeting of
the Panel had been held.4418
7.1313 The European Communities also disputes that in 1998 Deutsche Airbus owed DM 9.4 billion
to the German government. 4419 The European Communities asserts that in 1989, the German
government negotiated a restructuring arrangeme nt that involved, among other things, the deferral of
outstanding debt of Deutsche Airbus, through a profit-sharing arrangement (as amended in 1992)
known as the Besserungsschein (the "debtor warrant").4420 According to the European Communities,
the terms of this debt instrument were such th at Deutsche Airbus' repayment obligations were not
triggered before 2001 (and on reaching certain fina ncial milestones). In other words, in 1998,
Deutsche Airbus' repayment obligations under the debt instrument had not yet been triggered, and the
European Communities contends that it is therefor e not correct to say that in 1998, the German
government was entitled to repayment of DM 9.4 billion.4421
7.1314 The European Communities further disputes the United States' assertion that there was an
additional "intangible" benefit conferred by the 19 98 settlement, in the sense that the high level of
uncertainty about the claims that would accrue to the German government was removed. The
European Communities argues that, although the import of such an argument is unclear, it is
theoretically possible that such a conversion might result in a "benefit" if undertaken for an amount
that does not reflect the fair market value of the converted cash flow stream in light of the risk
associated therewith. However, th e European Communities contends, to avoid such a possibility in
the present case, an independent international auditing firm, [***], valued the German government's
claims against Deutsche Airbus through the appl ication of the most commonly used corporate
evaluation method – a discounted cash flow analysis. 4422 The European Communities argues that the
report prepared [***][***]in 1998 at the request of the German government in order to [***], used
discount rates and assessed delivery forecasts and exchange rates in order to neutralize the
uncertainties to which the United States refers, in order to determine the likely value of future

4415 EC, SWS, para. 574.
4416 EC, SWS, para. 579.
4417 EC, SWS, paras. 571, 584, 585-591.
4418 EC, Answer to Panel Question 103, paras. 297-298. In this regard, the European Communities
submits that it has never understood the United States to be challenging the terms of the 1989 restructuring.
According to the European Communities, the terms of reference of a panel "are not a moving target that can be
adjusted as the complainant likes, an d at the expense of the defending party". EC, RPQ 103, para. 297 and
footnote 179.
4419 EC, SWS, para. 567.
4420 As previously indicated, the European Communities translates the term Besserungsschein as
"debtor warrant". The European Communities notes that the 1989 package involved the deferral rather than a
write-off of debts of Deutsche Airbus to the German government; EC, FWS, para. 1179.
4421 EC, SWS, paras. 568-570.
4422 EC, SNCOS, para. 245.

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repayments under the 1989 restructuring, discounted to their present value in 1998.
4423 The European
Communities asserts that the settlement amount agreed by the parties ultimately exceeded the value
placed on the German government's claims by [***].4424
(c) Evaluation by the Panel
7.1315 The United States has clarified the claim pertai ning to the 1998 debt settlement, which it
explains in the following terms:
"{T}he U.S. "claim" is that the European Communities has violated Article 5 of the
SCM Agreement through the 1998 settlement agreement, which amounted to a
financial contribution that provided a benef it to Deutsche Airbus within the meaning
of Article 1, that is specific within the meaning of Article 2, and that causes adverse
effects to U.S. interests."4425
7.1316 The United States argues that the 1998 settle ment agreement amounts to a financial
contribution within the meaning of Article 1. 1(a)(1)(i) of the SCM Agreement; namely, debt
forgiveness of DM 7.7 billion. The European Communities argues that in 1998, there was no debt
due to the German government that could be forgiv en: Deutsche Airbus did not "owe" anything to the
German government, because the obligation to begi n repaying financing provided by the German
government did not arise until 2001.4426 The European Communities' argument suggests that debt can
only be "forgiven" when it is otherwise due and pa yable. We are unable to accept such a proposition.
We accept the factual evidence submitted by the Un ited States, and not specifically rebutted by the
European Communities, that as of 1998, the Germ an government had advanced at least DM 9.4
billion to Deutsche Airbus which Deutsche Airbus was obliged to repay to the German government
pursuant to the terms of the debtor warrant and of LA/MSF arrangements.4427 As of 1998, this amount
was owed by Deutsche Airbus to the German govern ment and was therefore a debt, notwithstanding
that the parties had agreed to defer repayments on th is debt so that the first repayment would not be
due until 2001, assuming the prerequisite financial conditions were satisfied.
7.1317 The United States characterizes the financial contribution arising out of the 1998 debt
settlement as "debt forgiveness". Ou r approach is, rather, to determine first, whether the 1998 debt
settlement involves a financial contribution with in the meaning of Article 1.1(a)(1) of the
SCM Agreement, and second, whether that fina ncial contribution confers a benefit on Deutsche

4423 EC, SWS, para. 576. The European Communities notes that the United States does not offer any
basis on which to question whether [***] independent assessment of the value in 1998 of these future repayment
was properly undertaken; nor does the United States argue that the amount arrived at by [***] underestimated
the present value of those future claims.
4424 EC, SNCOS para. 246. According to the European Communities, the discount rate implied in the
actual settlement amount implies that the future cash fl ow stream was converted at the risk free German
government borrowing rate, meaning that Deutsche Airbus had effectively agreed, in its negotiations with the
German government, to settle the repaym ent claims as if there were virtually no risk that repayments would be
delayed compared with current projections, or would not be made at all. The European Communities contends
that the parties effectively assumed, in other words, that the amount and timing of Deutsche Airbus' future
payments on the claims held by the German govern ment was as certain as the payment on a German
4425 US, Answer to Panel Question 31, para. 204, footnote 241; FWS, paras. 515-536;.
4426 EC, SWS, para. 567.
4427 Frankfurter Allgemeine Zeitung , 16 June 1997, reporting a stat ement by the CEO of Dasa that
Deutsche Airbus owed DM 10.5 billion under the profit-sharing arrangement (i.e., the debtor warrant, and DM 1
billion through LA/MSF delivery-base d repayments), Exhibit US-263; Frankfurter Allgemeine Zeitung ,
24 May 1997, reporting a statement by the Federal Minister of Finance that the German government had
repayment claims under debtor warrants in respect of DM 10.4 billion in German federal government subsidies
to Airbus; Exhibit US-264.

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Airbus within the meaning of Article 1.1(b) of the SCM Agreement. If we conclude that the financial
contribution confers a "benefit" on Deutsche Airbus, then it may be that the subsidy in question could
be described as "debt forgiveness" in an amount equal to the amount of benefit found to have been
conferred. However, the first issue for us to determine is whether the 1998 debt settlement constitutes
one of the forms of financial contribution set forth in Article 1.1(a)(1). We conclude that the 1998
debt settlement constitutes a financia l contribution in the form of a "direct transfer of funds" within
the meaning of Article 1.1(a)(1)(i) of the SCM Agreement. We note that, in Japan – DRAMS , the
Appellate Body interpreted the term "funds" in Ar ticle 1.1(a)(1)(i) broadly, as encompassing not only
"money" but also "financial resources and other financial claims more generally." 4428 Debt owed to
the government is an asset held by the government consisting of certain financial claims (i.e., rights to
payment of money or equivalents) that the government has against a debtor. A settlement of
government-held debt essentially involves the transfer to the debtor of the government's financial
claims against that debtor, resulting in the cancellati on of the debt. We therefore regard a settlement
of debt as a "direct transfer of funds" by a government, and thus a "financial contribution" within the
meaning of Article 1.1(a)(1)(i) of the SCM Agreement.
7.1318 We now consider whether the 1998 debt settleme nt conferred a benefit on Deutsche Airbus
within the meaning of Article 1.1(b) of the SCM Agreement. The United States alleges that by the
end of 1998, Deutsche Airbus had accumulated DM 9.4 billion in debt to the German government,
consisting of (i) DM 5.4 billion in LA/MSF that the German government ha d provided to Deutsche
Airbus in respect of the A300/A310 and A330/A340 programs;
4429 (ii) a DM 165 million loan that the
German government had provided to Deutsche Airbus in 1988 to underwrite costs of producing the
A320;4430 and (iii) approximately DM 3.8 billion in a dditional loans that the German government had
provided to Deutsche Airbus in the 1980s and early 1990s, which had their genesis in the 1989
restructuring of Deutsche Airbus.
4431 The German government and Da imler-Benz negotiated to settle
Deutsche Airbus' outstanding repayment obligations under the debtor warrant and LA/MSF on the
basis of a report prepared by the accounting firm [***]. In the [***] Report, [***] attempted to
calculate a present value for two categories of condi tional repayment obligations of Deutsche Airbus.
The first category comprised claims that were base d on future deliveries of LCA, such as German
government development financing for the A300 and A310 (from 2001 onwards) and for the
A330/A340 from July 2004 onwards. The second category comprised amounts repayable under the
debtor warrant (which were repayable from 40 per cent of Deutsche Airbus' annual pre-tax profits
from 2001 onwards). The [***] Report used a discounted cash flow methodology to calculate
[***].4432 The settlement amount ultimately negot iated between the German government and
Daimler-Benz was higher than the upper end of the range of the values [***].
7.1319 The United States argues th at, even if one assumes arguendo that DM 1.7 billion represented
the present fair value of the German government's clai ms at the time of the settlement, the effect of

4428 Appellate Body Report, Japan – DRAMs (Korea), para. 250.
4429 The United States notes that figure of DM 5.4 billion represents principal only; US, FWS,
para. 519.
4430 US, FWS, para. 520. The United States refers to German budget documents as indicating that the
DM 165 million loan was originally part of a total loan of DM 670 million which the German government had
decided to provide to Deutsche Airbus for the production of the A320. According to the United States, the
German government converted DM 505 million of the loan into a DM 505 million capital investment in
Deutsche Airbus in 1989. As previously indicated, th e United States challenges the DM 505 million capital
investment by the German government as a specific subsidy. See, paras. 7.1264 - 7.1302 and paras. 7.1315 -
7.1322 above.
4431 US, FWS, para. 521.
4432 [***] also provided the German government with a document confirming its view that the
settlement amount did not amount to alteration of existin g contractual obligations to advantage the beneficiary,
but represented an adequate amortization of those obligations on the basis of the various assumptions on which
the settlement amount was based; [***] Letter, dated 26 July 1999, Exhibit EC-HSBI-0000205.

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settling the debt for a payment of DM 1.7 billion was to confer on Airbus a one time benefit of
DM 7.7 billion, as opposed to receiving the benefit of the below-market interest rate embedded in the
debtor warrant over a period of decades from 1989. According to the United States, in ascertaining
whether Deutsche Airbus received an advantage re lative to what would have been accorded by a
market-based creditor, it is necess ary to consider also the "non-market based terms of the underlying
claims". Thus, in the United States' view, the fair market value of a market -based creditor's claims
against Deutsche Airbus would have been higher than the fair market value of the non-market based
claims that the German government had against Deutsche Airbus. The United States argues that, by
discounting the preferential repayment obligations inherent in LA/MSF and the other outstanding debt
effective as of 1 January 1999, the German governme nt converted the loans and repayable grants, and
the future benefit associated with them, to a ne t present repayment obligation of DM 1.7 billion and
therefore a net present benefit of DM 7.7 billion.
4433
7.1320 Consideration of this issue involves two levels of transactions that could potentially constitute
subsidies to Deutsche Airbus; namely, (i) the origin al transactions between the German government
and Deutsche Airbus that resulted in Deutsche Airbus being obligated to repay, as of December 1998,
DM 9.4 billion to the German government; and (ii) the settlement by the German government of those
repayment claims in return for a payment of DM 1.75 billion. The United States has challenged the
latter as a specific subsidy to Deutsche Airbus. 4434 We do not agree with the United States that it is
appropriate to consider the terms of the original transactions that resulted in the repayment claims
totalling DM 9.4 billion in determining whether the te rms of the settlement of those repayment claims
are consistent with the terms on which a market-bas ed creditor would have settled such claims. We
are aware of the possibility that the underlying tr ansactions were themselves subsidies, and indeed,
certain of them have been challenged as, and in some cases found to be, subsidies in this dispute. 4435
However, in light of the specific circumstances of the 1998 debt settlement, we do not consider the
fact that the underlying transactions may be subsid ies to be relevant to the question whether the
"financial contribution" at issue before us here; i.e., the transfer of the German government's financial
claims against Deutsche Airbus to Deutsche Airbus for a specified amount, conferred a "benefit" on
Deutsche Airbus, within the meaning of Article 1.1(b). 4436 For purposes of assessing any benefit
conferred as a result of the 1998 debt settlement, th e relevant question is whether the terms of the
transfer of the financial claims were consistent with those that Deutsche Airbus would have obtained
from a market-based creditor.
7.1321 The European Communities has pr esented evidence that the DM 1.75 billion settlement
amount negotiated between the German governme nt and Daimler-Benz was based on the present
value of the financial claims, a nd was consistent with the terms that Deutsche Airbus could have

4433 US, Answer to Panel Question 30, para. 199.
4434 Although the United States has challenged certain of the underlying transactions as specific
subsidies in this dispute, including elements of the 1989 restructuring arrangement, namely KfW's acquisition of
a 20 percent equity interest in Deutsche Airbus in 1989 and subsequent transfer of that interest to MBB in 1992,
we note that the United States do es not challenge the 1989 restructur ing arrangement as a whole. The
United States has made clear that its challenge is confined to "the 1998 transaction that led to the elimination of
DM 9.4 billion in debt that Deutsche Airbus owed to the German government in exchange for a one-time
payment of DM 1.7 billion"; US, Comments on EC Answer to Panel Question 187, para. 133.
4435 The United States has challenged certain of the underlying transactions that gave rise to the
repayment claims as themse lves involving subsidies; e.g., LA/MSF in respect of the A300/A310, A320 and
A330/A340 and the 1992 sale of KfW's 20 percent equity interest in Deutsche Airbus to MBB. We have found
that these are specific subs idies in this dispute. See, paras. 7.497 and 7.1302 above. If, having found that these
underlying transactions constituted subsidies, we were to then find that settlement of financial claims created by
those underlying transactions constituted subsidies because the underlying transactions constitute subsidies , we
would be double-counting the same subsidies.
4436 We express no view as to whether, in other factual circumstances, it may be relevant to the question
whether a settlement of debt conferred a benefit that the debt in question related to previously granted subsidies.

BCI deleted, as indicated [***]

obtained in the market for the settlement of tho se claims. The United States has not challenged the
assumptions employed or range of estimates arrived at in the [***] Report, nor has it argued that the
settlement amount of DM 1.75 billion was less than the fair value, in 1998, of the German
government's outstanding claims. On the basis of the unrefuted evidence presented by the European
Communities that the amount of DM 1.75 billion is consistent with the present value in 1998 of
Deutsche Airbus' outstanding indebtedness to the Ge rman government, we consider that the United
States has not established that the German governme nt's 1998 settlement of outstanding debt of
Deutsche Airbus for DM 1.75 billion conferred a be nefit on Deutsche Airbus within the meaning of
Article 1.1(b) of the SCM Agreement.
(d) Conclusion
7.1322 We conclude that the 1998 settlement by the German government of all of Deutsche Airbus'
outstanding repayment obligations to the German gove rnment in exchange for a payment of DM 1.75
billion is a financial contribution in the form of a "direct transfer of funds" within the meaning of
Article 1.1(a)(1)(i) of the SCM Agreement. We are not satisfied, however, that the financial
contribution conferred a "benefit" on Deutsche Airbus within the meaning of Article 1.1(b) of the
SCM Agreement. We therefore reject the Un ited States' claim that the 1998 debt settlement
constitutes a specific subsidy to Airbus.
9. Whether the equity infusions that the French government provided to Aérospatiale are
specific subsidies
(a) The French government's capital investments in Aérospatiale between 1987 and 1994
(i) Factual background
7.1323 In this section, we address the United States' claims that four capital contributions made by
the French government to Aérospatiale between the years 1987 and 1994, constitute specific subsidies
to Airbus. We briefly recount the facts concerni ng those capital contributions, before addressing the
parties' arguments and setting forth our evaluation of the relevant legal issues and our findings.
7.1324 We recall that, from its inception in 1970 until 1999, Aérospatiale was wholly-owned, either
directly or indirectly, by the French government. 4437 In 1987, the French government made a capital
contribution in the amount of FF 1.25 billion to Aérospatiale. This amount was integrated into
Aérospatiale's financial statements for the year e nded 31 December 1987, although it was not paid in
until the beginning of 1988. 4438 The French government made a further capital contribution of
FF 1.25 billion to Aérospatiale in 1988. 4439 Then, in 1992, Crédit Lyonnais, which was at that time

4437 The French government's indirect interests in Aérospatiale were held through SOGEPA and
(following its equity investment in 1992), Crédit Lyonnais. In 1999, Aérospatiale merged with Matra Hautes
Technologies to form Aérospatiale-Matra; see, footnote 2054.
4438 Aérospatiale Results 1987, p. 2, Exhibit US-32, p. 2; French Senate Report No. 88, Project de loi
des finances pour 1989, Tome III, Annexe 34 due 21/11/1988, Transports et mer II/Aviation civile
III/Météorologie, Exhibit US-279, p. 33.
4439 French Senate Report No. 85, Project de loi des finances pou r 1991, Tome III, Annexe 19
Equipement, logement, transport et mer, Exhibit US-281, p. 46, which records a contribution of
FF 1,250 million being made by the French government to Aérospatiale in 1987 and an additional capital
contribution of FF 1,250 million being made by the French government to Aérospatiale in 1988; Aérospatiale
1988 Annual Report, Exhibit US-282, pp. 5, 25; Aérospatiale, Comptes de l'Exercise 1988, at 5, referring to a
"second tranche" of FF 1.25 billion being received by Aérospatiale in 1988.

BCI deleted, as indicated [***]

controlled by the French government, acquired a 20 percent equity interest in Aérospatiale.
4440 This
transaction involved Crédit Lyonnais subscribing fo r FF 1.4 billion in newly-issued Aérospatiale
shares, as well acquiring existing Aérospatiale shar es from the French government, in exchange for
the issuance to the French government of approximately two percent of Crédit Lyonnais' share
capital.4441 On 1 February 1994, the French government made a further capital transfer of FF 2 billion
to Aérospatiale.4442
7.1325 We note that in its first written submission, the European Communities indicates that the
relevant amounts and dates of the capital contribu tions made by the French government are: FF 1.48
billion in 1988; FF 1.25 billion in 1989;1.439 billion in 1992 and FF 2 billion in 1994. 4443 Thus,
although the parties agree generally as to the amounts and timing of the 1992 and 1994 capital
contributions, the United States alleges that the Fr ench government made a capital contribution of
FF 1.25 billion in 1987, whereas the European Communities considers this capital contribution to
have been in the amount of FF 1.48 billion in 198 8. Similarly, the "second" FF 1.25 billion capital
contribution, which the United States alleges was made in 1988, the European Communities considers
to have been made in 1989. The exhibits to whic h the European Communities refers in support of its
assertions that the relevant dates of the two capita l contributions are 1988 and 1989, rather than 1987
and 1988 as alleged by the United States, actually record the capital contributions as having been
made in 1987 and 1988. As for the apparent discrepancy over the amount of the 1987 capital
contribution, the United States notes that, alt hough Aérospatiale's 1987 Annual Report records a
FF 1.48 billion "capital stock increase in process", it can be assumed that this larger amount includes a
FF 230 million capitalized advance which was provided in 1986. We are satisfied that the French
government made a capital contribution of FF 1.25 billion to Aérospatiale in 1987 and a further
capital contribution in the same amount in 1988 and we shall proceed to examine the United States'
claims on that basis.
7.1326 The United States argues that each of the cap ital contributions made by the French
government to Aérospatiale in 1987, 1988, 1992 (m ade by Crédit Lyonnais), and 1994, are financial
contributions within the meaning of 1.1(a)(1) of the SCM Agreement, which conferred a benefit on
Aérospatiale within the meaning of Article 1.1(b). The United States further alleges that each of the
above-referenced transactions cons titutes a specific subsidy within the meaning of Article 2 of the
SCM Agreement. As will be apparent from our discussion of the respective arguments of the United
States and the European Communities, the parties' disagreement over whether the transactions in
question are specific subsidies centres on the issue of whether they can be said to have conferred a
"benefit" on Aérospatiale, within the meaning of Arti cle 1.1(b) of the SCM Agreement. This in turn,
involves a consideration of the appropriate standa rd for determining the existence of a benefit
conferred by a financial contribution in the form of an equity infusion, and the nature of evidence
sufficient to establish (and rebut) the existence of benefit.

4440 Immediately preceding the 1992 capital investment by Crédit Lyonnais, the French government
held a 54.3 percent interest in Crédit Lyonnais. Following the capital investment, its stake increased to
56.1 percent.
4441 The transaction occurred in two stages: (i) Crédit Lyonnais, acting through its subsidiary Crédit
Lyonnais Industrie-Clindus, acquired 3,570,884 newly issued shares in Aérospatiale (representing a
FF 1,439 million increase in Aérospatiale's equity capital); and (ii) the French government contributed
4,637,931 of its shares in Aérospatiale to Crédit Lyon nais, in exchange for an increase in Crédit Lyonnais'
capital reserved for the state; Aérospatiale Group Annual Report 1992, Exhibit EC-174, p. 74.
4442 Aérospatiale 1993 Annual Report, Exhibit EC-186, p. 42.
4443 EC, FWS, para. 1132.

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(ii) Arguments of the parties
United States
The appropriate standard for determin ing the existence of "benefit" under
Article 1.1(b)
7.1327 The United States notes that Article 1.1(b) of the SCM Agreement does not establish a
standard for determining whether an equity infusion confers a benefit on its recipient. 4444 T h e
United States contends that Article 14(a) provides re levant context for determining how to make such
a determination, however, as it provides a standa rd for purposes of Part V of the SCM Agreement. 4445
In light of Article 14(a), the United States argues that , "if a government's decision to provide equity to
a company is inconsistent with the usual investment practice of private investors in that Member's
territory, the infusion confers a benefit with in the meaning of Article 1.1(b) of the
SCM Agreement."4446 Thus, according to the United States, if under the usual investment practice of
private investors in the territory of the subsidizing Member, the equity infusion would not have been
provided, or if the government equity infusion is made on better than commerc ial terms, the equity
infusion confers a benefit and constitutes a subsidy.
4447
7.1328 According to the United States, where a recipi ent company's shares are not publicly traded,
the question whether an equity infusion is consiste nt with the usual investment practice of private
investors in the territory of the Member involves an analysis of the company's financial state and
performance to determine whether the government had a realistic expectation of a reasonable return
on the investment, or if private investors would have undertaken such an investment at all. 4448 The
United States contends that the usual practice of priv ate investors considering whether to invest in a
company is to analyze indicators of the company' s financial and commercial health and performance,
as reflected in the company's financial statements, and to conduct an objective analysis and in-depth
"due diligence" on the company. The United States c ontends that a market investor, with virtually
limitless options for investing its capital, is interested in maximizing its returns, regardless of whether
that interest coincides with the interest of a particular company in meeting ongoing capital
requirements.4449
The 1987 and 1988 capital contributions
7.1329 The United States argues that the capital contributions made by the French government to
Aérospatiale in 1987 and 1988 are direct transfer s of funds in the form of equity infusions and
therefore constitute financial contributions with in the meaning of Article 1.1(a)(1)(i) of the
SCM Agreement.4450 The United States argues that each of these financial contri butions conferred a
benefit on Aérospatiale and thus c onstitutes a subsidy to Aérospatiale. 4451 Finally, the United States
argues that these subsidies are speci fic to Aérospatiale within the meaning of Article 2 of the

4444 US, FWS, para. 544.
4445 US, FWS, para. 544.
4446 US, FWS, para. 545.
4447 US, FWS, para. 562.
4448 US, FWS, para. 563.
4449 For this reason, the United States contends that it is beside the point that the French
government may have considered the capital contributions to be necessary to meet Aérospatiale's ongoing
capital requirements; US, Answer to Panel Question 224, para. 322.
4450 US, FWS, para. 567.
4451 US, FWS, para. 561.

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SCM Agreement, as they are ad hoc infusions into the company by the French government and are
explicitly limited to Aérospatiale.
4452
7.1330 In support of its argument that the 1987 and 1988 equity infusions were inconsistent with the
usual investment practice of private investors in France, and therefore conferred a benefit on
Aérospatiale, the United States cont ends that Aérospatiale was "in serious financial trouble", at the
relevant times at which the French government woul d have been considering whether or not to make
the investments. The United States points to Aérospa tiale's total shareholders' equity in 1986 (which
was slightly more than FF 3.3 billion) compared to its long-term borrowings of FF 8.7 billion and
total liabilities of approximately FF 36.7 billion. 4453 The United States also presents evidence of
certain key financial ratios of Aérospatiale compared with those of an alleged peer group of French
aerospace and defence companies.4454 The United States notes that Aérospatiale's debt-to-equity ratio
in 1986 was 10.9, compared with an average of 6.2 for the peer group companies. Aérospatiale's debt
coverage ratio was 0.1 in 1986 and zero in 1987, co mpared with a peer group average of 1.1 and 1.6,
respectively.4455 Finally, the United States notes that Aérospatiale's return on equity in 1986 and 1987
was 9.8 percent and 4 percent, respectively, comp ared with peer group averages of 45.2 percent and
17.2 percent. In sum, the United States argues that "in 1987 and 1988, Aérospatiale had a liquidity
crisis; the investments were insufficient to resolv e the crisis; it had been a poor investment in the
years preceding the equity infusions."4456
7.1331 In addition, the United States notes that the A nnex V Facilitator had requested the European
Communities to indicate whether any prior evaluati on had been made of the equity infusions or
Aérospatiale shares during this period and to provide any contemporaneous reports or analyses of the
financial situation or prospects of Aérospatiale. 4457 The United States contends that the European
Communities neither provided such information nor indicated whether such information exists.
Accordingly, the United States argues that the Eur opean Communities' failure to respond gives rise to
a logical inference that there are no such contemporaneous analyses (indicating behaviour at variance
with that of the usual investment practice of a private investor), or that such contemporaneous
analyses contain information adverse to the European Communities' case.4458
The 1992 capital contribution
7.1332 The United States asserts that Crédit Lyonnais, as an entity that was controlled by the French
government at the relevant time, is a "public body" within the meaning of Article 1.1(a)(1) and thus
that the FF 1.4 billion investment in Aérospatiale by Crédit Lyonnais constitute s a direct transfer of
funds (in the form of an equity infusion) by a public body within the meaning of Article 1.1(a)(1)(i) of

4452 US, FWS, para. 574.
4453 US, FWS, para. 569.
4454 Exhibit US-274. The alleged key financial ratios are return on equity, debt-to-equity ratio and debt
coverage ratio. The alleged peer group companies are Aviation Latécoère, Dassa ult Aviation S.A., SAFRAN
S.A., Thales S.A. and Zodiac S.A.
4455 The United States notes that, as a ratio of one or above is necessary in order for a company to be
able to cover its outstanding short-term debt, Aérospatia le's debt coverage ratios indicate that it was "in serious
financial trouble" at the time.
4456 US, FWS, para. 573. The United States notes that the European Communities' evidence concerning
an expected recovery in the LCA market dates only from 1994 and that the European Communities did not
provide any evidence of contemporaneous studies or analyses undertaken by the French government on the
investment prospects of Aérospatiale in 1988, 1989, 1992 or 1994; United States, Answer to Question 27 of the
First Questions of the Panel, para. 174.
4457 Question 94(h)-(i) from the Facilitator to the EC, Exhibit US-4 BCI.
4458 US, FWS, para. 572.

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the SCM Agreement.4459 The United States argues that this fi nancial contribution conferred a benefit
on Aérospatiale because Crédit Lyonnais' decision to invest in Aérospatiale in 1992 was inconsistent
with the usual investment practice of private investors. Finally, the United States argues that the 1992
equity infusion is specific to Aérospatiale within the meaning of Article 2 of the SCM Agreement
because it is an ad hoc infusion by a public body and is explicitly limited to Aérospatiale.4460
7.1333 In support of its argument that the 1992 equity infusion by Crédit Lyonnais was inconsistent
with the usual investment practice of private inv estors in France and therefore conferred a benefit on
Aérospatiale, the United States points to certain ev idence of Aérospatiale's financial health and
performance, as reflected in its financial statements, and its comme rcial outlook at the time of the
1992 equity infusion. In this regard, the United States notes that Aérospatia le's total liabilities had
increased from FF 33.2 billion in 1989 to FF 60.2 bill ion in 1991, of which debt maturing within one
year had increased from FF 3. 6 billion to FF 8.4 billion. 4461 Aérospatiale's debt coverage ratio was
0.1, -0.5 and 0.2 for the years 1989, 1990 and 1991, respectively, compared to corresponding peer
group averages of 2.4, 1.5 and 1.3, respectively. 4462 Aérospatiale's debt-to-equity ratio was 6.5 in
1989, 10.5 in 1990 and 12.3 in 1991, compared to peer group averages of 4.0, 4.3 and 3.7,
respectively, over the same periods. 4463 The United States considers th ese results to be evidence that,
"prior to the 1992 decision to provide yet another equity infusion, Aérospatiale was sinking deeper
into debt, with less ability to pay its short-term liabilities and with its capital under constant pressure
from sustained losses."4464
7.1334 In addition, the United States notes that Aérosp atiale had sustained a net operating loss in
1990 and had reported a positive result in 1991 only because of the effect of two extraordinary income
items not related to its Airbus operations. 4465 According to the United Stat es, Aérospatiale's return on
equity was "dismal" in the years preceding the 1992 equity infusion. 4466 Moreover, the United States
notes that contemporaneous press reports had questi oned how the investment in Aérospatiale made
sense for Crédit Lyonnais. 4467 In sum, the United States argues that Aérospatiale's financial results at
the time of the 1992 equity infusion would have deterred private investors from injecting further
equity into the company. According to the Un ited States, Aérospatiale was undergoing a liquidity
crisis, it had been a poor investment in the years preceding the infusion and the situation in the
aeronautics industry did not indicate that its prospects would soon improve.
4468
7.1335 Finally, the United States notes that, in respon se to requests from the Annex V Facilitator to
provide contemporaneous reports, studies or analy ses of Aérospatiale's financial situation or
expectations with respect to the investment, the European Communities had replied that the
transactions in question were carried out consisten tly with the French govern ment's practice and in

4459 US, FWS, para. 580. The United States notes that in the Annex V process, the European
Communities confirmed that Crédit Lyonnais was controlled by the French government at the time of the 1992
equity infusion; EC, Answer to Q99 from the Facilitator, Exhibit US-5 BCI.
4460 US, FWS, para. 590.
4461 US, FWS, para. 583, referring to Aérospatiale, Annual Report 1989, Exhibit US-287 and
Aérospatiale, Annual Report 1991, Exhibit US-273.
4462 US FWS; para. 583; Ratio Comparison Chart, Exhibit US-274.
4463 US, FWS, para. 583; Ratio Comparison Chart, Exhibit US-274.
4464 US, FWS, para. 583.
4465 US, FWS, para. 583; Aérospatiale, Annual Report 1991, Exhibit US-273; Aérospatiale, Annual
Report 1990, Exhibit US-289.
4466 US, FWS, para. 585. The United States notes that Aérospatiale's return on equity was 2.2 percent
in 1989, negative 7.7 percent in 1990, and 4.5 percent in 1991, compared with peer group averages of 15.8
percent, 14.5 percent and 15.2 percent over the corresponding periods.
4467 US, FWS, para. 586.
4468 US, FWS, para. 589.

BCI deleted, as indicated [***]

full accordance with French law.
4469 The United States contends that the European Communities'
response suggests that the equity infusion was cons istent with French government practices, not the
usual investment practice of private investors, and that the European Communities' refusal to provide
the information sought by the Annex V facilitator further supports this conclusion.
The 1994 capital contribution
7.1336 The United States alleges that in February 1 994, the French government transferred a further
FF 2 billion to Aérospatiale as an advance on a capital increase which took place in April 1994. 4470
According to the United States, this capital contri bution constitutes a financial contribution as it is a
direct transfer of funds in the form of an equity infusion within the meaning of Article 1.1(a)(1)(i) of
the SCM Agreement.4471 The United States argues that the 1994 equity infusion conferred a benefit
on Aérospatiale because, based on an analysis of Aérospatiale's financial condition and performance
prior to the capital contribution, such an investme nt was inconsistent with the usual investment
practice of private investors in France. Finally, the United States argues that the 1994 equity infusion
is specific within the meaning of Article 2 of the SCM Agreement because it was an ad hoc infusion
which was explicitly limited to Aérospatiale.
7.1337 In support of its argument that the 1994 equity infusion was inconsistent with the usual
investment practice of private investors in France, and therefore conferred a benefit on Aérospatiale,
the United States points to Aérospatiale's reported fi nancial results and financial ratios in the periods
preceding the 1994 equity infusion. In that regard, the United States notes that Aérospatiale reported
consolidated net losses of FF 2.38 billion and FF 1.4 billion in 1992 a nd 1993, respectively. 4472 In
addition, the United States notes that Aérosp atiale's financial ra tios "remained dire". 4473 The United
States also refers to various media reports sugges ting that Aérospatiale's serious financial condition
was common knowledge at the time of the 1994 equity infusion, including a statement by
Aérospatiale's then-Chairman, Louis Gallois in Febr uary 1994, that from an investor's point of view,
Aérospatiale was probably still "rep ellent" and suggesting that priv atization of Aérospatiale was
unlikely to occur in 1994 or even in 1995.
4474 Moreover, the United States argues that Aérospatiale's
prospects at the time of the 1994 equity infusi on were also unpromising, noting management's
prediction in Aérospatiale's 1993 Annual Report that economic conditions would remain very difficult
in 1994.4475
7.1338 The United States further notes that the Eur opean Commission examined the 1994 equity
infusion under the EC state aid rules and that, d espite the Facilitator's request during the Annex V
process that the European Communities provide information with respect to the European

4469 US, FWS, para. 588; citing to EC, Answer to Pa nel Question 100(g) from the Facilitator, Exhibit
US-5 BCI.
4470 US, FWS, para. 594.
4471 We understand that the United States challenges the capital investment made by the French
government and that this transaction took the form of an advance contribution of cash to Aérospatiale
in February 1994 against the issuance of new shares in Aérospatiale which occurred in April 1994.
4472 US, FWS, para. 598.
4473 US, FWS, para. 599. Aérospatiale's debt-to-equity ratios were 16.6 and 25.5 in 1992 and 1993,
respectively, which the United States co ntrasts to peer group averages for the corresponding periods of 3.2 and
3.1. The United States also notes that Aérospatiale had a debt coverage ratio of -1.3 and – 0.7 in 1992 and 1993,
respectively, which it contrasts with peer group averages for the corresponding periods of 1.1 and 0.7.
According to the United States, the negative debt covera ge ratios indicate that Aérsospatiale's assets were
"grossly insufficient" to cover its current borrowings. In addition, Aérospatiale's return on equity was -48.5
percent in 1992 and -37 percent in 1993, which the United States contrasts with peer group averages for the
corresponding periods of 13.2 percent and 8.3 percent, respectively.
4475 US, FWS, para. 603.

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Commission's review (including the Commission's c onclusion and reasons as to whether the infusion
constituted state aid), the European Communities re fused to provide the information. The United
States requested the Panel to use its authority unde r Article 13 of the DSU to request the information
on the European Commission's state aid review of the 1994 equity infusion that the European
Communities had failed to provide to the Facilitator in the Annex V process.4476
European Communities
7.1339 The European Communities argues that the United States has failed to make out a prima facie
case that any of the four capital contributions ma de by the French government to Aérospatiale
between 1987 and 1994, which the United States a lleges are subsidies to Aérospatiale, "have
benefited Airbus SAS, which is the only comp any that produces Airbus LCA in the European
Communities".4477
7.1340 The European Communities contends that the provisions of Article 14 of the SCM Agreement
are simply guidelines for investigating authorities to follow in calculating the benefit to the recipient
conferred pursuant to Article 1.1 in the context of countervailing duty investigations and, as such,
serve as "guidelines" providing "relevant contex t" for Article 1.1(b) of the SCM Agreement. 4478
According to the European Communities, Article 14 is not supposed to provide a "cut and paste" legal
test for the purposes of Article 1.1(b). 4479 However, the European Comm unities considers that, in the
context of an equity contribution by a government, it is implicit in the notion of "benefit" in
Article 1.1(b) of the SCM Agreement to inquire into the usual investment practice of private
investors. The European Communities argues that in determining what the usual investment practice
of private investors would have been, it is necessa ry to take account of the factual circumstances
surrounding the making of the financial contribution.
4480 According to the European Communities,
private investor "practice" will differ depending on such factors as whether the investment target is
solvent and the private investor is an existing creditor, whether "countercyclical investment" is
considered important or unwise in the sector in wh ich the investment target operates, and whether the
investment target is a candidate for sale, merger or other consolidation.4481
7.1341 The European Communities argues that determin ing the benchmark of the usual investment
practice of private investors requires an assessment of an investment target's prospects for the future,
rather than an undue focus on its past performance. Private investors decide whether or not to commit
capital based on an assessment of prospects, rather than past performance because, according to the
European Communities, "fundamentally the value of a business today is the present value of its
anticipated future free cash flow ava ilable for distribution or reinvestment." 4482 T h e E u r o p e a n
Communities contends that the United States' conclusion that the French government acted
inconsistently with the usual investment practice of private investors in France in making the capital
contributions between 1987 and 1994 is, in each instance, based solely on data concerning
Aérospatiale's past financial performance. The European Communities contends that the United
States' arguments concerning the existence of be nefit allegedly conferre d by the various capital

4476 US, FWS, para. 593.
4478 EC, Answer to Panel Question 101, para. 277.
4479 EC, Answer to Panel Question 101, para. 277.
4480 EC, Answer to Panel Question 224, para. 567.
4481 EC, Answer to Panel Question 224, para. 568.
4482 EC, FWS, para. 1140. The European Communities notes, for example, that during the early 1990s,
when the commercial airline industry was depressed an d Boeing's commercial aircraft revenue and operating
profit were in decline, Boeing increased its investment in total assets and assumed significant additional risk.
According to the European Communities, Boeing's management understood that in the LCA industry, with its
long and costly development cycle, increased investment is imperative even during depressed periods in order to
position the company to be competitive when the market recovers. EC, FWS, para. 1115.

BCI deleted, as indicated [***]

contributions are flawed because of this undue fo cus on Aérospatiale's past financial performance
rather than its prospects, and moreover, because the United States exaggerates Aérospatiale's past
financial difficulties.
7.1342 The European Communities argues that, at the ti me of the capital contributions made by the
French government between 1987 and 1994, Aérospatia le needed additional equity capital to fund
product development. According to the European Communities, the French government's decision to
provide that equity capital was "informed by its know ledge that countercyclical investment is critical
in the LCA sector."
4483 The European Communities contends that a similarly knowledgeable private
investor would have considered data related to Aé rospatiale's past financial performance in light of
the need to invest countercyclically in LCA development. 4484 The European Communities argues,
moreover, that a private investor considering whether to make the capital contributions under
consideration would evaluate Aérospatiale's future prospects.4485
The capital contributions made between 1987 and 1994
7.1343 The European Communities does not dispute the United States' position that the capital
contributions made by the French government to Aérospatiale between 1987 and 1994 (including the
1992 capital contribution made by Crédit Lyonnais) are dir ect transfers of funds in the form of equity
infusions and thus constitute financ ial contributions within the meaning of Article 1.1(a)(1)(i) of the
SCM Agreement. However, the European Comm unities does dispute the United States' contention
that the various equity infusions conferred a benefit on Aérospatiale within the meaning of
Article 1.1(b) of the SCM Agreement.
7.1344 The European Communities argues that, although Aérospatiale posted losses from 1992
through 1995 when the industry was in recession, it had been consistently profitable for the fiscal
years 1987 through 1991 (covering the years leading up to the 1987, 1988 and 1992 capital increases),
returned to profitability in 1996, and remained pr ofitable through the merger with Matra Hautes
Technologies in 1999 and the creation of EADS in 2000.
4486
7.1345 More specifically, the European Communities di sputes as a factual matter the United States'
assertion that the 1987, 1988 and 1 992 capital contributions were ma de when Aérospatiale was not
"equityworthy". The European Co mmunities argues that at the releva nt times at which the French
government was assessing whether to make th e 1987, 1988 and 1992 capital contributions,
Aérospatiale was profitable, even though its fina ncial performance "may not have been as robust as
the company would have liked". 4487 The European Communities argues that in producing the A320
(which entered commercial service in March 1988) Aé rospatiale had made significant investments in
specialized capital and facilities, in addition to in vesting in increasing levels of work-in-process

4483 EC, Comments on US Answer to Panel Question 224, para. 415. The European Communities
argues that both parties agree that, given the long and costly development cycle in the LCA industry, increased
investment in aircraft development is imperative, "par ticularly during a period of trying financial performance
driven by weak sales" so that an LCA manufacturer is poised to be competitive when the market recovers. EC,
Comments on US Answer to Panel Question 224, para. 415.
4484 EC, Comments on US Answer to Panel Question 224, para. 415.
4485 The European Communities argues that it has provided "reams of contemporaneous documents"
establishing that at the time that the French government made the capital contributions in question, Boeing,
Airbus GIE and the US government itself had forecast co mmercial airline traffic grow th and "robust, untapped
demand for LCA well into the future"; EC, Comments on US Answer to Panel Question 224, para. 416; EC,
SWS, paras. 534-535; see also the evidence discussed in paragraphs 7.1344 through 7.1350, 7.1365, 7.1369, and
7.1373.
4486 EC, FWS, para. 1136; Aérospatiale Annual Report 1990, Exhibit EC-177, at p. 60; Aérospatiale
Annual Report 1991, Exhibit EC-179, at p. 85; Aérospatiale 1998 Financial Statements, Exhibit EC-180, at p. 6.
4487 EC, FWS, para. 1137.

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inventory as production ramped up. 4488 According to the European Communities, these investments
put considerable strain on the financial resources of the company, in response to which it incurred
additional debt and discussed with its sole shar eholder, the French government, the need for
additional equity capital. 4489 As regards the period between 1992 and 1995, the European
Communities argues that Aérospatiale's financial performance was driven by the depressed state of
the commercial airline industry, which had also adversely affected Boeing's financial performance
during this period.4490
7.1346 According to the European Comm unities, the fact that Aérospatiale's financial performance
"was not robust in certain of the years in which capital contributions were made by the French
government" does not suggest that the French gove rnment could not or did not have a realistic
expectation of a reasonable return on the investment, or that it had no basis on which to conclude that
its return on equity would improve significantly in the coming years. 4491 The European Communities
contends that, at the time of the challenged cap ital contributions in 1987, 1988, 1992 and 1994, an
informed investor with an understanding of th e LCA development cycle would have considered
Aérospatiale to be equityworthy, on the basis of "objectively measurable positive prospects for the
firm".4492 The European Communities argues that, ju st as Boeing dramatically increased its
investment in commercial aircraft assets and assumed additional debt, notwithstanding its own
"abysmal financial performance in the early 1990s", so too Aérospatiale and the French government,
based on their assessment of positive future prospects driven by dramatic growth in LCA passenger
demand, decided to look beyond Aérospatiale's re cent performance and increase investment in the
future.4493 According to the European Communities "a strong order book in the late 1980s, and robust
forecasts for the new A320 and for the A330/A340 programme then under development, meant that
management and the company's shareholder had ample evidence that the company's performance
would improve significantly."4494

4488 EC, FWS, paras. 1134; SWS, para. 524; Aérospatiale Annual Report 1990, Exhibit EC-177, at p. 4.
The European Communities argues that a further factor that caused Aérospatiale's debt-to-equity ratio to
deteriorate in 1986 and 1987 was its accounting practice of e xpensing losses incurred in production of LCA at
the beginning of the learning curve when production costs are significantly higher than revenue from sales. The
European Communities notes that, in contrast, Boeing employs an accounting method known as "program
accounting" in which early production losses are classified as an asset; EC, SWS, paras. 525-526.
4489 EC, SWS, para. 524.
4490 EC, FWS, para. 1138; Trends and Challenges in Aerospace Offsets, Proceedings and Papers,
Charles W. Wessner, Editor, Board on Science, Technology, and Economic Policy, National Research Council,
National Academy Press, Washington, D.C., 1999, Exhibit EC-181, p. 134; Five-Year Summary, 1994 Boeing
10-K, Exhibit EC-169, at p. 56.
4491 EC, FWS, para. 1116.
4492 EC, SWS, para. 531.
4493 EC, SWS, paras. 532-533. The European Communities submits that, in the early 1990s, Boeing's
commercial aircraft revenue and operating profit declined precipitously, by 30 percent, and 49 percent,
respectively, between 1992 and 1994, reflecting the depressed state of the commercial aircraft industry;
however, despite such less than robust financial perfor mance, Boeing dramatically in creased its investment in
commercial aircraft assets (by 82 percent between 1991 through 1995) and assumed additional debt. Indeed, the
European Communities notes, Boeing launched the 777 programme in October 1990 and continued its
development during a very depressed period of demand, with the first commercial flight in 1995, while in 1993,
it launched the 737 Next Generation programme. EC, FWS, paras. 1114 – 1115, 1142; 1993 Boeing 10-K,
Exhibit EC-184, at p. 57; 1994 Boeing 10-K, Exhibit EC-169, at p. 56; 1995 Boeing 10-K, Exhibit EC-185, at
pp. 41, 61.
4494 EC, FWS, para. 1117. The European Communities refers to management's discussions of Airbus
LCA deliveries, orders and options in its Annual Reports for 1987, 1988 and 1989 as reinforcing the company's
prospects and underscoring the legitimate basis on which the French government acted in deciding to make the
capital contributions in 1988, 1989 and 1992; paras. 1145-1149

BCI deleted, as indicated [***]

7.1347 The European Communities argues that Aérospa tiale's financial results for 1990 and 1991
were adversely affected by three major ev ents unrelated to Aérospatiale's business.
4495 According to
the European Communities, Aéro spatiale's "underlying trends were robust for Airbus",
notwithstanding these events. 4496 Although airline deregulation, a global recession and reduced
military spending had combined to result in losses at Aérospatiale in 1992 and 1993, the European
Communities notes that the company was predicting that most of its markets would grow in the longer
term. The European Communities argues that the decision by Crédit Lyonnais to provide the 1994
equity infusion was based on the ra tionale that the additional equity capital was necessary in order to
ensure that Aérospatiale would continue to e nhance its product line and increase its competitiveness
for the future, in anticipation of the future recovery of the LCA market.
4497
7.1348 The European Communities argues that the French government was, at all relevant times,
closely informed about the business plans and prospects of Aérospatiale. In this regard, the European
Communities notes that French law required that th e French government, as shareholder, be provided
with certain information in order to enable it decide on how to vote on the proposed capital
contributions.4498 Moreover, the European Communities su bmits that the French government's
assessment of Aérospatiale's prospects at the times of the various capital contributions "proved to be
prescient" given that, through the privatization of Aérospatiale in 1999 and formation of EADS in
2000, the French government earned an annual rate of return of [***] percent on the capital
investments it made between 1988 and 1994.4499
7.1349 The European Communities also contends that, even if past financial performance were
determinative of investor behaviour, the United States "distorts the significance of the debt-to-equity
relationship." The European Communities argues th at the significant indebtedness of Aérospatiale
during the late 1980s can be explained by refere nce to the financial demands of developing and
manufacturing the A320 and its decision to expense as losses recurring costs in excess of revenues (in
contrast to way in which Boeing accounts for these costs) which exaggerated the negative effect on
the firm's debt-to-equity ratio in 1986 and 1987.4500
7.1350 In sum, the European Communities contends th at it has demonstrated that the challenged
capital contributions are WTO-consistent, even on th e basis of the legal test proposed by the United
States. For this reason, the European Communities s ubmits that there is no need for the Panel or the
United States to request the information related to the European Commission's review of the 1994
capital contribution under the European Communities' state aid rules. According to the European

4495 EC, FWS, para. 1151. These even ts were the significant drop in the US dollar, the Gulf War and
consequent write off of Iraqi recei vables and a strike at BAE System s which delayed Airbus deliveries;
Aérospatiale Annual Report 1990, Exhibit EC-177, at p. 3; Aérospatiale Comptes de l'Exercise 1988, Exhibit
EC-172, at p. 3.
4496 EC, FWS, para. 1152. The European Communities notes, for example, that adjusted for the
decrease in the value of the US dollar, Aérospatiale's sales volume increased 10 percent in 1990 (from 1989)
and again in 1991 (from 1990). Aérospatiale Annual Report 1990, Exhibit EC-177, at p. 18; Aérospatiale
Annual Report 1991, Exhibit EC-179, at p. 4.
4497 EC, FWS, para. 1159; "France Pledges Subs idy to Aerospace Group", New York Times, 3
February, 1994, Exhibit US-298.
4498 EC, SWS, paras. 546-550; Aérospatiale, Procès Verbal de l'Assemblé Générale Exraordinaire du 27
Exhibit EC-751; Aérospatiale, Rapport du conseil d'admi nistration à l'assemblé générale extraordinaire du 10
février 1989, Exhibit EC-747, pp. 4,3; Aérospatiale, Rapport du Conseil d'Administration à l'assemblée générale
extraordinaire relative à l'augmentation du capital, E xhibit EC-748, p. 5; Aérospatiale, Procès-Verbal de
l'Assemblée Générale Extraordinaire du 27 avril 1994, Exhibit EC-749, p. 2.
4499 EC, FWS,para. 1122; Return from Equity Infusions – French Government, Exhibit EC-171 (BCI).
4500 EC, SWS, para. 525.

BCI deleted, as indicated [***]

Communities, the EC state aid regime is based on distinct concepts that are different from WTO law
and have no bearing on the WTO-consistency of a particular commercial operation.4501
(iii) Evaluation by the Panel
7.1351 The parties have advanced general horizontal ar guments as to the existence of a requirement
to demonstrate the pass-through to Airbus SAS of any benefit conferred on Aérospatiale by a financial
contribution and the standard against which the pr esence of absence of a "benefit" within the meaning
of Article 1.1(b) is assessed. We consider these general, horizontal questions first followed by the
specific arguments and evidence pertaining to each of the challenged capital investments.
Pass-through
7.1352 We reject the European Communities' argument that the United States has failed to make out
a prima facie case that any of the four capital contribut ions made by the French government to
Aérospatiale between 1987 and 1994 are subsidies to Airbus SAS because the United States has not
demonstrated how the benefit conferred by the respective financial contributions provided to
Aérospatiale passed through to Airbus SAS. Our reasons for rejecting the European Communities'
"pass-through" arguments are set forth in detail elsewhere in this report. 4502 In short, if we find that
any of the capital contributions is a "financial contribution" which conferred a "benefit" on
Aérospatiale within the meaning of Article 1.1(b), we consider that such financial contribution also
conferred a benefit on the Airbus Industrie consortium (and therefor e Airbus SAS), without requiring
the United States to affirmatively establish the "pass- through" of any such benefit from Aérospatiale
to Airbus Industrie or to Airbus SAS.
Determining the existence of a benefit conferred by a financial contribution in the form of an
equity infusion
7.1353 A "financial contribution" provided by a government only constitutes a subsidy if it confers a
"benefit" on a recipient. As we have already not ed in the context of our evaluation of the United
States' claims concerning the capital restructuring of Deutsche Airbus by the German government, the
SCM Agreement does not contain a definition of the te rm "benefit" as it is used in Article 1.1(b).
However, it is well established that a financial c ontribution confers a benefit within the meaning of
Article 1.1(b) where the terms of the financial contribution are more favourable than the terms
available to the recipient in the market.4503
7.1354 Accordingly, in order to determine whether the capital contributions made by the French
government (including Crédit Lyonnais) to Aérospatia le conferred a benefit on Aérospatiale, we must
evaluate whether the terms on which those capital c ontributions were provided to Aérospatiale were
more favourable than those that would have been available to Aérospatiale on the market at the
relevant times.
7.1355 The SCM Agreement does not set forth methodologies that panels may use in assessing
whether the terms on which an equity infusion was made by a government were more favourable than
those that would have been available on the market. Nor does it indicate the nature of evidence that is
necessary or sufficient to establish those market-ba sed terms. Article 14 of the SCM Agreement,
entitled "Calculation of the Amount of a Subsidy in Te rms of the Benefit to the Recipient", sets forth

4501 EC, FWS, para. 1163.
4502 See, paras. 7.193 - 7.200 above.
4503 See, e.g., Appellate Body Report, Canada – Aircraft , paras. 157-158; Panel Report, US –
Countervailing Duty Investigation on DRAMS , para. 7.179; Panel Report, EC – Countervailing Measures on
DRAM Chips, paras. 7.173-7.175; Panel Report, Japan – DRAMs (Korea), para. 7.256.

BCI deleted, as indicated [***]

guidelines for methods used by investigating auth orities in countervailing duty investigations to
calculate the benefit to a recipient for the purposes of Part V of the SCM Agreement.
7.1356 As we have previously noted, panels a nd the Appellate Body ha ve acknowledged that,
although the introductory words of Article 14 state that the guidelines it establishes apply for purposes
of Part V of the SCM Agreement, Article 14 nonetheless constitutes relevant context for the
interpretation of "benefit" in Article 1.1(b).
4504
7.1357 The parties agree generally that Article 14(a), a lthough not directly applicable to Part III of
the SCM Agreement, nevertheless provides guidan ce for the interpretation of Article 1 of the
SCM Agreement as regards claims not involving Part V. 4505 Accordingly, the United States argues
that the capital contributions in question confe rred a benefit on Aérospatiale because they were
inconsistent with the usual investment practice of private investors in France. We understand the
United States to argue that Aérospatiale was not e quityworthy at the times of the equity infusions by
the French government, in the sen se that Aérospatiale was, or would have been, unable to attract
investment capital from a private investor. Th e French government's decision to provide such
investment capital was, therefore, inconsistent with the usual investment practice of private investors.
Conversely, the European Communities has sought to rebut the United States' allegations that the
financial contributions conferred a benefit on Aérospatiale on the b asis that Aérospatiale's positive
future prospects at the times of the various equi ty infusions justified the commitment of additional
capital, and that in providing that capital, the French government anticipated a reasonable return on its
investment and was thus was acting consistently with the usual investment practice of private
investors.
7.1358 Our approach to the issue of benefit in th e context of the French government's capital
investments in Aérospatiale is to ask whether th e United States has demonstrated that a private
investor would not have made the capital investme nts in question based on the information available
at that time. In this regard, we note that a priv ate investor evaluating an equity investment in an
enterprise will be seeking to achieve a reasonable rate of return on its investment. Information
relevant to such an evaluation would include current and past indicators of an enterprise's financial
performance (including rates of return on equity) calcu lated from the enterprise's financial statements
and accounts, information as to the future financia l prospects of the enterprise, including market
studies, economic forecasts and project appraisals, equity investment in the enterprise by other private
investors, and marketplace prospects for the products produced by the enterprise.
The capital contributions to Aérospatiale made between 1987 and 1994
Financial contribution
7.1359 We consider that the capital contributions made by the French government to Aérospatiale in
1987, 1988 and 1994 are direct transfers of funds in the form of equity infusions and therefore
constitute "financial contributions" within the meani ng of Article 1.1(a)(1)(i) of the SCM Agreement.
The European Communities does not dispute that, at the relevant time, Crédit Lyonnais was a "public
body" within the meaning of Article 1.1(a)(1) of th e SCM Agreement. We consider that, at the time
of its 1992 investment in Aérospatiale, Crédit L yonnais was controlled by the French government and

4504 See, e.g., Appellate Body Report, Canada – Aircraft , para. 155; Appellate Body Report, Japan –
DRAMs (Korea), para. 173.
4505 US, FWS, paras. 544-545, 561-564; EC, FWS, para. 1215; EC, SNCOS, para. 267; EC, Answer to
Question 101, para. 280; EC, SWS, para. 520. In its Answer to Question 101, the European Communities states
that WTO case law does not suggest a "mechanistic, automatic, literal application of tests in Article 14 to the
issue of determination of the existence of benefit in th e sense of Article 1.1(b)". According to the European
Communities, the Panel should apply this test taking due account of the sector and type of operations; para. 277.

BCI deleted, as indicated [***]

was a "public body" for purposes of Article 1.1(a)(1 ) of the SCM Agreement. As a result, the FF 1.4
billion capital contribution which Crédit Lyonnais made to Aérospatiale in 1992 also constitutes a
financial contribution ( i.e., a direct transfer of funds in the form of an equity infusion) by a public
body within the meaning of Article 1.1(a)(1)(i) of the SCM Agreement.
Benefit
7.1360 The United States has submitted evidence of Aéro spatiale's financial performance (expressed
in terms of certain key financial ratios) during the relevant periods compared to the financial
performance of certain alleged peer group companies over the same periods. 4506 This evidence
indicates that between 1985 and 1994, Aérospatiale's financial ratios were uniformly and, in many
cases, significantly inferior to the corresponding aver age ratios of its peer group of companies. We
are aware that investors employ a variety of met hodologies to estimate the expected rate of return
from a potential investment and that measures of a firm's past financial performance are often
relevant, at least as a starting point, to making su ch estimates. Moreover, there are many different
ways of measuring a firm's financial performan ce. The United States has submitted evidence of
Aérospatiale's financial performance measured ag ainst the performance of alleged peer group
companies in terms their respective return on equity , debt-to-equity and debt coverage ratios. The
European Communities has not disputed that the so -called "peer" companies identified by the United
States are appropriate comparators for evaluating Aé rospatiale's financial performance in the context
of the industries in which it operates. While we would be reluctant to place undue reliance on a single
measure of financial performance in isolation, recogn izing that any particular financial ratio may be
affected by accounting or other factors unrelated to a firm's underlying financial condition and
performance, we note that the Eur opean Communities has not challenged the relevance, accuracy or
appropriateness of evaluating Aérospatiale's financia l performance on the basis of the financial ratios
selected by the United States, nor has it suggested any alternative bases for evaluating Aérospatiale's
financial performance in comparison to its peer group of companies. Owing to the cyclical nature of
the markets in which Aérospatiale operates, we regard indicators of Aé rospatiale's financial
performance in relation to the performance of other firms operating in the same industries,
presumably subject to similar business risks and cycles as Aérospatiale, as particularly probative of
the question whether a private investor would ha ve chosen to make the capital investments in
Aérospatiale at issue in this dispute.
7.1361 The European Communities has submitted eviden ce purporting to demonstrate that at the
times at which the French government made the va rious equity infusions, Aérospatiale had positive
future prospects which, when coupled with the company's commitment to invest in product
development, justified the commitment of expansion capital.
4507 This evidence covers the period
between 1985 and 1994 and consists of (i) statemen ts in various Aérospatiale Annual Reports as to
the status of aircraft deliveries, orders and back log, revenue, profits and tu rnover; (ii) market and
business forecast reports prepared by Airbus GIE predicting increases in demand for LCA and
increases in Airbus GIE's market share; and (iii) Boeing market forecasts and a US government
publication predicting increased long-term growth fo r the LCA industry. For reasons which we
discuss in paragraphs 7.1366, 7.1 370 and 7.1374, in assessing whether a private investor would have
made the capital investments in question, we are inc lined to accord the eviden ce in the latter two of
these categories relatively less weight than evidence of Aérospatiale's past financial performance in
comparison to that of its peers, coupled with ma nagement's statements as to expectations and
prospects for the company contained in Aérospatiale's annual reports.
7.1362 We have considered the evidence carefully, and in its totality, and set forth below our factual
findings with respect to the financial condition and prospects of Aérospatiale on the basis of

4506 Exhibit US-274.
4507 EC, SWS, para. 534.

BCI deleted, as indicated [***]

information that existed at the time at which the French government made the various capital
investments in Aérospatiale.
7.1363 First, in relation to the 1987 and 1988 capital contributions , we note that Aérospatiale
reported a profit of FF 50 million for 1987 and FF 93 million in 1988. Noting that sales for 1987 had
continued to be affected by the crisis that hi t the aeronautics sector in 1982-1983, Aérospatiale
described 1987 as marking a turning point for the company.
4508 However, Aérospatiale also noted that
with over one quarter of its production billed in US dollars, the continued drop of the US dollar since
1985 weighed considerably against sales in French francs. Aérospatiale noted positive factors
affecting its outlook, such as strong growth in comme rcial air traffic, military budgets that allowed
scope for modernization of military equipment, the commencement of strategic new programmes by
Airbus GIE such as the launch of the A330/340 programmes, and the launch of the Arian 5 and
Hermès satellites.4509 On the other hand, Aérospatiale warned that it was vulnerable to declines in the
US dollar, to market volatility as a result of economic instability and an economic situation
approaching stagnation, and to increased competition. Aérospatiale also indicated that in 1987 its
working capital had declined due to a reduction in in-house funding and an increase in investments,
while its working capital requirements had increased as a result of higher business levels and the need
to make increased deliveries in futu re years. According to Aérospatia le, this "need to re-establish a
balanced financial position" led to the French government making the FF 1.25 billion capital
contribution in 1987.4510 In sum, Aérospatiale predicted that the future would not be any less difficult
than the previous year had been. Finally, we note that during the period leading up to the French
government's capital investments, Aérospatiale's retu rn on equity, debt to equity and debt coverage
ratios were consistently inferior to the corr esponding average ratios for its peer group of
companies.4511
7.1364 The European Communities explains that Aérosp atiale required additional equity capital in
1987 and 1988 in order to fund new investments, such as the ramp-up for manufacture of the A320
(with first delivery due in 1988) and the launch of the A330/A340 in 1987 (with first delivery due in
1993).4512 In our view, the fact that additional capita l may have been necessary from the perspective
of the recipient enterprise does not mean that the pr ovision of such additional capital made sense from
the perspective of an investor seeking to achieve a r easonable rate of return on its investment. On the
other hand, we do not regard the fact that Aé rospatiale was undercapitalised by the French
government, its sole shareholder, to necessarily mean that a private investor would not have provided
capital to the company.
7.1365 Aside from excerpts from Aérospatiale's 1987 an d 1988 Annual Reports (detailing increases
in revenue, net income and orders between 1987 and 1988, and providing details as to Aérospatiale's
backlog and levels of orders and options for the A320 and A330/340), the European Communities has
provided two types of evidence which it claims to be objective evidence demonstrating positive future
prospects for Aérospatiale that would have provide d a basis for a private in vestor to anticipate a
reasonable return on an equity investment in Aérosp atiale at the relevant times. This evidence
consists of (i) Airbus GIE market and business outlook forecasts; 4513 and (ii) Boeing market outlook
forecasts.4514

4508 Aérospatiale Annual Report 1987, Exhibit US-32, at 2.
4509 Aérospatiale SNI Compte de L'Exercise 1987, Exhibit EC-176, at 12.
4510 Aérospatiale Annual Report 1987, Exhibit US-32, at 2.
4511 Exhibit US-274.
4512 EC, FWS, paras. 1134-1135.
4513 Airbus GIE, A View of the Future , April 1985, part C and Chart C2, Exhibit EC-727; Airbus GIE,
Market and Business Forecasts 1986-2005, Exhibit EC-7 28; Airbus GIE, Global Market Forecast 1987-2006,
Exhibit EC-729. The Airbus GIE documents predict that, by 2004/2005, Airbus will achieve its long term
strategic objective of securing a 30 percent share of the world's major commercial airline supply business, while

BCI deleted, as indicated [***]

7.1366 However, this evidence generally relates to overall market conditions and contains very little
explanation of the basis for the assumptions and fo recasts. In addition, the forecasts do not relate
specifically to Aérospatiale's business operations , but to those of Airbus GIE, whose business
comprises only one component of Aérospatiale's opera tional activities. In this regard, the evidence is
potentially relevant to prospects for Aérospatiale's Ai rcraft Division, but is not indicative of prospects
for Aérospatiale's Missiles, Space and Defence and Helicopters divisions, which would also be
relevant to an investor contemplating an investment in the company as a whole. We attribute
relatively less weight to the evidence contained in market and business outlook forecasts for Airbus
GIE and market outlook forecasts for Boeing as we do not regard this evidence to be particularly
probative of the question whether a private investor contemplating a capital investment in
Aérospatiale at the relevant time could have expect ed to achieve a reasonable rate of return on its
investment. We note also that the European Communities has not submitted information as to
Aérospatiale's actual projected earnings figures for 1988 and subsequently, or any other Aérospatiale
financial projections or budgets which presumably were made available to the French government
prior to its decision to provide the additional equi ty capital to Aérospatiale in 1987 and 1988. Such
evidence might potentially have supported a rebutta l by the European Communities of the United
States' case by demonstrating that a private investor contemplating a capital investment in
Aérospatiale at the relevant time could have expected to achieve a reasonable rate of return on such an
investment.
4515
7.1367 We conclude that a private investor would no t have made capital investments of FF 1.25
billion in Aérospatiale in 1987 and 1988. We reach this conclusion after considering all of the
evidence in its totality in respect of the French government's 1987 and 1988 capital contributions to
Aérospatiale.4516 Accordingly, we consider that the Un ited States has established that the French
government's investment decisions with respect to the FF 1.25 billion equity infusions in 1987 and
1988 were inconsistent with the usual investment practice of private investors in France and conferred
a benefit on Aérospatiale within the meaning of Article 1.1(b) of the SCM Agreement.
7.1368 As regards the 1992 capital contribution by Crédit Lyonnais , we note that in 1991,
Aérospatiale had reported net income of FF 1, 829 million, compared with FF 38 million in 1990 and
FF 204 million in 1989. However, allowing for the e ffect of extraordinary items, the company had
actually posted a net loss in 1991. 4517 Moreover, in late 1992 Aérospatiale had announced a loss of
FF 477 million for the first half of 1992, plus a provision of FF 300 million for an employment
adaptation plan which was expected to affect 1,150 employees. 4518 Aérospatiale had noted in its 1991
Annual Report that its order books were deeply affect ed by a year-long atmosphere of crisis resulting
from the drop-off in air traffic and heavy losses in curred by airlines, the general economic slowdown
and budgetary restrictions which affected buyers. Although orders for commercial aircraft were then

also forecasting traffic growth of an average of 5.6 percent per annum over the period 1985-2004 and significant
increases in demand over the 1987-2006 period.
4514 Airbus GIE, A View of the Future, April 1985, part C and Chart C2, Exhibit EC-727.
4515 We note, however, that the weight that we would accord to any such evidence would depend on the
evidence itself.
4516 We recall that the United States requested the Pa nel to draw certain logical inferences from the
European Communities' failure to respond to requests from the Annex V Facilitator related to whether there had
been any prior evaluation of the equity infusions or Aérospatiale shares during this period and to provide any
contemporaneous reports or analyses of the financial situation or prospects of Aérospatiale. Given our
conclusions with regard to the evidence presented in this dispute, we do not find it necessary to draw the logical
inferences requested by the United States.
4517 Aérospatiale Annual Report 1991, Exhibit EC-179 , at 13. The extraordinary items were a capital
gain of FF 3,316 million from the spinoff of the company's helicopter business and a FF -815 provision for
retirement indemnities.
Aérospatiale, Exhibit US-283, at 1.

BCI deleted, as indicated [***]

at three to four years' production, the backlog situation for both helicopters and missiles was described
as a cause for concern. In addition, the cancella tion of the S-45 strategic missile programme was
described as profoundly changing the outlook fo r the Space and Defence Division, while the
company's position in the regional aircraft market was described as "vulnerable" due to the European
Commission's refusal to approve Aérosp atiale's acquisition of de Havilland.
4519 Finally, we note that
during the period leading up to Crédit Lyonnais' capita l investment, Aérospatiale's return on equity,
debt to equity and debt coverage ratios were cons istently inferior to the corresponding average ratios
for its peer group of companies.4520
7.1369 The evidence provided by the European Co mmunities consists of information from
Aérospatiale's Annual Reports relating to reported net income, turnover, backlog and orders and credit
ratings, Airbus GIE's planning and market and delivery forecasts, 4521 and Boeing market outlook
documents. The European Communities also pointed to statements by a Crédit Lyonnais executive
following the announcement of the capital investment in August 1992 to the effect that the investment
was justified by the good prospects for the A330/A340 programme, which would start generating
substantial revenue in 1994 and that Crédit Lyonnais considered the Aérospatiale investment to be a
long term investment.4522
7.1370 However, aside from the evidence concerning Aéro spatiale's reported financial results, this
evidence generally relates to overall market conditions and contains very little explanation of the basis
for the assumptions and forecasts. In addition, the market and delivery forecasts do not relate
specifically to Aérospatiale's business operations, but relate to those of Airbus GIE, whose business
comprises one component of Aérospatiale's operationa l activities. In this regard, the evidence is
potentially relevant to prospects for Aérospatiale's Ai rcraft Division, but is not indicative of prospects
in Aérospatiale's Missiles, Space and Defence and Helicopters divisions, which would also be relevant
to an investor contemplating an investment in th e company as a whole. We attribute relatively less
weight to the evidence contained in market and de livery forecasts for Airbus GIE and market outlook
forecasts for Boeing as we do not regard this eviden ce to be particularly probative of the question
whether a private investor contemplating a capital i nvestment in Aérospatiale at the relevant time
could have expected to achieve a reasonable rate of return on its investment. We note also that the
European Communities has not submitted information as to Aérospatiale's actual projected earnings
figures for 1992 and subsequently, or any other Aéro spatiale financial projections or budgets which
presumably were made available to Crédit Lyonna is and to the French government prior to the
decision to provide the capital contribution to Aéro spatiale in 1992. Such evidence may potentially
have supported a rebuttal by the European Communities of the United States' case by demonstrating
that a private investor contemplating a capital invest ment in Aérospatiale at the relevant time could
have expected to achieve a reasonable rate of return on such an investment.
4523
7.1371 We conclude that a private investor woul d not have made a capital investment of
FF 1.4 billion in Aérospatiale in 1992. We reach this conclusion after considering all of the evidence
in its totality in respect of Crédit Lyonna is' 1992 capital investment in Aérospatiale. 4524 Accordingly,

4519 Aérospatiale, Annual Report 1991, Exhibit EC-179, at 3.
4520 Ratio Comparison Chart, Exhibit US-274.
4521 Airbus GIE Operational Plan & Budget 1989-1991, Exhibit EC-724; Airbus GIE Market and
Delivery Forecasts 1990-2009, Exhibit EC-730; Airbus GIE Global Market Forecast 1990-2009, Exhibit EC-
731; Airbus GIE Forecast, Exhibit EC-725; Airbus GIE Market Perspectives for Civil Jet Aircraft, Exhibit EC-
732; Airbus GIE Market Perspectives for Civil Jet Aircraft June 1991, Exhibit EC-733.
4522 Aviation Week & Space Technology, Crédit Lyonna is to Buy 20% Stake in Aérospatiale from
French Government, 3 August 1992, Exhibit US-284.
4523 We note, however, that the weight that we would accord to any such evidence would depend on the
evidence itself.
4524 We recall that the United States requested the Pa nel to draw certain logical inferences from the
European Communities' failure to respond to requests from the Annex V Facilitator related to whether there had

BCI deleted, as indicated [***]

we consider that the United States has establishe d that Crédit Lyonnais' investment decision with
respect to the FF 1.4 billion equity infusion in 1994 was inconsistent with the usual investment
practice of private investors in France and conferred a benefit on Aérospatiale within the meaning of
Article 1.1(b) of the SCM Agreement.
7.1372 Finally, regarding the French government's FF 2 billion capital investment in 1994 , we
note that, in the period leading up to that investme nt, Aérospatiale had poste d a consolidated loss of
FF 1.42 billion in 1993, which it considered to be an improvement over the FF 2.38 billion loss in
1992.4525 In its 1993 Annual Report, Aérospatiale indicated that in general, market conditions in 1993
were worse than in 1992, with markets shrinking significantly under the impact of a dual crisis in civil
and military demand, which had created surplu s production capacity and augmented pressure on
prices. Aérospatiale said that it was continuing to suffer from the crisis which had reigned in the
world's aerospace industry for several years. Uncontrolled airline deregulation and the global
recession had led to cancellations of aircraft orders during 1993, military orders from Western
countries experienced a sharp drop and th e civil helicopter market had collapsed. 4526 Aérospatiale
reported that "{t}he crisis in the aerospace industry is global, and our markets have never been as
seriously affected as they are today."4527 Aérospatiale described the outlook for its Aircraft division as
"very pessimistic", and predicted that there would be "no significant recovery" in aircraft orders until
1996 or 1997. 4528 Aérospatiale predicted that its missile division business for the next three years
would be comparable to 1993 levels. The civil heli copter market had experienced its worst year for
helicopter sales since 1967, with Aérospatiale in dicating that no significant recovery could be
expected in the short term. 4529 As a result of what Aérospatia le described as its "poor medium-term
outlook", Aérospatiale decided to adopt a new empl oyment adaptation plan involving the elimination
of 2,240 jobs in 1994, in addition to the 1,800 jobs which had been eliminated in 1993. Its expressed
goal was to return to profitability by 1995 at the latest.4530 We note also that during the period leading
up to the French governments' capital investment, Aéro spatiale's return on equity, debt to equity and
debt coverage ratios were consiste ntly inferior to the corresponding average ratios for its peer group
of companies. 4531 By March 1994, the media was reporting that Aérospatiale's 1993 results, along
with a poor outlook for military and civil sales until 1996, had prompted the French Prime Minister to
rule out the possibility of privatizing Aérospatiale in the near future.4532
7.1373 The European Communities refers to Aérospatiale's 1992 Annual Report which reported sales
increases of 10 percent over the previous year and a year-end backlog of four years' of production.
The European Communities also provided evidence of Airbus GIE forecasts of significant increases in
civil aircraft demand over the 1992-2011 period (with Airbus orders announced by 1992 amounting to
20 percent of that demand),4533 evidence that the French government considered that there would be a

been any prior evaluation of the equity infusions or Aérospatiale shares during this period and to provide any
contemporaneous reports or analyses of the financial situation or prospects of Aérospatiale. Given our
conclusions with regard to the evidence presented in this dispute, we do not find it necessary to draw the logical
inferences requested by the United States.
4525 Aérospatiale Annual Report 1993 , at 5. Although Aérospatiale had succeeded in reducing its net
debt to FF 3.7 billion, it also noted that the undervalued US dollar, changes in the repayment terms of
government loans for financing aircraft development and a charge of FF 724 million to cover the employment
adaptation plan to be executed in 1994, all had a negative impact on operating results.
4526 Aérospatiale Annual Report 1993, Exhibit EC-186, at 42.
4527 Aérospatiale Annual Report 1993, Exhibit EC-186, at 3.
4528 Aérospatiale Annual Report 1993, Exhibit EC-186, at 12.
4529 Aérospatiale Annual Report 1993, Exhibit EC-186, at 30.
4530 Aérospatiale Annual Report 1993, Exhibit EC-186, at 7.
4531 Exhibit US-274.
4532 Flight International, France rules out Aérospatiale sell-off, Exhibit US-299.
4533 Airbus GIE Forecast 1986-2006, Exhibit EC-723.

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gradual recovery in aerospace markets from which Aérospatiale could be expected to benefit,
4534
evidence that Aérospatiale had predicted in 1993 th at most of its markets would grow in the longer
term, notwithstanding their weakness in the short term, 4535 and Boeing market outlook forecasts as
well as a US National Research Council publication pr edicting substantial increases in traffic growth
and deliveries in the longer term.4536
7.1374 Although the European Communities has pointed to general statements about expectations for
a recovery in the market in the longer term, this evidence must be considered against the evidence of
Aérospatiale's poor results in the years leading up to the 1994 capital contribution (both absolute and
relative to its peer group of companies) and the very pessimistic statements made by management in
its annual reports about prospects for recovery in th e short to medium term. For the reasons we have
previously explained, we attribute relatively less weight to the evidence contained in market and
business outlook forecasts for Airbus GIE and market outlook forecasts for Boeing as we do not
regard this evidence to be particularly proba tive of the question whether a private investor
contemplating a capital investment in Aérospatiale at the relevant time could have expected to achieve
a reasonable rate of return on its investment. We note also that the Eur opean Communities has not
submitted information as to Aérospatiale's ac tual projected earnings figures for 1994 and
subsequently, or any other Aérospatiale financial projections or budgets which presumably were made
available to the French government prior to its decision to provide the additional equity capital to
Aérospatiale in 1994. Such evidence might potenti ally have supported a rebuttal by the European
Communities of the United States' case by demonstrating that a private investor contemplating a
capital investment in Aérospatiale at the relevant time could have expected to achieve a reasonable
rate of return on such an investment.
4537
7.1375 We conclude that a private investor would not have made capital investment of FF 2 billion in
Aérospatiale in 1994. We reach this conclusion afte r considering all of the evidence in its totality in
respect of the French government's 1994 capital contribution to Aérospatiale. 4538 Accordingly, we
consider that the United States ha s established that the French govern ment's investment decision to
make the FF 2 billion equity infusion in 1994 was in consistent with the usual investment practice of
private investors in France and conferred a be nefit on Aérospatiale within the meaning of
Article 1.1(b) of the SCM Agreement.
The relevance of the absence of contemporane ous, objective assessments of an enterprise's
financial condition and prospects
7.1376 We note that the United States also argues that contemporaneous independent analyses of the
finances and prospects of an investment target ar e among the "key types of evidence" available to
show whether an equity infusion was consistent with the usual investment practice of private

4534 New York Times, France Pledges Subsidy to Aerospace Group, 3 February 1994, Exhibit US-298.
4535 Financial Times, Aérospatiale Posts FFr 2.3 bn loss, 26 March 1993, Exhibit US-295.
4536 Boeing 1991 Current Market Outlook, Exhibit EC-742; Boeing 1992 Current Market Outlook,
Exhibit EC-743; Boeing 1993 Current Market Outlook, Exhibit EC-744; Boeing 1994 Current Market Outlook,
Exhibit EC-745;High-Stakes Aviation: US-Japan Tech nology Linkages in Transp ort Aircraft, Committee on
Japan, Office of Japan Affairs, Office of Internationa l Affairs, National Research Council, National Academy
Press, Washington, D.C. 1994, Exhibit EC-170.
4537 We note, however, that the weight that we would accord to any such evidence would depend on the
evidence itself.
4538 We recall that the United States requested the Pa nel to draw certain logical inferences from the
European Communities' failure to respond to requests from the Annex V Facilitator related to whether there had
been any prior evaluation of the equity infusions or Aérospatiale shares during this period and to provide any
contemporaneous reports or analyses of the financial situation or prospects of Aérospatiale. Given our
conclusions with regard to the evidence presented in this dispute, we do not find it necessary to draw the logical
inferences requested by the United States.

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investors.4539 According to the United States, conversely, the absence of contemporaneous
independent analyses "tends to show that an investment decision is not consistent with the usual
investment practice of private investors; that is, it is not based on commercial considerations 4540 and
suggests that the government made an investment decision without the "analytical foundation private
investors would ordinarily require".4541
7.1377 The European Communities argues that basing a fi nding of "benefit" within the meaning of
Article 1.1(b) on the absence of contemporaneous, independent fi nancial analyses is tantamount to
reversing the burden of proof, requiring a defe nding Member (or a respondent in domestic
countervailing duty proceedings) to affirmatively dem onstrate that the financial contribution did not
confer a benefit. 4542 In this regard, the European Comm unities distinguishes between the standard
against which the presence or absence of a "benefit" is to be assessed, on the one hand, and evidence
relevant to that assessment, on the other. 4543 As to the former, the Eu ropean Communities contends
that the standard for assessing the pr esence or absence of a benefit is the market, and that nothing in
Article 1.1(b) or Article 14 makes a government's "considerations" the lodestone of that standard. 4544
The European Communities argues that contemporaneous, independent financial analyses of an
investment target's financial condition and prospects are but one (and by no means the only or
necessary) example of evidence that a defending Me mber may offer in order to establish that the
Member's investment decision was consistent w ith the usual investment practice of private
investors.
4545
7.1378 We do not preclude the possibility that the absence of any evidence that a government
evaluated an equity investment in a manner consis tent with the manner in which a private investor
would evaluate the same investment may, in par ticular circumstances, be probative of the question
whether the government's investment decision was consistent with the usual investment practice of a
private investor. However, as is clear from our discussion of the evidence in paragraphs 7.1353 -
7.1358 above, the evidence as to Aéro spatiale's financial condition and prospects at the relevant times
has persuaded us that each of the French govern ment's equity investments in 1987, 1988, 1992 and
1994 was inconsistent with the usual investment pr actice of private investors without attributing
weight to the fact that the European Communiti es has not submitted evidence of contemporaneous,
objective assessments of a Aérospatiale's financial condition and prospects undertaken by or provided
to the French government at the times of the contemplated investments.

4539 US, FWS, para. 564.
4540 US, Answer to Panel Question 280, para. 110.
4541 US Comment on EC, Answer to Panel Question 260, para. 44 ; see also, US, Answer to Panel
Question 280, para. 110. The United States refers to various disputes in which it contends that other panels have
found a financial contribution was not provided on the basis of commercial considerations, as evidenced by the
absence of contemporaneous, independent financial analysis: Panel Report, EC – Countervailing Measures on
DRAM Chips , para. 7.208; Panel Report, Japan – DRAMs (Korea) , para. 7.276; Panel Report, Korea –
Commercial Vessels, para. 7.437.
4542 EC, Answer to Panel Question 280, para. 182. The European Communities asserts that the United
States has erroneously converted a finding by the Panel in Korea – Commercial Vessels regarding the relevance
of contemporaneous government studies or analyses into a requirement that such studies or analyses be provided
in order for the European Communities to successfully defend the French go vernment's capital contributions to
Aérospatiale; EC, SWS, para. 543.
4543 EC, Answer to Panel Question 280, para. 183.
4544 EC, Answer to Panel Question 280, para. 184. The European Communities argues that if the terms
on which a financial contribution is provided are consistent with market, no "benefit" is conferred, regardless of
the government's "considerations" in providing the financial contribution.
4545 EC, Answer to Panel Question 280, para. 186. According to the European Communities,
contemporaneous, objective evidence demonstrating the cons istency of a transaction with market is sufficient;
EC, Answer to Panel Question 260, para. 39.

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Specificity
7.1379 The United States argues that the 1987, 1988, 1992 and 1994 capital contributions are
subsidies which are specific to Aérospatiale within the meaning of Article 2 of the SCM Agreement
as they are ad hoc infusions into the company by the Fr ench government (and as regards the 1992
contribution by Credit Lyonnais, a public body) and are explicitly limited to Aérospatiale.
4546
Although the United States has not identified a particul ar sub-paragraph of Article 2 as the basis of its
claims, we understand from the nature of the argu ment it advances that its claims are grounded in
Article 2.1(a) of the SCM Agreement. Evidence submitted by the United States as to each of the
challenged capital contributions to Aérospatiale between 1987 and 1994 more generally confirms the
United States' assertion that these capital contribu tions were explicitly limited to Aérospatiale and
were thereby "specific" within the meaning of Artic le 2.1(a) of the SCM Agreement. The European
Communities does not contest the United States' allegations. We therefore find that each of the
challenged capital contributions to Aérospatia le made between 1987 and 1994 constitutes a specific
subsidy to Aérospatiale and thus to Airbus SAS.
Conclusion

7.1380 In conclusion, we find that each of the capital contributions to Aérosp atiale made by the
French government in 1987, 1988 and 1994, and th e capital contribution to Aérospatiale made by
Crédit Lyonnais in 1992, constitutes a subsidy to Aéro spatiale. Each involves a "direct transfer of
funds" in the form of an equity infusion, a nd therefore a financial contribution pursuant to
Article 1.1(a)(1)(i), which conferred a benefit on Aérospatiale because the investment decision was
inconsistent with the usual investment practice of private investors in France. We further find that
each of these subsidies is specific within the meaning of Article 2 of the SCM Agreement.
(b) The 1998 transfer of the French government's 45. 76 percent interest in Dassault Aviation to
Aérospatiale
(i) Background to the French government's transf er of its 45.76 percent equity interest in
Dassault Aviation to Aérospatiale
7.1381 In this section, we address the United States ' claims that the 1998 tr ansfer by the French
government of its 45.76 percent equity interest in Dassault Aviation to Aérospatiale is a specific
subsidy to Aérospatiale within the meaning of Artic le 1 and 2 of the SCM Agreement. We begin by
describing the transaction and the context in which it occurred, before addressing the arguments of the
parties and setting forth our evaluation of the relevant legal issues and our findings.
7.1382 Dassault Aviation is a French aircraft manuf acturer of military, regional and business jets.
Until 1978, almost all of its capital was privately held by the Dassault fa mily through the entity
Dassault Industries. In 1978, the French government acquired a 45.76 percent equity interest in the
company.4547 Although the French government held less than a majority interest in Dassault Aviation,
it was able to exercise 55 percent of the voting rights of the company owing to double voting rights
attached to certain of its shares. On 30 Dece mber 1998, the French gove rnment transferred its
45.76 percent interest in Dassault Aviation to Aérospatiale, in exchange for new shares of
Aérospatiale to be issued at a later date followi ng the fixing of an exchange ratio by a panel of
independent experts.4548 The panel of independent experts delivered its report on 19 March, 1999,
approving the contribution of the Dassault Aviation sh ares to Aérospatiale at an amount equal to their

4546 US, FWS, paras. 574, 590, 605.
4547 Dassault Industries held 49.9 percent of the shar es in Dassault Aviation, with the remaining 4.34
percent being held by the public.
4548 Aérospatiale Matra Offering Memorandum, dated 25 May 1999, Exhibit EC-53, p. 24.

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net book value of FF 2,658 million. On the basis of this report, on 6 May, 19 99, Aérospatiale issued
9,267,094 new shares to the French government (b ased on an exchange ratio of two Aérospatiale
shares for each Dassault Aviation share).4549
7.1383 The French government's transfer of its 45. 76 percent interest in Dassault Aviation to
Aérospatiale in late 1998 was a preliminary step in the planned consolidation of the French
aeronautical, defence and space industries through the combination of Aérospatiale and Matra Hautes
Technologies (MHT) to create Aérospatiale-Matra, a nd the public offering of shares in Aérospatiale-
Matra.4550 In 1999, Aérospatiale and MHT were comb ined to create Aérospatiale-Matra, and the
French government thereupon sold a portion of its shareholding in Aérospatiale-Matra in a public
offering. Following the public offering in 1999 , the French government held approximately
48 percent of the shares in Aérospatiale-Matra.4551
7.1384 When the French government acquired its inter est in Dassault Aviation in 1978, it had agreed
with the Dassault family that the special control rights (double voting rights) attaching to certain of
the French government's shares would not be transferred to private entities. 4552 When the French
government transferred its 45.76 percent interest in Dassault Aviation to Aérospatiale, in anticipation
of Aérospatiale's combination with MHT and the privatization of Aérospatiale-Matra, the French
government agreed to the cancellation of the double vo ting rights which had attached to certain of the
its shares in Dassault Aviation, and the Dassault fam ily thus regained effective control of Dassault
Aviation.4553
(ii) Arguments of the parties
United States
7.1385 The United States argues that the 1998 transfer by the French government of its 45.76 percent
interest in Dassault Aviation to Aéro spatiale is a "direct transfer of funds" within the meaning of
Article 1.1(a)(1)(i) of the SCM Agreement, and constitutes a financial contribution within the
meaning of Article 1.1(a)(1) of the SCM Agreement. 4554 The United States further argues that the
share transfer conferred a "benefit" on Aérospatiale , within the meaning of Article 1.1(b) of the
SCM Agreement, because it was inconsistent with the usual investment practice of private
investors.4555 In addition, the United States argues that the 1998 share transfer is specific within the

4549 Aérospatiale recorded the difference between the net book value of the Dassault Aviation shares
and the nominal value of the Aérospatiale shares (FF 100 nominal value per share) as additional paid-in capital
of approximately FF 1,731 million; Aérospatiale Matra Offering Memorandum, dated 25 May 1999, Exhibit
EC-53, p. 24.
4550 The consolidation of the French aeronautical, de fence and space industries was itself undertaken in
preparation for the creation of EADS; EC, FWS, para. 1165 ; see, paras. 7.183 and 7.199 and Section VII.E.1
Attachment, following para. 7.289 above.
4551 A private company, Lagardère, held 33 percent of Aérospatiale-Matra and exercised control over
Aérospatiale-Matra jointly with the French government. The remaining shares were held by the public and
Aérospatiale-Matra employees.
4552 EC, SNCOS, paras. 274-277; Avis du Conseil d'Etat, no. 362-610 , Exhibit EC-846. Although
French law would theoretically have allowed the French government to transfer its double voting rights to a
third person following a two-year waiting period, the French government agreed that the double voting rights
would not be exercised, even after the expiration of the two year period required by French law; EC, SNCOS,
4553 EC, SNCOS, paras. 274-277; The current share ownership of Dassault Aviation is as follows:
Groupe Industriel Marcel Dassault, 50.21 percent; EADS, 46.30 percent; public, 3.49 percent; EC, FWS, para.
1169, footnote 942; Exhibit EC-845; Exhibit EC-846.
4554 US, FWS, para. 608.
4555 US, FWS, para. 609.

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meaning of Article 2 of the SCM Agreement because it is an ad hoc transfer from the French
government which is explicitly limited to Aérospatiale.
4556
7.1386 The United States argues that, if under the usual investment practice of private investors in
the territory of the subsidizing Member, an equity infusion would not have been provided, or if the
government equity infusion is provided on better th an commercial terms, it confers a benefit within
the meaning of Article 1.1(b) of the SCM Agreement and constitutes a subsidy.4557 The United States
argues that the French government's transfer of its 45.76 percent interest in Dassault Aviation to
Aérospatiale conferred a benefit on Aérospatiale because Aérospatia le received what amounts to a
FF 5.28 billion equity infusion (which increased Aéro spatiale's consolidated capital by approximately
20 percent) through a transaction that was inconsiste nt with the usual investment practice of private
investors in France.4558 According to the United States, a private investor would not have engaged in
the transaction that resulted in Aérospatiale's receipt of the Dassault Aviation shares, given
Aérospatiale's "dire financial circumstances" at the time, the uncompensated loss of control over
Dassault Aviation which the transaction entailed, and the absence of any contemporaneous studies
suggesting that such loss would be outweighed by gains that could be expected from the eventual
public offering of Aérospatiale-Matra.4559
7.1387 The United States argues that Aérospatiale's financial condition and commercial outlook
"remained serious" in the late 1990s. 4560 In 1997, Aérospatiale reporte d total liabilities of more than
FF 56 billion, compared with shareholders' equity of FF 5.3 billion.4561 In addition, the United States
alleges that Aérospatiale's financia l ratios were very poor in compar ison with those of its peer group
of companies.4562 The United States alleges that, following a negative market reaction to the news
that the French government was considering the priv atization of Aérospatiale, the French government
decided instead to pursue a partial merger betw een Dassault Aviation and Aérospatiale through the
transfer of its 45.76 percent interest in Dassault Aviation. 4563 According to the United States, the
transfer of the 45.76 percent equity interest in Dassault Aviation to Aérospatiale "led to a considerable
benefit to Aérospatiale". 4564 The United States refers to a report of the French Sénat indicating that
the transaction would benefit Aérospatiale by rein forcing its financial position through an equity
participation in Dassault Aviation (a company with superior operating margins), as well as amounting
to a 20 percent increase in Aérospatiale's equity.4565
7.1388 The United States also notes that in transferring its stake in Dassault Aviation to Aérospatiale,
the French government relinquished double voting right s attaching to certain of its shares, which had
enabled it to exercise control of Dassault Aviation d espite holding less than a majority interest. The

4556 US, FWS, para. 620.
4557 US, FWS, para. 562.
4559 US, Answer to Panel Question 159, para. 153.
4560 US, FWS, para. 610.
4561 US, FWS, paras. 610-614. The United States also refers to a 1987 report of the French Sénat that
states that Aérospatiale did not have sufficient equity for its development; 1987 Senate Report, Exhibit US-18,
p. 78.
4562 US, FWS, para. 611. Aérospatiale's debt-to-equity ratios were 13.5, 10.7 and 7.3 percent in 1996,
1997 and 1998, respectively, compared with averages for its peer group of 2.6, 2.1 and 2.2 percent, respectively
over the corresponding periods. Aérospatiale's debt coverage ratios were 0.6, 1.5 and 1.1 percent in 1996, 1997
and 1998, respectively, compared with peer group averag es of 4.3, 7.7 and 6.5, respectively over the same
periods; Ratio Comparison Chart, Exhibit US-274.
4563 US, FWS, para. 613; Aérospatiale on Credit Watch negative – S&P, AFX News, 29 May 1998,
Exhibit US-307.
4564 US, FWS, para. 613.
4565 US, FWS, para. 614; Senate Report No. 89, Exhibit US-302, p. 55; US, Answer to Panel Question
29, para. 189.

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United States contends that the French government's ceding control over Dassault Aviation as a result
of the transfer of its stake in that company to Aérospatiale was not co mpensated by the Dassault
family, owners of the rest of the shares in the co mpany who thus regained c ontrol, and resulted in the
French government incurring a substantial financial loss. 4566 The United States acknowledges that a
private investor might knowingly incur such a loss where it has a "reasonable expectation of an
offsetting financial gain". However, the United States argues that such an expectation should be
based on prior studies undertaken in order to de termine the financial benefit that could be
expected.4567 The United States notes that the French govern ment failed to undertake any such studies
and that the European Communities has not identifie d any basis for the French government to have
expected that its profit from the formation of Aé rospatiale-Matra would outweigh its loss from ceding
control of Dassault Aviation without compensation.4568
7.1389 The United States argues that two further consider ations help to reinforce the conclusion that
the 1998 share transfer to Aérospatiale was not c onsistent with the usual investment practice of
private investors. First, in addition to ceding control of Dassault Aviation to the Dassault family as a
consequence of the transfer of its equity stak e in Dassault Aviation to Aérospatiale, the French
government also agreed to grant Dassault a significant participation in the merged entity Aérospatiale-
Matra in the hope of persuading the Dassault family to consent to a full merger between Aérospatiale
and Dassault Aviation. 4569 According to the United States, th is additional cost to the French
government should increase the offsetting gain that it would have been reasonable for the French
government to expect from the formation of Aérospa tiale-Matra and its subsequent privatization, in
order for the 1998 share transfer to be considered consistent with the usual investment practice of
private investors. 4570 Second, the United States argues that th e French government's transfer of its
45.76 percent interest in Dassault Aviation to Aéro spatiale was motivated by political and industrial
policy concerns, rather than an interest in re ceiving a commercial return on its investment. 4571
According to the United States, evidence of the French government's political and industrial policy
motivations explains the absence of cost-benefit analyses that would have been undertaken by a
private investor and further demonstrates that the 1998 share transfer to Aérospatiale was not
consistent with the usual investment practice of private investors.4572
European Communities
7.1390 The European Communities contends that, unlik e the capital investments which the French
government made in Aérospatiale between 1987 and 1994, the contri bution to Aérospatiale of the
French government's 45.76 percent interest in D assault Aviation was made, not to fund the expansion

4566 US, Answer to Panel Question 158, para. 146. The United States has furnished an expert report
that calculates that the French government's relinquishment of control of Dassault Aviation without
compensation translated into a loss of [[HSBI]] to the French government. Lauren D. Fox, 1998 Dassault Share
Transfer Valuation Report, Exhibit US-595 HSBI.
4567 US, Answer to Panel Question 158, para. 147.
4568 US, Answer to Panel Question 158, para. 148. Th e United States notes that by the end of the 13-
month period following the formation of Aérospatiale-M atra (during which Aérospatiale-Matra shares were
publicly traded) the value of the French government's interest in Aérospatiale-Matra substantially declined,
compounding the loss which the French government had already incurred in ceding control of Dassault Aviation
without compensation.
4569 US, FWS, para. 616.
4570 US, Answer to Panel Question 158, para. 150.
4571 US, FWS, para. 615; US, Answer to Panel Question 158, para. 151. The United States alleges that,
at the time of the 1998 share transf er, the French government had foreseen the consolidation of the European
aerospace industry through th e creation of Airbus SAS and wanted to strengthen Aérospatiale's balance sheet
(and thus its relative position in negotiations with th e other members of the Airbus consortium) and protect
French interests in the anticipated consolidation of the European aerospace industry.
4572 US, Answer to Panel Question 158, para. 151.

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of Aérospatiale's product lines, but to facilitate th e consolidation and privatization of the French
aerospace industry ( i.e., the combination of Aérospatiale with MHT to form Aérospatiale-Matra and
the public offering of shares in Aérospatiale-Matra).
4573
7.1391 The European Communities notes that, prior to its c ontribution to Aérospatiale of its shares in
Dassault Aviation, the French government owned 100 percent of Aérospatia le and independently
owned a 45.76 percent interest in Dassault Aviati on. According to the European Communities, the
French government's transfer of its stake in Dassault Aviation to Aéro spatiale in exchange for newly
issued shares of Aérospatiale amounted to "changin g the form but not the substance" of the French
government's ownership of both Aéro spatiale and its stake in Dassault Aviation. In other words, the
French government continued to own its 45.76 percen t equity interest in Dassault Aviation, only now
through its 100 percent ownership of Aérospatiale. 4574 The European Communities asserts that, to the
extent that the French government transferred anything "the transfer was to itself." 4575 Accordingly,
the European Communities considers that the transac tion was purely mechanical and practical, in that
it enabled the French government to sell a signifi cant interest in both Aérospatiale and Dassault
Aviation in a single sale transaction through the public offering of Aérospatiale-Matra
in June 1999.4576
7.1392 The European Communities argues that if Aéro spatiale-Matra had sold the Dassault Aviation
shares at the time at which they were transferred to Aérospatiale or shortly thereafter, the French
government's contribution of the 45.76 percent interest in Dassault Aviation to Aérospatiale "could be
considered equivalent to a cash equity contribution by the French government." 4577 However, because
Aérospatiale, then Aérospatiale-Matra, and subsequently, EADS, retained the 45.76 percent interest in
Dassault Aviation, the French government's transfer of the 45.76 percent interest in Dassault Aviation
should not be characterized as a "new investment" in Aérospatiale, but simply as the combination of
two of its existing investments ( i.e., the French government's equity stakes in Aérospatiale and
Dassault Aviation, respectively) under the corporate entity Aérospatiale, in anticipation of the sale of
a majority interest in the combined entity, Aérospatiale-Matra, to private investors.4578
7.1393 According to the European Communities, for th e United States to sustain its argument that
this pooling of assets by the French government in anticipation of the privatization of those assets is
inconsistent with the usual investment practice of a private investor, it would need to present evidence
as to what a private investor would have done in the context of the specific investment. 4579 In other
words, the United States would need to demonstrate th at it is inconsistent with the usual investment
practice of an owner to pool wholly-owned assets toge ther in anticipation of a combined sale of those
assets, for which the owner is compensated on market terms. 4580 The European Communities argues
that a market-based parent entity would consolidate holdings in order to realize synergies and create
wealth, and that the United States has failed to dem onstrate that it is inconsistent with the usual

4573 EC, FWS, para. 1165.
4574 EC, FWS, para. 1166.
4576 EC, FWS, para. 1167.
4577 EC, FWS, para. 1170.
4578 EC, FWS, para. 1170. According to the Europe an Communities, the French government's interests
in both "assets" remained the same: It owned 100 percent of its 45.76 percent stake in Dassault Aviation before
the transfer to Aérospatiale and 100 pe rcent of that stake after the transfer to Aérospatiale. Similarly, it owned
100 percent of Aérospatiale before the contribution of its interest in Dassault Aviation, and 100 percent of
Aérospatiale after the contribution of its interest in Dassault Aviation; EC, Answer to Panel Question 102,
para. 281.
4580 EC, Answer to Panel Question 102, para. 282; EC, SWS, paras. 513, 554.

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investment practice of a private investor to pool wholly-owned assets together where doing so would
realize synergies and create wealth.4581
7.1394 The European Communities contends that the United States' argument that the French
government knowingly incurred financial losses in transf erring its 45.76 percent interest in Dassault
Aviation to Aérospatiale is irrelevant to the ques tion whether, for purposes of Article 1.1(b) of the
SCM Agreement, Aérospatiale received the Dassault Aviation shares on better terms than would have
been conferred by a market-based owner of those shares. 4582 According to the European
Communities, the United States has acknowledged that the beneficiary of any allegedly
uncompensated sacrifice by the French government of voting control over Dassault Aviation was the
Dassault family, rather than Aérospatiale. Th e European Communities argues that, if anything,
ceding the double voting rights reduced, rather than enhanced, the value of the Dassault Aviation
shares received by Aérospatiale. 4583 The European Communities al so rejects the United States'
argument that, in ceding its double voting rights to the Dassault family, the French government
incurred a loss because it was not compensated for the value of the double voting rights. According to
the European Communities, the double voting rights c ould not be acquired by private entities (due to
the contractual arrangements between the French go vernment and Dassault Industries) and therefore
had no "market" value.4584
7.1395 Moreover, the European Communities contends that the French government was adequately
compensated for the value of its 45.76 percent in terest in Dassault Aviation in the subsequent
privatization of Aérospatiale-Matra.4585 The European Communities point s to the separate valuations
of Aérospatiale's 45.76 percent interest in Dassau lt Aviation carried out by several investment banks
in conjunction with the combination of Aérosp atiale and MHT in 1999. These valuations were
undertaken in order to estimate a value for the comb ined Aérospatiale-Matra entity, and thus a public
offering price for shares in Aérospatiale-Matra. 4586 The European Communities acknowledges that
the valuations were not "fairness opinions" on the tran sfer of the 45.76 percent equity interest in
Dassault Aviation to Aérospatiale; rather, they rela ted to the valuation of Aérospatiale-Matra for
purposes of establishing a public offering price for the shares of that entity. 4587 H o w e v e r , t h e
European Communities contends that they demons trate that the French government did not leave
Aérospatiale-Matra, the successor to Aérospatiale, with any residual value from the 45.76 percent
stake in Dassault Aviation for wh ich the French government was not compensated through the public
offering of shares in Aérospatiale-Matra.4588
7.1396 The European Communities also argues that the United States has distorted the facts
concerning Aérospatiale's financial condition at th e time of the Dassault Aviation transfer. The
European Communities notes that Aérospatiale's annual orders ha d grown from EUR 9.6 billion in
1996, to EUR 12.2 billion in 1997 and EUR 13.3 b illion in 1998 and that its backlog had also
increased substantially, from EUR 19.8 billion in 1996, to EUR 24.5 billion in 1997 and EUR 27.2
billion in 1998. 4589 The European Communities further notes that Aérospatiale had reported profits
of EUR 93 million, EUR 217 million and EUR 175 m illion in 1996, 1997 and 1998, respectively,
while at the same time incurring almost EUR 5 billion in research and development expenses. 4590
According to the European Communities, the fina ncial ratios referred to by the United States as

4581 EC, SWS, para. 555.
4582 EC, Comments on US Answer to Panel Question 158, para. 186.
4583 EC, Comments on US Answer to Panel Question 158, para. 186.
4584 EC, Comments on US Answer to Panel Question 158, para. 188.
4585 EC, Answer to Panel Question 102, para. 283.
4586 EC, SWS, para. 558.
4587 EC, SNCOS, para. 266.
4589 EC, Comments on US Answer to Panel Question 158, para. 190.
4590 EC, Comments on US Answer to Panel Question 158, para. 190.

BCI deleted, as indicated [***]

evidence of Aérospatiale's "dire" financial conditi on relate to Aérospatiale 's need for additional
capital, and the implication of the United States' argumen ts is that, if a company needs capital, it is by
definition not equityworthy. However, the Europ ean Communities contends that the fact that a
company may require additional capital says nothing about whether or not it is equityworthy. Rather,
the relevant question is whether, from the perspectiv e of a private investor, an investment holds out
the prospect of good returns.
4591
7.1397 In this regard, the European Communities refers to a number of studies of the potential costs
and benefits of the anticipated combination of Aérospatiale and MHT and public offering of
Aérospatiale-Matra conducted by investment banks on behalf of th e French government, Aérospatiale
and Lagardère.4592 The European Communities notes that certa in of the reports of these investment
banks "confirm" that Aérospatia le undertook an "extensive due diligence exercise" including
the September 1998 exchange of Aérospatiale's a nd MHT's respective sector-by-sector business plans
for the period 1998 to 2003. According to the European Communities, these business plans contained
financial projections as well as past and projected da ta which were the subject of intensive review and
assessment by the investment banks. 4593 The European Communities contends that the investment
banks had valued synergies expected to result from the combination of Aérospatiale and MHT at an
amount that significantly exceeded any loss of value that the United States has attributed to the French
government's loss of the double voting rights attached to its Dassault Aviation stake, and that this
evidence shows that the French government e xpected synergies from the Aérospatiale-MHT
combination that would offset any such loss.4594
7.1398 The European Communities also refers to the de tailed information concerning Aérospatiale in
the 1999 offering memorandum prepared for the public offering of Aérospatiale-Matra, "setting out
positive future prospects" for Aérospatiale and Aérospatiale-Matra, as well as the terms of Lagardère's
association with Aérospatiale-Matra and the res ponse of retail and institutional investors to the
Aérospatiale-Matra public offering, as evidence that private investors held reasonable expectations of
financial gains in the anticipated combination of Aérospatiale and MH T and public offering of
Aérospatiale-Matra.4595
7.1399 The European Communities thus requests that th e Panel reject the United States' claim that
the contribution to Aérospatiale of the French government's shareholding in Dassault Aviation
conferred a "benefit" on Aérospatiale and thus constitutes a subsidy.4596
(iii) Evaluation by the Panel
Financial contribution
7.1400 The United States argues that the 1998 transfer by the French government of its 45.76 percent
shareholding in Dassault Aviation to Aérospatiale is a "direct transfer of funds" and therefore
constitutes a financial contribution for purposes of Article 1.1(a)(1)(i) of the SCM Agreement.

4591 EC, Comments on US Answer to Panel Question 158, para. 192.
4592 EC, FWS, paras. 233-236; Comments on US, Answer to Panel Question 158, para. 194; [***]
assessment (HSBI Annex V, EC-HSBI-0001531); [***] assessment (HSBI Annex V, EC-HSBI-0001652); [***]
assessment (HSBI Annex V, EC-HSBI-0000903); [***] assessment (HSBI Annex V, EC-HSBI-0000727); [***]
assessment (HSBI Annex V, EC-HSBI-0000235); [***] assessment (HSBI Annex V, EC-HSBI-0000543); [***]
assessment, Exhibit EC-544 HSBI.
4593 EC, Comments on US Answer to Panel Question 158, para. 195.
4594 EC, Comments on US Answers to Question 158, para. 196.
4595 EC, Comments on US Answers to Question 158, paras. 199-203.
4596 EC, FWS, para. 1171.

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7.1401 The European Communities argues that the transfer should not be characterized as a "new
investment" by the French government, but simply as the combination of two of its existing
investments under the corporate entity, Aérospatiale, in anticipation of the sale of a majority interest
in Aérospatiale's successor entity, Aérospatiale-Matra.
4597 I t m a y b e possible to understand the
European Communities to argue that the French govern ment's transfer of its 45.76 percent interest in
Dassault Aviation to Aérospatiale is not a financial contribution within the meaning of
Article 1.1(a)(1), because it is simply a change in the form in which the French government held its
investment in Dassault Aviation, and not a "new inv estment". Such an argument would, we believe
require us to accept the proposition that a government cannot provide a financial contribution to an
entity of which it is already the owner; i.e., one cannot make a "financial contribution" to oneself.
We are unable to accept such a proposition. We note that a similar argument in relation to
transactions involving debt-for-equity sw aps was rejected by the Panel in Korea – Commercial
Vessels.4598
7.1402 The European Communities does not expressly ar gue that the contribution by the French
government of its 45.76 percent interest in Dassau lt Aviation to Aérospatiale is not a "financial
contribution". On the contrary, the European Co mmunities argues that, had Aérospatiale-Matra sold
the Dassault Aviation stake at the time at which it was transferre d by the French government, or
shortly thereafter, the contribution of the Dass ault Aviation shares to Aérospatiale "could be
considered equivalent to a cash equity infusion by the French State", which suggest that the European
Communities considers that the transaction could, in certain circumstances, constitute a financial
contribution.4599 However, we do not consider that the or dinary meaning of Article 1.1(a)(1) permits
us to characterize a transaction as a "financial contribution" according to the behaviour of the
recipient subsequent to the transaction. If the tran sfer of the 45.76 percent interest in Dassault
Aviation to Aérospatiale constitutes an equity infusion and falls within the meaning of
Article 1.1(a)(1)(i), it will do so regardless of whet her or not Aérospatiale or Aérospatiale-Matra as
the recipient retained the transferred Dassault Aviati on shares or subsequently sold them to a third
party.4600
7.1403 Article 1.1(a)(1)(i) of the SCM Agreement provi des that a "financial contribution" exists
where there is a "direct transfer of funds ( e.g., grants, loans, and equity infusion), potential direct
transfers of funds or liabilities ( e.g., loan guarantees)." The first issue we consider is whether a
contribution of shares in a company (rather than a cash contribution) in exchange for newly-issued
shares in the recipient company is a "direct transfer of funds" within the meaning of
Article 1.1(a)(1)(i) of the SCM Agreement. We ag ree with the Appellate Body that the term "funds"
in Article 1.1(a)(1)(i) encompasses not only "money" but also financial resources and other financial
claims more generally.4601 Moreover, as the Appellate Body has noted, the words "grants, loans, and

4598 See, Panel Report, Korea – Commercial Vessels, paras. 7.419-7.423, where the panel noted that the
fact that equity infusions are explicitly designated as "financial contributions" suggests that the SCM Agreement
does not preclude the owner of a company from making a "financial contribution" to that company (at
para. 7.420).
4599 EC, FWS, para. 1170.
4600 During the Second Meeting of the Panel, while the European Communities stated that, to the extent
that the French government transferred anything in connection with the Dassault Aviation transaction, the
transfer was to itself, this statem ent, along with the Europ ean Communities' arguments concerning the proper
characterization of the transaction as a combination of existing investments ra ther than as a "new investment",
were made in the context of rebutting the United States' allegations that the transfer conferred a benefit on
Aérospatiale, and thus appear to be directed to the issue of benefit within the meaning of Article 1.1(b); see EC,
SNCOS, paras. 264-279. See, also, EC, SWS, paras. 552-553, where the European Communities makes the
same statement as part of its argume nt that the transaction could not have conferred a "benefit" within the
meaning of Article 1.1(b).
4601 Appellate Body Report, Japan – DRAMs (Korea), para. 250.

BCI deleted, as indicated [***]

equity infusion" in Article 1.1(a)(1)(i) are preceded by the abbreviation "e.g." which indicates that
grants, loans and equity infusion are cited examples of transactions falling within Article 1.1(a)(1)(i),
and transactions which are similar to those expressly listed are also covered by the provision. As we
have indicated previously, we regard shares in a co mpany as financial claims to a stream of income
(in the form of dividends paid out of a company's profits) and to a share in the capital of a company
on its winding up.
4602 Therefore, we consider shares in a co mpany to fall within the scope of the term
"funds" in Article 1.1(a)(1)(i), and a transfer of sh ares to fall within the sco pe of the term "direct
transfer of funds" within the meaning of Article 1.1(a)(1)(i) of the SCM Agreement.4603 We conclude
that the French government's transfer of its 45.76 percent stake in Dassault Aviation to Aérospatiale
constitutes a "financial contribution" within the meaning of Article 1.1(a)(1)(i) of the
SCM Agreement.
7.1404 We next consider whether that financial cont ribution conferred a "benefit" on Aérospatiale
within the meaning of Article 1.1(b) of the SCM Agreement.
Benefit
7.1405 We have previously indicated that it is well es tablished that a financial contribution confers a
benefit within the meaning of Article 1.1(b) wher e the terms of the financial contribution are more
favourable than the terms available to the recipient in the market. 4604 We have also noted that the
Appellate Body has held that Article 14 constitutes re levant context for the interpretation of "benefit"
in Article 1.1(b). 4605 Moreover, the United States and Eur opean Communities both agree generally
that Article 14(a), although not directly applicab le to Part III of the SCM Agreement, provides
guidance for the interpretation of Article 1 of th e SCM Agreement as regards claims not involving
Part V.4606
7.1406 The United States does not argue that the tr ansfer by the French government of its
45.76 percent interest in Dassault Aviations to Aérospatiale, in exchange for the issuance by
Aérospatiale to the French government of an add itional 9,267,094 shares in Aérospatiale, conferred a
benefit on Aérospatiale because the value of the ne wly issued shares in Aérospatiale was less than the
value of the 45.76 percent interest in Dassault Aviation. 4607 The United States argues that the
transaction conferred a benefit on Aérospatiale b ecause it constituted an equi ty infusion that was
inconsistent with the usual investment practice of private investors in France.
7.1407 Our approach to the issue of benefit in the context of the French government's 1998 equity
infusion to Aérospatiale (through the transfer of its 45.76 percent interest in Dassault Aviation to
Aérospatiale in exchange for newly-issued shares in Aérospatiale) is to ask whether the United States
has demonstrated that a private investor would not have made the equity investment in question based
on the information available at the time. In this regard, we consider that a private investor
contemplating such an investment would be seeking to achieve a reasonable rate of return on its
investment. The United States has not presented evid ence as to the rates of re turn which the French

4602 See, para. 7.1291 above.
4603 See, para. 7.1291 above.
4604 See, e.g., Appellate Body Report, Canada – Aircraft, paras. 157-158; Panel Report, US –
Countervailing Duty Investigation on DRAMS, para. 7.179; Panel Report, EC – Countervailing Measures on
DRAM Chips, paras. 7.173-7.175; Panel Report, Japan – DRAMs (Korea), para. 7.256.
4605 Appellate Body Report, Canada – Aircraft, para. 155.
4606 US, FWS, paras. 544-545, 561-564; EC, FWS, pa ra. 1215; SNCOS, para. 267; Answer to Panel
Question 101, para. 280; SWS, para. 520.
4607 US, Answer to Panel Question 159, para. 152. The United States agr ees with the European
Communities that the ratio at which the French governm ent exchanged its Dassault Aviation shares for newly-
issued shares in Aérospatiale is of "no economic significance" due to the French government's ownership of
Aérospatiale and the Dassault Aviation shares.

BCI deleted, as indicated [***]

government could reasonably have expected to achieve from what the United States contends is
effectively a FF 5.28 billion equity infusion to Aéro spatiale. Instead, the United States argues that a
private investor would not have made such an equi ty infusion because Aérospat iale was, at the time,
in "dire financial circumstances", the transaction invo lved considerable costs associated with ceding
control of Dassault Aviation, and there is nothing to s uggest that, at the time of the transaction, those
costs appeared to be outweighed by gains that could be expected from the subsequent sale of shares of
Aérospatiale-Matra.4608
7.1408 In this regard, the United States refers to Aéro spatiale's reported total liabilities of more than
FF 56 billion in 1997, compared with shareholders ' equity of FF 5.3 billion, along with its poor
financial ratios as compared with those of its peer group companies. 4609 The United States also refers
to evidence indicating that Aérospatiale was seriously undercapitalized at the relevant time.4610 We do
not regard the fact that Aérospatiale was undercap italized by the French government, as its sole
shareholder, to necessarily mean that a private investor would not have provided capital to the
company.
4611 Although the United States refers to a 1997 report of the French Sénat which stated that
Aérospatiale had insufficient capital for its developm ent, we note that the report also explained that,
despite its undercapitalization, Aérospatiale ha d reasonable levels of indebtedness and cost
management.4612 Indeed, while Aérospatiale's debt to equity ratios and debt coverage ratios in 1995
and 1996 continued to be inferior to the av erage ratios of its peer group of companies, 4613 unlike the
period between 1987 and 1995, Aérospatiale's retu rn on equity in 1996 and 1997 exceeded the
average return on equity for its peer group of companies. 4614 However, we are unable, on the basis of
the arguments and evidence before us, to de termine whether the relative improvement in
Aérospatiale's return on equity ratios is primarily due to increased revenues, or is at least partially the
result of other factors that are not necessarily indicat ive of an improvement in financial performance.
In any case, we note that Aérospatiale reported profits of EUR 93 million in 1996, and EUR 217 in
1997, along with growth in annual orders from EUR 9.6 billion in 1996 to EUR 12.2 billion in 1997
and consider that this evidence demonstrates that Aérospatiale's financial condition and prospects in
1996 and 1997 had improved over prior periods.4615
7.1409 Despite this improvement over prior periods, howev er, it is clear to us that the increase in
Aérospatiale's capitalization brought about by the transfer of the French government's 45.76 percent
interest in Dassault Aviation (representing a 20 percen t increase in Aérospatiale's total consolidated
capital) was necessary in order to increase the chances that the planned privatization of Aérospatiale
could occur as soon as possible. 4616 Moreover, we are satisfied that the planned privatization of
Aérospatiale was regarded as necessary to im prove the French government's position in its
negotiations with other Airbus governments over th e terms of the consolidation of the European

4608 US, Answer to Panel Question 159, para. 153.
4609 See, para. 7.1387 above.
4610 US, FWS, paras. 610-611.
4611 Aérospatiale's undercapitalization by the French government can therefore be contrasted with the
undercapitalization of Deutsche Airbus by MBB, a private shareholder; see, paras. 7.1291 - 7.1302 above.
4612 Exhibit US-18, p. 77.
4613 In 1996 and 1997, Aérospatiale's debt to equity ratios were 13.5 and 10.7, respectively, compared
with average peer group ratios of 2.6 and 2.1, respectively. Over the same periods, Aérospatiale's debt coverage
ratios were 0.6 and 1.5, respectively, compared with average peer group ratios of 4.3 and 7.7, respectively.
4614 In 1996, Aérospatiale's return on equity was 27.7 percent compared with an average of 15.0 percent
for its peer group of companies, and in 1997, its return on equity was 37.4 percent compared with a peer group
average of 17.8 percent.
4615 EC, Comments on US Answer to Panel Question 158, para. 190. In addition, the European
Communities notes that Aérospatiale's backlog increased from EUR 19.8 billion in 1996 to EUR 24.5 billion in
1997.
4616 Exhibit US-276.

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aerospace industry.
4617 This being so, we consider that Aéro spatiale's financial position and prospects
immediately prior to the French government's tr ansfer of its 45.76 percent interest in Dassault
Aviation, while improved, were not improved to a degree that would have enabled Aérospatiale,
absent the addition of the 45.76 percent interest in Dassault Aviation (representing a 20 percent
increase in its total consolidated capital), to attract private capital.
7.1410 The European Communities argues that the appr opriate focus of inquiry in evaluating the
consistency or otherwise of the Dassault Aviation transfer with the usual investment practice of
private investors is to ask whether a private owner would consolidate its wholly-owned investments in
advance of the sale of those assets. 4618 In the context of the French government's transfer of its
45.76 percent interest in Dassault Aviation to Aé rospatiale, the European Communities argues that
this standard requires that the United States dem onstrate that it is inconsistent with the usual
investment practice of private owners to pool w holly-owned assets together in anticipation of a
combined sale of those assets, for which the owner is compensated on market terms.4619
7.1411 We do not reject the possibility that a party may successfully rebut a cl aim that an equity
infusion conferred a benefit because it was inconsistent with the usual investment practice of private
investors by showing that the transaction in question was a preliminary step in, or otherwise part of, a
restructuring or consolidation project and that, considered in the context of the overall returns
expected to be generated from that restructuring or consolidation project, the equity investment was
consistent with the usual investment practice of a private investor. As we have indicated, we are
satisfied as a factual matter that the French governme nt's transfer of its 45.76 percent interest in
Dassault Aviation to Aérospatiale was envisaged as a preliminary step in the consolidation of the
French aeronautics industry, in preparation for the eventual consolidation of the European aeronautics
industry. However, the European Communities has presented no evidence to persuade us that, at the
time at which the French governme nt was contemplating transferring its 45.76 percent interest in
Dassault Aviation to Aérospatiale, it had a rational basis for believing that the overall returns it could
expect from a public offering of shares in an entity that combined the French government's interests in
Dassault Aviation with Aérospatiale, exceeded the ra te of return it could expect from retaining its
46.75 percent equity interest in Dassault Aviati on (including the double voting rights attached to
certain of those shares) separately from its ownership of Aérospatiale.
7.1412 The European Communities has provided evidence to the effect that the Dassault Aviation
stake received by Aérospatiale had been valued separately from Aé rospatiale in the context of
calculating a public offering price for Aérospatiale-M atra. We note, however, that the transfer by the
French government of its 45.76 percent interest in Dassault Aviation occurred in December 1998.
4620
The assessments to which the Eu ropean Communities refers concern the relative valuations of
Aérospatiale, Aérospatiale's 45.76 percent interest in Dassault Aviation, and MHT for the purpose of
establishing a public offering price for the Aérospatia le-Matra shares, which occurred in 1999. These
valuations are all dated either February, March or April 1999; in other words, they were all made after
the French government had decided to transfer its 45.76 percent interest in Dassault Aviation to
Aérospatiale. Moreover, the assessments do not anal yze the relative merits of the French government
retaining its separate holdings of Dassault Aviation (including the French government's double voting
rights) and Aérospatiale, on the one hand, as oppo sed to combining those holdings (and cancelling the

4617 In announcing the French government's decision to transfer its interest in Dassault Aviation to
Aérospatiale, the French Finance Ministry said that the agreement between Aérospatiale and Dassault Aviation
was designed to promote a concerted strategy for the French aeronautics industry in the broader context of
alliances that need to be concluded in the near-term between the principal European actors; French Finance
Ministry, Communiqué de presse, 15 May 1998, Exhibit US-304. Similar views are expressed in media reports:
Exhibit US-307; Exhibit US-309; Exhibit US-310; Exhibit US-312; Exhibit US-596.
4618 EC, Comments on US Answer to Panel Question 224, para. 421. Emphasis added.
4619 EC, SWS, paras. 554-555.
4620 Aérospatiale-Matra Offering Memorandum, dated 25 May 1999, Exhibit EC-53, p. 24.

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double voting rights attached to the Dassault Aviati on shares) and merging them with MHT with a
view to a subsequent public offering of the merged entity. Rather, the assessments are valuations of
Aérospatiale and MHT and estimates of the syne rgies that could be expected from their
combination.4621 We therefore do not consider any of the assessments submitte d by the European
Communities to support the proposition that the French government had a rational basis for believing
that the overall returns it could expect from a public offering of shares in an entity which combined
the French government's interests in Dassault Aviation (minus the double voting rights) with
Aérospatiale exceeded the rate of return it could e xpect from holding its 45.76 percent equity interest
in Dassault Aviation (including the double voting rights attached to certain of those shares) separately
from Aérospatiale. We are satisfied that the French government's transfer of its 45.76 percent equity
interest in Dassault Aviation in exchange for newly issued shares in Aérospatiale was inconsistent
with the usual investment practice of a private i nvestor in France, because a private investor would
not have made the investment, and that the transac tion therefore conferred a benefit on Aérospatiale
within the meaning of Article 1.1(b) of the SCM Agreement. We reach this conclusion after
considering all of the evidence in its totality in r espect of the French government's 1998 transfer of its
45.76 percent interest in Dassault Aviation to Aérospatiale.
Specificity
7.1413 The United States argues that the 1998 transfer by the French government of its 45.76 percent
interest in Dassault Aviation to Aérospatiale is a s ubsidy which is specific to Aérospatiale within the
meaning of Article 2 of the SCM Agreement as is an ad hoc transfer from the French government
which is explicitly limited to Aérospatiale. 4622 Although the United States has not identified a
particular sub-paragraph of Article 2 as the basis of its argument, we understand from the nature of
the argument it advances that it is grounded in Ar ticle 2.1(a) of the SCM Agreement. Evidence
submitted by the United States as to the 1998 transfer of a 45.76 percent inter est in Dassault Aviation
to Aérospatiale more generally confirms the United States' assertion that this transfer was explicitly
limited to Aérospatiale and was thereby "specific" within the meaning of Article 2.1(a) of the
SCM Agreement. The European Communities does not contest the United States' allegations. We
therefore find that the 1998 transfer by the French government of its 45.76 percent interest in Dassault
Aviation to Aérospatiale constitutes a specific subsidy to Aérospatiale.
(iv) Conclusion
7.1414 In conclusion, we find that the French governme nt's 1998 transfer of its 45.76 percent equity
interest in Dassault Aviation to Aérospatiale in exchange for the issuan ce by Aérospatiale of shares to
the French government constitutes a subsidy to Aérosp atiale because it involves a "direct transfer of
funds" comparable to an equity infusion and is th erefore a financial contribution within the meaning
of Article 1.1(a)(1)(i), which conferred a benefit on Aérospatiale because the investment decision was
inconsistent with the usual investment practice of private investors in France. We further find that
this subsidy is specific within the meaning of Article 2 of the SCM Agreement.

4621 We also note that certain of the assessments were performed by investment banks that had been
retained to advise parties other than the French government in connection with the Aérospatiale-MHT offering,
and therefore cannot necessarily be pr esumed to be information known to , or advice received by, the French
government in the context of its decision to effect the transfer of its interest in Dassault Aviation to
Aérospatiale. For example, [***] advised Aérospatiale, Exhibit EC-HSBI0000543; Exhibit EC-HSBI0000235,
while [***] advised Lagardère, Exhibit EC-HSBI0000727; Exhibit EC-HSBI0000905.
4622 US, FWS, para. 620; Aérospatiale Annual Report 1998, Exhibit US-301, p. 28.

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10. Whether research and technological development funding that the European
Commission and the member States provide to Airbus are specific subsidies
(a) Introduction
7.1415 The United States challenges multiple instances of research and technological development
("R&TD") funding provided or committed to Ai rbus by the European Co mmunities, the French,
German, Spanish and UK governments and three Ge rman sub-federal public entities between 1986
and 2007. In the vast majority of cases, the cha llenged funding measures take the form of grants.
However, in two instances, the United States' complaint focuses on loans. The United States claims
that each of the challenged measures amounts to a specific subsidy within the meaning of Articles 1
and 2 of the SCM Agreement. The R&TD measures that are subject to the United States' claims are:
(i) EC grants for LCA-related R&TD proj ects in which Airbus participated
pursuant to the:
- Second Framework Programme for Community Activities in the Field of
Research and Technological Development (1987-1991) ("Second Framework
Programme" or "2
nd FP"),4623
- Third Framework Programme for Community Activities in the Field of
Research and Technological Development (1990-1994) ("Third Framework
Programme" or "3
rd FP"),4624
- Fourth Framework Programme of the European Community Activities in the
Field of Research and Technological Development and Demonstration (1994-
1998) ("Fourth Framework Programme" or "4th FP"),4625
- Fifth Framework Programme of the European Community for Research,
Technological Development and De monstration Activities (1998-2002)
("Fifth Framework Programme" or "5th FP");4626 and
- Sixth Framework Programme of the European Community for Research,
Technological Development and Demonstr ation Activities, Contributing to
the Creation of the European Research Area and to I nnovation (2002-2006)
("Sixth Framework Programme" or "6th FP");4627
(ii) French government grants for LCA-rela ted R&TD projects in which Airbus
participated, between 1986 and 2005.4628
(iii) German federal government grants for LCA-related R&TD projects in which
Airbus participated under the:
- Luftfahrtforschungsprogramm I ("LUFO I") (1995-1998), 4629
Luftfahrtforschungsprogramm II ("LUFO II") (1998-2002) 4630 and
Luftfahrtforschungsprogramm III ("LUFO III") (2003-2007);4631

4628 US, FWS, para. 680. Exhibits US-337, EC-205, EC-206, EC-207-BCI-, EC-208-BCI and EC-209-
BCI.

BCI deleted, as indicated [***]

(iv) Grants from three German sub-federa l public entities for LCA-related R&TD
projects in which Airbus participated under the:
- Offensive Zukunft Bayern (1995),4632
- Offensive Zukunft Bayern II (1996),4633
- Bayerisches Luftfahrtforschungsprogram (2000),4634
- Hightechoffensive Bayern (1999-2003),4635
- Airbus Materials & System Technology Centre Bremen ("AMST I") (2000-
2002),4636
- Airbus Materials & System Technology Centre Bremen II ("AMST II")
(2002-2006),4637 and
- Luftfahrtforschungsprogramm (2000-2005) Hamburg;4638
(v) Spanish government loans for LCA-rela ted R&TD projects in which Airbus
participated, in particular loans made under :
- the Plan Tecnológico Aeronáutico ("PTA") (1993-2003),4639 and
- the Programa de Fomento de la Investigación Técnica ("PROFIT") (2000-
2007);4640 in particular the Programa Naci onal de Aeronáutica of PROFIT
(2000-2003)4641 and the Subprograma Nacional de Transporte Aéro of
PROFIT (2004-2007);4642
(vi) UK government grants for LCA-relate d R&TD projects in which Airbus
participated under the
- Civil Aircraft Research and De velopment Progra mme ("CARAD")
(subsequently renamed the Aeronautics Research Programme ("ARP")
(1992-2004),
4643 and Technology Program ("TP") (2004-2005).4644
7.1416 In responding to the United States' claims, th e European Communities has presented multiple
arguments, two of which have already been set out and addressed in our Preliminary Ruling. 4645 A

4632 US, FWS, para. 668. Exhibits US-330, US-331.
4633 US, FWS, para. 668. Exhibits US-330, US-331.
4634 US, FWS, para. 668. Exhibits US-330, US-331.
4635 US, FWS, para. 668. Exhibits US-330, US-331.
4639 US, FWS, para. 693. Exhibit US-344-BCI.
4640 US, FWS, para. 697. Exhibits US-349; Exhibit US-355.
4643 US, FWS, para. 686. Exhibit US-341 (BCI).

BCI deleted, as indicated [***]

third argument relates to the extent to which R&TD measures involving the participation of
companies other than Airbus SAS and its subsidiaries are within the scope of this dispute. As we
have noted elsewhere,
4646 the European Communities argues that the only companies that can be the
subject of the United States' adverse effects complaint are those that produce Airbus LCA, i.e., the
product which in the United States' view causes ad verse effects to United States interests. Thus,
according to the European Communitie s, to the extent that the United States has sought to contest
R&TD measures that did not involve the participation of Airbus SAS or any of its subsidiaries, it has
overstated the amount of R&TD support that can be rightfully challenged under the
SCM Agreement.4647
7.1417 We recall our findings on the "relevant companies" for the purpose of this dispute: we do not
consider that the changes to the corporate struct ure of the producer of Airbus LCA are such as to
require the United States to demonstrate, as part of its prima facie case, the "pass-through" to the
entity Airbus SAS of benefits c onferred by financial contributions that had been provided to the
Airbus Industrie consortium. If we find that any of the alleged financial contributions provided to the
Airbus Industrie consortium confe rred a benefit within the meani ng of Article 1.1(b), and thus
constitute subsidies, we would be satisfied that t hose subsidies do, in fact, subsidize Airbus LCA for
purposes of our adverse effects analysis under Articles 5 and 6. 4648 Thus, we will proceed to examine
the United States' claims with this understanding of Airbus in mind.
(b) Terms of Reference
7.1418 Another issue raised by the European Comm unities (for the first time in its first written
submission) relates to our terms of reference. According to the European Communities, the United
States' complaint against the Spanish government loans provided to Airbus under the PROFIT is
outside our terms of reference be cause the measures at issue were not adequately identified in the
United States' panel request, in accordance with Article 6.2 of the DSU. 4649 The United States rejects
the European Communities' contention, arguing that its panel request clearly identifies the measures at
issue in conformity with Article 6.2 of the DSU.4650
7.1419 The relevant section of the United States' panel request reads:
"The measures of the EC and the member States that are the subject of this panel
request include:

(6) The provision by the EC and the member States of financial contributions for
aeronautics-related research, development, and demonstration ("R&D"), undertaken
by Airbus, whether alone or with others, or in any other way to the benefit of Airbus,
including:

(d) Funding from the Spanish government, including regional and local
authorities, since 1993 for civil aeronautics-related R&D projects in which Airbus

4645 See, paras. 7.65 and 7.105 (findings on temporal scope arguments) and paras. 7.117, 7.137 and
7.158 (findings on adequacy of US request for panel establishment) above.
4646 See, paras. 7.185 - 7.186 above.
4647 EC, FWS, para. 1219.
4648 See, para. 7.200 above.
4649 EC, FWS, para. 1315.
4650 US, SWS, paras. 516-517.

BCI deleted, as indicated [***]

participated, including loans and other financial support provided under the Plan
Tecnológico Aeronáutico I and the Plan Tecnológico Aeronáutico II."
7.1420 The language in Section (6)(d) of the panel request identifies the measures subject to the
United States' complaint as "funding from the Sp anish government, including regional and local
authorities since 1993 for civil aeronautics-related R&D projects in which Airbus participated". This
description indicates: the provider ("the Spanish government, including regional and local
authorities"); the timing ("since 1993"); the purpos e ("for civil aeronautics-related R&D projects");
and the subject ("in which Airbus participated"), of the funding at issue. Thus, the focus of the
United States' complaint is not all Spanish governme nt funding to Airbus fo r LCA-related activities;
rather only funding provided "since 1993" "for civil aeronautics-related R&D projects".
Section (6)(d) explains that such funding includes "loans and other fina ncial support provided under
the" PTA I and PTA II. It is clear to us from the use of the word "including" that the United States'
challenge is not limited to loans under the PTA I and PTA II.
7.1421 The United States' request for the establis hment of the present Panel was made on
31 May 2005. On 23 September 2005, the Dispute Se ttlement Body initiated Annex V procedures.
On the same day, the parties exchanged draft ques tions requesting a range of information each party
considered relevant to the dispute. These in cluded a series of detailed questions from the
United States to the European Communities on lo ans made under the PROFIT . The United States'
questions on the PROFIT followed, in numerical order, from a similar set of questions asked in
respect of loans granted under the PTA I and PTA II. Final versions of these questions were provided
to the European Communities on 7 October 2005.
7.1422 On 25 October 2005, the European Communitie s requested the Panel (which had been
composed on 17 October 2005) to make a number of preliminary rulings on a series of matters,
including whether certain aspects of the United States ' panel request satisfied the standards of clarity
required by Article 6.2 of the DSU. Although, at the time, the European Co mmunities was aware that
the PROFIT was one of the two Spanish government R&TD loan programmes about which the United
States was interested in collecting information, th e European Communities' request for a preliminary
ruling did not raise any issue about the adequacy of the United States' identification of those measures
in the panel request. Likewise, despite asserting in its answer of 18 November 2005 to question 279 of
the Facilitator during the Annex V process that "the PROFIT scheme" fell outside the Panels terms of
reference, the European Communities did not obj ect to the United States' claims in the updated
request for a preliminary ruling it presented on 7 November 2006. By that stage, the European
Communities could have had no doubt that the PROF IT loans formed part of the United States'
complaint, given that they had been explicitly identified in the addendum to the United States'
consultations request, filed nine months prior to the European Communities' updated request for a
preliminary ruling.
4651 Thus, when considered as a whole and in light of the attendant
circumstances,4652 we find that Section (6)(d) of the United States panel request presents the
United States' claim against the PROFIT loans in a manner that is sufficiently clear to meet the
standards of Article 6.2 of the DSU.

4651 The addendum to the United States' reques t for consultations was communicated on
31 January 2006, in WT/DS316/1/Add.1. In this communication, the United States expressed the view that its
updated request for consultations might "help to clarify, and if possible, resolve, the issues in the EC's
preliminary ruling request". Subsequently, and with reference to inter alia, this communication, the
United States requested the establishment of a new panel, in WT/DS316/6. Both of these documents were later
renumbered, respectively, WT/DS347/1 and WT/DS347/3 , and the words "Second Complaint" added to the
titles.
4652 Other attendant circumstances are referred to in our Preliminary Ruling, where we addressed and
dismissed the European Communities' allegation that the United States' complaint against French government
R&TD measures was outside the Panel's terms of refere nce because it failed to identify those measures with
sufficient precision in its panel request. See, para. 7.149 above. See, also, US, SWS, paras. 18-24.

BCI deleted, as indicated [***]

(c) The Measures At Issue
7.1423 A final matter that we believe must be addressed before evaluating the merits of the United
States' claims is the not insignificant issue of the precise identity of the R&TD measures being
challenged and, in particular, the amount of funding provided to Airbus.
(i) Background
7.1424 During the Annex V process, the United Stat es, through the Facilitator, posed over 300
questions, including at least as many detailed sub- questions, to the European Communities on a range
of issues relating to alleged instances of European Communities and EC member State funding of
Airbus LCA-related research and development activities. These questions included requests for
information on the precise identity of the alleged measures and the related amounts of funding. The
European Communities refused to pr ovide any of the requested inform ation in respect of the Second
EC Framework Programme and French government R&TD funding from 1986 to 1994 because it
considered that some of the United States' request s in respect of these measures related to funding
activities that were outside the temporal scope of the dispute.
4653 It also refused to provide any of the
requested information with respect to the Spanish government PROFIT programme, because it
considered this programme to be outsi de of the Panel's terms of reference. 4654 Where the European
Communities did provide information, it was limited to projects involving the Airbus corporate
entities that it considered were relevant to the dispute.
4655
7.1425 In its first written submission, the United St ates identified the measures in dispute and the
respective amounts of funding at stake, relying in part on information submitted by the European
Communities during the Annex V process and in part on information that was publicly available. In
elaborating its claims, the United States has, in a number of instances, asked the Panel to draw
adverse inferences, in accordance with paragraph 7 of Annex V, from the fact that the European
Communities did not provide all of the data that was requested during the Annex V process. 4656
Although the European Communities has now provided information that was not presented during the
Annex V process, we understand the United States to c ontinue to be of the view that the European
Communities has failed to disclose all relevant in formation and that the Pa nel should draw adverse
inferences when establishing the facts surrounding a number of its claims.4657
7.1426 With this background in mind, we now review th e facts that have been presented in respect of
each category of R&TD measures that is the subject of the United States complaint with a view to
identifying the precise R&TD measures and funding amounts that are in dispute.
(ii) Grants under the Second Framework Programme
7.1427 The United States asserts that publicly availa ble information shows that the European
Communities funded 28 LCA-related projects under the Second Framework Programme, providing a
total of EUR 35 million to all participating entities. 4658 The United States submits that Airbus was

4653 E.g., EC, Answers to Questions by the Facilitator under Annex V, para. 9, Question 132, Sections
VI.A.2, VI.A.3, VI.D and VI.D.2.
4654 EC, Answers to Questions by the Facilitator under Annex V, Questions 279-281.
4655 E.g., EC, Answers to Questions by the Facilitator under Annex V, Question 132.
4656 US, FWS, paras. 630, 635, 640, 645, 650, 676, 684, 690 and 702.
4657 US, Answer to Panel Question 34; US, Comments to EC, Answer to Panel Questions 277 and 278.
4658 US, FWS, paras. 628 referring to Commission of the European Communities, Directorate-General
for Science, Research and Development, BRITE/EURAM Area 5 – Specific Activities Relating to Aeronautics –
Synopses of Projects Supported under the Call for Proposals 1989, October 1990, Exhibit US-317.

BCI deleted, as indicated [***]

involved in 15 of these projects, and that it received EUR 18.75 million. 4659 The European
Communities rejects the United States' assertions. According to the European Communities, 53
aeronautic sector projects were funded under the S econd Framework Programme, with the "relevant"
Airbus entities participating in [***]. In total, the data submitt ed by the European Communities
indicates that the "relevant" Airbus entities received just over ECU [***].4660 The European
Communities asserts that it derived the relevant information from "original source documents, notably
contracts and payment records".4661
7.1428 The United States argues that the informa tion submitted by the European Communities
cannot be relied upon as an accurate reflection of th e full amount of funding Airbus received because
the European Communities has failed to disclose the da ta from which it was derived. In other words,
the United States considers the EC' information to be unreliable because it does not identify all of the
LCA-related projects or the full list of pa rticipants funded under the Second Framework
Programme.4662 The United States recalls that during the Annex V procedure, the European
Communities refused to provide any information on the projects and participants funded under the
Second Framework Programme in response to the Facilita tor's questions. In the light of this refusal,
the United States asks the Panel to draw the adverse inference, pursuant to paragraph 7 of Annex V,
that Airbus obtained funding in the amount of EUR 18.75 million under the Second Framework
Programme.4663
7.1429 Our review of the information submitted by the pa rties leads us to conclude that there are a
number of discrepancies in the data presented by the European Communities suggesting that the total
value of the LCA-related funding received by Airbus under the Second Framework Programme has
not been disclosed. The Europ ean Communities asserts that the lis t of projects it has identified
"coincide with publicly available data".4664 However, the publicly available information submitted by
the United States, which the European Commun ities has not contested, identifies one project
involving Airbus' participation which was not included in the list of projects that was submitted by the
European Communities – the "Advanced Study for Active Noise Control in Aircraft (ASANCA)"
project.4665 Furthermore, in respect of two of the projects identified in the European Communities'
list, funding provided to British Aerospace and CASA was not disclosed, even though publicly
available information indicates that these co mpanies participated in the two projects. 4666 The

4659 US, FWS, paras. 628-630. The United States arrived at this figure by apportioning 15/28 ths of the
total amount of funding made available to all entities under the Programme to Airbus, reflecting its alleged
participation in 15 of the 28 funded projects. US, FWS, para. 630, footnote 774.
4660 EC, FWS, paras. 1231 and 1234; EC, Answer to Panel Question 277 citing Exhibits EC-189 (BCI)
and EC-968 (BCI). The precise amount disclosed in the information submitted by the European Communities is
ECU [***]. We note that in Panel Question 277, we specifically asked the European Communities to provide "a
break-down of all LCA-related projects in which the entities identified in Answer to Questions 273 to 275
participated" (emphasis added). Although the European Communities appears to suggest in its answer to Panel
Question 277 and elsewhere (e.g., EC, FWS, para. 1228) that the list of projects it has submitted is over-
inclusive in the sense that it contains funding for non- LCA-related activities, it has not specifically identified
which projects must not be taken into account. Neither has it explained exactly why any such projects do not
relate to LCA. In the absence of any such identification or explanation, and given the very specific nature of our
question, we have treated all of the projects identified by the European Communities as LCA-related.
4661 EC, FWS, para. 1221.
4662 US, Answer to Panel Question 34; US, Comments to EC, Answer to Panel Questions 277 and 278.
4663 US, FWS, para. 630.
4664 EC, FWS, para. 1231.
4665 Exhibit US-317 lists the German company "MBB" as one of the project's "partners". As noted
above, MBB was part of the Airbus Industrie Consortium and was involved in the development, production and
sale of LCA up until at least 1992. See, para. 7.1294 above.
4666 Exhibit US-317 indicates that CASA was one of the "EUROMESH" project "partners" and that
British Aerospace as was one of the "All Electric Aircraft" project "partners". The information provided by the
European Communities indicates that these two Airbus companies received no funding under these projects.

BCI deleted, as indicated [***]

European Communities has provided no valid e xplanation for these apparent discrepancies.
Moreover, in the light of Panel Question 277, we are particularly puzzled as to why the European
Communities omitted to provide any details about the ASANCA project, when it had previously, in its
first written submission, identified this project and noted that MBB, a company we have found forms
part of the Airbus consortium, was a recipient of funding.
4667 Finally, we note that the total amount of
Airbus funding disclosed in Exhibit EC-968 (BCI) is miscalculated, because it does not include one
contribution (amounting to ECU [***]) identified in the same Exhib it as having been provided to a
relevant Airbus entity. Thus, the total amount of funding to Airbus actually disclosed by the
European Communities must be increased by this same amount.
4668 For all of these reasons, we
cannot accept that the information the European Communities has submitted on funding amounts
covers all of the relevant monies granted to Airbus under the Second Framework Programme.
7.1430 We recall that the European Communities ha s not contested the publicly available
information submitted by the United States in Exhibit US-317. This information indicates that Airbus
participated in [***] projects for which the European Communities has provided either no information
or incomplete details on the paymen ts to all relevant Airbus entities. 4669 The missing information
relates to [***] contributions that were apparently made to three Airbus entities.4670 In our view, these
contributions should be added to the funding the European Communities has confirmed Airbus
obtained through its participation in the [***] projects it has already identified.4671
7.1431 Paragraph 7 of Annex V provides that a panel "should draw adverse inferences from instances
of non-cooperation by any party involved in th e information-gathering process". Although the
European Communities failed to provide informa tion on the funding amounts received and projects
undertaken by Airbus under the Second Framewor k Programme during the Annex V process, it has
subsequently, during the course of this panel procee ding, both on its own initiative and in response to
Panel Question 277, submitted information that it cons iders discloses all of the relevant data. Thus,
we are not here faced with a situation where a pa rty has failed to supply any part of the requested
information. Moreover, we observe that to dr aw the adverse inference that Airbus received
EUR 18.75 million in funding under the Second Framew ork Programme would, in effect, be to accept
that Airbus received [***] as much of the funding obtained from [***] projects (that is, over
EUR [***]) from one individual project and contributi ons to two Airbus companies under two other
projects. In our view, there is enough factual evid ence before us to indicate that such an outcome
would be overly speculative and unreasonable.4672

4667 Exhibit EC-194 (BCI). We recognize that the European Communities explained in this Exhibit that
it had not provided any details in re spect of this project because it c onsidered MBB was not a "relevant"
company. However, in Panel Question 277, we asked the European Communities to provide "a break-down of
all LCA-related projects in which the entities identified in Answer to Questions 273 to 275 participated". As
MBB was one of the companies identified in the Answers to those questions, information on funding it received
under the Second Framework Programme should have been provided. Indeed, this is exactly what the European
Communities did for eight other projects funded under the Second Framework Programme which involved
MBB. Therefore, we do not understand why the Eu ropean Communities did not also provide the amounts
received by MBB under the ASANCA project.
4668 Therefore, the precise amount of funding the Eu ropean Communities disclosed went to Airbus is
ECU [***].
4669 These projects are (by acronym): "EUROMESH"; "All Electric Aircraft"; and "ASANCA".
4670 These entities were: CASA ("EUROMESH" project ); British Aerospace (" All Electric Aircraft"
project); and MBB ("ASANCA" project).
4671 See, para. 7.1427 above.
4672 The European Communities disclosed that the monies made available to Airbus for the ASANCA
II project under the Third Framework Programme amounted to EUR [***]. Information on the "EUROMESH"
and "All Electric Aircraft" projects indicates that Airbus entities other than British Aerospace and CASA
received individual grants that ranged from ECU [***] to ECU [***]. In our view, this evidence strongly
suggests that for Airbus to have received over EUR [***] from its participation in the ASANCA project and the

BCI deleted, as indicated [***]

7.1432 We note that the average amount of funding obtained by Airbus for each contribution
received pursuant to [***] projects under the Second Framework Programme was ECU [***].4673 On
this basis, the sum total of the [***] contributions to Airbus under the [***] projects that we believe
must be accounted for in the total amount of funding at issue is ECU [***]. In our view, it would
therefore be reasonable, in the light of the parties' positions and the factual information that is before
us, to find that the total amount of funding granted to Airbus under the Second Framework
Programme amounted to approximately ECU [***], covering [***] separate projects. A list setting
out our findings in respect of the [***] individual projects that are the subject of the United States'
complaint is contained in Annex I.1 to this Section, following para. 7.1609.
(iii) Grants under the Third Framework Programme
7.1433 The United States asserts that publicly availa ble information shows that the European
Communities funded 27 aeronautics-related research projects under the Third Framework Programme,
providing a total of EUR 56 million to all participating entities. 4674 The United States asks the Panel
to find that Airbus participated in 18 of these projects, receiving a total of EUR [***].4675 T h e
European Communities rejects th e United States' assertions. According to the European
Communities, 61 aeronautics-related projects were funded under the Thir d Framework Programme,
with the "relevant" Airbus entities participating in [***] of those projects. 4676 The European
Communities contends that total funding allocated to the aeronautics research sector amounted to
EUR 130 million of which the "relevant" Airbus entities received EUR [***].4677 Again, the European
Communities explains that the funding data it submitted was derived from "original source
documents, notably contracts and payment records".4678
7.1434 The United States argues that the informa tion submitted by the European Communities
cannot be relied upon as an accurate reflection of th e full amount of funding Airbus received because

two distributions made to British Aerospace and CASA under the "EUROMESH" an d "All Electric Aircraft"
projects, would be extraordinary.
4673 Derived from information contained in Exhibit EC-968 (BCI) (EUR [***] / [***] contributions).
4674 US, FWS, paras. 631-634 referring to European Commission, Industrial and Materials
Technologies Programme: Area 3, Aeronautics: Synopses of Current Aeronautics Projects (1993),
Exhibit US-319.
4675 The United States arrives at the EUR [***] figure by adding (i) the amount of funding it alleges the
European Communities disclosed, during the Annex V pro cess, was provided to "A irbus research consortia"
participating in 16 aeronautics-related projects (EUR [***]) to (ii) an amount representing Airbus' participation
in the two additional projects (EUR [***]), constructed on the basis of the average funding received by "Airbus
research consortia" under the 16 projects confirmed by the European Communities (i.e., EUR [***] / 16 projects
= EUR [***]). US, FWS, paras. 631-632, 635 and footnote 780. During the Annex V process, the European
Communities disclosed that EUR [***] was provided for 16 projects in which Airbus entities participated, with
those entities directly receiving EUR [***].
4676 EC, FWS, paras. 1231 and 1236, Exhibits EC-190 (BCI) and EC-194 (BCI).
4677 EC, Answer to Panel Question 277 citing Exhibit EC-969 (BCI); EC, Letter to Panel of
19 February 2008, referring to revisions made in Exhibit EC-993 (BCI). The precise amount disclosed in the
information submitted by the European Communities is EUR [***]. Again, we note that in Panel Question 277,
we specifically asked the European Communities to provide "a break-down of all LCA-related projects in
which the entities identified in Answer to Questions 273 to 275 participated" (emphasis added). Although the
European Communities appears to suggest in its answer to Panel Question 277 and elsewhere (e.g., EC, FWS,
para. 1228) that the list of projects it has submitted is over-inclusive in the sense that it contains funding for non-
LCA-related activities, it has not specifically identified wh ich projects must not be taken into account. Neither
has it explained exactly why any such projects do not relate to LCA. In the absence of any such identification or
explanation, and given the very specific nature of our question, we have treated all of the projects identified by
the European Communities as LCA-related.
4678 EC, FWS, para. 1221.

BCI deleted, as indicated [***]

the European Communities has failed to di sclose the data from which it was derived.
4679 In addition,
the United States argues that the European Co mmunities made no attempt to reconcile the
discrepancies between publicly available informat ion and the information it submitted during the
Annex V process.4680 According to the United States, these discrepancies suggest that the European
Communities has not reported all of the funding that Airbus entities received under the Third
Framework Programme. For instance, the United Stat es asserts that publicly available information
establishes that monies under the Third Framew ork Programme were pr ovided to CASA for
participating in two projects – the "Basic Research in Aircraft Interior Noise" and "Crashworthiness
for Commercial Aircraft" projects. 4681 However, the information presented by the European
Communities indicates that CASA [***], without explaining why the publicly available information
submitted by the United States indicates otherwise. Thus, the United States concludes that the
information it submitted, showing that Airbus participated in [***] projects under the Third
Framework Programme, provides the most reliable basi s for the Panel to conduct its inquiry into the
relevant subsidies. 4682 As we understand it, the United States therefore asks the Panel to find,
pursuant to paragraph 7 of Annex V, that Airbus participated in [***] projects under the Third
Framework Programme, receiving funds in the amount of EUR [***].
7.1435 Our review of the United States' and EC' subm issions has revealed shortcomings in the
information presented by both parties. For instance, the list of beneficiaries the United States asserts
were funded under the Third Framework Programme includes Airbus entities that allegedly received
contributions under four projects which cannot be fo und in the information in the publicly available
document submitted as Exhibit US-319. 4683 Although the European Communities acknowledges the
existence of all four projects, it does not accept that it has failed to disclose payments made to all
Airbus entities that partic ipated in those initiatives. 4684 Thus, we are unable to confirm the United
States' contention in respect of the alleged beneficiaries under these four projects. Similarly, the
information submitted by the European Communities indicates that Airbus did not receive any
funding pursuant to four projects, which the public ly available information presented by the United
States indicates did involve Airbus participation.
4685 Moreover, when compared to the same publicly
available information, the funding data submitted by the European Communities is incomplete in
respect of three other projects because it omits f unding that Exhibit US-319 indicates was allocated to
CASA.4686 Again, the European Commun ities has provided no valid e xplanation for these apparent
discrepancies.

4679 US, Answer to Panel Question 34; US, Comments to EC, Answer to Panel Questions 277 and 278.
4680 US, FWS, para. 633.
4681 US, Comments on EC Answer to Panel Question 277, referring inter alia, to European
Commission, Industrial and Materials Technologies Programme: Area 3, Aeronautics: Synopses of Current
Aeronautics Projects (1993), Exhibit US-319.
4682 US, Comments on EC Answer to Panel Question 277.
4683 The United States identifies these projects (by acronym) as: "ASANCA II"; "BREZ-0313";
"BREZ-0151"; and "BREZ-0169 DICANT". Exhibits US-485 and US-689. In respect of the latter three
projects, we understand the United States to be re ferring to the projects the European Communities has
identified as "BRE2-0313"; "BRE2-0151"; and "BRE2-0169 PICANT". We have assumed that the reference to
"ECARD" in Exhibit US-689 is intended to mean what is identified in Exhibit US-319 and by the European
Communities as "ECARP".
4684 See, e.g., Exhibit EC-194 (BCI).
4685 These projects are (by acronym): "SNAAP"; "N S Solvers"; "FANPAC"; and "AERONOX". We
note that the European Communities did identify a projec t described as "Aeroacoustic Methods for Fan Noise
Prediction and Control (FANPAC)" in its submissions. However, the associated contract number, proposal
number and acronym provided by the European Communities for this project did not match the publicly
available information. Compare Exhibit EC-969 (BCI) (line 6) with Exhibit US-319 (p.15).
4686 The projects are (by acronym): "BRAIN"; "CRASHWORTHINESS"; and "IMAGES 2000".

BCI deleted, as indicated [***]

7.1436 We recall that the European Communities ha s not contested the publicly available
information submitted by the United States in Exhibit US-319. This information indicates that Airbus
participated in [***] projects for which the European Communities has provided either no information
or incomplete details on the paymen ts to all relevant Airbus entities. 4687 The missing information
relates to [***] contributions that were apparen tly made to five Airbus entities. 4688 In our view, these
contributions should be added to the funding the European Communities has confirmed Airbus
obtained through its participation in the [***] projects it has already identified.4689
7.1437 Paragraph 7 of Annex V provides that a panel "should draw adverse inferences from instances
of non-cooperation by any party involved in th e information-gathering process". Although the
European Communities failed to provide all of the information requested on the funding amounts
received and projects undertaken by Airbus unde r the Third Framework Programme during the
Annex V process, it has subsequently, during the cour se of this panel proceeding, both on its own
initiative and in response to Panel Question 277, s ubmitted additional information that it considers
discloses all of the relevant data. Thus, we are not here faced with a situation where a party has failed
to supply any part of the requested information. Moreover, we observe that, as with the Second
Framework Programme, publicly available information shows that Airbus participated in the Third
Framework Programme research initiatives as one of several entities (the number of parties involved
in each of the relevant projects ranged from eight to 35). Thus, we cannot simply accept, as the
United States suggests, that the full amount of fund ing provided to all participants under each of the
projects must be allocated to Airbus.
7.1438 We note that the average amount of funding obtained by Airbus for each contribution
received pursuant to [***] projects under the Third Framework Programme was EUR [***].
4690 On
this basis, the sum total of the [***] contributions to Airbus under the [***] projects that we believe
must be accounted for in the total amount of funding at issue is EUR [***]. In our view, it would
therefore be reasonable, in the light of the parties' positions and the factual information that is before
us, to find that the total amount of funding grante d to Airbus under the Third Framework Programme
amounted to approximately EUR [***], covering [***] separate projects. A list setting out our
finding in respect of the [***] individual projects that are the subject of the United States' complaint is
contained in Annex I.2 to this Section, following para. 7.1609.
(iv) Grants under the Fourth Framework Programme
7.1439 The United States asserts that publicly availa ble information shows that the European
Communities funded 139 aeronauti cs-related research projects under the Fourth Framework
Programme, providing a total of EUR 245 million to all participating entities. 4691 The United States
asks the Panel to find that Airbus participated in 71 of these projects, receiving a total of

4687 These projects are: (by acronym): "SNAAP"; "NS Solvers"; "FANPAC" ; and "AERONOX" (no
information); "BRAIN"; "CRASHWORTHINESS"; and "IMAGES 2000" (information on contributions to
CASA missing).
4688 These entities were: Aérospatiale ("SNAA P", "NS Solvers", "F ANPAC", "EUROSHOCK"
projects); Bae Airbus ("AERONOX", "EUROSHOCK" projects); Bae Sowerby Research Center ("NS Solvers"
project); Deutsche Aerospace Airbus GmbH ("FANP AC", "EUROSHOCK" projects); and CASA ("BRAIN",
"CRASHWORTHINESS", "IMAGES 2000", "EUROSHOCK" projects).
4689 See, para. 7.1433 above.
4690 Derived from information contained in Exhibits EC-969 (BCI) and EC-993 (BCI) (EUR [***] /
[***] contributions).
4691 US, FWS, para. 636 referring to European Commission, Fourth Framework Programme,
Aeronautics Related Research, Synopses of Current Projects Selected Under the 1995 Call for Proposals, at xix,
xxi (Area 3A Aeronautics Technologies) (1996), Exhibit US-314, and European Communities online project
synopses at www.cordis.europa.eu.

BCI deleted, as indicated [***]

EUR [***].
4692 The European Communities rejects the Un ited States' assertions. According to the
European Communities, 126 aeronautics-related proj ects were funded under the Fourth Framework
Programme with the "relevant" Airbus entities participating in [***] of those projects. 4693 O f t h e
EUR 245 million in funding allocated to the aerona utics research sector, the European Communities
asserts that the "relevant" Airbus entities received EUR [***].4694 Again, the European Communities
explains that the funding data it submitted was derived from "original source documents, notably
contracts and payment records".4695
7.1440 The United States argues that the informa tion submitted by the European Communities
cannot be relied upon as an accurate reflection of the full amount of funding Airbus received under
the Fourth Framework Programme because it does not id entify all of the LCA-related projects or the
full list of participants funded.4696 Moreover, the United States argues that the European Communities
made no attempt to reconcile the discrepancies between publicly available information and the
information it submitted during the Annex V process. 4697 According to the United States, these
discrepancies suggest that the Eu ropean Communities has not reported all of the funding that Airbus
entities received under the Fourth Framework Progra mme. Thus, the United States argues that the
publicly available information it submitted, showing th at Airbus participated in 71 projects under the
Fourth Framework Programme, provi des the most reliable basis for the Panel to conduct its inquiry
into the relevant subsidies.4698 As we understand it, the United States therefore asks the Panel to find,
pursuant to paragraph 7 of Annex V, that Airbus participated in 71 projects under the Fourth
Framework Programme, receiving funds in the amount of EUR [***].
7.1441 Our review of the United States' and EC' subm issions has revealed shortcomings in the
information presented by both parties. For instan ce, the United States identifies one project and
three beneficiaries of other projects under the Four th Framework Programme that cannot be verified
in the publicly available information. 4699 In addition, the United States ' latest submission incorrectly

4692 The United States arrives at the EUR [***] figure by adding (i) the amount of funding it alleges the
European Communities disclosed, during the Annex V pro cess, was provided to "A irbus research consortia"
participating in [***] aeronautics-related projects (EUR [***]) to (ii) an amount representing Airbus'
participation in the 39 additional projects (EUR [***]), constructed on the basis of the average funding received
by "Airbus research consortia" under the [***] projects confirmed by the European Communities ( i.e.,
EUR [***] / [***] projects = EUR [***] / project). US, FWS, paras. 636-637, 640 and footnote 786. During
the Annex V process, the European Communities disclosed that EUR [***] was provided for [***] projects in
which Airbus entities participated, with those entities directly receiving EUR [***].
4693 EC, FWS, paras. 1231 and 1238.
4694 EC, Answer to Panel Question 277 citing Exhibit EC-970 (BCI). The precise amount disclosed in
the information submitted by the European Communities is EUR [***]. Again, we note that in Panel Question
277, we specifically asked the European Communities to provide "a break-down of all LCA-related projects in
which the entities identified in Answer to Questions 273 to 275 participated" (emphasis added). Although the
European Communities appears to suggest in its answer to Panel Question 277 and elsewhere (e.g., EC, FWS,
para. 1228) that the list of projects it has submitted is over-inclusive in the sense that it contains funding for non-
LCA-related activities, it has not specifically identified wh ich projects must not be taken into account. Neither
has it explained exactly why any such projects do not relate to LCA. In the absence of any such identification or
explanation, and given the very specific nature of our question, we have treated all of the projects identified by
the European Communities as LCA-related.
4695 EC, FWS, para. 1221.
4696 US, Answer to Panel Question 34; US, Comments to EC, Answer to Panel Questions 277 and 278.
4697 US, FWS, para. 638.
4698 US, Comments on EC Answer to Panel Question 277.
4699 These discrepancies relate to: (i) the "AEROJET" project, the existence of which cannot be verified
in the publicly available information submitted by th e parties; and (ii) the "A ERONET", "AFMS" "GASCA",
"INGENET", "ADSTREFF" projects, where the alleged beneficiaries under the project, EADS, GIE and
EADS-CASA, cannot be found in the publicly available information submitted by the parties. (We have
assumed that the United States reference to the "ADSTREFFEX" project is intended to be a reference to what is

BCI deleted, as indicated [***]

asserts that the European Communities failed to disclose funding amounts provided to six Airbus
entities, which the European Comm unities has in fact disclosed. 4700 Similarly, the information
submitted by the European Communities fails to di sclose the funding received by Airbus under 11
projects, which the publicly available information presented by the United States indicates involved
Airbus participation.4701 Moreover, when compared to the sa me publicly available information, the
funding data submitted by the European Communities is incomplete in respect of six additional
projects because it fails to identify the funding that went to BAE Systems Aviones Ltd., EADS GIE,
CASA and DASA Airbus, whose participation in the "ENHANCE", "EDAVCOS", "ELGAR",
"EUROSUP", "ISAWARE" and "PROFOCE" projects was confirmed in the publicly available
information. Again, the European Communities has provided no valid explanation for these apparent
discrepancies between the data it has provided and the publicly available information.
7.1442 We recall that the European Communities ha s not contested the publicly available
information relied upon by the United States. This in formation indicates that Airbus participated in
[***] projects for which the European Communities has provided either no information or incomplete
details on the payments to all relevant Airbus entities.
4702 The missing information relates to [***]
contributions that publicly available informati on suggests were made to eight Airbus entities. 4703 In
our view, these contributions s hould be added to the funding the European Communities has
confirmed Airbus obtained through its participation in the [***] projects it has already identified.4704
7.1443 Paragraph 7 of Annex V provides that a panel "should draw adverse inferences from instances
of non-cooperation by any party involved in th e information-gathering process". Although the
European Communities failed to provide all of the information requested on the funding amounts

identified in the publicly available information as th e "ADSTREFF" project). Compare Exhibit US-689 with
information contained in Exhibits US-314 and EC-970 (BCI) and the relevant Programme synopses of projects
at http://www.cordis.europa.eu.
4700 The six beneficiaries are: CASA, under th e "ENIFAIR" "ENHANCE" and "HYLDA" projects;
Aérospatiale-Matra SA, under the "ADSTREFF" pr oject; BAE Systems (Operations) Ltd., under the
"ADSTREFF", "HYLTEC" and "BRPR-97-0551" projec ts; Airbus UK, under the "ENHANCE" project;
Daimler Benz Aerospace AG, under the "ENHANCE" and CEDIX projects; and Airb us Industrie, under the
"HYLDA" projects. (We note that fo r the "ENHANCE", "HYLDA" and CEDIX projects, the United States and
publicly available information identifies Daimler Benz Aerospace AG and Airbus Industrie as the beneficiaries,
whereas the European Communities identifies Airbus Deutschland, Airbus France and EADS Deutschland. We
have assumed that the European Communities' disclosu re includes the amounts of funding obtained by the
beneficiaries identified in the publicly available information.) Compare Exhibits US-689 and EC-970 (BCI).
4701 These projects are (by acronym): "AIRDATA"; "AERONET"; "AEROJET II"; "AEROPROFILE";
"AFMS"; "VINTHEC"; Investigation of the Viability of MEMS Technology for Boundary Layer Control on
Aircraft (this project has no acronym, we have assumed that it is the project the US refers to with the acronym
"MEMS"); "DAMASCOS"; "HICAS"; "WAVENC" and Non- Intrusive Measurements of Aircraft Engine
Emissions (this project has no acronym). Compare Exhibit EC-970 (BCI) with Exhibit US-314 and the relevant
Programme synopses of projects at www.cordis.europa.eu
4702 These projects are (by acronym): "AIRDATA"; "AERONET"; "AEROJET II"; "AEROPROFILE";
"AFMS"; "GASCA"; "INGENET"; "VINTHEC"; "DAMASCOS"; "HICAS"; "WAVENC"; Investigation of the
Viability of MEMS Technology for Boundary Layer Cont rol on Aircraft (this project has no acronym); Non-
Intrusive Measurements of Aircraft Engine Emissions (this project has no acronym); and "ENHANCE";
"EDAVCOS"; "ELGAR"; "EUROSUP"; ISAWARE" and "PROFOCE" (information on contributions to BAE
Sytems Aviones Ltd., EADS GIE, CASA and DASA Airbus missing).
4703 These entities were: BAE Systems (Operations ) Ltd ("AIRDATA", "AERONET", "AEROJET II",
"AEROPROFILE", "VINTHEC", Investigation of the Viability of MEMS Technology for Boundary Layer
Control on Aircraft, "HICAS" and Non-Intrusive Measurements of Aircraft Engine Emissions (this project has
no acronym)); BAE Sowerby Research Centre ("AIRDAT A"); DASA ("AFMS"); Daimler Benz Aerospace AG
("DAMASCOS"); BAE Sytems Aviones Ltd ("ENHANCE" and "ISAWARE"); EADS GIE ("EDAVCOS" and
"PROFOCE"); CASA ("ELGAR"); DASA Airbus ("EUROSUP"); Aérospatiale-Matra ("WAVENC").
4704 See, para. 7.1439 above.

BCI deleted, as indicated [***]

received and projects undertaken by Airbus unde r the Fourth Framework Programme during the
Annex V process, it has subsequently, during the cour se of this panel proceeding, both on its own
initiative and in response to Panel Question 277, s ubmitted additional information that it considers
discloses all of the relevant data. Thus, we are not here faced with a situation where a party has failed
to supply any part of the requested information. Moreover, we observe that, as with the previous
Framework Programmes, publicly available information shows that Airbus participated in the Fourth
Framework Programme research initiatives as one of several entities (the number of parties involved
in each of the relevant projects ranged from five to 24). Thus, we cannot simply accept, as the United
States suggests, that the full amount of funding provid ed to all participants under each of the projects
must be allocated to Airbus.
7.1444 We note that the average amount of funding obtained by Airbus for each contribution
received pursuant to [***] projects under the Fourth Framework Programme was EUR [***].
4705 On
this basis, the sum total of the [***] contributions to Airbus under the [***] projects that we believe
must be accounted for in the total amount of funding at issue is EUR [***]. In our view, it would
therefore be reasonable, in the light of the parties' positions and the factual information that is before
us, to find that the total amount of funding granted to Airbus under the Fourth Framework Programme
amounted to approximately EUR [***], covering [***] separate projects. A list setting out our
finding in respect of the [***] individual projects that are the subject of the United States' complaint is
contained in Annex I.3 to this Section, following para. 7.1609.
(v) Grants under the Fifth Framework Programme
7.1445 The United States asserts that publicly availa ble information shows that during the Fifth
Framework Programme, the European Communities allocated EUR 700 million to aeronautics-related
research projects. 4706 According to the United States, th e same publicly available information
indicates that "Airbus research consortia" par ticipated in 72 of these projects, receiving
EUR 509 million. In the absence of more detailed and precise information on Airbus' participation in
these projects, the United States asks the Panel to attribute the full amount of EUR 509 million to
Airbus.4707 The European Communities rejects the Un ited States' assertions. According to the
European Communities, 152 aeronautics-related pr ojects were funded under the Fifth Framework
Programme, with the "relevant" Airbus entities participating in [***] of those projects. 4708 O f t h e
EUR 700 million in funding allocated to the aerona utics research sector, the European Communities
asserts that the "relevant" Airbus entities received EUR [***].4709 Again, the European Communities

4705 Derived from information contained in Exhibit EC-970 (BCI) (EUR [***] / [***] contributions).
4706 US, FWS, para. 641 referring to European Commission, The Competitive and Sustainable Growth
Programme, 1998-2002 Project Synopses: New Perspectives in Aeronautics (2003), at xi, Exhibit US-322, and
European Communities online project synopses at www.cordis.europa.eu.
4707 US, FWS, para. 645.
4708 EC, FWS, paras. 1231 and 1240.
4709 EC, Answer to Panel Question 277 citing Exhibit EC-971 (BCI). The precise amount disclosed by
the European Communities is EUR [***]. Again, we note that in Panel Qu estion 277, we specifically asked the
European Communities to provide "a break-down of all LCA-related projects in which the entities identified in
Answer to Questions 273 to 275 participated" (empha sis added). Although the European Communities appears
to suggest in its answer to Panel Question 277 and elsewhere (e.g., EC, FWS, para. 1228) that the list of projects
it has submitted is over-inclusive in the sense that it co ntains funding for non-LCA-related activities, it has not
specifically identified which projects mu st not be taken into account. Neith er has it explained exactly why any
such projects do not relate to LCA. In the absence of any such identification or explanation, and given the very
specific nature of our question, we have treated all of the projects identified by the European Communities as
LCA-related.

BCI deleted, as indicated [***]

explains that the funding data it submitted was derived from "original source documents, notably
contracts and payment records".4710
7.1446 The United States argues that the informa tion submitted by the European Communities
cannot be relied upon as an accurate reflection of the full amount of funding Airbus received under
the Fifth Framework Programme because it does not identify all of the LCA-related projects or the
full list of participants funded.4711 Moreover, the United States argues that the European Communities
made no attempt to reconcile the discrepancies between publicly available information and the
information it submitted during the Annex V process. 4712 According to the United States, these
discrepancies suggest that the Eu ropean Communities has not reported all of the funding that Airbus
entities received under the Fifth Framework Progra mme. Thus, the United States argues that the
publicly available information it submitted, showing that Airbus participated in [***] projects under
the Fifth Framework Programme, provides the most reliable basis for the Panel to conduct its inquiry
into the relevant subsidies.
4713 As we understand it, the United States therefore asks the Panel to find,
pursuant to paragraph 7 of Annex V, that Airbus participated in [***] projects under the Fifth
Framework Programme, receiving funds in the amount of EUR 509 million.
7.1447 Our review of the United States' and EC' subm issions has revealed shortcomings in the
information presented by both parties. For instan ce, the United States identifies one project and four
beneficiaries of other projects under the Fifth Fram ework Programme that cannot be verified in the
publicly available information.4714 In addition, the United States' latest submission incorrectly asserts
that the European Communities has failed to disclose funding amounts provided to two Airbus
entities, which the European Comm unities has in fact disclosed. 4715 Similarly, the information
submitted by the European Communities fails to di sclose the funding received by Airbus under seven
projects, which the publicly available information presented by the United States indicates involved
Airbus participation.
4716 ""The European Communities has provi ded no valid explanation for these
apparent discrepancies between the data it has pr ovided and the publicly available information.
Finally, we note that the total amount of Airbus funding disclosed in Exhibit EC-971 (BCI) is
miscalculated, because it does not include various sums of monies (amounting to EUR [***])
identified in the same Exhibit as having been provide d to individual Airbus entities. Thus, the total
amount of funding to Airbus actually disclosed by the European Communities is approximately
EUR [***]4717 not EUR [***].
7.1448 The European Communities has not contested the publicly available information submitted by
the United States in Exhibit US-322. This info rmation indicates that Airbus participated in [***]

4710 EC, FWS, para. 1221.
4711 US, Answer to Panel Question 34; US, Comments to EC, Answer to Panel Questions 277 and 278.
4712 US, FWS, para. 643.
4713 US, Comments on EC Answer to Panel Question 277.
4714 These discrepancies relate to: (i) the "COMPO SIT" project, the existe nce of which cannot be
verified in the publicly available information submitte d by the parties; (ii) the "ADAMS2" project, where the
United States identifies BAE Systems (Operations) Ltd. as a beneficiary, but publicly available information and
the European Communities identify the beneficiary as Airbus UK; and (iii) the "ENABLE", "FUBACOMP" and
"MA-AFAS" projects, where the alleged beneficiaries under the respective projects, EADS Deutschland GmbH,
GIE EADS and BAE Systems (Operations) Ltd., cannot be found in the publicly available information
submitted by the parties. Compare Exhibit US-689 with information contained in Exhibits US-322 and EC-
972 (BCI) and the relevant Programme synopses of projects at www.cordis.europa.eu.
4715 The two beneficiaries are GIE Airbus Industrie under the "AERONET II" project and EADS GIE
under the "EECS" project. Compare Exhibits US-689 with EC-972 (BCI).
4716 These projects are (by acronym): "AEROFIL "; "FUBACOMP"; "HEACE"; "HiAER"; "MA-
AFAS"; "MOB" and "VINTHEC II". Compare Exhibit EC -971 (BCI) with Exhibit US-322 and the European
Communities online project synopses at www.cordis.europa.eu.
4717 The precise amount is EUR [***].

BCI deleted, as indicated [***]

projects for which the European Communities has provided either no information or incomplete
details on the payments to all relevant Airbus entities.
4718 The missing information relates to [***]
contributions that publicly available information suggests were made to five Airbus entities.4719 In our
view, these contributions should be added to the funding the European Communities has confirmed
Airbus obtained through its participation in the [***] projects it has already identified.4720
7.1449 We recall that paragraph 7 of Annex V provides that a panel "should draw adverse inferences
from instances of non-cooperation by any party i nvolved in the information-gathering process".
Although the European Communities failed to provide all of the information requested on the funding
amounts received and projects undertaken by Air bus under the Fifth Framework Programme during
the Annex V process, it has subsequently, during the course of this panel proceeding, both on its own
initiative and in response to Panel Question 277, s ubmitted additional information that it considers
discloses all of the relevant data. Thus, we are not he re faced with a situation where a party has failed
to supply any part of the requested information. Moreover, we observe that, as with all previous
Framework Programmes, publicly available informati on shows that Airbus participated in the Fifth
Framework Programme research initiatives as one of several entities (the number of parties involved
in each of the relevant projects ranged from six to 48). Thus, we cannot simply accept, as the United
States suggests, that the full amount of funding provid ed to all participants under each of the projects
must be allocated to Airbus.
7.1450 We note that the average amount of funding obtained by Airbus for each contribution
received pursuant to [***] projects under the Fifth Framework Programme was EUR [***].
4721 On
this basis, the sum total of the [***] contributions to Airbus under the [***] projects that we believe
must be accounted for in the total amount of funding at issue is EUR [***]. This compares with a total
European Communities contribution to all 98 participants in the same [***] projects of
EUR 30.5 million.4722 In our view, it would therefore be reasonable, in the light of the parties'
positions and the factual information that is before us, to find that the total amount of funding granted
to Airbus under the Fifth Framework Pr ogramme amounted to approximately EUR [***], covering
[***] separate projects. A list setting out our finding in respect of the [***] individual projects that
are the subject of the United States' complaint is c ontained in Annex I.4 to this Section, following
para. 7.1609.
(vi) Grants under the Sixth Framework Programme
7.1451 The United States asserts that publicly availa ble information shows that during the Sixth
Framework Programme, EUR 840 million was used by the European Communities to fund
aeronautics-related research projects. 4723 According to the United Stat es, the same publicly available
information indicates that "Airbus research consortia " participated in 61 of these projects, receiving
EUR 450 million. In the absence of more detailed and precise information on Airbus' participation in
these projects, the United States asks the Panel to attribute the full amount of EUR 450 million to
Airbus.4724 The European Communities rejects the Un ited States' assertions. According to the

4718 These projects are (by acronym): "AEROFIL "; "FUBACOMP"; "HEACE"; "HiAER"; "MA-
AFAS"; "MOB"; and "VINTHEC II".
4719 These entities were: GIE EADS ("AEROFIL"); EADS Deutschland GmbH ("HEACE" and
"HiAER"); BAE Systems (Operations) Ltd ("VINT HEC", "MOB" and "FUBACOMP"); BAE Systems
Avionics Ltd. ("MA-AFAS") and Daimler-Chrysler Aerospace ("MOB").
4720 See, para. 7.1445 above.
4721 Derived from information contained in Exhibit EC-971 (BCI) (EUR [***] / [***] contributions).
4722 Exhibit US-322.
4723 US, FWS, paras. 646, referring to Europe an Commission, Aeronautics Research 2003-2006
Projects, Project Synopses – Volume 1, Research Projects from the First and Second Calls (2006), Exhibit US-
324, and European Communities' online project synopses at www.cordis.europa.eu.
4724 US, FWS, paras. 646 and 650.

BCI deleted, as indicated [***]

European Communities, 93 aeronautics-related pr ojects were funded under the Sixth Framework
Programme, with the "relevant" Airbus entities participating in [***] of those projects. 4725 The
European Communities contends that total fundin g allocated to the aeronautics research sector
amounted to EUR 840 million, of which the "relevant" Airbus entities received EUR [***].4726 Again,
the European Communities explains that the fundi ng data it submitted was derived from "original
source documents, notably contracts and payment records".4727
7.1452 The United States argues that the informa tion submitted by the European Communities
cannot be relied upon as an accurate reflection of th e full amount of funding Airbus received because
the European Communities has failed to di sclose the data from which it was derived. 4728 In addition,
the United States argues that the European Co mmunities made no attempt to reconcile the
discrepancies between publicly available informat ion and the information it submitted during the
Annex V process.4729 According to the United States, these discrepancies suggest that the European
Communities has not reported all of the funding that Airbus entities received under the Sixth
Framework Programme. Thus, the United States concl udes that the information it submitted, showing
that Airbus participated in 61 projects under th e Sixth Framework Programme, provides the most
reliable basis for the Panel to conduct it s inquiry into the relevant subsidies.
4730 As we understand it,
the United States therefore asks the Panel to find, pur suant to paragraph 7 of Annex V, that Airbus
participated in 61 projects under the Sixth Framew ork Programme, receiving funds in the amount of
EUR 450 million.
7.1453 Our review of the United States' and EC' subm issions has revealed shortcomings in the
information presented by both parties. For inst ance, the United States identifies two alleged
beneficiaries of four separate projects under the Sixth Framework Programme that cannot be verified
in the publicly available information.
4731 In addition, the United States' latest submission incorrectly
asserts that the European Communities failed to disclose the funding amount provided to one other
Airbus entity, which the European Communities has in fact disclosed.
4732 Similarly, the information
submitted by the European Communities indicates that Airbus did not receive any funding pursuant to
twenty projects, which the publicly available in formation presented by the United States shows did
involve Airbus participation. 4733 Moreover, when compared to the same publicly available

4725 EC, FWS, paras. 1231 and 1236, Exhibits EC-193 (BCI) and EC-194 (BCI).
4726 EC, Answer to Panel Question 277 citing Exhibit EC-972 (BCI). The precise amount disclosed in
the information submitted by the European Communities is EUR [***]. Again, we note that in Panel Question
277, we specifically asked the European Communities to provide "a break-down of all LCA-related projects in
which the entities identified in Answer to Questions 273 to 275 participated" (emphasis added). Although the
European Communities appears to suggest in its answer to Panel Question 277 and elsewhere (e.g., EC, FWS,
para. 1228) that the list of projects it has submitted is over-inclusive in the sense that it contains funding for non-
LCA-related activities, it has not specifically identified wh ich projects must not be taken into account. Neither
has it explained exactly why any such projects do not relate to LCA. In the absence of any such identification or
explanation, and given the very specific nature of our question, we have treated all of the projects identified by
the European Communities as LCA-related.
4727 EC, FWS, para. 1221.
4728 US, Answer to Panel Question 34; US, Comments to EC, Answer to Panel Questions 277 and 278.
4729 US, FWS, para. 648.
4730 US, Comments on EC Answer to Panel Question 277.
4731 These alleged beneficiaries are: EADS Deut schland GmbH under the "DINAMIT" project; and
GIE EADS under the "DEEPWELD", "ITOOL" and "IFATS" projects.
4732 This entity is: GIE EADS CCR under the "DIALF AST" project. Compare Exhibits US-689 and
EC-972 (BCI).
4733 These projects are (by acronym): "ADL AND"; "ARTIMA"; "ATENAA"; "B-VHF";
"DEEPWELD"; "DESIDER"; "EMMA"; "HILAS"; "HISAC"; "IFATS"; "IPAS"; "iTOOL"; "MESEMA";
"MOWGLY"; "RETINA"; "UFAST"; "S EFA"; "WISE"; "ASAS-TN2"; and "C-ATM (PHASE 1)". For the
purpose of this list, we have assumed that the United States' reference to a project identified as "ATEENA" was

BCI deleted, as indicated [***]

information, the funding data submitted by the European Communities is incomplete in respect of two
other projects because it omits funding that the public ly available information shows was allocated to
Airbus Spain and Airbus France.
4734 Again, the European Communities has provided no valid
explanation for these apparent discrepancies.
7.1454 We recall that the European Communities ha s not contested the publicly available
information relied upon by the United States. This in formation indicates that Airbus participated in
[***] projects for which the European Communities has provided either no information or incomplete
details on the payments to all relevant Airbus entities. 4735 The missing information relates to [***]
contributions that were apparently made to eight Airbus entities. 4736 In our view, these contributions
should be added to the funding the European Comm unities has confirmed Airbus obtained through its
participation in the [***] projects it has already identified.4737
7.1455 Paragraph 7 of Annex V provides that a panel "should draw adverse inferences from instances
of non-cooperation by any party involved in the information-gathering process". Although the
European Communities failed to provide all of the information requested on the funding amounts
received and projects undertaken by Airbus unde r the Sixth Framework Programme during the
Annex V process, it has subsequently, during the cour se of this panel proceeding, both on its own
initiative and in response to Panel Question 277, s ubmitted additional information that it considers
discloses all of the relevant data. Thus, we are not here faced with a situation where a party has failed
to supply any part of the requested information. Moreover, we observe that, as with all the Framework
Programmes, publicly available information shows th at Airbus participated in the Sixth Framework
Programme research initiatives as one of several entities (the number of parties involved in each of
the relevant projects ranged from seven to 62). Th us, we cannot simply accept, as the United States
suggests, that the full amount of funding provided to all participants under each of the projects must
be allocated to Airbus.
7.1456 We note that the average amount of funding obtained by Airbus for each contribution
received pursuant to [***] projects under the Sixth Framework Programme was EUR [***].4738 On
this basis, the sum total of the [***] contributions to Airbus under the [***] projects that we believe
must be accounted for in the total amount of funding at issue is EUR [***]. This compares with a
total EC contribution to all [***] participants in the same [***] projects of EUR [***]. In our view, it
would be reasonable, in the light of the parties' pos itions and the factual information that is before us,
to find that the total amount of funding grante d to Airbus under the Sixth Framework Programme
amounted to approximately EUR [***], covering [***] separate projects. A list setting out our

intended to be the "ATENAA" project. Compare Exhibit EC-972 (BCI) with Exhibit US-324 and the relevant
Programme synopses of projects at www.cordis.europa.eu.
4734 The projects are (by acronym): "TATEM" and "SMIST".
4735 These projects are: (by acronym): "ADLAND"; "ARTIMA"; "ATENAA"; "B-VHF";
"DEEPWELD"; "DESIDER"; "EMMA"; "HILAS"; "HISAC"; "IFATS"; "IPAS"; "iTOOL"; "MESEMA";
"MOWGLY"; "RETINA"; "UFAST"; "SEFA"; "WISE" ; "ASAS-TN2"; and "C-ATM (PHASE 1)" (no
information); "TATEM" and "SMIST" (information on contributions to Airbus Spain and Airbus France
missing).
4736 These entities were: EADS Deutschland ("AD LAND", "ARTIMA", "A TENAA", "DESIDER",
"HISAC", "iTOOL", "MES EMA", "RETINA", "UFAST", "SEFA" and "WISE" projects ); BAE Systems
(Operations) Ltd. ("B-VHF", "HILAS", "IPAS" and "ASAS-TN2" projects); Airbus France ("EMMA",
"SMIST" and "C-ATM (PHASE 1)" projects); Airbus Deutschland ("MOWGLY" project); EADS CCR
("IPAS" and "DEEPWELD" projects); Airbus Spain ("TATEM" project); BAE Systems Avionics Ltd.
("EMMA" and "C-ATM (PHASE 1)" projects ); EADS Systems and Defence Electronics SA ("IFATS"
project); EADS Astrium ("IPAS" project).
4737 See, para. 7.1451 above.
4738 Derived from information contained in Exhibit EC-972 (BCI) (EUR [***] / [***] contributions).

BCI deleted, as indicated [***]

finding in respect of the [***] individual projects that are the subject of the United States' complaint is
contained in Annex I.5 to this Section, following para. 7.1609.
(vii) German Federal government grants
7.1457 The United States challenges the German Fe deral government's alleged provision of
EUR 217 million to Airbus for civil aeronautics re search under the LuFo I, LuFo II and LuFo III
programmes.4739 The European Communities argues the amount of alleged German Federal
government subsidization under the LuFo programmes that may be properly challenged is limited to
EUR [***].4740 According to the European Communities, this amount is the maximum level of
funding that may be challenged becau se it represents the monies actually disbursed by the German
Federal government to Airbus under the LuFo programme s as of 1 July 2005 (the alleged cut-off date
used by the United States in its first written submission) 4741. While the European Communities
acknowledges that as of 1 July 2005, the German Federal government had committed to provide
Airbus with approximately an additional EUR [***] (bringing the total amount of funding to
EUR [***]),4742 the European Communities does not accept that this additional EUR [***] can be
properly challenged in this dispute.4743
7.1458 As we understand it, the European Communities' position is premised on the view that a
government practice involving the commitment of funds, without any actual disbursement of those
funds, cannot amount to a "financial contribution" within the meaning of Article 1.1(a)(1)(i) of the
SCM Agreement. We will address the merits of this position in the substance of our evaluation of the
United States' claims against the LuFo programmes.
4744
(viii) German sub-federal government grants
Bavaria
7.1459 The United States asserts that the government of Bavaria has, since 1990, provided Airbus
with at least EUR [***] in R&TD grants under various civil aeronautics programmes including the
Offensive Zukunft Bayern (established in 1995), the Offensive Zukunft Bayern II (established in
1996) and the Bayerisches Luftfahrtforschungsprogramm (established in 2000). 4745 The European
Communities acknowledges that the Bavarian govern ment awarded nine project grants, totalling
EUR [***], to Daimler Benz Aerospace ("Dasa") and EADS Deutschland in the period 1997 to
2006.4746 However, it argues that these grants cannot be properly challenged in this dispute because
Daimler Benz Aerospace and EADS Deutschland are not relevant Airbus companies and the United
States has failed to show how they have benefited Airbus Germany.
4747
7.1460 We recall that in Section VII.E.1 of this Re port, we rejected the European Communities'
contentions, finding that a financial contribution provided to any Airbus partner or affiliated entity, or
to Airbus GIE, in relation to the development and/or production of an Airbus LCA, potentially confers
a benefit on the Airbus Industrie consortium, as the "producer" of Airbus LCA, and Airbus SAS as the

4739 US, FWS, para. 664; US, SWS, para. 513. Full titles of the Programmes are set out at para. 7.1415
above.
4740 EC, FWS, para. 1258; EC; SWS, para. 630; EC, Answer to Panel Question 108.
4741 EC, FWS, para. 1256.
4742 EC, FWS, paras. 1255-1258; EC, SWS, para. 630.
4743 EC, FWS, para. 1258; EC; SWS, para. 630; EC, Answer to Panel Question 108.
4744 See, paras. 7.1493-7.1494 below.
4745 US, FWS, paras. 668-669, referring to grants listed in Exhibit US-329 (BCI).
4746 EC, FWS, para. 1261 and Exhibit EC-210 (BCI).
4747 EC, FWS, para. 1262.

BCI deleted, as indicated [***]

successor corporate entity.
4748 As we have previously explained, Dasa was a member of the Airbus
Industrie consortium. Likewise, EADS Deutschland was a subsidiary of Dasa, later contributed to
EADS.4749 Moreover, we note that the European Co mmunities does not assert that the R&TD grants
at issue were not intended to support LCA developm ent. Accordingly, we will proceed to examine
the merits of the United States' claims against all nine Bavarian government R&TD grants of
EUR [***] identified in the parties' first written submissions.
Bremen
7.1461 The United States asserts that publicly availabl e information confirms that, between 1999 and
2006, the government of Bremen provided a total of EUR 11 million in grants to Airbus for
aeronautics-specific research under the Airbus Materials and System Technology I and II programmes
("AMST I" and "AMST II").4750 According to the United States, the European Communities has failed
to explain the discrepancy between the amount of funding it conceded, during the Annex V process,
was received by Airbus (EUR [***]), and the EUR 11 million that publicly available information
shows was provided by the government of Bremen. In this light, the United States asks the Panel to
find, in accordance with paragraph 7 of Annex V, that the government of Bremen provided Airbus
with EUR 11 million in subsidies under the AMST I and AMST II programmes.4751
7.1462 The European Communities submits that Airbus Germany received EUR [***] for
participating in nine projects under the AMST I programme and a further EUR [***] for five projects
under the AMST II programme, bringing the total amount of R&TD funding obtained by Airbus
Germany under both programmes to EUR [***].4752 According to the Eur opean Communities, the
alleged level of funding set out in the United St ates' submissions overstates the amount of funding
actually provided to Airbus Germany because it includes payments to recipients other than Airbus. In
particular, the European Communities asserts th at under the AMST I programme, monies were made
available to three research institu tes, namely the Fraunhofer Institute for Manufacturing Technology
and Applied Materials Research, the Bremen Institute for Applied Jet-Propulsion Technology, and the
Institute for Materials Technology. 4753 The European Communities discloses the precise amounts it
alleges were received by these institutes (approximately EUR [***]) in a table set out in its first
written submission. Thus, the European Communities asks the Panel to find that the R&TD support to
Airbus Germany under AMST I and AMST II was limited to EUR [***].4754
7.1463 As we understand it, the publicly available info rmation that the United States relies upon to
establish that Airbus received EUR 11 million unde r the AMST programmes is a press release issued
by a Senator of Economics of the City of Bremen, Dr Peter Gloystein. This press release appears to
repeat a speech made by Senator Gloystein at the "'Richtfest' (topping-out ceremony) of the new Halls

4748 See, paras. 7.192 - 7.200 above.
4749 We recall that prior to the EADS combination, the LCA-related assets and activities of Dasa were
reorganized into various subsidiaries, including (i) a subsidiary called DaimlerChrysler Aerospace Beteiligungs
GmbH, which held 99.99 percent of the shares in DaimlerChrysler Aerospace Airbus GmbH, which in turn held
37.9 percent of the membership rights in Airbus GIE; and (ii) a subsidiary called EADS Deutschland GmbH, to
which various other assets and liabilities of Dasa were contributed. These Dasa subsidiaries were then
contributed to EADS. See, footnote 2187 above.
4750 US, FWS, para. 674, referring to Exhibits US-334 (Bremische Bürgerschaft, Drucksache
15/1115, April 16, 2002, Mitteilung des Senats vom 16. April 2002 - Technologieoffensive für das Land
Bremen, Annex, InnoVision 2010 - Bremer Innivationsoffensive, April 2002, p. 20) and US-335 (Freie
Hansestadt Bremen, Wirtschaftssenator Dr. Peter Gloystein: "Luftfahrzeugbau eine der Schlüsselindustrien in
Bremen," press release of October 8, 2004).
4751 US, FWS; para. 676; US, SWS, paras. 508-509.
4752 EC, FWS, para. 1272, referring to Exhibit EC-212 (BCI).
4753 EC, FWS, paras. 1269 and 1272; EC, SWS, para. 637.
4754 EC, FWS, para. 1272; EC, SWS, paras. 637-638.

BCI deleted, as indicated [***]

400 and 57 at Airbus Bremen". Its title is "Aircraft construction one of the key industries in Bremen".
The particular passage that indicates the amount of fu nding allegedly provided to Airbus reads: "The
Senate is making a palpable contribution to im proving the performance and competitiveness of the
Bremen Airport plant and therefore to safeguard ing and creating permanent jobs – which involves
considerable financing. For example, the Sena tor of Economics has provided some EUR 26 million
for the AMST ('Airbus Material & System Te chnology-Center Bremen'), of which around
EUR 11 million will go to Airbus Bremen." 4755 We note that this extract does not categorically state
that EUR 11 million has been provided to Airbus Br emen, but that "around" this amount "will go" to
Airbus.
7.1464 The publicly available information also confirms that the three research institutes identified
by the European Communities did in fact participate in the AMST programmes.4756 There is, however,
no indication in the publicly available informati on of how much funding these institutes actually
obtained. Although the European Communities pr ovided a breakdown of the alleged amounts in a
table in its first written submission, it has provide d no evidence to substantiate the information
contained therein. In the light of the United States ' insistence on the European Communities' failure to
disclose all relevant information and appropriate ly explain the discrepancy between the publicly
available information and its fact ual assertions, we are surprised that the European Communities has
provided no evidence in support of the funding discl osures made in respect of the three research
institutes. In the absence of any such evid ence, we cannot accept the European Communities'
tabulation of the amounts of monies received by Ai rbus Germany and other participants under the
AMST programmes. In these circumstances, we consider it appropriate to base our factual finding on
the publicly available information submitted by th e United States, and accord ingly find that Airbus
received EUR 11 million from the government of Bremen under the AMST programmes.
Hamburg
7.1465 The United States asserts that, between 2001 and 2005, the government of Hamburg provided
Airbus with at least EUR [***] in aeronautics-specific R&TD grants under the Hamburger
Luftfahrtforschungsprogramm.4757 The European Communities argues that the funding amounts
referred to by the United States include EUR [***] provided to EADS Airbus GmbH. The European
Communities submits that this amount should be ex cluded from the total amount of funding at stake
because the United States has not explained how the monies to EADS Airbus GmbH have benefited
Airbus Germany. Thus, according to the European Communities, the total amount of funds that may
be properly challenged in this dispute is EUR [***].
4758
7.1466 We recall that in Section VII.E.1 of this Re port, we rejected the European Communities'
contentions, finding that a financial contribution provided to any Airbus partner or affiliated entity, or
to Airbus GIE, in relation to the development and/or production of an Airbus LCA, potentially confers
a benefit on the Airbus Industrie consortium, as the "producer" of Airbus LCA, and Airbus SAS as the
successor corporate entity. The Eu ropean Communities has at no stage argued that EADS Airbus
GmbH is not a company involved in the Ai rbus LCA business. Moreover, the European
Communities has not asserted that the R&TD grant at issue was not intended to support Airbus LCA
development activities. Accordingly, we will proceed to examine the merits of the United States'
claims against all of the Hambur g government R&TD grants of EUR [***] identified in the parties'
first written submissions.

4755 Exhibit US-335.
4756 Exhibit US-334.
4757 US, FWS, paras. 671-672, referring to Exhibit US-332 (BCI).
4758 EC, FWS, para. 1266 and Exhibit EC-211 (BCI); EC, SWS, paras. 634-636.

BCI deleted, as indicated [***]

(ix) French government grants
7.1467 The United States asserts, on the basis of public ly available information, that between 1986
and 2005, the French government budgeted over EUR 1. 2 billion in grants to the aeronautics industry
for civil aeronautics research and development activities. In particular, the United States contends that
French authorities budgeted EUR 391 million for the period 1986 to 1993; and EUR 809 million for
the period 1994 to 2005.
4759
7.1468 The United States recalls that the Europ ean Communities refused, during the Annex V
process, to provide any information on the fundi ng received by Airbus between 1986 and 1993.
Consequently, in its first written submission, the Un ited States asks the Panel to either request this
information from the European Communities, or el se find, in accordance with paragraph 7 of
Annex V, that Airbus received EUR 391 million in LCA-related research and development grants
from the French government for the period 1986 to 1993. 4760 In respect of the grants made between
1994 and 2005, the United States recalls that th e European Communities acknowledged, during the
Annex V process, that Airbus was a beneficiary of EUR [***]. However, the United States doubts the
accuracy of the European Communities' disclosur e, citing the European Communities' alleged
consistent under-valuation of Airbus f unding under the EC Framework Programmes. 4761 I n t h e
absence of more reliable information from the European Communities on the amount of funding
actually obtained by Airbus, the United States asks the Panel to attribute the full amount of
EUR 809 million to Airbus, in accordance with para graph 7 of Annex V. Thus, according to the
United States, the logical inference to be drawn fro m the European Communities' continued refusal to
provide all of the information needed to confir m the precise amount of French government Airbus
LCA-related research and developmen t expenditure, is that the entire amount of EUR 1.2 billion for
the period 1986 to 2005 must be allocated to Airbus.
4762
7.1469 The European Communities rejects the United St ates' assertions. In respect of the alleged
subsidies granted between 1986 and 1994, the Euro pean Communities initially argued that these fell
outside of the temporal scope of this dispute. 4763 However, following our preliminary ruling on this
issue, we asked the European Communities to pr ovide a break-down of all Airbus LCA-related
projects funded by the French government between 1986 and 1993. 4764 In response, the European
Communities stated that it was unable to provide the requested information as neither the French
government nor Airbus were able to locate an y of the research contracts for this period. 4765 However,
the European Communities explained that:
"the amount of EUR 391 million to which the United States refers in its First Written
Submission ... constitutes a budgeted figure for the entire aeronautics sector
(comprising LCA and non-LCA activities, such as helicopters and engines).
Therefore, the amount that Airbus would have received for LCA-related R&T during
this period would inevitably have been far be low this figure. This is illustrated by the
fact that out of the EUR 809 million bud geted by the French Senate for R&T
programmes in the aeronautics field for the period 1994 to 2005, only EUR [***]
went to Airbus."
4766

4759 US, FWS, para. 678 referring to French Government Funding for Civil Aeronautics Research and
Development (yearly budgets), Exhibit US-337.
4760 US, FWS, para. 684.
4761 US, FWS, paras. 682-683.
4762 US, SWS, para. 511; US, Comments on EC Answer to Panel Question 278.
4764 Panel Question 278.
4765 EC, Answer to Panel Question 278.
4766 EC, Answer to Panel Question 278.

BCI deleted, as indicated [***]

7.1470 For the years 1994 to 2005, the European Co mmunities maintains that the information
provided during the Annex V process accurately refl ects the funding obtained by Airbus over this
period.4767 According to the European Communities, the EUR 809 million figure advanced by the
United States includes the entire French government R&TD budget for all projects undertaken in the
civil aeronautics sector (comprising LCA and non-LCA activities) between 1994 and 2005. 4768
Therefore, the European Communities maintains, it is not all relevant to this dispute and cannot be
allocated in its entirety to Airbus. In the Europ ean Communities' view, the correct amount of funding
provided to Airbus by French authorities is di sclosed in the project-by-project breakdown submitted
during the Annex V process showing that Airbus received EUR [***] in LCA-related R&TD grants
from 1994 to 2005.4769
7.1471 The publicly available information relied upon by the United States takes the form of a
compilation of extracts of seven French Senate reports that reveal the amounts of R&TD funding
provided to the French civil aeronautics sector. It is clear from these reports that the funding amounts
disclosed pertain to monies distributed to the Fren ch civil aeronautics sector as a whole, including but
not limited to Airbus and, in some cases for non-LCA activities.
4770 For the period 1986 to 1993, the
information indicates that FF 2,565 million, or EUR 391 million, was disbursed for civil aeronautics
research undertaken by the participating French entities. The European Communities does not contest
that the French government disbursed this amount of funding to the civil aeronautics sector between
1986 and 1993. However, it has provided no information on the share of this funding going to Airbus.
Moreover, in response to a specific question from the Panel asking it to disclose the projects and
amount of French government R&TD funding going to Airbus during this period,
4771 the European
Communities provided no information, citing the inab ility of both the French government and Airbus
to find the relevant research contracts.
7.1472 We appreciate that obtaining information from up to 22 years ago may not always be a simple
task. However, where a party that is the obvious or iginator of requested information is faced with
such difficulties, we believe it is incumbent upon that party to not only explain why it cannot submit
the requested information, but also to do its best to provide an appropriate proxy for the missing
information. In our view, the explanation the Eu ropean Communities has provided for its failure to
submit the requested information a nd the approach it suggests might be adopted by the Panel in order
to arrive at an appropriate R&TD figure are less than satisfactory. In particular, we are not convinced
that, even in the absence of the actual contracts, there was no public (or co nfidential) information
available to the French government and Airbus that might have usefully guided us in our deliberations
on the amount, or approximate amount, of actual R&TD funding received by Airbus. Simply stating
that Airbus "inevitably" received an amount "far below" the total funding provided to the aeronautics
sector as a whole ( i.e., "far below" EUR 391 million) because the evidence from a subsequent period
of funding (1994 to 2005) shows that this was the case in that subsequent period, is guidance of a kind
that is so general that in practice it provides very little assistance at all. In the absence of a more
acceptable suggestion on the part of the European Communities for how to fill the evidentiary gap, the
only information we have available to us on the French government R&TD contributions to Airbus
between 1986 to 1993 is that contained in Exhibit US-337. Although we are fully aware of its
limitations, we believe that in these particular circum stances, we are left with no alternative but to use

4767 EC, SWS, para. 640; EC, Answer to Panel Question 279.
4768 EC, FWS, para. 1278.
Aéronautiques et de la Coopération ("DPAC"), Soutiens Versés au Titre des Etudes et Recherches portant sur
les Avions de 10 place et plus de 1992 à 2005, 2 novembre 2005, Exhibit EC-209 (BCI).
4770 For instance , see Budget 1997: Sénat, No. 89 (session ordinaire de 1999-2000), Rapport Général,
de finances pour 2000, Tome III, Annexe No. 25, Equipment, Transports et Logement; III. – Transports;
Transport Aérien et Météorolgie et Aviation Civile, p. 88, in Exhibit US-337.
4771 Panel Question 278.

BCI deleted, as indicated [***]

it as the basis of our factual finding. In this re gard, we recall that where a party refuses to supply
information requested by a panel, it is open to that panel to draw inferences from the full
configuration of facts that are before it.
4772 Accordingly, on the basis of the full configuration of the
facts that are before us, we find that Airbus received a maximum of EUR 391 million in French
government R&TD grants between 1986 and 1993.
7.1473 We come to a different conclusion in respect of the funding provided to Airbus between 1994
and 2005. The information submitted by the Euro pean Communities showing that Airbus was the
recipient of EUR [***] is derived from a document authored by the DPAC, the authority that
administered the French government funding programmes. 4773 This document provides a project-by-
project break-down of French government R&TD funding to all recipients from 1994 to 2005.4774 We
are satisfied that this document provides a suitabl e basis for our factual finding in respect of the
monies Airbus received from the French government for R&TD activities over this period. Although
the United States has expressed doubt about whethe r this document captures all such funding
provided to Airbus, it has pointed to no inconsiste ncy between the data cont ained in this document
and, for example, publicly available information to suggest that it is unreliable. Thus, we find the total
amount of French government R&TD funding to Airbus between 1994 and 2005 to be EUR [***].
(x) Spanish government loans
Plan Tecnológico Aeronáutico
7.1474 The United States asserts that, between 1993 and 2003, the Spanish government provided
Airbus with below-market research and development loans in the amount of EUR [***] under two
phases of the Plan Tecnológico Aeronáutico ("PTA") . Under the first phase, PTA I, which ran from
1993 to 1998, the United States contends that Airbus received loans in the amount of EUR [***]. In
the second phase, PTA II, which ran from 1999-2003, th e United States submits that Airbus obtained
EUR [***] in loans. 4775 The European Communities does not cont est that Airbus received loans of
EUR [***] under the PTA. However, according to th e European Communities, the disbursements
under PTA I and II which took place from 1993 to 1994 fall outside the temporal scope of Article 5 of
the SCM Agreement. According to the European Communities, these payments must be disregarded
by the Panel, bringing the total amount of relevant funding under the PTA to EUR [***].4776
7.1475 We recall that in Section VII.C.2 of this Report, we rejected the European Communities'
arguments on the temporal scope of this dispute. 4777 Accordingly, we will proceed to examine the
merits of the United States' claims agains t the Spanish government's provision of EUR [***] in
R&TD loans under the PTA.
Programa de Fomento de Innovación Técnica
7.1476 The United States asserts that the Spanish gove rnment provided Airbus with below-market
research and development loans under two phases of the Programa de Fomento de Innovación
Técnica ("PROFIT"), first established in 2000. A ccording to the United States, publicly available
information demonstrates that Airbus received loans under the first phase of the PROFIT in the

4772 Appellate Body Report, Canada – Aircraft, para. 203.
4774 See, footnote 4770 above.
4775 US, FWS, para. 693 referring to Exhibit US-344 (BCI), setting out information on the amounts of
Airbus funding under the PTA disclosed by the European Communities during the Annex V process.
4776 EC, FWS, para. 1312.
4777 See, paras. 7.65 and 7.105 above.

BCI deleted, as indicated [***]

amount of EUR 1.5 million. 4778 In addition to this amount that allegedly went directly to Airbus, the
United States asserts that the Spanish aeronauti cs industry received an additional EUR 62 million in
loans under both phases of the programme. 4779 The United States recalls that the European
Communities did not respond to the Facilitator's requ est for recipient-specific funding information
under the PROFIT. In this light, the United St ates asks the Panel to request the European
Communities to provide the information the Facilita tor requested, or else find, in accordance with
paragraph 7 of Annex V, that the Spanish governme nt provided Airbus with loans in the amount of
EUR 63.5 million.4780
7.1477 As we have noted above, the European Communities has consistently argued that the PROFIT
loans challenged by the United States fall outside the terms of reference of the present dispute. 4781
Because of this, the European Communities initially refused to provide any information on payments
under the PROFIT. However, following the first substantive meeting with the parties, the Panel asked
the European Communities to provide informati on on the loan payments made under the PROFIT. 4782
This request was made in the context of the statement of the European Communities in its first written
submission, that it would provide the Panel with "information regarding loans and grants" under the
PROFIT were the Panel to determine that the Un ited States' claims fell within the Terms of
Reference.4783 In response, the European Communities submitted information on what appears to be a
selection of payments made under a series of PROFIT sub-programmes in the years 2004 and 2005
"in the spirit of good cooperation and without prejudi ce to its" position that th e United States' claims
fell outside of the Panel's terms of reference.
4784 The European Communities subsequently
characterized this information as "relevant in formation on payments made under the PROFIT
programme".4785 However, it is less than apparent to us how the figures supplied by the European
Communities are in fact "relevant" to our request for information. First, it is unclear whether the
information provided by the European Communitie s relates to all sub-pr ogrammes funded under the
PROFIT or just a selection, because the European Communities has not specified exactly how much
payment data it has supplied. Second, the informati on does not identify the recipients of the funding
amounts, making it impossible to determine how much of the disclosed monies involved loans to
Airbus.
7.1478 The European Communities noted that "{i}n vi ew of the immense scope of the programme,
the European Communities respectfu lly requests the Panel, should it d ecide that PROFIT falls within
the terms of reference, quod non , and desire additional information concerning the programme, to
specify the information it would like to obtain so that such information could be prepared in the most

4778 US, FWS, para. 698, referring to PROFIT 2003, Comites de Evaluación de 21 y 22/4/03, Proyectos
y entidades con propuesta favorable de ayuda, P.N. Aeronáutico, Exhibit US-351.
4779 US, FWS, para. 698, referring to Javier Alfonso Gil, Antonia Sáez Cala and Maricruz Lacalle
Universidad Autonoma de Madrid (undated) , at 70, Exhibit US-352; and Ramon Herrero, Ministerio de
Industria, Turismo y Comercio, Aeronautics Rese arch and Development in Spain, ACARE AeroDays ,
March 31, 2005, at 25, Exhibit US-353.
4780 US, FWS, para. 702.
4781 See, para. 7.1418 above; EC, FWS, para. 1315; EC, Answer to Panel Question 109; EC, SWS,
para. 647.
4782 Panel Question 109.
4783 EC, FWS, para. 1318. We note that the European Communities made this statement under the
"Payments" sub-heading within its discussion of the PROFIT. Elsewhere, where the European Communities
used the same "Payments" sub-heading it revealed what it considered to be the amount of alleged subsidization
received by Airbus, for instance, at paras. 1312 (grants under the PTA I and II); 1289-1290 (grants and loans
under the CARAD and ARP Programmes); 1278-1279 (French government R&TD grants); and 1271-1272
(Bremen authorities' R&TD grants).
4784 EC, Answer to Panel Question 109, submitting Exhibit EC-624 (BCI).
4785 EC, SWS, para. 648.

BCI deleted, as indicated [***]

efficient way possible."
4786 We are puzzled by the European Communities' response. Although we
recognize that the question posed to the European Communities was not as specific as it could have
been, it is our view that, in the context of the European Communities' statement at paragraph 1318 of
its first written submission, 4787 the United States' claims and factual assertions, as well as the
Facilitator's previous Annex V information requests, it was reasonably clear th at the information we
requested was information pertaining to loan payments to Airbus under the PROFIT. The fact that we
had not yet ruled on whether the United States' claims fell within our terms of reference at the time of
our request is, in our view, not a valid reason for fa iling to provide the requested information. In this
regard we observe that the European Communitie s did not consider the absence of any terms of
reference ruling problematic when it voluntarily, on a without prejudice basis, provided information
on the amount of French government R&TD funding gran ted to Airbus in its first written submission,
even though it had also consistently argued that such funding fell outside of our terms of reference.4788
7.1479 The publicly available information submitted by the United States takes the form of: (i) two
Spanish government decrees establishing the PROFIT; 4789 (ii) a table of unknown origin setting out
various items of information on loans provi ded under the PROFIT (Programa Nacional de
Aeronautica) in 2003; (iii) one page from a Report prepared by the Universidad Autonoma de Madrid;
and (iv) one page from what appears to be a Power point presentation prepared by an official of the
Spanish Ministerio de Industria, Turismo y Comerc io. The Spanish government decrees confirm that
the PROFIT was established with a view to running under two phases from 2000 to 2007. 4790 The
next above-cited document submitted by the United States indicates that Airbus obtained two loans in
2003 of approximately EUR 1.5 million. 4791 We note that the European Communities has
acknowledged that Airbus received this amount of funding. 4792 However, the European Communities
does not accept that Airbus received the remai nder of the funding the United States asserts was
provided to Airbus. In this regard, the inform ation supplied by the United States indicates that
EUR 2.58 million and EUR 2.76 million in "antic ipos reembolsables", and EUR 0.5 million and
EUR 0.7 million in "subvenciones", was provided to all participants under the "Programa Nacional de
Aeronautica" of the PROFIT in 2001 and 2002. 4793 In addition, the last of the above-cited documents
submitted by the United States indicates that EUR 55 .5 million in loans was provided to the Spanish
aeronautics sector in 2004. 4794 The United States contends that, in the light of the European
Communities' refusal to provide more specific information on the funding obtained by Airbus, the full
value of these amounts (EUR 62 million, i.e., EUR 6.54 million in 2001 and 2002 plus
EUR 55.5 million in 2004) must be added to the EUR 1.5 million accepted by the European
Communities and allocated to Airbus for the year 2003.

4786 EC, Answer to Panel Question 109.
4787 Including the context described in footnote 4783.
4788 EC, FWS, paras. 1274 and 1276.
Programma de Fomento de la Investigación Técnica (PROFIT), incluido en el Plan Nacional de Investigación
Cientfíca, Desarrollo e Innovación Tecnologíca (2000-2003) , BOE núm. 59 (9 March 2000), at 9855-62,
bases, el régimen de ayudas y la gestión del Plan Nacional de Investigación Cientifíca, Desarrollo e Innovación
Tecnológica (2004-2007) en la parte dedicada al fomento de la investigación técnica , BOE núm. 67
(19 March 2005), at 9670, Exhibit US-350, ("Order of 18 March 2005").
4790 Exhibits US-349 and 350.
4791 The actual loan amount is EUR 1,554,622.60. PROFIT 2003. Comites de Evaluación de 21 y
22/4/03, Proyectos y entidades con propuesta favorable de ayuda, P.N. Aeronáutico, Exhibit US-351.
4792 EC, SCOS, HSBI-Redacted Version, Table at para. 36.
4793 Javier Alfonso Gil, Antonia Sáez Cala and Mari cruz Lacalle Calderón, EADS y las Estrategias
Territoriales del Sudoeste Europeo: Informe de la Región de Madrid, Universidad Autonoma de Madrid
(undated), at 70, Exhibit US-352.
4794 Ramon Herrero, Ministerio de Industria, Tu rismo y Comercio, Aeronautics Research and
Development in Spain, ACARE AeroDays, March 31, 2005, at 25, Exhibit US-353.

BCI deleted, as indicated [***]

7.1480 We recognize that the bulk of the information the United States is asking us to rely upon
discloses industry-wide funding and not individual lo ans granted to Airbus. However, due to the
European Communities' failure to provide any speci fic information on the value of the loans obtained
by Airbus under the PROFIT in response to th e Facilitator's and our own requests, the publicly
available information submitted by th e United States is the only data we have to consider. In this
regard, we note that the European Communities has at no stage challenged the credibility of the
information contained in these publicly available doc uments. Thus, we have no reason to doubt that
the Spanish aeronautics industry received EUR 62 m illion in funding under the PROFIT. In this light,
and in accordance with paragraph 7 of Annex V, we believe it is appropriate to base our findings on
the amount of loans obtained by Airbus under the PROFIT on the publicly available information,
submitted by the United States. In doing so, we ob serve that given the focus of the United States
complaint on "anticipos reembolsab les", we believe that it would be inappropriate to consider
allocating the amounts (EUR 1.2 million) descr ibed as "subvenciones" in Exhibit US-352 to
Airbus.4795 Therefore, in accordance with paragraph 7 of Annex V, we find that Airbus was the
recipient of approximately EUR 62.2 million in loans under the PROFIT.
(xi) UK government grants
Civil Aircraft Research and Demonstration Programme / Aeronautics Research Programme
7.1481 The United States asserts that, between 1992 and 2005, the UK Department of Trade and
Industry ("DTI") agreed to provide Airbus with GBP [***] in LCA-related research grants under the
Civil Aircraft Research and Demonstration Programme ("CARAD"), which it alleges was later
renamed the Aeronautics Research Programme ("ARP" ). In particular, the United States asserts that,
over this period, the UK DTI disbursed approximately GBP [***] and committed to disburse a further
GBP [***].4796 According to the European Communities, the total amount of LCA-related research
grants that Airbus received between 1992 a nd 2005 under the CARAD programme and ARP was
approximately GBP [***]. However, the European Communities ar gues that not all of this amount is
properly within the scope of this dispute because it includes payments of GBP [***] that were granted
prior to 1995, and therefore outside of the temporal scope of this dispute. 4797 Thus, the European
Communities submits that the amount of funding that is properly within the scope of the United States
complaint is limited to GBP [***].4798
7.1482 We recall that in Section VII.C.2 of this Report, we rejected the European Communities'
arguments on the temporal scope of this dispute. 4799 Therefore, we will include payments made under
the CARAD programme between 1992 and 1995 in our analysis.
7.1483 In reviewing the parties' submissions on the actual amount of funding received by Airbus
under the CARAD programme, we have identified a num ber of discrepancies. In the first instance,
we note that the factual basis of the United States assertion that Airbus received GBP [***] is
information submitted by the European Communitie s during the Annex V process. However, the
European Communities relies upon the same data to conclude that Airbus received only GBP [***].
7.1484 Payments made to Airbus under th e CARAD programme between April 1997
and October 2005 are specified in one table, submitted by the United States as Exhibit US-339 (BCI)

4795 See, e.g., US, FWS, para. 697 and footnote 859, which refers to Article 7.4 paras. a) to c) of the
Spanish government decree establishing the PROFIT (2000 to 2003), Exhibit US-349.
4796 US, FWS, para. 686, citing Exhibit US-339, which reproduces information supplied by the
European Communities during the Annex V process.
4797 EC, FWS, paras. 1281 and 1289.
4798 EC, FWS, para. 1289.
4799 See, paras. 7.65 and 7.105 above.

BCI deleted, as indicated [***]

and the European Communities as Exhibit EC-233 (BCI). This table sets out the relevant payments
on a project-by-project basis, in each financial year (1 April to 31 March) starting from 1997/1998
to October 2005. These individual payments are al so summed and presented in a separate column as
the total amount of funds received per-project as well as the total overall amount obtained by Airbus
under the entire programme. The difference in how the parties have interpreted the data contained in
this table may be explained by a calculation error. In arriving at an amount of funding of GBP [***],
the United States used a figure of GBP [***], which was identified in the table as the total value of all
payments made to Airbus under the CARAD programme . This figure was calculated by adding all of
the per-project payment amounts listed in the same co lumn. However, we have found that for eleven
of the projects, the total amount of payments made to Airbus listed in the "Payments to Airbus to
Date" column overstates what the same table shows w as actually paid in each of the relevant financial
years. When these errors are taken into account, the correct figure should be GBP [***].
7.1485 In addition, the United States' assertion that the UK DTI made a commitment to provide
Airbus with an additional GBP [***] in grants under the CARAD programme appears to involve
double-counting. As we understand its submission, the United States relies on the table contained on
the last page of Exhibit US-339 (BCI) to justify it s assertion. However, it appears to us that the
contributions that the United States relies upon, which added together come to approximately GBP

4800 are already accounted for as payments in the financial years listed in the table the United
States uses to justify that Airbus received GBP [***]. Therefore, we cannot accept the United States'
assertion in respect of the alleged commitment of GBP [***].
7.1486 Finally, in arguing that Airbus received GBP [***] in grants under the CARAD programme,
the European Communities relied upon a series of tables setting out payments made to Airbus
between 1992 and 1996 presented in Exhibits EC-2 32 (BCI) and US-339 (BCI). However, in doing
so, the European Communities incorrectly transposed two of the values shown in the tables ([***] and

7.1487 Thus, in the light of the information before us, we find that Airbus received GBP [***] in
grants under the CARAD programme and ARP between January 1992 and October 2005.
Technology Programme
7.1488 The United States initially asserted that Airbus research consortia received GBP [***] in
grants under the Technology Programme ("TP"), which ran from 2004. 4801 The European
Communities indicated in its first written subm ission that, as of November 2005, Airbus had
participated in 18 projects under the Tec hnology Programme, receiving a total of GBP [***].4802 The
United States appears to be satisfied that this am ount of funding is an a ccurate reflection of the
monies Airbus received under the TP. Thus, we find that there is no dispute between the parties as to
the amount of funding Airbus received under the TP.

4800 The actual amount is GBP [***].
4801 US, FWS, para. 687, citing Exhibit US-340, which reproduces information supplied by the
European Communities during the Annex V process.
4802 EC, FWS, para. 1292, citing Exhibit EC-235 (BCI), showing that Airbus received GBP [***] in
grants under the programme.

BCI deleted, as indicated [***]

(d) Whether each of the challenged R&TD measures individually constitutes a subsidy within the
meaning of Article 1 of the SCM Agreement
(i) Arguments of the Parties
United States
7.1489 The United States alleges that each of the cha llenged R&TD measures constitutes a "financial
contribution" that confers a "benefit" on Airbus, and therefore amounts to a subsidy, within the
meaning of Article 1.1 of the SCM Agreement.
7.1490 To the extent that the measures at issue take th e form of grants or loans, the United States
contends that they fall explicitly within the definition of a "financial contribution" set out in
Article 1.1(a)(1)(i) of the SCM Agreement. 4803 According to the United States, it is well established
that a grant confers a benefit because, as the panel stated in United States – Cotton , it "place{s} the
recipient in a better position than the recipient otherwise would have been in the marketplace". 4804
Thus, the United States argues that the R&TD grants at issue in this dispute necessarily confer a
benefit on Airbus and, consequent ly, constitute subsidies within the meaning of Article 1.1 of the
SCM Agreement.4805
7.1491 As far as the Spanish government loans are c oncerned, the United States argues that when a
loan is provided to a recipient on terms that are better than those available in the commercial
marketplace, a benefit is conferred. 4806 Thus, according to the United States, because the loans at
issue are provided to Airbus [***], they confer a benefit upon Airbus. The United States submits that
it is not necessary to quantify the amount of this benefit because the [***] terms are alone sufficient to
establish the existence of a benefit. 4807 Furthermore, the United States argues that the deferred
repayment terms provided for under the challenged loans further evidence the existence of a benefit to
Airbus.4808
European Communities
7.1492 The European Communities explicitly acknowledg es that Airbus received subsidies under the
LuFo I, LuFo II, LuFo III, the AMST I, AMST II and the CARAD/ARP programmes.4809 However, it
disputes whether funds committed but not disbursed to Airbus under the LuFo III programme as of
1 July 2005 should be taken into account in establishing the amount of subsidy provided to Airbus
under this programme. 4810 For all of the remaining R&TD measures at issue, the European
Communities does not contest that they constitute financial contributions within the meaning of

4803 US, FWS, paras. 626 (grants under the EC Framework Programmes); 680 (French government
grants); 655 (German Federal government and Sub-Federal government grants); 694, 700 (Spanish government
loans); and 688 (UK government grants).
4804 Panel Report, US – Upland Cotton, para. 7.1116.
4805 US, FWS, paras. 627 (grants under the EC Framework Programmes); 681 (French government
grants); 656 (German Federal government and Sub-Federal government grants); and 689 (UK government
grants).
4806 US, FWS, paras. 695 (PTA loans) and 701 (PROFIT loans), relying upon Appellate Body Report,
Canada - Aircraft, para.157.
4807 US, Answer to Panel Question 38.
4808 US, FWS, paras. 693 and 695 ( [***] for PTA loans) and 697 and 701 (up to 15 years for PROFIT
loans); US, SWS, para. 514.
4809 EC, Answer to Panel Question 108.
4810 EC, FWS, para. 1256-1257; EC, SWS, para. 630; EC, Answer to Panel Question 104.

BCI deleted, as indicated [***]

Article 1.1(a)(1)(i) of the SCM Agreement.
4811 Moreover, the only United States allegation of benefit
that the European Communities e xplicitly contests relates to Span ish government loans under the
PTA. According to the European Communities, the United States has failed to establish that these
loans confer a benefit on Airbus because it failed to undertake an appropriate comparison between the
terms of the PTA loans and loans available on the marketplace.4812
(ii) Evaluation by the Panel
Do the Challenged Measures involve a "Financial contribution"?
7.1493 The European Communities argues that funds committed to Airbus, but not disbursed, under
the LuFo III programme as of 1 July 2005 ( i.e., the cut-off date used by the United States in its first
written submission) should be excluded from our c onsideration. According to the European
Communities, this would reduce the amount of fu nding at issue under the three LuFo programmes
from EUR [***] to EUR [***] (a difference of approximately EUR [***]).4813 The United States
argues that the amount of funding at stake under the three LuFo programmes is EUR 217 million.
The United States appears to derive this amount from the Förderkatalog.
4814 According to the
United States, the Förderkatalog is an electronic R&D subsidy catalogue maintained by the German
Federal government which records R&D funding pr ovided by the German Federal Ministry for
Research and Technology and the Ge rman Federal Economics Ministry.4815 The United States argues
that the Förderkatalog demonstrates that a firm commitment had been made as of 1 July 2005 to
disburse the EUR [***], which the European Communities cont ends should not be considered, and
that there is no indication that such money has not been and will not be disbursed. The United States
notes that a subsidy within the meaning of Article 1 of the SCM Agreement includes "potential direct
transfers of funds" as well as actual direct transfers of funds. Thus, even if the European
Communities were correct in characterising cer tain amounts as "commitments" rather than
"disbursements" that would not be a basis fo r excluding those amounts from the Panel's
consideration.
4816
7.1494 The European Communities does not contest the United States' allegation that funding
granted to Airbus under the LuFo programmes up to 1 July 2005 constitutes a "financial contribution"
within the meaning of Article 1.1(a)(1)(i) of the SC M Agreement. In our view, there is no doubt that
such amounts represent a "direct transfer of funds" a nd therefore fall squarely within the definition of
a "financial contribution" that is set out in Article 1.1(a)(1)(i) of the SCM Agreement. Thus, we are
satisfied that the evidence submitted by the United St ates, to the extent corroborated by the European
Communities on the basis of information obtained fr om the German Federal Ministry of Economics
and Industry, establishes that as of 1 July 2005, th e German Federal government provided a "financial
contribution" to Airbus under the LuFo programmes in the amount of EUR [***].4817

4811 EC, FWS, paras. 1218-1319; EC, SWS, paras. 610-649; EC, Answer to Panel Question 104, where
the European Communities recognizes that to the extent th at they are shown to confer a benefit on Airbus, the
challenged measures would constitute subsidies within the meaning of Article 1 of the SCM Agreement.
4812 EC, FWS, para. 1313. The European Communities makes no similar argument on the question of
the existence of benefit in respect of the United States complaint against the PROFIT loans. EC, FWS, paras.
1314-1319; EC, SWS, paras. 646-649.
4813 EC, FWS, para. 1258.
4814 US, FWS, para. 663.
4815 US, FWS, footnote 806 and Exhibit US-326. The European Communities describes the
Förderkatalog as a public database which lists all the recipients of research grants in al l areas where funding is
provided by the German government. EC, FWS, para. 1255.
4816 US, SWS, para. 514.
4817 EC, FWS, para. 1257. The BCI table presented following para. 1257 of the European
Communities' first written submission identifies amounts of funding under each of the three LuFo programmes,

BCI deleted, as indicated [***]

7.1495 In respect of the funding that was comm itted, but not disbursed under LuFo III as of
1 July 2005, the European Communities' principal ar gument in response to th e United States' claims
amounts to the submission that a government commitm ent of funds, without any actual disbursement
of those funds, cannot amount to a "financial contri bution". However, as we have noted elsewhere in
this Report, a commitment to provide funds may well be a "financial contribution" if in the form of a
"potential direct transfer of funds". 4818 As we understand it, the Unite d States argues that the funds
that were committed but not disbursed to Airbus under the LuFo III programme represent precisely
this form of "financial contribution". We agree. Ju st as the disbursement of funds is a "direct transfer
of funds", a commitment – or a promise – to disburse funds may be properly characterized as a
"potential direct transfer of funds" falling within the definition of a "financial contribution" set out in
Article 1.1(a)(1)(i) of the SCM Agreement. Thus, on the basis of the parties' submissions and the
evidence that has been presented, we find that as of 1 July 2005, the German Federal government
provided Airbus with a "potential direct transfer of funds" in the form of a commitment to transfer
approximately EUR [***] to Airbus under the LuFo III programme.
 4819
7.1496 As regards the remaining R&TD measures at issue, 4820 we agree with the United States that to
the extent they are grants involving direct transfer s of funds or loans, they explicitly fall within the
definition of a "financial contribution" under Article 1.1(a)(1)(i) of the SCM Agreement.
Do the challenged Measures confer a "Benefit" on Airbus?
7.1497 The European Communities has not contested th e United States' allegation that the R&TD
grants confer a benefit upon Airbus. However, it has disputed whether the United States has
established that Airbus received any benefit fro m the Spanish government loans provided under the
PTA. The basis of the European Communities' view is that, consistent with the Appellate Body's
views in Canada – Aircraft , the United States must demonstrate the existence of a benefit to Airbus
by undertaking "some kind of comparison" between the loans obtained by Airbus and comparable
loans available on the marketplace. The United Stat es argues that the very fact that the loans in
question were made at a [***] interest rate is enough to establish that they were made on preferential
terms compared with the marketplace and, therefore, that they confer a benefit on Airbus.4821
7.1498 The Spanish government loans that are the subject of this part of the United States' complaint
were provided to Airbus between 1993 and 2003 unde r two phases of the PTA (PTA I and PTA II).
PTA I ran from 1993 to 1998 and PTA II ran from 1999 to 2003. The evidence submitted by the

distinguishing between "project grants to Airbus Ge rmany" and "amount{s} received by Airbus Germany as of
1 July 2005", listing the latter as an amount of EUR [***].
4818 See, paras. 7.301 - 7.304 and 7.733 - 7.735 above.
4819 EC, FWS, para. 1257. The BCI table presented following para. 1257 of the European
Communities' first written submission identifies amounts of funding under each of the three LuFo programmes,
distinguishing between "project grants to Airbus Ge rmany" and "amount{s} received by Airbus Germany as of
1 July 2005". The table shows that the "project grants to Airbus" under LuFo I and LuFo II were paid out to
Airbus in full; whereas under LuFo III, there was an approximately EUR [***] difference between "project
grants to Airbus Germany" (EUR [***]) and "amount received by Airbus Germany as of 1 July 2005"
(EUR [***]). The funding "grants" under the LuFo III programme were intended to be made over a period
ending 2007. See, also, EC, SWS, para. 630.
4820 I.e., all of the measures granted under the 2 nd Framework Programme, 3 rd Framework Programme,
4th Framework Programme, 5 th Framework Programme and 6 th Framework Programme ( see, paras. 7.1427,
7.1433, 7.1439, 7.1445 and 7.1451 above) as well as the German federal and sub-federal government grants,
French government grants, Spanish government loans and UK government grants (see, paras. 7.1457, 7.1459,
7.1461, 7.1465, 7.1467, 7.1474 and 7.1481 above).

BCI deleted, as indicated [***]

United States suggests that all of the PTA loans were [***].
4822 The European Communities has not
contested this evidence. In addition, we note that the loans granted under PTA I between 1993 and
1998 carried a [***] repayment term, with the first repayment expected only in the year 2000.4823 The
PTA II loans granted between 1999 and 2003 carried a [***] repayment term, with the first repayment
required in 2007.4824 The monies loaned under the two phases of the PTA amounted to approximately
EUR [***].4825
7.1499 We recall that it is well established that whet her a financial contribution confers a benefit
upon its recipient is a question that must be reso lved by reference to the market. Thus, in the
particular context of a financial contribution in the form of a loan, a benefit will be conferred
whenever it is granted to a recipient on terms more favourable than those available to the recipient in
the market.4826 As already noted elsewhere in this Report , we believe that it would be extraordinary
and highly unlikely for a market-based lender acting pursuant to commercial considerations to provide
financing at a [***] rate of return. 4827 It would be even more exceptional to find a market lender
agreeing to finance EUR [***] worth of R&TD activities in the LCA sector at a [***] rate of return
with full repayment not expected before as much as 21 to 30 years. In this light, we consider that it
was not necessary for the United St ates to present evidence of the terms and conditions of specific
market-based financing comparable to the loans at issue in order to establish, at least on a prima facie
basis, that the PTA loans conferred a benefit upon Airbus.
7.1500 Although the European Communities has questioned whether the United States has
demonstrated that the PTA loans conferred a benefit, it has provided no evidence of its own to counter
the United States' prima facie case. Thus, on the basis of the evidence and arguments before us, we
are satisfied that Airbus obtained the PTA lo ans from the Spanish government on terms more
favourable than would otherwise have been possibl e on the market. We therefore find that the PTA
loans at issue conferred a benefit upon Airbus, a nd consequently, amount to subsidies within the
meaning of Article 1.1 of the SCM Agreement.
7.1501 In respect of the remainder of the cha llenged R&TD measures, we agree with the
United States that to the extent that Airbus receive d a funding grant in the form of an actual "direct
transfer of funds" from the various entities involve d, it was automatically placed in a better position
than it would otherwise have been in without the grant. 4828 The European Communities has not
contested this aspect of the United States' submissi on. Consequently, we find that all of the R&TD
funding grants obtained by Airbus that we have identified as the subject of the United States'
complaint conferred a benefit upon Airbus, and ar e therefore subsidies within the meaning of
Article 1.1 of the SCM Agreement.
7.1502 However, we are not convinced that the Unite d States has established that the approximately
EUR [***] "financial contribution" granted to Airbus under the LuFo III programme in the form of a
"potential direct transfer of funds" conferred a be nefit. As we have previously explained, a
benefit may arise from a "potential direct transfer of funds" when the commitment or promise to
provide funds in and of itself places the recipient of that commitment or promise in a better position

4822 The information submitted by the United States in Exhibits US-344 (BCI) and US-345 (BCI)
indicates that [***].
4823 Exhibit US-344 (BCI).
4824 Exhibits US-344 (BCI) and US-345 (BCI).
4825 Exhibits US-344 (BCI) and US-345 (BCI).
4826 See, para. 7.401 above.
4827 See, footnote 2728 above.
4828 US, FWS, paras. 627 (grants under the EC Framework Programmes); 681 (French government
grants); 656 (German Federal government and Sub-Federal government grants); and 689 (UK government
grants).

BCI deleted, as indicated [***]

than it would otherwise have been in without that commitment or promise. 4829 The United States has
advanced no argument and submitted no evidence e xplaining why the LuFo III funding commitment
at issue in and of itself conferred a benefit that is separate and independent from the benefit that might
be conferred by any future transfer of the promised funds. On the contrary, the entire focus of the
United States' arguments appears to have been the benefits associated with the amount of funds that
were promised, as opposed to the promise itself. T hus, we find that the United States has failed to
establish that the EUR [***] funding commitment made by the German Federal government under the
LuFo III programme conferred a benefit upon Airbus. We therefore dismiss the United States' claims
with respect to this particular measure.
7.1503 Finally, we note that the European Comm unities has not challenged the United States'
contention that the loans under the PROFIT confer a benefit because they were provided to Airbus at
a [***] rate of interest, with deferred repayment schedules extending up to 15 years. The publicly
available information the United States has submitted to support its claims confirms that the PROFIT
loans were provided to Airbus on [***] terms with a maximum repayment period of 15 years. 4830
Once again, we note that it would, in our view, be exceptional to find a market lender acting pursuant
to commercial considerations willing to finance EUR [***] worth of R&TD activities in the LCA
sector at a [***] rate of interest. We therefore find that the evidence and arguments presented by the
United States are sufficient to establish, at least on a prima facie basis, that the PROFIT loans
conferred a benefit upon Airbus. The European Communities has provided no evidence to counter the
United States' contentions. Thus, on the basis of the evidence and arguments before us, we are
satisfied that Airbus obtained the PROFIT lo ans from the Spanish government on terms more
favourable than would have been possible on the ma rketplace. We therefore find that the PROFIT
loans at issue conferred a benefit upon Airbus, a nd consequently, amount to subsidies within the
meaning of Article 1.1 of the SCM Agreement.
(e) Whether the R&TD subsidies are specific wi thin the meaning of Article 2 of the
SCM Agreement
(i) Introduction
7.1504 The United States argues that all of the R&TD s ubsidies it challenges are specific to Airbus
and/or the aeronautics industry, within the me aning of Article 2.1 of the SCM Agreement .4831 The
European Communities disputes the United States' allegations only in respect of the subsidies granted
under each of the EC Framework Programmes, the Spanish government PROFIT programme and the
UK Technology Programme. 4832 In the sections that follow, we st art our evaluation of the merits of
the United States' claims by focusing on the allegations of specificity contested by the EC.
(ii) Grants under the EC Framework Programmes
Arguments of the United States
7.1505 The United States argues that the subsidi es granted to Airbus under the Framework
Programmes are specific, "in law", within the mean ing of Article 2.1(a) of the SCM Agreement,
because they were granted pursuant to "specific programmes" with their own implementation rules
and separate budgets dedicated to aeronautics i ndustry research activities. In particular, the

4829 See, paras. 7.301 - 7.304 and 7.733 - 7.735 above.
4830 Exhibit US-349, Articolo 7.4(c), confirming that loans ("anticipos reembolsable") under the
PROFIT I were provided with an "applied interest rate of zero per cent per year". Exhibit US-350, Capitolo I,
paragrafo noveno, regarding loans ("préstamos"), "applied interest rate of zero per cent per year".
4831 US, FWS, paras. 651-653, 665-666, 670, 677, 685, 691, 696 and 703.
4832 EC, FWS, paras. 1219, 1243-1252, 1294-1307 and 1319.

BCI deleted, as indicated [***]

United States asserts that, under the Second Fr amework Programme, the European Communities
established a programme called "Industrial manuf acturing technologies and advanced materials
applications" ("BRITE/EURAM"), within which it a llocated a "ring-fenced" amount of funding to
aeronautics research under the heading "Area 5 - Specific Activities Relating to Aeronautics".
Similarly, the United States submits that the Eur opean Communities allocated "ring-fenced" funding
amounts for aeronautics research within the scope of the "Area 3, Aeronautics" and "Area 3A,
Aeronautics" headings of the BRITE/EURAM progr ammes, respectively estab lished under the Third
and Fourth Framework Programmes. Moreover, the United States contends that a separate
aeronautics-specific sub-budget was also created w ithin each of the Fifth and Sixth Framework
Programmes. In respect of the Fifth Framework Programme, the United States asserts that eight
specific programmes were established, including one known as "competitive and sustainable growth".
The United States argues that this programme in cluded a dedicated sub-budget for research falling
within the "New perspectives for aeronautics" headi ng. Finally, the United States asserts that the
European Communities designated aeronautics re search as a "priority" area under the Sixth
Framework Programme, with its own separate and dedicated budget.
4833
7.1506 The United States submits that for areas unde r each of the Framework Programmes where a
dedicated sub-budget was made available, the Eu ropean Commission adopted a "work programme"
setting out the technical content of the areas of civil aeronautics research to be funded. According to
the United States, the budgeted funds were accessed through calls for project proposals issued by the
European Commission in accordan ce with the aeronautics work programme of each Framework
Programme. These calls for projects established speci fic criteria for the proposals to be submitted,
including the type of project, criteria for the evaluation of proposals, the number of project
participants, and, most notably in the United Stat es' view, the area and specific topic of research as
well as the budget for the call. The United States argues that only project proposals satisfying the
requirements of the respective call were eligible for the relevant research grants.
4834
7.1507 Finally, the United States also argues that th e subsidies that Airbus received under the EC
Framework Programmes are specific ''in fact'', within the meaning of Article 2.1(c) of the
SCM Agreement, because Airbus and other aeronauti cs companies were the predominant users of the
grants.
4835 According to the United States, Airbus received EUR [***] under the Second Framework
Programme, constituting [***] of the sub-budget reserved for aeronautics research; EUR [***] under
the Third Framework Programme, which is [***] of the relevant aeronautics sub-budget; EUR [***]
under the Fourth Framework Programme, accounting for approximately [***] of the relevant
aeronautics sub-budget; EUR [***] under the Fifth Framework Programme, which is [***] of the sub-
budget reserved for aeronautics; and [***] of the aeronautics sub-budget of the Sixth Framework
Programme.4836
Arguments of the European Communities
7.1508 The European Communities disputes the United St ates' contentions. In its view, subsidies
granted under the relevant Framework Programmes are not specific within the meaning of
Article 2.1(a) of the SCM Agreement because they are not limited, "in law", to any particular
enterprise, industry or group of enterprises or industries.
4837 The European Communities explains that
the Framework Programmes at issue are funding inst ruments that provide grants for collaborative
research activities falling within a broad array of thematic areas to which funds are specifically
allocated. The European Communities argues that the thematic areas established under each of the

4833 US, FWS, paras. 651-653; US, Answer to Panel Question 36; US, SWS, paras. 499-505.
4834 US, Answer to Panel Question 36; US, SWS, para. 502.
4835 US, FWS, para. 653.
4836 US, Answer to Panel Question 35.
4837 EC, FWS, para. 1244.

BCI deleted, as indicated [***]

Framework Programmes do not coincide with any particular enterprise, industry or group of
enterprises or industries. Moreover, according to the European Communities, the purpose of the
allocation of funds to the thematic areas is not to favour any particular enterprise or industry or group
of enterprises or industries, but rather to ensu re that funds under each of the Framework Programmes
are spread across several important fields of research.4838
7.1509 The European Communities asserts that the Second to Fifth Framework Programmes did not
establish sub-budgets specific to the aeronautics i ndustry. However, the European Communities
acknowledges that these programmes did make an "indicative internal allocation of funds" at a "level"
below the "sub-sub-budget" "level". Thus, for in stance, the European Co mmunities asserts that the
Fourth Framework Programme breaks down its overa ll budget into seven sub-budgets for research
activities within the "information and communica tion technologies", "industrial technologies",
"environment", "life sciences and technologies", "non- nuclear energy", "transport" and "targeted
socio-economic research" headings. According to the European Communities, none of these are
specific to aeronautics. The European Communiti es explains that the "industrial technologies"
research area is broken down further establishing "s ub-sub"-budgets for research areas identified as
"industrial and material technologies" and "measurements and testing". It is only at the next level that
an "aeronautics" research activity appears with an "indicative internal allocation of funds". 4839
Similarly, the European Communities argues that the Sixth Framework Programme does not establish
any dedicated subsidy programme for aeronautics. Rather, the European Communities submits that
the Sixth Framework Programme establishes "aer onautics and space" as one of seven "priority
thematic areas" under the sub-programme "Focussing and Integrating Community Research" to which
certain portions of the budget are allocated.4840
7.1510 The European Communities argues that to th e extent that the Framework Programmes
allocate, at some level well below the programme level, portions of their budget to "aeronautics and
space" and "aeronautics", this does not render th e funding grants specific. In the European
Communities' view, such allocations simply serve the purpose of ensuring that a disproportionate
amount of funds is not allocated to one sector (which could give rise to de facto specificity). Thus,
according to the European Communities, specificity "in law" within the meaning of Article 2.1(a) of
the SCM Agreement must be determined at the pr ogramme level. If this were not the case, the
European Communities contends that support pr ovided under broad research programmes, which
necessarily allocate their budget to a variety of resear ch areas in order to spread funds to several
important technological fields, would always constitute a specific subsidy pursuant to Article 2.1(a) of
the SCM Agreement.4841
7.1511 The European Communities also disputes the Un ited States' allegation that the subsidies
granted to Airbus under the Framework Programmes are "in fact" specific, within the meaning of
Article 2.1(c). The European Communities submits th at specificity "in fact" must be determined by
looking to the amount of funding made available at the overall programme level. When assessed at
this level, the European Communities argues that aeronautics companies cannot be found to be the
predominant users of research funding afforded under the Framework Programmes. Thus, according
to the European Communities, of the total budget for the Third Framework Programme (EUR 5.7
billion), only EUR 130 million (2.3%) was spent on aeronautics. For the Fourth Framework
Programme, only EUR 400 million (3.3%) of th e total budget of EUR 12.3 billion went to
aeronautics. As regards Fifth and Sixth Fram ework Programmes, the aeronautics budget allegedly
represented 5.1% and 6.6%, respectively, of the total budgets. The European Communities submits
that these amounts demonstrate that aeronautics expenditure under each of the Framework

4838 EC, FWS, paras. 1243-1251.
4839 EC, Answer to Panel Question 106; EC, SWS, para. 625.
4841 EC, Answer to Panel Question 106; EC, SWS, para. 626.

BCI deleted, as indicated [***]

Programmes was not disproportionate and that therefore aeronautics companies were not the
predominant users of the grants. Finally, th e European Communities stresses that the above-
mentioned figures cover the total funding for aeronau tics-related research activities and, thus, include
payments to research institutes and universities, so that the actual portion of funding that went to
aeronautics companies is even lower. With regard to Airbus SAS, the European Communities argues
that the absence of any in fact specificity is even more evident. In particular, the European
Communities asserts that the relevant companies ( i.e., Airbus Germany, Airbus France, Airbus Spain
and Airbus UK) received only [***] of the total budget of the Third Framework Programme and [***]
of the grants provided to aerona utics-related R&TD. Under the Fourth Framework Programme, the
relevant companies received [***] of the total budget and [***] of the grants provided to aeronautics-
related R&TD. For the Fifth Framework Programme, the figures were [***] and [***], and for the
Sixth Framework Programme, [***] and [***] respectively. The European Communities submits that
it can hardly be argued that a pro-mille portion of a total budget or a portion of less than [***] in case
of aeronautics-related R&TD rises to the level of "predominant use" and, thus, "in fact" specificity.
4842
Evaluation by the Panel
7.1512 We begin our evaluation of the United States' cl aims by focusing on the question whether the
challenged Framework Programmes are specific w ithin the meaning of Article 2.1(a) of the
SCM Agreement. As previously noted in the context of our discussion of the EIB loans, a finding of
specificity under Article 2.1(a) requires the establishment of the existence of a limitation that
expressly and unambiguously restricts the availabilit y of a subsidy to "certain enterprises", and
thereby does not make the subsidy "sufficiently broadly available throughout an economy".
4843
7.1513 The subsidies provided to Airbus under the ch allenged Framework Programmes were granted
by the European Commission pursuan t to a series of similar, but not identical, legal instruments.
Before turning to assess the extent to which each of these subsidies was speci fic within the meaning
of Article 2.1(a), we first describe our understandi ng of how the grants at issue flowed from the
operation of the legal instruments forming part of each of the relevant Framework Programmes.
- Second Framework Programme
7.1514 The Second Framework Programme was establis hed by Council Decision 87/516/Euratom,
EEC of 28 September 1987, 4844 giving effect to the strategic res earch and technological development
mandate and objectives set out in Title VI of the Treaty establishing the European Economic
Community.
4845 As reflected in the recitals of the De cision, the Programme's objectives included
advancing EC R&TD activities in order to strengthen the scientific and technological basis of EC
industry; encouraging undertakings of all sizes in their R&TD efforts; and promoting the overall
harmonious development of the European Commun ities with a view to strengthening its economic
and social cohesion. To this end, the Decision was intended to establish:
"a multiannual {1987 to 1991} framework pr ogramme laying down the scientific and
technical objectives of its activities, defining their respective priorities, setting out the
main lines of the activities envisaged, estimating the necessary amount and drawing

4842 EC, SWS, paras. 627-629.
4843 See, para. 7.919 above.
4844 Council Decision 87/516/Euratom, EEC of 28 September 1987 concerning the framework
programme for Community activities in the field of research and tech nological development (1987 to 1991), OJ
L 302/1, 24.10.1987 (hereinafter "Council Decision 87/516"), Exhibit EC-200.
4845 Treaty establishing the European Economic Community, as amended by the Single European Act,
1 July 1987.

BCI deleted, as indicated [***]

up detailed rules for financial participation by the Community in the programme as a
whole and the breakdown of this amount between the various activities envisaged"4846
7.1515 Annex I of the Decision contains a breakdown of the activities targeted for funding, together
with the amount of funds allocated to each. In total, 22 activities are identified under eight headings:
two activities under the "Exploitation of the sea bed and use of marine resources" heading; three
activities under each of the "Quality of life", "Towards a large market and an information and
communications society", "Exploitation and optimum use of biological resources" and "Energy"
headings; and four activities under each of the "Modernization of industrial sectors" and
"Improvement of European S/T cooperation" headings.
4847 Most of these activities appear to be of a
general horizontal nature, potentially cutting across a variety of business segments.4848 Others seem to
be more focussed, concentrati ng on particular economic sectors. 4849 The funding levels "deemed
necessary" for each of the 22 activities are also di sclosed, with the total amount for all activities
combined amounting to ECU 5,396 million.
7.1516 Annex II of the Decision sets out a more detailed description of each of eight research
headings and 22 envisaged activities and their scien tific and technical objectives; while Annex III
outlines the selection criteria that should generally be applied when selecting the R&TD initiatives to
fund. The Decision does not, however, provide for th e disbursement of any funds to individual
applicants. In this respect, Article 2.1 of the D ecision explains in clear terms that the Second
Framework Programme was to be implemented th rough "specific programmes developed within each
of" the eight prescribed research headings. According to Article 2.2, each "specific programme shall":
"- define the detailed rules for implementi ng it, fix its duration and provide for the
means deemed necessary,
- state its precise objectives and provide for an evaluation of results achieved in
relation to these objectives,
- be evaluated in the light of all the selection criteria set out in Annex III, which
include that of contributing to the strengthening of the economic and social cohesion
of the Community,
- define the rate or rates of the Community's financial participation"

4846 Council Decision 87/516, recital 7.
4847 No activities are specifically identified under the "Science and technology for development"
heading, to which ECU 80 million is allocated.
4848 These activities are: (i) under the "Quality of life" heading – "Health" and "Environment"; (ii)
"Towards a large market and an information and communication society" heading – "Information technologies"
and "New services of common interest (including transport)"; ( iii) under the "Modernization of industrial
sectors" heading – "Science and technology for manufacturing industry", "Science and technology of advanced
materials", "Raw materials and recycling" and "Tec hnical standards, measurement methods and reference
materials"; (iv) under the "Science and technology for development" heading"; and (v) under the "Improvement
of European S/T cooperati on" heading – "Stimulation, enhancement and use of human resources", "Use of
major installations", "Forecasting and assessment and other back-up measures (including statistics)" and
"Dissemination and utilization of S/T research results".
4849 These activities are: (i) under the "Quality of life" heading – "Radiation protection"; (ii) under the
"Towards a large market and an information and communication society" heading – "Telecommunications"; (iii)
under the "Exploitation and optimum use of biological research" heading – "Biotechnology", "Agro-industrial
technologies" and "Competitiv eness of agriculture and management of agricultural resources"; (iv) under the
"Energy" heading – "Fission: nuclear safety", "Controlled thermonuclear fusion" and "Non-nuclear energies and
rational use of energy"; and (v) under the "Exploitation of the sea bed and use of marine resources" heading –
"Marine science and technology" and "Fisheries".

BCI deleted, as indicated [***]

7.1517 Thus, the Decision setting up the Second Fram ework Programme established an EC-wide
R&TD support initiative targeting a variety of eco nomic activities at both horizontal and sector-
specific levels. The Decision identified and allocated funds to 22 areas of research under eight
headings and described, in broad terms, their scien tific and technical objectives. However, in laying
down these overall guidelines, the Decision establis hing the Second Framework Programme did not
actually indicate how these funds could be accessed by individual applicants. Neither did it prescribe
any specific modalities for the distribution of funds. The detailed rules and methodologies for the
distribution of funds was left to the "specific progr ammes" that were to be adopted for the purpose of
implementation.
7.1518 As we understand it, the Decision establis hing the Second Framework Programme was
implemented through numerous "specific programm es". For the purpose of the present dispute, the
focus of our analysis is on what is referred to as the BRITE/EURAM programme.
7.1519 The BRITE/EURAM programme was establishe d through Council Decision 89/237/EEC of
14 March 1989 with the aim of contributing to the achievement of the objectives of the Second
Framework Programme by implementing a specific R&TD programme in two of the fields identified
under that Programme, namely, the industrial manu facturing technologies and advanced materials
applications activities.
4850 Annex IV of the Council Decision 89/237/EEC made an "indicative internal
allocation" of a total of ECU 499.5 million across five "Areas" of research: "Advanced materials
technologies" (28%); "Design methodologies and assurance for products and processes" (19%);
"Application of manufacturing technologies" ( 19%); "Technologies for manufacturing processes"
(20%); and "Specific activities relating to aeronautics" (7%). 4851 A summary of the scope and
objectives of each of the five research areas was pr ovided in Annex I. As regards the "Specific
activities relating to aeronautics" area, Annex I stipul ated the type of research that would fall under
this heading as "pre-competitive research in tec hnological areas which are of primary relevance to
aeronautics (in particular aeroplanes and helicopters) and are not yet covered in other programme
areas". It also identified four fields of focus: "Aerodynamics"; "Acoustics"; "Airborne systems and
equipment" and "Propulsion systems".
7.1520 Rules for the implementation of the "specifi c programme" are set out in Annex II. These
indicate that the funding initiatives would be princi pally executed by "means of shared-cost research
contracts to be awarded following a selection procedure based on calls for proposals" published by the
Commission in the Official Journal of the European Communities. They also describe four types of
research projects that would be funded ("Industr ial applied research", "Focused fundamental
research", "Feasibility awards for SMEs" and "Coordinated activities"), spelling out inter alia, the
level of support expected from participants and the funding that would be committed by the European
Communities for each type of project. The rules for "Research relating to aeronautics" are set out
separately in Annex II. Again, these require the Co mmission to initiate the process by publishing calls
for proposals. However, unlike the other types of research projects, the rules implementing the
aeronautics research area activities specify that the Commission's calls for proposals must be based on
a "work programme" "established to define precise objectives and determine priority themes for
research". Moreover, the rules relating to financ ing of "Industrial applied research" and "Focused
fundamental research" projects apply equally to aeronautics research only when "appropriate".
7.1521 Finally, we note that the BRITE/EURAM programme established two different decision-
making procedures and programme review guidelin es: one for projects funded under the aeronautics

4850 Council Decision 89/237/EEC of 14 March 1989 on a specific research and technological
development programme in the field of industrial manufacturing technologies and advanced materials
applications (Brite/Euram) (1989 to 1992) , OJ L 98/18, 11.4.1989 (hereinafter "Council Decision 89/237"),
recital 7 and Article 1, Exhibit EC-195.
4851 The allocation makes 7% of the funds available to cover staff and administrative costs.

BCI deleted, as indicated [***]

research area, and another for all other areas of research. In particular, Article 6.1 specifies that
decisions relating to funding activities other than in the aeronautics research area must be taken by the
European Commission after consultation with a Committee composed of representatives of EC
member States. On the other hand, Article 6.2 stipul ates that decisions in respect of measures to be
undertaken in the aeronautics resear ch area were to be made on the b asis of a qualified majority vote
of the EC member State representatives in th e Committee or the Council. Likewise, different
approaches were envisaged for the programme revi ews mandated under Article 4. While a review of
the BRITE/EURAM programme was required during the third year of implementation, a review in
respect of research relating to aeronautics was called for during the second year. Moreover, Annex III
described the programme objectives and criteria that were required to be taken into account when
undertaking such reviews, setting out additional obj ectives and criteria for aeronautics research area
projects.
7.1522 Thus, the BRITE/EURAM programme implemente d the objectives of the Second Framework
Programme by further elaborating five areas of research that would be funded, providing for an
indicative allocation of funds to these areas, establishing implementation rules and decision-making
procedures, and a review process. However, it is apparent that the BRITE/EURAM programme
treated the area of aeronautics research somewhat diff erently than the other research areas. First, we
note that, unlike the other four research areas identified under BRITE/EURAM, the aeronautics
research area specifically targets a particular sector of economic activity. The other four research
areas are much more horizontal in nature. Projects falling within their scope do not appear to be
limited to any particular sector of the economy and, as envisaged in Annex I, might even include areas
of research relating to aeronautics. Second, th e aeronautics research area is implemented through
different rules and decision-making procedures, with the latter involving a much stronger degree of
control by the EC member States on, inter alia, the research work programme and projects to be
funded. Finally, the BRITE/EURAM programme manda tes a shorter time-frame for reviewing the
results of the financing provided to projects in th e aeronautics research area, and requires that such
reviews take into account objectives that do not ha ve to be considered when reviewing projects
funded under the other four areas.
- Third Framework Programme
7.1523 The Third Framework Programme was establis hed by Council Decision 90/221/Euratom,
EEC of 23 April 1990,
4852 giving effect to the strategic research and technological development
mandate and objectives set out in Title VI of the Treaty establishing the European Economic
Community.4853 As reflected in the recitals of the De cision, the Programme's objectives included
advancing EC R&TD activities in order to strengthen the scientific and technological basis of EC
industry; encouraging undertakings of all sizes in their R&TD efforts; and promoting the overall
harmonious development of the European Commun ities with a view to strengthening its economic
and social cohesion. To this end, the Deci sion was intended to set up a multiannual framework
programme covering the period 1990 to 1994 to conti nue and develop the rese arch and technological
development activities identified and supported under the Second Framework Programme.
7.1524 Annex I of the Decision contains a breakdown of the activities targeted for funding, together
with the amount of funds allocated to each. In total, 15 activities are identified under six headings:
three activities under the "Information and communi cations technologies" heading; two activities
under each of the "Industrial and material technologi es" and "Environment" headings; four activities

4852 Council Decision 90/221/Euratom, EEC of 23 April 1990 concerning the framework programme
for Community activities in the field of research and technological development (1990 to 1994) , OJ L 117/28,
8.05.1990 (hereinafter "Council Decision 90/221"), Exhibit EC-201.
4853 Treaty establishing the European Economic Community, as amended by the Single European Act,
1 July 1987.

BCI deleted, as indicated [***]

under the "Life sciences and technologies for deve loping countries" headings; three activities under
the "Energy" heading; and one activity under the "Human capital and mobility" heading. Most of
these activities appear to be of a general horizontal nature, potentially cutting across a variety of
business segments.
4854 Others seem to be more focussed, concentrating on particular economic
sectors.4855 The funding levels "deemed necessary" for each of the 15 activities are also disclosed,
with the total amount for all activities combined amounting to ECU 5,700 million.
7.1525 Annex II of the Decision sets out a more detailed description of each of the six research
headings and 15 envisaged activities and their scien tific and technical objectives; while Annex III
outlines the selection criteria that should generally be applied when selecting the R&TD initiatives to
fund. The Decision does not, however, provide for th e disbursement of any funds to individual
applicants. In this respect, Article 2.1 of the Deci sion explains that the Third Framework Programme
was to be implemented through "specific programm es developed within each of" the six prescribed
research headings. According to Article 2.4, each "s pecific programme shall: "determine its precise
objectives and make provision for an evaluation of the results achieved as compared with those
objectives and with the criteria in Annex III".
7.1526 Thus, the Decision setting up the Third Fram ework Programme established an EC-wide
R&TD support initiative targeting a variety of eco nomic activities at both horizontal and sector-
specific levels. The Decision identified and allocated funds to 15 areas of research activity under six
headings and described, in broad terms, their scien tific and technical objectives. However, in laying
down these overall guidelines, the Decision establishing the Third Framework Programme did not
actually indicate how these funds could be accessed by individual applicants. The detailed rules and
methodologies for the distribution of funds were left to the "specific programmes" that were to be
adopted for the purpose of implementation.
7.1527 As we understand it, the Decision establis hing the Third Framework Programme was
implemented through numerous "specific programm es". For the purpose of the present dispute, the
focus of our analysis is on the "Specific Programme for Research and Technological Development in
the Field of Industrial and Materials Technologies" (the "IMT 1991 programme").4856
7.1528 The IMT 1991 programme was established through Council Decision 91/506/EEC of
9 September 1991 with the aim of contributing to the achievement of the objectives of the Third
Framework Programme by implementing a specific R& TD programme in the field of industrial and
materials technologies. 4857 Annex II of the Decision sets out an "indicative allocation" of a total of
ECU 663,3 million across three "Areas" of research: "Materials - raw materials" (ECU 308.8 million);
"Design and manufacture" (ECU 301.5 million); and "Aeronautics research" (ECU 53 million). 4858

4854 These activities are: (i) under the "Information and communications technologies" heading –
"Information technologies", "Communication technologies" and "Development of telematics systems of general
interest"; (ii) under the "Industrial and material techno logies" heading – "Industrial and material technologies"
and "Measurement and testing"; (iii) under the "Envir onment" heading – "Environment"; and (iv) under the
"Human capital and mobility" heading – "Human capital and mobility".
4855 These activities are: (i) under the "Environment" heading - "Marine sciences and technologies"; (ii)
under the "Life sciences and technologies for developing countries" heading" – "Biotechnology", "Agricultural
and agro-industrial research", "Biomedical and health research", and "Life sciences and technologies for
developing countries"; and (iii) under the "Energy" heading – "Non nuclear energies", "Nuclear fission safety"
and "Controlled nuclear fusion".
4856 Council Decision 91/506/EEC of 9 September 19 91 on a specific research and technological
development programme in the fie ld of industrial and material s technologies (1990 to 1994) , OJ L 269/30,
25.9.1991 (hereinafter "Council Decision 91/506"), Exhibit EC-196.
4857 Council Decision 91/506, Article 1, Exhibit EC-196.
4858 The amount intended for aeronautics research is provided for a period of three years. The allocation
makes 8% of the funds available to cover staff and administrative costs.

BCI deleted, as indicated [***]

The Annex stipulates that the funding amount allocat ed to "Aeronautics resear ch" is provided for a
period of three years.4859
7.1529 A summary of the scope and objectives of each of the three research Areas is set out in
Annex I of the Decision. For the "Aeronautics r esearch" Area, six fields of focus are identified:
"Environment related technologies"; "Technologi es of aircraft operation"; "Aerodynamics and
aerothermodynamics"; "Aeronautical structures and manufacturing technologies"; "Avionic system
technologies"; and "Mechanical, utility and actuation technologies". Annex I of the Decision explains
that "the aeronautical technologies research that began with the BRITE/EURAM programme will be
continued taking account of harm onization, standardization, safety and environmental aspects".
Moreover, it provides that the "Aeronautics res earch" Area is intended to support only "specific
aeronautical research and applications". Generic aer onautics research is to be dealt with under the
other two research Areas.
4860
7.1530 Article 5 provides that a work programme would be prepared in accordance with the
objectives identified in Annex I of the Decision, and that the Commission would draw up calls for
proposals for projects on the basis of the work progr amme. Other implementation rules are set out in
Annex III of the Decision, which inter alia, describes the four types of actions through which the
European Communities intended to provide fund ing ("Research Projects", "Cooperative research
projects", "Concerted actions" and "Accompanying measures, including feasibility premiums"). The
rules set out in Annex III of the Decision also indi cate the level of support expected from participants
and the proportion of funding that would be co mmitted by the European Communities for each type
of action.
7.1531 Finally, unlike the decision-making procedur e found in the Second Framework Programme,
the IMT 1991 programme envisages one and the same decision-making process, irrespective of the
Area of research. In particular, decisions must be taken by the Commission after consultation with a
Committee composed of representatives of EC member States, and on the basis of a qualified majority
vote of the EC member State representatives in the Committee or the Council.
4861
7.1532 Thus, the IMT 1991 programme implemente d the objectives of the Third Framework
Programme by further elaborating three areas of r esearch that would be funded, providing for an
indicative allocation of funds to these areas, estab lishing implementation rules and a decision-making
procedure. Of the three research "Areas" the aerona utics research area is the only one that specifically
targets a particular sector of economic activity. The other two research areas cover projects that are
more horizontal in nature. Moreover, as already noted, Annex I of the decision explicitly provides that
only "specific aeronautical research" will be s upported under the "Aeronautics research" Area, with
aeronautics research of a generic nature to be dealt with under the other two Areas.
- Fourth Framework Programme
7.1533 The Fourth Framework Programme wa s established by Decision 1110/94/EC European
Parliament and of the Council of 26 April 1994 4862, giving effect to the strategic research and
technological development mandate and objectives set out in Title VI of the Treaty establishing the

4859 Council Decision 91/506, Annex II, Footnote 1.
4860 Council Decision 91/506, Annex I, Paragraph 6.
4861 Council Decision 91/506, Article 6.
4862 Decision 1110/94/EC European Parliament and of the Council of 26 April 1994 concerning the
framework programme for Community activities in the field of research and technological development and
demonstration (1994 to 1998) , OJ I. 126/1, 18.05.1994 (hereinafter "Council Decision 1110/94/EC"), Exhibit
EC-202.

BCI deleted, as indicated [***]

European Economic Community.
4863 As reflected in the recitals of the Decision, the Programme's
objectives included advancing EC R&TD activities in order to strengthen the scientific and
technological basis of EC industry; encouraging undert akings of all sizes in their R&TD efforts; and
promoting the overall harmonious development of the European Communities with a view to
strengthening its economic and social cohesion. To this end, the Decision was intended to set up a
multiannual framework programme covering the period 1994 to 1998 to cont inue and develop the
research and technological development activ ities identified and supported under the Third
Framework Programme.
7.1534 Annex I of the Decision contains a breakdown of the activities targeted for funding, together
with the amount of funds allocated to each. In to tal, four activities are identified: (i)"Research,
technological development and demonstration programmes"; (ii)"Cooperation with third countries and
international organizations"; (iii)"Dissemination a nd optimization of results"; and (iv)"Stimulation of
the training and mobility of researches". The funding levels for each of the four activities are also
disclosed, with the total amount coming to ECU 11,046 million. The Decision contains an indicative
breakdown of the themes and subjects only of the first activity ("Research, technological development
and demonstration programmes"). In total, 13 r esearch themes are identified under seven main
headings: three research themes under the "Inf ormation and communication technologies" heading;
two research themes under each of the "Industria l technologies" and "Environment" headings; and
three research themes under th e "Life sciences and technologies" heading. The following
three headings do not specify any particular research themes: "Non-nuclear energy", "Transport" and
"Targeted socio-economic research". The funding levels for each of the 13 research themes are also
disclosed, with the total amount coming to ECU 9, 432 million. Most of these research themes appear
to be of a general horizontal nature, potentia lly cutting across a variety of business segments. 4864
Others seem to be more focussed, concentrating on particular economic sectors.4865
7.1535 Annex III of the Decision sets out a more detailed description of each of the four activities
and their scientific and technical objectives; wh ile Annex II of the Decision outlines the selection
criteria that should be generally applied when selecting the R&TD initiatives to fund. As we
understand it, the Decision does not provide for th e disbursement of any funds to individual
applicants. In this respect, Article 2.1 of the Deci sion explains that the Fourth Framework Programme
was to be implemented through "specific programm es developed within each" of the four prescribed
activities. According to Article 2.1, each specific programme "shall specify its precise objectives on
the lines of the scientific and technological objectives in Annex III".
7.1536 Thus, the Decision setting up the Fourth Fr amework Programme established an EC-wide
R&TD support initiative targeting a variety of eco nomic activities at both horizontal and sector-
specific levels. The Decision identified and allocated funds to four activities and described, in broad
terms, their scientific and technical objectives. However, in laying down these overall guidelines, the
Decision establishing the Fourth Framework Progra mme did not actually indicate how these funds
could be accessed by individual applicants. The detail ed rules and methodologies for the distribution

4863 Treaty establishing the European Economic Community, as amended by the Single European Act,
1 July 1987.
4864 These activities are: (i) under the "Information and communications technologies" heading –
"Telematics", "Communication technologies" and "Information technologies"; (ii) under the "Industrial
technologies" heading – "Industrial and material technolog ies" and "Measurement and testing"; (iii) under the
"Environment" heading" – "Environment and climate"; (iv) the "Transport" heading and (v) the "Targeted
socio-economic research" heading".
4865 These activities are: (i) under the "Environment" heading "Marine sciences and technologies";
(ii) under the "Life sciences and technologies" heading – "Biotechnology", "Biomedicine and health" and
"Agriculture and fisheries (including agro-industries, food technologies, forest ry, aquaculture and rural
development)" and (iii) the "Non-nuclear energy" heading.

BCI deleted, as indicated [***]

of funds were left to the "specific programmes" that were to be adopted for the purpose of
implementation.
7.1537 As we understand it, the Decision establis hing the Fourth Framework Programme was
implemented through numerous "specific programm es". For the purpose of the present dispute, the
focus of our analysis is on the "Specific Progra mme for Research and Technological Development,
including Demonstration, in the Field of Indus trial and Materials Technologies" (the "IMT 1994
programme").
7.1538 The IMT 1994 programme was established through Council Decision 94/571/EC of
27 July 1994 with the intention of contributing to the achievement of the objectives of the Fourth
Framework Programme by implementing a specific R& TD programme in the field of the industrial
and material technologies. 4866 Annex II of the Decision sets out an "indicative breakdown" of a total
of ECU 1,617 million across three "Areas" of research: "Production Technologies"
(ECU 590 million); "Materials and technologies for product innovation" (ECU 566 million); and
"Technologies for transport means" (ECU 461 million) . The Annex stipulates that 50% of the amount
allocated to the "Technologies for transport means", ECU 230.5 million, is for the aeronautics
sector.4867 The aeronautics sector is the only sector to have been allocated a specific amount.
7.1539 A summary of the objectives and content of each of the three research Areas is described in
Annex I of the Decision. Annex I of the Decision i ndicates that in the development of the different
technologies for transport means, due account shall be taken of the requirements of the various
transport industries. The Annex explains that "where the aircraft industry is concerned, research will
concern advanced technologies, in particular for environmental protection, to reduce both noise and
polluting emissions, and as regards design, to reduce overall energy consumption". It also stipulates
that the activities will aim to improve safety, incr ease the capacity and cost-effectiveness of the air
transport system, and facilitate the production, op eration, reliability and maintenance of future
generations of aircraft and equipment.4868
7.1540 Article 5 provides that a work programme would be prepared in accordance with the
objectives identified in Annex I of the decision, and that the Commission would draw up calls for
proposals for projects on the basis of the work programme. Other implementation rules set out in
Annex III of the decision indicate that the funding in itiatives would be executed by different means of
shared-cost research actions, preparatory, accompa nying and support measures and concerted actions.
The rules set out in Annex III also indicate the le vel of support expected from participants and the
proportion of funding that would be committed by the European Communities for each type of action.
7.1541 Finally, unlike the decision-making procedure in the Second Framework Programme, the IMT
1994 programme envisages one and the same decisi on-making process, irrespective of Area of
research. In particular, decisions must be ta ken by the Commission after consultation with a
Committee composed of representatives of EC member States, and on the basis of a qualified majority
vote of the EC member State representatives in the Committee or the Council.
4869
7.1542 Thus, the IMT 1994 programme implemented th e objectives of the Fourth Framework
Programme by further elaborating three areas of r esearch that would be funded, providing for an
indicative allocation of funds to these areas, estab lishing implementation rules and a decision-making

4866 Decision 94/571/EC of 27 July 1994 on a spec ific research and technological development
programme in the field of industrial and material technologies (1994 to 1998) , OJ L 222/19, 26.8.1994
(hereinafter "Council Decision 94/571"), Article 1, Exhibit EC-197.
4867 Council Decision 94/571, Annex II, Footnote I.
4868 Council Decision 94/571, Annex I, Area 3.6.
4869 Council Decision 94/571, Article 6.

BCI deleted, as indicated [***]

procedure. The aeronautic sector is the only sector to have been allocated a specific amount, with
ECU 230.5 million being exclusively directed for projects in the aeronautics sector.
4870
- Fifth Framework Programme
7.1543 The Fifth Framework Programme was estab lished by Council Decision 182/1999/EC of
22 December 19984871, giving effect to the strategic resear ch and technological development mandate
and objectives set out in Title VI of the Treaty establishing the European Economic Community. 4872
As reflected in the recitals of the Decision, the Programme's objectives included advancing EC R&TD
activities in order to strengthen the scientific and technological basis of EC industry; encouraging
undertakings of all sizes in their R&TD efforts; and promoting the overa ll harmonious development
of the European Communities with a view to strengt hening its economic and social cohesion. To this
end, the Decision was intended to set up a mu ltiannual framework programme covering the period
1998 to 2002 to continue and develop the research and technological development activities identified
and supported under the Fourth Framework Programme.
7.1544 The Decision setting up the Fifth Framework Programme established an EC-wide R&TD
support initiative targeting a variety of economic activities at both horizontal and sector-specific
levels. Annex III of the Decision contains a breakdow n of the activities targeted for funding, together
with the amount of funds allocated to each. In to tal, eight activities are identified under four headings:
four activities under the "Implementation of research , technological development and demonstration
programmes" heading; and one activ ity under each of the "Promotion of cooperation in the field of
community research, technological developmen t and demonstration with third countries and
international organizations", "Dissemination a nd optimization of the results of activities in
Community research, technological development and demonstration" and "Stimulation of the training
and mobility of researches in the Community" headi ngs. The eighth activity is identified as the Joint
Research Centre. These eight activities appear to be of a general horizontal nature, potentially cutting
across a variety of business segments.
4873 The funding levels for each of the four headings are also
disclosed, with the total amount for all activiti es combined coming to ECU 13,700 million. Annex III
of the Decision contains a breakdown only of th e activities targeted for funding under the first
heading, and indicates the amount of funds allocated to each of them. In total, ECU 10,843 million is
allocated to the first heading.
7.1545 Annex I of the Decision outlines the selection criteria for selecting the themes of the
activities; while Annex II of the Decision sets out a more detailed description of each of the activities,
their scientific and technical objectives and relate d priorities. This Decision does not, however,
provide for the disbursement of any funds to indivi dual applicants. In this respect, Article 3.1 of the

4870 Council Decision 94/571, Annex II, Footnote I.
4871 Decision 182/1999/EC of 22 December 1998 concerning the framework programme for
Community activities in the field of research, technological develop ment and demonstration (1998 to 2002) ,
OJ I 26/1, 1.2.1999 (hereinafter "Council Decision 182/1999"), Exhibit EC-203.
4872 Treaty establishing the European Economic Community, as amended by the Single European Act,
1 July 1987.
4873 These activities are: (i) under the "Implementation of research, technological development and
demonstration programmes" heading – "Quality of life an d management of living re sources", "User-friendly
information society", "Competitive and sustainable growth", and "Energy, environment and sustainable
development"; (ii) under the "Promotion of cooperation in the field of community research, technological
development and demonstration with third countries and international organizations" heading – "Confirming the
international role of Community research"; (iii) unde r the "Dissemination and optimization of the results of
activities in Community research, technological development and demonstration" heading -"Promotion of
innovation and encouragement of participation of Small and Medium-size Enterprises (SMEs); and (iv) under
the "Stimulation of the training and mobility of resear ches in the Community" heading – "Improving human
research potential and the socioeconomic knowledge base."

BCI deleted, as indicated [***]

Decision explains that the Fifth Framework Progr amme was to be implemented through "specific
programmes" developed within each of the four prescribed research headings. According to
Article 3.1, each "specific programme shall specify its precise objectives, and define the detailed rules
for implementing it, fix its duration and provide for the means deemed necessary."
7.1546 Thus, the Decision setting up the Fifth Fr amework Programme established an EC-wide
R&TD support initiative targeting a variety of eco nomic activities at both horizontal and sector-
specific levels. The Decision identified and allocated funds to eight areas of research activity under
four headings and described, in broad terms, their scientific and technical objectives. However, in
laying down these overall guidelines, the Decision establishing the Fifth Framework Programme did
not actually indicate how these monies could be accessed by individual applicants.
7.1547 As we understand it, the Decision establis hing the Fifth Framework Programme was
implemented through numerous "specific programm es". For the purpose of the present dispute, the
focus of our analysis is on the "Specific Progr amme for Research, Technological Development and
Demonstration on Competitive and Sustainable Growth" ("the CSG programme").
7.1548 The CSG programme was established th rough Council Decision 1999/169/EC of
25 January 1999 with the intention of contributing to the achievement of the objectives of the
Fifth Framework Programme by implementing a specific programme in one field identified under that
Programme, namely, the competitive and sustainable growth activity.
4874 Annex I of the Decision set
out an "indicative internal allocation" of a to tal of ECU 2,705 million across three "Areas" of
research: "Key Actions"; "Research and technological development activities of a generic nature" and
"Support for research infrastructures". A summary of th e objectives and priorities of each of the three
research areas is set out in Annex II of the Decision.
7.1549 For the "Key actions" Area, four types of ac tivities and associated budgets are identified:
"Innovative products, processes and organisation" (ECU 731 million); "Sustainable mobility and
intermodality" (ECU 371 million); "Land transport a nd marine technologies" (ECU 320 million), and
"New perspectives for aeronautics" (ECU 700 million).4875 For the "New perspectives for aeronautics"
Area, three fields of focus are identified: "Acquisition of critical technologies"; "Technology
integration for new-generation airc raft"; and "Operational efficiency and safety". Annex II of the
Decision explains that the overall goal of the "New perspectives for aeronautics" is to facilitate the
development of aircraft and their subsystems and components in order to foster the competitiveness of
the European industry, including SMEs, while assuring the sustainable growth of air
transportation.4876
7.1550 Article 5 provides that a work programme w ould be prepared by the Commission specifying
in greater detail the objectives and priorities identified in Annex II. Implementation rules are set out in
Annex III of the decision, which indicate that th e programme will be impl emented through indirect
R&TD actions provided for in the Fifth Framew ork Programme. These indirect R&TD actions
comprise shared-cost research actions, training fello wships, support for netw orks, concerted actions
and accompanying measures.4877
7.1551 Finally, unlike the decision-making procedur e in the Second Framework Programme, the
CSG programme foresees one and the same decision-making process, irrespective of Area of research.

4874 Decision 1999/169/EC of 25 January 1999 adopting a specific programme of research,
technological development and de monstration on competitive and sust ainable growth (1998 to 2002) ,
OJ L 64/40, 12.3.1999 (hereinafter "Council Decision 1999/169/EC"), Article 1,Exhibit EC-198.
4875 Council Decision 1999/169/EC, Annex I.
4876 Council Decision 1999/169/EC, Annex II.
4877 Council Decision 1999/169/EC, Annex III and Council Decision 182/1999 Annex IV.

BCI deleted, as indicated [***]

In particular, decisions must be taken by th e Commission after consultation with a Committee
composed of representatives of EC member States, and on the basis of a qualified majority vote of the
EC member State representatives in the Committee or the Council.
4878
7.1552 Thus, the CSG programme implemented the obj ectives of the Fifth Framework Programme
by further elaborating three areas of research th at would be funded, pr oviding for an indicative
allocation of funds to these areas and establishi ng implementation rules and a decision-making
procedure. Only the activities under the "Key acti ons" area were identified in the Decision, and the
only one of these activities that appears to be sect or specific was "New perspectives for aeronautics",
to which a budget of ECU 700 million was allocated.
- Sixth Framework Programme
7.1553 The Sixth Framework Programme was establis hed by Decision No. 1513/2002/EC of the
European Parliament and the Council of 27 June 2002, 4879 giving effect to the strategic R&TD
mandate and objectives set out in Title XVIII of the Treaty establishing the European Community. 4880
As reflected in the recitals of the Decision, the Programme's objectives included advancing EC R&TD
activities in order to strengthen the scientific and te chnological basis of EC industry; contributing to
the creation of a European Research Area a nd innovation; and promoting the development of
scientific and technical excellence and the coordinati on of European research. To this end, and in
accordance with Article 166(1) of the EC Treaty, the Decision was adopted to:
"establish the scientific and technical objectives {of the sixth multiannual (2002 to
2006) framework programme} and fix the relevant priorities for the activities
envisaged, the maximum overall amount, the detailed rules for Community financial
participation in the ... programme, as well as the respective shares in each of the
activities envisaged, and to indicate the broad lines of the activities in question"4881
7.1554 Annex I of the Decision contains a breakdown of the activities targeted for funding, and
provides a description of the related scientific and technological objectives and priorities. In total, 17
activities are identified under three headings: 11 activities under the "Focussing and integrating
Community research" heading; four activities under the "Structuring the European Research Area"
heading; and two activities under the "Strengthening the foundation of the European Research Area"
heading. Most of these activities appear to be of a general horizontal nature, potentially cutting across
a variety of business segments. 4882 O t h e r s s e e m t o b e m o r e f o c ussed, concentrating on particular

4878 Council Decision 1999/169/EC, Article 7.
4879 Decision No 1513/2002/EC of the European Parliament and of the Council of 27 June 2002
concerning the sixth framework programme of the European Community for research, technological
development and demonstrati on activities, contributing to the creation of the European Research Area and to
innovation (2002 to 2006), OJ L 232/1, 29.8.2002 (hereinafter "Decision 1513/2002/EC"), Exhibit EC-204.
4880 Treaty establishing the European Community; Treaty of Rome 1957 amended through the Treaty of
Amsterdam 1997.
4881 Decision 1513/2002/EC, recital 10, read together with Article 1.
4882 These activities are: (i) under the "focussing and integrating Community research" heading – the
"nanotechnologies and nanosciences, knowledge-based multifunctional materials, and new production processes
and devices", "sustainable development, global ch ange and ecosystems", "citi zens and governance in a
knowledge-based society", "supporting policies and anticipating scientific and technological needs", "horizontal
research activities involving SMEs", "specific measur es in support of international cooperation", and
"non-nuclear activities of the Joint Research Centre" activities; (ii) under the "structuring the European Research
Area" heading – the "research and innovation", "human resources" and "science and society" activities; and
(iii) under the "strengthening the foundation of the European Research Area" heading – the "coordination
activities ... in the whole field of science and technolo gy" and "support {for} the coherent development of
research and innovation policies" activities.

BCI deleted, as indicated [***]

economic sectors. 4883 The "indicative" funding levels for each of the 17 activities are set out in
Annex II, with the total amount of funding made available for all activities coming to
EUR 16,270 million. The funding made availabl e for the "aeronautics and space" activity was
EUR 1,075 million.
7.1555 Annex III of the Decision describes ten different types of "instruments" that it is envisaged
will be used to execute the vari ous funded activities, outlining the expected level of the European
Communities' financial participation in each one. As we read them, the "instruments" described in
Annex III of the Decision represent different forms or types of research projects, including "networks
of excellence", "integrated projects", "coordination action" and "integrated infrastructure activities".
Some of these "instruments" are expressly limited to particular research activities, while others are
intended to be used more broadly in respect of multiple activities.
7.1556 Like all of the prior Decisions establishi ng framework programmes, Decision 1513/2002/EC
does not provide for the disbursement of any funds to individual applicants. In this respect, Article 5
explains that the Sixth Framework Programme was to be implemented through "specific programmes"
which "shall establish precise objectives and the detailed rules for implementation".
7.1557 Thus, the Decision setting up the Sixth Fram ework Programme established an EC-wide
R&TD support initiative targeting a variety of eco nomic activities at both horizontal and sector-
specific levels. The Decision identified and allocated funds to 17 preferred areas of research activity
and described the forms or types of research projec ts that would be supported. However, in laying
down these overall guidelines, the Decision did not explain how any financial support could be
practically accessed by individual applicants. As with all other Framework Programmes, the detailed
rules and methodologies for the distribution of funds were left to the "specific programmes" adopted
for the purpose of implementation.
7.1558 As we understand it, the Decision establis hing the Sixth Framework Programme was
implemented through more than one "specific programme". For the purpose of the present dispute, the
focus of our analysis is on the "Specific Progra mme for Integrating and Strengthening the European
Research Area" (the "ISERA programme").
7.1559 The ISERA programme was established through Council Decision 2002/834/EC of
30 September 2002 for the purpose of implementing the research initiatives described in two of the
three headings set out in Decision 1513/2002/EC, namely, the "Focussing and Integrating Community
research" and "Strengthening the Foundation of the European Research Area" headings.
4884 Annex I
of the Decision provides a detailed description of 12 of the 13 activities listed in Annex I of Decision
1513/2002/EC under the same two headings. 4885 This includes an explanation of four research
priorities that may qualify for funding through th e "Aeronautics" element of the "Aeronautics and
Space" activity. These priorities are described as : "Strengthening Competitiveness"; "Improving
Environmental Impact with regard to Emissions"; "Improving Aircraft Safety"; and "Increasing
Operational Capacity and Safety of the Air Transport System". Similarly, Annex II of the ISERA
programme contains the same "indicative breakdown" of funding amounts per activity that were set

4883 These activities are all found under the "focussing and integrating Community research" heading –
namely, the "life sciences, genomics and biotechnology for health", "information society technologies", "food
quality and safety" and "aeronautics and space" activities.
4884 Council Decision 2002/834/EC of 30 September 2002 adopting a specific programme for research,
technological development a nd demonstration: "Integrating and streng thening the European Research Area"
(2002-2006), OJ L 294/1, 29.10.2002 (hereinafter "Decision 2002/834/EC"), recital 2 and Article 1, Exhibit EC-
199.
4885 The one research activity falling within the "focussing and integrating Community research"
heading that is not covered by the ISERA programme is the "non-nuclear activities of the Joint Research
Centre" activity.

BCI deleted, as indicated [***]

out in Annex II of Decision 1513/2002/EC. The sa me figure of EUR 1,075 million is disclosed as the
indicative amount of funding for projects falling within the scope of the "Aeronautics and Space"
activity.
7.1560 A description of the "means" for implementing th e ISERA programme is set out in Annex III.
These include seven of the ten "instruments" refe rred to Annex III of Decision 1513/2002/EC, which
are further elaborated and explained. In addition, Annex III of the programme stipulates that the
programme will be implemented in accordance with "Regulation (EC) No ... /2002 on rules for the
participation of undertakings, research centres a nd universities and for the dissemination of research
results" (which neither of the parties to this di spute has submitted). As with other Framework
Programmes, the Commission is called upon to initiat e the process by establis hing work programmes
associated with each thematic area of r esearch and publishing calls for proposals.
4886 Finally, two
decision-making procedures are envisaged, one ap plying specifically for the purpose of adopting
measures in respect of research involving or us ing human embryos and human embryonic stem cells,
and another for measures adopted in respect of all other research activities falling within the scope of
the ISERA programme.4887
7.1561 Thus, the ISERA programme implemented the objectives of the Sixth Framework Programme
by providing a more detailed exposition of 12 of the 13 research activities identified in Decision
1513/2002/EC, identifying the same indicative levels of funding that would be made available to
support these activities, and explaining how funding d ecisions would be taken and implemented. In
respect of "Aeronautics and Space" activities, the ISERA programme confirmed that the
EUR 1,075 million funding allocation would be u sed to finance research that advanced, inter alia, the
competitiveness of the aeronautics industry, one of th e objectives being to "enable the 3 sectors of the
manufacturing industry: airframe, engines and equi pment, to increase their competitiveness, by
reducing in the short and long term, respectively, aircraft development costs by 20% and 50%, and
aircraft direct operating cost by 20% and 50%, and improving passenger comfort".
4888
- Whether the Framework Programme grants are specific within the meaning
of Article 2.1(a) of the SCM Agreement
7.1562 A common feature of all of the Framework Programmes is that their establishment and
implementation was provided for under separate legal instruments. Nevertheless, it is apparent that for
each Framework Programme, these legal instruments constituted one single legal regime pursuant to
which the European Commission granted the subsidies at issue to Airbus. In our view, it follows that
for the purpose of Article 2.1(a) of the SCM Agreemen t, it is appropriate to regard the legal regime
established through the constituent instruments of each Framework Programme as the "legislation
pursuant to which the granting authority operates". Thus, in order to determine whether the subsidies
granted to Airbus are specific within the meaning of Article 2.1(a), the question we must answer is
whether the "granting authority" or each of the rele vant legal regimes explic itly limited access to the
subsidies at issue to "certain enterprises".
7.1563 Although the overall aims of each of the Framew ork Programmes were expressed in terms of
advancing EC R&TD activities in general, the legal regimes giving effect to these objectives did so, at
least partly, by channelling dedicated amounts of funding to sector-specific research areas that were

4886 Decision 2002/834/EC, Article 5 and Annex I (work programmes) and Article 6.2(a) (calls for
proposals).
4887 Decision 2002/834/EC, Articles 6 and 7.
4888 Decision 2002/834/EC, Annex III.

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implemented in accordance with specific work programmes.4889 We note, in particular, that an amount
of funding dedicated to "aeronautics" or "aerona utics and space" research was made available under
each of the relevant Framework Programmes. 4890 These funding amounts were disbursed in line with
the objectives and priorities identified in the aeronautics research related work programmes. 4891 The
effect of creating such allocations is, in our view, equivalent to setting aside a portion of a budget that
is ostensibly intended to fund research activities in all sectors of the economy for the sole purpose of
the research efforts of enterprises or industries activ e in the aeronautics sector. In doing so, the legal
regimes under which the European Commission opera ted, explicitly limited access to a dedicated
portion of the subsidy grants made available under the Framework Programmes to only those
enterprises or industries undertaking research in the fi eld of aeronautics. To this extent, the research
grants at issue could be viewed as emanating from a closed system of subsidization that focused on
"aeronautics" or "aeronautics and space".
7.1564 The European Communities argues that to th e extent that the Framework Programmes
allocated portions of their budgets to research activ ities in the field of "aeronautics", this did not
render the subsidies granted to Airbus specific within the meaning of Article 2.1(a). According to the
European Communities, specificity wi thin the meaning of Article 2.1(a) must be determined at the
overarching Framework Programme le vel where budgets are allocated to a wide array of different
thematic research areas. If this were not the case, the European Communities contends that support
provided under broad research programmes, which n ecessarily allocate their budgets to a variety of
research areas in order to spread funds to several important fields of technology, would always
constitute a specific subsidy pursuant to Article 2.1(a).4892
7.1565 We are not persuaded by the European Communitie s' arguments. While it is true that each of
the Framework Programmes was intended to provi de R&TD funding opportunities for projects across
a wide array of economic sectors, such opportunities were circumscribed by the fact that the funding
amounts were explicitly allocated to particular sectors of research, including "aeronautics" or
"aeronautics and space". Funds made available for aeronautics research were reserved for entities
active in this research segment; and funding amount s so allocated could not be accessed by entities
seeking support for other types of R&TD projects. Moreover, the fact that entities not active in the
field of aeronautics research were eligible to obt ain R&TD grants under other research headings does
not mean that the subsidies received by Airbus unde r the aeronautics research headings were equally
accessible to these other entities. It is clear to us that the legal regimes of each of the challenged
Framework Programmes did not allow for this outcome, creating, what was in effect, a separate
programme of subsidization for the benefit of "certain enterprises".

Programme; and para. 7.1558 above, Sixth Framework Programme.
Programme; and para. 7.1559 above, Sixth Framework Programme.
4891 For example, see for Fifth Framework Programme – New Perspectives in Aeronautics in European
Commission, Growth Work programme for RTD actions in support of "competitive and sustainable growth"
1998-2002, Exhibit US-488; and Sixth Framework Programme – Thematic Priority 1.4 Aeronautics and Space
Work Programme 2002-2006, Exhibit US-489. Although the parties have not submitted a copy of similar work
programmes established under the Second to Fourth Fr amework Programmes, we are satisfied that work
programmes of the same kind associ ated with the respective "aeronautics" research areas were required under
the legal regimes of each of these programmes. For the Second Framework Progra mme, we note that the
dedicated funding was also disbursed pursuant to a distinct "aeronautics" area decision-making procedure. See,
para. 7.1521 above.
4892 EC, Answer to Panel Question 106; EC, SWS, para. 626.

BCI deleted, as indicated [***]

7.1566 This, however, does not mean that we believe any subsidy granted pursuant to an allocated
sub-budget of a general subsidy programme will necessarily be specific within the meaning of
Article 2.1(a) of the SCM Agreement. In our vi ew, the allocation of funds to certain exclusive
research activities under an umbrella subsidy progra mme is not incompatible with Article 2.1(a),
provided that the availability of those funds is not explic itly limited to certain enterprises. However,
in the present case, the evidence before us indicates that amounts of subsidization were explicitly set
aside under each of the relevant Framework Progr ammes for the research efforts of "certain
enterprises". Thus, we conclude that the R&TD subsidies granted to Airbus under each of the
Framework Programmes are specific within the meaning of Article 2.1(a) of the SCM Agreement.
7.1567 In the light of the above finding, we believe it is unnecessary for the resolution of this dispute
to also determine whether the subsidies at issu e were de facto specific within the meaning of
Article 2.1(c) of the SCM Agreement. We therefor e exercise judicial economy and decline to rule on
the United States' allegation that the challenge d subsidy measures were also specific under
Article 2.1(c) of the SCM Agreement.
(iii) Loans under the Spanish PROFIT programme
Arguments of the United States

7.1568 The United States argues that the loans received by Airbus under the Programa de Fomento
de la Investigación Técnica ("PROFIT") are spec ific within the meaning of Article 2 of the
SCM Agreement, because it considers they were explicitly limited to aeronautics companies. 4893 To
support its position, the United States first notes that the two phases of PROFIT pursuant to which
Airbus received the subsidies at issue establishe d sector-specific research programmes for aeronautics
– the Programa Nacional de Aeronautica (PROFI T I, 2000-2003) and the Subprograma Nacional de
Transporte Aero (PROFIT II, 2004-2007). 4894 Second, the United States observes that the research
objectives and priorities under each of these progra mmes singled out the aeronautics industry; with
eligibility for the available support measures limited to aeronautics-related research proposals.4895
7.1569 The United States also claims that the subsidi es at issue were de facto specific within the
meaning of Article 2.1(c). The United States main tains that the European Communities' failure to
provide information on PROFIT loans during the A nnex V process has made it impossible for it to
present a detailed analysis of de facto specific ity under the terms of Article 2.1(c) of the
SCM Agreement. Therefore, in the light of the Eu ropean Communities' alleged lack of cooperation,
the United States asks the Panel to draw the logi cal inference that, had the European Communities
provided the information requested, it would have supported a finding of de facto specificity.4896

4893 US, FWS, para. 703; US, SNCOS, paras. 74 and 77.
4894 US, SWS, para. 519.
4895 US, FWS, para 703; US, SWS, para. 519, citing for PROFIT 2000-2003, RESOLUCIÓN de 10 de
Programa de Fomento de la Investigación Técnica (PROFIT), incluido en el Plan Nacional de Investigación
Científica, Desarrollo e Innovación Tecnológica (2000-2003) , BOE núm. 128 (29 May 2001), Exhibit US-354;
del Plan Nacional de Investigación Científica, Desarrollo e Innovación Tecnológica (2004-2007), en la parte
dedicada al fomento de la investigación técnica , BOE núm. 95 (21 April 2005), p. 13756, at Sección 14.
Programa Nacional de Medios de Transporte, Apartado cuarto – Subprograma Naciona l de Transporte Aéreo,
Exhibit US-355.
4896 US, FWS, paras. 699, 702; US, SWS, para 519, footnote 660.

BCI deleted, as indicated [***]

Arguments of the European Communities
7.1570 The European Communities rejects the United St ates' allegations that the research support
provided under the PROFIT is specific within the meaning of Article 2 of the SCM Agreement. The
European Communities explains that the PROFIT implements the Plan Nacional de Investigación
Científica, Desarrollo e Innovación Tecnológica (the " PLAN"), the objective of which is to encourage
companies and other organisations to carry out R&TD activities across a wide array of economic
sectors in accordance with a defined set of objectiv es. According to the European Communities, the
PROFIT concerns the part of the PLAN dedicated to technological research, and neither explicitly nor
implicitly restricts participation of any enterprise or industry or group thereof wanting to participate.
In the European Communities' view, the PROF IT is a framework programme providing R&TD
support in the form of mainly loans and gran ts across a wide variety of research areas. 4897 Thus, the
European Communities contends that loans r eceived by Airbus under the PROFIT cannot be
specific.4898
Evaluation by the Panel
- Specificity under Article 2.1(a)
7.1571 We begin our analysis of the United States' claim by considering whether the subsidies at
issue are specific within the me aning of Article 2.1(a) of the SCM Agreement. We recall that
Article 2.1(a) of the SCM Agreement stipulates that a subsidy is specific to an enterprise or industry
or group of enterprises or industries within the juri sdiction of the granting authority, if the granting
authority, or the legislation pursuant to which th e granting authority operates, explicitly limits access
to a subsidy to certain enterprises. 4899 Thus, in examining whether the subsidies at issue are specific
within the meaning of this provision, the focus of our analysis will be on understanding whether the
Spanish "granting authority" or the "legislation pursuant to which the granting authority operates"
explicitly limits access to the subsidies at issue to "certain enterprises".
7.1572 The subsidies challenged by the United States were granted to Airbus under two phases of the
PROFIT – PROFIT I (2000-2003) and PROFIT II (2004-2007). Both phases of the PROFIT
implemented the R&TD objectives identified by the Spanish government in the PLAN for the
respective four year periods. First established in 1986,
4900 the PLAN defines the general framework
of the Spanish government multi-year scientific research, development and technological innovation
support initiatives across a broad spectrum of economic sectors. 4901 The two phases of the PROFIT
that are the subject of the United States' complain t implemented the R&TD activities identified in the

4897 EC, FWS, para. 1319; EC, SWS, para 649; EC, Answer to Panel Question 109.
4899 See, para. 7.919 above.
4900 Law 13/1986 of Promotion and General Co-ordination of Scientific and Technical Research.
4901 The sectors covered by the PLAN 2000-2003 were: Biomedicine; Biotechnology; Information and
Communication Technologies; Materials; Chemical Proce sses and Products; Industrial Design and Production;
Natural Resources; Agro-Food Resources and Technol ogies; Socio economy; Aeronautics; Food sector;
Automotive; Civil construction and co nservation of cultural heritage; De fence; Energy; Space; Environment;
Sociosanitary; Information Society; Transport and Land Planning, and Tourism, leisure and sports., Exhibit US-
690-A, p. 13 -14. The sectors covered by the PLAN 2004-2007 were: Biomedicine; Technologies for the
Health and the Well-being; Biotechnology; Basic Biology; Resources and Agro-Food Technologies; Sciences
and Environmental Technologies; Earth sciences an d Biodiversity; Space; Astr onomy and Astrophysics;
PArticle Physics; Math; Physics; Energy; Sciences and Chemical Technologies ; Materials; Design and
Industrial Production; Security; Defence; Electronic and Communications Technologies; Informatics
Technologies; Information Society Technologies; Transport; Construction; Humanities, and Social, Economic
and Legal Sciences, Exhibit US- 691-A, p. 16-22.

BCI deleted, as indicated [***]

PLAN that were managed by the Ministry of Industry and Energy for the period 2000-2003 and the
Ministries of Education and Science, and Industry, Trade and Tourism between 2004-2007.
4902
7.1573 PROFIT I was enacted by Ministerial Order of 7 March 2000 4903 in order to give effect to the
following research areas identified in the PLAN 2000-2003: the "National Biotechnology
Programme"; the "National Industrial Design and Production Programme", the "National Materials
Programme"; the "National Progra mme of Chemical Pro cesses and Products"; the "National Natural
Resources Programme"; the "National Programme of Agro-Food Resources and Technologies"; the
"National Programme of Information and Co mmunication Technologies"; the "National Socio-
Economic Research Programme", the "Na tional Biomedicine Programme"; the " National
Aeronautics Programme" ; the "National Automotive Programme", the "National Energy
Programme", the "National Space Programme"; the "National Environment Programme"; the
"National Information Society Programme"; and the "National Transport and Land Planning
Programme".4904
7.1574 Likewise, PROFIT II was established by Ministerial Order of 18 March 2005 4905 in order to
give effect to the following research areas identified in the PLAN 2004-2007: the "National
Programme of Biomedicine"; the "National Progra mme of Technologies for the Health and the Well-
being"; the "National Biotechnology Programme"; the "National Programme of Resources and Agro-
Food Technologies"; the "National Programme of Sciences and Environmental Technologies"; the
"National Programme of Energy"; the "National Programme of Sciences and Chemical
Technologies"; the "National Materials Programme "; the "National Programme of Design and
Industrial Production"; the "National Programme of Electronic and Communications Technologies";
the "National Programme of Informatics Technol ogies"; the "National Programme of Information
Society Technologies"; the "National Transport Programme", including the "Air Transport Sub-
Programme"; the "National Construction Programme"; the "National Security Programme"; and the
"National Programme of Social, Economic and Legal Sciences".
4906
7.1575 The loans challenged by the United States we re provided to Airbus under the National
Aeronautics Programme (PROFIT I) and the Air Transport Sub-Programme (PROFIT II). In
summary, the objectives of both of these Programm es were to advance the research activities and
capacity of the Spanish aeronautics industry, and thereby enhance its competitive position. 4907
Essentially the same objectives are described for each of the other research Programmes established
under the PROFIT I and II. With regard to the beneficiaries, PROFIT I and II identify the same group
of generic potential recipients of funding for all research areas, including the National Aeronautics
Programme and the Air Transport Sub-programme, namely: enterprises; groups or associations of
enterprises; public research institutes; private non- profit research and development centers; and for
certain specified projects and actions, public statutory bodies.
4908
7.1576 Although it is apparent that only businesses ac tive in the field of aeronautics research may
qualify for loans under the National Aeronautics Pr ogramme and the Air Transport Sub-Programme,

4902 The Ministry of Industry and Energy managed PROFIT I. Exhibit US-349, p. 1, recital 5.
PROFIT II was managed by the Ministry of Education and Science and the Ministry of Industry, Trade and
Tourism. As we understand it, the latter Ministries assumed competencies from th e Ministry of Industry and
Energy which was re-organized after PROFIT I. EC, FWS, para. 1317.
4903 Exhibit US-349.
4904 Exhibit US-349, Chapter I, Article 2.
4905 Exhibit US-350.
4906 Exhibit US-350, Chapter I, Article 2.
4907 PROFIT I: Exhibit US-349, Chapter III, Article 38.1(b). PROFIT II: Exhibit US-355, Section 14,
"Apartado tercero".
4908 PROFIT I: Exhibit US-349, Chapter III, Article 39. PROFIT II: Exhibit US-350, Chapter I,
Article Sexto.

BCI deleted, as indicated [***]

it does not automatically follow that, for this r eason alone, the subsidies granted thereunder are
specific within the meaning of Article 2.1(a) of the SCM Agreement. In our view, when assessing
whether an umbrella subsidy programme that channels support through one or more industry-focussed
sub-programmes is specific under the terms of Article 2.1(a) of the SCM Agreement, all relevant facts
and circumstances must be taken into account. One of these may involve examining whether any
dedicated sub-budgets exist for one or more of the industry-focussed sub-programmes. 4909 As in the
case of the EC Framework Programmes, where a subsidy is granted pursuant to a sub-budget
allocated for research activities fa lling within the scope of a par ticular industry-focussed sub-
programme, that subsidy will be explic itly limited to "certain enterprises". 4910 However, where there
is no such ring-fencing of funds for particular s ub-programmes, it follows that the entirety of the
funding available under the umbrella programme will, in principle, 4911 be accessible for eligible
projects under any particular sub-programme. In this event, all projects eligible for support under any
particular sub-programme will have access to the sa me pool of resources available to subsidize all
research endeavours that are the focus of the umbrella programme.
7.1577 We note that the United States does not argue, as it did with respect to the EC Framework
Programmes, that a dedicated sub-budget was allo cated exclusively to research activities falling
within the scope of the National Aeronautics Programme or the Air Transport Sub-Programme. 4912
Rather, the United States' claim of specificity within th e terms of Article 2.1(a) rests solely on the fact
that the two aeronautics support programmes under PROFIT I and II were entirely focused on and
open to research activities carried out for the purpose of aeronautics. The United States has pointed to
no other particular fact or circumstance in support of its claim. However, as we have articulated
above, we are not convinced that the aeronautics-fo cus of the two programmes is, in the light of the
evidence and arguments, alone enough to demonstrate that the subsidies granted to Airbus under the
PROFIT I and PROFIT II were explicitly limited to "certain enterprises". We therefore dismiss the
United States' claim of specificity under Article 2.1(a) of the SCM Agreement.

4909 Other factors that may also be relevant might include eligibility criteria and decision-making
procedures.
4910 See, paras. 7.1563-7.1566 above.
4911 In our view, funds that are, in form available for all projects equally under an umbrella subsidy
programme might in substance be ring-fenced for a particular purpose or industry sector if, for instance,
different decision-making procedures or eligibility criteria apply without justification to limit the availability of
funds to "certain enterprises".
4912 Our own review of the evidence ad vanced by the United States does not lead us to conclude that
any funding amounts were in fact actually reserved for this purpose. The evidence indicates that funds were to
be distributed after review of applications in Answer to Calls for Proposals and that projects and activities under
the different programmes were to be financed in accordance with the budgetary lines determined in the
corresponding Calls for Proposals in each of the years of the Programmes, Exhibit US- 349, Chapter I, Article 7,
and Exhibit US-350, Chapter I, Article 11. The one Call for Proposals under the National Aeronautics
Programme submitted by the United States, Exhibit US-354, Segundo, reveals that eligible projects would be
financed from a series of numbered "aplicaciones presupuestarias" ("bu dgetary lines") - "20.08.542E.747",
"20.08.542E.777","20.08.542E.787","20.08.542E.821" and "20.08.542E.831". However, there is no evidence
(or argument) before us that explai ns exactly what these numbered "apli caciones presupuestarias" mean. In
respect of the Air Transport Sub-Programme the United States submitted a document pertaining to a Call for
Proposal for the year 2005 for most of the programmes established under the PROFIT II, including the Air
Transport Sub-Programme, Exhibit US-355, Tercero. This Call for proposal also reveals that eligible projects
would be financed from a series of numbered "aplicaciones presu puestarias" ("budgetary lines")
"20.16.467C.747","20.16.467C.757","20.16.467C.767","20.16.467C.777","20.16.467C.787","20.16.467C.821.1
0", and "20.16.467C.831.10". Although there is no evidence (or argument) before us th at explains exactly what
these numbered "aplicaciones presupuestarias" mean, it is cl ear to us that not only e ligible projects for the Air
Transport Sub-Programme woul d be financed from these "aplicaciones presupuestarias", but that almost all
eligible projects under all the Programmes that the Call for Proposal refers to, would be financed from these
"aplicaciones presupuestarias". In our view, this evid ence strongly suggests that there was no sub-budget
allocated exclusively to research activities falling within the scope of the Air Transport Sub-Programme.

BCI deleted, as indicated [***]

- Specificity under Article 2.1(c)
7.1578 The United States asserts that during the Anne x V process the Facilitato r asked the European
Communities a series of detailed questions on the amounts of funding received by Airbus and other
participants for all projects carried out under the PROFIT programmes.
4913 The United States recalls
that the European Communities provided no information in response to the Facilitator's request.4914 In
this light, the United States asked the Panel to request the European Communities to provide the
information the Facilitator requested, or else find, in accordance with paragraph 7 of Annex V, that
the loans received by Airbus under the PROFIT are specific within the meaning of Article 2.1(c) of
the SCM Agreement.4915 The United States argues that had the European Communities provided the
information requested, it would have supported a finding of de facto specificity, within the meaning of
this provision.4916
7.1579 The European Communities has consistently argue d that the PROFIT loans challenged by the
United States are outside the terms of reference of the present dispute. 4917 Because of this, the
European Communities initially refused to provide a ny information at all about the projects carried
out under the PROFIT. 4918 However, in response to Panel Question 109, the European Communities
submitted certain information on loan payments made under the PROFIT II in the years 2004 and
2005.4919 For reasons we have previously explained, we believe the European Communities' response
to Panel Question 109 to be less than satisfactory. 4920 In our view, had the European Communities
provided clear and accurate information on, at least, the loan payments made to Airbus under the two
separate PROFIT programmes at issue, (as we had expected it would in response to Panel
Question 109), the United States would have at least had a credible starting point from which it could
have assessed whether the subsidies at issue were spec ific within the meaning of Article 2.1(c), and if
necessary construct its case. Obviously, had the Eur opean Communities disclosed some or all of the
information requested during the Annex V process, the United States would have had more data to
inform its analysis. 4921 However, in the light of the EC' r esponses to the Facilitator's information
requests and Panel Question 109, the United States was left with publicly available data estimating the
global loan amounts received by Airbus over an unknown period of time under both phases of the
PROFIT.
4922 As is apparent from our previous discussi on of the factors that may be considered in
order to establish specificity under Article 2.1(c) of the SCM Agreement, 4923 the publicly available
information before us is not enoug h to conduct a proper assessment of whether the subsidies at issue
were de facto specific.4924

4913 Questions 279(a)-(k) and 280(a)-(l) from the Facilitator to the EC, Exhibit US-4 (BCI).
4914 EC Reply to Questions 279 and 280 from the Facilitator, Exhibit US-5 (BCI).
4915 US, FWS, paras. 699, 702; US, SWS, para 518, footnote 660.
4916 US, FWS, paras. 699, 702; US, SWS, para 518, footnote 660.
4917 EC, FWS, para. 1315; EC, Answer to Panel Question 109; EC, SWS, para. 647.
4918 EC Reply to Questions 279 and 280 from the Facilitator, Exhibit US-5 (BCI).
4919 Exhibit EC-624 (BCI).
4920 See, paras. 7.1477-7.1478 above.
4921 We note that the information requested during the Annex V process was much broader and more
detailed than the "payment information" requested in Panel Question 109, and included information on the total
budgets for PROFIT I and II as well as the Nati onal Aeronautics Programme and Air Transport Sub-
Programme, lists of all funded projects and recipients under the Programme and Sub-Programme, relevant legal
instruments and legislation, projects evaluation reports, and the terms of the loans granted to Airbus. See,
Questions 279(a)-(k) and 280(a)-(l) from the Facilitator to the EC, Exhibit US-4 (BCI).
4922 See, paras. 7.1476-7.1480 above.
4923 See, paras. 7.959 and 7.976 above addressing the United States' claims against the challenged EIB
loans.
4924 We recall that the language of Article 2.1(c) suggests that it is intended to address the situation
where a challenged subsidy does not appear to be specif ic within the meaning of the principles set out in
Articles 2.1(a) and 2.1(b), but "there are reasons to believe that the subsidy may in fact be specific". When such

BCI deleted, as indicated [***]

7.1580 We recall that paragraph 7 of Annex V provides that a panel "should draw adverse inferences
from instances of non-cooperation by any party invo lved in the information-gathering process". In
the light of the foregoing, and consistent with our previous finding on the amount of the loan
payments made to Airbus under the challenged PROFIT programmes,
4925 we conclude pursuant to
paragraph 7 of Annex V, that th e challenged subsidies under the PROFIT I and II are specific within
the meaning of Article 2.1(c) of the SCM Agreement.
(iv) Grants under the UK Technology Programme
Arguments of the United States
7.1581 The United States argues that the grants pr ovided to Airbus under the UK Technology
Programme ("TP") are specific within the meaning of Article 2 of the SCM Agreement because they
were awarded through calls for proposals that are limited to aeronautics-related technologies, which
have a scope determined by a narrow set of industry-specific criteria. 4926 According to the United
States, the European Communities has acknowledged th at the TP is divided into 43 "research themes"
targeting a limited set of industries. The United St ates asserts that each of these research themes has
its own budget and tends to be highly industry-specific. For example, the United States argues that
the "Advanced Materials" research theme targets co mposite materials development in the aeronautics
industry, with calls under this research theme si ngling out the aeronautics industry. Finally, the
United States also submits that the European Communities has admitte d that the TP is a continuation
of the CARAD/ARP, a programme for which the Eu ropean Communities has not contested its claims
of specificity. 4927 Thus, for all of these reasons, the Unite d States argues that the R&TD funding
provided to Airbus and the aeronautics industry u nder the TP is specific w ithin the meaning of
Article 2.1 of the SCM Agreement.4928
Arguments of the European Communities
7.1582 The European Communities rejects the Unite d States' allegations. The European
Communities asserts that the TP is a broad resear ch programme open to a ll industrial and service
sectors, including the aeronautics sector. 4929 The European Communities explains that the TP is
devoted largely to collaborative R&TD, with a budget of GBP 370 million for the period 2005-
2008.4930 Funding grants are limited to 50% of elig ible costs and provided on a bi-annual basis in
response to competitions calling for research falling within the scope of seven key technology areas:
Advanced Materials; Bioscience and Healthcare Technologies; Design Engineering and Advanced
Manufacturing; Electronics and Photonics; Emerging Energy Technologies; Information and
Communication Technologies; and Sustainable Production and Consumption. 4931 The European

a situation arises, the first sentence of Article 2.1(c) s tipulates that "other factor s may be considered". The
second sentence of Article 2.1(c) elaborates four "{s}uch factors" – "use of a subsidy programme by a limited
number of certain enterprises, predominant use by certain enterprises, the granting of disproportionately large
amounts of subsidy to certain enterprises, and the manner in which discretion has been exercised by the granting
authority in the decision to grant a subsidy."
4925 See, paras. 7.1476-7.1480 above.
4926 US, FWS, para, 691, referring to DTI, Second Call of the Tech nology Program (April 2004),
Advanced Composite Materials and Structures , at 2; and DTI, The Technology Program, November 2004
Competition for Funding, Smart Materials and Related Structures, at 2; and DTI, The Technology Programme:
Spring 2006 Competition for Funding, Design Engineering & Advanced Manufacturing: Management of
complex fluid flow conditions, at 2, Exhibits US-495a, US-495b and US-495c.
4927 US, FWS, Para 691.
4929 EC, FWS, paras. 1286 and 1305; EC, SWS, para. 643.
4931 EC, FWS, paras. 1288, 1296-1304. Exhibit EC-230.

BCI deleted, as indicated [***]

Communities denies that the calls for proposals are determined by narrow industry-specific criteria, or
that there has been any "earma rking" of a certain amount of support for the aerospace sector in
general, for Airbus UK, or for any other aerospace-sector organisation.
4932 Thus, the European
Communities argues that the R&TD grants available under the TP are not explicitly limited to "certain
enterprises" and therefore not specific within the meaning of Article 2.1(a) of the SCM Agreement.4933
7.1583 The European Communities critic izes the United States for relying upon information
brochures relating to three of 43 technology priori ty areas so far identified in the competitions
undertaken under the TP, namely, the "Advanced Co mposite Materials and Structures" (April 2004
competition); "Smart Materials" (November 2004 competition) and "Design Engineering and
Advanced Manufacturing" (Spring 2006 competition) brochures. The European Communities argues
that although the areas will be relevant to the aer onautics industry, none of them is "limited to
aeronautics-related technologies" and each of the br ochures explicitly refers to other sectors to which
the technology in question is relevant.4934
Evaluation by the Panel
7.1584 The United States argues that the grants provided to Airbus under the TP are specific within
the meaning of Article 2 of the SCM Agreement. In particular, we understand the United States to
argue that the grants provided to Airbus under the TP are specific within the meaning of Article 2.1(a)
of the SCM Agreement. We do not understand the Un ited States to argue that they are also specific
within the meaning of Article 2.1(c) of the SCM Agreement.
7.1585 As already noted elsewhere in this Report, Ar ticle 2.1(a) of the SCM Agreement stipulates
that a subsidy is specific to an enterprise or indus try or group of enterprises or industries within the
jurisdiction of the granting authority, if the granting authority, or the legislation pursuant to which the
granting authority operates, explicitly limits access to a subsidy to certain enterprises.
7.1586 The main argument advanced by the United States to substantiate its claim that the grants
provided to Airbus under the TP are specific w ithin the meaning of Article 2.1(a) of the
SCM Agreement is based on the assertion that they were awarded through competitions that were
limited to R&TD activities in the field of aeronau tics-related technologies. In this regard, the
United States refers to information br ochures publicising three competitions held
in April and November 2004 and Spring 2006, resp ectively involving R&TD in the fields of
"Advanced Composite Materials and Structures", "S mart Materials" and "Design Engineering and
Advanced Manufacturing".
4935
7.1587 However, our review of the evidence before us suggests that the subsidies provided under the
TP are not limited, in the way the United States asser ts, to entities active in the field of aeronautics
research. We agree with the Eu ropean Communities that the TP is a research programme intended to
fund R&TD activities across a broad array of economic sectors. The TP operates on the basis of an
overall budget for all supported activities set at GBP 370 million for the years 2005-2008.
4936
Funding is provided for the purpose of "collabora tive research and development" and "knowledge
transfer networks" 4937 through competitions held twice per year. The precise subject matter of the
research themes addressed in each competition is sh aped by the input of the "Technology Strategy

4932 EC, FWS, para. 1305.
4933 EC, FWS, para. 1306.
4934 EC, SWS, para. 643.
4935 Exhibits US-495a, US-495b and US-495c.
4936 Exhibit EC-230.
4937 Exhibit EC-229.

BCI deleted, as indicated [***]

Board", an advisory board comprised "m ainly of experienced business leaders". 4938 The Technology
Strategy Board is tasked with ensuring "that the technology priorities within the Technology
Programme are market-focussed, and" advising "on the broad allocation of resources to them." 4939
The research themes it identifies for open competitions vary from year-to-year, but broadly fall within
the seven key technology areas identified by th e European Communities, namely: Advanced
Materials; Bioscience and Healthcare Tec hnologies; Design Engineering and Advanced
Manufacturing; Electronics and Photonics; Emerging Energy Technologies; Information and
Communication Technologies; and Sustainable Production and Consumption.
4940 In the vast majority
of cases, the research themes do not appear to focus on particular economic sectors.4941
7.1588 Turning to the three competitions that are the focus of the United States' complaint, we note
that the competition relating to "Advanced Compos ite Materials and Structures" does not limit the
availability of grants under the TP to the aeronautics -related research. Under the "scope of the call"
heading, there is no limitation at all with respect to the types of industries which might be eligible for
grants thereunder. Indeed, the brochure explicitl y identifies the aerospace, automotive, construction,
consumer product, engineering, marine, rail and space sectors as being potential beneficiaries of
research falling within the scope of this call for proposals. 4942 Similarly, multiple potential industry
beneficiaries are identified in the competitions relating to "Smart Materials and Related Structures"4943
and "Design Engineering and Advanced Manufacturing". 4944 Far from singling out the aerospace
sector as the beneficiary of the relevant R&TD gran ts, it is clear that the three competitions at the
centre of the United States' complaint are open to all industry sectors interested in the particular
technology at issue; and in fact, numerous industries are identified as potential beneficiaries.
7.1589 As regards the United States' argument that each of the technology priority areas funded
under the competitions had its own budget, we note that it is less then clear that this is in fact the case
in respect of all 43 thematic areas addressed in the competitions. Nevertheless, indicative funding
amounts were set for the three competitions at issue: GBP 10 million for "Advanced Composite
Materials and Structures"; GBP 7 million for "S mart Materials and Related Structures" and
GBP 12 million for "Design Engineering and Advanced Manufacturing". 4945 However, as we have
already explained, the availability of the allocat ed funds was not explicitly limited to entities active
only in the field of aeronautics research. Unlike the situation in respect of EC Framework
Programmes, the TP (and each of the three competiti ons at issue) did not set aside any portion of
budgeted funding amounts for the sole purpose of the research efforts of en terprises or industries
active in the aeronautics sector.
7.1590 Finally, the United States considers that the European Communities has admitted that the TP
is a continuation of the CARAD/ARP, and that this is further confirmation that TP is specific. 4946 We
do not understand the European Communities to have ma de any such admission. In its first written

4938 Exhibit EC-229.
4939 Exhibit US-342.
4940 Exhibit EC-230.
4941 The thematic research areas covered in the comp etitions held from 2004 to 2006 are identified in
the European Communities' first written submission, at paras. 1298-1304. They are also set out in the
information referred to in Exhibit EC-230.
4942 Exhibit US-495a.
4943 Exhibit US-495b, stating in particular, "Smart Materials represent an enabling technology that has
applications across a wide range of sectors including construction, transportation, agriculture, food and
packaging, healthcare, sport and leisure, white goods, energy and environment, space and defence."
4944 Exhibit US-495c, stating in particular, "In additi on to applications within the Chemicals and Oil
and Gas sectors, some illustrative ex amples include: Food and Drink, ... Built Environment, ... Automotive, ...
Aerospace, ...".
4945 Exhibits US-495a, US-495b and US-495c.
4946 US, FWS, para. 691.

BCI deleted, as indicated [***]

submission, the European Communities clearly states that the TP did not "replace" CARAD. The
European Communities explains that the TP brought together all UK R&TD sectoral collaborative
funding under one umbrella.
4947 In addition, in its answer to a question posed by the Facilitator during
the Annex V procedure, the Europ ean Communities stated that the TP "replaced all industrial
collaborative programmes, including CARAD". 4948 Thus, it is clear to us that the TP is a R&TD
support programme that is of an entirely different nature to the CARAD/ARP, which as we explain
further below, the European Communities does not contest amounts to a specific programme for civil
aircraft research. In contrast, the TP may be characterized as a framework R&TD support programme
that identifies and funds research into new a nd emerging technologies across a broad array of
economic sectors that are considered to be critical to the growth of the UK economy.
7.1591 Having found that the grants at issue were not provided pursuant to competitions explicitly
limited to entities active in aeronau tics-related research; that the av ailability of the allocated funds
under the relevant competitions was not explicitly limited to aeronautics-related research projects; and
that the TP is not a continuation of CARAD/ARP, we conclude that the subsidies provided to Airbus
under the TP that are the subject of the United States ' complaint were not explicitly limited to "certain
enterprises" and are therefore not specific with in the meaning of Article 2.1(a) of the
SCM Agreement.
(v) Other R&TD measures
French government grants
7.1592 The United States claims that the civil aeronau tics R&TD grants that the French Government
provided to Airbus are specific within the meaning of Article 2 of the SCM Agreement because they
were provided pursuant to a budget that is dedicat ed to "aeronautic constr uction" and limited to
aeronautics manufacturing companies. 4949 Although the United States has not identified a particular
sub-paragraph of Article 2 as the basis of its claim, we understand from the nature of the arguments it
has advanced that its claim is grounded in Article 2.1(a) of the SCM Agreement. The European
Communities does not contest the Unites States' allegation.
7.1593 Having carefully reviewed the evid ence submitted by the United States, 4950 it is apparent that
the funding amounts at issue pertain to monies distri buted to the French civil aeronautics sector as a
whole, including but not limited to Airbus. 4951 The evidence indicates that the funding at issue was
directed at research endeavours in the area of civil aeronautics construction, and granted pursuant to a
dedicated budget. 4952 The Reports submitted by the United States indicate that the funding was
essentially provided to the following aeronautics companies: "Aérospatiale-Matra", "Dassault
Aviation" and "L'Onera".4953 In addition, a note from the "Direction des programmes aéronautiques et

4947 EC, FWS, Para 1286.
4948 See, EC Reply to Question 219 (b) from the Facilitator, Exhibit US-5 (BCI).
4949 US, FWS, para 685.
4950 See, at paras. 7.1467-7.1473 above.
4951 For instance, see Budget 1997: Sénat, No. 89 (session ordinaire de 1999-2000), Rapport Général,
de finances pour 2000, Tome III, Annexe No. 25, Equipment, Transport et Logement; III. – Transport;
Transport Aérien et Météorolgie et Aviation Civile, p. 88, in Exhibit US-337.
4952 Sénat, No. 73 (session ordinaire de 2003-2004), Rapport Général, Commission des Finances, du
Tome III, Annexe No. 18 Équipement, Transport et Logeme nt. III. - Transports et Sécurité Routière: Aviation
et Aéronautique Civiles, p. 37, Exhibit US-337F. See, also, Exhibit EC-208 (BCI).
4953 Sénat, No. 73 (session ordinaire de 2003-2004), Rapport Général, Commission des Finances, du

BCI deleted, as indicated [***]

de la coopération" submitted by the European Co mmunities indicates that more than half of the
support provided for research and studies for 100-se at-and-above range of ai rcraft between 1994 and
2005 was provided to Airbus.4954
7.1594 Given that the available funding was explicitly limited to the French civil aeronautics sector,
we find the French government R&TD grants challenge d by the United States to be specific to Airbus
and/or the aeronautics industry, within the meaning of Article 2.1(a) of the SCM Agreement.
German Federal government grants
7.1595 The United States claims that German federa l government grants for LCA-related R&TD
projects in which Airbus participated under th e LuFo I, LuFo II and LuFo III programmes are
specific, within the meaning of Article 2 of the SCM Agreement, because disbursed from budgets that
are dedicated to the civil aeronautics industry, w ith access explicitly limited to the civil aeronautics
industry.4955 Although the United States has not identified a particular sub-paragraph of Article 2 as
the basis of its claim, we understa nd from the nature of the arguments it has advanced that its claim is
grounded in Article 2.1(a) of the SCM Agreement. The European Communities does not contest the
Unites States' allegation. 4956
7.1596 Having carefully reviewed the evid ence submitted by the United States, 4957 it is clear to us
that the LuFo programmes are limited to the aeronau tics sector. Indeed, in its responses to Questions
from the Facilitator, the Europ ean Communities conced es that federal funding through the LuFo
Programmes was exclusively provided to the aeronautics sector. 4958 The budget plans submitted by
the United States indicate, in addition, that th e objective of these programmes is to support the
competitiveness of the aviation industry in Germany.
7.1597 Thus, we have no doubt that the R&TD grants at issue were explicitly limited to the German
aeronautics sector. We therefore agree with the United States that they are specific within the
meaning of Article 2.1(a) of the SCM Agreement.
German sub-Federal government R&TD grants
7.1598 The United States claims that the R&TD gran ts received by Airbus from the German sub-
federal governments of Bavaria, Bremen and Hamburg, are specific within the meaning of Article 2 of
the SCM Agreement because they are explicitly limite d to Airbus and/or the aeronautics industry. 4959
Again, the United States has not identified a particul ar sub-paragraph of Article 2 as the basis of its
claim. However, we understand from the nature of the arguments it has advan ced, that its claim is
grounded in Article 2.1(a) of the SCM Agreement. The European Communities does not contest the
Unites States' allegations. 4960

Tome III, Annexe No. 18 Équipement, Transport et Logeme nt. III. - Transports et Sécurité Routière: Aviation
et Aéronautique Civiles, p. 37, Exhibit US-337F. See, also, Exhibit EC-208 (BCI).
4954 Exhibit EC-209 (BCI). The Note, at page 2, indicates that the term "Airbus" includes Aérospatiale,
Aérospatiale-Matra, EADS Airbus and Airbus France.
4955 US, FWS, paras. 665-666.
4956 EC, Answer to Panel Question 108.
4957 See, paras. 7.1457-7.1458 and 7.1493-7.1495 above.
4958 EC, Answer to Panel Question 173 from the Facilitator, Exhibit US-5 (BCI).
4959 US, FWS, paras. 670; 673; and 677.
4960 EC, FWS, paras. 1259-1272; EC, Answer to Panel Question 108.

BCI deleted, as indicated [***]

- Government of Bavaria R&TD grants
7.1599 In support of its claim of specificity, the United States has submitte d various documents,
including an extract from the website of the Germ an Aerospace Center ("DLR") and a document from
the Bavarian Parliament.
4961 The extract from the DLR website describes the goals and content of the
grants at issue and identifies the eligible candidates. It indicates that the government of Bavaria made
DM 15 million available at the end of 1999 for civil aviation research in Bavaria, in close
coordination with the federal govern ment's aeronautical research programme. The funding was made
available for "companies from Bavaria's aviation industry", including Bavarian universities and non-
university-affiliated research establishments located in Bavaria. Similarly, the document from the
Bavarian Parliament indicates that the R&TD grants were made for the purpose of the development of
aeronautics and aerospace technologies. In our view, it is clear from the evidence before us that the
R&TD grants at issue were only provided in orde r to fund research activities undertaken in Bavaria
for the purpose of the aeronautics sector. We theref ore agree with the United States that the R&TD
grants were explicitly limited to "certain enterprises", and are therefore specific within the meaning of
Article 2.1(a) of the SCM Agreement.
- Government of Bremen R&TD grants
7.1600 In support of its claim of specificity, the United States has submitte d various documents,
including an extract from a Memorandum of the Br emen City Parliament and State Parliament; 4962 an
extract from the "Fraunhofer Institute for Manufact uring Technology and Applied Materials Research
in Bremen" online site; 4963 and a press release issued by a Se nator of Economics of the City of
Bremen.4964
7.1601 The extract of the Memorandum of the Bremen City Parliament and State Parliament
indicates that funds have been allocated to the AMST site project to pursue research and development
with the aim of strengthening Bremen as an aircraft construction site. 4965 Another document
submitted by the United States consists of an extract from the website of the "Fraunhofer Institute for
Manufacturing Technology and Applied Materials Resear ch in Bremen". This extract indicates that
within the framework of the reorganization of Eur opean aircraft builders, the purpose of the AMST
was, in particular, to tap the scientific know-how of public institutions in matters of materials and
processes available in Bremen for the Airbus plant a nd develop this further, in a targeted manner, for
the needs of aircraft construction.4966 Finally, the press release issued by the Senator of Economics of
the City of Bremen indicates that aircraft constr uction is traditionally one of the key industries in
Bremen and that through provision of funds to im plement the AMST project, the Senate expected to
contribute significantly to improve the performance and competitiveness of the Bremen Airbus Plant.
In our view, it is apparent that the R&TD grants at issue were aimed at supporting the aircraft
construction sector in Bremen, referred to as "one of the key industries in Bremen", and in particular
to Bremen Airbus' plant. 4967 We therefore agree with the United States that the R&TD grants were
explicitly limited to "certain enterprises", and are therefore sp ecific within the meaning of
Article 2.1(a) of the SCM Agreement.

4961 Exhibits US-330 and US-331.
4962 Exhibit US-334.
4963 Exhibit US-336.
4964 Exhibit US-335.
4965 Exhibit US-334 indicates that a total of EUR 24.2 million in R&D funds
4966 Exhibit, US-336.
4967 Exhibit US-335.

BCI deleted, as indicated [***]

- Government of Hamburg R&TD grants
7.1602 In support of its claim, the United States h as submitted various documents, including an
extract from the website of the German Aerospace Center ("DLR") 4968 and a document that indicates
the projects in which Airbus has participated, the dates in which those projects began and ended, and
contains details on the payments to relevant Airbus entities. 4969 The extract from the DLR website
describes the goals and content of the grants at is sue and identifies the eligible candidates. It
explicitly states that the targeted funding project s are aimed at encouraging Hamburg's aerospace
industry to increase its efforts in developing new technologies; i.e., to strengthen the technological
productivity of Hamburg's aerospace and supply indus try. Hamburg-based companies operating in
the aerospace sector are one of the eligible ap plicants, together with universities and research
institutes. In our view, this evidence confirms that the R&TD grants at issue are explicitly limited to
Hamburg's aerospace sector. We therefore agree with the United States that the R&TD grants were
explicitly limited to "certain enterprises", and are therefore sp ecific within the meaning of
Article 2.1(a) of the SCM Agreement.
Loans under the Spanish PTA programme
7.1603 The United States claims that the loans recei ved by Airbus under the two phases of the PTA
programme are specific to Airbus and/or the aeronau tics industry within the meaning of Article 2 of
the SCM Agreement. With respect to PTA I, the United States argues that the government explicitly
limited access to funding to aerona utics companies involved in the manufacturing, design, supply and
maintenance of aircraft and aircraft parts, and to engineering services companies and research
institutions and universities developing sp ecific technologies with aeronautics use. 4970 The United
States argues that similar restrictions were applied with respect to PTA II. 4971 Although the United
States has not identified a particular sub-paragraph of Article 2 as the basis of its claim, we
understand from the nature of the arguments it has advanced that its claim is grounded in
Article 2.1(a) of the SCM Agreement.
7.1604 In support of its claim and with respect to PTA I, the United States has submitted a one page
document indicating that the enterprises that are e ligible to participate are those involved in the
manufacturing, design, supply and maintenance of airc raft and aircraft parts, and engineering services
companies and research institutions and universities developing specific technologies with aeronautics
use.
4972 In addition, and with respect to PTA II, the United States has submitted a letter from the
European Commission to the Spanish Ministry of Ex ternal Relations indicating that the objective of
this programme is essentially to support the competitiveness of the aviation industry in Spain and
pointing out that it had no objections to the proposed programme.4973
7.1605 Having carefully reviewed the evidence submitted by the United States, it is clear to us that
the PTA programme is limited to th e aeronautics sector. Indeed, this is explicitly recognized by the
European Communities in its first written submission. 4974 We therefore agree with the United States
that the R&TD loans at issue are specific within the meaning of Article 2.1(a) of the SCM Agreement.

4968 Exhibits US-333.
4969 Exhibit US-332 (BCI).
4970 US, FWS, para 691 citing PTA I, Ministerio de Industria, Tu rismo y Comercio, Secretary of State
for Industry, Plan I+D para el Sector Aeronáutico (undated), p. 13., Exhibit US-348.
4971 U S , F W S , p a r a 6 9 1 citing European Commission, State Aid N 135/1999, Plan Tecnológico
Aeronáutico II, decision of 5 May 1999, SG(99) D/3208, pp. 2,3, Exhibit US-346.
4972 Exhibit US-348.
4973 Exhibit US-346.
4974 EC, FWS, para. 1311.

BCI deleted, as indicated [***]

UK Government grants under CARAD

7.1606 The United States claims that the civil aeronau tics R&TD grants that the UK Government
provided to Airbus are specific within the meaning of Article 2 of the SCM Agreement because they
were limited to entities carrying out research in aeronautics technologies. 4975 Although the
United States has not identified a particular sub-para graph of Article 2 as the basis of its claim, we
understand from the nature of the arguments it has advanced that its claim is grounded in
Article 2.1(a) of the SCM Agreement. The European Communities does not contest the United States'
allegation.4976
7.1607 In support of its claim, the United States has submitted an extract of the "Innovation Budget
Guidelines" to officials of the CARAD which set out the procedures to be followed on CARAD
projects. This extract indicates that [***].4977 We are satisfied that this evidence confirms the United
States' uncontested assertion that the R&TD grants at issue were limited to entities carrying out
research in aeronautics technologies. We therefore agree with the United States that the R&TD grants
were explicitly limited to "certain enterprises", and are therefore specific within the meaning of
Article 2.1(a) of the SCM Agreement.
(vi) Conclusion
7.1608 On the basis of the foregoing, we find that the United States has established that the following
R&TD measures constitute specifi c subsidies within the meaning of Articles 1 and 2 of the
SCM Agreement: the grants to Airbus provided under the Second, Third, Fourth, Fifth and Sixth EC
Framework Programmes; the loans to Airbus pr ovided under the Spanish PROFIT programme; the
grants to Airbus provided by the French governmen t; the grants to Airbus provided by the German
Federal government; the grants to Airbus provided by certain German sub-Federal governments; the
loans to Airbus provided under the Spanish PTA pr ogramme; and the grants to Airbus provided under
the UK CARAD programme.
7.1609 On the other hand, we conclude that the United States has failed to establish that the grants to
Airbus provided under the UK Technology Progra mme constitute specific subsidies within the
meaning of Articles 1 and 2 of the SCM Agreement, and we will not consider them further in this
dispute.

4975 US, FWS, para 691; Exhibit US-341 (BCI).
4976 EC, Answer to Panel Question 108.
4977 Exhibit US-341 (BCI).

BCI deleted, as indicated [***]

SECTION VII.E.10 ANNEXES

ANNEX I.1 – 2nd Framework Programme

 Project Acronym Project Title
1 EASN Contribution to European Aero Supercomputing Network
2 CAPRI Civil Aircraft Protection Against Ice (CAPRI)
3 SCIA Helicopter Rotor/Fuselag e Interactional Aerodynamics
4 ODT Optical Data Transmission
5 ELFIN Investigation of Laminar Flow Technology (ELFIN)
6 EUROVAL Validation CFD Codes (EURAVAL)
7 IMAGES Integrated Modular Avionics Software (IMAGES)
8 EUROMESH Multi - Block Mesh Generation for CFD (EUROMESH)
9 FANSTIC Future Technologies Impact on Cockpit (FANSTIC)
10 DUPRIN Ducted Propfan Investigations (DUPRIN)
11 All Electric Aircraft All Electric Aircraft Flight Control Actuation
12 GEMINI Airframe / Propulsion Integration (GEMINI)
13 ACOUFAT Acoustic Fatigue a nd Related Damage Tolerance
14 ODA Optimum Design in Aerodynamics
15 Supersonic Flow Investigation of Supersonic Flow Phenomena
16 None Development of Improved Dama ge Tolerant Carbon Fibre-
Matrix Composites
17 None Development of Advanced Non Contact methods for Non
Destructive Detection of Defects and Damage in Aeronautical
Structures
18 none Low Cost MMC Made by Spray Deposition
19 none Development of Techniques for Polymeric Diaphragm
Forming of Continuous Fibre Reinforced Thermoplastics
20 none New Plating Techniques for Aluminium Alloys
21 none Damage Tolerance and Fatigue Design Methodology for
Primary Composite Structures
22 none Post-Buckling Behaviour of CFC Structures
23 none Application of Feature Based Modelling for Complex Product
Design and Manufacture
24 ASANCA Advanced Study for Active Noise Control in Aircraft

BCI deleted, as indicated [***]

ANNEX I.2 – 3
rd Framework Programme

 Project Acronym Project Title
1 ELFIN II "Fibre-Reinforcement of Precision Cast Parts"
("FIBRECAST")
2 FEAST Investigation of the aerodynamics and cooling of advanced
engine turbine components
3 CRASHWORTHINESS "Efficient Turbulence Models for Aeronautics" ("ETMA")
4 IMAGES 2000 "Development of a High Strength Aluminum-Lithium Alloy"
5 BRE2-0153 "Basic Research in Aircraft Interior Noise" ("BRAIN")
6 DUPRIN II "Aeroacoustics Methods for Fan Noise Prediction and
Control" ("FANPAC")
7 Composite Fuselage "Electrically Powered Integrated Control (SMART)
Actuators" ("EPICA")
8 BRE2-0565 Research on organic primer concepts for aluminium substrates
9 LARA "New Techniques for Paint Removal"
10 BRE2-0160 Advanced civil core compressor aerodynamics
11 BRE2-0313 "Crashworthiness for Commercial Aircraft"
("CRASHWORTHINESS")
12 EPICA flight tests Future laser atmospheric measurement equipment
13 EPICA "Generic Approach for ATM Systems" ("GAAS")
14 LAGER I "Development of a New Aluminium Alloy for use at 150º C"
15 BRE2-0227 "Simulation of Resin Transfer Moulding Process for Efficient
Design and Manufacture of Composite Components 3
16 BRE2-0151 "New Techniques for Paint Removal"
17 PICANT "Process/Integrated Cost Analysis Tool"
18 PROTAILTHERM Property tailoring and ne t shape processing of structures from
textile preforms with thermoplastic matrices
19 ECARP "European Computational Aerodynamics Research Project"
("ECARP")
20 FANSTIC II "Future ATM New Systems and Technologies Integration in
Cockpits" ("FANSTIC II")
21 MOSAIC Measurement of ozone on Airbus in-service aircraft
22 NOSOST New optical sensors and optical signal transmissions
23 GEMINI II "Basic Test Rig for a Generic Model for Wind Tunnel Test on
Airframe Propulsion Integration with Emphasis on Advanced
Propeller II" ("GEMINI II")
24 ASANCA II Advanced study for active noise control in aircraft
25 GAAS "Generic Approach for ATM Systems" ("GAAS")
26 VERSATILE Vision enhancement for reliable and safe air transport in
limiting environment
27 SNAAP Study of Noise and Aerodynamics of Advanced Propellers
28 NS Solvers
29 FANPAC Aeroacoustics Methods for Fan Noise Prediction and Control
30 AERONOX The Impact Of Nox Emissions from Aircraft Upon the
Atmosphere at Flight Altitude 8 – 15 km

BCI deleted, as indicated [***]

ANNEX I.3 – 4th Framework Programme

 Project Acronym Project Title
1 ENHANCE Enhanced aeronautical concurrent engineering (ENHANCE)
2 RAIN Reduction of airframe and installation noise (RAIN)
3 HYLDA Hybrid Laminar Flow Demonstration on Aircraft (HYLDA)
4 APRICOS Advanced Primary Composites Structures (APRICOS)
5 SPIDERS Specification Procedures for Industrial Distributed European
Realisation of Systems (SPIDERS)
6 ENIFAIR Engine integration on Futu re Transport Aircraft (ENIFAIR)
7 MDO Multi-Disciplinary Design, Analysis and Optimisation of
Aerospace Vehicles (MDO)
8 SMAAC Structural Maintenance of Ageing Aircraft (SMAAC)
9 HYLTEC Hybrid Laminar Flow Technology (HYLTEC)
10 MONITOR Monitoring On-line Integrated Technologies for Operational
Reliability (MONITOR)
11 CEDIX To Establish Concurrent Engineering Based "Design for
Integrated X-methodologies" for the preliminary and detailed
design of aircraft sections (CEDIX)
12 BRPR-97-0551 Design of Human / Machine Interfaces and their Validation in
Aeronautics
13 FLEXSHOP Flexible Workshop for Airframe Assembly (FLEXSHOP)
14 CRASURV Commercial Aircraft - Design for Crash Survivability
(CRASURV)
15 DOCT Development of Clean technologies for Aircraft Industry
(DOCT)
16 CANDIA Cost Reduction by Advanced non-Destructive Inspection of
Aeronautical Structures (CANDIA)
17 MASSPS Materials system for surfa ce protection and sealing (MaSSPS)
18 3D-PTM Assessment of Economic and Technical Advantages of 3-D
Preform Transfer Moulding (3D-PTM)
19 AVTAC Advanced Viscous Flow Si mulation Tools for Complete Civil
Transport Aircraft Design (AVTAC)
20 INDUCE Advanced integrated NDT concepts for unified life-cycle
(INDUCE)
21 EDAVCOS Efficient Design and Verification of Composite Structures
(EDAVCOS)
22 CATE Composites and Advanced Aircraft Technologies
Electromagnetic Protection (CATE)
23 ADPRIMAS Advanced Concepts for Pr imary Metallic Aircraft Structures
(ADPRIMAS)
24 ELGAR European Landing Gear Advanced Research (ELGAR)
25 IAPPS Integrated Automated Process Planning System (IAPPS)
26 EUROWAKE Wake Vortex Formation of Transport Aircraft (EUROWAKE)
27 EUROSUP Reduction of Wave & Lift -Dependent Drag for Supersonic
Transport Aircraft (EUROSUP)
28 REAL Robust and Efficient Autopilot Control Laws Design (REAL)

BCI deleted, as indicated [***]

 Project Acronym Project Title
29 EuroShock II Drag Reduction by Shock and Boundary Layer Control
(EuroShock II)
30 EUROTRANS European Program for Transition Prediction (EUROTRANS)
31 FASTFLO Fully Automatic System for Three-dimensional Flow
Simulations (FASTFLO)
32 3FMS Free Flight - Flight Management System (3FMS)
33 ADSTREFF Targeted Research Action in Advanced Structural Efficiency
34 APIAN Advanced Propulsion Integration Aerodynamics and Noise
(APIAN)
35 ASSET The Development of Advanced Surface Engineering Techniques
for Future Aerospace Transmissions (ASSET)
36 AWARD All Weather Arrival & Departure (AWARD)
37 BRPR-95-0095 Control of Gas Phase and Condensed Matter Temperature in
Industrial Processes
38 BRPR-95-0105 Development of Elevated Temperature Aluminium Alloys
39 BRPR-98-5050 Thematic Ne twork Wake Vortex
40 CREEPAL Long term creep and thermal- mechanical cycling behaviour of
aluminium alloys (CREEPAL)
41 DMU-ES Digital Mock-up Ergonomic Simulation (DMU-ES)
42 DMU-MM Digital Mock-up Modelling Methodologies and Tools for
Product Conception and Downstream Processes (DMU-MM)
43 DMU-VI Digital Mock-up Visualisation in Product Conception and
Downstream Processes (DMU-VI)
44 DRAGNET European drag reduction network (DRAGNET)
45 DUCAT Basic research on duct acoustics and radiation (DUCAT)
46 DYNASAFE Development of Composite Aircraft Passenger Seats with
3-Point Shoulder Harnesses to Provide Enhanced Protection
(DYNASAFE)
47 ELISA Electrical innovative surface actuation (ELISA)
48 ENSPED European Network of Surface and Prestress Engineering and
Design (ENSPED)
49 EUROPIV Cooperative Action to Appl y PArticle Image Velocimetry to
Problems of Industrial Interest (EUROPIV)
50 EXT-HAZ Improved methodological and technical approach to external
hazards safety issues in the aerospace industry (EXT-HAZ)
51 FLITE Forum for large improvement of air traffic in Europe (FLITE)
52 ISAWARE Increasing Safety thro ugh collision Avoidance WARning
intEgration (ISAWARE)
53 LABWELD Laser beam welding in the transportation industries
(LABWELD)
54 NAWM Novel Aluminium Welding Methods (NAWM)
55 NEVADA Open Integrated Avionics fo r European Air Transport Aircraft
(NEVADA)
56 PERFECT Process Efficient Regulation for Economical Composites
Technologies (PERFECT)

BCI deleted, as indicated [***]

 Project Acronym Project Title
57 PIVNET PivNet - A European collaboration on development and
application of PArticle Image Velocimetry between industry,
research organizations and universities
58 PRECIMOULD High Precision Composites Moulding prediction of Distortion
Using Analytical Methods (PRECIMOULD)
59 PROFOCE Product Focused Concurrent Engineering
60 RANNTAC Reduction of aircraft noi se by nacelle treatment and active
control (RANNTAC)
61 RESOUND Reduction of engine s ource noise through understanding and
novel design (RESOUND)
62 SAMBA Smart actuator and modular braking applications (SAMBA)
63 TRA3 Targeted research action in aerospace aerodynamics (TRA3)
64 UNSI Unsteady Viscous Flow in the Context of Fluid Structure
Interaction (UNSI)
65 X-NOISE Aircraft external noi se thematic network (X-NOISE)
66 AIRDATA Aircraft Drag and Thrust Analysis
67 AERONET The European Aeroemissions Network
68 AEROJET II Prototyping a Non-Intrusive Exhaust Gas Measurement System
for Gas Turbines
69 AEROPROFILE Profiling spectrometry to simultaneously investigate the spatial
distribution of temperature and chemical species in aircraft
exhausts
70 AFMS Advanced Flight Management System
71 VINTHEC Visual Interactive and Human Effectiveness in the Cockpit
72 none Investigation of the Viability of MEMS Technology for
Boundary Layer Control on Aircraft
73 DAMASCOS Damage Assessment in Smart Composite Materials
74 HICAS High velocity impact of composite aircraft structures
75 WAVENC Wake vortex evolution in far-wake region & wake vortex
encounter
76 none Non-Intrusive Measurements of Aircraft Engine Emissions

BCI deleted, as indicated [***]

ANNEX I.4 – 5
th Framework Programme

 Project Acronym Project Title
1 AWIATOR Aircraft Wing Advanced Technology Operations
2 TANGO Technology Application to the Near Term Business Goals and
Objectives of the Aerospace Industry
3 FACE Friendly Aircraft Cabin Environment
4 C-WAKE Wake Vortex Characterization and Control
5 IARCAS Improve And Assess Repair Capability Of Aircraft Structures
6 HIRETT High Reynolds Number Tools And Techniques For Civil Transport
Aircraft Design
7 VELA Very Efficient Large Aircraft
8 WAFS Welding Of Airframes By Friction Stir
9 LiSA Light-Weight Low-Cost Surface Protection For Advanced Aircraft
Structures
10 NEFA New Empennage for Aircraft
11 INCA Improved Nde Concepts For Innovative Aircraft Structures And
Efficient Operational Maintenance
12 EUROLIFT European High Lift Programme
13 ALTTA Application Of Hybrid Lami nar Flow Technology On Transport
Aircraft
14 INDeT Integration of Non Destructive Testing
15 ADFAST Automation for Drilling, Fastening, Assembly, Systems Integration,
and Tooling
16 ROSAS Research On Silent Aircraft Concepts
17 M-DAW Modelling and Design of Advanced Wing tip devices
18 EECS Efficient And Economic Cabling System
19 TAURUS Technology Development For Aero elastic Simulations On Unstructured
Grids
20 FALCOM Failure, Performance And Processing Prediction For Enhanced Design
With Non-Crimp Fabric Composites
21 AEROSHAPE Multi Point Aerodynamic Shape Optimisation
22 AGEFORM Ageformable panels for commercial aircraft
23 HELIX Innovative Aerodynamic High Lift Concepts
24 BOJCAS Bolted Joints in Composite Aircraft Structures
25 3AS Active Aeroelastic Aircraft Structure
26 ADAMS 2 Human Centred Operations In Aircraft Dispatch And Maintenance
27 ADMIRE Advanced Design concepts and Maintenance by Integrated Risk
Evaluation for aerostructures
28 AERO2K Global aircraft emissions data project for climate impacts evaluation
29 AEROMEMS II Advanced Aerodynamic Flow Control Using MEMS
30 AERONET II Aircraft Emissions and Reduction Technologies

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 Project Acronym Project Title
31 AFAS Aircraft In The Future Air Traffic Management System
32 ASICA Air Management Simulation For Aircraft Cabins
33 ASL Aircraft Service Logistics
34 Cabinair Improving Air Quality In Aircra ft Cabins Using 'Measurements In The
Sky' And Innovative Designs And Technologies
35 COCOPAN Advanced Digital Networ k For New Cockpit Overhead Panel
36 CRAHVI Crashworthiness Of Aircraft For High Velocity Impact
37 CRYOPLANE Liquid Hydrogen Fuelled Aircraft - System Analysis
38 EEFAE Efficient And Environmentally Friendly Aircraft Engine
39 EM-HAZ Methods and Technologies fo r Aircraft Safety and Protection
Electromagnetic Hazards
40 EPISTLE European Project for Improvement of Supersonic Transport Low Speed
Efficiency
41 ESACS Enhanced Safety Assessment For Complex Systems
42 EUROPIV 2 A Joint Program To Improve Piv Performance For Industry And
Research
43 FIREDETEX New Fire/Smoke Detecti on And Fire Extinguishing Systems For
Aircraft Applications
44 FLOMANIA Flow Physics Modelling-An Integrated Approach
45 GIFT Gnss - Inertial Future Landing Techniques
46 HORTIA Heat And Oxidization Resistant Titanium Alloys Applications
47 IDA Investigation On Damage Tolera nce Behaviour Of Aluminium Alloys
48 IMCAD Improving The Cockpit Application Development Process
49 INTENT The Transition towards Global Air and Ground Collaboration in Traffic
Separation Assurance
50 ISAWARE II Increasing safety by enhancing crew situation AWAREness
51 I-WAKE Instrumentation Systems For On-Board Wake-Vortex And Other
Hazards Detection Warning And Avoidance
52 LOADNET Low Cost Optical Avionics Data Networks
53 NATACHA Network Architecture And Technologies For Airborne Communication
Of Internet High Bandwidth Application
54 NEPAIR Development Of The Technical Basis For A New Emissions Parameter
Covering The Whole Aircraft Operation
55 NEWSCREEN Three Large Displays Cockpit Approach-New Screen
56 PAMELA Prospective Analysis For Modular Electronic Integration In Airborne
Systems
57 PIVNET2 A European Collaboration On Development, Quality Assessment, And
Standardization Of Particle Im age Velocimetry For Industrial
Applications
58 POA Power Optimised Aircraft
59 SAFE SOUND Safety Improvement By Means Of Sound

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 Project Acronym Project Title
60 SILENCE(R) Significantly Lower Community Exposure To Aircraft Noise
61 SOBER Sonic Boom European Research Programme : Numerical and
Laboratory-Scale Experimental Simulation
62 S-Wake Assessment Of Wake Vortex Safety
63 VICTORIA Validation Platform For Inte gration Of Standardised Components,
Technologies, And Tools In An Open, Modular And Improved Aircraft
Electronic System
64 KATnet Key Aerodynamic Technologies For Aircraft Performance
Improvement
65 SmartFuel Third Generation Dig ital Fluid Management System
66 WakeNet2-Europe A European Thematic Network for Aircraft Wake Turbulence
67 X 2-NOISE AIRCRAFT EXTERNAL NOISE NETWORK, PHASE II
68 AEROFIL New Concept of High-Pressure Hydraulic Filter for Aeronautics
Preserving Environment
69 FUBACOMP Full-Barrel Composite Fuselage
70 HEACE Health Effects in the Aircraft Cabin Environment
71 HiAER High-Level Modelling of High-Lift Aerodynamics
72 MA-AFAS More Autonomous Aircraft in the Future Air-Traffic Management
System
73 MOB A Computational Design Engine Incorporating Multi-Disciplinary
Design and Optimisation for Blended Wing-Body Configuration
74 VINTHEC II Visual Interaction and Huma n Effectiveness in the Cockpit, Part II

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ANNEX I.5 – 6th Framework Programme

 Project Acronym Project Title
1 ALCAS Advanced Low Cost Aircraft Structures
2 CELINA Fuel Cell Application in a New Configured Aircraft
3 COMPACT A Concurrent Approach to Manufacturing Induced Part Distortion
in Aerospace Components
4 DIALFAST Development of Innovative a nd Advanced Laminates for Future
Aircraft Structure
5 DINAMIT Development and innovation for Advanced Manufacturing of
Thermoplastics
6 ECOSHAPE Economic Advanced Shaping Processes for Integral Structures
7 EUROLIFT II European High Lift Programme II
8 FLIRET Flight Reynolds Number Testing
9 ISAAC Improvement of Safety Activities on Aeronautical Complex
Systems
10 MUSCA Non-linear static MUltiSCAle analysis of large aero-structures
11 NACRE New Aircraft Concepts REsearch
12 REMFI Rear Fuselage and Empennage Flow Investigation
13 SMIST Structural Monitoring with Advanced Integrated Sensor
Technologies
14 TATEM Technologies and Techniques for New Maintenance Concepts
15 VIVACE Value improvement through a Virtual Aeronautical Collaborative
Enterprise
16 WEL-AIR Development of Short Distance WELding Concepts for AIRframes
17 TELFONA Testing for Laminar Flow on New Aircraft
18 AEROMAG Aeronautical Application of Wrought Magnesium
19 AERONET III Aircraft Emissions and Reduction Technologies
20 ANASTASIA Airborne New and Advanced Satellite techniques & Technologies
in A System Integrated Approach
21 FLYSAFE Airborne Integrated Systems for Safety improvement, Flight
Hazard Protection and All Weather Operations
22 MESSIAEN Methods for the Efficient Simulation of Aircraft Engine Noise
23 OPTIMAL Optimized Procedures and Techniques for IMprovement of
Approach and Landing
24 PIBRAC PIezo BRake ACtuator
25 SAFEE Security of Aircraft in the Future European Environment
26 SIRENA External EMC simulation for radio electric systems, in the close
environment of the aircraft
27 SUPERTRAC SUPERsonic TRAnsition Control
28 VITAL EnVIronmenTALly Friendly Aero Engine
29 WALLTURB A European Synergy for the assessment of wall turbulence
30 DATON Innovative Fatigue and Dama ge Tolerance Methods for the
Application of New Structural Concepts
31 FAR-Wake Fundamental Research on Aircraft Wake Phenomena

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 Project Acronym Project Title
32 ICE Ideal Cabin Environment
33 LIGHTNING Lightning protection for structures and systems on aircraft utilising
lightweight composites
34 TURNEX Turbomachinery Noise Radiation through the Engine Exhaust
35 ADLAND Adaptive Landing Gears for Improved Impact Absorption
36 ARTIMA Aircraft Reliability Throug h Intelligent Materials Application
37 ATENAA Advanced Technologies for Ne tworking in Avionic Applications
38 B-VHF Broadband VHF Aeronautical Communications System Based On
MC-CDMA (B-VHF)
39 DEEPWELD Detailed multi-physics mo delling of friction stir welding
40 DESIDER Detached Eddy Simulation for Industrial Aerodynamics
41 EMMA European airport Movement Management by A-smgcs
42 HILAS Human integration into the life-cycle of aviation systems
43 HISAC Environmentally friendly high speed aircraft
44 IFATS Innovative Future Air Transport System
45 IPAS Installed Performance of Antennas on AeroStructures
46 iTOOL Integrated tool for simulation of textile composites
47 MESEMA Magnetoelastic Energy Systems for Even More Electric Aircraft
48 MOWGLY Mobile Wideband Global Link System
49 RETINA Reliable, tuneable and inexpensive antennas by collective
fabrication processes
50 UFAST Unsteady effects in shock wave induced separation
51 SEFA Sound Engineering For Aircraft
52 WISE Integrated wireless sensing
53 ASAS-TN2 ASAS Thematic Network 2
54 C-ATM (PHASE 1) Co-operative air traffic Management - Phase 1

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F. ADVERSE EFFECTS
1. General Overview of the Parties' Arguments
7.1610 The United States claims that subsidies to Airbus cause adverse effects to its interests within
the meaning of Articles 5(a) and (c) of the SCM Ag reement. Specifically, the United States asserts
that through the use of these s ubsidies, the European Communities, France, Germany, Spain and the
United Kingdom cause or threaten to cause: (i) "inj ury" to the United States' industry producing LCA;
and (ii) "serious prejudice" to United States' interest s in that the effect of the subsidies is (a) to
displace or impede imports of United States' LCA into the EC market, (b) to displace or impede
exports of United States' LCA from third country markets, and (c) significant price undercutting by
EC LCA as compared with the price of United Stat es' LCA in the same market, and significant price
suppression, price depression and lost sales in the sa me market, within the meaning of Articles 6.3(a),
(b) and (c) of the SCM Agreement.
7.1611 The United States argues that there is a single subsidized EC product and a single competing
United States' like product, which it identifies as la rge civil aircraft manufactured by Airbus and
Boeing respectively, and asserts that data for th e period 2001 to 2005 demonstrates that the adverse
effects it alleges existed at the time of this Panel's establishment in 2005. The United States
acknowledges that the Panel may consider informati on for a period subsequent to its establishment in
2005, but maintains that the determination of adve rse effects should be made as of the date of
establishment.
7.1612 The United States alleges that the subsidies to Airbus are large, although it maintains there is
no obligation under the SCM Agreement to quantify th e magnitude of those subsidies in order to
make out its case. The United States contends that LA/MSF was of sufficient magnitude to distort the
LCA market by allowing Airbus to launch aircraft at times and at a pace that would have been
impossible in its absence, and provided financial flexibility that Airbus could use to price aggressively
to gain market share. The United States asserts th at the other subsidies in dispute complement the
effect of LA/MSF and have a cumulative effect with it, and should therefore be considered together
with LA/MSF in the Panel's assessment of adverse effects.
7.1613 The United States contends that subsidies to Ai rbus resulted in Airbus being able to launch
successive models of LCA, which it sold and conti nues to sell at prices that significantly depress and
suppress the prices of competing Boeing aircraft. The United States asserts that Airbus' worldwide
market share increased from 2001 to 2005, overtaking that of Boeing. The United States presents
evidence concerning Boeing's sales and operating results, as well as the volumes and prices of
subsidized LCA imports and US prices of Boeing LCA, which it contends de monstrates that imports
of subsidized Airbus LCA into the US market cau se and threaten to cause material injury to the
United States' industry producing LCA. The Unit ed States also presents evidence and arguments
concerning changes in the market share of Boeing a nd Airbus in the EC and third country markets,
world price information for Boeing LCA, and informa tion concerning sales to particular customers, in
support of its claims of serious prejudice.
7.1614 The European Communities disputes each of the Un ited States' claims of adverse effects, and
presents a series of arguments in support of its pos ition. First, the European Communities contends
that there are multiple families of allegedly subsid ized Airbus LCA, and argues that the Panel should
reject the United States' view of a single subs idized product, and instead find four allegedly
subsidized products, only three of which compete w ith three US-produced like products in distinct
markets, defined by LCA seating capacity. The Eu ropean Communities argues that one Airbus LCA,
the A380, and one Boeing LCA, the 747, have no co mpetitive counterparts, and therefore that there

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can be no adverse effects caused by subsidies to th e A380, and no adverse effects to United States'
interests with respect to the Boeing 747.
7.1615 The European Communities argues that the a ppropriate period for assessing present adverse
effects is 2004 to 2006, and that the Panel shoul d disregard data for the period 2001-2003, arguing
that this information is too old to be relevant to a determination of present adverse effects. Moreover,
the European Communities submits that data for the period 2001 to 2003 is not representative of
"normal competitive conditions", and reflects the ef fects of the events of 11 September 2001, which
the European Communities alleges constitute force majeure within the meaning of Article 6.7(c) of
the SCM Agreement and thereby render the period 2001 to 2003 unreliable as a starting point for
consideration of adverse effects.
7.1616 The European Communities asserts that the magn itude of any subsides to any of the Airbus
LCA "families" is negligible, a nd should be considered legally de minimis. In support of its position,
the European Communities presents a calculation of the ad valorem amount of R&TD and LA/MSF
subsidies allegedly provided with respect to certain Airbus LCA families. The European
Communities asserts that it bases this calculation on United States' regulations governing the
methodology for calculating subsidy amounts in counterva iling duty investigations. On this basis, the
European Communities calculates the amount of a lleged R&TD and LA/MSF subsidies tied to the
each of the Airbus LCA families, allocates these am ounts over time, and over orders of the respective
Airbus LCA, and concludes that the total magnitude of these subsidies is small and in some instances
de minimis. According to the European Communities, it is inconceivable that subsidies of such small
magnitude could cause adverse effects. The European Communities recognizes that precise
quantification of subsidies is not strictly necessary in a dispute concerning adverse effects, but argues
that its calculations demonstrate the de minimis magnitude of R&TD and LA/MSF subsidies for the
A320, A330, and A340 LCA families, and should th erefore be given significant weight, and lead the
Panel to reject the United States' claims of adverse effects.
7.1617 The European Communities also contends that th e nature of the subsidies in dispute does not
support the United States' claims of adverse e ffects, again focussing on the R&TD funding and
LA/MSF. With respect to latter, the European Communities contends th at the beneficial effects were
largely felt decades ago, and thus are not likely to create present adverse effects. The European
Communities maintains that LA/MSF is product-speci fic project financing which does not finance
production costs, but merely transfers a portion of th e risk associated with an aircraft development
programme. However, according to the European Comm unities, since Airbus bears most of that risk,
such funding does not result in the launch of aircraft that are not otherwise commercially viable. With
respect to the former, the Europ ean Communities contends that th e United States fails to provide
evidence or explanation of how the R&TD support me asures cause adverse effects, and thus fails to
meet its burden of proof in this regard.
7.1618 The European Communities presents evidence and arguments concer ning alleged adverse
effects specific to each of the allegedly subsidized families of Airbus LCA – the A380 family, the
A320 family, the A330 family, and the A340 family , including respective derivative models. With
respect to the A380, the European Communities asserts that there is no competition between it and the
Boeing 747, that the failure of Boeing to launch a competing aircraft for the over-500 seat market
does not constitute present serious prejudice from lost sales, and that the A380 did not cause
significant price suppression or depression of Boeing 747 prices. With respect to each of the
remaining Airbus LCA families, the European Comm unities argues that, in light of the conditions of
competition in each of the respective markets, and given their nature, age and magnitude, the
subsidies at issue do not cause any of the adverse ef fects alleged by the United States. The European
Communities argues that the financial condition and operating performance of Boeing in 2006,
including the large backlog of orders for future delivery, demonstrate that there are no present adverse
effects. The European Communities also maintains that there is no injury, or threat of injury, to

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Boeing, given its excellent performance in 2006, and that in any event, the United States has failed to
demonstrate that the use of the subsidies in dispute has caused any injury to Boeing.
2. Background
7.1619 Before beginning our analysis of the parties' arguments, we consider it useful to briefly
describe the development of Airbus, and the LCA industry. We emphasize that this general
background is not intended to subs titute in any respect for our more detailed consideration of the
evidence and findings elsewhere in this Report. It is intended merely as an introduction for the reader.
7.1620 In the mid 1960s, there were three manufacturer s of LCA in the United States: Lockheed,
McDonnell Douglas, and Boeing. These three accounted for the vast majority of all LCA sold in the
global market.4978 Lockheed exited the LCA industry in 1985, while McDonnell Douglas exited the
LCA industry as an independent manufacturer by merg ing with Boeing in 1997. In the meantime, as
described below, Airbus entered the industry, with it s first aircraft delivered in 1974. Thus, today,
there are two participants in the LCA industry, Airbus and Boeing.
7.1621 Airbus began as a consortium of separate companies in France, Germany and Spain, formally
established in 1970 following earlier discussions be tween France, Germany and the United Kingdom.
British Aerospace, a UK company, joined the consor tium in 1979. In 2001, there was a fundamental
change in Airbus' structure, with the formation of the European Aeronautic Defence and Space
Company ("EADS") in 2000 through a merger of th e consortium companies in France, Germany and
Spain. Between 2001 and 2004, the LCA activities of th e four partners in the consortium were placed
into subsidiaries under the control of a single, integrated company, Airbus SAS.
4979
7.1622 Airbus launched its first LCA, the A300, and its modified version, the A310, in 1969 and
1978, and the aircraft entered into service in 1974 and 1985, respectively. Airbus ceased production of
these aircraft in July 2007. Airbus' next LCA, the A320, was launched in 1984, and entered into
service in 1988. Three variants, the A321, A319, and A318 were subseque ntly launched in 1989,
1993, and 1999, and entered into service in 1994, 1996, and 2003, respectively. Between the launches
of the A320 and its first variant the A321, Air bus launched the A330 and A340, in 1987. Both
entered into service in 1993, the A340 first, followe d later in the year by the A330. Derivatives of
these models, the A330-200 and A340-500 & 600, were launched in 1995 and 1 997, and entered into
service in 1998 and 2002, respectively. Airbus' next launch was of the A380, in 2000, which entered
into service in 2007. Finally, in 2006, Airbus launched the A350XWB, which is expected to enter
into service in mid-2013.
7.1623 The LCA industry is characterized by, inter alia , significant start-up costs for the
development of each new model of LCA, which ar e invested long before any revenue from the
resulting product is generated. Learning effects, both with respect to development, and in production,
are significant. The customers for LCA are principa lly airlines, either directly or through leasing
companies, whose operations are sensitive to external events, such that when there is a downturn in
the airline industry, the LCA industry also suffers. Long lead times for LCA production mean that the
LCA industry cannot respond rapidly to changes in demand from airlines. Thus, LCA manufacturers
must engage in long-term planning to attempt to sat isfy a market in which changes are expected but
unforeseeable. The LCA industry, like the airline industry it serves, is global. LCA are priced in US

4978 LCA production has continued in Russia but difficulties in obtaining funding for the development
of LCA that can meet international airworthiness certification standards have prevented Russian LCA producers
from seriously competing with Boeing and Airbus for LCA sales outside the former Soviet bloc. See, US
International Trade Commission, The Changing Structure of the Global Large Civil Aircraft Industry and
Market, Inv. No, 332-384 (November 1998) at Ch. 4, Exhibit US-374.
4979 This background and development is described in more detail in Section VII.E.1 of this Report.

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dollars, and thus exchange rate movements may ha ve an important effect on both manufacturers and
customers.
3. Order of Analysis
7.1624 In addressing the United States' claims of adverse effects, there are two fundamental threshold
questions that we believe it would be useful to settle before evaluating the substance of the
United States' claims. The first question relates to the identification of the relevant "subsidized
product" and the relevant "like product" in this dispute. The second question concerns the appropriate
time period over which to conduct our examination of the alleged adverse effects, that is, the
appropriate "reference period" for the assessment of the elements of injury and serious prejudice.
After resolving these two threshold questions, we will turn to evaluate the merits of the United States'
adverse effects claims, describing first, by way of background, the general conditions of competition
existing in the LCA industry, before examining the arguments and evidence submitted concerning the
various forms of alleged adverse effects and causation.
4. Subsidized Product and "Like Product"
(a) Arguments of the Parties
(i) United States
7.1625 The United States asserts that the relevant subsid ized product in this dispute is the family of
Airbus large civil aircraft, and the corresponding "l ike product" is the family of Boeing large civil
aircraft.
7.1626 The United States argues that, from its incepti on, Airbus has followed a strategy of
developing an LCA family to compete with United States' LCA producers, and used, inter alia, the
subsidies at issue in this dispute in furtherance of that strategy.
4980 The United States maintains that
most customers require a range of aircraft that can operate efficiently over a variety of routes, and
most of them see efficiencies and other advantages in operating fleets that contain LCA from a single
supplier.
4981 Thus, according to the United States, Airbus has focused on developing an integrated
family of aircraft with a high degree of commona lity in operational aspects such as flight and cabin
crew training and maintenance and spare parts.4982 Producing a full LCA family also allows Airbus to
achieve production efficiencies. Increasing production of one aircraft type reduces the marginal cost
of producing related aircraft types, and the development of new aircraft also supports the development
of production facilities and technologies across its LCA family. 4983 The United States also argues that
Airbus manages its LCA production activities on a fa mily basis, so that the production and sales of
one type of LCA supports the development of another LCA type.4984
7.1627 Thus, the United States argues, because subsidi es are provided to Airbus for the development
of an LCA family, and because subsidies for the development of each major Airbus LCA model

4980 US, FWS, para. 718-19.
4981 The United States notes that the European Communities pointed to the failure of McDonnell
Douglas to continue offering a full family of aircraft as a key factor in its exit from the LCA market.
Commission Decision 97/816/EC, O.J. 1997 L336 at 16, (hereafter, EC Merger Analysis), para. 59, Exhibit US-
375; s ee also, Thomas L. Boeder & Gary J. Dorman, The Boeing/McDonnell D ouglas Merger: The
Economics, Antitrust Law, and Politics of the Aerospace Industry, Antitrust Bulletin (Spring 2000), at 119, 137-
38 (hereinafter "Boeder & Dorman"), Exhibit US-373
4982 US, Answer to Panel Question 39, paras. 229-30, Exhibits US-448 & 499.
4983 US, FWS, para. 722, US, Answer to Panel Question 39, para. 231, Exhibit US-379, See, US,
Answer to Panel Questions 40 & 41, paras. 241 & 243 respectively.
4984 US, FWS, para. 723.

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benefit the production and marketing of its full LCA family, the "subsidized product" is the Airbus
LCA family as a whole.4985
7.1628 The United States also contends that, even if it were useful or reasonable to divide the LCA
market into a number of submarkets, as th e European Communities a lleges, the European
Communities fails to show why the effects of the s ubsidies are limited to competition within each of
the specific LCA markets identified by the EC. 4986 The United States argues that there are no clear
dividing lines between the categories proposed by the European Communities, and considers those
categories to be arbitrarily based on a standa rd seating capacity and class configuration that
may or may not reflect the way airlines actually configure their LCA cabins. The United States also
asserts that Airbus itself does not follow the market segmentation pattern proposed by the European
Communities in this dispute, and that in any event, there are sales competitions between aircraft that
are not in the same market segment. Finally, the United States points out that differences in seating
capacities and other characteristics among aircraft are routinely "monetized" in comparing the values
of different LCA, and that purchasers will make trade-offs between purchase price and seating
capacity based on operating efficiencies and per-sea t costs of operation, an aspect of competition
ignored by the European Communities' analysis.4987
7.1629 The United States asserts that, having identified the subsidized product as the entire family of
Airbus LCA, the corresponding "like produc t" is the entire family of Boeing LCA. 4988 The United
States notes that the SCM Agreement defines the term "like product" as:
"a product which is identical, i.e., alike in all respects to the product under
consideration, or in the absence of such a product, another product which, although
not alike in all respects, has characteristics closely r esembling those of the product
under consideration."4989
The United States asserts that there is no product th at is identical to Airbus's LCA family "in all
respects," but that the Boeing family of LCA has "characteristics closely resembling" those of the
Airbus family. The United States argues that this is a consequence in part of the fact that Airbus
developed its LCA family to compete directly with the Boeing LCA family. 4990 The United States
describes specific aspects of the physical characteristics, end uses, consumer perceptions, and tariff
classification of Boeing and Airbus LCA which it asserts demonstrate this close resemblance.
4991
Moreover, the United States argues that the Airbus family competes with the Boeing family, as
demonstrated by the existence of demand substitu tion among different Airbus and Boeing models for
the same routes.4992

7.1630 The United States relies on the report of the Panel in US – Softwood Lumber V interpreting
the like product provision in Article 2.6 of the Anti-Dumping Agreement, which is identical to
footnote 46 of the SCM Agreement, in support of its view that the "like product" is defined with
reference to the "product under consideration."
4993 The United States notes that the panel in that
dispute rejected the argument that the definition of the "like product" requires that each item in the

4985 US, FWS, para 724.
4986 US, SWS, paras. 629-31.
4987 US, FWS, para. 713.
4988 US, FWS, para. 725.
4989 SCM Agreement, footnote 46.
4990 US, FWS, para. 727.
4991 US, FWS, para. 727.
4992 US, FWS, para. 728.
4993 Panel Report, United States – Final Dumping Determination on Softwood Lumber from Canada
("US – Softwood Lumber V "), WT/DS264/R, adopted 31 August 2004, as modified by Appellate Body Report,
WT/DS264/AB/R, DSR 2004:V, 1937, para. 7.153.

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"product under consideration" must be "like" every other item within it.
4994 Thus, the United States
argues the "product under consideration" may in clude a range of specific goods, and the "like
product" may also contain a range of specific goods, pr ovided that the "like product" is "identical to"
or "closely resembles" the "product under considerat ion" or subsidized product within the meaning of
footnote 46 of the SCM Agreement.4995
(ii) European Communities
7.1631 The European Communities disputes the United St ates position that there is a single "Airbus
LCA Family" that constitutes the "subsidized product ," a single "like product," and a single "LCA
product market."4996 The European Communities contends that the United States' position defies the
reality of the markets for the LCA in question. 4997 The European Communities asserts that there are,
in fact, five distinctive product markets of Airbus and Boeing LCA, namely:
"the single-aisle 100-200 seat market, encompassing the Airbus A320 family and
the competing Boeing 737NG family;
the 200-300 seat market, encompassing the Airbus A330 family and the Airbus
A350XWB-800, and the competing Boeing 767 and 787 families;
the 300-400 seat market, encompassing the Airbus A340 family and the A350XWB-
900/1000, and the competing Boeing 777 family;
the 400-500 seat market, encompassing the Boeing 747 family as the only market
participant; and
the 500+ seat market, with the Airbus A380 family as the only market
participant."4998
7.1632 The European Communities argues that once a co mplaining Member has asserted that certain
subsidies benefit certain products, it is for the Pa nel to determine, based on an assessment of the
evidence, under Article 11 of the DSU, whether the identified universe of allegedly subsidized
products should be treated as a single subsidi zed product, or multiple subsidized products. 4999 The
European Communities asserts that a decision by th e Panel on the identification and composition of
the subsidized products is a prerequisite for the Panel to then determine the appropriate like product or
products that compete in the relevant product mark et or markets with the subsidized product or
products.5000
7.1633 In this case, the European Co mmunities notes that the United States claims that a number of
different subsidies, including LA/MSF, benefited a single subsidized product, the Airbus "family" of
LCA. The European Communities maintains that th is combination of subsidized products does not
reflect the reality of the LCA industry. 5001 According to the European Communities, the Panel must

4994 US Answer to Panel Question 129, paras. 413-414 (citing US – Softwood Lumber Dumping
(Panel), para. 7.157).
4995 Panel Report, US – Softwood Lumber V , paras. 7.156-7.157; see also, Panel Report, Indonesia –
Autos, para. 14.164 (definition of like product flows from allegation by the complaining parties that the
subsidies in question were conferred only on one type of passenger automobile).
4996 EC, FWS, para. 1507.
4997 EC, FWS, para. 1508.
4998 EC, FWS, para. 1509.
4999 EC, FWS, para. 1512.
5000 EC, FWS, para. 1513.
5001 EC, FWS, para. 1517.

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consider different models of Airbus LCA, which it asserts benefit from different alleged subsidies, as
separate and distinct "subsidized products". The European Communities maintains that an important
factor to consider in identifying the subsidized products is the nature a nd terms of the subsidy
measures challenged by the complaining party. In the European Communities' view, where measures
relate to the development and production of a par ticular LCA or family of LCA, this would support
the existence of a separate subsidized product.5002
7.1634 The European Communities argues that whether it is appropriate to combine multiple
subsidized products into a single subsidized pr oduct for purposes of Articles 5 and 6 of the
SCM Agreement is a question of fact, and that a key factor for the Panel to consider in deciding this
question is whether each of the various allegedly su bsidized products is properly found to compete in
the same product "market." 5003 The European Communities argues that the nature and extent of
actual or potential competition between different m odels of Airbus aircraft is the fundamental
prerequisite for determining whether they are in th e same market and thus can be considered a single
product.5004 This is, in the European Communities' view, largely a function of their physical and
performance characteristics and econom ic substitutability. For the European Communities, if Airbus
aircraft are so dissimilar that they do not compete for the same sales or orders, they cannot properly be
found to belong in the same market, and cannot be gr ouped together as a single subsidized product.
The European Communities as serts that there is no basis for products which compete in distinct
markets to be grouped together as a single subsidized product. 5005 The European Communities
proposes a number of factors for the Panel to cons ider in determining which Airbus LCA properly
constitute a subsidized product: ph ysical and performance characteri stics (from the perspective of
market participants); actual or potential compe tition in the same market; purchaser perceptions;
competition between Airbus and Boeing; whether the challenged subsidy measures provide benefits to
specific Airbus aircraft; and whether the proposed "like" product includes Boeing aircraft that do not
have characteristics that closely resemble each other, based on the perspective of market
participants.5006 The European Communities then argues that the evidence it cites regarding these
factors demonstrates that the Panel should find that there are four families of Airbus aircraft, each
constituting a separate allegedly subsidized product.5007
7.1635 The European Communities argues that the United States' "choice" of a single subsidized
product is not driven by the "identical" or "clo sely resembling" physical characteristics of the
allegedly subsidized Airbus and corresponding like Boeing LCA products, and that Articles 5 and 6 of
the SCM Agreement, read together with Article 11 of the DSU, require the Panel to conduct an
objective assessment of the facts and matter before it, and not to merely rubber-stamp one Member's
arguments.5008 The European Communities maintains that it would be "incoherent" to assess adverse
effects by collapsing all LCA into a single subsidized and like product.5009
7.1636 With respect to like product, the European Communities argues that different families of
Boeing LCA compete in different product markets with Airbus LCA. 5010 The European Communities
argues that physical characteristics are key in linking like product to subsidized product, and that the
United States has improperly combined Boeing aircraft with enormous physical differences in arguing

5002 EC, FWS, para. 1551.
5003 EC, FWS, para. 1518.
5004 EC, FWS, para. 1519.
5005 The European Communities also argues that the definition of "like" product as a product identical
to or having characteristics closely resembling a subsidized product is context for interpreting the identity and
composition of a subsidized product. EC, FWS, para. 1520.
5006 EC, FWS, para. 1521.
5007 EC, FWS, para. 1522 - 1530..
5008 EC, FWS, para. 1511-1512, 1514.
5009 EC, SWS, paras. 738, 740-41.
5010 EC, FWS, para. 1533.

BCI deleted, as indicated [***]

that there is one like product.
5011 The European Communities concludes, after presenting evidence on
the physical (and other) characteristics of Boeing ai rcraft, that there are three Boeing "like products"
corresponding to three of the Airbus "subsidized" products.5012
7.1637 The European Communities maintains that each of the Airbus LCA in these three families has
physical characteristics that closely resemble the othe r Airbus LCA in that particular family, and the
Boeing LCA in the assertedly corresponding Boeing family. 5013 The European Communities also
argues that these groupings are perceived by Boeing, Airbus, and other market participants as being
properly part of separate markets, supported by the existence of physical, price, and perception
differences between Boeing/Airbus LCA in these three categories.
5014
7.1638 Thus, the European Communities requests that the Panel find that the following distinct
families of Airbus LCA are separate allegedly "subsid ized products": (i) the A320 family; (ii) the
A330 family; (iii) the A340 family, and (iv) the A380 family. 5015 The European Communities further
asks the Panel to find that the a ppropriate "like" products for the first three Airbus families are,
respectively, (i) the 737NG family, (ii) the 767 and the 787 families, and (iii) the 777 family. 5016 The
European Communities also requests the Panel to find that Boeing's 747 family is not a like product
to, or a part of the "same {product} market" as, any of the Airbus LCA. 5017 The European
Communities further requests the Panel to find that these subsidized and like products compete in the
following markets: (i) the Boeing 737NG and Ai rbus A320 families compete in the 100-200 seat
LCA market; (ii) the Boeing 767 and 787 families, Airbus A330 family, and the A350-800 compete in
the 200-300 seat LCA market; and (iii) the Boei ng 777 family, Airbus A340 family, and the A350-
900/1000 compete in the 300-400 seat LCA market. 5018 Finally, the European Communities requests
that the Panel find that there is no competiti on between the Boeing 747 family, which allegedly
competes in the 400-500 seat market, and the Airb us A380 family, which allegedly competes in the
500+ seat market. 5019 The competing "subsidized product" and "like product" groups, as well as the
markets, identified by the European Communities are set out graphically below:

Allegedly Subsidized
Product
Like Product / Market of Competition
A320 family Boeing 737NG family, competing in the 100-200 seat LCA market
A330 family Boeing 767 & 787 families, competing in the 200-300 seat LCA
market
A340 family Boeing 777 family, competing in the 300-400 seat LCA market
A380 family Alone in the 500+ seat LCA market
No Airbus LCA Boeing 747 family, alone in the 400-500 seat LCA market

5011 EC, FWS, para. 1538.
5012 EC, FWS, para. 1543.
5013 EC, FWS, para. 1544.
5014 EC, FWS, para. 1548-49.
5015 EC, FWS, para. 1556. The European Communities notes that it does not consider a challenge to
alleged subsidies benefitting the A350 as within the scope of this dispute and, does not list the A350 here. EC,
FWS, footnote 1409. We recall that we dismissed the United States' complaint against the alleged LA/MSF
measure for the A350. See, para. 7.314 above.
5016 EC, FWS, para. 1556.
5017 EC, FWS, para. 1556.
5018 EC, FWS, para. 1567.
5019 EC, FWS, para. 1567.

BCI deleted, as indicated [***]

(b) Arguments of Third Parties
(i) Australia
7.1639 Australia notes that in order to demonstrate its claim of adverse effects the United States
asserts that the "subsidized product" for the purposes of this dispute is the Airbus LCA family, and
that the "like product" for the purposes of this dis pute is the Boeing LCA family. Australia observes
that the European Communities acknowledges the exis tence of some sort of "family concept" in
relation to LCA. 5020 Australia observes that there is little guidance in the SCM Agreement or WTO
cases regarding the complaining WTO Member's dete rmination of the "subsidized product". Based
on its review of WTO cases addressing the question of like product, Australia posits a series of
questions for the Panel's consideration in addressi ng the issues of "subsidized product" and "like
product".5021
7.1640 In response to questions from the Panel, Australia stated its view that the SCM Agreement did
not require the Panel to make an independent dete rmination regarding the "subsidized product" and
therefore there is little guidance concerning the substa ntive elements of such a determination. In
Australia's view, while panels are required by Article 11 of the DSU to make an "objective assessment
of the matter" before them, taking into account the views of the respondent, it is for the complainant
to determine the basis and nature of its own complaint including the scope of the "subsidized
product".5022 Citing the decisions of panels in Korea – Commercial Vessels and US – Softwood
Lumber V, Australia argues that it is then up to the complainant to demonstrate causation in relation to
this "subsidized product". 5023 Australia observes that the Panel's report in US–Softwood Lumber V
shows the linkage between the "like product" and "product under consideration", and was a case in
which the "product under consideration" and the "like product" included a range of specific goods.
Australia notes in this regard that the panel's decision also draws th e linkage in dealing with injury
analysis.5024 Australia considers that "like product" cases under the Anti-Dumping Agreement are
relevant to the SCM Agreement, as long as the diffe rent contexts are taken into account, noting that
footnote 46 in the SCM Agreement is identical to Article 2.6 of the Anti-Dumping Agreement in
defining like product, and that the Panel in Indonesia – Autos stated that "useful guidance can
nevertheless be derived from prior analysis of "like product" issues under other provisions of the
WTO Agreement."5025
(ii) Brazil
7.1641 Brazil considers that the Panel should afford the United States substantial discretion as the
complaining party to define the subsidized pr oduct or products to which its claims apply. 5026 Brazil
also agrees with the criteria proposed by the United States for determining the "like product" in this
dispute, although Brazil did not ta ke a position regarding whether the entire Boeing family of LCA is
the appropriate like product or products.5027
7.1642 Brazil notes that the SCM Agreement provides no textual support for the proposition that the
"subsidized product" has to conform to a pa rticular configuration, narrow or wide. 5028 In response to

5021 Australia, Third Party Submission, paras. 46-51.
5022 Australia, Answer to Panel Question 10.
5023 Australia, Answer to Panel Question 10.
5024 Australia, Answer to Panel Qu estion 10, citing Panel Report, US – Softwood Lumber V , paras.
7.152-153 and 7.157.
5025 Australia, Answer to Panel Question 10, citing Panel Report, Indonesia – Autos, para. 14.174.
5028 Brazil, Third Party Oral Statement, para. 20.

BCI deleted, as indicated [***]

questions from the Panel, Brazil asserted that compla inant should be allowed di scretion to define the
"subsidized product" in order to ensure that a panel complies with its terms of reference.
5029 Brazil
notes that a panel's terms of reference are set out in the request for establishment, which identifies the
"matter" subject to dispute, including the specif ic measures at issue and the applicable claims. 5030 In
the present dispute, Brazil considers that, as a c onsequence of identifying the specific measures at
issue (i.e., the subsidies) in its request for establishmen t, the United States necessarily identified the
products to which those measures apply ( i.e., the "subsidized product"). 5031 In Brazil's view, in
analyzing the complainant's claims under Articles 5( a) or 5(c) of the SCM Agreement, a panel may
act inconsistently with its terms of reference if it makes an independent determination that expands or
narrows the scope of the "subsidized product" to which the subsidies apply. 5032 Moreover, Brazil
asserts that there is no provision in the SCM Ag reement that authorizes or requires a panel to
reformulate a complainant's claims based on multiple rather than a single "subsidized product."5033
7.1643 Brazil asserts that, under Article 11 of the DSU, a panel must "make an objective assessment
of the matter before it." In doing so, a panel is limit ed to the "matter" within its terms of reference,
which is based on the complainant's request for establishment and includes the measures ( i.e., the
subsidies) and the products to which the measures apply ( i.e., the "subsidized products"). 5034
Accordingly, the DSU and the SCM Agreement do not require, nor, arguably, do they permit, the
Panel to make an "independent determination" of the "subsidized product" when addressing claims of
injury under Article 5(a) of the SCM Agreement and claims of serious prejudice under Article 5(c) of
the SCM Agreement.5035 Brazil considers that the panel's findings in US - Softwood Lumber V and
Korea – Certain Paper support the absence of any requirement for the Panel to find multiple
categories of "subsidized product" and multiple categories of "like product" in this dispute.
7.1644 Brazil notes that the Panel may consider it necessary to rely on comparisons of particular
"categories" of LCA within the "subsidized product" and the "like product" in order to examine, for
example, price undercutting or lost sales, but considers that the Panel should not limit its analysis to
categories that are too narrowly defined and should not rely exclusively on a segmented analysis to
reach its conclusions, because LA/MSF subsidies to one aircraft model may have "spill-over" effects
to a producer's entire family of aircraft and because competing product categories may change from
sale to sale based on the particular circumstances involved. 5036 In other words, the Panel may
facilitate its analysis by examining certain categor ies of the "subsidized product," but it should make
its conclusions regarding injury and serious prej udice based on the aggregate "subsidized product" as
defined by the complainant. Brazil asserts that its vi ews in this regard are consistent with the findings
of the panel in Korea - Commercial Vessels.5037

5029 Brazil, Answer to Panel Question 10, para. 16.
5030 Brazil, Answer to Panel Question 10, para. 16, citing Appellate Body Report, Brazil-Desiccated
Coconut, para. 22; Appellate Body Report, EC-Export Subsidies on Sugar, paras. 140-144.
5031 Brazil, Answer to Panel Question 10, para. 17., citing Appellate Body Report, EC- Chicken Cuts ,
para. 165 ("Article 6.2 contemplates that the identificatio n of the products at issue must flow from the specific
measures identified in the panel request. Therefore, the identification of the product at issue … is a
consequence of the scope of application of the specifi c measures at issue. In other words, it is the measure at
issue that generally will define the product at issue.").
5032 Brazil, Answer to Panel Question 10, para. 17
5033 Brazil, Answer to Panel Question 10, para. 17
5034 Brazil, Answer to Panel Question 10, para. 20
5035 Brazil, Answer to Panel Question 10, para. 21
5036 Brazil, Third Party Oral Statement, paras. 21-22.
5037 Brazil, Answer to Panel Question 10, para. 19, citing Korea - Commercial Vessels, para. 7.559.

BCI deleted, as indicated [***]

(iii) Canada
7.1645 Canada considers it inaccurate to claim, as th e United States does, that "because subsidies are
provided to Airbus for the development of an LCA fa mily…. the "subsidized product" is the Airbus
LCA family as a whole." 5038 In Canada's view, the identifi cation of a "like product" and its
corresponding subsidized product in the serious prejudi ce analysis, is, by virtue of the definition in
footnote 46, focused on the characteristics of the pr oducts at issue, not the characteristics of the
subsidy.5039
7.1646 Canada considers that the United States errs in supporting its "like product" claim by arguing
that royalty-based financing for individual Airbus models actually benefits the entire Airbus LCA
production, because what is relevant is the charact eristics of the products being compared, while
company-wide benefits of a subsidy have nothing to do with the actual characteristics of the products
produced by that company. 5040 Canada states that in light of th e differences between the Airbus 380
and the Boeing 737, that A380 could not displace or impede or price undercut a 737, as they are
simply not considered by the market to be in co mpetition, and are not "like". Canada notes in this
regard that the 737 is a narrow body aircraft with a seating capacity of approximately 120 to 200 seats
and a range of approximately 3,000 to 6,000 km, wh ile the A380 is a wide body aircraft of over 500
seats and a range of 15,000 km. 5041 Canada relies on the Panel Report in Indonesia – Autos, arguing
that the panel in that case dismissed an argument simi lar to the one made by the United States here on
the grounds of the lack of substitutability between the Timor, a small budget car, and passenger cars at
the high end of the market, for example a Rolls-Royce. 5042 Recalling that the panel i n Indonesia –
Autos found that "one reasonable way" to approach the like product issue is to look at the manner in
which the industry at issue has analyzed market segmentation, Canada invites the panel in this dispute
to follow that approach.
7.1647 In response to questions from the Panel, Cana da asserts that there is no basis in the
SCM Agreement for deference to either of the di sputing parties' views on subsidized product and
corresponding like product. 5043 Instead, Canada considers that Article 11 of the DSU requires the
Panel, as trier of fact and interpreter of WTO ob ligations, to make "an objective assessment of the
facts of the case and the applicability of and conform ity with the relevant covered agreements", which
requires the Panel to make an independent determ ination given the measures in the light of the
relevant provisions of the SCM Agreement at issue in this dispute.5044 Canada considers the definition
of like product in footnote 46 of the SCM Agreemen t to be highly relevant context for determining
whether there are one or more subsidized products at issue. In particular, Canada considers that the
requirement in footnote 46 that the subsidized product and like product be identical or closely
resemble each other, based on their characteristics, would be rendered meaningless if the complainant
could simply assert that a number of discrete products with very different characteristics constituted a
single subsidized product.
5045
7.1648 Canada argues that the panel's report in US – Softwood Lumber V is not particularly helpful
with respect to a "like product" analysis in the context of Articles 5(a) and 5(c).5046 Canada states that
that case involved a panel review of a domestic agency determination under the AD Agreement, in
which a panel is obliged to exercise a degree of defe rence to agency determinations so that it is not

5043 Canada, Answer to Panel Question 10, para. 10.
5044 Canada, Answer to Panel Question 10, para. 10.
5045 Canada, Answer to Panel Question 10, para. 11.
5046 Canada, Answer to Panel Question 11, para. 12.

BCI deleted, as indicated [***]

engaging in de novo review, but only ensuring that the dete rmination is reasone d and adequate.
Canada considers this approach inappropriate fo r a panel assessing "likeness" under Articles 5(a) and
5(c), under which a panel is assessing an allegation of subsidy de novo . Canada recalls that
footnote 46 of the SCM Agreement defines "like product" for purposes of the Agreement. For
Canada, the footnote makes it clear that the scope of what is a "like product" is rather narrow, since
the like product must be identical to the subsidized product, and only when there is the absence of an
identical product will a product that has characteristics closely resembling the subsidized product
suffice. Canada also referred to the panel report in Indonesia – Autos, which it asserts found that the
scope of "likeness" to be quite narrow under the SCM Agreement.
5047
7.1649 Canada considers that the object and purpose of the likeness analysis under Part III of the
SCM Agreement is similar to that under GATT Article III(4), namely preserving the equality of
competitive opportunities. 5048 As a result, Canada observes th at GATT Article III is likely to be
relevant to informing the scope of "likeness" under Artic les 5(a) and (c). In this regard, Canada notes
that in Japan – Alcoholic Beverages II , the Appellate Body found "liken ess" to be analogous to an
accordion, in that what is considered to be " like" may be narrower or broader depending on the
particular provision at issue and on the context and the circumstances that prevail in any given case to
which that provision may apply. 5049 It then went on to find that the scope of "likeness" in
Article III:2, first sentence was particularly narrow given the content of that provision when compared
with Article III:2, second sentence, which incor porates the concept of "d irectly competitive or
substitutable" into a determination of likeness. 5050 Canada asserts that, similarly to Article III, under
Article 5 of the SCM Agreement, the United States is required to establish that the products are "like"
by reference to, inter alia , the physical characteristics, end-uses and tariff classifications of the
products.5051
(c) Evaluation by the Panel
7.1650 There are two aspects of what may be termed the "product" issue raised in this dispute – the
question of identifying the "subsidized product" and the question of identifying the appropriate United
States' "like product" for purposes of certain aspects of the adverse effects analysis. The European
Communities argues that we must reject the United St ates' definition of the subsidized product, and
focus our adverse effects analysis on separate a llegedly subsidized "families" of Airbus LCA, and
competition between those allegedly subsidized families and "like" Boeing families in specific market
segments. However, in our view, the European Co mmunities' arguments import elements of analysis
relevant to the determination of the "like product" into its identification of the "subsidized product".
As discussed below, we consider that there is no legal requirement in the SCM Agreement for a panel
to make a determination regarding the "subsidized product" independent of the complaining Member's
allegations. Moreover, after carefully reviewing the United States' identification of the relevant
subsidized product, we find that it is not precl uded by the SCM Agreement. In these circumstances,
we conclude that we may examine the question of adverse effects on the basis of the subsidized
product put forward by the United States – i.e., a single subsidized product, encompassing the entire
range of Airbus large civil aircraft. We also concl ude that it is appropriate to find that there is a

5047 Canada, Answer to Panel Question 11, para. 13, citing Panel Report, Indonesia – Autos , para.
14.172.
5048 Canada, Answer to Panel Question 12, para. 14.
5049 Canada, Answer to Panel Question 12, para. 14, citing Japan – Alcoholic Beverages II , para. 114,
footnote 58.
5050 Canada, Answer to Panel Question 12, para. 14, citing Japan – Alcoholic Beverages II , para. 114,
footnote 58 and Appellate Body Report, European Communities – Measures Affecting Asbestos and Asbestos-
Containing Products (EC – Asbestos), WT/DS135/AB/R, adopted 5 April 2001, DSR 2001;VII, 3243, paras. 94
and 95.
5051 Canada Answers to Panel Question 12, para. 15, citing Appellate Body Report, Japan – Alcoholic
Beverages II, p. 21.

BCI deleted, as indicated [***]

single "like product", comprising all Boeing LCA, co rresponding to the subsidized product, all Airbus
LCA.
(i) Subsidized product
7.1651 The United States asserts that the "subsidized prod uct" at issue is the entire family of Airbus
LCA. That is, the United States has identified th e entire family of Airbus LCA as the product which
benefits from the alleged subsidies at issue in th is dispute. The European Communities, however,
maintains that the United States' assertion is in error, and that we must make an independent
assessment of the matter, pursuant to Article 11 of the DSU, and determine that there are multiple
subsidized products, corresponding to the model fa milies of Airbus LCA the European Communities
identifies. Thus, the question we must resolve is whether we should examine the United States'
adverse effects claims on the basis of the subs idized product proposed by the United States, i.e., all
Airbus LCA, or whether, as the European Comm unities asserts, we are required to make an
independent assessment as to the appropriate subsidized product, and conclude that, as a matter of
fact, there are multiple subsidized products at issu e, corresponding to the different model families of
Airbus LCA.
7.1652 At the outset, we note that there is no specific guidance in Articles 5 or 6 of the
SCM Agreement, or in any other provision of the SCM Agreement, regarding the identification of a
"subsidized product" or a panel's role in that process. Indeed, the European Communities has not
argued otherwise. Instead, the European Communities relies upon the obligation on the Panel to
conduct an objective examination of the evidence u nder Article 11 of the DSU, and the assertion that
the focus of Articles 5 and 6 of the SCM Agreemen t is on the effects of subsidies on competition
between a subsidized product and a like product in the relevant geographic/product markets, to
contend that the Panel must undertake its ow n determination of the subsidized product.
5052 We see
nothing in these provisions that requires us to undertake such an analysis.
7.1653 While it is self-evident to us, and the parties do not disagree, that it is necessary to identify the
"subsidized product" that is of interest to th e complaining Member (and the corresponding "like
product"), in order to assess the existence of material injury under Article 5(a), and some of the forms
of serious prejudice under Articles 6.3(a), 6.3(b) and 6.3(c) 5053, we are not persuaded that the
SCM Agreement requires us to make an independent determination of the "subsidized product", as
opposed to relying on the complaining Member's id entification of that product. The European
Communities focuses on the markets in which differen t models of aircraft allegedly compete, and
differences in their physical characteristics, referring, inter alia , to Article 6.3, 6.4 and 6.5 of the
SCM Agreement, to argue that a subsidized product must be one that competes in a single market.
However, in our view, the fact that displacement or impedance under Articles 6.3(a) and (b), and price
effects under Article 6.3(c), must be assessed with respect to particular markets, says nothing about
how to identify the scope of the subsidized product. That the effects of a subsidy must be evaluated
with respect to market share and prices in particular markets does not entail that a panel must make an
independent assessment of the subsidized product that is at issue. Moreover, while Articles 6.3(a) and
(b) refer to displacement or impedance of imports or exports of a "like product" from certain markets,
and Article 6.3(c) refers to price undercutting by "the subsidized product" in the same market, there is
no linkage in the text of these provisions between the terms like product and subsidized product, nor
between those terms and "market" in any way that would suggest the definitional import posited by
the European Communities.

5052 EC, FWS, para. 1518.
5053 It is not clear that a consideration of like product is necessary for consideration of price effects, that
is, price undercutting, price suppression, price depression, and of lost sales, although the complaining Member
would, logically, have to identify a product or products with respect to which those effects were allegedly
manifested. See, Panel Report, Korea – Commercial Vessels, para. 7.559.

BCI deleted, as indicated [***]

7.1654 The European Communities is correct in asserting that we must make an objective
examination of the matter before us in determining whether the use of the subsidies in dispute is
causing adverse effects to the interests of the United States. But we see nothing that would preclude
us from making such an objective assessment on th e basis of the case, including the subsidized
product allegations, put forward by the United States. It may be that the case is more complicated
than it would be if a different subsidized product were at issue. But it is not our role to direct a
Member with respect to how it presents its complaint. In this regard, we note the views of the panel
in Korea – Commercial Vessels, which stated:
"in any WTO dispute it is always for the complaining party to determine the basis and
nature of its own complaint. Thus, a complaining party is free to claim that a given
subsidy of another Member has cause d price suppression or depression to the
detriment of the complainant's interests. ...
In this regard, we would observe that th e nature of the demonstration that the
complainant will need to make to estab lish causation in any given case, and the
difficulty of doing so, will depend on a num ber of factors and factual circumstances,
including but not limited to the breadth of the description of the product on which the
complainant brings its case. ... Whatever the factual situation in a given case, the
burden will be on the complainant to furnis h specific factual evidence affirmatively
demonstrating the causal link alleged, and the difficulty and ways of meeting this
burden may be very different from one case to another.
296 In all cases, if the
complainant fails to meet this evidentiary burden, its serious prejudice claim will fail.
We agree with the view that it is for the complain ing Member to structure its own case, which it must
then prove with sufficient evid ence. Were we to accept the European Communities' argument,
conclude that there are multiple subsidized products at issue in this case, and proceed to evaluate the
United States' claims on this basis, we would, in e ffect, be reformulating the United States' complaint.
We can find no basis in the text of the SCM Agreem ent that would allow us, much less require us, to
reformulate the United States' claims based on what might be our own view of what should constitute
the "subsidized product" as opposed to that of the complaining Member, the United States.5055

5054 Panel Report, Korea – Commercial Vessels, paras. 7.559-560.
5055 We note that in US – Upland Cotton , the panel accepted "upland cotton lint" as the relevant
"subsidized product," even as it acknowledged that some of the relevant payments were made to persons who
did not produce upland cotton and that part of the subsidy benefit was captured by persons other than producers
of upland cotton. Panel Report, US – Upland Cotton, para. 7.1226.

BCI deleted, as indicated [***]

7.1655 Certainly, if a complaining Member were to put forward a proposed "subsidized product" that
does not benefit from the alleged subsidies in disp ute, a panel would have to address whether that
product is, in fact, a relevant subsidized product. However, this is not such a case, as the European
Communities' arguments in this context are not based upon the contention th at Airbus LCA are not
subsidized. Moreover, the United States has pr esented evidence concerning linkages and spillover
effects of the subsidies in question which it argu es support the conclusion that subsidies primarily
benefiting any one particular Airbus model also be nefit other subsequent a nd previous models, and
thus may have adverse effects beyond the model families posited by the European Communities as the
appropriate subsidized products. In this regard, the United States argues that the subsidies in dispute
are not limited to one model of Airbus LCA, but rather benefit the entire family of Airbus LCA.5056 In
support of its view, the United States asserts, inter alia, that:
• subsidies that facilitate the development of one Airbus LCA model improve the marketability
of all Airbus LCA models;5057

• "spill-over" benefits with regard to t echnologies or production facilities from one model
benefit both subsequently developed and existing models;5058

• common elements in design and operation are a central feature in selling the entire Airbus
LCA fleet to customers, indicating a significant degree of commonality;5059

• aircraft are sold in "package" deals, eith er simultaneous or consecutive, of different
models;5060

• LA/MSF in particular reduces the debt burden on Airbus of building each individual LCA
model, which in turn allows Airbus to move on to launch the next model much more easily
and quickly than would otherwise have been possible;5061 and

• additional cash flow allows Airbus to reduce prices of any LCA model.5062

Were we to accept the European Communities' views concerning the subsidized product, we would be
precluding even the possibility of examining whethe r these linkages and spillover effects exist, and
therefore whether the subsidies challenged by th e United States are causing the adverse effects
alleged.
5063

7.1656 The European Communities argues that panels in adverse effects disputes must make an
independent assessment of whether the subsidized product has been appropriately identified by the
complaining Member. While the European Co mmunities has proposed a methodology for making
this assessment, there is no basis in the text of the SCM Agreement for that analysis.
5064 Indeed, as

5056 US, SWS, para. 640.
5057 US, SWS, para. 633.
5058 US, SWS, para. 634.
5059 US, SWS, para. 635.
5060 US, SWS, para. 636-637.
5061 US, SWS, para. 638.
5062 US, SWS, para. 639.
5063 We note that the European Communities has challenged many of these aspects of the United States'
arguments as a substantive matter. In referring to them here we do no t mean to suggest that we accept the
United States' arguments, merely that we consider it appr opriate to consider them on the basis of the evidence,
rather than preclude consideration of them on the basis of a finding regarding subsidized product.
5064 We do not consider, in the abstract, that the European Communities' proposed method of analysis is
unreasonable. Simply, we are not persuaded that it is required by the SCM Agreement.

BCI deleted, as indicated [***]

we have already observed, there is a complete absence of any guidance in the text of the
SCM Agreement as to the bases on which a decision as to the appropriate subsidized product might be
made. In our view, it is unlikely that the drafte rs of the SCM Agreement intended panels to make
independent, fact-based determinations of the appropriate subsidized product in disputes under
Articles 5 and 6, but chose to provide no guidance a nd establish no criteria for such a determination.
In the absence of any guidance in the text of th e SCM Agreement, we are reluctant to undertake the
task of developing relevant criteria and applying th em to the facts of this case. Consequently, we
agree with the view that a complaining Member may frame its case as it chooses. It is, of course, then
for us to determine whether that case has been demonstrated, on the basis of the evidence and
arguments put before us by the parties.
7.1657 The questions surrounding the identification of the appropriate "subsidized product" in this
dispute may be analogized to the questions concer ning the "product under consideration" in trade
remedy cases. Both the SCM and AD Agreements re quire investigating authorities in countervailing
duty and anti-dumping duty investigations to make a determination regarding material injury to the
domestic industry, which is defi ned in terms of domestic producers of a "like product". Both
Agreements require a dete rmination of the appropriate "like pr oduct", and both define the term "like
product" as a product which is "identical, i.e., alike in all respect to the product under consideration,
or in the absence of such a product, another prod uct which, although not alike in all respects, has
characteristics closely resembling those of the product under consideration."
5065 Thus, the starting
point for defining the "like product" in trade remedy investigations is the scope of the "product under
consideration". However, the "product under consideration" is not defined in either agreement, just as
the term "subsidized product" is not defined in the SCM Agreement.
7.1658 In EC – Salmon (Norway) , the panel specifically addressed the question whether the
AD Agreement required an investigating authority to make a determinati on regarding the product
under consideration. That panel re cognized that, as a practical matter, investigating authorities would
have to establish the scope of the allegedly dumped product subject to their investigation in order to
carry out the investigation. However, the panel rejected Norway's claim that Article 2.6 of the
AD Agreement, defining like produc t, taken together with the obligation to determine a dumping
margin for a "product", established an obligation on investigating authorities to undertake a particular
analysis to make and justify a determination rega rding the product under consideration. The panel in
that dispute concluded that there is no requireme nt in the AD Agreement that an investigating
authority address the question of the scope of th e product under considera tion at all, and that
therefore, there could be no violation of the AD Agreement with respect to the product under
consideration identified by the investigating authority in that case.5066
7.1659 The panel in EC – Salmon (Norway) specifically rejected the argument that considerations of
"likeness" in characteristics and uses, required in the context of defining the like product, had any
relevance to the issue of product under consideration. In part, this was based on the fact that a
determination of the scope of the allegedly dump ed product under consideration must precede the
determination of like product, as the question of "ide ntical" or "similar in characteristics and uses" for
determining like product must be assessed by refe rence to the product under consideration, which
logically must already be defined. Otherwise, the analysis becomes circular.5067 In the absence of any
guidance in the AD and SCM Agreements on identifi cation of a "product under consideration" as the
necessary prerequisite to determination of a "lik e product", the panel concluded that investigating

5065 AD Agreement Article 2.6, SCM Agreement footnote 46. The question of "like product" also
arises in adverse effects cases, and is discussed further below.
5066 Panel Report, European Communities – Anti-Dumping Measure on Farmed Salmon from Norway
("EC – Salmon (Norway)"), WT/DS337/R, adopted 15 January 2008, and Corr.1, para. 7.76.
5067 Panel Report, EC – Salmon (Norway), para. 7.64.

BCI deleted, as indicated [***]

authorities are not precluded from identifying a ra nge of goods as the product under consideration. 5068
In that case, the EC investigating authority had identified the "product under consideration" as
"farmed (other than wild) salmon, whether or not filleted, fresh, chilled or frozen. ... exclud{ing}
other similar farmed fish products such as large (s almon) trout, biomass (live salmon) as well as wild
salmon and further processed types such as smoked salmon". 5069 The panel concluded that
Articles 2.1 and 2.6 of the AD Agreement do not establish an obligation on investigating authorities to
ensure that, where the product under consideration is made up of categories of products, all such
categories of products must individually be "like" each other, thereby constituting a single
homogenous "product under consideration". The panel stated further that "whether the range of goods
comprising the product 'farmed salmon' that was investig ated by the EC are or are not all 'like' each
other within the meaning of Article 2.6 is not a relevant question."5070
7.1660 Similarly, in the context of adverse effects cl aims, the scope of the subsidized product must
already be known in order to assess the question of "identical" or "similar in characteristics and uses"
in defining the relevant "like product". To argue , as the European Communities does here, that there
must be "likeness" within the subsidized product w ould introduce into adver se effects cases the same
untenable circularity identified by the panel in EC – Salmon (Norway) . The panel in that dispute
observed that, essentially, Norway's arguments raised an issue of policy, suggesting that the absence
of limits on the scope of the product under c onsideration might result in erroneous dumping
determinations by investigating authorities. The panel rejected that argument, noting that:
"Any grouping of products into a single product under consideration will have
repercussions throughout the investigation, and the broader such a grouping is, the
more serious those repercussions might be, complicating the investigating authority's
task of collecting and evaluating relevant information and making determinations
consistent with the AD Agreement. Thus, it seems to us that the possibility of an
erroneous determination of dumping b ased on an overly broad product under
consideration is remote. That possibility is certainly not enough to persuade us to
read obligations into the AD Agreement for which we can find no basis in the text of
the Agreement."
5071
In the present case, proceeding on the basis of a single subsidized product does not raise similar
concerns regarding an erroneous determination of whether a subsidy exists. Clearly, however, the
United States' position regarding s ubsidized product has repercussions for the entire case in terms of
whether the full range of Airbus LCA have been subsidized, and the evidence and arguments with
respect to whether the subsidies in dispute cause the adverse effects alleged. This consequence does
not, however, persuade us that, in the absence of any direction to do so, or any guidelines for
determination, in the text of the SCM Agreement, we should undertake an independent assessment of
the subsidized product.

7.1661 Moreover, we note that differences between the trade remedy context and a dispute
concerning adverse effects suggest to us that even if it were appropriate to consider the scope of the
"product under consideration" in reviewing a trade remedy determination, it would still be

5068 Panel Report, EC – Salmon (Norway), para. 7.68.
5069 Commission Regulation (EC) No. 628/2005 of 22 April 2005 imposing a provisional anti-dumping
duty on imports of farmed salmon originating in Norway (Official Journal, L104/5, published 23 April 2005),
para. 10.
5070 Panel Report, EC – Salmon (Norway) , para. 7.68. In addition to EC – Salmon (Norway) , other
panels have reached the same conclusion in addre ssing the question of like pr oduct and product under
consideration in anti-dumping investigations in United States – Softwood Lumber V, and Korea – Certain Paper,
Panel Report, Korea – Anti-Dumping Duties on Imports of Certain Paper from Indonesia ("Korea – Certain
Paper"), WT/DS312/R, adopted 28 November 2005, DSR 2005:XXII, 10637.
5071 Panel Report, EC – Salmon (Norway), para. 7.58.

BCI deleted, as indicated [***]

unnecessary and inappropriate for us to address, much less to revise, the scope of the subsidized
product identified by a complainant in an adverse effects dispute. First, in the context of anti-
dumping and countervailing measures, ensuring th at the dumped or subsidized product is
appropriately identified is relevant to ensuring th at the scope of the remedy is appropriate, as the
measure will be imposed in respect of all futu re imports of the product found to be dumped or
subsidized. In addition, the level of the measure is limited to the amount of dumping or subsidization
found in respect of the dumped or subsidized pr oduct, so an excessively broad product scope could
sweep in highly dissimilar goods and subject them all to the same level of duty. However, in the
context of adverse effects disputes, neither of these considerations is relevant. The remedy in an
adverse effects dispute is either withdrawal of th e subsidy, or elimination of the adverse effects
caused by the use of that subsidy, not a duty limite d by the amount of the subsidy. The ability to
implement either of the remedies for findings of adverse effects does not depend on circumscribing
the scope of the subsidized product. Thus, even assuming there were a logical reason to review the
scope of the dumped or subsidized product in qu estion in a countervailing duty or anti-dumping case,
in order to ensure that the scope of applicati on and level of any anti-dumping or countervailing duty
imposed is properly determined, that consideration does not arise in the context of an adverse effects
dispute.
7.1662 In our view, the United States is entitled to frame its case as it chooses, and so long as the
subsidized product it has identified, Airbus large civ il aircraft, does in fact benefit from the subsidies
in dispute, we will not intervene to alter its identif ication of the subsidized product. Moreover, there
is no basis in the text of the SCM Agreement for the conclusion that it is necessary to group
subsidized products according to either correspondi ng physical characteristics, or competition in
particular markets.
7.1663 Even if it were appropriate or necessary for pa nels in disputes involving claims of adverse
effects to consider the question of the subsidized prod uct, it is not clear to us that a panel's role would
be to identify the appropriate subs idized product on its own accord based on a review of the facts put
in evidence by the parties. While we recognize th at, pursuant to Article 11 of the DSU, a panel is
required to make an objective assessment of the matte r before it, including an objective assessment of
the facts, we do not consider that this would require a panel to make a determination of the subsidized
product ab initio. Rather, in our view, it would at most be appropriate for a panel to start with the
complaining Member's allegations, and consider whether, having regard to the totality of the facts, the
complaining Member has made a reasonable allegati on regarding the product that benefits from the
alleged subsidies in dispute. From this persp ective, there are strong arguments in support of the
United States' view that all Airbus LCA may be prope rly treated as the relevant subsidized product in
the present dispute.
7.1664 All Airbus LCA share particular characteristics, and certainly the same general uses.
5072 In
our view, while there are a variety of paramete rs along which LCA can be categorized, including
number of aisles, number of seats, number of engine s, range of operations, etc, there are no obvious
reasons for choosing one among these as the single divi ding line that must be respected, as suggested
by the European Communities' argument. The choice of a particular model of aircraft by a customer
is not driven purely by the number of seats, but depe nds on a number of factors related to the airline,
the routes, the economics of operation, the existi ng fleet, as well as other characteristics of the
available aircraft, such as range and operating costs. 5073 Moreover, while seating capacity may be a
relevant factor if one were trying to group aircraft into categories, we see nothing that suffices to

5072 In this respect, we note that Airbus has, throughout its history, focused attention on the
commonalities of its LCA in terms of technology, design, and operation, as a significant selling point. See, e.g.,
Exhibit US-658. This lends further support to our conclusion that there is no reason to disturb the scope of the
subsidized product identified by the United States.
5073 Statement of Rod P. Muddle, Exhibit EC-19, paras. 46-51.

BCI deleted, as indicated [***]

establish this as the single determinative factor. I ndeed, it is not clear to us that seating capacity per
se is an appropriate or necessary basis for drawing distinctions among aircraft in terms of market
competition.5074 For instance, the European Commission, in examining the proposed merger of
Boeing and McDonnell Douglas in 1997 under EC co mpetition law, examined the questions of
dominant position and market impact on the basis of a distinction between narrow body and wide
body aircraft, corresponding to 10 0-200 seating capacity and 200-400+ seating capacity market
segments.5075 In addition, Neven & Seabright in their analysis of the LCA market consider four
different market segments: short-range/n arrow body; medium-range/medium body; long-
range/medium body; and long-range/wide-body. 5076 Thus, based on the available evidence, in our
view there are multiple ways in which the market for large civil aircraft could be divided into
segments, and there is no obvious or necessary basis for choosing one such way, number of seats,
much less a legal requirement that individual Airbus model families be considered separate subsidized
products based on the number of seats in each model family.
7.1665 Since its inception, Airbus has recognized the importance to its continued success in the LCA
market of developing a full line – a family - of different LCA models:
"Since Airbus was established for the precise purpose of becoming a viable,
profitable, long term enterprise, it was necessary to plan for a family of aircraft. As
early as 1973, Airbus Industrie proposed the development over time of five related
aircraft types. With the recent launch of the A330 and A340 programs, these five
types are now in place."
5077

More recently, a report to shareholders by the EADS Board of Directors states, with reference to the
"long-term strategic goal" of striving for a "leading position in commercial aircraft: A complete
product portfolio is seen as necessary to serve the customer base and to maintain overall
competitiveness."5078 Airbus's business strategy focuses on an integrated family of LCA:

"To achieve its market success, Airbus has pursued a consistent product strategy to
offer competitive airliners acr oss the market. The family of aircraft concept has
enabled a high degree of commonality to be offered in all aspects of the aircraft
operation from flight and cabin crew training to maintenance and spares."5079

5074 In this respect, we note that the European Co mmunities refers to "three overlapping competitive
markets (100-200 seat, 200-300 seat, 300-400 seat) and the two markets (400-500 seat and 500+ seat) in which
Airbus and Boeing do not compete" in discussing th e competitive conditions in wh ich the aircraft industry
operates. EC, FWS, para. 1403.
5075 EC Merger Analysis, Exhibit US-375, para. 16.
5076 Damien Neven & Paul Seabright, European Industrial Policy: The Airbus Case (1995) (hereinafter
"Neven & Seabright"), available at http://www.hec.unil.ch/deep/textes/9509.pdf, Exhibit US-382, pp. 24-25.
5077 Testimony of Alan Boyd, Chairman of Airbus Industrie of North America, Inc., to US House of
Representatives Subcommittee on Commerce, Cons umer Protection, and Competitiveness, at 34
(June 23, 1987), Exhibit US-386; see also, EC, FWS, para. 1133 (explaining that Airbus needed government
equity infusions to enable new LCA model development because it could not have succeeded by producing only
the A300 and A310).
5078 EADS, Report of the Board of Directors, in Documentation for the Annual General Meeting on
Friday, 4 May 2007, at 30, available at
http://www.eads.com/xml/content/OF00000000400004/1/50/41582501.pdf , Exhibit US-503.
5079 BAE Systems Annual Report 1999 at 15, Exhibit US-388.

BCI deleted, as indicated [***]

"{E}very Airbus aircraft belongs to a single family , sharing the same cockpit,
flight deck and spare parts, thus saving time and money for operators in terms of pilot
training and maintenance as well as in other areas."
5080

The European Communities itself acknowledged the importance of offering a full range of LCA:

"the need to offer separate products whose commonality keep operating costs down
for customer airlines across the fleet but which can perform the various missions
dictated by an airline's route structure has historically meant that no manufacturer of a
single product or family of products, no matter how compelling, has survived in the
LCA industry."5081
7.1666 Commonality is important not only from the pers pective of the purchasers of LCA, but also
for the manufacturers. Producing a full family of different models of ai rcraft allows an LCA
manufacturer to achieve production efficiencies. In creasing production of one aircraft type reduces
the marginal cost of producing related aircraft ty pes "due to the transferability of some production
methods between different mode ls in a manufacturer's range". 5082 Airbus recognizes that the
development of new aircraft also supports the de velopment of production facilities and technologies
across its LCA family:
"In the 1980s, we were able to widen our family by launching the A310 that
incorporated many systems and power plant improvements that had occurred in the
years since the A300 was designed," an Ai rbus executive said. "Then we turned
around and put many of the A310 improvements back into the A300 and came up
with an updated aircraft that we designa ted the A300-600. The same philosophy will
be followed with our new aircraft. Additionally, there is a strong possibility that the
A320/A330/A340 technology can be used as we ll to create an advanced A300 and/or
A310 in the 1990s."
5083
"But the A350 is going to be the sistership of the A380 so it's technology you can
already touch and see. It's tangible because the A380 is flying."5084
Airbus also manages its LCA production activities on a family basis. For example, recently, in
response to an analyst's question as to whether incr eased production of other models could "offset the
pain on the A380 delays," EADS CEO Thomas Ende rs commented that sustained higher production
rates for the A320 would provide "upside" to offset the costs of the A380 delays. 5085 Thus, the
production and sales of one model of LCA support the development, production and sales of other

5080 EADS Annual Report 2000 at 22, Exhibit US-389 (emphasis added); see also, Airbus, Excellence
Runs in the Family , available at
http://events.airbus.com/img/media/multimedia/advertising/press/excellence.pdf (visited Sept. 20, 2006),
Exhibit US-390, ("Rarely does having a family save you money; the Airbus Family does."); Airbus, Key
Determinants, at 21-25, Exhibit US-379 (BCI).
5081 EC, FWS, para. 30.
5082 Neven & Seabright, Exhibit US-382, 23 n. 11.
5083 Jeffrey Lenorovitz, Airbus Industrie Launching Production for New A330/A340 Simultaneously ,
Aviation Week & Space Technology (24 February 1986), Exhibit US-391 (emphasis added).
5084 Jason Neely, Airbus Top Challenge Is Keeping up with Demand , Reuters (22 November 2005)
(quoting Airbus CEO Gustav Humbert), Exhibit US-392.
5085 EADS Investor Conference Call, at 1:27:40 (3 October 2006), available on EADS web site,
relevant portion transcribed in Exhibit US-393.

BCI deleted, as indicated [***]

LCA models.5086 As a consequence, it seems clear to us that subsidies benefiting one particular model
of Airbus LCA can have spillover effects for other Airbus models.

7.1667 Thus, while it may be appropriate to consider individual models in some aspects of the
adverse effects analysis, for instance when consideri ng price effects, in our view, the identification of
the "subsidized product" cannot ignore that Airbus has developed an entire range of LCA family
comprising various models, that is marketed to cust omers as an integrated whole, and that the entire
range of models has, at least potentially, been supported by the subsidies in dispute.
5087 To divide the
subsidized product along the lines proposed by the European Communities would preclude the panel
from taking this into account.
7.1668 We cannot accept the proposition that there is no competition between LCA in the different
model groups proposed by the European Communities. That is, while it may well be true that direct
head-to-head competition between aircraft models at the ends of the range of models offered by each
manufacturer may be limited or non-existent, it seems cl ear to us that there is at least some degree of
competition between adjacent product groups identified by the European Comm unities, for instance,
between a Boeing 747 and an Airbus A380. 5088 Indeed, the European Communities itself states that
"{c}ompetition exists almost exclusively between the Airbus a nd Boeing LCA families identified by
the European Communities as compe ting in separate product markets." 5089 M o r e o v e r , e v e n b y t h e
European Communities' own standard s, two different families of Airbus LCA compete in the same
alleged product markets, with at least one of th ese (the A350 family) straddling two of the alleged
product markets. In particular, according to the Eu ropean Communities, the Airbus A330 family of
LCA and one of the versions of the A350 family (the Airbus A350XWB-800) compete with the
Boeing 767 and 787 families in the 200-300 seat market. Similarly, another version of the A350XWB
family, the A350XWB-900/1000, and the A340 family of LCA allegedly compete with the Boeing
777 family in the 300-400 seat market. 5090 These facts demonstrate that the dividing lines drawn by
the European Communities are not suff iciently clear to allow us to conclude, were we required to
consider the matter, that separate products must be defined on the basis of those lines.5091

5086 Information in the A380 business case supports this conclusion. Exhibit EC-362 (HSBI), pp. 5, 6,
8, 24, 36.
5087 Indeed, as the European Communities itself has noted, no manufacturer of LCA has been able to
survive without a full range of models to offer. EC, FWS, para. 30. From its early days, Airbus contemplated a
full range of related LCA models. “Competitiveness of U.S. Commercial Aircraft Industry," Hearing before the
Subcommittee on Commerce, Consumer Protection, and Competitiveness of the Committee on Energy and
Commerce, House of Representatives, 100th Congress, June 23, 1987, Serial No. 100-59, at 34 (statement of
Mr. Boyd, Chairman, Airbus Industrie North America) Exhi bit US-386. Airbus has, in fact, introduced such a
full range to the market since 1970, in competition with the full range of Boeing models.
5088 Indeed, the business case for the A380 [***]. Exhibit EC-362 (HSBI), p. 13. Other HSBI evidence
also supports the conclusion that there is some degree of competition among aircraft across the model families
identified by the EC. Exhibit EC-98 (HSBI), EC-375 (HSBI) and EC-398 (HSBI).
5089 EC, Answer to Panel Question 130 (emphasis added). See, also, EC, Answer to Panel Question
114, in which the European Communities addresses th e "unusual circumstances" of a "cross-market sales
campaign" between the A330-200 and th e Boeing 777-200. The existence of such campaigns, even if unusual,
precludes the conclusion that there is no competition across the model families identified by the EC.
5090 EC, FWS, para. 1509. The European Communities notes "Each Airbus LCA has distinctive
physical and performance characteristics, and these aircraft can be categorized into four distinct markets based
on these characteristics. With the exception of the A350 family LCA, which includes LCA intended to compete
with two separate Boeing families ( i.e., the 777 and 787 families), these product groupings fall along Airbus'
own "family" lines." EC, FWS, para. 1523. This sugg ests that even the European Communities recognizes a
degree of ambiguity in the definition of the alleged Airbus families.
5091 We note that the European Communities' expert, Mr. Scherer, stated that "Aircraft market segments
typically are distinct from each other in about 15-20% seat increment." EC, SNCOS, para. 333. We understand
from this that to the extent two LCA have seating capacity within 15-20 percent of each other, they compete

BCI deleted, as indicated [***]

7.1669 Moreover, the European Communities' approach to identifying the relevant subsidized
product is premised on the view that the subsidies in dispute, in particular those granted in connection
with the launch or development of a particular model of Airbus LCA, benefit only that model.
5092
However, the United States argues that subsidies to one model of Airbus LCA have effects on the
development and production of ot her models, through learning effects and commonalities. Were we
to define the subsidized product as suggested by the European Communities, we would preclude
consideration of this argument.
7.1670 Thus, overall, the evidence and arguments before us suggest that the single product definition
advanced by the United States is not inappropriate. While there may be a variety of parameters along
which LCA can be categorized, there are no obvious reasons for choosing one among these as the
single dividing line that must be respected, instead of treating LCA as a single subsidized product.
Airbus itself recognizes the importance of develo ping one single "family" of LCA made up of
different models of aircraft for its business; a fact or that carries equal weight in the minds of LCA
customers. Moreover, it is evident that different degrees of competition exist between at least the
adjacent markets the European Co mmunities alleges should be used to define the "subsidized
product". In this light, we do not believe it would be appropriate to reject the United States' proposed
subsidized product, and we will proceed with our analysis on that basis.5093
(ii) Like product
7.1671 The parties in this dispute take the position th at a determination regarding like product is
necessary in order to address the Un ited States' claims of injury under Article 5(a), displacement and
impedance under Articles 6.3(a) and (b), and price undercutting under Article 6.3(c). 5094 W e n o t e
that the Appellate Body in US – Upland Cotton raised but did not decide whether, in the case of a
claim of significant price suppression under Article 6.3(c), the product identified by the complainant
must be "like" the relevant subsidized product, and went on to note, but not address, the question
whether, in a case involving alleged price suppression, price depression and lost sales, there is a
requirement that the subsidized product and the relevant product of the complainant be "like".
5095 The
United States suggests that, even t hough the identification of a "like product" is not strictly required
for claims under Article 6.3(c), the logical structure of Article 6.3(c) similarly requires the
identification of a product of the complaining Me mber, the prices of which have been adversely
affected by the subsidies.
5096 In our view, it is not, strictly speaking, necessary to identify a "like
product" within the meaning of footnote 46 of the SCM Agreement for purposes of assessing price
suppression, price depression, or lost sales under Article 6.3(c).5097

with each other. In this regard, we note that there ar e overlapping seating capacities within that range between
the A330 and A340 families posited by the European Co mmunities, and seating capacities that are beyond that
range in the A320 model family. EC, FWS, para. 1524 (tables).
5092 The European Communities asserts that "many alleged subsidies" relate to specific families of
Airbus LCA, but does not present evidence to substantia te its view, except with respect to LA/MSF, which is
granted in connection with the launch of specific Airbus LCA models. EC, FWS, paras. 1551-1553 & 1637.
5093 HSBI evidence also supports the conclusion that there is some degree of competition among
aircraft across the model families identified by the EC. Exhibits EC-98 (HSBI), EC-362 (HSBI), EC-375
(HSBI) and EC-398 (HSBI).
5095 Appellate Body Report, US – Upland Cotton, footnote 453.
5096 US, FWS, para. 717.
5097 See, Panel Report, Korea – Commercial Vessels , paras. 7.556-557, where the panel came to the
same conclusion. However, as that Panel noted, it would seem logical that a complaining Member must identify
the product(s) whose prices are allegedly undercut, suppre ssed, or depressed, or sales of which are allegedly
lost. There is no dispute that the United States has done so in this case, and the European Communities makes
no arguments in this respect.

BCI deleted, as indicated [***]

7.1672 The European Communities asserts that there are three Boeing "like products" corresponding
to three of the Airbus "subsidized" products it ha s identified, and that there is no Boeing "like
product" corresponding to the A380 "subsidized" product, and no Airbus "subsidized product"
corresponding to the Boeing 747. However, in li ght of our conclusion regarding the subsidized
product, we see no legal basis for the European Communities' position.
7.1673 As noted above, footnote 46 of the SCM Agreement defines like product as:
"a product which is identical, i.e., alike in all respects to the product under
consideration, or in the absence of such a product, another product which, although
not alike in all respects, has characteristics closely r esembling those of the product
under consideration."5098
The definition of like product in footnote 46 speci fically applies to the entire SCM Agreement.5099 In
the context of an adverse effects dispute, the "pr oduct under consideration" referred to in footnote 46
must, we believe, be understood to be the subsidi zed product, which as we determined above, is in
this case, all Airbus LCA. 5100 Thus, the like product for purposes of this dispute is a product that is
"identical, i.e., alike in all respects to the {subsidized pr oduct}, or in the absence of such a product,
another product which, although not alike in all r espects, has characteristics closely resembling those
of the {subsidized product}.

7.1674 It seems clear to us that there is no United States' product which is identical to the subsidized
product identified by the United States, all Airbus LC A. All the aircraft produced by both Airbus and
Boeing have differences which preclude a finding of id entity. On the other hand, it also seems clear
to us that Boeing large civil aircraft, as a whol e, is a product which has characteristics closely
resembling those of Airbus large civil aircraft, as a whole. Thus, we consider that the relevant like
product in this dispute is all Boeing LCA.
7.1675 The European Communities argu es that because different Boeing LCA models compete in
separate product markets with corresponding Airbus LCA models, and because physical
characteristics are key to determining like product, the United States has improperly combined Boeing
aircraft with enormous physical differences in arguing that there is one like product. This argument is
essentially the same as that made by Canada in US – Softwood Lumber V and rejected by the panel in
that dispute. As the definition of like product is the same for purposes of this case as for purposes of
the AD Agreement, we consider decisions con cerning like product under the AD Agreement to be
relevant to our analysis in this case.
5101 The report of the Panel in US – Softwood Lumber V , goes
directly to the questions raised by the European Communities' argument. In that case, the United
States had conducted countervailing and anti-dumping du ty investigations of softwood lumber from
Canada. Softwood lumber, the dumped product unde r consideration, included a broad range of
articles. The United States' investigating authorit y found one like product, co-extensive with the

5098 SCM Agreement, footnote 46.
5099 "Throughout this Agreement the term "like product " (produit similaire) shall be interpreted..."
SCM Agreement, footnote 46.
5100 While the European Communities disputes the propriety of the subsidized product identified, it
does not argue that the "product under consideration" in the context of this dispute is anything other than the
subsidized product at issue.
5101 There is also a Ministerial Declaration on Dispute Settlement Pursuant to the AD and
SCM Agreements, in which Ministers recognized the need for "consistent resolution of disputes arising from
anti-dumping and countervailing duty measures." Given th e focus of the Declaration on trade remedy disputes,
it is not directly applicable in the context of an adverse effects dispute. However, since the term like product is
defined for purposes of the entire SCM Agreement, we consider it appropriate to ensure that we apply a
definition in this case which is consistent with that in applied by panels in the anti-dumping context, to avoid
possible conflicts between the SCM and AD Agreements in this respect.

BCI deleted, as indicated [***]

dumped product under consideration. Before the Pane l, Canada argued that "the individual products,
constituting collectively the "like product", were not alike to each and every of the products
collectively forming the product under consideration as they did not have characteristics closely
resembling those of each and every of the indivi dual products constituting collectively the product
under consideration."
5102 The Panel found no violation of Ar ticle 2.6 of the AD Agreement in the
United States' investigating authority's definition of a single like product, coextensive with the product
under consideration, rejecting Cana da's argument that "{t}he terms 'p roduct under consideration' and
'like product' must be limited to a single group of products sharing characteristics".5103
7.1676 Following this same line of reasoning, we conc lude that the United States' product that is
"like" Airbus LCA is Boeing LCA. We reach this conclusion despite the fact that there are clearly
differences between individual Airbus models an d even the most closely corresponding Boeing
models, and the European Communities' arguments that the Airbus A380 do es not compete with any
Boeing aircraft, and that the Boeing 747 does not comp ete with any Airbus aircraft. As noted above,
the A380 business case [***] this view.5104 In addition, the United Stat es has presented evidence that
indicates that there is competiti on, specifically between the A380 and the Boeing 747, and that the
A340 also competes with the 747 to a significant degree. 5105 That competition is based on similar
characteristics of the aircraft which make it suitable for the same use, both generally, and specifically
as large seating capacity aircraft. There is nothing in the definition of like prod uct which, on its face,
would require analysis of groups of articles with in the subsidized product under consideration to
determine a "most closely resembling" like prod uct for each group, and we do not consider it
appropriate or necessary to undertake such an an alysis. Moreover, the definition of like product
specifies that, in the absence of a product that is "identical, i.e., alike in all respects to the product
under consideration", the like product is defined as "another product which, al though not alike in all
respects, has characteristics closely resembling tho se of the product under consideration." Thus, even
assuming we were to accept the European Communities' position that there are multiple subsidized
products, and that there is no US-produced product which competes head-to-head with the A380, we
would still have to find a United States' "like pr oduct" corresponding to a putative A380 subsidized
product. In the absence of an identical produc t, another product with characteristics "closely
resembling" those of the A380, which in this case would be the Boeing 747, would seem appropriate.
7.1677 The European Communities also argues, based on the report of the panel in Indonesia –
Autos, that the determination of like product must be narrowly focused on the question of physical
characteristics. However, the question the panel faced in that case was to determine which, of
different models of automobiles produced by the complaining Members, could be considered the "like
product" to the specific subsidized product, whic h was the single model, the Timor automobile,
manufactured in Indonesia. The analogous circumst ance, in the case of LCA, would be if the United
States were complaining about subsidies to a single model of allegedly subsidized Airbus LCA, and
the panel were seeking to decide which Boeing airc raft could be properly found to be "like" that
single allegedly subsidized LCA model. Where, however, as here, the subsidized product under
consideration includes the entire range of LCA mo dels produced by Airbus, we see no bar to the
conclusion that the corresponding range of aircraft produced in the complaining Member constitutes

5102 Panel Report, US – Softwood Lumber V, para. 7.155.
5103 Panel Report, US – Softwood Lumber V , para. 7.157. In its report in EC - Salmon (Norway) , the
Panel similarly rejected an argument th at the product under investigation must comprise only goods that are all
"like" one another, that is, be internally homogeneous.
5104 Exhibit EC-362 (HSBI), p. 13.
5105 US, Answer to Panel question 40, paras. 235-242 and references cited therein; US, FCOS, para. 63,
US, SWS, paras. 654-56.

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an appropriate "like product" – that is, the "pr oduct which, although not alike in all respects, has
characteristics closely resembling those of the product under consideration".5106
7.1678 In Indonesia – Autos , the panel did state that "the analysis as to which cars have
"characteristics closely resembling" those of the Timor logically must include as an important element
the physical characteristics of the cars in question." 5107 However, an analysis of which goods
produced in the United States are "like" the subsid ized product can certainly consider the physical
characteristics of the family of Airbus aircraft as a whole, similar to the analysis in US – Softwood
Lumber V, and assess the correspondence between the range of aircraft on either side of the equation.
Moreover, the Panel in Indonesia – Autos went on to observe:
"we do not see that the SCM Agreement precludes us from looking at criteria other
than physical characteristics, where relevant to the like product analysis. The term
"characteristics closely resembling" in its ordinary meaning includes but is not
limited to physical characteristics, and we see nothing in the context or object and
purpose of the SCM Agreement that would dictate a different conclusion."
5108
Thus, other criteria, including such matters as suitab ility for use, brand loyalty, customer perceptions,
to the extent not dictated by physical characteristics, can also be taken into account.

7.1679 Finally, we note that, having concluded that that there is a single subsidized product and a
single corresponding like product, does not mean th at we must conduct an undifferentiated or
monolithic analysis of either injury under Article 5(a), or serious prejudice under Articles 6.3(a), (b),
and (c). In the context of injury, which is define d for purposes of Article 5 as being used in the same
sense as in countervailing duty cases,
5109 we note that the Appellate Body has stated that investigating
authorities may examine injury in th e trade remedy context by considering the effects of imports in
market segments, so long as they do not ignore any market segments in such analysis, and the overall
conclusions address the question of injury to the industry as a whole. 5110 Similarly, we consider that,
to the extent relevant, in our analysis of both in jury and serious prejudice, we may examine alleged
effects in particular market segments, for inst ance in individual sales campaigns, in which the
subsidized and like products compete, or with respec t to prices for specific models of LCA. Such a
differentiated analysis will likely be relevant in our analysis of significant price undercutting, price
suppression, price depression, and lost sales "in the same market".
7.1680 In summary, we conclude that it reasonable and appropriate to conduct the analysis of adverse
effects on the basis of one subsidized product, all Airbus LCA, as proposed by the United States, and
that there is a single United States' product that is "like" the subsidized product, namely all Boeing
LCA.

5106 We note that the range of aircraft on both sides of the question, subsidized product and like
product, covers the full spectrum of existing large civil ai rcraft. No party has sugges ted that smaller aircraft
should be considered a like product in this dispute, and we do not address that question.
5108 Id.
5109 Footnote 11, appended to Article 5(a) of the SC M Agreement, specifies: "The term "injury to the
domestic industry" is used here in the same sense as it is used in part V {countervailing measures}."
5110 This view is based on the views of the Appellate Body to this effect in an anti-dumping dispute,
Appellate Body Report, US – Hot-Rolled Steel , para. 204 ("it may be highly pertinent for investigating
authorities to examine a domestic indust ry by part, sector or segment. ... where investigating authorities
undertake an examination of one part of a domestic industry, they should, in principle, examine, in like manner,
all of the other parts that make up the industry, as well as examine the industry as a whole. Or, in the
alternative, the investigating authorities should provide a satisfactory explanation as to why it is not necessary to
examine directly or specifically the other parts of the domestic industry.").

BCI deleted, as indicated [***]

5. Reference Period
(a) Arguments of the Parties
(i) United States
7.1681 The United States originally presented data a nd arguments covering th e period 2001 through
2005 to support its claims of adverse effects. Subsequently, in it second written submission and oral
statement and in response to questions from the Pane l, the United States presented additional data for
calendar year 2006.
5111 However, the United States argues that the Panel should not select a particular
"reference period" for its examination of adverse effects. 5112 Rather, the United States argues that it is
for the complaining Member, i.e., the United States, to define the a ppropriate period, and then for the
Panel to determine whether the complaining Member has set forth a prima facie case. In doing so, the
United States argues that the Panel will be ca lled upon to examine the evidence and arguments,
including considering whether the time periods relie d upon by the parties are adequate to meet their
respective burdens of proof.5113
7.1682 With respect to its argument suggesting an end date for the consideration of adverse effects,
i.e., 2005, the United States argues that the "matter" th e Panel is to examine is defined in the request
for establishment, both in terms of substa nce, and in terms of temporal scope. 5114 Thus, the
United States contends that it is appropriate to co nsider data for the year in which the Panel was
established, but not subsequent years, in decidi ng whether the subsidies in dispute cause adverse
effects. The United States does, however, maintain that the adverse effects it has posited continued
after establishment of the Panel, and continue to the present. The United States recognizes that
evidence pertaining to any time period that is re levant to the matter before the Panel may be
considered, but asserts that the contention that a dverse effects ceased sometime after the Panel's
establishment is not a defence to the United States' claim. 5115 The United States argues that, as a
matter of fact, any improvements in Boeing's situ ation in 2006 and subseque ntly do not demonstrate
that adverse effects no longer exist.5116
7.1683 The United States recognizes the finding of the Panel in United States – Upland Cotton that
serious prejudice should be found to exist " up to, and including a recent point in time". 5117 However,
the United States considers that "up to, and incl uding a recent point in time" is appropriately
understood as a period of several years up to a nd including the year in which the Panel was
established, but does not include the period after that year. 5118 The United States argues that a panel's
terms of reference are fixed as of the date of its establishment, citing in this respect cases in which
measures which expired or were terminated after establishment were nonetheless examined by Panels,
and in particular the report in EC – Biotech.5119
7.1684 The United States submits that Article 6.7(c) , relied on by the European Communities to
argue that the Panel should exclude information from the period 2001-2003 from its analysis on the
basis of force majeure, identifies a series of events that limit the ability of the complaining Member to
export its product for reasons having nothing to do with subsidies. According to the United States,
when such events can be estab lished the causal link between subs idization and the loss of export

5111 US, SWS, paras. 698, 701, 703, 731, 734, Exhibit US-616, US, Answer to Panel question 238.
5112 US, Answer to Panel Question 133, para. 440.
5113 US, Answer to Panel Question 133, paras. 438-39.
5114 US, SWS, para. 674.
5115 US, SWS, para. 684.
5116 US, SWS, para. 672.
5117 Panel Report, US –Upland Cotton, para. 7.1198.
5118 US, Answer to Panel question 134, para. 451.
5119 US, SWS, para. 673.

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market share will be broken. However, the United States argues that the downturn in the LCA market
between 2001 and 2003 did not result from any inabilit y of the United States' industry to produce or
export LCA. The United States asserts that cust omers simply chose in increasing proportion to
purchase LCA from Airbus rather than Boeing; a c hoice which meant that the burden of the market
downfall fell disproportionately on Boeing.5120
7.1685 The United States does acknowledge that data from any period, including the most
recent, may be considered by the panel in conducting a long-term analysis of the effects of subsidies
on the relevant market, but argues that neith er the panel nor the Appellate Body in US – Upland
Cotton (Article 21.5 – Brazil) endorsed the European Communities' view that only the most recent
market trends were relevant. In particular, the United States disputes the view that adverse effects
must be shown to exist during the most recent period in order for a panel to find present adverse
effects.5121
(ii) European Communities
7.1686 The European Communities presents a series of ar guments in support of its position that the
appropriate reference period for the Panel's cons ideration should include data from the period 2004-
2006, and where available and reliable, 2007, in de termining whether subsidies cause adverse effects
in 2006 (and 2007). First, the European Comm unities argues that use of data from the 2001-2003
period would be inconsistent with Article 6.7(c) of the SCM Agreement and with the requirement that
the Panel undertake an objective assessment, on the basis that data from that period is distorted
because of the effects of 11 September 2001 ("9/11"). 5122 The European Communities asserts that the
LCA market, particularly in the United States, essen tially crashed as result of the collapse in demand
for air travel following the events of 9/11. This r esulted in air carrier bankruptcies, cancelled orders,
delayed orders, and efforts by customers to re-negot iate prices, leaving both Airbus and Boeing with
aircraft in production which would not be taken by the original customer. The European
Communities considers the events of 9/11 to constitute force majeure within the meaning of
Article 6.7(c), and thus asserts that the period 2001-2003 must be considered unreliable as a starting
point for assessing adverse effects.
5123
7.1687 Second, the European Communiti es asserts that the period used to assess trends relating to
present material injury and serious prejudice must in clude a period of time that reflects, as closely as
possible, the conditions of competition that exist today. The European Communities argues that the
period 2004-2006 more closely reflects normal compe tition in the LCA markets, and should therefore
be the relevant period. The European Communiti es considers that the data for 2001-2003 do not
reflect normal conditions of competition, and therefor e asserts that reliance on it is inappropriate, in
addition to being inconsistent with Article 6.7(c) of the SCM Agreement.5124
7.1688 Third, the European Communities notes that Article 6.4 of the SCM Agreement stipulates that
the assessment of displacement or impedance be based on "an appropriately representative period …
which, in normal circumstances, shall be at least one year." The European Communities asserts that
this is in line with what it describes as an "expr essed preference" by the Appellate Body and panels

5120 US, SWS, paras. 658-659; US, Answer to Panel Question 49(c).
5121 US, Comments on Panel and Appellate Body Reports in US - Upland Cotton (Article 21.5 –
Brazil), para. 7, referring to, Panel Report, United States – Subsidies on Upland Cotton – Recourse to
Article 21.5 of the DSU by Brazil (US – Upland Cotton (Article 21.5 – Brazil)) , WT/DS267/RW and Corr.1,
adopted 20 June 2008, as modified by Appellate Body Report WT/DS267/AB/RW and Appellate Body Report,
United States – Subsidies on Upland Cotton – Recourse to Article 21.5 of the DSU by Brazil (US – Upland
Cotton (Article 21.5 – Brazil)), WT/DS267/AB/RW, adopted 20 June 2008.
5122 EC, FWS, para. 1494,
5123 EC, FWS, para. 1495.
5124 EC, FWS, para. 1497.

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for a shorter period of time in the context of do mestic trade remedy investigations, where the
Appellate Body and panels emphasize th at data and trends relating to the most recent past are the
most relevant.
5125 In this respect, the European Commun ities relies on the decisions in disputes
involving safeguard measures, Argentina – Footwear (EC) 5126 and US – Lamb5127, as well as an anti-
dumping dispute, Mexico – Anti-Dumping Measures on Rice .5128 The European Communities argues
that the guiding principle for injury investigations by investiga ting authorities is that the more recent
the examined data, the more accurate the analys is of current injury will be. The European
Communities notes that Footnote 11 to Article 5 of the SCM Agreement states that the term "injury to
the domestic industry" is used in the same sense as in Part V, and argues that this preference should
also apply in adverse effects cases.
7.1689 Finally, the European Communities argues that the time period 2004-2006 is consistent with
the Panel and Appellate Body decisions in US – Upland Cotton and US – Upland Cotton (Article 21.5
– Brazil). The European Communities asserts that the re ference periods considered by the original
panel and Appellate Body reports in that dispute covered years of high United States' upland cotton
production and higher levels of Unite d States' subsidies than previously, but based on arguments of
the United States, it did not include marketing year 1998, which the United States asserted was a year
of unusually high abandonment of United States' upl and cotton acreage due to drought and, therefore,
unusually low United States' upland cotton production.
5129 The European Communities argues that
the principle to be derived from this report is that data in years with unusual conditions of competition
should not be used for assessing trends offering guidance for present adverse effects under present
normal conditions of competition. The European Communities asserts that this principle was
supported by the United States in the implementation dispute in US – Upland Cotton, and was upheld
by the panel and Appellate Body. 5130 The European Communities points out that in both the original
and implementation disputes, information from afte r the date of panel establishment was presented
and considered in order to assess whether "present" adverse effects existed.5131
7.1690 The European Communities submits that the events of 9/11 qualify as force majeure within
the meaning of Article 6.7(c) of the SCM Agreem ent, and that as a consequence, data from 2001 to
2003 cannot be used to as a starting point for assessing adverse effects. 5132 T h e E u r o p e a n
Communities recognizes that Article 6.7(c) of the SCM Agreement only refers to claims of
displacement or impedance resulting in serious prejudice for the purpose of Article 6.3, but argues
that it provides "important context" for determ ining the relevant time period for assessing other
adverse effects claims.
5133 The European Communities argues that as a consequence, the three-year
period from 2001 to 2003 must be excluded from the appropriate reference period for our evaluation
of the United States' claims under Articles 6.3(a) and 6.3(b). 5134 In addition, the European
Communities contends that conditions of competition between 2001 to 2003 do not reflect the present
conditions of competition in the LCA industry. Thus, more generally, the European Communities
questions the relevance of such "historical" data to a determination of whether or not there are present

5125 EC, FWS, para. 1498.
5126 Appellate Body Report, Argentina – Safeguard Measures on Imports of Footwear ("Argentina –
Footwear (EC)"), WT/DS121/AB/R, adopted 12 January 2000, DSR 2000:I, 515, footnote 130.
5127 Appellate Body Report, US – Lamb, para. 137.
5128 Appellate Body Report, Mexico – Anti-Dumping Measures on Rice, para. 165.
5129 EC, FWS, paras. 1503-04.
5130 EC, Comments on US-Upland Cotton (Article 21.5 – Brazil) paras. 10-11.
5131 EC, Comments on US-Upland Cotton (Article 21.5 – Brazil) paras. 12-15.
5132 EC, FWS, para. 1495.
5133 EC, FWS, para. 1495, footnote 1328.
5134 EC Answers to Panel Questions 204 and 207.

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adverse effects in the form of both injury and ser ious prejudice within the meaning of Articles 5(a)
and (c), and Article 6.3(c), as well as Articles 6(a) and (b).5135
(b) Arguments of Third Parties
(i) Brazil
7.1691 Brazil submits that the selection of an appropriate reference period is not a specific
requirement of the SCM Agreement but rather is an analytical tool that should help a panel in the
assessment of claims of adverse affects. 5136 It refers to the findings of the panel in US – Upland
Cotton that an evaluation of an effects-based phenom enon cannot be "conducted in the abstract.
Rather, discerning adverse effects of subsidies seems to us to require reference to a recent historical
period."5137 Thus, Brazil contends that the selection of the reference period should also take into
account the specific nature and circumstances of the market in which the adverse effects are claimed
to exist. This, according to Brazil, is consistent with the requirement that panels must conduct an
objective assessment of the matter referred to them. 5138
(ii) Canada
7.1692 Canada submits that the SCM Agreement does not specify a particular reference period that
must be used. Whatever period is chosen, it mu st be representative and allow for a thorough
consideration of the issues.5139
(c) Evaluation by Panel
7.1693 Articles 5(a) and (c) and 6.3(a), (b) and (c) do not specify any particular time period for a
panel to consider in evaluating whether the subs idies in dispute cause adverse effects to the
complaining Member's interests, either in the form of injury to the domestic industry of the
complaining Member, or in the form of serious prejudice. Article 6.4 does indicate that, for purposes
of analysis of impedance or displacement of exports under Article 6.3(b), a panel should examine
changes in relative market shares "over an appropriately representative period sufficient to
demonstrate clear trends in the development of the market for the product concerned, which, in
normal circumstances, shall be at least one year." However, while this establishes a minimum period
of data to be considered in normal circumstances, it does not provide any guidance regarding either a
starting date, or an end date, of a relevant pe riod. Nor does it provide any guidance as to the
appropriate length of a relevant period, so long as a minimum of one year is generally respected in the
context of an analysis under Article 6.4.
7.1694 It is clear that the finding we are required to make is whether there are "present" adverse
effects caused by the subsidies in dispute, and the parties do not argue otherwise.
5140 Of course, it is
impossible to assess the "present" situ ation, as immediate data is not available, and thus a review of
the past is necessary to draw conclusions about pres ent adverse effects. The issue we must consider
here is what evidence we should take into account , what historical period we should refer to, in
drawing such conclusions. In our view, in the absence of any specific guidance on this issue, we

5135 EC, Answer to Panel Question 204, paras.279-280.
5136 Brazil, Answer to Panel question 16, para.36.
5137 Brazil, Answer to Panel question 16, para.36, citing Panel Report, US – Upland Cotton , para.
7.1198.
5138 Brazil, Answer to Panel question 16, para.36.
5139 Canada, Answer to Third Party Panel Questions, para. 17.
5140 In this regard, we note that the text of Article 5 indicates a focus on the present, providing "{n}o
member should cause … adverse effects". The text of Articles 6.3 (a), (b) and (c) are even more plainly drafted
with reference to the present, as each begins "the effect of the subsidy is …". (emphasis added).

BCI deleted, as indicated [***]

should avoid making an a priori choice of reference period. The legal arguments of the parties do not
establish that a panel is either precluded from, or required to, focus on either of the periods proposed
by them, in the sense of a limitation on the panel' s consideration of information in the abstract.
Rather, we consider that it is our responsibility, in making a determinati on consistent with our
obligations under Article 11 of the DSU, to examin e the evidence put forward by the United States,
and the rebuttal evidence put forward by the Eu ropean Communities, incl uding recent information
where relevant and reliable, in de termining whether the United States has demonstrated that subsidies
cause present adverse effects within the meaning of Article 5 of the SCM Agreement. While this
makes our task of assessment of the evidence more complicated, it serves to ensure that we carry out
an objective examination, as required by Article 11 of the DSU, of all the evidence in reaching our
conclusions.
7.1695 The European Communities argues that the refere nce period for our evaluation of the United
States' claims under Articles 6.3(a) and 6.3(b) must exclude data from 2001 to 2003 because the
events of 9/11 allegedly constitute force majeure within the meaning of Article 6.7(c). In our view,
the European Communities' reliance on this provisi on for the purpose of identifying an appropriate
reference period is misplaced. Article 6.7(c) provides:
"6.7 Displacement or impediment resulting in serious prejudice shall not arise
under paragraph 3 where any of th e following circumstances exist
18 during the
relevant period:

(c) natural disasters, strikes, transport disruptions or other force majeure
substantially affecting production, qua lities, quantities or prices of the product
available for export from the complaining Member; ...
Agreement. These circumstances must not be isolated, sporadic or otherwise
insignificant."
7.1696 Article 6.7(c) describes one particular circumstance, force majeure, which, if it exists "during
the relevant period", precludes a finding of displacement or impediment resulting in serious prejudice
under Article 6.3. Thus, Article 6.7(c) does not, by its own terms, concern the identification of the
relevant period to be considered in a serious prejud ice analysis. Indeed, its application is explicitly
limited to the situation where the particular circ umstance described occurs during the period relevant
for a serious prejudice analysis. This implies that the relevant reference period must be established
before consideration can be given to the applicability of Article 6.7(c). There is therefore no basis in
Article 6.7(c) to support the European Communities' contention that the relevant reference period
must be shortened by the three-year period during which the European Communities asserts that the
effects of the alleged force majeure event (i.e., 9/11) were felt.
7.1697 Moreover, we are not convinced by the Europ ean Communities' argument that the events of
9/11 constitute force majeure within the meaning of Article 6.7(c). Article 6.7(c) is one of six sub-
paragraphs of Article 6.7 that describe circumstance s which, if they exist during the relevant period,
have the consequence that displacement or impe dance resulting in serious prejudice under Article 6.3
"shall not arise". Thus, as we read it, Article 6.7 identifies six particular circumstances which affect

BCI deleted, as indicated [***]

the complaining Member in such a way as to make it unacceptable to attribute any market
displacement or market impedance taking place during the relevant period to the use of subsidies by
the defending Member. That is, the negotiators of the SCM Agreement agreed that, in the
circumstances identified in Article 6.7(a)-(f), a fi nding of serious prejudice based on displacement or
impedance should be legally precluded, without cons ideration of whether any such displacement or
impedance is the effect of the subsidies in dispute.
7.1698 What amounts to force majeure is not defined in Article 6.7(c). However, "natural disasters,
strikes {and} transport disruptions ... substantially affecting production, qualities, quantities or prices
of the product available for export from the comp laining Member" are iden tified as specific events
that constitute force majeure. Moreover, it is clear that "other force majeure" events may fall within
the scope of Article 6.7(c), provided they are also "substantially aff ecting production, qualities,
quantities or prices of the product available for export from the complaining Member". Footnote 18
also provides that any force majeure event must not be "isolated, sporadic or otherwise insignificant".
Thus, not all instances of what might, in a more general sense, be considered force majeure , will
result in Article 6.7(c) being applicable.
7.1699 In our view, the plain meaning of the text of Article 6.7(c) indicates that a finding of
displacement or impediment under Article 6.3 cannot be made where the market share effects alleged
to constitute such displacement or impe dance are the result of extraordinary (" force majeure") events
which affect the supplies of the product ava ilable for export from the complaining Member, in this
case the United States. In other words, as we read it, Article 6.7(c) contemplates force majeure events
that have a substantial effect on supply, thereby limiting the ability of the complaining Member to
export its product for reasons having nothing to do with subsidies. Thus, when a force majeure event,
unrelated to subsidization, substantially affect s production, qualities, quantities or prices of the
product available for export from the complaining Memb er, a decrease in that Member's market share
in an export market shall not constitute serious pr ejudice. The European Communities argues that the
events of 9/11 and the resulting downturn in dema nd for LCA products in the market had a greater
impact on Boeing's sales and prices, compared with Airbus. Even assuming this to be true, however,
this does not demonstrate that the events of 9/11 substantially affected the availability of United
States' LCA for export. According to the United States, Boeing's ability to produce, sell or export
LCA in the period following 9/11 was unaffected.
5141 Indeed, the European Communities does not
present any evidence or argument suggesting that the events of 9/11 affected Boeing's ability to make
LCA available for export. Thus, in our view, th e downturn in the LCA market that followed the
events of 9/11 did not substantially affect the supply of United States' LCA products, but rather
affected demand for LCA. Thus, we do not c onsider that the events of 9/11 qualify as force majeure
within the meaning of Article 6.7(c).
7.1700 However, even assuming that the types of force majeure contemplated under Article 6.7(c)
include shocks affecting demand for particular pr oducts, we would nevertheless conclude that the
events of 9/11 do not constitute force majeure within the meaning of that provision. In this regard, we
note that each of sub-paragraphs of Article 6.7 descr ibes a particular circumstance that in one way or
another limits the volume of exports or imports of the relevant product from the complaining
Member. It is significant, in our view, that each sub-paragraph identifies a circumstance that does not
also affect sales of the product of the defending Member in the same or similar way . Article 6.7(a)
refers to a "prohibition or restriction on exports of the like product from the complaining Member or
on imports from the complaining Member into the th ird country market"; Article 6.7(b) describes a
decision by an importing government monopoly or state trading entity, for non-commercial reasons,
"to shift ... imports from the complaining Member to another country or countries"; Article 6.7(d)
singles out the "existence of arrangements limiting exports from the complaining Member";
Article 6.7(e) focuses on a "voluntary decrease in the availability for export of the product concerned

5141 See, US, SWS, para. 660.

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from the complaining Member"; and Article 6.7(f) id entifies a "failure to conform to standards and
other regulatory requirements in the importing co untry". Thus, even assuming that demand-side
shocks could fall within the scope of Article 6.7(c), in order to qualify as force majeure, such events
would, like the other sub-paragraphs in Article 6. 7, have to concern limit ations on exports from the
complaining Member that do not also affect the product of the defending Member in the same or
similar way.
7.1701 In our view, to understand force majeure to include demand-side shocks that affect both the
complaining and the defending Member's products in the same or similar way would undermine the
purpose of Article 6.7, which as we have indicated above, is to identify a series of circumstances in
which Members have agreed that the use of subsid ies by a defending Member cannot be legally found
to be the cause of serious prejudice in the form of market displacement or market impedance that
may occur during the relevant reference period.
7.1702 Although the European Communities has s ubmitted evidence showing that Boeing was
affected more than Airbus by the events of 9/11,
5142 it has not argued that Airbus' LCA business was
not also negatively affected by the downturn fo llowing those events. Indeed, the European
Communities has explained that:
"Data from 2001-2003 is heavily distorted because of the effect of the events of 9/11.
LCA orders, deliveries, revenue, prices, a nd demand fell considerably as a result of
the short-term collapse of demand for air trav el, particularly into, within and from the
United States. A number of US carriers and European airlines went bankrupt and
cancelled LCA orders. Many other customers sought to delay the delivery of orders.
These developments left both Airbus and Bo eing with stocks of distressed aircraft,
i.e., aircraft under production, but for which the original customer would no longer
take delivery."5143
Furthermore, the European Communities has explicitl y recognized that "as demand for LCA is driven
by the demand from the airline industry, both Airbus and Boeing were directly affected by the severe
impact" of 9/11.5144

7.1703 Thus, the European Communities' own submissi ons do not pretend that Boeing was the only
company affected by 9/11 or that Airbus was not also affected by those events in much the same way,
albeit allegedly to a different degree. On the basis of the evidence before us, there is no doubt that the
events of 9/11 were a major shock to the LCA market in general, and that demand for LCA from
airlines in the United States was particularly hard hit. However, the effects of 9/11 were felt not only
by Boeing but, as the European Communities has itsel f explained, they were also felt by Airbus,
although allegedly to a lesser degree. Therefore, even assuming that the types of force majeure
contemplated under Article 6.7(c) include events af fecting market demand for particular products, the
events of 9/11 were not of a kind that did not also a ffect Airbus in the same or similar way as Boeing.
Consequently, even under this alternative view of the meaning of Article 6.7(c), we do not consider
that they constituted force majeure within the meaning of Article 6.7(c) of the SCM Agreement.
7.1704 The second, and more general, argument made by the European Communities in reliance on
the events of 9/11 concerns the relevance of data from 2001 to 2003 to a determination of whether or
not there are present adverse effects in the form of both injury and serious prejudice within the
meaning of Articles 5(a) and (c) and Article 6(c), as well as Articles 6(a) and (b). As we understand
its argument, the European Communities is of the vi ew that the Panel should either reject data from

5142 See, e.g., EC, FWS, paras. 1440-1467; EC, Answer to Panel Question 116.
5144 EC, Answer to Panel Question 204.

BCI deleted, as indicated [***]

this period as irrelevant to its analysis, 5145 or give that data very little probative value for the purpose
of demonstrating present adverse effects. However, there are a number of factors specific to the LCA
industry that lead us to consider that it is reasonable and appropriate, in an objective assessment of the
United States' adverse effects claims, to review da ta over a relatively longer period of time. In
particular, we note that there are long lead times for development of new LCA, and each model of
LCA has a relatively long life once put into service. 5146 Moreover, orders for LCA are placed for
future deliveries, sometimes over a period of many years, and sometimes starting well after the date of
the order. Taken together with the long periods during which the subsidies have allegedly been
supporting Airbus' development an d production of LCA, these factors suggest to us that the
consideration of data over a relatively longer histori cal period will better info rm our understanding of
the industry and market, and assist us in evaluating not only the allegations of adverse effects, but also
the question of causation, than would be the case if we were to exclude information from a relatively
recent, in the context of this industry, past.
7.1705 The European Communities insists that that we must assess whether subsidies "presently
cause adverse effects, taking into account current factual conditions".
5147 We do not disagree.
However, we see no contradiction between this propo sition and a consideration of information over a
longer historical reference period, particularly in this industry. 5148 Thus, we see no reason to exclude
data from the years 2001 to 2003 a priori from our consideration. 5149 Of course, we will evaluate
information concerning the more distant past carefully in assessing the relationship between the
effects of subsidies as reflected in older data and the findings of present adverse effects the United
States asks us to make in this dispute.
7.1706 The European Communities argues that shorter time periods are to be preferred in assessing
the impact of subsidies, relying in part on statemen ts by panels and the Appella te Body to that effect
in disputes involving trade remedies (safeguards and anti-dumping measures). 5150 We consider that
the European Communities has exaggerated the import of those reports for our analysis in this case.
In particular, we consider that the differences between trade remedy disputes, and this dispute
involving adverse effects of subsidies, supports the conclusion that there is, as a legal matter, no
preference for a shorter period of time for examini ng adverse effects, whatever the case may be in
trade remedy disputes.

5145 The European Communities does not argue, in this context, that the Panel is precluded, as a matter
of law, from considering information from 2001-2003, or any other period. EC, Answer to Panel question 204,
para. 280.
5146 Production of Airbus' first LCA model, the A300, launched in 1969 and first delivered to a
customer in 1974 continued until March 2007. Production of the A310, launched in 1978 and first delivered to a
customer in 1985, also continued until March 2007. A ll other LCA models Airbus has brought to market are
currently in production, and Airbus LCA of all models remain in service world-wide.
5147 EC, Comments on US – Upland Cotton (Article 21.5 – Brazil), para. 24.
5148 In this regard, we note the fundamental differe nce between the nature of the subsidies and the
product in this dispute, and those in US – Upland Cotton . Allegations concerning the effects of largely one-off
subsidies allegedly enabling the development of LCA, a product with a long life-span, as well as other subsidies
benefitting the development and production of LCA ov er many years and allegations concerning annual
production and income support subsidies to cotton farmers producing an annual crop, thus reflecting a more
limited time frame, may well result in different time peri ods being relevant to the assessment of adverse effects
under the SCM Agreement. We see nothing in the findings of the panels and Appellate Body in US – Upland
Cotton which would limit our ability to consider information that is relevant to this dispute, simply because
information from a corresponding time period might not have been relevant in that dispute.
5149 We note that we have before us information and arguments relating to the period prior to 2001 as
well, both with respect to the subsidies in dispute, and w ith respect to their effects. Our conclusions concerning
the relevant reference period relate equally to such info rmation, which we have taken into consideration in our
analysis as relevant.
5150 EC, FWS, paras. 1499-1501.

BCI deleted, as indicated [***]

7.1707 In trade remedy disputes, a panel is reviewing the decision of a national authority imposing,
on a unilateral basis, a limitation on imports or an increase in tariff rates contingent upon a finding
that a particular situation exists. In the case of safeguards, the necessary underlying determination is
whether a "product is being imported ... in such increased quantities ... as to cause or threaten to
cause serious injury to the domestic industry."
5151 The focus of the Appellate Body on the importance
of the recent past is related to the timing of the increase in imports, which it has found must be recent,
in order to sustain imposition of the safeguard measure. 5152 It is clear that if the triggering event is a
recent increase in imports, then the injury must also be recent, and th erefore, the analysis has focused
on the recent past. However, this does not imply a necessary limitation on the time period for which
information is gathered or analyzed by the investigating authority, which is undefined.5153
7.1708 In anti-dumping cases, the necessary underlying determinations are that imports are dumped,
and that "dumped imports are ... causing material injury" to the domestic industry. 5154 Similarly, in
countervailing duty cases, the necessary underlying dete rminations are that imports are subsidized,
and that "subsidized imports ... causing mate rial injury" to the domestic industry. 5155 The Appellate
Body pointed out in Mexico – Anti-Dumping Measures on Rice , that "because the conditions to
impose an anti-dumping duty are to be assessed with respect to the current situation, the determination
of whether injury exists should be based on data th at provide indications of the situation prevailing
when the investigation takes place." 5156 However, the Appellate Body went on to note that this did
not mean that a past period was not to be examined. 5157 There is nothing in the Appellate Body's
views, that imposes any limit on the length of the relevant period. Moreover, the Appellate Body
made it clear that relying on evidence from a "remote investigation period" was not per se a violation
of Article 3.1 of the AD Agreement.
7.1709 In trade remedy cases, investigating authoriti es routinely analyze information for a pre-
determined period of investigation, and may not consider, or even accept information for any time
after the end of that period. Indeed, for many inv estigating authorities, the period of investigation is
defined in governing statute or regulation, whic h may prohibit the consideration of information
outside that period.5158 Thus, the determination ultimately made at the end of the investigation may be
based on data that is quite old. In the disputes relied upon by the European Communities to argue that
we must focus on the most recent data, complainants argued to the panels and the Appellate Body that
the information on which the determin ations were based was stale, a nd therefore could not be relied

5151 Agreement on Safeguards, Article 2.1 (emphasis added).
5152 See, Appellate Body Report, Argentina – Footwear (EC), paras. 130-131. See, also, Panel Report,
US – Lamb, paras. 7.129 and 7.132, and Appellate Body Report, US – Lamb, paras. 137 – 138, (importance of
recent data in context of analysis of threat)..
5153 In US – Lamb , the Appellate Body noted that, in analysing threat, "although data from the most
recent past has special importance, co mpetent authorities should not consider such data in isolation from the
data pertaining to the entire period of investigation. ... If the most recent data is evaluated in isolation, the
resulting picture of the domestic industry may be quite misleading." Appellate Body Report, US – Lamb ,
para. 138. The Appellate Body did not suggest any limitation on the relevant period of investigation.
5154 AD Agreement, Article 3.5.
5155 SCM Agreement, Article 15.5.
5156 Appellate Body Report, Mexico – Anti-Dumping Measures on Rice, para. 165.
5157 Appellate Body Report, Mexico – Anti-Dumping Measures on Rice, para. 166.
5158 The Committee on Anti-Dumping Practices has adopted a recommendation on periods of data
collection, which while not binding on Members, indicat es agreement about practices in the conduct of anti-
dumping investigations that Members believe are cons istent with the requirements of the Anti-Dumping
Agreement. Document G/ADP/6, 16 May 2000. That recommendation provides that the "period of data
collection for injury investigations normally should be at least three years", but recognizes that "such guidelines
do not preclude investigating author ities from taking account of the par ticular circumstances of a given
investigation in setting the periods of data collection for both dumping and injury, to ensure that they are
appropriate in each case." Similarly, we consider that the particular circ umstances of this dispute should be
taken into account in order to ensure that data for an appropriate period is examined in our analysis.

BCI deleted, as indicated [***]

upon to support the findings made, and panels and th e Appellate Body have agreed. Indeed, both the
panel and Appellate Body in Mexico – Anti-Dumping Measures on Rice questioned the relevance and
pertinence of evidence from a period ending fifteen m onths before the initiation of the investigation
and almost three years before the imposition of an ti-dumping duties to the finding of material injury,
and indicated that more recent data is likel y to provide better indications about injury. 5159 Thus, this
case stands for the proposition that when a determinati on is made with reference to information for a
particular period of investigation, if the end of th at period is too remote in time, the information may
be insufficient to establish, as a matter of fact, the conditions necessary for imposition of the remedy
at the time of the decision. 5160 The cases do not, however, esta blish any principles regarding the
appropriate length of the period, or how far back its starting point may be.
7.1710 Moreover, unlike the cases relied upon by the Eur opean Communities, in this dispute, the
information before us is not "stale". In this re gard, we note that although this Panel was established
in July 2005, we agreed, at the parties' request, to set aside our timetable until September 2006, with
the result that the United States' first submission was not filed until November 2006, and our meetings
with parties and third parties were held in March and July 2007. We continued to receive answers to
questions, including further information we requested from the parties in January 2008, and further
comments as late as July 2008.5161 Thus, we have before us information as recent as could feasibly be
considered, consistent with consid erations of due process. Particularly in a dispute involving an
industry with long development and production time-frames such as the LCA industry, we see no
reason to limit the length of time over which we will consider information to only the most recent
period.

5159 Panel Report, Mexico – Definitive Anti-Dumping Measures on Beef and Rice, Complaint with
Respect to Rice ("Mexico – An ti-Dumping Measures on Rice") , WT/DS295/R, adopted 20 December 2005, as
modified by Appellate Body Report WT/DS295/AB/R, DSR 2005:XXIII, 11007, para. 7.58; Appellate Body
Report, para. 166.
5160 How far in the past is too remote in time is a qu estion to be assessed in each case on the particular
facts. In Mexico – Steel Pipes and Tubes , a determination based on data from an investigation period that
terminated about eight months prior to the initiation and about two years prior to the imposition of the definitive
measures was found not inconsistent with the AD Agreement. Panel Report, Mexico – Anti-Dumping Duties on
Steel Pipes and Tubes from Guatemala ("Mexico – Steel Pipes and Tubes"), WT/DS331/R, adopted 24 July 2007,
para. 7.240. The Panel in the latter case distinguished its decision from the decision in Mexico – Anti-Dumping
Measures on Rice . The Appellate Body stressed that the conclusion of the Panel in Mexico – Anti-Dumping
Measures on Rice related to the specific circumst ances of the case, such that a prima facie case was established
that the information did not, in fact, provide reliable indications of current injury. Appellate Body Report,
Mexico – Anti-Dumping Measures on Rice , para. 167. Among those circum stances were the fact that the
investigation period had been proposed by the petitioner seeking the imposition of anti-dumping duties, there
were no practical problems necessitating that period be considered, no attempt was made to update the
information during the course of the investigation, it was not established that updating the information was not
possible, and there were no reasons, other than general practice of the investigative authority, why more recent
information was not sought. Appellate Body Report, Mexico – Anti-Dumping Measures on Rice , para. 167.
Thus, the Appellate Body concluded, "it is not only the remoteness of the period of investigation, but also these
other circumstances" that were the basis for the Panel's conclusion that Mexico's selection of the period of
investigation was in violation of its obligations under the AD Agreement. Appellate Body Report, Mexico –
Anti-Dumping Measures on Rice, para. 167.
5161 Following the issuance of the Appellate Body report in US – Upland Cotton (Article 21.5 – Brazil),
the Panel afforded both parties an opportunity to submit "comments, if any, on the Appellate Body Report in US
- Upland Cotton (Article 21.5 – Brazil) circulated to the WTO Members on 2 June 2008, and the Panel Report
as modified by the Appellate Body Report" noting that it was "interested in the comments of the parties to the
extent that the parties deem the Appellate Body Report and the Panel Report as modified by the Appellate Body
Report to be pertinent to the present dispute" The Panel further afforded both parties an opportunity to submit
comments on each other's comments. In these later submissions, the European Communities continued to
submit information relating to even later periods than that which we had requested.

BCI deleted, as indicated [***]

7.1711 In a dispute alleging adverse effects, a panel is called upon to decide, for itself, whether a
Member is causing, through the use of subsidies, ad verse effects to the interests of another Member.
As the Appellate Body recognized in US – Upland Cotton , there may well be a time lag between the
payment of a subsidy and the consequential adverse effects.
5162 Particularly where, as here, the
subsidies in dispute have been granted over a long period of time, and the industry and market operate
on long time-frames, there seems to us no reason to c onclude that consideration of evidence covering
a shorter time period would be preferable to c onsideration of evidence covering a longer period.
Indeed, we note that in both US – Upland Cotton and Korea – Commercial Vessels ,5163 parties
submitted, and the panels considered , data covering longer periods of time, from six to ten years, in
their analysis, without expressing a particular justification.
7.1712 We find rather curious the notion that we s hould exclude certain information submitted by a
party from our consideration, because it relates to a period more remote in time than other information
that has also been submitted. In our view, we mi ght well be viewed as failing to fulfil our obligation
to undertake an objective examination of the eviden ce, were we to decline to consider information
which is, on its face, relevant to the issues that are before us. 5164 Thus, we believe that it is more
appropriate to consider all the information that h as been put before us, and assess it in light of the
arguments of the parties, than to make a priori judgments as to a defined and limited reference period,
beyond which we will not look.
7.1713 This is not to suggest that we would make a finding that adverse effects manifested at some
time in the past are sufficient to support a finding of violation of Article 5. 5165 In our view, it is
appropriate to take into account the most recent av ailable, relevant and reliable data that we could
evaluate in a manner consistent with the require ments of due process, and in light of practical
limitations, including in this case data from 2006. 5166 However, we agree with the United States that
the question before us is not whether serious prejudi ce in terms of displacement, impedance, or price
effects, or injury to Boeing, h as lessened since 2005, but whether, whatever changes there may have
been in the most recent period, th e subsidies in dispute cause present a dverse effects. In this regard,
we note that an improvement in the situation in the most recent period does not preclude a finding of
present adverse effects. To the contrary, should we conclude that the present situation is worse than it
would have been in the absence of the subsidies, and by a sufficient degree, we may find present
adverse effects despite improvements in the most recent period.
7.1714 Finally, as implied by the discussion above, we reject the United States' view that we are
required to make our determinati on concerning adverse effects "as of" the date of establishment of
this panel in July 2005. While the exigencies of collecting, submitting, and analysing relevant
information necessarily means that any decision will be based on a past period, we are nonetheless
charged with making a determination of present adverse effects, and therefore consider that it
behoves us to take into account the most recent in formation available to us, consistent with due
process, that is relevant and reliable. Moreover, in both the original and implementation disputes in
US-Upland Cotton , the panel took into account information from a period beyond the date of its

5162 Appellate Body Report, US – Upland Cotton, para. 273.
5163 Panel Report, Korea – Commercial Vessels.
5164 The probative value and weight to be accorded such evidence is, of cour se, to be considered
through the course of our analysis.
5165 We recall that the Panel in US – Upland Cotton observed that "{s}ubsidies granted under expired
measures may have had adverse effects at the time they were in effect, and may still have lasting adverse
effects." Panel Report, US – Upland Cotton para 7.1201, citing, Panel Report, Indonesia – Autos, para. 14.206.
Certainly, in our view, subsidies granted with respect to products still being manufactured and sold may be
found to still be having adverse effects, despite the fact that the subsidies causing these effects were granted at
some time in the past.
5166 While we have not excluded information relating to periods subsequent to 2006, we will not rely on
it specifically in making our findings of fact in the context of adverse effects.

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establishment, at least in part based on arguments made by the United States. The United States
argues that the "ordinary rules of WTO dispute settle ment" indicate that a panel's terms of reference
are fixed as of the time of panel establishment, and thus that we should make our ruling as of that
date.5167 The United States suggests that the willingness of the panel to take into account information
from a period beyond the date of its establishment in US – Upland Cotton (Article 21.5 – Brazil) does
not suggest any different understanding of its terms of reference, and that there is a difference
between whether evidence is relevant and may be ta ken into account and whether a panel is to make
findings with respect to events that happened after its establishment.5168
7.1715 We consider the distinction the United States dr aws in this regard to be inaccurate. The
United States acknowledges that market data regardi ng a period after establishment may be taken into
account in making our determination. 5169 In our view, if evidence about a period after the
establishment of the Panel is relevant and may be ta ken into account in our analysis, then our findings
based on that analysis cannot logically be understood as being made "as of" the date of establishment.
6. Conditions of Competition
7.1716 Before proceeding to consider the parties' argu ments concerning adverse effects, we consider
it important to set out our understanding of the basi c structure of the LCA industry overall, and the
conditions and nature of competition in the market for LCA, in order to establish the background and
context for our analysis of whether the subsidies we have found to exist cause, or threaten to cause,
adverse effects within the meaning of Articles 5(a) and (c) of the SCM Agreement.
7.1717 The design, testing, certification, production, marketing and after-delivery support of LCA is
an enormously complex and expensive undertaking, which requires huge up-front investments over a
period of three to five years before any revenues are obtained from customers. 5170 A rough rule of
thumb is that at least 600 airplanes of a new model must be sold before the revenues for a programme
exceed the costs. Economies of scale arising from the huge sunk development cost give incumbent
firms a considerable competitive advantage. Learning effects induce dynamic economies of scale
which reinforce incumbents' advantage. Economies of scope make it difficult to enter one market
segment only. Switching costs make it more difficult for new producers to enter, and most airlines
prefer fleet commonality. Incumbent firms have a strong incentive to adopt entry deterring price
strategies. Historically, according to one commentat or, few airplane programmes have been financial
successes.
5171 Uncertainty is considerable, making it ve ry difficult to finance the huge development
cost on capital markets. Finally, the fact that aircraft are typically sold in USD exposes non-American
manufacturers to exchange rate fluctuations wh ich increase uncertainty and are costly to cover
against.5172
7.1718 Boeing and Airbus are at present the world's only LCA producers. Two other US producers,
Lockheed and McDonnell Douglas, exited the LCA market in 1981 and 1997, respectively. 5173

5167 US, Comments on EC, Comments on Appellate Body and Panel Reports in US – Upland Cotton
(Article 21.5 – Brazil), paras. 3-9.
5168 US, Comments on EC, Comments on Appellate Body and Panel Reports in – Upland Cotton
(Article 21.5 – Brazil), para. 9.
5169 US, Comments on EC, Comments on Appellate Body and Panel Reports in – Upland Cotton
(Article 21.5 – Brazil), para. 6.
5170 Boeder & Dorman, Exhibit US-373, at 132-33.
5171 Gernot Klepper, Entry Into the Market fo r Large Transport Aircraft , 34 European Economic
Review 775 (1990) (hereinafter "Klepper"), Exhibit US-377; Boeder & Dorman, Exhibit US-373.
5172 Klepper, Exhibit US-377.
5173 Boeder & Dorman, 132-33, Exhibit US-373. Ve ry limited LCA production exists in Russia.
According to the United States, difficu lties in obtaining the necessary funding for the development of LCA that
can meet international airworthiness certification standards have prevented Russian LCA producers from

BCI deleted, as indicated [***]

Boeing is a long-established manufacturer of LCA, wh ile Airbus launched its first model, the A300,
in 1969, and first entered it into service in 1974.
5174 Both Airbus and Boeing now produce a full range
of different models of LCA and sell to the full ra nge of customers, primarily airlines and aircraft
leasing companies.5175 In this competitive duopoly, the United States argues that the two producers
compete head-to-head for virtually all LCA sales, in a largely "zero sum" competition – a "win" for
one producer, in terms of sales, is almost always a loss for the other. 5176 The European Communities
agrees that the competitive duopoly between Airbus and Boeing has resulted in vigorous competition
between the two companies, but asserts that this competition is welcomed by both companies, as well
as by purchasers of aircraft, 5177 and has generated numerous new and innovative LCA products. 5178
The European Communities argues that the compe tition between the two companies fosters lower
prices for LCA purchasers and increased demand for ai r travel by the flying public which is the
ultimate driver of the financial health of both Boeing and Airbus. 5179 According to the United States,
however, lower prices for LCA do not significantly increase demand, 5180 because demand for LCA is
generally derived from demand for air travel services, a nd the cost of the aircraft itself is only a small
portion of total airline operating costs.5181

seriously competing with Boeing and Airbus for LCA sales outside the former Soviet bloc. See, US
International Trade Commission, The Changing Structure of the Global Large Civil Aircraft Industry and
Market, Inv. No, 332-384 (November 1998) at Ch. 4, Exhibit US-374; EC Merger Analysis , Exhibit US-375.
The European Communities does not consider the evolution of the current competitive situation relevant, but
asserts that the United States has made false statements of fact regarding the market exits of McDonnell Douglas
and Lockheed. According to the European Communities, Lockheed left the LCA business because of a
combination of misjudgements in aircraft design and cost overruns in its military aircraft development
operations, while McDonnell Douglas ceas ed operating because of an unwillingn ess to invest in the future, an
over-reliance on derivative rather than new models of LCA, and a series of crashes. McDonnell Douglas' LCA
operations merged with Boeing in 1997. EC, FWS, paras. 1386-88.
5174 EADS offering memorandum (2000), Exhibit EC-24, pp. 68-70; EADS offering memorandum
(2001) Exhibit EC-25, pp. 41-42.
5175 Aircraft leasing companies essentially are an intermediary between LCA manufacturers and airlines
– they purchase LCA, but do not operate them, leasing them to airlines, which thus do not have to themselves
finance the purchase of the LCA. See, Statement of Christian Scherer, Exhibit EC-14 (BCI) at 30-36.
5176 US, FWS, para. 711.
5177 EC, FWS, paras. 1376, 1378, 2272.
5178 Indeed, the European Communities contends that Boeing acknowledges that it needs a strong
Airbus competitor, citing remarks by Randy Baseler, Bo eing's marketing chief. EC, FWS, para. 1380, citing
Boeing, " Randy's Journal: Staying focused ," 6 October 2006,
http://www.boeing.com/randy/archives/2006/10/staying_focused.html (visited 30 January 2007), Exhibit EC-
277.
5179 Paul Wachtel, " Critique of 'The Effect of Launch Aid on The Economics of Commercial Airplane
Programs' by Dr. Gary J. Dorman ," 31 January 2007 (hereinafter "Wachtel Report"), Exhibit EC-12, para. 9.
Dr. Wachtel is a professor of economic s at New York University's Stern Sc hool of Business. His educational
credentials include a BA, cum laude, Queens College, CUNY, and an MA and PhD in Economics from the
University of Rochester.
5180 According to the US, "{i}ndustry analysts recogn ize that lower prices for LCA do not significantly
increase LCA demand – or, in economic terms, "the price elasticity of demand for aircraft in general will most
likely be rather small.", citing Klepper, Exhibit US-377; see also, Dorman Report, Exhibit US-70 (BCI), p. 8.
This is because demand for LCA is generally derived from demand for air travel services, and the cost of the
aircraft itself is only a small portion of total airline operating costs. E.g., Klepper, Exhibit US-377, at 785-86.
The European Communities disputes the US view that "lower prices for LCA do not significantly increase LCA
demand," asserting that the evidence regarding individual sales campaigns demonstrate otherwise. Thus, the
European Communities asserts that not every order received by one company harms the other, but a lack of
balance in market share creates an unhealthy competitive environment. EC, FWS, para. 1400.
5181 Gernot Klepper, Entry into the Market for Large Transport Aircraft, 34 European Econ. Rev., 775,
786 (1990), Exhibit US-377; see also, Dorman Report at 8, Exhibit US-70.

BCI deleted, as indicated [***]

7.1719 As noted, customers for LCA are primarily airlines and aircraft leasing companies. Sales of
LCA tend to be very large, in terms of numbers of aircraft and dollar amounts, 5182 but relatively
infrequent. While orders tend to be very large and sporadic, deliveri es of ordered LCA tend to be of
individual aircraft, spaced over a period of several years subsequent to the order date, depending on
the purchaser's anticipated needs and financing. 5183 In general, the terms a nd conditions of an aircraft
purchase are set at the time of order, including airc raft specifications, net price, discounts, non-price
concessions and financing arrangements. While the bulk of the purchase price is generally paid upon
delivery, deposits are generally required at the time the order is placed, and pre-delivery
payments may begin as early as the conclusion of the sales contract. 5184 However, most sales
contracts include provisions for price escalation in lin e with inflation, and in addition, orders may be
cancelled, deliveries pushed out over longer periods of time, and sales terms renegotiated.5185
7.1720 Customers choose among the various LCA models available those they deem most suitable
for their needs at the time of ordering. In ma king their purchase decisions, customers will consider
such matters as the route structure to be served by the aircraft, the structure of the existing fleet, and
operating costs, with a view to minimizing costs and maximizing revenues. Some airlines purchase a
mix of LCA models to serve a variety of needs, while others may limit themselves to one LCA model
because of the efficiencies generated by the operation of a single aircra ft type. Once an airline orders
any particular LCA model from a given manufacturer , efficiencies in operating a fleet of similar
aircraft (including those related to spare parts, ma intenance and training) favour follow-on orders of
the same models, as well as orders of other aircraft models from the same manufacturer, in order to
take advantage of commonalities across an LCA fleet. 5186 Leasing companies both purchase new
LCA on a speculative basis for subsequent lease to airline customers, and act as intermediaries
between airlines and manufacturers offering LCA financing or operating leases. 5187 Leasing
companies account for a significant percentage of all orders for LCA, approximately 17 percent
between 2000 and 2006, and accounted for approximately 25 percent of deliveries in that period.5188
7.1721 Contrary to the United States' view that Airbus and Boeing compete head-to-head for virtually
every LCA sale, the European Communities asserts th at a significant number of orders secured by
Airbus and Boeing do not involve competition between the two manufacturers. Rather, the European
Communities asserts, customers often decide to order a certain aircraft model without considering the
competitor's equivalent product, because they pref er, for one reason or another, one manufacturer's
aircraft. In addition, the European Communities not es that an LCA manufacturer may decide that it
does not want to be involved in a certain sales campaign, or cannot compete for lack of having a
product that can fulfil the customer's requirements, citing as an example a customer needing a 555-
seat aircraft, which need is only met by the Airbus A380. The European Communities also contends
that LCA are sometimes ordered as a result of geopo litical considerations, especially when an airline
is state-owned. An airline may also choose to exercise options or purchase rights without initiating a

5182 As noted above, LCA are priced and sold in US dollars.
5183 EC Merger Analysis, Exhibit US-375, para. 25.
5184 Statement of Rod P. Muddle, Exhibit EC-19, paras. 58-60.
5185 US, Answer to Panel Question 132, para. 430.
5186 US, FWS, para. 712. For exam ple, the United States notes that AirAsia purchased 40 Airbus
A320s and took options on 40 mo re in December 2004 after a vigorou s competition between Boeing and
Airbus. Air Asia's subsequent orders – an additional 20 A320s in 2005, followed by a firm order for 40 more
A320s in July 2006 (plus 30 additional options) – allegedly flowed directly from the choice the airline made in
the 2004 campaign, rather than from a new compe tition between the producers. AirAsia Press Release: AirAsia
Firms Up Option for 40 More Airbus A320s and Signs Another 30 Options (July 20, 2006), Exhibit US-378.
The European Communities also recognizes this tendency to follow a purchase from one manufacturer with
further purchases of that manufacturer's LCA. EC, FWS, para. 1421.
5187 Statement of Rod P. Muddle, Exhibit EC-19, paras. 18-26.
5188 Statement of Rod P. Muddle, Exhibit EC-19, para. 20.

BCI deleted, as indicated [***]

bidding process.
5189 On the other hand, customers may decide to diversify, and follow-on orders can
also be the subject of fierce competition. 5190 Moreover, life-time engine maintenance contracts have
enabled airlines to operate more diversified fleets.5191
7.1722 In asserting that a significant number of orders do not involve competition between Boeing
and Airbus, the European Communities relies on the statement of Mr. Christian Scherer, Head of
Future Programmes for Airbus. Mr. Scherer states that in Airbus' view, an order results from a
"competitive" sales campaign if Airbus has made a "formal binding offer to sell LCA under particular
terms and conditions." 5192 Mr. Scherer defines a "competitive {sales} campaign" as one in which
Airbus provided the airline with such a formal binding proposal. Thus, in the absence of such a
proposal, he considers that the campaign was non- competitive. He also concludes, based on
documents and the collective memory of Airbus pe rsonnel, that where Boeing was not "involved, in
one way or another", an order for Airbus LCA was the result of a non-competitive campaign, and that
all orders [***].5193 We consider this definition to be t oo narrow, in the circumstances of this
industry, to reliably define whether or not ther e was competition between Boeing and Airbus with
respect to any given sale. With only two pr oducers in a highly competitive industry, and
knowledgeable customers in both airlines and leasing companies, we consider that sales campaigns
involve competition even in the absence of a "formal, binding proposal" by either manufacturer, albeit
perhaps not to the same degree as when such a pr oposal is made. Given the importance of LCA costs
to the customers' successful operations, we cannot accept the implication that customers
knowledgeable about the market would not consider the competitive products available from the two
producers in most cases, even if formal offers are neither requested nor made in a particular instance.
7.1723 The European Communities maintain s that the best measure by which to assess the current
competitive relationship between Airbus and Boeing is order data; while the United States takes the
view that actual deliveries are the best measure of ma rket share. There is generally about three years
between order and delivery of airc raft, and the European Communities asserts that order data thus
provide the best measure of the current competitive relationship, as well as the future health of both
Airbus and Boeing. For the European Communities, delivery and order backlog data indicate what
was sold in the past and what is and will be manu factured in the future, but they provide limited
insight into the present competitive relationship between Airbus and Boeing. 5194 The European
Communities rejects the view that an order won by one producer represents an order lost by the other.
In this respect, the European Communities notes that customers can either order new LCA from either
producer, purchase used LCA, or lease LCA. The European Communities argues that in a significant
number of sales campaigns, competition is with a po tential purchase of used LCA or a lease, rather
than with the other manufacturer. For the European Communities, to the extent that Boeing is not
involved in these sales, an Airbus "win" cannot be considered a "loss" to Boeing.5195

5189 See, Statement of Christian Scherer, Exhibit EC-14, (BCI).
5190 EC, FWS, para. 1421.
5191 See, Statement of Rod P. Muddle, para. 33, Exhibit EC-19.
5192 Statement of Christian Scherer, Exhibit EC-14 (BCI), para. 45.
5193 Id. at Annex I, paras. 54-56.
5194 The European Communities cites statements by Airbus and Boeing officials, as well as financial
and aerospace analysts to support th e view that order market share is the more appropriate benchmark for
evaluating the present. Statement of Christian Scherer, paras. 24, 26, Exhibit EC-14, (BCI), Randy's Journal:
Looking ahead, 23 January 2007, Exhibit EC-286) (Non-BCI), Boeing Management and Aftermarket Suppliers
are Topics in Wall Street Trans cript Aerospace/Defence Report, Yahoo finance, 6 April 2005, Exhibit EC-287,
"Boeing Shares Could Reach $140 By 2009 " Forbes.com, 12 April 2006
http://www.forbes.com/markets/2006/04/12/boeing-0412markets11.html (visited 4 January 2007), Exhibit EC-
247
5195 The European Communities asserts that approximately [***] of the A320 family orders, [***] of
A330 family orders and [***] of A340 family orders resulted from competitive campaigns, while approximately

BCI deleted, as indicated [***]

7.1724 While it may well be that there is not clear head-to-head competition for each and every sale
of LCA, it is apparent to us that, with only two manufacturers in the market, there is overall
competition between Boeing and Airbus for all sales of LCA. It is also clear that competition for
sales is, in effect, competition for orders, as LCA are generally ordered for future delivery. 5196 Thus,
data concerning orders is informative as to the competition for sales between Airbus and Boeing.
However, data for deliveries is also important, as there are many factors that can intervene between
order and actual delivery. Changes in the terms and conditions of sales be tween order and delivery
will affect the manufacturer involved and the situati on in the market in ways which may be important
to consideration of the question of adverse effects. 5197 Moreover, deliveries provide a picture of the
number of LCA actually entering a given geographical market at a given time. Thus, an exclusive
focus on either deliveries or orders would not a llow for a complete understanding of the market and
changes relevant to our analysis in this dispute.
7.1725 When choosing aircraft, airlines evaluate the economics of the competing aircraft from both
Airbus and Boeing, and the impact those factors w ill have on the revenues that the aircraft can be
expected to generate over its econo mic life of approximately 30 years. 5198 In doing so, customers
quantify and weigh numerous factors, including price, net of concessions such as cash discounts,
scheduled pre-delivery payments, provisions for price escalation, 5199 and guarantees related to
performance, maintenance, or residual value; 5200 financing, including consideration of elements such
as direct financing support by the manufacturer; da te of delivery; engine manufacturers; the make-up
of existing LCA in the purchaser's fleet and cost of change and cost of diversifying, 5201 and direct
operating costs, such as fuel efficiency. 5202 Each customer has different cost-related concerns, and so
different aspects may be valued differently by different customers or at different times. 5203 Each of

[***] of 737NG orders, [***] of 767 orders, [***] of 777 orders, [***] of 787 orders and [***] of 747 orders
resulted from competitive campaigns. Statement of Chris tian Scherer, Exhibit EC-14 (BCI), paras. 54-56 and
Annexes I and II. We do not agree with this categorization of "competitive" vs. "non-competitive" campaigns.
See, para. 7.1722 above.
5196 The parties agree that LCA manufacturers rarely have inventories of LCA. US, FWS, para. 746,
footnote 934; EC, FWS, para. 2245. See, also, EC, FWS, footnote 2216.
5197 As discussed further below, we have considered information concerning both deliveries and orders,
albeit the two categories of information are not equally relevant to all aspects of our analysis. See, paras. 7.1745
- 7.1750.
5198 Airbus North America Holdings Inc., Key Determinants of Competitiveness in the Global Large
Civil Aircraft Market: An Airbus Assessment (Mar ch 2005) at 17-18 ("Airbus, Key Determinants"),
Exhibit US-379 (BCI).
5199 Because LCA are often delivered years after the or iginal order, both Airbus and Boeing generally
apply a standard "price escala tion" formula that adjusts the order price (in order year dollars) for inflation in
aircraft manufacturing costs to determine the price payable for the aircraft on delivery (in delivery year dollars).
5200 Residual value refers to the value of the aircraft upon resale by the original customer. For example
as part of its sale of 120 aircraft to easyJet in 2002, Airbus guaranteed the residual value of Boeing aircraft
owned by easyJet by offering to purchase the Boeing aircraft itself, if necessary, at a predetermined minimum
price. Airbus also guaranteed that the cost of mainte nance would not exceed easyJet's cost of maintaining its
existing Boeing aircraft. EasyJet, Proposed Purchase of Airbus Aircraft and Notice of Extraordinary General
Meeting at 8-9 (25 February 2003), Exhibit US-380.
5201 Statement of Rod P. Muddle, Exhibit EC-19.
5202 Operating costs can be impacted by price concessions. For example, according to the
United States, when Airbus determined that its four-e ngine A340 was losing sales to Boeing's more fuel-
efficient two-engine 777 during recent periods of high jet fuel prices, Airbus announced that the additional fuel
burn penalty could be "traded off" by financial compensation to A340 operators. Andrea Crisp, Squaring Up,
Airline Business (1 April 2006), Exhibit US-381.
5203 The European Communities asserts that subjective factors can also be important in an airline's
evaluation and final purchase decision, including the value of product features such as cabin width and
aesthetics; the long-term viability of a supplier and product; long-term risks of new technology and materials;
risks associated with a single engine choice; and operational risks of two-engined versus four-engined aircraft.

BCI deleted, as indicated [***]

the technical, physical and economic characteristics of aircraft under consideration is translated by
customers into a revenue or cost element that is included in their assessment of an offer and its net
present value. Despite the complexity of the fact ors involved in a sales campaign, LCA customers, as
well as LCA manufacturers, are generally able to account for these factors in assessing the economic
value of a sales proposal.
5204 Thus, competition between Boeing and Airbus is driven by the
performance characteristics of the aircraft that th e two manufacturers have developed and the price
(net of all concessions) and sales terms at which th ey offer their respective LCA. Since both Airbus
and Boeing offer a range of competing LCA models suited for various customer needs, price is a
significant factor in a customer's purchase dete rmination, but not necessarily determinative. 5205 That
this competition may not be manifest in offers from each producer for each potential order does not,
in our view, detract from the basic fact of intense competition between Airbus and Boeing for sales of
LCA world-wide.
5206
7.1726 The long-term viability of an LCA producer de pends on continued inno vation and periodic
launches of new aircraft as technological advances and market conditions allow. 5207 Thus, there is a
need for both Boeing and Airbus to secure a continuous stream of orders and deliveries to be able to
generate the necessary economies of scale and learning curve cost reductions to remain competitive in
the long term. In additio n, orders are crucial for a newly laun ched LCA model to be successful, due
to the substantial economies of scale in production as well as the steep learning curve cost reductions
generated thereby. 5208 The European Communities asserts that both Airbus and Boeing have an
incentive to secure high-volume orders, which it contends means that both will offer lower prices to
generate new sales and orders, as well as volume discounts in strategic campaigns to capture volume
sales that enable the manufacturer to recover s unk development costs. The launch of a new model
with improved performance characteristics can give an LCA manufacturer a competitive advantage,
but requires enormous up-front designing, engineering, and testing costs over a period of years before
a single aircraft can be delivered to a customer. 5209 As noted, common estimates are that many
hundreds of aircraft must be sold in order for the manufacturer to recoup these costs.
7.1727 Thus, decisions with respect to product launc hes drive subsequent pricing and production
decisions, and LCA manufacturers try to produce and sell aircraft in sufficient volume, and at a
sufficient pace and price, to recover their deve lopment costs as quickly as possible. Economies of

See, Statement of Rod P. Muddle, Exhibit EC-19, para. 99. In our view, these subjective elements are
encompassed by the general co nsideration of the characteristics of the various aircraft models for sale, and are
not distinct elements.
5204 See, Statement of Rod P. Muddle, Exhibit EC-19, paras. 48-50. See, also, Statement of Christian
Scherer, Exhibit EC-14 (BCI), paras. 69-77.
5205 Statement of Christian Scherer, Exhibit EC-14 (BCI), para. 60
5206 See, para. 7.1722 above.
5207 In some cases, the United States points out, LCA producers can reduce costs (and thus risks) to a
certain extent by developing "derivative" aircraft that incorporate new technology or meet specific customer
needs by adapting existing designs rather than creating an all-new model. For ex ample, as the European
Communities has observed, a significant reason for the u ltimate demise of McDonnell Douglas was its limited
product line, all "derivatives of earlier Douglas models, rather than entirely new designs" (in contrast to the
"broader and more modern families of aircraft offered by Boeing and Airbus"), and "the perception of airlines
that {McDonnell Douglas} is no longer committed to the commercial aircraft business and may leave the market
over time." EC Merger Analysis, Exhibit US-375, para. 59; see also, Boeder & Dorman, at 137-38, Exhibit US-
373.
5208 The learning curve effect is described in Neven & Seabright, Exhibit US-382, p. 15, (explaining
that LCA production "involves the coordination of thousands of tasks{,} and this process can be improved as
experience accumulates") Neven & Seabright report that the "basic rule of thumb used in the industry is that
production costs decrease by 20% when output doubles". Exhibit US-382, p. 15.
5209 The United States asserts these costs can appro ach the entire market capitalization of the LCA
producer itself. The United States noted that, in 2006, EADS had a market value of 16.6 billion Euro, not much
greater than the anticipated projected development cost for either the A380 or the A350. US, FWS, para. 314.

BCI deleted, as indicated [***]

scale are an important part of the economics of LC A production; additional sales of a given aircraft
model not only give the LCA producer additional units over which to recover its fixed costs, but also
advance the producer further down the learning cu rve, reducing its marginal costs on future
production. Lost sales represent not only lost reve nues and profits, but also lost scale and learning
efficiencies and, therefore, increased production costs.
7.1728 Finally, as we have already noted, the Europ ean Communities maintains that the events of
9/11 had a profound effect on the LCA industry, wh ich must be taken into account as a relevant
condition of competition. The European Commun ities notes that in the context of the global
economic recession, demand for new LCA dropped during the entire 200 1 to 2003 period. 5210
Airlines cut capacity in response to declining air passenger traffic, which in turn severely hit LCA
manufacturers. According to the European Comm unities, the events of 9/11 had a particularly
devastating effect on Boeing. 5211 The United States notes, however, that the downturn in the LCA
market in 2001 to 2003 did not result from any in ability of the United States' industry to produce or
export LCA, but simply from the purchase decisions and choices of customers. Moreover, the United
States argues, the downturn in demand reflects conditions in the passenger airline industry, not the
LCA industry.5212 While clearly there was a significant declin e in the market for LCA after 9/11, in
our view, this did not result from any changes in the fundamental nature of competition between
Airbus and Boeing, but rather was driven by the general global economic downturn and decline in air
travel, resulting in a decline in demand for new LCA. And while this decline in demand did not affect
both producers to the same degree, the basic consider ations described above continue to define the
conditions of competition between Airbus and Boeing. The events of 9/11 certainly had a profound
impact on the airline industry, and therefore on the LCA industry. As the European Communities
states, "the LCA industry has an exaggerated business cycle which is particularly sensitive to external
events."5213 Thus, both negative events, such as the collapse of demand following 9/11, and positive
events, will have a substantial impact on LCA sales and the operations of the producers. While we
must take such impacts into account in our anal ysis of the evidence concerning adverse effects
allegedly caused by subsidies, the fundamental determinants of competition in the LCA industry
outlined above are the critical context for our assessment of adverse effects.
7. Whether the Subsidies Have Caused Serious Prejudice to the Interests of the United
States
(a) Introduction
7.1729 The United States claims that subsidies to Ai rbus cause serious prejudice to its interests
within the meaning of Articles 5(c) and 6.3(a), (b) and (c) of the SCM Agreement. In particular, the
United States alleges that the European Commun ities, France, Germany, Spain and the United
Kingdom have, through the use of the challenged s ubsidies, caused: (a) imports of United States'
(Boeing) LCA into the European Communities market to be displaced or impeded by sales of Airbus
LCA; (b) exports of United States' (Boeing) LCA to various third country markets to be displaced or
impeded by sales of Airbus LCA; (c) significant price undercutting by Airbus LCA compared with the

5210 Boeing Commercial Airplanes, "Boeing Current Market Outlook," June 2003, p. 6, Exhibit EC-
295. Throttle-Up – Interview with Boeing CEO Scott Carson, Exhibit EC-280.
5211 The European Communities contends that Boeing's order book was dominated by US airlines, who
were hit hardest by the events of 9/11; Boeing's role in financing LCA by setting up an in-house "leasing
company" proved very harmful to Bo eing as it added risk to Boeing's LCA business and resulted in an order
book generally dominated by airlines that were more prone to cancelling and deferring orders than leasing
companies; and the events of 9/11 caused Boeing to lo se customer focus and ignore customer relations. The
European Communities contends that that leasing companies are generally not affected by the cyclical nature of
the LCA market. See, EC, FWS, para. 1369; EC, Answer Panel Question 116, paras. 356-367.
5212 US, Answer to Panel Question 49(c).
5213 EC, FWS, para. 29.

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price of United States' (Boeing) LCA in the same market; and (d) significant price suppression, price
depression and lost sales in the same market. Th e European Communities contests the United States'
allegations, arguing that no such serious prejudice is caused by the use of an y subsidies provided to
Airbus. In essence, the European Communities subm its that when the United States' claims are
properly assessed on the basis of LCA families competing in the same market, it is impossible to find
that the subsidies cause serious prejud ice in respect of at least one of the alleged families of LCA, the
A380 family. This is because, in the European Communities' view, Boeing LCA do not compete with
this aircraft. Moreover, in the markets in wh ich Airbus and Boeing do se ll competing families of
LCA, the European Communities asserts that the subsidies at issue are too old and in any case not of a
magnitude that could cause serious prejudice to th e United States' interests in the appropriate
reference period, which according to the European Communities, is 2004 to 2006.
7.1730 The United States advances its serious prejudice claims by first focusing on showing that the
phenomena described in Articles 6.3(a), (b) and (c ) of the SCM Agreement are present over the time
period it proposed as the relevant reference period. The United States then explains how the subsidies
provided to Airbus have, in its view, caused th e phenomena it argues can be observed over that
period. The European Communities responds to the United States' claims adopting essentially the
same methodology, albeit through the submission of data and arguments relating to different
subsidized products and LCA market segments over different periods of time.
7.1731 Article 6.3 of the SCM Agreement is silent as to the sequence of steps to be followed for the
purpose of assessing claims of serious prejudice. Th us, we see nothing in the language of Article 6.3
to preclude the path followed by the parties in the present case. In our view, the two-step approach
followed by the parties is perfectly valid for the pur pose of evaluating the claims that are before us,
and we will therefore apply the same methodology in our own assessment of the United States' claims.
We recall that in US – Upland Cotton , the Appellate Body appeared to entertain the possibility of
applying a two-step approach when evaluating clai ms under Articles 6.3(a), (b) and (c), although it
cautioned that it might be difficult to observe the relevant phenomena without also taking into account
the effect of the challenged subsidies.
5214 As will be explained in the sections that follow, the
arguments and evidence advanced by the United St ates (including in respect of price suppression)
renders a two-step approach entirely appropriate to assessing its claims under Articles 6.3(a), (b) and
(c) in the present controversy. Thus, in evaluati ng the United States' claims, we will first consider
whether the particular phenomena identified in Artic le 6.3(a), (b) and (c) of the SCM Agreement can
be observed as a matter of fact. In other words, we will begin our analysis of the merits of the
United States' allegations by first examining the pa rties' arguments and the evidence submitted with a
view to determining whether, over the period for which we have information, it can be established, as
a matter of fact, that:
(i) imports of Boeing LCA into the European Communities market were
displaced or impeded by sales of Airbus LCA;
(ii) exports of Boeing LCA to various third country markets identified by the
United States were displaced or impeded by sales of Airbus LCA;
(iii) there was significant price undercutting by Airbus LCA compared with the
price of Boeing LCA, or lost sales, in the same market; and
(iv) there was significant price suppression or price depression.
7.1732 We emphasize that in undertaking this first step of the analysis, we will not be addressing the
question whether any particular phenomenon that can be observed is actually caused by the subsidies

5214 Appellate Body Report, US – Upland Cotton, paras. 432-433 and footnote 521.

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we have found were provided to Ai rbus. This question of causation will be examined in the final
section of our serious prejudice findings, where we will review the parties' theories of causation and
related arguments and evidence.
7.1733 Before embarking upon the first part of our asse ssment of the United States' claims, we wish
to address one argument raised by European Commun ities that we believe has horizontal implications
for the entirety of the United States' serious prejudice claims. This argument concerns what can be
understood as amounting to "serious prejudice" under the terms of the SCM Agreement.
7.1734 In arguing that the United States is not sufferi ng serious prejudice caused by the subsidies to
Airbus LCA in this dispute, the European Communiti es repeatedly refers to the alleged improvements
in and excellent condition of Boeing over the period 2006 to 2007. Thus, for instance, the European
Communities states that "today, Boeing stands as the dominant player in the competitive Boeing-
Airbus duopoly".
5215 The European Communities contends that "{h}aving asserted adverse effect
claims, the United States must prove that the United States – and its participant in the LCA markets:
Boeing – suffers present serious prejudice and adverse effects by reason of the effects of the alleged
subsidies."
5216 The United States argues that the SCM Agreement does not require any inquiry into
the specific impact of the subsidies on the various economic indices of the "state of the industry" of
the complaining Member in the context of a serious prejudice analysis. 5217 Thus, in the United States'
view, the European Communities' argument that th e financial condition of Boeing's LCA division in
2006 precludes a finding of serious prejudice is misplaced, as is its assertion that that there is no
serious prejudice because Boeing is currently not "in trouble".
5218 In our view, the European
Communities' argument that the financial conditio n of Boeing's LCA division in 2006 and 2007
precludes a finding of serious prejudice 5219 is inapposite, and based on a flawed understanding of the
concept of serious prejudice to the interests of the complaining Member.
7.1735 We recall that the United States alleges that subsidized imports of Airbus LCA cause and
threaten to cause material injury to the United St ates' domestic industry, that is, Boeing, thereby
causing adverse effects under Article 5(a). In that context, consideration of Boeing's condition over
the relevant reference period is, of course, relevant. Specifically, Article 15.4 of the SCM Agreement,
which sets forth guidance on the determination of inju ry, requires an inquiry into "the impact of the
subsidized imports on the domestic industry", includi ng all economic factors relating to the "state of
the industry".5220 However, there is no counterpart to Article 15.4 with respect to claims of serious

5215 EC, FWS, para. 1325. See, EC, SWS, para. 651: "While the Unite d States claims to suffer greatly
from decades-old alleged subsidies benefiting Airbus, the past three years have seen a record-setting commercial
for Boeing, the United States participant in the LCA mark ets...This ...demonstrates that Boeing is not presently
commercially prejudiced and the United States is not suffering adverse effects to its interests from alleged, often
decades-old, subsidies to Airbus"; EC, FWS, para. 1671: to demonstrate serious prejudice from lost sales of 747
LCA, "the United States must demonstrate that, but for the effects of the alleged EC subsidies benefiting the
A380, Boeing (a) would have launched the 747X; and (b) the United States and Boeing would have been in a
better financial state compared to the state Boeing was in after the launch of the 747-8 in 2005."
5216 EC, FWS, para. 1329.
5217 US, SWS, para. 695.
5218 US, SWS, para. 696. Brazil also disagrees w ith the European Communities' position that Boeing's
healthy financial and market position at the peak of the business cycle precludes the possibility that the United
States is suffering serious prejudice caused by the subsidy. The relevant issue, according to Brazil, is whether
Boeing's market share would be greater absent the subsidized Airbus product. Brazil, Third Party Submission,
para. 58.
5219 EC, FWS, para. 1360: "If the Panel concludes that Boeing's LCA Division is not presently
showing concrete signs of being commercially "injured" or not suffering significant competitive prejudice vis-à-
vis Airbus, then there is no basis for the United States to prevail on its adverse effects claims under Articles 5
and 6 of the SCM Agreement." We recall that Article 6 of the SCM Agreement relates exclusively to claims of
serious prejudice. See, also, EC, SNCOS, paras. 424-31.
5220 We consider the United States' claims of material injury in section VII.F.8(b)(ii) of this Report.

BCI deleted, as indicated [***]

prejudice under Articles 5(c) and 6. There is nothing in the text of Article 6, or any other provision of
the SCM Agreement, that would even suggest, much less require, considerati on of the "state of the
industry" of the complaining Member in the context of a serious prejudice analysis. Moreover, no
WTO panel considering a case involving allegations of serious prejudice has in the past taken the state
of the domestic industry in the complaining Memb er into account in its determination of whether
serious prejudice has been demonstrated to exist. Nor, to our knowledge, has any party argued in any
of those cases that the condition of the domestic industry in the complaining Member precludes a
finding of serious prejudice to the complaining Member's interests. Rather, those panels examined, as
required under Article 6.3, whether the effect of the subsidies in question was significant price
suppression or displacement or impedance of imports or exports.
7.1736 Indeed, we see nothing in the text of Article 6 that would preclude the possibility that serious
prejudice could be found in a case in which the i ndustry in the complaining Member is in good
condition. We note, in this regard, that serious prejudice under Article 6.3(d) may arise where "the
effect of the subsidy is an increase in the worl d market share of the subsidizing Member in a
particular subsidized primary product or commodity." This provision does not suggest that a
consideration of the condition of the industry in th e complaining Member is relevant to the question
whether there is serious prejudice to that Member's interests. The term "serious prejudice" certainly
implies some notion of "harm", but Article 5(c) ma kes it clear that the "serious prejudice" to be
considered is to the interests of the complaining Member, and thus th e relevant "harm" is defined by
the provisions of Article 6.3 – that is, the interest s of the Member in trade in a given product through
access to markets in volumes and at prices that are unaffected by another Member's use of
subsidies,
5221 and not with reference to the interests of an industry in the complaining Member. We
note, in this context, the finding of the panel in US – Upland Cotton, with which we agree:
"We therefore do not believe that, once we have concluded that the conditions in
Article 6.3(c) are fulfilled, and thus that serious prejudice "in the sense of
paragraph (c) of Article 5""may" arise, a separate examination of the existence of
"serious prejudice" under the chapeau of Article 6.3 or Article 5(c) is necessary. Our
examination of the text, in its context, indicates to us that the Article 6.3(c)
examination is determinative also fo r a finding of serious prejudice under
Article 5(c). That is, an affirmative conc lusion that the effects-based situation in
Article 6.3(c) exists is a sufficient basis for an affirmative conclusion that "serious
prejudice" exists for the purposes of Article 5(c) of the SCM Agreement."
5222
7.1737 While it seems to us self-evident that the trade effects set forth in Article 6.3 as demonstrating
serious prejudice are likely to have an effect on th e industry in the complaining Member, this is not
the focus of our inquiry under Article 6 of the SCM Agreement. Thus, we see no basis on which
improvements in the condition of Bo eing, or consideration of whethe r it is more or less profitable,
should be taken into account in our analysis of ser ious prejudice under Article 6.3. And, while a
complaining Member's balance of trade, balance of payments or overall financial situation might seem
more directly relevant to that Member's interests, we consider these to be immaterial, for purposes of
a finding of serious prejudice, in the same way as wh ether the industry in the complaining Member is
in bad condition has no relevance to a panel's cons ideration of whether there is serious prejudice to
that Member's interests. In su mmary, we consider that it will be sufficient for the United States to

5221 As noted by the panel in US – Upland Cotton , this view is consistent with the approach of three
earlier GATT dispute settlement reports, which "indicate th at serious prejudice involved the effects of subsidies
on a Member's trade in a given product as such, i.e., the volumes and prices and flows of such trade, rather any
further effects on a Member's domestic industry, or othe r issues such as the significance of the particular
industry producing the product in question to the overall "interests" of the complaining Member." Panel Report,
US –Upland Cotton, footnote 1492.
5222 Panel Report, US – Upland Cotton, para. 7.1390.

BCI deleted, as indicated [***]

prevail on its claims of serious prejudice in this case if it demonstrates that the use of the specific
subsidies we have found to have been granted to Airbus caused the market effects described in
Article 6.3(a)-(c), without any further examination. 5223 Therefore, in our evaluation of serious
prejudice under Article 6.3 of the SCM Agreement, we will not, as the European Communities does,
take into account improvements in the condition of Boeing.
(b) Alleged displacement or impedance of imports into the EC market
7.1738 Article 6.3(a) of the SCM Agreement provides:
"Serious prejudice in the sense of paragraph (c) of the Article 5 may arise in any case
where one or several of the following apply:
 (a) the effect of the subsidy is to displace or impede the imports of a like
product of another Member into the market of the subsidizing Member;"
The meaning of "displace" and "impede" was considered by the panel in Indonesia – Autos , which
stated that "displacement relates to a situati on where sales volume has declined, while impedance
relates to a situation where sales which ot herwise would have o ccurred were impeded". 5224 W e
generally agree that this distinction between displa cement and impedance is inherent in the ordinary
meaning of the terms.

7.1739 In Indonesia - Autos, the panel evaluated the European Communities' claims of displacement
and impedance by reviewing sales and market share data, finding that "market share data may be
highly relevant evidence for the analysis of {a claim under Article 6.3(a)}".
5225 The parties in the
present controversy have equally focussed their subm issions on market share information. We intend
to proceed along the same lines. However, in doing so , we note that while data showing that Boeing's
market share in the EC market decreased over the relevant reference period would, in our view, be
sufficient to evidence a "displacement" phenomenon, 5226 the same data could not also, on its own,
demonstrate "impedance". As noted by the panel in Indonesia – Autos , the notion of "impedance"
involves understanding whether sales which would ot herwise have taken place were impeded – in
other words, whether sales that would have otherw ise actually occurred were obstructed or hindered.
Thus, in order to conclude that imports of the United States' LCA were impeded over the relevant
reference period, we would, inter alia, have to be satisfied that those sales would have actually taken
place.
7.1740 The United States presents market share info rmation comparing the relative positions of
Airbus and Boeing in the EC LCA market for the period 2001 to 2006, in terms of annual deliveries
of LCA as well as LCA value measured by list prices. Consistent with its po sition that there is one
single subsidized product, Airbus LCA, and one single corresponding United States' like product,
Boeing LCA, the information submitted by the Un ited States discloses the alleged market shares on

5223 See, also , Panel Report, Indonesia – Autos , where the panel did not conduct any additional
examination.
5225 Panel Report, Indonesia – Autos , para. 14.211. Similarly, in examining the significance of the
absence of any reference to the "like product" in the specific context of pr ice suppression and price depression
claims under Article 6.3(c) of the SCM Agreement, the panel in Korea – Commercial Vessels observed that
"{d}etermining displacement or impedance {under Articles 6. 3(a) and 6.3(b)} in turn involves an analysis and
comparison of relative levels and trends in volume and market share of the s ubsidized product and the
complaining Member's like product". Panel Report, Korea – Commercial Vessels, para. 7.555.
5226 Of course, it would have to be demonstrated that the phenomenon was the effect of the subsidies in
dispute in order for the United States claim of serious prejudice to succeed.

BCI deleted, as indicated [***]

an aggregate basis. The United States does not break out the data on the basis of aircraft models or
any other parameter.
5227
7.1741 The European Communities does not dispute the accuracy of the data presented by the United
States. However, it argues that the United States ' claims are "improperly organized" for essentially
three reasons. 5228 First, the European Communities conte nds that the United States has failed to
identify the proper subsidized products and co rresponding like products and product markets.
Consistent with its own view that there is not a single Airbus LCA product but rather multiple LCA
products and thus multiple Boeing like products and markets, the European Communities submits that
the market share analysis necess ary for the purpose of evaluati ng the United States' claims of
displacement and impedance must be undertaken in each separate product market in which the
separate families of Boeing and Airbus LCA allege dly compete. Reflecting this position, the
European Communities presents an alternative set of market share data measured in terms of both
orders and deliveries.
7.1742 We have already rejected the fundamental premises underlying the European Communities'
arguments, having concluded that it is appropriate to analyze adverse effects on the basis that all
Airbus LCA constitute the subsidized product at is sue in this dispute and all Boeing LCA are the
relevant like product. 5229 The clear dividing lines the Europ ean Communities argues exist between
models and families of Boeing and Airbus LCA are not supported by the facts that are before us. This
is not a case where the complainant's definition of the subsidized product and like product, and the
data submitted corresponding to that definition, risks distorting the market displacement and
impedance analysis that must be performed under Artic le 6.3(a). Thus, in the light of our findings on
the subsidized product and like product, we will conduc t our evaluation of whether the United States
has demonstrated displacement or impedance of impo rts of United States' LCA into the EC market by
looking at market share data for the subsidized product and like product defined by the United States,
that is, Airbus LCA and Boeing LCA.
7.1743 The second EC objection to the United States' "o rganization" of its claims concerns the
relevant reference period. As we have previ ously discussed, the European Communities argues that
information from the period between 2001 and 2003 must be disregarded, as it alleges that disruptions
to the LCA markets following the events of 9/11 constitute force majeure within the meaning of
Article 6.7(c) of the SCM Agreement, and therefor e displacement or impedance within the terms of
Article 6.3(a) cannot arise over this period. Although the European Communities presents and
examines data for the period 2001 to 2006, 5230 it argues that the focus of the Panel's attention should
be on the 2004 to 2006 period.5231
7.1744 We recall that we have previously dismis sed the European Communities' reliance on
Article 6.7(c) of the SCM Agreement, and concluded that in assessing whether the subsidies to Airbus
cause present serious prejudice, we will consider all in formation put before us, without making any a
priori conclusions as to which time interval must be used.5232 This does not mean that we consider the
events of 9/11 to have had no impact on the LCA industry. In our view, it is clear that 9/11 did result
in a severe collapse in demand for LCA, with a dverse consequences for the LCA businesses of both

5227 US, FWS, paras. 766-770, US, SWS, para. 698, Table 1.
5228 See, e.g., EC, FWS, paras. 1933-1937.
5229 See, para. 7.1680 above.
5230 And in some cases, later, for instance, with reference to order data for the Airbus A340 and Boeing
777, "expected deliveries in the EC market" from 2007 to 2010. EC, FWS, para. 2132.
5231 The European Communities further asserts that even later information, concerning 2007 and 2008,
must be taken into account where available.
5232 See, paras. 7.1694 and 7.1712 above.

BCI deleted, as indicated [***]

Boeing and Airbus. However, as we have explained elsewhere, in our view the events of 9/11 do not
constitute force majeure within the meaning of Article 6.7(c). 5233
7.1745 The third reason for the European Communitie s' opposition to how the United States has
framed its claims centers on the United States' re liance on delivery data, as opposed to information
about orders, in support of its claims of displacement or impedance. 5234 According to the European
Communities, the proper focus of an evaluation of market displacement or impedance must be order
data. The European Communities argues that a focus on deliveries does not allow for a full
assessment of present serious prejudice caused by s ubsidies but, at best, highlights the historical
impact of subsidies. According to the European Communities, order data provides the most up-to-
date picture of competition in the LCA market, and so must be considered in any objective assessment
of the facts. Moreover, in the particular circ umstances of "large capital goods such as LCA, with
deliveries that take place years after orders are placed", the European Co mmunities argues that the
terms "import" and "export" found in Article 6.3(a) and (b) should be construed to include future
imports and exports.
5235
7.1746 The United States argues that claims of displ acement or impedance under Articles 6.3(a) and
(b) of the SCM Agreement involve the displacement or impedance of "imports" or "exports", terms
which, according to the United States, re fer to deliveries rather than orders. 5236 In addition, the
United States raises factual concerns with respect to the use of market share data based on orders
which, it asserts, makes order info rmation inappropriate as a basis for consideration of displacement
or impedance. These include the fact that while the date of delivery is easy to determine, there is a
certain flexibility concerning the date on which an order is reported. In addition, the Airclaims
Database (on which both parties rely for informa tion concerning sales of LCA) records orders made
by leasing companies, which account for a not-insigni ficant percentage of LCA sales, on the basis of
the location of the leasing company, while deliveri es are recorded on the basis of the location of the
operator to which the aircraft is leased and actually delivered. 5237 Thus, an order by a leasing
company in the United States for delivery to an air line in, for example, the United Kingdom, will be
reported as a United States' order, and a UK delivery. Finally, the United States contends that an
exclusive focus on order data distorts the reality of the market, as an increase in market share based on
orders does not reflect current and future loss of market share caused by past orders for which
deliveries are being made or which are yet to be made.5238
7.1747 Article 6.3 uses the terms "imports" and "exports" in the context of claims of displacement or
impedance. Thus, Article 6.3(a) refers to displacement or impedance of the imports of a like product
into the territory of the subsidizing Member, and Article 6.3(b) refers to the displacement or
impedance of the exports of a like product from a third country market. "Import" is defined as
"something imported or brought in, the amount or valu e of what is imported; an imported article or
commodity" while "export" is defined as "an articl e that is exported...(the amount or value of)
exported goods." 5239 The European Communities argues that the terms "could be interpreted to
include orders that will result in future imports and exports – i.e., future deliveries based on present
orders."5240 We do not agree that the ordinary meaning of these terms can be understood in this way.
The European Communities bases its argument in this regard on the particular product at issue in this

5233 See, paras. 7.1695 -7.1703 above.
5234 EC, FWS, para. 1403.
5235 EC, Answer to Panel Question 132; EC, SWS, para. 1140.
5236 US, Answer to Panel Question 132, para, 432; US, SWS, paras. 687-693.
5237 See, Exhibit EC-21.
5238 US, Answer to Panel Question 132, para. 430. Au stralia considers that the Panel should consider
both orders and deliveries, as both may indicate the effect of the subsidies on the industry and the market
through future projected sales and market share. Australia, Answer to Panel Question 17.
5239 New Shorter Oxford English Dictionary.
5240 EC, Answer to Panel Question 132, para. 464.

BCI deleted, as indicated [***]

case, suggesting that the terms "import" and "export" can include orders that will result in future
deliveries in the case of large capital goods with deliveries years after orders are placed.
7.1748 We are not persuaded by the European Commun ities' argument on this point. In our view,
there is nothing in the text of the relevant provisi ons to indicate that the terms "import" and "export"
should be understood differently in the context of different types of products. Thus, we agree with the
United States that the ordinary meaning of the terms "imports" and "exports" suggests a focus on
deliveries rather than orders. The European Co mmunities argues that our duty under Article 11 of the
DSU to conduct an objective assessment of the matter means that we must also consider order data
when evaluating the United States' claims under Articles 6.3(a) and 6.3(b), effectively treating order
data as information pertaining to future "imports" and "exports".
5241 However, our duty to conduct an
objective assessment of the matter includes interpre tation of the relevant provisions of the WTO
covered agreements, in this case, Articles 6.3(a) and 6.3(b). The European Communities has pointed
to nothing in the text of these provisions, their contex t or object and purpose, to convince us that they
should be interpreted in accordance with its conten tion. Thus, for the purpose of considering a claim
of displacement or impedance under Article 6.3 of the SCM Agreement, we consider that it follows
from the ordinary meaning of the words "impor ts" and "exports" that a focus on deliveries is
appropriate.
7.1749 Having said that, we recognize that order data reflect competition between Airbus and Boeing
for LCA sales, that is, orders for future deliveries. Moreover, both orders and deliveries are important
to the condition and continuing operations of aircra ft manufacturers. But while Boeing and Airbus
undoubtedly make future plans taking into account their current order book, and while market actors
will take the future flows from those orders into account in evaluating each company, we do not agree
with the European Communities' view that deliveries are a matter of historical interest only. It is at
the time of delivery that a manufacturer receives the majority of proceeds from the sale of an
aircraft.5242 Thus, we do not accept the EC' assessment of deliveries as representing only the historical
impact of subsidies. If Boeing does not receive an order (or receives an order at a lower price) as a
result of the effect of subsidies, it will lose market share and revenue at the time of delivery. Thus,
although the effect of subsidies may be manifested at the time an order is not obtained, it may also be
manifested when deliveries are not made, or fewer deliveries are made, or deliveries are made at
lower prices, in the form of lost market share and price effects. Accordingly, while we agree that
present serious prejudice must be found for the United States to substantiate its claims, we do not
consider that this requires a focus on order da ta in assessing impedance or displacement under
Articles 6.3(a) and 6.3(b).
7.1750 Nonetheless, we do not mean to suggest that data concerning orders for LCA is irrelevant to
our analysis in this dispute. It is apparent from th e information before us that, from the perspective of
production and financial performance , both orders and deliveries are important to an aircraft
manufacturer. Boeing and Airbus primarily compete with each other to secure orders for new aircraft,
to be delivered at some time in the future. At the moment an order is placed, the terms and conditions
of the delivery of aircraft pursuant to that order will in large part be set. Aircraft specification, net
price, discounts, non-price concessions and financing arrangements will be determined at the time of
order.
5243 Both Boeing and Airbus require a deposit at the time an order is placed, and further pre-
delivery payments in accordance with a prepayment schedule prior to delivery. The total amount of
payments prior to delivery is subj ect to negotiation with the purchaser. However, payments made at
the time of order are generally nominal as a percentage of the total price of the aircraft involved, and

5241 EC, Answer to Panel Question 132.
5242 Statement of Christian Scherer, Exhibit EC-14 (BCI), para. 28.
5243 Statement of Christian Scherer, Exhibit EC-14 (BCI), para. 27.

BCI deleted, as indicated [***]

payments prior to delivery would not be expected to exceed 30 to 35 percent of the total price. 5244 In
general, LCA are not purchased one at a time for imme diate delivery, but rather tend to be ordered in
large numbers with deliveries spread over a subseque nt period of sometimes several years. Thus,
orders are to some extent a proxy for future deliveries. Moreover, the competition between
manufacturers for a sale to a particular customer is a competition for the order, and the delivery dates
are negotiated as part of that competition. Thus, information concerning orde rs will be relevant to
considering the question of lost sales, as well as as sessing the United States' claims of price effects,
given that the pricing of LCA is largely, albeit not entirely, determined at the time of ordering.
Therefore, we will consider order information in cer tain aspects of our analysis of the United States
claims under Article 6.3(c).
7.1751 Finally, the European Communities' arguments suggest that in order to make out its case
under Article 6.3(a) and (b) of the SCM Agreement, the United States must demonstrate displacement
or impedance on a sale by sale basis. 5245 We disagree. While such an approach might be one way to
present evidence of displacement or impedance, we see nothing in the language of Article 6.3(a) or
(b) requiring such an approach. A complaining Member must demonstrate that the effect of the
subsidies is to displace or impede imports or exports. However, nothing in the text of these provisions
dictates the form of evidence which is to be used to demonstrate such an effect. A market share
approach is consistent with previous dispute settlement reports.5246
7.1752 The data on LCA deliveries to the EC market s ubmitted by the United States is reproduced in
the following tables:
Table 18 – Market Share (Quantity of LCA delivered in the European Communities)5247

 2001 2002 2003 2004 2005 2006
Airbus 58% 62% 59% 59% 67% 67%
Boeing 42% 38% 41% 41% 33% 33%

Chart 1 Market Share (Quantity of LCA delivered in the European Communities)

5244 Statement of Rod P. Muddle, Exhibit EC-19. Mr. Muddle provides information indicating that the
standard payment at order for Airbus is 5% of the list price and 1% of list price for Boeing. Total payments
prior to delivery are 30% of list price of Airbus and 30-35% of list price for Boeing depending upon the aircraft
order. As Mr. Muddles notes in his statement, these payments are the subject of negotiations between the carrier
and the manufacturer.
5245 EC, FWS, paras. 1984 and footnote 1994, paras. 1990-1994, 2045.
5246 See, Panel Report, Indonesia – Autos, para. 14.211, Panel Report, Korea – Vessels, para. 7.555.
5247 US, FWS, para. 767.

0%
20%
40%
60%
80%
2001 2002 2003 2004 2005 2006
Airbus
Boeing

BCI deleted, as indicated [***]

Table 19 – Quantity of LCA delivered in the EC
5248

 2001 2002 2003 2004 2005 2006
Airbus 114 114 98 109 103 116
Boeing 81 69 67 77 50 56
Total 195 183 165 186 153 172

Chart 2 Quantity of LCA delivered in the EC

7.1753 It is clear from Table 18 that Airbus' share of the EC market increased by 9 percentage points
over the period 2001 to 2006. In 2001, Boeing's sh are of the EC LCA market, measured by quantity
of LCA delivered, was 42%; it dropped to 38% in 2002, increased in to 41% in 2003 and 2004, and
dropped to 33% in 2005 and 2006. Airbus' share of the EC market for LCA was 58% in 2001,
increased to 62% in 2002 before declining to 59% in 2003 and 2004, then increasing again in 2005
and 2006, to 67%.
7.1754 The market share figures reflect the numbers of LCA delivered shown in Table 19. This
information shows that Boeing delivered 81 LCA to the EC market in 2001. Its deliveries then
declined to 69 LCA in 2002, and again to 67 in 2003, before increasing in 2004 to 77 LCA, and then
dropping sharply to 50 in 2005, and increasing to 56 in 2006. Airbus, on th e other hand, delivered
114 LCA to the EC market in 2001 and 2002, a nd although its deliveries declined 2003, 2004, and
2005, they were in each year higher than Boei ng's deliveries, and increased to 116 LCA in 2006.
Thus, in terms of the quantity of LCA delivered to the EC market, Boeing's sales volume in the
European Communities has declined. Table 19 also s hows that there was a overall decline in the total
number of LCA deliveries to the European Comm unities from 2001 to 2003, and increase in 2004,
and a further decline in 2005. Although deliveries increased again in 2006, they were 12 percent
fewer than in 2001. Boeing LCA deliveries over th is period declined more than did Airbus LCA
deliveries, and the decline in Boeing deliveries is disproportionate to the decline in overall deliveries.
7.1755 The European Communities does not dispute the data presented by the United States. Rather,
and reflecting its view that there are multiple Ai rbus subsidized products and Boeing like products,
the European Communities presented different data on LCA deliveries (and orders) to the EC market
for three alleged product markets – the single-ai sle LCA market (comprising the Boeing 737NG and
Airbus A320 families);
5249 the 200-300 seat LCA market (comprising the Boeing 767, 787 and Airbus
A330 families);5250 and the 300-400 seat LCA market (comprising the Boeing 777 and Airbus A340
families).5251 Having rejected the premise underlying th e European Communities' submission of data

5248 US, FWS, para. 767.
5249 EC, FWS, paras. 1985-1989.
5250 EC, FWS, paras. 2043-2046.
5251 EC, FWS, paras. 2128-2134.

0
50
100
150
2001 2002 2003 2004 2005 2006
Airbus
Boeing

BCI deleted, as indicated [***]

in this form, and proceeding on basis that the United States is entitled to make out its case with
respect to Airbus LCA as a single subsidized product, the delivery information provided by the
European Communities has little if any probative valu e for the purpose of answering the question of
displacement that is before us.
7.1756 Moreover, having reviewed the European Communi ties' data, we believe that it provides an
inaccurate and incomplete picture of LCA deliveries to the EC market between 2001 and 2006. There
are several reasons for this. First, the Eur opean Communities does not count deliveries of the
Boeing 747, which we have concluded is within the product like the subsidized Airbus LCA. The
Airclaims database information relied on by the Eu ropean Communities shows that there were 23
Boeing 747s owned by and delivered to EC airlines over the relevant period. 5252 Second, the
European Communities has not included deliveries of the Boeing 757 model into the EC market, even
though it apparently does include these LCA in pres enting information on deliveries in the "single-
aisle" market in third countries. 5253 The European Communities has not explained why it chose to
include Boeing sales of these aircraft in the data pr esented in respect of third country deliveries but
not in respect of deliveries to the EC market. Again, the Airclaims information relied on by the
European Communities indicates that six Boeing 757s were owned by and delivered to EC airlines
between 2001 and 2006.5254 Third, in presenting the delivery information, the European Communities
treats instances where a leasing company outside of the European Communities owns an LCA that
was delivered to an airline operating in the Europ ean Communities as a delivery to the country of the
leasing company and not a delivery to the country of the operating airline, i.e., such deliveries were
not counted as deliveries to the EC market. 5255 We do not accept this as an appropriate approach to
the counting of LCA deliveries to specific national markets. New LCA owned by a leasing company
are, we understand, delivered directly to the ope rating airline which leases that LCA, not to the
leasing company itself, and thus are, in our view, pr operly considered as a delivery to the country in
which that airline operates.
5256 According to the Airclaims datab ase information, which identifies the
"operator country" with respect to deliveries of LCA purchased by leasing companies, six Boeing 747
and four Boeing 757 were owned by leasing compan ies and delivered to airlines operating in the
European Communities between 2001 and 2006. 5257 A spot-check of the information in
Exhibit EC-21 indicates that there were similarly deliveries of Boeing 737NG, 767, and 777 aircraft
owned by leasing companies and delivered to air lines operating in the European Communities during
this period. For all of these reasons, we do not consider the data presented by the European
Communities on LCA deliveries to the EC market to be accurate or reliable for the purpose of
evaluating the United States' claims of displace ment and impedance under Article 6.3(a) of the
SCM Agreement.

5252 Exhibit EC-21, pp. 304-307.
5253 See, EC, FWS, footnote 1962, where, with respect to third country markets, the European
Communities states: "For purposes of computing market share, the single-aisle market includes the Boeing 737
Classic, 737NG, 717, MD-90, 757 and Airbus A320 families". The data submitted by the European
Communities in respect of third country markets is discus sed in the following sub-section of this Report. It
appears that there were no deliveries of 717 and MD-90 LCA to the EC market during this period, although this
is based on our review of Exhibit EC-21, and is not explained by the European Communities itself.
5254 Exhibit EC-21, pp. 321-323.
5255 EC, FWS, footnotes 2056 (200-300 seat market) and 2168 (300-400 seat market). The European
Communities does not explain its treatment of lease company deliveries in the 100-200 seat market.
5256 See, para. 7.1747 above. We note that the European Communities asserts, in another context, that
Airbus does not know where an LCA purchased by a l easing company on a speculative basis will be delivered.
EC, SCOS, para 165. However, as intent is not an el ement to be considered in assessing displacement or
impedance, we do not see how whether or not Airbus knows at the time of ordering where the LCA it sells will
be delivered affects our analysis.
5257 Exhibit EC-21, pp. 304-307 and 321-323.

BCI deleted, as indicated [***]

7.1757 Nevertheless, and notwith standing the deficiencies we have identified, we note that, when
aggregated, the information on LCA deliveries provi ded by the European Communities tells a story
similar to that shown in the data submitted by the United States. We have aggregated the EC data in
the following tables and charts.
Table 20 – Market Share (Quantity of LCA delivered in the European Communities) (EC data)
5258

 2001 2002 2003 2004 2005 2006
Airbus 64% 63% 63% 62% 69% 66%
Boeing 36% 37% 37% 38% 31% 34%

Chart 3 Market Share (Quantity of LCA delivered in the European Communities)
(EC data )

0%
10%
20%
30%
40%
50%
60%
70%
80%
2001 2002 2003 2004 2005 2006
Airbus
Boeing

Table 21 – Quantity of LCA delivered in the EC (EC data)5259

 2001 2002 2003 2004 2005 2006
Airbus 108 100 95 105 98 108
Boeing 60 58 56 64 45 55
Total 168 158 151 169 143 163

5258 EC, FWS, paras. 1985-1989, 2043-2046 and 2128-2134.
5259 EC, FWS, paras. 1985-1989, 2043-2046 and 2128-2134.

BCI deleted, as indicated [***]

Chart 4 Market Share (Quantity of LCA delivered in the European Communities)
(EC data )

0
20
40
60
80
100
120
2001 2002 2003 2004 2005 2006
Airbus
Boeing

7.1758 Thus, on the basis of the data presented by the United States, it is clear that Boeing's share of
LCA deliveries to the EC market declined over th e period, while Airbus' share of that market
increased. Despite the different values reflected, the data presented by the European Communities,
when aggregated, supports the same conclusion, alth ough, as we have explained, the EC data is not a
reliable basis for our evaluation. As the only othe r competitor in the market was Airbus, it follows
that the evidence we have reviewed demonstrates that imports of United States' LCA into the EC
market were displaced by Airbus LCA over the relevant period. We address whether the
displacement we have observed is an effect of th e specific subsidies we have found were granted to
Airbus with respect to LCA in Section (e) below.
(c) Alleged displacement or impedance of exports from a third country market
7.1759 Article 6.3(b) of the SCM Agreement provides:
"Serious prejudice in the sense of paragraph (c) of the Article 5 may arise in any case
where one or several of the following apply:

 (b) the effect of the subsidy is to displace or impede the exports of a like
product of another Member from a third country market;"
7.1760 While Article 6.3(a) of the SCM Agreement c oncerns displacement or impedance of the
complaining Member's imports into the market of the subsidizing Member, Ar ticle 6.3(b) concerns
displacement or impedance of the complaining Me mber's exports from a third country market or
markets. The phrasing of the two provisions, requir ing consideration of an effect on imports in
Article 6.3(a), and on exports in Article 6.3(b), is in our view of no consequence – imports of a like
product of another Member are, by definition also exports of a like product of another Member. Thus,
we consider that the two provisions address th e same phenomenon, only in different markets.
Therefore, the conclusions we have set out a bove concerning the meaning of displacement and
impedance, and the analysis thereof on the basis of ma rket share in terms of deliveries of LCA, in the
context of a claim under Article 6.3(a), apply equall y to our consideration of the United States' claim
under Article 6.3(b).

BCI deleted, as indicated [***]

7.1761 There is, however, an additional element to be considered in the context of a claim under
Article 6.3(b). Article 6.4 of the SCM Agreement provides:
"For the purpose of paragraph 3(b), the displacement or impeding of exports shall
include any case in which, subject to the provisions of paragraph 7, it has been
demonstrated that there has been a change in relative shares of the market to the
disadvantage of the non-subsidized like pr oduct (over an appropriately representative
period sufficient to demonstrate clear trends in the development of the market for the
product concerned, which, in normal circumstances, shall be at least one year).
"Change in relative shares of the market " shall include any of the following
situations: (a) there is an increase in the market share of the subsidized product;
(b) the market share of the subsidized produc t remains constant in circumstances in
which, in the absence of the subsidy, it would have declined; (c) the market share of
the subsidized product declines, but at a slow er rate than would have been the case in
the absence of the subsidy."
7.1762 The European Communities argues that the term "non-subsidized like product" as used in
Article 6.4 should be understood as "a like produc t of the complaining Member asserting a serious
prejudice claim under Articles 5 and 6.3 of the SCM Agreement that is not subsidized".
5260 T h e
European Communities maintains, accordingly, that displacement or impedance of exports from a
third country market for purposes of Ar ticle 6.3(b) can be demonstrated only if the complaining
Member does not provide a subsidy within the meani ng of Article 1 of the SCM Agreement in respect
of the like product exported. The European Communities argues that the burden is on the
complaining Member to demonstrate that its like product(s) do(es) not benefit from subsidies, and that
the United States has not done so in this case. 5261 Indeed, the European Communities alleges that
LCA manufactured by Boeing do, in fact, benefit from subsidies, and submits information which it
asserts demonstrates that fact.5262

5260 EC, SWS, para. 1104. The European Communities makes the same argument with respect to
Article 6.5, which is discussed further at paras. 7.1798 - 7.1800 below.
5261 In answer to a question from the Panel, the European Communities responded:
"the European Communities considers that the competing like product of the complaining Member can
be considered "non-subsidized" if the complaining Member demonstrated that the like product does not benefit
firm specific subsidies. Conversely, if the like product benefits from spec ific subsidies, a complaining Member
can not meet its burden of establishing that its like product is "non-subsidized"."
EC, Answer to Panel Question 202, para. 262.
5262 EC, SWS, paras. 1110-1136. The European Co mmunities notes that the alleged subsidization of
Boeing LCA is the subject of a separate dispute brought by the European Communities, United States –
Measures Affecting Trade in Large Civil Aircraft , DS353. In addition to subsidies challenged for the first time
in that dispute, the European Communities asserts that prior to the end of 2006, Boeing had received tens
of millions of dollars through the application to LCA of the US foreign sales corporation ("FSC") and
extraterritorial income ("ETI ") tax exemptions and exclusions. Both of these programmes have been found to
be prohibited export subsidies in WTO dispute settlement. Panel Report, United States – FSC , para. 8.1(a);
Appellate Body Report, United States – FSC, at paras. 177(a), 178; Panel Report, United States – Tax Treatment
for "Foreign Sales Corporations" – Recourse to Article 21.5 of the DSU by the European Communities ("US –
FSC (Article 21.5 – EC)") , WT/DS108/RW, adopted 29 January 2002, as modified by Appellate Body Report
WT/DS108/AB/RW, DSR 2002:I, 119, at paras. 9.1(a), 9.1(b), 9.1(e); Appellate Body Report, US – FSC
(Article 21.5 – EC) , at paras. 256(a), 256(b), 256(f), 257; Panel Report, United States – Tax Treatment for
"Foreign Sales Corporations" – Second Recourse to Article 21.5 of the DSU by the European Communities ("US –
FSC (Article 21.5 – EC II)") , WT/DS108/RW2, adopted 14 March 2006, as upheld by Appellate Body Report
WT/DS108/AB/RW2, DSR 2006:XI, 4761, para. 8.1; Appellate Body Report, United States – Tax Treatment for
"Foreign Sales Corporations" – Second Recourse to Article 21.5 of the DSU by the European Communities ("US –
FSC(Article 21.5 – EC II)"), WT/DS108/AB/RW2, adopted 14 March 2006, DSR 2006:XI, 4721, para. 100(b).
The United States has since repealed both measures. EC, SWS, para. 1116.

BCI deleted, as indicated [***]

7.1763 The United States maintains that the term "non-subsidized like product" is to be understood as
calling for the comparison of the market share of the product which benefits from the subsidies in
question (that is, the product of the subsidizing Me mber) with the market share of the like product
which does not benefit from that/those subsidy(ies).
 5263 The United States argu es that such a reading
is consistent with the text of Article 6.3, which does not suggest any concern with subsidies other than
those which are being challenged, and which refers to like product without any qualification as to
whether or not the like product is subsidized or not . Moreover, the United States asserts that as the
European Communities appears to r ead the term "non-subsidized," if the product of the complaining
Member benefited from "indirect, non-specific, de mi nimis subsidies, such as public education or
public health measures," such a Member w ould be precluded from asserting a claim under
Article 6.3(b) or Article 6.3(c), "no matter how direct, targeted, and massive a subsidy causing
adverse effects might be" because it does not have a non-subsidized like product. 5264 According to the
United States, this would eviscerate the entirety of Part III of the SCM Agreement, and cannot be the
correct interpretation of the text.5265
7.1764 The European Communities contends that the Un ited States' reading of Article 6.4 conflates
the terms "non-subsidized like product" and "like pro duct of the complaining Member", and thus fails
to give meaning to the term "non-subsidized". 5266 Moreover, the European Communities argues that
its interpretation requires only that the complaini ng Member demonstrate that its competing like
product does not benefit from specific subsidies. 5267 However, the European Communities does agree
that its view would preclude a finding of price undercutting and impedance and displacement in third
country markets if the like product benefits from "any specific subsidy, however small." 5268 I n the
European Communities' view, the object and purpose of Article 6.4 can only be achieved through an
"untainted" assessment, and not through a comp arison involving a subsidized product and a
subsidized like product.5269
7.1765 We are not entirely persuaded by the United St ates' arguments concerning the meaning of the
term "non-subsidized" as used in Article 6.4. While it is true that the term "like product" is used in
Article 6.3, including Article 6.(3)(b), without the qu alifier "non-subsidized," this does not suggest to
us that the use of the term "non-subsidized" in Ar ticle 6.4 refers simply to a like product which does
not benefit from the subsidy which is the subject of the dispute. In fact the use of different terms
suggests to us that the term "non-subsidized lik e product" may well have a specific meaning in
Article 6.4. If the intention of Article 6.4 were only to differentiate the like product from the product
which benefits from the challenged subsidy we see no reason to have included the term "non-
subsidized" in Article 6.4 – it seems self-evident that the like product of the complaining Member
would not benefit from the challenged subsidy. Thus , we consider that Article 6.4 may well require
that a complaining Member demonstrate, in the circ umstances of that provision, that its like product,
exports of which are allegedly displaced or impeded from third country markets, is not subsidized.
7.1766 However, an additional question thus arises: whether Article 6.4 is the necessary or exclusive
mechanism for demonstrating displacement or impeda nce of exports to a third country market under
Article 6.3(b), or whether, to the contrary, disp lacement and impedance under Article 6.3(b) can be
demonstrated without reference to Article 6.4. The United States argues that while Article 6.4
provides that displacement or impedance "shall in clude" market conditions discussed therein, thus
providing "further guidance" for the application of Article 6.3(b), it does not set out the exclusive

5263 US, SNCOS, para. 191; US, Comments on EC Answer to Panel Question 202.
5264 US, SNCOS, para. 192.
5265 US, SNCOS, para. 192
5266 EC, Answer to Panel Question 202, para. 257.
5267 EC, Answer to Panel Question 202, paras. 259-65.
5268 EC, Answer to Panel Question 202, para. 263.
5269 EC, Answer to Panel Question 202, paras. 267-268.

BCI deleted, as indicated [***]

ways in which serious prejudice in the form of displacements or impedance from a third country
market may be demonstrated.
5270 According to the European Co mmunities, however, Article 6.4
describes the exclusive basis on which a claim of th ird-country market displacement or impedance
under Article 6.3(b) may be demonstrated. 5271 For the European Communities, the meaning of like
product in Article 6.3(b), as well as in Article 6. 3(c), cannot be understood without reference to
Articles 6.4 and 6.5, which in the European Commun ities' view make it clear that the "like product"
must not benefit from any specific subsidies.
7.1767 The meaning of Article 6.4 was considered by the panel in Indonesia – Autos. That panel
dealt with claims under Article 6.3(a) and considered whether the analysis contemplated by
Article 6.4 applied to a claim under Article 6.3(a). The panel found that the Article 6.4 analysis did
not apply to such a claim, concluding:
"We agree with Indonesia that Article 6.4 is not relevant in this case. The drafting of
the provision is unambiguous, and the specific reference to Article 6.3(b) creates a
strong inference that an Article 6.4 type of analysis is not
 appropriate in the case of
Article 6.3(a) claims. The complainants ha ve identified nothing in the context of the
provision or the object and purpose of the SCM Agreement that would suggest a
different conclusion."
5272
The panel also noted that the issue was significant fo r the parties and the disposition of the claims in
that case, because Article 6.4 provided, in certain circumstances, a lower threshold for demonstrating
displacement and impedance than established in Article 6.3(a), stating:

"If the type of analysis set forth in Article 6.4 is appropriate in this case, then the
complainants arguably could make a prima facie case of displacement and impedance
by demonstrating that the market share of a subsidized product has increased over an
appropriately representative period. If, on th e other hand, the type of analysis set
forth in Article 6.4 is not appropriate in this case, then the complainants must
demonstrate that "the effect of the subsidy" is to displace or impede imports into
Indonesia, that is, that they have lost export sales to Indonesia that they would have
otherwise have made and that those export sales were lost as a result of the subsidies
provided pursuant to the National Car programme."
5273
The panel in Indonesia – Autos thus concluded that, while not relevant to a claim under Article 6.3(a),
Article 6.4 established that, in certain circumstanc es, a consideration of comparative market share
alone will suffice to demonstrate that " the effect of the subsidy " is to displace or impede exports. We
agree with this reading of Article 6.4. In our vi ew, Article 6.4 describes a particular situation, where
the like product of the complaining Member is not s ubsidized, in which situation a demonstration that
market share of the subsidized product complained of increased suffices to make a prima facie case of
displacement or impedance under Article 6.3(b).

7.1768 In this case, unlike Indonesia – Autos , there is no question that Article 6.4 is relevant.
However, while the United States has made a claim under Article 6.3(b), to which Article 6.4 refers, it

5270 US, Comments on EC Answer to Panel Question 202, para. 224.
5271 EC, SWS, paras. 1102: "Article 6.4 then qualifies Article 6.3(b) by setting out the manner and
means by which claims of displacement or impedance in third country market s can be asserted." As discussed
further below, the European Communities takes a similar position with respect to claims of price undercutting
under Article 6.3(c) and the pr ovisions of Article 6.5. Id., para. 1107: "As with Article 6.4 and third-country
market displacement or impedance claims, Article 6.5 describes the complete universe in which a price
undercutting analysis must be demonstrated."

BCI deleted, as indicated [***]

does not purport to rely on the special rule set out in Article 6.4, but rather, asserts that it has
demonstrated that displacement or impedance of its exports from third country markets is the effect of
the subsidies in dispute.
7.1769 Our reading of Article 6.4 leads us to the c onclusion that if the circumstances set out in
Article 6.4 are satisfied, a further assessment of whethe r the changes in market share are "the effect of
the subsidy" is not necessary. Those circumstance s include that the exports allegedly displaced or
impeded are not themselves subsidized. We see nothing in the text of Article 6.4, or in its context or
object and purpose, however, which would suggest that the analysis set out therein is the exclusive
means of demonstrating displacement or impedance of exports for purposes of Article 6.3(b). As the
United States observes, Article 6.4 provides that, fo r the purpose of Article 6(3)(b), displacement or
impedance "shall include" the specific circumstances set out therein. 5274 The use of the phrase "shall
include" in our view indicates that there may be ot her circumstances, not set out in Article 6.4, in
which a Member could demonstrate displacement or impedance for purposes of Article 6.3(b). Rather
than limiting the circumstances in which Article 6.3(b) may be satisfied, we read Article 6.4 as simply
setting out additional guidance for the application of Article 6.3(b) in certain particular circumstances.
Thus, in our view, Article 6.4 establishes a particular set of circumstances in which displacement or
impedance of exports shall be found – where the product of the complaining Member is not
subsidized, and there has been a change in relative market shares to the disadvantage of that product –
without additional consideration of whether that change is the effect of the subsidies.
7.1770 We consider that the contrary interpretation suggested by the EC – that Article 6.4 is the
exclusive basis for a finding of displacement or impedance for purposes of Article 6.3(b) – would lead
to the absurd result that the SC M Agreement establishes a remedy for displacement or impedance of
exports in third country markets only in situations where the co mplaining Member's product is
demonstrated to be unsubsidized – effectively, a sort of "clean hands" requirement for complaining
Members as a prerequisite to a claim under Article 6.3(b). Not only is there no basis in the text for
such a requirement, but, as a practical matter, su ch a requirement would enormously complicate the
task of panels considering claims under Article 6.3( b). Not only would they have to consider whether
the challenged measures at issue in the dispute const itute subsidies, but they would have to consider
whether the Member challenging those measures itself provides any subsidy with respect to the
exported like product. Moreover, while the Europ ean Communities states that it asserts only that the
complaining Member's like product must not benefit from specific subsidies,
5275 there is nothing in the
term "non-subsidized like product" which suggests su ch a limitation. Thus, to accept the European
Communities' interpretation would leave open the po ssibility that a complaining Member would be
precluded from pursuing a claim under Article 6.3(b) (and 6.3(c)), because its like product benefits
from subsidies that do not fall within the definition of Article 1 of the SCM Agreement. We cannot
imagine on what basis a panel might undertake to examine this question. We simply cannot accept
that so much can be derived from the mere us e of the term "non-subsidized like product" in
Article 6.4. We therefore reject the European Co mmunities' view that Article 6.4 is the exclusive
basis for a finding of displacement or impedance under Article 6.3(b) of the SCM Agreement.
7.1771 We note that, while our interpretation of the text of Articles 6.3(b) and 6.4 does not result in
any ambiguity, and thus does not require resort to s upplementary means of interpretation, our view is
supported by consideration of the drafting histor y of the provisions. Article 6.3(b) of the
SCM Agreement is derived from Article 6.2 of th e Cartland Draft of 18 May 1990 (Cartland I).
Article 6.2 of Cartland I set out four situations in which serious prejudice "may arise" in subsections
(a) through (d), which correspond to subsections (a) through (d) of Article 6.3 of the SCM
Agreement:

5274 US Comment on EC, Answer to Panel Question 202.
5275 EC, Answer to Panel Question 202, para. 262,

BCI deleted, as indicated [***]

"Serious prejudice may arise in any case where one or several of the following apply:
 (a) the effect of the subsidy is to displace or impede the imports of like
product into the market of the subsidizing country;
 (b) the effect of the subsidy is to displace the exports like product of another
signatory from a third country market;
 (c) there is a significant price undercutting by the subsidized products as
compared with the price of a like product of another signatory in the same market
resulting in price suppression, price depression or lost sales;
 (d) the world market share of the s ubsidizing country in a specific product
has increase compared to the share it had duri ng the previous period of {X years} and
this increase results from a consistent tre nd over a period when subsidies have been
granted."
Cartland I then went on to set out three Articles giving additional guidance with respect to subsections
(a) through (c). Article 6.4 of Cartland I provided:

"For the purposes of paragraph 2(a), displacing or impeding imports shall include any
case in which a subsidy has been grante d or significantly increased on a product
which directly competes with the product on which a GATT concession or another
GATT benefit has been granted."
Article 6.5 of Cartland I provided:

"For the purpose of paragraph 2(b), displacing exports shall include any case in
which, in the absence of circumstances enum erated in paragraph 8 below, there has
been a change in relative shares of th e market to the disadvantage of the non-
subsidized product (over a period of one year or more)."
5276
Finally, Article 6.6 of Cartland I provided:

"For the purpose of paragraph 2(c), price undercutting or price suppression should be
demonstrated through comparing prices of the subsidized product with prices of like
non-subsidized products supplied to the sa me market. However, if such direct
comparison is not possible, the existence of price undercutting or price
suppression may be demonstrated on the basis of export unit values."
These provisions remained in subsequent drafts of the SCM Agreement, with the exception of
Article 6.4 of Cartland I. Articles 6.5 and 6.6 of Cartland I are substantially the same as Articles 6.4
and 6.5 of the SCM Agreement; Article 6.4 of Car tland I has no corollary in the SCM Agreement as
adopted. In our view, both Articles 6.4 and 6.5 of Ca rtland I delineated particular factual situations in
which serious prejudice would be found to exist without requiring the establishment of a causal link
between the observed phenomena and the subsidies. Thus, where the product of the complaining
Member is not subsidized, Article 6.4 of th e SCM Agreement provides for a lesser burden to
demonstrate serious prejudice. We consider that this interpretation fits with the overall architecture of
Article 6 as originally negotiated and adopted, with different burdens for establishing serious
prejudice, ranging from "deemed" serious prejudice in the case of certain subsidies under Article 6.1,

5276 Paragraph 8 of Article 6 of Cartland I set out "circumstances necessary to rebut the existence of
displacement in the sense of" Article 6.5, which are largely reflected in Article 6.7 of the SCM Agreement.

BCI deleted, as indicated [***]

to a lesser burden for complaining Members with "clean hands", i.e., an unsubsidized competing
product, to the requirement to prove that the mark et effects of displacement or impedance are the
effect of the subsidies.

7.1772 We now turn to consider the data and argum ents the parties have submitted on the question
whether United States' exports have been displaced or impeded from third country markets.
(i) Market Share Information in Individual Third Country Markets
7.1773 In support of its claim that Airbus LCA di splaced or impeded exports of Boeing LCA from
third country markets, the United States has submitted evidence similar to that submitted in support of
its claim of displacement or impedance in the EC market under Article 6.3(a). The United States thus
presents information concerning the number of LCA deliveries to customers in Australia from 2001 to
2005,
5277 in China from 2001 to 2006,5278 as well as aggregate information on the number of deliveries
to all customers outside the United States and the European Communities from 2001 to 2006. 5279 The
United States also provides information on allegedly increased Airbus market share between 2001 and
2005 in Singapore, Korea, Brazil, the Separate Customs Territory of Taiwan, Penghu, Kinmen and
Matsu ("Chinese Taipei"), Mexico and India, without providing specific quantity data.5280 The United
States also asserts that information for 2006 show s that Boeing had increased market share in that
year in some of these countries, and decreased market share in others; the United States asserts that in
no case did Boeing's market share return to 2001 levels. 5281 The United States argues that Airbus
made very large gains in third country market sh are in 2003 and 2004 and has maintained most of its
gains in those growing markets. 5282 The United States also presen ts information on the number of
orders for LCA by Indian customers during 2001-2005.5283
7.1774 The European Communities does not contest the ac curacy of the information presented by the
United States. Rather, it defends against the United States' claim under Article 6.3(b) by relying on
the same arguments concerning the subsidized and li ke product, the appropriate reference period, and
the use of order data rather than deliveries, as it did with respect to the United States claim under
Article 6.3(a). Again, the European Communiti es presents its own data showing deliveries (and
orders) for separate categories of LCA in individu al third country markets. Thus, the European
Communities submits data with respect to the "si ngle aisle" LCA deliveries (comprising the A320
family and Boeing 737 Classic and NG and Boei ng 717 and 757 families, and the MD-90) to
customers in Australia, Brazil, China, Chinese Taipei, India, Korea, Mexico and Singapore; 5284
deliveries of 200-300 seat LCA (comprising the Ai rbus A300, A310, A330, and A350 families, and
the Boeing 767 and 787 LCA families) to customer s in Australia, Brazil, China, Chinese Taipei,
India, Korea and Mexico, 5285 and deliveries of 300-400 seat LCA (comprising the Airbus A340 and

5277 US, FWS, para. 773, table 12.
5278 US, SWS, para. 703, table 3.
5280 US, FWS, para. 773.
5281 US, SWS, para. 703. The United States provided no details concerning quantities involved, or
which countries showed increases and which showed decreases.
5282 US, SWS, para. 705.
5283 US, FWS, para. 774, table 13.
5284 EC, FWS, paras. 1951-52, 1954-55, 1957-58, 1961-62, 1963,1965-66, 1968-69, 1971-72. See,
footnote 1962 for the list of the models the European Communities has included in the "single-aisle" market in
the context of third country markets, which differs from the list it included in the "single-aisle" market in the
context of the EC market. See, paragraph 7.1756 above.
5285 EC, FWS, para. 2028.

BCI deleted, as indicated [***]

Boeing 777 and MD-11 LCA families) to customers in China, Chinese Taipei, India, Korea, and
Singapore.
5286
7.1775 Having presented data by aircraft type and individual country, the European Communities
argues that, even where Airbus' market share of or ders or deliveries increased during the period 2001
to 2006, for example with respect to the A320 in some third country markets, there is no basis to make
a finding of impedance or displacement because th e very limited number of or ders and deliveries or
the very sporadic nature of such orders or deliv eries make it very difficult to draw any conclusions
regarding trends in market share.5287 The European Communities suggests that the Panel cannot draw
conclusions about trends in market share, and therefore it should make no findings under
Article 6.3(b).5288 Moreover, the European Communities ass erts, in some of these third country
markets, Boeing's share of deliveri es of single-aisle LCA has increased. 5289 Based on the data it
presents, the European Communities ar gues that a clear change in market share in Airbus' favour in
individual third country markets cannot be discerned in the period 2001 to 2006.5290
7.1776 The United States argues that, if the Panel were to agree with the European Communities that
there is insufficient data to examine any of th e individual third country markets identified by the
United States, the solution is not, as the European Communities suggests, to make no finding. Rather,
the United States notes that both parties recognize that the LCA market is a world market, and
therefore suggests that the Panel examine whether the effect of the subsidy is to displace or impede
the exports of Boeing LCA to the world market or to the markets of all third countries taken as a
whole.5291 In support of this position, the United States points to the chapeau of Article 6.3, which
provides that serious prejudice "may arise in any cas e where" one or more of the specific enumerated
market effects applies, but it does not prevent a fi nding of serious prejudice in other situations as
well.5292 The European Communities argues that even if the Panel were to consider delivery data for
all third country markets aggregated on the basis of aircraft type, it would be unable to ascertain any
clear trends for the 2004 to 2007 period as many of these markets have only a few customers and
demand is idiosyncratic.5293
7.1777 We recall that we have previously examin ed and rejected the European Communities'
arguments in respect of the appropriate subsidized and like product, the reference period, and the use
of order data rather than deliveries in eval uating claims of displacement or impedance. 5294 We
therefore begin our evaluation of the United States' claim under Article 6.3(c) by focussing on the
information the United States has presented in respect of individual third country markets.
7.1778 The United States initially presented annual data for Airbus and Boeing LCA deliveries to
Australia and China for the period 2001 to 2005, and updated the information for China to include
data for 2006. In addition, the United States submitted information show ing increases in Airbus'
market share from 2001 to 2005 in Singapore, Korea, Brazil, Chinese Taipei, Mexico and India,
without specifying the quantities involved.
5295 Reflecting, as we understand it, its claim of threat of

5286 EC, FWS, paras. 2118-2119.
5287 EC, FWS, para. 1975.
5288 EC, FWS, para. 1975, 2029, 2033.
5289 EC, FWS, paras. 1974 - 1975.
5290 EC, FWS, paras. 1933-1998, 2024-2053, 2113-2135.
5291 US, FNCOS, paras. 174-75, US, SWS, para. 704.
5292 US, FNCOS, para. 175. The United States emphasizes that it makes argument only in the
alternative, if the Panel accepts the European Communities' position.
5293 EC, SWS, para. 1146.
5294 See, paras. 7.1680 and 7.1748 above.
5295 US, FWS, para. 773.

BCI deleted, as indicated [***]

serious prejudice in the form of likely future displ acement in the Indian market, the United States also
submitted order data for the Indian market for the period 2001 to 2005.5296
7.1779 The European Communities submitted information on deliveries of LCA to the same markets
over the period 2001 to 2006, but in disaggregated form, reflecting its view that there are multiple
Airbus subsidized products and Boeing like produ cts. The data presented by the European
Communities in respect of deliveries to third co untry markets presents the same concerns as the
information it presented on deliveries to the EC ma rket, with respect to the failure to include
deliveries of the Boeing 747 and the treatment of aircraft owned by leasing companies and delivered
to operating airlines in individual third country ma rkets, an approach we have rejected above.
5297
Thus, for the reasons previously expressed we do no t consider the data presented by the European
Communities on LCA deliveries to third country market s to be accurate or reliable for the purpose of
evaluating the United States' claims of displace ment and impedance under Article 6.3(b) of the
SCM Agreement. Nonetheless, in the analysis that follows, we consider the data submitted by the
European Communities for the third country mark ets for which the United States provided quantity
data.
Australia
7.1780 A review of the data presented by the United States for the period 2001 to 2005 shows that
Boeing's share of the Australian LCA market decr eased during that period, while Airbus nearly
doubled its share. In 2001, Boeing's share of Aust ralia's market by volume was 78%; it increased to
88% in 2002, then dropped to 63% in 2003, and to 50% in 2004 be fore increasing to 60% in 2005.
Airbus' share of the Australian market for LCA, on the other hand, was 22% in 2001, dropped to 12%
in 2002, increased to 37% in 2003 and 50% in 2004 before dropping to 40% in 2005. Overall, Airbus'
share of Australia's market for LCA increased 18 percentage points from 2001 to 2005, while
Boeing's market share declined by the same amount.
Table 22 – Australia – Number of LCA delivered5298

2001

2002

2003

2004

2005

Airbus

2

4

11

12

6

Boeing

7

30

19

12

9

Total

9

34

30

24

15

5296 US, FWS, paras. 773-774, US, SWS, para. 704.
5297 See, para. 7.1756 above. See, EC, FWS, footnotes 1962 (the European Communities counted
Boeing 757 and MD-90 in computing market share in th e single aisle market for third countries); 1964, 1974,
1980, 2048, and 2155, (explaining EC treatment of deliveries of LCA owned by leasing companies) .
5298 US, FWS, Table 12, para. 773.

BCI deleted, as indicated [***]

Chart 5 Australia - Market Share (Quantity of LCA delivered)
5299

0%
20%
40%
60%
80%
100%
2001 2002 2003 2004 2005
Airbus
Boeing

A similar pattern appears when we aggregate a nd examine the data presented by the European
Communities, which, we recall, we do not consider to be accurate or reliable.

Table 23 – Australia – Number of LCA delivered (EC data)5300

2001

2002

2003

2004

2005

2006

Airbus

0

2

4

8

12

7

Boeing

1

16

14

10

10

11

Total

1

18

18

18

22

18

5299 US, FWS, Table 12, para. 773.
5300 EC, FWS, paras. 1952, 2032 and 2119-2120.
 US Airbus Boeing
2001 22% 78%
2002 12% 88%
2003 37% 63%
2004 50% 50%
2005 40% 60%

BCI deleted, as indicated [***]

Chart 6 Australia - Market Share (Quantity of LCA delivered) (EC data)

2001

2002

2003

2004

2005

2006

Airbus

0%

11%

22%

44%

55%

39%

Boeing

100%

89%

78%

56%

45%

61%

0%
20%
40%
60%
80%
100%
120%
2001 2002 2003 2004 2005 2006
Airbus
Boeing

China
7.1781 A review of the data presented by the United States for the period 2001 to 2006 shows that
Airbus gained a substantial share of the Chinese market during that period. In 2001, Boeing's share of
the Chinese market by volume was 71%; it increase d to 81% in 2002, dropped to 56% in 2003, and
again to 36% in 2004, before increasing to 47% in 2005, and then dropping to 46% in 2006. Airbus'
share of the Chinese market for LCA was 29% in 2001, dropped to 19% in 2002, increased to 44% in
2003 and 64% in 2004, dropped to 53% in 2005 and increased to 54% in 2006. Thus, Airbus' share of
the Chinese market for LCA incr eased 25 percentage points from 2001 to 2006, while Boeing's
market share declined by the same amount.

BCI deleted, as indicated [***]

Table 24 – China – Quantity of LCA delivered
5301

2001

2002

2003

2004

2005

2006

Airbus

9

7

22

35

56

76

Boeing

22

31

28

20

50

66

Total

31

38

50

55

106

142

Chart 7 China – Market share (quantity of LCA delivered) 5302

0%
20%
40%
60%
80%
100%
2001 2002 2003 2004 2005 2006
Airbus
Boeing

Again, essentially the same trends are visible when we examine, in aggregate, the data submitted by
the European Communities in aggregated form, which, we recall, we do not consider to be accurate or
reliable.

Table 25 – China – Quantity of LCA delivered (EC data)
5303

2001

2002

2003

2004

2005

2006

Airbus 5 2 18 21 45 43

Boeing 10 18 13 11 28 24
 Total 15 20 31 33 73 64

5301 US, SWS, Table 3, para. 703.
5302 US, SWS, Table 3, para. 703.
5303 EC, FWS, paras. 1958, 2032 and 2119-2120.
 US Airbus Boeing
2001 29% 71%
2002 19% 81%
2003 44% 56%
2004 64% 36%
2005 53% 47%
2006 54% 46%

BCI deleted, as indicated [***]

Chart 8 China - Market share (quantity of LCA delivered) (EC data)

2001

2002

2003

2004

2005

2006

Airbus 33% 10% 58% 66% 62% 64%

Boeing 67% 90% 42% 34% 38% 36%

0%
20%
40%
60%
80%
100%
2001 2002 2003 2004 2005 2006
Airbus
Boeing

India
7.1782 The United States does not present data on the number of LCA delivered to the Indian market,
but does assert that Airbus' share of the Indian market, in terms of deliveries, increased from 0 in 2001
to 76 percent in 2005. The European Communities di d present data on deliveries to the Indian market
which similarly shows an increase in Airbus' market share, which we set out below, although, we
recall that we do not consider this data to be accurate or reliable.
Table 26 – India – Quantity of LCA delivered (EC data)5304

2001

2002

2003

2004

2005

2006

Airbus 0 0 0 0 4 17

Boeing 4 4 2 0 0 12

Total 4 4 2 0 4 29

5304 EC, FWS, para. 1962.

BCI deleted, as indicated [***]

Table 27 – India – Market share (quantity of LCA delivered)(EC data)

2001

2002

2003

2004

2005

2006

Airbus 0% 0% 0% no
deliveries
100% 59%

Boeing 100% 100% 100% no
deliveries
0% 41%

7.1783 The United States also presented information concerning orders by Indian customers, arguing
that large new orders threaten additional disp lacement of Boeing exports for years to come. 5305 As
discussed above, we do not consider data on orders to be persuasive evidence of current displacement
or impedance, which in our view more appropria tely involves a consideration of actual deliveries
reflecting actual imports and exports. Nonetheless, orde rs are an indicator of likely future deliveries,
albeit imperfect,5306 and thus we review the information presented as an indicator of threat of future
displacement or impedance of exports from the Indian market. In this regard, although the
United States did not extensively argue the issue, we recall that it did present a claim of threat of
serious prejudice under Article 6.3(b) of the SC M Agreement, and requested findings in that
regard.
5307
7.1784 The data on orders for the period 2001 to 20 05 presented by the United States demonstrates
that Airbus gained most of the orders for LCA in the Indian market during that period. In 2000 and
2001 there were no orders for LCA by Indian cu stomers. While Boeing obtained 100 per cent of
orders in the Indian market in 2003, Airbus obtai ned 100 per cent in 2004. In 2005, Airbus' share of
orders in the Indian market dropped to 70 per cen t while Boeing's share increased to 30 per cent.
However, the actual number of LCA represented by th ese orders paints a very different picture than
the percentages. Boeing's 100 percent of orde rs in 2003 represents one LCA, while Airbus'
100 percent in 2004 represents two LCA. However, in 2005, there were 225 orders for Airbus LCA,
compared with 98 orders for Boeing LCA, representi ng a massive increase in the Indian market. This
indicates that, as these LCA are delivered over the ensu ing years, it is likely that Airbus will have a
significantly greater share of the Indian market than Boeing. While Boeing may obtain additional
orders, and may even obtain orders for more LCA th an Airbus, in the future, those LCA would likely
be delivered at an even later date than the already-ordered LCA, and thus the more immediate future
is likely to be an Indian market with more deliveries of Airbus LCA than of Boeing LCA.
Table 28 – India – Quantity of LCA ordered5308

 2001 2002 2003 2004 2005
Airbus 0 0 0 2 225
Boeing 0 0 1 0 98
Total 0 0 1 2 323

5305 US, FWS, para. 774.
5306 See, para. 7.1724 above .
5307 WT/DS316/2, p. 4 (request for establishment), US, FWS, para. 842(2) (request for findings).
5308 US, FWS, Table 13, para. 774.

BCI deleted, as indicated [***]

Chart 9 India - Market Share Information on the basis of orders 5309

0%
20%
40%
60%
80%
100%
120%
2001 2002 2003 2004 2005
Airbus
Boeing

A similar pattern is apparent when we examine the data on orders submitted by the European
Communities in aggregated form, which, we recall, we do not consider to be accurate or reliable.

Table 29 – India – Quantity of LCA ordered (EC data)5310

2001

2002

2003

2004

2005

2006

Airbus 0 0 0 2 216 52

Boeing 0 0 1 0 66 30

Total 0 0 1 2 282 82

Table 30 – India – Market share (quantity of LCA ordered) (EC data)

2001

2002

2003

2004

2005

2006

Airbus No orders No orders 0% 100% 77% 63%

Boeing No orders No orders 100% 0% 23% 37%

5309 US, FWS, Table 13, para. 774.
5310 EC, FWS, paras. 1962, 2028 and 2118.
 US Airbus Boeing
2001 0% 0%
2002 0% 0%
2003 0% 100%
2004 100% 0%
2005 70% 30%

BCI deleted, as indicated [***]

Chart 10 India - Market Share Information on the basis of orders (EC data)

0%
20%
40%
60%
80%
100%
120%
2001 2002 2003 2004 2005 2006
Airbus
Boeing

Other Individual Third Country Markets
7.1785 The United States also asserted that Airbus' market share of delivered LCA increased from
2001 to 2005 from 11% to 73% in Singapore, from 17% to 44% in Korea, from 50% to 86% in Brazil,
from 38% to 56% in Chinese Taipei, and from 29% to 50% in Mexico.
5311 In its second written
submission, the United States noted, without providing further specifics, that "while Boeing's market
share increased from 2005-2006 in some of {the countr ies listed} and decreased in others, in no case
did Boeing's market share recover to 2001 levels".5312
7.1786 The European Communities did submit data on the number of LCA delivered to these other
third country markets. We recall that we have c oncluded that the EC data on deliveries to Australia,
China and India is neither accurate nor reliable. 5313 Particularly in the case of these other third
country markets, in view of the small number of deliveries involved, the effects of the European
Communities' counting methodology may well be significant. As a result, the European
Communities' information on deliveries to these markets is, in our view, even less accurate or reliable
than the information presented by the European Communities on deliv eries to Australia, China, and
India. As a consequence, we are hesitant to even review the information, and we consider it
impossible to draw any conclusions concerning trends in deliveries. Nonetheless, we have aggregated
the information presented by the European Communities, with the results shown below.

5311 US, FWS, para. 773, following Table 12(B).
5312 US, SWS, para. 703.
5313 See, paragraph 7.1756 above. The European Communities applied the same counting principles
that led to our conclusion when counting deliveries to other third country markets. We recall that the European
Communities does not count deliveries of the Boeing 74 7, but it has included deliveries of the Boeing 757
model into the "single-aisle" market in third countries. EC, FWS, footnote 1962, ("For purposes of computing
market share, the single-aisle market includes the Boeing 737 Classic, 737NG, 717, MD-90, 757 and Airbus
A320 families"). We also recall that we rejected the European Communitie s' approach treating deliveries of
LCA owned by leasing companies as deliveries to the count ry of the leasing company, and not the country of
the airline operating that LCA, see, para. 7.1756 above, which the European Communities applied in counting
deliveries to third country markets. EC, FWS, fns. 2047 and 2155. In this particular instance, we have not
undertaken to exhaustively review the data to determine the extent to which the European Communities'
counting principles affect the data it has submitted, considering it apparent that the European Communities'
methodology skews the number of deliveries to support ou r view that the information is neither accurate nor
reliable.

BCI deleted, as indicated [***]

Table 31 – Brazil – Quantity of LCA delivered (EC data)5314

2001

2002

2003

2004

2005

2006

Airbus 9 14 0 0 2 5

Boeing 0 0 0 0 1 11

Total 9 14 0 0 3 16

Table 32 – Brazil – Market share (quantity of LCA delivered) (EC data)

2001

2002

2003

2004

2005

2006

Airbus 100% 100% no
deliveries
no
deliveries
67% 31%

Boeing 0 0 no
deliveries
no
deliveries
33% 69%

Table 33 – Chinese Taipei – Quantity of LCA delivered (EC data)5315

2001

2002

2003

2004

2005

2006

Airbus 5 0 1 3 7 4

Boeing 0 0 0 0 2 2

Total 5 0 1 3 9 6

5314 EC, FWS, paras. 1954, 2028. The European Communities reported no deliveries in the 300-400
seat market.
5315 EC, FWS, paras. 1961, 2028, 2119.

BCI deleted, as indicated [***]

Table 34 – Chinese Taipei – Market share (quantity of LCA delivered) (EC data)

2001

2002

2003

2004

2005

2006

Airbus 100% no
deliveries
100% 100% 78% 67%

Boeing 0 no
deliveries
0 0 22% 33%

Table 35 – Korea – Quantity of LCA delivered (EC data
)5316

2001

2002

2003

2004

2005

2006

Airbus 3 3 3 3 4 4

Boeing 6 9 5 5 4 3

Total 9 12 8 8 8 7

Table 36 – Korea – Market share (quantity of LCA delivered) (EC data)

2001

2002

2003

2004

2005

2006

Airbus 33% 25% 38% 38% 50% 57%

Boeing 67% 75% 62% 62% 50% 43%

Table 37 – Mexico – Quantity of LCA delivered (EC data)5317

2001

2002

2003

2004

2005

2006

Airbus 0 0 0 0 0 2

Boeing 3 0 5 6 6 9

Total 3 0 5 6 6 11

5316 EC, FWS, paras. 1965, 2028. The European Communities reported no deliveries in the 300-400
seat market.
5317 EC, FWS, paras. 1968, 2028. The European Communities reported no deliveries in the 300-400
seat market.

BCI deleted, as indicated [***]

Table 38 – Mexico – Market share (quantity of LCA delivered) (EC data)

2001

2002

2003

2004

2005

2006

Airbus 0 No
deliveries
0 0 0 18%

Boeing 100% No
deliveries
100% 100% 100% 82%

Table 39 – Singapore – Quantity of LCA delivered (EC data)5318

2001

2002

2003

2004

2005

2006

Airbus 2 1 5 4 2 6

Boeing 12 12 9 4 3 6

Total 14 13 14 8 5 12

Table 40 – Singapore – Market share (quantity of LCA delivered) (EC data)

2001

2002

2003

2004

2005

2006

Airbus 14% 8% 36% 50% 40% 50%

Boeing 86% 92% 64% 50% 60% 50%

7.1787 We note that the European Communities argues that the United States' allegation of
displacement or impedance of exports from th e 300-400 seat LCA market in China, Chinese Taipei,
Korea, and Singapore "borders on the surreal", asser ting that the deliveries of such LCA to those
markets are based on orders for which Airbus did not compete, or orders by leasing companies which
subsequently decided to lease the aircraft to air lines operating in these markets. According to the
European Communities, "Airbus therefore cannot be accused of displacing or impeding Boeing from
these third country markets."
5319 It is not clear to what extent, if any, the European Communities
considers this argument applies with respect to other categories of LCA or other third country
markets. We note, however, that we have elsewh ere rejected the European Communities' view of
whether a manufacturer "competes" for a given sale. 5320 In addition, we do not agree that Airbus
aircraft leased to an airline operating in a gi ven market cannot be considered as displacing or
impeding Boeing exports to that market simply because the lease post-dates the leasing company's
order to Airbus. Whether Airbus knew or intended that a particular aircraft sold to a leasing company
would be leased to a particular company operating in a particular country is simply irrelevant – the
question, for purposes of assessing displacement or im pedance, in our view, is the country to which
Airbus actually delivered the aircraft, which is the country of the operating airline.

5318 EC, FWS, paras. 1971, 2119. The European Communities reported no deliveries in the 200-300
seat market.
5320 See, para. 7.1722 above.

BCI deleted, as indicated [***]

(ii) Market Share information in Third Country Markets Considered as a Whole
7.1788 While the United States argued that the Panel could, and if necessary should, consider
information on all third country markets, that is, assess displacement of United States' exports from all
markets other than the United States and EC,
5321 we do not consider it necessary in this case to do so,
as we consider that the information before us is sufficient to draw conclusions concerning
displacement or impedance from a third country ma rket with respect to certain individual third
country markets.
7.1789 In any event, we have serious doubts whether an analysis of all third country markets as a
whole would be permissible under Article 6.3(b) in any case. Article 6.3(b) refers to whether the
effect of the subsidy is to displace or impede e xports from "a third country market", not "all third
country markets" or "the global market outside the complaining and subsidizing Members".
However, in this case, we are not required to resolve that question, and we do not address the
United States' contentions and evidence concerning third country markets as a whole.
(iii) Conclusion
7.1790 On the basis of the information presented by the United States, the accuracy of which the
European Communities does not dispute, it is clear th at in certain individual third country markets,
Airbus' market share increased significantly over th e period 2001 to 2005, and even in 2006 remained
higher than Boeing's market share, and that Airbus obtained a significantly larger number of orders in
the Indian market than did Boeing. As the only other competitor in the relevant markets over the
period we are considering was Airbus, it follows th at the evidence demonstrates that Boeing's exports
of LCA were displaced from the markets of Australia and China by sales of Airbus LCA over the
period we examined, and that there is a likelihood of future displacement of Boeing LCA from the
Indian market.
7.1791 The situation is less compelling with respect to the markets of Brazil, Chinese Taipei, Korea,
Mexico and Singapore, where sales were sporad ic and volumes were re latively small, making
identification of any trends more difficult.
5322 Nonetheless, as Airbus was the only other competitor in
these markets over the period we are considering, it fo llows that any market share achieved by Airbus
was at the expense of Boeing. Thus, we consider that the evidence demonstrates that United States'
exports of LCA were displaced from these markets by sales of Airbus LCA over the period we
examined as well.
7.1792 We address whether the displacement we have observed in the third country markets at issue
is an effect of the specific subs idies we have found were granted to Airbus with respect to LCA in
Section (e) below.
(d) Alleged price effects
7.1793 Article 6.3(c) provides that
"Serious prejudice in the sense of paragraph (c) of Article 5 may arise in any case
where one or several of the following apply:

5321 US, FWS, para. 772, US, SWS, para. 705. Brazil agrees with the United States that if data on
exports to certain third country markets is insufficient, the Panel may conduct an analysis of displacement or
impedance under Article 6.3(b) of the SCM Agreement based on the aggr egate of all third country markets.
Brazil, Third Party Submission, para. 60 referring to Appellate Body Report, US – Upland Cotton, para. 427.
5322 We note in this regard that Article 6.3(b) does not contain any requirement that the displacement or
impedance of exports from a third country market rise to any particular level or degree.

BCI deleted, as indicated [***]

(c) the effect of the subsidy is a significant price undercutting by
the subsidized product as compared with the price of a like product of
another Member in the same market or significant price suppression,
price depression or lost sales in the same market;"
The United States argues that each of these phenomena, namely, price undercutting, price
suppression, price depression and lost sales, can be de monstrated as separate and individual claims on
the basis of the facts that are before the Panel.

7.1794 Before addressing the parties' arguments and evidence on these allegations individually
below, we note that in US – Upland Cotton the Appellate Body concluded, based on a plain reading of
Article 6.3(c) and the phrase "in the same market" "that this phrase applies to all four situations
covered in that provision, namely, "significant price undercutting", "significant price suppression,
price depression {and} lost sales"." We agree.
7.1795 In US-Upland Cotton, the panel considered the meani ng of the term "significant" in the
context of price suppression and depression, observi ng that "{t}he ordinary meaning of the term
"significant" is "important; notable ... conseque ntial". The term "significant" therefore connotes
something that can be characterized as important, notable or consequential.
5323 The panel went on to
observe that
"Such significance may be manifest in a number of ways. The "significance" of any
degree of price suppression may vary from case to case, depending upon the factual
circumstances, and may not solely de pend upon a given level of numeric
significance.
1441 Other considerations, including th e nature of the "same market" and
the product under consideration may also enter into such an assessment, as
appropriate in a given case. … We cannot believe that what may be significant in a
market for upland cotton would necessarily also be applicable or relevant to a market
for a very different product.
1441In any event, we note that no such numeri c standard is provided in Part III of the
Agreement. This contrasts, to a certain extent, with the provisions of Part V of the
agreement, which contain, for example, indications of "amount" of the subsidy which
are de minimis (less than 1 per cent ad valorem ) and volumes of the "subsidized
product" which are negligible. See e.g., Article 11.9 of the SCM Agreement."5324
The Appellate Body agreed with the Panel's understa nding of the term "significant" in the context of
"significant price suppression" in Article 6.3(c), and noted in addition that:

"Article 6.3(c) does not set forth any specific methodology for determining whether
the effect of a subsidy is significant price suppression. There may well be different
ways to make this determination."
5325

5323 Panel Report, US – Upland Cotton, para. 7.1325, quoting New Shorter Oxford English Dictionary ,
(1993).
5324 Panel Report, US – Upland Cotton, para. 7.1329.
5325 Appellate Body Report, US – Upland Cotton, paras. 426-427.

BCI deleted, as indicated [***]

7.1796 We agree with this understanding of the term "significant" as used in Article 6.3, and consider
that, as with the term "in the same market", based on a plain reading of the text of Article 6.3(c), the
term "significant" applies to each of the situa tions addressed in the provision, that is "price
undercutting", "price suppression", "price depression " and "lost sales". With these fundamental
principles in mind, we turn to consideration of the evidence and arguments with respect to price
effects.
(i) Significant Price Undercutting and Lost Sales
7.1797 In support of its allegations of significant pr ice undercutting and lost sales, the United States
relies principally on evidence concerning a series of sales campaigns in which the customers
ultimately ordered Airbus LCA. The United States asserts that in general, a ""lost" sale is any sale
that is captured by the subsidized product instead of the product of the complaining Member."
5326
7.1798 In examining the United States' allegations of significant price undercutting, we must also
consider Article 6.5 of the SCM Agreement, which provides:
"For the purpose of paragraph 3(c), price undercutting shall include any case in which
such price undercutting has been demonstr ated through a comparison of prices of the
subsidized product with prices of a non-subs idized like product supplied to the same
market. The comparison shall be made at the same level of trade and at comparable
times, due account being taken of any other factor affecting price comparability.
However, if such a direct comparison is not possible, the existence of price
undercutting may be demonstrated on the basis of export unit values."
Mirroring its argument in respect of the relationshi p between Articles 6.3(b) and Article 6.4 of the
SCM Agreement, the European Co mmunities asserts that the use of the term "non-subsidized like
product" in Article 6.5 means that a claim of price undercutting may only be made out if the
complaining Member can demonstrate that its lik e products do not benefit from any subsidy. The
European Communities argues that Boeing benefits from subsidies provided to the United States LCA
industry and, consequently, that the United States cannot demonstrate price undercutting as a matter
of law. The United States raises the same objections to the European Communities' view as it did in
connection with the interpretation of Article 6.4.
5327

7.1799 The argument advanced by the European Comm unities raises essentially the same question
we addressed above with respect to the relationship between Articles 6.3(b) and 6.4, and in our view,
the same result should be reached.
5328 Thus, and for the same reasons as discussed above, we do not
consider that Article 6.5 sets forth the exclusiv e means by which serious prejudice in the form of
significant price undercutting can be demonstrated. Rather, in our view, Article 6.5 sets out a
particular set of circumstances in which price unde rcutting can be found without further consideration
of whether the price difference is the effect of th e subsidy. That case is the one in which the like
product of the complaining Member is not subsidi zed, and a comparison of prices (at the same level
and at comparable times, taking due account of any other factor affecting price comparability) shows
the subsidized product price to be lower than the price of the non-subsidized like product.
7.1800 In this dispute, the United States' claim of significant price undercutting is based on anecdotal
evidence concerning particular sales campaigns, which it asserts demonstrates that the prices of
Airbus LCA sold in those campaigns were below th e prices offered by Boeing. However, the United
States does not stop there, but goes on to assert that th e lower prices offered by Airbus are an effect of

5326 US, FWS, para. 776.
5327 See, discussion of the parties' arguments in this regard at paragraphs 7.1762 through 7.1764 above.
5328 See, paragraphs 7.1765 through 7.1771 above.

BCI deleted, as indicated [***]

the subsidies. Thus, in our view, the United States has not sought to rely on the special circumstances
set out in Article 6.5. Therefore, if the evidence demonstrates that the price of Airbus LCA was lower
than the price of Boeing LCA, we will go on to cons ider whether this demonstrates significant price
undercutting, and if so, whether such price undercutting is the effect of the subsidies in dispute.
7.1801 The United States supports its claims of si gnificant price undercutting and lost sales
principally by reference to various sales campaigns. In particular, the United States asserts that in
sales campaigns involving purchases of LCA by easyJet, Air Berlin, Air Asia, Iberia, Czech Airlines,
South Africa Airways, Thai Airways, Singapore, Emirates and Qantas, customers evaluated
competing bids from Airbus and Boeing, and chose the Airbus LCA offered over the equally qualified
LCA offered by Boeing. According to the United States, these sales were captured by Airbus
"primarily by significantly undercutting the price offered by Boeing."
5329 However, the United States
also argues that Airbus won the sales because it was ab le to present a particular model of Airbus LCA
with particular features at the time of the sales campaign. 5330 The United States argues that any non-
price factors which may have been relevant to t hose sales were monetized by both the manufacturers
and the customers, such that when the customer made its decision, all such factors were incorporated
into the price offered by the manufacturer for the pa rticular model in question. In other words, the
United States considers that a customer's monetization of non-price factors means the customer is able
to determine which LCA model offers the lowest pr ice, taking into due account all relevant factors
affecting comparability. To this extent, the Unite d States argues that non-price factors do not break
the causal link between prices and lost sales.
7.1802 The European Communities does not dispute that in the sales campaigns identified by the
United States, Boeing "lost" the sales in question, in the sense that it did not succeed in selling its
LCA to the customer in question. However, it consid ers that the sales were lost for reasons other than
price. In the European Communities' view, Boeing's failure to make certain sales was not the result of
significant price undercutting on the part of Air bus but, rather, was due to Boeing's customer
mismanagement and the perceived benefits of the par ticular Airbus product offered. According to the
European Communities, Airbus sales campaigns were successful because Airbus LCA offered
operating advantages to the carriers at issue a nd, especially during the period 2001-2004, because
Boeing allegedly failed to focus on customer relations. 5331 In respect of campaigns where there is
evidence of aggressive price competition, the Europ ean Communities argues that this is the result of
competition which was often aggressive for strategi c or economic reasons (especially following the
collapse of aircraft demand during the 2001 to 2003 period). According to the European
Communities, these factors not only demonstrate that there was no price undercutting, but further, that
the lost sales cannot be considered to be an effect of the subsidies.
The Sales Campaigns

easyJet
7.1803 The United States asserts this was the largest single lost sale for Boeing during the period
2001 to 2005. According to the United States, ea syJet was an exclusivel y Boeing customer until it

5329 US, FWS, para. 776.
5330 US, SWS, paras. 708-09, US, Answer to Panel Question 54, paras. 307-09.
5331 The European Communities relies, inter alia , on the following statement in support of this
argument, EC, FWS, para. 1465:
"As I mentioned, last year there were two large orders that Airbus may have won on pricing
alone. In both instances Boeing was the incu mbent and lost out to Airbus. I'm not sure
pricing was the whole issue."
The European Communities attributes this statemen t to Henry Stonecipher, former CEO of Boeing.
However, the source of the statement, Exhibit EC-287, clear ly attributes it to a J.B. Groh, a market analyst with
D.A. Davison & Co.

BCI deleted, as indicated [***]

announced, on 14 October 2002, an order for 120 Airbus A319s with options for 120 more.
5332
Following the announcement, a number of reports in the media, quoting senior officials, suggested
that the company's decision was attr ibutable to the lower price offered by Airbus. A report in the
Financial Times stated that Stelios Haji-Ioannou, the founder of easyJet:
"said the price difference between the bids left the company with no choice: "The
difference was so substantial we would have been in breach of our fiduciary duty; it
would have been an offence to buy Boeing.""
 5333
The same article quoted easyJet CEO Ray Webster as saying that "it surprised all of us to see just how
aggressive Airbus was in the final round of sealed bids". 5334 Similarly, another article reported that
easyJet CEO Ray Webster stated that speculation th at Airbus won the sale by offering a 60 percent
discount off list prices "is 'a bit ambitious, but not far off. . . . I've been buying aircraft for 20 years
and I've never seen anything like it.'"
5335

7.1804 The United States also refers to public di sclosures by the company which, it asserts,
demonstrate a substantial discount off the list price for the A319 of 56 percent as of January 2001.
For instance, easyJet's 2005 annual report states that the only aircraft delivered to it in 2005 were 12
A319s, for which it paid GBP 167.7 million, a per-aircraft price of GBP 13.98 million. The
United States asserts that, according to easyJet, this is the actual price, net of concessions, paid to
Airbus in 2005, based on an order placed in 2001 US dollars. The delivery price of
GBP 13.98 million in 2005 British pounds sterling thus corresponds to an estimated order price of
$19.36 million in 2001 US dollars – a discount of 56 percent off the $44 million list price for the
A319 as of January 2001.
5336 In addition, the United States asserts that not only did Airbus discount
the price of each aircraft sold to easyJet by more than 50 percent, it also granted additional
concessions to offset the cost to easyJet of switchi ng its fleet from Boeing to Airbus. The letter from
easyJet to its shareholders seeking approval of the transaction spells out some of these concessions.5337
Finally, the United States asserts that easyJet estimated that the per-seat cost of the Airbus A319 to be
about one-third lower than the per-seat cost of th e Boeing 737 it had purchased just two years earlier,
a price that easyJet calculated meant that the deal would reduce its overall operating costs by
10 percent.5338 The United States asserts that this eviden ce demonstrates that Airbus won the easyJet
sale by undercutting the price offered by Boeing.5339
7.1805 The European Communities does not deny that Bo eing lost this sale to Airbus, but argues,
based on HSBI, that the reason was not the price of the Airbus LCA involved. The European
Communities asserts that the easyJet sale was profitable to Airbus, and "cash positive". 5340 T h e
European Communities asserts that there is no evidence to suppor t the United States' contention

5332 US, FWS, para. 779. EasyJet exercised 20 options in 2005, 91 of the LCA ordered had been
delivered by 31 December 2006, and delivery of the remaining LCA had been scheduled.
5333 Colin Baker, Easy Does It, Airline Business (1 December 2002), Exhibit US-408.
5334 Kevin Done, Airbus Beats Boeing in Warover Big Order , Financial Times (15 October 2002)
Exhibit US-407.
5335 Colin Baker, Easy Does It, Airline Business (1 December 2002), Exhibit US-408.
5336 US, FWS, paras. 780-781, citing easyJet plc, Annual Report and Accounts 2005, Exhibit US-409 at
19 and 67, and easyJet, Proposed Purchase of Airbus Aircraft and Notice of Extraordinary General Meeting
(25 February 2003) at 7, http://www.easyjet.com/EN/News/20030225_01.html, Exhibits US-380 and US-402.
5337 US, FWS, para. 782, citing easyJet, Proposed Purchase of Airbus Aircraft and Notice of
Extraordinary General Meeting (25 February 2003), Exhibit US-380 at 4.
5338 US, FWS, para. 783, citing easyJet, Proposed Purchase of Airbus Aircraft and Notice of
Extraordinary General Meeting (25 February 2003), Exhibit US-380, at 2, 4 and 8.
5339 See, US, Answer to Panel Question 236, para. 66 and evidence cited therein.
5340 EC, FWS, para. 1877. Merely that a sale was profitable does not demonstrate that there was not, in
our view, demonstrate that there was no price undercutting.

BCI deleted, as indicated [***]

except the reported statement of Ray Webster referring to a 60 percent discount and other concessions
to offset the cost of switching from Boeing to Airbus. The European Co mmunities argues that the
reported 60 percent discount is false, and contends that the Airbus price was competitive, but not
discounted to that level. 5341 Moreover, the European Communiti es asserts that Airbus was unwilling
to offer final concessions sought by easyJet that w ould have "deteriorate{d} the deal to unacceptable
level",5342 despite its importance to Airbus. Accordi ng to the European Communities, "even if low
prices caused Boeing to lose {the} sale, this was not caused by subsidies, given their asserted low
magnitude".5343 Moreover, the European Communities notes th at this sale took place at a time when
demand for LCA had collapsed, and asserts that bot h Airbus and Boeing offered "more competitive
pricing" at this time in an attempt to stimulate demand. 5344 The European Communities also argues
that the earlier Boeing sale to Ryan air, which Boeing secured some 10 months earlier, allegedly by
making an "exceptionally competitive offer", 5345 must be taken into account as well. The European
Communities asserts that Airbus competed strongly for that sale, and believed it had won it, but the
sale actually went to Boeing. 5346 In this circumstance, the easyJet sale became even more important
for Airbus to establish its presence with the expandi ng low-cost carriers. The European Communities
argues that the Ryanair price influenced Airbus' offer to easyJet.5347
7.1806 Having reviewed the information regarding this sales campaign, much of which is HSBI and
thus cannot be disclosed in this report, we conclude that it is broadly consistent with the published
statement of easyJet's founder concerning the sale. 5348 The European Communities refers to other,
"non-price" factors which allegedly supported Airbus' offer. 5349 It is clear that Airbus sought to
compete on the grounds that its product offering was superior, 5350 but Airbus itself recognized the
importance of price to its offer. 5351 While the HSBI suggests that levels of discounting did not
approach the 60 percent discount referred to, it is apparent that price discounts were provided. 5352
Evidence before us, including HSBI, indicates that th e Airbus' price advantage was, ultimately, the
determining factor in its securing this sale. 5353 However, that price advantage does include a number
of elements, such as maintenance cost guarantees, technical dispatch reliability and residual value
guarantees, and training support, which may be what the European Communities refers to as "non-
price" factors.
5354
Air Berlin
7.1807 On 4 November 2004 Air Berlin announced an order for 60 A320s. The United States alleges
that, after the easyJet sale, Airbus again undercut Bo eing's price in the campaign at Air Berlin and its
Austrian affiliate, NIKI, which led Boeing to lose that sale for 70 firm orders. The United States

5341 EC, FWS, para. 1875, citing Exhibit EC-431 (HSBI).
5342 EC, FWS, para. 1877, citing Exhibit EC-432 (HSBI).
5343 EC, FWS, para. 1878.
5344 EC, FWS, para. 1880.
5345 EC, FWS, para. 1881.
5346 EC, FWS, para. 1882.
5347 EC, FWS, para. 1883-1884.
5348 The European Communities also disputes the implication that the loss of the 2002 easyJet sale
precluded Boeing from obtaining later sales, including one in which Airbus sold 52 A319s to the company in
2006. EC, FWS, para. 1899. As the United States has not specifically argued this latter as a lost sale, we do not
consider it further.
5349 EC, FWS, paras. 1890-91, Exhibits EC-438, EC-436 (HSBI).
5350 Exhibit EC-436 (HSBI).
5351 Exhibit EC-436 (HSBI).
5352 Exhibit EC-431 (HSBI).
5353 US, FWS, paras. 780-783, citing Exhibits US-408, US-409, US-380, US-410, and US, SWS, Final
Redacted Version Appendix, paras. 14 and 16; Exhibit US-619 (HSBI); Exhibit US-620 (HSBI).
5354 US, FWS, para. 782.

BCI deleted, as indicated [***]

notes that during the sales campaign, Air Berlin executives were quoted as saying that "the total
package offered by Boeing and Airbus, including the price of the planes and how to finance them,
would determine who won the competition".
5355 In addition, Air Berlin managing director Joachin
Hunold stated that "{p}rice is always an issue, but we also looked at the delivery schedule that was
possible and at financing." 5356 Air Berlin, like easyJet, had operated only Boeing LCA until this
campaign, and the United States alleges that, as in the case of easyJet: "{a}ccording to people familiar
with the deals, Airbus trumped Boeing by offering steep discounts and other financial guarantees that
{Boeing} was unwilling to match." 5357
7.1808 The European Communities argues that Boeing, rather than Airbus, pushed down prices in
this campaign and that Boeing did not lose this cu stomer because Airbus lowered prices but because
Boeing mismanaged customer relations, and imp lies that Airbus merely made a good offer. 5358 The
European Communities argues that Airbus securing the Air Berlin order was a surprise, in view of the
fact that it had been a Boeing launch customer in 1994 for the 737-800. However, according to the
European Communities, Air Berlin officials were unhappy with Boeing's insistence on maintaining
price levels for the final aircraft delivered from the 1994 order, and had complained about production
delays and errors, damaged aircraft, and eroding customer support.5359 Relying on HSBI evidence, the
European Communities argues that the United States' argument that Boeing was "unwilling to match"
Airbus' final offer is untrue.5360 Rather, the European Communities argues, it was Boeing that pushed
prices down, a view that is contradicted by th e United States, also relying on HSBI evidence
submitted by the EC.5361
7.1809 While the European Communiti es asserts that Air Berlin were unhappy with Boeing's
business and production practices, 5362 the evidence before us, incl uding HSBI evidence, clearly
indicates that pricing was a crucial element in this sales campaign, with Airbus seeking to sell to a
customer that seemed unhappy with Boeing, and making a very competitive offer in order to do so.5363
The evidence indicates that there were a numb er of proposals from both Airbus and Boeing 5364
including a [***] from Boeing,5365 but the sale was ultimately won by Airbus.
Czech Airlines
7.1810 On 6 April 2005 Czech Airlines signed a purchase agreement with Airbus for the delivery of
six A319 and six A320 aircraft. In support of its proposition that Airbus won this sale due to
significant price undercutting, the United States cites the following:
"CSA strategic director Jan Vana explained: "Both offers met all of our technical
specifications without exception. But Airbus offered the better price"".5366
The United States also points to a public statement in which the president of CSA, Jaroslav Tvrdik,
gave more details about CSA's decision, stating th at Boeing's offer was "truly super and lucrative

5355 James Wallace, Boeing Loses Huge Air Be rlin Jet Order to Airbus , Seattle Post-Intelligencer
(5 November 2004), Exhibit US-411.
5356 Id.
5357 US, FWS, para. 785, citing Exhibit US-412.
5358 EC, FWS, para. 1910.
5359 EC, FWS, para. 1903.
5360 EC, FWS, para. 1908, Exhibit EC-449 (HSBI).
5361 US Full Version Appendix, paras. 21-22, citing Exhibit EC-447 (HSBI).
5362 EC, FWS, para, 1903.
5363 Exhibit EC-443 (HSBI).
5364 Exhibit EC-447 HSB1.
5365 Exhibit EC-253 (HSBI), EC-449 (HSBI).
5366 Dow Jones Newswire (15 October 2004), Exhibit US-424.

BCI deleted, as indicated [***]

{and} hard to refuse," but explaining that the Air bus bid, evaluated for the net present value of the
various cash flows involved, was more than 100 million Czech crowns ($4 million) less than Boeing's
offer.
5367 According to the United States, that "better" Airbus price included a number of additional
bonuses by which, Mr. Tvrdik explained, "Airbus is going to cover our transition costs." These
included a free training simulator worth 250-300 milli on Czech crowns ($10-12 million) to be used to
train CSA pilots and pilots of other airlines on Ai rbus equipment, extensive customer service, spare
parts at favourable prices and additional services, such as air crew training.5368

7.1811 The European Communities argues that this sale was won by Airbus largely based on political
considerations, referring to a dispute between th e Czech government and Boeing with respect to a
state-owned company, Aero Vodochody. In 1997, Boeing had acquired 35 percent of Aero
Vodochody, with effective management control. The expectation was that Boeing would help the
company improve technology and make sales abroad. According to the European Communities, the
company struggled, and in January 2004, the Czech Republic had "threatened to renew the fleet at
state-held carrier CSA with rival Airbus".
5369 It appears, on the basis of HSBI, that CSA was willing
to make a decision regarding its fleet on the basi s of considerations other than fleet structure. 5370 The
European Communities contends that the situation was exacerbated after Czech entry into the EU,
when it was suggested it would be more advantag eous to cooperate with European aerospace
manufacturers than with Boeing. 5371 The European Communities argues that Airbus benefited from
these political obstacles to Boeing's e fforts to secure this sale, and th at price was not the basis for
Airbus' success in securing the sale.5372 The European Communities also points to considerations with
respect to the engines for the aircraft as a relevant factor in Airbus' securing this sale.5373
7.1812 The United States notes that, despite the Europ ean Communities' focus on political and other
considerations, it does not dispute the veracity of th e statement that Airbus offered a better price, and
asserts that the European Communities' arguments on price are of little import.5374
7.1813 It appears, on the basis of th e evidence before us, including HSBI evidence, that CSA was
willing to make a purchase decision on the basis of el ements other than the existing fleet structure,
which might have argued for the purchase of Boeing LCA. 5375 While there is evidence which
suggests that CSA was not well inclined towards Boeing, and HSBI evidence regarding other factors
relevant to this sale5376, we note that there is evidence that Airbus did offer the better price.5377
Air Asia
7.1814 On 25 March 2005 Air Asia announced that it had signed a purchase agreement for 60 A320
aircraft, and taken options for an additional 40 LCA.5378 In support of its price undercutting claim, the

5367 US, FWS, para. 795, citing Jan Cizner, Tvrdik: Airbus Gave Us a More Attractive Offer , Mlada
Fronta Dnes (21 October 2004) (translated), Exhibit US-425.
5368 US, FWS, para. 795, citing Jan Cizner, Tvrdik: Airbus Gave Us a More Attractive Offer , Mlada
Fronta Dnes (21 October, 2004) (translated), Exhibit US-425.
5369 EC, FWS, para. 1915, citing "Czech CSA Warn s may Drop Boeing Over Aero Unit Woes,"
Reuters, 19 January 2004, Exhibit EC-456.
5370 Exhibit EC-458 ( (HSBI))
5371 EC, FWS, para. 1916.
5372 EC, FWS, para. 1918, citing Exhibit EC-425 (HSBI).
5373 EC, FWS, para. 1919.
5374 US Full Version Appendix to SWS, para. 27.
5375 Exhibit EC-458 (HSBI).
5376 EC, SWS, para, 1919 (HSBI).
5377 Exhibit US-424.
5378 EC, FWS, para. 1901.

BCI deleted, as indicated [***]

United States quotes a media report indicating that Boeing was not prepared to match the price
offered by Airbus:
"People familiar with the Air Asia nego tiations said Boeing hadn't stopped trying to
sway the airline but one person said 'Boeing isn't willing to do a deal at any price'
indicating Airbus is charging far less than Boeing is willing to accept."
5379
7.1815 The European Communities argues, in the first instance, that Boeing's failure to win this sale
was due to its allegedly "arrogant" and "inflexible" negotiating positions, 5380 which it says was
acknowledged by Lewis Platt, former Boeing co-chairman in an interview:
"We got into a mode where words like arroga nt were used, or inflexible. I went
around and visited a lot of customers and I had two or three of them – and one
especially larger order (AirAsia) that went to Airbus. And I sat down with the CEO
and he described the process and I always figured that we lost it on price. He said
you guys just did not pay attention to us. He said they wanted to get a couple of
airplanes quickly and (Boeing) said it would not happen."
5381
The European Communities also argues that while it was losing the campaign because of its attitude
to customers, Boeing was also offering aggressive pricing, and that Boeing, not Airbus, was the
driving force in terms of pricing. Moreover, the European Communities alleges that Boeing
repeatedly undercut Airbus' price, and disputes th e United States' argument regarding price escalation
caps offered by Boeing. 5382 The European Communities acknowledges [***].5383 The European
Communities refers to the statement of Christian Scherer that [***], apparently considering that an
offer that [***] somehow cannot be found to undercut a competito r's price. Of course, this is not the
case, and there is no basis in either law or fact for such an implication.

7.1816 The United States disputes the European Comm unities' contentions regarding the alleged
concern cause by Boeing's attitude
5384 and presents evidence indicating that price was a critical
consideration for AirAsia.5385
7.1817 We have reviewed the HSBI evidence, which suggests that at various times in the sales
campaign, both Boeing and Airbus were perceived as making the most aggressive offer. The
evidence also indicates, however, that price was a criti cal consideration and that at the end of the day,
AirAsia chose Airbus because its offer was perceived to be better than Boeing's.
5386
Iberia
7.1818 On 31 January 2003, Iberia announced the purchase of five Airbus A340-600s over
competing Boeing 777-300ERs.5387 The United States supports its claim of price undercutting in this
sale with reference to an Iberia press release, announcing that the company was "taking advantage of
exceptional terms" offered by Airbus." 5388 The United States alleg es that these "extraordinary

5379 Airbus to Beat Boeing Again, Wall St. Journal (8 November 2004), Exhibit US-412.
5380 EC, FWS, para. 1925.
5381 Boeing Will Do What It Takes, Seattle Post Intelligencer, (15 June 2005), Exhibit EC-464.
5382 EC, FWS, para. 1926, citing Exhibits EC-468 and 469 (HSBI).
5383 EC, FWS, para. 1929.
5384 US Full Version Appendix to SWS, para. 24, citing Exhibit US-623 (HSBI).
5385 US Full Version Appendix to SWS, para. 23, citing Exhibit US-622 (HSBI).
5386 Exhibit US-622 (HSBI).
5387 EC, FWS, para. 2094.
(30 January 2003), Exhibit US-415, ("aprovechar unas condiciones excepcionales"). In addition to the Press

BCI deleted, as indicated [***]

conditions" were the decisive factor in the sale. 5389 The United States also asserts that Airbus used
residual value guarantees to undercut Boeing's price offer.5390
7.1819 The European Communities disputes the United Stat es' contentions, and in particular asserts
that the B777 and A340 aircraft in contention for this order were not equa lly qualified for Iberia's
needs. According to the European Communities, the A340 had a significant performance advantage
in this campaign with respect to operations at hot, high altitude airports served by Iberia. 5391 T h e
European Communities also cites fleet commonality as an important factor. 5392 In addition, the
European Communities indicates that Iberia sought price discounts to purchase the "white tail"
aircraft being offered by Airbus, which were LCA originally ordered by Swissair and left without a
purchaser when the latter went bankrupt and on which [***].5393 Iberia ultimately agreed to take
delivery of three such aircraft, which had been built to Swissair's specifications.
7.1820 The United States disputes the European Comm unities' argument concerning the alleged
performance advantage of the A340 in this campaign, relying on HSBI. 5394 In addition, the United
States maintains that price did play an important role in the Iberia sale.5395
7.1821 The information before us does suggest that Iberia considered that Airbus aircraft were better
suited to operations at the hot, high altitude airports which were prime Iberia markets, and that this
meant that the company favoured those aircraft. 5396 However, the relevance and extent of any A340
overall stand-alone operational advantage is brought into question by other HSBI. 5397 While it
appears that Iberia did consider that there were advantages to purchasing Airbus LCA, stemming from
commonality with its existing Airbus fleet, 5398 HSBI evidence also indi cates that price was an
important element in this sale.5399 It also seems clear that having the white-tail aircraft which had been
ordered by the bankrupt Swissair ( [***]) available to offer to Iberia was important to Airbus' price
offer.5400
South African Airways
7.1822 On 19 June 2002 South African Airways ("SAA") announced the purchase of 12 A340,
11 A319 and 15 A320 aircraft. 5401 The United States notes that, despite having recently ordered

Release the United States points to a Wall Street Journal Article which also suggests that Airbus won the sale, at
least in part due to pricing:
"Airbus nosed ahead thanks to its planes' lower pr ices and common design with the rest of Iberia's
fleet. By offering guarantees on the planes' future value and maintenance costs, plus attractive financing terms,
Airbus edged out Boeing's aggressive package. The deal's final financial terms remain secret.
At Airbus, Mr. Leahy {head of sales} was relieved, but he faced one last slap. Iberia's news release
crowed about Airbus's {residual} price guarantees on the planes – a detail that Mr. Leahy considered
confidential. Iberia's Mr. Dupuy said he wasn't rubbing it in. But he had, he boasted, won "extraordinary
conditions."
Wall St Journal (10 March 2003), Exhibit US-416.
5389 US, FWS, para. 788.
5390 US, FWS, para. 789.
5391 EC, FWS, para. 2095.
5392 EC, FWS, para. 2096.
5393 EC, FWS, para. 2097-98, statement of Christian Scherer, Exhibit EC-14 (BCI) at para. 28
5394 US Full Version Appendix to SWS, paras. 31-33, citing Exhibits US-628-629 (HSBI).
5395 US Full Version Appendix to SWS, para. 30, citing Exhibit US-626 (HSBI).
5396 Aircraft Economics, March 2001 (Exhibit EC-493).
5397 Exhibit EC-494 (HSBI); Exhibit US-628 (HSBI).
5398 Exhibit EC-494 (HSBI).
5399 Exhibit US-626 (HSBI).
5400 EC, FWS, para. 2098.
5401 EC, FWS, para. 2100.

BCI deleted, as indicated [***]

21 Boeing 737s in order to operate an all-Boeing fleet,
5402 SAA decided to switch to Airbus with this
order.5403 The United States contends that Airbus was eager to offer a "heavy discount" on its
A340s.5404 The United States also cites a SAA repor t in which the company described the LCA it
bought from Airbus as "aggressively priced."5405 As in the Iberia sale, certain of the planes purchased
by SAA were white-tail aircraft originally destined for Swissair.5406
7.1823 The European Communities asserts that, as in th e sale to Iberia, a key reason Airbus won the
SAA order was the superior operating performance of the A340 in hot, high altitudes, and that the
failure of the Boeing 777 in performance tests in 2002 damaged its credibility. HSBI suggests that the
A340 did present certain performance advantages, but also indicates the need for aggressive
pricing.5407 The European Communities also argues that Boeing had lost SAA's trust by its
mishandling of an earlier sale of 737NG aircraft, wh ich led the company to decide to replace its 737
aircraft with A320s.5408 The European Communities alleges that the "heavy discounts" referred to are
attributable to the fact that some of the LCA were white-tail aircraft, [***].5409
7.1824 The United States asserts that the price differen tial was clearly an important aspect of this
sale5410 and relies on general information about airc raft performance to rebut the European
Communities' arguments concerning performance advantages of the A340. 5411 W h i l e w e d o n o t
discount the importance of performance advantages, which the United States does not specifically
rebut in this instance, unlike in the case of the Iber ia sale, HSBI also indicates the significant role of
pricing, including [***], in the sale.5412
Thai Airways International
7.1825 In 2003 Thai Airways ordered three A340-500s and five A340-600s. 5413 In support of its
significant price undercutting claim the United Stat es cites media reports noting "special price
concessions" of USD 7 million each, "extra credits" of USD 9.75 million for each A340-500 and
USD 10.25 million for each A340-600 as well as an existing aircraft subsidy phase out.
5414
7.1826 The European Communities argues that Airbus' pr icing was not a competitive factor in this
campaign, and asserts that the sales campaign evid ence demonstrates that Airbus was not competing
against Boeing in this sales campaign. 5415 In addition, the European Communities argues that Thai

5402 South African Airways, Group Audited Results, Year Ending 31 March 2002, available at
http://ww4.flysaa.com/results/march2001/results_02.html (describing SAA's fl eet as consisting of 62 in-service
Boeing LCA, with five on order, afte r the airline "completed the disposal of its Airbus fleet as a result of the
upgrade to new Boeing 737-800's.") Exhibit US-417 at 2.
5403 US, FWS, para. 791.
5404 Boeing, Airbus Projections for 2003 May Be Too Rosy , Airline Financial News (Sept. 9, 2002),
Exhibit US-418.
5405 South African Airways, Group Audited Results, Year Ending 31 March, 2002, at 2, Exhibit US-417
at 2.
5407 EC, FWS, paras. 2101-02, citing Exhibits EC-498, 499, 501 (HSBI).
5408 EC, FWS, paras. 2104-05.
5409 EC, FWS, para. 2106
5410 Exhibit US-627 (HSBI).
5411 US Full Version Appendix to SWS, para. 33.
5412 Exhibit US-627 (HSBI).
5413 EC, FWS, para. 2108.
5414 US, FWS, para, 792.
5415 EC, FWS, para. 2109, citing, Statement of Christian Scherer, Annex I, Exhibit EC-14, (BCI). We
have rejected the definition of "competitive" sales campaign on which this assertion relies, see para. 7.1722
above, and thus, we do not accept th e view that Airbus did not compet e for this sale on the basis of
Mr. Scherer's statement.

BCI deleted, as indicated [***]

Airways was looking for LCA to operate on ultra-long -range flights to the United States, and that the
A340-500/600 was the only ultra-long-range aircraft in production at the time of the Thai Airways
sales campaign, and thus could be delivered before the newly launched Boeing 777-200LR. This is
not contested by the United States, which respond s by arguing that the availability of the A340-
500/600 prior to the Boeing aircraft is, itself, an effect of the subsidy.5416
7.1827 While we do not agree that there was no comp etition between Boeing and Airbus for this
sale5417, it does appear, given the timing of this campaign, that the only LCA that met Thai Airways'
operational needs in production at the time the sal e was concluded was the A340-500/600. Thai
Airways would have had to wait some period of tim e for the Boeing LCA, the 777-200LR, that would
meet those needs, to become available.
Singapore Airlines, Emirates Airlines, Qantas
7.1828 Each of these airlines placed orders for th e new Airbus A380 in 2000 and 2001 as initial
launch customers. The United States alleges that the orders were made despite Boeing's offer of the
747-X, a proposed redesign of the 747. The United States alleges that the 747-X was not launched
because it could not find sufficient initial customers in competition with the A380.
5418 The United
States argues that the prices offered on these A380 orde rs were so low that the impact of subsequent
delays in delivering the A380 turned them into loss-making contracts. 5419 Indeed, according to the
United States, Airbus offered the A380 at low pric es compared to those being offered by Boeing on
the original versions of the 747. 5420 Thus, the United States argues that the competition from low-
priced A380 LCA was the reason the 747-X was not launched.
7.1829 According to the European Communities, Singa pore Airlines, Emirates Airlines and Qantas
each ordered the A380 not because of its price, but because it offered unique advantages in seating
capacity, range, and operating economics not availa ble from any competing LCA Boeing could then
offer.5421 The European Communities argues that the terms of sale were consistent with the [***] and
normal practice for orders by initial launch customers. 5422 The European Communities dismisses the
United States' allegations regarding the offer by Boeing of a competing redesign of the 747, the 747-
X, that would have offered similar capabilities. The European Communitie s asserts that the 747-X
was not a serious competitive effort, alleging that Boeing's proposal of several different variants of the
747 over the period 1996 to 2006 da maged its credibility in claiming that it intended to launch an
LCA directly competitive with the A380. 5423 According to the European Communities, Boeing never
seriously considered launching such an aircraft, 5424 but rather proposed it only to dissuade Airbus
from proceeding with the A380 project.5425
7.1830 Turning to the specific orders, the European Communities contends that Emirates never
considered the Boeing re-design of the 747 in competition with the A380, 5426 asserting that Emirates
sought information on the 747X only after it made its commitment to Airbus regarding the A380. 5427

5417 See, footnote 5415 above.
5418 US, FWS, para. 793.
5419 US, FWS, para. 794.
5420 US, SWS, para. 718.
5421 EC, FWS, para. 1701.
5422 EC, FWS, para. 1703, citing Exhibit EC-362 (HSBI).
5423 EC, FWS, para. 1680.
5424 EC, FWS, para. 1678.
5425 EC, FWS, 1681-82.
5427 EC, FWS, para. 1708, citing " Boeing and Emirates Correspond About 747X, 400X ," Reuters,
2 July 2000, Exhibit EC-368.

BCI deleted, as indicated [***]

Thus, according to the European Communities, produc t characteristics explain this order, and price
was not a deciding factor.
5428 With respect to Singapore Airlin es, the European Communities argues,
based on HSBI, that the proposed 747-X was not a serious competitive offer by Boeing, and was
never considered as such by the airline.5429 Regarding Qantas, the European Communities alleges that
it ordered the A380 because it offered the airline uniqu e growth capabilities that could not be matched
by the 747-X. 5430 The European Communities cites factor s other than price as key, relying on
HSBI.5431
7.1831 In response, the United States asserts that th e contention that Boeing could not offer an
aircraft that could compete with the A380 has al ready been disproven by events, referring to the
delays in A380 deliveries as demonstrating that Bo eing would have sold more LCA if the European
Communities and the Airbus governments had not pr ovided subsidies to bring the A380 to market. 5432
In this regard, the United States cites a recent st atement by the CEO of Singapore Airlines, stating
"Boeing 777-300ERs, in our experience, would be a u seful alternative to A380s. ... We could upsize
the order if there are furt her delays with the A380." 5433 The same article noted that other carriers,
including Emirates and FedEx, have also turned to the 777 to replace the delayed A380. The United
States points out that the European Communities ac knowledges that factors such as seating capacity
are routinely "monetized" in sales campaigns and, to the extent practicable, can be offset by price
concessions, with the result that even if the A380 may be better suited to a particular airline's business
plan than a smaller plane like the 777, the tw o aircraft can – and do – fly the same routes. 5434 Thus,
the United States maintains, it is simply not th e case that airlines like Emirates Airlines, Singapore
Airlines, or Qantas were indifferent to the price of the A380 compared to the price of other aircraft
that could fly the same routes, and reiterates that Airbus was offering the A380 at very low prices
compared with the 747.5435
7.1832 While it is clear that the A380 offered unique characteristics to these airlines, we do not agree
that it did not compete with the 747. Informati on in the A380 business case contradicts the European
Communities' position in this regard. 5436 That evidence also supports the United States' view with
respect to the competitive pricing of the A380: [***].5437 Thus, while we do not discount the
importance of the specific characteristics of the A380 , the evidence also indicates the significant role
of pricing in these sales.
Overall Assessment of the sales campaigns evidence
Significant Price Undercutting
7.1833 A principal difficulty in assessing the United States' claim of significant price undercutting in
this dispute is that it is not at all clear to us th at the anecdotal evidence discussed above constitutes an
appropriate or reliable evidentiary basis for draw ing conclusions about price comparison, which are
the basis for a finding of significant price undercutti ng under article 6.3(c) of the SCM Agreement.
For the most part, the transaction prices of LCA sold in these campaigns are not available for

5428 EC, FWS, para. 1717.
5429 EC, FWS, paras. 1710-19, citing Exhibits EC-370, 373 - 376 (HSBI),
5430 EC, FWS, para. 1720.
5431 EC, FWS, para. 1721, citing Exhibit EC-379 (HSBI).
5432 US, SWS, para. 717.
5433 Singapore Airlines may buy more Boeing 777s , Int'l Herald Tribune (10 December 2006),
Exhibit US-611.
5434 US, SWS, para. 719, referring to Statement of Christian Scherer, para. 69, Exhibit EC-14.
5435 Referring to US, FWS, paras. 793-794 (citing and quoting sources), US, FCOS, para. 63 (citing
Exhibit EC-362 at 18 (HSBI)).
5436 Exhibit EC-362 (HSBI), pp. 5, 6, 13, 17, 19.
5437 Exhibit EC-362 (HSBI) p. 19. See, Id. at pp. 5 & 17 ([***]).

BCI deleted, as indicated [***]

comparison, and the sporadic evidence of actual LCA prices available to us is insufficient for
purposes of assessing price undercutting. The parties are in agreement that list prices are not a
relevant basis for comparison.
5438
7.1834 In the usual case, we would expect evidence of price undercutting to be of the type that would
allow a "comparison of prices" of the two products in question, as suggested by Article 6.5, made "at
the same level of trade and at comparable times, due account being taken of any other factor affecting
price comparability." Article 6.5 goes on to provid e "However, if such a direct comparison is not
possible, the existence of price undercutting may be demonstrated on the basis of export unit values."
We recall that we have concluded that Article 6.5 does not establish the exclusive means by which
serious prejudice in the form of significant pric e undercutting can be demonstrated, and that the
United States' claim in this case is not premised on the special circumstances for a complaining
Member with a non-subsidized like product provided for in Article 6.5. However, we do consider that
Article 6.5 provides useful guidance for the nature of the analysis of price undercutting in general,
when it describes the type of price comparison that should be undertaken. In this case, we do not have
evidence that would allow us to undertake a direct comparison of the price of the subsidized and like
products, adjusted to ensure the comparison is at the same level of trade and for other factors affecting
price comparability. Indeed, neither party appear s to consider that the Panel could or should
undertake an effort to calculate "comparable" prices for LCA for purposes of a price undercutting
analysis. The United States notes that "it would be impracticable, if not virtually impossible, for the
Panel to try to undertake the vast number of adju stments that would be necessary to perform an
accurate, apples-to-apples price comparison between Airbus and Boeing LCA prices in a given
market".5439 While the European Communities asserts that the Panel must compare the prices of the
Airbus and Boeing offers, taking account of factor s affecting price compar ability, it does not suggest
how the Panel might undertake such a comparis on. The European Commu nities asserts that the
United States has not provided evidence demonstra ting that the Airbus price in any campaign was
lower than the Boeing price, but it has not itself relied on or submitted evidence that would allow a
comparison of prices by the Panel. 5440 Instead, both parties have relied upon anecdotal and other
evidence concerning the sales campaigns in the context of price undercutting.
7.1835 The United States considers that it has provided evidence concerning the "actual prices" in a
number of transactions in the information concerni ng the several sales campaigns on which it relies.
In the United States' view, the customer in a given sal e of LCA is the only "party that has access to all
of the data necessary to compare the prices offe red by Boeing and Airbus" and will "perform the
analysis required by Article 6.5 – a comparison of the subsidized product and the like product, in the
same market, at the same level of trade, at comp arable times, taking "due account" of all relevant
factors affecting comparability." 5441 The United States asserts that nothing in Article 6.5 prescribes
how these factors are to be taken into account, and given the impracticability if not impossibility of
either Boeing, Airbus or the Panel, undertaking such an analysis, the Panel should rely on the
statements of customers indicating that Airbus LCA were purchased in a given transaction on the
basis of price as probative on the question of price undercutting.
5442
7.1836 The European Communities agrees with the Un ited States that the customer generally
monetizes the differences between competing aircraft offered by Boeing and Airbus in a particular

5438 US, Answer to Panel Question 281, para. 124: " list prices alone are not generally meaningful for
conducting an analysis of LCA pricing under Article 6.3(c)"; EC, Answer to Panel Question 281, para. 190:
"list prices are largely irrelevant to the Panel's assessment of injury under Article 5(a) or serious prejudice under
Articles 5(c) and 6.3(c)".
5439 US, Answer to Panel Question 235, para. 61.
5440 EC, Comments on US Answer to Panel Question 235, paras. 110-119.
5441 US, Answer to Panel Question 235, para. 62.
5442 US, Answer to panel Question 235, para. 64, US, Answer to Panel question 281, paras. 122,
127-28.

BCI deleted, as indicated [***]

sales campaign,
5443 but it considers that the end result of this process is not a comparison by the
customer of the prices of the competing aircraft, but of the net present value (NPV) of the competing
offers. In the European Communities' view, the United States "conflates the concepts of price and
NPV {implying} that price undercutting is demons trated simply by evid ence that the customer
decided to order from Airbus due to the better value of the Airbus offer." 5444 The European
Communities considers that the NPV will be determined not only on the basis of price, but also based
on consideration of non-price factors, and in such cases, a sale by Airbus does not necessarily indicate
that Airbus' price was lower, but rather than the NPV of the Airbus offer was higher, which may be
attributable to any of the non-price factors taken into account by the customer. 5445 For the European
Communities, it is important that the Panel consider actual prices, and not NPV, in its analysis of
price undercutting, 5446 although it does not provide any suggestions as to how such an actual price
comparison could or should be undertaken. Howe ver, according to the European Communities, in
order for the United States to establish significant price undercutting, it must prove, on a sale-by-sale
basis, that Airbus offered a significantly lower price than Boeing, taking due account of factors
affecting price comparability, and that such signi ficantly lower price was caused by the alleged
subsidies.5447 The European Communities asserts that the United States has failed to demonstrate this
in respect of any of the sales campaigns it has relied upon to establish significant price undercutting.
7.1837 We do not agree that the evidence before us re flects the actual prices of LCA in the sales
campaigns. Rather, in our view, that evidence re lates to the value of the offers of competing
manufacturers for a particular customer's order. It is clear to us this evidence demonstrates that the
customer's evaluation of the competing offers for sale of LCA involves consideration of a range of
elements, from the price of the airframe itself, to various discounts, guarantees, concessions,
financing, support, engine choice, and other aspects. 5448 It may well be true that the evaluation by a
customer of competing offers or proposals invo lves a comparison similar to that described in
Article 6.5. However, the NPV calcula tion as described by both the parties 5449 involves a number of
subjective and customer specific elements which, because we have no basis on which to evaluate
them or consider their importance, makes it impossibl e for us to conclude that the customer's ultimate
decision reflects a choice based on lower price. Mo reover, the customer is not the Panel in this
dispute, and we do not consider that we can abdicate our responsibility by simply accepting that the
customer's ultimate choice of Airbus' offer to sell LCA on certain specific terms demonstrates that the
price of the subsidized product involved in that sal e was lower than the price of the competing United
States' like product.
7.1838 Although we have concluded that the like product in this dispute is all Boeing LCA, it is clear
that the LCA models offered by Boeing and Airbus each have their own particular features, and that

5443 EC, FWS, para. 1832 ("customers conduct a complex technical and economic of each LCA
manufacturer's fleet proposal, transla ting each technical, physical and ec onomical characteristic of each LCA
into a "value" element...This process is highly subjective ... The signifi cance of each factor will depend on
where that airline's particular priorities lie. Seemi ngly small differences in the physical or economics {sic}
characteristics of Boeing and Airbus competing LCA can thus be decisive in the purchasing decision of an
airline.") (footnotes omitted).
5444 EC, Comments on US Answer to Panel Question 235, paras. 114-15.
5445 EC, Comments on US Answer to Panel Question 235, para. 115.
5446 And also in its analysis of price suppression, pr ice depression, and lost sales. EC, Comments on
US Answer to Panel Question 235, para. 119.
5447 EC, Comments on US Answer to Panel Question 236, para. 120.
5448 See, Statement of Rod P. Muddle, Exhibit EC-19, at paras. 52-93 describing various elements
that may be taken into consideration in assessing an offe r of LCA. The United States appears to accept that the
elements identified by Mr. Muddle form part of the "price" of any LCA transaction, or otherwise affect the value
of an LCA offer. US, Answer to Panel question 281, paras. 125-26.
5449 US, FWS, paras. 799-800, US, Answer to Panel question 235, para. 62, EC, FWS, 1429-1439, EC,
Answer to Panel Questions 281 and 282.

BCI deleted, as indicated [***]

each model group, and each specific model within a gr oup, is differentiated in order to offer specific
characteristics to individual customers to meet th eir particular needs. HSBI concerning the sales
campaigns indicates that the specific characteristics of the LCA in question are in all cases important
elements of a customer's choice of LCA, but that these are not considered in a vacuum but in a
complex negotiating process with the manufacturers. Airline customers consider the characteristics of
individual LCA in relation to their existing fleets, their route structure and forecasts for changes in
routes and traffic patterns, operating costs, maintena nce costs, training costs, etc. The number and
variety of factors considered is in all cases large, and varies for each individual customer. In each
campaign, one or another of the LCA being considered will be the best fit for the particular needs of
the customer at that time. Moreover, personal and po litical factors appear to have played a role in at
least some of these sales. In addition, it is cl ear that competition between Boeing and Airbus for
customers is fierce, and that both companies are willing to negotiate on price to secure an important
sale.
7.1839 Even where there are other factors such as pe rformance, fleet considerations, or personal
factors relevant to a sale, price, in the sense of the overall value of the offer to the customer's business,
remains one of the, if not the only, determinative fa ctors in the customer's decision. It seems clear
that an LCA manufacturer obtains a particular sale because its offer of a particular LCA (or group of
LCA models) has a higher value, from the customer's perspective, than the competing offer of LCA
from the other manufacturer. However, we cannot c onclude that public statements reflecting this
consideration of the value of competing offers cons titute sufficient evidence for us to conclude that
there was "price undercutting" in a given sale. Give n that this calculus tak es place in the purchaser's
consideration of the offers, and is not apparent in the actual price of the aircraft, it seems difficult if
not impossible for us to make conclusions about price undercutting, let alone significant price
undercutting, within the meaning of Article 6.3(c) of the SCM Agreement, on the basis of customers'
public statements which reflect calculation of the re lative value of competing offers to sell LCA, but
give us no basis on which to establish an actual comp arison of prices. Such an approach in this case
would seem to us to be far from what is contemplated by Article 6.5 when it describes how price
comparisons might be undertaken.
5450 While a statement such as that of CSA strategic director Jan
Vana indicating that "{b}oth offers met all of our technical specifications without exception. But
Airbus offered the better price", 5451 suggests some degree of price unde rcutting, even in this instance,
we cannot conclude that such undercutting was signif icant, or that price was the deciding factor in
which manufacturer won the order, given the othe r factors at play, such as political and fleet
considerations.5452
7.1840 Thus, overall, while we accept that price was an important factor in each of these sales, and
may in some instances have been d ecisive, in the sense that the overa ll value of Airbus' offer to the
customer was higher than the value of Boeing's offe r, we cannot, on the basi s of the evidence before
us, make any conclusions regarding significant price undercutting within the meaning of Article 6.3(c)
of the SCM Agreement.
Significant Lost Sales
7.1841 The European Communities' arguments with resp ect to lost sales are premised on the notion
that unless price was the determining factor in a part icular sale, that sale cannot be considered a lost

5450 We do not preclude the possibility that, in a different case, a conclusion concerning price
undercutting might be established based on evidence that does not suffice to establish a direct comparison of
prices within the sense of Article 6.5. However, in th is case, the anecdotal eviden ce, in the context of this
product and this industry, and the way in which sales decisions are made, is simply insufficient to persuade us
with respect to the allegations of significant price undercutting.
5451 Dow Jones Newswire (15 October 2004), Exhibit US-424.
5452 See, EC, Comments on US Answer to Panel Question 236, para. 158.

BCI deleted, as indicated [***]

sale.
5453 However, the United States made clear that it is not relying exclusively on price in support of
its claims of lost sales. Rather, the United States makes separate claims with respect to significant
price undercutting, and significant lost sales, as separate and distinct effects of the subsidies within the
meaning of Article 6.3(c) of the SCM Agreement. The United States acknowledges that some of the
evidence it presents is relevant to both claims, but maintains that the claims are legally and factually
distinct.5454 Specifically with respect to lost sales, the United States argues that a sale may be "lost"
either because Airbus offered a particular LCA at a lower price, or because it was able to offer a
specific model of LCA that it would not have had available but for the subsidies.5455
7.1842 The text of Article 6.3 gives no guidance to panels as to the methodology for evaluating
allegations of lost sales, other than to specify that such lost sales must be "in the same market". Nor is
there any further guidance in any other provision of the SCM Agreement. As this is the first dispute
in which allegations of lost sales have been made in order to demonstrate serious prejudice under
Article 6.3, there is no dispute settlement guidance on this point.5456
7.1843 Looking at the text of Article 6.3(c), it seems clear to us that it describes four different effects
which, if found to apply, can support a finding of serious prejudice: significant price undercutting,
significant price suppression, price depression or lost sales in the same market. There is nothing in
the text of the provision that establishes or requi res any connections or linkages between these four
types of effect as a legal matter. We can certainly envisage that, as a matter of fact in a particular
case, there may be linkages between, for instance, price undercutting and lost sales, or price
undercutting and price depression or price suppression. However, we see nothing in the text that
would require that a sale must be lost by reason of price in order for it to be considered a lost sale for
purposes of Article 6.3(c).
7.1844 While the European Communities maintain s that the United States relies on price
undercutting to establish the existence of lost sales, considering the United States' arguments as a
whole, this is clearly not the case. The European Communities asserts that "only if Airbus' winning
lower price is significantly lower and that significantly lower price is caused by subsidies" can the
United States prevail on its claim of significant lost sales.
5457 In our view, there is no legal basis in the
text of the SCM Agreement for the view that lost sales must be demonstrated on the basis of price
undercutting, and the European Communities has not demonstrated otherwise.
7.1845 The European Communities does not dispute that Boeing lost sales to Airbus, in the sense that
the customer purchased Airbus rather than Boeing LCA. While we have concluded that significant
price undercutting cannot be found on the basis of the evidence before us, th is does not mean that
there were not significant lost sales. In our view, it is clear that Boeing lost sales to Airbus involving
purchases by easyJet, Air Berlin, Czech Airlines, Air Asia, Iberia, South African Airways, Thai
Airways International, Singapore Airlines, Emirates Airlines, and Qantas.
5458 Moreover, it is

5453 EC, FWS, para. 1821.
5454 US, Answer to Panel Question 54, para. 307.
5455 US, Answer to Panel Question 54, paras. 309-310. Brazil considers that price need not be the only
reason for lost sales, provided it is one of the materi al factors causing the lost sales. Brazil, Third Party
Submission, para. 55.
5456 Although allegations of lost sales are not uncommon in the context of allegations of material injury
in countervailing duty and anti-dumping investigations, neither Article 15 of the SCM Agreement nor Article 3
of the AD Agreement refer to lost sales, and we are not aware of any dispute in which consideration of lost sales
allegations have been addressed in the trade remedy context.
5457 EC, FWS, para. 1821.
5458 We note that the European Communities argues extensively concerning other sales to different
airlines, contending that these were not sales lost by Boeing for reasons of price. However, the United States
did not rely on those sales in support of its claim of serious prejudice in the form of lost sales, and thus we do
not consider them in this context.

BCI deleted, as indicated [***]

apparent to us that if winning a pa rticular sale is of "strategic importance" to Airbus, as the European
Communities asserts with respect to the easyJet campaign discussed above, 5459 the loss of that sale to
Boeing is similarly important, and can justifiably be considered a significant lost sale. In addition,
lost sales are important to the extent that they delay a manufacturer's ability to benefit from the
important learning effects and economies of scale in this industry, and thus have a significance
beyond their direct revenue effects. 5460 Moreover, both parties recognize the advantages to being the
incumbent supplier with a given customer with resp ect to subsequent purchases, which also adds to
the significance of lost sales. While it is true that a manufacturer may be able to recoup some of these
disadvantages by finding another customer to take a dvantage of delivery slots, this does not, in our
view, detract from the significance of a lost sale. 5461 Given the number of aircraft and the dollar
amounts involved in those sales, as well as the consid erations just described, we conclude that these
lost sales are significant. We address whether these significant lost sales are an effect of the specific
subsidies we have found were granted to Airbus with respect to LCA in Section (e) below.
(ii) Significant price suppression and price depression
7.1846 In US – Upland Cotton, the panel considered the meaning of the terms price suppression and
price depression and concluded:
"Thus, 'price suppression' refers to the situation where 'prices' ... either are prevented
or inhibited from rising ( i.e., they do not increase when they otherwise would have)
or they do actually increase, but the increase is less than it otherwise would have
been. Price depression refers to the situ ation where 'prices' are pressed down, or
reduced."
5462
This definition of price suppression was approved by the Appellate Body in its review of the panel
report.5463 In US – Upland Cotton (Article 21.5), the Appellate Body further elaborated on the notions
of price suppression and price depression:

"At a conceptual level, we see some differences between the concepts of 'price
depression' and 'price suppression' as defined in the original proceedings. While price
depression is a directly observable phenome non, price suppression is not. Falling
prices can be observed; by contrast, price suppression concerns whether prices are
less than they would otherwise have been in consequence of various factors, in this
case, the subsidies. The identification of price suppression, therefore, presupposes a
comparison of an observable factual situati on (prices) with a counterfactual situation
(what prices would have been) where one has to determine whether, in the absence of
the subsidies (or some other controlling phenomenon), prices would have increased
or would have increased more than they actually did".
5464

5459 EC, FWS, paras. 1881-1883,
5460 See, paras. 7.1717 and 7.1726 - 7.1727 above, concerning learning effects and economies of scale.
5461 The European Communities states that "even assuming, arguendo, that the effect of any alleged
subsidies to Airbus caused Boeing to lose certain sa les between 1999-2005, those "lost sales" are not today
significant given the huge order backlog and the fact that Boeing sold all the early "lost" order slots to other
customers at what were "likely higher prices." EC, SCCS, para. 21. As discussed further below, we do not
consider that improvements in Boeing's condition, as evidenced by its order backlog, or any efforts by it to
mitigate the adverse effects it has suffered, are relevant to our consideration of serious prejudice. We certainly
do not consider that whether lost sales are "significant" must be assessed with respect to a period several years
after the fact. Lost sales that are significant at the time may well support a finding of present serious prejudice.
5462 Panel Report, US – Upland Cotton, para. 7.1277.
5463 Appellate Body Report, US – Upland Cotton, para. 424.
5464 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 351.

BCI deleted, as indicated [***]

7.1847 In the present case, the United States alleges that both significant price depression and
significant price suppression can be observed over th e period 2001 through 2006 in the world market
prices for four models of Boeing LCA: the Boeing 737NG, Boeing 767, Boeing 747, and Boeing
777.
5465 The United States contends, and the European Communities does not disagree, that the world
market is the appropriate market for measuri ng the price effects of subsidies to Airbus. 5466 For each
of the four models of Boeing LCA, the United States presents a line chart mapping the movements of
annual indexed Boeing LCA order prices and the United States Aircraft Manufacturers Producer Price
Index ("PPI"). The United States argues that the ch arts it has presented show that indexed prices on
the world market for each of the four models of Boeing LCA have declined over this period,
demonstrating price depression.
5467 Moreover, the United States contends that the fact that prices
have not followed the PPI demonstrates price s uppression. The United States describes the PPI as the
producer price index for aerospace manufacturing in the United States – a measure of general industry
costs, which the United States submits represents a "reasonable proxy for the amount by which LCA
prices could be expected to rise in the ab sence of suppression by some external factor". 5468 Thus, the
United States alleges that in fact, the PPI is an objective benchmark for what changes in prices would
have been expected over the period, and the fact that prices did not increase as would have been
expected shows price suppression that can be direc tly observed in this case. According to the
United States, the fact that the indexed prices of Boeing's LCA over the 2001 to 2006 period have not
followed the PPI demonstrates significant price suppression.
5469 Finally, the United States asserts that
the observed price depression and price suppression is significant. The four charts presented by the
United States are reproduced below. We examine each in turn before setting out our views in respect
of the parties' arguments.
Chart 11: Boeing 737NG, Average Indexed Order Prices compared with PPI (2001-2006)

7.1848 The United States asserts that the indexed annual prices for the Boeing 737NG in the world
market [***] between 2001 and 2005, 5470 before [***].5471 The United States notes that [***].5472

5465 US, FWS, para. 804. The United States originally presented data for the period 2001 through 2005,
and submitted updated tables containing data for 2006 with its second written submission. US, SWS, para. 726,
Exhibit US-612 (BCI). Although we are proceeding on the basis of consideration of all Boeing LCA as the
product "like" all Airbus LCA, the subsidized product, we nonetheless consider it appropriate to examine the
price trends for the individual models , as being the most accurate basis fo r our assessment. Neither party has
suggested that an alternative, for instance some form of aggregation or averaging, would be possible or
appropriate. However, while examination of the trends for individual models is appropriate, our conclusion as
to whether the United States has demonstrated significant price depression or suppression must be made with
respect to the like product, LCA. See, Appellate Body Report, US – Hot-Rolled Steel , paras. 195, 204
(Appellate Body concluded that, in assessing injury to a domestic industry "as a whole", an investigating
authority could properly undertake an evaluation of particular parts, sectors or segments within that domestic
industry, so long as the examination was done in an objective manner, either by examining all other parts as
well, or explaining why it is not necessary to do so).
5466 US, FWS, para. 803, where, citing the geograp hic market definition used by the European
Commission in its 1997 clearance Decision regarding the merger between McDonald Douglas and Boeing, i.e.,
the world market, Exhibit US-375, para. 20, the United Stat es asserts that "{i}n the context of this case, the
world market is the appropri ate market for measuring the price effect s of the Airbus subsidies"; EC, FWS,
paras. 1726-1758, 1798-1819, 1999-2023 and 2077-2086
5467 US, FWS, paras. 804-809.
5468 US Comment on EC, Answer to Panel Question 213.
5469 US Comment on EC, Answer to Panel Question 213; US, Answer to Panel Question 237; US,
Comments on Appellate Body Report in US – Upland Cotton (Article 21.5 – Brazil), paras. 14-16.
5470 US, FWS, para. 805, Exhibit US-612 (BCI) (Figure 4, reproduced above).
5472 US, FWS, para. 805.

BCI deleted, as indicated [***]

According to the United States, these adjustments to order prices demonstrate the price depressing
effects of Airbus pricing practices, showing signifi cant decreases over three y ears. The United States
explains that the PPI increased by 21.19% from 2001 to 2006, reflecting, in its view, a [***]% price
decline for the 737NG and therefore both significant price suppression and price depression.5473
Chart 12: Boeing 767, Average Indexed Order Prices compared with PPI (2001-2006)

7.1849 With respect to Boeing 767 prices, the United St ates alleges a similar trend, with order prices
[***] by 2002. However, prices [***]. Again, the United States asserts that the increase in the PPI
shows an inflation-adjusted decline of [***]% over the period 2001-2006, demonstrating the
significant price suppression and price depression experienced by Boeing over the relevant period.5474
Chart 13: Boeing 747, Average Indexed Order Prices compared with PPI (2001-2006)

7.1850 The United States submits that the above char t shows that the price for the Boeing 747
declined over the relevant period, [***].5475 Again, the United States notes that these prices did not
keep up with inflation as represented by the PPI, declining by more than [***]% by the end of the
period, thereby demonstrating both significant price suppression and price depression.5476
Chart 14: Boeing 777, Average Indexed Order Prices compared with PPI (2001-2006)

7.1851 Finally, with respect to the 777, the United States argues that a different pattern emerges, with
[***].5477 The United States attributes the increase in prices for the 777 in 2005 and 2006 to the effect
of rising fuel prices on the competitiveness of the Airbus A340, which has four engines compared
with twin-engine 777.5478
7.1852 The United States contends that, overall, the da ta concerning world market prices shows that
Boeing LCA prices have declined, or at best ha ve failed to keep pace with increased costs as
represented by increases in the PPI. In the United Stat es' view, this is evidence of significant price
depression and price suppression within the meaning of Article 6.3(c) of the SCM Agreement.
7.1853 The European Communities does not dispute the pricing information presented by the United
States. Instead, the European Communities argues, inter alia, on the basis of its calculation of per-
aircraft subsidy amounts for each family of Airbus LC A, that the subsidies were too old, too small,
and not of a nature which would make it possibl e for them to have caused the price effects

5473 US, SWS, para. 726; US, Answer to Panel Questions 55 and 237; US Comment on EC, Answer to
Panel Question 213.
5474 US, FWS, para. 807; US, SWS, para. 726, Exhibit US-612(BCI) (Figure 5, reproduced above); US,
Answer to Panel Questions 55 and 237; US Comment on EC, Answer to Panel Question 213.
5475 US, FWS, para. 807, US, SWS, para. 726, Exhibit US-612 (BCI) (Figure 6, reproduced above); US,
Answer to Panel Questions 55 and 237; US Comment on EC, Answer to Panel Question 213.
5476 US, SWS, para. 726, (Figure 6); US, Answer to Panel Questions 55 and 237; US Comment on EC,
Answer to Panel Question 213.
5477 US, FWS, para. 808, US, SWS, para. 727, Exhibit US-612(BCI) (figure 7, reproduced above).
5478 US, SWS, paras. 727-729.

BCI deleted, as indicated [***]

observed.
5479 We will address the European Communities' arguments with respect to causation later
in this Report.
7.1854 Turning first to the question whether the United States has established that there was
significant price depression over the relevant period , we recall that price depression is the situation
where prices are observed to fall. As the Appellate Body noted in US – Upland Cotton (Article 21.5),
price depression is a phenomenon that may be directly observed. Moreover, we recall that significant
price depression must be price depression that is "important, notable ... consequential". 5480 On the
basis of the data contained in the above charts, we consider that the United States has demonstrated
the existence of significant price depression in the world price of three of the four Boeing LCA
models over the period 2001 to 2006. However, we are not convinced that significant price
depression is demonstrated in the case of world pri ces for the Boeing 777 over the same period. In
only one of five years did prices for this model of LCA decline. In all other years, prices increased
roughly in line with the changes in the PPI, w ith the exception of 2006 when prices rose by
significantly more, leaving them at approximately the same level as the PPI.
7.1855 We note that sales of the Boeing 777 represente d only a small proportion of Boeing's overall
LCA sales over the reference period.
5481 Thus, the data in the pricing charts demonstrate that Boeing
experienced significant price depression with respect to the vast majority of its sales of LCA. We
therefore conclude that, overall, the United States has demonstrated significant price depression in the
world price of Boeing LCA over the years 2001 to 2006.
7.1856 As regards significant price suppression, the Eu ropean Communities asser ts that the United
States' Aircraft Manufacturers' PPI is not a reliable measure of the cost increases faced by Boeing, and
that the failure of prices of certain aircraft to increase commensurate with that index is completely
irrelevant to the question whether there was si gnificant price suppression in the relevant period. 5482
According to the European Commun ities, the PPI is a theoretical construct that takes only United
States' labour and materials costs into account, a nd thus provides little information about Boeing's
actual manufacturing costs. 5483 Moreover, the European Comm unities alleges that Boeing has
introduced a number of cost-cutting and restruct uring measures over the past decade, including
increased reliance on suppliers to assume a greater role in LCA production and outsourcing, resulting
in reduced costs of manufacturing. The European Communities also contends that Boeing has been
able to take advantage of learning curve effect s that have likewise reduced Boeing's manufacturing
costs.5484
7.1857 The European Communities suggests that the a ppropriate measure for assessing inflation in
Boeing's costs is Boeing's operating margin, which is a function of actual costs and revenue, such that
an increased operating margin means costs are decr easing, or revenues are increasing (reflecting price
increases) or both. 5485 The European Communities points to evidence it argues shows that Boeing's
operating margins increased in 2006 and were exp ected to increase in 2007 and 2008, including a
statement made by Boeing's Chief Financial Offi cer in April 2007, noting that Boeing's operating
margins resulted from "a combination of both bette r pricing as it stabilizes today and … also our

5479 EC, FWS, paras. 1726-1758, 1798-1819, 1999-2023 and 2077-2086; EC, SWS, paras. 1148-1161,
1166-1174.
5480 See, discussion of the term "significant" at paragraphs 7.1795 and 7.1796 above.
5481 On the basis of the data presented in Exhibit EC-21, orders of the Boeing 777 accounted for less
than 15% of Boeing's total LCA orders between 2001 and 2006. We understand that the 777 prices are higher
than 737 prices, but there is no information before us th at would suggest that this difference is of a magnitude
that would undermine our overall conclusion.
5482 EC, Answer to Panel Question 213.
5483 EC, Answer to Panel Question 213.
5484 EC, Answer to Panel Question 213.
5485 EC, Answer to Panel Question 213.

BCI deleted, as indicated [***]

productivity efforts".5486 Thus, the European Communities does not consider that, as a matter of fact,
prices for Boeing's LCA have not increased in line with inflation, stating that "not only are Boeing's
prices increasing, but its costs are also decreasing".5487
7.1858 The United States argues that the ratio of operati ng profits to costs can be expected to vary
with the volume of units sold, entirely apart from any underlying changes to price levels. Thus,
according to the United States, trends in actual ope rating margins, considered without reference to
changes in the volume of deliveries over the relevant period, say nothing about price levels that might
be expected in the absence of ex ternal price-suppressing factors. 5488 Moreover, referring to various
passages of a June 2005 press report submitted by th e European Communities as Exhibit EC-926, the
United States explains that "price escalation" clauses – by which order prices in LCA sales contracts
are indexed to inflation to derive the actual price to be paid for LCA at delivery – are driven by the
same factors that constitute the PPI, namely, cha nges in United States' aerospace industry labour and
materials costs. Indeed, the United States notes th at the same press report indicates that the typical
price escalation clause applied by Airbus in its contracts is based on "U.S. labor costs in the aerospace
industry, energy costs and costs of materials".
5489 Similarly, the United States points to the following
passage in a statement by Mr. Rod P. Muddle, an "e xpert in the acquisition of large civil aircraft",
which the European Communities introduced as Exhibit EC-19:
"LCA prices are often negotiated several years prior to delivery. Manufacturers make
allowance for this with a price adjustment acco rding to date of delivery. The price to
be paid at delivery depends on annual increas es, or 'escalation', of the list price of the
LCA, to which all additions and subtractions are applied. Airbus and Boeing have
different escalation formulae. The formul a are derived from changes in aerospace
industry costs of material and labor".5490
Finally, the United States argues that the press report submitted by the European Communities in
Exhibit EC-926 provides further support for the si gnificant price suppression and price depression it
alleges can be observed during the relevant peri od because it explains how customers ordering LCA
between 1995 and 2000 were, as a result of escalati on clauses, paying more for their LCA delivered
subsequently than were customers who placed orders af ter this period, due to the fact that order prices
had not risen or even decreased in the years covered by the relevant reference period.5491

7.1859 We agree with the United States that, as a gene ral matter, one would expect that in any
manufacturing industry, all else being equal, pr ices would tend to increase when production costs
increase. The evidence before us suggests that this is also exp ected in the LCA industry. In
particular, both Boeing and Airbus typically try to ensure that the final price paid by a customer for an
LCA delivered some years after the date it was orde red keeps pace with any increases in the costs of
manufacturing over the intervening period by includi ng a "price escalation" clause in their sales
contracts. However, rather than tracking their own actual costs of manufacturing as the basis for
calculating final delivery prices, the price escalation formulae used by the two companies appear to be
derived from data that approximates those costs on a more general basis. This is evident from the
press report the European Communities has subm itted as well as the description of how LCA are
priced provided by the European Communities' expe rt, Mr. Rod P. Muddle. Indeed, both sources
indicate that the price escalation formulae of Boeing and Airbus are closely related to changes in

5486 EC, Answer to Panel Question 213, citing Exhibit EC-793.
5487 EC, Answer to Panel Question 213.
5488 US Comment on EC, Answer to Panel Question 213.
5489 US Comment on EC, Answer to Panel Question 213, referring to information contained in
Exhibit EC-926.
5490 Exhibit EC-19, para. 55, quoted in US, Answer to Panel Question 237.
5491 US, Answer to Panel Question 237, referring to Exhibit EC-926.

BCI deleted, as indicated [***]

United States' "aerospace industry costs of material and labor". In other words, the evidence before us
shows that the "price escalation" clauses used by both Boeing and Airbus typi cally index LCA prices
to a proxy for cost inflation that is based, in major part, on the same factors that go into calculating the
PPI.
5492 Thus, we are satisfied that the PPI represents a reasonable proxy for cost inflation that both
Boeing and Airbus would normally try to take into account in the pricing of their LCA. 5493 It follows
that the PPI may be used as a reasonable benchmark for the price trends and levels that would have
been expected over the reference period. Theref ore, the existence of price suppression in world
market prices for Boeing LCA may be directly ob served on the basis of a comparison of trends in
actual indexed prices with the PPI.
7.1860 Comparing the PPI in each chart with the prices of Boeing LCA, there was clearly a degree of
price suppression in respect of world market pri ces for each of the four Boeing LCA models.
However, we consider the evidence to show significant price suppression in respect of prices for only
the 737, 767 and 747. With respect to 777, the price suppression seen reflects a price decline that
occurred in only one year (2004). In three of the four other years (2002, 2003 and 2006), the increase
in indexed price levels experienced by the Boeing 777 was greater, in proportionate terms, than the
PPI increases. Prices of the Boeing 777 also increased in 2005 at almost the same rate as the PPI.
Thus, we do not consider the United States to ha ve demonstrated significant price suppression over
the relevant period for this model of Boeing LCA.
7.1861 Again, we recall that sales of the Boeing 777 represented only a small proportion of Boeing's
overall LCA sales over the reference period.
5494 Thus, we conclude that the evidence before us
demonstrates that Boeing experienced significant pri ce suppression with respect to the vast majority
of its sales of LCA. We therefore conclude that, overall, the United States has demonstrated
significant suppression in the world price for Boeing LCA over the years 2001 to 2006.
7.1862 Having concluded that the United States has de monstrated that, overall, Boeing experienced
significant price depression and price suppression over th e relevant period, we note that in respect of
both phenomena, a large proportion of the absolute and relative price declines took place in 2002,
coinciding with the deep industry downturn that followe d the events of 9/11. We see this as an issue
relevant to the question of causation, that is, whether the significant price depression and suppression
we have observed was caused by the subsidies. It is to the question of causation, that is, whether the
market effects alleged to demonstrate serious prejudi ce that have been demonstrated to have occurred
during the period we examined are the effect of the specific subsidies to Airbus that we have found,
that we now turn our attention.

5492 US, FWS, para. 742, US comment on EC, Answer to Panel question 213, para. 303.
5493 One of the reasons why the European Communities considers the PPI to be irrelevant to the
question of price suppression is the fact that Boeing allegedly outsources much of its LCA production to
suppliers outside of the United States. EC, Answer to Panel question 213. However, we note that in making
this point, the Europ ean Communities refers only to the manufact ure of components for the Boeing 787, which
was not yet in commercial production during the relevant period. Id. Moreover, even granting that a significant
portion of current 787 co mponent manufacture takes place outside of the United States, in our view, the
European Communities' argument does not undermine the relevance of the PPI to the question of cost inflation
in the LCA industry overall during the period we are considering.
5494 See, footnote 5481 above.

BCI deleted, as indicated [***]

(e) Whether Subsidies Are the Cause of the Observed Market Effects
(i) Arguments of the United States
7.1863 The United States argues that LA/MSF distorts co mpetition in the market for LCA in at least
two ways.5495 First, the United States argues that LA/MSF shifts some of the commercial risk of LCA
launch decisions from Airbus to the Airbus gove rnments, France, Germany, Spain and the United
Kingdom, allowing Airbus to launch aircraft models that, in the absence of LA/MSF, it would not
have launched. Second, the United States assert s that LA/MSF provides Airbus with significant
additional cash flow and other financial resources on non-market terms which allows Airbus to price
its aircraft more aggressively than it would otherwi se be able to without LA/MSF. According to the
United States, the other subsidies it has challenged in this dispute have essentially the same effects,
because like LA/MSF, they also shift costs of LCA development from Airbus to the Airbus
governments.5496 Thus, the United States argues that the eff ect of the subsidies granted to Airbus has
been to enable Airbus to launch new LCA, and ther eby to increase its market share, especially during
the period 2001 to 2006, to the detriment of the United States LCA industry, causing serious prejudice
to the United States' interests within the meaning of Articles 6.3(a), (b) and (c).
7.1864 The United States submits that in the absence of LA/MSF, and all of the other subsidies at
issue in this dispute, Airbus would have, at best, fewer and different LCA models available to sell in
the global LCA market. The United States argues that even if it is assumed that Airbus would exist in
the absence of LA/MSF, its entry into the various segments of the LCA market would have occurred
at a later date, and with different aircraft. In this respect the United States asserts:
"even if Airbus would have entered a particular LCA market segment at some other
time with a different aircraft (in terms of technical capabilities, specifications, and
other characteristics), the effect on the U.S. LCA industry would have been different.
That Airbus enters a market segment at a time and in a way that it can only do
because of subsidies cannot but have a distorting impact on the market."
5497
7.1865 In support of its claim that subsidies have "facilitated and accelerated the introduction of
every major Airbus model"5498 the United States relies principally on two types of evidence. The first
is public statements made by both Airbus and Air bus government officials. The United States asserts
that these statements demonstrate not only that Airb us has depended on subsidies in order to be able
to bring its aircraft to market, but also that tho se subsidies were designed to target United States'
products and producers and thereby gain market share for Airbus. 5499 The second is a report prepared
by Dr. Gary J. Dorman of NERA Economic Consulting.5500 The Dorman Report presents a simulation
of a business case for a "typical" wide body aircraft , and purports to demonstrate, on the basis of the
simulation, the impact of LA/MSF type measure s on the economics of an LCA launch decision.
According to the United States, the Dorman Repor t demonstrates how LA/MSF shifts risk to the
Airbus governments, thereby making the "very fact of launch more likely".5501

5495 The United States suggests that there may be other forms of market distortion. However, as the
United States did not provide any evidence or arguments with respect to such "other" forms of alleged market
distortion, our analysis is limited to the two aspects of market distortion that are the subject of the evidence and
arguments presented by the United States.
5496 US, FWS, para. 819.
5497 US, SWS, para. 572.
5498 US, FWS, para. 830.
5499 US, FWS, paras. 829-838.
5500 Dorman Report, Exhibit US-70 (BCI).
5501 US, FCOS, para. 141.

BCI deleted, as indicated [***]

7.1866 The United States also asserts that LA/MSF, togeth er with the other subsidies at issue in this
dispute, have directly and indirectly lowered Airbus' marginal cost of capital, which allows Airbus to
meet profitability targets while reducing prices. The United States argues that LA/MSF, by reducing
the cost of capital in the initial years of an aircraft project, allows Airbus to be more flexible in the
pricing of all of its LCA during that period while, at the same time, maintaining a rapid pace of
development.
5502 In support of its arguments concerning the pricing effect of LA/MSF, the United
States relies upon, inter alia, statements in the 2005 Airbus A nnual Review, which it alleges indicate
that market share was more important to Airbus than profitability. 5503 It also refers to certain
documents produced by Moody's credit rating agen cy, which allegedly demonstrate that LA/MSF
results in Airbus' parent company EADS having a more favourable credit rating than would otherwise
be the case, as well as a 2007 Deutsche Bank re port, which indicates that LA/MSF accounted for
nearly half of EADS' net "free cash flow". 5504 The United States also relies upon the explanation of
the [***] mechanism provided by the Executive Vice President of Airbus, Christian Scherer, in a
statement prepared for the purposes of this dispute settlement proceeding.5505
7.1867 While the United States maintains that there is no obligation on it to quantify the benefit of
the subsidies at issue, it presents as evidence of th e magnitude of the subsidies a report prepared by
NERA Economic Consulting, which calculates the tota l benefit of LA/MSF in terms of its impact on
the present financial condition of Airbus as of year end 2006 at between USD 92.5 billion and USD
178.2 billion. 5506 It also argues that irrespective of the methodology used to calculate benefit, the
costs associated with equivalent financing on co mmercial terms would have been impossible for
Airbus to meet.5507
7.1868 Thus, in essence, the United States argues that in the absence of the challenged subsidies,
Airbus would have fewer and different LCA mo dels and could not price the ones it has so
aggressively. According to the United States, this is the market distorting impact of the subsidies that
are at issue in this dispute. Drawing on this vi ew, the United States posits a counterfactual in which
the "U.S. LCA Industry would produce and sell more aircraft at higher prices than it does in the face
of subsidized competition".
5508 While the United States provides evidence and arguments in respect
of each of the forms of serious prejudice set out in Article 6.3(a)-(c), these alleged market distortions
and their alleged impact on LCA development and pr ices are at the heart of the United States' serious
prejudice claims. As such, the United States argues that each form of serious prejudice alleged flows
directly from the market distorting impact of the subsidies.
5509
(ii) Arguments of the European Communities
7.1869 The European Communities submits that the United States cannot demonstrate that the
various Airbus LCA programmes would not have been launched without LA/MSF. In respect of the
A380, A340-500/600 and the A330-200 the European Communities has provided internal documents,
the Airbus business cases , as evidence in support of its position. The European Communities asserts
that the Airbus business cases demonstrate that a ll post-1992 launches of Airbus LCA would have
occurred without LA/MSF. 5510 The European Communities also no tes that neither the German nor
UK governments provided any LA/MSF to Dasa or British Aerospace in respect of the A340-500/600,

5502 US, SWS, para. 595.
5503 Airbus Annual Review 2005, Exhibit US-441
5504 Deutsche Bank, EADS: Risks Mispriced – Downgrade to Sell. Jan 9, 2007, at 7, Exhibit US-459.
5505 Statement of Christian Scherer, Exhibit EC-14, paras. 105-106.
5506 NERA Economic Consulting, Quantification of Benefit of Launch Aid (24 May 2007), Exhibit US-
606.
5507 US, SWS, para. 612.
5508 US, FCOS, para.131.
5509 US, FCOS, para. 170.
5510 EC, SWS, paras. 763-795.

BCI deleted, as indicated [***]

yet both of these entities participated in the project . According to the European Communities, in the
absence of LA/MSF in the case of each of these aircraft launches, Airbus would have availed itself of
higher levels of supplier risk financing.
7.1870 Concerning LA/MSF and the launch of the A300, A310, A320, A330 and A340 aircraft, the
European Communities stresses that these measures were provided between 20 and 37 years ago, and
argues that it is "wholly speculative" to assume "wha t Boeing's present prices, sales and market share
would be, but for MSF loans tied to these products."5511
7.1871 The European Communities submitted a critique of the Dorman Report prepared by Professor
Paul Wachtel of New York University's Stern School of Business. 5512 Relying on that report, as well
as on an internal Airbus analysis of the Dorman simulation, 5513 the European Communities argues that
the Dorman simulation uses unrealistic parameters in order to manufacture the conclusion that no
Airbus LCA would have been la unched without LA/MSF. The European Communities also asserts
that the Dorman Report is b ased on an incorrect premise, i.e., that the LCA market is a natural
monopoly, such that if Airbus did not exist Boeing would face no competition from any other LCA
manufacturer. The European Communities argues that absent Airbus there would be "very active"
competition in higher volume LCA markets, i.e., single-aisle, 200-300 seat, and 300-400 seat.
5514
7.1872 The European Communities further argues that , even assuming that the alleged subsidies
provided a competitive advantage to Airbus at the time of the launch of the A300, A310, A320, A330
and A340, that competitive advantage was short-liv ed and intervening even ts have "attenuated the
causal link between the subsidies themselves and th e adverse effects that the United States alleges
resulted from the competitive harm." 5515 According to the European Communities, a key causation
question in assessing the existence of present adver se effects is how long the competitive advantage
flowing from subsidies lasts.5516 The European Communities asserts that any generalized competitive
and subsidized advantage secured by the launch of any Airbus LCA was relatively short-lived. Thus,
the European Communities argues th at even if the United States could prove that LA/MSF enabled
Airbus to achieve a technological advantage with any given models of LC A, any such advantage
would be fleeting. The European Communities argu es that a rival manufacturer is normally capable
of launching a competing aircraft with comparab le or improved technology and bring it to market
within approximately five years, thus eliminati ng any advantage enabled by the subsidy, or even
turning it into a disadvantage. 5517 Further, the European Communiti es contends that if subsidies are
used to create a product that creates its own demand and does not compete with any other product,
then the effect of such subsidies may neve r become strong enough to cause adverse effects. 5518
Finally, according to the European Communities, since the subsidy element of LA/MSF does not

5511 EC, SWS, para. 762.
5512 Wachtel Report, Exhibit EC-12. A supplemental report prepared by Professor Wachtel was also
submitted by the European Communities, Clarification of Critique of "The Effect of Launch Aid on the
Economics of Commercial Airline Programs" by Gary J. Dorman , 20 May 2007 ("Wachtel Report
(Clarification)"), Exhibit EC-659.
5513 Declaration by Francisco-Javier Riaza Carballo, Vice President A380 Business, Attachment 1,
Exhibit EC-665 (HSBI)(hereinafter "Carballo Declaration").
5514 EC, SWS, para. 867. The European Communities' arguments in this regard are premised on its
view that there are multiple subsidized products at issue in this dispute, which compete in separate markets with
United States' like products. We recall that we have rejected the European Communities' position in this regard,
and are considering adverse effects on the basis of a single subsidized product, all Airbus LCA, and a single
corresponding like product, Boeing LCA. See, para. 7.1680 above.
5515 EC, SWS, para. 879.
5516 EC, FWS, para. 2291.
5517 EC, FWS, para. 1652, referring to Declaration of Andrew Gordon, 31 January 2001, para. 19,
5518 EC, FWS, para. 2291.

BCI deleted, as indicated [***]

reduce recurring costs, any competitive advantage in the marketplace, and hence any potential adverse
effects, are extinguished. In addition, the Europ ean Communities argues that other factors – such as
rising fuel prices – may further reduce the effect of a subsidy over time.
7.1873 In keeping with its assertion of separate a nd distinct subsidized and like products, the
European Communities argues that any serious pr ejudice caused by subsidies to the A320 family
LCA has been diminished by (a) the intervening launches of the Boeing 737NG family LCA and (b)
Boeing's abandonment of LCA offered at the time of the A320 series launches, as well as present
unmet demand for Boeing 737NG LCA.
5519 With respect to alleged serious prejudice caused by
subsidies to the A300/A310, the A330-300, a nd the A330-200 LCA, the European Communities
asserts that the causal link between the launch of those Airbus LCA and the alleged competitive
harms is eliminated by (a) the subsequent launches of 767 and especially 787 family LCA, (b) Airbus'
abandonment of the A300 and A310 families, and (c) the competitive effect of the 787 on the older
767.5520 With respect to the A340-200/300 and A340-500/600, the European Communities argues that
the causal link between the launch of those Airbus LCA and the alleged competitive harms to the
Boeing 777 is attenuated or broken by (a) the late r launches of highly successful variants of the
Boeing 777, (b) the displacement of the A340 "basic" models which could no longer compete with the
technologically superior 777, (c) [***], and (d) the enormous unmet demand and delivery backlog for
the 777 series. 5521 Finally, the European Communities argues that the 1997 merger between Boeing
and McDonnell Douglas increased Boeing's resources and market power, diminishing any competitive
advantage enjoyed by Airbus due to pre-1997 LCA launches.5522
7.1874 The European Communities asserts that a consider ation of the magnitude of the benefit of the
alleged subsidies is necessary in or der to consider the United States' claims of adverse effects, and
argues that in order to assess th e United States' serious prejudice claims the present per-aircraft
amount of the alleged subsid ies must be determined. 5523 The European Communities, relying in
principal part on its understanding of United States ' law and regulations governing the calculation and
allocation of subsidy amounts in countervailing dut y investigations, calcula tes a per-aircraft amount
of subsidization with respect to LA/MSF and R&TD support for fulfilled orders of different models of
Airbus LCA in any given year.5524 According to the European Communities, the results show that the
magnitude of the subsidy is very small on a per-aircr aft basis, and simply too small to have caused the
adverse effects alleged by the United States.
7.1875 The European Communities also argues that th e benefit of LA/MSF is limited to the amount
of the difference between the LA/MSF interest ra tes and the respective market interest rate
benchmarks. Accordingly, the European Comm unities argues that any enhanced credit rating
resulting from LA/MSF is captured by this differen ce as "the market benchmark rates derived from
the Airbus risk-sharing suppliers presumptively captu re all benefits following from this financing,
including the reduction in project risk that enhances the credit rating". 5525 Regarding the alleged "free
cash flow" effect of LA/MSF the European Comm unities argues that in the period between 1996 and
2006 LA/MSF had a slight negative effect on Airbus cash flows, and that even if cash flow were an
appropriate measure or determining factor in c onsidering aircraft pricing, which the European

5519 EC, SWS, para. 881.
5520 EC, SWS, para. 888.
5521 EC, SWS, para. 895.
5522 EC, SWS, paras. 908-911.
5523 EC, FWS, paras. 1569-71.
5524 EC, FWS, paras. 1586-1634, ITR Report, Exhibit EC-13 (BCI/HSBI). The United States did not
endorse the benefit calculation and allocation metho dologies relied on by the European Communities,
considering them to contain errors at direct variance with the CVD methodologies used by the United States and
the European Communities itself. US, Answer to Panel Question 42, para. 250, footnote 313.
5525 EC, SWS, para. 1039.

BCI deleted, as indicated [***]

Communities claims it is not, the cash flow be nefits associated with the LA/MSF would be de
minimis.5526
(iii) Evaluation by the Panel
7.1876 We recall that in the previous section of this Report, we concluded that the evidence before us
demonstrates that, during the period 2001 to 2006, United States' LCA were displaced by Airbus LCA
from the EC LCA market and from certain third country LCA markets. 5527 In addition, we found that
the United States had shown that Boeing lost a number of LCA sales to Airbus, and that, overall, there
was significant depression and suppression in LC A world market prices between 2001 and 2006. 5528
Consistent with the two-step a pproach we have decided to adopt for the purpose of evaluating the
United States' claims of serious prejudice, 5529 we next turn to examine whether the United States has
demonstrated that the particular market phe nomena observed over the period 2001 to 2006 were
caused by the specific subsidies we have found were provided to Airbus.
7.1877 The United States has advanced two lines of argu ment in respect of causation focussed on the
alleged impact of LA/MSF and the other subsidies on: (i) Airbus' ability to launch and bring to the
market models of LCA that the United States subm its would not otherwise have been possible at the
time and in the way that it did without the support of those subsidies; and (ii) the level of Airbus'
cash-flow and other financial resources during the period between launch investment and the recovery
of that investment, which the United States submits enabled Airbus to price aggressively and build
long-term market share. 5530 For convenience, we refer to the United States' respective arguments as
the "product" and "pricing" theories of causation.5531 Below we examine the merits of each of the two
theories in turn, starting with the United States' "product" theory.
7.1878 Before doing so, however, we recall and describe briefly the five types of measures we have
found constitute specific subsidies to Airbus with respect to LCA in this dispute:
(a) LA/MSF: LA/MSF consists of loans provi ded on non-commercial terms to Airbus
from 1969 to 2000 by the governments of France, Germany, Spain and the United
Kingdom for the purpose of financing differi ng proportions of the development costs
of Airbus' family of large civil aircraft;
(b) Infrastructure measures: the governments of France, Germany and Spain funded
some or all of the costs of development, expansion, and upgrading of infrastructure
and Airbus facilities in connection with LCA production, including the development
and provision of the Mühlenberger Lo ch site by German authorities on non-
commercial terms, the extension and use on non-commercial terms of the runway at
Bremen Airport by German authorities, the development and provision by French
authorities of the ZAC Aéroconstellation site and associated EIG facilities on non-
commercial terms, and regional grants by German authorities in Nordenham, and by
Spanish authorities in Sevilla, La Rincona da, Toledo, Puerto de Santa Maria and
Puerto Real, for Airbus LCA facilities;

5526 EC, SWS, 1058-1063; International Trade Resources LLC, "Cash Flow Effect of member State
Financing", 20 May 2007, Exhibit EC-661, (BCI/HSBI), Tables 1-2.
5527 See, paras. 7.1758 and 7.1790 - 7.1791 above.
5528 See, paras. 7.1855 and 7.1861 above.
5529 See, para. 7.1731 above.
5530 US, SWS, paras. 556, 560.
5531 We emphasize, however, that these are our short- hand references, and we note that there is not
always a clear distinction between the two types of argument.

BCI deleted, as indicated [***]

(c) German government share transfers: the German government, through KfW,
provided capital on non-commercial terms to De utsche Airbus by acquiring, in 1989,
a 20 percent equity interest in Deutsche Ai rbus, and subsequently transferring that
interest to MBB in 1992;
(d) French government equity infusions: the French government provided equity
infusions in 1987, 1988, 1992 and 1994, and in 1998, transferred a share of its capital
investment in Dassault Aviation to Aérospatiale on non-commercial terms; and
(e) R&TD funding: the European Communities, the governments of France, Germany,
Spain, the United Kingdom, and certain s ub-federal German government authorities
provided grants, and some loans on non-commercial terms, to Airbus to fund research
and technological development efforts in c onnection with the development of Airbus
LCA.
The United States' "Product" Theory of Causation

LA/MSF
7.1879 The United States argues that LA/MSF "shifts mu ch of the commercial risk of LCA launch
decisions from Airbus to the Airbus governments, thereby causing Airbus to launch aircraft models
that in the absence of the subsidy would not have been launched". 5532 The United States argues that
LA/MSF has been fundamental to the development of Airbus as a producer of aircraft, as it was a
necessary component of the launch of every Airbus model since the initial launch, in 1969, of the
A300. The United States does not consider that its arguments depend on finding that, in the absence
of LA/MSF, Airbus would not exist. Rather, the United States argues that in the absence of LA/MSF
Airbus would not have been in a position to devel op the aircraft it did when it did. For the United
States, market distortion and adverse effects flow directly from Airbus' entry at a particular time with
a particular aircraft, which in the United States ' view would not have been possible but for the
subsidies.
5533
7.1880 The United States relies upon essentially two types of evidence to demonstrate that the impact
of the LA/MSF provided to Airbus since 1969 was to en able Airbus to launch and develop the aircraft
it did when it did and thereby cause present serious prejudice to the United States' interests. In
particular, the United States relies upon: (i) a series of public statements and one State Aid Decision
of the European Commission revealing the views held by various officials from Airbus and other
relevant public bodies on the impact of LA/MSF on the ability of Airbus to launch LCA; and (ii) the
Dorman Report, which purports to demonstrate the impact of LA/MSF-type measures on the decision
to launch an LCA. In the following sections, we describe and examine each of the two types of
evidence the United States relies upon, in light of the parties' arguments, making certain initial
conclusions on the extent to which they support th e United States' position. However, before doing
so, we believe it is useful to briefly recall the salient features of LA/MSF and how it operates.
7.1881 We recall that the type of financing we have denominated LA/MSF in this dispute, and found
constitutes specific subsidies to Airbus, consists of loans on non-commercial terms provided to Airbus
from 1969 to 2000 by the governments of France, Germany, Spain and the United Kingdom. Each
LA/MSF loan we have found to constitute a specific subsidy takes the form of a long-term, unsecured
loan at a below-market rate of interest with success-dependent and genera lly graduated repayment
terms. The success-dependent nature of the loans means that Airbus' repayment obligations arise only

5532 US, SWS, para. 560.
5533 The United States makes this central argument in a variety of ways throughout its submissions.
E.g., US, FWS, paras. 78, 810, US, FNCOS, para. 131 and US, SWS, para. 571.

BCI deleted, as indicated [***]

after it has successfully developed and begins selling the financed aircraft. Once repayment begins, it
occurs through a levy on each delivery of financed aircraft and is generally graduated on an ascending
scale, meaning that repayments on the first aircra ft deliveries are lower than repayments on later
deliveries. Should Airbus fail to sell enough of the financed aircraft to repay the entire loan, the
government lenders have no contractual right to the outstanding balances. The nature of this
financing shifts a portion of the commercial and fina ncial risks of developing new models of LCA to
the governments providing the LA/MSF. The extent of this risk-shifting varies with the proportion of
the development costs being financed, which has decreased from 100 percent for the first Airbus
LCA, the A300, in 1969, to 33 percent for the most recently financed aircraft, the A380, in 2000.
Other features of LA/MSF that affect the degree of risk-shifting include the degree to which
repayment is back-loaded and/or graduated and the assumptions concerning sales forecasts used as a
basis for the repayment schedule. The questions addressed in the Dorman Report, and the parties'
arguments, focus on the mechanics of the risk-shi fting element of LA/MSF-type financing, and
whether and the extent to which the provision of LA /MSF affects the behaviour of the recipient with
respect to the decision whether to launch a particular LCA programme.
The Dorman Report
7.1882 The Dorman Report simulates the impact of LA /MSF-type financing measures on a decision
to launch an LCA – that is, the decision to unde rtake the development of a particular model of
aircraft. The Dorman Report simulates cash-flow s generated by a hypothetical wide-body airplane
programme under a variety of LA/MSF contribution, price, production and cost scenarios. Cash flows
are forecast over a 20 year period and discounted in order to derive an overall programme net present
value ("NPV"). The Dorman simulation is based on certain key assumptions, principally:
(a) 850 deliveries of LCA over a 20 year period, with the first delivery taking place at the
end of year five (the end of the development phase);
(b) an annual discount rate of 10%; and
(c) development costs of $10 billion and for ecast recurring costs that decline over
time.
5534
Six different LA/MSF programme examples are c onsidered, patterned after: (i) the UK A320
LA/MSF "package"; (ii) the Spanish A380 LA/MSF "p ackage"; (iii) an interest-free version of the
Spanish A380 LA/MSF "package"; (iv) the Fren ch A380 LA/MSF "package"; (v) the French A340-
500/600 LA/MSF "package"; and (vi) and the French A330-200 LA/MSF "package". 5535 Each of

5534 Exhibit US-70 (BCI), pp. 3 and 4.
5535 The Dorman Report explains the six packages in the following terms: the UK A320 "package" and
the Spanish A380 "package", "are patterned after actual development funding by the British government for the
A320 ... and by the Spanish government for the A380. In both cases, the model's disbursement pattern and the
imputed interest rate mirror actual experience." "In the model, the share of total launch aid received in each year
mirrors the actual disbursement streams in the real-world examples". The "interest-free version of the Spanish
A380 package was included as a third alternative" in orde r to "examine the financial effects of an interest-free
loan package". The "three launch ai d packages provided by the French government were" "derived from
documents examined as BCI". The Dorman Report notes that "{a}ll examples were selected primarily on the
basis of availability of information. In general, the details of actual launch aid packages are difficult to obtain,
despite the fact that these are pub licly funded programs. These programs were modelled as accurately as
possible given the available data, but small discrepancies may result from their lack of transparency." Dorman
Report, Exhibit US-70 (BCI) pp. 4-5, footnotes 11-13.

BCI deleted, as indicated [***]

these programmes is examined under three alternative repayment schedules.
5536 A total of 54 different
scenarios are modelled, with each grant of LA/MSF c onsidered to provide funding of either 33.33%,
66.66% or 100% of development costs, which are to be repaid as aircraft are delivered.

7.1883 In order to demonstrate the alleged impact of LA/MSF, the net present value ("NPV") of a
base case scenario is calculated ( i.e., the NPV of the modelled programme without LA/MSF). The
Dorman simulation generates positive returns in the base case ( i.e., a NPV of USD 1.35 billion). The
base case assumes that production, cost and pricing levels will be as forecast. However, relatively
small variations to the forecasts give rise to un economic results. Thus, the Dorman Report predicts
that if actual production in the base case is only 90% of forecast production, there will be negative
returns (negative USD 3 million) in the absence of LA/MSF. Similarl y, a decrease in forecast prices
of 5% also results in negative returns (negative USD 191 million). Combining a 5 percent decrease in
forecast prices with a 5% increase in recurring costs, the model predicts that negative returns will be
even larger (negative USD 1.342 billion).
7.1884 The predicted impact of LA/MSF varies dependi ng upon the particular repayment schedule
applied, and the percentage of development cost funded by the particular LA/MSF programme. The
NPV effect of LA/MSF is, not surprisingly, highe r where such funding accounts for 100 percent of
development costs than when such funding accounts fo r 33 percent of development costs. However,
as shown in the Table reproduced below, the resu lts of the Dorman simulation predict that the
provision of LA/MSF will have a significant impact on the NPV of the modelled programme in each
and every case. Thus, where base case forecasts for prices and costs are met, NPV increases if
LA/MSF is provided. Similarly, where production levels and prices are lower than the base case,
either a positive NPV is generated with LA/MSF as compared to the result without LA/MSF, or,
where a negative NPV results with or without LA/MSF, the resulting losses are lower with LA/MSF
than without LA/MSF. These resu lts are set forth in Table 3 of the Dorman Report, which we
reproduce below as Table 41.
5537

5536 The three scenarios are: level repayment (equal pe r-aircraft payments set on the basis of forecast
deliveries); graduated repayment (increasing per-aircraf t payments); and delayed level repayment (equal per-
aircraft payments starting with the 60th airplane delivery). Dorman Report, Exhibit US-70 (BCI), p. 5.
5537 Dorman Report, Exhibit US-70 (BCI).

BCI deleted, as indicated [***]

TABLE 41

Launch Aid Impact on Programme Risk
Example of Launch Aid's Increased Incremental Value at Lower Production Levels

 No Launch Aid With Launch Aid* Incremental Value of Launch
Aid
 Recurring cost levels: Expected 5%
higher
10%
higher
Expected 5%
higher
10%
higher
Expected 5%
higher
10%
higher
 ($ millions)
 { ( d ) - ( a ) } {(e)-(b)} {(f)-(c)}
 (a) (b) (c) (d) (e) (f) (g) (h) (i)
 Actual production levels:
(1) @100 % of expected production levels $1,350 $199 ($952) 2,386 1,235 84 $1,036 $1,036 $1,036
(2) @ 95% of expected production levels 616 (490) (1,596) 1,782 676 (429) 1,166 1,166 1,167
(3) @ 90% of expected production levels (3) (1,068) (2,134) 1,273 208 (858) 1,276 1,276 1,276
(4) @ 85% of expected production levels (744) (1,761) (2,778) 662 (355) (1,372) 1,406 1,406 1,406
(5) @ 80% of expected production levels (1,438) (2,408) (3,378) 53 (917) (1,887) 1,491 1,491 1,491

5% Price Decrease

 No Launch Aid With Launch Aid* Incremental Value of Launch
Aid
 Recurring cost levels: Expected 5%
higher
10%
higher
Expected 5%
higher
10%
higher
Expected 5%
higher
10%
higher
 ($ millions)
 {(d)-(a) } {(e)-(b)} {(f)-(c)}
 (a) (b) (c) (d) (e) (f) (g) (h) (i)
 Actual production levels:
(6) @100 % of expected production levels ($191) ($1,342) ($2,493) $845 ($306) ($1,457) $1,036 $1,036 $1,036
(7) @ 95% of expected production levels (846) (1,951) (3,057) 321 (785) (1,891) 1,167 1,166 1,166
(8) @ 90% of expected production levels (1,396) (2,461) (3,527) (120) (1,185) (2,251) 1,276 1,276 1,276
(9) @ 85% of expected production levels (2,054) (3,071) (4,088) (649) (1,666) (2,683) 1,405 1,405 1,405
(10) @ 80% of expected production levels (2,669) (3,639) (4,609) (1,178) (2,148) (3,119) 1,491 1,491 1,490

* Launch aid based on the 331/3 percent Spanish A380 launch aid structure with graduated pro-rata repayment {see text of report}.

BCI deleted, as indicated [***]

7.1885 Referring to these results, the Dorman Report c oncludes that LA/MSF distorts competition by
subsidizing non-recurring costs and by transferri ng risk from the manufacturer to the government
provider of the funding. In particular, the Dorman Report concludes that LA/MSF:
"allows the recipient to undertake airpla ne development projects at a pace and scale
that would be more difficult – perhaps impossible – for a competitor that does not
have access to launch aid. It can even allow airplanes that are not commercially
viable to be built anyway."5538
7.1886 To the extent that LA/MSF accelerates the introduction of new aircraft, or causes the
introduction of new aircraft, the Dorman Report conc ludes that this will have negative consequences
for other competing producers:
"An airplane program that is enabled by la unch aid is likely to cause prices to decline
in the market segment that it targets. Co mpeting airplanes will need to lower their
prices and will likely sell fewer units, since some customers will purchase the new
airplane and most customers will leverage one seller against another to obtain larger
discounts. If launch aid accelerates the pace of airplane development or if the
program would only be undertaken with government-provided launch aid, normal
competitive decisions become distorted due to resulting subsidy and transfer of risk.
This distortion of the competitive process subjects the competing manufacturer to
reduced prices, volumes and profitability for its airplane programs."
5539
The Dorman Report acknowledges that reduced prof itability for a competing producer following the
introduction of a new competitive plane may be "the natural outcome of the competitive process in the
commercial airplane business, but only when a new airplane is launched on commercially viable
terms ."5540

7.1887 We note that the Dorman Report does not explicitly conclude that each Airbus LCA model, or
indeed any particular Airbus LCA model, would not have been launched in the absence of LA/MSF.
Nevertheless, we consider this to be a clear imp lication of the conclusions it advances on the basis of
the results it predicts. As the Dorman Report not es, commercial airplane programmes are expensive
and contain a large inherent amount of risk. Given the long-term nature of an aircraft programme, it
is difficult to predict costs, revenues and demand fo r any particular aircraft and, consequently, a
prudent planner might well expect that all cost and revenue variables will not come to pass as
forecast. The Dorman simulation generat es a positive NPV in the base case scenario ( i.e., without
LA/MSF and with costs, revenue and production leve ls as forecast). However, relatively small
changes in forecast cost, revenue and production le vels result in significantly poorer results,
generating either lower or negative NPV in all cases. The Dorman Report implies, and we agree, that
such variations in the forecast parameters constitu te realistic scenarios which would need to be
considered by a manufacturer when making a launch decision. Given that a realistic scenario includes
a negative NPV in the absence of LA/MSF, it follows that an affirmative decision to launch is less
likely upon consideration of the possible outcomes without LA/MSF. Accordingly, it is clear to us
that the Dorman Report, and the simulation reported therein, supports the United States' position that
Airbus product launches would not have occurred in the absence of LA/MSF.

5538 Dorman Report, p. 8, Exhibit US-70 (BCI).
5539 Ibid, p. 9.
5540 Ibid, p. 8. (emphasis in original).

BCI deleted, as indicated [***]

7.1888 The European Communities has submitted a criti que of the Dorman Report in the Wachtel
Report.5541 The Wachtel Report makes three fundamental criticisms of the Dorman Report: (i) that it
is based on an underlying premise that the LCA market is a natural monopoly, and hence it incorrectly
assumes that if Airbus did not exist, there would be no other competitor; (ii) that it derives its
conclusions about the effects of LA/MSF from sens itivity tests performed on a simulation that is
constructed with unrealistic parame ter values and assumptions of cost s and demand, and (iii) that it
fails to take into account the full economic implications of the structure of LA/MSF repayments.5542
7.1889 As we understand it, the principal focus of the first point made in the Wachtel Report is the
conclusion reached in the Dorman Report that LA/MSF may cause an otherwise unprofitable LCA
programme to be undertaken, allegedly implying that in the absence of LA/MSF granted to Airbus,
Boeing would enjoy a monopoly position in the market for LCA, including monopoly profits. 5543
According to Wachtel, most LCA markets (defined by the number of passenger seats) 5544 are natural
duopolies, i.e., markets in which "the threshold of en try for a second firm is below the market
size".5545 As such, Wachtel submits that it is incorr ect to suggest that in the absence of a LA/MSF-
supported entrant, an incumbent LCA manufacturer would enjoy a monopoly position.
7.1890 Drawing from publicly available sources, which suggest that the break-even point for the
Airbus A380 and Boeing 747 is less than 500 units, the Wachtel Report posits a break-even or entry
threshold of 500 production units for each alleged LCA market. The Wachtel Report notes that data
from other publicly available sources suggests that LCA markets almost always exceed 1,000 units.
Given that this demand is more than twice the br eak-even or entry threshold, the Wachtel Report
asserts, on the basis of an approach adopted in an economic study conducted by Breshnahan and
Reiss,5546 that there is room for two competitors in eac h of the identified markets, and by extension
therefore that "if Airbus had not entered the mark et, it is more than likely that Boeing would have
faced another competitor".5547
7.1891 It is true that among the effects the Dorman Report identifies as flowing from the entry into
the LCA industry of a new competitor funded th rough LA/MSF is a reduction in the incumbent
competitor's profits.5548 This implies that, according to the Do rman Report, profits of the incumbent
competitor in the LCA industry would be greater in the absence of competition from an entrant
provided with LA/MSF subsidies compared to the situa tion with that subsidized entrant. However, in
our view, it does not automatically follow that the "situation" the Dorman Report envisaged in a world
without a subsidized entrant is a Boeing monopoly. Indeed, the Dorman Report makes no explicit
claim that if LA/MSF measures were not provided, Boeing would be a monopoly provider of LCA.
7.1892 The United States criticizes the Wachtel response to the Dorman Report, submitting that
Dr. Wachtel has advanced no support for the proposition that "if Airbus had not entered the market, it
is more than likely that Boeing would have faced another competitor". The United States asserts that
Dr. Wachtel "does not, and cannot, say when that 'other competitor' would have entered the market, or

5541 Wachtel Report, Exhibit EC-12.
5542 Wachtel Report, Exhibit EC-12; and Wachtel Report (Clarification), Exhibit EC-659.
5544 We note, in this respect, that Professor Wachte l's critique reflects the European Communities' view
that there are multiple subsidized and like products, which we have rejected. See, para. 7.1668 above.
5545 Wachtel Report, para. 3, Exhibit EC-12; Wachtel Report (Clarification), para. 2, Exhibit EC-659.
5546 Breshnahan, T, and Reiss, P., "Entry and Competition in Concentrated Markets", (1991) Journal of
Political Economy, Vol. 95 (5), pp. 977-1009; referred to in Wachtel Report, footnote 2, Exhibit EC-12.
5547 Wachtel Report, paras. 7-8, Exhibit EC-12. Professor Wachtel provided a more specific, but
similar, assessment of the entry threshold in respect of "middle-market aircraft" in the Wachtel Report
(Clarification), para. 6, Exhibit EC-659.
5548 Dorman Report, pp. 8 and 9, Exhibit US-70 (BCI).

BCI deleted, as indicated [***]

what the technical capabilities and prices of the LC A produced by that 'other competitor' would
be".5549 Moreover, the United States notes that to the extent that the Wachtel Report criticism may be
correct, various facts suggest that the "other competitor" would have most likely been
McDonnell Douglas, another United States company. Thus, the United States accepts that in the
world without the provision of LA/MSF to Air bus "surely there would nonetheless have been
competition". However, it considers that such co mpetition would have been different from the actual
competition from a subsidized Airbus.5550
7.1893 Reading the United States' response to the Wach tel Report together with the Dorman Report,
we do not consider it accurate to characterise the Dorman Report as being premised on the view that
Boeing would hold a monopoly position in the absence of a competitor subsidized through LA/MSF.
Apart from the fact that the Dorman Report never actually claims that Boeing would hold a monopoly
in the absence of a LA/MSF-supported competitor, it is clear that the Dorman Report does not
conclude that it would be impossible for a co mpany to enter the LCA business without access to
LA/MSF. Thus, the Dorman Report concludes th at LA/MSF "allows the recipient to undertake
airplane development projects at a pace and scal e that would be much more difficult – perhaps
impossible – for a competitor that does not have access to launch aid".
5551 While a Boeing
monopoly may be one way of understanding what the Dorm an Report states about the implications of
LA/MSF on the operations of the incumbent LCA manufacturer, it is also possible to understand those
implications in the context of a world where the incumbent manufacturer would face competition
from another player; a weaker entrant that entered without the assistance of LA/MSF. Finally, as we
will explain further below, the real significance fo r us of the simulation presented in the Dorman
Report is not so much what it says about the imp act of LA/MSF on the operations of the incumbent
manufacturer, but rather what it tells us about whether a potential new entrant, or an existing
manufacturer, will decide to launch a new model of LCA.
7.1894 The conclusion in the Wachtel Report that i ndividual LCA markets are a "natural duopoly"
also informs Dr. Wachtel's criticism of the parameters used in the Dorman simulation. We understand
Dr. Wachtel to be of the view that, assuming LCA markets are duopoly markets, a model which
suggests that entry would not occur absent LA/M SF is suspect. The Wachtel Report therefore
questions the reliability of the Dorman simulation, in which small changes to forecasts turn a positive
NPV into a negative NPV which, in turn, suggests th at a decision to launch would not be made. In
this respect the Wachtel Report argues that the Dorm an simulation implies that not only would Airbus
not introduce a new aircraft because of the associated risks, but also that Boeing, itself, would not
introduce a new aircraft. The Wachtel Report remarks:
"The base case makes aircraft production very unattractive. Since the model would
apply to all producers, one wonders why Boei ng launched all of the aircraft that it
did? Clearly, the model and the assumed numer ical values are chosen in a way that
exaggerates the impact of launch aid."
5552
We note, however, that Dr. Wachtel subsequent ly acknowledged that he assessed Dorman "on its
face...{and} did not attempt to assess whether the specific parameter values and assumptions defined
by Dorman were realistic."5553

5549 US, FNCOS, para. 146.
5551 Dorman Report, p. 8, Exhibit US-70 (BCI).
5553 Wachtel Report (Clarification), Exhibit EC-659, para. 8.

BCI deleted, as indicated [***]

7.1895 The parameters relied upon in the Dorman simulation are also questioned in the declaration of
Francisco-Javier Riaza Carballo, former Vice Presi dent A380 Business ("Carballo Declaration")
submitted by the EC. 5554 The Carballo Declaration asserts that the Dorman Report incorrectly
assumes that non-recurring costs ("NRCs") will be e xpended within five year s of launch and, more
importantly, underestimates the number of deliveri es over the life of a programme. According to
Mr. Carballo, an estimated delivery stream of 850 units may have been reasonable in planning a
launch twenty years ago but under current mark et conditions, Airbus or Boeing could expect
1,400 deliveries within a 15 year period.5555
7.1896 In support of the view that the Dorman simu lation underestimates the number of expected
deliveries, the Carballo Declaration cites public information in respect of Boeing's production plans
for the 787, which estimate delivery of 1735 aircraft over 15 years. The Carballo Declaration also
notes Airline Monitor's January 2005 estimate of 1375 aircraft deliveries in the first 15 years of
commercial service.
5556 Airbus reverse-engineered a simulation of the base case in the Dorman
simulation, using the lower estimate of 1375 Boeing 787 aircraft, and the Carballo Declaration reports
the result. Whereas the Dorman simulation repor ted a NPV of USD 1.35 billion in the absence of
LA/MSF, the Carballo Declaration reports a NPV of between USD 6 and 7 billion, and an internal
rate of return ("IRR") of between 17% and 18% 5557, assuming the delivery of 1375 aircraft. 5558 The
European Communities claims that these figures are significant as they are [***].5559
7.1897 The United States finds the European Commun ities' assertion that the Dorman simulation
underestimates the number of deliveries that coul d be achieved for a wide-body LCA programme to
be surprising. Drawing from information available on Airbus' website on the number of deliveries for
its wide-body LCA models, the United States assert s that "Airbus has never had a widebody program
that has produced more than 600 aircraft in its history". 5560 Indeed, according to the United States, no
LCA manufacturer, including Boeing, has ever achiev ed 850 deliveries in the first 15 years of a wide-
body programme. Moreover, drawing on an economic study undertaken by Neven and Seabright, 5561
the United States notes that Dr. Wachtel's appro ach ignores that LCA manufacturers will generally
seek economies of scope across different LCA segment s because of the importance of having a full
LCA family to the development of each individual model. By ignoring such considerations, the
United States submits that Dr. Wachtel's analysis implies that there should be 12 LCA manufacturers
in the 100-200 seat LCA market segment ( i.e., the single-aisle, narrow-body segment), because the
number of sales in this segment between 1991 and 2005 is 12 times a break-even point of 500
units.5562 In any case, the United States argues that ev en if the European Communities' critique were
valid, this would take nothing away from the c onclusion established in the Dorman Report that
LA/MSF significantly affects the probability that a launch will be profitable and therefore that

5554 Exhibit EC-665 (HSBI).
5555 We note that the Carballo Declaration considers the Dorman simulation assumptions about
recurring costs and income to be reasonable and makes the same conclusion in respect of the $10 billion NRC
estimate if the business case assumes at least two variants of the base model. Exhibit EC-665 (HSBI), para. 9.
5556 Exhibit EC-665 (HSBI), para. 18, citing "The Airline Monitor" January/February 2005, ESG
Aviation Services, Edmund S. Greenslet, Editor and Publisher.
5557 The Dorman Report does not set out an internal rate of return. The Carballo Declaration calculates
an IRR of 11.92% for the Dorman simulation base case, as reverse engineered by Airbus. EC, SWS, para. 816.
5559 EC, SWS, at 816
5560 US, SNCOS, para. 171; Exhibits US-645 and US-647.
5561 Neven & Seabright, Exhibit US-382.
5562 US, SWS, paras. 567-568.

BCI deleted, as indicated [***]

LA/MSF significantly influences the recipient's d ecision on whether to launch a new LCA model at
all.5563
7.1898 We agree with the United States. In our vi ew, the Dorman simulation demonstrates that
LA/MSF will have a significant impact on the NPV of any given aircraft project, irrespective of the
specific parameters used to model costs and income streams. In all cases, the Dorman simulation
shows that LA/MSF will increase potential profits and limit potential losses. By limiting potential
losses, LA/MSF transfers risk from Airbus to the governments supplying LA/MSF, thereby rendering
it more likely, in any given case, that an LCA programme will be undertaken.
5564 The conclusions of
the Dorman simulation are, in this respect, consis tent with other evidence before us, including the
[***] discussed further below.5565
7.1899 The third criticism of the Dorman Report raised in the Wachtel Report is that it fails to take
into account the economic impact of the structur e of LA/MSF repayments. This criticism has two
elements. First, the Wachtel Report argues that the Dorman Report fails to note that any subsidy
associated with LA/MSF "is limited to the interest rate reduction in the loan, not the size of the
principal".5566 According to Dr. Watchel, this allege d deficiency means that the Dorman Report
"overstates the impact of launch aid". 5567 Second, the Wachtel Report argues that repayments of
LA/MSF, which occur on delivery of the aircraft involved, could lead to higher prices. 5568 I n h i s
Clarification, Dr. Wachtel expands on this point stating:
"The launch aid repayments are generally made with the delivery of aircraft, thus they
are variable costs and as such tend to in crease the price at which Airbus sells the
aircraft. Were the repayments on the loan s independent of the sales of the aircraft,
they would be fixed costs with a much l ess direct and much less upward effect on
aircraft prices."5569
7.1900 The United States considers that the Dorman Re port takes repayments of LA/MSF fully into
account in modelling the impact of LA/MSF. According to the United States, this is confirmed by the
fact that the Dorman simulation shows that the im pact of LA/MSF increases as fewer LCA are sold
and fewer repayments made.5570
7.1901 Turning first to the proposition in the Wachte l Report that LA/MSF repayments will tend to
increase the price at which Airbus sells its LCA b ecause they are tied to LCA deliveries, we do not
understand Dr. Wachtel to consider this alleged price effect to be an impact of LA/MSF that is certain
to result from LA/MSF's sales-dependent repayment terms. Rather, it is clear from Dr. Wachtel's
choice of words that the fact that LA/MSF is repaid with revenu es generated from LCA
deliveries may have an upward effect on the prices of those LCA. 5571 The fact that Dr. Wachtel does

5563 US, SNCOS, para. 172.
5564 The United States refers to the views of British economist Kim Kaivanto in this regard: "Launch
Aid commits European governments to ab sorbing much of any possible losses, so even if Airbus is risk averse,
it has little incentive not to adopt a risky, aggressive strategy." US, SWS, para. 563, citing Premise and
Practice of UK Launch Aid, 40 Journal of World Trade 495, 498 (2006), Exhibit US-2.
5565 See, paras. 7.1922 - 7.1927.
5566 Wachtel Report, para, 13, Exhibit EC-12; Wachtel Report (Clarification), para. 9, Exhibit EC-659.
5569 Wachtel Report (Clarification), para. 10, Exhibit EC-659.
5570 US, SWS, para. 572.
5571 Initially, Professor Wachtel explained that LA/MSF repayments " could actually lead to higher
prices". Wachtel Report, para. 14 (emphasis added), Exhibit EC-12. As noted above, Professor Wachtel

BCI deleted, as indicated [***]

not conclusively state that LA/MSF repayments will, as a matter of fact, result in higher prices reflects
our own understanding of how prices are set for LCA products. There are a variety of often very
different and sometimes transaction-specific factors that can affect the final price of an LCA.
5572 In
our view, this suggests that the relationship betw een LA/MSF repayments that are tied to aircraft
deliveries and the price at which those aircraft are ultimately sold is more complicated than what is
implied by Dr. Wachtel's proposition. Thus, wh ile we recognize that a repayment obligation
explicitly tied to delivery of LCA is an expense accr uing at the same time as that delivery, it does not
necessarily follow that prices for that LCA will be grea ter than they otherwise would have been in the
absence of that LA/MSF repayment. We examine th e impact of LA/MSF (and the other subsidies) on
LCA prices in the next section of this Report where we address the United States "price" theory of
causation. For present purposes, however, we simp ly note that we are not persuaded that the
proposition advanced by Dr. Wachtel discredits the c onclusions reached in the Dorman Report. In
any case, we recall that for the purpose of the presen t analysis, the importance for us of the Dorman
Report is not what it says about prices after the launc h of an LCA programme, but rather what it tells
us about whether or not that particular LCA pr ogramme would have been undertaken in the first
place.
7.1902 As to the allegation that the Dorman simulati on does not take into account the amount of the
subsidy associated with LA/MSF, as opposed to the principal amount actually loaned, we are equally
not persuaded by Dr. Wachtel's submissions. We recall that the simulation in the Dorman Report
involved the calculation of the NPV for partic ular LCA programmes funded with LA/MSF on the
basis of projected cash-flows and a discount rate of 10%. 5573 The projected cash-flows (inflows when
LA/MSF disbursements, and outflows when LA/MSF repayments) are in two examples (the UK A320
"package" and the Spanish A380 "package") based on "the disbursement pattern and the imputed
interest rate" from "actual experience". For the other examples, cash-flows were derived from
information designated BCI.
5574 The European Communities has not specifically contested the
disbursement patterns or imputed interest rates used in the Dorman simulation. Indeed, comparing the
imputed interest rates used in th e Dorman simulation with our own findings in respect of the relevant
LA/MSF contract interest rates 5575 the only notable difference is in respect of the French A330-200
"package", where the imputed interest rate used in the Dorman simulation is approximately half of
what we found it to be. 5576 However, we do not consider these differences to detract from the
credibility of the Dorman simulation's general results.
7.1903 The European Communities presented its own calculation of the amount of subsidization
associated with each of the challenged LA/MSF cont racts, apart from the A300 and A310, in three
reports prepared by International Trade Resources LLC.5577 The first of these reports, the ITR Report,
defines the amount of the subsidization conferred by each LA/MSF contract in the following terms:

subsequently suggested that LA/MSF repayments would " tend to increase price". Wachtel Report
(Clarification), para. 10, (emphasis added), Exhibit EC-659.
5572 See, discussion at paragraphs 7.1837 - 7.1839 above.
5573 We understand Dr. Dorman to have used a 10% discount rate throughout the simulation. See,
paragraph 7.1882 above; US, Comments on EC, SNCOS, para.31.
5574 Dorman Report, p. 5 and footnote 13, Exhibit US-70 (BCI).
5576 In particular, the imputed interest rate used for the Spanish A380 "package" is the same as our
findings; the imputed interest rate used for the UK A320 "package" and the French A340-500/600 "package"
are, respectively, [***] and [***] basis points above our findings; and the imputed interest rate used for the
French A380 "package" is [***] basis points below our findings. Dorman Report, Table 2,
Exhibit US-70 (BCI).
5577 ITR Report, Exhibit EC-13 (BCI/HSBI), ITR Report (Answer) Exhibit EC-660 (BCI/HSBI) and
ITR Report (Update) Exhibit EC-839 (BCI).

BCI deleted, as indicated [***]

"The amount of subsidy conferred by each MSF loan is the difference, in the year of
launch, between the present value of tax ad justed loan receipts and anticipated loan
repayments discounted at the applicable project-specific benchmark rate".5578
The ITR Report (Answer) described the methodology a pplied to calculate the amount of subsidization
associated with LA/MSF in the following terms:

"We calculate the difference between the return that the government anticipated when
the MSF loan was agreed with the return that the US Ellis MSF benchmark rates
would have required. Because the repayment schedules of the MSF loans are not
standard annual repayments and instead are linked to delivery of aircraft, we
calculated the present value ("PV") as of th e date of the launch of the difference
between the return that was anticipated by the MSF agreement and the return that
would have been required by a commercial entity".5579
7.1904 Thus, as we understand it, the methodology applie d in the ITR Report to identify the subsidy
amount is not unlike that applied in the Dorman simulation to arrive at the NPV of the various
LA/MSF "packages", with one major difference – inst ead of using a 10% discount rate used in the
Dorman simulation, the ITR Report used the inter est rate benchmark identified in the Ellis Report
(which the European Communities did not accept) in its calculations. It follows that, by the European
Communities' own proposed approach for calculatin g the amount of subsidization associated with
LA/MSF, it cannot be concluded that the Dorman simulation is focussed on only the amounts of
principal disbursed under the LA/MSF contracts and not the levels of subsidization. As we
understand it, the Dorman simulation does, in effect, take into account the amount of subsidization, as
defined by the European Communities. However, because Dorman uses a 10% discount rate, this
amount is different from that determined by the European Communities, which uses the Ellis Report
interest rate benchmarks.
7.1905 Compared with our findings on the appropriate market interest rate benchmarks for the
LA/MSF "packages" modelled in the Do rman simulation, the 10% discount rate that is used is below
the range of market interest rate benchmarks that we have determined for the LA/MSF contracts in
respect of the UK A320 "package". To this extent, by the European Communities' own standards, the
amount of the subsidy taken into account in th e Dorman simulation simulations involving this
LA/MSF "package" will typically underestimate its NPV. 5580 It would therefore not be incorrect to
describe the Dorman simulation results for this par ticular "package" to be overall conservative. For
the other "packages", the 10% discount rate used in the Dorman simulation lies within the range of
market interest rates we have concluded would be appropriate benchmar ks for those relevant
contracts. Thus, we are not convinced by Dr Wach tel's contention that the Dorman Report fails to
note that any subsidy associated with LA/MSF "is limited to the interest rate reduction in the loan, not
the size of the principal".5581
7.1906 All else being equal, we consider that the pr ovision of LA/MSF, which makes a project more
profitable if successful and limits downside risk if unsuccessful, makes it more likely that any given
aircraft will be launched. This does not, however , conclusively establish that, but for the grant of
LA/MSF, any particular Airbus model would not ha ve been launched when it actually was. The
launch of a new model of LCA is an expensive proposition involving significant expenditures. In

5578 ITR Report, para. 19, Exhibit EC-13 (BCI).
5579 ITR Report (Answer), para. 6, Exhibit EC-660 (BCI).
5580 We note that for financing involving a pattern of profits (cash in-flows) early and costs (cash out-
flows) later (such as LA/MSF), a lower discount rate makes the NPV smaller.
5581 Wachtel Report, para. 13, Exhibit EC-12; Wachtel Report (Clarification), para. 9, Exhibit EC-659.

BCI deleted, as indicated [***]

considering a launch decision, not only will short- to-medium term development costs need to be
estimated, but other recurring costs and revenue st reams over the entire 15-20 year production cycle
of an aircraft must also be estimated. An element of uncertainty is inherent in such estimates. Given
such uncertainties, a prudent manufacturer will likel y require there to be some scope for costs and
revenues to deviate from forecast estimates without the project as a result becoming unprofitable. The
sensitivity testing in the A380 business case (discussed below) in which the [***].
7.1907 The results of the Dorman simulation suggest that, in the absence of LA/MSF, relatively
small changes in cost and revenue estimates would make the launch of any particular aircraft model
unprofitable. We agree with the suggestion in the W achtel Report that, in this situation, it seems that
it would be unlikely that a hypothetical aircraft manufacturer, considering the results of the Dorman
simulation alone, would decide to launch the aircra ft programme contemplated. As noted above, the
Wachtel Report seeks to counter this implication of the Dorman simulation by arguing that the LCA
market is a natural duopoly.
7.1908 The United States criticizes this aspect of the Wachtel Report by arguing that the approach
adopted in the Breshnahan and Reiss study, which W achtel cites in support of his conclusion, is not
applicable to the LCA market and that the Wachtel Report has failed to consider the implications of
the economies of scope and scale in the LCA market.
5582 Ultimately, however, we consider the
United States' arguments concerning this aspect of the Wachtel Report to be inapposite, as the United
States is not arguing that Boeing, or indeed the United States, is entitled to a monopoly of the global
LCA industry.
5583 Indeed, as we have already explained, the United States goes further, indicating
that not only does it not consider that Boeing is entitled to a monopoly but that, in fact, it considers
that Boeing would face competition from at least some entity in the absence of LA/MSF.5584
7.1909 The implications of this apparent acceptance that Boeing would face competition in a world
without LA/MSF (and the other subsidies at issue in this dispute) (the "counterfactual" world) are
discussed below. At this stage, however, we note the United States' basic contention that, even if
Airbus had entered the market in the absence of LA/MSF, it would have done so at different times and
with different planes. 5585 In this respect we understand the United States to be arguing that whether
the United States faced competition in the counterf actual world from an Airbus that launched LCA
without LA/MSF, or from some other entity, that co mpetition would be different, and that one way in
which that difference would be manifest would be that the product line of the competitor would not be
the equivalent of the actual Airbus product line.
7.1910 If the United States concedes that Boeing woul d, in the absence of LA/MSF, face some
competition it must, presumably, concede that at least some competing planes would have been
launched (by Airbus or some othe r entity) over the period since Airbus launched its first LCA. The
Dorman simulation does not provide a basis fo r assessing the circumstances of any competitive
launches in the absence of LA/MSF. Insofar as its results suggest that there would be no entry, and
insofar as it does not distinguish between the type of entry which is modelled and other forms of entry
which might otherwise occur, we consider that it is not possible to conclude on the basis of the
Dorman Report alone that, but for LA/MSF, any particular Airbus aircraft model would not have been
launched.

5582 US, SWS, paras. 564-570.
5583 US, SWS, para. 572.
5584 US, FNCOS, para. 151.
5585 In this respect the United States asserts "even if Airbus would have entered a particular LCA
market segment at some other time with a different aircraft (in terms of technical capabilities, specifications, and
other characteristics), the effect on the US LCA industry would have been different." US, SWS, para. 572.

BCI deleted, as indicated [***]

7.1911 This does not mean, however, that we do not c onsider that the Dorman Report supports the
United States' argument regarding the impact of LA/MSF on Airbus launch decisions. As we have
already observed, the Dorman Report does in our view demonstrate that LA/MSF will have a
significant impact on the NPV of any particular project, and that irrespective of the specific
parameters used to model costs and income streams, LA/MSF will increase potential profits and act to
limit potential downside losses. It also demonstrates that in some circumstan ces, the availability of
LA/MSF makes the difference between a positive or ne gative NPV, or alters the risk profile of a
project sufficiently to make an affirmative decision to launch a particular aircraft more likely.
7.1912 In addition to relying on Airbus business ca ses, which we discuss below, to counter these
conclusions, the European Communities also relies on a putative "Boeing 787 business case" it
constructed based on public information and [***].5586 The cash flow analysis prepared for the
European Communities for this exercise shows a NPV and IRR higher that those the European
Communities asserts were generated by the Dorman simulation. 5587 We do not consider that the
results of an ex post facto business case for a Boeing LCA constructed on the basis of public
information for purposes of this dispute has any rele vance to our assessment of the effect of LA/MSF
subsidies on Airbus. Even assuming the correctness of the exercise, which is unclear, we do not see
how the conclusion that the NPV and IRR of this Boeing 787 business case are higher than those of
the Dorman simulation informs our assessment of the effect of LA/MSF on Airbus. Thus, we
conclude that the Dorman Report demonstrates that the provision of LA/MSF is likely to change the
behaviour of the recipient with respect to a decision to launch a LCA by increasing the likelihood of
an affirmative decision to go forward with the launch.
Public Statements and the EC State Aid Decision
7.1913 The second category of evidence presented by the Un ited States consists of a series of public
statements, and a decision by the European Commi ssion concerning state aid to Aérospatiale, which
the United States argues demonstrate that the subsid ies in this dispute "facilitated and accelerated the
introduction of every major Airbus model, precisely as the European Communities and the Airbus
governments designed them to do." 5588 The European Communities argues that such statements are
hearsay and should not be given weight, and at best reflect the intent of Airbus to secure a viable
market share, and do not constitute evidence of present adverse effects.5589 We consider this evidence
below.
A300
7.1914 The first Airbus LCA model, the A300, w as launched in 1969 and first delivered to a
customer in 1974. In 1991 Jean Pierson, then Ai rbus Managing Director, spoke generally about the
role of government support during the early 1970's during a speech at Cranfield University in the UK.
He is quoted in a 1998 book:
"Let us go back to 1970 for one minute. Imagine if I had gone then to a bank and
said, 'I have just started a management team from various European countries. I
intend to make a large aircraft to compete with Boeing. Will you lend me $1 billion?

5586 EC, SWS, paras. 804-808.
5587 International Trade Resources, 787 Business Case, Exhibit EC-662 (HSBI). We note that the
Dorman Report does not, in fact calcu late an IRR for its hypothetical launch programme; the estimate of 11.92
per cent referred to by the European Communities as ge nerated by the Dorman simulation was actually inferred
by Mr. Carballo, as described in the Carballo Report, Exhibit EC-665 (HSBI).
5588 US, FWS, para. 829.
5589 EC, FWS, paras. 2318-20, 2322.

BCI deleted, as indicated [***]

You may lose all of it. Or you may start to make some money twenty years from
now! I leave it to your imagination the we lcome I would have had. No financial
institution would have taken such a risk, or if it had the interest rates would have been
simply prohibitive. It was therefore up to the governments of each of the countries
participating in Airbus Industrie to subs titute themselves for the bankers and assume
such risks".5590
A320
7.1915 In March 1984 Bernard Lathiere, then President and CEO of Airbus, announcing the launch
of the A320, referred to the commitments of the governments of France, Germany, Spain and the
United Kingdom to take measures enabling investments for this programme as fulfilling "the third and
final prerequisite, the financial one".5591 Earlier, in May 1983, the Chairman of British Aerospace, Sir
Austin Pearce, commenting on the developmen t of the A320 and the involvement of British
Aerospace in that project, noted that income from the A300 and A310 was just beginning to be
received and that, in such circumstances, the propo sed A320 was "likely to be pushed further into the
future".5592 The article indicates that the British gove rnment had told British Aerospace that it
expected it to finance its A320 development costs on the commercial market. The Article also states
that British Aerospace had said in 1981 that, in the absence of LA/MSF, it would not be in a position
to participate significantly in the A320 programme until 1987 or 1988.
5593 The British Government
agreed to provide British Aerospace with financing in March 1985.
A330/A340 and A340-500/600
7.1916 The United States has provided similar evidence with respect to the launch of the A330/A340
and the A340-500/600. Sir Austin Pearce is quoted in March 1987 as saying, with reference to the
A330/A340, that "{f}inancing the project through co mmercial banks is not feasible ... because of the
risks associated with the program".5594 Moreover, the United States notes that the French government
notified the LA/MSF it intended to provide to Aéro spatiale for the A340-500/600 to the European
Commission, in accordance with Article 93(c) of the EC Treaty. In its Decision letter dated
26 July 1999, the European Commission determined that the French LA/MSF was not an "aid" within
the meaning of the EC Treaty and did not require notification. In its Decision, the Commission made
the following findings concerning the role of the proposed LA/MSF:
"Aérospatiale could not finance the costs connected with the development of the
Airbus A340-500/600 by itself or with the help of bank loans. Accordingly, if it were
to finance the development costs of the A3400500/600 solely from its own capital (or
through bank loans), it would seriously weaken the financial structure of the
company. The fact that aeronautical projects extend over very long periods of time
and that any investment made in the A340-500/600 could be paid back, should the
program be successful, only in the very lo ng term, make the risk that much more
unacceptable.

5590 Quoted in Matthew Lynn, Birds of Prey (1998), Exhibit US-42, p. 150.
5591 Airbus-Industrie: A320 Is a Reality, Business Wire (March 2 1984), Exhibit US-15.
5592 Costs Push British Towards Joint Efforts , Aviation Week & Space Technology (30 May 1983),
Exhibit US-439.
5593 Costs Push British Towards Joint Efforts , Aviation Week & Space Technology (30 May 1983),
Exhibit US-439.
5594 British Aerospace rejects A330/A340 aid proposal , Aviation Week & Space Technology,
30 March 1987, Exhibit US-24.

BCI deleted, as indicated [***]

Through Aérospatiale, the entire A340-500/600 program has been made possible
thanks to the measures reported by the Fren ch authorities. Indeed, in view of the
industrial structure of Airbus Industrie and the configuration of the European
aeronautics sector, this program cannot be c ontemplated without the participation of
Aérospatiale. Consequently, the reimbursable advance from the French Authorities is
helping to promote the A340-500/600 pr ogram, which could not be implemented
without this government support".5595
While we have not been provided with a copy of the submissions of the French government to the
European Commission, we consider, based on the decision letter itself, that these findings were
consistent with those submissions.

A380
7.1917 Similar evidence is presented by the United Stat es with respect to the A380. Responding to a
question in the UK House of Commons on 3 March 2005, Patricia Hewitt, then Secretary of State for
Trade and Industry, is quoted as saying "{w}e have recently seen, of course, the launch of the A380,
which would not have been possible if it had not been for the commitment of the British Government
to launch an extremely successful programme ...".
5596 The provision of LA/MSF in circumstances
where it was necessary to the launch of an LCA prog ramme appears to have been the operating policy
of the UK Department of Trade and Industry ("DTI" ). The DTI described its rationale for providing
LA/MSF on its website in October 2006 in the following terms:
"The fundamental rationale of launch aid is to address the apparent unwillingness of
capital markets to fund projects with such high product development costs, high
technological and market risks and such long pay back periods. ... An applicant must
demonstrate: that the project is technically and commercially viable; that Government
investment is essential for the project to proceed on the scale and in the time-scale
specified in the application, and that th e government will recoup the investment at a
real rate of return".
5597
7.1918 Similarly, a French Senate Report considering public support of the civil aircraft sector
concluded that Aérospatiale would not be able to obtain outside fina ncing to meet its requirements in
respect of the A380, and even if such financing were available, "such ex ternal financing would
apparently add excessively to the financial expe nses incurred by the firms and would throw their
balance sheets out of equilibrium because of the low level of their equity capital".5598
7.1919 In considering the above evidence, we recogni ze that the public statements of Airbus or
participant company executives and public officials as to the need for LA/MSF in order to launch a
given aircraft may involve a degree of self-interest. For example, comments attributed to Sir Austin
Pearce appear to have been made in the midst of efforts by British Aerospace to lobby the government
of the United Kingdom for additional support.
5599 In these circumstances, it may well have been in
the interest of the company to suggest that its pa rticipation in the A320 project would come to a halt
without further commitment from the UK government . Having committed public monies, it is also

5595 Letter from Karel Van Miert to Hubert Vedrine, Reimbursable Advance to Aérospatiale for the
Airbus A340-500/600 Program, Exhibit US-3.
5596 House of Commons Hansard Debates for 3 March 2005, col. 1088, Exhibit US-436.
5597 DTI web-site, "Aerospace and Defence Industries Launch Investment", Exhibit US-106.
Report 1997, 72, Exhibit US-18.
5599 Exhibit US-24.

BCI deleted, as indicated [***]

possible that public officials would be inclined to describe government participation in Airbus
projects as essential. However, we note that the Decision letter of the European Commission seems to
us to be in the nature of a quasi-judicial evaluati on and finding, rather than mere statements by public
officials, and therefore the same concerns do not ari se in evaluating that decision. In any event, we
consider it appropriate to take this evidence into account, making our own judgements as to its weight
and probative value, together with other evidence in our evaluation of the United States claims.5600
7.1920 The European Communities has not disputed the truth of the public statements or of the facts
stated, nor does it respond directly to the United St ates' allegations based on these statements, which
the United States considers demonstrate that LA/MSF was necessary to the launch of the Airbus LCA
models in question. 5601 In these circumstances, we conclude that the above evidence supports the
United States' position. Although we do not draw sp ecific conclusions as to the intent of the entities
on behalf of which the statements were made, a nd while we recognize that there may have been a
variety of motivations at play, taken together, we consider these statements and the European
Commission's State Aid decision generally support the inference that, but for the provision of
LA/MSF, Airbus would not have been able to launch any of its existing range of LCA, that is, the
A300, A320, A330/A340, A340-500/600 and A380, as and when it did.
The business cases
7.1921 The European Communities argues, on the basis of the Airbus business cases for the A380,
A340-500/600 and A330-200, that LA/MSF has not, at least since 1992, had any impact on the
decision to launch any particular aircraft.
5602 In particular, the Eur opean Communities argues that
these business cases demonstrate th at the programmes provided robust returns in the absence of
LA/MSF, such that Airbus could have launche d each of these aircraft without LA/MSF. The
European Communities also asserts that the business cases demonstrate that the Dorman simulation is

5600 In Australia – Automotive Leather II, the panel reached a similar conclusion in respect of public
statements of Australian government officials reported in the press, noting:
"A commentator on the International Court of Justice's consideration of evidence and proof of facts has stated:
"It appears to be the case that press re ports, when significant but not denied
by the responsible state, or when reporting other events such as official
statements by responsible officials and agencies of that state, are accepted;
{footnote omitted} but when they are uncorroborated or do not otherwise
contain material with an independent title of credibility and persuasiveness,
the tendency of the Court is to discount them almost entirely".
Highet, Evidence and Proof of Facts, in Damrosch, The In ternational Court of Justi ce at a Crossroads, 1987.
Similarly, we take into account the circumstances in which the reported remarks were made, the source, and
whether the information is corroborated elsewhere or contrary evidence is offered, in assessing the value of
these Exhibits as evidence."
Panel Report, Australia – Automotive Leather II, footnote 210.
5601 The European Communities does argue that other st atements by EC officials and Airbus officers
regarding the use of subsidies to "attack," "destroy" and "kill" Boeing aircraft and cited by the United States as
demonstrating that LA/MSF has been granted to enable Airbus to develop LCA models designed specifically to
capture market share from th e US industry are neither credible nor rele vant. EC, FWS, para. 2317, referring to
US, FWS, paras. 836-838. The European Communities considers that such statements, even if correct, simply
show the intent of company officials to secure a viable market share to compete against Boeing, and say nothing
about present adverse effects. EC, FWS, para. 2319.
5602 In addition the European Communities provided us with the business case for the A320,
Exhibit EC-82 (HSBI) and the business case for the A330/A340, Exhibit EC-775. It does not however argue
that these documents evidence that th ese aircraft would have been launch ed in the absence of LA/MSF. The
European Communities submitted no such evidence in connection with the A300 or A310, and makes no
argument that these LCA models would have been launched in the absence of LA/MSF.

BCI deleted, as indicated [***]

based on a fundamentally flawed set of assumptions and parameters. 5603 We examine the European
Communities' contentions in respect of these business cases below.
The A380 business case
7.1922 The A380 business case is dated December 2000. 5604 It includes a NPV analysis of a
contemplated A380 family of aircraft, which includes a core aircraft and a freighter version, as well as
extended range and stretch versions of the co re aircraft. An NPV is calculated assuming [***]. Like
the Dorman Report, the A380 business case makes certain assumptions in respect of non-recurring
costs, recurring costs, number of deliveries and pr icing. The NPV for two baseline scenarios is
calculated. One assumes that no LA/MSF is available and the other assumes the provision of
LA/MSF amounting to 33 percent of development costs. In the no-LA/MSF scenario the A380
business case anticipates a positive NPV using [***]. However, the NPV using the [***] in the no-
LA/MSF scenario is less than one-third of the NPV calculated using the [***], suggesting that the
choice of [***] will make a significant difference to the NPV of the project. 5605 Like the Dorman
simulation, the A380 business case indicates that th e NPV of the project will increase with LA/MSF,
compared to the situation without LA/MSF. Depending upon which of the [***] is used, the
difference in NPV is approximately [***] and [***].5606
7.1923 The A380 business case also contains five diffe rent sensitivity assessments in respect of the
results obtained in the baseline case, one of which is the "Realistic Worst Case" scenario. Under this
scenario, the NPV of the project is determined [***].5607 The results show that [***]. When the [***]
is applied, the NPV falls by approximately [***]; when the [***] is used, the NPV drops by
approximately [***]. Both results are deemed in the document to be [***].5608 The sensitivity testing
in the A380 business case assumes that Airbus rece ives LA/MSF. Thus, the Realistic Worst Case
scenario is not tested against a base case in which Airbus does not receive LA/MSF. In our view, the
inference that can be drawn from th is is that Airbus did not contemplate or provide for the possibility
of launching the A380 in the absence of LA/MSF.
7.1924 The European Communities submitted an ex-post facto sensitivity analysis which, using the
information in the A380 business case, applies th e Realistic Worst Case scenario assuming that
LA/MSF is not provided. The results of this analysis, provided in the Carballo Declaration, 5609
indicate that, although NPV [***], there would be [***] in the NPV of the project in the absence of
LA/MSF in the Realistic Worst Case scenario. Ho wever, while the A380 business case calculated the
baseline NPV at [***] the Carballo Declaration only considers the impact of the absence of LA/MSF
in the Realistic Worst Case scenario using the [***].
7.1925 The fact that the Carballo Declaration did not undertake the same sensitivity analysis with the
[***] used in the original A380 business case m eans that we do not know whether the use of [***]
would have resulted in a negative NPV in the Realis tic Worse Case scenario. In general, for projects
involving a pattern of costs (cash out-flows) early a nd profits (cash in-flows) later (such as the A380
project), [***] makes the NPV smaller. In this regard, we recall that the NPV calculated for the A380
project in the Airbus baseline business case using the [***] and assuming no LA/MSF scenario was
[***] of the NPV calculated using the [***]. In other words, in a scenario without LA/MSF in the

5603 EC, SWS, paras. 799-809.
5604 Exhibit EC-362 (HSBI).
5605 We note that both of the [***] than the 10% discount rate used in the Dorman Report.
5606 A380 Business Case, p. 29, Exhibit EC-362 (HSBI) .
5607 A380 Business Case, p. 36, Exhibit EC-362 (HSBI).
5608 A380 Business Case, p. 36, Exhibit EC-362 (HSBI).
5609 Carballo Declaration, Exhibit EC-665 (HSBI).

BCI deleted, as indicated [***]

baseline business case, a [***] had a significant impact on the project's NPV. We have no reason to
believe that this would not also be the case for the NPV that would result from sensitivity testing the
Realistic Worst Case scenario without LA/MSF using [***].
7.1926 Finally, as we mention in another context elsewhere in this Report, an important factor to
consider is the credibility of the business case itself. 5610 While the business case may serve as the
basis for Airbus' decision whether the launch of a new LCA programme is a worthwhile investment, it
also serves as at least one of the bases for the government lenders to decide whether to support a
programme and how that support will be structur ed. Because of the graduated levy-based and
success-dependent nature of LA/MSF repayments, Ai rbus has an economic incentive to be optimistic
in its forecasts of, inter alia, the number of aircraft likely to be sold and the pace of those sales, when
preparing a business case in support of a programme for which LA/MSF is sought. 5611 The greater the
number of sales over which principal repayments and royalties must be paid, the less likely it is that
Airbus will have to make those payments if the business plan estimates prove to be optimistic. The
European Communities argues that the Airbus busin ess case is the product of "an exhaustive internal
analysis of the programme's technical and commercial prospects" and "relies on a host of conservative
assumptions and methodologies". 5612 Moreover, the European Communities submits that Airbus'
business case delivery forecasts have been, by definition, "realistic and sober". 5613 It does not,
however, suggest that those business case delivery forecasts are infallible. Indeed, the European
Communities recognizes that forecasts are, by their very nature, "informed judgements about how
events that have not yet occurred will unfold in th e future", and therefore are not always reliable.
5614
While the European Communities contends that th e business case delivery forecasts have been "often
met, and indeed exceeded," 5615 experience to date suggests that this may not be the case in respect of
the A380.5616
7.1927 A critical element of the credibility of the bus iness case is the reasonableness of the demand
predictions on which the sales and delivery pr ojections are based. The A380 programme was
launched in the face of basic disagreement between Airbus and Boeing about the size of the potential
market for the aircraft. 5617 As the United States observes, "the main risk of non-repayment of
{LA/MSF} is not a risk associated with development or manufacturing; it is a risk associated with
sales".
5618 While we are in no position to judge at th is time whether the sales estimates in the A380
business case were, in fact, reasonable, we note that the A380 business case reflects consideration of a
rather limited range of possibilities in terms of failure to achieve sales targets, particularly in view of

5610 See, paragraphs 7.412 - 7.414.
5611 We recognize that LA/MSF for the A380 accounted for only 33% of the development costs of the
project, and that the A380 business case (i n part or in full) may also have been used by Airbus to attract other
investors. However, given the project's scope, the development costs covered by LA/MSF, approaching [***],
was significant. Moreover, it seems clear to us that securing LA/MSF from the four governments had a positive
impact on Airbus' ability to finance the remainder of the large amount of investme nt needed for the A380
programme.
5612 EC, FWS, para. 466.
5613 EC, FWS, paras. 465 and 467.
5614 EC, FWS, para. 467.
5615 EC, FWS, para. 467. The European Communities notes, in this regard, that as of
31 December 2006 Airbus had sold approximately 3000 A320 aircraft, well above the original business case
projections, which are not in the evidence before us. EC, FWS, para. 331. It makes no similar statement with
respect to any of the other LCA programmes.
5616 The difficulties Airbus experienced with the A380, resulting in substantial delays in production and
customer concerns, are generally well known, and have had had a significant effect on its parent company,
EADS. EADS, EADS 2006 Results Dominated by Airbus Loss, 9 March 2007, Exhibit US-463,
5617 US, FWS, 262, 263
5618 US, SNCOS, para 57.

BCI deleted, as indicated [***]

the uncertainty of demand forecasts for the aircraft. 5619 Moreover, it appears that the Realistic Worst
Case Scenario is not the worst with respect to all parameters cons idered in the sensitivity testing. 5620
The A380 may yet succeed in reaching the sales levels predicted in the business case. However, the
actual delays in ramping up production, and relativ ely limited sales and deliveries to date, make it
clear that such success will, if it occurs, likely take a good deal longer than originally projected, thus
delaying achievement of the break-even point of the programme. 5621 The financial consequences of
the A380 production problems and resulting programme delays have been significant, with EADS
reporting a consequent reduction in Airbus' earnings before interest and taxes of EUR 2.5 billion as of
2006.5622 Thus, it is by no means apparent that the Realistic Worst Case Scenario actually captured
what could reasonably have been envisioned to be the worst case scenario at the time the business
case was developed. These concerns inform our consideration of the European Communities'
contention that the A380 business case demonstrates that Airbus would have gone forward with the
launch even in the absence of LA/MSF.
The A340-500/600 business case
7.1928 The A340-500/600 business case is dated October 1997. 5623 It compares the effect of the
launch of the A340-500/600 (a derivativ e aircraft) on the economics of the [***]. The results predict
that the IRR and the NPV of the overall A330/A340 programme will [***] if a decision to launch
were made. The business case includes a [***] analysis in respect of both the overall programme and
the incremental effect of the A340-500/600 launch assuming [***]. The modelled results predict a
[***] contribution to the overall programme and a [***] incremental NPV in circumstances where the
[***].5624
7.1929 It is unclear, on its face, whether the A340-500/ 600 business case takes into consideration the
grant of LA/MSF. The European Communities as serts that it does not, but provides no supporting
evidence.5625 It also asserts that, assuming arguendo, that the business case did take into account the
effect of LA/MSF, the [***] IRR, relative to the discount rate, indicates that the project would be
commercially viable in the absence of LA/MSF. Its arguments in this respect are based on a
comparison of the IRR in the A380 business case, [***].5626

5619 Exhibit EC-362 (HSBI), pp. 33, 36. The demand forecasts reflected in the A380 business case
include demand for LCA with over 400 seats, a category that includes not only the A380, but also the A340-600
and the Boeing 747 and 777-300. Thus, it is not at all clear that the A380 business case is based on a "realistic
and sober" forecast for deliveries of the A380 per se, which is an aircraft with more than 500 seats.
5620 Exhibit EC-362 (HSBI); compare information at pp. 34 and 36.
5621 Exhibit EC-362 (HSBI), pp. 6.
5622 EADS, EADS 2006 Results Dominated by Airbus Loss, 9 March 2007, Exhibit US-463, at 8.
5623 Exhibit EC-958 (HSBI)
5624 But see US, Comments on EC Answer to Panel Question 262 (HSBI Appendix), paras. 10-12.
5625 EC, SWS, para. 785.
5626 EC, SWS, para. 816. In the A380 business case the IRR [***] in the absence of LA/MSF, but
remained [***] the discount rate. The European Communities argues that if the IRR in the A340-500/600
business case is reduced by the same amount it will result in a hypothetical IRR fo r the A340-500/600 which is
commercially viable; that is, an I RR which exceeds the discount rate. The European Communities argues that
applying a similar reduction to the IRR in respect of th e A340-500/600 would, in fact, exaggerate the impact of
LA/MSF, as while the [***] only France and Spain provided LA/MSF in respect of the A340-500/600. EC.
SWS, para. 787. On the same basis the European Co mmunities also argues that if the sensitivity testing
undertaken in the Carballo Declarati on were implemented in respect of the A340-500/600 "it is reasonable to
assume that similar results would be obtained". EC, SWS, para. 788.

BCI deleted, as indicated [***]

The A330-200 business case
7.1930 The A330-200 business case 5627 considers the introduction of two aircraft derived from the
A340-300B, referred to in the document as the [***]. As with the A340-500/600 business case, the
document considers the [***] are added to the Airbus range. The results predict that the IRR and the
NPV of the overall A330/A340 programme would [***] if a launch decision were made. Sensitivity
testing predicts that the NPV of the overall programme will [***] and be an improvement over the
[***].5628 The European Commun ities asserts that the [***] implied incremental IRR for the A330-
200 project [***] the expected IRR of the A380 and A340-50 0/600 programmes. On the basis of the
same logic used in respect of the A340-500/600, the European Communities concludes that the [***]
IRR demonstrates that LA/MSF had no role in respect of the launch of the A330-200.
7.1931 According to the European Communities, the la ck of impact of the grant of LA/MSF on the
launch of the A330-200 is further demonstrated by the fact that only Aérospatiale received LA/MSF
amounting to only EUR 49.9 million. The European Communities asserts that this amount could have
been financed in other ways, including through risk-sharing suppliers.5629
Conclusions Regarding the impact of LA/MSF on the Launch of Airbus
LCA
7.1932 The European Communities argues that th e A380, A340-500/600 and A330-200 business
cases conclusively demonstrate that LA/MSF was inconsequential to the launch of these aircraft
models, and that, as a consequence, the United States causation theory in respect of these three models
"fails as a matter of fact".
5630 The European Communities presents no equivalent evidence or
arguments in respect of the earlier models of Airbus LCA ( i.e., the A300, A310, A320 and
A330/A340 model families). The European Commun ities has submitted no internal documents or
other evidence suggesting that Airbus would have proceeded with pre-1992 projects in the absence of
government LA/MSF support. It has simply suggested that the United States has not done enough to
demonstrate the link between LA/MSF a nd the launch of Airbus aircraft.
5631 However, in our view,
the United States has met its evidentiary burden in this respect.
7.1933 The A300 was the first Airbus model of LCA, launched in 1969 with close to 100 percent of
its development costs financed through LA/MSF at zero interest. 5632 We recall that the 1969 inter-
governmental agreement set out the intention of the governments of France and Germany to cooperate
in the field of aeronautics, and in particular to support the development by national manufacturers of a
single LCA, and specifically envisaged that t hose governments would provide funding for the
development of that LCA, the A300. 5633 Prior to the 1969 Agreemen t, the companies that would
eventually form part of Airbus Industrie GIE, which we recall was constituted in 1971, had not yet
worked together on any endeavour of similar scope or ambition. Both parties have recognized the
complexities and the risks involved in launching such a project. Indeed, as we have previously noted,
the parties have described the development of LC A as an endeavour that requires "huge up-front
investments"
5634 and a commitment of "tremendous resources" 5635 in the face of a business

5627 Exhibit EC-956 (HSBI).
5628 But see US, Comments on EC Answer to Panel Question 262 (HSBI Appendix), paras. 7-9.
5629 EC, SWS, para. 793.
5630 EC, SWS, para. 795.
5631 EC, SWS, paras. 758, 837-839, 854-857.
5632 See, footnote 2431 above.
5633 See, para. 7.534 above. The 1969 Agreement was extended to the governments of the Netherlands
and Spain in 1970 and 1971, respectively. See, para. 7.537 above. See, Exhibits US-16, EC-992 (BCI).
5634 US, FWS, para. 112.
5635 EC, FWS, para. 31.

BCI deleted, as indicated [***]

environment that is shaped by factors "whose very foreseeability is impossible by definition". 5636 In
our view, the degree of risk associated with Ai rbus' first venture into LCA manufacturing was
probably the greatest among all of its LCA projects. This level of uncertainty appears to be clearly
reflected in the statement attributed to Airbus' Managing Director Jean Pierson:
"Let us go back to 1970 for one minute. Imagine if I had gone then to a bank and
said, 'I have just started a management team from various European countries. I
intend to make a large aircraft to compete with Boeing. Will you lend me $1 billion?
You may lose all of it. Or you may start to make some money twenty years from
now! I leave it to your imagination the we lcome I would have had. No financial
institution would have taken such a risk, or if it had the interest rates would have been
simply prohibitive. It was therefore up to the governments of each of the countries
participating in Airbus Industrie to subs titute themselves for the bankers and assume
such risks".
5637
7.1934 In our view, the United States has demonstrated that LA/MSF functions as a risk transferring
device which significantly alters the economics of a decision to launch any given LCA programme.
This we believe is adequately demonstrated by the Dorman Report which, in this respect, is supported
by the sensitivity testing included in the A380 busin ess case. According to both pieces of evidence,
the provision of LA/MSF improves the predicted r esults of the aircraft programme in question,
indicating that an affirmative launch decision is more likely than it would be in the absence of such
financing. As noted above, we do not consider that the Dorman Report proves that any particular
Airbus model would not have had a positive NPV in the absence of LA/MSF. It does, however,
demonstrate how LA/MSF, by transferring risk to the government lenders, reduces the manufacturer's
risk, and improves the potential profitability of any particular aircraft programme, making a decision
to go ahead with LCA programme launch more likely. This dual impact of risk reduction and profit
enhancement would have been pa rticularly pronounced for the A300, given that LA/MSF covered
close to 100 percent of its development costs at zero interest, when the interest rate that would have
been offered by a market lender for a comparable lo an would have, at a minimum, fallen within the
range of 15.18 percent and 16.60 percent.
5638 In our view, having to borrow the necessary funds for
the A300 launch at those interest rates would have been a significant disincenti ve to a decision to go
ahead with the programme. Irrespective of its limi tations in demonstrating whether any particular
aircraft would have been launched without LA/MSF, the Dorman Report persuasively illustrates how
LA/MSF transfers risk and improves the NPV of any pa rticular aircraft project. Together with the
above-quoted statements and our own understanding of the history and risks associated with
development of LCA in general, and of the A300 in particular, we consider that the United States has
demonstrated that LA/MSF was necessary for Air bus to have launched the A300 as originally
designed and at the time that it did. We come to the same conclusion with respect of the remaining
models of Airbus LCA, as we explain below.
7.1935 LA/MSF was used to finance between 90 percent and 100 percent of the development costs of
the A310, which was launched in 1978. 5639 The United States has not a dduced any evidence of direct
statements of any Airbus or government offi cials suggesting that LA/MSF for the A310 was
necessary for its development. However, it has argued that the development of one Airbus LCA
model supports the development of production facilities and technologies that are used across all other

5636 EC, FWS, para. 30.
5637 Quoted in Matthew Lynn, Birds of Prey150 (1998), Exhibit US-42.
5638 See, para. 7.488 above.
5639 See, footnote 2431 above.

BCI deleted, as indicated [***]

LCA models.5640 According to the United States, such a relationship between Airbus LCA models
was recognized by Airbus:
"'In the 1980s, we were able to widen our family by launching the A310 that
incorporated many systems and power plant improvements that had occurred in the
years since the A300 was designed', an Ai rbus executive said. 'Then we turned
around and put many of the A310 improvements back into the A300 and came up
with an updated aircraft that we designa ted the A300-600. The same philosophy will
be followed with our new aircraft. Additiona lly, there is a strong possibility that the
A320/A330/A340 technology can be used as well to create an advanced A300 and/or
A310 in the 1990s'."
5641
"'But the A350 is going to be the sistership of the A380 so it's technology you can
already touch and see. It's tangible because the A380 is flying'."5642
7.1936 That static and dynamic ("learning curve") economies of scope and scale achieved in the
context of one model of LCA are an important part of the development and production of other LCA
models has also been recognized by economists. 5643 It is undisputed that LCA projects involve
complex development and production technology. Therefore, knowledge and experience gained in
the development and production of one model of aircraft will tend to lower the costs of development
and production of subsequent aircra ft. We are satisfied from the evidence before us that the A310
benefited from Airbus' earlier successful development of the A300. To this extent, had Airbus not
obtained LA/MSF for the A300, and therefore not launc hed, developed, and starting in 1974, sold the
A300 as designed, we have little doubt that it wo uld not have been able to launch the A310 as
originally designed in 1978. Even if Airbus had successfully launched the same A300 in 1969
without LA/MSF, relying upon market-based financing to do so, we consider that the costs of that
financing would have made it extremely difficult, if not impossible for Airbus to have subsequently
launched the A310 in 1978, without LA/MSF. 5644 We recall that LA/MSF was provided for close to
100 percent of the development costs of the A300 at zero interest, whereas we have found that the
interest rate that would have been offered by a ma rket lender for a comparable loan would have, at a
minimum, fallen within the range of 15.18 percent and 16.60 percent. 5645 Similarly, LA/MSF for the
A310 covered between 90 percent and 100 percent of its development costs, and it too was provided
at zero interest, compared with what we found wo uld have been a minimum of between 13.99 percent
and 18.88 percent demanded by a mark et lender for comparable financing. 5646 The Dorman
simulation demonstrates that LA/MSF will make it more likely that an LCA project will be launched.
In the particular context of the launch of the A310, the Dorman simula tion provides persuasive
support for our conclusion that had Airbus not obtained LA/MSF for the A310, it would not have
been able to launch it as originally designed and at the time that it did.

5640 US, FWS, para. 722.
5641 Jeffrey Lenorovitz, Airbus Industrie Launching Production for New A330/A340 Simultaneously ,
Aviation Week & Space Technology, 24 February 1986, Exhibit US-391.
5642 Jason Neely, Airbus Top Challenge Is Keeping up with Demand , Reuters, 22 November 2005,
(quoting Airbus CEO Gustav Humbert), Exhibit US-392.
5643 Neven & Seabright, Exhibit US-382. See, also , A-380 business case, Exhibit EC-362 (HSBI)
p. 36.
5644 We note, in this regard, that while the A300 was launched in 1969, it was first delivered to a
customer in 1974. Thus, revenues were only just beginning to flow from deliveries to customers at the time the
decision to launch the A310 was being contemplated, and repayments of LA/MSF were limited at most.
5645 See, para. 7.488 above.
5646 See, para. 7.488 above.

BCI deleted, as indicated [***]

7.1937 The A320 was the next model of LCA launched by Airbus, in 1984. It too was financed with
LA/MSF, covering up to 90 percent of its development costs.5647 The United States has submitted two
reported statements made by officials of Air bus and British Aerospace which support the conclusion
that LA/MSF was in fact necessary for the launch of the A320. While the statement made by Sir
Austin Pearce may have been directed towards th e role of LA/MSF in allowing British Aerospace to
participate in the project, we do not consider this to be a deficiency in the United States' arguments.
There is no suggestion in the evidence before us, and the European Communities does not argue, that
if British Aerospace (or any other Airbus company) could not participate in the project unless
LA/MSF were provided, the project would noneth eless have continued without its participation. 5648
Given the nature of the Airbus enterprise from th e first inter-governmental agreements onward, it
seems clear to us that the participation of all f our national enterprises was and remained an important
element of every launch of Airbus LCA.5649
7.1938 There is also little doubt in our minds that th e launch of the A320 in 1984, as originally
designed, was to a very large degree made possibl e by Airbus' successful launches of the A300 and
A310 over the previous decade with the assistance of LA/MSF. Therefore, it is clear that the
LA/MSF for these earlier models of LCA also benef ited the launch of the A320. Moreover, as we
have already noted, the cost of obtaining market financing for the A300 and A310, compared with
LA/MSF, was significant. However, even assumi ng Airbus had been able to launch both LCA
models as originally designed in 1969 and 1978, re lying only on market-based financing (something
we consider would have been highly unlikely), it would have been extremely difficult, if not
impossible, to launch the A320 in 1984 as originally designed, without access to LA/MSF. 5650 In this
regard, we recall that the interest rate benefit associated with LA/MSF provided for the A320 ranged,
at a minimum, between [***] and [***].5651 Taking the above evidence and considerations together

5647 The 1990 German Federal Budget introduced a standard development aid ceiling for Airbus of 90
percent. See, Budget Plan 09 (Ministry of Economics), Part 02, Chapter 09, comments to line item 892 91-634,
Exhibit US-17X. For France (75%): Collin (Yvon), Rapport d'Information No 367 (96/97), Mission de contrôle
Exhibit US-18. For Spain (70%): Boletín Oficial de la s Cortes Generales, Congreso de los Diputados, Cuenta
General del Estado de 1992, Serie A, Núm. 34, at 122 (13 January 1997), Exhibit US-19
5648 Indeed, there is evidence to the contrary. "Through Aérospatiale, the entire A340-500/600 program
has been made possible thanks to the measures reported by the French authorities. Indeed, in view of the
industrial structure of Airbus Industrie and the configuration of the Europ ean aeronautics sector, this program
cannot be contemplated without the participation of Aérospatiale." Letter from Karel Van Miert to
Hubert Vedrine, Reimbursable Advance to Aérospatiale for the Airbus A340-500/600 Program, Exhibit US-3.
5649 The development and production of Airbus LCA was divided among the national companies
participating in the in the Airbus consortium. Thus , as of 1999, the French company, Aérospatiale, was
responsible for flight control systems, cockpits, power plant integration, ground and flight testing, complex
structural sections, equipped subassemblies and tec hnical publications. The German company, DASA,
produced the major fuselage sections containing hydraulic equipment, secondary flight control systems, wing
assemblies and commercial furnishing, as well as equipping the wings furnished by BAE Systems. DASA also
carried out final assembly of A321 and A319 aircraft, as well as some cabin outfitting and customization of the
cabins of the A300/A310 and the A320 family. The British and Spanish companies, BAE Systems and CASA,
were in charge of other distinct areas. See, Aérospatiale-Matra Offering Memorandum, 25 May 1999, pp. 90-
91, Exhibit EC-053. It is clear from the evidence before us that this division of labour continued with
subsequent models of Airbus LCA.
5650 We note, in this regard, that while the A310 was launched in 1978, it was first put in service and
delivered to a customer in 1985. Thus, the LA/MSF fo r the A310 project was still outstanding, and significant
revenues were not yet being generated by that LCA at the time the decision to launch the A320 was being made
and implemented. The A300 had only been in service since 1974, and we understand most of the LA/MSF for
this project was also still outstanding at the time the decision to launch the A320 was made in 1984.
5651 See, para. 7.488 above.

BCI deleted, as indicated [***]

with the results of the Dorman simulation, 5652 we conclude that the United States has demonstrated
that LA/MSF for the A320 was necessary for Airbus to have launched the A320 at the time it did and
as originally designed.
7.1939 Likewise, on the basis of a similar set of considerations, we find that the United States has
also established that LA/MSF was necessary for Ai rbus to have launched the A330/A340 in 1987,
with LA/MSF covering between 60 and 90 percent of its development costs. 5653 First, we note the
statement made by a British Aerospace official indicating that commercial financing for the
A330/A340 project was not a feasible option at the time. As we have already observed, the
participation of all four national Airbus compani es was and remains an important element of every
launch of Airbus LCA. Thus, without the par ticipation of British Aerospace in the A330/A340
project, it seems highly unlikely that Airbus would ha ve gone ahead with that launch in 1987. Again,
we consider that LA/MSF provided for the previ ous LCA models, the A300, A310 and A320, played
a significant role in placing Airbus in a position to be able to launch the A330/A340 project in
1987.
5654 However, even assuming Airbus had been able to launch these earlier models without
access to LA/MSF, (which we consider would have been even less likely than the launch of the A320,
but for the earlier provision of LA/MSF for that model, as well as for the A300 and A310), it would
have been extremely difficult, if not impossible, to launch the A330/A340 project in 1987 as
originally designed, without access to LA/MSF. In this regard, we recall that the interest rate benefit
associated with LA/MSF provided for the A 330/A340 ranged, at a minimum, between [***] and

5655 When considered together with the results of the Dorman simulation, 5656 we conclude the
United States has demonstrated that LA/MSF for the A330/A340 was necessary for Airbus to have
launched this project at the time when it did and as originally designed.
7.1940 We now consider the impact of LA/MSF on the launch of the A330-200 and the A340-
500/600. The business case for the A330-200 indicates that the expected deve lopment costs for this
model were comparatively small. The expected NRC constitute a small fraction of the "typical" wide-
body NRC used in the Dorman simulation. Furt hermore, as the European Communities notes, only
Aérospatiale was provided with LA/MSF, amounti ng to EUR 49.9 million. Given this relatively
small amount, it seems less unlikely that Aérospatiale would not have been able to finance this
amount for this LCA in some other manner. Further, given that the aircraft at issue was a derivative
of an existing aircraft, its potential success or fa ilure involved a smaller risk for Airbus' overall
operations. In this light, it seems more likely that the A330-200 could have been launched even in the
absence of the specific LA/MSF granted in respect of that programme than the other programmes we
have examined. However, as previously discussed, LCA have a complex production technology
which results in strong learning effects. Knowle dge and experience gained in the development and
production of one model of aircraft will lower the costs of development and production of subsequent
aircraft launches. This is particularly true fo r derivative aircraft, where the subsequently launched
model is a variant of an existing model, as is the case with these LCA models.
5657 Consequently we

5652 See also, US, Comments on EC Answer to Panel Question 262 (HSBI Appendix), para. 3.
5653 BT-Drs. 12/1080, at 46, Exhibit US-26; 1997 Senate Report, at 63, 68, Exhibit US-18; Boletin
(June 5, 2003), at 153, Exhibit US-27.
5654 Again, we note that while the A320 was launched in 1984, it was first delivered to a customer in
1988, after the launch of the A330/A340 in 1987. Thus, revenues were not yet being generated by this model
LCA at the time the decision to launch the A330/A340 in 1987 was made, and repayment of LA/MSF received
for the A320 had not yet begun.
5655 See, para. 7.488 above.
5656 See also, US, Comments on EC Answer to Panel Question 262 (HSBI Appendix), paras. 4-6.
5657 "{S}ome production stages are not specific to a particular type of aircraft, such that learning effects
which are realized in the production of a generic aircraft can influence marginal cost of producing another
generic aircraft." Klepper, Exhibit US-377. The fact that such cross effects are strong for updated versions of

BCI deleted, as indicated [***]

consider that the economic viability and, indeed the very existence of the A330-200, is dependent on
the aircraft which preceded it, including in partic ular the original A330 aircraft from which it is
derived. The relatively small development costs of the A330-200 in our view are a function of the
fact that it is a derivative of the A330/A340, the launch of which, as we concluded above, would not
have occurred as and when it did but for the LA/MSF granted in respect of that aircraft. 5658 Thus,
while the particular grant of LA/MSF specific to the A330-200 may not have been necessary to its
launch, on the whole, we conclude that LA/MSF was necessary to the launch of the A330-200, as
without the grant of LA/MSF for the development of the original model (and all models preceding
that model), the A330-200 could not have been launched when it was without significantly higher
costs.
7.1941 Like the A330-200, the A340-500 and 600 are de rivative aircraft whose development was
dependent upon the prior developm ent and production of the original A340 model from which they
are derived. For the reasons discussed above, in considering the impact of LA/MSF on the launch of
such a derivative aircraft, we consider it appropria te not only to consider the LA/MSF directly linked
to the particular aircraft model but also to consider the role that LA/MSF played in the launch of the
aircraft on which it is based, as well as all other Airbus LCA launched before it. The A340-500/600
was derived from the A340, whose launch, as we have found above, depended upon the provision of
LA/MSF. In these circumstances, we consider that LA/MSF was also essential to the development of
the A340-500/600.
7.1942 Even considered on a stand-alone basis, the evidence suggests that the A340-500 and 600
were dependent upon the provision of LA/MSF. As noted above, the European Commission found, in
response to the French government State Aid notif ication in respect of the A340-500/600 measures:
"Aérospatiale could not finance the costs connect ed with the development of the Airbus A340-
500/600 by itself or with the help of bank loans."
5659 This statement suggests that, even assuming a
business case which predicts [***], Aérospatiale, at the very least, could not have participated in the
programme in the absence of LA/MSF. As we noted above, there is no indication that any of the
aircraft launches would have proceeded without the participation of all the Airbus companies, and
thus, the participation of Aérospatiale wa s required if the project was to proceed. 5660 In this respect
we do not consider the fact that the UK government did not provide LA/MSF to British Aerospace, or
that British Aerospace was able to secure outside fund ing to develop this model of LCA, is sufficient
to substantiate the European Communities' pos ition that the A340-500 and 600 would have been
launched even in the absence of LA/MSF. While British Aerospace's ability to secure outside funding
suggests a confidence in the project on the part of those entities supplying the financing, that decision
presumably rests on those entities' overall assessment of British Aerospace's financial position, and
also the terms of the financing agreement. We doubt that the same would have been true for
Aérospatiale. The European Communities itself stat es that the launch of the A320, A330, and A340,
even with LA/MSF, had left Aérospatiale in a position in which "{i}nternally generated cash flow was
not sufficient" to fund its investments, given that "a prudent debt/equity ratio placed limits on the
amount of new debt that could be borne."
5661 [***].5662 Funding even just a portion of its LCA
launches without subsidies had left Aérospatiale in a position that was "repellent" to private

an aircraft, the so-called derivatives, is illustrated for the Airbus A300 and its derivative the A310 in Klepper,
Exhibit US-377, p. 778.
5658 See, para. 7.1939 above.
5659 Letter from Karel Van Miert to Hubert Vedrine, Reimbursable Advance to Aérospatiale for the
Airbus A340-500/600 Program, Exhibit US-3
5660 See, para. 7.1939 above.
5661 EC, FWS, para. 1135.
5662 Aérospatiale report to Credit Lyonnais (1994), DS316-EC-BCI-0000756, at 1 ( [***]), Exhibit US-
296, (BCI).

BCI deleted, as indicated [***]

investors.5663 There is no basis to conclude that Aérosp atiale could have obtai ned outside financing
simply because British Aerospace did, as the st ate aid finding of the European Commission
demonstrates.
7.1943 Turning to the A380, the evidence before us i ndicates that, as compared with both the A330-
200 and the A340-500/600, the A380 was a massive pr oject with respect to both the technical aspects
of development of the aircraft, and its associated costs. Thus, in our view, the A380 programme has
more in common with the project contemplated by the Dorman simulation than either of the
immediately preceding derivative programmes. Th e A380 business case clearly demonstrates that
LA/MSF has a significant impact on the economics of the programme. That said, the A380 business
case predicts a positive NPV for the programme even assuming no LA/MSF is provided, as well as a
positive NPV in circumstances where a Realistic Worst Case scenario is contemplated in situations
where the project is supported by LA/MSF. Likewise the Carballo Declaration indicates that in a no-
LA/MSF Realistic Worst Case scenario a smaller but still positive NPV woul d be predicted on the
basis of the [***] used in the Airbus busin ess case. Assuming that the business case, or rather the
numbers underlying the business case as applied in th e Carballo Declaration, demonstrate a positive
NPV in a no-LA/MSF and a Realistic Worst Case scenario, 5664 the relevant question for us is whether
the United States has demonstrated that the A380 would not have been launched in the absence of
LA/MSF. The United States makes two principal arguments in this respect.
7.1944 First, the United States suggests that given the high risk involved in a programme such as the
A380, LA/MSF increases confidence in the business m odel, including confidence that the Realistic
Worst Case scenario is, in fact, th e realistic worse case. If market conditions are more adverse to
Airbus than those considered in the realistic worse case scenario, LA/MSF ensures that the project
may nevertheless result in a positive NPV, or at a minimum, as the Dorman simulation predicts, will
limit losses. In this way the launch decision remains dependent upon the provision of LA/MSF. The
United States also argues that the sensitivity anal ysis provided by Airbus overstates likely sales
volumes and understates the risk of a shortfall.
5665 For similar reasons, we have concerns about the
A380 business case, as discussed above, 5666 and we are thus not persuaded that the A380 business
case alone demonstrates that Airbus would have launched the A380 even in the absence of LA/MSF.
7.1945 Second, the United States argues that even if Airbus were confident that the A380 project
would be viable without LA/MSF, it does not follow that Airbus would have been able to fund the
project from its own resources and outside financing. In this respect the United States points to the
comments of the French Senate Report consideri ng the provision of LA/MSF to Aérospatiale, which
suggests that even if Aérospatiale could find out side funding in respect of the A380 programme
(which it considered it could not) the impact of su ch funding on the balance sheet of Aérospatiale
would be such that it would have difficulties follo wing this strategy. As noted above, the Report
concluded that "such external fi nancing would apparently add excessi vely to the financial expenses
incurred by the firms and would throw their balance sheets out of equilibrium because of the low level

5663 EC to Review France's Aérospatiale Capital Injection , Aerospace Daily (9 February 1994),
Exhibit US-275.
5664 We recall that because the Carballo Declaration did not undertake the sensitivity analysis with the
[***] would have resulted in a negative NPV in the Realistic Worst Case scenario without LA/MSF. Given
what we know about the effects of the [***] rate on the NPV of the project without LA/MSF in the baseline
business case, we suspect that a [***] would have also had a significant impact on the project's NPV in the
5665 In this respect the United States notes that the impact of unanticipated delivery delays and higher
than expected development costs actua lly experienced in connection with th e A380 were reported by EADS in
2006 to be EUR 2.5 billion. US, SWS, para. 582, citing EADS press release, EADS 2006 results dominated by
Airbus loss, 9 March 2007, Exhibit US-463.
5666 See, para. 7.1927 above.

BCI deleted, as indicated [***]

of their equity capital". 5667 Moreover, the United States has submitted a record of a statement made
by the then UK Secretary of State for Trade and Indu stry, who in response to a question in Parliament
answered: "We have recently seen, of course, the launch of the A380, whic h would not have been
possible if it had not been for the commitment of the British government to launch an extremely
successful programme ... ".5668
7.1946 The European Communities contests the United Stat es' reliance on the French Senate Report,
noting that this report addresses the role of Aérosp atiale only and that it w as prepared in 1996-1997,
prior to the creation of EADS in 2000 which, according to the European Communities, increased
Airbus' financial flexibility. In addition, it asserts that the Senate Report onl y considers "on balance
sheet debt financing" and does not consider "off balance sheet financing" such as risk-sharing
arrangements with suppliers. Noting that the A 380 business plan already included off-balance sheet
financing through suppliers, that Boeing has reporte dly financed 60 percent of the non-recurring costs
of the 787 through such methods and the supply by Alen ia of such financing to the German Airbus
partner Dasa when the German government did not provide LA/MSF in respect of the A340-500/600,
the European Communities argues th at absent LA/MSF, Airbus could have increased its use of risk-
sharing suppliers to secure the necessary financing.5669
7.1947 While the financial situation of Airbus France in 2000 would have clearly been different from
the position of Aérospatiale in 1997 (when the Fren ch Senate Report was released) the European
Communities has submitted no persu asive evidence to suggest that Airbus France was in a better
position than Aérospatiale to fund its part of the A380 project without LA/MSF. Although it is
evident from the EADS offering memorandum that th e corporate restructuring of Airbus Industrie
GIE, Aérospatiale, CASA and Deutsche Airbus was intended to improve the companies' operations by
rationalizing resources, eliminating duplication a nd consolidating overall management under a more
integrated corporate structure, it is not so clear prec isely how, or indeed if or to what degree, this
move affected the ability of Airbus France (or Airb us SAS) to raise the very large amounts of capital
needed for the A380 project. Likewise, the Eu ropean Communities has submitted no evidence to
support the contention that merely because, reporte dly, Boeing was able to finance a significant
portion of the non-recurring costs of developm ent of the 787 through risk-sharing supplier
arrangements, Airbus would necessarily have been ab le to do the same with respect to the A380.
Airbus does use risk-sharing supplier arrangements, but there is no indication that it could have
increased its use of such arrangeme nts so as to replace the entire amount of financing provided by
LA/MSF, which, we recall, was up to 33 percent of the development costs of the A380. We do not
consider the availability of risk-sharing supplier arrangements in respect of the A340-500/600 to be
persuasive in this regard. Those were derivativ e aircraft which entailed much smaller development
costs and a much lower level of risk to Airbus ' overall operations. The willingness of suppliers to
take on some of the risk of that much smaller programme does not demonstrate that any supplier or
suppliers would be prepared to do so in respect of up to 33 percent of the much greater costs of the
A380. Moreover, as we have previously noted , information in the Airbus A380 business case
suggests that the risk-sharing participants' involve ment in the A380 project may not have been on
strictly market terms for all participants.5670
7.1948 Finally, but for LA/MSF provided with respect to Airbus' launches of ear lier models of LCA,
we do not consider that it would have been possibl e for Airbus to be in a position to launch the A380
in 2000. We have found that the cost for Airbus of obtaining market financing for the A300, A310,

Report 1997, 72, Exhibit US-18.
5668 Exhibit US-436.
5669 EC, Answer to Panel Question 265.
5670 Exhibit EC-362 (HSBI), p. 29.

BCI deleted, as indicated [***]

A320 and A330/A340 would have been many percen tage points greater than what it actually was
because of LA/MSF in each instance. Given the amount of funding transfe rred to Airbus under the
individual LA/MSF contracts, and in the light of the formidable risks associated with the LCA
business and the learning curve effects that are necessar y to successfully participate in this sector, we
have found that it would not have been possible for Airbus to have launched all of these models, as
originally designed and at the times it did, with out LA/MSF. Even assuming this were a possibility,
and that Airbus had actually been able to launch these aircraft relying on only market financing, the
increase in the level of debt Airbus would ha ve accumulated over the years would have been
massive.5671 Thus, while the A380 business case suggests, but by no means demonstrates, that as a
stand-alone proposition the project might have been economically viable even without LA/MSF, in
our view, that conclusion rests in part on the assumption that at the time of the launch, Airbus would
have been in a position to not only design and manufacture the A380, i.e., had the necessary
development and production technologies available to it, but also would have been able to obtain all
the necessary financing on market terms. However, Airbus' technical capabilities derived in part from
its experience in the development of its earlier model LCA funded in significant part by LA/MSF.
Moreover, because of the significant amount of debt that developing its previous models of LCA
would have generated, we consid er Airbus would not have been in a position to obtain market
financing for the A380, had it not financed the development of its earlier model LCA in significant
part through LA/MSF. It follows that the view that Airbus could have launched the A380 as a stand-
alone proposition is dependent upon Airbus having received LA/MSF to develop all of its previous
models of LCA. Thus, either directly or indi rectly, LA/MSF was a necessary precondition for Airbus'
launch in 2000 of the A380.
7.1949 In summary, we conclude that the United St ates has demonstrated that LA/MSF shifts a
significant portion of the risk of launching an aircraft from the manufacturer to the governments
supplying the funding, which we r ecall is on non-commercial terms. Based on our review of the
development of successive models of Airbus LCA, we conclude that Airbus' ability to launch,
develop, and introduce to the market, each of its LCA models was dependent on subsidized LA/MSF.
The alleged "product" effect of the other subsidies in dispute
7.1950 The United States argues that while LA/MSF is th e primary subsidy benefiting Airbus LCA,
the other challenged subsidies have similar effects.
5672 Thus, the United States contends that the other
subsidies also shift costs of LCA development fro m Airbus to the governments, giving Airbus an
edge, and allowing it to enter the LCA market with new LCA models at a pace that would otherwise
not have been possible.
7.1951 The United States asserts that infrastructure s ubsidies relieve Airbus of the need to fund
infrastructure necessary for the development and pr oduction of LCA, shifting the costs of aircraft
development from Airbus to the Airbus governments. 5673 The United States argues that infrastructure
grants for the A380 assembly sites at Hamburg and Toulouse relieved Airbus of development costs, in

5671 The United States asserts that if Airbus had funded all of its LCA launches by obtaining LA/MSF
at market rates rather than the subsidized rates provided by the Airbus governments, the resulting impact on its
balance sheet would have been an additional US$ 178.2 billion in debt, far greater than anything Airbus could
have sustained. US, SWS, para. 612-613, US, Answer to Panel Question 228, para. 14, citing NERA Economic
Consulting, Quantification of Benefit of Launch Aid (24 May 2007), Exhibit US-606; US, SWS, paras. 610-612.
While we do not necessarily accept the United States' calculation, it is clear to us that the additional debt burden
for Airbus of commercial financing of all its LCA launches would have been massive, and potentially
prohibitive. Indeed, the European Communities itself states that this cumulative impact is several times greater
than the entire market capitalization of EADS. EC, SWS, para. 960.
5672 US, FWS, para. 819.
5673 US, FWS, para. 821.

BCI deleted, as indicated [***]

this case for the A380, and when provided together with LA/MSF, shifted commercial risk away from
Airbus and to the governments involved, limiting th e risk of A380 failure to Airbus and making it
more likely that Airbus would launch the A380 in the first place.5674
7.1952 Similarly, the United States contends that R&TD funding for partic ular LCA models or
aspects thereof also relieves Airbus of costs it woul d have otherwise had to incur itself in launching
those LCA models. 5675 In addition the United States asserts that HSBI evidence demonstrates that
Airbus needed R&TD subsidies in order to launch particular models. 5676 The United States asserts
that at least some of the R&TD subsidies provided to Airbus are clearly related to LCA development,
citing as an example EUR 3,000,000 for a study of the A380 wake vortex, which it asserts was an
important issue related to the development of th e A380 and its placement into commercial service. 5677
The United States maintains that where research su bsidies are provided to fund projects that would
clearly otherwise be part of the launch of a given LCA model, the effects of such subsidies are also
properly considered together with LA/MSF.
5678
7.1953 The United States argues that debt forgiveness 5679 and equity infusions increased the capital
available to Airbus, enabling Airbus to maintain a level and pace of product development that could
not have been sustained without subsidies, thus complementing the effect of LA/MSF by offsetting
the build-up of debt on Airbus' balance sheet associ ated with the pace of its product development. 5680
The United States maintains that de bt forgiveness and equity infusions have played a significant role
in improving Airbus's balance sheet and enabling it to attract additional private investment and
maintain its product development and pricing strategies.5681
7.1954 The United States maintains that each of the above-mentioned types of subsidies, together
with LA/MSF, support Airbus' long-term plan to develop and maintain a competitive LCA family,
and each of them has economic effects similar to that of LA/MSF, i.e., reducing the costs and shifting
the risk of LCA development (thus making launch more likely) and alle viating the financial strain of
product launches (thus affording pricing flexibility with respect to all models). 5682 The United States
therefore considers that the measures should be considered together with LA/MSF.5683
7.1955 The European Communities argues that the nature of the challenged measures, in terms of
their structure, operation and design, precl udes considering them in the aggregate. 5684 The European

5674 US, SWS, para. 625.
5675 US, FWS, para. 822.
5676 HSBI Redacted version appendix to US, FWS, paras. 60-61, citing, French A340-500/600 project
appraisal, DS316-EC-(HSBI)-0001143, at 17.
5677 See, Competitive and Sustainable Growth Programme, 1998-2002 Project Synopsis: New
Perspectives in Aeronautics, 2003, at 261, Exhibit US-322.
5678 US, SWS, para. 626.
5679 We recall that we have not found the debt forgiveness by the German government to constitute a
specific subsidy, but did conclude that the capital transfer through KfW to Deutsche Airbus is a specific subsidy.
5680 US, FWS, para. 824-825, citing Aérospatiale report to Credit Lyonnais (1994), DS316-EC-BCI-
0000756, at 1
5681 US, SWS, para. 628.
5682 US, FWS, para. 826. We address the United States' contentions regarding pricing further below.
5683 Brazil agrees that the challenged subsidies shou ld be cumulated in examining whether they are
causing adverse effects to US interest s if such subsidies "manifest themselves collectively," but does not take a
position regarding whether that standard is satisfied in this case. Brazil, Third Party Submission, para. 56
5684 Canada considers that the United States errs by aggregating the subsidies without consideration of
their nature and effect, citing US – Upland Cotton for the proposition that aggregation should be undertaken
with caution, as otherwise parties may be left with inad equate guidance as to what actions are required by a
subsidizing Member to comply with a recommendation from the DSB to withdraw the adverse effects caused by
subsidies in the aggregate. Canada, Third Party Submission, paras. 61-63. According to Canada, the

BCI deleted, as indicated [***]

Communities argues that, unlike the subsidies in US – Upland Cotton , which were found to be
appropriately aggregated, not all of the subsidies in this case have a nexus to a particular subsidized
product, they are not contem poraneous, and some are recurring while others are not. 5685 The
European Communities argues that the United States causation th eory focuses on the impact of
subsidies on launch decisions, and c ontends that aggregation is in consistent with this argument. 5686
With respect to the different typ es of measures, the European Comm unities contends that each grant
of LA/MSF is tied to a specific LCA, and thus to a specific subsidized product, and each was granted
at a different time. The European Communities asse rts that some of the infrastructure measures are
tied to a specific LCA model, and notes that they we re provided at different times, and that some are
recurring while others are not. In addition, the European Communities contends that none of the
equity infusions is tied to a particular LCA model, and that these non-recurring measures were
granted at different times. Finally, with resp ect to the non-recurring R&TD grants, the European
Communities points out that they were granted at different times. 5687 In its first written submission,
the European Communities asserted that the United States faile d to explain how R&TD subsidies
caused adverse effects, arguing that the United St ates failed to provide evidence showing how the
nature of these grants caused specific lost sales, pric e depression, or other material injury or serious
prejudice.5688 The European Communities also argues specifically that infrastructure measures
provided by Hamburg are not of a nature that causes adverse effects to United States' interests. 5689
The European Communities asserts that the structur e and operation of the measures at Mühlenberger
Loch are such that they are incap able of causing adverse effects. Indeed, according to the European
Communities, these measures led to an [***].5690 The European Communities maintains that [***]
and the availability of the reclaimed land in Ham burg led Airbus to split the A380 Final Assembly
Line ("FAL") between Toulouse and Hamburg, as oppo sed to creating a single site FAL in Toulouse,
as initially contemplated, which decisi on, the European Communities asserts, [***] cost of locating
and operating the A380 FAL, resulting in a [***] in the [***].5691
7.1956 We do not agree with the European Communities' view that differences in the structure,
operation, and design of the different subsidies at is sue in this dispute preclude their being considered
in the aggregate in examining whether their effect is serious prejudice. We have concluded that
LA/MSF was necessary to the launch of each successive model of Airbus LCA, and that the
individual and cumulative effect of those measures was fundamental to Airbus' ability to launch the
particular LCA models it launched at the time that it did. That is, but for LA/MSF, Airbus would not
have been able to accomplish these successive launches.
5692 This "product" effect of LA/MSF is, we

United States fails to establish a nexus between allege d subsidies and the adverse effects claimed. Canada,
Third Party Submission, paras. 64-71.
5685 EC, Comments on US Answer to Panel Question 162, para 247.
5686 EC, Comments on US Answer to Panel Question 162, para 248.
5687 EC, Comments on US Answer to Panel Question 162, para 249.
5688 EC, FWS, paras. 1658-1659.
5689 EC, SWS, para. 1077.
5690 See, Airbus Industrie Supervisory Board Meeting Re: A3XX Programme Status (following Pre-
ATO Campaigns), 8 June 2000, Exhibit EC-794, (HSBI).
5691 EC, SWS, para. 1079. See, Airbus Industrie Supervisory Board Meeting Re: A3XX Programme
Status (following Pre-ATO Campaigns), 8 June 2000, Exhibit EC-794, (HSBI). The European Communities
notes that the assessment of the [***] assumed that all deliveries would take place from Toulouse. Ultimately,
deliveries were split between Toulouse and Hamburg. If anything, two delivery centers marginally increased
costs [***].
5692 See, footnote 5671 and associated text above. Having rejected the European Communities' view
that different models of Airbus LCA are distinct subsidized products, we do not consider the fact that the grants
of LA/MSF were provided with respect to the development of specific models of LCA to undermine the
conclusion that each of these measures benefited the subs idized product, Airbus LCA. Moreover, we note that,
with the exception of the A300 an d A310, with respect to which the United States alleged only LA/MSF

BCI deleted, as indicated [***]

consider, complemented and supplemented by the ot her specific subsidies we have found to exist in
this dispute.5693 The fact that the LA/MSF subsidies were granted over a long period of time, and the
first and last grants were decades apart does not, in our view, demonstrate that it is not appropriate to
consider them all together, as we have concluded that they were a ll provided in connection with the
subsidized product, Airbus LCA, and they all ha d the same effect on Airbus' ability to launch the
LCA it launched at the time that it did.5694
7.1957 The equity investments and share transfer me asures of the French and German governments
ensured the continued existence and financial stab ility of the respective national entities engaged in
the Airbus enterprise. Those entities were a neces sary element of the overall Airbus effort, as it is
clear to us that without their participation in the overall effort, Airbus would not have been able to
continue to develop, launch and produce LCA in fulf ilment of the goal of developing a full range of
LCA for the market. 5695 Moreover, as noted above, Aérospatiale required the additional equity to
fund investments in fixed assets and inventory, a nd advances to suppliers, in connection with the
development of new aircraft. As the European Communities acknowledges that Aérospatiale could
not have undertaken these investments without the government's assistance through equity
infusions,5696 it seems clear to us that these equity invest ments directly supported the development of
LCA in a manner that was as direct as LA/MSF.
7.1958 The infrastructure subsidies similarly provi ded essential support to the development and
production of Airbus LCA, relieving Airbus of significant expenses in connection with the
development of facilities for the production of, most particularly, the A380, and thus enabling it to
continue with the launch of successive models of LCA. Even assuming, as the European
Communities contends, that the establishment of an A380 final assembly line in Hamburg [***], the
establishment of that line was necessary in order to ensure [***],5697 which we consider to have been
necessary to the ability of Airbus to launch the A380.
7.1959 Finally, the R&TD subsidies enabled Airbus to develop features and aspects of its LCA on a
schedule that it would otherwise have been unable to accomplish. Even in the case of those R&TD
subsidies directed to pre-competitive research, the ability to fund such efforts at a time when it would
likely have been unable to do so in light of ot her demands on its resources was, in our view,
significant in ensuring the launch of successive models of Airbus LCA. While we recognize that the

subsidies, we have found subsidies to Airbus that we re granted during the period each succeeding model of
Airbus LCA was being developed and brought to market. For instance, since 2000, when LA/MSF was first
provided in respect of the A380, Airbus has received infrastructure and R&TD subsidies. During the period the
A340 was being developed with financing provided by LA/MSF, Airbus was also benefiting from infrastructure,
RT&D and equity infusion subsidies. Similarly, when the A320 was being developed with LA/MSF financing,
Airbus also received infras tructure, RT&D and equity infusion subsidies. More over, Airbus was receiving
LA/MSF with respect to more than one model of LCA at a time during much of the period from 1978 on. Thus,
with the exception of the A300 and A310, Airbus has rece ived a range of subsidies with respect to each model
of LCA it has developed, and subsidies have overlapped with one another.
5693 We recall that we have concluded that while the EIB loans in dispute are subsidies, they are not
specific. See, Section VII.E.5(c) above.
5694 Moreover, we recall that the Appellate Body ha s recognized that "there could be a time-lag
between the payment of a subsidy and any consequential adverse effects." Appellate Body Report, US – Upland
Cotton, para. 273. In our view, that subsidies were granted at different times does not determine when their
effects were manifested and felt, and thus does not dete rmine whether it is appropriat e for a panel to consider
them together.
5695 See, footnote 5649 above.
5696 EC, FWS, para. 1135.
5697 EC, Answer to Panel Question 219, para. 546; US, Comments on EC Answer to Panel Question
219, para. 22; EC, Comments on US Answer to Panel Question 219, para. 381; US, SCOS, paras. 51-53.

BCI deleted, as indicated [***]

impact of pre-competitive R&TD subsidies on Airbus ' market presence was perhaps more attenuated,
compared with the other subsidies at issue, or with R&TD subsidies th at funded research and
technology actually used on LCA that were launched, we believe that combined with the others, the
RT&D subsidies complemented and supplemented the impact of LA/MSF.
7.1960 In US – Upland Cotton, the panel concluded that the reference to the effect of the "subsidy" in
the singular in Article 6.3(c), did not mean that a serious prejudice analysis of price suppression must
clinically isolate each individual subsidy and its effects.
5698 Thus, in that panel's view, "textual
references to "any subsidy", "the subsidy" and th e "subsidized product" in Articles 5(c) and 6.3(c)
suggest that while due attention must be paid to each subsidy at issue as it relates to the subsidized
product, a serious prejudice analysis may be integrated to the extent appropriate in light of the facts
and circumstances of a given case."5699 The panel concluded that:
"textual references to "any subsidy" and "t he effect of the subsidy" permit an
integrated examination of effects of any subsidies with a sufficient nexus with the
subsidized product and the particular eff ects-related variable under examination.
Thus, in our price suppression analysis under Article 6.3(c), we examine one effects-
related variable – prices – and one subsidi zed product – upland cotton. To the extent
a sufficient nexus with these exists among the subsidies at issue so that their effects
manifest themselves collectively, we believe that we may legitimately treat them as a
"subsidy" and group them and their effects together."5700
We agree with the panel's views in this regard, and consider that the ability to consider the effects of
subsidies together extends to all aspects of a claim of adverse effects under Articles 5(a) and (b), and
Articles a6a.3(a), (b), and (c).

7.1961 In our view, based on the facts and circumstances outlined above, the subsidies at issue in this
dispute all have a "sufficient nexus with the su bsidized product". Moreover, inasmuch as those
subsidies enabled Airbus to launch successive models of LCA when it did, they also have a sufficient
nexus with "the particular eff ects-related variable{s} under examination", since the United States
claims of serious prejudice that we are examining are based, at least in part, on the presence of a given
Airbus LCA available on the market at a particular tim e. Therefore, we conclude that it is appropriate
to undertake our analysis of the effects of the subsidies on an aggregated basis in this dispute.
Additional considerations with respect to the "product" theory of causation
7.1962 In addition to arguing that LA/MSF and the other subsidies in dispute do not have the effect
of increasing the likelihood that any given LCA programme will be launched, and thus resulting in the
presence of each succeeding model of Airbus LC A on the market, the European Communities makes
several overarching arguments seeking to demonstrat e that the market effects we have observed are
not an effect of the subsidies. We address these arguments below.

5698 Panel Report, US – Upland Cotton, para. 7.1192. The panel noted in this regard that:
"Taken to an extreme, this could mean that separate dispute settlement proceedings, or at least
separate claims, would need to be brought with respect to the serious prejudice caused by each
and every individual subsidy, even where th ese subsidies exist contemporaneously and
interact in concert in respect of a single subsidized product to produce a single result in the
form of a price phenomenon."
Panel Report, US – Upland Cotton, para. 7.1192, footnote 1307.
5699 Panel Report, US – Upland Cotton, para. 7.1192
5700 Panel Report, US – Upland Cotton, para. 7.1192

BCI deleted, as indicated [***]

Magnitude of the Subsidies
7.1963 The European Communities argues th at the amount of the subsidies in this dispute is simply
too small to have the effects asserted by the Un ited States. Relying in principal part on its
understanding of United States' law and regulatio ns governing the calculation and allocation of
subsidy amounts in countervailing duty investigations 5701, the European Communities calculated what
it alleges is the per-aircraft magnitude of th e LA/MSF and R&TD subsidy amounts that can be
allocated to fulfilled orders of different models of Airbus LCA in any given year. 5702 The European
Communities first determined what it defines to be the amount of subs idy provided under each
LA/MSF contract (for all but the A300 and A310 LA/MSF contracts), by identifying the difference
between the "present value of tax adjusted loan receipts and anticipated loan repayments discounted at
the applicable project-specific benchmark rate". 5703 The European Commun ities then allocated these
amounts over orders for the LCA for which the LA/MSF was provided, from the year of launch and
extending over its anticipated marketing life.
5704 The European Communities applied a similar
methodology to allocate the R&TD subsidies. First, the European Communities identified the amount
of the subsidies (the entire amount of each grant) , and then it allocated these amounts over all Airbus
LCA orders during an 18 year period, beginning w ith the date of receipt of the R&TD subsidy. 5705
According to the European Communities, the results of its calculations show that, on a per-aircraft
basis, the magnitude of the subsidies allocated to each relevant model of Airbus LCA is " de minimis"
and simply too small to have caused any of th e adverse effects alleged by the United States. 5706 In
response to the United States' assertio n that the "cash flow effect" of the alleged subsidies currently
exceeds $100 billion, the European Communities, on the basis of an alternative cash flow
methodology, asserted that the present per-aircraft cash flow effects are de minimis.5707
7.1964 The United States did not originally present any calculation with respect to the magnitude of
the subsidy, which it characterized as "massive". 5708 In response to the European Communities'
arguments and calculation of the alleged per aircra ft subsidy amount, the United States argued that it
was not obliged to provide a detailed quantification and allocation of the subsidy benefit. The United
States also disputed the European Communities ca lculation of the per-aircraft magnitude of the
subsidy, considering it "riddled with significant errors". 5709 In this regard, the United States asserts
that the European Communities erroneously: (1) calcu lates the LA/MSF subsidies as grants based on
the projected impact on net present value at the ti me the LA/MSF was committed, rather than as a

5701 The details of the methodology, and its applicatio n in this case, are set out in the ITR Report,
Exhibit EC-13. The European Communities describes the methodology as entailing the following steps:
calculation of the amount of subsidy conferred;:
tying the amount of subsidy to the aircraft programme;
allocation of the subsidy over the aircraft's anticipated marketing life;
allocation of the assigned subsidy over orders fulfilled for that programme; and
reducing the subsidy magnitude to account for alleged subsidies that were extinguished or extracted.
EC, FWS, para. 1589. The European Communities notes that it does not agree with or adopt this
methodology for its own. EC, FWS, para. 1574. However, the European Communities, while reserving the
right to do so, does not present any alternative methodology. The United States did not endorse the benefit
calculation and allocation methodologies relied on by th e European Communities, considering them to contain
errors at direct variance with the CVD methodologies used by the United States and the European Communities
itself. US, Answer to Panel Question 42, para. 250, footnote 313.
5702 EC, FWS, para. 1573; ITR Report, Exhibit EC-13 (BCI), EC-13 (HSBI).
5703 ITR Report, para. 19, Exhibit EC-13 (BCI).
5704 ITR Report, para. 22, Exhibit EC-13 (BCI).
5705 ITR Report, para. 23, Exhibit EC-13 (BCI).
5706 EC, FWS, paras. 1569-70.
5707 EC, SWS, paras. 1010-1024.
5708 US, FWS, paras. 3, 80, 85, 421.
5709 US, SWS, para. 599.

BCI deleted, as indicated [***]

loan at below-market interest ra tes providing current benefits from interest savings; (2) calculates the
subsidy based on the projected schedule of LCA de liveries and repayments rather than on actual
repayments made, while using actual rather than projected disbursements; and (3) calculates the
subsidy net of the (theoretical) impact of taxation, and fails to implement its own stated methodology
correctly by [***].5710
7.1965 Nonetheless, the United States asserted that an y reasonable calculation of the magnitude of
the subsidy in this dispute demonstrates that it was very large. In this respect, the United States
presented its own calculation of the magnitude of th e LA/MSF subsidy, based on an entirely different
methodology from that used by the European Communities, which indicates that the total benefit to
Airbus from LA/MSF is between USD 92.5 and USD 178.2 billion. 5711 The United States' calculation
assumed a 17-year loan period for each set of LA/MSF disbursements and, using the commercial
benchmarks it had previously deve loped (which ITR also used in its calculation for the European
Communities), considered how much of the actual or projected loan disbursements plus accumulated
interest at the benchmark commercial rate still rema ined or would remain unpaid at the end of the 17
year loan period. Any repayments made after the 17-year loan period were used to reduce the
outstanding balance. When calculated in this way, the total outstanding balance of all of the particular
provisions of LA/MSF as of December 2006, based on the "stated rate" – that is, projected
disbursements and repayments – was $92.5 billio n. The United States also undertook the calculation
on the "realized rate" – that is, actual disbursem ents and repayments, yielding a total of $129.9
billion.
5712 These figures include loan balances assumed to have been left unpaid in the past. To
ensure an apples-to-apples comparison, the United States brought forward such balances using the
government risk-free borrowing rate so as to express the total uniformly in 2006 dollars, resulting in a
total of $122.1 billion using projected disbursement s and repayments, and $178 .2 billion using actual
disbursements and repayments. The United States sugg ests that Airbus's general, non-project-specific
corporate borrowing rates would be a more accurate way to measure the impact of LA/MSF on the
present financial condition of Airbus, which woul d yield an even larger accumulated benefit. 5713 It
also argues that irrespective of the methodology used to calculate benefit, the costs associated with
equivalent financing on commercial terms would have been impossible for Airbus to support while at
the same time developing and launching all the aircraft it did.5714
7.1966 We agree with the United States that there is no obligation in a dispute under Part III of the
SCM Agreement for the complaining party to preci sely calculate or allocate the benefit of the
subsidies in dispute. Looking at the text of Article 6.3(c), the Appellate Body in US – Upland Cotton
observed that the provision does not state explicitly that a panel needs to quantify the amount of the
challenged subsidy. 5715 The Appellate Body concluded that while a panel must determine that the
challenged payments constitute a specific subsidy in order to "find that a subsidy has the effect of
significant price suppression, or some other effect me ntioned in Article 6.3(c) ... the definitions of a
specific subsidy in Articles 1 and 2 do not expressly require the quantification of the "benefit"

5710 US, SWS, para. 605, referring to US, Answer to Panel Question 42, para. 252.
5711 US, SWS, para. 610-612; NERA Economic Consulting, Quantification of Benefit of Launch Aid
(24 May 2007), Exhibit US-606.
5712 NERA Quantification Report at 4, Exhibit US-606.
5713 NERA Quantification Report at 4, Exhibit US-606.
5714 US, SWS, para. 612. In this regard, we note that the United States calculated the amount by which
it considered per-aircraft repayments for subsidized Airbus LCA would have been greater in order to repay
LA/MSF at the commercial rates determined in the Ellis Report, concluding that Airbus would have been
required to repay an additional [***] to France, Germany, and Spain, plus an additional [***] to the United
Kingdom. US, Comments on EC Answer to Panel Question 289, paras. 221-225. See also, US, SNCOS, paras.
184-186.
5715 Appellate Body Report, US – Upland Cotton, para. 461.

BCI deleted, as indicated [***]

conferred by the subsidy on any particular product." 5716 Turning to the context of Article 6.3(c), the
Appellate Body noted that the only provision c oncerning quantification was in the now expired
Article 6.1(a), and concluded that the lack of provi sions concerning quantification in Article 6.3(c)
suggested that no precise quantificatio n is envisaged in that provision. 5717 The Appellate Body also
rejected consideration of the methodologies set out in Part V of the SCM Agreement as providing
relevant context for the interpretation of Articles 5( c) and 6.3(c) of the SCM Agreement, noting that
the apparent rationale for Part III differs from that for Part V of the SCM Agreement. 5718 T h e
Appellate Body also noted the absence of any indication in Article 6.3(c) as to what method of
quantification might be appropriate as indicating that precise quantification was not necessary for a
panel's analysis under Article 6.3(c), and that An nex V did not mandate precise quantification of
subsidies in order to determine their effect under Article 6.3(c).
5719 Thus, the Appellate Body
concluded that while in many cases it may be difficult to decide whether the effect of a subsidy is
significant price suppression in the absence of some assessment of the magnitude of the challenged
subsidy, "this does not mean that Article 6.3(c) imposes an obligation on panels to quantify precisely
the amount of a subsidy benefiting the product at issue in every case. A precise, definitive
quantification of the subsidy is not required."5720
7.1967 While the Appellate Body in US – Upland Cotton was considering a claim of price
suppression under Article 6.3(c), we see no reason wh y the same conclusion should not apply equally
to other claims of serious prejudice under the remainder of Article 6, and indeed, to the entire universe
of claims of adverse effects. This does not mean th at the magnitude of the subsidy is irrelevant to the
consideration of adverse effects. It is clear that the subsidy or subsidies in dispute must cause the
adverse effect(s) alleged. However, whether a par ticular subsidy or subsidies cause particular alleged
adverse effects is clearly not a function simply of their magnitude, however measured, but must also
take into account the nature and effects of the partic ular subsidies in question, and the nature of the
subsidized product and market, in order to assess whether the necessary causal link exists. Thus, there
is no necessary correlation between the magnitude of a subsidy and the determination whether it
causes certain alleged adverse effects. While logic ma y indicate that a larger subsidy is likely to have
more significant effects, in some circumstances, even a relatively small subsidy may have significant
effects, for instance, where it enables market participation that would otherwise not occur. Certainly a
case such as this one, where the subsidies have, as we concluded, enabled Airbus to launch LCA that
it otherwise would not have been unable to launch wh en it did, and where the subsidies are, by any
realistic measure, extremely large, a causal link can be found between the use of the subsidies and the
effects.
7.1968 In addition, we are not persuaded by the Europ ean Communities' premise that an allocation of
the benefit of the subsidies on a per-aircraft basis is required in order for the United States to sustain
its claims of serious prejudice in this dispute. The European Communities' submission assumes that a
per-aircraft allocation of the subsidy benefit over ti me in order to determine a "current" per-plane
subsidy amount is necessary, but the European Communities nowhere explains why such a calculation
is necessarily the way to determine the magnitude of the subsidy.
5721 The notion of allocation of
benefit applied by the European Communities in its calculation is derived from the practice of
investigating authorities in the context of counter vailing duty investigations. In the countervailing
duty context, the remedy for any violation of the SCM Agreement is the imposition of a
countervailing duty on future imports of the exported product benef iting from the subsidies found to

5716 Appellate Body Report, US – Upland Cotton, para. 462.
5717 Appellate Body Report, US – Upland Cotton, para. 463.
5718 Appellate Body Report, US – Upland Cotton, para. 464.
5719 Appellate Body Report, US – Upland Cotton, para. 465-466.
5720 Appellate Body Report, US – Upland Cotton, para. 467.
5721 EC, FWS, para. 1569.

BCI deleted, as indicated [***]

exist. The SCM Agreement specifically limits th e amount of any countervailing duty applied to any
imports to the amount of subsidy per unit of product.5722 Thus, in the countervailing duty context, it is
critical, in order to act consistently with the SC M Agreement, for the investigating authority to
determine the amount of benefit from the subsidy pe r unit of product, in order to ensure that the
remedy, countervailing duties on imports, is collected in the correct amounts. There is no
corresponding reason to undertake a similar calculation in the context of a dispute under Part III of the
SCM Agreement.5723 In this context, the relevant ques tion is not the precise amount of subsidy
attached to each unit of the subsidized product, but rather whether the subsidies in question are of
sufficient magnitude, in light of their nature and e ffect, to have caused the serious prejudice alleged.
We therefore conclude that allocati on of the benefit of the specific subsidies we have found, on a per
Airbus LCA basis, is not necessary in this dispute.
7.1969 In any case, we believe there are a number of deficiencies with the European Communities'
calculation, which renders it unreliable for the purpose of identifying the magnitude of the subsidies at
issue, even without allocation on a per-plane basis. First, we note that in identifying the magnitude of
the LA/MSF subsidies, the European Communities has focussed its analysis on the amount of the
subsidy benefit ( i.e., the interest rate differentials), without also taking into account the nature of the
financial contributions at issue. In our view, in or der to properly consider the magnitude of a subsidy
provided under a loan for the purpose of informin g a panel's consideration of a serious prejudice
claim, it is important to examine the interest rate differential in the context of the amount of funding
borrowed under the loan. Such an approach is not only consistent with Article 1 of the
SCM Agreement, which we recall defines a subsidy as a financial contribution that confers a benefit
upon a recipient, 5724 but it also makes sense in the particular context of a serious prejudice analysis,
where it is important to focus on the effects of the challenged subsidies. In this respect, we note that,
all things being equal, the effects of a loan involv ing a financial contribution covering 1 percent of the
costs of a particular project at an interest rate that is 100 basis points below the market rate for a
comparable loan, are likely to be less pronounced than a loan providing the same interest rate benefit
but covering 100 percent of the costs of a project.
7.1970 A second flaw we believe is manifest in the European Communities' calculation of the alleged
subsidy benefits associated with LA/MSF lies in its discounting of taxes allegedly paid on the
principal loaned under the LA/MSF contracts. Else where in this Report, we have concluded that
consideration of such a tax effect in the c ontext of the present dispute is inappropriate. 5725 Moreover,
the European Communities relies upon repaymen t amounts for the purpose of its present value
calculations concerning the Spanish A340-500/600 cont ract and the French A330/A340 contract that
we have found to be erroneous or non-verifiable on the basis of the evidence before us.5726 Thus, even
following its own methodology for identifying the am ount of the subsidy benefit provided under each
LA/MSF contract, the European Communities' calc ulations underestimate the total benefit we
consider could be reasonably associ ated with the provision of LA/MSF. Finally, we note that, the
European Communities has included in its calcul ations the alleged am ount of LA/MSF subsidy
associated with only five of the seven Airbus LCA programmes and only some of the R&TD subsidies
we have determined to exist.

5722 Article 19.4 of the SCM Agreement provides that "no countervailing duty shall be levied on an
imported product in excess of the amount of the subsidy found to exist, calculated in terms of subsidization per
unit of the subsidized and exported product." (footnote omitted).
5723 See, Appellate Body Report, US – Upland Cotton, para. 464.
5724 We note that, in the context of a grant, the magnitude of the subsidy is properly determined on the
basis of the amount of funding actually transferred by means of the grant. In other words, where a subsidy takes
the form of a grant, the amount of the financial contribution and the amount of the benefit are the same.
5725 See, para. 7.430 above.
5726 See, para 7.415 above.

BCI deleted, as indicated [***]

7.1971 Following the European Communities' methodology corrected for the technical errors noted
above, we sought to arrive at our own estimates of the amounts of subsidy benefit associated with the
LA/MSF contracts counted by the European Comm unities. These estimates indicate that the
European Communities' totals of LA/MSF benefit of EUR [***] and [***] understate the actual
amount of LA/MSF subsidy benefit on the A320, A330/340, A330-200, A34-500/6000, and A380, by
approximately [***] with respect to the Euro amount, and approximately [***] with respect to the
pound amount. Our estimate of the amounts of R& TD subsidies are approximately twice the amount,
EUR 381 million, calculated by the European Comm unities for subsidies conferred by the European
Communities, France, and Germany, not even coun ting the Spanish loans we determined constitute
specific subsidies. In addition, the European Communities did not include LA/MSF for the A300 and
A310 in its calculations. We reca ll our findings that LA/MSF was provided at a zero rate of interest
for the A300 and A310, while the market benchmarks we determined were at least 16.52 percent for
the A300 contract and at least 18.88 percent for the A310, on 100 percent of the development costs of
those planes, indicating a significant additional amount of subsidy. Thus, with respect to even the
limited portion of the specific subsidies we have fo und to exist in this dispute that it counted, the
European Communities' calculations vastly underestimate their magnitude.
7.1972 In addition, and significantly, the European Communities' calculations fail entirely to take
into account the other specific subsidies we have found to exist, namely, the subsidies with respect to
the infrastructure grants, equity in fusions and share transfers. While we have not precisely calculated
the amounts of the subsidies conferred, we note th at with respect to the Mühlengberger Loch and
ZAC Aéroconstellation infrastructure subsidies, th e hundreds of millions of Euro expended by
government authorities in developing the sites are not included in the basis on which the rent or the
purchase prices paid by Airbus were calculated, maki ng the amount of the difference akin to grants to
Airbus. The [***] for the Bremen airport runway extens ion and noise reduction measures, and the
more than EUR 200 million in regional grants for Airbus production facilities by German and Spanish
authorities between 2001 and 2004, are not included in the European Communities calculations. Nor
does the European Communities count the value of the transfer of KfW's 20 percent equity interest in
Deutsche Airbus to MBB in 1992 on non-market terms, or the FF 3.54 billion in equity investments in
Aérospatiale by the French government and Créd it Lyonnais in 1987, 1988, 1992, and 1994, or the
transfer by the French government of its interest in Dassault Aviation to Aérospatiale in 1998. Thus,
taking into account all of the specific subsidies we ha ve found to have been provided to Airbus, it is
apparent that the European Communities' calculatio n greatly understates the amount of the benefit
associated with the specific subsidies we have found were provided in respect of Airbus LCA, which
in our estimation is substantial and significant. Moreover, considering that the proportion of
development costs covered by LA/MSF for the early models of Airbus LCA was close to 100 percent
and that even 33 percent of development costs of the post 1992 models is a significant amount of
subsidized funding, we conclude that the magnitude of the specific subsidies is certainly sufficient to
have had the effect of enabling Airbus to launc h successive models of LCA at a pace it could not
otherwise have achieved.
The Age of the LA/MSF Subsidies
7.1973 The European Communities submits that several of the LA/MSF subsidies in this dispute are
"decades old" and cannot, for that reason, be causi ng present serious prejudice to the United States'
interests.5727 It is true that the first grant of LA/MSF, for the A300, was agreed by the governments of
Germany and France in 1969 and by Spain in 1970. However, this was but the first of a series of
grants of LA/MSF provided in respect of each subsequent model of Airbus LCA. Thus, LA/MSF was

5727 "The notion that subsidies conferred decades ago could significantly a ffect current pricing
decisions or otherwise cause serious prejudice is fanciful, at best." EC, FWS, para. 1656. See, also, EC, FWS,
paras. 7, 1323, 1335, 1606, 1643, 1645, 1656, 1794, 2261, 2270, 2272.

BCI deleted, as indicated [***]

provided by those same governments with respect to the A310 in 1978. The governments of France,
Germany, Spain and the United Kingdom provided LA/MSF with respect to the A320 in 1984,5728 and
with respect to the A330/A340 in 1987. LA/MSF was again provided by the government of France
for the A330-200 in 1995, and by the governments of France and Spain for the A340-500/600 in
1997. The most recent grant of LA/MSF was in 2000, by the governments of France, Germany, Spain
and the United Kingdom, with respect to the A380.
7.1974 The LCA supported by those grants of LA/MSF entered into service in each case several
years after the grant of LA/MSF, and with the exception of the A300 and A310, production of which
ceased in July 2007 (after the period we examined in this dispute), each of these aircraft is still in
production and being sold by Airbus. A lthough the European Communities notes that [***],
5729 this
does not detract from the fact that LA/MSF enabled Airbus to launch that model at the time it did, and
thus ensure its presence on the market and consequent effects. Moreover, LA/MSF is not the only
specific subsidy we have found to benefit Airbus LC A in this dispute, and each of these other specific
subsidies has also been repeatedly granted over a number of years with resp ect to the same product,
Airbus LCA. Thus, we have found specific subsid ies in the form of R&TD funding, granted from
1986 onward, with the most recent grants in 2003, as well as in the form of infrastructure grants,
involving the Bremen runway extension in 1989- 90, the Aéroconstellation site in 1999, the
Mühlenberger Loch site in 2000, and various Sp anish and German sites from 2001 to 2004. These
subsidies, together with LA/MSF, as well as the shar e transfers and equity infusions we have found
constituted specific subsidies to Air bus between 1988 and 1998, have c onferred benefits on Airbus at
intervals over its entire existence, supporting its ab ility to launch successive models of LCA, and thus
its participation in the LCA market.
7.1975 Thus, we are not concerned here with a one-off grant of a single subsidy, or even a number of
subsidies, "decades" ago, but with repeated gr ants of subsidies benefiting the same product
5730 over a
period of decades, which product has been produced a nd sold throughout that period and continues to
be produced and sold now and into the future. We have concluded th at LA/MSF and the other
subsidies played a vital role in permitting Airbus to not only launch and develop the model of LCA
actually funded by each grant of LA/MSF, but also each of the subsequent models. 5731 Moreover,
advantages in technology and pro duction flowed from the development of each succeeding model of
LCA supported by LA/MSF and other subsidies to production of earlier models, and the development
of derivative and improved versions of earlier models.
7.1976 While the effect of a single subsidy may well dissipate over time, in our view, the fact that the
subsidies at issue in this dispute were repeated ly granted over the entire history of Airbus' LCA
development with respect to that same product has had rather the opposite effect, through the learning
and spillover effects, and production synergies that ar e inherent in this industry, which spread the
effect of LA/MSF for the development of one mode l of LCA, and of other subsidies, to both

5728 Airbus began the A320 Development programme in 1980, which ultimately resulted in the launch
of four models in the A320 group, the A320 basic, A321, A319, and A318.
5729 EC, FWS, para. 1655, referring to Comparison of Actual Deliveries [***], Exhibit EC-327 (HSBI).
We understand that with the exception of loans provided in respect of the A300 and A320, substantial amounts
of LA/MSF loans remain outstanding, including the entirety of the amount loaned with respect to the A380.
The European Communities does not make specific allegations with respect to [***], but even if this were the
case, it would not affect our conclusions.
5730 We recall our conclusion that there is a single subsidized product at issue, Airbus LCA.
5731 While we have found that the United States has not demonstrated the existence of a "LA/MSF
programme" per se, based on the evidence before us, we consid er that the governments of France, Germany,
Spain, and the United Kingdom, and the European Communities, have pursued a policy of providing support for
LCA development and production since 1969.

BCI deleted, as indicated [***]

subsequent and earlier models.5732 We recall the observation of the panel in US – Upland Cotton that
"{s}ubsidies granted under expired measures may have had adverse effects at the time they were in
effect, and may still have lasting adverse effects." 5733 Indeed, the nature of th e product at issue in this
case, LCA, with its long lead times for development and long-term presence in the market, suggests
that the subsidies granted at different periods in the life of the product may well continue to have
effects long after the original grant. This is particularly so, in our view, in light of the fact that the
product, LCA, benefiting from those subsidies conti nues to be manufactured and sold. We therefore
do not consider that that age of the LA/MSF subs idies (or any of the other subsidies at issue)
undermines our conclusion that, but for those subsid ies, Airbus would not have been able to launch
and develop each model of LCA as originally designed and at the time that it did.
Competition in the Absence of the Subsidies
7.1977 As noted above, a key critique of the Dorman Report advanced by the European Communities
in the Wachtel Report is that it is allegedly pr emised on the assumption that Boeing would face no
competition in the absence of an Airbus which r eceived LA/MSF. The Wachtel Report asserts that
LCA "markets" are natural duopolies and, accordingly, if Airbus did not exist, some competitor other
than Boeing would have arisen to take its place in those markets. Thus, in the counterfactual in which
Airbus did not exist or did not launch the aircraft it did when it did, some other competitor would
have launched aircraft to compete with Boeing.
5734 In circumstances where Boeing would face
competition in the counterfactual there is not, acco rding to the European Communities, sufficient
evidence to conclude that in th e absence of LA/MSF, the United States' LCA industry would enjoy a
higher market share and/or receive higher prices for its products.5735
7.1978 The European Communities asserts that the United States itself admits that Boeing would face
active competition in the absence of LA/MSF and that their proposed counterfactual is inherently
speculative. The European Communities notes, inter alia, the following statement:
"To be clear, the United States does not contend that the LCA industry should be a
Boeing or even a U.S. monopoly. No one can say with certainty how the LCA
industry would have developed over the l ast 40 years without the EC and Airbus
government subsidies designed to ensure that Europe would be the home of one
producer in a competitive duopoly. But for the EC provision of Launch Aid, surely
there would nonetheless have been competition. But the nature and type of that
competition would surely have been differ ent. The United States seeks only what the
SCM Agreement seeks – that the competition not be subsidized competition."
5736
Insofar as "there would nonetheless have been competition" in the absence of LA/MSF the
United States cannot, according to the logic of the European Communities, demonstrate how LCA
competition has been affected by LA/MSF and that those competitive effects have caused serious
prejudice to the United States.5737

5732 See, US, FCOS, paras. 62-67, citing Exhibits EC-98 (HSBI), EC-362 (HSBI), EC375 (HSBI), and
EC-498 (HSBI), US, SNCOS, paras. 151-154, citing inter alia , Exhibits US-182 (efficiency of combining
production facilities for A380 with existing facilities fo r A319/A321 facilities at Mühlenberger Loch), EC-776
(HSBI)(commonality as part of rationale for launching new derivative models).
5733 Panel Report, US – Upland Cotton, para. 7.1201.
5734 EC, FWS, para. 2279, citing Wachtel report, Exhibit EC-12, paras. 7-8.
5735 EC, SWS, para. 847.
5736 US, FCOS, para, 151.
5737 EC, SWS, paras. 846-848.

BCI deleted, as indicated [***]

7.1979 We note, as a factual matter, that the LCA market has been a duopoly market since the merger
of McDonnell Douglas with Boeing in 1997. The fact that competition in the market is currently
limited to Boeing and Airbus is, not surprisingl y, reflected in the evidence presented by the
United States in support of its serious prejudice claims. For example, the United States uses the
phrase ""zero sum" competition" in the sense that "a win for one producer is almost always a loss for
the other" to describe the competition between the two producers. 5738 This 'zero sum' assumption
does, at times, colour the United States descripti on of the causal link between the subsidies and the
effect on the United States interests. Thus, for in stance, after reiterating its position that absent the
subsidies Airbus would have fewe r and different LCA products, the United States asserts that "{i}n
this duopoly market, that means that the U.S. LC A Industry would produce and sell more aircraft at
higher prices than it does in the face of subsidized competition". 5739 We do consider that in certain
instances the United States may proceed too hastily from a conclusion that certain Airbus products
would not exist but for the subsidies to the conclusi on that Boeing would sell more aircraft and prices
would be higher. If there were competition from some other producer, that competitor might have
been in a position to introduce competitive aircraft to the market that Airbus could not have
introduced but for LA/MSF, with a similar effect on Boeing sales and prices. Nonetheless, we do not
agree with the premise of the European Communitie s' argument, that the possibility, or even the
likelihood, of competition in the absence of subsidi es to Airbus, requires us to conclude that the
United States has failed to demonstrate a causal li nk between the Article 6.3 phenomena and the use
of subsidies by the European Communities and certain of its member States.
7.1980 As both parties acknowledge, any consideration of a counterfactual in the context of this
particular dispute is inherently speculative. Ho wever, to differing degrees both the United States and
the European Communities appear to accept that had Airbus not entered the LCA market when it did,
there would have been some other market part icipant than Boeing, albeit perhaps not a new
entrant.
5740 The United States also posits a situation where Airbus would have entered at a much later
stage with a different quality LCA offering. 5741 A review of the economic literature, much of which
has been introduced as evidence in this dispute, can help narrow down the range of possibilities.
7.1981 To begin with, certain fundamental characteris tics of the LCA market are well described in
the literature, 5742 and are not disputed by the parties. Fi rst, entry barriers into the LCA market are
formidable. The design, testing certification, pr oduction, marketing and after-delivery support of
LCA is an enormously complex and expensive undertaking, which requires huge up-front investments
over a period of three to five years before any revenues are obtained from customers. 5743 A rough rule
of thumb is that at least 600 airplanes of a new model must be sold before the revenues for a
programme exceed the costs. Economies of scale arising from the huge sunk development cost give
incumbent firms a considerable competitive advant age. Learning effects induce dynamic economies
of scale which reinforce incumbents ' advantage. Economies of scope make it difficult to enter one
market segment only. Thus, producers of a full rang e of LCA are at an advantage. Switching costs,
i.e., the costs of customers moving from one aircraft manufacturer's LCA to another's, make it more
difficult for new producers to enter. Most airlines prefer fleet commonality. Incumbent firms have a
strong incentive to adopt entry deterring price strate gies. Uncertainty is considerable. This makes it

5738 US, FWS, para, 198.
5739 US, FCOS, para. 131.
5740 EC, FWS, para. 2287, EC, SWS, paras. 859-861. US, FNCOS, paras. 147-148, 151; US, SWS,
paras. 587-89.
5741 US, SWS, para. 590.
5742 See, also , Section VII.F.6 of this Report, where we set forth our understanding of the relevant
conditions of competition in this industry, which are consistent with the views of economists described here.
5743 Boeder & Dorman, Exhibit US-373.

BCI deleted, as indicated [***]

very difficult to finance the huge development costs on capital markets. 5744 Finally, the fact that
aircraft are typically sold in US dollars e xposes non-American manufacturers with a production base
outside of the United States to exchange rate fluctu ations which increase uncertainty and are costly to
cover against.5745
7.1982 Economists generally consider that with such high entry barriers, entry into the manufacture
of LCA without government support is difficult if not impossible. Consideration of alternative
scenarios that have been analyzed in the literature provides a sense for what economists consider to be
the most likely counterfactuals. For instance, Kl epper posits two scenarios that could have become
reality since 1970, had Airbus not entered the market. 5746 The first is a Boeing monopoly, and the
second is a duopoly with two established producer s, Boeing, and either McDonnell Douglas or
Lockheed.5747 The difference between this and the actual situation is that there would be two
established US producers, rather than one incumben t US producer and a new non-US entrant. Neven
and Seabright consider three alternative scenarios to their base case, which attempts to reproduce the
actual development of the aircraft market from the early 1960s. 5748 The first is a Boeing-McDonnell
Douglas duopoly, the second is an Airbus, Boeing duopoly (without McDonnell Douglas), while in
the third, Boeing remains a monopoly throughout the period. Baldwin and Krugman, which is quoted
in the Dorman Report, notes that "{i}n the world market there are only three significant manufacturers
of airframes for jets that seat more than one hundred passengers. It is arguable that in the absence of
government support there would be only one."5749
7.1983 We are not convinced by the view expressed in the Wachtel Report that, because of the
alleged size of the segments in the LCA market , the LCA industry is a "natural duopoly". The
fundamental reasoning behind the Wachtel Report in this regard is clear. Relying upon the
methodology applied in a study undertaken by Br esnahan and Reiss, W achtel segments the LCA
market and compares an estimate of the average break-even point for sales of any given model of
LCA with the size of individual market segments. Where the segment market size is larger than twice
the break-even point, he concludes that there is room for two producers and thus the segment is a
natural duopoly. A major weakness of this reas oning is that it ignores the linkages between market
segments. Because of scope economies and switching costs, entry into one of the segments alone is
almost impossible. This problem is acknowledge d by Bresnahan and Reiss, who note in their
conclusion that "{w}hen markets overlap, it becomes less clear how one should compute entry
thresholds".
5750 There are further reasons to question th e applicability of the Bresnahan and Reiss
approach to the LCA market. Bresnahan and Rei ss assume that firms have U-shaped average total
costs, while learning effects in the LCA industry tend to reduce marginal costs, at least up to a certain,
rather significant, production level. The theoretical industrial organization literature suggests that
learning curves can provide strong strategic incentives to firms. 5751 For instance, Cabral and Riordan

5744 Klepper, Exhibit US-377; Boeder & Dorman, Exhibit US-373.
5745 Klepper, Exhibit US-377.
5746 Klepper, Exhibit US-377.
5747 The second scenario assumes the market is larg e enough for two or more producers, and that
Lockheed and McDonnell Douglas were efficient producers. Klepper, Exhibit US-377, p. 789. The author
notes that in reality, a complete monopoly might not ma terialize, and another American producer might not be
an equal competitor to Boeing.
5748 Neven & Seabright, Exhibit US-382.
5749 R. Baldwin & P. Krugman, Industrial Policy and Internationa l Competition in Wide-Bodied Jet
Aircraft, in Trade Policy Issues and Empirical Analysis , R. Baldwin, ed., National Bureau of Economic
Research, 1988, p. 45.
5750 T.F. Bresnahan & P.C. Reiss, Entry and competition in concentrated markets. 99(5) Journal of
Political Economy, 977 (1991)
5751 See, overview in C. Lanier Benkard, A Dynamic Analysis of the Market for Wide-Bodied
Commercial Aircraft, 71 Review of Economic Studies 581 (2004).

BCI deleted, as indicated [***]

show that in a duopoly with strong learning curve efficiencies there is a tendency for the firm with
lower costs to increase its lead; 5752 while Dasgupta and Stiglitz show that when learning is strong, an
oligopoly may tend toward monopoly.5753
7.1984 Thus, our evaluation of the arguments and evid ence the parties have submitted leads us to
conclude that there are multiple possibilities for th e LCA industry in the counterfactual world that
would exist in the absence of subsidies to Airbus. In one scenario, Airbus would not have entered the
LCA market at all and Boeing would be in a monopol y position, holding 100 percent of the market.
In this scenario, the link between the subsidies th at enabled Airbus to enter the LCA market and
Boeing's loss of market share and sales is self-evi dent. Any market displacement and lost sales
actually suffered by Boeing would be directly attri butable to the subsidies granted to Airbus, which
enabled it to launch and develop its own family of LCA. In a second plausible scenario, Airbus
would not have entered the market, but there would nevertheless have been two players, which on the
basis of the evidence before us, would most lik ely have been Boeing and McDonnell Douglas, the
latter having merged with Boeing in 1997. 5754 As both Boeing and McDonnell Douglas are (or were)
US LCA manufacturers, there would once again be no question about the nexus between the subsidies
which enabled the non-US company, Airbus to enter the LCA market and serious prejudice to the
United States' interests (displacement of Boeing and/or McDonnell Douglas LCA from the LCA
markets and lost sales). Finally, in a third and a fourth scenario, Airbus might have entered the LCA
market without subsidies, either in competition with Boeing alone, or in competition with a United
States' industry comprising Boeing and another US producer. In either case, Airbus could not
conceivably have been present in the LCA market w ith the same aircraft and at the same times as it
actually was, given our conclusions concerning the cumulative effect of LA/MSF and the other
subsidies in dispute on Airbus' ability to launch successi ve models of LCA as and when it did. In our
view, it is simply not feasible that, without LA/M SF and the other subsidies, relying entirely on non-
subsidized financing, Airbus coul d have undertaken the pace of aircraft development that would have
enabled it to launch the range of LCA that it has su ccessfully launched to date, which has resulted in
its present position in the market for LCA. It foll ows that even in the unlikely event that Airbus
would have been able to enter the LCA market as a non-subsidized competitor, we are confident that
it would not have achieved the market presence it di d over the period 2001 to 2006 and that we have
described in the previous sections of this Report.
5755
Factors other than competition with subsidized Airbus LCA
7.1985 The European Communities asserts that the United States' claim that subsidies to Airbus LCA
cause present adverse effects cannot be sustained becau se the United States fails to take account of
various "non-attribution" factors, which the Europ ean Communities contends are responsible, distinct
from competition with Airbus LCA, for a "signifi cant portion of any present lower Boeing prices,
sales, deliveries, and market share." 5756 In this context, the European Communities raises alleged
mismanagement of customer relations, geopolitical considerations, and the role of engine
manufacturers in sales campaigns as contributing to lost sales, rather than Airbus pricing. We have

5752 L. Cabral & M.H. Riordan, The learning curve, market dominance, and predatory pricing , 62(5)
Econometrica 1115, (1994).
5753 P. Dasgupta & J. Stiglitz, Learning-by-doing, market structure and industrial and trade policies. 40
Oxford Economic Papers 246, (1988).
5754 We note in this regard the United States' assertion that competition from Airbus was a factor in
McDonnell Douglas' exit from the LCA industry. US, FCOS, para. 68. In addition, we note that Lockheed, the
other competitor in the market at an earlier date, had already exited the market in 1981, and neither party has
suggested that any other pre-existing entity was or would have been in a position to enter the LCA industry, or
that any entity other than Boeing sought to purchase McDonnell Douglas.
5755 See, paras. 7.1752, 7.1757, 7.1780, 7.1781, 7.1782, 7.1784 and 7.1786 above.
5756 EC, SWS, para 1090.

BCI deleted, as indicated [***]

rejected above the view that lost sales must be by reason of lower price in order to constitute adverse
effects.5757 As discussed above, there is no dispute that Airbus succeeded in the sales campaigns we
have considered, and we have th erefore concluded that the United States has demonstrated that
Boeing suffered substantial lost sales during the peri od 2001-2006. We noted that there are numerous
factors involved in a customer's decision as to whic h LCA to purchase. However, one factor which is
essential is the availability of a particular model or models of LCA suitable for a particular customer's
needs at the time of the sale. We have concl uded that, but for LA/MSF and the other subsidies in
dispute, Airbus would not have been able to launch the particular LCA it did at the time it did. Thus,
the presence of these subsidized LCA in the market is a fundamental cause of the lost sales observed.
But for the subsidies, Airbus would not have been competing for these sales with the LCA it actually
sold.5758 Similarly, Airbus' market share is directly a ttributable to its ability to sell and deliver to the
European Communities and relevant third country markets, LCA which it would not have had
available but for the subsidies which supported the launch of every model of Airbus LCA.
7.1986 We note the European Communities' general view that subsidies in a previous period cannot
be the cause of changes in market share during the period we are considering. We do not agree with
this view, given that, as we have discussed, in the LCA industry, the effect of subsidies which support
the development of new models of LCA is felt long after the subsidies have been granted, in the years
in which LCA supported by those subsidies are so ld and delivered to customers which otherwise
would not have had the option of purchasing such LCA. 5759 In any event, however, we do not
consider that it is necessary in the circumstances of this dispute to link the particular changes in
market share we have observed to the timing of the grant of the subsidies in order to make a finding of
displacement in either the EC or third country mark ets. We have found that the effect of LA/MSF,
complemented by the other subsidies in dispute, is to enable Airbus to launch and bring to market
LCA that it otherwise would have been unable to – that is, the subsidies support the presence of
Airbus in each segment of the LCA market with e ach of its LCA models. Since we have concluded
that, but for the subsidies, Airbus would not ha ve had the market presence it did have during the
period we examined, it is clear that those LCA ha ve displaced Boeing LCA from the relevant markets
and caused lost sales in the same market.
7.1987 The European Communities also points to the severe downturn in the market in 2001-2003
following the events of 9/11 (exacer bated by the start of the war in Iraq and the outbreak of SARS in
Asia). The European Communities ar gues that the severity of this downturn, and its allegedly greater
impact on Boeing than on Airbus, compel the conclusion that it was responsible, at least in part, for
declining demand and declining prices of Boeing LCA.
5760 We certainly recognize that there was a
severe downturn in the market for LCA following th e events of 9/11. However, as we have
previously discussed, this downturn affected bot h Boeing and Airbus. Even if we accept the
European Communities' view that the downturn had a greater impact on Boeing's sales than it did on
Airbus, this does not, in our view, detract from our conclusions concerning the effect of the subsidies
in this dispute, which enabled Airbus to have ava ilable the particular models of LCA that it sold and
delivered in the distressed market.
7.1988 The European Communities contends that, even if the effect of the subsidies is to allow
Airbus to launch an LCA model it would not otherwise have launched, any adverse effects caused by
such subsidies are eliminated when Boeing launches an aircraft that competes with the subsidized

5757 See, paras. 7.1841 - 7.1845 above.
5758 Whether it might have been competing at all for those sales, for instance with a different LCA
developed without subsidies, is questionable, as the lost sales all involved aircraft we have concluded would not
have been developed by Airbus at the relevant times had earlier models not benefited from subsidies.
5760 EC, SWS, para. 1093-94.

BCI deleted, as indicated [***]

Airbus model.5761 The United States argues that this is both logically and factually incorrect. 5762 We
agree.
7.1989 As the United States points out, if Airbus launc hed a subsidized LCA, either Boeing would
have launched its own subsequent, competing aircraft even if Air bus had not launched, based on
Boeing's own evaluation of the demands of customer s and the market and its capabilities, or Boeing
would not have done so. If Boeing would have launched the aircraft anyway, then it would not have
had to compete with the subsidized Airbus model, but for the subsidies, as without the subsidies, the
Airbus model would not have been launched at that time and with those characteristics. On the other
hand, if Boeing only launched the competing aircraft to respond to the subsidized Airbus model, then
Boeing had to expend capital and resources to do so, which it might otherwise not have done. Thus,
but for the subsidies, Boeing might have used those resources in some other fashion. In either case,
displacement of imports from the EC market, disp lacement of exports from certain third country
markets, and lost sales that resulted from the comp etition with the subsidized Airbus LCA would all
be effects of the subsidies, without which the Airbus LCA would not exist at that time. Thus, whether
Boeing launched an LCA in response to Airbus or not, adverse effects would ensue.
7.1990 The European Communities' argument in this respect seems to suggest that the subsidies
granted to Airbus are somehow beneficial in that they enable Airbus to compete with Boeing, which
competition is good for the consumers of LCA, airl ines and leasing companies, and the travelling
public, and that this militates against a finding that those subsidies cause adverse effects to the United
States' interests. Indeed, th e European Communities asserts th at Boeing welcomes the competition
with Airbus, which it asserts has "generated num erous new and innovative LCA products" and fosters
lower prices for LCA purchasers and increased demand, which ultimately is the basis of the financial
health of both Boeing and Airbus. The European Communities maintains that airlines and other
purchasers of new LCA insist that such competition is vital for their economic success and for their
financial health and survival. 5763 It may well be true that Boeing welcomes competition, and that
competition between Boeing and Airbus benefits purch asers of LCA. But that does not mean that the
United States is not entitled to relief under the SC M Agreement if that competition is fuelled by
subsidies used by another Member that cause adverse effects to the United States' interests.
7.1991 Moreover, we see no basis in the SCM Agre ement for the notion that an increase in
"consumer welfare" constitutes a defence to a claim of adverse effects caused by subsidies. Nothing
in the text of the Agreement, or in its object and purpose, supports the proposition that the panel can
or should take into account possible "positive" effects on competition of subsidies in evaluating
claims of serious prejudice. It may often be th e case that subsidies in fact contribute positively to
consumer welfare – for instance, in US – Upland Cotton, the panel found price suppression caused by
subsidies, and concluded that the United States' use of subsidies caused adverse effects to Brazil's
interests. However, that price suppression presuma bly also resulted in prices for textiles and clothing
that were lower than they otherwise would have been, which is a "positive", while it also reduced
revenues to cotton farmers, which is a negative. There is no mention of this in either the panel's or the
Appellate Body's decision, and absolutely no basis to think that panels should somehow engage in a
consideration that might "balance" these competing effects.

5761 EC, FWS, paras. 2288-2304.
5762 US, SWS, para. 585. Brazil disagrees with the European Communities' assertion that adverse
effects are extinguished by the launch within two or three years of a technolog ically equal or superior
competing aircraft by Boeing. Accordin g to it, the continuing distortive effect of subsidies in the market does
not disappear with the launch of a competing aircraft. Brazil, Third Party Submission, para. 57.
5763 EC, FWS, paras. 1378-1381.

BCI deleted, as indicated [***]

7.1992 In our view, that Boeing chooses to meet subsidized competition from Airbus to the best of its
ability cannot be considered to eliminate the adverse effects caused by the subs idies in dispute. To
conclude otherwise would in our view eviscerate the SCM Agreement's remedies for subsidies that
cause adverse effects, as it would imply that a Member must not seek to respond to or mitigate
adverse effects caused by subsidies for fear of being unable to demonstrate their existence in a
dispute. We cannot believe that such an outcome is warranted.
7.1993 It is in our view clear that Airbus would have been unable to bring to the market the LCA that
it launched but for the specific subsidies it re ceived from the European Communities and the
governments of France, Germany, Spain and the United Kingdom. We reiterate that we do not
conclude that Airbus necessarily would not exist at a ll but for the subsidies, but merely that it would,
at a minimum, not have been able to launch and develop the LCA models it has actually succeeded in
bringing to the market. Had Airbus successfully entered the LCA industry without subsidies, it would
be a much different, and we believe, a much weaker LCA manufacturer during the period we
examined, with at best a more limited offering of LCA models. Thus, under either scenario, Airbus
would not have had the market presence and ability to win orders for LCA that it did have during the
period 2001-2006, and the United States' LCA industry, at a minimum, would not have lost sales to
Airbus and would have had a larger market share in the EC and certain third country markets than it
actually did over that period. We consider that Airbus' market presence during the period 2001-2006,
as reflected in its share of the EC and certain third country markets and the sales it won at Boeing's
expense, is clearly an effect of the subsidies in this dispute. We therefore conclude that the
displacement of United States' LC A from the EC and certain third country markets and lost sales we
have found during the period 2001-2006 are an effect of the specific subsidies to Airbus that we have
found.
The alleged "product" effect of the subsidies on prices
7.1994 Finally, the United States also asserts that b ecause the subsidies at issue have been necessary
to Airbus' ability to develop and su ccessfully bring to market its full range of LCA models, they have
also created supply side pressure which must pe rforce have had an impact on prices in the LCA
market.
5764 This supply-side pricing argument is advanced in the Dorman Report 5765 and in the
statement of Professors Joseph Stiglitz and Bru ce Greenwald, submitted by the United States in
response to a question from the Panel ("Stiglitz/Greenwald statement"). 5766 The Stiglitz/Greenwald
statement, in particular, argues that a pricing impact is a direct and inevitable result of the introduction
of a new model aircraft, observing:
"The new model introduction inevitably represents an increase in supply which just as
inevitably has a negative impact on prices. The most extreme example of such an
impact is that in which, but for the s ubsidy, the new model could not have been

5764 US, SWS, para. 594.
5765 In this respect the Dorman Report states:
"An airplane program that is enabled by launch aid is likely to cause prices to decline in the
market segment that it targets. Competing airplanes will need to lower their prices and will
likely sell fewer units, since some customers will purchase the new airplane and most
customers will leverage one seller against another to obtain larger discounts."
Dorman Report, Exhibit US-70 (BCI), p. 9.
5766 Statement of Professors Joseph E. Stiglitz and Bruce C. Greenwald, On the Question of the Impact
of Subsidies on Supply and Prices in the LCA Market (Jan 21, 2008), Exhibit US-676 (hereinafter
"Stiglitz/Greenwald statement").

BCI deleted, as indicated [***]

economically introduced, since the potential returns would not have justified the
unsubsidized investment involved."5767
The European Communities argues that both the arguments of the United States and the
Stiglitz/Greenwald statement are premised on the as sumption that, in the absence of Airbus, Boeing
would face no competition, whereas the United States has acknowledged that in the absence of Airbus
or LA/MSF, Boeing would face competition. 5768 We understand the thrust of the European
Communities' argument to be that, because there would be active competition among two or more
LCA manufacturers even in the absence of Airbus, any price effects resulting from increases in supply
in the LCA market cannot be attributed to subsidies to Airbus.

7.1995 As we understand it, the argument that Stiglitz and Greenwald make is that in a duopoly
situation, like the one characterizing the LCA indus try at present, a subsidy that makes possible the
launch of a new model aircraft is likely to increas e supply and thereby to reduce the price of LCA on
the market. The Stiglitz/Greenwald statement seems to raise two possible scenarios. In the first, one
of the duopolists is already producing a specific aircra ft and the subsidy allows the other duopolist to
launch a directly competing plane. In this case, the subsidy increases supply and lowers the price in
this specific segment of the market. In the second, the subsidy allows one of the duopolists to launch
an aircraft in a segment of the market that is not yet occupied. In this case, the subsidy will push
down the price of aircraft in adjacent segments of the market. Overall, the Stiglitz/Greenwald
statement supports the view that prices in the airc raft market are lower than they would be in the
Boeing monopoly counterfactual. The subsidized en try of Airbus and the subsequent launches of
Airbus aircraft clearly increased the supply of airc raft and reduced the prices of Boeing aircraft.
5769
However, in our view, the Stiglitz/Greenwald stat ement does not help us assess whether the prices
that prevailed in 2001 to 2006 were higher or lowe r than those that would have resulted in the second
and the fourth of the counterfactual scenarios we posited in paragraph 7.1984 above, i.e., if the market
had evolved towards either (i) a duopoly with tw o relatively equal unsubsidized United States
producers of LCA, or (ii) a situation with two relatively equal unsubsidized United States producers
in competition with each other and with a third uns ubsidized, but relatively weaker, producer, Airbus.
Competition between the producers in either of thes e circumstances could very well have been even
more fierce than competition between a subsid ized new entrant, with presumably a corresponding
initial cost disadvantage, and an incumbent producer . The resulting price levels in the two former
scenarios could then have been lower than the one in the latter, which corresponds more closely to the
actual Boeing-Airbus duopoly.
7.1996 Based on the foregoing, we are of the view that we cannot draw any fi rm conclusions on the
price effect of the presence of subsidized Airbus LCA in the market, and thus cannot conclude that the
United States has demonstrated, in this context, that the effect of the subsidies is the significant price
suppression and price depression we observed over the period 2001-2006.
The United States' "Price" Theory of Causation
7.1997 The principal focus of the United States "price" causation theory is the argument that the
challenged subsidies, and in particular LA/MSF, provided Airbus with the financial means to be
flexible with its pricing of LCA in competitions against Boeing, thereby enabling it to win sales,
capture market share and significantly depress and suppress the prices of LCA between the years 2001

5767 Stiglitz/Greenwald statement, p. 2.
5769 We note in this regard the conclusion of Baldwin & Krugman, quoted in Neven & Seabright,
Exhibit US-382 p. 22, that, with re spect to the market segment encompa ssing the A300 and Boeing 767, "the
entry of Airbus resulted in ... large losses of profits to Boeing ... . {t}he United States suffered as a whole...".

BCI deleted, as indicated [***]

and 2006. The United States explains that there ar e essentially two reasons for this alleged price
effect of LA/MSF. First, the United States submits that the nature and magnitude of the cumulative
provision of LA/MSF to Airbus had a direct and significant impact on EADS' free cash flow, allowing
Airbus to be more aggressive in its approach to investments, including price concessions aimed at
building market share over the long-run. Second, the United States asserts that LA/MSF decreased
Airbus' marginal production cost by indirectly loweri ng its marginal cost of capital, which in turn, the
United Sates argues, could be expected to lower the price of Airbus LCA.
5770
7.1998 The European Communities disputes the United States' assertions, arguing that the United
States fails to calculate the alleged cash flow e ffect, which the European Communities contends is
zero or de minimis.5771 In any event, the European Communities contends that the United States failed
to demonstrate that Airbus has actually used an y additional cash flow to reduce its prices. The
European Communities argues that Airbus lacks the incentive and commercial opportunity to use the
benefit of subsidies to price down its LCA. 5772 The European Communities also argues that any
impact of LA/MSF on EADS' credit rating or a lower cost of production is not a "benefit" within the
meaning of Article 1.1(b) of the SCM Agreem ent, because the same benefit would accrue from
alternative market financing. Thus, for the Eu ropean Communities, the difference between LA/MSF
interest rates and market benchmarks fully captures this effect.5773
 Alleged Effect on EADS' Free Cash Flow

7.1999 The United States argues that in the absence of LA/MSF, the financial condition of Airbus
would have been significantly worse than it has actually been. Assuming, arguendo, that Airbus had
launched each of its LCA programme s without subsidies by obtaining funds from market lenders, the
United States argues that "{a}t some point, the cumulative risk of the pr ojects and the cumulative
exposure of Airbus to high levels of debt at full market rates would have made it impossible to obtain
additional investment funds".
5774 Indeed, the United States consider s that even with LA/MSF, Airbus
faced significant difficulties in funding its LCA project s. For instance, the United States refers to
evidence which it submits reveals that [***].5775 The United States contends that the European
Communities has recognized this fact by stating in its first written submission that "{i}t is not
surprising that Aérospatiale required additional equity capital to fund the new investments. Internally
generated cash flow was not sufficient, and a prude nt debt-to-equity ratio placed limits on the amount
of new debt that could be borne". 5776 Furthermore, to substantiate the same point, the United States
recalls the comment made in the 1997 French Sena te Report concerning the provision of LA/MSF for
the A380, expressing the view that market financing for the project "would apparently add
excessively to the financial expenses incurred by th e firms, and would throw their balance sheets out
of equilibrium because of the low level of their equity capital".
5777 Thus, the United States argues that
in addition to evidence of the direct impact of LA/MSF on individual Airbus launch decisions, the
cumulative impact of LA/MSF on the overall financial condition of Airbus must also be considered.

5770 US, FWS, para. 819; US, FNCOS, paras. 154-160; US, FCOS, paras. 58-60; US, SWS, paras. 595-
598; US, SNCOS, paras. 173-176; US, Answer to Panel Questions 228, 229 and 230.
5771 EC, Comments on US Answer to Panel Question 230, paras. 59-60.
5772 EC, SWS, para. 671.
5774 US, Answer to Panel Question 229.
5775 US, Answer to Panel Question 228, referring to Aérospatiale Report to Credit Lyonnais (1994),
Exhibit US-296 (BCI).
5776 US, Answer to Panel Question 228, referring to EC, FWS, para. 1135.
5777 1997 French Senate Report, at 72, Exhibit US-18, referred to by the United States in its Answer to
Panel Question 229.

BCI deleted, as indicated [***]

7.2000 According to the United States a relevant measure of the impact of LA/MSF on the overall
financial condition of Airbus is its impact on EADS' net free cash flow. Citing a January 2007
Deutsche Bank Company Research Report, 5778 the United States notes that over the period 2001 to
2005, nearly half of the net free cash flow of E ADS was accounted for by changes in net LA/MSF.
The United States asserts that the Deutsche Bank Re port demonstrates that EADS' net free cash flow
in 2001 and 2002 would have been ne gative without the provision of LA/MSF. Yet, according to the
United States:
"... it was precisely in this period, when th e market was at its low, that Airbus
intensified its effort to win sales and gain market share by aggressively underpricing
Boeing and winning several major long-term sa les. If during this period Airbus had
been relying on its own resources to f und the ongoing development of the A340-
500/600 and the A380 and preparing to fund the A350 – if it in fact could have done
those things without government subsidi es – its financial flexibility to pursue its
pricing strategy would have been quite different."
5779
7.2001 The United States also notes that the Deutsche Bank Report concludes that without the cash
inflows obtained from net LA/MSF disbursements and customer advances received from LCA orders,
"EADS must materially improve its underlying free cash generative performance in the future", or
else it will probably be unable to "avoid future refinancing of the group through either additional debt,
equity or hybrid bond issues".
5780 Thus, the United States argues that the Deutsche Bank analysis of
EADS' free net cash flow confirms that LA/MSF had a material impact on the financial constraints
facing Airbus, showing that LA/MSF was decisive in giving Airbus positive free cash flow, and
therefore also the "ability to make the very pricing decisions at the heart of the serious prejudice about
which the United States complains".
5781
7.2002 The European Communities argues that nothing in the Deutsche Bank Report suggests that
LA/MSF provided Airbus with pricing flexibility. It asserts that the United States, in relying on the
Deutsche Bank Report, exhibits a conceptual flaw in that, instead of considering the benefit of the
subsidy, its arguments rely on the total amount of the financial contribution provided by LA/MSF. 5782
Moreover, the European Communities submits that during the 2001 and 2002 period, LA/MSF did not
represent a source of cash that would permit Airbus to price down LCA. According to the European
Communities, the loan principal from the A380 LA /MSF contracts was used for the purpose for
which it was borrowed – that is, the development of the A380. 5783 In any case, the European
Communities submits that because, in its view, Airbus could have replaced the LA/MSF loans
received for LCA launched after 1992 with risk-sha ring supplier financing, the same amount of
financial contribution, and thus the same level of cash flow, would have accrued to EADS even in the
absence of LA/MSF. Consequently, the European Communities argues that any "material impact on
the financial structure of EADS" resulting from the se inflows would have occurred with or without
LA/MSF loans. In this light, the European Commun ities submits that the principal disbursed through
LA/MSF cannot, in and of itself, confer an advantage on Airbus relative to the market.5784 Finally, the
European Communities argues that when the period 1999 to 2007 is considered, Airbus repaid the

5778 Deutsche Bank, EADS: Risks Mispriced – Downgrade to Sell , 9 January 2007, p. 7, (hereinafter
"Deutsche Bank Report"), Exhibit US-459.
5779 US, FNCOS, para. 160.
5780 US, Answer to Panel Question 229, quoting from Deutsche Bank Report, p. 7, Exhibit US-459.
5781 US, Answer to Panel Question 229.
5782 EC, Comments on US Answer to Panel Question 229.
5783 EC, Comments on US Answer to Panel Question 229, footnote 29.
5784 EC, Comments on US Answer to Panel Question 229.

BCI deleted, as indicated [***]

relevant member States more cash than it received in LA/MSF financing, such that over this longer
period of time LA/MSF did not add to its free cash flow, but actually consumed it.5785
7.2003 The Deutsche Bank Report is an eighteen page document which analyses a number of "key
issues" affecting EADS' business activities for the purpose of arriving at a recommendation on how to
trade shares in EADS. Among these are the financial a nd technical risks associated with the aircraft
development projects underway or in the pipeline as of January 2007, namely, the A380, A350XWB
and the A400M. In this context, the Deutsche Bank Report identifies what is "arguably the key issue
for EADS", as the maintenance of a level of free cash flow sufficient to cover the demands of its
business activities.5786 This amount is assumed to be EUR 1 billion per year until 2013. The Report
observes that this level of free cash flow "may no t see{m} demanding at first", going on to note that a
large part of EADS free cash flow between the years 2001 to 2005 has come from LA/MSF and
"strong inflows" of advance order payments.
7.2004 When the data on EADS' free cash flow that is presented in the Deutsche Bank Report is
reviewed, it is evident that in the absence of the inflows from net LA/MSF disbursements, EADS' free
cash flow would have been negative in 2001 and 2002. However, it is also apparent that net inflows
from LA/MSF represented a much smaller proportion of total overall free cash flow in subsequent
years, declining steadily to 2005. Moreover, in 2001, 2004 and 2005, the cash inflows generated from
advance order payments were significantly gr eater than those from net LA/MSF inflows.
5787 Thus,
while it is true that net LA/MSF inflows amounted to approximately half of the free cash flow that
accrued to EADS between 2001 and 2005, inflows fro m advance order payments were more than
double LA/MSF inflows over the same period. The Deutsche Bank Report goes on to reason that
LA/MSF will no longer be available for future proj ects and that inflows from advance order payments
are likely to "reverse". In this light, it concludes that in the absence of LA/MSF disbursements and
the expected decline in advance order payments, it would be difficult for EADS to "avoid refinancing
of the group through either additional debt, equity or hybrid bond issues".
5788
7.2005 In our view, the Deutsche Bank Report dem onstrates that net LA/MSF inflows were an
important component of EADS' free cash flow over th e years 2001 to 2005, but less so than advance
order payments. Moreover, apart from 2001 and 2002 , we do not consider the impact of net LA/MSF
inflows to be as significant to Airbus' free cash flow as the United States' argument intimates.
Nevertheless, it is clear that without the net LA /MSF inflows reported in the Deutsche Bank analysis,
EADS would have been in a worse position in terms of free cash-flow, and particularly so in 2002,
when advance order payments were negative.
7.2006 The European Communities argues that the Deutsche Bank Report is focussed on the effect of
LA/MSF principal on EADS' free cash flow position, and not on the effect of any LA/MSF subsidies .
According to the European Commun ities, this means that the Report cannot be used to substantiate
the United States' claim of serious prejudice. We agree with the European Communities that for the
purpose of determining whether the United States has established that LA/MSF has caused serious
prejudice to its interests, it not sufficient to focus on the effects of only the principal amounts
disbursed under the LA/MSF contracts. As the European Communities points out, had Airbus
obtained comparable loans from the market place, its cash inflows fro m those loans would have been

5785 EC, Comments on US Answer to Panel Question 229; EC, SWS, para, 1057.
5786 Deutsche Bank Report, p. 6, Exhibit US-459.
5787 Cash inflows from advance order payments were more than double inflows from LA/MSF in 2001,
more than six times greater than inflows from LA/MSF in 2004, and almost 24 times greater in 2005. Deutsche
Bank Report, figure 6, p. 7, Exhibit US-459.
5788 Deutsche Bank Report, p. 7, Exhibit US-459.

BCI deleted, as indicated [***]

the same as those obtained via LA/MSF. 5789 Therefore, a focus on how LA/MSF principal effects
EADS' free cash flow would not be relevant to the qu estion that concerns us here – whether the effect
of the LA/MSF (and other) subsidies was the serious prejudice alleged by the United States.
7.2007 However, in our view, it is not accurate to say that the Deutsche Bank Report's analysis is
concerned with only LA/MSF principal. As we understand it, the cash flow analysis examines net
LA/MSF inflows, taking into account both LA/MSF receipts ( i.e., loaned principal) and
repayments.5790 Thus, while the Deutsche Bank Report does not directly analyze the effect of the
amount of the subsidy associated with LA/MSF, the fact that it takes into account both LA/MSF
receipts and repayments means that it is possible to indirectly draw some general conclusions about
how the amount of LA/MSF subsidies affected EADS' cash flow.
7.2008 We recall that had Airbus funded its LCA development programmes with loans from the
market, its repayments would have been greater than those actually re quired under the LA/MSF
contracts. It follows that without LA/MSF, the contribution of net inflows from market-based loans to
EADS' overall free cash flow position would have been smaller. Thus, it is possible to conclude from
the Deutsche Bank Report, when considered in the light of our findings on the appropriate market
interest rate benchmarks for LA/MSF, that the LA/MSF subsidies had a positive impact on EADS'
free cash flow. However, the precise magnitude of this impact cannot be determined from the
Deutsche Bank analysis. Therefore, we do not know whether the effect of the LA/MSF subsidies on
EADS' free cash flow was, as the United States argues, to significantly alleviate financial constraints
on Airbus ability to price its LCA.
5791
7.2009 In any case, even assuming arguendo that it could be understood from the Deutsche Bank
Report that the LA/MSF subsidies did have a signifi cant impact on EADS' free cash flow in the years
between 2001 and 2005, the United States would still have to show that it actually had the effect of
lowering the price of Airbus LCA in order to make out its case of serious prejudice. While we accept
that a greater free cash flow could translate into more pricing flexibility, this does not demonstrate
that Airbus actually used that pricing flexibility in respect of the alleged lost sales and with the effect
of depressing and suppressing prices in the LCA mark et. Given what we know about how prices are
set in the LCA industry, 5792 it is, in our view, too simplistic to conclude that merely because LA/MSF
improved Airbus' financial condition (perhaps even significantly so in 2001 and 2002), it also led to
Airbus winning the sales we have found Boeing lost, by enabling Airbus to offer a lower price than it
otherwise would have in the particular sales camp aigns relied on by the United States. Indeed, we
recall that on the basis of the evidence before us, we determined that the United States has failed to
demonstrate that Airbus actually undercut the pri ce offered by Boeing in the competitions the United
States relied upon to demonstrate price undercutting as serious prejudice to its interests. 5793
Moreover, on the basis of the same considerations , we conclude that the United States has not shown
that the effect of the subsidies on Airbus' cash flow caused the price depression and suppression we
observed over the relevant period.
7.2010 Based on the foregoing, we consider that the United States has failed to demonstrate the effect
of LA/MSF on EADS free cash flow caused Airbus to lower prices on LCA during the period 2001-

5789 EC, Comments on US Answer to Panel Question 229.
5790 Deutsche Bank Report, p. 7, Exhibit US-459.
5791 US, SNCOS, para. 173.
5792 See, discussion at paragraphs 7.1837 - 7.1839 above.
5793 Of course, this does not affect our conclusion that those same sales were lost to Boeing due to the
ability of Airbus to offer the particular LCA at issue at that time as a result of the subsidies in dispute.

BCI deleted, as indicated [***]

2006 with the effect of causing significant price suppression, price depression or lost sales 5794 in the
LCA market.
 Alleged Effect on Airbus Cost of Capital

7.2011 In addition to the alleged direct financial be nefits flowing from the provision of LA/MSF, the
United States argues that LA/MSF, by transferring mu ch of the commercial risk of LCA development
away from Airbus to the Airbus governments, also i ndirectly benefits Airbus by improving its credit
rating and thereby reducing its marginal cost of capital in respect of t hose portions of its LCA
development projects and other activities that are not funded with LA/MSF. 5795 The United States
submits that a lower marginal cost of capital will reduce Airbus' marginal cost of production, which in
turn could be expected to lower Airbus' pricing.5796
7.2012 Relying on parts of the evidence submitted a nd arguments made in support of its free cash
flow theory,5797 the United States asserts that had Airbus funded all of its LCA projects by obtaining
financing at market rates rather than at the subsid ized rates provided by the Airbus governments, the
resulting impact on its balance sheet would have been far greater than anything that Airbus could have
sustained. The United States submits that this evidence alone is sufficient to demonstrate that
LA/MSF has a significant impact on the creditworthin ess of Airbus, and thereby, also its marginal
cost of capital.5798 However, the United States also submitted other evidence it considers substantiates
its position.
7.2013 First, the United States points to an assessm ent made in the Deutsche Bank Report of the
financial risks associated with the development of the A350XWB in the light of Airbus' perceived
"inability to use government launch finance" for this project. 5799 According to the United States, the
Deutsche Bank analysis expresses the view that in the absence of LA/MSF for the A350XWB, "'far
more' of the exposure of EADS 'equity and debt holder s' will be 'risk' rather than 'risk free', than has
been the case with prior Airbus LCA launches".5800 Thus, the United States submits that the Deutsche
Bank Report shows that the impact of LA/MSF on EADS' private investors is significant.
7.2014 Second, the United States relies upon a series of statements made by Moody's Rating Agency
and Credit Suisse. 5801 In particular, the United States refers to a press release issued by Moody's in
2003, where, it argues, Moody's stated publicly that its debt rating for EADS "considers the
expectation for continuing government support, which is primarily in the form of refundable advances

5794 We note that our rejection of the United States' position that the effect of subsidies to Airbus was
lost sales by reason of price does not affect our determination that the United States has demonstrated that
those same lost sales were an effect of the subsidies through their effect on Airbus' ability to launch LCA as and
when it did, thereby making available LCA for those sales that it otherwise would not have had.
5795 US, SWS, para. 580; US, Answer to Panel Question 228.
5796 US, FNCOS, para. 58; US, Answer to Panel Question 228.
5797 See, para. 7.1999 above.
5798 US, Answer to Panel Question 229.
5799 Deutsche Bank Report, pp. 2-3, Exhibit US-459.
5800 US, Answer to Panel Question 229.
5801 US, SWS, para. 580, referring to Moody's Investor Service, Moody's confirmation of EADS
highlights government's role as odd rescuers , 12 March 2007, Exhibit US-450; Moody's Investor Service,
Moody's Assigns A3 Rating to New Euro Mtn Program of European Aeronautic Defence and Space Company
EADS N.V. , 6 February 2003, Exhibit US-56; Moody's Global Credit Research, Moody's confirms EADS A1
rating, 9 March 2007, Exhibit US-464; CreditSuisse, Value versus Risk , EADS upgrade rating, at 14,
15 June 2006, Exhibit US-465.

BCI deleted, as indicated [***]

for up to 1/3 of the development cost of each new aircraft programme on the Airbus level." 5802
Moreover, the United States asserts that Moody's stated in the same communication that it was
"comforted" notwithstanding the large $12 billi on investment in the A380 programme, by, inter alia,
"continuing government support in the form of re fundable advances of up to 1/3 of the required
development expenses for Airbus' commercial aircraft ". The United States has also pointed to an
announcement by Moody's in March 2007 that it w ould maintain its high credit rating of EADS,
notwithstanding losses related to the delay in A380 deliveries and other pressures. According to the
United States, the announcement noted that government support to Airbus provides a "helping hand in
times of financial difficulties" and "reflects an entr enched inclination for state protection and a low
appetite for exposing private bond holders to losses".5803
7.2015 The United States submits that this evidence confirms that EADS' credit rating would be
lower – and its cost of capital higher – in the ab sence of LA/MSF. Consequently, the United States
concludes that by reducing the cost of capital, LA/MSF also reduces the price that Airbus can accept
while sustaining its profitability targets.
7.2016 In responding to the United States' arguments, the European Commun ities rejects the notion
that an improved baseline credit rating could be vi ewed as an "additional benefit" of LA/MSF, and it
contests the United States' reliance on the announcements concerning EADS' credit ratings.
7.2017 The European Communities recalls that in order to identify a benefit flowing from LA/MSF, a
comparison must be made between the terms pr ovided under the government financing instrument
and those available on the market. The European Communities asserts that LA/MSF impacts EADS'
credit rating to the extent that it transfers project risk for Airbus LCA programmes to governments.
According to the European Communities, precisely the same benefits would flow directly from
market financing alternatives such as risk-sharing arrangements and delivery-based financing through
private banks. Thus, the European Communities submits that any impact of LA/MSF on EADS'
credit rating due to a reduction of risk is equivalent to what the company would enjoy if it employed
risk-sharing supplier financing, instead of LA/MSF. 5804 In other words, the European Communities
argues that the United States cannot establish that but for the provision of LA/MSF, Airbus would not
have obtained a similarly enhanced baseline credit rating through market-based risk-sharing
financing.
5805 Therefore, in the European Communities' view, the amount of any and all benefits
associated with LA/MSF are captured by the differe nce between interest paid on LA/MSF and the
benchmark, not any impact on the recipient's credit rating.5806
7.2018 The European Communities rejects the cont ention that the 2003 Moody's credit rating
statements support the United States position. Th e European Communities argues that Moody's did
not raise EADS' credit rating because of the "indirect effect" of the interest subsidy associated with
these loans. According to the European Communities, Moody's had no way of knowing the terms of
the LA/MSF loans, which remain confidential. Thus, the European Communities asserts that the 2003

5802 US, Answer to Panel Question 229, referring to Moody's Investor Service Press Release,
6 February 2003, Exhibit US-56.
5803 US, Answer to Panel Question 229, referring to Moody's Investor Service Press Release,
12 March 2007, Exhibit US-450.
5804 EC, SWS, para. 1037.
5805 The European Communities assert s that because both Airbus an d Boeing have re lied upon risk-
sharing supplier funding for the A380 and the 787, "even in the total absence of MSF loans for the A350XWB,
it is reasonable to assume that Airbus SAS will transfer all or most of the risk formally transferred to the
member States for, e.g., the A380, to risk-sharing suppl iers, with no additional programme risk to the equity
holders". EC, Comments on US Answer to Panel Question 228.
5806 EC, SWS, paras. 1036-1039; SNCOS, paras. 479-485; EC, Comments on US Answer to Panel
Question 228.

BCI deleted, as indicated [***]

Moody's report confirms only that EADS' improved baseline credit rating flows from the risk-sharing
aspect of LA/MSF, which the European Communities emphasizes, is equally present under market
alternatives such as risk-sharing supplier financing.
5807 Similarly, the European Communities argues
that the United States' reliance on the Moody's pr ess release from March 2007 is misplaced because,
in its view, the change in Moody's credit rating of EADS announced in this communication was
linked to Moody's conferral of "Government Re lated Issuer" status on EADS, not LA/MSF.
Moreover, according to the European Communities, M oody's decision to confer GRI status also itself
had nothing to do with LA/MSF, but rather with the fact that governments are shareholders in
EADS.5808 In any event, the European Communities consid ers that the effect of EADS' "classification
as a GRI" on its cost of capital is negligible, refe rring to two reports prepared by two banks that
examined its impact on EADS' bond yields, in support of its position.5809
7.2019 The United States asserts that according to its stated methodology, the aspect of Moody's GRI
analysis that relates to "government support" tak es into account only extraordinary subsidies in the
event of catastrophic failure of the business. According to the United States, Moody's explains that all
other "aspects of the entity's existing (or anticip ated) business model, including benefits (such as
regular subsidies or credit extension)" are incl uded within the "baseline risk assessment" as they
would be for any company. 5810 Thus, the United States contends that the ongoing impact of LA/MSF
is included in the baseline assessment of EADS , not the GRI-specific support factor on which the
European Communities focuses its ar gument. The United States recalls that Moody's 2003 statement
clearly shows that its baseline credit assessment of EADS is affected by LA/MSF.5811
7.2020 In our view, there is some logic to the Europ ean Communities' argument that the credit-rating
implications of the transfer of risk associated with LA/MSF could well be mirrored by those that
would flow from comparable market financing. As the European Communities notes, LA/MSF
involves the same transfer of risk from Airbus to the member State governments that would be
transferred through a comparable loan from a market based lender. However, we can see at least two
reasons why the European Communities' line of argument cannot apply to the circumstances before us
in this case. First, we have found that the inter est rates associated with market financing that is
comparable to LA/MSF would require Airbus to increase its loan repayments in respect of all
developed models of LCA, in some cases by significant margins.
5812 As we have noted above,
increased loan repayments would reduce Airbus' free cash flow, increase its debt, and therefore,
naturally, also adversely affect its credit rating. Second, the strength of the European Communities'
argument depends upon accepting that in the absence of LA/MSF, Airbus would have been able to
call upon risk-sharing suppliers to fund that portion of development costs of its LCA projects.
However, we have seen little eviden ce to suggest that this could have been a possibility, even for the
one-third of A380 development costs funded by LA/M SF, let alone for the earlier models of Airbus
LCA for which LA/MSF funded an even larger porti on of the development costs. Moreover, as we
have previously noted, information in the Air bus A380 business case undermines the contention that
the risk-sharing supplier contracts are an appropriate benchmark for market-based financing.
5813

5807 EC, Comments on US Answer to Panel Question 228.
5808 EC, SWS, paras. 1040-1042, citing Moody's Investor Service, EADS, 12 March 2007, Exhibit EC-
835.
5809 EC, SWS, para. 1043, referring to Exhibit EC-657 (BCI).
5810 US, Answer to Panel Question 228, referring to Moody's Investor Service, The Application of Joint
Default Analysis to Government Related Issuers, at 2, April 2005, Exhibit EC-836.
5811 US, Answer to Panel Question 228.
5812 See, para. 7.488 above.

BCI deleted, as indicated [***]

7.2021 Turning to the parties' arguments on the probative value of the various credit rating statements
relied upon by the United States, we agree with the European Communities that in the absence of any
evidence of the rating agencies' aw areness that LA/MSF is not granted on market terms, it is difficult
to conclude that they demonstrate that LA/MSF has in fact had any impact on EADS' credit rating that
could not also have been achieved from market fi nancing. The United States has not even asserted
that Moody's or Credit Suisse were aware of LA /MSF's non-commercial terms and conditions. Thus,
we are not convinced that the statements con cerning EADS' credit rating support the case the United
States is seeking to make.
7.2022 Nevertheless, as we have indicated above, on the basis of the other evidence and argument the
United States has advanced, it is clear to us that LA/MSF subsidies do have a positive impact on
Airbus' creditworthiness. In our view, this is most apparent from the evidence the United States has
submitted (and our own findings) on the effect that market-based financing for all of Airbus LCA
projects would have had on its level of cash flow and debt compared with its situation having received
LA/MSF.5814
7.2023 To the extent that LA/MSF improves EADS' cred itworthiness, the United States argues that it
also reduces its cost of capital and marginal cost of production, thereby enabling Airbus to be more
flexible on price. We do not understand there to be any dispute about whether better creditworthiness
results in a lower cost of capital. However, we are not convinced that th is will necessarily translate
into a reduction in the marginal cost of production. The United States has provided very little, if any,
explanation for why it considers this relationshi p would hold. In any case, even assuming the
United States were correct, we note that it has itself argued that Airbus [***].5815 In this respect, the
United States considers that the A380 business case demonstrates that Airbus' [***]. However,
nothing in the A380 business case [***].5816 Thus, even assuming that LA/MSF improves EADS'
creditworthiness, and thereby reduced its cost of cap ital and marginal cost of production, the United
States has failed to demonstrate that it necessarily al so led to Airbus winning the sales we have found
Boeing lost by enabling Airbus to offer a lower pri ce than it otherwise would have in those particular
sales campaigns. In this regard, we recall again th at the United States has failed to demonstrate that
Airbus actually undercut the price offered by Boeing in the competitions the United States relied upon
to demonstrate significant price undercutting as serious prejudice to its interests.5817
7.2024 Based on the foregoing, we consider that the United States has failed to demonstrate the effect
of LA/MSF on cost of capital was such that it le d Airbus to lower prices on LCA during the period
2001-2006. Therefore, we conclude that the United St ates has failed to demonstrate that an effect of
the subsidies is the significant price depression, price suppression and lost sales 5818 observed during
that period.

5814 See, paras. 7.2012 and 7.2020 above.
5815 US, FCOS, para. 59.
5816 A380 Business Case, pp. 21-27, Exhibit EC-362 (HSBI).
5817 Of course, this does not affect our conclusion that those same sales were lost to Boeing due to the
ability of Airbus to offer the particular LCA at issue at that time as a result of the subsidies in dispute.
5818 As above, see footnote 5794, our rejection of the United States' position that the effect of subsidies
to Airbus was lost sales by reason of price does not affect our determination that the United States has
demonstrated that those same lost sales were an effect of the subsidies through their effect on Airbus' ability to
launch LCA as and when it did, thereby making available LCA for those sales that it otherwise would not have
had.

BCI deleted, as indicated [***]

(iv) Conclusion
7.2025 For all of the foregoing reasons, and recalling our findings in respect of the Article 6.3
phenomena observed during the 2001 to 2006 period, 5819 we are satisfied that the specific subsidies
the United States has shown to exis t enabled Airbus to bring to the market LCA that it would not
otherwise have been able to develop and launch as and when it did, and thus caused displacement of
United States' imports of LCA from the EC market and of United States' exports from the markets of
certain third countries, as demonstrated in the data concerning market share before us. Furthermore,
we conclude that those subsidies caused lost sales of United States' LCA because, but for the
subsidies, Airbus would not have had available the LCA that it was able to sell to the customers at
issue in the sales we have found were lost by Boeing between the years 2001 and 2006. Thus, we
conclude that the United States has established th at the European Communities and the governments
of France, Germany, Spain, and the United Kingdo m have, through the use of specific subsidies,
caused serious prejudice to the United States' interests over the period 2001 to 2006 in the form of:
(i) displacement of United States' imports of LCA into the EC market, within the
meaning of Article 6.3(a) of the SCM Agreement;
(ii) displacement of United States' exports of LCA from the markets in Australia,
China, Brazil, Chinese Taipei, Korea, Mexico, and Singapore, within the
meaning of Article 6.3(b) of the SCM Agreement, and threat of displacement
of United States' exports of LCA from the market in India; and
(iii) lost sales of United States' LCA in th e same market, within the meaning of
Article 6.3(c) of the SCM Agreement.
7.2026 However, we find that the United States has not demonstrated that the specific subsidies at
issue, by allowing Airbus to launch and develop its family of LCA and thereby achieve a notable
presence in the LCA market, were also the cau se of the significant price depression and price
suppression we have observed in th e period 2001 to 2006. In a ddition, we conclude that the
United States has failed to demonstrate that the financ ial effect of the subsidies in dispute on Airbus
has enabled it to lower its prices so as to cause the significant price depression, price suppression and
lost sales we have observed in the period 2001 to 2006.
7.2027 We recall that, in addition to its claims of disp lacement of United States' imports into the EC
market, and of United States' exports from the ma rkets of certain third countries, on which our
conclusions are set out above, the United States asserted claims of impedance of United States'
imports into the EC market, and of United States' exports from the markets of certain third countries.
However, the United States did not assert specific ev idence or make specific arguments in support of
these claims in addition to its arguments concerni ng displacement. In the absence of a sufficiently
elaborated presentation of its claims in this respect, we find that United States has failed to
demonstrate that the effect of the subsidies in di spute was to impede United States' imports into the
EC market, and United States' exports from the mark ets of certain third countries, during the period
2001-2006.
7.2028 Finally, we recall that the United States asserted a claim of threat of serious prejudice with
respect to all the forms of serious prejudice it alleged in this dispute. However, with the exception of
evidence concerning threatened displacement of Un ited States' exports from the Indian market, the
United States did not assert specific evidence or make specific arguments in support of such a claim in
addition to its arguments concerning present serious prejudice. In the absence of a sufficiently

5819 See, paras. 7.1758, 7.1791, 7.1840, 7.1845 and 7.1861.

BCI deleted, as indicated [***]

elaborated presentation of its claim in this respect, we find that United States has failed to demonstrate
that the effect of the subsidies in dispute was a threat of serious prejudice, except as set forth above
concerning threatened displacement of United States' exports from the Indian market.
8. Alleged injury to the United States' industry producing LCA
(a) Overview of Parties' Arguments
(i) United States
7.2029 The United States argues that the provision of the challenged subsidies to Airbus by the
European Communities and the Airbus governments is inconsistent with Article 5 of the SCM
Agreement because the European Communities has, through the use of those subsidies, caused
adverse effects to the United States ' interests within the meaning of Article 5(a), that is, injury to the
United States' domestic industry. 5820 The United States further conte nds that the demonstrated intent
of the European Communities and the Airbus governments is to continue to provide subsidies to
Airbus that will perpetuate the adverse effects to the interests of the United States.
5821
7.2030 The United States notes that the SCM Agreement clarifies that the "term 'injury to the
domestic industry' is used in Article 5(a) in the same sense as it is used in Part V of the
Agreement."5822 The United States also notes that Articl e 16.1 of the SCM Agreement, which is in
Part V, defines the "domestic industry" as "the domestic producers as a whole of the like products" to
the imported subsidized product. The United States asser ts that the subsidized product in this dispute
is all Airbus LCA, 5823 that the like product is all Boeing LCA, 5824 and that the only LCA producer in
the United States at the present time is Boeing, which therefore constitutes the United States' domestic
industry.5825 Therefore, the United States considers that the question for the Panel under Article 5(a)
is whether subsidized imports of Airbus LCA into the United States have caused injury to Boeing's
LCA production in the United States, as defined in Article 15 of the SCM Agreement, including both
material injury to a domestic industry and threat of material injury to a domestic industry.5826
7.2031 The United States contends that the Panel must examine the factors set out in Article 15.1 of
the SCM Agreement, and determine whether subsidized imports of Airbus LCA into the United States
have caused injury to the United States' LCA industry. In this regard, the United States refers to the
Thailand – H-Beams case, where the Appellate Body explained that Article 3.1 of the Anti-Dumping
Agreement – which parallels Article 15.1 of the SCM Agreement – "is an overarching provision that
sets forth" the fundamental aspects of an injury analysis and "informs the more detailed obligations in
succeeding paragraphs."
5827 In particular, Article 15.1 provides that a determination of injury:
"shall be based on positive evidence and invol ve an objective examination of both (a)
the volume of the subsidized imports and the effect of the subsidized imports on

5820 US, FWS, para 707.
5821 US, FWS, para 708.
5822 US, FWS, para. 730.
5823 US, FWS, paras. 718-724.
5824 US, FWS, paras. 725-729.
5825 US, FWS, para. 731.
5826 US, FWS, para. 731.
5827 US, FWS, para. 732, citing, Appellate Body Report, Thailand – Anti-Dumping Duties on Angles,
Shapes and Sections of Iron or Non-Alloy Steel and H-Beams from Poland ("Thailand – H-Beams") ,
WT/DS122/AB/R, adopted 5 April 2001, DSR 2001:VII, 2701, para. 106.

BCI deleted, as indicated [***]

prices in the domestic market for like products and ( b) the consequent impact of these
imports on the domestic producers of such products."5828
The United States further contends that the Panel should examine the additional factors set forth in
Article 15.7, which the United States submits demonstr ate that subsidized imports threaten additional
injury to the domestic industry.5829

7.2032 The United States originally presented data and arguments concerning the factors set out in
Articles 15.1 and 15.7 of the SCM Agreement for the period 2001 – 2005. Subsequently, in its
second written submission and in response to questions from the Panel, the United States presented
additional information for 2006, while maintaini ng its view that the Panel should make its
determination of injury as of the time es tablishment of this Panel was requested, i.e., June 2005.
5830
The United States argued that improvement in Boeing's financial condition in 2006 did not
demonstrate a lack of current inju ry to the United States' LCA industry, but rather, demonstrated how
"relief from subsidized competition improves the fortunes" of that industry.5831
7.2033 The United States contends that the European Communities is legally incorrect in arguing that
the "effect of the subsidy" standard under Article 6. 3 also applies in the context of a material injury
inquiry under Article 5(a). 5832 In any event, however, the United St ates asserts that the effect of the
subsidies, as measured by changes in market sh are, lost sales, price undercutting, and price
suppression or depression in other markets or the world market is not dissimilar to the effect of the
subsidy as measured by changes in market share, lost sales, price undercutting, and price suppression
or depression in the US market. Thus, even if it were necessary to show, in a claim under
Article 5(a), that the material injury is not only, as required by Article 15.5, the effect of the
subsidized imports, but also the effect of the subsidies, the United States considers that, on the facts of
this case, the showing that the serious prejudice it ha s suffered is the effect of the subsidies applies,
mutatis mutandis, to the effects of the subsidies in the US market.
5833
(ii) European Communities
7.2034 The European Communities disputes the United Stat es' claim of injury to its domestic LCA
industry. The European Communities recalls its vi ew that there are multiple allegedly subsidized
products and corresponding like products for three of those allegedly subsidized products, and argues
that an injury claim must be made out with r espect to individual domestic industries producing each
like product. 5834 The European Communities contends th at the United States' failure to do so
constitutes a fatal flaw in its claim of material injury under Article 5(a) of the SCM Agreement. 5835
Assuming arguendo that an assessment of the United States ' claim of material injury could be
properly based on data pertaining to a single domes tic industry, comprising all of Boeing's LCA
business, the European Communities maintains that Boeing is not pr esently suffering any injury, let
alone "material" injury. 5836 Nor is there any evid ence that the effects of any subsidies to Airbus are

5828 SCM Agreement, Art. 15.1 (footnote omitted).
5829 US, FWS, para. 732.
5830 US, SWS, para. 736.
5831 US, SWS, para. 738.
5832 US, SWS, para. 741.
5833 US, SWS, paras. 739-41.
5834 EC, FWS, para 2159, footnote 2180.
5835 EC, FWS, para. 2137.
5836 EC, FWS, para. 2138. The European Communities also asserts, however, that "Boeing is
performing so well in all four of the LCA markets where Boeing LCA products are marketed, that it is irrelevant
whether the Panel examines a single or four different US domestic industries." Id., footnote 2180.

BCI deleted, as indicated [***]

causing Boeing material injury. Thus, the Europ ean Communities argues, there is no basis for the
United States' claims under Article 5(a) of the SCM Agreement.
7.2035 The European Communities disagrees with the United States' description of the legal standard
for establishing a material injury claim under Article 5(a) of the SCM Agreement. The European
Communities recognizes that Article 15 of the SCM Agreement defines the term "injury" to mean,
inter alia , "material injury to a domestic industry" or "threat of material injury to the domestic
industry," and that pursuant to footnote 11, the term "i njury" in Article 5(a) is used in the same sense
as in Part V, where the definition of injury is located in footnote 45. 5837 For the European
Communities, this confirms that the degree and nature of the "injury" covered by an Article 5(a) claim
must be "material." 5838 The European Communities asserts th at a claim under Article 5(a) involves
two cumulative steps: First, an assessment of wh ether the domestic industry of another Member is
suffering from "material injury;" and, second, an assess ment of whether any material injury is caused
by reason of the "use of any subsidy." 5839 The European Communities asserts that Article 15.4 of the
SCM Agreement provides contextual guidance for assessing whether there is "material injury" to the
domestic industry, by requiring an "evaluation of all relevant economic f actors and indices having a
bearing on the state of the industry," and setting out a non-exhaustive series of factors to be in
determining the state of the domestic industry.5840
7.2036 The European Communities submits that Article 5(a) of the SCM Agreement requires a
determination whether adverse effects in the form of material injury are caused by reason of the use of
any subsidy.5841 The European Communities bases this positi on on the view that the causal link in an
adverse effects case under Part III of the SCM Agre ement must be between the "effects", in this
context, alleged material injury, and the "use of any subsidy". The European Communities argues this
is necessary in order to give meaning to the text of Article 5(a), including the terms "cause," "use of
any subsidy" and "adverse effects", in the contex t of a material injury claim under Article 5(a). 5842
Thus, the European Communities disag rees with the United States' view that the question before the
Panel is whether the subsidized imports of Airbus LCA into the United States have caused injury to
Boeing's LCA production in the United States, arguing th at it must be the "use" of any subsidies that
"causes" the "effects."
7.2037 The European Communities asserts that, as it must in considering serious prejudice claims
under Article 5(c), in making an objective assessment of an injury claim under Article 5(a) a Panel
must consider the magnitude and nature of the ch allenged subsidies and how their use causes effects,
in this context material injury, in light of the c onditions of competition in the market or markets at
issue.5843 The European Communities contends th at the United States does not examine the
magnitude, age or nature of the subsidies in its Arti cle 5(a) claims, but rather labels as subsidized all
Airbus LCA imported into the United States, and then examines the effects of those imports in
asserting causation.
7.2038 The European Communities argues that contex tual guidance for interpreting the terms
"effects," "caused" by the "use" of subsidies in a cl aim of "material injury to a domestic industry of
another Member" is found in Article 15.5 of the SCM Agreement, which provides that "{i}t must be
demonstrated that the subsidized imports are, through the effects of subsidies, causing injury within

5837 EC, FWS, para. 2144.
5838 EC, FWS, para. 2145.
5839 EC, FWS, para. 2146.
5840 EC, FWS, para. 2147.
5841 EC, FWS, para. 2148.
5842 EC, FWS, para. 2148.
5843 EC, FWS, para. 2149.

BCI deleted, as indicated [***]

the meaning of this Agreement." 5844 The European Communities notes that footnote 47, appended to
the word "effects" in Article 15.5 in the SCM Agreem ent, states "{a}s set forth in paragraphs 2 and
4," and that Articles 15.2 and 15.4 refer to a variety of different forms of "effec ts" that are related to
"subsidized imports." Article 15.2 concludes by cau tioning that "{n}o one or several of these factors
can necessarily give decisive guidance." Further, Article 15.4 concludes with the statement that
"{t}his list is not exhaustive, nor can one or sev eral of these factors necessarily give decisive
guidance." Article 15.5 states that "{t}he dem onstration of a causal re lationship between the
subsidized imports and the injury to the domestic industry shall be based on an examination of all
relevant evidence before the aut horities." The European Communities then asserts that "all relevant
evidence" that must be considered in a dispute in volving Article 5(a) includes the magnitude, nature
and age of the alleged subsidies. 5845 The European Communities ar gues that the United States'
approach is flawed because it assumes that the eff ects of all the disputed subsidies are the same,
regardless of their magnitude, age or nature, as long as they subsidize the imports analyzed.
However, for the European Comm unities the causation question in a claim under Article 15(a) is not
solely whether subsidized imports cause material injury, but rather whether the effects of subsidies
(which may be manifest in subsidized imports) cause material injury.5846
7.2039 The European Communities also considers th at the provisions of Article 11.9 of the
SCM Agreement, which it asserts requires immedi ate termination in countervailing duty cases "where
the amount of a subsidy is de minimis …" and Article 15.3 of the SCM Agreement, which requires
that subsidized imports be excluded from an asse ssment of the effects on the domestic industry in a
countervailing duty case if the level of subsidization is de minimis, are important context for a Panel
in considering a claim under Article 5(a) of the SCM Agreement. 5847 The European Communities
considers that the United States' arguments on injury and causation under Article 5(a) fail to address
the "use" of any subsidies allegedly causing the effect of material injury. According to the European
Communities, Airbus imports, which at most benefit from subsidies of less than 1 percent ad valorem,
which are in the European Communities' view legally de minimis, cannot be presumed to cause lost
sales, price suppression or depression or displace ma rket share simply because they are minimally
subsidized.5848
7.2040 The European Communities considers that this interpretation of the causation requirement
under Article 5(a) is consistent with the causation re quirement for other type of adverse effects claims
under Articles 5(c) and 6.3 of the SCM Agreement. 5849 Thus, the European Communities argues,
while Articles 6.3(c), 6.3(d), 6.4 and 6.5 refer to a "subsidized product," demonstration of serious
prejudice requires proof that the "effect of the subs idy" is the cause of the various forms of serious
prejudice. The European Communities asserts that it would be anomalous for there to be two
completely different causation standards for a findi ng of adverse effects by the use of subsidies under
Article 5 of the SCM Agreement . The European Communities cons iders that in assessing the
question of causation under Article 5(a), the Pane l must distinguish the effects of the challenged
subsidies from the effects of imports that are subs idized to any degree. The European Communities
points to evidence it maintains demonstrates that, even assuming, arguendo, that Boeing is materially
injured, such injury is not cau sed by the effects of subsidies – i.e., their magnitude, nature and age in
the context of the competitive conditions in the various LCA markets.5850

5844 EC, FWS, para. 2151 (emphasis added by European Communities).
5845 EC, FWS, para. 2151.
5846 EC, FWS, para. 2153.
5847 EC, FWS, para. 2154.
5848 EC, FWS, para. 2156.
5849 EC, FWS, para. 2157.
5850 EC, FWS, para. 2157-58.

BCI deleted, as indicated [***]

7.2041 The European Communities argues, based on ev idence relating to financial and market
indicators, that Boeing's LCA division was performing remarkably well as of 2006, relying
principally on data for the period 2004 to 2006, but also referring to the period 2001 to 2006. In its
second written submission and in its answer to a Pa nel question, the European Communities provided
further information for 2007.
5851 The European Communities asserts that not only was Boeing in
excellent financial condition as of 2006 and in to 2007, but that it had achieved a dominant
competitive position vis-à-vis Airbus. On the basis of this evidence, the European Communities
asserts that the Panel should dismiss the United States' claims by finding that Boeing is not
"materially injured" and that there is no threat of material injury. 5852 The European Communities
concludes that, even assuming, arguendo, that Boeing is experiencing material injury, such material
injury or threat of material injury is not caused by the effects of any subsidies to the various Airbus
LCA families.5853
(b) Evaluation by the Panel
7.2042 In addressing the United States' claims of injury and threat of injury to the United States' LCA
industry, we will first address seve ral overarching issues, the resolution of which affects the entirety
of our analysis. We will then consider the ev idence and arguments presented by the parties on the
questions of material injury, threat of material injury, and causation.
(i) Preliminary issues
Domestic industry
7.2043 The parties' arguments raise several prelimin ary questions that must be considered and
addressed before we can consider their evidence a nd arguments on the question of injury, including
threat thereof. The first point of disagreement be tween the parties concerns the subsidized and like
products relevant to the Panel's analysis. As previously discussed, 5854 we have rejected the European
Communities' position that there are multiple alle gedly subsidized Air bus products and three
corresponding Boeing like products, and are consideri ng adverse effects, including the question of
injury to the United States' domestic LCA industr y, on the basis of the allegations of the United
States, i.e., that there is one subsidized product, all Ai rbus LCA, and one corresponding like product,
all Boeing LCA. We turn next to the identification of the relevant domestic industry.
7.2044 Article 16.1 of the SCM Agreement defines the domestic industry. It provides

5851 EC, SWS, paras. 1177- 1182; EC, Answer to Panel Question 261. We note that our question did
not, in fact, request additional or updated information from the European Communities in this regard. The
United States noted, in its comment on the EC Answer, that this information was "not responsive to the Panel's
question, which was limited to a clarification of the data through 2006 previously provided by the EC." US,
Comments on EC Answer to Panel Question 261, para. 86. We agree. While we could, in accordance with
paragraph 15 of our Working Procedures, exclude that information from the record of this dispute, as it was in
our view not "necessary for purposes of rebuttals or answers to questions" we have chosen not to do so, as we
had not yet expressed a view as to the relevant reference period and data to be considered when the European
Communities submitted the information. However, in light of our views set out in this report concerning the
appropriate reference period and data, we have not relied on data for 2007 in reaching our conclusions on the
United States' claim of injury. We take the same view with respect to data for 2007 (and 2008) submitted and
discussed by the European Communities in its Comments on the Panel and Appellate Body Reports in US –
Upland Cotton (Article 21.5 – Brazil) and its Comments on the US Comments on those Reports.
5853 EC, FWS, para. 2259
5854 See, paras. 7.1651 - 7.1668 and paras. 7.1671 - 7.1680 above.

BCI deleted, as indicated [***]

 "For the purposes of this Agreement, the term "domestic industry" shall,
except as provided in paragraph 2, be interpreted as referring to the domestic
producers as a whole of the like products or to those of them whose collective output
of the products constitutes a major proportio n of the total domestic production of
those products, except that when producers are related 48 to the exporters or importers
or are themselves importers of the allegedly subsidized product or a like product from
other countries, the term "domestic industr y" may be interpreted as referring to the
rest of the producers."
The text of Article 16.1 is explicit: the defin ition of domestic industry it sets forth applies "for
purposes of" the SCM Agreement. Thus, it is clear to us, from the plain meaning of the text, that the
definition of "domestic industry" should be the same in the context of assessing "injury to the
domestic industry" of a Member in an adverse effect s analysis under Article 5(a) as it would be in a
case under Part V of the SCM Agreement to determine material injury to a domestic industry in a
countervailing duty investigation. As the only producer in the United States of the like product LCA
during the relevant period, Boeing constitutes the w hole of the domestic industry in this dispute.
Thus, in this dispute, we shall be examining the question of material injury to Boeing.5856

Reference period
7.2045 Another point of disagreement between the par ties concerns the appropriate period to be
considered by the Panel in making its de termination. As previously discussed, 5857 it is clear that the
finding we are required to make is whether there are "present" adverse effects - in this context, present
material injury or present threat of material inju ry to the United States' LCA industry. It is, as a
practical matter, of course impossible to assess the "p resent" situation, as immediately current data is
not, and can never be, available as of the date of a pa nel's decision, and thus a review of the past is
necessary to draw conclusions concerning the present. Indeed, this is how investigating authorities in
the context of countervailing duty investigati ons under Part V of the SCM Agreement typically
proceed, and that practice has been approved in dispute settlement. 5858 However, there is no specific
guidance in the SCM Agreement concerning the pe riod for which data should be collected and
examined, either in the context of countervailing duty investigations, or specifically in the context of
Article 5(a). As previously discussed, 5859 we have determined not to make an a priori choice of
reference period in the context of our assessment of serious prejudice, but rather to examine the
evidence and arguments put forward by the United States, and the rebuttal evidence and arguments
presented by the European Communities, including recen t information where relevant and reliable, in
determining whether adverse effects have been demonstrated by the Un ited States. We consider that
the same approach is appropriate in the context of our assessment of the question of injury.

5855 Paragraph 2 of Article 16, which provides for the ex amination of regional industries is not relevant
here, and there are no allegations concerning related producers.
5856 In this respect, both parties agree that the domestic industry refers to the LCA Division of Boeing
Commercial Aircraft, which comprises the LCA opera tions of Boeing Corporation, and it is evidence
concerning that industry we will consider. See, US, Answer to Panel Question 239; EC, FWS, footnote 2173.
5857 See, paras. 7.1693 - 7.1694 above.
5858 Appellate Body Report, Mexico – Anti-Dumping Measures on Rice , para 166: "In order to
determine whether injury caused by dumping exists when the investigation takes place, "historical data" may be
used."
5859 See, paras. 7.1694 above.

BCI deleted, as indicated [***]

7.2046 In the context of its injury arguments, th e United States originally provided evidence
concerning the volume and market share of imports of Airbus LCA into the United States, pricing in
the United States' market for three models of Boeing LCA, the 737NG, 747, and 777, and the
condition of the United States' industr y, for the period 2001 through 2005, 5860 arguing that the Panel
should make its determination of injury as of the date of the Panel's estab lishment. The European
Communities provided information on various indicat ors of Boeing's performance for the period for
the period 2001 through 2006,5861 which the United States did not specifically accept, but the accuracy
of which it largely did not dispute, and upon which it did comment, and information relating to Airbus
orders and market share in the United States for that same period. 5862 The United States subsequently
provided updated information concerning imports an d market share for 2006, and pricing information
for the Boeing 737 in the United States' market update d to include data for 2006 in its second written
submission.5863
7.2047 In order to enable the Panel to make its deci sion on the basis of more recent data concerning
the United States' LCA industry, on 12 December 2 007, we requested the United States to update the
information it had provided concerning Boeing opera tions to include information for calendar year
2006, which the United States submitted on 22 January 2008. 5864 Thus, we continued to collect
relevant updated information even after the meetings with the parties, and provided the parties an
opportunity to comment on such information.5865
7.2048 We did not request any more recent informa tion beyond calendar year 2006, and have not
considered any such evidence su bmitted as relevant to our deci sion concerning material injury,
however, as we consider that it would be inappropri ate, and impractical, to continue gathering and
considering information concerning the operations of the United States' domestic industry, and
concerning the volume and market share of impor ts into the United States and prices in the
United States' market, without an opportunity for comment and arguments concerning such
information by the parties. The process of gath ering information and comment and argument by the
parties cannot continue indefinitely, even if that means that by the time our decision is issued, the
information on which we base our conclusions is not completely current. This is, however, a result of
the size and complexity of the case before us, and therefore in our view, does not undermine our
conclusions as to present adverse effects. We note that the first submission in this dispute was filed
in November 2006, and second submis sions were filed in May 2007, and the second meeting of the
Panel with the parties was held in July 2007. Thus , both parties had an opportunity to gather, present,
and comment on, information concerning calendar y ear 2006, including in their answers to questions
and comments thereon in January and February 2008. Our Working Procedures only allowed for the
submission of factual information after the first wr itten submissions "except with respect to evidence
necessary for purposes of rebuttals or answers to questions ... upon a showing of good cause." We do
not consider this to constitute a license to the par ties to continue to present new factual information
well after the second meeting of the panel with th e parties. Nor do we consider it imposes any
obligation on us to consider such information where it is not necessary to respond to our questions. In
our view, the end of 2006 is a reasonable cut-o ff date for information concerning the question of
injury to the domestic industry.

5860 US, FWS, paras. 733-734, Tables 2 and 3; paras. 741-744, Figures 1-3; para. 746, Table 4.
5861 EC, FWS, paras. 2162-2229 and tables therein.
5862 EC, FWS, paras. 2252-2255 and tables therein.
5864 US, Answer to Panel question 238.
5865 Answers to the Panel's third set of questions were submitted on 22 January 2008, and comments on
those answers were submitted on 8 February 2008, by both parties, and included additional evidence as
necessary to respond to those questions.

BCI deleted, as indicated [***]

7.2049 The European Communities, however, consider s that the United States must demonstrate
present material injury "in 2008, on the basis of the most recent complete and reliable data." 5866 The
European Communities asserts that, while in a coun tervailing duty case, it is justified to make a
determination on the basis of a fixed period of inves tigation ending just prior to the initiation of the
investigation, the situation is different in a dis pute under Part III of the SCM Agreement, implying
that we must consider data more recent than th at concerning 2006. We do not agree. While we
recognize that the passage of time while this complex dispute has been sub judice means that there is
a degree of historicity to a decision based on data no more recent than 2006, we consider that the
interests of due process, in allowing the parties an opportunity to comment on the information on
which we base our decision, justifies putting a period to the data we will consider as of the end of
2006.
7.2050 Moreover, unlike the situations in Mexico – Rice , a dispute concerning an anti-dumping
investigation relied on by the European Communiti es in this regard, the information we have
concluded it is appropriate to cons ider in this dispute is not from a period "remote" from the time of
our analysis and determination. In Mexico – Rice, the Panel and Appellate Body questioned the
relevance and pertinence of evidence from a period e nding fifteen months before the initiation of an
investigation and almost three years before the imposition of anti-dumping duties based on the finding
of material injury.
5867 The Appellate Body str essed that in that case, a prima facie case was
established that the information did not, in fact , provide reliable indications of current injury. 5868
Among the reasons for this conclusion were that th e investigation period had been proposed by the
petitioner seeking the imposition of anti-dumping duties, there were no practical problems
necessitating that period be considered, no attempt was made to update the information during the
course of the investigation, it was not established that updating the information was not possible, and
there were no reasons, other than general practic e of the investigative authority, why more recent
information was not sought.5869 Thus, the Appellate Body concluded, "it is not only the remoteness of
the period of investigation, but also these other ci rcumstances" that were the basis for the Panel's
conclusion that Mexico's selection of the period of investigation was in violation of its obligations
under the AD Agreement.5870
7.2051 The situation is very different here. As i ndicated above, we did seek, and the parties did
provide, updated information during the period the dispute was pending. Indeed, we did not, ab initio,
establish a particular time period for information to be considered in our determination. Although the
European Communities submitted information relating to even later periods than that which we
sought, we have concluded that it is not appropri ate to consider such information which is not
complete, and which was not subject to the op portunity for comment and argument in written
submissions and oral proceedings by both parties, except to the extent we re quested such information
ourselves.
7.2052 In addition, we note that in a countervailing (o r anti-dumping) case at the national level, the
remedy is the imposition of additional duties on all fu ture imports of the product in question after the
final determination.5871 Thus, the immediate and continuing eff ect of the remedy on imports of the

5866 EC, Comments on US Answer to Panel Question 240.
5867 Panel Report, Mexico – Anti-Dumping Measures on Rice , para. 7.58; Appellate Body Report,
para. 166.
5868 Appellate Body Report, Mexico – Anti-Dumping Measures on Rice , para. 167. However, the
Appellate Body made it clear that relying on evidence from a "remote investigation period" was not per se a
violation of Article 3.1 of the AD Agreement. Id.
5869 Appellate Body Report, Mexico – Anti-Dumping Measures on Rice, para. 167.
5870 Appellate Body Report, Mexico – Anti-Dumping Measures on Rice, para. 167.
5871 Collection of such duties continues until such time as the duty is removed as a result of changed
circumstances, or is not continued following a sunset review and consequently expires.

BCI deleted, as indicated [***]

product into the affected Member supports a conc ern that the remedy be necessary in light of the
current situation. By contrast, in an adverse e ffects dispute, the remedy under Article 7.8 of the
SCM Agreement is either the withdrawal of the subsid y, or the removal of the adverse effects. With
either of these remedies, there is no necessar y or immediate effect on imports of the product
concerned, and thus, in our view, less concern fo r a close conjunction between the data on which a
finding of injury is based and the date of imposition of the remedy.
7.2053 The United States argues that we are to make our determination concerning adverse effects
"as of" the date of establishment of this Panel, in September 2005, as in the United States' view, that is
the matter that is within our terms of reference. Thus, the United States argues that the question
before us is not whether the condition of Boeing, in terms of the factors to be considered in assessing
injury, has worsened sinc e 2005, but whether the information befo re us demonstrates material injury
to the United States' domestic industry. We agr ee that whether the condition of Boeing worsened
after 2005 is not determinative on the issue of material injury. Nonetheless, as previously
discussed,5872 we do not agree with the United States' view that we must make our determination of
injury as of the date of establishment of the Panel. We will therefore take into account information
for the period after the date of establishment, in order to make a determination of present adverse
effects in the form of injury that reflects (but is not necessarily determined by) the available
information through 2006.
Method of analysis
7.2054 Turning to the method of analysis the Panel should apply in assessing the question of injury,
the European Communities has posited that we must undertake a two-step inquiry, pursuant to which
we should examine the question of "material injury" first, and only if we find such injury, should we
go on to assess the question of causation of such inju ry. The United States has not directly addressed
the European Communities' arguments about the appr opriateness of a two-step analysis of material
injury and causation, but it has presented its claim by asserting that Boeing is materially injured, and
that subsidized imports are causing that material injury, indicating that the United States accepts that a
two-step analysis is appropriate. In order to address the European Communities' argument concerning
the nature of the analysis to be undertaken in considering the United States' claims of injury and threat
of injury, we will first review the relevant provision s of the SCM Agreement, to determine if that, or
indeed, any particular analytical approach, is required.
7.2055 This case is the first in which a Panel has b een asked to consider adverse effects under
Article 5(a) of the SCM Agreement, which provides:
"No Member should cause, through the use of any subsidy referred to in paragraphs 1
and 2 of Article 1, adverse effects to the interests of other Members, i.e.:
(a) injury to the domestic industry of another Member11;
We recall that Part V relates to the imposition of countervailing duties, which is only permitted if,
inter alia , the investigating authorities determine that subsidized imports are causing injury to the
domestic industry in the importing country producing the like product. Thus, in evaluating the United

5872 See, paras. 7.1714 - 7.1715 above.

BCI deleted, as indicated [***]

States' claim of injury to the dom estic industry in the sense of Artic le 5 of the SCM Agreement, we
are directed to Part V of that Agreement for guidance.

7.2056 Article 15 of the SCM Agreement, which is in Part V of the SCM Agreement, is entitled
"Determination of Injury", and includes a definition of the term "injury" in footnote 45, which states:
"Under this Agreement the term 'injury' sha ll, unless otherwise specified, be taken to
mean material injury to a domestic industry, threat of material injury to a domestic
industry, or material retardation of the establishment of such an industry and shall be
interpreted in accordance with the provision of this Article."
Article 15.1 is a general provision, which provides that a determinati on of injury shall be based on
"positive evidence" and involve an "objective examination" of the volume of subsidized imports, their
effect on prices in the domestic product for like products
5873 and the consequent impact of these
imports on the domestic producers of such products. Article 15.2 gives further guidance with regard
to the volume of subsidized imports, specifying that that the investigating authorities "shall consider"
whether there has been a significant increase in subs idized imports, either absolutely, or relative to
domestic production or consumption. With regard to price effects, Article 15.2 specifies that the
authorities shall consider whether there has been significant price undercutting, a significant degree of
price depression, or significant price suppression. With regard to the consequent impact of subsidized
imports, Article 15.4 sets out a series of factors regard ing the "state of the industry", which shall be
evaluated by the investigating authorities. The lis t is not exhaustive, and the provision makes clear
that no one or several of the factors listed can give decisive guidance. Article 15.7 sets forth several
additional factors which should be considered in maki ng a determination of threat of material injury,
which determination shall be based on facts, and not allegation, conjecture, or remote possibility.
Finally, Article 15.5 provides:

"It must be demonstrated that the subsidized imports are, through the effects
47 of
subsidies, causing injury within the meaning of this Agreement.
AD Agreement, Articles 3.1, 3.2, 3.4, 3.5, and 3.7, have been the subject of a number of disputes
concerning the decisions of domestic investiga ting authorities in anti-dumping investigations. 5875

5873 As previously discussed, the term "like product" is defined in footnote 46, which definition applies
throughout the SCM Agreement.
5874 Panel and Appellate Body Reports, United States – Countervailing Duty Investigation on DRAMS ;
Panel Report, Mexico –Olive Oil; Panel Report, EC – Countervailing Measures on DRAM Chips .
5875 Panel and Appellate Body Reports, Mexico - Anti-Dumping Measures on Rice ; Panel and
Appellate Body Reports, United States – Final Dumping Determination on Softwood Lumber from Canada –
Recourse to Article 21.5 of the DSU by Canada ("US – Softwood Lumber V (Article 21.5 – Canada)") ,
WT/DS264/AB/RW, adopted 1 September 2006, DSR 2006:XII, 5087, WT/DS264/RW, adopted
1 September 2006, reversed by Appellate Body Re port WT/DS264/AB/RW, DSR 2006:XII, 5147; Panel and
Appellate Body Reports, European Communities – Anti-Dumping Duties on Malleable Cast Iron Tube or Pipe
Fittings from Brazil ("EC – Tube or Pipe Fittings") , WT/DS219/AB/R, adopted 18 August 2003, DSR 2003:VI,
2613, WT/DS219/R, adopted 18 August 2003, as modified by Appellate Body Report WT/DS219/AB/R,
DSR 2003:VII, 2701; Panel and Appellate Body Reports, European Communities – Anti-Dumping Duties on

BCI deleted, as indicated [***]

Given that the text of the relevant provisi ons of the SCM and AD Agreements regarding
determination of injury is almost identical, we c onsider WTO dispute settlement reports concerning
the corresponding provisions of the AD Agreement to be equally relevant to our consideration of the
issues before us as reports concerning the SCM Agreem ent. Of course, the decisions of investigating
authorities in trade remedy cases are highly specific and dependent on the facts of the particular
investigation. Thus, the outcomes of disputes regardi ng those decisions with respect to issues of fact
provide little guidance to us in our review of the ev idence presented in this case. However, dispute
settlement reports with respect to interpretation of the SCM and AD Agreements, and concerning the
methods of analysis of injury and causation, are re levant and we will look to them for guidance in
considering the parties' arguments and our own analysis in this case.5876
7.2058 Not all the questions raised by the parties' arguments in this case have been addressed in
dispute settlement in trade remedy cases. For inst ance, no panel has directly addressed the question
whether a two-step analysis, as suggested by th e European Communities a nd used by the United
States in presenting its case, is appropriate (o r required) in a countervailing or anti-dumping duty
investigation.5877 Therefore, we do not consider it clearly established that a Panel considering injury
under Article 5(a), fulfilling essentially the same role in that context as an investigating authority in a

Imports of Cotton-Type Bed Linen from India – Recourse to Article 21.5 of the DSU by India ("EC – Bed Linen
(Article 21.5 – India) "), WT/DS141/AB/RW, adopted 24 April 2003, DSR 2003:III, 965, WT/DS141/RW,
adopted 24 April 2003, as modified by Appellate Body Report WT/DS141/AB/RW, DSR 2003:IV, 1269; Panel
and Appellate Body Reports, United States – Anti-Dumping Measures on Certain Hot-Rolled Steel Products from
Japan ("US – Hot-Rolled Steel"), WT/DS184/AB/R, adopted 23 August 2001, DSR 2001:X, 4697, WT/DS184/R,
adopted 23 August 2001 as modified by Appellate Body Report WT/DS184/AB/R, DSR 2001:X, 4769; Panel and
Appellate Body Reports, Thailand – Anti-Dumping Duties on Angles, Shapes and Sections of Iron or Non-Alloy
Steel and H-Beams from Poland ("Thailand – H-Beams") , WT/DS122/AB/R, adopted 5 April 2001, DSR
2001:VII, 2701, WT/DS122/R, adopted 5 April 2001, as modified by Appellate Body Report WT/DS122/AB/R;
Panel and Appellate Body Reports, Mexico – Anti-Dumping Investigation of High Fructose Corn Syrup (HFCS)
from the United States – Recourse to Article 21.5 of the DSU by the United States ("Mexico – Corn Syrup
(Article 21.5 – US)"), WT/DS132/AB/RW, adopted 21 November 2001, DSR 2001:XIII, 6675, WT/DS132/RW,
adopted 21 November 2001, as upheld by Appellate Body Report WT/DS132/AB/RW, DSR 2001:XIII, 6717;
Panel and Appellate Body Reports, European Communities – Anti-Dumping Duties on Imports of Cotton-Type Bed
Linen from India ("EC – Bed Linen") , WT/DS141/AB/R, adopted 12 March 2001, DSR 2001:V, 2049,
WT/DS141/R, adopted 12 March 2001, as modified by Appellate Body Report WT/DS141/AB/R, DSR 2001:VI,
2077; Panel Report, Egypt – Definitive Anti-Dumping Measures on Steel Rebar from Turkey ("Egypt – Steel
Rebar"), WT/DS211/R, adopted 1 October 2002, DSR 2002:VII, 2667; Panel Report, Korea –Certain Paper ;
Panel Report, E C – Salmon (Norway).
5876 We note in this regard the "Declaration on Dispute Settlement Pursuant to the Agreement on
Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 or Part V of the Agreement
on Subsidies and Countervailing Measures" adopted by Ministers at Marrakech, which provides that
"Ministers,
Recognize, with respect to dispute settlement pursuant to the Agreement on Implementation of
Article VI of GATT 1994 or Part V of the Agreement on Subsidies and Countervailing
Measures, the need for the consistent resolution of disputes arising from anti-dumping and
countervailing duty measures."
Since the term "injury" is used in Article 5(a) in the same sense as in Part V of the SCM Agreement,
we consider that this injunction suggests that a similarly consistent resolution in dispute settlement under
Article 5(a) is appropriate where possible.
5877 Indeed, this topic has been the subject of proposals in the current round of negotiations on the
AD Agreement, which suggests that it is not established that such analysis is a requirement under either the AD
or SCM Agreement as presently in force. See, Working Document from the Chairman, document TN/RL/232
(28 May 2008), Annex A, setting forth a consolidati on of text-based proposals submitted to the Rules
Negotiating Group on anti-dumping issues up to November 2007. An earlier compilation of proposals can be
found in document TN/RL/W/143 (22 August 2003), with references to the documents containing the proposals
submitted by Members.

BCI deleted, as indicated [***]

countervailing duty or antidumping investigation, must first consider the question of injury, and only
if it finds such injury, go on to consider whether the necessary causal link can be established.
However, by the same light, in the absence of any clear obligations in this regard, in our view, nothing
precludes us from undertaking such an analysis, that is, considering first the question of injury, and
only turning subsequently to the question of causatio n of such injury, if it was found to exist in the
first step. As neither party has argued that we should apply a different method of analysis, and as
nothing in the SCM Agreement precludes such an analysis, we consider it unnecessary to opine
definitively on the question of the nature of the causal analysis to be undertaken in considering
material injury to a domestic industry. In addition, we understand that a two-step analysis of injury
and causation is commonly employed by investigating authorities in the context of countervailing
duty investigations. In light of our view that analys is of injury under Article 5(a) should be consistent
with analysis under Part V of the SCM Agreement, we conclude that we may appropriately undertake
a two-step analysis of injury and causation in this dispute.
Injury caused by subsidized imports, or injury as the effects of the subsidy
7.2059 A further, and critical, point of disagreement be tween the parties concerns the issue of what
must be found to be causing injury to the United States' LCA industry in order for the United States to
prevail on its claim of adverse effects under Article 5(a). The parties have taken sharply different
positions regarding the agent of causation. The European Communities argues that the "effect" of
injury must be caused by the "use of the subsidies".5878 The United States contends that the European
Communities wrongly seeks to read the "effect of the s ubsidy" standard of Article 6.3 into a material
injury inquiry under Article 5(a), 5879 arguing that Article 15.5 requires that the material injury be the
effect of subsidized imports.5880
7.2060 This is an issue that has not previously been addressed by any panel or the Appellate Body,
since, as we have noted, this is the first dispute under Part III of the SCM Agreement in which a claim
of injury under Article 5(a) has b een raised. In our view, the European Communities' attempt to read
the "effect of the subsidy" standard set out in Artic le 6.3 into the context of an injury inquiry under
Article 5(a) is legally incorrect.
7.2061 Considering the text of the SCM Agreement in this regard, we note that the chapeau of
Article 5 provides that "No Member should cause, th rough the use of any subsidy" adverse effects,
including those set out in Article 5(a), i.e., "injury to the domestic industry of another Member".
Footnote 11 to Article 5(a) specifies that the term "i njury to the domestic industry is used in the same
sense as in Part V of the SCM Agreement". Thus, the text of Article 5 specifically references Part V
of the SCM Agreement with respect to defining the term "injury" as used in Article 5(a).
7.2062 Part V, of course, governs the imposition of countervailing duties, including various
procedural and substantive issues in the investiga tions that must be undertaken and determinations
that must be made by national investigating aut horities before such imposition can be justified.
Article 15, which is in Part V of the SCM Agreem ent, sets out the criteria for a "determination of
injury", and in doing so, refers repeatedly to consideration of subsidized imports. For instance,
Article 15.1 refers to the "volume of the subsidized imports", the "effect of the subsidized imports on
prices" and the "consequent impact of these imports". Article 15.2 refe rs to the "volume of the

5878 EC, FWS, paras. 2144-2158.
5879 US, SWS, para. 741.
5880 US, SWS, para 740. The United States goes on to assert that, were it required to make a showing
that material injury is the effect of the subsidies in dispute, "on the facts of this case, the showing that the
serious prejudice is the eff ect of the subsidy applies, mutatis mutandis, to the effects of th e subsidy in the U.S.
market." Id.

BCI deleted, as indicated [***]

subsidized imports", a "significant increase in subs idized imports", "the effect of the subsidized
imports on prices", "significant price undercutting by the subsidized imports" and "the effect of such
imports". Article 15.4 refers to "The examinati on of the impact of the subsidized imports on the
domestic industry". Article 15.5 refers to the "cau sal relationship between the subsidized imports and
the injury to the domestic industry" and requires that injuries caused by "any known factors other than
the subsidized imports ... must not be attributed to the subsidized imports". Article 15.8 refers to
"cases where injury is th reatened by subsidized imports." In our view, these repeated references
strongly imply that the "something" which must cause injury for purposes of Article 15 is the
subsidized imports. It seems to us that, if we ar e to apply the term "injury to the domestic industry"
consistently with Article 15 in this dispute under Article 5(a), the same causal factor, i.e., the
subsidized imports, should be considered in asse ssing the question of causation in both contexts.
Thus, we conclude that for purposes of determining whether there are adverse effects in the sense of
injury under Article 5(a) of the SCM Agreement, we must examine whether subsidized imports, in
this case, subsidized Airbus LCA imported into the United States, are causing injury to the
United States' domestic LCA industry.
7.2063 The single reference to "effects of subsidies" in Article 15 is in Article 15.5, which provides,
in pertinent part:
"It must be demonstrated that the subsidized imports are, through the effects 47 of
subsidies, causing injury within the meaning of this Agreement.
Appellate Body reports in a recent dispute dealt sp ecifically with the meaning of footnote 47 in the
context of a countervailing duty investigation un der Article 15.5, and addressed and rejected
essentially the same argument as that made by the European Communities in this dispute.
7.2065 In that dispute, Japan – DRAMs, Korea argued that the Japanese investigating authority acted
inconsistently with, inter alia , Article 15.5 by failing to demonstrate that subsidized imports were
causing injury "through the effects of subsidies" , because while it considered the volume and price
effects of those imports, it did not demonstrate that the volume and prices of those imports, and their
consequent impact on the domestic i ndustry, were affected by the subsidies in a manner sufficient to
cause injury. Korea argued that if an investigating authority could not demonstrate that the subsidies
altered the volume or price of the imports, there was no basis for a finding that injury caused by those
imports occurred "through the effects of the subsidies".5882
7.2066 The panel rejected Korea's view. The panel conc luded that "the ordinary meaning of the first
sentence of Article 15.5 and its acco mpanying footnote is to define the phrase "through the effects of
subsidies" to mean the effects of subsidized im ports ("{a}s set forth in Article 15.2 and 15.4")". 5883
The panel found that Article 15.5 could not be read to mean, as Korea contended, that "it must be
demonstrated that the subsidies are causing injury through the effects of subsidized imports ", as
Articles 15.2 and 15.4, referred to in the footnote, indi cate that consideration must be of the effects of

5881 EC, FWS, para 2151.

BCI deleted, as indicated [***]

the subsidized imports, and not the subsidy. 5884 The panel also rejected Korea's argument that the
"through the effects of subsidies" language of Article 15.5 should be interpreted as requiring the same
type of causation analysis as panels have develope d under the "effect of the subsidy" language in
Article 6.3 of the SCM Agreement. The panel noted, as the US – Upland Cotton Panel had found,
that references in Articles 5(c) and 6.3(c) to the "effect of the subsidy" contrast with the language used
in the countervailing duty provisions in Part V of the Agreement."5885
7.2067 The Appellate Body came to the same conclusion, stating that:
"Article 15.5 as a whole deals with the causal relationship between subsidized
imports and injury to the domestic industry. ... By virtue of footnote 47 to
Article 15.5, which forms an integral part of the first sentence, the demonstration of
the causal relationship envisaged in the firs t two sentences of Article 15.5 is to be
carried out by following the analysis set fo rth in Articles 15.2 and 15.4 for examining
the 'effects' of the subsidized imports. According to these paragraphs, such an
examination will comprise of: (i) whethe r there has been a significant increase in
subsidized imports; (ii) the effect of the subsidized imports on prices; and (iii) the
consequent impact of the subsidized imports on the domestic industry."5886
Thus, the Appellate Body concluded that it was:

"clear from the architecture of Articles 15.2, 15.4, and 15.5 that, for determining
whether the 'subsidized imports are, throug h the effects of subsidies, causing injury'
to the domestic industry, what is required is the examination of the effects of the
subsidized imports as set forth in Articl es 15.2 and 15.4. These paragraphs neither
envisage nor require the two distinct typ es of examinations suggested by Korea,
namely, an examination of the effects of the subsidized imports as per Articles 15.2
and 15.4; and, a second examination of th e effects of the subsidies... . {I}f an
investigating authority carries out the examination required under Articles 15.2, 15.4,
and 15.5, such examination suffices to demonstrate that 'subsidized imports are,
through the effects of subsidies, causi ng injury' within the meaning of the
SCM Agreement."
5887
7.2068 We agree with this view, and consider that it a pplies equally to our analysis in this case. In
our view, the term "injury to the domestic industry" , which we are to apply in the same way under
Article 5(a) as an investigating authority would in the context of a countervailing duty investigation,
includes the question of causation. Thus, we consider that a consistent interpretation of the concept of
"injury to the domestic industry" requires us to examine, in considering causation, the effects of
subsidized imports as set forth in Articles 15.2 and 15.4 in our analysis of material injury under
Article 5(a). Any other conclusion would, we be lieve, inappropriately establish a different legal
standard and obligations for analysis of injury in the context of Part III from that developed under
Part V of the SCM Agreement, which in our view would be contrary to footnote 11.
7.2069 In addition, as the United States notes in respon se to the European Communities, Article 6.3,
by its terms, defines conditions in which "seri ous prejudice" may arise, not conditions in which

5884 Panel Report, Japan – DRAMs, para. 7.411 (emphasis in original).
5885 Panel Report, Japan – DRAMs, para. 7.419, citing Panel Report, US – Upland Cotton, para. 7.1227
and footnote 1346.
5886 Appellate Body Report, Japan – DRAMs, paras. 262-63.
5887 Appellate Body Report, Japan – DRAMs, paras. 264, 268.

BCI deleted, as indicated [***]

"material injury" may arise. 5888 We agree with the United States that if the drafters of the
SCM Agreement had intended the causation aspects of Article 6.3 to apply to claims of adverse
effects in the form of injury under Article 5(a), they would not have used only the term "serious
prejudice" in the chapeau of Article 6.3. The use of the term "serious prejudice" alone suggests that
the provisions of Article 6.3 do not apply when co nsidering other forms of adverse effects, which,
include injury, in the sense of Part V of the SC M Agreement, under Article 5(a), and nullification and
impairment under Article 5(b).
7.2070 With respect to the latter, we note that foot note 12 to Article 5(b) of the SCM Agreement
provides:
"{t}he term 'nullification or impairment' is used in this Agreement in the same sense
as it is used in the relevant provisions of GATT 1994, and the existence of such
nullification or impairment shall be esta blished in accordance with the practice of
application of these provisions."
Unlike the question of injury under Part V of the SCM Agreement, there is no methodological
guidance in the text of GATT 1994 on the determin ation of nullification or impairment. This
explains, in our view, why there is a specific refere nce to "practice" in the application of nullification
and impairment provisions in footnote 12. On the other hand, Part V of the SCM Agreement contains
extensive, albeit not complete, methodological guidan ce on the determination of injury, including the
question of causation.

7.2071 In response to a question from the Panel on a related matter, the European Communities
reiterated its view that a claim of injury under Artic le 5(a) can only be made out if the "use of any
subsidy" causes that injury, relying in th is regard on the chapeau of Article 5.
5889 According to the
European Communities, its position is consistent with the views of the Appellate Body in Japan-
DRAMS referring to the fact that the Appellate Body relied in part on the differences between Part III
and Part V of the SCM Agreement in concluding that there was no basis for importing the specific
obligations of Part III into the provisions of Part V. 5890 However, in our view, footnote 11 clearly not
only provides a basis for, but indeed obliges a panel to apply Part V, and all the obligations in
Article 15, including with respect to causation, in an analysis of injury under Part III. That footnote
specifically incorporates the meaning of the term "injury to the domestic industry" as set out in Part V
into Part III (Article 5(a)), and thus in our view incorporates into Part III of the SCM Agreement the
obligations with respect to determination of inju ry, including those relevant to determining causation
of injury, set out in Part V of the SCM Agreement. There is no similar provision even suggesting,
much less requiring, the application of the obligat ions of Part III in disputes under Part V of the
SCM Agreement, as noted by the Appellate body in Japan-DRAMS. Thus, we consider that unlike
that case, here there is a sound legal basis in the text of the SCM Agreement itself for our conclusion
that the obligations concerning determinations of injury under Part V of the SCM Agreement,
including the consideration of subsidized imports as the causal factor, apply in the analysis of claims
under Article 5(a) of Part III.
7.2072 On the basis of the foregoing, we reject th e European Communities' view that in an
examination of injury under Article 5(a), we must determine whether the use of the subsidies in
dispute cause the effects asserted to demonstrate the ex istence of injury. Rather, we consider that an
examination of the effects of subsidized imports, as set forth in Articles 15.2 and 15.4, is appropriate.
As the Appellate Body has concluded, this is what is required in an assessment under Article 15 of the

5888 US, SWS, para. 742.
5889 EC, Answer to Panel Question 284.
5890 EC, Answer to Panel Question 284, citing Appellate Body Report, Japan – DRAMS, para. 272.

BCI deleted, as indicated [***]

SCM Agreement, and therefore, in our view, is also what is required in an assessment under
Article 5(a).
7.2073 We recall that we have concluded that the subsid ized product at issue in this dispute is all
Airbus LCA.5891 Therefore, in assessing the effects of subsidized imports, we will consider the effects
of all Airbus LCA imported into the United States.
7.2074 The European Communities argues that we must consider the nature and effect of the
subsidies, and their magnitude, in evaluating the questi on of injury, in order to ensure that any injury
found is an effect of the subsidies. As we have just discussed, we do not agree that our analysis
should focus on the effects of the subsidies, but rather should focus on the effects of the subsidized
imports on the United States' LCA industry. Thus, for purposes of our injury analysis, it is in our
view not necessary to consider whether the nature and effect of the subsidies in dispute is such as to
cause material injury. The nature and effects of th e subsidies are not, independently, an element to be
addressed in our analysis of injury, except as may be relevant in the context of threat of injury, in light
of Article 15.7(i) of the SCM Agreement.
7.2075 With respect to the magnitude of the subsidi es, we have a similar view. The European
Communities asserts that the ad valorem level of subsidy for imports of A320 LCA into the United
States was de minimis in 2006, and similarly low in previous years, and that "{t}hese Airbus imports
or sales cannot be presumed to cause lost sales, pr ice suppression, or displaced market share simply
because they are marginally "subsidized"." 5892 We note that the Eu ropean Communities does not
make similar assertions with respect to imports of other models of Airbus LCA, although it has
undertaken to calculate an ad valorem subsidy rate with respect to LA/MSF and R&TD subsidies for
Airbus LCA over the period 1999-2006, and argues that these subsidies are de minimis in the context
of arguing that the subsidies do not cause the serious prejudice alleged by the United States. 5893 Thus,
to the extent the European Communities makes arguments con cerning causation specific to the
question of material injury, as opposed to its argument s with regard to the effect of the subsidies in
dispute more generally, it appears to contend that th e magnitude of the subsidies benefiting imports of
Airbus LCA into the United States is too small to cause or threaten material injury.
7.2076 We do not, however, consider it necessary to consider the ad valorem rate of subsidization on
a per aircraft basis in evaluating the United States' cl aim of injury and threat of injury, even assuming
we were satisfied with the European Co mmunities' calculations in this regard. 5894 There is nothing in
the text of Article 15 linking the magnitude of the su bsidy to the question of injury or the assessment
of causation. This is in contrast to Article 3. 4 of the AD Agreement, which includes "the magnitude
of the margin of dumping" as a relevant factor that must be evaluated in examining the question of
injury. There is no corresponding provision with respect to the magnitude of the subsidy in the
parallel provision, Article 15.4, of the SCM Agreem ent, suggesting that there is no linkage between
the amount of subsidy and the determination of materi al injury caused by subsidized imports. It is
true that Article 11.9 provides that an application sh all be rejected and an investigation terminated if

5891 See, para. 7.1668 above.
5892 EC, FWS, para. 2156
5893 EC, FWS, para. 1624; ITR report, Exhibit EC-1 3)(BCI/HSBI). Rates ar e calculated for A318,
A319, A320, A321, A330-200, A330-300, A340-300, A340-500, A340-600, and A380 model LCA. The
European Communities refers to the allegedly de minimis level of subsidization repeatedly in arguing that the
alleged adverse effects are not the effect of the subsidies in dispute, e.g., paras. 1800, 1855, 1913, 1937, 1977,
2010, 2062, 2088, 2100, 2120, 2128, 2134. Although we conclude that the magnitude of subsidization is not a
relevant consideration in the context of our injury an alysis, we note that we have rejected the European
Communities' calculations as an appropriate basis for considering the magnitude of the subsidies in the context
of our analysis of serious prejudice. See, paras. 7.1969 - 7.1972 above.
5894 See, paras. 7.1969 - 7.1972 above.

BCI deleted, as indicated [***]

the level of subsidization is de minimis, which is defined as a level of subsidization of 1 percent ad
valorem.5895 However, it is clear from previous dispute settlement that there is no basis for the
proposition that a de minimis subsidy is non-injurious, even in the context of a countervailing duty
investigation:
"there is nothing in Article 11.9 to suggest that its de minimis standard was intended
to create a special category of " non-injurious" subsidization, or that it reflects a
concept that subsidization at less than a de minimis threshold can never cause
injury. For us, the de minimis standard in Article 11.9 does no more than lay down
an agreed rule that if de minimis subsidization is found to exist in an original
investigation, authorities are obliged to term inate their investigation, with the result
that no countervailing duty can be imposed in such cases." 5896
As the Appellate Body has noted, "injury is not de fined in the SCM Agreement in relation to any
specific level of subsidization".5897

7.2077 Thus, in our view, an evaluation of injury fo r purposes of Article 5(a) of the SCM Agreement
does not require consideration of the magnitude of the subsidy, because the question to be answered is
not whether the subsidy(ies) cause injury, but whethe r the subsidized imports, that is, the imports of
the subsidized product, do so. We have determin ed in this case that the subsidized product is all
Airbus LCA, and we will proceed to examine th e question of causation by imports of subsidized
Airbus LCA into the United States according to the guidance set out in Article 15 of the
SCM Agreement, and relevant dispute settlement reports.5898
Evidence
7.2078 With respect to the analysis of evidence, we note Article 15.1 of the SCM Agreement, which
provides:
"{a} determination of injury for purposes of Article VI of GATT 1994 shall be based
on positive evidence and involve an objective examination of both (a) the volume of
the subsidized imports and the effect of the subsidized imports on prices in the
domestic market for like products and (b) the consequent impact of these imports on
the domestic producers of such products. (footnote omitted)."
7.2079 In the context of countervailing (and anti-du mping) determinations of investigating
authorities, panels have made clear that an investig ating authority must ensure that its determination
of injury, and specifically its findings under Artic les 15.2, 15.4 and 15.5 of the SCM Agreement, are

5895 The AD Agreement contains a similar provision in Article 5.9.
5896 Appellate Body Report, United States – Carbon Steel, para. 83.
5897 Appellate Body Report, United States – Carbon Steel, para. 81.
5898 We note that footnote 35 of the SCM Agreement specifies that
"{t}he provisions of Part II or III may be invoked in parallel with the provisions of Part V;
however, with regard to the effects of a par ticular subsidy in the domestic market of the
imposing Member, only one form of relief (either a countervailing duty, if the requirements of
Part V are met, or a countermeasure under Articles 4 or 7) shall be available."
The availability of the two tracks simultaneously suggests to us that it is not precluded that one track
might yield an affirmative result, resulting in relief, while the other does not. Thus, while a level of
subsidization that is de minimis would, in the case of a countervailing duty investigation, preclude the
imposition of countervailing measures on imports of the subsidized product, we see nothing in the
SCM Agreement that would preclude, as a matter of law, an affirmative determinat ion of adverse effects,
including injury, with respect to subsidies benefiting that product in a dispute under Part III.

BCI deleted, as indicated [***]

made on the basis of "positive evidence" and involve an "objective examination." 5899 In this regard,
the Appellate Body has interpreted "positive evidence" as follows:
"{t}he term 'positive evidence' relates, in our view, to the quality of the evidence that
authorities may rely upon in making a determin ation. The word 'positive' means, to
us, that the evidence must be of an affirma tive, objective and verifiable character, and
that it must be credible."5900

We also note that the Appellate Body has defined an "objective examination":

"{t}he term 'objective examination' aims at a different aspect of the investigating
authorities' determination. While the te rm 'positive evidence' focuses on the facts
underpinning and justifying the injury determ ination, the term 'objective examination'
is concerned with the investigative process it self. The word 'examination' relates, in
our view, to the way in which the evidence is gathered, inquired into and,
subsequently, evaluated; that is, it rela tes to the conduct of the investigation
generally. The word "objective", which qualifies the word 'examination', indicates
essentially that the 'examination' process must conform to the dictates of the basic
principles of good faith and fundamental fairness."
5901 (footnote omitted)

The Appellate Body summed up the requirement to conduct an "objective examination" as follows:

"an 'objective examination' requires that th e domestic industry, and the effects of
{subsidized} imports be investigated in an unbiased manner, without favouring the
interests of any interested party, or group of interested parties, in the investigation.
The duty of the investigating authorities to conduct an 'objective examination'
recognizes that the determination will be influenced by the objectivity, or any lack
thereof, of the investigative process."
5902

We also note that the Appellate Body in Thailand – H-Beams confirmed the fundamental nature of
Article 3.1 of the AD Agreement, which is the parallel provision to Article 15.1, as a guiding principle
underlying all aspects of an injury determination.

"Article 3 as a whole deals with obligations of Members with respect to the
determination of injury. Article 3.1 is an overarching provision that sets forth a
Member's fundamental, substantive obligation in this respect. Article 3.1 informs the
more detailed obligations in succeeding pa ragraphs. These obligations concern the
determination of the volume of dumped imports, and their effect on prices
(Article 3.2), investigations of imports from more than one country (Article 3.3), the
impact of dumped imports on the domestic industry (Article 3.4), causality between
dumped imports and injury (Article 3.5), the assessment of the domestic production
of the like product (Article 3.6), and the determ ination of the threat of material injury
(Articles 3.7 and 3.8). The focus of Article 3 is thus on substantive obligations that a
Member must fulfil in making an injury determination."
5903 (emphasis in original)

5899 Panel Report, EC – Countervailing Measures on DRAM Chips, para. 7.272.
5900 Appellate Body Report, US – Hot-Rolled Steel, para. 192.
5901 Appellate Body Report, US – Hot-Rolled Steel, para. 193.
5902 Appellate Body Report, US – Hot-Rolled Steel, para. 193.
5903 Appellate Body Report, Thailand – H-Beams, para. 106.

BCI deleted, as indicated [***]

7.2080 Like previous panels and the Appellate Body in the trade re medies context, we understand
Article 15.1 of the SCM Agreement as an overarc hing provision which info rms the more detailed
obligations set forth in the remainder of Article 15 of the SCM Agreement. Since in this case we are
essentially fulfilling the role that would be taken by the investigating authority in a countervailing or
anti-dumping duty investigation, this means that we must base our examination and determination
with respect to injury on positi ve evidence and an objective examination of the various injury
elements as required by the more specific provisions of Article 15.
7.2081 With the foregoing in mind, we consider belo w the evidence and arguments presented by the
parties in support of their contentions regarding injury and threat of injury.
(ii) Material injury
7.2082 As discussed above, we have concluded that it is appropriate to undertake a two-step analysis
of the question of injury, that is, to determine in the first instance whether the condition of the United
States' LCA industry is such as to ju stify a conclusion that it is materi ally injured. Only in the event
that we find in the affirmative on this question and conclude that the United States' industry producing
LCA is materially injured will it be necessary for us to go on to determine whether such material
injury is caused by the subsidized imports, in view of the volumes and price effects of such imports
and their consequent impact on the domestic industry. Therefore, we consider it appropriate to first
analyze the information before us relevant to the condition of the United States' LCA industry, that is,
Boeing, before considering developments in the vol ume and prices of subsidized imports. The latter
information is, in our view, more re levant to consideration of the ques tion of causation of injury than
to consideration of the question of whether material injury exists.
Condition of the United States' LCA industry
7.2083 Article 15.4 of the SCM Agreement provides that an examination of injury within the
meaning of Article 15:
"shall include an evaluation of all rele vant economic factors and indices having a
bearing on the state of the industry, including actual and potential decline in output,
sales, market share, profits, productivity, return on investments, or utilization of
capacity; factors affecting domestic prices; actual and potential negative effects on
cash flow, inventories, employment, wages, growth, {and} ability to raise capital or
investments . . . . This list is not exhaustive, nor can one or several of these factors
necessarily give decisive guidance."

These factors all bear on the performance or condition of the domestic industry, and thus inform our
judgment concerning whether the industry is in a co ndition which can be termed material injury. In
this regard, we note that there is no elaboration of the word "material" in the SCM Agreement, and
thus no standard for determining whether a particular degree of "injury" is material. In our view, the
determination whether a particular degree of inju ry, as evidenced by the Article 15.4 factors, is
"material" is fact-specific in each case, depending on the nature of the product and the industry in
question. Developments in various of the relevant factors, such as fo r instance a particular decline in
production, sales, or profit levels, that in one indus try may support a finding of material injury, may
not in another industry. Thus, our determinati on must be based on an overall evaluation of the
condition of the industry before us, taking into account the particularities brought to our attention
concerning its operations and the re lative importance of the relevant factors with respect to its
performance.

BCI deleted, as indicated [***]

7.2084 In our view, it is clear that it is not necessary that all relevant factors, or even most or a
majority of them, must show declines in order to make a finding of injury. As the text of the
Article 15.4 makes clear, no one or several factors can necessarily give decisive guidance. In our
view, this means that an overall evaluation of the in formation, in context, is necessary, as well as an
explanation of how the facts support the determination.
5904 But this does not mean that injury may not
be found in the case of an industry whose performance is improved or improving. The outcome of the
inquiry will depend on the particular facts and the particular industry.
7.2085 The United States provided the following data on the Article 15.4 factors for Boeing's United
States' production operations for LCA.5905

5904 See, Panel Report, Mexico – Olive Oil , para. 7.372. We note that the factual circumstances in
which injury may or may not be found are also the subject of proposals in the Rules Negotiations. See, Working
Document from the Chairman, document TN/RL/232 (28 May 2008), Annex A, setting forth a consolidation of
text-based proposals submitted to the Rules Negotiating Group on anti-dumping issues up to November 2007.
An earlier compilation of proposals can be found in document TN/RL/W/143 (22 August 2003), with references
to the documents containing the proposals submitted by Members.
5905 The United States originally presented informa tion on these factors for the period 2001-2005, US,
FWS, Table 4, para. 746. The United States subsequently presented the updated information reproduced in the
text in answer to a question from the Panel. US, Answer to Panel question 238, para. 81, table 2.

BCI deleted, as indicated [***]

Table 42 – Trends in Boeing's LCA Operations (US data)5906

2001 2002 2003 2004 2005 2006
Production (aircraft) 518 377 273 280 284 387
Capacity Utilization5907 [***]% [***]% [***]% [***]% [***]% [***]%
Sales (US dollars,
millions)5908
35,056 28,387
27,202
22,408
21,380
21,037
19,925
22,651
21,365

28,465
Operating income (US
dollars, millions)
1,911 2,107 707 753 1,432 2,733
Return on assets [***]% [***]% [***]% [***]% [***]% [***]%
Cash flow (US dollars,
millions)5909

Employees [***] [***] [***] [***] [***] [***]
Wages paid (US dollars,
millions)5910

Productivity (US dollars,
thousands)5911

7.2086 The United States did not submit information on in ventories, because, with rare exceptions,
Boeing produces to order and does not carry inventories of unsold aircraft.5912 With respect to "ability
to raise capital or investments", the United States provided the following chart showing the evolution
of Boeing's credit rating.

5906 US, Answer to Panel Question 238 (table 2).
5907 Reflects 2006 reduction in total capacity from [***] aircraft per month to [***] aircraft per month,
due to the closure of the Boeing 757 production line in 2005.
5908 The United States notes that Boeing changed its accounting policy in 2006 with respect to
concessions received from vendors. The sales data provided for 2006 reflect this change in accounting
methodology. For comparative purpos es, the United States provided sales data for prior years (available for
2002, 2003, 2004, and 2005) using the adjusted methodology. US, Answer to Panel Question 238, para. 81,
Table 2, footnote 106.
5909 Corrected figure for 2001. US, Answer to Panel Question 238, para. 81, Table 2, footnote 107.
5910 Corrected calculation. US, Answer to Panel Question 238, para. 81, Table 2, footnote 108.
5911 Because productivity is calculated as sales per employee, the 2006 chan ge in Boeing's accounting
methodology for sales also affects the calculation of productivity. US, Answer to Panel Question 238, para. 81,
Table 2, footnote 109.
5912 US, FWS, para. 746, footnote 934. The Euro pean Communities agrees that inventories are
generally unimportant. EC, FWS, para. 2245. See, also, EC, FWS, footnote 2216. Based on the shared view of
the parties, and our own understanding of the operations of the LCA industry based on the evidence before us,
we do not consider information concerning inventories to be relevant to our analysis of injury, and the lack of
such information before us does not affect our conclusions.

BCI deleted, as indicated [***]

Chart 15: Boeing's credit ratings in recent years5913

AAA
AA+
AA
AA-
A+
A
A-
BBB+
BBB
BBB-
Aaa
Aa1
Aa2
Aa3
A1
A2
A3
Baa1
Baa2
Baa3
 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06
S&P / Fitch Rating
Moody's Rating
 S&P Moodys Fitch

7.2087 With respect to sales and market share, th e United States relied on the information it
presented with respect to the volume and market sh are of deliveries of LCA in the United States'
market. That information is set out in full at pa ragraph 7.2113 below. It shows that deliveries of
Boeing LCA in the United States' market declined dramatically, from 280 units in 2001, to 126 in
2002, and declined still further to 75 units in 2003, before increasing to 88 units in 2004, dropping
again to 78 units in 2005, and increasing to 81 units in 2006. 5914 However, the declines in the early
part of this period reflect in significant part a collapse of demand in the United States' market for
LCA, as declines in Boeing's market share of deliver ies were far less dramatic. Boeing's share of the
United States' LCA market was 70 percent in 2001, declined to 58 percent in 2002, and further to
56 percent in 2003, increased to 59 percent in 2004, fell again to 52 percent in 2005, and increased to
57 percent in 2006.
7.2088 The United States argues that this information de monstrates that Boeing is materially injured,
in light of the decline in its financial results, despite deep cuts in costs and steady gains in
productivity, which could not offset the bottom-lin e impact of declines in production, capacity
utilization, and sales revenue. The United States points out that Boeing's income on LCA operations
declined by nearly two-thirds in 2003 and 2004 as co mpared with 2002, and increased only slightly in
2005. Thus, the United States attributes the increase in income in 2005 almost entirely to improved
productivity.
7.2089 The European Communities argues that Boeing is not materially injured. In the European
Communities' view, a finding of material injury re quires that the condition of the United States' LCA
industry, as reflected in the Article 15.4 factors, be poor, and/or reflect declines over the relevant
period. Thus, the European Communities focuses on its contention that in 2006, Boeing is in "robust
financial health, dominant in global and United St ates' LCA markets, in improved financial health
relative to 2004 and 2001 and on a sharply upward trend."
5915 The European Communities presents
information regarding the Article 15.4 factors which it argues demonstrates that there are no actual or
potential declines in Boeing's performance, and no ne gative effects on its financial condition, over the
period examined.

5913 Exhibit US-403.
5914 See, para. 7.2116 above, explaining our decision to consider deliveries, rather than order data, in
this context.
5915 EC, FWS, para. 2159.

BCI deleted, as indicated [***]

Table 43 – Trends in Boeing's LCA Operations (EC data)5916

 2001 2002 2003 2004 2005 2006
Sales (global LCA
orders) 316 251 249 277 1,025 1,052
Share of US market
(by LCA) 48% 59% 43% 35% 57% 69%
Share of US market
(by seats) 47% 54% 40% 33% 55% 73%
Contractual backlog at
year end (US dollars,
 millions)
75,850 68,159 63,929 70,449 124,132 174,300
Backlog units at year
end (LCA) 1,228 1,098 1,066 1,058 1,796 2,455
Production (LCA
delivered) 527 381 281 285 288 396
Net earnings
(US dollars, millions) 1,911 2,107 707 753 1,432 2,733
Operating margin 5.45% 7.11% 3.2% 3.6% 6.3% 9.6%
Return on assets
(LCA Division-only
assets)
15.9% 20.2% 8.1% 10.2% 19.9% 28.2%
(est.)
Return on assets
(United States' method) [***] [***] [***] [***] [***] [***]
(est.)
Cash flow
(US dollars, millions) 2,244 2,345 977 839 1,206 2,429
Employment [***] [***] [***] [***] [***] 56,310
Wages per employee [***] [***] [***] [***] [***] n/a
Utilization of capacity n/a n/a n/a ~100% ~100% ~100%
Productivity (US
dollars) [***] [***] [***] [***] [***] 505,505

7.2090 The European Communities notes, based on the a bove, that Boeing sales of LCA (calculated
as orders for LCA world-wide) in 2005 and 2006 exceeded by far sales in any prior year. The
European Communities argues that in 2006, Boeing captured more than 50% of United States' sales in
each of the single-aisle, 200-300 seat, and 300-400 seat markets, as well as capturing the only United

5916 EC, FWS, para. 2162 (column labelled "change – 2004-2006", and rows reflecting "global market
share" deleted). The European Communities presented additional information on some of these factors for
2007, EC, Comments on US Answer to Panel Question 238, para. 200, and some preliminary data for 2008,
during the later stages of the proceedings before the Panel. As we have discussed, we have considered
information for the period 2001-2006 to be most pertinent for our analysis, and have not relied on later data in
reaching our conclusions regarding injury. See, paras. 7.2051 and 7.2053 above. We have not set forth the later
submitted information in the body of our report.

BCI deleted, as indicated [***]

States' orders for LCA sized 400 seats or greater. 5917 The European Communities contends that
Boeing's production increased from 2004 to 2006, and is likely to increase sharply in coming years as
a result of Boeing's record-setting backlog of orde rs as of 2006. The Eur opean Communities asserts
that net earnings in 2006 exceeded those of any prior year, 2001-2005, while operating margin in
2006 was nearly three times the 2004 level and substa ntially exceeded the 2001 level. The European
Communities asserts that Boeing's 2006 cash flow and return on assets exceeded that of any prior
year, 2001-2005, and credit ratings at year end 2006 exceeded its ra tings in 2004 and were industry-
leading. The European Communities observes th at wages per employee increased substantially
between 2001 and 2005 and considers that this trend presumably continued in 2006, although relevant
data was not available. The European Communities asserts that Boeing has operated at or near full
capacity between 2004 and 2006. According to the European Communiti es, this evidence
demonstrates not only that Boeing is not in an econo mically distressed condition, but that it could not
be much farther from such a condition, absent a monopoly position in all LCA markets.5918
7.2091 With respect to sales, the European Communiti es asserts, on the basis of orders for Boeing
LCA by United States' customers, in addition to the information presented above, that there is no
actual or potential decline in sales over the most recent period, relying in part on the following chart:

5917 As previously discussed, we have reject ed the European Communities' position regarding
consideration of separate markets for single-aisle LCA, for 200-300 seat LCA market, for 300-400 seat LCA
market, for 400-500 seat LCA market and for 500+ seat LCA market. We note here that, despite its contention
that LCA in the 400-500 seat and 500+ seat markets do not compete, the European Communities compares
Boeing's 747 LCA with Air bus' 500+ seat A380 to demonstrate the relative success of the Boeing 747. EC,
FWS, para. 2161, footnote 2182.
5918 EC, FWS, para. 2161.

BCI deleted, as indicated [***]

Chart 16: Boeing LCA Orders By United States' Customers5919

163
48
68
36
193
265
0
50
100
150
200
250
300
2001 2002 2003 2004 2005 2006
Units - LCA

According to the European Comm unities, the United States has presen ted no credible evidence to
suggest that the sharply rising trend evident in the chart will change in the near future.

7.2092 We note that the data in Chart 16 represent orders by United States' customers, while the data
in the Table 43 above represent orders by customers world-wide. The LCA market is global in scope,
and thus Boeing's LCA operating results in the Un ited States, which reflect the condition of the
relevant domestic industry, include sales to custom ers world-wide. Indeed, in response to a question
from the Panel asking the extent to which the da ta presented by the United States includes results
relating to sales for export, the United States stated that it had presented "data on economic factors
and indices affecting the entire U.S. domestic indu stry" and went on to observe that the relevant
domestic industry "includes U.S. production 'as a whole' of LCA products, including production for
export".
5920 While the United States asserts that it has limited its injury claim to the impact of
subsidized imports on the United States' market, 5921 this appears to be reflected in the data only with
respect to United States' sales (deliveries), market share and prices. With respect to Boeing's financial
results, the information presented by the United Stat es appears to relate to Boeing's world-wide LCA
sales. While the United States has calculated sa les volume on the basis of deliveries in the
United States, the dollar amounts set out above in Ta ble 42 appear to reflect world-wide sales. We
see no impediment to conducting our analysis of in jury on the basis of the data presented which
reflects global sales of LCA, as we agree that we are to consider the United States' domestic industry
"as a whole" in our analysis.

5919 EC, FWS, para. 2164.
5920 US, Answer to Panel Question 239, para. 83.
5921 US, Answer to Panel Question 239, para. 83.

BCI deleted, as indicated [***]

7.2093 The European Communities argues that Boeing is the dominant player in terms of market
share, calculating market share on the basis of orde rs for LCA. The following charts summarize the
European Communities' position with respect to market share:5922
Chart 17: Airbus United States' Orders and Market Share, Single-Aisle LCA, 2001 - 20065923

0
50
100
150
200
2001 2002 2003 2004 2005 2006
Single-aisle LC A
0%
10%
20%
30%
40%
50%
60%
70%
U.S. Market Shar e
LCA
Orders
Market
Share

Chart 18: Airbus United States' Orders and Market Share, 200-300 Seat LCA, 2001 - 20065924

0
10
20
30
40
50
60
2001 2002 2003 2004 2005 2006
200-300 seat LCA
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
U.S. Market Share
LCA
Orders
Market
Share

5922 The European Communities also presented a series of tables setting forth the number of US orders
of Boeing and Airbus LCA, counted by seats, and fo r each of the product market s the European Communities
had defined. EC, FWS, paras. 2168-2172. We understand the charts reproduced in the text to be a different
presentation of the same data, and thus do not discuss the seat-based information separately.
5923 EC, FWS, para. 2252.
5924 EC, FWS, para. 2253.

BCI deleted, as indicated [***]

Chart 19: Airbus United States' Orders and Market Share, 300-400 seat LCA, 2001 - 20065925

0
1
2
3
4
2001 2002 2003 2004 2005 2006
300-400 seat LCA
0%
10%
20%
30%
40%
50%
60%
70%
80%
U.S. Market Share
LCA
Orders
Market
Share

7.2094 While we have carefully considered the in formation and arguments of the European
Communities in this regard, we conclude that in formation on orders disaggregated by market
segments is not probative on the issue of market share in this case. As we have previously discussed
in the context of displacement or impedance, we consider that deliveries are the more appropriate
basis for consideration of market share.
5926 In addition, Boeing's financial performance is to a large
extent linked to deliveries, when the bulk of revenues are recorded, and which reflect orders during an
earlier period. Thus, in our view, information c oncerning deliveries is more relevant in assessing
changes in the share of the United States' market held by Boeing and Airbus during the period in the
context of considering current material injury, as Boeing's performance will reflect in large part those
deliveries. We consider the information on orders further below, in the context of our assessment of
threat of material injury. The European Commun ities also presents information on global orders for
LCA in the product markets it has defined, and on the basis of total seats in charts at paragraphs 2173-
2178 of its first written submission. However, we do not find this information to be of relevance to
our consideration of market share in the context of injury, which we consider is appropriately limited
to share of the United States' market, and not share of the global market.
7.2095 With respect to output, the European Comm unities presents information concerning global
deliveries of LCA on the basis of the number of seats, rather than numbers of LCA, as well as the
information concerning production volumes set out in the consolidated Table 43. 5927 Measured on the
basis of seats, the European Communities asserts that Boeing's production has increased. The
European Communities acknowledges that Boeing's LCA production was significantly below 2001
levels in 2006, but asserts that future deliver ies will reach and even exceed those levels.
5928 In this
regard, the European Communities refers to Bo eing's year-end backlog, as well as its delivery
schedule for existing LCA orders, as of 31 Dece mber 2006. Based on the latter, the European

5925 EC, FWS, para. 2254.
5926 See, paras. 7.1745 - 7.1750 above.
5927 The European Communities notes that the production figures it reports are slightly above those
reported by the United States, by be tween 4 and 10 LCA in each period, but acknowledges that this does not
significantly affect the trend over the period 2001-2006. EC, FWS, footnote 2216.
5928 EC, FWS, para. 2182.

BCI deleted, as indicated [***]

Communities asserts that Boeing will make 421 or more deliveries in each year 2007-2008, as
indicated in the following chart:
Chart 20: Boeing Delivery Schedule for Existing LCA Orders, as of 31 December 20065929

0
100
200
300
400
500
600
2007
2008
2009 2010 2011 2012 20
13
20
14
20
15
2016
Unkn
own
Units - LCA
Single-Aisle 200-300 seat 300-400 seat 400-500 seat

The European Communities considers that this information demonstrates that Boeing's production has
increased, and will continue to increase. We note that this information does not address production
levels during the period we are considering, which the European Communities acknowledges were
lower in 2006 than in 2001. Rather, this informa tion relates to periods after 2006, and we consider
that to the extent that it is relevant, it pertains to the question of threat of material injury, which we
address below.

7.2096 The European Communities contends that there is no actual or potential decline in Boeing's
profits, which it asserts have increased in both absolute terms and as a ratio to sales each year over
every prior year, from 2001 to 2005.
5930 However, the European Communities information shows a
significant decline in Boeing's net earnings from 2001 to 2003, with a slight improvement in 2004,
and significant improvement in 2005 and 2006.5931

5929 EC, FWS, para. 2183.
5930 EC, FWS, para. 2188.
5931 EC, FWS, paras. 2162 (table), 2189 (table).

BCI deleted, as indicated [***]

Chart 21: Boeing Net Earnings and Operating Margins, 2001 - 20065932
0
250
500
750
1,000
1,250
1,500
1,750
2,000
2,250
2,500
2,750
2001 2002 2003 2004 2005 2006
Net Earnings ($ millio n
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
9.00%
10.00%
Operating Margi
Net
Earnings
Operating
Margin

The European Communities contends that increased deliveries have driven the increase in net
earnings in 2004-2006, and not, as the United States argues, increased productivity, pointing to
Boeing filings with the US Securities and Exchange Commission (SEC) and statements to investors
that increased net earnings in 2005 were due in large part to increased deliveries of LCA.
5933 T h e
European Communities also points to substantial increases in Boeing's operating margins (earnings as
a ratio to sales) from both 2001 and 2004 to 2006, without commenting on the substantial decline in
that margin from 2001 to 2004 (from 5.45 percent to 3.6 percent).
5934 The European Communities
presents the following data on historic operating margins:

5932 Boeing LCA Division Economic Data for 1995 – 2006, Exhibit EC-240. 2006 figures are
estimated.
5934 EC, FWS, para. 2190.

BCI deleted, as indicated [***]

Chart 22: Boeing Operating Historic Operating Margin, 1995 – 3rd Quarter 20065935

-8.00%
-7.00%
-6.00%
-5.00%
-4.00%
-3.00%
-2.00%
-1.00%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
9.00%
10.00%
19
95
1996 19
97
1998 1999 20
00
2001
2002 2003 2004 2005 2006
Ope r at i ng Ma r

The European Communities considers Boeing's performan ce to be impressive in light of its expenses
during this period, notably those related to the launch and development of the 787 LCA in 2004, and
the 747-8, the 737-ER, and the 777 freighter vers ion. The European Communities suggests that
Boeing had only begun to recoup development co sts for earlier LCA in 2005, when it launched the
latter two LCA, and contends that is "financial strength " permitted it to undertake these massive
expenditures while preserving growing profits. 5936 We note, however, that with the exception of the
787, these are all variants of existing Boeing LC A, and thus do not entail the same level of
development expense as an entirely new LCA model.

7.2097 The European Communities asserts that Boeing's re turn on investments, considered as return
on assets,
5937 has more than doubled since 2004 and has in creased substantially compared to every
prior year since 2001. The European Communities ta kes issue with the Unite d States' calculation of
return on assets, which included a share of Boei ng corporate assets allocable to Boeing's LCA
Division.5938 The European Communities asserts that re turn on assets is commonly measured as net
earnings or operating income divided by assets. The European Communities calculated return on
assets by dividing the LCA Division' s net earnings, as reported in Boei ng's 10-k filings with the US

5935 EC, FWS, para. 2190. The European Communities notes that Boeing merged with McDonnell
Douglas in 1997, and the table includes the combined Boeing and McDonnell Douglas revenue and net earnings
for 1995 and 1996 as provided in the Boeing 1997 10-K; 2001 and 2002 figures based on 2003 restatement of
net earnings for those years. Id. footnote 2242.
5936 EC, FWS, para. 2191.
5937 The United States agreed that re turn on assets is the most reas onable measurement of the US LCA
industry's return on investments. US, Answer to Panel Question 242, para. 98.
5938 EC, FWS, para. 2195, referring to US, FWS, footnote 935.

BCI deleted, as indicated [***]

SEC, by the value of LCA Division assets, also re ported in Boeing's 10-k fi lings, thus excluding
entirely Boeing corporate assets. Based on its methodology, the European Communities estimated
Boeing's 2006 estimated return on assets as 28.2 percent, a 175 percent increase over 2004 and a
77 percent increase over 2001. 5939 According to the European Communities, based on predicted
increases in deliveries and net earnings, Boeing's return on LCA assets should continue to increase.5940
To the extent the European Communities relies on th is predicted increase, we note that it is more
relevant to a consideration of threat of injury, which we discuss further below.
7.2098 In response to a question from the Panel, the United States argued that since Boeing's
corporate investments do not represent a separate profit center, but rather support the company's
operations in each of the different industries in whic h it is active, it is appropriate to include a portion
of those assets in determining Boeing's return on assets in the context of its LCA operations. 5941
However, the United States concluded that the basi c trend was similar whether the United States' or
the European Communities' methodology was used, and therefore suggested the Panel need not decide
which method was more accurate for purposes of this dispute. 5942 The European Communities agreed
that this disagreement over methodology in cal culating return on assets is "of no practical
consequence."5943 Under either calculation, Boeing's retu rn on LCA assets increas ed each year since
2003, and therefore we do not consider it necessary to opine on the choice of methodology.
7.2099 The European Communities suggests that Boeing opera ted at or near total capacity in the last
three years of the period, which the European Communities defines at production at or near its
delivery forecast. The European Communities notes the United States' calculation of capacity
utilization in 2005 of [***] percent, and argues that this is impo ssible to reconcile with the evidence
that Boeing was sold out during 2005 and 2006, turn ing away orders, had met (or nearly) its delivery
forecasts, and had a substantial order backlog. 5944 The European Communities maintains that the
United States based its calculation on a historical figure from a period of unusually high production in
1999, with no explanation, and that this is not an appropriate basis for calculating capacity utilization
in 2005-2006. The European Communities also considers that the United States' figure
inappropriately aggregates production lines for diff erent LCA, while the European Communities
contends that these are not fungible. Thus, the Eu ropean Communities contends that its calculation,
based on delivery forecasts adjusted to year to year changes is more meaningful.5945
7.2100 With respect to "capacity utilization," the parti es do not appear to disagree on the basic fact
that in the LCA industry, production capacity is planned and established years in advance based on
actual orders and anticipated demand. As the European Communities recognizes, "{c}apacity is a
more complex concept in the LCA industry than in many other industries because it cannot be based
on machine rated capacity or factory floor bottlenecks." 5946 The United States maintains that Boeing
determines its production levels, a nd consequently capacity over the medium term, based on the level
of orders it has received and expects to receive. 5947 The United States contends that because Boeing
received fewer orders for deliveries of LCA after 2001, it reduced employment and other factors of
production, but did not reduce its "basic capacity to produce LCA at prior levels". 5948 Thus, the

5939 EC, FWS, para. 2196.
5940 EC, FWS, para. 2197.
5941 US, Answer to Panel question 240, para. 89.
5942 US, Answer to Panel question 240, para. 90.
5943 EC, Comments on US Answer to Panel Question 242, para. 230.
5944 EC, FWS, paras. 2207-08.
5945 EC, FWS, para. 2210.
5946 EC, FWS, para. 2198.
5947 US, Answer to Panel Question 210, paras. 226-231; US Comments on EC, Answer to Panel
Question 210, paras. 291-296.
5948 US, Answer to Panel Question 240, para. 92.

BCI deleted, as indicated [***]

United States considers it appropriate to assess Boeing's capacity utilization as actual production
divided by Boeing's historic actually attained cap acity level. The European Communities contends,
on the other hand, that because Boeing did not produce aircraft beyond the number of orders and
reduced the number of planned delivery slots in anticipation of fewer deliveries, its capacity
utilization should be defined as actual production divided by the number of planned delivery slots.
5949
7.2101 In our view, because LCA manufacturers gene rally produce only in response to orders
received or expected to be received, the Eur opean Communities' methodology for determining
"capacity utilization" would generally produce a fi gure approaching 100 percent regardless of what
was occurring in the market to which the manufacturer was reacting and the reasons for any decline in
production. Thus, on the whole we consider that the United States' methodology is more appropriate
for evaluating capacity utilization. It is clear that Boeing reduced both LCA production levels and the
number of scheduled LCA delivery slots, compared to historic levels, and thus that its utilization of
capacity declined from 2001 to 2003, and increased th ereafter, albeit not to the level recorded in
2001.5950
7.2102 The European Communities contends that Boeing is not experiencing any negative effects on
cash flow, asserting that not only is 2006 cash flow higher than every prior year since 2001, but the
rising trend of net earnings suggests that it will continue to grow. Moreover, the European
Communities considers that even if large capita l expenditures reduced cash flow, it would not
necessarily be a sign of economic distress, as it might indicate investment in Boeing's future. 5951 The
European Communities also maintains that rising trends in Boeing's performance indicate that its
performance will continue to be strong, with growth in output likely, indicating no actual or potential
negative effects on growth. 5952 With respect to its ability to rai se capital or investment, the European
Communities contends that Boeing is strong, improve d relative to 2004, and anticipated to strengthen
further.5953 In support, the European Communities points to growth to record levels of Boeing's share
price 2004-2006, and its high, albeit not top-of-t he-scale, credit ratings, which have improved 2004-
2006.5954
7.2103 The European Communities maintains that no act ual or negative effects on employment have
been "conclusively established." 5955 The European Communities notes that Boeing employment –
measured as the number of full-time employees of Boeing's LCA division, excluding executives and
contract labour – increased from 2004-2006. 5956 The European Communities considers that the
United States' reliance on the decline in employment between 2001 and 2005 is of no value in
assessing material injury, because employment declin es since 2001 are due in large part to Boeing's
restructuring, cost cutting, and outsourcing effo rts. With respect to wages, the European
Communities asserts that it is not possible to determ ine wages per employee on the basis of available
information, and that the total wage information relied on by the United States is uninformative and,
at worst, misleading, as a basis for assessment of injury. The European Communities asserts that
given the evidence that wages per employee have increased significantly over this period, the

5949 EC, FWS, paras. 2162, 2198-2210.
5950 This total capacity was reduced for 2006 to refl ect the closure of Boeing's 757 production facilities
in 2005. US, Answer to Panel Question 238, para. 81, footnote 105
5951 EC, FWS, para. 2212.
5952 EC, FWS, para. 2215.
5953 EC, FWS, para. 2216.
5954 EC, FWS, paras. 2216-17 (and tables).
5956 EC, FWS, para. 2221. The European Communities notes that the figures on which it relies, taken
from Boeing's website, Exhibit EC-515, do not precisely match the figures provided by the United States in its
first written submission, but that this discrepa ncy varies per year upward or downward by [***] and does not
substantially affect the trend. Id., footnote 2296.

BCI deleted, as indicated [***]

explanation for a substantial declin e in total wages paid must be a decline in employment, which is
consistent with Boeing's efficiency initiatives and outsourcing. But in this context, the European
Communities contends that neither employment or wage information is of any utility for assessing
material injury.
7.2104 As we noted at the outset of our analysis, we are undertaking a two-step analysis of the issue
of injury. Turning to our assessment of the condition of the United States' LCA industry, we note that
the trends in the data presented by the two parties show largely the same picture, although the parties
emphasize different aspects, and draw different in ferences and conclusion. For the most part, the
European Communities does not dispute the figures presented by the United States, but relies on the
data it has presented in making its arguments, whic h the United States similarly does not dispute for
the most part. With respect to the operating perfo rmance of Boeing's LCA division, we see no reason
not to accept the information presented by both pa rties as accurate, and address differences where
relevant. Although neither party has explicitly refe rred to the conditions of competition in the United
States' market, we consider the discu ssion set out elsewhere in our report 5957 reflects conditions of
competition in the United States' market.
7.2105 In general, the information presented by both parties demonstrates that Boeing's condition
deteriorated significantly from 2001 to 2003, and thereafter improved, with significantly better
performance in 2006, albeit not at the levels reported for 2001 for all factors. As we have indicated,
we have focussed our assessment on Boeing's pe rformance during the period 2001-2006, which we
consider to be an appropriate period as a basis for reaching conclusions in the context of our analysis
of injury.
7.2106 With respect to sales of LCA, the European Communities reports sales in terms of the number
of LCA ordered. For our analysis, the dollar sales figures reported by the United States are more
pertinent to a consideration of the condition of the United States' LCA industry. Aircraft
manufacturers earn the bulk of the revenue on a sale not at the time the aircraft are sold, i.e., ordered,
but at the time of delivery. Thus, the operati ng performance of the manufacturer at any given time
will not reflect the anticipated revenues attributab le to LCA already ordered but not yet delivered.
5958
However, the strength of a manufacturer's order book is important in assessing its overall condition,
as it provides indications as to the future performance of the company, which is likely to be reflected
in such factors as its share price and credit rating. In this respect, while these are not factors set out in
Article 15.4, we note and consider relevant the undisputed information presented by the European
Communities which reflects significant increases in Boeing's share prices from 2004 to 2006, and
industry-leading credit ratings from Moody's, Standard & Poor's and Fitch. 5959
7.2107 It is clear from the information before us th at Boeing suffered significant declines in sales
from 2001 to 2004. Sales improved slightly in 2005 , and then improved more significantly in 2006,
although they remained well below the levels re ported for 2001. Capacity utilization followed a
similar trend, declining significantly from 2001 to 2003, and increasing annually thereafter. Boeing's
operating income showed a slightly different tre nd, increasing slightly from 2001 to 2002, before
dropping precipitously to less than half the 2002 le vel in 2003, improving slightly in 2004, almost
doubling in 2005, and increasing significantly in 2006. Operating margins, presented by the European
Communities and not disputed by the United States, showed a similar trend, improving from 2001 to
2002, before dropping by more than half in 2003, im proving slightly in 2004, almost doubling in
2005, and improving significantly in 2006. The United States attributes the improvement in 2002 to

5957 See, Section VII.F.6 of this Report above.
5958 In addition, orders for LCA, if ultimately delivered, represent future production and revenues,
although that is a consideration more relevant to the question of threat material injury.
5959 EC, FWS, paras. 2216-17.

BCI deleted, as indicated [***]

cost-cutting efforts and improvements in productivit y. However, the data presented by the United
States on productivity does not, in fact, show gains until 2004, when productivity (unadjusted for the
changes in Boeing's accounting methodology in 2006) was above that reported for 2001, and
continued to improve in 2005, and substantially in 2006. While we recognize, as does the European
Communities, that Boeing engaged in significant cost-cutting efforts during this period, and
particularly during 2001-2004, the United States ha s not presented data on those efforts, with the
exception of information showing continuing and sign ificant declines in wages and employment since
2001. In our view, cost-cutting efforts do not in them selves reflect injury to an industry, and thus the
declines in wages and employment undertaken to cut costs and improve production efficiency
similarly do not necessarily indicate that the industry is injured.
7.2108 Information on return on assets presented by the parties shows the same trend as operating
income, improving slightly from 2001-2002, then dec lining precipitously in 2003, improving slightly
in 2004, more notably in 2005, and almost doubling in 2006.5960 With respect to cash flow, the parties
presented very similar information, with the exception of 2006. That data shows a slight decline from
2001 to 2002, then a collapse to less than half the 20 02 level in 2003, a further decline in 2004, and a
significant improvement in 2005. For 2006, the Un ited States' data shows in increase of 57 percent,
while the European Communities data shows an increase of just over 100 percent. The United States
did not comment on this discrepancy when given the opportunity to do so, and we therefore are not in
a position to reconcile it.
5961
7.2109 We recognize that wages and employment declin ed steadily throughout the period, ending at
levels just slightly above half those reported in 2001. However, this decline clearly reflects the
significant cost-cutting and efficiency programm es instituted by Boeing, as well as increased
outsourcing, which as we noted, do not necessarily i ndicate that the industry is injured. The United
States does not dispute the European Communities' argument that declines in employment and total
wages reflect Boeing decisions to increase efficiency and reduce costs by, inter alia , significantly
decreasing its workforce. Indeed, the United Stat es noted that "Boeing has remained competitive
despite its loss of market share in its home market and depressed prices, particularly in the downturn,
by cutting costs and improving productivity." 5962 The United States went on to assert that despite the
"recovery in the financial health of Boeing", employment did not increase. 5963 In our view, this fact
does not support the conclusion that Boeing is injured, but rather, indicates that the cost-cutting efforts
of Boeing have had the desired effect of impr oving Boeing's performance, allowing it to record
significant improvements in its financial condition.
7.2110 As noted, the declines in Boeing's performance happened during the early part of the period
we are considering, principally in 2002 and 2003, and the condition of the industry improved
significantly thereafter. The United States argues that the improvements must be viewed in the
context of unusually high demand in 2005 an d 2006, and asserts that Boeing has remained
competitive despite lost market sh are in the United States' market and depressed prices, by cutting
costs and improving productivity. 5964 While we do not disagree with the United States' assertion, we
consider it to be of little weight in terms of de termining whether the United States' LCA industry is
materially injured. The parties agree that the LC A industry is strongly affected by cyclical demand
conditions. Merely because improved performance occurs at a time of increased demand does not

5960 As discussed above, this trend is the same whether the calculation is that made by the
United States, or by the EC. We do not rely on the absolute levels reported, and thus the difference in the
absolute values in question is of no consequence to our analysis.
5961 US, Answer to Panel question 240, para. 85 ("areas of agreement include ... cash flow").
5962 US, SWS, para. 737.
5963 US, SWS, para. 737.
5964 US, SWS, para. 737.

BCI deleted, as indicated [***]

mean we cannot conclude that the improved perform ance reflects a lack of ma terial injury to the
industry. The United States argues that any injury resulting from decreased demand is distinguishable
from the injury resulting from subsidized imports, asserting that if Boeing's market share had
remained at the 2002 level through 2005, Boeing would have delivered significantly more aircraft,
and had significantly higher sales. 5965 However, this is an argument relating to other factors
which may be causing injury, and does not directly address the question whether the condition of the
United States' LCA industry reflects material injury.
7.2111 Having reviewed the evidence and arguments of the parties, we conclude that overall,
Boeing's performance in 2006, and in 2005 with respect to a number of factors, reflects significant
improvement over the earlier part of the period. Wh ile it is true that the levels reported in 2006 for
production, capacity utilization, sales, and cash fl ow were lower in 2006 than in 2001, figures for
operating income, and return on assets not only improved after the early declines, but were well above
the levels reported in 2001. Productivity also showed significant improvement after the early
declines, and was well above the 2001 level in 2006. The data demonstrate that following the
collapse of demand in the LCA market after the events of 9/11, Boeing's performance began to
recover in 2004, and by the end of the period we ex amined, it was operating at levels which, in our
view, do not warrant a finding that the United States ' domestic industry producing LCA is materially
injured.
7.2112 Having concluded that the United States' LCA i ndustry is not materially injured, we do not
consider it necessary to make findings on the question of whether subsidized imports, in view of their
volumes and effects on prices, and consequent impact on the domestic industry, are causing material
injury. As previously discussed, and in the absence of any disagre ement between the parties on this
approach, we have concluded that a two-step analysis is appropriate in this dispute, and are applying
that methodology. Nonetheless, we will go on to discuss below the principal evidence and arguments
concerning import volume, effects on prices, and causal link, in order to establish a factual basis for
further consideration of that issue, should it become necessary in the context of an appeal of our
decision.
Volume of subsidized imports
7.2113 With respect to the volume of subsidized imports, Article 15.2 of the SCM Agreement
requires consideration of "whether there has been a significant increase in subsidized imports, either
in absolute terms or relative to production or consumption in the importing Member."
7.2114 The United States provided the following informat ion concerning the volume of subsidized
imports:5966
Table 44 – Quantity of LCA delivered in the United States' market

2001

2002

2003

2004

2005

2006

Airbus

122

91

60

60

71

61

Boeing

280

126

75

88

78

81
total 402 217 135 148 149 142

5965 US, FWS, para. 748.
5966 US, SWS, para. 731, table 3.

BCI deleted, as indicated [***]

Table 45 – Market share (quantity of LCA delivered) in United States' market

2001

2002

2003

2004

2005

2006

Airbus

30%

42%

44%

41%

48%

43%

Boeing

70%

58%

56%

59%

52%

57%

Table 46 – Market share of United States' market by value (list price)

2001

2002

2003

2004

2005

2006

Airbus

28%

34%

44%

50%

53%

49%

Boeing

72%

66%

56%

50%

47%

51%

7.2115 The European Communities does not dispute the in formation presented by the United States.
Nor does the European Communities present any information or make any arguments regarding the
volume of subsidized imports per se. To the extent the European Communities presents information
on orders for Boeing and Airbus LCA in the United States' market, and the consequent "market share"
represented by those orders, this information does no t, in our view, provide any basis for drawing
conclusions concerning the volume of imports.
7.2116 We have previously concluded that, in the c ontext of consideration of displacement or
impedance under Article 6.3, consideration of deliveries is more relevant than information concerning
orders.
5967 We take the same view with respect to consideration of the volume of imports in the
context of injury under Article 5(a). Based on the plain meaning of the text of Article 15.1, 15.2,
15.4, and 15.5, those provisions all require consid eration of subsidized imports. In view of the
ordinary meaning of the term "import", as previously discussed, 5968 we consider that a focus on
deliveries is appropriate, and we therefore consider the information provided by the United States
concerning deliveries, which the European Communiti es does not dispute, to be the most directly
relevant and probative information for considering the volume of subsidized imports. In our view,
data about orders for LCA has li mited relevance to the consideration of the volume of subsidized
imports required by Article 15.2 of the SCM Agreem ent. Moreover, while order information gives a
good indication of the likelihood of future impor ts, orders for LCA, even firm orders, do not
necessarily result in actual deliveries. In addition, orders may result in delive ries years later, and if
placed by a leasing company, may result in deliveries to a country other than the country of that
ordering company, and never actually be imported into the country of that company. Thus, we
conclude that consideration of whether there "has been a significant increase in subsidized imports,
either in absolute terms or relative to produc tion or consumption in the importing Member" as
required by Article 15.2, should focus on the numbe r of Airbus LCA actually delivered into the
United States.
7.2117 Moreover, we have rejected the European Communities' view that we should focus our
analysis on separate product categories.5969 Thus, even were we to consider the information presented

5967 See, para. 7.1748 above.
5968 See, para. 7.1747 above.
5969 See, para. 7.1680 above.

BCI deleted, as indicated [***]

by the European Communities with respect to orders to be relevant, we would only consider it to the
extent it is related to orders for all LCA. The European Communities does present a table setting
forth United States' orders of Boeing and Airbus LCA, by seats. 5970 As we understand it, this
information does not count units of LCA, but rath er the total number of seats represented by the units
of LCA ordered. Again, as this information c oncerns orders, we do not find it probative on the
question of the volume of actual im ports of Airbus LCA into the Un ited States. Moreover, while in
principle the number of seats might be a relevant basis for aggregating information across different
models of LCA, the European Communities has provided no explanation how this information
describes the volume of imports of LCA into the Un ited States – at best it describes the volume of
LCA seats ordered by United States' customers, including US-based leasing companies, for delivery
at some time in the future to unspecified locations . It is less than clear to us, and the European
Communities provides no explanation of, how this in formation informs consideration of the volume
of imports into the United States during the period we examined.
7.2118 Finally, the European Communities presents in formation on the volume of LCA ordered over
the period 2001-2006 by seats, and by number of LCA for four product categories, on a global
basis.5971 We do not consider this information to be probative on the question of the volume of
imports for the same reasons as set out above. In ad dition, and more importantly, we do not consider
information about global market share to be relevant to the question of imports into the United States,
or more generally, to analysis of the United Stat es' market for purposes of analysing injury to the
United States' LCA industry. Therefore, we base our consideration of the volume of imports on the
data presented by the United States.
7.2119 Measured in terms of number of aircraft delivered, imports of Airbus LCA declined
significantly during the period for which we have data. However, the to tal number of aircraft
delivered in the United States' market during this pe riod also declined significantly, from 402 in 2001
to less than half that many in 2006. In the cont ext of this decline, we consider that that the
information on market share gives a better unders tanding of the market, representing the volume of
imported Airbus LCA relative to domestic consumption.
7.2120 In terms of market share, imports of Ai rbus LCA increased over the period we are
considering, notably from 2001 to 2003, increasing by 14 percentage points during that period, then
declined slightly in 2004, increased in 2005, and declined again in 2006, ending with a 43 percent
share of the market, 13 percentage points higher than in 2001. The information on market share by
value, calculated by list price, we consider to be of little weight, as the parties are agreed that list
prices of LCA are not a realistic indicator of the value of the aircraft actually ordered and
delivered.5972 Given that there are only two producers, every gain in market share in the United States'
market by Airbus represents a commensurate loss of market share by Boeing. Thus, although the
number of imported Airbus LCA delivered into the United States' market decl ined, the market share
represented by those imports increased significantly, from 30 percent in 2001 to 43 percent in 2006,
an increase in market share of more than 40 percent over the period. Most of that increase, however,
occurred from 2001 to 2003, during wh ich period Airbus' market share increased from 30 percent to
44 percent, or by 47 percent.

5970 EC, FWS, paras. 2168, 2169-2172.
5971 EC, FWS, paras. 2173-2178.
5972 We note that the market share by value inform ation presented by the United States shows Airbus'
market share increased steadily from 2001 to 2005, from 28 percent to 53 percent, and then declined in 2006 to
49 percent, while Boeing's market share declined overall correspondingly. US, SWS, para 732 table (C). This
largely tracks the changes in market share by volume, suggesting, as the US argues, that the proportion of higher
and lower value LCA sold by the two companies was relatively similar at any given time. US, FWS, para 734.

BCI deleted, as indicated [***]

Price Effects of Subsidized Imports
7.2121 Article 15.2 of the SCM Agreement requires that, with respect to "the effect of the subsidized
imports on prices," consideration must be given to:
"whether there has been a significant pri ce undercutting by the subsidized imports as
compared with the price of a like product of the importing Member, or whether the
effect of such imports is otherwise to depress prices to a significant degree or to
prevent price increases, which otherwise would have occurred, to a significant degree."

7.2122 The United States observes that "the record does not contain comparable LCA pricing data for
all U.S. sales," and seeks to demonstrate on the basi s of public information that Airbus achieved its
growth in the United States' market by undercutting Boeing on price, and that the subsidized imports
have depressed or suppressed prices.
5973 With respect to its allegations of price undercutting, the
United States presents anecdotal evidence regarding the sales of Airbus LCA to JetBlue, Frontier and
America West Airlines, accounting for nearly 40 percent of Airbus deliveries during 2001-2005. The
United States notes that all three of these airlines placed their first orders for Airbus LCA in 1999, and
then made substantial additional follow-on orders with Airbus through 2005, which the United States
considers to be losses stemming from the earlier sal es campaigns, and which are reflected in lost
market share to Boeing. 5974 The United States asserts that in each case, Boeing was a strong
competitor for the initial order, and that while the act ual price that each airline paid to Airbus, taking
into account all concessions on the sale, is not ava ilable to the United States, publicly available
information indicates that Airbus price undercutting played a key role in its winning these
customers.5975 The United States also contends that Boeing lost the "most significant" sales
campaigns in the United States' market during 2 001-2005 due to price undercutting by Airbus, citing
in this regard a statement by the head of Virgin America following the purchase (including options) of
nearly 100 LCA that while there were "very co mpelling proposals" from both manufacturers, the
airline was "pleased with the favourable economic terms" received from Airbus.5976
7.2123 The European Communities does not specifically address the United States' contentions of
price undercutting in responding to the United Stat es' claim of injury. Instead, the European
Communities "incorporates and references all of the evidence and argument refuting the United
States' serious prejudice claims". 5977 Thus, the European Communities apparently considers that the
Panel should revisit this informati on and determine for itself in what respect it is relevant and/or
probative as a response to the specific allegations of the United States in the context of injury. We
consider this method of presenting its case to be le ss than satisfactory, as it leaves the Panel uncertain
as to the specific arguments th e European Communities seeks to make and which evidence it would
rely upon in response to the specific arguments and information presented by the United States in
support of its claims of price undercutting by subs idized imports in the United States' market.
Moreover, in the context of injury, as discussed, we are considering the effects of subsidized imports
on the United States' LCA industry, rather than consid ering the effects of the subsidies themselves, as
we are in the context of serious prejudice. Thus, it is not entirely clear how the European
Communities' arguments in the context of serious prejudice are apposite to the analysis of injury.

Nonetheless, we have reviewed the arguments and information referred to by the European
Communities, focussing on the specific sales relied upon by the United States in support of its claim
of price undercutting, involving Jet Blue, Frontier, America West, and Virgin America.

5973 US, FWS, para. 737.
5974 US, FWS, para. 737.
5975 US, FWS, paras. 738-740.
5976 US, FWS, para. 740.
5977 EC, FWS, para. 2250.

BCI deleted, as indicated [***]

7.2124 The European Communities addresses the sales to Jet Blue, Frontier, America West, and
Virgin America in the context of its argument that subsidies to A320 model LCA did not cause
significant lost sales of Boeing 737 aircraft, and di d not have significant price undercutting effects.5978
The European Communities argues that the Unit ed States has the burden of proving in each
challenged sales campaign that the magnitude, nature, and age of the subsidies at that point in time
caused Airbus A320 family prices to be significan tly lower than Boeing's price. The European
Communities asserts that a lower winning price does not equal "significant price undercutting" or
even "undercutting," and that it is not sufficient if Airbus' winning prices were lower than Boeing's
last offer. In the European Co mmunities' view, only if Airbus' winning lower price is significantly
lower and that significantly lower price is caused by subsidies that the United States can prevail on its
significant lost sales claims.
5979
7.2125 The European Communities argues that "significant price undercutting" involves an objective
assessment of whether the subsidies have caused Ai rbus prices to be significantly lower, and asserts
that the United States has not met its burden in this regard. 5980 The European Communities contends
that the amount of alleged A320 subsidies in each of these alleged lost sales was de minimis, and thus
too small to provide Airbus sales personnel with sufficient funds to significantly lower A320 family
prices, that in some of these sales, Airbus' winning price was actually higher than Boeing's final offer
and that there were other important non-price-re lated reasons why the company won the particular
sale which break the causal link between the effects of subsidies and lower pricing. 5981 The European
Communities asserts that while price is a relevant consideration, particularly for low-cost carriers, it is
only one of the many factors a customer will consider in determining the value of a particular offer,
and the decision of each customer on the value of an offer to sell is subjective, based on its own
particular needs at the time.
5982 Finally, the European Communities asserts that by 2001-2006, any
initial effects from the 1984 launch of the A320 were dissipated by Boeing's 1993 launch of the
737NG, and thus, the effects of the subsidies are attenuated.5983
7.2126 The European Communities' arguments in this c ontext are concerned with demonstrating that
the subsidies to A320 LCA did not cause the lost sales in question, principally because those subsidies
did not cause price undercutting. The European Communities does not dispute that Airbus made
these sales, and Boeing did not. However, the Unit ed States does not rely on these "lost sales" as
evidence of injury. Rather, the United States relies on these sales as evidence of price undercutting by
subsidized Airbus LCA. The European Communities ar gues, specifically with respect to the JetBlue
sale in 1999 5984 and the Frontier Airlines sale in 2000, 5985 that Airbus's price was not lower than
Boeing's. In both cases, the European Communities' contention is supported by public statements of
airline officials, as is the United States' contention to the contrary.
7.2127 The United States argues that in each case, Boei ng was a strong competitor for the initial
order, which Airbus eventually won. The Un ited States acknowledges that it has no information
regarding the actual price that each airline paid to Airbus, taking into account all concessions on the
sale, and thus relies on public statements. 5986 For instance, with respect to Frontier Airlines, the
United States alleges that Boeing withdrew from the competition in the face of aggressive Airbus

5978 EC, FWS, paras. 1820-1873.
5979 EC, FWS, para. 1821.
5980 EC, FWS, para. 1824, 1826.
5981 EC, FWS, para. 1827-29
5982 EC, FWS, paras. 1831-1833, 2256.
5983 EC, FWS, para. 1834.
5984 EC, FWS, para. 1839.
5985 EC, FWS, para. 1851.
5986 US, FWS, para. 739.

BCI deleted, as indicated [***]

discounting, citing a remark by Boeing's CEO that: "There are places where there is very intense price
competition. We've always said we're in business to make money, and if that gets too intense we
don't go there – that's what happened at Frontier, for example." 5987 The United States also points to
the statement of Frontier Airline's chief financial o fficer in response to being asked whether Boeing's
claims of Airbus's price undercutting were accura te: "We seem to be hearing that from people around
us – we're pretty pleased." 5988 The European Communities asserts that Frontier Airlines decided to
order the A320 family LCA because of the product a dvantages of the Airbus aircraft, and not because
of price.5989 It cites in this regard comments of Fron tier Airline's chief financial officer concerning
improved operating economics and increased customer comfort of the Airbus LCA, and concluding
that "both operationally and from a marketing st andpoint," the airline was "excited" about the
A320.5990 The European Communities also points to HSBI in support of its contention that Airbus
was forced to match Boeing's price in this sales campaign.5991
7.2128 With respect to America West, the United Stat es cites W.A. Franke, the chairman of America
West Holdings, who stated, concerning his company's October 1999 Airbus order, that the Airbus
aircraft were "very competitively priced." 5992 The European Communities argues that the United
States incorrectly asserts that this was America W est's first Airbus purchase, noting that America
West had already ordered nine A320s and 22 A319s in 1997, 5993 and contending that this does not
demonstrate that low prices were the ultimate reason for America West to buy the A320.
7.2129 Finally, the United States cites JetBlue's CEO David Neeleman as stating that JetBlue "fully
expected to choose the {Boeing} 737" until the low A320 price offered by Airbus got its attention. 5994
The European Communities points to different statements by Mr. Neeleman, 5995 indicating that
JetBlue ended up paying more than it woul d have, had it chosen the Boeing 737-80, 5996 and stating
"{w}e bought the airplane for no other reasons than because it was the right product."5997
7.2130 As we have previously discussed in the contex t of our analysis of price undercutting in the
serious prejudice analysis, this type of anecdotal public evidence is of limited value in determining
which manufacturer's LCA were lower priced, as oppo sed to determining which offer the customer
considered to be of higher value to it overall. 5998 While the evidence clearly indicates that price was
an important element of these sales campaigns, the conclusion posited by the United States, that each
airline, based on having monetized all elements of an offer, makes a purchase decision that will

5987 Chris Kjelgaard, Boeing's Condit Reveals Frontier Airbus Deal , Air Transport Intelligence
(14 October 1999), Exhibit US-397.
5988 Chris Kjelgaard, Frontier Plans to Complete Airbus Transition by 2005 , Air Transport Intelligence
(18 October 1999), Exhibit US-398.
5989 EC, FWS, para. 1850.
5990 EC, FWS, para. 1850, citing Exhibit US-398.
5991 EC, FWS, paras. 1851-52, citing Statement of Christian Scherer, paras. 105-106, Exhibit EC-14
(BCI); Airbus [***] data, Exhibit EC-425 (HSBI).
5992 America West Places Orders for A318s, A320s , Aerospace Daily (22 October 1999), Exhibit US-
399.
5993 EC, FWS, para. 1859.
5994 Laurence Zuckerman, New Low-Fare Airline to Buy Airbus Industrie Jets , N.Y. Times
(21 April 1999), Exhibit US-400.
5995 EC, FWS, para. 1839.
5996 "JetBlue CEO Delivers Baruch's Second Annual Burton Kossoff Business Leadership Lecture,"
Baruch College, 7 March 2006, http://www.baruch.cuny.edu/news/DavidNeeleman-
BurtonKossoffBusinessLeadershipLecture-EOC-Zicklin-News-BaruchCollege.htm (visited 29 January 2007,
Exhibit EC-276).
5997 John Newhouse, Boeing versus Airbus (1st ed., Alfred A. Knopf, 2007) p. 36, Exhibit EC-253.
5998 See, 7.1833 - 7.1840 above.

BCI deleted, as indicated [***]

maximize its profitability in operating the LCA purch ased does not, in our view, demonstrate that the
price of the LCA of the successful manufacturer undercut the competing manufacturer's price.
7.2131 The European Communities also ar gues that several of these sales [***].5999 We do not see,
and the European Communities makes no attempt to e xplain, how this responds to the United States'
argument that these imports of Airbus LCA entered the United States' market at prices that enabled
them to take sales that Boeing, as the only othe r manufacturer, would have made, thereby increasing
Airbus' market share. The [***] were negotiated at the time of the original sales, which we do not
understand the European Communities to suggest [***].
7.2132 With regard to its allegations of price depr ession, the United States asserts that the pricing
pressures of the Airbus sales to Jet Blue, Frontier, America West, and Virgin America affected the
prices Boeing obtained on other sales in the United Stat es' market. In support of this contention, the
United Sates presented indexed average order prices, net of all discounts and concessions, obtained by
Boeing from its United States' sales of B 737 aircraft, reproduced in Chart 23 below. 6000 The line in
Chart 23 with diamonds indicating the data points represents the average actual prices for orders
placed in each year of the 2001-2005 period, indexed to the 2001 price. On the basis of the
comparison, the United States asserts that the average price for B737s fell by [***] through 2005.
The United States asserts that US pricing for the 737 [***].6001
7.2133 The United States also argues that downward trends in market pricing led to Boeing having to
reduce prices on undelivered aircraft for certain ma jor customers. The line in Chart 23 with circles
indicating the data points is asserted to show how retroactive price decreases over the period have
further lowered Boeing's actual prices. 6002 For example, the United States contends that Boeing was
forced to reduce the price of B737s ordered in 2001 by [***] percent before those aircraft were
actually delivered, and that adjusted pr ices for B737 aircraft ordered in 2005 were [***] percent
below their original 2001 levels. 6003 Moreover, to the extent that many of these aircraft have not yet
been delivered, they remain subject to possible additional repricing.
7.2134 The line with triangles indicating the data points in Chart 23 shows increases in the US
Aircraft Manufacturing Producer Price Index (PPI), which rose by nearly 17 percent from 2001 to
2005.
6004 The United States asserts that, ordinarily, one would expect that producers would over time
increase prices generally in line with increases in th eir costs. The United States asserts that Chart 23
shows, however, that Boeing has been unable to main tain its US pricing for B737s in line with cost
increases, demonstrating price suppression. 6005

5999 EC, FWS, paras. 1844, 1846 [***], 1855 [***].
6000 Exhibit US-616 (BCI). The United States presen ted an earlier version of this information which
did not contain data for 2006 in Exhibit US-444.
6001 US, FWS, para. 741.
6002 US, FWS, para. 742.
6003 US, FWS, para. 742.
6004 U.S. Department of Labor, Bureau of Labor Statistics Producer Price Index Industry Data: Aircraft
Manufacturing 2001-2005 (as of 13 October 2006), available at http://data.bls.gov, Exhibit US-402.
6005 US, FWS, para. 743.

BCI deleted, as indicated [***]

Chart 23

737 NG (-600/-700/-800/-900) in the U.S. LCA Market
Indexed Boeing average orde r prices (based on order-year $s) compared to
Aircraft Manufacturers Producer Price Index ("PPI")

7.2135 Charts 24 and 25
6006 show price trend information for B747 and B777 sales in the
United States' market.6007 Although the number of sales is small, the United States asserts that prices
for the B747 [***], while prices for the B777 [***]. 6008
Chart 24

747 in the U.S. LCA MARKET
Indexed Boeing average orde r prices (based on order-year $s) compared to
Aircraft Manufacturers Producer Price Index ("PPI")

Chart 25

777 in the U.S. LCA MARKET
Indexed Boeing average orde r prices (based on order-year $s) compared to
Aircraft Manufacturers Producer Price Index ("PPI")

7.2136 The United States asserts that the data in Charts 23 to 25 demonstrate that Boeing has
experienced price depression (actual price decr eases) and price suppression (price increases lower
than would otherwise occurred) for its United Stat es' LCA sales. The United States maintains that,
given the evidence of aggressive Airbus prici ng in United States' sales campaigns, the price
depression and price suppression shown in these figures are plainly attributable to the subsidized
imports.
6009
7.2137 The European Communities does not dispute the information on pricing in the US market
presented by the United States. Nor does it present an y additional or different information concerning
price levels in the US market. Rather, it relies on its arguments that Boeing lost sales in the US
market for reasons entirely unrelated to subsidies to Airbus, and that the magnitude and age of any
subsidy available to Airbus for use in the relevant sales campaigns would not have resulted in price
effects sufficient to make the difference for the customer in choosing between Boeing and Airbus
LCA.6010 The European Communities also asserts that ma ny of the orders from United States' airlines
to Boeing during the period 2001- 2006 did not involve any competitiv e presence by Airbus. In the

6006 Exhibit US-444( BCI).
6007 The United States did not present pricing information for Boeing 767 aircraft, stating that there
were insufficient sales of the 767 in the US market during the period to generate data to show average price
trends. US, FWS, footnote 933.
6008 US, FWS, para. 744.
6009 US, FWS, para. 745. In this regard, the United States referred to the ear lier version of Chart 10,
which was identical to the revised version reproduced in the text with respect to the information for 2001-2005.
6010 EC, FWS, para. 2256-57.

BCI deleted, as indicated [***]

European Communities' view, there is little basis to find that subsidies cause adverse effects where
there is not direct competition between Airbus and Boeing. 6011 In this latter regard, the European
Communities does not specify the sales campaigns in the US market in which there was allegedly no
competitive presence by Airbus. 6012 We have considered the European Communities' view that
several of these sales [***] and found it unpersuasive, as it does not directly respond to the United
States' contention of price suppression in the context of its injury arguments.6013
7.2138 The European Communities also argues, in the context of its contention that subsidies to
A320 Aircraft did not cause suppression of world market prices for Boeing 737NG LCA, that the
magnitude of the subsidies is too small to account for the difference between actual Boeing prices and
the prices that would reflect increases in the Aircraft Manufacturers Producer Price Index. 6014 Again,
assuming this to be the European Communities' argum ent with respect to price suppression in the US
market in the injury context, which is not cl ear as the European Communities has not specifically
asserted it, we do not see that it responds to the qu estion whether the imports of subsidized Airbus
LCA caused price suppression, as it focuses exclusively on the effect of the subsidies, which is a
different question. As discussed above, we do not c onsider the magnitude of the subsidies to be a
factor which is required to be considered in assessing whether injury is caused by subsidized
imports.6015
7.2139 With respect to the question of price depressi on, the undisputed price information submitted
by the United States shows that over the period we examined, prices for Boeing 737NG aircraft
increased slightly from 2001 to 2002, then declined precipitously in 2003, increased in 2004 but did
not reach the 2002 level, and then declined in 2 005 and remained essentially the same in 2006. Post-
reprice levels show the same trends at slightly different levels. Prices for the 747 model LCA in the
US market declined from 2001 to 2002, and were markedly lower in 2005, although there were
apparently no sales during the intervening years. The picture is slightly different with respect to the
777 model LCA, whose prices were well above the 2001 levels in 2003, and despite being
substantially lower in 2005, were nonetheless above the level reporte d for 2001. Thus, the evidence
before us clearly demonstrates price depression, that is, actual declines in price levels, for the 737NG
and 747 model LCA, over the entire period being co nsidered, and price depression from 2003 to 2005
for the 777 model LCA.
7.2140 With respect to price suppression, we note th at, all else being equal, one might well expect
that producers would increase prices in line with increases in costs. The European Communities
asserts that the United States Aircraft Manufacturers Producer Price Index ("PPI") is not a reliable
measure of the cost increases faced by Boeing, and that the failure of prices of certain aircraft to
increase commensurate with that index is completely irrelevant to the question whether there was
significant price suppression in the relevant period.
6016 We have rejected the European Communities'
view in this regard, concluding that, as argued by the United States, as a general matter, one would

6011 EC, FWS, para. 2258.
6012 We note that the Annexes to the statement of Christian Scherer, Exhibit EC-14(BCI) present
information on what the European Communities consider s to be "competitive" and "non-competitive" sales
campaigns. However, even if we considered it appropriate for us to review that the information in the Annexes
to the Statement of Christian Scherer relied on by the European Communities in this regard in an attempt to
determine which campaigns the European Communities might be referring to in this regard, which we do not,
we recall that we rejected the European Communities' position with regard to which sales may be considered
"competitive". See, para. 7.1722 above. Moreover, those Annexes do not include all of the lost sales referenced
by the United States, as they do not contain information for 1999
6013 See, paragraph 7.2131 above.
6014 EC, FWS, para. 1803.
6015 See, paragraph 7.2077 above.
6016 EC, Answer to Panel question 213, paras. 509, 511.

BCI deleted, as indicated [***]

expect that in any manufacturing industry, all else being equal, prices should tend to increase with
production costs, and that the PPI represents a reasona ble proxy for cost inflation, and may be used as
a reasonable benchmark for the price trends and levels that would ha ve been expected over the period
we examined.6017 Thus, to the extent Boeing LCA indexed prices in the US market declined relative
to the US Aircraft Manufactures PPI, this suggests that there was price suppression.
7.2141 Comparing the PPI in Charts 23 through 25 with the prices of Boeing 737NG, 747, and 777
LCA in the US market, we consider the informati on demonstrates that there was a degree of price
suppression in respect of prices for all three models. This is most apparent in the case of the 737
prices, where the indexed original order price for 737 LCA increased slightly more than the PPI in
2002, then dropped precipitously in 2003 while the PPI continued to rise, increased more rapidly than
the PPI in 2004, and then dropped again in 2005 while the PPI continued to rise, and remained
virtually unchanged in 2006. Indexed post-reprice averages show generally the same trends, albeit at
slightly different rates of change. With respect to the 747, indexed prices declined from 2001 to 2002,
while the PPI rose slightly, and indexed prices were lower again in 2006, while the PPI had continued
to rise. For the 777, indexed average prices were approximately 17 percentage points lower in 2005
than in 2003, while the PPI incr eased by just under 11 percentage points. For these latter two
categories of aircraft, the lack of price informati on in the intervening years makes it difficult to draw
conclusions, as it is not clear whether the later pric e points are anomalous, or demonstrate a trend.
Nonetheless, it is clear to us that Boeing's averag e prices did not keep pace with increased costs as
represented by the PPI, and by a substantial de gree, supporting the conclusion that there was
significant price suppression in the US market prices for LCA.
7.2142 The European Communities argues that "for pur poses of the US Article 5(a) claim it is
essential to examine the collective effects of any su bsidies on Boeing's commercial health", which the
European Communities maintains requires a "world-wid e assessment" of the effects of the subsidies,
and, therefore, the European Communities incorporates all of the arguments and evidence presented to
rebut the United States' serious prejudice claims by reference.
6018 In the European Communities'
view, this evidence is "highly relevant to s how the absence of any effects from the largely de minimis
magnitude and old age of any subsidies {a}nd ... is sufficient to refute any United States' arguments
that "subsidized Airbus LCA" cause material injury to Boeing". 6019 The European Communities also
refers to its discussion of sales campaigns involving United States' customers in the context of its
response to the United States' serious prejudice claims to argue that those sales were lost for reasons
"entirely unrelated to alleged Airbus subsidies", and asserts that the de minimis magnitude and age of
subsidies would not have resulted in price effect s sufficient to make a difference for an airline
choosing between Airbus or Boeing LCA when ordering.6020
7.2143 We are in something of a quandary with respect the European Communities' arguments in this
regard, as they focus on whether the effect of subs idies to Airbus LCA is serious prejudice to the
United States' interests, while we are here consider ing whether the subsidized imports of Airbus LCA
into the United States cause materi al injury to the United States' LCA industry. Thus, in our view,
arguments concerning the age and magnitude of the subsidies, even if accepted as a matter of fact,
have little if any relevance to the question whet her subsidized imports caused price suppression or
depression in the US market. With respect to the sales campaigns, as indicated above, the information
provided by the European Communities makes clear th at pricing was an important factor in each of
those sales, as indeed would be expected, as the cost of aircraft, both in terms of purchase costs and
operating costs, is a major component of an airlines ' ability to operate, and to operate profitably, but

6017 See, para. 7.1861 above.
6018 EC, FWS, para. 2249.
6019 EC, FWS, para. 2250.
6020 EC, FWS, para. 2256.

BCI deleted, as indicated [***]

that there were a number of elements considered by the customers in choosing between competing
offers from Airbus and Boeing in the first instance.
Causal link
7.2144 The United States argues that Airbus' gains in US market share have come at the expense of
Boeing, thus linking the subsidized imports to the significant adverse impact on Boeing's LCA
production and sales figures. Moreover, the United St ates contends that the decline in the prices
Boeing has been able to command (or failure of thos e prices to increase comm ensurate with inflation
as indicated by the PPI) for the LCA it has been able to sell in the US market is a function of the
pricing of subsidized imports from Airbus. The dete rioration in the other relevant indicators of the
economic health of Boeing's LCA ope rations follows, in the United St ates' view, directly from this
loss of market share and loss of revenue. The tempor al correlation of this deterioration with Boeing's
loss of market share to Airbus, bo th in the US market and worldwid e, is for the United States further
evidence of the causal relationship between imports of subsidized Airbus LCA and the injury to the
United States' LCA industry. The United States asserts that the Appellate Body has recognized that a
temporal correlation between a claimed cause and its e ffect, while not in itself decisive, is relevant
evidence that "one would normally expect" to find in examining the effects of a subsidy.6021
7.2145 The United States argues that the decline in the financial resu lts of Boeing's LCA business
over the period 2001-2005 occurred despite deep cuts in costs and steady gains in productivity. The
cost-cutting effort led to a rise in operating income in 2002 over 2001, even though Boeing's sales and
capacity utilization were lower in 2002 than they ha d been in 2001. The cost cutting and efficiency
gains continued in succeeding years, but according to the United States could no longer offset the
bottom-line impact of declining production, capacity utilization, and sales revenue. In absolute terms,
Boeing's income on its LCA operations fell by nearly two-thirds in 2003 and 2004, as compared with
2002. Further, the partial recovery in Boei ng's LCA income in 2005 is, according to the
United States, due almost entirely to improved prod uctivity, as revenues increased only slightly from
their 2004 levels.
6022
7.2146 The European Communities relies principally on its argument that the United States' LCA
industry, i.e., Boeing, is "in robust financial health, dominant in global and United States' LCA
markets, in improved financial health relative to 2004 and 2001 and on a sharply upward trend" 6023 to
rebut the United States' arguments concerning the e ffects of subsidized imports on the United States'
LCA industry. 6024 The European Communities asserts that the United States failed to address
"non-attribution" factors in its arguments generally and with respect to material injury, and thus
improperly attributes negative market effects resulting from the events of 9/11 to subsidized Airbus
LCA.6025 Finally, the European Communities recalls its assertion that many Boeing orders from
United States' airlines did not involve competition from Airbus, and that there is "little basis" to find
that the effects of subsidies could cause adverse effects where there is not direct competition. 6026
7.2147 The European Communities argues th at Boeing was particularly badly affected by the events
of 9/11 because its orders were predominantly fr om United States' airlines which were themselves
particularly hard hit by the collapse of the travel industry, with four major United States' airlines,
Northwest, United, US Airways, and Delta, fili ng for bankruptcy protection in the subsequent

6021 US, FWS, para. 730 citing Appellate Body Report, US – Upland Cotton, para. 451.
6022 US, FWS, para. 747.
6023 EC, FWS, para. 2159.
6024 EC, FWS, paras. 2247, 2252 – 2255.
6025 EC, FWS, para. 2257.
6026 EC, FWS, para. 2258.

BCI deleted, as indicated [***]

period.6027 Information presented by the European Co mmunities, not disputed by the United States,
shows that from 1998 to 2001, United States' airlin es accounted for between 47 and 32 percent of
Boeing's orders annually, but in 2002 that percentage dropped to 16 percent. 6028 O r d e r s b y
United States' airlines fell from 106 in 2001 to 40 in 2002, or by 62 percent. 6029 The United States
disputes the European Communities' argument, noting that Airbus also was pr esent in the US market
prior to 2001-2003 and itself was a significant s upplier to United States' airlines that entered
bankruptcy in this period, noting that 82 of Airbus' 122 United States' deliveries in 2001, or
67 percent, were to Northwest Airlines, United Airlines, and US Airways.
6030
7.2148 The United States argues that injury resulti ng from the decline in total demand for LCA
following 9/11 – a factor that affected both Airbus and Boeing – is clearly distinguishable from injury
resulting from Boeing's loss of market share in the Un ited States to Airbus. The United States asserts
that while both Airbus and Boeing were affected by the decline in overall LCA demand in the US
market, through the downturn, Airbus increased it s market share and has since maintained that
increased market share, largely through deliveri es to new customers such as JetBlue, Frontier
Airlines, and Virgin America, which it gained in head-to-head campaigns against Boeing from 1999
onwards.6031
7.2149 It is clear that both Airbus and Boeing were ba dly affected by the collapse of the LCA market
following the events of 9/11. However, we agree with the European Communities that the US market
was particularly badly affected, and Boeing was particularly hard hit in the US market, resulting in the
significant decline in its market share from 2001 to 2003. In this regard, we note that Airbus
principally gained market share in the early part of the period we are considering, with its market
share increasing by 14 percentage points during this same period, from 30 percent in 2001 to
44 percent in 2003.
7.2150 With respect to pricing, as noted above, the European Communities does not dispute the
United States' information showing declines in indexed prices over the period 2001-2006 for
Boeing 737NG, 747 and 777 aircraft. Nor does the European Communities dispute that in 2005, and
in 2006 for the 737NG aircraft, the Boeing inde xed price was substantially below the Aircraft
Manufacturers PPI. The European Communities does, however, contend that these declines were not
caused by subsidies to A320 LCA, and does not agr ee that as a matter of fact, prices for certain LCA
have not increased in line with inflation.6032
7.2151 The United States does not explicitly rely on lost sales in support of its claim of material
injury, although it does assert that sales lost to Airbus in 1999 and between 2001 and 2005
demonstrate price undercutting. As noted above , the European Communities seeks to rebut the
United States' arguments by incorporating by re ference its argument asserting a lack of price
suppression caused by subsidies to A320 LCA, an argum ent which we find difficult to evaluate in the
context of an evaluation of whether subsidized im ports caused material inju ry. Nonetheless, for the
same reasons as discussed in the context of our anal ysis of price undercutting for Article 6.3 (c), we
do not consider that the anecdotal information relied on by the United States is sufficient to support its
assertion of price undercutting, particularly in light of the conflicting anecdotal information submitted
by the EC.
6033 The information also indicates that while price is clearly an important factor in LCA

6027 EC, FWS, para 1443.
6028 EC, FWS, para. 1444 (table).
6029 EC, FWS, para. 1444 (table).
6030 US, SWS, para. 732.
6031 US, SWS, para. 732.
6032 EC, Answer to Panel question 213, para. 507.
6033 See, paras. 7.1833 to 7.1840 above.

BCI deleted, as indicated [***]

sales, it is not in all cases determinative, which unde rmines the United States' position with respect to
price undercutting, and thus with respect to the pr ice suppressive and depressive effect of subsidized
imports.
7.2152 With respect to alleged other causes of injury , the United States recognizes that much of the
decline in the condition of Boeing's LCA operations ma y be attributed to the post-2000 drop in LCA
demand, particularly in the United States. None theless, the United States argues that any injury
resulting from this decreased demand is clearly di stinguishable from the alleged injury caused by
subsidized imports of Airbus LCA. Accordi ng to the United States, the data concerning LCA
deliveries and market share show that if Boeing's share by volume of the US market had held constant
at its 2001 level during 2002-2005, Bo eing would have delivered 23 perc ent more aircraft than it
actually did over the period. 6034 Likewise, the United States contends that if Boeing's share by value
of the US market had held constant at its 2001 level, its United States ' sales would have been
54 percent greater in 2005. To this, the United St ates contends, must be added the negative price
impact of Airbus' sales on the aircraft that Boeing did deliver during this period. Thus, the United
States argues that the direct impact of subsidized Airbus imports in the US market on Boeing's
operating performance is "material" by any reasonable standard.6035
7.2153 The United States also argues that improvement s in Boeing's financial condition in 2006,
relied upon by the European Communities to argue th at there is no present material injury, are
irrelevant, as the relevant question for an adverse effects claim under the DSU and the
SCM Agreement is whether the European Comm unities was in breach of its obligation under
Article 5(a) when the Panel was established, and thus that the Panel must make its determination as of
2005. As we have discussed, we do not agree, and consider the period 2001- 2006 is appropriate for
purposes of determining whether subsidized imports of Airbus LCA cause present material injury to
the United States' industry producing LCA. The United States argues that improvement in the
financial condition of Boeing must be placed in the context of unusually high demand in 2005 and
2006 in this cyclical industry. According to th e United States, Boeing remained competitive despite
its loss of market share in its home market and de pressed prices, particularly in the downturn, by
cutting costs and improving productivity. With respect to employment, the United States contends
that despite the recovery in the financial health of Boeing, most of the jobs that were lost in the
downturn had not returned to the industry.
6036 Indeed, the United States argues that the events of 2006
demonstrate how significantly relief from subsidized competition improves the fortunes of the United
States' LCA industry. The United States points out that in 2006, Airbus could not effectively market
either its A380 (because of production problems) or its A350 (which had to be redesigned), and
asserts that what 2006 shows is how the absence of a subsidized and aggressively marketed new
Airbus aircraft improves the fortunes of the United States' LCA industry – and, by contrast, how
significant the adverse effects of LA/MSF and the other Airbus subsidies have been.
6037
7.2154 In this respect, the United States' argument s uggests that, but for the presence of subsidized
Airbus imports in the US market, and the prices of those imports, during the period 2001 – 2005, and
continuing in 2006, Boeing would have been in a materially better position in terms of its
performance, and thus considers that the subsidized imports caused material injury to Boeing. We
have serious doubts about the appropriateness of such an analysis in the context of this case. In a
duopoly market, with one supplier of subsidized imports and one domestic producer, it could be
argued that subsidized imports will always cause material injury, because in the absence of such
imports, the domestic industry would capture the entire market.

6034 US, FWS, para 748.
6035 US, FWS, para. 748.
6036 US, SWS, para. 737.
6037 US, SWS, para. 738.

BCI deleted, as indicated [***]

7.2155 In response to a question from the Panel raising this proposition, the United States
acknowledged that in such a case, "the legal standard for determining material injury is the same as it
would be in any other case". The United States we nt on to assert that its demonstration on material
injury did not depend on the Panel finding that the United States' industry would have supplied the
entire market in the absence of subsidized imports. 6038 Rather, the United States argued that relevant
indicators such as production, revenues, operating ma rgins, and employment levels demonstrated
material injury. The United States further contende d that (1) much of Boeing's loss of market share
could be traced to sales lost to Airbus during and before the period 2001-2005, and (2) price declines,
much of which can be traced to price undercutting by Airbus, were together a not insignificant cause
of that injury, such that the Panel need not consider the proposition.6039
7.2156 The European Communities agreed that the Panel need not decide whether the proposition in
the Panel's question is valid, but for different reasons. 6040 In the European Communities' view, the
proposition is neither legally correct, nor appropriate in the factual circumstances of this dispute. 6041
The European Communities asserts that in a two-step analysis, it is possible for a domestic industry to
face competition from subsidized imports and still not be in a condition that constitutes "material
injury". Moreover, the European Communities asse rts that the possibility that Boeing might have
more revenue in the absence of subsidized imports does not prove causation.6042
7.2157 Having found that the United States' domestic industry is not in a condition that can be
considered "material injury", we consider that we need not resolve the question of the validity of the
proposition we raised with the parties. We note, however, that, as suggested by our conclusion, we
agree with the view that it is possible for a domes tic industry to compete with subsidized imports and
not be materially injured. That is, in our view , what the facts show in this case – following the
collapse of the LCA market after the events of 9/11, Boeing has managed to successfully compete
with subsidized imports and better its performance to the extent that we cannot conclude that it is
materially injury as of the end of the period we examined.
(iii) Threat of Material Injury
7.2158 Article 15.7 of the SCM Agreement requires that a determination of threat of material injury
shall be "based on facts and not me rely on allegation, conjecture, or remote possibility." Moreover, it
establishes that "the change in circumstances whic h would create a situation in which the subsidy
would cause injury must be clearly foreseen and imminent", and sets out the following series of
factors which should be considered in making the determination:
 "(i) nature of the subsidy or subs idies in questions and the trade effects
likely to arise therefrom;

 (ii) a significant rate of increase of dumped imports into the domestic
market indicating the likelihood of substantially increased importation;

 (iii) sufficient freely disposable, or an imminent, substantial increase in,
capacity of the exporter indicating the likelihood of substantially increased subsidized
exports to the importing Member's market, taking into account the availability of
other export markets to absorb any additional exports;

6038 US, Answer to Panel question 284, paras. 136-37.
6039 US, Answer to Panel question 284, para. 137.
6040 EC, Comments on US Answer to Panel question 284, para. 312.
6041 EC, Answer to Panel question 284, para. 214.
6042 EC, Answer to Panel question 284, paras. 216-17.

BCI deleted, as indicated [***]

 (iv) whether imports are entering at prices that will have a significant
depressing or suppressing effect on domestic prices, and would likely increase
demand for further imports; and

 (v) inventories of the product being investigated."

7.2159 As we have noted, in the context of our assess ment of injury, including threat of material
injury, we consider our role in this dispute to be essentially similar to that of an investigating authority
in a trade remedy investigation. Previous panels have considered the meaning of Article 15.7 in
reviewing the determinations of investigating authorities concerning threat of material injury in
countervailing duty determin ations. We consider those reports to be relevant guidance for our
analysis in this dispute. In addition, given th at the provisions of Article 3.7 of the AD Agreement
parallel those of Article 15.7 of the SCM Agreement, with the exception of Article 15.7(i), and for the
same reasons as discussed above,
6043 we also consider reports addressing Article 3.7 of the
AD Agreement to be equally instructive.
7.2160 The panel in Mexico-HFCS concluded that Article 3.7 of the AD Agreement sets forth a
series of factors that must be considered in each case in assessing threat of material injury, but
recognizes that factors other than those set out in Ar ticle 3.7 itself will necessarily be relevant to the
determination.6044 The panel went on to conclude that "{a} determination that material injury would
occur cannot, in our view, be made solely on the basi s of consideration of the Article 3.7 factors.
Rather, it must include consideration of the likel y impact of further dumped imports on the domestic
industry."6045 This, the panel observed, was because:
" the Article 3.7 factors do not relate to the consideration of the impact of the dumped
imports on the domestic industry. The Article 3.7 factors relate specifically to the
questions of the likelihood of increased imports (based on the rate of increase of
imports, the capacity of exporters to incr ease exports, and the availability of other
export markets), the effects of imports on future prices and likely future demand for
imports, and inventories. They are not, in themselves, relevant to a decision
concerning what the "consequent impact " of continued dumped imports on the
domestic industry is likely to be. Howeve r, it is precisely this latter question –
whether the "consequent impact" of continued dumped imports is likely to be material
injury to the domestic industry - which must be answered in a threat of material injury
analysis."
6046
The panel concluded that "consideration of the Article 3.4 factors in examining the consequent impact
of imports is required in a case involving threat of injury in order to make a determination consistent
with the requirements of Articles 3.1 and 3.7".6047

7.2161 Thus, the panel concluded that Article 3.4 of the AD Agreement, which is mandatory and
requires examination of the listed injury factors in every case, also applies in consideration of threat of

6043 See, para. 7.2057 above.
6044 Panel Report, Mexico – Anti-Dumping Investigation of High Fructose Corn Syrup (HFCS) from the
United States ("Mexico – Corn Syrup") , WT/DS132/R, adopted 24 February 2000, and Corr.1, DSR 2000:III,
1345, para. 7.124.
6045 Panel Report, Mexico – Corn Syrup, para. 7.125.
6046 Panel Report, Mexico – Corn Syrup, para. 7.126.
6047 Panel Report, Mexico – Corn Syrup, para. 7.127.

BCI deleted, as indicated [***]

material injury, along with any other relevant factors, in order to make a determination consistent with
the requirements of Articles 3.1 and 3.7.6048 The panel opined that
"an investigating authority cannot come to a reasoned conclusion, based on an
unbiased and objective evaluation of the facts, without taking into account the
Article 3.4 factors relating to the impact of imports on the domestic industry. These
factors all relate to an evaluation of the general condition and operations of the
domestic industry – sales, profits, output, ma rket share, productivity, return on
investments, utilization of capacity, factors affecting domestic prices, cash flow,
inventories, employment, wages, growth, ability to raise capital. Consideration of
these factors is, in our view, necessary in order to establish a background against
which the investigating authority can evaluate whether imminent further dumped
imports will affect the industry's condition in such a manner that material injury
would occur in the absence of protective action, as required by Article 3.7. ... Such an
analysis would be necessary in order to e xplain the present, and anticipated future,
condition of the domestic industry sufficiently to support the conclusion that 'material
injury would occur', as provided in Article 3.7, unless protective action is taken."
6049
Similarly, in this case, our evaluation of the condition of the United States' industry producing LCA
provides a background for our consideration of the Artic le 15.7 factors, and the likely effect of future
subsidized imports on that industry.

7.2162 In US – Lumber VI , the panel stated that "consideration" of the factors listed in Article 15.7
must "go beyond a mere recitation of the facts in ques tion, and put them into context. However, the
investigating authorities are not required by Article s 3.7 and 15.7 to make an explicit "finding" or
"determination" with respect to the factors considered".
6050 The panel went on to note that, unlike in
consideration of the injury factors listed in Ar ticles 15.4 of the SCM Agreement and 3.4 of the
AD Agreement,
"consideration of each of the factors listed in Articles 3.7 and 15.7 is not mandatory.
Consequently, a failure to consider a factor at all, or a failure to adequately consider,
a particular factor would not necessarily demonstrate a violation of the provisions.
Whether a violation existed would depend on the particular facts of the case, in light
of the totality of the factors considered and the explanations given."
6051
In this case, we have information and arguments c oncerning all of the Article 15.7 factors, and we
address them below.

7.2163 With respect to the nature of threat of injury as opposed to injury, an d the possibility of the
two existing in the same case, we note that in the co ntext of safeguards, "serious injury" is defined as
"a significant overall impairment in the position of a domestic industry", and threat of serious injury is
defined as serious injury that is clearly imminent".
6052 In addressing the question whether a discrete
determination of either serious inju ry or threat of serious injury, but not both, must be made by the
investigating authorities in a safeguards investigation, the Appellate Body noted:

6048 Panel Report, Mexico – Corn Syrup, paras. 7.127 – 128.
6049 Id., paras. 7.132 – 133.
6050 Panel Report, US – Softwood Lumber VI , para. 7.67 (footnotes omit ted, citing generally Panel
Report, Thailand H-Beams and paras. 7.170 and 7.161).
6051 Panel Report, US – Softwood Lumber VI, para. 7.68 (footnote omitted).
6052 Agreement on Safeguards, Article 4.1 (a) and (b).

BCI deleted, as indicated [***]

"these two definitions reflect the reality of how injury occurs to a domestic industry.
In the sequence of events facing a domestic i ndustry, it is fair to assume that, often,
there is a continuous progression of inju rious effects eventually rising and
culminating in what can be determined to be "serious injury". Serious injury does not
generally occur suddenly. Present serious injury is often preceded in time by an
injury that threatens clearly and imminently to become serious injury. "6053
While the SCM Agreement does not contain a similar definition distinguishing present material injury
and threat of material injury, the relationship between the concepts is in our view the same.

7.2164 The European Communities argues that the United States has not demonstrated a "clearly
foreseen and imminent" "change in circumstances which would create a situation in which" the
alleged subsidies would cause material injury to Boeing. According to the European Communities,
the United States faces a "heavy burden" to demons trate new or changed circumstances that would
change the "improving financial strength and incr easing market dominance" of Boeing in 2005-2006
to material injury.
6054 This raises a question concerning the consideration of the "the change in
circumstances which would create a situation in whic h the subsidy would cause injury" referred to in
the chapeau of Article 15.7, and its import for our analysis.
7.2165 On this issue, the views of the panel in US-Softwood Lumber VI, are particularly apposite. In
that case, the complaining Member, Canada, argu ed before the panel that Article 15.7 of the
SCM Agreement requires that the "change in ci rcumstances" from the non-injurious period of
investigation that will create a situation in whic h the dumping or subsidy will cause injury must be
"clearly foreseen and imminent", calling this the "logical predicate" for an affirmative finding of
threat of material injury, and that this change in circumstances must be clear ly anticipated and on the
brink of happening. Canada asserted that the invest igating authority in that case had failed to explain
how the evidence provided a basis for a conclusion that the situation would change such that imports
that did not cause injury to the domestic industry during the period of investigation would cause
material injury in the imminent future.
7.2166 In its report, the panel considered the meaning of the "change of circumstances" element of
Article 15.7, noting that it was "not a model of clarity". 6055 The Panel observed that the provision
seemed, on its face, to require that some "'change of circumstances' must be clearly foreseen and
imminent, and that it is this change of circumstan ces that would create a situation in which injury
would occur." 6056 The panel referred to footnote 10 to th e parallel provision, Article 3.7, in the
AD Agreement, which provides an example of what might constitute a change in circumstances: "One
example, though not an exclusive one, is that there is convincing reason to believe that there will be,
in the near future, substantially increased importa tion of the product at dumped prices". That
example, however, is effectively repeated in Artic le 15.7(ii), which sets out "likelihood of increased
imports" as a factor to be considered. The panel noted that "both the change of circumstances, and
further dumped or subsidized imports, must be im minent, and the likelihood of increased imports is
both a relevant change of circumstances and a factor to be considered in dete rmining the existence of
threat."6057 The panel concluded that:

6053 Appellate Body Report, United States – Definitive Safeguard Measures on Imports of Circular
Welded Carbon Quality Line Pipe from Korea ("US – Line Pipe") , WT/DS202/AB/R, adopted 8 March 2002,
DSR 2002:IV, 1403, para. 168.
6054 EC, FWS, para. 2238.
6055 Panel Report, US-Softwood Lumber VI, para. 7.53.
6056 Id.
6057 Panel Report, US-Softwood Lumber VI, para. 7.54.

BCI deleted, as indicated [***]

"the relevant 'change in circumstances' referred to in Articles 3.7 and 15.7 is one
element to be considered in making a determ ination of threat of material injury.
However, we can find no support for the conclusion that such a change in
circumstances must be identified as a single or specific event. Rather, in our view,
the change in circumstances that would give rise to a situation in which injury would
occur encompasses a single even t, or a series of events, or developments in the
situation of the industry, and/or concerning the dumped or subsidized imports, which
lead to the conclusion that injury which has not yet occurred can be predicted to occur
imminently."
6058
7.2167 Overall, based on these reports, we understand that an industry that is not materially injured,
and whose performance is robust and improving, is less vulnerable to a deterioration of its
performance which might be considered material inju ry in the near future. Conversely, an industry
whose performance, while not reflecting present materi al injury, is generally weak or declining,
would be more vulnerable to such deterioration, a nd the likelihood of its being materially injured in
the near future would be greater. Of course, whethe r any such future material injury would be caused
by subsidized imports must also be considered, and consideration of the Article 15.7 factors is
pertinent to this aspect of the analysis.
7.2168 We have concluded, based on our consider ation of information concerning relevant
Article 15.4 factors, that the United States' i ndustry producing LCA is not presently materially
injured. Based on that same information, and in pa rticular considering the trends over the most recent
period and information concerning future trends in deliveries of Boeing LCA presented by the
European Communities, we see no indication that th e condition of the United States' industry is likely
to deteriorate in the near future to a degree that would result in it experiencing material injury. The
information before us shows improvements in Boeing's performance in 2006 over 2005, and the
significant number of orders booked in 2005 an d 2006 suggests that Boeing's performance will
continue to be strong, if not even further improve d. Thus, we do not consider the United States'
industry to be vulnerable to injury caused by subsidized imports in the near future.
7.2169 Having established the framework for and context of our analysis, we proceed to review the
evidence on the Article 15.7 factors, which, as me ntioned, concern primarily the likely volumes and
prices of future imports.
Nature and effects of the subsidies
7.2170 The United States argues that the European Communities and the Airbus governments
tailored the subsidies at issue so as to give Airbus a structural advantage over Boeing. According to
the United States, LA/MSF and the other subsidies in dispute transfer much of the cost and risk of
LCA development from Airbus to the European Communities and the Airbus governments, and the
continued effects of these subsidies give Airbus fl exibility that it would not otherwise have to launch
new aircraft and price all models to gain market share. 6059 The United States asserts that subsidies
already bestowed, and already co mmitted for the A350, as well as fu rther anticipated subsidies,
perpetuate Airbus's structural advantages in th e United States' LCA market, and give Airbus the
financial flexibility to capture additional orders at aggressively discounted prices, while absorbing
loss-making A380 sales and designing the A350.6060

6058 Panel Report, US - Softwood Lumber VI, para. 7.57.
6059 US, FWS, para. 755.
6060 US, FWS, para. 756.

BCI deleted, as indicated [***]

7.2171 We have earlier in this report found that the United States has failed to establish that as of the
establishment of this Panel, the Airbus government s had committed to provide Airbus with LA/MSF
for the A350 on unsecured, backload ed, success-dependent and below-ma rket interest rate repayment
terms. On the other hand, we have also concluded that the subsidies that we have found to exist have
had the effect of enabling Airbus to launch new mo dels of LCA that it would otherwise not have been
able to, or at least not at the time that it did. Moreover, we have concluded that LA/MSF granted with
respect to each successive model of Airbus LCA has effects with respect to both later- and previously-
launched models. The most recently launched Airbus LCA, the A380, was just entering the market at
the end of the period we examined, and all earlier models were still being manufactured and sold.
6061
Thus, we consider that, apart from subsidized LA /MSF to the A350, for which the United States has
not established a commitment that it will be provided, imports of Airbus LCA in the near future will
continue to be subsidized. However, there is nothing to suggest that there is likely to be an increase in
subsidization in the near future, as almost all of the subsidies with respect to currently-marketed
models of Airbus LCA have already been provided. 6062 Nor is there anything in the nature of the
subsidies we have found to exist which suggests that there is likely to be an increase in subsidized
imports in the near future as a consequence of the subsidies themselves.
7.2172 The European Communities contends that there are no trade effects likely to arise from the
measures in dispute that are likely to threaten material injury to Boeing. In this regard, the European
Communities refers to its argument that Boeing is not suffering present material injury. 6063 Again, by
referencing other portions of its argument, the European Communiti es leaves the Panel in something
of a quandary to determine what aspects of its argument are to be considered. It would appear that the
European Communities refers in th is respect to its arguments concerning "potential" declines or
negative effects on Boeing in its discussion of the Article 15.4 factors. It is not entirely clear how this
relates to the nature and effect of the subsid ies in dispute, as these portions of the European
Communities' arguments relate to its view that im provements in Boeing's performance, as reflected in
the Article 15.4 factors, are likely to continue. Wh ile this may support the view that Boeing will not
be materially injured in the future, it is difficult to see how it relates to the nature and effect of the
subsidies.
Rate of increase of subsidized imports
7.2173 The United States argues that Airbus' market share in the United States has significantly
increased in recent years, and asserts that the st rength of its firm order backlog for new LCA
deliveries confirms that the volume of imports will remain high for th e foreseeable future. 6064 We
have concluded that order data is relevant in assessing threat of injury, as it is a good, albeit not a
perfect predictor of future deliveries, and thus can serve as a basis for assessing likely trends in future
imports.
7.2174 The European Communities states that imports into the United States ' LCA market increased
moderately in absolute terms during when the market improved from 2004 to 2005, but declined in
2006 and continue to lose market share to domestic production. 6065 The European Communities

6061 Production of Airbus' first LCA models, the A300 and A310, ceased in 2007.
6062 Of course, it is possible that new or additional subsidies will be granted. However, these would
presumably benefit existing models of Airbus LCA. If they were with respect to a newly launched model,
imports of such a new LCA would not be likely in the near future, given the development time necessary for a
new model.
6063 EC, FWS, para. 2239.
6064 US, FWS, para. 757.
6065 EC, FWS, para 2240. The data on imports in terms of deliveries presented by the United States
shows that imports of Airbus LCA were the same in 2004 as in 2003, increased in 2005, and decreased in 2006,
albeit to a level just above that for 2005. Market share followed the same trend. See, paragraph 7.2113 above.

BCI deleted, as indicated [***]

reiterates that Airbus' share of orders in the US market decreased substantially between 2004 and
2006, and between 2001-2006. The European Comm unities contends that as United States' LCA
markets rebound from the 2002-2004 recession and grow, Ai rbus is capturing an ever-declining share
of those markets.6066
7.2175 The United States presents information concer ning orders for LCA, based on sales allegedly
lost during the period 2001-2006. That information indicates a total of 198 firm orders for Airbus
LCA unfilled as of August 2006, specifically from Je tBlue (89), U.S. Airways (49), America West
(26), Virgin America (19), and Frontier (15). 6067 The United States argues that these scheduled
deliveries are already contracted for and ar e therefore "clearly foreseen and imminent." 6068 I n
addition, the United States notes that 20 A380s a nd 41 A350s had been ordered by United States'
customers,6069 and asserts that more such orders can be anticipated in the near future as these
programs advance. In addition, the United States argues that once an air line has chosen one LCA
manufacturer over the other, it tends to make additional follow-on orders from that same manufacturer
in order to enhance its efficiency and minimize its operating costs, and thus that Airbus' increased
share of the US market places it in a stronger pos ition to win additional follow-on sales and capture a
higher share of orders and deliveries in future years.
7.2176 The European Communities has also submitted information on United States' orders of
Boeing and Airbus LCA for the period 2001 to 2006. The European Communities' data, following the
principles on which it has structured its arguments, is presented separately for each of four categories
of LCA. We have compiled the information presented by the European Communities in the following
chart:

6066 EC, FWS, para. 2240.
6067 US, FWS, para. 758, referencing Airclaims CASE database, data query as of August 14, 2006.
6068 SCM Agreement, Art. 15.7.
6069 US, FWS, para. 758, referencing Airclaims CASE database, data query as of August 14, 2006,
adjusted for cancellation of FedEx A380 order in November 2006.

BCI deleted, as indicated [***]

Chart 26: United States' orders of Airbus and Boeing LCA, 2001-20066070

163
48
68
36
193
265
179
34
91
67
143
117
0
50
100
150
200
250
300
2001 2002 2003 2004 2005 2006
Units
Boeing
Airbus

7.2177 We note that there are certain constraints in considering order information with respect to
likely trends in future imports. The Airclaims da tabase (on which both parties rely for information
concerning orders and deliveries of LCA) records orders made by leasing companies, which account
for a significant percentage of LCA sales, on the b asis of the location of the leasing company, while
deliveries are recorded on the basi s of the location of the operating ai rline to which the aircraft is
ultimately delivered.6071 Thus, an order by a leasing company in the United States for delivery to an
airline in, for example, the United Kingdom, will be reported as a US order, and a UK delivery. 6072
Our review of the information from which this chart is derived, Exhibit EC-21, bears out this concern
in the context of evaluating likely future imports into the United States. Thus, for example, Exhibit
EC-21 indicates that of the 20 total Airbus A380 LCA reported by the European Communities as
United States' orders for the period 2001 – 2006, 10 were ordered by a leasing company, ILFC, in
2001.
6073 The first scheduled delivery date for any of those aircraft is May 2010, with further
deliveries scheduled through 2015. The "operator country" for two of the aircraft ordered by ILFC is
listed as the United Arab Emirates, suggesting that at least those two aircraft will not, in fact, be
imported into the United States. The "operator" for the remaining 8 aircraft ordered by ILFC is listed
as ILFC. Of course, ILFC is not an airline a nd does not actually operate aircraft. Thus, this
information gives no indication as to the country to which those 8 aircraft will eventually be
delivered. Similar concerns arise with respect to the order information for other models of LCA, and
thus with respect to the data as a whole.
7.2178 Overall, while the information on orders does demonstrate that there will continue to be
imports of subsidized Airbus LCA into the US mark et, these types of concerns make this information
a less than reliable basis on which to draw conclusi ons concerning an imminent increase in subsidized

6070 Compilation of information presented in tabular form, EC, FWS, paras. 2169-2172. We note that
this information is based on a query to the Airclaims CASE database as of 19 January 2007, submitted as
Exhibit EC-21.
6071 See, Exhibit EC-21.
6072 US, Answer to Panel Question 132, para 430.
6073 The other 10 were ordered by UPS, a freight/cargo carrier, in 2005.

BCI deleted, as indicated [***]

imports. In addition, it is clear that even firm or ders do not inevitably result in deliveries, as orders
are sometimes cancelled, for instance by an airlin e that goes bankrupt, and delivery is sometimes
subject to unanticipated delays as a result of prod uction problems, or re-negotiation of terms with
customers. Moreover, the time frame for the deli veries of these booked orders is often significantly
longer than could reasonably be de emed "imminent". While the notion of "imminent" in the context
of the LCA industry, with its long lead times for orders and extended delivery schedules, may well be
longer than in other industries with a shorter interv al between order, production and delivery, we do
not consider that orders for deliveries of LCA th at will not occur within two or three years can
reasonably be considered "imminent", even if thos e aircraft are eventually delivered to the United
States. Lastly, merely because an order is booked as a US order does not mean that the aircraft
involved will actually be delivered to a customer in the United States, and thus it remains unclear
whether that order actually represents a future impor t. While the impact of this latter factor is
incalculable, given the significant number of LCA purchased by leasing companies, we consider it
likely to be significant. Thus, we do not consider that this information demonstrates a likelihood of
substantially increased importation in the near future , although it clearly demonstrates that there will
continue to be a substantial number of subsidized imports of Airbus LCA.
Additional capacity
7.2179 The United States argues that Airbus is incr easing its LCA capacity by adding two entirely
new LCA production lines for the A380 and the A350, a substantial number of which aircraft have
already been ordered by United States' customers. According to the United States, Airbus has also
announced that it is increasing its capacity to produce its other aircraft and is considering even further
increases. The United States considers that this mak es it clear that Airbus is substantially increasing
its LCA production capacity, and argues that at least some of this capacity can be expected to be
available to supply additional subsidized LCA to the US market, even taking into account expected
growth of Airbus LCA sales in other markets as well. 6074
7.2180 The European Communities does not dispute th e United States' evidence concerning Airbus'
capacity, arguing only that any capacity added to Air bus' existing capacity could not threaten material
injury to Boeing, given Boeing's dominant and improving position in the LCA market. 6075 T h e
European Communities notes that deliveries of the A380 will begin in 2007, while deliveries of the
A350 will not begin before 2013-2014. 6076 For the European Commun ities, the increase in orders
booked by Boeing in 2005 and 2006 "virtually gua rantees" that Boeing will dominate deliveries to
United States' customers for the ensuing three years, even given the likelihood of eventual increases in
Airbus deliveries to the US market as a result of increased production capacity.6077
7.2181 It seems clear to us that, with the introduction of new model Airbus LCA, manufactured in
part in newly added production lines, the capacity of Airbus to deliver LCA, including the US market,
will increase. Of course, whether that increase tr anslates to increases in imports is a different
question. The order information does not suggest that recently-added additional capacity to produce
A380 aircraft will have a significant imminent e ffect on imports, and any increases as a result of
increased capacity to produce A350 aircraft would seem even more remote in time. 6078 Thus, while

6074 US, FWS, para. 760.
6075 EC, FWS, paras. 2241.
6076 EC, FWS, para. 2242-43.
6077 EC, FWS, para. 2243.
6078 Although we have concluded that the United States has failed to demonstrate a commitment to
grant subsidized LA/MSF with respect to the A350, we have found that the spillover effects of LA/MSF
subsidies to particular models of Airbus LCA benefit other earlier and subsequent models, and, in addition, a
number of the subsidies we have found to exist benefit Airbus LCA as a whole.

BCI deleted, as indicated [***]

increased capacity does suggest an eventual increase in production of Airbus LCA, we cannot
conclude that it supports finding an imminent increase in imports into the United States.
Continued price depression and suppression
7.2182 The United States asserts that available data indi cate that Airbus has systematically priced its
aircraft below Boeing's prices, particularly in seek ing initial customers for new aircraft, trying to
capture a Boeing account, or trying to win business at a new airline. According to the United States,
recent Airbus sales, both in the US market and el sewhere, have driven global LCA prices to new
lows. Each new campaign is conducted in the prev ailing price environment, and the United States
argues that United States' LCA prices are therefor e likely to remain depressed or suppressed for the
foreseeable future.6079
7.2183 The European Communities considers that the United States has failed to establish that
imports are suppressing or depressing prices, and w ould likely increase demand for further imports.
The European Communities argues th at the United States has failed to demonstrate price suppression
or depression in the global market, and in view of the lack of any link between subsidies and any price
effects, there is no basis for a conclusion that there will be future price effects.6080
7.2184 It seems clear that prices in the US market showed declines and suppression during the period
we are considering. However, given the complexitie s of pricing in the LCA market, where each sales
campaign involves considerable negotiation between customer and manufacturer, we find it difficult
to draw any conclusions about likely future pricing, particularly given the evidence of improvements
in the market and Boeing's order backlog. Thus, we conclude that the information before us does not
demonstrate that subsidized imports are likely to have price depressing or suppressing effects in the
near future.
Inventories
7.2185 The parties are agreed that LCA producers rarely keep inventories, and therefore this factor
does not suggest any likelihood that imports of subsidized Airbus LCA will increase in the near
future.6081
(iv) Conclusion
7.2186 We have concluded, based on our assessment of Boeing's operating performance over the
period examined, that it is not presently materially injured. Moreover, the improvements in Boeing's
performance toward the end of the period we examined appear likely to continue in the near future
and result in continued strong and even improved perfo rmance, particularly in light of strong demand
in the market, and the surge in orders obtained by Boeing in 2005 and 2006. In addition, Boeing's
improved efficiency and productivity over the peri od of 2001-2005, as well as increased out-sourcing
of various operations, also supports the view that its strong performance as of 2006 is likely to
continue into the near future. Lead times for LCA production and de liveries are long, and while it is
clear that Airbus has, and will continue to have, increased capacity to deliver subsidized LCA to the
US market, there is nothing in the information before us to suggest that any significant increases in
such imports are likely to occur in the near future . Moreover, while indexed price levels declined
during the period 2001-2005, and in 2006 for the 737NG, and prices in the US market were
suppressed with respect to the US Aircraft Manufacturers' PPI, in view of the many factors that

6079 US, FWS, para. 762.
6080 EC, FWS, para. 2244.
6081 See footnote 5912.

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determine LCA pricing and the increased demand in the market, as well as the significant number of
orders Boeing obtained in 2005 and 2006, we cannot c onclude that subsidized imports are likely to
have price depressing or suppressing effects in the near future. On balance, therefore, and considering
all the evidence and arguments before us, we concl ude that the United States has not demonstrated a
threat of material injury to the United States' LCA industry.
VIII. CONCLUSIONS AND RECOMMENDATION
A. CONCLUSIONS
8.1 In light of the findings set out in the foregoing sections of our Report, we conclude that the
United States has established the following concerning the existence of subsidies:
(a) concerning the provision of LA/MSF;
(i) that each of the challenged LA/MSF m easures constitutes a specific subsidy
within the meaning of Articles 1 and 2 of the SCM Agreement, and
(ii) that the German, Spanish and UK A 380 LA/MSF measures are subsidies
contingent in fact upon anticipated export performance, and therefore
prohibited export subsidies within th e meaning of Article 3.1(a) and
footnote 4 of the SCM Agreement.
(b) concerning the provision of infrastructure and infrastructure-related grants;
(i) that the provision of the Mühlenberger Loch site constitutes a specific
subsidy within the meaning of Articles 1 and 2 of the SCM Agreement,
(ii) that the provision of the lengthened Bremen Airport Runway constitutes a
specific subsidy within the meaning of Articles 1 and 2 of the
SCM Agreement,
(iii) that the provision of the ZAC Aéro constellation site and associated EIG
facilities constitutes a specific subsidy within the meaning of Articles 1 and 2
of the SCM Agreement, and
(iv) that challenged grants provided by authorities in Germany and Spain for the
construction of manufacturing and assembly facilities in Nordenham,
Germany, and Sevilla, La Rinconada, Toledo, Puerto de Santa Maria and
Puerto Real, Spain, and by the gove rnments of Andalusia and Castilla-La
Mancha to Airbus in Puerto Real, Se villa, and Illescas (Toledo) are specific
subsidies within the meaning of Articles 1 and 2 of the SCM Agreement.
(c) concerning the German government's transf er of its ownership share in Deutsche
Airbus to the Daimler Group;
(i) that the 1989 acquisition by KfW of a 20 percent equity interest in Deutsche
Airbus is a specific subsidy within the meaning of Articles 1 and 2 of the
SCM Agreement, and

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(ii) that the 1992 transfer by KfW of its 20 percent equity interest in Deutsche
Airbus to MBB is a specific subsidy within the meaning of Articles 1 and 2
of the SCM Agreement.
(d) concerning the equity infusions that the French government and Crédit Lyonnais
provided to Aérospatiale;
(i) that the 1987, 1988, 1992 and 1994 equity infusions to Aérospatiale are
specific subsidies within the meaning of Articles 1 and 2 of the
SCM Agreement, and
(ii) that the 1998 transfer by the French government of its 45.76 percent interest
in Dassault Aviation to Aérospatiale is a specific subsidy within the meaning
of Articles 1 and 2 of the SCM Agreement.
(e) concerning the research and technological development funding provided by the
European Communities and certain EC member States;
(i) that grants under the Second, Third, Fourth, Fifth and Sixth EC Framework
Programmes identified in Annexes I.1, I.2, I.3, I.4 and I.5 are specific
subsidies within the meaning of Articles 1 and 2 of the SCM Agreement,
(ii) that French government grants amounting to a maximum of EUR 391 million
between 1986 and 1993 and EUR [***] between 1994 and 2005 are specific
subsidies within the meaning of Articles 1 and 2 of the SCM Agreement,
(iii) that German Federal government grants under the LuFo I, LuFo II and LuFo
III programmes amounting to EUR [***] are specific subsidies within the
meaning of Articles 1 and 2 of the SCM Agreement,
(iv) that German sub-Federal govern ment grants amounting to EUR [***] from
the Bavarian authorities unde r the OZB and Bayerisches
Luftfahrtforschungsprogramm, EUR 11 million from the Bremen authorities
under the AMST programmes, and EUR [***] from the Hamburg authorities
under the Luftfahrtforschungsprogramm are specific subsidies within the
meaning of Articles 1 and 2 of the SCM Agreement,
(v) that loans under the Spanish government PROFIT and PTA programmes
amounting to, respectively, EUR 62.2 million and EUR [***], are specific
subsidies within the meaning of Articles 1 and 2 of the SCM Agreement, and
(vi) that UK government grants unde r the CARAD and ARP programmes
amounting to GBP [***] are specific subsidies within the meaning of
Articles 1 and 2 of the SCM Agreement.
8.2 Furthermore, in light of the findings set out in the foregoing sections of our Report, we
conclude that the United States has established the following with respect to adverse effects:
(a) that the effect of the subsidies is to di splace the imports of a like product of the
United States into the European market with in the meaning of Article 6.3(a) of the
SCM Agreement, constituting serious prejudice to the interests of the United States
within the meaning of Article 5(c) of the SCM Agreement,

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(b) that the effect of the subsidies is to displace the exports of a like product of the
United States from the markets of Australia , Brazil, China, Chinese Taipei, Korea,
Mexico, and Singapore within the meaning of Article 6.3(b) of the SCM Agreement,
constituting serious prejudice to the interests of the United States within the meaning
of Article 5(c) of the SCM Agreement,
(c) that the effect of the subsidies is likely displacement of exports of a like product of
the United States from the market of India with in the meaning of Article 6.3(b) of the
SCM Agreement, constituting a threat of serious prejudice to the interests of the
United States within the meaning of Article 5(c) of the SCM Agreement, and
(d) that the effect of the subsidies is signifi cant lost sales in the same market within the
meaning of Article 6.3(c) of the SCM Ag reement, constituting serious prejudice to
the interests of the United States within the meaning of Article 5(c) of the
SCM Agreement.
8.3 On the other hand, in light of the findings set out in the foregoing sections of our Report, we
conclude that the United States has not established the following concerning the existence of
subsidies:
(a) concerning the provision of LA/MSF;
(i) the existence, as of July 2005, of a LA/MSF commitment measure for the
A350 constituting a specific subsidy with in the meaning of Articles 1 and 2
of the SCM Agreement,
(ii) that the French A380, French A340-500/600, Spanish A340-500/600 and
French A330-200 LA/MSF measures are subsidies contingent in fact upon
anticipated export performance within the meaning of Article 3.1(a) and
footnote 4 of the SCM Agreement,
(iii) that the French A380, German A380, Spanish A380, UK A380, French
measures are subsidies contingent in law upon anticipated export
performance within the meaning of Article 3.1(a) and footnote 4 of the
SCM Agreement, and
(iv) the existence of an unwritten LA/M SF Programme measure constituting a
specific subsidy within the meaning of Articles 1 and 2 of the
SCM Agreement.
(b) concerning the challenged EIB Loans;
(i) that each of the challenged loans and the 2002 credit facility for the A380
constitutes a specific subsidy within the meaning of Articles 1 and 2 of the
SCM Agreement.
(c) concerning the provision of infrastructure and infrastructure-related grants;
(i) that the road improvements by French authorities constitute specific subsidies
within the meaning of Articles 1 and 2 of the SCM Agreement,

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(ii) that the GBP 19.5 million provided to Airbus UK in respect of its operations
in Broughton, Wales, is a specific subsidy within the meaning of Articles 1
and 2 of the SCM Agreement, and
(iii) that the grant provided by the government of Andalusia to Airbus in Puerto
Santa Maria is a specific subsidy within the meaning of Articles 1 and 2 of
the SCM Agreement.
(d) that the 1998 settlement by the German gove rnment of Deutsche Airbus' government
debt constitutes a specific subsidy within the meaning of Articles 1 and 2 of the
SCM Agreement.
(e) concerning the research and technological development funding provided by the
European Communities and certain EC member States;
(i) that the German Federal government's commitment to provide Airbus with
EUR [***] under the LuFo III programme is a specific subsidy within the
meaning of Articles 1 and 2 of the SCM Agreement, and
(ii) that the challenged grants under the UK Technology Programme are specific
subsidies within the meaning of Articles 1 and 2 of the SCM Agreement.
8.4 Furthermore, in light of the findings set out in the foregoing sections of our Report, we
conclude that the United States has not established the following with respect to adverse effects;
(a) that the effect of the subsidies is signi ficant price undercutting by the subsidized
product as compared with the price of a like product of the United States in the same
market within the meaning of Article 6.3(c) of the SCM Agreement,
(b) that the effect of the subsidies is significant price suppression within the meaning of
Article 6.3(c) of the SCM Agreement,
(c) that the effect of the subsidies is significant price depression within the meaning of
Article 6.3(c) of the SCM Agreement, and
(d) that, through the use of the subsidies, the European Communities and certain EC
member States cause injury to the Unite d States' domestic industry within the
meaning of Article 5(a) of the SCM Agreement.
B. R
ECOMMENDATIONS
8.5 Under Article 3.8 of the DSU, in cases where there is an infringement of the obligations
assumed under a covered agreement, the action is considered prima facie to constitute a case of
nullification or impairment. We c onclude that, to the extent that the European Communities, France,
Germany, Spain and the United Kingdom have acted inconsistently with the SCM Agreement, they
have nullified or impaired benefits accruing to the United States under that Agreement.
8.6 Article 4.7 of the SCM Agreement provides that , having found a measure in dispute to be a
prohibited subsidy, a panel " shall recommend that the subsidizing Member withdraw the subsidy
without delay" (emphasis added). Furthermore, that provision provides that a panel " shall specify in
its recommendation the time-period within which the measure must be withdrawn" (emphasis added).
Accordingly, taking into account the nature of the pr ohibited subsidies we have found in this dispute,

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we recommend that the subsidizing Member granting each subsidy found to be prohibited withdraw it
without delay and specify that this be done within 90 days.
8.7 Article 7.8 of the SCM Agreement provides that "{w}here a panel report or an Appellate
Body report is adopted in which it is determined that any subsidy has resulted in adverse effects to the
interests of another Member within the meaning of Article 5, the Member granting or maintaining
such subsidy shall take appropriate steps to remove the adverse effects or shall withdraw the subsidy".
Accordingly, in light of our conclusions with respect to adverse effects set out in paragraph 8.2 above,
we recommend that, upon adoption of this report, or of an Appellate Body report in this dispute
determining that any subsidy has resulted in adverse effects to the interests of the United States, the
Member granting each subsidy found to have resulted in such adverse effects "take appropriate steps
to remove the adverse effects or ... withdraw the subsidy".
8.8 Finally, we note that the special and additiona l rules applicable under Parts II and III of the
SCM Agreement do not require a panel to specify how the implementation of recommendations under
Articles 4.7 and 7.8 should be effected by the subsidiz ing Member(s). In this context, we recall that
the second sentence of Article 19.1 of the DSU provid es that a panel "may" suggest ways in which a
recommendation could be implemented. Assumi ng that this provision also applies to
recommendations under Articles 4.7 and 7.8 of the SCM Agreement, we note the observation of the
panel in US – Hot Rolled Steel that the means of implementation is, pursuant to Article 21.3 of the
DSU, for the Member concerned, in the first instance. 6082 Further, the Appellate Body has made clear
that the second sentence of Article 19.1 "does not oblige panels to make ... a suggestion". 6083 In this
case, it is possible to speculate as to the appro aches that might be used to implement our
recommendations. However, in the absence of an y requirement to do so, and given that the
United States has not even requested that we do so , we do not make any suggestions concerning steps
that might be taken to implement those recommendations.

6082 Panel Report, US – Hot-Rolled Steel, para. 8.11.
6083 Appellate Body Report, US – Anti-Dumping Measures on Oil Country Tubular Goods, para. 189.