UNITED STATES – CONDITIONAL TAX INCENTIVES FOR LARGE CIVIL AIRCRAFT REPORT OF THE PANEL
Document: REPORT OF THE PANEL
Date: 28 November 2016
Document codes: WT/DS487/R
Complainant: EU
Respondent: U.S.
Third parties: Brazil, China, India, Japan, South Korea, Russia, Australia, Canada
Dispute stage: Appellate Body
Agreements cited: Art. 1, 2, 1.1(a)(1)(ii), 1.1(b), 2.3, 3.1(b), 3.2, 4.7  Subsidies and Countervailing Measures (SCM)

UNITED STATES – CONDITIONAL TAX INCENTIVES
FOR LARGE CIVIL AIRCRAFT
REPORT OF THE PANEL

BCI deleted as indicated [[BCI]]

LIST OF ANNEXES
ANNEX A
WORKING PROCEDURES OF THE PANEL
Contents Page
Annex A-1 Working Procedures of the Panel A-2
Annex A-2 Additional Procedures on BCI and HSBI A-7
Annex A-3 Additional Working Procedures for the partial opening to the public of the
meeting of the Panel
A-19
Annex A-4 Additional Working Procedures for the partial opening to the public of the
second meeting of the Panel
A-21
ANNEX B
ARGUMENTS OF THE PARTIES
Contents Page
Annex B-1 First integrated executive summary of the arguments of the European Union B-2
Annex B-2 Second integrated executive summary of the arguments of the European Union B-10
Annex B-3 First integrated executive summary of the arguments of the United States B-20
Annex B-4 Second integrated executive summary of the arguments of the United States B-28
ANNEX C
ARGUMENTS OF THE THIRD PARTIES
Contents Page
Annex C-1 Integrated executive summary of the arguments of Australia C-2
Annex C-2 Integrated executive summary of the arguments of Brazil C-4
Annex C-3 Integrated executive summary of the arguments of Canada C-8
Annex C-4 Integrated executive summary of the arguments of China C-11
Annex C-5 Integrated executive summary of the arguments of Japan C-13

ANNEX D
PROCEDURAL RULINGS
Contents Page
Annex D-1 Letter from the Panel, 15 January 2016 D-2
Annex D-2 Letter from the Panel, 4 May 2016 D-3

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WTO CASES CITED IN THIS REPORT
Short title Full case title and citation
Australia – Automotive Leather
II
Panel Report, Australia – Subsidies Provided to Producers and Exporters of
Automotive Leather, , adopted 16 June 1999, DSR 1999:III, p.
951
Brazil – Aircraft Appellate Body Report, Brazil – Export Financing Programme for Aircraft,
WT/DS46/AB/R, adopted 20 August 1999, DSR 1999:III, p. 1161
Brazil – Aircraft Panel Report, Brazil – Export Financing Programme for Aircraft, WT/DS46/R,
adopted 20 August 1999, as modified by Appellate Body Report
WT/DS46/AB/R, DSR 1999:III, p. 1221
Canada – Aircraft Appellate Body Report, Canada – Measures Affecting the Export of Civilian
Aircraft, WT/DS70/AB/R, adopted 20 August 1999, DSR 1999:III, p. 1377
Canada – Aircraft Panel Report, Canada – Measures Affecting the Export of Civilian Aircraft,
WT/DS70/R, adopted 20 August 1999, upheld by Appellate Body Report
WT/DS70/AB/R, DSR 1999:IV, p. 1443
Canada – Aircraft (Article 21.5
– Brazil)
Appellate Body Report, Canada – Measures Affecting the Export of Civilian
Aircraft – Recourse by Brazil to Article 21.5 of the DSU, WT/DS70/AB/RW,
adopted 4 August 2000, DSR 2000:IX, p. 4299
Canada – Aircraft Credits and
Guarantees
Panel Report, Canada – Export Credits and Loan Guarantees for Regional
Aircraft, WT/DS222/R and Corr.1, adopted 19 February 2002, DSR 2002:III,
p. 849
Canada – Autos Appellate Body Report, Canada – Certain Measures Affecting the Automotive
Industry, WT/DS139/AB/R, WT/DS142/AB/R, adopted 19 June 2000, DSR
2000:VI, p. 2985
Canada – Periodicals Appellate Body Report, Canada – Certain Measures Concerning Periodicals,
WT/DS31/AB/R, adopted 30 July 1997, DSR 1997:I, p. 449
Canada – Renewable Energy /
Canada – Feed-in Tariff
Program
Appellate Body Reports, Canada – Certain Measures Affecting the Renewable
Energy Generation Sector / Canada – Measures Relating to the Feed-in Tariff
Program, WT/DS412/AB/R / WT/DS426/AB/R, adopted 24 May 2013, DSR
2013:I, p. 7
China – Auto Parts Appellate Body Reports, China – Measures Affecting Imports of Automobile
Parts, WT/DS339/AB/R / WT/DS340/AB/R / WT/DS342/AB/R, adopted
12 January 2009, DSR 2009:I, p. 3
Colombia – Ports of Entry Panel Report, Colombia – Indicative Prices and Restrictions on Ports of Entry,
WT/DS366/R and Corr.1, adopted 20 May 2009, DSR 2009:VI, p. 2535
EC – Hormones Appellate Body Report, EC Measures Concerning Meat and Meat Products
(Hormones), WT/DS26/AB/R, WT/DS48/AB/R, adopted 13 February 1998,
DSR 1998:I, p. 135
EC and certain member States
– Large Civil Aircraft
Appellate Body Report, European Communities and Certain Member States –
Measures Affecting Trade in Large Civil Aircraft, WT/DS316/AB/R, adopted 1
June 2011, DSR 2011:I, p. 7
EC and certain member States
– Large Civil Aircraft
Panel Report, European Communities and Certain Member States – Measures
Affecting Trade in Large Civil Aircraft, WT/DS316/R, adopted 1 June 2011, as
modified by Appellate Body Report, WT/DS316/AB/R, DSR 2011:II, p. 685
India – Patents (US) Appellate Body Report, India – Patent Protection for Pharmaceutical and
Agricultural Chemical Products, WT/DS50/AB/R, adopted 16 January 1998,
DSR 1998:I, p. 9
Indonesia – Autos Panel Report, Indonesia – Certain Measures Affecting the Automobile
Industry, WT/DS54/R, WT/DS55/R, WT/DS59/R, WT/DS64/R, Corr.1 and
Corr.2, adopted 23 July 1998, and Corr.3 and Corr.4, DSR 1998:VI, p. 2201
Japan – Alcoholic Beverages II Appellate Body Report, Japan – Taxes on Alcoholic Beverages,
WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996,
DSR 1996:I, p. 97
Japan – DRAMs (Korea) Panel Report, Japan – Countervailing Duties on Dynamic Random Access
Memories from Korea, WT/DS336/R, adopted 17 December 2007, as
modified by Appellate Body Report WT/DS336/AB/R, DSR 2007:VII, p. 2805

BCI deleted as indicated [[BCI]]

Short title Full case title and citation
Korea – Alcoholic Beverages Appellate Body Report, Korea – Taxes on Alcoholic Beverages,
WT/DS75/AB/R, WT/DS84/AB/R, adopted 17 February 1999, DSR 1999:I,
p. 3
Korea – Alcoholic Beverages Panel Report, Korea – Taxes on 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, p. 44
US – Anti-Dumping Measures
on Oil Country Tubular Goods
Appellate Body Report, United States – Anti-Dumping Measures on Oil
Country Tubular Goods (OCTG) from Mexico, WT/DS282/AB/R, adopted
28 November 2005, DSR 2005:XX, p. 10127
US – Carbon Steel Appellate Body Report, United States – Countervailing Duties on Certain
Corrosion-Resistant Carbon Steel Flat Products from Germany,
WT/DS213/AB/R and Corr.1, adopted 19 December 2002, DSR 2002:IX,
p. 3779
US – Carbon Steel (India) Appellate Body Report, United States – Countervailing Measures on Certain
Hot-Rolled Carbon Steel Flat Products from India, WT/DS436/AB/R, adopted
19 December 2014, DSR 2014:V, p. 1727
US – Corrosion-Resistant Steel
Sunset Review
Appellate Body Report, United States – Sunset Review of Anti-Dumping
Duties on Corrosion-Resistant Carbon Steel Flat Products from Japan,
WT/DS244/AB/R, adopted 9 January 2004, DSR 2004:I, p. 3
US – Countervailing and Anti-
Dumping Measures (China)
Appellate Body Report, United States – Countervailing and Anti-Dumping
Measures on Certain Products from China, WT/DS449/AB/R and Corr.1,
adopted 22 July 2014, DSR 2014:VIII, p. 3027
US – FSC Appellate Body Report, United States – Tax Treatment for "Foreign Sales
Corporations", WT/DS108/AB/R, adopted 20 March 2000, DSR 2000:III,
p. 1619
US – FSC Panel Report, United States – Tax Treatment for "Foreign Sales
Corporations", WT/DS108/R, adopted 20 March 2000, as modified by
Appellate Body Report WT/DS108/AB/R, DSR 2000:IV, p. 1675
US – FSC (Article 21.5 – EC) Appellate Body Report, United States – Tax Treatment for "Foreign Sales
Corporations" – Recourse to Article 21.5 of the DSU by the European
Communities, WT/DS108/AB/RW, adopted 29 January 2002, DSR 2002:I,
p. 55
US – FSC (Article 21.5 – EC) Panel Report, United States – Tax Treatment for "Foreign Sales
Corporations" – Recourse to Article 21.5 of the DSU by the European
Communities, WT/DS108/RW, adopted 29 January 2002, as modified by
Appellate Body Report WT/DS108/AB/RW, DSR 2002:I, p. 119
US – Gambling Appellate Body Report, United States – Measures Affecting the Cross-Border
Supply of Gambling and Betting Services, WT/DS285/AB/R, adopted
20 April 2005, DSR 2005:XII, p. 5663 (and Corr.1, DSR 2006:XII, p. 5475)
US – Hot-Rolled Steel Appellate Body Report, United States – Anti-Dumping Measures on Certain
Hot-Rolled Steel Products from Japan, WT/DS184/AB/R, adopted
23 August 2001, DSR 2001:X, p. 4697
US – Hot-Rolled Steel Panel Report, United States – Anti-Dumping Measures on Certain Hot-Rolled
Steel Products from Japan, WT/DS184/R, adopted 23 August 2001 modified
by Appellate Body Report WT/DS184/AB/R, DSR 2001:X, p. 4769
US – Large Civil Aircraft (2nd
complaint)
Appellate Body Report, United States – Measures Affecting Trade in Large
Civil Aircraft (Second Complaint), WT/DS353/AB/R, adopted 23 March 2012,
DSR 2012:I, p. 7
US – Large Civil Aircraft (2nd
complaint)
Panel Report, United States – Measures Affecting Trade in Large Civil Aircraft
(Second Complaint), WT/DS353/R, adopted 23 March 2012, as modified by
Appellate Body Report WT/DS353/AB/R, DSR 2012:II, p. 649
US – Offset Act (Byrd
Amendment)
Appellate Body Report, United States – Continued Dumping and Subsidy
Offset Act of 2000, WT/DS217/AB/R, WT/DS234/AB/R, adopted
27 January 2003, DSR 2003:I, p. 375
US – Poultry (China) Panel Report, United States – Certain Measures Affecting Imports of Poultry
from China, WT/DS392/R, adopted 25 October 2010, DSR 2010:V, p. 1909
US – Shrimp Appellate Body Report, United States – Import Prohibition of Certain Shrimp
and Shrimp Products, WT/DS58/AB/R, adopted 6 November 1998, DSR
1998:VII, p. 2755

BCI deleted as indicated [[BCI]]

Short title Full case title and citation
US – Softwood Lumber IV Appellate Body Report, United States – Final Countervailing Duty
Determination with Respect to Certain Softwood Lumber from Canada,
WT/DS257/AB/R, adopted 17 February 2004, DSR 2004:II, p. 571
US – Upland Cotton Panel Report, United States – Subsidies on Upland Cotton, WT/DS267/R,
Add.1 to Add.3 and Corr.1, adopted 21 March 2005, as modified by Appellate
Body Report WT/DS267/AB/R, DSR 2005:II, p. 299
US – Wool Shirts and Blouses Appellate Body Report, United States – Measure Affecting Imports of Woven
Wool Shirts and Blouses from India, WT/DS33/AB/R, adopted 23 May 1997,
and Corr.1, DSR 1997:I, p. 323

BCI deleted as indicated [[BCI]]

GATT CASES CITED IN THIS REPORT
Short Title Full Case Title and Citation
Japan – Alcoholic Beverages I GATT Panel Report, Japan – Customs Duties, Taxes and Labelling Practices
on Imported Wines and Alcoholic Beverages , L/6216, adopted
10 November 1987, BISD 34S/83
US – Section 337 Tariff Act GATT Panel Report, United States Section 337 of the Tariff Act of 1930 ,
L/6439, adopted 7 November 1989, BISD 36S/345
US – Superfund GATT Panel Report, United States – Taxes on Petroleum and Certain
Imported Substances, L/6175, adopted 17 June 1987, BISD 34S/136

BCI deleted as indicated [[BCI]]

EXHIBITS REFERRED TO IN THIS REPORT
Panel Exhibit Title Short Title
EU-3 Engrossed Substitute Senate Bill 5952, Chapter 2, Laws of
2013 3rd Special Session, 2014 Wash. Sess. Laws 2
ESSB 5952
EU-4 Final Bill Report ESSB 5952 ESSB 5952 Final Bill Report
EU-5 Department of Revenue Fiscal Note (5952 SB) ESSB 5952 Fiscal Note
EU-21 House Bill 2294, 2003 Wash. Sess. Laws 2767 HB 2294
EU-22 RCW 82.04.260: Tax on manufacturers and processors of
various foods and by -products – Research and
development organizations – Travel agents – Certain
international activities – Stevedoring and associated
activities – Low-level waste disposers – Insurance
producers, surplus line brokers, and title insurance agents
– Hospitals – Commercial airplane activities – Timber
product activities – Canned salmon processors. (Effective
until July 1, 2015.)
RCW Section 82.04.260
EU-23 RCW 82.04.4461: Credit – Preproduction d evelopment
expenditures. (Expires July 1, 2040.)
RCW Section 82.04.4461
EU-24 RCW 82.04.4463: Credit – Property and leasehold taxes
paid on property used for manufacture of commercial
airplanes. (Expires July 1, 2040.)
RCW Section 82.04.4463
EU-25 RCW 82 .08.975: Exemptions – Computer parts and
software related to the manufacture of commercial
airplanes. (Expires July 1, 2040.)
RCW Section 82.08.975
EU-26 RCW 82.12.975: Computer parts and software related to
the manufacture of commercial airplanes. (Expir es July 1,
2040.)
RCW Section 82.12.975
EU-27 RCW 82.08.980: Exemptions – Labor, services, and
personal property related to the manufacture of
commercial airplanes. (Expires July 1, 2040.)
RCW Section 82.08.980
EU-28 RCW 82.12.980: Exemptions – Labor, se rvices, and
personal property related to the manufacture of
commercial airplanes. (Expires July 1, 2040.)
RCW Section 82.12.980
EU-29 RCW 82.29A.137: Exemptions – Certain leasehold
interests related to the manufacture of superefficient
airplanes. (Expires July 1, 2040.)
RCW Section 82.29A.137
EU-30 RCW 84.36.655: Property related to the manufacture of
superefficient airplanes. (Expires July 1, 2040.)
RCW Section 84.36.655
EU-32 RCW 82.04.220: Business and occupation tax imposed. RCW Section 82.04.220
EU-33 Department of Revenue, Washington State, Business &
occupation tax
B&O Tax Explanation,
Washington State Department of
Revenue
EU-35 House Bill 2466, 2006 Wash. Sess. Laws 787 HB 2466
EU-36 RCW 82.04.240: Tax on manufacturers. (Contingent
expiration date.)
RCW Section 82.04.240
EU-37 RCW 82.04.450: Value of products, how determined. RCW Section 82.04.450
EU-38 RCW 82.04.250: Tax on retailers. RCW Section 82.04.250
EU-39 RCW 82.04.270: Tax on wholesalers. RCW Section 82.04.270
EU-40 RCW 82.04.070: "Gross proceeds of sales". RCW Section 82.04.070
EU-41 WAC 458-20-19301: Multiple activities tax credits. WAC Section 458-20-19301
EU-42 Substitute Senate Bill 6828, 2008 Wash. Sess. Laws 365 SSB 6828
EU-44 Snohomish County Council, Executive/Council Ap proval
Form, 25 July 2012
Snohomish County Council,
Lease Approval
EU-45 Paine Field Community Council, Meeting Minutes,
November 12, 2013
Paine Field Community Council,
Minutes of Meeting of 12
November 2013
EU-48 The Seattle Times, "State gave Boeing a free pass on
$19.5M in sales tax", by Jim Brunner, originally published
November 29, 2015 / Updated November 30, 2015
The Seattle Times, "State gave
Boeing a free pass on $19.5M in
sales tax", 30 November 2015
EU-49 Department of Revenue, Washington Sta te, Leasehold
excise tax
Leasehold Excise Tax,
Washington State Department of
Revenue
EU-50 WAC 458-29A-100: Leasehold excise tax – Overview and
definitions.
WAC Section 458-29A-100

BCI deleted as indicated [[BCI]]

Panel Exhibit Title Short Title
EU-51 Washington State Department of Revenue, Personal
Property Tax, December 2012
Personal Property Tax,
Washington State Department of
Revenue
EU-58 RCW 82.32.850: Significant commercial airplane
manufacturing – Tax preference – Contingent effective
date.
RCW Section 82.32.850
EU-59 Office of Washington Governor – Jay Inslee, "Legislature
approves key elements of 777X incentive package", 10
November 2013
Office of Washington Governor,
"Legislature approves key
elements of 777X incentive
package", 10 November 2013
EU-61 Notification Letter from Carol K. Nelson, Director,
Washington State Department of Revenue, to Kyle
Thiessen, Washington State Code Reviser, 10 July 2014
Letter from the Director of the
Washington State Department of
Revenue to the Code Reviser, 10
July 2014
EU-62 Department of Revenue, Washington State, Tax
Classifications for Common Business Activities
Tax Classifications for Common
Business Activities, Washington
State Department of Revenue
EU-65 Reuters, "Boeing seen in advanced talks to make 777X
near Seattle", by Tim Hepher and Alwyn Scott, 4
November 2013
Reuters, "Boeing seen in
advanced talks to make 777X
near Seattle", 4 November 2013
EU-78 Boeing Presentation, "Introducing the 787", by Tom Dodt,
September 2011
Boeing Presentation,
"Introducing the 787",
September 2011
EU-79 Boeing, "Randy's Journ al: Arrivals", posted on 22 May
2007
Boeingblogs, "Randy's Journal:
Arrivals", 22 May 2007
EU-82 RCW 82.32.550: "Commercial airplane," "component,"
and "superefficient airplane" – Definitions.
RCW Section 82.32.550(3)
EU-83 Reuters, "Boeing hopeful of 777X deal, may build wings in
Japan if rejected", 11 November 2013
Reuters, "Boeing hopeful of
777X deal, may build wings in
Japan if rejected", 11 November
2013
EU-84 Airbus, "How is an aircraft built? Production" Airbus, "How is an aircraft built?
Production"
EU-86 Airbus, "How is an aircraft built? Final assembly and tests" Airbus, "How is an aircraft built?
Final assembly and tests"
EU-87 Airbus Video, "The A350 XWB Final Assembly Line:
efficiency in motion", 23 October 2012
Airbus Video, "The A350 XWB
Final Assembly Line: efficiency in
motion", 23 October 2012
EU-88 Airbus Video, "A350 XWB final assembly: a step -by-step
overview", 23 October 2012
Airbus Video, "A350 XWB final
assembly: a step -by-step
overview", 23 October 2012
EU-91 BBC Documentary, "How to Build A Super Jumbo Wing",
24 August 2013
BBC Documentary, "How to Build
A Super Jumbo Wing", 24
August 2013
EU-92 RCW 82.08.020: Tax imposed – Retail sales – Retail car
rental. (Contingent expiration date.)
RCW Section 82.08.020
EU-95 Department of Revenue, Washington State, 2016 Tax
Exemption Study: A Study of Tax Exemptions, Exclusions
or Deductions From the Base of a Tax; a Credit Against a
Tax; a Deferral of a Tax; or a Preferential Tax Rate: As
Authorized by RCW 43.06.400
2016 Tax Exemption Study,
Washington State Department of
Revenue
EU-97 Boeing Video, "Boeing 747 Dreamlifter", 17 January 2009 Boeing Video, "Boeing 747
Dreamlifter", 17 January 2009
EU-104 Airbus Video, "A380 from dream to reality: Final
assembly", 18 October 2007
Airbus Video, "A380 from dream
to reality: Final assembly", 18
October 2007
EU-110 Washington State House Finance Committee, Video,
"Testimony of Governor Inslee before House Finance
Committee", 7 November 2013
Washington State House Finance
Committee, Video, "Testimony of
Governor Inslee before House
Finance Committee", 7
November 2013
EU-121 The Seattle Times, "Boeing must disclose tax -break
savings, state Department of Revenue rules", by Jim
Brunner, originally published January 7, 2016 / Updated
January 8, 2016
The Seattle Times, "Boeing must
disclose tax-break savings, state
Department of Revenue rules", 8
January 2016
EU-122 Boeing Frontiers, "Supersize! The 747 -700 will be
transformed into an even larger freighter to save
significant time and costs in transporting 787 assemblies",
by Tom Koehler, June 2005
Boeing Frontiers, "The 747 -700
will be transformed into an even
larger freighter", June 2005

BCI deleted as indicated [[BCI]]

Panel Exhibit Title Short Title
USA-1 [[BCI]] Boeing expert statement (BCI)
USA-2 [[BCI]] Boeing, Make/Buy Model 777 -
300ER, July 2007 (BCI)
USA-6 Boeing Backgrounder, "The Boeing 777 Family: Preferred
by Passengers and Airlines around the World", April 2015
Boeing 777 Backgrounder
USA-8 [[BCI]] Boeing, 777X Make/Buy, All
Commodities, Status as of 17
December 2014 (BCI)
USA-11 Department of Revenue, Washington State, Question:
What are the major B&O tax classifications?
Question: What are the major
B&O tax classifications?,
Washington State Department of
Revenue
USA-12 Department of Revenue, Washington State, Retail Sales
Tax
Retail Sales Ta x Explanation,
Washington State Department of
Revenue
USA-13 Department of Revenue, Washington State, Services
subject to sales tax
Services Subject to Sales Tax,
Washington State Department of
Revenue
USA-14 Department of Revenue, Washington State, Digi tal
Products including Digital Goods
Digital Products including Digital
Goods, Washington State
Department of Revenue
USA-15 Shorter Oxford English Dictionary on Historical Principles ,
5th edition, Volume 2, p. 2044
Shorter Oxford English
Dictionary, 5th edition, Volume 2,
p. 2044
USA-16 Department of Revenue, Washington State, Local Sales,
Use Tax Rates and Changes (Effective January 1 – March
31, 2016)
Local Sales, Use Tax Rates and
Changes, Washington State
Department of Revenue
USA-17 RCW 82.12.020: Use tax imposed. (Effective until January
1, 2016.)
RCW Section 82.12.020
USA-18 RCW 82.12.035: Credit for retail sales or use taxes paid
to other jurisdictions with respect to property used.
(Effective until January 1, 2016.)
RCW Section 82.12.035
USA-19 Department of Revenue, Washington State, Use Tax Use Tax Explanation,
Washington State Department of
Revenue
USA-20 RCW 84.36.005: Property subject to taxation RCW Section 84.36.005
USA-21 RCW 84.36.010: Public, certain public -private and tribal
property exempt. (Effective until January 1, 2022.)
RCW Section 84.36.010
USA-22 RCW 84.36.020: Cemeteries, churches, parsonages,
convents, and grounds. ( Effective until December 31,
2020.)
RCW Section 84.36.020
USA-23 RCW 84.36.477: Business inventories. RCW Section 84.36.477
USA-25 Department of Revenue, Washington State, Leasehold
excise tax
Leasehold Excise Tax
Explanation, Washington State
Department of Revenue
USA-26 RCW 82.29A.030: Tax imposed —Credit—Additional tax
imposed. (Effective until January 1, 2019.)
RCW Section 82.29A.030
pp. 2034-2035
USA-29 Diccionario de la Lengua Española, 2001, pp. 1839-1840 Diccionario de la Lengua
Española, 2001, pp. 1839-1840
USA-30 Boeing, 777X Content Sources, Major Structures &
Propulsion, Status as of 27 October 2015
Boeing, 777X Content Sources,
Major Structures & Propulsion,
Status as of 27 October 2015
(BCI)
USA-31 RCW 82.04.440: Credit – Persons taxable on multiple
activities.
RCW Section 82.04.440
USA-32 [[BCI]] Boeing letter to the Director of
the Washington State
Department of Revenue (BCI) ,
9 July 2014

BCI deleted as indicated [[BCI]]

Panel Exhibit Title Short Title
USA-33 Collective Bargaining Agreement between Boeing and the
International Association of Machinists and Aerospace
Workers, AFL -CIO, of 2 November 2008, including
Contract Extension and Modification Agreements of 7
December 2011 and 3 January 2014
Collective Bargaining Agreement
between Boeing and the
International Association of
Machinists and Aerospace
Workers, 2 November 2008,
including Contract Extension and
Modification Agreements, 7
December 2011 and 3 January
2014
USA-34 [[BCI]] Addendum No. 14 to the 1991
Boeing Everett Mitigation
Decision Document SEPA #14 -
009, 27 March 2014 (BCI)
USA-35 [[BCI]] Addendum No. 15 to the 1991
Boeing Everett Mitigation
Decision Document SEPA #14 -
011 – Composite Wing
Manufacturing Facility,
30 May 2014 (BCI)
USA-37 RCW 82.04.120: "To manufacture". RCW Section 82.04.120
USA-38 Supreme Court of Washington, Citizens Alliance for
Property Rights Legal Fund v. San Juan County et al.
(2015)
Supreme Court of Washington,
Citizens Alliance for Property
Rights Legal Fund v. San Juan
County et al. (2015)
USA-42 Mitsubishi Heavy Industries, Boeing 787 Mitsubishi Heavy Industries,
Boeing 787

USA-51 Shorter Oxford English Dictionary , 6 th edition, pp. 2044-
2045
Shorter Oxford English
Dictionary, 6th edition, pp. 2044-
2045
USA-52 Spirit AeroSystems, "Spirit celebrates completion of first
Boeing 737 MAX fuselage
Spirit AeroSystems, "Spirit
celebrates completion of first
Boeing 737 MAX fuselage
USA-63 Chapter 1.04 RCW Chapter 1.04 RCW
USA-64 Chapter 82.08 RCW: Retail Sales Tax RCW Chapter 82.08
USA-65 Department of Revenue, Washington State, 2016 Tax
Exemption Study, Introduction and Summary of Findings
2016 Tax Exemption Study,
Introduction and Summary of
Findings, Washington State
Department of Revenue
USA-67 [[BCI]] Boeing 787 customs invoice and
related shipment documentation
(BCI)
USA-68 Boeing Frontiers, "Wings around the world", by Adam
Morgan, March 2006
Boeing Frontiers, "Wings around
the world", March 2006
USA-73 [[BCI]] Email from Erik Zahn, Boeing
Commercial Airplanes, 15 April
2016 (BCI)
USA-84 Washington Court of Appeals, Nationscapital Mortgage
Corporation et al. v. Department of Financial Institutions,
133 Wn. App. 723, 737 -738 (Wash. Ct. App. 2006), June
2006
Washington Court of Appeals,
Nationscapital Mortgage
Corporation et al. v. Department
of Financial Institutions, June
2006

BCI deleted as indicated [[BCI]]

ABBREVIATIONS USED IN THIS REPORT
Abbreviation Description
B&O tax Business and occupation tax
BCI Business Confidential Information
DSB Dispute Settlement Body
DSU Understanding on Rules and Procedures Governing the Settlement of Disputes
ESSB 5952 Washington State Legislature Engrossed Substitute Senate Bill 5952
GATT 1994 General Agreement on Tariffs and Trade 1994
HB 2294 Washington State Legislature House Bill 2294
HB 2466 Washington State Legislature House Bill 2466
HSBI Highly Sensitive Business Information
RCW Revised Code of Washington (Washington State)
SCM Agreement Agreement on Subsidies and Countervailing Measures
SSB 6828 Washington State Substitute Senate Bill 6828
Vienna Convention Vienna Convention on the Law of Treaties, Done at Vienna, 23 May 1969, 1155
UNTS 331; 8 International Legal Materials 679
WAC Washington Administrative Code (Washington State)
WTO World Trade Organization

BCI deleted as indicated [[BCI]]

1 INTRODUCTION
1.1 Complaint by the European Union
1.1. On 19 December 2014 , the European Union requested consultations with the United States
pursuant to Articles 4.1 and 30 of the Agreement on Subsidies and Countervailing Measures
(SCM Agreement); Article XXIII:1 of the General Agreement on Tariffs and Trade 1994
(GATT 1994), to the extent incorporated by Article 30 of the SCM Agreement; and Article 4 of the
Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) , with respect
to the measures and claims set out below.1
1.2. Consultations were held on 2 February 2015. These consultations did not lead to a mutually
satisfactory solution.2
1.2 Panel establishment and composition
1.3. On 12 February 2015, the European Union requested the establishment of a panel pursuant
to Articles 4.4 and 30 of t he SCM Agreement, Article XXIII:2 of the GATT 1994 (to the extent
incorporated by Article 30 of the S CM Agreement), and Article 6 of the DSU (as modified by
Article 4.4 of the SCM Agreement, and in light of Article 1.2 and Appendix 2 to the DSU), with
standard terms of reference. 3 At its meeting on 23 February 2015 , the Dispute Settlement Body
(DSB) established a panel pursuant to the request of the European Union, in accordance with the
provisions of Article 4.4 of the SCM Agreement and Article 6 of the DSU , with standard terms of
reference.4
1.4. The Panel's terms of reference are the following:
To examine, in the light of the relevant provisions of the covered agreements cited by
the parties to the dispute, the matter referred to the DSB by the European Union in
document WT/DS487/2 and to make such findings as will assist the DSB in making
the recommendations or in giving the rulings provided for in those agreements.5
1.5. On 13 April 2015 , the European Union requested the Director -General to determine the
composition of the panel, pursuant to Article 8.7 of the DSU . On 22 April 2015 , the Director -
General accordingly composed the Panel as follows:
Chairperson: Mr Daniel Moulis

Members: Mr Terry Collins-Williams
 Mr Wilhelm Meier

1.6. Australia; Brazil; Canada; China; India; Japan; the Republic of Korea (Korea) ; and the
Russian Federation (Russia) notified their interest in participating in the Panel proceedings as third
parties.
1.3 Panel proceedings
1.3.1 General
1.7. The commencement of the Panel's work was delayed as a result of a lack of available
resources in the World Trade Organization (WTO) Secretariat.6 The parties were no tified of this
circumstance. The Panel held its organizational meeting with the parties on 4 December 2015.

1 See Request for Consultations by the European Union, WT/DS487/1, 23 December 2014.
2 See Request for the Establishment of a Panel by the European Union, WT/DS487/2, 13 February 2015.
3 Ibid.
4 See Dispute Settlement Body, Minutes of Meeting held in the Centre William Rappard on
23 February 2015, WT/DSB/M/357, 17 April 2015, pp. 14-15.
5 Constitution of the Panel Established at the Request of the European Union – Note by the Secretariat,
WT/DS487/3, 23 April 2015.
6 Communication from the Panel to the DSB, WT/DS487/4, 30 September 2015.

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After consultation with the parties, the Panel adopted its Working Procedures on
7 December 20157, its timetable on 16 December 2015, and a revised timetable on 19 April 2016.
1.8. The European Union filed its first written submission on 9 December 2015. The United States
filed its first written submission on 19 January 2016 . Third-party submissions were received on
26 January 2016 from Australia, Brazil, Canada, China, and Japan.
1.9. The Panel held a first substantive meeting with the parties on 24 and 25 February 2016 . A
session with the third parties took place on 25 February 2016, in which oral statements were made
by Australia, Brazil, China, and Japan . Written responses to questions posed by the Panel were
received on 9 March 2016 from the European Union, the United States, Australia, Brazil, Canada,
China, and Japan.
1.10. The parties filed their second written submissions on 18 March 2016.
1.11. The Panel held a sec ond substantive meeting with the parties on 5 April 2016 . Written
responses to questions posed by the Panel were received on 18 April 2016. Comments by the
parties on each other's responses to questions were received on 25 April 2016.
1.12. On 9 May 2016 , the Pa nel issued the descriptive sections of its draft r eport to the parties.
Parties provided comments to the descriptive sections of the Panel report on 17 May 2016.
1.13. The Panel issued its Interim Report to the parties on 6 July 2016. On 15 July 2016, the
European Union and the United States each submitted written requests for review of precise
aspects of the interim report. Neither party requested an interim review meeting. On 20 July 2016,
each of the parties submitted comments on the other's requests for revie w. The Panel issued its
Final Report to the parties on 29 July 2016.
1.3.2 Changes to the timetable
1.14. On 5 January 2016, the United States requested an adjustment to the timetable so that the
deadline for the second written submission was set no earlier than 25 March 2016 (one week later
than originally scheduled). The European Union commented on the United States' request on
7 January 2016. On 15 January 2016, the Panel informed the parties that it had declined the
United States' request for an extension of the deadline for the second written submissions.8
1.15. In the course of the second meeting with the parties on 5 April 2016, the Panel informed the
parties that in order to have sufficient time to assess the legal and factual issues in the dispute,
the timetable woul d have to be adjusted so that the interim report was issued to parties on
15 June 2016 and all subsequent dates were similarly adjusted . The parties had no comments to
this proposal. On 19 April 2016, the Panel issued the revised timetable.
1.16. On 28 April 2016, the United States requested an opportunity to comment on certain factual
evidence and arguments that were submitted by the European Union with its comments on the
United States' responses to Panel questions. The Europea n Union commented on the
United States' request on 2 May 2016. On 4 May 2016, the Panel informed the parties that it had
declined the United States' request.9
1.17. On 13 June 2016, the Panel informed the parties that it intended to issue the interim report
to parties on 6 July 2016 and to adjus t all subsequent dates similarly. The European Union
submitted comments to this notice on 14 June. On 15 June 2016, the Panel issued a revised
timetable.
1.18. On 12 July 2016, the United States requested a two-day extension for parties to request the
review of precise aspects of the interim report . On the same date, the European Union
communicated its agreement to the United States' request , under the understanding that
subsequent dates on the schedule would not change. On 13 July 2016, the Panel informed the

7 See the Panel's Working Procedures in Annex A-1.
8 See letter from the Panel in Annex D-1.
9 Ibid.

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parties that it had extended by two days the deadline for parties to request the review of precise
aspects of the interim report , and that subsequent deadlines had not been revised . The Panel
issued a revised timetable to the parties.
1.3.3 Additional Working Procedures for the Protection of Business Confidential
Information (BCI) and Highly Sensitive Business Information (HSBI)
1.19. At the request of the United States, and having consid ered comments from the
European Union, the Panel adopted Additional Working Procedur es for the Protection of Business
Confidential Information and Highly Sensitive Business Information (BCI/HSBI Procedures) on
13 January 2016.10
1.3.4 Additional Working Procedures for the Partial Opening to the Public of the
Meetings of the Panel
1.20. On 22 February 2016 and 23 March 2016 , at the request of the United States, and noting
the European Union's agreement, the Panel adopted additional working procedures for the partial
opening to the public of the meetings of the Panel. These procedures provided for public viewing of
a video -recording of non-confidential portions of each meeting by means of delayed broadcast .
Closed sessions were foreseen for the parties to address BCI or HSBI and for those third parties
that had requested not to make their statements in th e video -recorded session for public
viewing.11 The public screening of the video-recording of the non-confidential portions of the Panel
meetings took place on 17 and 18 May 2016.
2 FACTUAL ASPECTS
2.1. The claims brought by the European Union concern tax -related provisions for civil aircraft
provided by the state of Washington in the United States , as amended by Engrossed Substitute
Senate Bill 5952 (ESSB 5952), Chapter 2, Laws of 2013 3 rd Special Session, 2014 Wash. Sess.
Laws 2. Specifically, this dispute concer ns the following tax -related provisions contained in the
Revised Code of Washington (RCW):
a. a 0.2904% business and occupation tax rate with respect to the manufacture or sale of
commercial airplanes, contained in RCW Section 82.04.260(11);
b. tax credits for p roperty taxes and leasehold excise taxes on commercial airplane
manufacturing facilities, contained in RCW Section 82.04.4463;
c. tax credits for aerospace product development, contained in RCW Section 82.04.4461;
d. sales tax exemption for computer hardware, so ftware, and peripherals, contained in
RCW Section 82.08.975;
e. sales tax exemption for construction services and materials, contained in
RCW Section 82.08.980;
f. use tax exemption for computer hardware, software, and peripherals, contained in
RCW Section 82.12.975;
g. use tax exemption for construction services and materials, contained in
RCW Section 82.12.980;
h. leasehold excise tax exemption, contained in RCW Section 82.29A.137; and
i. leaseholder property tax exemption, contained in RCW Section 84.36.655.

10 See the Additional Working Procedures for the Protection of BCI/HSBI in Annex A-2.
11 See the Additional Working Procedures for the partial opening to the public of the meetings of the
Panel in Annexes A-3 and A-4.

BCI deleted as indicated [[BCI]]

2.2. The European Union claims that the availability of the above tax incentives is subject to the
conditions in Sections 2, 5, and 6 of ESSB 5952 (as codified at RCW Sections 82.32.850 and
82.04.260(11)(e)(ii)). These conditions relate to a decision on the initial sitin g of a "significant
commercial airplane manufacturing program" (as defined in the relevant legislation 12) in the state
of Washington, as well as to the future siting outside the state of Washington of "any final
assembly or wing assembly of any version or variant of a commercial airplane that is the basis of a
siting of a significant commercial airplane manufacturing program".13
3 PARTIES' REQUESTS FOR FINDINGS AND RECOMMENDATIONS
3.1. The European Union requests that the Panel find that each of the challenged
Washington State tax incentives, as amended and extended by ESSB 5952, constitutes a subsidy
that is prohibited pursuant to Articles 3.1(b) and 3.2 of the SCM Agreement due to being
contingent on the use of domestic over imported goods. The European Union furth er requests,
pursuant to Article 4.7 of the SCM Agreement, that the Panel recommend that the United States
withdraw the subsidies without delay.
3.2. The United States requests that the Panel reject the European Union's claims in this dispute
and find that the challenged measures are not inconsistent with the United States' obligations
under Articles 3.1(b) and 3.2 of the SCM Agreement.
4 ARGUMENTS OF THE PARTIES
4.1. The arguments of the parties are reflected in their executive summaries, provided to the
Panel in acco rdance with paragraph 20 of the Working Procedures adopted by the Pan el (see
Annexes B-1, B-2, B-3, and B-4).
5 ARGUMENTS OF THE THIRD PARTIES
5.1. The arguments of Australia, Brazil, Canada, China, and Japan are reflected in their executive
summaries, provided in accordance with paragraph 21 of the Working Procedures adopted by the
Panel (see Annexes C-1, C-2, C-3, C-4, and C-5). India, Korea, and Russia did not submit written
or oral arguments to the Panel.
6 INTERIM REVIEW
6.1. On 6 July 2016, t he Panel issued its Int erim Report to the parties . On 15 July 2016, the
European Union and the United States each submitted written requests for review of precise
aspects of the Interim Report. Neither party requested an interim review meeting. On
20 July 2016, each of the parties submitted comments on the other's requests for review.
6.2. In accordance with Article 15.3 of the DSU, this section sets out the Panel's response to the
parties' requests for review of precise aspects of the Report made at the interim review stage. The
parties' requests for substantive modifications are discussed below, generally in sequence
according to the paragraphs to which the requests pertain.
6.3. The numbering of some of the paragraphs and footnotes in the Final Report has changed
from the numbering in th e Interim Report. The discussion below refers to the numbering in the
Interim Report and, where it differs, includes the corresponding numbering in the Final Report.
6.4. The United States notes that paragraph 7.4 summarizes the requests of the United States
"but omits an issue raised by the United States for the Panel's consideration regarding the Panel's
terms of reference". In particular, the United States requests inclusion of a reference to its opening

12 In turn, "significant commercial airplane manufacturing program" is defined as: "[A]n airplane
program in which the following products, including final assembly, will commence manufacture at a new or
existing location within Washington state on or after the effective date of this section: (i) The new model, or
any version or variant of an existing model, of a commercial airplane; and (ii) Fuselages and wings of a new
model, or any version or variant of an existing model, of a commercial airplane." ESSB 5952 Sections 2(2)(c)
and (d), codified at RCW Sections 82.32.850(2)(c) and (d) (Exhibits EU-3 and EU-58).
13 ESSB 5952 Sections 5(11)(e)(ii) and 6(11)(e)(ii), codified at RCW Section 82.04.260(11)(e)(ii)
(Exhibits EU-3 and EU-22).

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statement at the first meeting of the Panel, in which t he United States noted that, prior to the
establishment of this Panel, the European Union had maintained that the measures at issue in this
dispute were properly within the terms of reference of the compliance panel in the proceeding
under Article 21.5 of the DSU in US – Large Civil Aircraft (2 nd complaint).14 The United States
identifies paragraph 7.41 of the Interim Report (paragraph 7.39 of this Report) as "a logical
place for the Panel to address the terms of reference issue identified by the United Stat es".15 The
European Union considers that this is an inappropriate request for review of an interim report and
that it should be rejected by the Panel. The European Union requests that, to the extent that the
Panel elects to include a discussion on the United States' statements related to terms of reference,
the Panel reflect "the United States' repeated statements that it did not consider any of the
measures to be outside the [Panel's] terms of reference". 16 The Panel declines the United States'
request for i nclusion of a reference to this issue in the Panel's findings. In its statement to the
Panel, the United States explicitly clarified that " the United States does not itself consider that any
of the measures at issue are outside the Panel's terms of referen ce".17 Although the Panel
recognizes that the vesting of jurisdiction is a fundamental issue that may need to be considered
even in the absence of any objection by a party, the Panel does not find any reason to question
the vesting of its jurisdiction in th e present case. Moreover, apart from any potential relevance of
statements by a party made in another dispute, it is an uncontested fact that the measures at
issue in this dispute are not presently being considered in any other dispute. The Panel addresses
the legislative background and scope of the measures within its terms of reference in
Section 7.3.3, and does not consider any additional discussion of the issue raised by the United
States to be necessary.
6.5. The United States proposes an addition at the en d of the second sentence of paragraph 7.7
to "elaborate the function of the Panel" in examining municipal law, which according to the
United States is "to determine the proper factual predicate against which WTO -consistency will be
judged".18 The European U nion considers that the addition proposed by the United States is not
necessary, as the current formulation is an accurate description of the existing jurisprudence on
the matter.19 The United States also requests a revision to paragraph 7.8 to "avoid implying that
an analysis of the meaning of a Member's municipal law could disregard the interpretive rules of a
Member's domestic legal system". 20 The European Union considers that the modification proposed
by the United States is not necessary, as the current formulation is an accurate and succinct
description of the existing jurisprudence relating to the identification of the meaning and content
of domestic law. 21 The Panel considers th at paragraphs 7.7 and 7.8 adequately refer to
Appellate Body reports and con sequently does not consider the elaboration of the issue requested
by the United States to be necessary.
6.6. The European Union proposes to consolidate the discussions in paragraphs 7.7-7.8 and
7.15-7.16 on a panel's role in examining the meaning of municipal law.22 The United States
recalls its comments on paragraphs 7.7-7.8 and requests that the Panel take those comments into
account in making any modifications in response to the European Union's request. 23 The Panel has
consolidated this discussion to avoid du plication by deleting paragraphs 7.15 and 7.16 of the
Interim Report.
6.7. The European Union requests changes to paragraphs 7.17, 7.40, 7.81-7.84, and 7.245 of
the Interim Report ( paragraphs 7.15, 7.38, 7.79 -7.82, and 7.243 of this Report) , to "reflect the
uncontested fact that the challenged aerospace tax incentives existed in Washington State prior to

14 United States' request for review of the Panel's Interim Report, paras. 2-3.
15 Ibid. para. 12.
16 European Union's comments on United States' request for review of the Panel's Interim Report,
para. 1.
17 United States' opening statement at the first meeting of the Panel, para. 34.
18 United States' request for review of the Panel's Interim Report, paras. 4-5.
19 European Union's comments on United States' request for review of the Panel's Interim Report,
para. 2.
20 United States' request for review of the Panel's Interim Report, para. 6.
21 European Union's comments on United States' request for review of the Panel's Interim Report,
para. 3.
22 European Union's request for review of the Panel's Interim Report, para. 5.
23 United States' comments on European Union's request for review of the Panel's Interim Report,
para. 6.

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ESSB 5952, which amended the terms of those incentives". 24 The United States has no objection
to the revisions requested by the European Union. 25 The Panel has re vised the paragraphs
identified by the European Union to refer to the measures "as amended and extended by"
ESSB 5952.
6.8. The United States requests revisions to paragraph 7.36 of the Interim Report
(paragraph 7.34 of this Report) to reflect its view of the legislative history of the measures at issue
in this dispute and the measures at issue in US – Large Civil Aircraft (2 nd complaint).26 The
European Union requests that the Panel reject the United States' request for modification, which in
its view "is predic ated on a series of erroneous factual premises". 27 In the light of the parties'
comments, the Panel has made minor adjustments to the paragraph.
6.9. Both the European Union and the United States suggest changes to paragraphs 7.39 and
7.42 of the Interim Report (paragraphs 7.37 and 7.40 of this Report) to provide a more accurate
characterization of legislation in Washington State. 28 The Panel has made consequential revisions
to paragraphs 7.39 and 7.42 of the Interim Report in the light of the parties' comments.
6.10. The United States requests the elimination of a sentence in paragraph 7.55 of the Interim
Report (paragraph 7.53 of this Report) , which states that an entitlement granted by virtue of the
relevant legislation "could only be re-established through further le gislation revoking or amending
the previous legislation". The United States notes that "revoking or amending the particular
legislation at issue are not the only alternatives" and revenue may no longer be foregone, for
example, if the measure providing for the benchmark tax were changed. 29 The European Union
considers that the sentence, as currently worded, is correct. 30 In the light of the parties'
comments, the Panel has removed the word "only" from the sentence identified by the
United States.
6.11. The European Union requests in paragraphs 7.89, 7.104, 7.117, 7.113, 7.139, and
7.148 of the Interim Report (paragraphs 7.87, 7.102, 7.115, 7.131, 7.137, and 7.146 of this
Report) the addition of a reference to the objectives of HB 2294 (along with the existing refere nce
to ESSB 5952) in discussing the "objective reasons" for the relevant tax treatment of each
aerospace tax measure. 31 The United States does not agree with the European Union's request,
and considers that it is unclear what relevance the European Union as cribes to the objectives of
HB 2294 in the context of the relevant paragraphs. As part of its comments on the
European Union's request, the United States requests a modification of paragraph 7.65 of the
Interim Report (paragraph 7.63 of this Report) , as legislation such as ESSB 5952 does not amend
or extend previous legislation but rather amends or extends tax treatment provided for in the
Revised Code of Washington, which itself reflects earlier legislation .32 The Panel does not consider
the additional refe rences requested by the European Union to be necessary. The paragraphs
identified by the European Union clarify the "objective reasons" for each of the aerospace tax
measures with supporting cross -references to the more extensive discussion in the context of the
B&O aerospace tax rate, including reference to the objectives of prior legislation. The Panel has
made the change requested by the United States in paragraph 7.63 of this Report.
6.12. The United States requests a revision of the first sentence of paragraph 7.1 42 of the
Interim Report (paragraph 7.140 of this Report) to reflect that, as noted in the remainder of the
paragraph, the leasehold excise tax is an excise tax, and not a property tax. 33 The European Union

24 European Union's request for review of the Panel's Interim Report, para. 6.
25 United States' comments on European Union's request for review of the Panel's Interim Report,
para. 7.
26 United States' request for review of the Panel's Interim Report, para. 8.
27 European Union's comments on United States' request for review of the Panel's Interim Report,
para. 4.
28 European Union's request for review of the Panel's Interim Report, paras. 8-10; United States'
request for review of the Panel's Interim Report, paras. 10-11 and 13.
29 United States' request for review of the Panel's Interim Report, para. 14.
30 European Union's comments on United States' request for review of the Panel's Interim Report,
para. 6.
31 European Union's request for review of the Panel's Interim Report, para. 11.
32 United States' comments on European Union's request for review of the Panel's Interim Report,
paras. 11-12.
33 United States' request for review of the Panel's Interim Report, para. 15.

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requests that the Panel reject the United St ates' proposed modification and retain the current
language. In the European Union's view, the leasehold excise tax is functionally a property tax. To
the extent that the United States wishes to clarify that the leasehold excise tax is not formally a
"property tax" within the specific meaning of the Revised Code of Washington, the European Union
considers that the Panel could replace the phrase "property tax" in the sentence at issue with the
phrase "tax on property ", when referring to the leasehold excise tax.34 The Panel has partially
modified the first sentence of paragraph 7.142 of the Interim Report to accommodate the
United States' request. However, the Panel has used the word "supplements" instead of
"complements" (which was the word suggested by the U nited States) to describe the relationship
of the "leasehold excise tax" to the "property taxes".
6.13. The European Union requests in footnote 263 to paragraph 7.143 of the Interim Report
(footnote 300 to paragraph 7.141 of this Report) , in relation to the refe rence to the parties '
arguments on the quantitative coverage of property tax exemptions, clarification of the cross -
reference to the discussion of the parties' arguments concerning sales and use tax exemptions. 35
The United States has no comment on the Euro pean Union's request. 36 The Panel has made the
requested clarification to footnote 263 of the Interim Report . The Panel has also provided a
supplemental reference to the parties' arguments in a footnote to the last sentence of
paragraph 7.121 of this Report.
6.14. The European Union requests a revision of paragraph 7.176 of the Interim Report
(paragraph 7.174 of this Report) to refer to "wing assembly", rather than "final assembly of a
wing", in the description of its argument as to the potential triggering of the Second Siting
Provision.37 The United States has no objection to the European Union's request.38 The Panel has
made the requested correction to paragraph 7.176 of the Interim Report.
6.15. The United States requests a revision of paragraph 7. 187 of the Interim Re port
(paragraph 7.185 of this Report) to better capture the substance of the United States' argument in
rejecting the European Union's interpretation of the word "use" in Article 3.1(b) of the
SCM Agreement.39 The European Union makes no comment on the Unit ed States' request. The
Panel has made the requested change.
6.16. The European Union requests rephrasing paragraph 7.231 of the Interim Report
(paragraph 7.229 of this Report), specifically by removing the word "challenged" before
"aerospace tax measures", so as not to inaccurately convey that the measures challenged by the
European Union are the aerospace tax incentives as they stood before the amendments and
extensions effected by ESSB 5952. 40 The United States agrees with the European Union's
explanation and considers further that the first sentence in paragraph 7.231 of the Interim Report
should be revised as explained in the United States' comments on paragraph 7.36 of the Interim
Report discussed above.41 The Panel has made the modification requested by the E uropean Union.
The Panel has added a footnote to the first sentence of paragraph 7.229 of this Report referring to
the earlier discussion of the legislative background of ESSB 5952, but declines to make the
additional changes to the sentence requested by the United States.
6.17. The European Union requests a change in paragraph 7.231 of the Interim Report of the
phrase " the entry into force of the amended and extended aerospace tax measures was
contingent" to instead state " the entry into force of the amend ment and exten sion of the
aerospace tax measures was contingent ". According to the European Union, this change would
clarify that it was only the amendment and extension of the tax measures that were conditional
upon fulfilment of the First Siting Provision, rat her than the entirety of the aerospace tax

34 European Union's comments on United States' request for review of the Panel's Interim Report,
para. 7.
35 European Union's request for review of the Panel's Interim Report, para. 13.
36 United States' comments on European Union's request for review of the Panel's Interim Report,
para. 14.
37 European Union's request for review of the Panel's Interim Report, para. 14.
38 United States' comments on European Union's request for review of the Panel's Interim Report,
para. 14.
39 United States' request for review of the Panel's Interim Report, para. 16.
40 European Union's request for review of the Panel's Interim Report, para. 16.
41 United States' comments on European Union's request for review of the Panel's Interim Report,
para. 17.

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measures. The European Union requests similar changes to paragraphs 7.289 and 7.315(a) of
the Interim Report to refer to the entry into force of the amendment and extension by ESSB 5952
of the aerospace tax measur es.42 The United States has no objection to the European Union's
requests.43 The Panel has made the requested modifications to paragraphs 7.231, 7.289, and
7.315(a) of the Interim Report (paragraphs 7.229, 7.287, and 7.313(a) of this Report).
6.18. The European Union requests an additional citation in footnote 450 to paragraph 7.243
of the Interim Report (footnote 488 to paragraph 7.241 of this Report) to its submissions on the
point that the measures at issue do not place any conditions on the use of elements or
components of commercial airplanes, other than wings and fuselages. 44 The United States has no
objection to the European Union's request. 45 The Panel has made the requested addition to the
footnote.
6.19. The European Union requests a modification of paragraph 7.28 9 of the Interim Report
(paragraph 7.287 of this Report) to reflect that only wings or fuselages, not both, are required to
be made of carbon fibre as noted elsewhere by the Panel. 46 The United States has no objection to
the European Union's request.47 The Panel has made the requested modification.
6.20. The European Union requests inclusion in paragraph 7.352 of the Interim Report
(paragraph 7.350 of this Report) of references to its submissions and exhibits that, in addition to
evidence related to the 777X aircra ft programme, "would support the more general proposition in
relation to the aerospace industry" regarding the variety of aircraft manufacturing processes, as
well as continuing innovation within the aerospace industry. 48 The United States does not consider
that adding the requested citations would provide additional clarity to the report, as they are not
"illustrative for the purposes of the Panel's sentence". 49 The Panel does consider them to be
illustrative of the statements made in the paragraph and there fore has included the references
identified by the European Union.
6.21. The United States requests a revision of paragraph 7. 358 of the Interim Report
(paragraph 7.356 of this Report) as, in its view, the word "coincident" used in the paragraph "does
not accura tely capture the sequence of events" of Boeing's decision to site the 777X aircraft
programme in Washington State. The United States also considers the same sentence "problematic
in its reference to 'certain wing structures that the same manufacturer had previously imported for
other commercial airplane manufacturing programmes '."50 The European Union requests that the
Panel reject the United States' request for modification. In the European Union's view, the
statement at issue is a "factual finding … based on an objective assessment of the evidence that
the Parties placed before the Panel, and should not be rewritten based on the United States' own
view of the evidence". 51 In the light of the parties' comments, the Panel has made modifications
and clarifications to the sentence in question.
6.22. The European Union requests in paragraph 7.368 of the Interim Report (paragraph 7.366
of this Report) an adjustment of the left parenthesis in the phrase "(outside Washington State,
including overseas)" as the current formu lation "could potentially be misunderstood to indicate
that the reference to Washington State is not an essential aspect of the explanation". 52 The

42 European Union's request for review of the Panel's Interim Report, para. 17.
43 United States' comments on European Union's request for review of the Panel's Interim Report,
para. 18.
44 European Union's request for review of the Panel's Interim Report, para. 19.
45 United States' comments on European Union's request for review of the Panel's Interim Report,
para. 20.
46 European Union's request for review of the Panel's Interim Report, para. 21.
47 United States' comments on European Union's request for review of the Panel's Interim Report,
para. 22.
48 European Union's request for review of the Panel's Interim Report, para. 22.
49 United States' comments on European Union's request for review of the Panel's Interim Report,
para. 23.
50 United States' request for review of the Panel's Interim Report, paras. 18-20.
51 European Union's comments on United States' request for review of the Panel's Interim Report,
para. 8.
52 European Union's request for review of the Panel's Interim Report, para. 23.

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United States has no comment on the European Union's request. 53 The Panel has made the
requested modification.
6.23. In addition to the requests discussed above, the Panel has made corrections for
typographical and other non-substantive errors in the Interim Report, including those identified by
the parties.
7 FINDINGS
7.1 Introduction
7.1. In this dispute, the European Union claims that the United States is acting inconsistently with
the SCM Agreement by providing prohibited subsidies to the aerospace industry in the state of
Washington. The European Union argues that these subsidies are provided by the s tate of
Washington in the United States.
7.2. More specifically, the European Union challenges seven aerospace tax measures 54, namely:
(i) a reduced business and occupation (B&O) tax rate for the manufacture and sale of commercial
airplanes; (ii) a credit for the B&O tax for pre-production development of commercial airplanes and
components; (iii) a credit for the B&O tax for property taxes on commercial airplane
manufacturing facilities; (iv) an exemption from sales and use taxes for certain computer
hardware, software, and peripherals; ( v) an exemption from sales and use taxes for certain
construction services and materials; (vi) an exemption from leasehold excise taxes on port district
facilities used to manufacture superefficient airplanes; and (vii) an exemption from property taxes
for the personal property of port district lessees used to manufacture superefficient airplanes.
7.3. The European Union claims that the alleged subsidies are prohibited under Articles 3.1(b)
and 3.2 of the SCM Agreement as subsidies that are contingent on the use of domestic over
imported goods. According to the European Union this contingency results from two siting
provisions – a First Siting Provision and a Second Siting Provision – contained in Engrossed
Substitute Senate Bill 5952 (ESSB 5952). The European Union requests that the Panel recommend
that the United States withdraw the subsidies without delay, on the basis that they are prohibited
subsidies, as required by Article 4.7 of the SCM Agreement.
7.4. The United States requests the Panel to find that the Unite d States has acted consistently
with its obligations under the SCM Agreement and to deny the relief requested by the
European Union.
7.5. This Report is organized as follows. Section 7.2 sets out the relevant principles regarding th e
Panel's function, the burden of proof, and treaty interpretation. Section 7.3 provides a description
and background of the measures at issue. In section 7.4, the Panel examines whether the
measures challenged by the European Union constitute subsidies within the meaning of Article 1 of
the SCM Agreement. In section 7.5 the Panel turns to an examination of whether the challenged
measures are prohibited under Article 3 of the SCM Agreement. The Panel sets forth its
conclusions and recommendation in section 8.
7.2 Function of the Panel, Burden of Proof, and Treaty Interpretation
7.2.1 Function of the Panel
7.6. According to Article 11 of the DSU:
The function of panels is to assist the DSB in discharging its responsibilities under this
Understanding and the covered agreements. Accordingly, a panel should make an
objective assessment of the matter before it, including an objective assessment of the

53 United States' comments on European Union's request for review of the Panel's Interim Report,
para. 24.
54 These seven aerospace tax measures correspond to the nine tax-related provisions cited in para. 2.1
above. In the articulation of its claims, the European Union groups the sales and use tax exemptions for
computer hardware, software, and peripherals in subparagraphs 2.1(d) and (f); and the sales tax exemptions
for construction services and materials in subparagraphs 2.1(e) and (g).

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facts of the case and the applicability of and conformity with the relevant covered
agreements, and make such other findings as will assist the DSB in making the
recommendations or in giving the rulings provided for in the covered agreements.
7.7. The P anel has been required to examine municipal law in the course of exercising its
functions under Article 11 of the DSU in this dispute . In this regard, the Appellate Body has
explained that, "[a]lthough it is not the role of panels or the Appellate Body to interpret a
Member's domestic legislation as such, it is permissible, indeed essential, to conduct a detailed
examination of that legislation in assessing its consistency with WTO law". 55 The Appellate Body
has added that:
As part of their duties under Article 11 of the DSU, pa nels have the obligation to
examine the meaning and content of the municipal law at issue in order to make an
objective assessment of the matter before it, including an objective assessment of the
facts of the case and the applicability and conformity with the covered agreements.
This obligation under Article 11 means that panels must conduct their own objective
and independent assessment of the meaning of municipal law, instead of deferring to
a party's characterization of such law.56
7.8. In respect of the type s and threshold of evidence that may be required to prove the WTO -
inconsistency of municipal law, the Appellate Body has explained that "[i]f the meaning and
content of the measure are clear on its face, then the consistency of the measure as such can be
assessed on that basis alone. If, however, the meaning … is not evident on its face, further
examination is required." 57 The nature and the extent of the evidence required to satisfy the
burden of proof will vary from case to case. 58 In some cases, the text o f the relevant legislation
may be sufficient to clarify the content and the meaning of the relevant legal instruments. In other
cases, the parties will also need to support their understanding of the content and meaning of such
legal instruments with evidence beyond the text of the instrument, such as evidence of consistent
application of such laws, pronouncements of domestic courts on the meaning of such laws, the
opinions of legal experts, and the writings of recognized scholars. 59 The task of a panel may be
facilitated by agreement between the parties about the meaning of the law and its interpretation,
being an interpretation that it is open for the panel to itself adopt. The Appellate Body has added
that, "in ascertaining the meaning of municipal law, a panel should undertake a holistic
assessment of all relevant elements, starting with the text of the law and including, but not limited
to, relevant practices of administering agencies" as well as "legal interpretation [s] given by a
domestic court or by a domestic administering agency as to the meaning of municipal law with
respect to the measure being reviewed for consistency with the covered agreements".60
7.2.2 Burden of proof
7.9. The general rule in WTO dispute settlement is that the burden of proof rests upon the party,
whether complaining or defending, who asserts the affirmative of a particular claim or defence. 61
Following this principle, the Appellate Body has explained that the complaining party in any given
dispute should establish a prima facie case of inconsistency of a measure with a provision of the
WTO covered agreements, before the burden of showing consistency with that provision or
defending it under an exception must be assumed by the defending party. 62 In other words, "a

55 Appellate Body Report, US – Hot-Rolled Steel, para. 200. See also Appellate Body Report, US –
Carbon Steel (India), p. 4.445.
56 Appellate Body Report, US – Carbon Steel (India), p. 4.445 (citing Appellate Body Report, India –
Patents (US), para. 66).
57 Appellate Body Report, US – Corrosion-Resistant Steel Sunset Review, para. 168.
58 Appellate Body Report, US – Carbon Steel, para. 157. See also Appellate Body Report, US – Carbon
Steel (India), p. 4.446.
59 Appellate Body Reports, US – Countervailing and Anti-Dumping Measures (China), para. 4.100; US –
60 Appellate Body Report, US – Countervailing and Anti-Dumping Duties (China), para. 4.101. See also
Appellate Body Report, US – Carbon Steel (India), para. 4.446.
61 Appellate Body Report, US – Wool Shirts and Blouses, p. 14, DSR 1997:I, p. 323 at p. 335.
62 Appellate Body Report, EC – Hormones, para. 104.

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party claiming a violation of a provision of the WTO Agreement by another Member must assert
and prove its claim."63
7.10. 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 complainin g party presenting
the prima facie case."64 To establish a prima facie case, the party asserting a particular claim must
adduce evidence sufficient to raise a presumption that what is claimed is true. If the complaining
party "adduces evidence sufficient to raise a presumption that what is claimed is true, the burden
then shifts to the other party, who will fail unless it adduces sufficient evidence to rebut the
presumption."65 In this regard, the Appellate Body has stated that:
[P]recisely how much and precisely what kind of evidence will be required to establish
such … [presumptions] will necessarily vary from measure to measure, provision to
provision, and case to case.66
7.11. The Appellate Body has also stated that "[a] complaining party may not simply submit
evidence and expect the panel to divine from it a claim of WTO -inconsistency. Nor may a
complaining party simply allege facts without relating them to its legal arguments".67
7.12. In this dispute, the European Union bears the burden of establishing a prima facie case that
the disputed measures are prohibited subsidies inconsistent with Article 3 of the SCM Agreement.
In addition, if the Panel finds that the European Union has made out its prima facie case, it is for
the United States to provide rebuttal arguments a nd evidence that is needed to support that
rebuttal.
7.2.3 Treaty interpretation
7.13. 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 ru les of
interpretation of public international law". It is well established that the principles codified in
Articles 31 and 32 of the Vienna Convention on the Law of Treaties (the "Vienna Convention") 68
are such customary rules of interpretation of public international law.69 They provide as follows:
ARTICLE 31
General rule of interpretation
1. A treaty shall be interpreted in good faith in accordance with the ordinary
meaning to be given to the terms of the treaty in their context and in the light of its
object and purpose.
2. The context for the purpose of the interpretation of a treaty shall comprise, in
addition to the text, including its preamble and annexes:
(a) any agreement relating to the treaty which was made between all
the parties in connexion with the conclusion of the treaty;
(b) any instrument which was made by one or more parties in
connexion with the conclusion of the treaty and accepted by the other
parties as an instrument related to the treaty.
3. There shall be taken into account together with the context:

63 Appellate Body Report, US – Wool Shirts and Blouses, p. 16, DSR 1997:I, p. 323 at p. 337.
64 Appellate Body Report, EC – Hormones, para. 104.
65 Appellate Body Report, US – Wool Shirts and Blouses, p. 14, DSR 1997:I, p. 323 at p. 335. (footnote
omitted)
66 Ibid.
67 Appellate Body Report, US – Gambling, para. 140.
68 Done at Vienna, 23 May 1969, 1155 United Nations Treaty Series 331 (1980); 8 International Legal
Materials 679 (1969).
69 See, e.g. Appellate Body Report, US - Shrimp, para. 114.

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(a) any subsequent agreement between the parties regarding the
interpretation of the treaty or the application of its provisions;
(b) any subsequent practice in the application of the treaty which
establishes the agreement of the parties regarding its interpretation;
(c) any relevant rules of international law applicable in the relations
between the parties.
4. A special meaning shall be given to a term if it is established that the parties so
intended.
ARTICLE 32
Supplementary means of interpretation
Recourse may be had to supplementary means of interpretation, including the
preparatory work of the treaty and the circumstances of its conclusion, in order to
confirm the meaning resulting from the application of article 31, or to determine the
meaning when the interpretation according to article 31:
(a) leaves the meaning ambiguous or obscure; or
(b) leads to a result which is manifestly absurd or unreasonable.
7.14. There is a considerable body of WTO case law dealing with the application of these
provisions. It is clear that interpretation must be based above all on the text of the treaty 70, 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." 71 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."72
7.3 Description and background of the measures at issue
7.3.1 Aerospace tax measures
7.15. The European Union challenges seven separate tax measures for civil aircraft provided by
the state of Washington (aerospace tax measures) as amended and extended by ESSB 595273:
(a) reduced business and occupation (B&O) tax rate for the manufacture and sale of
commercial airplanes (B&O aerospace tax rate)74;

70 Appellate Body Report, Japan – Alcoholic Beverages II, p. 11, DSR 1996:I, 97, at p. 105.
71 Appellate Body Report, India – Patents (US), para. 45.
72 Ibid. para. 46.
73 Engrossed Substitute Senate Bill 5952, Chapter 2, Laws of 2013 3rd Special Session,
2014 Wash. Sess. Laws 2, (ESSB 5952) (Exhibit EU-3). See European Union's first written submission,
para. 15. Throughout these proceedings, the European Union has consistently referred to this legislation as
"SSB 5952", rather than "ESSB 5952", explaining that it "omitted the 'Engrossed' and the 'E', in an effort to
abbreviate the name". European Union's response to Panel question No. 52, para. 4. The United States has
noted that the bill enacting the relevant legislation and conditions was Engrossed Substitute Senate Bill 5952,
rather than Substitute Senate Bill 5952. United States' first written submission, fn 1. The United States has
also clarified the legislative process beginning with Senate Bill 5952 as well as the series of amendments that
led to the "Substitute" bill and subsequently the "Engrossed" bill that was passed by the Washington State
legislature and approved by the Governor. United States' response to Panel question No. 52, paras. 1-5. The
United States also confirmed that the citation in the European Union's panel request corresponds to
ESSB 5952, and that the United States does not take the position that ESSB 5952 is outside the Panel's terms
of reference. United States' response to Panel question No. 52, paras. 6-8. In light of this clarification and
confirmation by the United States, the Panel refers to the legislation cited in the European Union's panel
request as Engrossed Substitute Senate Bill 5952 (ESSB 5952) throughout this Report.
74 ESSB 5952 (Exhibit EU-3), Sections 5-6, codified at RCW Section 82.04.260 (Exhibit EU-22).

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(b) B&O tax credit for pre -production development for commercial airpla nes and
components (B&O tax credit for aerospace product development)75;
(c) B&O tax credit for property taxes on commercial airplane manufacturing facilities
(B&O tax credit for property and leasehold excise taxes)76;
(d) exemption from sales and use taxes for certain computer hardware, software, and
peripherals (computer sales and use tax exemptions)77;
(e) exemption from sales and use taxes for certain construction services and materials
(construction sales and use tax exemptions)78;
(f) exemption from lease hold excise taxes on port district facilities used to manufacture
superefficient airplanes (leasehold excise tax exemption)79; and
(g) exemption from property taxes for the personal property of port district lessees used
to manufacture superefficient airplanes (leaseholder property tax exemption)80.
7.16. A person claiming the B&O tax credit for property and leasehold excise taxes , listed above
as (c), is not eligible for either the leasehold excise tax exemption or the leaseholder property tax
exemption, listed above as (f) and (g), respectively.
7.3.1.1 Measures related to the B&O tax
7.17. The first three aerospace tax measures listed above pertain to the business and occu pation
(B&O) tax, which is the s tate of Washington's "major business tax "81, in that the state of
Washington "relies primarily on a B&O tax – rather than a corporate tax or an income tax – for
purposes of business taxation" .82 The B&O tax is imposed "for the act or privilege of engaging in
business activities" and "is measured by the application of rates against the value of products,
gross proceeds of sales, or gross income of the business, as the case may be". 83 The B&O tax
applies to distinct business activities (such as retailing, manufacturing, wholesaling, extracting,
and services). A business may have more than one B&O tax rate, depending on the types of
activities conducted.84
7.18. The first tax measure above ( B&O aerospace tax rate ) provides for a B&O tax rate
of 0.2904% for specified business activities. 85 The other two B&O tax -related measures (B&O tax
credits for aerospace product development and for property and leasehold excise taxes) provide
credits against B&O tax liability based on specified expenditures or other tax payments made by
the taxpayer concerned.86 The rules regarding the calculation of B&O tax liability for different types
of activities as well as the amount of B&O tax credits are discussed below in connection with
whether there is a financial contribution in the sense of Article 1 of the SCM Agreement.

75 ESSB 5952 (Exhibit EU-3), Section 9, codified at RCW Section 82.04.4461 (Exhibit EU-23).
76 ESSB 5952 (Exhibit EU-3), Section 10, codified at RCW Section 82.04.4463 (Exhibit EU-24).
77 ESSB 5952 (Exhibit EU-3), Sections 11-12, codified at RCW Section 82.08.975 (Exhibit EU-25) and
RCW Section 82.12.975 (Exhibit EU-26).
78 ESSB 5952 (Exhibit EU-3), Sections 3-4, codified at RCW Section 82.08.980 (Exhibit EU-27) and RCW
Section 82.12.980 (Exhibit EU-28).
79 ESSB 5952 (Exhibit EU-3), Section 13, codified at RCW Section 82.29A.137 (Exhibit EU-29).
80 ESSB 5952 (Exhibit EU-3), Section 14, codified at RCW Section 84.36.655 (Exhibit EU-30).
81 See Final Bill Report, Engrossed Substitute Senate Bill 5952, (ESSB 5952 Final Bill Report)
(Exhibit EU-4), p. 1.
82 United States' first written submission, para. 39.
83 RCW Section 82.04.220(1) (Exhibit EU-32). See also United States' first written submission,
paras. 39-41.
84 See ESSB 5952 Final Bill Report (Exhibit EU-4), p. 1. See para. 7.77 below regarding B&O taxation of
multiple business activities.
85 See ESSB 5952 (Exhibit EU-3), Sections 5-6; RCW Section 82.04.260(11) (Exhibit EU-22);
ESSB 5952 Final Bill Report (Exhibit EU-4), p. 3.
86 See RCW Section 82.04.4461(2) (Exhibit EU-23).

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7.3.1.2 Exemptions from sales and use taxes
7.19. The next two aerospace tax measures in the abov e list are exemptions from the s tate of
Washington's retail sales and use taxes. The retail sales tax is Washington State's principal source
of tax revenue (including business and non -business tax revenue) 87, and is c ollected from
customers by businesses making retail sales in Washington State. The retail sales tax is generally
imposed on the sale of tangible personal property 88 and digital products 89, as well as certain
services90, to the final consumer or end user of su ch property, digital product, or service. 91 The
use tax is a tax on the use of go ods or certain services in the s tate of Washington when sales tax
has not been paid. 92 Goods used in Washington State are subject to either sales or use tax, but
not to both; thus, the use tax compensates when the sales tax has not been paid.93
7.20. The computer sales and use tax exemptions relate to sales or use "of computer hardware,
computer peripherals, or software … used primarily in the development, design, and engineering of
aerospace products or in providing aerospace services". 94 These exemptions also relate to sales or
use of "labor and services rendered in respect to installing the computer hard ware, computer
peripherals, or software".95
7.21. The construction sales and use tax exemp tions concern labour, services, and personal
property used to construct new buildings for the manufacture of commercial airplanes or the
fuselages and wings of commercial airplanes. More specifically, the sales tax exemption applies to
retail sales taxes o n "[c]harges, for labor and services rendered in respect to the constructing of
new buildings, made to a manufacturer engaged in the manufacturing of commercial airplanes or
the fuselages or wings of commercial airplanes".96 Sales and use tax exemptions apply to the sales
and use of "tangible personal property that will be incorporated as an ingredient or component" 97
in constructing such buildings. These construction sales and use tax exemptions also apply to
charges for construction labour and services made to, and tangible personal property used in
constructing new buildings for, "a port district, political subdivision, or municipal corporation, to be
leased to a manufacturer engaged in the manufacturing of commercial airplanes or the fuselages
or wings of commercial airplanes".98
7.22. The applicable tax rates and coverage of retail sales and use taxes in Washington State are
considered in greater detail below in connection with whether these exemptions constitute a
financial contribution in the sense of Article 1 of the SCM Agreement.

87 United States' first written submission, para. 42; Retail Sales Tax Explanation, Washington State
Department of Revenue (Exhibit USA-12).
88 Retail Sales Tax Explanation, Washington State Department of Revenue (Exhibit USA-12).
89 Digital Products including Digital Goods, Washington State Department of Revenue (Exhibit USA-14).
90 Services Subject to Sales Tax, Washington State Department of Revenue (Exhibit USA-13).
91 See ESSB 5952 Final Bill Report (Exhibit EU-4), p.1.
92 Use Tax Explanation, Washington State Department of Revenue (Exhibit USA-19). See also
ESSB 5952 Final Bill Report (Exhibit EU-4), p.1; United States' first written submission, para. 44. For example,
the use tax is owed if goods are purchased in another state that does not have a sales tax or a state with a
sales tax lower than that of the state of Washington, and then used in the state of Washington. The use tax
would also be owed if goods are purchased from someone who is not authorized to collect sales tax (e.g.
purchases of furniture from an individual through a newspaper classified ad or a purchase of artwork from an
individual collector), or if personal property is acquired with the purchase of real property.
93 Use Tax Explanation, Washington State Department of Revenue (Exhibit USA-19).
94 RCW Section 82.08.975 (Exhibit EU-25); RCW Section 82.12.975 (Exhibit EU-26); ESSB 5952
(Exhibit EU-3), Sections 11-12.
95 RCW Section 82.08.975 (Exhibit EU-25); RCW Section 82.12.975 (Exhibit EU-26); ESSB 5952
(Exhibit EU-3), Sections 11-12.
96 RCW Section 82.08.980 (Exhibit EU-27); ESSB 5952 (Exhibit EU-3), Section 3.
97 RCW Section 82.08.980 (Exhibit EU-27); RCW Section 82.12.980 (Exhibit EU-28); ESSB 5952
(Exhibit EU-3), Sections 3-4. The United States explains that the "use tax is not due on construction services",
which "accounts for why the language of the statute on its face appears to have a more limited scope when
compared with the language for the exemption for the retail sales tax". United States' first written submission,
fn 118.
98 RCW Section 82.08.980(1)(a)(ii) (Exhibit EU-27); RCW Section 82.12.980(1)(a)(ii) (Exhibit EU-28).

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7.3.1.3 Exemptions from taxes imposed on certain leaseholds
7.23. The final two aerospace tax measures concern property taxes imposed on certain leaseholds
in Washington State. Real and personal property in Washington State is generally subject to
property taxes based on its value, unless a specific exemption is provided by law. 99 For example,
all property owned by federal, state, and local governments is exempt from the Washington State
property tax.100
7.24. The leasehold excise tax exemption relates to t he Washington State leasehold excise tax,
which is imposed in lieu of a property tax on the use of public property by a private party. 101 More
specifically, Washington State imposes "a leasehold excise tax on the act or privilege of occupying
or using publicly owned real or personal property … through a leasehold interest". 102 The leasehold
excise tax exemption applies to "[a]ll leasehold interests in port district facilities exempt from tax
under [the construction sales and use tax exemptions] and used by a manufacturer engaged in the
manufacturing of superefficient airplanes".103
7.25. Under the leaseholder property tax exemption, Washington State also exempts from
property taxation "all buildings, machinery, equipment, and other personal property of a lessee of
a por t district eligible [for the construction sales and use tax exemptions], used exclusively in
manufacturing superefficient airplanes".104
7.26. Neither the leasehold excise tax exemption nor the leaseholder property tax exemption is
available to a person claiming the B&O tax credit for property and leasehold excise taxes.105
7.3.2 Siting provisions
7.27. The European Union identifies two "siting" provisions that govern the availability of the
above aerospace tax measures, namely a First Siting Provision 106 relating to all of the ae rospace
tax measures, and a Second Siting Provision107 relating only to the B&O aerospace tax rate.108
7.3.2.1 First Siting Provision
7.28. Each of the above aerospace tax measures is extended , and certain others are also
amended, by ESSB 5952, which, according to the First Siting Provision in Section 2 of ESSB 5952,
"takes effect contingent upon the siting of a significant commercial airplane manufacturing
program in the state of Washington". Alternatively, "[i]f a significant commercial airplane
manufacturing program is not sited in the state of Washington by June 30, 2017, … [this act] does
not take effect".109

99 See ESSB 5952 Final Bill Report (Exhibit EU-4), p. 1; RCW Section 84.36.005 (Exhibit USA-20);
United States' first written submission, para. 46.
100 RCW Section 84.36.010 (Exhibit USA-21). See also ESSB 5952 Final Bill Report (Exhibit EU-4),
pp. 1-2; United States' first written submission, para. 46.
101 Leasehold Excise Tax Explanation, Washington State Department of Revenue (Exhibit USA-25).
102 RCW Section 82.29A.030 (Exhibit USA-26).
103 RCW Section 82.29A.137 (Exhibit EU-29). Under Washington State law, "superefficient airplane" is
defined as "a twin aisle airplane that carries between two hundred and three hundred fifty passengers, with a
range of more than seven thousand two hundred nautical miles, a cruising speed of approximately mach .85,
and that uses fifteen to twenty percent less fuel than other similar airplanes on the market".
RCW Section 82.32.550(3) (Exhibit EU-82).
104 RCW Section 84.36.655 (Exhibit EU-30).
105 RCW 82.29A.137(1) (Exhibit EU-29); RCW 84.36.655(1) (Exhibit EU-30). These refer to measures
(f), (g), and (c), respectively, in the list in para. 7.15 above.
106 The European Union refers to this as the "Programme-Siting Condition". See European Union's first
written submission, paras. 42-45. The United States refers to this as the "Initial Siting Provision".
United States' first written submission, paras. 74-78.
107 The European Union refers to this as the "Exclusive-Production Condition". European Union's first
written submission, paras. 46-52. The United States refers to this as the "Future Siting Provision". See
United States' first written submission, paras. 55-56, 79-80.
108 See Request for the Establishment of a Panel by the European Union, WT/DS487/2,
13 February 2015, p. 2.
109 ESSB 5952 (Exhibit EU-3), Section 2, codified at RCW Section 82.32.850 (Exhibit EU-58).

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7.29. The First Siting Provision defines "siting" to mean "a final decision, made on or after
November 1, 2013, by a manufacturer to locate a significant commercial airplan e manufacturing
program in Washington State". In turn, "significant commercial airplane manufacturing program" is
defined as:
[A]n airplane program in which the following products, including final assembly, will
commence manufacture at a new or existing lo cation within Washington state on or
after the effective date of this section:
(i) The new model, or any version or variant of an existing model, of a
commercial airplane; and
(ii) Fuselages and wings of a new model, or any version or variant of an
existing model, of a commercial airplane.110
7.30. The First Siting Provision additionally defines "new model, or any version or variant of an
existing model, of a commercial airplane" to mean "a commercial airplane manufactured with a
carbon fiber composite fuselage or carbon fiber composite wings or both".111
7.31. Both parties agree that the First Siting Provision has been fulfilled and, as a result, the
measures set out in ESSB 5952 are in effect.112
7.3.2.2 Second Siting Provision
7.32. ESSB 5952 also contains a Second Siting Provision , relating only to the B&O aerospace tax
rate113, which provides as follows:
With respect to the manufacturing of commercial airplanes or making sales, at retail
or wholesale, of commercial airplanes, this subsection (11) [i.e. the B&O aerospace
tax rate] does not apply on and after July 1st of the year in which the department [i.e.
the Department of Revenue] makes a determination that any final assembly or wing
assembly of any version or variant of a commercial airplane that is the basis of a
siting of a signific ant commercial airplane manufacturing program in the state under
section 2 of this act [i.e. the First Siting Provision] has been sited outside the state of
Washington. This subsection (11)(e)(ii) [i.e. the Second Siting Provision] only applies
to the manufacturing or sale of commercial airplanes that are the basis of a siting of a
significant commercial airplane manufacturing program in the state under section 2 of
this act.
7.33. The Second Siting Provision thus concerns the continued availability of the B&O aerospace
tax rate for the version or variant of the commercial airplane that is the basis of the First Siting
Provision. The Second Siting Provision specifically pertains to the siting of "any final assembly or
wing assembly" of that commercial airplane. As agreed by the parties, and as explained more fully
below, the Boeing 777X is the relevant version or variant of commercial airplane that served as
the basis for fulfilment of the First Siting Provision.114

110 ESSB 5952 (Exhibit EU-3), Section 2(2)(c) and (d), codified at RCW 82.32.850(2)(c) and (d)
(Exhibit EU-58).
111 ESSB 5952 (Exhibit EU-3), Section 2(2)(b), codified at RCW 82.32.850(2)(b) (Exhibit EU-58).
112 Notification Letter from Carol K. Nelson, Director, Washington State Department of Revenue, to Kyle
Thiessen, Washington State Code Reviser, 10 July 2014 (Exhibit EU-61). United States' first written
submission, para. 78. See para. 7.273 below regarding the details of fulfilment of the First Siting Provision.
113 ESSB 5952 (Exhibit EU-3), Sections 5-6(11)(e)(ii), codified at RCW 82.04.260(e)(ii) (Exhibit EU-22).
114 See European Union's first written submission, para. 46; United States' first written submission,
para. 56.

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7.3.3 Legislative background and scope of the measures at issue
7.34. ESSB 5952 amends and extends certain tax measures established in 2003 under
Washington State Legislature House Bill 2294 (HB 2294) 115, which were measures at issue in the
dispute US – Large Civil Aircraft (2nd complaint).116
7.35. The parties have raised diff erent views as to the temporal scope of the measures at issue
and the applicability of the contingencies introduced by ESSB 5952. For example, with reference to
pre-existing tax measures in Washington State, the United States submits that "[a]bsent
ESSB 5952, aerospace activity through 2024 subject to the B&O tax, the sales and use tax, the
property excise tax, and the leasehold excise tax would have qualified under HB 2294 and for the
[aerospace tax measures] identified by the European Union", and thus con tends that "the
treatment prior to 2024 under any of these measures, even if the measure were determined to be
a subsidy, is a priori not contingent on any conditions introduced by ESSB 5952". 117 By contrast,
the European Union asserts that its challenge is not limited to the extended tax treatment from
2024 to 2040 effected by ESSB 5952, but rather that "the European Union is challenging the
subsidies at issue from the point in time that they became contingent on satisfaction of the [First
Siting Provision] conditions in SSB 5952, i.e., November 2013. The European Union challenges the
existence of a financial contribution for the whole period from November 2013 through
June 2040."118
7.36. In light of these differing assertions, the Panel first reviews the legislativ e background and
scope of the measures at issue before turning to the claims raised in this dispute. T he tax
measures adopted by the Washington State Legislature in 2003 under HB 2294 included a
reduction in the B&O tax rate119; a B&O tax credit for pre-production development expenditures120;
a B&O tax credit for computer software and hardware 121; and a B&O tax credit for property taxes
paid on property used in the manufacture of commercial airplanes and airplane components. 122
Also included were sales and use tax exemptions for computer equipment and software, and their
installation, as well as construction services and equipment, used primarily in the development of
commercial airplanes and components. 123 A leasehold excise tax exemption and property tax
exemption for port district facilities was also available to manufacturers of superefficient airplanes
that were not using the B&O tax credit for property taxes. 124 These measures were scheduled to
end in 2024.125
7.37. ESSB 5952 extended the availability of these tax measures to 2040 upon fulfilment of the
First Siting Provision through the siting of the Boeing 777X program me. ESSB 5952 also provided
that the B&O aerospace tax rate would no longer apply to that programme if the conditions
foreseen in the Second Siting Provisio n occurred. At the same time, the aerospace tax measures
reflect substantive amendments made by ESSB 5952 as well as other legislative changes made to
the tax measures in the intervening period between HB 2294 and ESSB 5952. For example, with
regard to the B&O aerospace tax rate, in 2006, Washington State Legislature House Bill 2466 (HB
2466) also extended the reduced B&O tax rate to certain certified repair stations 126, and
consolidated the B&O aerospace tax rates for the manufacture of commercial airplanes and

115 House Bill 2294, 2003 Wash. Sess. Laws 2767, (HB 2294) (Exhibit EU-21).
116 See Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.39.
117 United States' response to Panel question No. 2, para. 3. See also United States' response to Panel
question Nos. 53, 54, and 58.
118 European Union's second written submission, para. 18. See also European Union's response to Panel
question No. 6, para. 8.
119 HB 2294 (Exhibit EU-21), Sections 3-4; Panel Report, US – Large Civil Aircraft (2nd complaint),
paras. 7.47-7.49.
120 HB 2294 (Exhibit EU-21), Section 7; Panel Report, US – Large Civil Aircraft (2nd complaint),
paras. 7.51-7.52.
121 HB 2294 (Exhibit EU-21), Section 8; Panel Report, US – Large Civil Aircraft (2nd complaint),
paras. 7.53-7.54.
122 HB 2294 (Exhibit EU-21), Section 15; Panel Report, US – Large Civil Aircraft (2nd complaint),
paras. 7.55-7.56.
123 HB 2294 (Exhibit EU-21), Sections 9-12; Panel Report, US – Large Civil Aircraft (2nd complaint),
paras. 7.59-7.62.
124 HB 2294 (Exhibit EU-21), Sections 13-14; Panel Report, US – Large Civil Aircraft (2nd complaint),
paras. 7.64-7.68.
125 HB 2294 (Exhibit EU-21); ESSB 5952 Final Bill Report (Exhibit EU-4), p. 2.
126 House Bill 2466, 2006 Wash. Sess. Laws 787, (HB 2466) (Exhibit EU-35), Section 5.

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components, and for the sales of commercial airplanes and components, into a single provision
covering both manufacture and sales. 127 In addition, Substitute Senate Bill 6828 (SSB 6828) of
2008 extended the reduced B&O tax rate to the manufacture and ret ailing of tooling used in the
manufacture of commercial airplanes and components of airplanes. 128 The B&O tax credit for
aerospace product development reflects an extension of the credit to non -manufacturing firms
under HB 2466 of 2006. 129 It further reflects the extension under SSB 6828 of the credit for
preproduction development to "aerospace product development", which was subsequently carried
over in the provisions extended by ESSB 5952. 130 The B&O tax credit for property and leasehold
excise taxes amended by ESSB 5952 reflects the prior 2006 amendment under HB 2466 to include
leasehold excise taxes in addition to property taxes as part of this B&O tax credit. 131 The computer
sales and use tax exemptions amended by ESSB 5952 reflect prior changes made unde r HB 2466
of 2006 and under SSB 6828 of 2008. 132 Further, ESSB 5952 amends the construction sales and
use tax exemptions originally e stablished in HB 2294 by changing their application to "the
manufacturing of commercial airplanes or the fuselages and wings of com mercial airplanes" rather
than to "manufacturing of superefficient airplanes".133
7.38. ESSB 5952 was enacted in November 2013 by the Washington State legislature. Pursuant to
the First Siting Provision, the aerospace tax measures , as amended and extended by ESSB 5952,
were to take effect upon the determination by the Department of Revenue of Washington State
that the First Siting Provision had been satisfied, based on the "siting" of a "significant commercial
airplane manufacturing program" as defined in that prov ision. On 9 July 2014, Boeing submitted a
letter to the Department of Revenue of Washington State providing formal notification that Boeing
had made a final decision to manufacture the 777X in Washington State, and describing how the
777X satisfied the req uirements of the First Siting Provision. 134 The Department of Revenue of
Washington State provided written notice on 10 July 2014 of its determination that the First Siting
Provision had been fulfilled and that ESSB 5952 had taken effect on 9 July 2014. 135 The
Boeing 777X was the model of commercial airplane that served as the basis for determining that
the First Siting Provision had been fulfilled.136
7.39. For the purposes of this dispute, the measures that are within the Panel's terms of reference
are those identified by the European Union in its request for the establishment of a panel.137 These
measures are the aerospace tax measures, as presently codified in the RCW provisions cited in the
European Union's panel request. 138 The aerospace tax measures as codified 139 reflect the
substantive amendments made under ESSB 5952 as well as other legislative amendments

127 HB 2466 (Exhibit EU-35), Section 4.
128 Substitute Senate Bill 6828, 2008 Wash. Sess. Laws 365, (SSB 6828) (Exhibit EU-42), Section 4.
129 HB 2466 (Exhibit EU-35), Section 3; ESSB 5952 Final Bill Report (Exhibit EU-4), p. 2; United States'
first written submission, para. 62.
130 SSB 6828 (Exhibit EU-42), Section 7; United States' first written submission, para. 62 (noting that
this "broadened the B&O tax credit for aerospace product development to include expenditures in developing
aerospace products, such as machinery for maintaining and repairing commercial airplanes and tooling
equipment").
131 See HB 2466 (Exhibit EU-35), Section 10.
132 Thus, the currently codified provisions of these exemptions omit the limitation to manufacturers or
processors for hire of commercial airplanes or components of such airplanes that originally existed under
HB 2294. See HB 2294 (Exhibit EU-21), Sections 9-10; ESSB 5952 (Exhibit EU-3), Sections 11-12.
133 See HB 2294 (Exhibit EU-21), Sections 11-12; ESSB 5952 (Exhibit EU-3), Sections 3-4.
134 Letter from Boeing to Carol K. Nelson, Director, Washington State Department of Revenue, regarding
decision to site 777X programme, 9 July 2014 (Exhibit USA-32) (BCI).
135 Letter from the Director of the Washington State Department of Revenue to the Code Reviser,
10 July 2014 (Exhibit EU-61).
136 United States' first written submission, para. 56.
137 See Constitution of the Panel Established at the Request of the European Union – Note by the
Secretariat, WT/DS487/3, 23 April 2015.
138 The Panel notes that the United States has focused upon the enacted results of ESSB 5952, rather
than the legislative bill itself, stating that "ESSB 5952 is not itself a measure challenged by the EU." United
States' first written submission, fn 99. As further explained by the United States, "provisions of legislation like
HB 2294 or ESSB 5952 operate as law to the extent they are codified in the RCW, and any provision so codified
will continue to do so until it is amended, rescinded, or expires." United States' comments the European
Union's response to Panel question No. 54, para. 10.
139 In this connection, RCW Section 1.04.020 states that "[a]ny section of the Revised Code of
Washington … expressly amended by the legislature, including the entire context set out, shall, as so amended,
constitute the law and the ultimate declaration of legislative intent." RCW Section 1.04.020 in Chapter 1.04
RCW (Exhibit USA-63).

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subsequent to the enactment of HB 2294 in 2003 , and are presently in effect until 2040 . The
aerospace tax measures are further subject to the First and Second Sitin g Provisions, which were
introduced by ESSB 5952.
7.40. Recalling the parties' different views as to the temporal scope of the measures at issue and
the applicability of the contingencies introduced by ESSB 5952 , t he Panel considers that the
measures at issue are not limited to tax treatment for the period of extension from 2024 to 2040.
Rather, given the Panel's terms of reference as well as the various substantive amendments
effected by ESSB 5952 and prior to its passage, the aerospace tax measures and Siting P rovisions
at issue are those that are in effect pursuant to codified provisions of Washington State law
following the enactment and entry into force of ESSB 5952.
7.4 Existence of a subsidy under Article 1 of the SCM Agreement
7.4.1 Arguments of the parties
7.41. The Euro pean Union contends that the aerospace tax measures are subsidies within the
meaning of Article 1 of the SCM Agreement. 140 According to the European Union, each of the
aerospace tax measures at issue constitutes a financial contribution under Article 1.1(a)( 1)(ii) of
the SCM Agreement because "government revenue that is otherwise due is foregone or not
collected". In support of its contention, the European Union proposes various benchmarks for
comparison for the aerospace tax measures and contends that, in re lation to these benchmarks,
government revenue that would otherwise be due is foregone. The European Union also draws
upon findings in US – Large Civil Aircraft (2 nd complaint) and contends that similar considerations
apply in respect of measures that are analogous to those that were found to constitute financial
contributions in that dispute. At the same time, t he European Union distinguishes its claim from
that made in US – Large Civil Aircraft (2 nd complaint) as it argues in the present case "that a
financial contribution exists in the abstract" rather than being entity-specific.141 The
European Union contends that government revenue does not need to have been actually foregone
for there to be a financial contribution , but rather that it is the foregoing of the government's
entitlement to collect revenue that is determinative of a financial contribution. 142 Further, the
European Union argues that the conferral of a benefit is a natural consequence of the foregoing of
government revenue in comparison to "market" conditions.143
7.42. The United States asserts that the European Union fails to make a prima facie case that any
of the challenged measures constitutes a financial contribution. The United States also disputes the
European Union's reliance on findings made in re spect of contested measures in US – Large Civil
Aircraft (2 nd complaint) to demonstrate a financial contribution in this dispute .144 While
acknowledging t he European Union 's clarification as to a financial contribution existing "in the
abstract", the United States contends that the present tense drafting of Article 1.1(a)(ii) means
that "this provision covers revenue foregone or not collected in the present ".145 In addition, the
United States disagrees with various legal interpretations advanced by the European Union,
including that the term "maintain" in Article 3.2 refers to the continuation of a subsidy that has
been "granted"146, as well as t he European Union 's distinction between the terms "not collected"
and "foregone", arguing that both are in the present p assive tense, and that "the two verbs
describe different ways that the government may obtain tax income". 147 With respect to the

140 European Union's first written submission, para. 53; second written submission, para. 9; opening
statement at the first meeting of the Panel, para. 15; opening statement at the second meeting of the Panel,
para. 12.
141 European Union's response to Panel question No. 23, para. 45 (quoting Panel Report, US – Large
Civil Aircraft (2nd complaint), para. 7.151). See also European Union's second written submission, para. 34.
142 See European Union's second written submission, para. 21; opening statement at the second
meeting of the Panel, paras. 15-16.
143 European Union's first written submission, paras. 67-68; second written submission, paras. 36-37;
opening statement at the first meeting of the Panel, para. 35; opening statement at the second meeting of the
Panel, para. 23.
144 United States' first written submission, para. 94-99.
145 United States' second written submission, para. 86. (emphasis original) The United States further
submits that the European Union's legal arguments do not overcome "the implication of the present tense
drafting of Article 1.1(a)(ii)". United States' second written submission, para. 87.
146 United States' second written submission, para. 88.
147 United States' second written submission, para. 89.

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benefit allegedly conferred, the United States agrees with the European Union that "the concept of
financial contribution in the form of revenue foregone that is otherwise due often overlaps with the
concept of benefit", but contends that "[t]he European Union has not identified with sufficient
clarity what the benefit is that it is alleging, much less provided evidence that the two concepts
fully overlap in the present case." 148 The United States further contends that the European Union
erroneously argues that a finding of benefit proceeds automatically from a finding that revenue is
foregone.149
7.4.2 Third-party views
7.43. Australia submits "tha t by the very nature of the type of transaction relating to the
foregoing or non -collection of government revenue, the actual use or exercise of the fiscal
incentive by a beneficiary/recipient may not necessarily be determinative in establishing the
existence of a financial contribution ".150 Accordingly, Australia frames the question as " whether,
but for the tax incentive, the beneficiary of the tax measure would owe revenue payable as a debt,
but expect it to be forgone or not collected ".151 With regard to the benefit conferred, Australia
refers to the standard of a measure making a recipient "better off" in comparison to the
marketplace, and that, "[i]n this instance, the marketplace would be made up of other companies
facing the usual tax rates set by Washing ton State, without provision of the discounts offered to
companies that qualified for the tax exemption/discount".152
7.4.3 Whether there is a financial contribution as "government revenue that is
otherwise due is foregone or not collected"
7.44. Article 1.1(a)(1)(ii) of the SCM Agreement provides in relevant 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 … , i.e. where:
(ii) government revenue that is otherwise due is foregone or not collected (e.g.
fiscal incentives such as tax credits); (footnote omitted)
7.45. With regard to the legal standard under Article 1.1(a)(1)(ii) of the SCM Agreement , the
Appellate Body has set out the following considerations:
In our view, the " foregoing" of revenue "otherwise due" implies that less revenue has
been raised by the government than would have been raised in a different situation,
or, that is, "otherwise". Moreover, the word "foregone" suggests that the government
has given up an entitlement to raise revenue that it could "otherwise" have raised.
This cannot, however, be an entitlement in the abstract, because governments, in
theory, could tax all revenues. There must, therefore, be some defined, normative
benchmark against which a comparison ca n be made between the revenue actually
raised and the revenue that would have been raised "otherwise". 153 (emphasis
original)
7.46. The Appellate Body therefore considered that "the term 'otherwise due' implies some kind of
comparison between the revenues due under the contested measure and revenues that would be
due in some other situation", and that "the basis of comparison must be the tax rules applied by
the Member in question". 154 The Appellate Body further stated that, "[i]n identifying the
appropriate benchmar k for comparison, panels must obviously ensure that they identify and
examine fiscal situations which it is legitimate to compare. In other words, there must be a

148 United States' response to Panel question No. 22, para. 53.
149 United States' second written submission, para. 93.
150 Australia's response to Panel question No. 1.
151 Ibid.
152 Australia's response to Panel question No. 2.
153 Appellate Body Report, US – FSC, para. 90.
154 Ibid. The Appellate Body further noted that a "WTO Member, in principle, has the sovereign authority
to tax any particular categories of revenue it wishes" and that "[w]hat is 'otherwise due', therefore, depends on
the rules of taxation that each Member, by its own choice, establishes for itself."

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rational basis for comparing the fiscal treatment of the income subject to the contested meas ure
and the fiscal treatment of certain other income."155
7.47. The Appellate Body considered that there may be situations where the measures at issue
might be described as an "exception" to a general rule of taxation, and that in such situations it
may be possibl e to apply a "but for" test to examine the fiscal treatment of income absent the
contested measure. At the same time, given the variety and complexity of domestic tax systems ,
the Appellate Body did not consider that "Article 1.1(a)(1)(ii) always requires panels to identify,
with respect to any particular income, the 'general' rule of taxation prevailing in a Member". 156
Instead, the Appellate Body explained "that panels should seek to compare the fiscal treatment of
legitimately comparable income to determin e whether the contested measure involves the
foregoing of revenue which is 'otherwise due', in relation to the income in question".157
7.48. In US – Large Civil Aircraft (2 nd complaint), the Appellate Body reiterated the principle that
it is necessary to identify "legitimately comparable" situations of taxation in order to determine
whether government revenue is foregone. 158 The Appellate Body further articulated three
analytical steps for a panel examining a claim under Article 1.1(a)(1)(ii) of the SCM Agreement.
7.49. First, a panel should "identify the tax treatment that applies to the income of the alleged
recipients", which " will entail consideration of the objective reasons behind that treatment and,
where it involves a change in a Member's tax rules, an assessment of the reasons underlying that
change".159
7.50. Second, "the panel should identify a benchmark for comparison – that is, the tax treatment
of comparable income o f comparably situated taxpayers", which " involves an examination of the
structure of the domestic tax re gime and its organizing principles ".160 The Appellate Body noted
the potential difficulty of this exercise given that such principles may " be unique to the particular
domestic regime" or "that disparate tax measures, implemented over time, do not easily offe r up
coherent principles serving as a benchmark ".161 Nevertheless, "the task of the panel is to develop
an understanding of the tax structure and principles that best explains that Member's tax regime,
and to provide a reasoned basis for identifying what con stitutes comparable income of comparably
situated taxpayers".162
7.51. Third, " the panel should compare the reasons for the challenged tax treatment with the
benchmark tax treatment it has identified after scrutinizing a Member's tax regime ".163 According
to the App ellate Body, this " comparison will enable a panel to determine whether, in the light of
the treatment of the comparable income of comparably situated taxpayers, the government is
foregoing revenue that is otherwise due in relation to the income of the alleged recipients."164
7.52. Before proceeding to the analysis of each aerospace tax measure under Article 1.1(a)(1)(ii)
of the SCM Agreement, the Panel will address the United States' argument that aerospace activity
until 1 July 2024 would have qualified for certai n tax treatment un der legislation pre -dating
ESSB 5952, and that the extent of any financial contribution in this dispute would be limited to
revenue foregone at some point in the future. 165 The Panel recalls that the European Union has
argued that, unlike i n a past dispute under another provision of the SCM Agreement, in this case
the European Union is advancing its claim in the abstract, on the basis of the pertinent legislation
as such, and that it considers that Article 1.1(a)(1)(ii) covers not only the f oregoing of actual
revenue in the present, but also the foregoing of an entitlement to future revenue.166

155 Appellate Body Report, US – FSC (Article 21.5 – EC), para. 90.
156 Ibid. para. 91. (emphasis original)
157 Ibid.
158 See Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 810-812.
159 Ibid. para. 812.
160 Ibid. para. 813.
161 Ibid.
162 Ibid.
163 Ibid. para. 814.
164 Ibid.
165 United States' response to Panel question Nos. 2 and 21; second written submission, paras. 85-92.
166 European Union's response to Panel question Nos. 6 and 21.

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7.53. In respect of the measures at issue, the Panel agrees with the European Union that
Article 1.1(a)(1)(ii) of the SCM Agreement encompasses the foregoing of revenue in the future. 167
In the particular context of tax-based measures, the underlying legislation may be effective over a
period defined in the legislation itself, or indefinitely. Where such legislation gives rise to a
financial contribution in the f orm of revenue foregone, the fact of a government having forgone
such revenue is true for the entire period during which the legislation is in force. Even if the
effective start date of a period defined in the legislation is subsequent to the date on which the
legislation enters into force, as of th e date of entry into force the government would have, by
virtue of the legislation, already given up its entitlement to the future tax revenue during the
defined future period. 168 That entitlement could be re -established through further legislation
revoking or amending the previous legislation. This principle is implicit in past cases involving
financial contributions from tax -based measures. Where the rulings in those cases have been
based on the underlying legisla tion as such, they have not only concerned particular revenue
streams foregone in particular periods, but instead have concerned all of the implicit future
revenue streams that would be foregone pursuant to the underlying legislation.169
7.54. In this connection, the present tense of the verb "is" in Article 1.1(a)(1)(ii) relates to a
government presently foregoing an entitlement to collect revenue either now or in the future.170 It
is this government action taken with respect to otherwise applicable tax liabilities that is the focus
of the analysis under Article 1.1(a)(1)(ii), particularly where the measures are challenged as such
rather than "against the application … during any given point in time or in any specific instance".171
In this dispute, the Panel has determined that the aerospace tax measures at issue are those that
are presently in effect pursuant to codified provisions of Washington State law following the
enactment and entry into force of ESSB 5952. 172 A finding that the aerospace tax measures result
in government revenue being foregone, or that they cause government revenue to be foregone, be
it currently or in the future, applies to the measures themselves. This foregoing of revenue would
apply to taxpayers at any time during the entire period in which the measures are in force. The
foregoing of revenue is constituted by the government's promise to do so, and not only by
particular instances of it being done.
7.55. Having addressed the threshold issue of revenue foregone in the future, the Panel now
examines each of the challenged aerospace tax measures, as such, on the basis of the analytical
framework outlined above, to assess whether any of them involves a financial contribution in the
form of government revenue foregone within the meaning of Article 1.1(a)(1)( ii) of the
SCM Agreement.
7.4.3.1 B&O aerospace tax rate
7.56. The legislation for the B&O aerospace tax rate provides in relevant part:
(11)(a) Beginning October 1, 2005, upon every person engaging within this state in
the business of manufacturing commercial airplanes, or components of such airplanes,
or making sales, at retail or wholesale, of commercial airplanes or components of such
airplanes, manufactured by the seller, as to such persons the amount of tax with
respect to such business is, in the case of manufactu rers, equal to the value of the
product manufactured and the gross proceeds of sales of the product manufactured,

167 The Panel notes that the United States does not categorically reject the possibility that a financial
contribution may occur in the future.
168 This is consistent with the Appellate Body's characterization of a government having "given up an
entitlement to raise revenue that it could 'otherwise' have raised". Appellate Body Report, US – FSC, para. 90.
169 See, e.g. Panel Report, US – FSC, paras. 7.98-7.101. In that dispute, the panel examined the "FSC
scheme" as a whole, and noted inter alia that for any given fiscal year, a corporation was free to elect whether
or not to have the status of a FSC. Thus, it was the existence and operation of the scheme itself, which was of
indefinite duration under the US tax laws, that gave rise to the finding of revenue foregone, rather than
individual instances of application of the scheme by particular corporations, or instances of application of the
scheme during any particular period. This aspect of the panel report was not appealed.
170 See United States' second written submission, para. 86 ("By virtue of the present tense verb 'is', this
provision covers revenue foregone or not collected in the present. Thus, Article 1.1(a)(1)(ii) deals with tax
liabilities that exist in the present, and government actions with respect to those liabilities."). (emphasis
added)
171 European Union's response to Panel question No. 6, para. 7.
172 See para. 7.41 above.

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or in the case of processors for hire, equal to the gross income of the business,
multiplied by the rate of:
(i) 0.4235 percent from October 1, 2005, through June 30, 2007; and
(ii) 0.2904 percent beginning July 1, 2007.
(b) Beginning July 1, 2008, upon every person who is not eligible to report under the
provisions of (a) of this subsection (11) and is engaging within this state in the
business of manufacturing tooling specifically designed for use in manufacturing
commercial airplanes or components of such airplanes, or making sales, at retail or
wholesale, of such tooling manufactured by the seller, as to such persons the amount
of tax with re spect to such business is, in the case of manufacturers, equal to the
value of the product manufactured and the gross proceeds of sales of the product
manufactured, or in the case of processors for hire, be equal to the gross income of
the business, multiplied by the rate of 0.2904 percent.173
7.4.3.1.1 First step: applicable tax treatment
7.57. Based on the available evidence, the Panel will first identify the applicable tax treatment
under the B&O aerospace tax rate, including consideration of the objective reasons behind that
treatment. As provided for in the relevant legislation, the B&O aerospace tax rate applies to "every
person engaging within [the state of Washington] in the business of manufacturing commercial
airplanes, or components of such airplanes, or making sal es, at retail or wholesale, of commercial
airplanes or components of such airplanes, manufactured by the seller". 174 The B&O aerospace tax
rate also applies to those persons " engaging within [the state of Washington] in the business of
manufacturing tooling specifically designed for use in manufacturing commercial airplanes or
components of such airplanes, or making sales, at retail or wholesale, of such tooling
manufactured by the seller".175
7.58. Thus, the B&O aerospace tax rate applies to the following activities within the state of
Washington: (i) the manufacture of commercial air planes (and components thereof); (ii) sales of
commercial airplanes (and components thereof) by such manufacturers; and (iii) the manufacture
and sales of tooling for use in manufacturin g commercial airplanes or components of such
airplanes.
7.59. The B&O aerospace tax rate is a specific rate of taxation applicable to these activities. For
the manufacture and sales of commercial airplanes and components thereof, this specific rate was
implemented in two stages: first, a rate of 0.4235% from 1 October 2005 through 30 June 2007;
and second, a rate of 0.2904% beginning 1 July 2007. 176 For the manufacture and sales of tooling
for use in manufacturing commercial airplanes or components of such airplane s, the applicable
rate as of 1 July 2008 is 0.2904%. As a result of the enactment of ESSB 5952, the B&O aerospace
tax rate expires on 1 July 2040.177
7.60. Thus, the relevant tax treatment at present and until the expiration of the B&O aerospace
tax rate in 2040 i s the tax rate of 0.2904%. This rate is multiplied by, "in the case of
manufacturers … the value of the product manufactured and the gross proceeds of sales of the
product manufactured, or in the case of processors for hire … the gross income of the business".178

173 RCW Section 82.04.260(11) (Exhibit EU-22).
174 RCW Section 82.04.260(11)(a) (Exhibit EU-22). Under Washington State law, the term "commercial
airplane" "has its ordinary meaning, which is an airplane certified by the federal aviation administration for
transporting persons or property, and any military derivative of such an airplane". RCW Section 82.32.550(1)
(Exhibit EU-82). Further, the term "component" "means a part or system certified by the federal aviation
administration for installation or assembly into a commercial airplane". RCW Section 82.32.550(2)
(Exhibit EU-82).
175 RCW Section 82.04.260(11)(b) (Exhibit EU-22).
176 ESSB 5952 (Exhibit EU-3), Sections 5-6; RCW 82.04.260(11)(a) (Exhibit EU-22).
177 ESSB 5952 (Exhibit EU-3), Sections 5-6.
178 RCW Section 82.04.260(11) (Exhibit EU-22).

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7.61. With regard to the "objective reasons" behind this tax treatment179, the Panel notes that the
underlying legislation itself repeatedly refers to tax "incentives" and "preferences" to encourage
the aerospace industry (as such) to remain in Washington State and to expand its presence there.
For instance, ESSB 5952 is entitled "Aerospace Industry – Tax Preferences – Tax Exemption".180
The published Session Laws of Washington State containing ESSB 5952 characterize the act as
"[r]elating to incentivizing a long term commitment to maintain and grow jobs in the aerospace
industry in Washington state by extending the expiration date of aerospace tax preferences".181
7.62. In the text of the legislation itself, t he Washington State legislature explicitly set out the
reasons for enacting the aerospace tax measures in ESSB 5952:
The legislature finds that the people of Washington have benefited enormously from
the presence of the aerospace industry in Washington state. The legislature further
finds that the industry continu es to provide good wages and benefits for the
thousands of engineers, mechanics, and support staff working directly in the industry
throughout the state. The legislature further finds that suppliers and vendors that
support the aerospace industry in turn p rovide a range of well -paying jobs. In 2003,
and again in 2006, and 2007, the legislature determined it was in the public interest
to encourage the continued presence of the aerospace industry through the provision
of tax incentives. To this end, and in recognition of the continuing extreme importance
of the aerospace industry in Washington, it is the legislature's intent to reaffirm and
build upon prior aerospace tax incentive legislation in a fiscally prudent manner.
…
It is the legislature's specific pub lic policy objective to maintain and grow
Washington's aerospace industry workforce. To help achieve this public policy
objective, it is the legislature's intent to conditionally extend aerospace industry tax
preferences until July 1, 2040, in recognition of intent by the state's aerospace
industry sector to maintain and grow its workforce within the state.182
7.63. These references make clear that the purpose of the legislation is to provide favourable tax
treatment for the aerospace industry, in order to encoura ge the i ndustry to remain in
Washington State and to grow its workforce. As stated in the Final Bill Report of ESSB 5952, "[t]he
explicitly described public policy objective of the act is to maintain and grow Washington [State]'s
aerospace industry workfor ce."183 This language is similar to that of the prior legislation in
HB 2294. In HB 2294 the Washington State legislature "declare [d] that it is in the public interest
to encourage the continued presence of [the aerospace ] industry through the provision of t ax
incentives. The comprehensive tax incentives in this act address the cost of doing business in
Washington state compared to locations in other states." 184 The mechanism for achieving the
objective of encouraging the aerospace industry is, in the words of both pieces of legislation, the
provision of tax "preferences", "exemptions", and "incentives".
7.4.3.1.2 Second step: benchmark for comparison
7.64. Having identified the relevant tax treatment and its objective reasons, the next step of this
analysis is the identificati on of an appropriate "benchmark for comparison" within th e
Washington State tax regime to determine whether this tax treatment constitutes revenue
foregone by the Washington State government that would otherwise be due. This benchmark must
be ascertained w ith regard for "the structure of the domestic tax regime and its organizing
principles".185

179 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 812.
180 ESSB 5952 (Exhibit EU-3), p. 2. (emphasis added)
181 Ibid. (emphasis added)
182 ESSB 5952 (Exhibit EU-3), Section 1(1) and (3).
183 ESSB 5952 Final Bill Report (Exhibit EU-4), p. 3.
184 HB 2294 (Exhibit EU-21), Section 1. (emphasis added) See also SSB 6828 (Exhibit EU-42),
Section 1.
185 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 813.

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7.65. The European Union submits that the benchmarks for comparison are the "general B&O tax
rate for manufacturing and wholesaling activities " of 0.484% and that of 0.471% otherwise
applicable to retailing. 186 The United States generally contends that the European Union has not
met its burden to identify the benchmark for each aerospace tax measure. With specific respect to
the B&O aerospace tax rate, the United States submit s that Washington State's unique B&O tax
system results in a pyramiding effect and thus "the industry in which a taxpayer sits may impact
whether it is comparably situated to a taxpayer in the aerospace industry ".187 The United States
also submits that "ther e is no question that Boeing's 777X program would have qualified for the
0.2904 percent B&O tax rate established under HB 2294 through 2024 if Washi ngton had not
enacted ESSB 5952", and contends on this basis that "[Boeing's] eligibility for that rate during the
2014-2024 does not represent revenue foregone".188
7.66. As a threshold matter, the Panel notes that the parties' arguments on the benchmark for
examining the B&O aerospace tax rate relate specifically to the B&O tax regime, as distinguished
from other types of taxation that exist in Washington State. Given that the B&O tax is the primary
business tax in Washington State, and noting the parties' argumentation based on particular
features of that regime, the Panel frames its assessment of "legitimately compar able" tax
situations in the light of the specific structure and organizing principles of the B&O tax regime.
7.67. The Washington State B&O tax is imposed "for the act or privilege of engaging in business
activities" and "is measured by the application of rates against the value of products, gross
proceeds of sales, or gross income of the business, as the case may be". 189 In general, the B&O
tax rate varies by activity, according to the following "major B&O tax classifications":
(i) manufacturing; (ii) wholesaling; (iii) retailing; and (iv) services and other activities.190
7.68. Because the B&O aerospace tax rate applies to manufacturing, wholesaling, and retailing
activities for commercial airplanes (as well as their components and tooling), these are the B&O
tax classifi cations that are pertinent to the benchmark for comparison. The provisions of
Washington State law governing these three categories of B&O tax are set out below:
Manufacturing: Upon every person engaging within this state in business as a
manufacturer, except persons taxable as manufacturers under other provisions of this
chapter; as to such persons the amount of the tax with respect to such business shall
be equal to the value of the products , including byproducts, manufactured, multiplied
by the rate of 0.484 percent.191 (emphasis added)
Wholesale: Upon every person engaging within this state in the business of making
sales at wholesale, except persons taxable as wholesalers under other provisions of
this chapter; as to such persons the amount of tax with respect to such business shall
be equal to the gross proceeds of sales of such business multiplied by the rate of
0.484 percent.192 (emphasis added)

186 See European Union's response to Panel question No. 24, para. 48; first written submission,
paras. 17-21, 59.
187 United States' response to Panel question No. 56, para. 20.
188 United States' second written submission, para. 92.
189 RCW Section 82.04.220(1) (Exhibit EU-32). See also United States' first written submission,
paras. 39-41. As further explained by the Washington State Department of Revenue, "Washington, unlike
many other states, does not have an income tax. Washington's B&O tax is calculated on the gross income from
activities. This means there are no deductions from the B&O tax for labor, materials, taxes, or other costs of
doing business." Business & Occupation Tax Explanation, Washington State Department of Revenue
(Exhibit EU-33). See also ESSB 5952 Final Bill Report (Exhibit EU-4), p. 1.
190 Question: What are the major B&O tax classifications?, Washington State Department of Revenue
(Exhibit USA-11); United States' first written submission, para. 41.
191 RCW Section 82.04.240 (Exhibit EU-36). Further, the "value of products, including by-products,
extracted or manufactured shall be determined by the gross proceeds derived from the sale thereof whether
such sale is at wholesale or at retail". RCW Section 82.04.450(1) (Exhibit EU-37).
192 RCW Section 82.04.270 (Exhibit EU-39). Further, the "'[g]ross proceeds of sales' means the value
proceeding or accruing from the sale of tangible personal property, digital goods, digital codes, digital
automated services, and/or for other services rendered, without any deduction on account of the cost of
property sold, the cost of materials used, labor costs, interest, discount paid, delivery costs, taxes, or any
other expense whatsoever paid or accrued and without any deduction on account of losses."
RCW Section 82.04.070 (Exhibit EU-40).

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Retail: Upon every person engaging within this state in the business of making sales
at retail, except persons taxable as retailers under other provisions of this chapter, as
to such persons, the amount of tax with respect to such business is equal to the gross
proceeds of sales of the business, multiplied by the rate of 0.471 percent. 193
(emphasis added)
7.69. The Panel considers that these general rates, as set out in these provisions and identified by
the European Union, properly serve as the " normative benchmark"194 for comparison within the
Washington State B&O tax system. The express wording of the relevant statutes contempl ates a
general rate of B&O taxation applicable to "every person" engaging in the relevant activity,
"except" where such persons are taxable "under other provisions" of the same chapter.
7.70. Moreover, other documents produced by Washington State addressing the B&O aerospace
tax rate support the understanding that, in the absence of an explicit provision for a different tax
treatment, B&O taxation would generally operate according to these major activity classifications
and the corresponding rates of taxation. Th e Final Bill Report to ESSB 5952 describes the B&O tax
and explains that "[m]ajor tax rates are 0.471 per cent for retailing; 0.484 per cent for
manufacturing, wholesaling, and extracting; and 1.5 per cent for services, and activities not
classified elsewhere".195 The Department of Revenue Fiscal Note in relation to ESSB 5952 provides
a "narrative explanation" of the measures having a fiscal impact, which refers to "[r]educed
business and occupation (B&O) tax rates of 0.2904% for manufacturers of commercial a irplanes
(instead of the general manufacturing rate of 0.484%)". 196 Further, the Washington State
Administrative Code refers to the RCW Section containing the B&O aerospace tax rate as
"provid[ing] several special B&O tax rates/classifications for manufactur ers engaging in certain
manufacturing activities". 197 Finally, a 2016 Tax Exemption Study by the Washington State
Department of Revenue characterizes the B&O aerospace tax rate as a "preferential rate".198
7.71. The Panel notes the United States' description of the B&O tax as a "pyramiding tax".
According to the United States:
[G]oods and services are taxed multiple times as they move through the production
chain, with a successively greater effective tax rate for each business in the chain. As
a result, industries w ith multiple steps, such as the aerospace industry, have higher
effective tax rates. In part to address this "pyramiding", Washington has introduced a
number of industry-specific B&O tax rates.199
7.72. The Panel also observes that the United States further sugges ts that because "Washington's
unique B&O tax system results in a pyramiding effect", "the industry in which a taxpayer sits may
impact whether it is comparably situated to a taxpayer in the aerospace industry".200
7.73. Arguments related to the "pyramiding" effect of the B&O tax were examined previously by
the panel and the Appellate Body in US – Large Civil Aircraft (2 nd complaint) in relation to similar
(though subsequently amended and extended) measures under HB 2294. Reviewing arguments on
average effective tax rates based on the panel record in that dispute, the Appellate Body saw "no
indication … that adjusting tax rates to approximate the average effective tax rate reflects a
principle under the Washington State B&O tax regime. Rather, it appears to be more in the nature
of an ex post explanation regarding the relationship of these rates to one another. "201 The
Appellate Body further considered that the panel record in that dispute did "not support the

193 RCW Section 82.04.250 (Exhibit EU-38).
194 See Appellate Body Report, US – FSC, para. 90.
195 ESSB 5952 Final Bill Report (Exhibit EU-4), p. 1. (emphasis added)
196 ESSB 5952 Fiscal Note (Exhibit EU-5), p. 2. (emphasis added)
197 WAC Section 458-20-136(5) (Exhibit USA-41).
198 2016 Tax Exemption Study, Washington State Department of Revenue (Exhibit EU-95), Appendix B,
p. B-1.
199 United States' first written submission, para. 41 (citing Panel Report, US – Large Civil Aircraft
(2nd complaint), para. 7.98).
200 United States' Response to Panel question No. 56, para. 20.
201 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 829.

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contention that Washington State implemented House Bill 2294 alone, or as part of a broader
regulatory scheme, to counteract the effects of pyramiding".202
7.74. In the present dispute, the evidence before the Panel demonstrates that the B&O tax
system is organized based on major activity classifications with statutorily prescribed rates of
taxation corresponding to each activity. W ithin the framework of those major activity
classifications, the B&O tax system contemplates different rates of taxation for certain
businesses.203 The B&O aerospace tax rate itself is one such ca se, as it is explicitly framed
according to these major activity classifications (i.e. manufacturing, wholesaling, and retailing),
and for such aerospace activities it establishes a specific B&O tax rate due to policy reasons tied to
the maintenance and growth of Washington State's aerospace industry workforce.204
7.75. In this context, the counteraction of higher effective tax rates from "pyramiding" due to
multiple business activities does not appear to amount to an "organizing principle" of the domestic
tax regime in question. Other features of the B&O tax system may reflect a concern for preventing
double B&O taxation, namely the provision for a Multiple Activities Tax Credit for persons taxable
under the B&O tax on making retail and wholesale sales of the items they manufacture, such that
taxes paid on manufacturing of products sold in Washington State can be credited against retailing
or wholesaling B&O tax liability on the items manufactured .205 However, this feature of the B&O
tax system reinforces an understan ding of the B&O tax structure built on core activity
classifications of manufacturing, wholesaling, and retailing for the purposes of identifying
comparably situated taxpayers in Washington State. 206 It is these activity classifications, rather
than the effe ctive tax rates of specific industries or sectors, that appear to form the "organizing
principle" underlying the B&O tax system.
7.76. Finally, the Panel is not persuaded that any possible qualification for pre -existing tax
incentives, in particular those establ ished under HB 2294, is relevant to establishing the
benchmark in this case. The fact that the applicable tax treatment may have been available
previously by virtue of earlier measures does not automatically render that tax treatment its own
normative benchmark, particularly as the earlier application of the tax treatment in question may
itself be a departure from the organizing principles of the domestic tax regime. The United States
has not articulated why a B&O aerospace tax rate of 0.2904% should be understood as a "defined,
normative benchmark" reflective of "organizing principles" of the B&O tax regime. The assertion
that "[Boeing's] eligibility for that rate during the [period] 2014-2024 does not represent revenue
foregone"207 would seem to apply a stri ct "but for" test, without accounting for the organizing
principles of the B&O tax regime described above. Such an approach could amount to " identifying
a benchmark solely by reference to historical rates "208, contrary to the reservations expressed by
the Ap pellate Body 209 as to the identification of a benchmark without proper regard for the
complexities of a Member's domestic rules of taxation .210 In this case, the benchmark for
comparison is not determined simply by historical tax treatment, but rather is based on the
government revenue that would be otherwise due from comparably situated taxpayers in light of
the structure and organizing principles of the Washington State B&O tax regime.
7.77. On the basis of the evidence and arguments on the record, the Panel consid ers that
taxpayers in Washington State engaged in the major business activities of manufacturing,
wholesaling, and retailing are comparably situated to their counterparts in the aerospace industry
engaged in such activities, as "every" taxpayer in the state engaged in those activities is subject to

202 Ibid. para. 830.
203 For example, the RCW provisions codifying the B&O aerospace tax rate include special B&O tax rates
for other businesses, including inter alia the manufacturing of seafood and dairy products, as well as the
manufacturing and wholesaling of "fruits or vegetables by canning, preserving, freezing, processing, or
dehydrating fresh fruits or vegetables". See RCW Section 82.04.260(1) (Exhibit EU-22).
204 ESSB 5952 (Exhibit EU-3), Section 1(3).
205 RCW Section 82.04.440(4) (Exhibit USA-31). See also WAC Section 458-20-19301(3)
(Exhibit EU-41) (explaining that "[t]his integrated tax credits system is intended to assure that gross receipts
from sales or the value of products determined by such gross receipts are taxed only one time, whether the
activities occur entirely within this state or both within and outside this state").
206 See Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 813.
207 United States' second written submission, para. 92.
208 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 815.
209 Appellate Body Report, US – FSC, para. 91.
210 Appellate Body Report, US – FSC (Article 21.5 – EC), fn 66.

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the B&O tax. Accordingly, the appropriate normative benchmarks with regard to the B&O
aerospace tax rate are the general B&O tax rates of 0.484% for manufacturing and wholesaling
activities, and 0.471% for retailing activities.
7.4.3.1.3 Third step: comparison of applicable tax treatment with benchmark
7.78. Having established the relevant tax treatment provided to alleged beneficiaries of the B&O
aerospace tax rate, as well as the reasons for that treatment, the Panel turns to t he comparison of
the B&O aerospace tax rate with the identified benchmarks.
7.79. For taxpayers engaged in the business of manufacturing commercial airplanes, or
manufacturing components of such airplanes, the B&O aerospace tax rate provides for a B&O tax
rate o f 0.2904%. This is to be compared with the taxation of comparably situated taxpayers,
namely the B&O tax rate of 0.484% generally applicable to other entities engaged in
manufacturing activities in Washington State. Pursuant to the Washington State tax cod e, as
amended by ESSB 5952, the rate applicable to manufacturing commercial airplanes (or
components of such airplanes) is lower than that generally applied to other manufacturing
activities. There is no evidence that this difference is reflective of any o rganizing principle of the
B&O tax system. Rather, the difference is for the express reason of incentivizing the maintenance
and growth of Washington State's aerospace industry. For these reasons, the Panel finds that the
Washington State government is for egoing revenue that is otherwise due in relation to
manufacturing beneficiaries of the B&O aerospace tax rate.
7.80. For taxpayers engaged in the business of making sales at wholesale of commercial
airplanes, or making sales at wholesale of components of such ai rplanes, the B&O aerospace tax
rate provides for a B&O tax rate of 0.2904%. This is to be compared with the taxation of
comparably situated taxpayers, namely the B&O tax rate of 0.484% generally applicable to other
entities engaged in wholesaling activities in Washington State. Pursuant to the Washington State
tax code, as amended by ESSB 5952 , t he rate applicable to wholesale sales of commercial
airplanes (or components of such airplanes ) is lower than that generally applied to wholesaling
activities. There is no evidence that this difference is reflective of any organizing principle of the
B&O tax system. Rather, the difference is for the express reason of incentivizing the maintenance
and growth of Washington State's aerospace industry. For these reasons, the Panel finds that the
Washington State government is foregoing revenue that is otherwise due in relation to wholesaling
beneficiaries of the B&O aerospace tax rate.
7.81. For taxpayers engaged in the business of making sales at retail of commercial airplanes, or
making sales at retail of components of such airplanes, the B&O aerospace tax rate provides for a
B&O tax rate of 0.2904%. This is to be compared with the taxation of comparably situated
taxpayers, namely the B&O tax rate of 0.471% generally applicable to other entities engaged in
retailing activities in Washington State. Pursuant to the Washington State tax code, as amended
by ESSB 5952, the rate applicable to retail sales of commercial airplanes (or components of such
airplanes) is lower than that ge nerally applied to retailing activities. There is no evidence that this
difference is reflective of any organizing principle of the B&O tax system. Rather, the difference is
for the express reason of incentivizing the maintenance and growth of Washington S tate's
aerospace industry. For these reasons , the Panel finds that the Washington State government is
foregoing revenue that is otherwise due in relation to retailing beneficiaries of the B&O aerospace
tax rate.
7.82. Finally, for taxpayers engaged in the manufacture and sales , at both wholesale and retail
levels, of tooling for use in manufacturing commercial airplanes or components of such airplanes ,
the B&O aerospace tax rate provides for a B&O tax rate of 0.2904%. This is to be compared with
the taxation of c omparably situated taxpayers, namely the B&O tax rate of 0.484% generally
applicable to other entities engaged in manufacturing and wholesaling activities in
Washington State, and the B&O tax rate of 0.4 71% generally applicable to other entities engaged
in retailing activities in Washington State. Pursuant to the Washington State tax code, as amended
by ESSB 5952, the rate applicable to manufacturing, wholesaling, and retailing of tooling for use in
manufacturing commercial airplanes (or components of such airplanes) is lower than that generally
applied to such activities. There is no evidence that this difference is reflective of any organizing
principle of the B&O tax system. Rather, the difference is for the express reason of incentivizing
the maintenance and growth of Washington State's aerospace industry. For these reasons, the
Panel finds that the Washington State government is foregoing revenue that is otherwise due in

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relation to tooling beneficiaries (manufacturers, wholesalers, and retailers) of the B&O aerospace
tax rate.
7.83. Accordingly, the Panel finds that the B&O aerospace tax rate, in respect of all of the types of
activities that it covers, constitutes a financial contribution within the meaning of
Article 1.1(a)(1)(ii) of the SCM Agreement.
7.4.3.2 B&O tax credit for aerospace product development
7.84. The legislation for the B&O tax credit for aerospace product development provides in
relevant part:
(1)(a)(i) In computing the tax imposed under this chapter [the B&O tax], a credit is
allowed for each person for qualified aerospace product development. For a person
who is a manufacturer or processor for hire of commercial airplanes or components of
such airplanes, credit may be earned for expenditures occurring after December 1,
2003. For all other persons, credi t may be earned only for expenditures occurring
after June 30, 2008.
…
(2) The credit is equal to the amount of qualified aerospace product development
expenditures of a person, multiplied by the rate of 1.5 percent.
…
(5) The definitions in this subsection apply throughout this section.
…
(b) "Aerospace product development" means research, design, and engineering
activities performed in relation to the development of an aerospace product or of a
product line, model, or model derivative of an aerospace prod uct, including prototype
development, testing, and certification. …
(c) "Qualified aerospace product development" means aerospace product development
performed within this state.
(d) "Qualified aerospace product development expenditures" means operating
expenses, including wages, compensation of a proprietor or a partner in a partnership
as determined by the department, benefits, supplies, and computer expenses, directly
incurred in qualified aerospace product development by a person claiming the credit
provided in this section. … 211
7.4.3.2.1 First step: applicable tax treatment
7.85. Based on the available evidence, the Panel will first identify the applicable tax treatment
under the B&O tax credit for aerospace product development, including consideration of the
objective reasons behind that treatment. As provided fo r in the r elevant legislation,
Washington State provides a credit against B&O tax liability "equal to the amount of qualified
aerospace product development expenditures of a person, multiplied by the rate of 1. 5 per
cent".212 The term " aerospace product development " is defined to include "research, design, and
engineering activities performed in relation to the development of an aerospace product or of a
product line, model, or model derivative of an aerospace pro duct, including prototype
development, testing, and certification".213 In turn, the term "aerospace product" is defined under
Washington State law as: "(i) Commercial airplanes and their components; (ii) Machinery and
equipment that is designed and used prim arily for the maintenance, repair, overhaul, or

211 RCW Section 82.04.4461 (Exhibit EU-23).
212 RCW Section 82.04.4461(2) (Exhibit EU-23).
213 RCW Section 82.04.4461(5)(b) (Exhibit EU-23).

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refurbishing of commercial airplanes or their components". 214 Such "aerospace product
development" is only "qualified" – i.e. it only counts towards the tax credit – if it occurs in
Washington State215, and the relevant expenditures for such development against which the credit
is calculated include a variety of "operating expenses" specified in the relevant statute that are
"directly incurred in qualified aerospace product development by a person claiming the cre dit
provided in this section".216
7.86. Thus, the tax treatment at issue is a credit applied against a taxpayer's B&O tax liability,
calculated as 1.5% of expenditures on the development of commercial airplanes and their
components, as well as machinery and equipm ent used in relation to commercial airplanes and
their components. As a result of the enactment of ESSB 5952, the B& O tax credit for aerospace
product development expires on 1 July 2040. 217 Thus, the relevant tax treatment for the covered
activities, at present and until the 2040 expiry date, is as set forth above.
7.87. This tax treatment forms part of the legislation in ESSB 5952 targeted towards the
aerospace industry in Washington State . Its "objective reasons" are the same as discussed in
respect of the B&O ae rospace tax rate – that is, to provide favourable tax treatment for the
aerospace industry in order to encourage the industry to remain in Washington State and to grow
its workforce.218
7.4.3.2.2 Second step: benchmark for comparison
7.88. Having identified the relevant tax treatment and its objective reasons, the next step of the
analysis is the identification of an appropriate "benchmark for co mparison" within the
Washington State tax regime to determine whether this tax treatment constitutes revenue
foregone by the Washington State government that would otherwise be due. This benchmark must
be ascertained with regard for "the structure of the domestic tax regime and its organizing
principles".219
7.89. With regard to the "benchmark for comparison", the European Union submits that the B&O
tax credit for aerospace product development reduces the amount of B&O tax liability by the value
of the credit, and that "the standard tax treatment of manufacturers, unabated by such tax
credits, serves as the normative benchmark". 220 The United St ates, in addition to its general
argument that the European Union has not met its burden to identify the benchmark for each
aerospace tax measure , also submits, in respect of tax credits, that the comparable taxable
"event" is not an event involving the sa me taxpayers absent the credit, as this would be the "type
of historical comparison for a taxpayer [that] was criticized by the Appellate Body".221
7.90. The Panel considers that, as with the B&O aerospace tax rate, the B&O tax regime (rather
than other types of taxation that exist in Washington State) constitutes the part of the Washington
State tax regime that is relevant to the appropriate benchmark for the B&O tax credit for
aerospace product development. Unlike the B&O aerospace tax rate, the B&O tax credit fo r
aerospace product development does not alter the rate of taxation applicable to a given taxpayer,
but rather provides for an amount to be credited or offset against that taxpayer's B&O tax liability.
As discussed above, the organizing principles of the B &O tax regime involve the establishment of

214 RCW Section 82.08.975(3)(a) (Exhibit EU-25). Under Washington State law, the term "commercial
airplane" "has its ordinary meaning, which is an airplane certified by the federal aviation administration for
transporting persons or property, and any military derivative of such an airplane". RCW Section 82.32.550(1)
(Exhibit EU-82). Further, the term "component" "means a part or system certified by the federal aviation
administration for installation or assembly into a commercial airplane". RCW Section 82.32.550(2)
(Exhibit EU-82).
215 RCW Section 82.04.4461(5)(b) (Exhibit EU-23). United States' first written submission, para. 60.
216 RCW Section 82.04.4461(5)(d) (Exhibit EU-23).
217 ESSB 5952 (Exhibit EU-3), Section 9.
218 See para. 7.65 above.
219 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 813.
220 See European Union's response to Panel question No. 24, para. 48; first written submission,
paras. 22-24, 62-63.
221 The United States' response to Panel question No. 57, para. 23 (citing Appellate Body Report, US –

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generally applicable rates of taxation according to major activity classifications, across a range of
different industries and sectors.222
7.91. Based on the evidence on record, the Panel does not consider it to be an "or ganizing
principle" of the B&O tax regime to provide industry -specific credits for designated activities to
offset a portion of the tax liability arising from the pertinent B&O tax rates. A taxpayer is normally
subject to generally applicable B&O tax rates based on the type of business activity conducted
(e.g. manufacturing, wholesaling, or retailing). The taxpayer's B&O tax liability would be calculated
by multiplying the applicable tax rate by the taxable amount generated by the business activity. 223
The "gross" B&O tax liability thus calculated would be the benchmark against which to compare
the taxpayer's B&O tax liability net of the amount of the credit. The fact that in every case of such
comparison the taxpayer in question is the same does not change th is conclusion , because the
organizing principle is not that credits are made available, but rather that taxpayers, by virtue of
the generally applicable rates of taxation according to major activity classifications, would
otherwise expect to have to pay th e tax that is being credited . Indeed, given that the form of the
measure is a credit, or offset, against a taxpayer's gross B&O tax liability, the Panel considers this
approach to identifying the benchmark for a measure of this nature as most reasonable.
7.92. The Panel therefore agrees with the European Union that the relevant normative benchmark
is the B&O tax liability that would apply to a given taxpayer in the absence of the credit.
7.4.3.2.3 Third step: comparison of applicable tax treatment with benchmark
7.93. Having established the relevant tax treatment provided to alleged beneficiaries of the B&O
tax credit for aerospace product development, as well as the reasons for that treatment, the Panel
turns to the comparison of the B&O tax credit for aerospace product developm ent with the
identified benchmark.
7.94. As described above, taxpayers engaged in activities subject to B&O taxation in
Washington State are subject to B&O tax rates corresponding to the major activity classifications.
It is by virtue of the additional provision for a B&O tax credit tied to aerospace product
development that this tax liability can be reduced for eligible taxpayers by the amount of the
credit. As noted above, this credit is provided within the framework of legislation enacted for the
express reason of incentivizing the maintenance and growth of employment in Washington State's
aerospace industry.
7.95. In this regard, the Panel is mindful of the Appellate Body's reservation that "an approach
that focuses too narrowly on the change effected by a tax measu re could result in a finding that
government revenue otherwise due is foregone anytime the tax rate applicable to a recipient is
lowered."224 The Appellate Body underscored "the risk in identifying a benchmark solely by
reference to historical rates, the very departure from which may reflect evidence of shifting norms
within that regime".225 This is the issue raised by the United States referred to above.226
7.96. Taking into account the Appellate Body's guidance, the Panel's analysis does not concern
"what previously applied to commercial aircraft manufacturing activities", but rather "what would
currently apply to these activities if the conditions for" the tax credit were not met. 227 The Panel
has taken into account the structure of the B&O tax system and the reasons f or the specific tax
treatment at issue. Moreover, the Panel does not consider , nor did the United States provide
evidence or argumentation to suggest, that the provision of this tax credit reflects "evidence of
shifting norms within" the B&O tax regime .228 The Panel notes that the measure in question is a

222 See also Tax Classifications for Common Business Activities, Washington State Department of
Revenue (Exhibit EU-62).
223 More specifically, the B&O tax liability "is measured by the application of rates against the value of
products, gross proceeds of sales, or gross income of the business, as the case may be".
RCW Section 82.04.220(1) (Exhibit EU-32).
224 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 815.
225 Ibid.
226 See United States' response to Panel question No. 57.
227 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 823. (emphasis original) See
also European Union's comments on the United States' response to Panel question No. 57, para. 15.
228 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 815. See also United States'
response to Panel question No. 57.

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tax credit, and thus does not change the applicable tax rates, but rather offsets B&O tax liability
that would otherwise be due in the absence of the credit.
7.97. Based on these considerations , the Panel finds th at the B&O tax credit for aerospace
product development results in the foregoing of government revenue by Washington State with
respect to the B&O tax liability that would otherwise be presently incurred by the taxpayers eligible
for the credit. In this regard, the Panel considers the illustrative reference in Article 1.1(a)(1)(ii) to
"fiscal incentives such as tax credits" to be apposite to the circumstances of the B&O tax credit for
aerospace product development as presented to the Panel.
7.98. Accordingly, the Panel finds that the B&O tax credit for aerospace product development
constitutes a financial contribution within the meaning of A rticle 1.1(a)(1)(ii) of the
SCM Agreement.
7.4.3.3 B&O tax credit for property and leasehold excise taxes
7.99. The legislation for the B&O tax credit for property and leasehold excise taxes provides in
relevant part:
(1) In computing the tax imposed under this chapter [the B&O tax], a credit is allowed
for property taxes and leasehold excise taxes paid during the calendar year.
(2) The credit is equal to:
(a)(i)(A) Property taxes paid on buildings, and land upon which the buildings are
located, constructed after December 1, 2003, and used exclusively in manufacturing
commercial airplanes or components of such airplanes; and
(B) Leasehold excise taxes paid with respect to buildings constructed after January 1,
2006, the land upon which the buildings are located, or both, if the buildings are used
exclusively in manufacturing commercial airplanes or components of such airplanes;
and
(C) Property taxes or leasehold excise taxes paid on, or with respect to, buildings
constructed after June 30, 2008, the land upon which the buildings are located, or
both, and used exclusively for aerospace product development, manufacturing tooling
specifically desi gned for use in manufacturing commercial airplanes or their
components, or in providing aerospace services … ; or
(ii) Property taxes attributable to an increase in assessed value due to the renovation
or expansion, after: (A) December 1, 2003, of a buildi ng used exclusively in
manufacturing commercial airplanes or components of such airplanes; and (B)
June 30, 2008, of buildings used exclusively for aerospace product development,
manufacturing tooling specifically designed for use in manufacturing commerci al
airplanes or their components, or in providing aerospace services, … 229
7.4.3.3.1 First step: applicable tax treatment
7.100. Based on the available evidence , the Panel will first identify the applicable tax treatment
under the B&O tax credit for property and leasehold e xcise taxes, including consideration of the
objective reasons behind that treatment. As provided fo r in the relevant legislation,
Washington State provides a credit against B&O tax liability "for property taxes and leasehold
excise taxes paid during the ca lendar year".230 The tax credit applies to property and leasehold
excise taxes related to buildings, and/or land upon which the buildings are located, that are: "used

229 RCW Section 82.04.4463 (Exhibit EU-24). The B&O tax credit for property and leasehold excise taxes
contains further provisions on the calculation of the credit for property taxes paid on certain machinery and
equipment, as well as certain computer hardware, computer peripherals, and software. See RCW
Section 82.04.4463(2)(b) (Exhibit EU-24).
230 RCW Section 82.04.4463(1) (Exhibit EU-24).

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exclusively in manufacturing commercial airplanes or components of such airplanes" 231; and "used
exclusively for aerospace product development, manufacturing tooling specifically designed for use
in manufacturing commercial airplanes or their components, or in providing aerospace services".232
In addition, this B&O tax credit applies to property tax es "attributable to an increase in assessed
value due to renovation or expansion" of such buildings. 233 As a result of the enactment of
ESSB 5952, the B&O tax credit for property and leasehold excise taxes expires on 1 July 2040.234
Thus, the relevant tax treatment, at present and until the 2040 expiry date, is as set forth above.
7.101. The United States explains that the B&O tax credit for property and leasehold excise taxes
enables a taxpayer to claim a credit that is measured according to property taxes and leaseh old
excise taxes235 "due on certain types of property with certain types of uses related to commercial
airplane, airplane components, aerospace services, and aerospace product development". 236 The
tax credit provided for under this aerospace tax measure "offse ts the B&O tax that is due in a
given year".237
7.102. This tax treatment forms part of the legislation in ESSB 5952 targeted towards the
aerospace industry in Washington State . As such, its "objective reasons" are the same as
discussed in respect of the B&O aerosp ace tax rate – that is, to provide favourable tax treatment
for the aerospace industry in order to encourage the industry to remain in Washington State and
to grow its workforce.238
7.4.3.3.2 Second step: benchmark for comparison
7.103. Having identified the relevant tax treatment and its objective reasons, the next step of the
analysis is the identification of an appropriate "benchmark for co mparison" within the
Washington State tax regime to determine whether this tax treatment constitutes revenue
foregone by the Washington State government that would otherwise be due. This benchmark must
be ascertained with regard for "the structure of the domestic tax regime and its organizing
principles".239
7.104. With regard to the "benchmark for comparison", the European Union submits that the B&O
tax credit for property and leasehold excise taxes reduces the amount of B&O tax liability by the
value of the credit, and that "the standard tax treatment of manufacturers, unabated by such tax
credits, serves as the normative benchmark". 240 The United States, in addition to its general
argument that the European Union has not met its burden to identify the benchmark for each
aerospace tax measure, also submits, in respect of tax credits, that the comparable taxable
"event" is not an event involving the same taxpayers absent the credit, as this would be the "type
of historical comparison for a taxpayer [that] was criticized by the Appellate Body".241
7.105. The Panel considers that, as with the other B&O-related tax measures, the B&O tax regime
constitutes the par t of the Washington State tax regime that is relevant to the appropriate
benchmark for the B&O tax credit for property and leasehold excise taxes. Like the B&O tax credit
for aerospace product development , the B&O tax credit for property and leasehold exci se taxes
does not alter the rate of taxation but rather provides for an amount to be credited against a
taxpayer's B&O tax liability. As discussed above, the organizing principles of the B&O tax regime

231 RCW Section 82.04.4463(2)(a)(i)(A) and (B) (Exhibit EU-24). Under Washington State law, the term
"commercial airplane" "has its ordinary meaning, which is an airplane certified by the federal aviation
administration for transporting persons or property, and any military derivative of such an airplane". RCW
Section 82.32.550(1) (Exhibit EU-82). Further, the term "component" "means a part or system certified by the
federal aviation administration for installation or assembly into a commercial airplane". RCW
Section 82.32.550(2) (Exhibit EU-82).
232 RCW Section 82.04.4463(2)(a)(i)(C) (Exhibit EU-24).
233 RCW Section 82.04.4463(2)(a)(ii) (Exhibit EU-24).
234 ESSB 5952 (Exhibit EU-3), Section 10.
235 See description of these taxes in paras. 7.25-7.26 above.
236 United States' response to Panel question No. 9, para. 18.
237 Ibid.
238 See para. 7.65 above.
239 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 813.
240 See European Union's response to Panel question No. 24, para. 48; first written submission,
paras. 22-24, 62-63.
241 The United States' response to Panel question No. 57, para. 23 (citing Appellate Body Report, US –

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involve the establishment of generally applicable rate s of taxation according to major activity
classifications, across a range of different industries and sectors.242
7.106. As also discussed above, and based on the evidence on record, the Panel does not consider
it to be an "organizing principle" of the B&O tax regi me to provide industry -specific credits for
designated activities to offset a portion of the tax liability arising from the pertinent B&O tax rates.
The Panel follows the same approach for the B&O tax credit for property and leasehold excise
taxes, for the same reasons, as that taken in respect of the B&O tax credit for aerospace product
development. The Panel therefore agrees with the European Union that the relevant normative
benchmark is the B&O tax liability that would apply in the absence of the credit.
7.4.3.3.3 Third step: comparison of applicable tax treatment with benchmark
7.107. The comparison for the B&O tax credit for property and leasehold excise taxes follows the
same reasoning as that set out above for the B&O tax credit for aerospace product development .
Thus, taxpayers engaged in activities subject to B&O taxation in Washington State are subject to
B&O tax rates corresponding to the major activity classifications. It is by virtue of the additional
provision for a B&O tax credit for property and leasehold exc ise taxes paid in respect of the
designated aerospace related activities and properties that this tax liability can be reduced, for
eligible taxpayers, by the amount of the credit . As noted above, this credit is provided within the
framework of legislation enacted for the express reason of incentivizing the maintenance and
growth of employment in Washington State's aerospace industry.
7.108. As with the B&O tax credit for aerospace product development , the Panel is mindful of the
Appellate Body's reservation that "an approach that focuses too narrowly on the change effected
by a tax measure could result in a finding that government revenue otherwise due is foregone
anytime the tax rate applicable to a recipient is lowered." 243 The Appellate Body underscored "the
risk in identifying a benchmark solely by reference to historical rates, the very departure from
which may reflect evidence of shifting norms within that regime".244
7.109. Taking into account the Appellate Body's guidance, the Panel's analysis does not concern
"what previously applied to commercial aircraft manufacturing activities", but rather "what would
currently apply to these activities if the conditions for" the tax credit were not met. 245 The Panel
has taken into account the structure of the B&O tax system and the reasons for the specific tax
treatment at issue. Moreover, the Panel does not consider , nor did the United States provide
evidence or argumentation to suggest, that the provision of this tax credit reflects " evidence of
shifting norms within " the B&O tax regime.246 The Panel notes that the measure in question is a
tax credit, and thus does not change the applicable tax rates, but rather offsets B&O tax liability
that would otherwise be due in the absence of the credit.
7.110. Based on these considerations, the Panel finds that the B&O tax credit for property and
leasehold excise taxes results in the foregoing of government revenue by Washington State with
respect to the B&O tax liability that would otherwise be presently incurred by taxpayers eligible for
the credit. In this regard, and a s with the B&O tax credit for aerospace product development , the
Panel considers the illustrative reference to "fiscal incentives such as tax credits" in
Article 1.1(a)(1)(ii) to be apposite to the circumstances of the B&O tax credit for property and
leasehold excise taxes as presented to the Panel.
7.111. Accordingly, the Panel finds that the B&O tax credit for property and leasehold excise taxes
constitutes a financial contribution within the meaning of A rticle 1.1(a)(1)(ii) of the
SCM Agreement.

242 See also Tax Classifications for Common Business Activities, Washington State Department of
Revenue (Exhibit EU-62).
243 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 815.
244 Ibid. See also United States' response to Panel question No. 57.
245 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 823. (emphasis original) See
also European Union's comments on the United States' response to Panel question No. 57, para. 15.
246 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 815. See also United States'
response to Panel question No. 57.

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7.4.3.4 Computer sales and use tax exemptions
7.112. The legislation for the computer sales tax exemption provides in relevant part:
(1) The tax levied by RCW 82.08.020 [the sales tax] does not apply to sales of
computer hardware, computer peripherals, or softwar e … used primarily in the
development, design, and engineering of aerospace products or in providing
aerospace services, or to sales of or charges made for labor and services rendered in
respect to installing the computer hardware, computer peripherals, or software.247
7.113. The computer use tax exemption provides in relevant part:
(1) The provisions of this chapter [the use tax] do not apply in respect to the use of
computer hardware, computer peripherals … used primarily in the development,
design, and engineerin g of aerospace products or in providing aerospace services, or
to the use of labor and services rendered in respect to installing the computer
hardware, computer peripherals, or software.248
7.4.3.4.1 First step: applicable tax treatment
7.114. Based on the available evidenc e, the Panel will first identify the applicable tax treatment
under the computer sales and use tax exemptions, including consideration of the objective reasons
behind that treatment. As provided fo r in the relevant legislation, Washington State provides an
exemption from the retail sales tax 249 for "sales of computer hardware, computer peripherals, or
software … used primarily in the development, design, and engineering of aerospace products or in
providing aerospace services, or to sales of or charges made f or labor and services rendered in
respect to installing the computer hard ware, computer peripherals, or software". 250 Additionally,
the use of these items is exempt from the Washington State's "use tax"251, which is a tax on the
use of goods or certain services in the state of Washington when sales tax has not been paid.252 As
a result of ESSB 5952, the computer sales and use tax exemptions expire on 1 July 2040. 253 Thus,
the relevant tax treatment for the covered activities and products, at present and until the 2 040
expiry date, is as set forth above.
7.115. This tax treatment forms part of the legislation in ESSB 5952 targeted towards the
aerospace industry in Washington State . As such, its "objective reasons" are the same as
discussed in respect of the B&O aerospace ta x rate – that is, to provide favourable tax treatment
for the aerospace industry in order to encourage the industry to remain in Washington State and
to grow its workforce.254
7.4.3.4.2 Second step: benchmark for comparison
7.116. Having identified the relevant tax treatment and its objective reasons, the next step of the
analysis is the identification of an appropriate "benchmark for co mparison" within the
Washington State tax regime to determine whether this tax treatment constitutes revenue
foregone by the Washington State government that would otherwise be due. This benchmark must
be ascertained with regard for "the structure of the domestic tax regime and its organizing
principles".255

247 RCW Section 82.08.975 (Exhibit EU-25).
248 RCW Section 82.12.975 (Exhibit EU-26).
249 RCW Section 82.08.020 (Exhibit EU-92).
250 RCW Section 82.08.975 (Exhibit EU-25).
251 RCW Section 82.12.975 (Exhibit EU-26).
252 Use Tax Explanation, Washington State Department of Revenue (Exhibit USA-19). For example, the
use tax is owed if goods are purchased in another state that does not have a sales tax or a state with a sales
tax lower than that of the state of Washington. The use tax would also be owed if good are purchased from
someone who is not authorized to collect sales tax (e.g. purchases of furniture from an individual through a
newspaper classified ad or a purchase of artwork from an individual collector), or if personal property is
acquired with the purchase of real property.
253 ESSB 5952 (Exhibit EU-3), Sections 11-12.
254 See para. 7.65 above.
255 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 813.

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7.117. With regard to the "benchmark for comparison", the European Union submits that the
computer sales and use tax exemptions " exempt[] the purchase of otherwise taxable goods and
services from the retail sales and use taxes ", and that "the normative benchmark is the sales and
use taxes that would otherwise apply absent these exemptions". 256 The United States, in addition
to its general argument that the European Union has not met its burden to identify the benchmark
for each aerospace tax measure, also submits, in respect of tax exemptions, that the comparable
taxable "event" is not an event involvin g the same taxpayers absent the exemption, as this would
be the "type of historical comparison for a taxpayer [that] was criticized by the Appellate Body". 257
The United States further submits that "quantitative coverage of various tax regimes could be
relevant to determining a financial contribution compared to a normative benchmark" 258 and that
"Washington provides a large number of exemptions … suggesting that the sales and use tax rates
that are notionally (but not actually) applicable to all purchases by c onsumers located in
Washington are not the appropriate benchmark".259
7.118. As a threshold matter, it is the sales and use tax regime, as distinguished from other types
of taxation that exist in Washington State , in which the aerospace tax measure at issue applies
and according to which the parties have advanced their arguments on the appropriate benchmark
for comparison. Therefore, in order to identify the appropriate benchmark for comparison, the
Panel will examine the structure of the sales and use tax regime in Washington State, particularly
in respect of its organizing principles and legitimately comparable tax situations.
7.119. Washington State has a retail sales tax, which is its principal source of tax revenue .260
Generally, a retail sale is the sale of tangible per sonal property, as well as the sale of certain
services (including construction services) and sales of digital products to consumers. 261 The
Washington State retail sales tax rate has two components: the state component, which is equal
to 6.5%, and the local component, which varies by jurisdiction .262 Local gov ernments within
Washington State have the authority to set their own retail sales tax rates within their
jurisdictions, but the State administers both components.263
7.120. The Washington State use tax is compleme ntary to the retail sales tax, in that it is due on
the use of goods or services to the extent that the user has not paid the Washington State retail
sales tax or "a legally imposed retail sales or use tax … to any other state, possession, territory, or
commonwealth of the United States, any political subdivision thereof, the District of Columbia, and
any foreign country or political subdivision thereof". 264 Thus, goods in Washington State are
subject to either sales or use tax, but not both, and the use tax compensates when the sales tax
has not been paid. 265 Use tax is determined on the value of the goods ( generally the purchase
price) when first used in Washington State. 266 The use tax rate is the same as the retail sales tax
rate.267
7.121. Both parties have noted that there are a number of exemptions from retail sales and use
taxes for purchases of specific goods or services. Some of these exemptions are limited to a
particular industry or sector, while other exemptions are available for any purchaser or user of the

256 See European Union's comments on the United States' response to Panel question No. 24, para. 50;
first written submission, paras. 22-24, 62-63.
257 The United States' response to Panel question No. 57, para. 23 (citing Appellate Body Report, US –
258 United States' response to Panel question No. 60, para. 31.
259 United States' response to Panel question No. 56, para. 21.
260 United States' first written submission, para. 42; Retail Sales Tax Explanation, Washington State
Department of Revenue (Exhibit USA-12).
261 RCW Section 82.08.020 (Exhibit EU-92); United States' first written submission, para. 42; Retail
Sales Tax Explanation, Washington State Department of Revenue (Exhibit USA-12); Services Subject to Sales
Tax, Washington State Department of Revenue (Exhibit USA-13); Digital Products including Digital Goods,
Washington State Department of Revenue (Exhibit USA-14).
262 See Local Sales, Use Tax Rates and Changes, Washington State Department of Revenue
(Exhibit USA-16).
263 United States' first written submission, para. 43.
264 RCW Section 82.12.020 (Exhibit USA-17); RCW Section 82.12.035 (Exhibit USA-18).
265 Use Tax Explanation, Washington State Department of Revenue (Exhibit USA-19).
266 Ibid.
267 Ibid.

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7.125. In this case, the Washington State sales and use taxes are draw n as broadly applicable
taxes in a non-exhaustive fashion, and are designed to complement one another through mutually
exclusive coverage. This breadth of the sales and use taxes is foundational to the structure of the
sales and use tax regime, which set out exemptions in a specific manner. Although the exemptions
involve a diversity of goods, services, and sectors , the evidence advanced by the United States is
not sufficient to rebut the prima facie conclusion that can be drawn from what the European Union
has placed before the Panel . The structure of the tax is that of a generally applicable tax that
applies by default. As a matter of fact the Panel does not find that structure to have been inverted
by the relative coverage of exemptions in quantitative terms. In other words, exempting taxpayers
from sales and use taxes does not amount to an "organizing principle" of the Washington State
sales and use tax regime (or the Washington State tax regime more generally).
7.126. It is with regard for this basic structure, and on the basis of the rules established by
Washington State, that the Panel finds that the generally applicable sales and use taxes serve as
the appropriate normative benchmark in respect of the computer sales and use tax exemptions.
7.4.3.4.3 Third step: comparison of applicable tax treatment with benchmark
7.127. In view of the benchmark established above, it follows that the specific exemption from
sales and use taxes, which otherwise would apply to the aerospace activities in question , amounts
to the foregoing of gov ernment revenue by Washington State that would otherwise be due.
Accordingly, the Panel finds that the computer sales and use tax exemption constitutes a financial
contribution within the meaning of Article 1.1(a)(1)(ii) of the SCM Agreement.
7.4.3.5 Construction sales and use tax exemptions
7.128. The legislation for the construction sales tax exemption provides in relevant part:
(1) The tax levied by RCW 82.08.020 does not apply to:
(a) Charges, for labor and services rendered in respect to the constructing of new
buildings, made to (i) a manufacturer engaged in the manufacturing of commercial
airplanes or the fuselages or wings of commercial airplanes or (ii) a port district,
political subdivision, or municipal corporation, to be leased to a manufacturer engaged
in the manufacturing of commercial airplanes or the fuselages or wings of commercial
airplanes;
(b) Sales of tangible personal property that will be incorporated as an ingredient or
component of such buildings during the course of the constructing; or
(c) Charges made for labor and services rendered in respect to installing, during the
course of constructing such buildings, building fixtures … 277
7.129. The construction use tax exemption provides in relevant part:
(1) The provisions of this chapter do not apply with respect to the use of:
(a) Tangible personal property that will be incorporated as an ingredient or component
in constructing new buildings for (i) a manufacturer engaged in the manufacturing of
commercial airplanes or the fuselages or wings of commercial airplanes or (ii) a port
district, political subdivision, or municipal corporation, to be leased to a manufacturer
engaged in the manufacturing of commercial airplanes or the fuselages or wings of
commercial airplanes; or
(b) Labor and services rendered in respect to installing, during the course of
constructing such buildings, building fixtures … 278

277 RCW Section 82.08.980 (Exhibit EU-27).
278 RCW Section 82.12.980 (Exhibit EU-28).

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7.4.3.5.1 First step: applicable tax treatment
7.130. Based on the available evidence , the Panel will first identify the applicable tax treatment
under the construction sales and use tax exemptions , including consideration of the objective
reasons behind that tre atment. As provided fo r in the relevant legislation, Washington State
provides exemptions from retail sales taxes 279 on "[c]harges, for labor and services rendered in
respect to the constructing of new buildings, made to a manufacturer engaged in the
manufacturing of commercial airplanes or the fuselages or wings of commercial airplanes", as well
as taxes on "[s]ales of tangible personal property that will be incorporated as an ingredient or
component of such buildings during the course of the constructing". 280 Similarly, there is an
exemption from use taxes "with respect to the use of [t]angible personal property that will be
incorporated as an ingredient or component in constructing new buildings for a manufacturer
engaged in the manufacturing of commercial ai rplanes or the fuselages or wings of commercial
airplanes".281 As a result of ESSB 5952, the construction sales and use tax exemptions expire on
1 July 2040.282 Thus, the relevant tax treatment for the covered activities and products, at present
and until the 2040 expiry date, is as set forth above.
7.131. This tax treatment forms part of the legislation in ESSB 5952 targeted towards the
aerospace industry in Washington State . As such, its "objective reasons" are the same as
discussed in respect of the B&O aerospace t ax rate – that is, to provide favourable tax treatment
for the aerospace industry in order to encourage the industry to remain in Washington State and
to grow its workforce.283
7.4.3.5.2 Second step: benchmark for comparison
7.132. The parties have not differentiated between the computer sales and use tax exemptions,
on the one hand, and the construction sales and use tax exemptions, on the other, in their
arguments regarding the benchmark for comparison.
7.133. The construction sales and use tax exemptions pertain to the same under lying tax
obligations as those considered above, namely the Washington State retail sales and use taxes. In
the Panel's view, the same considerations apply in determining the appropriate normative
benchmark for comparison in relation to the construction sa les and use tax exemptions . These
exemptions form a targeted tax treatment within a structure organized according to the principle
that either sales or use taxes, but not both, are generally due on the sales and use of tangible
goods and services. In light of this basic organizing principle, it is the generally applicable sales
and use taxes that serve as the appropriate normative benchmark in this case.
7.4.3.5.3 Third step: comparison of applicable tax treatment with benchmark
7.134. In view of the benchmark established a bove, it follows that the specific exemption from
sales and use taxes, which would otherwise apply to the aerospace activities in question , amounts
to the foregoing of government revenue by Washington State that would otherwise be due.
Accordingly, the Pan el finds that the construction sales and use tax exemption constitutes a
financial contribution within the meaning of Article 1.1(a)(1)(ii) of the SCM Agreement.
7.4.3.6 Leasehold excise tax exemption
7.135. The legislation for the leasehold excise tax exemption provides in relevant part:

279 RCW Section 82.08.020 (Exhibit EU-92).
280 RCW Section 82.08.980 (Exhibit EU-27). A similar exemption is applied for charges, for labor and
services for constructing new buildings, made to "a port district, political subdivision, or municipal corporation,
to be leased to a manufacturer engaged in the manufacturing of commercial airplanes or the fuselages or
wings of commercial airplanes".
281 RCW Section 82.12.980 (Exhibit EU-28). A similar exemption is applied to tangible property used in
constructing new buildings for "a port district, political subdivision, or municipal corporation, to be leased to a
manufacturer engaged in the manufacturing of commercial airplanes or the fuselages or wings of commercial
airplanes".
282 ESSB 5952 (Exhibit EU-3), Sections 3-4.
283 See para. 7.65 above.

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(1) All leasehold interests in port district facilities exempt from tax under [the
construction sales and use tax exemptions ] and used by a manufacturer engaged in
the manufacturing of superefficient airplanes … are exempt from tax under this
chapter. A person claiming the credit under [the B&O tax credit for property and
leasehold excise taxes] is not eligible for the exemption under this section.284
7.4.3.6.1 First step: applicable tax treatment
7.136. Based on the available evidence , the Panel will first identify the applicable tax treatment
under the leasehold excise tax exemption, including consideration of the objective reasons behind
that treatment. As provided for in the relevant legislation, Washington State imposes a leasehold
excise tax in lieu of a property tax on the use of public property by a private party. 285 The relevant
regulations explain that "[t]he intent of the law is to ensure that lessees of property owned by
public entities bear their fair share of the cost of governmental services when the property is
rented to someone who would be subject to property taxes if the lessee were the owner of the
property".286 Washington State exempts from this tax leasehold interests in certain facilities "used
by a manufacturer engaged in the manufacturing of superefficient airplanes" .287 The leasehold
excise tax exemption is not available to a person claiming the B&O tax credit for property and
leasehold excise taxes.288 ESSB 5952 extended the application of this exemption to 1 July 2040. 289
Thus, the relevant ta x treatment for the covered activities, at present and until the 2040 expiry
date, is as set forth above.
7.137. This tax treatment forms part of the legislation in ESSB 5952 targeted towards the
aerospace industry in Washington State . As such, its "objective rea sons" are the same as
discussed in respect of the B&O aerospace tax rate – that is, to provide favourable tax treatment
for the aerospace industry in order to encourage the industry to remain in Washington State and
to grow its workforce.290
7.4.3.6.2 Second step: benchmark for comparison
7.138. Having identified the relevant tax treatment and its objective reasons, the next step of the
analysis is the identification of an appropriate "benchmark for co mparison" within the
Washington State tax regime to determine whether this tax treatment constitutes revenue
foregone by the Washington State government that would otherwise be due. This benchmark must
be ascertained with regard for "the structure of the domestic tax regime and its organizing
principles".291
7.139. The European Union subm its that the appropriate benchmark for comparison for the
leasehold excise tax exemption "is the payment of the 12.84 percent leasehold excise tax that
would normally apply ".292 The United States, in addition to its gen eral argument that the
European Union has not met its burden to identify the benchmark for each aerospace tax measure,
also submits that, for tax exemptions, the comparable taxable "event" is not an event involving
the same taxpayer absent the exemptions, as this would be the "type of historica l comparison for
a taxpayer [that] was criticized by the Appellate Body". 293 The United States further submits that
"quantitative coverage of various tax regimes could be relevant to determining a financial

284 RCW Section 82.29A.137 (Exhibit EU-29).
285 Leasehold Excise Tax, Washington State Department of Revenue (Exhibit EU-49).
286 WAC Section 458-29A-100 (Exhibit EU-50).
287 Under Washington State law, "superefficient airplane" is defined as "a twin aisle airplane that carries
between two hundred and three hundred fifty passengers, with a range of more than seven thousand two
hundred nautical miles, a cruising speed of approximately mach .85, and that uses fifteen to twenty percent
less fuel than other similar airplanes on the market". RCW Section 82.32.550(3) (Exhibit EU-82).
288 RCW Section 82.29A.137 (Exhibit EU-29).
289 ESSB 5952 (Exhibit EU-3), Section 13; RCW Section 82.29A.137 (Exhibit EU-29).
290 See para. 7.65 above.
291 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 813.
292 European Union's response to Panel question No. 24, para. 51.
293 United States' response to Panel question No. 57, para. 23 (citing Appellate Body Report, US – Large
Civil Aircraft (2nd complaint), para. 815).

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contribution compared to a normative benchmark"294 and that "tax exemptions far outweighed tax
revenues" for state property taxes.295
7.140. The Panel notes that the leasehold excise tax is an excise tax that supplements the
Washington State property tax regime. Specifically, the leasehold excise tax applies in lieu of real
property tax where a private party uses public property under lease, rather than owning real
property. This tax is complementary to real and personal property taxes, which are levied in
accordance with the statutory rule of the property tax regime in Washington State that "[a]ll
property now existing, or that is hereafter created or brought into this state, shall be subject to
assessment and taxation for state, county, and other taxing district purposes". 296 Thus, real and
personal property is general ly subject to taxation, although a number of exemptions to this
general rule apply. 297 For example, property valued at less than USD 500, churches and
cemeteries, business inventory, and property owned by federal, state, and local governments are
all exempt from property taxation.298 Although government-owned property as such is not subject
to property tax, such property becomes subject to the leasehold excise tax when it is used by a
private party. Personal property such as household goods and personal effects are not subject to
property tax unless these items are used in a business, and personal property is subject to the
same levy rate as real property.299
7.141. Based on the foregoing, the Panel considers that it is the Washington State property tax
regime, as distin guished from other types of taxation that exist in Washington State , that is
relevant to identifying the appropriate benchmark for the leasehold excise tax exemption. As
noted, under this tax regime, real and personal property is subject to taxation unless a specific
exemption applies. In this respect, while the Panel takes note of the parties' arguments on the
quantitative coverage of property tax exemptions 300, the relevant rules established by
Washington State authorities suggest that the organizing princi ple of the tax regime is to create a
default rule of property taxation with provision for specific exemptions and the quantitative
information does not displace that principle . Exempting taxpayers from property tax liability does
not appear to be an "organ izing principle" of the Washington State property tax regime. Nor does
the structure of the tax regime in question suggest an alternative benchmark apart from the
generally defined norm of being subject to property taxation. The particular features of the
leasehold excise tax, which is a tax on the use of public property by a private party in lieu of the
property tax, reinforces the notion of generally applicable property taxation as the appropriate
benchmark for comparison.301 In light of this, the applicable leasehold excise tax rate of 12.84% of
the rent paid by the lessee for the property represents the taxable situation that is legitimately
comparable to that covered by the leasehold excise tax exemption.
7.142. Accordingly, the Panel considers that the benchmar k for comparison for the leasehold
excise tax exemption is the leasehold excise tax that would ordinarily be imposed on private
parties using public property.
7.4.3.6.3 Third step: comparison of applicable tax treatment with benchmark
7.143. Given the benchmark of otherwise applicable leasehold excise taxation within the general
regime of property taxation , the specific exemption from leasehold excise taxes, which would
otherwise apply to the aerospace activities in question, amounts to the foregoing of government

294 United States' response to Panel question No. 60, para. 31.
295 Ibid. para. 32.
296 RCW Section 84.36.005 (Exhibit USA-20).
297 United States' first written submission, para. 46.
298 RCW Section 84.36.010 (Exhibit USA-21); RCW Section 84.36.020 (Exhibit USA-22); RCW
Section 84.36.477 (Exhibit USA-23).
299 Real and personal property are chiefly distinguished by the characteristic of mobility, with the former
including "land, structures, improvements to land, and certain equipment affixed to land or structures", and
the latter including "machinery, equipment, furniture, and supplies of businesses and farmers". Personal
Property Tax, Washington State Department of Revenue (Exhibit EU-51).
300 See parties' responses and comments on each other's responses to Panel question No. 60. See also
paras. 7.123-7.125 above. The Panel notes that the parties relied upon the same tax exemption study in
respect of exemptions from property taxation as that cited in respect of exemptions from retail sales and use
taxes.
301 Leasehold Excise Tax Explanation, Washington State Department of Revenue (Exhibit USA-25); WAC
Section 458-29A-100 (Exhibit EU-50).

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revenue by Washington State that would otherwise be due. Accordingly, the Panel finds that the
leasehold excise tax exemption constitutes a financial contributio n within the meaning of
Article 1.1(a)(1)(ii) of the SCM Agreement.
7.4.3.7 Leaseholder property tax exemption
7.144. The legislation for the leaseholder property tax exemption provides in relevant part:
(1) Effective January 1, 2005, all buildings, machinery, equipment, and other personal
property of a lessee of a port district eligible under [the construction sales and use tax
exemptions], used exclusively in manufacturing superefficient airplanes, are exempt
from property taxation. A person taking the credit under [ the B&O tax credit for
property and leasehold excise taxes ] is not eligible for the exemption under this
section. … 302
7.4.3.7.1 First step: applicable tax treatment
7.145. Based on the available evidence , the Panel will first identify the applicable tax treatment
under the leaseholder property tax exemption, including consideration of the objective reasons
behind that treatment. As provided for in the relevant legislation, Washington State exempts from
property taxation "all buildings, machinery, equipment, and other personal property of a lessee of
a port district eligible [for construction sales and use tax exemptions ], used e xclusively in
manufacturing superefficient airplanes".303 The leaseholder property tax exemption is not available
to a person claiming the B&O tax credit for property and leasehold excise taxes. 304 ESSB 5952
extended the application of this exemption to 1 July 2040.305 Thus, the relevant tax treatment, at
present and until the 2040 expiry date, is as set forth above.
7.146. This tax treatment forms part of the legislation in ESSB 5952 targeted towards the
aerospace industry in Washington State . As such, its "objective r easons" are the same as
discussed in respect of the B&O aerospace tax rate – that is, to provide favourable tax treatment
for the aerospace industry in order to encourage the industry to remain in Washington State and
to grow its workforce.306
7.4.3.7.2 Second step: benchmark for comparison
7.147. Having identified the relevant tax treatment and its objective reasons, the next step of the
analysis is the identification of an appropriate "benchmark for comparison" within the Washington
State tax regime to determine whether thi s tax treatment constitutes revenue foregone by the
Washington State government that would otherwise be due. This benchmark must be ascertained
with regard for "the structure of the domestic tax regime and its organizing principles".307
7.148. The European Union submits that the leaseholder property tax exemption "exempts certain
otherwise taxable business property from the property taxes that would normally apply", and "that
otherwise applicable property tax treatment therefore provides the normative benchmark". 308 The
United States, in addition to its general argument that the European Union has not met its burden
to identify the benchmark for each aerospace tax measure, also submits that, for tax exemptions,
the comparable taxable "event" is not an event involving t he same taxpayer absent the
exemptions, as this would be the "type of historical comparison for a taxpayer [that] was criticized
by the Appellate Body".309 The United States further submits that "quantitative coverage of various

302 RCW Section 84.36.655 (Exhibit EU-30).
303 Ibid. Under Washington State law, "superefficient airplane" is defined as "a twin aisle airplane that
carries between two hundred and three hundred fifty passengers, with a range of more than seven thousand
two hundred nautical miles, a cruising speed of approximately mach .85, and that uses fifteen to twenty
percent less fuel than other similar airplanes on the market". RCW Section 82.32.550(3) (Exhibit EU-82).
304 RCW Section 84.36.655 (Exhibit EU-30).
305 ESSB 5952 (Exhibit EU-3), Section 14.
306 See para. 7.65 above.
307 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 813.
308 European Union's response to Panel question No. 24, para. 51.
309 United States' response to Panel question No. 57, para. 23 (citing Appellate Body Report, US – Large
Civil Aircraft (2nd complaint), para. 815).

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tax regimes could be relevant to determining a financial contribution compared to a normative
benchmark"310 and that "tax exemptions far outweighed tax revenues" for state property taxes.311
7.149. As discussed above, under the relevant statutory rule of the Washington State property tax
regime312, real and personal property in Washington State is generally subject to taxation,
although a number of exemptions from this general rule apply. 313 In this respect, the Panel has
noted that the relevant rules established by Washington State authorities sugge st that the
organizing principle of the tax regime is to create a default rule of property taxation with provision
for specific exemptions and the quantitative information does not displace that principle .
Exempting taxpayers from property tax liability do es not appear to be an "organizing principle" of
the Washington State property tax regime. Nor does the structure of the tax regime in question
suggest an alternative benchmark apart from the generally defined norm of being subject to
property taxation. Th us, the generally applicable property tax within the state of Washington
corresponds to the taxable situation (namely ownership of personal property by an eligible lessee)
that is legitimately comparable to that covered by the leaseholder property tax exemption.
7.150. Accordingly, the Panel considers that the benchmark for comparison is the property tax
that would ordinarily be imposed on personal property of lessees of port districts.
7.4.3.7.3 Third step: comparison of applicable tax treatment with benchmark
7.151. Given the be nchmark of otherwise applicable property taxation , the specific exemption
from property taxes, which would otherwise apply to the aerospace activities in question, amounts
to the foregoing of government revenue by Washington State that would otherwise be d ue.
Accordingly, the Panel finds that the leaseholder property tax exemption constitutes a financial
contribution within the meaning of Article 1.1(a)(1)(ii) of the SCM Agreement.
7.4.3.8 Conclusion on financial contribution
7.152. In concluding, the Panel notes various additional arguments raised by the parties in
relation to whether the aerospace tax measures constitute a financial contribution.
7.153. The United States has submitted that aerospace activity until 1 July 2024 would have
qualified for certain tax treatment under legislation pre-dating ESSB 5952, and that the extent of
any financial contribution in this dispute would be limited to revenue foregone at some point in the
future.314 In this regard, the Panel recalls its determination that the aerospace tax incentives at
issue are those as currently codified and in effect until 2040 by virtue of ESSB 5952. 315 Thus, the
preceding analysis of a financial contribution under each of the aerospace tax measures does not
refer to a future window of time during which pre -existing tax treatment was extended. Rather,
the analysis of government revenue foregone has been conducted in regard to the currently
codified tax provisions, which reflect and incorporate a series of earlier legislative acts, in addition
to incorporating new substantive provisions created by ESSB 5952.
7.154. The Panel further notes the European Union's clarification that its claim is directed at the
aerospace tax measures "as such", and thus is "not directed against the application of these
measures during any given point in time or in any specific instance".316 The Panel considers this an
important distinction from the claim made in US – Large Civil Aircraft (2 nd complaint), in which
arguments were presented and assessed in relation to Boeing -specific subsidies and their a lleged
causation of adverse effects under Part III of the SCM Agreement. Thus, although evidence of
actual use of certain fiscal incentives may support or confirm a finding that government revenue is
foregone that is otherwise due317, the Panel does not cons ider this to be required for the purposes

310 United States' response to Panel question No. 60, para. 31.
311 Ibid. para. 32.
312 RCW Section 84.36.005 (Exhibit USA-20).
313 United States' first written submission, para. 46; RCW Section 84.36.010 (Exhibit USA-21); RCW
Section 84.36.020 (Exhibit USA-22); RCW Section 84.36.020 (Exhibit USA-23).
314 United States' response to Panel question No. 2.
315 See para. 7.42 above.
316 European Union's response to Panel question No. 6, para. 7.
317 See ESSB 5952 Fiscal Note (Exhibit EU-5); Snohomish County Council Lease Approval
(Exhibit EU-44); Paine Field Community Council, Minutes of Meeting of 12 November 2013 (Exhibit EU-45);
The Seattle Times, "State gave Boeing a free pass on $19.5M in sales tax", 30 November 2015

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of Article 1.1(a)(1)(ii) of the SCM Agreement, particularly where a claim is made that the
challenged measures "as such" make a financial contribution.318
7.155. In the same vein, the Panel notes the issue raised by the Uni ted States of whether it is
possible to establish a financial contribution (and benefit) for tax incentives that legally are
mutually exclusive according to their own explicit terms, as is the case for the B&O tax credit for
property and leasehold excise taxes on the one hand, and the tax exemptions related to leasehold
excise taxes and leaseholder property taxes on the other hand.319 The Panel does not consider that
any such mutual exclusivity should prevent simultaneous challenge, or a finding that each tax
incentive, on its own and "as such", represents the foregoing of revenue otherwise due. The fact
that a taxpayer can in the future choose between tax incentives does not render the one that
ultimately is not chosen to be less of a foregoing of revenue . Furthermore, for measures such as
those at issue where there may be multiple potential recipients of the financial contribution,
certain taxpayers may be eligible for, and may use, one incentive, while others may be eligible for,
and may use, the other at an y given moment during the period of availability of the tax measures
(in this case, until the expiration of the aerospace tax measures in 2040).320
7.156. Finally, the Panel notes the United States' reiteration that the European Union has failed to
meet its burden of proof in respect of any financial contribution made by the aerospace tax
measures, and that this burden cannot be met by substituting the findings made in the context of
US – Large Civil Aircraft (2nd complaint) regarding different claims and measures. The Panel agrees
that its terms of reference are confined to the aerospace tax measures identified in the
European Union's panel request in the present case, which are formally and substantively distinct
from those considered in US – Large Civil Aircraft (2nd complaint). The Panel's assessment is based
upon arguments and evidence on the record of this dispute, with careful regard for the principle
that it is the complaining party's burden to establish a prima facie case which, in the absence of
adequate refutation, requires the Panel to rule in favour of the complaining party. A significant
amount of evidence was placed before the Panel by the European Union, and its submissions led
the Panel to various relevant aspects of that evidence. Brevity in the Europ ean Union' s
submissions did not prejudice its satisfaction of the burden of proving facts to establish that the
measures involved a foregoing of revenue otherwise due within the terms of Article 1.1(a)(1)(ii) of
the SCM Agreement. The case put in rebuttal by the United States did not reverse the
European Union's satisfaction of its burden.
7.157. In conclusion, n one of these arguments disturbs the Panel's above analysis of the
aerospace tax measures. Accordingly, the Panel finds that each aerospace tax measure constitutes
a financial contribution within the meaning of Article 1.1(a)(1)(ii) of the SCM Agreement because
"government revenue that is otherwise due is foregone or not collected".

(Exhibit EU-48); The Seattle Times, "Boeing must disclose tax-break savings, state Department of Revenue
rules", 8 January 2016 (Exhibit EU-121).
318 In the view of the United States, "where a Member challenges the alleged grant of a subsidy to a
particular recipient of an alleged subsidy, that Member normally must establish actual receipt of that subsidy.
That may not be the case where a Member asserts 'that a financial contribution exists in the abstract', which
the EU has now clarified is its argument in this proceeding." United States' second written submission,
para. 85.
319 See, e.g. United States' response to Panel question No. 2, para. 4.
320 In this connection, the Panel's conclusions are not impacted by the fact that the alleged contingency
of using domestic over imported goods does not apply to all potential beneficiaries of the subsidies at issue.
The provision of subsidies to a range of beneficiaries based on a contingency applicable to only one or some of
those beneficiaries may still be found inconsistent with the disciplines of the SCM Agreement, provided that:
(i) a subsidy exists within the meaning of Article 1; and (ii) the availability of any such subsidy, to whichever
recipient or beneficiary, is contingent in the manner set out in Article 3. These provisions do not require any
strict identity of subsidy recipients and entities subject to the contingency in question. The Panel is therefore
unpersuaded by the United States' contention that the applicability of ESSB 5952's contingencies to only one
potential recipient of subsidies "disproves the EU's claims that the alleged subsidies are 'as such' contingent on
the use of domestic over imported fuselages and wings". See United States' response to Panel question No. 59,
para. 25. Accordingly, the Panel assesses in this section the criteria for determining the existence of a subsidy,
and separately will consider whether, as a condition for access to any such subsidy, there is a requirement to
use domestic over imported goods.

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7.4.4 Whether a benefit is thereby conferred
7.158. With respect to whether a benefit is conferred under Article 1.1(b) of the SCM Agreement ,
the Appellate Body emphasi zed that "a 'financial contribution' and a 'benefit' [are] two separate
legal elements in Article 1.1 of the SCM Agreement, which together determine whether a subsidy
exists".321
7.159. The ordinary meaning of the term "benefit" has been understood as "clearly
encompass[ing] some form of advantage". 322 The Appellate Body further explained that "the word
'benefit', as used in Article 1.1(b), implies some kind of comparison" to determine whe ther "the
'financial contribution' makes the recipient 'better off' than it would otherwise have been, absent
that contribution".323 In the Appellate Body's 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."324
7.160. In the case of tax -based financial contributions, while the foregoing of revenue by a
government may not be conceptually equivalent to the enjoyment of an advantage by the
recipient, as a practical matter the two will often coincide. That is, w here the government is found
to have foregone revenue, this is because it has departed from the normative benchmark in
respect of some particular category or class of taxpayers or activities. By virtue of foregoing
revenue, that departure from the norm mea ns that the taxpayers that are subject to the
government's normative departure owe less tax than they otherwise would under the "normal"
taxation rules.
7.161. It is in this light that the Panel understands the observation of the panel in US – Large Civil
Aircraft (2nd complaint) that, "[i]n those cases where a financial contribution has been found to
exist in the form of the foregoing of revenue otherwise due, the conclusion that a benefit exists
has been made with little difficulty". 325 Having reviewed cases in w hich the existence of a benefit
readily followed from a determination of foregone revenue that was otherwise due 326, the panel
concluded that "the relevant tax break is essentially a gift from the government, or a waiver of
obligations due, and it is clear t hat the market does not give such gifts". 327 Although the parties
disagree as to the extent to which revenue foregone is automatically determinative of a benefit,
they have not directly called into question the soundness of the approach adopted by the panel in
US – Large Civil Aircraft (2nd complaint) or its reliance on previous panels.
7.162. For tax-based financial contributions such as the aerospace tax measures, the relief from
taxation otherwise due is not generally available to market participants, nor does it exist as a
general condition in the marketplace. It is in this sense that the Panel understands the
"marketplace" observations made by the Appellate Body in Canada – Aircraft as they would apply
in the context of Article 1.1(a)(1)(ii).328 Indeed, the "marke t conditions" that are relevant as the
benchmark in this context are the competitive conditions that exist in the absence of the
challenged financial contribution. Judging the conferral of a benefit by reference to such market
conditions, it is clear that the financial contribution s of foregone government revenue otherwise
due from certain Washington State taxpayers – through a reduced tax rate, credits against
business taxation, or exemptions from otherwise applicable tax liability – makes the recipient s

321 Appellate Body Report, Brazil – Aircraft, para. 157. (emphasis omitted)
322 Appellate Body Report, Canada – Aircraft, para. 153 (citing Panel Report, Canada – Aircraft,
para. 9.112).
323 Appellate Body Report, Canada – Aircraft, para. 157.
324 Ibid.
325 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.169.
326 See Panel Reports, US – FSC, para. 7.103; US – FSC (Article 21.5 – EC), para. 8.46; Canada –
Autos, para. 10.165.
327 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.170. Accordingly, the panel found that
"for those tax measures that it has found to constitute a financial contribution, a benefit is conferred". Ibid.
para. 7.171.
328 See fn 324 above.

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"better off" than they otherwise would have been, in the marketplace, absent those
contributions.329
7.163. While bearing in mind the guidance of the Appellate Body a s to the independence of the
concepts of financial contribution and benefit 330, the Panel does not con sider itself precluded from
using the same factual elements from its conclusions as to revenue foregone in its analysis of
whether each measure also confers a benefit. By way of reference, financial contributions in the
form of "grants" under Article 1.1(a)(1)(i) of the SCM Agreement have been found to confer
benefits, "as they place the recipient in a better position than the recipient otherwise would have
been in the marketplace", given that no entity acting pursuant to commercial considerations would
make such unremunerated payments.331 Similarly, a financial contribution in the form of foregone
government revenue that is otherwise due is naturally apt to provide the taxpayers concerned with
an "advantage" in comparison to market conditions where such advantages do not otherwise exist.
7.164. Accordingly, the Panel finds that each of the aerospace tax measures at issue confers a
benefit within the meaning of Article 1.1(b) of the SCM Agreement.
7.4.5 Conclusion under Article 1 of the SCM Agreement
7.165. Having concluded that t here is a financial contribution by the Washington State
government under each of the aerospace tax measures at issue , and that a benefit is thereby
conferred, the Panel finds that each of the aerospace tax measures at issue constitutes a subsidy
within the meaning of Article 1 of the SCM Agreement.
7.5 Whether the challenged measures are prohibited subsidies under Article 3.1(b) of
the SCM Agreement
7.166. The Panel has found that the challenged measures are subsidies within the meaning of
Article 1 of the SCM Agreem ent. It will now proceed to consider whether , as alleged by the
European Union, the measures are also "contingent … upon the use of domestic over imported
goods" and therefore prohibited subsidies under Article 3.1(b) of the SCM Agreement.
7.167. In this regard, the Panel recalls that, for a subsidy within the meaning of Article 1.1 to be
subject to the provisions of Parts II, III, and V of the SCM Agreement (disciplines on prohibited
subsidies, actionable subsidies, and countervailing measures, respectively), it must be "specific in
accordance with the provisions of Article 2" of that Agreement. 332 The Panel further recalls that,
pursuant to Article 2.3 of the SCM Agreement, prohibited subsidies are deemed to be specific. The

329 See Appellate Body Report, Canada – Aircraft, para. 154.
330 The Appellate Body has stated that "the second element in Article 1.1. is concerned with the 'benefit
… conferred' on the recipient by [the] governmental action" of making a financial contribution, and that a
"'benefit' does not exist in the abstract, but must be received and enjoyed by a beneficiary or a recipient". The
Appellate Body further considered that "[l]ogically, a 'benefit' can be said to arise only if a person, natural or
legal, or a group of persons, has in fact received something". Appellate Body Report, Canada – Aircraft,
paras. 154 and 156. (emphasis original)
The Panel notes that these statements were made in the context of rejecting a specific argument "that
'cost to government' is one way of conceiving of 'benefit'". Ibid. para. 154. The Appellate Body considered this
approach to be "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'". Ibid. (emphasis original) The Appellate Body was not
addressing the particular factual circumstance of the actual use of a financial contribution (such as a tax
incentive) by particular entities, nor did it address the potential relevance in this regard of alleged subsidies
being challenged "as such". Rather, in response to particular arguments before it, the Appellate Body was
emphasising the focus on beneficiaries, as distinct from the provider, of a given financial contribution in the
conceptually distinct analysis of whether a benefit is conferred by that financial contribution.
331 Panel Report, US – Upland Cotton, paras. 7.1116 and 7.1118. See also Panel Reports, EC and certain
member States – Large Civil Aircraft, para. 7.1501 (finding that "to the extent that Airbus received a funding
grant in the form of an actual 'direct transfer of funds' from the various entities involved, it was automatically
placed in a better position than it would otherwise have been in without the grant", and that such funding
grants therefore conferred a "benefit"); US – Large Civil Aircraft (2nd complaint), paras. 7.1228-7.1229 (in
relation to payments that were not disputed to "constitute a financial contribution in the form of a direct
transfer of funds", finding that such payments confer a "benefit" under Article 1.1(b) of the SCM Agreement as
such payments would not be made by any "private entity acting pursuant to commercial considerations")
and 7.1362-7.1363.
332 SCM Agreement, Article 1.2.

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European Union's claim is that the measu res at issue are prohibited subsidies in that they are
contingent on the use of domestic over imported goods. Accordingly, no matter what the Panel
decides in relation to the alleged contingency, the Panel is not required to conduct a specificity
analysis under Article 2 of the SCM Agreement.
7.5.1 Arguments of the parties
7.5.1.1 European Union
7.168. The European Union alleges that the aerospace tax measures at issue are de jure and de
facto contingent upon the use of domestic over imported goods and therefore inconsistent with the
United States' obligations under Article 3.1(b) of the SCM Agreement. 333 In the European Union's
view, the challenged aerospace tax measures have been contingent in this manner from the time
that ESSB 5952 was enacted.334
7.169. According to the European Union , its first and principal claim is that the challenged
aerospace tax measures are de jure contingent upon the use of domestic over imported goods
inasmuch as the text of ESSB 5952 clearly sets out the prohibited contingency. 335 The
European Union also makes a secondary claim that the aerospace tax measures are de facto
contingent upon the use of domestic over imported goods.336
7.170. In the European Union's view, Article 3.1(b) of the SCM Agreement sets out a single
standard irrespective of whether the claim is that the measure is de jure or de facto contingent on
the use of domestic over imported goods. The difference would be the evidence necessary to
establish each claim. A de jure claim would be made on the basis of the express terms of the text
of the measure or by necessary implication therefrom, whereas in a de facto claim the contingency
would have to be inferred "from the total configuration of facts constituting and surrounding the
subsidy grant, including the design, structure and modalities of operation set out in the
measure".337
7.171. With respect to its de jure claim, the European Union submits that, as clearly set out in the
text of ESSB 5952, and as a result of the First Siting Provision and the Second Siting Provision,
whether considered individually or togeth er, the challenged aerospace tax measures constitute
subsidies that are contingent in law on the use of domestic over imported goods. 338 The prohibited
contingency in respect of the use of fuselages as domestic goods would result solely from the First
Siting Provision, while the prohibited contingency in respect of the use of wings as domestic goods
would result from both the First Siting Provision and the Second Siting Provision.339
7.172. The European Union argues that, p ursuant to the First Siting Provision in Sect ion 2 of
ESSB 5952, the challenged aerospace tax measures were contingent on the establishment of a
new commercial aircraft manufacturing programme that uses goods (i.e., fuselages and wings)
produced in the state of Washington. Under this provision, with respect to all aerospace companies
in the state of Washington, if Boeing had decided to use imported wings and fuselages in the

333 European Union's second written submission, para. 40.
334 European Union's response to Panel question No. 6, para. 11.
335 European Union's second written submission, paras. 1, 2, 41 and 90; closing statement at the first
meeting of the Panel, para. 1; opening statement at the second meeting of the Panel, para. 2; response to
Panel question Nos. 29 and 46, paras. 67 and 125. See also Request for the Establishment of a Panel by the
European Union, WT/DS487/2, 13 February 2015, p. 2.
336 European Union's second written submission, paras. 1 and 90; opening statement at the second
meeting of the Panel, para. 2. See also Request for the Establishment of a Panel by the European Union,
WT/DS487/2, 13 February 2015, p. 2.
337 European Union's first written submission, para. 72; second written submission, para. 44; opening
statement at the first meeting of the Panel, para. 47; response to Panel question Nos. 18 and 30, paras. 23-26
and 68-69.
338 European Union's first written submission, paras. 70 and 73; second written submission, paras. 1, 41
and 60; opening statement at the first meeting of the Panel, para. 6; response to Panel question No. 41,
para. 98.
339 European Union's response to Panel question No. 43, para. 101.

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assembly of the 777X (or any other new aircraft programme that it might have decided to site in
Washington State), the challenged tax measures would not have been granted.340
7.173. The European Union also argues that, pursuant to the Second Siting Provision, the B&O
aerospace tax rate for the 777X (or any other aircraft that Boeing might have sited to satisfy the
First Siting Provision) is contingent on Boeing's use of wings produced exclusively in the state of
Washington. The European Union contends in particular that, i f Boeing were to source even some
wings for the sited aircraft programme outside of the United States, it would lose acce ss to the
B&O aerospace tax rate in respect of the manufacturing and sale of 777X airplanes.341
7.174. The European Union further asserts that the United States' proposed reading of the First
Siting Provision and the Second Siting Provision would render meaningless all references contained
therein to "wings" and to "fuselages". 342 The European Union also argues that the text of
ESSB 5952 does not require that the same manufacturer produce both the commercial airplane
and the fuselages and wings; to the contrary, nothi ng in ESSB 5952 would preclude an airplane
manufacturer from procuring wings or fuselages from another producer, as long as this other
producer is located in the state of Washington. 343 The European Union further contends that the
Second Siting Provision in ESSB 5952 would be triggered even by a single instance of final
assembly outside the state of Washington of an airplane which was the basis of the original siting
decision, or by a single instance of wing assembly for that airplane outside the state of
Washington, either by Boeing or by any other entity, and that this would result in precluding the
continued availability of the B&O aerospace tax rate.344
7.175. The European Union argues further that any evidence provided by the United States and
related to the manne r in which Boeing purportedly will produce 777X aircraft is irrelevant to the
Panel's consideration of the European Union's de jure claim, although some of those facts could be
relevant to the European Union's de facto claim.345
7.176. With respect to its de facto claim, the European Union submits that the First Siting
Provision and the Second Siting Provision in ESSB 5952 are each capable of strongly influencing
Boeing's choice between imported wings and fuselages, and domestic (United States -produced)
wings and fu selages, for the 777X airplanes. 346 According to the European Union, ESSB 5952
creates specific penalties for the use of imported wings or fuselages and rewards for the use of
domestic wings or fuselages. The First Siting Provision and the Second Siting Prov ision acting
together would maximize trade distortions in favour of domestic goods to the detriment of
imported goods, which suggests that the challenged measures are geared to induce the use of
domestic over imported goods.347 In the European Union's view, the subsidies at issue exceed the
total development cost of the 777X airplanes, and would thereby overshadow any other factors
that may favour a decision by Boeing to import wings and fuselages for 777X airplanes.348

340 European Union's first written submission, paras. 44 and 74; second written submission, para. 61;
opening statement at the first meeting of the Panel, paras. 53-54; opening statement at the second meeting of
the Panel, para. 3.
341 European Union's first written submission, paras. 47, 51-52 and 75; second written submission,
para. 61; opening statement at the first meeting of the Panel, paras. 55-56; response to Panel question No. 7,
para. 12.
342 European Union's second written submission, paras. 65-75.
343 European Union's second written submission, paras. 65 and 76-81; opening statement at the first
meeting of the Panel, paras. 60-61; response to Panel question No. 45, para. 119.
344 European Union's second written submission, paras. 65 and 82-84; opening statement at the first
meeting of the Panel, para. 61; response to Panel question No. 7, para. 12.
345 European Union's second written submission, para. 41.
346 European Union's first written submission, para. 77; second written submission, para. 90. See also
European Union's second written submission, para. 91; opening statement at the first meeting of the Panel,
paras. 72-73; response to Panel question No. 29, paras. 66-67; Reuters, "Boeing seen in advanced talks to
make 777X near Seattle", 4 November 2013 (Exhibit EU-65).
347 European Union's first written submission, para. 77; opening statement at the first meeting of the
Panel, paras. 6 and 70-74; response to Panel question Nos. 31 and 41, paras. 70-71 and 98.
348 European Union's second written submission, para. 90. See also ibid, para. 91; European Union's
opening statement at the first meeting of the Panel, para. 73; response to Panel question No. 29,
paras. 66-67; Reuters, "Boeing seen in advanced talks to make 777X near Seattle", 4 November 2013
(Exhibit EU-65).

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7.5.1.2 United States
7.177. In the United States' view, the main issue before the Panel is whether a subsidy granted
for the manufacture of a finished good, including its major structural elements, and which allows
the producer to import all the parts that are used in the production process, can nonetheless be
considered to be a subsidy contingent upon the use of domestic over imported goods. 349 The
United States argues in this regard that a contingency is only inconsistent with Article 3.1(b) of the
SCM Agreement if it requires the use of domestic over imported goods350, and that this
determination must take into account all sources that elucidate the meaning of the words used in
the measure at issue, including relevant factual information on the application of the measure. 351
According to the United States, in the a nalysis of both the de jure and the de facto claims, the
Panel should consider evidence that pertains to the actual operation of the measure, beyond the
text of the legal instrument in question.352
7.178. As a factual matter, the United States asserts that Boeing does not use wings or fuselages,
either domestic or imported, to produce 777X airplanes. 353 According to the United States,
fuselages and wings are not manufactured as separate products that are subsequently used in the
manufacture of a finished 777X airplane.354
7.179. The United States asserts that the European Union has failed to establish that the
aerospace tax measures at issue are de jure contingent upon the use of domestic over imported
goods. According to the United States, if a taxpayer can meet a condition wi thout resorting to the
use of domestic over imported goods this would be sufficient to demonstrate that the underlying
measure is not an import -substitution subsidy prohibited by Article 3.1(b) of the SCM
Agreement.355 The United States argues that "the First Siting Provision has been fulfilled , and the
Second Siting Provision has been avoided, without any use of domestic over imported goods".356
7.180. The United States argues that:
The [First] Siting Provision and the [Second] Siting Provision in ESSB 5952 make no
mention of goods. They make no mention of the use of goods. They make no mention
of the domestic nature of goods. They make no mention of imported goods . They
contain no text that requires the use of domestic over imported goods, nor even
encourages it. The y therefore do not result in any discrimination against imported
goods.357 (emphasis added)
7.181. According to the United States, the references to the manufacturing and the assembly of
fuselages and wings in the First Siting Provision and the Second Siting Provis ion merely define the
scope of the production activity required to enjoy the tax treatment covered by ESSB 5952. 358 The
United States argues that there are several means of satisfying the First Siting Provision and the
Second Siting Provision, including one that would not involve the use of fuselages and wings as
inputs into the airplane production process, namely the 777X manufacturing programme.359
7.182. The United States argues further that the European Union has failed to demonstrate the
existence of a domestic g ood on which the subsidies are allegedly contingent. According to the
United States, ESSB 5952 does not require the use of any domestic parts in the assembly of the

349 United States' second written submission, paras. 1-3.
350 United States' first written submission, para. 104; second written submission, paras. 10-14.
351 United States' second written submission, paras. 11, 17 and 34.
352 United States' second written submission, paras. 29-34 and 36; response to Panel question No. 18,
paras. 37-43.
353 United States' first written submission, paras. 37 and 105; second written submission, paras. 35
and 54-56; response to Panel question No. 44, para. 104.
354 United States' first written submission, para. 105; response to Panel question Nos. 34, 35 and 42,
paras. 79, 81-82, 102 and 110-115.
355 United States' second written submission, paras. 10-11, 15-16, 37 and 51.
356 United States' second written submission, para. 58. See also ibid. paras. 60-62; United States'
response to Panel question No. 33, para. 74.
357 United States' first written submission, para. 3. See also ibid. paras. 73, 101, 105-107 and 109.
358 United States' first written submission, paras. 73 and 101; second written submission, paras. 38-47
and 57.
359 United States' second written submission, para. 51; response to Panel question No. 18, para. 43.

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fuselages and the wings; Boeing would be free to import 100% of the parts as long as the
assembly takes place in the state of Washington.360
7.183. The United States further asserts that the European Union has failed to establish that the
aerospace tax measures at issue are de facto contingent upon the use of domestic over imported
goods, because it has not demonstrated that the use of domestic goods is required as a condition
for eligibility for the subsidy. 361 According to the United States, none of the factual evidence
referred to by the European Union supports its claim that the measures are de facto contingent.362
7.184. The United States also argues that Boeing has complied with the First Siting Provision and
has avoided triggering the Second Siting Provision even though it does not use domestic wings and
fuselages and instead completes the assembly of wings and fuselages as part of the final assembly
of the finished airplane. 363 The United States adds that the measures in ESSB 5952 had no effect
on Boeing's make/buy decisions nor on its decision on where to site the assembly of fuselages and
wings.364 The United St ates contends that the European Union has failed to establish that the
challenged measures are geared to induce the use of domestic over imported goods.365 The
United States submits that, provided it conducts the requisite assembly activity in the state of
Washington, Boeing would satisfy the First Siting Provision and avoid triggering the Second Siting
Provision even if it imported every part of the 777X airplane; Boeing therefore would be receiving
no rewards for increasing the use of domestic inputs on the 777X airplane, nor would it be
penalized for increasing the use of imported inputs.366
7.185. The United States rejects the interpretation advanced by the European Union on the
meaning of the word "use" in Article 3.1(b) of the SCM Agreement , saying that a broad
characterization of the meaning of the word "use", such as that advocated by the European Union,
would be subjective in that it is not based on the text of the SCM Agreement. 367 According to the
United States, the term "use" in Article 3.1(b) refers to the em ployment of a domestic good as an
input or instrumentality in a productive process, or to the enjoyment of a good for its intended
purpose by an end user.368 Accordingly, Article 3.1(b) would cover subsidies granted contingent on
the employment of a good as an input or instrumentality in a productive process, but not subsidies
contingent on the creation of the output of such a productive process. 369 In the United States'
view, Article 3.1(b) of the SCM Agreement does not prohibit "production subsidies"; in this respect,
the United States argues that Article III:8(b) of the GATT 1994 provides relevant context for the
interpretation of Article 3.1(b).370
7.5.2 Third-party views
7.186. Australia submits that it is important that a distinction is retained between the permitted
payment of a subsidy to domestic producers , including to encourage manufacturing activities, and
a prohibited subsidy which is contingent on the use of domestic over imported goods. 371 Australia
notes that it interprets the references to wings and fuselages in the legislation at issue merely as
efforts to define the scope of the eligibility to the subsidy. According to Australia, " defining the
scope of a subsidy in this manner does not imply that a subsidy is being provided contingent on
the use of domestic over imported goods. Rather, it is a practical way of targeting an industry
which the Washington State Government has chosen to support." 372 In Australia's view, the Panel
needs to assess whether the challenged measure can be characterized as providing the scope for

360 United States' second written submission, paras. 24, 48-50, 57, 64, 68 and 84.
361 Ibid. para. 58.
362 Ibid. paras. 78-83.
363 Ibid. paras. 59-63.
364 Ibid. paras. 64-71 and 84.
365 United States' first written submission, paras. 105 and 132-140; second written submission,
paras. 72-74; response to Panel question No. 30, paras. 65-67.
366 United States' second written submission, paras. 75-77.
367 Ibid. para. 20.
368 United States' second written submission, para. 52; response to Panel question No. 44,
paras. 104-108.
369 United States' second written submission, para. 52.
370 United States' first written submission, paras. 116-124; second written submission, para. 20.
371 Australia's third-party submission, paras. 10 and 21; third-party statement, paras. 10-12; response
to Panel question No. 5.
372 Australia's response to Panel question No. 5.

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the beneficiaries of the subsidy, or whether it can be characterized instead as a requirement to use
domestic over imported goods as a condition for the subsidy. 373 Australia argues that it is unclear
how the European Union reaches the conclusion that the First and the Second Siting Provisions are
expressly conditioned on the use of domestic over imported goods. 374 According to Australia, it is
doubtful whether the European Union has successfully made a case for a de jure breach of
Article 3.1(b) of the SCM Agreement; the Panel's determination in the present case may ultimately
depend on the finding of facts. 375 Australia encourages the Panel to consider whether the
references to wings and fuselages in the First and the Second Siting Provisions can be regarde d as
merely defining the beneficiary of the subsidies, instead of being a requirement to use
domestically produced goods. 376 In response to a question from the Panel, Australia submits that
the Appellate Body's rulings in US – Softwood Lumber IV cannot be in terpreted as stating that
"goods" in Article 3.1(b) of the SCM Agreement must be tradeable or capable of being traded. In
Australia's view, such an interpretation would not be practical and would undermine the object and
purpose of the SCM Agreement.377
7.187. Brazil argues that Article 3.1(b) of the SCM Agreement does not cover production
requirements, as long as these requirements do not constitute requirements to use domestic
goods to the detriment of imported goods. 378 According to Brazil, the SCM Agreement does n ot
prohibit WTO Members from providing subsidies to producers contingent on the performance of
production steps of a certain good in their territories. Such a production requirement could fall
upon the production of either a final or an intermediate good. 379 In Brazil's view, the expression
"use" in Article 3.1(b) means that the goods in question must be "products" that can be "used" in
a commercial context. 380 Brazil adds that "contingency" under Article 3.1(b) requires concrete
evidence of the actual requirement to use domestic products to the detriment of imported products
and cannot be based simply on a measure's incidental or indirect impact on domestic production,
such as the fact that domestic products may become more attractive to the producer and lead t o a
larger share of domestic products as inputs. 381 According to Brazil, a subsidy can be prohibited
under Article 3.1(b) because the terms of the subsidy expressly condition its granting on the use of
domestic inputs or otherwise the necessary implication o f the specific conditions is such that,
absent the use of domestic goods, the conditions cannot be met. 382 Brazil maintains that, i n the
latter case, a panel would have to examine the specific requirements imposed as a condition for
the granting of the subsi dy, based on the text of the subsidy program me and on its necessary
implications, and determine whether the conditions can be met without using domestic goods. 383
Brazil asserts that a subsidy on the production of a certain good, with requirements on the
performance of production steps along the production chain, would not be considered de jure
contingent on the use of domestic over imported goods under the purview of Article 3.1(b) of the
SCM Agreement .384 Conversely, a subsidy could be found de facto to be pr ohibited under
Article 3.1(b) when a condition does not necessarily require the use of domestic goods either
directly or by necessary implication, but based on the total configuration of the facts it becomes
clear that, in fact, the subsidy recipient is re quired to use domestic over imported goods in order
to receive the subsidy. 385 Brazil submits that, in the present case, the Panel will have to assess
whether the conditions contained in the challenged measure simply require a domestic production
activity by the producer (which would likely not amount to a prohibited conditionality) or if
instead: (i) the condition requires de jure and by necessary implication the use of domestic over
imported goods; or (ii) the condition, in combination with other factual ev idence on the record,
requires de facto the use of domestic over imported inputs.386

373 Australia's third-party submission, paras. 11-13.
374 Australia's third-party statement, para. 6.
375 Ibid. para. 7.
376 Ibid. para. 13.
377 Australia's response to Panel question No. 4.
378 Brazil's third-party submission, paras. 7-8. See also Brazil's response to Panel question No. 5.
379 Brazil's response to Panel question No. 5.
381 Brazil's third-party submission, paras. 10-14; third-party statement, paras. 6 and 9.
382 Brazil's third-party submission, paras. 16; third-party statement, para. 10.
383 Brazil's third-party submission, para. 17.
384 Brazil's response to Panel question No. 12. See also Brazil's response to Panel question No. 14.
385 Brazil's third-party submission, paras. 18; third-party statement, para. 11.
386 Brazil's third-party submission, para. 19.

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7.188. According to Canada, the European Union appears to be arguing that a subsidy is
contingent on the use of domestic over imported goods where the producer of a final good is
required to produce certain components of that good in order to receive the subsidy. 387 In
Canada's view, this interpretation of Article 3.1(b) would improperly extend the provision to cover
situations where subsidy recipients are required to produce goods. 388 According to Canada, under
the challenged measure, the beneficiary company is required to manufacture and/or assemble
those fuselages and wings itself in order to receive the tax subsidy .389 There is no requirement to
purchase in the United States wings, fus elages, or other parts used in the assembly of the final
aircraft.390 Canada adds that the European Union did not provide any evidence suggesting that
Boeing would de facto have to "use" domestic components other than those that the company
manufactures itse lf.391 Canada argues that WTO Members are not prohibited from providing
subsidies to domestic producers, including where the subsidy to the producer of a final good is
contingent on the recipient producing goods in its territory or producing certain intermediate goods
by itself.392 Similarly, in Canada's view, neither the GATT 1994 nor the SCM Agreement limits a
Member's ability to define the level of production required for subsidy eligibility purposes. 393
Otherwise, production requirements would have to be limi ted to simple assembly operations, and
the right of WTO Members to require subsidy recipients to produce goods, as defined by the
granting Member, in order to receive a subsidy would be nullified.394
7.189. China contends that the Panel must examine whether, under the First Siting Provision and
the Second Siting Provision, the subsidy is conditional or dependent on the use of domestic over
imported goods.395 China disagrees with the United States' assertion that fuselages and wings are
not "goods".396 In China's view, c ustom-tailored goods can also be considered as "goods" within
the meaning of Article 3.1(b) of the SCM Agreement. China also disagrees with the notion that
Article 3.1(b) requires that the relevant good is traded in practice, as long as the good has "the
value of trading". 397 According to China , the "use" of intermediate goods in the course of
production may meet the condition for being considered a "use" of domestic over imported
goods.398 The Panel should consider in this regard whether the conditions imposed by the
challenged measure result in a de facto situation in which the 777X aircraft programme prefers
domestic components or other intermediate goods over imported goods. 399 China also argues that
Article III:8(b) of the GATT 1994 is not relevant to the pre sent dispute as a legal basis to exclude
the challenged measure from examination under Article 3.1(b) of the SCM Agreement. 400 In
China's view, there seems to be insufficient evidence that the First Siting Provision would result de
jure in a prohibited subsi dy under Article 3.1(b) of the SCM Agreement. 401 China argues however
that the Panel should examine whether de facto the First Siting Provision has created an incentive
for the use of domestic components over imported components, taking into account that this
provision may make it more favourable to purchase , in the state of Washington, the components
for the fuselages and wings to be used in the assembly of 777X aircraft. 402 Likewise, China
suggests that the Panel should assess whether the Second Siting Provis ion should be considered
de jure as a prohibited subsidy under Article 3.1(b) of the SCM Agreement or otherwise whether

387 Canada's third-party submission, para. 3.
388 Ibid.
389 Ibid. paras. 4-5.
390 Ibid. para. 5.
391 Ibid.
392 Ibid. 6-7.
393 Ibid. paras. 8-10.
394 Ibid. paras. 8 and 11.
395 China's third-party submission, para. 18.
396 China's third-party statement, para. 3.
397 China's third-party submission, para. 21; third-party statement, para. 3; response to Panel question
No. 4.
398 China's third-party statement, para. 4.
399 China's third-party submission, para. 23.
400 China's third-party submission, para. 25; third-party statement, para. 5. See also China's response
to Panel question Nos. 5 and 15.
401 China's third-party submission, para. 28; third-party statement, para. 7; response to Panel question
No. 5.
402 China's third-party submission, paras. 29-30; third-party statement, para. 8; response to Panel
question No. 5.

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de facto it may result in an incentive to use more domestic than imported components due to cost
savings and efficiencies.403
7.190. Japan argues that the same legal standard should be followed by panels when examining
prohibited subsidies under Article 3.1(a) and under Article 3.1(b) of the SCM Agreement, as well
as when examining de jure and de facto contingency.404 With respect to the evidentiary standard
for the establishment of contingency, Japan states that a de jure analysis should be based on the
words actually used in the measure at issue and their necessary implications , while a de facto
analysis should be based on the total configuration of the facts constituting and surrounding the
granting of the subsidy in light of the available evidence, rather than on subjective motivations
expressed by governmental agencies, officials or legislators. 405 In Japan's view, a subsidy
contingent on the use of domestic goods that is prohibited by Article 3.1(b) of the SCM Agreement
cannot be justified by Article III:8(b) of the GATT 1994. 406 According to Japan, it appears that the
European Union has argued that the challenged subsidy is de jure contingent on the use of
domestic over imported goods, but has based its analysis on "factual scenarios which may or may
not have materialized, factual circumstances that may or may not have existed, and choices that
private actors may or may not have made", instead of focu sing on the actual text of the
measure.407 With respect to the First Siting Provision , Japan asserts that a law stating that a
subsidy is contingent upon the domestic siting of a certain program me is different from a law
stating that a subsidy is contingent upon the use of a domestic product. 408 With respect to the
Second Siting Provision, Japan asserts that the words used in the legislation are not completely
clear as to whether, by virtue of the location requirement for the final assembly or wing assembly,
the revenue from the 777X will not benefit from the reduced B&O tax rate if these assembling
activities take place outside Washington State. 409 In Japan's view, the European Union's analysis
with respect to both the First Siting Provision and the Second Siting Provision may fall short of the
standard required to establish "contingency" under Article 3.1(b) of the SCM Agreement.410
7.5.3 Order of analysis
7.191. As noted above, the European Union has argued that its "first and principal claim in this
dispute" is that the challenged aerospace tax measures are de jure contingent upon the use of
domestic over imported goods.411
7.192. The Panel will start by considering the European Union's de jure claim. As explained below,
the Panel will assess whether the European Union has made a prima facie case that the
contingency of the challenged aerospace tax measures upon the use of domestic over imported
goods can be demonstrated on the basis of the words of the relevant legislation. This could be
either because the conditionality is set out exp ressly in the legislation or because such
conditionality can clearly be derived, by necessary implication, from the words used in the
legislation.412
7.193. The European Union has also advanced a secondary claim, i.e. that the tax measures at
issue are inconsistent with Article 3.1(b) of the SCM Agreement by being de facto contingent upon
the use of domestic over imported goods . If the Panel were to conclude that the European Union
has successfully established that the aerospace tax measures are de jure contingent upon the use
of domestic over imported goods, and therefore inconsistent with Article 3.1(b) of the
SCM Agreement, it would not need also to establish that the same measures are de facto
contingent. Nonetheless, in that circumstance the Panel will try to en sure that there is a complete
factual record on which the Appellate Body may base its rulings in the event of an appeal.

403 China's third-party submission, paras. 32-33.
404 Japan's third-party submission, paras. 2-8; third-party statement, paras. 3-5.
405 Japan's third-party submission, paras. 2 and 11-21; third-party statement, paras. 6-11.
406 Japan's response to Panel question No. 5.
407 Japan's third-party submission, para. 12.
409 Japan's third-party statement, para. 14.
410 Japan's third-party submission, paras. 27-28; third-party statement, para. 12.
411 European Union's second written submission, para. 2. See also ibid. paras. 41, 85 and 90; European
Union's closing statement at the first meeting of the Panel, paras. 1 and 11; response to Panel question
No. 29, para. 67.
412 See para. 7.274 below.

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7.194. Conversely, if the Panel finds that the European Union has not established its de jure
claim, it will subsequently consider the European Union's de facto claim, which the European Union
makes on a secondary and alternative basis . In analysing the de facto claim, the Panel would
consider the total configuration of the facts constituting and surrounding the granting of the
subsidy. As explained below413, this would include considering (i) the design and structure of the
measures granting the subsidies; (ii) the modalities of operation set out in such measures; and
(iii) the relevant factual circumstances surrounding the granting of the subsidi es that provide the
context for understanding the measures' design, structure, and modalities of operation.
7.5.4 Article 3.1(b) of the SCM Agreement
7.5.4.1 Prohibited subsidies
7.195. Article 3.1 of the SCM Agreement reads as follows:
Except as provided in the Agreement on A griculture, 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;
(b) subsidies contingent, whether solely or as one of several other
conditions, upon the use o f domestic over imported goods.

(footnotes original) 4 This standard is met when the facts demonstrate that the
granting of a subsi dy, 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.
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.
7.196. Only those subsidies that meet the definit ion in Article 1 of the SCM Agreement and fall
within the description of either Article 3.1(a) or 3.1(b), commonly referred to as "export subsidies"
and "import substitution subsidies", respectively, are prohibited by the SCM Agreement. As noted
by the Appellate Body:
Only those subsidies that are conditioned on export performance or on import
substitution are prohibited per se under Article 3 of Part II of the SCM Agreement. In
contrast, all other subsidies are allowed under the SCM Agreement, albeit a Mem ber
granting such subsidies should not cause, through the use of the subsidies, adverse
effects within the meaning of Article 5 of Part III, in which case it must remove the
adverse effects or must withdraw the subsidies themselves.414 (original italics)
7.197. Pursuant to Article 3.2 of the SCM Agreement, "[a] Member shall neither grant nor
maintain [prohibited subsidies]".
7.198. Prohibited subsidies are a special category of subsidies, which Members have deemed to
create such trade distortions that they are proscribed without the need for a complaining Member
to show any adverse effects. 415 As noted by the panel in Brazil – Aircraft, these subsidies "are
specifically designed to affect trade".416

413 See para. 7.329 below.
414 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1054.
415 The Appellate Body has explained that "the granting of a subsidy is not, in and of itself, prohibited
under the SCM Agreement. Nor does granting a 'subsidy', without more, constitute an inconsistency with that
Agreement. The universe of subsidies is vast. Not all subsidies are inconsistent with the SCM Agreement. The

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7.5.4.2 Article III:8(b) of the GATT 1994
7.199. The United States has argued that Article III :8(b) of the GATT 1994 provides context for
the interpretation of Article 3.1(b) of the SCM Agreement. 417 Article III:8(b) is part of Article III of
the GATT 1994, the provision dealing with the obligation of national treatment on internal taxation
and regulation. As noted by the Appellate Body:
The broad and fundamental purpose of Article III is to avoid protectionism in the
application of internal tax and regulatory measures. More specifically, the purpose of
Article III "is to ensure that internal measures 'not be applied to imported or domestic
products so as to afford protection to domestic production'". 418 Toward this end,
Article III obliges Members of the WTO to provide equality of competitive conditions
for imported products in relation to domestic products.419, 420
7.200. Notwithstanding the above, according to Article III:8(b):
The provisions of this Article [Article III of the GATT 1994] shall not prevent the
payment of subsidies exclusively to domestic producers, including payments to
domestic producers derived from the proceeds of internal taxes or charges applied
consistently with the provisions of this Article and subsidies effected through
governmental purchases of domestic products.
7.201. By its terms, Article III:8(b) of the GATT 1994 applies to the national tre atment disciplines
under Article III of the GATT 1994, which are not at issue in this dispute , and clarifies that the
provision of subsidies exclusively to domestic producers is not in itself a breach of the national
treatment obligation . To the extent tha t Article III:8(b) provides interpretive guidance in the
present case, it is consistent with the principle under the SCM Agreement that subsidization in
itself is not prohibited, but only becomes so in two particular situations – one of which is a
contingency on the use of domestic over imported goods.421
7.5.4.3 Contingency
7.202. Returning to the specific text of Article 3.1(b ), the expression "contingent … upon" is
common to Articles 3.1(a) and 3.1(b) of the SCM Agreement. Article 3.1(a) prohibits subsidies that
are c ontingent upon export performance , while Article 3.1(b) prohibits those subsidies that are
contingent upon the use of domestic over imported goods.
7.203. The expression "contingent … upon" is used in both Article 3.1(a) and Article 3.1(b). This
expression has been found to have the same meaning in both provisions. 422 The expression
"contingent … upon" has been explored in greatest detail in disputes concerning allegations of
export subsidies under Article 3.1(a). In this context, the Appellate Body has noted:
In our view, the key word in Article 3.1(a) is "contingent". As the Panel observed, the
ordinary connotation of "contingent" is "conditional" or "dependent for its existence on
something else". This common understanding of the word "contingent" is borne out by
the text of Article 3.1(a), which makes an explicit link between "contingency" and

only 'prohibited' subsidies are those identified in Article 3 of the SCM Agreement". Appellate Body Report,
417 See, for example, United States' first written submission, paras. 9 and 116-123; second written
submission, paras. 9, 20 and 47; opening statement at the first meeting of the Panel, para. 19; opening
statement at the second meeting of the Panel, para. 16.
418 (footnote original) United States – Section 337 of the Tariff Act of 1930, BISD 36S/345, para. 5.10.
419 (footnote original) United States – Taxes on Petroleum and Certain Imported Substances,
BISD 34S/136, para. 5.1.9; Japan – Customs Duties, Taxes and Labelling Practices on Imported Wines and
420 Appellate Body Report, Japan – Alcoholic Beverages II, p. 16, DSR 1996:I, 97, at p. 109.
421 See Panel Report, Indonesia – Autos, para. 14.33.
422 Appellate Body Report, Canada – Autos, para. 123.

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"conditionality" in stating that export contingency can be the sole or "one of several
other conditions".423 (emphasis original)
7.204. Regarding the interpretation of the term "conting ent" in the context of an export subsidy,
the Panel in Australia – Automotive Leather II referred to a "close connection" between the grant
or maintenance of a subsidy and export performance. It added that for a subsidy to be export
contingent, it must be "conditioned" upon export performance, stating:
An inquiry into the meaning of the term "contingent…" in Article 3.1(a) must,
therefore, begin with an examination of the ordinary meaning of the word
"contingent". The ordinary meaning of "contingent" is "dependent for its existence on
something else", "conditional; dependent on, upon".424
7.205. In Canada – Autos, the Appellate Body referred back to this earlier statement and held
that "this legal standard applies not only to 'contingency' under Article 3.1(a), but a lso to
'contingency' under Article 3.1(b)".425
7.206. The Appellate Body has also clarified that Article 3.1(b) covers not only de jure
contingency, but also de facto contingency. In Canada – Autos, the Appellate Body reversed a
panel ruling that had limited "contingency" under Article 3.1(b) to de jure contingency:
[W]e believe that the Panel erred in finding that Article 3.1(b) does not extend to
subsidies contingent "in fact" upon the use of domestic over imported goods. We,
therefore, reverse the Panel's broad c onclusion that "Article 3.1(b) extends only to
contingency in law."426
7.207. In the context of Article 3.1(a), the Appellate Body has noted that contingency "in law" ( de
jure) is demonstrated "on the basis of the words of the relevant legislation, regulation or ot her
legal instrument".427 The Appellate Body has added that "such conditionality can [also] be derived
by necessary implication from the words actually used in the measure".428
7.208. Given that "contingent … upon" has the same meaning in Article 3.1(b) as it does in
Article 3.1(a), a conclusion that a subsidy is de jure contingent upon the use of domestic over
imported goods is to be based on the words of the relevant legislation , as well as their necessary
implication. This would require a finding that:
[T]he 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
condition … 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 … contingent where the condition … is clearly, though implicitly, in the
instrument comprising the measure. Thus, for a subsidy to be de jure … contingent,
the underlying legal instrument does not always have to provide expressis verbis that
the subsidy is available only upon fulfillment of the condition … Such conditionality can
also be deri ved by necessary implication from the words actually used in the
measure.429 (emphasis added)
7.209. With respect to de facto contingency, in the context of Article 3.1(a) of the
SCM Agreement, the Appellate Body has stated that "the evidence needed to establish de facto …

423 Appellate Body Report, Canada – Aircraft, para. 166.
424 Panel Report, Australia – Automotive Leather II, para. 9.55.
425 Appellate Body Report, Canada – Autos, para. 123.
426 Ibid. para. 143.
427 Appellate Body Report, Canada – Aircraft, para. 167. See also Appellate Body Reports, Canada –
Autos, para. 123; EC and certain member States – Large Civil Aircraft, para. 1038.
428 Appellate Body Report, Canada – Autos, para. 123. See also ibid. para. 100; and Appellate Body
Report, EC and certain member States – Large Civil Aircraft, para. 1038.
429 Appellate Body Report, Canada – Autos, para. 100. See also Panel Report, Canada – Aircraft Credits
and Guarantees, para. 7.365 and Panel Report, US – FSC (Article 21.5 – EC), paras. 8.54-8.56.

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contingency goes beyond a legal instrument and includes a variety of factual elements concerning
the granting of the subsidy in a specific case"430:
Proving de facto … contingency is a much more difficult task. There is no single legal
document whic h will demonstrate, on its face, that a subsidy is "contingent … in
fact…". Instead, the existence of this relationship of contingency, between the subsidy
and … performance, must be inferred from the total configuration of the facts
constituting and surrounding the granting of the subsidy, none of which on its own is
likely to be decisive in any given case.431 (emphasis original)
7.210. Still referring to contingency upon export performance under Article 3.1(a) , the
Appellate Body has stated that "the standard for de facto … contingency … would be met when the
subsidy is granted so as to provide an incentive to the recipient to export in a way that is not
simply reflective of the conditions of supply and demand in the domestic and export markets
undistorted by the granting of the subsidy."432 The Appellate Body has further noted that:
The existence of de facto export contingency, as set out above, "must be inferred
from the total configuration of the facts constituting and surrounding the granting of
the subsidy"433, which may include the following factors: (i) the design and structure
of the measure granting the subsidy; (ii) the modalities of operation set out in such a
measure; and (iii) the relevant factual circumstances surrounding the granting of the
subsidy that pr ovide the context for understanding the measure's design, structure,
and modalities of operation.434 (emphasis original)
7.211. Moreover, the Appellate Body has ruled as follows:
[T]he conditional relationship between the granting of the subsidy and export
performance must be objectively observable on the basis of such evidence in order for
the subsidy to be geared to induce the promotion of future export performance by the
recipient. The standard for de facto … contingency is therefore not satisfied by the
subjective motivation of the granting government … In this respect, we note that the
Appellate Body and panels have, on several occasions, cautioned against undue
reliance on the intent of a government behind a measure to determine the
WTO-consistency of that meas ure.435 The Appellate Body has found that "the intent,
stated or otherwise, of the legislators is not conclusive " as to whether a measure is
consistent with the covered agreement. 436 In our view, the same understanding
applies in the context of a determination on … contingency, where the requisite
conditionality … must be established on the basis of objective evidence, rather than
subjective intent. We note, however, that while the standard for de facto …
contingency cannot be satisfied by the subjective motiva tion of the granting
government, objectively reviewable expressions of a government's policy objectives
for granting a subsidy may, however, constitute relevant evidence in an inquiry into
whether a subsidy is geared to induce the promotion of future expor t performance by
the recipient.437 (emphasis added)

430 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1038.
431 Appellate Body Report, Canada – Aircraft, para. 167. See also Appellate Body Reports, Canada –
Autos, para. 123; EC and certain member States – Large Civil Aircraft, para. 1038.
432 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1045.
433 (footnote original) Appellate Body Report, Canada – Aircraft, para. 167. (original emphasis)
434 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1046.
435 (footnote original) For example, in the context of a discrimination claim under Article III of the
GATT 1994, the Appellate Body found that "[i]t is not necessary for a panel to sort through the many reasons
legislators and regulators often have for what they do and weigh the relative significance of those reasons to
establish legislative or regulatory intent." (Appellate Body Report, Japan – Alcoholic Beverages II, p. 27,
DSR 1996:I, 97, at 119) Moreover, "there may well be a certain degree of speculation in seeking to establish
the intent of a government in the abstract." (Panel Report, Japan – DRAMs (Korea), para. 7.104)
436 (footnote original) Appellate Body Report, US – Offset Act (Byrd Amendment), para. 259. (emphasis
added) See also Appellate Body Report, China – Auto Parts, para. 178, where the Appellate Body found that
the intent, stated or otherwise, of the legislators is not conclusive as to the characterization of a measure.
437 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1050.

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7.212. In sum, the Panel takes note of the Appellate Body 's findings in prior disputes that
"contingency" has the same meaning in Article 3.1(a) and Article 3.1(b) of the SCM Agreement ,
and that the contingency in Article 3.1(b) can be established on a de jure as well as on a de facto
basis. The Panel shall be guided by these findings in its analysis.
7.5.4.4 Other interpretive issues
7.213. The parties have advanced contrasting arguments regarding the interpretation of certain
terms in Article 3.1(b) of the SCM Agreement.
7.5.4.4.1 The term "over"
7.214. Both the European Union and the United States note that the word "over" used in
Article 3.1(b) of the SCM Agreement, in the expression "subsidies contingent … upon the use of
domestic over imported goods", is defined in the dictionary as "in preference to", "in excess of", or
"more than".438
7.215. The United States notes that the expressions equivalent to the word "over" that are used
in the French and the Spanish texts of Article 3.1(b) are "de préférence à" and "con preferencia a",
which would be equivalent to the English expression "in preference to" or "instead of". 439 Thus,
according to the United States:
[A] subsidy that is inconsistent with Article 3.1(b) requires the use of domestic goods
"in preference to," i.e., instead of, imported goods. For this reason, Article 3.1(b) is
often referred to as relating to "import substitution subsidies." 440 It does not cover
measures simply because they involve some sort of domestic activity, but rather it is
focused specifically on subsidies that depend on the substitution of domestic over
imported goods.441
7.216. The European Union argues that, based on its ordinary meaning, the word "over" in
Article 3.1(b) should be interpreted as "in excess of". 442 The European Union recal led that the
expression "in excess of" is used in other provisions of the W TO Agreements (such as
Articles II:1(b) and III:2 of the GATT 1994) and has been interpreted by previous panels and the
Appellate Body as excluding a de minimis standard.443 Based on its proposed meaning of the word
"over", the European Union argues that there is no de minimis standard for discrimination in
Article 3.1(b) of the SCM Agreement. According to the European Union, "[a]s soon as a subsidy is
contingent upon the use of domest ic over imported goods, competitive opportunities between
domestic and imported goods are distorted, even if no such goods are currently imported".444
7.217. As clarified subsequently, the parties have no real discrepancy with respect to the meaning
of the word "over" in Article 3.1(b) for the purpose of this dispute. The European Union has noted
that it "does not disagree with the United States' legal interpretation of 'over'." 445 The
United States has noted in turn that none of the parties has argued that there is a de minimis
exception in Article 3.1(b), so that there is no need for the Panel to address the question of
whether such an exception exists.446

438 European Union's response to Panel question No. 32, para. 72; United States' second written
submission, para. 25; United States' response to Panel question No. 32, para. 68. See also Japan's third-party
submission, fn 5; Shorter Oxford English Dictionary, 5th edition, Volume 2, p. 2044 (Exhibit USA-15); and
Shorter Oxford English Dictionary, 6th edition, pp. 2044-2045 (Exhibit USA-51).
439 United States' second written submission, para. 25; response to Panel question No. 32, para. 68. See
also European Union's second written submission, para. 52.
440 (footnote original) See, e.g., Canada – Renewable Energy (AB), para. 5.6.
441 United States' response to Panel question No. 32, para. 68. See also United States' second written
submission, para. 25.
442 European Union's response to Panel question No. 32, para. 77; second written submission, para. 51.
443 European Union's response to Panel question No. 32, paras. 73-76.
444 European Union's response to Panel question No. 32, para. 77; second written submission,
paras. 50-51.
445 European Union's second written submission, para. 52.
446 United States' second written submission, para. 28.

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7.218. In any event, the Panel notes the ordinary meaning of the word over, namely "[a]bove in
degree, quality, or action ; in preference to; more than" .447 In Article 3.1(b) , the term "over"
appears in the context of a prohibition on subsidies that are conditional upon the use of domestic
over imported products. As noted above, the purpose of this provision is to prohibit cert ain
subsidies that have been considered particularly trade -distorting by Members. In this context, the
word "over" in Article 3.1(b) can be read in the sense of "in preference to" (or "instead of" or
"rather than") 448, so that this provision prohibits any su bsidy that is conditional on the use of
domestic goods in preference to (or "instead of" or "rather than") imported goods.
7.5.4.4.2 The term "use"
7.219. Article 3.1(b) refers to subsidies contingent upon the use of domestic over imported goods.
According to the United States, "[t]he term 'use' [in Article 3.1(b)] refers to either the act of using
an input to produce a downstream good, or the use of a finished good by the end -user".449 The
United States refers to footnote 61 of the SCM Agreement in Annex II ("Guidelines on
Consumption of Inputs in the Production Process") as "mak[ing] clear that 'use' means the
consumption of goods … as inputs into a production process". 450 This is related to the United
States' argument that separate wings and fuselages are elements of the fini shed aircraft and will
not be "used" in the production of 777X airplanes.451
7.220. Conversely, the European Union argues that the term "use" in Article 3.1(b) is broad
enough to "encompass situations where the input is 'used' in such a way that it has not been
consumed and where it remains a discrete, identifiable part of the whole." 452 In the
European Union's view, the term "use" is not limited to situations where an input is consumed in
the production process, or merely attached to a final product.453
7.221. The Appellate Body has examined the ordinary meaning of the term "use" in the context of
a different provision of the SCM Agreement, namely Article 2.1(c) ("use of a subsidy programme
by a limited number of certain enterprises" ). In this respect, the Appellate Body noted that "[t]he
word 'use' refers to the action of using or employing something" and cited the following dictionary
definition of the term: " the action of using something; the fact or state of being used; application
or conversion to some purpose ".454 The Appel late Body also noted that, in the context of
Article 2.1(c), "what is used or employed is 'a subsidy programme'". 455 The Panel observes that
term "use", referring to products, appears in several other provisions in the SCM Agreement and in
other covered agreements.456

447 "Over", 11, Shorter Oxford English Dictionary, 6th edition (2007), Vol. 2, p. 2048.
448 This is also the meaning that best reconciles the language used in the three authentic versions of the
SCM Agreement. The French text of Article 3.1(b) reads: "subventions subordonnées … à l'utilisation de
produits nationaux de préférence à des produits importés". The Spanish text reads: "las subvenciones
supeditadas al empleo de productos nacionales con preferencia a los importados…" (emphasis added)
449 United States' response to Panel question No. 44, para. 104.
450 Ibid. para. 105. Footnote 61 of the SCM Agreement provides as follows: "Inputs consumed in the
production process are inputs physically incorporated, energy, fuels and oil used in the production process and
catalysts which are consumed in the course of their use to obtain the exported product." (emphasis added)
451 United States' first written submission, paras. 110-115; second written submission, paras. 52-55;
opening statement at the first meeting of the Panel, paras. 8-10; United States' response to Panel question
No. 44, para. 108.
452 European Union's opening statement at the second meeting of the Panel, para. 30.
453 European Union's response to Panel question No. 44, para. 102.
454 Appellate Body Report, US – Carbon Steel (India), para. 4.374 and fn 1009. See also
European Union's response to Panel question No. 44, paras. 103-105.
455 Appellate Body Report, US – Carbon Steel (India), para. 4.374.
456 See, for example, fn 29 to Article 8.2 of the SCM Agreement ("the translation of industrial research
findings into a plan, blueprint or design for new, modified or improved products, processes or services whether
intended for sale or use…"); item (d) of Annex I to the SCM Agreement ("[t]he provision by governments or
their agencies … of imported or domestic products or services for use in the production of exported goods…");
item (h) of Annex I to the SCM Agreement ("[t]he exemption, remission or deferral of prior-stage cumulative
indirect taxes on goods or services used in the production of exported products…"); para. II.3 of Annex II to
the SCM Agreement ("[i]nvestigating authorities should treat inputs as physically incorporated if such inputs
are used in the production process and are physically present in the product exported…"); Article III:1 of the
GATT 1994 ("internal taxes and other internal charges, and laws, regulations and requirements affecting the
internal sale, offering for sale, purchase, transportation, distribution or use of products, and internal
quantitative regulations requiring the mixture, processing or use of products in specified amounts or

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7.222. In Article 3.1(b), the term "use" appears in the context of a prohibition on subsidies that
are conditional upon the use of domestic over imported goods. The purpose of this provision is to
prohibit certain subsidies that have been considered part icularly trade-distorting by Members. The
Panel finds that the ordinary meaning of the word, namely the action of using or employing
something, is apt in the context of Article 3.1(b). Neither the text of Article 3.1(b) nor any relevant
context indicates t hat the term "use" is confined to a particular manner of using or employing a
given good, or that the good "used" in this context must possess certain characteristics in order to
be capable of being "used" within the meaning of Article 3.1(b). Accordingly, a subsidy conditional
on the consumption of domestic goods, rather than or in preference to imported goods, as inputs
into a production process would be covered by Article 3.1(b), but so too would a subsidy that is
conditional in any other way on the use or employment of domestic goods, rather than or in
preference to imported goods.
7.5.4.4.3 The term "goods"
7.223. The United States submits that the word "goods" in Article 3.1(b) of the SCM Agreement,
in the expression "subsidies contingent … upon the use of domestic ove r imported goods", refers
to something that is saleable or tradeable. 457 The United States points to the dictionary definition
of "goods" as "saleable commodities, merchandise, wares"458 The United States also notes that the
words used in the French and the Sp anish texts of Article 3.1(b) are " produits" and " productos",
respectively, both of which connote saleable commodities, merchandise, or wares. 459 The
United States further notes that in Article 3.1(b) of the SCM Agreement the word "goods" is
qualified by the word "imported" (as well as by the word "domestic") and an imported good would
be one that by definition is traded. 460 The United States concludes that "goods", within the
meaning of Article 3.1(b), must be understood as being products that are traded; if t hey are not,
they cannot be imported, which would be inconsistent with the specific reference to "imported
goods" in Article 3.1(b).461
7.224. The European Union agrees with the United States that the French and the Spanish texts
confirm the interpretation that the word "goods" in Article 3.1(b) of the SCM Agreement is
synonymous with the word "products". 462 The European Union, however, does not agree that the
definition of "goods" should be limited to those products which are actually traded. 463 In the
European Union's view, the approach advocated by the United States would run against a
fundamental principle of the disciplines on trade in goods: that these disciplines protect
competitive opportunities (and not just actual trade volu mes), including the potential to compete,
even absent actual trade in the goods concerned. 464 According to the European Union, the
interpretation advocated by the United States would open up an easy path for circumventing the
subsidy disciplines under Article 3.1(b) of the SCM Agreement 465 and would defeat the purpose of
Article 3.1(b) by affording impunity to the most distortive subsidies: those that successfully

proportions…"); para. 1(a) of the Annex to the Agreement on Trade-Related Investment Measures ("the
purchase or use by an enterprise of products of domestic origin or from any domestic source…"); para. 2 of the
Annex to the Agreement on Civil Aircraft ("the products covered by the descriptions listed below … shall be
accorded duty-free or duty-exempt treatment, if such products are for use in civil aircraft or ground flying
trainers and for incorporation therein, in the course of their manufacture, repair, maintenance, rebuilding,
modification or conversion…"). (emphasis added)
457 United States' first written submission, paras. 105 and 125-128; second written submission,
paras. 22-23.
458 United States' first written submission, para. 126 (citing Appellate Body Report, US – Softwood
Lumber IV, para. 58 & fn 43, which in turn cites The New Shorter Oxford English Dictionary, L. Brown (ed.)
(Clarendon Press, 1993), Vol. I, p. 1116).
459 United States' first written submission, para. 126 (citing Le Nouveau Petit Robert, 2009,
pp. 2034-2035 (Exhibit USA-28) and Diccionario de la Lengua Española, 2001, pp. 1839-1840 (Exhibit USA-
29)).
460 United States' first written submission, para. 126 (citing Appellate Body Report, US – Softwood
Lumber IV, para. 62). See also United States' second written submission, para. 22.
461 United States' first written submission, para. 128.
462 European Union's second written submission, para. 46.
463 Ibid.
464 Ibid. (citing Panel Reports, Korea — Alcoholic Beverages, para. 10.81; Colombia — Ports of Entry,
para. 7.356; US — Poultry (China), paras. 7.424–7.427 and 7.429; and Indonesia — Autos, para. 14.113; and
Appellate Body Report, Canada — Periodicals, pp. 20-21, DSR 1997:I, 449, 466-467. See also European
Union's response to Panel question No. 33, para. 85.
465 European Union's second written submission, para. 49 (citing Japan's response to Panel question
No. 4, para. 4).

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eliminate competing foreign products from the market. 466 The European Union submits that a
challenge under Article 3.1(b) should be evalu ated in view of the market situation at the point in
time prior to adoption of the challenged measure.467
7.225. The Panel agrees with the parties that the term "goods" in Article 3.1(b) can be read as
synonymous with "products". This is also the reading that best reconciles the language used in the
three authentic versions of the SCM Agreement. In Article 3.1(b), the term "goods" appears in the
context of a prohibition on subsidies that are conditional upon the use of domestic over imported
goods. As noted above, the purpose of this provision is to prohibit certain subsidies that have been
considered particularly trade-distorting by Members. Since a main objective of the agreement is to
address trade distortions caused by subsidies – in the provision at issue, a sub sidized preference
for domestic over imported goods –, it follows that the goods in question must be at least
potentially tradable. Indeed, the SCM Agreement is part of a set of covered agreements called
"Multilateral Agreements on Trade in Goods". There i s no requirement under the provision,
however, that the goods in question must be actually traded. Following the Appellate Body's
guidance with respect to provisions in other covered agreements, it can be said that Article 3.1(b)
of the SCM Agreement prote cts competitive opportunities of imported products, rather than
existing trade flows of such products. 468 In this regard, the fact that a given product may, or may
not, be actually traded at present is not dispositive of whether competitive opportunities exi st with
respect to that product. The Panel therefore considers that there is no need to demonstrate
present trade in a specific product as it exists at a given moment in time to establish a prohibited
contingency under Article 3.1(b).
7.5.5 Relevant facts for the assessment of the alleged contingency
7.226. The European Union's primary claim is that, as a result of the First Siting Provision and the
Second Siting Provision, considered individually or together, the challenged aerospace tax
measures constitute subsidies t hat are de jure contingent on the use of domestic over imported
goods.469
7.227. The European Union also argues that the First Siting Provision and the Second Siting
Provision each make the tax measures at issue subsidies that are de facto contingent on the use of
domestic over imported goods.470
7.228. Before assessing the European Union's claims, the Panel will review the texts of the
relevant provisions of the measures at issue, as well as the additional factual evidence available.
7.5.5.1 The siting provisions of ESSB 5952
7.229. ESSB 5952 amended and extended the aerospace tax measures, which were originally
established in 2003 by HB 2294. 471 The amendment and extension, however, did not take effect
immediately upon enactment of ESSB 5952. Instead, the entry into force of the amendment and
extension of the aerospace tax measures was contingent upon satisfaction of the First Siting
Provision in Section 2 of ESSB 5952, namely "upon the siting of a significant commercial airplane
manufacturing program in the state of Washington". 472 The legislation also provides that, "[i]f a
significant commercial airplane manufacturing program is not sited in the state of Washington by
June 30, 2017, … [this act] does not take effect".473
7.230. The First Siting Provision reads:

466 European Union's second written submission, para. 46; opening statement at the first meeting of the
Panel, paras. 47-48.
467 European Union's second written submission, para. 46; closing statement at the first meeting of the
Panel, para. 9.
468 See, for example, Appellate Body Reports, Japan – Alcoholic Beverages II, p. 16, DSR 1996:I, 97, at
pp. 109-110; Korea – Alcoholic Beverages, paras. 119-120.
469 European Union's second written submission, para. 60.
470 Ibid. 90-91.
471 See para. 7.39 above.
472 ESSB 5952 (Exhibit EU-3), Section 2, codified at RCW Section 82.32.850 (Exhibit EU-58). See also
European Union's comments on United States' response to Panel question No. 53, para. 7.
473 ESSB 5952 (Exhibit EU-3), Section 2, codified at RCW Section 82.32.850 (Exhibit EU-58).

BCI deleted as indicated [[BCI]]

NEW SECTION. Sec. 2. A new section is a dded to chapter 82.32 RCW to read as
follows:
(1) Chapter ..., Laws of 2013 3rd sp. sess. (th is act) takes effect contingent upon the
siting of a significant commercial ai rplane manufacturing program in the state of
Washington. If a significant commercial airplane manufacturing program is not sited in
the state of Washington by June 30, 2017, chapter ..., Laws of 2013 3rd sp. sess.
(this act) does not take effect.
(2) The definitions in this subsection apply throughout this section unless the context
clearly requires otherwise.
(a) "Commercial airplane" has t he same meaning provided in RCW
82.32.550.
(b) "New model, or any version or var iant of an existing model, of a
commercial airplane" means a commercial airp lane manufactured with a
carbon fiber composite fuselage or carbon fiber composite wings or both.
(c) "Significant commercial airplane manufacturing program" means an
airplane program in which the following products, including final
assembly, will commence manufacture at a new or existing location within
Washington state on or after the effective date of this section:
(i) The new model, or any version or variant of an existi ng model, of a
commercial airplane; and
(ii) Fuselages and wings of a new model, or any version or variant of an
existing model, of a commercial airplane.
(d) "Siting" means a final decision, made o n or after November 1, 2013,
by a manufacturer to locate a significant co mmercial airplane
manufacturing program in Washington state.
(3) The department must make a determination regarding whether the contingency in
subsection (1) of this section occurs and must provide written notice of the date on
which such contingency occurs and chapter ..., Laws of 2013 3rd sp. sess. (this act)
takes effect. If the department determines that the contingency in subsection (1) of
this section has not occurred by June 30, 2017, the department must provide written
notice stating that chapter ..., Laws of 2013 3rd sp. sess. (this act) does not take
effect. Written notice under this subsection (3) must be prov ided to affected parties,
the chief clerk of the house of representatives, the secretary of the senate, the office
of the code reviser, and others as deemed appropriate by the department.474
7.231. Under the terms of the legislation, t he First Siting Provision concerns a one -time event.
That is, the amendment and extension of the challenged aerospace tax measures would come into
effect, for all beneficiaries, upon the siting of a significant commercial airplane manufacturing
programme in Washington State . Moreover, if no such siting occurred by the specified date
(30 June 2017), the possibility for the amendment and extension of the measures to take effect
would lapse.
7.232. The First Siting Provision defines "siting" to mean "a final decision, made on or after
November 1, 2013, by a manufacturer to locate a significant commercial airplane manufacturing
program in Washington State". In turn, "significant commercial airplane manufacturing program" is
defined as:
[A]n airplane program in which the following products, includin g final assembly, will
commence manufacture at a new or existing location within Washington state on or
after the effective date of this section:

474 ESSB 5952 (Exhibit EU-3).

BCI deleted as indicated [[BCI]]

(i) The new model, or any version or variant of an existing model, of a
commercial airplane; and
(ii) Fuselages and wings of a new model, or any version or variant of an
existing model, of a commercial airplane.475
7.233. The First Siting Provision additionally defines "new model, or any version or variant of an
existing model, of a commercial airplane" to mean "a commerci al airplane manufactured with a
carbon fiber composite fuselage or carbon fiber composite wings or both".476
7.234. As to the procedures to verify the satisfaction of the conditions in the First Siting Provision,
Section 2 of ESSB 5952 provides that:
The department [of Revenue of the state of Washington] must make a dete rmination
regarding whether the contingency in subsection (1) of this section [the siting] occurs
and must provide written notice of the date on which such contingency occurs and
[this act ] takes eff ect. If the department determines that the contingency in
subsection (1) of this section has not occurred by June 30, 2017, the department
must provide written notice stating that [this act] does not take effect. Written notice
under this subsection (3) must be provided to affected parties, the chief clerk of the
house of representatives, the secretary of the senate, the office of the code reviser,
and others as deemed appropriate by the department.477
7.235. The Second Siting Provision within ESSB 5952 relates to t he business and occupation
(B&O) aerospace tax rate478, and provides as follows:
With respect to the manufacturing of commercial airplanes or making sales, at retail
or wholesale, of commercial airplanes, this subsection (11) does not apply on and
after July 1st of the year in which the department makes a determination that any
final assembly or wing assembly of any version or variant of a commercial airplane
that is the basis of a siting of a significant commercial airplane manufacturing
program in the state under section 2 of this act has been sited outside the state of
Washington. This subsection (11)(e)(ii) only applies to the manufacturing or sale of
commercial airplanes that are the basis of a siting of a significant commercial airplane
manufacturing program in the state under section 2 of this act.479
7.236. The Second Siting Provision concerns the continued availability of the 0.2904% B&O
aerospace tax rate for the version or variant of a commercial airplane that is the basis of the First
Siting Provision. The S econd Siting Prov ision specifically pertains to the siting of any " final
assembly or wing assembly" of such commercial airplane.
7.237. By its own terms, t he Second Siting Provision refers to the same significant commercial
airplane manufacturing program me (that is, the programme that satisfied the First Siting
Provision) in which certain "products, including final assembly, will commence manufacture at a …
location within Washington state " (emphasis added). The Second Siting Provision "only applies to
the manufacturing or sale of commercial airplanes that are the basis of a siting [under the First
Siting Provision]".480 The relevant "commercial airplanes" in this regard are Boeing 777X aircraft.

475 Ibid. Section 2(2)(c) and (d), codified at RCW Section 82.32.850(2)(c) and (d) (Exhibit EU-58).
476 ESSB 5952 (Exhibit EU-3), Section 2(2)(b), codified at RCW Section 82.32.850(2)(b)
(Exhibit EU-58).
477 ESSB 5952 (Exhibit EU-3), Section 2, codified at RCW Section 82.32.850 (Exhibit EU-58).
478 The Second Siting Provision concerns paragraph 11 of Sections 5 and 6 of ESSB 5952, which refers
to the 0.2904% B&O tax rate applicable to persons "engaging within the [state of Washington] in the business
of manufacturing commercial airplanes, or components of such airplanes, or making sales, at retail or
wholesale, of commercial airplanes or components of such airplanes, manufactured by the seller". See
ESSB 5952 (Exhibit EU-3) , Sections 5 and 6. See also United States' first written submission, paras. 79-80;
response to Panel question No. 53(b), para. 16.
479 ESSB 5952 (Exhibit EU-3), Sections 5 and 6, codified at RCW Section 82.32.850(11)(e)(ii)
(Exhibit EU-22).
480 ESSB 5952 (Exhibit EU-3), Sections 5 and 6, codified at RCW Section 82.32.850(11)(e)(ii)
(Exhibit EU-22).

BCI deleted as indicated [[BCI]]

7.238. ESSB 5952 does not define the term "manufacture".481 However, Section 82.04.120 of the
Revised Code of Washington contains the following definition of "manufacture":
"To manufacture" embraces all activities of a commercial or industrial nature wherein
labor or skill is applied, by hand or machinery, to materials so that as a re sult thereof
a new, different or useful substance or article of tangible personal property is
produced for sale or industrial use…482
7.239. This definition is part of Chapter 82.04 of the Revised Code of Washington, which governs
the application of the B&O tax.483 As stated by the United States, the Department of Revenue of
the state of Washington considers that the definition "would apply in the interpretation of
ESSB 5952".484
7.240. There is no relevant statutory definition of the term "assembly" . As noted by the United
States, if called to interpret undefined terms, Washington State authorities would consider the
common law or ordinary meaning of the word in the context of the statute in which the word
appears.485 Based on the dictionary meaning of the word, and its consider ation of the statute as a
whole, the United States notes that "assembly is a subset of manufacturing".486
7.5.5.2 Products at issue
7.241. The European Union's claim in this dispute relates to an alleged prohibited contingency
based on the use of domestic over imported wings and fuselages.487 It is not in dispute whether
the measures at issue place any conditions on the use of any other elements or components of
commercial airplanes, including sub-components of wings and fuselages. 488 Accordingly, the
products at issue for the Panel's analysis under Article 3.1(b) of the SCM are wings and fuselages
of commercial airplanes.
7.242. The parties have presented extensive factual evidence regarding the production of
commercial airplanes, particularly with regard to the production of wings an d fuselages in the
context of commercial airplane assembly. In this section, the Panel will review this evidence,
including undisputed aspects of the production and assembly of Boeing's 777X aircraft, as well as
other evidence relating to the production an d transport of wings and fuselages of other types of
commercial airplanes.
7.5.5.2.1 Boeing's 777X aircraft programme
7.243. As noted above, the aerospace tax measures , as amended and extended by ESSB 5952,
took effect upon fulfilment of the First Siting Provision, based o n Boeing's decision to site its
programme for the production of 777X aircraft in the state of Washington. 489 The United States
has provided background explanations as to various aspects of the 777X program me and the
production process of 777X aircraft, inclu ding information provided in a statement by corporate
officers of Boeing (Boeing Expert Statement).490

481 United States' first written submission, para. 78.
482 See RCW Section 82.04.120 (Exhibit USA-37). The provision additionally lists activities included in
this definition such as inter alia "[t]he production or fabrication of special made or custom made articles".
483 United States' response to Panel question No. 14, para. 28.
484 Ibid.
485 See Supreme Court of Washington, Citizens Alliance for Property Rights Legal Fund v. San Juan
County et al. (2015) (Exhibit USA-38). United States' response to Panel question No. 14, para. 29.
486 United States' response to Panel question No. 14, paras. 29-32.
487 See, e.g. European Union's first written submission, paras. 74-75; opening statement at the first
meeting of the Panel, para. 4; second written submission, para. 1; opening statement at the second meeting of
the Panel, paras. 3, 9, 32-34.
488 See e.g. European Union's opening statement at the second meeting of the Panel, paras. 9
and 31-32; United States' response to Panel question No. 64, para. 41.
489 European Union's first written submission, para. 45; United States' first written submission, paras. 2
and 78. See also Letter from the Director of the Washington State Department of Revenue to the Code Reviser,
10 July 2014 (Exhibit EU-61).
490 Boeing expert statement (Exhibit USA-1) (BCI).

BCI deleted as indicated [[BCI]]

7.244. The 777X is a new aircraft program me developed by Boeing, based on its earlier 777
programme. According to the explanations provided by the United States, many of the 777X
production and supplier choices made by Boeing mirror those of the current 777-300ER, which is a
twin-aisle aircraft, typically configured for approximately 350 -375 passengers (depending on class
configuration) with a range of 7,825 nautic al miles . The 777 -300ER's fuselages and wing s,
however, are composed primarily of aluminium; by contrast, the 777X's wings will be made
primarily of carbon fibre-reinforced plastic.491
7.245. The United States submits a statement by experts affiliated with Boeing regarding Boeing's
production operations and background information on the products at issue. As explained by the
Boeing experts:
An aircraft gets its essential structure, its aerodynamic and load -bearing qualities,
from its airframe. The main airframe stru ctures are the fuselage, wing, and tail. 492
(emphasis original)
7.246. In the following sections, the Panel will review evidence and information related to the
manufacturing and assembly of the Boeing 777X. The Panel notes that this evidence, including the
statement by the Boeing experts, concerns future manufacturing operations that have not yet
commenced, and that, based on current projections, the first variant of the 777X will enter into
service in the year 2020.493
7.5.5.2.2 Fuselage
7.247. As explained by the Boeing experts with respect to the fuselage of the aircraft:
The fuselage is the long tube that forms the longitudinal axis of the aircraft, running
from nose to tail. It forms the exterior structure that houses the aircraft's interior
accommodations and payload – e.g., passengers, crew, flight deck, cargo. 494
(emphasis original)
7.248. The fuselage's primary elements consist of:
a. Skins: the panels that form the exterior of the fuselage, with cutouts for windows and
doors;
b. Frames: stronger, hoop -shaped structures positioned perpendicular to the skins at
intervals along the length of the fuselage; and
c. Stringers: long, thin structures running parallel to, and reinforcing, the skins.495
7.249. The fuselage also includes floor frames and panels that support passengers, crew, cargo,
and interior accommodations.496
7.250. The 777X's fuselage comprises eight separate fuselage sections, called Sections 41 to 48.
Section 41 is the nose of the plane and Section 48 is the empennage (a tapered end at the tail of
the plane).497 Like all other Boeing commercial aircraft (with the exception of the 787), the 777X's
primary fuselage structures are made from aluminium. 498 According to the Boeing experts,
[[BCI]].499

491 United States' first written submission, paras. 20-24; Boeing expert statement (Exhibit USA-1) (BCI),
492 See Boeing expert statement (Exhibit USA-1) (BCI), para. 11.
493 See ibid. para. 40.
494 See ibid. para. 12.
495 See Boeing expert statement (Exhibit USA-1) (BCI), para. 12.
496 See ibid.
497 See ibid. para. 13.
498 See ibid.
499 See ibid. para. 42. "Make/buy" refers to the process of determining which aircraft elements Boeing
will make, and which to procure from outside suppliers. Ibid. fn 1.

BCI deleted as indicated [[BCI]]

7.251. In its initial fuselage manufacturing operations, Boeing receives fuselage structures from
its suppliers at the Eve rett fuselage building, which when completed will be a new facility next to
the main factory building where the 777X will undergo final assembly. 500 For the various fuselage
Sections, [[BCI]], these primary fuselage structures [[BCI]].501 The separate fuselage Sections
are then joined into three larger parts of the fuselage, namely the forward (Sections 41 a nd 43),
center (Sections 44 and 11/45), and aft (Sections 46-48). More specifically:
a. The forward part of the fuselage incorporates Section 41, which is the foremost fuselage
section that will eventually house the flight deck, which is joined to Section 43.502
b. The center part of the fuselage consists of Section 44, which unlike other fuselage
sections does not have a keel panel; rather, Section 11/45 forms the b ottom of the
center part of the fuselage, and is itself constructed from various structures: [[BCI]].503
c. The aft part of the fuselage is formed by joining three separate fuselage sections
(Sections 46-48).504
7.5.5.2.3 Wings
7.252. As explained by the Boeing experts with respect to the wings of the aircraft:
The wings join the aircraft at roughly the mi d-point along the length of the fuselage.
In addition to providing lift and flight contro l surfaces, the wings carry the engine
installations and fuel.505 (emphasis original)
7.253. The wings have elements that are fixed in flight, and flight control surfaces that move in
flight. The 777X's main fixed wing elements consist of:
a. The main wing box, which forms most of the wing's visible surface area;
b. The wing tip, which is static in flight bu t folds at airport gates to meet certain wingspan
constraints;
c. The fixed leading and trailing edges that run most of the span of the visible wing; and
d. The center wing box, which sits under the fuselage and is not visible on a finished
aircraft.506
7.254. The visibl e wing box structures are composed of : (i) the skins, which form the wing
exterior; (ii) the ribs, which run perpendicular to the wing span and support the skins; (iii) the
spars, which run the length of the wing span and support the ribs; and (iv) the str ingers, which
are attached to the skins and also run the length of the wi ng. As for the movable elements of the
wings, the primary parts are : (i) the slats on the wing 's leading edge ; and (ii) the droop panels,
spoilers, ailerons and flaps on the trailing edge.507
7.255. Some of the main structures of the 777X's wings will be made mostly from carbon fibr e-
reinforced plastic.508 By contrast, both the fuselage and the wing of the 777-300ER are primarily
composed of aluminium.509 According to the Boeing experts, [[BCI]].510

500 Boeing expert statement (Exhibit USA-1) (BCI), para. 52(a).
501 Ibid. para. 52(b).
502 Ibid. para. 52(c).
503 Ibid. para. 52(e).
504 Ibid. para. 52(d).
505 See Boeing expert statement (Exhibit USA-1) (BCI), para. 14.
506 See ibid.
507 See ibid. para. 15.
508 United States' first written submission, para. 22; Boeing expert statement (Exhibit USA-1) (BCI),
paras. 16, 39, 43.
509 United States' first written submission, para. 21; Boeing 777 Backgrounder (Exhibit USA-6).
510 See Boeing expert statement (Exhibit USA-1) (BCI), para. 42. See also United States' first written
submission, para. 32.

BCI deleted as indicated [[BCI]]

7.256. The initial wing manufacturing operations for the 777X will take place in the Composite
Wing Center that is being built close to the main factory building. As explained by the Boeing
experts, that center is responsible for fabricating [[BCI]] 777X wing str uctures, [[BCI]].511
Further fabrication takes place in a spar sub-assembly building where [[BCI]].512
7.257. The resulting "Section 12" wing structure consists of the main wing box (including spars,
ribs, and panels) and the fixed leading and trailing edges, but doe s not include movable edges or
the wingtip.513
7.5.5.2.4 Final assembly process
7.258. The United States provided detailed descriptions of the vario us steps in the assembly of
the 777X aircraft. The United States "acknowledges that wing fabrication, wing assembly, and
fuselage assembly are all production activities conducted in the manufacture of an airplane"514, but
argues that fuselages and wings are "features or elements of the finished aircraft, which are
generated only through the final assembly process of the airplane its elf – not inputs into the
production process".515 In other words, and as stated by the Boeing experts, "neither a complete
fuselage nor complete wings enter the final assembly process".516
7.259. The production carried out in the fuselage building, described above, r esults in three
separate sections of the fuselage (forward, center, and aft), which at the time they leave the
fuselage building still [[BCI]].517 The three fuselage sections are then [[BCI]].518, 519
7.260. The Section 12 wing structure , which results from initial win g manufacturing operations
described above, undergoes additional operations in the main factory building, namely:
[[BCI]].520 These operations result in two "outboard wing structures".521
7.261. Having undergone separate fabrication and installation operations 522, the center fuselage
structure (including the center wing box) and outboard wing structures are at this point brought
together in the "wing -body join stage" of the moving assembly line. As explained by the Boeing
experts, "[t]his is the first point at which the main wing structures – the two outboard wings and
the center wing box – are joined together".523 At this stage, the outboard wing structures still lack
[[BCI]].524
7.262. The final assembly process then moves into "final body join", and the subsequent final
assembly position, where, as explained by the Boeing experts, certain operations complete the
airframe and install the major remaining systems:
[[BCI]]525
7.5.5.2.5 Production and assembly of other aircraft
7.263. In addition to the Boeing 777X, the parties have presented evidence o n the production of
other models of aircraft, particularly in respect of the production of wings and fuselages.

511 Boeing expert statement (Exhibit USA-1) (BCI), para. 52(h).
512 Ibid. para. 52(i)-(k).
513 United States' response to Panel question No. 64, para. 40.
514 United States' response to Panel question No. 66, para. 71.
515 United States' first written submission, para. 110.
516 See Boeing expert statement (Exhibit USA-1) (BCI), para. 53.
517 Ibid. para. 52(f).
518 Ibid.
519 Ibid. para. 52(m).
520 Ibid. para. 52(l).
521 Ibid.
522 See ibid. para. 52(m).
523 Ibid. para. 52(n).
524 Ibid.
525 Ibid. para. 51(p).

BCI deleted as indicated [[BCI]]

7.264. The parties have referred to another model of aircraft manufactured by Boeing, the 787, in
respect of whether Boeing imports 787 wings from a foreign supplier.526 The United States submits
that the " 787's wings, like those of all Boeing large civil aircraft, consist of numerous individual
parts, including those that make up fixed wing structures ( e.g., the spars, ribs, and panels that
comprise the m ain wing box; the fixed leading and trailing edges; and the center wing box) and
the movable wing elements that enable controlled flight operations ( e.g., moveable leading and
trailing edges)". 527 According to the United States, " Boeing imports multiple wing -related
structures from Japan " that require further wing assembly activity in the United States. 528 More
specifically, Boeing imports a " right-hand and left -hand partial wing structure " that include the
constituent parts of the main wing box and the fixed a nd leading trailing edges 529, without
[[BCI]].530 The United States clarifies that the imported wing structure for the 787 is referred to
as Section 12, discussed above in relation to the 777X, which consists of the main wing box and
the fixed leading and trai ling edges.531 These wing structures are then shipped to a Boeing 787
assembly facility in the United States in Boeing's Dreamlifter aircraft where they undergo assembly
operations, including additional elements of the wing itself. 532 The E uropean Union has al so
provided evidence, including descriptions from Boeing, of the production and shipping of the
relevant 787 wing structures.533
7.265. In respect of the fuselages of the Boeing 737, it is not disputed that Boeing sources
complete fuselages for the 737NG and 737MAX single-aisle aircraft from a supplier in the state of
Kansas, which are then transported by rail to Boeing's 737 manufacturing facility in the state of
Washington for final assembly of the aircraft.534
7.266. The parties have also presented evidence of the product ion and assembly of certain
models of Airbus aircraft. The European Union describes the pro duction and transport of
Airbus A350 XWB wings, which are structurally assembled at a facility in the United Kingdom, and
from there transported by the Airbus Beluga carrier aircraft to a facility in Bremen, Germany where
they are "fully equipped with the relevant systems", and then transported on the Airbus Beluga to
the final assembly site in Toulouse, France. 535 In this regard, the United States contends that
"these structures have neither all the fixed nor all the movable part s that the fully assembled
A350 XWB wings have, and they must therefore undergo further assembly" 536, such that "what
leaves the United Kingdom is a [[BCI]]".537 The European Union further describes the transport of
Airbus A380 wings "across long distances", with wings first produced in the United Kingdom and
"then moved by road for a mile, placed on a specially built barge on the river, and finally
transported by road to Toulouse".538 The United States submits that, for the A380, what is shipped

526 See, e.g. European Union's first written submission, paras. 74-75; Reuters, "Boeing seen in
advanced talks to make 777X near Seattle", 4 November 2013 (Exhibit EU-65).
527 United States' response to Panel question No. 16, para. 34.
528 Ibid.
529 Ibid. para. 35.
530 Boeing expert statement (Exhibit USA-1) (BCI), fn 6.
531 United States' response to Panel question No. 64, para. 40; response to Panel question No. 73;
Mitsubishi Heavy Industries, Boeing 787 (Exhibit USA-42); Boeing Frontiers, "Wings Around the World",
March 2006 (Exhibit USA-68); Boeing 787 customs invoice and related shipment documentation
(Exhibit USA-67) (BCI).
532 United States' response to Panel question No. 16, para. 35; Boeing expert statement (Exhibit USA-1)
(BCI), para. 43 (explaining that [[BCI]] in comparison to 777X wings).
533 See European Union's response to Panel question No. 33, para. 79; Boeing Presentation,
"Introducing the 787", September 2011 (Exhibit EU-78); Boeingblogs, "Randy's Journal: Arrivals",
22 May 2007 (Exhibit EU-79); Boeing Video, "Boeing 747 Dreamlifter", 17 January 2009 (Exhibit EU-97);
Boeing Frontiers, "The 747-400 will be transformed into an even larger freighter ", June 2005 (Exhibit EU-122).
534 United States' response to Panel question No. 35, para. 80; Spirit AeroSystems, "Spirit celebrates
completion of first Boeing 737 MAX fuselage", (Exhibit USA-52); European Union's response to Panel question
No. 33, paras. 80-81.
535 See European Union's response to Panel question No. 17, paras. 18-19; Airbus, "How is an aircraft
built? Production" (Exhibit EU-84); Airbus Video, "The A350 XWB Final Assembly Line: efficiency in motion",
23 October 2012 (Exhibit EU-87).
536 United States' response to Panel question No. 64, para. 47.
537 Ibid. (citing Email from Erik Zahn, Boeing Commercial Airplanes, 15 April 2016 (Exhibit USA-73)
(BCI).
538 See European Union's response to Panel question No. 17, para. 22; BBC Documentary, "How to Build
A Super Jumbo Wing", 24 August 2013 (Exhibit EU-91).

BCI deleted as indicated [[BCI]]

to Toulouse are [[BCI]].539 In this connection, the United States considers that "[t] here are at
least some complete finished wings for single -aisle aircraft that fit on the transport aircraft [such
as an Airbus Beluga or a Boeing Dreamlifter] , [[BCI]]."540 However, the United States contends
that the same is not true for completely assembled wings of larger aircraft, including [[BCI]].541
7.267. In addition, the European Union submits that "[m]anufacturing fuselages as inte rmediate
goods before the final assembly of the aircraft is also the standard practice for Airbus", referring
specifically to the production of the A320, the A350 XWB, and the A380.542
7.5.5.3 Other relevant facts on record
7.268. In accordance with the First Siting Provision in ESSB 5952, the availability of the aerospace
tax measures at issue was conditional on a determination by the Department of Revenue of the
state of Washington that a manufacturer had made a final decision, after 1 November 2013 but
before 30 June 201 7, to site a significant commercial airplane manufacturing program me in the
state of Washington.
7.269. The "significant commercial airplane manufacturing program" necessary for the
Department of Revenue's determination is one in which the following products, inc luding final
assembly, will commence manufacture: (i) a new model of a commercial airplane, or any version
or variant of an existing model; and (ii) fuselages and wings of a new model of a commercial
airplane, or of any version or variant of an existing mo del. The "new model" or "any version or
variant of an existing model " of a commercial airplane is defined as "a commercial airplane
manufactured with a carbon fiber composite fuselage or carbon fiber composite wings or both".
7.270. Boeing's 777X programme is the "significant commercial airplane manufacturing program",
and the 777X is the new model of a commercial airplane , that satisfied the First Siting Provision .
On 9 July 2014, Boeing notified the Department of Revenue of the state of Washington in writing
that Boeing had made a final decision to manufacture the 777X airplane in the state of
Washington. In its letter Boeing stated that this decision satisfied the requirement in ESSB 5952
that a significant commercial airplane manufac turing programme be sited in the s tate of
Washington.543 Three attachments accompanied Boeing's letter, as examples of "actions Boeing
has taken consistent with its decision to manufacture the 777X in Washington". 544 The first
attachment was a copy of a Collective Bargaining Agreement between Boeing and the International
Association of Machinists and Aerospace Workers, AFL-CIO, containing a Letter of Understanding in
which "Boeing 'agrees to locate the 777X wing fabrication and assembly, final assembly, and major
components' in Puget Sound" (Washington State).545, 546 [[BCI]].547, 548, 549

539 United States' response to Panel question No. 64, para. 48 (citing Email from Erik Zahn, Boeing
Commercial Airplanes, 15 April 2016 (Exhibit USA-73) (BCI).
540 United States' response to Panel question No. 64, para. 41(citing Email from Erik Zahn, Boeing
Commercial Airplanes, 15 April 2016 (Exhibit USA-73) (BCI).
541 United States' response to Panel question No. 64, paras. 52-53.
542 European Union's response to Panel question No. 33, para. 83; Airbus, "How is an aircraft built? Final
assembly and tests" (Exhibit EU-86); Airbus Video, "The A350 XWB Final Assembly Line: efficiency in motion",
23 October 2012 (Exhibit EU-87); Airbus Video, "A350 XWB final assembly: a step-by-step overview", 23
October 2012 (Exhibit EU-88); Airbus Video, "A380 from dream to reality: Final assembly", 18 October 2007
(Exhibit EU-104).
543 Boeing letter to the Director of the Washington State Department of Revenue, 9 July 2014
(Exhibit USA-32) (BCI). See also United States' response to Panel question No. 10, paras. 20-21.
544 Boeing letter to the Director of the Washington State Department of Revenue, 9 July 2014
(Exhibit USA-32) (BCI).
545 Ibid.
546 See Letter of Understanding No. 43, Subject: 777X Work Placement, dated 3 January 2014, in
Collective Bargaining Agreement between Boeing and the International Association of Machinists and
Aerospace Workers, 2 November 2008, including Contract Extension and Modification Agreements, 7 December
2011 and 3 January 2014 (Exhibit USA-33), p. 190.
547 Boeing letter to the Director of the Washington State Department of Revenue, 9 July 2014
(Exhibit USA-32) (BCI).
548 Addendum No. 14 to the 1991 Boeing Everett Mitigation Decision Document SEPA #14-009,
27 March 2014 (Exhibit USA-34) (BCI).
549 Addendum No. 15 to the 1991 Boeing Everett Mitigation Decision Document SEPA #14-011 –
Composite Wing Manufacturing Facility, 30 May 2014 (Exhibit USA-35) (BCI).

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7.271. The Washington State Department of Revenue accepted Boeing's statement as fulfilling the
contingency requirements of the First Siting Provision in ESSB 5952. Subsequent to Boeing's
letter, o n 10 July 2014, the Dep artment of Revenue issued a formal notification that a
manufacturer had made a final decision to site a significant commercial airplan e manufacturing
programme in the state of Washington; that the contingency requirements in ESSB 5952 had been
satisfied; and that the relevant legislation had taken effect on 9 July 2014. 550 As a result of this
determination, the expiration date for the aerospace tax measures at issue was extended until
1 July 2040 for all eligible taxpayers, and the other amendments to those m easures took effect.551
As discussed above, pursuant to ESSB 5952 the Department of Revenue's determination is a one -
time decision and there is no legal mechanism under Washington State law that would allow the
Department of Revenue to revoke its determination.552
7.5.6 Whether the subsidies are de jure contingent upon the use of domestic over
imported goods
7.272. The Panel turns to the European Union's principal claim, which is its de jure claim. In this
regard, the Panel must determine whether the European Union has made a prima facie case that
the challenged aerospace tax measures are de jure contingent upon the use of domestic instead of
imported goods, and therefore inconsistent with the United States' obligations under Article 3.1(b)
of the SCM Agreement. To prevail o n its de jure claim, the European Union has the burden of
demonstrating that such contingency or conditionality is either set out expressly on the face of the
legislation or can clearly be derived, by necessary implication, from the words actually used in the
legislation.553
7.273. In this regard, the Panel understands that a contingency that is not set out expressly in
the relevant legislation may nevertheless be derived by necessary implication if such contingency
results inevitably from the words actually used in the legislation , or if any other interpretation
would be unreasonable.554 In other words, the terms used in the legislation must either expressly
or by necessary implication demonstrate that the granting of a subsidy is contingent upon the use
of domestic instead of imported goods. 555 For the purpose of the de jure determination, including
by necessary implication, the relevant facts are therefore the text of the legislation at issue and
any additional facts that can assist the Panel in understanding the meaning of the terms as used in
that legislation.556
7.274. As noted above, the ordinary connotation of the term "contingent" is "conditional" or
"dependent for its existence on something else". Therefore, the question before the Panel is
whether, on the basis of the wo rds of the relevant legislation, the challenged aerospace tax
measures are conditional upon the use of domestic over imported goods. Contingency upon the
use of domestic over imported goods need not be the only condition; it can be one of several other

550 Letter from the Director of the Washington State Department of Revenue to the Code Reviser,
10 July 2014 (Exhibit EU-61). See also United States' response to Panel question Nos. 10 and 12, paras. 21
and 26.
551 United States' first written submission, para. 78 (citing letter from the Director of the Washington
State Department of Revenue to the Code Reviser, 10 July 2014 (Exhibit EU-61)); response to Panel question
No. 12, para. 26.
552 See United States' response to Panel question No. 12, para. 26.
553 As noted above (see paragraphs 7.209 and 7.210 above), the Appellate Body has indicated that de
jure contingency can be established explicitly by a legal instrument and "also be derived by necessary
implication from the words actually used in the measure". Appellate Body Report, Canada – Autos, para. 100.
See also ibid. para. 123.
554 The meaning of the word "necessary", when referring to a mental concept, a truth, a judgment, etc.,
can be understood to refer to something "resulting inevitably from the nature of things or of the mind itself".
Shorter Oxford English Dictionary, 6th edition (2007), Vol. 2, p. 1901. A necessary implication is an implication
so strong in its probability that anything to the contrary would be unreasonable. See Black's Law Dictionary, 8th
edition (2004), p. 770.
555 See Appellate Body Report, Canada – Aircraft, para. 171. See also European Union's response to
Panel question No. 18, paras. 23-26.
556 In the context of a de jure analysis, such facts could include relevant context within the legislation
itself, or other clarifications of legal meaning within the domestic legal system in question (such as the
interpretation of pertinent terms by domestic courts, or administrative regulations directly implementing the
legislation). However, any such facts would serve to illuminate the meaning of words used in the legislation,
and would not extend to other factual circumstances surrounding the granting of the subsidy that provide the
context for understanding the measure's design, structure, and modalities of operation.

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conditions for benefitting from the tax measures at issue. In order to find contingency in the sense
of Article 3.1(b), such contingency must be a necessary condition so that the recipient would not
benefit from the subsidy unless domestic goods are used instead of, or in preference to, imported
goods.
7.275. The European Union asserts that the prohibited contingency is clearly set out in the text of
ESSB 5952 as a result of the First Siting Provision and of the Second Siting Provision, whether
considered individuall y or together. 557 In the European Union's view, each of these two
provisions:558
[I]ndependently results in a de jure violation of Article 3.1(b). 559 At the same time,
these conditions act together to maximize trade distortions in favour of domestic
goods, and t o the detriment of competitive opportunities for imported goods. While
the [First Siting Provision ] focuses on component sourcing decisions made at the
beginning of a new aircraft programme, the [Second Siting Provision] focuses on later
stages.560 (emphasis original)
7.276. The European Union adds that a prohibited contingency in respect of wings results from
both the First Siting Provision and the Second Siting Provision , while a prohibited contingency in
respect of fuselages would result solely from the First Siting Provision.561
7.277. With respect to the First Siting Provision, according to the European Union:
[U]nder the [First Siting Provision] established in Section 2 [of ESSB 5952], the
aerospace tax incentive extensions and expansion provided for in [ESSB 5952] were
made contingent upon Boeing's decision to loca te in Washington State both
(i) production of the wings and fuselage for the 777X and (ii) final assembly of
the 777X.562, 563
7.278. The European Union concludes:
Stated differently, for the extension and expansion of t he existing aerospace tax
incentives to occur, Boeing was required to commit to use wings and fuselages
produced or assembled in Washington State in the final assembly of 777X LCA in
Washington State.564
7.279. With respect to the Second Siting Provision, the European Union asserts that:
Pursuant to the exclusive -production condition established by [ESSB 5952] … the
reduced [business and occupation] tax rate would not apply to revenue from the 777X
in the event Boeing were to perform any final assembly, or any wing assembly, for the
777X outside of Washington State. 565 In other words, in order for Boeing to benefit
from the [business and occupation] tax rate reduction with respect to the 777X

557 European Union's first written submission, paras. 70 and 73; second written submission, paras. 1, 2,
41, 60, and 90; opening statement at the first meeting of the Panel, para. 6; closing statement at the first
meeting of the Panel, para. 3; opening statement at the second meeting of the Panel, para. 2; response to
Panel question Nos. 29, 41, 46, and 68, paras. 67, 98, 125, and 46.
558 European Union's response to Panel question No. 68, para. 46.
559 (footnote original) See, European Union's first written submission, para. 73 ("As a result of the
programme-siting condition and the exclusive-production condition, whether considered individually or
together, the Washington State tax incentives, as amended and extended by SSB 5952, constitute subsidies
that are contingent on the use of domestic over imported goods, in violation of Articles 3.1(b) and 3.2 of the
SCM Agreement". (emphasis added)).
560 European Union's opening statement at the first meeting of the Panel, para. 6. See also
European Union's response to Panel question No. 41, para. 98.
561 European Union's response to Panel question No. 43, para. 101.
562 (footnote original) See SSB 5952 Bill Report, Exhibit EU-4, p. 3.
563 European Union's first written submission, para. 44.
564 Ibid. See also European Union's second written submission, para. 61; opening statement at the first
565 (footnote original) See SSB 5952 §§ 5-6 (adding new subsection (e)(ii) to RCW 82.04.260(11)),
Exhibit EU-3.

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(whether prior to or after 2024), Boeing must not conduct any final assembly, or any
wing assembly, of that aircraft outside of Washington State …
Accordingly, under this exclusive -production condition, 777X aircraft benefit from the
preferential [business and occupation] tax rate only if Boeing assembles the wings and
assembles the aircraft exclusively in Washington State.566 (emphasis original)
7.280. The United States has submitted particular facts relating to the production process of the
777X programme as evidence of the meaning of the requirements in the First and Second Siting
Provisions.567 The factual evidence referred to by the United States does not specifically relate to
the meaning of the terms used in the legislation, nor does it concern the necessary implication of
those terms. Rather, the evidence concerns the particular manner in which Boeing will produce
777X aircraft in Washington State. 568 In this regard, the Panel is not persuaded by the United
States' argument that those facts relating to the siting of the 777X programme in Washington
State are relevant to the de jure analysis. To the extent that this evidence sheds light on "the total
configuration of the facts constituting and surrounding the granting of the subsidy" 569, the Panel
will consider its relevance in the context of the European Union's de facto claim.
7.281. The Panel must decide the European Union's de jure claim against the aerospace tax
measures on the basis of the text of ESSB 5952. The Panel will start its consideration of this claim
by looking separately at the First Siting Provision and the Second Siting Provision to assess
whether the European Union has successfully demonstrated the existence of the prohibited
contingency in either of the provisions. Subsequently, if necessary, the Panel will consider the two
siting provisions acting jointly.
7.5.6.1 The First Siting Provision, considered separately
7.282. The Panel recalls that, according to the First Siting Provision in S ection 2 of ESSB 5952,
the aerospace tax measures as amended and extended by ESSB 5952 " [take] effect contingent
upon the siting of a significant commercial airpl ane manufacturing program in the state of
Washington".570 The legislation also provides that, "[i]f a significant commercial airplane
manufacturing program is not sited in the state of Washington by June 30, 2017, … [this act] does
not take effect".571
7.283. The Panel further recalls that the First Siting Provision defines "siting" to mean "a final
decision, made on or after November 1, 2013, by a manufacturer to locate a significant
commercial airplane manufacturing program in Washington State". 572 In turn, "significa nt
commercial airplane manufacturing program" is defined as:

566 European Union's first written submission, paras. 47 and 52. See also European Union's second
written submission, para. 61.
567 See, for example, United States' response to Panel question Nos. 18, 39, and 46, paras. 37-43, 93-
94, and 121-122.
568 The Panel notes the United States' argument that, "even under a de jure analysis, a panel must
make sufficient findings as to how the alleged contingency operates, which may require findings as to how the
contingency applies to actual subsidy recipients." See United States' response to Panel question No. 46,
para. 116. The United States seeks support for this statement in the Appellate Body's analysis in Canada –
Autos. The measures at issue in that case created "value-added requirements" that de jure were company-
specific and capable of variation across the manufacturer beneficiaries. Thus, according to the explicit terms of
"the legal instruments at issue [in that dispute] and their implications for individual manufacturers", there was
a "multiplicity of possibilities for compliance" that may have been relevant to an analysis of de jure
contingency. Appellate Body Report, Canada – Autos, paras. 130 and 132. This is distinguishable from the
measures at issue in the present case, for which particular production choices by a manufacturer are not part
of the de jure requirements of the measures, but rather form part of the surrounding factual circumstances of
the alleged contingency.
569 Appellate Body Report, Canada – Aircraft, para. 167.
570 ESSB 5952 (Exhibit EU-3), Section 2, codified at RCW Section 82.32.850 (Exhibit EU-58). See also
European Union's comments on United States' response to Panel question No. 53, para. 7.
571 ESSB 5952 (Exhibit EU-3), Section 2, codified at RCW Section 82.32.850 (Exhibit EU-58).
572 ESSB 5952 (Exhibit EU-3), Section 2(2)(d), codified at RCW Section 82.32.850(2)(d)
(Exhibit EU-58).

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[A]n airplane program in which the following products, including final assembly, will
commence manufacture at a new or existing location within Washington state on or
after the effective date of this section:
(i) The new model, or any version or variant of an existing model, of a
commercial airplane; and
(ii) Fuselages and wings of a new model, or any version or variant of an
existing model, of a commercial airplane.573
7.284. The First Siting Provision additionally defines "new model, or any version or variant of an
existing model, of a commercial airplane" to mean "a commercial airplane manufactured with a
carbon fiber composite fuselage or carbon fiber composite wings or both".574
7.285. As to the procedures involved, according to Section 2 of ESSB 5952:
The department [of Revenue of the state of Washington] must make a dete rmination
regarding whether the contingency in subsection (1) of this section occurs and must
provide written notice of the date on which such contingency occurs and [ this act ]
takes effect. If the department determines that the contingency in subsection (1) of
this section has not occurred by June 30, 2017, the department must provide written
notice stating that [this act] does not take effect. Written notice under this subsection
(3) must be provided to affected parties, the chief clerk of the house of
representatives, the secretary of the senate, the office of the code reviser, and others
as deemed appropriate by the department.575
7.286. Based on the terms used in the legislation, the Panel understands that, for the aerospace
tax measures to take effect, the First Siting Provision requires a determination by the D epartment
of Revenue of the state of Washington that a final decision has been made, on or after
1 November 2013 and by 30 June 2017, to site a "significant commercial airplane manufacturing
program" within the state of Washington. The legislation also defines the characteristics that the
"significant commercial airplane manufacturing program" would have to fulfil to qualify for the
Department of Revenue's positive determination. Those characteristics are, in essence, that the
following products will "commence manufacture", "including final assembly ", at a new or existing
location within Washington State on or after the effective date of the legislation: (i) a new model
of a commercial airplane or a version or variant of an existing model; and (ii) fuselages and wings
for the new model of a commercial airplane or for the version or variant of an existing model.
7.287. In other words, the amendment and extension by ESSB 5952 of the aerospace tax
measures are subject, for their entry into force, to a condition precedent or suspensive condition576
– a contingency – contained in the same legislation. That cont ingency is a positive determination
by the Department of Revenue of the state of Washington, that a "significant commercial airplane
manufacturing program" had been sited , between 1 November 2013 and 30 June 2017, in the
state of Washington. Such a determination in turn requires that a producer commit to manufacture
within the state of Washington the two following categories of products: (i) a commercial airplane
with a carbon fibr e composite fuselage , or carbon fibr e composite wings , or both ; and (ii)
fuselages and wings for such commercial airplanes.577

573 ESSB 5952 (Exhibit EU-3), Section 2(2)(c), codified at RCW Section 82.32.850(2)(c) (Exhibit EU-58).
574 ESSB 5952 (Exhibit EU-3), Section 2(2)(b), codified at RCW Section 82.32.850(2)(b)
(Exhibit EU-58).
575 ESSB 5952 (Exhibit EU-3), Section 2, codified at RCW Section 82.32.850 (Exhibit EU-58).
576 A condition precedent is an act or event, other than a lapse of time, that must exist or occur before a
duty to perform something promised arises. See Black's Law Dictionary, 8th edition (2004), p. 312. A
suspensive condition is one that makes a certain obligation arise only if a specified but uncertain event occurs.
See Black's Law Dictionary, 8th edition (2004), p. 313.
577 A possible reading of the First Siting Provision is that the "significant commercial airplane
manufacturing program" could consist of the manufacture (including final assembly) of a model of commercial
airplane and the manufacture (including final assembly) of fuselages and wings of a different model of
commercial airplane. In other words, under this reading, the fuselages and wings referred to in
subparagraph (ii) of the provision would not need to correspond to the commercial airplane referred to in
subparagraph (i). Neither party has advanced such a reading. Moreover, such a reading would assume that the

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7.288. The European Union interprets the terms of the First Siting Provision as requiring Boeing
"to commit to use wings and fuselages produced or assembled in Washington State in the final
assembly of 777X [large c ivil aircraft] in Washington State". 578 According to the European Union,
"[i]f Boeing had not committed to using US -made wings and fuselages [it would have] thereby
failed to satisfy the [First Siting Provision]".579
7.289. The Panel's reading of the text of the First Siting Provision is different. On its face, the First
Siting Provision imposes a condition for certain tax benefits to take effect for a range of
beneficiaries; namely, that the competent authority (the Washington State Department of
Revenue) makes a one-time determination that a manufacturer has made a final decision to site a
significant commercial airplane manufacturing programme in the state of Washington.
7.290. Nowhere in the words used in the First Siting Provision does the Panel find a requirement
that makes the entry into force of the challenged measures contingent upon a determination that
domestic goods will be used instead of imported products. Nor do the terms of the First Siting
Provision impose any such requirement in respect of the "significant co mmercial airplane
manufacturing program" that would be the basis for the Department of Revenue 's determination.
To the contrary, the First Siting Provision is silent as to the use of imported or domestic goods and
does not make the receipt of subsidies dependent on refraining from using imported goods.
7.291. Nor can a prohibited import -substitution contingency be derived by necessary implication
from the language of the First Siting Provision, in the sense that it would result inevitably from the
words actually used in the legislation, or that any other interpretation would be unreasonable. The
Panel sees nothing in the language of the siting contingency contained in the First Siting Provision
that would per se and necessarily exclude the possibility for the airpl ane manufacturer to use
wings or fuselages from outside the state of Washington 580 (if, for example, it continued
manufacturing some fuselages and wings in the state of Washington, with the additional use of
fuselages and wings that were manufactured separat ely elsewhere). Moreover, as a condition
involving a one -time decision, the First Siting Provision in itself would not prevent the
manufacturer over time, and subsequent to the Department of Revenue's determination,
terminating all production of wings or f uselages and only using wings and fuselages manufactured
outside the state of Washington.
7.292. The Panel is mindful of the strict limitation of a de jure analysis to the terms actually used
in the measure at issue (and any relevant facts illuminating the meanin g of those words), as well
as of the specific focus of the contingency that is prohibited under Article 3.1(b) , namely the
requirement to use domestic goods instead of imported goods. In assessing the meaning of
municipal law a panel may be assisted by "ev idence of the consistent application of such laws, the
pronouncements of domestic courts on the meaning of such laws, the opinions of legal experts and
the writings of recognized scholars" 581, as well as the "relevant practices of administering
agencies".582 In this case, no such evidence has been presented that would alter the Panel's
assessment of the First Siting Provision for the purposes of the European Union's de jure claim.
7.293. The contingency set out in the terms of the First Siting Provision is not that pr oducts
manufactured in the state of Washington (wings or fuselages) must be used in the manufacturing
of commercial airplanes as a condition for receiving the subsidies, but rather that the

references to a "significant commercial airplane manufacturing program" and to a "new model, or any version
or variant of an existing model, of a commercial airplane" can include two different commercial airplane
models. Despite this theoretical possibility based on the terms of the First Siting Provision, such assumptions
do not seem persuasive. The manufacturing activities referred to in the First Siting Provision are part of a
single "manufacturing program" that is sited based on a decision taken by "a manufacturer", and there is no
compelling evidence in the text of the measure or its context to suggest that this programme could involve
more than one model of commercial airplane. Therefore, the Panel proceeds on the basis that the reference to
fuselages and wings in subparagraph (ii) is to the same model of commercial airplane contemplated in
subparagraph (i).
578 European Union's first written submission, para. 44. See also European Union's second written
submission, para. 61; opening statement at the first meeting of the Panel, paras. 53-54 and 68; opening
statement at the second meeting of the Panel, para. 3.
579 European Union's opening statement at the first meeting of the Panel, para. 68. See also
580 Assuming arguendo that the manufacturer could use wings or fuselages manufactured separately.
581 Appellate Body Report, US – Carbon Steel, para. 157.
582 Appellate Body Report, US – Countervailing and Anti-Dumping Measures (China), para. 4.101.

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manufacturing (including by final assembly) of all of these produc ts be sited within the state of
Washington. The terms actually used in the p rovision do not preclude a scenario in which
separately produced wings and fuselages were "used" in the manner alleged by the
European Union, i.e. that wings and fuselages manufact ured in the state of Washington were
"used" in the final assembly of 777X commercial airplanes in the state of Washington. That such a
scenario may be possible on the basis of terms used in the First Siting Provision, however, is not
the same as concluding that it is a requirement or condition for the subsidies that necessarily
derives from those terms.
7.294. One other possible and equally reasonable reading of the terms of the First Siting Provision
would allow the manufacturer to benefit from the subsidies if i t used wings and fuselages
manufactured outside the state of Washington in the final assembly of 777X commercial airplanes
in the state of Washington, so long as it manufactured at least some wings and fuselages in the
state of Washington. Another possible and also reasonable reading of the terms of the First Siting
Provision, as mentioned above, would allow the manufacturer to benefit from the subsidies even if
it stopped manufacturing f uselages, wings, and even commercial airplane s in the state of
Washington, as the First Siting Provision involves a one-time decision on the initial establishment,
but not the continuation, of certain manufacturing activities.
7.295. Furthermore, and related to the above argument by the European Union, the Panel notes
that there is a discrepancy between the parties whether the First Siting Provision requires the
same entity to manufacture both the commercial airplane and the f uselages and wings . In
particular, the European Union has argued that "the [ First Siting Provision ] could ha ve been
satisfied if Boeing had planned to purchase wings and fuselages produced by another entity in
Washington State. 583 Conversely, the United States has submitted that "the text of ESSB 5952
clearly contemplates a single manufacturer, and Washington offi cials have confirmed to the United
States that this was the only scenario they contemplated".584 The Panel notes that the terms of the
First Siting Provision refer to "a significant commercial airplane manufacturing program" in which a
commercial airplane, as well as fuselages and wings, are manufactured. The First Siting Provision
also refers to " a manufacturer " that would have to decide to locate the significant commercial
airplane manufacturing program me in the s tate of Washington.585 Because the " manufacturing
program" is the one and same programme, this strongly suggests that the manufacturer involved,
namely the "manufacturer" referenced in the First Siting Provision, is the same manufacturer that
would decide to site the programme in the state of Washington. In any event, regardless of the
number of manufacturers that could satisfy the First Siting Provision, the terms of the provision in
no case condition, either explicitly or by necessary implication, the availability of subsidies on the
use of domestic over imported goods by the manufacturer or manufacturers involved. Thus, e ven
if the First Siting Provision could have been satisfied by two different entities siting two different
operations in the state of Washington, this situation would neither express ly require nor
necessarily imply that domestic goods instead of imported goods would have to be used by either
entity.
7.296. Accordingly, the Panel finds that a contingency upon the use of domestic over imported
products is neither set out expressly in the First Siting Provision , nor can it be derived by
necessary implication, in the sense that it results inevitably, from the terms used in this
provision.586 The contingency on siting certain production activities within the state of Washington
does not entail any explicit, or any necessarily implied, requirement to use domestic goods.
7.297. For the reasons explained above, the Panel concludes that the European Union has not
demonstrated that, on its own, and based on its express terms, the First Siting Provision makes
the challenged aerospace tax measures de jure contingent upon the use of domestic over imported
goods.

583 European Union's opening statement at the first meeting of the Panel, para. 60.
584 United States' response to Panel question No. 62, para. 35. See also United States' response to Panel
question Nos. 38, 45, and 70, paras. 91, 111, and 83.
585 See also, for example, United States' response to Panel question No. 38, paras. 91-92.
586 Whether this contingency is demonstrated by other evidence is something that the Panel will discuss
in relation to the European Union's de facto claim below.

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7.5.6.2 The Second Siting Provision, considered separately
7.298. The Panel recalls that the Second Siting Provision in Sections 5 and 6 of ESSB 5952 relates
only to the B&O aerospace tax rate and provides as follows:
With respect to the manufacturing of commercial airplanes or making sales, at retail
or wholesale, of commercial airplanes, this subsection (11) does not apply on and
after July 1st of the year in which the de partment [of Revenue of the state of
Washington] makes a determination that any final assembly or wing assembly of any
version or variant of a commercial airplane that is the basis of a siting of a significant
commercial airplane manufacturing program in t he state under section 2 of this act
has been sited outside the state of Washington. This subsection (11)(e)(ii) only
applies to the manufacturing or sale of commercial airplanes that are the basis of a
siting of a significant commercial airplane manufactu ring program in the state under
section 2 of this act.587
7.299. In other words, the 0.2904% B&O aerospace tax rate as amended and extende d by
ESSB 5952 is subject to a condition subsequent or resolutory condition 588, i.e. this tax rate would
cease to apply under cer tain defined circumstances. In particular, t his condition would be
activated, and the B&O aerospace tax rate terminated in respect of the manufacturing or sale of
airplanes that had satisfied the First Siting Provision, if any final assembly (of an airplan e) or wing
assembly that was the object of a positive siting determination by the Department of Revenue of
the state of Washington under the First Siting Provision, is subsequently sited outside the state of
Washington.
7.300. According to the European Union, "un der this [ Second Siting Provision ], 777X aircraft
benefit from the preferential B&O tax rate only if Boeing assembles the wings and assembles the
aircraft exclusively in Washington State". 589 The European Union adds that, pursuant to this
provision, " if Boei ng opts, for example, to purchase any 777X wings from outside
Washington State, it will be penalized through loss of the B&O tax rate reduction for all revenue
related to sales of the 777X".590
7.301. As noted in the text of the Second Siting Provision , t his provision " only applies to the
manufacturing or sale of commercial airplanes that are the basis of a siting of a significant
commercial airplane manufacturing program in the state under section 2 of this act", that is, under
the First Siting Provision. Furthermore, by its terms, the Second Siting Provision applies only to
the challenged B&O aerospace tax rate, which in turn is one of the seven aerospace tax measures
that would take effect upon satisfaction of the First Siting Provision . Because the First Siting
Provision defines what is referred to in the Second Siting Provision, the terms used in the Second
Siting Provision necessarily draw their meaning from the terms of the First Siting Provision ,
including the events contemplated therein.
7.302. The Panel notes some variation in the usage of the verb "site" in the First and Second
Siting Provisions, as well as potential discrepancies in the "assembly" activities that are the subject
of siting in each provision. The term "siting" is defined in the First Siting Provisio n as "a final
decision, made on or after November 1, 2013, by a manufacturer to locate a significant
commercial airplane manufacturing program in Washington State". Section 2 of ESSB 5952 notes
that the "definitions in this subsection apply throughout [the ] section unless the context clearly
requires otherwise". In this connection, the context of the First Siting Provision is different to that
of the Second Siting Provision as it refers to "the siting of a significant commercial airplane
manufacturing progr am", which in turn is "an airplane program in which" an airplane model,

587 ESSB 5952 (exhibit EU-3), Sections 5 and 6, codified at RCW Section 82.04.260(11)(e)(ii)
(Exhibit EU-22).
588 A condition subsequent is one that, if it occurs, will bring something else to an end; an event the
existence of which discharges a duty of performance that has arisen. See Black's Law Dictionary, 8th edition
(2004), p. 312. A resolutory condition is one that upon fulfilment terminates an already enforceable obligation.
See Black's Law Dictionary, 8th edition (2004), p. 313.
589 European Union's first written submission, para. 52. See also European Union's second written
submission, para. 61.
590 European Union's first written submission, para. 51. See also European Union's second written
submission, para. 61; opening statement at the first meeting of the Panel, paras. 61 and 68; opening
statement at the second meeting of the Panel, para. 3.

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fuselages, and wings are "products [that], including final assembly, will commence manufacture"
in Washington State. By contrast, the Second Siting Provision does not use the term "fin al
assembly" in conjunction with the "manufacture" of the products listed in the First Siting Provision,
but rather as a discrete activity along with "wing assembly" that the Department of Revenue may
determine "has been sited" outside Washington State. In the context of the Second Siting
Provision, the term "final assembly" thus seems to pertain to final aircraft assembly, as
distinguished from wing assembly, whereas "final assembly" in the First Siting Provision appears to
refer to a stage or aspect of th e manufacturing process of all "products" listed therein. In any
event, and apart from these contextual differences of the term "final assembly", the Panel
considers that the expression "has been sited" (used in the Second Siting Provision in the passive
tense) is consonant with the definition of "siting" in the First Siting Provision. In particular, the
reference in the Second Siting Provision to a programme having been "sited" is related to a
manufacturer's decision to locate the relevant manufacturing an d assembly activities in or outside
Washington State.
7.303. As indicated above, the Second Siting Provision explicitly provides that the B&O aerospace
tax rate will cease to apply if an assembly operation that had been sited in the state of Washington
is subsequ ently " sited outside the state of Washington ". Under the terms of the relevant
legislation, to "site" is related to a manufacturer's decision to locate a manufacturing programme
in a particular location.
7.304. The European Union asserts that, under the Second Siting Provision, the B&O aerospace
tax rate would only continue in force "if Boeing assembles the wings and assembles the aircraft
exclusively in Washington State". 591 The European Union adds that, pursuant to this p rovision, if
Boeing purchases any 777X wing s from outside the state of Washington, it would lose the B&O
aerospace tax rate for all revenue related to sales of the 777X aircraft.592
7.305. Such conclusions, however, do not result explicitly from the terms of the Second Siting
Provision. On its face, the Second Siting Provision is silent as to the use of imported or domestic
goods and does not make the receipt or continued enjoyment of subsidies dependent on refraining
from using imported products. The Panel finds no express indication in the terms of the pro vision
that the subsidy provided by the B&O aerospace tax rate would be lost by importing wings, as
alleged by the European Union. In particular, the contingency contemplated in the Second Siting
Provision relates to a determination that " any final assembl y or wing assembly of any version or
variant of a commercial airplane that is the basis of a siting of a significant commercial airplane
manufacturing program in the state under [the First Siting Provision] has been sited outside the
state of Washington ". Based purely on the wording of this statutory contingency, the terms " any
final assembly or wing assembly" are explicitly tied, and arguably limited, to the specific assembly
operations that were "the basis of a siting" under the First Siting Provision. Thus, the terms of the
Second Siting Provision could rather be understood to address the situation in which production
activities that had been previously sited in the state of Washington, and had been the basis of the
determination by the Department of Reve nue pursuant to the First Siting Provision , were
subsequently sited outside the state of Washington. Seen in this light, the words of the Second
Siting Provision do not expressly condition the receipt of a subsidy on the use of domestic over
imported goods. On its face, the Second Siting Provision , as long as production activities of the
defined type continue to take place in the state of Washington, does not require that the goods for
that production (whether they be wings or anything else) need to be sour ced only from within the
state of Washington.
7.306. Nor can an import -substitution contingency be derived by necessary implication from the
words of the Second Siting Provision, in the sense that such a contingency would result inevitably
from the words actually used in the legislation, or that any other interpretation would be
unreasonable. That is, the siting contingency contained in the Second Siting Provision would not
per se and necessarily exclude the possibility for the airplane manufacturer to use wings f rom
outside the state of Washington (assuming arguendo that the manufacturer could use wings

591 European Union's first written submission, para. 52. See also European Union's second written
submission, para. 61.
592 European Union's first written submission, para. 51. See also European Union's second written
submission, para. 61; opening statement at the first meeting of the Panel, paras. 61 and 68; opening
statement at the second meeting of the Panel, para. 3.

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manufactured separately), as long as it did not relocate the previously sited manufacturing of
wings outside the state of Washington.
7.307. The Panel recalls the strict limitation of a de jure analysis to the terms actually used in the
measure at issue and any relevant facts that illuminate the meaning of those terms in their
particular context. The Panel also recalls the specific focus of the contingency that is prohibit ed
under Article 3.1(b), namely a requirement to "use" domestic instead of imported goods. As noted
above593, in assessing the meaning of municipal law a panel may also be assisted by evidence of
the consistent application of such laws, the pronouncements of domestic courts on the meaning of
such laws, the opinions of legal experts, the writings of recognized scholars, as well as the relevant
practices of administering agencies. In this case, no such evidence has been presented that would
alter the Panel's as sessment of the Second Siting Provision for the purposes of the
European Union's de jure claim.
7.308. The contingency set out in the Second Siting Provision is not that products manufactured
in the state of Washington (wings) must be "used" in the manufacturing of commercial airplanes
as a condition for the subsidy, but rather that the manufacturing (including by final assembly) of
all these products not be sited outside the state of Washington.
7.309. If the Second Siting Provision is construed as relating to the reloc ation of a manufacturing
programme previously sited under the First Siting Provision, it would not inevitably result from the
terms of the Second Siting Provision that domestic goods must be used over imports. Another
reading of the terms of the Second Siting Provision would allow the manufacturer in question to
continue to benefit from the subsidy if it used wings manufactured outside the state of Washington
in the final assembly of the commercial airplanes in question in the state of Washington, so long as
it maintained final and wing assembly previously sited in the state of Washington.
7.310. In sum, and c ontrary to what the European Union asserts, the Second Siting Provision
does not indicate on its face that the B&O aerospace tax rate would cease to apply if the aircraft
manufacturer in question "uses" imported products instead of domestic products. Moreover, it does
not inevitably result from the terms of the Second Siting Provision that the importation of wings
would amount to the "siting" of production acti vities outside the state of Washington , even if such
an outcome is not excluded by the text of the Second Siting Provision . No express or obvious
contingency results from the terms used in the provision, nor can one be derived inevitably from
its terms.
7.311. For the reasons explained above, the Panel concludes that the European Union has not
demonstrated that the Second Siting Provision, on its own, and based on its express terms, makes
the challenged B&O aerospace tax rate de jure contingent upon the use of dom estic instead of
imported goods.
7.5.6.3 The First Siting Provision and the Second Siting Provision, considered jointly
7.312. The European Union asserts that, taken together, the First Siting Provision and the Second
Siting Provision expressly condition all of the chall enged aerospace tax measures "on the use of
domestic over imported goods in the final assembly of the aircraft, in violation of Articles 3.1(b)
and 3.2 of the SCM Agreement ".594 The European Union adds that these siting provisions "act
together to maximize t rade distortions in favour of domestic goods and to the detriment of
competitive opportunities for imported goods. While the [ First Siting Provision ] focuses on
component sourcing decisions made at the beginning of a new aircraft programme, the [ Second
Siting Provision] focuses on later stages".595
7.313. As noted above, the First Siting Provision and the Second Siting Provision, respectively, set
out a condition for the activation of certain tax measures contained in the legislation, and a
condition under which one of those tax measures (i.e. the B&O aerospace tax rate) would cease to
apply. More specifically, in accordance with these provisions:

593 See para. 7.294 above.
594 European Union's first written submission, para. 76. See also ibid. para. 73.
595 European Union's opening statement at the first meeting of the Panel, para. 6. (emphasis original)
See also European Union's response to Panel question Nos. 31 and 41, paras. 71 and 98.

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a. the entry into force of the amendments and extensions to the aerospace tax measures
requires a determination by the D epartment of Revenue of the state of Washington that
a final decision has been made to site within that state a "significant commercial airplane
manufacturing program" , which would include the manufacture, including the final
assembly of: (i) a new model of a commercial airplane or a version or variant of an
existing model; and (ii) fuselages and wings for a new model of a commercial airplane or
for a version or variant of an existing model; and
b. one of the challenged aerospace tax measures (namely the 0.2904% B&O aerospace tax
rate) would cease to apply if the D epartment of Revenue of the state of Washington
makes a determination that any final assembly of airplanes or wing assembly that had
been sited in the state of Washington, in accordance with the First Siting Provision, has
subsequently been "sited outside the state of Washington".
7.314. On their face, the two siting provisions, and the respective conditions contained therein,
provide for the "siting" of certain manufacturing activities within the state of Washin gton as a
condition for the enjoyment of a number of tax benefits and seek to prevent certain manufacturing
activities that had been sited within the s tate of Washington being subsequently sited outside the
state of Washington . Under the terms of the First Siting Provision, the term "siting" refers to a
manufacturer's decision to locate a manufacturing programme (the "significant commercial
airplane manufacturing program") in a particular location (in the state of Washington).
7.315. As the Panel has found above, the First Siting Provision and the Second Siting Provision
are silent as to the use of imported or domestic goods. On their face, these provisions do not make
the receipt or continued enjoyment of subsidies dependent on refraining from using imported
products. Such conditionality does not result explicitly from the terms of the provisions, nor can it
be derived by necessary implication, in the sense that it results inevitably, from such terms. On a
de jure basis these provisions do not speak of "component s ourcing decisions" 596, but of the
location of certain manufacturing activities.
7.316. Furthermore, while the Second Siting Provision pertains explicitly to the "sited" programme
that would have satisfied the First Siting Provision , this textual link between the tw o siting
provisions adds nothing to the de jure analysis of each of the provisions separately that the Panel
has already conducted. Considering them jointly does not produce any elements that might have
been obscured by considering them separately. Therefore, the Panel finds that the terms of the
First Siting Provision and the Second Siting Provision, taken together, do not condition the
challenged aerospace tax measures on the use of domestic over imported goods. Whether in
practice, as also argued by the European Union, these two siting provisions act together to create
a contingency on the use of domestic goods over imported goods, is something that the Panel will
turn to as part of its consideration of the European Union's de facto claim against the measures at
issue.
7.317. Accordingly, the Panel concludes that the European Union has not demonstrated that,
acting together, the First Siting Provision and the Second Siting Provision make the challenged
aerospace tax measures de jure contingent upon the use of domestic over imported goods.
7.5.7 Whether the subsidies are de facto contingent upon the use of domestic over
imported goods
7.318. The Panel has found that the European Union has failed to establish that the challenged
aerospace tax measures are de jure contingent upon the use of domestic over imported goods.
The Panel will now consider the European Union's secondary claim, i.e. that the aerospace tax
measures at issue are inconsistent with Article 3.1(b) of the SCM Agreement by being de facto
contingent upon the use of domestic over imported goods. In its assessment of this claim, the
Panel will determine whether the contingency or conditionality of the aerospace tax measures on
the use of domestic goods instead of imported goods, even if not set out expressly in the
legislation, including by necessary implication, is demonstrated by the facts of the case.

596 See, for example, European Union's opening statement at the first meeting of the Panel, para. 6;
response to Panel question Nos. 31 and 41, paras. 71 and 98.

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7.5.7.1 Legal standard
7.319. There are no specific precedents on the criteria that would guide the Panel's determination
of a de facto import substitution contingency under Article 3.1(b). However, as discussed above,
the Appellate Body has referred to elements that would be considered for a de facto determination
of export contingency under Article 3.1(a). For the reasons explained above, these elements are
also relevant for a contingency determination under Article 3.1(b).597
7.320. In summary, the legal standard expressed by the word "contingent" is the same for both
de jure or de facto contingency.598 However, there is a difference in the type of evidence that may
be employed to establish de jure or de facto contingency. De jure contingency is demonstrated on
the basis of the words of the relevant legislation, regulation or other legal instrument. The
evidence needed to establish de facto contingency goes beyond the relevant legal instruments and
includes a variety of factual elements concerning the granting of the subsidy in a specific case .599
De facto contingency must be established from the total configuration of the facts constituting and
surrounding the granting of the subsidy, including t he design, structure, and modalities of
operation of the measure granting the subsidy, none of which on its own is likely to be decisive in
any given case.600 That configuration of the facts may include the following factors: (i) the design
and structure of the measure granting the subsidy; (ii) the modalities of operation set out in such
a measure; and (iii) the relevant factual circumstances surrounding the granting of the subsidy
that provide the context for understanding the measure's design, structure, a nd modalities of
operation.601 Moreover, the determination of contingency must be based on an assessment of the
subsidy itself, in the light of the relevant factual circumstances, rather than by reference to the
granting authority's subjective motivation for the measure. Reviewable expressions of a
government's policy objectives for granting a subsidy may, however, constitute relevant evidence
in the inquiry.602
7.321. For the Panel to find a violation of Article 3.1(b) of the SCM Agreement, the European
Union will need to make a prima facie case that the aerospace tax measures are granted subject to
the condition that domestic products must be used instead of , or in preference to, imported
products. It would not be sufficient to demonstrate, for example, that a subsidy is being granted to
a firm that uses domestic instead of imported goods or even that the subsidy would negatively
affect the competitive opportunities of foreign producers. Such facts would not in themselves
support a determination that the challenged me asures are subject to a prohibited contingency
(although they might be relevant in the context of actions pursuant to Part s III and V of the
SCM Agreement). Rather, the European Union will need to demonstrate that there is something
about the design and st ructure of the challenged measures and their operation, in the
circumstances in which the measures have been introduced and exist, that establishes the
contingency, and does so with the requisite standard of certainty. The Panel recalls, in this regard,
the Appellate Body 's warning against blurring "the line drawn by the [SCM] Agreement between
prohibited … subsidies and actionable … subsidies", in a manner "contrary to the overall design and
structure of the Agreement".603
7.5.7.2 The Panel's approach to address the European Union's claim
7.322. The European Union asserts that the text of ESSB 5952, and in particular the language of
the First Siting Provision and the Second Siting Provision, is the most important fact on record and
the best evidence of the design, structure , and modalities of operation of the challenged subsidies
and the associated contingencies.604

597 See Appellate Body Report, Canada – Autos, para. 123. See also paras. 7.211 and 7.212 above.
598 Appellate Body Report, Canada – Aircraft, para. 167.
599 Ibid. and Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1038.
600 Appellate Body Reports, Canada – Aircraft, para. 167; EC and certain member States – Large Civil
Aircraft, para. 1051.
601 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1046.
602 Ibid. paras. 1051-1052.
603 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1054. (emphasis
original)
604 European Union's response to Panel question Nos. 29 and 68, paras. 29 and 45-46. See also
European Union's second written submission, paras. 90-91.

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7.323. In addition to the text of ESSB 5952, the European Union cited the following four factors in
support of its de facto claim: first, statements and testimony by the Governor of the state of
Washington, referring to the "contingency language" included in the legislation 605; second, that
Boeing imports wings from Japan for its 787 aircraft 606; third, that, prior to the enactment of
ESSB 5952, Boeing would have considered th e possibility of importing wings fro m Japan for
its 777X aircraft and decided against that option once ESSB 5952 was enacted607; and fourth, that
ESSB 5952 "creates specific multi -billion dollar penalties for use of imported wings or fuselages,
and multi-billion dollar rewards for use of domestic wings or fuselages".608
7.324. The European Union submits that the First Siting Provision and the Second Siting Provision
in ESSB 5952 are each capable of strongly influencing Boeing's choice between imported wings
and fusela ges, and domestic (United States -produced) wings and fuselages for the 777X
airplanes.609 The European Union asserts that the amount of the subsidies at issue exceeds the
total development cost of the 777X airplanes, and would therefore overshadow any other factors
that may favour a decision by Boeing to import wings and fuselages for 777X airplanes. 610 The
European Union maintains that the First Siting Provision and the Second Siting Provision acting
together would maximize trade distortions in favour of domes tic goods and to the detriment of
imported goods, which suggests that the challenged measures are geared to induce the use of
domestic over imported goods.611
7.325. In response, the United States asserts that the European Union has failed to establish that
the aer ospace tax measures at issue are de facto contingent upon the use of domestic over
imported goods, because the European Union has not demonstrated that the use of domestic
goods is required as a condition for eligibility for the subsidies. 612 According to the United States,
none of the factual evidence referred to by the European Union (the text of ESSB 5952; the
statement of the Governor of the state of Washington; Boeing's alleged importation of wings from
Japan for its 787 airplanes; Boeing's alleged consi deration of importing wings from Japan for
its 777X airplanes; and the alleged system of rewards and penalties in ESSB 5952) supports its
claim that the measures are de facto contingent.613
7.326. The United States argues that Boeing has fulfilled the First Siting Provision and has
avoided triggering the Second Siting Provision without the use of domestic over imported goods.614
According to the United States, Boeing does not "use" domestic wings and fuselages and instead
completes the assembly of wings and fuselages as part of the final assembly of the finished
airplane.615 The United States adds that the measures in ESSB 5952 have had no effect on
Boeing's make/buy decisions nor on its decision on where to site the assembly of fuselages and

605 European Union's second written submission, para. 91; response to Panel question Nos. 29 and 68,
paras. 67 and 45 and 47. See also Office of Washington Governor, "Legislature approves key elements of 777X
incentive package", 10 November 2013 (Exhibit EU-59); and Washington State House Finance Committee,
Video, "Testimony of Governor Inslee before House Finance Committee", 7 November 2013 (Exhibit EU-110).
606 European Union's first written submission, para. 75; second written submission, paras. 91
and 95-96; opening statement at the first meeting of the Panel, paras. 66-67; response to Panel question
Nos. 29 and 68, paras. 67 and 45 and 48.
607 European Union's second written submission, para. 91; opening statement at the first meeting of the
Panel, para. 73; response to Panel question Nos. 29 and 68, paras. 67 and 45 and 48. See also Reuters,
"Boeing hopeful of 777X deal, may build wings in Japan if rejected", 11 November 2013 (Exhibit EU-83).
608 European Union's second written submission, para. 91; opening statement at the first meeting of the
Panel, para. 74; response to Panel question Nos. 29, 31, and 68, paras. 67, 70, and 45. (emphasis original)
See also European Union's second written submission, para. 2; response to Panel question Nos. 33 and 68,
paras. 71, 85, and 46.
609 European Union's first written submission, para. 77; second written submission, para. 90. See also
European Union's second written submission, para. 91; opening statement at the first meeting of the Panel,
paras. 67-69 and 72-73; response to Panel question No. 29, paras. 66-67; Reuters, "Boeing seen in advanced
talks to make 777X near Seattle", 4 November 2013 (Exhibit EU-65).
610 European Union's second written submission, para. 90. See also ibid, para. 91; opening statement at
the first meeting of the Panel, para. 73; response to Panel question No. 29, paras. 66-67; Reuters, "Boeing
seen in advanced talks to make 777X near Seattle", 4 November 2013 (Exhibit EU-65).
611 European Union's first written submission, paras. 77-78; opening statement at the first meeting of
the Panel, paras. 6 and 70-74; response to Panel question Nos. 30, 31 and 41, paras. 68-71 and 98.
612 United States' second written submission, para. 58.
613 United States' second written submission, paras. 78-83.
614 Ibid. para. 58.
615 United States' second written submission, paras. 59-63. See also response to Panel question No. 64,
para. 56.

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wings.616 The United States co ntends that the European Union has failed to establish that the
challenged measures are geared to induce the use of domestic over imported goods. 617 The
United States submits that, provided it conducts the requisite assembly activity in the state of
Washington, Boeing would satisfy the First Siting Provision and avoid triggering the Second Siting
Provision even if it imported every part of the 777X airplane; Boeing therefore would be receiving
no rewards for increasing the use of domestic inputs on the 777X a irplane, nor would it be
penalized for increasing the use of imported inputs. 618 Finally, the United States argues that, if the
challenged measures are not found to be de jure contingent upon import substitution, to show that
they are de facto contingent upo n import substitution would typically involve at a minimum
showing that the measures are having an import substitution effect.619
7.327. In its assessment of the European Union's de facto claim against the challenged aerospace
tax measures, the Panel will consider whether the text of the relevant legislation , the factors cited
by the European Union, and other evidence on the record, support the European Union's assertion
that the aerospace tax measures are contingent upon the use of domestic over imported goods.
The Panel's de facto analysis must go beyond the text of the legislation and will be based on a
holistic examination of all the available evidence. The Panel will consider in this regard the total
configuration of the facts constituting and surrounding the gr anting of the subsidies, such as: (i)
the design and structure of the measures; (ii) the modalities of operation set out in such
measures; and (iii) the relevant factual circumstances surrounding the granting of the subsidies
that provide the context for u nderstanding the measures' design, structure, and modalities of
operation.
7.328. The Panel recalls that, with respect to the European Union's de jure claim, the Panel
started by analysing the First Siting Provision and the Second Siting Provision , each considere d
separately, and subsequently considered the two siting provisions acting jointly. 620 Because the
consideration of the European Union's de jure claim focused on the terms of the legislation, the
Panel considered it appropriate to look at the siting provisions separately and to look subsequently
at both provisions jointly. This approach was consistent with t he manner in which the
European Union directed its de jure claim at the provisions " whether considered individually or
together".621 The European Union further clarified its argument as follows:
To be clear, the European Union understands that each condition [ First Siting
Provision and Second Siting Provision] independently results in a de jure violation of
Article 3.1(b). At the same time, these conditions a ct together to maximize trade
distortions in favour of domestic goods, and to the detriment of competitive
opportunities for imported goods.622 (emphasis original; footnote omitted)
7.329. With respect to its de facto claim, the European Union has asserted that the First Siting
Provision and the Second Siting Provision in ESSB 5952 "are each capable of strongly influencing
Boeing's choice between imported wings and fuselages, and US-produced wings and fuselages, for
the 777X [airplanes]".623 In contrast, in articulating its arguments in support of its de facto claim,
the European Union has consistently referred to the joint operation of the two siting provisions.624
7.330. For purposes of determining the practical operation of the challenged measures, the Panel
considers that i t would be artificial to look at the siting provisions separately. Not only are b oth

616 United States' second written submission, paras. 64-71 and 84.
617 United States' first written submission, paras. 105 and 132-140; second written submission,
paras. 72-74; response to Panel question No. 30, paras. 65-67.
618 United States' second written submission, paras. 75-77.
619 United States' response to Panel question No. 74, para. 111.
620 See para. 7.283 above.
621 European Union's first written submission, para. 73; second written submission, para. 60; opening
statement at the first meeting of the Panel, para. 6, fn 8.
622 European Union's opening statement at the first meeting of the Panel, para. 6.
623 European Union's second written submission, para. 90. See also European Union's first written
submission, para. 77; second written submission, para. 91; opening statement at the first meeting of the
Panel, paras. 72-73; response to Panel question No. 29, paras. 66-67; Reuters, "Boeing seen in advanced talks
to make 777X near Seattle", 4 November 2013 (Exhibit EU-65).
624 European Union's second written submission, paras. 91, 98; opening statement at the first meeting
of the Panel, paras.67, 70-74; response to Panel question Nos. 31, 41, 68, and 76, paras. 70-71, 98, 45,
and 55.

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provisions part of the same legal instrument (ESSB 5952), in practice both operate together in
regulating the conditions for obtaining and then maintaining access to the s ubsidies at issue in this
dispute. Recalling the textual linkage in the legislation of the two siting provisions (the reference in
the Second Siting Provision to the significant commercial airplane program me that had satisfied
the First Siting Provision), the First Siting Provision having been satisfied by Boeing's 777X siting
decision, the joint operation in practice of the two siting provisions can be examined and , as a
practical matter, their operation cannot at this point be dissociated.
7.331. The Panel will therefore consider the manner in which the measures at issue are
structured, designed, and operate, under the terms of ESSB 5952, and as a result of the First
Siting Provision and the Second Siting Provision . As noted, this approach is consistent with the
manner in which the European Union has articulated its de facto claim, namely by reference to the
joint operation of the two siting provisions.
7.5.7.3 The First and Second Siting Provisions
7.332. The Panel recalls that, based on the terms used in the legislation, for the aerospace tax
measures to take effect, the First Siting Provision requires a determination by Washington State's
Department of Revenue that a final decision has been made, on or after 1 November 2013 and no
later than 30 June 2017, to site a "significant commercial airplane manufacturing program" within
the state of Washington. The legislation also defines the characteristics that the "significant
commercial airplane manufacturing program" would have to fulfil to qualify for the D epartment of
Revenue's positive determination. Those characteristics are, in essence, that the following
products will "commence manufacture", "including final assembly ", at a new or existing location
within Washington State on or after the effective date of the legislation : (i) a new model of a
commercial airplane or a version or variant of an existing model; and (ii) fuselages and wings for a
new model of a commercial airplane or for a version or variant of an existing model.
7.333. In turn, based on the terms used in the legislation, the B&O aerospace tax rate will cease
to apply in respect of "the manufacturing or sale of commercial airplanes" that had satisfied the
First Siting Provision if Washington State's Department of Revenue makes a determination that
any final airplane assembl y or wing assembly (that had been the object of a positive siting
determination by the Department of Revenue under the First Siting Provision) has subsequently
been sited outside the state of Washington.
7.334. The European Union interprets the terms of the First Siting Provision as requiring Boeing
"to commit to use wings and fuselages produced or assembled in Washington State in the final
assembly of 777X [large civil aircraft] in Washington State". 625 According to the European Union,
"[i]f Boeing had not committe d to using US -made wings and fuselages [it would have] thereby
failed to satisfy the [First Siting Provision]".626
7.335. According to the European Union, under the Second Siting Provision, "777X aircraft benefit
from the preferential B&O tax rate only if Boeing as sembles the wings and assembles the aircraft
exclusively in Washington State". 627 The European Union adds that, pursuant to this provision, " if
Boeing opts, for example, to purchase any 777X wings from outside Washington State, it will be
penalized through l oss of the B&O tax rate reduction for all revenue related to sales of the
777X".628

625 European Union's first written submission, para. 44. See also European Union's second written
submission, para. 61; opening statement at the first meeting of the Panel, paras. 53-54 and 68; opening
statement at the second meeting of the Panel, para. 3.
626 European Union's opening statement at the first meeting of the Panel, para. 68. See also
627 European Union's first written submission, para. 52. See also European Union's second written
submission, para. 61.
628 European Union's first written submission, para. 51. See also European Union's second written
submission, para. 61; opening statement at the first meeting of the Panel, para. 61; opening statement at the
second meeting of the Panel, para. 3.

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7.336. The European Union adds that the siting provisions in ESSB 5952 "are geared to induce the
use of domestic over imported goods".629 According to the European Union:
[T]hese cond itions [the First Siting Provision and the Second Siting Provision ] act
together to maximize trade distortions in favour of domestic goods, and to the
detriment of competitive opportunities for imported goods. 630 While the [First Siting
Provision] focuses on component sourcing decisions made at the beginning of a new
aircraft programme, the [Second Siting Provision] focuses on later stages. 631
(emphasis original)
7.337. The European Union adds that the siting provisions in ESSB 5952 influence the choice by
an individu al producer on how to produce an aircraft and source its wings and fuselages, as
follows:
In the absence of the contingencies, Boeing would have arrived at a decision as a
reasonable commercial actor, which may or may not have been to use wings and
fuselages produced outside the United States. [ESSB 5952 ] distorts these choices.
First, it takes away the competitive opportunity for foreign producers of wings and
fuselages, pursuant to the [First Siting Provision] . If Boeing had not committed to
using US -made wings and fuselages, and thereby failed to satisfy the [First Siting
Provision], that would have led to severe penalties for Boeing, as the entirety of
[ESSB 5952 ] would not have gone into effect. Second, it further takes away the
competitive opportunity for foreign wing producers, pursuant to the [Second Siting
Provision]. If Boeing uses any foreign -made wings for the 777X, and thereby fails to
satisfy the [Second Siting Provision] , then the 777X -related portion of the B&O tax
rate reduction will be eliminated.632
7.338. The United States asserts that the relevant conditions in ESSB 5952 (namely, the First
Siting Provision and the Second Siting Provision) have "nothing whatsoever to do with the use of
goods" and instead "address aerospace -related production activit ies".633 The United States also
argues that "the references to manufacturing or assembly of fuselages and wings in the Siting
Provisions … merely define the scope of production activity required to use the tax treatment
covered by ESSB 5952".634
7.339. The Panel has already concluded that, on its face, the First Siting Provision imposes a
condition for certain tax benefits to take effect for a range of beneficiaries , namely, that the
competent authority (the Washington State Department of Revenue ) make a one -time
determination that a manufacturer has made a final decision to site a significant commercial
airplane manufacturing programme in the state of Washington. The Panel also has concluded that
the First Siting Provision does not, either by its express terms or by n ecessary implication thereof,
make the entry into force of the subsidies at issue contingent upon a determination that domestic
goods will be used instead of imported goods.635
7.340. The Panel has concluded further that, on its face, the Second Siting Provision is silent as to
the use of imported or domestic goods and does not expressly or by necessary implication make
the receipt or continued enjoyment of subsidies dependent on refraining from using imported
goods. The Panel also found no indication in the terms o f the provision that the subsidy provided
by the B&O aerospace tax rate would be lost by importing wi ngs, as alleged by the
European Union. The Panel concluded that the Second Siting Provision does not, either by its

629 European Union's opening statement at the first meeting of the Panel, para. 70. See also
European Union's response to Panel question No. 30, paras. 68-69.
630 (footnote original) European Union's opening oral statement, para. 6.
631 European Union's response to Panel question No. 31, para. 71.
632 European Union's opening statement at the first meeting of the Panel, para. 68.
633 United States' first written submission, paras. 1-2. See also ibid. paras. 4, 7, 9, 73, 101, and
106-109; second written submission, paras. 2 and 38; opening statement at the first meeting of the Panel,
paras. 4 and 23.
634 United States' second written submission, para. 38.
635 See paras. 7.291 and 7.292 above.

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express terms or by necessary implicati on, condition the receipt of the B&O aerospace tax rate on
the use of domestic over imported goods.636
7.341. The Panel recalls the European Union's argument that the siting provisions focus on
"component sourcing decisions".637 The Panel has found that the First and Second Siting Provisions
de jure do not speak of component sourcing decisions, but of the location of certain manufacturing
activities.638 However, this does not resolve whether on a de facto basis these provisions operate
in a manner that conditions the av ailability of subsidies based on whether certain components are
sourced from a foreign or domestic origin. It is in respect of this question of "component sourcing
decisions" that the Panel will examine the European Union's claim of de facto contingency on the
use of domestic over imported goods.
7.342. Turning to the actual operation of the challenged measures, the evidence before the Panel
confirms that the First Siting Provision in itself did not and does not make the aerospace tax
measures contingent upon the use of domestic goods instead of, or in preference to, imported
goods. As noted above 639, the First Siting Provision was activated by the Washington State
Department of Revenue on 10 July 2014 . This activation was a result of a determination by the
Department of Revenue that a manufacturer (namely, Boeing) had made a final decision to site a
significant commercial airplan e manufacturing programme (namely, the 777X programme) in the
state of Washington and that the contingency requirements in ESSB 5952 had therefore been
satisfied. As a result of this determination, ESSB 5952 was deemed to have taken effect on
9 July 2014.640 The Department of Revenue 's determination in turn was based on Boeing's
notification of 9 July 2014 that it had made a fi nal decision to ma nufacture the 777X airplane ,
including its fuselages and wings, in the state of Washington. 641 Boeing's notification was
accompanied by three attachments, as examples of "actions Boeing has taken consistent with its
decision to manufacture the 777X in Washin gton".642 As a result of the Department of Revenue 's
determination and the entry into effect of ESSB 5952, the expiration date for the aerospace tax
measures at issue was extended until 1 July 2040 for all eligible taxpayers , including but not
limited to Boeing.643
7.343. Under the terms of the legislation, and as confirmed by the additional evidence available,
the Department of Revenue's determination was based exclusively on Boeing's decision to locate a
significant commercial airplan e manufacturing programme (as de fined by the legislation) in the
state of Washington.644 There is no indication that the activation of the First Siting Provision was
the result of any other factor, such as a commitment by the manufacturer to use domestic over
imported goods.
7.344. In particular, the European Union has submitted no evidence, and there is nothing in either
Boeing's letter to the Department of Revenue or the Department of Revenue's determination, that
indicates that the use of domestic over imported goods – by Boeing or anyone else - was a
condition for the Department of Revenue's positive determination in respect of the First Siting
Provision. In fact, undisputed evidence submitted by the United States shows that Boeing will
source a significant number of the components for the 777X , including wing and fuselage
components and subassemblies, outside the United States.645 In any event, there is no evidence to

636 See paras. 7.308 and 7.313 above.
637 See, for example, European Union's opening statement at the first meeting of the Panel, para. 6;
response to Panel question Nos. 31 and 41, paras. 71 and 98.
638 See para. 7.317 above.
639 See para. 7.40 above.
640 Letter from the Director of the Washington State Department of Revenue to the Code Reviser,
10 July 2014 (Exhibit EU-61). See also United States' response to Panel question Nos. 10 and 12, paras. 21
and 26.
641 Boeing letter to the Director of the Washington State Department of Revenue, 9 July 2014
(Exhibit USA-32) (BCI). See also United States' response to Panel question No. 10, paras. 20-21.
642 Boeing letter to the Director of the Washington State Department of Revenue, 9 July 2014
(Exhibit USA-32) (BCI).
643 United States' first written submission, para. 78 (citing letter from the Director of the Washington
State Department of Revenue to the Code Reviser, 10 July 2014 (Exhibit EU-61)); response to Panel question
No. 12, para. 26.
644 See Letter from the Director of the Washington State Department of Revenue to the Code Reviser,
10 July 2014 (Exhibit EU-61). See also para. 7.40 above.
645 See, for example, Boeing expert statement (Exhibit USA-1) (BCI), paras. 41-42, 50-52, and 59-60;
Boeing, Make/Buy Model 777-300ER, July 2007 (Exhibit USA-2) (BCI); Boeing, 777X Make/Buy, All

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indicate that a particular use of goods of specific origins formed part of the Department of
Revenue's determination that the Firs t Siting Provision had been fulfilled. The Panel thus sees no
factual evidence in the Department of Revenue's determination or in how Boeing will organize the
sourcing for the production of the 777X indicating a de facto requirement to use any domestic
goods, including wings or fuselages as referred to specifically in the E uropean Union's claim of de
facto contingency.
7.345. With respect to the First Siting Provision, the Panel additionally notes that the Department
of Revenue's determination, pursuant to this provision, is a one-time decision and there is no legal
mechanism under Washington State law that would allow the Department of Revenue to revoke
that determination.646 Thus, the First Siting Provision is not a measure whose operation will occur
in repeated instances over some (definite or indefinite) period. Pursuant to ESSB 5952, t here will
be no other instance of this particular legislative provision being activated (again) in respect of
another commercial airplane programme. The First Siting Provision estab lished the possibility for a
one-time creation of certain tax benefits subject to a certain condition being fulfilled. That
condition was in fact fulfilled, such that the tax benefits in fact did take effect , and these events
exhausted the operational life of the First Siting Provision. Thus, the evidence regarding the
satisfaction, in July 2014, of the First Siting Provision by the Boeing 777X programme constitutes
the entire universe of relevant evidence regarding that provision's operation.
7.346. While the ope ration of the First Siting Provision as such was a one -time event creating
extended availability of a package of tax benefits, and while the Panel finds no factual evidence of
any requirement to use domestic goods in respect of the triggering of that availability, the Panel
recalls that the First Siting Provision does not exist in isolation. To the contrary, the role of the
Second Siting Provision is to establish conditions for the airplane manufacturing programme that
had activated the First Siting Provisi on (and thus effected the extended availability of the tax
benefits) to maintain that programme's access to one of those tax benefits, namely the B&O
aerospace tax rate. To put this more precisely, given that the conditionality in the Second Siting
Provision is phrased in the negative, the Panel understands the Second Siting Provision to set forth
the factual circumstances that would, if they arose, cause the airplane manufacturing programme
that had satisfied the First Siting Provision (namely, the 777X pr ogramme) to lose access to the
B&O aerospace tax rate. These , then, are the conditions or circumstances that Boeing mu st avoid
in respect of the 777X programme in order not to lose access to that tax rate in respect of that
programme.
7.347. The Panel thus will n ow consider the manner of operation of this second set of conditions
attached to the subsidy. In particular, the Panel will examine in detail the facts concerning the
manner in which the Second Siting Provision operates in practice in respect of the 777X
programme which, having satisfied the First Siting Provision, is the sole and exclusive object of the
Second Siting Provision. As its analytical framework, the Panel will consider the design, structure,
and operation of the measures granting the subsidies, the modalities of operation as set forth in
the measures, and the relevant factual circumstances surrounding the granting of the subsidies at
issue, that provide context for understanding the measures' design, structure and operation. In
that regard, the a dditional evidence surrounding the Department of Revenue's determination to
activate the First Siting Provision can also serve to inform the factual circumstances in which the
Second Siting Provision now operates. The Panel notes in particular the followin g facts in t his
regard.
7.348. First, the relevant legislation grants discretion to the Department of Revenue to determine
both: (i) that a manufacturer made a final decision to site a significant commercial airplan e
manufacturing programme in the s tate of Washington; and (ii) that any final airplane assembly or
wing assembly previously sited in the state of Washington, and which was the subject of the
Department of Revenue 's determination as described in (i) above, has subsequently been sited
outside the state of Washington. To recall, the Department of Revenue 's determination of the
original siting decision, under the First Siting Provision, was designed to be, and in fact operated,
as a one -time determination, and there is no legal mechanism under Washington State law that
would allow the Department of Revenue to revoke that determination once made. 647 That said,

Commodities, Status as of 17 December 2014 (Exhibit USA-8) (BCI); Boeing, 777X Content Sources, Major
Structures & Propulsion, Status as of 27 October 2015 (Exhibit USA-30) (BCI).
646 See United States' response to Panel question No. 12, para. 26.
647 See paras. 7.273 and 7.347 above.

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under the Second Siting Provision, the Department of Revenue could exercise its discretion to
make a determination as described in (ii) above at any point in the period during which the B&O
aerospace tax rate is in effect under ESSB 5952. Such a determination would lead to the
termination of this subsidy for the previously sited airplane programme as of 1 July of the year in
which that second determination was made. A determination as described in (ii) above would only
affect the B&O aerospace tax rate for the manufacturing or sale of commercial airplanes under the
airplane manufacturing programme in question. It would not affect any of the other subsidies t o
the manufacturer in question, nor would it affect any of the subsidies (including the B&O
aerospace tax rate) for any of the other beneficiaries in respect of other activities.
7.349. Second, the condition contained in the First Siting Provision is to site the manufacture of
certain "products" in Washington State, namely: (i) a n ew model, or a version or var iant of an
existing model, of a commercial airplane manufactured with a carbon fibre composite fuselage or
carbon fibre composite wings or both ; and (ii) f uselages and wings for a new model of a
commercial airplane, or a version or variant of an existing model . In contrast, the condition
contained in the Second Siting Provision is to refrain from siting outside of Washington State any
final assembly or wing as sembly of a manufacturing program me that had previously been sited
under the First Siting Provision. The Panel notes that it is the Second Siting Provision's reference
to wing assembly, rather than final assembly, that is relevant to the European Union's c laim of de
facto contingency to use domestic over imported wings. 648 This condition of the Second Siting
Provision with respect to the siting of any wing assembly is in force for the entirety of the period
during which the B&O aerospace tax rate is in effect under ESSB 5952. 649 Accordingly, the Panel
understands that, under the Second Siting Provision, if the manufacturer were to relocate outside
Washington State the wing assembly of the " significant co mmercial airplane manufacturing
program" that had been previously sited in Washington State in accordance with the First Siting
Provision (namely, the 777X programme), the legal consequence would be the termination of the
availability of the B&O aerospace tax rate for the manufacturing or sale of commercial airpla nes
under that programme.
7.350. Third, the parties have discussed extensively the process of producing wings for large civil
aircraft and, specifically, the incorporation of wings into the final production or final assembly of
large civil aircraft. The evidence before the Panel reflects a variety of aircraft manufacturing
processes, as well as continuing innovation within the aerospace industry, including for the
development of the 777X itself. 650 The Panel notes in this regard the United States' observation
that there is great variation in the process of producing large commercial airplanes.651 Accordingly,
the available evidence suggests that manufacturers can decide on specific processes for producing
wings, including by assembly, and for incorporating wings into t he final production or final
assembly of large civil aircraft based on a number of factors, including economic, business,
logistical, and technological considerations.
7.351. Fourth, as part of their discussion on the process of producing wings for large civil ai rcraft,
the parties advanced different definitions of what can be considered as a "wing" for a large civil
aircraft. Different large civil aircraft models have wings with different designs, sizes, and technical
characteristics. As is clear from the availab le evidence, some large aircraft models have been
produced using wing components or wing structures in different stages of completion that were

648 See, for example, European Union's response to Panel question No. 50, paras. 132-133; comments
on United States' response to Panel question Nos. 69 and 77, paras. 63 and 85-89.
649 In this respect, the Panel notes the United States' argument that there is no prohibited contingency
in this case based on the fact that Boeing's 777X programme has satisfied the First Siting Provision and has not
triggered the Second Siting Provision. See, for example, United States' opening statement at the second
meeting of the Panel, paras. 46-47. Although this argument rests on particular aspects of 777X production in
relation to the United States' interpretation of the terms "use" and "goods" in Article 3.1(b), it also raises an
important aspect of the combined operation of the First and Second Siting Provisions. Necessarily, by the terms
of the legislation, a programme that satisfies the First Siting Provision would not at that moment trigger the
Second Siting Provision. The latter would only be triggered at a later point in time, if the circumstances
underlying the original siting determination by the Department of Revenue have changed in the manner
specified in the Second Siting Provision.
650 See, e.g. Boeing expert statement (Exhibit USA-1) (BCI), para. 39 ("The 777X is designed to be the
largest and most efficient twin-engine commercial aircraft in aerospace history"). See also United States'
response to Panel question No. 64, para. 57; European Union's response to Panel question No. 64,
paras. 37-39; Boeing Frontiers, "The 747-700 will be transformed into an even larger freighter", June 2005
(Exhibit EU-122).
651 United States' response to Panel question No. 64, para. 57.

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produced separately from the rest of the airplane and, in some cases, transported to the site of
the final airpl ane assembly.652 In any event, an examination of the available evidence suggests
that manufacturers of large civil aircraft can incorporate wing structures into the process of final
assembly at different levels of completion based on a number of factors, inc luding economic,
business, logistical, and technological considerations.
7.352. More generally, r egarding the diversity of ways in which manufacturers may assemble
large civil aircraft, t he United States noted that "[i] n fact, the evidence shows that what these
[aircraft manufacturing] programs really have in common is that they all end up with fuselages
and wings on the finished airplanes, which is not surprising because they are the main structural
elements of the airframe." 653 Thus, whatever manufacturing and ass embly process is chosen by a
particular manufacturer, the result of that process will be a finished aircraft and the result of wing
assembly, however performed, will be a finished wing. Notably, the Second Siting Provision refers
to the location of "wing assembly" as the subject of a possible determination by the Department of
Revenue, and the text of ESSB 5952 uses the word "products" when referring to commercial
airplanes, fuselages, and wings that would have to be manufactured within Washington State as
part of the "significant commercial airplane manufacturing program" under the First Siting
Provision.654
7.353. Fifth, the Panel notes the United States' argument that Boeing does not use fuselages or
wings, and has no plans to use fuselages or wings, since the win gs for 777X aircraft "are only
completed as part of the output of the process of producing the aircraft itself". 655 The Panel
understands from this argument that Boeing is expected to assemble the wings of the 777X itself,
rather than sourcing wings from ano ther entity, domestic or foreign. In this connection, t he
United States clarified that "its argument is not that, as a general matter, it is impossible to
assemble any aircraft wings separate from the final assembly of any aircraft".656 [[BCI]].657
7.354. In any event, the particular production process selected by Boeing for the 777X airplane is
not in itself dispositive of whether the legislation creates de facto a prohibited contingency on
Boeing to use domestic goods . The fact that a manufacturer has chosen a parti cular production
process in the past or operates that process in the present , including because of economic,
business, logistical, or technological factors, does not mean that alternative processes may not be
available now or in the future. In this respect, it is relevant that ESSB 5952 extends the subsidies
provided pursuant to the aerospace tax measures until 2040. During the entirety of this period,
the conditions in the Second Siting Provision govern the availability of the B&O aerospace tax rate
for the manufacturing or sale of commercial airplanes under the 777X programme.
7.355. Furthermore, the Panel recognizes that neither the First Siting Provision nor the Second
Siting Provision , either explicitly or in the ir operation, binds Boeing to a specific process for
manufacturing 777X aircraft, either at the time of the 2014 siting determination or in respect of its
future activities through 2040. Thus Boeing is not legally constrained by the measures at issue
from adopting new processes or adapting existing proc esses in the future in respect of the 777X.
The Panel notes in this regard the United States' argument that "ESSB 5952 does not require any
production process in particular". 658 The focus of the Panel's analysis, for the purpose of the
current dispute, is not on the production processes for the 777X, in general or at any point in time,

652 See paras. 7.266 and 7.268 above.
653 United States' response to Panel question No. 64, para. 57, fn 71.
654 "'Significant commercial airplane manufacturing program' means an airplane program in which the
following products, including final assembly, will commence manufacture at a new or existing location within
Washington state on or after the effective date of this section: (i) The new model, or any version or variant of
an existing model, of a commercial airplane; and (ii) Fuselages and wings of a new model, or any version or
variant of an existing model, of a commercial airplane." ESSB 5952 (Exhibit EU-3).
655 United States' response to Panel question No. 42, para. 102. Further, in the United States' view, the
fact that "complete finished wings for some smaller commercial airplanes can be transported in a large
transport airplane … simply means that, for some airplanes, it is theoretically possible to fully assemble the
wings in a location far from where any further assembly of the airplane will take place". United States'
response to Panel question No. 64, para. 55. See also United States' second written submission, para. 60.
656 United States' response to Panel question No. 42, para. 102.
657 See United States' first written submission, paras. 25 and 130, and fn 45; opening statement at the
first meeting of the Panel, para. 11; closing statement at the first meeting of the Panel, para. 6; response to
Panel question Nos. 35 and 64, paras. 82, 52-54 and 56; Boeing expert statement (Exhibit USA-1) (BCI),
para. 43.
658 United States' response to Panel question No. 64, para. 57.

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but rather on whether the measures at issue , in their design, structure, and modalities of
operation, would limit access to existing subsidies if imported goods were to be used in any such
processes.
7.356. Sixth, the significant co mmercial airplane manufacturing programme announced by the
manufacturer, which is the basis of the First Siting Provision, in fact entails the production by
Boeing and in Washington State of wing structures that, for other aircraft models, had been
previously produced outside of Washington State and in some cases imported from outside the
United States. 659 Notwithstanding the fact that "ESSB 5952 does not require any production
process in particular "660, the fact remains that following the passage of ESSB 5952 the
manufacturer made a final decision , for the 777X manufacturing programme, to produce
domestically certain wing structures (i.e. "Section 12" wing structures 661) that the same
manufacturer had previously im ported for another commercial airplane manufacturing
programme.662
7.357. Considering all these facts, in the light of the European Union's de facto contingency claim,
the Panel notes first that the provision of subsidies exclusively to domestic producers, without
more, is not in itself a breach of the obligations under the covered agreements. In the context of
the GATT 1994, this principle is reflected in Article III:8(b) of the GATT 1994, which clarifies that
the provision of subsidies exclusively to domestic prod ucers is not in itself a breach of the national
treatment obligation under that agreement. By contrast, subsidies of a particular character can be
in breach of the SCM Agreement. The focus of the Panel's assessment is not whether the measures
at issue have had an import substitution effect or a detrimental impact on imports, as this would
require the Panel to trespass into an adverse effects analysis of the type that is not contemplated
by Article 3.1. Rather, the precise question before the Panel is whether the subsidies at issue have
been granted to domestic producers (i.e. Boeing) contingent, in fact, upon the use of domestic
goods.
7.358. The specific nature and operating mechanism of the Second Siting Provision becomes
relevant to this question. We recall, in particular, that the Second Siting Provision provides that
the "siting" of "wing assembly" of the airplane model in questio n (the 777X) outside
Washington State would result in the loss of the B&O aerospace tax rate for the manufacturing or
sale of that airplane.663 It thus is clear that so long as this "siting" does not happen, the Second
Siting Provision remains dormant, operating passively as a deterrent to safeguard the status quo
(or at least particular aspects thereof) that satisfied the First Siting Pr ovision. This particular
passive, deterrent nature of the measure in turn raises the question as to what sorts of factual
evidence could inform the analysis of whether ongoing access to the B&O aerospace tax rate for
the manufacturing or sale of commercial airplanes under the 777X programme is contingent de
facto on the use of domestic over imported 777X wings. In particular, at the time of the Panel's
assessment of this claim , the Second Siting Provision has not been triggered, and therefore no
evidence exists as to the actual operation (the triggering) of the Second Siting Provision.
7.359. The Panel thus is confronted by the counterfactual question of what would trigger the
Second Siting Provision, that is, what action by Boeing would result in the Department of Revenue
determining that 777X wing assembly "has been sited" outside Washington State. We note in this
regard the argument of the European Union that if Boeing were to use even a single imported
777X wing, the Second Siting Provision would be triggered an d Boeing would lose the B&O
aerospace tax rate in respect of the 777X.664 The evidence cited by the European Union consists of

659 See, for example, Office of Washington Governor, "Legislature approves key elements of 777X
incentive package", 10 November 2013 (Exhibit EU-59); Washington State House Finance Committee, Video,
"Testimony of Governor Inslee before House Finance Committee", 7 November 2013 (Exhibit EU-110);
Collective Bargaining Agreement between Boeing and the International Association of Machinists and
Aerospace Workers, 2 November 2008, including Contract Extension and Modification Agreements, 7 December
2011 and 3 January 2014 (Exhibit USA-33), p. 190; Addendum No. 14 to the 1991 Boeing Everett Mitigation
Decision Document SEPA #14-009, 27 March 2014 (Exhibit USA-34) (BCI).
660 United States' response to Panel question No. 64, para. 57.
661 See paras. 7.259 and 7.266 above.
662 See, for example, United States' first written submission, paras. 18, 24, 25, 28-29, and 31-32.
663 The Panel recalls that the expression "has been sited" (used in the Second Siting Provision in the
passive tense) is related to a manufacturer locating a manufacturing programme in a particular place, which is
consonant with the definition of "siting" in the First Siting Provision. See para. 7.304 above.
664 See European Union's opening statement at the first meeting of the Panel, paras. 5 and 48.

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the word "any" in the Second Siting Provision, which it argues means that that provision would be
triggered by the use of any quant ity, no matter how small, of imported 777X wings. 665 The United
States for its part argued that the purpose of the Second Siting Provision is to prevent Boeing from
relocating, or duplicating, 777X production outside Washington State.666
7.360. With regard to the que stion of what would trigger the Second Siting Provision , the Panel
finds particularly relevant the discretion granted by ESSB 5952, and specifically by the Second
Siting Provision, to the Department of Revenue to terminate the availability of the B&O aerospace
tax rate for the manufacturing or sale of commercial airplanes under the 777X program me if it
determines that Boeing has "sited" assembly of wings for that model outside of Washington State.
In particular, the exercise of the Department of Revenue 's discretion would be inconsistent with
Article 3.1(b) of the SCM Agreement if, in practice, it resulted in the termination of the B&O
aerospace tax rate for the manufacturing or sale of commercial airplanes under the 777X
programme on the basis of a determin ation that Boeing, by virtue of using imported 777X wings,
had "sited" 777X wing assembly outside Washington State.
7.361. To elucidate the issue of what would trigger the Second Siting Provision, and more
specifically, whether a use by Boeing of imported 777X wi ngs would do so, the Panel posed a
series of questions to the United States in respect of certain counterfactual scenarios, other than
the existing status quo that satisfied the First Siting Provision (and that thus by definition does not
trigger the Second Siting Provision). That existing status quo is that Boeing will itself assemble the
wings and fuselages, and conduct the final assembly of the 777X, in Washington State. The Panel
questions specifically went to whether the Second Siting Provision would be triggered if:
a. Boeing continued manufacturing, inter alia , wings itself in Washington State and in
addition purchased wings (assuming arguendo that it were possible to do so) from
another manufacturer in Washington State667;
b. Boeing continued manufacturing, inter alia, wings itself in Washington State and also,
(assuming arguendo that it were possible to do so), imported some wings from a
different producer (i.e., other than Boeing itself).668
7.362. The essence of the Panel's questions thus was what would happen purs uant to the Second
Siting Provision if Boeing in the future sourced some 777X wings from other entities, including
foreign producers, rather than assembling all of them itself. 669 The specific focus of these
questions was the geographic location of other hypothetical suppliers. In response to the first
question above, the United States indicated (assuming arguendo that it were possible for 777X
wings to be completed and transported as separate articles), that the Department of Revenue
likely would not determi ne that any wing assembly had been sited outside Washington State, and
thus the Second Siting Provision would not be triggered. 670 In response to the Panel's other
question, however, the United States indicated that if completed wings were produced outside of
the United States and then imported, the Department of Revenue likely would determine that
some wing assembly had been sited outside Washington State, meaning that the Second Siting
Provision would be triggered.671

665 See European Union's response to Panel question No. 7, para. 12; comments on United States'
response to Panel question No. 77, paras. 85-89.
666 See United States' response to Panel question Nos. 43 and 80, paras. 103 and 118-120.
667 See Panel question No. 40.
668 See Panel question No. 80.
669 The Panel recalls its assessment in the context of the European Union's de jure claim that, on its
face, the Second Siting Provision did not condition the availability of the subsidy on use of domestic over
imported goods. Based strictly on the terms of the Second Siting Provision, a possible reading of the
conditionality set out therein would allow the manufacturer in question to continue to benefit from the subsidy
if it used wings manufactured outside the state of Washington in the final assembly of the commercial airplanes
in question in the state of Washington, so long as it maintained final and wing assembly previously sited in the
state of Washington. See above, para. 7.311. As noted, in the context of its de facto analysis the Panel
considers not only the text of the measure, but also additional factual evidence relevant to understanding the
design, structure, and modalities of operation of the contingency in question.
670 See United States' response to Panel question No. 40, para. 97.
671 See United States' response to Panel question No. 39, paras. 93-95; response to Panel question
No. 80, paras. 118-120. See also United States' response to Panel question No. 7, paras. 15-16.

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7.363. Thus, as explained in the United States' responses in this regard, if the manufacturer were
to use wings produced outside of Washington State (including in particular wings imported from
other countries) in the production of 777X aircraft 672, the Department of Revenue would likely
consider this to mean that some wing assembly had been sited outside of Washington State and
this would activate the Second Siting Provision.673 This would be the case even if the manufacturer
imported some wings, while continuing to produce wings in Washington State, effect ively
duplicating wing manufacturing or assembly. 674 In such cases, as indicated by the United States,
the Department of Revenue would likely determine that at least some wing assembly had been
sited outside of Washington, which would activate the Second Siting Provision. As a consequence,
the use of imported wings would lead to the loss of the B&O aerospace tax rate. In contrast, if the
manufacturer were to use wings made in Washington State by another producer, this would not
activate the Second Siting Provision.675
7.364. The United States' responses clarify that the Second Siting Provision is not only aimed at
ensuring that a manufacturer (namely Boeing) itself assemble the 777X wings or conduct the final
assembly of the 777X . This is notwithstanding the United Sta tes' arguments that the measures at
issue (to the extent they are subsidies) would be production subsidies (to Boeing), rather than
subsidies contingent on the use of any particular goods , and that the First Siting Provision and the
Second Siting Provision contemplated a single entity performing all of the operations referred to in
those provisions . In particular, the United States' responses indicate that the Second Siting
Provision would not be triggered simply by a decision by Boeing to source 777X wings from
another entity rather than assembling them itself. Rather, in such a scenario, whether or not the
Second Siting Provision would be triggered would be determined exclusively by where the wings in
question were assembled. In particular, the only decision by Boeing to source wings which it would
then "use" in producing the 777X that would not trigger the Second Siting Provision would be to
source such wings within Washington State, which by definition would be domestic wings.
7.365. The Panel considers that these descriptions are significant in understanding the modalities
of operation of the conditions of the Second Siting Provision, which as noted are subject to
administrative discretion vested in the Department of Revenue. As explained by the United States,
within the Washington State domestic legal system, courts would accord "substantial weight to the
agency's interpretation of the governing statutes and legislative intent" and "substantial deference
to agency views when it bases its determination on factual matters".676 The United States'
clarifications as to how the Department of Revenue would likely exercise discretion shed light on
the requirements imposed by the Second Siting Provision, which applies prospectively to the 777X
manufacturing operations that are still being commenced and that may evolve over time. Under
such circumstances, the likely actions of the relevant administrative agency in response to possible
factual scenarios are indicative of whether, in practice, a subsidy would remain available so long as
a manufacturer used domestic goods, while that same subsidy would be terminated if a
manufacturer used those same goods from a foreign source.
7.366. In light of the foregoing, the Panel is not persuaded that the Second Siting Provision is
only aimed at preventing Boeing from relocating the 777X entirely outside Washington State or
from establishing a parallel 777X production program outside Washington State. The Second Siting
Provision does not only concern the production of airplanes . It also concerns the "use" of certain
goods, and specifically the origin of those goods that enter into the production process for the
777X as a condition for the continued availability of a subsidy . The Panel notes in particular the
use of the word "or" in the Second Siti ng Provision. That is, that provision would be triggered if
wing assembly "or" final assembly of the 777X were "sited" outside Washington State. 677 The
United States' responses as to how the Department of Revenue would likely exercise its discretion,
in interpreting the Second Siting Provision, demonstrate that the expression "or" in that Provision

672 Assuming arguendo that the manufacturer could use wings or fuselages manufactured separately.
673 See United States' response to Panel question Nos. 39 and 80, paras. 93-95 and 118-120. See also
United States' response to Panel question No. 7, paras. 15-16.
674 See United States' response to Panel question No. 80, paras. 118-120. See also United States'
response to Panel question No. 42, para. 103; European Union's comments on United States' response to Panel
question No. 80, para. 91.
675 See United States' response to Panel question No. 40, para. 97.
676 See Washington Court of Appeals, Nationscapital Mortgage Corporation et al. v. Department of
Financial Institutions, June 2006 (Exhibit USA-84); United States' response to Panel question No. 79,
para. 117, fn 146.
677 See para. 7.304 above.

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contemplates, and seeks to prevent inter alia, any wings (of the airplane model that satisfied the
First Siting Provision) from being produced as separate products outside Washington State
(including overseas), that would then be shipped to Washington State for incorporation in the final
assembly process. Statements made by the Governor of Washington about the goal of keeping
777X wing production in Washington, seen in the light of the United States' responses, are
consistent with this conclusion and are considered by the Panel to be relevant evidence in this de
facto analysis.678
7.367. The loss of the B&O aerospace tax rate for the manufacturing or sale of commercial
airplanes under the 777X programme if Boeing used 777X wings produced outside of
Washington State, even if it maintained production of such wings in Washington State, makes the
B&O aerospace tax rate for that programme contingent upon the use of wings made in
Washington State. This is confirmed by the 777X programme retaining access to the B&O
aerospace tax rate if Boeing used 777X wings made in Washington State by another producer.
Accordingly, pursuant to ESSB 5952, and as a result of the Second Siting Provisio n, the B&O
aerospace tax rate subsidy for the manufacturing or sale of commercial airplanes under the 777X
programme is contingent de facto not only on the production of that aircraft and its wings in
Washington State, but additionally on not using 777X wings othe r than those made in
Washington State. Since wings made in Washington State are domestic goods and any imported
wings would by definition be made outside of Washington State, it follows that the Second Siting
Provision makes the B&O aerospace tax rate for the manufacturing or sale of commercial airplanes
under the 777X programme contingent upon the use of domestic wings over imported wings.
7.368. Lastly, and for completeness, the Panel returns to the contention by the United States that
wings are not used in the production of the 777X, in the sense that separate, identifiable and
complete "wings" never come into existence in the production process of the 777X. In this regard
we observe that Article 3.1(b) does not require the identification of a specific g ood in order that it
can be applied to a particular situation. In the case before us, it is the output or outputs of a wing
assembly process that the evidence establishes must not be sourced by Boeing from overseas,
because of the implications of doing so. Regardless of precisely what these outputs are , and
regardless of the reference to "wing" and to "wing assembly" in the siting provisions, there can be
no doubt that goods, which together make up a wing to the factual satisfaction of the Department
of Rev enue, cannot be sourced by Boeing from outside the state of Washington without the
consequence of activating the Second Siting Provision. The Panel 's references to wings should be
understood in this context.
7.369. For the reasons explained above, the Panel concl udes that the siting provisions in
ESSB 5952, and in particular the prospective modalities of operation of the Department of
Revenue's discretion under the Second Siting Provision, make the B&O aerospace tax rate for the
manufacturing or sale of commercial airplanes under the 777X programme de facto contingent
upon the use of dom estic over imported goods within the meaning of Article 3.1(b) of the SCM
Agreement.
8 CONCLUSIONS AND RECOMMENDATION
8.1 Conclusions
8.1. In light of the findings in the foregoing sections of the Report, and with respect to the
aerospace tax measures at issue, as amended and extended through Washington State's
Engrossed Substitute Senate Bill (ESSB 5952), the Panel concludes that:

678 Upon the passage of ESSB 5952, the Washington State Governor issued a press release indicating
that ESSB 5952 "includes strong contingency language to ensure that all of the 777X assembly and wing
assembly remains in Washington. Specifically, the bill includes a provision that says the company will lose its
preferential B&O tax rate for the 777X if any of that work is moved out of state." Office of Washington
Governor, "Legislature approves key elements of 777X incentive package", 10 November 2013 (Exhibit EU-59).
The Governor additionally provided testimony to the Washington State legislature prior to the passage of
ESSB 5952 regarding House Bill 2089, a companion bill to a previous version of ESSB 5952, which had similar
siting provisions referring to wing assembly and final assembly (in addition to "wing fabrication", which does
not appear in ESSB 5952). In that testimony, the Governor expresses the aim of maintaining employment in
the aerospace industry by retaining production of the 777X carbon fibre wing in Washington State. See
Washington State House Finance Committee, Video, "Testimony of Governor Inslee before House Finance
Committee", 7 November 2013 (Exhibit EU-110).

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a. Each of the seven aerospace tax measures at issue in the presen t case constitutes a
subsidy within the meaning of Article 1 of the SCM Agreement;
b. Regarding the European Union's claim that the aerospace tax measures at issue are
subsidies de jure contingent upon the use of domestic over imported goods within the
meaning of Article 3.1(b) of the SCM Agreement:
i. The European Union has not demonstrated that the aerospace tax measures are de
jure contingent upon the use of domestic over imported goods with respect to the
First Siting Provision in ESSB 5952 considered separately;
ii. The European Union has not demonstrated that the reduced business and occupation
(B&O) tax rate for the manufacture and sale of commercial airplanes (B&O aerospace
tax rate) is de jure contingent upon the use of domestic over imported goods with
respect to the Second Siting Provision in ESSB 5952 considered separately;
iii. The European Union has not demonstrated that the aerospace tax measures are de
jure contingent upon the use of domestic over imported goods with respect to the
First Siting Provision and the Second Siting Provision considered jointly;
c. With respect to the First Siting Provision and the Second Siting Provision in ESSB 5952,
considered jointly , the B&O aerospace tax rate for the manufacturing or sale of
commercial airplanes under the 777X programme is a subsidy de facto contingent upon
the use of domestic over imported goods within the meaning of Article 3.1(b) of the SCM
Agreement.
8.2. Having found that the B&O aerospace tax rate for the manufacturing or sale of commercial
airplanes under the 777X programme is inconsistent with Article 3.1(b) of the SCM Agreement, the
Panel also finds that the United States has acted inconsistently with Article 3.2 of the SCM
Agreement.
8.3. 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 conclude that, to the extent that the United States has acted
inconsistently with the SCM Agreement, it has nullifie d or impaired benefits accruing to the
European Union under that Agreement.
8.2 Recommendation
8.4. Article 4.7 of the SCM Agreement provides that, having found a measure in dispute to be a
prohibited subsidy:
[T]he p anel shall recommend that the subsidizing Member withdraw the subsidy
without delay. In this regard, the panel shall specify in its recommendation the time
period within which the measure must be withdrawn.
8.5. The Panel has found that the European Union has demonstrated that the B&O aerospace tax
rate for the manufacturing or sale of commercial airplanes under the 777X programme, pursuant
to ESSB 5952, is a subsidy contingent upon the use of domestic over imported goods, prohibited
under Articles 3.1(b) and 3.2 of the SCM Agreement.
8.6. Accordingly, taking into account the nature of the prohibited subsidy found in this dispute,
the Panel recommends that the United States withdraw it without delay and within 90 days.
8.7. Finally, the Panel notes that the rules contained in Part II of the SCM Agreement do not
require a panel to specify how the implementation of recommendations under Article 4.7 should be
effected by the subsidizing Member. In this context, the second sentence of Article 19.1 of the
DSU provides that a panel may suggest ways in which a recommendation co uld be implemented.
Assuming that this provision also applies to recommendations under Article 4.7 of the
SCM Agreement, the Panel notes that, pursuant to Article 21.3 of the DSU, the means of

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implementation is in the first instance for the Member concerne d.679 Further, the Appellate Body
has made clear that the second sentence of Article 19.1 "does not oblige panels to make ... a
suggestion".680 In this case, in the absence of any request from the parties, the Panel refrains from
making any suggestions concerning steps that might be taken to implement its recommendation.