UNITED STATES – CONDITIONAL TAX INCENTIVES FOR LARGE CIVIL AIRCRAFT AB-2016-8
Document: Report of the Appellate Body
Date: 4 September 2017
Document codes: WT/DS487/AB/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
AB-2016-8
Report of the Appellate Body

ABBREVIATIONS USED IN THIS REPORT
Abbreviation Description
aerospace tax measures The B&O aerospace tax rate and a series of other tax credits or
exemptions relating to product development activities, property and
leasehold taxes, and sales and use taxes
B&O business and occupation
B&O aerospace tax rate B&O tax rate that applies to business activities concerning the
manufacture and sale of commercial airplanes
BCI business confidential information
DSB Dispute Settlement Body
DSU Understanding on Rules and Procedures Governing the Settlement of
Disputes
ESSB 5952 Engrossed Substitute Senate Bill 5952, Chapter 2, Laws of 2013 3rd
Special Session, 2014 Wash. Sess. Laws 2, codified in the Revised
Code of Washington (Panel Exhibit EU-3)
First Siting Provision ESSB 5952 (Panel Exhibit EU-3), Section 2
GATT 1994 General Agreement on Tariffs and Trade 1994
Panel Report Panel Report, United States – Conditional Tax Incentives for Large
Civil Aircraft,
SCM Agreement Agreement on Subsidies and Countervailing Measures
Second Siting Provision ESSB 5952 (Panel Exhibit EU-3), Sections 5-6(11)(e)(ii)
Washington state of Washington
Working Procedures Working Procedures for Appellate Review, WT/AB/WP/6, 16 August
2010
WTO
CASES CITED IN THIS REPORT
Short Title Full Case Title and Citation
Canada – Aircraft Appellate Body Report, Canada – Measures Affecting the Export of Civilian
Aircraft, , adopted 20 August 1999, DSR 1999:III, p. 1377
Canada – Aircraft
(Article 21.5 – Brazil)
Appellate Body Report, Canada – Measures Affecting the Export of Civilian
Aircraft – Recourse by Brazil to Article 21.5 of the DSU, ,
adopted 4 August 2000, DSR 2000:IX, p. 4299
Canada – Autos Appellate Body Report, Canada – Certain Measures Affecting the Automotive
Industry, WT/DS139/AB/R, WT/DS142/AB/R, adopted 19 June 2000, DSR
2000:VI, p. 2985
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
(Article 21.5 – US)
European Communities and Certain Member States – Measures Affecting Trade
in Large Civil Aircraft – Recourse to Article 21.5 of the DSU by the United
States, WT/DS316/RW and Add.1, circulated to WTO Members 22 September
2016 [Panel Report currently under appeal]
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

Short Title Full Case Title and Citation
US – Carbon Steel (India) Appellate Body Report, United States – Countervailing Measures on Certain
Hot-Rolled Carbon Steel Flat Products from India, WT/DS436/AB/R, adopted
19 December 2014, DSR 2014:V, p. 1727
US – Continued Zeroing Appellate Body Report, United States – Continued Existence and Application of
Zeroing Methodology, WT/DS350/AB/R, adopted 19 February 2009,
DSR 2009:III, p. 1291
US – Superfund GATT Panel Report, United States – Taxes on Petroleum and Certain Imported
Substances, L/6175, adopted 17 June 1987, BISD 34S, p. 136
US – Tax Incentives Panel Report, United States – Conditional Tax Incentives for Large Civil
Aircraft, WT/DS487/R and Add.1, circulated to WTO Members
28 November 2016

APPELLATE BODY

United States – Conditional Tax Incentives
for Large Civil Aircraft

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

Australia, Third Participant
Brazil, Third Participant
Canada, Third Participant
China, Third Participant
Japan, Third Participant
Korea, Third Participant
Russia, Third Participant

AB-2016-8

Appellate Body Division:

Graham, Presiding Member
Servansing, Member
Van den Bossche, Member

1 INTRODUCTION
1.1. The United States and the European Union each appeals certain issues of law and legal
interpretations developed in the Panel Report, United States – Conditional Tax Incentives for Large
Civil Aircraft 1 (Panel Report). The Panel was established on 23 February 2015 to consider a
complaint by the European Union2 with respect to measures taken by the United States concerning
certain tax incentives for large civil aircraft.
1.2. Before the Panel, the European Union challenged certain tax -related measures provided by
the state of Washington (Washington), as amended by Washington Engrossed Substitute Senate
Bill 59523 (ESSB 5952), specifically: (i) a reduction in the business and occupation (B&O) tax rate
that applies to business activities concerning the manufacture and sale of commercial airplanes
(B&O aerospace tax rate) ; and (ii) a series of other tax credits or exemptions relating to product
development activities, property and leasehold taxes, and sales and use taxes – collectively, the
"aerospace tax measures ".4 The European Union claimed that these tax incentives are prohibited
under Articles 3.1(b) and 3.2 of the Agreement on Subsidies and Counterva iling Measures
(SCM Agreement) as subsidies contingent upon the use of domestic over imported goods.5
1.3. The European Union identified two "siting" provisions in ESSB 5952 that govern the
availability of the challenged tax incentives. 6 The First Siting Provision pertains to all of the
aerospace tax measures and states that the tax incentives will take effect "upon the siting of a
significant commercial airplane manufacturing program" in Washington. 7 Both parties agreed that
the First Si ting Provision has been fulfilled in respect of Boeing's 777X aircraft program, and that
the challenged tax incentives are therefore in effect. 8 The Second Siting Provision concerns the
continued availability of the B&O aerospace tax rate only, and provide s that the reduced tax rate
will no longer apply if there is a determination by the Washington Department of Revenue "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" under the First Siting
Provision has been sited outside of Washington.9

1 WT/DS487/R, 28 November 2016.
2 Request for the Establishment of a Panel by the European Union of 12 February 2015, WT/DS487/2.
3 Engrossed Substitute Senate Bill 5952, Chapter 2, Laws of 2013 3rd Special Session, 2014 Wash.
Sess. Laws 2, codified in the Revised Code of Washington (ESSB 5952) (Panel Exhibit EU-3). (Panel Report,
paras. 2.1 and 7.15)
4 Panel Report, section 7.3.1.
5 Panel Report, paras. 7.1 and 7.3.
6 Panel Report, section 7.3.2.
7 Panel Report, para. 7.28 (quoting ESSB 5952 (Panel Exhibit EU-3), Section 2).
8 Panel Report, paras. 7.31 and 7.33.
9 Panel Report, para. 7.32 (quoting ESSB 5952 (Panel Exhibit EU-3), Sections 5-6(11)(e)(ii)), and
para. 7.33.

1.4. In the Panel Report, circulated to Members of the World Trade Organization (WTO) on
28 November 2016, the Panel found that each of the aeros pace tax measures at issue constitutes
a subsidy within the meaning of Article 1 of the SCM Agreement.10 The Panel also found that,
although the European Union had not demonstrated that any of the aerospace tax measures are
de jure contingent upon the use o f domestic over imported goods with respect to the First or
Second Siting Provisions in ESSB 5952, whether considered jointly or separately 11, the
B&O aerospace tax rate for the manufacturing or sale of commercial airplanes under Boeing's 777X
aircraft program 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.12 Accordingly, the Panel also found
that the United States had acted inconsistently with Article 3.2 of the SCM Agreement.13
1.5. On 5 December 2016, the Appellate Body received a letter from the European Union referring
to an imminent appeal in this dispute, to the ongoing appeal in EC and certain member
States – Large Civil Aircraft (Article 21.5 – US) (DS316), and to the anticipated appeal in
US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EC) (DS353). Referring to Rules 16(1)
and 16(2) of the Working Procedures for Appellate Review14 (Working Procedures) and Article 9 of
the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU), the
European Union requested that the schedules for these three appeals be harmonized to the
greatest extent possible and that the hearings be sufficiently proximate in time, so that a
particular matter would not be effectively disposed of in one appeal before the related matter is
heard in one of the other appeals. The Chair of the Appellate Body invited the other party in these
disputes, the United States, and the third parties to submit co mments by 9 December 2016. The
United States argued that the European Union's request was not supported by the DSU or the
Working Procedures, and would result in delays in the proceedings, but that it remained open to
proposals to set deadlines for submiss ions and dates for oral hearings in a way that would allow
the participants and third participants in each dispute to advocate effectively their positions on
appeal, and for the Appellate Body to co nsider fully the issues raised. 15 The participants and thir d
parties were invited to s ubmit additional comments by 16 December 2016. The European Union
reiterated its request that any oral hearings in these appeals be sufficiently proximate in time, but
noted that it was conte nt to leave it to the Appellate Body to determine what that would mean i n
practice.16 By letter dated 22 December 2016, the Appellate Body indicated that it would bear in
mind the European Union's request, as well as the comments received, during the appellate
proceedings in these three disputes.
1.6. On 16 December 2016 , the United States notified the Dispute Settlement Body (DSB),
pursuant to Articles 16.4 and 17 of the DSU, of its intention to appeal certain issues of law covered
in the Panel Report and certain legal interpretations developed by the Panel, and filed a Notice of
Appeal17 pursuant to Rule 20 of the Working Procedures.
1.7. Also on 16 December 2016 , the Appellate Body received a joint letter from the
European Union and the United States requesting the Division hearing this appeal to adopt
additional procedures to protect business confidential information (BCI) in these appellate
proceedings. In their letter, the European Union and the United States argued that BCI procedures
are needed in these proceedings to avoid the undue risk of detrime ntal disclosure of particularly
sensitive confidential information provided by the United States to the Panel, and proposed that
the additional procedures adopted by the Appellate Body in the ongoing appeal in EC and certain
member States – Large Civil Air craft (Article 21.5 – US) (DS316), with adjustments to remove
references to highly sensitive business information, form the basis for any procedural ruling on
confidentiality in these appellate proceedings.
1.8. On the same day, the Chair of the Appellate Body sent a lette r to the participants and
third parties indicating that the Division hearing this appeal had decided to suspend the deadlines
that would otherwise apply under the Working Procedures for the filing of submissions and other
documents in this appe al. On behalf of the Division, t he Chair of the Appellate Body invited the

10 Panel Report, paras. 7.165 and 8.1.a.
11 Panel Report, paras. 7.297, 7.311, 7.317, and 8.1.b.
12 Panel Report, paras. 7.369 and 8.1.c.
13 Panel Report, para. 8.2.
14 WT/AB/WP/6, 16 August 2010.
15 Comments were also received from Canada, China, and Japan.
16 Comments were also received from the United States and Australia.
17 WT/DS487/6.

third parti es to comment in writing on the joint request by the European Union and th e
United States by 20 December 2016. Australia submitted written comments, indicating that it di d
not object to the joint request, provided that the proposed procedures were not implemented in a
manner that unduly restrict ed the ability of third participants to gain reasonable access to
information, or to engage in meaningful participation in the pro ceedings. Taking into account the
arguments made by the participants and the comments by Australia, the Chair of the
Appellate Body, on behalf of the Division hearing this appeal, issued a Procedural Ruling on
22 December 2016 adopting additional procedure s to protect the confidentiality of BCI in these
appellate proceedings.18 On the same day, the Division provided the participants and third parties
with a Working Schedule for Appeal, setting out the dates for the filing of written submissions.
1.9. On 5 January 2017, the Chair of the Appellate Body received a communication from the
United States requesting that the Division modify the deadline for the filing of the United States'
appellant's submission. Relying on Rule 16(2) of the Working Procedures, the United States
maintained that exceptional circumstances in these proceedings justified an extension of the
deadline from 10 January to 17 January 2017. On the same da y, the Chair of the Appellate Body,
on behalf of the Division hearing this appeal, invited the European Union and the third parties to
comment in writing on the United States' request. The European Union indicated that it did not, in
principle, oppose the United States' request, but observed that the United States had had more
than five months since receipt of the final Panel Report to prepare its appellant's submission, and
that the time periods in this dispute were subject to the expedited treatment required by
Article 4.12 of the SCM Agreement. No comments were received from the third parties.
1.10. On 6 January 2017, the Chair of the Appellate Body, on behalf of the Division hearing this
appeal, issued a Procedural Ruling 19 in which the Division observed that: (i) under normal
circumstances – i.e. where the schedule had not been revised to allow for addi tional procedures to
protect BCI – the United States would have already prepared and filed its appellant's submission
on 16 December 2016; (ii) at the time of the request for additional procedures to protect BCI, the
United States had not requested more time to prepare the contents of it s appellant's submission;
(iii) the scheduling of the deadlines for the United States' submissions in this appeal and in EC and
certain member States – Large Civil Aircraft (Article 21.5 – US) would not impede its ability to
finalize the submissions; (iv) there had already been a delay in th e deadline due to the WTO's
end-of-year closure; and (v) the United States itself had indicated that its appellant's submission
would not be exceptionally lengthy. For these reasons, the D ivision declined the United States'
request, and affirmed the deadline for the filing of its appellant's submission for 10 January 2017.
1.11. On 17 January 2017, the European Union notified the DSB, pursuant to Articles 16.4 and 17
of the DSU and Article 4.8 of the SCM Agreement, of its intention to appeal certain issues of law
covered in the Panel Report and certain legal interpretations developed by the Panel, and filed a
Notice of Other Appeal 20 and an other appellant's submission pursuant t o Rule 23 of the
Working Procedures. On 8 February 2017, the European Union and the United States each filed an
appellee's submission.21 On 21 February 2017, Australia, Brazil, Canada, China, and Japan each
filed a third participant's submission. 22 On the sa me day, Korea and Russia each notified its
intention to appear at the oral hearing as a third participant.23
1.12. By letter of 3 March 2017, the Chair of the Appellate Body notified the Chair of the DSB that
the Appellate Body would not be able to circulate its Report in this appeal within the 30 -day or
60-day period set out in Article 4.9 of the SCM Agreement.24 The Chair of the Appellate Body
explained that this was due to a number of factors, including the time needed for adopting and
complying with additional procedures to protect BCI, the consequent extensions of the deadlines
for filing submissions, overlapping issues identified by the participants in parallel proceedings, as

18 The Procedural Ruling of 22 December 2016 is contained in Annex D-1 of the Addendum to this
Report, WT/DS487/AB/R/Add.1.
19 The Procedural Ruling of 6 January 2017 is contained in Annex D-2 of the Addendum to this Report,

20 WT/DS487/7.
21 Pursuant to Rules 22 and 23(4) of the Working Procedures.
22 Pursuant to Rule 24(1) of the Working Procedures.
23 Pursuant to Rules 24(4) and 24(2), respectively, of the Working Procedures. India is not a third
participant in these appellate proceedings as it did not file a written submission pursuant to Rule 24(1) of the
Working Procedures or appear at the oral hearing.
24 WT/DS487/8/Rev.1.

well as the substantial workload faced by the Appellate Body, the overlap in the composition of the
Divisions hearing several concurrent appeals, and the shortage of staff in the Appellate Body
Secretariat.
1.13. On 1 June 2017, the Division received a communication from the United St ates proposing
additional procedures to protect BCI during the oral hearing and requesting public observation of
the opening statements at the hearing. On the same da y, the Division invited the European Union
and the third participants to comment in writin g on the United States' request. The European
Union expressed its support for the United States' request, but noted that it should be for the
Appellate Body to decide whether or not sufficient time remained to organize public observation of
the opening sta tements. Australia supported the United States' request, indicating that it
considered that the request helpfully provided transparency and appropriately protected BCI.
Brazil expressed its concern regarding the timeliness of the request and what measures might be
needed to comply with the request. China submitted that the United States' request to exclude
non-BCI-Approved Persons of the third participants from the question -and-answer session would
significantly constrain the ability of third participants to engage fully in the oral hearing. No
comments were received from the remaining third participants.
1.14. On 2 June 2017, the Division issued a Procedural Ruling 25 regarding the United States'
request. In that Ruling , the Division indicated that, as provided in its Procedural Ruling of
22 December 2016 on the protection of BCI, Third Participant BCI -Approved Persons were invited
to attend the session of the oral hearing in which BCI may be discussed. The Division considered
that this was sufficient to allow the third participants to be r epresented properly at the
oral hearing. Regarding the United States' request concerning public observation of the opening
statements at the oral hearing, the Division expressed its strong concern regarding the timeliness
of that request. While deciding, by majority, to grant exceptionally the United States' request
regarding public observation , as supported by the European Union, the Division also underscored
the importance for participants wishing to request public observation of all or part of oral hearings
in disputes to make such requests in a timely fashion, taking into account the due process rights of
other participants and third participants and the burden on WTO Secretariat resources. Th e
Division thus adopted in its P rocedural Ruling additional proced ures on the conduct of the
oral hearing, including procedures pertaining to public observation of the opening statements of
Member delegations that had agreed to have their statements made public.
1.15. The oral hearing in this appe al was held on 6 June 2017. The participants and
third participants (with the exception of Russia) made oral statements and responded to questions
posed by the Members of the Appellate Body Division hearing the appeal. Delayed public broadcast
of the openi ng statements of the participants and third participants (with the exception of Brazil
and China) took place on 5 July 2017.
1.16. On 9 August 2017 , the Division informed the participants and third participants that it had
not found it necessary to include BCI in the Appellate Body Report in this appeal . On
28 August 2017, t he Division provided a confidential advance copy of the Report to the
participants, and the participants confirmed that no BCI had been inadvertently included in the
Report. On 31 August 2017, the Chair of the Appellate Body informed the Chair of the DSB that
the Appellate Body Report in these proceedings would be circulated on 4 September 2017.26
2 ARGUMENTS OF THE PARTICIPANTS
2.1. The claims and arguments of the participants are reflected in the e xecutive summaries of
their written submissions provided to the Appellate Body. 27 The Notices of Appeal and Other
Appeal, and the executive summaries of the participants' claims and arguments, are contained in
Annexes A and B of the Addendum to this Report, WT/DS487/AB/R/Add.1.

25 The Procedural Ruling of 2 June 2017 is contained in Annex D-3 of the Addendum to this Report,

26 WT/DS487/9.
27 Pursuant to the Appellate Body communication on "Executive Summaries of Written Submissions in
Appellate Proceedings" and "Guidelines in Respect of Executive Summaries of Written Submissions in
Appellate Proceedings" (WT/AB/23, 11 March 2015).

3 ARGUMENTS OF THE THIRD PARTICIPANTS
3.1. The arguments of the third participants that filed written submissions are reflected in the
executive summaries of those submissions provided to the Appellate Body 28, and are contained in
Annex C of the Addendum to this Report, WT/DS487/AB/R/Add.1.
4 ISSUES RAISED IN THIS APPEAL
4.1. The following issues are raised in this appeal:
a. with respect to the Panel's interpretation of Article 3.1(b) of the SCM Agreement in the
context of its de jure contingency analy ses in respect of the First and Second Siting
Provisions, and its de facto contingency analysis in respect of the First Siting Provision:
i. whether the Panel erred in articulating a legal standard requiring the use of domestic
goods to the complete exclusion of imported goods (raised by the European Union);
b. with respect to the Panel's application of Article 3.1(b) of the SCM Agreement in the
context of its de jure contingency analysis in respect of the First Siting Provision:
i. whether the Panel erred in finding that the First Siting Provision does not, expressly
or by necessary implication from its words, require Boeing to use domestic over
imported goods (raised by the European Union);
c. with respect to the Panel's application of Article 3.1(b) of the SCM Agreement in the
context of its de jure contingency analysis in respect of the Second Siting Provision:
i. whether the Panel erred in its application of Article 3.1(b) by unduly restricting the
scope of the evidence from which it assessed de jure contingency in respect of the
Second Siting Provision (raised by the European Union); and
ii. whether the Panel failed to make an objective assessm ent of the matter under
Article 11 of the DSU by providing an improper reading of the Second Siting
Provision (raised by the European Union);
d. with respect to the Panel's de facto contingency analysis under Article 3.1(b) of the
SCM Agreement:
i. whether the Panel erred in its interpretation and application of Article 3.1(b) in
finding that the measure, in particular the Seco nd Siting Provision, reflects a
condition requiring the use of domestic over imported goods (raised by the
United States); and
ii. whether the Panel failed to make an objective assessm ent of the matter under
Article 11 of the DSU in respect of various aspects of the Panel's reasoning (raised by
the United States and the European Union).
5 ANALYSIS OF THE APPELLATE BODY
5.1. The European Union and the United States appeal different findings by the Panel.
5.2. In its appeal, the European Union challenges the Panel's findings that the European Union did
not demonstrate that the First and Second Siting Provisions, considered separately or jointly,
make the United States' aerospace tax measures de jure contingent, or that the First Siting
Provision makes such measures de facto contingent, upon the use of domestic over imported
goods under Article 3.1(b) of the SCM Agreement. In particular, the European Union argues that
the Panel erred: (i) in its interpretation and application of Article 3.1(b) , in not finding that the

28 Pursuant to the Appellate Body communication on "Executive Summaries of Written Submissions in
Appellate Proceedings" and "Guidelines in Respect of Executive Summaries of Written Submissions in
Appellate Proceedings" (WT/AB/23, 11 March 2015).

First Siting Provision makes the aerospace tax measures de jure contingent upon the use of
domestic over imported goods; (ii) in its interpretation of Article 3.1(b), and in failing to conduct
an objective assessment of the matter under Article 11 of the DSU, in not finding that the First
Siting Provision makes the aerospace tax measures de facto contingent upon the use of domestic
over imported goods; and (iii) in its interpretation and application of Article 3.1(b), and in failing to
conduct an objective assessment of the matter under Article 11 of the DSU, in not finding that the
Second Siting Provision makes the B&O aerospace tax rate de jure contingent upon the use of
domestic over imported goods.
5.3. For its part, the United States appeals the Panel's finding that, with respect to the First and
Second Siting Provisions, considered jointly, the B&O aerospace tax rate is a subsidy de facto
contingent upon the use of domestic over imported goods under Ar ticle 3.1(b) of the
SCM Agreement. In particular, the United States argues that the Panel erred: (i) in interpreting
and applying Article 3.1(b) as if it prohibits subsidies conditional upon the domestic siting of
production activities; (ii) in its interpr etation and application of Article 3.1(b) , in finding that the
B&O aerospace tax rate for Boeing's 777X aircraft program is contingent upon the "use" of wings
for the 777X because Boeing does not and will not "use" wings to produce the 777X; and (iii) in its
interpretation and application of Article 3.1(b) , in finding that the subsidy is contingent upon the
use of "domestic" over "imported" wings because it did not address the meaning of the terms
"domestic" and "imported", or examine whether wings resultin g from wing assembly in
Washington would necessarily be "domestic". Moreover, the United States claims that the Panel
failed to make an objective assessment of the matter under Article 11 of the DSU.
5.4. We first set out our interpretation of Article 3.1(b) of the SCM Agreement before turning to
the claims on appeal by the European Union and the United States.
5.1 Interpretation of Article 3.1(b) of the SCM Agreement
5.5. Article 3.1(b) of the SCM Agreement reads:
Except as provided in the Agreement on Agriculture, the following subsidies, within
the meaning of Article 1, shall be prohibited:
…
(b) subsidies contingent, whether solely or as one of several other conditions, upon
the use of domestic over imported goods.
Article 3.2 adds that "[ a] Member shall neither grant nor maintain subsidies referred to in
paragraph 1."
5.6. The SCM Agreement distinguishes between two categories of subsidies: prohibited subsidies
(Part II of the Agreement) and actionable subsidies (Part III of the Agreement). The granting of
subsidies is not , in and of itself, prohibited under the SCM Agreement; nor does the granting of
subsidies constitute, without more, an inconsistency with that Agreement. 29 Only subsidies
contingent upon export performance within the meaning of Article 3.1(a) (commonly referred to as
export subsidies), or contingent upon the use of domestic over imported goods within the meaning
of Article 3.1(b) (commonly referred to as import substitution subsidies), are prohibited per se
under Article 3 of the SCM Agreement.30 In any event, subsidies, if specific, are disciplined under
Part III of the SCM Agreement, but a complaining Member must demonstrate the existence of
adverse effects under Article 5 of that Agreement.
5.7. Article 3.1(b) of the SCM Agreement prohibits subsidies the granting of which is
"contingent … upon the use of domestic over imported goods". The Appellate Body has found that
the legal standard for establishing the existence of "contingency" under Article 3.1(b) is the same

29 See Appellate Body Report, Canada – Aircraft (Article 21.5 – Brazil), para. 47.
30 In accordance with Article 2.3 of the SCM Agreement, any subsidy falling under the provisions of
Article 3 shall be deemed to be specific. A complaining Member that is able to prove the existence of such a
prohibited subsidy need not demonstrate that the subsidy also causes adverse effects to the interests of other
Members within the meaning of Articles 5 and 6 of the SCM Agreement.

as under Article 3.1(a) of th e SCM Agreement.31 Since the ordinary meaning of "contingent" is
"conditional" or "dependent for its existence on something else", a subsidy would be prohibited
under Article 3.1(b) if it is "conditional" or "dependent for its existence on" the use of domestic
over imported goods.32 Therefore, a subsidy would be "contingent" upon the use of domestic over
imported goods if the use of those goods were a condition, in the sense of a requirement 33, for
receiving the subsidy.34
5.8. The word "use" has been interpreted by the Appellate Body as referring to the action of using
or employing something.35 Article 3.1(b) does not elaborate on what constitutes "use of … goods" ;
nor do other provisions of the SCM Agreement or other covered agreements define this term. 36 In
the absence o f any further guidance, the term "use" may, depending on the particular
circumstances, refer to consuming a good in the process of manufacturing, but may also refer to,
for instance, incorporating a component into a separate good, or serving as a tool in t he
production of a good.
5.9. The term "goods" can be read as a synonym for "products".37 Neither the text nor the context
of Article 3.1(b) provides any clarification of the type or nature of the goods that are the subject of
this provision.38 Thus, this term m ay refer to any type of good that may be used by the subsidy
recipient, including parts or components that are incorporated into another good, materials or
substances that are consumed in the production process of another good, or tools or instruments
that are used in the production process. In Article 3.1(b), the term "goods" is qualified by the
adjectives "domestic" and "imported", which implies that the goods concerned shou ld be at least
potentially tradable. However, the broad scope of the terms "use" a nd "goods" supports the view
that the meaning of the term "goods" is not confined to those goods that are actually traded.
5.10. The text of Article 3.1(b) does not qualify the terms "domestic" and "imported". The
interpretation of these terms may be informed b y Article III:4 of the General Agreement on Tariffs
and Trade 1994 (GATT 1994)39, which applies to "products of the territory of any Member
imported into the territory of any other Member" and requires that the imported products "be
accorded treatment no less favourable than that accorded to like products of national origin".

31 Appellate Body Report, Canada – Autos, para. 123.
32 Appellate Body Report, Canada – Autos, para. 123 (referring to Appellate Body Report, Canada –
Aircraft, para. 166).
33 For instance, the Appellate Body observed in Canada – Autos that the measure at issue in that case
would be inconsistent with Article 3.1(b) if "the use of domestic goods [was] a necessity and thus … required
as a condition for eligibility" under the measure. (Appellate Body Report, Canada – Autos, para. 130 (emphasis
original))
34 Appellate Body Report, Canada – Autos, para. 126. The link between "contingency" and
"conditionality" is also borne out by the text of Article 3.1(b), which states that import substitution contingency
can be the sole or "one of several other conditions". (Appellate Body Report, Canada – Aircraft, para. 166
(emphasis added by the Appellate Body)) As with Article 3.1(a), this "relationship of conditionality or
dependence" lies at the "very heart" of the legal standard in Article 3.1(b) of the SCM Agreement. (Appellate
35 See Appellate Body Report, US – Carbon Steel (India), para. 4.374 and fn 1009 thereto (referring to
Shorter Oxford English Dictionary, 6th edn, A. Stevenson (ed.) (Oxford University Press, 2007), Vol. 2,
p. 3484).
36 The term "use" appears in different contexts in the covered agreements. For instance, footnote 61 of
Annex II to the SCM Agreement defines "inputs consumed in the production process" as "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", and paragraph II(3) of Annex II defines "physically
incorporated" inputs as "inputs … used in the production process and … physically present in the product
exported". (emphases added) Furthermore, Article 2 of the Agreement on Trade in Civil Aircraft requires
signatories to eliminate customs duties and charges of products classified under the tariff headings in Annex I
to that Agreement, "if such products are for use in a civil aircraft and incorporation therein, in the course of its
manufacture, repair, maintenance, rebuilding, modification or conversion". (emphasis added)
37 This is also reflected in the other authentic language versions of the SCM Agreement: "produits" and
"productos" in the French and Spanish texts, respectively.
38 The terms "goods" and "products" appear in various provisions throughout the SCM Agreement and
other covered agreements, and do not appear to be restricted in themselves to specific types of goods, unless
qualified. Thus, e.g. Article 6.3(d) of the SCM Agreement refers to "subsidized primary product", and
footnote 46 to Article 15 of the SCM Agreement defines "like product" as "a product which is identical, i.e. alike
in all respects to the product under consideration". (emphases added) Articles III:2 and III:4 of the GATT 1994
also broadly refer to "[t]he products of the territory of any Member imported into the territory of any other
Member".
39 See Appellate Body Report, Canada – Autos, para. 140.

Thus, as a general matter, "domestic" goods can be understood as goods originating within the
relevant Member's ter ritory and "imported" goods as goods that cross the border into that
Member's territory.
5.11. The term "over" in Article 3.1(b) is a preposition expressing a preference between two
things.40 This is also reflected in the other authentic language versions of the SCM Agreement,
with t he French text of Article 3.1(b) reading " subventions subordonnées … à l'utilisation de
produits nationaux de préférence à des produits importés ", and the Spanish text reading " las
subvenciones supeditadas al empleo de productos nacion ales con preferencia a los importados".41
In the context of the phrase "contingent … upon the use of domestic over imported goods", the
term "over" therefore refers to the use of domestic goods in preference to, or instead of, imported
goods.
5.12. With regard to the term "contingency", the Appellate Body s tated in Canada – Autos that
Article 3.1(b) of the SCM Agreement covers contingency both in law and in fact. 42 The
Appellate Body also noted in Canada – Aircraft that the legal standard expressed by the term
"contingent" is the same for de jure and de facto contingency.43 A subsidy will be de jure
contingent upon the use of domestic over imported goods "when the existence of that condition
can be demonstrated on the basis of the very words of the relevant legislation, regulation or other
legal instrument constituting the measure", or can "be derived by necessary implication from the
words actually used in the measure".44 Proving de facto contingency "is a much more d ifficult
task".45 As the Appellate Body has indicated in the context of Article 3.1(a), the existence of
de facto contingency "must be inferred from the total configuration of the facts constituting and
surrounding the granting of the subsidy, none of which on its own is likely to be decisive in any
given case".46 In EC and certain member States – Large Civil Aircraft, the Appellate Body referred
to a number of factors that may be relevant in this regard, including the design and structure of
the measure granting the subsidy, the modalities of operation set out in such a measure, and the
relevant factual circumstances surrounding the granting of the subsidy , that provide the context
for understanding the measure's design, structure, and modalities of operation .47 While the
Appellate Body has relied on these factors in addressing de facto contingency under Article 3.1(a),
we consider that they are also relevant to a de facto contingency analysis under Article 3.1(b).48
5.13. Thus, where an analysis of contingency does not yield a finding of inconsistency under
Article 3.1(b) on the basis of the words actually used in the measure, or any necessary implication
therefrom, the existence of a requirement to use domestic over imported goods may still be found
on the basis of the above-mentioned factors and factual circumstances that form part of the total
configuration of the facts constituting and surrounding the granting of the subsidy. 49 We
understand the analysis of de jure and de facto contingency under Article 3.1(b) as a continuum,
starting with the terms of the measure and their necessary implications, and continuing with
factors including the measure's design and structure, its modalities of operation , and other

40 Relevant dictionary definitions of "over" include "[a]bove in degree, quality, or action; in preference
to; more than". (Shorter Oxford English Dictionary, 6th edn, A. Stevenson (ed.) (Oxford University Press,
2007), Vol. 2, p. 2048)
41 Underlining added.
42 Appellate Body Report, Canada – Autos, para. 143.
43 Appellate Body Report, Canada – Aircraft, para. 167.
44 Appellate Body Report, Canada – Autos, paras. 100 and 123. In particular, the Appellate Body noted
that the granting of a subsidy will be de jure contingent upon the use of domestic over imported goods also
"where the condition … is clearly, though implicitly, in the instrument comprising the measure", so that even if
the underlying legal instrument does not provide expressis verbis that the subsidy is available only upon
fulfilment of the condition to use domestic over imported goods, "[s]uch conditionality can be derived by
necessary implication from the words actually used in the measure." (Ibid., para. 123)
45 Appellate Body Report, Canada – Aircraft, para. 167.
46 Appellate Body Report, Canada – Aircraft, para. 167. (emphasis original)
47 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1046.
48 See Appellate Body Report, Canada – Autos, para. 123.
49 For instance, factual circumstances potentially relevant to an assessment of whether a subsidy is
de facto contingent may include the existence of a multi-stage production process, the level of specialization of
the subsidized inputs, or the level of integration of the production chain in the relevant industry.

relevant circumstances.50 A panel should conduct a holistic assessment of all relevant elements
and evidence on the record, and need not compartmentalize de jure and de facto analyses, in
order to reach an overall conclusion as to whether a subsidy is contingent upon the use of
domestic over imported goods.
5.14. Accordingly, reading the terms of Article 3.1(b) of the SCM Agreement together, we
understand the provision to prohibit those subsidies that are de jure or de facto contingent such
that they require the use of domestic goods in preference to, or instead of , imported goods as a
condition for receiving the subsidy. While the distinction between de jure and de facto contingency
lies in the "evidence [ that] may be employed to prove" that a subsidy is contingent upon the use
of domestic over imported goods51, in both its de jure and de facto analyses, a panel assesses the
consistency of a subsidy under Article 3.1(b) with the same obligation and against a single legal
standard of contingency. In each case, an assessment of whether a subsidy is contingent within
the meaning of Article 3.1(b) requires a thorough analysis of whether the conditional relationship
between the granting of the subsidy and the use of domestic over imported goods is objectively
observable on the basis of a careful and rigorous scrutiny of al l the relevant evidence. This is
especially important when the alleged contingency is not clearly expressed in the language used in
the relevant legal instrument.52
5.15. We recall that, by its terms, Article 3.1(b) does not prohibit the subsidization of domesti c
"production" per se but rather the granting of subsidies contingent upon the "use", by the subsidy
recipient, of domestic over imported goods. 53 Subsidies that relate to domestic production are
therefore not, for that reason alone, prohibited under Articl e 3 of the SCM Agreement.54 We note
in this respect that such subsidies can ordinarily be expected to increase the supply of the
subsidized domestic goods in the relevant market, thereby increasing the use of these goods
downstream and adversely affecting i mports, without necessarily requiring the use of domestic
over imported goods as a condition for granting the subsidy.
5.16. We further note that Article III:8(b) of the GATT 1994 exempts from the national treatment
obligation in Article III "the payment of subs idies exclusively to domestic producers".
Article III:8(b) makes clear that the provision of subsidies to domestic producers only, and not to
foreign ones, does not in itself constitute a breach of Article III. To the extent that "domestic
producers" may generally be expected to manufacture a certain amount of "domestic goods" in a
Member's territory, Article III:8(b) comports with our reading of Article 3.1(b) under which
something more than mere subsidization of domestic production is required for finding an import
substitution subsidy. That said, even if the granting of a subsidy is exempt from the GATT national
treatment obligation by virtue of it being paid exclusively to domestic producers within the
meaning of Article III:8(b) of the GATT 1994, it may still be found to be contingent upon the use
by those producers of domestic over imported goods under Article 3.1(b) of the SCM Agreement.

50 To the extent that both de jure and de facto claims have been raised. For instance, a de facto
contingency analysis may take into account "the design and structure of the measure", which would
encompass elements including the terms of the measure. Likewise, an analysis of "the modalities of operation"
will involve those set out in the measure and how they may be applied and operate in practice. Finally, the
"relevant factual circumstances surrounding the granting of the subsidy that provide the context for
understanding the measure's design, structure, and modalities of operation" necessarily include those
circumstances that inform one's understanding of the above-mentioned factors and their operation.
(Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1046)
51 Appellate Body Report, Canada – Aircraft (Article 21.5 – Brazil), fn 46 to para. 47 (quoting
Appellate Body Report, Canada – Aircraft, para. 167). We recall that one aim of the de facto assessment under
Article 3.1(b) is to avoid "circumvention of obligations by Members", contrary to the object and purpose of the
SCM Agreement. (Appellate Body Report, Canada – Autos, para. 142)
52 We recall the Appellate Body's statement that proving de facto contingency "is a much more difficult
task" than establishing de jure contingency. (Appellate Body Report, Canada – Aircraft, para. 167)
53 Pursuant to Article 2.1 of the SCM Agreement, a subsidy covered under that Agreement should be
specific to certain enterprises "within the jurisdiction of the granting authority", or, in other words, domestic
producers. Although, pursuant to Article 2.3, prohibited subsidies are "deemed to be specific", they are still
subsidies granted to domestic producers. Other provisions of the SCM Agreement also refer to the "territory" of
a Member, as well as to "domestic producers" or "domestic production". (See e.g. Article 1.1(a)(1);
Article 8.2(b), now lapsed, pursuant to Article 31; Article 10; Article 25; and Article 28 of the SCM Agreement)
54 In Canada – Aircraft (Article 21.5 – Brazil), the Appellate Body found it "worth recalling 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 only 'prohibited' subsidies are those identified in
Article 3 of the SCM Agreement". (Appellate Body Report, Canada – Aircraft (Article 21.5 – Brazil), para. 47)

5.17. Additionally, we observe that the Appellate Body has found that de facto contingency under
Article 3.1(a) of the SCM Agreement, and in particular whether a subsidy is "in fact tied to …
anticipated exportation", can be determined by assessing whether "the granting of the subsidy [is]
geared to induce the promotion of future export performance by the recipient" and "prov ides an
incentive to skew anticipated sales towards exports", 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". 55 This test is based on the wording of Article 3.1(a) and footnote 4 thereto and ,
specifically, the terms "actual or anticipated" and "export performance". 56 Furthermore, similar
trade distortions will also occur as a result of subsidies relating to domestic production , which are
prohibited u nder Article 3.1(b) only when they are contingent upon the use of domestic over
imported goods. Hence, a test based on an examination of whether a given measure is "geared to
induce" the use of domestic products over imports does not answer the question of whether the
measure requires the recipient to use domestic over imported goods as a condition for receiving
the subsidy.
5.18. In conclusion, we note that, to the extent that no conditionality on the use of domestic over
imported goods can be determined, but the effect of the subsidy is to displace or impede, or
otherwise cause adverse effects to imports, those effects are discip lined under Part III of the
SCM Agreement. In other words, the relevant question in determining the existence of contingency
under Article 3.1(b) is not whether the eligibility requirements under a subsidy may result in the
use of more domestic and fewer imported goods. Rather, the question is whether
a condition requiring the use of domestic over imported goods can be discerned from th e terms of
the measure itself, or inferred from its design, structure, modalities of operation , and the relevant
factual circumstances constituting and surrounding the granting of the subsidy that provide
context for understanding the operation of these factors.
5.2 Whether the Panel erred in its interpretation of Article 3.1(b) of the SCM Agreement
5.19. The European Union claims that, in its de jure assessment of the First and Second Siting
Provisions, the Panel erroneously interpreted Article 3.1(b) of the SCM Agreement to mean that a
prohibited contingency would exist only where the measure " per se and necessarily exclude[s]"
any use of imported goods. 57 According to the European Union, the Panel thereby confined the
applicability of Article 3.1(b) "to those situations where the subsidy recipient is required under the
terms of the subsidy measure, for a given good, to use domestic goods to the complete exclusion
of imported goods."58 The European Union further claims that, since the legal standard expressed
in the wo rd "contingent" is the same for both de jure and de facto contingency, the error in the
Panel's interpretation of Article 3.1(b) in the context of its de jure assessment carries over to its
de facto assessment of the First Siting Provision.59
5.20. The United States responds that both the First and Second Siting Provisions address the
location of production activities and are silent as to the use of imported or domestic goods. 60 The
United States characterizes the Panel statements with which the European Union takes issue as
merely examples, or responses to arguments made by the European Union, instead of as
interpretations by the Panel. 61 Also, the United States considers that the European Union's

55 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1044-1045
and 1047.
56 See Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1043.
57 European Union's other appellant's submission, para. 33 (quoting Panel Report, para. 7.291). See
also paras. 37 and 103 (quoting Panel Report, paras. 7.291 and 7.306).
58 European Union's other appellant's submission, para. 40. See also para. 103.
59 European Union's other appellant's submission, paras. 70-71.
60 United States' appellee's submission, paras. 44 and 82 (referring to Panel Report, paras. 7.290,
7.293, and 7.305). See also para. 83.
61 In particular, the United States argues that the statement made in the context of the Panel's de jure
analysis of the First Siting Provision "was explicitly an 'example'", and the formulation used in the context of its
de jure analysis of the Second Siting Provision "appears to have its roots in the terms of the
[European Union]'s argument to the Panel". (United States' appellee's submission, para. 43 (quoting
European Union's other appellant's submission, para. 38) and para. 84 (referring to European Union's other
appellant's submission, para. 103))

argument in the context of the Panel's de facto analysis of the First Siting Provision is no different
from its argument in the de jure context, and, accordingly, fails for the same reasons.62
5.21. We begin our analysis by noting that the European Union does not challenge the Panel's
articulation of the legal standard u nder Article 3.1(b) of the SCM Agreement as developed in the
interpretative sections of its Report.63 Instead, the European Union takes issue with certain
subsequent statements made by the Panel in the context of its de jure contingency analyses of the
First and Second Siting Provisions, and its de facto contingency analysis of the First Siting
Provision, all of which the European Union reads as articulating a legal standard requiring the use
of domestic goods to the complete exclusion of imported goods.
5.22. We agree with the European Union's contention that the existence of contingency under
Article 3.1(b) is not limited to cases where the measure requires the subsidy recipient to use
domestic goods to the complete exclusion of imported goods. Article 3.1(b) requires establishing
the existence of contingency upon the use of domestic over imported goods , but does not require
demonstrating any particular quantity or level of displacement of i mported goods by domestic
goods in order to determine such contingency. The question before us, therefore, is whether in its
analysis the Panel indeed articulated a legal standard requiring the use of domestic goods to the
complete exclusion of imported goods.
5.23. We observe that, before the Panel, the European Union submitted that: (i) the terms of the
First Siting Provision required Boeing to commit to use wings and fuselages produced or assembled
in Washington in the final assembly of the 777X in Washington 64; and (ii) under the Second Siting
Provision, the B&O aerospace tax rate would continue to apply only if Boeing assembles the wings
and the 777X exclusively in Washington. 65 However, the Panel's reading of these provisions was
different. The Panel considered that, on its face, the First Siting Provision concerns the siting of a
"significant commercial airplane manufacturing program", which "in turn requires that a producer
commit to manufacture within the state of Washington" a model of a commercial airplane, as well
as fuselages and wings for that model.66 The Panel did not find anywhere "in the words used in the
First Siting Provision … 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."67
The Panel thus found that, by its words, "the First Siting Provision is silent as to the use of
imported or domestic goods ."68 The Panel also found that "the Second Siting Provision is silent as
to the use of imported or domestic goods". 69 For the Panel, there is "no express indication in the
terms of the [Second Siting Provision] that the subsidy … would be lost by importing wings", and
its words do not "expressly condition the receipt of a subsidy on the use of domestic over imported
goods".70
5.24. The Panel then went on to examine , in respect of each of the First and Second Siting
Provisions, whether a prohibited import substitution contingency could be derived "by necessary

62 United States' appellee's submission, para. 69.
63 The Panel observed that, "[i]n 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." (Panel Report, para. 7.274) In
setting out the standard for determining the existence of de jure contingency under Article 3.1(b), the Panel
observed 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." (Ibid., para. 7.273 (fn omitted)) In setting
out the standard for determining the existence of de facto contingency under Article 3.1(b), the Panel noted
that "the European Union will need to demonstrate that there is something about the design and structure 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."
(Ibid., para. 7.321)
64 Panel Report, para. 7.288 (referring to European Union's first written submission to the Panel,
para. 44).
65 Panel Report, para. 7.304 (referring to European Union's first written submission to the Panel,
para. 52).
66 Panel Report, para. 7.287. (emphasis original) See also paras. 7.289 and 7.293.
67 Panel Report, para. 7.290.
68 Panel Report, para. 7.290.
69 Panel Report, para. 7.305.

implication" from the language of the provisions. 71 It was in this context that the Panel, first in
respect o f the First Siting Provision, made the statement with which the European Union takes
issue:
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
airplane manufacturer to use wings or fuselages from outside the state of Washington
(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 manufact ured
separately elsewhere).72
5.25. Similarly, in respect of the Second Siting Provision, the Panel stated that:
… the siting contingency contained in the Second Siting Provision would not per se and
necessarily exclude the possibility for the airplane manufactur er to use wings from
outside the state of Washington …, as long as it did not relocate the previously sited
manufacturing of wings outside the state of Washington.73
5.26. We recognize that, if read in isolation, these statements could possibly be understood as
suggesting a legal standard under Article 3.1(b) that requires the use of domestic goods to the
complete exclusion of imported goods. However, when these words are considered in the context
of the rest of the Panel's de jure contingency analyses of the First and Second Siting Provisions , it
becomes clear that the Panel did not articulate such a legal standard.
5.27. To begin with, as the Panel found, by their terms, both the First and Second Siting
Provisions speak of "siting" and a commitment to "man ufacture" or "assemble" certain goods, and
are silent as to the "use" of any imported or domestic goods. Turning to the "necessary
implication" of the terms of the First and Second Siting Provisions, the Panel considered that a
reading under which Boeing w ould be required to use domestic over imported goods was just one
among several possible readings of these provisions. In the Panel's view, while the terms of the
First Siting Provision could result in the use by Boeing of some wings and fuselages produced in
Washington, this did not necessarily mean that the provision, by its terms, requires Boeing to use
domestic over imported wings and fuselages. 74 Similarly, with respect to the Second Siting
Provision, the Panel found that it does not inevitably result from the terms of the provision that the
importation of wings would amount to the "siting" of production activities outside Washington,
"even if such an outcome is not excluded by [its] text".75 Having considered other possible
readings of the terms of both provisions76, the Panel concluded that "[t]he contingency on siting
certain production activities within the state of Washington [under the First Siting Provision] does
not entail any explicit, or any necessarily implied, requirement to use domestic goods" 77, and that
"[n]o express or obvious contingency results from the terms used in the [Second Siting Provision],
nor can one be derived inevitably from its terms." 78 Thus, the Panel found that the First and
Second Siting Provisions do not, by their terms or by necessary implication therefrom, require the
use of domestic over imported goods as a condition for receiving the subsidies.
5.28. When read in this context, we understand the Panel's statements challenged by the
European Union – that nothing in the terms of the First and Second Siting Provisions would "per se
and necessarily exclude" the possibility for Boeing to use goods from outside Washington – as
referring to the "implications" of those terms and merely recognizing that a condition requiring the

71 Panel Report, paras. 7.291 and 7.306.
72 European Union's other appellant's submission, para. 37 (quoting Panel Report, para. 7.291 (italics
original; underlining added by the European Union)).
74 According to the Panel, while "[t]he terms actually used in the [First Siting Provision] do not preclude
a scenario in which … wings and fuselages manufactured in the state of Washington were 'used' in the final
assembly of 777X commercial airplanes in the state of Washington", the fact "[t]hat such a scenario may be
possible on the basis of terms used in the First Siting Provision … is not the same as concluding that it is a
requirement or condition for the subsidies that necessarily derives from those terms." (Panel Report,
para. 7.293)
76 Panel Report, paras. 7.294 and 7.309.
77 Panel Report, para. 7.296.
78 Panel Report, para. 7.310.

use of domestic over imported goods could not be "necessarily" derived from the language of the
First and Second Siting Provisions. In particular, in our view, the phrase " per se and necessarily
exclude" links back to the Panel's understanding of the words "necessar y implication" as referring
to contingency that must "result inevitably from the words actually used in the legislation", or that
"any other interpretation would be unreasonable".79 In this light, we understand the Panel to have
simply recognized that, base d on both the words actually used in the First and Second Siting
Provisions and by the necessary implication from those words, no de jure requirement existed for
Boeing to use domestic over imported goods.
5.29. Moreover, we recall the European Union's assertions before the Panel that, under the First
Siting Provision, Boeing "commit[ted] to use wings and fuselages produced or assembled in
Washington State" and "[i]f Boeing had not committed to using US -made wings and fuselages [it
would have] thereby failed to s atisfy the [First Siting Provision]". 80 Furthermore, the
European Union argued before the Panel that, "under the S econd 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'" and "if Boeing purchases any 777X wings 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." 81 In our view, it appears that , in making its statement that the First
and Second Siting Provisions do not " per se and necessarily exclude" the possibility for Boeing to
use wings outside Washington, the Panel was not articulating a legal standard , but was rather
addressing certain contentions advanced by the European Union. The European Union also takes
issue with the Panel's statements that the Second Siting Provision "does not make the receipt or
continued enjoyment of subsidies dependent on refr aining from using imported products" and
"does not require that the goods for that production (whether they be wings or anything else)
need to be sourced only from within the state of Washington". 82 For the same reason as just
explained, we do not consider that these statements reflect a legal standard requiring the use of
domestic goods to the complete exclusion of imported goods.83
5.30. Finally, we also do not see that a legal standard requiring the complete exclusion of imports
is reflected in the Panel's ultim ate conclusions. The Panel found that the terms of the First Siting
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" 84 and that "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."85 Therefore, as we see it, the Panel's conclusions t hat the First and Second Siting
Provisions are not de jure contingent under Article 3.1(b) were based on its findings that: (i) the
contingencies set out in the terms of these provisions relate to the location of certain assembly
operations within Washington; (ii) the provisions are silent as to the use of domestic or imported
goods; and (iii) the terms of the provisions do not, by necessary implication, prevent the
possibility of using imported goods. We therefore do not consider that the Panel, by stating that
the terms of these provisions d o not " per se and necessarily exclude" the possibility of using
imported wings and fuselages, was articulating a legal standard under Article 3.1(b) that requires
the use of domestic goods to the complete exclusion of i mported goods, but rather was casting
doubt on the European Union's proposition that the terms of these provisions necessarily required
Boeing to use wings and fuselages produced in Washington.
5.31. In connection with its argument regarding the Panel's de jure analysis of the First Siting
Provision, the European Union advances several additional arguments by which it essentially
maintains that, for various reasons, the legal standard under Article 3.1(b) should not be read as

79 Panel Report, paras. 7.291 and 7.306.
80 Panel Report, para. 7.288 (quoting European Union's first written submission to the Panel, para. 44;
and opening statement at the first Panel meeting, para. 68).
81 Panel Report, para. 7.304 (quoting European Union's first written submission to the Panel, para. 52).
(emphasis added)
83 We note, in particular, that these statements were made immediately after the Panel's summary of
the European Union's arguments set out above.
84 Panel Report, para. 7.295.
85 Panel Report, para. 7.310.

requiring the use of domestic goods to the complete exclusion of imported goods.86 Since we have
agreed with the European Union on that point, but have concluded that we do not understand the
Panel to have articulated such a legal standard, we see no need to further address those
arguments.
5.32. The European Union also argues that, since the Panel recognized that the legal standard
reflected in the term "contingent" is the same for both de jure and de facto contingency, and
having erred in its de jure contingency analysis under Article 3.1(b), the Panel also erred in its
interpretation of Article 3.1(b) in the context of its de facto contingency analysis of the First Siting
Provision.87 We note that the Panel focused its analysis on the "actual operation" of the First Siting
Provision as confirmed b y "additional evidence" available regarding the satisfaction of th is
provision by the Boeing 777X aircraft program.88 As we see it, the Panel's conclusion that the First
Siting Provision does not demonstrate de facto contingency was based on the absence of any
"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", and not on an understanding that, in order to establish a
violation of Article 3.1(b), the First Siting Provision must require the use of domestic goods to the
complete exclusion of import ed goods.89 Nowhere in its de facto analysis did the Panel express a
legal standard requiring that the modalities of operation of the First Siting Provision " per se and
necessarily exclude" any possibility of importing wings and fuselages. 90 Accordingly, in our view,
the legal standard articulated by the Panel in its de facto contingency analysis of the First Siting
Provision is also in keeping with our interpretation of Article 3.1(b) of the SCM Agreement.
5.33. Furthermore, we do not consider that, as the European Union argues, the Panel's finding of
"no indication that the activation of the First Siting Provision was the result of any other factor
[besides the siting of the aircraft program], such as a commitment by the manufacturer to use
domestic over imported goods" 91 was based on an erroneous interpretation of the words "use of
domestic over imported goods".92 Instead, the Panel's analysis is in line with its understanding that
it was for the European Union "to demonstrate that there is something about the design and
structure of the challenged measures and their operation, in the circumstan ces in which the
measures have been introduced and exist, that establishes the contingency ."93 Therefore, as we
see it, rather than articulating a legal standard that required the use of domestic goods to the
complete exclusion of imported goods, the Panel simply found that the additional evidence before
it confirmed its understanding of the First Siting Provision in the context of its de jure contingency
analysis, and was insufficient to establish under Article 3.1(b) that the measure required the use of
domestic over imported goods as a condition for granting the subsidy.
5.34. In sum, we consider that, in its de jure contingency analyses of the First and Second Siting
Provisions, the Panel did not articulate a legal standard under Article 3.1(b) of the SCM Agreement

86 The European Union argues that a subsidy subject to the requirements that 50% of all inputs used be
domestic and 50% of all inputs be imported would still be contingent upon the use of domestic over imported
goods. Similarly, the European Union asserts that the Appellate Body's guidance in Canada – Autos supports
the proposition that a measure conditioning receipt of a subsidy on the use of a particular domestic good,
without requiring that 100% of the goods used are domestic, can give rise to an Article 3.1(b) violation.
Furthermore, the European Union contends that the distortion envisaged by Article 3.1(b) arises "where a
subsidy distorts the ratio between domestic and imported goods", so that the recipient would use "a larger
proportion of domestic goods (and consequently a smaller proportion of imported goods) than it otherwise
would have". The European Union also takes the view that the Appellate Body's interpretation of Article 3.1(a)
of the SCM Agreement in EC and certain member States – Large Civil Aircraft developed in the course of its
de facto contingency analysis is relevant to the interpretative question in the present case. Finally, the
European Union argues that the case law under Article III:4 of the GATT 1994 supports "[t]he proposition that
a measure requiring less than the per se exclusion of imported goods can give rise to the distortion envisaged
by Article 3.1(b)." (European Union's other appellant's submission, paras. 41-51)
87 European Union's other appellant's submission, para. 70.
88 Panel Report, paras. 7.342-7.345. The Panel considered this evidence to constitute "the entire
universe of relevant evidence regarding that provision's operation". (Ibid., para. 7.345)
89 Panel Report, para. 7.344.
90 For instance, the Panel speaks of conditioning "the availability of subsidies based on whether certain
components are sourced from a foreign or domestic origin", or the existence of evidence indicating "a particular
use of goods of specific origins", and "of any requirement to use domestic goods in respect of the triggering of
that availability". (Panel Report, paras. 7.341, 7.344, and 7.346)
91 Panel Report, para. 7.343.
92 European Union's other appellant's submission, para. 71.
93 Panel Report, para. 7.321.

requiring the use of domestic goods to the complete exclusion of imported goods. Instead, the
Panel found that, by their terms, the First and Second Siting Provisions relate to the location of
certain assembly operations within Washington and are silent as to the use of domestic or
imported goods. Therefore, in stating that these provisions do not "per se and necessarily exclude"
the possibility for the airplane manufacturer to use inputs from outside Washington, the Panel was
not articulating a legal standard, but was r ather r ecognizing that, based on the necessary
implications of the provisions' terms, no de jure requirement existed for Boeing to use domestic
over imported goods. Neither did the Panel articulate such a legal standard in assessing the
de facto contingency of the First Siting Provision. Rather, the Panel found that the a dditional
evidence before it confirmed its understanding of the First Siting Provision in the context of its
de jure contingency analysis that the measure does not require the use of domestic over imported
goods as a condition for granting the subsidy.
5.35. On the basis of the foregoing, we reject the European Union's claims that the Panel erred in
its interpretation of Article 3.1(b) of the SCM Agreement in the context of its de jure contingency
analyses of the First and Second Siting Provisions, as well as it s de facto contingency analysis of
the First Siting Provision.
5.3 Whether the Panel erred in its application of Article 3.1(b) of the SCM Agreement in
the context of its de jure contingency analysis in respect of the First Siting Provision
5.36. The European Union claims that the Panel's finding that the First Siting Provision does not,
expressly or by necessary implication, require the use of domestic over imported goods constitutes
an error in the application of Article 3.1(b) of the SCM Agreement.94 In the European Union's view,
since the First Siting Provision requires Boeing "to establish the 777X production program in
Washington State, ' in which' the wings and fuselages are to be integrated", and since "at least
some 777X wings and fuselages " have to be manufact ured in Washington, the provision
"appropriates Boeing's commercial decision-making, leaving it with precisely one option if it wants
to benefit from billions of US dollars in subsidies – to use at least some of the wings and fuselages
manufactured in Washington State, in the final assembly of the 777X in Washington State."95
5.37. The United States responds that "there is no plausible situation absent the alleged subsidies
in which Boeing could have, and would have, imported 777X fuselages or wings." 96 Moreover, the
United States submits that the First Siting Provision "was a one -time determination that was
triggered by a decision to site an airplane program" before any manufacturing occurred , and
"there was no mechanism to reverse the extension of the B&O aerospace tax rate taking effect
even if in the end no manufacturing occurred."97
5.38. As we noted, the Panel considered several possible readings of the First Siting Provision.
The Panel observed that "[t]he terms actually used in the provision do not precl ude 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 manufactured in the state of Washington were
'used' in the final assembly of 777X commercial airplanes in the state of Washington."98 However,
according to the Panel, two other "possible and equally reasonable" readings of the terms of the
First Siting Provision exist that "would allow the manufacturer to benefit from the subsidies" if it:
(i) "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"; or (ii) "stopped manufacturing f uselages, wings,
and even commercial airplanes 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."99
5.39. In the European Union's vie w, under all scenarios examined by the Panel, the production
requirements in the First Siting Provision leave Boeing with no choice but to use at least some

94 European Union's other appellant's submission, para. 64.
95 European Union's other appellant's submission, paras. 60-61. (emphases original)
96 United States' appellee's submission, para. 53.
97 United States' appellee's submission, paras. 63 (emphasis original) and 66.
98 Panel Report, para. 7.293.
99 Panel Report, para. 7.294.

domestically produced wings and fuselages in its production of the 777X aircraft in Washington. 100
Thus, according to the European Union, "the express text of the First Siting Provision or
alternatively, the necessary implications from that text, should have led the Panel to a finding of
de jure contingency."101
5.40. We begin by observing that, as the European Union argues, the requirement to produce
wings and fuselages in Washington would in all likelihood result in the use of at least some
domestically produced wings and fuselages in the final assembly of the 777X. In this regard, we
recall that the relevant question in determining the existence of contingency under Article 3.1(b) is
not whether the eligibility requirements under a subsidy may result in the use of more domestic
and fewer imported goods, but whether the measure, by its terms or by necessary impl ication
therefrom, sets out a condition requiring the use of domestic over imported goods. Thus, in our
view, whether any reading of the First Siting Provision "would allow the subsidy recipient to avail
itself of the subsidy without the use of domestic ov er imported wings and fuselages, at least for
some aircraft for some time" 102 does not directly address the issue of contingency under
Article 3.1(b). Even if, under all scenarios discussed by the Panel, Boeing would likely use some
amount of domestically produced wings and fuselages, this observation is not in itself sufficient to
establish the existence of a condition, reflected in the measure's terms or arising by necessary
implication therefrom, requiring the use of domestic over imported goods.
5.41. In this light, we note the Panel's finding that the condition set out in the terms of the First
Siting Provision does not relate to the use of domestic or imported goods but rather to the siting of
certain manufacturing activities in Washington. 103 In this respect, the Panel was correct in
observing that the fact that the terms actually used in the First Siting Provision do not preclude a
scenario in which "wings and fuselages manufactured in the state of Washington were 'used' in the
final assembly of 777X commercia l airplanes in the state of Washington … is not the same as
concluding that it is a requirement or condition for the subsidies that necessarily derives from
those terms."104
5.42. Moreover, the two "alternative" readings of the First Siting Provision by the Panel confirm
that the conditionality established on the basis of its terms is linked to the manufacture of wings
and fuselages, and that the use of those products in the final a ssembly of the 777X is not a
condition for receiving the subsidy, but is rather a consequence of the requirement to manufacture
them domestically. 105 It appears that the absence of any express language in the First Siting
Provision, or any necessary implicat ion therefrom, that would relate to a condition requiring the
use of domestic over imported goods in the First Siting Provision, coupled with the fact that it
"involves a one -time decision on the initial establishment, but not the continuation, of certain
manufacturing activities" 106, were particularly relevant considerations for the Panel's ultimate
conclusion that "[t]he contingency on siting certain production activities within the state of
Washington does not entail any explicit, or any necessarily implie d, requirement to use domestic
goods."107
5.43. Likewise, we draw attention to the Panel's discussion of whether the First Siting Provision
requires the same entity to manufacture both the commercial airplane and the fuselages and

100 According to the European Union, with regard to the first alternative scenario envisaged by the
Panel, "[i]f all of the 777X wings and fuselages manufactured in Washington State were destroyed, discarded,
or indefinitely stored, such that none of them would be used in the final assembly of the 777X produced in
Washington State, it is impossible to understand in what sense there would be a 777X production program in
Washington State 'in which' 777X wings and fuselages would be integrated – which is what the terms actually
used in the measure say and require." Under the second alternative scenario, the European Union argues,
"there is a period of time during which the First Siting Provision obligates Boeing to establish the 777X
production program in Washington State, 'in which' the wings and fuselages are to be integrated." Therefore,
according to the European Union, "it results from the very words used in the First Siting Provision that even if
Boeing could import all of the wings and fuselages some of the time (quod non), and some of the wings and
fuselages all of the time (quod non), it certainly can't import all of the wings and fuselages all of the time."
(European Union's other appellant's submission, paras. 59, 60, and 62 (emphases original))
101 European Union's other appellant's submission, para. 64.
102 European Union's other appellant's submission, para. 62.
103 Panel Report, para. 7.293.
104 Panel Report, para. 7.293.
105 Panel Report, para. 7.294.
106 Panel Report, para. 7.294.
107 Panel Report, para. 7.296.

wings. The Panel observed that, in light of its reading of the terms of th is provision, "even if [it]
could have been satisfied by two different entities siting two different operations in the state of
Washington, this situation would neither expressly require nor necessarily imply that domestic
goods instead of imported goods would have to be used by either entity." 108 We therefore
understand the Panel to have reasoned that, to the extent that no element in the terms of the
provision "condition[s], either explicitly or by necessary implica tion, the availability of subsidies on
the use of domestic over imported goods by the manufacturer or manufacturers involved" 109, the
existence of such conditionality cannot be established, as the European Union contends, based
solely on the fact that the Fi rst Siting Provision obliges the subsidy recipient to commence
manufacture of both a commercial airplane and fuselages and wings as part of the same
production program in Washington.110
5.44. In sum, the relevant question in determining the existence of de jure contingency under
Article 3.1(b) is not whether the production requirements under the First Siting Provision may
result in the use of more domestic and fewer imported goods, but whether the measure, by its
terms or by necessary implication therefrom, sets out a condition requiring the use of domestic
over imported goods. Therefore, even if, under the scenarios discussed by the Panel, Boeing would
likely use som e amount of domestically produced wings and fuselages, this observation is not in
itself sufficient to establish the existence of a condition, reflected in the measure's terms or arising
by necessary implication therefrom, requiring the use of domestic over imported goods.
5.45. We therefore reject the European Union's claim that the Panel erred in its application of
Article 3.1(b) of the SCM Agreement in finding that the First Siting Provision does not make the
aerospace tax measures de jure contingent upon the use of domestic over imported goods.
5.4 Whether the Panel erred in its application of Article 3.1(b) of the SCM Agreement, or
under Article 11 of the DSU, in the context of its de jure contingency analysis in respect
of the Second Siting Provision
5.46. The European Union further claims that the Panel erred in its application of Article 3.1(b) of
the SCM Agreement by unduly restricting the scope of the evidence from which it assessed de jure
contingency in respect of the Second Siting Provision, and in particular by failing to rely on the
United States' "admission" that, "if the completed fuselages and wings were produced outside the
United States and then imported, [the Washington Department of Revenue] would likely determine
that some final assembly or wing assem bly had been sited outside Washington, meaning the
Second Siting Provision would be triggered". 111 According to the European Union, the
United States' "admission" constitutes "an agreement between the parties " on the meaning of the
Second Siting Provision an d evidence as to the "relevant practices of administering agencies" 112
that should have been taken into account by the Panel in its de jure contingency analysis, insofar
as "[a] de jure case is built upon the text of the municipal law measure and its meaning."113

108 Panel Report, para. 7.295.
109 Panel Report, para. 7.295.
110 European Union's other appellant's submission, paras. 60-62. The European Union also considers
that "the conclusion that the measure is de jure contingent on the use of domestic over imported goods is
confirmed and corroborated by the 'fact' that aircraft producers are rational commercial actors and would act in
a rational manner (e.g., they would not agree to produce the 777X in Washington State and to manufacture
777X wings and fuselages in Washington State, only to destroy, discard, or indefinitely store the 777X wings
and fuselages instead of using them in the 777X program established in Washington State)." (Ibid., para. 63)
In our view, however, this observation does not alter the assessment as to whether the First Siting Provision,
by its terms, makes the granting of the subsidy de jure contingent upon the use of domestic over imported
goods. In particular, to the extent that this factor does not seem to relate to the terms of the First Siting
Provision itself, or to any meaning derived by necessary implication from those terms, we do not see how
Boeing's purported conduct as a rational economic actor would be relevant to an analysis of de jure
contingency. Furthermore, the language of the First Siting Provision is general, and does not refer to specified
addressees, but to an "airplane program" that, under certain conditions, may qualify for certain tax benefits.
Therefore, we do not see the relevance of Boeing's conduct as a rational economic actor for assessing the
meaning of the terms of the First Siting Provision.
111 European Union's other appellant's submission, para. 109 (quoting United States' response to Panel
question No. 80, para. 119; and referring to response to Panel question No. 43, para. 103).
112 European Union's other appellant's submission, para. 113 (quoting Panel Report, para. 7.8).
113 European Union's other appellant's submission, para. 116.

5.47. The United States responds that "the supposed 'admission' … does not address the meaning
of the terms used in the Second Siting Provision [but] predicts what [the Washington Department
of Revenue] would likely do in a particular hypothetical factual s cenario, based on a number of
assumptions", and that its response "makes clear that the Second Siting Provision places
conditions on the siting of production activity, not the domestic or imported character of any goods
that are used."114
5.48. We recall that, whereas de jure contingency is demonstrated on the basis of the very words
of the measure, or by necessary implication therefrom 115, the existence of de facto contingency is
"inferred from the total configuration of the facts constituting and surrounding the granting of the
subsidy".116 The factors relevant for establishing the existence of de facto contingency include the
design and structure of the measure, its modalities of operation, as well as the relevant factual
circumstances that provide the context for understanding the measure's design, structure, and
modalities of operation.117 However, the legal standard expressed by the word "contingent" is the
same for both de jure and de facto contingency.118 As we have observed, the relevant question
under Article 3.1(b) is whether a condition requiring the use of domestic over imported goods can
be discerned from the terms of the measure itself, or inferred from its design, structure, modalities
of operation, and relevant factual circumstances. The factual circumstances potentially relevant to
an assessment of whether a subsidy is de facto contingent in the circumstances of this case could
include, for example, the existence of a multi -stage production process, the level of specialization
of the subsidized inputs, or the level of integration of the production chain in the relevant industry.
5.49. We further observe that both import substitution subsidies and other subsidies that relate to
domestic production may have adverse effects in respect of imported goods. Subsidies contingent
upon import substitution, by their nature, adversely affect competitive conditions of imported
products. Yet, also subsidies that relate to the production of certain goods in a Member's domestic
territory can ordinarily be expected to increase the supply of the subsidized domestic goods in the
relevant market, which would have the consequence of increasing the use of these subsidized
domestic goods downstream and adversely a ffecting imports. In the specific case of subsidies
granted for the production of both an input and a final good, subsidy recipients would likely both
"produce" and "use" the subsidized inputs in the production of the subsidized final good. Indeed,
such subsidies would have consequences for the subsidized producers' input -sourcing decisions to
the extent that, having been required to produce an input domestically, and for reasons of
production costs and efficiency, they would likely use at least some of the se inputs in their
downstream production activities. This is even more so in instances where the subsidized input is
specialized in nature or where vertical integration between the upstream and downstream stages
of the production chain exists. However, whi le such subsidies may foster the use of subsidized
domestic goods and result in displacement in respect of imported goods, such effects do not, in
and of themselves, demonstrate the existence of a requirement to use domestic over imported
goods.
5.50. At the same time, whether a subsidy is contingent upon the use of domestic over imported
goods is to be " inferred from the total configuration of the facts constituting and surrounding the
granting of the subsidy".119 In particular, factual circumstances, where relev ant, may form part of
the context for understanding the measure's design, structure, and modalities of operation in a
particular market, all of which may assist in discerning whether or not a de facto contingency
exists. The design and structure of a measu re granting a subsidy may be adapted to factual
circumstances – such as a multi-stage production process where specialized inputs and final goods
are subsidized, or where the production chain is vertically integrated. The modalities of a measure
so designed or structured may then operate, such that conditions for eligibility or access to the
subsidy may entail a condition requiring the use of domestic over imported goods. 120 However,
whether a subsidy is simply conditional upon the domestic production of certain goods, or upon the

114 United States' appellee's submission, paras. 93-94.
116 Appellate Body Report, Canada – Aircraft, para. 167. (emphasis original)
117 See Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1046.
118 See Appellate Body Report, Canada – Aircraft, para. 167.
119 Appellate Body Report, Canada – Aircraft, para. 167. (emphasis original)
120 We note, in this respect, that a subsidy could be contingent upon import substitution "solely or as
one of several other conditions", and that therefore subsidies that are conditional upon the production of
certain goods domestically may at the same time be contingent upon the use of domestic over imported goods.

use by the subsidy recipient of domestic over imported goods , should be assessed on a
case-by-case basis.
5.51. We have observed above that we understand the analysis of de jure and de facto
contingency under Article 3.1(b) as a continuum, starting with the terms of the measure and their
necessary implications, and continuing with factors including the measure's design and structure,
its modalities of operation , and other relevant circumstances. 121 Ultimately, in determining the
existence of contingency, a panel should conduct a holistic assessment of all relevant elements
and evidence on the record, and need not compartmentalize de jure and de facto analyses in order
to reach an overall conclusion as to whether a subsidy is contingent upon the use of domestic over
imported goods. A finding of contingency, whether made on a de jure or de facto basis, yields a
finding of inconsistency with Article 3.1(b) of the SCM Agreement under the same legal standard of
contingency, namely, whether the measure reflects a condition requiring the use of domestic over
imported goods.
5.52. We recall that determining the meaning of domestic law by a panel calls for particular care,
and that, in its de jure contingency analysis, the Panel in this case had to examine the meaning of
the terms of the Second Siting Provision and the necessary implications that flow from those
terms. The Panel found that the language of the Second Siting Provision concerns the "siting" of
the assembly of certain goods in Washington, rather than the "use" of any goods as a condition for
receiving the subsidy 122, and that several possible readings of its terms exist, such that "an
import-substitution contingency [could not] be derived by necessary impl ication" from those
terms.123 The Panel then turned to analyse whether the Second Siting Provision entails a de facto
contingency, and posed a series of questions to the United States in respect of certain
counterfactual scenarios. 124 The European Union consid ers that, while the Panel found the
United States' responses to these questions "to be of crucial importance, and in fact determinative,
in its analysis of de facto contingency with respect to the Second Siting Provision", they
"inexplicably find[] no ment ion in the Panel's de jure analysis", even though they reflect an
"agreement between the parties on the meaning of [the] Second Siting Provision" and a
clarification as to the "relevant practices of administering agencies".125
5.53. We note that the Panel considered the United States' responses to be "significant in
understanding the modalities of operation of the conditions of the Second Siting Provision", which
were subject to the Washington Department of Revenue's administrative discretion, and concluded
that "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 t hat same subsidy would be terminated if a
manufacturer used those same goods from a foreign source." 126 The Panel therefore conducted an
analysis of, and relied upon, these responses in the context of its de facto contingency analysis.
While it is conceivabl e that the United States' responses to the Panel's questions may have shed
light on the necessary implication of the terms of the Second Siting Provision, they may have been
equally relevant for understanding the measure's design, structure, and modalities of operation in
the context of the relevant factual circumstances. We recognize that the Panel compartmentalized
its de jure and de facto contingency analyses. It would have been preferable if it had conducted a
more holistic assessment of all relevant elements and evidence on the record. However, we do not
consider that the Panel erred in considering the United States' responses to its questions in the
context of examining the design, structure , and modalities of operation of the Second Siting
Provision in the context of the relevant factual circumstances.
5.54. The European Union also claims that , by adopting in the context of its de jure analysis an
interpretation of the Second Siting Provision "devoid of any evidentiary basis", the Panel failed to
make an obj ective assessment of the matter under Article 11 of the DSU. 127 The European Union
takes issue with the Panel's statement s that "the terms 'any final assembly or wing assembly' [in
the Second Siting Provision] are explicitly tied, and arguably limited, to th e specific assembly
operations that were 'the basis of a siting' under the First Siting Provision", and therefore "the

121 To the extent that both de jure and de facto claims have been raised.
122 Panel Report, para. 7.308.
124 Panel Report, para. 7.361.
125 European Union's other appellant's submission, paras. 111 and 113.
127 European Union's other appellant's submission, para. 119.

terms of the Second Siting Provision could rather be understood to address the situation in which
production activities that had been pre viously sited in the state of Washington, and had been the
basis of the determination by the Department of Revenue pursuant to the First Siting Provision,
were subsequently sited outside the state of Washington."128
5.55. We agree with the European Union that the words of the Second Siting Provision do not
appear to limit its scope of application to the relocation of specific assembly operations that were
the basis of a siting under the First Siting Provision.129 At the same time, since compliance with the
First Siting Provision meant that the 777X wings should have at least been planned to "commence
manufacture at a new or existing location within Washington", we consider it reasonable to
conclude that one situation in which the Second Siting Provision would be trig gered is where the
production of wings, once sited in Washington pursuant to the First Siting Provision, has been
subsequently sited outside of this state. In this regard, we note the Panel's statement that ,
"[b]ased purely on the wording of [the Second Si ting Provision], 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." 130 The Panel also explicitly referred to
the possibility of "[a]nother reading of the terms of the Second Siting Provision". 131 In this light,
while we do not consider that the scope of application of the Second Siting Provision is limited to
the relocation of specific assembly operations that have bee n previously sited in Washington , we
do not see that, in making the statements with which the European Union takes issue, the Panel
adopted such an understanding. Instead, the Panel merely described one possible situation under
which the Second Siting Provision would be activated.
5.56. In any event, we do not see that the Panel's statements were critical for its ultimate
conclusion that the contingency set out in the Second Siting Provision is not that products
manufactured in Washington should be "used", but ra ther that the manufacturing of certain
products should not be "sited" outside Washington.132 The Panel's finding that the Second Siting
Provision does not demonstrate de jure contingency upon the use of domestic over imported goods
was based more generally on the words used in th is provision which do not speak of "component
sourcing decisions" and the necessary implication that might flow therefrom, rather than on the
fact that the terms "any final assembly or wing assembly" may be limited to the relocation of
specific assembly operations that have been previously sited in Washington .133 We therefore
disagree with the European Union's contention that the Panel's understanding of the Second S iting
Provision is "devoid of any evidentiary basis".134
5.57. In sum, we do not consider that the Panel erred in its application of Article 3.1(b) by not
examining the United States' responses to its questions in the context of its de jure contingency
analysis of the Second Siting Provision. In determining the existence of contingency, a panel

128 Panel Report, para. 7.305. See European Union's other appellant's submission, para. 120.
129 In this regard, we recognize that, whereas the "siting" requirements under the First Siting Provision
are that a new or existing model of a commercial airplane, as well as "[f]uselages and wings" of such model,
should "commence manufacture" in Washington, the "siting" requirements under the Second Siting Provision
concern any "final assembly or wing assembly" of the same model.
131 Panel Report, para. 7.309.
132 Panel Report, para. 7.308.
133 Panel Report, paras. 7.305 and 7.315.
134 European Union's other appellant's submission, para. 119. The European Union raises a number of
additional arguments, all of which appear to focus on the same central concern that the Panel understood the
Second Siting Provision as limited to the relocation of the assembly operations that were the basis of a siting
under the First Siting Provision. In particular, the European Union contends that the Panel's interpretation is
contradicted by the words of the First Siting Provision, and that nothing in this provision or in ESSB 5952
"requires the aircraft manufacturer to indicate to the [Washington Department of Revenue] which specific
aircraft and wings within the given aircraft model, or how many such aircraft and wings, would be assembled in
Washington". The European Union also argues that both parties understood the words of the Second Siting
Provision as referring "to the aircraft model in respect of which the First Siting Provision was satisfied, the
777X, and not to 'specific assembly operations'". Furthermore, the European Union recalls its argument that
"the Parties agreed that 'if the completed fuselages and wings were produced outside the United States and
then imported', the [Second Siting Provision] would be triggered." Finally, according to the European Union,
"the Panel's view that the Second Siting Provision does not 'per se and necessarily exclude the possibility for
the airplane manufacturer to use wings from outside the state of Washington […], as long as it did not relocate
the previously sited manufacturing of wings outside the state of Washington'", is contradicted by certain
statements made by the United States before the Panel. (Ibid., paras. 126, 127 (emphasis original), 130,
and 131 (fn omitted))

should conduct a holistic assessment of all relevant elements and evidence on the record, and
need not compartmentalize its de jure and de facto analyses in order to reach a n overall
conclusion as to whether a subsidy is contingent upon the use of domestic over imported goods.
The United States' responses may have shed light on the necessary implication of the terms of the
Second Siting Provision, but they may have been equally relevant for understanding the measure's
design, structure, and modalities of operation in the context of the relevant factual circumstances.
Therefore, we do not consider that the Panel erred by unduly restricting the scope of the evidence
from which it assessed de jure contingency with respect to the Second Siting Provision. We also do
not consider that the Panel understood the scope of application of the Second Siting Provision as
limited to the relocation of specific assembly operations that were the basis of a siting under the
First Siting Provision. Instead, the Panel was merely describing one possible situation under which
the Second Siting Provision would be activated.
5.58. In view of the above, we reject the European Union's claim that the Panel erred in the
application of Article 3.1(b) of the SCM Agreement in finding that the Second Siting Provision,
considered separately or jointly with the First Siting Provision, does not make the B&O aerospace
tax rate de jure contingent upon the use of domestic over imported goods. We also reject the
European Union's claim that the Panel failed to make an objective assessment of the matter under
Article 11 of the DSU in finding that the Second Siting Provision, considered separately or join tly
with the First Siting Provision, does not make the B&O aerospace tax rate de jure contingent upon
the use of domestic over imported goods.
5.5 Whether the Panel erred in its de facto contingency analysis under Article 3.1(b) of
the SCM Agreement
5.59. The United States claims that the Panel erred in the interpretation and application of
Article 3.1(b) of the SCM Agreement in finding that the B&O aerospace tax rate is de facto
contingent upon the use of domestic over imported goods. The United States argues that the Panel
erroneously interpreted and applied Article 3.1(b) of the SCM Agreement as if it prohibited
subsidies conditional upon the domestic siting of production activities. 135 The United States further
submits that, because Boeing does not and will not "use" wings to produce the 777X, the Panel
erred in its interpretation and application of Article 3.1(b) in finding that the B&O aerospace tax
rate for the 777X aircraft program is contingent upon the "use" of wings for the 777X.136 Moreover,
the United States argues that the Panel erred in the interpretation and application of Article 3.1(b)
in finding that the subsidy is contingent upon the use of "domestic" over "imported" wings because
it did not address the meaning of the terms "domestic" or "imported", and did not conduct "a
meaningful analysis" as to whether wings resulting from wing assembly in Washington would
necessarily be "domestic". 137 In addition, the United States claims that the manner in which the
Panel used hypothetical scenarios to determine what would trigger the Second Siting Provision
constitutes an error in the interpretation and application of Article 3.1(b) of the SCM Agreement,
or, in the alternative, a failure to make an objective assessment of the m atter under Article 11 of
the DSU.138
5.60. In response, the European Union submits that the Panel did not find that a subsidy
contingent solely upon domestic production, without more, would be inconsistent with
Article 3.1(b). Rather, for the European Union, "the Panel found that the evidence before it
demonstrated the subsidy at issue to be contingent on the use of domestic over imported goods,
and in fact going even further, one which ' per se and necessarily exclude[s] ' the possibility that
any wing could be imported without the loss of the subsidy." 139 The European Union submits that,
if the United States' argument that wings are not "used" in the production of the 777X were
accepted, this would mean that Boeing itself could determine whether or not a challenge d subsidy

135 United States' appellant's submission, para. 99.
136 United States' appellant's submission, para. 124. In this respect, the United States underscores that
wings "do not come into existence until the finished airplane itself is completed through the final assembly
process". (United States' appellant's submission, para. 115 (fn omitted))
137 United States' appellant's submission, para. 126. The United States also contends that the Panel's
failure to address the meaning of the terms "domestic" and "imported" constitutes a failure to provide a basic
rationale for its findings as required under Article 12.7 of the DSU. (United States' appellant's submission,
para. 133)
138 United States' appellant's submission, para. 135.
139 European Union's appellee's submission, para. 79 (quoting Panel Report, para. 7.367).

would be consistent with Article 3.1(b) by the way it organized its production process. 140 The
European Union argues that, even if currently Boeing does not "use" wings, it may do so in the
future, but, nevertheless, the subsidy would act to preven t Boeing from using imported wings. 141
With respect to the United States' allegation that the Panel did not address the meaning of the
terms "domestic" and "imported", the European Union contends that the Panel "revealed an
interpretation of the word 'domestic'" in stating that wings sourced from Washington "by definition
would be domestic wings". 142 Finally, the European Union submits that, in the present case, the
use of hypothetical scenarios by the Panel was inevitable because the Panel was called upon to
examine the relationship between the requirements of the Second Siting Provision and events that
may occur in the future.143
5.61. As the Panel noted, the First and Second Siting Provisions are focused on the siting of
assembly activities and do not contain any lan guage requiring in explicit terms, or by necessary
implication therefrom, the use of domestic over imported goods. 144 Above we have rejected the
European Union's claims that the Panel erred in its interpretation and application of Article 3.1(b)
in its analysis of de jure contingency. As we have noted, where an analysis of de jure contingency
does not yield a finding of inconsistency under Article 3.1(b) on the basis of the terms of the
measure, or any necessary implication there from, a panel may still make a determination that
contingency exists on a de facto basis where a contingency to use domestic over imported goods
can be inferred from the total configuration of the facts surrounding the granting of the subsidy.
Analysis of de facto contingency may take into account the measure's design and structure, and
modalities of operation, as well as the factual circumstances providing context for understanding
the subsidy measure and its operation with a view to ascertaining whether a condition requiring
the use of domestic over imported goods exists.
5.62. The participants, in their arguments relating to de facto contingency under Article 3.1(b),
referred to factual circumstances that we consider potentially relevant to an assessment of
whether the subsidy at issue is de facto contingent. These include the multi -stage nature of the
production process, the level of integration of the subsidy recipient, and the degree of
specialization of the subsidized inputs, to the extent that they inform and provide context for
understanding the measure's design, structure, and modalities of operation. In respect of the
Second Siting Provision, the question at issue is whether, notwithstanding that the measure itself
expressly concerns only the siting of certain manufacturing and assem bly operations, which w as
found not to demonstrate de jure contingency, a condition requiring the use of domestic over
imported goods nevertheless exists on a de facto basis.
5.63. The Second Siting Provision provides that the B&O aerospace tax rate ceases to ap ply in a
case where the Washington 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 significant commercial airplane manufacturing pro gram in [Washington pursuant to the
First Siting Provision] has been sited outside the state of Washington."145 By its express terms, the
Second Siting Provision is triggered in the event of a future determination by the Washington
Department of Revenue that final assembly or wing assembly "has been sited" outside
Washington, and thus the condition contained in the measure concerns the siting or location of the
relevant assembly activities. It is the Second Siting Provision's reference to wing assembly, rathe r
than to final assembly, that the Panel considered most relevant to the European Union's claim of
de facto contingency upon the use of domestic over imported wings.146
5.64. We recall the relevant aspects of the Panel's analysis of the European Union's claim of
de facto contingency. The Panel started by noting that its de facto analysis "must go beyond the

140 European Union's appellee's submission, para. 94.
141 European Union's appellee's submission, paras. 108-109.
142 European Union's appellee's submission, para. 119 (quoting Panel Report, para. 7.364). The
European Union points out that the Panel also revealed an interpretation of the terms "domestic" and
"imported" by stating that "wings made in Washington State are domestic goods and any imported wings
would by definition be made outside of Washington State". (Ibid. (quoting Panel Report, para. 7.367))
143 European Union's appellee's submission, paras. 140-141.
144 Panel Report, paras. 7.297, 7.311, and 7.317.
145 Panel Report, para. 7.32 (quoting ESSB 5952 (Panel Exhibit EU-3), Sections 5-6(11)(e)(ii)).
146 Panel Report, para. 7.349. 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. (Ibid.)

text of the legislation and … be based on a holistic examination of all the available evidence"
pertaining to the design, structure, modalities of operation , and the relevant factual circumstances
surrounding the granting of the subsidies.147
5.65. In its de facto analysis, the Panel evaluated relevant circumstances relating to the Second
Siting Provision, in particular, the circumstances in which the provision would be triggered. The
Panel distinguished the enforcement mechanism of the Second Siting Provision from that of the
First Siting Provision. With respect to the First Siting Provision, the Panel noted that it
contemplates "a one -time decision" by the Washington Department of Revenue and that there is
"no legal mechanism under Washington State law that would allow the Department of Revenue to
revoke that determination" .148 Thus, the Panel concluded that "the First Siting Provision is not a
measure whose operation will occur in repeated instances over some (definite or indefinite)
period."149 By contrast, the Panel found that "the role of the Second Siting Provision is to esta blish
conditions for the airplane manufacturing program me that had activated the First Siting Provision
(and thus effected the extended availability of the tax benefits) to maintain that program me's
access to one of those tax benefits, namely the B&O aeros pace tax rate." 150 The Panel recalled
that "the Second Siting Provision provides that the 'siting' of 'wing assembly' of the airplane model
in question (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."151 Noting that "the conditionality in the Second
Siting Provision is phrased in the negative", the Panel understood the Second Siting Provision to
set forth the factual circumstances that would, if they arose, cause Boeing's 777X aircraft program
to lose access to the subsidy. 152 It was thus clear to the Panel that so long as such "siting" does
not happen, the Second Siting Provision "remain s dormant, operating passively as a deterrent to
safeguard the status quo (or at least p articular aspects thereof) that satisfied the First Siting
Provision".153 For the Panel, this "passive, deterrent nature of the measure" raised "the question as
to what sort s of factual evidence could inform the analysis of wh ether ongoing access to the
B&O aerospace tax rate … is contingent de facto on the use of domestic over imported 777X
wings."154 At the time of the Panel's assessment of this claim, the Second Siting Provision had not
been triggered, and therefore no evidence existed as to its actual operation and, in particular, as
to what would trigger the Second Siting Provision.155
5.66. Because the Second Siting Provision had not been triggered, the Panel observed that it was
"confronted by the counterfactual question of what would trigger the Second Siting Pr ovision, that
is, what action by Boeing would result in the Department of Revenue determining that 777X wing
assembly 'has been sited' outside Washington State." 156 The Panel considered "particularly
relevant the discretion granted … to the Department of Revenue to terminate the availability of the
B&O aerospace tax rate … if it determines that Boeing has 'sited' assembly of wings … outside of
Washington State". 157 The Panel underscored that the exercise of discretion granted to the
Washington Department of Rev enue "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 777X programme on the basis of a determination that Boeing, by virtue of using imported
777X wings, had 'sited' 777X wing assembly outside Washington State."158

147 Panel Report, para. 7.327. The Panel observed that, since the First Siting Provision was satisfied by
Boeing's 777X siting decision, the operation of the First and Second Siting Provisions could not be dissociated.
The Panel thus considered "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".
(Ibid., para. 7.331)
149 Panel Report, para. 7.345.
150 Panel Report, para. 7.346.
151 Panel Report, para. 7.358. The Panel recalled that the expression "has been sited" (used in the
Second Siting Provision in the passive tense) is related to a manufacturer locating a manufacturing program in
a particular place, which is consonant with the definition of "siting" in the First Siting Provision. (Ibid., fn 663 to
para. 7.358 (referring to para. 7.304))
152 Panel Report, para. 7.346.
153 Panel Report, para. 7.358.
154 Panel Report, para. 7.358.
155 Panel Report, para. 7.358.
156 Panel Report, para. 7.359.
157 Panel Report, para. 7.360.
158 Panel Report, para. 7.360.

5.67. In an effort to understand what would trigger the Second Siting Provision, the Panel posed
two questions to the United States (Panel questions Nos. 40 and 80) based on hypothetical
scenarios. Under the first scenario, the Panel asked whether the Second Siting Provision would be
triggered if, assuming arguendo that it w as possible for Boeing to purchase completed wings,
Boeing would continue manufactur ing wings itself in Washington and, in addition, would purchase
wings from another manufacturer in Washington.159 With respect to the first hypothetical scenario,
the United States stated the following:
As alluded to in the Panel's question, and as noted elsewhere, it is not possible for
Boeing to purchase completed 777X fuselages and wings. However, assuming
arguendo that this was not the case, the wording of the question – in particular, the
focus on Boeing rather than all t axpayers, and on Boeing "remain[ing] eligible" rather
than becoming eligible – assumes that Boeing already fulfilled the First Siting
Provision. Once that provision is fulfilled, it contains no legal mechanism for reversing
course or otherwise affecting the tax treatment provided for in ESSB 5952. Therefore,
assuming arguendo that Boeing could purchase completed 777X fuselages and wings,
the First Siting Provision still would have no relevance to a decision by Boeing to make
such purchases.
Continuing with this same arguendo assumption, to determine whether the Second
Siting Provision was triggered, DOR would have to evaluate whether Boeing had sited
any wing assembly or final assembly outside Washington. The question implies that no
such siting outside Washington would have taken place. Therefore, DOR likely would
not determine that the Second Siting Provision had been triggered. This is no different
than if Boeing cancelled the 777X program altogether. In short, unless DOR
determines that 777X final assembly or wing assembly has been sited outside
Washington, the Second Siting Provision is not triggered.160
5.68. Under the second hypothetical scenario, the Panel asked whether the Second Siting
Provision would be triggered if Boeing would continue manufacturing wings in Washington and, in
addition, would purchase them from another producer outside of Washington. 161 With respect to
the second hypothetical scenario, the United States explained:
Under the Second Siting Provision, the fact that fuselages and wings are imported is
irrelevant. Rather, the Second Siting Provision is triggered only if DOR determines that
any final assembly or wing assembly is sited outside Washington. It is the siting of
that production activity, not the domestic or imported c haracter of any goods, that is
relevant.
Thus, as the United States noted in response to Question 39 – and assuming
arguendo, contrary to fact, that it is possible for Boeing to import completed fuselages
and wings for use in the production of the 777X – if the completed fuselages and
wings were produced outside the United States and then imported, DOR would likely
determine that some final assembly or wing assembly had been sited outside
Washington, meaning the Second Siting Provision would be triggered. However, taking
another hypothetical that ignores for the sake of argument what is realistic, and
applying the EU's approach to "domestic" and "imported," if Boeing assembled
completed fuselages and wings in Washington, sent them to a foreign company to
conduct non -assembly operations (e.g. cosmetic painting of logos or testing), and
then imported them, the Second Siting Provision would not be triggered, despite that
under the EU's approach, Boeing was using imported goods.
Again, the Second Siting Provision is focused on the siting of production activity – in
particular, the siting of assembly operations. This is significant in light of the
distinction drawn by the EU at the second Panel meeting between the use of goods
within the meaning of Article 3.1(b), and what are "just assembly operations."162

159 Panel question No. 40.
160 United States' response to Panel question No. 40, paras. 96-97. (emphasis original)
161 Panel question No. 80.
162 United States' response to Panel question No. 80, paras. 118-120. (emphasis original)

5.69. In addition, we note that, in answering Panel question No. 7 as to whether the B&O
aerospace tax rate would still apply if there were a single instance of assembly outside
Washington, the United States responded:
At the outset, it is important to note that there is no realistic scenario in which only a
single instance of final assembly or wing assembly would take place outside of
Washington. These are complex manufacturing activities that require large
investments in sophisticated facilities and tools, a trained workforce, and integration
into the larger production process . And as the United States has explained, the wing
assembly for the 777X is only completed as part of the final assembly of the finished
airplane. However assuming for the sake of argument that there was an isolated
instance of final assembly or wing assembly outside Washington, such isolated
assembly may not be a siting outside the state that would trigger the Second Siting
Provision.
The Second Siting Provision refers to a determination by DOR that any final assembly
or wing assembly "has been sited outside the state of Washington. " The word "sited,"
particularly in conjunction with a process like "assembly," connotes a decision not
associated with a one-off exception. In essence, there is no such thing as a siting of a
one-time final assembly or wing assembly. Thus, if such an exception did occur in a
single instance, it is unlikely DOR would determine that Boeing had sited any final
assembly or wi ng assembly outside of Washington . Accordingly, the 0.2904 percent
B&O tax rate would continue to apply.163
5.70. The Panel considered the United States' responses to Panel questions Nos. 40 and 80
"significant in understanding the modalities of operation of the c onditions of the Second Siting
Provision".164 On the basis of the United States' responses, the Panel concluded that "the Second
Siting Provision is not only aimed at ensuring that [Boeing] itself assemble the 777X wings or
conduct the final assembly of the 777X"165; rather, for the Panel, "[i]t also concerns the 'use' of
certain goods [i.e. wings], 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." 166 In the Panel's
view, whether or not the Second Siting Provision would be triggered would be determined by the
origin of the wings. The Panel concluded that "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." 167
The Panel further considered that the United States' responses clarified that the term "or" in the
Second Siting Prov ision "contemplates, and seeks to prevent inter alia, any wings … from being
produced as separate products outside Washington State … that would then be shipped to
Washington State for incorporation in the final assembly process."168 On this basis, the Panel found
that no wings can "be sourced by Boeing from outside the state of Washington without the
consequence of activating the Second Siting Provision".169 Thus, the Panel based its conclusions on
the United States' responses to Panel questions Nos. 40 and 80 . We note that the Panel did not
address in its analysis the relevance of the United States' response to Panel question No. 7 that a
single instance of assembly outside Washington would not trigger the Second Siting Provision.
5.71. In evaluating the Panel's ass essment of the Second Siting Provision, we take note of the
Panel's key conclusion that the United States' responses clarify that the Second Siting Provision is
"not only aimed at" preventing the siting of assembly operations outside of Washington, but "al so
concerns the 'use' of certain goods, and specifically the origin of those goods". 170 We do not
consider that a statement by the Panel that a measure may "concern" the domestic or imported
origin of goods is in itself sufficient to establish the existence of de facto contingency to use
domestic over imported goods within the meaning of Article 3.1(b). As we have noted, the relevant
question in determining the existence of contingency under Article 3.1(b) is not whether a
condition for eligibility under a subsidy may result in the use of more domestic and fewer imported

163 United States' response to Panel question No. 7, paras. 15-16. (fn omitted; emphasis original)
164 Panel Report, para. 7.365.
165 Panel Report, para. 7.364.
166 Panel Report, para. 7.366.
168 Panel Report, para. 7.366.
169 Panel Report, para. 7.368.

goods. Rather, the question is whether a condition requiring the use of domestic over imported
goods can be discerned from the terms of the measure itself, or inferred from the measure's
design, structure, and modalities of operation, in light of the relevant factual circumstances that
provide the context for understanding the measure and its operation.
5.72. Other statements by the Panel underscore its understanding that the operation of the siting
condition under the measure at issue may relate only to certain consequences for the importation
of goods. The Panel conside red that "so long as th is 'siting' does not happen", the Second Siting
Provision "remain s dormant", and that it was this " particular passive, deterrent nature of the
measure" that raised the question "as to what sorts of factual evidence could inform the a nalysis
of whether ongoing access to the B&O aerospace tax rate … under the 777X programme is
contingent de facto on the use of domestic over imported 777X wings."171 For the Panel, this made
the question as to how the Washington Department of Revenue would exercise the discretion
granted to it under the measure and, specifically, the Second Siting Provision "particularly
relevant".172 The Panel concluded that the responses provided by the United States regarding what
might trigger the Second Siting Provision d emonstrate that the language of th is provision
"contemplates, and seeks to prevent inter alia , any wings … from being produced as separate
products outside Washington State … that would then be shipped to Washington State for
incorporation in the final assembly process".173
5.73. While the Panel is correct to note that the measure may prevent assembly of completed
wings abroad, in our view, this does not mean that the Second Siting Provision "contemplates" and
"seeks to prevent" imports of completed wings. While it is not unusual that, in order to receive a
subsidy, the recipient is required to meet certain conditions, it is not entirely clear how the
Washington Department of Revenue would exercise its discretion and whether a loss of the subsidy
by the recipient, if these conditions are not met, would demonstrate the existence of a
requirement to use domestic over imported goods. In any event, it is the location of production,
not the imported or domestic origin of the resulting product, that wo uld trigger the loss of the
B&O aerospace tax rate.
5.74. Thus, we do not consider that the Panel's analysis and reasoning is sufficient to establish
that the way the Second Siting Provision operates with respect to the siting of production and
assembly makes the B&O aerospace tax rate de facto contingent upon the use of domestic over
imported goods. In addition, we do not understand how statements made by the Washington
Governor "about the goal of keeping 777X wing production in Washington" are, in the Panel's
words, "consistent" with its conclusion th at the Second Siting Provision demonstrate s de facto
contingency.174 If anything, these statements simply underscore that the Second Siting Provision
relates to a requirement not to site certain production and assembly activities outside Washington.
5.75. We consider it significant that the Second Siting Provision is focused on the "siting" of
assembly activities. As we have noted, although conditions for eligibility and access to a subsidy
may entail certain consequences for a domestic produc er's sourcing decisions between domestic
and imported goods, this alone does not equate to a condition requiring the use of domestic over
imported goods. The Panel itself appears to have recognized this when it stated that the focus of
its assessment was "not whether the measures at issue have had an import substitution effect or a
detrimental impact on imports, as this would [have] require[d] the Panel to trespass into an
adverse effects analysis of the type that is not contemplated by Article 3.1 ."175 Yet, by relying on
the consequence that a domestic siting provision has for the importation of goods produced
through assembly operations sited abroad, the Panel itself, in our view, built its reasoning on the
very observations concerning any consequential "imp ort substitution effect" and "detrimental
impact on imports" that the Panel stated would be inappropriate in an Article 3.1(b) analysis.
5.76. We recall, in this respect, that a subsidy requiring the siting of certain production activities
in a Member's domestic territory can ordinarily be expected to increase the supply of the
subsidized domestic goods in the relevant market, which would have the consequence of
increasing the use of these subsidized domestic goods in downstream production and adversely

171 Panel Report, para. 7.358.
172 Panel Report, para. 7.360.
173 Panel Report, para. 7.366.
174 Panel Report, para. 7.366.
175 Panel Report, para. 7.357.

affecting imports. In the specific case of subsidies granted for the production of inputs – e.g. wings
and fuselages – the subsidy recipient would likely both "produce" and "use" the subsidized inputs
in the production and assembly of the subsidized final good. Ind eed, subsidies in these
circumstances have consequences for the input -sourcing decisions of the subsidized producers to
the extent that, having been required to produce an input domestically, and for reasons of
production costs and efficiency, they will li kely use these inputs in their downstream production
activities. This holds particularly true in circumstances where the subsidized inputs are very
specialized in nature and the manufacturing and assembly stages of the production chain are
highly integrated. However, while a subsidy may operate in such factual circumstances so as to
foster the use of subsidized domestic inputs , and thereby result in adverse effects on imports
within the meaning of Part III of the SCM Agreement , such effects do not, in and o f themselves,
demonstrate the existence of a requirement to use domestic over imported goods within the
meaning of Article 3.1(b) of that Agreement.
5.77. We also take note of the United States' responses to Panel questions involving certain
"counterfactual scen arios"176 regarding what determination the Washington Department of
Revenue would likely make if Boeing were to import completed fuselages and wings. At the outset ,
we wish to recall that using counterfactual or hypothetical scenarios is a permissible tool o f legal
analysis that may be particularly relevant in WTO dispute settlement, including in the context of
the SCM Agreement.177 Moreover, the absence of evidence pertaining to the actual application of a
measure should not preclude the possibility for a Memb er to challenge a law that has not yet been
applied.178 Especially when the alleged contingency is not clearly expressed in the language of the
relevant legal instrument, a thorough analysis of the relationship between the granting of the
subsidy and the con dition requiring the use of domestic over imported goods on the basis of a
careful scrutiny of all relevant factors and factual circumstances is required. We emphasize , in this
respect, that the manner in which the Washington Department of Revenue would ex ercise its
discretion to terminate the availability of the B&O aerospace tax rate was "particularly relevant" 179
for the Panel. Thus, critical parts of the Panel's reasoning depended on whether the exercise of
discretion by the Washington Department of Revenue would trigger the Second Siting Provision ,
and the United States' responses were, therefore, of central imp ortance for the Panel's conclusion
regarding de facto contingency. That said, we consider that panels should exercise caution in
basing their findings of de facto inconsistency solely or primarily on hypothetical scenarios in
situations where limited evidence exists as to a measure's operation.
5.78. With this in mind, we are concerned about the limited consideration that the Panel gave to
the United States' responses to the Panel's questions and the conclusions that the Panel drew from
them. While we do not tak e issue with the Panel's use of questions based on hypothetical
scenarios, we question the conclusions the Panel drew from the United States' responses. The
questions posed by the Panel were conjectural and based on arguendo assumptions. We also note
the probabilistic nature of the United States' response about how the Washington Department of
Revenue might exercise its discretion if certain hypothetical factual circumstances were to arise in
the future. Because the Washington Department of Revenue has never made a determination as to
what consequence would follow the importation by Boeing of completed 777X wings and fuselages,
the Panel called upon the United States to hypothesize as to what determination the Washington
Department of Revenue would make at s ome future point in time, and in respect of market
circumstances that do not presently exist. In this regard, the United States limited itself to stating
that the Washington Department of Revenue "would likely determine" 180 that importation of
completed wing s and fuselages would mean that some assembly had been sited outside

176 Panel Report, para. 7.361.
177 For example, in examining whether there is a financial contribution within the meaning of
Article 1.1(a)(1)(ii) of the SCM Agreement, a panel must determine what revenue would have been "otherwise
due", i.e. absent the alleged subsidy. (See Appellate Body Report, Canada – Autos, para. 91) Similarly, in
examining whether a "benefit" is conferred by a financial contribution within the meaning of Article 1.1(b) of
the SCM Agreement, a panel must determine the position of the alleged subsidy recipient in the market absent
the alleged subsidy. (See Appellate Body Report, Canada – Aircraft, paras. 157-158) In addition, in the context
of causation and non-attribution analyses under the Anti-Dumping Agreement, the Safeguards Agreement, and
the SCM Agreement, panels are frequently called upon to assess "counterfactual scenarios" in reviewing
domestic determinations as to whether injury to the domestic industry would exist in the absence of dumping,
increased imports, or subsidized imports.
178 See GATT Panel Report, US – Superfund, para. 5.2.2.
179 Panel Report, para. 7.360.
180 United States' response to Panel question No. 80, para. 119.

Washington, thereby triggering the Second Siting Provision. While this statement is no doubt
relevant, it appears to have been almost the sole basis for the Panel's conclusion regarding t he
prospective modalities of operation of the Second Siting Provision.
5.79. We note certain other statements that the United States made in it s responses to the
Panel's questions. First, the United States emphasized that whether fuselages and wings are
imported is "irrelevant" for purposes of the Second Siting Provision because it is the siting of
production activities, not the domestic or imported character of goods, that determines whether or
not the Second Siting Provision would be triggered. 181 This underscores our assessment that any
requirement that is to be discerned in the Second Siting Provision relates to the location of
assembly activities, and does not in itself demonstrate the existence of a de facto requirement to
use domestic over imported goods. In our view, the circumstances present in this dispute – such
as the existence of a multi -stage production process, the level of specialization of the subsidized
inputs, and the level of integration of the manufacturing and assembly chain in the aircraft
industry – should have received more careful consideration by the Panel. Second, as the
United States also noted in its response to Panel question No. 80, even if importation of completed
777X wings and fuselages were technically possible, not all importation of such structures would
carry the consequence that the United States outlined, for there could be a scenario in which
assembly would still occur in Washington, but the export of such structures for non -assembly
operations and the subsequent importation of those structures would not trigger the Second Siting
Provision. Third, we recall that, in response to Panel question No. 7, the United States ind icated
that an isolated instance of final assembly or wing assembly outside Washington "may not be a
siting outside the state that would trigger the Second Siting Provision". 182 This response by the
United States calls into question the Panel's conclusion d rawn on the basis of the United States'
responses to Panel questions Nos. 40 and 80.
5.80. Read together, the above statements by the United States reflect important caveats that
further attenuate the United States' response as to the Washington Department of Rev enue's
"likely" determination if Boeing were to import completed wings or fuselages. Importantly, we also
note that the Panel did not refer in its Report to any of the statements set out in the preceding
paragraph, either in its description of the United S tates' responses to the Panel's questions, or
when it reasoned its finding of de facto contingency. Given the Panel's near sole reliance on the
United States' responses to Panel questions Nos. 40 and 80, we would have expected the Panel to
have conducted a more careful analysis and provided an explanation as to how it could justify its
singular reliance on the United States' responses in light of the various caveats in those responses.
We recall, in this connection, the Appellate Body's statement in Canada – Aircraft that, in
examining the total configuration of facts constituting and surrounding the granting of the subsidy,
no one factor "on its own is likely to be decisive in any given case". 183 In our view, the United
States' responses to the Panel's questi ons do not seem to have indicated anything more than a
consequence of not fulfilling the conditions for the granting of the subsidy. Such consequences,
together with other possible consequences of the subsidy at issue that may have some bearing on
Boeing's input-sourcing decisions, are not sufficient to demonstrate that the Second Siting
Provision, which was found not to demonstrate de jure contingency, nevertheless entails a de facto
requirement to use domestic over imported goods.
5.81. In sum, we do not see th at the Panel properly established that the Second Siting Provision,
in addition to the conditions relating to the siting of production activities, also entails a condition
requiring the use of domestic over imported goods. The United States' response to Panel question
No. 80 regarding the Washington Department of Revenue's "likely" determination in the event that
completed fuselages and wings were imported clarifies that it is the location of production
activities, not the imported or domestic character of the goods produced, that triggers the Second
Siting Provision. In light of the various caveats to the United States' responses, the implications of
which were neither mentioned nor reasoned in the Panel Report, we do not consider that the
Panel's analysis and reasoning provided a sufficient basis for its finding that the Second Siting
Provision makes the B&O aerospace tax rate de facto contingent upon the use of domestic over
imported goods within the meaning of Article 3.1(b) of the SCM Agreement.

181 United States' response to Panel question No. 80, para. 118.
182 United States' response to Panel question No. 7, para. 15.
183 Appellate Body Report, Canada – Aircraft, para. 167.

5.82. For the foregoing reasons, we reverse the Panel's finding, in paragraphs 7.369 and 8.1.c of
its Report, that the B&O aerospace tax rate is de facto contingent upon the use of domestic over
imported goods within the meaning of Article 3.1(b) of the SCM Agreement. Accordingly, we also
reverse the Panel's finding, in paragraph 8.2 of its Report, that the United States has acted
inconsistently with Article 3.2 of the SCM Agreement.
5.83. We note that the United States raised a number of additional claims concerning t he Panel's
interpretation and application of Article 3.1(b) of the SCM Agreement. In particular, th e
United States takes issue with the Panel's finding that Boeing "uses" wings to manufacture the
777X and argues that the Panel did not conduct "a meaningful analysis" as to whether wings
resulting from wing assembly in Washington would necessarily be "domestic".184 The United States
also submits that the Panel's evaluation of the operation of the Second Siting Provision in the
context of its de facto analysis is inconsistent with the Panel's duty under Article 11 of the DSU to
make an objective assessment of the matter. 185 Having reversed the Panel's finding that the
B&O aerospace tax rate is de facto contingent upon the use of domestic over imported go ods
within the meaning of Article 3.1(b) of the SCM Agreement, we do not consider it necessary to
address further the United States' other claims and arguments.
5.84. We further note the European Union's claim that the Panel failed to make an objective
assessment of the matter under Article 11 of the DSU by treating as conclusive the language of
the contingency described in the First Siting Provision and the Washington Department of
Revenue's determination regarding Boeing's decision to locate "a significant comm ercial airplane
manufacturing program" in Washington, and thereby "failing to properly consider the implications
of that condition on Boeing's incentives to use domestic over imported 777X wings or 777X
fuselages in its Washington State production of the 777X".186 In light of our reversal of the Panel's
finding that the B&O aerospace tax rate is de facto contingent upon the use of domestic over
imported goods under Article 3.1(b) of the SCM Agreement , we do not consider it necessary to
address the European Un ion's claim. Insofar as the Panel could not have relied on the mere
implications of such a domestic siting condition for the importation of goods manufactured abroad,
we do not consider that the European Union's argument could have altered the Panel's
understanding that the activation of the First Siting Provision was based exclusively on Boeing's
decision to locate a significant commercial airplane manufacturing program in Washington, and not
on the particular use of goods of specific origins.187
6 FINDINGS AND CONCLUSIONS
6.1. For the reasons set out in this Report, the Appellate Body makes the following findings and
conclusions.
6.2. With respect to the Panel's interpretation of Article 3.1(b) of the SCM Agreement in the
context of its de jure contingency analyses of t he First and Second Siting Provisions, we consider
that the Panel did not articulate a legal standard under Article 3.1(b) requiring the use of domestic
goods to the complete exclusion of imported goods. Instead, the Panel found that, by their terms,
the First and Second Siting Provisions relate to the location of certain assembly operations within
Washington and are silent as to the use of domestic o r imported goods. Therefore, in stating that
these provisions do not " per se and necessarily exclude" the p ossibility for the airplane

184 United States' appellant's submission, paras. 124 and 126.
185 First, the United States argues that the Panel's findings, drawn primarily from the United States'
answers to Panel questions Nos. 40 and 80, relied on a flawed understanding of how the Second Siting
Provision would operate in hypothetical scenarios that had no basis in evidence. Second, the United States
challenges the Panel's conclusion that the expression "or" in the Second Siting Provision "contemplates, and
seeks to prevent inter alia, any wings … from being produced as separate products outside Washington State".
Third, the United States challenges the weight that the Panel attributed to certain elements of evidence, in
particular, to certain statements by the Governor of Washington. Finally, the United States points out that the
Panel did not rely in its analysis on its own statement that Section 12 wing structures are not "wings".
(United States' appellant's submission, paras. 165-191)
186 European Union's other appellant's submission, para. 75. (emphasis original) For the
European Union, the requirements for "Boeing to both (i) produce the 777X aircraft, and (ii) manufacture 777X
wings and 777X fuselages, all in Washington State" "together necessarily imply that the 777X wings and 777X
fuselages manufactured in Washington State were for use in the production of the 777X aircraft in Washington
State." (Ibid., para. 76 (emphasis original; fn omitted))
187 Panel Report, paras. 7.343-7.344.

manufacturer to use inputs from outside Washington, the Panel was not articulating a legal
standard, but was rather recognizing that, based on the necessary implications of the provisions'
terms, no de jure requirement existed for Boeing to use domestic over imported goods. Neither did
the Panel articulate such a legal standard in assessing the de facto contingency of the First Siting
Provision. Rather, the Panel found that the additional evidence before it confirmed its
understanding of the First Siting Provision in the context of its de jure contingency analysis that
the measure does not require the use of domestic over imported goods as a condition for granting
the subsidy.
a. We therefore reject the European Union's claims that the Panel erred in its interpretation
of Article 3.1(b) of the SCM Agreement in the context of its de jure contingency analyses
of the First and Second Siting Provisions, as well as its de facto contingency analysis of
the First Siting Provision.
6.3. With respect to the Panel's application of Article 3.1(b) of the SCM Agreement in the context
of its de jure contingency analysis of the First Siting Provision, we consider that the relevant
question in determining the existence of de jure contingency under Article 3.1(b) is not whether
the production requirements under the First Siting Provision may result in the use of more
domestic and fewer imported goods, but whether the measure, by its terms or by necessary
implication therefrom, sets out a condition requiring the use of domestic over imported goods.
Therefore, even if, under the scenarios discussed by the Panel, Boeing would likely use som e
amount of domestically produced wings and fuselages, this observation is not in itself sufficient to
establish the existence of a condition, reflected in the measure's terms or arising by necessary
implication therefrom, requiring the use of domestic over imported goods.
a. We therefore reject the European Union's claim that the Panel erred in its application of
Article 3.1(b) of the SCM Agreement in finding that the First Siting Provision does not
make the aerospace tax measures de jure contingent upon the use of domestic over
imported goods.
6.4. With respect to the Panel's application of Article 3.1(b) of the SCM Agreement in the context
of its de jure contingency analysis of the Second Siting Provision, we do not consider that the
Panel erred by not examining the United States' responses to its questions in the context of that
analysis. In determining the existence of contingency, a panel should conduct a holistic
assessment of all relevant elements and evidence on the record, and need not compartmentalize
its de jure and de facto analyses in order to reach an overall conclusion as to whether a subsidy is
contingent upon the use of domestic over imported goods. The United States' responses may have
shed light on the necessary implication of the terms of the Seco nd Siting Provision, but they may
have been equally relevant for understanding the measure's design, structure, and modalities of
operation in the context of the relevant factual circumstances. Therefore, we do not consider that
the Panel erred by unduly r estricting the scope of the evidence from which it assessed de jure
contingency with respect to the Second Siting Provision. We also do not consider that the Panel
understood the scope of application of the Second Siting Provision as limited to the relocation of
specific assembly operations that were the basis of a siting under the First Siting Provision.
Instead, the Panel was merely describing one possible situation under which the Second Siting
Provision would be activated.
a. We therefore reject the European Union's claim that the Panel erred in the application of
Article 3.1(b) of the SCM Agreement in finding that the Second Siting Provision,
considered separately or jointly with the First Siting P rovision, does not make the
B&O aerospace tax ra te de jure contingent upon the use of domestic over imported
goods.
b. We also reject the European Union's claim that the Panel failed to make an objective
assessment of the matter under Article 11 of the DSU in finding that the Second Siting
Provision, considered separately or jointly with the First Siting P rovision, does not make
the B&O aerospace tax rate de jure contingent upon the use of domestic over imported
goods.
6.5. With respect to the Panel's de facto contingency analysis under Article 3.1(b) of the
SCM Agreement, we do not see that the Panel properly established that the Second Siting