UNITED STATES – MEASURES AFFECTING TRADE IN LARGE CIVIL AIRCRAFT (SECOND COMPLAINT) RECOURSE TO ARTICLE 22.6 OF THE DSU BY THE UNITED STATES DECISION BY THE ARBITRATOR
Document: DECISION BY THE ARBITRATOR
Date: 13 October 2020
Document codes: WT/DS353/ARB
Complainant: EU
Respondent: U.S.
Third parties: Australia, Brazil, Canada, China, Japan, South Korea
Dispute stage: Implementation & Compliance
Agreements cited: Art. 3.1, 3.2, 5, 6.3, 1.1, 2  Subsidies and Countervailing Measures (SCM)Art. III:4  GATT 1994

UNITED STATES – MEASURES AFFECTING TRADE IN LARGE CIVIL
AIRCRAFT (SECOND COMPLAINT)
RECOURSE TO ARTICLE 22.6 OF THE DSU BY THE UNITED STATES
DECISION BY THE ARBITRATOR
BCI deleted, as indicated [[***]]

LIST OF ANNEXES
ANNEX A
WORKING PROCEDURES OF THE ARBITRATOR
Contents Page
Annex A-1 Working Procedures of the Arbitrator 4
Annex A-2 Additional Working Procedures for the Protection of Business Confidential
Information and Highly Sensitive Business Information ("BCI/HSBI
Procedures")
9
Annex A-3 Additional Working Procedures for the Substantive Meeting with the Arbitrator 21
ANNEX B
ARGUMENTS OF THE PARTIES
Contents Page
Annex B-1 Integrated executive summary of the arguments of the European Union 23
Annex B-2 Integrated executive summary of the arguments of the United States 40
ANNEX C
DECISION AND OTHER COMMUNICATIONS OF THE ARBITRATOR
Contents Page
Annex C-1 Arbitrator's communication to the parties regarding the timetable and Working
Procedures, dated 8 July 2019
49
Annex C-2 Arbitrator's communication to the parties regarding certain HSBI, dated

50
Annex C-3 Arbitrator's communication regarding the United States' request for extension
of the date for responses to questions, dated 14 February 2020
51
Annex C-4 Arbitrator's communication to the parties regarding restrictions on access to
the WTO premises and to HSBI due to Covid-19, dated 1 April 2020
52
Annex C-5 Arbitrator's communication to the parties regarding access to HSBI in the
context of Covid-19, dated 23 April 2020
54
Annex C-6 Arbitrator's communication to the parties regarding phased relaxation of
restrictions on access to WTO premises due to Covid-19, dated 4 May 2020
55
Annex C-7
Arbitrator's decision on the United States' request for leave to file an additional
submission regarding the implications of the purported elimination of the
Washington State B&O tax rate reduction on the permitted level of
countermeasures, dated 17 June 2020
56
Annex C-8 Arbitrator's communication to the parties, dated 26 June 2020 61
Annex C-9 Arbitrator's communication to the parties requesting authorization to discuss
specific EU HSBI, dated 5 August 2020
62
Annex C-10 Arbitrator's communication to the parties requesting authorization to discuss
additional specific EU HSBI, dated 19 August 2020
63
Annex C-11 Arbitrator's communication to the parties regarding media reports containing
the Arbitrator's calculated level of countermeasures, dated 9 October 2020
64

CASES CITED IN THIS DECISION
Short Title Full Case Title and Citation
Brazil – Aircraft
(Article 22.6 – Brazil)
Decision by the Arbitrator, Brazil – Export Financing Programme for Aircraft –
Recourse to Arbitration by Brazil under Article 22.6 of the DSU and Article 4.11 of
the SCM Agreement, WT/DS46/ARB, 28 August 2000, DSR 2002:I, p. 19
Canada – Aircraft Credits
and Guarantees
(Article 22.6 – Canada)
Decision by the Arbitrator, Canada – Export Credits and Loan Guarantees for
Regional Aircraft – Recourse to Arbitration by Canada under Article 22.6 of the
DSU and Article 4.11 of the SCM Agreement, WT/DS222/ARB, 17 February 2003,
DSR 2003:III, p. 1187
EC – Bananas III (US)
(Article 22.6 – EC)
Decision by the Arbitrator, European Communities – Regime for the Importation,
Sale and Distribution of Bananas – Recourse to Arbitration by the
European Communities under Article 22.6 of the DSU, WT/DS27/ARB,
9 April 1999, DSR 1999:II, p. 725
EC – Bananas III
(Ecuador)
(Article 22.6 – EC)
Decision by the Arbitrator, European Communities – Regime for the Importation,
Sale and Distribution of Bananas – Recourse to Arbitration by the
European Communities under Article 22.6 of the DSU, WT/DS27/ARB/ECU,
24 March 2000, DSR 2000:V, p. 2237
EC – Hormones Appellate Body Report, European Communities – Measures Concerning Meat and
Meat Products (Hormones), WT/DS26/AB/R, WT/DS48/AB/R, adopted
13 February 1998, DSR 1998:I, p. 135
EC – Hormones (US)
(Article 22.6 – EC)
Decision by the Arbitrators, European Communities – Measures Concerning Meat
and Meat Products (Hormones), Original Complaint by the United States –
Recourse to Arbitration by the European Communities under Article 22.6 of the
DSU, WT/DS26/ARB, 12 July 1999, DSR 1999:III, p. 1105
EC and certain member
States – Large Civil
Aircraft
Appellate Body Report, European Communities and Certain Member States –
Measures Affecting Trade in Large Civil Aircraft, WT/DS316/AB/R, adopted
1 June 2011, DSR 2011:I, p. 7
EC and certain member
States – Large Civil
Aircraft
Panel Report, European Communities and Certain Member States – Measures
Affecting Trade in Large Civil Aircraft, WT/DS316/R, adopted 1 June 2011, as
modified by Appellate Body Report WT/DS316/AB/R, DSR 2011:II, p. 685
EC and certain member
States – Large Civil
Aircraft (Article 21.5 – US)
Appellate Body Report, European Communities and Certain Member States –
Measures Affecting Trade in Large Civil Aircraft – Recourse to Article 21.5 of the
DSU by the United States, WT/DS316/AB/RW and Add.1, adopted 28 May 2018
EC and certain member
States – Large Civil
Aircraft (Article 21.5 – US)
Panel Report, European Communities and Certain Member States – Measures
Affecting Trade in Large Civil Aircraft – Recourse to Article 21.5 of the DSU by
the United States, WT/DS316/RW and Add.1, adopted 28 May 2018, as modified
by Appellate Body Report WT/DS316/AB/RW
EC and certain member
States – Large Civil
Aircraft (Article 22.6 – EU)
Decision by the Arbitrator, European Communities and Certain Member States –
Measures Affecting Trade in Large Civil Aircraft – Recourse to Article 22.6 of the
DSU by the European Union, WT/DS316/ARB and Add.1, 2 October 2019
EU – Energy Package Panel Report, European Union and its member States – Certain Measures
Relating to the Energy Sector, WT/DS476/R and Add.1, circulated to WTO
Members 10 August 2018
Japan – DRAMS (Korea) Appellate Body Report, Japan – Countervailing Duties on Dynamic Random
Access Memories from Korea, WT/DS336/AB/R and Corr.1, adopted
17 December 2007, DSR 2007:VII, p. 2703
Russia – Pigs (EU) Panel Report, Russian Federation – Measures on the Importation of Live Pigs,
Pork and Other Pig Products from the European Union, WT/DS475/R and Add.1,
adopted 21 March 2017, as modified by Appellate Body Report WT/DS475/AB/R,
DSR 2017:II, p. 361
Thailand – Cigarettes
(Philippines)
Appellate Body Report, Thailand – Customs and Fiscal Measures on Cigarettes
from the Philippines, WT/DS371/AB/R, adopted 15 July 2011, DSR 2011:IV,
p. 2203
US – 1916 Act (EC)
(Article 22.6 – US)
Decision by the Arbitrator, United States – Anti-Dumping Act of 1916, Original
Complaint by the European Communities – Recourse to Arbitration by the
United States under Article 22.6 of the DSU, WT/DS136/ARB, 24 February 2004,
DSR 2004:IX, p. 4269
US – Anti-Dumping
Methodologies (China)
(Article 22.6 – US)
Decision by the Arbitrator, United States – Certain Methodologies and Their
Application to Anti-Dumping Proceedings Involving China – Recourse to
Article 22.6 of the DSU by the United States, WT/DS471/ARB and Add.1,
1 November 2019
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

Short Title Full Case Title and Citation
US – Coated Paper
(Indonesia)
Panel Report, United States – Anti-Dumping and Countervailing Measures on
Certain Coated Paper from Indonesia, WT/DS491/R and Add.1, adopted
22 January 2018
US – Continued
Suspension
Appellate Body Report, United States – Continued Suspension of Obligations in
the EC – Hormones Dispute, WT/DS320/AB/R, adopted 14 November 2008,
DSR 2008:X, p. 3507
US – COOL
(Article 22.6 – US)
Decisions by the Arbitrator, United States – Certain Country of Origin Labelling
(COOL) Requirements – Recourse to Article 22.6 of the DSU the United States,
WT/DS384/ARB and Add.1 / WT/DS386/ARB and Add.1, circulated to
WTO Members 7 December 2015
US – FSC
(Article 21.5 – EC II)
Appellate Body Report, United States – Tax Treatment for "Foreign Sales
Corporations" – Second Recourse to Article 21.5 of the DSU by the
European Communities, WT/DS108/AB/RW2, adopted 14 March 2006,
DSR 2006:XI, p. 4721
US – FSC
(Article 22.6 – US)
Decision by the Arbitrator, United States – Tax Treatment for "Foreign Sales
Corporations" – Recourse to Arbitration by the United States under Article 22.6
of the DSU and Article 4.11 of the SCM Agreement, WT/DS108/ARB,
30 August 2002, DSR 2002:VI, p. 2517
US – Gambling Appellate Body Report, United States – Measures Affecting the Cross-Border
Supply of Gambling and Betting Services, WT/DS285/AB/R, adopted
20 April 2005, DSR 2005:XII, p. 5663 (and Corr.1, DSR 2006:XII, p. 5475)
US – Gambling
(Article 22.6 – US)
Decision by the Arbitrator, United States – Measures Affecting the Cross-Border
Supply of Gambling and Betting Services – Recourse to Arbitration by the
United States under Article 22.6 of the DSU, WT/DS285/ARB,
21 December 2007, DSR 2007:X, p. 4163
US – Lamb Appellate Body Report, United States – Safeguard Measures on Imports of Fresh,
Chilled or Frozen Lamb Meat from New Zealand and Australia, WT/DS177/AB/R,
WT/DS178/AB/R, adopted 16 May 2001, DSR 2001:IX, p. 4051
US – Large Civil Aircraft
(2nd complaint)
Appellate Body Report, United States – Measures Affecting Trade in Large Civil
Aircraft (Second Complaint), WT/DS353/AB/R, adopted 23 March 2012,
DSR 2012:I, p. 7
US – Large Civil Aircraft
(2nd complaint)
Panel Report, United States – Measures Affecting Trade in Large Civil Aircraft
(Second Complaint), WT/DS353/R, adopted 23 March 2012, as modified by
Appellate Body Report WT/DS353/AB/R, DSR 2012:II, p. 649
US – Large Civil Aircraft
(2nd complaint)
(Article 21.5 – EU)
Appellate Body Report, United States – Measures Affecting Trade in Large Civil
Aircraft (Second Complaint) – Recourse to Article 21.5 of the DSU by the
European Union, WT/DS353/AB/RW and Add.1, adopted 11 April 2019
US – Large Civil Aircraft
(2nd complaint)
(Article 21.5 – EU)
Panel Report, United States – Measures Affecting Trade in Large Civil Aircraft
(Second Complaint) – Recourse to Article 21.5 of the DSU by the
European Union, WT/DS353/RW and Add.1, adopted 11 April 2019, as modified
by Appellate Body Report WT/DS353/AB/RW
US – Line Pipe Appellate Body Report, United States – Definitive Safeguard Measures on
Imports of Circular Welded Carbon Quality Line Pipe from Korea,
WT/DS202/AB/R, adopted 8 March 2002, DSR 2002:IV, p. 1403
US – Offset Act (Byrd
Amendment) (EC)
(Article 22.6 – US)
Decision by the Arbitrator, United States – Continued Dumping and Subsidy
Offset Act of 2000, Original Complaint by the European Communities – Recourse
to Arbitration by the United States under Article 22.6 of the DSU,
WT/DS217/ARB/EEC, 31 August 2004, DSR 2004:IX, p. 4591
US – Offset Act (Byrd
Amendment) (Chile)
(Article 22.6 – US)
Decision by the Arbitrator, United States – Continued Dumping and Subsidy
Offset Act of 2000, Original Complaint by Chile – Recourse to Arbitration by the
United States under Article 22.6 of the DSU, WT/DS217/ARB/CHL,
31 August 2004, DSR 2004:IX, p. 4511
US – Section 110(5)
Copyright Act (Article 25)
Award of the Arbitrator, United States – Section 110(5) of the US Copyright Act –
Recourse to Arbitration under Article 25 of the DSU, WT/DS160/ARB25/1,
9 November 2001, DSR 2001:II, p. 667
US – Tax Incentives Appellate Body Report, United States – Conditional Tax Incentives for Large Civil
Aircraft, WT/DS487/AB/R and Add.1, adopted 22 September 2017, DSR 2017:V,
p. 2199
US – Tuna II (Mexico)
(Article 21.5 – Mexico)
Appellate Body Report, United States – Measures Concerning the Importation,
Marketing and Sale of Tuna and Tuna Products – Recourse to Article 21.5 of the
DSU by Mexico, WT/DS381/AB/RW and Add.1, adopted 3 December 2015,
DSR 2015:X, p. 5133
US – Tuna II (Mexico)
(Article 22.6 – US)
Decision by the Arbitrator, United States – Measures Concerning the Importation,
Marketing and Sale of Tuna and Tuna Products – Recourse to Article 22.6 of the
DSU by the United States, WT/DS381/ARB, 25 April 2017

Short Title Full Case Title and Citation
US – Upland Cotton Appellate Body Report, United States – Subsidies on Upland Cotton,
WT/DS267/AB/R, adopted 21 March 2005, DSR 2005:I, p. 3
US – Upland Cotton Panel Report, United States – Subsidies on Upland Cotton, WT/DS267/R, Add.1
to Add.3 and Corr.1, adopted 21 March 2005, as modified by Appellate Body
Report WT/DS267/AB/R, DSR 2005:II, p. 299
US – Upland Cotton
(Article 21.5 – Brazil)
Appellate Body Report, United States – Subsidies on Upland Cotton – Recourse to
Article 21.5 of the DSU by Brazil, WT/DS267/AB/RW, adopted 20 June 2008,
DSR 2008:III, p. 809
US – Upland Cotton
(Article 21.5 – Brazil)
Panel Report, United States – Subsidies on Upland Cotton – Recourse to
Article 21.5 of the DSU by Brazil, WT/DS267/RW and Corr.1, adopted
20 June 2008, as modified by Appellate Body Report WT/DS267/AB/RW,
DSR 2008:III, p. 997
US – Upland Cotton
(Article 22.6 – US I)
Decision by the Arbitrator, United States – Subsidies on Upland Cotton –
Recourse to Arbitration by the United States under Article 22.6 of the DSU and
Article 4.11 of the SCM Agreement, WT/DS267/ARB/1, 31 August 2009,
DSR 2009:IX, p. 3871
US – Upland Cotton
(Article 22.6 – US II)
Decision by the Arbitrator, United States – Subsidies on Upland Cotton –
Recourse to Arbitration by the United States under Article 22.6 of the DSU and
Article 7.10 of the SCM Agreement, WT/DS267/ARB/2 and Corr.1,
31 August 2009, DSR 2009:IX, p. 4083
US – Washing Machines
(Article 22.6 – US)
Decision by the Arbitrator, United States – Anti-Dumping and Countervailing
Measures on Large Residential Washers from Korea – Recourse to Article 22.6 of
the DSU by the United States, WT/DS464/ARB and Add.1, 8 February 2019
US – Wool Shirts and
Blouses
Appellate Body Report, United States – Measure Affecting Imports of Woven
Wool Shirts and Blouses from India, WT/DS33/AB/R, adopted 23 May 1997, and
Corr.1, DSR 1997:I, p. 323

EXHIBITS REFERRED TO IN THIS DECISION
Exhibit Title
EU-1 Ascend database
EU-2 (BCI) Historical escalation rates and escalation rate forecasts
EU-3 (HSBI) Air Canada final offer, [[HSBI]]
EU-4 (HSBI) Delta Airlines final offer, [[HSBI]]
EU-5 (HSBI) Fly Dubai 2008 final offer, [[HSBI]]
EU-6 (HSBI) Fly Dubai 2014 final offer, [[HSBI]]
EU-8 (HSBI) Icelandair final offer, [[HSBI]]
EU-12 (HSBI) Airbus LCA Inflation Index
EU-13 Air Canada Press Release, "Air Canada Selects Boeing 737 MAX to Renew Mainline
Narrowbody Fleet", 11 December 2013 (Exhibit EU-1571 CP)
EU-16 Icelandair Press Release, "Icelandair Group and Boeing Finalize Orders for 737 MAX",
13 February 2013
EU-19 Fly Dubai Press Release, "flydubai commits to USD 11.4 Billion 737 aircraft order",
17 November 2013 (Exhibit EU-1597 CP)
EU-20 Delta Press Release, "Delta Announces Order for 100 Boeing 737-900ER Aircraft",
25 August 2011 (Exhibit EU-1001 CP)
EU-21 Delta Airlines Supplemental Agreement, 25 August 2011
EU-22 (HSBI) Delta Airlines previous offer, [[HSBI]]
EU-25 (HSBI) Valuation of twin-aisle LCA lost sales
EU-44 (BCI) Airbus 10-year yield rates; various years
EU-45 (BCI) Expected survival rates for Airbus LCA
EU-46 (BCI) Historic order cancellations in the single-aisle and twin-aisle LCA sales campaigns at issue
EU-46a FlightGlobal, "Analysis: No crisis for 787 despite big Qantas cancellation",
23 August 2012
EU-51 (HSBI) US – Large Civil Aircraft (Article 21.5 – EU), EU First Written Submission, 28 March 2013
EU-54 (HSBI) US – Large Civil Aircraft (Article 21.5 – EU), EU Responses to Panel Questions,
8 October 2015
EU-58 (HSBI) Updated valuation of single-aisle lost sales
EU-59 Ascend database update
EU-60 (HSBI) Updated valuation of single-aisle threat of impedance
EU-62 (HSBI) Valuation of lost sales in the single-aisle market based on delivery numbers contained in
Airbus' final offers
EU-63 (HSBI) Valuation of lost sales in the twin-aisle market based on delivery numbers contained in
Airbus' final offers
EU-64 (BCI) Airbus 10-year yield rates and WACC (2005-2018)
EU-65 (BCI) United States — Measures Affecting Trade in Large Civil Aircraft (Second Complaint) –
Recourse to Article 21.5 of the DSU by the EU (WT/DS353-Art.21.5), Report from the
Panel, Appendix 2
EU-66 (BCI) Declaration by [[***]], 21 February 2020 ("Airbus production capacity")
EU-67 (HSBI) IndiGo, [[HSBI]]
EU-68 (HSBI) IndiGo, [[HSBI]]
EU-69 (HSBI) [[HSBI]]
EU-70 (HSBI) [[HSBI]]
EU-71 (HSBI) [[HSBI]]
EU-72 (HSBI) Avianca, [[HSBI]]
EU-73 (HSBI) Avianca, [[HSBI]]
EU-74 (BCI) Updated Historic order cancellations in the single-aisle and twin-aisle LCA markets
EU-75 2RPQ Ascend database update
EU-76 (HSBI) 2RPQ valuation of single-aisle threat of impedance – Boeing delivery schedules
EU-77 (HSBI) 2RPQ valuation of single-aisle threat of impedance – Airbus delivery schedules
EU-79 Daves, Philip R.; Michael C. Ehrhardt and Robert A. Kunkel, 2002, "Estimating systematic
risk: the choice of return interval and estimation period", Journal of Financial and
Strategic Decision, volume 13, number 1
EU-83 (HSBI) Updated LCA indices, escalation rates and Airbus LCA Inflation Index
EU-84 (HSBI) 2RPQ valuation of single-aisle lost sales – Boeing delivery schedules
EU-85 (HSBI) 2RPQ valuation of single-aisle lost sales – Airbus delivery schedules
EU-87 (HSBI) 2RPQ valuation of twin-aisle lost sales – Airbus delivery schedules
USA-10 Airbus WACC and Discount Factors
USA-11 Producer Price Indexes – Program Overview, U.S. Department of Labor, Bureau of Labor
Statistics
USA-12 PPI Industry Data File for Aircraft Manufacturing – Civilian Aircraft, Not Seasonally
Adjusted (Jan. 2008 - March 2019), U.S. Department of Labor, Bureau of Labor Statistics
USA-13 Survival Rate Calculation
USA-15 Shannon Ackert, Commercial Aspects of Aircraft Customization, Aircraft Monitor (2013)
USA-25 (HSBI) Corrected Annualized Value of the Adverse Effects in 2014 and March 2019 Dollars
USA-32 (BCI) Boeing E-mail regarding Question 10

Exhibit Title
USA-33 (BCI) Boeing E-mail regarding Question 32
USA-36 Revised Survival Rate Calculation
USA-37 Updated Airbus WACC and Discount Factors
USA-44 (HSBI) Corrected Annualized Value of the Adverse Effects in July 2015 Dollars
USA-45 Airbus 2018 Financial Statements
USA-51 (BCI) Declaration of [[***]] (Feb. 28, 2020) ("Boeing Declaration")
USA-52 Icelandair press release, Icelandair Group and Boeing Finalizes Order for 737 MAX
(Feb. 13, 2013)
USA-59 (HSBI) Expected Value of the 2014 Fly Dubai Lost Sale in Order Year Dollars (Revised)
USA-60 (HSBI) Annualized Value of the Adverse Effects in 2015 Dollars (Revised)
USA-77 (HSBI) 2008 Fly Dubai Purchase Agreement
USA-79 (HSBI) 2011 Delta Airlines Purchase Agreement
USA-81 (HSBI) 2013 Air Canada Purchase Agreement
USA-82 (HSBI) 2013 Icelandair Final Offer
USA-83 (HSBI) 2013 Icelandair Purchase Agreement
USA-85 (HSBI) 2014 Fly Dubai Purchase Agreement
USA-87 (HSBI) Boeing [[***]] for 2008 Fly Dubai and 2011 Delta Sales Campaigns
USA-99 Brealey, Myers, and Allen, Principles of Corporate Finance, 9th Edition.
USA-104 (HSBI) Expected Value of the [[***]] Lost Sale in Order Year Dollars (Revised)
USA-105 (HSBI) Annualized Value of the Adverse Effects in 2015 Dollars (Revised)

ABBREVIATIONS USED IN THIS DECISION
Abbreviation Description
737MAX Boeing 737MAX
737NG Boeing 737 new generation
747-8I Boeing 747-8 International
A320neo Airbus A320 new engine option
A320ceo Airbus A320 current engine option
A350XWB Airbus A350 "eXtra widebody"
ALII Airbus LCA Inflation Index
B&O Business and Occupation
BCI Business Confidential Information

CA Civil Aircraft
CPI Consumer Price Index
DOD United States Department of Defense
DSB Dispute Settlement Body
DSU Understanding on Rules and Procedures Governing the Settlement of Disputes
EC European Communities
ETI Act FSC Repeal and Extraterritorial Income Exclusion Act of 2000
EU European Union
FSC Foreign Sales Corporation
GATS General Agreement on Trade in Services
GATT General Agreement on Tariffs and Trade
HSBI Highly Sensitive Business Information
IRB Industrial Revenue Bond
JAL Japan Airlines
LCA large civil aircraft
NASA U.S. National Aeronautics and Space Administration
NPV net present value
PPI for CA Manufacturing United States Producer Price Index for Aircraft Manufacturing of Civilian
Aircraft
R&D research and development
R&TD research and technological development
RDT&E Research, Development, Test and Evaluation
RfP Request for Proposal
SCM Agreement Agreement on Subsidies and Countervailing Measures
UAE United Arab Emirates
UK United Kingdom
US United States of America
USD United States Dollar
USDOD United States Department of Defense
Vienna Convention Vienna Convention on the Law of Treaties, Done at Vienna, 23 May 1969,
1155 UNTS 331; 8 International Legal Materials 679
VLA very large aircraft
WACC Weighted Average Cost of Capital
WTO World Trade Organization

1 INTRODUCTION
1.1 Original proceedings and compliance proceedings
1.1. The present arbitration proceeding arise s in the dispute initiated by the European Union1
concerning certain measures by the United States affecting trade in large civil aircraft (LCA).2
1.2. The original proceedings in this dispute commenced on 27 June 2005, when the
European Union requested consultations with the United States pursuant to Articles 4.1, 7.1, and 30
of the Agreement on Subsidies and Countervailing Measures (SCM Agreement), Article XXIII:1 of
the General Agreement on Tariffs and Trade (GATT) 1994 and Article 4 of the Understanding on
Rules and Procedures Governing the Settlement of Disputes (DSU), with regard to measures
affecting trade in LCA.3 On 20 January 2006, the European Union requested the establishment of a
panel pursuant to Article 6 of the DSU, Article XXIII:2 of the GATT 1994 and Articles 4, 7 and 30 of
the SCM Agreement (to the extent that Article 30 incorporates by reference Article XXIII of the
GATT 1994).4
1.3. The panel report and the Appellate Body report in the original proceedings were circulated to
Members on 31 March 2011 and 12 March 2012, respectively. The Dispute Settlement Body (DSB)
adopted the Appellate Body report and the panel report, as modified by the Appellate Body report,
on 23 March 2012.5 The panel and the Appellate Body in the original proceedings found that certain
measures of the United States, including measures adopted at a sub -federal level, co nstituted
specific subsidies to the US LCA industry6 and were inconsistent with the SCM Agreement.
1.4. First, the panel found that certain tax exemptions and tax exclusions provided to Boeing under
the Foreign Sales Corporation (FSC) legislation and the FSC Repeal and Extraterritorial Income
Exclusion Act of 2000 (ETI Act), including the transition and grandfather provisions of the ETI Act

1 In the original panel proceedings, the complaining party was the European Communities. The
European Union replaced and succeeded the European Communities as of 1 December 2009 following the entry
into force of the Treaty of Lisbon amending the Treaty on European Union and the Treaty establishing the
European Community on 1 December 2009. For ease of reference, we refer to the "European Union" whether
discussing events that occurred before or after the entry into force of the Treaty of Lisbon.
2 In the original proceedings, the panel referred to a footnote in the European Union's request for
establishment of a panel which stated that, in accordance with the 1992 Agreement between the
European Communities and the Government of the United States of America concerning the Application of the
GATT Agreement on Trade in Civil Aircraft, "LCA" included all aircraft as defined in Article 1 of the GATT
Agreement on Trade in Civil Aircraft, except engines as defined in Article 1.1(b) thereof, that are designed for
passenger or cargo transportation and have 100 or more passenger seats or its equivalent in cargo
configuration. (Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 2.1 and 7.1. See also
Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1)
3 WT/DS353/1 (originally circulated as WT/DS317/1/Add. 1 as corrected by WT/DS353/1). The original
proceedings must be seen against the background of an earlier proceeding, which was initiated in
October 2004 when the European Union requested consultations with the United States in respect of alleged
prohibited and actionable subsidies provided to US producers of LCA. On 20 July 2005, the DSB established a
panel in that proceeding (US – Measures Affecting Trade in Large Civil Aircraft (DS317)), which was composed
on 17 October 2005. In September 2005, the DSB initiated an Annex V procedure in the DS317 dispute and
designated Mr Mateo Diego-Fernández as the DSB representative for that procedure. (DSB, Minutes of the
meeting held on 23 September 2005, WT/DSB/M/197, paras. 6-10) In its June 2005 request for consultations
in the DS353 dispute, the European Union referred to the United States' statement at the meeting of the DSB
on 13 June 2005 asserting that 13 of the 28 subsidy programmes listed by the European Union in its DS317
panel request were not listed in the DS317 consultation request of 6 October 2004. The European Union
indicated that it was unable to agree with the United States' contention but that it was prepared to pursue
consultations on the issues raised in these subsequent proceedings in order to clarify and, if possible, resolve
them.
4 Request for the establishment of a panel by the European Union, WT/DS353/2 (originally circulated as
WT/DS317/5, as corrected by WT/DS353/2 and WT/DS353/2/Corr.1).
5 DSB, Minutes of the meeting held on 23 March 2012, WT/DSB/M/313 (circulated 29 March 2012),
para. 79.
6 In the original proceedings, the European Union used the term "US large civil aircraft industry" to refer
to The Boeing Company and the McDonnell Douglas Corporation prior to its 1997 merger with Boeing.
(Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 2.1, 7.1, and fn 1042)

and the American Jobs Creation Act of 2004, were prohibited export subsidies under Articles 3.1(a)
and 3.2 of the SCM Agreement.7 This finding was not appealed.
1.5. Second, the panel and the Appellate Body found that the following measures were inconsistent
with Articles 5(c) and 6 of the SCM Agreement:
a. payments provided to Boeing by the National Aeronautics and Space Administ ration
(NASA) pursuant to procurement contracts entered into under eight aeronautics research
and development (R&D) programmes and access to facilities, equipment and employees
provided to Boeing pursuant to procurement contracts and Space Act Agreements entered
into under these programmes;
b. payments and access to facilities provided to Boeing by the United States Department of
Defense (DOD) pursuant to assistance instruments entered into under 23 Research,
Development, Test and Evaluation (RDT&E) programmes;
c. tax exemptions and tax exclusions provided to Boeing pursuant to the FSC/ETI measures;
d. Washington State Business and Occupation (B&O) tax rate reduction for commercial
aircraft and component manufacturers; and
e. property and sales tax abatements related to Industrial Revenue Bonds (IRBs) issued by
the City of Wichita, Kansas.
1.6. These five groups of measures were found to involve specific subsidies within the meaning of
Articles 1 and 2 of the SCM Agreement and to cause serious prejudice to the interests o f the
European Union within the meaning of Articles 5(c) and 6.3 of the SCM Agreement as follows:
a. the NASA and DOD aeronautics R&D measures caused serious prejudice within the
meaning of Articles 5(c) and 6.3(b) and (c) with respect to the 200-300 seat LCA product
market in the form of a threat of displacement and impedance of European Union exports
in certain third-country markets and significant lost sales;
b. the tax exemptions and tax exclusions provided to Boeing pursuant to the FSC/ETI
measures, together with the Washington State B&O tax rate reduction, caused serious
prejudice within the meaning of Articles 5(c) and 6.3(c) with respect to the 100-200 seat
LCA product market in the form of significant lost sales; and
c. property and sales tax abatements rela ted to IRBs issued by the City of Wichita, Kansas
complemented and supplemented the price effects of the FSC/ETI subsidies and the
Washington State B&O tax rate reductions, thereby causing serious prejudice to the
interests of the European Union within the meaning of Articles 5(c) and 6.3(c) in the
100-200 seat LCA product market in the form of significant lost sales.
1.7. In relation to the finding that the FSC/ETI measures were prohibited subsidies within the
meaning of Articles 3.1(a) and 3.2 of the SCM Agreement, the original panel refrained from making
a new recommendation under Article 4.7. The panel noted "the conclusion of the {p}anel in
US – FSC (Article 21.5 – EC II), which was upheld by the Appellate Body, that the recommendation
made by the panel in the dispute in US – FSC continued to be 'operative'".8
1.8. In respect of the findings of serious prejudice caused by certain subsidies, the Appellate Body
recommended that:
{T}he DSB request the United States to bring its measures, found in this report, and in
the panel report as modified by this Report, to be inconsistent with the SCM Agreement,
into conformity with its obligations under that Agreement. More specifically, having
regard to the recommendations made by the Panel in paragraph 8.9 of its Report and
the provisions of Article 7.8 of the SCM Agreement, the Appellate Body recommends

7 Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.1434-7.1464 and 8.2.
8 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 8.7.

that the United States take appropriate steps to remove the adverse effects found to
have been caused by its use of subsidies, or to withdraw those subsidies.9
1.9. According to Articles 7.8 and 7.9 of the SCM Agreement, the United States had six months
from the date of adoption of the panel report or the Appellate Body report to take appropriate steps
to remove the adverse effects of the subsidies or withdraw the sub sidies (implementation period).
This implementation period expired on 23 September 2012. On 23 September 2012, the
United States provided a notification to the DSB identifying "a number of actions to withdraw the
subsidies found to have caused adverse effects or to remove their adverse effects", in light of which
the United States considered that it "ha{d} fully complied with the recommendations and rulings of
the {DSB} in this dispute".10
1.10. On 24 April 2012, the parties informed the DSB of their Agreed Procedures under Articles 21
and 22 of the DSU and Article 7 of the SCM Agreement (the Sequencing Agreement). 11
On 25 September 2012, the European Union requested consultations with the United States,
explaining that it was of the view that "{t}he actions and events listed by the United States in
its 23 September 2012 notification do not withdraw the subsidies or remove their adverse ef fects,
as required by Articles 4.7 and 7.8 of the SCM Agreement" and that "the United States has failed to
achieve compliance with the recommendations and rulings of the DSB". 12 The European Union and
the United States held consultations on 10 October 2012, but the consultations failed to resolve the
dispute. On 11 October 2012, the European Union requested the establishment of a panel "in
accordance with Articles 4.4 and 7.4 of the SCM Agreement and Article 21.5 of the DSU", with
standard terms of reference.13 At its meeting on 23 October 2012, the DSB referred this dispute to
the original panel if possible, in accordance with Article 21.5 of the DSU .14 In accordance with
Article 21.5 of the DSU, the panel was composed on 30 October 2012.15
1.11. The compliance panel issued its Interim Report to the parties on 16 September 2016. 16 On
5 December 2016, the Appellate Body received a letter from the European Union referring to an
anticipated appeal in this dispute, to the ongoing appeal in EC and certain member States – Large
Civil Aircraft (Article 21.5 – US) (DS316 compliance proceedings) and to an imminent appeal in
US – Tax Incentives (DS487). In its letter, the European Union requested that the hearings in all
three appeals 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 the other appeals.17 Following receipt
of comments on the European Union's request by the United States and third participants, the
Appellate Body indicated by letter dated 22 December 2016 that it would bear in mind the

9 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1352. (emphasis original)
10 Communication by the United States, WT/DS353/15 (Compliance Communication), para. 2.
11 Communication by the Parties, WT/DS353/14 (Understanding between the European Union and the
United States Regarding Procedures under Articles 21 and 22 of the DSU). Under the Sequencing Agreement,
the parties agreed, inter alia, that if the matter should be referred to arbitration prior to the adoption by the
DSB of its rulings following Article 21.5 proceedings, they would, at the earliest possible moment, request the
arbitrator under Article 22.6 to suspend its work.
12 Request for consultations by the European Union, recourse to Article 21.5 of the DSU, WT/DS353/16
(European Union's consultations request), p. 2.
13 Request for the establishment of a panel by the European Union, recourse to Article 21.5 of the DSU,
WT/DS353/18 (European Union's panel request), para. 34.
14 DSB, Minutes of Meeting held on 23 October 2012, WT/DSB/M/323, para. 81. At this meeting, the
United States stated its view that the panel was being established only under Article 21.5 of the DSU
(WT/DSB/M/323, paras. 78 and 79).
15 US – Large Civil Aircraft (2nd complaint), Recourse to Article 21.5 of the DSU by the European Union,
Constitution of the Panel, Note by the Secretariat, WT/DS353/21 (circulated 5 November 2012), para. 3.
16 Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 5.1.
17 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 1.21. The
compliance panel in the DS316 dispute had circulated its report on 22 September 2016, and the
European Union had filed a notice of appeal in that dispute on 13 October 2016. (Appellate Body Report, EC
and certain member States – Large Civil Aircraft (Article 21.5 – US), paras. 1.11 and 1.14) The Appellate Body
report in the DS316 compliance proceedings was circulated on 15 May 2018. (See Appellate Body Report, US –
Large Civil Aircraft (2nd complaint) (Article 21.5 – EU)) The DS316 proceedings are discussed further in
section 5 below.

European Union's request, as well as the comments received, during the appellate proceedings in
the three disputes.18
1.12. On 9 June 2017, the compliance panel issued its report, finding, inter alia, that:
a. the United States had failed to withdraw the subsidy within the meaning of Article 7.8 of
the SCM Agreement with regard to the pre -2007 NASA and DOD aeronautics R&D
subsidies that were the sub ject of the DSB recommendations and rulings, and certain
post-2006 measures of the United States that were challenged in the compliance
proceedings and which were found by the compliance panel to involve specific subsidies
within the meaning of Articles 1 and 2 of the SCM Agreement19; and
b. the United States had failed to take appropriate steps to remove the adverse effects within
the meaning of Article 7.8 of the SCM Agreement as regards the Washington State B&O
tax rate reduction, the effects of which were demonstrated by the European Union to be:
(i) a genuine and substantial cause of significant lost sales within the meaning of
Articles 5(c) and 6.3 of the SCM Agreement of A320neo and A320ceo families of LCA in
the single-aisle LCA market, in respect of th e sales campaigns for Fly Dubai in 2014, Air
Canada in 2013 and Icelandair in 2013, in the post -implementation period; and (ii) a
genuine and substantial cause of threat of impedance of imports of the A320ceo to the
United States single-aisle market, and a threat of impedance of exports of Airbus
single-aisle LCA in the United Arab Emirates (UAE) third -country market, within the
meaning of Articles 5(c) and 6.3(a) and (b) of the SCM Agreement in the
post-implementation period.20
1.13. The compliance panel also made a number of other findings, including the following:
a. with respect to the European Union's claim that the United States had failed to comply
with its obligation to take appropriate steps to remove the adverse effects within the
meaning of Article 7.8 of the SCM Agreement, the European Union had failed to establish:
(i) that the effects of certain aeronautics R&D subsidies and other subsidies were a genuine
and substantial cause of significant lost sales, significant price suppression, impedance of
imports to the United States market or impedance of exports to various third -country
markets, or threats of any of the foregoing, within the meaning of Articles 5(c) and 6.3(a),
(b) and (c) of the SCM Agreement, in respect of the A350XWB in the post-implementation
period; or (ii) that the original adverse effects of the pre-2007 aeronautics R&D subsidies
in respect of the A330 and Original A350 continue in the post -implementation period as
significant price suppression of the A330 and A350XWB, significant lost sales of the
A350XWB, or a threat of impedance of exports of the A350XWB in the twin -aisle LCA
market, within the meaning of Articles 5(c) and 6.3(a), (b) and (c) of the SCM Agreement
in the post-implementation period; and (iii) that the effects of the pre -2007 aeronautics
R&D subsidies and the post -2006 subsidies are a genuine and substantial cause of
significant price suppres sion of the A320neo or A320ceo, impedance of imports of the
A320neo or A320ceo to the United States' market, or displacement and impedance of
exports of the A320neo or A320ceo to the third -country markets of Australia, Brazil,
Canada, Iceland, Indonesia, Malaysia, Mexico, Norway, Russia, and Singapore, within the
meaning of Articles 5(c) and 6.3(a), (b) and (c) of the SCM Agreement, or threats of any
of the foregoing, in the post-implementation period21; and

18 See Appellate Body Reports, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 1.21;
US – Tax Incentives, para. 1.5; and EC and certain member States – Large Civil Aircraft (Article 21.5 – US),
para. 1.23.
19 Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 11.7. The post-2006
measures that were found to constitute specific subsidies within the meaning of Articles 1 and 2 of the
SCM Agreement are listed in paragraph 11.7(b) of the panel report. With respect to the tax exemptions and
exclusions under FSC/ETI legislation and successor legislation, the compliance panel found that the
European Union had failed to establish that Boeing actually received the FSC/ETI tax benefits after 2006, and
that the measure therefore involved a financial contribution within the meaning of Article 1.1(a)(1)(ii) of the
SCM Agreement. (Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 11.7(c)(ii))
20 Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 11.8.
21 Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), paras. 9.177, 9.186, 9.197,
9.216-9.217, 9.218-9.220, 9.355, 9.372-9.373, and 11.8(a), (b), and (e).

b. with respect to the European Union's claims under Articles 3.1 and 3.2 of the
SCM Agreement and Article III:4 of the GATT 1994 that, to the extent that the compliance
panel had found that the claims were within the scope of the compliance proceeding, and
that the measures at issue were subsidies within t he meaning of Article 1 of the
SCM Agreement, the European Union had failed to establish that the subsidies were
inconsistent with Articles 3.1(a) and 3.2 or Articles 3.1(b) and 3.2 of the SCM Agreement,
or with Article III:4 of the GATT 1994.22
1.14. In light of the foregoing, the compliance panel concluded that, by continuing to be in violation
of Articles 5(c) and 6.3(a), (b) and (c) of the SCM Agreement, the United States had "failed to
comply with the DSB recommendations and rulings and, in particular, the obligation under Article 7.8
of the SCM Agreement to 'take appropriate steps to remove the adverse effects or … withdraw the
subsidy'".23
1.15. On 27 June 2017, the European Union notified the DSB of its intention to appeal the
compliance panel report and filed a notice of appeal.24
1.16. On 28 March 2019, the Appellate Body issued its report in the compliance proceedings in this
dispute. The Appellate Body upheld the panel's findings concerning the existence of adverse effects
in the post -implementation period , namely, that the European Union had established that the
Washington State B&O tax rate reduction caused significant lost sales, within the meaning of
Articles 5(c) and 6.3(c) of the SCM Agreement, in the single-aisle LCA market, with respect to the
Fly Dubai 2014, Icelandair 2013 and Air Canada 2013 sales campaigns, as well as a threat of
impedance of imports of Airbus single -aisle LCA to the United States and exports of Airbus
single-aisle LCA to the UAE, within the meaning of Articles 5(c) and 6.3(a) and (b) of the
SCM Agreement, in the post-implementation period.25
1.17. The Appellate Body also reversed various other findings of the compliance panel. Among them
were the findings that the European Union had failed to demonstrate that the pre-2007 aeronautics
R&D subsidies continued to cause adverse effects in the post -implementation period and that the
United States continued to grant or maintain the FSC/ETI subsidy in the post-implementation period.
More specifically, the Appellate Body:
a. reversed the compliance panel's finding that the European Union had failed to
demonstrate: (i) that the acceleration effects of the pre -2007 aeronautics R&D subsidies
in relation to Boeing's technology developme nt for the 787 26 have continued into the
post-implementation period; (ii) the existence of original subsidy technology effects of the
pre-2007 aeronautics R&D subsidies in relation to Boeing's technology development for
the 787 in the post-implementation period; and (iii) the existence of spill-over technology
effects of the pre -2007 aeronautics R&D subsidies on the 787 -9/10, the 777X, and the
737MAX in the post-implementation period, as a consequence of which (and to that extent)
the Appellate Body also reversed the compliance panel's findings that the European Union
had failed to establish that the pre -2007 aeronautics R&D subsidies are a genuine and
substantial cause of any of the forms of serious prejudice alleged with respect to the
A350XWB and A320neo in the post-implementation period, through a technology causal
mechanism. The Appellate Body further found that it was unable to complete the analysis

22 Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 11.9.
23 Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 11.10.
24 WT/DS353/27; Appellate Body Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU),
para. 1.22.
25 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), paras. 5.569 and
6.13(b). The Appellate Body report presents the compliance panel's findings as being in relation to the "tied
tax" subsidies. However, the compliance panel's findings in paragraphs 9.407, 9.444, and 11.8.c-d of the
compliance panel report refer specifically to the Washington State B&O tax rate reduction. In its report, the
compliance panel identifies the measures included within the category of "tied tax" subsidies in the twin-aisle
market at paragraph 9.234 ("{t}he tied tax subsidies … are the Washington State and City of Everett B&O tax
rate reductions") and in the single-aisle market at paragraph 9.378 ("{t}he subsidy within the tied tax
subsidies aggregated category … is the Washington State B&O tax rate reduction").
26 These acceleration effects are described in paragraph 5.373 of the Appellate Body report in the
compliance proceedings.

with regard to whether there remained acceleration effects of the pre -2007 aeronautics
R&D subsidies in the post-implementation period27; and
b. reversed the compliance panel's finding that the European Union had failed to establish
that, after the expiry of the implementation period, the United States grants or maintains
subsidies to Boeing in the form of FSC/ETI tax concessions. The Appellate Body completed
the analysis and found that, to the extent that Boeing remained entitled to FSC/ETI tax
concessions in the post -implementation period, the United States had not ceased to
provide a financial contribution and thus had not withdrawn FSC/ETI subsidies with respect
to Boeing within the meaning of Article 7.8 of the SCM Agreement.28
1.18. The Appellate Body report and the compliance panel report, as modified by the
Appellate Body, were adopted by the DSB on 11 April 2019.29
1.2 Referral to arbitration and arbitration proceeding
1.19. On 27 September 2012, the European Union requested authorization from the DSB to "take
countermeasures that are appropriate {within the meaning of Article 4.10 of the SCM Agreement},
and commensurate with the degree and nature of the adverse effects determined to exist {within
the meaning of Article 7.9 of the SCM Agreement}". In its request, the European Union considered
that "countermeasures consistent with these standards total{led} approximately {United States
Dollar (USD)} 12 billion annually".30
1.20. The European Union's request states that the European Union intends, in the first instance,
to take countermeasures in the goods sector but that, consistent with Article 22.3(c) of the DSU,
the European Union considers that it is not practicable or effective to take countermeasures in the
goods sector up to the full amount of USD 12 billion, and that the circumstances are serious enough,
given, inter alia, the degree and nature of the adverse effects and serious prejudice. Accordingly,
the European Union advised that its countermeasures would consist of one or more of the following:
a. suspension of tariff concessions and other related obligations under the GATT 1994 on a
list of US products to be established in due course;
b. suspension of concessions and other obligations under the SCM Agreement; and
c. under the General Agreement on Trade in Services (GATS), suspension of horizontal or
sectoral commitments contained in the consolidated EU Schedule of Specific
Commitments, as supplemented to incorporate the individual Schedules of Specific
Commitments of its Member States, with regard to all principal sectors identified in the
Services Sectoral Classification List.31
1.21. On 22 October 2012, the United States objected to the level of suspension of concessions or
other obligations proposed by the European Union and claimed that the European Union had not
followed the principles and procedures set forth in Article 22.3 of the DSU. Further, the United States
stated that there was no legal basis for the European Union to request authorization for

27 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), paras. 5.416,
5.420-5.421, 5.443, and 6.11. The Appellate Body expressly upheld the compliance panel's finding (in
paragraphs 9.332 and 11.8(b) of the compliance panel report) that the European Union had failed to establish
that the effects of the pre-2007 aeronautics R&D subsidies continued into the post-implementation period as
present serious prejudice in relation to the A330 and A350XWB, within the meaning of Articles 5(c) and 6.3 of
the SCM Agreement. (Appellate Body Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU),
paras. 5.362-5.363 and 6.10(b))
28 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU),
paras. 5.171-5.172 and 6.4.
29 Appellate Body Report and Panel Report pursuant to Article 21.5 of the DSU, Action by the Dispute
Settlement Body, WT/DS353/32.
30 Recourse to Article 22.2 of the DSU, and Articles 4.10 and 7.9 of the SCM Agreement by the
European Union, WT/DS353/17. The European Union's request indicates that the European Union may update
this amount annually using the most recently available data.
31 Recourse to Article 22.2 of the DSU, and Articles 4.10 and 7.9 of the SCM Agreement by the
European Union, WT/DS353/17.

countermeasures pursuant to Article 4.10 of the SCM Agreement considering that there were no
DSB recommendations under Article 4 of the SCM Agreement.32
1.22. At the DSB meeting on 23 October 2012, the DSB agreed that the matter raised by the
United States in document WT/DS353/19 had been referred to arbitration, as required by
Article 22.6 of the DSU.33 The Arbitrator was constituted on 5 November 201234 and was composed
of the original panelists:
Chairperson: Mr Crawford Falconer

Members: Mr Francisco Orrego Vicuña
 Mr Virachai Plasai

1.23. In accordance with the terms of the parties' Sequencing Agreement, and upon a joint request
from the parties, the Arbitrator suspended the arbitration proceeding from 28 November 2012 until
either party requested the resumption of its work.35
1.24. On 5 June 2019 (55 days following the DSB's adoption of the Appellate Body and panel reports
in the compliance proceedings on 11 April 2019), the European Union requested the resumption of
the Arbitrator's work. The Arbitrator resumed its work on that day.36 Due to the unavailability of the
original appointees to serve as members of the Arbitrator, the Director -General appointed a new
Chairperson and new members of the Arbitrator on 3 June 2019, pursuant to a request from the
European Union made on 20 May 2019.37 The new composition of the Arbitrator was as follows:

Chairperson: Ms Andrea Marie Dawes (née Brown)

Members: Ms Tracey Epps
 Mr Eduardo Muñoz

1.25. An organizational meeting was held on 27 June 2019 to discuss procedural aspects of the
arbitration proceeding. Both prior and subsequent to the organizational meeting, in letters dated
25 June 2019 and 1 July 2019, respectively, the European Union raised concerns regarding the draft
timetable that the Arbitrator had sent to the parties in advance of the meeting. The European Union
argued that the timetable proposed by the Arbitrator was unacceptable in light of the timetable that
had been adopted by the arbitrator in EC and certain member States – Large Civil Aircraft
(Article 22.6 – EU) (DS316 arbitration proceeding). The European Union urged the Arbitrator, in the
interests of "even -handedness", to reconsider the proposed timetable and hold the substantive
meeting with the parties in December 2019 rather than 11-13 February 2020 as had been proposed
by the Arbitrator in its draft timetable.38
1.26. The United States responded at the organizational meeting and subsequently in writing on
1 July 2019 that it had no objections to the timetable proposed by the Arbitrator. It argued that the
European Union's proposal for rigid correspondence between the timetables adopted by this
Arbitrator and the arbitrator in the DS316 arbitration proceeding was misplaced and would raise
concerns of improper linking of disputes, which would be contrary to Article 3.10 of the DSU. The
United States argued that, in any event, the draft timetable proposed by the Arbitrator was
substantially similar to the timetable adopted in the DS316 arbitration proceeding. The United States
urged the Arbitrator to base its timetable on the substantive complexity of the matter, the time the
parties needed to address the issues fully, and the time the Arbitrator needed to render a decision
consistent with its mandate.39

32 Recourse to Article 22.6 of the DSU by the United States, WT/DS353/19.
33 DSB, Minutes of the meeting held on 23 October 2012, WT/DSB/M/323, para. 74.
34 Constitution note of the Arbitrator, WT/DS353/20.
35 Communication from the Arbitrator, WT/DS353/22 (Suspension of the Work of the Arbitrator). See
fn 11 above.
36 Communication from the Arbitrator, WT/DS353/33 (Resumption of the Work of the Arbitrator).
37 Constitution note of the Arbitrator, WT/DS353/3/Add.1.
38 European Union's communications (25 June 2019 and 1 July 2019).
39 United States' communication (1 July 2019).

1.27. On 8 July 2019, the Arbitrator sent a revised draft timetable to the parties along with a
communication addressing the various points raised by the European Union regarding the timetable
and advising that the Arbitrator had decided that it would be possible to bring the dates of the
substantive meeting forward by two weeks without unduly compromising its ability to adequately
prepare for the meeting.40 After ensuring that the parties had no conflicts that would prevent them
from participating in the substantive meeting on the dates 28 -30 January 2020, the Arbitrator
adopted its timetable on 9 July 2019.41
1.28. On 8 July 2019, the Arbitrator adopted its Working Procedures and Additional Working
Procedures Concerning Protection of Business Confidential Information (BCI) and Highly Sensitive
Business Information (HSBI) (BCI/HSBI Procedures).42 On 6 December 2019, the Arbitrator adopted
Additional Working Procedures for the Substantive Meeting with the Arbitrator concerning the
recording and delayed public presentation of the opening oral statements of the parties at the
substantive meeting (see section 2.2 below).43
1.29. In accordance with the timetable and Working Procedures adopted by the Arbitrator, the
European Union submitted on 25 July 2019 a communication explaining its methodology for
calculating the proposed level of suspension , "correspond{ing} to approximately {USD} 10.02
billion" annually .44 The United States filed its written submission on 12 September 2019. The
European Union filed its written submission on 17 October 2019. The Arbitrator sent a first set of
questions to the parties for written responses on 7 November 2019, to which the parties responded
on 21 November 2019.
1.30. The Arbitrator held its substanti ve meeting with the parties from 28 -30 January 2020. On
6 February 2020, following the substantive meeting with the parties, the Arbitrator sent a second
set of written questions to the parties for written responses by 20 February 2020 and comments, if
any, on the other party's responses by 5 March 2020.
1.31. In a letter dated 10 February 2020, the United States requested the Arbitrator to extend the
deadline for responses to 2 March 2020 and the deadline for comments on responses to
16 March 2020. In support of its request, the United States advised that it would need to consult
with Boeing to obtain the documents and the information requested by the Arbitrator, and identified
various steps in this process that would require time and resources on the part of the United States
and of Boeing. Finally, the United States noted that the arbitrator in the DS316 arbitration
proceeding had, in similar circumstances, extended by ten days the deadline to submit responses to
the questions sent by that arbitrator after the substantive meeting.45
1.32. The European Union responded that the Arbitrator should reject the United States' request,
arguing that the United States' comparison of the current circumstances with those in which the
arbitrator in the DS316 arbitration p roceeding extended the deadline for responses as a basis to
justify its request was flawed and unavailing because the number of questions posed and documents
sought by that arbitrator were far greater than what was being requested by the Arbitrator in this
proceeding. It also noted that many of the questions that formed part of the second set of written
questions had already been posed orally to the parties at the substantive meeting with the parties,
which further reduced the number of questions to which t he United States had to prepare fresh
responses. Finally, the European Union argued that, as a prudent litigant, the United States would

40 Arbitrator's communication to the parties regarding the timetable and Working Procedures,
(8 July 2019), Annex C-1.
41 On 10 September 2019, the Chairperson of the Arbitrator received a letter from the CEO of Air Baltic
Corporation, co-addressed, inter alia, to the Chairperson of the DS316 arbitrator and the Director-General of
the WTO and urging "the WTO to encourage and facilitate the parties towards settlement discussions by
coordinating the decisions of the {arbitrators} in both proceedings". On 13 September 2019, the Arbitrator
forwarded the letter of 10 September 2019 to the parties. On 18 September 2019, the Arbitrator replied by
letter to the CEO of Air Baltic Corporation, acknowledging receipt of the letter of 10 September 2019 and
advising that the Arbitrator had forwarded the letter to the parties.
42 See Working Procedures of the Arbitrator, Annex A-1; and Additional Working Procedures for the
Protection of Business Confidential Information and Highly Sensitive Business Information, Annex A-2.
43 See Additional Working Procedures for the Substantive Meeting with the Arbitrator, Annex A-3.
44 European Union's methodology paper, para. 216 (emphasis omitted). But see para. 6.6.c below and
fns 123 and 597 for subsequent revisions by the European Union of the proposed level of suspension.
45 United States' communication (10 February 2020).

have consulted the documents requested by the Arbitrator in developing its positions so far in th is
proceeding.46
1.33. In a communication to the parties dated 14 February 2020, the Arbitrator advised that it had
decided to revise the deadlines for responses to the Arbitrator's second set of written questions to
2 March 2020 and for comments on responses to 16 March 2020. In its communication, the
Arbitrator acknowledged the European Union's concerns and noted that it did not expect this
extension to materially delay the Arbitrator's overall work.47 The timetable was accordingly revised
on 14 February 2020.
1.34. The Arbitrator on 28 September 2020 issued to the parties a version of its Decision containing
BCI and a redacted version intended for public circulation. The Arbitrator provided its HSBI
calculations underlying the number in paragraph 6.311 of this Decision on the same date. The parties
returned with requests for changes to redactions on 2 October 2020. In response to media reports
that appeared beginning on 30 September 2020, which contained the Arbitrator's calculated level of
countermeasures, the Arbitrator issued a communication to the parties contained in Annex C -11.
The Decision of the Arbitrator was circulated to WTO Members on 13 October 2020.
2 PROCEDURAL MATTERS
2.1. In this section, the Arbitrator addresses five procedural matters: (a) the treatment of BCI and
HSBI; (b) the decision to record portions of the substantive meeting for a later presentation to the
public; (c) an objection raised by the United States regarding the use of certai n HSBI by the
European Union in its responses to the Arbitrator's questions to the parties; (d) communications
between the Arbitrator and the parties pertaining to the effects of the C ovid-19 pandemic on the
work of the Arbitrator; and (e) the United States' request for leave to file an additional submission
regarding the purported elimination of the Washington State B&O tax rate reduction as of
1 April 2020.
2.1 Treatment of BCI and HSBI
2.2. As previously noted, the Arbitrator adopted BCI/HSBI Procedures on 8 July 2019.48 The
BCI/HSBI Procedures, inter alia, (a) define BCI and HSBI for the purposes of th is proceeding, (b)
limit access to, and permissible use of, BCI and HSBI submitted during the proceeding to certain
pre-designated persons and at certain designated secure locations where applicable, and (c) provide
for the treatment and handling of BCI and HSBI in a party's submissions to the Arbitrator.49
2.3. Additionally, the BCI/HSBI Procedures provide that the Arbitrator shall not disclose BCI and
HSBI in its Decision but may make statements or draw conclusions that are based on the information
drawn from BCI and HSBI. The BCI/HSBI Procedures also provide that, prior to circulating the
Decision of the Arbitrator to the WTO membership, the parties shall be given an op portunity to
ensure that the Decision does not contain any BCI or HSBI. The relevant paragraphs of the BCI/HSBI
Procedures form the "legal basis" 50 on which the Arbitrator has redacted words or statements that
are BCI or HSBI from the public version of thi s Decision. Accordingly, the text of the version
circulated to Members is identical to the text of the confidential version issued to the parties, with
the exception of passages that are redacted to protect BCI and HSBI. Such passages have been
replaced by "[[***]]" and "[[HSBI]]", respectively.
2.4. In the adoption and application of the BCI/HSBI Procedures, the Arbitrator has strived to
"ensure that an appropriate balance is struck between the need to guard against the risk of harm
that could result from the disclosure of particularly sensitive information, on the one hand, and the

46 European Union's communication (12 February 2020).
47 Arbitrator's communication to the parties regarding the United States' request for extension of the
date for responses to questions, (14 February 2020), Annex C-3.
48 See Additional Working Procedures for the Protection of Business Confidential Information and Highly
Sensitive Business Information, Annex A-2.
49 The BCI/HSBI Procedures, as originally adopted, additionally provided that the Arbitrator would, in
consultation with the parties, establish appropriate procedures for return and destruction of BCI and HSBI
submitted by the parties to the Arbitrator in due course, but at no time later than the Conclusion of the
Arbitration Process as defined in the BCI/HSBI Procedures. Such procedures were adopted on 9 October 2020.
50 Appellate Body Report, US – Tuna II (Mexico) (Article 21.5 – Mexico), para. 5.4.

integrity of the adjudication process … and the rights of and systemic interests of the WTO
membership at large, on the other hand".51 We have also tried to ensure that the public ve rsion of
the Decision circulated to all Members of the WTO is comprehensible.52 Having said that, we consider
it important to note that a substantial portion of the evidence submitted by the parties in th is
proceeding is protected under the BCI/HSBI Procedures and that, therefore, the Arbitrator has had
to have reference to information designated as BCI or HSBI.
2.5. In accordance with the BCI/HSBI Procedures, the parties on 2 October 2020 submitted specific
requests regarding the redaction of confidential information from the public version of this Decision
and on 6 October 2020 submitted comments on each other's requests. In response to these
communications, we made appropriate changes to the public version of our Decision.
2.2 Public presentation of the parties' opening statements
2.6. At the organizational meeting, both parties agreed that the substantive meeting of the
Arbitrator with the parties should be made available to the public to the extent that it was reasonable
to do so. In this context, r ecognizing the need to protect the confidentiality of BCI and HSBI that
could be referred to at the substantive meeting, both parties agreed that additional working
procedures should be adopted for the substantive meeting of the parties with the Arbitrator. On
6 December 2019, the Arbitrator adopted Additional Working Procedures for the Substantive Meeting
with the Arbitrator (Additional Working Procedures). 53 The Additional Working Procedures address
issues pertaining to the treatment of BCI and HSBI during the substantive meeting generally, as
well as issues more specifically pertaining to the parts of the meeting intended to be made available
to the public.
2.7. The substantive meeting of the Arbitrator with the parties was held from 28-30 January 2020,
during which the parties' opening oral statements were recorded for a later presentation to the public
in accordance with the terms of the Additional Working Proce dures. The parties were invited to a
preview of the video recording on 10 February 2020, which both parties attended and at which the
parties identified utterances of BCI during the opening oral statements that were later deleted before
the public presenta tion. The public presentation of the redacted recording of the parties' opening
oral statements took place on 5 March 2020 at the WTO.
2.3 The United States' allegations regarding the European Union's use of certain US HSBI
submitted in the DS316 arbitration proceeding
2.8. Shortly prior to the close of business on 27 January 2020, the day before the substantive
meeting of the Arbitrator with the parties, the United States sent a letter to the Chairperson of the
Arbitrator objecting to the alleged improper use of US HSBI by the European Union in its written
responses to Arbitrator question Nos. 23 and 26 submitted by the European Union on
21 November 2019. Specifically, the United States complained that the European Union had
included certain information related to the methodology and related terminology used by Boeing to
calculate the "Boeing Net Price" and "Boeing Gross Price" which had been provided by Boeing to the
United States and had been in turn submitted as US HSBI in the DS316 arbitration proceeding. The
United States argued that the European Union's submission in th is proceeding of information that
had been designated as US HSBI in the DS316 arbitration proceeding was improper. The
United States further considered that, under the terms of the BCI/HSBI proced ures in place in the
DS316 arbitration proceeding, the European Union should previously have destroyed all US HSBI in
its possession. Thus, the United States considered that this information was no longer validly in the
European Union's possession and had been disclosed by the European Union in this proceeding in
violation of the BCI/HSBI procedures in the DS316 arbitration proceeding. The United States
requested the Arbitrator to instruct the European Union to re-submit its responses to the Arbitrator's
question Nos. 23 and 26 with all references to improperly sourced US HSBI duly removed and to
instruct the European Union and WTO authorized persons to destroy all copies of the
European Union's responses containing references to improperly sourced US HSBI.54

51 Appellate Body Reports, US – Tuna II (Mexico) (Article 21.5 – Mexico), para. 5.3; and EC and certain
member States – Large Civil Aircraft, Annex III, Procedural Ruling of 10 August 2010, para. 15.
52 Appellate Body Report, Japan – DRAMS (Korea), para. 279.
53 See Additional Working Procedures for the Substantive Meeting with the Arbitrator, Annex A-3.
54 United States' communication (27 January 2020).

2.9. In a letter to the Arbitrator dated 31 January 2020, the European Union objected "in the
strongest terms" to the United States' allegations. The European Union stated that it did not include
US HSBI material from the DS316 arbitration proceeding in its responses to the Arbitrator's questions
and that it had not shared US HSBI from the DS316 arbitration proceeding with Airbus. Rather, the
European Union had obtained the information on the elements of Boeing's pricing contained in its
responses to Arbitrat or question Nos. 23 and 26 exclusively from Airbus. Moreover, the
European Union confirmed that, as required by the BCI/HSBI procedures in that proceeding, the
European Union had destroyed all US HSBI material from the DS316 arbitration proceeding within
the time limits set by the DS316 arbitrator. The European Union requested that the Arbitrator reject
the United States' allegations as unsupported and without merit. Additionally, the European Union
expressed regret that the United States had chosen to raise its concerns in a letter filed more than
two months after receiving the European Union's responses to the Arbitrator's questions and "a mere
15 minutes before the close of business on the day bef ore the oral hearing". Finally, the
European Union argued that the United States' action had the result of depriving the Arbitrator and
the European Union of the opportunity for an exchange of views at the substantive meeting on the
issues covered by the E uropean Union's responses to the particular questions of the Arbitrator,
thereby compromising the European Union's due process rights. It therefore requested the Arbitrator
to issue a ruling to the effect that the United States should not be allowed to dev elop further its
arguments and evidence on those issues for the remainder of this proceeding.55
2.10. On 4 February 2020, the United States referred to the European Union's letter of
31 January 2020, noting that it had no basis to question the veracity of the Eu ropean Union's
assertions that it had obtained the relevant Boeing pricing information from its discussions with
Airbus, and accordingly withdrew its objections to the use of the information in the European Union's
response to Arbitrator question Nos. 23 and 26.56
2.11. The Arbitrator sent a communication to the parties on 6 February 2020 in which it noted that
the United States' withdrawal of its objections to the use of the information in the European Union's
response to Arbitrator question Nos. 23 and 26 effectively made moot the United States' objection
and associated requests for Arbitrator action included in its letter of 27 January 2020. Therefore, the
Arbitrator considered it unnecessary, and accordingly declined, to rule on the United States'
objection and its associated requests for Arbitrator action. With regard to the European Union's
allegation that the United States had compromised its due process rights, the Arbitrator stated that
it was unable to discern a way in which the European Union was deprived of a meaningful opportunity
to comment on any particular issue before the Arbitrator relating to the topics covered in question
Nos. 23 and 26. It further noted that the European Union had had an opportunity to comment on
the issues presented by the Arbitrator in question Nos. 23 and 26 in its responses to those questions,
and that the European Union would have an opportunity to further offer its comments with respect
to these issues following the Arbitrator's second set of questions to the parties.57
2.4 Impact of the Covid-19 pandemic on the work of the Arbitrator
2.12. The Arbitrator issued a series of communications to the parties related to facilitating the work
of the Arbitrator in the light of the difficulties arising from the Covid -19 pandemic.58 In particular,
on 1 April 2020, the Arbitrator informed the parties that the WTO Director-General had directed that
all staff members (with the exception of certain "critical" staff members) should work from home as
of 16 March 2020, until the end of April 2020, due to concerns arising from the Covid-19 pandemic.
The Arbitrator indicated that these restrictions on Secretariat access to the WTO premises had
implications for the Secretariat's ability to work with HSBI, which could not be stored, or accessed
from, outside the WTO premises under the BCI/HSBI Procedures. The Arbitrator therefore asked the
parties if they would be willing to waive relevant restrictions imposed by those procedures in order
to enable certain Secretariat s taff to store and work with the parties' HSBI at their homes, and to

55 European Union's communication (31 January 2020).
56 United States' communication (4 February 2020).
57 Arbitrator's communication to the parties regarding certain HSBI, (6 February 2020), Annex C-2.
58 See Arbitrator's communication to the parties regarding restrictions on access to the WTO premises
and to HSBI due to Covid-19, (1 April 2020), Annex C-4; Arbitrator's communication to the parties regarding
access to HSBI in the context of Covid-19, (23 April 2020), Annex C-5; and Arbitrator's communication to the
parties regarding phased relaxation of restrictions on access to WTO premises due to Covid-19, (4 May 2020),
Annex C-6.

discuss HSBI over secure communications platforms. 59 On 8 April 2020, the parties responded to
this communication but there was a lack of agreement between the parties as to whether the
proposed alternative arrangements for working with HSBI should be implemented.
2.13. On 23 April 2020, the Arbitrator informed the parties that, in the light of the parties' lack of
agreement on whether to implement alternative HSBI storage and access arrangements as proposed
in its communication of 1 April 2020, the Arbitrator would not implement such alternative
arrangements. The Arbitrator assured the parties that it would continue advancing its work in this
proceeding while the restrictions on access to the WTO premises remained in effect, and would make
every effort to minimize the effects of the Covid-19 pandemic on the Arbitrator's work.60
2.14. On 4 May 2020, the Arbitrator informed the parties that a phased reintroduction of Secretariat
staff to the WTO premis es was planned to begin on 11 May 2020 (at which time Secretariat staff
members assisting the Arbitrator could once again begin to access HSBI). Further, the Arbitrator
informed the parties that the Arbitrator continued to make progress with its work in this proceeding,
and expected to continue to do so while restrictions on access to the WTO premises remained in
effect.61
2.15. On 17 June 2020, the Arbitrator informed the parties that it had carefully considered the
adjustments required by the Covid -19 pandemic, and that, in the light of such adjustments, the
earliest time that it expected to provide the Decision to the parties for purposes of ensuring proper
redaction of BCI and HSBI would be the end of September 2020. 62 The European Union sent a
subsequent communication to the Arbitrator on 22 June 2020 objecting to that estimated date. In
response, on 26 June 2020, the Arbitrator assured the parties that, despite the multiple challenges
arising from the Covid -19 pandemic that impaired the Secretariat's and Arbi trator's modalities for
work and that greatly affected their workplaces, families, communities, and countries, the Arbitrator
was working diligently towards fulfilling the Arbitrator's mandate in this proceeding.63
2.16. Further, on 5 and 19 August 2020 (in response to a letter from the European Union on 10
August 2020 ), the Arbitrator issued communications to the European Union indicating that the
Covid-19 pandemic had presented serious challenges for air travel and, as a result, the Arbitrator
was considering conducting its final meetings remotely. In such communications, the Arbitrator
therefore requested the European Union's permission for the Arbitrator and other WTO Approved
persons to discuss certain, limited amounts of European Union HSBI on Skype for Business in order
to facilitate such potential remote meetings of the Arbitrator.64 The European Union agreed to these
requests.
2.5 The United States' request for leave to file an additional submission regarding the
purported elimination of the Washington State B&O tax rate reduction as of 1 April 2020
2.17. On 13 May 2020, the Arbitrator received a letter from the United States advising that the
State of Washington had, effective 1 April 2020, eliminated the B&O tax rate reduction. In that letter,
the United States requested leave to file an additional "Submission of the United States regarding
the Withdrawal of the Washington State B& O Tax Rate Subsidy", attached to the letter of
13 May 2020, and purporting to set out "the implications of the elimination of this measure on the
permitted level of countermeasures". 65 The European Union responded to the United States' letter
on 20 May 2020, arguing that the Arbitrator should reject the United States' request. The
United States submitted a reply to the European Union's response on 22 May 2020. The

59 Arbitrator's communication to the parties regarding restrictions on access to the WTO premises and to
HSBI due to Covid-19, (1 April 2020), Annex C-4.
60 Arbitrator's communication to the parties regarding access to HSBI in the context of Covid-19,
(23 April 2020), Annex C-5.
61 Arbitrator's communication to the parties regarding phased relaxation of restrictions on access to
WTO premises due to Covid-19, (4 May 2020), Annex C-6.
62 Arbitrator's decision on the United States' request for leave to file an additional submission regarding
the implications of the purported elimination of the Washington State B&O tax rate reduction on the permitted
level of countermeasures, (17 June 2020), Annex C-7.
63 Arbitrator's communication to the parties, (26 June 2020), Annex C-8.
64 Arbitrator's communication to the parties requesting authorization to discuss specific EU HSBI,
(5 August 2020), Annex C-9; and Arbitrator's communication to the parties requesting authorization to discuss
additional specific EU HSBI, (19 August 2020), Annex C-10.
65 United States' communication (13 May 2020).

European Union was invited by the Arbitrator, but declined, to submit further comments on the
United States' reply.
2.18. On 17 June 2020, the Arbitrator issued a ruling denying leave on the grounds that the
United States' request for leave lacked substantive merit, was untimely, and/or was moot, and that
filing an additional submission was accordingly neither necessary for purposes of rebuttal nor
supported by good cause. The Arbitrator's ruling on the United States' request is appended to this
Decision at Annex C-7.
3 MANDATE OF THE ARBITRATOR
3.1. This arbitration proceeding results from the United States' objection to the European Union's
request for countermeasures. In having recourse to arbitration under Article 22.6 of the DSU, the
United States objects to the level of countermeasures contained in the European Union's request for
authorization to take countermeasures under Article 22.2 of the DSU and Article 7.9 of the
SCM Agreement. The United States also claims that the principles and procedures set forth in
Article 22.3 of the DSU have not been followed.
3.2. Article 7.9 of the SCM Agreement provides that if certain conditions are met, "the DSB shall
grant authorization to the complaining Member to take countermeasures, commensurate with the
degree and nature of the adverse effects determined to exist, unless the DSB decides by consensus
to reject the request." Article 7.10 of the SCM Agreement provides that "{i}n the event that a party
to the dispute requests arbitration under paragraph 6 of Article 22 of the DSU, the arbitrator shall
determine whether the countermeasures are commensurate with the degree and nature of the
adverse effects determined to exist."
3.3. This arbitration proceeding is governed by both Article 7.10 of the SCM Agreement and
Article 22.6 of the DSU. 66 Article 22.7 of the DSU defines the mandate for an arbitrator acting
exclusively under Article 22.6; that is, the arbitrator "shall determine whether the level of suspension
is equivalent to the level of nullification or impairment". Article 7.10 of the SCM Agreement defines
the mandate of an arbitrator somewhat differently. It st ates that in the event that a party to a
dispute requests arbitration under Article 22.6 of the DSU, the arbitrator "shall determine whether
the countermeasures are commensurate with the degree and nature of the adverse effects
determined to exist". In accordance with the status of Article 7.10 of the SCM Agreement as one of
the special or additional rules and procedures listed in Appendix 2 of the DSU, we conduct this
arbitration with reference to the mandate set out in Article 7.10 of the SCM Agreement.67
3.4. Articles 7.9 and 7.10 constitute "special or additional rules and procedures" under Appendix 2
of the DSU. According to Article 1.2 of the DSU, "{t}o the extent that there is a difference between
the rules and procedures of this Understandin g and the special or additional rules and procedures
set forth in Appendix 2, the special or additional rules and procedures in Appendix 2 shall prevail".
3.5. As indicated in Article 7.10, our mandate in this arbitration proceeding is to determine whether
the countermeasures proposed by the European Union are "commensurate with the degree and
nature of the adverse effects determined to exist". However, should we find that the level of
countermeasures proposed by the European Union is not commensurate, we must go on to make
our own determination of the level of countermeasures that is commensurate with the degree and
nature of adverse effects determined to exist.68 Similarly, should we determine that the methodology
proposed by the European Union for calculating the level of countermeasures, or any alternative
methodology proposed by the United States, has shortcomings and is not appropriate, as presented,

66 Article 7.10 refers explicitly to a request for arbitration under Article 22.6 of the DSU, thereby
confirming that arbitrations governed by Article 7.10 of the SCM Agreement are, at the same time, governed
by Article 22.6 of the DSU. Article 4.11 of the SCM Agreement, which begins with an introductory clause that
states: "In the event a party to the dispute requests arbitration under paragraph 6 of Article 22 of the {DSU}",
likewise confirms that arbitrations under Article 4.11 are, at the same time, arbitrations under Article 22.6 of
the DSU.
67 This is consistent with the approach of the DS316 arbitrator, another arbitration under Article 7.10 of
the SCM Agreement. (Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft
(Article 22.6 – EU), para. 3.4 and fn 75 thereto)
68 See Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft
(Article 22.6 – EU), para. 3.4 and authorities referred to in fn 76 thereto.

we may either make appropriate adjustments, or develop another, appropriate, methodology
ourselves.69
3.6. In that context, regarding the standard that governs our assessment of the assumptions
underlying the parties' proposed methodologies, we agree with previous arbitrators' statements to
the effect that any "'assumptions {used by the parties' methodologies} should be reasonable, taking
into account the circumstances of the dispute'. We also find relevant the finding made in several
arbitration proceedings that assumptions should be based on 'credible, factual, and verifiable
information'".70 Furthermore, our assessment of the parties' arguments and the evidence on the
record must be performed in an objective manner.
3.7. The general provisions of Article 22.7 of the DSU are also relevant to our mandate. They specify
that "if the matter referred to arbitration includes a claim that the principles and procedures set
forth in {Article 22.3 of the DSU} have not been followed, the arbitrator shall examine that claim".
It is therefore also within our mandate to examine the United States' claim that the European Union
did not follow the principles and procedures set forth in Article 22.3 of the DSU. While the
United States' objection to the level of suspension of concessions or other obligations included a
claim that the principles and procedures set forth in Article 22.3 of the DSU have not been followed
by the European Union in considering what countermeasures to take, the United States does not
pursue that claim in its submissions in this proceeding.
4 BURDEN OF PROOF
4.1. The United States, in having recourse to arbitratio n under Article 22.6 of the DSU, objects to
the level of countermeasures proposed by the European Union.
4.2. The United States submits that it therefore bears the initial burden of establishing a prima facie
case that the countermeasures proposed by the Europ ean Union are not commensurate with the
degree and nature of the adverse effects determined to exist. It considers that, having done this,
the burden then shifts to the European Union to rebut the United States' case.71 The European Union
argues that the United States bears the burden of proof and the burden of persuasion that the
European Union's methodology results in countermeasures that are "inconsistent" with Articles 7.9
and 7.10 of the SCM Agreement; i.e. that the United States must establish that the countermeasures
proposed by the European Union are not "commensurate with the degree and nature of the adverse
effects determined to exist."72 The European Union refers to three paragraphs from the decision of
the DS316 arbitrator regarding the allocation of the burden of proof where the original respondent
objects to the level of countermeasures. The relevant portions of these paragraphs are as follows:
It is clear from previous arbitrations under Article 22.6, and the parties do not dispute,
that the party challenging the proposed countermeasures bears the burden of
establishing a prima facie case that such countermeasures are inconsistent with the
relevant requirements of the SCM Agreement and/or the DSU. Thereafter, the burden
shifts to the party proposing the countermeasures to rebut such prima facie case. …
In the present proceeding, therefore, the European Union bears the burden to submit
arguments and evidence sufficient to establish a prima facie case that the
countermeasures prop osed by the United States are not "commensurate with the
degree and nature of the adverse effects determined to exist" and are, consequently,
inconsistent with Article 7.9. To satisfy its burden of proof, the European Union must

69 Decisions by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU),
70 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU),
para. 6.173 (quoting US – Tuna II (Mexico) (Article 22.6 – US), para. 5.16 (fns omitted) (in turn quoting
Decisions by the Arbitrator, US – COOL (Article 22.6 – United States), para. 4.5; US – Gambling (Article 22.6 –
US), para. 3.3; and US – 1916 Act (EC) (Article 22.6 – US), para. 5.54)). See also Decision by the Arbitrator,
US – Washing Machines (Article 22.6 – US), para. 3.127 (indicating that "'it is necessary to rely only on
credible, verifiable information, and not on speculation' in calculating the level of nullification or impairment")
(quoting Decision by the Arbitrator, US – 1916 Act (EC) (Article 22.6 – US), para. 5.63).
71 United States' response to Arbitrator question No. 1, para. 5.
72 European Union's response to Arbitrator question No. 1, para. 5; but see European Union's written
submission, paras. 2-4, 6, 27, 124, 125, 134, 162-163, 165, 171, 179, 184, 186, 218, 230, 237, 243, 277,
286, 345, 361, 386, and 405.

engage with the methodology used by the United States to arrive at the proposed level
of countermeasures, and it is "not sufficient merely to assert that another methodology
is more appropriate". If the European Union meets its burden, it is for the United States,
thereafter, to submit arguments and evidence sufficient to rebut the prima facie case
established by the European Union. …
Furthermore, each party has the duty to produce evidence in support of its assertions
of fact and to collaborate with an Article 22.6 arbitrator in presenting evidence.73
4.3. The burden shifting framework to which the United States and the DS316 arbitrator allude has
long been referred to by the Appellate Body, dispute settlement panels and Article 22.6 arbitrators.74
For present purposes, it is sufficient t o state that we regard the United States, as the party
challenging the proposed level of countermeasures, to bear the overall burden of demonstrating that
the European Union's methodology results in countermeasures that are not "commensurate" with
the degree and nature of the adverse effects determined to exist. To discharge that burden, it is not
sufficient for the United States merely to propose an alternative methodology that it asserts is more
appropriate. Rather, the United States must engage with the methodology used by the
European Union, in the sense that the United States must demonstrate why that methodology would
result in countermeasures that are not "commensurate" within the meaning of Article 7.10 of the
SCM Agreement.
4.4. We agree with the DS316 arbitrator that each party has the duty to produce evidence in support
of its assertions of fact and to collaborate with an Article 22.6 arbitrator in presenting evidence.
Consistent with this duty and prior arbitrations, we requested that, as a first step in the proceeding,
the European Union as the party seeking authorization to take countermeasures submit a
methodology paper substantiating how it arrived at the proposed countermeasures.75
5 THE DS316 PROCEEDINGS AND THE DS316 ARBITRATOR'S VALUATION OF ADVERSE
EFFECTS
5.1. This arbitration proceeding is the third occasion on which an arbitrator acts under both
Article 7.10 of the SCM Agreement and Article 22.6 of the DSU. 76 Of particular relevance to th is
proceeding is the decision of the DS316 arbitrator in the arbitration proceeding arising from the
dispute initiated by the United States concerning certain measures by the European Union and
certain member states affecting trade in LCA.77 In particular, we note that the parties often present
their arguments and valuation methodologies in this proceeding as being supported by, or as justified
departures from, methodologies adopted by the DS316 arbitrator (which valued significant lost sales
and impedance caused by sales of subsidized LCA).
5.2. As explained in more detail below, the DS316 arbitration involved the valuation of adverse
effects in the form of lost sales and impeded deliveries of 47 747-8Is, 20 777-300ERs, 30 787-10s,
and an additional number of 7 47-8I sales, in each case in the period December 2011 -December
2013. Expressed in 2013 US dollar terms, the annualized value of these adverse effects was
calculated to be USD 7,496.623 million.78
5.3. The DS316 arbitration proceeding, like the present proceeding, involved the valuation of
adverse effects in the LCA industry. Both proceedings concern the valuation of lost sales and impeded

73 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU),
paras. 4.2-4.4. (fns omitted)
74 See e.g. Appellate Body Reports, US – Wool Shirts and Blouses, p. 14; EC – Hormones, para. 104;
US – Upland Cotton, para. 644; and US – Carbon Steel (India), para. 4.505; Panel Reports, EU – Energy
Package, para. 7.8; Russia – Pigs (EU), para. 7.589; and EC and certain member States – Large Civil Aircraft
(Article 21.5 – US), para. 6.50; and Decisions by the Arbitrator, US – FSC (Article 22.6 – US), para. 2.10; and
75 See para. 1.29 above. See also Decision by the Arbitrators, EC – Hormones (US) (Article 22.6 – EC),
para. 11.
76 The two other arbitrations conducted under Article 7.10 of the SCM Agreement and Article 22.6 of the
DSU are EC and certain member States – Large Civil Aircraft (Article 22.6 – EU) and US – Upland Cotton
(Article 22.6 – US II).
77 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU).
78 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU),
para. 6.500.

deliveries of particular sizes and models of LCA at particular po ints in time. Both parties agree in
principle that the Arbitrator should approach specific valuation issues consistently with the approach
taken to those same issues by the DS316 arbitrator. However, there are also important differences
between the two dis putes including, notably, the subsidies at issue and the causal mechanisms
through which they resulted in the adverse effects in question, the specific adverse effects findings
(including the forms of serious prejudice, the aircraft concerned and the time periods in question),
as well as the parties' arguments and the evidence presented. In certain circumstances, these
differences may justify, or even require, this Arbitrator to adopt different valuation approaches to
those of the DS316 arbitrator. In addit ion, the parties have, throughout their arguments, relied on
aspects of the DS316 arbitrator's decision in support of their positions in this proceeding. For this
reason, portions of our decision in this proceeding involve extensive discussion and consideration of
aspects of the DS316 arbitrator's decision.
5.4. With those considerations in mind, we summarize below the key elements of the DS316
proceedings that are relevant to the valuation issues before us in this arbitration proceeding.
5.1 The DS316 original proceedings
5.5. The DS316 dispute originally commenced with a request for consultations by the United States
on 6 October 2004, and a request for establishment of a panel on 31 May 2005.79 The United States
originally claimed that the European Union and certain of its member States, namely, France,
Germany, Spain, and the United Kingdom (UK), had caused, through the use of specific subsidies,
adverse effects to the United States' interests in the form of serious prejudice under Articles 5(c)
and 6.3 of the SCM Agreement. In addition, the United States also claimed that certain subsidies
were prohibited subsidies within the meaning of Article 3.1(a) and footnote 4 of the SCM Agreement
and, therefore, pursuant to Article 3.2 of the SCM Agreement, they must not be gr anted or
maintained. The original panel found that the following specific subsidies related to the production
and development of LCA were inconsistent with Articles 5(c) and 6.3(a), (b), and (c) of the
SCM Agreement: (a) "launch aid" or "member State financing" (LA/MSF) for the A300, A310, A320,
A330, A330-200, A340, A340 -500/600 and A380 models of Airbus LCA; (b) French and German
government "equity infusions" provided in connection with the corporate restructuring of French and
German aerospace manufacturers, Aérospatiale Société Nationale Industrielle and Deutsche Airbus
GmbH; (c) certain infrastructure and infrastructure -related measures provided by the German and
Spanish authorities to Airbus in the form of, inter alia, regional development grants; and (d) certain
research and technological development (R&TD) funding provided to Airbus for LCA -related R&TD
projects in which Airbus participated. In addition, the original panel found that the United States had
established that the German, Spanish, and UK LA/MSF for the A380 constituted prohibited export
subsidies within the meaning of Article 3.1(a) of the SCM Agreement.
5.6. On appeal, the Appellate Body reversed the original panel's finding that the German, Spanish
and UK A380 LA/MSF contracts constituted prohibited export subsidies under Article 3.1(a) of the
SCM Agreement, but was unable to complete the analysis with regard to Article 3.1(a) due to
insufficient factual findings or undisputed facts on the panel record. The Appellate Body further
reversed or modified several other aspects of the original panel's findings, and completed the legal
analysis where it considered that it had sufficient factual findings or undisputed facts on the record.
With regard to issues of subsidization and adverse effects, the Appellate Body completed the analysis
and ultimately concluded that: (a) the use of the challenged LA/MSF measures had caused adverse
effects to the United States' interests; and (b) the equity infusions and infrastructure measures (but
not the R&TD subsidies) that were found by the original panel to constitute specific subsidies
"complemented and supplemented" the effects of the LA/MSF measures. The Appellate Body upheld
the original panel's recommendation pursuant t o Article 7.8 of the SCM Agreement, and
recommended that the DSB request the European Union to bring its measures that were found to
be inconsistent with the SCM Agreement into conformity with its obligations under that Agreement.80
5.7. The DSB adopted the Ap pellate Body report and the original panel report, as modified by the
Appellate Body report, on 1 June 2011.81

79 Request for consultations by the United States, WT/DS316/1; and Request for the establishment of a
Panel by the United States, WT/DS316/2.
80 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1416 and 1418.
81 DSB, Minutes of the meeting held on 1 June 2011, WT/DSB/M/297.

5.2 The DS316 compliance proceedings
5.8. On 1 December 2011, the European Union informed the DSB that it had "taken appropriate
steps" to bring its measu res into conformity with its WTO obligations, thereby ensuring "full
implementation of the DSB's recommendations and rulings". 82 On 30 March 2012, following a
request for consultations with the European Union and the four member States, the United States
requested the establishment of a panel pursuant to Article 21.5 of the DSU with standard terms of
reference.83 The panel was established by the DSB on 13 April 2012.84
5.9. Before the compliance panel, the United States argued that the relevant subsidies found t o
have caused adverse effects in the original proceedings continued to cause adverse effects and that,
by agreeing to provide Airbus with LA/MSF for the A350XWB family of aircraft, the four member
States have "continued and even expanded" the subsidization of Airbus' LCA activities, thereby
causing "additional adverse effects" within the meaning of Articles 5(c) and 6.3 of the
SCM Agreement.85
5.10. The compliance panel report was circulated on 22 September 2016. The compliance panel
found, inter alia, that the French, German, Spanish, and UK A350XWB LA/MSF measures fell within
the scope of the compliance proceedings and that the United States had demonstrated that these
measures were specific subsidies within the meaning of Articles 1 and 2 of the SCM Agreement.
5.11. With regard to Article 7.8 of the SCM Agreement, the compliance panel found that the
European Union had demonstrated that the ex ante "lives" of (a) the French, German, and Spanish
LA/MSF subsidies for the A300B/B2/B4, A300-600, A310, A320 and A330/A340; (b) the UK LA/MSF
subsidies for the A320 and A330/A340; and (c) the capital contribution subsidies, had "expired"
before June 2011, while (d) the ex ante "lives" of the French LA/MSF subsidies for the A330-200 and
the French and Spanish LA/MSF subsidies for the A340 -500/600 had "expired", respectively, on
dates that were classified as BCI, and (e) that the ex ante "lives" of five regional development grant
subsidies would not "expire" until sometime between 2054 and 2058, while the other two "expired"
around 2014.
5.12. The compliance panel also found that the fact that one or more of the subsidies challenged in
the compliance proceedings may have ceased to exist prior to 1 June 2011 did not ipso facto mean
that the European Union and the four member States did not have a compliance obligation under
the terms of Article 7.8 of the SCM Agreement in relation to those subsidies. 86 Further, the
compliance panel found that the fact that the ex ante "lives" of cert ain subsidies had "passively
'expired'" before the end of the implementation period, did not amount to "withdrawal" of those
subsidies for the purpose of Article 7.8, and that the European Union had therefore failed to comply
with the obligation to "withdraw the subsidy" for purposes of Article 7.8.87
5.13. With regard to the obligation under Article 7.8 to take appropriate steps to remove the
adverse effects, the compliance panel found that:

82 Communication by the European Union, WT/DS316/17, para. 5.
83 Request for the establishment of a panel by the United States, WT/DS316/23.
84 DSB, Minutes of the meeting held on 13 April 2012, WT/DSB/M/314.
85 Panel Report, EC and certain member States – Large Civil Aircraft (Article 21.5 – US), para. 6.3. We
note that two compliance panels have been established in the DS316 proceedings thus far. For ease of
reference, we refer to the first compliance panel in the DS316 dispute as the "compliance panel". The second
compliance panel, which we do not discuss in this Decision, was established on 15 August 2018 and circulated
its report on 2 December 2019.
86 Panel Report, EC and certain member States – Large Civil Aircraft (Article 21.5 – US), para. 6.841.
The compliance panel further found that the European Union had failed to demonstrate that the "alleged partial
privatization of Aérospatiale in 1999, the transactions leading to the creation of EADS in 2000 and BAE
Systems' 2006 sale of its 20% ownership stake in Airbus SAS to EADS, were 'intervening events' that resulted
in the 'extinction' of the benefit of all of the subsidies at issue in this proceeding that were granted prior to
those transactions", and rejected also the European Union's arguments on "extraction" of subsidies, which had
been rejected by the original panel and the Appellate Body in the original proceedings. (See Panel Report,
EC and certain member States – Large Civil Aircraft (Article 21.5 – US), para. 7.1.d.i-vi)
87 Panel Report, EC and certain member States – Large Civil Aircraft (Article 21.5 – US),
para. 7.1.d.viii-ix.

a. the direct and indirect effects of the aggregated pre-A350XWB LA/MSF subsidies continued
to be a genuine and substantial cause of the current market presence of the A320, A330
and A380, using either the "plausible" or "unlikely" counterfactual scenarios adopted in
the original proceedings in relation to the effects of the sa me subsidies in the 2001 to
2006 period as the starting point of the analysis88;
b. the direct and indirect effects of the aggregated LA/MSF subsidies (i.e. including the
A350XWB LA/MSF subsidies) were a genuine and substantial cause of the current market
presence of the A350XWB using either the "plausible" or "unlikely" counterfactual
scenarios adopted in the original proceedings in relation to the effects of the pre-A350XWB
LA/MSF subsidies in the 2001-2006 period as the starting point of the analysis; and
c. the so-called "product" effects of these subsidies were a genuine and substantial cause of:
i. displacement and/or impedance of imports of a like product of the United States into
the markets for (i) single -aisle LCA, (ii) twin -aisle LCA, and (iii) very large aircraft
(VLA) in the European Union, within the meaning of Article 6.3(a) of the
SCM Agreement;
ii. displacement and/or impedance of exports from the markets for (i) single-aisle LCA in
Australia, China, and India, (ii) twin-aisle LCA in China, Korea and Singapore, and (iii)
VLA in Australia, China, Korea, Singapore and the United Arab Emirates, within the
meaning of Article 6.3(b) of the SCM Agreement; and
iii. significant lost sales in the global markets for (i) single -aisle LCA, (ii) twin-aisle LCA,
and (iii) VLA, within the meaning of Article 6.3(c) of the SCM Agreement.89
5.14. The compliance panel also found that the effects of the aggregated non-LA/MSF subsidies (i.e.
the capital contribution subsidies and certain regional development grants) "complement and
supplement" the "product" effects of the aggregated LA/MSF subsidies and, therefore, were a
"genuine" cause of serious prejudice to the interests of the Unite d States, within the meaning of
Article 5(c).90
5.15. Having found that the challenged subsidies caused present serious prejudice to the
United States' interests, within the meaning of Article 5(c) of the SCM Agreement, the compliance
panel made no findings with respect to the United States' conditional claim that the challenged
subsidies threatened to cause serious prejudice to its interests.91
5.16. On 13 October 2016, the European Union notified the DSB of its intention to appeal certain
issues of law covered in the compliance panel report and certain legal interpretations developed by
the compliance panel, and filed a Notice of Appeal pursuant to Article 20 of the Working Procedures
for Appellate Review.92
5.17. As regards the aspects of the appeals related to Article 7.8 of the SCM Agreement, the
Appellate Body reversed the compliance panel's interpretation of Article 7.8. According to the
compliance panel, the obligation under Article 7.8 to "withdraw the subsidy" or "take appropriate
steps to remove the adverse effects" needed to be understood as requiring an implementing Member

88 Panel Report, EC and certain member States – Large Civil Aircraft (Article 21.5 – US), para. 7.1.d.xii.
89 Panel Report, EC and certain member States – Large Civil Aircraft (Article 21.5 – US),
para. 7.1.d.xiv-xvi.
90 Panel Report, EC and certain member States – Large Civil Aircraft (Article 21.5 – US),
para. 7.1.d.xvii. The compliance panel found, however, that the United States had failed to demonstrate that
the Spanish regional development grants used for Airbus' military aircraft activities benefited Airbus' LCA
activities and thus failed to establish that these subsidies complement and supplement the "product" effects of
the LA/MSF subsidies. (Panel Report, EC and certain member States – Large Civil Aircraft (Article 21.5 – US),
para. 7.1.d.xviii)
91 Panel Report, EC and certain member States – Large Civil Aircraft (Article 21.5 – US), para. 7.1.d.xix.
92 Notification of appeal by the European Union, WT/DS316/29. The United States notified the DSB of its
intention to appeal certain issues of law covered in the compliance panel report and certain legal
interpretations developed by the compliance panel, and filed a Notice of Appeal and other appellant's
submission pursuant to Article 23 of the Working Procedures for Appellate Review on 10 November 2016.
(Notification of appeal by the United States, WT/DS316/30)

to take appropriate action with respect to the subsidy or the relevant market that would bring it into
conformity with the effects-based disciplines of Article 5 of the SCM Agreement. For the compliance
panel, this was so irrespective of whether the subsidy previously found to have caused adverse
effects "expired" prior to the end of the relevant implementation period. The Appellate Body
disagreed and found that Article 7.8 did not impose a compliance obligation with respect to subsidies
that "expired" prior to the end of the implementation period. Consequently, the Appellate Body
concluded that the European Union had no compliance obligation with respect to subsidies that had
"expired" before 1 December 2011.93
5.18. The Appellate Body therefore considered that the pertinent question for purposes of the
compliance proceedings was whether the subsidies existing in the post-implementation period (i.e.
after 1 December 2011) caused adverse effects. Accordingly, the Appellate Body focused its review
on the compliance panel's analysis and findings regarding the effects of the A380 LA/MSF and the
A350XWB LA/MSF subsidies, as the subsidies that existed in the post-implementation period.
5.19. As to the European Union's appeal of aspects of the compliance panel's causation analysis
regarding the effects of the A380 LA/MSF and the A350XWB LA/MSF subsidies, as the only subsidies
that existed in the post -implementation period, the Appellate Body found that the original panel's
findings, together with the compliance panel's analysis, indicated that:
a. the A380 LA/MSF had "direct effects" on Airbus' ability to launch, bring to market, and
continue developing the A380 as and when it did, given that the A380 LA/MSF subsidies
had not expired, as well as the fact that Airbus continued to receive disbursements under
the French, German, and Spanish LA/MSF contracts at a time when it was experiencing
severe financial difficulties resulting from the extensive production delays in th e A380
programme94; and
b. the compliance panel's findings regarding the "direct effects" of the A350XWB LA/MSF,
read together with its findings regarding the "indirect effects" of the A380 LA/MSF, also
indicated that, without the aggregated "product effects " of the existing LA/MSF subsidies
for the A380 and A350XWB programmes, Airbus would not have been able to launch the
A350XWB as and when it did.95
5.20. The Appellate Body reversed all of the compliance panel's findings of significant lost sales and
displacement and/or impedance under Articles 6.3(a), 6.3(b) and 6.3(c), in the single -aisle LCA
market.96 The Appellate Body considered further that it was unable to complete the legal analysis of
the United States' claims of displacement and/or impedance in the sing le-aisle LCA markets in

93 Appellate Body Report, EC and certain member States – Large Civil Aircraft (Article 21.5 – US),
para. 6.11. The Appellate Body additionally upheld the compliance panel's finding that the European Union had
demonstrated that the ex ante "lives" of the French, German, and Spanish LA/MSF subsidies for the
A300B/B2/B4, A300-600, A310, A320, and A330/A340 and the UK LA/MSF subsidies for the A320 and
A330/A340 had "expired" before 1 June 2011. (Appellate Body Report, EC and certain member States – Large
94 Appellate Body Report, EC and certain member States – Large Civil Aircraft (Article 21.5 – US),
para. 6.22.
95 The Appellate Body considered that the compliance panel's findings revealed that the LA/MSF
subsidies existing in the post-implementation period, i.e. the A380 and A350XWB LA/MSF subsidies, enabled
Airbus to proceed with the timely launch and development of the A350XWB, and to bring to market and to
continue developing the A380, and that both such events were crucial to renewing and sustaining Airbus'
competitiveness in the post-implementation period. (Appellate Body Report, EC and certain member
States – Large Civil Aircraft (Article 21.5 – US), para. 6.23)
96 In this regard, the Appellate Body noted that the compliance panel's findings regarding the "product
effects" of LA/MSF subsidies on the market presence of the A320 concerned primarily the effects of subsidies
that had "expired" prior to the end of the implementation period. Owing to the absence of analysis by the
compliance panel of whether, and to what extent, Airbus' competitiveness in the single-aisle LCA market,
gained through the pre-A380 LA/MSF subsidies, was renewed and sustained beyond the original reference
period as a result of the subsidies that the European Union granted or maintained in the post-implementation
period, the Appellate Body reversed the compliance panel's findings under Articles 6.3(a), 6.3(b), and 6.3(c) of
the SCM Agreement, insofar as they related to the single-aisle LCA market. (Appellate Body Report, EC and
certain member States – Large Civil Aircraft (Article 21.5 – US), paras. 6.26-6.27)

Australia, China, and India, and impedance in the single -aisle LCA market in the European Union,
or, in the alternative, threat of displacement or impedance in that market.97
5.21. The Appellate Body upheld the compliance panel's finding s of significant lost sales in the
twin-aisle market, based on modified reasoning, finding that the orders identified in Table 19 of the
compliance panel report for A350XWBs represented significant lost sales to the US LCA industry and,
therefore, that the LA/MSF subsidies existing in the post-implementation period were a genuine and
substantial cause of serious prejudice to the United States within the meaning of Article 6.3(c) of
the SCM Agreement.98
5.22. The Appellate Body reversed the compliance panel's findings of displacement and/or
impedance of twin-aisle LCA in the relevant third-country markets.99 Moreover, the Appellate Body
found that it was unable to complete the legal analysis of the United States' claims of displacement
in the twin-aisle markets in China, Korea and Singapore, and impedance in the twin -aisle markets
in the European Union, China, Korea and Singapore markets.100
5.23. The Appellate Body upheld the compliance panel's findings of significant lost sales in the VLA
market, based on modified reasoning, finding that the sales of the A380 identified in Table 19 of the
compliance panel report represented significant lost sales to the US LCA industry and that the
LA/MSF subsidies existing in the post -implementation period con tinued to be a genuine and
substantial cause of serious prejudice to the United States within the meaning of Article 6.3(c) of
the SCM Agreement.101
5.24. The Appellate Body reversed the compliance panel's findings of displacement of VLA in certain
geographic markets.102 The Appellate Body further found that it was unable to complete the legal
analysis of the United States' claim of displacement in these markets.103

97 Appellate Body Report, EC and certain member States – Large Civil Aircraft (Article 21.5 – US),
para. 6.29.
98 Appellate Body Report, EC and certain member States – Large Civil Aircraft (Article 21.5 – US),
para. 6.31.
99 The Appellate Body stated that, while its review of the compliance panel's finding on the "product
effects" of LA/MSF subsidies on the A350XWB indicated that, in the absence of the LA/MSF subsidies for the
A380 and A350XWB existing in the post-implementation period, Airbus would not have been able to offer the
A350XWB at the time it did and with the features the A350XWB had, the United States had "framed" its claim
of displacement and/or impedance in the twin-aisle LCA market on the basis of data concerning market shares
and deliveries of Airbus and Boeing LCA during the 2011-2013 period. The Appellate Body explained that, as
there were no deliveries of the A350XWB during that period, the compliance panel had relied on market share
and delivery data relating to the A330, rather than orders of the A350XWB in making its finding. The
Appellate Body recalled, moreover, that the compliance panel had found that the "product effects" of LA/MSF
subsidies on the A330 concerned primarily the effects of those subsidies that had "expired", and that the
Appellate Body had found that the European Union has no compliance obligation with respect to such expired
subsidies. The Appellate Body concluded that, because the compliance panel had not explored or made findings
on whether, and if so, how, the A380 and A350XWB subsidies existing in the post-implementation period may
have contributed to the deliveries of the A330 occurring during that period, it would reverse the compliance
panel's conclusion that the "product effects" of the LA/MSF subsidies were a genuine and substantial cause of
displacement and/or impedance of United States LCA in the twin-aisle markets in the European Union, China,
Korea, and Singapore. (Appellate Body Report, EC and certain member States – Large Civil Aircraft
(Article 21.5 – US), para. 6.33)
100 Appellate Body Report, EC and certain member States – Large Civil Aircraft (Article 21.5 – US),
para. 6.35.
101 Appellate Body Report, EC and certain member States – Large Civil Aircraft (Article 21.5 – US),
para. 6.37.
102 Appellate Body Report, EC and certain member States – Large Civil Aircraft (Article 21.5 – US),
para. 6.39. While the Appellate Body's review of the compliance panel's findings, as well as the findings from
the original proceedings, indicated that, in the absence of the LA/MSF subsidies existing in the
post-implementation period, Airbus would not have been able to offer the A380 at the time that it did, the
Appellate Body faulted the compliance panel for failing to examine whether there were any discernible trends in
volumes and market shares in the VLA markets at issue, including whether there were declining trends that
could have supported the compliance panel's findings. The Appellate Body therefore found that the compliance
panel's finding of displacement of US LCA in the VLA markets in the European Union, Australia, Korea and
Singapore was not sufficiently supported.
103 Appellate Body Report, EC and certain member States – Large Civil Aircraft (Article 21.5 – US),
para. 6.40.

5.25. The Appellate Body found that the compliance panel's finding of impedance of VLA in the
European Union, Australia, China, Korea, Singapore and the United Arab Emirates was sufficiently
supported by the evidence and therefore upheld (on a modified basis) the compliance panel' s
impedance findings for VLA in these geographic markets.104
5.26. Accordingly, in respect of the subsidies existing in the post -implementation period, the
Appellate Body upheld (albeit for different reasons), the compliance panel's overall conclusions that,
by continuing to be in violation of Articles 5(c) and 6.3(a), (b) and (c) of the SCM Agreement, insofar
as the twin -aisle LCA and VLA markets are concerned, the European Union and certain member
States had failed to comply with the DSB recommendations and ruli ngs, and in particular, the
obligation under Article 7.8 of the SCM Agreement to "take appropriate steps to remove the adverse
effects or … withdraw the subsidy".
5.27. In sum, following the appeal in the compliance proceedings, the compliance panel's findings
in respect of the subsidies identified in paragraphs 5.13 and 5.14 above, and the forms of serious
prejudice caused by those subsidies identified in paragraph 5.13.c above, were modified by the
Appellate Body. As a result of those modifications, (a) the only subsidies found to exist in the
post-implementation period were the A350XWB and A380 LA/MSF subsidies and (b) the "product
effects" of these LA/MSF subsidies were a genuine and substantial cause of serious prejudice only in
respect of significant lost sales in the twin -aisle market and VLA market, and impedance of VLA in
six geographic markets.
5.28. On 28 May 2018, the DSB adopted the Appellate Body report, together with the report of the
compliance panel, as modified by the Appellate Body report.105
5.3 The DS316 arbitration proceeding
5.29. On 13 July 2018, the United States requested that the DS316 arbitrator, which had originally
been constituted on 13 January 2012, and whose work had been suspended in accordance with the
terms of the parties' Sequencing Agreement, resume its work.106
5.30. In its Decision, the DS316 arbitrator determined that, in accordance with its mandate under
Article 7.10 of the SCM Agreement, it was appropriate to determine a maximum level of
countermeasures that the United States could then impose annually, with reference to the value of
the adverse effects determined to exist in the December 2011 -2013 reference period used in the
compliance proceed ings.107 Those adverse effects were: (a) three lost sales of twin -aisle LCA
involving Cathay Pacific Airways, Singapore Airways, and United Airlines; (b) two lost sales of VLA
involving Emirates and Transaero Airlines; and (c) impeded deliveries of VLA in Australia, China, the
European Union, Korea, Singapore and the United Arab Emirates. More specifically, Airbus sold
10 A350XWB-1000s to Cathay Pacific, 30 A350X WB-900s to Singapore Airways, and
10 A350XWB-1000s to United Airlines. Airbus sold 50 A380s to Emirates and 4 A380s to Transaero.
Airbus delivered a total of 47 A380s into the six geographic markets during the reference period. It
should be noted that the A350XWB is Airbus' most advanced twin-aisle LCA family, and the A380 is
the largest Airbus LCA.
5.31. The arbitrator determined that the value of these adverse effects was the total value of the
LCA that Boeing would have sold and delivered had it won the five lost sales in the counterfactual,
and the value of the additional VLA that Boeing would have delivered into the six geographic markets
during the reference period in the counterfactual had Boeing not suffered impedance in those
geographic markets. The first key technical step in this process was identifying which Boeing LCA
models would have been sold and delivered in the counterfactual. The arbitrator determined this by
identifying the closest competing Boeing model vis-à-vis each Airbus LCA model that was involved
in the lost sales or delivered into the six geographic markets. With respect to the twin-aisle product

104 Appellate Body Report, EC and certain member States – Large Civil Aircraft (Article 21.5 – US),
paras. 6.41-6.42.
105 Appellate Body Report and Panel Report pursuant to Article 21.5 of the DSU, Action by the Dispute
Settlement Body, WT/DS316/35.
106 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU),
paras. 1.7-1.8. The Sequencing Agreement is referred to in para. 1.10 above.
107 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU),
para. 6.76.

market, the arbitrator identified these models as the Boeing 777 -300ER and the 787-10 (vis-à-vis
the A350XWB-1000 and A350XWB-900, respectively). With respect to the VLA product market, the
arbitrator identified this model as the Boeing 747-8I (vis-à-vis the A380).108
5.32. The next key technical step for the arbitrator was determining the number of 777 -300ERs,
787-10s, and 747-8Is that Boeing would have sold to each airline in the counterfactual had it won
the lost sales, and the number of additional 747 -8Is that Boeing would have delivered into the six
geographic markets during the reference period. Regarding the former number, the parties agreed,
and the arbitrator accepted, that Boeing would have sold the same number of twin-aisle LCA to each
of the fi ve airlines in the counterfactual as Airbus actually sold to each airline in reality. 109
Determining the latter number required an additional determination. This was so because, in the
view of the arbitrator, the compliance panel had not specified how many additional 747-8Is Boeing
would have delivered into the six geographic markets in the counterfactual, only having found that
the number of Boeing's deliveries would have been "higher" in the counterfactual. 110 The parties
thus contested how much "higher" Boeing's deliveries would have been. The arbitrator resolved this
issue by conducting a detailed examination of the adopted findings in the dispute, and of the
evidence and argumentation on the record before the arbitrator. That analysis led the arbitrator t o
conclude that it was reasonable to assume that Boeing would have delivered an additional number
of 747 -8Is into the six geographic markets equal to the number of A380s that Airbus actually
delivered into those six geographic markets in the reference period (i.e. an additional 47 747-8Is).
5.33. In order to determine the counterfactual prices of the relevant Boeing LCA, the arbitrator relied
on the prices of the relevant Boeing LCA models sourced from so -called "comparator orders", i.e.
actual orders for those B oeing LCA models placed in sales campaigns deemed by the arbitrator to
be sufficiently similar to the actual sales campaigns which underlay the lost sales and deliveries into
the six geographic markets.111
5.34. In sum, the DS316 arbitrator considered the value of "the adverse effects determined to exist"
to be the sum of the values of: (a) 47 747-8Is that would have been delivered into the six geographic
markets in the counterfactual; and (b) the 20 777 -300ERs that Boeing would have sold to Cathay
Pacific and United Airlines, 30 787-10s that Boeing would have sold to Singapore Airways, and a BCI
number of 7 47-8Is that Boeing would have sold to Emirates. 112 The arbitrator determined the
delivery prices of all such LCA and, after performing certain other technical a djustments, adjusted
all such delivery prices into common 2013 US dollar terms. The arbitrator then divided that total
2013 dollar value by the number of months in the reference period and multiplied the resulting value
by 12 to yield an annualized value o f "the adverse effects determined to exist". That annualized
value was USD 7,496.623 million.

108 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU),
paras. 6.185-6.187. We note that the Boeing 777-300ER, the 787-10, and the 747-8I are relatively large and
expensive LCA.
109 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU),
para. 6.221 (referring to Appellate Body Report, EC and certain member States – Large Civil Aircraft
(Article 21.5 – US), paras. 6.31(a) (noting that "the orders identified in Table 19 of the Panel Report in the
twin-aisle LCA market represent 'significant lost sales' to the US LCA industry") and 6.37(a) (noting that "the
orders identified in Table 19 of the Panel Report in the VLA market represent 'significant lost sales' to the US
LCA industry")); and Panel Report, EC and certain member States – Large Civil Aircraft (Article 21.5 – US),
para. 6.1798 (noting that all of the orders identified in Table 19 of that report represent "significant" "lost
sales" to the United States LCA industry and, therefore, that the challenged LA/MSF subsidies continue to be a
"genuine and substantial" cause of serious prejudice to the United States within the meaning of Article 6.3(c)
of the SCM Agreement).
110 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU),
para. 6.366.
111 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU),
section 6.3.4.3.6.1.
112 The Transaero Airlines lost sale was valued at zero. This was so because Transaero had previously
gone bankrupt and cancelled its four A380 orders from Airbus. The arbitrator considered that, in the
counterfactual, Transaero also would have cancelled its counterfactual orders for 747-8Is. (Decision by the
Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU), para. 6.226).

6 THE UNITED STATES' OBJECTIONS TO THE LEVEL OF COUNTERMEASURES
6.1. In this part of the Decision, we address the United States' objections to the level of suspension
of concessions or other obligations proposed by the European Union.113 We first provide an overview
of the European Union's valuation methodology , before summarizing the United States' principal
objections.114 We then set forth our general order of analysis and finally, undertake our assessment
of the European Union's methodology.
6.1 Overview of the European Union's methodology
6.2. The European Union's methodology quantifies the level of countermeasures based on the value
of adverse effects caused by:
a. the Washington State B&O tax rate reduction operating through a price effects causal
mechanism in the single-aisle LCA market, these adverse effects being (a) three significant
lost sales that were found in the compliance proceedings to have occurred in the
post-implementation period 115, and (b) threat of impedance of imports to the
United States geographic market and exports to the UAE geographic market, that was
found in the compliance proceedings to have occurred in the post -implementation
period116; and
b. the pre-2007 aeronautics R&D subsidies operating through a technology effects causal
mechanism in the twin-aisle LCA market, these adverse effects being significant lost sales
of the A330 and Original A350 that the original panel had found in the original proceedings
to exist in the 2004-2006 reference period.117
6.3. The European Union notes that all of these adverse effects derive from findings that the
subsidies in question caused Airbus to lose certain LCA sales campaigns, and therefore proposes to
value the adverse effects by quantifying the value to Airbus of each of these underlying lost sales.118
Accordingly, the European Union proposes that the Arbitrator calculate the values of the lost sales
and assign those values to the applicable reference period. For the adverse effects pertaining to the
Washington State B&O tax rate reduction in the compliance proceedings ( the post-implementation
Washington State B&O Tax Rate Reduction Adverse Effects), the European Union proposes that the
reference period is the 33-month period from January 2013 until September 2015. For the adverse
effects pertaining to the pre -2007 aeronautics R&D subsidies found in the original proceeding (the
2004-2006 R&D Adverse Effects), the European Union proposes that the reference period is the
36-month period from 2004-2006.119
6.4. For each of the post -implementation B&O Tax Rate Reduction Adverse Effects and the
2004-2006 R&D Adverse Effects, the European Union (a) expresses the values of the lost sales on a
common basis (2015 US dollars), (b) sums them together, and (c) annualizes their respective total

113 See para. 1.21 above.
114 The European Union's proposed methodology for determining the level of countermeasures is set
forth initially in its methodology paper. The European Union subsequently revised aspects of its methodology in
response to the United States' written submission and in the light of the issuance of the decision of the DS316
arbitrator. The European Union submitted its methodology paper on 25 July 2019, the United States submitted
its written submission on 12 September 2019, and the DS316 arbitrator issued its decision on 2 October 2019.
115 The three significant lost sales were the 2013 Icelandair, 2013 Air Canada, and 2014 Fly Dubai lost
sales.
116 The threat of impedance finding in the US geographic market was based on an intermediate finding
of a 2011 Delta Airlines lost sale, and in the UAE geographic market, on an intermediate finding of the 2008
and 2014 Fly Dubai lost sales. The European Union indicated that the 2014 Fly Dubai lost sale is already
included in its valuation of adverse effects as a significant lost sale and would not be valued again as part of
the threat of impedance valuation. (European Union's written submission, para. 283; and response to
Arbitrator question No. 31, para. 131)
117 These significant lost sales involve four sales campaigns in 2005 in which the 787 was selected over
the A330 and Original A350 during the 2004-2006 original reference period (Qantas Airways, Ethiopian
Airlines, Icelandair, and Kenya Airways). (European Union's methodology paper, para. 177)
118 We present here the European Union's primary proposed methodology for valuing the threat of
impedance findings that are part of the post-implementation B&O Tax Rate Reduction Adverse Effects. For the
presentation and discussion of the other proposed methodologies, see section 6.4.5.3.2 below.
119 European Union's methodology paper, paras. 78, 83, 175, and 181; written submission, paras. 391,
396, and 403; and response to Arbitrator question No. 66, paras. 269-270.

values. It then adds the two annualized total values together to arrive at an aggregated annualized
level of countermeasures that it seeks authorization to impose for every year going forward, until
the authority to impose countermeasures ends under the terms of Article 22.8 of the DSU. In other
words, the European Union proposes a single, maximum level of countermeasures that it is
authorized to impose annually. The level of countermeasures would re flect the annualized value of
adverse effects that were determined to exist in past reference periods (i.e. 2013 -2015 for the
post-implementation Washington State B&O Tax Rate Reduction Adverse Effects, and 2004-2006 for
the 2004 -2006 R&D Adverse Effects). For ease of reference, we refer to this structure of
countermeasures as "Annual Suspension". The overall structure of the European Union's
methodology can be illustrated as follows:
Figure 1: Overall structure of European Union's methodology

6.5. As for the determination of the value of the lost sales underlying the post-implementation B&O
Tax Rate Reduction Adverse Effects and the 2004 -2006 R&D Adverse Effects, the various steps in
the European Union's methodology can be generally summarized as follows. For each of the relevant
lost sales, the European Union:
a. assumes a counterfactual scenario in which Airbus would have received LCA orders for the
same number of Boeing LCA that were actually ordere d from Boeing in those sales
campaigns (including options, where applicable) and that Airbus would have delivered the
LCA according to the same delivery schedule as the actual Boeing deliveries;

b. for cancellations that occurred prior to 2020, adjusts the counterfactual delivery numbers
downward to account for such cancellations;
c. determines a delivery -date price120 for each counterfactual Airbus order not affected by
pre-2020 cancellations (by applying the contractual escalation factors from the Airbus final
offers in each sales campaign to the Net Fly-Away Price expressed in the Airbus final offer),
then adjusts that price by a survival rate to reflect the risk of future cancellation of
deliveries;
d. discounts the adjusted delivery-date prices back to the date at which the lost sale occurred
(using Airbus' cost of debt as the discount factor) to determine the value of each LCA order
at the time of the order; and
e. performs a temporal adjustment to restate all of the order-date values on a common 2015
US dollar basis using the Airbus LCA Inflation Index (ALII)121, 2015 being the last year of
the compliance panel's reference period, to arrive at a value for each lost sale (in 2015 US
dollars).
6.6. Once the 2015 US dollar values of each lost sale are obtained, the European Union:
a. calculates total values for each of the post -implementation B&O Tax Rate Reduction
Adverse Effects and 2004-2006 R&D Adverse Effects by aggregating the values of the lost
sales relevant to each.
b. divides the values of post -implementation B&O Tax Rat e Reduction Adverse Effects and
2004-2006 R&D Adverse Effects by the number of months in the applicable annualization
period, and multiplies those amounts by 12, to arrive at annualized values of the
post-implementation B&O Tax Rate Reduction Adverse Effec ts and 2004 -2006 R&D
Adverse Effects122; and
c. sums the annualized values of post -implementation B&O Tax Rate Reduction Adverse
Effects and 2004 -2006 R&D Adverse Effects and determines the level of Annual
Suspension (USD 8,581,019,068).123

120 We use in some places the term "date" rather than "year" when referring to components of the
parties' and Arbitrator's methodology since certain of the underlying calculations are specific to a given month
and are therefore not applied to a given year as a whole.
121 The European Union states that it compiled the ALII based on Airbus' standard contractual price
escalation formulae, and argues that the ALII accordingly reflects [[***]] changes in labour and material costs
resulting from inflation and other economic changes over time. (European Union's methodology paper,
122 For the post-implementation B&O Tax Rate Reduction Adverse Effects, the values of (a) the three
significant lost sales found to exist in the compliance panel's reference period and (b) the two lost sales
underlying the threat of impedance findings in the reference period (which lost sales occurred prior to the
expiration of the implementation period) are added together, divided by the 33-month period that the
European Union asserts was the compliance panel's reference period, and multiplied by 12 (i.e. the number of
months in a year). As discussed further in section 6.4.5.3 below, the European Union has proposed a number
of valuation methodologies for the threat of impedance findings. The methodology described here is the
methodology it proposed in its written submission. For the 2004-2006 R&D Adverse Effects, the values of the
four significant lost sales are divided by the 36-month period that was the original panel's reference period and
multiplied by 12.
123 European Union's written submission, paras. 407-408. Over the course of the proceeding, the
European Union presented alternate methods of calculating the annual level of adverse effects, which have
given rise to different proposed levels of Annual Suspension. (See e.g. European Union's response to question
No. 10; Valuation of lost sales in the single-aisle market based on delivery numbers contained in Airbus' final
offers (Exhibit EU-62 (HSBI)); Valuation of lost sales in the twin-aisle market based on delivery numbers
contained in Airbus' final offers (Exhibit EU-63 (HSBI)); 2RPQ valuation of single-aisle lost sales – Airbus
delivery schedules (Exhibit EU-85 (HSBI)); 2RPQ valuation of single-aisle threat of impedance – Airbus delivery
schedules (Exhibit EU-77 (HSBI)); 2RPQ valuation of twin-aisle lost sales – Airbus delivery schedules (Exhibit
EU-87 (HSBI)); 2RPQ valuation of single-aisle threat of impedance – Boeing delivery schedules (Exhibit EU-76
(HSBI)); 2RPQ valuation of single-aisle lost sales – Boeing delivery schedules (Exhibit EU-84 (HSBI)); and
2RPQ valuation of twin-aisle lost sales – Boeing delivery schedules (Exhibit EU-86 (HSBI))). The merits of the
alternative proposed valuation methodologies are discussed later in this Decision. See section 6.4 below.

6.7. The European Union had initially proposed that the amount of Annual Suspension be adjusted
for inflation and expressed in US dollar values as of April 2020 and that countermeasures for each
year subsequent to 2020 be adjusted annually for inflation. However, the Europ ean Union
subsequently indicated that, in light of the fact that the DS316 arbitrator rejected the United States'
request to make analogous inflation adjustments to the countermeasures that the United States was
authorized to impose from that proceeding, a nd in the interests of ensuring even -handedness
between the two proceedings, it no longer proposes these inflation adjustments.124
6.2 The United States' response
6.8. The United States does not object to countermeasures in the form of Annual Suspension at a
level that reflects the annualized value of adverse effects determined to exist in a past reference
period. However, the United States argues that the Arbitrator cannot value the 2004 -2006 R&D
Adverse Effects because they are not within the scope of the phrase "the adverse effects determined
to exist" for purposes of Article 7.10 in the circumstances of this proceeding.
6.9. As for the valuation of the post -implementation B&O Tax Rate Reduction Adverse Effects, the
United States argues that the compliance panel's ref erence period was the 36 -month period of
September 2012-September 2015 and not the 33-month period of January 2013 to September 2015
as asserted by the European Union. The United States does not object to the European Union valuing
the adverse effects in the form of the threat of impedance on the basis of the underlying lost sales,
and proposes itself that the post-compliance B&O Tax Rate Reduction Adverse Effects all be valued
as lost sales. However, the United States argues that when the total values of the five lost sales are
annualized, the denominator must reflect the fact that two of the five lost sales occurred prior to the
expiration of the implementation period (2008 and 2011, respectively), and thus proposes that the
annualization calculation refle ct this longer period of 2007 -2015 over which the lost sales
occurred.125
6.10. The United States also makes a number of objections to more technical aspects of the
valuations of the five lost sales related to the post-implementation B&O Tax Rate Reduction Adverse
Effects. First and foremost, it challenges the European Union's assumption that, in the
counterfactual, Airbus would have won each of the sales campaigns. According to the United States,
the causation findings from the compliance proceedings do not establish that, absent the Washington
State B&O tax rate reduction, Airbus would have won each of the sales campaigns. The United States
therefore proposes that the value of each of the lost sales include a probabilistic adjustment to
account for the uncertain ty of Airbus actually winning each of the sales campaigns in the
counterfactual.
6.11. Also related to the number of Airbus LCA that should be valued as part of each of the
underlying lost sales, the United States objects to the European Union's proposal that the Arbitrator
should include the value of certain LCA options contained in the Airbus final offers or Boeing purchase
agreements, mainly on the basis that to do so would be contrary to the findings of the compliance
panel, which distinguished firm orders from options. Moreover, the United States considers that the
counterfactual order numbers should be based on the number of firm orders for Airbus LCA that
Airbus proposed in its final offers to customers, rather than the actual number of orders obtained by
Boeing in its purchase agreements, and that the counterfactual delivery schedules for the Airbus
LCA should correspond to the delivery schedule s in the Airbus final offers. With respect to the
reflection of the actual and potential cancellation of LCA orde rs in the counterfactual, the
United States proposes the application of estimated "survival rates" that differ in various respects
from the survival rate estimates proposed by the European Union.
6.12. The United States agrees generally with the European Union's proposal to value the lost sales
according to the value of that lost sale at the time of order, by calculating the delivery -date values

124 European Union's response to Arbitrator question No. 40, para. 159 and fn 165 thereto. See also
section 6.5.1 below.
125 United States' written submission, paras. 103-106. The United States explains that, since the
compliance panel examined all of the evidence concerning sales campaigns from the end of the 2004-2006
reference period in the original proceeding until the evidentiary cut-off for the compliance proceedings
(September 2015), the valuation of the five lost sales should be annualized over a period beginning in 2007
rather than in 2008, which is the date of the first lost sale. (United States' written submission, para. 101
(referring to Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 9.381))

for the LCA in accordance with the contractual escalation formulae in Airbus' final offers, discounting
those values back to the time of the relevant order and then adjusting those values forward in time
so that they are expressed on a common 2015 US dollar basis. However, the United States objects
to the inclusion of a particular cost item in the Airbus LCA prices used f or these calculations (i.e.
[[***]]) on the basis that this item, while part of Airbus' Net Fly -Away Price, is not reflected in
Airbus' revenues, and therefore should not be part of the valuation of adverse effects. It also
proposes that the Arbitrator use Airbus' Weighted Average Cost of Capital (WACC) as the appropriate
index for discounting the delivery-date prices back to their values at the date of order.
6.13. The United States proposes that, after correcting for the alleged errors in the
European Union's methodology, and taking into account recent data regarding some of these
adverse effects, the level of countermeasures that the European Union can be authorized to impose
cannot exceed USD 411.8 million.126
6.3 Order of analysis
6.14. Based on the European Union's proposed methodology and the United States' objections, we
structure our assessment in the following manner:
a. we first address whether the "adverse effects determined to exist" in this proceeding
include the 2004-2006 R&D Adverse Effects (in section 6.4.1);
b. we then address issues regarding the overall structure of the countermeasures in respect
of the post -implementation B&O Tax Rate Reducti on Adverse Effects. The first issue
concerns the appropriateness of determining the maximum level of countermeasures in
the form of Annual Suspension based on the value of the post -implementation B&O Tax
Rate Reduction Adverse Effects determined to exist i n the compliance panel's reference
period (section 6.4.2). We also address the disputed issue of what the beginning and end
dates of the compliance p anel's reference period were (section 6.4.3), and issues
regarding our consideration of events occurring after the reference period (section 6.4.4);
c. we next address conceptual issues regarding the European Union's methodologies
concerning significant lost sales and threat of impedance. More specifi cally, we consider
whether the general approaches proposed by the European Union to valuing these adverse
effects are acceptable in the light of the nature of those adverse effects (section 6.4.5);
d. we then address technical valuation issues that are common to the valuations of both
forms of adverse effects, i.e. lost sales and threat of impedance (section 6.4.6), and then
remaining technical issues specific to valuing significant lost sales (section 6.4.7) and
threat of impedance (section 6.4.8);
e. in the light of all the previous decisions made up to this point, we then summarize the
technical methodology that we will follow to value significant lost sales and threat of
impedance (section 6.4.9);
f. in section 6.5 we present our valuation of the aggregated annualized value of the adverse
effects; and
g. in section 7 we make some observations concerning the United States' claim regarding
cross-retaliation in accordance with Article 22.3 of the DSU before setting forth our
conclusions in section 8.

126 United States' written submission, para. 174; and Corrected Annualized Value of the Adverse Effects
in 2014 and March 2019 Dollars (Exhibit USA-25 (HSBI)). Over the course of the proceeding, the United States
subsequently revised its calculation of the Annual Suspension that could be authorized for various reasons.
(See United States' response to Arbitrator question No. 33, paras. 97-106; Corrected Annualized Value of the
Adverse Effects in July 2015 Dollars (Exhibit USA-44 (HSBI))); United States' response to Arbitrator question
Nos. 57, 66 and 85; Annualized Value of the Adverse Effects in 2015 Dollars (Revised) (Exhibit USA-60
(HSBI)); United States' comments on the European Union's response to Arbitrator question No. 85, para. 214;
and Annualized Value of the Adverse Effects in 2015 Dollars (Revised) (Exhibit USA-105 (HSBI)).

6.4 Assessment of the European Union's methodology
6.4.1 Valuation of the 2004 -2006 R&D Adverse Effects as pa rt of the "adverse effects
determined to exist" within the scope of this proceeding
6.15. The European Union argues that the Arbitrator must value certain of the adverse effects that
the original panel and Appellate Body determined were caused by the pre -2007 aeronautics R&D
subsidies in the reference period used in the original proceeding, i.e. 2004 -2006 (the 2004 -2006
R&D Adverse Effects).127 According to the European Union, this is so because the 2004 -2006 R&D
Adverse Effects are among "the adverse effects determined to exist" within the meaning of
Article 7.10 of the SCM Agreement in the circumstances of this proceeding. The European Union
maintains that the "trigger condition" governing its right to impose countermeasures relative to the
2004-2006 R&D Adverse Effects is found in Article 7.9 of the SCM Agreement, which begins with the
phrase: "In the event the Member has not {complied} within six months … ".128 The European Union
argues that this "trigger condition" in Article 7.9 has been satisfied i n three different ways, each
individually allowing the Arbitrator to value the 2004-2006 R&D Adverse Effects.129
6.16. First and foremost, the European Union argues that the trigger condition has been satisfied
"by virtue of the Appellate Body's reversal of the compliance panel's finding that the United States
achieved compliance in relation to pre -2007 aeronautics R&D subsidies, leaving operative the
multilateral DSB recommendations to comply flowing from the original proceedings". 130 More
specifically, the European Union notes that this reversal means that the DSB's recommendations
and rulings as a result of the original proceeding (i.e. that the United States acted inconsistently
with its obligations under Article 5 and 6.3 of the SC M Agreement with respect to the pre -2007
aeronautics R&D subsidies, and that the United States should bring itself into compliance with such
obligations) are still operative. I n the European Union's view, therefore, " absent a 'multilaterally
confirmed' finding of compliance, the default position is not compliance, but that which is expressed
by the recommendation of the Members sitting collectively as the DSB, i.e., non-compliance".131 The
European Union asserts that the United States cannot overcome this "d efault position" of
non-compliance by unilaterally claiming compliance, as this would be contrary to the DSU's
preference for multilateral over unilateral action by Members and the object and purpose of
countermeasures which is to induce a respondent's com pliance. Rather, according to the
European Union, the United States must obtain a "multilateral finding of compliance"132, and "{u}ntil
that day, the dispute settlement mechanism has not achieved 'a positive solution to {the} dispute',
under Article 3.7 of the DSU, and there remains a 'valid rationale' for requesting and authorising
countermeasures".133

127 The adverse effects that the European Union asks the Arbitrator to value in this context are certain
lost sales under Article 6.3(c) of the SCM Agreement that occurred in the 200-300 seat LCA product market
(specifically relating to sales involving the Boeing 787). (See European Union's methodology paper,
paras. 177-213; and Valuation of twin-aisle LCA lost sales (Exhibit EU-25 (HSBI)))
128 European Union's comments on the United States' response to Arbitrator question No. 43, para. 17.
The European Union has also asserted, however, that this language simply means "that, normally, one would
expect the retaliation request to be made and the arbitrat{or} to be convened after the six-month
implementation period". (European Union's response to Arbitrator question No. 44, para. 47) The European
Union also asserts that the term "nature" in Articles 7.9 and 7.10 "'invites a consideration of the specific type
of 'adverse effects' that have been determined to exist as a result of the specific measure in relation to which
countermeasures are being requested'". (European Union's response to Arbitrator question No. 43, para. 35
(quoting Decision by the Arbitrator, US – Upland Cotton (Articles 22.6 – US II), para. 4.43) (emphasis added
by the European Union))
129 The European Union "disagrees that, under Article 7.9 of the SCM Agreement, the basis for
authorization of countermeasures is a failure to comply after the end of the" compliance deadline.
(European Union's response to Arbitrator question No. 44, para. 42)
130 European Union's comments on the United States' response to Arbitrator question No. 43, para. 18.
(emphasis original)
131 European Union's response to Arbitrator question No. 42, para. 7. (fn and emphasis omitted) See
also European Union's response to Arbitrator question No. 44; and comments on the United States' response to
Arbitrator question No. 45, para. 67 ("It follows that multilateral DSB recommendations 'remain operative …
until the 'problem' is entirely 'fixed''") (quoting Panel Report, US – FSC (Article 21.5 – EC II), para. 7.36)
(emphasis original))
132 European Union's response to Arbitrator question No. 42, para. 10. (emphasis omitted)
133 European Union's response to Arbitrator question No. 42, para. 10 (quoting Decision by the
Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU), para. 6.52). See also

6.17. The European Union emphasizes in this context that Article 7.9 "does not require a finding of
non-compliance with respect to a reference period after the end of the implementation period" 134,
and therefore "the adverse effects determined to exist" do not necessarily have to be those identified
in a temporal period following the implementation period. This is so, in the European Union's view,
because the phrase "adverse effects determined to exist" in Article 7.9 is "not grammatically linked"
to the "trigger condition" language, and, relatedly, neither Article 7.9 nor 7.10 indicate that "the
adverse effects determined to exist" must be adverse effects determined t o exist in a compliance
proceeding to the exclusion of those determined to exist in an original proceeding. The
European Union supports this line of reasoning further by asserting that, in an instance where the
parties agree that no compliance has occurred following an original proceeding, the adverse effects
identified in the original proceeding might be the only "adverse effects determined to exist" before
an arbitrator. The European Union therefore argues that there would be "serious systemic
consequences" if Articles 7.9 and 7.10 were to be interpreted as requiring an affirmative finding of
non-compliance in the post-implementation period in a compliance proceeding as a prerequisite for
authorising countermeasures. Notably, the European Union argues that such an interpretation would
diminish the rights and obligations provided for in the covered agreements, which would be contrary
to Article 3.2 of the DSU.135
6.18. The European Union argues that relevant provisions of the DSU provide contextual support
for its position as set out above. In particular, the European Union notes that: (a) under the "normal
and timely operation of the relevant dispute settlement provisions", "it is not {at} all problematic …
that the countermeasures should be considered commensurate also, where appropriate, as here,
with the adverse effects determined to exist by the original adjudicators"136; and (b) Article 22.6 of
the DSU provides that arbitrations be carried out by the "original panel", not the compliance panel.137
6.19. The second way in which the European Union argues that the "trigger condition" in Article 7.9
has been satisfied is that "the European Union has established non -compliance in the compliance
proceedings with respect to the B&O tax rate reduction". 138 It argues that "{s}pecifically, the
European Union successfully demonstrated that … the United States continues to provide WTO -
inconsistent subsidies to Boeing that cause adverse effects to EU interes ts {and} that the B&O tax
rate reduction causes adverse effects to the European Union".139 In effect, the European Union
appears to argue that the adopted finding in the compliance proceeding s that the United States
failed to comply with respect to the Washington State B&O subsidy means that the "trigger condition"
in Article 7.9 should be deemed satisfied with respect to the pre-2007 aeronautics R&D subsidies as
well.
6.20. Third, and finally, the European Union broaches the possibility that the "trigger conditio n" in
Article 7.9 has been satisfied because "the European Union has established non-compliance in these
arbitration panel proceedings with respect to the pre-2007 aeronautics R&D subsidies".140 However,
"the European Union considers that the Arbitrat{or} s hould not go down th{e} path of making its
own adverse effects determination". 141 The European Union emphasizes that " Article 7.10 of the
SCM Agreement does not direct an {arbitrator} to make a de novo determination of the existence

European Union's methodology paper, para. 174; written submission, paras. 292-344; response to Arbitrator
question No. 2, paras. 6-9, 11, and 16; No. 42, paras. 7-9; No. 43, paras. 36-39; No. 44; and No. 46; and
comments on the United States' response to Arbitrator question No. 43, paras. 25-27; No. 44, paras. 50-51;
and No. 45, para. 66.
134 European Union's comments on the United States' response to Arbitrator question No. 44, para. 31.
See also European Union's comments on the United States' response to Arbitrator question No. 44, para. 33.
135 European Union's response to Arbitrator question No. 42, paras. 6 and 11. See also European Union's
comments on the United States' responses to Arbitrator question Nos. 42 and 43. The European Union further
states that WTO Members agree that the covered agreements do not expressly address this "sequencing issue"
surrounding compliance proceedings and arbitration proceedings. (European Union's response to Arbitrator
question No. 42, para. 18)
136 European Union's response to Arbitrator question No. 42, para. 19.
137 European Union's response to Arbitrator question No. 42, para. 20.
138 European Union's comments on the United States' response to Arbitrator question No. 43, para. 19.
(emphasis original)
139 European Union's comments on the United States' response to Arbitrator question No. 44,
paras. 40-42.
140 European Union's comments on the United States' response to Arbitrator question No. 43, para. 19.
(emphasis original)
141 European Union's written submission, para. 357.

of adverse effects".142 Further, in the European Union's view, "{d}oing so would improperly conflate
the role of the {arbitrator} with that of a compliance panel" 143 because if there is "a disagreement
between the parties as to {the} compliance status of the respondent, that is a matter to be
addressed under Article 21.5 of the DSU, before a different adjudicator".144 The European Union also
stresses that if the Arbitrator were to address this compliance issue, the Arbitrator must "respect{}
its duty, under Article 22.6 of the DSU, to complete this arbitration on an expedited basis". 145 In
sum, "it is not the European Union's position that, in the procedural circumstances of this case, the
Arbitrat{or} is mandated, or even entitled , to make a determination of whether the pre -2007
aeronautics R&D subsidies cause adverse effects";146 and even if the Arbitrator were to address this
question, the European Union maintains that the Arbitrator's work should not delay the
proceeding.147
6.21. Notwithstanding this argument, the European Union asserts that it provided evidence with its
written submission demonstrating that the pre -2007 aeronautics R&D subsidies continue to cause
adverse effects after the end of the implementation period. 148 According to the European Union, if
the Arbitrator "decides that, to meet the trigger of Article 7.9, a finding of non-compliance after the
end of the implementation period in relation to the pre -2007 R&D aeronautics subsidies is a
prerequisite", it must conclud e that such prerequisite has been met. This, the European Union
argues, is because the United States has failed to engage with, or rebut, that evidence, and the
Arbitrator must therefore find that the European Union has demonstrated the United States'
non-compliance with respect to the pre-2007 aeronautics R&D subsidies in the post-implementation
period.149 If the Arbitrator did not so find, the European Union argues that the Arbitrator would be
"making the case" for the United States. This is especially so, according to the European Union,
because it would be the United States' burden in this proceeding to demonstrate that the pre-2007
aeronautics R&D subsidies no longer cause adverse effects in the post -implementation period, and
the United States has failed in carrying that burden.150
6.22. The United States argues that the Arbitrator cannot value the 2004-2006 R&D Adverse Effects
because they are not within the sc ope of the phrase "the adverse effects determined to exist" for
purposes of Article 7.10 in the circumstances of this proceeding. The United States asserts that the
phrase "the adverse effects determined to exist" has the same meaning in both Articles 7.9 and
7.10. This is because the procedural purpose of an arbitration conducted under Article 7.10 is to
advise the DSB as to what countermeasures, commensurate with "the adverse effects determined
to exist", the DSB may authorize under Article 7.9. The United States emphasizes the requirement
in Article 7.9 of the SCM Agreement that the DSB shall grant authorization to take countermeasures
"in the event the Member has not taken appropriate steps to remove the adverse effects or withdraw
the subsidy". It argues that this creates a condition requiring that before the countermeasures with
respect to a particular subsidy be authorized, it must be established that the responding party
neither took appropriate steps to remove the adverse effects caused by that subsi dy nor withdrew
the subsidy. It further argues that this condition has not been established vis-à-vis the pre-2007
aeronautics R&D subsidies.151
6.23. The United States argues that, with respect to a particular subsidy, the trigger condition
created in Article 7.9 could be established in one of three ways. First, the United States asserts that

142 European Union's response to Arbitrator question No. 2, para. 6.
143 European Union's response to Arbitrator question No. 4, para. 28.
144 European Union's response to Arbitrator question No. 4, para. 29.
145 European Union's written submission, para. 356. (internal quotation marks and citation omitted)
146 European Union's response to Arbitrator question No. 5, para. 32. (emphasis original)
147 See e.g. European Union's opening statement at the meeting of the Arbitrator with the parties,
para. 137.
148 The European Union refiled its submissions from the compliance panel proceedings as exhibits to its
written submission, which it argues "provides evidence and argument left unaddressed in these proceedings by
the United States concerning the continued serious prejudice caused by the pre-2007 aeronautics R&D
subsidies during the post-implementation period through a technology effects causal mechanism".
(European Union's written submission, para. 358)
149 European Union's comments on the United States' response to Arbitrator question No. 44,
para. 50(c).
150 See European Union's comments on the United States' response to Arbitrator question No. 44,
paras. 41-51.
151 United States' comments on the European Union's response to Arbitrator question No. 42, para. 3.
See also United States' response to Arbitrator question No. 43; No. 44, para. 11; and No. 45; and comments
on the European Union's response to Arbitrator question No. 42.

the parties may agree that the respondent has not complied with the recommendations and rulings
of the DSB, which the United States notes is not the case here. Second, the United States asserts
that an arbitrator established under Article 22.6 of the DSU might be able to address compliance
issues. In the United States' view, however, the ability of an arbitrator to do this is debated among
Members. Further, the United States asserts that the European Union has explained that it is not
pursuing this option, has offered insufficient evidence to support a showing of non -compliance in
this arbitration proceeding and, to the extent that it has offered such evidence, it has done so at an
inappropriate time. The United States also argues that the European Union's pursuit of this option
would be inappropriate in the light of the parties' Sequencing Agreement. Third, and finally, the
United States asserts that a compliance panel can establish the respondent's non -compliance after
the end of the implementation period. The United States notes that this has not occurred with respect
to the pre -2007 aeronautics R&D subsidies, and stresses in this context that it was the
European Union's burden in the compliance proceedings to demonstrate the United States' continued
non-compliance in the post-implementation period, a burden that the European Union failed to carry.
In the light of the first two options discussed in this paragraph, the United States emphasizes that
it does not therefore argue that "the adverse effects determined to exist" may only be those
identified in a compliance proceeding, as the European Union claims.152
6.24. The United States emphasizes that findings in an original proceeding that a particular subsidy
is inconsistent with Articles 5 and 6 of the SCM Agreement cannot alone satisfy the trigger condition
in Article 7.9 with respect to tha t subsidy, as the European Union argues. This is so, in the
United States' view, because an original panel cannot by definition establish a respondent's
non-compliance after the implementation period that follows the original panel's report. The
United States therefore argues that, insofar as the European Union relies on the findings of
inconsistency with Articles 5 and 6 of the SCM Agreement in the original proceedings to satisfy the
trigger condition in Article 7.9, the European Union effectively asks the Arbitrator to find that the
2004-2006 R&D Adverse Effects continue to exist in the post -implementation period. The
United States notes that the European Union attempted, but failed, to prove that proposition in the
compliance proceedings. Moreover, in the United States' view, adopting such an assumption would
be incongruous because key market conditions changed between the 2004 -2006 reference period
and the post-implementation period.153
6.25. The United States also: (a) asserts that the Sequencing Agreement between the parties
demonstrates that the European Union shared the United States' proffered interpretation of Articles
7.9 and 7.10 until this arbitration proceeding was initiated; (b) dismisses the European Union's
arguments related to contextual aspects of the DSU because such considerations in no way remove
the trigger condition in Article 7.9; and (c) argues that the European Union miscasts passages from
prior arbitration decisions and panel reports in its arguments.154
6.26. In response to certain of the United States' arguments, the European Union: (a) clarifies that
its position is not that the 2004 -2006 R&D Adverse Effects continue to exist in t he post -
implementation period, but, rather, that the Arbitrator should value the 2004 -2006 R&D Adverse
Effects even in the absence of an affirmative finding of non -compliance in the post-implementation
period; (b) states that the Sequencing Agreement between the parties cannot be interpreted as
indicating that the European Union has waived any of its relevant rights under the DSU or
SCM Agreement; and (c) rejects the United States' apparent suggestion that the allocation of the
burden of proof in a compliance proceeding is a meaningful consideration in this context.155

152 United States' written submission, paras. 53-54 and 69-81; response to Arbitrator question No. 2,
paras. 7 and 9; No. 4; and No. 44; and comments on the European Union's response to Arbitrator question No.
42, paras. 8 and 9; and No. 43, para. 18. The United States also asserts that the allocation of the burden of
proof in compliance proceedings "could affect the nature of those findings and a subsequent adjudicator's
understanding of them" and in particular "whether the compliance report{s} establish non-compliance in the
post-implementation period". (United States' response to Arbitrator question No. 47, para. 30 (emphasis
omitted). See also United States' written submission, para. 70)
153 United States' response to Arbitrator question No. 2, paras. 9 and 14; No. 41; No. 44, paras. 18-20;
and No. 45.
154 United States' response to Arbitrator question No. 45, para. 28; and comments on the European
Union's response to Arbitrator question No. 42.
155 European Union's response to Arbitrator question No. 42, para. 25; and comments on the United
States' response to Arbitrator question No. 41, paras. 1-2; No. 45, paras. 68-69; and No. 47.

6.27. The Arbitrator recalls that, at the end of the compliance proceedings, the Appellate Body
reversed the compliance panel's findings that the European Union had failed to establish that the
pre-2007 aeronautics R&D subsidies still caused adverse effects after the end of the implementation
period. However, the Appellate Body was unable to complete the analysis as to whether there
remained acceleration effects of the pre-2007 aeronautics R&D subsidies in the post-implementation
period.156 Thus, at this time, there are no findings adopted by the DSB as to whether the pre -2007
aeronautics R&D subsidies cause adverse effects in the post-implementation period. Relatedly, there
are also no DSB-adopted findings as to whether the United States brought the pre-2007 aeronautics
R&D subsidies into compliance with the recommendations and rulings of the DSB issued as a result
of the original proceeding by the end of the implementation period.157
6.28. That being said, in our view, the parties' arguments raise two key issues:
a. first, whether Article 7.9 creates a condition that "the adverse effects determined to exist"
within the meaning of Article 7.10 must be those caused in the post-implementation period
by a subsidy wi th respect to which an original respondent has failed to comply with
previously issued recommendations and rulings of the DSB. Understanding the relationship
between Article 7.9 and Article 7.10 is critical for determining what, if any, scope the
Arbitrator has within its mandate to value the 2004 -2006 R&D Adverse Effects because,
as the European Union argues, Article 7.10, which establishes the Arbitrator's mandate,
places no explicit limitations on the scope of what may comprise "the adverse effects
determined to exist"; and
b. second, if Article 7.9 does create the condition referenced in paragraph (a) above (i.e. that
"the adverse effects determined to exist" are those caused in the post -implementation
period by a subsidy that the respondent ha s not brought into compliance), whether the
presence of the 2004-2006 R&D Adverse Effects can serve to establish adverse effects in
the post-implementation period caused by a subsidy with respect to which a respondent
has failed to comply with the recommendations and rulings of the DSB.
6.29. We address each in turn.
6.4.1.1 Whether "the adverse effects determined to exist" must be those caused in the
post-implementation period by a subsidy with respect to which an original respondent has
failed to comply with previously issued DSB recommendations and rulings
6.30. Article 7.10 of the SCM Agreement contains the Arbitrator's mandate:
In the event that a party to the dispute requests arbitration under paragraph 6 of
Article 22 of the DSU, the arbitrator shall determine whether the countermeasures are
commensurate with the degree and nature of the adverse effects determined to exist.
6.31. Article 7.10 does not specify whether "the adverse effects determined to exist" must be those
caused in the post -implementation period by a subsidy with respect to which the respondent has
failed to comply with previously issued recommendations and rulings of the DSB. However, we note
that the term "countermeasures" has been (in our view, instructively) interpreted by both previous
arbitrators operating under Article 7.10 as referring to "measures taken to 'counteract' something,
and specifically … measures taken to act against, or in response to, a failure to remove the adverse
effects of, or withdraw, an actionable subsidy within the required time p eriod".158 This appears a
reasonable interpretation in the light of the purpose of countermeasures, which is to induce a
respondent's compliance.159 Thus, the nature of countermeasures suggests that countermeasures
should only be determined and applied vis-à-vis a subsidy with respect to which the respondent has

156 See para. 1.17 above; and Appellate Body Report, US – Large Civil Aircraft (2nd complaint)
(Article 21.5 – EU), paras. 5.416, 5.420-5.421, 5.443, and 6.11.
157 See paras. 1.16-1.17 above (explaining these findings).
158 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU),
para. 5.2 (citing US – Upland Cotton (Article 22.6 – US II), para. 4.26). (emphasis added)
159 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU),
para. 5.2 ("Arbitrators have further observed that the purpose of authorized countermeasures and suspension
of concessions or other obligations is to induce a responding party's compliance.").

failed to comply by the end of the implementation period, i.e. a subsidy that has not been withdrawn
and still causes adverse effects in the post-implementation period.
6.32. We next consider the context of Article 7.10. Article 7.10 is the last paragraph of Article 7 of
the SCM Agreement, addressing "Remedies" for actionable subsidies. The paragraphs of Article 7
provide for a general sequence of events during a dispute. As such, these paragraphs are
interconnected just as the stages of a dispute are interconnected. 160 We therefore specifically note
Article 7.9, which provides the most immediate context for interpretation of Article 7.10. It provides:
In the event the Member has not taken appropriate steps to remove the adverse effects
of the subsidy or withdraw the subsidy within six months from the date when the DSB
adopts the panel report or the Appellate Body report, and in the absence of agreement
on compensation, the DSB shall grant authorization to the complaining Member to take
countermeasures, commensurate with the degree and nature of the adverse effects
determined to exist, unless the DSB decides by consensus to reject the request.
6.33. Article 7.9 has two relevant parts. The latter part of Article 7.9 provides the basis for the DSB
to "grant authorization to the complaining Member to take countermeasures, commensurate with
the degree and nature of the adverse effects determined to exist". The former part conditions the
DSB's authoriza tion to grant such countermeasures with respect to a given "subsidy" on the
occurrence of an "event" vis-à-vis that subsidy, which the parties refer to as a "trigger" event. The
"trigger" event is the respondent's failure to comply with the recommendations and rulings of the
DSB issued as a result of an original proceeding before the end of the six -month implementation
period specified in Article 7.8.161 As per the terms of Article 7.8, that status of non-compliance arises
if the respondent has neither withd rawn the subsidy nor taken appropriate steps to remove its
adverse effects. It follows, therefore, that Article 7.9 establishes that, for countermeasures to be
authorized with respect to a particular subsidy, that subsidy must still cause adverse effects in the
post-implementation period . Accordingly, "the adverse effects determined to exist", within the
meaning of Article 7.9, must be those caused in the post-implementation period by a subsidy with
respect to which a respondent has failed to comply with the DSB recommendations and rulings.
6.34. In the light of the above observations regarding Article 7.9, we note that Articles 7.9 and 7.10
are closely connected and should be read together. The procedures that they prescribe are
intertwined both temporally and substantively. Indeed, an arbitration occurring under Article 7.10 is
a step that occurs before the DSB authorizes countermeasures pursuant to the latter part of
Article 7.9. Moreover, the overarching procedural purpose of an arbitration conducted under
Article 7.10 is to advise the DSB as to what constitutes "countermeasures, commensurate with the
degree and nature of the adverse effects determined to exist".162 We thus consider that the phrase
"the adverse effects determined to exist" should be interpreted t he same way in Articles 7.9 and
7.10. That being the case, we consider that the scope of the phrase "the adverse effects determined
to exist" within the context of both Articles 7.9 and 7.10 is limited to adverse effects caused in the
post-implementation period by a subsidy with respect to which a respondent has failed to comply
with previously issued DSB recommendations and rulings. Indeed, if this were not the case,
Article 7.10 may incongruously direct an arbitrator to advise the DSB to authorize somethi ng that
the DSB is not permitted to authorize under the terms of Article 7.9.163

160 The text of Article 7 reflects that interconnectivity. For example, paragraphs cross-reference each
other (see e.g. Article 7.2 of the SCM Agreement (referring back to "consultations under paragraph 1")) and/or
presuppose awareness of previous paragraphs (see e.g. Article 7.5 of the SCM Agreement (stating "{t}he
panel shall review the matter and shall submit its final report to the parties to the dispute", where "the panel"
is the panel described in the preceding paragraphs)).
161 The context of Article 7.9 further indicates that Article 7.9 is focused on "adverse effects" caused by
a particular "subsidy" that has not been brought into compliance by the end of the six-month implementation
period specified in Article 7.8. Article 7 speaks consistently of a "subsidy" in the singular, including Article 7.8,
which also refers to "adverse effects" as being caused by a particular "subsidy".
162 Article 22.7 of the DSU indicates that "{t}he DSB … shall upon request, grant authorization to
suspend concessions or other obligations where the request is consistent with the decision of the arbitrator".
(emphasis added)
163 We note that if the phrase "the adverse effects determined to exist" within the meaning of
Article 7.10 is read in isolation, it may be unclear why the Arbitrator would, for example, and as both parties
accept that we should, value the adverse effects caused by the Washington State B&O tax rate reduction
identified in the compliance proceedings but not those identified in the original proceedings, as both were
literally "adverse effects determined to exist".

6.35. It will also be recalled that this arbitration is governed by both Article 7.10 of the
SCM Agreement and Article 22.6 of the DSU, which Article 7.10 cross-references.164 It will further
be recalled that Articles 22.2 and 22.6 of the DSU contain conditional language similar to that of
Article 7.9 of the SCM Agreement.165 The arbitrator in EC – Bananas III (US) (Article 22.6 – EC)
explained that the language of Articles 22.2 and 22.6 of the DSU "confirm{ed}" that "any
assessment of the level of nullification or impairment {as mandated under Article 22.7 of the DSU}
presupposes an evaluation of consistency or inconsistency with WTO rules of the implementation
measures taken by the {respondent}". 166 In other words, the "nullification or impairment" that
should be valued by an arbitrator under Article 22.7 is that caused by: (a) a measure with respect
to which there has been an evaluati on regarding whether the responding Member failed to comply
with recommendations and rulings of the DSB ; and (b) that exists at the end of deadline to
comply.167 We agree with this interpretation of Articles 22.2 and 22.6. We further recall that
suspension of concessions or other obligations authorized under Article 22 of the DSU and
countermeasures authorized under Article 7 of the SCM Agreement have the same purpose, i.e. to
induce compliance.168 Thus, we observe that there is no compelling reason to conclude that Article 22
of the DSU and Article 7 of the SCM Agreement should be interpreted differently in this specific
context. That is, under both provisions, arbitrators should value the effects of measures that occur
as a result of the failure of the respondent to comply with the relevant recommendations and rulings
of the DSB.
6.36. Our interpretation of Articles 7.9 and 7.10 further appears consistent with instructive aspects
of how both previous arbitrators that have conducted arbitrations under Article 7.10 interpreted their
mandates. When the arbitrator in US – Upland Cotton (Article 22.6 – US II) — the first arbitrator to
conduct an arbitration under Article 7.10 — interpreted its mandate, it interpreted the terms
"countermeasures", "commensurate with", and "degree and nature of the adverse effects
determined to exist" with reference to these terms as contained in Article 7.9169, even though
Article 7.10 contains the mandate of the arbitrator. This illustrates not only the close connection
assumed to exist bet ween Articles 7.9 and 7.10, generally, but also suggests that the arbitrator
considered that the term "the adverse effects determined to exist", specifically, should be interpreted
similarly in the contexts of Article 7.9 and 7.10. In delineating its manda te under Article 7.10, the
DS316 arbitrator stated that "a complaining party's impetus to request authorization to take
countermeasures or suspend concessions or other obligations is triggered by a responding party's

164 Decisions by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU),
para. 3.4 ("This arbitration is governed by both Article 7.10 and Article 22.6"); and US – Upland Cotton
(Article 22.6 – US II), para. 4.19 ("Article 22.6 of the DSU remains relevant, as the general legal basis under
which the proceedings are conducted.").
165 See Article 22.6 ("When the situation described in paragraph 2 occurs, the DSB, upon request, shall
grant authorization to suspend concessions or other obligations within 30 days of the expiry of the reasonable
period of time") (emphasis added) and Article 22.2 ("If the Member concerned fails to bring the measure found
to be inconsistent with a covered agreement into compliance therewith or otherwise comply with the
recommendations and rulings within the reasonable period of time … . If no satisfactory compensation has
been agreed within 20 days after the date of expiry of the reasonable period of time, any party … may request
authorization from the DSB to suspend the application to the Member concerned of concessions or other
obligations under the covered agreements.") (emphasis added). Article 22.7 supplies the mandate of an
arbitrator, providing, in relevant part: "The arbitrator acting pursuant to paragraph 6 … shall determine
whether the level of such suspension is equivalent to the level of nullification or impairment."
166 Decision by the Arbitrator, EC – Bananas III (US) (Article 22.6 – EC), paras. 4.3-4.4. (emphasis
added)
167 The Bananas III (US) arbitrator rejected the notion that it "could resort to the option of measuring
the level of nullification or impairment on the basis of our findings in the original dispute, as modified by the
Appellate Body and adopted by the DSB", because "{t}o do that would mean to ignore altogether the
undisputed fact that the {respondent} has taken measures to revise {the measure at issue}. That is certainly
not the mandate that the DSB has entrusted to us". (Decision by the Arbitrator, EC – Bananas III (US)
(Article 22.6 – EC), para. 4.7) See also Decision by the Arbitrator, US – Tuna II (Mexico) (Article 22.6 – US),
fn 55 ("{W}e consider that the 'level of nullification or impairment' referred to in Article 22.7 is the level of
nullification or impairment caused by the WTO-inconsistent original or compliance measure that existed at the
time of expiry of the {reasonable period of time to comply}"); and Award of the Arbitrator, US – Section
110(5) Copyright Act (Article 25), para. 4.19 (explaining that "{u}nlike Article 22.6, which closely relates to
compliance (or absence thereof) at the end of the reasonable period of time, Article 25 is silent as to the date
on which a matter referred to arbitration should be assessed"). (fns omitted)
168 See fn 159 above.
169 Decision by the Arbitrator, US – Upland Cotton (Article 22.6 – US II), section IV.C.1 (examining
relevant textual terms under heading entitled "The terms of Article 7.9 of the SCM Agreement").

failure to bring its measures into comp liance with its relevant WTO obligations after being
recommended to do so by the DSB".170 The arbitrator continued:
We consider that for purposes of the present arbitration proceeding, the relevant panel
and Appellate Body reports {identifying the "adverse effects determined to exist" that
the Arbitrator should value} are the compliance reports (rather than the original panel
and Appellate Body reports). It is the findings from the compliance proceedings, by
establishing that the European Union "has not taken appropriate steps to remove the
adverse effects of the subsidy or withdraw the subsidy within six months" (Article 7.9
of the SCM Agreement), which provide the basis for the DSB to grant authorization to
the United States to take countermeasures.171 (emphasis added)
6.37. Our interpretation of Article 7.10 is also consistent with previous, instructive arbitrator
practice concerning the choice of reference periods used to determine levels of Annual Suspension.
We thus recall that "lev els of … Annual Suspension have generally been determined based on the
trade effects of relevant measures during past time-periods … . The past time-periods selected have
usually been short-term periods immediately following or including the time at which the responding
party should have come into compliance. Arbitrators … have commented on the appropriateness of
{this method}, observing that the basic purpose of an arbitration proceeding is to determine the
harm to the complaining party caused by that precise failure".172 Valuing economic harm caused by
a respondent's failure to comply by the necessary time presuppose s some kind of an evaluation
regarding whether such a failure occurred. In other words, the practice of using a single reference
period occurring at or around the time by when a respondent should have complied173 to determine
maximum levels of Annual Suspension appears derivative of a more substantive understanding of
the object and purpose of arbitration proceedings, i.e. valuing harm arising fro m the occurrence of
the "situation" and/or "event" referenced in Article 22.6 of the DSU and Article 7.9 of the
SCM Agreement.174
6.38. Based on the for egoing, we find that "the adverse effects determined to exist", within the
meaning of Article 7.10 of the SCM Agreement, are those caused in the post-implementation period
by a subsidy with respect to which a respondent has failed to comply with the recommendations and
rulings of the DSB.175

170 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU),
para. 5.2 (citing Articles 22.2 and 22.6 of the DSU; Article 7.9 of the SCM Agreement; and Decision by the
Arbitrator, US – Tuna II (Mexico) (Article 22.6 – US), para. 3.20).
171 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU),
para. 5.5. See also Ibid. fn 67 (opining that an Article 7.10 arbitration is "link{ed} … to the WTO-inconsistent
original measure or a subsequent WTO-inconsistent compliance measure that was in existence at the time of
the expiry of the implementation period"); and Decision by the Arbitrator, US – FSC (Article 22.6 – US),
para. 4.3 (indicating that the term "appropriate countermeasures" within the meaning of Article 4.11 should be
interpreted in a manner respecting the "parameters of what is permissible under" Article 4.10, which allows the
DSB to authorize such countermeasures).
172 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU),
para. 6.56 and fn 162 thereto. (emphasis added)
173 We note that the arbitrator in EC and certain member States – Large Civil Aircraft (Article 22.6 – EU)
did not value "the adverse effects determined to exist" in the reference period used in the original proceedings.
This was so even though "the adverse effects determined to exist" in the original and compliance proceedings
in DS316 differed in both nature (e.g. displacement was found in the original but not compliance proceedings)
and degree (e.g. adverse effects were found to exist in different sets of product markets). Also, the European
Union has not argued that we should value "the adverse effects determined to exist" in the original proceedings
that were caused by the Washington State B&O subsidy.
174 See also fn 167 above. Previous arbitrators have also emphasized that the provisions of Article 22 of
the DSU compel the conclusion that it is the effects of the measure existing at the time the reasonable period
of time in which to comply expires that should be examined when assessing proposed levels of suspension of
concessions, rather than the effects of the measure as it may have existed at the time of an original
proceeding or a measure that came into existence after the expiry of the implementation period.
175 We recall that the European Union notes that the DS316 arbitrator stated that "{u}ntil and unless
substantive compliance has been achieved and is multilaterally confirmed or a mutually agreed solution has
been reached, there remains a valid rationale for granting Annual Suspension and maintaining it at the
authorized level". (Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft
(Article 22.6 – EU), para. 6.52) This quote is inapposite. In making this statement the arbitrator was not
determining whether countermeasures could be granted with reference to the effects caused by a particular

6.4.1.2 Whether the 2004-2006 R&D Adverse Effects fall within the scope of "the adverse
effects determined to exist" under the terms of Article 7.10
6.39. In the previous section, we found that "the adverse effects determined to exist", within the
meaning of Article 7.10, are those caused in the post -implementation period by a subsidy with
respect to which a respondent has failed to comply with the recommendations and rulings of the
DSB. This section therefore considers whether the 2004 -2006 R&D Adverse Effects may be
considered as among, or somehow representing, such "adverse effects determin ed to exist". The
European Union has advanced two ways in which we could determine this to be the case. We address
each in turn.
6.40. First, the European Union's principal argument in this context is that the 2004 -2006 R&D
Adverse Effects qualify as "the advers e effects determined to exist" within the meaning of
Article 7.10 because the Appellate Body reversed the compliance panel's findings that the
European Union had not demonstrated that the United States failed to bring the pre -2007
aeronautics R&D subsidies into compliance. In other words, the European Union argues that the
United States' non-compliance in the post-implementation period (i.e. the satisfaction of the "trigger
condition" in Article 7.9) is established via the continued validity of the original panel's findings that
the pre -2007 aeronautics R&D subsidies were inconsistent with Article 5 and 6 of the
SCM Agreement. As a formal matter, we first observe that the original proceedings did not and
indeed, could not, determine whether the United States had failed to comply with the
recommendations and rulings of the DSB that flowed from such original proceedings, or, relatedly,
whether the pre-2007 aeronautics R&D subsidies caused adverse effects in the post-implementation
period.176 Beyond that observation, we note that the original panel identified adverse effects caused
by the pre -2007 aeronautics R&D subsidies in the time -period of 2004 -2006, i.e. the 2004 -2006
R&D Adverse Effects. The end of that temporal period occurred years be fore the end of the
implementation period (i.e. September 2012). In the light of these circumstances, and recalling that
the "adverse effects determined to exist" are those caused in the post -implementation period by a
subsidy with respect to which a respo ndent has failed to comply with the recommendations and
rulings of the DSB, we discern no grounds upon which to find that the 2004 -2006 R&D Adverse
Effects may be considered among, or somehow representing, "the adverse effects determined to
exist" in this proceeding based on the findings in the original proceedings.177
6.41. Second, the European Union also argues that the 2004-2006 R&D Adverse Effects qualify as
"the adverse effects determined to exist" within the meaning of Article 7.10 because "the
European Union has established non-compliance in the compliance proceedings with respect to the
B&O tax rate reduction".178 "Specifically, the European Union successfully demonstrated that … the
United States continues to provide WTO-inconsistent subsidies to Boeing that cause adverse effects
to EU interests" and "that the B&O tax rate reduction causes adverse effects to the
European Union".179 This observation, while accurate, is, in our view, inapposite in this context. As
described above, Articles 7.9 and 7.10 operate with respect to a particular "subsidy". The particular
subsidies here are the pre-2007 aeronautics R&D subsidies, not the B&O tax rate reduction found in
the compliance proceedings to continue to cause adverse effects in the post-implementation period.
We therefore find no grounds upon which to conclude that the compliance proceeding s findings
concerning the adverse effects caused by the B&O tax rate reduction imply that the 2004-2006 R&D

subsidy, but was addressing the propriety of granting countermeasures in the form of Annual Suspension,
specifically.
176 We further recall that the Appellate Body has explained that the "effects of a subsidy will ordinarily
dissipate over time" and, further, that a respondent may not have a compliance obligation with respect to a
subsidy regardless of whether the subsidy still causes adverse effects. (Appellate Body Report, EC and certain
member States – Large Civil Aircraft (Article 21.5 – US), para. 5.373 and fn 932)
177 We note that the European Union has cited the panel and Appellate Body reports in US – FSC
(Article 21.5 – EC II) for the proposition that the recommendations and rulings from the original proceeding
remain "operative" until the "problem is entirely fixed" (i.e. until compliance is achieved). Even if true as a
general proposition, as explained above, the findings of the original panel still do not, in these circumstances,
resolve the key issues before us, i.e. the compliance-related issues that flow from the recommendations and
rulings resulting from the original panel report.
178 European Union's comments on the United States' response to Arbitrator question No. 43, para. 18.
(emphasis original)
179 European Union's comments on the United States' response to Arbitrator question No. 44,
paras. 40-42.

Adverse Effects may also be considered among, or somehow representing , "the adverse effects
determined to exist" for the purpose of this proceeding.180
6.42. The European Union also raises the possibility of the Arbitrator determining whether the
"trigger" condition in Article 7.9 is satisfied vis-à-vis the pre -2007 aeronautics R& D subsidies,
i.e. whether the pre -2007 aeronautics R&D subsidies cause adverse effects in the
post-implementation period, but at the same time, it has also stated that the Arbitrator does not
have the mandate to do so. The United States similarly broaches the general possibility of an
arbitrator being able to address compliance-related issues.
6.43. Our mandate under Article 7.10 is silent as to determining a respondent's compliance status
– a determination that involves, in this case, evaluating whether the pre -2007 aeronautics R&D
subsidies cause adverse effects in the post-implementation period. We thus consider that we are not
required to address this compliance issue. We further consider that we need not determine whether
an arbitrator acting under Article 7.10 of the SCM Agreement has the discretion to engage in
compliance-related inquiries of this kind, because even if we had such discretion181, we would decline
to exercise it in these circumstances. First, we note that addressing compliance issues would conflate
our role with that of a panel established under Article 21.5 of the DSU. 182 Moreover, arbitration
proceedings are intended to proceed on expedited timelines and addressing the relevant compliance
issues would lead to, in our estimation, unavo idable and significant delays. 183 In this regard, the
compliance panel engaged in lengthy and complex analyses in making determinations regarding the
effects of the pre-2007 aeronautics R&D subsidies. It appears clear to us that we would also need
to engage in complex factual analyses if we were to address this compliance-related question.184 We

180 We recognize that the United States broaches the possibility that an agreement between the parties
might suffice as to satisfy relevant conditions imposed by Article 7.9 of the SCM Agreement. We do not exclude
the possibility that party agreements (or perhaps even lack of disagreements) with respect to
compliance-related issues could be taken into account by an arbitrator. No agreement exists here, however,
with respect to whether the pre-2007 aeronautics R&D subsidies cause adverse effects in the
post-implementation period. Further, in the compliance proceedings, the parties vigorously contested whether
the United States achieved compliance with respect to the pre-2007 aeronautics R&D subsidies by removing
the relevant adverse effects by the end of the implementation period. This possibility is thus moot for our
purposes.
181 It will be recalled that it is the Arbitrator's mandate to value "the adverse effects determined to
exist". Previous arbitrators have interpreted this phrase as referring to adverse effects identified by previous
panels and the Appellate Body. (Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft
(Article 22.6 – EU), para. 5.5 (citing, inter alia, Decision by the Arbitrator, US – Upland Cotton
(Article 22.6 – US II), paras. 4.49-4.50))
182 See e.g. Decisions by the Arbitrator, EC and certain member States – Large Civil Aircraft
(Article 22.6 – EU), para. 6.65 ("{I}f we therefore were to determine only present adverse effects, this would
conflate our role with that of a compliance panel established under Article 21.5 of the DSU."); and US – Tuna II
(Mexico) (Article 22.6 – US), para. 3.52 ("The Arbitrator notes that the existence of Article 21.5 as a separate
provision suggests that generally, compliance issues should be dealt with separately from the assessment of
the level of nullification or impairment, by a compliance panel."). One early arbitrator, acting under Article 22.7
of the DSU and in the absence of a previous compliance proceeding, did address compliance-related issues,
apparently impelled by special instructions issued to the arbitrator from the DSB and the perceived need to
determine "equivalence" between the proposed level of suspension and the "nullification and impairment"
caused by the respondent's alleged failure to comply by the necessary time. (Decision by the Arbitrator,
EC – Bananas III (US) (Article 22.6 – EC), section IV and para. 4.15 (indicating that the arbitrator's approach
was related to the "special circumstances of this case")) We discern no similar "special circumstances" in this
proceeding.
183 See Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft
(Article 22.6 – EU), para. 6.65 (explaining that "an inquiry into the existence of adverse effects requires fact-
intensive analyses. Engaging in such analyses would therefore substantially lengthen the duration of this
expedited proceeding").
184 Based on the parties' arguments in the compliance proceedings and in this proceeding, resolving this
question would likely turn on ascertaining the precise extent to which the acceleration effects of the pre-2007
aeronautics R&D subsidies had an impact, not only on the timing of the launch of the 787, but also on the
timing of its first delivery. (Appellate Body Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU),
para. 5.415) The European Union further alleges that the pre-2007 aeronautics R&D subsidies also affected the
market presence of the 777X and 737 MAX. (European Union's written submission, para. 359)

consider that this would require seeking both parties' views on this issue, seeking additional
information from, and asking questions of, the parties, in addition to drafting the relevant findings.185
6.44. We further note that in this proceeding, neither party has expressed its outright support for
the Arbitrator determining the effects of the pre -2007 aeronautics R&D subsidies in the
post-implementation period in the circumstances. We specifically recall that the European Union has
stated that "the European Union considers that the Arbitrat{or} should not go down th{e} path of
making its own adverse effects determination".186 Moreover, the European Union has stated that "it
is not the European Union's position that, in the procedural circumstances of this case, the
Arbitrat{or} is mandated, or even entitled , to make a determination of whether the pre -2007
aeronautics R&D subsidies cause adverse effects"187, and that even if the Arbitrator did address this
issue, the European Union maintains that it "may not result in a delay of these proceedings" 188
(which, as discussed, is a practical impossibility). The United States has also indicated that it
considers it inappropriate for the Arbitrator to address this compliance question in these
circumstances.189
6.45. Finally, we consider it a relevant point that, in this dispute, as per the parties' Sequencing
Agreement, compliance proceedings under Article 21.5 of the DSU ha ve been completed. In th ose
compliance proceedings the European Union attempted, but ultimately failed, to establish that the
pre-2007 aeronautics R&D subsidies caused adverse effects in the post -implementation period. As
a result, the European Union was unsuccessful in making its case that the United States had failed
to comply with the recommendations and rulings of the DSB with respect to those subsidies.
6.46. In sum, we find that we are not required under the terms of Article 7.10 to determine whether
the pre-2007 aeronautics R&D subsidies cause adverse effects in the post -implementation period.
Even if Article 7.10 provides us with the discretion to do so, we would decline to exercise such
discretion in the light of, in our estimation, the compelling set of circumstances set out above.190

185 In this proceeding, the European Union has adduced its submissions from the compliance
proceedings and also offered to submit its exhibits from that proceeding. We note that these submissions are,
by nature, argumentation. Further, such submissions and exhibits pertain to the September 2012-September
2015 reference period. If we were to address the compliance issue, it is not clear that we would examine only
that same reference period, essentially performing a remand of the first compliance proceeding. Considering an
updated reference period would instead appear more consistent with the role of a compliance adjudicator. (See
Panel Report, EC and certain member States – Large Civil Aircraft (Article 21.5 – EU), para. 6.1443 (explaining
that "{i}t is well established that a panel tasked with reviewing the merits of claims made under Article 6.3(a),
(b), and (c) of the SCM Agreement must focus its efforts on determining the extent to which the challenged
subsidies are a 'genuine and substantial' cause of serious prejudice in the present.") (emphasis original)) If the
Arbitrator were to address present compliance, the Arbitrator might also have to examine whether the
United States has now "withdraw{n}" the subsidies within the meaning of Article 7.8. This examination may
also involve: (a) determining whether those subsidies had ceased to exist (see Appellate Body Report, EC and
certain member States – Large Civil Aircraft (Article 21.5 – US), paras. 5.383 and 6.11.a (explaining that the
obligation to "take appropriate steps to remove the adverse effects or … withdraw the subsidy" concerns only
subsidies that continue to be granted or maintained by the implementing Member at the end of the
implementation period, and that a Member cannot be required to withdraw a subsidy that had ceased to
exist)); and/or (b) examining any alleged "measures taken to comply" within the meaning of Article 21.5 of the
DSU. (see Appellate Body Reports, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 5.328;
and US – Continued Suspension, paras. 305-309).
186 European Union's written submission, para. 357.
187 European Union's response to Arbitrator question No. 5, para. 32. (first emphasis added)
188 See e.g. European Union's opening statement, para. 137. We note the European Union's suggestion
that the Arbitrator could address this compliance-related issue and avoid material delays in the proceeding.
This is so because, in the European Union's view, the United States has not engaged with the European Union's
argumentation or evidence offered with respect to this compliance-related inquiry. Thus, the European Union
asserts that the Arbitrator would be "making the case" for the United States if we were to decline to find that
the European Union has demonstrated, in this arbitration, the United States' non-compliance following the
implementation period with respect to the pre-2007 aeronautics R&D subsidies. We note, however, that we
would consider it inappropriate simply to accept the European Union's arguments on this front without further
and thoroughly exploring the compliance issue with the parties. As noted, addressing compliance issues is not
specified by our mandate. We cannot thus assume that the United States should have engaged in
compliance-related argumentation without our prompting. Therefore, we do not believe that the
European Union's suggested approach could avoid significant delays in this proceeding.
189 United States' response to Arbitrator question No. 4, para. 29; and No. 44, para. 13.
190 We do not, and need not, determine whether adverse effects found to exist in an original proceeding
can serve to evidence "the adverse effects determined to exist" in a subsequent arbitration.

6.4.1.3 Conclusion
6.47. Based on the foregoing, we decline to value the 2004-2006 R&D Adverse Effects because we
discern no grounds upon which to conclude that the 2004 -2006 R&D Adverse Effects ar e, or
somehow represent, adverse effects caused in the post -implementation period by a subsidy with
respect to which a respondent has failed to comply with the recommendations and rulings of the
DSB.191 The 2004-2006 R&D Adverse Effects do not, therefore, f all within the scope of what "the
adverse effects determined to exist" are for purposes of this specific proceeding.
6.4.2 Structure of the countermeasures in respect of the post -implementation
Washington State B&O Tax Rate Reduction Adverse Effects
6.48. As previously noted, the European Union proposes countermeasures in the form of Annual
Suspension based on the adverse effects determined to exist in a past period, which relevantly for
the post-implementation B&O Tax Rate Reduction Adverse Effects, is the reference p eriod used by
the compliance panel to ascertain the existence of adverse effects of the B&O tax rate reduction in
the post -implementation period. The United States agrees with this proposed form of
countermeasures.
6.49. In the DS316 arbitration proceeding, the parties dedicated significant portions of their
submissions to debating whether it was permissible for the arbitrator to determine the maximum
level of countermeasures in the form of Annual Suspension based on the value of the adverse effects
determined to exist in the reference period of the compliance panel in that dispute (December
2011-2013).192
6.50. The DS316 arbitrator explained, inter alia, that the findings from the compliance proceedings
in that dispute were that LA/MSF for the A380 and A350XWB programmes caused adverse effects in
the form of significant lost sales within the meaning of Article 6.3(c) of the SCM Agreement and
impedance within the meaning of Articles 6.3(a) and (b) of the SCM Agreement. The DS316
arbitrator concluded that it was consistent with its mandate under Article 7.10 to determine the
maximum level of countermeasures based on the instances of lost sa les and impedance that were
determined to exist in the compliance panel's reference period and to consider these as the "adverse
effects determined to exist" for purposes of that proceeding. 193 Moreover, the DS316 arbitrator
considered that under the SCM Agreement and the DSU, the maximum level of countermeasures or
suspension of concessions that may be authorized can be a function of the effects of relevant
measures during a past reference period . However, the maintenance of suspension of concessions
at that maximum level is predicated, not on the ongoing effects of the relevant measures, but on
continued non-compliance of the responding party. 194 The DS316 arbitrator accordingly concluded
that it was appropriate to determine the maximum level of Annual Suspe nsion based on the value
of the adverse effects determined to exist in the temporally circumscribed compliance panel
reference period and to grant countermeasures in the form of Annual Suspension.195
6.51. We agree with the analysis and reasoning of the DS316 arb itrator in this regard. 196 In this
proceeding, both parties also advocate that we value the adverse effects determined to exist based

191 We emphasize that, in so finding, we make no assumptions regarding whether the United States did
or did not comply with the relevant recommendations and rulings of the DSB (and relatedly, whether the
pre-2007 aeronautics R&D subsidies cause adverse effects in the post-implementation period). We also note
that, because we do not reach the compliance issue, we "make a case" for neither party with respect to this
issue. (See European Union's comments on the United States' response to Arbitrator question No. 44,
para. 50(c))
192 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU),
para. 6.31.
193 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU),
para. 6.44.
194 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU),
paras. 6.46-6.60. For a more detailed discussion of this issue, see Decision by the Arbitrator, EC and certain
member States – Large Civil Aircraft (Article 22.6 – EU), Annex C-1, Communication from the Arbitrator
Preliminary Ruling (Conclusion).
195 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU),
para. 6.76.
196 This analysis and reasoning is also consistent with the reasoning underlying the Arbitrator's ruling
declining the United States' request for leave to file an additional submission regarding the purported

on a past reference period and use the annualized value of such adverse effects as the maximum
level of Annual Suspension. 197 In section 6.4.1 above, we explained why we decline to value the
2004-2006 R&D Adverse Effects. Our valuation of the "adverse effects determined to exist" in the
present proceeding therefore concerns the post -implementation Washington State B&O Tax Rate
Reduction Adverse Effects.
6.4.3 The reference period for the post-implementation Washington State B&O Tax Rate
Reduction Adverse Effects
6.52. In this section we address a factual issue regarding the temporal period over which the
compliance panel assessed the existence of adverse effects caused by the Washington State B&O
tax rate reduction (the so -called reference period). The resolution of this issue is relev ant to our
task of assessing the proposed level of countermeasures because both parties agree, as do we, that
the value of the adverse effects must be annualized in order to fashion a "commensurate" level of
Annual Suspension. The length of the reference p eriod is the period over which both parties agree
that at least some of the adverse effects determined to exist should be annualized (see sections
6.4.5, 6.4.5.1, 6.4.7.3, and 6.4.8.2 below).
6.53. The European Union argues that the reference period used by the compliance panel to
determine the existence of the post-implementation B&O Tax Rate Reduction Adverse Effects was a
33-month period from January 2013 until September 2015. The European Union considers that,
although the reasonable period of time for implementation under Article 7.9 (which we will refer to
generally as the "implementation period") expired on 23 September 2012, the compliance panel
adopted a reference period that commenced in January 2013. It bases this argument on the
compliance panel's sta tement in footnote 3368 of the compliance panel report (referring to a
"reference period of 2013 -2015").198 The European Union refers also to similar references by the
Appellate Body to a "2013-2015 reference period".199
6.54. The United States argues that the compliance panel assessed the existence of adverse effects
over a 36 -month period that commenced with the expiration of the implementation period in
September 2012, until September 2015. It considers the compliance panel's reference in footnote
3368 of the co mpliance panel report to a "reference period of 2013 -2015" to be a "useful, rough
shorthand" for the post -implementation period.200 In addition, the United States argues that the
compliance panel's references elsewhere in its report to the "post -implementation period" support
its position that the compliance panel understood the post -implementation reference period to be
the period after 23 September 2012.201
6.55. The Arbitrator notes that, aside from the single reference in footnote 3368 of the compliance
panel report to a "reference period of 2013 -2015", the compliance panel does not use the concept
of reference period in its analysis or findings. Nor does the compliance panel define such a period.202

elimination of the Washington State B&O tax rate reduction as of 1 April 2020. (See Arbitrator's decision on the
United States' request for leave to file an additional submission regarding the implications of the purported
elimination of the Washington State B&O tax rate reduction on the permitted level of countermeasures, dated
17 June 2020, Annex C-7)
197 We further note, as did the DS316 arbitrator, that "{w}e recognize that there may be other
permissible ways to structure countermeasures. We make no judgments as to the permissibility of other
structures, whether in this dispute or others." (Decision by the Arbitrator, EC and certain member States –
Large Civil Aircraft (Article 22.6 – EU), fn 188)
198 See European Union's written submission, para. 153.
199 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), paras. 5.480,
5.494, and 5.497 and fn 1117 thereto.
200 United States' written submission, para. 109. The United States argues additionally that the
2013-2015 period referred to in footnote 3368 of the compliance panel report is also a 36-month period.
201 United States' response to Arbitrator question No. 37, para. 117 (referring to para. 9.37 of the
compliance panel report). As noted in para 6.9 above, the United States proposes that the post-compliance
B&O Tax Rate Reduction Adverse Effects all be valued as lost sales and that the total value is annualized, not
over the compliance panel's reference period, but over the 105-month period over which those sales occurred.
202 The European Union used the term "reference period" in its argumentation before the compliance
panel, and in response to a question from the panel, clarified that the reference period, for purposes of
determining whether any of the non-withdrawn subsidies presently causes adverse effects, is the period since
the end of the implementation period. (Panel Report, US – Large Civil Aircraft (2nd complaint)
(Article 21.5 – EU), para. 9.97)

Rather, the compliance panel consistently refers throughout its analysis to the "post-implementation
period".203 The post -implementation period to which the compliance panel refers began on
24 September 2012 because that is the day after the expiration of the implementation period.204
6.56. The question is therefore whether the compliance panel, in determining whether the
European Union had demonstrated that the unwithdrawn subsidies caused adverse effects in the
post-implementation period, nevertheless examined the existence of those adverse effects in a
period which began only in January 2013 rather than from the expiration of the impl ementation
period in September 2012.
6.57. As we explain further below, we do not see anything in the findings of the compliance panel
to suggest that the compliance panel's examination of the existence of the adverse effects in the
post-implementation period was confined to a period that began only in January 2013, as opposed
to September 2012.
6.58. By way of background, in its first written submission in the compliance proceedings, the
European Union had presented evidence of alleged lost sales, impeded and displac ed imports and
exports and price suppression, based on sales campaigns that had occurred in the period
2007-2012.205 In September 2015, the compliance panel asked the European Union to update the
information on which it relied to demonstrate its adverse effects claims, to include 2013 and 2014,
and to the extent possible, the elapsed portion of 2015. 206 The European Union submitted such
information, which included the outcomes of LCA sales campaigns since September 2012 that the
European Union considered were additional significant lost sales, as well as order and delivery data
based on information current to September 2015.207
6.59. The compliance panel examined all of the information on single -aisle sales campaigns
occurring between 2007 and 2015 which the European Union had submitted as evidence of adverse
effects of the subsidies. 208 In section 9.2.4 of its report 209 the compliance panel explained that its
conclusions as to whether the European Union had demonstrated that any or all of the US subsidies
that the United States had failed to withdraw, within the meaning of Article 7.8, caused adverse
effects, "will focus on serious prejudice data presented by the parties with respect to the
post-implementation period, as it is only with respect to the effects found to exist in this period that
the United States may be found to have failed to comply with its obligation under Article 7.8 to take
appropriate steps to remove the adverse effects".210 The compliance panel therefore indicated that
its findings of adverse effects concerned adverse effects demonstrated to exist at some point after
23 September 2012.
6.60. Of the single -aisle sales campaigns, the compliance panel identified five in the 2007 -2015
period in which the outcome of the campaign turned on the prices offered by Airbus and Boeing,
rather than on other factors.211 There were no such "price-sensitive" sales campaigns identified for

203 See Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), paras. 9.13-9.15,
9.89, 9.107, 9.108-9.109, 9.117, 9.122, 9.336, 9.342, 9.376, 9.402, 9.407, 9.426, 9.427 and fn 3362 thereto,
9.438, 9.444, and 9.467, table 12, and fns 3335 and 3380. The Appellate Body's findings similarly refer to the
existence of adverse effects in the post-implementation period, rather than in a "reference period".
(Appellate Body Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 6.13)
204 See e.g. Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 9.101.
205 Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), paras. 9.98-9.99.
206 Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 9.103.
207 See Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), fn 3274
(Exhibit EU-1568), fn 3303 (Exhibit EU-1658), and fn 3369 (Exhibits EU-1660 and EU-1659).
208 See tables 9 and 10 for the twin-aisle sales campaigns (Panel Report, US – Large Civil Aircraft
(2nd complaint) (Article 21.5 – EU), para. 9.244) and table 12 for the single-aisle sales campaigns
(Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 9.381).
209 This section of the compliance panel report is titled, "The relevant time-period over which to assess
whether the European Union has demonstrated that the United States has failed to take appropriate steps to
remove the adverse effects".
210 Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 9.107. (emphasis
added)
211 These five sales campaigns were: Fly Dubai 2008, Delta Airlines 2011, Air Canada 2013, Icelandair
2013, and Fly Dubai 2014. (Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU),
paras. 9.378-9.385)

2012, including for the final quarter of 2012.212 However, the fact that the first price-sensitive sales
campaign that was identified by the compliance panel in the post-implementation period arose only
in 2013 (rather than in the final quarte r of 2012) does not mean that the compliance panel
determined the existence of the adverse effects only from January 2013 rather than from the
expiration of the implementation period in September 2012. Nor does it mean that the compliance
panel determined whether the United States had complied with its obligation under Article 7.8 of the
SCM Agreement only from January 2013. This would be at odds with the multiple places in the
compliance panel's report where the findings are expressly formulated in terms of the adverse effects
found to exist in the post-implementation period, without qualification.
6.61. We therefore conclude that the period over which the compliance panel examined the
existence of adverse effects in the post-implementation period ran from the commencement of that
period (September 2012) until the date of the latest submission of the relevant sales campaign,
order and delivery data, which was September 2015. We accordingly consider that the period over
which the compliance panel determined the existence of adverse effects in the post-implementation
period is the 36-month period from September 2012 through September 2015. Going forward in this
Decision, we will refer to this 36-month period as the "reference period".
6.4.4 Consideration of events occurring after the reference period
6.62. We recall that our mandate under Article 7.10 of the SCM Agreement is to determine
countermeasures that are "commensurate with the adverse effects determined to exist", which in
this proceeding means the value of the identified lost sales and threat of impedance. One issue that
arises in this context is whether evidence of events pertaining to these lost sales and threatened
impedance that occurred after the reference period and, therefore, was not available to the
compliance adjudicators, can be taken into account in determining the value of these adverse effects.
We note that both parties have taken into account events that occurred after the reference period
in determining the value of adverse effects and thus appear to implicitly agree that the Arbitrator
should take into account the most recent information pertaining to the lost sales and threatened
impedance in determining the value of these adverse effects.213
6.63. We observe that there is no leg al impediment in the SCM Agreement or in the DSU for the
Arbitrator to consider facts that were not on the record of a previously conducted proceeding in this
dispute. Further, as was noted by the DS316 arbitrator, considering that the focus of an arbitration
proceeding is different from that of an original or compliance proceeding, the factual information
that is placed on the record of the arbitrator could differ from the factual information that forms part
of the evidentiary records of previous original or compliance proceedings.214 Accordingly, there is no
reason not to take information into account in the arbitrator's valuation exercise only because it was
not available to the previous adjudicators in that proceeding.
6.64. We also discern no way in which considering events which occurred after the reference period
in any way disturbs any findings of the compliance panel regarding either significant lost sales or
threatened impedance. In our view, facts pertaining to events that would have occurred after the
placement of the relevant LCA order (whether that order was the basis for the finding of significant
lost sales or threat of impedance), including facts that arose after the reference period
(e.g. cancellation of a delivery) could have a bearing on the ulti mate value realized by Airbus from

212 Moreover, there appeared to have been at least one sales campaign submitted by the
European Union in which the order occurred in the fourth quarter of 2012. (US – Large Civil Aircraft
(21.5 – EU), EU First Written Submission, 28 March 2013 (Exhibit EU-51 (HSBI)), para. 1694)
213 The European Union has, for instance, adduced evidence to show that one delivery associated with
the 2014 Fly Dubai sales campaign was cancelled due to airline-specific post-order decisions and actions and
therefore, this delivery should be valued at zero. (European Union's written submission, para. 216; and
response to Arbitrator question No. 61, para. 157. See also European Union's methodology paper, fn 16
(noting that the "the EU quantification relies on the most recent data") The United States has also accounted
for the cancellation of one delivery associated with the 2014 Fly Dubai sales campaign in calculating the value
of this lost sale. (Expected Value of the 2014 Fly Dubai Lost Sale in Order Year Dollars (Revised) (Exhibit
USA-59 (HSBI))) Additionally, the United States has adjusted its calculation of the [[***]] lost sale to account
for a [[***]] associated with this sales campaign. (United States' comments on the European Union's response
to Arbitrator question No. 85, para. 214; and Expected Value of the [[***]] Lost Sale in Order Year Dollars
(Revised) (Exhibit USA-104 (HSBI)))
214 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU),
para. 6.209.

the counterfactual orders and deliveries by Airbus. 215 Thus, if there is evidence on the record
indicating that the ultimate value realized from a counterfactual order or delivery would have been
affected by a subsequent event, we consider it appropriate to take that evidence into consideration
in determining the value of the identified lost sale or threatened impeded delivery. Indeed, as the
DS316 arbitrator recognized, not taking such evidence into account could result in the complaining
party being granted countermeasures in response to a quantum of determined adverse effects that
it would not have suffered in the counterfactual and would not be in keeping with Article 7.10.216
6.65. Finally, we emphasize that, insofar as we tak e into account evidence that was not available
during the reference period, we do so in order to place as accurate a value as reasonably possible
on the adverse effects identified in the compliance proceedings, and not to alter adverse effects
already found to exist in the compliance proceedings or to establish any additional adverse effects.
Indeed, in our assessment we take into account evidence, including post-reference period evidence,
only insofar as it sheds light on how we should quantify the adverse effects determined to exist, and
thus assist us in determining a level of countermeasures that is commensurate with the degree and
nature of those adverse effects.
6.4.5 Conceptual issues regarding the valuations of significant lost sales and threat of
impedance
6.66. We next examine certain conceptual issues raised by the European Union's proposed
methodology. In so doing, we first examine the concept of annualization, a tool the use of which
both parties agree is necessary in order to determine a maximum level of An nual Suspension that
is commensurate with the degree and nature of the adverse effects determined to exist. Second and
third, we consider whether the European Union's proposed general methodologies to value the
findings of significant lost sales and threat of impedance are consistent with our mandate.
6.4.5.1 Annualization
6.67. It will be recalled that in section 6.4.2 above, we accepted the European Union's request that
the countermeasures be structured in the form of Annual Suspension, i.e. setting one maximum
level of countermeasures that the European Union may take per year until the authorization to take
such countermeasures lapses. The United States did not contest that countermeasures be granted
in the form of Annual Suspension, and both parties calculate proposed levels of countermeasures
with this structure in mind. Against this background, both parties agree that the maximum level of
Annual Suspension is not the total aggregate value of the adverse effects determined to exist, but,
rather, the annualized value of the adverse effects determined to exist (i.e. the value of the adverse
effects determined to exist divided by the relevant number of months and m ultiplied by 12). As
discussed in later sections, however, the parties disagree as to the period of time over which to
annualize the value of certain adverse effects. We therefore consider it appropriate at this stage to
elucidate our understanding of annu alization, which will assist us in selecting appropriate
annualization periods in subsequent sections.
6.68. Our understanding of the function, and propriety, of annualization arises from our mandate.
Article 7.10 of the SCM Agreement requires that the level of countermeasures be commensurate
with the degree and nature of the adverse effects determined to exist. The term "commensurate"
indicates a "relationship of correspondence and proportionality between the two elements", which
may be "qualitative as well as q uantitative".217 It will further be recalled that the purpose of
countermeasures is to induce compliance, and, more concretely, to enable a complaining Member

215 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1724 (explaining that
there are "many factors that can intervene between order and actual delivery" that affect the ultimate value
realized from an order); and Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft
(Article 22.6 – EU), para. 6.105 (noting that "post-order developments may affect the ultimate value that an
LCA manufacturer realizes from an LCA order. These include cancellations, delivery delays, or even
re-negotiations of the terms of the sale. Such factors can be taken into account when assessing what ultimate
value {the LCA manufacturer} would have realized had it won the lost sales.").
216 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU),
para. 6.214. By the same token, we consider that not taking such evidence into account might result in some
cases in the complaining party being granted countermeasures that are underinclusive of the economic harm
resulting from adverse effects determined to exist.
217 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU),
para. 5.4. (internal quotation marks and citation omitted)

to inflict economic harm on the respondent to induce such compliance. Therefore, we observe that,
under our mandate, there should be a "relationship of correspondence and proportionality" between
the maximum level of Annual Suspension and the annualized value of the adverse effects determined
to exist. In other words, the maximum level of Annual Suspension should be "commensurate with"
the economic impact of the adverse effects determined to exist over one year as valued by the
Arbitrator.
6.69. We note that this approach accords with previous arbitrator practice. In particular, arbitrators
that have fashioned maximum levels of Annual Suspension have done so with reference to the period
over which relevant economic effects of measures being valued occurred, including both previous
arbitrators acting under Article 7.10 of the SCM Agreement.218
6.70. We therefore conclude that, in this proceeding, the choice of an appropriate period of
annualization should be made with reference to a period over which the economic harm being
measured occurred.
6.4.5.2 Lost sales
6.71. As previously noted, the European Union proposes to value th e significant lost sales of
single-aisle LCA that occurred in the post-implementation period, i.e. the 2013 Air Canada lost sale,
the 2013 Icelandair lost sale and the 2014 Fly Dubai lost sale, by discounting back to the date of the
relevant LCA order the net delivery-date prices of the total number of Airbus LCA that would have
been delivered in the counterfactual had Airbus won the order. After expressing the discounted
values in 2015 US dollars, the European Union then annualizes those valuations over the 33-month
period that the European Union argues is the compliance panel's reference period.219
6.72. The net delivery -date price of an LCA can be understood generally as the price that the
customer ultimately pays by the time it takes delivery of the aircraft. It represents the net aircraft
price agreed between the customer and LCA manufacturer on the date of the purchase agreement.
The net aircraft price is the price the customer would pay if it were to take delivery of the aircraft
on the date that it orders the aircraft. The net delivery-date price is the net aircraft price as adjusted
for increases in the costs of labour and materials through negotiated price escalation formulae. This
adjustment is necessary given that the actual delivery will occur sometime after the date of the
order (in some cases, several years).220
6.73. We recall that, as in the DS316 proceedings, the lost sales were determined to exist in both
the original and compliance proceedings on the basis that a lost sale of LCA occurs at the time of
the LCA order. 221 The valuation of a lost sale at the time of the order is the value to the LCA
manufacturer of the expected future cash flows from the eventual delivery of all LCA that the LCA
manufacturer would have delivered if it had obtained t he order. In this proceeding, the significant
lost sales that occurred in the reference period involved firm orders for 163 Boeing single-aisle LCA
that were to be delivered over a time horizon that extended beyond the reference period. However,
because a lost sale occurs at the time of the order, the valuation of a lost sale occurring in the
reference period is a valuation, as of the time of the order, of Airbus' expected future cash flows
from the deliveries of all of the LCA that are part of that lost sale, which Airbus would have made if

218 Decisions by the Arbitrators, US – Anti-Dumping Methodologies (China) (Article 22.6 – US); EC and
certain member States – Large Civil Aircraft (Article 22.6 – EU); US – Tuna II (Mexico) (Article 22.6 – US); US
– COOL (Article 22.6 – United States); US – Upland Cotton (Article 22.6 – US II); US – Gambling (Article 22.6
– US); EC – Bananas III (Ecuador) (Article 22.6 – EC); EC – Hormones (Canada) (Article 22.6 – EC); EC –
Hormones (US) (Article 22.6 – EC); and EC – Bananas III (US) (Article 22.6 – EC). See also Brazil – Aircraft
(Article 22.6 – Brazil) where, after determining the present value of the prohibited subsidy granted over a six-
year period (2000-2005), the arbitrator divided that aggregate amount by six (for the time-period of six years)
to determine the average annualized present value of the subsidy. (Decision by the Arbitrator, Brazil – Aircraft
(Article 22.6 – Brazil), para. 3.93)
219 See section 6.1 above.
220 See Panel Reports, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), fns 2723 and 3383;
and EC and certain member States – Large Civil Aircraft, para. 7.1719 and fn 5199.
221 See Appellate Body Reports, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 5.338
(explaining that the existence of lost sales may be identified using "order data alone"); EC and certain member
States – Large Civil Aircraft (Article 21.5 – US), paras. 5.716 and 5.731 (stating that the five relevant orders
for Airbus LCA in the 2011-2013 reference period "represent" the lost sales); US – Large Civil Aircraft (2nd
complaint), para. 1230; and EC and certain member States – Large Civil Aircraft, para. 1217 (noting that "an
assessment of lost sales focused on an examination of specific sales campaigns may be appropriate").

it had won the sale. We further observe that the compliance panel identified the occurrence of the
relevant lost sales (i.e. the economic events that we value in this context) in the post-implementation
period over a particular temporal period, i.e. the reference period.222
6.74. We thus consider that the European Union's general methodology for valuing the significant
lost sales in this proceeding, i.e. discounting back to the date of order the net delivery -date prices
of all of the Airbus LCA that would have been delivered in the counterfactual for each lost sale, and
then annualizing such values over the reference period, is consistent with our mandate. That is, it
will yield a maximum level of Annual Suspension that is commensurate with the degree and nature
of the lost sales determined to exist in the compliance proceedings. 223 This methodology is also
consistent with the methodology proposed by the United States in the DS316 arbitration proceeding
and adopted by the DS316 arbitrator to value the significant lost sales in that proceeding.224
6.4.5.3 Threat of impedance
6.4.5.3.1 Primary EU methodology based on the value of the underlying lost sales
6.75. In its methodology paper, the European Union originally proposed separate valuation
methodologies for the threatened impedance in the US and UAE geographic markets. However, in
the light of the United States' written submission, the European Union subsequently proposed, in its
written submission and in subsequent submissions, that the Arbitrator value the threatened
impedance in both the US and UAE geographic markets using a so -called "lost sales" approach.225
We therefore consider the lost sales approach to be the primary methodology proposed by the
European Union for valuing the threatened impedance.226
6.76. The European Union considers that a lost sales valuation approach is appropriate in the
circumstances because the threat of impedance findings in respect of both the US and UAE
geographic markets were specifically based on intermediate findings of lost sales, namely, the 2011
Delta Airlines lost sale (with respect to the US geographic market) and the 2008 and 2014 Fly Dubai
lost sales (with respect to the UAE geographic market).
6.77. Under its lost sales approach, the Eu ropean Union values the threat of impedance in the US
and UAE markets, based on the 2011 Delta Airlines and 2008 Fly Dubai lost sales, respectively, in
the same way that it values the significant lost sales findings in respect of the three lost sales that
occurred in the post -implementation period (2013 Icelandair, 2013 Air Canada and 2014 Fly
Dubai).227 Accordingly, the European Union calculates the net delivery-date prices of all of the Airbus
LCA that would have been delivered in the counterfactual in the 2011 Delta Airlines and 2008 Fly
Dubai campaigns, had Airbus rather than Boeing won those sales campaigns, and discounts those
values back to the relevant order date to arrive at the expected value of those lost sales at the time
of the order. After restating the valuations in 2015 US dollars, the European Union annualizes those

222 The reference period is discussed in section 6.4.3 above.
223 See section 6.4.7.3 below (further explaining the annualization issue in the context of lost sales).
224 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU),
paras. 6.159 and 6.200, and section 6.3.3.2.1.
225 The European Union considers that the parties agree that the threat of impedance in the US market
is best valued following the same approach applied to the significant lost sales findings, and that it "does not
object" to the United States' proposal to apply a "lost sales" approach to valuing threat of impedance in the
UAE market. (European Union's written submission, paras. 250, 283, and 390 (second bullet point); opening
statement, para. 14; but see response to Arbitrator question No. 85, para. 458 (third bullet point). See also
European Union's executive summary, para. 35)
226 "Since the Parties agree that it is appropriate to adopt a "lost sales" approach to value the threat of
impedance findings, the {Arbitrator} should adopt that approach". (European Union's response to Arbitrator
question No. 30, para. 120)
227 The European Union values the threat of impedance in the US geographic market on the basis of the
2011 Delta Airlines lost sale and the threat of impedance in the UAE geographic market on the basis of the
2008 Fly Dubai lost sale (and not additionally on the basis of the 2014 Fly Dubai lost sale). (European Union's
response to Arbitrator question No. 34, para. 132) The European Union acknowledges that, under a lost sales
approach, the adverse effects of the 2014 Fly Dubai lost sale are already valued as a significant lost sale.
(European Union's written submission, para. 400 (first bullet point); response to Arbitrator question No. 31,

valuations over the 33 -month period that the European Union argues is the compliance panel's
reference period.228
6.78. The United States considers that it is appropriate to value the spe cific threat of impedance
findings in the compliance proceedings based on the lost sales underlying those findings. However,
it argues that annualizing those values over the compliance panel's reference period (whether
33 months or 36 months), instead of o ver the 105 months over which all five of the lost sales
underpinning the adverse effects findings occurred, contradicts the compliance panel's findings. 229
The United States notes in this regard that the 2011 Delta Airlines and 2008 Fly Dubai campaigns
were not found to support a finding of significant lost sales because the orders did not occur in the
post-implementation period, and contends that to value the threat of impedance related to Airbus'
loss of those sales as though they had been significant los t sales that occurred in the reference
period "wipes away the temporal distinction" that led the compliance panel to find two different
forms of adverse effects.230
6.79. The European Union rejects the argument that valuing the threat of impedance findings based
on the underlying lost sales, and annualizing the values over the compliance panel's reference
period, would not be consistent with Articles 7.9 and 7.10 of the SCM Agreement. It contends that
it is "perfectly possible" that a threat of impedance valuation would result in the same level of
countermeasures as the valuation of a lost sale in the post-implementation period. Specifically, with
respect to the 2011 Delta Airlines lost sale, the European Union argues that:
"As a matter of law, that the same underlying transaction (i.e. the 2011 Delta Airlines
lost sale) results in the same value of countermeasures, whether it is characterized as
(i) a "lost sale" arising in the compliance reference period (if it would actually have
arisen in the reference period) or (ii) as a threat of impedance arising in the reference
period, does not turn that valuation methodology into one that would be "inconsistent"
with Articles 7.10 and 7.9 of the SCM Agreement."231
6.80. Moreover, the European Union notes that in fact, all of the 2011 Delta Airlines deliveries were
outstanding at the beginning of the compliance panel's reference period. In this situation, the
European Union considers it "perfectly logical that the very same phenomenon results in the same
level of harm, irrespective of whether it is characterized as (a) a threat of impedance in the reference
period, or (b) a lost sale in the reference period (if it would have occurred in the reference period)".232
6.81. The parties both propose that the Arbitrator approach the valuation of the compliance panel's
reference period from the perspective of the underlying lost sales as the first step. In other words,
the parties agree that all of the deliveries associated with the underlying orders, regardless of when

228 European Union's written submission, paras. 399-400; and response to Arbitrator question No. 35,
paras. 134-136; and No. 36, paras. 140-149.
229 United States' written submission, paras. 104-106.
230 United States' comments on the European Union's response to Arbitrator question No. 71, para. 163.
See para. 6.97 below for the United States' argument regarding the temporal distinction between present and
threatened serious prejudice.
231 European Union's response to Arbitrator question No. 71, para. 339 (emphasis original). See also
European Union's comments on the United States' response to Arbitrator question No. 70, paras. 339 and 342.
232 European Union's comments on the United States' response to Arbitrator question No. 70, para. 342.
(emphasis original) See also European Union's response to Arbitrator question No. 71, para. 340. The
European Union does not address the issue that its proposed lost sales approach would result in a valuation of
threat of impedance that is the same as the valuation of a finding of significant lost sales in the post-
implementation period specifically with respect to the UAE geographic market, even where deliveries from the
2008 Fly Dubai campaign would have been made prior to the end of the implementation period. Rather, in fn
437 to its comments on the United States' response to Arbitrator question No. 71, the European Union states
that any apparent concern that the European Union's lost sales approach would result in the same annualized
valuation of threat of impedance for the 2011 and 2008 lost sales that would result from a valuation of those
particular lost sales as significant lost sales that occurred in the post-implementation period would not arise
under a different approach, namely a "threat of impedance" approach as subsequently proposed by the
European Union. The European Union's subsequently proposed "threat of impedance" approach is discussed
further in section 6.4.5.3.3 below, along with the conditions to which the European Union subjects its
agreement to a valuation on that basis.

those deliveries occurred, would be part of the valuation.233 However, they disagree on the second
step of the valuation, which is the time-period over which the resulting valuation should be allocated
to provide an annualized value of the threat of impedance that was found to exist in the compliance
panel's reference period.
6.82. Our mandate under Article 7.10 of the SCM Agreement requires that a maximum level of
Annual Suspension is commensurate with the nature of the adverse effects determined to exist. As
explained in section 6.4.5.2, lost sales occur at the time of the order for LCA. The valuation of a lost
sale is thus order -centric, focusing on the value of the order logically at the time that the order
occurred. By contrast, i mpedance refers to a phenomenon in which the imports or exports of the
like product of the complaining Member would have expanded had they not been obstructed or
hindered by the subsidized product, or did not materialize at all because production was held back
by the subsidized product. 234 In the context of the LCA industry, imports and exports of LCA are
synonymous with deliveries of LCA to customers.235 The valuation of impedance is therefore focused
on the value of a delivery logically at the time that the delivery occurred.236
6.83. We consider that a valuation of a threat of impedance that is based on the valuation of the
underlying lost sales, as lost sales, is inconsistent with the nature of impedance as a market
phenomenon focused on the deliveries of LCA at the time that the deliveries occurred. 237 Simply
stated, a lost sales approach values a threat of impedance on the basis of the wrong event (the LCA
order rather than the deliveries that result from the order) occurring at the wrong time (time of the
LCA order rather than the times at which the deliveries occur). We are aware that the compliance
panel's specific threat of impedance findings were dependent on findings of underlying lost sales.
However, this fact does not, in our view, mean that it is reasonable to value the adverse effect of
threat of impedance (concerning deliveries of LCA) as though it were the adverse effect of lost sales
(concerning the loss of an LCA order). Moreover, in reaching this conclusion, we acknowle dge that
the value of an LCA order ultimately may be derived from delivery prices. But to obtain that order
value one still must temporally adjust those prices to, and aggregate them at, the time of order.
That coordinated temporal adjustment and associated aggregation make no sense if one focuses on
the deliveries themselves as independent of the time of the associated order. We further see no
basis to use a lost sales approach as some kind of acceptable alternate technical approach for the
value of the deliveries at the time of delivery.238

233 European Union's response to Arbitrator question No. 30, para. 123; and United States' response to
Arbitrator question No. 30, para. 88. A lost sales valuation approach would therefore include the values of LCA
orders in respect of counterfactual deliveries that would be made before, during, and after the reference
period.
234 Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 9.419 (referring to
Appellate Body Reports, EC and certain member States – Large Civil Aircraft, para. 1161; US – Large Civil
Aircraft (2nd complaint), paras. 1071 and 1086).
235 In the DS316 compliance proceedings, the compliance panel's findings of displacement and/or
impedance were based on delivery data. (Panel Report, EC and certain member States – Large Civil Aircraft
(Article 21.5 – US), para. 6.1805 and tables 20, 21 and 22) Similarly, the original panel in this dispute stated
that the existence of displacement and impedance can only be definitively established by relevant delivery data
(Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1686) and the compliance panel examined the
existence of displacement, impedance and threats thereof based on market share information showing actual
and projected deliveries of LCA (Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU),
para. 9.432).
236 Accordingly, in the DS316 arbitration proceeding, the arbitrator valued adverse effects in the form of
impedance in the December 2011-2013 reference period based on a "delivery-centric approach" focused on the
value of the counterfactual deliveries made in the relevant geographic market in the 25-month reference
period. "{W}e agree with the parties and temporally assign the economic value of the six instances of
impedance, and more concretely the value of the corresponding counterfactual Boeing LCA deliveries to the
relevant geographic markets, to the 2011-2013 reference period, during which the deliveries would have
occurred". (Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU),
para. 6.117 and section 6.4.3)
237 We note in this regard that the relevant adverse effect that was determined to exist in the post-
implementation period is threat of impedance, not the intermediate lost sales, which occurred before the
beginning of the post-implementation period.
238 In this regard, we recall the European Union's argument that "{t}here is no basis for reducing the
economic harm caused by the same transaction, because it constitutes a threat of impedance in the
compliance reference period and a lost sale prior to the compliance panel reference period". (European Union's
response to Arbitrator question No. 71, para. 341 (emphasis original)) The European Union's framing of this

6.84. We therefore reject the European Union's proposal to value the threat of impedance using a
lost sales approach. This being so, we next consider, as alternatives, the valuation methodologies
that the European Union had originally proposed in its methodology paper.
6.4.5.3.2 Alternative EU methodologies based on the value of deliveries
6.85. As noted previously, in its methodology paper, the European Union proposed separate
approaches for valuing the threat of impedance in the US geograph ic market, and the UAE
geographic market. For the US geographic market (based on the 2011 Delta Airlines lost sale), the
European Union proposed that the Arbitrator value all of the counterfactual deliveries of the relevant
Airbus LCA that would have been made if Airbus had secured the order (regardless of whether those
deliveries occurred in the implementation period, during the compliance panel's reference period, or
in the post-reference period), and that the value be annualized over the compliance panel's reference
period.239
6.86. For the UAE geographic market, the European Union's valuation was based on the delivery
prices of all single-aisle LCA that Airbus would deliver into that market from the present day (2020)
until 2030, assuming a counterfactual Airbus market share of 100%. The European Union's use of a
counterfactual Airbus market share of 100% from 2020 to 2030 was based on the compliance panel's
conclusion from the evidence before it that, in both the 2009 -2016 period and the "post -2016"
period, Airbus would have 100% of the deliveries in the UAE market. 240 In its methodology paper,
the European Union updated the projected delivery information for scheduled single-aisle deliveries
into the UAE market between 2017 and 2030 (including deliveries based on new orders in a sales
campaign that occurred after the September 2015 evidentiary cut -off in the compliance
proceedings). It then calculated, on the basis of the updated projected delivery information, the
number of additional aircraft that Airbus would have delivered over this period, assuming it were to
maintain the 100% market share to which the compliance panel referred.241
6.87. The European Union selected 2020 as the first year from which to measure the threatened
impedance on the basis that 2020 would b e the first year in which it would be authorized to
implement countermeasures, and was therefore "an appropriate point of departure to quantify the
average annual value of deliveries that Airbus could have expected to make in the absence of the
US subsidies to Boeing."242 The European Union annualized the value of the corresponding number
of counterfactual Airbus deliveries expected from 2020-2030 over an 11-year period, "to reflect the
number of years in the period spanning 2020-2030."243
6.88. The United States responded to the European Union's original valuation methodologies for
the threat of impedance findings by proposing, as previously noted in section 6.4.5.3.1, that the

argument already assumes that the economic harm that is characterized under Articles 5(c) and 6.3 as a
threat of impedance in the post-implementation period is the same as the economic harm that is characterized
as a lost sale prior to the post-implementation period. However, there is no reason why this should necessarily
be the case – even where all deliveries may be outstanding at the beginning of the post-implementation
period. Rather, the legal characterization of the economic harm (rather than the underlying transaction)
dictates the nature and extent of this economic harm that an arbitrator must value under Article 7.10 of the
SCM Agreement. Our valuation of the adverse effects determined to exist must be based on the degree and
nature of the effects that the compliance panel identified, even if those effects relate to a common underlying
transaction. Indeed, under the delivery-centric approach that we consider would yield countermeasures
commensurate with the degree and nature of the threat of impedance identified in the compliance proceedings
(discussed in section 6.4.9.2 below), we calculate valuations for threat of impedance that do not coincide with
either of the parties' valuations under an order-centric approach. We would add that the fact that different
forms of adverse effects may give rise to different valuations, notwithstanding that they are based on the same
underlying transaction does not mean that a threat of impedance is necessarily a "second-class adverse
effect", compared with a lost sale. (See European Union's comments on the United States' response to
Arbitrator question No. 71, para. 341)
239 The European Union explains that it calculates the net price of each Airbus LCA that would have been
delivered if Airbus had won the sale, at delivery (i.e. Net Fly-Away Price adjusted according to the contractual
escalation formula to determine 2013-2019 delivery prices, which are then time-adjusted into April 2020
dollars (using the ALII for the relevant delivery months and years), and annualized over a 33-month reference
period). (See European Union's methodology paper, paras. 132-140)
240 European Union's methodology paper, paras. 144-145; and written submission, para. 285.
241 European Union's methodology paper, paras. 148-149 and table 7.
242 European Union's methodology paper, para. 150.
243 European Union's methodology paper, paras. 152 and 159.

underlying lost sales be valued on the same basis as the three significant lost sales that occurred in
the post-implementation period. However, as previously mentioned, the United States' proposal also
required that the period over which those values would then be divided, to arrive at an annualized
value of the threat of impedance that was found to exist in the compliance panel's reference period,
must reflect the total period over which all five of the lost sales occurred, i.e. 2007 -2015
(105 months) rather than the compliance panel's reference period, as proposed by the
European Union.244
6.89. As regards the US geographic market in particular, the United States noted that many of the
deliveries of LCA pursuant to the 2011 Delta Airlines l ost sale were made during the compliance
panel's reference period. According to the United States, any valuation of threat of impedance based
on the relevant deliveries, as opposed to lost sales, would therefore need to exclude deliveries that
were made during the implementation period and compliance panel reference period. This is because
such deliveries would be, at most, evidence of present impedance, rather than threat of
impedance.245
6.90. As regards the UAE geographic market, the United States argued that the European Union's
counterfactual delivery numbers are based on (a) deliveries associated with the 2014 Fly Dubai lost
sale, which were already valued as part of the valuation of significant lost sales and could not be
counted again, and (b) a 2017 Fly Dubai single-aisle sales campaign that Boeing won, which occurred
after the compliance proceedings, and was not subject to any findings in the compliance
proceedings.246 The United States argued that the findings from the compliance proceedings did not
support the assumption that, absent the Washington State B&O tax rate reduction, Airbus would
retain 100% of the counterfactual UAE market share from 2009 throughout the post-implementation
period, such that the 2017 Fly Dubai sales campaign could implicitly be assumed to be a lost sale
attributable to the Washington State B&O tax rate reduction.247
6.91. The valuation methodology originally proposed by the European Union for the threat of
impedance in the US geographic market (a) values all of the LCA deliveries associated with the 2011
Delta Airlines lost sale, regardless of whether the deliveries in question occurred during the
compliance panel's reference period or after, and (b) annualizes the resulting valuation over the
compliance panel's reference period. 248 We observe that this methodology displays characteristics
similar to those that it later proposed in its "threat of impedance" valuation approach, which we
evaluate in detail further below.249 We therefore consider that our evaluation of the European Union's
threat of impedance valuation approach will effectively resolve the propriety of this approach as
well.250
6.92. The valuation methodology originally proposed by the European Union for the threat of
impedance in the UAE geographic market focuses on the value of deliveries at the time the deliveries
occurred (rather than the value of the order that resulted in the deliveries at the time the order
occurred). In that respect, it accords with the nature of adverse effects in the form of threa t of
impedance. However, the European Union's quantification of the relevant counterfactual deliveries
is based in part on deliveries made under a 2017 Fly Dubai sales campaign that was not one of the
five price-sensitive LCA sales campaigns that were found to be lost by Airbus due to the Washington
State B&O tax rate reduction. We recall that the compliance panel's threat of impedance findings
were dependent on the existence of a causal connection between the subsidy and threatened

244 United States' written submission, paras. 105-106.
245 United States' written submission, para. 148 at fn 171.
246 United States' written submission, paras. 148-151. The European Union rejects the argument that its
methodology would involve an improper "double counting" of deliveries related to the 2014 Fly Dubai lost sale,
arguing that the compliance panel found that the 2014 Fly Dubai lost sale and threat of impedance in the UAE
market were "distinct adverse effects" that the Arbitrator must value separately. (European Union's written
submission, para. 286 at fn 389) In addition, the European Union argues that the compliance panel's findings
were based on evidence of market share trends in the UAE market (and not only on the evidence of the 2008
and 2014 lost sales), such that the proposed valuation approach for the UAE market is supported by the
SCM Agreement. (European Union's written submission, paras. 285-286)
247 United States' written submission, paras. 153-156.
248 European Union's methodology paper, para. 130. The main difference is that, unlike the significant
lost sales valuations, the European Union does not propose discounting the delivery-date prices back to their
equivalent values at the date of the order, but rather, adjusts them forward to their equivalent value in April
2020. (European Union's methodology paper, para. 137)
249 See para. 6.93 et seq.
250 See fn 330 below.

impedance.251 The only ca usal connection identified by the compliance panel was the lost -sales
findings for those specific price-sensitive campaigns.252 The 2017 Fly Dubai sales campaign was not
before the compliance panel because it occurred subsequent to the compliance panel's ev identiary
cut-off of September 2015 and therefore was not identified as a "price-sensitive sales campaign" or
as a lost sale that was the effect of US subsidies. We therefore do not consider that there is a basis
on which the Arbitrator can value deliverie s associated with the 2017 Fly Dubai sales campaign as
part of the compliance panel's threat of impedance findings for the UAE geographic market.
Therefore, we cannot accept the European Union's proposed alternative methodology for valuing the
threat of impedance finding in the UAE market, but as was the case with respect to the proposed
alternative methodology for the US market, we discern certain aspects of the methodology that are
similar to the so-called "delivery-centric" approach that we discuss next.
6.4.5.3.3 Arbitrator's proposed "delivery-centric" approach
6.93. Following the meeting with the parties, the Arbitrator invited the parties to propose
methodologies to value the threat of impedance based on the value of the counterfactual deliveries
stemming from the two lost sales at the time of delivery, which it referred to as a "delivery-centric"
approach.253
6.94. The European Union responded that it would agree to the Arbitrator valuing a threat of
impedance (that is, a threat of deliveries) arising at any point in the c ompliance panel's reference
period even if any of those LCA were subsequently delivered in the reference period and having
regard to the value of deliveries scheduled to occur in the post -reference period.254 However, it
specified that the time -period over which the resulting value of threatened deliveries would be
annualized must be the "33-month reference period adopted by the compliance adjudicators".255
6.95. The European Union argues that the compliance panel's findings of threat of impedance in the
US and UAE markets were temporally situated at and from the time of the lost sales (occurring in
2011 and 2008, respectively) and that the threat of impedance arose and continued to exist in the
reference period.256 The European Union therefore argues that the correct temporal perspective, and

251 Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), paras. 9.427-9.432.
252 We therefore disagree with the European Union's assertion that the compliance panel's causal
analysis for the UAE market was not based entirely on the prior lost-sales findings, but also on market share
trends (see European Union's written submission, para. 285). See also para. 6.126 below.
253 See e.g. Arbitrator question Nos. 66, 69, and 70.
254 European Union's response to Arbitrator question No. 67, para. 286. The European Union considers
that the term "delivery-centric" does not properly characterize the alternative to a lost sales approach because
it wrongly suggests that the Arbitrator would value a finding of "actual" impedance, whereas it must value the
threat of impedance findings. The European Union therefore refers to its proposed alternative to a lost sales
approach as a "threat of impedance" approach (European Union's response to Arbitrator question No. 66,
paras. 188-189); compare with European Union's comments on the United States' response to Arbitrator
question No. 66, para. 215 where the European Union refers to its approach as a "threat of delivery" approach.
255 European Union's response to Arbitrator question No. 66, paras. 236 and 239. As noted in
para. 6.102 below, the European Union's agreement to the Arbitrator adopting a "threat of impedance"
valuation approach is expressly subject to certain conditions, one of which is that the annualization period is 33
months.
256 For example, for the US market (2011 Delta Airlines), the European Union argues:
It is important to note that the compliance adjudicators' precise finding is one of a threat of
impedance resulting from the 25 August 2011 Delta Airline order for 100 aircraft. … That threat
of impedance, which came into existence on 25 August 2011, continued to exist at least until
such time as the aircraft were delivered. In the first part of the reference period, from 1 January
2013 to the date of first delivery (September 2013), a threat of impedance covering all of those
threatened deliveries was extant.
European Union's response to Arbitrator question No. 66, para. 199. See also response to Arbitrator question
No. 67, paras. 307-308; and combined comments on the United States' responses to Arbitrator question Nos.
66(a) and 69, para. 233. For the UAE market (2008 Fly Dubai), the European Union argues:
As in the case of the US market, the correct temporal viewpoint, and the one adopted by the
compliance panel, was also, by definition, the date on which the 2008 Fly Dubai transaction was
concluded (14 July 2008) (bringing the threat of impedance into existence) and thus, insofar as
is legally relevant, the start of the reference period (1 January 2013), when a threat of
impedance continued to exist. Again, the compliance panel did not situate itself at the end of the
reference period (30 September 2015) to consider whether there was a threat arising in the
reference period (1 January 2013 to 30 September 2015) due to deliveries that were "clearly

the one adopted by the compliance panel, is that the threat of impedance "arose" on the date the
relevant order was lost and "remained extant, in its entirety, in the reference period". 257 From that
perspective, the threat of impedance that existed in the reference period comprised all future
deliveries that were undelivered at any point in the reference period, and therefore, the appropriate
annualization period for the threat of impedance would be the reference period.
6.96. The United States argues that, under a delivery -centric approach to valuing threat of
impedance, the Arbitrator should (a) include only those deliveries occurring after the end of the
compliance panel's reference period258; and (b) annualize the corresponding valuation over the time
over which the counterfactual Airbus deliveries would have been scheduled to occur (all being after
the compliance panel's reference period).
6.97. In support of this position, the United States distinguishes between serious prejudice that
arises in the present based on present harm, and serious prejudice that arises in the present based
on threatened harm in the imminent and clearly foreseeable future.259 The United States argues that
threat findings are based on future, imminent harm that has not yet materialized. 260 For the
United States, it therefore follows that a threat of serious prejudice finding does not include a finding
of the present form of that serious prejudice; rather, threat findings are made when t here are no
current, ongoing adverse effects in the relevant form.261 The United States considers that deliveries
made during the compliance panel's reference period would be the basis for a finding of present
impedance, which the compliance panel did not make in this case.262 According to the United States,
had there been a finding of present impedance, there would be no question that the Arbitrator's
valuation of that finding should be limited to counterfactual deliveries during the reference period.
Likewise, there should be no question that the valuation of threat of impedance findings should be
limited to counterfactual deliveries occurring after the reference period.263
6.98. The United States also contrasts the findings before this Arbitrator with the finding s before
the DS316 arbitrator. It notes that in the DS316 compliance proceedings, the compliance panel
found present impedance based on deliveries that occurred during the compliance proceeding s
reference period (but not threat of impedance as regards deliveries due to occur after the end of the
reference period). 264 The DS316 arbitrator valued those reference -period deliveries as present
impedance and did not value any future deliveries scheduled to occur after the end of the compliance
panel's reference period because there was no threat of impedance finding made in the compliance
proceeding.265 The United States notes that in this arbitration proceeding, by contrast, there are no
present impedance findings by the compliance panel, only threat of impedance f indings. The
United States argues that, because there is no finding of present impedance, the Arbitrator should
not value any deliveries made during the reference period. The United States submits that, by asking
the Arbitrator to value deliveries that occ ur both in the reference period and in the post -reference
period as threat of impedance, the European Union is in reality asking the Arbitrator to treat the

foreseen and imminent" in the post-reference period (i.e. after 30 September 2015). Such an
assertion flatly contradicts the findings actually made by the compliance panel.
European Union's response to Arbitrator question No. 66, para. 205. (emphasis original; fn omitted) See also
European Union's combined comments on the United States' responses to Arbitrator question Nos. 66(a)
and 69, paras. 234 and 250.
257 European Union's response to Arbitrator question No. 66, paras. 200 and 203; response to Arbitrator
question No. 67, paras. 299 and 301; and combined comments on the United States' responses to Arbitrator
258 United States' response to Arbitrator question No. 66, para. 84. The United States explains that this
would mean that only the deliveries under the 2011 Delta Airlines and 2008 Fly Dubai campaigns that occurred
after the compliance panel's reference period would be included in the valuation. Deliveries under the 2014 Fly
Dubai campaigns would have already been valued as part of the 2014 Fly Dubai lost sales valuation and would
not be counted twice. (United States' response to Arbitrator question No. 66, para. 86)
259 United States' comments on the European Union's response to Arbitrator question No. 66, para. 111.
260 The United States explains: "Thus, the threat of impedance findings are necessarily forward looking.
They are based on a present situation in which Airbus LCA deliveries are not yet being obstructed, hindered or
held back, but will imminently undergo a change in circumstances that will result in them being
obstructed/hindered/held back in the future." (United States' comments on the European Union's response to
Arbitrator question No. 66, para. 95 (emphasis original))
261 United States' response to Arbitrator question No. 69, para. 108.
262 United States' response to Arbitrator question No. 66, paras. 85 and 87; and response to Arbitrator
question No. 69, para. 109.
263 United States' comments on the European Union's response to Arbitrator question No. 66, para. 98.
264 United States' response to Arbitrator question No. 69, para. 110.
265 United States' response to Arbitrator question No. 69, para. 110.

compliance panel as having found both present impedance and threat of impedance, which is clearly
erroneous, and would lead to countermeasures that are not commensurate with the degree and
nature of adverse effects determined to exist.266
6.99. We begin by observing that, as a factual matter, all of the counterfactual deliveries related to
the 2011 Delta Airlines lost sale would have occurred either during or after the compliance panel's
reference period. For the 2008 Fly Dubai lost sale, certain counterfactual d eliveries would have
occurred prior to the end of the implementation period, as well as during the reference period.
Moreover, where the Boeing delivery schedule is used to identify the delivery schedule of the
counterfactual Airbus deliveries, there would have been no post-reference period deliveries for the
2008 Fly Dubai lost sale.
6.100. Neither party disputes that, as part of its valuation of the threat of impedance findings, the
Arbitrator should value relevant counterfactual deliveries that would have manifested after the
reference period.267 The issue we must resolve is whether the Arbitrator's valuation of the threat of
impedance findings should also include the value of any counterfactual deliveries that would have
manifested in the reference period (and possibly, those that would have manifested prior to the
expiration of the implementation period).
6.101. We understand the European Union's legal argument to be that the threat of impedance that
"arises" in the reference period comprises all deliveries subsequently made during, as well as after,
the reference period.268 In other words, the fact that any of the threatened deliveries of LCA that
"arise" in the reference period may subsequently also be delivered in the reference period (and
therefore may also have constituted present impedance), does not mean that such threatened
deliveries should be excluded from the valuation of threat of impedance.269
6.102. The European Union also states that, subject to the fulfilment of the following "conditions"
(and only then), it would agree to the Arbitrator excluding from its valuation of threat of impedance
in the UAE geographic market the 2008 Fly Dubai deliveries that would have taken place prior to the
end of the implementation period270:
a. That the numerator for the val uation of threat of impedance in each geographic market
comprise the "threat of deliveries" occurring during and after the reference period,
b. That the denominator for each valuation (i.e. the annualization period) is the 33 -month
reference period, and
c. That the Arbitrator reject the United States' argument that the valuation of the lost
revenues arising from each sales campaign should include a probabilistic adjustment to
account for the uncertainty that Airbus would have won each sales campaign in the
counterfactual.271
6.103. For present purposes272, it is clear that the parties therefore disagree as to:

266 United States' response to Arbitrator question No. 69, para. 112.
267 See e.g. European Union's response to Arbitrator question No. 66, para. 194; and United States'
comments on the European Union's response to Arbitrator question No. 66, para. 92. The parties do disagree,
however, as to the appropriate time-period over which the resulting values should be annualized.
268 European Union's response to Arbitrator question No. 66, paras. 190-191.
269 See European Union's combined comments on the United States' responses to Arbitrator question
Nos. 66(a) and 69, para. 215; and response to Arbitrator question No. 66, para. 231. In that regard, the
European Union emphasizes that the Arbitrator's valuation should not be based on a "fictional finding of actual
impedance", but on the adopted threat of impedance findings which concern the threat of deliveries resulting
from the 2011 and 2008 lost sales which did "arise in" the reference period "and remained extant, in its
entirety, in the reference period." (European Union's response to Arbitrator question No. 66, paras. 188-189,
198-200 (emphasis original))
270 European Union's response to Arbitrator question No. 66, paras. 189-193.
271 This issue is addressed in section 6.4.6.1 below.
272 In its response to Arbitrator question No. 66, the European Union states that the parties'
disagreement concerns the valuation of deliveries that occurred in the reference period as part of the threat of
impedance findings. (European Union's response to Arbitrator question No. 66, para. 194) We therefore

a. whether the Arbitrator should value, as part of the compliance panel's threat of impedance
findings, counterfactual deliveries that would have occurred in the reference period, and
(closely associated with this)
b. the appropriate annualization period for va luation of the counterfactual deliveries that
comprise the threat of impedance findings.
6.104. The above disagreement, in turn, is based on differing perspectives as to the point in time
at which the compliance panel situated itself when making the threat of im pedance findings, and
more generally, the nature of a threat of impedance as a specific form of economic harm.
6.105. The European Union argues that the compliance panel temporally situated itself at the time
of the lost sales (i.e. in 2011 and 2008, respectively) when finding that those lost sales gave rise to
a threat of impedance that "arose" in the reference period. 273 The European Union stresses that it
does not argue that the compliance panel adopted a "snapshot of the market situation" on the first
day of the reference period.274 Rather, the compliance panel "assessed and established the presence
of adverse effects and threat thereof, arising at any time during the reference period."275 In other
words, the European Union considers that the threat of deliveries "arising at any time during the
reference period is part and parcel of the threat of impedance findings, and must therefore be valued
by the {Arbitrator}".276 The United States, by contrast, considers that the compliance panel's threat
of impedance findings are forward-looking as at the time of the finding, noting that the compliance
panel issued its report in December 2016, having considered evidence through to late 2015. 277 For

consider that the European Union does not ask the Arbitrator, under a "threat of impedance" approach, to
additionally value the threatened deliveries that manifested as deliveries prior to the expiration of the
implementation period (i.e. the 2008 Fly Dubai deliveries that occurred prior to the expiration of the
implementation period). It is not necessary to determine, from the European Union's submissions, whether the
European Union's agreement that the Arbitrator may exclude the 2008 Fly Dubai deliveries that would have
taken place prior to the end of the implementation period follows from its legal argument, or is a concession
which is conditional on the fulfilment of the three conditions above, or both.
273 See European Union's response to Arbitrator question No. 66, with respect to the US market:
"{t}hus, the correct temporal perspective, and the one adopted by the compliance panel in this particular case,
and given the particular basis of the threat of impedance finding, is that the threat of impedance arose on
25 August 2011 and remained extant, in its entirety, in the reference period" (European Union's response to
Arbitrator question No. 66, para. 200); "the threat of impedance arose on 25 August 2011 because of the 2011
Delta Airlines transaction and 'will, to that extent, be obstructed, hindered or held back'" (Ibid. para. 201
(emphasis omitted)); and "{r}ather, the compliance panel's findings, by their own terms, establish that the
relevant particular point in time was 25 August 2011, when the threat of impedance arose. The findings by the
compliance panel addressed the future in relation to that point in time (25 August 2011) and, insofar as is
legally relevant, the start of the reference period (1 January 2013)" (Ibid. para. 203). With respect to the UAE
market: "{a}s in the case of the US market, the correct temporal viewpoint, and the one adopted by the
compliance panel, was also, by definition, the date on which the 2008 Fly Dubai transaction was concluded (14
July 2008) (bringing the threat of impedance into existence) and thus, insofar as is legally relevant, the start of
the reference period (1 January 2013), when a threat of impedance continued to exist." (Ibid. para. 205
(emphasis omitted)); "by its own terms, the compliance panel's finding of threat of impedance was grounded,
inter alia, in the 2008 Fly Dubai transaction on 14 July 2008, which therefore by definition constitutes the
relevant temporal viewpoint for that transaction." (Ibid. para. 210). See also European Union's combined
comments on the United States' responses to Arbitrator question Nos. 66(a) and 69, para. 231.
274 European Union's combined comments on the United States' responses to Arbitrator question Nos.
66(a) and 69, paras. 235-236. See, however, European Union's response to Arbitrator question No. 66, para.
198 ("At the beginning of the reference period, on 1 January 2013 … all deliveries related to the 2011 Delta
Airlines transaction were still outstanding, and were threatening to impede Airbus LCA imports into the United
States"); para. 199 ("In the first part of the reference period, from 1 January 2013 to the date of first delivery
(September 2013), a threat of impedance covering all of those threatened deliveries was extant"); para. 203
("Thus, as a matter of fact and as a matter of law, the {Arbitrator's} valuation exercise must value the threat
of impedance that was "clearly foreseen and imminent" on 1 January 2013"). (emphasis omitted)
275 European Union's comments on the United States' response to Arbitrator question No. 66, para. 236.
(emphasis original)
276 European Union's comments on the United States' response to Arbitrator question No. 66, para. 243.
(emphasis original)
277 United States' comments on the European Union's response to Arbitrator question No. 68, para. 132,
and No. 66, para. 102. The United States argues that threat of impedance findings are based on a present
situation in which Airbus LCA deliveries are not yet being obstructed, hindered, or held back, but will
imminently undergo a change in circumstances that will result in them being obstructed, hindered, or held back
in the future. (United States' comments on the European Union's response to Arbitrator question No. 66,
para. 95)

the United States, the compliance panel's findings of threat of impedance mean that, at least as of
late 2015, impedance had not materialized.278
6.106. The European Union's position suggests that it regards the threat of impedance as the
economic harm represented by the prospect of impeded deliveries arising out of the 2011 Delta
Airlines and 2008 Fly Dubai lost sales, which at the beginning of the reference period "hung over
Airbus' head like a mighty wave waiting to crash down upon it". 279 The economic harm that the
European Union equates with the threat of impedance is, in other words, the harm to Airbus of the
overhanging wave of future impeded LCA deliveries, which arose in the reference period, as opposed
to the harm to Airbus from the impeded deliveries of Airbus LCA as and when those deliveries would
have occurred (i.e. during the reference period, or in the post-reference period). The United States,
by contrast, considers the economic harm in the form of a threat of impedance to be the same harm
as present impedance, but from a forward -looking standpoint. Thus, for the United States, both
present impedance and threat of impedance concern the harm from impeded deliveries of LCA as
and when those deliveries occur, the only difference being temporal; i.e. present impedance
concerns impeded deliveries that occur in the reference period, while threat of impedance concerns
impeded deliveries that occur in the post-reference period.
6.107. We again recall that our mandate under Article 7.10 requires that the level of
countermeasures be commensurate with the degree and nature of the adverse effects de termined
to exist. 280 We have already considered the nature of impedance above.281 Given our mandate and
the fact that the threat of impedance is the relevant form of serious prejudice, we further consider
it appropriate (and most effective) to evaluate the differing perspectives of the parties as to the
nature of a threat of impedance as a specific form of economic harm and the point in time at which
the compliance panel situated itself when making the threat of impedance findings.
6.108. The analysis that follows thus proceeds in three parts. We first consider the nature of a
threat of serious prejudice in general, based on a textual anal ysis of that concept as it appears in
footnote 13 to paragraph (c) of Article 5 of the SCM Agreement. We then discuss the findings of the
compliance panel, specifically in order to determine whether, as argued by the European Union, the
compliance panel temporally situated itself at the time of the respective lost sales in 2011 and 2008
when making its threat of impedance findings. Third, in the light of the first two parts, we explain
our conclusions as to whether the Arbitrator's valuation of the threat o f impedance findings should
include the value of any counterfactual deliveries that would also have manifested in the reference
period.
6.4.5.3.3.1 Nature of "threat"
6.109. Article 6.3 of the SCM Agreement is formulated in the present tense ("the effect of the
subsidy is") when identifying the specific forms of economic harm that constitute serious prejudice
for purposes of Article 5(c), including impedance of imports and exports under Articles 6.3(a) and
(b). Footnote 13 to paragraph (c) of Article 5 provides that the term "serious prejudice to the
interests of another Member" is used in the SCM Agreement in the same sense as it is used in
paragraph 1 of Article XVI of GATT 1994 "and includes threat of serious prejudice".
6.110. Footnote 13 also references Article XVI of the GATT 1994, which states (in Section A):
If any {Member} grants or maintains any subsidy, including any form of income or price
support, which operates directly or indirectly to increase export s of any product from,
or to reduce imports of any product into, its territory, it shall notify … in writing of the
extent and nature of the subsidization, of the estimated effect of the subsidization on
the quantity of the affect product or products imported into or exports from its territory
and of the circumstances making the subsidization necessary. In any case in which it is
determined that serious prejudice to the interests of any other {Member} is caused or
threatened by any such subsidization , the {Member} granting the subsidy shall, upon

278 United States' comments on the European Union's response to Arbitrator question No. 68, para. 132.
279 European Union's opening statement, para. 108.
280 See section 3 above.
281 See paras. 6.82-6.83 above.

request, discuss with the other {Member} or {Members} concerned, … the possibility
of limiting the subsidization.282
6.111. The reference to Article XVI of the GATT 1994 in footnote 13, coupled with the present-tense
expression of serious prejudice in Article 6.3, indicates that the scope of serious prejudice under the
SCM Agreement includes both present and threatened serious prejudice, thereby aligning with
Article XVI of the GATT 1994.283 The SCM Agreement does not define a threat of serious prejudice,
nor does it explain the relationship between serious prejudice as delineated in Article 6.3 and threat
of serious prejudice, other than as provided in footnote 13.
6.112. A "thr eat" is ordinarily understood as "an indication of impending evil". 284 Something is
"impending" when it is "about to fall or happen; hanging over one's head; imminent; or near at
hand".285 A threat of impedance, in our view, is therefore a forward-looking concept, i.e. impedance
that has not yet occurred but will soon occur.
6.113. Instructive guidance by the Appellate Body accords with this understanding. The
Appellate Body has discussed the concept of "threat" in the context of interpreting the phrase "threat
of serious injury" in Article 4.1(b) of the Agreement on Safeguards, explaining that "threat" refers
to something that "has not yet occurred, but remains a future event whose actual materialization
cannot, in fact be assured with certainty".286 This understanding of threat as something that has not
occurred at the relevant time, but that will occur at a future time is consistent also with the nature
of threat of material injury in Article 3.7 of the Anti -Dumping Agreement and Article 15.7 of the
SCM Agreement.287 We discern no reason to think that the nature of "threat" in these agreements
and the threat of serious prejudice in the SCM Agreement should be interpreted differently.
6.114. Indeed, in EC and certain member States – Large Civil Aircraft, the Appellate Body indicated
a similar understanding of the term "threat" within the context of threat of serious prejudice in the

282 Emphasis added.
283 We observe a similar structure as regards the concept of injury in Article 5(a): footnote 11 to
paragraph (a) of Article 5 provides that the term "injury to the domestic industry" is used in the same sense as
it is used in Part V of the SCM Agreement. Part V (fn 45 to Article 15) provides that, unless otherwise specified,
the term "injury" includes both present material injury and a "threat of material injury". The Anti-Dumping
Agreement is structured in a similar way, with footnote 9 providing that the term "injury" shall, unless
otherwise specified, be taken to mean material injury to a domestic industry, threat of material injury to a
domestic industry or material retardation of the establishment of such an industry. Article 10.3 of the
Anti-Dumping Agreement (dealing with retroactivity) states that, except as provided in paragraph 2 "where a
determination of threat of injury or material retardation is made (but no injury has yet occurred) a definitive
anti-dumping duty may be imposed only from the date of the determination of the threat of injury or material
retardation", suggesting that threat of injury arises where material injury does not yet exist. The Agreement on
Safeguards also separately defines "serious injury" and "threat of serious injury", with "serious injury" meaning
a significant overall impairment in the position of a domestic industry while "threat of serious injury" means
"serious injury that is clearly imminent in accordance with the provisions of paragraph 2."
284 Oxford Dictionaries online, definition of "threat"
https://www.oed.com/view/Entry/201152?rskey=wUnlWk&result=1&isAdvanced=false#eid (accessed 21
September 2020).
285 Oxford Dictionaries online, definition of "impending"
https://www.oed.com/view/Entry/92216?rskey=nFapJK&result=3&isAdvanced=false#eid (accessed 21
September 2020).
286 Appellate Body Report, US – Lamb, para. 125 (emphasis original). In the context of the Anti-
Dumping Agreement, the Appellate Body has explained that, "{i}n terms of the rising continuum of an
injurious condition of a domestic industry that ascends from a 'threat of serious injury' up to 'serious injury',
we see 'serious injury' – because it is something beyond a 'threat' – as necessarily including the concept of a
'threat' and exceeding the presence of a 'threat'. (Appellate Body Report, US – Line Pipe, para. 170 (emphasis
original))
287 Article 3.7 of the Anti-Dumping Agreement provides the basis for a determination of threat of
material injury, and a non-exhaustive list of factors that an investigation authority should consider in making
this determination. It provides, in relevant part, that the totality of factors considered "must lead to the
conclusion that further dumped exports are imminent and that, unless protective action is taken, material
injury would occur". The text of Article 15.7 of the SCM Agreement largely parallels that of Article 3.7 of the
Anti-Dumping Agreement, without footnote 10 and with the addition of a factor that the investigating authority
should consider, namely the nature of the subsidy and the trade effects likely to arise therefrom
(Article 15.7(i)). Prior panels have concluded that decisions concerning Article 3.7 of the Anti-Dumping
Agreement instruct the understanding of Article 15.7 of the SCM Agreement, and vice-versa. (See
Panel Reports, EC and certain member States – Large Civil Aircraft, para. 7.2157, US – Coated Paper
(Indonesia), para. 7.259)

SCM Agreement. The Appellate Body observed that neither Article 6.3(a) nor Article 6.3(b) expressly
refers to "threat of displacement". Rather, footnote 13 to Article 5(c) provides that the term "serious
prejudice to the interests of another Member" as used in the SCM Agreement "includes threat of
serious prejudice".288 The Appellate Body referred to Article 15.7 of the SCM Agreement (concerning
a threat of material injury) which it said provided relevant guidance for understanding the concept
of threat of serious prejudice in Article 5(c), stating:
Thus, as with a determination of threat of material injury, we consider that it is
reasonable to require that the determination of threat of serious prejudice "be based on
facts and not merely on allegation, conjecture or remote possibility" and that "{t}he
change in circumstances" that would create a situation in which the subsidy would cause
displacement "must be clearly foreseen and imminent."289
6.115. Subsequently, in the original appeal in this dispute, the Appellate Body referred to the above
paragraph from its earlier report as acknowledging that, although the word "threat" is not expressly
included in the text of Article 6.3(b), a finding under Article 6.3(b) could include situations in which
displacement was only threatened.290 The Appellate Body's use of the conditional tense in the above
explanation of a threat of serious prejudice, along with the requirement that the change in
circumstances that would lead to the existence of displacement must be clearly foreseen and
imminent in order to demonstrate a threat of displacement, suggests that the Appellate Body
understood a threat of displacement as a situation in which displacement did not presently exist but
would exist in the future.
6.116. More generally, the present-tense formulation in Article 6.3 of the types of economic harm
that constitute serious prejudice, when read with footnote 13 (indicating that serious prejudice
includes threat of serious prejudice) suggests that the relationship between present serious prejudice
in Article 6.3 and threat of serious prejudice, is temporal. We note that the way in which the
Appellate Body has referred to the relationship between threatened and present serious prejudice is
consistent with this understanding:
A claim of present seriou s prejudice relates to the existence of prejudice in the past,
and present, and that may continue in the future . By contrast, a claim of threat of
serious prejudice relates to prejudice that does not yet exist, but is imminent such that
it will materialize in the near future. Therefore, a threat of serious prejudice claim does
not necessarily capture and provide a remedy with respect to the same scenario as a
claim of present serious prejudice.291
6.117. We also take note of the Appellate Body's statements when int erpreting "threat" in the
context of other WTO agreements which are also consistent with the notion that a threat refers to
something that has not yet occurred or is not yet in existence.292
6.118. Finally, we consider the object and purpose of the inclusion of threat of serious prejudice as
part of serious prejudice within the meaning of Article 5(c) of the SCM Agreement. Part III of the

288 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1171.
289 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1171 (emphasis
added). The panel in the original proceeding in EC and certain member States – Large Civil Aircraft had found a
threat of displacement in the Indian market based on an order in 2005 for 225 Airbus LCA compared with 98
Boeing LCA orders which represented a "massive increase in the Indian market" and indicated that "as these
LCA are delivered over the ensuing years, it is likely that Airbus will have a significantly greater share of the
Indian market than Boeing". (Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1784)
The order and delivery data before the panel for that geographic market had covered the period 2001-2006,
thus indicating that the panel based its threat of displacement finding on a situation of displacement that would
occur in a (future) period i.e. subsequent to 2006. The Appellate Body ultimately overturned the panel's finding
of threat of displacement, on the grounds that the trends in market share based on orders did not provide a
sufficient basis for a finding of threat of displacement. (Appellate Body Report, EC and certain member States –
Large Civil Aircraft, para. 1202)
290 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), fn 2215.
291 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 244 (emphasis added). In
saying that a threat of serious prejudice "does not necessarily capture and provide a remedy with respect to
the same scenario as a claim of present serious prejudice", we understand the Appellate Body to mean that a
threat of serious prejudice does not necessarily include present serious prejudice, because a threat, by
definition, relates to something that does not yet exist.
292 See para. 6.113 above.

SCM Agreement ("Actionable Subsidies") provides that specific subsidies give rise to the remedies
in Article 7 only where they are demonstrated (ex post) to cause adverse effects to the interests of
a complaining Member. Serious prejudice is one of these forms of adverse effects, as referred to in
Articles 5(c) and 6.3. The present -tense formulation of serious prejudice in Article 6.3 means that
the assessment of serious prejudice (and thus the WTO -consistency of a subsidy under Part III) is
fundamentally backward-looking.293
6.119. The inclusion of threat of serious prejudice within the scope of serious prejudice, in the
context of the effects-based discipline of Part III of the SCM Agreement, enables Members to obtain
remedies under Article 7 in respect of serious prejudice t hat does not presently exist but will exist
in the future. A threat of serious prejudice claim is therefore a means to address subsidization that
imminently threatens to cause economic harm, without needing to wait until that harm actually
manifests. Understood in this context, a threat of serious prejudice is not a form of harm separate
from the present form of the particular serious prejudice phenomena in Article 6.3. Rather, it
addresses the same harm as the phenomena in Article 6.3, but from a forward-looking perspective
because it has not yet occurred but can be expected to do so imminently.294 This temporal difference
between threatened and present serious prejudice also means that the argumentation and evidence
in support of a claim of threat of serious prejudice will differ from that required to support a present
serious prejudice claim.295
6.120. The foregoing considerations lead us to expect that, when a threat of impedance is identified
by a WTO adjudicator working with the disciplines of Part III of the SCM Agreement, the adjudicator
would be referring to a situation whereby the threatened impedance has not yet manifested itself as
impedance in the time-period considered by the adjudicator. In other words, we would expect that
a panel makes a finding of threat of impedance when it is not yet able to observe the manifestation
of the threatened impedance (i.e. impedance). Indeed, if this were not the case, it would appear to
us that the line between findings of threat of serious prejudice and present serious prejudice would
become, at minimum, significantly blurred.296
6.121. We further recall that the European Union argues, and we agree, that the compliance panel's
findings regarding threat must be examined in their own right and respected in this proceeding. We
therefore consider the compliance panel's findings in greater detail.
6.4.5.3.3.2 Findings in the compliance proceedings
6.122. To recall, the European Union argues that the compliance panel temporally situated itself at
the time of the 2011 and 2008 lost sales when making its threat of impedance findings. In making
this argument, the European Union places particular importance on the phrases "will, to that extent"
and "arise in the post -implementation period" appearing in paragraphs 9.437 and 9.438,
respectively, of the co mpliance panel's report. Before examining these paragraphs, we first recall
the background against which the compliance panel examined the European Union's claims under

293 The effects-based discipline in Part III of the SCM Agreement can be contrasted with the prohibited
subsidy discipline in Part II, where the WTO-consistency of the subsidy depends on whether it meets the legal
criteria in Article 3.1, rather than on a demonstration of its market effects.
294 If the drafters had intended that a threat of serious prejudice would be a distinct form of harm from
the Article 6.3 phenomena, it is reasonable to expect that they would have done so by adding a paragraph (e)
to Article 6.3 that says: "the effect of the subsidy is a threat of the effects set forth in paragraphs (a) through
(d) of this Article". On the contrary, the reference to threat of serious prejudice in a footnote to Article 5(c),
the provision that sets forth the obligation not to cause adverse effects through the use of a subsidy, suggests
that serious prejudice in Article 5(c) can be established where the market harm specified in Article 6.3 does not
yet exist and not only when it has already occurred.
295 See Panel Report, EC and certain member States – Large Civil Aircraft (Article 21.5 – US),
para. 6.214 (stating that "{w}hile actual, or present serious prejudice is a distinct phenomenon from
threatened serious prejudice, and the evidence required to demonstrate each is necessarily different, we note
that as a legal interpretative matter, the term 'serious prejudice to the interests of another Member' as used in
the SCM Agreement explicitly includes threat of serious prejudice").
296 The European Union argues that "as a matter of law and fact, it is perfectly possible to have a
situation in which the facts and evidence would be capable of supporting findings of two different types of
adverse effects in the alternative." (European Union's comments on the United States' response to Arbitrator
question No. 66, para. 242) We understand from the context of this argument that the European Union meant
that the evidence before the compliance panel supported threat of impedance findings, as well as present
impedance findings. We discuss the evidence before the compliance panel further in section 6.4.5.3.3.2 below.

Article 7.8 of the SCM Agreement regarding the existence of present impedance and threa t of
impedance in the relevant geographic markets in the post-implementation period.
6.123. First, in presenting its serious prejudice case, the European Union had proposed two distinct
product markets in which single -aisle LCA competed: (a) an "existing technolo gy" product market
(comprising the A320ceo and 737NG); and (b) a "new technology" product market (comprising the
A320neo and 737 MAX). The European Union made separate arguments for each alleged product
market. It supported those arguments with separate order and delivery data for, respectively,
existing technology LCA and new technology LCA, across each of the geographic markets at issue.
Moreover, in updating the information in support of its serious prejudice claims (submitted in October
2015 as its response to panel question No. 169), the European Union submitted delivery data and
projected (future) delivery data, in each case current as of 22 September 2015.297 The compliance
panel rejected the European Union's delineation of two product markets, finding that both existing
and new technology single-aisle LCA competed in the same product market.298 The compliance panel
therefore examined the European Union's claims of displacement, impedance and threats thereof on
the basis of aggregated market share data for each geographic market.299
6.124. The European Union's claims and evidence were also structured around a temporal
distinction between present displacement and impedance, and threatened displacement and
impedance:
a. For the US geographic market : The European Union had claimed that the US subsidies
caused a threat of impedance in the new technology US geographic market, referring to
Boeing's future delivery advantage, based on present orders.300 The European Union had
also claimed that the US subsidies caused present impedance and threat of impedance in
the existing technology US geographic market.301
b. For the UAE geographic market : The European Union had claimed that the US subsidies
caused a threat of impedance in the new technology UAE geographic market, referring to
Boeing's future delivery advantage, based on present orders.302 The European Union had
also claimed that the US subsidies caused displacement, impedance and threats thereof,
in the existing technology UAE geographic market.303
6.125. The compliance panel discussed the phenomena of displacement and impedance, and the
evidence "relevant or necessary to support the existence of each phenomenon", ba sed on prior
Appellate Body statements.304 In this regard, the compliance panel referred to prior Appellate Body

297 US – Large Civil Aircraft (Article 21.5 – EU), EU Responses to Panel Questions, 8 October 2015
(Exhibit EU-54 (HSBI); EU response to Panel question No. 169 referring to Ascend database, deliveries made,
data request as of 22 September 2015 (Exhibit EU-1659 in the compliance proceedings); and Ascend data
base, deliveries due, data request as of 22 September 2015 (Exhibit EU-1660 in the compliance proceedings).
298 See Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), paras. 9.39-9.40.
299 See Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), paras. 9.434-9.439
and tables 15, 16, 17, and 18.
300 Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 9.410. See also
evidence presented in support in the submission made to the compliance panel in October 2015 in which the
European Union updated the evidence on which it relied. (US – Large Civil Aircraft (Article 21.5 – EU), EU
Responses to Panel Questions, 8 October 2015 (Exhibit EU-54 (HSBI), European Union's response to Panel
question No. 169, paras. 491-492))
301 Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 9.412. See also
evidence presented in support in the submission made to the compliance panel in October 2015 in which the
European Union updated the evidence on which it relied. (US – Large Civil Aircraft (Article 21.5 – EU), EU
Responses to Panel Questions, 8 October 2015 (Exhibit EU-54 (HSBI) European Union's response to Panel
question No. 169, paras. 509-510))
302 Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 9.410. See also
evidence presented in support in the submission made to the compliance panel in October 2015 in which the
European Union updated the evidence on which it relied. US – Large Civil Aircraft (Article 21.5 – EU), EU
Responses to Panel Questions, 8 October 2015 (Exhibit EU-54 (HSBI), European Union's response to Panel
question No. 169, paras. 505-506.).
303 Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 9.412. See also
evidence presented in support in the submission made to the compliance panel in October 2015 in which the
European Union updated the evidence on which it relied. (US – Large Civil Aircraft (Article 21.5 – EU), EU
Responses to Panel Questions, 8 October 2015 (Exhibit EU-54 (HSBI), European Union's response to Panel
question No. 169, paras. 527-528))
304 Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), paras. 9.416-9.421.

statements from the original proceedings in this dispute and in the DS316 dispute that evidence of
discernible market share trends was necessary to support findings of displacement and
impedance.305 The compliance panel also acknowledged that the Appellate Body in the original
proceedings had expressly disagreed with the implication of the original panel's reasoning that the
phenomena of displacement and impedance necessarily followed from a finding of lost sales.306
6.126. The compliance panel then recalled its earlier conclusion that there were five LCA sales
campaigns involving the 737MAX/737NG and the A320neo/A320ceo between 2007 and 2015 which
were price-sensitive, in that Boeing was under particular pressure to reduce its prices in order to
secure the sales and there were no non -price factors that explained Boeing's success in obtaining
the sales.307 On the basis of that conclusion, the panel found that the Washington State B&O tax
rate reduction, in those sales campaigns , contributed in a genuine and substantial way to the
lowering of Boeing's prices, and that the effects of this subsidy were three significant lost sales of
Airbus narrow -body, single -aisle LCA in the post -implementation period. The compliance panel
stated that its evaluation of the European Union's claims of "impedance and/or displacement (and/or
threats of the foregoing) of imports and/or exports of Airbus single -aisle LCA in the
post-implementation period", would necessarily begin from its earlier conclusion and findings that
the effect of the Washington State B&O tax rate reduction was three significant lost sales in the
post-implementation period, and five significant lost sales between 2007 and 2015. 308 The
compliance panel concluded that there was no basis for it to examine the European Union's
displacement and impedance claims for country markets other than those that involved the five
significant lost sales that were the effects of the Washington State B&O tax rate reduction.309
6.127. The compliance panel explained that, for those four geographic markets, there was a causal
connection established, in respect of the five LCA sales campaigns , between the Washington State
B&O tax rate reduction and Boeing's LCA prices. The compliance panel's evaluation of the
European Union's claims of d isplacement and/or impedance ( and/or threats thereof) therefore
involved a comparison of the market shares of Airbus single -aisle LCA and Boeing single -aisle LCA
based on "actual and projected Airbus and Boeing deliveries of single-aisle LCA over the period from
2007 to 2025." 310 The compliance panel generally accepted the temporal distinction between the
present and threatened forms of displacement and impedance and the evidence relevant to the
demonstration of each, as indicated in footnote 3368:
As the original panel explained, displacement, impedance, and threat thereof of the
complaining party's imports or exports necessarily involves the existence of goods
crossing borders. For the LCA market, in which there is often a significant time -lag
between order and delivery, this means any demonstration of market share trends for

305 Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), paras. 9.418-9.420
(referring to Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1086: "We observe that
Article 6.4 of the SCM Agreement, which applies to both phenomena referred to in Article 6.3(a) and (b),
requires that, as with displacement, a finding of impedance should be supported by evidence of changes in the
relative market share in favour of the subsidized product, over a sufficiently representative period, to
demonstrate "clear trends" in the development of the market concerned"). The Appellate Body had reversed
the original panel's threat of displacement and impedance findings (Appellate Body Report, US – Large Civil
Aircraft (2nd complaint), paras. 1089-1090) because the data was insufficient to demonstrate the clear trends
in the third-country markets at issue, as required by Article 6.4.
306 Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 9.421. We therefore
understand that the compliance panel was aware that a finding of impedance could not be made solely on the
basis of the existence of a lost sale, but would additionally require a demonstration of clear trends in market
share.
307 Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 9.426.
308 Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 9.427. The
compliance panel observed that the European Union had not provided a causal theory in support of its claims of
displacement and impedance (and/or threats thereof) other than the theory it had advanced in support of its
claims of significant lost sales. (Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU),
paras. 9.428 and 9.431) The compliance panel rejected the European Union's argument that for "large volume"
LCA markets, it could be assumed that the two duopolists would enjoy roughly 50% market share each and
that any significant deviation from a 50% market share for several years running, along with other evidence of
causation, supported a finding that the deviation is an effect of the subsidy. (Panel Report, US – Large Civil
Aircraft (2nd complaint) (Article 21.5 – EU), paras. 9.429-9.430)
309 Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 9.432 and fn 3366
thereto. These country markets were the United States (Delta Airlines 2011), United Arab Emirates (Fly Dubai
2008 and 2014), Canada (Air Canada 2013,) and Iceland (Icelandair 2013).
310 Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 9.432.

the purposes of a displacement, impedance or threat thereof claim should be based on
delivery data rather than order data. (See Panel Report, US – Large Civil Aircraft
(2nd complaint), paras. 7.1683-7.1686). With respect to the time-period over which we
evaluate the existence of market share trends, 2007 to 2025 is the time -period over
which the European Union presents its market share data. We note that this period
extends both prior to and beyond the referen ce period of 2013 -2015 that we use
elsewhere in our findings. We take this longer period in order to ensure, in accordance
with the Appellate Body's guidance, that the effects of the subsidy are examined over a
period of time that is long enough to discern the existence of clear trends.
(Appellate Body Report, US – Large Civil Aircraft (2 nd complaint), para. 1081 (citing
Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1166;
and US – Upland Cotton , para. 478)). This is particularly important for the
European Union's threat of displacement and impedance claims, which necessarily
require evidence of projected future deliveries.311
6.128. Given these observations, therefore, we note that the European Union presented its claims
of impedance, on the one hand, and threat of impedance, on the other, based on a clear distinction
between actual delivery data for the "present" period up to September 2015, and projected delivery
data (based on orders) for a "future" period post-September 2015. The compliance panel accepted
this temporal distinction between present and threatened displacement and impedance in
footnote 3368 in the context of its examination of the relevant market share trends for the period
from 2007-2025.
 US geographic market

6.129. In examining the European Union's claims of impedance and threat of impedance in the
US geographic market, the compliance panel considered aggregated new technology and existing
technology market share data showing actual deliveries to September 2015 and projected deliveries
from September 2015.312 The compliance panel observed that Boeing had enjoyed the majority of
the market share for single -aisle LCA deliveries between 2007 and 2016 and that, with minor
projected fluctuations in 2017 and 2018, Boeing had been and overall would remain, the dominant
duopolist for deliveries of single-aisle LCA in the United States market to 2021, at which time Airbus
was projected to overtake it.313 It accordingly considered that, if anything, the trend that seemed to
emerge was that "for the next several years until 2021" Airbus' (rather than Boeing's) market share
would increase.314
6.130. The compliance panel then noted that the only Boeing sale to an LCA customer that was
"causally connected" to the Washington State B&O tax rate reduction was the "order of 100 737NG
aircraft by Delta Airlines in 2011." 315 At paragraphs 9.437 and 9.438 of its report, the compliance
panel then stated:
Although it seems logical to us that, owing to Airbus losing the 2011 Delta Airlines sales
campaign due to the effects of the Washington State B&O tax rate reduction, its imports
of single -aisle LCA to the United States market will, to that extent be obstructed,
hindered or held back , we are mindful that the phenomenon of impedance is not
synonymous with that of lost sales. In any case, there would be little to be gained by
the Panel making a finding of impedance of imports in relation solely to lost sales that
are already the subject of a finding of significant lost sales.
However, in this instance , because the Delta Airlines order arose in 2011, the Delta
Airlines 2011 campaign is not part of the Panel's finding of significant lost sales in the
post-implementation period. The threat of impeded imports of A320ceos into the
United States market that arises from that 2011 Delta Airlines lost sales does, however,
arise in the post -implementation period . In these circumstances, we consider it

311 Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), fn 3368. (italics original;
underline added)
312 Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), table 15.
313 Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 9.435. In other
words, there was no discernible trend that would support findings of displacement or impedance or threats
thereof under Article 6.3(a).
314 Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 9.435.
315 Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 9.436.

appropriate to make a finding in relation to the threat of impedance arising from that
lost sale. We therefore find that the effect of the Washington State B&O tax rate
reduction is a threat of impedance of imports of Airbus single -aisle LCA into the
United States market.316
6.131. The use of "will, to that extent" in paragraph 9.437 refers to the logical link be tween the
Delta Airlines lost sale and the displaced or impeded deliveries that will eventuate from that lost
sale, notwithstanding that the lost sale was not itself sufficient evidence of displacement or
impedance.317 We do not consider that, by making thi s logical observation, the compliance panel
necessarily situated itself in 2011 when it made the finding of a threat of impedance.
6.132. Furthermore, we read the reference to "arise in the post -implementation period" in
paragraph 9.438 of the report, in the con text of paragraph 9.437 and the first sentence of
paragraph 9.438, as stating that, although the Delta Airlines lost sale was not a finding of significant
lost sale that occurred in the post -implementation period, there "would be impeded imports" from
deliveries associated with that lost sale in the post -implementation period and that this made it
"appropriate" in the circumstances to make a finding of threat of impedance in relation to that lost
sale.318
6.133. We therefore see nothing in the compliance panel's findings in paragraphs 9.437 and 9.438
of the compliance panel report to suggest that it situated itself at the time of the 2011 Delta Airlines
lost sale when making the threat of impedance finding in the US geographic market. Rather, we
understand from paragraphs 9.437 and 9.438 that the compliance panel was justifying that (a) even
though the Appellate Body had indicated that impedance could not be presumed from the fact of a
lost sale, and even in the absence of the required clear trends in market share, t here was a logical
connection between the Delta Airlines lost sale and impedance of future Airbus deliveries into the
US market, to the extent of deliveries to be made pursuant to that lost sale, and (b) since the Delta
Airlines lost sale could not itself be the basis for a finding that the United States had failed to remove
the adverse effects of the Washington State B&O tax rate reduction, "{i}n these circumstances" the
compliance panel "consider{ed} it appropriate" to make a finding of threat of impedance.319
6.134. Moreover, even if the compliance panel's findings in paragraphs 9.437 and 9.438 could be,
in isolation, potentially interpreted as meaning that the compliance panel considered the threat of
impedance to be all future deliveries stemming from the 2011 Delta lost sale that were scheduled
to occur as of the beginning of the reference period (as the European Union argues), the context in
which these findings were made, in our minds, forecloses this interpretation. 320 As noted above in
paragraph 6.124, the European Union had presented its claims of impedance, on the one hand, and
threat of impedance, on the other, based on a clear distinction between actual delivery data for the
"present" period up to September 2015, and projected delivery data (based on orders) for a "future"
period post -September 2015. Given the compliance panel's earlier acceptance of the temporal
distinction between present and threatened displacement and impedance in the European Union's
case321, it would have been incongruous if the compliance panel had, without further explanation,
made its threat of impedance findings in the US geographic market with respect to anything other
than the "projected future deliver{y}" data that the panel had before it (i.e. deliveries projected to
occur after the reference period), and which it had stated was "necessary" to support a claim of
threat of impedance.322

316 Italics original; underlining added.
317 See para. 6.125 above and fn 305 thereto, above.
318 This was despite the Appellate Body's caution that the phenomena of displacement and impedance
did not necessarily follow from a finding of significant lost sales in the absence of clear trends in market share.
319 Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 9.438.
320 See paras. 6.94-6.95 above for the European Union's arguments in this regard.
321 See para. 6.127 above, referring to Panel Report, US – Large Civil Aircraft (2nd complaint) (Article
21.5 – EU), fn 3368, where the panel explains that it would examine the data for the 2007-2025 period as a
whole in order to identify the market share trends that are required to support findings of displacement,
impedance and threats thereof, and notes specifically that an examination of data beyond the reference period
is particularly important for the examination of the claims of threat of displacement and threat of impedance,
"which necessarily require evidence of projected future deliveries".
322 See para. 6.128 above. In this regard, we note that the compliance panel expressly recognized that
it was only with respect to adverse effects found to exist in the post-implementation period that the

UAE geographic market

6.135. Table 18 of the compliance panel report sets forth market share data for the single-aisle UAE
market over the period 2007-2025, represented by delivery data up to September 2015 and order
data (i.e. projected future deliveries) for the period after September 2015. The compliance panel
noted that there was no market share trend in favour of Boeing (and adverse to Airbus) until 2017.
However, the compliance panel then observed a clear trend, from 2017, in which Boeing's
single-aisle deliveries would increase from 2017 to 2022.323 The compliance panel specifically linked
this change in the market share trend beginning in 2017 to the 737 MAX deliveries that were
scheduled to begin in 2017, and which related to the 2014 Fly Dubai campaign:
In 2017, when deliveries of the 737 MAX are due to begin, Boeing will overtake Airbus and
retain a market share of between 70 and 100% for the subsequent six years. We also find
that Fly Dubai's 2008 and 2014 orders of 50 737NG and 75 737 MAX, respectively, are
significant lost sales for Air bus. We conclude, based on the evidence concerning market
share trends in the United Arab Emirates market and the evidence of these lost sales, that
the effect of the Washington State B&O tax rate reduction is a threat of impedance in the
United Arab Emirates market in the post-implementation period.324

6.136. The compliance panel linked the trend indicating an increase in Boeing's single -aisle
deliveries from 2017 to 2022 to the 737 MAX deliveries that were scheduled to begin in 2017. It is,
however, clear from the last sentence in the above excerpt from the compliance panel's findings that
the compliance panel also referred to the 2008 Fly Dubai campaign as a significant lost sale and
based its finding of threat of impedance, in part, on the evidence of this lost sale.
6.137. The European Union points out that, by September 2015, Boeing had made all of its
deliveries of the 737NG in connection with the 2008 Fly Dubai lost sale. It considers that, because
Boeing had made all of the deliveries under the 2008 Fly Dubai los t sale before the end of the
reference period, and because that lost sale was explicitly referred to as a basis for the threat of
impedance finding, the compliance panel's temporal viewpoint could not have been the end of
reference period, and the Arbitrat or must value the 2008 Fly Dubai deliveries that occurred in the
reference period as part of the threat of impedance finding.
6.138. It is apparent from the evidence submitted to the Arbitrator in this proceeding that Boeing's
last delivery made under the 2008 F ly Dubai campaign was on 14 September 2015; i.e. inside the
compliance panel's reference period. 325 Moreover, it is reasonable to infer that, given that the
compliance panel had before it evidence of deliveries based on a data request of 22 September 2015
(submitted as Exhibit EU -1659 in the compliance proceeding), the compliance panel also had
evidence before it that would have enabled it to determine that the last Boeing delivery under the
2008 Fly Dubai campaign occurred on 14 September 2015. However, it is not possible to determine
from the evidence before us in this proceeding whether the compliance panel also had before it
evidence of the delivery schedule that Airbus had proposed in its 2008 final offer to Fly Dubai, or

United States could be found to have failed to comply with its obligation under Article 7.8 to take appropriate
steps to remove the adverse effects. (Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 –
EU), para. 9.107) This being so, it is difficult to understand why, without further explanation, the compliance
panel would have situated itself significantly before the expiration of the implementation period (i.e. in 2011)
to make its finding of threat of impedance. Additionally, the compliance panel used the past tense when
describing how the events during the reference period, specifically, orders of LCA that Boeing won at the
expense of Airbus, supported its finding of present lost sales. (See Panel Report, US – Large Civil Aircraft (2nd
complaint) (Article 21.5 – EU), para. 9.404) As the United States points out, it would appear inconsistent and
illogical for the compliance panel – without explanation – to have phrased findings of significant lost sales
during the reference period in the past tense but to have analysed the existence of a threat of impedance from
the perspective of some earlier point in time. (United States' comments on the European Union's response to
Arbitrator question No. 66, paras. 103-104, and No. 68, para. 142)
323 Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 9.443.
324 Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 9.443. (fns omitted)
325 See 2 RPQ Ascend Database Update (Exhibit EU-75); and European Union's response to Arbitrator
question No. 66 paras. 204, 226, 322, 326, and 330. See also 2008 Fly Dubai Purchase Agreement
(Exhibit USA-77 (HSBI), pp. 35-37); and Boeing [[***]] for 2008 Fly Dubai and 2011 Delta Sales Campaigns
(Exhibit USA-87 (HSBI)).

whether the Airbus delivery schedule had contemplated deliveries in the post-reference period.326 It
is therefore not possible to identify exactly when the compliance panel believed that Airbus'
counterfactual deliveries would have occurred had Airbus won the 2008 Fly Dubai sales campaign.
6.139. In addition, we note that the compliance panel's reference to the 2008 Fly Dubai lost sale in
connection with its finding of threat of impedance in the UAE geographic market occurred in a
particular context described in an HSBI appendix to the compliance panel report.327 Based on our
review of the HSBI appendix, and given that context, we do not consider that the compliance panel's
reference to the 2008 Fly Dubai lost sale in connection with its finding of threat of impedance in the
UAE market necessarily shows that the compliance panel must have situated itself at the time of the
2008 Fly Dubai lost sale when making the finding. On the contrary, the compliance panel's efforts
to identify a relevant trend in the then -future year 2017 support the conclusion that the panel
distinguished the "present" from the "future" according to the evidentiary cut-off of September 2015.
In other words, we read the compliance panel's findings as being consistent with its having found
the threat of impedance based on projected future delivery data as of September 2015. Accordingly,
the compliance panel's threat of impedance findings in the UAE market refer to impedance in the
post-reference period and thus consist of post-reference period deliveries.
Summary – findings of the compliance panel

6.140. In light of our analysis of the compliance panel's threat of impedance findings for the US and
UAE geographic markets, we conclude that these findings reflect a temporal distinction between
deliveries up to September 2015 and projected deliveries post -September 2015. This is so even
though the compliance panel based its threat of impedance findings on the impeded deliveries that
would result from specific lost sales campaigns in 2011 for the US market and, in part, in 2008 for
the UAE market. The compliance panel's threat of impedance findings were made with reference to
post-September 2015 deliveries.328 In particular, this conclusion accords with the way in which the
European Union structured its arguments and evidence before the compliance panel, the compliance
panel's acceptance of that structure and discussion of such evidence. We therefore do not address
the European Union's argument that, in principle, it is possible that the facts and evidence before a
panel would be capable of supporting findings o f two different types of adverse effects in the
alternative. As explained above, we read the compliance panel in this dispute to have based its
analysis on a distinction between the evidence that was relevant to the present displacement and
impedance claims, on the one hand, and the threat of displacement and impedance claims, on the
other.
6.141. We further find no material indications in the panel's findings that appear inconsistent with
the above conclusion. Although we reach our conclusions regarding the compliance panel's findings
based on an independent analysis of those findings , we note that our understanding of the
compliance panel's findings also accords with the general nature of threat. As described in section
6.4.5.3.3.1 above, the object and purpose of the "threat" concept is to enable the decision maker
to identify the likely future occurrence of forms of serious prejudice discussed in Articl e 6 of the
SCM Agreement. Consistent with this object and purpose, the compliance panel identified likely then-
future impedance.329

326 Although the European Union submitted to the Arbitrator in this proceeding its submissions to the
compliance panel in the compliance proceeding, the titles of the relevant exhibits were redacted as HSBI. Other
than exhibits specifically discussed in the HSBI appendix to the compliance panel report, it is not possible to
determine whether the evidence before the compliance panel included the Airbus final offers for the 2008 Fly
Dubai sales campaign.
327 See United States — Measures Affecting Trade in Large Civil Aircraft (Second Complaint) – Recourse
to Article 21.5 of the DSU by the EU (WT/DS353-Art.21.5), Report from the Panel, Appendix 2 (Exhibit EU-65
(HSBI), paras. 160-166, and 266-271). See also Appellate Body Report, US – Large Civil Aircraft (2nd
complaint) (Article 21.5 – EU), paras. 5.516-5.517, where the Appellate Body rejected the United States'
appeal of the compliance panel's lost sale finding for the 2014 Fly Dubai sales campaign on the basis that "the
outcome of the challenge concerning this sales campaign turns on the same question as that raised in
connection with the Fly Dubai 2008 and Delta Airlines 2011 sales campaigns."
328 The compliance panel did not make present displacement or impedance findings, and did not give a
specific reason for not doing so.
329 We are therefore unable to agree with the European Union that our valuation of the threat of
impedance findings "deducts" the value of deliveries during the reference period, and thereby invalidates or
alters the basis on which the compliance panel found the threat of impedance. (European Union's response to

6.4.5.3.4 Conclusions
6.142. In the light of our discussion of the delivery -centric valuation approach above, we must
decline the European Union's request to value deliveries occurring before the end of the reference
period as part of the threat of impedance findings.330
6.143. We note that the European Union has strongly objected to a valuation of the threat of
impedance findings made on the basis of any approach according to which the value of threatened
deliveries during the reference period would be ignored. 331 We have reached our conclusion after
objective, serious and exhaustive consideration of the European Union's arguments and the
compliance panel's analysis of threat of impedance. We have further noted that the compliance
panel's findings accord with the nature of the relevant serious prejudice concept s in the
SCM Agreement in the light of instructive decisions of WTO adjudicators and in accordance with
customary rules of treaty interpretation. We are mindful that the European Union has insisted that
it obtain authorization to impose countermeasures in the form of Annual Suspension in respect of a
"threat of impedance" that values all future deliveries from the 2011 Delta Airlines and 2008 Fly
Dubai lost sales, whether those deliveries had manifested during or after the reference period. 332
However, as discussed above, we consider that the European Union's proposed valuation
methodologies do not value the threat of impedance findings, and would accordingly result in
countermeasures that are not commensurate with the degree and nature of the adverse effects
determined to exist in the compliance proceedings – an outcome that would be inconsistent with our
mandate.333
6.144. We therefore underline that we will value the threat of impedance as it was determined to
exist by the compliance panel, i.e. wit h respect to counterfactual deliveries from the 2011 Delta
Airlines and 2008 Fly Dubai lost sales that would have occurred in the post -reference period.334 As
discussed above, the finding of threat of impedance directs us to the post -reference period where
the expected impedance would occur. We therefore will value that then -expected impedance,
updating our understanding of how that then -expected impedance occurred with updated
information consistent with our discussion in section 6.4.4 above.

Arbitrator question No. 66, paras. 216-219, 227, and 231) Such an argument is premised on the compliance
panel's threat of impedance findings being forward-looking from the time of the respective lost sales.
330 Owing to this conclusion, we do not need to address further at this point the European Union's
proposal that, under its "threat of impedance" approach, the Arbitrator should annualize the threat of deliveries
that arose and remained extant in the reference period over the reference period. The Arbitrator's explanation
of how it annualizes the values of threat of impedance findings, consistently with the function and propriety of
annualization (which we discuss in section 6.4.5.1 above) appears in section 6.4.8.2 below. We further note
that, due to our conclusions reached in this section, we would also find that we cannot accept the
European Union's methodology described in para. 6.85 above, originally proposed in its methodology paper,
because that methodology also relies on valuing deliveries made during the reference period.
331 European Union's response to Arbitrator question No. 67, para. 332 and No. 70, para. 335; combined
comments on the United States' responses to question Nos. 66(a) and 69, paras. 216 and 259-261; and
comments on the United States' response to Arbitrator question No. 70, para. 330 (regarding the 2011 Delta
Airlines deliveries occurring in the reference period). Compare with United States' comments on the
European Union's response to Arbitrator question No. 68, para. 131.
332 The European Union also insists that the level of Annual Suspension also be calculated based on the
annualization of the total value of the threat of impedance over the compliance panel's reference period. We
address the issue of annualization of the threat of impedance valuations in section 6.4.8.2 below.
333 The fact that the Arbitrator's interpretation of the threat of impedance findings from the compliance
proceedings does not accord with the European Union's requested interpretation does not, in our view, mean
that the Arbitrator thereby disregards or alters those findings, or acts inconsistently with its mandate. Compare
with European Union's response to Arbitrator question No. 67, para. 332; response to Arbitrator question
No. 70, para. 335; combined comments on the United States' responses to question Nos. 66(a) and 69,
paras. 216, 259-261; and comments on the United States' response to Arbitrator question No. 70, para. 330
(regarding the 2011 Delta Airlines deliveries occurring in the reference period).
334 We therefore disagree with the European Union that a "delivery-centric" approach suggests that the
Arbitrator is inappropriately valuing a finding of "actual" impedance, rather than a "threat" of impedance. As
discussed at length above, "threat" of serious prejudice is not a different form of economic harm from the
present form of the particular serious prejudice phenomena in Article 6.3. Rather, threat refers to the likely
future occurrence of the kind of serous prejudice that is threatened. In accordance with that understanding, we
value the threatened (i.e. post-reference period) impedance identified by the compliance panel as likely to
occur.

6.145. Therefore, in accordance with our mandate under Article 7.10 of the SCM Agreement to
ensure that the level of countermeasures is commensurate with the degree and nature of the adverse
effects determined to exist, we use the following overall methodologies to value the adverse effects
determined to exist in the compliance proceedings:
a. For the adverse effects in the form of significant lost sales, we adopt an "order -centric"
approach in which we value the net delivery-date prices of all of the Airbus LCA that would
have been delivered in the counterfactual for each of the three lost sales at the time of
the relevant LCA order.
b. For the adverse effects in the form of th reat of impedance, we adopt a "delivery -centric"
approach in which we value the net delivery-date prices of all of the Airbus LCA that would
have been delivered in the post-reference period in the counterfactual for the 2011 Delta
Airlines and 2008 Fly Dubai lost sales.335
6.146. There remain a number of more technical issues regarding the number of aircraft to be
valued as part of the lost sales and threat of impedance, respectively , the time at which the
counterfactual deliveries would have occurred, the relevant net delivery-date prices, and whether
and how the discounting exercise is performed, which are discussed in sections 6.4.6, 6.4.7 and
6.4.8 below.
6.4.6 Technical issues common to the valuation of both forms of adverse effects
6.147. In this part of the Decision, we address more technical aspects of the European Union's
methodology that are co mmon to the valuations of adverse effects in the form of significant lost
sales and threat of impedance. These relate to (a) whether, consistent with the causation findings
from the compliance proceeding, there should be a probabilistic adjustment to Airbus' lost revenues
from each of the five sales campaigns to account for the alleged uncertainty of Airbus winning each
campaign in the counterfactual, (b) whether to value options, (c) determining the number of
counterfactual Airbus orders and delivery sched ules, (d) how to account for the chance of
cancellation of counterfactual orders, (e) whether to exclude the value of [[***]] from delivery
prices, and (f) remaining issues concerning delivery prices. We address each in turn.
6.4.6.1 The probability that Airbus wo uld have won each of the five sales campaigns in
the counterfactual
6.148. The United States objects to the European Union's methodology for valuing the adverse
effects because it is based on the premise that, in the counterfactual, Airbus would have won each
of the five single -aisle sales campaigns. According to the United States, this premise was not
established in the compliance proceedings and is not accurate. Moreover, the United States argues
that by incorporating this assumption into the valuation, the European Union's methodology inflates
the proposed countermeasures beyond what would be commensurate with the degree and nature of
the adverse effects determined to exist.336
6.149. The United States refers to the Appellate Body's finding regarding the "genuine and
substantial" causation standard under Article 6.3, namely, that the Washington State B&O tax rate
reduction needed only to contribute to (and not be a "but -for" cause of) Boeing winning a sales
campaign in order to be a genuine and substantial cause of the lost sale. According to the
United States, this Appellate Body finding shows that the significant lost sales findings were not
based on explicit findings that the pricing advantage afforded to Boeing by the Washington State
B&O tax rate reduction was greater than the pricing differential between the net prices in the Airbus
and Boeing final offers in any of the five sales campaigns. 337 For the United States, the causation
analysis in the compliance proceedings therefore left open which LCA manufacturer would have won
the relevant sales campaigns absent the subsidy.338 As a result, the United States argues that there

335 We address the appropriate annualization periods for the valuations of each of the threat of
impedance findings in section 6.4.8.2 below.
336 United States' written submission, paras. 83-90.
338 United States' comments on the European Union's response to Arbitrator question No. 48, para. 28.

is no basis for the valuation of the adverse effects in this proceeding to assume that in the
counterfactual, Airbus would have won those campaigns.
6.150. The United States proposes that the Arbitrator's valuation of Airbus' lost revenues ari sing
from each sales campaign should include a probabilistic adjustment to account for the uncertainty
of Airbus winning that sales campaign in the counterfactual. Based on its empirical modelling, the
United States proposes that the Arbitrator multiply the net present value (NPV) of the lost revenues
from each sales campaign by [[***]] to account for the allegedly conservatively calculated
probability that, absent the Washington State B&O tax rate reduction, Airbus would not have won
the sales campaign.339
6.151. The European Union disagrees with the United States' proposal on several grounds. First,
the European Union argues that any such adjustment would invalidate and alter the findings from
the compliance proceedings that the "effect of the subsidy" for purpos es of Article 6.3 is significant
lost sales.340 The European Union recalls that the Appellate Body has stated that the concept of "lost
sales" in Article 6.3(c) refers to sales that suppliers of a complainant "failed to obtain" and that
instead were won by suppliers of the respondent. 341 In finding that the effect of the subsidy was
significant lost sales, the compliance panel and Appellate Body therefore found that the relevant
sales campaigns were ones that Airbus failed to obtain as an effect of the Washington State B&O tax
rate reduction. For the European Union, these findings from the compliance proceedings close the
door to the United States re-arguing in this arbitration proceeding that, in the counterfactual, Boeing
nevertheless still had a [[***]] chance of winning each of the five sales campaigns. The
European Union argues that to conclude otherwise would be to revisit the causation findings of the
compliance panel and Appellate Body, which is not part of the Arbitrator's mandate.342
6.152. Second, the European Union argues that the United States' argument is also contrary to the
factual findings underpinning the compliance panel and Appellate Body findings. Specifically, the
European Union points to the fact that, in its causation analysis, the complian ce panel isolated a
particular subset of LCA sales campaigns that were "price-sensitive". These were campaigns in which
the outcome turned primarily on the difference in the prices of the Airbus and Boeing aircraft offered.
There were no non -price factors that had such an effect on the outcome. The European Union
considers that, from this perspective, the compliance panel had eliminated the possibility that Boeing
could have prevailed in those sales campaigns in the absence of the Washington State B&O tax rate
reduction.343
6.153. Finally, the European Union objects to the appropriateness of the simulation model
submitted by the United States in order to adjust for the probability of Boeing winning the sales
campaigns in the absence of the Washington State B&O tax rate reduction, referring to various
conceptual and technical failings that, in its view, render the model unreliable.344
6.154. The Arbitrator must determine whether, consistent with the causation analysis in the
compliance proceedings, it should include a probab ilistic adjustment to the expected value of the
lost revenues from each of the sales campaigns to account for the alleged uncertainty of Airbus
winning those sales campaigns in the counterfactual.

339 United States' written submission, paras. 84 and 97. The United States stresses that this probability
is not an estimate of the percentage of the "harm" suffered by Airbus due to the Washington State B&O tax
rate reduction (i.e. it is not a measure of the Washington State B&O tax rate reduction's contribution to the
significant lost sales). Rather, it is an attempt to value adverse effects that reflects "the multiple counterfactual
outcomes inherent in the compliance proceeding findings". (United States' response to Arbitrator question
340 European Union's written submission, paras. 40, 42, and 44.
341 European Union's written submission, para. 36 (referring to Appellate Body Report, US – Large Civil
342 European Union's opening statement, para. 28; and response to Arbitrator question No. 48, para. 65.
The European Union adds that the systemic implications of the United States' argument are that, unless a
subsidy is found by the panel and Appellate Body to be the sole cause of a serious prejudice phenomenon, an
arbitrator under Article 7.10 of the SCM Agreement would implicitly revisit the adopted causation findings by
assessing the degree of contribution of a subsidy to a market phenomenon. (European Union's opening
statement, para. 30)
343 European Union's written submission, paras. 44-86; and response to Arbitrator question No. 48,
paras. 67-73.
344 European Union's written submission, paras. 87-123.

6.155. The United States argues that the European Union's methodology in this proceeding
assumes that, absent the subsidy, Airbus would have won each of the relevant sales campaigns, and
thereby reflects a "but -for" causation approach. It suggests that the "but -for" approach is more
demanding than the "genuine an d substantial" standard accepted in the compliance proceedings.
According to the United States, the counterfactual employed in this proceeding to assess the degree
and nature of the adverse effects determined to exist must reflect the causation findings in the
compliance proceedings. Thus, the United States asserts that the counterfactual cannot be premised
on findings that the Washington State B&O tax rate reduction was a "but-for" cause of Airbus losing
the sales campaigns, when the actual causation findi ngs establish only that the Washington State
B&O tax rate reduction was a "contributing cause".345
6.156. We recall at the outset that, in reaching its finding that the Washington State B&O tax rate
reduction was a genuine and substantial cause of significant lost sales in respect of the five
single-aisle LCA sales campaigns, the compliance panel first made factual findings that those
campaigns were "price-sensitive". This meant that Boeing was under particular pressure to reduce
its prices in order to secure the s ales, and that there were no non -price factors that explained
Boeing's success in obtaining the sale s.346 The United States had argued in the compliance
proceedings that, in order to sustain a finding of significant lost sales, the per-aircraft magnitude of
the Washington State B&O tax rate reduction must be shown to be sufficient to cover the difference
in the final net prices of Boeing and Airbus in each of those sales campaigns.347 There was no direct
evidence before the compliance panel of the final net p rices of Boeing and Airbus in the sales
campaigns.348 The compliance panel evaluated the evidence of the approximate differences in net
prices between the competing Airbus and Boeing offers where data regarding such approximate
differences were available. T he compliance panel also compared its estimate of the per -aircraft
amount of subsidization represented by the Washington State B&O tax rate reduction to evidence
on the record of a NPV difference that "can be determinative of the outcome" of single-aisle sales.349
The compliance panel concluded that the magnitudes of the Washington State B&O tax rate reduction
"were capable of enabling at least a portion of Boeing's pricing advantage, contributing in substantial
part to its winning" the five sales campaigns, and accordingly, that the Washington State B&O tax
rate reduction "contributed in a genuine and substantial way to determining the outcome of those
price-sensitive sales campaigns".350
6.157. Earlier in its report, the compliance panel had explained at some leng th the "genuine and
substantial" causation standard that the Appellate Body had previously articulated as the appropriate
standard for establishing that the subsidy is the cause of the market phenomena identified in
Article 6.3.351 In particular, the compliance panel explained that the Appellate Body had stated in
the original proceeding that a subsidy need not be the sole cause, or only substantial cause, of such
market phenomena in order for it to be found to be a genuine and subs tantial cause. 352 The

345 The United States argues that Article 7.10 of the SCM Agreement requires that the countermeasures
"reflect the findings from the compliance proceeding, which include the finding that the subsidy contributed to
Airbus losing the sale, but was not established to be a but-for cause of Airbus losing the sale". (United States'
response to Arbitrator question No. 13, para. 56 (emphasis added)) See also United States' written submission,
paras. 85-90.
346 Examples of such non-price factors include Boeing's incumbency and a consequent switching cost
advantage, or the suitability of the aircraft for the particular customer's requirements (in terms of range,
capacity and delivery availability). (Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU),
paras. 9.383-9.385)
347 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 5.503.
348 See Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 9.403 and
fn 3322 thereto.
349 Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 9.402.
350 Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), paras. 9.403 and 9.404
and fn 3329 thereto. (emphasis added)
351 Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), paras. 9.58-9.61, and
fn 2742 (referring to Appellate Body Reports US – Upland Cotton, para. 438; US – Upland Cotton (Article 21.5
– Brazil), para. 374; EC and certain member States – Large Civil Aircraft, para. 1232; and US – Large Civil
Aircraft (2nd complaint), para. 913 (articulating this causation standard under Articles 5(c) and 6.3 of the
SCM Agreement)).
352 See Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 9.61 and
fn 2747 thereto (referring to Appellate Body Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 –
EU), para. 914).

compliance panel applied this standard in reaching its conclusion above, regarding the causal
connection between the Washington State B&O tax rate reduction and the significant lost sales.
6.158. Before the Appellate Body, the United States argued that the compliance panel could not
make significant lost sales findings under Article 6.3 of the SCM Agreement unless it could be shown
that, absent the Washington State B&O tax rate reduction, Boeing's prices would have been
sufficiently higher such that Airbus would have won the sales campaigns. 353 According to the
United States, the proper application of the "genuine and substantial" causation standard required
that the compliance panel determine that the per -aircraft subsidy amount represented by the
Washington State B&O tax rate reduction was sufficient to cover the entirety of the price gap
between Airbus' and Boeing's respective final offers for each of the sales campaigns.354
6.159. The Appellate Body equated the United States' argument with a "but-for" test, and observed
that it had previously expressed reservations about using a but -for test to determine the existence
of a causal link for purposes of Article 6.3 at the "genuine and substantial" standard. 355 The
Appellate Body explained that this was b ecause a but -for test may be "too undemanding" if the
subsidy is "necessary, but not sufficient to bring about" a market phenomenon, and by contrast,
may be "too rigorous" if it required that the subsidy be the only cause. 356 The Appellate Body then
stated:
In light of these considerations, we do not believe that, when a panel chooses to make
a comparison between the degree of price reduction made available with the use of the
subsidy in a particular sale, on the one hand, and the degree of price difference that
could change the outcome of that sale for purposes of assessing causation, on the other
hand, the panel is required to establish that the former exceeds the latter in order to
conclude that the subsidy contributed in a genuine and substantial way to the subsidized
firm winning the sale. For example, in a situation where price is effectively the only
consideration for the customer's decision to purchase the product of the subsidized firm
instead of the product of the competing firm – as with the particu larly price-sensitive
campaigns that the Panel identified – it may not be necessary for the subsidy to account
for the entire pricing advantage enjoyed by the subsidized firm. Indeed, requiring the
subsidy to explain the entirety of the price advantage in such a case may equate to a
requirement that the subsidy constitute the sole cause of the subsidized firm winning
the sale.357
6.160. In addition, the Appellate Body noted that (a) a strict comparison of net prices of the
competing aircraft models was not an exclu sive indicator of whether the subsidy contributed in a
genuine and substantial way to the outcome of particular LCA sales campaigns 358, and (b) the
compliance panel had also based its lost -sales findings on evidence pertaining to NPV differences
and not just on a comparison between the per-aircraft subsidy amounts and the net price differentials
in the relevant sales campaigns.359 The Appellate Body ultimately dismissed all of the United States'
appeal points regarding the effects of the Washington State B&O tax rate reduction in the single-aisle
market.360 Accordingly, the Appellate Body found that the compliance panel did not err in finding
that the effect of the subsidy was significant lost sales within the meaning of Article 6.3(c), without

353 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 5.503.
354 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 5.503.
355 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 5.507.
356 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 5.507
(referring to Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 374).
357 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 5.508.
(emphasis original)
358 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 5.509.
359 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 5.510. The
Appellate Body also dismissed the United States' appeals alleging error under Articles 5(c) and 6.3 of the
SCM Agreement regarding the compliance panel's specific lost-sales findings for each of the five sales
campaigns, and failure to make an objective assessment under Article 11 of the DSU, in respect of the Fly
Dubai 2014, Icelandair 2013, and Air Canada 2013 sales campaigns. (See Appellate Body Report, US – Large
Civil Aircraft (2nd complaint) (Article 21.5 – EU), paras. 5.515, 5.517, 5.520, 5.524, and 5.526)
360 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), paras. 5.515 and
5.525-5.526. In other words, the United States did not persuade the Appellate Body that, to determine
causation at the "genuine and substantial" causation standard, the compliance panel had to be satisfied that
the per-aircraft amount of the subsidy was greater than the price differential between the final net prices of
Boeing and Airbus in each of the sales campaigns.

necessarily being satisfied that the per-aircraft amount of the subsidy was itself sufficiently large to
"cover the margin of victory" between Airbus' and Boeing's final net prices in each sales campaign.361
6.161. As explained earlier, our mandate under Article 7.10 of the SCM Agreement is to determine
whether the countermeasures proposed by the European Union are "commensurate with the degree
and nature of the adverse effects determined to exist". 362 The adverse effects in question are
significant lost sales, within the meaning of Articl e 6.3(c) and threatened impeded imports and
exports within the meaning of Articles 6.3(a) and (b) (based on underlying lost sales).
6.162. The Appellate Body has previously explained that "lost sales" are sales that suppliers of the
complaining Member "failed to obtain" and that instead were won by suppliers of the respondent
member.363 The Appellate Body has further explained that an assessment of lost sales normally
entails a counterfactual assessment in order to establish that "sales won by the subsidized firm( s)
of the respondent Member would have been made instead by the competing firm(s) of the
complaining Member".364 The findings of significant lost sales in the compliance proceedings in this
dispute were based on a counterfactual assessment that the Washingt on State B&O tax rate
reduction contributed in a genuine and substantial way to determining the outcome of the relevant
sales campaigns.365
6.163. As previously observed, the United States argues that the causation findings in the
compliance proceedings do not provide a basis for the assumption that Airbus would have won the
relevant sales campaigns in the counterfactual. This argument, however, appears to be based on
the premise that the relevant causation standard, as applied by the compliance panel as part of i ts
counterfactual assessment, should have been consistent with the United States' proposed "but-for"
inquiry. The above discussion shows, however, that this premise was rejected by the Appellate Body.
Rather, the Appellate Body found that, to make the sign ificant lost sales findings, the compliance
panel need only have found that the subsidy in question was a "genuine and substantial" cause of
the lost sales. By now arguing that the Arbitrator's valuation should reflect the United States' but-
for approach, the United States is effectively seeking to re-litigate an issue that the Appellate Body
resolved in the compliance proceedings (i.e. whether the correct application of the "genuine and
substantial" causation standard required a demonstration that "but-for" the subsidy, Airbus would
have won the sale). We do not consider that we can revisit this issue without thereby reopening and
altering the causation findings from the compliance proceedings.
6.164. In sum, and as explained above, the counterfactu al assessment reflected in the adopted
findings from the compliance proceedings is that, absent the Washington State B&O tax rate
reduction, Airbus would have won the five sales campaigns in question. Once there is a legal finding
that a subsidy causes sig nificant lost sales within the meaning of Article 6.3(c), it follows that the
sales in question are sales that would have been won by the complaining Member, absent the
subsidy.366 The Appellate Body upheld the compliance panel's causation findings, at the genuine and
substantial causation standard. The European Union's methodology in this proceeding is consistent
with the counterfactual assessment from the compliance proceedings, and with the findings of
significant lost sales.
6.165. We therefore reject the Unite d States' proposal to include in our valuation of the adverse
effects a probabilistic adjustment to the expected value of each of the sales campaigns to account
for the alleged uncertainty of Airbus winning that sales campaign in the counterfactual. Doing so, as
explained above, would be inconsistent with the degree and nature of the adverse effects determined
to exist.

361 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 5.503.
362 See section 3 above.
363 Appellate Body Reports, EC and certain member States – Large Civil Aircraft, para. 1220; and
US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 5.331.
364 Appellate Body Reports, EC and certain member States – Large Civil Aircraft, para. 1216; and
US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 5.331. (emphasis added)
365 Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 9.404; and
Appellate Body Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 5.526.
366 In this regard, the United States appears to conflate the standard according to which the adverse
effects findings were made, with the findings themselves. The Arbitrator's role is simply to value the findings
that were made, not to re-engage on the issue of the standard at which they were made, which is an issue that
was raised and addressed on appeal.

6.4.6.2 Valuation of options
6.166. The European Union argues that, in determining a maximum level of Annual Suspension, the
Arbitrator should include the value of certain LCA options contained in (a) the Airbus final offers or
(b) Boeing purchase agreements in connection with the five lost sales campaigns that underlie the
compliance panel's findings of threat of impedance and lost sales. More concretely, according to the
European Union, if the Arbitrator relies on Airbus' final offers submitted in the relevant sales
campaigns to determine the number of aircraft Airbus would have sold in the counterfactual, then
the Arbitrator should also value the options contained in those final offers as if they represented
additional counterfactual firm orders. The European Union argues that this is so because: (a) it is
necessary to do so "in light of the airline's express need for the specific number of Boeing aircraft
actually ordered"367; and (b) options are an integral part of LCA purchasing agreements and reflect
what Airbus believed to be the customer's requirements, preferences, and views, and Airbus' own
constraints. Alternatively, according to the European Union, if the Arbitrator relies on the Boeing
purchase agreements in the relevant sales campaigns to determine the number of aircraft Airbus
would have sold in the counterfactual, then the Arbitrator should value 30 options that were
exercised as a result of the 2011 Delta Airlines sale.368
6.167. The United States argues that the European Union's request to value options should be
rejected mainly because it is contrary to the findings of the compliance panel. The United States
asserts that the compliance panel distingui shed firm orders from options when it rejected the
European Union's claim that the existence of options negotiated in connection with certain Boeing
purchase agreements should give rise to a finding of threat of significant lost sales. The United States
also argues that, with respect to the 2011 Delta Airlines campaign, as a factual matter, none of the
options associated with the 2011 Delta Airlines sale were ever exercised. The United States submits
that the European Union's assertion that 30 options formed part of the Delta Airlines 2011 order is
factually incorrect because it is based on an erroneous understanding of the contractual documents
between Delta Airlines and Boeing.369
6.168. In response to the European Union's assertion that the relevant airlines' need for the specific
number of Boeing aircraft ordered supports the inclusion of options in the Arbitrator's valuation of
the lost sales in question, the United States argues that an airline order for a specific number of
Boeing aircraft does no t mean that Airbus would have sold the airline the same number of Airbus
aircraft. The United States therefore concludes that there is no reason to add proposed options to
the number of firm orders which Airbus offered to make up for any difference between the number
of Boeing LCA actually ordered and Airbus LCA offered in any sales campaign. The United States
also asserts that although many things are an "integral" part of LCA purchasing agreements, the
compliance panel recognized that not all such things are the same and that a firm order and an
option are different.370
6.169. Responding to the United States' arguments, the European Union argues that valuing at
least the Delta Airlines options is consistent with the compliance panel's findings. This is so,
according to the European Union, because the compliance panel found that the 2011 Delta Airlines
sales campaign was a "lost sale" and thus the Arbitrator must value all of the deliveries that result
from it. Further, the European Union argues that the compliance panel's relevant findings to which
the United States refers do not discuss options in connection with the 2011 Delta Airlines lost sale,
but the European Union's claim of "threat of significant lost sales" based on the existence of options
in connection with the 2013 Icelandair, 2013 Air Canada, and 2014 Fly Dubai lost sales. In any case,
the European Union is of the view that the compliance panel's findings to which the United States
refers are inapposite because the compliance panel stated that it did "no t possess sufficient
information about the nature of these options and purchase rights, including the conditions under
which they may be exercised, to justify treating them as firm orders that are waiting to
materialize"371, but this Arbitrator has enough information showing that all 30 options in connection
with the Delta Airlines 2011 lost sale have been exercised. The European Union further rejects the
United States' position that the European Union's assertion that 30 options formed part of the Delta

367 European Union's written submission, para. 231.
368 European Union's written submission, paras. 231-232 and 251-277; and response to Arbitrator
question No. 10.
369 United States' written submission, paras. 157-158; and response to Arbitrator question No. 15;
No. 32; No. 50, paras. 41-42; and No. 72.
370 United States' response to Arbitrator question No. 15.
371 Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), fn 3330.

Airlines 2011 order is factually incorrect because it is based on an erroneous understanding of the
contractual documents between Delta Airlines and Boeing, arguing that the European Union's
understanding of the relevant documentation is sound.372
6.170. The European Union develops two additional arguments that it considers weigh in favour of
valuing the relevant options: (a) just as the DS316 arbitrator took into account cancellations that
occurred after the time of order, this Arbitrator must, using the same logic, value options that were
exercised subsequently to the Delta Airlines order in 2011; and (b) unlike the compliance panel,
whose task was to determine the existence of adverse effects, this Arbitrator must quantify those
adverse effects by taking into consid eration the most recent evidence available, including
information on the exercise of options.373
6.171. The Arbitrator finds it helpful to first frame the relevant issue. The European Union argues
that the Arbitrator may value options 374 in connection with sales ca mpaigns underlying the
compliance panel's findings concerning both significant lost sales and threat of impedance. It will be
recalled that the compliance panel's findings concerning threat of impedance were expressly
predicated on findings that certain sa les campaigns involved significant lost sales to Airbus. 375 In
short, all the relevant findings of the compliance panel are based on findings of significant lost sales.
We also note that the European Union argues that the Arbitrator may, depending on whether it bases
the number of additional counterfactual Airbus orders on the Airbus final offers or the Boeing
purchase agreements, value options in and of themselves (i.e. as contractual clauses effectively
representing sales of LCA 376) or options as actually exercised (i.e. the Delta options). Thus, the
question that we must resolve in this context is whether options in either the Boeing purchase
agreements or Airbus final offers, whether exercised or not, can be considered as part of the relevant
"lost sales" identified by the compliance panel.
6.172. We answer this question in the negative. In doing so, we first note that we see no basis on
which to value contractual options clauses as part of the relevant "lost sales", as the European Union
suggests we may do. We accept that, in losing the sales campaigns in question, Airbus may have
lost sales of contractual options clauses to airline customers. Options are sold in many commercial
contexts and themselves have value. 377 In relev ant part, however, this dispute concerns the
subsidization of Boeing LCA and, in turn, lost sales of Airbus LCA. What we are concerned with,
therefore, is valuing lost sales of Airbus LCA, not contractual options clauses. The parties, panels,
and Appellate Body have consistently, throughout this dispute (and the EC and certain member
States – Large Civil Aircraft dispute), identified lost sales of LCA with reference to LCA orders arising
out of sales campaigns.378
6.173. The question thus becomes whether the compl iance panel considered the "lost sales" of
Airbus LCA to be: (a) orders that would have been placed with Airbus instead of with Boeing in the

372 European Union's written submission, paras. 253-272; response to Arbitrator question No. 56,
para. 135; oral response to Arbitrator question No. 71 at the meeting of the Arbitrator; and comments on the
United States' response to Arbitrator question No. 50, paras. 96-99; and No. 72.
373 European Union's written submission, paras. 273-275.
374 Going forward, we will refer to "options" as including both "options" and "purchase rights". The
European Union has explained that the only difference between the two is that purchase agreements assign
delivery schedules in connection with the former but not in connection with the latter. (European Union's
response to Arbitrator question No. 10, para. 59)
375 Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), paras. 9.428, 9.438, and
9.478-9.482.
376 We note that the number of options in the Airbus final offers is HSBI.
377 European Union's response to Arbitrator question No. 52, para. 88 (explaining that "under Airbus
PAs, [[***]] to an airline" because they [[***]]); and United States' comments on the European Union's
response to Arbitrator question No. 56, para. 68 (noting that options [[***]]).
378 We also note that "the word 'sale' is defined as '{t}he action or an act of giving or agreeing to give
something to a person in exchange for money'". (Decision by the Arbitrator, EC and certain member
States – Large Civil Aircraft (Article 22.6 – EU), para. 6.98 (quoting Shorter Oxford English Dictionary, 6th edn,
A. Stevenson (ed.) (Oxford University Press, 2007), Vol. 2, p. 2652)) Viewing an option to purchase an LCA at
a specific price to be exercised in the future, particularly when in the sole discretion of the purchaser, as being
an "agree{ment} to give {an LCA} to a{n LCA customer} in exchange for money" appears problematic.
Indeed, it is possible that the option may never be exercised or that the customer's decision to purchase
additional aircraft, which it could do through the exercise of an option, may generate a competition in which
the competing LCA manufacturer secures those orders instead. (Declaration of [[***]] (Feb. 28, 2020) (Exhibit
USA-51(BCI)), para. 6)

counterfactual in connection with the five relevant five sales campaigns at the conclusion of such
sales campaigns (practically speaking, in Airbus' counterfactual purchase agreements); or (b) any
order that would have been placed with Airbus in the counterfactual instead of with Boeing at any
time had Airbus won the sales campaigns in question (at least insofar as su ch orders would have
arisen from the exercise of options that Airbus would have secured in connection with those sales
campaigns).379 The European Union's position in this context depends on the latter interpretation.
6.174. We recall that, in its lost sales anal yses, the compliance panel generally focused on the
extent to which the Washington State B&O tax rate reduction helped Boeing prevail in the five
relevant sales campaigns.380 At first glance, that mode of analysis might suggest that the compliance
panel's lost-sales findings are broad enough to encompass any order (including an order arising from
subsequent exercises of options) that Airbus would have won instead of Boeing in the counterfactual
had Airbus won the sales campaigns. This is so essentially because the total value of winning a sales
campaign could be interpreted as meaning the value of any and all orders that Airbus would have
secured had it won the campaign, no matter how or when in the future such orders would have
arisen.381 Upon closer examination of the compliance panel's findings, however, it is sufficiently clear
to us that the compliance panel confined its lost-sales findings to the orders that Airbus would have
secured at the time the relevant sales campaigns were lost.
6.175. We recall footnote 3330 of the compliance panel report:
The European Union further argues that U.S. subsidies benefiting the 737 MAX and
737NG cause a present threat of significant lost sales , within the meaning of
Article 6.3(c) and footnote 13 of the SCM Agreement. … In sup port of this argument,
the European Union relies on evidence of the existence of options and purchase rights
negotiated in connection with the relevant orders … . The European Union makes this
threat of significant lost sales argument in relation to the following sales campaigns that
we find to evidence significant lost sales: Icelandair 2013 … , Air Canada 2013 … , and
Fly Dubai 2014 ….382 (emphasis added)
6.176. The compliance panel continued:

379 The only relevant counterfactual orders that the European Union specifically argues Airbus would
have secured as a result of options exercised (i.e. beyond what Airbus would have secured in its five additional
counterfactual purchase agreements) are the 30 options that the European Union argues were exercised that
arose out of the 2011 Delta Airlines sales campaign. (See section 6.4.6.3 below, finding that Airbus would have
secured more firm orders in the [[***]] sales campaigns than Airbus proposed in its final offers because such
additional orders would have been firm orders placed at the time the sales campaigns were lost, rather than
due to the exercise of options). We note that these orders were placed with Boeing after the reference period
used in the compliance proceedings ended, and, accordingly, the compliance panel report never mentions
these orders. (European Union's comments on United States' response to Arbitrator question No. 72)
380 See e.g. Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 9.385
(indicating that the Washington State B&O tax rate reduction subsidy "affected Boeing's pricing behaviour with
respect to the 737 MAX and 737NG in five price-sensitive sales campaigns between 2007 and 2015"); para.
9.400 (discussing the "potential for a comparatively small price reduction to determine the outcome of a sales
campaign"); para 9.404 ("We are therefore satisfied that the Washington State B&O tax rate reduction,
through the effects on Boeing's pricing, contributed in a genuine and substantial way to determining the
outcome of price-sensitive sales campaigns involving the 737 MAX and 737NG and the A320neo and A320ceo
in the Fly Dubai 2014, Air Canada 2013 and Icelandair 2013 campaigns"); para. 9.407 ("We find that the
Washington State B&O tax rate reduction is a genuine and substantial cause of serious prejudice in the form of
significant lost sales of A320neo and A320ceo families of LCA in the post-implementation period, in respect of
the sales campaigns Fly Dubai 2014, Air Canada 2013, and Icelandair 2013"); para. 9.479 ("{T}he Panel finds
that the Washington State B&O tax rate reduction is a genuine and substantial cause of serious prejudice in the
form of significant lost sales of A320neo and A320ceo families of LCA in the post-implementation period, in
respect of the sales campaigns for Fly Dubai in 2014, Air Canada in 2013, and Icelandair in 2013");
para. 11.8(c) (containing similar statements); and fn 3329 ("{W}e also consider that the Washington State
B&O tax rate reduction was a genuine and substantial cause of lost sales of the A320ceo in the Fly Dubai 2008
and Delta Airlines 2011 sales campaigns").
381 We note that, under this interpretation, the value of the sales campaigns might also include follow-on
orders that the winning aircraft manufacturer secured as a result of, for example, incumbency advantages
resulting from the sales campaign. We discern nothing in the compliance panel report indicating that such an
interpretation was intended, however.
382 Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), fn 3330.

We do not consider that the mere fact that an LCA customer was addition ally granted
options or purchase rights is sufficient to demonstrate that lost sales in relation to these
options and purchase rights are clearly foreseen and imminent, and thus give rise to a
threat of significant lost sales. The Panel does not possess sufficient information about
the nature of these options and purchase rights including the conditions under which
they may be exercised, to justify treating them as firm orders that are waiting to
materialize. Indeed, there is evidence before us to suggest t hat not all options will be
exercised. … We are therefore not persuaded that the European Union has
demonstrated that further significant lost sales are likely and "imminent".383 (emphasis
added)
6.177. Two key points emerge from the above passage: (a) that the compliance panel considered
firm orders, but not contractual options clauses, to be LCA "sales"; and (b) that firm orders resulting
from the exercise of options, if and when they may arise after the reference period, are outside the
scope of "lost sales" that the compliance panel identified. This is so because the compliance panel
implicitly accepted that the presence of options could form the basis of a finding of a threat of
"further" lost sales, but only if it was sufficiently clear that the options would be exercised and thus
result in firm orders. In other words, and logically speaking, the compliance panel necessarily treated
"lost sales" in connection with options (i.e. future firm orders) as distinct from the "lost sales" that
it identified in connection with the relevant lost sales campaigns. Indeed, if the compliance panel
had considered options and/or firm orders resulting from their potential exercise as part and parcel
of the "lost sales" that the compliance panel identified, footnote 3330 would become nonsensical —
there would have been no logical basis upon which to analyse options as potential "further significant
lost sales" at all. That is, unless one could characterize options as comprising both lost sales in and
of themselves at the time of their exercise and as forming part of previous lost sales at a previous
time. That characterization, however, appears illogical and unsupported by the findings of the
compliance panel.
6.178. We recognize that footnote 3330 addresses options concluded by Boeing in connection with
the Icelandair 2013, Air Canada 2013, and Fly Dubai 2014 sales campaigns. It does not mention, in
particular, the 2011 Delta Airlines sales campaign or any options that Boeing m ay have secured in
that sales campaign. The European Union, however, has pointed to, and we discern, nothing in the
compliance panel's report that suggests that the compliance panel would have treated such options
differently and found that such options were within the scope of its lost-sales findings. Indeed, with
respect to the Delta Airlines options the exercise of which the European Union wishes us to value,
we note that the compliance panel stressed that the 2011 Delta Airlines "lost sale" occurred before
the post-implementation period – a statement we find difficult to reconcile with the notion that we
should value the exercise of options purportedly forming part of this "lost sale" that occurred in the
post-implementation period. We also note that the compliance panel did not even mention such
options when summarizing the "main details" of this sales campaign.384
6.179. Certain key aspects of the compliance panel's analysis regarding significant lost sales in the
reference period are also consistent with the understanding that the compliance panel confined its
lost-sales findings to the orders that Airbus would have secur ed at the time the relevant sales
campaigns were lost. The compliance panel identified lost sales in the reference period by identifying
price-sensitive LCA sales campaigns that Boeing had won, and then assessing the extent to which
the Washington State B& O tax rate reduction enabled Boeing to prevail in those campaigns by
allowing Boeing to lower its LCA prices. As noted in section 6.4.6.1 above, as part of that analysis
the compliance panel calculated a "per-aircraft rate of subsidization" for the aircraft that Boeing sold
in the Fly Dubai 2014, Air Canada 2013 and Icelandair 2013 campaigns .385 The compliance panel
calculated this rate by dividing the a verage yearly amount of subsidies granted under the
Washington State B&O tax rate reduction by "an average of 54.3 single-aisle aircraft orders per year
for 2013-2015 (calculated from the total of 11 737NGs and 152 737 MAX ordered from the Fly Dubai
2014, Air Canada 2013 and Icelandair 2013 campaigns , divided by three)". 386 These numbers
referenced by the compliance panel are firm orders. The compliance panel was silent as to options
in this context, which indicates that the compliance panel was focused on the Washington State B&O

383 Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), fn 3330.
384 Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), table 12 and paras. 9.436,
9.438, and 9.481.
385 Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 9.402.
386 Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), fn 3321. (emphasis added)

rate reduction's ability to enable Boeing to lower prices for and win (and Airbus to lose) firm orders,
specifically. This is significant because the compliance panel was well aware that Boeing had
concluded options in connection wi th both the 2014 Fly Dubai and 2013 Air Canada sales
campaigns.387
6.180. Additionally, the compliance panel's reasoning as to why the 2014 Fly Dubai, 2013 Air
Canada, and 2013 Icelandair lost sales were "significant" within the meaning of Article 6.3(c) is
consistent with the understanding that the compliance panel confined its lost -sales findings to the
orders that Airbus would have secured at the time the relevant sales campaigns were lost. The
compliance panel found that those three lost sales were "significant " due to the "size of the orders
that Boeing had won" and the fact that the sales campaigns were "strategically important to Boeing
and Airbus".388 When discussing the former consideration, the compliance panel noted that "{t}he
Fly Dubai, Air Canada and Icelandair sales campaigns involve orders for approximately 152 737 MAX
and 11 737NG aircraft".389 These "orders" are the numbers of firm orders. The compliance panel did
not mention options in this context, which indicates that the "significance" of the lost sales lay in the
significance of orders secured at the conclusion of the sales campaign alone. 390 This is significant
because, as already noted above, the compliance panel was well aware that Boeing had concluded
options in connection with both the 2014 Fly Dubai and 2013 Air Canada sales campaigns.
6.181. With respect to the compliance panel's analysis regarding threat of impedance (which, as
explained, was predicated on findings of certain significant lost sales), the compliance panel found
"that Fly Dubai's 2008 and 2014 orders of 50 737NG and 75 737 MAX, respectively, are significant
lost sales for Airbus". 391 It will be recalled that as a result of the 2014 Fly Dubai sales campaign
Boeing secured not only 75 firm orders for 737 MAX LCA but also 25 purchase rights for 737 MAX
LCA, of which the compliance panel was well aware. 392 Again, therefore, in this context the
compliance panel was focused solely on the firm orders on the record before the compliance panel
when making findings of lost sales , not on options or firm orders that may have resulted from the
firm orders on the record in the then-future.
6.182. Finally, we underline that we discern no point in the compliance panel's report where the
compliance panel indicated in any meaningful way that it considered the eventual exercise of options
to be part and parcel of the "lost sales" that it had otherwise identified.393 As discussed above, we
only find statements indicating the contrary.
6.183. For the foregoing reasons, the Arbitrator finds that relevant options clauses, whether
exercised or not, are outside the scope of the compliance panel's relevant lost-sales findings. Valuing
them would therefore be inconsistent with the degree and nature of the adverse effects determined

387 Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), table 12; 2013 Air Canada
Purchase Agreement (Exhibit USA-81 (HSBI)), pp. 144-148 (containing options pricing information); Air
Canada final offer, [[HSBI]] (Exhibit EU-3 (HSBI)), pp. 2, 8, 37 and schedules 3-5 (containing options pricing
information); 2014 Fly Dubai Purchase Agreement (Exhibit USA-85 (HSBI)), pp. 154 and 155 (containing
options pricing information); and Fly Dubai 2014 final offer, [[HSBI]] (Exhibit EU-6 (HSBI)), pp. 15 and 28
(containing options pricing information)).
388 Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), paras. 9.405-9.406.
389 Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 9.406. (emphasis
added)
390 The compliance panel also found that the 2011 Delta Airlines and 2008 Fly Dubai sales were
"significant", but did not elaborate on this topic. (Panel Report, US – Large Civil Aircraft (2nd complaint)
(Article 21.5 – EU), fn 3335)
391 Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 9.443. In 2014 Fly
Dubai also ordered 11 737NGs as part of this sales campaign. (Panel Report, US – Large Civil Aircraft
(2nd complaint) (Article 21.5 – EU), table 12 and fn 3321)
392 Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), table 12.
393 We also note that the Appellate Body has explained that, under certain circumstances, "options or
purchase rights … may be indicative of an ongoing phenomenon of lost sales" which temporally extends beyond
the initial relevant "transactions", although whether this "ongoing phenomenon" exists requires fact-specific
inquiries. (Appellate Body Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 5.333)
Neither the compliance panel nor the Appellate Body engaged in any fact-specific inquiries regarding whether,
let alone establishing that, the relevant "lost sales" identified by the compliance panel would be "ongoing"
through the period in which options were exercised or up until any time beyond the point at which the sales
campaigns were lost at all. Further, we are mindful that any finding on our part indicating that such an
"ongoing phenomenon of lost sales" (e.g. up until the time of any options exercises) existed with respect to the
lost sales in question could be taken as substantively pertaining to the United States' temporal compliance
obligations with respect to such lost sales.

to exist. We accordingly decline to consider options, whether exercised or not, in the Arbitrator's
determination of a maximum level of Annual Suspension.
6.4.6.3 The number of firm orders in the counterfactual and the timing of the deliveries
6.184. The European Union argues that, in the counterfactual, it should be assumed that the airlines
in the five relevant sales campaigns would have placed the same number of firm orders for Airbus
LCA as the airlines actually placed with Boeing, not the number of firm orders proposed in the Airbus
final offers in those campaigns. In the European Union's view, this approach is consistent with how
the DS316 arbitrator valued lost sales and with the adopted findings in the compliance proceedings
in this dispute. The European Union also asserts that the "best proxy for counterfactual negotiation
results, in terms of aircraft delivery numbers, is refl ected not in Airbus' final offers, but in the
demonstrated demand by each airline, as manifested in the actual results of Boeing's negotiation
with each airline".394 According to the European Union, this is so because although Airbus' final offers
reflect feedback from the airlines, they represent just a "snapshot of the actual bilateral negotiations
between Airbus and each airline at a particular point in time" 395, negotiations that would have
continued and eventually concluded had it not been for relevant subsidies.
6.185. In cases where the Airbus final offer contained fewer proposed firm orders than what Boeing
obtained (i.e. in the [[***]] sales campaigns), the European Union explains that Airbus had the
commercial incentive to secure additional orders and had the production capacity to deliver them,
demonstrated by the presence of options in the relevant final offers. Also, the European Union argues
that the Boeing and Airbus models at issue with respect to any particular sales campaign are
substitutable, and thus that it is reasonable to think that customers would have ordered the same
number of LCA from Airbus in the counterfactual as they d id from Boeing. This is especially so,
according to the European Union, because in the [[ ***]] relevant campaigns "the [[***]] airlines
could only have satisfied their proven demand for seating capacity by ordering the same number of
Airbus LCA as actually ordered from Boeing". 396 According to the European Union, these [[***]]
airlines could have done so by either placing additional firm orders in the purchase agreement or
exercising options contained in the purchase agreements. The European Union further asserts that
the manner in which Boeing negotiated with [[***]] supports the European Union's position in this
context. The European Union also argues that the United States' suggestion that the relevant
customers would have decreased the number of firm orde rs proposed in the relevant Airbus final
offers is contrary to commercial realities in the LCA industry and unsupported by material
evidence.397
6.186. Regarding counterfactual delivery schedules, the European Union argues that Airbus would
have delivered its LCA in accordance with the delivery schedules to which Boeing and the airline
agreed in the relevant purchase agreements. According to the European Union, it is reasonable to
conclude that relevant demand-side pressures would have led Airbus to agree to the same delivery
schedules as those contained in those purchase agreements. The European Union further asserts
that this approach is consistent with the approach used in the DS316 arbitration, in which the
arbitrator assumed that the counterfactual delivery sch edule would be the delivery schedule that
Airbus (i.e. the actual winner of the relevant campaigns) actually secured in the relevant sales
campaigns. In the European Union's view, even-handedness compels the Arbitrator to use that same
approach here.398

394 European Union's response to Arbitrator question No. 51, para. 83. (emphasis omitted; internal
quotation marks omitted; fn omitted)
395 European Union's response to Arbitrator question No. 51, para. 82. (emphasis omitted)
396 European Union's response to Arbitrator question No. 54, para. 99. (BCI brackets added; emphasis
omitted)
397 European Union's written submission, paras. 221-229; response to Arbitrator question No. 8,
para. 46; No. 9; No. 10; and Nos. 51-56; and comments on the United States' responses to Arbitrator question
Nos. 50 and 54-56.
398 European Union's written submission, paras. 221-222; and response to Arbitrator question No. 9.
The European Union recalls that the DS316 arbitrator found it less problematic to use as Boeing's
counterfactual delivery schedules the delivery schedules to which Airbus agreed with the airline customers as
they "reflect the actual pressures from the demand side because they have been accepted by the customers
involved in the lost sales at issue". (European Union's written submission, para. 226 (citing Decision by the
Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU), para. 6.263))

6.187. The United States argues that, in the counterfactual, it should be assumed that the airlines
in the five relevant sales campaigns would have placed the number of firm orders for Airbus LCA
that Airbus proposed in its final offers to the airlines, and that Air bus would have delivered those
aircraft according to the delivery schedule in each such final offer. The United States argues that
this is consistent with the findings in the compliance proceeding s because the compliance panel
never specified the number of firm orders that Airbus would have secured in the counterfactual. The
United States also argues that the approach taken in the DS316 arbitration with respect to
counterfactual order numbers and delivery schedules need not be followed here because the relevant
findings and evidence in this arbitration are different from those in the DS316 arbitration. Further,
the United States asserts that the Airbus final offers represented the result of a negotiating process
in which Airbus understood the customer's need s in relation to Airbus' supply -side constraints.
Moreover, in the United States' view, airlines rarely increase the number of firm orders between the
receipt of final offer and signing a subsequent purchase agreement, in particular because airlines
will more commonly solicit offers for larger numbers of aircraft than they actually need in the hopes
of securing volume discounts. The United States also asserts that the presence of options in Airbus
final offers does not establish that Airbus had sufficient p roduction capacity to fill more firm orders
than were proposed in the final offers because LCA manufacturers, as part of their so-called "skyline
management" practices, [[***]]. Additionally, according to the United States, customers have
incentives to secure options rather than firm orders from Airbus because the former [[***]] for
airlines than firm orders.
6.188. The United States also asserts that Airbus and Boeing single -aisle LCA are differentiated
products (including with respect to seating capacities) and therefore customers may want different
numbers of Boeing versus Airbus single-aisle LCA. In addition, the United States asserts that delivery
availability may differ as between Airbus and Boeing LCA, which may cause an ai rline to desire
different numbers of Airbus or Boeing LCA at a given point in time . Finally, with respect to the
[[***]] sales campaign, the United States explains that the customer's order size with Boeing
reflected Boeing-specific considerations. The United States thus argues that any finding that Airbus
would have secured the same number of firm orders in the relevant sales campaigns as Boeing
actually secured would be based on speculation.399
6.189. The Arbitrator notes that the parties disagree regarding two related subjects in this context,
i.e. the number of counterfactual orders that Airbus would have received as a result of the five
relevant sales campaigns and the delivery schedules that would have governed the deliveries of such
orders. We address each in turn below.
a. Counterfactual order numbers
6.190. In this section, we address the issue of the number of firm orders that Airbus would have
received in the five relevant sales campaigns in the counterfactual.
6.191. At the outset, we recall the European Union's argument that the findings in the compliance
proceedings establish that, in the counterfactual, the airlines in the five relevant sales campaigns
would have ordered the same number of Airbus LCA as they did from Boeing in reality. This is so
because, according to the European Union, the compliance panel specified that the number of firm
orders that Boeing received as a result of the five relevant sales campaigns and of which the
compliance panel was aware were themselves the "lost sales". 400 We observe that certain of the
compliance panel's findings regarding relevant sales campaigns do suggest this401 while findings with
respect to other sales campaigns are more ambiguous. 402 We consider, however, that even if the

399 United States' written submission, section VIII and paras. 135-142; responses to Arbitrator question
Nos. 8-10, 50, and 54-56; and comments on the European Union's responses to Arbitrator question
Nos. 51-54, and 56.
400 See e.g. European Union's response to Arbitrator question No. 54, para. 96 and accompanying bullet
points (stating, inter alia, that "the findings by the compliance adjudicators are that Airbus suffered lost sales
of 16 LCA in the Icelandair campaign, and 86 LCA in the Fly Dubai 2014 campaign" (emphasis omitted)).
401 See e.g. Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 9.443
(stating that "that Fly Dubai's 2008 and 2014 orders of 50 737NG and 75 737 MAX, respectively, are significant
lost sales for Airbus" (emphasis added)).
402 Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 9.404 ("Accordingly,
we consider that the effects of the Washington State B&O tax rate reduction were lost sales of the A320neo
and A320ceo in the Fly Dubai, Air Canada, and Icelandair sales campaigns in the 2013-2015 period."). (Ibid.,
fn omitted)

compliance panel did not specify the number of "lost s ales" with respect to any particular sales
campaign, other adopted findings in this dispute and evidence on the record of this arbitration
proceeding establish that it is reasonable to assume that, in the counterfactual, Airbus would have
secured the same number of firm orders in its purchase agreements in all five relevant sales
campaigns as Boeing secured in its actual purchase agreements.
6.192. In examining such findings and evidence, we first note that the European Union and
United States direct their arguments in this context at the [[***]] sales campaigns because in each
such campaign Airbus proposed fewer firm orders in its final offer than Boeing secured in its purchase
agreements with each of these airlines. We direct our attention to these [[***]] sales campaigns
here for the same reason.403
6.193. Regarding those [[***]] sales campaigns, we recall that all the Boeing and Airbus LCA
involved compete in the same product market (i.e. the single -aisle LCA product market) and are
"sufficiently substitutable".404 Further, we note that the [[***]] airlines determined that they in fact
required the number of single-aisle LCA that appear in the Boeing purchase agreements. We consider
these factors strong evidence that each airline would likely have ordered an equal number of Airbus
single-aisle LCA in the counterfactual. The United States argues, however, that the fact that Airbus
proposed fewer firm orders in its relevant final offers than Boeing actually secured demonstrates
that each airline would have only ordered that proposed number of LCA from Airbus. The
United States presents five main arguments in support of its position.
6.194. First, and with respect t o the [[***]] sales campaign, the United States argues that the
airline could have wanted fewer Airbus LCA because the overall seating capacity of the Boeing LCA
ordered was lower than the overall seating capacity of an equivalent number of Airbus LCA. 405 At
the outset, we note that the materiality of the overall seating capacity of the multiple LCA offered
to [[***]] is not immediately apparent to us. As the United States itself notes, "airlines fly aircraft,
not seats".406 Therefore, even if the overall seating capacities of the relevant Airbus and Boeing LCA
would have differed somewhat, we do not consider that it necessarily follows that the airline would
have wanted different numbers of LCA from the manufacturers to fly the desired routes, as the
United States suggests. Insofar as [[***]] would have desired to obtain similar overall seating
capacities as between Airbus and Boeing LCA, however, we consider that the evidence indicates that
it is reasonable to assume that [[***]] would still have wanted the same number of LCA from Airbus
and Boeing, for the reasons discussed in the following paragraph.
6.195. According to an [[***]], the [[***]] LCA ordered had a seating capacity of 153 passengers
each (for a total of [[***]] seats) and the [[***]] LCA had a seating capacity of 172 (for a total of
[[***]] seats).407 Although Airbus' final offer to [[***]], the European Union has provided the most
"typical" seating configuration for the relevant Airbus LCA. 408 A comparison of the seating capacity
of the [[***]] Boeing LCA that [[***]] actually ordered and the typical seating capacity of the
relevant Airbus LCA demonstrates that [[***]] would have been able to match the seating capacity

403 This issue [[***]] with respect to the other [[***]]. ([[***]]).
404 Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), paras. 9.33 and 9.47.
405 United States' response to Arbitrator question No. 54, para. 44.
406 United States' comments on the European Union's response to Arbitrator question No. 54, para. 64.
This means, according to the United States, that there are features other than the overall seating capacity, per
se, that a customer would consider while placing an order such as the [[***]], factors which may, however, to
some degree be linked to seating capacity.
407 [[***]].
408 The United States does not contest the correctness of the typical seating capacity of Airbus LCA
provided by the European Union. Instead, the United States provides the maximum seating capacity for a
relevant Airbus LCA model to demonstrate that that Airbus LCA would have had more seats than the Boeing
LCA that [[***]] actually ordered and consequently establish that [[***]] would have ordered fewer LCA from
Airbus than it did from Boeing. (United States' response to Arbitrator question No. 54, para. 44) We see little
rationale for using such maximum seating capacities, given that they are in excess of not only the typical
seating capacities of both the Boeing and Airbus LCA in question, but also the actual seating capacities of the
Boeing LCA sold to [[***]]. (See European Union's response to Arbitrator question No. 54, paras. 100-109
table 3 (citing Panel Report, EC and certain member States – Large Civil Aircraft (Article 21.5 – US), table 16);
comments on United States' response to Arbitrator question No. 54, paras. 114 and 115 (making similar
observations); and United States' response to Arbitrator question No. 54, fn 43) Therefore, to help ensure a
fair comparison in this context, we consider it most reasonable to assume that the seating capacities of the
Airbus LCA models that [[***]] would have ordered would have been their typical (and not maximum) seating
capacities, which are also closer to the actual seating capacities of the Boeing LCA actually ordered.

of the Boeing aircraft only by ordering the same number of Airbus LCA as it ordered from Boeing.409
In the light of these observations, we do not consider that it has been reasonably demonstrated that
[[***]] would have desired fewer LCA from Airbus than it did from Boeing for reasons relating to
seating capacity.
6.196. Second, and specifically with respect to the [[***]] sales campaign, the United States notes
that the airline ordered [[***]] LCA from Boeing. The United States explains that the airline ordered
the "[[***]]".410 Thus, Boeing [[***]].411 In our minds, however, this evidence indicates that the
airline wanted a certain number of single-aisle LCA delivered [[***]] (which both Boeing and Airbus
could accommodate), not that the airline desired a different number of LCA from Airbus and Boeing
in that [[***]]. Indeed, although the United States apparently casts the sale of the [[***]] as a
[[***]], we note that the airline still purchased them along with all the other [[***]] LCA. The
United States also does not direct us to any evidence on the record indicating that the [[***]] LCA,
once received, [[***]]. Simply put, [[***]] wanted, and received, [[***]] single-aisle LCA from
Boeing. In the end, therefore, we consider that this United States argument is not pertinent to the
question of whether [[***]] would have wanted a different number of Airbus LCA.
6.197. Third, the United States argues that Airbus may have lacked the production capacity to
include additional orders in the counterfactual [[***]] purchase agreements, and that the presence
of options in those final offers does not necessarily demonstrate the existence of sufficient additional
production capacity because Boeing and Airbus [[***]].412 The United States, however, adduces no
evidence indicating that Airbus in fact did lack additional releva nt production capacity at any
particular relevant time. We further note that the European Union has submitted a document from
[[***]] at Airbus, attesting to the fact that Airbus had sufficient production capacity to satisfy orders
for all of the [[***]] contained in the Airbus final offers in the [[***]] sales campaigns had the
airlines [[***]].413 The number of such [[***]] in each case was greater than the number of
additional orders needed to increase the number of firm orders in the final offers to the number of
firm orders that Boeing actually received in each campaign. We discern no reason to doubt the
veracity of the evidence put forth by the European Union concerning Airbus' production capacity in
this context, and therefore consider that it is r easonable to conclude that Airbus would have had
sufficient production capacity to include additional firm orders in the [[***]] sales campaigns had
they been placed by the airlines, such that Airbus could have matched the number of firm orders
that Boeing secured in reality from each airline.
6.198. Fourth, the United States argues that Airbus and Boeing LCA are differentiated products
featuring different technical capabilities. Aside from issues already discussed above, the
United States notes that certain technical characteristics differ as between the relevant Airbus and
Boeing LCA.414 We discern no evidence on the record, however, indicating why [[***]] would have
concluded, based upon such differences, that it would have preferred a different number of LCA from

409 The European Union performs similar comparisons in this context wherein it compares the typical
seating capacity of the Boeing models ordered by [[***]] (which is similar to the actual seating capacities of
Boeing models ordered by [[***]]) with the typical seating capacity of the relevant Airbus LCA, making certain
assumptions about the specific Airbus LCA models that [[***]] would have ordered had it ordered additional
Airbus LCA, and arrives at the same conclusion as we do in the body text above (i.e. with respect to [[***]]
need to order the same number of Airbus and Boeing LCA). (European Union's response to Arbitrator question
No. 54, paras. 100-109) These assumptions appear not inconsistent with how the United States itself has
advocated in other contexts as to how to determine the prices of the model(s) of additional Airbus LCA that
would have been ordered in the counterfactual in this sales campaign. (See United States' response to
Arbitrator question No. 58, para. 57) We accordingly use the same assumptions in our calculations referenced
in the body text. The United States implies at one point that the mix of additional Airbus models should be
assumed to be different in this specific context, however, for reasons that are HSBI. (United States' comments
on the European Union's response to Arbitrator question No. 54, para. 64, penultimate sentence) But the
reasons underlying the United States' suggestion appear to indicate that the additional Airbus LCA should have
[[***]] seating capacity than what we assume in our seating-capacity calculations, a reasoning that would not
thus alter our relevant conclusions regarding seating capacities. Thus, we consider the United States'
suggestion in this context ultimately immaterial.
410 United States' response to Arbitrator question No. 54, para. 45.
411 United States' response to Arbitrator question No. 54, para. 45; and comments on the
European Union's response to Arbitrator question No. 54, para. 65.
412 United States' response to Arbitrator question No. 50, paras. 37-39.
413 Declaration by [[***]], 21 February 2020 ("Airbus production capacity") (Exhibit EU-66 (BCI)).
414 United States' response to Arbitrator question No. 54; and comments on the European Union's
response to Arbitrator question No. 54.

Airbus and Boeing. Ultimately, therefore, and in the light of the sufficiently substitutable nature of
the Airbus and Boeing LCA involved, we do not consider that the existence of such technical
differences is a significant consideration in this context.
6.199. Finally, the United States argues that the situation whereby an airline, after having accepted
a final offer from an LCA manufacturer, would negotiate for additional firm orders between the
acceptance of that final offer and the conclusion of a purchase agreement "rarely, if ever occurs".415
The United States suggests that this is so because, [[***]]. Further, the negotiating parties are
generally unwilling to re -open "key term s" of the deal at that stage. 416 The United States asserts
that the European Union is in agreement as to this latter point.417 The European Union responds that
it is "not uncommon" that negotiations occurring after the acceptance of a final offer can lead to the
parties agreeing, in a subsequent purchase agreement, to a [[***]].418 The European Union also
contests the United States' assertion that airlines should be expected to negotiate the number of
orders down after the acceptance of the final offer, arguing that LCA manufacturers are unlikely to
be misled by a customer in this manner and that such a negotiation strategy on the part of a
customer may backfire and result in the entirety of the deal terms being revisited.419
6.200. We note that the parties agree that, as a general proposition, negotiations between an LCA
customer and LCA manufacturer continue following the submission of a final offer. Neither party
argues that an increase in firm orders as a result of such continuing negotiations is common. We
observe, however, that such increases do occur at times. HSBI evidence submitted by the
European Union supports the European Union's assertion that, in multiple instances involving Airbus,
such negotiations have led to an airline placing more firm orders for LCA than what was proposed in
a preceding final offer . This has, at times, involved [[***]].420 We therefore note that in [[***]]
sales campaigns the Airbus final offers contain [[***]].421 The United States does not contest that,
in the three instances referenced by the European Union in its HSBI evidence, the airline adjusted
the number of [[***]] after the receipt of a final offer, but argues that these instances occurred
over a ten-year period, and thus illustrates that [[***]].422
6.201. In the light of the above discussions, we consider that, on balance, it is reasonable to assume
that, had Airbus completed its negotiations with [[***]] in the relevant sales campaigns in the
counterfactual, the resulting purchase agreements would have contained a number of firm orders
equal to that which appears in the corresponding Boeing purchase agreements. We recognize that
such increases in firm orders (i.e. occurring after the receipt of a final offer) may be uncommon. We
further note that Airbus' final offers in the [[***]] relevant sales campaigns were [[***]] based on
Airbus' unders tanding of the airlines' needs based on, inter alia , input from the airlines, and
competitive pressures from Boeing. 423 However, we consider the demonstrated customer demand
for a particular number of sufficiently substitutable Boeing single -aisle LCA compelling, particularly
when coupled with the fact that post -final-offer increases in numbers of firm orders can and do in
fact occur, and in the absence of any specific evidence indicating why [[***]] would have desired
different numbers of Airbus LCA and Boe ing LCA. Moreover, with respect to the [[***]] sales
campaign, we find particularly significant evidence that [[***]] increased the number of firm orders
with Boeing following Boeing's final offer. 424 We discern nothing on the record indicating that that
change was the product of factors specific to Boeing, and thus would not also have occurred in the
counterfactual had Airbus won the campaign.

415 Boeing E-mail regarding Question 10 (Exhibit USA-32 (BCI)).
416 United States' response to Arbitrator question No. 56, para. 49 (citing Declaration of [[***]] (Feb.
28, 2020) (Exhibit USA-51 (BCI))). See also United States' comments on the European Union's response to
Arbitrator question No. 53.
417 United States' comments on the European Union's response to Arbitrator question No. 56, para. 66.
The United States indicates that sometimes an airline may attempt to [[***]]. (Declaration of [[***]] (Feb.
28, 2020) (Exhibit USA-51 (BCI)), para. 15)
418 European Union's response to Arbitrator question No. 51, para. 84. See also European Union's
response to Arbitrator question No. 56.
419 European Union's response to Arbitrator question No. 53.
420 See IndiGo, [[HSBI]] (Exhibit EU-67 (HSBI)) and IndiGo, [[HSBI]] (Exhibit EU-68 (HSBI));
[[HSBI]] (Exhibit EU-69 (HSBI)) [[HSBI]] (Exhibit EU-70 (HSBI)), and [[HSBI]] (Exhibit EU-71 (HSBI)); and
Avianca [[HSBI]] (Exhibit EU-72 (HSBI)) and Avianca [[HSBI]] (Exhibit EU-73 (HSBI)).
421 See [[***]].
422 United States' comments on the European Union's response to Arbitrator question No. 56, para. 69.
423 European Union's response to Arbitrator question No. 51, para. 80.
424 Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), table 12; [[***]].

b. Counterfactual delivery schedules
6.202. With respect to Airbus' counterfactual delivery schedules, we have two basic choices: (a) use
Boeing's actual delivery schedules in connection with the five relevant sales campaigns
(as advocated by the European Union); or (b) use the delivery schedules found in Airbus' final offers
in the five relevant sales campaigns (as advocated by the United States). We note at the outset that
the European Union argues that the principle of "even -handedness" compels the Arbitrator to use
the actual Boeing delivery schedules because the DS316 arbitrator, in the context of valuing lost
sales, used the actual Airbus delivery schedules governing the relevant sales campaigns as the
counterfactual Boeing delivery schedules had Boeing won the sales instead. This being the reverse
situation, and as a matter of consistency as between the two arbitrations, the European Union
asserts that the Arbitrator should use Boeing's actual delivery schedules.
6.203. We consider that there are material differences between the records of this arbitration
proceeding and the DS316 arbitration proceeding. The DS316 arbitrator, in this context, framed its
choice as between using as Boeing's counterfactual delivery schedules either the delivery schedules
in the Airbus purchase agreements in the lost sales campaigns, or the delivery schedules from Boeing
"comparator orders" (i.e. actual orders Boeing had secured from customers in sales campaigns
deemed generally comparable to the sales campaigns at issue). The arbitrator considered that "in
the absence of direct evidence of the cou nterfactual negotiating results {between Boeing and the
customers in the relevant sales campaigns}, we consider it less problematic to use Airbus'
contractual delivery schedules concluded in connection with the lost sales than using the delivery
schedules of Boeing{} in comparator orders". 425 This was so because the actual Airbus schedules
could "be reasonably assumed to reflect the actual pressures from the demand side because they
have been accepted by the customers involved in the lost sales at issue". 426 Also, the arbitrator
found it "unlikely that Boeing, which has limited production capacity in a given period of time, would
conclude contracts containing identical delivery schedules with multiple customers, rather than
trying to sequence overall deliveries in a more even fashion over time".427 The arbitrator instructively
noted, however, that the Airbus contractual delivery schedules had the drawback of only capturing
important supply-side constraints with respect to Airbus, rather than with respect to Boei ng, but
"they at least represent a compromise that was acceptable to the negotiating parties at the time of
order"428 and the arbitrator could "discern no other option for constructing Boeing's relevant
counterfactual delivery schedules that, in our minds, would yield a more reliable result than using
Airbus' contractually agreed delivery schedules".429
6.204. In contrast to the situation as described by the arbitrator in the DS316 arbitration
proceeding, in this proceeding the Arbitrator has "direct evidence of the counterfactual negotiating
results" between Airbus and the relevant customers in each of the specific sales campaigns at issue,
i.e. the delivery schedules in the Airbus final offers. Although we recognize that these negotiating
results were not final in the sense that they are contained in final offers rather than contractual
purchase agreements, we note that they were the product of not only "Airbus' overall understanding
of the airlines' needs" but also "feedback and active input from the airlines". 430 In our minds,
therefore, they represent a reasonably reliable indication of what the ultimate delivery schedules as
between Airbus and the relevant customers would have been had Airbus completed the negotiations
with the customers. We also note that the Boe ing delivery schedules capture Boeing's, but,
importantly, not Airbus', supply -side constraints. Thus, we consider that the delivery schedules in
the Airbus final offers most reasonably capture relevant demand- and supply-side pressures, which
the DS316 arbitrator indicated its desire, but inability, to do in the circumstances it faced.

425 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU),
para. 6.263.
426 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU),
para. 6.263.
427 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU),
para. 6.263.
428 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU),
para. 6.263.
429 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU),
para. 6.263.
430 European Union's response to Arbitrator question No. 51, para. 80.

6.205. In light of the foregoing, we consider that the delivery schedules in the Airbus final offers
better reflect both the demand- and supply-side pressures431 in the relevant negotiations had Airbus
won the lost sales than do the Boeing delivery schedules, and therefore it is reasonable to select
them as Airbus' counterfactual delivery schedules in the circumstances before us.
6.206. We recognize that, in the immediately preceding subse ction, we concluded that, in the
counterfactual, Airbus would have received the same number of firm orders from each customer in
all five relevant sales campaigns as Boeing did in its relevant purchase agreements, even though in
the [[***]] sales campaigns Airbus proposed fewer firm orders in its final offers than Boeing secured
in the purchase agreements with these customers. 432 Thus, with respect to these [[***]] sales
campaigns, we must add an HSBI number of additional delivery slots onto the Air bus delivery
schedules contained in the final offers that Airbus put forth to [[***]]. In order to do so, the
United States proposes that "the Arbitrator … calculate an average time between deliveries based
on the Airbus schedule, and then assume additiona l deliveries at that interval following the final
delivery date in the Airbus final offer". 433 The United States argues that this method has the
advantage of "hewing more closely to the Airbus final offers".434 The European Union proposes that
the Arbitrator assume that Airbus would have delivered the additional aircraft "along the same
delivery schedule as actual deliveries by Boeing".435 More specifically, for each sales campaign, the
deliveries of the additional number of Airbus LCA would be assumed to be [[***]].436 The
European Union argues that this method is preferable to the United States' approach because the
European Union's method captures demand -side pressures, i.e. reflecting delivery positions that
were acceptable to the relevant airlines with respect to these additional LCA.437
6.207. We consider the European Union's proposal reasonable and accordingly adopt it. Airbus
[[***]] for the relevant additional firm orders in its relevant final offers. We observe, however, that
the timing of such Boeing deliveries represented an acceptable arrangement between the negotiating
parties.438 We further discern nothing on the record indicating to us that using the United States'
approach would lead to a more reliable result.
6.4.6.4 Adjustments for actual cancellations and potential future cancellations
6.208. The European Union asserts that it is reasonable to adjust the value of orders that Airbus
would have won in the counterfactual as a result of the five relevant lost sales for the risk that such
orders would have been cancelled in the counterfactual, consistent with the approach used in the
DS316 arbitration. The European Union addresses the risk of cancellation differently with respect to
three groups of counterfactual deliveries: (a) those that would have definitely been cancelled in the
counterfactual; (b) those that would have been scheduled to occur before the present day ( i.e.
before January 2020); and (c) those that would have been scheduled to occur after the present day
(i.e. after December 2019).
6.209. With respect to the counterfactual deliveries in group (a), the European Union argues that
only one counterfactual delivery associated with the 2014 Fly Dubai sales campaign would have been
cancelled in the counterfactual. It acknowledges that this delivery should thus be valued at zero.439
With respect to remaining counterfactual deliveries falling into group (b), the European Union

431 The supply-side pressures in this context refer to the fact that Boeing and Airbus have limited
production capacity at any given point in time and thus the two LCA manufacturers may not always be able to
satisfy their customers' specific demands for particular delivery schedules.
432 See para. 6.201 above.
433 United States' response to Arbitrator question No. 58. See also United States' comments on the
European Union's response to Arbitrator question No. 58, paras. 75-76.
434 United States' comments on the European Union's response to Arbitrator question No. 58, para. 76.
435 European Union's comments on the United States' response to Arbitrator question No. 58, para. 148.
See also European Union's response to Arbitrator question No. 58.
436 European Union's response to Arbitrator question No. 58, tables 13 and 14.
437 European Union's comments on the United States' response to Arbitrator question No. 58,
paras. 148-149.
438 See Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 –
EU), para. 6.263.
439 The European Union claims that Fly Dubai cancelled one delivery of a Boeing LCA in connection with
this sales campaign "due to exogenous events in the form of airline-specific post-order decisions and actions
(and not due to issues experienced by {Boeing})". (European Union's response to Arbitrator question No. 61,
para. 157 (citing Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft
(Article 22.6 – EU), para. 6.225) (internal quotation marks omitted))

proposes that the Arbitrator assume that any order scheduled to be delivered under the Arbitrator's
chosen delivery schedule up through to the present day should be assumed to already have been
delivered in the counterfactual, and thus assigned a 0% risk of cancellation. With respect to
remaining counterfactual deliveries falling into group (c), the European Union argues that the
Arbitrator should adjust their value by multiplying the delivery price of each by a "survival rate", i.e.
the chance that such deliveries would not be cancelled (the European Union assigns a 0% chance of
cancellation to all such deliveries up through 2019). The European Union asserts that the Arbitrator
should calculate that survival rate by using an average cancellation rate of Airbus single-aisle LCA
models from the years 2009 -2012. This method of construction is appropriate in the
European Union's view because first, single -aisle cancellation rates most accurately reflect the
chance that Airbus single-aisle LCA at issue would have been cancelled because historic cancellation
rates for single -aisle and other types of LCA differ, reflecting different reasons as to why airlines
may cancel orders of certain types of LCA. Second, the DS316 arbitrator used historic cancellation
data from a period unaffected by the additional counterfactual orders placed and thus "only data
from before the 2013 to 2015 reference period should be used for purposes of quantifying
cancellation rates, actual survival rates, and estimated survival rates". This is because cancellation
data taken from years in which the relevant lost sales occurred (i.e. 2013-2017) "would likely have
changed in the counterfactual world, in which Airbus would have made additional sales". 440 The
European Union also argues, howe ver, that "the most granular, most specific, and, indeed, most
relevant historical cancellation information can be found in the actual cancellations that Boeing
experienced in the five price-sensitive single-aisle transactions at issue".441
6.210. The United States also argues that the risk of cancellations should be taken into account via
the application of a survival rate applied to the delivery prices of Airbus' relevant counterfactual
deliveries.442 In contrast to the European Union's approach, the United States applies its most recent
methodology in this context with reference to two, rather than three, groups of counterfactual LCA
deliveries, i.e. (a) counterfactual deliveries scheduled to occur before present day (i.e. before, but
not during, 2020); and (b) those that would have been scheduled to occur in and after 2020. Under
the United States' most recently proposed methodology, regarding counterfactual deliveries
scheduled to occur before present day (i.e. before, but not during, 2020), the United States asserts
that the Arbitrator should calculate a survival rate "based on Boeing's actual experience on a
per-delivery stream basis {i.e. per sales transaction at issue,} and apply this ratio to the applicable
deliveries for the Airbus lost sale in the counterfactual".443 We note, however, that in a methodology
previously proposed by the United States with respect to pre -2020 counterfactual deliveries, the
United States does not contest the European Union's positions that the number of Airbus
counterfactual deliveries that should be valued at zero because they would have been cancelled in
the counterfactual before present day is one, and that the risk of cancellation that should be assigned
to all other Airbus counterfactual deliveries that were scheduled to occur up until present day
(i.e. before, but not including, 2020) under the delivery schedules in the Airbus final offers is zero.444
6.211. In its most recent methodology, regarding other Airbus counterfactual deliveries (i.e. those
that would have been scheduled to occur after 2019), the United States agrees with the
European Union that the Arbitrator should adjust their value by multiplying the delivery price of each
by a survival rate. In this respect, the United States proposes "apply{ing} a generic Airbus survival
rate"445 based on Airbus' historic cancellation rates (assigning a 0% chance of cancellation to all
such deliveries up through 2019, consistent with the European Union's approach). The United States
argues that the Arbitrator should construct that survival rate using an average cancellation rate of
all Airbus LCA models from the years 2003 -2007, i.e. "the period directly preceding the period in

440 European Union's written submission, paras. 204-205. (emphasis original)
441 European Union's response to Arbitrator question No. 61, para. 177 (emphasis original). See also
European Union's written submission, section II.C.2 and paras. 390, 396, 399, and 400; responses to
Arbitrator question Nos. 60 and 61; and comments on United States' responses to Arbitrator question
Nos. 60-65.
442 United States' written submission, section VII.
443 United States' response to Arbitrator question No. 63, para. 79.
444 See also United States' response to Arbitrator question No. 20 and No. 60, paras. 65-69.
445 United States' response to Arbitrator question No. 63, para. 79. See also United States' response to
Arbitrator question No. 60, paras. 64 (explaining that "the Arbitrator could reasonably rely on Airbus's
experience more generally, which reflects supply-side factors influencing cancellations, or Boeing's experience
for these specific sales, which in part reflects demand-side factors, to develop a theoretical cancellation rate")
and 70.

which the counterfactual sales and deliveries might have been made".446 This method of construction
is appropriate in the United States' view because: (a) using historic cancellation data from all Airbus
LCA models is consistent with the approach used in the DS316 arbitration in which the arbitrator
used historic cancellation rates for all Boeing LCA models to construct a survival rate; (b) the DS316
arbitrator used historic cancellation data from a period unaffected by the additional counterfactual
orders placed and the first relevant lost sale in this proceeding was the 2008 Fly Dubai campaign;
and (c) cancellation situations may occur vis-à-vis certain types of LCA (e.g. twin-aisle or VLA) more
than single-aisle over a certain period of time but this does not mean that such LCA are necessarily
prone to cancellations more than single-aisle LCA; thus, using cancellation data regarding twin-aisle
LCA and VLA should not be expected to lead to an inaccurate estimated survival rate.447
6.212. The Arbitrator notes that the parties agree in principle that we should account for the risk
that the relevant counterfactual Ai rbus deliveries (i.e. deliveries arising from the counterfactual
orders that Airbus would have secured as a result of the five relevant sales campaigns) would have
been cancelled. The parties differ on how to calculate and apply that risk for any given LCA delivery.
In resolving these disagreements between the parties, we find it most useful to examine certain
aspects of the European Union's methodology and determine whether such aspects are reasonable
in the light of the record before us.
6.213. The first aspect of the European Union's methodology that we address is the assignment of
a 100% cancellation risk to one counterfactual delivery in connection with the 2014 Fly Dubai sales
campaign, i.e. to value one delivery at zero. The European Union asserts that we sh ould do so
because one Boeing delivery associated with that sales campaign has, in fact, been cancelled, and,
further, the cancellation was due to reasons specific to the airline and unrelated to Boeing. In
response, the United States asserts that whether Airbus would have made any particular delivery in
the counterfactual is subject to uncertainty, and thus advocates assigning a general risk of
cancellation (that takes into account the 2014 Fly Dubai cancellation) over all Airbus counterfactual
deliveries instead of assigning a zero value to one specific delivery slot.448 We note that the parties
agree that Fly Dubai in fact cancelled one delivery associated with the 2014 Fly Dubai lost sale.
Further, the European Union has asserted that this cancellation was for reasons unrelated to Boeing,
an assertion that the United States has not contested. Moreover, the Boeing and Airbus LCA at stake
in this sales campaign compete in the same product market (i.e. the single -aisle LCA product
market)449 and are "sufficien tly substitutable". 450 [[***]] We therefore consider that the
European Union's assumption in this context is reasonable, i.e. Fly Dubai would have cancelled one
Airbus single-aisle LCA order just as it cancelled one Boeing single-aisle LCA order.
6.214. The question thus becomes to which delivery slot in the counterfactual Airbus 2014 Fly Dubai
delivery schedule to assign a zero value. The European Union has proposed assigning a zero value
to the last delivery in the counterfactual 2014 Fly Dubai delivery schedule. 451 This is so because
although "there is no overarching principle as to which delivery positions are cancelled in a sales
campaign"452, "it is often in both the airline's and Airbus' interests if the airline cancels delivery
positions [[***]]" in order to give [[***]].453 The European Union also notes that the cancelled 737-
800 was assigned to the [[***]] that Fly Dubai had ordered from Boeing in the relevant sales
campaign, indicating Fly Dubai's desire to cancel later -in-time delivery positions vis-à-vis that LCA
model.454 The United States offers no alternative delivery position for the counterfactual cancellation.
To the contrary, to the extent that the United States has proposed a methodology for assigning a

446 United States' response to Arbitrator question No. 19, para. 79.
447 United States' response to Arbitrator question No. 18; No. 19; No. 33, para. 101; No. 61; and
No. 62; and comments on the European Union's responses to Arbitrator question Nos. 60, 61, and 64.
448 United States' response to Arbitrator question No. 65.
449 Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 9.47(b).
450 Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 9.33. (internal
quotation marks omitted)
451 We note that in footnote 458 below we determine that Airbus would have delivered [[***]] in the
counterfactual in connection with the 2014 Fly Dubai sales campaign.
452 European Union's response to Arbitrator question No. 64, para. 181.
453 European Union's response to Arbitrator question No. 64, para. 182.
454 European Union's comments on the United States' response to Arbitrator question No. 64,
paras. 210-211 (citing, inter alia, Ascend Database (Exhibit EU-1)).

zero value to specific deliveries due to cancellations, the United States has also chosen to value at
zero delivery slots "'closest to the end of {the} model's delivery schedule'".455
6.215. We note that the delivery cancelled by Fly Dubai was [[***]].456 The reason for Fly Dubai's
decision to cancel the specific delivery slot that it did is not on the record. We further note that Fly
Dubai in fact cancelled the [[***]] that Fly Dubai ordered. 457 We further consider as logical and
reasonable that, as a general matter, there may be [[***]], as elucidated by the European Union.
Under such circumstances, we consider the European Union's assumption that Fly Dubai would have
cancelled the latest -in-time delivery of the Airbus LCA [[***]] that would have been sold in
connection with the 2014 Fly Dubai sales campaign reasonable.458
6.216. In this context we also note that the United States, in its comments on the European Union's
responses to the second set of Arbitrator questions, stated that "on [[***]]".459 With that
submission, the United States further provided an updated proposed valuation of this [[***]]
excluding the value of [[***]] deliveries to account for these [[***]].460 The United States, however,
provides no evidence – and indeed, never specifically states – that these [[***]] would also have
occurred in the counterfactual, i.e. that the airline [[***]] for reasons unrelated to Boeing. We thus
consider that, in the light of the record before us, an assumption that such [[***]] would have
occurred in the counterf actual (i.e. that the airline would have similarly [[***]] orders for Airbus
LCA) is overly speculative. We accordingly decline to adopt that assumption.461 We will therefore not
exclude the value of those [[***]] deliveries as proposed by the United States.
6.217. The second aspect of the European Union's methodology that we address is the assignment
of a 0% chance of cancellation to deliveries that would have been scheduled to occur before present
day (i.e. before January 2020) in the counterfactual. The European Union argues that such deliveries
should be all those that were scheduled to occur in the counterfactual before present day under the
Arbitrator's chosen counterfactual delivery schedules. "This is because … the timing of the
counterfactual deliveries … is determined by the delivery schedules, as contained in the final offers
submitted by Airbus to the airlines at issue".462 The United States asserts that whether Airbus would
have made any particular delivery scheduled before present day in the counterfactual is subject to
uncertainty, and thus advocates assigning a general risk of cancellation over all relevant Airbus
counterfactual deliveries.463 The European Union responds that the United States' methodology is
contrary to the methodology used in the DS316 arbitration, and there is no evidence that any such
counterfactual delivery would have been cancelled thus warranting the application of a survival rate
reflecting such a risk.464
6.218. We recall that, thus far in our analysis, we assume that Airbus would only have had one
specific LCA order cancelled in connection with the five relevant lost sales (i.e. the one order in
connection with the 2014 Fly Dubai sales campaign discussed above) and that we assume that this
would correspond to the last delivery slot in the 2014 Fly Dubai counterfactual delivery schedule
(i.e. corresponding to a delivery slot in a [[***]]). Thus, the relevant airline custome rs have
demonstrated [[***]] a willingness to take delivery of the rest of the LCA ordered in these sales

455 United States' comments on the European Union's response to Arbitrator question No. 85, para. 214
(quoting European Union's response to Arbitrator question No. 64, para. 183) (alteration original); and
Expected Value of the [[***]] Lost Sale in Order Year Dollars (Revised) (Exhibit USA 104 (HSBI)).
456 United States' response to Arbitrator question No. 65, fn 82; 2014 Fly Dubai Purchase Agreement
(Exhibit USA-85 (HSBI)); Ascend Database (Exhibit EU-1); and Boeing [[***]] for 2008 Fly Dubai and 2011
Delta Sales Campaigns (Exhibit USA-87 (HSBI)).
457 Ascend Database (Exhibit EU-1).
458 The European Union assumes that [[***]] of Airbus LCA would have been ordered in the
counterfactual 2014 Fly Dubai sales campaign. The United States has not argued that any other [[***]] would
have been sold in this counterfactual sales campaign. We further note that certain HSBI evidence supports the
assumption that [[***]] would have been ordered in this sales campaign. (See Fly Dubai 2014 final offer,
[[HSBI]] (Exhibit EU-6 (HSBI)))
459 United States' comments on the European Union's response to Arbitrator question No. 85, para. 214.
460 Expected Value of the [[***]] Lost Sale in Order Year Dollars (Revised) (Exhibit USA-104 (HSBI)).
461 We note that our approach regarding whether to assume that certain [[***]] would have occurred in
the counterfactual is consistent with the arbitrator's approach to cancellations in the DS316 arbitration.
(Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU),
para. [[***)]]
462 European Union's response to Arbitrator question No. 60, para. 155. (emphasis original)
463 See e.g. United States' response to Arbitrator question No. 65.
464 See e.g. European Union's comments on the United States' response to Arbitrator question No. 60.

campaigns.465 Moreover, we again recall that the Boeing and Airbus LCA at stake in these sales
campaigns compete in the same product market (i.e. the s ingle-aisle LCA product market) 466 and
are "sufficiently substitutable" 467, and that in section 6.4.6.3 above, we conclude that all five
customers would have ordered the same number of single-aisle LCA from Airbus in the counterfactual
as they actually ordered from Boeing. In the light of such considerations, we agree with the
European Union that it is reasonable to assume that the relevant airlines would have taken delivery
of the number of Airbus LCA that would have been scheduled for delivery before present day (i.e.
before 2020).
6.219. The third aspect of the European Union's methodology that we address is the construction
and application of a "survival rate" to the remainder of the counterfactual Airbus orders associated
with the five lost sales in question. These remaining deliveries consist of the deliveries that would
have been scheduled to occur after present day (i.e. after December 2019) in the counter factual,
[[***]]. The European Union and the United States agree that the Arbitrator should adjust the value
of these deliveries by multiplying their delivery prices by a survival rate, i.e. the chance that such
deliveries would not be cancelled. The parties differ, however, on how to construct that survival rate.
6.220. The survival rate's purpose is to reflect the risk of future cancellations. The question thus
arises as to how best to estimate that risk. We note that the parties agree that historic cancellation
data should be used to calculate that risk, but disagree regarding which historic data should be used
to do so. The European Union advocates using a survival rate based on cancellations from the five
sales campaigns at issue as actually experienced by Bo eing or, less preferably, on the universe of
single-aisle Airbus LCA cancellations in the period 2009 -2012. The European Union states that the
more "specific" the historical data used is to the sales campaigns at issue (with respect to, e.g. the
relevant L CA models and the airlines), the more relevant and therefore accurate the estimated
survival rate will be. 468 The United States argues that we should base the survival rate on the
universe of Airbus LCA cancellations in the time-period 2003-2007 following the methodology of the
DS316 arbitrator in light of the factual similarities across the two disputes.469
6.221. We agree with the European Union that the specificity of the historic data used to construct
a survival rate vis-à-vis the five relevant sales campaigns (in particular, and as discussed more
below, with respect to the kinds of LCA at issue) is a valid consideration in meaningful ly predicting
additional cancellations that may occur in connection with those campaigns. 470 We consider,
however, that such data should also be derived from a sufficiently large sample so as to limit the
influence of potential outlier data points. In our view, therefore, to best predict future cancellations
we should rely on data comprising as many observations as possible and as specific to the campaigns
at issue as possible. This may present a trade-off between data specificity and sample size to some
degree.
6.222. We consider that a reasonable way to resolve this trade-off is by using a survival rate based
on the universe of Airbus single-aisle LCA cancellations in the period 2003 -2007 for three reasons.
First, the universe of Airbus single -aisle LCA cancellations over a five -year time-period provides a
sample size that is larger and, hence, sta tistically preferable to a sample size based solely on the
campaigns at issue. The single -aisle Airbus LCA market provides for [[***]] cancellable deliveries
from 2003-2007.471 In contrast, cancellations based on Boeing's actual experience would base the
survival rate on only 313 cancellable deliveries. In terms of sample size, the gains from using Airbus
single-aisle cancellations in 2003 -2007 are therefore very large, i. e. increasing the data set from
313 to [[***]] cancellable deliveries. The European Union further presents no specific arguments as
to why the single-aisle delivery data from 2003-2007 would produce materially inaccurate results in
this context.

465 We recall that we find no basis upon which to conclude that, in the counterfactual, [[***]]. (See
para. 6.216 above)
466 Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 9.47(b).
467 Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), para. 9.33. (internal
quotation marks omitted)
468 European Union's response to Arbitrator question No. 61, para. 175.
469 United States' response to Arbitrator question No. 19, para. 78.
470 The parties have provided no historic cancellation data organized by customer.
471 Updated Historic order cancellations in the single-aisle and twin-aisle LCA markets (Exhibit EU-74
(BCI)).

6.223. Second, in terms of specificity, we consider that using historic single-aisle cancellation rates
is preferable to using cancellation rates from not only single -aisle LCA but also LCA that were not
found to compete in the single-aisle LCA product market (i.e. twin-aisle and VLA) in the compliance
proceeding. The European Union has provided reasons why single-aisle LCA cancellation rates may
differ from, for example, twin-aisle LCA cancellation rates, including the lower cost savings of single-
aisle LCA cancellations for airlines relative to cancellations of larger LCA, "delivery slot pressure" due
to longer production backlogs for single -aisle LCA, a larger resale market for single -aisle LCA, and
greater versatility of single -aisle LCA. 472 The United States counters tha t cancellations occur for
various reasons that do "not necessarily indicate that the relevant type of LCA is particularly prone
to cancellation".473 We recall that single-aisle LCA comprise their own product market, i.e. twin-aisle
LCA and VLA differ materially from single-aisle LCA. We therefore consider it a reasonable proposition
that single-aisle LCA orders and orders for other types of LCA may be cancelled for different reasons.
The available evidence suggests that this may in fact be the case; over the last 20 years Airbus
single-aisle cancellation rates were (often significantly) lower in almost all years. 474 We further
observe that using the universe of all Airbus LCA cancellations, as suggested by the United States,
would increase the sample size from [[***]] to [[***]] possible deliveries, which represents in our
view a not insignificant, but not decisive, increase in sample size. We therefore see significant
potential risks and little gain from using cancellation rates involving LCA not inhabiting th e single-
aisle LCA product market.
6.224. Third, and finally, we consider that the time -period 2003-2007 is preferable to the time -
period 2009-2012 as it provides for more data, and avoids years that might be not representative
due to the impact of the financial crisis during the late 2000s and early 2010s.475
6.4.6.5 Exclusion of [[***]] from counterfactual delivery prices
6.225. As explained in section 6.1 above, the European Union proposes to value the significant lost
sales and threatened impeded deliveries by basing the counterfactual prices of the relevant aircraft
on the "Net Fly -Away Price" in the Airbus final offers. The Net Fly -Away Price includes the basic
airframe price plus charges for changes to standard specifications and other cost elements, including
[[***]], plus the engine price, less concessions, credits and purchase incentives for each of those
cost elements.476 The Net Fly-Away Price is also the price that is negot iated with and presented to
airline customers as part of Airbus' final offers and purchase contracts at the outset of an LCA sale,
and that is subsequently escalated to the time of delivery.477 The European Union considers that the
Net Fly-Away Price best m easures the total value of an Airbus LCA because it is the price that an
LCA customer would have paid for each aircraft in the counterfactual.478
6.226. The United States argues that the value of [[***]] should be excluded from the calculation
of the counterfactu al prices of the Airbus LCA. [[***]].479 Accordingly, [[***]] is not charged to
customers by the aircraft manufacturer and is not recorded in the aircraft manufacturer's books as

472 European Union's response to Arbitrator question No. 61, paras. 165-168.
473 United States' response to Arbitrator question No. 61, para. 71 (citing Declaration of [[***]] (Feb.
28, 2020) (Exhibit USA-51(BCI), para. 10)).
474 Updated Historic order cancellations in the single-aisle and twin-aisle LCA markets (Exhibit EU-74
(BCI)).
475 Our methodology in this context closely follows that applied by the DS316 arbitrator in its valuation
of lost sales, although the United States has noted that the DS316 arbitrator used historical cancellation rates
from all LCA product markets (rather than just the single-aisle product market) to construct a survival rate. We
note, however, that there are material differences between this arbitration and the DS316 arbitration in this
context. For instance, the DS316 arbitrator valued LCA inhabiting more than one LCA product market, whereas
we value LCA inhabiting just one (i.e. the single-aisle product market). Moreover, we note that, unlike here, in
the DS316 arbitration the parties engaged in no substantive debate regarding whether to use product-market-
specific historic cancellation rates to construct the survival rate, and thus the arbitrator was not called on
specifically to engage with that issue. (Decision by the Arbitrator, EC and certain member States – Large Civil
Aircraft (Article 22.6 – EU), section 6.3.4.3.4.2)
476 See Panel Reports, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), paras. 9.49-9.50;
and US – Large Civil Aircraft (2nd complaint), para. 7.1693.
477 European Union's response to Arbitrator question No. 23, para. 92.
478 European Union's comments on the United States' response to Arbitrator question No. 78, para. 422.
479 The United States has submitted evidence describing [[***]]. (Shannon Ackert, Commercial Aspects
of Aircraft Customization, Aircraft Monitor (2013), p. [[***]] (Exhibit USA-15)) The European Union advises
that, for Airbus, [[***]] covers all types of costs in connection with airline-specific choices [[***]]. (European
Union's response to Arbitrator question No. 23, para. 90)

revenue. The United States considers that, because the value of [[***]] is not revenue that Airbus
would potentially have received if it had won the relevant sales campaigns in the counterfactual, it
should be excluded from the counterfactual prices of the Airbus aircraft. 480 The United States'
argument is based on the proposition that the value of a lost sale or threatened delivery of an LCA
is determined from the perspective of the aircraft manufacturer, and, importantly, that this
perspective is captured by measuring the aircraft manufacturer's expected revenues in the
counterfactual.481 The United States also argues that, in the DS316 arbitration, [[***]] was excluded
from the value of the counterfactual aircraft prices because [[ ***]] was not part of the revenue
recognized from the sale of LCA from Boeing's perspective.482
6.227. In response, the European Union submits that the focus of the valuation of the product that
would have been sold in the counterfactual must be on the product at issue, namely, Airbus LCA,
and that this is confirmed by both the findings of the DS316 arbitrator and t he "logic" of the LCA
market.483 More specifically, the European Union argues that the relevant portions of the DS316
arbitrator's decision make clear that the adverse effects determined to exist in that dispute related
to a specific product (Boeing LCA) an d not particular components thereof. 484 Additionally, the
European Union notes that a fundamental aspect of the LCA business model is revenue -sharing,
according to which an LCA manufacturer assembles and delivers an LCA, collects the sales price,
and passes a portion of the proceeds back to certain suppliers. Whether revenue is directly passed
to the supplier without going through the LCA manufacturer's accounts, or is first recorded as
revenue in Airbus' financial accounts before being passed through to sup pliers is, according to the
European Union, irrelevant to the valuation of the adverse effects to the European Union's interests
resulting from the WTO-inconsistent subsidies at issue.485
6.228. The issue before the Arbitrator is whether we should exclude the valu e of [[***]] from the
"Net Fly-Away Price" in the Airbus final offers that will be used to calculate the counterfactual prices
of the relevant Airbus LCA when valuing the lost sales and threatened impeded deliveries.
6.229. We begin by observing that the United States in this dispute caused adverse effects to the
interests of the European Union through the economic impact of the Washington State B&O tax rate
reduction on Airbus' orders and deliveries of LCA, the product at issue in this proceeding. We value
the adverse effects determined to exist from Airbus' perspective as a reliable assessment of the
adverse effects sustained by the European Union in the same way, and for the same reasons, that
the DS316 arbitrator assessed the adverse effects sustained by the United States in the DS316
arbitration proceeding by valuing the adverse effects determined to exist from Boeing's
perspective.486
6.230. The adverse effects in this dispute concern LCA sales campaigns that Airbus lost, which
resulted in orders that Airbus did not secure and in deliveries that Airbus would not make in the

480 United States' written submission, para. 143; and response to Arbitrator question No. 78, para. 133.
481 The United States argues that "the revenue that Boeing or Airbus, as the LCA manufacturer and
seller, realizes from the sale of an LCA is the proper measure of the delivery value of an LCA for purposes of
this arbitration." (United States' response to Arbitrator question No. 78, para. 131)
482 The United States argues that the inclusion of [[***]] in the valuation of the counterfactual sales
would instead reflect the total value of the sales from the perspective of (multiple) customers. (United States'
response to Arbitrator question No. 78, para. 132)
483 European Union's comments on the United States' response to Arbitrator question No. 78, para. 416.
484 European Union's written submission, paras. 238-240; and comments on the United States' response
to Arbitrator question No. 78, paras. 417-418. The European Union argues that the DS316 arbitrator did not
make any decision to include or exclude [[***]] from the counterfactual prices of Boeing LCA in that
proceeding because the Boeing comparator prices presented by the United States in that proceeding did not
include [[***]] and the European Union did not object to the United States' decision not to include [[***]] in
those prices. (European Union's response to Arbitrator question No. 26, paras. 108-109) The European Union
contends that in any case, multiple customer cost items that Airbus typically considers part of [[***]] appear
to be excluded from the [[***]] category by Boeing. (European Union's response to Arbitrator question No. 23,
485 European Union's comments on the United States' response to Arbitrator question No. 78, para. 421.
486 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU),
para. 6.220. We note that Article 5(c) of the SCM Agreement provides that "{n}o Member should cause,
through the use of any subsidy … adverse effects to the interests of other Members", including "serious
prejudice to the interests of another Member". The adopted findings in this dispute indicate that the
Washington State B&O subsidy "cause{d} serious prejudice to the interests of the European Union". Those
findings do not mention Airbus' commercial interests. (Panel Report, US – Large Civil Aircraft (2nd complaint)
(Article 21.5 – EU), paras. 9.486(b) and 9.487(b))

future. It is logical that a valuation of those lost sales and threatened impeded deliveries should be
based on the counterfactual "prices" of the relevant Airbus LCA. The compliance panel discussed
various aspects of LCA prices, noting that they comprise numerous elements, including airframes,
changes to standard specifications, buyer furnished equipment, and engines, and that some of those
elements are negotiated with the airframe manufacturers, while others are negotiated directly with
the relevant suppliers.487
6.231. As previously noted, the European Union proposes that we use the Net Fly-Away Price that
appears in the Airbus final offers for the relevant sales campaigns to calculate the counterfactual
price of the relevant Airbus LCA. The Net Fly-Away Price is the price negotiated with, and ultimately
presented to, Airbus customers as par t of Airbus' final offers. It is also the price on which the
customer bases its economic evaluations of Airbus' proposal to arrive at an assessment of the NPV
of that proposal.488
6.232. The United States does not dispute that the Net Fly -Away Price is the appropr iate price on
which to base the value of the lost sales and threatened impeded deliveries, other than the fact that
this price [[***]], which the United States argues should be subtracted from the Net Fly-Away Price.
The United States' argument that [[ ***]] should not be part of the counterfactual delivery prices
appears to rest on the proposition that only the price elements that are directly recorded as revenue
by Airbus should be included in the valuation of the adverse effects in this proceeding. The
United States considers that this proposition was accepted by the DS316 arbitrator when it used the
"Boeing Net Price" to calculate the value of the counterfactual Boeing lost sales and impeded
deliveries in that dispute, given that the Boeing Net Price does not include [[***]].489
6.233. In the DS316 arbitration, the United States proposed to value the lost sales and impeded
deliveries by basing the counterfactual delivery prices of the relevant aircraft on the "Boeing Net
Prices". When discussing the United States' response to the European Union's arguments regarding
the appropriate Boeing comparator orders in th at proceeding, the DS316 arbitrator observed (but
not as part of any reasoning resolving any disagreement between the parties) that the United States
had asserted that [[***]].490 It is true that the DS316 arbitrator accepted the United States' proposal
to base the counterfactual delivery prices in that proceeding on the Boeing Net Price, but there is no
indication in the decision that this was because the Boe ing Net Price excluded [[ ***]], or because
the DS316 arbitrator considered that the counterfactual delivery prices should include only price
elements that are directly recorded as revenue by the aircraft manufacturer.
6.234. On the contrary, the Boeing Net Price, like the Airbus Net Fly-Away Price, included the price
of engines.491 Engines are generally contracted for separately between the airline customer and
engine supplier.492 The European Union in the DS316 arbitration proceeding did not argue that the
counterfactual delivery prices of the Boeing comparator aircraft should exclude the cost of engines.
However, if the DS316 arbitrator had sought to value the relevant Boeing LCA on the basis of the

487 Panel Report, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), paras. 9.49-9.51.
488 See Panel Reports, US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), paras. 9.20-9.21;
and US – Large Civil Aircraft (2nd complaint), para. 7.1694. This is also evident from the compliance panel's
evaluations of the effects of the Washington State B&O tax rate reduction on the outcomes of the sales
campaigns in the HSBI Appendix to the compliance panel report. (See e.g. Panel Report, US – Large Civil
Aircraft (2nd complaint) (Article 21.5 – EU), Appendix 2, fns 570-571)
489 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU),
paras. 6.274 and 6.466.
490 European Union's written submission, fn 324; and response to Arbitrator question No. 26, para. 108
(citing Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU),
para. 6.282). (emphasis omitted)
491 The Boeing Net Price is the "Boeing Gross Price" minus any price concessions (i.e. discounts to the
gross price offered by Boeing which are expressed in purchase agreements with the customer as a discount
from the base-year gross price). The Boeing Gross price, in turn, includes the airframe price and the engine
price. (United States' response to Arbitrator question No. 79, paras. 135-136)
492 The United States notes that there may not always be separate contracting for engines, particularly
where there is no choice of engine for a particular model. (United States' response to Arbitrator question
No. 21, para. 83) Engines are manufactured by engine manufacturers, are not part of the airframes
manufactured by Airbus and Boeing, and generally (but not always) are not part of the airframe price. The
original panel noted that, in many cases, neither the airline customer nor the engine manufacturer discloses
the engine price to the airframe manufacturers. Additionally, the original panel noted that engines are the
single most expensive component of an LCA, representing between 20% and 30% of its total cost.
(Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1690)

revenues recognized by Boeing when it sold such LCA, it stands to reason that it would have
determined whether Boeing recognized revenu es from engine sales and would have expressly
included the value of engines in the counterfactual delivery prices, or excluded the value of engines
from those prices, on the basis of that determination. The United States in this proceeding has also
not specifically argued that we should subtract the cost of engines from the Net Fly-Away Price.493
6.235. Even leaving aside whether Airbus' revenue recognition practices differ as between engine
sales and [[ ***]], we remain unconvinced, more generally, by the United States' argument that
"what should be understood as part of {an} LCA product is evidenced by what is included in the
revenue recognized by the LCA manufacturer in the sale of the LCA".494 The manufacture of an LCA
is an immensely complex process from engin eering, supply -chain, and financial perspectives,
involving not just the LCA manufacturer but also manufacturers of engines, of sub-assemblies, and
of all other parts and components incorporated into the aircraft.495 Based on the evidence before us,
and on our understanding of the LCA industry as reflected in the reports of the original and
compliance panels, we are not persuaded by the United States' proposition that the revenue
recognized by the LCA manufacturer (in this case Airbus) in relation to the production of any specific
model of LCA is necessarily dispositive of whether a given element of the LCA price should be
included in the counterfactual delivery prices of the LCA that comprise the lost sales and threatened
impeded deliveries in this proceeding. As explained above, the focus of our valuation centres on the
product at issue, Airbus LCA and the adverse effects sustained by the European Union . The
United States has not explained how focusing instead on revenues to the LCA manufacturer would
lead t o a more reasonable valuation of a product manufactured by means of several complex
commercial arrangements, including cost-sharing arrangements with certain suppliers. Thus, we fail
to see an objective basis as to why our valuation of the relevant lost sa les or threatened impeded
deliveries should be affected by Airbus' accounting treatment of elements of the LCA price that a
customer pays.496 We find support for our view in the DS316 arbitrator's refusal to exclude the value
of non-US LCA inputs incorporated into Boeing LCA from the maximum level of countermeasures, in
part because doing so would be "exceedingly complicated" since LCA production is reliant on
"complex and dynamically optimized international supply chains".497
6.236. In conclusion, we consider that excluding the value of [[***]] from the "Net Fly-Away Price"
in the Airbus final offers that will be used to calculate the counterfactual prices of the relevant Airbus
LCA when valuing the lost sales and threatened impeded deliveries, as proposed by the
United States, would be inconsistent with the degree and nature of the adverse effects determined
to exist, as sustained by the European Union. We therefore reject the United States' proposal in this
context.
6.4.6.6 Remaining issues regarding counterfactual delivery prices
6.237. In this section, and taking into account the decisions that we have made in this Decision
thus far, we describe the European Union's methodology to determine the counterfactual delivery
prices of the Airbus aircraft from the five sales campaigns, in delivery-date US dollar terms, using
information contained in the Airbus final offers. The United States does not contest this aspect of
the European Union's methodology with respect to the large majority of Airbus LCA that would have
been sold in the counterfactual had Airbus won the five relevant sales campaigns.

493 United States' response to Arbitrator question No. 21, para. 82. This is significant, in our view,
because the European Union's definition of "LCA" for purposes of this dispute, as specified in fn 4 to the
European Union's panel request in the original proceedings, excludes engines. (See Panel Report, US – Large
Civil Aircraft (2nd complaint), para. 2.1 at fn 20; and Appellate Body Report, US – Large Civil Aircraft
(2nd complaint), para. 1 and fn 3 thereto. See also fn 2 above) By contrast, there is no equivalent definition of
LCA in the United States' panel request in the DS316 proceedings. (See WT/DS316/2; and Panel Report, EC
and certain member States – Large Civil Aircraft, para. 2.1)
494 United States' response to Arbitrator question No. 78, para. 131.
495 For example, as regards the design, manufacture, and assembly of the Boeing 787, the original panel
in this dispute discussed in some detail Boeing's focus on completion of sub-assemblies and integration of
systems designed and manufactured by third-party suppliers, many of which were risk-sharing partners. (See
Panel Report, US – Large Civil Aircraft (2nd complaint), Appendix VII.F.1, paras. 24-25)
496 The European Union has explained, for example, that its revenue recognition practices as regards
[[***]] will often differ depending on whether the customer is an airline or a leasing company.
(European Union's comments on the United States' response to Arbitrator question No. 78, para. 420)
497 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU),
paras. 6.145 and 6.148.

6.238. To determine delivery-date prices, the European Union applies two components found in a
given final offer vis-à-vis the LCA model(s) contained in that final offer that were the subject of
proposed firm orders. The first component is the Net Fly-Away Price which is the total aircraft price
minus all price concessions extended to the customer as agreed at the time of order. 498 The
European Union uses the Net Fly-Away Price as found in Airbus' final offers. The second component
is an escalation formula that brings the order price forward to the delivery date. 499 As explained by
the European Union, the escalation formula "reflects the fact that there is typically a considerable
time lag between the order of an LCA and its delivery"500 and is "designed to offset the increase in
labour and material costs over time, which result from inflation and other economic changes". 501
Each Airbus final offer also contains an escalation formula. The escalation formu la produces an
escalation factor that transforms Net Fly-Away Prices in base date b prices into delivery date d prices
and can be applied as follows502:
𝐴𝑖𝑟𝑏𝑢𝑠𝑁𝑒𝑡𝐹𝑙𝑦𝐴𝑤𝑎𝑦𝑃𝑟𝑖𝑐𝑒𝐴𝑖𝑟𝑙𝑖𝑛𝑒 𝑖,𝐿𝐶𝐴 𝑚𝑜𝑑𝑒𝑙 𝑚,𝑑𝑒𝑙𝑖𝑣𝑒𝑟𝑦 𝑑𝑎𝑡𝑒 𝑑
𝑖𝑛 𝑑𝑒𝑙𝑖𝑣𝑒𝑟𝑦 𝑑𝑎𝑡𝑒 𝑑 𝑈𝑆𝐷
= (𝐴𝑖𝑟𝑏𝑢𝑠𝑇𝑜𝑡𝑎𝑙𝐴𝑖𝑟𝑐𝑟𝑎𝑓𝑡𝑃𝑟𝑖𝑐𝑒𝐴𝑖𝑟𝑙𝑖𝑛𝑒 𝑖,𝐿𝐶𝐴 𝑚𝑜𝑑𝑒𝑙 𝑚,𝑜𝑟𝑑𝑒𝑟 𝑑𝑎𝑡𝑒 𝑜
𝑖𝑛 𝑏𝑎𝑠𝑒 𝑑𝑎𝑡𝑒 𝑏 𝑈𝑆𝐷
− 𝐶𝑜𝑛𝑐𝑒𝑠𝑠𝑖𝑜𝑛𝑠𝐴𝑖𝑟𝑙𝑖𝑛𝑒 𝑖
𝑖𝑛 𝑏𝑎𝑠𝑒 𝑑𝑎𝑡𝑒 𝑏 𝑈𝑆𝐷) 𝑥 𝐸𝑠𝑐𝑎𝑙𝑎𝑡𝑖𝑜𝑛𝐹𝑎𝑐𝑡𝑜𝑟𝐴𝑖𝑟𝑙𝑖𝑛𝑒 𝑖,𝑑𝑒𝑙𝑖𝑣𝑒𝑟𝑦 𝑑𝑎𝑡𝑒 𝑑
− 𝑂𝑡ℎ𝑒𝑟 𝑐𝑜𝑛𝑐𝑒𝑠𝑠𝑖𝑜𝑛𝑠𝐴𝑖𝑟𝑙𝑖𝑛𝑒 𝑖
𝑖𝑛 𝑏𝑎𝑠𝑒 𝑑𝑎𝑡𝑒 𝑏 𝑈𝑆𝐷,
(1)

where

𝐴𝑖𝑟𝑏𝑢𝑠𝑇𝑜𝑡𝑎𝑙𝐴𝑖𝑟𝑐𝑟𝑎𝑓𝑡𝑃𝑟𝑖𝑐𝑒𝐴𝑖𝑟𝑙𝑖𝑛𝑒 𝑖,𝐿𝐶𝐴 𝑚𝑜𝑑𝑒𝑙 𝑚,𝑜𝑟𝑑𝑒𝑟 𝑑𝑎𝑡𝑒 𝑜
𝑖𝑛 𝑏𝑎𝑠𝑒 𝑑𝑎𝑡𝑒 𝑏 𝑈𝑆𝐷 : total aircraft price of Airbus model m competing in
sales campaign with airline i lost to Boeing at order date o and expressed in US
dollar terms of base date b.503

𝐶𝑜𝑛𝑐𝑒𝑠𝑠𝑖𝑜𝑛𝑠𝐴𝑖𝑟𝑙𝑖𝑛𝑒 𝑖
𝑖𝑛 𝑏𝑎𝑠𝑒 𝑑𝑎𝑡𝑒 𝑏 𝑈𝑆𝐷: price concessions contained in final offer by Airbus to airline i in US dollar
terms of base date b and [[***]].

𝑂𝑡ℎ𝑒𝑟𝐶𝑜𝑛𝑐𝑒𝑠𝑠𝑖𝑜𝑛𝑠𝐴𝑖𝑟𝑙𝑖𝑛𝑒 𝑖
𝑖𝑛 𝑏𝑎𝑠𝑒 𝑑𝑎𝑡𝑒 𝑏 𝑈𝑆𝐷: price concessions contained in final offer by Airbus to airline i in US
dollar terms of base date b but [[***]].

𝐸𝑠𝑐𝑎𝑙𝑎𝑡𝑖𝑜𝑛𝐹𝑎𝑐𝑡𝑜𝑟𝐴𝑖𝑟𝑙𝑖𝑛𝑒 𝑖,𝑑𝑒𝑙𝑖𝑣𝑒𝑟𝑦 𝑑𝑎𝑡𝑒 𝑑: escalation factor for delivery date d calculated using the escalation
formula contained in Airbus' final offer to airline i in sales campaign lost to
Boeing.504

6.239. As can be seen from Equati on (1), the Net Fly -Away Price expressed in delivery -date US
dollar terms is obtained by deducting price concessions, [[***]], from the total aircraft price set by
Airbus in its final offer to airline i in the sales campaign at issue, both expressed in base -date US
dollar terms, multiplied by the escalation factor corresponding to delivery date d minus additional
concessions expressed in base-date US dollar terms, [[ ***]]. The escalation formula that leads to
the escalation factor is [[***]].
6.240. Equation (1) requires information on the delivery date of each aircraft. As per section 6.4.6.3
on counterfactual delivery schedules, this information is available in the final offers by Airbus to
airline i for each of the relevant sales campaigns. The final offers also contain the req uired

498 For additional information about the Net Fly-Away Price, see para. 6.225 above.
499 European Union's methodology paper, paras. 93-95.
500 European Union's methodology paper, para. 93.
501 European Union's methodology paper, para. 93. See also Panel Report, US – Large Civil Aircraft
(2nd complaint) (Article 21.5 – EU), fn 3383. "The European Union explains that pricing escalation is used by
Airbus and by Boeing to reflect increased costs in the same period. An escalation formula is applied to aircraft
pricing to reflect changing costs and economic conditions over time." (Ibid.)
502 Equation 1 takes into account that [[***]].
503 The base date does not necessarily correspond to [[***]].
504 Escalation factors are available at a monthly frequency. However, for simplicity the European Union
assumes that all deliveries take place in July of any given year. (See European Union's methodology paper,
fn 149)

information on Net Fly-Away Prices, LCA models, and the escalation formula. The escalation factor,
which is based on the formula, becomes known only at the delivery date when [[***]].505
6.241. As previously noted, the United States does not contest the above-described methodology.
We note that this methodology is also conceptually in line with the approach used in the DS316
arbitration with differences arising only where the facts of the disputes require it. We further see no
reason to question its validity. We accordingly adopt this approach as reasonable for determining
the delivery prices of counterfactual Airbus deliveries resulting from the five relevant sales
campaigns.
6.242. We recall, however, that, as explained in section 6.4.6.3 above506, we must add an HSBI
number of additional firm orders to [[***]] of the Airbus final offers, i.e. those for the [[***]] sales
campaigns.507 The United States and European Union have presented two alternative ways of
determining the Net Fly-Away Prices of the additional firm orders.508 However, under the valuation
framework that we have adopted thus far, the parties' proposed methods lead to the same ultimate
valuation of [[ ***]].509 We therefore need not choose between the parties' methodologies in this
context. Instead, as we discern nothing unreasonable about the valuati on that the parties'
methodologies achieve, we adopt such valuations in this context.510
6.4.6.7 Summary of conclusions on technical issues common to the valuations of both
forms of adverse effects
6.243. In this section, we summarize our conclusions regarding the technical issues common to the
valuation of both forms of adverse effects.
6.244. We conclude that the relevant counterfactual from the compliance proceedings was
that, absent the Washington State B&O tax rate reduction, Airbus would have won the five LCA sales
campaigns. We therefore reject the United States' proposal to include in our valuation of the adverse
effects a probabilistic adjustment to the expected value of the sales campaigns to account for the
alleged uncertainty of Airbus winning those sales campaigns in the counterfactual.
6.245. We also conclude that options clauses, whether exercised or not, are outside the scope of
the compliance panel's relevant lost -sales findings, and accordingly decline to consider options,
whether exercised or not, in the Arbitrator's de termination of a maximum level of Annual
Suspension.
6.246. As regards the number of firm orders that Airbus would have received in the five relevant
sales campaigns in the counterfactual, and their respective delivery schedules, we conclude that:
a. it is reasonable to assume that, in the counterfactual, Airbus would have secured the same
number of firm orders in its purchase agreements in all five relevant sales campaigns as
Boeing secured in its actual purchase agreements;
b. the delivery schedules in the Airbus final offers better reflect both the demand- and supply-
side pressures in the relevant negotiations had Airbus won the sales campaigns than do

505 European Union's methodology paper, fn 153. Information on realized and forecasted escalation
factors is available in Updated LCA indices, escalation rates and Airbus LCA Inflation Index. (Exhibit EU-83
(HSBI))
506 See para. 6.206 above.
507 The limited applicability of this issue [[***]] is the result of the decisions taken by the Arbitrator on
options in section 6.4.6.2 above.
508 See United States' response to Arbitrator question No. 58; European Union's response to Arbitrator
question No. 58; and 2RPQ valuation of single-aisle lost sales – Airbus delivery schedules (Exhibit EU-85
(HSBI)).
509 That is, we obtain the same value for significant lost sales, indicated in para. 6.304 below, with
either method.
510 Technically, we follow the methodology proposed by the European Union to determine the Net
Fly-Away Prices of the additional firm orders. We then apply the European Union's otherwise uncontested
methodology described in the body text above to reach delivery-date prices. That is, we escalate the prices
using the escalation formulae in the applicable final offers up to the delivery times determined in section
6.4.6.3 above.

the Boeing delivery schedules and we therefore select the delivery schedules in the Airbus
final offers as Airbus' counterfactual delivery schedules; and
c. the delivery of the additional number of Airbus LCA is assumed to be [[***]].
6.247. As regards the calculation and application of the risk that the relevant counterfactual Airbus
deliveries would have been cancelled, we make the following assumptions:
a. Fly Dubai would have cancelled one Airbus single-aisle LCA order had Airbus won the 2014
Fly Dubai sales campaign, just as it cancelled one Boeing single -aisle LCA order, and the
cancelled order would have been the latest-in-time delivery of the Airbus LCA [[***]] that
would have been sold in connection with the 2014 Fly Dubai sales campaign511;
b. each relevant airline would have taken delivery of, at least, the number of Airbus LCA that
would have been scheduled for delivery before present day (i.e. before 2020); and
c. for the counterfactual Airbus orders associated with the five lost sales where the
counterfactual deliveries are scheduled to occur after the present day (i.e. after 2019), we
apply a survival rate to take into account the risk of future cancellations which is based on
the universe of Airbus single-aisle LCA cancellations in the period 2003-2007.
6.248. It is reasonable to value the lost sales and threatened impeded deliveries by basing the
counterfactual delivery prices of the relevant Airbus aircraft on the Net Fly -Away Prices in the
Airbus final offers. We reject the United States' proposal to exclude the value of [[ ***]] from the
counterfactual prices of the Airbus LCA.
6.249. Finally, the formula used to determine the delivery-date prices of the Airbus LCA that would
have been ordered in the counterfactual, based on the Net Fly -Away Prices in the relevant Airbus
final offers, is specified in section 6.4.6.6 above.
6.4.7 Technical issues regarding the valuation of significant lost sales
6.250. In this part of the Decision, we address technical aspects of the European Union's
methodology that are specific to the valuation of adverse effects in the form of significant lost sales.
These relate to: (a) how to temporally adjust counterfactual delivery prices back to the time of the
lost sale; (b) how to express the values of the significant lost sales on a common monetary basis;
and (c) the appropriate temporal period with which to annualize the ag gregated value of the lost
sales. We address each in turn.
6.4.7.1 Temporal adjustment of delivery prices to the time of the lost sales
6.251. As explained in section 6.1 above, the penultimate step in the European Union's valuation
methodology with respect to lost sales consists of (a) discounting the value of the counterfactual
delivery prices of scheduled LCA deliveries (i.e. in delivery-date US dollar terms) back to the date at
which the relevant order was lost (i.e. in order -date US dollar terms), and (b) subsequently
aggregating the discounted prices to generate the order-date value of each lost sale.512
6.252. The European Union argues that the discounting exercise should be performed from the
perspective of the LCA manufacturer, and that Airbus' cost of debt (expressed as euro-denominated
ten-year Airbus bond yield rates) is an appropriate discount rate for the valuation of lost sales in
this proceeding. 513 The European Union submits that its position is consistent with the DS316
arbitrator's use of Boeing's cost of debt with a ten-year maturity to discount the delivery-date prices
in that proceeding, and that us ing the cost of debt is therefore mandated by the notion of even -

511 We decline to assume that [[***]], just as it [[***]], and therefore do not exclude the value of
those [[***]] as proposed by the United States. (See para. 6.216 above)
512 European Union's written submission, para. 396.
513 European Union's written submission, para. 396; and response to Arbitrator question No. 75,
para. 432; and No. 28, para. 118.

handedness.514 Alternatively, the European Union argues that another suitable discount rate is the
ALII, which is an index compiled by the European Union based on Airbus' contractual escalation rates
representing [[ ***]] changes in labour and materials costs resulting from inflation and other
economic changes.515
6.253. The United States objects to the discount rates proposed by the European Union, arguing
that Airbus' WACC is a better indicator of the time value of money from Airbus' perspective. 516 In
particular, the United States asserts that, unlike the cost of debt, the WACC adequately measures
Airbus' overall opportunity cost of capital (i.e. from both debt and equity) when investing in the
production of LCA and deferring full payment for the LCA until delivery.517 The WACC is broadly used
as a discount rate to determine the present value of a company's average -risk projects.518 Thus,
since the business valuation of an aircraft manufacturer is itself based on selling and delivering LCA,
the United States argues that Airbus' WACC is a relevant metric to discount the value of the sales
campaigns at issue.519
6.254. The European Union responds that, while the WACC may befit present value determinations
of macro-level projects involving significant long-term risks520, it is not suited to discount the value
of the lost sales at stake in this proceeding, which (compared to such macro-level projects) represent
"relatively small-scale investments with low transaction -specific risk", especially when the risk of
cancellation is addressed separately. 521 Accordingly, the European Union considers that the WACC
is excessively high as a discount factor because it accounts for risks that are not presented by or
relevant to the LC A deliveries associated with the lost sales. It thus argues that using the WACC
would therefore artificially depress the order-date value of the lost sales.522
6.255. The Arbitrator notes that the parties' disagreement as to the choice of a discount rate
requires that we assess, in light of the evidence before us, whether the discount rate applied by the
European Union – i.e. Airbus' cost of debt – is reasonable to determine the value of the
counterfactual delivery prices of scheduled LCA deliveries at the time the relevant order was lost.
We start by noting that, consistent with the approach taken in the DS316 arbitration, the
European Union asserts that an appropriate discount rate should reflect the LCA manufacturer's
perspective. It further asserts that, in so doing, the discount rate used should capture Airbus' risks
associated with realizing future revenue streams in an LCA -sales-contract scenario with a view to
determining the present value of those revenue streams, i.e. at the time of order. The
European Union identifies two key factors that a discount rate should capture in this context: (a) the
risk that inflation may erode the value of Airbus' future revenue streams relative to the order date,
and (b) the "opportunity cost" to Airbus of waiting to receive t he payment linked to the delivery of
the ordered aircraft.523 We understand "opportunity cost" in this context as meaning the potential

514 European Union's response to Arbitrator question No. 17, paras. 79, 82, and 85 (referring to Decision
by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU), paras. 6.345 and
6.352-6.354).
515 European Union's methodology paper, para. 101; and response to Arbitrator question No. 27,
516 United States' written submission, paras. 112-121.
517 United States' opening statement at the meeting of the Arbitrator with the parties, para. 56; and
comments on the European Union's response to Arbitrator question No. 75, paras. 193-194 (referring to
Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU),
para. 6.344).
518 United States' comments on the European Union's response to Arbitrator question No. 75,
paras. 201-202 (referring to Brealey, Myers, and Allen, Principles of Corporate Finance, 9th Edition, p. 239
(Exhibit USA-99)).
519 United States' comments on the European Union's response to Arbitrator question No. 75, para. 201
(referring to European Union's response to Arbitrator question No. 75, para. 391).
520 European Union's response to Arbitrator question No. 75, para. 413 (referring to Daves, Philip R.;
Michael C. Ehrhardt and Robert A. Kunkel, 2002, "Estimating systematic risk: the choice of return interval and
estimation period", Journal of Financial and Strategic Decision, volume 13, number 1, pp. 7-13 (Exhibit
EU-79)).
521 European Union's response to Arbitrator question No. 75, paras. 411-418.
522 European Union's response to Arbitrator question No. 75, para. 421.
523 European Union's response to Arbitrator question No. 75, paras. 394, 396, and 434 (citing Decision
by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU), paras. 6.343-6.344,
6.350, and 6.348). We note that the DS316 arbitrator recognized that an LCA manufacturer also faces the risk
that the order may be cancelled, and that the future revenue streams may thus never be realized, but the
arbitrator made separate adjustments for this risk by using a survival rate. As discussed in section 6.4.6.4

benefits that Airbus foregoes when it allocates capital to the production of ordered LCA and waits to
receive the payment for the production and delivery of those LCA, rather than putting those funds
to alternative potential uses.524 We note that, because riskier projects demand higher rates of return,
risks play an important role in determining the opportunity cost associate d with a project. 525 As
presented by the European Union, specifically, the level of "opportunity cost" to be accounted for in
the choice of a discount rate depends on the risks arising in an LCA -sales-contract scenario in
addition to inflation (but excluding the risk of cancellation of the orders, as we have accounted for
that risk separately). The United States does not contest these assertions, and we discern no reason
to question them. We thus proceed to examine whether the European Union has proposed a discount
rate that reasonably captures the risk of inflation and opportunity cost, as the European Union uses
those terms.
6.256. The European Union submits that Airbus' cost of debt effectively captures the two key factors
that must be considered in this context (i.e. expected inflation and the opportunity cost). 526 As
support for using the cost of debt, the European Union also adduces evidence of Airbus' historic debt
financing costs and of the nominal interest rates in Europe for the years 2005 to 2018. Based on the
DS316 arbitrator's explanation that a nominal interest rate captures expected inflation, the
European Union argues that the relative proximity between the values of the two metrics (cost of
debt and the nominal interest rate) further supports using the cost of debt as a discount rate.527 We
note that the value of Airbus' cost of debt was higher than the nominal interest rate in both of the
years in which the relevant two orders occurred. 528 Thus, it appears reasonable to conclude that
Airbus' cost of debt effectively captures not only the nominal interest rate (i.e. expected inflation)
but also some level of opportunity cost. Additionally, neither party has produced any evidence or
argumentation specifically indicating that Airbus' cost of debt inappropriately captures Airbus'
relevant opportunity cost in individual sales (i.e. reflecting estimated risks additional to inflation).529
In the light of such consi derations using Airbus' cost of debt as the relevant discount rate in this
context appears reasonable.530
6.257. We recall that the United States argues that the WACC properly measures Airbus' overall
opportunity cost of capital when investing in the production of LCA and deferring full payment of the
LCA until delivery.531 The United States also explains that, because the WACC is intended to serve
as a discount rate to value a company's average-risk projects, it should be used in this context since
the valuation of an aircraft manufacturer is itself based on selling and delivering LCA. 532 The
European Union argues that the WACC encompasses risks that are not pertinent to individual sales
transactions, which are "relatively small -scale investments with low transaction -specific risk",
particularly when divorced from the risk of cancellation. 533 The European Union provides examples
of risks incorporated into the WACC that it states do not specifically arise in individual sales and that

above, we adjust the value of orders that Airbus would have won in the counterfactual taking into account the
risk of cancellation in the counterfactual. Thus, consistent with the approach of the DS316 arbitrator, we do not
further consider the risk of cancellation in this section of our Decision.
524 See Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 –
EU), para. 6.345.
525 Brealey, Myers, and Allen, Principles of Corporate Finance, 9th Edition, p. 239 (Exhibit USA-99).
526 European Union's response to Arbitrator question No. 17, para. 82.
527 European Union's response to Arbitrator question No. 75, para. 434 and fn 461 thereto (referring to
Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU),
paras. 6.348 and 6.353).
528 European Union's response to Arbitrator question No. 75, para. 435 and table 17 (comparing Airbus'
cost of debt, WACC, ALII, and nominal interest rates (2005-2018)).
529 The relatively small differential between the cost of debt and the nominal interest rate appears
consistent with the European Union's assertion that Airbus' relevant opportunity cost is "very low" when the
risk of cancellation is accounted for separately, an assertion the United States does not specifically contest.
(European Union's response to Arbitrator question No. 75, para. 402 and fn 422 thereto) We further note that
the differential between the WACC and the nominal interest rate is significantly greater.
530 We further note that using Airbus' cost of debt would be consistent with the DS316 arbitrator's
selection of Boeing's cost of debt to discount LCA delivery-year prices back to the order years when valuing
significant lost sales under an identical general methodology.
531 United States' opening statement at the meeting of the Arbitrator with the parties, para. 56; and
comments on the European Union's response to Arbitrator question No. 75, paras. 193-194 (referring to
Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU),
para. 6.344).
532 United States' comments on the European Union's response to Arbitrator question No. 75, para. 202
(citing Brealey, Myers, and Allen, Principles of Corporate Finance, 9th Edition, p. 239 (Exhibit USA-99)).
533 European Union's response to Arbitrator question No. 75, paras. 411-418.

make the WACC over-inclusive of risk in the specific circumstances of the valuation exercise before
us, which, to recall, "concerns … future cash flows from expected LCA deliveries under the individual
sales campaigns at issue".534
6.258. We see no basis to question the accura cy of the European Union's illustration of the range
of risks captured by the WACC, and the United States has not advanced any. We also concur with
the European Union that it is reasonable to conclude that, once an order has been secured through
an LCA sales contract, Airbus does not incur all of the same elements of risk as those reflected in
the WACC.535 In short, therefore, we consider that the record indicates that the WACC is over -
inclusive with respect to risks specific to the LCA sales at issue. 536 We thus consider that the
United States has not demonstrated that the WACC is a more reasonable discount rate than Airbus'
cost of debt in this context.
6.259. Finally, we recall that the European Union has proposed using the ALII as an alternative
discount rate to the cost of debt. 537 We further recall, however, that the European Union (a) has
applied Airbus' cost of debt as the relevant discount factor in its calculation methodology throughout
this proceeding, and (b) has consistently argued that the notion of even -handedness requires that
we use Airbus' cost of debt to ensure consistency with the DS316 arbitrator's use of Boeing's cost
of debt.538 As a result, we do not further consider using the ALII fo r purposes of discounting the
value of the lost sales.
6.260. For these reasons, we find Airbus' cost of debt in the form of euro -denominated ten-year
Airbus bond yield rates to be a reasonable discount factor to account for Airbus' risks in producing
and delivering LCA in the relevant sales campaigns before us. We therefore proceed to use it when
discounting counterfactual delivery-date prices back to the relevant order-dates.
6.4.7.2 Expressing the lost sales' values on a common monetary basis
6.261. In the section immediatel y above, the Arbitrator determined how it will temporally adjust
the delivery prices of counterfactual deliveries stemming from the Icelandair 2013, Air Canada 2013,
and Fly Dubai 2014 lost sales back to the times of the respective lost sales. These values have thus
far been expressed in order-date US dollars terms, depending on the date at which Airbus lost each
sale, consistent with the European Union's methodology.
6.262. Against that background, in this section, we address the next step in the European Union's
methodology, whereby the European Union converts the order -date values into 2015 US dollar
values. The European Union submits that this is an appropriate step because putting the values of
lost sales on a common monetary basis allows them to be summed and then divided by the number
of months in the reference period and multiplied by 12 in order to obtain an aggregated annualized
value of lost sales. That value will then be summed with the aggregated annualized value of the
threat of impedance to obtain the final maximum level of Annual Suspension. The European Union
argues that the common monetary basis should be the US dollar value as expressed in the final year

534 The European Union asserts that the WACC encompasses such risks as: profit risk to shareholders;
the risk of bankruptcy for Airbus; the risk that a programme may fail due to the inability to develop the
aircraft; the risk that the market may not demand as many aircraft as projected at the launch of a programme;
the risks associated with the manufacture and supply of the aircraft; exchange-rate risks; and political risks.
The European Union additionally asserts that building a new production facility or launching a new LCA
programme are examples of investments for which use of the WACC would be appropriate. (European Union's
response to Arbitrator question No. 75, paras. 413-414)
535 We note that evidence produced by the United States supports the European Union's underlying
assumption that the opportunity cost of capital depends on the use to which that capital is put, particularly on
the risk associated with the project at issue. (See Brealey, Myers, and Allen, Principles of Corporate Finance,
9th Edition, p. 239 (Exhibit USA-99))
536 In making this observation, we make no judgment as to the propriety of using the WACC to discount
expected revenue streams in other contexts.
537 The European Union asserts that the ALII also captures inflation and reflects project-specific risk.
(European Union's response to Arbitrator question No. 27, para. 114; and No. 75, section A)
538 See e.g. European Union's written submission, para. 396; and response to Arbitrator question
No. 17, para. 85.

of the compliance panel's reference period (i.e. 2015), as "has been firmly established by the {DS316
arbitrator}".539
6.263. The European Union proposes to perform this forward adjustment by applying an inflation
factor to the order -date lost-sales values, i.e. the ALII. According to the European Union, the ALII
compiles Airbus' standard contractual escalation rates, and as such performs the forward adjustment
from Airbus' perspective by reflecting industry participants' best assessment of cost dynamics in the
LCA industry over time, as they affect Airbus.540 The European Union argues that use of the ALII is
supported by the approach taken by the DS316 arbitrator because, in performing an equivalent
inflation adjustment, that arbitrator relied on the [[***]] contractual escalation formulae contained
in relevant Boeing contracts as the best way to capture the price evolution of Boeing aircraft. 541
Accordingly, in bringing the order -date values forward to 2015, the European Union divides the
average of the 2015 monthly values of the ALII by the ALII of the month in which each lost sale
occurred in 2013 or 2014 and multiplies the lost sales values by that ratio.542
6.264. The United States does not contest the European Union's adjustment of order -date values
forward to 2015 in a way that reflects Airbus' perspective for the ultimate purpose of determining a
maximum level of Annual Suspension.543 The United States rejects, however, the European Union's
proposal to do so using the ALII. According to the United States, a generic measure of inflation such
as the producer price index (PPI) for civilian aircraft (CA) manufacturi ng "makes more sense" than
a negotiated and customer -specific measure.544 In the United States' view, this is so because the
purpose of the inflation adjustment is merely to restate a valuation of adverse effects as an
equivalent real value in a future year, and thus it would be more logical to use a single inflation rate
for the entire value of adverse effects, as opposed to different [[***]] contractual escalation factors
that may vary under each lost sale. 545 The United States nonetheless acknowledges that , if the
Arbitrator opted to follow the DS316 arbitrator's reliance on contractual escalation rates, then "use
of the ALII would be appropriate".546
6.265. The Arbitrator notes that the parties agree that the Arbitrator should, in order to obtain an
aggregate annualized value of the lost sales, restate the order -date values of the Icelandair 2013,
Air Canada 2013, and Fly Dubai 2014 lost sales on a common monetary basis using an index that
reflects the perspective of Airbus. We agree that this proposed adjustment is a logical step in arriving
at an aggregate annualized value of the lost sales from which a maximum level of Annual Suspension
will be determined.547 The parties further agree that an appropriate common monetary basis in which
to express the values of the lost sales is 2015 US dollars. We discern no reason to question this
approach, 2015 being the most recent year in the reference period. We further no te that this
approach is consistent with how the DS316 arbitrator calculated an aggregate annualized value of

539 European Union's written submission, para. 396.
540 European Union's methodology paper, paras. 102-103; and response to Arbitrator question No. 16,
para. 72.
541 European Union's written submission, para. 396. The European Union observes that the DS316
arbitrator said that it chose "[[***]] escalation factor ratio" because such "escalation factor reflects [[***]]
changes in labour and material costs resulting from inflation and other economic changes". (European Union's
response to Arbitrator question No. 16, para. 74 (citing Decision by the Arbitrator, EC and certain member
States – Large Civil Aircraft (Article 22.6 – EU), para. 6.497) (emphasis omitted))
542 European Union's written submission, para. 396.
543 United States' written submission, para. 172; and response to Arbitrator question No. 16, para. 69.
While the United States initially proposed to express the value of each lost sale on a common basis of 2014 US
dollars, "2014 {being} the year in which the latest lost sale occurred", the United States subsequently revised
its position to convert all order-date values into 2015 US dollar values. (See e.g. Annualized Value of the
Adverse Effects in 2015 Dollars (Revised) (Exhibit USA-105 (HSBI)))
544 United States' written submission, para. 123 (citing Producer Price Indexes – Program Overview,
U.S. Department of Labor, Bureau of Labor Statistics (Exhibit USA-11)). See also PPI Industry Data File for
Aircraft Manufacturing – Civilian Aircraft, Not Seasonally Adjusted (Jan. 1986 – March 2019), U.S. Department
of Labor, Bureau of Labor Statistics (Exhibit USA-12).
545 United States' written submission, paras. 123-125; and response to Arbitrator question No. 16,
para. 70. The United States explains that using [[***]] contractual escalation factors may result in (the portion
of the countermeasures that reflects) the adverse effects quantified with respect to one lost sale being inflated
from one year to the next more than the equivalent measure for another lost sale. (United States' written
submission, para. 125)
546 United States' response to Arbitrator question No. 16, para. 71.
547 See section 6.4.2 above.

adverse effects using a multi-year reference period (i.e. adjusting, from Boeing's vantage point, all
values of adverse effects into US dollar values in the final year of the reference period).548
6.266. The only disagreement between the parties to resolve in this context is what index to use to
convert the order-date lost-sales US dollar values into 2015 US dollar values. The European Union
proposes the ALII, whereas the United States advocates using the PPI for CA manufacturing.
6.267. We recall that the United States' objection to using the ALII rests on its view that, because
the adjustment at issue is only intended to maintain the real value of adverse effect s over time, a
single and generic measure of inflation should be used to inflate all lost sales instead of different
[[***]] contractual escalation factors susceptible to change between each sale.549 We do not see a
justification in the United States' suggestion that using the ALII might result in variations in the
inflation rates applied to each lost sale, thereby yielding a different inflation effect on the different
portions of the adverse effects. We recall that the ALII is an inflation index that reflec ts Airbus'
standard price escalation formulae (in a non -[[***]] manner) and, hence, fixes a single escalation
factor for each month of each year between the base date and December 2019. It follows that all
lost sales are inflated based on the same inflation index, not potentially different [[***]] indices as
the United States suggests. To that extent, because the ALII conforms with the United States'
acknowledgement that using a single measure of inflation would be appropriate to adjust the real
value of ad verse effects associated with all three lost sales, we are unconvinced by the reason
advanced by the United States for using the PPI for CA instead of the ALII.
6.268. We further note that the DS316 arbitrator also rejected the United States' arguments for
using the PPI for CA manufacturing for purposes of the same restatement of values. Noting that the
United States had proffered "mostly practical justifications" 550 for using the PPI for CA
manufacturing, the DS316 arbitrator considered that, insofar as infl ation in this context relates to
"values concerning Boeing aircraft", "price evolution" would be "best captured by the [[***]]
escalation formula", which contains a "[[***]] escalation factor ratio" reflecting "[[***]] changes in
labour and material costs resulting from inflation and other economic changes" .551 Essentially the
same logic supports using the ALII as an inflation index in this proceeding. As with the "[[***]]
escalation factor ratio" used in the DS316 arbitration, the ALII is specific to the re levant LCA
manufacturer's viewpoint and accounts for [[ ***]] changes in labour and material costs resulting
from inflation and other economic changes. Indeed, the ALII is more specific to Airbus' perspective
than the PPI for CA manufacturing, as it more pr ecisely tracks the evolution of prices from Airbus'
perspective (which the parties agree is the perspective that an appropriate inflation index should
reflect).
6.269. In the light of the above, we consider that the European Union's method of using the ALII
to restate the order-date values of the lost sales on a common 2015-dollar basis is reasonable. Thus,
for the Icelandair 2013, Air Canada 2013, and Fly Dubai 2014 lost sales, and as proposed by the
European Union, we will multiply the values of the lost sales (expressed in order -date US dollar
terms) by the 2015-to-2013 and 2015-2014 ratios of the relevant ALII figures respectively in order
to express all such values on the same 2015 US dollar monetary basis, and then sum those individual
values to determine one aggregate value for the lost sales.

548 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU),
paras. 6.493-6.495.
549 United States' written submission, paras. 123-125; and response to Arbitrator question No. 16,
para. 70.
550 The DS316 arbitrator considered, but was not persuaded by, the arguments advanced by the
United States for using the PPI for CA manufacturing, including that the PPI for CA manufacturing is a
reasonable proxy for the increased dollar value of LCA over time; that it is a publicly available and regularly
updated index, published by a government institution; that it is unlikely to be subject to manipulation by
industry participants; and that it is also not specific to airlines. (See Decision by the Arbitrator, EC and certain
member States – Large Civil Aircraft (Article 22.6 – EU), paras. 6.496-6.497)
551 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU),
paras. 6.496-6.497. (fn omitted) We note that the bracketed text in this quotation was treated as BCI in the
DS316 arbitration decision, and that the European Union re-submitted the information as BCI in this
proceeding. (European Union's response to Arbitrator question No. 16, para. 74)

6.4.7.3 Annualization period
6.270. In their most recent valuations of the adverse effects, both parties propose to annualize the
aggregated value of the lost sales over the length of the reference period. We consider this an
appropriate methodology. As discussed in section 6.4.5.1 above, the choice of an appropriate period
of annualization should be made with reference to a period over which the economic harm being
measured occurs. In this dispute, the compliance panel identified the occurrence of the relevant lost
sales (i.e. the economic events that we value in this context) in the post-implementation period over
a particular temporal period, i.e. the reference period. We further recall that the DS316 arbitrator
instructively explained at some length why it makes both legal and ec onomic sense to temporally
assign the value of LCA lost sales to the time -period over which they were identified (in that case,
and in our case, the reference period used in the respective compliance proceedings). 552 We
therefore see no reason to question the parties' proposal that annualizing the value of the lost sales
over the length of the reference period will result in a maximum level of Annual Suspension that is
commensurate with the degree and nature of the adverse effects determined to exist.
6.4.8 Technical issues regarding the valuation of threat of impedance
6.271. In this part of the Decision, we address technical aspects of the European Union's
methodology that are specific to the valuation of adverse effects in the form of threat of impedance.
These relate to: (a) how to temporally adjust counterfactual delivery prices back to the reference
period; and (b) the appropriate temporal period(s) over which to annualize the aggregate values of
threat of impedance in the two geographic markets. We address each in turn.
6.4.8.1 Temporal adjustment of delivery-date values
6.272. In its valuation methodology with respect to threat of impedance using a "delivery-centric"
approach553, the European Union discounts the value of the counterfactual delivery prices of
scheduled LCA deliveries to determine their value at the beginning of the reference period (which,
according to the European Union, is January 2013). It then aggregates these January 2013 values
to determine the value of threat of impedance in January 2013 dollar terms. The Eur opean Union
uses Airbus' cost of debt (in the form of the 2013 Euro-denominated 10-year Airbus bond yield rate)
as the discount factor to perform this discounting exercise.554
6.273. The United States also performs a discounting exercise in the valuation methodology that it
proposes with respect to threat of impedance using a delivery -centric approach. The United States
argues that in the compliance proceedings the threat of impedance was found to exist during the
reference period based on deliveries of LCA that we re scheduled to be delivered in the future.
Therefore, according to the United States, the objective of the discounting exercise is to determine
the expected value of these future LCA deliveries during the reference period. For this purpose, the
United States discounts the value of the counterfactual delivery prices of scheduled LCA deliveries
to determine their expected value to Airbus in 2015 (i.e. the last year of the reference period) and
subsequently aggregates these 2015 values to determine the aggreg ated value of threat of
impedance in 2015 dollar terms. The United States maintains that, as was proposed in the case of
lost sales, the appropriate discount rate to determine the expected value of future deliveries to
Airbus is Airbus' WACC.555
6.274. The Arbitrator recalls that, in valuing threat of impedance, we value Airbus' post -reference
period counterfactual deliveries resulting from the 2008 Fly Dubai and the 2011 Delta Airlines sales

552 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU),
section 6.3.3.2.1. In particular, the DS316 arbitrator noted that the "lost sales" occurred during the reference
period used in the compliance proceedings, and further that "the value of a 'lost sale', when evidenced by an
agreement constituting an order for subsequent delivery of the purchased goods and assessed at the time of
that agreement, would be the expected value of the goods that would have been traded if the supplier that lost
the sale had won the sale". (Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft
(Article 22.6 – EU), para. 6.98)
553 We recall that the European Union refers to the approach it adopts in this regard as a "threat of
impedance" approach rather than a "delivery-centric" approach for reasons discussed in fn 254 above.
554 European Union's response to Arbitrator question No. 66, paras. 269-270; and comments on the
United States' response to Arbitrator question No. 66, para. 290.
555 United States' response to Arbitrator question No. 66, paras. 92-94; and comments on the
European Union's response to Arbitrator question No. 66, para. 129.

campaigns. Both parties agree, as do we, that such delivery -date values s hould be temporally
adjusted back to the reference period. This adjustment allows us to put such values on a common
US dollar basis (both parties ultimately express the values on a 2015 US dollar basis) in order to
allow us to calculate an annualized aggre gated value of the threat of impedance . The annualized
aggregated value of the threat of impedance, expressed on a 2015 US dollar basis, can then be
summed with the annualized aggregated value of lost sales to obtain a maximum value of Annual
Suspension.
6.275. We therefore note that each party proposes to perform this temporal adjustment by
discounting the delivery-date prices back to the reference period (albeit to different dates in the
reference period). As discussed in section 6.4.7.1 above, discounting is necessary in the context of
lost sales in order to capture Airbus' risk and cost of waiting to receive the payment between the
time of order and the time of delivery. In other words, and more generally, the need to discount
arises where the cash streams to be realized from, for instance, the conclusion of an LCA sales
contract are temporally removed from the conclusion of that contract.
6.276. In the light of the above observation, in valuing threat of impedance, we consider it
inappropriate to adjust the delivery-date values back to the reference period by discounting (i.e. by
using an instrument that captures Airbus' risks and costs of waiting). As explained in detail in section
6.4.5.3, the adverse effect finding that we value here, i.e. the threat of impedance, did not refer to
an event that caused economic harm to the European Union in the reference period. Rather, the
threat component of the adverse effect directs us to a future period (i.e. the post-reference period).
It is in this future period that the economic harm (i.e. impedance evidenced by deliveries of Boeing
LCA) was expected to occur. 556 Consistent with the finding of threat of impedance, therefore, we
value deliveries at the times that Airbus' relevant counterfactual deliveries would have occurred in
the post-reference period. As Airbus receives the full outstanding payment upon delivery, no relevant
cash stream associated with a delivery occurs in the future relative to the delivery. Hence, there is
no reason to account for the risk and cost to Airbus of waiting to receive any such cash stream. Both
Airbus' cost of debt and Airbus ' WACC, in our view, are instruments that capture such risk and
cost.557 Thus, we consider that both are inapprop riate tools with which to perform the temporal
adjustment of these delivery prices back to the reference period since using them would be
inconsistent with the nature of the threat findings that we are valuing.
6.277. In selecting an appropriate tool with which t o perform this temporal adjustment, we recall
that, in the context of valuing threat of impedance, the purpose of the temporal adjustment of
relevant delivery-date prices back to the reference period is to allow us to place their values on a
common monetary basis with respect to each other and with respect to the value of lost sales so
that all these values can be summed. This aggregation of values on a common monetary basis will
allow us to determine a maximum level of Annual Suspension. We therefore recal l that we already
have selected the ALII as the appropriate tool with which to convert 2013 and 2014 lost sales values
into 2015 US dollar values in section 6.4.7.2 above. The purpose of that temporal adjustment is the
same as the purpose of the temporal adjustment under examination here, i.e. to place US dollar
values at different dates on a common US dollar basis from the perspective of Airbus. For the same
reasons discussed in that section, therefore, we consider it appropriate to use the ALII in this context
to temporally adjust delivery prices to the reference period as well.
6.278. For the foregoing reasons, and in the context of valuing threat of impeda nce, we will
temporally adjust the relevant counterfactual delivery -date prices from the times the deliveries
would have occurred back to the reference period using the ALII . Using the ALII is consistent with
the nature of the threat findings that we value in this context. We select the year 2015 as the year
to which to adjust such prices. Indeed, both parties, in their most recent methodologies, ultimately
express the value of threat of impedance in 2015 US dollar values, and we further note that 2015 is
the year to which we will adjust the values of lost sales in order to aggregate them. Adjusting
delivery prices to 2015 is thus appropriate. Accordingly, we divide the average of the 2015 monthly

556 This stands in contrast to valuing lost sales, as the lost sales that occurred during the reference
period were the economic events that we value as having caused economic harm to the European Union
(i.e. the time at which Airbus lost the relevant sales).
557 See section 6.4.7.1 above.

values of the ALII by the ALII of the month to which we assig n each counterfactual delivery and
multiply the threat of impedance value by that ratio.558
6.4.8.2 Annualization period(s)
6.279. Above, we concluded that, in our valuation of threat of impedance, we will only value
counterfactual deliveries resulting from the 2011 Delta Airlines lost sale and 2008 Fly Dubai lost sale
that would have occurred after the end of the reference period. That being the case, the parties
disagree as to the annualization period of those values, i.e. the number of months by which we will
divide the value of such deliveries before multiplying them by 12 to arrive at an annualized value of
the threat of impedance.
6.280. The European Union argues that we should use the reference period as the annualization
period for any valuation of the threat of impedance, including in the event that we take a "delivery-
centric" approach.559 This position appears generally grounded in the European Union's underlying
position that the threat of impedance that existed in the reference period comprised all future
deliveries that were undelivered at any point in the reference period, and therefore, the appropriate
annualization period for this threat of impedance would be the reference period. 560 The
European Union makes three more specific arguments in support of this position. 561 First, it argues
that annualization should reflect the average annual value of the adverse effects, and because "the
correct numerator is the value of the threat of impedance that arose during the {36-month}
reference period ", the denominator in the annualization calculation should be the same time -
period.562 Second, it argues th at the DS316 arbitrator used as its reference period for valuing the
adverse effects the 25 -month reference period used by the compliance panel in that dispute and
annualized the adverse effects over the same 25-month period, and that even-handedness demands
that this Arbitrator follow the same approach. 563 Finally, the European Union argues that the
United States has failed to demonstrate that the European Union's approach is inconsistent with
Articles 7.9 and 7.10 of the SCM Agreement.564
6.281. The United States argues that we should use the length of the time -period over which the
relevant post -reference period deliveries would have occurred in the counterfactual as the
annualization period. T he United States submits that the essence of annualization is achievin g a
correspondence between the numerator (i.e. number of deliveries giving rise to threat of impedance
in the US and UAE markets) and the denominator (i.e. the period over which those deliveries were
scheduled to occur).565 Accordingly, the United States takes as the denominator the time over which
the counterfactual Airbus deliveries under the 2011 Delta Airlines and 2008 Fly Dubai sales would
have been scheduled to occur after the end of the compliance panel's reference period.566

558 To facilitate the technical calculations and to account for uncertainty regarding the specific delivery
months of the counterfactual deliveries, after determining the number of counterfactual deliveries that would
have occurred in a given calendar year, we assume that all counterfactual deliveries would have occurred in
July of that year, as proposed by both parties in their calculations. We also note that the arbitrator in DS316
did the same in this context. (Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft
(Article 22.6 – EU), fn 675)
559 European Union's response to Arbitrator question No. 66, paras. 236 and 239.
560 See para. 6.95 and, more generally, section 6.4.5.3.2 above.
561 European Union's response to Arbitrator question No. 66, paras. 236 and 239.
562 European Union's response to Arbitrator question No. 66, paras. 240-243 and 301.
563 European Union's response to Arbitrator question No. 66, paras. 244-248.
564 European Union's response to Arbitrator question No. 66, paras. 248-250.
565 United States' comments on the European Union's response to Arbitrator question No. 66, para. 115.
See also United States' response to Arbitrator question No. 35, para. 110 (indicating that annualizing the value
of relevant deliveries by the number of years over which such deliveries were scheduled to occur is proper
when deliveries occur over "multiple years").
566 Assuming the end of the reference period to be September 2015, the United States notes that
counterfactual Airbus deliveries would have occurred in the [[***]] as well as [[***]]. Accordingly, the United
States argues that the 2015 expected value of the post-reference period deliveries under both sales campaigns
would be divided by [[***]] to arrive at an annualized value of the threat of impedance findings. (United
States' response to Arbitrator question No. 66, para. 96) Alternatively, if the compliance panel reference period
were 2013-2015, the United States submits that the value of scheduled deliveries on or after 1 January 2016
would be divided by [[***]] because the numerator would reflect deliveries made over [[***]]. (See United
States' comments on the European Union's response to Arbitrator question No. 66, para. 115)

6.282. The Arbitrator notes that the annualization periods that the parties propose are of different
durations.567 We therefore begin by examining whether using the reference period as the
annualization period, as proposed by the European Union, would be consistent with our mandate. At
the outset, we emphasize in this context what the reference period is and what it is not. The
reference period is a time -period in the post-implementation period in which the compliance panel
identified adverse effects and, m ore specifically, forms of serious prejudice. We discern nothing
about that exercise that indicates that the period was also intended to be a period of time to which
relevant economic value flowing from such adverse effects was necessarily to be assigned f or the
purpose of determin ing a maximum level of Annual Suspension under Article 7.10 of the
SCM Agreement. Such assignment and determinations were not the task of the compliance panel.
Thus, there is no basis on which to conclude that our task of fashioni ng a "commensurate" level of
countermeasures, insofar as annualization is concerned, is ipso facto controlled by the duration of
the reference period in all cases.
6.283. We therefore recall our earlier conclusion that our mandate and the purpose of
countermeasures compels the conclusion that the choice of an appropriate period of annualization
should be made with reference to a period over which the economic harm being measured occurs.
We therefore observe that the compliance panel's findings with respect to thr eat of impedance and
the nature of threat of impedance, indicate that we should value the threatened impedance with
reference to counterfactual LCA deliveries occurring after the reference period and at the times those
deliveries would have occurred.568 Thus, the economic harm flowing from the threat of impedance
is measured by the value of the relevant counterfactual LCA deliveries at the times they would have
been delivered. For threat of impedance, therefore, we consider that an appropriate annualization
period should be made with reference to a period over which the relevant counterfactual deliveries
being valued occurred. In light of this conclusion, we see no way to consider the reference period
alone as being that period since no relevant counterfactual deliveries would have occurred during
the reference period. 569 We therefore cannot accept the reference period as an appropriate
annualization period.570
6.284. We note that this conclusion is consistent with how the DS316 arbitrator valued present
impedance, i.e. by valuing the relevant counterfactual deliveries in a time-period in which deliveries
would have occurred (in that proceeding, in the compliance panel's reference period) .571 Our
approach to annualization, therefore, gives consistency to how present and threatened (i.e. future)
impedance are valued, while making due allowance for the different time-periods in which they may
materialize and result in economic harm to the complainant in the form of deliveries.
6.285. We further note that the European Union observes that the DS316 arbitrator annualized the
adverse effects in th at proceeding over the compliance panel's reference period and refers in
particular to the DS316 arbitrator's st atement that "we see no need to ensure that our 'chosen
period of reference', i.e. the 2011 -2013 reference period, 'may lead to a reasonable estimation' of
any present and future adverse effects". The European Union argues that this statement effectively
dispenses with any requirement of consistency between the time periods in the numerator and the

567 The reference period's duration is 36 months. The number of months over which the counterfactual
deliveries would have occurred in the post-reference period in the US and UAE markets is HSBI, as it is derived
from the HSBI proposed delivery schedules in the Airbus final offers in the 2011 Delta Airlines and 2008 Fly
Dubai sales campaigns.
568 See para. 6.144 above.
569 This stands in contrast to a situation involving lost sales, whereby we temporally assign the value of
the resulting deliveries to the time of the lost sale that occurred during the reference period. As described in
detail in the DS316 arbitration, it makes legal sense to do this because the "lost sale" itself is the adverse
effect that occurred during the reference period, but it also makes economic sense to do so because "an LCA
order contract is reasonably characterized as having an expected economic value such that when the order is
lost, the supplier who would have won the sale in the relevant counterfactual (in this case, Boeing) can be said
to have lost that expected value at the time of the lost sale". (Decision by the Arbitrator, EC and certain
member States – Large Civil Aircraft (Article 22.6 – EU), para. 6.104) In the case of threat of impedance, the
"threat" element temporally directs us to after the reference period to identify the economic event, i.e.
"impedance" taking the form of LCA deliveries.
570 We note that we are not dealing with an instance where present impedance was found to exist during
the reference period and then was expected to continue after the reference period by virtue of an additional
threat finding. We make no judgments as to the appropriate annualization period in such a situation.
571 In doing so, the Arbitrator noted that "other arbitrators likewise established maximum levels of
suspension based on the relevant effects of the measures in question over one year". (Decision by the
Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU), para. 6.495)

denominator in an annualization exercise.572 We disagree with the European Union's argument. The
DS316 arbitrator's referenced statement was made in the context o f resolving a different issue,
namely whether an arbitrator's valuation of "adverse effects determined to exist" identified in a past
time-period, expressed as a maximum level of Annual Suspension, must reflect the value of adverse
effects caused by the su bsidies that were not previously identified by the compliance panel
(specifically, adverse effects that the relevant subsidies may cause at the time of the arbitration
proceeding, and into the then-future).573 We agree with the DS316 arbitrator's conclusion in this
context, i.e. that it is not necessary for the valuation to do so under such circumstances.
6.286. In keeping with that conclusion, we fashion a maximum level of Annual Suspension solely
with reference to the adverse effects determined to exist in the compliance panel's reference period,
and not with reference to what adverse effects the Washington State B&O tax rate reduction may
cause now or in the future. 574 Finally, although we decide this issue with reference to what is
permissible under our mandate, we also note that we have concerns as to the systemic implications
of the European Union's proposed approach in this context. This is so because the European Union's
approach to temporal assignment of economic value of threatened serious prejudice, and re sulting
annualization, reserves a significant role for the duration of a reference period. We thus observe
that, under the European Union's approach, in two disputes where all other things are equal,
significantly different levels of countermeasures could be authorized simply by virtue of different
reference periods having been used (both temporally disconnected from the economic harm being
valued) to identify the same threatened serious prejudice. We have doubts that such a result could
be considered legal ly or economically sound 575 and are concerned about the potential of such an
approach to yield arbitrary and/or punitive levels of countermeasures.576
6.287. With these observations in mind, we turn to determining what the appropriate annualization
period is for the finding of threat of impedance in the two relevant geographic markets, i.e. the
United States and the UAE.
a. Annualization period for the United States market
6.288. With respect to the annualization period for the threat of impedance in the US geographic
market, the United States proposes that we use the time -period beginning at the end of the
reference period and through the end of the last calendar year in which Airbus' counterfactual
deliveries stemming from the 2011 Delta Airlines campaign would have occur red (which is a
[[***]]).577 The European Union has proposed no alternative annualization period (other than the
reference period, which we have already rejected as an appropriate annualization period immediately

572 European Union's response to Arbitrator question No. 74, para. 381 (referring to Decision by the
Arbitrator, EC – Large Civil Aircraft (Article 22.6 – EU), para. 6.74).
573 Indeed, after the DS316 arbitrator determined that it could fashion a maximum level of Annual
Suspension based on the adverse effects identified in the compliance panel's reference period, the arbitrator
still engaged in a multi-page discussion about whether it would be legally and economically appropriate to
temporally assign the value of lost sales to that reference period. (Decision by the Arbitrator, EC and certain
member States – Large Civil Aircraft (Article 22.6 – EU), pp. 51-56) It is difficult to discern why such a lengthy
discussion would have been necessary if the arbitrator had previously determined that all values of the adverse
effects should ipso facto be assigned to that reference period.
574 See Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft
(Article 22.6 – EU), Annex C-1 (explaining this issue further).
575 We also note that, under the European Union's approach, in instances where threat of serious
prejudice is identified but the time-period over which it would materialize is not previously specified, the level
of countermeasures could further be significantly altered by arbitrators choosing to value the same rate of
harm over different durations following the same reference period. Annualizing such harm with reference to the
time-period over which it occurs may mitigate such potential variations.
576 It is generally recognized that WTO remedies are not intended to be "punitive". (Decisions by the
Arbitrator, US – Washing Machines (Article 22.6 – US), para. 1.17 (citing Decisions by the Arbitrator,
US – Upland Cotton (Article 22.6 – US I), para. 4.109); US – 1916 Act (EC) (Article 22.6 – US), para. 5.8; and
US – FSC (Article 22.6 – US), para. 5.62 (noting that even though in prohibited subsidies disputes Article 4.10
of the SCM Agreement authorizes "appropriate" countermeasures that are not "disproportionate", there is
nothing in that Article or its context "which suggests an entitlement to manifestly punitive
{countermeasures}"). See also Decision by the Arbitrator, Brazil – Aircraft (Article 22.6 – Brazil), para. 3.55
(explaining that "{a} countermeasure becomes punitive when it is not only intended to ensure that the {WTO
Member} in breach of its obligations bring its conduct into conformity with its international obligations, but
contains an additional dimension meant to sanction the action of that {WTO Member}")).
577 United States' response to Arbitrator question No. 66, para. 96; and comments to European Union's
response to Arbitrator question No. 66, para. 130.

above). The Arbitrator considers that, under the particular circumstances of this proceeding, the
United States' proposed approach to annualization with respect to the US geographic market is
acceptable under our mandate. That approach purportedly uses the temporal period that
corresponds to the per iod over which the relevant deliveries would have occurred in the
counterfactual in the post -reference period. 578 We further recall that the finding of threat of
impedance in the United States market was based on expected post -reference period deliveries
stemming from the 2011 Delta Airlines sales campaign, specifically. Further, the Airbus proposed
delivery schedule envisioned a temporal spread of deliveries that is [[***]] over the delivery period.
We note, however, that we use an annualization period in this context that is [[ ***]] than the
United States' proffered time -period. This is so because the Airbus delivery schedule does not
actually envision deliveries occurring for the [[ ***]] of t he United States' proffered annualization
period. We thus use an annualization period that corresponds to the number of months over which
the Airbus proposed delivery schedule envisioned deliveries to occur, which is still a [[***]] period.
b. Annualization period for the UAE market
6.289. With respect to the annualization period for the threat of impedance in the UAE geographic
market, the United States proposes that we use the entire time-period in the post-reference period
over which Airbus' counterfactual delive ries stemming from the 2011 Delta Airlines and 2008 Fly
Dubai sales campaigns would have occurred. The end of this proposed period is apparently based
on the year of the last counterfactual Airbus delivery associated with the 2011 Delta Airlines sales
campaign, which is [[***]] the date of the last counterfactual Airbus delivery in the 2008 Fly Dubai
sales campaign. The United States has offered no other justification for this annualization period.
We therefore recall that the threat of impedance findings f rom the compliance proceedings were
expressed as separate findings for the US and UAE geographic markets , based on specific and
different lost sales . We thus see no reason stemming from the compliance panel's findings to
annualize them with reference to th e same time -period. We therefore consider that, in the
circumstances of this proceeding, the United States has failed to properly justify its proposed
annualization period as acceptable under our mandate, and we accordingly decline to use it.
6.290. We observe t hat neither party offers a method for annualizing the value of the threat of
impedance in the UAE market with reference to anything other than the temporal periods that we
have already rejected. We therefore must select an annualization period in this cont ext that is
consistent with our task of determining a maximum level of Annual Suspension that is
"commensurate with" the value of the adverse effects determined to exist. In selecting an
annualization period, we first establish what we consider to be relev ant factual assumptions. In
particular, we note that the counterfactual Airbus deliveries [[ ***]] based on Airbus schedules. In
other words, the relevant deliveries would have occurred over a time -period of [[***]]. Moreover,
we note that the presentation of the counterfactual Airbus deliveries in the Fly Dubai final 2008 offer
does not enable us to determine precisely [[ ***]].579 We note, however, that the United States, in
its most recently updated calculations concerning a "delivery-centric" approach to valuing threat of
impedance, assumes an HSBI number of Airbus counterfactual deliveries postdating the reference
period by apparently assuming an even temporal spread of deliveries over the maximum number of
relevant months o ver which deliveries could have occurred under the Airbus proposed delivery
schedule. In the light of the previously noted uncertainties surrounding the exact timing of Airbus'
counterfactual post -reference period deliveries, we consider this methodology r easonable and
accordingly adopt it. We therefore assume the same HSBI number of post-reference period deliveries
over the same number of months as the United States appears to do in its most recent calculations.
6.291. With such reasonable assumptions established , we turn to selecting an appropriate
annualization period. We have, as set out above, selected an annualization period for threat of
impedance in the US market that corresponds to the number of months in the post-reference period
over which the relevant c ounterfactual deliveries would have been made. In the light of the facts
and circumstances of this proceeding, and in the absence of any alternative suggestions from the
parties, we consider it appropriate to adopt the same method here, i.e. selecting an a nnualization

578 We also note that the resulting annualized number of deliveries in the post-reference period
generally corresponds to the average annual number of deliveries envisioned under the entire Airbus delivery
schedule.
579 We note that Boeing had delivered all of its aircraft under the 2008 Fly Dubai sales campaign by the
end of the third quarter of 2015. (See 2 RPQ Ascend Database Update (Exhibit EU-75); and European Union's
response to Arbitrator question No. 66 paras. 204, 226, 322, 326, and 330. See also [[***]].

period that corresponds to the number of months over which Airbus' post -reference period
counterfactual deliveries that we value would have occurred, which is an HSBI number of months.
This implies that we divide the total value of all post -reference period deliveries by the number of
months between the end of the reference period and the last counterfactual delivery and multiply
this value by 12 to obtain an annualized value.
6.292. We note that this HSBI number of months is [[ ***]]. Under the speci fic circumstances of
this proceeding, however, we still consider this an appropriate annualization period. Both parties
have proffered ways to annualize the adverse effects in this proceeding over time periods that have
not always coincided with a whole number of years. Also, this method accords with the United States'
general position that the relevant counterfactual deliveries should be annualized over the time during
which they would have occurred. Further, we note that the resulting number of annual del iveries
reached under this method generally corresponds to the average number of annual deliveries
envisioned under the Airbus proposed delivery schedule for the 2008 Fly Dubai sales campaign as a
whole, and to the average number of annual post-reference period deliveries in the UAE market had
we included 2014 Fly Dubai deliveries in the threat of impedance calculation. Finally, and relatedly,
we note that the period over which relevant deliveries would have occurred in the UAE market would
have been greater than [[***]] had we valued the deliveries resulting from the 2014 Fly Dubai lost
sale as threat of impedance, rather than valuing the 2014 Fly Dubai sales campaign as a lost sale
(as was proposed by both parties).
a. Conclusion
6.293. For the foregoing reasons, in the context of valuing the threat of impedance, and in the light
of the specific circumstances of this proceeding, we will annualize the value of relevant post -
reference period counterfactual Airbus deliveries in the US and UAE markets with reference to t he
number of months over which such counterfactual deliveries would have occurred in each market.
6.4.9 Summary of technical valuations of the adverse effects determined to exist
6.294. In the sections above, we have made various decisions regarding the methodology tha t we
consider appropriate to determine a maximum level of Annual Suspension. In the light of such
decisions, this section summarizes how we will determine that maximum value. In accordance with
our findings made thus far, we follow a three-step approach whereby we calculate: (a) an aggregate
annualized value for significant lost sales expressed in 2015 US dollars; (b) an aggregate annualized
value for threat of impedance expressed in 2015 US dollars; and (c) an aggregate value given by
the sum of these two values. We address each in turn in the following subsections.
6.4.9.1 Valuation of significant lost sales
6.295. As noted, in the preceding sections, we have adopted aspects of the methodology proposed
by the European Union regarding the valuation of significant lost sales while making adjustments to
other aspects. This section summarizes those decisions and describes how we will determine an
aggregate annualized value of adverse effects in the form of significant lost sales.
6.296. As explained in section 6.4.5.2 the findings of significant lost sales relate to three separate
sales campaigns that occurred during the reference period, i.e. Icelandair 2013, Air Canada 2013,
and Fly Dubai 2014. The value of adverse effects in the form of significant lost sales is equal to the
sum of the values of the Airbus LCA that would have been ordered and delivered had Airbus won
the campaigns in the counterfactual. To calculate the value of each sales campaign, we follow an
order-centric approach, i.e. we determine the total value of each sales campaign at the time the
orders were lost before adjusting those values to a common 2015 US dollar basis.
6.297. We found it reasonable to assume that, i n the counterfactual, Airbus would have won all
three sales campaigns and would have received orders for as many LCA as Boeing actually received
in connection with each sales campaign (not including options, whether exercised or not).580 We rely
on Airbus' final offers in the respective sales campaigns to obtain counterfactual delivery models,
delivery schedules, and Net Fly-Away Prices. In sales campaigns in which differences between Airbus'
final offers and Boeing's purchase agreements require additional assumptions regarding (a) certain

580 See sections 6.4.6.1 and 6.4.6.2 above.

counterfactual delivery dates and (b) LCA models that would have been ordered, we resolve the
former issue with the aid of the delivery schedules in Boeing's purchase agreements and the latter
issue in the light of the mode ls that were offered by Airbus in its relevant final offers (see section
6.4.6.3).
6.298. The value of each sales campaign is equal to the sum of the discounted value of Airbus' Net
Fly-Away Prices (including [[***]], and as escalated to the time of delivery) for each counterfactual
delivery associated with that given sales campaign. For each delivery we account for the risk of
cancellation and discount the delivery-date price back to the time of order as follows:
𝐴𝑑𝑗𝑢𝑠𝑡𝑒𝑑𝐿𝑜𝑠𝑡𝑆𝑎𝑙𝑒𝑠𝑎𝑙𝑒𝑠 𝑐𝑎𝑚𝑝𝑎𝑖𝑔𝑛 𝑖
𝑖𝑛 𝑜𝑟𝑑𝑒𝑟 𝑑𝑎𝑡𝑒 𝑜 𝑈𝑆𝐷
= ∑ ∑ 𝐴𝑖𝑟𝑏𝑢𝑠𝑁𝑒𝑡𝐹𝑙𝑦𝐴𝑤𝑎𝑦𝑃𝑟𝑖𝑐𝑒𝑠𝑎𝑙𝑒𝑠 𝑐𝑎𝑚𝑝𝑎𝑖𝑔𝑛 𝑖,𝐿𝐶𝐴 𝑚𝑜𝑑𝑒𝑙 𝑚,𝑑𝑒𝑙𝑖𝑣𝑒𝑟𝑦 𝑑𝑎𝑡𝑒 𝑑
𝑖𝑛 𝑑𝑒𝑙𝑖𝑣𝑒𝑟𝑦 𝑑𝑎𝑡𝑒 𝑑 𝑈𝑆𝐷
𝐿𝐶𝐴 𝑚𝑜𝑑𝑒𝑙 𝑚

𝑑𝑒𝑙𝑖𝑣𝑒𝑟𝑦 𝑑𝑎𝑡𝑒 𝑑
× 𝑁𝑢𝑚𝑏𝑒𝑟𝑂𝑓𝐷𝑒𝑙𝑖𝑣𝑒𝑟𝑒𝑑𝐴𝑖𝑟𝑐𝑟𝑎𝑓𝑡𝑠𝑎𝑙𝑒𝑠 𝑐𝑎𝑚𝑝𝑎𝑖𝑔𝑛 𝑖,𝐿𝐶𝐴 𝑚𝑜𝑑𝑒𝑙 𝑚,𝑑𝑒𝑙𝑖𝑣𝑒𝑟𝑦 𝑑𝑎𝑡𝑒 𝑑
× 𝑆𝑢𝑟𝑣𝑖𝑣𝑎𝑙𝑅𝑎𝑡𝑒𝑑𝑒𝑙𝑖𝑣𝑒𝑟𝑦 𝑑𝑎𝑡𝑒 𝑑 × 1
(1 + 𝐷𝑖𝑠𝑐𝑜𝑢𝑛𝑡𝐹𝑎𝑐𝑡𝑜𝑟𝑜𝑟𝑑𝑒𝑟 𝑑𝑎𝑡𝑒 𝑜)𝑑𝑒𝑙𝑖𝑣𝑒𝑟𝑦 𝑑𝑎𝑡𝑒 𝑑 −𝑜𝑟𝑑𝑒𝑟 𝑑𝑎𝑡𝑒 𝑜 ,
(2)

where

 𝑆𝑢𝑟𝑣𝑖𝑣𝑎𝑙𝑅𝑎𝑡𝑒𝑑𝑒𝑙𝑖𝑣𝑒𝑟𝑦 𝑑𝑎𝑡𝑒 𝑑 = { 1 𝑖𝑓 𝑑𝑒𝑙𝑖𝑣𝑒𝑟𝑦 𝑑𝑎𝑡𝑒 𝑑 < 𝐽𝑎𝑛 2020
(1 − 𝐴𝑣𝑒𝑟𝑎𝑔𝑒𝐴𝑖𝑟𝑏𝑢𝑠𝑆𝑖𝑛𝑔𝑙𝑒𝐴𝑖𝑠𝑙𝑒𝐶𝑎𝑛𝑐𝑒𝑙𝑙𝑎𝑡𝑖𝑜𝑛𝑅𝑎𝑡𝑒2003−2007)𝑑−𝐽𝑢𝑙 2019 𝑒𝑙𝑠𝑒,

and 𝐴𝑖𝑟𝑏𝑢𝑠𝑁𝑒𝑡𝐹𝑙𝑦𝐴𝑤𝑎𝑦𝑃𝑟𝑖𝑐𝑒𝑠𝑎𝑙𝑒𝑠 𝑐𝑎𝑚𝑎𝑝𝑖𝑔𝑛 𝑖,𝐿𝐶𝐴 𝑚𝑜𝑑𝑒𝑙 𝑚,𝑑𝑒𝑙𝑖𝑣𝑒𝑟𝑦 𝑑𝑎𝑡𝑒 𝑑
𝑖𝑛 𝑑𝑒𝑙𝑖𝑣𝑒𝑟𝑦 𝑑𝑎𝑡𝑒 𝑑 𝑈𝑆𝐷 is defined by Equation (1) in
section 6.4.6.6 on counterfactual delivery prices.

6.299. We adjust counterfactual delivery numbers to reflect cancellations that would have occurred
before 2020 in the counterfactual, as described in section 6.4.6.4. This affects only one delivery
from the Fly Dubai 2014 campaign as summarized in Table 1. We assume that all other
counterfactual Airbus deliveries scheduled to occur before 2020 would have occurred.
Table 1: Counterfactually ordered and delivered aircraft

6.300. We adjust the counterfactual delivery prices of all orders that would have been delivered in
2020 or later and are unaffected by a pre-2020 cancellation by a survival rate to reflect the risk that
such deliveries might be cancelled in the counterfactual future. The survival rate gives the probability
that a counterfactual delivery will not be cancelled in the counterfactual. We construct a survival
rate for all counterfactual deliveries scheduled from 2020 onwards based on Airbus' average historic
cancellation rate between 2003 and 2007 for single-aisle LCA (section 6.4.6.4).
6.301. Once we have thus obtained the delivery prices of the relevant counterfactual LCA, we
discount those delivery prices back to the time that the relevant sales campaign was lost. The
discount factor accounts for the fact that monetary flows associated with orders resulting from sales
campaigns are temporally removed from the time at which such orders are placed. It addresses
resulting risks and harmonizes the monetary basis of delivery values at the date of order. As

581 See section 6.4.6.3 above for a detailed explanation regarding the determination of the number of
counterfactual orders. It will be recalled that, to obtain these numbers, we predicated our analysis on the
proposed number of orders in the Airbus final offers, which are HSBI. That analysis ultimately concluded,
however, that we should use the number of orders that coincided with the number of firm orders in the Boeing
purchase agreements, which the numbers in this column represent.
Lost sale Order year Number of
counterfactually
ordered aircraft581
Number of
counterfactually
delivered aircraft
Icelandair 2013 16 16
Air Canada 2013 61 61
Fly Dubai 2014 86 85

discussed in section 6.4.7.1, we use Airbus' average cost of debt in the order year as the appropriate
discount factor.582
6.302. Having obtained the adjusted values of the lost sales expressed in order-date US dollars, we
proceed by bringing them to a common monetary basis in order to be able to sum the values of the
three lost sales. Both parties agree to use the year 2015 as the common monetary basis. We use
the yearly average of the 2015 monthly ALII for this purpose as outlined in section 6.4.7.2 and
calculate the sum to generate a total aggregate value for the significant lost sales expressed in 2015
US dollar terms as follows:
𝐴𝑑𝑗𝑢𝑠𝑡𝑒𝑑𝐿𝑜𝑠𝑡𝑆𝑎𝑙𝑒𝑠𝑖𝑛 2015 𝑈𝑆𝐷 = ∑ 𝐴𝑑𝑗𝑢𝑠𝑡𝑒𝑑𝐿𝑜𝑠𝑡𝑆𝑎𝑙𝑒𝑠𝑎𝑙𝑒𝑠 𝑐𝑎𝑚𝑝𝑎𝑖𝑔𝑛 𝑖
𝑖𝑛 𝑜𝑟𝑑𝑒𝑟 𝑑𝑎𝑡𝑒 𝑜 𝑈𝑆𝐷 × 𝐴𝐿𝐼𝐼2015
𝐴𝐿𝐼𝐼𝑜𝑟𝑑𝑒𝑟 𝑑𝑎𝑡𝑒 𝑜𝑠𝑎𝑙𝑒𝑠 𝑐𝑎𝑚𝑝𝑎𝑖𝑔𝑛 𝑖
. (3)

6.303. In the light of the European Union's request to impose countermeasures on an annual basis,
we annualize the value of significant lost sales expressed in 2015 USD. We annualize the aggregate
lost sales value expressed in 2015 US dollars over the length of r eference period, which was
determined in section 6.4.7.3 to last 36 months from October 2012 to September 2015, as follows:
𝐴𝑛𝑛𝑢𝑎𝑙𝑖𝑧𝑒𝑑𝐿𝑜𝑠𝑡𝑆𝑎𝑙𝑒𝑠𝑖𝑛 2015 𝑈𝑆𝐷
= ∑ 𝐴𝑑𝑗𝑢𝑠𝑡𝑒𝑑𝐿𝑜𝑠𝑡𝑆𝑎𝑙𝑒𝑠𝑎𝑙𝑒𝑠 𝑐𝑎𝑚𝑝𝑎𝑖𝑔𝑛 𝑖,𝑜𝑟𝑑𝑒𝑟 𝑑𝑎𝑡𝑒 𝑜
𝑖𝑛 2015 𝑈𝑆𝐷
𝑠𝑎𝑙𝑒𝑠 𝑐𝑎𝑚𝑝𝑎𝑖𝑔𝑛 𝑖
× 12
𝐷𝑢𝑟𝑎𝑡𝑖𝑜𝑛𝑂𝑓𝑅𝑒𝑓𝑒𝑟𝑒𝑛𝑐𝑒𝑃𝑒𝑟𝑖𝑜𝑑.
(4)

6.304. The resulting aggregate annualized value of the significant lost sales expressed in 2015
US dollars is USD [[***]].
6.4.9.2 Valuation of threat of impedance
6.305. As was the case for the valuation of significant lost sales, we have in the preceding sections
adopted aspects of the methodology proposed by the European Union regarding the valuation of
threat of impedance while making adjustments to other aspects. This section summarizes those
decisions and describes how we will determine an aggregate annualized value of adverse effects in
the form of threat of impedance.
6.306. The compliance panel found threat of impedance in two different geographic markets,
i.e. the United States and the UAE. We value the threat of impedance in each such market separately
but follow the same methodology for each. We then express the value of threat of impedance in
each market on a common monetary basis, annualize those values, and sum the two so a s to
calculate a final aggregate annualized value for adverse effects in the form of threat of impedance.
The common monetary basis is 2015 US dollars, corresponding to the last year of the reference
period and to the monetary basis of the significant lost sales, so that we can subsequently calculate
a maximum level of Annual Suspension by summing the aggregate annualized values of significant
lost sales and threat of impedance.

582 As mentioned in footnote 558 above, as proposed by both parties in their calculations, to facilitate
the calculations and to account for the uncertainty regarding the specific delivery months of the counterfactual
deliveries, we assume that all counterfactual deliveries would have occurred in July of a given year. We note
that the arbitrator in DS316 did the same in this context. (Decision by the Arbitrator, EC and certain member
States – Large Civil Aircraft (Article 22.6 – EU), fn 675) Regarding the dates of the relevant sales campaigns,
i.e. the date on which Airbus would have secured the orders in the counterfactual, the European Union uses the
exact month in which Boeing actually won the relevant sales campaigns, whereas the United States assumes in
its calculations that all sales campaigns would have taken place in July of the relevant year. We discern nothing
unreasonable in the European Union's approach, and accordingly adopt it. We note that while the DS316
arbitrator assumed that all orders associated with lost sales would have occurred in July in the relevant year,
that was the methodology proposed by the United States in that proceeding, with respect to which the
arbitrator noted no objection by the European Union. (Decision by the Arbitrator, EC and certain member
States – Large Civil Aircraft (Article 22.6 – EU), fns 350 and 675) We further note that, although this Decision
is circulated after July 2020, the parties' last substantive submissions were received in March 2020.

6.307. We value threat of impedance using a delivery-centric approach.583 That is, and as explained
in sections 6.4.5.3.2 and 6.4.5.3.3, we value the counterfactual deliveries that Airbus would have
made had Airbus not suffered impedance in the two geographic markets in the post-reference period.
These counterfactual deliveries would have resulted from Airbus winning one sales campaign in each
relevant geographic market, i.e. the 2011 Delta Airlines sales campaign for the US market and the
2008 Fly Dubai sales campaign for the UAE market.
6.308. To determine delivery prices of the rel evant deliveries, we proceed with the same steps as
when valuing deliveries stemming from lost sales. Thereafter, as described in section 6.4.8.1, we
temporally adjust the delivery prices directly back to 2015 using the ALII. The aggregate 2015 US
dollar value of the threat of impedance in each geographic market is thus given by:
𝐴𝑑𝑗𝑢𝑠𝑡𝑒𝑑𝑇ℎ𝑟𝑒𝑎𝑡𝑂𝑓𝐼𝑚𝑝𝑒𝑑𝑎𝑛𝑐𝑒𝑔𝑒𝑜𝑔𝑟𝑎𝑝ℎ𝑖𝑐 𝑚𝑎𝑟𝑘𝑒𝑡 𝑔
𝑖𝑛 2015 𝑈𝑆𝐷
= ∑ ∑ 𝐴𝑖𝑟𝑏𝑢𝑠𝑁𝑒𝑡𝐹𝑙𝑦𝐴𝑤𝑎𝑦𝑃𝑟𝑖𝑐𝑒𝑠𝑎𝑙𝑒𝑠 𝑐𝑎𝑚𝑝𝑎𝑖𝑔𝑛 𝑖,𝐿𝐶𝐴 𝑚𝑜𝑑𝑒𝑙 𝑚,𝑑𝑒𝑙𝑖𝑣𝑒𝑟𝑦 𝑑𝑎𝑡𝑒 𝑑
𝑖𝑛 𝑑𝑒𝑙𝑖𝑣𝑒𝑟𝑦 𝑑𝑎𝑡𝑒 𝑑 𝑈𝑆𝐷
𝐿𝐶𝐴 𝑚𝑜𝑑𝑒𝑙 𝑚

𝑑𝑒𝑙𝑖𝑣𝑒𝑟𝑦 𝑑𝑎𝑡𝑒 𝑑
× 𝑁𝑢𝑚𝑏𝑒𝑟𝑂𝑓𝐷𝑒𝑙𝑖𝑣𝑒𝑟𝑒𝑑𝐴𝑖𝑟𝑐𝑟𝑎𝑓𝑡𝑠𝑎𝑙𝑒𝑠 𝑐𝑎𝑚𝑝𝑎𝑖𝑔𝑛 𝑖,𝐿𝐶𝐴 𝑚𝑜𝑑𝑒𝑙 𝑚,𝑑𝑒𝑙𝑖𝑣𝑒𝑟𝑦 𝑑𝑎𝑡𝑒 𝑑
× 𝑆𝑢𝑟𝑣𝑖𝑣𝑎𝑙𝑅𝑎𝑡𝑒𝑑𝑒𝑙𝑖𝑣𝑒𝑟𝑦 𝑑𝑎𝑡𝑒 𝑑 × 𝐴𝐿𝐼𝐼2015
𝐴𝐿𝐼𝐼𝑑𝑒𝑙𝑖𝑣𝑒𝑟𝑦 𝑑𝑎𝑡𝑒 𝑑

(5)

6.309. As described in section 6.4.8.2, we annualize the aggregate 2015 US dollar value of the
threat of impedance in both geographic markets over the time during which, in the post -reference
period, the relevant deliveries would have occurred. We then sum those two aggregate annualized
values in order to obtain one aggregate annualized value for the two threat of impedance findings
as follows:
𝐴𝑛𝑛𝑢𝑎𝑙𝑖𝑧𝑒𝑑𝑇ℎ𝑟𝑒𝑎𝑡𝑂𝑓𝐼𝑚𝑝𝑒𝑑𝑎𝑛𝑐𝑒𝑖𝑛 2015 𝑈𝑆𝐷
= ∑ 𝐴𝑑𝑗𝑢𝑠𝑡𝑒𝑑𝑇ℎ𝑟𝑒𝑎𝑡𝑂𝑓𝐼𝑚𝑝𝑒𝑑𝑎𝑛𝑐𝑒𝑔𝑒𝑜𝑔𝑟𝑎𝑝ℎ𝑖𝑐 𝑚𝑎𝑟𝑘𝑒𝑡 𝑔
𝑖𝑛 2015 𝑈𝑆𝐷
𝑔𝑒𝑜𝑔𝑟𝑎𝑝ℎ𝑖𝑐 𝑚𝑎𝑟𝑘𝑒𝑡 𝑔
× 12
𝐷𝑢𝑟𝑎𝑡𝑖𝑜𝑛𝑂𝑓𝐷𝑒𝑙𝑖𝑣𝑒𝑟𝑖𝑒𝑠𝑠𝑎𝑙𝑒𝑠 𝑐𝑎𝑚𝑝𝑎𝑖𝑔𝑛 𝑖

(6)

The resulting annualized value of threat of impedance expressed in 2015 US dollars is USD [[***]].

6.4.9.3 Aggregated annualized value of significant lost sales and of the threat of
impedance in the two geographic markets
6.310. We have in the previous two subsections calculated aggregate annualized values for adverse
effects in the form of significant lost sales and threat of impedance. To obtain the maximum level of
Annual Suspension, therefore, we sum these two values as follows584:

583 See para. 6.145 above.
584 We note the argument made several times in this proceeding by the United States (most recently in
United States' response to Arbitrator question No. 66, paras. 98-105) that valuations for different findings
regarding adverse effects (i.e. significant lost sales and the two findings of threat of impedance) cannot be
simply summed to obtain an aggregate value when their annualization periods differ. The United States argues
that since the findings of significant lost sales and threat of impedance are based on a "single economic
phenomenon", their total value should in this case be a weighted average of "the two annual values" for lost
sales and threat of impedance. We note that the United States predicates its argument here on the fact that
different types of harm (lost sales and threat of impedance) arise from the same subsidy. (United States
response to Arbitrator question No. 66, para. 101) We fail to see why this is relevant in this context. What we
value is not the subsidy itself, but two distinct forms of harm arising from it, i.e. lost sales and threat of
impedance. The deliveries that we value for each stem from different, i.e. not overlapping, LCA orders. We
further do not see why the choice of annualization periods should affect these considerations. Annualization
standardizes the length of the periods over which the different findings have been valued at one year. While
annualization mathematically leads initially to differential denominators, we note that we reduce the fractions
to the common denominator one before summing them. Given the common denominator and the re-stating of
all values on a common monetary basis, we do not discern any reason why we cannot aggregate the values
through summation. Accordingly, we reject the argument by the United States.

𝐴𝑛𝑛𝑢𝑎𝑙𝑖𝑧𝑒𝑑𝐴𝐸𝐷𝑇𝐸𝑖𝑛 2015 𝑈𝑆𝐷
= 𝐴𝑛𝑛𝑢𝑎𝑙𝑖𝑧𝑒𝑑𝑇ℎ𝑟𝑒𝑎𝑡𝑂𝑓𝐼𝑚𝑝𝑒𝑑𝑎𝑛𝑐𝑒𝑖𝑛 2015 𝑈𝑆𝐷 + 𝐴𝑛𝑛𝑢𝑎𝑙𝑖𝑧𝑒𝑑𝐿𝑜𝑠𝑡𝑆𝑎𝑙𝑒𝑠𝑖𝑛 2015 𝑈𝑆𝐷. (7)

6.311. The total annualized val ue of the adverse effects determined to exist, expressed in 2015
US dollar terms, amounts to USD 3,993,212,564. We will refer to this as the 2015 Annualized Value.
6.5 Countermeasures commensurate with the annualized value of the adverse effects
determined to exist
6.312. In section 6.4.9.3 above, we determined that the 2015 Annualized Value is USD
3,993,212,564. It will be recalled that the European Union reques ted that we adjust the 2015
Annualized Value for inflation from 2015 up to April 2020 and thus express the level of Annual
Suspension in 2020 US dollar terms (the 2020 Annualized Value). The European Union also
requested that it be authorized to adjust the 2020 Annualized Value for inflation arising in future,
post-2020, years in which the European Union would apply countermeasures.
6.313. It will further be recalled that, in accordance with Article 7.10 of the SCM Agreement, the
maximum level of Annual Suspension must be "commensurate" with the annualized value of adverse
effects determined to exist. We must therefore examine whether the level of countermeasures
proposed by the European Union is "commensurate" with the 2015 Annualized Value of adverse
effects that we calculated.
6.314. We address these two issues – the requested adjustment for inflation up to 2020 and
beyond, and the "commensurate" 2015 Annualized Value – in the following sections.
6.5.1 Adjustment of the annualized value of adverse effects determined to exist for
inflation to April 2020 dollars and for future years in which countermeasures are applied
6.315. The European Union proposed in its methodology paper to calculate a "present value" of
adverse effects determined to exist by adjusting delivery -date prices (of all deliveries associated
with significant lost sales and threat of impedance) for inflation up to April 2020, the month in which
the European Union stated that it expected the Arbitrator to issue its Decision. 585 The European
Union proposed this adjustment "{t}o prevent inflation from affecting the real value of
countermeasures due", noting that the European Union will be authorized to impose
countermeasures several years after the end of the implementation period .586 The European Union
performed this adjustment based on relative changes in the value of the ALII, i.e. by multiplying
delivery-date prices by a ratio of the ALII for April 2020 divided by the ALII for the month of the
delivery at issue. That April 2020 US dollar value would then be divided by the number of months in
the reference period and multiplied by 12 in order to yield the 2020 Annualized Value.587
6.316. The European Union also asserted that the 2020 Annualized Value of adverse effects was to
be adjusted for inflation in all subsequent years in which countermeasures could be applied,
assuming "the United States fails to demonstrate … that it has achieved compliance". 588 The
European Union sought to implement this inflation adjustment by multiplying the 2020 Annualized
Value by a ratio of the ALII in the year in which the countermeasures would be imposed, divided by
the ALII for April 2020.589
6.317. The European Union later revised certain aspects of its methodology "in an effort to ensure
consistency between the approaches taken in {the DS316 arbitration} and by the Arbitrat{or} … in

585 European Union's methodology paper, paras. 8, 78, 97, 104, 138, and 158, and fn 146. In its
methodology paper, the European Union first performed a temporal adjustment seeking to express adverse
effects in April 2020 US dollars, before restating those adverse effects on an annualized basis. In its written
submission, however, the European Union updated its calculation methodology in several respects, including by
reversing the order in which it undertook the temporal adjustment and the annualization exercise. (See e.g.
European Union's written submission, paras. 396-400)
586 European Union's methodology paper, para. 82.
587 European Union's methodology paper, paras. 97-103.
588 European Union's written submission, para. 408 and fn 578 thereto; and methodology paper,
para. 78 and fns 143 and 146.
589 European Union's methodology paper, fn 146.

the present proceedings".590 Accordingly, and acknowledging that the DS316 arbitrator declined the
United States' requests to adjust for inflation the annualized value of adver se effects to the then -
present day and for future years, the European Union explained that it "no longer undertakes time-
adjustments for inflation until April 2020" or "seeks to inflation-adjust the level of countermeasures
going forward".591
6.318. The United States, in its written submission, did not specifically object to the European
Union's determination of the 2020 Annualized Value of adverse effects but challenged the European
Union's use of the ALII to do so. The United States argued that, to the extent th is inflation
adjustment serves to state an equivalent real value in a future year, it should not be made using
[[***]] but rather using a producer price index specific to civilian aircraft manufacturing. 592 The
arguments raised by the United States in this context are the same as those we considered above
in section 6.4.7.2 in relation to the restatement of adverse effects on a common 2015 US dollar
basis. The United States did not appear to have specifically responded to the European Union's
request to adjust for inflation the level of countermeasures for each year going forward.
6.319. The United States subsequently revised its position on the propriety of inflation adjustments
up to April 2020 in light of the DS316 arbitrator's decision not to make such adjustments, and now
suggests that the Arbitrator follow this guidance. 593 The United States relies on the DS316
arbitrator's observation that adjusting for inflation to obtain a present value was neither necessary
to preserve the effectiveness of the countermeasures that the United States sought authorization to
impose, nor in keeping with the absence of such adjustments in virtually all prior arbitration decisions
in which a similar structure of countermeasures has been adopted.594
6.320. The Arbitrator notes that, in making explicit that its revised valuation methodology no longer
accounts for inflation up to the present day and going forward, the European Union has effectively
abandoned its requests that the Arbitrator include those steps in determining the maximum level of
Annual Suspension. We see no reason to decline the European Union's updated valuation approach
in this regard. We consider this approach to be particularly reasonable in the circumstances of this
proceeding in that it comports with the DS316 arbitrator's decision not to adjust for inflation the
value of the maximum level of Annual Suspension to the then -present day and for each year going
forward.595
6.321. Thus, we decide not to adjust the maximum level of Annual Suspension for inflation up to
the present day (2020) and in future years in which countermeasures may be applied.596
6.5.2 The "commensurate" 2015 Annualized Value
6.322. We recall that we have calculated the 2015 Annualized Value (i.e. the maximum level of
Annual Suspension), to be USD 3,993,212,564. The European Union calculates the 2015 Annualized

590 European Union's written submission, para. 394.
591 European Union's response to Arbitrator question No. 85, para. 458. See also response to Arbitrator
question No. 39, paras. 152-157; and No. 40, paras. 158-159.
592 United States' written submission, paras. 112-126.
593 United States' response to Arbitrator question Nos. 38-39, paras. 120-121.
594 United States' response to Arbitrator question Nos. 38-39, para. 120 (referring to Decision by the
Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU), paras. 6.512-6.513). The
United States submits that the same considerations as to the propriety of inflation adjustments up to April
2020 apply with equal force in this proceeding. Thus, because no relevant factors distinguish this dispute and
the DS316 arbitration on this issue, the United States asserts that the Arbitrator may take the same approach.
595 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU),
paras. 6.514 and 6.522. We note that the DS316 arbitrator, at least in part, based its decision in the light of
596 Additionally, we would question the European Union's argument that the ALII would be the
appropriate inflation index to use. As noted above in section 6.1, the ALII is an index compiled by the European
Union based on Airbus' contractual escalation rates representing [[***]] changes in labour and materials costs
resulting from inflation and other economic changes. (European Union's methodology paper, para. 101) Thus,
the ALII is specific to Airbus' viewpoint. Yet, and as the DS316 arbitrator observed, the value that would have
needed to be protected from being eroded by inflation is the value of the countermeasures, which, here, may
be imposed by the European Union on a potentially wide range of goods and/or services imported from the
United States.

Value as USD 8,581,019,068. 597 We thus examine whether the European Union's value of USD
8,581,019,068 may be considered "commensurate" with the 2015 Annualized Value of adverse
effects that we calculated.
6.323. The phrase "commensurate with" within the meaning of Article 7.10 of the SCM Agreement
connotes a correspondence of a "less precise degree of equiva lence than exact numerical
correspondence" between the "adverse effects determined to exist" and "countermeasures"
proposed.598 The European Union, however, does not request that it be allowed to take
countermeasures in the form of a maximum level of Annual Suspension higher than the annualized
value of adverse effects (nor do we perceive any justification for doing so in the circumstances of
this proceeding). We further note that our calculated 2015 Annualized Value of adverse effects (i.e.
USD 3,993,212,56 4) is significantly lower than the European Union's proposed 2015 Annual
Suspension Value (i.e. USD 8,581,019,068), a value that we have determined in this Decision was
derived from an at -times flawed methodology . Even assuming that, as a general matter, t he
commensurateness standard could permit some limited degree of discrepancy between the proposed
level of countermeasures and the value of the adverse effects determined to exist, an adjustment
from USD 3,993,212,564 to USD 8,581,019,068 would in our view exceed, by far, any permissible
degree of discrepancy. We are accordingly unable to accept USD 8,581,019,068 as the
"commensurate" 2015 Annualized Value.599
6.324. We thus perceive neither a need nor a justification, in the particular circumstances of this
proceeding, for establishing the 2015 Annual Suspension Value at a level that is higher than the
2015 Annualized Value of adverse effects that we have established. Accordingly, we determine that
the "commensurate" 2015 Annualized Value, and thus the maximum level of Annual Suspension, is
USD 3,993,212,564.
7 THE UNITED STATES' CLAIM CONCERNING THE PRINCIPLES AND PROCEDURES SET OUT
IN ARTICLE 22.3 OF THE DSU (CROSS-RETALIATION)
7.1. It will be recalled that the European Union requests authorization to take countermeasures
under the GATT 1994 and the SCM Agreement, as well as the GATS.600 In its request, the European
Union states that it is neither practicable nor effective for the European Union to suspend concessions
or other obligations only in the goods sector up to a value of approximately USD 12,000 million. The
European Union's request also states that, given the degree and nature of the adverse effects and
serious prejudice, the circumstances are "serious enough" within the meaning of Article 22.3(c) of
the DSU.601 The European Union thus requests authorization to impose countermeasures consisting
of one or more of the following:

597 We note that over the course of the proceeding, the European Union presented several alternate
methods of calculating the level of Annual Suspension which have given rise to different levels of Annual
Suspension. (See fn 123 above). Most recently, and at the request of the Arbitrator, the European Union
offered a methodology in which it uses an order-centric approach for calculating the value of significant lost
sales and a delivery-centric approach (i.e. a "threat of impedance" approach) for calculating the value of threat
of impedance (see section 6.4.5.3.3 above). Based on this approach, the European Union calculated the 2015
Annualized Value to be USD [[***]] (excluding the value of the 2004-2006 R&D Adverse Effects). (See 2RPQ
valuation of single-aisle lost sales – Airbus delivery schedules (Exhibit EU-85 (HSBI)); and 2RPQ valuation of
single-aisle threat of impedance – Airbus delivery schedules (Exhibit EU-77 (HSBI))) We therefore note that, in
this subsection, even if we were to use the USD [[***]] value instead of the USD 8,581,019,068 value, our
conclusion with respect to the "commensurate" 2015 Annualized Value would be the same.
598 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU),
para. 5.4 (citing Decision by the Arbitrator, US – Upland Cotton (Article 22.6 – US II), paras. 4.35-4.39). See
also section 6.4.5.1 above.
599 See Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 –
EU), paras. 6.505-6.509 (resolving the same issue similarly).
600 See para 1.20 above.
601 Article 22.3(c) of the DSU provides that:
In considering what concessions or other obligations to suspend, the complaining party shall
apply the following principles and procedures:
…
(c) if that party considers that it is not practicable or effective to suspend concessions or
other obligations with respect to other sectors under the same agreement, and that the
circumstances are serious enough, it may seek to suspend concessions or other obligations under
another covered agreement.

a. suspension of tariff concessions and other related obligations under the GATT 1994 on a
list of US products to be established in due course;
b. suspension of concessions and other obligations under the SCM Agreement; and
c. under the GATS, suspension of horizontal or sectoral commitments contained in the
consolidated EU Schedule of Specific Commitments, as supplemented to incorporate th e
individual Schedules of Specific Commitments of its Member States, with regard to all
principal sectors identified in the Services Sectoral Classification List.602
7.2. In response, the United States claimed that the European Union did not follow the principle s
and procedures set forth in Article 22.3 in considering what countermeasures to take. 603 The
United States thus reserved the right to raise a claim before the Arbitrator that the European Union
had not followed the principles and procedures set forth in Article 22.3. It is for the United States to
make out a prima facie case that the European Union did not follow the principles and procedures in
Article 22.3.604
7.3. The United States advanced no such claim under Article 22.3 in its written submission or oral
statement. Since the United States did not pursue its claim before the Arbitrator, we cannot examine
this issue further in the present Decision. We note that in WTO dispute settlement practice, a
Member's measure is treated as WTO-consistent until it has been proven otherwise.605 Accordingly,
we consider that a complaining party's request under Article 22.3(c) must be treated as
DSU-consistent until proven otherwise. 606 Consequently, it has not been demonstrated that the
European Union's request for cross-retaliation is inconsistent with Article 22.3(c) of the DSU.
8 CONCLUSION
8.1. For the reasons set out above, the Arbitrator concludes as follows:
a. with reference to Articles 7.10 of the SCM Agreement and 22.6 of the DSU, the level of
countermeasures "commensurate with the degree and nature of the adverse effects
determined to exist" amounts to USD 3,993,212,564 per annum; and
b. with reference to Article 22.3 of the DSU, the United States has not demonstrated that the
European Union failed to follow the principles and procedures set forth in Article 22.3 of
the DSU in determining that it is not practicable or effective to suspend concessions or
other obligations in trade in goods and that the circumstances are serious enough.
8.2. The European Union may therefore request authorization from the DSB to take
countermeasures with respect to the United States at a level not exceeding, in total,
USD 3,993,212,564 annually. These countermeasur es may take the forms enumerated in
points (1)-(3) in the penultimate paragraph of document WT/DS353/17, which are also referenced
in paragraph 7.1 a.-c. above.

European Union, WT/DS353/17.
603 Recourse to Article 22.6 of the DSU by the United States, WT/DS353/19.
604 Decisions by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU),
para. 7.3; US – Upland Cotton (Article 22.6 – US II), para. 5.55; US – Gambling (Article 22.6 – US),
605 Appellate Body Report, US – Carbon Steel, para. 157.
606 Decision by the Arbitrator, EC and certain member States – Large Civil Aircraft (Article 22.6 – EU),
para. 7.5.