UNITED STATES – MEASURES AFFECTING TRADE IN LARGE CIVIL AIRCRAFT (SECOND COMPLAINT) RECOURSE TO ARTICLE 21.5 OF THE DSU BY THE EUROPEAN UNION AB-2017-4
Document: Report of the Appellate Body BCI redacted, as marked [BCI]
Date: 28 March 2019
Document codes: WT/DS353/AB/RW
Complainant: EU
Respondent: U.S.
Third parties: Australia, Brazil, Canada, China, Japan, South Korea
Dispute stage: Implementation & Compliance
Agreements cited: Art. 3.1, 3.2, 5, 6.3, 1.1, 2  Subsidies and Countervailing Measures (SCM)Art. III:4  GATT 1994

UNITED STATES – MEASURES AFFECTING TRADE IN LARGE CIVIL
AIRCRAFT (SECOND COMPLAINT)
RECOURSE TO ARTICLE 21.5 OF THE DSU BY THE EUROPEAN UNION
AB-2017-4
Report of the Appellate Body

BCI redacted, as marked [BCI]

[BCI redacted, as marked [BCI]]

ABBREVIATIONS USED IN THIS REPORT
Abbreviation Description
2006 IRS Memorandum Internal Revenue Service Memorandum No. AM 2007-001
AJCA American Jobs Creation Act of 2004
B&O business and occupation
BCI business confidential information
Boeing The Boeing Company
CLEEN Continuous Lower Energy Emissions, and Noise
DSB dispute settlement body
DSU Understanding on Rules and Procedures Governing the Settlement of Disputes
EDBs economic development bonds
ETI Act FSC Repeal and Extraterritorial Income Exclusion Act of 2000
FAA Federal Aviation Administration
FILOT fee-in-lieu-of-taxes
FSC foreign sales corporation
GATT 1994 General Agreement on Tariffs and Trade 1994
HSBI highly sensitive business information
HSBI Appendix Appendix 2 to the Panel Report (HSBI)
IR&D independent research and development
IRBs industrial revenue bonds
ITAR International Traffic in Arms Regulations
KSA Kansas Statutes Annotated
LCA large civil aircraft
MCIP multi-county industrial park
NASA National Aeronautics and Space Administration
NPV net present value
Original Panel Report Panel Report, United States – Measures Affecting Trade in Large Civil Aircraft
(Second Complaint),
Panel Report 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,
R&D research and development
RDT&E research, development, test, & evaluation
S&T science and technology
SCM Agreement Agreement on Subsidies and Countervailing Measures
Space Act National Aeronautics and Space Act of 1958, as amended
Spirit Spirit Aerosystems
TIPRA Tax Increase Prevention and Reconciliation Act of 2005
TRL technology readiness level
USDOD United States Department of Defense
USDOD procurement
contracts
pre-2007 and post-2006 RDT&E procurement contracts between USDOD and
Boeing
Working Procedures Working Procedures for Appellate Review

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PANEL EXHIBITS CITED IN THIS REPORT
Exhibit No. Short title (if applicable) Description
EC-11 Declaration of Christian
Scherer
Declaration of Christian Scherer, Airbus SAS, Commercial
Aspects of the Aircraft Business from the Perspective of a
Manufacturer (March 2007)
EC-167 KSA Kansas Statutes Annotated, Section 12-1740 et seq.
(2001)
EC-627 TIPRA Tax Increase Prevention and Reconciliation Act of 2005,
Public Law No. 109-222, 120 Stat. 345, 17 May 2006,
Section 513
EC-795 Peisen Study Peisen et al., Case Studies: Time Required to Mature
Aeronautic Technologies to Operational Readiness (SAIC
and GRA, Inc., November 1999)
EU-9 A. Shain, "S.C. traveled a long road to land Boeing",
Charlotte Observer, Charlotte, NC, 1 November 2009
EU-23 Rumpf Report Richard L. Rumpf and Robert J. Levinson, "United States
Department of Defense Research, Development, Test &
Evaluation ('RDT&E') Funding for the Boeing Company
Applicable to Large Civil Aircraft: 2007-2012 Estimates",
12 March 2013
EU-24 ITR FSC/ETI Report International Trade Resources Report, Boeing FSC/ETI
Tax Exemptions Post-2011 (13 December 2012)
EU-29 2006 CRA Report CRA International, U.S. Department of Defense (DoD)
Research, Development, Test and Evaluation (RDT&E)
Funding Support to The Boeing Company for Dual-Use
Aircraft R&D (November 2006)
EU-100 Jeff Sloan, "PRSEUS preform for pressurized cabin walls",
Composites World, 1 September 2011
EU-107 Alex Velicki and Dawn Jegley, PRSEUS Development for
the Hybrid Wing Body Aircraft, NASA Report
No. NF1676L-13290 (20 September 2011)
EU-108 Boeing News Release, "Boeing Flies X-48C Blended Wing
Body Research Aircraft", 7 August 2012
EU-268 W. Cole, "The Value of Lessons Learned", Boeing
Frontiers Online, December 2003-January 2004
EU-275 United States Code of Federal Regulations, Title 48,
Section 271.002(a)
EU-276 U.S. Government Response to the EC-Commissioned
Report "U.S. Government Support of the U.S. Commercial
Aircraft Industry", March 1992
EU-332 D. Arkell, "Exponential Potential", Boeing Frontiers
Online, September 2005
EU-333 D. Gates, "How B-2 data wound up in 787 program",
Seattle Times, 22 January 2006
EU-334 W.B. Scott, "Legacy of B-2 Bomber Innovations Apparent
in J-UCAS and Other Programs", Aviation Week & Space
Technology, 26 March 2006
EU-362 United States Patent No. 5,698,316 (16 December 1997)
EU-378 United States Patent No. 8,376,337 (19 February 2013)
EU-379 United States Patent No. 8,376,338 (19 February 2013)
EU-380 United States Patent No. 8,366,050 (5 February 2013)
EU-381 United States Patent No. 8,352,486 (8 January 2013)
EU-382 United States Patent No. 8,194,239 (5 June 2012)

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Exhibit No. Short title (if applicable) Description
EU-383 United States Patent No. 7,667,830 (23 February 2010)
EU-385 United States Patent No. 8,042,767 (25 October 2011)
EU-386 United States Patent No. 8,016,650 (13 September 2011)
EU-388 United States Patent No. 7,861,411 (4 January 2011)
EU-389 United States Patent No. 7,773,885 (10 August 2010)
EU-390 United States Patent No. 7,841,152 (30 November 2010)
EU-394 United States Patent No. 7,347,083 (25 March 2008)
EU-402 United States Code, Title 26 (Internal Revenue Code),
Sections 245, 921-927, and 951 (2000)
EU-405 TIPRA Tax Increase Prevention and Reconciliation Act of 2005,
Public Law No. 109-222, 120 Stat. 345, 17 May 2006,
Section 513
EU-406 2006 IRS Memorandum Office of Chief Counsel, Internal Revenue Service
"Qualification for FSC benefits and ETI exclusions"
(Memorandum No. AM 2007-001), 22 December 2006
EU-407 Boeing 2012 10-K Boeing, Annual Form 10-K to the United States Securities
and Exchange Commission for the year ended
December 31, 2012
EU-434 Substitute Senate Bill 6828, "Aerospace Tax Incentives",
Washington Session Laws 365 (2008)
EU-466 Act No. 124 (H3130) (30 October 2009), South Carolina
Code
EU-467 Project Gemini Agreement Project Gemini Agreement between The Boeing Company
and the State of South Carolina (1 January 2010)
EU-470 Boeing FILOT Agreement Fee Agreement by and between Charleston County, South
Carolina, and The Boeing Company (1 December 2010)
EU-477 State General Obligation Economic Development Bond
Act, South Carolina Code, Title 11, Chapter 41
EU-490 Letter dated 23 July 2012 from the South Carolina State
Budget and Control Board regarding a Freedom of
Information Act Request
EU-491 Letter dated 31 July 2012 from the South Carolina State
Budget and Control Board regarding a Freedom of
Information Act Request Supplement
EU-509 South Carolina Income Tax Act, South Carolina Code,
Title 12, Chapter 6
EU-516 Charleston County Ordinance 1626 (2 February 2010)
EU-550 Project Emerald Confidential Site Development and
Incentive Agreement (2006)
EU-553 Inducement and Millage Rate Agreement between
Charleston County and Project Emerald (21 December
2004)
EU-555 Charleston County Council Ordinance 1475 (5 December
2006)
EU-665 Craig Wilsey and Robert Stoker, Continuous Lower
Energy, Emissions and Noise (CLEEN) Technologies
Development – Boeing Program Overview, CLEEN
Consortium Public Session (27 October 2010)
EU-987 HSBI

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Exhibit No. Short title (if applicable) Description
EU-1014 Airbus Engineers' Response Response by Burkhard Domke, Phil A. Brown, Jörg
Kumpfert, and Ian Whitehouse to the June 2013
Statement by Boeing Engineers, 19 July 2013 (BCI/HSBI)
EU-1398 Second Supplemental Declaration of Richard A. Razgaitis,
Sr., Ph.D., CLP (17 December 2014)
EU-1399 D. Lerman and R. Wall, "U.S. Defense Contractors Focus
on Foreign Buyers", Businessweek, 14 November 2013
EU-1437 Data from US Census Bureau, Geography Area Series:
County Business Patterns (2010-2012)
EU-1668 Statement of Kiran Rao, 6 October 2015 (HSBI)
USA-188 Douglas P. Woodward & Paulo Guimarães, BMW in South
Carolina: The Economic Impact of a Leading Sustainable
Enterprise (September 2008)
USA-232 Statement of J. H. Zrust, Vice President of Tax of The
Boeing Company (20 July 2009)
USA-283 Boeing Engineers' Statement Statement of Boeing Engineers Regarding the
Technologies and Development of the 787, 737 MAX, and
777X (June 2013) (BCI)
USA-324 Boeing Investment in South Carolina (2010-3Q2012)
(BCI)
USA-335 Charleston S.C. MSA Largest Manufacturing Employers,
Charleston Regional Development Alliance (February
2013)
USA-338 A.G. Sulzberger, "Boeing Departure Shakes Wichita's
Identity as Airplane Capital", New York Times, 18 January
2012
USA-359 Boeing Engineers' Reply Reply of Boeing Engineers to EU and Airbus Statements
Regarding the Technologies and Development of the 787,
737 MAX, and 777X (August 2013) (BCI)
USA-382 Updated Statement of J. H. Zrust, Vice President of Tax of
The Boeing Company (3 December 2013)
USA-487 International Institute for Strategic Studies, Military
Balance 2014 Press Statement (5 February 2014)
USA-554 Agreement for Development for Joint County Industrial
Park between Charleston County and Colleton County
(1 September 1995)
USA-555 Charleston County Council Ordinance 1475 (5 December
2006)

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CASES CITED IN THIS REPORT
Short Title Full Case Title and Citation
Argentina – Import Measures Appellate Body Reports, Argentina – Measures Affecting the Importation of
Goods, WT/DS438/AB/R / WT/DS444/AB/R / WT/DS445/AB/R, adopted 26
January 2015, DSR 2015:II, p. 579
Australia – Salmon Appellate Body Report, Australia – Measures Affecting Importation of Salmon,
WT/DS18/AB/R, adopted 6 November 1998, DSR 1998:VIII, p. 3327
Brazil – Retreaded Tyres Appellate Body Report, Brazil – Measures Affecting Imports of Retreaded
Tyres, WT/DS332/AB/R, adopted 17 December 2007, DSR 2007:IV, p. 1527
Canada – Aircraft Appellate Body Report, Canada – Measures Affecting the Export of Civilian
Aircraft, WT/DS70/AB/R, adopted 20 August 1999, DSR 1999:III, p. 1377
Canada – Aircraft (Article
21.5 – Brazil)
Appellate Body Report, Canada – Measures Affecting the Export of Civilian
Aircraft – Recourse by Brazil to Article 21.5 of the DSU, WT/DS70/AB/RW,
adopted 4 August 2000, DSR 2000:IX, p. 4299
Canada – Autos Panel Report, Canada – Certain Measures Affecting the Automotive Industry,
WT/DS139/R, WT/DS142/R, adopted 19 June 2000, as modified by Appellate
Body Report WT/DS139/AB/R, WT/DS142/AB/R, DSR 2000:VII, p. 3043
Canada – Periodicals Appellate Body Report, Canada – Certain Measures Concerning Periodicals,
WT/DS31/AB/R, adopted 30 July 1997, DSR 1997:I, p. 449
China – Auto Parts Appellate Body Reports, China – Measures Affecting Imports of Automobile
Parts, WT/DS339/AB/R / WT/DS340/AB/R / WT/DS342/AB/R, adopted 12
January 2009, DSR 2009:I, p. 3
China – GOES Appellate Body Report, China – Countervailing and Anti-Dumping Duties on
Grain Oriented Flat-Rolled Electrical Steel from the United States,
WT/DS414/AB/R, adopted 16 November 2012, DSR 2012:XII, p. 6251
Colombia – Textiles Appellate Body Report, Colombia – Measures Relating to the Importation of
Textiles, Apparel and Footwear, WT/DS461/AB/R and Add.1, adopted 22 June
2016, DSR 2016:III, p. 1131
EC – Asbestos Appellate Body Report, European Communities – Measures Affecting Asbestos
and Asbestos-Containing Products, WT/DS135/AB/R, adopted 5 April 2001,
DSR 2001:VII, p. 3243
EC – Bed Linen (Article 21.5
– India)
Appellate Body Report, European Communities – Anti-Dumping Duties on
Imports of Cotton-Type Bed Linen from India – Recourse to Article 21.5 of the
DSU by India, WT/DS141/AB/RW, adopted 24 April 2003, DSR 2003:III,
p. 965
EC – Export Subsidies on
Sugar
Appellate Body Report, European Communities – Export Subsidies on Sugar,
WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R, adopted 19 May 2005,
DSR 2005:XIII, p. 6365
EC – Fasteners (China) Appellate Body Report, European Communities – Definitive Anti-Dumping
Measures on Certain Iron or Steel Fasteners from China, WT/DS397/AB/R,
adopted 28 July 2011, DSR 2011:VII, p. 3995
EC – Hormones Appellate Body Report, EC Measures Concerning Meat and Meat Products
(Hormones), WT/DS26/AB/R, WT/DS48/AB/R, adopted 13 February 1998, DSR
1998:I, p. 135
EC – Poultry Appellate Body Report, European Communities – Measures Affecting the
Importation of Certain Poultry Products, WT/DS69/AB/R, adopted 23 July
1998, DSR 1998:V, p. 2031
EC ‒ Seal Products Appellate Body Reports, European Communities – Measures Prohibiting the
Importation and Marketing of Seal Products, WT/DS400/AB/R /
WT/DS401/AB/R, adopted 18 June 2014, DSR 2014:I, p. 7
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

[BCI redacted, as marked [BCI]]

Short Title Full Case Title and Citation
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
Korea – Dairy Appellate Body Report, Korea – Definitive Safeguard Measure on Imports of
Certain Dairy Products, WT/DS98/AB/R, adopted 12 January 2000, DSR
2000:I, p. 3
Mexico – Corn Syrup (Article
21.5 – US)
Appellate Body Report, Mexico – Anti-Dumping Investigation of High Fructose
Corn Syrup (HFCS) from the United States – Recourse to Article 21.5 of the
DSU by the United States, WT/DS132/AB/RW, adopted 21 November 2001,
DSR 2001:XIII, p. 6675
Russia – Commercial
Vehicles
Appellate Body Report, Russia – Anti-Dumping Duties on Light Commercial
Vehicles from Germany and Italy, WT/DS479/AB/R and Add.1, adopted 9 April
2018
Russia – Pigs (EU) Appellate Body Report, Russian Federation – Measures on the Importation of
Live Pigs, Pork and Other Pig Products from the European Union,
WT/DS475/AB/R and Add.1, adopted 21 March 2017
US – Anti-Dumping and
Countervailing Duties (China)
Appellate Body Report, United States – Definitive Anti-Dumping and
Countervailing Duties on Certain Products from China, WT/DS379/AB/R,
adopted 25 March 2011, DSR 2011:V, p. 2869
US – Anti-Dumping and
Countervailing Duties (China)
Panel Report, United States – Definitive Anti-Dumping and Countervailing
Duties on Certain Products from China, WT/DS379/R, adopted 25 March 2011,
as modified by Appellate Body Report WT/DS379/AB/R, DSR 2011:VI, p. 3143
US – Anti-Dumping
Methodologies (China)
Appellate Body Report, United States – Certain Methodologies and Their
Application to Anti-Dumping Proceedings Involving China, WT/DS471/AB/R
and Add.1, adopted 22 May 2017
US – Carbon Steel Appellate Body Report, United States – Countervailing Duties on Certain
Corrosion-Resistant Carbon Steel Flat Products from Germany,
WT/DS213/AB/R and Corr.1, adopted 19 December 2002, DSR 2002:IX, p.
3779
US – Carbon Steel (India) Appellate Body Report, United States – Countervailing Measures on Certain
Hot-Rolled Carbon Steel Flat Products from India, WT/DS436/AB/R, adopted
19 December 2014, DSR 2014:V, p. 1727
US – Countervailing
Measures (China)
Appellate Body Report, United States – Countervailing Duty Measures on
Certain Products from China, WT/DS437/AB/R, adopted 16 January 2015, DSR
2015:1, p. 7
US – Countervailing
Measures (China)
Panel Report, United States – Countervailing Duty Measures on Certain
Products from China, WT/DS437/R and Add.1, adopted 16 January 2015, as
modified by Appellate Body Report WT/DS437/AB/R, DSR 2015:1, p. 183
US – FSC Appellate Body Report, United States – Tax Treatment for "Foreign Sales
Corporations", WT/DS108/AB/R, adopted 20 March 2000, DSR 2000:III, p.
1619
US – FSC Panel Report, United States – Tax Treatment for "Foreign Sales Corporations",
WT/DS108/R, adopted 20 March 2000, as modified by Appellate Body Report
WT/DS108/AB/R, DSR 2000:IV, p. 1675
US – FSC (Article 21.5 – EC
II)
Appellate Body 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 21.5 – EC
II)
Panel Report, United States – Tax Treatment for "Foreign Sales Corporations"
– Second Recourse to Article 21.5 of the DSU by the European Communities,
WT/DS108/RW2, adopted 14 March 2006, upheld by Appellate Body Report
WT/DS108/AB/RW2, DSR 2006:XI, p. 4761

[BCI redacted, as marked [BCI]]

Short Title Full Case Title and Citation
US – FSC (Article 21.5 – EC) Appellate Body Report, United States – Tax Treatment for "Foreign Sales
Corporations" – Recourse to Article 21.5 of the DSU by the European
Communities, WT/DS108/AB/RW, adopted 29 January 2002, DSR 2002:I,
p. 55
US – Gasoline Appellate Body Report, United States – Standards for Reformulated and
Conventional Gasoline, WT/DS2/AB/R, adopted 20 May 1996, DSR 1996:I, p. 3
US – Hot-Rolled Steel Appellate Body Report, United States – Anti-Dumping Measures on Certain
Hot-Rolled Steel Products from Japan, WT/DS184/AB/R, adopted 23 August
2001, DSR 2001:X, p. 4697
US – 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)
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
US – Offset Act (Byrd
Amendment)
Appellate Body Report, United States – Continued Dumping and Subsidy Offset
Act of 2000, WT/DS217/AB/R, WT/DS234/AB/R, adopted 27 January 2003,
DSR 2003:I, p. 375
US – Oil Country Tubular
Goods Sunset Reviews
(Article 21.5 – Argentina)
Appellate Body Report, United States – Sunset Reviews of Anti-Dumping
Measures on Oil Country Tubular Goods from Argentina – Recourse to Article
21.5 of the DSU by Argentina, WT/DS268/AB/RW, adopted 11 May 2007, DSR
2007:IX, p. 3523
US – Section 211
Appropriations Act
Appellate Body Report, United States – Section 211 Omnibus Appropriations
Act of 1998, WT/DS176/AB/R, adopted 1 February 2002, DSR 2002:II, p. 589
US – Shrimp Appellate Body Report, United States – Import Prohibition of Certain Shrimp
and Shrimp Products, WT/DS58/AB/R, adopted 6 November 1998, DSR
1998:VII, p. 2755
US – Shrimp (Article 21.5 –
Malaysia)
Appellate Body Report, United States – Import Prohibition of Certain Shrimp
and Shrimp Products – Recourse to Article 21.5 of the DSU by Malaysia,
WT/DS58/AB/RW, adopted 21 November 2001, DSR 2001:XIII, p. 6481
US – Softwood Lumber VI
(Article 21.5 – Canada)
Appellate Body Report, United States – Investigation of the International Trade
Commission in Softwood Lumber from Canada – Recourse to Article 21.5 of
the DSU by Canada, WT/DS277/AB/RW, adopted 9 May 2006, and Corr.1, DSR
2006:XI, p. 4865
US – Steel Safeguards Appellate Body Report, United States – Definitive Safeguard Measures on
Imports of Certain Steel Products, WT/DS248/AB/R, WT/DS249/AB/R,
WT/DS251/AB/R, WT/DS252/AB/R, WT/DS253/AB/R, WT/DS254/AB/R,
WT/DS258/AB/R, WT/DS259/AB/R, adopted 10 December 2003, DSR
2003:VII, p. 3117
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
US – Tax Incentives Panel Report, United States – Conditional Tax Incentives for Large Civil
Aircraft, WT/DS487/R and Add.1, adopted 22 September 2017, as modified by
Appellate Body Report WT/DS487/AB/R
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

[BCI redacted, as marked [BCI]]

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 – Washing Machines Appellate Body Report, United States – Anti-Dumping and Countervailing
Measures on Large Residential Washers from Korea, WT/DS464/AB/R and
Add.1, adopted 26 September 2016, DSR 2016:V, p. 2275
US – Washing Machines Panel Report, United States – Anti-Dumping and Countervailing Measures on
Large Residential Washers from Korea, WT/DS464/R and Add.1, adopted 26
September 2016, as modified by Appellate Body Report WT/DS464/AB/R, DSR
2016:V, p. 2505
US – Wheat Gluten Appellate Body Report, United States – Definitive Safeguard Measures on
Imports of Wheat Gluten from the European Communities, WT/DS166/AB/R,
adopted 19 January 2001, DSR 2001:II, p. 717
US – Zeroing (EC) (Article
21.5 – EC)
Appellate Body Report, United States – Laws, Regulations and Methodology for
Calculating Dumping Margins ("Zeroing"), WT/DS294/AB/R, adopted 9 May
2006, and Corr.1, DSR 2006:II, p. 417

[BCI redacted, as marked [BCI]]

APPELLATE BODY

United States – Measures Affecting Trade
in Large Civil Aircraft (Second Complaint)
– Recourse to Article 21.5 of the DSU by
the European Union

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

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

AB-2017-4

Appellate Body Division:

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

1 INTRODUCTION
1.1. The European Union1 and the United States each appeal certain issues of law and legal
interpretations developed in the 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 2
(Panel Report). The Panel was e stablished on 23 October 2012 3 pursuant to Article 21.5 of the
Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) to consider a
complaint by the European Union4 regarding the alleged failure on the part of the United States to
implement the recommendations and rulings of the Dispute Settlement Body (DSB) in the original
proceedings in US – Large Civil Aircraft (2nd complaint).5
1.1 Original proceedings
1.2. In the original proceedings in this dispute, the European Communities claimed that the
United States had provided subsidies to US producers of large civil aircraft (LCA), namely, The
Boeing Company (Boeing), and that such subsidies are prohibited and/or actionable under the
Agreement on Subsidies and Countervailing Measures (SCM Agreement).
1.3. The original panel, established on 17 February 2006 6, found that certain tax exemptions and
tax exclusions provided to Boeing under the foreign sales corporation (FSC) legislation and the FSC
Repeal and Extraterritoria l Income Exclusion Act of 2000 (ETI Act), including the transition and
grandfather provisions of the ETI Act and the American Jobs Creation Act of 2004 (AJCA), were
prohibited export subsidies under Articles 3.1(a) and 3.2 of the SCM Agreement. 7 This finding was
not appealed.

1 The European Union replaced and succeeded the European Communities as of 1 December 2009.
Accordingly, we refer to the European Communities in this Report only in the context of the original panel
proceedings. In all other circumstances, we refer to the European Union.
2 WT/DS353/RW, 9 June 2017.
3 Minutes of the Dispute Settlement Body (DSB) Meeting held on 23 October 2012, WT/DSB/M/323,
para. 81.
4 Request for the Establishment of a Panel by the European Union pursuant to Article 21.5 of the DSU,
WT/DS353/18 (European Union's panel request).
5 The recommendations and rulings of the DSB resulted from the adoption on 23 March 2012, by the
DSB, of the Appellate Body Report, WT/DS353/AB/R, and the Panel Report, WT/DS353/R, in US – Large Civil
Aircraft (2nd complaint). In this Report, we refer to the panel that considered the original complaint brought by
the European Union as the "original panel" and to its report as the "original panel report".
6 Minutes of the DSB Meeting held on 17 February 2006, WT/DSB/M/205, para. 73.
7 Original Panel Report, paras. 7.1434-7.1464 and 8.2.a.

[BCI redacted, as marked [BCI]]

1.4. In addition, the original panel found that certain specific subsidies caused serious prejudice to
the interests of the European Communities within the meaning of Articles 5(c) and 6.3(b)-(c) of the
SCM Agreement. Specifically, the original panel found that:
a. payments provided to Boeing by the National Aeronautics and Space Administration
(NASA) pursuant to procurement contracts entered into under eight aeronautics research
and development (R&D) programmes and access to facilities, equipment, and employees,
as well as payments and access to facilities provided to Boeing by the United States
Department of Defense (USDOD)8 pursuant to assistance instruments entered into under
the 23 research, development, test, and evaluation (RDT&E) programmes, through their
effects on Boeing's development of technologies in relation to the 787, caused significant
price suppression, significant lost sales, and a threat of displacement and impedance of
exports from third country markets, with respect to the 2 00-300 seat wide -body LCA
product market9;
b. the FSC/ETI subsidies and the business and occupation (B&O) tax rate reduction provided
by the State of Washington under House Bill (HB) 2294, through their effects on Boeing's
pricing behaviour with respect to th e 737NG, caused significant price suppression,
significant lost sales, and displacement and impedance of exports from third country
markets, with respect to the 100-200 seat single-aisle LCA market10; and
c. the FSC/ETI subsidies and the B&O tax rate reduction provided by the State of Washington
under HB 2294 and by the City of Everett, through their effects on Boeing's pricing
behaviour with respect to the 777 and 787, caused significant price suppression, significant
lost sales, and displacement and impedance of exports from third country markets, with
respect to the 300-400 seat wide-body LCA product market.11
1.5. On appeal, the Appellate Body upheld the original panel's finding that the aeronautics R&D
subsidies caused serious prejudice to the interests of the European Communities with respect to the
200-300 seat LCA market, within the meaning of Articles 5(c) and 6.3(b)-(c) of the SCM Agreement,
except that it reversed the original panel's finding to the extent that it related to a threat of
displacement and impedance of exports in the third country markets in Ethiopia, Iceland, and Kenya
(but not Australia), within the meaning of Article 6.3(b) of the SCM Agreement.12
1.6. In addition, the Appellate Body reversed the original panel's finding that the FSC/ETI subsidies
and the B&O tax rate reduction caused serious prejudice to the interests of the
European Communities within the meaning of Articles 5(c) and 6.3(b)-(c) of the SCM Agreement in
the 100-200 and 300-400 seat LCA markets.13 The Appellate Body completed the legal analysis and
found that, with respect to two sales campaigns involving 100-200 seat LCA, the FSC/ETI subsidies
and the Washington State B&O tax rate reduction caused, through their effects on Boeing's prices
for the 737NG, significant lost sales within the meaning of Article 6.3(c).14 The Appellate Body also
reversed the original panel's finding that the European Communities had failed to show that the
remaining subsidies had affected Boeing's prices in a manner giving rise to serious prejudice with
respect to the 100 -200 seat and 300 -400 seat LCA markets. 15 The Appellate Body completed the
legal analysis and found that the effects of the property and sales tax abatements related to the
industrial revenue bonds (IRBs) issued by the City of Wichita complemented and supplemented the
price effects of the FSC/ETI subsidies and the Washington State B&O tax rate reduction, thereby

8 The original and compliance panels referred to the United States Department of Defense as "DOD",
whereas the Appellate Body in the original proceedings referred to the United States Department of Defense as
"USDOD". In this Report, we will continue to use the term "USDOD".
9 Original Panel Report, para. 8.3.a.i.
10 Original Panel Report, para. 8.3.a.ii.
11 Original Panel Report, para. 8.3.a.iii.
12 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1350(d)(i)(A). The original
panel's finding as it relates to a threat of displacement and impedance of exports in Australia was not
13 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1350(d)(iii)(A).
14 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1350(d)(iii)(B).
15 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1350(d)(iv)(B).

[BCI redacted, as marked [BCI]]

causing serious prejudice, in the form of significant lost sales, within the meaning of Articles 5(c)
and 6.3(c), in the 100-200 seat LCA market.16
1.7. The Appellate Body recommended that, pursuant to Article 7.8 of the SCM Agreement, the DSB
request the United States to bring its measures, found in the Appellate Body report and in the
original panel report, as modified by the Appellate Body report, to be inconsistent with the
SCM Agreement, into conformity with its obligations under that Agreement.17
1.8. On 23 March 2012, the DSB adopted the Appellate Body report and the original panel report,
as modified by the Appellate Body report.18
1.2 Compliance proceedings
1.2.1 Panel proceedings
1.9. Subsequent to the adoption of the original panel report and the Appellate Body report, the
United States provided a notification to the DSB on 23 September 201219, identifying "a number of
actions to withdraw the subsidies found to have caused adverse effects or to remove their adverse
effects", in light of which the United States considered that it "ha{d} fully complied with the
recommendations and rulings of the Dispute Settlement Body in this dispute".20
1.10. On 25 September 2012, the European Union requested consultations with the United States,
explaining that "{t}he actions and events listed by the United States in its 23 September 2012
notification do not withdraw the subsidies or remove their adverse effects, as required by Articles 4.7
and 7.8 of the SCM Agreement", and that "the United States has failed to achieve compliance with
the recommendations and rulings of the DSB ."21 The European Union and the United States held
consultations on 10 October 2012, but the consultations failed to resolve the dispute.22
1.11. On 11 October 2012, the European Union requested the establishment of a panel, in
accordance with , inter alia, Article 21.5 of the DSU, with standard terms of ref erence.23 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 .24 The Panel was composed on 30 October 2012
accordingly.25
1.12. Before the Panel, the European Union argued that the United States had failed to implement
the recommendations and rulings of the DSB in the original proceedings to withdraw the subsidies
or take appropriate steps to remove the adverse effects, pursuant to Article 7.8 of the
SCM Agreement. In particu lar, the European Union claimed that, subsequent to the end of the
implementation period26, the United States grants or m aintains subsidies to the US LCA industry
through the following programmes and measures: (i) NASA aeronautics R&D measures; (ii) the
Federal Aviation Administration's (FAA) Continuous Lower Energy Emissions, and Noise (CLEEN)
Program; (iii) the USDOD RDT&E programme; (iv) income tax exemptions/exclusions pursuant to
the FSC/ETI legislation and successor acts; (v) property and sales tax con cessions for LCA
component production facilities associated with IRBs issued by the City of Wichita; (vi) certain tax

16 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1350(d)(iv)(C).
17 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1352.
18 Minutes of the DSB Meeting held on 23 March 2012, WT/DSB/M/313, para. 79.
19 WT/DS353/15.
20 Panel Report, para. 1.9 (quoting Communication from the United States, WT/DS353/15 (dated
23 September 2012), para. 2).
21 Panel Report, para. 1.10 (quoting European Union's request for consultations, WT/DS353/16 (dated
25 September 2012), p. 2).
22 Panel Report, para. 1.11.
23 Panel Report, para. 1.12 (referring to European Union's panel request, WT/DS353/18 (dated
11 October 2012), para. 34).
24 Panel Report, para. 1.12 (referring to Minutes of the DSB Meeting held on 23 October 2012,
WT/DSB/M/323, para. 81).
25 Panel Report, para. 1.14 (referring to Constitution of the Panel, Note by the Secretariat,
WT/DS353/21 (dated 5 November 2012), para. 3).
26 The term "implementation period" in this case means the period of six months referred to in
Article 7.9 of the SCM Agreement, which in this dispute ended on 23 September 2012. (Panel Report, fn 70 to
para. 6.21)

[BCI redacted, as marked [BCI]]

and other measures applied by the State of Washington and municipalities therein; and
(vii) measures applied by the State of South Carolin a and municipalities therein in the context of
"Project Gemini" and "Project Emerald", as well as "Phase II".27 The European Union further asserted
that these subsidies are also inconsistent with Articles 3.1(a)-(b) and 3.2 of the SCM Agreement and
Article III of the GATT 1994.28
1.13. In addition, the European Union claimed that the subsidies collectively cause present adverse
effects to LCA -related interests of the European Union in violation of the SCM Agreement. In
particular, the European Union argued that the subsidies are a genuine and substantial cause of:
(i) displacement and impedance, or a threat thereof, in the LCA product markets of the
United States, within the meaning of Article 6.3(a) of the SCM Agreement; (ii) displacement and
impedance, or a threat thereof, in the LCA product markets of several third countries, within the
meaning of Article 6.3(b) of the SCM Agreement; (iii) significant price suppression, or threat thereof,
in the LCA product markets, within the meaning of Article 6.3(c) of the SCM Agreement; and
(iv) significant lost sales, or threat thereof, in the LCA product markets, within the meaning of
Article 6.3(c) of the SCM Agreement.29
1.14. The Panel circulated its Report to Members of the World Trade Organization ( WTO) on
9 June 2017. The factual aspects of the Panel proceedings are summarized in detail in
paragraphs 1.16 through 1.32 of the Panel Report.
1.15. The Panel made the following findings in its Report.
1.16. With respect to whether certain measures, and claims with regard to certain meas ures, are
outside the Panel's terms of reference for purposes of Article 6.2 of the DSU or the scope of these
compliance proceedings:
a. The European Union's claims under Articles 3.1(a)-(b) and 3.2 of the SCM Agreement, and
under Article III of the GATT 199 4, are within the Panel's terms of reference 30, but the
South Carolina Phase II measures, and the Washington State tax measures, as amended
by Washington State Substitute Senate Bill (SSB) 5952, are outside the Panel's terms of
reference, owing to the failu re of the European Union's panel request to meet the
requirements of Article 6.2 of the DSU with respect to such measures.31
b. The following measures are within the scope of these compliance proceedings:
i. the Washington State B&O tax credits for preproduction/ aerospace product
development32; the Washington State B&O tax credit for property taxes and leasehold
excise taxes 33; the Washington State sales and use tax exemptions for computer
software, hardware, and peripherals; and the City of Everett B&O tax rate reduction;
ii. pre-2007 and post-2006 RDT&E procurement contracts between USDOD and Boeing
(USDOD procurement contracts ) funded through the 23 original RDT&E programme
elements;
iii. USDOD procurement contracts HR0011-06-C-0073 and HR-0011-08-C-0044 SOW and
assistance instruments HR0011 -06-2-0008, FA8650 -07-2-7716, and HR0011 -10-2-
0001 funded through the Materials Processing Technology Project of the Materials and
Biological Technology programme element;
iv. the provision of access to USDOD equipment and employees with re spect to the
post-2006 USDOD procurement contracts and assistance instruments funded under

27 Panel Report, para. 2.2.a.
28 Panel Report, para. 2.2.b.
29 Panel Report, para. 2.2.c.
30 Panel Report, para. 11.4.a.
32 Including amendments thereto pursuant to SSB 6828.
33 Including amendments thereto pursuant to HB 2466.

[BCI redacted, as marked [BCI]]

the 23 original RDT&E programme elements and the "additional" programme elements
that the Panel found to be within the scope of these proceedings;
v. the FAA aeronautics R&D measure; and
vi. the South Carolina Project Gemini measures and Project Emerald measures.34
c. The following measures are outside the scope of these compliance proceedings:
i. the Washington State Joint Center for Aerospace Technology Innovation ( JCATI)
measure;
ii. Air Force Contract F19628 -01-D-0016 funded under the DRAGON Project of the
Airborne Warning and Control System (PE 0207417F) programme element; Air Force
Contract FA8625-11-C-6600 funded under the KC-46, Next Generation Aerial Refueling
Aircraft (PE 0605221F) programme element; and measures funded under the
Multi-Mission Maritime Aircraft (P-8A) (PE 0605500N) programme element, including
Navy Contracts N00019-04-C-3146, N00019-09-C-0022, and N00019-12-C-0112; and
iii. the provision of access to USDOD equipment and employees with respect to the
pre-2007 NASA procurement contracts and USDOD assistance instruments funded
under the 23 original RDT&E programme elements.35
d. The European Union is precluded from bringing claims under Articles 3.1(a) and 3.2 of the
SCM Agreement against the following four original Washington State tax measures enacted
under HB 2294: (i) the Washington State B&O tax rate reduction; (ii) the Washington
State B&O tax credits for preproduction/aerospace product development 36; (iii) the
Washington State B&O tax credit for property taxes37; and (iv) the Washington State sales
and use tax exemptions for computer software, hardware, and peripherals.38
e. The European Union is precluded from bringing claims under Articles 3.1(b) and 3.2 of the
SCM Agreement, and under Article III:4 of the GATT 1994, with respect to the following
four original Washington State tax measures enacted under HB 2294: (i) the Washington
State B&O tax rate reduction; (ii) the Washington State sales and use tax exemptions for
computer software, hardware, and peripherals; (iii) the Washington State B&O tax credits
for preproduction/aerospace product development39; and (iv) the Washington State B&O
tax credit for property taxes40; as well as the FSC/ETI measures.41
f. The European Union is precluded from bringing c laims under Articles 3.1(a) -(b) and 3.2
of the SCM Agreement, and under Article III:4 of the GATT 1994, with respect to: (i) the
City of Everett B&O tax rate reduction, the tax abatements related to the City of Wi chita
IRBs, and the pre-2007 NASA Space Act Agreements and USDOD procurement contracts
at issue in the original proceedings; and (ii) the pre -2007 NASA procurement contracts
and USDOD assistance instruments at issue in the original proceedings, as amended by
the respective Boeing Patent Licence Agreements.42
1.17. With respect to whether the United States has failed to withdraw the subsidy within the
meaning of Article 7.8 of the SCM Agreement:
a. With regard to the pre -2007 NASA and USDOD aeronautics R&D subsidies that were the
subject of the recommendations and rulings of the DSB, the European Union established

34 Panel Report, para. 11.5.a.
35 Panel Report, para. 11.5.b.
36 Including amendments thereto pursuant to SSB 6828.
37 Including amendments thereto pursuant to HB 2466.
38 Panel Report, para. 11.6.a.
39 Including amendments thereto pursuant to SSB 6828.
40 Including amendments thereto pursuant to HB 2466.
41 Panel Report, para. 11.6.b.
42 Panel Report, para. 11.6.c.

[BCI redacted, as marked [BCI]]

that the modifications made by the United States through the Boeing Patent Licence
Agreements to the terms of the pre -2007 NASA procurement contracts and US DOD
assistance instruments do not constitute a withdrawal of the subsidy within the meaning
of Article 7.8 of the SCM Agreement and that the United States, having taken no action
with respect to pre-2007 Space Act Agreements, has failed to withdraw the subsidy within
the meaning of Article 7.8 of the SCM Agreement.43
b. With regard to the post -2006 measures of the United States challenged in these
proceedings, the European Union established that the following measures involve specific
subsidies within the meani ng of Articles 1 and 2 of the SCM Agreement, and that by
granting or maintaining these specific subsidies after the end of the implementation
period, the United States has failed to withdraw the subsidy within the meaning of
Article 7.8 of the SCM Agreement:
i. certain transactions between NASA and Boeing pursuant to the post -2006 NASA
procurement contracts, cooperative agreements, and Space Act Agreements, with
respect to which the Panel was unable to estimate the amount of the subsidy on the
basis of the evidence on the record, but considered the United States' estimate of the
amount of the financial contribution at [BCI] between 2007 and 2012 to be credible;
ii. certain transactions between USDOD and Boeing pursuant to post -2006 USDOD
assistance instruments, wit h respect to which the Panel was unable to estimate the
amount of the subsidy on the basis of the evidence on the record, but considered the
United States' estimate of the amount of the financial contribution at [BCI] between
2007 and 2012 to be credible;
iii. transactions pursuant to the FAA-Boeing CLEEN Agreement with respect to which the
Panel was unable to estimate the amount of the subsidy on the basis of the evidence
on the record, but considered the European Union's estimate of the amount of the
financial contribution at US$27.99 million between 2010 and 2014 to be credible;
iv. Washington State B&O tax rate reduction for the aerospace industry, in the amount of
US$325 million between 2013 and 2015;
v. Washington State B&O tax credits for preproduction/aerospace product development,
as amended by Section 7 of Washington State SSB 6828, in the amount of [BCI]
between 2013 and 2015;
vi. Washington State B&O tax credit for property taxes, as amended by HB 2466 to include
leasehold excise taxes, in the amount of [BCI] between 2013 and 2015;
vii. Washington State sales and use tax exemptions for computer software, hardware, and
peripherals, in the amount of [BCI] between 2013 and 2015;
viii. City of Everett B&O tax rate reduction, in the amount of US$54.1 million between 2013
and 2015;
ix. payments made by the State of South Carolina pursuant to commitments made in the
Project Gemini Agreement44 to compensate Boeing for a portion of the costs incurred
by Boeing with respect to the construction of the Gemini facilities and infrastructure
through air hub bond proceeds, in the amount of US$50 million;
x. the State of South Carolina property tax exemption for Boeing's large cargo freighters,
in the amount of US$25.82 million between 2013 and 2015; and

43 Panel Report, para. 11.7.a.
44 Project Gemini Agreement between The Boeing Company and the State of South Carolina
(1 January 2010) (Panel Exhibit EU-467).

[BCI redacted, as marked [BCI]]

xi. the State of South Carolina sales and use tax exemptions for aircraft fuel, computer
equipment, and construction materials, in the amount of US $2.25 million between
2013 and 2015.45
c. The European Union failed to establish that the following measures involve specific
subsidies within the meaning of Articles 1 and 2 of the SCM Agreement, and therefore
failed to establish that, by granting or maintaining these specific subsid ies after the end
of the implementation period, the United States has failed to withdraw the subsidy within
the meaning of Article 7.8 of the SCM Agreement:
i. certain transactions between USDOD and Boeing pursuant to pre-2007 and post-2006
USDOD procurement contracts, on the grounds that, assuming arguendo that these
measures were to involve financial contributions within the meaning of
Article 1.1(a)(1) of the SCM Agreement, they do not confer a benefit on Boeing within
the meaning of Article 1.1(b) of the SCM Agreement;
ii. tax exemptions and exclusions under the FSC/ETI legislation and successor legislation,
on the grounds that the European Union has failed to establish that Boeing actually
received the FSC/ETI tax benefits after 2006, and that the measure therefore involves
a financial contribution within the meaning of Article 1.1(a)(1)(ii) of the
SCM Agreement;
iii. tax abatements provided through IRBs issued by the City of Wichita, on the grounds
that these tax abatements are no longer specific within the meaning of Article 2.1(c)
of the SCM Agreement and, as a result, the measure is no longer subject to the
provisions of the SCM Agreement on actionable subsidies;
iv. the State of South Carolina's sublease of the Project Site, on the grounds that the
European Union has failed to establish that the sublease involves a subsidy to Boeing;
v. the State of South Carolina's provision of Project Gemini and Project Emerald facilities
and infrastructure, on the grounds that the European Union has failed to establish that
these mea sures involve financial contributions within the meaning of
Article 1.1(a)(1)(iii) of the SCM Agreement;
vi. the State of South Carolina's fee -in-lieu-of taxes (FILOT) arrangements, set forth in
the Boeing FILOT Agreement46 and Project Emerald FILOT Agreement, on the grounds
that these arrangements are not specific within the meaning of Article 2 of the
SCM Agreement;
vii. the State of South Carolina's corporate income tax credits in connection with the
designation of the Project Gemini and Project Emerald portions o f the Project Site as
part of the same multi -county industrial park (MCIP), on the grounds that the tax
credits are not specific within the meaning of Article 2 of the SCM Agreement;
viii. the State of South Carolina's Income Allocation and Apportionment Agreement, on the
grounds that the European Union has failed to establish that the agreement involves
a financial contribution within the meaning of Article 1.1(a)(1)(ii) of the
SCM Agreement; and
ix. the State of South Carolina's workforce recruitment, training , and development
programme, on the grounds that the programme is not specific within the meaning of
Article 2 of the SCM Agreement.47

45 Panel Report, para. 11.7.b.
46 Fee Agreement by and between Charleston County, South Carolina, and The Boeing Company
(1 December 2010) (Panel Exhibit EU-470).
47 Panel Report, para. 11.7.c.

[BCI redacted, as marked [BCI]]

1.18. With respect to whether the United States has failed to take appropriate steps to remove the
adverse effects within the meaning of Article 7.8 of the SCM Agreement:
a. The European Union failed to establish that the effects of certain aeronautics R&D subsidies
and other subsidies are a genuine and substantial cause of significant lost sales, significant
price suppression, impedance of imports to the US market or impedanc e 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) -(c) of the SCM Agreement with respect to the A350XWB in the
post-implementation period.48
b. The European Union failed to establis h that the original adverse effects of the pre -2007
aeronautics R&D subsidies with respect to 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) -(c) of the
SCM Agreement in the post-implementation period.49
c. The European Union established that the effects of the Washington State B&O tax rate
reduction are a genuine and substantial cause of significant lost sales within the meaning
of Articles 5(c) and 6.3(c) of the SCM Agreement of the A320neo and A320ceo families of
LCA in the single -aisle LCA market, with respect to the sales campaigns for Fly Dubai in
2014, Icelandair in 2013, and Air Canada in 2013, in the post-implementation period.50
d. The European Union established that the effects of the Washington State B &O tax rate
reduction are a genuine and substantial cause of a threat of impedance of imports of the
A320ceo to the United States single -aisle LCA market, and a threat of impedance of
exports of Airbus single-aisle LCA in the United Arab Emirates third country market, within
the meaning of Articles 5(c) and 6.3(a) -(b) of the SCM Agreement in the
post-implementation period.51
e. The European Union failed to establish that the effects of the pre -2007 aeronautics R&D
subsidies and the post -2006 subsidies are a gen uine and substantial cause of significant
price suppression of the A320neo or A320ceo, impedance of imports of the A320neo or
A320ceo to the US market, or displacement and impedance of exports of the A320neo or
A320ceo to the third country markets of Austr alia, Brazil, Canada, Iceland, Indonesia,
Malaysia, Mexico, Norway, Russia, and Singapore, within the meaning of Articles 5(c) and
6.3(a)-(c) of the SCM Agreement, or threats of any of the foregoing, in the
post-implementation period.52
1.19. 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, the Panel found that the European Union failed to establish that
the subsidies are inconsistent with these provisions.53
1.20. In light of the foregoing, the Panel concluded that, by continuing to be in violation of
Articles 5(c) and 6.3(a)-(c) of the SCM Agreement, the United States has failed to comply with the
recommendations and rulings of the DSB 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".54 The Panel accordingly found that, to the extent that the United States has failed to
comply with the recommendations and rulings of the DSB in the origi nal dispute, those
recommendations and rulings remain operative.55

48 Panel Report, para. 11.8.a.
49 Panel Report, para. 11.8.b.
50 Panel Report, para. 11.8.c.
51 Panel Report, para. 11.8.d.
52 Panel Report, para. 11.8.e.
54 Panel Report, para. 11.10.
55 Panel Report, para. 11.12.

[BCI redacted, as marked [BCI]]

1.2.2 Appellate proceedings and procedural issues
1.21. On 5 December 2016, the Appellate Body received a letter from the European Union referring
to an anticipated appeal in this dispute, to the ongoin g appeal in EC and certain member States –
Large Civil Aircraft (Article 21.5 – US), and to an imminent appeal in US – Tax Incentives. Referring
to Rule 16(1)-(2) of the Working Procedures for Appellate Review 56 (Working Procedures) and
Article 9 of the DSU, the European Union requested that the schedules for these three appeals be
harmonized and that the hearings be sufficiently proximate in time, so that a particular matter would
not be effectively disposed of in one appeal before the related matter is heard in the other appeals.
The Chair of the Appellate Body invited the United States and the third parties to submit comments
on the European Union's request by 9 December 2016. The United States argued that the
European Union's request was not supported by the DSU or the Working Procedures and would result
in delays in the proceedings . The United States stated that it remained open to proposals to set
deadlines for written submissions and dates for oral hearings in a way that would al low the
participants and third participants in each dispute to advocate effectively their positions on appeal
and for the Appellate Body to consider fully the issues raised. 57 The participants and third parties
were invited to submit additional comments by 16 December 2016. The European Union reiterated
its request that any oral hearings in these appeals be sufficiently proximate in time, but noted that
it was content to leave it to the Appellate Body to determine what that would mean in practice.58 By
letter dated 22 December 2016, the Appellate Body indicated that it would bear in mind the
European Union's request, as well as the comments received, during the appellate proceedings in
these three disputes.59
1.22. On 29 June 2017, the European Union notified the DSB, pursuant to Articles 16.4 and 17 of
the DSU, of its intention to appeal certain issues of law covered in the Panel Report and certain legal
interpretations developed by the Panel, and filed a Notice of Appeal60 and an appellant's submission
pursuant to Rule 20 and Rule 21, respectively, of the Working Procedures.
1.23. On that same date , the Chair of the Appellate Body also received a letter from the
European Union requesting the Appellate Body Division hearing this appeal to adopt additional
procedures to prote ct business confidential information (BCI) and highly sensitive business
information (HSBI) in these appellate proceedings. In its letter, the European Union proposed that
additional procedures that track those adopted by the Appellate Body in the appeal in EC and certain
member States – Large Civil Aircraft (Article 21.5 – US) be adopted. The European Union argued
that, inter alia, disclosure of certain sensitive information on the record of the Panel proceedings
would be severely prejudicial to the LCA manufacturers concerned, and possibly to their customers
and suppliers.
1.24. Also on 29 June 2017, on behalf of the Division hearing this appeal, the Chair of the
Appellate Body sent a letter to the participants and third parties and invited the United States an d
the third parties to comment in writing on the request by the European Union by 5 July 2017. The
Chair also informed the participants and the third parties that, pending a ruling by the Division on
the request to adopt additional procedures to protect BC I and HSBI, the deadlines for the filing of
the appellant's submission, the Notice of Other Appeal, and the other appellant's, appellees', and
third participants' submissions in this appeal were suspended. The participants and the third parties
were also informed that, pending a final decision on the European Union's request, interim additional
protection was to be granted to all BCI and HSBI transmitted to the Appellate Body in this appeal.
1.25. On 5 July 2017, written comments were received from the United Sta tes, Australia, and
Canada. The United States broadly agreed with the European Union's request that the BCI and HSBI
procedures adopted in the appeal in EC and certain member States – Large Civil Aircraft
(Article 21.5 – US) should serve as the basis for BCI and HSBI procedures in this appeal. It
requested, however, a change regarding the deadline to submit an HSBI appendix to any written
submission, suggesting that, if an HSBI appendix is sent by an expedited courier service, that it be
deemed filed and served on the date it is sent, instead of on the date it is delivered. Australia stated

56 WT/AB/WP/6, 16 August 2010.
57 Comments were also received from Canada, China, and Japan.
58 Comments were also received from Australia and the United States.
59 See also Appellate Body Reports, US – Tax Incentives, para. 1.5; EC and certain member States –
Large Civil Aircraft (Article 21.5 – US), para. 1.23.
60 WT/DS353/27 (contained in Annex A-1 of the Addendum to this Report, WT/DS353/AB/RW/Add.1).

[BCI redacted, as marked [BCI]]

that it did not object to the European Union's request but commented that support of both of the
participants would be important in ensuri ng fairness and orderly procedure in these appellate
proceedings. Canada stated that, while it agreed with the European Union's request that additional
procedures to protect BCI and HSBI track the procedures adopted in EC and certain member States
– Large Civil Aircraft (Article 21.5 – US), it considered that the requirement that note-taking by third
participants in the designated reading room be handwritten was unnecessarily burdensome, and
requested that the procedures be modified so as to provide for a stand-alone computer and printer
to be made available to third participant BCI-approved persons in the designated reading room.
1.26. On 7 July 2017, the Chair of the Appellate Body, on behalf of the Division, invited the
participants and third parties to provide , by 11 July 2017, any further views on the request by the
European Union, taking into account the changes proposed by the United States and Canada. On
11 July 2017, comments were received from the European Union and the United States. The
European Union objected to the United States' proposal that an HSBI appendix sent by expedited
courier should be deemed filed the day it is sent. For the European Union, Article 18 of the Working
Procedures makes clear that the "filing" of a submission is not a clerical f ormality, but an event of
legal significance, because the very status of the participants to an appeal derives from the act of
filing the required documents. For the European Union, the Working Procedures clearly envisage a
filing being made in Geneva, und er the supervision of the Secretariat, and being completed upon
the receipt of the relevant documents by the Secretariat. The European Union also stated that, while
it understands that having to transmit an HSBI appendix to Geneva poses certain practical
challenges, such challenges are not unique to the United States. The European Union urged that any
measures taken to address the United States' concerns should be even -handed. In addition, the
European Union stated that it did not, in principle, object to Canada's proposal to allow taking notes
on a computer keyboard in the designated reading room, provided that it can be done in a manner
that ensures the adequate protection of BCI. The European Union noted that the reason for excluding
computers or other electronic devices from the designated reading room was to enhance the security
of BCI, and that the risks of disclosure are heightened if computers or other electronic devices are
allowed. The European Union also noted that the participants and their stakeh olders agreed to the
provision of BCI under the express understanding that computers or electronic devices would not be
permitted in the designated reading room. For these reasons, the European Union considered that
Canada's proposal would be acceptable only if certain heightened protections were put in place. The
United States indicated that it did not favour Canada's request to allow note -taking on a computer
with an attached printer. The United States considered that permitting voluminous reproduction of
BCI with relative ease increases the risk of disclosure. According to the United States, the relative
difficulty of copying large amounts of information, rather than more limited notes to summarize
information, is an appropriate feature of the proposed pr ocedures. The United States added that
extensive notes on the facts seem particularly unnecessary in the context of this appeal, given that
the purpose of access to BCI at this stage is to help participants understand the legal arguments.
1.27. On 21 July 2017, the Chair of the Appellate Body, on behalf of the Division hearing this appeal,
issued a Procedural Ruling61 adopting additional procedures to protect the confidentiality of BCI and
HSBI in these appellate proceedings. The Division did not adopt the modification requested by the
United States to the additional procedures proposed by the European Union regarding the filing of
an HSBI appendix but decided that it would endeavour to set filing dates for the participants such
that the filing date for the HSBI ap pendix would be set three days following the deadline for the
remainder of the submission itself. The Division accepted Canada's proposal that third participant
BCI-approved persons be allowed to take notes on a stand -alone computer and printer in the
designated reading room. The Division also noted that it would make every effort to draft its Report
without including sensitive information and that, if it considers it necessary to do so, it would provide
the participants a timely opportunity to comment and indicate whether any BCI or HSBI was
inadvertently included in the Report.
1.28. On 25 July 2017, the Division provided the participants and third parties with a Working
Schedule for Appeal, setting out the dates for the filing of the appellant's submission and an eventual
Notice of Other Appeal and other appellant's submission.

61 The Procedural Ruling of 21 July 2017 is contained in Annex D-1 of the Addendum to this Report,

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1.29. On 3 August 2017, the European Union filed an appellant's submission pursuant to Rule 21 of
the Working Procedures.
1.30. On 7 August 2017, the Appellate Body received a communication from the United States
requesting that the Division hearing this appeal extend the deadline, from 7 to 9 August 2017, for
the United States to object to the inclusion of any BCI in the European Union's appellant's
submission. The United States indicated that, due to the volume of the European Union's submission,
it needed two additional days to conduct the necessary review. On 8 August 2017, the Chair of the
Appellate Body, on behalf of the Division hearing this appeal, invited the European Union and the
third participants to provide any comments on the United States' request by 9 August 2017. T he
European Union responded that it had no objections to the request by the United States.
1.31. On 9 August 2017, the Chair of the Appellate Body, on behalf of the Division hearing this
appeal, issued a Procedural Ruling62 granting the extension by two days of the time period set out
in the Procedural Ruling of 21 July 2017 for the United States to file an objection to the inclusion of
any BCI. The Division also decided, in the interest of fairness, to extend by two days the time period
set out in the Procedural Ruling of 21 July 2017 for the European Union to file an object ion to the
inclusion of any BCI in the United States' other appellant's submission.
1.32. On 10 August 2017, the United States notified the DSB, pursuant to Articles 16.4 and 17 of
the DSU, of its intention to appeal certain issues of law covered in the Panel Report and certain legal
interpretations developed by the Panel and filed a Notice of Other Appeal63 and an other appellant's
submission pursuant to Rule 23 of the Working Procedures.
1.33. On 14 August 2017, the Appellate Body received a request from the United States to extend
the deadline to file the HSBI appendix to its other appellant's submission from 14 to 15 August 2017.
The United States explained that, on 10 August 2017, it had commenced transfer of the
HSBI appendix to the Appellate Body and the European Union via expedited international courier
service, with the expectation that it would arrive at the United States' Permanent Mission in Geneva
by 14 August 2017. As the shipment had not arrived before the deadline, the United States sought
this extension to complete the transfer of the HSBI appendix. On 15 August 2017, the United States
submitted the HSBI appendix to the Appellate Body. On 17 August 2017, the Chair of the
Appellate Body, on behalf of the Division hearing this appeal, invited the European Un ion and the
third parties to comment on whether the Division should accept the late-filed HSBI appendix of the
United States. On 21 August 2017, the European Union responded that the United States request
did not place before the Appellate Body all the information that the Appellate Body would require in
order to make a procedural ruling on the matter, and that it would welcome additional explanation
and evidence, including proof of the date and time of shipment of the HSBI appendix.
1.34. On 24 August 2017, the Division requested that the United States provide relevant
documentation relating to the time and date on which the HSBI appendix was delivered to the courier
service for transmission to Geneva. On 28 August 2017, the United States responded by providing
a printout of the tracking information for shipment of the HSBI appendix, together with additional
details regarding the shipment. The United States explained that physical delivery of the package to
the courier service occurred on 10 August 2017, and that , although the package arrived in
Switzerland early in the morning on 14 August 2017, unexplained difficulties on the part of the
courier service delayed delivery until the following day. The United States further maintained that,
while it was unfortunate that the package arrived a day later than expected, a decision to grant its
extension request would not result in prejudice.
1.35. On 30 August 2017, the Division issued a Procedural Ruling 64 accepting the late -filed HSBI
appendix to the United States' other appellant's submission.
1.36. On 5 September 2017, the Division provided the participants and third parties a revised
Working Schedule for Appeal, setting out the dates for filing the appellees' and third participants'

62 The Procedural Ruling of 9 August 2017 is contained in Annex D-2 of the Addendum to this Report,

63 WT/DS353/28 (contained in Annex A-2 of the Addendum to this Report, WT/DS353/AB/RW/Add.1).
64 The Procedural Ruling of 30 August 2017 is contained in Annex D-3 of the Addendum to this Report,

[BCI redacted, as marked [BCI]]

submissions. The Division added that the dates for the oral hearing would be communicated in due
course.
1.37. By letter dated 18 September 2017, the Chair of the Appellate Body notified the Chair of the
DSB that the Appellate Body would not be able to circulate its Report in this appeal within the 60-day
period pursuant to Article 17.5 of the DSU, or within the 90 -day period pursuant to the same
provision.65 The Chair indicated that this was due to a number of factors, including the exceptional
size and complexity of these compliance proceedings, the substant ial workload faced by the
Appellate Body, the overlap in the composition of the Divisions hearing several concurrent appeals,
and the shortage of staff in the Appellate Body Secretariat.
1.38. On 10 October 2017, the European Union and the United States each fil ed an appellee's
submission.66
1.39. On 11 October 2017, the Appellate Body received a communication from the European Union
requesting the Division hearing this appeal to extend, from 12 to 13 October 2017, the deadline for
the European Union to object to the inclusion of any BCI in the United States' appellee's submission.
The European Union indicated that, due to the volume of the United States' submission, it needed
one additional day to complete the necessary review regarding BCI. On the same day, the Divis ion
invited the United States and the third parties to provide any comments on the European Union's
request by 12 October 2017. The United States responded that it would have no objection to an
extension of the deadline for both participants to object to t he inclusion of any BCI in the other
participant's appellee's submission. Brazil, China, and Russia also stated that they do not object to
the extension request, but Brazil and China indicated that third parties should be granted an
extension of the deadline for their submissions.
1.40. On 12 October 2017, the Division issued a Procedural Ruling 67 granting an extension by one
day of the time period for the European Union and the United States each to file an objection to the
inclusion of any BCI in the other participant's appellee's submission. In addition, the Division decided
to extend the deadline for the filing of third participants' submissions and executive summaries, and
notifications by third parties under Rule 24(2) of the Working Procedures, until 30 October 2017.
1.41. On 13 October 2017, the Appellate Body received a communication from the European Union,
in which the European Union objected to the inclusion of certain HSBI in the HSBI-redacted version
of the United States' appellee's submission, without proper designation of that information as HSBI.
On the same day, the Division invited the United States to comment on the European Union's
request. On 17 October 2017, the United States responded that the relevant information should be
treated as HSBI, and requested that it be allowed to submit replacement pages for the BCI version
(HSBI-redacted) and non-BCI version (BCI- and HSBI-redacted) of its appellee's submission, and a
corrected HSBI appendix.
1.42. On 18 October 2017, the Division issued a Procedural Ruling68 granting the United States until
23 October 2017 to submit the replacement pages for the BCI and non-BCI versions of its appellee's
submission, and until 26 October 2017 to submit its corrected HSBI appendix. The Division also
decided to extend the de adline for the filing of third participants' submissions and executive
summaries, and notifications by third parties under Rule 24(2) of the Working Procedures, until
7 November 2017.
1.43. Pursuant to the Procedural Ruling of 18 October 2017, on 23 October 2017, the United States
filed the replacement page s for the BCI and non -BCI versions of its appellee's submission. On
26 October 2017, the United States filed the corrected HSBI appendix to its appellee's submission.

65 WT/DS353/29.
66 Pursuant to Rules 22 and 23(4) of the Working Procedures.
67 The Procedural Ruling of 12 October 2017 is contained in Annex D-4 of the Addendum to this Report,

68 The Procedural Ruling of 18 October 2017 is contained in Annex D-5 of the Addendum to this Report,

[BCI redacted, as marked [BCI]]

1.44. On 26 October, Korea notified its intention to appear at the oral hearing as a third
participant.69 On 7 November 2017, Brazil, Canada, China, and Japan each filed a third participant's
submission.70 On the same day, Australia notified its intention to appear at the oral hearing as a
third participant.71 On 13 November 2017, Russia notified its intention to appear at the oral hearing
as a third participant.72
1.45. By letter dated 15 November 2017, the Division informed the participants and third
participants that the first session of the oral hearing would take place from 17 to 20 April 2018.
1.46. By letter dated 24 November 2017, the participants and third participants were informed that,
in accordance with Rule 15 of the Working Procedures, the Chair of the Appellate Body had notified
the Chair of the DSB of the Appellate Body's decision to authorize Appellate Body Member Mr Peter
Van den Bossche to complete the disposition of this appeal, even though his second term of office
was due to expire before the completion of these appellate proceedings.
1.47. By letter date d 12 March 2018, the Division invited the participants to indicate by
21 March 2018 whether they wished to request the sessions of the oral hearing in this appeal to be
open to public observation, and , if so, to propose specific modalities in this respect. The Division
also invited the third participants to provide comments by 23 March 2018 on any request made by
the participants.
1.48. By a joint letter dated 21 March 2018, the participants proposed additional procedures to
protect BCI and HSBI during the oral h earing in this appeal and requested that the Division allow
observation by the public of the oral hearing. The participants proposed that the Division adopt the
same additional procedures that the Appellate Body adopted in EC and certain member States –
Large Civil Aircraft (Article 21.5 – US).
1.49. On 23 March 2018, Canada and China each submitted comments on the participants'
request. Canada expressed its agreement with the joint proposal by the participants that the
Appellate Body allow observation by the public of the oral hearing, while acknowledging that suitable
protection for BCI is required. China stressed the importance of striking an appropriate balance
between the risks of disclosure of sensitive information, on the one hand, and the rights and duties
of the third participants and the WTO membership at large, on the other hand. China requested that
its oral statement and its responses to questions at the oral hearing be treated as confidential.
1.50. On 5 April 2018, the Division issued a Procedural Ruling73 authorizing the participants' request
to open the segments of the oral hearing dedicated to the delivery of opening and closing statements
to public observation, subject to additional procedures for the conduct of the oral hearing that are
essentially the same as those adopted by the Appellate Body in EC and certain member States –
Large Civil Aircraft (Article 21.5 – US).
1.51. The first session of the oral hearing was held from 17 to 20 April 2018. During this session,
the Division informed the participants and third participants that the second session of the oral
hearing would take place in the latter part of September 2018. On 30 May 2018, the Division received
a communication from the United States noting certain scheduling constraints regarding its
participation in the second session of the oral hearing. By letter dated 31 May 2018, the Division
informed the participants and third participants that the second session of the oral hearing would be
held from 18 to 21 September 2018.
1.52. On 1 August 2018, the Division received a communication from the United States requesting
that the Division, in organizing the second session of the oral hearing, take account of the absence
of a key member of the US delegation on 19 September 2018. The United States suggested, as a
first option, that the Division reserve questioning regarding technology effects for 19 September
2018, or, as a second option, alter the schedule so that the hearing begins on 17 September 2018,

69 Pursuant to Rule 24(2) of the Working Procedures.
70 Pursuant to Rule 24(1) of the Working Procedures.
71 Pursuant to Rule 24(2) of the Working Procedures.
72 Pursuant to Rule 24(4) of the Working Procedures.
73 The Procedural Ruling of 5 April 2018 is contained in Annex D-6 of the Addendum to this Report,

[BCI redacted, as marked [BCI]]

and does not take place on 19 September 2018. On 3 August 2018, the Division invited the
European Union and the third participants to provide any comments on the United States' req uest,
if they so wished, by 8 August 2018. On 7 August 2018, the European Union responded that it
preferred the second option proposed by the United States. The European Union indicated that
reserving questioning regarding technology effects on 19 Septembe r would create a scheduling
conflict for a member of the EU delegation.
1.53. By letter dated 9 August 2018, the Division notified the participants and third participants
that it had decided to change the dates of the second session of the oral hearing. Specific ally, the
Division informed the participants and third participants that the second session of the oral hearing
would begin on 17 September 2018 and continue through 18 September 2018, and, after a
suspension on 19 September 2018, resume on 20 September 20 18 and continue through
21 September 2018. The second session of the oral hearing was held accordingly.
1.54. The participants and third participants did not refer to BCI or HSBI in their opening or closing
statements in either session of the oral hearing, excep t for the European Union in its closing
statement in the second session of the oral hearing, which did include BCI. Pursuant to the
Procedural Ruling of 5 April 2018, public observation of both sessions of the oral hearing was limited
to the opening and closing statements of the participants and third participants, with the exception
of China, who had requested that its oral statements be treated as confidential, and the
European Union's closing statement of the second session of the oral hearing, which inc luded BCI.
The public observation took place on 8 May 2018 and 9 October 2018 by means of a delayed
broadcast of a video recording of such statements, after the participants had been given an
opportunity to confirm that no BCI or HSBI had been inadvertently uttered.
1.55. By letter dated 15 February 2019, the Division informed the participants that, pursuant to
paragraph 17(xiii) of the Procedural Ruling of 21 July 2017, the participants would be provided on
6 March 2019 with a confidential advance copy of the Appellate Body Report intended for circulation
to WTO Members. The Division also invited the participants to indicate, by 13 March 2019, whether
any BCI or HSBI was inadvertently included in the Report, and to request removal of such
information. The Division further provided the participants with an opportunity to respond to each
other's comments, if any, by 15 March 2019. On 13 March 2019, the United States requested certain
additional BCI redactions in the Report. On that same date, the European Union stat ed that it had
no comments on the bracketing of BCI or HSBI in the Report, and on 14 March 2019, indicated that
it had no objection to the United States' request. On 15 March 2019, the Division informed the
participants that it had redacted the BCI as identified by the United States.
1.56. By letter dated 15 March 2019, the Chair of the Appellate Body informed the Chair of the DSB
that the Report in these proceedings would be circulated on 28 March 2019.
2 ARGUMENTS OF THE PARTICIPANTS
2.1. The claims and arguments of the participants are reflected in the executive summaries of their
written submissions provided to the Appellate Body.74 The Notices of Appeal and Other Appeal, and
the executive summaries of the participants' claims and arguments, are contained in Annexes A and
B of the Addendum to this Report, WT/DS353/AB/RW/Add.1.
3 ARGUMENTS OF THE THIRD PARTICIPANTS
3.1. The arguments of those third participants that filed a written submission are reflected in the
executive summaries of their written submissions p rovided to the Appellate Body75, which are
contained in Annex C of the Addendum to this Report, WT/DS353/AB/RW/Add.1.

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

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4 ISSUES RAISED IN THIS APPEAL
4.1. The following issues are raised in this appeal:
a. whether the Panel erred in finding that the European Union's claims relating to the
pre-2007 USDOD procurement contracts were within its terms of reference (claim by the
United States);
b. with respect to the Panel's analysis of the pre -2007 and post-2006 USDOD procurement
contracts:
i. whether the Panel acted inc onsistently with Article 11 of the DSU when finding that
the payments and access to USDOD facilities, equipment, and employees provided to
Boeing through USDOD procurement contracts should be characterized as "purchases
of services", rather than as a direc t transfer of funds within the meaning of
Article 1.1(a)(1)(i) of the SCM Agreement and the provision of goods and services
within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement (claim by the
European Union); and
ii. whether the Panel acted inconsi stently with Article 11 of the DSU when finding that
the distribution of intellectual property (IP) rights under USDOD procurement contracts
does not confer a benefit within the meaning of Article 1.1(b) of the SCM Agreement
(claim by the European Union);
c. whether the Panel erred in finding that, in order to establish the existence of a financial
contribution in the form of revenue foregone under Article 1.1(a)(1)(ii) of the
SCM Agreement, the European Union was required to demonstrate that Boeing used the
FSC/ETI tax concessions, and that the European Union had not established the
United States' failure to comply with its obligation under Article 7.8 of the SCM Agreement
to withdraw the FSC/ETI subsidies to Boeing (claim by the European Union);
d. whether, with respect to the Panel's analysis of the post -2006 NASA procurement
contracts and cooperative agreements, the post-2006 USDOD assistance instruments, and
the FAA-Boeing CLEEN Agreement, the Panel erred in its application of Article 1.1(b) of
the SCM Agreement, or acted inconsistently with Article 11 of the DSU, by disregarding
certain terms and evidence (conditional claim by the United States);
e. whether the Panel acted inconsistently with Article 11 of the DSU in finding that
South Carolina's payments to Boei ng with respect to the Project Gemini facilities and
infrastructure confer a benefit within the meaning of Article 1.1(b) of the SCM Agreement
(conditional claim by the United States);
f. whether the Panel erred in its interpretation and application of Articl e 2.1(c) of the
SCM Agreement, or acted inconsistently with Article 11 of the DSU, when limiting its
assessment of de facto specificity of the City of Wichita IRB subsidy programme to the
period of time after the end of the United States' implementation period, and finding that
the IRB programme is no longer specific within the meaning of Article 2.1(c) (claim by the
European Union);
g. whether the Panel erred in its interpretation and application of Article 2.1(c) of the
SCM Agreement, or acted inconsistently with Article 11 of the DSU, when finding that the
subsidy provided by the State of South Carolina to Boeing through economic development
bond (EDB) proceeds, used to fund Project Gemini facilities and infrastructure, is not
specific within the meaning of Article 2.1(c) of the SCM Agreement (claim by the
European Union);
h. whether the Panel erred in its application of Article 2.2 of the SCM Agreement, or acted
inconsistently with Article 11 of the DSU, when finding that the subsidy provided by the
State of South Carolina to Boeing through the MCIP job tax credits is not specific within
the meaning of Article 2.2 of the SCM Agreement (claim by the European Union);

[BCI redacted, as marked [BCI]]

i. whether the Panel erred in the interpretation and application of Article 2.1(a) of the
SCM Agreement in finding that the USDOD procurement contracts are specific within the
meaning of that provision (conditional claim by the United States);
j. whether the Panel acted inconsistently with Article 11 of the DSU in finding that the subsidy
provided by the St ate of South Carolina to Boeing through the EDB and Air Hub Bond
proceeds conferred a benefit within the meaning of Article 1.1(b) of the SCM Agreement
(conditional claim by the United States);
k. whether the Panel erred in the interpretation of Articles 5, 6 .3, and 7.8 of the
SCM Agreement in considering, in relation to significant price suppression, significant price
depression, and significant lost sales, that a subsidized product can cause serious prejudice
to another product only if the two products in question compete in the same market (claim
by the European Union);
l. whether the Panel erred in the interpretation and application of Articles 5, 6.3, and 7.8 of
the SCM Agreement, or acted inconsistently with Article 11 of the DSU, in its treatment of
claims of continuing adverse effects from the original proceedings (claim by the
European Union);
m. whether the Panel erred in the interpretation and application of Article 6.3(c) of the
SCM Agreement, or acted inconsistently with Article 11 of the DSU, in finding that the
European Union had not failed to make a prima facie case of significant price suppression
with respect to the A330 LCA (conditional claim by the United States);
n. whether, in its assessment of adverse effects through a technology causal mechanism, the
Panel erred in its application of Articles 5, 6.3, and 7.8 of the SCM Agreement, or acted
inconsistently with Article 11 of the DSU, when finding that the European Union failed to
demonstrate the existence of original subsidy technology effects and spill-over technology
effects of the pre -2007 aeronautics R&D subsidies in the post -implementation period
(claim by the European Union);
o. whether the Panel erred under Articles 5, 6.3, and 7.8 of the SCM Agreement in allegedly
stating that, in order to find significant lost sales through a price causal mechanism, there
must be no non-price factors that potentially contributed to Boeing having won those sales
(claim by the European Union);
p. whether the Panel erred in the interpretation and application of Articles 5 and 6.3 of the
SCM Agreement, or acted inconsistently with Article 11 of the DSU, in its assessment of
the relative significance of the amount of the tied tax subsidies when reaching its findings
that the tied tax subsidies cause serious prejudice in the single-aisle LCA market in the
post-implementation period (claim by the United States); and
q. whether the Panel erred in the interpretation and application of Articles 5 and 6.3 of the
SCM Agreement, or acted inconsistently with Article 11 of the DSU, by requiring that the
European Union demonstrate that the untied subsidies actually altered Boeing's pricing
behaviour (claim by the European Union).
5 ANALYSIS OF THE APPELLATE BODY
5.1 United States' claim relating to the Panel's terms of reference
5.1. The United States requests us to reverse the Panel's finding that its terms of reference include
the European Union's claims relating to the pre -2007 USDOD procurement contracts. 76 The
United States contends that the Panel erred in allowing the European Union to reassert i n these
compliance proceedings its claims that the USDOD procurement contracts involved financial
contributions that confer a benefit.77 The United States argues that these claims had been rejected

76 United States' other appellant's submission, para. 11.
77 United States' other appellant's submission, para. 11.

[BCI redacted, as marked [BCI]]

in the original proceedings and that they cannot be relitig ated in these compliance proceedings. 78
The European Union requests us to uphold the Panel's finding that its claims relating to the USDOD
procurement contracts are within the scope of the compliance proceedings. 79 The European Union
contends that, because the Appellate Body declared moot the original panel's finding that the USDOD
procurement contracts were not financial contributions, there were no recommendations or rulings
relating to the USDOD procurement contracts that the European Union would be relitigating.80
5.1.1 The Panel's findings
5.2. Before the Panel, the United States requested a ruling that the European Union's claims relating
to the USDOD procurement contracts, which had also been at issue in the original proceedings, fell
outside the scope of th ese compliance proceeding s.81 Noting that there was no finding of
WTO-inconsistency with respect to these measures at the conclusion of the original proceedings 82,
the United States claimed that this was because the European Union had specifically requested that
the Appellate Body not complete the legal analysis in the event that it found fault with the original
panel's legal interpretation.83
5.3. In response, the European Union argued that in the original proceedings it had pursued the
matter before the Appellate Body to the greatest extent possible.84 In particular, it had appealed the
legal findings on which the panel had based its conclusion that the USDOD procurement contracts
were not subsidies.85 The European Union explained that the Appellate Body had declared "moot and
without legal effect" the original panel's interpretation that transactions properly characterized as
purchases of services are excluded from Article 1.1(a)(1) of the SCM Agreement, and the panel's
finding that the USDOD procurement contracts were properly characterized as purchases of services
and were not financial contributions.86 However, given the lack of factual findings and uncontested
facts related to the questions of benefit and adverse effects, it would have been impossible for the
Appellate Body to complete the legal analysis of whether the USDOD procurement contracts
constituted specific subsidies that cause adverse effects.87
5.4. The Panel began by noting that complaining parties had been permitted to reassert claims in
compliance proceedings against aspects of measures that were unchanged from those unsuccessfully
challenged in the original proceedings, provided that the finality of the recommendations and rulings
of the DSB was not compromised, in particular where: (i) the origin al panel had exercised judicial
economy with respect to one challenged aspect of an original measure, that aspect had become an
integral part of the measure taken to comply, and the challenge was to that same aspect of the
measure taken to comply88; and (ii) in original proceedings the Appellate Body had reversed a finding
by the panel, but had subsequently been unable to complete the legal analysis due to insufficient
factual findings or undisputed facts on the panel record.89
5.5. The Panel then reviewed how the panel and the Appellate Body in the original proceedings had
dealt with the European Union's claims relating to the USDOD procurement contracts. The Panel

78 United States' other appellant's submission, paras. 13-17.
79 European Union's appellee's submission, para. 67 (referring to Panel Report, para. 11.5.a.ii).
80 European Union's appellee's submission, para. 45.
81 Panel Report, para. 7.95 (referring to United States' request for preliminary rulings, dated
13 November 2012, paras. 8-9 and 60).
82 Panel Report, para. 7.96 (referring to United States' reply to European Union's response to
United States' request for preliminary rulings, dated 3 December 2012, para. 27; request for preliminary
rulings, dated 13 November 2012, para. 9; first written submission to the Panel, para. 306).
83 Panel Report, para. 7.97 (referring to United States' reply to European Union's response to
United States' request for preliminary rulings, dated 3 December 2012, para. 28; request for preliminary
rulings, dated 13 November 2012, para. 8; first written submission to the Panel, para. 309).
84 Panel Report, para. 7.103 (referring to European Union's opening statement at the Panel meeting,
para. 15).
85 Panel Report, para. 7.102.
86 Panel Report, para. 7.103 (referring to European Union's supplemental submission on United States'
request for preliminary rulings, para. 10; opening statement at the Panel meeting, para. 15).
87 Panel Report, para. 7.102.
88 Panel Report, paras. 7.33 and 7.109 (referring to Appellate Body Report, US – Oil Country Tubular
Goods Sunset Reviews (Article 21.5 – Argentina), para. 150).
89 Panel Report, paras. 7.34 and 7.109 (referring to Appellate Body Report, US – Upland Cotton
(Article 21.5 – Brazil), para. 210).

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noted the original panel's findings that work performed by Boeing for the USDOD under the USDOD
procurement contracts was properly characterized as a "purchase of services"; transactions
characterized as purchases of services are excluded from the scope of Article 1.1(a)(1)(i) of the
SCM Agreement, and therefore the USDOD procurement contracts did not in volve financial
contributions within the meaning of that provision.90
5.6. The Panel further noted that in the original proceedings the European Union had appealed the
panel's interpretation of Article 1.1(a)(1) of the SCM Agreement, in particular the panel's finding
that transactions properly characterized as purchases of services are excluded from the scope of
Article 1.1(a)(1) of the SCM Agreement 91, and that the European Union had not appealed the
application of th e original panel's interpretation of Article 1.1(a)(1) to any specific measures. 92
Moreover, the Panel noted the European Union's position that the Appellate Body's reversal of the
panel's legal interpretation had implications for the panel's finding regarding the USDOD
procurement contrac ts, and that the European Union considered itself entitled to request the
Appellate Body to complete the legal analysis concerning these contracts, even though the
European Union ultimately elected not to do so on the grounds that there were insufficient f actual
findings by the panel or undisputed facts.93
5.7. Ultimately, the Panel concluded that, because the original panel had ended its analysis at the
stage of financial contribution, it would have been impossible for the Appellate Body in the original
proceedings to complete the legal analysis of benefit and specificity regarding the USDOD
procurement contracts.94 In these circumstances, the Panel held that consideration of the USDOD
procurement contracts in these compliance proceedings should not be precluded o nly because the
European Union had not requested completion of the legal analysis in the original proceedings.95 The
Panel also pointed to the time and resources that had been expended in this dispute, as well as to
the aim of dispute settlement, as expressed in Article 3.7 of the DSU, to secure a positive resolution
to a dispute.96 On this basis, the Panel found that by reasserting claims with respect to the USDOD
procurement contracts the European Union would not be "'unfairly' getting a second chance" to make
a case that it failed to make in the original proceeding s, and the Panel thus concluded that the
European Union's claims relating to the USDOD procurement contracts fell within the scope of these
compliance proceedings.97
5.1.2 Claims and arguments on appeal
5.8. The United States requests us to reverse the Panel's finding that its terms of reference included
the European Union's claims that the USDOD procurement contracts were financial contributions
that confer a benefit. 98 First, the United States contends that t he Panel erred in allowing the
European Union to reassert in th ese compliance proceedings claims regarding the USD OD
procurement contracts that had been rejected in the original proceeding s.99 While acknowledging
"exceptions" to the principle that a party may not "relitigate" a claim on which it did not prevail in
original proceedings, the United States asserts that such exceptions do not apply in these compliance
proceedings.100 The United States asserts that the European Unio n did not appeal in the original
proceedings whether the USDOD procurement contracts were purchases of services or whether they
conferred a benefit .101 Accordingly, the United States asserts that the European Union decided to
"leave in place" the original panel's finding that the USDOD procurement contracts were purchases
of services and to "leave unanswered" the question of whether they conferred a benefit .102 For the
United States, the failure to achieve a definitive resolution of the issue in the original pr oceedings
must be "laid at the feet" of the European Union, and therefore the European Union is not entitled

90 Panel Report, para. 7.111.
91 Panel Report, para. 7.112 (referring to European Union's Notice of Appeal, dated 4 April 2011,
WT/DS353/8, para. 3).
92 Panel Report, para. 7.112.
93 Panel Report, para. 7.114.
94 Panel Report, para. 7.128.
95 Panel Report, para. 7.128.
96 Panel Report, para. 7.129.
97 Panel Report, para. 7.130.
98 United States' other appellant's submission, para. 11.
99 United States' other appellant's submission, para. 11.
100 United States' other appellant's submission, para. 11.
101 United States' other appellant's submission, para. 16.
102 United States' other appellant's submission, para. 16.

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to pursue in these compliance proceedings a claim that the USDOD procurement contracts were not
purchases of services that conferred a benefit.103
5.9. Second, the United States contends that the Panel erred in finding that the European Union
could pursue in these compliance proceedings its claim that the USDOD procurement contracts
confer a benefit. 104 In particular, the United States alleges that the Panel erred in attributing
significance to the fact that the original panel had not analysed whether the USDOD procurement
contracts conferred a benefit or caused adverse effects, and in finding that "it would have been
impossible for the Appellate Body to compl ete the analysis regarding the DOD procurement
contracts."105 For the United States, the Appellate Body did not consider whether it could complete
the legal analysis in the original dispute, because the European Union had explicitly stated that it
was not se eking completion of the legal analysis. 106 For the United States, this is what bars the
European Union from including claims relating to the USDOD procurement contracts in these
compliance proceedings.107
5.10. Finally, the United States maintains that the Panel's r eference to the "time and resources"
devoted to an issue in litigation and to the aim of the dispute settlement system is "legally irrelevant"
to whether the European Union's claims against the USDOD procurement contracts fell within the
Panel's terms of reference.108 For the United States, these considerations should have no bearing on
the determination of the scope of compliance proceedings pursuant to Article 21.5 of the DSU.
5.11. In response, the European Union requests us to uphold the Panel's finding that th e USDOD
procurement contracts are within the scope of the compliance proceedings. 109 First, in response to
the United States' argument that the European Union should not be permitted to relitigate its claims
relating to the USDOD procurement contracts, the E uropean Union contends that, because the
Appellate Body had declared moot the original panel's finding that the USDOD procurement contracts
were not financial contributions, there were no recommendations or rulings in the original case
relating to the USDOD procurement contracts that the European Union would be relitigating. 110
Moreover, the European Union argues that the Panel was correct in considering that the
Appellate Body has permitted complaining parties in compliance proceedings to reassert claims
against aspects of measures where such claims were "unsuccessfully asserted" in the original
proceedings in situations where the finality of the recommendations and rulings of the DSB would
not thereby be compromised.111
5.12. Second, the European Union maintains that its decision not to request the Appellate Body in
the original proceedings to complete the legal analysis does not preclude the European Union from
demonstrating that the USDOD procurement contracts confer a "benef it" to Boeing in the current
compliance proceedings.112 The European Union points out that, because the original panel did not
evaluate whether the USDOD procurement contracts conferred a benefit, there were no factual
findings or uncontested facts related to these contracts with which the Appellate Body in the original
proceedings could complete the legal analysis on "benefit". The European Union further stresses
that, as the Panel correctly understood, the European Union cannot be penalised for refraining from
asking the Appellate Body to do something that falls outside of the Appellate Body's competence.113
The European Union explains that the Appellate Body can complete legal analyses "only if the factual
findings of the panel, or the undisputed facts in the panel record" provide a sufficient basis for the

103 United States' other appellant's submission, para. 16 (quoting Panel Report, para. 7.35).
104 United States' other appellant's submission, para. 18.
105 United States' other appellant's submission, para. 18 (quoting Panel Report, para. 7.128).
106 United States' other appellant's submission, para. 19 (referring to European Union's appellant's
submission in US – Large Civil Aircraft (2nd complaint), para. 127 ("Because there are a number of contested
facts related to the {USDOD RDT&E programme} measures that were found to constitute purchases of
services, the European Union does not request that the Appellate Body complete the analysis.")).
107 United States' other appellant's submission, para. 19.
108 United States' other appellant's submission, paras. 20-21 (quoting Panel Report, para. 7.129).
109 European Union's appellee's submission, para. 67 (referring to Panel Report, para. 11.5.a.ii).
110 European Union's appellee's submission, paras. 36-38.
111 European Union's appellee's submission, para. 42 (quoting Panel Report, para. 7.33).
112 European Union's appellee's submission, paras. 48-49.
113 European Union's appellee's submission, paras. 50-51 (quoting Panel Report, para. 7.128).

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Appellate Body to do so.114 The European Union further contends that, because the Appellate Body
may complete the analysis regardless of whether a party requests it or objects to it, the question of
whether the European Union requested the Appellate Body to complete the legal analysis is not
relevant for determining whether the European Union's claims are within the scope of these
compliance proceedings.115
5.13. Finally, the European Union agrees with the Panel's rea soning that the efficiency and
effectiveness of the dispute settlement process are relevant contextual considerations in evaluating
the scope of compliance proceedings under Article 21.5 of the DSU.116 In this regard, according to
the European Union, the Panel properly considered relevant that the aim of the dispute settlement
mechanism is to secure a positive solution to a dispute.117
5.1.3 Whether the Panel erred in finding that claims relating to the USDOD procurement
contracts were within the scope of these compliance proceedings
5.14. We now turn to assess whether the Panel erred in finding that claims relating to the USDOD
procurement contracts were within the scope of th ese compliance proceeding s. We begin by
addressing the question of when a Member may reassert in c ompliance proceedings, pursuant to
Article 21.5 of the DSU, claims that were not resolved on the merits in original proceedings.
Thereafter we review the Panel's analysis of whether the European Union's claims relating to the
USDOD procurement contracts fell within the scope of these compliance proceedings.
5.15. At the outset, we note that the first sentence of Article 21.5 of the DSU provides:
Where there is disagreement as to the existence or consistency with a covered
agreement of measures taken to comply wit h the recommendations and rulings such
dispute shall be decided through recourse to these dispute settlement procedures,
including wherever possible resort to the original panel.
5.16. Article 21.5 provides the basis for disputes concerning Members' compliance w ith
recommendations and rulings of the DSB. Both original disputes and compliance disputes consist of
a matter referred to the DSB, which in turn comprises two elements: (i) the specific measures at
issue; and (ii) the legal basis of the complaint (that is, the claims).118 In defining the scope of
compliance proceedings, the Appellate Body has consistently distinguished between these two
elements, and it has found certain limitations, both regarding the measures that can be challenged
in compliance proceedings and the claims that can be raised in such proceedings.
5.17. In the present case, the participants' disagreement relates to limitations on the claims that
can be raised in Article 21.5 proceedings. The participants disagree as to whether claims relating to
the USDOD procurement contracts fall within the scope of these compliance proceedings. With
respect to limitations regarding claims that can be pursued in compliance proceedings pursuant to
Article 21.5, the Appellate Body has distinguished between new claims asserted for the first time in
compliance proceedings and claims pursued in original proceedings and reasserted in compliance
proceedings.
5.18. First, with respect to new claims, ordinarily, a complainant is n ot allowed to raise claims in
Article 21.5 proceedings that it could have pursued in original proceedings, but did not.119 However,
this is not so for new claims against a measure taken to comply when such measure "incorporates
components of the original measure that are unchanged, but are not separable from other aspects

114 European Union's appellee's submission, para. 51 (quoting Appellate Body Report, US – Large Civil
Aircraft (2nd complaint), para. 1250 and fn 2511 thereto, in turn quoting Appellate Body Report, US –
Hot-Rolled Steel, para. 235).
115 European Union's appellee's submission, paras. 55-56.
116 European Union's appellee's submission, para. 60.
117 European Union's appellee's submission, para. 61 (referring to Panel Report, para. 7.129).
118 Appellate Body Reports, Argentina – Import Measures, para. 5.13; EC – Bed Linen (Article 21.5 –
India), para. 78.
119 Appellate Body Report, US – Tuna II (Mexico) (Article 21.5 – Mexico), para. 5.8 (quoting
Appellate Body Reports, US – Upland Cotton (Article 21.5 – Brazil), para. 211; US – Zeroing (EC) (Article 21.5
– EC), para. 424).

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of the measure taken to comply". 120 Therefore, the possibility to challenge an element of the
measure at issue for the first time in compliance proceedings, even if that element may not have
changed, hinges on the "critical question" of whether such an element forms "an integral part of the
measure taken to comply".121
5.19. Second, concerning limitations on claims pursued in original proceedings and reasserted in
compliance proceedings, we refer to the title of Article 21 of the DSU, which suggests that
Article 21.5 proceedings are part of the process of " Surveillance of Implementation of
Recommendations and Rulings" of the DSB, and to the fact that Article 17.14 of the DSU provides
that adopted Appell ate Body reports "shall be … unconditionally accepted by the parties to the
dispute".122 In this regard we also note that Article 3.3 of the DSU states that the "prompt
settlement" of disputes "is essential to the effective functioning of the WTO".123 These considerations
support the view that compliance proceedings cannot be used to "re -open" issues decided on the
merits in the original proceedings, because that would allow a party in Article 21.5 proceedings a
"second chance" to reargue a claim that has been decided in an adopted report.124
5.20. The Appellate Body has treated differently, however, cases in which claims against aspects of
a measure were not decided on the merits in the original proceedings, because such claims are not
covered by the recommendations an d rulings of the DSB. 125 Accordingly, the Appellate Body has
entertained in compliance proceedings certain claims that had been raised in original proceedings
but on which no ruling on the merits of the claims had been rendered. One example is where the
Appellate Body has reversed panel findings but has not been able to complete the legal analysis.126
Similarly, the Appellate Body has permitted claims to be reasserted in compliance proceedings when
the exercise of judicial economy has caused a claim to remain unresolved in the original proceedings
without a decision on the merits having been rendered.127
5.21. In sum, compliance proceedings cannot be used to "re -open" issues that were decided on
the merits in the original proceedings. 128 But claims against aspects of a measure that are not
decided on the merits in the original proceedings are not covered by recommendations and rulings
of the DSB and thus can be reasserted in compliance proceedings.129
5.22. With these considerations in mind, we now turn to review whether the Panel erred in finding
that claims concerning the USDOD procurement contracts fell within its terms of reference. The
United States asserts that these claims fall outside the Panel's terms of reference, because the
European Union had already pursued these claims in the original proceedings.
5.23. The Panel explained that whether the European Union may reassert claims relating to the
USDOD procurement contracts depended on the way in which these claims had been resolved in the
original proceedings. More specifically, the Panel found that it had to consider whether the original
measure had been "unsuccessfully" challenged on the merits in the original proceedings, such that
it could not be raised again without compromising the finality of the recommendations and rul ings
of the DSB.130

120 Appellate Body Report, US – Tuna II (Mexico) (Article 21.5 – Mexico), para. 5.8 (quoting
Appellate Body Report, US – Zeroing (EC) (Article 21.5 – EC), para. 432).
121 Appellate Body Report, US – Tuna II (Mexico) (Article 21.5 – Mexico), para. 5.8 (quoting
Appellate Body Report, US – Zeroing (EC) (Article 21.5 – EC), para. 434).
122 See Appellate Body Report, US – Shrimp (Article 21.5 – Malaysia), para. 97.
123 See Appellate Body Report, US – Shrimp (Article 21.5 – Malaysia), para. 97.
124 Appellate Body Reports, US – Zeroing (EC) (Article 21.5 – EC), para. 427 (fn omitted); US – Upland
Cotton (Article 21.5 – Brazil), para. 210. The Appellate Body has found that the same applies when a
complainant has failed to establish a prima facie case. See Appellate Body Report, EC – Bed Linen (Article 21.5
– India), para. 96.
125 Appellate Body Report, US – Zeroing (EC) (Article 21.5 – EC), para. 424.
126 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 210.
127 Appellate Body Report, US – Oil Country Tubular Goods Sunset Reviews (Article 21.5 – Argentina),
para. 148.
128 Appellate Body Report, US – Tuna II (Mexico) (Article 21.5 – Mexico), para. 5.8 (quoting
Appellate Body Report, US – Zeroing (EC) (Article 21.5 – EC), para. 427).
129 Appellate Body Report, US – Tuna II (Mexico) (Article 21.5 – Mexico), para. 5.8 (quoting
Appellate Body Report, US – Zeroing (EC) (Article 21.5 – EC), para. 424).
130 Panel Report, paras. 7.41 and 7.109.

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5.24. We consider that the approach articulated by the Panel comports with the approach we have
outlined above. The Panel was correct in considering whether the original measure had been
"unsuccessfully" challenged on the merits in the original proceedings, such that it could not be raised
again without compromising the finality of the recommendations and rulings of the DSB.131 We also
note that both the European Union and the United States agree with the Panel's reasoning that, in
principle, a complainant is not precluded from reasserting a claim in compliance proceedings when
there has been no decision on the merits of that claim in the original proceedings.132
5.25. The United States asserts, however, that in the particular circumstances of this case, the
failure to achieve a definitive resolution in the original proceedings must be "laid at the feet" of the
European Union and that the European Union must therefore be barred from pursuing claims relating
to the USDOD procurement contracts in these compliance proceedings.133 For the United States, this
is so because the European Union requested in the original proceedings that the Appellate Body not
complete the legal analysis with respect to its claims relating to the USDOD procurement contracts.
5.26. We observe that the European Union's claims relating to the USDOD procurement contracts
were pursued in the original proceedings. In this respect , we note the Panel's finding th at these
claims were before the Appellate Body in the original proceedings. 134 The Panel further found that
the original panel's analysis had been limited to the question of a "financial contribution" and that
the original panel had made no findings with res pect to the question of whether the USDOD
procurement contracts conferred a benefit or caused adverse effects. 135 Accordingly, these claims
were not resolved on the merits, and we consider that the Panel was correct in relying on that fact
in resolving the issue.
5.27. We disagree with the United States' contention that the European Union must be barred from
pursuing claims relating to the USDOD procurement contracts in these compliance proceedings
because the failure to achieve a definitive resolution in the original proceedings must be "laid at the
feet" of the European Union. We also disagree with the Panel's statement that the Appellate Body
has been careful not to permit complaining parties to relitigate issues that were resolved adversely
to them in original proceedings, except "where the failure to achieve a definitive resolution of a claim
cannot reasonably … be laid at the feet of the complaining party" .136 The Appellate Body has not
relied on "fault" or the lack of it as a criterion to determine whether claim s fall within the scope of
Article 21.5 proceedings. Instead, the Appellate Body has focused on whether certain claims were
or were not decided on the merits in the original proceedings and were thus covered by the
recommendations and rulings of the DSB.137
5.28. In keeping with this approach, whether the European Union requested that the Appellate Body
complete the legal analysis or whether the European Union requested that the Appellate Body not
complete the legal analysis is not determinative for whether claims relating to the USDOD
procurement contracts fell within the Panel's terms of reference. While it is true that in the original
proceedings in the present dispute the Appellate Body referred to the absence of a request that it
complete the legal analysis138, the Appellate Body has completed the legal analysis regardless of the
fact that neither participant had specifically requested it to do so.139
5.29. In the context of the present case, we also note the Panel's finding that it would have been
impossible for the Appellate Body in the original proceedings to complete the legal analysis relating
to claims concerning the USDOD procurement contracts. 140 Thus, even if the European Union had
requested completion of the legal analysis in the original proceedings, absent factual findings by the

131 Panel Report, paras. 7.41-7.42 and 7.109.
132 United States' other appellant's submission, para. 11; European Union's appellee's submission,
para. 35.
133 United States' other appellant's submission, para. 16 (referring to Panel Report, para. 7.35).
134 Panel Report, para. 7.127.
135 Panel Report, para. 7.128.
136 Panel Report, para. 7.35.
137 Appellate Body Reports, US – Zeroing (EC) (Article 21.5 – EC), para. 427; US – Upland Cotton
(Article 21.5 – Brazil), para. 210.
138 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), fn 1298 to para. 620.
139 Appellate Body Reports, Canada – Periodicals, pp. 24-32, DSR 1997:1, pp. 469-476; Australia –
Salmon, paras. 116-135.
140 Panel Report, para. 7.128.

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original panel or undisputed facts on the record with respect to benefit and specificity, the
Appellate Body would not have been in a position to complete the legal analysis.
5.30. Accordingly, the Panel was correct not to attribute, in the particular circumstances of this
dispute, significance to the question of whether, or to what extent, the European Union bore
responsibility for the lack of resolution of its claims relating to the USDOD procurement con tracts.
We consider that instead the Panel correctly focused on whether the European Union's claims relating
to the USDOD procurement contracts had been resolved on the merits in the original proceedings.
5.31. Finally, we note that the United States takes issue with the Panel's reliance on considerations
relating to the time and resources devoted to an issue in litigation and the aim of the dispute
settlement system.141 The United States argues that such considerations are "legally irrelevant" to
assess whether the European Union's claims against the USDOD procurement contracts fell within
the Panel's terms of reference.142
5.32. In this respect, we note that the Panel concluded in paragraph 7.128 of its Report that, in the
circumstances of this case, it did not consider the European Union's failure to request completion of
the legal analysis in the original proceedings to preclude its consideration of the European Union's
claims relating to the USDOD procurement contracts. The United States is taking issue with the
Panel's statement in the next paragraph, introduced by the word "{a}dditionally". 143 The structure
of the Panel's analysis suggests that this "additional" consideration is not part of the reasoning its
conclusion was based on. It is an afterthought by the Panel. As such it does not require further
consideration in this appellate proceeding.
5.1.4 Conclusion
5.33. In sum, the question of whether a claim falls within the scope of Article 21.5 proceedings is
to be decided based on whether the claim has been resolved on the merits in the original proceedings
and was thus covered by the recommendations and rulings of the DSB. A party's "fault" for the
non-resolution of a claim, or the lack of such fault, is not determinative of whether a claim can be
reasserted in compliance proceedi ngs. Accordingly, we find that the Panel did not err in admitting
the European Union's claims relating to the pre-2007 USDOD procurement contracts i n these
compliance proceedings.
5.34. We therefore uphold the Panel's finding, in paragraphs 7.131 and 11.5.a.ii of the Panel Report,
that the European Union's claims relating to the pre-2007 USDOD procurement contracts were within
its terms of reference.
5.2 European Union's claims relating to the Panel's findings concerning the USDOD
procurement contracts
5.35. The European Union requests us to reverse the Panel's finding that the payments and access
to USDOD facilities, equipment, and employees provided to Boeing through the USDOD RDT&E
programme, and in particular through USDOD procurement contracts, are not subsi dies within the
meaning of Article 1.1 of the SCM Agreement.144 The European Union alleges that the Panel failed
to make an objective assessment of the matter, including the facts, in violation of Article 11 of the
DSU both with respect to its findings on fi nancial contribution under Article 1.1(a)(1) of the
SCM Agreement and on benefit under Article 1.1(b) of that Agreement.145
5.36. Specifically, the European Union contends that the Panel failed to make an objective
assessment of the matter in characterizing the payments and access to USDOD facilities, equipment,
and employees provided to Boeing through the USDOD procurement contracts as "purchases of

141 United States' other appellant's submission, paras. 20-22 (quoting Panel Report, para. 7.129).
142 United States' other appellant's submission, para. 21.
143 Panel Report, para. 7.129.
144 European Union's appellant's submission, para. 104.
145 European Union's appellant's submission, para. 18 (referring to Panel Report, paras. 8.360-8.378
and 8.418-8.437). The European Union further requests us to complete the legal analysis and conclude that
the payments and access to USDOD facilities, equipment, and employees provided to Boeing pursuant to the
USDOD procurement contracts constitute specific subsidies. (Ibid., para. 93)

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services" for purposes of Article 1.1(a)(1) of the SCM Agreement. In the European Union's view, had
the Panel properly assessed the evidence before it, it would have found that the USDOD procurement
contracts establish a joint-venture-type relationship in which USDOD provides financial contributions
to Boeing akin to equity infusions, and in which USDOD provides Boeing with goods and services.146
According to the European Union, the Panel failed to engage with the European Union's arguments
and evidence, and failed to provide reasoned and adequate explanations and coherent reasoning in
support of its findings.147 The European Union further argues that, in assessing whether the USDOD
procurement contracts confer a benefit on Boeing within the meaning of Article 1.1(b) of the
SCM Agreement, the Panel "built upon the same errors" as in its analysis relating to financial
contribution under Article 1.1(a)(1) of the SCM Agreement.148
5.37. The United States responds that the Panel analysed the USDOD procurement contracts,
including their texts, the descriptions of the programme elements funding the contracts, and other
evidence of how USDOD administered the contracts. 149 The United States considers that the
European Union has not established a lack of an objective assessment by the Panel. Instead,
according to the United States, the European Union disagrees with the weight assigned by the Panel
to certain evidence.150 In addition, in the event that we reverse the Panel's conclusion and complete
the legal analysis and find that the payments and access provided to Boeing under the USDOD
procurement contracts constitute financial contributions and c onfer a benefit, the United States
conditionally appeals the Panel's findings relating to the specificity of the post -2006 NASA
procurement contracts, cooperative instruments, and Space Act Agreements; the post-2006 USDOD
assistance instruments; and the FAA-Boeing CLEEN Agreement.151
5.38. We begin by setting out the relevant aspects of the measures at issue and describing the
approach of the panel and the Appellate Body in the original proceedings. We then assess whether
in these compliance proceedings the Panel f ailed to make an objective assessment of the matter
under Article 11 of the DSU in its analysis of whether the USDOD procurement contracts provide a
financial contribution within the meaning of Article 1.1(a)(1) of the SCM Agreement. Finally, we turn
to the European Union's claim under Article 11 of the DSU relating to benefit and the United States'
conditional appeal relating to specificity.
5.39. USDOD commissions Boeing to perform certain kinds of R&D work funded through RDT&E
programme elements152 by means of s pecific legal instruments, namely "contracts", "cooperative
agreements", "grants", and "technology investment agreements".153 Both in the original proceedings
and in the compliance proceedings, the latter three legal instruments (cooperative agreements,
grants, and technology investment agreements) were referred to collectively as the "DOD assistance
instruments". The Panel distinguished these instruments from the category of "contracts" 154,

146 European Union's appellant's submission, para. 85.
147 European Union's appellant's submission, para. 47.
148 European Union's appellant's submission, para. 86.
149 United States' appellee's submission, para. 27.
150 United States' appellee's submission, para. 34.
151 See United States' Notice of Other Appeal, para. 8.
152 The Panel explained that USDOD's budget historically has been divided into five broad budget
categories: Military Personnel; Operations & Maintenance; Procurement; RDT&E; and Military Construction. The
RDT&E budget category funds research, development, test, and evaluation spending by USDOD, including the
three military departments of USDOD (US Army, US Navy, and US Air Force) and other USDOD agencies, with
a view to designing and developing military systems or technology. The RDT&E budget category is a distinct
category from "Procurement", which funds the actual acquisition costs of military systems that are in
production. RDT&E budget activities are subdivided into a number of programme elements – the major
aggregation at which RDT&E efforts are organized, budgeted, and reviewed. Each programme element is
divided into one or more named and numbered projects, which may be further subdivided into activities. Each
RDT&E programme element has specific programme objectives expressed in the "Mission Description"
statement contained in the programme budgets. Programme elements are also identified by a particular
"PE number". (Panel Report, paras. 7.82-7.83; Original Panel Report, para. 7.1147; CRA International, U.S.
Department of Defense (DoD) Research, Development, Test and Evaluation (RDT&E) Funding Support to The
Boeing Company for Dual-Use Aircraft R&D (November 2006) (2006 CRA Report) (Panel Exhibit EU-29), p. 5)
153 Panel Report, para. 8.298.a (referring to Original Panel Report, paras. 7.1140-7.1141, in turn
referring to United States Code, Title 10, Section 2358).
154 In its Report, the Panel referred to these as "procurement contracts". (Panel Report, para. 8.298.a)

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explaining that US procurement laws and regulations require that specific legal instruments be used
in particular defined situations.155
5.40. Assistance instruments are used to provide "assistance", defined in the USDOD Grant and
Agreement Regulations as the "transfer of a thing of value to a recipient to carry out a public purpose
of support or stimulation authorized by a law of the United States". 156 The recipient is required to
contribute its own funds to the R&D on a cost -sharing basis. Moreover, at least as concerns
cooperative agreements, the US Government is required to have substantial involvement in the work
performed, including through collaboration, participation, or intervention. 157 In contrast, a
procurement contract is a legal instrument that "reflects a relationship between the Federal
Government and a State, a local gover nment, or other recipient when the principal purpose of the
instrument is to acquire property or services for the direct benefit or use of the Federal
Government".158 A procurement contract, rather than an assistance instrument, should be used in
all cases where a fee or profit is to be paid or the instrument is to be used to carry out a programme
where a fee or profit is necessary to achieve programme objectives.159
5.41. The R&D commissioned by USDOD through the RDT&E programme falls into two general
categories.160 The first one consists of R&D commissioned under programme elements that fund
basic research, applied research, and advanced technology developments to meet a variety of
current and future military needs (science and technology (S&T) or "general aircraft" p rogramme
elements).161 The second comprises R&D commissioned under programme elements that fund
development of technologies for specific new weapon systems or components (systems acquisition
or "military aircraft" programme elements).162
5.42. Before the original pa nel, the European Communities claimed that payments and access to
USDOD facilities provided to Boeing under the 23 original RDT&E programme elements to conduct
research into "dual-use" technologies163, in the sense of technologies having both military and ci vil
applications164, were specific subsidies that caused adverse effects to the interests of the
European Communities.165 Furthermore, the European Communities challenged the payments and
access to NASA facilities, equipment, and employees that NASA provided t o Boeing through R&D
contracts and agreements entered into with Boeing under a number of aeronautics R&D
programmes.166
5.43. The original panel concluded that transactions properly characterized as purchases of services
are excluded from the scope of Article 1.1( a)(1)(i) of the SCM Agreement.167 The panel then
considered that whether the payments and access provided to Boeing could be properly
characterized as purchases of services depended on whether the R&D that Boeing was required to
conduct was principally for its own benefit and use, or whether it was principally for the benefit and

155 Panel Report, para. 8.298 (quoting Original Panel Report, paras. 7.1140-7.1142, in turn quoting
United States Code, Title 10, Section 2358; USDOD Grant and Agreement Regulations, United States Code of
Federal Regulations, Title 32, Subchapter C, Part 21).
156 Panel Report, para. 8.298.b (quoting Original Panel Report, para. 7.1142, in turn referring to
United States Code of Federal Regulations, Title 32, Section 21.615). (emphasis omitted by the Panel)
157 Panel Report, para. 8.298 (quoting Original Panel Report, para. 7.1149; referring to Appellate Body
Report, US – Large Civil Aircraft (2nd complaint), paras. 605-606).
158 Panel Report, para. 8.298.c (quoting Original Panel Report, para. 7.1142, in turn referring to
United States Code of Federal Regulations, Title 32, Section 21.670).
159 Panel Report, para. 8.298 (quoting Original Panel Report, para. 7.1142, in turn quoting United States
Code of Federal Regulations, Title 32, Section 21.670; referring to Section 22.205 of the USDOD Grant and
Agreement Regulations).
160 Panel Report, para. 8.300.
161 Panel Report, para. 8.301 (quoting United States' first written submission to the Panel, para. 316).
Fourteen of the 23 original and three of the "additional" RDT&E programme elements challenged by the
European Union are S&T or "general aircraft" programme elements.
162 Panel Report, para. 8.302. Nine of the 23 original RDT&E programme elements challenged by the
European Union are systems acquisition or "military aircraft" programme elements.
163 The European Communities based its assessment of whether R&D conducted by Boeing under any of
the RDT&E programme elements was likely to give rise to technologies with civil applications on an expert
evaluation of the RDT&E programme budgets. (2006 CRA Report (Panel Exhibit EU-29), para. 1.1)
164 Original Panel Report, paras. 7.1116-7.1117.
165 Original Panel Report, paras. 7.1111, 7.1116, and 7.1596.
166 Original Panel Report, paras. 7.944-7.945.
167 Original Panel Report, para. 7.970.

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use of the US Government (or unrelated third parties).168 Ultimately, the panel found that the work
that Boeing performed under the USDOD procurement contracts was principally for the benefit of
USDOD, it was therefore to be characterized as a "purchase of services", and the payments and
access to facilities provided to Boeing under these contracts were therefore not financial
contributions within the meaning of Article 1.1(a)(1).169 The panel also found that the work Boeing
performed under the USDOD assistance instruments and the NASA aeronautics R&D measures was
principally for the benefit of Boeing, and, accordingly , that the payments and access provided to
Boeing under these instrument s constituted financial contributions pursuant to Article 1.1(a)(1)(i)
and (iii).170
5.44. On appeal, the Appellate Body found fault with the original panel's analytical approach of
interpreting Article 1.1(a)(1) of the SCM Agreement based on the assumption that t he NASA
procurement contracts and the USDOD assistance instruments are purchases of services, and only
thereafter examining the proper characterization of these measures.171 The Appellate Body observed
that, in assessing the applicability of specific provisions of the covered agreements to a measure
properly before it, a panel must "identify all relevant characteristics of the measure, and recognize
which features are the most central to that measure itself, and which are to be accorded the most
significance for purposes of characterizing the relevant {measure}" .172 This will allow the panel to
determine the discipline(s) to which the measure is subject under the covered agreements. The
Appellate Body also noted that the orig inal panel had not arrived at a definitive characterization of
the NASA procurement contracts and the USDOD assistance instruments.173 Instead, the panel had
arrived at the conclusion that the payments and other support are financial contributions by
exclusion, proceeding mechanically from its conclusion that the NASA procurement contracts and
the USDOD assistance instruments were not purchases of services. 174 Furthermore, the
Appellate Body observed that the European Communities had presented arguments that th e
payments under the contracts fall within the scope of Article 1.1(a)(1)(i) because they are grants, a
category of financial contributions expressly mentioned in that provision. In this light, it was not
clear to the Appellate Body why the original panel had started from the premise that it was required
to determine whether purchases of services, a category that is not mentioned in that provision, are
excluded from its scope.175 The Appellate Body pointed out that the original panel should first have
examined relevant characteristics of the NASA procurement contracts and the USDOD assistance
instruments, and then considered whether, in light of a proper interpretation of Article 1.1(a)(1),
these measures fall within the scope of that provision.176
5.45. Finally, the Appellate Body expressed concerns about the original panel's test for determining
whether the measures could properly be characterized as purchases of services. For the
Appellate Body, the legal basis of the original panel's test did not appear to be grounded in the terms
of Article 1.1(a)(1) of the SCM Agreement. Moreover, the Appellate Body considered that requiring
an inquiry into the degree to which either party (Boeing or the government/unrelated third parties)
derives a disproportionate "benefit" from the transaction risked conflating the financial contribution
and benefit elements of a subsidy analysis.177
5.46. Regarding the characteristics of the NASA procurement contracts, the Appellate Body found
that the transactions between Boeing and NASA comprise a number of interlinked elements and are
collaborative in nature, and that these collaborative arrangements are akin to a species of joint
venture.178 The Appellate Body explained that these transactions involve a provision of funds from
NASA and a pooling of no n-monetary resources (such as access to equipment, facilities, and
employees) on the input side, while involving some sharing of the fruits of the research on the output
side.179 Concerning the USDOD assistance instruments, the Appellate Body held that the transactions

168 Original Panel Report, paras. 7.978 and 7.1137.
169 Original Panel Report, para. 7.1171.
170 Original Panel Report, paras. 7.1027 and 7.1171.
171 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 585.
172 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 586 (quoting Appellate Body
Reports, China – Auto Parts, para. 171). (emphasis original)
173 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 587.
174 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 587.
175 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 588.
176 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 589.
177 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 591.
178 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 597.
179 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 594-596.

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under these instruments, similar to those under the NASA procurement contracts, are composite
and collaborative in nature, and that these features resemble a joint venture arrangement. 180 The
Appellate Body concluded that the transactions under t he NASA procurement contracts and under
the USDOD assistance instruments are akin to a species of joint venture.181
5.47. In analysing the types of financial contributions covered by Article 1.1(a)(1) of the
SCM Agreement, the Appellate Body recalled that the panel had interpreted the omission of the term
"services" from the second sub-clause of subparagraph (iii) as an indication that the drafters of the
SCM Agreement did not intend measures constituting government purchases of services to be
covered as financial contributions under Article 1.1(a)(1)(i).182 Since this interpretative issue was
not relevant for the purpose of resolving the dispute before the Appellate Body, it declared moot the
original panel's interpretation that "transactions properly characterized as purchases of services are
excluded from the scope of Article 1.1(a)(1)(i) of the SCM Agreement."183 The Appellate Body also
declared moot the original panel's finding that the USDOD procurement contracts are properly
characterized as "purcha ses of services" and thus are not financial contributions under
Article 1.1(a)(1).184 The Appellate Body did not complete the legal analysis regarding the USDOD
procurement contracts.
5.48. As to whether the NASA procurement contracts and the USDOD assistance instruments fall
under one of the subparagraphs of Article 1.1(a)(1) of the SCM Agreement, the Appellate Body
observed that these joint venture arrangements between NASA/USDOD and Boeing have
characteristics analogous to equity infusions, one of the examples of financial contributions included
in Article 1.1(a)(1)(i).185 According to the Appellate Body, this commonality indicated that the NASA
procurement contracts and the USDOD assistance instru ments fall within the concept of "direct
transfers of funds" in Article 1.1(a)(1)(i). Thus, the Appellate Body held that payments provided by
NASA and USDOD to Boeing to undertake the research constitute a "direct transfer of funds" within
the meaning of A rticle 1.1(a)(1)(i).186 In addition, the Appellate Body found that, because Boeing
was given access to NASA facilities, equipment, and employees and to USDOD facilities, these
contributions constitute "the provision of goods or services " within the meaning o f
Article 1.1(a)(1)(iii).187
5.2.1 The Panel's findings under Article 1.1(a)(1) of the SCM Agreement
5.49. The European Union's claim that the Panel failed to make an objective assessment of the
matter in its financial contribution analysis under Article 1.1(a)(1) of the SCM Agreement is focused
on certain arguments and evidence, which, in the European Union's view, the Panel disregarded or
failed to sufficiently engage with. Specifically, the European Union argues that the Panel failed to
engage with its evidence and ar guments related to: (i) Boeing's contribution of its background IP,
including that resulting from non -reimbursed independent research and development (IR&D)
spending, to the joint venture between USDOD and Boeing; (ii) Boeing's ability to share in the
rewards of the R&D conducted under the USDOD procurement contracts; and (iii) the nature and
purpose of the USDOD procurement contracts.188
5.50. At the outset of our analysis, we note that in assessing whether the USDOD procurement
contracts constitute financial contributions, the Panel examined "the relevant characteristics of the
DOD procurement contracts with a view to determining whether, like the NASA procurement
contracts and DOD assistance instruments before the Appellate Body {in the original proceedings},
the relationship between DOD and Boeing in the particular context is one of partnership, involving
collaboration in pursuit of a common goal for the mutual benefit of DOD and Boeing".189 Ultimately,

180 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 607-609.
181 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 611.
182 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 620 (referring to Original Panel
Report, paras. 7.955 and 7.969-7.970).
183 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 620 (quoting Original Panel
Report, para. 7.970). (emphasis omitted by the Appellate Body)
184 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), fn 1298 to para. 620.
185 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 622-624.
186 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 624.
187 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 624.
188 European Union's appellant's submission, para. 51.
189 Panel Report, para. 8.359.

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the Panel found itself "unable to characterize the DOD procure ment contracts in a similar manner"
to the way in which the Appellate Body characterized the NASA procurement contracts and the
USDOD assistance instruments, namely as joint venture arrangements between NASA/USDOD and
Boeing with characteristics analogous to equity infusions.190
5.51. We note that the Panel's analysis was focused on examining the features of the USDOD
procurement contracts by reference to the characteristics of instruments found to constitute financial
contributions in the original proceedings rather than by reference to the legal standard for assessing
the existence of financial contribution in Article 1.1(a)(1)(i) and (iii). In this respect, we recall the
Appellate Body's observation that a panel's analysis of the relevant characteristics of the m easure
should be undertaken for the purpose of properly determining the discipline(s) to which the measure
is subject under the covered agreements.191 In our view, therefore, the examination of the relevant
characteristics of a measure and the consideration of whether a measure with such characteristics
falls within the scope of Article 1.1(a)(1) must form part of one holistic assessment, in light of the
aim to determine properly the applicability of the relevant provisions of the covered agreements
with respect to that measure. Thus, the Panel in this case was tasked with analysing the key features
of the USDOD procurement contracts from the perspective of the elements set out in both
subparagraphs (i) and (iii) of Article 1.1(a)(1), in order to ascertain under which category of financial
contributions these measures fell, or whether they fell outside of the scope of Article 1.1(a)(1)
altogether.
5.52. We recognize that the focus of the Panel's analysis was shaped by the parties' arguments 192
and the approach of the Appellate Body in the original proceedings.193 In its analysis of the relevant
characteristics of the NASA procurement contracts and the USDOD assistance instruments in the
original proceedings, the Appellate Body relied on the characteristics of the categori es of measures
listed in the subparagraphs of Article 1.1(a)(1), in particular (i) and (iii). 194 While it was not
inappropriate for the Panel to begin its analysis by considering the relevant characteristics of the
USDOD procurement contracts from the perspe ctive of whether they resemble collaborative
arrangements, in a second step the Panel should have addressed expressly the legal question of
whether measures with characteristics such as the USDOD procurement contracts fall within the
scope of one of the categories of Article 1.1(a)(1) of the SCM Agreement.
5.53. We further note that, having found that the USDOD procurement contracts are most
appropriately characterized as purchases of services, the Panel found it unnecessary to address the
interpretative issue of whether such transactions fall within the scope of Article 1.1(a)(1) of the
SCM Agreement, given its ultimate conclusion that the European Union had failed to establish that
the USDOD procurement contracts confer a benefit within the meaning of Article 1.1(b).195 We
observe in this regard that, pursuant to Article 1.1, a subsidy shall be deemed to exist if there is a
financial contribution and "a benefit is thereby conferred."196 Furthermore, whether a "benefit" has
been conferred is determined by reference to the trade -distorting potential of the "financial
contribution" and can be identified by assessing whether the recipient has received a "financial

190 Panel Report, para. 8.376 (referring to Appellate Body Report, US – Large Civil Aircraft
(2nd complaint), para. 624). The Appellate Body concluded that the payments that were part of the joint
venture arrangement constituted a direct transfer of funds within the meaning of Article 1.1(a)(1)(i) of the
SCM Agreement and that the provision of facilities, equipment, and employees constituted a provision of goods
or services within the meaning of Article 1.1(a)(1)(iii).
191 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 586 (quoting Appellate Body
192 The European Union submitted that "the DOD procurement contracts share all of the relevant
characteristics of the pre-2007 NASA procurement contracts and DOD assistance instruments that led the
Appellate Body to conclude that those instruments were collaborative research arrangements 'akin to a species
of joint venture', which involved financial contributions to Boeing", and the United States responded that "a
proper consideration of all of the characteristics of the DOD procurement contracts in fact leads to the
conclusion that some are properly characterized as purchases of services and outside the scope of
193 In the original proceedings, the Appellate Body stated that the panel should have undertaken a
two-step approach by first examining the measures to determine their relevant characteristics, and then
considering whether these measures fell within the scope of Article 1.1(a)(1). (Appellate Body Report, US –
194 See Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 597, 609, and 624.
195 Panel Report, paras. 8.378 and 8.437.
196 Emphasis added.

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contribution" on terms more favourable than those available in the market. 197 Thus, a finding with
respect to t he specific type of financial contribution under Article 1.1(a)(1) may be necessary in
order to conduct a proper analysis of benefit as it relates to that category of financial contribution.198
5.54. With these considerations in mind, we now turn to assess the que stion of whether the Panel
failed to make an objective assessment of the matter before it under Article 11 of the DSU by
characterizing the payments and access to USDOD facilities, equipment, and employees under the
USDOD procurement contracts as "purchases of services".
5.2.1.1 The Panel's analysis regarding Boeing's contribution to a joint venture between
USDOD and Boeing
5.55. The European Union takes issue with the Panel's finding that the privately funded and
non-reimbursed IR&D expenditures incurred by Boeing in de veloping its background IP cannot be
considered a contribution of "financial resources" to a "joint undertaking" with USDOD.199 According
to the European Union, "{t}he Panel correctly noted that these expenditures are internal costs
Boeing incurs in order to maintain the technological competence and expertise necessary to perform
the obligations in the R&D procurement contracts." 200 However, the Panel then concluded that "in
making use of its own intellectual property and know -how in order to carry out the R&D work for
DOD, Boeing can{not} be said to be 'contributing' its intellectual property to a joint venture with
DOD."201 The European Union considers that, in arriving at this conclusion, the Panel failed to engage
with relevant evidence, insofar as the procurement contracts "provide for partial reimbursement of
IR&D expenditures by DOD" 202, and "Boeing's civil technologies (funded wit h Boeing's own
resources) may have potential military applications, such that civil to military flows can benefit DOD
as well."203 Thus, "the non-reimbursed portion of Boeing's DOD -related IR&D expenditures should
be seen as Boeing's contribution to the joint venture."204
5.56. The United States responds that the European Union's argument is contrary to the original
panel's finding that "U.S. law requires Boeing to allocate a share of the costs of any IR&D{} projects
benefiting both its military segment (IDS) and its commercial segment (Boeing's LCA division) to
each of those segments on a 'pro rata' basis."205 Thus, "to the extent that any Boeing IR&D activity
is 'DoD-related,' Boeing allocates it to the relevant procurement contracts, and DoD reimburses
Boeing's expenditures for that activity through the contracts."206 The United States also alleges that
the European Union "cite{s} no evidence that Boeing 'contributed' IR&D expenditures to its work
under DoD procurement contracts".207
5.57. We note that, before the Panel, the Eu ropean Union clarified that it does not argue that
Boeing's non-reimbursed, internal IR&D expenditures are a contribution of financial resources under
the USDOD procurement contracts in the same way as Boeing's contribution of financial resources

197 Appellate Body Report, Canada – Aircraft, para. 157.
198 We note that, in the particular circumstances of this case, the Panel based its benefit analysis on the
fact that, since the USDOD procurement contracts were characterized as "principally and predominantly
involving purchases of R&D services by DOD from Boeing", the determination of whether a benefit was
conferred on Boeing had to involve, consistent with Article 14(d) of the SCM Agreement, "an assessment of
whether Boeing was paid adequate remuneration for performing the R&D work". (Panel Report, para. 8.418)
Therefore, the Panel appears to have taken into account the specific category of financial contribution that it
considered the USDOD procurement contracts would potentially fall within, namely the provision of goods or
services or purchase of goods within the meaning of Articles 1.1(a)(1)(iii) and 14(d).
199 European Union's appellant's submission, para. 52 (quoting Panel Report, para. 8.363).
200 European Union's appellant's submission, para. 52 (referring to Panel Report, para. 8.363).
(emphasis original)
201 European Union's appellant's submission, para. 52 (quoting Panel Report, para. 8.363).
202 European Union's appellant's submission, para. 53. (emphasis original)
203 European Union's appellant's submission, para. 53 (referring to United States' first written
submission to the Panel, paras. 464-466).
204 European Union's appellant's submission, para. 53 (referring to European Union's second written
submission to the Panel, paras. 446 and 455; response to Panel question No. 16, para. 113).
205 United States' appellee's submission, para. 36 (quoting Original Panel Report, para. 7.1332).
(emphasis original)
206 United States' appellee's submission, para. 36 (referring to Original Panel Report, para. 7.1334).
207 United States' appellee's submission, para. 37.

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under the USDOD assistance instruments.208 Rather, according to the European Union, in the case
of the USDOD procurement contracts, there is a time lag between when Boeing funds its own IR&D
and when it uses the background IP created from that IR&D as its "contributi on" to the "joint
undertaking" pursuant to a particular procurement contract. 209 We therefore understand the
European Union to argue that Boeing contributes to a joint venture with USDOD its own general
professional expertise in the form of background IP tha t Boeing has accumulated over time, either
in the context of research pursuant to governmental contracts, or independently through its own
internal R&D expenditures.210
5.58. Turning to the European Union's contention that the Panel failed to engage with relevant
evidence, namely with the fact that USDOD only partially reimburses Boeing for its independently
conducted R&D, we recall the Appellate Body's observation in the original proceedings that one
feature of the NASA procurement contracts and the USDOD assistan ce instruments that pointed to
their collaborative nature was that both parties commit resources to the research project. 211
Specifically, under the NASA procurement contracts, both NASA and Boeing contributed their
facilities, equipment, and employees, and, under the USDOD assistance instruments, both USDOD
and Boeing contributed financial resources to the research project. 212 As we understand it, in the
European Union's view, to the extent that Boeing is only partially reimbursed for its own background
IP under the USDOD procurement contracts, the non -reimbursed investments constitute Boeing's
contribution to a collaborative project that would be more akin to a species of joint venture, and
thus relevant to an analysis of a financial contribution under subparagraph (i) of Article 1.1(a)(1) of
the SCM Agreement.
5.59. In this regard, the Panel observed that the non-reimbursed IR&D expenditures referred to by
the European Union are "internal costs that contractors like Boeing incur in order to maintain the
technological competence and expertise that enable them to provide the R&D services for which they
are contracted". 213 The Panel reasoned that " {t}hese expenditures are not specified in the
procurement contracts as contributions to be made by Boeing" and did not conside r that "Boeing's
privately funded IR&D expenditures can be considered a contribution of 'financial resources' to a
'joint undertaking' with DOD", or "that, in making use of its own intellectual property and know-how
in order to carry out the R&D work for D OD, Boeing can be said to be 'contributing' its intellectual
property to a joint venture with DOD".214
5.60. As we see it, rather than failing to engage with relevant evidence, the Panel disagreed with
the European Union's argument. In particular, the Panel appears to have viewed Boeing's use of its
own background IP and know-how in the context of the USDOD procurement contracts as an element
not characteristic of a collaborative arrangement. It is in this light that we understand the Panel's
statements that the IR &D expenditures are not specified in the procurement contracts as
contributions to be made by Boeing, and that Boeing cannot be said to be "contributing" financial
resources or IP to a joint venture with USDOD. 215 We further note that Boeing's use of private ly
funded IR&D is qualitatively different from Boeing's participation under the USDOD assistance
instruments, where the contracts themselves "commit{ted} Boeing to contribute financial
resources", and therefore provided for "joint funding of the research p rojects".216 The USDOD
assistance instruments are also different, insofar as in that case both parties commit non-monetary

208 Panel Report, fn 1496 to para. 8.363 (referring to European Union's response to Panel question
No. 16, para. 113). We recall the Appellate Body's finding in the original proceedings that the USDOD
assistance instruments commit Boeing to contribute financial resources to the project, although, in all cases,
USDOD funds at least 50% of the costs. (Appellate Body Report, US – Large Civil Aircraft (2nd complaint),
para. 605)
209 Panel Report, fn 1496 to para. 8.363 (referring to European Union's response to Panel question
No. 16, para. 113).
210 At the oral hearing, the European Union confirmed this understanding of its claim.
211 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 609 and 611.
212 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 595 and 605.
213 Panel Report, para. 8.363.
214 Panel Report, para. 8.363.
215 Panel Report, para. 8.363.
216 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 605.

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resources (facilities, equipment, and employees) to the research project. 217 Therefore, we do not
see that the Panel failed to engage with relevant evidence.
5.61. The European Union also argues that the Panel failed to provide "reasoned and adequate
explanations" to support its conclusions that Boeing's contribution of IR&D expenditures used to
develop background IP does not constitute a contribution of resources to a collaborative project akin
to a species of joint venture.218 Further, the European Union submits that "the Panel failed to explain
why Boeing's making use of its own background IP … in the course of performing the research funded
under the DOD procurement contracts does not constitute a contribution of resources by Boeing to
a joint venture." 219 As we see it, the Panel did explain its rationale when stating that "{t}hese
expenditures are internal costs that contractors like Boeing incur in order to maintain the
technological competence and expertise that enable them to provide the R&D services for which they
are contracted." 220 In other words, as the United States points out, the Panel viewed Boeing's
background IP and know -how as "threshol d qualifications" required in order for a company to be
able to engage competently in aeronautics research for USDOD, and not as something that Boeing
"conveys as part of the effort" under the procurement contracts themselves.221 We are therefore not
convinced that the Panel failed to explain sufficiently its rationale for rejecting the European Union's
argument.
5.62. In view of the above, we do not consider that the Panel failed to engage with relevant
evidence, or failed to provide a reasoned and adequate explan ation, in reaching its conclusions
regarding the question of whether Boeing's non -reimbursed IR&D expenditures can be considered
as a contribution to a collaborative arrangement with USDOD.
5.2.1.2 The Panel's analysis of whether Boeing shares with USDOD the rewar ds of the
R&D it conducts under the USDOD procurement contracts
5.63. The European Union submits that, in arriving at the conclusion that USDOD and Boeing cannot
be said to share the fruits of the research under the USDOD procurement contracts, as they do
under the NASA procurement contracts and the USDOD assistance instruments, the Panel failed to
base its findings in evidence and failed to engage with the European Union's arguments and evidence
that: (i) export controls, including the International Traffic in A rms Regulations (ITAR), have not
prevented Boeing from using technologies developed under the USDOD procurement contracts for
its own commercial purposes, and (ii) Boeing sells military aircraft to foreign governments.222
5.64. The European Union's first line of argument concerns the Panel's conclusions on the question
of whether export controls, including the ITAR, have prevented Boeing from using technologies
developed under the USDOD procurement contracts for commercial purposes. The European Union
points to a p ress report it provided to the Panel stating that Boeing has benefited from
ITAR-controlled data in designing the 787 by "recreat{ing}" that data. 223 The European Union
explains that this evidence confirms that "Boeing finds ways to utilize military technology for its LCA,
regardless of ITAR controls" and "is able to benefit from critical know -how and technology derived
from DOD-supported R&D".224 Moreover, the European Union relies on the conclusion of the original
panel that the ITAR does not make it effectively impossible for Boeing to utilize the R&D performed
under the USDOD R&D instruments towards LCA. 225 Finally, the European Union submits that it
"provided extensive evidence that patents arising from R&D performed pursuant to DOD
procurement contracts have explicit applications to commercial aircraft (as Boeing, itself, explained

217 In this regard the Panel found that "there {was} nothing before {the Panel} to suggest that the
provision of facilities, equipment, and employees is anything but marginal." (Panel Report, para. 8.361)
218 European Union's appellant's submission, paras. 54-55.
219 European Union's appellant's submission, para. 55. (emphasis original)
220 Panel Report, para. 8.363.
221 United States' appellee's submission, para. 38.
222 European Union's appellant's submission, paras. 57-58 (referring to Panel Report,
paras. 8.367-8.368 and 8.422; second written submission to the Panel, paras. 203 and 408; comments on
United States' response to Panel question No. 67, para. 41).
223 European Union's appellant's submission, paras. 59-60 (quoting European Union's second written
submission to the Panel, para. 408, in turn quoting D. Gates, "How B-2 data wound up in 787 program",
Seattle Times, 22 January 2006 (Panel Exhibit EU-333)).
224 European Union's appellant's submission, para. 60.
225 European Union's appellant's submission, para. 61 (referring to Appellate Body Report, US – Large
Civil Aircraft (2nd complaint), para. 579, in turn referring to Original Panel Report, para. 7.1160).

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in its own patent applications)" and that these registered patents are publicly available.226 For the
European Union, "contrary to the Panel's findings, the evidence demonstrates that technologies
developed by Boeing employees in the course of conducting R&D under the DOD procurement
contracts, for which Boeing owns registered patents, are not subject to export controls or
classification at all, such that Boeing (and only Boeing) is freely able to use these technologies for
its LCA."227
5.65. For its part, the United States contends that the Panel's conclusion that Boeing's ability to
exploit commercially the results of research conducted under the USDOD procurement contracts is
"restricted" or "limited" by US export controls and that the classification of national security
information is consistent with the original panel's findings wit h respect to US export controls, since
the Panel's conclusion "implicitly recogniz{es} that such exploitation is not completely
impossible".228 According to the United States, "{i}t is, in fact, quite rare for Boeing's research under
contract with DoD to res ult in a patentable invention", and the European Union's examples of
situations in which the ITAR and classification rules did not preclude Boeing's public disclosure of the
results of research under the USDOD procurement contracts are consistent with the Panel's
conclusion that such use is quite restricted and limited.229
5.66. We note that the European Union's argument relates to the Appellate Body's reasoning in the
original proceedings that one feature of the NASA procurement contracts and the USDOD assistance
instruments, which characterized them as collaborative arrangements, was that, from the
perspective of the outputs, "the fruits of the research are shared" between Boeing and
NASA/USDOD.230 This conclusion was drawn by the Appellate Body on the basis of the distribution
of IP rights and rights to data between Boeing and NASA/USDOD, resulting from the research
performed under those contracts and instruments, namely the fact that Boeing obtained title to its
inventions and rights to data, and NASA/USDOD received a royalty-free government-use licence.231
5.67. In these compliance proceedings, the Panel found that, although, by operation of US law,
there is a "sharing" of IP rights resulting from Boeing's performance of R&D work under all
US Government contracts, "the 'balance' of that sharing is substantially more in DOD's favour and
less in Boeing's favour than under the DOD assistance instruments, or NASA procurement
contracts."232 The Panel considered that "{t}his different 'balance' of allocation of intellectual
property rights that results from the performance of work under a DOD procurement contract" also
affected its assessment of whether USDOD and Boeing can be said to share in the "risks and rewards"
of the commissioned R&D. 233 Specifically, the Panel recognized that "Boeing's ownership of the
patents to inventions made by its employees in the course of work under a DOD procurement
contract does give Boeing the legal right to exploit the military technologies in question for
commercial purposes" and that "some of the m ilitary technologies may also have potential civil
applications."234 At the same time, the Panel considered that "Boeing's practical ability to exploit
those technologies for civil applications {was} limited by legal restrictions on the use of information
and technologies developed under the DOD procurement contracts outside the military context."235
5.68. With regard to whether the Panel's conclusion is contradicted by the original panel's findings,
we note the original panel's conclusion that the United States had failed to substantiate its assertion
that the ITAR made it "effectively impossible for Boeing to utilize any of the R&D performed under
DOD R&D contracts and agreements towards LCA". 236 Specifically, while the original panel
"accept{ed} the United States' assertions that the ITAR restrict Boeing's ability to use certain R&D

226 European Union's appellant's submission, para. 63.
227 European Union's appellant's submission, para. 63.
228 United States' appellee's submission, para. 43.
229 United States' appellee's submission, para. 44.
230 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 596 and 611.
231 In the case of the NASA procurement contracts, the US Government received an "unlimited rights"
licence to use, for government purposes, any data produced by the contractor in the course of performing
research funded by NASA. In the case of the USDOD assistance instruments, the US Government obtained only
"limited rights" over data, because Boeing co-funds the research under these instruments. (Appellate Body
Report, US – Large Civil Aircraft (2nd complaint), paras. 596 and 608)
232 Panel Report, para. 8.367.
233 Panel Report, para. 8.368.
234 Panel Report, paras. 8.367-8.368.
235 Panel Report, para. 8.368.
236 Original Panel Report, para. 7.1160.

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performed for DOD towards its civil aircraft", it also found that the United States "ha{d} failed to
explain how its assertions regarding the ITAR can be reconciled with the fact that some of the R&D
funded by DOD – including R&D performed by Boeing under assistance instruments entered into
under the ManTech and DUS&T Programs, which were subject to the ITAR – had the explicit objective
of being applied towards civil aircraft".237
5.69. The original panel's finding does not directly contradict the Panel's conclusion that
"{a}lthough some of the military technologies may also have potential civil applications, Boeing's
practical ability to exploit those technologies for civil applications is l imited by legal restrictions on
the use of information and technologies developed under the DOD procurement contracts outside
the military context." 238 Contrary to what the European Union argues, the Panel did not find that
"export controls prevent Boeing fr om applying R&D conducted pursuant to DOD procurement
contracts"239, but recognized that Boeing has some practical ability, albeit restricted, to use military
technologies for civil purposes.
5.70. Next, we turn to the two specific categories of arguments and evid ence referred to by the
European Union, relating to how Boeing has, in practice, benefited from ITAR-controlled data by
re-creating it for purposes of designing the 787, and to the examples of patents arising from R&D
performed pursuant to the USDOD procur ement contracts.240 We note that, in the context of its
financial contribution analysis, the Panel stated that "Boeing's practical ability to exploit {the military
technologies developed under the USDOD procurement contracts} for civil applications is limited by
legal restrictions."241 The Panel did not provide a basis for this conclusion in its financial contribution
assessment. Nor did the Panel refer in this regard to the evidence presented by the European Union
in order to demonstrate that Boeing had made use of some ITAR-controlled data and had patented
technology developed pursuant to the USDOD procurement contracts. We observe that the Panel
referred to the relevant section of its Report setting out the principal legal restrictions on the
dissemination of military technologies and data, including the ITAR. 242 However, this section does
not address the question of how such legal restrictions apply in the context of either the USDOD
procurement contracts, or the NASA procurement contracts and the USDOD assistance instruments.
5.71. The Panel thus failed to engage in an analysis of the impact on Boeing of the legal restrictions
on the use of military technologies on the basis of the European Union's evidence. Specifically, the
Panel did not explain how the legal restrictions on the use of military technology under US law relate
to the European Union's assertion that at least some part of the research under the USDOD
procurement contracts has translated into USDOD-funded patents.
5.72. In support of its conclusion that Boeing's legal right to exploit military technologies developed
under the USDOD procurement contracts for commercial purposes "is in practice restricted", the
Panel also referred to its analysis of benefit. 243 In this analysis, the Panel reiterated that "Boeing's
practical ability to exploit any military technologies for commercial purposes outside the military
context is circumscribed by U.S. legal restrictions on the use of military technologies and data." 244
In that context, the Panel then explained what it considered to be the difference between the USDOD
assistance instruments and the USDOD procurement contracts.245 The Panel reasoned that the "DOD
assistance instruments by definition involve 'assistance' in the sense of a transfer of a thing of value
to a recipient."246 The Panel therefore considered it " reasonable to assume that the nature of R&D
undertaken in such a collaborative context would be expected by the parties to yield outcomes that
Boeing would have the practical ability to commercially exploit".247 Otherwise, according to the Panel,

237 Original Panel Report, para. 7.1160. (emphasis original)
238 Panel Report, para. 8.368.
239 European Union's appellant's submission, para. 61. (emphasis original)
240 See European Union's appellant's submission, paras. 59-60 and 63-64.
241 Panel Report, para. 8.368.
242 See Panel Report, fn 1504 to para. 8.368 (referring to ibid., section 8.2.3.2.5).
243 Panel Report, para. 8.367. The Panel observed that "Boeing's ownership of the patents to inventions
made by its employees in the course of work under a DOD procurement contract does give Boeing the legal
right to exploit the military technologies in question for commercial purposes. However, as we explain in
paragraphs 8.422 to 8.425 {i.e. the Panel's benefit analysis} the particular commercial context means that this
legal right is in practice restricted." (Ibid.)
244 Panel Report, para. 8.422.
245 Panel Report, para. 8.423.
246 Panel Report, para. 8.423.

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"a commercial actor like Boeing would be unlikely to contribute to the costs of performing the R&D"
and there would be no legal basis for the selection of "an assistance instrument as the appropriate
instrument for the t ransaction with Boeing ".248 In our view, this conclusion is based on the label
given to the relevant legal instruments under municipal law rather than on a proper analysis of the
characteristics of the instrument. However, such a label cannot be dispositive, and the analysis
cannot be limited to consideration of the label.249
5.73. The Panel further observed that "the fact that many of the assistance instruments were funded
through program elements with explicitly dual -use objectives would tend to support this
conclusion."250 We note, however, that only two of the RDT&E programme elements funding the
USDOD assistance instruments challenged by the European Union had explicit dual-use objectives.251
Furthermore, the existence of explicit dual -use objectives in some of the U SDOD assistance
instruments, and not in others, was not among the relevant considerations taken into account by
the Appellate Body in finding that these instruments constitute collaborative arrangements with
characteristics analogous to equity infusions. T herefore, the fact that the USDOD procurement
contracts do not fund research with explicit dual -use objectives does not determine the extent of
limitations on Boeing's ability to exploit USDOD-funded research for civil applications.
5.74. Finally, the Panel contrasted the USDOD assistance instruments with the USDOD procurement
contracts, as follows:
DOD and Boeing engage with each other on a different footing in the context of the DOD
procurement contracts. As we have explained above, in this context, the governm ent
use licence would, as a practical matter, occupy the field of possibilities for commercial
exploitation of the military technologies, and Boeing's practical ability to commercially
exploit its patented technologies, whether in a military or non -military context, is
consequently more limited.252
5.75. We note that this is the very reason the Panel provided in support of its conclusion that
"Boeing's practical ability to commercially exploit patents that it owns as a result of performing R&D
work for DOD, and the practical consequences of the government use licence granted to DOD, differ
in the context of DOD assistance instruments and DOD procurement contracts." 253 In other words,
the Panel considered that the differences between these two types of legal instrument s provided
support for the proposition that Boeing's practical ability to exploit commercially R&D and patents
from the USDOD procurement contracts is more limited than its ability to exploit R&D and patents
from the USDOD assistance instruments. However, the Panel's observation relating to the reasons
for differences between the USDOD procurement contracts and the USDOD assistance instruments
was itself based on the underlying contention that Boeing's practical ability to exploit commercially
R&D stemming from the USDOD procurement contracts is limited. The Panel's reasoning appears
somewhat circular and therefore does not provide sufficient explanation of the difference between
Boeing's practical ability to exploit R&D and patents granted in the context of the USDOD
procurement contracts and the USDOD assistance instruments.
5.76. In this respect, we observe that both the USDOD procurement contracts and the USDOD
assistance instruments concern research primarily of a military nature that, however, has been, or
at least has the potential of being, exploited for civil purposes in certain cases. Thus, the outcomes
of the research under both categories of legal instruments could be expected to be covered under
the ITAR thus leading to restrictions on Boeing's ability to use this research for civil purposes. In this
light, it remains unclear on what basis the Panel concluded that Boeing's practical ability to exploit
commercially its patented technologies in a non -military context under the USDOD procurement
contracts was "more limited" than that under the USDOD assistance instruments. 254 In particular,

248 Panel Report, para. 8.424.
249 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 593.
250 Panel Report, para. 8.424. In defining the concept of "dual-use", the Panel similarly observed that
the "DOD assistance instruments and procurement contracts fund R&D work to produce military technologies
for military purposes, with the exception of DOD assistance instruments funded under RDT&E program
elements that have the explicit objective of developing dual-use technologies." (Panel Report, para. 8.341)
251 See Panel Report, para. 8.346.
252 Panel Report, para. 8.425.
253 Panel Report, para. 8.423.
254 See Panel Report, para. 8.425.

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the Panel did not engage with the European Union's evidence that patents arising from R&D
performed pursuant to certain USDOD procurement contracts have explicit applicatio ns to
commercial aircraft, as evidenced by registered patents and examples of how Boeing has in practice
benefited from ITAR-controlled data.255 Moreover, the Panel failed to address the question of whether
Boeing's use of USDOD -funded research under the USD OD procurement contracts, albeit more
limited than the use of such research under the USDOD assistance instruments, may result in
"sharing" of the fruits of the research and entail a relationship of collaboration between USDOD and
Boeing.
5.77. We observe that t he United States presented arguments and evidence that the
European Union's examples of situations in which the ITAR did not preclude Boeing's use of research
conducted under the USDOD procurement contracts only confirm that Boeing quite rarely benefits
from USDOD-related research.256 The United States argued that "fewer than 1 in 100 DoD contracts
results in a patentable invention that the EU considers worth highlighting" and "patents arising as a
result of work under DoD contracts are not a significant part of Boeing's intellectual property
portfolio."257 Faced with such conflicting propositions, the Panel should have further explored the
matter and provided a reasoned explanation for rejecting the European Union's argument relating
to the sharing of the fruits of the research under the USDOD procurement contracts.
5.78. In light of the above, we consider that the Panel failed to assess properly the European Union's
evidence relating to the actual use of ITAR-controlled data and technology developed pursuant to
the USDOD procurement contracts. Furthermore, the Panel did not provide a reasoned and adequate
explanation for its conclusion that Boeing's practical ability to exploit military technologies developed
under the USDOD procurement contracts for civil purposes is more limited than under the USDOD
assistance instruments.
5.79. The European Union's second line of argument concerns the Panel's conclusion as to Boeing's
sales of military aircraft to foreign governments. The European Union contends that "the Panel did
not cite to a single piece of evidence in support of its assertion that 'the rewards of the successful
outcome of the research are primarily and in practical terms captured by the government use licence,
owing to the fact that the technologies in question are mi litary and DOD is Boeing's only customer
for such technologies'."258 The European Union refers to evidence demonstrating that "{w}hile the
United States does have the largest defence budget in the world, … the combined 2013 defence
budgets of the next 15 hig hest-spenders is more than that of the United States."259 The
European Union further refers to a news article, stating that "{i}nternational sales at Boeing's (BA)
defense division made up 24 percent of the company's $33 billion in defense revenue last year, up
from 7 percent in 2004."260
5.80. The United States responds that the evidence referred to by the European Union does not
indicate whether Boeing made sales to any of the purchasers of military equipment listed there.
Furthermore, the United States contends that "as Boeing's defense division also sells satellites and
commercial satellite launch vehicles, these data do not support any firm conclusion about Boeing's
sales of military equipment to foreign governments." 261 Moreover, according to the United States

255 European Union's appellant's submission, para. 63.
256 United States' appellee's submission, para. 44 (referring to United States' first written submission to
the Panel, paras. 372 and 377).
257 United States' first written submission to the Panel, paras. 372 and 377.
258 European Union's appellant's submission, para. 65 (quoting Panel Report, para. 8.368). (emphasis
added by the European Union)
259 European Union's appellant's submission, para. 65 (quoting European Union's comments on
United States' response to Panel question No. 67, para. 41, in turn referring to International Institute for
Strategic Studies, Military Balance 2014 Press Statement (5 February 2014) (Panel Exhibit USA-487), p. 2).
(emphasis added by the European Union)
260 European Union's appellant's submission, para. 65 (quoting European Union's comments on
United States' response to Panel question No. 67, para. 41, in turn quoting D. Lerman and R. Wall, "U.S.
Defense Contractors Focus on Foreign Buyers", Businessweek, 14 November 2013 (Panel Exhibit EU-1399)).
(emphasis added by the European Union)
261 United States' appellee's submission, para. 46 (referring to Boeing, Annual Form 10-K to the
United States Securities and Exchange Commission for the year ended December 31, 2012 (Boeing 2012 10-K)
(Panel Exhibit EU-407), p. 105). (emphasis original)

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the European Union's assertions "address only the source of revenues, and do not establish that it
was Boeing that sold military equipment to foreign purchasers".262
5.81. The Panel's statement in paragraph 8.368 of its Report that "DOD is Boeing's only customer
for {military} technologies"263 is inaccurate, insofar as the evidence indicates that Boeing does make
sales of military technologies to foreign governments. 264 However, we note that the statement in
question is only one of several Panel statements concerning the customer base of Boeing, and in all
other statements the Panel consistently observed that USDOD is the predominant buyer of modern
air weaponry and weapons technology in the world and the exclusive buyer of such weaponry and
technology in the United States.265 We note that the Panel did not distinguish the statement in
paragraph 8.368 from all other statements relating to the customer base of Boeing. Considering
jointly all statements made by the Pane l with respect to Boeing's customer base, we do not
understand the Panel to have found that USDOD is Boeing's only customer for military technologies
in the world.
5.82. Beyond these statements, the Panel did not discuss the European Union's evidence, which
essentially establishes that (i) countries other than the United States also have significant defence
budgets, and (ii) Boeing's defence division makes a certain, not insignificant, percentage of sales
internationally. As we see it, the Panel's statement that the US government is the sole purchaser of
modern air weaponry in the United States is compatible with the argument that Boeing also sells
some military equipment to governments other than that of the United States. Moreover, the
European Union's evidence does not demonstrate how the fact that Boeing may have foreign military
customers contradicts the Panel's observation that Boeing would be limited in exploiting technology
developed under the USDOD procurement contracts for military purposes outside the United States,
especially in light of the existing US legal restrictions on the dissemination of military technology
and data. At the same time, we recall our observation above that, even though Boeing's use of
research funded under the USDOD procurement con tracts may be more limited than its use of
research funded under the USDOD assistance instruments, that in itself does not mean that there
could be no "sharing" of the fruits of the research between USDOD and Boeing in the context of the
USDOD procurement contracts.
5.83. We also note that the European Union's evidence relating to Boeing's military customers
outside the United States was introduced in comments to the United States' answer to a Panel
question, in which the United States discussed "military applications of an invention invented during
work under a NASA or DoD contract".266 The European Union's financial contribution argument before
the Panel was focused more on the potential civil applications of the R&D performed under the
USDOD procurement contracts than on the military applications of this R&D to Boeing's other
customers. In any event, the figures put forward by the European Union on the defence budgets of
foreign governments and the percentage of Boeing's military sales outside the United States do not
appear to establish a clear link between Boeing and sales to any of those governments. Thus, we
consider that the European Union has not demonstrated that the Panel's failure to address explicitly
and rely upon its evidence and arguments relating to B oeing's military customers outside the
United States has a bearing on the objectivity of its factual assessment.
5.2.1.3 The Panel's analysis of the collaborative nature and purpose of the USDOD
procurement contracts
5.84. According to the European Union, in distinguish ing "the nature and purpose of the DOD
procurement contracts from that of the NASA procurement contracts and DOD assistance
instruments"267, and in concluding that the nature and purpose of the interaction between USDOD

262 United States' appellee's submission, para. 47. (emphasis original)
263 Panel Report, para. 8.368.
264 The United States itself notes that "{s}ales to DOD (excluding foreign military sales) accounted for
70 percent of {the Boeing Defense Systems division's} 2012 revenues, which include commercial and civil
satellite sales." (United States' appellee's submission, para. 48 (referring to Boeing 2012 10-K (Panel Exhibit
EU-407), p. 1))
265 See Panel Report, paras. 8.338, 8.340, 8.405, and 8.422.
266 European Union's comments on United States' response to Panel question No. 67, para. 41 (referring
to United States' response to Panel question No. 67, para. 15; D. Lerman and R. Wall, "U.S. Defense
Contractors Focus on Foreign Buyers", Businessweek, 14 November 2013 (Panel Exhibit EU-1399)).
267 European Union's appellant's submission, para. 67.

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and Boeing "is not the same as when tw o partners work together to set research topics based on
their aligned interests in the outcomes" 268, "the Panel failed to base its findings in the evidence,
failed to engage with or properly consider EU arguments and evidence, disregarded key evidence,
and failed to explain its findings in light of the evidence, in violation of Article 11 of the DSU."269
5.85. First, with regard to the nature of the USDOD procurement contracts, the European Union
submits that "a primarily military technological purpose is not determ inative of whether these
programmes have the effect of developing technologies and knowledge that could be applicable to
Boeing LCA."270 The European Union alleges that the Panel failed to consider the following evidence:
a. examples of civil applications of R &D developed by Boeing pursuant to the USDOD
procurement contracts, including271:
i. "data from the B-2 stealth bomber {utilized} to develop a manufacturing process used
on the 787"272;
ii. "advanced 3 -D modelling and simulation techniques developed on the F -22
programme played on the 777"273; and
iii. "the US Air Force … supporting research into Boeing's blended -wing body
configuration, which is expected to be used for both military and civil application".274

268 European Union's appellant's submission, para. 67 (quoting Panel Report, para. 8.364).
269 European Union's appellant's submission, para. 67 (referring to Panel Report, paras. 8.338-8.339,
8.341, 8.367, and 8.369).
270 European Union's appellant's submission, para. 68 (referring to the European Union's response to
Panel question No. 29, paras. 171-174; second written submission to the Panel, paras. 398-400). (emphasis
original)
271 European Union's appellant's submission, para. 69. The European Union observes that it further
detailed the dual-use potential of a number of particular USDOD procurement contracts and even gave explicit
references to civil applications in certain of those contracts (referring to European Union's response to Panel
272 European Union's appellant's submission, para. 69 (referring to European Union's second written
submission to the Panel, para. 408, in turn referring to D. Gates, "How B-2 data wound up in 787 program",
Seattle Times, 22 January 2006 (Panel Exhibit EU-333)).
273 European Union's appellant's submission, para. 69 (referring to European Union's first written
submission to the Panel, para. 290, in turn quoting W. Cole, "The Value of Lessons Learned", Boeing Frontiers
Online, December 2003-January 2004 (Panel Exhibit EU-268); D. Arkell, "Exponential Potential", Boeing
Frontiers Online, September 2005 (Panel Exhibit EU-332); W.B. Scott, "Legacy of B-2 Bomber Innovations
Apparent in J-UCAS and Other Programs", Aviation Week & Space Technology, 26 March 2006 (Panel Exhibit
EU-334)).
274 European Union's appellant's submission, para. 69 (referring to European Union's second written
submission to the Panel, para. 401; first written submission to the Panel, paras. 83-86, in turn referring to
Alex Velicki and Dawn Jegley, PRSEUS Development for the Hybrid Wing Body Aircraft, NASA Report
No. NF1676L-13290 (20 September 2011) (Panel Exhibit EU-107), pp. 1-4; Jeff Sloan, "PRSEUS preform for
pressurized cabin walls", Composites World, 1 September 2011 (Panel Exhibit EU-100); Boeing News Release,
"Boeing Flies X-48C Blended Wing Body Research Aircraft", 7 August 2012 (Panel Exhibit EU-108)). The
European Union observes that it further detailed the dual-use potential of a number of particular USDOD
procurement contracts and even gave explicit references to civil applications in certain of those contracts.
(European Union's appellant's submission, para. 69 (referring to European Union's response to Panel question
No. 29, fn 205 to para. 172))

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b. the Charles River Associates (CRA) and Rumpf expert opinions 275 detailing how each of
the RDT&E programme elements "provide{s} funding and support to Boeing for R&D that
is potentially applicable to LCA (or 'dual-use')"276; and
c. a list of "examples of DOD -funded patents owned by Boeing (with the language therein
drafted by Boeing engineers and/or patent attorneys) that explicitly indicate, on the face
of the patents themselves, that they have a potential LCA -related application". 277 The
European Union contends that, in addition, the proposition that the USDOD procurement
contracts with a military objective result in developing patented technologies applicable to
civil aircraft "is also supported by Boeing's 'One Boeing' concept, which is 'intended to
share lessons between the distinct Boeing Military Aircraft and Boeing Commercial
Airplanes sectors'", including "'the sharing of design tools and testing procedures', as well
as collaborative work on materials, processes, physics and manufacturing technologies".278
5.86. The United States submits that the evidence cited by the European Union is insufficient to
establish that the USDOD procurement contracts had the effect of producing research with civil
applications to any meaningful degree, that USDOD or Boeing expected research under the
challenged USDOD procurement contracts to produce civil applications, or that any such expectation
is similar to the NASA procurement contracts and the USDOD assistance instruments. 279 The
United States argues that: (i) the press accounts are "strictly anecdotal" and do not provide any
support for the European Union's assertion that USDOD or Boeing expected that research under the

275 As noted by the Panel, the European Union explained that its identification and discussion of the
RDT&E programme elements that it considers "contribute to Boeing's LCA division" was assisted by Mr Richard
Rumpf and CRA. CRA had been engaged by the European Communities in the original proceedings to estimate
the amounts of RDT&E funding received by Boeing that could be considered "dual-use" RDT&E, in the sense of
R&D that was "relevant" to both military and commercial aircraft. Mr Rumpf was engaged by the European
Union in these compliance proceedings to estimate the amounts of funding provided by the RDT&E programme
to Boeing for the fiscal years 2007 through 2012 "which support the development of technologies or methods
that could benefit Boeing's commercial airplane division". Using a similar methodology to that employed by
CRA in its 2006 Report, Mr Rumpf reviewed USDOD's Future Years Defense Program (FYDP) budget estimate
statements for the fiscal years 2007 through 2013 to determine which RDT&E programme elements, and which
projects and activities within those programme elements, funded "general aircraft" or "science and technology"
R&D "that appeared to be dual-use to LCA". (Panel Report, paras. 7.86-7.87 (referring to 2006 CRA Report
(Panel Exhibit EU-29) and Richard L. Rumpf and Robert J. Levinson, "United States Department of Defense
Research, Development, Test & Evaluation ('RDT&E') Funding for the Boeing Company Applicable to Large Civil
Aircraft: 2007-2012 Estimates", 12 March 2013 (Rumpf Report) (Panel Exhibit EU-23)))
276 European Union's appellant's submission, para. 70 (referring to European Union's second written
submission to the Panel, para. 389, in turn referring to Rumpf Report (Panel Exhibit EU-23) (fn omitted)).
277 European Union's appellant's submission, para. 71 (referring to European Union's first written
submission to the Panel, paras. 326-362; second written submission to the Panel, paras. 373-377; response to
Panel question No. 31, paras. 190-195). According to the European Union, "DOD-funded patents owned by
Boeing … explicitly indicate that the patented technologies are applicable to civil aircraft." (Ibid., para. 73)
Specifically, the European Union referred to the following Boeing's patents discussed before the Panel:
United States Patent No. 5,698,316 (16 December 1997) (Panel Exhibit EU-362); United States Patent
No. 8,376,337 (19 February 2013) (Panel Exhibit EU-378); United States Patent No. 8,376,338 (19 February
2013) (Panel Exhibit EU-379); United States Patent No. 8,366,050 (5 February 2013) (Panel Exhibit EU-380);
United States Patent No. 8,352,486 (8 January 2013) (Panel Exhibit EU-381); United States Patent
No. 8,194,239 (5 June 2012) (Panel Exhibit EU-382); United States Patent No. 7,667,830 (23 February 2010)
(Panel Exhibit EU-383); United States Patent No. 8,042,767 (25 October 2011) (Panel Exhibit EU-385);
United States Patent No. 8,016,650 (13 September 2011) (Panel Exhibit EU-386); United States Patent
No. 7,861,411 (4 January 2011) (Panel Exhibit EU-388); United States Patent No. 7,773,885 (10 August 2010)
(Panel Exhibit EU-389); United States Patent No. 7,841,152 (30 November 2010) (Panel Exhibit EU-390);
United States Patent No. 7,347,083 (25 March 2008) (Panel Exhibit EU-394). (Ibid., para. 72 (referring to
European Union's first written submission to the Panel, paras. 332, 345-348, 351-352, 354-356, and
360-361))
278 European Union's appellant's submission, para. 74 (quoting European Union's response to Panel
question No. 29, para. 173).
279 United States' appellee's submission, para. 54.

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USDOD procurement contracts would have civil applications280; (ii) "the Panel addressed {the Rumpf
expert opinion} in its evaluation of its terms of reference, and found that its 'generalized allegations
regarding the potential applicability to LCA of certain broad technology areas' were not 'sufficient to
demonstrate a close nexus between a new program element and the ones covered by the original
proceeding'"281; and (iii) f our of the ten patents referred to by the European Union are irrelevant,
insofar as the inventions in question resulted from research that was not funded by the USDOD
procurement contracts under the programme elements challenged by the European Union.282
5.87. We note that the European Union's argument that USDOD and Boeing "entered into the
{USDOD procurement contracts} with some expectation that Boeing's LCA (or other commercial)
division would benefit despite the primary military objective"283 relates to the Appel late Body's
observation in the original proceedings that one feature of the NASA procurement contracts and the
USDOD assistance instruments that characterized them as collaborative arrangements was that
"looking at the output side of the transactions, {there is no} straightforward exchange of monetary
resources for some kind of non-monetary consideration", but instead "the fruits of the research are
shared" between Boeing and NASA/USDOD.284
5.88. With respect to the European Union's allegation that the Panel failed to consider certain
evidence presented before the Panel, we note that the Panel did not refer to any of the three
categories of evidence presented by the European Union in the context of its analysis of financial
contribution relating to the USDOD procure ment contracts. In light of the detailed nature of the
European Union's arguments before the Panel relating to the Rumpf expert opinion, we begin our
analysis with this category of evidence. The Panel referred to this expert opinion mainly in the
context of its analysis relating to its terms of reference.285 For instance, the Panel observed that:
Mr Rumpf's assessment of the R&D involved in {the KC -46} program element that is
potentially dual-use to LCA … refers in a very generalized way to technological area s
such as the use of performance based logistics incorporating micro-sensors in the KC-46
airframe, avionics R&D related to communications, navigation and adverse weather
capabilities, physics-based modelling and simulation activities for improved design o f
the test and evaluation flight and ground tests, and multiple systems management
technologies and processes.
… We are not satisfied that generalized allegations regarding the potential applicability
to LCA of certain broad technology areas, without an ex planation of how those
technology areas overlap with the technology areas that were the focus of the NASA
and DOD aeronautics R&D subsidies {that are} the subject of the DSB recommendations
and rulings, are sufficient to demonstrate the required close nexu s, in terms of nature

280 United States' appellee's submission, para. 56 (referring to European Union's appellant's submission,
paras. 69 and 74). In particular, the United States argues that two of those press accounts "discuss lessons
learned in the B-2 and F-22 programs that Boeing applied to the 787 and 777, respectively". However, the B-2
programme element "did not fund any relevant contracts during the period covered by the Panel's inquiry,
which makes evidence relating to the B-2 irrelevant to evaluation of the measures before the Panel", and
"{t}he F-22 was an enormous systems acquisition, such that a single example of cross-application indicates at
best that such cross-overs rarely occur." The United States adds that the third press account "addresses
research on a blended wing body design that the EU characterizes as 'expected to be used for both military and
civil applications,' but that is so far in the future as to be purely speculative". (Ibid.) Finally, the United States
argues that the "One Boeing" concept "describes Boeing's goal of sharing lessons between its military and civil
divisions" and, "{t}o the extent this initiative is successful, it suggests similarities between Boeing's contracts
with DoD and its relations with civil aircraft customers, which have never been alleged to be comparable to the
company's NASA procurement contracts, let alone a joint venture." (Ibid. (referring to the European Union's
appellant's submission, para. 74))
281 United States' appellee's submission, para. 57 (quoting Panel Report, para. 7.198). The
United States adds that "even assuming arguendo that the conclusions were accurate, the most they show is
that certain observers (long after the fact) thought that certain research under the challenged program
elements could produce results applicable to large civil aircraft. They indicate nothing about the likelihood of
such results, whether DoD and Boeing expected such results at any point in time, or whether any civil
applications actually resulted." (Ibid., para. 58) (emphasis original)
282 United States' appellee's submission, para. 59.
283 European Union's appellant's submission, para. 68. (emphasis original)
284 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 596. See also ibid., para. 608.
285 The Panel described the methodology used therein (Panel Report, paras. 7.86-7.88) and addressed
the Rumpf expert opinion on several occasions (Panel Report, paras. 7.189-7.190, 7.197-7.198, and 7.203).

[BCI redacted, as marked [BCI]]

or effect, between the measures identified with respect to the KC -46, Next Generation
Aerial Refueling Aircraft program element and the NASA and DOD aeronautics R&D
subsidies {that are} the subject of the DSB recommendations and rulings.286
5.89. These statements are reflective of the Panel's view as to the relevance of the Rumpf expert
opinion in the context of its analysis relating to the Panel's terms of reference assessment. However,
the relevant question before the Panel in that context w as different from the legal question in the
context of its financial contribution analysis. Notably, in its terms of reference assessment, the Panel
considered the Rumpf expert opinion in its analysis of whether there were "sufficiently close links,
in terms of nature, effects, and timing", between, on the one hand, certain programme elements
that came into existence after the date of the panel request in the original proceedings and, on the
other hand, the aeronautics R&D measures, which are the subject of the recommendations and
rulings of the DSB.287 By contrast, in the context of the Panel's financial contribution analysis, the
European Union argued that the Rumpf expert opinion demonstrated the potential applicability to
Boeing's civil technologies of the research undertaken by Boeing under the USDOD procurement
contracts. The fact that the Panel referred to the Rumpf expert opinion in the context of its terms of
reference analysis is thus not relevant for determining whether the Panel properly considered this
evidence in the context of its financial contribution analysis.
5.90. We note that the Panel also addressed the Rumpf expert opinion in describing the
European Union's understanding of "dual -use" in the context of its evaluation of the
European Union's chal lenge relating to the USDOD procurement contracts and assistance
instruments. The Panel observed that the European Union used the term "dual-use" to "refer to the
military technologies developed by Boeing under the various RDT&E program elements that the
European Union considers, based on the opinions of its experts, have potential applicability to Boeing
LCA."288 The Panel contrasted this use of the term with the "concept of 'dual -use', which describes
the explicit objectives of certain of the DOD RDT&E program elements {and} encompasses both the
application to military needs of technology solutions developed by industry for civilian application
(military in-bound) and the flow of technologies from military-developed contexts to commercially
useful application in civilian contexts".289
5.91. The Panel's reference to the Rumpf expert opinion in this context indicates that the Panel did
not overlook or ignore the Rumpf expert opinion. At the same time, the Pa nel did not properly
engage with this evidence in conducting its substantive analysis of whether the USDOD procurement
contracts involve financial contributions within the meaning of Article 1.1(a)(1) of the
SCM Agreement. Specifically, the Panel's observa tion regarding differences in the way the term
"dual-use" is employed by the European Union and in the RDT&E programme elements is descriptive
and does not demonstrate that the Panel assessed the pertinence of the European Union's evidence
in determining t he existence of a relationship of collaboration between USDOD and Boeing in the
context of certain USDOD procurement contracts.
5.92. In its analysis of whether the USDOD procurement contracts involved financial contributions,
the Panel stated that "{a}lthough s ome of the military technologies may also have potential civil
applications, Boeing's practical ability to exploit those technologies for civil applications is limited."290
This statement appears to refer to the European Union's evidence in the Rumpf expert opinion, which
the Panel had earlier described as "the process by which the European Union identified the specific

286 Panel Report, paras. 7.197-7.198. (fns omitted)
287 Panel Report, para. 7.160.
289 Panel Report, paras. 8.341-8.342 (referring to Second Supplemental Declaration of Richard A.
Razgaitis, Sr., Ph.D., CLP (17 December 2014) (Panel Exhibit EU-1398) (BCI), para. 14). In this regard, the
Panel further explained that:
The European Union's expert, Mr Rumpf, describes his assignment as being to estimate the
amounts of funding provided to Boeing by the RDT&E program elements that could benefit
Boeing's commercial airplane division. … Rumpf indicates that his identification of the relevant
S&T/general aircraft RDT&E program elements is based on his opinion as to the program
elements and activities that he considers involve "dual-use", non-engine aircraft
R&D. … Similarly, Mr Rumpf's discussion of the systems acquisition/military aircraft RDT&E
program elements often refers to his opinion regarding the "potential" applicability to Boeing
LCA, or "potential" to benefit Boeing's LCA development.
(Ibid., fn 1478 to para. 8.343 (emphasis original))

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aspects of the various RDT&E program elements that it considers could potentially have application
to Boeing's LCA development".291 However, the Panel did not engage in an analysis of this evidence
put forward by the European Union or address the significance it may have for the European Union's
argument that the USDOD procurement contracts were in the nature of collaborative arrangements
with characteristics analogous to equity infusions.
5.93. Moreover, the Panel did not refer to the other two categories of evidence presented by the
European Union, namely the examples of civil applications of R&D developed by Boeing pursuant to
the USDOD procurement contracts and the list of the USDOD-funded patents owned by Boeing with
potential LCA-related applications. In this regard, we observe that the United States argued before
the Panel that this evidence demonstrated that "the chance of a given DoD procurement contract,
task order, or assistance instrument producing an invention that the {European Union} considered
applicable to large civil aircraft was … essentially zero."292 The United States also pointed out to the
Panel that the examples given by the European Union reflect very rare instances in which
USDOD-related research has translated into patents with civil applications. 293 Where a panel faces
such conflicting propositions in relation to a key element of a claim before it based on the evidence
submitted to it by the parties, it is difficult to see how it can comply with the obligation to undertake
an objective assessment of the matter without engaging with that evidence and reflecting the results
of its assessment of the evidence in its report. In the present case, we consider that the absence of
any substantive assessment of the examples of Boeing's actual use of research conducted pursuant
to the USDOD procurement contracts meant that the Panel did not sufficiently explore the evidence
before it for purpose s of its ultimate conclusion. Furthermore, as noted, the fact that Boeing's
practical use of USDOD-funded research under the USDOD procurement contracts was more limited
than under the USDOD assistance instruments does not answer the question of whether a
relationship of collaboration existed between USDOD and Boeing under the USDOD procurement
contracts.
5.94. The European Union further argues that the Panel failed to address its arguments that the
"actual and anticipated technological outcomes, rather than the stated objectives, of the R&D are
most indicative of the collaborative character of the DOD procurement contracts." 294 According to
the European Union, the Panel's conclusion that the USDOD procurement contracts have military
objectives such that Boeing's ability to exploit those military technologies for commercial purposes
is in practice restricted is not based in evidence, and the Panel failed to provide reasoned and
adequate explanations and coherent reasoning in this regard.295
5.95. We note that, in its financi al contribution analysis, the Panel assessed the "particular
commercial context" in which payments by USDOD are provided in exchange for the performance of
R&D by Boeing. 296 The Panel, distinguished this commercial context from that of the NASA
procurement contracts on the basis that "the R&D commissioned under DOD procurement contracts
is solely directed to meeting DOD's military needs , independent of enhancing the competitive
position of contractors such as Boeing."297 Therefore, the Panel found that "the nature and purpose
of this interaction is not the same as when two partners work together to set research topics based
on their aligned interests in the outcomes." 298 Furthermore, the Panel considered "contextual
factors" suggesting that the balance of sharing of IP rights under the USDOD procurement contracts
is "substantially more in DOD's favour and less in Boeing's favour than under the DOD assistance
instruments, or NASA procurement contracts".299 Notably, the Panel relied on the fact that "DOD is
commissioning R&D services to support the development of military systems for DOD's own distinct
purposes" and "{u}nlike the DOD assistance instruments, or NASA procurement contracts, DOD's

292 United States' appellee's submission, para. 59 (referring to United States' first written submission to
the Panel, para. 372).
293 United States' appellee's submission, para. 59. See also United States' first written submission to the
Panel, paras. 370-372.
294 European Union's appellant's submission, para. 76 (referring to European Union's response to Panel
question No. 29, para. 174).
295 European Union's appellant's submission, para. 78 (referring to Panel Report, paras. 8.338-8.339,
8.341, and 8.422).
296 Panel Report, para. 8.364.
299 Panel Report, para. 8.367.

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objectives do not include, or align with, advancing Boeing's development of technologies applicable
to LCA."300
5.96. The Panel's conclusion that there is not enough "in the relationship between DOD and Boeing
under the DOD procurement contracts that points to it being one of 'partnership', 'collaboration' or
'joint-venture', in which both parties act in pursuit of a common goal for their mutual benefit" was
also based on additional reasons. 301 For example, the Panel recognized that "the provision of
facilities, equipment, and employees {under the USDOD procurement contracts} is … marginal" 302,
and that "{u}nder the vast majority of the DOD procurement contracts, Boeing is paid its costs for
performing the R&D and earns a negotiated fee or profit, which is a smaller proportion of the overall
cost."303 The Panel thus considered that "the risks and rewards {under the USDOD procurement
contracts} are borne principally by DOD."304
5.97. At the same time, it is true that the Panel did not address the European Union's argument
that, despite the military objectives of the R&D commissioned under these contracts, t he nature of
the interaction between USDOD and Boeing as one of collaboration was reflected in the actual and
anticipated technological outcomes, rather than in the stated objectives of the R&D. 305 Indeed, the
Panel's analysis focused on the objectives of th e USDOD procurement contracts and the military
nature of the research, rather than on the actual effects of those contracts. We recall in this regard
that, in order to identify the principal characteristics of a measure for the purpose of determining
the obligations attaching to it, a panel must conduct a thorough scrutiny of the measure at issue,
both in terms of its design and operation. 306 Given that the research under both the USDOD
procurement contracts and the USDOD assistance instruments is undertaken for military purposes,
the Panel should have properly explained the reasons for distinguishing between the two categories
of contracts. The Panel's reliance on how R&D is commissioned and conducted under the RDT&E
programme elements only in the context of the USDOD procurement contracts therefore remains
unclear, to the extent that these processes apply to both the USDOD procurement contracts and the
USDOD assistance instruments. 307 In the absence of such an explanation, the Panel was not in a
position to pro vide reasoned and adequate explanations in reaching its conclusion as to the
characterization of the USDOD procurement contracts. Furthermore, in light of the fact that this was
the primary argument put forward by the European Union, as supported by the three categories of
evidence outlined above, and given the conflicting propositions based on the evidence submitted to
the Panel, it was necessary for the Panel to undertake a more detailed analysis of the
European Union's evidence and arguments.
5.98. Second, with regard to the purpose of the USDOD procurement contracts, the European Union
contends that "the Panel did not consider key EU arguments and evidence and failed to provide
reasoned and adequate explanations to support its finding that 'the R&D commissione d under DOD
procurement contracts is solely directed to meeting DOD's military needs, independent of enhancing
the competitive position of contractors such as Boeing '."308 The European Union refers to evidence
demonstrating that the United States intends for , and encourages, USDOD contractors to extract
commercial benefit from their work under the RDT&E programmes. In particular, the European Union
refers to "the DOD's decision to end its previous policy of recouping 'a fair share of its investment in
nonrecurring costs related to products, and/or a fair price for its contribution to the development of
related technologies, when the products are sold, and/or when technology is transferred'".309
5.99. The United States responds that the European Union "never alleged th at any of the Boeing
products covered by this dispute would have given rise to fees under the policy, which DoD
terminated in 1992", and "{i}ndeed, given the Panel's findings as to the amount of funding Boeing

301 Panel Report, para. 8.369.
302 Panel Report, para. 8.361.
303 Panel Report, para. 8.368.
304 Panel Report, para. 8.368.
305 See European Union's appellant's submission, para. 76.
306 See Appellate Body Reports, China – Auto Parts, para. 171.
307 See Panel Report, para. 8.369 and fn 1505 thereto.
308 European Union's appellant's submission, para. 79 (quoting Panel Report, para. 8.364). (emphasis
added by the European Union)
309 European Union's appellant's submission, para. 80 (quoting European Union's first written submission
to the Panel, para. 239, in turn quoting United States Code of Federal Regulations, Title 48, Section 271.002(a)
(Panel Exhibit EU-275)).

[BCI redacted, as marked [BCI]]

received under the challenged program elements, it is inconceivable that DoD procurement contracts
would have led to such fees." 310 The United States further considers that "the existence of the
recoupment policy 25 years ago" 311 does not prove that "DoD could have recouped its investment
in commercial{ised} technologies."312
5.100. We note that the Panel did not address the European Union's argument in its analysis of
financial contribution. At the same time, we observe that, as evident from its submissions before
the Panel, the European Union did not rely on this argument specifically in its financial contribution
argumentation.313 In the context of its benefit assessment, the Panel reflected the parties'
arguments on this issue 314 and noted that it was "satisfied that the termination of the 1992
recoupment policy suggests that {the} U.S. Government recognizes 'the potential for crossover into
development and production of civilian aircraft of benefits that may result from government support
of research and development (R&D) on military items'". 315 However, the Panel considered that this
recognition was expressed "in very general terms" and was not persuaded that "DOD's previous
recoupment policy would have applied to the DOD -sponsored R&D at issue in this proceeding",
insofar as there was insufficient evidence "to conclude that Boeing LCA would have fallen within the
definition of a 'derivative' of a DOD developed item under the previous recoupment rules". 316 The
Panel therefore did not regard "DOD's termination of the recoupment policy in 1992 as providing
probative evidence in support of an inference that the DOD procurement contracts (or assistance
instruments)" confer a benefit on Boeing.317
5.101. In our view, the Panel was not persuaded that the European Union's argument regarding the
termination of the USDOD recoupment policy in 1992, or the abstract possibility for USDOD to recoup
any potential investments in commercialised technologies, had that policy stayed in place,
established a sufficient link with the nature and functioning of the specific USDOD procurement
contracts challenged by the European Union in these proceedings. In the absence of such link, the
fact that the recoupment policy was terminated could not have an impact on the characterization of
the USDOD procurement contracts as collaborative arrangements with char acteristics analogous to
equity infusions.
5.102. In any event, we note that the Appellate Body has observed that "the intent, stated or
otherwise, of the legislators is not conclusive" as to the characterization of a measure under WTO
law.318 While the intent of USDOD could have to a certain extent informed the understanding of the
context of the USDOD procurement contracts, this alone could not have altered the Panel's ultimate
conclusion as to the characterization of the measures. Therefore, we consider that the Panel
adequately addressed the European Union's argument regarding the relevance of the 1992
recoupment policy and disagreed with it.
5.103. In sum, we make the following conclusions with respect to the European Union's claim that
the Panel failed to make an obje ctive assessment of the matter under Article 11 of the DSU in its
analysis of whether the USDOD procurement contracts provide a financial contribution within the
meaning of Article 1.1(a)(1) of the SCM Agreement. We have found that the Panel did not fail t o
engage with relevant evidence, or to provide a reasoned and adequate explanation, in reaching its
conclusions regarding the question of whether Boeing's non -reimbursed IR&D expenditures can be
considered as a contribution to a collaborative arrangement with USDOD. We further found that the
European Union has not demonstrated that the Panel's failure to address explicitly and rely upon its
evidence and arguments relating to Boeing's military customers outside the United States has a
bearing on the objectiv ity of its factual assessment. Moreover, we considered that the Panel

310 United States' appellee's submission, para. 64.
311 United States' appellee's submission, para. 66. (emphasis original)
312 United States' appellee's submission, para. 66 (quoting European Union's appellant's submission,
para. 83, in turn referring to European Union's response to Panel question No. 29, fn 211 to para. 176).
(emphasis original)
313 See European Union's first written submission to the Panel, paras. 238-241; second written
submission to the Panel, paras. 395-397.
314 Panel Report, paras. 8.431-8.432.
315 Panel Report, para. 8.433 (quoting U.S. Government Response to the EC-Commissioned Report "U.S.
Government Support of the U.S. Commercial Aircraft Industry", March 1992 (Panel Exhibit EU-276), p. 13).
316 Panel Report, para. 8.433.
317 Panel Report, para. 8.433.
318 Appellate Body Reports, China – Auto Parts, para. 178 (quoting Appellate Body Report, US – Offset
Act (Byrd Amendment), para. 259).

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adequately addressed the European Union's argument regarding the relevance of the 1992
recoupment policy.
5.104. At the same time, we have found certain deficiencies in the Panel's assessment o f the
European Union's claim that the USDOD procurement contracts involve financial contributions . We
concluded that the Panel failed to assess properly the European Union's evidence relating to actual
use of ITAR-controlled data and technology developed pursuant to the USDOD procurement
contracts. Furthermore, the Panel did not provide a reasoned and a dequate explanation for its
conclusion that Boeing's practical ability to exploit military technologies developed under the USDOD
procurement contracts for civil purposes is more limited than under the USDOD assistance
instruments. We also found that the P anel failed to assess the European Union's evidence in the
Rumpf expert opinion in the context of its financial contribution analysis relating to the USDOD
procurement contracts, as well as the European Union's argument that the actual and anticipated
technological outcomes of the R&D under these contracts are more indicative of their collaborative
nature than their stated objectives. The Panel also failed to address the European Union's evidence
relating to examples of actual use by Boeing of the research under the USDOD procurement
contracts, namely the cases of civil applications of R&D developed by Boeing pursuant to the USDOD
procurement contracts and the list of the USDOD -funded patents owned by Boeing with potential
LCA-related applications.
5.105. We recall that Article 11 of the DSU requires panels to consider all the evidence presented
to them, assess the credibility of that evidence, determine its weight, and ensure that their factual
findings have a proper basis in that evidence. 319 Panels have the discret ion to address only those
arguments that they deem necessary to resolve a particular claim320 and are not required to accord
to factual evidence of the parties the same meaning and weight as do the parties. 321 At the same
time, panels may not make affirmative findings that lack a basis in the evidence contained on the
panel record.322 The Panel in these proceedings failed to address several pieces of evidence and
arguments put forward by the European Union in support of its claim that the USDOD procurement
contracts involved financial contributions under Article 1.1(a)(1)(i) of the SCM Agreement, because
they were collaborative arrangements with characteristics analogous to equity infusions. Specifically,
given that the Panel was faced with conflicting evidence submitted by both parties, in order to comply
with the obligation to undertake an objective assessment of the matter before it, the Panel should
have explained its conclusion with regard to the existence of a financial contribution in light of that
evidence. In our view , taken together, these errors undermine the objectivity of the Panel's
assessment of the matter before it.
5.106. In view of the above, we find that the Panel failed to make an objective assessment of the
matter before it within the meaning of Articl e 11 of the DSU in its financial contribution analysis
under Article 1.1(a)(1) of the SCM Agreement by not engaging sufficiently with the European Union's
evidence and arguments , and by failing to provide reasoned and adequate explanations for its
findings.
5.2.2 The Panel's findings under Article 1.1(b) of the SCM Agreement
5.107. The European Union argues that in assessing whether the USDOD procurement contracts
confer a benefit on Boeing within the meaning of Article 1.1(b) of the SCM Agreement, "the Panel
built upon the same errors" as in its analysis relating to financial contribution under Article 1.1(a)(1)
of the SCM Agreement.323 According to the European Union, "{t}he Panel's benefit findings therefore
require consequential reversal."324
5.108. We recall that, having found that the USDOD procurement contracts are most appropriately
characterized as purchases of services, the Panel found it unnecessary to address definitively the

319 Appellate Body Report, Colombia – Textiles, para. 5.18 (referring to Appellate Body Report, Brazil –
Retreaded Tyres, para. 185).
320 Appellate Body Report, EC – Poultry, para. 135. See also Appellate Body Report, EC – Fasteners
(China), para. 511.
321 Appellate Body Report, Australia – Salmon, para. 267.
322 Appellate Body Report, US – Carbon Steel, para. 142 (referring to Appellate Body Report, US –
Wheat Gluten, paras. 161-162).
323 European Union's appellant's submission, para. 86.
324 European Union's appellant's submission, para. 86.

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issue of whether these transactions, properly characterized, involve financial contributions wit hin
the meaning of Article 1.1(a)(1). 325 This was in view of the Panel's ultimate conclusion that the
European Union failed to establish that the USDOD procurement contracts confer a benefit within
the meaning of Article 1.1(b).326 In assessing the existence of benefit, the Panel recalled that it had
not characterized the USDOD procurement contracts as collaborative R&D arrangements. Therefore,
the Panel did not consider that a focus on the allocation of IP rights, consistently with the approach
of the Appellate Body in the original proceedings, was "an appropriate means of determining whether
DOD as the purchaser of R&D services from Boeing, paid too much for what it acquired".327 Rather,
for the Panel, "{t}he question of whether Boeing was paid adequate remunera tion for performing
the R&D work for DOD requires a consideration of all of the terms of the transaction, including how
much DOD paid in relation to the work that Boeing performed."328 The Panel nevertheless continued
its analysis and concluded that, even if the assessment of benefit under the USDOD procurement
contracts focused solely on the allocation of the IP rights arising from the performance of the R&D,
in isolation from the other terms of the transaction, it would not regard as appropriate benchmarks
the evidence put forward by the European Union in the form of private collaborative R&D
agreements.329
5.109. In reaching this conclusion, the Panel built on the same arguments and factual findings
relating to the USDOD procurement contracts that the European Union takes issue with in its financial
contribution claim. Thus, the Panel recalled its understanding that "the DOD procurement contracts
involve complex, long-term purchases of R&D services by DOD from Boeing for the development of
weapon systems", and consid ered that the examples of private collaborative R&D agreements
submitted as evidence sufficiently resemble the relevant characteristics of the NASA procurement
contracts and the USDOD assistance instruments, but not those of the USDOD procurement
contracts.330 The Panel explained that:
Unlike DOD assistance instruments, there is no cost-sharing between DOD and Boeing,
and no relationship of collaboration between DOD and Boeing wherein they can be said
to undertake a project of mutual interest. Unlike the NASA procurement contracts, the
objectives of the commissioned R&D do not include enhancing the competitiveness of
the U.S. aerospace industry. Rather, as we have said, the fundamental nature of the
DOD-Boeing relationship under the DOD procurement contrac ts is one of purchaser of
R&D services for DOD and supplier of those services for Boeing.331
5.110. The Panel also considered that "the government use licence granted to DOD in respect of
Boeing-owned patents that may result from the performance of the R&D work captures the economic
value of the R&D for DOD", because "DOD is the sole purchaser of modern air weaponry in the
United States" and "Boeing's practical ability to exploit any military technologies for commercial
purposes outside the military context is circumscribed by U.S. legal restrictions on the use of military
technologies and data."332
5.111. Above we found that, in its financial contribution analysis, the Panel did not sufficiently
address several pieces of evidence and arguments put forward by the European Union, and it failed
to explain its conclusion in light of the evidence before it. The Panel rejected the European Union's
evidence of the allocation of IP rights under the private actor collaborative R&D arrangements based

325 Panel Report, paras. 8.376-8.377.
326 Panel Report, para. 8.378.
327 Panel Report, para. 8.420.
328 Panel Report, para. 8.420.
329 Panel Report, para. 8.421.
330 Panel Report, para. 8.421. The Panel discussed this evidence in its BCI Appendix 1 to the Panel
Report.
331 Panel Report, para. 8.421.
332 Panel Report, para. 8.422. The Panel explained why it considered that "Boeing's practical ability to
commercially exploit patents that it owns as a result of performing R&D work for DOD, and the practical
consequences of the government use licence granted to DOD, differ in the context of DOD assistance
instruments and DOD procurement contracts" and ultimately disagreed with the European Union that "whether
the R&D in question is funded through procurement contracts or assistance instruments, 'the US Government
systematically receives less than a commissioning party would in a market-based transaction, and Boeing
systematically receives more than a commissioned party would in a market-based transaction.'" (Ibid.,
paras. 8.423 and 8.425 (quoting European Union's comments on United States' response to Panel question
No. 67, para. 13))

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on the same deficiencies with respect to which we found that the Panel failed to make an objective
assessment of the matter under Article 11 of the DSU. We therefore consider that the Panel's benefit
analysis suffers from the same shortcomings as its analysis of financial contribution, and we
therefore find, for the same reasons, that the Panel erred in finding that the distribution of IP rights
under the USDOD procurement contracts does not confer a benefit pursuant to Article 1.1(b) of the
SCM Agreement.
5.2.3 Completion of the legal analysis
5.112. The European Union argues that the Appellate Body can complete the legal analysis, based
on uncontested evidence and factual findings, and confirm that the USDOD procurement contracts
involve joint ventures in which USDOD provides funding analogous to equity infusions similar to the
NASA procurement contracts and the USDOD assistance instruments.333 The United States responds
that the European Union does not identify evidence sufficient to justify its argument that the USDOD
procurement contracts are best viewed as joint ventures.334
5.113. We recall that the Appellate Body may complete the legal analysis with a view to facilitating
the prompt settlement and effective resolution of the dispute where the factual findings by the
panel335 and/or undisputed facts on the panel record336 provide a sufficient factual basis for doing
so.337 We thus turn to assess whether there are sufficient factual findings by the Panel or undisputed
facts on the Panel record on which we can rely in completing the analysis.
5.114. Above we found that the Panel did not fail to engage with relevant evidence, and it did not
fail to provide a reasoned and adequate explanation, in concluding that the privately funded and
non-reimbursed IR&D expenditures incurred by Boeing in developing its background IP cannot be
considered a contribution of "financial resources" to a "joint undertaking" with USDOD. 338 We also
found that the European Union has not demonstrated that the Panel's failure to address explicitly
and rely upon its evidence and arguments relating to Boeing's sales of military aircraft to foreign
governments has a bearing on the objectivity of its factual assessment. Finally, we found that the
Panel adequately considered the European Union's argument regarding the relevance of the 1992
recoupment policy and di sagreed with it. In completing the analysis, we can rely on the factual
findings reached by the Panel in the context of these arguments.
5.115. There are other relevant factual findings by the Panel in its financial contribution analysis
that are not covered by the European Union's Article 11 challenges and that we could also rely on in
completing the analysis. For instance, the Panel found that USDOD commits to provide financial
resources in the form of payments, which "for the most part represent Boeing's costs of performing
the R&D work, plus a negotiated fee, representing Boeing's profit". 339 The Panel also found that
nothing on the Panel record suggested that the provision of facilities, equipment, and employees
under the USDOD procurement contracts "is anything but marginal".340 Moreover, the participants
do not dispute the Panel's factual description of the objectives of the USDOD procurement
contracts.341
5.116. At the same time, we found several deficiencies in the Panel's analysis of financial
contribution. Thus, we concluded that the Panel failed to assess properly the European Union's
evidence relating to actual use of ITAR-controlled data and technology developed pursuant to the
USDOD procurement contracts. Furthermore, the Panel did not provide a reasoned and adequa te

333 European Union's appellant's submission, para. 94.
334 United States' appellee's submission, para. 79.
335 See e.g. Appellate Body Reports, US – Gasoline, p. 19, DSR 1996:I, pp. 18-19; Canada – Periodicals,
p. 24, DSR 1997:I, p. 469; Australia – Salmon, paras. 117-119; US – Large Civil Aircraft (2nd complaint),
para. 1255.
336 See e.g. Appellate Body Reports, US – Lamb, paras. 150 and 172; US – Shrimp, paras. 123-124,
132, and 140; US – Section 211 Appropriations Act, paras. 343-345; EC and certain member States – Large
Civil Aircraft, para. 1176; US – Large Civil Aircraft (2nd complaint), paras. 1252 and 1262.
337 See also Appellate Body Reports, Colombia – Textiles, para. 5.30; US – Anti-Dumping Methodologies
(China), para. 5.146; Russia – Pigs (EU), para. 5.141; EC and certain member States – Large Civil Aircraft,
para. 1178; EC and certain member States – Large Civil Aircraft (Article 21.5 – US), para. 5.745.
338 Panel Report, para. 8.363.
339 Panel Report, para. 8.362.
340 Panel Report, para. 8.361.
341 Panel Report, paras. 8.364 and 8.367.

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explanation for its conclusion that Boeing's practical ability to exploit military technologies developed
under the USDOD procurement contracts for civil purposes is more limited than under the USDOD
assistance instruments. We also found that the Panel failed to assess the European Union's evidence
in the Rumpf expert opinion in the context of its financial contribution analysis relating to the USDOD
procurement contracts, as well as the European Union's argument that the actual and anticipated
technological outcomes of the R&D under these contracts are more indicative of their collaborative
nature than their stated objectives. Finally, the Panel also failed to address the European Union's
evidence relating to examples of actual use by Boeing of the research under the USDOD procurement
contracts, namely the cases of civil applications of R&D developed by Boeing pursuant to the USDOD
procurement contracts and the list of the USDOD -funded patents owned by Boeing with potential
LCA-related applications.
5.117. Furthermore, multiple aspects of the relevant evidence supporting the participants'
arguments remain contested. Notably, there are no factual findings by the Panel relating to the
effects of the USDOD procurement contracts challenged by the European Union, which was a major
point of disagreement between the parties. The United States argued that the declared purpose of
the USDOD procurement contracts to obtain technologies for military purposes, or to obtain new
weapon systems or upgrade existing ones, is highly relevant for the Panel's assessment of these
instruments.342 By contrast, the European Union considered that an exclusively military purpose is
not determinative of whether the research under the USDOD procurement contracts has the effect
of providing dual-use benefits.343 The evidence presented to the Panel was shaped by the parties'
views relating to the importance of the objectives and effects of the USDOD procurement contracts.
Specifically, it appears from the European Union's submissions to the Panel tha t the conclusions in
the CRA and Rumpf expert opinions were central to its argument that the payments and access
provided to Boeing under the USDOD RDT&E programme elements constitute financial contributions
within the meaning of Article 1.1(a)(1)(i) and (iii), regardless of whether they are provided under
assistance instruments or procurement contracts .344 In turn , the United States challenged the
pertinence of these expert opinions and in particular the definition of "dual-use" in the Rumpf expert
opinion345, the expertise and methodology on which the expert opinion relied 346, and the probative
value of its conclusions.347 In this regard, the parties presented detailed arguments with respect to
each RDT&E programme element, further subdividing them under the categories S&T or "general
aircraft" programme elements and systems acquisition/military aircraft programme elements.348 The
United States further contested the value and weight to be accorded to the European Union's
examples of civil applications of R&D developed by Boeing pursuant to the USDOD procurement
contracts and the list of the USDOD -funded patents owned by Boeing with potential LCA -related
applications.349 None of these arguments and related pieces of evidence was properly discussed by
the Panel.350
5.118. The elements outlined above are essential for the completion of the legal analysis. The
determination of whether the funding and access provided to Boeing under the USDOD procurement
contracts constitute collaborative arrangements with characteristics ana logous to equity infusions
within the meaning of Article 1.1(a)(1)(i) of the SCM Agreement involves a multifaceted analysis,
which needs to take into account not only the objectives and nature of the USDOD procurement
contracts, but also their actual and potential effects. In the absence of sufficient factual findings by
the Panel or undisputed facts on the record relating to some essential elements characteristic of the
nature and effect of the USDOD procurement contracts, we are not in a position to compl ete the

342 United States' second written submission to the Panel, paras. 276-279 and 391-392.
343 European Union's second written submission to the Panel, para. 398.
344 European Union's second written submission to the Panel, paras. 433-434.
345 United States' second written submission to the Panel, paras. 319-320.
346 United States' first written submission to the Panel, paras. 296-302; second written submission to
the Panel, para. 321.
347 United States' second written submission to the Panel, paras. 315-317.
348 See e.g. European Union's first written submission to the Panel, paras. 243-362; United States'
second written submission to the Panel, paras. 270-428.
349 United States' appellee's submission, para. 59 (referring to United States' first written submission to
the Panel, paras. 371-372 and 377).
350 For instance, despite the fact that the Panel described how R&D under these two categories of
programme elements is commissioned and conducted, the Panel did not explain their relevance for its analysis
of the USDOD procurement contracts, as it did for the USDOD assistance instruments. (See Panel Report,
paras. 8.300-8.310)

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analysis and determine whether the USDOD procurement contracts involve financial contributions
within the meaning of Article 1.1(a)(1) of the SCM Agreement.
5.2.4 United States' conditional appeal on specificity
5.119. We recall that, in its Notice of Other App eal, the United States conditionally appeals the
Panel's findings relating to the specificity of the post-2006 NASA procurement contracts, cooperative
instruments, and Space Act Agreements; the post -2006 USDOD assistance instruments; and the
FAA-Boeing CLEEN Agreement.351 The United States' claim is contingent upon us reversing the Panel
and completing the legal analysis to find that the USDOD procurement contracts are collaborative
R&D arrangements that result in the same financial contribution and confer be nefit on the same
basis as the other NASA, USDOD, and FAA instruments. 352 Having found above that we are unable
to complete the legal analysis with respect to the existence of financial contribution, the event
triggering the United States' conditional appeal has not occurred.
5.2.5 Conclusion
5.120. In sum, we find that the Panel acted inconsistently with Article 11 of the DSU in its financial
contribution analysis under Article 1.1(a)(1) of the SCM Agreement by not engaging sufficiently with
the European Union's evidence and arguments, and by failing to provide reasoned and adequate
explanations for its findings. Furthermore, we find that the Panel's benefit analysis suffers from the
same shortcomings.
5.121. We therefore reverse the Panel's finding , in paragraphs 8.437.b and 11.7.c.i of the
Panel Report, that, assuming arguendo the payments and access to USDOD facilities, equipment,
and employees provided to Boeing through the pre -2007 and post -2006 USDOD procurement
contracts were to involve financial contributions, the European Union has not established that they
confer a benefit on Boeing within the meaning of Article 1.1(b) of the SCM Agreement. We also find
that there are insufficient factual findings by the Panel or undisputed facts on the Panel record for
us to complete the legal analysis in this respect.
5.3 European Union's claim relating to the Panel's finding concerning FSC/ETI tax
concessions under Article 1.1(a)(1)(ii) of the SCM Agreement
5.122. The European Union requests us to reverse the Panel's finding that the European Union had
failed to establish that, after the expiry of the implementation period, the United States continues
to grant or maintain subsidies to Boeing in the form of tax concessions pursuant to the Foreign Sales
Corporation/Extraterritorial Income (FSC/ETI) measures. 353 The European Union further requests
that we complete the legal analysis and find that the United States continues to grant or maintain
prohibited subsidies, in that the subsidy found to exist in the original proceedings has not been
withdrawn within the meaning of Article 7.8 of the SCM Agreement.354
5.123. The United States requests us to uphold the Panel's finding that the European Union had not
established that, after the expiry of the implementation period, the United States continues to grant
or maintain subsidies to Boeing in the form of FSC/ETI tax concessions. 355 The United States also
requests that we reject the European Union's re quest to complete the legal analysis because the
European Union failed to identify the Panel's findings of fact or undisputed evidence that would allow
us to complete the legal analysis.356
5.3.1 The Panel's findings
5.124. We begin by recalling the FSC/ETI measures at issue and related findings made in the original
proceedings. Next, we turn to the arguments of the participants before the Panel and the Panel's
findings in the compliance proceedings. Subsequently, we assess whether the Panel erred in finding

351 See United States' Notice of Other Appeal, para. 8.
352 United States' other appellant's submission, para. 255.
353 European Union's appellant's submission, para. 141.
354 European Union's appellant's submission, para. 141.
355 United States' appellee's submission, paras. 96 and 107.
356 United States' appellee's submission, para. 107.

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that the European Union had failed to establish that, after the expiry of the implementation period,
the United States continues to grant or maintain subsidies to Boeing in the form of tax concessions
pursuant to the FSC/ETI measures.
5.125. The original panel found that, between 1989 and 2006, Boeing benefited from FSC/ETI tax
concessions pursuant to the provisions of the US Internal Revenue Code relating to the income of
FSCs and successor legislative acts. 357 The legislative acts that allowed Boeing to receive FSC/ETI
subsidies between 1989 and 2006 comprised certain provisions of the US Internal Revenue Code
relating to Foreign Sales Corporations (the original FSC measure), the ETI Act, and the AJCA.358
5.126. The original FSC measure359 granted FSCs a tax exemption on a portion of income generated
by the sale or lease of "export property" – referred to as "exempt foreign income".360 It also allowed
US parent companies of FSCs to defer paying taxes on certain "foreign trade income" that would
normally be subject to immediate taxation and t o avoid paying taxes on dividends received from
their FSCs related to "foreign trade income".361 The United States repealed the original FSC measure
by enacting the ETI Act.362 However, Section 5(c)(1) of the ETI Act grandfathered tax concessions,
available un der the original FSC measure, for certain transactions – in particular, transactions
pursuant to a binding contract between an FSC and an unrelated person that was in effect on
30 September 2000. 363 The ETI Act also introduced a new exclusion from taxation f or income
generated by certain qualifying transactions involving the sale or lease of "qualifying foreign trade
property" ("extraterritorial income" exclusion).364 The United States repealed the ETI Act by enacting
the AJCA on 22 October 2004. 365 However, the AJCA provided for a transitional period between
1 January 2005 and 31 December 2006, during which the ETI tax concessions remained available to
a limited extent for certain transactions.366 In addition, Section 101(f) of the AJCA, entitled "Binding
Contracts", grandfathered the ETI Act exclusion of "extraterritorial income" from taxation for
qualifying transactions pursuant to a binding contract in effect on 17 September 2003.367 The AJCA
also left intact Section 5(c)(1) of the ETI Act, which grandfathered tax concessions under the original
FSC measure with respect to certain qualifying transactions pursuant to a binding contract in effect
on 30 September 2000.368
5.127. The original panel found that the FSC/ETI tax concessions used by Boeing between 1989
and 2006 consti tuted export -contingent subsidies within the meaning of Article 3.1(a) of the
SCM Agreement and found specificity of these subsidies on the basis of Article 2.3 of the
SCM Agreement.369 As was also found in the original proceedings (first by the panel, and t hen, on
different grounds, by the Appellate Body), the FSC/ETI subsidies received by Boeing caused serious
prejudice to the interests of the European Communities in the LCA market within the meaning of
Article 5(c) of the SCM Agreement.370
5.128. On 17 May 2006, the United States enacted the Tax Increase Prevention and Reconciliation
Act of 2005 (TIPRA). 371 Section 513 of the TIPRA is entitled "Repeal of FSC/ETI Binding Contract
Relief".372 Section 513(a) of the TIPRA repeals the provision in Section 5(c)(1) of the ETI Act that

357 Original Panel Report, para. 7.1419.
358 Original Panel Report, paras. 7.1379-7.1385, 7.1406, and 7.1419.
359 Panel Report, para. 8.567 (referring to United States Code, Title 26 (Internal Revenue Code),
Sections 245, 921-927, and 951 (2000) (Panel Exhibit EU-402)).
360 Panel Report, para. 8.570.
362 Original Panel Report, para. 7.1380 (referring to Panel Report, US – FSC, para. 8.1(a);
Appellate Body Report, US – FSC, paras. 177(a) and 178). See also Panel Report, para. 8.571.
363 Original Panel Report, para. 7.1381.
364 Panel Report, para. 8.571 and fn 1752 thereto. See also Original Panel Report,
paras. 7.1380-7.1382.
366 Panel Report, US – FSC (Article 21.5 – EC II), para. 2.15.
367 Original Panel Report, para. 7.1384.
368 Original Panel Report, para. 7.1384.
369 Original Panel Report, paras. 7.1405-7.1406 and 7.1463-7.1464.
370 Original Panel Report, para. 7.1833; Appellate Body Report, US – Large Civil Aircraft (2nd complaint),
para. 1350(d)(iii)(B).
371 Panel Report, para. 8.573 and fn 1758 thereto (referring to Tax Increase Prevention and
Reconciliation Act of 2005, Public Law No. 109-222, 120 Stat. 345, 17 May 2006, Section 513 (TIPRA)
(Panel Exhibit EU-405)).
372 Original Panel Report, para. 7.1385 (referring to TIPRA (Original Panel Exhibit EC-627)).

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grandfathered the original FSC tax concessions with respect to transactions pursuant to a binding
contract in effect on 30 September 2000. Section 513(b) of the TIPRA repeals the provisions in
Section 101(f) of the AJCA that grandfathered the ETI Act exclusion of "extraterritorial income" from
taxation with respect to transactions pursuant to a binding contract in effect on 17 September
2003.373 Section 513(c) of the TIPRA provides that "{t}he amendments made by this section shall
apply to taxable years beginning after the date of the enactment of this Act."374
5.129. The European Union asserted in the original proceedings that the TIPRA did not fully repeal
FSC/ETI tax concessions and argued on that basis that Boeing continued to benefit from FSC/ETI
tax concessions after 31 December 2006.375 The original panel, however, considered that it was not
necessary for it to decide whether Boeing would benefit from FSC/ETI tax concessions after 2006
and, consequently, made no finding on that issue.376
5.130. Before the Panel in these compliance proceedings, the European Union argued that, despite
the purported repeal of FSC/ETI tax concessions by the TIPRA, certain concessions continued to be
available to Boeing after 31 December 2006. The European Union asserted that, under the TIPRA,
Boeing is eligible for FSC/ETI tax concessions with respect to income derived from certain pre-2006
transactions and received in the post -implementation period.377 In support of its arguments, the
European Union relied on Internal Revenue Service Memorandum No. AM 2007-001 ( 2006 IRS
Memorandum), which provides that the TIPRA repeals FSC/ETI tax concessions prospectively for
transactions entered into during a taxable year that begins after 17 May 2006.378
5.131. According to the European Union, based on the 2006 IRS Memorandum, Boeing continues
to be eligible for FSC/ETI tax concessions with respect to foreign income received after
31 December 2006 from: (i) a sale or lease entered into before 1 January 2005; and (ii) a sale or
lease entered into before 1 January 2007, pursuant to a binding contract that was in place with an
unrelated person on 17 September 2003 and at all times thereafter.379 The European Union further
submitted to the Panel a list of Boeing's orders made pursuant to a sale or lease entered into before
1 January 2005 allegedly generating income after 2012 and qualifying for FSC/ETI tax concessions
under the TIPRA.380
5.132. The European Union contended that, because the TIPRA had not fully repealed FSC/ETI tax
concessions with respect to transactions based on certain pre-existing long-term binding contracts,
those transactions involve a financial contribution in the form of revenue "foregone" within the
meaning of Article 1.1(a)(1)(ii) of the SCM Agreement. 381 The European Union further argued that
FSC/ETI tax concessions confer a benefit within the meaning of Article 1.1(b) of the SCM Agreement
and constitute specific subsidies within the meaning of Article 2.3 of the SCM Agreement.382 Thus,
for the European Union, the United States continues to grant or maintain FSC/ETI subsidies with
respect to Boeing, and therefore, failed to "withdraw the subsidy" within the meaning of Article 7.8
of the SCM Agreement.
5.133. In response, the United States argued that Boeing had not used FSC/ETI tax concessions
after 2006 and that the mere availability of FSC/ETI tax concessions in the post -implementation
period was insufficient to establish that the United States had not withdrawn the FSC/ETI subsidies

373 Original Panel Report, para. 7.1385 (referring to TIPRA (Original Panel Exhibit EC-627)).
374 Original Panel Report, para. 7.1385 (quoting TIPRA (Original Panel Exhibit EC-627)).
375 Original Panel Report, para. 7.389.
376 Original Panel Report, paras. 7.1427-7.1428.
377 European Union's first written submission to the Panel, paras. 394-397.
378 Panel Report, para. 8.578 (referring to European Union's first written submission to the Panel,
para. 394, in turn quoting Office of Chief Counsel, Internal Revenue Service "Qualification for FSC benefits and
ETI exclusions" (Memorandum No. AM 2007-001), 22 December 2006 (2006 IRS Memorandum) (Panel Exhibit
EU-406), p. 6).
379 Panel Report, para. 8.579 (referring to European Union's first written submission to the Panel,
paras. 394-395).
380 Panel Report, para. 8.580 (referring to European Union's first written submission to the Panel,
para. 396; International Trade Resources Report, Boeing FSC/ETI Tax Exemptions Post-2011 (13 December
2012) (ITR FSC/ETI Report) (Panel Exhibit EU-24), attachment 1).
381 European Union's first written submission to the Panel, para. 401.
382 European Union's first written submission to the Panel, paras. 403-406.

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with respect to Boeing. 383 The United States further contended that the 2006 IRS Memorandum
relied on by the European Union to show that Boeing did use FSC/ETI tax concessions in the
post-implementation period was the same 2006 IRS Memorandum it had relied on in the original
proceedings.384 According to the United States, the origin al panel examined that evidence and
declined to find that Boeing would continue to receive FSC/ETI tax concessions after 2006. 385
Therefore, in the United States' view, the European Union had not established that FSC/ETI tax
concessions were provided to Boeing after 2006 and in the post-implementation period.386
5.134. The Panel considered that the issue it had to resolve in order to determine whether the
United States had failed to withdraw the FSC/ETI subsidies to Boeing was whether the United States
continued to pr ovide such subsidies to Boeing after 2006. In resolving that issue, the Panel
addressed the following three questions: (i) whether the original panel had already made a
determination as to whether Boeing continued to use FSC/ETI tax concessions after 2006;
(ii) whether it would be sufficient for the European Union to establish that, after 2006, FSC/ETI tax
concessions continued to be available, or whether it was required to establish that Boeing used
FSC/ETI tax concessions; and (iii) whether, based on the evidence submitted by the parties, Boeing
did in fact continue to use FSC/ETI tax concessions.387
5.135. With respect to the first question, the Panel noted that the original panel confirmed that
between 1989 and 2006, FSC/ETI tax concessions constituted specific s ubsidies. However, the
European Communities' estimate of the amount of those subsidies did not include the alleged
post-2006 tax concessions. Therefore, the original panel had found that it was not necessary for it
to reach a conclusion as to whether Boeing continued to use FSC/ETI tax concessions after 2006.388
Accordingly, there was no determination by the original panel as to whether Boeing continued to use
FSC/ETI tax concessions after 2006.389
5.136. The Panel then turned to the second question, namely whether th e European Union was
required to establish that Boeing used the FSC/ETI tax concessions after 2006, or whether it was
sufficient for the European Union to establish that the FSC/ETI tax concessions were available to
Boeing, so that Boeing was eligible to use these concessions after 2006.390 The Panel concluded that,
where a tax concession is made available – but a potential recipient does not take advantage of the
concession – the recipient continues to pay government revenue that is otherwise due, and there is
no act of "foregoing" or "failure to collect" revenue on the part of the government.391 Therefore, the
Panel considered that the European Union was required to establish that Boeing received FSC/ETI
tax concessions in order to demonstrate a financial cont ribution under Article 1.1(a)(1)(ii) of the
SCM Agreement, and that it would be insufficient for the European Union to show only that FSC/ETI
tax concessions were available to Boeing.392
5.137. In addressing the third question, the Panel found that the evidence add uced by the
European Union related to the question of whether FSC/ETI tax concessions were available to
Boeing, and thus fell short of showing that Boeing used FSC/ETI tax concessions.393 In addition, the
Panel found that the United States' evidence constituted a prima facie case that Boeing did not use
FSC/ETI tax concessions after 2006 and that the European Union's evidence was insufficient to rebut
that.394

383 Panel Report, para. 8.584 (referring to United States' first written submission to the Panel,
para. 490; Statement of J. H. Zrust, Vice President of Tax of The Boeing Company (20 July 2009) (Panel
Exhibit USA-232)).
384 Panel Report, para. 8.584 (referring to United States' first written submission to the Panel,
paras. 491-492, in turn referring to Original Panel Report, paras. 7.1421-7.1428).
385 Panel Report, para. 8.584 (referring to United States' first written submission to the Panel,
paras. 491-492, in turn referring to Original Panel Report, para. 7.1428).
386 United States' first written submission to the Panel, para. 492.
387 Panel Report, para. 8.588.
388 Panel Report, para. 8.590 (referring to Original Panel Report, paras. 7.1400, 7.1408, and 7.1427).
389 Panel Report, paras. 8.590-8.591 (referring to Original Panel Report, paras. 7.1400, 7.1408, and
7.1427).
390 Panel Report, para. 8.593.
391 Panel Report, para. 8.601.
392 Panel Report, paras. 8.596-8.597 and 8.600-8.601.
393 Panel Report, para. 8.606.
394 Panel Report, para. 8.607.

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5.138. The Panel thus concluded that the European Union had not established that, after the expiry
of the implementation period, the United States continues to grant or maintain subsidies to Boeing
in the form of tax concessions pursuant to the FSC/ETI measures, because the European Union had
failed to demonstrate that those tax concessions involved a financial contribution within the meaning
of Article 1.1(a)(1)(ii) of the SCM Agreement.395
5.3.2 Whether the Panel erred in its finding under Article 1.1(a)(1)(ii) of the
SCM Agreement with respect to FSC/ETI tax concessions
5.139. The European Union appeals the Panel's finding that the European Union had not established
that, after the expiry of the implementation period, the United States continues to grant or maintain
subsidies to Boeing in the form of FSC/ETI tax concessions.396 The European Union argues that this
finding is based on the Panel's erroneous interpretation of Article 1.1(a)(1)(ii) of the SCM Agreement
as requiring the European Union to demonstrate that Boeing used FSC/ETI tax concessions in order
to establish a financial contribution in the form of revenue foregone.397
5.140. The United States, for its part, submits that the Panel correctly found that the
European Union had failed to establish that Boeing received FSC/ETI subsidies in the
post-implementation period.398 We begin by setting out our interpretation of Article 1.1(a)(1)(ii) of
the SCM Agreement as relevant to the claim before us. Then, we turn to review the Panel's analysis
and assess whether it erred in the interpretation of this provision.
5.141. Article 1.1(a)(1)(ii) of the SCM Agreement provides that there is a financi al contribution by
a government where "government revenue that is otherwise due is foregone or not collected
(e.g. fiscal incentives such as tax credits)."399 The term "revenue" is defined as an "individual source
or item of (private or public) income" or "t he amount of income deriving from this". 400 The term
"government" qualifies the term "revenue" and indicates that Article 1.1(a)(1)(ii) is concerned with
revenue to which a government is entitled. Article 1.1(a)(1)(ii) describes the relevant conduct that
may constitute a financial contribution under this provision as the foregoing or not collecting of
government revenue. The text of Article 1.1(a)(1)(ii) also indicates, by way of example, that
government revenue may be "foregone" or "not collected" by means of fiscal incentives, such as tax
credits.
5.142. The Appellate Body has held that the word "foregone" in Article 1.1(a)(1)(ii), on the one
hand, suggests that a government has given up an entitlement to raise revenue. 401 The word
"collect", on the other hand, indic ates an action of gathering something, such as contributions of
money or taxes. 402 Government revenue "not collected" in Article 1.1(a)(1)(ii) thus concerns the
omission to gather revenue, while government revenue "foregone" refers to the relinquishment of
an entitlement to raise revenue.
5.143. We recall that, in introducing the forms of financial contribution listed in subparagraphs (i) to
(iv), Article 1.1(a)(1) of the SCM Agreement stipulates that "there is a financial contribution by a
government". This indicat es that each of the subparagraphs (i) to (iv) of Article 1.1(a)(1) of the
SCM Agreement is concerned with a financial contribution made by a government.403 Thus, for a
financial contribution to exist under Article 1.1(a)(1), it must be established that a typ e of conduct
that matches the description in one of the subparagraphs (i) to (iv) has occurred and that this
conduct has been carried out by a government. We note that the type of conduct that falls within
the scope of subparagraph (ii) of Article 1.1(a)(1 ) includes foregoing or not collecting revenue.

395 Panel Report, paras. 8.612 and 11.7.c.ii.
396 European Union's appellant's submission, para. 105 (referring to Panel Report, paras. 8.596-8.612).
397 European Union's appellant's submission, paras. 105 (referring to Panel Report, paras. 8.596-8.612).
398 United States' appellee's submission, para. 96.
399 Fn omitted.
400 Oxford English Dictionary online, definition of "revenue", http://www.oed.com/view/Entry/164734.
401 Appellate Body Report, US – FSC, para. 90.
402 Oxford English Dictionary online, definition of "collect", http://www.oed.com/view/Entry/36263.
403 We note that the term "government" in the introductory clause of Article 1.1(a)(1) refers to a
government or any public body within the territory of a Member. Furthermore, Article 1.1(a)(1)(iv) refers to a
situation where a government "entrusts or directs a private body to carry out one or more of the types of
functions" illustrated in Article 1.1(a)(1)(i)-(iii). However, this does not change the requirement of a link
between a financial contribution and a government.

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Accordingly, the analysis of whether there is a financial contribution within the meaning of
Article 1.1(a)(1)(ii) of the SCM Agreement requires a determination of whether there has been
conduct by a government that amounts to foregoing or not collecting revenue.
5.144. As noted above, government revenue may be "foregone" or "not collected" through the
provision of fiscal incentives to taxpayers. Taxpayers may either use or not use available tax
concessions. However, because the introductory clause of Article 1.1(a)(1) of the SCM Agreement
refers to "a financial contribution by a government", the determination of whether revenue is
"foregone" or "not collected" within the meaning of Article 1.1(a)(1)(ii) must focus on the conduct
of a government, rather than the use of tax concessions by the eligible taxpayers. This means that,
in principle, "{e}vidence relied upon in such an analysis must be located in the 'rules of taxation
that each Member, by its own choice , establishes for itself.'" 404 At the same time, we are not
suggesting that evidence relating to the use of available tax concessions by the eligible taxpayers
cannot be relevant in the determination of whether a government has "foregone" or "not collected"
revenue. While evidence concerning the responding Member's rules of taxation is most relevant in
making such a determination, the use of available tax concessions by the eligible taxpayers may
provide additional indications that a government has "foregone" or "not collected" its revenue.
5.145. Article 1.1(a)(1)(ii) further refers to revenue that is " otherwise due".405 We note that the
word "otherwise" is defined as "in another case" or "in other circumstances"406, while the word "due"
denotes that something is owed o r payable as an enforceable obligation or debt. 407
Article 1.1(a)(1)(ii) thus refers to the foregoing of or not collecting revenue that would have been
payable in other circumstances. Accordingly, Article 1.1(a)(1)(ii) does not cover any decision by a
government not to tax certain income. The words "otherwise due" ensure that only revenue that
would have been payable in other circumstances, that is revenue otherwise due, can constitute a
financial contribution under Article 1.1(a)(1)(ii). In US – FSC (Article 21.5 – EC), the Appellate Body
underscored that a "financial contribution" under Article 1.1(a)(1)(ii) does not arise simply because
a government does not tax income that it could have taxed. 408 While, from a fiscal perspective, a
government might be said t o "forego" revenue when it chooses not to tax certain income, it does
not mean that this revenue is "otherwise due" within the meaning of Article 1.1(a)(1)(ii) of the
SCM Agreement.409
5.146. As the Appellate Body observed in the past, the term "otherwise due" implies a comparison
between the challenged measure and a "defined, normative benchmark". 410 The Appellate Body
considered that, because Members, in principle, have the sovereign authority to determine their own
rules of taxation, the comparison under Article 1.1(a)(1)(ii) must necessarily be between the rules
of taxation contained in the challenged measure and other rules of taxation of the Member
concerned.411 The Appellate Body further recognized that it may be difficult to identify the
appropriate benchmark for comparison under Article 1.1(a)(1)(ii), because domestic rules of
taxation are varied and complex. The Appellate Body stated that, "'{i}n identifying the appropriate
benchmark for comparison, panels must obviously ensure that they identify and examine fis cal
situations which it is legitimate to compare', and that this will be the case when there is 'a rational

404 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 813 (quoting Appellate Body
Report, US – FSC, para. 90).
405 Emphasis added.
406 See Oxford English Dictionary online, definition of "otherwise",
http://www.oed.com/view/Entry/133247. See also Panel Report, Canada – Autos, para. 10.159.
407 Oxford English Dictionary online, definition of "due", http://www.oed.com/view/Entry/58238.
See also Panel Report, Canada – Autos, para. 10.159.
408 Appellate Body Report, US – FSC (Article 21.5 – EC), para. 88.
409 Appellate Body Report, US – FSC (Article 21.5 – EC), para. 88 (referring to Appellate Body Report,
US – FSC, para. 90).
410 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 808 (referring to
Appellate Body Report, US – FSC (Article 21.5 – EC), para. 89, in turn referring to Appellate Body Report,
US – FSC, para. 90).
411 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 808 (referring to
Appellate Body Report, US – FSC (Article 21.5 – EC), para. 89, in turn referring to Appellate Body Report, US –
FSC, para. 90).

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basis for comparing the fiscal treatment of the income subject to the contested measure and the
fiscal treatment of certain other income.'"412
5.147. The Appellate Body in the original proceedings further elaborated on how a panel should
conduct the analysis of financial contribution under Article 1.1(a)(1)(ii) of the SCM Agreement. The
Appellate Body observed that this analysis requires a comparison between t he tax treatment that
applies to the alleged subsidy recipients and the tax treatment of comparable income of comparably
situated taxpayers. 413 Accordingly, a panel examining a claim under Article 1.1(a)(1)(ii) of the
SCM Agreement should first identify the tax treatment that applies to the income of the alleged
recipients.414 As a second step, a panel should identify a benchmark for comparison, that is, the tax
treatment of comparable income of comparably situated taxpayers. 415 Identifying a benchmark
involves an examination of the structure of the domestic tax regime and its organizing principles.416
As a third step, a panel should compare the reasons for the challenged tax treatment with the
benchmark tax treatment it has identified after scrutinizing a Member's tax regime. 417 Such a
comparison will enable a panel to determine whether, in light of the treatment of the comparable
income of comparably situated taxpayers, a government has foregone or not collected revenue that
is otherwise due in relation to the income of the alleged recipients.418
5.148. In the present case, the European Union argues that the Panel erred in the interpretation of
Article 1.1(a)(1)(ii) of the SCM Agreement in finding that, in order to establish that revenue
otherwise due is foregone, the European Union was required to demonstrate that Boeing actually
used FSC/ETI tax concessions.419 For the European Union, the phrase "government revenue that is
otherwise due is foregone" refers to the foregoing of an entitlement to government revenue,
irrespective of whether that entitlement is actually exercised by the recipient.420 The European Union
submits that, as found by the Appellate Body in US – FSC, "the term 'otherwise due' implies some
kind of comparison between the revenues due under the contested measure and revenues that would
be due in some other situation" and that "the basis of comparison must be the tax rules applied by
the Member in question."421 Therefore, an enquiry of whether "government revenue that is otherwise
due is foregone" does not require consideration of whether a tax concession provided to a recipient
is used by an individual recipient, but it does require a comparison between what the challenged tax
treatment provides and what the baseline tax treatment provides.422
5.149. Furthermore, the European Union argues that the Panel's interpretation of
Article 1.1(a)(1)(ii) would allow for an easy circumvention of the SCM Agreement, thereby defeating
its object and purpose. In particular, the European Union contends that, under the Panel's
interpretation, all that would be required to "withdraw" a subsidy would be for the recipient to stop
unilaterally using the available tax break between the end of the implementation period and the
closing of the factual record in the compliance dispute. In the European Union's view, however, this
would not prevent the recipient from using the tax break again at any point in the future.423
5.150. For its part, the United States argues that the European Union's claim before the Panel was
that Boeing used FSC/ETI tax concessions after the implementation period. Therefore, the dispositive
question before the Panel was whether Boeing received the alleged subsidies. The United Stat es
thus contends that the Panel was correct in focusing on that question, without addressing the
question of whether a financial contribution was "available" to Boeing. 424 The United States also

412 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 809 (quoting Appellate Body
Report, US – FSC (Article 21.5 – EC), para. 92).
413 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 812.
414 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 812.
415 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 813.
416 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 813.
417 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 814.
418 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 814.
419 European Union's appellant's submission, para. 128 (referring to Panel Report, paras. 8.596-8.601).
See also ibid., para. 141.
420 European Union's appellant's submission, para. 128 (referring to Appellate Body Report, US – FSC,
para. 90; Panel Report, US – Tax Incentives, paras. 7.44-7.55).
421 European Union's appellant's submission, para. 131 (quoting Appellate Body Report, US – FSC,
para. 90).
422 European Union's appellant's submission, para. 131.
423 European Union's appellant's submission, para. 138.
424 United States' appellee's submission, paras. 99-100 (referring to Panel Report, para. 8.596).

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considers that the Panel applied a correct approach to the assessment of the European Union's claim
because the European Union challenged a subsidy recipient's use of a subsidy, rather than the
measure at issue "as such".425
5.151. The United States further submits that the European Union's concerns about the
circumvention of the SCM Agreement are not relevant in the present case, because the Panel found
that Boeing stopped using FSC/ETI tax concessions in 2006, had not used them since, and had no
intention of using them in the future. Thus, according to the United States, noth ing in the Panel's
reasoning would prevent a future panel from addressing manipulations of the kind described by the
European Union if evidenced by the facts before it.426
5.152. Turning to our assessment of the Panel's analysis, we recall that the Panel addressed
whether the European Union was required to establish that "Boeing in fact 'received' or 'used' the
FSC/ETI benefits after 2006", or whether it was sufficient for the European Union to establish "that
the FSC/ETI benefits were available to Boeing, or that Boeing was eligible to use the FSC/ETI benefit
after 2006". 427 The Panel did not consider that demonstrating that the "FSC/ETI benefits were
available to Boeing is equivalent to demonstrating that Boeing receives a subsidy within the meaning
of Article 1.1(a)(1)(ii) of the SCM Agreement". 428 The Panel explained that if a tax concession is
made available – but the recipient does not take advantage of the concession – the recipient
continues to pay revenue that is otherwise due, and there is no act of "foregoing" or "failure to
collect" revenue on the part of the government. 429 The Panel thus considered that the
European Union was required to demonstrate that Boeing used FSC/ETI tax concessions in order for
a financial contribution under Article 1.1(a)(1)(ii) of the SCM Agreement to exist.430
5.153. We recall that, according to our interpretation of Article 1.1(a)(1)(ii) of the SCM Agreement
above, revenue "foregone", in the context of this provision, refers to a government relinquishing an
entitlement to raise revenue. This means that the analysis of whether there is a financial contribution
in the form of revenue "foregone" requires a determination of whether a government has
relinquished an entitlement to raise revenue. In principle, evidence relied on in such an analysis will
be located in a Member's taxation rules. 431 In the present case, the Panel did not make that
determination. The Panel's analysis focused on whether the European Union had demonstrated
whether Boeing used FSC/ETI tax concessions. This does not comport with our interpretation of
Article 1.1(a)(1)(ii) of the SCM Agreement. As noted above, the determination of whether there is a
financial contribution within the meaning of Article 1.1(a)(1)(ii) must focus on the conduct of a
government, rather than the use of tax concessions by the eligible taxpayers. The Panel's statement
that there is no act of "foregoing" or "failure to collect" revenue on the part of the government if a
tax concession is made available but the recipient does not take advantage of the concession reflects
an erroneous understanding of Article 1.1(a)(1)(ii) of the SCM Agreement.432
5.154. In view of the above, we find that the Panel erred in its interpretation of Article 1.1(a)(1)(ii)
of the SCM Agreement and its assessment of whether FSC/ETI tax concessions constitute a financial
contribution within the meaning of this provision. Therefore, we reverse the Panel's finding, in
paragraphs 8.612 and 11.7(c)(ii) of the Panel Report, that the European Union had not established
that, after the expiry of the implementation period, the United States continues to grant or maintain
subsidies to Boeing in the form of FSC/ETI tax concessions because the European Union had failed
to demonstrate that those tax concessions involved a financial contribution within the me aning of
Article 1.1(a)(1)(ii) of the SCM Agreement.
5.3.3 Completion of the legal analysis
5.155. We now turn to consider the European Union's request for the completion of the legal
analysis. The European Union requests us to complete the legal analysis and find that the

425 United States' appellee's submission, para. 104.
426 United States' appellee's submission, para. 106.
428 Panel Report, para. 8.596.
429 Panel Report, para. 8.601.
430 Panel Report, paras. 8.596-8.597, 8.599-8.600, and 8.606.
431 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 813 (referring to
Appellate Body Report, US – FSC, para. 90).
432 Panel Report, para. 8.601.

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United States continues to grant or maintain prohibited FSC/ETI subsidies after t he expiry of the
implementation period and thus failed to "withdraw the subsidy" within the meaning of Article 7.8
of the SCM Agreement.433 The European Union has not requested the completion of the legal analysis
with respect to whether the United States ha s taken "appropriate steps" to remove the adverse
effects of FSC/ETI subsidies. The United States responds that the European Union has failed to
identify findings of fact or undisputed evidence that would allow the Appellate Body to complete the
legal analysis.434
5.156. We recall the Panel's finding that the European Union had failed to establish that, after the
expiry of the implementation period, the United States continues to grant or maintain subsidies to
Boeing in the form of tax concessions pursuant to the FSC/ETI measures.435 We note, however, that
the scope of the European Union's request for the completion of the legal analysis appears to be
formulated broadly. On its face, it may be understood to encompass FSC/ETI subsidies at large, and
not only FSC/ETI subsidies provided to Boeing. We emphasize that the recommendations and rulings
of the DSB in this dispute concern only the FSC/ETI subsidies to Boeing. Accordingly, the scope of
our completion of the legal analysis in this dispute is confined to FSC/ETI subs idies with respect to
Boeing.
5.157. The Appellate Body may complete the legal analysis, with a view to facilitating the prompt
settlement and effective resolution of the dispute, when the factual findings by the panel 436 and/or
facts on the Panel record, which are uncontested by the disputing parties 437, provide a sufficient
factual basis for doing so.438 Accordingly, we proceed to assess whether there is a sufficient factual
basis for us to complete the legal analysis in the present case and to determine whether the
United States has complied with Article 7.8 of the SCM Agreement. We begin by noting that
Article 7.8 sets out two options for the Member granting or maintaining a subsidy to comply with
the recommendations and rulings of the DSB. The Member in question sha ll either: (i) take
appropriate steps to remove the adverse effects; or (ii) withdraw the subsidy.439
5.158. The Appellate Body underscored that the use of the word "or" in the text of Article 7.8
suggests that the Member concerned may implement the recommendations and rulings of the DSB
under Part III of the SCM Agreement by choosing either of these alternative pathways to achieving
compliance.440 The Member concerned is not required to "take appropriate steps to remove the
adverse effects" of a subsidy and to "withdraw" the same subsidy. Rather, either of these actions
can achieve compliance. 441 The Appellate Body also recognized that the words "granting or
maintaining" a subsidy indicate that Article 7.8 reflects an obligation of the Member concerned to
cease an y conduct amounting to the "granting or maintaining" of subsidies that cause adverse
effects.442
5.159. In US – Upland Cotton (Article 21.5 – Brazil), the Appellate Body explained that this
obligation is "of a continuous nature, extending beyond subsidies granted i n the past". 443
Furthermore, the Appellate Body noted that the phrases "shall take" and "shall withdraw" indicate

433 European Union's appellant's submission, para. 141.
434 United States' appellee's submission, para. 107.
435 European Union's appellant's submission, para. 141.
436 See e.g. Appellate Body Reports, US – Gasoline, p. 19, DSR 1996:I, pp. 18-19; Canada – Periodicals,
p. 24, DSR 1997:I, p. 469; Australia – Salmon, paras. 117-119; US – Large Civil Aircraft (2nd complaint),
para. 1255.
437 See e.g. Appellate Body Reports, US – Lamb, paras. 150 and 172; US – Shrimp, paras. 123-124,
132, and 140; US – Section 211 Appropriations Act, paras. 343-345; EC and certain member States – Large
Civil Aircraft, para. 1176; US – Large Civil Aircraft (2nd complaint), paras. 1252 and 1262.
438 See also Appellate Body Reports, Colombia – Textiles, para. 5.30; US – Anti-Dumping Methodologies
(China), para. 5.146; Russia – Pigs (EU), para. 5.141; EC and certain member States – Large Civil Aircraft,
para. 1178; EC and certain member States – Large Civil Aircraft (Article 21.5 – US), para. 5.745.
439 See Appellate Body Reports, EC and certain member States – Large Civil Aircraft (Article 21.5 – US),
440 Appellate Body Report, EC and certain member States – Large Civil Aircraft (Article 21.5 – US),
para. 5.362.
441 Appellate Body Report, EC and certain member States – Large Civil Aircraft (Article 21.5 – US),
para. 5.368.
442 Appellate Body Report, EC and certain member States – Large Civil Aircraft (Article 21.5 – US),
para. 5.364.
443 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 237.

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that compliance with Article 7.8 "will usually involve some action" or "affirmative action" by the
subsidizing Member, such that it "would norma lly not be able to abstain from taking any action on
the assumption that the subsidy will expire or that the adverse effects of the subsidy will dissipate
on their own".444 However, this does not suggest that an implementing Member has a compliance
obligation with respect to a subsidy or subsidies that no longer exist. 445 Rather, it reflects that the
obligation under Article 7.8 extends to recurring annual payments "maintained" by the respondent
beyond the original reference period.446 As observed by the Appellate Body in EC and certain member
States – Large Civil Aircraft (Article 21.5 – US), if a subsidy has ceased to exist, an implementing
Member is not required to withdraw the subsidy or "take appropriate steps to remove the adverse
effects" with respect to such a subsidy.447
5.160. In the present dispute, the United States asserts that it has "enacted legislation terminating
the Foreign Sales Corporation and Extraterritorial Income ('FSC/ETI') tax benefits". 448 We
understand the United States to argue that, by enacting the TIPRA, the United States has withdrawn
the FSC/ETI subsidies with respect to Boeing by ceasing to provide the financial contribution forming
the basis of those subsidies. Our analysis therefore focuses on whether, by enacting the TIPRA, the
United States has ceased to provide the financial contribution underpinning the FSC/ETI subsidies
to Boeing and, by that means, has withdrawn these subsidies with respect to Boeing.
5.161. We have found above that the Panel erred in focusing on whether Boeing had used FSC/ETI
concessions in its assessment of whether the United States continues to provide a financial
contribution in the form of revenue foregone after the expiry of the implementation period. The
analysis of whether there is a financial contribution in the form of revenue "foregone" should focus
on whether a government has given up its entitlement to revenue, instead of whether the available
tax concessions were used by the eligible taxpayers. Accordingly, we now examine whether
uncontested evidence on the Panel record of these proceedings and the original proceedings allows
us to determine if, by enacting the TIPRA, the United States has ceased to provide the financial
contribution in a manner that the US government may no longer be considered to be giving up its
entitlement to revenue vis-à-vis Boeing.
5.162. We recall that the TIPRA was enacted on 17 May 2006 and is the latest legislative act
concerning FSC/ETI tax concessions. Section 513 of the TIPRA seeks to repeal the two remaining
FSC/ETI tax concessions – the original FSC tax concessions, grandfathered by the ETI Act, and the
ETI Act exclusion of "extraterritorial income" from taxation, grandfathered by the AJCA.
Section 513(c) of the TIPRA provides that "{t}he amendments made by this section shall apply to
taxable years beginning after the date of the enactment of this Act."449
5.163. On 22 December 2006, the IRS Office of Chief Counsel issued the 2006 IRS Memorandum
clarifying that the TIPRA repeals FSC/ETI tax concessions prospectively on a transaction -by-
transaction bas is for transactions entered into during a taxable year that begins after 17 May
2006.450 Before the Panel, the European Union relied on the 2006 IRS Memorandum in support of
its position that the TIPRA allows Boeing to claim concessions with respect to incom e derived from
certain pre-2006 transactions and received in the post-implementation period.451 The United States
did not specifically contest the proposition advanced by the European Union. Instead the
United States submitted evidence seeking to establish t hat Boeing did not use FSC/ETI tax

444 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 236.
445 Appellate Body Report, EC and certain member States – Large Civil Aircraft (Article 21.5 – US),
para. 5.374.
446 Appellate Body Report, EC and certain member States – Large Civil Aircraft (Article 21.5 – US),
para. 5.374 (referring to Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 237).
447 Appellate Body Report, EC and certain member States – Large Civil Aircraft (Article 21.5 – US),
para. 5.383.
448 United States' compliance communication to the DSB of 23 September 2012 (WT/DS353/15),
para. 7.
449 Original Panel Report, para. 7.1385 (quoting TIPRA (Original Panel Exhibit EC-627)).
450 2006 IRS Memorandum (Panel Exhibit EU-406), p. 6.
451 European Union's first written submission to the Panel, paras. 394-397.

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concessions.452 The United States also confirmed in these panel proceedings that no guidance
superseding the 2006 IRS Memorandum had been issued.453
5.164. On appeal, the European Union submits that the 2006 IRS Memorandum is uncontested
evidence regarding the meaning of the TIPRA that we can rely on in the completion of the legal
analysis.454 The United States, however, asserts that the 2006 IRS Memorandum does not set out a
"binding interpretation" of the TIPRA.455
5.165. We note that in deciding whether evidence is uncontested, and can thus be relied on for the
purpose of completing the legal analysis, we must consider it as presented to the panel, and cannot
take into account subsequent contestation of such evidence in the appellate pr oceedings without
substantiation based on the panel record. 456 In the present case, the European Union presented
before the Panel the 2006 IRS Memorandum in support of its argument that, pursuant to the TIPRA,
Boeing remains eligible for FSC/ETI tax concessions in the post-implementation period. In response,
the United States submitted its own evidence regarding Boeing's use of FSC/ETI tax concession, but
did not challenge the interpretative value of the 2006 IRS Memorandum regarding the TIPRA. Thus,
as presented to the Panel, the 2006 IRS Memorandum is uncontested evidence for the purposes of
our completion of the legal analysis. In any event, even if the 2006 IRS Memorandum does not set
out a "binding interpretation" of the TIPRA under US law, this does not mean that it cannot be relied
on as pertinent evidence in these proceedings. Therefore, we can rely on the 2006 IRS Memorandum
in our completion of the legal analysis. We now turn to examine the relevant text of this
Memorandum.
5.166. The 2006 IRS Memorandum provides, in relevant part:
The TIPRA repeal date repeals the binding contract rules for taxable years that begin
after May 17, 2006. Because the binding contract rules apply on a transaction -by-
transaction basis, we interpret the TIPRA repeal date as repealing the binding contract
rules prospectively, on a transaction-by-transaction basis, for transactions entered into
during a taxable year that begins after May 17, 2006. In other words, the binding
contract rules apply to certain transactions, but only if such transactions are not entered
into in a taxable year that begins after May 17, 2006.457
5.167. The quoted passage from the 2006 IRS Memorandum clarifies that the TIPRA repeals the
"binding contract rules", referred to in Sections 513(a) and 513(b) of the TIPRA, p rospectively, for
transactions entered into during a taxable year that begins after 17 May 2006. It also explicitly
recognizes that the "binding contract rules" continue to apply to transactions that are not entered
into during a taxable year that begins after 17 May 2006. The "binding contract rules" refer to the
provision of the ETI Act, which grandfathered the original FSC tax concessions, and the provisions
of Section 101(f) of the AJCA, which grandfathered the ETI Act exclusion of "extraterritorial income"
from taxation, with respect to certain transactions occurring pursuant to a binding contract that was
in effect on a specified date. Thus, based on the interpretative guidance in the 2006 IRS
Memorandum, the TIPRA terminates the binding contract rules of the ETI Act and the AJCA for
transactions that are entered into during a taxable year that begins after 17 May 2006. However,
Section 513(c) of the TIPRA allows the application of the binding contract rules of the ETI Act and
the AJCA to certain transactions that are entered into during taxable years before 17 May 2006. For

452 Panel Report, para. 8.585 (referring to United States' response to Panel question No. 34, para. 146;
Statement of J. H. Zrust, Vice President of Tax of The Boeing Company (20 July 2009) (Panel Exhibit
USA-232); Updated Statement of J. H. Zrust, Vice President of Tax of The Boeing Company (3 December 2013)
(Panel Exhibit USA-382)).
453 Panel Report, para. 8.603 (referring to United States' response to the Panel's request for information
pursuant to Article 13 of the DSU, dated 28 February 2013; response to Panel question No. 46, para. 116).
454 European Union's appellant's submission, para. 142.
455 The United States points out that the 2006 IRS Memorandum states that it "may not be used or cited
as precedent". (United States' appellee's submission, para. 107)
456 In this respect, we note that, pursuant to Article 17.6 of the DSU, appeals shall be limited to issues
of law covered in the panel report and legal interpretations developed by the panel. As observed by the
Appellate Body in EC – Hormones, the "{d}etermination of the credibility and weight properly to be ascribed to
(that is, the appreciation of) a given piece of evidence is part and parcel of the fact finding process and is, in
principle, left to the discretion of a panel as the trier of facts." (Appellate Body Report, EC – Hormones,
para. 132)
457 2006 IRS Memorandum (Panel Exhibit EU-406), p. 6. (emphasis original)

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purposes of the present dispute, this means that Section 513 of the TIPRA has not removed FSC/ETI
tax concessions for certain qualifying transactions entered into during taxable year s before
17 May 2006. This has also been confirmed by the United States in the course of the oral hearing.458
5.168. The European Union argued before the Panel that the continued availability of FSC/ETI tax
concessions for certain qualifying transactions entered into during taxable years before 17 May 2006
allows Boeing to claim FSC/ETI tax concessions with respect to income generated by such
transactions after the end of the period covered by the findings of the original panel, that is, after
31 December 2006.459 The European Union further submitted a list of orders for Boeing aircraft that
allegedly qualify for the remaining FSC/ETI tax concessions and generate income after 31 December
2006.460 The United States did not respond to that evidence but referred instead to the Zrust
statement that Boeing, as a company, did not consider income received after 31 December 2006 to
be eligible for FSC/ETI tax concessions.461
5.169. In its analysis, the Panel did not address the European Union's argument regarding Boeing's
eligibility for FSC/ETI tax concessions in the post -implementation period and did not examine the
list of orders for Boeing aircraft submitted by the European Union. The Panel focused instead on the
evidence submitted by the United States pertaining to the question of Boe ing's use of FSC/ETI tax
concessions.462 The Panel thus did not reach a conclusion regarding the extent of Boeing's eligibility
for FSC/ETI tax concessions.
5.170. As noted above, Section 513 of the TIPRA has not removed FSC/ETI tax concessions for
certain qualifying transactions entered into during taxable years before 17 May 2006. This means
that if Boeing entered into such qualifying transactions during taxable years before 17 May 2006,
then Boeing is entitled to claim FSC/ETI tax concessions with respect to income generated by those
transactions. Therefore, to the extent that Boeing remains entitled to FSC/ETI tax concessions in
the post-implementation period, the United States has not ceased to provide a financial contribution
and thus has not withdrawn FSC/ETI subsidies with respect to Boeing within the meaning of
Article 7.8 of the SCM Agreement.
5.3.4 Conclusion
5.171. In sum, for revenue to be considered "foregone" under Article 1.1(a)(1)(ii) of the
SCM Agreement, a government must relinquish an entitlement to raise revenue. Accordingly,
establishing that such a financial contribution exists requires a determination that a government has
relinquished an entitlement to raise revenue. This determination mus t focus on the conduct of a
government, rather than on the use of tax concessions by the eligible taxpayers. We find that the
Panel erred by focusing instead on whether Boeing used FSC/ETI tax concessions.
5.172. We therefore reverse the Panel's finding, in parag raphs 8.612 and 11.7 .c.ii of the Panel
Report, that the European Union had not established 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 because the Eur opean Union had failed to demonstrate that those tax concessions
involved a financial contribution within the meaning of Article 1.1(a)(1)(ii) of the SCM Agreement.
Furthermore, we have completed the legal analysis and find that, to the extent that Boeing remains
entitled to FSC/ETI tax concessions in the post -implementation period, the United States has not

458 We note that, in response to questioning at the oral hearing, the United States confirmed that,
pursuant to the TIPRA, if a company entered into a qualifying transaction in taxable years before 17 May 2006,
it would be entitled to FSC/ETI tax concessions with respect to income generated by such transaction after
2006.
459 Panel Report, para. 8.579 (referring to European Union's first written submission to the Panel,
para. 394 and fn 1030 thereto and para. 395; 2006 IRS Memorandum (Panel Exhibit EU-406), p. 6). The
original panel found that Boeing received FSC/ETI subsidies between 1989 and 2006, but declined to make a
finding on whether Boeing would continue to receive FSC/ETI subsidies after 2006. (Original Panel Report,
paras. 7.1419 and 7.1427)
460 Panel Report, para. 8.580 (referring to European Union's first written submission to the Panel,
para. 396; ITR FSC/ETI Report (Panel Exhibit EU-24), attachment 1).
461 Panel Report, para. 8.585 (referring to United States' response to Panel question No. 34, para. 146;
Statement of J. H. Zrust, Vice President of Tax of The Boeing Company (20 July 2009) (Panel Exhibit
USA-232); Updated Statement of J. H. Zrust, Vice President of Tax of The Boeing Company (3 December 2013)
(Panel Exhibit USA-382)).
462 Panel Report, paras. 8.606-8.610.

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ceased to provide a financial contribution and thus has not withdrawn FSC/ETI subsidies with respect
to Boeing within the meaning of Article 7.8 of the SCM Agreement.
5.4 European Union's claims relating to the Panel's findings concerning specificity under
Article 2.1(c) of the SCM Agreement
5.173. In relation to the Panel's findings under Article 2.1(c) of the SCM Agreement, the
European Union raises two sets of c laims relating to two different subsidy measures. First, the
European Union requests us to reverse the Panel's finding that the subsidies provided to Boeing
through the City of Wichita IRBs are not specific within the meaning of the third factor in
Article 2.1(c), second sentence ("the granting of disproportionately large amounts of subsidy to
certain enterprises"), and its conclusion that the European Union failed to establish that the
United States has not withdrawn the subsidy. 463 In support of this reques t, the European Union
argues that the Panel erred in its interpretation and application of Article 2.1(c) of the
SCM Agreement and failed to make an objective assessment of the matter before it under Article 11
of the DSU, in limiting its assessment of de facto specificity of the City of Wichita IRB subsidy
programme to the period of time after the end of the United States' implementation period.464 For
its part, the United States asserts that the Panel did not err in finding that the subsidy provided
through the IRBs is no longer specific and correctly based the specificity analysis on information
post-dating the implementation period.465
5.174. Second, the European Union requests us to reverse the Panel's finding that the subsidies to
Boeing provided by South Carolina through EDBs for the funding of Project Gemini facilities and
infrastructure are not specific within the meaning of Article 2.1(c) of the SCM Agreement.466 In
support of this request, the European Union claims that the Panel erred in the inter pretation of
Article 2.1(c) by interpreting the term "limited number" in the first factor in Article 2.1(c), second
sentence ("use of a subsidy programme by a limited number of certain enterprises"), as meaning a
number smaller than three. The European Union also argues that the Panel erred in its interpretation
and application of the term "certain enterprises" in the same clause by including in its analysis EDBs
issued to public entities, such as cities and public colleges. Furthermore, the European Union submits
that the Panel erred in interpreting the term "predominant" in the second factor in Article 2.1(c),
second sentence ("predominant use by certain enterprises"), to involve a concept entirely different
from the term "disproportionately" in the third factor in Article 2.1(c), second sentence ("the
granting of disproportionately large amounts of subsidy to certain enterprises") 467. In addition, the
European Union alleges that the Panel failed to make an objective assessment as required pursuant
to Article 11 of the DSU of the factors in the third sentence of Article 2.1(c).468 In response, the
United States submits that the Panel's specificity findings relating to EDBs were based on a correct
interpretation and application of Article 2 of the SCM Agreement a s well as on an objective
assessment of the evidence, consistent with Article 11 of the DSU.469
5.175. We begin by addressing Article 2.1(c) of the SCM Agreement. We then turn to the
European Union's claims relating to the IRB subsidies that the Panel erred in its interpretation and
application of Article 2.1(c) and failed to make an objective assessment of the matter when finding
that the relevant period over which to consider the existence of "disproportionately large amounts
of subsidy" in these proceedings is th e period after the end of the United States' implementation
period. In this context, we also consider the European Union's request for completion of the legal
analysis with respect to the IRB subsidies. Thereafter, we address the European Union's claims
relating to the EDB subsidies that the Panel erred in its interpretation of the term "limited number",
its interpretation and application of the term "certain enterprises", and its interpretation of the term
"predominant use" in Article 2.1(c), second senten ce. Finally, we consider the European Union's
claim under Article 11 of the DSU regarding the Panel's assessment of the factors in the third
sentence of Article 2.1(c), and its request for completion of the legal analysis with regard to the EDB
subsidies.

463 Panel Report, paras. 8.640 and 11.7.c.iii.
464 European Union's appellant's submission, para. 145.
465 United States' appellee's submission, para. 108.
466 Panel Report, para. 8.843.
467 European Union's appellant's submission, para. 224.
468 European Union's appellant's submission, para. 224.
469 United States' appellee's submission, para. 9.

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5.4.1 Article 2.1(c) of the SCM Agreement
5.176. Article 2.1 of the SCM Agreement reads:
2.1 In order to determine whether a subsidy, as defined in paragraph 1 of Article 1,
is specific to an enterprise or industry or group of enterprises or industries (referred to
in this Agreement as "certain enterprises") within the jurisdiction of the granting
authority, the following principles shall apply:
(a) Where the granting authority, or the legislation pursuant to which the
granting authority operates, explicitly limits acc ess to a subsidy to certain
enterprises, such subsidy shall be specific.
(b) Where the granting authority, or the legislation pursuant to which the
granting authority operates, establishes objective criteria or
conditions{*} governing the eligibility for, and the amount of, a subsidy,
specificity shall not exist, provided that the eligibility is automatic and that
such criteria and conditions are strictly adhered to. The criteria or conditions
must be clearly spelled out in law, regulation, or other official document, so
as to be capable of verification.
(c) If, notwithstanding any appearance of non -specificity resulting from the
application of the principles laid down in subparagraphs (a) and (b), there
are reasons to believe that the subsidy may in fact be specific, other factors
may be considered. Such factors are: use of a subsidy programme by a
limited number of certain enterprises, predominant use by certain
enterprises, the granting of disproportionately large amounts of subsidy to
certain enterprises, and the manner in which discretion has been exercised
by the granting authority in the decision to grant a subsidy.{**} In applying
this subparagraph, account shall be taken of the extent of diversification of
economic activities within the jurisdiction of the granting authority, as well
as of the length of time during which the subsidy programme has been in
operation.
{*fn original} 2 Objective criteria or conditions, as used herein, mean criteria or conditions
which are neutral, which do not favour certain enterprises over others, and which are economic
in nature and horizontal in application, such as number of employees or size of enterprise.
{**fn original} 3 In this regard, in particular, information on the frequency with which
applications for a subsidy are refused or approved and the reasons for such decisions shall be
considered.
5.177. At the outset, we note that the chapeau of Article 2 refers to "principles" that shall apply in
determining whether a subsidy is specific to certain enterprises. We recall that the use of the term
"principles" in the chapeau of Article 2.1 of the SCM Agreement (instead of, for instance, "rules")
suggests that subparagraphs (a) thro ugh (c) of this provision are to be considered within an
analytical framework that recognizes and accords appropriate weight to each principle. 470
Consequently, the application of one of the subparagraphs of Article 2.1 may not by itself be
determinative in arriving at a conclusion that a particular subsidy is or is not specific. Specifically, in
accordance with the first sentence of Article 2.1(c), despite the conclusion that there is an
"appearance of non -specificity" following the application of the princi ples set out in Article 2.1(a)
and (b), panels may consider that, in light of the arguments and evidence submitted by the parties,
"there are reasons to believe that the subsidy may in fact be specific." 471 In such circumstances,
panels should consider the r elevant factual features of a challenged subsidy in light of the factors
listed in Article 2.1(c).472 The aim of the inquiry under Article 2.1(c) is to identify evidence of
allocation or use of a subsidy that supports a finding of specificity, notwithstanding any appearance

470 Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China), para. 366.
471 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 877.
472 Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China), para. 370.

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of non-specificity that might arise from a review of the relevant legislation or the express acts of a
granting authority.473
5.178. The second sentence of Article 2.1(c) prescribes the following factors for consideration:
(i) use of a subsidy programme by a limited number of certain enterprises; (ii) predominant use by
certain enterprises; (iii) the granting of disproportionately large amounts of subsidy to certain
enterprises; and (iv) the manner in which discretion has been exercised by the granting authority in
the decision to grant a subsidy. The third sentence of Article 2.1(c) adds that, in applying this
provision, account shall be taken of the extent of diversification of economic activities within the
jurisdiction of the granting authority, as well as of the length of time during which the subsidy
programme has been in operation. Which factors are relevant to the analysis of specificity under
Article 2.1(c) will be a function of what reasons there are to believe that the subsidy may in fact be
specific. Thus, a conclusion as to the existence of specificity in fact may, depending on the
circumstances of the case, rely on an assessment of one, several, or all of those factors.474
5.179. The first factor in the second sentence of Article 2.1(c) refers to the "use of a subsidy
programme by a limited number of certain enterprises". The word "limited" refers to something that
is "{c}ircumscribed within definite limits, bounded, restricted … small, slight, low (in number or
extent)".475 Specifically, the term "l imited number" pertains to a quantity of "certain enterprises"
that must be found to have used the subsidy programme, and it suggests "an inquiry into whether
the enterprises or industries so particularized constitute a quantitatively limited group". 476 The
concept of limitation is contained in both Article 2.1(a) and Article 2.1(c) of the SCM Agreement.
However, whereas subparagraph (a) concerns limitations found explicitly in, for example, the legal
instruments of a government authority, subparagraph (c) centres on the existence of limitations on
the number of enterprises or industries that actually use the subsidy.477
5.180. In this respect , we note the European Union's argument that what constitutes a "limited
number" of certain enterprises in a particular case can be determined either by reference to the
universe of enterprises eligible to receive the subsidy, or, alternatively, by reference to all
enterprises within the jurisdiction of the granting authority. 478 According to the European Union, it
is for the complai nant to make this choice. In this regard, we note that the principles in
subparagraphs (a) to (c) of Article 2.1 are to be interpreted in context. 479 The text of Article 2.1(c)
makes it clear that the application of Article 2.1(c) proceeds on the basis of the conclusions reached
as a result of the application of the preceding subparagraphs of that provision.480 The analysis under
Article 2.1(a) and (b) involves consideration of legislation or of a granting authority's acts or
pronouncements that explicitly limi t access to the subsidy or establish objective access criteria or
conditions. Consequently, where a panel's assessment proceeds from Article 2.1(a) and (b) to
Article 2.1(c), the panel's analysis under subparagraph (c) would normally build upon the relevan t
legislative framework, and in particular the conditions of eligibility for the subsidy, examined under
Article 2.1(a) and (b). 481 In this regard, the Appellate Body has stated that the inquiry under
Article 2.1(c) requires a panel to examine the reasons as to why the actual allocation or use of the
subsidy differs from an allocation or use that would be expected if the subsidy were administered in
accordance with the conditions of eligibility for that subsidy.482
5.181. At the same time, a de facto specificity inqui ry under Article 2.1(c) does not require
identification of an explicit subsidy programme implemented through law or regulation or through
other explicit means.483 In this regard the Appellate Body has observed that "in the absence of any
written instrument o r explicit pronouncement, evidence of a 'systematic activity or series of
activities' may provide a sufficient basis to establish the existence of an unwritten subsidy

473 Appellate Body Report, US – Carbon Steel (India), para. 4.373.
474 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 878.
475 Oxford English Dictionary online, definition of "limited", http://www.oed.com/view/Entry/108491.
476 Appellate Body Report, US – Carbon Steel (India), para. 4.377.
477 Appellate Body Report, US – Carbon Steel (India), para. 4.375.
478 See European Union's appellant's submission, paras. 232 and 262.
479 Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China), para. 370.
480 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 876.
481 See e.g. Appellate Body Report, US – Countervailing Measures (China), para. 4.146.
482 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 877.
483 Appellate Body Report, US – Countervailing Measures (China), para. 4.146.

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programme in the context of assessing de facto specificity."484 Thus, depending on the specific facts
at issue and the arguments made by the parties, the assessment of specificity may commence with
an inquiry under subparagraph (c) rather than proceed from subparagraphs (a) and (b).485 Moreover,
it may not always be possible to come to a definiti ve conclusion as to the existence of objective
criteria or conditions governing the eligibility for, and the amount of, a subsidy within the meaning
of Article 2.1(b), without examining factual evidence from the perspective of Article 2.1(c). In such
circumstances, it may not be possible or appropriate for a panel to assess whether the number of
users of the subsidy programme is small or restricted within the meaning of the first factor in
Article 2.1(c), second sentence, in light of the conditions of eligibility for that subsidy, either because
no de jure conditions of eligibility exist or because their objectivity is contested. However, in those
cases where the granting authority or the legislation pursuant to which the granting authority
operates sets out explicit eligibility criteria for the subsidy, panels should normally examine the
question of whether the subsidy is used by a limited number of certain enterprises in light of these
eligibility criteria, as assessed under subparagraphs (a) and (b). 486 In any event, we consider that
the universe of enterprises relevant for the purpose of this assessment depends on the
characteristics of the measure and the circumstances of the case, rather than on how a complainant
decides to frame its claim.
5.182. Turning to the term "certain enterprises" in the first factor of Article 2.1(c), second sentence,
we note that this term also appears in the chapeau of Article 2.1 and in Article 2.1(a). The chapeau
of Article 2.1 defines "certain enterprises" as "an enterprise or indust ry or group of enterprises or
industries". As the provision stipulates, this definition applies throughout the SCM Agreement.487
The Appellate Body has observed that "enterprise" may be defined as "{a} business firm, a
company".488 Furthermore, we note that th e term "enterprise" may refer to "{a} commercial or
industrial undertaking, esp. one involving risk; a firm, company, or business".489 In turn, "industry"
signifies "{a} particular form or branch of productive labour; a trade, a manufacture" 490; "an
industry, or group of 'industries', may be generally referred to by the type of products they produce";
"the concept of an 'industry' relates to producers of certain products"; and the "breadth of this
concept of 'industry' may depend on several factors in a given case." 491 The Appellate Body has
further held that the term "certain enterprises" may refer to a single enterprise or industry or a class
of enterprises or industries that are known and particularized ; that the concept of "certain
enterprises" involves a certain amount of indeterminacy at the edges ; and that any determination
of whether a number of enterprises or industries constitute "ce rtain enterprises" can be made only
on a case-by-case basis.492
5.183. As regards the second factor in Article 2.1(c), second sentence, namely the phrase
"predominant use by certain enterprises", we note that definitions of the term "predominant" include
"{c}onstituting the main … or strongest element; prevailing". 493 As we see it, in the context of
Article 2.1(c), "predominance" may relate to the number of certain enterprises using the subsidy,

484 Appellate Body Report, US – Countervailing Measures (China), para. 4.149. Indeed, by its very
nature, the analysis under Article 2.1(c) that seeks to determine whether the subsidy at issue is de facto
specific "normally focuses on evidence other than of the kind found in written documents or express acts or
pronouncements by a granting authority". (Ibid., para. 4.146)
485 This was the case before the panel and the Appellate Body in US – Carbon Steel (India).
(See Appellate Body Report, US – Carbon Steel (India), para. 4.384)
486 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 877.
487 Appellate Body Report, US – Washing Machines, para. 5.220. The Appellate Body has noted that the
chapeau of Article 2.1 "offers interpretative guidance" with regard to the scope and meaning of the rest of
Article 2. (Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China), para. 366)
488 Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China), para. 373 (quoting
Shorter Oxford English Dictionary, 6th edn, A. Stevenson (ed.) (Oxford University Press, 2007), Vol. 1, p. 841).
489 Oxford English Dictionary online, definition of "enterprise", http://www.oed.com/view/Entry/62843.
490 Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China), para. 373 (quoting
Shorter Oxford English Dictionary, 6th edn, A. Stevenson (ed.) (Oxford University Press, 2007), Vol. 1,
p. 1371).
491 Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China), para. 373 (quoting
Panel Report, US – Upland Cotton, para. 7.1142). The understanding of "industry" by reference to the
producers of a particular product is also consistent with Article 16.1 of the SCM Agreement, which defines
"domestic industry" as "the domestic producers as a whole of the like products". (Ibid., fn 294 to para. 373)
492 Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China), para. 373 (quoting
Panel Report, US – Upland Cotton, para. 7.1142).
493 Oxford English Dictionary online, definition of "predominant",
http://www.oed.com/view/Entry/149890.

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the amounts of subsidy used by certain enterprises, or the incidence with which certain enterprises
use a subsidy. The first factor in Article 2.1(c), second sentence ("use of a subsidy programme by a
limited number of certain enterprises"), already captures the aspect of predominance relating to the
number of subsidy users. In turn, the third factor in Article 2.1(c), second sentence ("the granting
of disproportionately large amounts of subsidy to certain enterprises"), specifically captures the
aspect of predominance relating to the amounts of subsidy used by certain enterprises. The fact that
both the number of subsidy users and the amounts of subsidy used are captured by the other factors
of Article 2.1(c) suggests that "predominant use by certain enterprises" covers primarily the element
of the incidence or frequency with which the subsidy is used by certain enterprises.
5.184. Finally, the third factor in Article 2.1(c), second sentence, concerns "the granting of
disproportionately large amounts of subsidy to certain enterprises". The Appellate Body has noted
that the language of this phrase indicates that the first task of a panel is to identify the "amounts of
subsidy" granted and then to assess whether the amounts of subsidy are "disproportionately
large".494 According to the Appellate Body, determining the existence of disproportionality "requires
an assessment as to whether the amounts of subsidy are out of proportion, or relatively too large"
and "requires a panel to determine whether the actual allocation of the 'amounts of subsidy' to
certain enterprises is too large relative t o what the allocation would have been if the subsidy were
administered in accordance with the conditions of eligibility for that subsidy as assessed under
Article 2.1(a) and (b)".495 Thus, in examining whether disproportionately large amounts of subsidy
have been granted to certain enterprises within the meaning of Article 2.1(c), panels need to assess:
(i) whether the granting of the subsidy indicates a disparity between the expected distribution of
that subsidy, as determined by the conditions of eligibilit y, and its actual distribution; and (ii) the
reasons for that disparity so as to determine whether there has been a granting of disproportionately
large amounts of subsidy to certain enterprises.496
5.4.2 The Panel's findings concerning industrial revenue bonds
5.185. The European Union argues that the Panel erred in its interpretation and application of the
term "disproportionately large amounts of subsidy" in Article 2.1(c) of the SCM Agreement when it
failed to follow the provision in Article 2.1(c) that "account shall be taken … of the length of time
during which the subsidy programme has been in operation" 497 (i.e. 1979 onwards) and instead
limited its assessment of specificity of Wichita IRB subsidy programme to the period of time "after
the end of the implementation period" (i.e. 2013 onwards).498 Further, the European Union submits
that the Panel failed to make an objective assessment of the matter before it when it inappropriately
deviated from the approach taken by the panel and the Appellate Body in the original proc eedings
to assess the existence of specificity based on the entire duration of the subsidy programme.499 The
United States asserts that the Panel did not err in finding that the subsidy provided through the IRBs
is no longer specific and correctly based the specificity analysis on information post -dating the
reasonable period of time for compliance.500
5.186. At the outset, we note that IRBs are issued by cities in Kansas, including the City of Wichita,
and are sold to the general public on behalf of a qualifying private entity. The proceeds are used by
the entity on whose behalf the IRBs are issued to purchase, construct, o r improve commercial or
industrial property (Project Property). 501 In general, the City of Wichita acts as the "issuer" of the
IRBs and retains legal title to the Project Property during the term of the IRB. The private entity
leases the property, making ren t payments to the holders of the IRBs. For a private entity, the
advantages of having IRBs issued on its behalf include the ability to borrow funds at lower -than-

494 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 879.
495 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 879.
496 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 879.
497 European Union's appellant's submission, para. 145.
498 European Union's appellant's submission, para. 145 (quoting Panel Report, para. 8.634).
499 European Union's appellant's submission, para. 145.
500 United States' appellee's submission, para. 108.
501 Original Panel Report, para. 7.651. The relevant state law that grants cities in Kansas the authority
to issue IRBs is Kansas Statutes Annotated (KSA). (Ibid., para. 7.652 (referring to KSA,
Section 12-1740 et seq. (2001) (Original Panel Exhibit EC-167)))

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market interest rates, property tax abatements for up to ten years on Project Property, and sa les
tax exemptions on Project Property and services acquired with the proceeds of IRBs.502
5.187. The IRB scheme operated differently for Boeing and, subsequently, Spirit Aerosystems
(Spirit).503 In particular, rather than being purchased by the public, the IRBs issu ed on behalf of
Boeing or Spirit were purchased by the companies themselves. Therefore, the advantages of the
IRB issuances to Boeing and Spirit were limited to property tax and sales tax exemptions. The City
of Wichita issued IRBs to Boeing every year fro m 1979 to 2007. 504 IRBs foresee property tax
abatements on Project Property for up to ten years. Accordingly, property tax abatements stemming
from IRBs issued to Boeing terminated in 2017. In January 2012, Boeing announced that it would
close all of its Wichita operations by the end of 2013.505
5.188. Before the Panel, the key point of disagreement between the parties was the relevant time
period for the assessment of specificity.506 The Panel reasoned that, in the original proceedings, the
European Communities had cha llenged the entirety of the subsidy received by Boeing since the
inception of the IRB programme in 1979, so it was consistent with the scope of that challenge for
the panel to consider the entirety of the IRBs granted to Boeing between 1979 and 2005. However,
the Panel considered that, in the compliance proceedings, "the relevant financial contribution is that
which was granted after the end of the implementation period" and that it was "concerned only with
those tax abatements granted to Boeing from 2013 o nwards".507 The Panel also noted that the
amount of the tax abatements Boeing received after 2012 was determined by the value of the IRBs
that were granted from 2002 onwards. 508 Therefore, the Panel decided to assess "whether the
subsidy is de facto specific by determining what percentage of the total amount of IRBs provided
from 2002 onwards was granted to Boeing and Spirit".509
5.189. The Panel then noted that, from 2002 onwards, Boeing and Spirit received 32% of the total
amount of IRBs issued, and that this was cons iderably less than the 69% in the original
proceedings.510 Taking into account that the IRB programme is open to enterprises with the capacity
and inclination to make certain investments in commercial or industrial property, the Panel did not
consider that " Boeing and Spirit's receipt of 32% of the total amount of IRBs issued indicates a
distribution of the subsidy that is at odds with what one would expect were the IRB programme to
be administered in accordance with the SCM Agreement." 511 In light of these con siderations, the
Panel found that the subsidies provided to Boeing in the form of property and sales tax abatements
related to IRBs issued by the City of Wichita after the expiry of the implementation period were not
specific within the meaning of Article 2.1(c) of the SCM Agreement.512

502 Original Panel Report, para. 7.656. The authority for the latter two benefits arises from KSA, Section
79-201a, which provides that all IRB-financed real property shall be exempt from state and local property
taxes for a period of up to ten years, and from KSA, Section 79-3640, which provides that tangible personal
property and services acquired with IRB proceeds shall be exempt from all sales taxes. (Ibid., para. 7.657)
503 Original Panel Report, para. 7.658. Boeing's Wichita division produced commercial airplanes and their
components in Wichita for more than 70 years. In 2005, Boeing sold its Wichita facilities to Spirit. (Ibid.,
para. 7.649)
504 Panel Report, para. 8.614. Even though Boeing sold its Wichita facilities to Spirit in 2005, for IRBs
issued to Boeing prior to that date, Boeing continued to receive directly the tax benefits deriving from the IRBs
because Boeing maintained its leasehold interest in the Project Property. The City of Wichita continued to issue
IRBs to Boeing following the sale of Boeing's Wichita facilities to Spirit in 2005. (Original Panel Report,
para. 7.662)
505 Panel Report, para. 8.617 (referring to A.G. Sulzberger, "Boeing Departure Shakes Wichita's Identity
as Airplane Capital", New York Times, 18 January 2012 (Panel Exhibit USA-338)).
506 The European Union argued that the Panel should assess specificity over the entire period the
subsidy has been available, during which Boeing received 53%, and Boeing and Spirit together 59%, of the
subsidy. The United States contended that because no IRBs were issued to Boeing after 2007, assessing
specificity over a shorter, more recent period of time causes the percentage of the subsidy received by Boeing
and Spirit to fall considerably. (Panel Report, para. 8.627)
507 Panel Report, para. 8.634.
508 Panel Report, para. 8.635.
509 Panel Report, para. 8.635.
510 Panel Report, para. 8.636.
511 Panel Report, para. 8.637.
512 Panel Report, para. 8.638.

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5.4.2.1 Whether the Panel erred in its interpretation of Article 2.1(c) of the
SCM Agreement
5.190. The European Union argues that the Panel erred in its interpretation of Article 2.1(c) of the
SCM Agreement when, in conducting its de facto specificity analysis to determine whether the City
of Wichita had granted "disproportionately large amounts of subsidy to certain enterprises", it found
that the relevant period over which to consider disproportionality is "after the end of the
implementation period". 513 Instead, according to the European Union, the Panel should have
considered whether the IRB subsidy programme is specific on the grounds that Boeing and Spirit
received disproportionately large amounts of the subsidy over the three-decade period of time during
which the subsidy programme had been in operation (including, but not limited to, the period that
passed since the beginning of the original panel proceedings), that is, from 1979 to 2012.514
5.191. The United States disagrees with the European Union's argument that the Panel interpreted
the terms in Article 2.1(c) to mean something different in compliance proceedings than in original
proceedings. For the United States, the Panel "simply applied the same meaning to a different data
set because the facts had changed – most importantly, the structure of Kansas' economy and the
role of the aerospace industry in it".515 Furthermore, the United States considers that "with respect
to Article 2.1, the relevant question is whether a subsidy 'is' specific, no t whether it was specific at
a prior point in time."516
5.192. As noted above, the Appellate Body has stated that "disproportionality" is a relational
concept.517 In particular, the analysis under the third factor in the second sentence of Article 2.1(c)
requires determining the amounts of subsidy actually granted to the recipients under a subsidy
programme within a certain time period, and assessing whether there is a disparity between the
expected and actual distribution of the subsidy. In the present case, the specific question before us
is whether the existence of disproportionality in the context of these compliance proceedings should
be established on the basis of the amounts of subsidy granted during the entire period over which
the subsidy programme has been in operation, or whether consideration of subsidies provided over
a more limited period of time may be appropriate.
5.193. We note that the text of Article 2.1(c) does not contain an express indication as to how to
determine the time period relevant for assessing the existence of disproportionality. We recall,
however, that the principles in subparagraphs (a) to (c) of Article 2.1 should be interpreted together
and a proper understanding of specificity must allow for the concurrent application of these principles
to the various legal and factual aspects of a subsidy. 518 Thus, in the event of an appearance of
non-specificity resulting from an analysis under Article 2.1(a) and (b), indications as to the
appropriate time period for assessing disproportionality under Article 2.1(c) may be drawn from the
legislative framework examined under those subparagraphs. At the same time, the analysis under
Article 2.1(c) will normally focus on evidence other than of the kind found in written documents or
express acts or pronouncements by a granting authority. 519 Thus, indications relating to the
appropriate time period for the assessment of disproportionality may be drawn also from the
structure and operation of the subsidy at issue, the circumstances of the c ase, and the evidence
presented by the parties.
5.194. We note that pursuant to the third sentence of Article 2.1(c), "account shall be taken of the
extent of diversification of economic activities within the jurisdiction of the granting authority, as
well as of the length of time during which the subsidy programme has been in operation." In our
view, the third sentence of Article 2.1(c) directs panels to include in their analyses the two factors
listed in that sentence. Specifically, the use of the word "shall" appears in the context of "account
shall be taken of", which suggests the existence of an obligation for panels to consider the factors
in the third sentence of Article 2.1(c) as part of their assessment of de facto specificity, together
with any other per tinent factor. However, the provision does not prescribe a particular manner in

513 European Union's appellant's submission, paras. 173 and 181 (quoting Panel Report, para. 8.634).
(fn omitted)
514 European Union's appellant's submission, para. 181 (quoting Panel Report, para. 8.634).
515 United States' appellee's submission, para. 112.
516 United States' appellee's submission, para. 113. (emphasis original)
517 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 879.
518 Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China), paras. 370-371.
519 Appellate Body Report, US – Countervailing Measures (China), paras. 4.145-4.146.

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which panels must consider the relevance of these factors or the importance of the factors for the
panels' overall analysis. What precisely the import of those factors would be in a panel's assessment
under Article 2.1(c) would thus depend on the particular circumstances of each case.
5.195. In particular, while "the length of time during which the subsidy programme has been in
operation" must be taken into account by panels in their assessment of specificity, it does not follow
from the third sentence of Article 2.1(c) that the entire period during which the programme has been
in operation has necessarily to be chosen as the relevant time period in determining whether, under
the second sentence, disproportionately large amounts of subsidy have been granted to certain
enterprises. Accordingly, the temporal baseline for the assessment of disproportionality under the
second sentence of Article 2.1(c) may not necessarily be the entire durat ion of the subsidy
programme at issue. For instance, where modifications to a subsidy programme have been made,
consideration of a shorter time period for the assessment of disproportionality may be appropriate.
In particular, this may be the case in the c ontext of compliance proceedings, depending on the
characteristics and functioning of the subsidy programme at issue and the existence and the nature
of a measure taken to comply. We recall in this regard that the relevant question under Article 7.8
is whether the Member granting or maintaining the subsidy has taken appropriate steps to remove
the adverse effects of the subsidy or to withdraw the subsidy. Thus, in order to withdraw a subsidy
within the meaning of Article 7.8, "an implementing Member may be able to take action to align the
terms of the subsidy with a market benchmark, or to otherwise modify the terms of the subsidy such
that it no longer qualifies as a subsidy."520
5.196. We recall the European Union's contention that the Panel erred by interpreting t he term
"disproportionately large" to mean "something different in a compliance proceeding than it does in
an original proceeding", and to require, in the context of compliance proceedings, consideration only
of financial contributions expected "after the end of the implementation period". 521 The
European Union further argues that the Panel's interpretation would allow Members faced with
compliance obligations easily to circumvent their obligations under the SCM Agreement by
"manipulating" the appearance of specificity for a short time following the end of the implementation
period.522
5.197. With respect to these contentions by the European Union, we note our observation above
that the assessment of disproportionality under the third factor in the second sentence of
Article 2.1(c) does not necessarily have to be based on the entire duration of the subsidy
programme. In this light, we consider that the Panel cannot be said to have erred in its interpretation
of the term "disproportionately large" in Article 2.1(c) simply because it assessed disproportionality
on the basis of a time period shorter than the entire duration of the subsidy programme.
5.198. In light of the above, we find that the Panel did not err in its interpretation of Article 2.1(c)
of the SCM Agreement when co ncluding that the relevant period over which to consider
disproportionality is "after the end of the implementation period".
5.4.2.2 Whether the Panel erred in its application of Article 2.1(c) of the SCM Agreement
5.199. The European Union further alleges that the Panel erred in applying Article 2.1(c) of the
SCM Agreement "when it assessed specificity based on facts restricted to 'after the end of the
implementation period' and failed to consider data for the entire duration of the subsidy programme
in evaluating dispro portionality".523 According to the European Union, the Panel's finding on facts
involving a time period quite different from "the length of time during which the subsidy programme
has been in operation" constitutes an error in the application of Article 2.1(c).524
5.200. In the present case, the Panel decided to use in its assessment of disproportionality the
subsidy amounts (or tax abatements) granted after the end of the implementation period (i.e. from
2013 onwards), rather than those granted under the entirety of the subsidy programme since its

520 Appellate Body Report, EC and certain member States – Large Civil Aircraft (Article 21.5 – US),
para. 5.366. (emphasis added)
521 European Union's appellant's submission, paras. 180-181.
522 European Union's appellant's submission, para. 182.
523 European Union's appellant's submission, para. 186.
524 European Union's appellant's submission, para. 187.

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inception in 1979. The Panel reasoned that "{i}n this proceeding … the relevant financial contribution
is that which was granted after the end of the implementation period", and that, therefore, it is
concerned only with those tax abatements granted to Boeing from 2013 onwards.525 The Panel thus
contrasted the challenge in the original proceedings, where the measure before the panel was the
entirety of the subsidy received by Boeing since the inception of the IRB programme in 1 979, with
the challenge in these compliance proceedings, where the measure before the Panel was the
measure taken to comply notified by the United States. In this context, the question before us is
whether, in the specific situation of the present complian ce proceedings, the Panel erred in its
application of Article 2.1(c) in considering tax abatements provided to Boeing relating to less than
the entire duration of the subsidy programme.
5.201. We noted above that, in the context of compliance proceedings, it may be appropriate for a
panel to base its assessment of disproportionality under the third factor in the second sentence of
Article 2.1(c) on a time period different from the entire duration of the subsidy programme, in order
to assess whether, at the end of the reasonable period of time for compliance, the implementing
Member has taken appropriate steps to withdraw the subsidy. This should be analysed on a
case-by-case basis and will depend on the characteristics and functioning of the subsidy programme
at issue, as well as other relevant facts, including the existence and the nature of a measure taken
to comply.
5.202. The Panel explained its decision to focus on the post-implementation period in its assessment
of disproportionality with the fact that the relevan t financial contribution in these compliance
proceedings is different from that in the original proceedings. In other words, the Panel relied on the
nature of these compliance proceedings for its finding that the subsidy is no longer de facto specific.
We note that the Panel provided little explanation for this approach. For instance, the Panel did not
explain how, in the context of these compliance proceedings, it was warranted to base its assessment
on a period of time different from that of the original proceedings in light of the particular
circumstances of the case. Furthermore, although the Panel outlined the functioning of the IRB
subsidies, it did not clarify how its decision to limit its assessment to the timeframe after the end of
the implementation period related to the nature and functioning of the particular subsidy at issue.
5.203. At the same time, we recall that the subsidy measure in the present case consists of issuance
of IRBs to Boeing every year between 1979 and 2007. The subsidy thus has been d isbursed on a
regular and periodic basis. Furthermore, the structure of the subsidy is such that IRBs are used to
purchase property on which tax abatements are received for the following ten consecutive years.526
The Panel recognized this structure and assessed its specificity "by determining what percentage of
the total amount of IRBs provided from 2002 onwards was granted to Boeing and Spirit", i.e. the
amount of IRBs granted to Boeing and Spirit ten years before the end of the implementation
period.527 In this way, the Panel took into consideration in its analysis the ten -year lifetime of the
IRB subsidies.
5.204. Moreover, in its Compliance Communication, the United States advised that the City of
Wichita "has not provided any IRBs to Boeing since 2007". 528 The Panel concluded that "{b}y
reducing considerably the proportion of the subsidy programme received by Boeing after the end of
the implementation period, the United States has brought the measure into conformity with the
SCM Agreement because, as a non -specific-subsidy, the measure is no longer subject to the
provisions of Part III of the SCM Agreement."529 We note that, since the amounts of tax abatements
received by Boeing are directly proportionate to the amount of IRBs granted, these abatements
continuously dimi nished since 2007 , and in 2017 "Boeing {was} due to receive a single tax
abatement on Project Property purchased with IRB issuance in 2007." 530 Furthermore, Boeing
announced that it would close all of its Wichita operations by the end of 2013.531 While the Panel did

525 Panel Report, para. 8.634.
526 Thus, for Project Property purchased with IRBs granted in 2007, Boeing received ten annual tax
abatements from 2008 to 2017. (Panel Report, para. 8.632)
527 Panel Report, para. 8.365.
529 Panel Report, para. 8.639.
530 Panel Report, para. 8.632.
531 Panel Report, para. 8.617 (referring to A.G. Sulzberger, "Boeing Departure Shakes Wichita's Identity
as Airplane Capital", New York Times, 18 January 2012 (Panel Exhibit USA-338)).

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not elaborate on these aspects in its substantive assessment of the IRB subsidies, these facts are
pertinent to determining the relevant time period for the assessment of disproportionality.
5.205. In sum, while the Panel could have better explained the ch oice of the time period for
assessing whether disproportionately large amounts of IRBs were used by Boeing in determining the
existence of de facto specificity, the time period effectively used by the Panel does not appear
inappropriate in the particular c ircumstances of these compliance proceedings and specifically in
light of the nature and operation of the IRB subsidies, as well as of the nature of the alleged measure
taken to comply.
5.206. In any event, the Panel had to assess whether the total amount of IRBs issued indicates a
distribution of the subsidy that differs from the allocation that one would expect were the IRB
programme to be administered in accordance with its conditions of eligibility. In this regard, we draw
attention to the Panel's analysis and findings concerning the comparison between the expected and
actual distribution of the subsidy. The Panel noted that, based on the European Union's evidence,
from 2002 onwards, Boeing and Spirit received 32% of the total amount of IRBs issued, and that
this was considerably reduced from the percentage in the original proceedings, where the panel
found that Boeing and Spirit had received 69% of the total amount.532 Taking into account that the
IRB programme is open to any enterprises seeking to purchase, construct, or improve various types
of commercial or industrial property, and that, therefore, its availability is somewhat restricted to
entities with the capacity and inclination to make such investments, the Panel did not consider that
"Boeing and Spirit's receipt of 32% of the total amount of IRBs issued indicates a distribution of the
subsidy that is at odds with what one would expect were the IRB programme to be administered in
accordance with the SCM Agreement."533
5.207. With respect to the Panel's observation that the distribution of the IRB subsidy "is {not} at
odds with what one would expect were the IRB programme to be administered in accordance with
the SCM Agreement"534, we note that assessing disproportionality requires a panel to determine
"whether the actual allocation of the 'amounts of subsidy' to certain enterprises is too large relative
to what the allocation would have been if the subsidy were administered in accordance with the
conditions for eligibility for that subsidy as assessed under Article 2.1(a) and (b)". 535 The
Appellate Body has further stated that, where the granting of the subsidy indicates a disparity
between the expected distribution of that subsidy, as determined by the conditions of eligibility, and
its actual distribution, a panel will b e required to examine the reasons for that disparity so as
ultimately to determine whether there has been a granting of disproportionately large amounts of
subsidy to certain enterprises.536 Thus, the inquiry is directed at whether the allocation of the subsidy
is in accordance with its conditions of eligibility, rather than with the SCM Agreement.
5.208. We observe that, earlier in its analysis, the Panel correctly stated that "assessing whether
Boeing and Spirit have received a disproportionate amount of the subsidy should be based on the
amount of the tax abatements Boeing and Spirit have received, relative to the amount of tax
abatements that all other IRB recipients have received."537 In order to determine whether, regardless
of the discrepancies in the way t he Panel articulated the legal standard, it conducted a proper
analysis, we now turn to review the Panel's analysis with respect to the facts of the present case.
5.209. We note that in its analysis, the Panel mainly relied on the observation that Boeing and
Spirit's receipt of 32% of the total amount of IRBs was considerably lower than the 69% in the
original proceedings. It is true that the IRB programme is available to those enterprises with the
capacity to make investments in industrial and commercial property . In the original proceedings,
however, the Appellate Body found that, despite the fact that not all enterprises in Wichita would,
at any given time, wish to enjoy the benefits of IRBs with respect to property development, it "would
nonetheless expect that the allocation of such benefits over the 25 -year period between 1979 and
2005 would have produced a wider distribution of those benefits across different sectors of the

532 Panel Report, para. 8.636.
533 Panel Report, para. 8.637.
535 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 879. (emphasis added)
536 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 879.
537 Panel Report, para. 8.628.

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Wichita economy".538 On this basis, the Appellate Body concluded that the actual distribution of the
subsidy deviates materially from its expected distribution.539
5.210. We agree with the Panel that the percentage of IRBs issued to Boeing and Spirit since 2002,
namely 32%, is reduced from the original proceedings, where the panel found that Boeing and Spirit
had received 69% of the total amount of IRBs. However, this fact says little about the existence of
disproportionality under the third factor in the second sentence of Article 2.1(c). In itself, the fact
that Boeing and Spirit received 32% of the total amount of IRBs between 2002 and 2012 does not
answer the question of whether any disparity existed between the expected distribution of the
subsidy, as determined by the conditions of eligibility, and its actual distribution. The existence of a
disparity would depend, inter alia , on the extent of diversification of economic activities within
Wichita's economy, in line with the first factor of Article 2.1(c), third sentence. 540 The Panel,
however, did not engage in any such assessment and provided no explanation as to why 32% of the
total amount of IRBs received by Boeing and Spirit in a much shorter period of time than in the
original proceedings, namely between 2002 and 2012, does not reveal the existence of a disparity.
The Panel's only argument that " {t}he IRB programme remains open to any enterprises that seek
to purchase, construct, or improve various types of commercial or industrial property" and its
availability "is therefore somewhat restricted to entities with the capacity and inclination to mak e
such investments"541 does not explain why 32% of the IRBs does not reveal the existence of a
disparity. We therefore conclude that the Panel had no basis for finding whether any disparity existed
between the expected and actual distribution of the subsidy and that thereby the United States had
brought its measure into conformity with the SCM Agreement.
5.211. In light of the above, we find that the Panel erred in its application of Article 2.1(c) of the
SCM Agreement by providing insufficient reasoning for its con clusion that the distribution of the
subsidy was not "at odds with what one would expect were the IRB programme to be administered
in accordance with the SCM Agreement".542 We therefore reverse the Panel's finding , in
paragraphs 8.640 and 11.7.c.iii of the Panel Report, that the European Union has failed to establish
that the tax abatements provided through IRBs issued by the City of Wichita involve specific
subsidies within the meaning of Articles 1 and 2 of the SCM Agreement.
5.4.2.3 Whether the Panel failed to make an objective assessment under Article 11 of the
DSU
5.212. The European Union asserts that the Panel failed to undertake an objective assessment of
the matter, pursuant to Article 11 of the DSU, by inappropriately deviating from the findings of the
original panel and the Appellate Body. 543 According to the European Union, "{i}n interpreting or
applying Article 2.1(c), the Panel failed to take into account the intervening guidance provided by
the original panel and the Appellate Body"544 that requires con sideration of the "whole" subsidy
programme when assessing whether disproportionately large amounts of subsidy have been granted
to certain enterprises. 545 In this respect, the European Union relies on the Appellate Body's
statement that "doubts could arise about the objective nature of an Article 21.5 panel's assessment
if, on a specific issue, that panel were to deviate from the reasoning in the original panel report in
the absence of any change in the underlying evidence in the record."546
5.213. The United States considers that the European Union failed to establish that any deviation
from the reasoning of the original panel occurred. 547 In the United States' view, the original panel
itself recognized that specificity can be based on "a time period shorter than the l ife of the subsidy

538 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 884.
539 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 883-884.
540 Furthermore, in case a disparity was found to exist, any potential reasons for the existence of such
disparity would need to be assessed.
542 Panel Report, para. 8.637.
543 European Union's appellant's submission, para. 189.
544 European Union's appellant's submission, para. 195.
545 European Union's appellant's submission, paras. 190 (referring to Original Panel Report, paras. 7.755
and 7.757; Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 884 and 888-889).
546 European Union's appellant's submission, para. 193 (quoting Appellate Body Report, US – Softwood
Lumber VI (Article 21.5 – Canada), para. 103). (emphasis omitted)
547 United States' appellee's submission, para. 116.

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programme … if 'there has been a significant change in the structure of the economy and the
importance of the subsidized activities in the economy over the life of the subsidy'".548
5.214. Having reversed the Panel's finding that the European Union failed to establish that the tax
abatements provided through IRBs issued by the City of Wichita involve specific subsidies within the
meaning of Articles 1 and 2 of the SCM Agreement, we do not consider it necessary to examine
further the objectivity of the Panel's factual assessment in support of this finding.
5.4.2.4 Completion of the legal analysis
5.215. Having found that the Panel erred in its application of Article 2.1(c) of the SCM Agreement,
we now turn to the European Union's request that we complete the lega l analysis and find that the
subsidies provided to Boeing under the IRB programme are specific, and, thus, that the United States
has failed to withdraw these subsidies. 549 The European Union considers that we can complete the
analysis based on uncontested e vidence on the record to the effect that between 1979 and 2012
Boeing and Spirit received 59% of the subsidy, which represents an allocation at variance from what
would have been expected from the allocation of IRBs in accordance with their conditions of
eligibility.550
5.216. We note the European Communities' contention in the original proceedings that, in assessing
whether a subsidy granted to certain enterprises is "disproportionately large", some information
about Boeing, such as employment levels, should be com pared to comparable information relating
to the entire economy in the jurisdiction of the granting authority. By contrast, the United States
argued that such information about Boeing should be compared to information about the group of
recipients of the alleged subsidy.551 The original panel ultimately concluded that "there is a significant
disparity between the proportion of IRBs received by Boeing and Spirit and their place within the
goods sector of the economy, as indicated by the proportion of the sector they employ." 552 On
appeal, the Appellate Body disagreed with the approach taken by the original panel focusing on the
share of manufacturing employment of Boeing and Spirit, and it agreed with the United States that
"examining qualifying investments would have been a reasonable basis on which to show why the
69% figure does not indicate that IRB subsidies were granted in disproportionately large
amounts."553 However, the United States had not provided evidence explaining why Boeing and
Spirit had received over two thirds of the subsidy's benefits.554
5.217. The reasoning provided by the Appellate Body in upholding the panel's finding in the original
proceedings is instructive in the context of completion of the legal analysis in these compliance
proceedings. We recall that, in order to determine whether certain enterprises "are grant{ed}
disproportionately large amounts of subsidy" within the meaning of the second sentence of
Article 2.1(c), two things should be assessed: (i) whether the granting of the subsidy indicate s a
disparity between the expected distribution of that subsidy, as determined by the conditions of
eligibility, and its actual distribution, and (ii) what the reasons that might explain this disparity are,
with a view to determining whether there has been a granting of disproportionately large amounts
of subsidy to certain enterprises.555
5.218. Above, we found that the Panel erred in its application of Article 2.1(c) in concluding that
Boeing and Spirit's receipt of 32% of the total amount of IRBs issued since 200 2 does not indicate
a distribution of the subsidy that is at odds with what one would expect were the IRB programme to

548 United States' appellee's submission, para. 116 (quoting European Union's appellant's submission,
549 European Union's appellant's submission, para. 197.
550 European Union's appellant's submission, paras. 198 and 201.
551 Original Panel Report, para. 7.759.
552 Original Panel Report, para. 7.769. Boeing and Spirit received 69% of the IRBs that included tax
abatements issued between 1979 and 2005, but Spirit, after it acquired Boeing's LCA operations in Wichita,
accounted for 3.5% of total employment or 16% of manufacturing employment in Wichita. Furthermore, even
though Boeing's employment levels during most of the period over which the IRBs were issued were double
those of Spirit, the Panel considered that 32% of manufacturing employment was still disproportionate to a
ratio of 69%. (Ibid.)
553 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 887.
554 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 886-887.
555 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 879.

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be administered in accordance with the conditions of eligibility for the subsidy. However, we also
found that the Panel did not err in ba sing its assessment of disproportionality in these compliance
proceedings on a time period shorter than the entire duration of the IRB subsidy programme. In
completing the legal analysis, we can therefore rely on the same facts the Panel relied on in its
assessment of disproportionality.
5.219. The first question before us is whether this allocation of the subsidy indicates a disparity
between the expected distribution of that subsidy, as determined by the conditions of eligibility, and
its actual distribution. In the original proceedings, the panel found that Boeing and Spirit had
received 69% of all IRBs that included property tax abatements. The Appellate Body considered that
a wide distribution of the benefits across various sectors of the Wichita economy is to be expected
on the basis of the conditions of eligibility for IRBs. 556 The Appellate Body reasoned that "{e}ven
taking into account the fact that not all enterprises in Wichita would, at any given time, wish to
enjoy the benefits of IRBs in respect of prope rty development, we would nonetheless expect that
the allocation of such benefits over the 25-year period between 1979 and 2005 would have produced
a wider distribution of those benefits across different sectors of the Wichita economy."557
5.220. Turning to the present compliance proceedings, we note that Boeing and Spirit received 32%
of the total amount of IRBs issued from 2002 onwards. While the IRB programme is available to
enterprises with the capacity to make the required investments in industrial and commerci al
property, and while the percentage of IRBs issued to Boeing and Spirit since 2002 is reduced from
the original proceedings (69%), we have no specific information on record that would permit us to
evaluate whether this actual distribution of the subsidy is at odds with its expected distribution in
light of the conditions of eligibility. Specifically, while the receipt of 69% of all IRBs over the entire
duration of the IRB subsidy clearly reflects an actual distribution that "deviates materially from the
expected distribution of that subsidy"558 in light of its conditions of eligibility, the receipt of 32% of
the subsidy in the relevant time period of these compliance proceedings may or may not represent
such deviation, depending, inter alia, on the diversification of Wichita's economy.
5.221. Furthermore, even if we were to find the existence of a disparity, the second question before
us would then be whether there are any reasons that explain the existence of that disparity between
the actual and expected distributions of the subsidy. In the original proceedings, the Appellate Body
explained that, in view of the conditions of eligibility for the IRB subsidy, examining qualifying
investments would have been a reasonable basis on which to show why one company and its
successor received over two thirds of the subsidy's benefits over a 25-year period.559 In this respect,
however, there is no data on record as to the percentage of companies that funded, constructed, or
improved industrial and/or commercial property within Wichita's economy during the relevant period
of time (i.e. those companies that actually made investments in such property and could potentially
benefit from the IRB subsidy), or to the diversification of Wichita's economy, namely the qualifying
investments of the companies that made investments in industrial and commercial property, and
what percentage of those investments came from companies that focused on aircraft production.
5.222. In light of the above and in the absence of sufficient factual findings by the Panel or
undisputed facts on the Panel record, we are unable to complete the legal analysis in relation to the
European Union's claim that the Panel erred in its application of Article 2.1(c) of the SCM Agreement.
5.4.2.5 Conclusion
5.223. In sum, the length of time during which the subsidy programme has been in operation must
be taken into account by panels in their assessment of specificity under Article 2.1(c) of the
SCM Agreement. However, it does not follow from this that the entire period during which the
programme has been in operation has necessarily to be chosen as the relevant time period in
determining whether, under the second sentence of this provision, disproportionately large amounts
of subsidy have been granted to certain enterprises.

556 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 883.
557 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 884.
558 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 883.
559 See Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 887.

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5.224. We therefore find that the Panel did not err in its interpretation of Article 2.1(c) of the
SCM Agreement in concluding that , in the specific circumstances of this case, the relevant time
period over which to consider disproportionality was as from the end of the implementation period.
5.225. With respect to the Panel's application of Article 2.1(c) of the SCM Agreement, we find that
the Panel erred in finding that no disparity existed between the expected and actual distribution of
the subsidy.
5.226. We therefore reverse the Panel's fin ding, in paragraphs 8.640 and 11.7.c.iii of the
Panel Report, that the European Union has failed to establish that the tax abatements provided
through IRBs issued by the City of Wichita involve specific subsidies within the meaning of Articles 1
and 2 of the SCM Agreement. We also find that there are insufficient factual findings by the Panel or
undisputed facts on the Panel record for us to complete the legal analysis in this respect. Having
reversed the Panel's finding, we do not consider it necessary to address whether, in addition, the
Panel acted inconsistently with Article 11 of the DSU.
5.4.3 The Panel's findings concerning economic development bonds
5.227. The European Union claims that the Panel erred in the interpretation of the terms "limited
number", "certain enterprises", and "predominant" in the second sentence of Article 2.1(c) of the
SCM Agreement.560 The European Union further submits that the Panel erred in the application of
Article 2.1(c), by including EDBs issued to public entities in its evaluation of whether the EDBs were
used by a "limited number of certain enterprises". 561 Finally, the European Union alleges that the
Panel failed to make an objective assessment under Article 11 of the DSU of the factors in the third
sentence of Article 2.1(c).562 The United States submits that the Panel's specificity findings relating
to EDBs were based on a correc t interpretation and application of Article 2 of the SCM Agreement
and on an objective assessment of the evidence, consistent with Article 11 of the DSU.563
5.228. We begin by noting that, before the Panel, the European Union alleged that several
South Carolina state and local measures in connection with the production and assembly of 787s in
North Charleston are specific subsidies to Boeing. These measures were adopted pursuant to Project
Gemini and Project Emerald. In particular, with regard to P roject Gemini, the European Union
challenged the:
Provision of facilities and infrastructure at the Charleston International Airport site, as
provided for in the Project Gemini Agreement between Boeing and the State of
South Carolina, dated 1 January 2010, funded through state general obligation bonds
issued pursuant to Title 11, Chapter 41 of the S.C. Code, as amended by Section 5 of
H3130, Act No. 124, 2009 S.C. Acts 1092 (H3130), and S.C. Code § 55 -11-520, at no
cost to Boeing.564
5.229. As a matter of background , when Boeing considered potential locations for its second 787
final assembly and delivery line, South Carolina legislators proposed an incentive package that
included US$170 million in government bonds , the elimination of Boeing's state corporate income
taxes, and sales tax exemptions for computers, fuel for test flights, and construction materials and
equipment.565 On 28 October 2009, Boeing announced that it had decided to locate the second 787
assembly line (the Project Gemini facilities and infrastructu re) at the same site as its recently
acquired North Charleston 787 fuselage fabrication and integration complex (the Project Emerald
facilities and infrastructure). Also on 28 October 2009, the South Carolina General Assembly passed
an act that was signed into law on 30 October 2009 (H3130), which amended several South Carolina
laws in order to: (i) authorize the issuance of additional general EDBs up to US$170 million aggregate
principal amount; (ii) authorize an agreement to apportion the income of taxpayers either planning
a new facility in the state, or expanding an existing facility, conditional on the taxpayer investing at
least US$750 million in a single county and creating at least 3,800 new full-time jobs in the county;

560 European Union's appellant's submission, para. 224.
561 European Union's appellant's submission, para. 224.
562 European Union's appellant's submission, para. 224.
563 United States' appellee's submission, para. 9.
565 Panel Report, para. 8.708 (referring to A. Shain, "S.C. traveled a long road to land Boeing", Charlotte
Observer, Charlotte, NC, 1 November 2009 (Panel Exhibit EU-9)).

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and (iii) exempt from sales and use tax aircraft fuel, computer equipment, and construction materials
where the taxpayer invests at least US$750 million in a single county and creates at least 3,800 new
full-time jobs in the county.566
5.230. Under the Project Gemini Agreement, dated 1 January 2010, South Carolina committed to
issue a total of US$220 million in state EDBs to offset the costs of infrastructure associated with the
project and a total of US$50 million in air hub bonds to offset the costs associated with air carrier
hub terminal facilities that Boeing agreed to operate in support of the project. 567 In return, Boeing
agreed to make a new investment in real and personal property of US$750 million (the minimum
investment requirement) and to employ 6,000 employees in the state ( the minimum job
requirement) within a specified period. If those requirements are not met during the applicable time
period, Boeing will be obligated to reimburse the State of South Carolina. 568 The Project Gemini
Agreement procedures provided that Boeing enter into c ontracts to construct infrastructure and
facilities, pay the invoices, and then submit the invoices to South Carolina for reimbursement.569
5.231. The Panel found that the payments made by South Carolina to Boeing pursuant to the
Project Gemini Agreement involve a financial contribution and confer a benefit.570 In the context of
specificity, the Panel considered that the European Union had not offered sufficient reasoning to
establish that the Project Gemini incentive package is explicitly limited to certain enterprises within
the meaning of Article 2.1(a) of the SCM Agreement.571 The European Union further argued that the
transfer of bond proceeds is specific within the meaning of Article 2.1(c) on the grounds that it had
been used only by a limited number of enterprise s and that Boeing and its suppliers had been the
predominant users of the subsidy.572
5.232. With regard to the factor "limited number of certain enterprises" in Article 2.1(c) of the
SCM Agreement, the Panel noted that the evidence before it indicated that since t he adoption of
South Carolina legislation authorizing the issuance of EDBs in 2002, South Carolina had issued such
bonds for BMW (in 2003 in the amount of up to US$105 million)573, the Project Emerald companies
(in 2004 in the amount of up to US$160 million), and Boeing (in 2010 in the amount of up to
US$220 million).574 In addition, EDBs had been issued to three public entities in 2005, namely, the
City of Greenville, the City of Myrtle Beach, and Trident Technical College, in the amount of up to
US$7 million each.575 The Panel found that the European Union had provided "no reasoning as to
why, in light of the level of diversification in the South Carolina economy and the duration of the
economic development bond scheme, the grant of economic development bond pro ceeds to BMW,
the Project Emerald companies and Boeing amounts to use by a limited number of enterprises".576
5.233. With respect to the factor of "predominant use by certain enterprises" in Article 2.1(c), the
Panel noted the original panel's finding that predominant use "requires consideration of whether the

566 Panel Report, para. 8.709 (referring to Act No. 124 (H3130) (30 October 2009), South Carolina Code
(Panel Exhibit EU-466)).
567 Panel Report, para. 8.765 (referring to Project Gemini Agreement between The Boeing Company and
the State of South Carolina (1 January 2010) (Project Gemini Agreement) (Panel Exhibit EU-467),
Articles II(A)and II(B), p. 3).
568 Project Gemini Agreement (Panel Exhibit EU-467), Article II, p. 3. See also Panel Report,
para. 8.688.
569 Panel Report, para. 8.766.
570 Panel Report, paras. 8.813 and 8.823.
571 Panel Report, para. 8.835.
572 Panel Report, para. 8.837 (referring to European Union's first written submission to the Panel,
573 Panel Report, para. 8.838 (referring to United States' response to the Panel's request for information
pursuant to Article 13 of the DSU, dated 28 February 2013, response to Panel question No. 67, para. 150;
Letter dated 23 July 2012 from the South Carolina State Budget and Control Board regarding a Freedom of
Information Act Request (Panel Exhibit EU-490), p. 1; Letter dated 31 July 2012 from the South Carolina State
Budget and Control Board regarding a Freedom of Information Act Request Supplement (Panel Exhibit
EU-491)).
574 Panel Report, para. 8.838 (referring to Letter dated 23 July 2012 from the South Carolina State
Budget and Control Board regarding a Freedom of Information Act Request (Panel Exhibit EU-490), p. 1).
575 Panel Report, para. 8.838 (referring to Letter dated 23 July 2012 from the South Carolina State
Budget and Control Board regarding a Freedom of Information Act Request (Panel Exhibit EU-490), p. 1).
576 Panel Report, para. 8.839.

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subsidy programme in issue is mainly or most frequently used by 'certain enterprises'".577 The Panel
then noted the European Union's argument that Boeing and its suppliers have been the predominant
users of the subsidy, benefiting from US$390 million of a total US$495 million in EDBs and air hub
bonds, or 79% of the bonds by value.578 However, the Panel considered that this information did not
show that the EDB scheme had mainly or most frequently been used by certain enterprises. Whereas
the information could be relevant to an argument that a disproportionately large amount of subsidy
had been granted to certain enterprises, the European Union had not made this argument.
Therefore, the Panel could not take the info rmation into account without confounding the factor
"predominant use by certain enterprises" with the factor "the granting of disproportionately large
amounts of subsidy to certain enterprises".579
5.234. Furthermore, the Panel rejected the European Union's contention that the specificity analysis
under Article 2.1(c) should not include EDBs issued for public entities, such as cities or public
colleges, because specificity must be assessed with respect to enterprises and industries. For the
Panel, the fact that EDBs have been issued to public entities, namely two cities and a public college,
in addition to private entities, suggested that the scheme was not limited to "certain enterprises"
within the meaning of Article 2.1(c).580 Ultimately, the Panel concluded that th e European Union
failed to establish that the subsidy provided by South Carolina through EDB proceeds to compensate
Boeing for part of the cost of constructing the Project Gemini facilities is specific within the meaning
of Article 2.1 of the SCM Agreement.581
5.4.3.1 Whether the Panel erred in its interpretation of the term "limited number" in
Article 2.1(c) of the SCM Agreement
5.235. The European Union alleges that the Panel erred in its interpretation of the phrase "limited
number of certain enterprises" in Article 2.1(c) of the SCM Agreement, insofar as the Panel's
interpretation precluded the possibility that a group of three enterprises would constitute a "limited
number".582 According to European Union, the Panel's finding that air hub bonds were used by a
"limited number of certain enterprises" because they were granted to only one enterprise, Boeing,
while EDBs, which were granted to only three enterprises, were not so "limited" reflects an
interpretation of "limited number" to mean "one" or, at least, "fewer than three".583
5.236. The United States responds that the Panel did not find that the terms "limited number" could
never refer to three, but instead found that, in the circumstances of this case, the European Union
had failed to explain why the grant of the subsidy to thr ee particular companies showed that the
subsidy was de facto specific.584
5.237. Above, we observed that the term "limited number" in the first factor of Article 2.1(c),
second sentence, suggests an inquiry into whether the enterprises or industries so particulariz ed
constitute a quantitatively limited group. Furthermore, the concept of "limitation" in
subparagraph (c), as opposed to in subparagraphs (a) and (b), directs the inquiry specifically
towards whether the users of the subsidy programme are small or restric ted in number. For the
reasons explained above, what constitutes a quantitatively limited group of enterprises must be
determined on a case-by-case basis, taking into account the particular characteristics of the subsidy
programme and the prevailing circumstances of the case; such an analysis also has to take account
of the factors in the third sentence of Article 2.1(c), namely, "the extent of diversification of
economic activities within the jurisdiction of the granting authority, as well as of the length of time
during which the subsidy programme has been in operation".
5.238. Turning to the facts of the present case, we note the European Union's contention that the
Panel's reasoning in the context of its analysis of the EDBs and air hub bonds under Article 2.1(c)
reflects an implicit interpretation of the terms "limited number" as meaning "'one' – or, at least,

577 Panel Report, para. 8.840 (quoting Original Panel Report, paras. 7.746-7.747).
578 Panel Report, para. 8.840 (referring to European Union's first written submission to the Panel,
para. 585 and fn 1377 thereto).
579 Panel Report, para. 8.840.
580 Panel Report, para. 8.841.
581 Panel Report, para. 8.843.
582 European Union's appellant's submission, para. 231.
583 European Union's appellant's submission, para. 226.
584 United States' appellee's submission, para. 129.

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fewer than three'".585 We further note that, according to the Panel, the evidence before it indicated
that, since the adoption of its legislation authorizing the issuance of EDBs in 2002, South Carolina
had issued EDBs for BMW, the Project Emerald companies, and Boeing. 586 In addition, EDBs had
been issued to certain public entities, namely the City of Greenville, the City of Myrtle Beach, and
Trident Technical College.587 The Panel took the view that the European Union "failed to establish
that the transfer of funds to Boeing through economic development bond proceeds is specific within
the meaning of Article 2.1(c) because it is used by a limited number of cert ain enterprises".588 In
particular, the Panel found that the European Union provided "no reasoning as to why, in light of the
level of diversification in the South Carolina economy and the duration of the economic development
bond scheme, the grant of econom ic development bond proceeds to BMW, the Project Emerald
companies and Boeing amounts to use by a limited number of enterprises".589
5.239. In the context of its analysis under Article 2.1(a) of the SCM Agreement, the Panel
considered that whether the subsidy is specific should be determined on the basis of the text of the
relevant legislative framework relating to the issuance of EDBs, rather than, as the European Union
argued, based on the individual resolutions adopted by South Carolina authorizing the issuance o f
the EDBs.590 In this regard, Section 11-41-40 of the South Carolina Code provides that EDBs can be
used to fund financing for infrastructure. 591 In order for EDBs to be issued, the South Carolina
Department of Commerce must notify the Joint Bond Review Committee and the State Budget and
Control Board that the related infrastructure project meets certain requirements, including a
minimum investment and contribution to employment. 592 In this context, "economic development
project" is defined as "a project in this State as defined in Section 12-44-30(16) in which a total of
at least {US$400 million} is invested in the project by the sponsor and at least {400} new jobs are
created at the project by the sponsor".593
5.240. As noted above, the meaning of a quantitatively limited group should be determined ,
inter alia, in light of the factors in Article 2.1(c), third sentence, that require panels to take account
of "the extent of diversification of economic activities within the jurisdiction of the granting authority,
as well as of the length of time during which the subsidy programme has been in operation". While
the import of these factors in any given case would depend on the particular circumstances at issue,
they constitute important considerations that have to form part of a panel's assessment of de facto
specificity, together with any other pertinent factors. Therefore, to the extent that the two factors
in the third sentence of Article 2.1(c) form part of the legal test under that provision, it would be for
the European Union to provide evidence in making a prima facie case. Moreover, we observed that

585 European Union's appellant's submission, para. 226.
586 Panel Report, para. 8.838 (referring to United States' response to the Panel's request for information
pursuant to Article 13 of the DSU, dated 28 February 2013; response to Panel question No. 67, para. 150;
Letter dated 23 July 2012 from the South Carolina State Budget and Control Board regarding a Freedom of
Information Act Request (Panel Exhibit EU-490), p. 1; Letter dated 31 July 2012 from the South Carolina State
Budget and Control Board regarding a Freedom of Information Act Request Supplement (Panel Exhibit
EU-491)).
587 Panel Report, para. 8.838 (referring to Letter dated 23 July 2012 from the South Carolina State
Budget and Control Board regarding a Freedom of Information Act Request (Panel Exhibit EU-490), p. 1).
588 Panel Report, para. 8.839.
589 Panel Report, para. 8.839.
590 Panel Report, para. 8.830.
591 Panel Report, para. 8.832. "Financing for infrastructure" includes land acquisition, site preparation,
road and highway improvements, water service, wastewater treatment, employee training, environmental
mitigation, training and research facilities, and building associated with an air hub facility or located on
government land. (Ibid., fn 1943 to para. 8.685)
592 Panel Report, fn 1943 to para. 8.685. After approval by the Joint Bond Review Committee, the State
Budget and Control Board adopts a resolution issuing the bonds. EDBs are backed by the full faith, credit, and
taxing power of the State of South Carolina. The monetary value of EDBs that the State may issue depends on
the provision under which the State issues the bonds. (Panel Report, fn 1943 to para. 8.685)
593 Panel Report, para. 8.832 (quoting State General Obligation Economic Development Bond Act,
South Carolina Code, Title 11, Chapter 41 (Panel Exhibit EU-477), Section 11-41-30). The South Carolina
General Assembly Act No. 124 (H3130) of 30 October 2009 amended several South Carolina laws and, in
particular, provided for the authorization to issue additional general obligation EDBs in an aggregate principal
amount that does not exceed US$170 million. (Ibid., para. 8.685) Thereafter, on 1 January 2010, Boeing and
South Carolina concluded the Project Gemini Agreement, under which South Carolina committed to issue,
inter alia, a total of US$220 million in state EDBs to offset the costs of infrastructure associated with Project
Gemini. Boeing in return committed to "attain the Minimum Job requirement and the Minimum Investment
requirement". (Ibid., para. 8.765 (quoting Project Gemini Agreement (Panel Exhibit EU-467), Article II, p. 3))

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where a panel's assessment proceeds from Article 2.1(a) and (b) to Article 2.1(c), the panel's
analysis under subparagraph (c) would normally build upon the relevant legi slative framework
examined under Article 2.1(a) and (b).
5.241. In the present case, based on the de jure conditions of eligibility for the subsidy, namely the
relevant provisions of the South Carolina Code, EDBs may be issued only to companies complying
with the minimum investment and employment requirements. That means that companies eligible
to receive EDBs are those prepared to invest at least US$ 400 million in an economic development
project and create at least 400 new jobs. 594 We observe that the eligibility r equirements under the
subsidy programme appear to be onerous. With respect to the legislation setting out these
requirements, the Panel found that "{t}here is no provision in South Carolina law limiting access for
funds raised through economic development bonds … to certain enterprises", and "none of the
individual pieces of legislation pursuant to which the bonds are issued limit access to certain
enterprises."595 In these circumstances, the question before the Panel under Article 2.1(c) was
whether, notwithstanding the appearance of non -specificity resulting from the application of the
principles in Article 2.1(a), there were reasons to believe that the subsidy may in fact be specific by
virtue of the subsidy programme being used by a limited number of certa in enterprises. In these
circumstances, it was for the European Union to provide evidence demonstrating that the actual
allocation of the subsidy differs from an allocation that would have been expected if the subsidy
were administered in accordance with i ts conditions of eligibility, as well as in light of the
diversification of South Carolina's economy and the length of time during which the subsidy was in
operation.
5.242. The Panel did not elaborate on the reasons for rejecting the European Union's claim that the
EDB subsidy had been used by a limited number of certain enterprises. In particular, the Panel did
not explicitly set out its understanding of the term "limited number" in Article 2.1(c). However, we
also do not see that the European Union gave specifi c reasons in support of its argument. In its
written submissions before the Panel, in the context of Article 2.1(c), the European Union argued
that "{t}his form of subsidy has been utilized by only a limited number of enterprises", insofar as
"{o}ther than Boeing, economic development bonds have been issued to support projects by private
firms on only two occasions: 1) in 2003 for a new BMW manufacturing facility ($105 million), and
2) in 2004 for Project Emerald ($120 million)."596 The United States, by contrast, submits that:
BMW, the Project Emerald companies, and Boeing are among the largest employers in
the State of South Carolina. As of early 2008, BMW employed 5,400 full -time
equivalents in South Carolina. The Project Emerald companies committed to inve st
$450 million in Project Emerald and employ 745 people in South Carolina. In addition,
Boeing was the largest employer in South Carolina, with 6,000 employees and Boeing
had invested a total of [BCI] in infrastructure in the state.597
5.243. In light of these arg uments, the Panel's conclusion reflects an understanding that the
granting of the subsidy to only three companies does not necessarily demonstrate that the subsidy
was used by a "limited number" of certain enterprises within the meaning of the first factor in
Article 2.1(c), second sentence. First, we note that the recipients of the subsidy are not all from the
same sector of the economy. Furthermore, there are no indications that, in light of the eligibility
requirements under the subsidy scheme and the di versification of economic activities within
South Carolina or the length of time during which the subsidy has been in operation, the actual
allocation of the subsidy differed from its expected allocation. The European Union did not argue,
for instance, that other enterprises within South Carolina's economy could have potentially met the

594 Panel Report, para. 8.832.
595 Panel Report, para. 8.831 (referring to United States' first written submission to the Panel,
para. 626).
596 European Union's first written submission to the Panel, para. 585. (fns omitted) In its second written
submission to the Panel, the European Union simply referred back to this reasoning. (See European Union's
second written submission to the Panel, para. 770)
597 United States' appellee's submission, para. 122 (referring to Project Emerald Confidential Site
Development and Incentive Agreement (2006) (Panel Exhibit EU-550), Exhibit B; Douglas P. Woodward &
Paulo Guimarães, BMW in South Carolina: The Economic Impact of a Leading Sustainable Enterprise
(September 2008) (Panel Exhibit USA-188), pp. 2 and 9-10; Boeing Investment in South Carolina
(2010-3Q2012) (Panel Exhibit USA-324) (BCI); Charleston S.C. MSA Largest Manufacturing Employers,
Charleston Regional Development Alliance (February 2013) (Panel Exhibit USA-335)). (fns omitted) See also
United States' first written submission to the Panel, para. 632.

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requirements to receive EDBs but were not granted the subsidy during the ten years of operation of
the subsidy programme. It may well be that, depending on the diversificati on of South Carolina's
economy, only a small number of companies were ready to make the necessary investments and
create the required number of jobs, and therefore be able to satisfy the legal conditions for access
to the EDB subsidy. Thus, given the specific de jure conditions of eligibility under the EDB scheme,
the small number of enterprises to which EDBs were issued between 2002 and 2012 would not
necessarily reflect "use of a subsidy programme by a limited number of certain enterprises" within
the meaning of Article 2.1(c). The European Union has also not demonstrated that other enterprises,
outside South Carolina's economy, have applied for the subsidy but have not been considered
eligible, or that there are other reasons to believe that the actual al location of the subsidy renders
it de facto specific.
5.244. Therefore, as we understand it, in stating that "{t}he European Union provides no reasoning
as to why, in light of the level of diversification in the South Carolina economy and the duration of
the economic development bond scheme, the grant of economic development bond proceeds to
BMW, the Project Emerald companies and Boeing amounts to use by a limited number of
enterprises"598, the Panel has not implicitly interpreted the term "limited number" as "one" or "fewer
than three".599 Rather, we understand the Panel to have considered that the European Union has
not met its burden of proof in demonstrating that, in the circumstances of the present case, the EDB
subsidy has been used by a limited number of certain enterprises within the meaning of the first
factor in Article 2.1(c), second sentence.
5.245. The European Union also argues that it presented evidence on EDBs and air hub bonds
jointly, but the Panel found fault with its reasoning on why the bonds were used by a limited number
of certain enterprises, in light of the diversification of South Carolina's economy and the duration of
the bond scheme, only in the context of EDBs. According to the European Union, "{t}his suggests
that the motivating factor behind the P anel's decision was the fact that three enterprises received
EDBs, whereas only one enterprise received air hub bonds."600
5.246. The Panel found that the European Union established that the grant of air hub bond proceeds
to Boeing is specific within the meaning of Article 2.1(c), in the sense that the use of the subsidy
programme is limited to certain enterprises. The Panel's reasoning was based on the undisputed fact
that "air hub bonds have only been issued to Boeing during the almost three-decade long existence
of the scheme", which was "unsurprising since the evidence before the Panel suggests that only
Boeing meets the requirements to benefit from air hub bond proceeds, namely to be the operator of
an 'air carrier hub terminal facility' as defined in the South Carolina Code".601
5.247. As we see it, the Panel's finding with regard to the air hub bonds was not based simply on
the fact that these bonds were granted only to Boeing. Instead, it was made in light of the specific
language in the South Carolina Code that appeared, de facto, to restrict the eligibility for those bonds
to an enterprise with Boeing's specific profile. We do not consider that the Panel's reasoning in this
context translates into an implicit interpretation of "limited number of certain enterprises" a s "just
one (or two) enterprise(s)", as alleged by the European Union. 602 Instead, in our view, the
statements that the Panel made in applying the law to the facts of the present case do not suggest
that the Panel considered that three or more enterprises co uld not constitute a "limited number"
within the meaning of Article 2.1(c).
5.248. In view of the above, we find that the Panel did not err in its interpretation of the phrase
"limited number of certain enterprises" in Article 2.1(c) of the SCM Agreement by implicitly
interpreting the term "limited number" as referring to "one" or "fewer than three" entities.

598 Panel Report, para. 8.839.
599 European Union's appellant's submission, para. 226.
600 European Union's appellant's submission, para. 228.
601 Panel Report, para. 8.842.
602 European Union's appellant's submission, para. 228.

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5.4.3.2 Whether the Panel erred in its interpretation and application of the term "certain
enterprises" in Article 2.1(c) of the SCM Agreement
5.249. The European Union further argues that the Panel erred in interpreting the term "certain
enterprises" in Article 2.1(c) of the SCM Agreement as encompassing public entities, such as cities
and public colleges. The European Union asserts that the Appellate Body Report in US – Washing
Machines stands for the proposition that the term "certain enterprises" encompasses only private
entities, i.e. business firms or companies involved in commercial transactions and engagements.603
Since public entities do not quali fy as "certain enterprises", they should be omitted from the
specificity analysis. 604 Moreover, the European Union alleges that issuance of funds within the
government or between different levels of government should not be considered a financial
contribution, to the extent that Article 1.1(a)(1), by its text, concerns "a financial contribution by a
government or any public body", not a financial contribution to a government.605 Furthermore, since
subparagraphs (a)-(c) of Article 14 of the SCM Agreement indicate that a recipient of a subsidy is
understood to be a non -governmental entity, a government cannot be the recipient of a benefit
either.606 The European Union also submits that the Panel erred in its application of Article 2.1(c) by
including in its specificity analysis EDBs provided to public entities, such as cities and public colleges,
which are not "enterprises" within the meaning of Article 2.1.607
5.250. The United States disagrees with the European Union that the Panel found public entities
that received the su bsidy at issue to be "enterprises". Rather, according to the United States, the
Panel found that the receipt of the subsidy by three public entities "suggests that the scheme is not
limited to 'certain enterprises' within the meaning of Article 2.1(c)". 608 The United States thus
contends that if a subsidy is granted to entities that are not "certain enterprises" as defined in the
chapeau to Article 2.1 – regardless of whether those entities are themselves enterprises – this
weighs against a finding of de facto specificity.609 In the United States' view, the European Union
fails to address this point.
5.251. As noted above, the term "enterprises" in the first factor of Article 2.1(c), second sentence,
refers to a single enterprise or industry or a class of enterprises o r industries that are known and
particularized. Whereas "enterprise" can be defined as "{a} business firm, a company" or an "activity
undertaken with an economic or commercial end in view"610, "industry" signifies "{a} particular form
or branch of productive labour; a trade, a manufacture". 611 In any event, the concept of "certain
enterprises" involves a certain amount of indeterminacy at the edges, and any determination of
whether a number of enterprises or industries constitute "certain enterprises" has to be made on a
case-by-case basis.
5.252. The European Union's appeal raises the question of how to define the contours of
"enterprises" in the sense of Article 2.1(c). In our view, read together, the above definitions indicate
that the term "enterprise" in Article 2.1 can be interpreted as an entity that engages in certain
activities of a business or commercial nature. The term "enterprise" thus refers to an entity that
conducts certain economic activities in the market. The reference to "an enterprise or industry or
group of enterprises or industries" also suggests that the terms of the provision relate primarily to
the type of activity carried out by the entity and do not necessarily limit the scope of entities based
on whether they are publicly or privately owned. The understanding that ownership is not dispositive
of the definition of "enterprise" finds support also in the third sentence of Article 2.1(c), which
requires that account be taken of "the extent of diversification of economic activities within the

603 European Union's appellant's submission, para. 236.
604 European Union's appellant's submission, para. 237.
605 European Union's appellant's submission, para. 238. (emphasis added by the European Union)
606 European Union's appellant's submission, para. 238.
607 European Union's appellant's submission, para. 250.
609 United States' appellee's submission, para. 131.
610 Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China), para. 373 (quoting
Shorter Oxford English Dictionary, 6th edn, A. Stevenson (ed.) (Oxford University Press, 2007), Vol. 1, p. 841).
611 Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China), para. 373 (quoting
Shorter Oxford English Dictionary, 6th edn, A. Stevenson (ed.) (Oxford University Press, 2007), Vol. 1,
p. 1371).

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jurisdiction of the granting authority"612, thereby confirming the focus of Article 2.1 on activities that
are economic in nature.
5.253. Turning to the relevant context for the interpretation of the term "enterprise" in Article 2.1,
we note that Article 1 sets out the definition of a subsidy for purposes of the SCM Agreement.
According to the chapeau of Article 2.1, the analysis of specificity must relate to the measure that
has been determined to constitute a subsidy under Article 1.1 in terms of financial contribution and
benefit.613 However, Article 1.1(a)(1) describes the types of financial contributions by reference to
the specific governmental action of granting the subsidy, and not the nature or activities of the entity
receiving the contributions. Thus, in defining the circumstances in which "a subsidy shall be deemed
to exist", Article 1.1 does not specifically address the scope of recipients of these financial
contributions.
5.254. In light of the above, we consider that the determination of whether a number of enterprises
or industries constitute "certain enterprises" within the meaning of Article 2.1(c) should be made in
light of all relevant characteristics of the entities concerned, including the nature and purpose of
their activities in the markets in question and th e context in which these activities are exercised.
The ownership of the entity may be a relevant factor but is not determinative of whether an entity
qualifies as an "enterprise" for purposes of Article 2. The organization of the Member's national
economy and the classification of these activities in its legal order may also constitute relevant
considerations in determining whether the activities examined are of economic character.
5.255. Turning to the Panel's analysis of the term "certain enterprises", we recall that, since the
adoption of South Carolina legislation authorizing the issuance of EDBs in 2002, such bonds have
been issued to BMW, the Project Emerald companies, and Boeing, as well as to certain public entities,
namely the City of Greenville, the City of Myrtle Beach, and Trident Technical College.614 Before the
Panel, the European Union took the view that the subsidy provided by South Carolina through EDBs
for the funding of Project Gemini facilities and infrastructure is de facto specific because it has been
used only by a limited number of enterprises, and Boeing and its suppliers have been the
predominant users.615 In this regard, the European Union argued that because specificity is assessed
with respect to enterprises and industries, the European Union does not include EDBs issued for
public entities, such as cities or public colleges.616
5.256. In its analysis, the Panel referred to the European Union's contention regarding the relevance
of the three public entities at issue to the Panel's specificity analysis, and considered that "precisely
the fact that economic development bonds can be and have been issued to public entities, namely
two cities and a public college, in addition to private entities, suggests that the scheme is not limited
to 'certain enterprises' within the meaning of Article 2.1(c)."617 It is not entirely clear what the Panel
meant when making this statement. On the one hand, the fact that a subsidy has been granted to
both public and private entities may be potentially relevant to an assessment of de facto specificity,
to the extent that all of these entities are "certain enterprises" in the sense of that provision. On the
other hand, however, in making this statement, the Panel refrained from making an assessment and
reaching a conclusion as to whether the three public entities at issue should be considered as
"enterprises", but nevertheless considered these entities relevant to its analysis of de facto
specificity.
5.257. We have noted above that an "enterprise" within the meaning of Article 2.1 is an entity that
engages in certain economic activities. Whether this is the case should be analysed on a
case-by-case basis by reference to all relevant characteristics of the entity, including its nature and
operation in the markets in question. The European Union's cont ention implies that, by its very
nature, a public entity cannot be considered as an "enterprise" under Article 2.1(c). We disagree
with this proposition. As we have explained above, the ownership of an entity is not a decisive

612 Emphasis added.
613 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 747. See also Appellate Body
Report, US – Countervailing Measures (China), para. 4.140.
614 Panel Report, para. 8.838.
615 Panel Report, para. 8.782 (referring to European Union's first written submission to the Panel,
paras. 706-708).
616 Panel Report, para. 8.841 (quoting European Union's second written submission to the Panel,
fn 1064 to para. 642, in turn referring to first written submission to the Panel, para. 585).
617 Panel Report, para. 8.841.

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criterion in determining whet her the entity constitutes an "enterprise". At the same time, we note
that the Panel provided no analysis with regard to the features of the entities at issue and the types
of activities they engage in. Thus, the Panel's analysis suggests that the Panel took into account the
three public entities in its analysis of specificity under Article 2.1(c) without having established that
they constitute "certain enterprises" within the meaning of Article 2.1.
5.258. We disagree with this approach. The chapeau of Article 2.1 explicitly directs panels to assess
whether a subsidy is "specific to an enterprise or industry or group of enterprises or industries
(referred to in {the SCM} Agreement as 'certain enterprises')". The notion of specificity within the
meaning of the SCM Agreement therefore encompasses the universe of entities that constitute
"certain enterprises", as determined in light of the principles in subparagraphs (a) through (c) of
Article 2.1. We therefore do not see the pertinence of subsidy recipients that fall outside the
definition of an "enterprise" for a panel's determination of whether a subsidy is specific to "certain
enterprises".
5.259. It follows that, if a subsidy is found to be specific "to an enterprise or industry or group of
enterprises or industries", the fact that this subsidy has also been granted to certain other entities
that do not fall within the definition of an "enterprise" has no bearing on the finding of specificity
that has to be made with regard to the group of "enterprises". We recall, in thi s regard, the
Appellate Body's statement in the context of Article 2.1(a) that "{w}here access to certain funding
under a subsidy programme is explicitly limited to a grouping of enterprises or industries that qualify
as 'certain enterprises', this … leads to a provisional indication of specificity …, irrespective of how
other funding under that programme is distributed."618 Similarly, if funding under the same subsidy
programme is granted to certain enterprises, as well as to other entities that do not const itute
"enterprises" within the meaning of Article 2, the specificity of the subsidy programme should be
assessed only by reference to those entities that constitute "enterprises".
5.260. At the same time, the Panel also concluded, with respect to the factor "use of a subsidy
programme by a limited number of certain enterprises", that "{t}he European Union provides no
reasoning as to why, in light of the level of diversification in the South Carolina economy and the
duration of the economic development bond scheme, the grant of economic development bond
proceeds to BMW, the Project Emerald companies and Boeing amounts to use by a limited number
of enterprises."619 We note that the Panel reached its conclusion before making its statement as to
the relevance of "public entities" in the assessment of de facto specificity. Similarly, before making
the statement in question, the Panel had already rejected the relevance of the European Union's
evidence for establishing "predominant use by certain enterprises" and had found t hat "{t}he
European Union makes no other arguments why, in light of the diversification of the South Carolina
economy and the duration of the economic development bond scheme, economic development bond
proceeds have been mainly or most frequently used by certain enterprises."620 Therefore, we do not
think that the Panel's rejection of the European Union's claims that the EDB subsidy is specific within
the meaning of Article 2.1(c) hinges upon its statement relating to the relevance of the three public
entities in its analysis of de facto specificity. Thus, the Panel's error in its analysis relating to the
relevance of subsidies provided to the City of Greenville, the City of Myrtle Beach, and Trident
Technical College in the assessment of specificity does not invalidate the Panel's ultimate finding
that the European Union failed to establish that the subsidy provided by South Carolina through
EDBs is specific within the meaning of Article 2.1(c).621
5.4.3.3 Whether the Panel erred in its interpretation of the term "predo minant use" in
Article 2.1(c) of the SCM Agreement
5.261. The European Union argues that the Panel erred in interpreting the term "predominant" in
the factor "predominant use by certain enterprises" in the second sentence of Article 2.1(c) of the
SCM Agreement as involving a concept entirely different from the term "disproportionate {}" in the
factor "disproportionately large amounts of subsidy to certain enterprises". In the European Union's
view, based on this erroneous distinction, the Panel rejected the Europea n Union's evidence as
inadequate or irrelevant for determining the existence of "predominant use". 622 The United States

618 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 949.
619 Panel Report, para. 8.839.
620 Panel Report, para. 8.840.
621 See Panel Report, para. 8.843.
622 European Union's appellant's submission, paras. 240-241.

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considers that the Panel merely explained "why it was not addressing whether the subsidy was
de facto specific because of 'the granting of disproportionately large amounts of subsidy to certain
enterprises'" and "did not state that 'predominant use' and 'the granting of disproportionately large
amounts' cannot rely on overlapping evidence".623
5.262. We observed above that the term "predominant" in t he factor "predominant use by certain
enterprises" in Article 2.1(c), second sentence, may relate to the number of certain enterprises using
the subsidy, the amounts of subsidy used by certain enterprises, or the incidence with which certain
enterprises use that subsidy. However, given the focus of the other factors of the second sentence
("use of a subsidy programme by a limited number of certain enterprises " and "the granting of
disproportionately large amounts of subsidy to certain enterprises "), this term is to be interpreted
as relating primarily to the incidence or frequency with which the subsidy is used by certain
enterprises.
5.263. At the same time, the different focus of the various factors listed in Article 2.1(c), second
sentence, does not imply that t he analyses under those factors have to rely on completely distinct
sets of evidence. This is because whether a subsidy programme is mainly, or for the most part, used
by "certain enterprises" is necessarily a question that should be answered on a case-by-case basis,
taking into account the particular characteristics of the subsidy programme at issue and the
prevailing circumstances of the case, and in light of the factors in the third sentence of Article 2.1(c).
Furthermore, the Appellate Body has highlighted that determining which factors in Article 2.1(c) will
be relevant to the analysis of specificity is "a function of what reasons there are to believe that the
subsidy may in fact be specific", and panels should "remain open to the applicability of each of the
elements set out in Article 2.1(c), and to the possibility that a conclusion in respect of specificity in
fact may, depending on the circumstances of the case, rely on an assessment of one, several, or all
of those elements".624 Ultimately, the aim is to determine whether, notwithstanding any appearance
of non-specificity resulting from the application of subparagraphs (a) and (b), the evidence of actual
allocation or use of the subsidy provides sufficient assurance as to the existence of specificity.625
5.264. With respect to the European Union's evidence presented in relation to the factor
"predominant use", the Panel noted the original panel's reasoning that predominant use "requires
consideration of whether the subsidy programme in issue is mainly or most fr equently used by
'certain enterprises'", taking into account the extent of diversification of economic activities within
the jurisdiction of the granting authority and the length of time during which the subsidy programme
has been in operation.626 Having noted the European Union's argument that Boeing and its suppliers
(the Project Emerald companies) have been the predominant users of the subsidy, benefiting from
US$390 million out of a total of US$495 million in EDBs and air hub bonds, or 79% of the bonds by
value, the Panel "d{id} not consider this information to show that the economic development bond
scheme has mainly or most frequently been used by certain enterprises". 627 The Panel reasoned
that:
While this information could be relevant to an argument that a disproportionately large
amount of subsidy has been granted to certain enterprises, this is not an argument that
the European Union makes. To find otherwise would be to confound predominant use
by certain enterprises …, and the granting of disproportion ately large amounts of
subsidy to certain enterprises … .628
5.265. We note that, beyond quoting the original panel's observations about "predominant use",
the Panel did not develop its own understanding of the meaning of this term and what evidence
might be releva nt to establishing that the EDB scheme was mainly, or most frequently, used by
certain enterprises in the present circumstances. In this regard, the European Union argues that
"{t}here is nothing in Article 2.1(c), itself, or any other aspect of Article 2.1 indicating that evidence
relevant to one of the 'factors' in Article 2.1(c) is exclusive to that factor, and irrelevant for

623 United States' appellee's submission, para. 132.
624 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 878. (emphasis added)
625 Appellate Body Report, US – Carbon Steel (India), para. 4.373.
626 Panel Report, para. 8.840 (quoting Original Panel Report, para. 7.746; referring to ibid.,
para. 7.747).
627 Panel Report, para. 8.840.

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considering the other 'factors'."629 According to the European Union, given that the overall enquiry
is the same, that is, to determ ine whether a subsidy is specific to certain enterprises, the factors
listed in Article 2.1(c) are closely related, and evidence demonstrating one factor of Article 2.1(c)
could also be relevant to other factors.630
5.266. We agree with the European Union that there may be overlap in the evidence demonstrating
the existence of "predominant use {of a subsidy programme} by certain enterprises" and the
"disproportionately large amounts of subsidy to certain enterprises", depending on the nature,
functioning, and actual distribution of the particular subsidy programme; other relevant factual
circumstances; and the assessment of the factors in the third sentence of Article 2.1(c). Evidence
about the number of enterprises receiving a subsidy, the amounts received by certai n enterprises,
and the frequency with which the subsidy has been received by those enterprises may therefore be
complementary and, depending on the circumstances of the case, point to the existence of de facto
specificity based on one or another factor under Article 2.1(c), second sentence. Thus, evidence on
the percentage of bonds by value used by certain enterprises may be potentially relevant to showing
the existence of predominant use, insofar as "{o}ne way to show that a subsidy programme is
mainly or most frequently used by 'certain enterprises' is to show how much of that subsidy
programme is used by certain enterprises."631
5.267. In the present case, the European Union put forward evidence that, since the adoption of its
legislation authorizing the issuance of EDBs in 2002, South Carolina has issued EDBs to the following
recipients: BMW ( up to US$105 million in 2003); the Project Emerald companies ( up to
US$160 million in 2004); each of three public entities (the City of Greenville, the City of Myrtle
Beach, and Trident Technical College) ( up to US$7 million in 2005); and Boeing ( up to
US$220 million in 2010). 632 The subsidy has been granted to relatively few entities, relatively
infrequently, and in relatively large amounts. In these circumstances, the question as to whether
the subsidy programme has been used predominantly by certain enterprises would have to take into
account not just the incidence or frequency with which Boeing and other enterprises have been
granted the subsidy, but also the value of the EDBs granted. Only then would it be possible to answer
the question of whether the subsidy has been mainly, or for the most part, used by certain
enterprises for the purposes of Article 2.1(c). Thus, by excluding a category of evidence potentially
relevant to the assessment of the existence of "predominant use by certain enterprises" and
ultimately for determining de facto specificity, on the sole basis that this evidence was more relevant
to the assessment of anot her factor under Article 2.1(c), second sentence, the Panel erred in its
interpretation of these factors in Article 2.1(c).
5.268. We also do not share the Panel's concern that to find otherwise "would be to confound" the
two factors under Article 2.1(c), second sentence.633 There is no reason why a priori certain
categories of evidence should not be relevant in the context of more than one legal question, all of
which have the purpose of establishing "whether a subsidy, although not apparently limited to certain
enterprises from a review of the relevant legislation or express acts of a granting authority , is
nevertheless allocated in a manner that belies the apparent neutrality of the measure".634 Therefore,
in our view, the Panel should not have excluded from conside ration certain categories of evidence
simply because they appear to relate more specifically to one, as opposed to another, factor under
Article 2.1(c), second sentence.
5.269. In light of the above, we find that the Panel erred in its interpretation of the facto rs
"predominant use by certain enterprises" and "granting of disproportionately large amounts of
subsidy to certain enterprises" in Article 2.1(c) of the SCM Agreement. We therefore reverse the
Panel's finding , in paragraph 8.843 of the Panel Report, that the European Union has failed to

629 European Union's appellant's submission, para. 242.
630 European Union's appellant's submission, para. 242.
631 European Union's appellant's submission, para. 247.
632 See Panel Report, para. 8.838.
633 Panel Report, para. 8.840.
634 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 877.

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establish that the subsidy provided by South Carolina through EDB proceeds is specific within the
meaning of Article 2.1 of the SCM Agreement.635
5.4.3.4 Whether the Panel failed to make an objective assessment under Article 11 of the
DSU
5.270. The European Union contends that the Panel failed to make an objective assessment under
Article 11 of the DSU of the factors in the third sentence of Article 2.1(c) of the SCM Agreement,
namely the extent of diversification of economic activities wit hin the jurisdiction of the granting
authority, and the length of time during which the subsidy programme has been in operation. 636
According to the European Union, "{t}he Panel had undisputed evidence before it of (i) a granting
authority ( i.e., the State o f South Carolina) with a diverse economy in which many companies
operated, and (ii) the length of time that the measure authorising the EDBs had existed (since
2002)."637
5.271. The United States argues that the total number of manufacturing establishments in
South Carolina does not indicate the number of companies that were eligible for the EDB programme,
namely "those that establish a new economic development project in South Carolina, involving an
investment of at least $400 million and the creation of 400 new jo bs".638 Furthermore, the
United States considers that the European Union "offers no reason to expect that, in light of the
demanding eligibility requirements, more than six entities should have qualified for the EDB program
during the period from 2002 to 2012".639
5.272. Having reversed the Panel's finding that the European Union has failed to establish that the
subsidy provided by South Carolina through EDB proceeds is specific within the meaning of
Article 2.1 of the SCM Agreement, we do not consider it necessary to examine further the objectivity
of the Panel's assessment with respect to the factors in the third sentence of Article 2.1(c).
5.4.3.5 Completion of the legal analysis
5.273. In our analysis above, we found that the Panel erred in its interpretation of Article 2.1(c) of
the SCM Agreement by interpreting the factors "predominant use by certain enterprises" and "the
granting of disproportionately large amounts of subsidy to certain enterprises" as mutually exclusive
in terms of the evidence on the basis of which their existence can be established. We therefore now
turn to the European Union's request for completion of the legal analysis.
5.274. The European Union requests us to complete the legal analysis and conclude that the EDB
subsidies are specific within the mean ing of Article 2.1(c) of the SCM Agreement.640 In the
European Union's view, the Appellate Body should rely on factual findings by the Panel that, since
the adoption of its legislation authorizing the issuance of EDBs in 2002, South Carolina has issued
EDBs benefiting only three private ventures: BMW (US$105 million), the Project Emerald companies
(US$120 million), and Boeing (US$220 million). 641 The European Union considers that the
Appellate Body can also take into account undisputed factual evidence that the South Carolina
economy is diverse, including: (i) the Panel's finding that "a wide variety of industries and
enterprises" in South Carolina entered into 954 FILOT agreements with the State; (ii) evidence that
"{d}ata from the United States Census Bureau i ndicates that, in 2012, there were … 3,867
manufacturing establishments" in South Carolina; and (iii) evidence that "many more {than two}

635 We note that the Panel appears to have failed to reflect in its conclusions in paragraphs 8.1077 and
11.7.c of the Panel Report its finding in paragraph 8.843 that the European Union had failed to establish that
the subsidy provided by South Carolina through EDBs is specific within the meaning of Article 2.1. Therefore, in
our finding above, we are not identifying a specific paragraph from the Panel's Conclusions and
Recommendations section.
636 European Union's appellant's submission, para. 253.
637 European Union's appellant's submission, para. 253.
638 United States' appellee's submission, para. 133.
639 United States' appellee's submission, para. 134.
640 European Union's appellant's submission, para. 261.
641 European Union's appellant's submission, para. 262 (referring to Panel Report, paras. 8.687, 8.765,
and 8.838).

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(manufacturing) enterprises in South Carolina invest in facilities and infrastructure" and therefore
"had access to {the EDB} subsidy".642
5.275. We recall that whether a subsidy programme is mainly, or for the most part, used by certain
enterprises is necessarily a question that should be answered on a case -by-case basis, taking into
account the particular characteristics of the subsidy programme at issue and the prevailing
circumstances of the case, and in light of the factors in the third sentence of Article 2.1(c). As
observed above, the European Union's evidence does not provide specific information concerning
the number of en tities with the capacity to make an investment and to create employment of the
scale required by the criteria of eligibility under the EDB subsidy. Accordingly, we see no basis for
assessing whether the actual allocation of the EDBs differed from the alloc ation that would have
been expected in light of the investment and employment requirements, which in turn may establish
the existence of predominant use of the subsidy programme by certain enterprises. Similarly, the
fact that "many more {than two} (manufa cturing) enterprises in South Carolina invest in facilities
and infrastructure"643 does not necessarily mean that those other enterprises have the potential to
comply with the minimum investment and employment requirements and are thereby in a position
actually to avail themselves of the EDB benefits. There are no other factual findings by the Panel or
undisputed facts on the Panel record relevant to the assessment of whether the EDB subsidy has
been predominantly used by certain enterprises.
5.276. In view of the a bove and in the absence of sufficient factual findings by the Panel or
undisputed facts on the Panel record, we are unable to complete the legal analysis in relation to the
European Union's claim that the EDB subsidy programme is de facto specific because of its
predominant use by certain enterprises within the meaning of Article 2.1(c) of the SCM Agreement.
5.4.3.6 Conclusion
5.277. With regard to the European Union's claim that the P anel erred in its interpretation of the
term "limited number" in the second sentence of Article 2.1(c) of the SCM Agreement, we observed
that what constitutes a quantitatively limited group of enterprises must be determined on a
case-by-case basis, taking into account the particular characteristics of the subsidy programme and
the circumstances of the case. We disagree with the European Union that the Panel implicitly
interpreted the term "limited number" as "one" or "fewer than three". Rather, the Panel considered
that the European Union had not met its burden of proof as to whether the EDB subsidy has been
used by only a "limited number" of certain enterprises. Accordingly, we find that the Panel did not
err in its interpretation of the term "limited number" of certain enterprises in Article 2.1(c) of the
SCM Agreement.
5.278. With regard to the European Union's claim that the Panel erred in its interpretation and
application of the term "certain enterprises" in the second sentence of Article 2.1(c) , we observed
that the determination of whether a number of enterprises or industries constitute "certain
enterprises" should be made in light of all relevant characteristics of the entities, including the nature
and purpose of their activities in the markets in question and the context in which these activities
are exercised. The Panel erred by taking into account three specific entities in its analysis under
Article 2.1(c) without having established that they constitute "certain enterprises". However, the
Panel's rejection of the European Union's claims does not hinge on its statement relating to the
relevance of the three specific entities in its analysis of de facto specificity.
5.279. With regard to the European Union's claim that the Panel erred in its interpretation of th e
term "predominant use" in the second sentence of Article 2.1(c), we observed that this term refers
primarily to the incidence or frequency with which the subsidy is used by certain enterprises.
Furthermore, we found that evidence demonstrating the existe nce of "predominant use by certain
enterprises" may also be pertinent for demonstrating the granting of "disproportionately large
amounts of subsidy to certain enterprises". Accordingly, we find that, by excluding a category of
evidence potentially relevan t to the assessment of the existence of "predominant use by certain

642 European Union's appellant's submission, para. 262 (quoting Panel Report, para. 8.899;
European Union's comments on United States' response to Panel question No. 142, para. 22, in turn quoting
Data from US Census Bureau, Geography Area Series: County Business Patterns (2010-2012) (Panel Exhibit
EU-1437), p. 1; European Union's response to Panel question No. 110, fn 319 to para. 179).
643 European Union's response to Panel question No. 110, fn 319 to para. 179.

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enterprises" and ultimately for determining de facto specificity, on the basis that this evidence was
more relevant to the assessment of another factor under Article 2.1(c), second sentence, the Panel
erred in its interpretation of these factors in Article 2.1(c).
5.280. We therefore reverse the Panel's finding, in paragraph 8.843 of the Panel Report, that the
European Union has failed to establish that the subsidy provided by South Carolina throu gh EDB
proceeds is specific within the meaning of Article 2.1 of the SCM Agreement. We also find that there
are insufficient factual findings by the Panel or undisputed facts on the Panel record for us to
complete the legal analysis in this respect. Having reversed the Panel's finding, we do not consider
it necessary to address whether, in addition, the Panel acted inconsistently with Article 11 of the
DSU.
5.5 European Union's claims relating to the Panel's findings concerning South Carolina
MCIP job tax credits
5.281. The European Union requests us to reverse the Panel's finding that the European Union had
failed to establish that the subsidy provided through the additional corporate income tax credits is
specific within the meaning of Article 2.2 of the SCM A greement and its conclusion that the
European Union had not established that the United States failed to withdraw this subsidy within the
meaning of Article 7.8 of the SCM Agreement.644 The European Union submits that, in reaching its
finding, the Panel erred in the application of Article 2.2 and also acted inconsistently with Article 11
of the DSU. The European Union also requests us to complete the legal analysis and find that the
subsidy is specific within the meaning of Article 2.2 of the SCM Agreement.645
5.282. The United States requests us to uphold the Panel's finding that the subsidy provided to
Boeing through the additional corporate income tax credits is not specific within the meaning of
Article 2.2 of the SCM Agreement. 646 The United States submits that the Panel did not err in the
application of Article 2.2 of the SCM Agreement and did not fail to conduct an objective assessment
of the matter, as required by Article 11 of the DSU.
5.283. In our analysis below, we first outline the measure at issue and recall the parties' arguments
before the Panel and the Panel's findings, as relevant for the claims before us. Then, we turn to the
analysis of the European Union's claims on appeal, which will proceed in three steps. We begin by
addressing the legal standard under Article 2.2 of the SCM Agreement. Subsequently, we evaluate
whether the Panel erred in the application of this provision. Finally, we address the European Union's
claim under Article 11 of the DSU.
5.5.1 The Panel's findings
5.284. Before the Panel, the European Union challenged the additional corporate income tax credits
provided to Boeing by virtue of the inclusion of Boeing's production facilities within the industrial
park jointly established by Charleston County and Colleton County (Charleston -Colleton MCIP).
According to Section 12 -6-3360 of the South Carolina Income Tax Act, taxpayers that create new
full-time jobs in South Carolina may receive two types of corporate income tax credits – standard
tax credits and additional tax credits. All taxpayers that meet certain employment-related criteria
are eligible for the standard tax credits. However, in order to receive the additional tax credits, such
taxpayers must be located in a business or industrial park jointly established and developed by a
group of South Carolina counties pursuant to Section 13 of Article VIII of the Constitution of
South Carolina.647
5.285. Section 13 of Article VIII of the Constitution of South Carolina provides that "{c}ounties may
jointly develop an industrial or business park with other counties within the geographical boundaries
of one or more of the member counties ."648 Pursuant to this authority, Charleston County and

644 Panel Report, paras. 8.931 and 11.7.c.vii.
645 European Union's appellant's submission, para. 299.
646 United States' appellee's submission, para. 143.
647 Panel Report, para. 8.912 (referring to South Carolina Income Tax Act, South Carolina Code,
Title 12, Chapter 6 (Panel Exhibit EU-509), Section 12-6-3360(C); quoting ibid., Section 12-6-3360(E)(1)).
648 Panel Report, para. 8.913.

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Colleton County jointly established the Charleston -Colleton MCIP.649 The territory of this MCIP was
subsequently extended in order to incl ude Boeing's production facilities in South Carolina.650 As a
result of the inclusion of Boeing's production facilities within the Charleston -Colleton MCIP, Boeing
became "located" within an industrial park jointly developed by a group of South Carolina coun ties
in accordance with Section 13 of Article VIII of the Constitution of South Carolina. This entitled
Boeing to the additional corporate income tax credits under Section 12-6-3360 of the South Carolina
Income Tax Act, its eligibility for the standard cor porate income tax credits not being in dispute
before the Panel.651
5.286. The Panel found that the provision of the additional corporate income tax credits to Boeing
involved a financial contribution in the form of revenue "foregone" within the meaning of
Article 1.1(a)(1)(ii) and conferred a benefit within the meaning of Article 1.1(b) of the
SCM Agreement.652 The European Union argued that the resulting subsidy (MCIP subsidy) was
specific under Articles 2.1(a), 2.1(c), and 2.2 of the SCM Agreement. 653 The Panel found that the
European Union had failed to establish that the MCIP subsidy is specific within the meaning of those
provisions.654 On appeal, the European Union challenges only the Panel's finding with respect to
Article 2.2 of the SCM Agreement.
5.287. Before the Panel , the European Union argued that the MCIP subsidy is specific under
Article 2.2 of the SCM Agreement because it is "limited to certain enterprises located within a
designated geographic {al} region within the jurisdiction of the granting authority". 655 The
European Union asserted that: (i) the Charleston -Colleton MCIP is a particular geographical region
designated by two counties; (ii) the State of South Carolina is the granting authority, within the
jurisdiction in which that region is located; and (iii) the number of enterprises located within that
region is irrelevant for the specificity analysis under Article 2.2.656
5.288. The United States argued before the Panel that the MCIP subsidy is not "limited to certain
enterprises located within a designated geographical region" within the meaning of Article 2.2 of the
SCM Agreement but is provided to a number of enterprises located within any number of different
MCIPs throughout South Carolina. The United States asserted that MCIPs are pervasive in
South Carolina and are available to any business that requests the inclusion of its property within
an MCIP.657 Furthermore, because counties can freely add property to or subtract it from MCIPs at
any time, an MCIP is not a "designated" region within the meaning of Article 2.2 of the
SCM Agreement.658
5.289. The Panel began by noting the findings of previous panels to the effect that: (i) any identified
tract of land within the jurisdiction of the granting authority may be a "designated geographical
region" within the meaning of Article 2. 2 of the SCM Agreement 659; and (ii) an industrial park or
economic development zone could constitute such a region.660 The Panel further observed that when
a subsidy is provided only to enterprises located within a region that has a "fixed geographic

649 Panel Report, para. 8.913 (referring to United States' first written submission to the Panel,
para. 572).
650 Panel Report, para. 8.913 (referring to Charleston County Council Ordinance 1475 (5 December
2006) (Panel Exhibit EU-555); Inducement and Millage Rate Agreement between Charleston County and
Project Emerald (21 December 2004) (Panel Exhibit EU-553), p. 4; Charleston County Ordinance 1626
(2 February 2010) (Panel Exhibit EU-516), Section 2; Fee Agreement by and between Charleston County,
South Carolina, and The Boeing Company (1 December 2010) (Boeing FILOT Agreement) (Panel Exhibit
EU-470), Section 5.3).
651 Panel Report, paras. 8.912-8.913.
652 Panel Report, paras. 8.920-8.921.
653 Panel Report, paras. 8.923, 8.926, and 8.929.
654 Panel Report, paras. 8.925, 8.928, 8.931, and 8.933.
655 European Union's first written submission to the Panel, paras. 640 and 719.
656 Panel Report, para. 8.929 (referring to European Union's first written submission to the Panel,
paras. 640 and 719; second written submission to the Panel, para. 682).
657 Panel Report, para. 8.930 (referring to United States' first written submission to the Panel,
para. 643).
658 Panel Report, para. 8.930 (referring to United States' second written submission to the Panel,
para. 612).
659 Panel Report, para. 8.931 (referring to Panel Report, US – Anti-Dumping and Countervailing Duties
(China), paras. 9.143-9.144).
660 Panel Report, para. 8.931 (referring to Panel Reports, US – Anti-Dumping and Countervailing Duties
(China), paras. 9.159 and 9.162; US – Countervailing Measures (China), para. 7.352).

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identity", such a subsidy is limited to certain enterprises within that region because it is not possible
for enterprises not located within that designated region to have access to the subsidy.661 The Panel
noted, however, that this logic did not apply to the MCIP s ubsidy at issue, because the "MCIP
designation" is "readily available upon request" 662 to any enterprise regardless of its particular
location in South Carolina. The Panel thus considered that the availability of the MCIP subsidy only
to enterprises located within an MCIP "cannot be meaningfully considered to amount to a limitation
under Article 2.2".663 On that basis, the Panel found that the European Union had failed to establish
that the subsidy provided through the additional corporate income tax credits is specific within the
meaning of Article 2.2 of the SCM Agreement.664
5.5.2 Claims and arguments on appeal
5.290. The European Union claims that, in finding that the MCIP subsidy is not "limited to certain
enterprises located within a designated geographical region", the Panel erred in the application of
Article 2.2 of the SCM Agreement and reached, on this basis, an erroneous conclusion that the
European Union had failed to establish that the United States had not withdrawn this subsidy within
the meaning of Article 7.8 of the SCM Agreement. 665 In addition, the European Union argues that
the Panel acted inconsistently with Article 11 of the DSU because the Panel's conclusion that the
MCIP subsidy is not specific under Article 2.2 of the SCM Agreement is not base d on an objective
assessment of the facts.666
5.291. The European Union submits that the Panel erred in the application of Article 2.2 of the
SCM Agreement because it failed to recognize that limiting access to the MCIP subsidy to enterprises
located within an MCIP constitutes a geographical limitation on this subsidy.667 The European Union
argues that the Panel based its finding that the limitation on access to the subsidy to enterprises
located within an MCIP "cannot be meaningfully considered to amount to a limitat ion under
Article 2.2" on the mere possibility that the geographical boundaries of MCIPs could be reduced or
expanded in the future.668 In the European Union's view, just the possibility that this might occur in
the future cannot justify a finding that, at p resent, the MCIP subsidy is not specific within the
meaning of Article 2.2 of the SCM Agreement. 669 The European Union further contends that the
Panel's finding suggests that the term "designated geographical region" can encompass only a "fixed
geographic id entity" that cannot be changed or amended in the future. 670 However, for the
European Union, the "designated geographical region" within the meaning of Article 2.2 need not be
strictly defined or fixed.671
5.292. Furthermore, the European Union claims that the Panel acted inconsistently with Article 11
of the DSU in finding that the MCIP designation is "readily available upon request" to any
enterprise.672 The European Union argues that the Panel did not refer to any evidence in support of
that finding and failed to conduct an independent assessment of whether the MCIP designation was
indeed available upon request to any enterprise. 673 According to the European Union, the Panel's
finding is contrary to undisputed evidence on the record, which shows that the MCIP designatio n
requires a multi -county legislative action, and is therefore not easily available to any enterprise
requesting it.674 The European Union further argues that the Panel failed to explain how its finding
that the MCIP designation is readily available to any enterprise accords with the distinction between
the standard corporate income tax credits (for which an enterprise does not need to be located
within an MCIP) and additional corporate income tax credits (for which an enterprise is required to
be located in an MCIP) under South Carolina law. The European Union argues, therefore, that the

661 Panel Report, para. 8.931.
662 Panel Report, para. 8.931.
663 Panel Report, para. 8.931.
664 Panel Report, para. 8.931.
665 European Union's appellant's submission, para. 266 and fn 516 thereto.
666 European Union's appellant's submission, para. 267.
667 European Union's appellant's submission, paras. 283-286.
668 European Union's appellant's submission, para. 279 (quoting Panel Report, para. 8.931). See also
ibid., paras. 285-288.
669 European Union's appellant's submission, paras. 288-289.
670 European Union's appellant's submission, para. 286 (quoting Panel Report, para. 8.931).
671 European Union's appellant's submission, para. 287.
672 European Union's appellant's submission, para. 293 (quoting Panel Report, para. 8.931).
673 European Union's appellant's submission, para. 295.
674 European Union's appellant's submission, para. 294.

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Panel's view of the facts is implausible and unsupported by reasoned and adequate explanations and
coherent reasoning, as required by Article 11 of the DSU.675
5.293. Referring to the European Union's argument that the Panel's finding suggests that the term
"designated geographical region" can encompass only a "fixed geographic identity" that cannot be
changed or amended in the future,676 the United States responds that, in making this argument, the
European Union inaccurately ascribes a legal interpretation to the Panel that it did not adopt. 677
According to the United States, the Panel found that the MCIP designation does not operate as a
genuine limitation on access to the subsidy because the MCIP designation is "infinitely mutable".678
In the United States' view, however, this does not imply that a geographical designation must be
"immutable" in order to fall under Article 2.2 of the SCM Agreement.679 In addition, the United States
points out that the measure at issue provides no way of identifying, either explicitly or implicitly, the
areas included within MCIPs. For the United States, this supports the conclusion that the MCIP
subsidy is not specific under Article 2.2 of the SCM Agreement.680
5.294. With respect to the European Union's claim under Article 11 of the DSU, the United States
argues that the Panel's finding that the MCIP designation is "readily available upon request" 681 to
any enterprise is supported by the fact that the text of the Charle ston-Colleton MCIP Agreement
contemplates changes to the territory of that MCIP682, as well as by the fact that such changes had
occurred 18 times between 1995 and 2013. 683 The United States further contends that the
European Union failed to provide evidence o f applications for the receipt of the subsidy being
rejected. Therefore, there is no indication that the Panel's finding regarding the availability of the
MCIP designation lacked objectivity.684
5.5.3 Whether the Panel erred in its application of Article 2.2 of the SCM Agreement
5.295. In this section, we examine the European Union's claim on appeal that the Panel erred under
Article 2.2 of the SCM Agreement in finding that the European Union had failed to establish that the
subsidy provided through the additional corporate income tax credits is specific within the meaning
of Article 2.2 of the SCM Agreement. We first address the legal standard under Article 2.2 and then
turn to review the Panel's analysis under that provision.
5.296. Article 2.2 of the SCM Agreement provides, in relevant part:
A subsidy which is limited to certain enterprises located within a designated
geographical region within the jurisdiction of the granting authority shall be specific.
5.297. Article 2.2 concerns regional specificity of subsidies, i.e. specificity by reason of the location
of eligible subsidy recipients within a particular geographical region. 685 The phrase "{a} subsidy
which is limited to" refers to the concept of a limitation, similar to the one contained in Articles 2.1(a)
and 2.1(c) of the SCM Agreement. The dictionary definition of the verb "to limit" is to "confine within

675 European Union's appellant's submission, para. 296 (referring to Appellate Body Reports, EC and
certain member States – Large Civil Aircraft, para. 1317; US – Upland Cotton (Article 21.5 – Brazil), fn 618 to
para. 293).
676 United States' appellee's submission, para. 141 (quoting European Union's appellant's submission,
para. 286).
677 United States' appellee's submission, para. 141 (quoting European Union's appellant's submission,
para. 286).
678 United States' appellee's submission, para. 141.
679 United States' appellee's submission, para. 141.
680 United States' appellee's submission, para. 142 (quoting Appellate Body Report, US – Washing
Machines, para. 5.229).
681 United States' appellee's submission, para. 140 (referring to European Union's appellant's
682 United States' appellee's submission, para. 140 (referring to Charleston County Council Ordinance
1475 (5 December 2006) (Panel Exhibit EU-555)).
683 United States' appellee's submission, para. 140 (referring to United States' response to Panel
question No. 149, para. 18; Charleston County Council Ordinance 1475 (5 December 2006) (Panel Exhibit
USA-555)).
684 United States' appellee's submission, para. 140 (referring to Panel Report, para. 8.928).
685 Appellate Body Report, US – Washing Machines, paras. 5.213 and 5.222.

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limits, to set bounds to", "to bound, restrict". 686 Accordingly, Article 2.2 concerns those subsidies
that are provided within certain bounds or limits. As Article 2.2 deals with regional specificity, the
term "limited", in the context of this provision, suggests that access to a subsidy must be limited to
eligible recipients located within a "designated geographical region" within the jurisdiction of the
granting authority.
5.298. We note that, in contrast to Article 2.1(a) of the SCM Agreement, the term "limited" in the
text of Article 2.2 is not qualified by the word "explicitly". This suggests that, in principle, Article 2.2
covers both explicit and implicit limitations on access to a subsidy. We also observe that Article 2.2
does not prescribe a particular manner in which a limitation on access to a subsidy must be imposed.
Unlike Article 2.1(a), the text of Article 2.2 does not specify that such a limitation must necessarily
be found in "the legislation pursuant to which the granting authority operates", or that it must be
imposed by the granting authority itself.
5.299. In order for a subsidy to be specific within the meaning of Article 2.2 of the SCM Agreement,
a subsidy must be limited to "certain enterprises". The term "certain enterprises" is defined in the
chapeau of Article 2.1 as "an enterprise or industry or group of enterprises or industries". As we
noted above, the term "enterprise" may be understood to refer to an entity that engages in certain
economic activities in the market. The Appellate Body has further held that the term "certain
enterprises" refers to a single enterprise or industry or a class of enterprises or industries that are
known and particularized. 687 The Appellate Bod y also noted that this concept involves a certain
amount of indeterminacy at the edges and that any determination of whether a number of
enterprises or industries constitute "certain enterprises" can be made only on a case -by-case
basis.688
5.300. The chapeau of Ar ticle 2.1 offers interpretative guidance with regard to the scope and
meaning of the rest of Article 2689, including the term "certain enterprises" employed in different
parts of Article 2. Therefore, in principle, the definition of the term "certain enterpr ises" provided
therein is also relevant for the interpretation of this term in Article 2.2. However, it does not follow
that this term necessarily has an identical meaning across all of the provisions of Article 2. Rather,
it must be read in the context of the specific provision of Article 2 in which it appears. As already
observed, Article 2.2 concerns specificity by reason of the location of eligible subsidy recipients
within a particular geographical region.690 Accordingly, we understand the term "certain enterprises"
in Article 2.2 to refer to those enterprises that are located within a "designated geographical region"
within the jurisdiction of the granting authority.
5.301. We further noted above that the term "enterprise" refers to an entity engaged in economi c
activities in the market. The term "located", in turn, connotes a place where an enterprise has
established itself.691 As observed by the Appellate Body, an enterprise may be considered to be
established in a variety of places, including at the sites of it s headquarters, branch offices, or
manufacturing facilities. 692 This means that, for purposes of specificity under Article 2.2 of the
SCM Agreement, access to a subsidy must be limited to entities that are engaged in economic
activities in the market; have t heir headquarters, branch offices, or manufacturing facilities in a
"designated geographical region"; or are otherwise established within such a region.
5.302. Turning now to examine the meaning of the term "designated geographical region" in
Article 2.2 of the S CM Agreement, we note that the word "region" refers to "any area, space, or
place of more or less definite extent or character" 693, while "geographical" denotes that something

686 Oxford English Dictionary online, definition of "limit", http://www.oed.com/view/Entry/108478.
687 Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China), para. 373 (quoting
Panel Report, US – Upland Cotton, para. 7.1142).
688 Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China), para. 373 (quoting
Panel Report, US – Upland Cotton, para. 7.1142).
689 Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China), para. 366.
690 Appellate Body Report, US – Washing Machines, paras. 5.213 and 5.222.
691 Appellate Body Report, US – Washing Machines, para. 5.222 (quoting Panel Report, US – Washing
Machines, para. 7.270, in turn quoting The New Shorter Oxford English Dictionary on Historical Principles,
4th edn, L. Brown (ed.) (Clarendon Press, 1993), Vol. 1, p. 1614).
692 Appellate Body Report, US – Washing Machines, para. 5.222. See also Panel Report, US – Washing
Machines, para. 7.270.
693 Oxford English Dictionary online, definition of "region", http://www.oed.com/view/Entry/161281.

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is "considered or defined in relation to a particular place, area, or region".694 This suggests that the
term "geographical region" in Article 2.2 refers to a geographical area, space, or place of more or
less definite extent or character within the jurisdiction of the granting authority. Article 2.2 does not
further specify any criteria that may distinguish a particular "geographical region" from the rest of
the area within the jurisdiction of the granting authority. We note, in this regard, the conclusion of
the panel in US – Anti-Dumping and Countervailing Duties (China) that Article 2.2 does not require
that a region have any formal administrative or economic identity and that a "geographical region"
in the sense of that provision may encompass any identified tract of land within the jurisdiction of
the granting authority.695
5.303. Article 2.2 of the SCM Agreement requires that the relevant geographical region within the
jurisdiction of the granting authority be "designated". The term "designated" presupposes a certain
degree of identification of this region. 696 As observed by the Appe llate Body in US – Washing
Machines, certain aspects of the meaning of the verb "designate" – such as "specify" and "{c}all by
name" – point to an act of explicit or affirmative identification, whereas other aspects – such as
"indicate" and "describe" – suggest that identification may also be carried out through indirect
means.697 The identification of a region for the purposes of Article 2.2 of the SCM Agreement may
be explicit or implicit, provided that the relevant region is clearly discernible from the te xt, design,
structure, and operation of the subsidy measure at issue.698
5.304. In sum, a subsidy is specific under Article 2.2 of the SCM Agreement when it is limited to
"certain enterprises" located within a "designated geographical region within the jurisdiction of the
granting authority". This is the case when access to a subsidy is either explicitly or implicitly limited
to entities that are engaged in economic activities in the market; have their headquarters, branch
offices, or manufacturing facilities in a "designated geographical region" within the jurisdiction of the
granting authority; or are otherwise established within such a region. A "designated geographical
region" refers to an identified geographical area, space, or place of more or less definite ext ent or
character. The identification of a geographical region for the purposes of Article 2.2 of the
SCM Agreement may be explicit or implicit, provided that the relevant region is clearly discernible
from the text, design, structure, and operation of the subsidy measure at issue.699
5.305. With these considerations in mind, we turn to examine whether the Panel erred in the
application of Article 2.2 of the SCM Agreement in its assessment of the specificity of the MCIP
subsidy. We recall that the Panel commenced its analysis by noting the findings of previous panels
to the effect that: (i) any identified tract of land within the jurisdiction of the granting authority may
be a "designated geographical region" within the meaning of Article 2.2 of the SCM Agreement700;
and (ii) an industrial park or economic development zone could constitute such a region. 701 The
Panel further observed that when a subsidy is provided only to enterprises located within a region
that has a "fixed geographic identity", such a subsidy is "limite d" to certain enterprises within that
region because it is not possible for enterprises not located within that "designated region" to have
access to the subsidy.702 With respect to whether the MCIP subsidy is "limited" within the meaning
of Article 2.2 of the SCM Agreement, the Panel found that it was available only to taxpayers located
in an MCIP. 703 We understand that this was based on Section 12-6-3360 of the South Carolina
Income Tax Act, which provides that only taxpayers located in an MCIP are eligible for this subsidy.704
Thus, there is an explicit limitation on access to the MCIP subsidy based on the location of the

694 Oxford English Dictionary online, definition of "geographical",
http://www.oed.com/view/Entry/77754.
695 Panel Report, US – Anti-Dumping and Countervailing Duties (China), paras. 9.140-9.144.
696 Appellate Body Report, US – Washing Machines, para. 5.229 (quoting Panel Report, US – Washing
Machines, para. 7.280).
697 Appellate Body Report, US – Washing Machines, para. 5.229 (referring to Panel Report, US –
Washing Machines, para. 7.280).
698 Appellate Body Report, US – Washing Machines, para. 5.229.
699 Appellate Body Report, US – Washing Machines, para. 5.229.
700 Panel Report, para. 8.931 (referring to Panel Report, US – Anti-Dumping and Countervailing Duties
(China), paras. 9.143-9.144).
701 Panel Report, para. 8.931 (referring to Panel Reports, US – Anti-Dumping and Countervailing Duties
(China), paras. 9.159 and 9.162; US – Countervailing Measures (China), para. 7.352).
702 Panel Report, para. 8.931.
703 Panel Report, para. 8.931.
704 Panel Report, para. 8.912 (referring to South Carolina Income Tax Act, South Carolina Code,
Title 12, Chapter 6 (Panel Exhibit EU-509), Section 12-6-3360(C); quoting ibid., Section 12-6-3360(E)(1)).

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potential subsidy recipient. We note, however, that instead of assessing whether this is a limitation
concerning "certain enterprises" locate d in a "designated geographical region" in the sense of
Article 2.2, the Panel reasoned that, due to the availability of the MCIP designation upon request to
any enterprise, this "cannot be meaningfully considered to amount to a limitation under Article 2.2"
of the SCM Agreement.705 On this basis, the Panel concluded that the European Union had failed to
demonstrate that the MCIP subsidy is specific within the meaning of Article 2.2 of the
SCM Agreement.
5.306. As we see it, the explicit requirement that taxpayers be located in an MCIP in order to
receive the additional corporate income tax credits is a limitation on access to the MCIP subsidy.
This limitation is not made void by the fact that enterprises not located in an MCIP may become part
of an MCIP in the futu re and then qualify for the subsidy. We understand that the size and
configuration of MCIPs in South Carolina may change over time. The territory of existing MCIPs may
be reduced or expanded, and new MCIPs may be established. However, this does not change the
fact that only enterprises located in an MCIP are eligible to receive the MCIP subsidy. We therefore
disagree with the Panel that the requirement of Section 12 -6-3360 of the South Carolina Income
Tax Act that taxpayers be located in an MCIP in order to receive the additional corporate income tax
credits cannot be "meaningfully" considered as a "limitation" under Article 2.2 of the
SCM Agreement.
5.307. In view of the foregoing, we find that the Panel erred in the application of Article 2.2 of the
SCM Agreement in stating that the availability of the MCIP subsidy only to enterprises located within
an MCIP "cannot be meaningfully considered to amount to a limitation under Article 2.2" of the
SCM Agreement.706 Therefore, we reverse the Panel's finding , in paragraph 8.931 of the Panel
Report, that the European Union had failed to establish that the subsidy provided through the
additional corporate income tax credits is specific within the meaning of Article 2.2 of the
SCM Agreement.
5.5.4 Whether the Panel failed to make an objective assessment under Article 11 of the
DSU
5.308. The European Union also claims that the Panel acted inconsistently with Article 11 of the
DSU. Specifically, the European Union argues that the Panel's finding that the MCIP designation is
"readily availabl e upon request", which led it to conclude that the European Union had not
established that the MCIP subsidy is specific under Article 2.2 of the SCM Agreement, is not based
on an objective assessment of the facts.707
5.309. We have reversed above the Panel's finding that the European Union had failed to establish
that the subsidy provided through the additional corporate income tax credits is specific within the
meaning of Article 2.2 of the SCM Agreement on account of the Panel's error in the application of
Article 2.2 of the SCM Agreement. Having reversed this finding, it is not necessary for us to examine
further the objectivity under Article 11 of the DSU of the Panel's factual assessment in support of
this finding.
5.5.5 Completion of the legal analysis
5.310. We now turn to consider the European Union's request that we complete the legal analysis
and find that the MCIP subsidy is specific within the meaning of Article 2.2 of the SCM Agreement.708
5.311. We recall that the Appellate Body may complete the legal analysis with a view to facilitating
the prompt settlement and effective resolution of the dispute when the factual findings by the

705 Panel Report, para. 8.931.
706 Panel Report, para. 8.931.
707 European Union's appellant's submission, para. 293 (quoting Panel Report, para. 8.931).
708 European Union's appellant's submission, para. 299.

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panel709 and/or facts on the Panel record, which are uncontested by the disputing parties710, provide
a sufficient factual basis for doing so. 711 At th e same time, the Appellate Body has declined to
complete the legal analysis for reasons such as the absence of full exploration of the issues before
the panel712, considerations pertaining to the parties' due process rights713, and where doing so was
not required to resolve the dispute.714
5.312. With these considerations in mind, we proceed to assess whether there is a sufficient factual
basis for us to complete the legal analysis in the present appeal and determine whether the MCIP
subsidy is specific under Article 2.2 of the SCM Agreement. We begin by addressing the question of
whether there is a limitation on access to the MCIP subsidy. We recall in this regard that
Section 12-6-3360 of the South Carolina Income Tax Act sets forth the conditions of eligibility for
the MCIP subsidy and provides that, in order to be eligible for this subsidy, taxpayers must be located
in an MCIP. 715 We thus consider that Section 12 -6-3360 of the South Carolina Income Tax Act
imposes a limitation on access to the MCIP subsidy.
5.313. Turning to the question of whether this limitation concerns "certain enterprises located within
a designated geographical region" within the meaning of Article 2.2 of the SCM Agreement, we note
that the European Union's claim pertains to the availability of the MCIP subsidy to Boeing as a result
of the inclusion of its manufacturing facilities within the Charleston -Colleton MCIP.716 As observed
by the Appellate Body in the original proceedings, the specificity inquiry:
{F}ocuses not only on whether the subsidy was provided to the particular recipients
identified in the complaint, but focuses also on all enterprises or industries elig ible to
receive that same subsidy. Thus, even where a complaining Member has focused its
complaint on the grant of a subsidy to one or more enterprises or industries, the inquiry
may have to extend beyond the complaint to determine what other enterprises o r
industries also have access to that same subsidy under that subsidy scheme.717
5.314. Thus, while the European Union's claim focuses on the availability of the MCIP subsidy to
Boeing because of its location in the Charleston -Colleton MCIP, the assessment of wheth er this
subsidy is specific under Article 2.2 of the SCM Agreement is broader. It concerns the question of
whether the MCIP subsidy is limited to "certain enterprises" located within a "designated
geographical region" and not whether it is available only t o Boeing, due to its location in the
Charleston-Colleton MCIP.
5.315. In addressing this issue, we note that Section 12-6-3360 of the South Carolina Income Tax
Act provides that, in order to be eligible for this subsidy, taxpayers must be "located in a business
or industrial park jointly established and developed by a group of counties". 718 It does not, on its
face, designate any particular MCIP(s) within which enterprises eligible for this subsidy must be
located. The United States further submits that Section 12-6-3360 does not allow the identification

709 See e.g. Appellate Body Reports, US – Gasoline, p. 19, DSR 1996:I, pp. 18-19; Canada – Periodicals,
p. 24, DSR 1997:I, p. 469; Australia – Salmon, paras. 117-119; US – Large Civil Aircraft (2nd complaint),
para. 1255.
710 See e.g. Appellate Body Reports, US – Lamb, paras. 150 and 172; US – Shrimp, paras. 123-124,
132, and 140; US – Section 211 Appropriations Act, paras. 343-345; EC and certain member States – Large
Civil Aircraft, para. 1176; US – Large Civil Aircraft (2nd complaint), paras. 1252 and 1262.
711 See also Appellate Body Reports, Colombia – Textiles, para. 5.30; US – Anti-Dumping Methodologies
(China), para. 5.146; Russia – Pigs (EU), para. 5.141; EC and certain member States – Large Civil Aircraft,
para. 1178; EC and certain member States – Large Civil Aircraft (Article 21.5 – US), para. 5.745.
712 See e.g. Appellate Body Reports, EC – Asbestos, paras. 81-82; EC and certain member States –
Large Civil Aircraft (Article 21.5 – US), para. 7.571; EC ‒ Seal Products, para. 5.69; Russia – Commercial
Vehicles, para. 5.141.
713 See e.g. Appellate Body Reports, EC – Export Subsidies on Sugar, para. 339; EC ‒ Seal Products,
para. 5.69.
714 Appellate Body Report, US – Steel Safeguards, para. 431.
715 Panel Report, para. 8.912 (quoting South Carolina Income Tax Act, South Carolina Code, Title 12,
Chapter 6 (Panel Exhibit EU-509), Section 12-6-3360(E)(1), in turn referring to Section 12-6-3360(C)).
716 Panel Report, para. 8.914 (referring to European Union's first written submission to the Panel,
paras. 631-641, 675-682, and 709-720; second written submission to the Panel, paras. 675-682 and
733-736).
717 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 753.
718 Panel Report, para. 8.912 (referring to South Carolina Income Tax Act, South Carolina Code,
Title 12, Chapter 6 (Panel Exhibit EU-509), Section 12-6-3360(C); quoting ibid., Section 12-6-3360(E)(1)).

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of the areas included within MCIPs, either explicitly or implicitly.719 On this basis, the United States
argues that Section 12-6-3360 of the South Carolina Income Tax Act does not designate the relevant
"geographical region" within the meaning of Article 2.2, and that, as a consequence, the MCIP
subsidy is not specific within the meaning of this provision.720
5.316. We agree with the United States to the extent that Section 12-6-3360 of the South Carolina
Income Tax Act does no t itself predetermine the geographical areas of the MCIPs established in
South Carolina. However, we disagree with the suggested implications of this for the analysis of
whether the MCIP subsidy is specific under Article 2.2 of the SCM Agreement. We recall that a
"designated geographical region" within the meaning of Article 2.2 refers to an identified
geographical area, space, or place of more or less definite extent or character. The identification of
a geographical region for the purposes of Article 2.2 may be explicit or implicit, provided that the
relevant region is clearly discernible from the text, design, structure, and operation of the subsidy
measure at issue.721
5.317. In the present case, the Panel found that, while the MCIP subsidy is provided at the sta te
level722, MCIPs are established by the South Carolina counties, pursuant to the authority granted to
them by Section 13 of Article VIII of the Constitution of South Carolina. 723 In exercising this
authority, Charleston County and Colleton County entered int o an agreement establishing the
Charleston-Colleton MCIP.724 The Charleston-Colleton MCIP is thus an MCIP that allows taxpayers
located within its boundaries to claim the additional corporate income tax credits, in accordance with
Section 12-6-3360 of the South Carolina Income Tax Act. The uncontested facts on the Panel record
further indicate that the geographical area and location of the Charleston-Colleton MCIP are defined
in the Agreement for Development for Joint County Industrial Park, as subsequently amended.725 In
this respect, we recall that a "designated geographical region" under Article 2.2 may encompass any
"identified tract of land within the jurisdiction of a granting authority" 726 and that it is not required
that it have a "formal administrative or economic identity". 727 While the geographical area of a
particular MCIP, such as the Charleston -Colleton MCIP, is not explicitly specified in
Section 12-6-3360 of the South Carolina Income Tax Act, it may be discerned from the instrument
establishing an MCI P. We thus consider that the subsidy measure at issue designates the
"geographical region" within which enterprises must be located in order to receive the subsidy.
5.318. We note that it was not contested before the Panel that multiple MCIPs may be created in
South Carolina, and that the size and configuration of MCIPs may change over time. The parties,
however, did not submit to the Panel information on the number of MCIPs established in
South Carolina and the frequency of changes in the size and configuration o f the MCIPs728, and the
Panel did not conduct an assessment of those factors. We thus see no basis on the Panel record
supporting the United States' contention that, because of a potentially unlimited number of MCIPs
that may be created in South Carolina, or because of the flexible nature of the territorial borders of
the existing MCIPs, the subsidy at issue is not limited to enterprises located within the geographical
area of an MCIP, but is in fact widely available in South Carolina. 729 We have taken note of the
Panel's statement that the MCIP designation is "readily available upon request to any company".730

719 United States' appellee's submission, para. 142.
720 United States' appellee's submission, para. 142.
721 Appellate Body Report, US – Washing Machines, para. 5.229.
722 Panel Report, para. 8.925.
723 Panel Report, para. 8.913.
724 Panel Report, para. 8.913.
725 Panel Report, para. 8.913 (referring to Agreement for Development for Joint County Industrial Park
between Charleston County and Colleton County (1 September 1995) (Panel Exhibit USA-554); Inducement
and Millage Rate Agreement between Charleston County and Project Emerald (21 December 2004)
(Panel Exhibit EU-553), p. 4; Charleston County Council Ordinance 1475 (5 December 2006) (Panel Exhibit
EU-555); Boeing FILOT Agreement (Panel Exhibit EU-470), section 5.3; Charleston County Ordinance 1626
(2 February 2010) (Panel Exhibit EU-516), section 1).
726 Panel Report, US – Anti-Dumping and Countervailing Duties (China), para. 9.144.
727 Panel Report, US – Anti-Dumping and Countervailing Duties (China), para. 9.140.
728 We note that the United States submitted to the Panel the list of Charleston County ordinances
amending the boundaries of the Charleston-Colleton MCIP (United States' response to Panel question No. 149,
para. 18). There is, however, no information on the Panel record with regard to the existence and number of
other MCIPs in South Carolina, or changes made to their boundaries.
729 Panel Report, para. 8.930 (referring to United States' first written submission to the Panel,
730 Panel Report, para. 8.931.

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However, the Panel did not provide any explanation or reasoning in support of that statement.
Moreover, the Panel did not provide any explanation as to how , in the circumstances of this case,
the extent of potential access to the subsidy served to overcome the express geographical
delimitation that attaches to each MCIP designation. In the absence of such an explanation, we
consider that the manner in which this subsidy measure designates the geographical area of an MCIP
provides a sufficient basis for a finding that the subsidy measure at issue designates the
"geographical region" within which enterprises must be located in order to receive the subsidy.
5.319. In view of the foregoing, we find that the subsidy provided to Boeing through the additional
corporate income tax credits, pursuant to Section 12-6-3360 of the South Carolina Income Tax Act,
is specific within the meaning of Article 2.2 of the SCM Agreement.
5.5.6 Conclusion
5.320. In sum, a subsidy is specific under Article 2.2 of the SCM Agreement when access to it is
either explicitly or implicitly limited to entities engaged in economic activities in the market that
have their headquarters, branch offices, or manufactur ing facilities in a "designated geographical
region" within the jurisdiction of the granting authority, or that are otherwise established within such
a region. In the present case, such limitation contained in Section 12-6-3360 of the South Carolina
Income Tax Act is not made void by the fact that enterprises not currently located in an MCIP may
become part of an MCIP in the future and then qualify for the subsidy. We find that the Panel erred
in the application of Article 2.2 of the SCM Agreement in statin g that the availability of the MCIP
subsidy only to enterprises located within an MCIP "cannot be meaningfully considered to amount
to a limitation under Article 2.2" of the SCM Agreement. 731 Consequently, we reverse the Panel's
finding, in paragraphs 8.931 and 11.7.c.vii of the Panel Report, that the European Union has failed
to establish that the subsidy provided through the additional corporate income tax credits is specific
within the meaning of Article 2.2 of the SCM Agreement.
5.321. Furthermore, we complete t he legal analysis and find that the subsidy provided to Boeing
through the additional corporate income tax credits, pursuant to Section 12 -6-3360 of the
South Carolina Income Tax Act, is specific within the meaning of Article 2.2 of the SCM Agreement.
5.6 Continuing adverse effects from the original reference period
5.322. The European Union presents two sets of challenges to the Panel's finding that the
European Union had failed to establish that certain forms of serious prejudice, which were found by
the original panel to be the effects of the pre -2007 aeronautics R&D subsidies in the original
reference period in the form of significant price suppression, signifi cant lost sales, and a threat of
displacement or impedance with respect to the A330 and Original A350, continue into the
post-implementation period as serious prejudice with respect to the A330 and A350XWB.732
5.323. First, the European Union requests us to reverse the Panel's finding that adverse effects
consisting of significant price suppression and significant lost sales cannot continue to be caused by
subsidies in instances where LCA orders occurred prior to the end of the implementation period, but
for which deliveries remained outstanding in the post -implementation period. The European Union
submits that the Panel erred under Article 7.8 of the SCM Agreement, and acted inconsistently with
Article 11 of the DSU, by excluding specific transactions found to cause adverse effects during the
original proceedings from the obligation to take appropriate steps to remove adverse effects.
5.324. Second, the European Union requests us to reverse the Panel's finding that the
European Union's claim of continuing adverse effects was unsupported by the evidence and/or was
in contradiction with the findings made in the original proceedings. The European Union argues that
the Panel acted inconsistently with Article 11 of the DSU by deviating from the adopted findings in
the original p roceedings concerning the 200 -300 seat LCA market by now focusing on separate
aircraft models. The European Union further alleges that the Panel erred under Articles 5 and 6.3 of

731 Panel Report, para. 8.931.
732 Panel Report, paras. 9.332 and 11.8.b. This aspect of the European Union's claims was referred to by
the Panel as the European Union's "parallel argument" and was considered separately from the
European Union's "main case" regarding present adverse effects in the post-implementation period through
technology and price causal mechanisms. (See Panel Report, paras. 9.109-9.113)

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the SCM Agreement by failing to conduct a proper counterfactual analysis when assessing whether
there was continuing price suppression of the A330 in the post-implementation period.
5.6.1 Whether the Panel erred under Article 7.8 of the SCM Agreement, or acted
inconsistently with Article 11 of the DSU, by excluding transactions found to cause
adverse effects during the original reference period from the obligation to take
appropriate steps to remove adverse effects
5.325. The European Union considers that the Panel erred in the interpretation of Article 7.8 of the
SCM Agreement by purportedly excluding adverse effects "found in relation to specific transactions
during the original reference period" from the obligation to take appropriate steps to remove adverse
effects.733 Thus, according to the European Union, the Panel erroneously found that the original
adverse effects were no longer present adverse effects, but rather "continuing manifestations or
effects of past adverse effects". 734 As the European Union argues, to the extent a subsidy is
maintained and its adverse effects still exist in the post -implementation period, the implementing
Member has an obligation to take appropriate steps to remove the adverse effects, including with
respect to the specific transactions addressed in the original proceedings. The European Union also
submits that the P anel erred in the application of Article 7.8 of the SCM Agreement, and acted
inconsistently with Article 11 of the DSU, by erroneously finding that lost sales and price suppression
begin and end at the time at which an LCA is ordered, and do not exist thro ughout the life of the
contract until the final aircraft is delivered. For the European Union, this runs counter to the original
panel's finding that the phenomena of lost sales and price suppression in the LCA market "should be
understood to begin at the time at which an LCA order is obtained (or an order is lost), and to
continue up to and including the time at which that aircraft is delivered (or not delivered)".735
5.326. The United States maintains that the Panel correctly rejected the European Union's
interpretation of Article 7.8, which is fundamentally at odds with the prospective nature of that
provision.736 According to the United States, the fact that deliveries (from orders that were found to
constitute adverse effects in the original reference period) were scheduled after the expiration of the
implementation period does not mean that they represent harm in the post-implementation period.
Rather, the United States argues, this is simply a consequence of the original lost sale, and to require
action with respect to those deliveries would require the United States retrospectively to remedy the
specific indicia of harm from the original proceedings. For the United States, the use of the present
tense in Article 6.3 is critical, and thus the United States considers that the "effects" that a complying
Member must "remove" are those that result from the subsidies at the time of the obligation – that
is, effects occurring after the end of the implementation period – and not those that resulted during
the original reference period.737 Regarding the European Union's assertion that the Panel improperly
deviated from the original panel's statement on the phenomena of lost sales and price suppression,
the United States maintains that the Panel carefully considered the statem ent highlighted by the
European Union and concluded that the original panel and the Appellate Body relied on sales
campaign evidence and the resultant orders, not delivery data.738
5.327. At the outset, we note the United States' contention that the European Union's appeal of the
Panel's interpretation of Article 7.8 is "moot" because the Panel provided "an independent basis for
the Panel's ultimate conclusion that the transactions were not evidence of lost sales or price
suppression".739 This concerns the Panel's fi nding that the European Union's claim of continuing
adverse effects was unsupported by the evidence and/or in contradiction with the findings made in
the original proceedings.740 The United States' suggestion appears to be that, if we see no reason to
disturb the Panel's conclusions based on these evidentiary grounds, we need not consider the
interpretation claim in order to sustain the Panel's ultimate conclusion that the European Union had
failed to establish that serious prejudice found to exist in the original proceedings continues into the
post-implementation period. We note that this interpretation claim raise s issues of law covered in

733 European Union's appellant's submission, para. 329 (quoting Panel Report, para. 9.312).
734 European Union's appellant's submission, para. 329 (quoting Panel Report, para. 9.314).
(emphasis added by the European Union omitted)
735 European Union's appellant's submission, para. 357 (quoting Original Panel Report, para. 7.1685).
736 United States' appellee's submission, paras. 161-162.
737 United States' appellee's submission, para. 165.
738 United States' appellee's submission, paras. 171-176 and 185.
739 United States' appellee's submission, para. 151.
740 Panel Report, para. 9.332.

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the Panel Report and legal interpretations developed by the Panel, within the meaning of Article 17.6
of the DSU. We fur ther note that the question as to how the United States' compliance obligation
under Article 7.8 of the SCM Agreement relates to the timing of LCA orders and deliveries has a
bearing on subsequent claims at issue in this appeal. We therefore proceed in exa mining the
European Union's claim.
5.328. Article 7.8 provides that, when a panel or Appellate Body report is adopted "in which it is
determined that any subsidy has resulted in adverse effects … the Member granting or maintaining
such subsidy shall take appropri ate steps to remove the adverse effects or shall withdraw the
subsidy".741 By indicating that the removal of adverse effects relates to "such subsidy" that was
found to have caused the effects in the original proceedings, Article 7.8 clearly specifies that t he
focus of the analysis concerns the removal of adverse effects caused by the subsidy that was
challenged in the original proceedings, to the extent that such subsidy continues to be "grant{ed}
or maintain{ed}" by the implementing Member after the end of the implementation period. As the
Appellate Body recently stated, "Article 7.8 reflects an obligation to cease any conduct amounting
to the 'granting or maintaining' of subsidies that cause adverse effects ."742 The Appellate Body has
added that Article 7.8 sets out an obligation "of a continuous nature, extending beyond subsidies
granted in the past"743; "{w}hile a past subsidy that no longer exists may 'be found to cause or have
caused adverse effects that continue to be present during the reference period', t he source of the
inconsistency under Article 5 is nonetheless the subsidy that causes adverse effects."744 Accordingly,
in assessing whether a Member has taken appropriate steps to remove the adverse effects of
subsidies within the meaning of Article 7.8, de velopments up to and including the
post-implementation period must be taken into account. Moreover, while the starting point of the
analysis under Article 7.8 must be the effects of the original subsidy or subsidies found to have
caused adverse effects in the original proceedings, the inquiry must also take into account any
developments concerning those subsidies, as well as any new subsidies found to be closely related
to such subsidies, and the impact this has for any adverse effects in the post-implementation period.
5.329. The participants disagree as to the ongoing impact of the serious prejudice phenomena of
significant price suppression and significant lost sales, as they relate to particular transactions that
were found to form the basis of adverse effects findings in the original reference period. More
concretely, the question is when the market phenome na of significant price suppression and
significant lost sales that arose in the original reference period could be said to continue after the
end of the implementation period, and whether the Panel was justified in excluding the potential
relevance of deliveries in the post-implementation period as the basis for establishing such a case.
5.330. Article 6.3(c) refers to significant price suppression and significant lost sales. In US – Upland
Cotton, the Appellate Body endorsed the view of the panel that "price sup pression" arises when
prices are "prevented or inhibited from rising (i.e. they do not increase when they otherwise would
have) or they do actually increase, but the increase is less than it otherwise would have been". 745
The Appellate Body has also observed that price suppression is not a directly observable
phenomenon, and inevitably requires a counterfactual analysis involving "a comparison of an
observable factual situation (prices) with a counterfactual situation (what prices would have been)

741 Emphasis added.
742 Appellate Body Report, EC and certain member States – Large Civil Aircraft (Article 21.5 – US),
para. 5.364.
743 Appellate Body Report, EC and certain member States – Large Civil Aircraft (Article 21.5 – US),
para. 5.364 (quoting Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 237).
744 Appellate Body Report, EC and certain member States – Large Civil Aircraft (Article 21.5 – US),
para. 5.371 (quoting Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 712).
(emphasis original; fn omitted) The Appellate Body further explained that "{t}he option to 'withdraw the
subsidy' under Article 7.8 contemplates action in relation to the subsidy found to have caused adverse effects
… {t}o the extent that the underlying subsidy has ceased to exist, there is no additional requirement, under
Article 7.8, to remove any lingering effects that may flow from that subsidy." (Ibid.) Unlike in EC and certain
member States – Large Civil Aircraft (Article 21.5 – US), the Appellate Body is not confronted in this dispute
with the question of whether adverse effects in the post-implementation period are caused by subsidies that
have since expired.
745 Appellate Body Report, US – Upland Cotton, paras. 423-424 (quoting Panel Report, US – Upland
Cotton, para. 7.1277).

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where one h as to determine whether, in the absence of the subsidies (or some other controlling
phenomenon), prices would have increased or would have increased more than they actually did".746
5.331. In EC and certain member States – Large Civil Aircraft, the Appellate Body e xplained 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.747 The Appellate Body added that it is a "relational
concept" and that its assessment "requires consideration of the behaviour of both the subsidized
firm(s), which must have won the sales, and the competing firm(s), which allegedly lost the sales".748
For the Appellate Body, an assessment of lost sales also normally entails a counterfactual
assessment, in this case 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, thus revealing the effect of the challenged subsidies."749
5.332. With regard to the meaning of "significant", the Appellate Body noted in EC and certain
member States – Large Civil Aircraft that the term appears before the phrase "price suppression,
price depression or lost sales" in Article 6.3(c), and accordingly understood the term "significant" as
qualifying all three situations. 750 In US – Upland Cotton, the Appellate Body endorsed the panel's
view that the term "significant" means "important, notable or consequential", and that such a term,
depending on the circumstances, could have both quantitative and qualitative aspects.751
5.333. Depending on the circumstances of a particular transaction or set of transactions that form
the basis for a finding of significant price suppression or significant lost sales under Article 6.3(c) ,
we do not see that the foregoing terms suggest that the particular phenomena of significant price
suppression or significant lost sales must be limited to the moment at which the transaction or set
of transactions first occur. With regard to price suppre ssion, for example, there may be
circumstances in which certain payment terms in the future will continue to be a reflection of
suppressed prices. Indeed, as the Appellate Body noted, the determination as to whether price
suppression exists is focused on whether, in the absence of subsidies, prices would have increased
or would have increased more than they actually did. We do not see that such an assessment, even
with respect to the original transactions that formed the basis of the original adverse effects findings,
could not continue to be relevant even after the end of the implementation period to the extent that
the pricing terms of those transactions continue to indicate an ongoing effect of price suppression.
With respect to lost sales, we acknowledge that there may be a stronger case for understanding the
phenomena as limited to the moment at which the suppliers of the complaining Member "failed to
obtain" a sale that was instead won by suppliers of the respondent Member. At the same time,
depending on the nature and scope of the transaction, there may be elements affecting finalization
of the transaction, or concerning follow -on transactions in the form of options or purchase rights,
that may be indicative of an ongoing phenomenon of lost sales. In any event, we would emphasize
that the extent to which elements of the transactions underlying the original finding of adverse
effects in the form of price suppression or lost sales endure in a manner so as to indicate the ongoing
existence of adverse effect s will very much depend on the nature, timing, and scope of those
underlying transactions. In addition, we are cognizant of the fact that such variables will be affected
by the particular dynamics of transactions in a particular industry, and that how the phenomena of
price suppression and lost sales manifest themselves in the LCA industry may not be extrapolated
to other industries.
5.334. In the context of the LCA industry in particular, the original panel remarked that, given the
particularities of LCA producti on and sale, the phenomena of price suppression and lost sales "do
not begin and end at the time at which an LCA is ordered ", but "should be understood to begin at
the time at which an LCA order is obtained (or an order is lost), and to continue up to and including
the time at which that aircraft is delivered (or not delivered)".752 The original panel also considered
that, because the phenomena of price suppression and lost sales exist from the time an LCA is
ordered to the time it is delivered, "data pertain ing to both LCA orders and to LCA deliveries will

746 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 351.
747 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1220.
748 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1220.
749 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1216.
750 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1215.
751 Appellate Body Report, US – Upland Cotton, paras. 426-427 (referring to Panel Report, US – Upland
Cotton, para. 7.1326) and 490.
752 Original Panel Report, para. 7.1685.

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potentially be relevant to demonstrating the existence of significant price suppression and significant
lost sales."753 We note that these findings were not appealed in the original proceedings, and that
neither participant has taken issue with these general propositions set out by the original panel.754
5.335. We consider that, in the LCA market, the market phenomena of price suppression and lost
sales are not limited to what occurs at the time of an LCA order, and that such phenomena may, in
appropriate factual circumstances, continue up to the point of LCA delivery. As both the panel and
the Appellate Body remarked in the original proceedings, LCA are sold to customers through
long-term contracts, often involving staggered deliveries over several years.755 Although the terms
and conditions of each purchase contract are set at the time the order is made (including different
elements, such as aircraft specification, net price, discounts, non -price concessions, and financing
arrangements), "{c}omplete payment does not occur until delivery of the aircraft."756 Moreover, the
original panel and Appellate Body noted that these contracts also have escalation clauses that
provide for increases to the basic airframe pri ce to account for the time that elapses between
negotiation of price at the time of order and delivery of the aircraft, and that these facts can
significantly increase the LCA purchase price. 757 Thus, although the extent to which prices are
suppressed or sales are lost is certainly first manifest at the time LCA are ordered, the consequences
of these phenomena may continue to be affected by factors occurring from the time of order through
delivery, which indicates that the phenomena of price suppression and l ost sales could be found to
continue through to the moment of LCA delivery.
5.336. At the same time, it would be improper to suggest that in all instances involving the
phenomena of price suppression and lost sales in the LCA market, the phenomena manifest
themselves to the same degree throughout the time period from order to delivery. As the
Appellate Body has noted , "effects of a subsidy will ordinarily dissipate over time and will end at
some point after the subsidy has expired"758, and thus a panel "should consider, where relevant for
the adverse effects analysis, that the effects of a subsidy will ordinarily dissipate over time and will
come to an end".759 For instance, in the LCA industry, although price escalation clauses may continue
to reflect evidence of ongoing price suppression, the terms have already been set at the time of the
original order. As the original panel noted, "there is, in principle, no re-negotiation of the terms and
conditions of the purchase contract, and assessment of the profitability of a certain contract prior to
delivery, as well as the profit margins actually generated, is based on the terms and conditions
established at the time of order ."760 Similarly, although there may be circumstances in which the
consequences of a lost sale may per sist where a lost sale for which delivery remains outstanding
continues to exert harmful consequences on a competitor, there can be little doubt that the sale was
"lost" at the time of order when the supplier of the subsidized Member obtained that sale at the
expense of that competitor. We therefore do not see that there can be any generalized guidance
about the circumstances in which original findings of price suppression or lost sales may be said to
persist beyond the moment of order.
5.337. Turning to the Panel's analysis, we observe that, although the Panel took note of the original
panel's statements that the phenomena of price suppression and lost sales exist from the time of
LCA order through delivery761, the Panel then sought to dismiss the relevance of these statements
in the circumstances of this case on several grounds. The Panel noted that when the original panel
reached findings of adverse effects consisting of significant price suppression and significant lost

753 Original Panel Report, para. 7.1686.
754 Although not appealed, these findings were also referenced by the Appellate Body. (Appellate Body
Report, US – Large Civil Aircraft (2nd complaint), para. 901)
755 Original Panel Report, para. 7.1685; Appellate Body Report, US – Large Civil Aircraft (2nd complaint),
para. 904.
756 Original Panel Report, para. 7.1685 (referring to Declaration of Christian Scherer, Airbus SAS,
Commercial Aspects of the Aircraft Business from the Perspective of a Manufacturer (March 2007) (Declaration
of Christian Scherer) (Original Panel Exhibit EC-11) (BCI), para. 49); Appellate Body Report, US – Large Civil
Aircraft (2nd complaint), para. 904.
757 Original Panel Report, para. 7.1685 (referring to Declaration of Christian Scherer (Original Panel
Exhibit EC-11) (BCI), para. 26); Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 904.
758 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 713. The
Appellate Body added that "{i}ndeed, as with a subsidy that has a finite life and materializes over time, so too
do the effects of a subsidy accrue and diminish over time." (Ibid.)
759 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 714.
760 Original Panel Report, para. 7.1685.
761 Panel Report, para. 9.307 (referring to Original Panel Report, paras. 7.1685-7.1686).

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sales, it did not explicitly recall this gen eral proposition, but instead relied exclusively on order
data.762 Accordingly, the Panel considered that "it is somewhat unclear whether and, if so, how the
idea that price suppression and lost sales 'exist from the time an order is made, up to and including
its delivery' is reflected in the actual findings of significant price suppression and lost sales made in
the original proceeding."763
5.338. We consider that the Panel did not have a sound basis for distinguishing the original panel's
general pronouncements reg arding the phenomena of price suppression and lost sales, and the
original panel's subsequent findings regarding those phenomena. The original panel stated that,
because the phenomena of price suppression and lost sales exist from the time an LCA is ordered to
the time it is delivered, "data pertaining to both LCA orders and to LCA deliveries will potentially be
relevant to demonstrating the existence of significant price suppression and significant lost sales."764
As an evidentiary matter, a party may offer, and a panel may choose to rely upon, some combination
of order and delivery data in seeking to establish the existence of significant price suppression or
significant lost sales. It may even be that such a determination could be made on the basis of order
data alone. A panel's reliance on such data in a particular dispute, however, does not, in our view,
undermine the broader proposition that the serious prejudice phenomena themselves may not be
confined to the time of the LCA order only, but instead may continue through the point of delivery.
5.339. The Panel then went on to identify additional, "more important" reasons for finding the
European Union's claim under Article 7.8 to be "problematic". 765 The essential difficulty the Panel
had with the European Union's claim is that it suggested that, in order for the United States to take
appropriate steps to remove the adverse effects of significant price suppression and lost sales, it
must cease such phenomena with respect to the original transactions . For the Panel, s uch an
approach: (i) is not "meaningful in a practical sense" 766 since it is not clear how the United States
could remove price suppression or lost sales occurring with respect to those specific transactions;
and (ii) cannot be "reconcile{d} with the prospec tive interpretation of Article 7.8"767 since it would
seem to require the United States to undo retrospectively those original transactions. The Panel
accordingly disagreed with the European Union's proposition that , where aircraft that were the
subject of a past order found in the original proceedings to be a lost sale are undelivered at the time
of the expiry of the implementation period, this is a present adverse effect. Instead the Panel
considered this to be "a c onsequence or manifestation of an event that occurred in the past" or as
"continuing manifestations or effects of past adverse effects".768
5.340. We consider that the Panel adopted an overly rigid approach with respect to the question of
whether outstanding deliv eries concerning LCA orders that were relied on to find significant price
suppression or significant lost sales may still provide a basis for a finding of such effects in the
post-implementation period. As we have noted, the original panel seems to have de veloped
reasonable grounds for understanding such market phenomena, in the specific context of the LCA
market, as potentially encompassing the period from order through delivery. In our view, this does
not mean that the existence of any outstanding deliver ies in the post -implementation period is
necessarily sufficient to establish the existence of adverse effects in that period. However, it would
seem that what transpires between LCA orders and their subsequent deliveries would be relevant,
particularly as it relates to evidence demonstrating the ongoing existence of price suppression or
lost sales. Moreover, establishing the existence of serious prejudice under Article 6.3(c) with respect
to the market phenomena of price suppression or lost sales also requi res that the phenomena be
found to be "significant". Thus, simply because certain market phenomena of price suppression or
lost sales may be shown to persist after the end of the implementation period, this will not
necessarily mean that such price suppres sion or lost sales would be "significant" in the
post-implementation period.
5.341. For the foregoing reasons, the mere existence of outstanding deliveries after
September 2012 relating to original orders found to have resulted in significant price suppression or
significant lost sales between 2004 and 2006 would not necessarily , by itself, be dispositive as to

762 Panel Report, para. 9.308.
763 Panel Report, para. 9.310.
764 Original Panel Report, para. 7.1686. (emphasis added)
765 Panel Report, para. 9.310.
766 Panel Report, para. 9.312.
767 Panel Report, para. 9.313.
768 Panel Report, para. 9.314.

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the existence of significant price suppression or significant lost sales in the post -implementation
period. Deliveries in the post -implementation period may indeed be relevant to an adverse effects
analysis if there is evidence that significant price suppression or lost sales occurring between the
time of order and delivery continues into the post -implementation period. Specifically, there would
need to be s ome indication that subsequent developments following the initial order confirm the
ongoing existence of such market phenomena. Therefore, while we would not agree with the
European Union's assertion before the Panel that outstanding deliveries in the post-implementation
period are necessarily sufficient to establish the existence of present adverse effects, we likewise
would disagree with the Panel's suggestion that such evidence can never form the basis of a finding
as to the ongoing existence of such effects.
5.342. We also find the Panel's reasoning with respect to Article 7.8 un persuasive. The Panel's
concern that the European Union's claim would result in a retrospective remedy appears premised
on the notion that the only means by which the United States coul d bring itself into compliance
under the European Union's theory is to undo the original orders. However, Article 7.8 does not
specify what "steps" are "appropriate" for purposes of removing the adverse effects, which suggests
that it covers a range of possible actions. While certain actions regarding a subsidy may not lead to
its withdrawal, they could, for example, alter the benefit of the subsidy such that it attenuates the
causal link between the subsidy and the adverse effects. While the Panel may be correct to note that
the European Union did not explain "what kind of action the United States could have taken with
respect to that undelivered aircraft that would have removed the 'present' adverse effects" 769, this
does not mean that such removal is not po ssible, and does not support the Panel's apparent
assumption that the only way to remove such effects would therefore have to be a retrospective
undoing of the original orders.
5.343. More importantly, the Panel's approach leads it to draw a faulty distinction between "present
adverse effects", on the one hand, and "consequence{s} or manifestation{s} of an event that
occurred in the past" or "continuing manifestations or effects of past adverse effects", on the other
hand.770 On this basis, the Panel sought to disregard the significance of outstanding deliveries in the
post-implementation period by characterizing them as a mere consequence of past adverse effects.
However, as we have noted, Article 7.8 calls on panels to assess whether an implementing Member
has ceased conduct amounting to the granting or maintaining of subsidies that cause adverse effects.
To the extent that adverse effects arising in the post-implementation period are shown to have been
caused by subsidies that have not expired, they are themselves adverse effects, not something
consequential to the original adverse effects. In this respect, we see no basis to categorically exclude
consideration of delivery data concerning the post -implementation period to the extent that such
evidence, in conjunction with other evidence, shows ongoing price suppression or lost sales in the
post-implementation period. As we have said, while evidence pertaining to outstanding deliveries is
unlikely by itself to be dispositive as to adverse effects occurring well after the LCA sales that gave
rise to the original findings were made, we see no tenable basis to exclude the potential relevance
of such evidence in establishing such a case.
5.344. For the foregoing reasons, we find that the Panel erred in its interpretation of Artic le 7.8 of
the SCM Agreement by excluding ab initio, from an inquiry into whether the United States had failed
to take appropriate steps to remove the adverse effects of the subsidies, evidence relating to
transactions for which the orders arose in the orig inal reference period but for which deliveries
remain outstanding in the post -implementation period. Accordingly, we reverse the Panel's
interpretation of Article 7.8, in paragraphs 9.311 to 9.314 of the Panel Report, and its statement in
paragraph 9.332 o f the Panel Report, that reliance on the role of deliveries of aircraft in the
post-implementation period as evidence of a continuation of serious prejudice "is inconsistent with
a prospective interpretation of Article 7.8".771
5.345. Additionally, the European Union claims that the Panel erred in the application of Article 7.8
of the SCM Agreement, and acted inconsistently with Article 11 of the DSU, by departing from the
original panel's finding that "price suppression and lost sales … exist from the time an order for LCA
is made, up to and including its delivery."772 Having examined above the role of orders and deliveries

769 Panel Report, para. 9.312.
770 Panel Report, para. 9.314.
772 European Union's appellant's submission, paras. 357, 361-362, 366, and 368 (quoting Original Panel
Report, para. 7.1686).

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in assessing a claim of continuing adverse effects, and having reversed the Panel's interpretation of
Article 7.8 of the SCM Agreement , we need not further consider these corollary claims by the
European Union.
5.346. We further note that, as a consequence of our reversal of the Panel's interpretation of
Article 7.8 as it relates to the significance of deliveries for establishing significant price suppression
and significant lost sales, the European Union additionally requests that we reverse the Panel's
finding in paragraph 9.407 regarding significant lost sales caused by the tied tax subsidies in the
single-aisle LCA market insofar as it exclu ded the Fly Dubai 2008 and Delta Airlines 2011 sales
campaigns.773 It is not clear to us whether the Panel's decision to exclude these two sales campaigns
from its finding of significant lost sales resulted from the error we have associated with the Panel's
interpretation of Article 7.8. Indeed, the Panel did not provide any reason for the treatment of these
two sales campaigns other than to state in footnotes that it was "not necessary" for it to consider
whether these two sales campaigns constitute evidence of significant lost sales in the
post-implementation period. 774 Additionally, it appears that the basis for the European Union's
allegation that these two sales campaigns also constitute significant lost sales is the contention that
there remain outstanding deliveries at the end of the implementation period. 775 As we have
explained, we do not consider this to be a sufficient basis upon which to establish the existence of
serious prejudice in the form of significant lost sales in the post-implementation period. Accordingly,
we decline to reverse this finding by the Panel in the manner requested by the European Union.
5.6.2 Whether the Panel erred under Articles 5 and 6.3 of the SCM Agreement, or acted
inconsistently with Article 11 of the DSU, in its treatment of claims of continuing adverse
effects from the original proceedings
5.347. The European Union also appeals the Panel's separate conclusion that the European Union's
arguments regarding continuing adverse effects were "unsupported by the evidence and/or in
contradiction with the findings made in the original proceeding". 776 We first examine the
European Union's claim that, in reaching this conclusion, the Panel acted inconsistently with
Article 11 of the DSU by deviating from the adopted findings in the original proceedings concerning
the 200-300 seat LCA market. According to the European Union, although the original panel made
intermediate findings that were based on evidence relating to the A330 and the Original A350, the
ultimate findings of the original panel related to the 200-300 seat LCA market as a whole, which had
been defined to include those two LCA models as well as the A350XWB-800.777 The European Union
considers that, where the Panel's findings confirmed the continued existence of the same LCA market
for which the original panel and the Appellate Body made their respective findings of significant price
suppression, significant lost sales, and threat of displacement or impedance, the Panel had no basis
to deviate from the findings in the original proceedings. The European Union submits that the fact
that the Panel deviated from the original findings and focused its adverse effects assessment on
different aircraft models therefore constitutes legal error under Article 11 of the DSU.
5.348. The United States responds that t he Panel did not improperly deviate from the original
panel's findings. According to the United States, the European Union cannot fault the Panel for
focusing on argumentation and evidence for specific aircraft models because the original panel
adopted the same approach in the original proceedings, as did the European Union when presenting
its arguments and evidence in these compliance proceedings. 778 In addition, the United States
considers that the European Union is wrong to assert that the circumstances of these compliance
proceedings are the same as, and therefore require the same conclusions as, the situation before
the original panel. This proposition, the United States maintains, is legally incorrect and contrary to
the evidence, and the Panel was there fore required to carefully consider the evidence and
argumentation concerning developments since the original reference period.779

773 European Union's appellant's submission, para. 376.
775 European Union's appellant's submission, para. 377.
776 European Union's Notice of Appeal, paras. 15-16 (quoting Panel Report, para. 9.332). (emphasis
omitted)
777 European Union's appellant's submission, para. 955.
778 United States' appellee's submission, paras. 509-511.
779 United States' appellee's submission, paras. 513-515.

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5.349. The central proposition underpinning this claim on appeal is the European Union's contention
that the Panel acted in a manner i nconsistent with Article 11 of the DSU because it "deviated" 780
from the findings in the original proceedings. The European Union adds that, instead of following
those findings, the Panel focused on the "entirely irrelevant" 781 fact that the A330, Original A35 0,
and the A350XWB are "different aircraft".782 The paragraphs cited by the European Union pertain to
the Panel's consideration of the European Union's claims regarding significant price suppression,
significant lost sales, and threat of displacement of the A350XWB.783 As the European Union explains,
because there has been no change to the LCA competing in the 200-300 seat LCA market for which
the original panel and the Appellate Body made their respective adverse effects findings, the Panel
had no basis for deviating from the approach in the original proceedings by now focusing on separate
aircraft models.784 In this respect, the European Union relies on the observation that, although the
original panel made intermediate findings that were based on a consideration of evidence that related
to the A330 and the Original A350, the ultimate findings made by the original panel related to the
200-300 seat LCA market as a whole, which was defined also to include the A350XWB-800.785
5.350. Beginning with the original panel's findi ngs of adverse effects, we understand that the
original panel appears to have accepted the European Communities' contention that the 200 -300
seat LCA market consisted of the Boeing 787 LCA family as well as the Airbus A330, Original A350,
and A350XWB-800 LCA.786 Moreover, we note that the original panel appeared to base its findings
on evidence relating to the A330 and the Original A350, but not the A350XWB. Thus, with regard to
significant price suppression, the original panel found that it was able to concl ude, "based on the
evidence" that, absent the subsidies, "prices of the A330 and the Original A350 in the 2004 to 2006
period would have been significantly higher ."787 Similarly, with regard to significant lost sales, the
original panel found that, absent th e subsidies, "Airbus would have made additional sales of the
A330 and Original A350 over the same period."788 Furthermore, regarding the threat of displacement
or impedance, the original panel found that, absent the subsidies, "Airbus would have obtained
additional orders for its A330 and Original A350 LCA from customers in third country markets
Australia, Ethiopia, Kenya and Iceland in 2005 and 2006 ."789 It is therefore clear that the original
panel's findings were not based on evidence relating to the A350XWB. In addition, we note that, at
least with respect to significant price suppression, the original panel explicitly excluded any finding
of price suppression for the A350XWB-800 because it had no pricing data before it on which to reach
such a finding.790 In any event, we would note that the fact that the Panel's findings were not based
on evidence pertaining to the A350XWB -800 may not be surprising given that the A350XWB -800
was launched in December 2006, which was the last month of the original reference per iod from
2004 to 2006.791
5.351. At the same time, the European Union is correct to note that, in each instance, the original
panel also seemed to frame its conclusions with respect to a product market and/or geographic
markets as a whole. Thus, following its reference to the evidence as limited to the A330 and Original
A350, the panel found significant price suppression and significant lost sales "in the 200 -300 seat
wide-body LCA product market, within the meaning of Article 6.3(c) of the SCM Agreement", and

780 European Union's appellant's submission, paras. 954, 957, and 965.
781 European Union's appellant's submission, para. 954.
782 European Union's appellant's submission, para. 954 (quoting Panel Report, paras. 9.322-9.324 and
9.331).
783 Although the European Union also makes reference to the Panel's finding of significant price
suppression with regard to the A330, the Panel did not rely on the fact that the A330 and the A350XWB-800
are different aircraft in order to sustain its rejection of that claim by the European Union. (See Panel Report,
paras. 9.316-9.321) We address below the European Union's claim on appeal that the Panel erred under
Articles 5 and 6.3 of the SCM Agreement in its treatment of the European Union's claim of significant price
suppression regarding the A330.
784 European Union's appellant's submission, para. 958.
785 European Union's appellant's submission, para. 955 (referring to Original Panel Report, paras. 7.1670
and 7.1672; Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 897-898).
786 Original Panel Report, paras. 7.1670 and 7.1672.
787 Original Panel Report, para. 7.1794.
788 Original Panel Report, para. 7.1794.
789 Original Panel Report, para. 7.1794.
790 Original Panel Report, para. 7.1793. ("There is no evidence before the Panel as to price trends for
the A350XWB-800, nor has the European Communities presented evidence concerning the actual pricing of the
A350XWB in the context of specific LCA sales campaigns.")
791 Original Panel Report, para. 7.1777.

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threat of displacement or impedance "of exports from third country markets within the meaning of
Article 6.3(b) of the SCM Agreement".792
5.352. In the compliance proceedings, the Panel did not accept that the original adverse effects
findings that were made with respec t to the Original A350 could be transposed into findings of
continuing adverse effects with respect to the A350XWB. Thus, in addressing the European Union's
claim of continuing significant price suppression for the A350XWB in the post-implementation period,
the Panel considered that the European Union's contention was "in contradiction with the fact that
the price suppression that occurred in 2004 -2006 was price suppression of a different aircraft, the
Original A350".793 With regard to the claim of continuing significant lost sales for the A350XWB, the
Panel stated that there was no "logical basis" to now treat lost sales of the A330 and Original A350
as lost sales of the A350XWB, and further observed that "at the time the 787 sales were made, they
caused lost sales of the A330 and Original A350, not the A350XWB ."794 With regard to the claim of
a continuing threat of displacement in the Australian market, the Panel stated that there was "no
basis" to treat a threat of displacement regarding th e Original A350 now as a finding of a threat of
displacement concerning the A350XWB.795
5.353. In light of the foregoing discussion, we make several observations. First, although the
original panel made ultimate findings for eac h serious prejudice phenomenon with respect to the
200-300 seat LCA market as a whole, the evidentiary basis for doing so regarding the original
reference period related solely to the A330 and the Original A350, but not the A350XWB. In our
view, this is a relevant consideration in evaluating the extent to which the original adverse effects
may be said to continue into the post-implementation period, and, at a minimum, does not seem to
support the European Union's assertion that the Panel in these compliance proceedings somehow
departed from the approach taken by the original panel in focusing on evidence relating to specific
LCA models. Indeed, we understand the Panel to be making the point that, because the original
adverse effects findings were associated with particular evidence of serious p rejudice suffered by
the A330 and the Original A350, it cannot simply be assumed that such findings would necessarily
extend to the A350XWB -800, an LCA model that, while part of the same product market, had not
been shown to have suffered serious prejudice in the original reference period.
5.354. We further recall, in particular, our discussion in the preceding section regarding the role
served by original findings of adverse effects in establishing whether, in compliance proceeding s,
the original adverse effects continue after the end of the implementation period. As we have noted,
although original findings of adverse effects necessarily serve as the starting point of the analysis in
compliance proceeding s, it is incumbent on a complaining Member to establish afr esh through
arguments and evidence whether, and to what extent, the specific serious prejudice phenomena
from the original proceedings continue to exist in the post -implementation period. Therefore, while
the analysis begins with the original findings of a dverse effects, the European Union had also to
demonstrate how those particular adverse effects that were based on findings regarding certain
aircraft could be transposed to a different aircraft model that did not provide a foundation for the
findings in the original proceedings. As we understand it, however, the European Union sought to
make this demonstration by relying principally on the fact that orders of Original A350 were
converted to orders of A350XWB, and that certain deliveries of the latter remai ned outstanding at
the end of the implementation period. While we have faulted the Panel for disregarding the relevance
of developments following the original findings of adverse effects in assessing whether those effects
continue into the post -implementation period, we have also disagreed with the European Union's
proposition that the mere existence of outstanding deliveries in the post -implementation period
would suffice to establish continuing adverse effects.
5.355. We also believe that the Panel had grounds to consider that developments concerning the
relevant LCA market since the original reference period precluded mere transposition of the original
panel's findings into the post -implementation period. We again note that, although the
European Union is correct to observe that the original panel accepted that the A350XWB-800 formed
part of the 200 -300 seat LCA market, that aircraft was launched at the very end of the original
reference period in December 2006. Accordingly, while the original panel was aware of the existence
of that LCA model, and even acknowledged that it would be in competition with the Boeing 787 LCA

792 Original Panel Report, para. 7.1794.
794 Panel Report, para. 9.325.
795 Panel Report, para. 9.331.

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in that product market segment, the findings by the original panel were not based on any evidence
pertaining to the A350XWB-800. Even within pro duct markets there can be a degree of product
differentiation that may be of relevance to an adverse effects analysis. Just because the
Original A350 and the A350XWB -800 compete with the 787 does not mean that they do so in the
same way. In this respect, i t is important to note that, while the A350XWB -800 was accepted for
inclusion in the product market delineation established by the original panel, by the time of the
compliance proceedings, the Original A350 no longer featured in the product market defined by the
Panel.796 As has been well rehearsed in both the original and compliance proceedings, this is because
the newer model A350XWB represented the replacement aircraft for the older model
Original A350.797
5.356. For the foregoing reasons, we do not think it was improper for the Panel to consider that it
could not merely transpose the findings from the original proceedings – that were based on evidence
of significant lost sales, significant price suppression, and a threat of displacement or impedance
concerning the Original A350 – to establish the same serious prejudice phenomena with regard to
the A350XWB-800, an LCA model that received only limited consideration in the original panel's
analysis, and did not form the evidentiary basis for any of its adverse effect s findings. While we do
not exclude that, as a general matter, serious prejudice phenomena may be established on a
product-market-wide basis such that product differentiation within that market may be less relevant,
we consider that, in the context of this dispute, the Panel did not err in relying on the manner in
which the twin-aisle LCA market had evolved between the original and compliance proceedings. We
therefore find that the Panel did not act inconsistently with Article 11 of the DSU by deviating from
the adopted findings in the original proceedings concerning the 200-300 seat LCA market.
5.357. The European Union further alleges that the Panel erred under Articles 5 and 6.3 of the
SCM Agreement by failing to conduct a proper counterfactual analysis when assessing whether there
was continuing price suppression of the A330 in the post-implementation period.798 According to the
European Union, a proper counterfactual analysis required a comparison of actual A330 prices with
counterfactual A330 prices in the absen ce of subsidies, and that, since neither the 787 nor the
A350XWB would have been launched and delivered by the end of the implementation period, prices
for the A330 would have been higher. 799 Instead, according to the European Union, the Panel
erroneously compared actual A330 prices with the actual situation in which the 787 and A350XWB
would have already changed the competitive dynamics of the market.800
5.358. The United States maintains that the Panel conducted a proper counterfactual analysis. The
United States points to the various evidentiary shortcomings and methodological flaws that were
noted by the Panel regarding the European Union's case.801 In addition, the United States observes
that, in response to the simplistic contention by the European Union t hat "something" must be
holding down A330 prices in the post-implementation period, the Panel's analysis reflected a proper
counterfactual evaluation that the prevailing A330 prices would not have been different in the
absence of the subsidies because the competitive dynamic driving those prices after the end of the
implementation period would have been the same.802
5.359. This challenge on appeal is focused on the Panel's rejection of the European Union's
contention that competition from the 787 is what was holding down A330 prices during the relevant
period. In particular, the European Union challenges the Panel's statement that it was not clear "why
Airbus could have legitimately expected A330 prices to ever 'recover' to their pre-2004 levels, when
the A330 was th e technological market leader, given the reality that since then, the 787 and

796 Panel Report, para. 9.43, Table 7.
797 The original panel stated that "the A350XWB-800 is regarded as a technologically superior product to
the Original A350." (Original Panel Report, para. 7.1793) See also Panel Report, paras. 9.221-9.228.
798 European Union's appellant's submission, para. 967. In the European Union's view, the errors in the
application of Articles 5 and 6.3 of the SCM Agreement also involve errors in the application of Article 7.8 of
the SCM Agreement. However, in its appellant's submission, "{f}or the sake of brevity, the European Union
refers to this error as an error in the application of Articles 5 and 6.3." (European Union's appellant's
submission, fn 1325 to para. 913) As we see it, the European Union's claim of error in the application of
Article 7.8 is consequential to those under Articles 5 and 6.3. Thus, we focus our assessment on the alleged
errors in the application of Articles 5 and 6.3 of the SCM Agreement.
799 European Union's appellant's submission, para. 969.
800 European Union's appellant's submission, para. 970.
801 United States' appellee's submission, paras. 525 and 529.
802 United States' appellee's submission, paras. 523 and 526-527.

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A350XWB have changed the competitive dynamics of this market".803 By referring to "the reality" of
competition between the 787 and the A350XWB, the argument by the European Union i s that the
Panel was referring to what was taking place in the actual world, rather than in the counterfactual
world. The suggestion is that, by failing to account for what that competitive dynamic would have
been in a counterfactual scenario, the Panel did not properly consider that the accelerated entry in
the market of the 787 and the A350XWB is what caused suppression of A330 prices.
5.360. We do not consider that the Panel's statement in this context indicates that it failed to
conduct a proper counterfactual analysis. We note, first of all, that the Panel properly explained that,
in examining claims of significant p rice suppression, "price trend data alone is not sufficient", and
that "it is also necessary to present counterfactual argumentation demonstrating that, in the absence
of the subsidies, prices would have been higher."804 In addition, we note the Panel's prior conclusion
that Boeing, even without these subsidies, would have been able to launch the 787 well before the
end of the implementation period, which means that the competitive dynamic between the more
technologically advanced Boeing and Airbus LCA offeri ngs would already have been present by the
end of that period.805 Thus, the Panel would have considered in the context of this analysis that the
"actual" and the "counterfactual" situations were the same in the sense that, as of the end of the
implementation period, the 787 would have been launched in the LCA market regardless of
subsidization and would have been competing with the A350XWB. In this light, we consider that the
Panel's view that the A330 would not have been able to command the sort of price it once did, in
view of the technological superiority of the 787 and the A350XWB, did not reflect a failure to conduct
a proper counterfactual analysis.
5.361. Moreover, we note that the Panel identified other reasons for its rejection of the
European Union's claim.806 While these reasons do not explicitly reference a counterfactual analysis,
they do underscore the Panel's view that the European Union had not substantiated that A330 pricing
would have been higher in the absence of the subsidies.
5.362. For the foregoing reasons, we find that the Panel did not err under Articles 5 and 6.3 of the
SCM Agreement by failing to conduct a proper counterfactual analysis when assessing whether there
was continuing price suppression of the A330 in the post-implementation period.
5.363. Having found no Panel error under either Article 11 of the DSU, or under Articles 5 and 6.3
of the SCM Agreement, we uphold the Panel's separate finding , in paragraph 9.332 of the
Panel Report, that "the European Union's arguments are unsupported by the evidence and/or in
contradiction with the findings made in the original proceeding."807
5.6.3 Conclusion
5.364. In assessing whether appropriate steps have been taken to remove the adverse effects of a
subsidy within the meaning of Article 7.8 of the SCM Agreement, the time period for assessing the
removal of adverse effects may include developments subsequent to the time of order, including
through the point of delivery. Accordingly, we find that the Panel erred in its interpretation of
Article 7.8 by excluding ab initio, from an inquiry into whether the United States had failed to take
appropriate steps to remove the adverse effects of the subsidies, evidence relating to transactions

803 Panel Report, para. 9.319.
805 Panel Report, para. 9.176.
806 First, the Panel noted the incomplete pricing data supplied by the European Union. As the Panel
explained, the pricing data that the European Union presented in connection with its claim of significant price
suppression of the A330 "only covers the period up to 2012 and was not updated to cover the
post-implementation period". (Panel Report, para. 9.318 (fn omitted)) Second, the Panel pointed to data
presented by the United States demonstrating that there is no correlation in price movements between the
A330 and the 787. (Ibid., para. 9.320 (referring to United States' comments on the European Union's response
to Panel question Nos. 169-170, para. 203)) Third, the Panel explained that a number of the empirical
problems it identified with the European Union's price trend data in connection with its claims of significant
price suppression of the A320neo and A320ceo "apply equally to the European Union's price trend data for the
A330". (Ibid., fn 3182 to para. 9.321) For instance, the Panel considered that the European Union could not
rely on sales campaigns that Boeing won to substantiate its claims that Airbus LCA prices were suppressed,
and that the European Union appeared to repudiate its own price trend data on the basis of certain
methodological flaws.

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for which the orders arose in the original reference period but for which deliveries remain outstanding
in the post-implementation period. We therefore reverse the Panel's interpretation of Article 7.8 of
the SCM Agreement , in paragraphs 9.311 to 9.314 of the Panel Report, and its statement in
paragraph 9.332 of the Panel Report, that reliance on the role of deliveries of aircraft in the
post-implementation period as evidence of a continuation of serious prejudice would be inconsistent
with Article 7.8. Having reversed this finding, we do not address whether, in addition, the Pane l
erred in the application of Article 7.8, or acted inconsistently with Article 11 of the DSU. However,
because it is not clear whether the Panel's decision to exclude two additional sales campaigns as
significant lost sales resulted from the above error, and because the European Union's request is
based on a premise that we rejected, we decline to reverse the Panel's finding, in paragraph 9.407
of the Panel Report, insofar as it excludes the Fly Dubai 2008 and Delta Airlines 2011 sales
campaigns.
5.365. We further find that the Panel did not err under Articles 5 and 6.3 of the SCM Agreement ,
or act inconsistently with Article 11 of the DSU, in separately finding that the European Union's
arguments are unsupported by evidence and/or in contradiction with the findings made in the original
proceedings. We therefore uphold the Panel's finding , in paragraphs 9.332 and 11.8.b of the
Panel Report, that the European Union had failed to establish that the original adverse effects of the
pre-2007 aeronautics R&D subsidies continue 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.
5.366. In addition, because we uphold the Panel's rejection of the European Union's claim regarding
continuing adverse effects with respect to the A330, we need not consider the United States'
conditional claim that the Panel erred in finding that the European Union had not failed to make a
prima facie case of significant price suppression with respect to the A330.808
5.7 Technology effects
5.367. The European Union requests us to reverse the Panel's finding that the European Union failed
to establish that the pre -2007 aeronautics R&D subsidies are a genuine and substantial cause of
adverse effects in the post-implementation period through a technology causal mechanism. The
European Union contends that the Panel, in reaching this finding, committed several legal errors in
the application of Articles 5, 6.3, and 7.8 of the SCM Agreement, and failed to make an objective
assessment of the matter under Article 11 of the DSU.809
5.368. With regard to its application claims, the European Union maintains that the Panel erred by:
(i) focusing its counterfactual assessment solely on the impact of the pre -2007 aeronautics R&D
subsidies on the launch date of the 787 810, without taking into consideration the timing of its
delivery811; (ii) focusing on technology development involving later stages of LCA development
(i.e. near-term R&D activities), while it should have also taken into account the early phases of
fundamental R&D, which were the focus of the original panel's analysis 812; (iii) focusing solely on
the identification of the amount of time needed to perform certain fundamental research, without
considering the implications for the sequencing of the relevant R&D in the overall process 813; and
(iv) requiring the European Union to show the precise amount of time that Boeing would have
required to perform each of a series of R&D tasks absent the pre -2007 aeronautics R&D subsidies,
contrary to the applicable causation standard.814 The European Union also brings various challenges
under Article 11 of the DSU that the Panel failed to conduct an objective assessment of the matter

808 United States' Notice of Other Appeal, para. 10; other appellant's submission, section V. If we were
to disturb the Panel's findings with respect to the A330, the United States submits a conditional appeal, under
Article 6.3(c) of the SCM Agreement and Article 11 of the DSU, of the Panel's finding that the European Union
made a prima facie case of significant price suppression. The United States claims that, because the
European Union never alleged that the A330 is in the same market as a subsidized Boeing product, it did not
demonstrate the existence of competition required in order to establish the existence of adverse effects.
809 European Union's appellant's submission, para. 693.
810 In the technology effects section of this Report, unless otherwise indicated, a reference to the Boeing
787 is one to the 787-8 variant of this aircraft.
811 European Union's appellant's submission, para. 698.
812 European Union's appellant's submission, paras. 699-701.
813 European Union's appellant's submission, para. 702.
814 European Union's appellant's submission, para. 704.

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before it by: (i) providing in ternally inconsistent reasoning 815 and incoherent or inadequate
reasoning816; (ii) deviating from findings in the original proceedings817; (iii) imposing an "impossible"
burden of proof818; and (iv) failing to base its findings on a sufficient evidentiary basis.819
5.369. Before addressing the European Union's challenge to the Panel's analysis of the technology
effects of the pre-2007 aeronautics R&D subsidies, we first summarize key aspects of that analysis.
5.7.1 The Panel's analysis
5.370. Before the Panel, the European Union argued that the pre-2007 aeronautics R&D subsidies
cause significant competitive harm to the European Union's LCA-related interests following the end
of the implementation period through their genuine and substantial contribution to Boeing's
accelerated developme nt of technologies for its current LCA and for future Boeing LCA. The
European Union alleged that Boeing benefits from the effects of the pre -2007 aeronautics R&D
subsidies in the following ways820:
a. Original subsidy technology effects: Boeing continues to be nefit from 787 technologies
that were "found to be the effect" of the original pre -2007 aeronautics R&D subsidies,
which impact the market through sales of the 787.
b. Spill-over technology effects: Boeing has benefited from the application of the "subsidized
787 technologies" to Boeing's more recent 787, 777X, and 737 MAX LCA developments.821
5.371. The Panel divided its analysis of the European Union's claims of serious prejudice through a
technology causal mechanism into two main sections. First, the Panel examined the
European Union's claims regarding the technology effects of the aeronautics R&D subsidies in the

815 The European Union submits that the Panel acted inconsistently with Article 11 of the DSU because
the Panel's focus on the timing of the launch of the 787 is internally inconsistent with other findings of its
Report. (European Union's appellant's submission, para. 698)
816 The European Union claims that the Panel acted inconsistently with Article 11 of the DSU by failing to
provide a reasoned and adequate explanation of how instances of near-term R&D activities can replace
early-stage fundamental R&D in the context of the counterfactual analysis. (European Union's appellant's
submission, para. 701) In addition, the European Union argues that, by using an incorrect sequence in its
counterfactual analysis, the Panel acted inconsistently with Article 11 by failing to provide a reasoned and
adequate explanation for its understanding of the progression of the R&D at issue. (Ibid., para. 702)
817 The European Union submits that the Panel acted inconsistently with Article 11 of the DSU because,
by focusing on the timing of the launch of the 787, it inappropriately deviated from the findings of the original
panel and the Appellate Body. (European Union's appellant's submission, para. 698) The European Union also
considers that, by using an incorrect sequence in its counterfactual analysis, the Panel acted inconsistently with
Article 11 of the DSU by deviating from the adopted findings in the original proceedings. (Ibid., para. 811)
818 European Union's appellant's submission, para. 704. The European Union argues that the Panel
subjected the European Union to an impossible burden of proof because the evidence it demanded would have
simply been impossible for the European Union to adduce, as its participant in the LCA markets, Airbus, does
not have insight into the proprietary internal R&D operations of its sole competitor, Boeing. (Ibid., para. 843)
819 European Union's appellant's submission, paras. 705 and 861. The European Union claims that the
Panel failed to base its findings on a sufficient evidentiary basis by "misconstruing" one of its statements before
the original panel and using that "misconstruction" to find that the European Union had accepted in the original
proceedings that Boeing would have been able to launch the 787 in 2006, absent the pre-2007 aeronautics
820 The European Union also contended that Boeing benefits from the effects of the pre-2007
aeronautics R&D subsidies through "sleeper technology effects". According to the European Union, pursuant to
sleeper technology effects, Boeing has developed new innovative technologies based in part on research
conducted under the original aeronautics R&D programmes, which it is now beginning to apply to its most
recent LCA developments. (Panel Report, para. 9.118 (referring to European Union's first written submission to
the Panel, para. 985)) In addition, the European Union also argued before the Panel that certain post-2006
aeronautics R&D subsidies operate through a "main technology effect". According to the European Union,
Boeing is the beneficiary of new post-2006 NASA, USDOD, and FAA aeronautics R&D subsidies, which have
enabled Boeing to develop new technologies for its more recent LCA models, such as the 787-10, 777X, and
737 MAX. (Panel Report, paras. 9.119 and 9.343 (referring to European Union's first written submission to the
Panel, para. 986)) The European Union has not appealed the Panel's analysis regarding the above-mentioned
effects. (European Union's appellant's submission, fn 998 to para. 695 and fn 999 to para. 696)
821 Panel Report, para. 9.118 (referring to European Union's first written submission to the Panel,
paras. 983-984).

[BCI redacted, as marked [BCI]]

twin-aisle LCA market. 822 Second, the Panel addressed the technology effects of the aeronautics
R&D subsidies in the single-aisle LCA market.823
5.372. In assessing the technology effects of the aeronautics R&D subsidies in the twin -aisle LCA
market, the Panel indicated that it would evaluate the European Union's claims by first examining
whether the pre-2007 aeronautics R&D subsidies and certain post-2006 aeronautics R&D subsidies,
alleged to operate through a technology causal mechanism , give rise to the particular forms of
technology effects in the post-implementation period argued by the European Union. To the extent
that it would find that these subsidies have suc h effects on Boeing's product development of the
relevant LCA, the Panel indicated that, as a second step, it would assess the consequent impact on
Airbus' LCA sales and prices in the post -implementation period so as to determine whether the
subsidies in question, through these technology effects, constitute a genuine and substantial cause
of the particular forms of serious prejudice alleged by the European Union.824
5.373. The Panel began its analysis of the European Union's claims regarding the original subsidy
technology effects of the pre-2007 aeronautics R&D subsidies by indicating that neither the original
panel nor the Appellate Body considered that the 787 technologies were themselves the effects of
the pre-2007 aeronautics R&D subsidies. In other words, the pre-2007 aeronautics R&D subsidies
were not found to have brought into existence any technology or product that would not have
otherwise existed.825 Instead, the Panel noted that the original panel and the Appellate Body found
that the pre-2007 aeronautics R&D subsidies accelerated Boeing's development of technologies for
the 787, which in turn enabled Boeing to launch the 787 earlier than otherwise w ould have been
possible, thereby reducing Boeing's time to market for the 787.826 Therefore, the Panel pointed out
that the issue before it was whether the acceleration of Boeing's development of advanced LCA
technologies that the pre -2007 aeronautics R&D su bsidies were found to have in the original
proceedings is still evident or whether it had ended by the end of the implementation period.827 The
Panel considered that the counterfactual question before it was "whether it is likely that, absent
these subsidies , the 787 technologies would still not have been developed by the end of the
implementation period and thus the 787 would not have been present in the market by that time."828
5.374. The European Union argued before the Panel that it would have taken Boeing "at lea st 10
years to develop only a number of select LCA technologies and design tools necessary for the 787"
and that Boeing "would further 'require considerable time to develop the knowledge it has acquired
through its decades of experience participating in th e US Government-supported R&D
programmes'".829 In contrast, the United States submitted that, absent the pre -2007 aeronautics
R&D subsidies, Boeing would have launched the 787 most likely no later than 2006. The
United States maintained that this left "ample time" for Boeing to adapt the 787 technologies to the
777X and 737 MAX.830
5.375. The Panel first examined the arguments presented by the European Union in support of its
time estimate, which were based on a statement by Airbus engineers submitted to the Panel .831

822 In this context, the Panel assessed the European Union's claim that the pre-2007 aeronautics R&D
subsidies and certain post-2006 aeronautics R&D subsidies benefiting the 787 and 777X cause serious
prejudice to the interests of the European Union with respect to the A350XWB in the post-implementation
period.
823 Panel Report, para. 9.15. The Panel's analysis in this context focused on the European Union's claim
that certain aeronautics R&D subsidies benefiting the 737 MAX cause serious prejudice to the interests of the
European Union with respect to the A320neo in the post-implementation period.
824 Panel Report, para. 9.122.
825 Panel Report, para. 9.127.
826 Panel Report, para. 9.126.
827 Panel Report, para. 9.127.
828 Panel Report, para. 9.128. In this regard, the Panel considered it pertinent to inquire about the
additional time that Boeing would have required in order to develop the 787 absent the pre-2007 aeronautics
R&D subsidies. In the Panel's view, this would indicate whether it is likely that Boeing would have been in the
market with an unsubsidized 787 prior to the expiration of the implementation period. (Ibid.)
829 Panel Report, para. 9.130 (quoting European Union's second written submission to the Panel,
para. 975).
830 Panel Report, para. 9.130 (referring to United States' first written submission to the Panel,
para. 709).
831 Response by Burkhard Domke, Phil A. Brown, Jörg Kumpfert, and Ian Whitehouse to the June 2013
Statement by Boeing Engineers, 19 July 2013 (Airbus Engineers' Response) (Panel Exhibit EU-1014)
(BCI/HSBI).

[BCI redacted, as marked [BCI]]

According to the European Union, the counterfactual question should focus on the amount of
additional time that it would have taken Boeing to research, develop, produce, certify, and deliver
the 787. The Panel indicated that, if it were to formulate the cou nterfactual question in the terms
proposed by the European Union, its conclusion would also include time to undertake activities
(internal R&D conducted by Boeing and its suppliers, production, certification , and delivery) that
were not found to have been effects of the pre -2007 aeronautics R&D subsidies in the original
proceedings. In the Panel's view, the original panel did not consider that Boeing's technology
development in relation to the 787 was solely the result of Boeing's subsidized participation i n the
NASA and USDOD aeronautics R&D programmes, or that the acceleration effects of the pre -2007
aeronautics R&D subsidies encompassed phases in the development of the 787 beyond its launch.
Thus, the Panel found that "the European Union's estimate erroneously attributes to the pre -2007
aeronautics R&D subsidies aspects of the 787's development that were not found to have been
accelerated by Boeing's participation in the relevant NASA and DOD aeronautics R&D
programmes."832 In addition, the Panel noted that the European Union had not provided a clear
statement, or supporting evidence, that the 787 would not have launched until after the end of the
implementation period.833
5.376. Turning to the United States' time estimate, the Panel began by agreeing with the
United States that there was no evidence, and no support in the findings in the original proceedings,
that suggested the possibility that Boeing would have taken a commercial decision not to proceed
with the development of the 787, absent the pre-2007 aeronautics R&D subsidies.834 The Panel then
turned to address the European Union's criticisms of the United States' time estimate. In particular,
the Panel addressed the argument that the United States had failed to demonstrate that it would
have been technically feas ible to launch the 787 in 2006 (rather than the actual launch in 2004)
absent the pre -2007 aeronautics R&D subsidies, as concluded by c ertain Boeing engineers in the
Statement of Boeing Engineers Regarding the Technologies and Development of the 787, 737 MAX,
and 777X (Boeing Engineers' Statement).835
5.377. First, the Panel examined the European Union's criticism of the methodology used by the
Boeing engineers. In this context, the Panel reiterated its disagreement with the European Union's
argument that the counterfactual assessment should consider the entire development period of the
787 beyond its launch. In the Panel's view, the European Union's approach is inconsistent with the
findings in the original proceedings and risks attributing unsubsidized aspects of t he 787's
development to the effects of the pre -2007 aeronautics R&D subsidies. 836 In addition, the Panel
considered the European Union's criticism of the Boeing engineers' methodology to be
"highly-generalized in nature, and ultimately unpersuasive".837
5.378. Second, the Panel indicated that the European Union did not itself enumerate the specific
additional tasks that the Boeing engineers should have reflected in the Boeing Engineers' Statement.
Nor did the European Union provide evidence of how long Boeing would have needed to conduct any
of the R&D tasks that were actually performed under the NASA and USDOD aeronautics R&D
programmes. The Panel further noted that the European Union failed to provide specific evidence to
rebut the timing estimates that the Boeing engineers provided for the specific R&D tasks discussed
in their statement.838 The Panel noted that "{i}t is the European Union's burden to establish that
the pre -2007 aeronautics R&D subsidies continue to cause any of the alleged serious prejudice
market phenomena in the post-implementation period."839 Consequently, in the absence of any clear
estimate from the European Union as to how much additional time Boeing would have needed to
conduct any of the R&D tasks, the Panel found it difficult to accept the European Union's generalized
criticisms of the United States' estimate.840
5.379. Finally, the Panel also examined the development time of the Airbus A350XWB as a
benchmark to assess the Boeing engineers' time estimate for the counterfactual analysis regarding

832 Panel Report, para. 9.152.
833 Panel Report, para. 9.153.
834 Panel Report, para. 9.157.
835 Panel Report, para. 9.159 (referring to Boeing Engineers' Statement (Panel Exhibit USA-283) (BCI)).
836 Panel Report, para. 9.161.
837 Panel Report, para. 9.162.
838 Panel Report, para. 9.164.
839 Panel Report, para. 9.165.
840 Panel Report, para. 9.165.

[BCI redacted, as marked [BCI]]

the 787.841 The Panel indicated that its comparison would focus on the time required to conclude the
pre-launch development of the two aircraft. 842 The Panel observed that "{t}he time from the start
of intensive pre-launch R&D on the 787 ([BCI]) until formal launch (April 2004) was approximately
[BCI]."843 In addition, the Boeing engineers assert that Boeing could have conducted all of the
necessary research to launch the 787 before the end of April 2006 (with promised deliveries in 2010)
absent the pr e-2007 aeronautics R&D subsidies. The Panel indicated that if it were to accept the
Boeing engineers' estimate, "the time from the start of intensive pre-launch R&D on the 787 ([BCI])
until a counterfactual -adjusted, non -subsidized launch of the 787 (April 2006), would be
approximately [BCI]."844 Turning to the A350XWB, the Panel indicated that, if it were to treat "the
starting point of pre-launch R&D for the A350XWB as the date when work began on the composite
wing design for the A350XWB until its official launch in December 2006, Airbus spent approximately
[BCI] on pre-launch R&D before formally offering the A350XWB to customers ."845 Therefore, the
Panel found that "the United States' counterfactual allows for two additional years of pre -launch
development, which means that the 787 pre-launch development period would exceed the A350XWB
pre-launch development period by [BCI]."846 In the Panel's view, despite the differences in the
design and technical solutions of the 787 and the A350XWB847, the time that Airbus spent developing
the A350XWB provides "a general sense of what range of estimates is reasonable".848
5.380. For the foregoing reasons, the Panel concluded that "it is simply not plausible, and the
European Union has failed to establish that, absent the aeronautics R&D subsidies, Boeing would not
have launched the 787 by the end of the implementation period in September 2012." 849 The Panel
then added that, while it was "more difficult" to "confidently predict" exactly when Boeing would
have been able to launch the 787 absent the pre-2007 aeronautics R&D subsidies, "it would be well
before (i.e. at least several years before) the end of the implementation period ."850 Consequently,
the Panel concluded that the European Union had failed to demonstrate that the acceleration effects
of the pre-2007 aeronautics R&D subsidies in relation to Boeing's technology development for the
787 have continued into the post-implementation period.851
5.381. The Panel then turned to examine the European Union's claim that the pre-2007 aeronautics
R&D sub sidies, through their effects on Boeing's development of 787 technologies that have
subsequently been adapted and applied to the more recently launched 787-9/10 and 777X, give rise
to "spill-over technology effects" with respect to those aircraft in the post-implementation period.852
The Panel indicated that the relevant question before it was whether , owing to the acceleration in
the development of the 787 technologies, any alleged so-called "spill-over technologies" applied to
the 787-9/10 and 777X also came into existence earlier than would otherwise have been the case,
enabling an earlier launch of these aircraft.853 The Panel recalled its finding that the European Union
had failed to establish that, absent the pre -2007 aeronautics R&D subsidies, Boeing woul d have
launched the 787 after the end of the implementation period in September 2012. The Panel
considered that, regardless of whether Boeing would have launched the 787 before the end of 2006

841 Panel Report, para. 9.167.
842 Panel Report, para. 9.170. The Panel considered that this approach would be "consistent with the
findings in the original proceeding, and avoids attributing to the subsidies aspects of the development that
were not accelerated by Boeing's participation in the relevant NASA and DOD aeronautics R&D programmes".
(Ibid.)
843 Panel Report, para. 9.171.
844 Panel Report, para. 9.171.
845 Panel Report, para. 9.172.
846 Panel Report, para. 9.175.
847 The Panel noted that the European Union rejected the use of the A350XWB as a proxy to assess the
United States' estimate regarding the 787 due to the differences between these aircraft. (Panel Report,
para. 9.174)
848 Panel Report, para. 9.175.
849 Panel Report, para. 9.176.
850 Panel Report, para. 9.176.
851 Panel Report, para. 9.177. The Panel added that the European Union had therefore failed to
demonstrate the existence of "original subsidy technology effects of the pre-2007 aeronautics R&D subsidies"
in the post-implementation period. (Ibid.)
852 Panel Report, para. 9.178.
853 Panel Report, para. 9.182.

[BCI redacted, as marked [BCI]]

or somewhat later, an unsubsidized launch of the 787 would neve rtheless have occurred "multiple
years in advance" of the launch of the 787-10 (in June 2013) or the 777X (in November 2013).854
5.382. The Panel added that the onus was on the European Union to demonstrate that Boeing would
not have had sufficient time, following the unsubsidized launch of the 787, to leverage its knowledge
and experience to proceed with the respective launches of the 787 -9/10 and 777X. The Panel
considered that the European Union had not provided credible evidence to demonstrate this. 855
Consequently, the Panel concluded that the European Union failed to demonstrate the existence of
spill-over technology effects of the pre-2007 aeronautics R&D subsidies with respect to the 787-9/10
or 777X in the post-implementation period.856
5.383. In addressing the alleged technology effects of the aeronautics R&D subsidies in the
single-aisle LCA market, the Panel began by indicating that the relevant question was whether,
owing to the acceleration in the development of the 787 technologies due to the pre -2007
aeronautics R&D subsidies, any alleged spill-over technologies in relation to the 737 MAX also came
into existence earlier than would otherwise have been the case, enabling an earlier launch of this
aircraft.857 The Panel recalled its earlier conclusion that the European Union had failed to
demonstrate that, absent the pre-2007 aeronautics R&D subsidies, Boeing would have launched the
787 after the end of the implementation period in September 2012.858 While the Panel considered it
more difficult to confidently pred ict exactly when Boeing would have been able to launch the 787
absent the pre-2007 aeronautics R&D subsidies, Boeing would have done so well before (i.e. at least
several years before) the end of the implementation period. Thus, in the Panel's view, it was not
unrealistic to believe that Boeing would have been in a position to have launched the 737 MAX before
the end of the implementation period. Moreover, in the Panel's view, the European Union had not
provided credible evidence that, absent the pre -2007 a eronautics R&D subsidies, the 787
technologies could not have been adapted to the 737 MAX in sufficient time to enable its launch in
August 2011. 859 For these reasons, the Panel concluded that the European Union failed to
demonstrate the existence of spill-over technology effects of the pre-2007 aeronautics R&D subsidies
with respect to the 737 MAX in the post-implementation period.860
5.384. For the foregoing reasons, the Panel stated that the European Union had failed to
demonstrate any effect of the pre-2007 aeronautics R&D subsidies on Boeing's product development
with respect to the 787, 777X, and 737 MAX in the post -implementation period.861 Consequently,
the Panel found that the European Union 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 the A320neo in the post-implementation period, through a technology
causal mechanism.862
5.385. Having described the main findings by the Panel with respect to technology effects, we turn
to our analysis of the European Union's claims on appeal.

854 Panel Report, para. 9.184. We note that, in this part of its analysis, the Panel did not refer to the
launch of the 787-9 (see ibid., para. 5.98).
855 Panel Report, para. 9.185. The Panel explained that "this is because the European Union
misconstrues the findings from the original proceeding as to the effects of the pre-2007 aeronautics R&D
856 Panel Report, para. 9.186. The Panel indicated that, in light of this conclusion, it need not address
the question of whether any of the alleged technologies identified by the European Union in relation to the
787-10 and 777X are in some way related or linked to those on the 787. (Ibid., fn 2956 to para. 9.186)
857 Panel Report, para. 9.352.
858 Panel Report, para. 9.353.
859 Panel Report, para. 9.354.
860 Panel Report, para. 9.355. The Panel added that, in light of this conclusion, it need not address the
question of whether any of the alleged technologies identified by the European Union in relation to the
737 MAX are in some way related or linked to those on the 787. (Ibid., fn 3251 to para. 9.355)
861 Panel Report, paras. 9.218 and 9.372. We note that the Panel's findings regarding the effects of the
pre-2007 aeronautics R&D subsidies also addressed the European Union's claim regarding the existence of
"sleeper technology effects" with respect to the 787-9/10 or 777X in the post-implementation period. Similarly,
in its technology effects analysis, the Panel also addressed the European Union's claims regarding the existence
of "new technology effects" of certain post-2006 aeronautics R&D subsidies with respect to the 787-9/10,
777X, or 737 MAX in the post-implementation period. (Ibid.)
862 Panel Report, paras. 9.220 and 9.486.

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5.7.2 Whether the Panel erred under Articles 5, 6.3, and 7.8 of the SCM Agreement, or
acted inconsistently with Article 11 of the DSU, by failing to consider in its counterfactual
analysis the impact of the acceleration effects of the pre-2007 aeronautics R&D subsidies
on the timing of delivery of the 787
5.386. We begin with the European Union's fundamental concern that the Panel erred in assessing
the existence of adverse effect s of the pre-2007 aeronautics R&D subsidies by limiting its analysis
to the counterfactual launch date of the 787 and excluding consideration of the impact of these
subsidies on the timing of delivery of the 787. The European Union challenges this aspect o f the
Panel's analysis on the basis of a claim of error in the application of Articles 5, 6.3, and 7.8 of the
SCM Agreement and of allegations that the Panel acted inconsistently with its obligations under
Article 11 of the DSU.863
5.387. We first assess the European Union's claim as it relates to the Panel's application of Articles 5
and 6.3 of the SCM Agreement.864 The European Union considers that the Panel correctly identified
the relevant counterfactual question as follows: "whether it is likely that, absent thes e subsidies,
the 787 technologies would still not have been developed by the end of the implementation period
and thus the 787 would not have been present in the market by that time". 865 However, the
European Union contends that a proper application of Artic les 5 and 6.3 requires a counterfactual
consideration of not just their impact on the launch of an aircraft, but also on the delivery of the
aircraft. The European Union maintains that such an analysis "would necessarily need to take into
account (i) the time spent on pre-launch R&D, (ii) the time it takes to further develop technologies
and mature them to the stage where they are ready for production, as well as (iii) the time until the
aircraft can first be delivered to customers". 866 Moreover, the European Union submits that the
findings of the original panel and the Appellate Body stressed the importance of considering the
effect of the subsidies on the timing of both the launch and the available delivery positions of an
aircraft.867
5.388. The United States disagrees with the European Union's claim that the Panel erred in applying
Articles 5 and 6.3 of the SCM Agreement because it focused exclusively on the counterfactual launch
date of the 787, rather than on both launch and deliveries. 868 According to the United States, the
Panel properly focused on the counterfactual launch date while duly considering deliveries. 869 In
particular, the United States argues that the Panel correctly focused on the 787's counterfactual
launch timing, given that "{u}pon the 787's launch, it would unquestionably be 'present in the
market' because it would be competing for sales against Airbus LCA." 870 The United States also
considers that the Panel's focus on launch is consistent with the analysis of the panel and the
Appellate Body in the or iginal proceedings . Indeed, according to the United States, the Panel's
approach follows the "common thread" from the original panel through the Appellate Body that the

863 The European Union maintains that the Panel acted inconsistently with Article 11 of the DSU
because: (i) the Panel's focus on the timing of the launch of the 787 is internally inconsistent with other
findings in its Report; and (ii) the Panel inappropriately deviated from the findings of the panel and the
Appellate Body in the original proceedings. (European Union's appellant's submission, para. 698)
864 In the European Union's view, the errors in the application of Articles 5 and 6.3 of the
SCM Agreement also involve errors in the application of Article 7.8 of the SCM Agreement. However, in its
appellant's submission, "{f}or the sake of brevity, the European Union refers to this error as an error in the
application of Articles 5 and 6.3." (European Union's appellant's submission, fn 994 to para. 693) As we see it,
the European Union's claim of error in the application of Article 7.8 is consequential to those under Articles 5
and 6.3. Thus, we focus our assessment on the alleged errors in the application of Articles 5 and 6.3 of the
SCM Agreement.
865 European Union's appellant's submission, para. 707 (quoting Panel Report, para. 9.128).
866 European Union's appellant's submission, para. 710.
867 European Union's appellant's submission, para. 723. The European Union specifies that the original
panel found that the relevant counterfactual analysis must address "what sort of aircraft Boeing could have
developed, and when that aircraft could have been launched and first entered into service, in the absence of
the aeronautics R&D subsidies". (Ibid., para. 724 (quoting Original Panel Report, para. 7.1774 (emphasis
added by the European Union))) The European Union adds that the Appellate Body similarly stressed the
importance of considering how the pre-2007 aeronautics R&D subsidies affected the timing of both Boeing's
launch and delivery of the 787. (Ibid., para. 725 (referring to Appellate Body Report, US – Large Civil Aircraft
(2nd complaint), para. 1023))
868 United States' appellee's submission, para. 373 (referring to European Union's appellant's
submission, para. 722).
869 United States' appellee's submission, para. 373.
870 United States' appellee's submission, para. 374.

[BCI redacted, as marked [BCI]]

launch date is the critical timing consideration for assessing the competitive effects of the
aeronautics R&D subsidies.871
5.389. Although the participants do not take issue with the manner in which the Panel articulated
the counterfactual question before it872, they disagree on the scope and import of the findings in the
original proceedings regarding the type of counterfactual analysis that should be conducted in these
compliance proceedings. In light of this disagreement, we turn to examine certain key passages
from the original panel and Appellate Body reports.
5.390. The original pan el considered that the main issue before it was whether the pre -2007
aeronautics R&D subsidies caused serious prejudice to the interests of the European Communities
by reason of their effects on Boeing's development of technologies in relation to the 787. 873
According to the original panel, the pre -2007 aeronautics R&D subsidies at issue were "precisely
focused on those areas which, from a commercial perspective, are considered to be the most crucial
to the LCA industry, in the sense that they carry the great est prospect of creating significant
competitive advantage". 874 In the original panel's view, "{t}hese are technologies that promise
airline customers lower direct operating costs and those that reduce the time to market ."875
Moreover, as indicated in the orig inal proceedings, NASA has a system to categorize technologies
according to their level of maturity or technology readiness level (TRL).876 In this context, the original
panel stated that "there is clearly evidence that the development of higher risk technol ogies up to
TRL 6 {due to the aeronautics R&D subsidies} results in an acceleration of the overall technology
development process for an airframe manufacturer like Boeing and would therefore facilitate an
earlier product launch than would otherwise have been possible."877
5.391. The original panel indicated that certain developments in the LCA market 878 likely meant
that Boeing needed to develop an LCA to replace the 767 in the 200-300 seat LCA market, and that
it would have done so in the early to mid-2000s. The original panel specified that the question was
"what sort of aircraft Boeing could have developed, and when that aircraft could have been launched
and first entered into service, in the absence of the aeronautics R&D subsidies".879 The original panel
indicated that two scenarios would be most likely: (i) Boeing would have developed a
767-replacement that incorporated all of the technologies that are incorporated on the 787, but its
launch would have been significantly later than 2004 , and Boeing would not have b een able to
promise first deliveries for 2008; or (ii) Boeing would have launched a 767-replacement in 2004 that
was technologically superior to the 767, but did not offer the degree of technological innovation of
the 787.880 The original panel did not consider that it would need to reach a definitive view on which
of these two scenarios would have occurred because it was clear that, "absent the aeronautics R&D
subsidies, Boeing would not have been able to launch an aircraft incorporating all of the technologies
that are incorporated on the 787 in 2004, with promised deliveries commencing in 2008."881

871 United States' appellee's submission, para. 375.
872 European Union's appellant's submission, para. 707; United States' appellee's submission, para. 374.
873 Original Panel Report, paras. 7.1709-7.1773. In addressing this issue, the original panel examined a
series of factors, such as: (i) the structure and design of the aeronautics R&D subsidies; (ii) the operation of
the aeronautics R&D subsidies; and (iii) the conditions of competition in the LCA industry. (Ibid.)
874 Original Panel Report, para. 7.1742.
875 Original Panel Report, para. 7.1742. (emphasis added) The original panel added that those
technologies that reduce the time to market do so, for example, by reducing development and production
cycles. (Ibid., para. 7.1744)
876 The Peisen Study was a study that explained NASA's system of categorizing research according to its
TRL, ranging from the highest risk and lowest maturity technology at TRL 1 ("basic scientific/engineering
principles observed and reported") to the lowest risk and highest maturity technology at TRL 9 ("operational
use of actual system tested, and benefits proven"). (Appellate Body Report, US – Large Civil Aircraft
(2nd complaint), para. 974 (referring to Peisen et al., Case Studies: Time Required to Mature Aeronautic
Technologies to Operational Readiness (SAIC and GRA, Inc., November 1999) (Peisen Study) (Original Panel
Exhibit EC-795)))
877 Original Panel Report, para. 7.1748. (emphasis added)
878 The original panel pointed to Boeing's assessment in the late 1990s that route fragmentation would
lead to a larger number of lower-volume routes, best served by a mid-sized, extended-range aircraft, and that
this was a commercial assessment unrelated to the subsidies. (Original Panel Report, para. 7.1774)
879 Original Panel Report, para. 7.1774. (emphasis added)
880 Original Panel Report, para. 7.1775.
881 Original Panel Report, para. 7.1775.

[BCI redacted, as marked [BCI]]

5.392. As part of its appeal in the original proceedings, the United States alleged that, by
misreading a table in an exhibit882, the original panel miscalculated the amount of time by which the
NASA research accelerated the development of the technologies used on the 787 and thereby
understated the time and resources that Boeing itself was required to invest to bring the NASA
research to commercial viability.883 The Appellate Body disagreed with the United States and pointed
out that the original panel's findings meant that "the NASA aeronautics R&D subsidies accelerated
the technology development process by some amount of time, and, therefore gave Boeing an
advantage in bringing its technologies to market. The exact amount of time was not critical: that
the NASA research enabled Boeing to accelerate the research process was."884
5.393. The Appellate Body also expressed its agreement with the original panel that "{i}t was the
aeronautics R&D subsidies that enabled Boeing to overcome the disincentives in investing in
aeronautics R&D, and which therefore accelerated Boeing's launch of the 787 with all of its
technological advancements in 2004."885 The Appellate Body also noted that, while the original panel
recognized NASA's contribution to the development of technologies, it "also appreciated that at
'some point in time ', the contribution of that research could reasonably be expected to diminish ",
such that NASA's research could no longer be considered a "genuine and substantial" contribution
to the technologies applied to future Boeing LCA. 886 However, the Appellate Body highlighted that
the original panel found that this point "had not been reached in 2004", when the 787 "entered the
market".887 After evaluating the claims on appeal, the Appellate Body did not consider that the
original panel had erred in finding that, "absent the aeronautics R&D subsidies, Boeing would not
have been able to launch an aircraft incorporating all of the technologies that are incorporated on
the 787 in 2004, with promised deliveries commencing in 2008."888
5.394. Having examined the findings in the original proceedings, we consider it important to note
that the technology effects of the pre-2007 aeronautics R&D subsidies were acceleration effects with
respect to the development of technologies for the 787. In other words, neither the original panel
nor the Appellate Body considered that the 787 technologies were themselves the effects of the
pre-2007 aeronautics R&D subsidies. Rather, the original panel and the Appellate Body found that
the pre-2007 aeronautics R&D subsidies accelerated Boeing's development of technologies for the
787, which in turn enabled Boeing to reduce the time to market for the 787.889
5.395. Moreover, on the basis of the above findings, we consider that the concept of "launch" was
particularly relevant in the original proceedings. For purposes of the original reference period from
2004 to 2006, launch was the principal accelerated event that enabled the original panel to reach
conclusions of adverse effects arising from a subsidized 787. Any acceleration of the 787's first
delivery occurred after the 2004 -2006 reference period and was a consequence of its accelerated
launch. Indeed, the original panel and the Appellate Body acknowledged that there were also
acceleration effects with respect to the promised first deliveries of the 787 by affirming that, through
the pre-2007 aeronautics R&D subsidies, Boeing was able to offer "promised deliveries commencing
in 2008".890 We further note that , while the original panel and the Appellate Body found that the
pre-2007 aeronautics R&D subsidies accelerated both the 787's launch and its first delivery, what
was of critical relevance was the fact that the adverse effects arising in the 2004-2006 period could
be attributed to the pre-2007 aeronautics R&D subsidies since, absent the subsidies, the 787 would
not have existed with those technologies in the 200-300 seat LCA market during that period.
5.396. We further note the apparent view of the Panel and the participants that the findings in the
original proceedings already settle the question of whether, in these compliance proceedings, the

882 The piece of evidence in question was the Peisen Study. (Appellate Body Report, US – Large Civil
Aircraft (2nd complaint), para. 972 (referring to Peisen Study (Original Panel Exhibit EC-795)))
883 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 972.
884 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 980. (emphasis original)
885 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 986. (emphasis added)
886 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 987 (quoting Original Panel
Report, para. 7.1758).
887 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 987 (referring to Original Panel
Report, para. 7.1758).
888 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1036 (quoting Original Panel
Report, para. 7.1775).
889 Panel Report, para. 9.126.
890 Original Panel Report, para. 7.1775; Appellate Body Report, US – Large Civil Aircraft (2nd complaint),
para. 1036.

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analysis of the technology effects claims should focus on the timing of the 787's launch or whether
such an analysis should also take into account the impact of the acceleration effects of the pre-2007
aeronautics R&D subsidies on the timing of first delivery of the 787. The Appellate Body has stated
that a compliance panel is expected to assess the claims before it in light of the findings in the
original proceedings adopted by the DSB.891 However, this does not mean that the legal issues before
an original panel and a compliance panel are the same. As noted by the Appellate Body, "the utility
of the review envisaged under Article 21.5 of the DSU would be seriously undermined if a panel were
restricted to examining the new measure from the perspective of the claims, arguments and factual
circumstances that rela ted to the original measure, because an Article 21.5 panel would then be
unable to examine fully the 'consistency with a covered agreement of the measures taken to comply',
as required by Article 21.5 of the DSU." 892 Moreover, as noted in section 5.6 above, Article 7.8 of
the SCM Agreement sets out an obligation "of a continuous nature, extending beyond subsidies
granted in the past".893 The Appellate Body has indicated that, "by its terms, Article 7.8 is concerned
only with subsidies that the Member is 'granti ng or maintaining' in the implementation period. In
assessing conformity under this provision, a panel's analysis should focus on the subsidie s that
continue to exist in the post-implementation period."894 The Appellate Body has also observed that,
in assessing a compliance dispute under Article 7.8, "the source of inconsistency is the 'granting or
maintaining' of subsidies that cause adverse effects. It is in respect of such 'granting or maintaining'
that the findings made by an original panel require cessation."895
5.397. Thus, as we see it, in assessing the existence of adverse effects in the context of original
proceedings, a panel is called upon to determine whether, under Article 5 of the SCM Agreement, a
Member has caused adverse effects at a given point in time to the interests of another Member
through the use of subsidies.896 By contrast, in the context of compliance proceedings, the analysis
focuses on whether the adverse effects found pursuant to Article 5 in the original proceedings have
ceased by the end of the implementation period. Accordingly, because compliance is assessed at a
new point in time – namely, after the implementation period has expired – the question of the
existence of adverse effects in the post -implementation period must address developments
subsequent to those that transpired in the original proceedings, including during the
post-implementation period.
5.398. We consider that the relevant counterfactual question in the original proceedings wa s
different from the one at issue in these compliance proceedings. The original panel was not required
to examine whether the acceleration effects caused by the pre -2007 aeronautics R&D subsidies
continued to exist at a particular point in time. Rather, the original panel's task concerned the issue
of whether the pre -2007 aeronautics R&D subsidies at issue caused a technology effect by
accelerating the development of the 787 technologies and, if so, whether such acceleration effects
caused serious prejudice to the interests of the European Communities during the 2004 -2006
reference period.897 In fact, the Appellate Body emphasized in the original proceedings that "{t}he
exact amount of time was not critical: that the NASA research enabled Boeing to accelerate the
research process was." 898 For this reason, in the Appellate Body's view, it was sufficient for the
original panel to find that "the NASA aeronautics R&D subsidies accelerated the technology
development process by some amount of time, and, therefore gave Boeing an advantage in bringing

891 Appellate Body Report, US – FSC (Article 21.5 – EC II), para. 61. As the Appellate Body has noted,
"Article 21.5 proceedings do not occur in isolation but are part of a 'continuum of events'." (Appellate Body
Report, US – Softwood Lumber VI (Article 21.5 – Canada), para. 103 (quoting Appellate Body Report, Mexico –
Corn Syrup (Article 21.5 – US), para. 121)) This is a consequence of the mandate of an Article 21.5 panel,
namely, to examine whether recommendations and rulings from the original dispute have been implemented
consistently with the covered agreements. (Appellate Body Reports, US – Softwood Lumber VI (Article 21.5 –
892 Appellate Body Report, Canada – Aircraft (Article 21.5 – Brazil), para. 41.
893 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 237.
894 Appellate Body Report, EC and certain member States – Large Civil Aircraft (Article 21.5 – US),
para. 5.373. (emphasis original)
895 Appellate Body Report, EC and certain member States – Large Civil Aircraft (Article 21.5 – US),
para. 5.374. The Appellate Body added that "Article 7.8 of the SCM Agreement requires the cessation of
ongoing conduct consisting of the 'granting or maintaining' of subsidies that are causing adverse effects."
(Ibid., para. 5.375)
896 Appellate Body Report, EC and certain member States – Large Civil Aircraft (Article 21.5 – US),
para. 5.373.
897 Original Panel Report, para. 7.1774.
898 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 980.

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its technologies to market."899 Therefore, the analysis revolved around the issue of whether, not by
how long, the pre-2007 aeronautics R&D subsidies accelerated the 787's technology development
process.
5.399. By contrast, in these compliance proceedings, the Panel's inquiry focused on the issue of
whether the acceleration effects of the pre-2007 aeronautics R&D subsidies that were found to exist
by the original panel still exist in the post -implementation period and, if so, whether such
acceleration effects cause serious prejudice to the interests of the European Union in the
post-implementation period. In these circumstances, we do not see why the Panel, in addressing
the European Union's technology effects claims in these complianc e proceedings, would have been
bound by the approach adopted by the original panel, which addressed a different counterfactual
question.
5.400. In these compliance proceedings, the European Union argues that, in its counterfactual
analysis, the Panel focused solely on the counterfactual launch date and did not assess the impact
of the pre-2007 aeronautics R&D subsidies on the timing of delivery of the 787. 900 In contrast, the
United States argues that "the Panel properly focused on the counterfactual launch date while duly
considering deliveries." 901 The United States adds that, in focusing on the timing of the
counterfactual launch of the 787, the Panel did not take the position that a delay in the 787's launch
would have no impact on the timing of promised and actual first deliver y.902 Rather, the
United States considers that, for the Panel, "{t}he subsidies accelerated the launch of the 787, which
in turn accelerated promised and actual first delivery by the same amount of time."903
5.401. In light of these arguments, we turn next to examine whether the Panel's counterfactual
analysis included consideration of the timing of both the 787's launch and its first delivery, or
whether such analysis covers only the timing of the 787's launch. We note that, unless otherwise
specified, our references below to "first delivery of the 787" cover both promised first delivery and
actual first delivery.
5.402. Before the Panel, t he European Un ion argued that it was necessary to consider in the
counterfactual analysis a number of timeframes in relation to the development of LCA, including the
time to develop individual LCA technologies and design tools, and the time to integrate technologies
into a final design solution. This included a ten -year incubation period, to allow for necessary
certification, quality testing, and material proofs. 904 The Panel dismissed the European Union's
counterfactual time estimate on the basis that it not only concerned the time estimate to launch the
787, but also the time to undertake certain activities, such as internal R&D conducted by Boeing and
its suppliers, production, certification, and delivery. The main reason provided by the Panel for its
conclusion was that, in its view, the original panel did not consider that "the acceleration effect of
the aeronautics R&D subsidies encompassed phases in the development of the 787 beyond its
launch."905 Subsequently, the Panel reiterated that a counterfactual analysis that would consider the
entire development period of the 787 beyond its launch would be inconsistent with the findings in
the original proceedings and would risk attributing unsubsidized aspects of the 787's development
to the effects of the subsidies.906
5.403. It is cl ear that the Panel based its conclusion solely on the counterfactual time estimates
with respect to the 787's launch. Thus, the Panel's counterfactual analysis ultimately did not include
consideration of the time estimates with respect to the counterfactua l first delivery of the 787.
Indeed, the Panel's conclusion was that "the European Union has failed to establish that, absent the
aeronautics R&D subsidies, Boeing would not have launched the 787 by the end of the

899 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 980. (emphasis original)
900 European Union's appellant's submission, para. 698.
901 United States' appellee's submission, para. 373.
902 United States' appellee's submission, para. 376.
903 United States' appellee's submission, para. 398.
904 Panel Report, para. 9.133.
906 Panel Report, para. 9.161.

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implementation period in September 2012." 907 On this basis, the Panel found that "the
European Union has failed to demonstrate that the acceleration effect of the pre -2007 aeronautics
R&D subsidies in relation to Boeing's technology development for the 787 … has continued into the
post-implementation period."908
5.404. Having clarified that the focus of the Panel's counterfactual analysis was on the timing of the
787's launch, we observe that the European Union maintains that the notion of presence in the
market of the 787 – a factor mentioned by the Panel in framing the counterfactual question –
concerns not only the launch of a product that Boeing offers, but also the time at which the product
is offered for delivery to customers and the timing of actual delivery.909 In contrast, the United States
submits that the Panel c orrectly focused on the 787's counterfactual launch timing, given that
"{u}pon the 787's launch, it would unquestionably be 'present in the market' because it would be
competing for sales against Airbus LCA."910
5.405. As we see it, a central element in the Panel's counterfactual question indeed relates to the
moment by which the 787 is deemed to be "present in the market". 911 We recall that the Panel's
counterfactual question was whether it is likely that, absent the pre-2007 aeronautics R&D subsidies,
the 787 technologies would still not have been developed by the end of the implementation period
and thus the 787 would not have been present in the market by that time.912 With regard to the role
of the 787's delivery in the counterfactual analysis, the European Union maintains that such analysis
should include the time estimates for promised and actual first delivery.913 Thus, the key issue before
us in these compliance proceedings is whether the Panel properly addressed the counterfactual
question by limiting its analysis of the acceleration effects of the pre-2007 aeronautics R&D subsidies
to the timing of the 787's launch or whether a proper application of that counterfactual question also
required consideration of the acceleration effects of the pre-2007 aeronautics R&D subsidies on the
timing of first delivery of the 787.
5.406. We recall certain features of the LCA industry that shed light on this question. As noted by
the Appellate Body in the original proceedings, "{s}everal of the issues relating to serious prejudice
implicate the structure of the LCA industry as well as the nature of competition between LCA
manufacturers."914 In particular, the Appellate Body observed that "LCA are sold to customers
through long-term contracts, often involving staggered deliveries of aircraft over several years. The
terms and conditions of each purchase contract are set at the time the orde r is made, and include
many different elements, such as aircraft specification, net price, discounts, non-price concessions,
and financing arrangements."915 It was further observed that, while a non-refundable deposit is paid
at the time of signature of the order contract, complete payment does not occur until delivery of the
aircraft.916 Moreover, "LCA purchase contracts provide both the basic airframe price, as well as for
the 'escalation' of that price to account for the time that elapses between the negotiation of the price
at the time of order and the delivery of the aircraft." 917 In this regard, the Appellate Body pointed
out that, "{d}epending upon the number of years between the order and delivery of aircraft and the
escalation terms agreed at the time the order is placed, price escalation factors can significantly
impact the purchase price ultimately paid upon delivery."918

907 Panel Report, para. 9.176. (emphasis added) The Panel further added that, while it is more difficult
to predict confidently exactly when Boeing would have been able to launch the 787 absent the pre-2007
aeronautics R&D subsidies, it would be well before (i.e. at least several years before) the end of the
implementation period. (Ibid.)
909 European Union's appellant's submission, para. 727.
911 Panel Report, para. 9.128.
912 Panel Report, para. 9.128.
913 European Union's appellant's submission, para. 727.
914 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 902.
915 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 904.
916 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 904 (referring to Original Panel
Report, para. 7.1685).
917 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 904. (fn omitted)
918 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), fn 1842 to para. 907 (referring to
Original Panel Report, para. 7.1685, in turn referring to Declaration of Christian Scherer (Original Panel Exhibit
EC-11) (BCI), para. 49).

[BCI redacted, as marked [BCI]]

5.407. In addition, in these compliance proceedings, the Panel referred to the relevance of an
aircraft's delivery availability as a significan t consideration for the outcome of certain sales
campaigns presented by the parties. In particular, the Panel held that, "{i}n the majority of the LCA
sales campaigns, a critical factor was the airline customers' preference for the delivery availability
of the Boeing aircraft over the competing Airbus aircraft, in light of the airlines' particular fleet
replacement requirements as well as Airbus' delivery delays."919
5.408. The Panel's counterfactual analysis was part of a broader inquiry seeking to determine
whether the pre -2007 aeronautics R&D subsidies continue to cause serious prejudice within the
meaning of Articles 5 and 6.3 in the post -implementation period. 920 Thus, to the extent that
acceleration effects from the pre -2007 aeronautics R&D subsidies are found to exist in the
post-implementation period, then assessing whether any of the forms of serious prejudice under
Article 6.3 at issue was the effect of these subsidies may involve evaluating evidence related to
events occurring after an aircraft's launch. As n oted in section 5.6 above, in the LCA market, the
market phenomena of price suppression and lost sales are not limited to what occurs at the time of
an LCA order and, therefore, such phenomena may continue up to the point of LCA delivery. 921
Indeed, the terms of a sale, and the extent to which those terms may be modified until the point of
delivery, may have a bearing on the nature and scope of adverse effects caused by a subsidy. Thus,
depending on the nature and scope of the transaction at issue, establishing the existence of certain
forms of serious prejudice in the LCA industry may require examining events subsequent to the point
of order, potentially including events taking place up to the point of delivery. Consequently, in the
context of the LCA market, determining whether the forms of serious prejudice under Article 6.3 at
issue in this dispute still exist in the post -implementation period requires assessing whether any
acceleration effects from the pre-2007 aeronautics R&D subsidies also had an impact on the timing
of first delivery of the 787 in the post-implementation period.
5.409. According to the United States, the European Union has never established that the Panel, in
focusing on the timing of the counterfactual launch, failed to properly capture the ef fects of the
pre-2007 aeronautics R&D subsidies. 922 By way of example, the United States asserts that the
European Union "never even attempted to demonstrate that, in a counterfactual featuring a 787
launch in 2006, promised first delivery in 2010, and actua l first delivery in 2013, greater attention
to the delivery dates would make any difference for the adverse effects analysis". 923 The
United States further argues that, "in the counterfactual scenario, Boeing's promised first delivery
date (and actual first delivery, i.e., entry into service) … can be assumed to experience a delay
equivalent to the counterfactual launch delay."924 However, "what cannot be assumed, and what the
{European Union} failed to establish, is that the delivery positions Boeing offered i n any particular
sales campaign would have been at all different, much less that the positions offered would have
been less attractive vis-à-vis Airbus's counterfactual offer in that campaign."925
5.410. The difficulty we have with the United States' argumentation is that it asserts that the
European Union failed to establish something that, in our view, the Panel never considered in its
adverse effects analysis. As we have explained, the Panel rejected any consideration of whether any
acceleration effects from the pre-2007 aeronautics R&D subsidies had an impact on the timing of
first delivery of the 787 in the post -implementation period, on the basis of the incorrect
understanding that it was constrained by the scope of the counterfactual question addressed by the
original panel. The Panel considered that a counterfactual analysis that includes "the entire
development period of the 787 beyond its launch (including the time it would have taken Boeing to
develop, mature, produce, and certify 787 technologies, and the time to integrate those components

919 Panel Report, para. 9.247 (referring to Panel Report, HSBI Appendix, paras. 10, 22, 29, 39, 48, 60,
76-79, 89, and 111).
920 We recall that the Panel indicated that, to the extent that it would find that the aeronautics R&D
subsidies have acceleration effects in the post-implementation period, it would then assess the consequent
impact on sales and prices of the relevant Airbus LCA in the post-implementation period so as to determine
whether the subsidies in question, through these technology effects, constitute a genuine and substantial cause
of the particular forms of serious prejudice alleged by the European Union. (Panel Report, para. 9.122)
921 At the same time, it would be improper to suggest that, in all instances involving the phenomena of
price suppression and lost sales in the LCA market, the phenomena manifest themselves to the same degree
throughout the time period from order to delivery. (See section 5.6 above)
922 United States' appellee's submission, para. 378.
923 United States' appellee's submission, para. 378.
924 United States' appellee's submission, para. 380.
925 United States' appellee's submission, para. 380.

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into a single aircraft, as the European Union argues) … {would be} inconsistent with the findings in
the original proceeding and would risk attributing unsubsidized aspects of the 787's development to
the effects of the subsidies."926 In our view, the Panel was not bound by the way in which the original
panel framed its inquiry given that the nature of the counterfactual question in these compliance
proceedings was different. Indeed, in the original proceedings, the analysis concerned the issue of
whether, not by how long, the pre-2007 aeronautics R&D subsidies accelerated the 787's technology
development process. By contrast, in these compliance proceedings, the Panel's inquiry focused on
the issue of whether the acceleration effects that were found to exist by the original panel still exist
in the post -implementation period and, if so, whether such acceleration effects cause serious
prejudice to the interests of the European Union in the post-implementation period.
5.411. Moreover, if the pre-2007 aeronautics R&D subsidies had an impact on stages of the 787's
development – either before or after its launch – that affected the timing of first delivery of the 787
in relation to the end of the implementation period, then assessing the timing of this aircraft's first
delivery would have been particularly appropriate for determining whether the ac celeration effects
still exist in the post -implementation period and could be attributed to the pre -2007 aeronautics
R&D subsidies. If there were no such acceleration effects that affected the timing of first delivery of
the 787, then the Panel should have reasoned why that is the case, rather than excluding
consideration of this issue ab initio.
5.412. In addition to the above considerations, we are of the view that there were several
indications before the Panel that should have led it to evaluate whether the forms of serious prejudice
alleged by the European Union are still present in the post -implementation period by examining
whether, absent the pre -2007 aeronautics R&D subsidies, first del ivery of the 787 would have
occurred after the end of the implementation period. As a starting point, the original panel and the
Appellate Body considered that the technology effects of the pre -2007 aeronautics R&D subsidies
accelerated both the 787's laun ch and its promised first delivery .927 Furthermore, it should have
been telling for the Panel that both parties in these compliance proceedings presented argumentation
related to activities pertaining to, and time estimates for, the 787's launch and its first delivery.928
Indeed, the European Union argued that "the relevant counterfactual question concerns the amount
of additional time that it would have taken an LCA manufacturer like Boeing to research, develop,
produce, certify, and deliver the 787."929 In turn, the United States estimated that Boeing could have
conducted all of the necessary research to launch the 787 before the end of April 2006 (with
promised deliveries in 2010) absent the pre-2007 aeronautics R&D subsidies.930
5.413. Moreover, we recall that the Boeing Engineers' Statement, which sets out the counterfactual
time estimates put forward by the United States, "is based on examples of the time and effort taken
by Boeing and its suppliers to address early -stage R&D challenges that were either comparable to,
or more demanding than, the types of activities conducted under the NASA and DOD programs".931
Some of the R&D tasks used to estimate the time that Boeing would have required to develop certain
787 technologies absent the subsidies refer to activities that [BCI]. For instance, in relation to the
counterfactual time estimate to develop the composite fuselage, the Panel noted that, according to
the Boeing engineers, "Boeing could have replicated in less than two years the particular tasks that
were accomplishe d under NASA's Advanced Technology Composite Aircraft Structures (ATCAS)
program."932 For this comparison, the Boeing engineers relied on "Boeing's work developing a
one-piece composite barrel design concept for incorporation into the 7E7 baseline design, it s
completion of a full-scale demonstration barrel fuselage section and development of design, tooling

926 Panel Report, para. 9.161.
927 We recall that, in a finding upheld by the Appellate Body, the original panel concluded that, "absent
the aeronautics R&D subsidies, Boeing would not have been able to launch an aircraft incorporating all of the
technologies that are incorporated on the 787 in 2004, with promised deliveries commencing in 2008."
(Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1036 (quoting Original Panel Report,
para. 7.1775))
928 Panel Report, paras. 9.133 and 9.171.
929 Panel Report, para. 9.152.
930 Panel Report, para. 9.171.
931 Panel Report, para. 9.137 (quoting Boeing Engineers' Statement (Panel Exhibit USA-283) (BCI),
para. 7). (emphasis added)
932 Panel Report, para. 9.139.

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and production concepts".933 As noted in the Boeing Engineers' Statement, although Boeing officially
launched the 787 in April 2004, [BCI].934
5.414. We further reca ll that the Panel's main reason for rejecting the European Union's time
estimate was that "{t}he original panel did not consider that Boeing's technology development in
relation to the 787 was solely the result of Boeing's subsidized participation in NASA and DOD
aeronautics R&D programmes. Nor did it consider that the acceleration effect of the aeronautics R&D
subsidies encompassed phases in the development of the 787 beyond its launch." 935 It is not clear
to us whether the Panel believed that the original p anel had affirmatively found that there were no
post-launch acceleration effects, or whether it believed that the original panel simply had not
considered them.936 In either event, the Panel appeared to assume that it was required to evaluate
the legal issues in these Article 21.5 proceedings in the same way in which those issues were
evaluated in the original proceedings. As noted, the nature of the counterfactual question in the
original proceedings was different from the one at issue in these compliance proceedings. The
original panel was not required to examine whether the acceleration effects caused by the pre-2007
aeronautics R&D subsidies continued to exist as of a particular point in time. Thus, in these
circumstances, we do not see why, in addressing the European Union's technology effects claims in
these compliance proceedings, the Panel would have been bound by the approach adopted by the
original panel, which was used to address a different counterfactual question.
5.415. For the foregoing reasons, we consider that the Panel was required to assess whether 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.937 We are not persuaded that it
was sufficient for the Panel to base its conclusion regarding the European Union's technology effects
claims solely on its understanding of the original panel's findings. Given that the counterfactual
inquiry in these complian ce proceedings was different from the one at issue in the original
proceedings, we would have expected an analysis from the Panel as to why a focus on post -launch
acceleration effects was not warranted. By failing to assess in its counterfactual analysis w hether
the acceleration effects of the pre -2007 aeronautics R&D subsidies had an impact, not just on the
launch of the 787, but also on the timing of first delivery of the 787, the Panel did not properly
assess the counterfactual question as to whether there remain acceleration effects of the pre-2007
aeronautics R&D subsidies in the post-implementation period.
5.416. Accordingly, we find that the Panel erred in the application of Articles 5 and 6.3 and, as a
consequence, Article 7.8 of the SCM Agreement. For the foregoing reasons, we reverse the Panel's
findings, in paragraph 9.177 of the Panel Report, that the European Union failed to demonstrate that
the acceleration effects of the pre-2007 aeronautics R&D subsidies in relation to Boeing's technology
development for the 787 have continued into the post -implementation period , and that the
European Union therefore failed to demonstrate the existence of original subsidy technology effects
of the pre-2007 aeronautics R&D subsidies in the post-implementation period.
5.417. The European Union also requests us to reverse the Panel's analysis with respect to the
spill-over technology effects of the pre-2007 aeronautics R&D subsidies on the 787-9/10, the 777X,
and the 737 MAX. We recall that the European Union argued before the P anel that the pre -2007
aeronautics R&D subsidies, through their effects on Boeing's development of certain 787
technologies that have subsequently been adapted and applied to the more recently launched
787-9/10, 777X, and 737 MAX, give rise to spill-over technology effects with respect to those aircraft
in the post-implementation period.938
5.418. In the context of assessing the spill-over technology effects of the pre-2007 aeronautics R&D
subsidies on the twin -aisle Boeing LCA (i.e. the 787-9/10 and 777X), the Pane l recalled its earlier
conclusion that the European Union had failed to establish that, absent these subsidies, Boeing would
have launched the 787 after the end of the implementation period in September 2012. The Panel

933 Panel Report, para. 9.139 (referring to Boeing Engineers' Statement (Panel Exhibit USA-283) (BCI),
para. 23).
934 Boeing Engineers' Statement (Panel Exhibit USA-283) (BCI), para. 23.
935 Panel Report, para. 9.152.
936 We note that the Panel did not provide a specific citation to the original panel's analysis to support its
understanding of the findings in the original proceedings.
937 See para. 5.401 above.
938 Panel Report, paras. 9.178 and 9.344.

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further stated that "{t}he end of the implementation period is more than eight years after Boeing
actually launched the 787 in 2004, and is ten or more years after Boeing began pre-launch R&D for
the development of the 787, following its decision to develop a replacement for the 767." 939 In the
Panel's view, regardless of whether Boeing would have launched the 787 before the end of 2006 or
somewhat later, an unsubsidized launch of the 787 would have nevertheless occurred multiple years
in advance of the launch of the 787-10 (in June 2013) or the 777X (in November 2013).940 The Panel
added that, while the onus to demonstrate this was on the European Union, it had not "provided
credible evidence that the 787 technologies … could not have been adapted and developed into
spill-over technologies for the 787-9/10 or 777X in sufficient time to enable their respective launches
in 2013".941 On this basis, the Panel concluded that "the European Union has failed to demonstrate
the existence of so-called spill-over technology effects of the pre-2007 aeronautics R&D subsidies in
respect of the 787-9/10 or 777X in the post-implementation period."942
5.419. The Panel made a similar set of findings in assessing the spill-over technology effects on the
single-aisle Boeing LCA (i.e. the 737 MAX). Indeed, the Panel recalled its earlier conclusion that the
European Union had failed to demonstrate that, absent the pre -2007 aeronautics R&D subsidies,
Boeing would have launched the 787 after the end of the implementation period in September 2012.
The Panel reiterated that, while it co uld not confidently predict exactly when Boeing would have
been able to launch the 787 absent the pre -2007 aeronautics R&D subsidies, Boeing would have
done so at least several years before the end of the implementation period. The Panel therefore
considered that it was not unrealistic to believe that Boeing would have been in a positi on to have
launched the 737 MAX before the end of the implementation period. The Panel also pointed out that
the European Union had not provided credible evidence that the 787 technologies that Boeing would
have developed without the subsidies could not have been adapted to the 737 MAX in sufficient time
to enable its launch in August 2011.943 On this basis, the Panel concluded that the European Union
had "failed to demonstrate the existence of so -called spill-over technology effects of the pre -2007
aeronautics R&D subsidies in respect of the 737 MAX in the post-implementation period".944
5.420. We consider that the Panel's conclusions regarding the European Union's claims with respect
to the spill-over technology effects of the pre-2007 aeronautics R&D subsidies on the 787-9/10, the
777X, and the 737 MAX were largely dependent on its earlier findings regarding the original subsidy
technology effects of the pre -2007 aeronautics R&D subsidies on the 787. We have reversed the
Panel's analysis regarding the original subsidy technology effects. As a consequence of this reversal,
we also reverse the Panel's findings, in paragraphs 9.186 and 9.355 of the Panel Report, that the
European Union failed to demonstrate the existence of spill-over technology effects of the pre-2007
aeronautics R&D subsidies with respect to the 787 -9/10, 777X, and 737 MAX in the
post-implementation period.
5.421. We have reversed the Panel's findings in paragraphs 9.177, 9.186, and 9.355 regarding the
existence of original subsidy technology effects of the pre -2007 aeronautics R&D subsidies in the
post-implementation period, and the existence o f spill -over technology effects of the pre -2007
aeronautics R&D subsidies with respect to the 787 -9/10, 777X, or 737 MAX in the
post-implementation period. As a consequence, and to that extent, we also reverse the Panel's
findings, in paragraphs 9.219 -9.220, 9.372-9.373, 11.8.a, and 11.8.e of the Panel Report, with
respect to the European Union's failure 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 the A320neo in the post -implementation period, through a technology causal
mechanism.

939 Panel Report, para. 9.184.
940 We recall that, in this part of its analysis, the Panel did not refer to the launch of the 787-9.
(See Panel Report, para. 5.98)
941 Panel Report, para. 9.185.
942 Panel Report, para. 9.186. The Panel added that, in light of this conclusion, it need not address the
question of whether any of the alleged technologies identified by the European Union in relation to the 787-10
and 777X are in some way related or linked to those on the 787. (Ibid., fn 2956 to para. 9.186)
943 Panel Report, para. 9.354.
944 Panel Report, para. 9.355. The Panel added that, in light of this conclusion, it need not address the
second question, which is whether any of the alleged technologies identified by the European Union in relation
to the 737 MAX are in some way related or linked to those on the 787. (Ibid., fn 3251 to para. 9.355)

[BCI redacted, as marked [BCI]]

5.422. We recall that, in addition to the above claim of error in the application of Articles 5, 6.3,
and 7.8 of the SCM Agreement, the European Union brought multiple claims challenging the Panel's
findings that the European Union failed to establish that the technology effects of the pre -2007
aeronautics R&D subsidies continue into the post -implementation period. 945 Because we have
reversed the Panel's ultimate findings regarding the acceleration effects of the pre-2007 aeronautics
R&D subsidies, we need not consider the additional claims and arguments by the European Union.
5.423. Having reversed the Panel's findings, we turn to assess the European Union's request for
completion of the legal analysis.
5.7.3 Completion of the legal analysis
5.424. The European Union requests us to complete the legal analysis and find that the pre -2007
aeronautics R&D subsidies cause: (i) original subsidy technology effects with respect to the 787 in
the post-implementation period; and (ii) spill-over technology effects with respect to the 787-9/10,
777X, and 737 MAX in the post-implementation period.946
5.425. The European Union submits that a counterfactual analysis, based on factual findings by the
Panel and undisputed facts on the record, demonstrates that, absent the pre-2007 aeronautics R&D
subsidies, Boeing would have been able to launch and deliver the 787 mu ch later than what the
Panel found.947 The European Union highlights that, in completing the legal analysis, it is not
necessary for us to identify the precise time at which the launch, and subsequent delivery, of the
relevant aircraft models would have occurred. 948 Rather, in the European Union's view, we would
merely need to confirm, based on factual findings by the Panel and undisputed facts on the record,
that launch and delivery of these aircraft, absent the non -withdrawn subsidies, would have been
delayed until, at least, after the end of the implementation period in September 2012.949
5.426. The European Un ion submits that, "in any event, the Appellate Body should assess the
minimum amount of time it would have taken Boeing, absent the non -withdrawn US aeronautics
R&D subsidies, to: (i) conduct certain fundamental R&D (i.e. to develop knowledge); and to (ii) turn
that knowledge into technologies that are mature enough for commercial application on the
787-8."950 The European Union specifies that we should take into account the time it took Boeing to
develop the 787-8, from launch in April 2004 to promised first deliveries in 2008, and also the time
by which the actual first delivery of the 787 -8 was delayed. According to the European Union, this
is because the time of actual first delivery more accurately reflects the time it actually took Boeing
to develop and mature the 787-8 technologies to a degree that the 787-8 was ready to be delivered
to its first customer in 2011.951 The European Union argues that, having concluded a determination
regarding the 787 -8, the same counterfactual R&D timeframe for the developme nt of Boeing's
787-9/10, 737 MAX, and 777X should be applied.952
5.427. The European Union maintains that, "{u}ndisputed evidence shows that, after an LCA
manufacturer conducts fundamental R&D for the development of certain aircraft technologies,
additional R&D is necessary to further develop – and mature – these technologies prior to the launch
of the aircraft." 953 Statements by Boeing, made outside the context of litigation, indicate that "it
takes '{u}p to 10 years for major technologies' alone to reach a TRL6 (up to prototype
demonstration), and an additional '3 to 6 years' for an LCA to be developed, produced, and delivered
to its first customer (TRL9)." 954 The European Union considers that, i n determining the minimum

945 See para. 5.368 above.
946 European Union's appellant's submission, para. 863.
947 European Union's appellant's submission, para. 865. The European Union considers that the Panel
properly identified the counterfactual question to be "whether it is likely that, absent these subsidies, the 787
technologies would still not have been developed by the end of the implementation period and thus the 787
would not have been present in the market by that time". (Ibid. (quoting Panel Report, para. 9.128))
948 The European Union refers to the launch and delivery of the 787-8, 787-9/10, 737MAX, and 777X.
(European Union's appellant's submission, paras. 866-867)
949 European Union's appellant's submission, paras. 866-867.
950 European Union's appellant's submission, para. 878.
951 European Union's appellant's submission, para. 878.
952 European Union's appellant's submission, para. 880.
953 European Union's appellant's submission, para. 882.
954 European Union's appellant's submission, para. 882 (quoting European Union's second written
submission to the Panel, paras. 1004-1005, in turn quoting Craig Wilsey and Robert Stoker, Continuous Lower

[BCI redacted, as marked [BCI]]

counterfactual R&D timeframe for the 787 -8, the mentioned "up to 10 years" indication should be
used. The European Union submits that, when applied to the same counterfactual start date for
pre-launch R&D used by the United States ([BCI]), this leads to a potential launch at a date leading
"up to" 2012 (up to eight years later than the 787's actual launch) and possible promised first
delivery up to 2016 (up to eight years later than the 787's promised first delivery). 955 Moreover,
taking into account the delay for actual delivery of the 787 results in a counterfactual first delivery
of the 787-8 as late as 2019.956 The European Union adds that, "{e}ven putting aside the broad 'up
to ten years' timeframe for pre-launch R&D, and accounting only for the actual 787 delivery delays
and the undisputed '3 to 6 years' to mature technologies from TRL6 to first delivery, would require
a finding that the counterfactual first delivery of the 787 -8 would have taken place substantially
after 2012."957
5.428. The European Union then refers to "more specific estimates" provided b y the Airbus
engineers with respect to how long Boeing would have likely taken to "develop, mature, produce
and certify" a number of technologies. 958 According to the European Union, applying these figures
in context results in [BCI] timeframes as the generalized timeframes provided by Boeing engineers.
In particular, the European Union put forward a comparable time period, which is HSBI, on the basis
of argumentation from the Airbus engineers regarding the time required for a 360-degree composite
fuselage barrel section.959 Applying th ese estimates to the same counterfactual start date when
Boeing began pre-launch R&D ([BCI]), and assuming 4 years from launch to promised first delivery,
leads to a date for promised first delivery, absent the pre-2007 aeronautics R&D subsidies, of [BCI].
The European Union submits that, taking into account the actual delay in delivering the 787 -8, the
counterfactual actual first delivery date is postponed to [BCI].960
5.429. Turning to the 787-9/10, 777X, and 737 MAX, the European Union contends that the launch
and subsequent delivery of these aircraft would have been affected by the delayed launch and first
delivery of the 787, given Boeing's need for time to adapt the fully developed 787-8 technologies to
these newer aircraft. 961 For the purpose of determining the relevant dates for the counterfactual
analysis applicable to these aircraft, the European Union takes their launch and promised delivery
dates and adds a period of up to 8 years, which is equivalent to the purported delay of the 787-8
launch in the counterfactual analysis.962
5.430. In response, the United States submits that "the {European Union} is asking the
Appellate Body to discard the Panel's careful analysis of a complex factual record and undertake its
own de novo analysis based on {the European Union's} argumentation rather than undisputed facts
or Panel findings."963 The United States adds that "the {European Union's} proposed path to each
requested finding would require the Appellate Body to make multiple factual findings without

Energy, Emissions and Noise (CLEEN) Technologies Development – Boeing Program Overview, CLEEN
Consortium Public Session (27 October 2010) (Panel Exhibit EU-665), p. 4).
955 European Union's appellant's submission, para. 884.
956 European Union's appellant's submission, para. 885. The European Union refers to "the undisputed
fact of the (actual) delay of 3 years and five months that Boeing encountered in delivering the 787 to its first
customer". (Ibid. (referring to Panel Report, para. 9.153; European Union's response to Panel question
No. 45(c), paras. 331-347))
957 European Union's appellant's submission, para. 886.
958 European Union's appellant's submission, para. 891 (referring to Airbus Engineers' Response
(Panel Exhibit EU-1014) (BCI/HSBI), paras. 40 and 43).
959 European Union's appellant's submission, para. 891 (quoting European Union's second written
submission to the Panel, paras. 1031-1041, in turn quoting Airbus Engineers' Response (Panel Exhibit
EU-1014) (BCI/HSBI), paras. 40 and 43). The Airbus engineers further estimated that the development of a
composite wing up to the point of first delivery would have taken nine years. (Ibid. (referring to Airbus
Engineers' Response (Panel Exhibit EU-1014) (BCI/HSBI), para. 56))
960 European Union's appellant's submission, para. 893.
961 European Union's appellant's submission, para. 896. The European Union maintains that "{n}either
the Panel nor the United States addressed the question of how much time Boeing would have taken, following
the development of the 787-8, to leverage its knowledge and experience, and adapt and develop its
technologies into spill-over technologies to proceed with the launches of the 787-9/10, 737 MAX, and 777X
models." (European Union's appellant's submission, para. 897 (referring to Panel Report, para. 9.185;
United States' first written submission to the Panel, para. 709))
962 European Union's appellant's submission, para. 899.
963 United States' appellee's submission, para. 487.

[BCI redacted, as marked [BCI]]

sufficient basis, including because such findings would be contrary to the original findings, contrary
to the Panel's findings, and/or would assume a fact that the Parties dispute."964
5.431. The United States maintains that the European Union's arguments are "flawed" in several
respects. To begin with, "{t}here is no support whatsoever for the notion that R&D subsidies would
cause current serious prejudice through a technology effects causal pathway merely because, absent
those subsidies, the first delivery of the 787 would have occurred after the end of the implementation
period (e.g., in late 2012 or early 2013)."965 The United States adds that this counterfactual scenario
(i.e. one in which the counterfactual first delivery of the 787 would have occurred in late 2012 or
early 2013) "is consistent with a 787 lau nch date seven years earlier, in 2006 – i.e., the same
duration as the period between actual 787 launch in 2004 and actual first delivery in 2011". 966 The
United States maintains that, "{i}n such a scenario, the 787 would be present in the market
throughout the entire post-implementation period, and the Appellate Body would have no basis for
finding that the alleged indicia of serious prejudice identified by the {European Union}, such as lost
sales campaigns, would have different outcomes as compared to what actually occurred."967
5.432. Moreover, the United States disagrees with the European Union's reliance on "generic
timeframes" to progress from one TRL to another as a proxy for estimating the 787 launch delay.968
For the United States, relying on this information "would be contrary to the Panel's unappealed
finding that 'statements made by Boeing engineers that the European Union has cited regarding the
time that is required to develop and mature technologies are also highly generalized and do not
speak to the contribution of the challenged aeronautics R&D subsidies in respect of Boeing's overall
development of the 787'".969 Indeed, according to the United States, the European Union "selectively
quotes the Boeing engineers' statement on this issue", given that "the full quotation makes clear
that no basis exists for the Appellate Body to adopt an 'up to 10 years' time -frame for the period
between the start of pre -launch R&D and launch." 970 Finally, the United States asserts that the
European Union's reliance on "generic TRL timeframes" would be at odds with its position before the
Panel. The United States points out that, before the Panel, the European Union agreed th at "the
precise timeframes" in the Peisen Study (a NASA study of the average time taken to move between
TRL levels) are of "lesser relevance" to the compliance Panel's assessment.971
5.433. In response to the European Union's use of estimates provided by Airbus eng ineers, the
United States submits that "{t}his is nothing more than an invitation for the Appellate Body to weigh
the evidence provided by the Boeing engineers against the critiques of the {European Union} and
Airbus engineers after the Panel already did s o and found the latter to be 'highly -generalized in
nature, and ultimately unpersuasive.'" 972 In addition, the United States maintains that the Airbus
engineers' information is "conceptually flawed" as it concerns "the full spectrum of aircraft
development activities through first delivery, as opposed to the specific roles played by the pre-2007
aeronautics R&D subsidies".973 Furthermore, the United States disagrees that it "does not dispute"
the Airbus engineers' counterfactual time estimates for the 787, incl uding a counterfactual launch
of the 787 as late as 2015. 974 On the contrary, the United States submits that these facts are
disputed because, through the Reply of Boeing Engineers to EU and Airbus Statements Regarding
the Technologies and Development of the 787, 737 MAX, and 777X (Boeing Engineers' Reply) , it
rejected the counterfactual estimates presented by the European Union.975 Moreover, the
United States argues that the European Union's counterfactual timing estimates are "in direct

964 United States' appellee's submission, para. 488.
965 United States' appellee's submission, para. 491.
966 United States' appellee's submission, para. 491. (emphasis omitted)
967 United States' appellee's submission, para. 491.
968 United States' appellee's submission, para. 493 (referring to European Union's appellant's
submission, paras. 882-884).
970 United States' appellee's submission, para. 493 (referring to European Union's appellant's
submission, para. 883).
971 United States' appellee's submission, para. 494 (referring to Panel Report, fn 2932 to para. 9.166).
973 United States' appellee's submission, para. 495 (referring to European Union's appellant's
submission, para. 891).
974 United States' appellee's submission, para. 496.
975 United States' appellee's submission, para. 496 (referring to Reply of Boeing Engineers to EU and
Airbus Statements Regarding the Technologies and Development of the 787, 737 MAX, and 777X
(August 2013) (Boeing Engineers' Reply) (Panel Exhibit USA-359) (BCI), paras. 13-26).

[BCI redacted, as marked [BCI]]

conflict" with the Pan el's unappealed findings regarding the development timing of the Airbus
A350XWB as consisting of "a period of roughly [BCI]".976 According to the United States, a
comparison of the Panel's analysis regarding the A350XWB and the European Union's counterfactual
timing estimates for the 787 (including a launch up to 11 years later than the actual launch in 2004)
reveals that the latter is "patently unreasonable".977
5.434. The United States adds that, given the barriers to completion of the analysis for the 787 -8,
the Appellate Body also cannot complete the spill -over technology effects analysis regarding the
787-9/10, 737 MAX, and 777X. Indeed, "{w}ithout any basis to find in the {European Union's}
favour with respect to the counterfactual timing of the 787 -8, the Appell ate Body … would lack a
sufficient basis to find delays with respect to the other aircraft models." 978 According to the
United States, the European Union's request would require the Appellate Body to re -weigh
impermissibly the evidence and make wholly n ew fi ndings about facts not in the evidence. 979
Additionally, the United States disagrees with the European Union's contention that there are "time
gaps" between the counterfactual launch of the 787-8 and the launches of other models that "reflect
resource and en gineering constraints Boeing faced when launching several LCA models in close
succession".980 In the United States' view, these are "bare assertions" made by the European Union
attempting to fill an "evidentiary hole".981 Moreover, the United States contends that a Panel finding,
which was not appealed, indicates that "{c}ommercial priorities differ between different aircraft
programmes and these differing priorities can influence the point in time at which an aircraft
manufacturer decides to launch an aircraft programme."982
5.435. We note that, before the Panel, the United States contended that "Boeing could have
conducted all the necessary research to launch the 787 before the end of April 2006 (with promised
deliveries in 2010) absent the pre-2007 aeronautics R&D subsidies."983 These time estimates were
based on the Boeing Engineers' Statement 984 and the Boeing Engineers' Reply .985 In turn, the
European Union presented time estimates that were somewhat general in nature. Indeed, according
to the European Union, "it would have taken Boeing 'at least 10 years to develop only a number of
select LCA technologies and design tools necessary for the 787', and in addition to the ten years,
Boeing would further 'require considerable ti me to develop the knowledge it has acquired through
its decades of experience participating in the US Government -supported R&D programmes'."986 On
appeal, the European Union puts forward more specific time estimates for the 787's counterfactual
launch and first delivery. In particular, the European Union considers that the counterfactual launch
would take place at a date leading up to 2012, promised first delivery at a date leading up to 2016,
and actual first delivery at a date leading up to 2019.987
5.436. As we see it, the European Union's counterfactual estimates depend on establishing that the
counterfactual launch date of the 787 would have been as late as 2012. The European Union
therefore argues that pre-launch R&D activities for the 787 would have taken "up to ten years".988
This estimate is based on the timeframes set out in the Peisen Study.989 The European Union also
relies on the "more specific estimates" provided by the Airbus engineers.990
5.437. We note that the relevance of the Peisen Study for the purpose of estimating timeframes for
the 787's counterfactual analysis was questioned by the panel and the Appellate Body in the original

977 United States' appellee's submission, para. 497.
978 United States' appellee's submission, para. 498.
979 United States' appellee's submission, para. 499.
980 United States' appellee's submission, para. 499 (quoting European Union's appellant's submission,
para. 900).
981 United States' appellee's submission, para. 499 (referring to European Union's appellant's
submission, para. 900).
982 United States' appellee's submission, para. 499 (quoting Panel Report, fn 2947 to para. 9.175).
984 Boeing Engineers' Statement (Panel Exhibit USA-283) (BCI).
985 Boeing Engineers' Reply (Panel Exhibit USA-359) (BCI).
986 Panel Report, para. 9.130 (quoting European Union's second written submission to the Panel,
para. 975).
987 European Union's appellant's submission, para. 890.
988 European Union's appellant's submission, para. 884.
989 European Union's appellant's submission, paras. 882-884.
990 European Union's appellant's submission, para. 891.

[BCI redacted, as marked [BCI]]

proceedings, as well as by the Panel in these compliance proceedings. The original panel was not
persuaded that the estimates in the Pe isen Study were determinative for calculating the time
estimates for the development of the 787. 991 Similarly, the Appellate Body indicated that "the
estimates in the Peisen Study were based only on average timeframes, and do not necessarily reflect
the precise time that was required to develop and launch the technologies used on the 787."992 In
these compliance proceedings, the Panel considered that the statements from the Peisen Study that
are cited by the European Union "are also highly generalized and do no t speak to the contribution
of the challenged aeronautics R&D subsidies in respect of Boeing's overall development of the
787".993 Before the Panel, the European Union noted that the parties had agreed that the timeframes
in the Peisen Study are "of lesser relevance to the compliance Panel's assessment, because, as the
original panel and the Appellate Body have themselves found, the study was based on a variety of
different aircraft technologies with widely varying maturation times".994 As noted, the United States
contests the time estimates based on the Peisen Study, as well as those presented by the Airbus
engineers.995
5.438. Therefore, as we see it, the relevant time estimates for conducting the 787's counterfactual
analysis were highly contested by the participants in these proceedings. For example, the
United States disagrees with the European Union's reliance on the "generic timeframes" to progress
from one TRL to another set out in the Peisen Study as a proxy for estimating the 787 launch
delay.996 For the United St ates, relying on this information "would be contrary to the Panel's
unappealed finding that 'statements made by Boeing engineers that the European Union has cited
regarding the time that is required to develop and mature technologies are also highly genera lized
and do not speak to the contribution of the challenged aeronautics R&D subsidies in respect of
Boeing's overall development of the 787'". 997 Moreover, the United States also questions the
European Union's use of estimates provided by the Airbus engineers. Consequently, in our view,
there are no undisputed facts regarding the relevant time estimates with respect to the
counterfactual launch of the 787.
5.439. Moreover, the Panel's findings regarding the time estimate for the counterfactual launch of
the 787 did not specify a precise date by which, absent the pre -2007 aeronautics R&D subsidies,
Boeing would have launched the 787. Rather, the Panel limited itself to a more general conclusion
regarding a counterfactual launch date, noting that it was "difficult … t o confidently predict exactly
when Boeing would have been able to launch the 787 absent the pre -2007 aeronautics R&D
subsidies", but that "it would be well before (i.e. at least several years before) the end of the
implementation period."998 Our understanding of the Panel's finding is that the counterfactual launch
date of the 787 therefore falls somewhere between 2006, the date proposed by the United States
but which the Panel did not explicitly accept, and 2010, which would seem to be the l atest point at
which the date could still be considered to be "several years" before 2012.
5.440. For the purpose of its request for completion of the legal analysis, the European Union
appears to have adopted a counterfactual time lag of four years between the launch of the 787 and
its promised first delivery, and a time lag of three years between the 787's promised first delivery
and its actual first delivery. The European Union indicates that it proposes these time lags to take
into account "the four years it actually took Boeing from launch to promised first deliveries" and "the
actual delays in the post-launch development of the 787".999 We consider it important to point out
that, since the Panel failed to assess whether the acceleration effects of the pre -2007 aeronautics
R&D subsidies had an impact, not just on the launch of the 787, but also on the timing of the 787's
first delivery, it also did not make any findings regarding possible time estimates for the
counterfactual promised first delivery and actual first delivery of the 787. Because the Panel did not
examine this matter, we would be able to proceed only on the basis of the assumption s that the

991 Original Panel Report, para. 7.1748.
992 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 980. (emphasis omitted)
993 Panel Report, para. 9.166.
994 Panel Report, fn 2932 to para. 9.166 (quoting European Union's response to Panel question No. 46,
para. 362).
995 See United States' appellee's submission, paras. 493-494 and 496-497.
996 United States' appellee's submission, para. 493 (referring to European Union's appellant's
submission, paras. 882-884).
998 Panel Report, para. 9.176.
999 European Union's appellant's submission, para. 890.

[BCI redacted, as marked [BCI]]

date of promised first delivery of the 787 in a counterfactual scenario would be four years following
its laun ch, and that the date of actual first delivery of the 787 would be three years after the
occurrence of its promised first delivery. Similarly, we also have to assume that the acceleration
effects of the pre -2007 aeronautics R&D subsidies on the timing of f irst delivery of the 787 would
therefore be limited to those effects flowing as a consequence from the acceleration of the launch
date. Such an assumption provides us little, if any, basis on which to assess the impact of the
acceleration effects of these subsidies on the timing of first delivery of the 787. The Panel did not
consider the question, leaving great uncertainty regarding the significance of any such acceleration
effects for the counterfactual timing of first delivery. Therefore, without prejudice to the substantive
assessment of whether there are any acceleration effects on post -launch R&D that might have had
an impact on the counterfactual timing of first delivery of the 787, we proceed to consider how a
completion exercise could be conducted o n the basis of the European Union's proposed four -year
counterfactual time lag between the 787's launch and its promised first delivery, and the three-year
time lag between the 787's promised first delivery and its actual first delivery.
5.441. The European Union urges that we "would merely need to confirm … that the first delivery
of the 787, absent the non -withdrawn subsidies, would have been delayed until after 2012, i.e.,
after the end of the implementation period".1000 However, we consider that the completion exercise
would not be as straightforward as the European Union describes it. Indeed, in these proceedings,
the participants contest the relevant time estimates for conducting the 787's counterfactual analysis.
As a result, there are no uncontested facts with respect to the time that Boeing would have required
for the 787's launch, its promised first delivery, or its actual first delivery, absent the pre -2007
aeronautics R&D subsidies. Moreover, there are no findings by the Panel specifying a precise date
by which, absent the pre -2007 aeronautics R&D subsidies, Boeing would have launched the 787.
From the findings by the Panel, it is therefore unclear whether the counterfactual launch date of the
787 would have been around 2006, 2010, or some time between those dates. In addition, because
the Panel did not examine the impact of acceleration effects on the timing of first delivery of the
787, it naturally did not specify when the 787's first delivery would have occurred in the absence of
these subsidies. Nor are there any findings by the Panel regarding the substantive assessment of
whether there are any acceleration effects on post -launch R&D that might have had an impact on
the timing of the counterfactual first delivery of the 787.
5.442. Based on the foregoing unde rstanding, we simply have no basis to assess whether the
promised first delivery of the 787 would have occurred before or after the end of the implementation
period. In a situation where the counterfactual launch would have taken place in 2006 or 2007,
promised first delivery would have been in 2010 or 2011, that is, before the end of the
implementation period. Conversely, if the 787's counterfactual launch would have been in 2010,
promised first delivery of this aircraft would have been scheduled for 2014. Similarly, because of the
indeterminate nature of the timing of the 787's counterfactual launch, there are various uncertainties
regarding the timing of actual first delivery of the 787. Indeed, in a situation where the
counterfactual launch would have occurred in 2006, and on the basis of the assumption that there
is a 7 -year time lag between the 787's launch and its actual first delivery , the 787's actual first
delivery could possibly have been in 2013, which would be shortly after the end of the
implementation period in September 2012. Alternatively, in a situation where the counterfactual
launch would have taken place at a moment closer to 2010, the 787's actual first delivery could have
occurred, under these assumptions, at a date leading up to 2017. G iven these very different
outcomes based on different counterfactual launch dates, there is considerable uncertainty regarding
which transactions would have become the subject of the serious prejudice analysis. Indeed, the
transactions that would be evalua ted in a serious prejudice analysis would depend on which time
period is used as a basis for the counterfactual analysis. However, as noted, the Panel did not
evaluate all of these variables and did not indicate in a more specific manner the counterfactual time
estimates for launch and, consequently, first delivery of the 787.
5.443. As a result of the lack of factual findings by the Panel or uncontested facts on the record
regarding the timing of certain crucial moments in the counterfactual analysis and the corresponding
uncertainty regarding the scope of the transactions that would be examined in determining the
existence of serious prejudice, there is no basis for us to determine whether the acceleration effects
of the pre-2007 aeronautics R&D subsidies also had an impact on the timing of first delivery of the
787 such that those effects cause serious prejudice constituting significant lost sales in the

1000 European Union's appellant's submission, para. 866.

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post-implementation period. Consequently, given the lack of sufficient factual findings by the Panel
or uncontested facts on the Panel record, we find that we are unable to complete the legal analysis
with regard to whether there remain acceleration effects of the pre-2007 aeronautics R&D subsidies
in the post-implementation period.
5.8 Price effects
5.444. The European Union and the United States appeal different aspects of the Panel's analysis
as to whether certain subsidies cause adverse effects through a price causal mechanism. Our
analysis of the participants' claims is divided into three parts.
5.445. First, the European Union claims that the Panel erred in its interpretation of Articles 5, 6.3,
and 7.8 of the SCM Agreement by identifying an incorrect legal standard when it assessed whether
the tied tax subsidies caused significant lost sales. According to the European Union, the Panel erred
in its analysis of whether these subsidies led to the lowering of Boeing prices in both twin-aisle and
single-aisle LCA sales campaigns because the Panel required that, in order to find significant lost
sales, there had to b e no non -price factors that potentially contributed to Boeing's success in
obtaining such sales. The European Union requests us to reverse the Panel's articulation of the
causation standard, and to declare moot and of no legal effect the entirety of the Panel's application
of that standard with respect to all sales campaigns for which the Panel did not make a finding of
significant lost sales.1001 This claim is addressed in section 5.8.1.
5.446. Second, the United States claims that the Panel erred under Articles 5(c) and 6.3 of the
SCM Agreement, and Article 11 of the DSU, in its assessment of the relative significance of the
amount of the tied tax subsidies in determining whether the subsidies contributed in a genuine and
substantial way to the alleged market phenom ena.1002 The United States maintains that the Panel
erroneously calculated the per-aircraft subsidy amount by assuming that Boeing would have pooled
tax savings from all sales campaigns and deployed them in particularly price -sensitive sales
campaigns. The United States further argues that the subsidies cannot be considered a genuine and
substantial cause of Boeing winning these sales campaigns because the subsidy amounts are not
large enough to cover the difference between Airbus and Boeing LCA prices. Accord ingly, the
United States requests the reversal of the Panel's findings that the Washington State B&O tax rate
reduction causes adverse effects in the form of significant lost sales and a threat of impedance. 1003
This claim is addressed in section 5.8.2.
5.447. Third, the European Union claims that the Panel erred under Articles 5 and 6.3 of the
SCM Agreement, and under Article 11 of the DSU, by requiring that the European Union demonstrate
that the untied subsidies led to actual price reductions of Boeing LCA sales in order to establish that
those subsidies cause adverse effects through the lowering of Boeing LCA prices. The
European Union maintains that the Panel required the European Union to identify how Boeing used
or allocated subsidy dollars, and that such a sho wing is inconsistent with the applicable legal
standard and deviates from the approach adopted by the Appellate Body in the original proceedings.
The European Union requests us to reverse the Panel findings that the European Union failed to
establish that the untied subsidies are a genuine and substantial cause of adverse effects in the
post-implementation period.1004 This claim is addressed in section 5.8.3.
5.8.1 European Union's claim relating to the Panel's causation standard
5.8.1.1 Whether the Panel erred under Articl es 5, 6.3, and 7.8 of the SCM Agreement in
allegedly stating that, to find significant lost sales through a price causal mechanism,
there must be no non -price factors that potentially contributed to Boeing having won
those sales
5.448. The European Union appeals the Panel's alleged finding that, in order for the tied tax
subsidies to be found to cause significant lost sales through a price causal mechanism, there must
be no non-price factors that potentially contributed to Boeing's success in obtaining such sales. The

1001 European Union's appellant's submission, paras. 582-583.
1002 United States' other appellant's submission, paras. 24-25.
1003 United States' other appellant's submission, para. 32.
1004 European Union's appellant's submission, para. 642.

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European Union considers that, in stating that there must be "no non -price factors that explain
Boeing's success in obtaining the sale", the Panel improperly elevated the Appellate Body's approach
to completion of the legal analysis in the original proceedings into the applicable legal standard for
assessing causation.1005 According to the European Union, such an understanding is contrary to
Articles 5 and 6.3 of the SCM Agreement because the assessment as to whether there is a genuine
and substantial relationship of cause and effect does not require a determination that the subsidy is
the sole cause of that effect.1006
5.449. The United States considers that the European Union misunderstands both the findings of
the Appellate Body and how the Panel used those findings in its analysis. 1007 The United States
maintains that there is a critical difference between the legal standard regarding the role that other
factors play in explaining the outcome and the Appellate Body's approach when completing the
analysis to exclude from consideration campaigns where the role of the other factors was asserted,
yet disputed.1008 The United States does not consider that the Panel applied a completion of the legal
analysis standard instead of the proper causation standard; rather, the Panel's approach involved
the weighing of evidence, with respect to both the appearance of pricing pressure and other factors,
to make a finding as to whether each campaign was particularly price-sensitive.1009
5.450. We note that there is no disagreement between th e participants regarding the applicable
causation standard as it relates to the consideration of non-attribution factors. As the Panel stated,
and as the participants both agree, a challenged subsidy must be a genuine and substantial cause
of adverse effec ts, and need not be the sole cause, or even the only substantial cause, of those
adverse effects. Indeed, the Panel explicitly acknowledged that, when assessing causation, panels
"may often be confronted with multiple factors that may have contributed, to varying degrees, to
the relevant market phenomena". 1010 Referring to the Appellate Body's guidance in the original
proceedings, the Panel noted that it was incumbent on it to "seek to understand the interactions
between the subsidies at issue and the various other factors, and make an assessment of their
connections to bringing about the relevant effects". 1011 As the Panel explained, a subsidy may be
found to be a genuine and substantial cause notwithstanding the existence of other factors that
contribute to producing the relevant market phenomena, as long as the contribution of the subsidy,
in light of a proper consideration of all other contributing factors and their effects, is genuine and
substantial. The Panel further stated that such an analysis entails a fact-intensive exercise, and that
potentially there will be considerable differences in the ways complaining parties choose to
demonstrate the links between the subsidies at issue and their effects, and in the nature of
supporting evidence.1012
5.451. Thus, the questi on on appeal as it is framed by the European Union is whether,
notwithstanding the Panel's correct articulation of the legal standard as set out above, the Panel
nevertheless went on to apply an incorrect legal standard by demanding that, to establish causation,
the European Union must demonstrate that there were no other potential causes of the adverse
effects. In support of its argument, the European Union points to the repeated statement by the
Panel that, in order for the s ales campaigns at issue to be found to be particularly price-sensitive,

1005 European Union's appellant's submission, para. 579. (emphasis added by the European Union
omitted)
1006 European Union's appellant's submission, para. 581. In the European Union's view, the errors in the
application of Articles 5 and 6.3 of the SCM Agreement also involve errors in the application of Article 7.8 of
the SCM Agreement. However, in its appellant's submission, "{f}or the sake of brevity, the European Union
refers to this error as an error in the interpretation of Articles 5 and 6.3." (European Union's appellant's
submission, fn 814 to para. 548) As we see it, the European Union's claims of error under Article 7.8 are
consequential to those under Articles 5 and 6.3, and we therefore focus our assessment on the alleged errors
under Articles 5 and 6.3.
1007 United States' appellee's submission, para. 268.
1008 United States' appellee's submission, paras. 273-274.
1009 United States' appellee's submission, para. 275.
1010 Panel Report, para. 9.61 (referring to Appellate Body Report, US – Large Civil Aircraft
(2nd complaint), para. 914).
1011 Panel Report, para. 9.61 (referring to Appellate Body Report, US – Large Civil Aircraft
(2nd complaint), para. 914).
1012 Panel Report, para. 9.61 (referring to Appellate Body Report, US – Large Civil Aircraft
(2nd complaint), para. 915).

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there must be "no non -price factors that explain Boeing's success in obtaining the sale". 1013 The
European Union reads this statement to indicate that the Panel was requiring the complete absence
of non-attribution factors such that, in order to establish causation, the subsidy must represent the
only cause of the adverse effects.
5.452. If that were the correct reading of the Panel's statement, it would indeed reflect an erroneous
legal standard. We note that the statement that was relied on by the Panel, and to which the
European Union refers, originated from the Appellate Body's analysis in the original proceedings.1014
There, the Appellate Body stated that a sales campaign would be considered particularly
price-sensitive when "Boeing was under particular pressure to reduce its prices in order to secure
LCA sales in particular sales campaig ns, and there are no other non -price factors that explain
Boeing's success in obtaining the sale or suppressing Airbus' pricing ."1015 We further note, in
particular, that the Appellate Body stated that there be no non-price factors that explain Boeing's
success in winning the sale, which could also be understood to indicate the outcome of a process of
weighing the subsidy and any non-attribution factors to arrive at a conclusion that, notwithstanding
the presence of certain non -price factors, their impact was such that they did not attenuate the
effect of the subsidy as being a genuine and substantial cause of Boeing obtaining the sale.
5.453. The European Union maintains that the Panel was wrong to have relied on the
Appellate Body's statement because, in attempting to complete the legal analysis in the original
proceedings, the Appellate Body was unable to do so with respect to sales campaigns where the
panel record showed that there had been non -price factors capable of explaining the outcome. 1016
Thus, the European Un ion contends that, by relying on this statement, the Panel inappropriately
transformed into the applicable legal standard of causation the practical case -specific constraints
that the Appellate Body faced in completing the analysis with respect to lost sal es in the original
proceedings.1017 We therefore examine the Appellate Body's reasoning in the original proceedings
so as to understand the context for the Appellate Body statement that there must be "no other
non-price factors that explain Boeing's success in obtaining the sale".1018
5.454. In the original proceedings, the Appellate Body considered that the tied tax subsidies
"enhance{} the firm's ability to lower its prices in order to obtain a sale, notwithstanding that the
outcome of any given sale, and the importance of price to that outcome, will still be dictated by the
prevailing competitive conditions, including the market power and the pricing strategies of the
participants, in a particular market" .1019 The Appellate Body then stated that, given the nature of
the tied tax subsidies, their operation over time, their magnitude, and the competitive conditions in
the LCA market, Boeing had both the ability and incentive to use the tied tax subsidies to lower
prices, and that there was a substantial likelihood that this occurred in sales campaigns that were
particularly competitive and sensitive in terms of price. The Appellate Body thus explained that,
"where it can be established that Boeing was under particular pressure to reduce its prices in order
to secure LCA sale s in particular sales campaigns, and there are no other non -price factors that
explain Boeing's success in obtaining the sale or suppressing Airbus' pricing, we can conclude that
the subsidies contributed in a genuine and substantial way to the lowering of Boeing's prices."1020
The Appellate Body then went on to explain that it did not consider that the factual findings and
uncontested facts on the panel record relating to the nature and magnitude of the subsidies, and
the conditions of competition in the rele vant markets, themselves suffice to establish the requisite
causal connection between the tied tax subsidies and the effects on Airbus' LCA sales and prices.
Accordingly, the Appellate Body considered that it could only reach a finding of serious prejudice if
it could also identify uncontested facts on the original panel record establishing that the pricing

1013 European Union's appellant's submission, para. 549 (quoting Panel Report, paras. 9.242-9.243,
9.379-9.380, 9.383, 9.426, and 9.446). (emphasis added by the European Union omitted)
1014 Panel Report, para. 9.240 (referring to Appellate Body Report, US – Large Civil Aircraft
(2nd complaint), para. 1260).
1015 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1260.
1016 European Union's appellant's submission, para. 573 (referring to Appellate Body Report, US – Large
Civil Aircraft (2nd complaint), para. 1264).
1017 European Union's appellant's submission, para. 568.
1018 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1260.
1019 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1260.
1020 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1260.

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dynamic it had described occurred in particular LCA sales campaigns. 1021 On that basis, the
Appellate Body indicated that it would "continue {its} examinat ion of the relevant factual findings
and uncontested facts and scrutinize, in particular, the Panel record as it relates to particular LCA
sales campaigns during the reference period in the 100-200 seat and 300-400 seat LCA markets".1022
5.455. Subsequently, the App ellate Body evaluated the sales campaign evidence and noted that
there was a competitive pricing dynamic in each of these sales campaigns that was uncontested,
but that the parties disagreed over the extent to which the tied tax subsidies contributed to th e
market effects experienced by Airbus. 1023 In particular, the Appellate Body noted that the
United States had identified a number of "other factors" that, in its view, undermined a causal link
between the tied tax subsidies and the market effects on Airbus' LCA sales and prices, but that the
original panel had failed to discuss if and how these factors may have contributed to the effects on
Airbus' LCA sales and prices.1024 Thus, the Appellate Body explained that, where the United States
advanced other factors that were capable of explaining the effec ts on Airbus' LCA sales and prices
in particular sales campaigns, it would treat the matter as being in dispute, and, accordingly, would
not be able to complete the analysis with respect to these campaigns.1025
5.456. Therefore, when the Appellate Body explained that causation could be established only when
"there are no other non-price factors that explain Boeing's success" in a particularly price -sensitive
sales campaign, it was referring to the role of those non -price factors as weighed and balanced
against factor s relating to price. This is reflective of a proper approach for assessing causation
whereby the effects of the subsidy must be considered together with any contribution of
non-attribution factors, in this case, the non-price factors.
5.457. However, at a subsequent stage of its analysis, the Appellate Body then recognized that, if
any non-price factors had been advanced, this would have necessitated a non -attribution analysis
of those factors as well as a weighing of price and non-price factors in its causation analysis, which
would have entailed new factual findings. This is not something the Appellate Body can do when
completing the legal analysis. In other words, by using this language, the Appellate Body was not
requiring that there be a complete absence of any non-price factors such that, in order to establish
causation, the subsidy must represent the only cause of the adverse effects. Rather, the
Appellate Body was emphasizing the absence of non -price factors that would explain Boeing's
success in obtaining the sale or suppressing Airbus' pricing. Therefore, although the European Union
is correct that the Appellate Body ultimately was able to complete the analysis only in instances
where the United States had not advanced any non -price factors, this was due t o the fact that the
role and relevance of those non -price factors was contested, and thus no uncontested facts or
alternative panel findings were available. However, this featured at a later stage, in the context of
its completion analysis, and not at the earlier point in its reasoning where the Appellate Body was
identifying the legal standard. Thus, we do not accept the European Union's contention that "the
Panel erred in elevating the Appellate Body's approach to completing the legal analysis in the original
proceedings into the applicable legal standard."1026 In our view, the Panel was relying on reasoning
by the Appellate Body that was reflective of the proper legal standard.
5.458. In addition, we find that the Panel's reasoning regarding the specific sales campaigns further
confirms that the Panel did not, as the European Union claims, adopt a legal standard that differed
from the proper legal standard. In our review of the Panel's reasoning in both the non -confidential
summary of the sales campaign evidence contained in the body of the Panel Report, as well as the
more detailed explanations set out in the HSBI Appendix to the Panel Report, we do not find support
for the proposition that the Panel adopted an approach to causation whereby it declined to consider
whether subsidies cause adverse effects in instances where any non -price factor or factors were
advanced. Rather, the Panel's reasoning reflects a weighing and balancing of both price and
non-price factors in determining, with respect to each sales campaign, "the extent to which the sales

1021 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1261. The Appellate Body
noted that its approach was analogous to the approach adopted by the Appellate Body in EC and certain
member States – Large Civil Aircraft. (Ibid., fn 2549 to para. 1262)
1022 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1261.
1023 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 1262-1263.
1024 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1264.
1025 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1264.
1026 European Union's appellant's submission, para. 579.

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campaigns were or were not particularly price -sensitive".1027 This suggests that, rather than
declining to evaluate any sales campaign once a non -price factor was identified, the Panel in fact
assessed whether non -price facto rs were such that they attenuated the role of price factors in
explaining Boeing's success in obtaining the sale.
5.459. With respect to the twin-aisle LCA market, the Panel stated that "while pricing was discussed
in certain of the sales campaigns, other factors featured more prominently in the airline customers'
evaluations of the suitability of the competing offers as well as in the evidence on record explaining
the reasons why the airline customer chose to order Boeing aircraft over the competing Airbus
offering."1028 The Panel then went on to catalogue the various non -price factors that mitigated the
role of price in individual sales campaigns, including customers' preferences for delivery availability,
choice of engine manufacturer, performance evaluations, perf ormance guarantees, programme
maturity, aircraft size, and incumbency concerns regarding fleet commonality or diversity. The Panel
therefore concluded, with respect to each individual sales campaign, that there were "factors other
than price that explain why Airbus either did not win the sale, or in the case of the sales campaigns
that involved 'split orders' … why there is no basis to conclude that Boeing's pricing resulted in the
customer awarding a greater portion of the order to Boeing … than would othe rwise have been the
case".1029 Moreover, our review of the Panel's reasoning and appreciation of the evidence in the
HSBI Appendix to its Report underscores that the Panel sought to weigh and balance the causal
significance of price and non-price factors, in large part by relying on internal Airbus communications
that described Airbus' sales strategies and evaluated competing Airbus and Boeing offers.1030
5.460. The Panel followed the same approach in evaluating whether individual sales campaigns in
the single-aisle LCA market were particularly price-sensitive. The Panel found that, for most of these
sales campaigns, while pricing may have been "discussed" in some instances, Boeing did not "appear
to have been under particular pressure to reduce its prices in order to se cure these sales".1031 The
Panel further explained that, for these sales campaigns, there were a number of non -price factors
that ultimately explained Boeing's success in obtaining particular sales, most prominent of which
was Boeing's status as an incumbent aircraft supplier, but which also included factors such as
delivery availability, fleet replacement needs, and the technical performance of competing
aircraft.1032
5.461. Perhaps most instructive for our assessment of the Panel's approach to causation is our
review of the Panel's reasoning and appreciation of the evidence regarding the five single-aisle LCA
sales campaigns that the Panel found to be particularly price -sensitive. In reviewing the HSBI
Appendix, it appears that two of them were found not to be subject to any non-price factors. Indeed,
for the Fly Dubai 2008 sales campaign, the United States did not advance any non-price factors1033,
and for the Fly Dubai 2014 sales campaign, the Panel considered that the factor advanced by the
United States (which is HSBI) was too closely related to price to be considered a non-price factor.1034
However, for the three remaining campaigns – Delta Airlines 2011, Icelandair 2013, and Air Canada
2013 – the United States advanced particular factors other than price (which are HSBI) that were
alleged to attenuate the effect of the subsidy in explaining why Boeing obtained the sale. 1035 The
Panel nevertheless found for these sales campaigns that "Boeing appeared to be under particular
pressure to reduce its prices in order to secure the sale, and there were no non -price factors that
explain Boeing's success in obtaining the sale ."1036 In particular, we note that the non -price factor
that was identified by the Panel with respect to the Ice landair 2013 sales campaign – which was
found not to attenuate price as a causal factor – was the same non-price factor that was identified
with respect to other sales campaigns for which the Panel found that non-price factors mitigated the

1027 Panel Report, paras. 9.245 and 9.382. Specifically, the Panel stated that the evidence allowed it "to
assess with a high degree of confidence the extent to which the sales campaigns were or were not particularly
price-sensitive". (Ibid.)
1028 Panel Report, para. 9.247.
1029 Panel Report, para. 9.247. The Panel also noted that its evaluation was also consistent with
evidence indicating that the outcomes of sales campaigns involving twin-aisle LCA will depend to a greater
extent on non-price factors. (Ibid., para. 9.248)
1030 Panel Report, para. 9.245 (referring to Panel Report, HSBI Appendix).
1031 Panel Report, para. 9.383.
1032 Panel Report, para. 9.383.
1033 Panel Report, HSBI Appendix, paras. 163-164.
1034 Panel Report, HSBI Appendix, paras. 270-271.
1035 Panel Report, HSBI Appendix, paras. 170, 249, and 263.
1036 Panel Report, para. 9.383. See also ibid., paras. 172, 251, and 265.

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role of price.1037 This demonstrates to us that the Panel did not embrace a legal standard requiring
that there must be no other non -attribution factors and that the subsidy must represent the only
cause of the ad verse effects. Had the Panel endorsed such a legal standard, it would have been
precluded from reaching the findings of adverse effects that it did with respect to the Delta Airlines
2011, Icelandair 2013, and Air Canada 2013 sales campaigns.
5.462. In sum, we do not agree with the European Union that the Panel considered that, in order
to find significant lost sales through a price causal mechanism, there must be no non -price factors
that potentially contributed to Boeing having won those sales. Rather, we consid er that the Panel's
understanding of the legal standard properly reflected a weighing and balancing of price and
non-price factors to reach a conclusion as to whether a sales campaign was particularly
price-sensitive, such that the tied tax subsidies could be found to be a genuine and substantial cause
of serious prejudice. Accordingly, we find that the Panel did not err in the interpretation of Articles 5
and 6.3, and, as a consequence, Article 7.8, of the SCM Agreement, when identifying the applicable
causation standard.
5.8.2 United States' claims relating to the Panel's analysis of the tied tax subsidies
5.463. The United States requests us to reverse the Panel's finding that the effects of the
Washington State B&O tax rate reduction in the single -aisle LCA market ar e significant lost sales
within the meaning of Article 6.3(c) of the SCM Agreement, and a threat of impedance within the
meaning of Article 6.3(a)-(b) of that Agreement.1038 The United States claims that the Panel erred
under Articles 5(c) and 6.3 of the SCM Agreement, and acted inconsistently with Article 11 of the
DSU, in assessing the relative significance of the amount of the subsidy for purposes of determining
whether the subsidy contributed in a genuine and substantial way to Airbus' loss of sales in five sales
campaigns between 2007 and 2015.1039
5.464. We first provide a summary of the Panel's findings, before turning to the United States'
claims.
5.8.2.1 The Panel's findings
5.465. According to the Panel, the parties accepted that the tied tax subsidies at issue in these
proceedings, by their nature as per -unit subsidies, are capable of affecting Boeing's pricing
behaviour.1040 The Panel further noted that the United States had described the tied tax subsidies
as subsidies that "affect Boeing's marginal cost of producing current L CA alleged to be
subsidized".1041 The Panel noted that the United States distinguished between the effects on pricing
of tied tax subsidies and the effects on pricing of untied, non -recurring subsidies, on the basis that
tied tax subsidies correspond directly with sales, such that fluctuations in total sales volumes do not
affect the calculus regarding the profitability of a particular sale.1042 The Panel explained that these
observations regarding the nature of the tied tax subsidies are also consistent with the findings of
the panel and Appellate Body in the original proceedings that the FSC/ETI subsidies and the
Washington State and City of Everett B&O tax rate reductions, by lowering the taxes incurred in
connection with sales of LCA, have a more direct and im mediate relationship to aircraft prices and
sales than other subsidies at issue in the dispute. 1043 The Panel, however, recalled the
Appellate Body's finding that, while the tied tax subsidies provided Boeing with the ability and

1037 Panel Report, para. 9.383. See also United States' appellee's submission, paras. 277-279, where the
United States notes how this particular non-price factor was considered and found in the case of the Icelandair
2013 sales campaign not to attenuate the role of price, whereas it was found to have done so in the case of the
Lion Air 2012 sales campaign. As the United States argues, "{t}he difference in the Panel's findings regarding
price-sensitivity in these two campaigns despite the {United States'} allegation that the same other factor
explained both outcomes demonstrates that the Panel weighed the evidence and reached a determination that
was consistent with its discretion as the trier of fact." (Ibid., para. 279)
1039 United States' other appellant's submission, paras. 24-25.
1040 Panel Report, para. 9.238.
1041 Panel Report, para. 9.238 (quoting United States' comments on the European Union's response to
Panel question No. 169, para. 27).
1042 Panel Report, para. 9.238 (referring to United States' first written submission to the Panel,
para. 728).
1043 Panel Report, para. 9.239 (referring to Original Panel Report, paras. 7.1806-7.1807; Appellate Body
Report, US – Large Civil Aircraft (2nd complaint), paras. 1252-1260).

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incentive to lower its LCA prices, the competitive dynamics of the LCA markets are such that it would
not actually do so in each and every sales campaign. Instead, according to the Appellate Body, there
was a substantial likelihood that Boeing lowered its prices in sales campaigns that were particularly
competitive and sensitive in terms of price.1044
5.466. For purposes of assessing the effects of the tied tax subsidy at issue in these compliance
proceedings with respect to the single-aisle LCA market, namely the Washington State B&O tax rate
reduction1045, the Panel stated that, following the Appellate Body's approach in the original
proceedings, it would examine whether each of the sales campaigns involving single -aisle LCA was
particularly price-sensitive. More specifically, the Panel stated tha t, where a sales campaign was
found to be particularly price -sensitive in the sense that Boeing appeared to be under particular
pressure to reduce its prices in order to secure the sale, and there were no non-price factors that
explained Boeing's success in obtaining the sale, the Panel would conclude that the tied tax subsidy
contributed in a genuine and substantial way to the lowering of Boeing's LCA prices.1046
5.467. The Panel evaluated sales campaign evidence submitted by the European Union and
concluded that five out of the 20 allegedly competitive sales campaigns between 2007 and 2015 in
the single-aisle LCA market were particularly price-sensitive.1047 The Panel thus found, based on the
reasoning of the Appellate Body when analysing the effects of the tied tax su bsidies at issue in the
original proceedings, that the Washington State B&O tax rate reduction contributed in a genuine and
substantial way to the lowering of the prices of Boeing's single -aisle LCA in these five sales
campaigns.1048 These sales campaigns inc luded three sales campaigns that occurred in the
post-implementation period, namely the Fly Dubai 2014, Icelandair 2013, and Air Canada 2013 sales
campaigns, and two sales campaigns that occurred prior to the end of the implementation period,
namely the Fly Dubai 2008 and Delta Airlines 2011 sales campaigns.1049
5.468. The Panel then noted the United States' argument that the amount of the tied tax subs idy
is too small to cause adverse effects, and thus examined whether the relative magnitude of the
subsidy allowed it to conclude that the subsidy is a genuine and substantial cause of lost sales of
Airbus LCA.1050
5.469. The Panel recalled the Appellate Body's cons ideration in the original proceedings that,
depending on the circumstances of each case, an assessment of whether subsidy amounts are
significant should not necessarily be limited to an inquiry into what those amounts are, either in
absolute or per-unit terms, but may also entail viewing these amounts against considerations such
as the size of the market as a whole, the size of the subsidy recipient, the per -unit price of the
subsidized product, the price elasticity of demand, and, depending on the market s tructure, the
extent to which a subsidy recipient is able to set its own prices in the market, and the extent to
which rivals are able or prompted to react to each other's pricing within that market structure.1051
5.470. The Panel noted that the total amount of the Washington State B&O tax rate reduction over
the three-year period from 2013 to 2015 was approximately US$325 million.1052 The Panel suggested
that this amount is relatively small compared to Boeing's revenue from its single -aisle LCA sales,
which represented approximately US$61.9 billion, US$63.4 billion, and US$18 billion for the years
2013 to 2015, respectively.1053 However, the Panel considered that this alone is not indicative of the
significance of the subsidy amounts because "even relatively small subsidie s may have significant
effects, depending on the nature of the subsidies, and the circumstances in which those subsidies

1044 Panel Report, para. 9.240 (referring to Appellate Body Report, US – Large Civil Aircraft
(2nd complaint), para. 1260).
1045 The Washington State B&O tax rate reduction applies to the production and sale of LCA
manufactured in Washington. (Original Panel Report, para. 7.1803) The reduction rate is 0.1936%.
(Panel Report, para. 8.662)
1046 Panel Report, para. 9.379 (referring to ibid., paras. 9.239-9.241, in turn referring to Appellate Body
Report, US – Large Civil Aircraft (2nd complaint), para. 1260).
1047 Panel Report, paras. 9.381-9.383; Panel Report, HSBI Appendix.
1048 Panel Report, para. 9.384.
1050 Panel Report, para. 9.385.
1051 Panel Report, para. 9.391 (referring to Appellate Body Report, US – Large Civil Aircraft
(2nd complaint), para. 1193).
1052 Panel Report, para. 9.394. See also ibid., paras. 8.670 and 9.388.
1053 Panel Report, para. 9.392.

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are received, including the relevant market structure and conditions of competition in that
market."1054
5.471. On that basis, the Panel sought t o determine whether a price reduction enabled by a
relatively small subsidy could nevertheless have determined the outcome of price -sensitive sales
campaigns.1055 For this purpose, the Panel engaged in a quantitative analysis whereby it estimated
the per -aircraft amount of the subsidy and compared this amount to the magnitude of pricing
differentials that could change the outcome of the price -sensitive sales campaigns it had
identified.1056
5.472. The Panel calculated the per -aircraft amount of subsidization with refere nce to the
three-year period from 2013 to 2015. The Panel divided an annual average of the amount of the
Washington State B&O tax rate reduction of US$108.3 million for that period (calculated from the
total amount of the subsidy for the 2013 -2015 period o f US$325 million, divided by three) by an
annual average of 54.3 single-aisle LCA ordered in the three sales campaigns in that period that the
Panel found to be particularly price -sensitive (calculated from the total of 152 737 MAX and
11 737NGs ordered in the Fly Dubai 2014, Icelandair 2013, and Air Canada 2013 sales campaigns,
divided by three). 1057 The Panel arrived at a per -aircraft rate of subsidization of approximately
US$1.99 million per 737 MAX and 737NG.1058
5.473. With respect to whether this per -aircraft subsidy amount is large enough compared to the
magnitude of price difference that could change the outcome of the sales campaigns in question,
the Panel first noted the European Union's argument that, when making a choice between Airbus'
and Boeing's respective offers, customers account for the differentials in the net present value (NPV)
for those offers, which takes into account not only net prices but also non-price factors such as the
size and range of the offered aircraft, their per-trip and per-seat operating costs, and the timing of
their availability. 1059 The Panel accepted, in general terms, that customers' NPV analyses of
competing offers, while being subject to certain limits, could at least provide "some indication" of
the potential for a comparatively small price reduction to determine the outcome of a sales
campaign.1060 In this regard, the Panel noted that the European Union had submitted an HSBI
statement of Mr Kiran Rao, Airbus' Executive Vice President Strategy and Marketing1061, which refers
to a specific amount of NPV difference that "can easily switch" the decision of an airline or leasing
company from favouring one manufacturer's offer to favouring the offer of another manufacturer.1062
Mr Rao also explained that this amount is particularly relevant for single-aisle LCA sales, which tend
to be sensitive to relatively small changes in prices offered. 1063 The Panel observed that its
US$1.99 million figure exceeds the magnitude of NPV difference mentioned by Mr Rao.1064
5.474. Second, the Panel considered the magnitude o f differentials in Airbus' and Boeing's
respective net prices offered in the particularly price -sensitive sales campaigns, which the Panel
deduced from certain sales campaign evidence. The Panel compared its US$1.99 million figure to
the net price differential in each of the individual sales campaigns, and found either that the former
exceeds the latter, or that the former covers "at least a portion of" Boeing's pricing advantage,
contributing "in substantial part" to its winning the sales campaign.1065
5.475. On the basis of the foregoing, the Panel found that the Washington State B&O tax rate
reduction, through its effects on Boeing's pricing, contributed in a genuine and substantial way to

1054 Panel Report, para. 9.394 (quoting Appellate Body Report, US – Large Civil Aircraft (2nd complaint),
para. 1254).
1055 Panel Report, para. 9.395.
1056 Panel Report, para. 9.379.
1058 Panel Report, para. 9.402 and fn 3321 thereto.
1059 Panel Report, para. 9.398 (referring to European Union's response to Panel question No. 164,
para. 108).
1060 Panel Report, para. 9.400.
1061 Panel Report, para. 9.399 (referring to Statement of Kiran Rao, 6 October 2015 (Panel Exhibit
EU-1668) (HSBI)).
1062 Statement of Kiran Rao, 6 October 2015 (Panel Exhibit EU-1668) (HSBI).
1063 Statement of Kiran Rao, 6 October 2015 (Panel Exhibit EU-1668) (HSBI).
1064 Panel Report, para. 9.402.
1065 Panel Report, para. 9.403.

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Boeing winning, and Airbus losing, the five sales campaigns that it identifi ed to be particularly
price-sensitive.1066
5.476. The Panel further examined whether, in light of its lost sales findings with respect to the five
sales campaigns, the Washington State B&O tax rate reduction can be considered a genuine and
substantial cause of serious prejudice, within the meaning of Articles 5(c) and 6.3 of the
SCM Agreement, in the post-implementation period. With respect to the three sales campaigns that
occurred in the post -implementation period – namely the Fly Dubai 2014, Icelandair 2013, and
Air Canada 2013 sales campaigns – the Panel found that the loss of sales suffered by Airbus was
"significant".1067 Accordingly, the Panel found that the Washington State B&O tax rate reduction is a
genuine and substantial cause of significant lost sales, within the meaning of Article 6.3(c), of
A320neo and A320ceo LCA in the post -implementation period, with respect to these three sales
campaigns.1068
5.477. With respect to the two remaining sales campaigns that occurred before the end of the
implementation period – namely the Fly Dubai 2008 and Delta Airlines 2011 sales campaigns – the
Panel found that they were "not necessary" for its findings concerning the existence of significant
lost sales, within the meaning of Article 6.3(c), in the post-implementation period.1069 However, the
Panel did take into account Airbus' loss of these sales campaigns, as well as other evidence such as
market share data for the single -aisle LCA markets in the United States and the United Arab
Emirates, in the context of addressing the Europ ean Union's claim of impedance and a threat
thereof.1070 Having done so, the Panel reached the conclusion that the effect of the Washington State
B&O tax rate reduction is a threat of impedance, within the meaning of Article 6.3(a), of imports of
Airbus single-aisle LCA into the United States market in the post-implementation period1071, as well
as a threat of impedance, within the meaning of Article 6.3(b), of exports of Airbus single-aisle LCA
to the United Arab Emirates market in the post-implementation period.1072
5.8.2.2 Whether the Panel erred under Articles 5 and 6.3 of the SCM Agreement, or acted
inconsistently with Article 11 of the DSU, in its calculation of the per -aircraft amount of
subsidization
5.478. In its appeal, the United States claims that the Panel erred under Articles 5(c) and 6.3 of
the SCM Agreement and, in the alternative, under Article 11 of the DSU, in its calculation of the
per-aircraft amount of subsidization. 1073 According to the United States, the Panel's calculation
assumes that Boeing would have pooled the benefits of the tied tax subsidies received in connection
with all of its sales of LCA, including both twin-aisle and single-aisle LCA, over the 2013-2015 period
and deployed them exclusively to lower its LCA prices in the three single-aisle sales campaigns that
the Panel had found to be particularly price-sensitive.1074 To the United States, such an assumption
contradicts the nature and operation of the tied tax subsidies discussed by the Appellate Body in the
original proceedings and by the compliance Panel itself.1075 The United States argues that, because
tied tax subsidies are directly tied to sales of individual LCA, they can affect only the sales to which
they are tied, and there is no basis to assume that Boeing would deploy savings from one sales
campaign to lower its price in another, unrelated sales campaign.1076 The United States submits that
the correct per-aircraft value of the subsidy is less than US$100,000 instead of the Panel's figure of
US$1.99 million.1077

1066 Panel Report, para. 9.404 and fn 3329 thereto.
1068 Panel Report, para. 9.407.
1070 See Panel Report, para. 9.427.
1071 Panel Report, para. 9.438.
1072 Panel Report, para. 9.443.
1073 United States' other appellant's submission, paras. 24 and 69.
1074 United States' other appellant's submission, paras. 24 and 68.
1075 United States' other appellant's submission, paras. 68, 79, and 86.
1076 United States' other appellant's submission, para. 45 (referring to Appellate Body Report, US –
1077 United States' other appellant's submission, para. 65. This figure is calculated by multiplying an
approximate purchase price of US$50 million by the tax reduction rate of 0.1936%. (Ibid., para. 65 and fn 76
thereto)

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5.479. The European Union responds that there is nothing in Article 5 or Article 6.3 of the
SCM Agreement that excludes a panel from finding that a tied tax subsidy, while granted for all sales
of a product, was nonetheless used by the recipient to reduce prices in a subset of those sales. 1078
The European Union explains that, while the Appellate Body in the original proceedings and the Panel
in these proceedings recognized that a subsidy is tied when it is triggered by a sale of an aircraft,
neither of them limited the use of such a subsidy to a price reduction in that particular sale.1079
5.480. We recall that, for the purpose of estimating the per-aircraft amount of the Washington State
B&O tax rate reduction, the Panel divided an annual average of the amount of this subsidy for the
three-year period from 2013 to 2 015 (i.e. US$325 million, divided by three) by an annual average
of the number of aircraft ordered in the three particularly price -sensitive sales campaigns in that
three-year period (i.e. 163 aircraft, divided by three). 1080 Notably, the numerator of the Pan el's
calculation encompasses subsidies arising from all Boeing LCA sales during the 2013-2015 reference
period, including both twin-aisle and single-aisle sales, whereas the denominator includes only the
number of aircraft ordered in the three single-aisle sales campaigns during that period that the Panel
had found to be particularly price-sensitive. This effectively means that the Panel allocated the entire
amount of subsidies arising from all Boeing LCA sales between 2013 and 2015, including both
twin-aisle and single-aisle sales, to the three single-aisle sales campaigns in that period. Thus, the
United States is correct that the Panel's calculation of the per-aircraft amount of the subsidy assumes
that Boeing would have been able to pool the entire amount of the tied tax subsidy received over
the 2013-2015 period and deployed this amount to lower the prices of the 737 MAX and 737NG in
the three particularly price-sensitive sales campaigns in that period.
5.481. As noted, the United States argues that, because tied tax subsidies are directly tied to sales
of individual LCA, they can affect only the sales to which they are tied, and there is no basis to
assume that Boeing would deploy subsidy benefits arising from one sales campaign to lower its price
in another.1081
5.482. We note that Articles 5 and 6.3 of the SCM Agreement do not explicitly refer to tied tax
subsidy measures. Rather, Article 5 provides generally that "{n}o Member should cause, through
the use of any subsidy referred to in paragraphs 1 and 2 of Article 1, adverse effects to the interests
of other Members", including serious prejudice to the interests of another Member within the
meaning of Article 5(c) or a threat thereof. Article 6.3, in turn, provides that serious prejudice within
the meaning of Artic le 5(c) may arise where "the effect of the subsidy" is one or several market
phenomena enumerated in subparagraphs (a) through (d). Thus, Articles 5 and 6.3 do not prescribe
the manner in which a panel must assess how a subsidizing Member "causes" adverse effects
"through the use of" tied tax subsidies or whether "the effect of" such subsidies are alleged market
phenomena enumerated in Article 6.3. Rather, as the Appellate Body has emphasized, a
demonstration that a subsidy is a genuine and substantial caus e of the alleged serious prejudice is
"a fact-intensive exercise, and one that inevitably involves extensive, case -specific evidence".1082
The Appellate Body has added that the manner in which a complainant may seek to demonstrate
the existence of the effects and the links between the subsidies at issue and those effects, and the
type of supporting evidence that may be adduced, are likely to vary considerably.1083
5.483. We further note that, contrary to what the United States asserts, the nature of tied tax
subsidies discussed by the Appellate Body in the original proceedings and by the Panel in these
compliance proceedings is not, in and of itself, dispositive of whether their benefits can be used only
to lower the prices of the particular sales to which they are tied. As noted, the Appellate Body found
that the tied tax subsidies had a "more direct and immediate relationship" to aircraft prices than
untied subsidies in that they lower the taxes incurred in connection with sales of LCA, thereby
increasing Boeing's per -unit after -tax revenue and profitability. 1084 Similarly, the Panel in these
proceedings observed that the Washington State B&O tax rate reduction, due to its nature as a
per-unit subsidy measure, is capable of affecting Boeing's pricing behaviour by reducing B oeing's

1078 European Union's appellee's submission, para. 99.
1079 European Union's appellee's submission, paras. 73-75.
1081 United States' other appellant's submission, para. 45.
1082 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 915.
1083 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 915.
1084 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1252 (referring to Original
Panel Report, para. 7.1807).

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marginal cost of producing individual LCA.1085 However, while the fact that the subsidies are tied to
individual sales certainly speaks to the recipient's ability to reduce the price of each individual sale
while nevertheless achieving the same profit margin for that sale, it does not mean that the recipient
will always do so in the specific circumstances of each case. Indeed, the Appellate Body expressly
cautioned that, while the nature of the tied tax subsidies is relevant to assessing the effects of such
subsidies, the outcome of any given sale "will still be dictated by the prevailing competitive
conditions".1086
5.484. In addition, the Appellate Body explained that considerations that appeared to bear on the
assessment of the significance of the amounts of the tied tax subsidies in the original proceedings
include "whether the benefits of the tied tax subsidies received by Boeing were applied to its prices
across the board in all sales, or whether they were disproportionately applied to lower prices only in
respect of certain sales". 1087 In this respect, the Appellate Body observed that, while there was a
substantial likelihood that Boeing had used the tied tax subsidies to lower prices in "sales campaigns
that were particularly competitive and sensitive in t erms of price", Boeing would not have done so
"in each and every sales campaign".1088 In other words, the Appellate Body considered that Boeing
would have used the benefits of the tied tax subsidies to lower the prices only in certain particularly
price-sensitive sales campaigns. Although the Appellate Body did not explicitly determine how
Boeing would have dealt with the subsidy benefits arising from less price-sensitive sales campaigns,
it did not exclude the possibility that such benefits may have been used to offer additional price
reductions in particularly price-sensitive sales campaigns. In short, there is nothing in the nature of
tied tax subsidies discussed by the Appellate Body that would preclude a panel assessing the relative
significance of the sub sidy amounts from considering, as appropriate in the specific case, that the
recipient may deploy the benefit of the tied tax subsidy arising from one sale to lower the price in
another sale.
5.485. Accordingly, we do not agree with the United States that the Panel erred under Articles 5(c)
and 6.3 of the SCM Agreement simply because it performed a calculation that assumed that the
benefits of the tied tax subsidies could be used to lower the prices in sales campaigns other than
the ones to which they are tied.
5.486. The United States also argues that, in the specific circumstances of this case, there was no
basis for the Panel to consider that Boeing would have deployed the entire amount of the tied tax
subsidy granted with respect to all of Boeing's LCA sales during the period from 2013 to 2015 ,
including both twin-aisle and single-aisle sales, exclusively for the purpose of lowering the prices of
the single -aisle LCA ordered in the three particularly price -sensitive sales campaigns in that
period.1089
5.487. The European Union r esponds that unappealed factual findings regarding the competitive
conditions of the LCA markets support the Panel's finding that Boeing had the ability and incentive
to use the tied tax subsidies to lower prices in particularly price-sensitive sales campaigns.1090
5.488. We consider that the Panel addressed several matters pertinent to the issue of whether, in
the circumstances of this case, Boeing would have deployed benefits of the tied tax subsidies
received in connection with less price -sensitive sales campaigns to reduce its LCA prices in
particularly price-sensitive sales campaigns. We first note that the Washington State B&O tax rate
reduction is a subsidy programme that exists over a considerable period of time: it was enacted in
2003 and will be in place unt il 2040.1091 In addition, the Panel pointed to the characteristics of the
LCA industry, as described by the European Union, which is effectively a competitive duopoly. Airbus
and Boeing each hold significant market share and possess a degree of market power. 1092 Airbus

1085 Panel Report, para. 9.238.
1086 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1260.
1087 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1254.
1088 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1260.
1089 United States' other appellant's submission, para. 97. See also ibid., paras. 24, 29, 68, and 93.
1090 European Union's appellee's submission, paras. 121-123.
1091 Panel Report, paras. 7.325 and 7.467. The original expiration date for the Washington State B&O
tax rate reduction under HB 2294 was 1 July 2024, but it was extended to 1 July 2040 by SSB 5952 in 2013.
(Ibid., para. 7.467)
1092 Panel Report, para. 9.17 (referring to Original Panel Report, para. 7.1688; Appellate Body Report,
US – Large Civil Aircraft (2nd complaint), para. 903).

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and Boeing do not compete for specific orders with the sole objective of maximizing their short-run
profits, but instead they compete and set their prices with a view to maximizing their overall profits
across their long -term sales activity. 1093 The P anel further explained that, while price, seating
capacity, and direct operating costs generally are the most important factors in determining the
outcome of LCA sales campaigns, the significance of these factors varies across different sales
campaigns, depending on the customer's fleet, business plans, and strategic goals. 1094 The Panel
also noted the European Union's assertion that, due to the nature of the LCA industry, Boeing may
"price extremely aggressively" in some sales campaigns, whereas in other camp aigns, Boeing may
not face the need to offer such low prices in order to win the sale.1095
5.489. Furthermore, the Panel carried out a detailed evaluation of the varying significance of price
and non-price factors for particular sales campaigns that the European Union had alleged to be highly
competitive. With respect to the 21 sales campaigns involving twin-aisle LCA that took place between
2007 and 2015, the Panel observed that, while pricing was discussed in some of these campaigns,
other factors featured more pr ominently in the evidence pertaining to the reasons why airline
customers chose to order Boeing LCA over the competing Airbus offering. 1096 The Panel pointed to
factors such as the airline customers' preference for the delivery availability of the Boeing LCA over
the competing Airbus LCA, the choice of engine manufacturer, performance evaluations of the
various aircraft, the size of the aircraft, and incumbency. The Panel stated that, in each of the
21 sales campaigns involving twin -aisle LCA, there were facto rs other than price that explained
Boeing's success.1097 The Panel also noted that the competing models of Airbus and Boeing twin-aisle
LCA are less substitutable and, therefore, the outcome of sales campaigns involving these aircraft
will depend to a greater extent on non -price factors.1098 With respect to the 20 sales campaigns
involving single-aisle LCA that occurred in the period from 2007 to 2015, the Panel found, as noted
above1099, that five of these campaigns were particularly price -sensitive in the sense th at Boeing
was under particular pressure to reduce its LCA prices in order to secure the sales, and there were
no non-price factors that explained Boeing's success in obtaining the sale. 1100 By contrast, for the
remaining 15 sales campaigns, the Panel observed that the significance of price was rather limited,
because certain non-price factors, such as Boeing's incumbency, airline customers' preference for
the delivery availability of the Boeing LCA over the competing Airbus LCA, the size and timing of
airline customers' fleet replacement needs, and technical performance of competing aircraft, played
a "critical", "decisive", or "vital" role in determining the outcome of the sale.1101
5.490. All of the above considerations mentioned by the Panel, taken together, support the
proposition that Boeing would be highly incentivized to deploy the benefits of the tied tax subsidies
arising from multiple LCA sales over the duration of the subsidy programme to target certain highly
competitive and strategically important sales camp aigns, including the five sales campaigns
involving single -aisle LCA that the Panel identified to be particularly price -sensitive. This
encompasses the possibility that Boeing would use the tied tax subsidy benefits from LCA sales in
the twin -aisle LCA mar ket that are less price -competitive and use those benefits in particularly
price-sensitive campaigns in the single -aisle LCA market. Such possibility seems greater given the
Panel's findings that sales campaigns involving twin-aisle LCA are generally less price-sensitive than
those involving single-aisle LCA1102 and that, in fact, for each of the 21 sales campaigns involving
twin-aisle LCA between 2007 and 2015, there were one or more non -price factors that more
prominently explained the outcome of the campaign.1103
5.491. In this connection, we are aware of the United States' contention that, even had the Panel
been allowed to consider that Boeing would have deployed the subsidy benefits arising from less

1093 Panel Report, para. 9.52 (referring to European Union's comments on the United States' response to
Panel question No. 158, para. 109).
1095 Panel Report, para. 9.52 (quoting European Union's comments on the United States' response to
Panel question No. 158, para. 122).
1096 Panel Report, para. 9.247.
1097 Panel Report, para. 9.247.
1098 Panel Report, para. 9.248.
1099 See para. 5.467 above.
1100 Panel Report, para. 9.383.
1101 Panel Report, para. 9.383 (referring to ibid., HSBI Appendix, paras. 179, 187, 194, 200, 210, 216,
222, 237, 243, and 257).
1102 Panel Report, para. 9.248.
1103 Panel Report, para. 9.247.

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price-sensitive sales to lower the prices in particularly price -sensitive sales campaigns, it was still
inappropriate for the Panel to tak e into account the amount of subsidy benefits arising from sales
campaigns involving twin -aisle LCA for the purpose of assessing the relative significance of the
amounts of the tied t ax subsidy in the single -aisle LCA market. This is because such a calculation
"effectively implies that subsidies to products in other markets are causing adverse effects to
complaining Member products with which they do not compete".1104 While the precise legal basis for
the United States' allegation is not entirely clear, we understand the United States to argue that
such an approach is at odds with the proposition, also expressed by the Panel, that a "subsidized
product", within the meaning of Article 6.3, can cause serious prejudice to another product only if
the two products in question compete in the same market.1105
5.492. We note that the Washington State B&O tax rate reduction applies , inter alia , to the
production and sale of all LCA manufactured in the State of Washington, including both twin -aisle
and single-aisle LCA.1106 Thus, the product being subsidized under this subsidy measure (subsidized
product) could be considered to encompass LCA generally, rather than the particular LCA model to
which each individual transaction generating subsidy benefits is related. In addition, we recall that
the chapeau of Article 5 of the SCM Agreement provides that no Member should cause, "through the
use of any subsidy", adverse effects to the interests of other Members. Further, the analyses of
serious prejudice under the subparagraphs of Article 6.3 all concern "the effect of the subsidy". Thus,
these provisions do not explicitly preclude the possibility that the benefits of the subsidy that may
be granted in connection with one product of the responding Member (e.g. Boeing's twin-aisle LCA)
are in fact used to lower the price of another product of that Member (e.g. Boeing's single -aisle
LCA), which in turn causes commercial harm on a product of the complaining Member (e. g. Airbus'
single-aisle LCA) that competes only with the product with respect to which the subsidy is used. To
this extent, we do not consider that the term "subsidized product" in Article 6.3 must necessarily
mean the product with respect to which the subsidy is granted, rather than the product with respect
to which it is used.
5.493. Therefore, we disagree with the United States that, when estimating the per -aircraft
magnitude of subsidization, the Panel was, on the basis of the term "subsidized product" in
Article 6.3, precluded from taking into account the subsidy amounts granted for both twin-aisle and
single-aisle LCA. Instead, allowing consideration of whether tied tax subsidy benefits arising from
particular sales may be pooled and used to lower prices for other sales would permit consideration
of whether tied tax subsidies granted with respect to twin -aisle LCA were used to lower prices of
single-aisle LCA.
5.494. With regard to whether the Panel correctly assumed that the entire amount of the tied tax
subsidy granted with respect to all of Boeing's LCA sales during the reference period from 2013 to
2015 would have been deployed exclusively to the three particularly price-sensitive sales campaigns
in that period, we recall that Articles 5(c) and 6.3 do not explicitly require that a panel addressing a
serious prejudice claim quantify the amount of the challenged subsidy either in absolute or relative
terms.1107 Moreover, these provisions do not require a panel to determine precisely how the benefits
of the subsidy are used by the recipient. Rather, what a panel is required to do under these provisions
is to examine whether the subsidy contributes in a genuine and substantial way to the alleged market
phenomena.1108 Thus, as long as a panel ensures that the subsidy is a genuine and substantial cause
of the alleged market phenomena, a panel retains a degree of discretion to determine whether it is
appropriate to carry out a quantitative analysis and, if it chooses to do so, what specific calculation
method it uses for such quantification.
5.495. We further recall that, when assessing the relative significance of the amounts of the tied
tax subsidies in the context of completing the legal analysis in the original proceedings, the
Appellate Body did not rely on a quantification of the per-aircraft impact of the subsidies. Instead,
the Appellate Body noted that there was little on the original panel record that would have enabled

1104 United States' other appellant's submission, para. 67.
1105 See Panel Report, para. 9.33; United States' appellee's submission, section VII.
1107 See Appellate Body Report, US – Upland Cotton, para. 461.
1108 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; US – Large Civil Aircraft
(2nd complaint), para. 913; EC and certain member States – Large Civil Aircraft (Article 21.5 – US),
para. 5.581.

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it to carry out a quantitative analysis. 1109 Under these circumstances, the Appellate Body took into
account the absolute amounts of the tied tax subsidies at issue (i.e. US$2.2 billion during the period
from 1989 to 2006, and US$451 million1110 during the reference period from 2004 to 2006) 1111, as
well as certain evidence suggesting that the FSC/ETI subsidies were an important aspect of Boeing's
ability to compete with Airbus and that the tied tax subsidies enabled Boeing to lower its prices
beyond the level that would otherwise have been economically justifiable. 1112 On that basis, the
Appellate Body found that the original panel record provided some support for the proposition that
the amounts of the tied tax subsidies had relative significance in that, "when deployed strategically",
the benefits were of a sufficient magnitude to contribute to Boeing's ability to win sales from, or
suppress prices of, Airbus in particular campaigns.1113 This, together with other considerations – in
particular the nature of the tied tax subsidies, the conditions of competition in the LCA industry, and
the circumstances of individual sales campa igns1114 – formed the basis for the Appellate Body's
ultimate conclusion that, for two particularly price -sensitive campaigns in the 100 -200 seat LCA
market (namely, the 2005 JAL and SALE sales campaigns), the tied tax subsidies at issue were a
genuine and substantial cause of significant lost sales within the meaning of Articles 5(c) and 6.3(c)
of the SCM Agreement.1115
5.496. Similar to the Appellate Body's analysis in the original proceedings, we do not consider that
the Panel in these proceedings was required under Articles 5(c) and 6.3 to determine the precise
degree to which the subsidy actually affected Boeing's prices in particular sales campaigns. Rather,
to the extent that the Panel properly examined whether the subsidy can be considered a genuine
and substantial cause of the alleged market phenomena, it had discretion in its use of qualitative
and/or quantitative analyses. Thus, where the Panel chose to undertake a quantitative analysis, it
would have sufficed for the Panel to offer a general assessment of the magnitude of the per-aircraft
impact, instead of determining the precise per -aircraft subsidy amounts for each individual sales
campaign in question.
5.497. We believe that the Panel's magnitude calculation would be overstated if it necessarily
conveyed that the entire amount of the tied tax subsidies that Boeing received in the reference
period from 2013 to 2015 was used exclusively to lower the prices in the three particularly
price-sensitive sales campaigns in that period. For example, while Boeing may have all ocated
benefits of the tied tax subsidies in favour of these sales campaigns, it is unlikely that all of the
benefits were necessarily allocated to these particularly price -sensitive sales campaigns to the
exclusion of any other business purpose. Moreover, even accepting that those particularly
price-sensitive sales campaigns are the only instances in which the benefits of the subsidy were used
to lower prices of Boeing's LCA, Boeing may not have needed to reduce its prices to the maximum
extent possible with the use of the subsidy benefits for the purpose of winning the sale.1116
5.498. In any event, we consider that the Panel's US$1.99 million figure calculated with reference
to the 2013-2015 period provides a useful estimate of the maximum extent to which Boeing would
have been able to lower its prices with the use of the tied tax subsidy in the three particularly
price-sensitive sales campaigns during that period, as well as the two particularly price -sensitive

1109 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1254.
1110 More specifically, Boeing received US$435 million from the FSC/ETI subsidies, US$13.8 million from
the Washington State B&O tax rate reduction, and US$2.2 million from the City of Everett B&O tax rate
reduction. (Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1254)
1111 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1254 (referring to Original
Panel Report, para. 7.1811). The Appellate Body noted that by far the majority of this amount was accounted
for by the FSC/ETI subsidies, because Boeing began to receive the B&O tax rate reductions only during the
2004-2006 reference period in the original proceedings. (Ibid.)
1112 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 1254-1255 (referring to
Panel Report, para. 7.1818).
1113 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1254.
1114 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1251.
1115 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1271. See also ibid.,
para. 1260.
1116 We note in this regard that, before the Panel, the parties agreed that Airbus and Boeing have no
incentive to reduce their prices beyond what is necessary to win the deal. (European Union's response to Panel
question 164, para. 111; United States' comments on the European Union's response to Panel question
No. 164, para. 135) We further note that, in its other appellant's submission, the United States suggests that
offering a price concession in one sale can have certain repercussions on prices in other sales, for example,
due to the so-called "most-favoured customer" clause for certain, top-tier Boeing customers. (United States'
other appellant's submission, para. 97 (referring to Panel Report, fn 2724 to para. 9.50))

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sales campaigns prior to that period. 1117 Such an estimate can, in turn, be reasonably relied on in
determining whether the price reduction made available with the subsidy benefits contributed to a
significant degree to Boeing winning these sales campaigns. Therefore, even if such an estimate
does not represent the precise degree to which Boeing lowered its LCA prices with the use of the
subsidy benefits in particular sales campaigns, it still can form a reasonable basis, when combined
with other factors – such as the nature of the tied tax subsidies, the conditions of competition in the
LCA industry, and the circumstances of individual sales campaigns – for concluding that the tied tax
subsidy at issue was a genuine and substantial cause of Boeing's success in the particularly
price-sensitive sales campaigns.
5.499. For the foregoing reasons, we find that the Panel did not err under Articles 5(c) and 6.3 of
the SCM Agreement when it provided an estimate of the per-aircraft amount of the subsidy at issue.
5.500. Finally, we note that the United States has also brought an alternative claim under Article 11
of the DSU with respect to the Panel's calculation of the per-aircraft subsidy magnitude.
5.501. The Appellate Body has observed that, while an appellant may advance both a claim that
the Panel erred in its application of a l egal provision and a claim that the Panel failed to make an
objective assessment of the facts under Article 11 of the DSU, in most cases, an issue "will either
be one of application of the law to the facts or an issue of the objective assessment of facts, and not
both".1118 Similarly, in the original proceedings, the Appellate Body indicated that, "{w}here there
is ambiguity, it will fall on the Appellate Body to determine whether a finding – and a related
challenge to it on appeal – is properly characterized as legal or factual, in the circumstances of a
specific case."1119 In this regard, the Appellate Body has explained that allegations implicating a
panel's appreciation of facts and evidence fall under Article 11 of the DSU.1120 By contrast, "{t}he
consistency or inconsistency of a given fact or set of facts with the requirements of a given treaty
provision is … a legal characterization issue" and is therefore a legal question.1121
5.502. As we understand it, the United States' key contention in its appeal is that, for purposes of
its analysis of adverse effects under Articles 5(c) and 6.3 of the SCM Agreement, the Panel relied on
an erroneous assumption that Boeing would have deployed the benefit of the tied tax subsidy arising
from less competitive sales to lower its prices in particularly price-sensitive sales campaigns. As we
have noted, a panel assessing the relative significance of the amount of the challenged subsidy is
not necessaril y required to quantify the per -unit amount of the subsidy or make a factual
determination of precisely how the benefits of the subsidy were used. Rather, a panel may rely on
different types of approaches depending on the specific circumstances of each case , including both
qualitative and quantitative analyses. As such, the Panel's attempt in this dispute to quantify the
per-aircraft subsidy magnitude was only one permissible way of evaluating the relative significance
of the subsidy amount while taking into account the specific factual setting of this dispute, which
includes the nature and absolute magnitude of the subsidy at issue, the conditions of competition in
the relevant LCA markets, and the particular circumstances of individual sales campaigns. We
consider that such an assessment relates more properly to the application of the legal standard for
establishing causation under Articles 5(c) and 6.3 of the SCM Agreement than to the objectivity of
the Panel's assessment of the facts within the meaning of Article 11 of the DSU. Accordingly, we do
not further consider the United States' claim under Article 11 of the DSU.

1117 The Panel did not carry out a separate calculation of the per-aircraft subsidy magnitude for the
Fly Dubai 2008 and Delta Airlines 2011 sales campaigns, which occurred prior to the 2013-2015 reference
period. We note the Panel finding that the tied tax subsidy received in the six-year period from 2007 to 2012
was of an amount slightly smaller than, yet comparable to, the US$325 million amount for the 2013-2015
period. (Panel Report, para. 8.659) We also note the Panel finding that the total number of Boeing's LCA
ordered in the Fly Dubai 2008 and Delta Airlines 2011 sales campaigns was 150, which is comparable to the
163 aircraft ordered in the three particularly price-sensitive sales campaigns during the 2013-2015 period.
1118 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 872.
(emphasis original)
1119 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 958.
1120 Appellate Body Reports, US – Upland Cotton, para. 399; US – Upland Cotton (Article 21.5 – Brazil),
1121 Appellate Body Report, China – GOES, para. 183 (quoting Appellate Body Report, EC – Hormones,
para. 132).

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5.8.2.3 Whether the Panel erred under Articles 5 and 6.3 of the SCM Agreement, or acted
inconsistently with Article 11 of the DSU, by failing to ensure that the per-aircraft amount
of subsidization covers the entirety of the price differentials
5.503. The United States also claims that, even assuming arguendo that the Panel's per -aircraft
magnitude figure of US$1.99 million were correct, there was no basis for the Panel to conclude that
the subsidy contributed in a genuine and substantial way to Airbus' loss of sales in the five
particularly price-sensitive sales campaigns, because the Panel failed to show that the per -aircraft
subsidy amount covers the entirety of the price gap between Airbus' and Boeing's respective offers.
According to the United States, the proper counterfactual analysis under Articles 5(c) and 6.3 asks
not only whether Boeing's prices would have been higher in the absence of the subsidy, but also
whether Boeing's prices would have been sufficiently higher such that Airbus would have won
additional sales in the absence of the subsidy. 1122 The United States therefore considers that the
Panel was required to determine whether the magnitude of the tied tax subsidy is enough to "cover
the margin of victory between the final net prices of Boeing and Airbus ".1123 In addition, the
United States advances campaign-specific arguments and submits that, with respect to each of the
five sales campaigns, the P anel's analysis constitutes an error under Articles 5(c) and 6.3 of the
SCM Agreement and/or is inconsistent with Article 11 of the DSU.1124
5.504. The European Union observes that the United States' claims, including its campaign-specific
arguments, are based on th e proposition that a subsidy can be found to constitute a genuine and
substantial cause of lost sales only if the per-aircraft amount of subsidization exceeds the difference
that the Panel found between Boeing's winning and Airbus' losing prices for that sale.1125 According
to the European Union, the United States' assertion is without merit because it amounts to an
erroneous proposition that the subsidy must be the sole cause of adverse effects. The
European Union adds that the United States is also wrong in that it focuses solely on a strict
comparison between the subsidy magnitude and the difference in the net prices, without taking into
account, inter alia, the difference in the NPVs.1126 In addition, the European Union responds to each
of the more detailed arguments of the United States regarding the five sales campaigns.1127
5.505. The Appellate Body has stated that, for purposes of establishing a "genuine and substantial
relationship of cause and effect" between a subsidy and an alleged adverse effect, a panel need not
determine that the subsidy is the sole cause of that effect, or even the only substantial cause of that
effect.1128 Instead, a finding of the requisite causal link can be made even in the presence of other
contributing factors, provided that, having given proper consideration to all of these factors and their
effects, the panel is satisfied that the contribution of the subsidy has been demonstrated to be
genuine and substantial.1129
5.506. As noted by the United States, one approach to assessing the existence of a requisite causal
link between the subsidy and alleged serious prejudice is by recourse to a counterfactual analysis.1130
With particular respect to an analysis of lost sales, the Appellate Body has explained that such a
counterfactual analysis would involve a comparison of the sales actually made by the competing firm
of the complaining Member with the sales that this firm would have won in a counterfactual scenario
where the firm of the subsidizing Member had not received the challenged subsidy. 1131 As such,
where a complainant is seeking to demonstrate lost sales through a subsidy's effects on the prices
of the subsidized firm, a proper counterfactual test may entail a comparison between, on the one
hand, the degree of price reduction made available with the use of the subsidy in the particular sale

1122 United States' other appellant's submission, para. 122 and fn 123 thereto.
1123 United States' other appellant's submission, para. 147 (quoting Panel Report, para. 9.379, in turn
quoting Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1263, which summarized the
European Communities' argument before the original panel).
1124 United States' other appellant's submission, para. 144.
1125 European Union's appellee's submission, para. 145.
1126 European Union's appellee's submission, paras. 151 and 160.
1127 European Union's appellee's submission, paras. 168-208.
1128 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 914.
1129 Appellate Body Reports, US – Large Civil Aircraft (2nd complaint), para. 914; EC and certain member
States – Large Civil Aircraft (Article 21.5 – US), para. 5.582.
1130 United States' other appellant's submission, paras. 119-120. See also Appellate Body Reports, US –
Upland Cotton (Article 21.5 – Brazil), paras. 374-375; EC and certain member States – Large Civil Aircraft,
paras. 1110 and 1233.
1131 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1216.

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in question and, on the other hand, the degree of price difference that could have changed the
outcome of that sale. A lost sales finding may be reached when the price would have been sufficiently
higher in the absence of the subsidy such that the sales actually won by the subsidized firm of the
responding Member would instead have been won by the competing firm of the complaining
Member.1132
5.507. However, the Appellate Body has voiced reservations about using a "but f or" test for
determining the existence of a "genuine and substantial" causal link. The Appellate Body noted that
a "but for" test may be "too undemanding" if the subsidy is "necessary, but not sufficient, to bring
about" a market phenomenon.1133 This may be the case where a necessary cause is too remote and
other intervening causes substantially account for the market phenomenon. 1134 By contrast, a "but
for" test could be "too rigorous" if it required that the subsidy be the only cause.1135
5.508. In light of these conside rations, 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 outc ome
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 particularly 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.
5.509. In addition, with particular respect to the LCA markets in question, we note that the Panel
found that customers making a choice between offers by Airbus and Boeing consider not only the
net prices of their respective offers but also various non -price factors to arrive at an evaluation of
the respective NPVs for the competing aircraft.1136 Moreover, even if the aircraft models offered by
Airbus and Boeing in a particular sales campaign are competing with each other in the same market,
they are still differentiated from each other in various respects, such as seating capacity and flight
range, and, thus, some elements of the net price differential might be attribut able to those
factors.1137 As such, we do not consider that a strict comparison of net prices of Airbus' and Boeing's
competing aircraft models is the exclusive indicator as to whether the subsidy at issue contributed
in a genuine and substantial way to the outcome of particular sales campaigns.
5.510. Further in this regard, we recall that the Panel based its finding of lost sales not only on a
comparison between the per -aircraft subsidy amount and the net price differentials in the five
individual sales campaigns, but also on evidence pertaining to NPV difference. Specifically, the Panel
cited the statement by Mr Rao that refers to a specific level of NPV difference that can change a
customer's choice between Airbus and Boeing in highly competitive sales campaigns involving
single-aisle LCA. 1138 As already noted above 1139, the Panel observed that its US$1.99 million
magnitude figure exceeds the magnitude of NPV difference mentioned by Mr Rao.1140
5.511. We note that the Panel did not explain how much weight it attached to the NPV d ifference
mentioned by Mr Rao, as compared to the weight it attached to the net price differentials. We further
note that Mr Rao's statement is made on a generalized basis, without specifically referring to any of
the five individual sales campaigns in question. As such, one could consider that the probative value

1132 See Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1216.
1133 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 374.
1134 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1233.
1135 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 374.
1136 Panel Report, paras. 9.21 and 9.398, and fn 3316 to para. 9.398. See also Original Panel Report,
para. 7.1694.
1137 Such dynamics seem to manifest themselves, for example, in the different list prices (and,
consequently, actual prices) for different aircraft models found by the Panel. (See Panel Report, Table 4 at
1138 Statement of Kiran Rao, 6 October 2015 (Panel Exhibit EU-1668) (HSBI).
1139 See para. 5.473 above.
1140 Panel Report, para. 9.402.

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of this statement is limited such that it cannot be assumed that the differentials in the NPVs of
Airbus' and Boeing's respective offers in these sales campaigns were indeed at the range of the
figure mentioned by Mr Rao. The United States appears to take such a view1141, although the Panel
suggested that the United States had not contradicted this evidence during the Panel
proceedings.1142 In any event, we consider that, regardless of the generalized nature of Mr Rao's
statement, it nevertheless provides some indication of the magnitude of NPV difference that could
change the outcome of the five sales campaigns in question, in particular given that they are clearly
among the more competitive of the sales campaigns. In this respect, the Panel's assessment of the
NPV difference could be understood to complement its assessment of the net price differentials,
thereby corroborating its overall fi ndings of lost sales with respect to the five individual sales
campaigns.
5.512. Accordingly, we disagree with the United States that the Panel erred merely because its
conclusion was not based on a finding that the per -aircraft magnitude of the subsidy exceeds t he
differential in the net prices offered by Airbus and Boeing in each of the five sales campaigns.
5.513. Turning to the United States' arguments regarding specific sales campaigns, the
United States contends that the Panel erred in reaching its lost sales findi ngs with respect to the
Fly Dubai 2008 and Delta Airlines 2011 sales campaigns on the basis of its observation that the
magnitudes of the subsidy were only capable of enabling "at least a portion" of Boeing's pricing
advantage.1143 According to the United States, this constitutes an erroneous interpretation and
application of Articles 5(c) and 6.3 of the SCM Agreement.1144
5.514. We recall that the Panel found that the subsidy contributed in a genuine and substantial way
to Airbus' loss of the Fly Dubai 2008 and Delta Airlines 2011 sales campaigns, explaining that the
magnitudes of the subsidy were "capable of enabling at least a portion of Boeing's pricing advantage,
contributing in substantial part to its winning those campaigns". 1145 Thus, the Panel explicitly
acknowledged that its US$1.99 million magnitude figure does not bridge the net price differentials
in Airbus' and Boeing's respective offers. However, as we have explained, a strict mathematical
comparison between the net prices of Airbus' and Boeing's respective L CA is not dispositive of
whether the Panel could reach a finding that the subsidy is a genuine and substantial cause of Boeing
winning the sale.
5.515. In addition, we have observed that, while the Panel's US$1.99 million figure may not reflect
the precise degree to which the tied tax subsidy at issue reduced Boeing's LCA prices in the
particularly price-sensitive sales campaigns in question, this amount could nevertheless be relied on
as an estimate of the maximum extent to which Boeing was able to lower its prices through the use
of the subsidy benefits in those campaigns. In this light, and having reviewed the specific net price
differential figures identified by the Panel for the Fly Dubai 2008 and Delta Airlines 2011 sales
campaigns (which are HSBI), we agree with the Panel that the subsidy could account for a
considerable portion of the net price differentials, arguably contributing "in substantial part" to
Boeing's pricing advantage. 1146 Furthermore, as we have explained, the Panel based its overall
findings of lost sales not only on its analysis of net price differentials, but also on its assessment of
the evidence pertaining to the NPV difference. Under these circumstances, we disagree with the
United States that the Panel erred under Articles 5(c) and 6.3 of the SCM Agreement in reaching the
lost sales findings with respect to the Fly Dubai 2008 and Delta Airlines 2011 sales campaigns where
the magnitudes of the subsidy were only capable of enabling "at least a portion" of Boeing's pricing
advantage.
5.516. With respect to the Fly Dubai 2014 sales campaign, the United States argues that, even
assuming arguendo that the Panel's US$1.99 million magnitude figure were correct, this would not
justify the Panel's lost sales finding because the Panel found that the outcome of this sales campaign

1141 United States' other appellant's submission, para. 128 (referring to Panel Report, para. 9.403).
1142 Panel Report, para. 9.403.
1143 United States' other appellant's submission, paras. 148 and 151 (quoting Panel Report,
para. 9.403). (emphasis added by the United States omitted)
1144 United States' other appellant's submission, paras. 144 and 151. We note that the United States
also refers to Article 11 of the DSU in the alternative in paragraph 151 of its other appellant's submission.
However, the United States did not cite this provision in its Notice of Other Appeal.
1145 Panel Report, para. 9.403.
1146 Panel Report, para. 9.403.

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was a result of a certain non -price factor.1147 The United States thus claims that the Panel erred
under Articles 5(c) and 6.3 of the SCM Agreement and acted inconsistently with Article 11 of the
DSU.1148
5.517. We note that the Panel found, and th e participants agree, that the most prominent factor
that affected the outcome of the Fly Dubai 2014 sales campaign was a certain specific factor, which
is HSBI.1149 To this extent, we agree with the United States that the comparison between the Panel's
US$1.99 million and the net price differential identified by the Panel for this sales campaign was of
limited significance in determining whether the subsidy can be considered a genuine and substantial
cause of Airbus' loss of this sales campaign. Yet, we under stand from the nature of this particular
non-price factor1150, as well as the participants' arguments with respect to this sales campaign 1151,
that the outcome of the challenge concerning this sales campaign turns on the same question as
that raised in connectio n with the Fly Dubai 2008 and Delta Airlines 2011 sales campaigns.
Therefore, having rejected the United States' arguments with respect to the Fly Dubai 2008 and
Delta Airlines 2011 sales campaigns, we disagree that the Panel erred under Articles 5(c) and 6.3 of
the SCM Agreement, or under Article 11 of the DSU, in reaching a finding of lost sales with respect
to the Fly Dubai 2014 sales campaign.
5.518. Finally, with respect to the Icelandair 2013 and Air Canada 2013 sales campaigns, the
United States takes issue with certain statements by the Panel which "arguably intimated" that the
US$1.99 million figure exceeds the net price differentials in these campaigns. 1152 According to the
United States, such statements find no support in the evidence, resulting in a failur e to make an
objective assessment of the matter within the meaning of Article 11 of the DSU.1153 On this basis,
the United States appears to further claim that, because the Panel failed to ensure that the
per-aircraft subsidy amount covers the entirety of the price differentials, it also erred under
Articles 5(c) and 6.3 of the SCM Agreement.1154
5.519. As regards the Icelandair 2013 sales campaign, the United States notes that, although the
Panel found that evidence reflected a price differential of a specific value 1155 (which is HSBI), it
suggested that this evidence "is somewhat contradicted" by other evidence that Airbus' final offer
for both the A320neo and A320ceo was made at a certain price level (which is HSBI), which suggests
that, at the final stage, Airbus had "closed the gap".1156 The United States challenges this particular
statement by the Panel, arguing that it lacks support in the evidence.1157
5.520. We observe that, regardless of whether Airbus had "closed the gap" between Airbus' and
Boeing's offered prices at the fina l stage such that the final net price differential in this sales
campaign was smaller than the specific HSBI figure mentioned by the Panel, the subsidy amount
available for this sales campaign – which can be as large as US$1.99 million per aircraft – could
cover a significant portion of that HSBI figure. Moreover, the Panel explained that the fact that
Airbus' final offer was made at a certain price level suggests that Boeing would have been under
considerable pressure to lower its prices in order to secure the order.1158 One implication of that
finding might be that the Icelandair 2013 sales campaign was so closely fought that Boeing could
not have offered substantially better pricing than Airbus without relying on an additional source of
funds from the subsidy at issue. In any event, given the specific net price differential figure identified

1147 United States' other appellant's submission, paras. 169-171.
1148 United States' Notice of Other Appeal, para. 5.
1149 Panel Report, HSBI Appendix, para. 271; United States' other appellant's submission, para. 170;
European Union's appellee's submission, paras. 205-206.
1150 We note that the Panel explained that this factor cannot reasonably be considered a "non-price"
factor because it relates too closely to certain price factors. The Panel thus considered the Fly Dubai 2014 sales
campaign to be particularly price-sensitive. (Panel Report, HSBI Appendix, para. 271)
1151 United States' other appellant's submission, paras. 169-171; European Union's appellee's
submission, paras. 205-206.
1152 United States' other appellant's submission, para. 144.
1153 United States' other appellant's submission, paras. 31, 144, and 173.
1154 United States' Notice of Other Appeal, para. 5.
1155 Panel Report, HSBI Appendix, para. 247 (referring to European Union's first written submission to
the Panel, para. 1792; Panel Exhibit EU-987 (HSBI)).
1156 United States' other appellant's submission, paras. 155-156. (fn omitted) See also Panel Report,
para. 9.403; Panel Report, HSBI Appendix, paras. 249-250.
1157 United States' other appellant's submission, para. 156.

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by the Panel for the Icelandair 2013 sales campaign, as well as the Panel's assessment of the
evidence regarding the NPV difference, we do not consider that the Panel erred in reaching a finding
of lost sales with respect to this sales campaign.
5.521. Turning to the Air Canada 2013 campaign, the United States observes that, while the Panel
did not identify a specific price differential for this campaign, it "insinuate{d}" that t he pricing
differential was somewhat lower than the pricing differential in the Icelandair 2013 campaign. 1159
The United States further notes that the Panel observed that Airbus had offered incremental price
reductions by a certain specific amount, and then by a smaller amount, in the concluding stage of
the campaign.1160 The Panel considered this fact to suggest that Airbus thought it was close enough
to Boeing on price that relatively small improvements on price could affect the outcome of the
campaign.1161 In the United States' view, however, the fact mentioned by the Panel cannot be a
basis for its observation that the differential in this sales campaign was somewhat lower than the
differential in the Icelandair 2013 campaign.1162
5.522. We recall that the Panel foun d that the Air Canada 2013 sales campaign was particularly
price-sensitive in the sense that Boeing was under particular pressure to reduce its price in order to
secure the sale. 1163 This suggests that Airbus was also under strong pressure to reduce its price
during this campaign. Our review of the Panel's evaluation of the evidence pertaining to this sales
campaign, contained in the HSBI Appendix to its Report, confirms this proposition.1164 Under these
circumstances, we agree with the Panel that the magnitudes of price reductions offered by Airbus at
the concluding stage of the campaign offer some indication of the magnitude of the price differential
that Airbus considered could change the outcome of the campaign. In this regard, our review of the
incremental price reductions offered by Airbus, especially the second price reduction 1165, supports
the view that the price differential in the Air Canada 2013 sales campaign might indeed have been
smaller than the amount identified by the Panel for the Icelandair 2013 sales campaign.
5.523. We note that the United States suggests that it is not appropriate to take into account the
magnitude of the second price reduction, because it cannot be considered a concession in price given
the specific reason for this reduction (which is HSBI).1166 However, regardless of the alleged reason
for Airbus' second price reduction, the fact that Airbus did not make a large price reduction at the
concluding stage of the campaign – despite the strong pressure it had felt to reduce its price during
the campaign – might arguably suggest that Airbus thought it was close enough to Boeing on price.
In any event, even assuming that the price differential in the Air Canada 2013 sales campaign was
in the range of Airbus' first price reduction instead of the second price reduction, the subsidy amount
available for this sales campaign – which can be as large as US$1.99 million per aircraft – could still
be considered sufficiently large vis-à-vis such price differential for purposes of reaching a conclusion
that the subsidy contributed in a genuine and substantial way to Boeing winning the sale. We recall
in this regard that, when reaching this conclusion, the Panel also observed that its US$1.99 million
figure exceeds the magnitude of NPV difference that Mr Rao stated can change the outcome of highly
competitive sales campaigns involving single-aisle LCA.1167
5.524. Accordingly, we disagree with the United States that the Panel acted inconsistently with
Article 11 of the DSU, or erred under Article 5(c) and 6.3 of the SCM Agreement, in reaching its lost
sales findings with respect to the Icelandair 2013 and Air Canada 2013 sales campaigns.
5.8.2.4 Conclusion
5.525. With respect to the Panel's calculation of the per -aircraft amount of subsidization, we
consider that there was a basis for the Panel to assume that Boeing had been able to use the benefits

1159 United States' other appellant's submission, para. 161 (referring to Panel Report, para. 9.403
(stating that the pricing differential in the Icelandair 2013 campaign is "somewhat larger" than, inter alia, in
the Air Canada 2013 campaign)).
1160 United States' other appellant's submission, para. 161 (referring to Panel Report, para. 9.403).
1161 Panel Report, para. 9.403.
1162 United States' other appellant's submission, para. 162.
1163 Panel Report, para. 9.383 and fn 3276 thereto.
1166 United States' other appellant's submission, paras. 164-167.
1167 Panel Report, paras. 9.402-9.403.

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of the subsidies arising from all its LCA sales to lower the prices in particularly price -sensitive sales
campaigns in the single-aisle LCA market. We thus find that the Panel did not err under Articles 5(c)
and 6.3 of the SCM Agreement in its calculation of the per-aircraft amount of subsidization. Further,
we decline to consider the United States' alternative claim under Article 11 of the DSU because its
challenge to the Panel's calculation relates more properly to the application of the legal standard for
establishing causation under Articles 5(c) and 6.3 of the SCM Agreement.
5.526. In addition, we do not consider that the Panel was required under Articles 5 and 6.3 of the
SCM Agreement to establish that the per -aircraft amount of the subsidies available for the
particularly price-sensitive sales campaigns exceeds the differentials in the net prices of Airbus' and
Boeing's competing aircraft for purposes of concluding that the subsidies are a genuine and
substantial cause of Airbus' loss of these sales. Nor do we consider that the Panel failed to make an
objective assessment of the matter when comparing the per-aircraft subsidy amount to the net price
differentials in those sales campaigns. We thus find that the Panel did not err under Articles 5 and
6.3 of the SCM Agreement, or acted inconsistently with Article 11 of the DSU, in reaching its lost
sales finding with respect to the five particularly price-sensitive sales campaigns.
5.8.3 European Union's claims relating to the Panel's analysis of the untied subsidies
5.8.3.1 Whether the Panel erred under Articles 5 and 6.3 of the SCM Agreement, or acted
inconsistently with Article 11 of the DSU, by requiring that the European Union
demonstrate that the untied subsidies actually altered Boeing's pricing behaviour
5.527. The European Union requests us to reverse the Panel's findings that the European Union had
failed to establish that the "untied subsidies" – consisting of various state and local cash flow
subsidies and the post -2006 aeronautics R&D subsidies – are a genuine and substantial cause of
adverse effects in the post-implementation period through a price causal mechanism.1168 According
to the European Union, the Panel erred in the interpretation and application of Articles 5 and 6.3 by
requiring that, in order to demonstrate that the untied subsidies cause adverse effects, the
European Union must trace the dollars from the untied subsidies to actual price reductions of LCA
sales.1169 The European Union further alleges that the Panel failed to make an objective assessment
of the matter under Article 11 of the DSU by deviating from the Appellate Body's findings in the
original proceedings.1170
5.528. According to the United States, the Panel did not impose a requirement to tra ce subsidy
dollars to price reductions, but rather found that the European Union never provided a credible
explanation as to how untied subsidies affect Boeing's LCA prices. 1171 Because the European Union
was unable to demonstrate that any of the untied subsi dies altered Boeing's profitability calculus,
the United States maintains that the Panel correctly treated the untied subsidies as the equivalent
of additional cash that did not alter Boeing's pricing behaviour. Regarding the European Union's
claim under Article 11 of the DSU, the United States considers that the Panel was correct to dismiss
the European Union's efforts to establish that any untied subsidy necessarily affects Boeing's prices
as the equivalent of "causation through association".1172
5.529. In this cla im on appeal, the European Union challenges the manner in which the Panel
addressed the role of the untied subsidies in its causation analysis. It is well accepted in this dispute
that, unlike the tied tax subsidies, the untied subsidies are not contingent on the production or sale
of LCA on a per-unit basis, but instead increase Boeing's non-operating cash flow.1173 The question,
therefore, is under what circumstances subsidies to Boeing in the form of additional cash can be
found to cause adverse effects through a price causal mechanism.
5.530. In the original proceedings, the Appellate Body faulted the original panel for failing to
consider whether the untied subsidies also affected Boeing's prices in a manner similar to the tied

1168 European Union's appellant's submission, para. 642.
1169 European Union's appellant's submission, para. 587.
1170 European Union's appellant's submission, para. 588.
1171 United States' appellee's submission, paras. 309-320.
1172 United States' appellee's submission, para. 321 (quoting Panel Report, fn 3122 to para. 9.274, in
turn quoting Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1404).
1173 Panel Report, para. 9.270; Appellate Body Report, US – Large Civil Aircraft (2nd complaint),
para. 1297; Original Panel Report, paras. 7.1825 and 7.1827.

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tax subsidies. According to the Appellate Body, the original panel should not have limited its analysis
to the question of whether these subsidies constitute a genuine and substantial cause of serious
prejudice on their own. Rather, the original panel "should have inquired as to whether the remaining
subsidies had a genuine causal relationship with, that is, made a real or meaningful contribution to,
the effects that it had found the tied tax subsidies to have on Boeing's LCA pricing". 1174 The
Appellate Body maintained that, by doing so, the remaining subsidies could be said to complement
and supplement the effects, and therefore the serious prejudice, caused by the tied tax subsidies.1175
The Appellate Body therefore reversed the Panel's finding that the untied subsidies had not been
shown to have affected Boeing's prices in a manner giving rise to serious prejudice, and turned to
consider whether it could complete the legal analysis.1176
5.531. In completing the legal analysis, the Appellate Body then sought to establish whether any
of the untied subsidies had a genuine causal relationship with the effects of the tied tax subsidies.
The Appellate Body recalled various findings it had made regarding price competition in the
single-aisle LCA market. 1177 The Appellate Body noted its acceptance that the 100 -200 seat LCA
market operates as a duopoly, in which Airbus and Boeing each possess the ability, through its
supply and pricing decisions, to influence the pricing of the other. The Appellate Body further
observed that price appears to have been a particularly important consideration in the 100-200 seat
LCA market due to the relatively high degree of substitutability between the A320 and the 737NG,
and the fact that many customers within this product market are low-cost carriers, which tend to be
more price-sensitive. The Appellate Body also took note of the original panel's findings that, in late
2004 or early 2005, Boeing altered its overall pricing strategy and became more aggressive on price,
and that certain LCA sales campaigns are more competitive and more price-sensitive than others.1178
Finally, the Appellate Body noted its finding that Boeing was under particular pressure to reduce its
prices in order to secure 737NG sales in two sales campaigns – namely, the 2005 JAL and SALE
sales campaigns – and that Boeing used the tied tax subsidies consisting of the FSC/ETI subsidies
and the Washington State B&O tax rate reduction to do so. 1179 On that basis, the Appellate Body
considered that "the necessary causal link" between the untied subsidies and Boeing's lower pricing
of the 737NG in these two sales campaigns could be demonstrated "if there are uncontested facts
or factual findings by the Panel linking the remaining subsidies, or any of them, to the 737NG".1180
5.532. The Appellate Body took note of the original panel's o bservation that the amount of the
remaining subsidies was "comparatively small, being approximately $550 million" and that none of
the remaining subsidies were "directly related to Boeing's production or sale of LCA". 1181 While the
Appellate Body agreed with these statements to some extent, it considered that they are
"overbroad", noting that the size of each subsidy varied considerably, from US$0.5 million to
US$475.8 million, and that the magnitude of the subsidies was "of somewhat less consequence"
when seeking to cumulate the effects of such a subsidy with another group of subsidies, rather than
seeking to establish that "the subsidy itself caused the serious prejudice ."1182 The Appellate Body
further considered that, while untied subsidies are not contingent on the production or sale of a
particular product on a per -unit basis, they are intended to cover some portion of the fixed costs
that Boeing incurs and thus "some of these subsidies are more directly related to Boeing's production
of LCA and in particular to its production of the 737NG, than others."1183

1174 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1328.
1175 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1328.
1176 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1329.
1177 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1336.
1178 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1336 (referring to Original
Panel Report, paras. 7.1694 and 7.1820; Appendix VII.F.2, para. 68 and fn 4250 thereto).
1179 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1336 (referring to ibid.,
para. 1271).
1180 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1337.
1181 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1339 (quoting Original Panel
Report, para. 7.1827). As the Appellate Body noted, the Panel further referred to the European Communities'
acknowledgement that the subsidies were not "explicitly targeted at lowering Boeing's costs of production of
specific LCA models". (Ibid., fn 2689 to para. 1339, quoting European Communities' first written submission to
the original panel, para. 1303)
1182 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1339. (emphasis original)
1183 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1339.

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5.533. The Appellate Body noted that, in fact, the European Communities had argued that certain
untied subsidies were more closely linked to LCA production than others. 1184 The Appellate Body
examined each of the untie d subsidies and found that, for seven of the eight subsidies, it was not
persuaded that they were sufficiently linked to production of the 737NG such that they could be said
to meaningfully contribute to the lowering of Boeing prices of that LCA. With resp ect to the City of
Wichita IRB tax abatements, however, the Appellate Body considered that there was "a close
connection between the IRBs and Boeing's production of the 737NG". 1185 On that basis, the
Appellate Body was able to complete the legal analysis and find that the City of Wichita IRB tax
abatements "enhanced the pricing flexibility" that Boeing enjoyed by reason of the tied tax subsidies,
and therefore that "the effects of the City of Wichita IRBs complemented and supplemented the price
effects of the FSC/ETI subsidies and the State of Washington B&O tax rate reduction, thereby causing
serious prejudice, in the form of significant lost sales, within the meaning of Articles 5(c) and 6.3(c)
of the SCM Agreement, in the 100-200 seat LCA market."1186
5.534. Having co nsidered the Appellate Body's analysis of the untied subsidies in the original
proceedings, we now turn to examine how the Panel in these compliance proceedings addressed the
question of when subsidies in the form of additional cash to Boeing could be found to cause adverse
effects through a price causal mechanism. The Panel highlighted that, unlike the tied tax subsidies,
"Boeing's receipt of the state and local cash flow subsidies is not contingent on the production or
sale of LCA on a per-unit basis" and therefore "represent the functional equivalent of additional cash
to Boeing".1187 As we noted, this is consistent with the view that subsidies that are not tied to
production may still be understood to increase Boeing's non -operating cash flow.1188 Moreover, the
Panel acknowledged that, "in certain specific contexts, subsidies that reduce the fixed costs of a
producer may be shown to impact prices ."1189 This too is consonant with the proposition accepted
by both the original panel and the Appellate Body that the receipt of untied subsidies "may still affect
the behaviour of the recipient of the subsidy in a manner that causes serious prejudice, depending
upon the context in which it is used".1190
5.535. Other statements by the Panel, however, indicate that it did not endorse a critical aspect of
the legal standard adopted by the Appellate Body in the original proceedings. The Appellate Body
had considered that the legal standard for causation could be established on the basis of its
assessment of several factors consisting of the conditions of competition, the magnitude of the
subsidy, and whether there was a genuine link with relevant LCA production. On that basis, the
Appellate Body was able to conclude that the City of Wichita IRB tax abatements caused significant
lost sales because they enhanced the pricing flexibility that Boeing enjoyed by reason of the tied tax
subsidies. The Panel, however, did not accept that such an approach was sufficient to establish that
the subsidy was a genuine cause of adverse effects. Instead, u nder the standard it adopted, the
Panel also required an explanation of, or evidence concerning, the manner in which subsidies
providing additional cash to Boeing would have altered its pricing strategy for a particular LCA
programme. As it explained, the Panel considered that the European Union had not demonstrated
"that any particular subsidy affects the programme costs for any specific Boeing LCA programme, in
the sense that the subsidies in question affect Boeing's production cost forecasts for an LCA
programme, and thereby alter the profitability calculus of sales of those LCA at particular prices".1191
In making these statements, the Panel appears to have adopted a legal standard requiring that, in
order for a causation finding to be sustained, it would be necessary to demonstrate that the subsidies
at issue in fact altered Boeing's pricing behaviour with respect to a particular LCA programme.
5.536. Then, when the Panel addressed the European Union's reliance on the Appellate Body's
analysis regarding the City of Wichita IRB tax abatements, it stated:

1184 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1340.
1185 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1347.
1186 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1348.
1187 Panel Report, para. 9.270.
1188 Original Panel Report, para. 7.1827; Appellate Body Report, US – Large Civil Aircraft
(2nd complaint), para. 1297.
1189 Panel Report, para. 9.271.
1190 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1336 (quoting Original Panel
Report, para. 7.1828).
1191 Panel Report, para. 9.270.

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The state and local cash flow subsidies may be related in a factual sense to the
production of certain (or all) LCA by Boeing. The subsidies generally arise from Boeing's
location of its LCA manufacturing in particu lar places. However, the fact that the
production of certain (or all) Boeing LCA in a particular location gives rise to certain
subsidies, does not of itself, say anything meaningful in an economic sense about how
Boeing would apply the notional additional cash represented by those subsidies, and
more specifically, whether it would use such additional cash to lower the prices of its
LCA, or how it would allocate that additional cash to lower pricing of different LCA
models where the subsidies in question are "linked" in a factual sense to production of
a number of LCA models.1192
5.537. The Panel therefore seemed to reject the notion that the legal standard for causation with
respect to untied subsidies consisted of an assessment of the conditions of competition, the
magnitude of the subsidy, and whether there was a genuine link to the production of relevant LCA.
Rather, in the Panel's view, it was also necessary to have some explanation or specific evidence
establishing how any additional cash represented by the untied subsidies would have been allocated
or used to lower LCA prices. As the Panel goes on to explain, it was "unable to identify any economic
rationale or other explanation as to why untied subsidies that may be considered factually associated
with production of Boeing aircraft, whether individual aircraft models, certain models, or all models,
would contribute to Boeing's ability to lower the prices of those aircraft". 1193 This led the Panel to
express its concern that, if it were to follow the Appellate Body's analysis in the context of assessing
the City of Wichita IRB tax abatements, it would be "overstretching the application of that finding"1194
and amount to "causation through association".1195
5.538. We do not consider that the legal standard adopted by the Appellate Body in the original
proceedings supports the Panel's view that, in order to establish that untied subsidies caused adverse
effects through a price causal mechanism, it was required to find that the subsidies actually altered
Boeing's LCA pricing behaviour for particular LCA programmes. In our view, this amounts to a
requirement that the untied subsidies be the sole cause, or only substantial cause, of the lowering
of LCA prices, a causation standard that has previously been found to be too demanding.1196 Instead,
the Appellate Body found – on the basis of its assessment of the conditions of competition, the
magnitude of the subsidy, and the link with relevant LCA production – that certain untied subsidies
caused significant lost sales because they "enhanced th e pricing flexibility" that Boeing enjoyed by
reason of the tied tax subsidies.1197 We do not consider that the legal standard of causation requires
a showing that the untied subsidies actually altered Boeing's pricing of its LCA.
5.539. In addition, various stateme nts by the Panel confirm that it failed to adopt the
Appellate Body's standard for assessing whether untied subsidies have a genuine link to LCA
production. For example, the Panel noted that " {i}n the original proceeding, the Appellate Body
reasoned (in relation to its analysis of the tied tax subsidies) that it is rational to expect that, where
a subsidy is provided on a per-unit basis in respect of LCA produced or sold, the manufacturer would
be inclined, in the appropriate market context, to pass on all or part of that subsidy to the purchaser
because it is possible to do so without sacrificing profit margins." 1198 The Panel then questioned,
however, that "the calculus of the extent to which untied subsidies, which relate in a less direct way
to production or sales than per -unit subsidies, potentially affect the profitability of an LCA sale in
light of the competitive dynamics of the LCA markets, is far less clear." 1199 The Panel then stated
that it was "unable to identify any economic rationale or other explanation as to why untied subsidies
that may be considered factually associated with production of Boeing aircraft, whether individual
aircraft models, certain models, or all models, would contribute to Boeing's ability to lower the prices
of those aircraft" .1200 From these statements, it would appear that the Panel did not accept that

1193 Panel Report, para. 9.274.
1194 Panel Report, para. 9.273.
1196 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 914.
1197 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1348.
1198 Panel Report, para. 9.274 (referring to Appellate Body Report, US – Large Civil Aircraft
(2nd complaint), para. 1261).
1199 Panel Report, para. 9.274.
1200 Panel Report, para. 9.274.

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untied subsidies could affect Boeing's pricing flexibility in LCA sales. This is not consistent with the
legal standard adopted by the Appellate Body in the original proceedings.
5.540. This is also borne out by the Panel's statement that "{t}he European Union does not advance
an economic theory to support its argument that subsidies that reduce Boeing's fixed costs in a
general sense impact its LCA prices generally or more specifically, over the short -term or over the
long-term."1201 By contrast, the Appellate Body noted in the original proceedings that a genuine link
may exist even though untied subsidies are not contingent on the production or sale of a particular
product on a per-unit basis, because they are intended to cover some portion of the fixed costs that
Boeing incurs and therefore "some of these subsidies are more directly related to Boeing's production
of LCA and in parti cular to its production of the 737NG ."1202 The Panel also rejected the
European Union's claim because it did not "attempt to demonstrate that Boeing's LCA pricing would
not be economically feasible absent the receipt of the state and local cash flow subsidies ".1203 As
noted, no such showing is required under the legal standard set out by the Appellate Body.
5.541. We take note of the United States' contention that Boeing establishes a reserve price for the
sale of its LCA and that no amount of additional cash will cause it to reduce its prices further. 1204
However, this does not mean that certain untied subsidies – depending on whether there is a genuine
link to LCA production, and given their magnitude and the competitive conditions in the LCA markets
– will not, as the Ap pellate Body explaine d in the original proceedings, enhance "the pricing
flexibility" afforded by the tied tax subsidies in particularly price-sensitive sales campaigns.1205 Even
if it cannot be definitively demonstrated that the untied subsidies altered Boeing's pricing behaviour,
we consider that a showing based on the above factors can nevertheless indicate that the effects of
particular types of untied subsidies may contribute in a genuine way to the effects of the tied tax
subsidies in lowering Boeing's LCA prices.
5.542. We note, moreover, that, because the Panel rejected the European Union's reliance on the
Appellate Body's approach to demonstrating a genuine link between an untied subsidy and Boeing's
pricing behaviour, it did not examine whether the purported links advanced by the European Union
between the untied subsidies and certain relevant LCA programmes existed. Accordingly, while the
Panel acknowledged that "subsidies that reduce the fixed costs of a producer may be shown to
impact prices"1206, the Panel never examined the European Union's arguments and evidence in order
to assess whether these purported links met the standard set out by the Appellate Body when it
examined the City of Wichita IRB tax abatements. Therefore, even if, as the Panel states, one should
not "interpret what the Appellate Body said in that particular context as setting forth an economic
theory or legal ruling regarding the basis on which untied subsidies, through their impact on the
recipient's pricing behaviour, should be considered to be a genuine cause of serious prejudice"1207,
the Panel did not consider how the situation in these compliance proceedings mandated a result
different from that found in the original proceedings.
5.543. In sum, by rejecting that untied subsidies may be found to have a genuine link to the
production of relevant LCA as was accepted by the Appellate Body in the original proceedings, the
Panel failed to apply the correct legal standard for assessing whether the untied subsidies are a
genuine cause of adverse effects under Articles 5 and 6.3 of the SCM Agreement. In particular, we
do not consider that the legal standard of causation requires a showing that the untied subsidies
actually altered Boeing's pricing of its LCA. Accordingly, we find that the Panel erred under Articles 5
and 6.3 of the SCM Agreement by requiring that the European Union demonstrate that the untied
subsidies actually led to price reductions of Boeing LCA sales in order to establish that the subsidies
caused adverse effects through the lowering of Boeing LCA prices. We therefore reverse the Panel's
findings, in paragraphs 9.277, 9.291, 9.472, and 9.476 of the Panel Report, and as a consequence
to the extent that this is reflected in paragraph s 11.8.a and 11.8.e of the Panel Report , that the
European Union had failed to establish that the untied subsidies cause serious prejudice, within the

1201 Panel Report, para. 9.275.
1202 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1339.
1203 Panel Report, para. 9.275.
1204 United States' appellee's submission, para. 314. The United States explains that, holding strategic
considerations attendant to a particular sale and other non-price terms constant, a producer's "reserve price"
will be the lowest price it is willing to accept that will still contribute to long-term profitability.
1205 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1348.
1206 Panel Report, para. 9.271.

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meaning of Articles 5(c) and 6.3 of the SCM Agreement, in the post-implementation period through
a price causal mechanism. Having reversed this finding, we do not address whether, in addition, the
Panel acted inconsistently with Article 11 of the DSU.
5.8.3.2 Completion of the legal analysis
5.544. We now assess whether there is a basis for us to complete the legal analysis regarding the
untied subsidies.
5.545. We recall that the Appellate Body has previously considered different methods for the
collective assessment of subsidies. One such method – known as "aggregation" – entails grouping
subsidy measures that are sufficiently similar in their desi gn, structure, and operation in order to
ascertain their aggregated effects in an integrated causation analysis. 1208 The Appellate Body has
also endorsed what is known as a "cumulation" approach, whereby the effects of one group of
subsidies may be found to c omplement and supplement the effects of a second group of subsidies
when that first group of subsidies is shown to have a genuine causal connection with the relevant
effects and market phenomena caused by the second group of subsidies.1209 This is because the fact
that the first group of subsidies is not, in itself, a substantial cause of adverse effects does not
exclude that it had effects similar to those of another group of subsidies that was both a genuine
and a substantial cause of those effects. The Appe llate Body has stated, however, that cumulation
of this sort does require an affirmative showing that there is a genuine causal link between the first
group of subsidies and the effects and market phenomena to which they are alleged to be
contributing.1210
5.546. The European Union submits that there are sufficient factual findings by the Panel and
undisputed facts to conclude that the untied subsidies contribute to adverse effects through a price
causal pathway "in the same way that the Wichita IRBs were found to contribute to adverse effects
in the original proceedings".1211 In the original proceedings, the Appellate Body adopted a cumulation
approach in its causation analysis with respect to the untied subsidies. 1212 We therefore turn to
consider whether there are sufficient factual findings by the Panel or undisputed facts on the record
to find that the effects of the untied subsidies complement and supplement the effects of the tied
tax subsidies and thereby cause adverse effects within the meaning of Articles 5 and 6.3 of the
SCM Agreement.
5.547. Regarding the tied tax subsidies at issue in these compliance proceedings, we recall that we
have upheld the Panel's findings that the Washington State B&O tax rate reduction is a genuine and
substantial cause of serious prejudice i n the f orm of significant lost sales with respect to the
Fly Dubai 2014, Icelandair 2013, and Air Canada 2013 sales campaigns, and a threat of impedance
of imports into the United States, and exports to the United Arab Emirates, arising in part from lost
sales with respect to the Delta Airlines 2011 and Fly Dubai 2008 and 2014 sales campaigns,
respectively. These findings are premised on Boeing's ability to lower prices of its 737 MAX and
737NG aircraft.
5.548. We also recall that, in the circumstances of this cas e, the legal standard for causation
concerning the untied subsidies entails an assessment of the conditions of competition, the
magnitude of the subsidy, and whether there was a sufficient link with relevant LCA production, in
order to determine whether they cause the alleged serious prejudice. In this connection, we recall a
number of key factors including the conditions of competition in the LCA market that were also
relevant to the Appellate Body's completion of the legal analysis in the original proceed ings. For
example, the LCA market operates as a duopoly, in which Airbus and Boeing each possess the ability
to influence the pricing of the other. 1213 Various factors such as price, seating capacity, and direct
operating costs affect the outcomes of LCA sale s campaigns, and the significance of these factors

1208 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1285.
1209 Appellate Body Reports, EC and certain member States – Large Civil Aircraft, paras. 1378-1379;
US – Large Civil Aircraft (2nd complaint), para. 1335.
1210 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1335.
1211 European Union's appellant's submission, para. 689.
1212 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1334.
1213 Panel Report, para. 9.17; Appellate Body Report, US – Large Civil Aircraft (2nd complaint),
para. 1336.

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varies across different campaigns. 1214 Sales campaigns involving single -aisle LCA tend to be more
sensitive to price due to the relatively high degree of substitutability between Airbus ' and Boeing's
competing LCA, and the fact that many customers within this product market are low -cost
carriers.1215 Moreover, with respect to certain particularly price -sensitive sales campaigns in the
single-aisle market, the Panel, like the Appellate Body in the original proceed ings, concluded that
Boeing would have used the tied tax subsidies to reduce its prices.1216
5.549. We further recall that, of the eight untied subsidies examined in the original proceedings,
the Appellate Body was able to complete the legal analysis only with respect to the City of Wichita
IRB tax abatements. The Appellate Body found a "close connection between the IRBs and Boeing's
production of the 737NG" because it found that: (i) the IRB scheme was designed to assist in raising
revenue to fund the purchase, construction, or improvement of industrial property used for
manufacturing purposes, including real property as well as commercial and industrial machinery and
equipment; (ii) the IRBs issued to Boeing were specifically aimed at, and were used for the purpose
of, enhancing Boeing's manufacturing facilities in Wichita; and (iii) those manufacturing facilities
were involved, in part, in production and assembly operations for the 737NG. 1217 By contrast, with
respect to the seven remaining untied subsidies, the Appellate Body could not complete the legal
analysis either because the panel record indicated that these subsidies were related to Boeing's
general costs rather than directed at parti cular products1218 or benefited aircraft other than the
737NG1219, or because there were no Panel findings or undisputed facts indicating that these
subsidies had been received or expected to be received in connection with expenditures related to
the 737NG.1220
5.550. We consider that the above findings by the Panel in these proceedings and the
Appellate Body in the original proceedings are relevant to our analysis of whether the untied
subsidies have a genuine causal link to Boeing's pricing of its 737 MAX and 737NG in th e five
particularly price -sensitive sales campaigns in question because they establish Boeing's strong
incentives to employ available means to lower its prices and secure those sales. 1221 Similar to the
Appellate Body's assessment in the original proceedings, we also consider that, in the circumstances
of these sales campaigns, and in the context of the conditions of competition in the LCA industry,
the necessary causal link could be established where the subsidies are of a sufficient magnitude and
there are factual findings by the Panel or undisputed facts linking particular untied subsidies to the
production of the LCA at issue in sales campaigns for which adverse effects have already been found.
As the Appellate Body explained in the original proceedings, th is would suffice to establish that the

1214 Panel Report, para. 9.20; Appellate Body Report, US – Large Civil Aircraft (2nd complaint),
para. 1336.
1215 Panel Report, para. 9.249; Appellate Body Report, US – Large Civil Aircraft (2nd complaint),
para. 1336.
1216 Panel Report, paras. 9.239-9.241 and 9.379; Appellate Body Report, US – Large Civil Aircraft
(2nd complaint), paras. 1260 and 1336.
1217 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1347.
1218 With respect to four subsidies that were granted in connection with Boeing's relocation of its
corporate headquarters to Illinois, the Appellate Body noted the European Communities' argument that
subsidies of this nature were "not directed at a particular product, but rather at the entire company or business
unit at issue", but they "may reasonably be deemed to benefit all of the company or business unit's products".
(Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1342 (quoting European Communities'
response to Panel question No. 374, para. 298)) The Appellate Body disagreed that these arguments sufficed
to link clearly these four measures with Boeing's production of the 737NG and concluded that it could not
cumulate the effects of these subsidies with those of the tied tax subsidies in the 100-200 seat LCA market.
(Ibid.)
1219 With respect to the Washington State workforce development programme and Employment
Resource Center, the Appellate Body stated that the European Communities' own submissions revealed that
this B&O tax credit had benefited only the 787. (Appellate Body Report, US – Large Civil Aircraft
(2nd complaint), para. 1341)
1220 With respect to the Washington State B&O tax credits for certain preproduction development
expenditures and the Washington State sales and use tax exemptions, the Appellate Body stated that it saw no
indication on the record that the subsidies had been received (or expected to be received) in connection with
expenditures related to the 737NG, and that the limited information on the record suggested that, if anything,
these subsidies had been granted in connection with expenditures related to Boeing aircraft families other than
the 737NG. (Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 1341 and 1344-1345)
1221 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1337.

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benefits of the untied subsidies are among the means available to Boeing to lower prices in those
particular sales campaigns.1222
5.551. On the basis of the foregoing, we now examine whether we can complete the legal analysis
with respect to the untied subsidy measures that were found to constitute specific subsidies and that
were alleged by the European Union to have a link with production of the 737 MAX and 737NG.1223
Accordingly, we do not examine below the South Carolina untied subsidies, which pertain only to the
787, or the City of Wichita IRB tax abatements, for which we were unable to complete the legal
analysis and find the existence of specific subsidies. Moreover, since we have no basis to examine
whether the South Caroli na untied subsidies cause adverse effects in the post -implementation
period, we need not address the United States' conditional claim that the Panel erred under Article 11
of the DSU in assessing whether certain such South Carolina measures conferred a benefit to
Boeing.1224
5.8.3.2.1 Washington State untied subsidies
5.552. The Washington State untied subsidies that are alleged to have a link to production of the
737 MAX and 737NG comprise: (i) the Washington State B&O tax credits for
preproduction/aerospace product developme nt; (ii) the Washington State B&O tax credits for
property taxes and leasehold excise taxes; and (iii) the Washington State sales and use tax
exemptions for computer software, hardware, and peripherals. 1225 The European Union maintains
that the Appellate Body can complete the legal analysis by finding that factual findings by the Panel
or undisputed facts on the record establish the required link between the untied subsidies and
Boeing's research, development, production, and sale of relevant Boeing LCA.1226
5.553. Starting with the first untied subsidy measure – the Washington State B&O tax credits for
preproduction/aerospace product development – the Panel found that Boeing had obtained the B&O
tax credits for certain preproduction development expenditures on aeronauti cs-related research,
design, and engineering activities, as well as for certain expenditures on design and preproduction
development, computer software and hardware for the digital design, and development of
commercial airplanes.1227 Those B&O tax credits are applied to Boeing's liability for B&O taxes, which
accrues in connection with the manufacture and sale of all Boeing LCA produced in the State of
Washington.1228 According to the Panel, the B&O tax credits for preproduction/aerospace product
development had been modified by Section 7 of Washington State SSB 6828 to expand: ( i) the
application of the tax credits to all aerospace product development, rather than just preproduction
development (effective 30 June 2008); and (ii) the eligible entities/persons that may claim the credit
(so as to permit non -manufacturing entities to claim the credit for expenditures after 30 June
2008).1229 The Panel noted the European Union's argument that the Washington State B&O tax
credits for preproduction/aerospace product development are "linked most closely" to Boeing aircraft

1222 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1337.
1223 European Union's appellant's submission, para. 678.
1224 United States' Notice of Other Appeal, para. 9; other appellant's submission, section IV. This
conditional claim consists of a challenge under Article 11 of the DSU that the Panel erred in finding that certain
South Carolina payments conferred a benefit to Boeing. The United States request indicates that we need to
address this claim if we were to modify or reverse the Panel's findings that the subsidies conferred through
these measures did not cause adverse effects. At the oral hearing, the United States clarified that the condition
for such a claim would not be triggered in the event that we were to reverse the Panel's adverse effects
findings, but were unable to complete the legal analysis, with respect to the relevant subsidies.
1225 European Union's appellant's submission, para. 678. The Panel found that, although the
European Union had presented the Washington State B&O tax credit for leasehold excise taxes as a separate
measure from the Washington State B&O tax credit for property taxes, HB 2466 in fact modified the scope of
application of the B&O tax credit previously available with respect to property taxes, to additionally be available
with respect to leasehold excise taxes. (Panel Report, para. 7.9)
1226 European Union's appellant's submission, section X.H.3.
1227 Panel Report, para. 9.76. See also Original Panel Report, para. 7.51. "Preproduction development"
means "research, design and engineering activities performed in the development of a product". (Original Panel
Report, para. 7.51)
1228 Panel Report, para. 9.76. See also Appellate Body Report, US – Large Civil Aircraft (2nd complaint),
para. 1344.
1229 Panel Report, para. 7.9 (referring to SSB 6828, "Aerospace Tax Incentives", Washington Session
Laws 365 (2008) (Panel Exhibit EU-434)) and fn 767 to para. 7.462.

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that are in preproduction, meaning the 737 MAX, 787-10, and 777X1230, and stated that these B&O
tax credits "may currently be generated" in connection with these aircraft. 1231 The total amount of
the B&O tax credits Boeing received during the 2013-2015 period is [BCI].1232
5.554. We note that the absolute amount of the Washington State B&O tax credit f or
preproduction/aerospace product development can be considered substantial. Further, the Panel
findings appear to indicate that Boeing was eligible to obtain B&O tax credits for its expenditures on
development of all its LCA, including the 737 MAX and 737NG. Such B&O tax credits, in turn, are
applied to Boeing's B&O tax liability that accrues in connection with the manufacture and sale of
Boeing's LCA. Thus, to the extent that it can be demonstrated that Boeing made qualified
expenditures on development o f particular aircraft, we could find that the B&O tax credits were
generated in connection with those aircraft, thereby reducing the costs of their development,
manufacture, and/or sale.
5.555. We recall that the Washington State B&O tax credit for preproduction development (before
the amendment under Washington State SSB 6828) was also at issue in the original proceedings,
and the Appellate Body was unable to find a genuine link between this subsidy and the 737NG. This
was because, although the Appellate Body agreed that the B&O tax credits had been applied to
Boeing's liability for B&O taxes that had accrued in connection with the manufacture and sale of
Boeing LCA, it saw "no indication on the record" that these tax credits had been "received in
connection with expenditures related to the 737NG".1233 Similarly in these compliance proceedings,
we see no specific Panel findings or undisputed facts on the record – and the European Union has
pointed to none – that the B&O tax credits were generated in connection with expenditures related
to the 737 MAX or 737NG. Indeed, the only Panel finding that the European Union identifies as
allegedly establishing the requisite link between the subsidy and the 737 MAX and 737NG is the
Panel's statement that the B&O tax credits for preproduction/aerospace product development "may
currently be generated in respect of Boeing aircraft that are in pre-production, such as the 737 MAX,
787-10, and 777X".1234 We note that the Panel qualified this statement by adding that, "given the
nature of t his subsidy as untied, we do not consider that this necessarily provides a basis for
concluding, in a manner analogous to the Appellate Body's analysis of the per-unit tied tax subsidies
in the original proceeding , that Boeing would have the ability and incentive to use that subsidy to
lower its LCA prices in relation to those aircraft models."1235 As we have observed above, the Panel
erred in requiring a showing that the untied subsidy actually affected prices of the relevant aircraft
and in applying too rigi d a legal standard for finding a link with particular LCA. While the Panel's
qualification may have been informed by its erroneous understanding of the legal standard, it could
also be read as suggesting that mere eligibility is not sufficient for a findin g of B&O tax credits
enhancing pricing flexibility. In any event, because of its erroneous understanding of the legal
standard, the Panel appeared to consider it unnecessary to engage further with the European Union's
factual allegation regarding the link between the B&O tax credit and the particular LCA.
5.556. Under these circumstances, we consider that the Panel's statement that the B&O tax credits
"may currently be generated" with respect to Boeing aircraft "such as" the 737 MAX1236 speaks only
to the possibility that the B&O tax credits may be generated in connection with development of this
aircraft. This is especially so given that the Panel, having dismissed the European Union's claims
regarding the untied subsidies on the basis of its overly stringent legal s tandard for establishing
causation, did not engage with the European Union's factual argument. Accordingly, we do not
consider that there are Panel findings or undisputed facts on the record that would enable us to
complete the legal analysis with respect to the Washington State B&O tax credits for
preproduction/aerospace product development.

1230 Panel Report, fn 2775 to para. 9.76 (referring to European Union's first written submission to the
1232 Panel Report, para. 8.678.b.
1233 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1344.
1234 European Union's appellant's submission, para. 668 (quoting Panel Report, fn 3120 to para. 9.273).
(emphasis added)
1235 Panel Report, fn 3120 to para. 9.273. (emphasis original)

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5.557. With respect to the second untied subsidy measure, the Panel found that Boeing had received
B&O tax credits for property taxes to new construction.1237 The Panel noted the European Union's
argument that sites related to the production of the 737NG, 737 MAX, and 787 are those for which
Boeing has most recently made the largest investments in land and facilities and, thus, the B&O tax
credits related to these investments are "most closely linked" to those aircraft.1238 In addition, the
Panel observed that the scope of the B&O tax credit was expanded by HB 2466 additionally to cover
leasehold excise taxes .1239 In this regard, the Panel took note of the European Union's argument
that the B&O tax credit for leasehold excise taxes related to the Dreamlifter Operations Center1240,
which, according to the European Union, is used for Boeing's production of the 787 .1241 The Panel
found that the total amount of the Washington State B&O tax credit for property taxes and leasehold
excise taxes between 2013 and 2015 was [BCI].1242
5.558. As explained, the Panel noted the European Union's argument that Boeing had recently made
the largest investments in land and facilities related to the production of the 737NG, 737 MAX, and
787, allegedly generating B&O tax credits for property taxes. 1243 However, the European Union did
not identify the specific sites in which such investments were made, or when such investments
occurred.1244 Further, although the U nited States did not specifically comment on the
European Union's factual argument that Boeing had recently made qualified investments in land and
facilities related to the production of , inter alia, the 737 MAX and 737NG, it refuted generally the
existence of the requisite link between this subsidy and the particular aircraft. 1245 Under these
circumstances, we do not consider it undisputed that the B&O tax credits for property taxes were
generated in connection with production of the 737 MAX and 737NG. We further recall that, in the
original proceedings, the Appellate Body noted that the European Communities had asserted that
the Washington State B&O tax credit for property taxes benefited only the 787 and, therefore,
considered that it could not inquire wheth er its effects can be cumulated with those of the tied tax
subsidies in the 100 -200 seat LCA market. 1246 Moreover, even assuming that the B&O tax credits
were generated in connection with production of the 737 MAX and 737NG, it is still unclear whether
this occurred before – or was expected to occur at the time of – the five particularly price-sensitive
sales campaigns in question. Thus, we are unable to determine whether it was possible in the first
place for Boeing to factor in the benefits of this subsidy when making pricing decisions in these sales
campaigns.
5.559. Turning to the B&O tax credit for leasehold excise taxes, we note the Panel's reference to
the European Union's argument that this subsidy related to the facilities used for production of the
787.1247 Further, the United States argued that the value to Boeing's LCA division of the Washington
State B&O tax credit for leasehold excise taxes is zero, and Boeing does not claim credits for
leasehold excise taxes.1248 As such, we fail to see undisputed facts on the Panel record that the B&O
tax credits for leasehold excise taxes were generated in connection with production of the 737 MAX
and 737NG. We are aware that, in its appellant's submission, the European Union submits that there
are Panel findings, in paragraph 9.253 of the Panel Report, that the Washington State B&O tax credit
for property taxes and leasehold excise taxes is available "in connection with property where the
787 and 777X (as well as 737 families) are produced".1249 However, this paragraph contains only a
description of the challenged untied subsidy measures based on the European Union's allegation,
rather than amounts to the Panel's own factual finding that the B&O tax credits were generated in

1237 Panel Report, para. 9.76.
1238 Panel Report, fn 2776 to para. 9.76 (referring to European Union's first written submission to the
1239 Panel Report, para. 7.9.
1240 Panel Report, fn 2776 to para. 9.76 (referring to European Union's first written submission to the
1241 European Union's first written submission to the Panel, para. 1160.
1242 Panel Report, para. 8.678.
1243 Panel Report, fn 2776 to para. 9.76 (referring to European Union's first written submission to the
1244 European Union's first written submission to the Panel, para. 1160; second written submission to
the Panel, para. 1066.
1245 United States' first written submission to the Panel, paras. 825, 998, and 1068.
1246 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1341.
1247 Panel Report, fn 2776 to para. 9.76 (referring to European Union's first written submission to the
1248 United States' first written submission to the Panel, para. 510.
1249 Panel Report, para. 9.253.a.

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connection with the 737 MAX or 737NG, or otherwise they enhanced Boeing's pricing flexibility for
these aircraft.
5.560. Accordingly, and taking into account the relatively small magnitude of the subsidy, we do
not consider that Panel findings or undisputed facts on the record demons trate a genuine link
between the B&O tax credits for property taxes and leasehold excise taxes, on the one hand, and
Boeing's pricing of the 737 MAX or 737NG, on the other hand.
5.561. With respect to the third untied subsidy measure – the sales and use tax exemp tions for
computer software, hardware, and peripherals when these items are purchased for or used in the
development of commercial airplanes or their components – the Panel noted the European Union's
argument that Boeing had recently made the largest investments in computer equipment to facilities
related to the production of the 737NG, 737 MAX, and 787, and, thus, the tax exemptions related
to these investments are "most closely linked" to those aircraft.1250 According to the Panel, the total
amount of the Wa shington State sales and use tax exemptions for computer software, hardware,
and peripherals between 2013 and 2015 was [BCI].1251
5.562. We note that, while the European Union argued before the Panel that Boeing had "recently"
made the largest investments in compute r equipment to facilities related to the production of ,
inter alia, the 737 MAX and 737NG, it did not identify the specific sites in which such investments
were made, or when such investments occurred. 1252 Further, although the United States did not
specifically comment on the European Union's factual argument that Boeing had recently made
qualified investments in computer equipment to facilities related to , inter alia, the 737 MAX and
737NG, it generally refuted the existence of the requisite link between this subsidy and the particular
aircraft.1253 Moreover, in its appellant's submission, the European Union itself points to the Panel's
statement that the sales and use tax exemptions for computer equipment are "related to 787
production"1254, rather than 737 MAX or 737NG production. We recall that, also in the original
proceedings, the Appellate Body found that there was no indication on the record that the sales and
use tax exemptions had been received or expected to be received in connection with expenditures
related to the 737NG and that, if anything, the sales and use tax exemptions had been granted in
connection with expenditures related to Boeing aircraft families other than the 737NG.1255 Under
these circumstances, we fail to see any Panel findings or undisputed facts on the record that the
sales and use tax exemptions were generated in connection with items purchased for or used in the
development of the 737 MAX and 737NG, or they otherwise enhanced Boeing's pricing flexibility for
these aircraft.
5.563. Accordingly, a nd taking into account the relatively small magnitude of the subsidy, we
consider that neither Panel findings nor undisputed facts demonstrate a genuine link between the
sales and use tax exemptions for computer software, hardware, and peripherals, on the one hand,
and Boeing's pricing of the 737 MAX or 737NG, on the other hand.
5.8.3.2.2 Post-2006 aeronautics R&D untied subsidies
5.564. Before the Panel, the European Union argued that the post -2006 aeronautics R&D
subsidies1256 operate in a manner that is "identical to the re maining state and local subsidies". 1257
According to the European Union, those subsidies operate to lower Boeing's pricing of current LCA,
including the 737 MAX and 737NG, because they provide Boeing with access to and use of research
results and inputs that enable it to continue maturing technologies for application to future

1250 Panel Report, para. 9.76 and fn 2778 thereto (referring to European Union's first written submission
to the Panel, para. 1160; second written submission to the Panel, para. 1066).
1251 Panel Report, para. 8.678.d.
1252 European Union's first written submission to the Panel, para. 1160; second written submission to
the Panel, para. 1066.
1253 United States' first written submission to the Panel, paras. 825, 998, and 1068.
1254 European Union's appellant's submission, para. 668 (referring to Panel Report, para. 9.253.c).
1255 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1345.
1256 These subsidies consist of the post-2006 NASA and USDOD aeronautics R&D subsidies and the
non-flight test funding portion of the FAA aeronautics R&D subsidy. (Panel Report, para. 9.87. See also
1257 Panel Report, paras. 9.278 and 9.474 (referring to European Union's first written submission to the
Panel, paras. 1180 and 1187).

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generations of LCA without having to pay the US Government for such access and use. 1258 The
European Union explained that the post-2006 aeronautics R&D subsidies relieve Boeing from paying
to licence the use of IP in its technology development activities.1259 Those subsidies therefore lower
Boeing's costs of licensing IP rights to LCA technology, and of developing that technology, in order
to continue improving its products and to maintain the competitiveness of products, "enabling it to
act on its incentive to pass such cost savings on to its customers in the form of lower prices for
Boeing LCA".1260
5.565. With respect to the amounts of the post -2006 aeronautics R&D subsidies, the Panel
considered the parties' estimates of the subsidy amounts, which suggested that the total amount of
these subsidies between 2007 and 2012 can potentially be as large as around [BCI], to be credible
estimates.1261 The Panel explained that the European Union's claim with respect to these subsidies
raises two issues. The first is whether the post-2006 aeronautics R&D subsidies relieve Boeing from
paying to licence IP in its technology development activities and thus can be considered to lower
Boeing's costs. The second is whether, if the Panel accepts that characterization of the operation of
the subsidies, these subsidies have been demonstrated to affect Boeing's LCA pricing behaviour.1262
With respect to this second issue, the Panel found that, as with the state and lo cal cash flow
subsidies, the European Union had failed to demonstrate that the post -2006 aeronautics R&D
subsidies have a genuine causal link to Boeing's LCA pricing because it had not provided "any
theoretical or other basis (such as cash flow constraints )" for considering that Boeing's LCA pricing
behaviour would have been any different absent the subsidies. 1263 On that basis, the Panel
considered it "unnecessary" to address the first issue. Nevertheless, the Panel went on to observe
that "the vast majority" of the post-2006 aeronautics R&D subsidies did not appear to be related "in
any sense" to the production of the particular LCA that are allegedly being offered to customers at
lower prices.1264 The Panel added that, at most, those subsidies could relate to t he development
technologies for potential application of future generations of Boeing LCA. 1265 In addition, in the
context of examining whether the post-2006 aeronautics R&D subsidies should be aggregated with
the post-2006 state and local cash flow subsidies, the Panel explained that the former subsidies are
connected in an "even more indirect and speculative manner" to production of any existing LCA than
the latter subsidies.1266
5.566. With respect to the first issue referred to by the Panel, we note the United States' contention
that the European Union never established that, absent the post -2006 aeronautics R&D subsidies,
Boeing would have had to incur additional costs in licensing IP from the US Government.1267 We
further note that the Panel did not make any finding with respect to this issue because it applied an
overly rigid legal standard for establishing causation and required the European Union to
demonstrate that Boeing's LCA pricing behaviour would have been different absent the subsidies.1268
As a result, we see n o Panel findings or undisputed facts on which to find that Boeing enjoyed
additional cash flow by virtue of the post -2006 aeronautics R&D subsidies that , in turn , could
potentially be directed to reduce the prices of its LCA. In addition, with respect to t he second issue
referred to by the Panel, i.e. whether the alleged additional cash affected Boeing's pricing, the Panel
not only dismissed the European Union's claim because it was based on an erroneous legal standard,

1258 Panel Report, paras. 9.278 and 9.473.
1259 Panel Report, para. 9.279.
1260 Panel Report, para. 9.279 (quoting European Union's response to Panel question No. 43, para. 280).
1261 As regards the NASA and USDOD aeronautics R&D subsidies, the Panel stated that it was unable to
estimate the amounts of the subsidies on the basis of the evidence on the record, but considered the
United States' estimates of the amounts of the financial contribution at [BCI] and [BCI], respectively,
between 2007 and 2012 to be credible estimates. (Panel Report, para. 11.7.b.i-ii) With respect to the FAA
aeronautics R&D subsidy, the Panel stated that it was unable to estimate the amount of the subsidy on the
basis of the evidence on the record, but considered the European Union's estimate of the amount of the
financial contribution at US$27.99 million between 2010 and 2014 to be a credible estimate. (Ibid.,
para. 11.7.b.iii) As the Panel noted, the European Union had argued that only the non-flight-test funding
portion of the FAA aeronautics R&D subsidy operates through a price causal mechanism. (Ibid., para. 9.85 and
fn 3126 to para. 9.278)
1262 Panel Report, para. 9.287.
1263 Panel Report, para. 9.288.
1264 Panel Report, para. 9.289 and fn 3149 thereto.
1265 Panel Report, para. 9.289.
1266 Panel Report, para. 9.91.
1267 Panel Report, para. 9.282.
1268 Panel Report, para. 9.288.

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but also denied, as a factual matter, the existence of any link between the post -2006 aeronautics
R&D subsidies and the production of the particular LCA, including the 737 MAX and 737NG. Indeed,
in addition to characterizing such a link as even more "indirect" and "speculative" than that relating
to the other untied subsidies 1269, the Panel found that these subsidies relate only to future
generations of Boeing LCA. 1270 We note that, in its appellant's submission, the European Union
maintains that the nexus to future LCA reveals a nexus with Boeing's research, development,
production, and sale of present LCA "because the research and development for future generations
of LCA is an investment expense that Boeing must finance through the cash flows it generates under
each of Boeing's current families of LCA".1271 However, we disagree that the Panel's statement that
the subsidies relate to future generations of LCA is sufficient for finding the requisite link between
the subsidies and production of the 737 MAX and 737NG. For these reasons, we find that neith er
Panel findings nor undisputed facts demonstrate that the post -2006 aeronautics R&D subsidies
complemented and supplemented the effects of the tied tax subsidies on the prices of the 737 MAX
and 737NG.
5.567. Having found no basis to conclude that the post -2006 aeronautics R&D subsidies cause
adverse effects in the post -implementation period, we need not address the United States'
conditional claim that the Panel erred in finding that these subsidies confer a benefit within the
meaning of Article 1.1(b) of the SCM Agreement.1272
5.8.4 Overall conclusion regarding price effects
5.568. The Panel did not consider that, in order to find significant lost sales through a price causal
mechanism, there must be no non -price factors that potentially contributed to Boeing having won
those sales. Rather, the Panel's understanding of the legal stan dard properly reflected a weighing
and balancing of price and non-price factors to reach a conclusion as to whether a sales campaign
was particularly price-sensitive, such that the tied tax subsidies could be found to be a genuine and
substantial cause of serious prejudice. Accordingly, we find that the Panel did not err in the
interpretation of Articles 5, 6.3, and, as a consequence, Article 7.8 of the SCM Agreement, when
identifying the applicable causation standard.
5.569. As regards the Panel's assessment of the relative significance of the amount of the tied tax
subsidies, we consider that there was a basis for the Panel to assume that Boeing had been able to
use the benefits of the subsidies arising from all its LCA sales to lower the prices in particularly
price-sensitive sales campaigns in the single -aisle LCA market. In addition, the Panel was not
required to establish that the per-aircraft amount of the subsidies available for these sales campaigns
exceeds the differentials in the net prices of Airbus' and Boeing's competing aircraft for purposes of
finding that the subsidies are a genuine and substantial cause of Airbus' loss of these sales, and ,
consequently, serious prejudice. We thus find that the Panel did not err under Articles 5 and 6.3 of
the SCM Agreement, or acted inconsistently with Article 11 of the DSU, in its assessment of the
relative significance of the amount of the tied tax subsidies.
a. We therefore uphold the Panel's finding, in paragraph 9.252 of the Panel Report, and as a
consequence to t he extent that this is reflected in paragraph 11.8.a, that the
European Union had failed to establish that the tied tax subsidies cause serious prejudice,
within the meaning of Articles 5(c) and 6.3 of the SCM Agreement, in the twin-aisle LCA
market in the post-implementation period.

1269 Panel Report, para. 9.91.
1270 Panel Report, para. 9.289.
1271 European Union's appellant's submission, para. 673.
1272 United States' Notice of Other Appeal, para. 7; other appellant's submission, section III.A. This
conditional claim consists of a challenge, under Article 1.1(b) of the SCM Agreement and Article 11 of the DSU,
that the Panel erred in conducting its benefit analysis with regard to the post-2006 NASA procurement
contracts and cooperative agreements, the post-2006 USDOD assistance instruments, and the FAA-Boeing
CLEEN Agreement. The United States requests us to address this claim if we were to modify or reverse the
Panel's findings that the post-2006 aeronautics R&D subsidies did not cause adverse effects. At the oral
hearing, the United States clarified that the condition for such a claim would not be triggered in the event that
we were to reverse the Panel's adverse effects findings, but were unable to complete the legal analysis, with
respect to these subsidies.

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b. We also uphold the Panel's findings , in paragraphs 9.407, 9.444, and 11.8.c-d of
the Panel Report, that the European Union had established that the tied tax subsidies
cause 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, in the post -implementation
period, 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 United Arab Emirates, within
the meaning of Articles 5(c) and 6.3(a) and (b) of the SCM Agreement, in the
post-implementation period.
5.570. By rejecting that untied subsidies may be found to have a genuine link to the production of
relevant LCA as was accepted by the Appellate Body in the original proceedings, the Panel failed to
apply the correct legal standard for assessing whether untied su bsidies are a genuine cause of
adverse effects under Articles 5 and 6.3 of the SCM Agreement. In particular, we do not consider
that the legal standard for causation requires a showing that the untied subsidies actually altered
Boeing's pricing of its LCA. Accordingly, we find that the Panel erred under Articles 5 and 6.3 of the
SCM Agreement by requiring that the European Union demonstrate that the untied subsidies actually
led to price reductions of Boeing LCA sales in order to establish that the subsidie s caused adverse
effects through the lowering of Boeing LCA prices.
a. We therefore reverse the Panel's findings, in paragraphs 9.277, 9.291, 9.472, and 9.476
of the Panel Report, and, as a consequence, to the extent that this is reflected in
paragraphs 11.8.a and 11.8.e, that the European Union had failed to establish that the
untied subsidies cause serious prejudice, within the meaning of Articles 5(c) and 6.3 of
the SCM Agreement, in the post-implementation period through a price causal mechanism.
Having reversed this finding, we do not address whether, in addition, the Panel acted
inconsistently with Article 11 of the DSU.
b. We further find that we are unable to complete the legal analysis with regard to whether
the untied subsidies cause adverse effects within the meaning of Articles 5 and 6.3 of the
SCM Agreement.
5.9 Additional claims on appeal
5.571. We note that there are certain additional claims by the European Union, and conditional
claims by the United States, that we do not address because we do not consider th eir disposition
necessary for the resolution of this dispute.
5.572. First, the European Union claims that the Panel erred in the interpretation of Articles 5, 6.3,
and 7.8 of the SCM Agreement in finding that "a subsidized product can only cause serious prejudice
to another product if the two products in question compete in the same market"1273, as it relates to
the serious prejudice phenomena of significant price s uppression, price depression, and lost sales.
The European Union maintains that we should instead "interpret Article 6.3(c) to permit a finding of
adverse effects in the form of 'significant price suppression, price depression or lost sales' where the
subsidised product and the like product do not compete in the same market".1274 The European Union
states that, in requesting reversal of this Panel finding, it seeks to enable us, in completing the legal
analysis, to find "significant lost sales in instances where the 787 -8/9 and the A350XWB -900
competed for the sale, even though the Panel placed these competing products into two separate
product markets".1275
5.573. We note that, although the Panel considered that Airbus and Boeing LCA tend to be offered
in competition with each other in two product markets consisting of medium-sized and larger-sized
twin-aisle aircraft, the Panel nevertheless noted that there is no bright-line distinction between these
markets and that, depending on the circumstances, certain larger medium -sized aircraft could be
found to exercise meaningful competitive constraints on smaller l arger-sized aircraft. 1276 In any

1273 European Union's appellant's submission, para. 470 (quoting Panel Report, para. 9.33, in turn
referring to Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1119).
1274 European Union's appellant's submission, para. 470.
1275 European Union's appellant's submission, para. 471.
1276 Panel Report, paras. 9.43-9.44.

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event, in light of our disposition of other claims on appeal, and, in particular, the fact that we are
not called upon to consider the European Union's request for completion of the legal analysis
regarding the twin -aisle LCA market, we need not consider any potential competitive relationship
between the 787 -8/9 and the A350XWB -900 LCA and, therefore, do not address the
European Union's claim of error.
5.574. The European Union also claims that the Panel erred in the interpretation of Articles 5, 6.3,
and 7.8 of the SCM Agreement in purportedly finding that aggregation and cumulation of subsidies
are the only two approaches to the collective assessment of the adverse effects of multiple subsidies.
The European Union adds that, although the occasion did not arise for the Panel to apply its
interpretative finding in this case, the European Union nevertheless seeks reversal of the Panel's
interpretation since it would be, in the European Union's view, "critical for the purposes of the
Appellate Body's completion of the legal analysis".1277 For instance, the European Union submits that
it should be possible to follow a different approach to assessing collectively the effects of multiple
subsidies by determining first that various subsidies are each a genuine cause of adverse effects,
and then concluding that they are together a substantial cause of adverse effects.
5.575. The Appellate Body has previously found that "at least two approaches to a collective
assessment of the effects of multiple subsidy measures may be used, namely, aggregation and
cumulation."1278 As this language suggests, the Appellate Body has not excluded the existence of
other methods for the collective assessment of the effects of multiple subsidies. In any event, as we
explained in section 5.8.3.2 above, we followed a cumulation approach in assessing whether the
effects of the untied subsidies complement and supplement the price effects of the tied tax subsidies.
We further note that we were unable to conclude that the untied subsidies were a genuine cause of
adverse effects and such a showing would also have been required under the European Union's
proposed approaches to the collective assessment of multiple subsidies . Therefore, in light of our
disposition of other claims on appeal, we are not called upon to consider any such additional methods
for the collective assessment of subsidies and, therefore, do not address the European Union's claim
of error.
5.576. Finally, we note that the United States has presented four conditional claims cha llenging
various findings of the Panel. Above we have explained that, in light of our disposition of other claims
on appeal, the conditions for each of these claims have not been triggered.1279 We therefore do not
address the United States' conditional claims of error.
6 FINDINGS AND CONCLUSIONS
6.1. For the reasons set out in this Report, the Appellate Body makes the following findings and
conclusions.
6.1 Terms of reference
6.2. The question of whether a claim falls within the scope of Article 21.5 proceedings is to be
decided based on whether the claim has been resolved on the merits in the original proceedings and
was thus covered by the recommendations and rulings of the DSB. A party's "fault" for the
non-resolution of a claim, or the lack of such fault, is not determinat ive of whether a claim can be
reasserted in compliance proceedings. Accordingly, we find that the Panel did not err in admitting
the European Union's claims relating to the pre -2007 USDOD procurement contracts in these
compliance proceedings.
a. We therefore uphold the Panel's finding , in paragraphs 7.131 and 11.5.a.ii of the
Panel Report, that the European Union's claims relating to the pre -2007 USDOD
procurement contracts were within its terms of reference.

1277 European Union's appellant's submission, paras. 479-480.
1278 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1290.
1279 See paras. 5.119, 5.366, 5.551, and 5.567.

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6.2 USDOD procurement contracts
6.3. We find that the Panel acted inconsistently with Article 11 of the DSU in its financial contribution
analysis under Article 1.1(a)(1) of the SCM Agreement by not engaging sufficiently with the
European Union's evidence and arguments, and by failing to provide reason ed and adequate
explanations for its findings. Furthermore, we find that the Panel's benefit analysis suffers from the
same shortcomings.
a. We therefore reverse the Panel's finding , in paragraphs 8.437.b and 11.7.c.i of the
Panel Report, that, assuming arguendo the payments and access to USDOD facilities,
equipment, and employees provided to Boeing through the pre -2007 and post -2006
USDOD procurement contracts were to involve financial contributions, the European Union
has not established that they confer a b enefit on Boeing within the meaning of
Article 1.1(b) of the SCM Agreement. We also find that there are insufficient factual
findings by the Panel or undisputed facts on the Panel record for us to complete the legal
analysis in this respect.
6.3 FSC/ETI tax concessions
6.4. For revenue to be considered "foregone" under Article 1.1(a)(1)(ii) of the SCM Agreement, a
government must relinquish an entitlement to raise revenue. Accordingly, establishing that such a
financial contribution exists requires a determination t hat a government has relinquished an
entitlement to raise revenue. This determination must focus on the conduct of a government, rather
than on the use of tax concessions by the eligible taxpayers. We find that the Panel erred by focusing
instead on whether Boeing used FSC/ETI tax concessions.
a. We therefore reverse the Panel's finding, in paragraphs 8.612 and 11.7.c.ii of the Panel
Report, that the European Union had not established that, after the expiry of the
implementation period, the United States grant s or maintains subsidies to Boeing in the
form of FSC/ETI tax concessions because the European Union had failed to demonstrate
that those tax concessions involved a financial contribution within the meaning of
Article 1.1(a)(1)(ii) of the SCM Agreement.
b. Furthermore, we have completed the legal analysis and find that, to the extent that Boeing
remains entitled to FSC/ETI tax concessions in the post -implementation period, the
United States has not ceased to provide a financial contribution and thus has not
withdrawn FSC/ETI subsidies with respect to Boeing within the meaning of Article 7.8 of
the SCM Agreement.
6.4 City of Wichita industrial revenue bonds
6.5. The length of time during which the subsidy programme has been in operation must be taken
into account by panels in their assessment of specificity under Article 2.1(c) of the SCM Agreement.
However, it does not follow from this that the entire period during which the programme has been
in operation has necessarily to be chosen as the relevant time period in determining whether, under
the second sentence of this provision , disproportionately large amounts of subsidy have been
granted to certain enterprises. Accordingly, we find that the Panel did not err in its interpretation of
Article 2.1(c) of the SCM Agreement in concluding that, in the specific circumstances of this case,
the relevant time period over which to consider disproportionality was as from the end of the
implementation period. With respect to the Panel's application of Article 2.1(c) of the
SCM Agreement, we find that the Panel erred in finding that no disparity existed between the
expected and actual distribution of the subsidy.
a. We therefore reverse the Panel's finding , in paragraphs 8.640 and 11.7.c.iii of the
Panel Report, that the E uropean Union has failed to establish that the tax abatements
provided through IRBs issued by the City of Wichita involve specific subsidies within the
meaning of Articles 1 and 2 of the SCM Agreement. We also find that there are insufficient
factual findings by the Panel or undisputed facts on the Panel record for us to complete
the legal analysis in this respect. Having reversed the Panel's finding, we do not consider
it necessary to address whether, in addition, the Panel acted inconsistently with Article 11
of the DSU.

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6.5 South Carolina economic development bonds
6.6. With regard to the European Union's claim that the Panel erred in its interpretation of the term
"limited number" in the second sentence of Article 2.1(c) of the SCM Agreement, we observed that
what constitutes a quantitatively limited group of enterprises must be determined on a case-by-case
basis, taking into account the particular characteristics of the subsidy programme and the
circumstances of the case. We disagree with the European Union that the Panel implicitly interpreted
the term "limited number" as "one" or "fewer than three". Rather, the Panel considered that the
European Union had not met its burden of proof as to whether the EDB subsidy has been used by
only a "limited number" of certain enterprises. Accordingly, we find that the Panel did not err in its
interpretation of the term "limited number" of certain enterprises in Article 2.1(c) of the
SCM Agreement.
6.7. With regard to the European Union's claim that the Panel erred in its interpre tation and
application of the term "certain enterprises" in the second sentence of Article 2.1(c), we observed
that the determination of whether a number of enterprises or industries constitute "certain
enterprises" should be made in light of all relevant characteristics of the entities, including the nature
and purpose of their activities in the markets in question and the context in which these activities
are exercised. The Panel erred by taking into account three specific entities in its analysis under
Article 2.1(c) without having established that they constitute "certain enterprises". However, the
Panel's rejection of the European Union's claims does not hinge on its statement relating to the
relevance of the three specific entities in its analysis of de facto specificity.
6.8. With regard to the European Union's claim that the Panel erred in its interpretation of the term
"predominant use" in the second sentence of Article 2.1(c), we observed that this term refers
primarily to the incidence or frequency with which the subsidy is used by certain enterprises.
Furthermore, we found that evidence demonstrating the existence of "predominant use by certain
enterprises" may also be pertinent for demonstrating the granting of "disproportionately large
amounts of subs idy to certain enterprises". Accordingly, we find that, by excluding a category of
evidence potentially relevant to the assessment of the existence of "predominant use by certain
enterprises" and ultimately for determining de facto specificity, on the basis that this evidence was
more relevant to the assessment of another factor under Article 2.1(c), second sentence, the Panel
erred in its interpretation of these factors in Article 2.1(c).
a. We therefore reverse the Panel's finding, in paragraph 8.843 of the Panel Report, that the
European Union has failed to establish that the subsidy provided by South Carolina through
EDB proceeds is specific within the meaning of Article 2.1 of the SCM Agreement. We also
find that there are insufficient factual findings by the Panel or undisputed facts on the
Panel record for us to complete the legal analysis in this respect. Having reversed the
Panel's finding, we do not consider it necessary to address whether, in addition, the Panel
acted inconsistently with Article 11 of the DSU.
6.6 South Carolina MCIP job tax credits
6.9. A subsidy is specific under Article 2.2 of the SCM Agreement when access to it is either explicitly
or implicitly limited to entities engaged in economic activities in the market that have their
headquarters, branch offices, or manufacturing facilities in a "designated geographical region" within
the jurisdiction of the granting authority, or that are otherwise established within such a region. In
the present case, such limitation contained in Section 12-6-3360 of the South Carolina Income Tax
Act is not made void by the fact that enterprises not currently located in an MCIP may become part
of an MCIP in the future and then qualify for the subsidy. We find that the Panel erred in the
application of Article 2.2 of the SCM Agreement in stating that the availability of the MCIP subsidy
only to enterprises located within an MCIP "cannot be meaningfully considered to amount to a
limitation under Article 2.2" of the SCM Agreement.
a. We therefore reverse the Panel's fi nding, in paragraphs 8.931 and 11.7.c.vii of the
Panel Report, that the European Union has failed to establish that the subsidy provided
through the additional corporate income tax credits is specific within the meaning of
Article 2.2 of the SCM Agreement.

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b. Furthermore, we complete the legal analysis and find that the subsidy provided to Boeing
through the additional corporate income tax credits, pursuant to Section 12-6-3360 of the
South Carolina Income Tax Act, is specific within the meaning of Article 2.2 of the
SCM Agreement.
6.7 Continuing adverse effects
6.10. In assessing whether appropriate steps have been taken to remove the adverse effects of a
subsidy within the meaning of Article 7.8 of the SCM Agreement, the time period for assessing the
removal of adverse effects may include developments subsequent to the time of order, including
through the point of delivery. Accordingly, we find that the Panel erred in its interpretation of
Article 7.8 by excluding ab initio, from an inquiry into whether the United State s had failed to take
appropriate steps to remove the adverse effects of the subsidies, evidence relating to transactions
for which the orders arose in the original reference period but for which deliveries remain outstanding
in the post-implementation period.
a. We therefore reverse the Panel's interpretation of Article 7.8 of the SCM Agreement , in
paragraphs 9.311 to 9.314 of the Panel Report, and its statement in paragraph 9.332 of
the Panel Report , that reliance on the role of deliveries of aircraft in the
post-implementation period as evidence of a continuation of serious prejudice would be
inconsistent with Article 7.8. Having reversed this finding, we do not address whether, in
addition, the Panel erred in the application of Article 7.8, or acted inconsis tently with
Article 11 of the DSU. However, because it is not clear whether the Panel's decision to
exclude two additional sales campaigns as significant lost sales resulted from the above
error, and because the European Union's request is based on a premise that we rejected,
we decline to reverse the Panel's finding, in paragraph 9.407 of the Panel Report, insofar
as it excludes the Fly Dubai 2008 and Delta Airlines 2011 sales campaigns.
b. We further find that the Panel did not err under Articles 5 and 6.3 of the SCM Agreement,
or act inconsistently with Article 11 of the DSU, in separately finding that the
European Union's arguments are unsupported by the evidence and/or in contradiction with
the findings made in the original proceedings. We therefore uphold the Panel's finding, in
paragraphs 9.332 and 11.8.b of the Panel Report , that the European Union had failed to
establish that the original adverse effects of the pre -2007 aeronautics R&D subsidies
continue into the post -implementation period as present se rious prejudice in relation to
the A330 and A350XWB, within the meaning of Articles 5(c) and 6.3 of the
SCM Agreement.
6.8 Technology effects
6.11. We consider that the Panel was required to assess whether 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. We are not persuaded that it was sufficient for the Panel
to base its conclusion regarding the European Union's technology effects claims s olely on its
understanding of the original panel's findings. Given that the counterfactual inquiry in these
compliance proceedings was different from the one at issue in the original proceedings, we would
have expected an analysis from the Panel as to why a focus on post-launch acceleration effects was
not warranted. By failing to assess in its counterfactual analysis whether the acceleration effects of
the pre-2007 aeronautics R&D subsidies had an impact, not just on the launch of the 787, but also
on the timing of first delivery of the 787, the Panel did not properly assess the counterfactual
question as to whether there remain acceleration effects of the pre-2007 aeronautics R&D subsidies
in the post -implementation period. Accordingly, we find that the Panel erred in the application of
Articles 5 and 6.3 and, as a consequence, Article 7.8 of the SCM Agreement.
a. We therefore reverse the Panel's findings, in para graphs 9.177, 9.186, and 9.355 of the
Panel Report, that the European Union failed to demonstrate: (i) that the acceleration
effects of the pre -2007 aeronautics R&D subsidies in relation to Boeing's technology
development for the 787 have continued into th e 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

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R&D subsidies on the 787 -9/10, the 777X, and the 737 MAX in the post -implementation
period.
b. As a consequence, and to that extent, we also reverse the Panel's findings, in paragraphs
9.219-9.220, 9.372-9.373, 11.8.a, and 11.8.e of the Panel Report, with respect to the
European Union's failure 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 A350 XWB and the A320neo in the post -implementation period, through a
technology causal mechanism. Having reversed these findings, we do not address the
European Union's additional claims as to whether the Panel erred in the application of
Articles 5, 6.3, and 7.8 of the SCM Agreement or acted inconsistently with Article 11 of
the DSU.
c. We further find that we are unable to complete the legal analysis with regard to whether
there remain acceleration effects of the pre -2007 aeronautics R&D subsidies in the
post-implementation period.
6.9 Price effects
6.12. The Panel did not consider that, in order to find significant lost sales through a price causal
mechanism, there must be no non -price factors that potentially contributed to Boeing having won
those sales. Rather, the Pan el's understanding of the legal standard properly reflected a weighing
and balancing of price and non -price factors to reach a conclusion as to whether a sales campaign
was particularly price-sensitive, such that the tied tax subsidies could be found to be a genuine and
substantial cause of serious prejudice. Accordingly, we find that the Panel did not err in the
interpretation of Articles 5, 6.3, and, as a consequence, Article 7.8 of the SCM Agreement, when
identifying the applicable causation standard.
6.13. As regards the Panel's assessment of the relative significance of the amount of the tied tax
subsidies, we consider that there was a basis for the Panel to assume that Boeing had been able to
use the benefits of the subsidies arising from all its LCA sales to lower the prices in particularly
price-sensitive sales campaigns in the single -aisle LCA market. In addition, the Panel was not
required to establish that the per-aircraft amount of the subsidies available for these sales campaigns
exceeds the differentials in the net prices of Airbus' and Boeing's competing aircraft for purposes of
finding that the subsidies are a genuine and substantial cause of Airbus' loss of these sales, and ,
consequently, serious prejudice. We thus find that the Panel did not err under Articles 5 and 6.3 of
the SCM Agreement, or acted inconsistently with Article 11 of the DSU, in its assessment of the
relative significance of the amount of the tied tax subsidies.
a. We therefore uphold the Panel's finding, in paragraph 9.252 of the Panel Report, and as a
consequence to the extent that this is reflected in paragraph 11.8.a, that the
European Union had failed to establish that the tied tax subsidies cause serious prejudice,
within the meaning of Articles 5(c) and 6.3 of the SCM Agreement, in the twin-aisle LCA
market in the post-implementation period.
b. We also uphold the Panel's findings , in paragraphs 9.407, 9.444, and 11.8.c-d of
the Panel Report, that the European Union had established that the tied tax subs idies
cause 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, in the post-implementation period,
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 United Arab Emirates, within the meaning of
Articles 5(c) and 6.3(a)-(b) of the SCM Agreement, in the post-implementation period.
6.14. By rejecting that untied subsidies may be found to have a genuine link to the production of
relevant LCA as was accepted by the Appellate Body in the original proceedings, the Panel failed to
apply the correct legal standard for assessing whether the untied subsidies are a genuine cause of
adverse effects under Articles 5 and 6.3 of the SCM Agreement. In particular, we do not consider
that the legal standard for causation requires a showing that the untied subsidies actually altered
Boeing's pricing of its LCA. Accordingly, we find that the Panel erred under Articles 5 and 6.3 of the
SCM Agreement by requiring that the European Union demonstrate that the untied subsidies actually

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led to price reductions of Boeing LCA sales in order to estab lish that the subsidies caused adverse
effects through the lowering of Boeing LCA prices.
a. We therefore reverse the Panel's findings, in paragraphs 9.277, 9.291, 9.472, and 9.476
of the Panel Report, and as a consequence to the extent that this is reflected in paragraphs
11.8.a and 11.8.e of the Panel Report, that the European Union had failed to establish that
the untied subsidies cause serious prejudice, within the meaning of Articles 5(c) and 6.3
of the SCM Agreement, in the post -implementation period thr ough a price causal
mechanism. Having reversed this finding, we do not address whether, in addition, the
Panel acted inconsistently with Article 11 of the DSU.
b. We further find that we are unable to complete the legal analysis with regard to whether
the untied subsidies cause adverse effects within the meaning of Articles 5 and 6.3 of the
SCM Agreement.
6.10 Additional claims on appeal
6.15. The European Union claims that the Panel erred in the interpretation of Articles 5, 6.3, and
7.8 of the SCM Agreement in finding that a subsidized product can only cause serious prejudice to
another product if the two products in question compete in the same market, insofar as that
interpretation relates to serious prejudice in the form of significant price suppression, significant
price depression, and significant lost sales. The European Union states that, in requesting reversal
of this finding, it seeks to enable us, in completing the legal analysis, to find significant lost sales in
instances where the 787-8/9 and the A350XWB-900 competed for the sale. In light of our disposition
of other claims on appeal, and, in particular, the fact that we are not called upon to consider the
European Union's request for completion of the legal analysis rega rding the twin-aisle LCA market,
we ne ed not consider any potential competitive relationship between the 787 -8/9 and the
A350XWB-900 LCA and, therefore, do not address the European Union's claim of error.
6.16. The European Union also claims that the Panel erred in the interpretation of Articles 5, 6.3,
and 7.8 of the SCM Agreement in purportedly finding that aggregation and cumulation of subsidies
are the only two approaches to the collective assessment of the adverse effects of multiple subsidies.
The European Union states that it seeks reversal of the Panel's interpretation since it would be critical
for the Appellate Body's completion of the legal analysis. In these proceedings, we were unable to
conclude that the untied subsidies were a genuine cause of adverse effects, and such a showing
would also have been required under the European Union's proposed approaches to the collective
assessment of multiple subsidies. Therefore, in light of our disposition of other claims on appeal, we
are not called upon to consider any such additional methods for t he collective assessment of
subsidies and, therefore, do not address the European Union's claim of error.
6.17. Finally, we note that the United States has presented four conditional claims challenging
various findings of the Panel. In light of our disposition of other claims on appeal, the conditions for
these claims have not been triggered. We therefore do not address the United States' conditional
claims of error.
6.11 Recommendation
6.18. The Appellate Body recommends that the DSB request the United States to bring its measures
found in this Report, and in the Panel Report as modified by this Report, to be inconsistent with the
SCM Agreement, into conformity with its obligations under that Agreement.