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 REPORT OF THE PANEL
Document: REPORT OF THE PANEL
Date: 22 September 2016
Document codes: WT/DS316/RW
Complainant: U.S.
Respondent: EU, France, Germany, Spain, United Kingdom
Third parties: Australia, Brazil, Canada, China, Japan, South Korea
Dispute stage: Retaliation & Arbitration
Agreements cited: Art. 3.1, 3.2, 5, 6.3  Subsidies and Countervailing Measures (SCM)Art. XVI:1  GATT 1994Art. 1, 2  Subsidies and Countervailing Measures (SCM)Art. III:4  GATT 1994

EUROPEAN COMMUNITIES AND CERTAIN MEMBER STATES – MEASURES
AFFECTING TRADE IN LARGE CIVIL AIRCRAFT
 RECOURSE TO ARTICLE 21.5 OF THE DSU BY THE UNITED STATES
 REPORT OF THE PANEL

BCI deleted, as indicated [***]

LIST OF ANNEXES

ANNEX A
WORKING PROCEDURES OF THE PANEL
Contents Page
Annex A-1 Working Procedures of the Panel A-2
Annex A-2 Procedures for the Partial Opening to the Public of the Substantive Meeting with
the Panel
A-5
Annex A-3 Additional Procedures to Protect Business Confidential Information and Highly
Sensitive Business Information
A-7
ANNEX B
ARGUMENTS OF THE UNITED STATES
Contents Page
Annex B-1 Executive Summary of the first written submission of the United States B-2
Annex B-2 Executive Summary of the second written submission of the United States B-9
Annex B-3 Executive Summary of the opening and closing statements of the United States
at the Panel meeting
B-17
ANNEX C
ARGUMENTS OF THE EUROPEAN UNION
Contents Page
Annex C-1 Executive Summary of the first written submission of the European Union C-2
Annex C-2 Executive Summary of the second written submission of the European Union C-9
Annex C-3 Executive Summary of the opening statement of the European Union at the
Panel meeting
C-14
Annex C-4 Executive Summary of the closing statement of the European Union at the
Panel meeting
C-19
ANNEX D
ARGUMENTS OF THE THIRD PARTIES
Contents Page
Annex D-1 Executive Summary of the statement of Australia at the Panel meeting D-2
Annex D-2 Executive Summary of the written submission of Brazil D-4
Annex D-3 Executive Summary of the statement of Brazil at the Panel meeting D-7
Annex D-4 Executive Summary of the written submission of Canada D-9
Annex D-5 Executive Summary of the statement of Canada at the Panel meeting D-13
Annex D-6 Executive Summary of the written submission of China D-16
Annex D-7 Executive Summary of the statement of China at the Panel meeting D-20
Annex D-8 Executive Summary of the written submission of Japan D-22
Annex D-9 Executive Summary of the statement of Japan at the Panel meeting D-26
Annex D-10 Executive Summary of the statement of the Republic of Korea at the Panel
meeting
D-31

ANNEX E
RULINGS WITH RESPECT TO DSU ARTICLE 13 REQUEST
Contents Page
Annex E-1 The United States' Article 13 request of 20 July 2012 (Panel ruling issued on
4 September 2012)
E-2
Annex E-2 The European Union's Article 13 request of 23 November 2012 (Panel ruling
issued on 14 December 2012)
E-10
ANNEX F
MAIN PROCEDURAL RULINGS OF THE PANEL
Contents Page
Annex F-1 The European Union's request concerning the question whether the
United States was required to return or destroy materials containing BCI and
HSBI from the original proceeding (Panel ruling issued on 24 October 2012)
F-2
Annex F-2 The European Union's requests of 28 May 2013 concerning: (i) the
United States' Full HSBI Version Appendix and HSBI Exhibits submitted in
conjunction with its answers to the Panel's first set of questions; a nd (ii) the
United States' alleged violations of the BCI/HSBI Procedures (Panel ruling
issued on 5 June 2013)
F-4
Annex F-3 The European Union's requests of 28 May 2013 concerning: (i) the
United States' alleged failure to make a prima facie case and the "back-loading"
of arguments and evidence; and (ii) the United States' alleged unauthorized
access to European Union BCI/HSBI (Panel ruling issued on 12 June 2013)
F-11
Annex F-4 The European Union's request of 14 June 2012 to exclude certain untimely
United States' exhibits (Panel ruling issued on 28 June 2013)
F-20
Annex F-5 The European Union's requests of 28 June 2013 concerning the United States'
"critique" to the CompetitionRX Report presented in the United States'
comments to the European Union's answers to the Panel's first set of questions
(Panel ruling issued on 8 July 2013)
F-23
Annex F-6 The European Union's requests of 2, 4 and 11 September 2013 concerning the
adoption of additional information confidentiality procedures for the purpose of
responding to Panel question 126 (Panel ruling issued on 16 September 2013)
F-29
Annex F-7 The European Union's request of 24 March 2014 concerning the Panel's decision
to pose six additional written questions to the parties (Panel ruling issued on
31 March 2014)
F-31
ANNEX G
THE EUROPEAN UNION'S COMPLIANCE COMMUNICATION OF 1 DECEMBER 2011
Contents Page
Annex G-1 The European Union's Compliance Communication of 1 December 2011
(WT/DS316/17)
G-2

CASES CITED IN THIS REPORT
Short Title Full Case Title and Citation
Australia – Automotive
Leather II (Article 21.5 –
US)
Panel Report, Australia – Subsidies Provided to Producers and Exporters of
Automotive Leather – Recourse to Article 21.5 of the DSU by the United States,
WT/DS126/RW and Corr.1, adopted 11 February 2000, DSR 2000:III, p. 1189
Australia – Salmon
(Article 21.5 – Canada)
Panel Report, Australia – Measures Affecting Importation of Salmon – Recourse to
Article 21.5 of the DSU by Canada, WT/DS18/RW, adopted 20 March 2000,
DSR 2000:IV, p. 2031
Brazil – Aircraft
(Article 21.5 – Canada)
Appellate Body Report, Brazil – Export Financing Programme for Aircraft
– Recourse by Canada to Article 21.5 of the DSU, WT/DS46/AB/RW, adopted
4 August 2000, DSR 2000:VIII, p. 4067
Brazil – Aircraft
(Article 21.5 – Canada)
Panel Report, Brazil – Export Financing Programme for Aircraft – Recourse by
Canada to Article 21.5 of the DSU, WT/DS46/RW, adopted 4 August 2000, as
modified by Appellate Body Report WT/DS46/AB/RW, DSR 2000:IX, p. 4093
Brazil – Desiccated
Coconut
Appellate Body Report, Brazil – Measures Affecting Desiccated Coconut,
WT/DS22/AB/R, adopted 20 March 1997, DSR 1997:I, p. 167
Brazil – Desiccated
Coconut
Panel Report, Brazil – Measures Affecting Desiccated Coconut, WT/DS22/R, adopted
20 March 1997, upheld by Appellate Body Report WT/DS22/AB/R, DSR 1997:I,
p. 189
Canada – Aircraft Appellate Body Report, Canada – Measures Affecting the Export of Civilian Aircraft,
WT/DS70/AB/R, adopted 20 August 1999, DSR 1999:III, p. 1377
Canada – Aircraft Panel Report, Canada – Measures Affecting the Export of Civilian Aircraft,
WT/DS70/R, adopted 20 August 1999, upheld by Appellate Body Report
WT/DS70/AB/R, DSR 1999:IV, p. 1443
Canada – Aircraft
(Article 21.5 – Brazil)
Appellate Body Report, Canada – Measures Affecting the Export of Civilian Aircraft –
Recourse by Brazil to Article 21.5 of the DSU, WT/DS70/AB/RW, adopted
4 August 2000, DSR 2000:IX, p. 4299
Canada – Aircraft
(Article 21.5 – Brazil)
Panel Report, Canada – Measures Affecting the Export of Civilian Aircraft
– Recourse by Brazil to Article 21.5 of the DSU, WT/DS70/RW, adopted
4 August 2000, as modified by Appellate Body Report WT/DS70/AB/RW,
DSR 2000:IX, p. 4315
Canada – Autos Appellate Body Report, Canada – Certain Measures Affecting the Automotive
Industry, WT/DS139/AB/R, WT/DS142/AB/R, adopted 19 June 2000, DSR 2000:VI,
p. 2985
Canada – Continued
Suspension
Appellate Body Report, Canada – Continued Suspension of Obligations in the EC –
Hormones Dispute, WT/DS321/AB/R, adopted 14 November 2008, DSR 2008:XIV,
p. 5373
China – Rare Earths Panel Reports, China – Measures Related to the Exportation of Rare Earths, Tungsten,
and Molybdenum, WT/DS431/R and Add.1 / WT/DS432/R and Add.1 / WT/DS433/R
and Add.1, adopted 29 August 2014, upheld by Appellate Body Reports
WT/DS431/AB/R / WT/DS432/AB/R / WT/DS433/AB/R
China – Raw Materials Appellate Body Reports, China – Measures Related to the Exportation of Various
Raw Materials, WT/DS394/AB/R / WT/DS395/AB/R / WT/DS398/AB/R, adopted
22 February 2012, DSR 2012:VII, p. 3295
Dominican Republic –
Import and Sale of
Cigarettes
Appellate Body Report, Dominican Republic – Measures Affecting the Importation
and Internal Sale of Cigarettes, WT/DS302/AB/R, adopted 19 May 2005,
DSR 2005:XV, p. 7367
EC – Approval and
Marketing of Biotech
Products
Panel Reports, European Communities – Measures Affecting the Approval and
Marketing of Biotech Products, WT/DS291/R, Add.1 to Add.9 and Corr.1 /
WT/DS292/R, Add.1 to Add.9 and Corr.1 / WT/DS293/R, Add.1 to Add.9 and
Corr.1, adopted 21 November 2006, DSR 2006:III, p. 847
EC – Bananas III Appellate Body Report, European Communities – Regime for the Importation, Sale
and Distribution of Bananas, WT/DS27/AB/R, adopted 25 September 1997,
DSR 1997:II, p. 591
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 – Bed Linen
(Article 21.5 – India)
Panel 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/RW, adopted 24 April 2003, as modified by Appellate Body Report
WT/DS141/AB/RW, DSR 2003:IV, p. 1269
EC – Commercial
Vessels
Panel Report, European Communities – Measures Affecting Trade in Commercial
Vessels, WT/DS301/R, adopted 20 June 2005, DSR 2005:XV, p. 7713
EC – Computer
Equipment
Appellate Body Report, European Communities – Customs Classification of Certain
Computer Equipment, WT/DS62/AB/R, WT/DS67/AB/R, WT/DS68/AB/R, adopted
22 June 1998, DSR 1998:V, p. 1851

Short Title Full Case Title and Citation
EC – Fasteners (China)
(Article 21.5 – China)
Appellate Body Report, European Communities – Definitive Anti-Dumping Measures
on Certain Iron or Steel Fasteners from China – Recourse to Article 21.5 of the DSU
by China, WT/DS397/AB/RW and Add.1, adopted 12 February 2016
EC – Hormones Appellate Body Report, EC Measures Concerning Meat and Meat Products
(Hormones), WT/DS26/AB/R, WT/DS48/AB/R, adopted 13 February 1998,
DSR 1998:I, p. 135
EC and certain member
States – Large Civil
Aircraft
Panel Report, European Communities and Certain Member States – Measures
Affecting Trade in Large Civil Aircraft, WT/DS316/R, adopted 1 June 2011, as
modified by Appellate Body Report, WT/DS316/AB/R, DSR 2011:II, p. 685
EC and certain member
States – Large Civil
Aircraft
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
Guatemala – Cement I Appellate Body Report, Guatemala – Anti-Dumping Investigation Regarding
Portland Cement from Mexico, WT/DS60/AB/R, adopted 25 November 1998,
DSR 1998:IX, p. 3767
India – Autos Panel Report, India – Measures Affecting the Automotive Sector, WT/DS146/R,
WT/DS175/R, and Corr.1, adopted 5 April 2002, DSR 2002:V, p. 1827
India – Quantitative
Restrictions
Appellate Body Report, India – Quantitative Restrictions on Imports of Agricultural,
Textile and Industrial Products, WT/DS90/AB/R, adopted 22 September 1999,
DSR 1999:IV, p. 1763
Indonesia – Autos Panel Report, Indonesia – Certain Measures Affecting the Automobile Industry,
WT/DS54/R, WT/DS55/R, WT/DS59/R, WT/DS64/R, Corr.1 and Corr.2, adopted
23 July 1998, Corr.3 and Corr.4, DSR 1998:VI, p. 2201
Italy – Agricultural
Machinery
GATT Panel Report, Italian Discrimination Against Imported Agricultural Machinery,
adopted 23 October 1958, BISD 7S/60
Japan – Agricultural
Products II
Appellate Body Report, Japan – Measures Affecting Agricultural Products,
WT/DS76/AB/R, adopted 19 March 1999, DSR 1999:I, p. 277
Japan – Alcoholic
Beverages II
Appellate Body Report, Japan – Taxes on Alcoholic Beverages, WT/DS8/AB/R,
WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996, DSR 1996:I, p. 97
Japan – DRAMs (Korea) Appellate Body Report, Japan – Countervailing Duties on Dynamic Random Access
Memories from Korea, WT/DS336/AB/R and Corr.1, adopted 17 December 2007,
DSR 2007:VII, p. 2703
Korea – Commercial
Vessels
Panel Report, Korea – Measures Affecting Trade in Commercial Vessels,
WT/DS273/R, adopted 11 April 2005, DSR 2005:VII, p. 2749
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
Thailand – Cigarettes
(Philippines)
Appellate Body Report, Thailand – Customs and Fiscal Measures on Cigarettes from
the Philippines, WT/DS371/AB/R, adopted 15 July 2011, DSR 2011:IV, p. 2203
Thailand – H-Beams Appellate Body Report, Thailand – Anti-Dumping Duties on Angles, Shapes and
Sections of Iron or Non-Alloy Steel and H-Beams from Poland, WT/DS122/AB/R,
adopted 5 April 2001, DSR 2001:VII, p. 2701
US – Certain EC
Products
Appellate Body Report, United States – Import Measures on Certain Products from
the European Communities, WT/DS165/AB/R, adopted 10 January 2001,
DSR 2001:I, p. 373
US – Continued
Suspension
Appellate Body Report, United States – Continued Suspension of Obligations in the
EC – Hormones Dispute, WT/DS320/AB/R, adopted 14 November 2008,
DSR 2008:X, p. 3507
US – Continued Zeroing Appellate Body Report, United States – Continued Existence and Application of
Zeroing Methodology, WT/DS350/AB/R, adopted 19 February 2009, DSR 2009:III,
p. 1291
US – Countervailing and
Anti-Dumping Measures
(China)
Panel Report, United States – Countervailing and Anti-Dumping Measures on
Certain Products from China, WT/DS449/R and Add.1, adopted 22 July 2014, as
modified by Appellate Body Report WT/DS449/AB/R
US – Countervailing
Measures on Certain EC
Products
Appellate Body Report, United States – Countervailing Measures Concerning Certain
Products from the European Communities, WT/DS212/AB/R, adopted
8 January 2003, DSR 2003:I, p. 5
US – Countervailing
Measures on Certain EC
Products
(Article 21.5 – EC)
Panel Report, United States – Countervailing Measures Concerning Certain Products
from the European Communities – Recourse to Article 21.5 of the DSU by the
European Communities, WT/DS212/RW, adopted 27 September 2005,
DSR 2005:XVIII, p. 8950
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 (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

Short Title Full Case Title and Citation
US – Gambling Appellate Body Report, United States – Measures Affecting the Cross-Border Supply
of Gambling and Betting Services, WT/DS285/AB/R, adopted 20 April 2005,
DSR 2005:XII, p. 5663 (and Corr.1, DSR 2006:XII, p. 5475)
US – Lamb Panel Report, United States – Safeguard Measures on Imports of Fresh, Chilled or
Frozen Lamb Meat from New Zealand and Australia, WT/DS177/R, WT/DS178/R,
adopted 16 May 2001, as modified by Appellate Body Report WT/DS177/AB/R,
WT/DS178/AB/R, DSR 2001:IX, p. 4107
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)
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 – Lead and Bismuth
II
Appellate Body Report, United States – Imposition of Countervailing Duties on
Certain Hot-Rolled Lead and Bismuth Carbon Steel Products Originating in the
United Kingdom, WT/DS138/AB/R, adopted 7 June 2000, DSR 2000:V, p. 2595
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 – Oil Country Tubular
Goods Sunset Reviews
(Article 21.5 –
Argentina)
Panel 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/RW, adopted 11 May 2007, as modified by Appellate Body
Report WT/DS268/AB/RW, DSR 2007:IX, p. 3609
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 – Shrimp (Thailand)
/ US – Customs Bond
Directive
Appellate Body Report, United States – Measures Relating to Shrimp from Thailand
/ United States – Customs Bond Directive for Merchandise Subject to
Anti-Dumping/Countervailing Duties, WT/DS343/AB/R / WT/DS345/AB/R, adopted
1 August 2008, DSR 2008:VII, p. 2385 / DSR 2008:VIII, p. 2773
US – Softwood Lumber
IV
(Article 21.5 – Canada)
Appellate Body Report, United States – Final Countervailing Duty Determination
with Respect to Certain Softwood Lumber from Canada – Recourse by Canada to
Article 21.5 of the DSU, WT/DS257/AB/RW, adopted 20 December 2005,
DSR 2005:XXIII, p. 11357
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 – Stainless Steel
(Mexico)
Appellate Body Report, United States – Final Anti-Dumping Measures on Stainless
Steel from Mexico, WT/DS344/AB/R, adopted 20 May 2008, DSR 2008:II, p. 513
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 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
(Article 21.5 – Brazil)
Panel Report, United States – Subsidies on Upland Cotton – Recourse to
Article 21.5 of the DSU by Brazil, WT/DS267/RW and Corr.1, adopted
20 June 2008, as modified by Appellate Body Report WT/DS267/AB/RW,
DSR 2008:III, p. 997
US – Upland Cotton
(Article 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 – 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 – Wool Shirts and
Blouses
Appellate Body Report, United States – Measure Affecting Imports of Woven Wool
Shirts and Blouses from India, WT/DS33/AB/R, adopted 23 May 1997, and Corr.1,
DSR 1997:I, p. 323
US – Zeroing (EC)
(Article 21.5 – EC)
Appellate Body Report, United States – Laws, Regulations and Methodology for
Calculating Dumping Margins ("Zeroing") – Recourse to Article 21.5 of the DSU by
the European Communities, WT/DS294/AB/RW and Corr.1, adopted 11 June 2009,
DSR 2009:VII, p. 2911

ABBREVIATIONS USED IN THIS REPORT
Abbreviation Description
1992 Agreement Agreement between the European Economic Community and the Government of
the United States concerning the Application of the GATT Agreement on Trade in
Civil Aircraft on Trade in Large Civil Aircraft
2H1E; 2H/1E 2 hydraulic/1 electric
2H2E; 2H/2E 2 hydraulic/2 electric
737MAX redesigned and reengineered Boeing 737
737NG Boeing 737 Next Generation – -600, -700, -800, -900 variants
777-200ER Boeing 777-200 aircraft – extended range variant
777-300ER Boeing 777-300 aircraft – extended range variant
777-200LR Boeing 777-200 aircraft – long range variant
A320neo Airbus A320 "new engine option" aircraft
A320ceo Airbus A320 "current engine option" aircraft
A350XWB Airbus A350 "eXtra widebody" aircraft
A350XWB-800 Airbus A350 "eXtra widebody" aircraft – 800 seat capacity variant
A350XWB-900 Airbus A350 "eXtra widebody" aircraft – 900 seat capacity (baseline) variant
A350XWB-1000 Airbus A350 "eXtra widebody" aircraft – 1000 seat capacity variant

A380 Airbus A380 aircraft
AB Appellate Body
AD Agreement Agreement on Implementation of Article VI of the General Agreement on Tariffs and
Trade 1994 (Anti-dumping Agreement)
ADIRS Air Data and Inertial Reference System
Aérospatiale Aérospatiale Société Nationale Industrielle
AIC Airbus Integrated Company (Airbus SAS)
ASM Aérospatiale-Matra
BAE Systems British Aerospace Systems
BATNA best alternative to a negotiated agreement
BCI business confidential information

B&O Business and Occupation
B.V.; BV besloten vennootschap (public limited liability company)
CAC 40 Cotation Assistée en Continu
CAR Convention d'avance récupérable
CASA Construcciones Aeronáuticas S.A.
CEO Chief Executive Officer
CIBBF Corrected Interpolated Bond-Based Figure
CFRP carbon fibre reinforced plastic or polymer
CFO Chief Financial Officer
CMO Current Market Outlook
COMAC Commercial Aircraft Corporation of China, Ltd.
COO Chief Operating Officer
DARE Develop And Ramp-up Excellence
DASA; Dasa Deutsche Aerospace AG (from 1992), Daimler -Benz Aerospace AG (from 1995),
DaimlerChrysler Aerospace AG (from 1998)
DCF discounted cash flow
DCLRH DaimlerChrysler Luft- und Raumfahrt Holding AG
DGAC Direction générale d'aviation civile
DM Deutsche Mark
DNA Develop New Aircraft
DSB Dispute Settlement Body
DSU Understanding on Rules and Procedures Governing the Settlemen t of Disputes
(Dispute Settlement Understanding)
DTI UK Department of Trade and Industry
EADS European Aeronautic Defence and Space Company N.V.
EBIT earnings before interest and taxes
EC European Communities
EIB European Investment Bank
EMTN Euro medium-term note
EUR euro
Euribor European interbank borrowing rate
FAL final assembly line
FF French franc
FSS flap support structures
FTE full time equivalent
GBP British pound
GDP gross domestic product

Abbreviation Description
GIE groupement d'intérêt économique
GmbH Gesellschaft mit beschränkter Haftung
GMF Global Market Forecast
GRI government-related issuer
GRE government-related entity
GSM 102 General Sales Manager 102
HMT hypothetical monopolist test
HSBI highly sensitive business information
IMA integrated modular avionics
IPO initial public offering
IRR internal rate of return
JRP Jordan Risk Premium
KfW Kreditanstalt für Weideraufbau
LA/MSF Launch Aid/Member State Financing
LCA large civil aircraft
Libor London interbank borrowing rate
Ltd Limited company
MBB Messerschmitt-Bölkow-Blohm GmbH
MBE Member of the Order of the British Empire
MHT Matra Hautes Technologies
MG Maturity Gate / Milestone Gate
MP Member of Parliament
MRL manufacturing readiness level
MSF Member State Financing
MTOW maximum take-off weight
NERA National Economic Research Associates (NERA Economic Consulting)
MTN Medium-term note
MY Marketing Year
NASA National Aeronautics and Space Administration
nm nautical miles
NPV net present value
NRC non-recurring cost
n.v.; N.V.; NV naamloze vennootschap (public limited liability company)
OECD Organisation for Economic Cooperation and Development
Onera; ONERA Office National d'Études et de Recherches Aérospatiales
Original A350 Airbus A350 aircraft design proposed between 2004-2006
Psi; PSI pounds per square inch
PwC PricewaterhouseCoopers
R&D research and development
R&TD research and technological development
RFP Request for Proposal
RLI Repayable Launch Investment / Reimbursable Launch Investment
ROCE return on capital employed
RSP risk-sharing partner
RSS risk-sharing supplier
S&P Standard & Poor's
SAL sub-assembly line
SARS Severe Acute Respiratory Syndrome
SCM Agreement Agreement on Subsidies and Countervailing Measures
SEPI Sociedad Estatal de Participaciones Industriales
SL; S.L. sociedad limitada
SSNIP Small but Significant Non-Transitory Increase in Prices
SPOF Supplier Pass-On Figure
SOGEPA Société de gestion de participations aéronautiques
SOGEADE Société de gestion de l'aéronautique, de la défense et de l'espace
TDM Temporary Defence Mechanism
TPC Technology Partnerships Canada
TRL technology readiness level
UK United Kingdom
US United States
USD United States dollar
USDOC United States Department of Commerce
VFW Vereinigte Flugtechnische Werke GmbH
VLA very large aircraft
WACC weighted average cost of capital
WRP Whitelaw Risk Premium
WTO World Trade Organization

1 INTRODUCTION
1.1 Complaint by the United States
1.1. The United States ' complaint in this dispute, initiated under Article 21.5 of the
Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU), concerns the
alleged failure on the part of the European Union 1 and certain member States to implement the
recommendations and rulings adopted by the Dispute Settlement Body (DSB) in the original
proceeding EC and certain member States – Large Civil Aircraft.
1.2. In the original proceeding, the panel found that the United States had demonstrated that the
European Communities (EC) and certain member States had caused adverse effects, in the form of
certain kinds of serious prejudice to the United States' interests, within the meaning of
Articles 5(c), 6.3(a), (b) and (c) of the Subsidies and Countervailing Measures Ag reement
(SCM Agreement), through the use of the following specific subsidies:
a. "launch aid" or "member State financing" (LA/MSF) for the A300, A310, A320, A330,
A330-200, A340, A340-500/600, and A380 models of large civil aircraft (LCA)2;
b. French and German government "equity infusions" provided in connection with the
corporate restructuring of Aérospatiale and Deutsche Airbus3;
c. certain infrastructure and infrastructure -related measures provided by German and
Spanish authorities4; and
d. research and technolo gical development (R&TD) funding provided by the European
Communities and certain member States.5
1.3. The original panel also concluded that the United States had established that the German,
Spanish and UK A380 LA/MSF agreements constituted prohibited export subsidies within the
meaning of Article 3.1(a) and footnote 4 of the SCM Agreement.6
1.4. In relation to the findings made under Articles 5 and 6.3(a), (b ), and (c) of the
SCM Agreement, the original panel recommended that:
{U}pon adoption of this report, or of an Appellate Body report in this dispute
determining that any subsidy has resulted in adverse effects to the interests of the
United States, the Member granting each subsidy found to have resulted in such
adverse effects "take appropriate steps to remov e the adverse effects or … withdraw
the subsidy".7
1.5. As regards the findings made under Article 3.1(a) and footnote 4 of the SCM Agreement, the
original panel recommended that:
{T}he subsidizing Member granting each subsidy found to be prohibited withdraw it
without delay and specify that this be done within 90 days.8
1.6. The original panel report was circulated to the Members on 30 June 2010. Both parties
appealed certain issues of law and legal interpretations developed by the original panel.9

1 The European Union replaced and succeeded the European Communities as of 1 December 2009.
2 Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.290(a)(i)-(vii),
7.482-7.496, and 8.1(a)(i).
3 Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.1245-7.1249, 7.1302,
7.1323-7.1326, 7.1380-7.1384, 7.1414, and 8.1(c) and (d).
4 Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.1049-7.1053, 7.1097,
7.1100-7.1101, 7.1134, 7.1137-7.1139, 7.1191, 7.1205-7.1211, 7.1244, and 8.1(b)(i)-(iv).
5 Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.1427-7.1456,
7.1459-1480, 7.1608, and 8.1(e).
6 Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.689 and 8.1(a)(ii).
7 Panel Report, EC and certain member States – Large Civil Aircraft, para. 8.7.
8 Panel Report, EC and certain member States – Large Civil Aircraft, para. 8.6.

1.7. The Appellate Bo dy reversed or modified several aspects of the original panel's findings. 10
Where the Appellate Body found sufficient factual findings or undisputed facts on the record in
relation to the matters it had reversed, it went on to "complete the analysis". Thus, after
"completing the analysis" with respect to certain aspects of the original panel's subsidization and
adverse effects findings, the Appellate Body ultimately upheld the original panel's conclusion that
the United States had established that the effect s of the challenged LA/MSF measures caused
serious prejudice to the United States' interests within the meaning of Article 6.3(a), (b) and (c) of
the SCM Agreement11, and that the effects of the challenged "equity infusions" and infrastructure
measures the Appellate Body had found to constitute specific subsidies, "complemented and
supplemented" the effects of the challenged LA/MSF measures. 12 The Appellate Body also
attempted to "complete the analysis" after having reversed the original panel's finding that the
German, Spanish and UK A380 LA/MSF measures constituted prohibited export subsidies within
the meaning of Article 3.1(a) and footnote 4 of the SCM Agreement. However, the Appellate Body
found that it was unable to do so because there were insufficient factual findings or undisputed
facts on the record.13
1.8. In the light of its findings, the Appellate Body concluded that:
{H}aving reversed the Panel finding, in paragraph 7.689 of the Panel Report, that
certain A380 LA/MSF contracts amounted to prohibited ex port subsidies, the Panel's
recommendation pursuant to Article 4.7 of the SCM Agreement, in paragraph 8.6 of
the Panel Report, consequently must be reversed; however, to the extent we have
upheld the Panel's findings with respect to actionable subsidies th at caused adverse
effects, as set out in paragraph 8.2 of the Panel Report, or such findings have not
been appealed, the Panel's recommendation pursuant to Article 7.8 of the
SCM Agreement, in paragraph 8.7 of the Panel Report, that "the Member granting
each subsidy found to have resulted in such adverse effects, 'take appropriate steps to
remove the adverse effects or … withdraw the subsidy'", stands.14
1.9. The Appellate Body report and the report of the original panel, as modified by the Appellate
Body report, were adopted by the DSB on 1 June 2011.15
1.10. On 1 December 2011, the European Union informed the DSB that it had taken "appropriate
steps to bring its measures fully into conformity with its WTO obligations, and to comply with the
DSB's recommendations and r ulings".16 The European Union explained that it had "adopted a
course of action that addresses all forms of adverse effects, all categories of subsidies, and all
models of Airbus aircraft covered by the DSB's recommendations and rulings". 17 The
European Union provided "{i}nformation concerning the steps" it had taken to achieve compliance
in a list containing 36 numbered paragraphs attached to its communication.
1.11. On 9 December 2011, the United States requested consultations with the European Union
and certain member States, explaining in the same request for consultations, that it was of the
view that "the actions and events listed in the EU Notification do not withdraw the subsidies or
remove their adverse effects for purposes of Article 7.8 of the SCM Agreem ent and the EU has
therefore failed to implement the DSB's recommendations and rulings".18

9 WT/DS316/12/Rev.1 and WT/DS316/13.
10 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1414(a), (c),
(d)(i)-(ii), (e)(ii), (g), (i), (j), (k), and (s), and 1415(b).
11 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1414(e)(iv), (l),
(m), (p), and (q).
12 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1414(g) and (r).
The Appellate Body reversed the original panel's finding that the R&TD subsidies "complemented and
supplemented" the effects of the challenged LA/MSF measures.
13 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1414(j) and
1415(b).
14 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1416.
15 WT/DSB/M/297.
16 Communication from the European Union dated 1 December 2011, WT/DS316/17, 5 December 2011,
(Compliance Communication), para. 1.
17 Compliance Communication, para. 3.
18 WT/DS316/19, p. 3.

1.12. The United States and the European Union held consultations on 13 January 2012, but the
consultations failed to resolve the dispute.
1.2 Panel establishment and composition
1.13. On 30 March 2012, the United States requested the establishment of a panel pursuant to
Article 21.5 of the DSU with standard terms of reference. 19 At its meeting on 13 April 2012, the
DSB agreed, pursuant to Article 21.5 of the DSU, to refer the dispute to the original panel, if
possible.20
1.14. The Panel's terms of reference are the following:
To examine, in the light of the relevant provisions of the covered agreements cited by
the parties to the dispute, the matter referred to the DSB by the United States i n
document WT/DS316/23 and to make such findings as will assist the DSB in making
the recommendations or in giving the rulings provided for in those agreements.
1.15. In accordance with Article 21.5 of the DSU, the Panel was composed on 17 April 2012 as
follows21:
Chairman: Mr Carlos Pérez del Castillo
Members: Mr John Adank
 Mr Thinus Jacobsz

1.16. Australia, Brazil, Canada, China, Japan , and the Republic of Korea notified their interest in
participating in the Panel proceedings as third parties.
1.3 Panel proceedings
1.3.1 General
1.17. The Panel held an organizational meeting with the parties on 1 May 2012.
1.18. After consulting the parties, the Panel adopted its Working Procedures 22 and timetable on
11 May 2012. The Panel twice suspended its timetable on 10 August 2012 and 28 November 2012
in the light of the United States' and European Union's respective requests for the Panel to
exercise its right to seek information under Article 13 of the DSU. The Panel made various other
modifications to its timetable throughout the proceeding. On 5 October 2015, the Panel informed
the parties of the expected date of the issuance of the Interim Report.
1.19. The United States and the European Union filed their first written submissions on
25 May 2012 and 6 July 2012, respectively. Third parties filed thei r written submissions on
27 July 2012. The second written submissions of the United States and the European Union were
filed on 19 October 2012 and 15 January 2013, respectively.
1.20. The Panel held one substantive meeting with the parties on 16-18 April 2013. A session with
the third parties took place on 17 April 2013. At the request of the parties, the Panel's meeting
with the parties was opened to the public by means of a delayed video showing. A portion of the
Panel's meeting with the third parties was als o opened to the public by means of a delayed video
showing.23

19 EC and certain member States – Large Civil Aircraft, Recourse to Article 21.5 of the DSU by the
United States: Request for the establishment of a panel, WT/DS316/23, (dated 30 March 2012, circulated
3 April 2012).
20 WT/DSB/M/314.
21 WT/DS316/24.
22 The Panel's Working Procedures are attached in Annex A-1.
23 See Annex A-2 for the procedures for the conduct of the meeting. Australia, Brazil, Canada and Japan
consented to having their statements videotaped for delayed showing. China and Korea did not consent.

1.21. The Panel posed questions to the parties and third parties on 23 April 2013, and additional
questions to the parties on 23 August 2013 and 31 March 2014.
1.22. On 5 October 2015, the Panel issued the descriptive part of its Report to the parties. The
Panel issued its Interim Report to the parties on 11 Decem ber 2015. The Panel issued its F inal
Report to the parties on 11 March 2016.
1.3.2 Protection of Business Confidential Information and Highly Sensitive Business
Information
1.23. At the organisational meeting, the parties requested the Panel to adopt additional
procedures for the protection of confidential and highly sensitive business information, submitting
a joint proposal. After considering the parties' re quest and their joint proposal, the Panel adopted
the Additional Procedures to Protect Business Confidential Information and Highly Sensitive
Business Information (BCI/HSBI Procedures) on 11 May 2012.24
1.3.3 Preliminary ruling on the Panel's terms of reference
1.24. In its first written submission, the European Union objected to the inclusion of certain
United States claims and challenged measures within the scope of this compliance proceeding. In
particular, the European Union objected to the United States' challenge to the LA/MSF agreements
entered into between Airbus and France, Germany, Spain and the United Kingdom for the Airbus
A350 "eXtra widebody" aircraft (A350XWB), as well as the United States' prohibited subsidy claims
against the A380 LA/MSF measures, and th e United States' threat of displacement and impedance
of imports claims.25 The European Union asked the "Panel to grant the relief requested … through
a preliminary ruling, or failing that in its final report".26
1.25. On 27 March 2013, the Panel issued a prelimin ary ruling with respect to the
European Union's objection to the United States' claims, finding that:
a. the United States' claim that the A380 LA/MSF measures are prohibited export subsidies
within the meaning of Article 3.1(a) of the SCM Agreement, and the United States' threat
of displacement and impedance of imports claims, are within the scope of this
proceeding;
b. the United States' claim that the A380 LA/MSF measures are prohibited import
substitution subsidies within the meaning of Article 3.1(b) of the SCM Agreement is
outside the scope of this proceeding; and
c. the United States' claims of threat of displacement or impedance of imports pursuant to
Article 6.3(a) of the SCM Agreement are within the Panel's terms of reference.
1.26. In the same communication, t he Panel informed the parties that it would issue the reasons
underlying its findings in due course.
1.27. The Panel's findings and underlying reasoning in relation to all of the objections raised by
the European Union in its request for a preliminary ruling are set out in Section 6.4.
1.3.4 Information sought by the Panel
1.28. On 20 July 2012, the United States requested the Panel to exercise its right under Article 13
of the DSU to seek certain information that the United State s considered to be necessary for the
Panel to carry out its mandate. After considering the views of both parties, the Panel ruled on the
United States' request on 4 September 2012, inviting the European Union to provide certain
information. The European Union submitted information to the Panel on 5 October 2012.

24 The BCI/HSBI Procedures were subsequently revised several times. The final version is attached in
Annex A-3.
25 European Union's first written submission, section III.
26 European Union's first written submission, fn 184.

1.29. On 23 November 2012, the European Union also requested the Panel to exercise its right to
seek information under Article 13 of the DSU. After considering the views of both parties, the Panel
informed them on 14 December 2012 that it had decided to deny the European Union's request.
1.30. The Panel's rulings are reproduced in Annex E of this Report.
1.3.5 Procedural rulings
1.31. The Panel was asked to make numerous rulings in relation to procedural matters throughout
this proceeding. The Panel's main rulings are reproduced in Annex F of this Report.
1.4 Product at issue
1.32. The product at issue in this dispute is the same as the product that was the subject of the
original proceeding, i.e. LCA, as distinguished from smalle r (regional) aircraft and military aircraft.
LCA can generally be described as large (weighing over 15,000 kg ) "tube and wing" aircraft, with
turbofan engines carried under low -set wings, designed for subsonic flight. LCA are designed for
transporting 100 or more passengers and/or a proportionate amount of cargo across a range of
distances serviced by airlines and air freight carriers. LCA are covered by tariff classification
heading 8802.40 of the Harmonized System ("Airplanes and other aircraft, of an unl aden weight
exceeding 15,000 kg").
2 PARTIES' REQUESTS FOR FINDINGS AND RECOMMENDATIONS
2.1. The United States requests that the Panel find that the European Union and certain member
States have failed to comply with the recommendations and rulings of the DSB by withdrawing the
subsidies or taking appropriate steps to remove the adverse effects and, in particular, that:
a. with the exception of the Bremen Airport runway subsidy, the European Union and
relevant member States have not withdrawn the subsidies covered b y the DSB
recommendations and rulings;
b. French, German, Spanish, and UK LA/MSF for the A350XWB is a specific subsidy within
the meaning of Articles 1 and 2 of the SCM Agreement;
c. French, German, Spanish, and UK LA/MSF for the A380 and the A350XWB confers (1) an
export subsidy inconsistent with Article 3.1(a) of the SCM Agreement, and (2) an import
substitution subsidy inconsistent with Article 3.1(b) of the SCM Agreement;
d. the European Union and relevant member States have not removed the adverse effects
covered by the DSB recommendations and rulings;
e. the United States continues to experience serious prejudice in the form of significant lost
sales under Article 6.3(c) of the SCM Agreement, including sales where the customer
ordered the A350XWB;
f. the United States continues to experience serious prejudice in the form of displacement
and impedance, and/or threat thereof, of its LCA imports into the European Union
market under Article 6.3(a) of the SCM Agreement;
g. the United States continues to experience serious pr ejudice in the form of displacement
and impedance of its LCA exports to 11 third country markets under Article 6.3(b) of the
SCM Agreement; and
h. all subsidies provided to Airbus LCA, including LA/MSF provided to the A350XWB, have a
genuine and substantial causal relationship with the effects found.27
2.2. The European Union requests that the Panel reject the entirety of the United States' claims.28

27 United States' first written submission, para. 533; and second written submission, para. 748.

3 ARGUMENTS OF THE PARTIES
3.1. The arguments of the parties are reflected in their executive summaries, provided to the
Panel in accordance with paragraph 12 of the Working Procedures adopted by the Panel (see
Annexes B and C).
4 ARGUMENTS OF THE THIRD PARTIES
4.1. The arguments of the third parties are reflected in their executive summaries, provided in
accordance with paragraph 12 of the Working Procedures adopted by the Panel (see Annex D).
5 INTERIM REVIEW
5.1 Introduction
5.1. The Panel issued its Interim Report to the parties on 11 December 2015. Both parties
submitted written requests for review of precise aspects of the Interim Report on 22 January 2016,
and written comments on each other's written requests on 12 February 2016. The parties also
provided written comments on the treatment of certain information as BCI and/or HSBI in the
Interim Report on 12 February 2016, with comments on each o ther's comments submitted on
26 February 2016. Neither party requested the Panel to hold an interim review meeting. Below we
respond to the issues raised by the parties in the context of the interim review.
5.2. Due to changes as a result of our review, the numbering of the footnotes in the Final Report
has changed from the Interim Report. The text below refers to the footnote numbers in the Interim
Report, with the corresponding footnote numbers in the Final Report provided in parentheses for
ease of reference. Apart from the specific changes described in the following section, w e have also
corrected a number of typographical errors and other non -substantive errors throughout the
report, including those identified by the parties, which are not referred to specifically below.
5.2 The European Union's Compliance Communication
5.2.1 Paragraph 6.7, and sub-headings 6.2.1, 6.2.2, and 6.2.3 (now sub-headings 6.2.2,
6.2.3, and 6.2.4)
5.3. The European Union requests the Panel to explain the rationale for, and the implications o f,
the Panel's decision to discuss the European Union's "measures taken to comply" under the
following three separate sub-headings: ("Actions taken after the adoption of the recommendations
and rulings by the DSB"); ("Events that occurred before the adoption of the recommendations and
rulings by the DSB "); and ("Alleged events that overlapped the adoption of the recommendations
and rulings by the DSB "). The United States considers the sub -headings self-explanatory and
further considers that the implications of the sub-headings are apparent from the remainder of the
Interim Report . The United States, therefore, sees no reason for the Panel to provide the
additional requested explanations.
5.4. The Panel chose to describe the European Union's alleged compliance "ac tions" under the
three relevant sub -headings in order to better understand the nature of the European Union's
responses to the United States' allegations of non -compliance, bearing in mind that the timing of
the alleged compliance "actions" is pertinent to certain aspects of the European Union's refutation
of the United States' claims. For example, the European Union argues that it has no compliance
obligation at all in relation to subsidies that ceased to exist prior to the adoption of the
recommendations and rulings. Considerations pertaining to the timing of the alleged compliance
"actions" are also, more generally, a feature of other European Union arguments, including the
submission that certain events that have taken place over the passage of time (inc luding
post-launch investments made in the A320 and A330 both prior to and after the adoption of the
recommendations and rulings ) have diluted the causal link established in the original proceeding
such that the challenged subsidies are no longer a "genuin e and substantial" cause of adverse
effects. Thus, ultimately, the European Union's alleged compliance "actions" have been described
under the relevant sub -headings as a first step in clarifying the arguments underlying the

28 European Union's first written submission, para. 1242; and second written submission, para. 1696.

European Union's assertion of co mpliance, the full contours of which are fully explored and
assessed in the remainder of the Report.
5.2.2 Paragraph 6.8
5.5. The European Union requests that the last sentence of paragraph 6.8 be revised to more
accurately reflect the evidence submitted by the Euro pean Union and the United States in relation
to the terminatio n of certain LA/MSF agreements. The United States argues that one piece of
evidence upon which the European Union relies in this context does not provide support for the
European Union's request ed language, and that another piece of evidence upon which the
European Union relies was not supplied by the European Union, but by the United States. The
United States asks the Panel to consider these factors when assessing the European Union's
request.
5.6. Paragraph 6.8 has been modified to reflect the parties' positions in relation to the evidence
submitted by the European Union regarding the termination of the French LA/MSF Agreements for
the A310, A310-300, A330/A340, A330 -200, and A340 -500/600.29 Consequential adjustments
have also been made to paragraphs 6.9-6.12. The United States' evidence, which the
European Union asserts demonstrates that the German LA/MSF Agreements for the A300B,
A300B3/B4, A300 -600, A310, A310 -300, A320 , and A330/A340 were terminat ed in 1997 and
1998, is discussed in paragraph 6.26.
5.2.3 Paragraphs 6.15, 6.16, 6.859, 6.869, 6.879, 6.895, 6.908, 6.918, and 6.928
5.7. The European Union requests that the Panel's characterization of the European Union's
arguments in paragraphs 6.15, 6.16, 6.85 9, 6.869, 6.879, 6.895, 6.908, 6.918 , and 6.928 be
modified to reflect the fact that the European Union's submissions concerning the end of the "lives"
of the relevant subsidy measures were focused on the end of the implementation period, not the
beginning of the implementation period. The United States offers an alternative revision regarding
paragraph 6.15, and argues that it is unnecessary to revise any of the other relevant paragraphs
because they already accurately reflect the European Union's factual arguments regarding the time
at which the "lives" of the relevant subsidy measures came to an end.
5.8. The relevant paragraphs have been amended to more accurately reflect the European Union's
arguments.
5.2.4 Paragraphs 6.33-6.35
5.9. The European Union requests that pa ragraphs 6.33-6.35 be moved from sub-heading 6.2.2
(now 6.2.3) to sub -heading 6.2.3 (now 6.2.4) , to reflect the fact the relevant post-launch
investments occurred both after and before the adoption of the recommen dations and rulings by
the DSB. The United States did not comment on the European Union's request.
5.10. The text of paragraphs 6.33 -6.35 now appears under sub -heading 6.2. 4 (in
paragraphs 6.36-6.38). A corresponding change has also been made t o the title of
sub-heading 6.2.4.
5.2.5 Paragraph 6.39
5.11. The European Union requests the replacement of the word "their" in paragraph 6.39 with
the word "any", arguing that the wording "their present -day adverse effects", when applied to the
challenged LA/MSF subsidies, appears to suggest that these subsidies do have presen t-day
adverse effects, a question that the European Union considers the Panel is not pre -judging at this
stage of the Interim Report. The European Union additionally requests the Panel to clarify the
attribution of a quotation in the same paragraph to the European Union. The United States did not
comment on the European Union's request.

29 Although the letter of termination submitted in Exhibit EU-34 does not explicitly refer to the A310-300
programme, we are satisfied that when read together with Exhibit USA-396 (BCI), the information contained in
Exhibit EU-34 demonstrates that the French A310-300 LA/MSF contract has also been terminated.

5.12. Paragraph 6.39 has been modified to address the European Union's concerns.
5.3 Scope of the compliance proceeding
5.3.1 Paragraphs 6.53 and 6.80
5.13. The United States requests that the de scription in paragraphs 6.53 and 6.80 of the findings
made in the original proceeding in relation to the United States' claims against the alleged LA/MSF
commitment for the Original A350 be modified to more accurately reflect the conclusions set out in
paragraph 8.3 of the original panel report. The European Unio n objects to the
United States' request insofar as it asks for the deletion of existing language in the Report,
language that the European Union deems accurate. The European Union does not, however, object
to the additional language proposed by the United States if the existing language is retained.
5.14. For the avoidance of confusion, the relevant passages of paragraphs 6.53 and 6.80 have
been clarified.
5.3.2 Paragraphs 6.109 and 6.143
5.15. The European Union requests that the phrase "for the purpose of financing the development
of each and every new model of Airbus LCA that has ever been launched and brought to market"
in paragraphs 6.109 and 6.143 be replaced with the phrase "for the purpose of financing the
development costs of Airbus LCA" in order to reflect the fact that : (i) no such agreements were
entered into "for the purpose of financing the development of" the A321, A319 and A318 LCA;
(ii) Germany, Spain and the UK did not enter into LA/MSF loan agreements for the A330-200; and
(iii) Germany and the UK did not enter into LA/MSF loan agreements for the A340-500/600.
5.16. The United States considers that the European Union's objection to the wording of the
Interim Report resembles an argument that the European Union made before the original p anel.
The United States recalls that the original panel, after considering that European Union argument,
observed that: "{W}hile we understand that the Airbus governments did not provide LA/MSF for
each and every model of LCA developed by Airbus, the evidence we have reviewed does show that
whenever Airbus sought LA/MSF it was offered by each of the Airbus governments on the same
four 'core terms', and in all but one case, the terms and conditions of that LA/MSF were agreed
between the parties." 30 The United States has no objection to the Panel making conforming
changes to paragraph 6.109 of the Interim Report.
5.17. Footnote 205 (now footnote 228) to paragraph 6.109 refers to a passage from the adopted
panel report which, in our view, accurately reflects the relevant facts pertaining to the extent to
which LA/MSF agreements were entered into by Airbus and the Airbus governments for the
purpose of financing the development of every new model of Airbus LCA. Accordingly, we decline
the European Union's request in relation to paragraph 6.109.
5.3.3 Footnote 224 (now footnote 247)
5.18. The European Union requests the Panel to insert the words "up to a maximum of" before the
figure "33%" that appears in footnote 224 (now footnote 247) to accurately reflect the facts of the
agreements at issue. The United States did not object to the European Union's request.
5.19. Footnote 224 (now footnote 247) has been modified to more accurately reflect the terms of
5.4 Whether LA/MSF for the A350XWB is a subsidy
5.4.1 Paragraph 6.229 et seq.
5.20. The European Union requests that the expression "successful aircraft delivery" that is used
in various paragraphs of the Interim Report to denote the trigger of a repayment obligation, be

30 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.530.

replaced with the express ion "aircraft delivery". According to the European Union, modifying the
term "aircraft delivery" with the adjective "successful" is confusing because it "inaccurately"
suggests that not all aircraft deliveries trigger repayment obligations. The United Stat es did not
comment on the European Union's request.
5.21. Paragraphs 6.229, 6.232, 6.238, 6.251, 6.254 , and 6.261 have been modified to address
the European Union's concern.
5.4.2 Footnote 377 (now footnote 401) to paragraph 6.231
5.22. The European Union requests that the words "even now", which appear in the final sentence
of footnote 377 (now footnote 401) to paragraph 6.231, be replaced with "as of today" in order to
avoid the impression that the Panel considers that a financial instrument with an interest rate that
depends in part on the timing of [***], such as the French A350XWB LA/MSF contract, inherently
confers a "benefit". The United States considers that the phrase "even now" does not have the
connotation that the European Union believes that it has in this conte xt, and that "even now" is
synonymous with "as of today", rendering the European Union's request inutile.
5.23. Footnote 377 (now footnote 401) has been modified to address the European Union's
concern.
5.4.3 Paragraphs 6.268-6.288
5.24. The European Union notes that paragraphs 6.268-6.288 describe how the A350XWB LA/MSF
agreements compare with LA/MSF agreements provided for earlier aircraft programmes. The
European Union requests that citations be added to the relevant p aragraphs of the United States'
submissions "from which the arguments reviewed in this comparative assessment were drawn".
5.25. The United States notes that paragraphs 6.268 -6.288 contain detailed factual observations
citing to the original panel report or derived by the Panel from evidence submitted by the parties in
this proceeding. The United States observes that this passage represents the Panel's effort to
organize facts that both parties have submitted as relevant to the evaluation of the matter before
the Panel, rather than an attempt to capture the viewp oint of either party. Citation to "relevant
paragraphs of the United States' submissions" is therefore, in the view of the United States,
unnecessary. The United States also makes a general comment, detailed further below, that as a
panel need not adopt th e reasoning of one of the parties, and may rely on its own reasoning
independent of the arguments put forward by the parties, its conclusions need not cite the
arguments of the parties.
5.26. Paragraphs 6.268-6.288 are part of sub -section 6.5.2.3.1 of the Inter im Report, in which
the key features of the LA/MSF agreements for the A350XWB are described and factually assessed,
first individually and then in comparison with the LA/MSF agre ements challenged by the
United States in the original proceeding. In performi ng this factual assessment, the compliance
Panel found it useful to compare the A350XWB LA/MSF agreements with the LA/MSF agreements
at issue in the original proceeding in order to develop a better understanding of their particular
features.
5.27. We recall tha t the mandate of a panel is to make an objective assessment of the matter
before it, including an objective assessment of the facts, in accordance with Article 11 of the DSU.
In so doing, a panel must review the totality of the facts and evidence before it .31 We are not
aware of a rule that prevents a panel from setting out its own factual understanding of measures
in this context, or that a panel's factual understanding of the measures at issue must necessarily
proceed from the arguments made by one or anot her of the parties. Accordingly, we see no basis
for the European Union's request for review and, therefore, make no change to the relevant
paragraphs.

31 Appellate Body Report, US – Wheat Gluten, paras. 150-151. See also Appellate Body Report, Korea –
Dairy, para. 139.

5.4.4 Footnote 438 (now footnote 462) to paragraph 6.289
5.28. The European Union observes that footnote 438 (now f ootnote 462) to paragraph 6.289
reads:
With regards to the UK contract, the European Union initially stated that [***], as
disbursements were scheduled to occur no earlier than [***]. However, the European
Union later clarified that disbursements were mad e as follows: In [***].
Disbursements were scheduled and made by the UK Government in [***].
5.29. The European Union asserts that the final sentence in this section of the footnote is factually
inaccurate, alleging that the [***], and that under the [***], the earliest disbursement was
scheduled for [***]. The European Union requests this Panel's relevant finding be reviewed "to
ensure factual accuracy". The United States considers that the European Union's request should be
rejected because the relevant language in the Interim Report already accurately reflects the facts.
5.30. The description in the footnote at issue is based on our assessment of: (i) the HSBI revised
schedule of disbursements contained at paragraph 2 of the exhibit to which the European Union
refers – which replaced the schedule of disbursements also contained at paragraph 2 of the
[***]; and (ii) the remaining paragraphs of Exhibit EU-133/EU-(Article 13)-33. While paragraph 3
of that exhibit indicates that a disbursement was indeed scheduled to occ ur on [***] and a
further disbursement on [***], the same paragraph indicates those payments – as distinct from
the earlier, scheduled disbursements – would be subject to additional conditions. This is further
confirmed by the text of paragraph 4 of the exhibit.
5.31. We recall that the European Union was asked to clarify its submissions in this respect in
Panel question Nos 86 and 128. In response to Panel question No. 86, the European Union
provided an HSBI schedule of disbursements already made, and those to be made, confirming that
payments would be made prior to [***]. In Panel question No. 128, the European Union was
asked to reconcile this information with its submission at paragraph 276 of its second written
submission that "[***]. Instead, amendments mad e to the [***]". In its response, the
European Union "confirm{ed} that the information included in its response to Question 86 is
accurate. The [***] does not, however, affect the overall EU argument". We note that Professor
Whitelaw's calculations (for ex ample in Exhibit EU -421 (HSBI)) also utilise figures involving
disbursements made prior to [***]. The compliance Panel's understanding of the disbursements
made and scheduled to be made is based on these submissions by the European Union.
5.32. Having reviewed the finding, and found it to be in accordance with the European Union's
factual submissions, we accordingly make no change.
5.5 Programme risk for the A350XWB
5.5.1 Footnote 500 to paragraph 6.338
5.33. The European Union requests that the compliance Panel add a citation to the
United States' submissions where the United States makes an argument which the European Union
maintains is described in footnote 500. According to the United States, the footnote reflects the
Panel's observation regarding the implications of an argument raised by the European Union, and a
citation is unnecessary.
5.34. Footnote 500 of the Interim Report set out an observation made by the Panel about one of
the possible implications of the European Union's decision not to provide certain pricing
information. Our observation does not constitute an argument made by either of the parties. For
the avoidance of confusion, the relevant footnote containing the observation has been deleted.
5.5.2 Paragraph 6.490
5.35. The European Union notes that the footnote to this paragr aph appears to contain an
erroneous attribution to the European Union. The European Union requests that the content of the
footnote be corrected. The United States did not object to the European Union's request. The
citation has been corrected to refer to the relevant part of the United States' submissions.

5.5.3 Paragraphs 6.496-6.500, 6.502, 6.505, 6.513, and 6.526
5.36. The European Union requests that citations be added to the United States' submissions
where the United States asserts the relevance of "the context of the development of the
A350XWB" to the question of the mitigation of risks that is referenced in paragraphs 6.496 -6.500,
and where "the United States makes" certain arguments, which the European Union maintains are
set out in paragraphs 6.502, 6.505, 6.513, and 6.526.
5.37. The United States asks the Panel to reject the European Union's request, arguing that there
is no need to include any such citations. The United States notes that the DSU does not require
panels to adopt the view of one party or the other. The United States considers that Article 11 of
the DSU presupposes that a panel may assess the facts and relevant legal provisions differently
from one or both parties with respect to a matter in dispute. 32 The United States recalls that a
panel may not "ma ke the case" for a complaining party "which has not established a prima facie
case of inconsistency based on specific legal claims asserted by it" 33, but that within these
limitations, a panel has considerable latitude to formulate its conclusions. The Unit ed States
comments that, as a panel need not adopt the reasoning of one of the parties, and may rely on its
own reasoning independent of the arguments put forward by the parties, its conclusions need not
cite the arguments of the parties. The United States considers that a panel is free to use such
citations to explain its conclusions, either by comparison or contrast with the views expressed by
one or both of the parties. However, absent some further additional consideration, a panel has no
obligation or e ven reason to include citations to the arguments of a party even if it reaches
conclusions favourable to that party. The United States considers that the European Union has not
provided reasons why it is necessary or appropriate to include citations and as ks that the Panel
reject the European Union's requests in this regard.
5.38. The United States further observes that paragraphs 6.496 -6.500 lay out the Panel's
understanding of relevant facts as context for evaluating the European Union's argument that the
risks associated with the A350XWB were mitigated. The United States observes that the passage
contains numerous citations to documents submitted by both parties, and that the European Union
does not dispute the accuracy of the Panel's observations or that the cited documents fully support
them. The United States also observes that: in paragraph 6.502 the Panel was addressing an
internal inconsistency within the arguments presented by the European Union; in
paragraphs 6.503-6.504 the Panel evaluated evidence sub mitted by the European Union to
determine whether it supported an inference that the European Union was seeking to draw; in
paragraph 5.505 the Panel concluded that the evidence supported a different inference;
paragraph 6.513 contains conclusions reached by the Panel after evaluating the European Union's
arguments in light of the evidence submitted by both parties, and that in any event those
conclusions agree in part with the European Union; and that paragraph 6.526 addresses matters
relevant to evaluating the European Union's arguments. The United States considers that there is,
accordingly, no need to include citations to United States arguments.
5.39. As the European Union appears to acknowledge in its request for review of
paragraph 6.502, the paragraphs that are the focus of the European Union's request for review set
out the compliance Panel's "respon{se} to the European Union's submissions on the mitigation of
the risks associated with the A350XWB". These submissions we re made as part of the
European Union's rebuttal of the United States' arguments concerning the appropriate project -
specific risk premium to use for the purpose of constructing the relevant market interest rate
benchmark for the A350XWB LA/MSF measures. The European Union advanced two main
arguments in this regard: First, that due to the technological challenges of the A350XWB, Airbus
changed its development process, which significantly mitigated risks of the A350XWB compared
with those of the A380; and second, that the later point in the deve lopment process at which the
A350XWB LA/MSF contracts were concluded compared to the point when the A380 contracts were
concluded also mitigated the risks associated with the A350XWB programme compared with the
A380 programme. In our view, a full expositio n of the context of the development of the aircraft
was relevant to understanding whether the arguments made by the European Union with respect
to risk mitigation were compelling. Thus, a fter summarising the European Union's submissions in

32 The United States refers to Appellate Body Report, US – Gambling, para. 280 (in turn citing Appellate
Body Report, EC – Hormones, para. 156); and Appellate Body Report, US – Certain EC Products, para. 123.
33 The United States refers to Appellate Body Report, Japan – Agricultural Products II, para. 129.

paragraph 6.493, the compliance Panel evaluated their merits in paragraphs 6.494 -6.527,
exploring and drawing upon evidence submitted by both parties.
5.40. Accordingly, we see the entire content of paragraphs 6.493 -6.527 to be consistent with
(and, indeed, required by) our mandate under Article 11 of the DSU, which is to make an objective
assessment of the matter, including an objective assessment of the facts. In this respect, we note
that it is well established that a panel must examine and consider the totality of the facts and
evidence before it, not just evidence submitted by one or another party, and evaluate the
relevance and probative force of each piece of evidence. 34 It is also equally settled that a panel is
entitled to develop its own reasoning, and that evidence before the panel can be used in favour of
either party, regardless of which party presented it. Moreover, while panels are inhibited from
addressing legal claims outside of their terms of reference, nothing in the DSU limits the faculty of
a panel freely to u se arguments submitted by any of the parties to support its own findings and
conclusions on the matter under its consideration. 35 Indeed, a panel might well be unable to carry
out an objective assessment of the matter, as mandated by Article 11 of the DSU, if in its
reasoning it had to restrict itself solely to arguments presented by the parties to the dispute. 36 We
have, therefore, left paragraphs 6.496-6.500, 6.502, 6.505, 6.513, and 6.526 unchanged.
5.5.4 Paragraphs 6.538, 6.546, 6.563, 6.570, and 6.57937
5.41. The Eur opean Union requests that citations be added "to the relevant paragraphs of the
United States' submissions at which the United States makes" the arguments or comparison, which
the European Union maintains are set out in paragraphs 6.538, 6.546, 6.563, 6.570, and 6.579.
5.42. The United States refers to its general comment, detailed above, in respect of the
European Union's request to include citations to United States arguments . The United States also
observes that : paragraph 6.538 sets out certain Panel conclusi ons in respect of United States
arguments cited in an earlier paragraph; paragraph 6.546 contains analysis undertaken by the
Panel to address European Union arguments in light of relevant evidence; in paragraph 5.563 – as
well as paragraph 6.561 – the Pane l compares A350XWB and A380 orders at the date of the
respective LA/MSF contracts in response to an EU argument cited in paragraph 6.559; in
paragraph 6.570 the Panel makes a finding in response to a United States argument cited in
paragraph 6.545; and tha t paragraph 6.579 contains the conclusions of the Panel based on
arguments from the European Union and United States, which the preceding paragraphs cite. The
United States therefore considers that it is not necessary to add citations to the United States'
submissions as the European Union requests.
5.43. The relevant passages identified by the European Union form part of our evaluation of the
merits of the submissions of either one or both of the parties in relation to various elements of the
project risk assoc iated with the A350XWB as compared to that associated with the A380, in the
light of the evidence submitted by both parties, consistent with our task to make an objective
assessment of the matter. We can, therefore, see no basis to support the European Uni on's
request and, accordingly, make no change to the relevant paragraphs.
5.5.5 Paragraph 6.563
5.44. The European Union suggests that the phrase "a part sh are" that is found in
paragraph 6.563 is tautological and requests the deletion of either the word "part" or the word
"share". The United States did not specifically comment on this aspect of the European Union's
request. The word "part" has been deleted from the relevant paragraph.

34 Appellate Body Report, US – Wheat Gluten, paras. 150-151: See also Appellate Body Report, Korea –
Dairy, para. 139.
35 Appellate Body Report, EC – Hormones, para. 156. See also Appellate Body Reports, US – Certain EC
Products, paras. 122-123; and Korea – Dairy, para. 139.
36 Appellate Body Report, EC – Hormones, para. 156.
37 As observed by the United States, the European Union's comments refer to paragraph 6.759, but
quote a passage that appears at paragraph 6.579. We therefore understand the European Union's comment to
relate to paragraph 6.579.

5.6 Prohibited subsidy claims
5.45. The United States requests that the description of certain aspects of the A350XWB LA/MSF
contracts in paragraph 6.774 be supplemented to include references to additional examples of
"Domestic A350XWB Development Contingency" drawn from the evidence, and that the
statements made in paragraph 6.776 concerning the United States' Article 3.1(b) claims be revised
to better reflect certain pieces of evidence. The European Union asks the Pan el to reject the
United States' requests. Regarding paragraph 6.774, the European Union considers that the
United States' requested revisions address issues that are sufficiently addressed elsewhere in the
Report, and are thus unnecessary and would be inaccurate in th is context. Regarding
paragraph 6.776, the European Union considers that the United States' requested changes would
improperly and unnecessarily create affirmative findings that the Panel currently does not make.
5.46. The United States' requested modifications to paragraph 6.774 would bolster the existing
factual characterization and discussion of the A350XWB LA/MSF cont racts; w hile the
United States' requested amendments to paragraph 6.776 would introduce conclusions that the
Panel does not currently make but instead assumes arguendo. In our view, the existing
characterization and discussion of the relevant features of the A350X WB LA/MSF contracts set out
in the Report are sufficient to resolve the United States' Article 3.1(b) claim. Moreover , insofar as
the United States' requested modifications create conclusions that the Panel does not currently
make but instead explicitly as sumes arguendo, such changes are not only unnecessary, but would
create confusion. Thus, we decline the United States' requests.
5.7 Expiry through the amortization of benefit
5.7.1 Paragraph 6.869, first bullet point
5.47. The European Union requests modification of the first bullet point to paragraph 6.869 to
more fully reflect the European Union's submissions concerning the end of the "lives" of the
relevant subsidy measures by means of amortization of "benefit". Specifically, the European Union
requests that the phrase "before the end of the implementation period" be inserted immediately
following the phrase "'Marketing life' of each of the financed LCA programmes would come to an
end". The United States did not object to the European Union's request.
5.48. The first bullet p oint to paragraph 6.869 has been modif ied in response to the
European Union's request.
5.7.2 Footnote 1496 (now footnote 1521) to paragraph 6.869
5.49. The European Union requests modification of footnote 1496 (now footnote 1521) to
paragraph 6.869 to more clearly ref lect the European Union's arguments concerning the dates by
which the "benefit" of the subsidies mentioned in that footnote would amortize. The United States
considers that the current text of the footnote, which the United States finds perhaps less precis e
than the revised text offered by the European Union, is nonetheless accurate, and therefore no
change to the footnote is necessary.
5.50. We have modified the footnote to address the European Union's concerns.
5.7.3 Footnote 1497 (now footnote 1522) to paragraph 6.869
5.51. The European Union requests that the text of footnote 1497 (now footnote 1522) be moved
to the body of paragraph 6.869 as a separate fourth bullet point to that paragraph in order to
more clearly reflect the European Union's arguments. The United State s did not comment on the
European Union's request.
5.52. The bullet points to paragraph 6.869 identify the subsidy measures that the European Union
maintains are demonstrated in the PwC Amortization Report to expire "prior to the end of the
implementation period ". The European Union does not argue that the "benefit" of the subsidies
discussed in footnote 1497 (now footnote 1522) full y amortized "prior to the end of the
implementation period". It would, therefore, be an inaccurate c haracterization of the

European Union's argument to transform the text of footnote 1497 (now footnote 1522) into a
fourth bullet point to paragraph 6.869. Accordingly, we decline the European Union's request.
5.7.4 Paragraph 6.894
5.53. The European Union requests modification of paragraph 6.894 to more clearly reflect the
facts concerning the number of regional development grants involving Spanish authorities. The
United States did not comment on the European Union's request.
5.54. We have modified the paragraph to address the European Union's concerns a nd more
clearly reflect the subsidies at issue.
5.7.5 Footnote 1574 (now footnote 1599) to paragraph 6.906, and paragraph 6.1076
5.55. The European Union requests that, in footnote 1574 (now footnote 1599) to
paragraph 6.906, we insert an explicit finding that the Eur opean Union has demonstrated that the
German subsidies for the Nordenham facility and that Spanish subsidies provided for the Sevilla
facilities have fully amortized as of present day. The European Union further requests that
conforming changes be made to paragraph 6.1076. The United States did not comment on the
European Union's request.
5.56. Footnote 1574 (now footnote 1599) appears at the end of a passage in which the Panel
determines that it is not necessary to express a definitive view on what would be the most
appropriate methodology for determining the ex ante lives of the seven regional development
grant subsidies because even accepting the European Union's arguments in full, the
European Union has not established that the relevant subsidies expired by th e end of the
implementation period. Thus, no finding is made on the appropriateness of the methodology relied
upon by the European Union to establish the dates on which, according to the European Union, the
"benefit" of the German and Spanish regional deve lopment subsidies were fully amortized.
Accordingly, there is no factual basis to grant the precise modification requested b y the
European Union to either paragraphs 6.906 and 6.1076.
5.7.6 Paragraphs 6.1067-6.1068
5.57. The European Union requests that paragraphs 6.1067-6.1068 be modified to capture what
the European Union asserts is the fact that the United States did not contest the fact that full
repayment of principal and interest was effected in respect of the relevant subsidies on the dates
indicated by the Eur opean Union. The United States considers that the European Union
misunderstands the relevant United States arguments in the context of these paragraphs. The
United States explains that it does not accept the European Union's proposed repayment dates, in
part because the European Union improperly defined repayment as occurring once principal and
interest payments are complete, but before royalty payments stop (in cases where royalty
payments are required). The United States rejects that definition, instead having arguing that true
"repayment" cannot occur while royalty payments continue.
5.58. We consider the requested change unnecessary. In the two paragraphs at issue, the Panel
summarizes the United States' response to the European Union's argument that the "live s" of
relevant LA/MSF loans came to an end when Airbus fully repaid the principal and interest
associated with those measures. The United States contested this argument by asserting that the
repayment of LA/MSF on subsidized terms could not bring about t he end of the LA/MSF
subsidies' lives. The Panel concluded that it is unnecessary to make any definitive findings with
respect to the merits of the European Union's arguments because, inter alia, even accepting that
the principal and interest of the relevant LA/MSF measures ha d been repaid when the
European Union claimed, it would not avail the European Union. The extent to which the
United States did or did not contest the validity of the repayment dates is therefore immaterial.
We thus decline to make the requested change.
5.7.7 Paragraphs 6.1074, 6.1076, and 6.1077
5.59. The European Union requests that footnotes identical or substantiall y similar to
footnote 1522 (now footnote 1547) be added to paragraphs 6.1074, 6.1076 and 6.1077 to more

accurately reflect the entir ety of the compliance Panel's findings on the expiry of the ex ante
"lives" of the subsidies. The United States did not comment on the European Union's request.
5.60. Paragraphs 6.1074, 6.1076 , and 6.1077 make and/or summarize findings on the extent to
which the European Union has established that the challenged subsidies were "expired",
"extinguished" or "extracted" by the end of the implementation period . On the other hand,
footnote 1522 (now footnote 1547) simply confirms that we are satisfied that, on the bas is of
either of the methodologies advanced by the European Union, the ex ante "lives" of the LA/MSF
subsidies for the A330 -200 and A340 -500/600 did not come to an end before the end of the
implementation period, but rather in [***] and [***]. Thus, the fin ding made in footnote 1522
(now footnote 1547) is out of place in the findings made in paragraphs 6.1074, 6.1076 and
6.1077. It is also irrelevant to the question before the compliance Panel, namely, whether the fact
that certain subsidies "expired" before the end of the implementation period means that those
subsidies have been "withdrawn", within the meaning of Article 7.8 of the SCM Agreement.
Accordingly, we decline to make the requested modifications.
5.8 Extraction of benefit
5.61. The European Union requests that the compliance Panel review the finding made in
paragraph 6.927 where it concluded that it "will not consider the European Union's 'extraction'
arguments any further in this dispute". The European Union asserts that "neither before the
original panel, nor before the Appellate Body, did the European Union argue that the extraction
events resulted in withdrawal of the subsidies, within the meaning of Article 7.8". Moreover, the
European Union recalls that the Appellate Body found that "a determination as to whether any
action taken to implement the recommendations made has actually resulted in the 'withdrawal' of
subsidies and has brought about a Member's compliance with the SCM Agreement, is, if contested,
best left to a compliance panel …". Thus, accord ing to the European Union, no adopted findings
exist on whether the "extraction" events achieved "withdrawal" of the subsidies, with the
consequence that there are no such findings for the European Union to unconditionally accept
under the terms of Article 17.14 of the DSU.
5.62. The United States asks the Panel to reject the European Union's request for two main
reasons. First, the United States argues that the European Union's statement that it never argued
before the original panel or Appellate Body that the r elevant extraction events resulted in
withdrawal of the subsidies within the meaning of Article 7.8 is factually incorrect. Rather,
according to the United States, the European Union raised this precise argument and the Appellate
Body explicitly rejected i t. Second, the United States considers that European Union's argument
that the relevant DASA and SEPI transactions resulted in "withdrawal" of the subsidies rests on the
argument that, as a matter of law, they were "extractions" that affected the value of subsidies
previously granted to those companies. As the Panel already notes in the Report, however, the
Appellate Body rejected that argument.
5.63. In the Panel's view, contrary to the European Union's assertions, the European Union did
argue in the original p roceeding that the relevant "extraction" events constituted "withdrawals"
within the meaning of Article 7.8 (and Article 4.7) of the SCM Agreement. 38 The original panel
considered the European Union's arguments and dismissed them, explicitly finding:
Finally, we reject the European Communities' argument that the retention of cash and
cash equivalents of Dasa and CASA, by DaimlerChrysler and SEPI, respectively,
constituted a "withdrawal" or "repayment" of subsidies previously provided to those
entities within the meaning of Articles 4.7 and 7.8 of the SCM Agreement.39
5.64. The European Union appealed the original panel's finding. 40 The Appellate Body reviewed
the European Union's appeal41, concluding as follows:

38 Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.257, 7.262, and
7.278-7.279.
39 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.289.
40 Notification of Appeal by the European Union under Article 16.4 and Article 17 of the DSU and under
Rule 20(1) of the Working Procedures for Appellate Review, WT/DS316/12/Rev.1, paras. 2 and 3.

Accordingly, we uphold the Panel's ultimate finding, in paragraphs 7.283, 7.284, and
7.289 of the Panel Report, that the "cash extractions" did not re sult in the
"withdrawal" of subsidies, within the meaning of Articles 4.7 and 7.8 of the
SCM Agreement.42
5.65. Thus, we find no factual basis to support the European Un ion's submission that no findings
were adopted in the original proceeding in relation to the question whether the "extraction" events
achieved the "withdrawal" of subsidies, within the meaning of Article 7.8 of the SCM Agreement.
Accordingly, we decline th e European Union's request for revi ew of our findings in
paragraph 6.927.
5.9 Extinction of benefit
5.9.1 Paragraph 6.994
5.66. The European Union requests that the finding made in paragraph 6.994 on the "fair-market"
value of the ASM transaction be reviewed in the light of what the European Union asserts is
"evidence clearly indicating that the value of Lagardère's commitment to the French State formed
part of the information assessed by the relevant investment banks in determining the relative
value of MHT to the combine d company". The United States did not comment on the
European Union's request.
5.67. We understand the evidence the European Union relies upon to be the following description
found in the Aérospatiale-Matra Offering Memorandum:
In its role as a preferred strateg ic partner, Lagardère has made certain undertakings
to the French State in respect of the trading price of Aérospatiale Matra's shares on
the Paris Bourse as compared to the CAC 40 index for a period of two years. As a
general matter, Lagardère has agreed to make a payment to the French State of up to
FF 1.15 billion if the trading price of Aérospatiale Matra's shares underperforms the
CAC 40 index by 8% or more during this period. If the trading price of Aérospatiale
Matra's shares outperforms the CAC 40 i ndex by 10% or more during this period,
Lagardère will not be required to make any payment and its obligation will be
terminated. If the trading price is between these two points a pro rata amount will be
payable.43
5.68. While this passage describes the undertaking given by Lagardère concerning the share price
of ASM following the Aérospatiale -MHT merger, it does not explain whether or the extent to which
its value to the French State was taken into account by the relevant investment banks in their
valuations. In this regard, we note that because of the conditional nature of Lagardère's
undertaking, Lagardère's final liability could range from FF 1.15 billion to zero, depending upon
how the ASM shares traded following the merger. Thus, in the absence of any eviden ce disclosing
what the relevant investment bank valuations were, we see no reason to alter the finding made in
paragraph 6.994. Nevertheless, in the light of the European Union's request for review, we have
sought to clarify the finding made in paragraph 6 .994 and mad e a related change to
paragraph 6.995.
5.9.2 Paragraph 6.1008
5.69. The United States requests that the last sentence of paragraph 6.1008 be modified to
provide greater clarity in the Panel's findings concerning the implications of ASMs corporate
governance structure on the "economic reality" of the ASM transaction. The European Union asks
the Panel to reject the United States' request. In the European Union's view, the existing language
in this paragraph is accurate and succinct. Further, according to the European Union, the Panel has
elsewhere discussed the relevant issues discussed in this paragraph, making the modification
unnecessary.

41 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 750-759.
42 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 759.
43 Aérospatiale-Matra Offering Memorandum, 25 May 1999, (Exhibit EU-58), p. 24.

5.70. For the avoidance of confusion, the final sentence of paragraph 6.1008 has been reworded
along the lines suggested by the United States.
5.9.3 Paragraphs 6.1009 and 6.1010
5.71. The United States requests that the first sentence of paragraph 6.1010 and the
accompanying footnote be deleted, because according to the United States, the European Union
did not deny the accuracy of the state ments contained in the BusinessWeek report quoted at the
end of paragraph 6.1009, but only the United States' assertions in paragraph 20 of the
United States' response to Panel question No. 8. The United States argues that the United States'
assertions in paragraph 20 were distinct fr om the underlying evidence. The European Union asks
the Panel to reject the United States' request. According to the European Union, the Panel properly
understood the European Union's statement referred to in the United States' comment as a denial
of the entirety of the assertions, including a denial that the materials cited by the United States
(e.g. the statements contained in the BusinessWeek report) in support of the United States
assertions.
5.72. In paragraph 20 of its response to Panel question No. 8, the United States made a number
of assertions including that the "French government set for itself the political goal to 'create a
national champion' in the aerospace and defense industry, which would be better positioned to
negotiate with its British and German counterparts". In the footno te to this sentence, the
United States made the following additional assertions:
Press reports also confirmed that the ASM merger plan was adopted in reaction to a
prospective merger between Dasa and BAE, which would have resulted in the French
industry being "clearly outgunned" and "threatened" its "traditional dominance of the
Airbus partnership". … For this reason, "Prime Minister Jospin secretly endorsed a bold
plan to privatize Aérospatiale an d merge it with Matra, a large defense contractor
controlled by Lagardère. Jospin reasoned that since the government would retain a
large stake, it could still pretty much call the shots. 'We had to be as industrially
strong as possible to stay in the game ', remembers Frederic Lavenir, a key high -
ranking Finance Ministry official who helped structure the merger."44
5.73. We do not read the contents of this footnote, which accompanied the second sentence of
paragraph 20 of the United States' response to Panel quest ion No. 8, to be merely a citation of
evidence in support of the assertion made in that paragraph. In our view, the United States
reference to Prime Minister Jospin's alleged views concerning the strategic importance and
continued national control of ASM f ormed part of its assertion that the French government wanted
to create a "national champion" for the purpose of the merger between Dasa and BAE. Thus, in
denying the accuracy of the assertions set out in paragraph 20 of the United States' response to
Panel question No. 8, we understand the European Union to deny them in their entirety, including
those set out in the United States' footnote quoting from the BusinessWeek report. Such a reading
of the European Union's position would be consistent with the Eur opean Union's general line of
argument concerning the "qualitative change in control" that resulted from the ASM merger, which
according to the European Union, left Lagardère (not the French State) with "effective control"
over the company's key decisions. Accordingly, we find the c haracterization of the
European Union's position concerning the assertions made in paragraph 20 of the United States'
response to Panel question No. 8 to be accurate. We, therefore, decline the United States' request
to delete the first sentence of paragraph 6.1010 and the accompanying footnote.
5.10 Requests for findings of the existence, and consistency with the covered
agreements, of measures taken to comply regarding the Bremen Airport runway
extension and the Mühlenberger Loch aircraft assembly site subsidies
5.74. The European Union requests that the Panel find that the two declared measures taken to
comply concerning the Mühlenberger Loch aircraft assembly site and the Bremen Airport runway
extension achieved "withdrawal" of the respe ctive subsidies, within the meaning of Article 7.8 of

44 United States' response to Panel question No. 8, fn 16 (quoting Jean Rossant, "Birth of a Giant: The
inside story of how Europe's toughest bosses turned Airbus into a global star: EADS", BusinessWeek,
10 July 2000, (Exhibit USA-561), p. 170).

the SCM Agreement. The European Union asserts that the right of an original respondent to have a
compliance panel assess the WTO consistency of a measure taken to comply was explicitly
recognised by the Appellate Body in US – Continued Suspension and Canada – Continued
Suspension, where it found that: "absent any rebuttal by the original complainant, the Article 21.5
panel will make its determination on the basis of a prima facie case presented by the or iginal
respondent that its implementing measure has brought it into compliance with the DSB's
recommendations and rulings".45
5.75. The United States asks the Panel to reject the European Union's request. In doing so, the
United States affirms that, as stated in its second written submission, it is not pursuing the claims
included in its panel request with respect to the Mühlenberger Loch and Bremen runway measures.
The United States neither seeks a finding that the European Union failed to comply with the
recommendations and rulings of the DSB with respect to those measures, nor argues that those
subsidies caused adverse effects after the end of the implementation period. Thus, there is no
relevant disagreement between the parties for the Panel to resolve. The Un ited States further
argues that Appellate Body reports in US – Continued Suspension and Canada – Continued
Suspension do not provide material support the European Union's request, and that the
European Union's request is untimely.
5.76. We recall that the purpos e of a panel established under Article 21.5 of the DSU is to make
an objective assessment of whether a Member has complied with the rulings and
recommendations adopted by the DSB in an original proceeding when there is a " disagreement as
to the existence o r consistency with a covered agreement of measures taken to comply". As
described in paragraph 2.1(a), and footnotes 33 (now footnote 53), 87 (now footnote 109), and
1820 (now footnote 1847), neither party presently disputes the existence of the European U nion's
notified measures taken to comply with respect to the Mühlenberger Loch or the Bremen Airport
runway subsidies, and there is, furthermore, no present disagreement between the parties
regarding whether such measures taken to comply are consistent wit h the SCM Agreement's
relevant disciplines or whether they achieve compliance with the recommendations and rulings of
the DSB. The explicit terms of Article 21.5 of the DSU imply that in the absence of any such
"disagreement", there is no question of WTO -consistency to determine in relation to the measures
taken to comply.
5.77. The Appellate Body reports in US – Continued Suspension and Canada – Continued
Suspension do not compel a different resolution. The European Union quotes a passage from these
two reports that appears in sections in which the Appellate Body described what a hypothetical
Article 21.5 panel would be expected to do in the following specific procedural scenario: (a) an
original respondent initiates an Article 21.5 proceeding; (b) the original complainant refuses to
participate in that Article 21.5 proceeding; and (c) the original complainant had already suspended
concessions vis-à-vis the original respondent in accordance with applicable provisions of Article 22
of the DSU. The Appellate Body s tressed, however, that in this hypothetical scenario there would
be a "disagreement" between the parties for the compliance panel to resolve, i.e. whether the
ongoing suspension of concessions continued to be justified under Article 22.8 of the DSU. Thus, in
such a scenario, the compliance panel would be called upon to "make its determination on the
basis of a prima facie case presented by the original respondent that its implementing measure
has brought it into compliance with the DSB's recommendations and rulings"46 in order to address
the "abnormal state of affairs" 47 of ongoing suspension of concessions, a situation that "must be
brought back to normality as soon as possible". 48 No such disagreement or associated exigency
exists in this proceeding. Suspension of concessions has not been approved or implemented, and,
moreover, the original complainant, the United States, initiated the present Article 21.5
proceeding, in which both parties participated.

45 Appellate Body Reports, US – Continued Suspension, para. 358; and Canada – Continued Suspension,
para. 358.
46 Appellate Body Reports, US – Continued Suspension, para. 358; and Canada – Continued Suspension,
para. 358.
47 Appellate Body Reports, US – Continued Suspension, para. 310; and Canada – Continued Suspension,
para. 310.
48 Appellate Body Reports, US – Continued Suspension, para. 348; and Canada – Continued Suspension,
para. 348.

5.78. Thus, in the absence of any explicit refutation by the U nited States of the European Union's
measures taken to comply with respect to the Mühlenberger Loch or the Bremen Airport runway
subsidies, we find that there is no requirement under Article 21.5 of the DSU for the compliance
Panel in this dispute to make any findings on the consistency of those measures with the covered
agreements. Thus, it follows from the express terms of Article 22.2 of the DSU that the
United States would not be entitled to request the suspension of concessions or other obligations
under the covered agreements in relation the Mühlenberger Loch and the Bremen Airport runway
measures. Accordingly, for all of the above reasons, we decline the European Union's request.
5.11 Adverse effects
5.11.1 Paragraph 6.1155 and footnote 1908 (now footnote 1935)
5.79. The United States requests that the last sentence of footnote 1908 (now footnote 19 35) to
paragraph 6.1155 be modified to more accurately reflect the United States' arguments and data
submitted in relation to freighter aircraft. The European Union asks the Panel to reject the
United States' request. In the European Union's view, the requested modification would reflect a
claim regarding freighters that the United States did not substantiate during the course of the
dispute.
5.80. We have modified footnote 1908 (no w footnote 1935) to more accurately capture the scope
of the United States' arguments.
5.11.2 Paragraph 6.1672
5.81. The European Union requests that the finding made in paragraph 6.1672 regarding the
relevance of EADS' gross cash as a source of financing for part of t he development costs of the
A350XWB be modified, and for the Panel to consequently find that the gross cash figures further
strengthen the finding in paragraph 6.1690 that "EADS had significant cash that it could have
diverted to the A350XWB programme". Th e European Union argues that gross cash is relevant in
this context "because, even though it would be reduced when a financial liability falls due, it can
simultaneously be replenished thorough {sic} borrowing, such that EADS' overall cash and
borrowing position does not change." As described in paragraph 6.1672, the European Union made
the same argument in a footnote to its second written submission. The United States asks the
Panel to reject the European Union's request. The United States considers that e ven if EADS could
have issued debt to "replenish" its gross cash as financial liabilities fell due, this is a question of
EADS' counterfactual ability to raise debt. Because the Panel already addresses that counterfactual
ability elsewhere in the Report, t here is no need to address that issue in the context of discussing
gross cash.
5.82. We decline the European Union's request. As explained in the Report, the portion of any of
EADS' gross cash positions (actual or projected) that must cover financial liabilitie s would be
unavailable to divert to the A350XWB programme. Deducting that portion of the gross cash
positions yields EADS' associated net cash positions. We therefore considered net cash to be a
more reliable indicator of how much cash EADS had to divert t o the A350XWB programme. This
relationship between gross and net cash positions endures no matter how much debt EADS could
raise or when EADS raised it. Insofar as EADS could have raised cash with which to help fund the
A350XWB programme by selling debt, t hat is addressed – consistent with how the parties
structured their arguments and presented their evidence – under our EADS-debt-capacity analysis.
In other words, we have analysed the ability of EADS to fund the development costs of the
A350XWB programme through debt, as a debt -capacity issue, rather than under the rubric of
gross cash.
5.11.3 Paragraph 6.1788
5.83. The European Union requests that citations be added to the relevant paragraphs of the
United States' submissions "at which the United States makes" the argument stated in the last two
sentences of paragraph 6.1788.
5.84. The United States refers to its general comment, detailed above, in respect of the
European Union's request to include citations to US arguments . The United States also observes

that the paragra ph contains the Panel's conclusions and is based on the Panel's preceding
discussion of the parties' arguments and the evidence, including the parties' agreement as to the
observed failure of the several new entrants to play a significant role in LCA compe tition and the
likelihood that this situation would continue in the immediate future. The United States considers
that citations to the United States' submissions are, accordingly, unnecessary.
5.85. The two sentences that are the subject of the European Union's request for review are found
in a passage of the Interim Report where the merits of the parties' positions in respect of the
conditions of competition that would exist after the end of the implementation period, in the light
of the two "plausible" counte rfactual scenarios, are evaluated. The two sentences form part of our
objective assessment of the conditions of competition that we believe would exist in the "plausible"
counterfactual scenario in which Boeing would have been a monopoly producer of LCA.
Accordingly, we see no basis for the European Union's request for review and, therefore, make no
change to the relevant paragraph.
5.12 Designation of certain information as BCI
5.86. The United States requests that certain specific information appearing in seven par agraphs
of the Interim Report be designated as BCI in order to prevent the disclosure of non -public
information in the Final Report that could cause harm to the originators of the information. The
European Union did not object to the United States' requests.
5.87. The United States' requests have been granted, and the relevant information bracketed in
the Final Report.
5.88. The European Union requests that certain specific information appearing in 59 paragraphs
and 25 footnotes of the Interim Report be designated as BCI in order to prevent the disclosure of
non-public information in the Final Report that could cause harm to the originators of the
information. In its comments to the European Union's requests, the United States observes that
two of the European Union's requests (concerning paragraph 6.561, and paragraphs 6.728 and
6.729) related to information appearing unbracketed in the European Union's first and second
written submissions. The United States also notes that the information the European Union
proposed s hould be bracketed in paragraphs 6.682 and 6.272 appeared unbracketed in
paragraph 177 of the United States' first written submission and is based on publicly available
information.
5.89. The information that is the focus of the European Union's request for BCI treatment in
paragraphs 6.561, 6.728 and 6.729 is the date on which the first A350XWB LA/MSF contract was
concluded. The European Union designated this date as BCI when it provided the LA/MSF contracts
in response to the Panel's request for information pur suant to Article 13 of the DSU, after filing its
first written submission. As the United States notes, however, the same date can be found
explicitly identified in two paragraphs of the European Union's first and second written submissions
in which it is not given a BCI designation. Apart from these few instances of disclosure, the
European Union has generally sought to bracket the dates of the conclusion of all of the LA/MSF
contracts for the A350XWB. We note, moreover, that neither party argues that the r elevant
information is within the public domain. In our view, these facts suggest that the European Union's
disclosure of the relevant information in the paragraphs cited by the United States was
unintentional. In this light, and given the voluminous submi ssions and extensive pieces of
evidence that have been presented in this proceeding, we hav e decided to grant the
European Union's request, bearing in mind that to do so would not prejudice the United States'
due process rights in the resolution of this dispute.
5.90. Turning to the United States' observations concerning the European Union's requests in
relation to paragraphs 6.682 and 6.272, we are unable to find any reference to the information
that is the focus of the European Union's request in connection wi th paragraph 6.272 in
paragraph 177 of the United States' first written submission. Moreover, on the basis of the
information in paragraph 177 of the United States' first written submission, we understand the
United States' second observation to be focused on paragraph 6.681 of the Interim Report, not
paragraph 6.682. We have modified the text of paragraph 6.681 with a view to responding to both
parties' comments on the confidentiality of the relevant information.

5.91. With respect to all other European Union re quests for the treatment of certain information
as BCI, we have either bracketed the specific text or otherwise modified the relevant passages to
secure the level of protection requested by the European Union.
5.13 Designation of certain information as HSBI
5.92. The European Union requests that the Panel bracket various words and passages of text
from the Interim Report as HSBI in order to avoid the disclosure of non -public information in the
Final Report that could cause exceptional harm to the originators of the i nformation. The
United States does not object to the European Union's requests.
5.93. We have granted the European Union's requests for HSBI protection by either eliminating
the relevant text or by modifying it in a way that does not reveal HSBI or make it possi ble to infer
HSBI from the context in which it appears. In this respect, we recall that while, pursuant to
paragraph 59 of the BCI and HSBI Procedures, HSBI is not to be disclosed in the Panel report, we
are nevertheless entitled to "make statements or dra w conclusions that are based on the
information drawn from the HSBI". We have decided not to bracket the relevant words and
passages that are the focus of the European Union's request, as we do not consider it would be
necessary to create an HSBI version o f the Final Report in order t o fully respond to the
European Union's requests for HSBI protection.
6 FINDINGS
6.1 Introduction
6.1. It is well established that the task of a panel established under Article 21.5 of the DSU is to
make an objective assessment of whether a Member has complied with the recommendations and
rulings adopted by the DSB directing it to bring one or more measures found to be
WTO-inconsistent in an original proceeding into conformity with its obligations under the covered
agreements. To this end, Article 21.5 contemplates that a panel may be required to examine two
main compliance questions: (a) the "existence" of "measures taken to comply" with the rulings
and recommendations; and (b) the "consistency with a covered agreement" of any such
measures.49 In compliance disputes involving actionable subsidies, such as the present, a panel's
evaluation of these questions will be informed by Article 7.8 of the SCM Agreement.50
6.2. Article 7.8 of the SCM Agreement is one of the "special or additional rules and p rocedures on
dispute settlement contained in the covered agreements" 51, which prevail over the general DSU
rules and procedures to the extent that there is a conflict between them. 52 Article 7.8 specifies
what an implementing Member must do following the ado ption of a panel and/or Appellate Body
report in which it is determined that any subsidy has caused adverse effects within the meaning of
Article 5 of the SCM Agreement. In particular, Article 7.8 prescribes that any "Member granting or
maintaining such su bsidy shall take appropriate steps to remove the adverse effects or shall
withdraw the subsidy". It follows that in order to determine whether an implementing Member has
complied with the recommendations and rulings adopted by the DSB in cases involving ac tionable
subsidies, one of the questions that an Article 21.5 panel will have to evaluate is whether the
Member concerned has acted in conformity with the requirement to "take appropriate steps to
remove the adverse effects" or "withdraw the subsidy".
6.3. In this proceeding, the United States maintains that the European Union and certain member
States have failed to comply with the recommendations and rulings adopted by the DSB in the
original proceeding for two main reasons. First, the United States claims that the European Union
and certain member States have failed to act in conformity with the obligation in Article 7.8 of the
SCM Agreement to "take appropriate steps to remove the adverse effects" or "withdraw the
subsidy" because not only do the subsidies fo und to have caused adverse effects in the original

49 Appellate Body Report, Canada – Aircraft (Article 21.5 – Brazil), para. 40.
50 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 235.
51 Article 1.2 and Appendix 2 of the DSU.
52 Appellate Body Reports, US – Upland Cotton (Article 21.5 – Brazil), para. 235; Guatemala –
Cement I, fn 55; and US – FSC, para. 159.

proceeding allegedly continue to cause adverse effects today 53, but also because by agreeing to
provide Airbus with LA/MSF for Airbus' latest model of LCA, the A350XWB, the United States
submits that France , Germany, Spain and the United Kingdom have "continued and even
expanded"54 the subsidization of Airbus' LCA activities, thereby causing "additional adverse
effects"55, within the meaning of Articles 5(c) and 6.3 of the SCM Agreement. Second, the
United States claims that France, Germany, Spain and the United Kingdom have failed to comply
with the recommendations and rulings adopted by the DSB because, according to the
United States, the A350XWB LA/MSF measures are prohibited export and/or import substitutio n
subsidies, within the meaning of Articles 3.1 and 3.2 of the SCM Agreement, claims that the
United States also makes in relation to the A380 LA/MSF subsidies.
6.4. The European Union rejects the entirety of the United States' claims, arguing that the
European Union and certain member States have fully implemented the recommendations and
rulings adopted by the DSB. In particular, the European Union submits that the subsidies found to
cause adverse effects in the original proceeding have either been "withdrawn" or no longer cause
"adverse effects", thereby bringing the European Union and certain member States into conformity
with their obligations under Article 7.8 of the SCM Agreement. Moreover, the European Union
maintains that the United States' claims against the A350XWB LA/MSF measures and the
prohibited subsidy claims the United States raises against the A380 LA/MSF subsidies are outside
of the scope of this compliance proceeding or, in any case, are without merit.
6.5. The parties' positions raise essentially t hree broad sets of issues pertaining to: (a) the scope
of the claims and measures that can be challenged in this proceeding; (b) the extent to which the
A350XWB and A380 LA/MSF measures are prohibited subsidies, within the meaning of Articles 3.1
and 3.2 o f the SCM Agreement; and (c) whether the European Union and certain member States
have complied with their obligations under Article 7.8 of the SCM Agreement. Our Report evaluates
the merits of the parties' submissions in relation to each of these matters in turn. However, before
proceeding to this analysis, we first review the European Union's stated compliance "actions" and
address the European Union's conviction that the United States has failed to make a prima facie
case of non -compliance in this disput e56 and, therefore, that the European Union and certain
member States have "no case to answer".57
6.2 The European Union's Compliance Communication of 1 December 2011
6.2.1 Introduction
6.6. On 1 December 2011, the European Union informed the DSB that it had "taken appropr iate
steps" to bring its measures "fully into conformity with its WTO obligations", thereby ensuring "full
implementation of the DSB's recommendations and rulings". 58 In its communication, the
European Union declared that it had adopted "a course of action that addresses all forms of
adverse effects, all categories of subsidies, and all models of Airbus aircraft covered by the DSB's
recommendations and rulings".59 The European Union described this "course of action" to include:
(a) the repayment and/or termination of LA/MSF; (b) the imposition of increased fees and lease
payments on infrastructure support in accordance with market principles; and (c) ensuring that
capital contributions and regional aid subsidies have, "in the Appellate Body's words, 'come to a n

53 The United States' claims in this respect do not include the subsidy measures relating to the
Mühlenberger Loch and the extension of the Bremen Airport runway that were found to cause adverse effects
in the original proceeding. See below paras. 6.19-6.22.
54 United States' first written submission, para. 1.
55 United States' first written submission, para. 1.
56 After recalling the exposition in its first written submission of the alleged "legal framework and the
principles" that should guide the Panel's evaluation of the United States' non-compliance claims and inter alia
drawing attention to "the highly laconic nature of the US First Written Submission, which in, substantial
measure, simply sought to presume rather than demonstrate much of what is asserted by the United States",
the European Union explained in its second written submission that "{t}o the extent that the United States
might be successful in its attempts to induce the compliance Panel into error on these issues, the
European Union will challenge the relevant findings and seek their reversal on appeal". (European Union's
second written submission, paras. 14 and 17) (emphasis original)
57 European Union's first written submission, paras. 44 and 200.
58 Communication from the European Union dated 1 December 2011, WT/DS316/17, 5 December 2011
(Compliance Communication).

end' and are no longer capable of causing adverse effects". 60 The European Union provided
"information concerning" the "steps that have been taken" and "other intervening market events"
it considered to have enabled it to achieve compliance in a two -page document comprising 36
numbered paragraphs attached to its communication.61
6.7. When considered in the light of the explanations provided by the European Union during the
course of this proceeding, it is apparent that the "course of action" the European Union relies upon
to claim that it has fully implemented the recommendations and rulings of the DSB refers to not
only "actions" taken after the adoption of the recommendations and rulings, but also "events" that
occurred before the recommendations and rulings w ere adopted by the DSB (sometimes even
before the United States' request for consultations in the original dispute), as well as "events" that
allegedly occurred over a period of time that overlapped the date on which the recommendations
and rulings were adopted by the DSB. In this part of our Report we describe our understanding of
all three categories of European Union compliance "actions", as articulated in the European Union's
Compliance Communication of 1 December 2011 and further explained and explored in the parties'
submissions in this dispute.
6.2.2 Actions taken after the adoption of the recommendations and rulings by the DSB
6.2.2.1 Termination of French and Spanish LA/MSF agreements ("steps" 1 -3, 7 -11,
14-16, 18-19, and 21-24)
6.8. Two-thirds of the European Union's declared compliance "actions" took the form of the
termination of LA/MSF agreements , the majority of which were terminated after the adoption of
the recommendations and rulings by the DSB.62 In its first written submission, the European Union
presented evi dence showing that the French LA/MSF agreements for the A300B, A300B2/B4,
A300-600, A310, A310 -300, A320, A330/A340 basic, A330 -200, and A340-500/600 programmes
and the Spanish LA/MSF agreements for the A300B, A300B2/B4, A300-600, A320, and A330/A340
basic had been terminated between September and November 2011.63
6.9. We note that in a number of instances, the formal termination of the French and Spanish
LA/MSF agreements between September and November 2011 occurred many years after the
European Union maintains the loaned principal had been "fully repaid" in accordance with the
subsidized terms of the relevant agreements. 64 In three cases involving the French State, the
LA/MSF agreements were terminated after a settlement was reached on Airbus' "outstanding
payment obligations" as of November 2011, in accordance with the subsidized terms of the

60 Compliance Communication, para. 4.
61 Compliance Communication, para. 4. The 36 "steps" identified by the European Union are described
and explained in more detail below at paras. 6.8-6.42.
62 Fourteen of the 24 termination "steps" identified in the European Union's Compliance Communication
concern "actions" taken after the adoption of the recommendations and rulings by the DSB. The European
Union clarified during the interim review that seven of the 24 termination "steps", pertaining to the German
LA/MSF agreements for the A300B, A300B2/B4, A300-600, A310, A310-300, A320, and A330/A340 basic
programmes, were evidenced by the 1997 and 1998 settlement between the German government and
DaimlerChrysler Aerospace AG (DASA) (see below paras. 6.25-6.26).
63 Letter, French State to Airbus dated 24 October 2011 terminating A300 LA/MSF contracts, (French
A300 LA/MSF contract Termination Letter), (Exhibit EU-25); Letter, Spanish State to Airbus dated
30 September 2011 terminating A300 LA/MSF contracts, (Spanish A300 LA/MSF contract Termination Letter),
(Exhibit EU-31); Letter, French State to Airbus dated 24 October 2011 terminating A310 LA/MSF contract,
(French A310 LA/MSF contract Termination Letter), (Exhibit EU-34); Letter, French State to Airbus dated
24 October 2011 notifying Airbus that A320 LA/MSF contract had terminated, (French A320 LA/MSF Letter
notifying Airbus that contract had terminated), (Exhibit EU-36); Letter, Spanish State to Airbus dated
30 September 2011 terminating A320 contracts, (Spanish A320 contract Termination Letter), (Exhibit EU-40);
Joint Letter, Spanish State and Airbus, dated 5 October 2011 terminating by common agreement LA/MSF
contracts for A330/A340, (Spanish A330/A340 contract Termination Letter), (Exhibit EU-49); and Letter,
French State to Airbus dated 22 November 2011 terminating, as of 8 November 2011, A330/A340 basic,
A330-200, and A340-500/600 LA/MSF contracts, (French A330/A340 basic, A330-200, and A340-500/600
contract Termination Letter), (Exhibit EU-47).
64 These terminations concern French LA/MSF for the A300B/B2/B4, A300-600, A310, A310-300, and
A320, and Spanish LA/MSF for the A300B/B2/B4, A300-600 and A320, which according to the European Union
had all been "fully repaid" between 1994-1999. (European Union's first written submission, paras. 168-178).
The European Union's submissions with respect to the repayment of LA/MSF on its subsidized terms and the
relevance of this fact to its compliance claims are addressed elsewhere in this Report at paras. 6.1066-6.1074.

relevant LA/MSF agreements.65 We also note that the formal termination of the relevant A300 and
A310 LA/MSF contracts occurred four years after the end of the respective air craft programmes66,
with the termination of French LA/MSF for the A330/A340 basic and A340-500/600 coinciding with
the termination of the A340 programme.
6.10. Thus, in essence, the French and Spanish LA/MSF termination "steps" the European Union
relies upon and has provided evidence of involve instances where either a LA/MSF agreement has
already run its course, in accordance with its subsidized terms and conditions, or in the case of
French LA/MSF for the A330/A340 basic , A340-500/600 and A330-200, the remaining outstanding
repayment obligations have been settled in accordance with their subsidized terms and conditions.
6.11. The United States describes the alleged terminations as "meaningless formalities without
repayment of subsidies" that "appear to be no more than acts of a ministerial, formalistic nature"
having "no impact on the adverse effects" they cause – namely, "the effects that flow from the
market presence of Airbus LCA that could not have been launched as and when they were (if at
all) without {LA/MSF}".67
6.12. The European Union acknowledges that the formal termination of a debt instrument that has
run its course "does not by itself remove or take away the money that the debtor received under
the agreement".68 However, the European Union states that this is "be side the point", because, in
its view, the operative question for the purpose of the compliance question before this Panel is
whether or not the subsidy has ended. 69 In particular, the European Union maintains that the
obligation in Article 7.8 of the SCM Agreement to "take appropriate steps to remove the adverse
effects" or "withdraw the subsidy" applies only in relation to subsidies found to cause adverse
effects in an original proceeding that continue to exist after the adoption of recommendations and
rulings by the DSB. Furthermore, the European Union submits that the fact that a particular
subsidy may have expired and, therefore, no longer exists, means that the European Union has
procured its "withdrawal", also bringing it into compliance with its oblig ations under Article 7.8 of
the SCM Agreement.70 Thus, while the European Union accepts that the termination of a LA/MSF
contract does not answer the question "whether or not the existence of the subsidy under WTO law
has also ended"71, it nevertheless argues that termination is "an additional piece of evidence, even
if not necessary or sufficient in and of itself, constituting recognition by the parties of withdrawal
(or cessation of adverse effects)". 72 Accordingly, the European Union does not accept that th e
termination events identified in its Compliance Communication "do not form part of the array of
measures taken to comply in this dispute".73
6.13. Ultimately, therefore, we do not understand the European Union to argue that the formal
termination of LA/MSF agre ements already repaid or settled on their subsidized terms before the
end of the implementation period brings it into compliance with the adopted recommendations and
rulings of the DSB. Rather, the European Union relies upon the formal termination of such LA/MSF
instruments as part of the configuration of facts, which it maintains demonstrates its full
implementation of the adopted recommendations and rulings of the DSB.
6.2.2.2 Ensuring that subsidies have "come to an end" ("step" 26)
6.14. One of the 36 "steps" identi fied in the European Union's Compliance Communication is the
"bringing 'to an end'" of all of the subsidies found to cause adverse effects in the original
proceeding with the exception of the French, German, Spanish and UK A380 LA/MSF measures.
The United States characterizes this "step" as "a legal argument" "based on contentions that the

65 These terminations concern French LA/MSF for the A330/A340 basic and the A330-200.
(European Union's first written submission, paras. 177 and 181)
66 European Union's first written submission, paras. 168-172.
67 United States' first written submission, paras. 39, 260, and 264.
68 European Union's first written submission, para. 164 (citing United States' first written submission,
para. 39).
69 European Union's first written submission, para. 164.
70 We examine the merits of both of the European Union's lines of argument below at
paras. 6.794-6.1102.
71 European Union's first written submission, para. 164.
72 European Union's second written submission, para. 101.
73 European Union's second written submission, para. 101.

passage of time" has "resulted in the subsidies or their adverse effects fading to insignificance".
Recalling that the Appellate Body has explained that "when faced with a finding covered by
Article 7.8 of the SCM Agreement, 'a Member would normally 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'", the Unite d States argues that the European Union is not entitled to
claim that it has achieved compliance in the absence of taking any "action" because, according to
the United States, the European Union has "no basis to believe that the situation here deviates
from what the Appellate Body has found would normally be the case". Accordingly, the
United States submits that "the purported 'bringing to an end'" of subsidies does not achieve
compliance with Article 7.8.74
6.15. The European Union clarified in its first written submission that what it meant when it
referred to "bringing 'to an end'" the relevant subsidies was simply undertaking an exercise to
determine whether, in the light of its own interpretation of certain findings made by the
Appellate Body in the original proceeding, the ex ante "lives" of those subsidies came to an end
before the end of the implementation period. The European Union engaged
PricewaterhouseCoopers (PwC) to perform this assessment. Thus, in the light of the
European Union's understanding of c ertain findings made by the Appellate Body in the original
proceeding, PwC was asked to determine the period of time over which it was anticipated that
certain subsidies would benefit Airbus at the time they were provided, and whether, on the basis
of that time period, they were fully amortized as of 1 December 2011, using the following
methodologies: (a) the anticipated repayment period under each of the LA/MSF agreements; (b)
the anticipated marketing life of the subsidized model of LCA; and/or (c) the us eful life of the
tangible and intangible assets allegedly purchased with the relevant funding.75
6.16. According to the European Union, the conclusions reached by PwC demonstrate that the
benefit conferred through all of the challenged subsidies with the excepti on of the French and
Spanish A340 -500/600 LA/MSF measures, the French, German, Spanish , and UK A380 LA/MSF
measures, and a number of the Spanish Government regional development grants, was fully
amortized prior to the end of the implementation period .76 For the European Union, this result is
significant because, as already noted, the European Union argues that the obligation in Article 7.8
of the SCM Agreement to "take appropriate steps to remove the adverse effects" or "withdraw the
subsidy" applies only in relation to subsidies found to cause adverse effects in an original
proceeding that continue to exist after the adoption of recommendations and rulings by the DSB.
Therefore, to the extent that the results produced by PwC show that the relevant subsidies did not
exist at the time that the recommendations and rulings in this dispute were adopted on
1 June 2011, the European Union submits that they prove that the European Union and certain
member States have no compliance obligations at all with respect to t hose subsidies77 or that the
European Union has "withdrawn" those subsidies for the purpose of Article 7.8 of the
SCM Agreement. Furthermore, and in any case, the European Union maintains that the fact that a
particular subsidy may have expired and, therefo re, no longer exist s by the end of the
implementation period, means that the European Union has procured its withdrawal, also bringing
it into compliance with its obligations under Article 7.8 of the SCM Agreement.
6.17. Thus, ultimately, the European Union's reference to "bringing 'to an end'" certain subsidies,
is not a reference to any specific action undertaken with respect to subsidies or the adverse effects
found to have been caused by subsidies in the original proceeding. Rather, we understand the
European Union to be referring to the analysis performed by PwC on the alleged amortization of
the benefit of the relevant subsidies, and the assertion, on the basis of that analysis, that the ex
ante "lives" of those subsidies have "come to an end".

74 United States' first written submission, paras. 43, 260, and 267 (quoting Appellate Body Report, US –
75 PricewaterhouseCoopers, "Analysis of the expected life of subsidies to Airbus conferred by Member
State Financing Loans, Capital contributions and regional development grants as found in the WTO dispute
DS316", 29 November 2011 and 2 July 2012, (PwC Amortization Report), (Exhibit EU-5) (BCI/HSBI).
76 European Union's first written submission, paras. 205-223.
77 European Union's first written submission, paras. 232-233 and 244; second written submission,
paras. 98, 195, and fn 742; and response to Panel question No. 6.

6.2.2.3 Isolation of certain Spanish regional development grants from use in LCA
activities ("step" 27)
6.18. In the light of the explanations provided by the European Union in its first written
submission, we understand this "step" to have involved engaging PwC to undertake an assessment
of the extent to which certain subsidized facilities owned by European Aeronautic Defence and
Space Company N.V. (EADS)/Construcciones Aeronáuticas S.A. (CASA) in San Pablo, Spain, are
used for the purpose of the production of Airbus civil or milita ry aircraft. 78 The PwC report
concludes that "there is no indication that the San Pablo site has been used or will be used for
manufacturing, assembling or transforming civil aircraft". 79 Thus, we do not understand the
European Union's reference to the "isol ation of certain Spanish regional development grants" to
describe any specific action undertaken after the adoption of the recommendations and rulings
with respect to those subsidies. Rather, we understand the European Union to be simply referring
to the analysis performed by PwC on the extent to which the San Pablo South site is used for the
purpose of civil or military aircraft, with a view to substantiating its assertion that the subsidized
facilities in question are not (and, indeed, have never been) us ed for civil aircraft purposes and,
for this reason, cannot be the subject of the United States' "adverse effects" claims.
6.2.2.4 Imposition of additional fees for use of Bremen Airport runway extensions
("step" 28)
6.19. The European Union explained in its first writ ten submission that the fee schedule for
Airbus' right to use the Bremen Airport runway was revised to include the extensions with respect
to which Airbus did not previously pay a fee. The European Union states that the revision took
effect on 1 December 2011 and that the amount of the additional fee is proportionate to the length
of the runway extension, compared to the length of the general runway.80
6.20. The United States' claims of non -compliance do not include the Bremen Airport runway
extension measure.81
6.2.2.5 Revision of the terms of the Mühlenberger Loch lease agreement ("step" 29)
6.21. The European Union asserted in its first written submission that the Mühlenbe rger Loch
lease a greement was amended on 30 November 2011 to include a premium of EUR [***] per
square metre per year (paid monthly in the amount of EUR [***] per square metre).82 According
to the European Union, this change aligned the terms of the lease with the market so that it no
longer conferred a "benefit" upon Airbus, within the meaning of Article 1.1( b) of the
SCM Agreement, thereby procuring the withdrawal of the subsidy for compliance purposes.83
6.22. Although initially including the Mühlenberger Loch lease agreement within the scope of its
challenge to the European Union's alleged compliance, the United States subsequently explained
that it had decided not to pursue "its claim with regard to this measure" for the time being, after
having reviewed the explanation of the European Union's "methodology for adjusting the rental for
the Mühlenberger Loch site t o a market rate, which the EU provided for the first time in its first
written submission".84
6.2.2.6 Termination of the A340 programme ("step" 33)
6.23. The European Union identifies the termination of the A340 programme as one of its 36
compliance "steps". The European Union relies upon the termination of this programme to support

78 European Union's first written submission, paras. 220-221.
79 PricewaterhouseCoopers, "Assessment of the use of the San Pablo South industrial site relating to the
WTO Dispute DS316", 30 November 2011, (Exhibit EU-6) (BCI/HSBI), p. 16.
80 European Union's first written submission, paras. 194-195.
81 United States' first written submission, paras. 5 and 35.
82 European Union's first written submission, para. 192; and 14th Amendment to Mühlenberger Loch
Land Lease Agreement, 30 November 2011, (Exhibit EU-53) (BCI), section 1.1.
83 European Union's first written submission, para. 33.
84 United States' second written submission, para. 265.

its submission that there can no longer be any present adverse effects related to the A340. 85 We
note, however, that the United States makes no claims of "serious prejudice" in relation to any
market displacement or impedance, or lost sales, involving the A340 in the post -implementation
period. Nevertheless, the United States asserts that the termination of the A340 programme "had
nothing to do with compliance", but rather reflected the fact tha t the A340 was "no longer
competitive and had been replaced by newer, LA/MSF -funded Airbus LCA", in particular, the
A350XWB-900 and A350XWB -1000. In addition, referring to a passage from EADS Financial
Statements Q3 2011, the United States argues that term ination of the A340 programme actually
"gave Airbus a EUR 312 million boost to its earnings as LA/MSF liabilities were cleared off its
books".86
6.24. We observe that the reason given for the termination of the A340 programme in the
decision of the Airbus Shareho lder Committee formally bringing the programme to an end on
19 October 2011 related to the fact that "[***]".87 In particular, the decision of the Airbus
Shareholder Committee explains that "[***]", with the members of the Shareholder Committee
furthermore noting that "[***]".88 Moreover, the European Union has explained in this proceeding
that the A340 programme "fail{ed} because of its fuel-burn penalty compared to the 777."89 Thus,
it is apparent that the decision to terminate the A340 programme in October 2011 was not taken
in response to the recommendations and rulings adopted by the DSB, but rather simply because of
its commercial "failure".
6.2.3 Events that occurred before the adoption of the recommendations and rulings by
the DSB
6.2.3.1 Payment by Airbus of outst anding LA/MSF obligations of EUR 1.7 billion
("step" 25)
6.25. The European Union's Compliance Communication describes one of its 36 alleged
compliance "steps" as "{p}ayment by Airbus, other than on deliveries under previously existing
contractual terms, with re spect to outstanding MSF obligations in the amount of approximately
EUR 1,704,775,000".90 The United States asserts that this "step" refers to the payment made by
DaimlerChrysler Aerospace AG (DASA 91) to the German Federal Government pursuant to a debt
settlement in 1997 and 1998. According to the United States, the same debt settlement was
considered by the panel in the original proceeding.92
6.26. The European Union has not responded to the United States' assertions. Neither has the
European Union further expanded upon what it was referring to in its Compliance Communication
when it identified the EUR 1.7 billion "payment by Airbus" as one of its 36 alleged compliance
"steps". Thus, we do not understand the European Union to continue to rely upon this "step" for
the purpose of rebutting the United States' claims of non -compliance in this dispute. We note,
however, that during the interim r eview, the European Union argued that information contained in
United States Exhibit USA -105 demonstrates that the 1997 and 1998 debt settlement between
DaimlerChrysler Aerospace AG (DASA) and the German government resulted in the termination of
the German LA/MSF agreements for the A300B, A300B2/B4, A300 -600, A310, A310 -300, A320,
and A330/A340 basic programmes. To this extent, we understand the European Union to rely upon

85 European Union's first written submission, paras. 209 and 1216; and second written submission,
para. 1205.
86 United States' first written submission, paras. 60, 260, and 269-270 (citing EADS Financial
Statements Consolidated for the nine-month period ended 30 September 2011, 9 November 2011 (EADS
Financial Statements Q3 2011), (Exhibit USA-107), p. 14: "The release of the liabilities has positively affected
the consolidated income statement before taxes by 192 M € in other operating income and by 120 M € in
interest result.").
87 Airbus Shareholder Committee Decision Taken by Resolution in Writing, 19 October 2011, (Exhibit
EU-111) (BCI).
88 Airbus Shareholder Committee Decision Taken by Resolution in Writing, 19 October 2011, (Exhibit
EU-111) (BCI).
89 European Union's first written submission, para. 1108.
90 Compliance Communication, p. 3.
91 The European Union explains that "DASA" stood for Deutsche Aerospace AG (from 1992),
Daimler-Benz Aerospace AG (from 1995) and DaimlerChrysler Aerospace AG (from 1998). (European Union's
first written submission, fn 351)
92 United States' first written submission, paras. 40-42.

the description of the 1997 and 1998 DASA debt settlement in Exhibit USA -105 as evidence of
"steps" 4-6, 12-13, 17, and 20, described in the European Union's Compliance Communication.
6.2.3.2 Share transactions and cash extractions involving subsidy recipients ("step" 30)
6.27. In its first written submission, the European Union clarified that the "subsequent share
transactions and cash extractions involving subsidy recipients" referred to in its Compliance
Communication were events that took place well before the adoption of the recommendations and
rulings by the DSB. In particular, the European Union revealed that the alleged compliance "steps"
were the following: (a) the partial privatization of Aérospatiale in 1999, the sale and issuance of
EADS shares to the general public by the EADS partners in the context of the creation of EADS and
its public float in 2000, the 2006 sale by British Aerospace Systems (BAE Systems) of its 20%
ownership stake in Airbus SAS to EADS (as "extinction" events); and (b) two one-time removals of
cash and cash equivalents by DaimlerChrysler and Sociedad Estatal de Participaciones Industriales
(SEPI) from their respective subsidiaries, DASA and CASA, in the lead up to the creation of EADS
in 2000 (as "extraction" events).93
6.28. In the original proceeding, the European Communities argued that the same events had
"extinguished" and "extracted" all of the challenged subsidies. In this compliance dispute, the
European Union makes the same submission, arguing in the light of its own interpretation of what
it means to comply with the terms of Article 7.8 of the SCM Agreement, that the alleged
"extinction" and "extraction" of the relevant subsidies means that they have been "withdrawn" or
are no longer causing present "adverse effects".
6.29. The United States recalls that the panel and Appellate Body already examined and rejected
the European Union's "extraction" arguments in the original proceeding, and submits that for this
reason, the European Union's "claim that s uch extractions were an appropriate step to withdraw
those same subsidies is an effort to reargue a point the EU lost … , and is not properly part of this
proceeding under Article 21.5 of the DSU". 94 Moreover, recalling that the Appellate Body had
stated in the original proceeding that it did "not consider that the sales transactions and 'cash
extractions' resulted in the 'withdrawal' of subsidies within the meaning of Articles 4.7 and 7.8 of
the SCM Agreement", the United States submits that the "extinction " events the European Union
relies upon for a second time in this compliance dispute "cannot have withdrawn the subsidies in
question for purposes of Article 7.8 of the SCM Agreement".95
6.2.3.3 Termination of A300 and A310 programmes ("steps" 31 and 32)
6.30. The A300 and A310 programmes were terminated on 31 July 2007. 96 The European Union
relies upon the termination of these programmes to support its submission that there can no
longer be any present adverse effects related to the A300 and A310. 97 We note, however, that the
United States makes no claims of "serious prejudice" in relation to any market displacement or
impedance, or lost sales, involving the A300 and A310. Nevertheless, the United States asserts
that the termination of the A300 and A310 programmes "had not hing to do with compliance", but
rather reflected the fact that the "terminated models were no longer competitive and had been
replaced by newer, LA/MSF -funded Airbus LCA", in particular, the A330, A350XWB -800 and
"sometimes" the A350XWB-900.98
6.31. Unlike the termination of the A340 programme, the European Union has not submitted any
specific evidence attesting to a decision to terminate the A300 and A310 programmes on the part
of Airbus' management, relying instead on the contents of an Airbus press release fro m
March 2006. This document quotes the Airbus then -President and Chief Executive Officer (CEO),
Gustav Humbert, as having stated:

93 European Union's first written submission, paras. 197-354; and second written submission,
paras. 117-268.
94 United States' first written submission, para. 46.
95 United States' first written submission, para. 47.
96 Airbus Press Release, "A300, A310 Final Assembly To Be Completed by July 2007", 7 March 2006,
(Exhibit EU-116); French A300 LA/MSF contract Termination Letter, (Exhibit EU-25); and French A310 LA/MSF
contract Termination Letter, (Exhibit EU-34).
97 European Union's second written submission, para. 1205.
98 United States' first written submission, paras. 260 and 269-270.

It is in Airbus' best interest to optimise the use of its resources at this time. We are
implementing a major production ramp -up across our business as the A300/A310
programme nears completion. This is in response to growing demand from our
customers for the newer Airbus products like the A321, the A330/A340 family and the
new A350 aircraft, that cover or even go beyond the marke t segment of our original
aircraft programme.99
6.32. In our view, this statement makes clear that, as with the termination of the A340
programme, the decision to terminate the A300 and A310 programmes was solely motivated by
Airbus' commercial interests and, the refore, unrelated to the WTO dispute concerning the alleged
subsidization of Airbus that was ongoing at the time between the United States and the
European Union and certain member States.
6.2.4 Events and a lleged events that overlapped the adoption of the reco mmendations
and rulings by the DSB
6.2.4.1 Completed deliveries and performance of sales contracts ("step" 34)
6.33. Another alleged compliance "step" identified in the European Union's Compliance
Communication is the completion of deliveries of "relevant LCA to marke ts for which displacement
was found" in the original proceeding, and the completion of performance under sales contracts
pertaining to orders for LCA found to constitute "lost sales" in the original proceeding.
6.34. The European Union explained in its written submissions that what it meant when it referred
to the completion of performance of a sales contract, was the delivery of an LCA to a customer in
accordance with the terms of the order found to constitute a "lost sale" causing serious prejudice
to the Unit ed States' interests in the original proceeding. The European Union maintains that by
delivering the LCA to its customer in this way, "the {lost} sales are … completed and cease to exist
in the present". 100 For the European Union, this implies that the "Unit ed States has failed to
demonstrate that significant lost sales … , as found in the original proceedings, have not been
removed"101 and, therefore, that the European Union and certain member States have not
achieved compliance with respect to those specific transactions. In other words, the
European Union submits that the delivery of an LCA under a sales contract that was the subject of
a finding of "lost sales" in the original proceeding brings that "lost sale" to an end and, therefore,
also ends the "serious prejudice" to the United States' interests.
6.35. The United States submits that the European Union's reliance on "completed deliveries" and
"completed performance of sales contracts" suggests that "the EU views the very indicia of adverse
effects (e.g. the de liveries in country markets that served as the basis for the Appellate Body's
displacement findings) as something that it could cite to assert compliance". The United States
argues that this is "untenable" because it "seems to ask the WTO to accept that th e occurrence of
adverse effects means that the EU has complied in this case".102
6.2.4.2 Post-launch investments in Airbus A320 and A330 programmes ("step" 35)
6.36. The European Union revealed in its first written submission that the post -launch
investments identified in its Compliance Communication as the thirty -fifth compliance "step" were
the, allegedly non -subsidized, investments Airbus has made into the A320 and A330 families of
LCA since they were launched in, respectively, 1984 and 1987. In particular, the Europea n Union
explains that since the A320 and A330 were launched, Airbus has invested, respective to these two
LCA, at least EUR [***] billion and EUR [***] billion into the following activities: (a) "Continuing
Development"; (b) "Continuing Support"; (c) the d esign and manufacture of three non -subsidized
variants (the A321, A319 and A318) between 1988 and 1999; and (d) the setting -up of three new
A320 final assembly lines (FALs) in Hamburg (Germany) between 1993 and 2005, and one in

99 Airbus Press Release, "A300, A310 Final Assembly To Be Completed by July 2007", 7 March 2006,
(Exhibit EU-116).
100 European Union's second written submission, para. 1212.
101 European Union's first written submission, paras. 805-816, 1034-1042, and 1218-1219; and second
written submission, para. 1212.
102 United States' first written submission, para. 271.

Tianjin (China) in 2008. The European Union maintains that the value of these investments
"dwarf{s}" the initial development cost of the A320 and A330/A340 programmes, and that it has
resulted in significant technological advancements, enhanced production rates, improved
lead-times and lower costs of production.103
6.37. According to the European Union, these facts demonstrate that the "genuine and
substantial" cause of the ongoing market presence of the A320 and A330 families is not the
challenged LA/MSF subsidies, but rather the above -mentioned, allegedly non -subsidized,
investments. Thus, the European Union relies upon the post -launch investments in the A320 and
A330 as events which it asserts have diluted the causal connection between the challenged
LA/MSF subsidies and the present-day market presence of the A320 and A330.
6.38. For the United States, however, the European Union's reliance on Airbus' post -launch
investments is "not at all a step to remove adverse effects, but an attempt by the EU to re -argue
causation issues that it lost in the underlying proceeding". In particular, the United States recalls
that the original panel and Appellate Body found that the challenged LA/MSF subsidies were a
"genuine and substantial" cause of the market presence of the A320 and A330 in the 2000 to 2006
period, that is, after most of the relevant post -launch investments had been allegedly undertaken.
Thus, the United States maintains that Airbus' post -launch investments "cannot attenuate the
adverse effects caused through the presence of {the A320 and A330} on the market".104
6.2.4.3 "Attenuation" of "any causal link" through "further intervening events"
("step" 36)
6.39. Although the European Union does not explicitly refer to any particular "intervening events"
in its Compliance Communication, in its written submissions the European Union identifies a
number of important changes to the markets into which the different Airbus and Boeing LCA are
sold, the "passage of time", and a number of non -attribution factors allegedly not related to
subsidization, as events that have had the effect of attenuating the causal connection between the
challenged LA/MSF subsidies and any present-day effects, such that those subsidies can no longer
be found to be a "genuine and substantial" cause of the instances of serious prejudice that the
United States continues to claim.105
6.40. According to the United States, the European Union's "attenuation" arguments do not
amount to compliance "actions in even the most superficial sense, but reflect EU inaction and/or
legal argumentation based on contentions that the passage of time and other intervening events
have resulted in the subsidies or their adverse effects fading to insignificance". The United States
submits that "attenuation of a causal link" is not something that a Member does, but rather "a
legal conclusion that a Panel reaches based on the evidence as to what the responding Member
has done". In the view of the United States, because the European Union's alleged compliance
"steps" have not withdrawn the subsidies or removed the adverse effects, th ey "cannot have
attenuated the causal link found by the original Panel and the Appellate Body".106
6.2.5 Conclusion
6.41. Overall, the United States submits that the "steps" described in the European Union's
Compliance Communication "can be characterized as an 'inactio n plan'" that "did essentially
nothing to move toward WTO compliance". 107 Indeed, according to the United States, the
European Union and certain member States have only "worsen{ed} … the compliance situation" by

103 European Union's first written submission, paras. 731-798 and 876-924; and second written
submission, paras. 743-821.
104 United States' first written submission, para. 272; and second written submission, paras. 503 and
505.
105 See e.g. European Union's first written submission, paras. 39, 486, 493, 500, 507, 511, 628, and
644-645; and second written submission, paras. 11, 502, 677, 1269, 1282, 1330, 1347, 1373, 1388, and
1585.
106 United States' first written submission, paras. 260 and 274.
107 United States' first written submission, paras. 242 and 257.

continuing to provide Airbus with "billions of dollars" of allegedly subsidized LA/MSF for the
A350XWB, which the United States claims are causing "additional adverse effects".108
6.42. In our view, only two of the 36 "steps" notified by the European Union can be characterized
as "actions" relating to the deg ree of ongoing subsidization of Airbus LCA – namely, "step" 28, the
imposition of additional fees for the use of the Bremen Airport runway extension, and "step" 29,
revision of the terms of the Mühlenberger Loch lease agreement.109 On the other hand, the
remaining 34 alleged compliance "steps" are not "actions" relating to the ongoing (or even past)
subsidization of Airbus LCA, but rather merely the assertion of facts or presentation of arguments
for the purpose of supporting the European Union's theory of co mpliance based on the following
main contentions: (a) the adopted rulings and recommendations give rise to no compliance
obligation at all, under the terms of Article 7.8 of the SCM Agreement, with respect to expired
subsidies; (b) an expired subsidy means that it has been "withdrawn" for the purpose of Article 7.8
of the SCM Agreement; (c) an expired subsidy cannot cause adverse effects in the context of a
proceeding initiated under Article 21.5 of the DSU; and (d) the passage of time, and events that
have taken place over the passage of time, have diluted the causal link established in the original
proceeding such that the challenged subsidies are no longer a "genuine and substantial" cause of
adverse effects in the post -implementation period. Thus, ultima tely, apart from the "actions"
identified in "steps" 28 and 29, the European Union's affirmation of compliance is not grounded in
any specific conduct on the part of the European Union and certain member States with respect to
the subsidies provided to Air bus or the adverse effects those subsidies were found to have caused
in the original proceeding. Fundamentally, the European Union's view that it has achieved full
compliance is, rather, based on its understanding of the scope and nature of the obligations arising
out of the adopted recommendations and rulings as well as its own interpretation of the applicable
law and legal provisions, including Article 7.8 of the SCM Agreement.
6.43. With these observations in mind, we now proceed to examine the merits of the
United States' non-compliance complaint.
6.3 Whether the United States has presented a prima facie case
6.44. The European Union maintains that the United States has failed to satisfy its burden of
presenting a prima facie case of non -compliance and, therefore, that the entirety of the
United States' complaint must be rejected.110
6.45. The European Union submits that in order to make a prima facie case of non-compliance in
this dispute, the United States was required to "make a claim, assert fact, adduce evidence and
develop argument" 111 in respect of each of its claims of WTO -inconsistency in its first written
submission. However, according to the European Union, the United States' first written submission
is "so deficient and so bereft of substance" that it falls short of th is standard.112 In particular, the
European Union argues that the United States' first written submission not only neglected to
address the need to establish the existence of subsidies after the end of the implementation
period, taking into account the Appel late Body's guidance on inter alia the extent to which the
"life" of a subsidy will come to an end 113, but it also failed to speak to the need to show that any
existing subsidies are a "genuine and substantial" cause of present adverse effects, taking into
account inter alia the properly determined "lives" of subsidies, an appropriate reference period and
correctly defined product markets.114 The European Union maintains that the United States' failure

108 United States' first written submission, paras. 1-16 and 240-246.
109 As already noted, the United States includes neither of these two measures in its claims of
non-compliance against the European Union and certain member States in this dispute.
110 European Union's first written submission, paras. 39-55; second written submission, paras. 3 and
12-17; and response to Panel question No. 1.
111 European Union's first written submission, paras. 9-12; and second written submission, para. 12.
112 European Union's first written submission, paras. 44-48 and 51-52.
113 Specifically, the European Union submits that the United States' first written submission should have
taken into account: "{R}epayments of principal and interest; modifications aligning measures with a market
benchmark; amortisation of benefit; extinction; and extraction". (European Union's first written submission,
paras. 36, 165, 198-199, 228, 246, and 293; and second written submission, para. 75)
114 In particular, the European Union argues that the United States' first written submission should have
taken into account: "{A} properly identified present reference period starting no sooner than the end of the
implementation period; properly defined present product markets; properly delineated present geographic
markets; properly defined temporal markets; a reasonable estimate of the present amounts of the alleged

to address these matters in its first written submission is "fatal" to the United States' complaint, "a
matter {that} cannot be rectified without infringing {the European Union's} due process rights".115
Consequently, the European Union submits that, as a matter of law, the Panel must dismiss the
entirety of the United States' claims of non-compliance.116
6.46. The United States rejects the European Union's contentions 117, arguing that the
European Union's characterization of what is required to discharge its prima facie burden of proof
seeks to force the United States into be aring the burdens of both establishing the
European Union's non -compliance and addressing in advance the arguments that the
European Union raised in its first written submission to attempt to establish compliance. 118
According to the United States, the burden that falls upon a complaining Member in an Article 21.5
compliance dispute requires it to advance a prima facie case that measures taken to comply do not
exist or, if they do exist, that such measures are inconsistent with the covered agreements. In the
specific context of Article 7.8 of the SCM Agreement, the United States argues that the burden of
demonstrating that any declared measures taken to comply do not exist will have been satisfied if
the complaining Member shows that those measures do not with draw the subsidy or remove its
adverse effects. Similarly, the United States submits that the burden of establishing that declared
measures taken to comply are inconsistent with the covered agreements will have been met by a
complaining Member if it demons trates that those measures are insufficient to bring the
implementing Member fully into conformity with its obligations under Article 7.8.119
6.47. As regards the "lengthy list" of matters the European Union argues the United States was
required to address in its first written submission, the United States maintains that the issues the
European Union identifies "might provide defenses to a claim under Article 5 of the
SCM Agreement, in circumstances not present in this dispute", or "represent novel legal theories …
that find no support in the SCM Agreement or WTO jurisprudence", or even be "potentially, but not
necessarily, relevant to a finding under Article 5".120 However, according to the United States, they
have "little to do" with what is required to make out a prima facie case of non -compliance with
Article 7.8 of the SCM Agreement.
6.48. We do not understand there to be any disagreement between the parties that it is for the
United States to establish the European Union's non-compliance in this dispute, and that it is for
the European Union to rebut any prima facie case advanced by the United States, including by
raising and substantiating its own affirmative defences. Not surprisingly, however, when it comes
to understanding exactly what the United States must demonstrate in order to discharge its prima
facie burden of proof, the parties have presented diverging positions, in large part, due to the
different views expressed about the scope of this compliance dispute, how the notion of
compliance should be given effec t under the terms of Article 7.8 of the SCM Agreement and the
substance and implications of the legal and factual findings made by the panel and the
Appellate Body in the original proceeding. For instance, one of the main reasons the
European Union advance s to support its contentions about the United States' failure to make a
prima facie case is that the United States made no attempt in its first written submission to
establish that subsidies exist in the post -implementation period. Yet, in order to accept that the
United States' submissions were deficient in this regard, we must first of all be satisfied that the
United States was legally required to make such a demonstration. According to the United States,
it was under no such obligation. Similarly, the E uropean Union maintains that the
United States' causation arguments should have taken into account inter alia the "present amounts
of alleged subsidies". Again, however, the extent to which the United States was required to do so
in order to establish a prima facie case is a matter in dispute between the parties.
6.49. Ultimately, therefore, the merits of the European Union's submission that it has "no case to
answer" in this proceeding rests in large part upon the correctness of its own legal theory of

subsidies, taking into account withdrawal of the subsidy through the elimination of any financial contribution
and … the alignment with a market benchmark, amortisation, extinction or extraction; and intervening events
(non-attribution factors)". (European Union's first written submission, paras. 37-39)
115 European Union's first written submission, para. 54.
116 European Union's first written submission, paras. 44, 51-55, and 200.
117 United States' second written submission, paras. 32-39.
118 United States' second written submission, para. 37.
119 United States' second written submission, para. 33.
120 United States' second written submission, paras. 38-39.

compliance and understanding of the scope of this dispute, its own interpretation of the findings
made in the original proceeding and its own views about the meaning and probative value of the
facts and evidence the parties have, or allegedly should have, submitted. It follows that in order to
address the European Union's allegations concerning the United States' failure to make a prima
facie case, we must assess the merits of the parties' arguments with respect to all of these
matters.
6.50. Finally, we recall that as we have previously noted 121, it is well established that a panel
must not make a "prima facie case" for a party who bears the burden of proof in relation to a claim
or a defence. 122 However, this does not mean that a panel must make a specific finding that a
complainant has met its burden to establish a prima facie case in respect of a particular claim, or
that a respondent has effectively rebutted a prima facie case.123 Similarly, a panel is not required
to make a finding as to whether a complainant has establis hed a prima facie case before it
examines the respondent's arguments and evidence. 124 Indeed, WTO dispute settlement
proceedings do not involve any particular temporal sequence of proof. Both parties will adduce
evidence in support of their own arguments or to rebut the arguments made by the other at
various stages of a dispute, sometimes simultaneously, throughout the entirety of a proceeding.
6.51. Given the voluminous submissions and complex issues raised in this dispute, we have
sought to conduct our evaluatio n of the merits of the parties' positions on the basis of a full
appreciation of all of their arguments and the evidence adduced in support of those arguments
throughout the course of this proceeding. To this end, three sets of questions were posed to the
parties over a 12-month period following the substantive meeting with the parties and third parties
in order to clarify their submissions and generally explore the legal and factual matters raised in
this proceeding. We have also carefully assessed and res ponded to numerous requests for
procedural rulings concerning the acceptability of certain pieces of evidence and arguments
submitted for consideration at various stages. Needless to say, however, in performing our
"objective assessment of the matter", we have at all times been guided by the basic requirement
of due process that each party be afforded a meaningful opportunity to comment on the
arguments and evidence adduced by the other party. We have also been mindful of the fact that
this due process inte rest must be balanced against other interests, including systemic interests
such as those reflected in Articles 3.3 and 12.2 of the DSU 125 and that, ultimately, panels are best
situated to determine how this balance should be struck in any given proceeding, provided that
they are vigilant in the protection of due process and remain within the bounds of their duties
under Article 11 of the DSU.126
6.52. We now turn to review the substance of the United States' complaint of non -compliance,
starting by first of all add ressing the parties' arguments concerning the scope of this compliance
proceeding.
6.4 The scope of this compliance proceeding
6.4.1 The A350XWB LA/MSF measures
6.4.1.1 Introduction
6.53. We recall that in the original proceeding, the United States challenged the alleged provisi on
of subsidized LA/MSF by the Airbus governments for the purpose of the Airbus A350 aircraft design
proposed between 2004 -2006 (Original A350) programme launched in December 2004. Although
the original panel found that, by the time that its terms of refer ence had been set, the Airbus
governments had committed to support the Original A350 through the provision of LA/MSF, the

121 See Panel's Procedural Ruling of 12 June 2013 in relation to the European Union's requests of
28 May 2013 concerning: (i) the United States' Full HSBI Version Appendix and HSBI Exhibits submitted in
conjunction with its answers to the Panel's first set of questions; and (ii) the United States' alleged violations of
the BCI/HSBI Procedures. (Annex F-2)
122 Appellate Body Reports, Japan – Agricultural Products II, para. 129; US – Shrimp (Thailand)/US –
Customs Bond Directive, para. 300; US – Wool Shirts and Blouses, p. 14; and EC – Hormones, para. 104.
123 Appellate Body Report, Thailand – H-Beams, para. 134.
124 Appellate Body Report, India – Quantitative Restrictions, para. 142.
125 Appellate Body Report, Thailand – Cigarettes (Philippines), para. 150.
126 Appellate Body Report, Thailand – Cigarettes (Philippines), para. 150.

precise details and content of that LA/MSF had yet to be settled and remained subject to
negotiation. Accordingly, the panel concluded that the United States had failed to demonstrate that
a commitment to provide Airbus with LA/MSF for the Original A350 on the specific terms and
conditions asserted by the United States actually existed, as a matter of fact , by the time of the
panel's establishment on 20 July 2005.127 In other words, the United States failed to establish the
existence, as of July 2005, of a LA/MSF commitment measure for the Original A350 constituting a
specific subsidy within the meaning of Articles 1 and 2 of the SCM Agreem ent. As LA/MSF for the
A350XWB did not exist during the relevant time, no findings were made and no specific DSB
recommendations and rulings were adopted in the original proceeding with respect to any
A350XWB LA/MSF measures.
6.54. Airbus abandoned the Original A350 programme less than two years after its launch, with
key Airbus clients and industry analysts questioning its ability to compete effectively with the
lighter, more fuel -efficient, Boeing 787. 128 Airbus publicly unveiled a "concept" for a substantially
redesigned version of the Original A350 – the A350XWB – at the Farnborough Air Show in
July 2006129, formally launching it on 1 December 2006.130
6.55. As they did with respect to prior models of Airbus LCA, the governments of France,
Germany, Spain, and the United Kingdom supported the A350XWB programme with LA/MSF. After
publicly signalling their support for the new programme in July 2006 131, the Airbus governments
formally entered into negotiations with Airbus for LA/MSF in late 2008, individually agreeing on its
terms on different dates between [***].132
6.56. The United States claims that the new A350XWB LA/MSF measures are subsidies, which
either alone or in conjunction with the pre -A350XWB LA/MSF subsidies found to cause adverse
effects in the original proceeding, conti nue to cause adverse effects today, thereby evidencing the
relevant European Union member States' failure to comply with the recommendations and rulings
adopted by the DSB. Accordingly, and despite not being identified as a "measure taken to comply"
in the European Union's Compliance Communication, the United States maintains that the
A350XWB LA/MSF measures fall within the scope of our terms of reference in this compliance
dispute. We examine the merits of the United States' position in the following analysis.

127 Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.296-7.314.
128 See e.g. Dominic Gates, "Airplane Kingpins tell Airbus: Overhaul A350", The Seattle Times,
29 March 2006, (Exhibit USA-24); "Time for a new, improved model: Airbus gets to work on its medium-sized
aircraft, but deeper problems remain", The Economist, 20 July 2006, (Exhibit USA-28); "Airbus to decide by
July on A350 design" Seattle Post - Intel, 16 May 2006, (Exhibit USA-356); and Gordon McConnell,
Michel Lacabanne, Chantal Fualdes, François Cerbelaud and Burkhard Domke, A350XWB Chief Engineering and
Future Projects Office, Airbus, "A350XWB Chief Engineering Statement", 3 July 2012 (A350XWB Chief
Engineering Statement), (Exhibit EU-18) (BCI/HSBI), para. 6.
129 See e.g. Ameet Sachdev, "Airbus redesigns its strategy for long haul: A350 line to carry bulk of the
load", Chicago Tribune, 18 July 2006, (Exhibit EU-99); Goldman Sachs Investment Analysis, A350: Not an
option but essential for Airbus' future, in our view, 21 November 2006, pp. 20-22, (Exhibit USA-30), p. 20; and
UK House of Commons Hansard, written answers for 24 July 2006, (Original Exhibit US-141), (Exhibit USA-31).
130 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.296; Dominic Gates,
"Airplane Kingpins tell Airbus: Overhaul A350", The Seattle Times, 29 March 2006, (Exhibit USA-24); EADS
Press Release, "A350 XWB launch: EADS Gives Go Ahead for Airbus to Launch the A350 XWB",
1 December 2006, (Exhibit USA-569); "Time for a new, improved model: Airbus gets to work on its medium-
sized aircraft, but deeper problems remain", The Economist, 20 July 2006, (Exhibit USA-28); "Airbus to decide
by July on A350 design" Seattle Post - Intel, 16 May 2006, (Exhibit USA-356); A350XWB Chief Engineering
Statement, (Exhibit EU-18) (BCI/HSBI), para. 6; and European Union's first written submission, para. 1113.
131 UK House of Commons Hansard, written answers for 24 July 2006, (Original Exhibit US-141),
(Exhibit USA-31); UK House of Commons Hansard Debates, Column 1692W, Colloquy of Mr. Gordon Prentice
and Minister for Industry and the Regions Margaret Hodge, 23 October 2006, (Exhibit USA-35); UK House of
Commons Hansard Debates, Column 82W-83W, Colloquy of Mr. Patrick Mercer and Minister for Industry and
the Regions Margaret Hodge, 30 October 2006, (Exhibit USA-36); "Airbus to decide by July on A350 design"
Seattle Post - Intel, 16 May 2006, (Exhibit USA-356); Katrin Bennhold, "Airbus looks likely to seek state
assistance", International Herald Tribune, 18 June, 2006, (Exhibit USA-357); and Hans Peter Ring, Chief
Financial Officer, "Safe Harbor Statement", "Roadmap", and "Recent Press Quotes", slides 2, 11 and 12 from "A
New Base for the Future", EADS presentation, Global Investor Forum, 19-20 October 2006, (Exhibit USA-358).
132 Statement by Tom Williams, Executive Vice President, Programmes, Airbus SAS, 17 May 2013,
(Exhibit EU-354) (BCI), para. 3; and European Union's response to Panel question No. 101.

6.4.1.2 Arguments of the United States
6.57. The United States argues that the alleged A350XWB LA/MSF subsidies fall within the scope
of this compliance proceeding on the basis of three related grounds. The first, and we believe
principal, line of argument advance d by the United States draws from the case law developed by
panels and the Appellate Body concerning the question whether a measure that is not a declared
"measure taken to comply" (i.e. an "undeclared" measure) may fall within a compliance panel's
terms of reference. The United States submits that the relevant case law in this area establishes
that an "undeclared" measure may properly fall within the scope of a compliance panel's terms of
reference when it has a particularly close relationship (i.e. a "clo se nexus") to the original
measures subject to DSB recommendations and rulings and the declared "measures taken to
comply", based on a consideration of the nature, effects and timing of those measures and the
factual and legal background against which any compliance measures are adopted. 133 The
United States maintains that an examination of all of these factors confirms that, in the present
instance, a "close nexus" exists between the alleged A350XWB LA/MSF subsidies, the LA/MSF
subsidies found to cause adver se effects in the original proceeding and the European Union's
alleged compliance measures, implying that the A350XWB LA/MSF measures must fall within the
scope of this compliance proceeding.
6.58. In terms of the nature of the A350XWB LA/MSF measures, the Unit ed States argues that
they have essentially the same nature as the LA/MSF measures found to cause adverse effects in
the original proceeding because both sets of LA/MSF measures are: (a) loans; (b) concluded
between the same parties; (c) with the same core success-dependent, levy -based, back-loaded
and unsecured repayment terms; and (d) for the purpose of developing new models of LCA to
compete against Boeing (and, specifically, in the case of A350XWB LA/MSF, a twin -aisle LCA
6.59. The United States recalls that the Appellate Body has examined the effects of an undeclared
measure in the context of a close nexus analysis by considering whether it "undermine{s}" 135 or
"potentially negate{s}"136 a valid compliance measure137, and whether it "may have an effect on …
whether the original measure, which was found to be inconsistent … has been brought into
conformity".138 The United States submits that applying this standard to the alleged A350XWB
LA/MSF subsidies leads to the con clusion that their effects are such that they should be brought
into the scope of this compliance proceeding. In particular, the United States argues that the
alleged A350XWB LA/MSF subsidies have similar, or even identical, effects to the LA/MSF subsidies
found to cause adverse effects in the original proceeding. The United States asserts in this regard
that A350XWB LA/MSF enabled Airbus to launch the A350XWB as a new model of LCA intended to
"fill the holes in the product line created by the A340's inabil ity to compete with the 777 and the
aging of A330 technology". 139 In other words, according to the United States, A350XWB LA/MSF
was provided for the purpose of bringing one Airbus LCA product into existence with a view to
replacing another subsidized Airbus LCA product in the same twin -aisle segment in which the
United States was found to have suffered adverse effects in the original proceeding. 140 Thus, while
denying that the measures declared in the European Union's Compliance Communication moved
the European Union and relevant member States closer to achieving compliance, the United States
considers that these effects of A350XWB LA/MSF would "directly negate" any valid compliance
measures.141

133 United States' first written submission, paras. 4, 18, 30, and 146 (quoting Appellate Body Report, US
– Softwood Lumber IV (Article 21.5 – Canada), para. 77 and citing Appellate Body Report, US – Zeroing (EC)
(Article 21.5 – EC), para. 203); and second written submission, paras. 73 and 84.
134 United States' first written submission, paras. 140, 143-144, and 147; and second written
submission, paras. 85 and 89-101.
135 United States' first written submission, para. 148.
136 United States' first written submission, para. 149.
137 United States' first written submission, para. 148 (heading 2), and para. 149 (citing Appellate Body
Report, US – Zeroing (EC) (Article 21.5 – EC), para. 251).
138 United States' first written submission, para. 149.
139 United States' first written submission, para. 148.
140 United States' second written submission, para. 61.
141 United States' first written submission, paras. 148 and 151; and second written submission,
para. 86.

6.60. The United States submits that a consideration of the timing of the relevant measures and
the adopted recommendations and rulings "cements the conclusion" that a close nexus exists
between them and, therefore, that the A350XWB LA/MSF measures fall within the scope of this
compliance proceeding.142 In particular, drawing fro m the case law in this area, the United States
recalls that it has been previously held that measures pre -dating the DSB's adoption of
recommendations and rulings, such as the A350XWB LA/MSF measures, may properly fall within
the scope of a compliance proc eeding.143 The United States notes in this regard that the
Appellate Body affirmed in US – Zeroing (EC) (Article 21.5 – EC) that a close nexus existed even
when the "undeclared" measure was enacted one to two years before the DSB's recommendations
and ruling s.144 The United States asserts that the timing of the negotiation, grant and
disbursement of the A350XWB LA/MSF measures overlaps with the issuance of the original panel
and Appellate Body reports, their adoption by the DSB and the European Union's declared
compliance measures. 145 Thus, the United States argues that the "evolution of LA/MSF for the
A350XWB has moved in tandem with this dispute" as well as the European Union's efforts to
comply with the DSB recommendations and rulings, revealing the existence o f a close relationship
between the "most recent LA/MSF measures and the subsidized LA/MSF" measures found to cause
adverse effects in the original proceeding.146
6.61. Finally, the United States argues that the close relationship existing between the alleged
A350XWB LA/MSF subsidies, the LA/MSF subsidies found to cause adverse effects in the original
proceeding and the European Union's alleged compliance measures is also apparent when the
factual and legal background to the A350XWB LA/MSF measures is considered. I n this regard, the
United States points to, for example, "the more than 40 years of history of EU member State
funding for all Airbus civil aircraft models" in the form of LA/MSF, the fact that EADS' financial
statements account for A350XWB LA/MSF in the same way as all prior LA/MSF, and a statement in
the preamble to the Spanish A350XWB LA/MSF contract noting the existence of a "system of
refundable advances" that has been used to fund all previous Airbus LCA programmes.147
6.62. The second line of argument the U nited States advances to support its contention that the
alleged A350XWB LA/MSF subsidies fall within the scope of this proceeding is that they replace the
subsidies found to cause adverse effects in the original proceeding in respect of the same
twin-aisle segment of the market for LCA. The United States recalls in this regard that the
Appellate Body has found that "a Member would not comply with the obligation in Article 7.8 to
withdraw the subsidy if it leaves an actionable subsidy in place, either entir ely or partially, or
replaces that subsidy with another actionable subsidy". 148 To this extent, the United States argues
that the A350XWB LA/MSF measures would allow the European Union to "evade its obligations by
replacing one WTO-inconsistent measure with another".149
6.63. Lastly, the United States maintains that the A350XWB LA/MSF measures should be
considered in this compliance proceeding because excluding them would allow the European Union
to circumvent its obligation to comply with the DSB recommendations an d rulings with respect to
LA/MSF for the A300, A310, A330 and A340. The United States argues that a measure that would
allow a Member to circumvent the recommendations and rulings of the DSB may also fall within
the scope of a compliance proceeding regardl ess of its nature and/or timing. Thus, according to
the United States, LA/MSF for the A350XWB needs to be evaluated within the terms of reference of

142 United States' first written submission, para. 154.
143 United States' first written submission, para. 153 (citing Appellate Body Report, US – Zeroing (EC)
(Article 21.5 – EC), paras. 234-235).
144 United States' second written submission, para. 110 (citing Appellate Body Report, US – Zeroing (EC)
(Article 21.5 – EC), paras. 234-235).
145 United States' first written submission, paras. 141 and 154; and second written submission,
paras. 87 and 106-112.
146 United States' first written submission, para. 154.
147 United States' first written submission, paras. 155-156 (quoting Real Decreto 1666/2009, de
SAS denominada Airbus Operations S.L para su participación en el programa de desarrollo de la nueva familia
de aviones Airbus A350XWB, Boletín Oficial del Estado, 9 November 2009, (Exhibit USA-46); and citing UK
Department for Business, Innovation and Skills, "The UK Strategic Investment Fund: Interim Report",
October 2009, p. 15, (Exhibit USA-43); and EADS Financial Statements, 2010, (Exhibit USA-6), p. 63).
148 United States' first written submission, paras. 32 and 158-162 (citing Appellate Body Report, US –
Upland Cotton (Article 21.5 – Brazil), paras. 237-238); and second written submission, paras. 115-118.
149 United States' first written submission, paras. 161-162.

this dispute to properly determine if the European Union and relevant member States have
complied. Otherwise, the distinction between the A350XWB and other models of subsidized Airbus
twin-aisle LCA would provide the European Union with a mechanism to circumvent compliance with
respect to the DSB recommendations and rulings concerning the A330 and A340 and thei r
derivatives.150
6.4.1.3 Arguments of the European Union
6.64. The European Union submits that "implicit" in every Appellate Body report that has
considered whether an undeclared measure may be properly determined to fall within the scope of
a compliance proceeding is a n "understanding" that any such measures "should be limited" to
instances of the application of the same "overarching measure" at issue in the original proceeding
and before the compliance panel. 151 The European Union notes that the United States failed to
allege the existence of an "overarching measure" in its request for the establishment of the
compliance panel, and submits that, for this reason alone, the A350XWB LA/MSF measures must
be found to fall outside of the scope of this proceeding. 152 In any case, the European Union argues
that the A350XWB LA/MSF measures and the pre -A350XWB LA/MSF measures at issue in the
original proceeding did not result from the application of an "overarching measure". In this
respect, the European Union maintains that the Unite d States' arguments purporting to
demonstrate the existence of a close nexus between these measures rest on the same submissions
concerning the alleged existence of the LA/MSF Programme that were rejected by the panel in the
original proceeding.153 The European Union argues that, although the Appellate Body declared the
original panel's findings with respect to the existence of the alleged LA/MSF Programme to be
moot and of no legal effect, the reasoning underlying the panel's factual determinations is
nevertheless instructive.154 Accordingly, the European Union asks the Panel to "remain consistent
with the findings of fact that it made sitting as the original panel in the original proceedings"155 and
conclude that the A350XWB LA/MSF measures are outside of the sc ope of this compliance dispute
because no "overarching measure" was found to exist with respect to the pre -A350XWB LA/MSF
measures in the original proceeding.156
6.65. The European Union argues that an examination of the relevant measures' nature, effects
and timing, within the context of the application of the close nexus test, "serves to confirm" this
conclusion.157
6.66. As to the nature of the relevant measures, the European Union argues that LA/MSF for the
A350XWB targets a different product to the LA/MSF measures a t issue in the original
proceeding.158 Moreover, even leaving aside the question whether the A350XWB is a similar
product to prior Airbus twin -aisle LCA, the European Union argues that similar product coverage
and country coverage, alone, are not enough to e stablish the requisite close nexus. 159 The
European Union furthermore submits that the nature of A350XWB LA/MSF is significantly different
from the nature of previous LA/MSF because it was provided more than two years after the first
order was received for t he A350XWB; whereas LA/MSF provided for other Airbus aircraft was
"generally" entered into much closer to the launch of the relevant LCA. 160 Similarly, the
European Union notes that, unlike the LA/MSF provided for certain older models of Airbus LCA,
LA/MSF for the A350XWB was not provided pursuant to any intergovernmental agreement related

150 United States' first written submission, para. 165; and second written submission, para. 120.
151 European Union's first written submission, paras. 67-74 (citing Appellate Body Reports, US –
Softwood Lumber IV (Article 21.5 – Canada); US – Zeroing (EC) (Article 21.5 – EC); and US – Upland Cotton
(Article 21.5 – Brazil)); second written submission, para. 28; and response to Panel question No. 80.
152 European Union's first written submission, para. 96.
153 European Union's second written submission, paras. 20, 22, and 98 (citing Panel Report, EC and
certain member States – Large Civil Aircraft, para. 7.577). See also European Union's response to Panel
question No. 80; and comments on the United States' response to Panel question Nos. 80, 81, 82, and 84.
154 European Union's first written submission, para. 97.
155 European Union's response to Panel question No. 80; and comments on the United States' response
to Panel question No. 80.
156 European Union's response to Panel question No. 80; and comments on the United States' response
to Panel question Nos. 80, 81, 82, and 84.
157 European Union's first written submission, para. 95; and second written submission, para. 23.
158 European Union's first written submission, para. 108.
159 European Union's first written submission, paras. 82 and 108.
160 European Union's first written submission, para. 105.

to the development of the A350XWB. 161 The European Union also argues that the United States'
reliance on the alleged similarity between the core terms of LA/MSF for the purpo se of showing
that the nature of the relevant measures is alike is misplaced. According to the European Union,
the alleged similarity simply reflects the terms of long -term project financing, which is "ubiquitous
in many Members".162
6.67. As to the effects of the various measures, the European Union argues that the United States
has not put forward an adequate analysis of the relationship of the measures' effects, as it has not
demonstrated that any of the A350XWB LA/MSF measures: (a) is a subsidy or (b) causes a dverse
effects.163 For example, the European Union submits that the United States has not explained how
financing that was provided several years after the launch of the A350XWB can be said to have the
effect of enabling its launch.164 In any case, the Europea n Union submits that the questions that
are the focus of the United States' arguments concerning the effects of the relevant measures go
to the substantive issues that are before the Panel in this compliance dispute. The European Union
maintains that such matters cannot properly be part of a jurisdictional analysis.165
6.68. As to the timing of the respective measures, the European Union submits that the terms
and conditions of A350XWB LA/MSF were agreed to approximately [***] prior to the DSB's
adoption of the recommendations and rulings in the original proceeding, and were not adopted "on
or around" the time of adoption of the declared "measures taken to comply.166
6.69. The European Union also submits that neither of the two additional grounds the
United States advances to support its contention that the A350XWB LA/MSF measures fall within
the scope of this proceeding are independent or stand -alone bases for making such a
determination. Rather, according to the European Union, both additional United States arguments
are simply potentially relevant considerations for an application of the close nexus test.167
6.70. Finally, the European Union argues that the United States' position with respect to the
A350XWB LA/MSF measures must be dismissed because it is ultimately premised on a view of the
types of measures that may affect a Member's compliance with DSB recommendations and rulings
that suggests that once a Member is found to have granted an actionable subsidy in a particular
sector, any future alleged subsidy in the same sector may be a matter for a compliance
proceeding. According to the European Union, this would represent an "extremely expansive
notion" of the scope of a compliance proceeding, which would have significant implications for
other areas of WTO law.168
6.4.1.4 Arguments of the third parties
6.4.1.4.1 Australia
6.71. Australia considers that LA/MSF for the A350XWB is within the scope of the compliance
proceeding.169 Australia considers that a Member that has successfully argued that its interests are
adversely affected by payment of a subsid y should not be required to bring a fresh action with
respect to financial contributions made on the same legal basis as those found to be
WTO-inconsistent. In Australia's view, to find otherwise would oblige the complaining Member to
become embroiled in a litigation loop of periodic challenges under the SCM Agreement and would

161 European Union's first written submission, para. 106.
162 European Union's second written submission, para. 33.
163 European Union's first written submission, para. 109.
164 European Union's first written submission, para. 111.
165 European Union's first written submission, paras. 110 and 112.
166 European Union's first written submission, para. 103; and second written submission, para. 37.
167 European Union's first written submission, paras. 85-92.
168 European Union's second written submission, paras. 33-35. For example, the argument would imply
that once a fiscal measure is found to be inconsistent with Article III:2 of the GATT 1994, any future fiscal
measure of the same type and touching the same sector, would be subject to compliance proceedings, for an
indefinite period and without any requirement of continuity with respect to the measure.
169 Australia's third-party response to Panel question No. 3.

deny that Member a remedy under Article 7.8 of that Agreement, a result contrary to the object
and purpose of the WTO dispute settlement system, including DSU Articles 3 and 21.170
6.72. For Australia, a finding that only the original LA/MSF measures are within the scope of this
Article 21.5 proceeding would lead to the compliance proceeding being restricted to the
re-examination of the same measures at issue in the original proceeding, rather than the existence
or consistency of measures taken to comply. Australia considers that such an unduly restrictive
interpretation has previously been rejected by the Appellate Body, and ignores the fact that
Article 21.5 proceedings often concern the consistency of a new measure taken to comply with the
recommendations and rulings in the dispute.171
6.4.1.4.2 Brazil
6.73. According to Brazil, the principles of protecting the effectiveness of the WTO dispute
settlement system and ensuring prompt compliance and an effective resolution of disputes suggest
that LA/MSF for the A350XWB is within the scope of the compliance proceeding. Brazil considers
that the Panel should not adopt an overly formalistic approach to its terms of reference, and rather
approach the issue in terms of the context in which the measures taken to comply are being
applied.172 Brazil notes that, while it does not consider that just any measure that shares features
with the original measure or the measure taken to comply could be challenged in an Article 21.5
proceeding, an overly narrow approach to a compliance panel's terms of reference would
undermine the effectiveness of the dispute settlement process. In Brazil's view, a very similar type
of subsidy, in support of a very similar product, produced by the same recipient company around
that time that closely related subsidy measures were found to be WTO -inconsistent, is a measure
that can and must be included in an examination of "measures taken to comply".173
6.74. In terms of the nature of the measures, Brazil con siders that the subject matter of LA/MSF
for the A350XWB – LA/MSF to support Airbus twin-aisle large civil aircraft – is sufficiently similar to
the subsidies to Airbus twin -aisle large civil aircraft analysed in the original proceeding to warrant
its inclusion in the scope of this compliance proceeding. Moreover, Brazil considers that, given the
competitive overlap between the A350XWB and similar Airbus twin -aisle aircraft covered by the
recommendations and rulings of the DSB, LA/MSF support for the A350XW B could affect
implementation. Brazil considers that whether this is ultimately the case is a substantive issue to
be demonstrated by the United States; however, the similarity in possible effects of LA/MSF for the
A350XWB further reinforces the close nexu s between the original LA/MSF measures addressed in
the original panel and Appellate Body reports, the alleged measures taken to comply, and the
LA/MSF measures for the A350XWB. Finally, Brazil refers to Appellate Body statements that
measures that predate the adoption of the original panel and Appellate Body reports can be
included in the context of an Article 21.5 proceeding as "measures taken to comply" so long as
there is a sufficiently close nexus in terms of the nature and effects of the measures.174
6.4.1.4.3 China
6.75. China submits that, in order for a measure to be subject to review by a compliance panel, it
must be either: (a) a declared "measure taken to comply", (b) a measure otherwise constituting a
"measure taken to comply" because of its "express link" with the recommendations and rulings of
the DSB in the original proceeding, (c) a measure not in itself a "measure taken to comply" but
having a "particularly close relationship" to the declared "measure taken to comply" and to the
DSB's recommendations and rul ings, or (d) in a subsidy case, a replacement subsidy which
replaces the one found to be WTO -inconsistent in the original proceeding. 175 China considers that
LA/MSF for the A350XWB does not fall within any of these four categories, and is therefore not
within the panel's terms of reference.

170 Australia's third-party response to Panel question No. 3 (citing Australia's third-party submission in
US – Upland Cotton (Article 21.5 – Brazil)).
171 Australia's third-party response to Panel question No. 3 (citing Appellate Body Reports, US –
Softwood Lumber IV (Article 21.5 – Canada), para. 89; and Canada – Aircraft (Article 21.5 – Brazil), para. 36).
172 Brazil's third-party submission, para. 23.
173 Brazil's third-party submission, para. 31.
174 Brazil's third-party submission, para. 28.
175 China's third-party submission, para. 5.

6.76. China argues that there is no "declared" measure taken to comply with respect to the
A350XWB, nor is there a measure that could be considered a "measure taken to comply" on the
basis of an "express link" with the recommend ations and rulings of the DSB. China notes that the
panel in the original proceeding dismissed the United States' claim that an alleged commitment to
provide LA/MSF for the Original A350 constituted a specific subsidy. Neither party appealed this
finding, and the conclusion adopted by the DSB should be treated as a final resolution of that
claim.176 As there were no recommendations or rulings concerning the A350, the European Union
bears no obligation to take any measure to bring about compliance in this resp ect. China considers
that it is therefore not possible for any measure to have an "express link" to the non -existing
DSB's recommendations and rulings concerning the A350. Because LA/MSF for each Airbus LCA
model was considered to be separate and distinct, and because no LA/MSF Programme covering all
Airbus LCA was found to exist, there is no basis for the United States to assert that LA/MSF for the
A350XWB has a particularly close relationship to either LA/MSF for the A350 or other LA/MSF for
twin-aisle LCA.177
6.77. China considers erroneous the United States' argument that A350XWB is a replacement
subsidy for earlier LA/MSF measures that the European Union claims to have withdrawn. According
to China, in US – Upland Cotton (Article 21.5 – Brazil), the Appellate Body's conclusion that the
marketing loan payments and counter -cyclical payments were properly within the scope of the
compliance proceeding was made in the context where the payments were annual, recurring
payments made under unchanged regulatory provisio ns.178 China distinguishes this from the
present proceeding, in which there are no findings on the existence of a LA/MSF Programme.
Additionally, the disbursements of funds under each of the challenged LA/MSF measures are not
recurrent. China considers there is no factual basis to establish that A350XWB LA/MSF is a
"replacement subsidy" in relation to "any earlier WTO -inconsistent LA/MSF measures" which are
actually all separate from and parallel to each other. Finally, China submits that there is no distinct
ground for including a measure within the scope of a compliance proceeding according to whether
its exclusion would permit circumvention of the DSB's recommendations and rulings. Rather, this
is a factor to be considered as part of the integrated analysis of whether there is a "particularly
close relationship" between the "undeclared" measure, the "declared" measures taken to comply
and the recommendations and rulings of the DSB.179
6.4.1.4.4 Japan
6.78. Japan considers that the "close nexus" test should be applied in this and any compliance
proceeding, to determine whether a measure is properly before the compliance panel.180 In Japan's
view, overly narrow terms of reference for an Article 21.5 panel would undermine the effectiveness
of the dispute settlement process . Japan notes that the Appellate Body has found that a relatively
wide range of measures not covered by the original proceeding were within the scope of
Article 21.5 proceedings.181 Japan considers that the concern expressed by the Appellate Body in
US – Upland Cotton (Article 21.5 – Brazil)182 is sufficiently addressed by the criteria of the "close
nexus" test. When properly applied, the requirements contained in the close nexus test, such as
the timing, nature and effects of the contested measures, ensure the effecti veness of the
disciplines of the SCM Agreement.
6.79. Japan has concerns with the European Union's "overarching measure" approach. 183 Japan
does not d eny that the presence of a common overarching measure may be a relevant factor in
determining whether the undeclared measure at issue has a sufficiently "close nexus" with the

176 China's third-party submission, para. 14; and third-party response to Panel question No. 3.
177 China's third-party submission, paras. 25-26.
178 China's third-party submission, paras. 30-31; and third-party response to Panel question No. 3.
179 China's third-party submission, paras. 37-38.
180 Japan's third-party response to Panel question No. 3.
181 Japan's third-party response to Panel question No. 3 (citing Appellate Body Reports, US – Zeroing
(EC) (Article 21.5 – EC); and US – Softwood Lumber IV (Article 21.5 – Canada)).
182 Panel question No. 3 referred to Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil),
paras. 137 and 245.
183 Japan's third-party response to Panel question No. 3 (citing European Union's first written
submission, para. 76).

declared measure taken to comply, and the recommendations and rulings of the DSB .184 However,
Japan submits that the existence of a common overarching measure may be one of several factors
to be considered in the assessment of whether there are sufficiently close links, in terms of timing,
nature, and effects, between the undeclared measure at issue and the declared measure taken to
comply and the recommendations and rulings of the DSB , and is neit her a pre requisite nor a
decisive factor as the European Union appears to posit.
6.4.1.5 Evaluation by the Panel
6.4.1.5.1 Introduction
6.80. The issue that is before us is whether the merits of the United States' claims with respect to
the alleged adverse effects of the A350XWB LA/MSF measures may be properly considered in this
dispute in order to determine whether the European Union and relevant member States have
complied with the DSB recommendations and rulings adopted in the original proceeding. As
already noted185, the A350XWB LA/MSF measures did not exist and were not before the panel in
the original proceeding. Moreover, the European Union did not identify the A350XWB LA/MSF
measures in its Compliance Communication of 1 December 2011. Thus, the question we must
resolve is whether a set of measures that were not expressly "declared" by the European Union to
be "measures taken to comply" and were not the specific subject of the adopted DSB
recommendations and rulings in the original proceeding may fall within the scope of this
compliance dispute.
6.81. We note that whenever any measure reviewed in a proceeding initiated under Article 21.5 of
the DSU is found to demonstrate a failure to comply with the recommendations and rulings of the
DSB in an original proceeding, a complaining Membe r would generally be entitled to request
compensation or authorization to suspend concessions.186 At this stage of a dispute, the DSU does
not afford a responding Member with the right to a second "reasonable period of time" 187 to bring
its measures into confo rmity with the covered agreements. A finding that a measure which is
neither a declared "measure taken to comply" nor the subject of specific DSB recommendations
and rulings (i.e. a so -called "undeclared" measure) falls within the scope of a compliance
proceeding may, therefore, have important implications for a WTO Member's rights and obligations
under the DSU and the covered agreements in general. Thus, as cautioned by the Appellate Body,
characterizing an act by a Member as a "measure taken to comply" wh en that Member maintains
otherwise "is not something that should be done lightly by a panel".188
6.82. Nevertheless, there may well be situations when a measure that a responding Member
argues falls outside of the scope of a compliance proceeding operates to unde rmine or effectively
nullify the declared "measures taken to comply" or otherwise circumvent that Member's
compliance obligations. To require that a complaining Member in these circumstances initiate a
new proceeding under Article 6 of the DSU in order to challenge such an undeclared measure, may
not only be at odds with the very notion of compliance that is advanced under the DSU but it
might also be perceived as an inefficient use of the WTO's dispute settlement procedures,
particularly if the undeclared measure is intrinsically linked to the WTO -inconsistent measures
subject to the relevant recommendations and rulings of the DSB. One approach that we believe
panels and the Appellate Body have developed to come to terms with such situations in a way that

184 Japan's third-party response to Panel question No. 3 (citing Appellate Body Report, US – Softwood
Lumber IV (Article 21.5 – Canada), para. 77). See also Appellate Body Report, US – Zeroing (EC) (Article 21.5
– EC), para. 203).
185 See above para. 6.53.
186 Article 22.1 of the DSU prescribes that "{c}ompensation and the suspension of concessions or other
obligations are temporary measures available in the event that the recommendations and rulings are not
implemented within a reasonable period of time". Furthermore, Article 22.2 provides that a "request for
authorization from the DSB to suspend … concessions or other obligations granted under the covered
agreements" cannot be made unless the responding Member fails to comply with the adopted
recommendations and rulings "within the reasonable period of time determined pursuant to paragraph 3 of
Article 21".
187 Article 21.3 of the DSU provides that a responding Member "shall have a reasonable period of time"
within which to comply with the recommendations and rulings adopted by the DSB.
188 Appellate Body Report, US – Softwood Lumber IV (Article 21.5 – Canada), para. 74.

respects the limited nature of the types of claims that can be brought in WTO compliance
proceedings is referred to as the "close nexus" test.
6.83. Under the "close nexus" test, as elucidated by the Appellate Body in US – Softwood
Lumber IV (Article 21.5 – Canada), any undeclared measure with a "particularly close relationship"
to the declared measure taken to comply, and to the recommendations and rulings of the DSB,
may be susceptible to review by a compliance panel. Determining whether this is the case requir es
panels to "scrutinize these relationships" in the context of the "factual and legal background"
against which a declared measure taken to comply is adopted, which may, depending on the
particular facts, call for an examination of the timing, nature and effects of the various measures.
A compliance panel must on this basis determine whether there are "sufficiently close links"
between the relevant measures and the DSB recommendations and rulings such that it would be
appropriate to characterize the undecl ared measure as a "measure taken to comply" and,
consequently, to assess its consistency with the covered agreements in a proceeding initiated
under Article 21.5 of the DSU.189
6.84. Although the close nexus test may not be the only basis for resolving the genera l question
that is before us 190, we note that it has been the main focus of the parties' arguments.
Accordingly, we begin our evaluation of the parties' positions with respect to the question whether
the A350XWB LA/MSF measures fall within the scope of this compliance dispute by examining the
merits of their submissions concerning the application of the "close nexus" test, starting by, first of
all, assessing the European Union's arguments with respect to the relevance and relationship of
the existence of an "overarching measure" to this analysis.
6.4.1.5.2 The relevance and relationship of the existence of an "overarching measure"
to the close nexus test
6.85. In its first and second written submissions, the European Union argued that as part of the
analysis of the relevant "factual and legal background" that informs the application of the close
nexus test, a panel must, as a threshold matter , consider whether there is an "overarching
measure". According to the European Union, where a complaining Member cannot make this
"requisite threshold showing ", there would be no need for a panel to proceed to examine the
"additional factors" of the close nexus test, and the relevant undeclared measure could not be
brought into the scope of the compliance dispute. 191 The clearest example of this line of argument
is, in our view, captured by the following passage from the European Union's first written
submission:
Beyond the "particular factual and legal background" that must be considered in
applying the "close nexus" test (including the th reshold issue of whether there is an
overarching measure, as discussed above), the Appellate Body has stated that
determining jurisdiction over an alleged undeclared measure taken to comply " may,
depending on the particular facts , call for an examination o f the timing, nature, and
effects of the various measures". In other words, these elements of "timing", "nature",
and "effects" are additional factors that may be considered, depending on the facts.
As explained above, if a complaining Member can not make the requisite threshold
showing that the alleged undeclared measure taken to comply is an application of the
overarching measure at issue in the original proceedings, or an application of the
declared measure taken to comply, then there is no need for a co mpliance panel to
proceed with any additional steps of the "close nexus" analysis. 192 (emphasis original;
footnote omitted)
6.86. However, in its comments on the United States' responses to the Panel's questions following
the substantive meeting, the European Union clarified that it does not argue "there must always be
an overarching measure" 193, recognizing "the possibility that close nexus might be demonstrated

189 Appellate Body Report, US – Softwood Lumber IV (Article 21.5 – Canada), para. 77.
190 We do not exclude that there may be situations where the factual circumstances and legal provisions
at issue in a particular compliance dispute call for a different approach to be taken.
191 European Union's first written submission, paras. 70, 76, and 77; and second written submission,
paras. 22, 25, and 36.
192 European Union's first written submission, para. 76.
193 European Union's comments on the United States' response to Panel question No. 85.

without expressly referring to an overarching measure". 194 Nevertheless, for the European Union,
"the alleg ed existence of an overarching measure derived from the identification of an alleged
pattern in instances of the application of such measure" and the close nexus test are "two ways of
approaching what is essentially the same issue"; and, according to the European Union:
{T}his issue, under the heading of whether or not there is an overarching measure
(i.e., an unwritten MSF Programme), was vigorously argued before the original panel
in this particular dispute, and the United States lost. All the European Union is asking
is that, now that the United States is pursuing essentially the same issue under the
heading of whether or not there is a close nexus, the compliance Panel should remain
consistent with the findings of fact that it made sitting as the origina l panel in the
original proceedings. In short, in the original proceedings there was no overarching
measure (because the measures were so different), and likewise there is no close
nexus (because the measures are still different).195
6.87. In the light of these cl arifications, we understand the European Union's argument to be
essentially based on the following submissions: (a) an affirmative close nexus analysis and the
existence of an overarching measure are two ways of showing that an undeclared measure may be
found to be sufficiently connected with the "measures taken to comply" and the recommendations
and rulings of the DSB, such that it may be brought into the scope of a compliance dispute; (b)
the fact that the original panel found that the United States had f ailed to demonstrate the
existence of an unwritten LA/MSF Programme means that there is no overarching measure and,
therefore, no close nexus between the A350XWB and pre -A350XWB LA/MSF agreements and the
adopted recommendations and rulings in this dispute; and (c) the findings of every Appellate Body
report that has considered whether an undeclared measure may properly fall within the scope of a
compliance proceeding support its approach. We are not persuaded by the European Union's
submissions.
6.88. First of a ll, we detect an unexplained tension in the European Union's arguments. On the
one hand, the European Union accepts that a complaining Member is not required to demonstrate
the existence of an overarching measure in order to demonstrate that an undeclared measure may
fall within the scope of a compliance dispute. On the other hand, the European Union maintains
that, in the present instance , the United States' failure to identify the existence of an unwritten
LA/MSF Programme (the alleged overarching measure ) implies that the panel is ipso facto
precluded from having jurisdiction over the United States' substantive claims against the A350XWB
LA/MSF measures. The European Union "can only agree with the United States that the
assessment must 'depend on the fact s' about whether or not there is a 'close relationship' or
whether or not the measures are different".196 Yet, according to the European Union, the mere fact
that an unwritten LA/MSF Programme (the alleged overarching measure) does not exist should be
decisive in determining the merits of the United States' scope claims, notwithstanding the multiple
other factors the United States relies upon to demonstrate the existence of the requisite "close
relationship". In our view, the European Union has failed to adeq uately explain why the
non-existence of an unwritten LA/MSF Programme must necessarily direct us to reject the
United States' scope claims with respect to the A350XWB LA/MSF, given that: (a) it believes there
is, in principle, no requirement to demonstrate the existence of an overarching measure, and (b) it
recognizes that all relevant facts must be taken into account when assessing whether an
undeclared measure falls within the scope of a compliance proceeding. In other words, we are
unable to find merit i n the European Union's submissions because we do not understand the
European Union's reasons for believing that the principles it accepts should apply in general have
no application on the basis of the facts of the present dispute.
6.89. Second, we do not unders tand the Appellate Body's findings in the disputes the
European Union relies upon to support its position. The European Union maintains that an
overarching measure was implicitly at the centre of the Appellate Body's findings and analyses in
three compliance disputes: US – Softwood Lumber IV (Article 21.5 – Canada); US – Zeroing (EC)
(Article 21.5 – EC); and US – Upland Cotton (Article 21.5 – Brazil). In our view, however, and as
we explain in more detail below, no overarching measure of the kind described in the

194 European Union's comments on the United States' response to Panel question No. 80.
195 European Union's comments on the United States' response to Panel question No. 80.
196 European Union's comments on the United States' response to Panel question No. 84.

European Union's submissions existed in the first two disputes; and although it could be argued
that an overarching measure was present in the US – Upland Cotton (Article 21.5 – Brazil), it was
certainly not because of this fact alone that the Appel late Body found the relevant undeclared
measures to fall within the scope of the compliance dispute. Rather, in this latter dispute, the
existence of what could be argued to be an overarching measure was one of several facts that
became important considera tions in the light of the Appellate Body's interpretation of the
United States' compliance obligation under Article 7.8 of the SCM Agreement.
6.90. The European Union asserts that the overarching measure in US – Softwood Lumber IV
(Article 21.5 – Canada) was th e final countervailing duty order , pursuant to which the
European Union alleges the United States "adopted": (a) the measure at issue in the original
proceeding (a final countervailing duty determination made by the United States Department of
Commerce (USDOC)); (b) the declared measure taken to comply (a revised determination of the
final countervailing duty determination at issue in the original proceeding pursuant to Section 129
of the US Uruguay Round Agreements Act); and (c) the undeclared measure foun d to be a
"measure taken to comply" (the first administrative review conducted in the same countervailing
duty proceeding). 197 However, contrary to the European Union's assertions, the declared
"measures taken to comply" and the undeclared measures in US – Softwood Lumber IV
(Article 21.5 – Canada) were not "adopted" pursuant to the same legal provision or by means of
the application of the same measure. Rather, as explained by the Appellate Body:
{The} two distinct measures were taken under two separate lega l provisions: (i) a
determination under Section 129, which is the United States' legal framework for
issuing new determinations to comply with recommendations and rulings of the DSB;
and (ii) an administrative review determination, which was required to be issued in
the ordinary course of the application of the United States' countervailing duty laws.198
6.91. Moreover, the Appellate Body articulated the logic underpinning its ruling in US – Softwood
Lumber IV (Article 21.5 – Canada) in the following terms:
Because the administrative review determination had the effect of undermining
compliance with the DSB's recommendations and rulings, and because both measures
concerned the same analysis of subsidies for softwood lumber production, the
Appellate Body found that t he administrative review determination was so
"inextricably linked" and "clearly connected" to the Section 129 determination as to
fall within the scope of the Article 21.5 panel's mandate. … The dispute in US –
Softwood Lumber IV (Article 21.5 – Canada) concerned the identification of closely
connected measures so as to avoid circumvention.199 (footnote omitted)
6.92. Thus, it was not because the relevant measures at issue in US – Softwood Lumber IV
(Article 21.5 – Canada) resulted from the application of any "ove rarching measure" that the
Appellate Body ultimately found the undeclared measure to fall within the scope of the compliance
proceeding, but rather because the undeclared measure "had the effect of undermining compliance
with the DSB's recommendations and rulings" and because, in addition, both the declared and
undeclared measures "concerned the same analysis of subsidies for softwood lumber production".
While this latter fact was a point in common between the declared "measure taken to comply" and
the undeclared measure, it did not result from the application of the "overarching measure" the
European Union asserts existed in this dispute – namely, the final countervailing duty order .
Indeed, the only place in the Appellate Body's findings where the final co untervailing duty order is
referred to is when the United States' request for a preliminary ruling in the compliance panel
proceeding is quoted in the introduction to the Appellate Body's analysis. 200 The alleged
"overarching measure" is neither relied upon nor discussed anywhere else in the Appellate Body's
findings.
6.93. Likewise, the European Union argues that multiple "overarching measures" arose in the
US – Zeroing (EC) (Article 21.5 – EC) dispute. In its first written submission, the European Union

197 European Union's first written submission, paras. 72 and 80.
198 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 205.
199 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 205.
200 Appellate Body Report, US – Softwood Lumber IV (Article 21.5 – Canada), para. 56.

identifies the relevant "overarching measures" to be the anti-dumping duty orders pursuant to
which the United States allegedly "adopted": (a) the measures at issue in the original proceeding
(16 original anti -dumping investigations and 15 administrative reviews); (b) the declared
"measures taken to comply"201; and (c) the undeclared measures found to be "measures taken to
comply" (determinations made in subsequent reviews, changed circumstances reviews and sunset
reviews conducted under the various anti -dumping proce edings).202 In its second written
submission, the European Union appears to suggest that there was another "overarching measure"
in US – Zeroing (EC) (Article 21.5 – EC), namely, the "zeroing" "instruction in a computer
programme", as evidenced by "a general computer programme designed to be adapted and used
in particular cases" and various instances of the computer programme's application.203
6.94. We are not convinced that the European Union's reliance on US – Zeroing (EC) (Article 21.5
– EC) is based on an accurat e characterization of the relevant facts or the analytical approach
adopted by the Appellate Body. In US – Zeroing (EC) (Article 21.5 – EC), the Appellate Body
considered the extent to which a number of administrative, changed circumstances and sunset
review determinations that followed the 15 original anti -dumping investigations and
16 administrative reviews challenged in the original proceeding fell within the scope of the
compliance proceeding. All of these measures were, in fact, adopted in the ordinary course of the
application of the United States' anti-dumping regime and, to this extent, closely connected to the
relevant anti-dumping duty orders the European Union argues were the "overarching measures" in
this case. However, as in US – Softwood Lumber IV (Article 21.5 – Canada), the
United States' declared compliance measures, which we understand to be the focus of the
European Union's arguments, were "Section 129 Determinations" adopted under the United States
Uruguay Round Agreements Act 204 and, theref ore, enacted under a different legal basis to the
undeclared measures at issue. Thus, the European Union errs when it asserts that the
United States' declared "measures taken to comply" in US – Zeroing (EC) (Article 21.5 – EC) were
"adopted" pursuant to th e same anti -dumping duty orders that provided the legal basis for the
measures challenged in the original proceeding and the undeclared measures.
6.95. It is true that the anti -dumping duty orders the European Union argues were the
"overarching measures" in US – Zeroing (EC) (Article 21.5 – EC) were in fact considered by the
Appellate Body in the context of determining whether the relevant nexus existed between the
"nature or subject matter" of the relevant measures and the DSB recommendations and rulings.
The existence of the anti -dumping duty orders enabled the panel and the Appellate Body to link
each of the undeclared measures with the measures challenged in the original proceeding and the
rulings and recommendations adopted by the DSB. To this extent, the ant i-dumping duty orders
were clearly part of the relevant "factual and legal background" against which the declared
measures had been adopted. However, it was the use of zeroing that was explicitly found to be the
point in common between the undeclared measures and the declared "measures taken to comply":
In our view, the use of zeroing in the excluded subsequent reviews provides the
necessary link , in terms of nature or subject matter, between {the undeclared}
measures, the declared measures "taken to compl y", and the recommendations and
rulings of the DSB. All the excluded subsequent reviews were issued under the same
respective anti -dumping duty order as the measures challenged in the original
proceedings, and therefore constituted "connected stages … involving the imposition,
assessment and collection of duties under the same anti -dumping order". Moreover,
as the Panel correctly noted, the issue of zeroing was the precise subject of the
recommendations and rulings of the DSB, the only aspect of the origina l measures

201 We note that the European Union did not specifically identify the relevant declared "measures taken
to comply" in its first written submission, citing Appellate Body Report, US – Zeroing (EC) (Article 21.5 – EC),
para. 212. In our view, this citation discusses the relevant undeclared measures that were ultimately found to
be "measures taken to comply", but not the declared "measures taken to comply".
202 European Union's first written submission, para. 73.
203 European Union's second written submission, para. 29. It is not clear to us whether the
European Union refers to the "zeroing" "instruction in a computer programme" as an "overarching measure" or
as an example of the commonality between the "overarching measures" (the relevant anti-dumping duty
orders) and the declared and undeclared "measures taken to comply".
204 Other declared "measures taken to comply" in this dispute included: (a) the United States'
termination of the use of "model zeroing" in original investigations in which the weighted average-to-weighted
average comparison methodology is applied; and (b) the revocation of anti-dumping duty orders in four cases.
(Appellate Body Report, US – Zeroing (EC) (Article 21.5 – EC), para. 209)

that was modified by the United States in its Section 129 determinations, and is the
only aspect of the excluded subsequent reviews challenged by the European
Communities in these proceedings. These pervasive links, in our view, weigh in favour
of a sufficiently close nexus, in terms of nature or subject matter, between the
excluded subsequent reviews, the declared measures "taken to comply", and the
recommendations and rulings of the DSB, insofar as the use of zeroing is
concerned.205 (emphasis original; underline added; footnotes omitted)
6.96. Thus, while the Appellate Body relied upon the fact that the undeclared measures could all
be linked to the relevant underlying anti -dumping duty orders to establish the necessary close
nexus in terms of "nature and subject matter", we do not understand the Appellate Body's findings
to have implicitly elevated the existence of those anti -dumping duty orders to be a determinative
element of the overall close nexus test. Indeed, it is apparent that the existence of the
anti-dumping duty orders was simply one relevant fact in the context of scrutinizing the
relationships between the undeclared measures and the measures examined in the original
proceeding with respect to which the DSB adopted recommendations and ruling s. Moreover, we
note once more that, as in US – Softwood Lumber IV (Article 21.5 – Canada), the anti -dumping
duty orders did not connect the undeclared measures or the DSB recommendations and rulings
with the declared "measures taken to comply". Rather, th e one critical point in common between
the declared "measures taken to comply", the undeclared measures and the DSB
recommendations and rulings was the use of zeroing.
6.97. The Appellate Body relied upon a very similar line of reasoning to dispose of the
United States' "other appeal" to the original panel's close nexus analysis in US – Zeroing (EC)
(Article 21.5 – EC) with respect to two administrative reviews in which the USDOC had adopted a
different zeroing methodology to the zeroing methodology applied in t he original investigation and
found to be WTO-inconsistent in the original proceeding. The United States argued that the original
panel had erred in finding that "successive determinations of different types in the context of a
single trade remedy proceeding {that is, under the same anti-dumping duty order} 'form part of a
continuum of events and measures that are all inextricably linked'". According to the
United States, "a 'closer connection between the declared measure taken to comply and the
alleged add itional measure' must exist for the latter to fall within the scope of Article 21.5
proceedings, because by definition administrative reviews will usually have the same product and
country coverage as the original investigation ".206 The Appellate Body agreed with the
United States that "identity in terms of product and country coverage alone would be an
insufficient basis for" establishing the necessary close nexus, recalling that in US – Softwood
Lumber IV (Article 21.5 – Canada) it had recognized that "not 'every assessment review will
necessarily fall within the jurisdiction of an Article 21.5 panel'." 207 However, in the light of the
particular factual circumstances of the case at hand, the Appellate Body considered that:
{T}he use of zeroing in the 2004 -2005 administrative reviews {(the relevant
undeclared measures)} … establishes a link in terms of nature or subject matter
between those reviews, the recommendations and rulings of the DSB, and the
declared measures "taken to comply" – that is, the Section 129 determinations … .208
(emphasis added)
6.98. The Appellate Body once again relied upon the existence of anti-dumping duty orders
underlying the relevant administrative reviews to connect the nature and subject matter of the
administrative reviews (the undeclared measures) with the investigations at issue in the original
proceeding209, observing furthermore that:
Each of these proceedings involved the calculation of a margin of dumping, either for
the purposes of establishing the existence of dumping and the initial cash deposit rate
of the estimated dumping duty liability, or for the final assessment of dumping duty
liability on past entries. In each instance, the use of the zeroing methodology arose in

205 Appellate Body Report, US – Zeroing (EC) (Article 21.5 – EC), para. 230.
206 Appellate Body Report, US – Zeroing (EC) (Article 21.5 – EC), para. 237. (emphasis added; footnote
omitted)
207 Appellate Body Report, US – Zeroing (EC) (Article 21.5 – EC), para. 239. (footnote omitted)
208 Appellate Body Report, US – Zeroing (EC) (Article 21.5 – EC), para. 239.
209 Appellate Body Report, US – Zeroing (EC) (Article 21.5 – EC), para. 240.

the context of calculating estimated margins of dumping for part icular exporters, or
assessment rates for particular importers.210 (emphasis added; footnote omitted)
6.99. Indeed, the Appellate Body found it:
{S}ignificant that the use of zeroing was the only aspect of the original measures at
issue that was corrected by the U nited States in response to the recommendations
and rulings of the DSB. Indeed, the Section 129 determinations in Cases 1 and 6,
which are the United States' declared measures "taken to comply", simply
recalculated—without zeroing —the margins of dumping ca lculated in the original
proceedings. This, in our view, tends to confirm the close nexus, in terms of subject
matter and nature, between the declared measures "taken to comply", the
recommendations and rulings of the DSB in the original proceedings, and t he use of
zeroing in the 2004 -2005 administrative reviews in Cases 1 and 6 {the undeclared
measures}.211 (emphasis added)
6.100. Finally, the Appellate Body recalled that it had determined in US – Continued Zeroing that
the use of zeroing in "successive determinati ons" under the same anti -dumping duty order
constitutes a measure that is challengeable in WTO dispute settlement . For the Appellate Body, it
followed from its findings with respect to the existence of this unwritten zeroing norm that "the
subsequent revie ws at issue in this case, in which that zeroing methodology is applied, are
sufficiently connected in nature or subject matter so as to fall within the scope of these
Article 21.5 proceedings".212
6.101. Thus, while it is apparent that the existence of the anti -dumping duty orders underlying
the United States' undeclared measures (the two administrative reviews) was a consideration that
informed the Appellate Body's evaluation of the United States "other appeal" in US – Zeroing (EC)
(Article 21.5 – EC), we do not understand the Appellate Body to have considered it to be anything
more than one of features of the relationship between the undeclared measures and the original
measures that were the subject of the adopted DSB recommendations and rulings. The
Appellate Body did not rely upon the anti-dumping duty orders to establish a relevant relationship
with the United States' declared "measures taken to comply", which were instead found to be
connected to the undeclared measures and the DSB recommendations and rulings because of the
use of zeroing.
6.102. Turning finally to US – Upland Cotton (Article 21.5 – Brazil), we note that the
European Union characterizes the subsidy programme that was the legal basis for the subsidy
measures challenged in the original proceeding and the undeclared measures – in both cases,
marketing loans and counter -cyclical payments – as the "overarching measure". 213 We find the
European Union's reliance on US – Upland Cotton (Article 21.5 – Brazil) to be misplaced. The
relevant scope question in this d ispute was whether certain "marketing loan and counter -cyclical
payments" made under a subsidy programme that was the same legal basis for the marketing loan
and counter-cyclical payments found to be WTO -inconsistent in the original proceeding, could be
challenged in the compliance proceeding. The European Union maintains that the Appellate Body's
approach in this appeal is "a specific example of the close nexus test in operation". 214 While this
might be one way to characterize the Appellate Body's approach i n US – Upland Cotton
(Article 21.5 – Brazil), as already noted, it was not because of the existence of the relevant
subsidy programme that the Appellate Body found the relevant undeclared measures to fall within
the scope of the compliance dispute. Rather, the existence of what could be argued to be an
overarching measure was one of several facts that became important considerations in the light of
the Appellate Body's interpretation of the United States' compliance obligation under Article 7.8 of
the SCM Agreement.215
6.103. In confirming the panel's finding that the United States' undeclared subsidy measures
could be brought within the scope of the compliance proceeding, the Appellate Body relied heavily

210 Appellate Body Report, US – Zeroing (EC) (Article 21.5 – EC), para. 240.
211 Appellate Body Report, US – Zeroing (EC) (Article 21.5 – EC), para. 242.
212 Appellate Body Report, US – Zeroing (EC) (Article 21.5 – EC), para. 245.
213 European Union's first written submission, para. 74; and response to Panel question No. 81.
214 European Union's response to Panel question No. 81.
215 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 247.

on its interpretation of the text, context and object and pu rpose of Article 7.8, as well as
considerations related to the effectiveness of the actionable subsidies disciplines of Articles 5 and 6
of the SCM Agreement and various provisions of the DSU. 216 While the Appellate Body's analysis
also referred to the fact that the undeclared measures had been adopted pursuant to the same
subsidy programme as the subsidy measures challenged in the original proceeding 217, it is
apparent that this was only one of a constellation of facts and considerations the Appellate Body
used to support its reasoning. Ultimately, the Appellate Body decided to uphold the panel's
findings, not because of the existence of the subsidy programme as the "overarching measure",
but rather because it found that that the undeclared subsidy measures fel l within the scope of the
United States' compliance obligation under the terms of Article 7.8:
{I}n the case of recurring annual payments, the obligation in Article 7.8 would extend
to payments "maintained" by the respondent Member beyond the time period
examined by the panel for purposes of determining the existence of serious prejudice,
as long as those payments continue to have adverse effects. Otherwise, the adverse
effects of subsequent payments would simply replace the adverse effects that the
implementing Member was under an obligation to remove. Such a reading of
Article 7.8 would not give meaning and effect to the term "maintain", which is distinct
from the term "grant", and has also been included in that Article. Indeed, it would
render the term " maintain" redundant. In addition, it would fail to give meaning and
effect to the obligation to "take appropriate steps to remove the adverse effects" in
Article 7.8, and to the requirement under Article 21.5 to "comply" with the DSB's
recommendations and rulings, including the requirement to take the remedial action
foreseen in Article 7.8 as a consequence of a finding of adverse effects.
Our interpretation of Article 7.8 is consistent with the context provided by Article 4.7
of the SCM Agreement, which applies in cases involving prohibited subsidies. In US –
FSC (Article 21.5 – EC II) , the Appellate Body stated that, "if, in an Article 21.5
proceeding, a panel finds that the measure taken to comply with the Article 4.7
recommendation made in the original p roceedings does not achieve full withdrawal of
the prohibited subsidy —either because it leaves the entirety or part of the original
prohibited subsidy in place, or because it replaces that subsidy with another subsidy
prohibited under the SCM Agreement—the implementing Member continues to be
under the obligation to achieve full withdrawal of the subsidy". Similarly, a Member
would not comply with the obligation in Article 7.8 to withdraw the subsidy if it leaves
an actionable subsidy in place, either entire ly or partially, or replaces that subsidy
with another actionable subsidy.218 (emphasis original; footnotes omitted)
{T}he approach advocated by the United States would have serious implications for a
complaining Member's ability to obtain relief against adv erse effects of actionable
subsidies. Under such an approach, a complaining Member that has demonstrated that
subsidies provided by another Member have resulted in adverse effects would obtain
relief only with respect to any lingering effects of the subsid ies provided during the
period examined by the panel. As Australia notes, such panel findings would
essentially be declaratory in nature, because there would be no impact on subsidies
granted or maintained after the panel made its finding. The complaining Member
would have to initiate another dispute to obtain relief with respect to payments made
after the period examined by the panel, even if those subsidies are recurring
payments or otherwise of the same nature as those found to have resulted in adverse
effects. Even if the complaining Member were to succeed in its claims a second time,
the subsidizing Member could provide further subsidies after the second panel's ruling,
and the complaining Member would have to initiate yet another dispute, and this cycl e
could continue. As Brazil and several of the third participants have warned, the
inability of a complaining Member to obtain relief against subsidies that result in

216 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), paras. 236-248.
217 Indeed, at the beginning of its analysis, the Appellate Body stated that it had "difficulty accepting the
notion that a subsidy programme and the payment provided under that programme can be assessed
separately". (Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 234)
218 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), paras. 237-238.

adverse effects to its interests would seriously undermine the disciplines contained in
Articles 5 and 6 of the SCM Agreement.219 (footnotes omitted)
6.104. Thus, our reading of the facts and findings made in the three compliance disputes the
European Union relies upon leads us to conclude that, contrary to the European Union's assertions,
countervailing and anti -dumping duty orders were not overarching measures pursuant to which
the declared "measures taken to comply" and the undeclared measures were "adopted" in the US
– Softwood Lumber IV (Article 21.5 – Canada) and US – Zeroing (EC) (Article 21.5 – EC)
proceedings. Moreover, although the relevant subsidy programme that was at issue in US – Upland
Cotton (Article 21.5 – Brazil) could be characterized as an overarching measure, as conceived by
the European Union, we do not understand the Appellate Body to have considered the relationship
between the subsidy programme and the undeclared subsidy measures as anything more than one
of several factors upon which to base its finding. In the two former trade remedy compliance
disputes, the Appellate Body used the "factual and legal background" of the declared "measures
taken to comply" to inform its analyses of the relationships between the various measures and the
DSB recommendations and rulings; whereas in the latter dispute (the only one of the three dealing
with actionable subsidies), the Appellate Body's analysis focused primarily on understanding the
extent to which the undeclared subsidy measures fell within the scope of the compliance obligation
prescribed in Article 7.8 of the SCM Agreement. The fact th at the undeclared measures in US –
Upland Cotton (Article 21.5 – Brazil) were subsidy payments made under the same subsidy
programme at issue in the original proceeding became an important consideration because of the
Appellate Body's finding that the United States' compliance obligation extended to subsidies that it
continued to "maintain".220 In other words, the existence of the alleged overarching measure (the
subsidy programme) was used to show that the United States had "maintained" the same
subsidies.
6.105. Finally, we note that apart from the US – Softwood Lumber IV (Article 21.5 – Canada) and
US – Zeroing (EC) (Article 21.5 – EC) disputes, there have been two other compliance disputes in
which panels have found undeclared measures to fall within the scope of their terms of reference
in the absence of the existence of an overarching measure of the kind described by the
European Union. At issue in the first of these two cases, Australia – Salmon (Article 21.5 –
Canada), was whether the compliance panel could ex amine an import ban on salmon that had
been adopted by the Australian state of Tasmania shortly after the Australian federal government
had notified a number of steps that it had taken in order to remove the inconsistencies identified
by the original panel regarding its treatment of imported salmon. In reaching the conclusion that it
could examine this ban, the panel looked at the timing of the ban, in particular, the fact that it was
introduced "subsequent to the adoption on 6 November 1998 of DSB recommendations and rulings
in the original dispute —and within a more or less limited period of time thereafter" 221; as well as
the nature of the ban, which was, like the measures challenged in the original proceeding, "a
quarantine measure … that applies to imports of fresh chilled or frozen salmon from Canada".222
6.106. In the second dispute, Australia – Automotive Leather II (Article 21.5 – US), Australia
withdrew from a company a grant that had been found to be a prohibited subsidy. At the same
time, Australia granted a loan on non -commercial terms to a related company. The loan was
specifically conditioned on repayment of the original subsidy. Although Australia argued that the
loan was "not part of the implementation of the DSB's ruling and recommendation" and did not,
therefore, fall within the scope of the Article 21.5 proceeding 223, the panel disagreed. It found that
the loan fell within the scope of its terms of reference because, inter alia, the loan at issue was
"inextricably linked" to the measure that Australia it self stated it had taken to comply, "in view of
both its timing and its nature". 224 The panel in Australia – Automotive Leather II (Article 21.5 –
US) also explained that, to have excluded the new loan offered by Australia from its mandate,

219 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 245.
220 As already noted, however, the Appellate Body had also earlier stated that it had "difficulty accepting
the notion that a subsidy programme and the payment provided under that programme can be assessed
separately". (Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 234)
221 Panel Report, Australia – Salmon (Article 21.5 – Canada), para. 7.10, subparagraph 22.
222 Panel Report, Australia – Salmon (Article 21.5 – Canada), para. 7.10, subparagraph 22.
223 Panel Report, Australia – Automotive Leather II (Article 21.5 – US), para. 6.1.
224 Panel Report, Australia – Automotive Leather II (Article 21.5 – US), para. 6.5.

would have "sever ely limit{ed its} ability to judge, on the basis of the United States' request,
whether Australia ha{d} taken measures to comply with the DSB's ruling."225
6.107. In both Australia – Salmon (Article 21.5 – Canada) and Australia – Automotive Leather II
(Article 21.5 – US), there was clearly no overarching measure, as conceived by the
European Union. Neither were there any measures akin to the countervailing and anti -dumping
duty orders that were part of the relevant "factual and legal background" in US – Softwood
Lumber IV (Article 21.5 – Canada) and US – Zeroing (EC) (Article 21.5 – EC). Yet the
Appellate Body in US – Softwood Lumber IV (Article 21.5 – Canada) explicitly endorsed the panels'
findings, describing them as "useful illustrations" of when it would be appr opriate to conclude that
an undeclared measure falls within the scope of a compliance proceeding.226
6.108. We conclude, therefore, that there is no basis in the relevant WTO case law to accept the
European Union's contention that the existence of an overarching me asure and an affirmative
close nexus analysis are "two ways of approaching what is essentially the same issue". 227 Rather,
as we see it, the existence of an overarching measure as conceived by the European Union may be
one fact – one piece of evidence – that could be used to support the existence of a relationship
between an undeclared measure, a "measure taken to comply" and the recommendations and
rulings of the DSB, that is sufficiently close to bring the undeclared measure into the scope of a
compliance proceeding. Thus, ultimately, in our view, the appropriate place to consider the merits
of the European Union's submissions concerning the non -existence of an overarching measure in
this dispute (namely, the unwritten LA/MSF Programme), is in the context of our analysis of the
parties' arguments with respect to the application of the close nexus test. We evaluate the merits
of the parties' submissions in the following subsection.
6.4.1.5.3 Application of the close nexus test
6.4.1.5.3.1 Nature
6.109. We do not understand the European Union to deny that the A350XWB LA/MSF measures
and the pre-A350XWB LA/MSF measures were all loan agreements entered into by essentially the
same parties (Airbus and the Airbus governments) for the purpose of financing the development of
each and every new m odel of Airbus LCA that has ever been launched and brought to market. 228
The European Union does, however, contest the United States' assertion that there are similarities
in the "core" terms of all LA/MSF measures and that such alleged similarities support the view that
the A350XWB LA/MSF agreements have essentially the same nature as the pre -A350XWB LA/MSF
measures. According to the European Union, the United States' submissions with respect to the
"core" terms of LA/MSF were already rejected by the panel i n the original proceeding "because of
the differences between the various measures and the fact that there is nothing that inherently
binds them together as necessarily involving subsidies."229 Indeed, the European Union recalls that
in analysing the United States' allegations concerning the existence of an unwritten LA/MSF
Programme in the original proceeding, the panel found that:
{T}he vast majority of terms and conditions of each LA/MSF contract are different,
reflecting not only the individual characteri stics of the Airbus entity and LCA

225 Panel Report, Australia – Automotive Leather II (Article 21.5 – US), para. 6.5.
226 Appellate Body Report, US – Softwood Lumber IV (Article 21.5 – Canada), para. 74.
227 European Union's comments on the United States' response to Panel question No. 80.
228 The panel found in the original proceeding that "{s}ince its establishment in 1970, the governments
of France, Germany, Spain and the UK have to varying degrees entered into LA/MSF agreements with Airbus
for the purpose of funding the development of six new models of LCA (the A300, A310, A320, A330, A340 and
A380) as well as three variants (the A330-200 and A340-500/600). The proportion of development costs
financed through LA/MSF has diminished over the years, from close to 100% for the early projects (the A300
and A310) down to a maximum of 33% of development costs for LCA projects financed after the entry into
force of the 1992 Agreement (the A330-200, A340-500/600 and A380)." (Panel Report, EC and certain
member States – Large Civil Aircraft, para. 7.369) (footnotes omitted)
229 European Union's second written submission, para. 32. (emphasis original; footnotes omitted)

development project being funded, but also the policy objectives, legal culture and
particular demands of the relevant EC member State funding the project.230
6.110. The European Union also points to the original panel's conclusio n that "below -market
interest rates are not an explicit feature of LA/MSF contracts" and that there is "nothing inherent in
the LA/MSF contracts which, in and of itself, renders them a form of financing that by definition
will always involve below -market interest rates".231 For the European Union, these original panel
findings demonstrate that the United States errs when it argues that all of the LA/MSF measures
have similar "core" terms and that this implies that they all have essentially the same nature. We
are not convinced by the European Union's submissions.
6.111. The European Union characterizes the United States' arguments with respect to the
similarities in the "core" terms of the LA/MSF agreements to be focused on the allegation that their
repayment terms a re all success -dependent, back-loaded, levy-based, unsecured and on interest
rate terms that are more favourable than would be available on the market . However, in our view,
the United States' submissions have been consistently focused on only the first fo ur of these five
allegedly common features of the LA/MSF measures, namely, success -dependent, back -loaded,
levy-based and unsecured repayment terms. The United States does not rely upon the allegedly
below-market interest rates associated with the A350XWB LA/MSF measures for the purpose of
substantiating its assertions with respect to the similarities in the nature of all of the LA/MSF
measures.232
6.112. Neither do we believe that the United States was required to demonstrate that the
A350XWB LA/MSF measures are p rovided at below -market interest rates (as all pre -A350XWB
LA/MSF) in order to establish that all of the LA/MSF measures have essentially the same nature.
We agree with the European Union that whether the A350XWB LA/MSF measures are provided at
below-market interest rates is a question of substance that is outside of the boundaries of the
jurisdictional matter with which we are concerned in this part of our Report, namely, whether the
A350XWB LA/MSF measures fall within the scope of this compliance proceedi ng. It is only if this
question is answered affirmatively that the United States would be entitled to have us consider its
claims concerning the alleged subsidization of the A350XWB. Thus, the fact that the original panel
found that there is "nothing inher ent in the LA/MSF contracts which, in and of itself, renders them
a form of financing that by definition will always involve below -market interest rates", does not
undermine the United States' scope arguments. Indeed, to require that undeclared measures
share the same WTO legal characteristics as the original measures in order to be within the scope
of a compliance panel's terms of reference, and then to decline to exercise jurisdiction on the
grounds that such a legal question is outside a compliance panel 's jurisdiction, would be to place
complainants in a Catch-22 situation.
6.113. Moreover, contrary to the European Union, we do not understand the
United States' assertions concerning the allegedly success -dependent, back -loaded, levy -based
and unsecured repayment terms of all LA/MSF measures to be "tantamount to reasserting" 233 the
unsuccessful submissions it made in the original proceeding with respect to the alleged existence
of an unwritten LA/MSF Programme. We recall that in the original proceeding, the United States
argued that the governments of France, Germany, Spain , and the United Kingdom had maintained
"a formal and institutionalized industrial policy towards Airbus, a central part of which {was} the
'systematic and coordinated' provision of LA/MSF subsidi es to assist Airbus develop a family of
LCAs" evidencing "the existence of {an unwritten} LA/MSF Programme". 234 According to the
United States, the existence of the unwritten LA/MSF Programme could be established on the basis
of several alleged facts, which considered together demonstrated that "the Airbus governments
have systematically provided Airbus with a significant portion of the capital needed and sought by
Airbus to develop each and every new LCA model through unsecured loans granted on back-loaded

230 European Union's first written submission, para. 99 (quoting Panel Report, EC and certain member
231 European Union's first written submission, para. 98 (quoting Panel Report, EC and certain member
232 See e.g. United States' first written submission, paras. 106, 140, and 147; and second written
submission, para. 89.
233 European Union's first written submission, para. 107.
234 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.498.

and success-dependent repayment terms, at below-market interest rates".235 The alleged facts the
United States relied upon for this purpose were: "(i) the existence of institutional apparatus
established under various inter-governmental agreements to support the systematic application of
LA/MSF; (ii) the provision of LA/MSF on essentially the same terms and conditions in respect of
each new model of LCA developed by Airbus; (iii) statements by officials of the Airbus
governments expressing their alleged commit ment to the continuity of the LA/MSF Programme,
(iv) statements by executives of Airbus and EADS allegedly evidencing reliance on LA/MSF; and
(v) the perceptions of LA/MSF held by different credit rating agencies." 236 Thus, it is apparent that
the arguments advanced by the United States in the original proceeding with respect to the alleged
existence of the unwritten LA/MSF Programme were very different to the submissions the
United States makes in this compliance dispute with respect to the four "core" terms of LA/MSF
and, in particular, with respect to the relevance of these terms to showing that all LA/MSF
measures are of essentially the same nature.
6.114. We note, furthermore, that although the original panel rejected the United States'
assertions concerning the existence of the unwritten LA/MSF Programme, this was not because the
United States had failed to establish that the "core" terms of LA/MSF were similar. On the
contrary, the findings made by original panel confirmed that while the terms and conditions of no
two LA/MSF agreements were identical, they all could be said to contain the same "core"
repayment terms:
As to the differences that exist between the terms and conditions of the various
LA/MSF contracts, it is true that the EC member States did not ado pt a standard
approach or apply the same contractual template when entering into LA/MSF
agreements. Overall, the vast majority of terms and conditions of each LA/MSF
contract are different, reflecting not only the individual characteristics of the Airbus
entity and LCA development project being funded, but also the policy objectives, legal
culture and particular demands of the relevant EC member State funding the project.
For instance, the financing provided under the first series of LA/MSF contracts
represented a much larger proportion of development costs compared with the
LA/MSF contracts entered into after the entry into force of the 1992 Agreement. Not
all of the EC member State governments required the payment of royalties; and when
royalties were call ed for, they were envisaged in different forms and over varying
periods of time. Moreover, the structure of the back -loaded and success -dependent
repayment terms found in each contract was not always the same; and in terms of
interest rates, where these we re identified in the contracts, they were usually set at
different levels, at times through the application of different formulas. There are other
terms and conditions that vary between the contracts. However, in the light of our
findings in respect of the individual LA/MSF measures, there is no doubt that all of the
challenged LA/MSF contracts may be characterised as unsecured loans granted to
Airbus on back -loaded and success -dependent repayment terms, at below -market
interest rates, for the purpose of de veloping various new models of LCA. While not
demonstrating that the LA/MSF Programme described by the United States actually
exists, the contracts do show that every time LA/MSF was provided in the past, it
involved the four "core terms" the United States identifies.237 (emphasis added;
footnotes omitted)
6.115. Indeed, the United States' characterization of the "core" terms of the pre -A350XWB
LA/MSF subsidies is also supported by more specific findings made by the original panel with
respect to each of the relevant LA/MSF measures. Thus, for example, the original panel found:
Repayment of LA/MSF takes essentially the same form under each contract. In almost
all cases, Airbus is required to reimburse all funding contributions, plus any interest at
the agreed rate, e xclusively from revenues generated by deliveries of the LCA model
that is financed. Such repayments are made in the form of per-aircraft levies and
follow a pre -established repayment schedule. Usually, repayments start with the
delivery of the first aircra ft. However, in some instances, repayment begins only after

235 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.499.
236 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.499.
237 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.525.

Airbus has made a specified number of aircraft deliveries. Although the amount of the
per-aircraft levies varies between the different contracts, it appears in all cases to be
graduated, such that repayment amounts at the beginning of the repayment period
are lower than at the end . In addition, for [***] of the contracts, royalty payments
on a per -aircraft basis are called for on deliveries made in excess of the number
needed to secure repayment of the disbursed principal plus any interest.
LA/MSF is provided without any guarantee of repayment in the event that Airbus fails
to make the number of deliveries needed to reimburse the full amount of financing
obtained from the EC member States. In other words, the scheduled repayments are
not secured by any lien on Airbus assets nor are they guaranteed by any third party.
The European Communities points out that the governments' claims on revenues
generated from the delivery of LCA are, in some cases, gua ranteed by one of the
companies forming part of the Airbus economic entity. However, notwithstanding this
form of guarantee there is no obligation on Airbus (or any company forming part of
the Airbus economic entity) to fully (and sometimes even partially) repay LA/MSF in
the event that the delivery targets stipulated in the contractual repayment schedules
are not achieved. Thus, we agree with the United States that Airbus' obligation to fully
repay the loans provided under the challenged LA/MSF measures is entirely dependent
upon the success of the particular LCA project. The fact that it is possible, under
certain contracts, for Airbus to make voluntary repayments notwithstanding the
number of sales achieved, does not, in our view, alter this conclusion. 238 (emphasis
added; BCI brackets original; footnotes omitted)
6.116. Turning to the "core" terms of the A350XWB LA/MSF measures, we note that apart from
asserting that the original panel had rejected the United States' contentions with respect to the
similarities in the "core" terms of the pre-A350XWB LA/MSF measures, the European Union has not
specifically responded to the United States' allegation that the repayment terms of A350XWB
LA/MSF are success-dependent, back-loaded, levy-based and unsecured just like all o ther LA/MSF
measures. Thus, we do not understand the European Union to contend that the repayment terms
of the A350XWB LA/MSF measures are not overall success -dependent, back -loaded, levy -based
and unsecured.239 Indeed, for the reasons we explain elsewhere i n this Report where we evaluate
the merits of the United States' claims of subsidization240, it is clear to us that although each of the
relevant A350XWB loan contracts has its own particular characteristics and features (not unlike all
other LA/MSF measures), each contract also contains the same "core" repayment terms identified
by the United States.
6.117. The European Union advances three additional grounds which it considers demonstrate
that the nature of the A350XWB LA/MSF measures and the pre -A350XWB LA/MSF m easures are
"significantly different".241
6.118. First, the European Union points out that the A350XWB LA/MSF measures were concluded
more than [***] years after the launch of the A350XWB programme, explaining that, in contrast,
the pre-A350XWB LA/MSF measures were all "generally entered into much closer in time to the
launch of the related aircraft", on average [***] after launch.242 For the European Union, this
difference shows that "the A350XWB does indeed make a significant departure from previous
programs".243 Relying upon its own analysis of the period of time between the launch of an Airbus
LCA and the conclusion of a related LA/MSF agreement 244, the United States argues that "the EU

238 Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.374-7.375.
239 We note, in this regard, that the European Union did not object to the United States' assertion that
"the parties both agree that LA/MSF for the A350XWB was granted by France, Spain, Germany and the UK to
Airbus, for the purpose of developing a new model of large civil aircraft, on unsecured, success-dependent,
levy-based, and back-loaded terms". (United States' second written submission, para. 90 and fn 138)
240 See below paras. 6.225-6.287.
241 European Union's first written submission, para. 104.
242 European Union's first written submission, para. 105; second written submission, para. 37; and
PricewaterhouseCoopers, "Analysis Addressing the United States' Comments on PwC's Report on the Expected
Life of Subsidies to Airbus", 30 November 2012, (PwC Rebuttal Report), (Exhibit EU-120) (BCI), table 2.
243 European Union's second written submission, para. 37.
244 The United States explains that its analysis "may not be exhaustive, since the EU has not accounted
for all past LA/MSF contracts with Airbus in a transparent manner" recalling that in the original proceeding,

member States frequently issued documents granting LA/MSF after (and in some cases, long after)
the formal launch of the relevant aircraft".245 The United States recalls that "these past differences
in timing did not prevent the conclusion that LA/MSF enabled Airbus to bring the aircraft to market
when and as it did". Accordingly, the Unit ed States maintains that the fact that A350XWB LA/MSF
was provided after the launch of the A350XWB does not differentiate it "in any meaningful way"
from the pre-A350XWB LA/MSF measures.246
6.119. We note that the data the parties have used to substantiate their assertions concerning the
period of time between the launch of an Airbus LCA and the conclusion of a related LA/MSF
agreement are not identical. Nevertheless, on the basis of the information presented by the
European Union, it is apparent that over two -thirds of the pre-A350XWB LA/MSF agreements were
entered into after the launch of an Airbus LCA. Thus, a first conclusion it is possible to draw from
the European Union's data is that, in general, the pre -A350XWB LA/MSF agreements were
concluded after launch, as were all four of the A350XWB LA/MSF contracts.
6.120. The information the European Union relies upon also reveals that of the pre -A350XWB
LA/MSF measures entered into before the launch of a relevant Airbus LCA, the vast majority of
these concerned Airbus' earliest models of LCA (the A300, A310, and A320), at a time when Airbus
had little or no experience with twin -aisle or single-aisle aircraft and little or no revenue from LCA
sales. Thus, of the nine LA/MSF agreements reported in the European Union's data as having been
concluded before or at the same time as the launch of a financed Airbus LCA, seven related to the
A300, A310 , and A320. Moreover, it is apparent from the same data that the pre -A350XWB
LA/MSF agreements were, on average, concluded much closer i n time to the launch date of
Airbus' three earliest models of LCA compared with its three subsequent models of LCA (the A330,
A340, and A380), when Airbus would have had relatively more LCA experience and sales revenue.
In particular, whereas 13 out of the 17 LA/MSF measures for the A300, A310 , and A320 were
entered into either before or within 10 months of the launch of the relevant LCA, eight of the 11
LA/MSF agreements concluded for the purpose of the A330, A340 , and A380 were entered into
only 12 months or more after launch.
6.121. In our view, these facts suggest that the provision of pre -A350XWB LA/MSF has followed
an evolving pattern of financing that has seen the Airbus governments and Airbus enter into
LA/MSF agreements, on average, later in time relative to the launch of a particular Airbus LCA as
Airbus' position in the LCA sector has matured . In this regard, we see a parallel between the
evolution of the timing of the conclusion of the pre -A350XWB LA/MSF agreements and the
gradually decreasing amounts o f principal loaned under each of the pre -A350XWB LA/MSF
agreements247 and, in general, the progressively lower levels of subsidization granted by the
Airbus governments over time 248, as Airbus has emerged as a credible and increasingly
sophisticated player in the LCA industry. In this light, the fact that all four of the A350XWB LA/MSF
measures were entered into several years after the launch of the A350XWB might well be
considered to be simply another step in the evolution of LA/MSF that reflects Airbus' own, by now
well-established, position in the LCA industry. Thus, rather than demonstrate that the nature of
A350XWB LA/MSF is different to all other LA/MSF measures, the data concerning the timing
relative to launch of the various LA/MSF measures which the Eur opean Union relies upon could, to
this extent, be interpreted to suggest that, not unlike all other LA/MSF , the conclusion of the
A350XWB LA/MSF contracts was timed in a way that reflected Airbus' status as a mature producer
of LCA in 2006 and the years that immediately followed.
6.122. In any case, even excluding these considerations, we do not see how the difference in the
timing of the conclusion of the A350XWB LA/MSF contracts compared with the pre -A350XWB

"the EU refused to provide the German A330/A340 contract even though the Panel had specifically asked the
EU for it". (United States' second written submission, fn 144)
245 United States' second written submission, para. 91.
246 United States' second written submission, para. 92.
247 The development costs covered by the principal provided under the respective LA/MSF agreements
were: close to 100% for the A300; between 90% and 100% for the A310; between 70% and 90% for the
A320; between 60% and 90% for the A330 and A340 basic; and up to a maximum of 33% for the A330-200,
A340-500/600 and A380. (See e.g. Panel Report, EC and certain member States – Large Civil Aircraft,
para. 7.369)
248 See e.g. Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.482-7.490; and
Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 923-929.

LA/MSF measures demonstrates that they have a "signifi cantly different" nature, given that they
are all: (a) loan agreements; (b) containing the same four "core" repayment terms ; (c) entered
into by essentially the same parties (Airbus and the Airbus governments); and (d) for the purpose
of financing the deve lopment costs of Airbus LCA. The European Union does not deny that the
A350XWB LA/MSF agreements challenged by the United States are intended to finance part of the
development costs of the A350XWB. Yet, according to the European Union, the fact that the
A350XWB LA/MSF agreements were concluded much later in time relative to the launch of the
A350XWB compared with pre -A350XWB LA/MSF means that the former must be found to have a
"significantly different" nature. In our view, the European Union has failed to explain and
substantiate its position. The pre -A350XWB LA/MSF measures were found in the original
proceeding to have financed from 33% to 100% of the development costs of each and every
model of Airbus LCA249, thereby enabling Airbus to "launch, develop, and introduce to the market"
its full range of LCA. 250 As the United States points out, the fact that a number of the
pre-A350XWB LA/MSF agreements were concluded only after the relevant Airbus LCA were
launched did not preclude the panel from making those find ings, which were left undisturbed by
the Appellate Body. Moreover, we note that in several instances, part of the principal loaned under
the pre-A350XWB LA/MSF contracts could be used to cover costs incurred prior to the conclusion
of the relevant LA/MSF c ontract.251 The same possibility is made available under the French and
UK A350XWB LA/MSF agreements. 252 To this extent, the fact that any such LA/MSF agreement
postdates the launch of a relevant LCA does not render its nature any different to a LA/MSF
agreement that predates the launch of an LCA, as in both cases, they are intended to finance the
development costs of Airbus LCA.
6.123. Thus, we are not convinced that the differences in the mere timing of the conclusion of the
A350XWB LA/MSF measures compared to the pre-A350XWB LA/MSF measures means that they
are "significantly different" in terms of their nature for the purpose of the close nexus test.
6.124. The second additional ground the European Union appears to raise in support of its view
that A350XWB LA/MSF and other LA/MSF measures have a different nature is that the former were
not entered into pursuant to an intergovernmental agreement.253 We note, however, that not all of
the pre -A350XWB LA/MSF measures were provided under intergovernmental agreements, with
French LA/MSF for the A330 -200, French, and Spanish LA/MSF for the A340 -500/600 and all four
of the A380 LA/MSF measures concluded under separate national level contracts, not unlike (in
this sense) the A350XWB LA/MSF measures.254
6.125. The third additional submission the European Union appears to make to substantiate its
position concerning the difference in the nature of A350XWB LA/MSF compared with other LA/MSF
is a response to an argument we do not understand the United States to be making. In particular,
the Europe an Union argues that in attempting to demonstrate that A350XWB LA/MSF is of the
same nature as previous LA/MSF, the United States maintains that "a critical aspect of the 'nature'
element is whether a measure targets 'the same products and the same parties '".255 The
European Union goes on to state that:
Beyond the fact that the A350XWB is simply not the "same product" as the A300,
A310, A330, or A340, this argument is unavailing as a legal matter, as the
Appellate Body, in both US – Softwood Lumber IV (Articl e 21.5 – Canada) and US –

249 See above fn 247.
250 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1949.
251 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.373.
252 See discussion below at paras. 6.227 and 6.259-6.260.
253 Although the European Union raises this argument in the context of its discussion of the nature of
the A350XWB LA/MSF contracts for the purpose of the close nexus test, it is not clear to us whether the
European Union advances it for this purpose or simply to show that the United States has failed to identify any
"overarching measure" and, therefore, failed (for this reason alone) in its attempt to bring A350XWB LA/MSF
within the scope of this compliance dispute. To the extent that the European Union intended the latter, we
recall that we have previously found that the United States is under no obligation to identify an "overarching
measure" in order to make out its claims. Thus, the fact that the A350XWB LA/MSF agreements may have
been concluded in the absence of any intergovernmental agreements does not undermine the
United States' claims.
254 Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.371 and 7.534-7.548.
255 European Union's first written submission, para. 108 (quoting United States' first written submission,
paras. 143-144).

Zeroing (Article 21.5 – EC), made it clear that identity of the product and country
coverage … does not suffice to establish a close nexus.256 (underline original; footnote
omitted)
6.126. However, the United States does not argue that the A350XWB LA/MSF is of the same
nature as other LA/MSF because it finances the development of a product that is identical to the
A300, A310, A330 , or A340. Rather, the United States' contention is that A350XWB LA/MSF is of
the same nature to other LA/MSF be cause it finances the development of a twin-aisle LCA
product – that is, a product which the United States argues is sold into the same twin-aisle product
market – with respect to which pre-A350XWB LA/MSF was found to be a "genuine and substantial"
cause of serious prejudice to its interests in the original proceeding. 257 Although we recognize that
the fact that two measures may have the same product scope will not necessarily imply that they
should be considered (for that reason alone) to be of the same nature for the purpose of a close
nexus analysis, the fact that the A350XWB is the latest version of Airbus twin-aisle LCA, in our
view, supports the United States' submissions concerning the close connection between the nature
of the A350XWB LA/MSF measures and the LA/MSF measures at issue in the original proceeding.
6.127. Finally, we agree with the United States that several other pieces of evidence 258 provide
strong support for the view that the pre -A350XWB LA/MSF measures and A350XWB LA/MSF have
a similar nature. One such piece of evidence comes from the preamble of the Spanish A350XWB
LA/MSF contract, in which the following statement is made:
Our country, similar to France, Germany, and the United Kingdom, which host the
other national subsidiaries of Airbus SAS, h as been supporting the development of
earlier models of Airbus aircraft through refundable advances given to the current
subsidiary of Airbus SAS established in Spain or earlier to the company Construcciones
Aeronauticas, S.A. The system of refundable adva nces through which the state shares
the risks of the project with the company has produced as a result the facilitation of
financing for the companies without cost for the taxpayer.259
6.128. In our view, this statement very clearly demonstrates that the parties t o the Spanish
A350XWB LA/MSF agreement (i.e. the Spanish State and Airbus Spain) see A350XWB LA/MSF to
be part of the same "system of refundable advances" used to fund the development of
Airbus' previous LCA programmes, in this way revealing that both Airb us Spain and the Spanish
State recognize that A350XWB LA/MSF is, to this extent, of essentially the same nature as
pre-A350XWB LA/MSF.
6.129. A similar recognition is, in our view, found in certain HSBI evidence from a document
prepared by a different Airbus gov ernment in the first half of 2009 concerning the A350XWB
project.260 As we read them, the statements contained in the relevant passage quoted by the
United States very clearly reveal that one of the Airbus governments considered that A350XWB
LA/MSF could be affected by the outcome of the ongoing WTO dispute because of its similarity with
pre-A350XWB LA/MSF, again, in our view, implying that this government also considered
A350XWB LA/MSF was of the same nature as previous LA/MSF.

256 European Union's first written submission, para. 108.
257 United States' first written submission, para. 147.
258 The United States also points out that the EADS financial statements report the funding of A350XWB
as an undifferentiated component of the broader historic total of LA/MSF. In our view, this fact reveals that, at
least for accounting purposes, EADS considers that A350XWB LA/MSF to be of the same nature as pre-350XWB
LA/MSF. (United States' first written submission, para. 156 and fn 233 (citing EADS Financial Statements,
2010, (Exhibit USA-6), p. 63))
259 United States' first written submission, paras. 155-156 (quoting Real Decreto 1666/2009, de
SAS denominada Airbus Operations S.L para su participación en el programa de desarrollo de la nueva familia
de aviones Airbus A350XWB, Boletín Oficial del Estado, 9 November 2009, (United States' English Translation),
(Exhibit USA-46), pp. 93091-93092; and citing UK Department for Business, Innovation and Skills, "The UK
Strategic Investment Fund: Interim Report", October 2009, p. 15, (Exhibit USA-43); and EADS Financial
Statements, 2010, (Exhibit USA-6), p. 63).
260 United States' second written submission, para. 100 (quoting HSBI evidence in the same paragraph
and fn 194).

6.130. In conclusion, therefore, we find that the United States has established that the challenged
A350XWB LA/MSF measures have essentially the same nature as the LA/MSF measures found to
cause adverse effects in the original proceeding. As we have noted above, A350XWB LA/MSF and
pre-A350XWB LA/MSF are of a very similar nature because of at least the following four important
commonalities – they are all: (a) loan agreements; (b) containing the same four "core" repayment
terms; (c) entered into by essentially the same parties (Airbus and the Airbus governments); and
(d) for the purpose of financing the development costs of Airbus LCA (in particular, a new model of
Airbus twin-aisle LCA).
6.4.1.5.3.2 Effects
6.131. The parties agree that one of the questions that is relevant to the assessment of the
effects of an undeclared measure for the purpose of applying the close nexus test is whether that
measure undermines a responding Member's compliance with the recommendations and rulings of
the DSB.261 In essence, the United States argues that to the extent that LA/MSF was found in the
original proceeding to cause adverse effects, in the form of certain types of serious prejudice to
the United States' LCA industry in the market for twin -aisle LCA, new LA/MSF for Airbus' latest
version of twin -aisle LCA, the A350XWB, und ermines any compliance that the European Union
might have otherwise achieved with respect to the adopted recommendation calling upon "the
Member granting each subsidy found to have resulted in … adverse effects" 262 to "take appropriate
steps to remove the ad verse effects" or "withdraw the subsidy". 263 The European Union, on the
other hand, submits that there is no support for the United States' contentions concerning the
effects of A350XWB LA/MSF because, in its view, they are based on the United States'
unsubstantiated claim that the A350XWB LA/MSF measures are "subsidies" that cause "adverse
effects" within the meaning of the SCM Agreement. The European Union emphasizes that whether
the challenged measures are "subsidies" that cause "adverse effects" is a subs tantive question
beyond the scope of the jurisdictional matter that is before this compliance Panel. Thus, according
to the European Union, it would not be appropriate for a compliance panel to accept jurisdiction
over a measure on the basis of that panel' s actual or anticipated ultimate finding on the merits of
the alleged violation at issue.264
6.132. As already noted, the question that is before us in this part of our Report is a jurisdictional
one, i.e. whether the A350XWB LA/MSF measures fall within the scope of this compliance
proceeding. Whether the A350XWB LA/MSF measures are "subsidies" that cause "adverse effects"
within the meaning of the relevant provisions of the SCM Agreement is a contested matter of
substance, which the United States would be entitled to have us examine only if the United States
were able to demonstrate that A350XWB LA/MSF is within our jurisdiction. To this extent, we
agree with the European Union that it would be inappropriate to evaluate the United States'
submissions concerning the scope of this proceeding on the basis of any "actual or anticipated"
findings with respect to the merits of the United States' substantive adverse effects claims.
6.133. We note, however, the United States maintains that it has "never taken the position that
the 'effects' examined in the close nexus test are the same as the 'adverse effects' described in
Articles 5 and 6 of the SCM Agreement". Furthermore, the United States asserts that the "effects"
of A350XWB LA/MSF that are the focus of its close nexus analysi s are limited to the financing
made available to Airbus through A350XWB LA/MSF, which the United States submits enabled
Airbus to launch and develop the A350XWB as and when it did. 265 According to the United States,
these effects are "not in and of themselve s adverse effects" within the meaning of Articles 5 and 6
of the SCM Agreement.

261 United States' first written submission, paras. 148-150 (citing Appellate Body Reports, US – Zeroing
(EC) (Article 21.5 – EC), paras. 247, 250, and 251; and US – Softwood Lumber IV (Article 21.5 – Canada),
paras. 71 and 87); and European Union's first written submission, para. 83.
262 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1416.
263 United States' first written submission, paras. 148, 379, and 395; and second written submission,
paras. 61, 104-105, and 548-551. The United States also argues that the effects of pre-A350XWB LA/MSF
subsidies alone enabled Airbus to launch the A350XWB as and when it did.
264 European Union's first written submission, paras. 109-112 and 1083-1204; and second written
submission, paras. 37 and 870-1202.
265 United States' second written submission, paras. 61 and 105.

6.134. Although we find the United States' submissions concerning the effects of A350XWB
LA/MSF for the purpose of the close nexus test to be, at times, difficult to separate from the
arguments it has advanced to support its subsidization and adverse effects claims, a number of the
effects of A350XWB LA/MSF which the United States identifies can, in our view, be established
without having to determine the merits of its substantive non -compliance complaint. Before
proceeding to examine these effects, we note the Appellate Body's guidance that it may not always
be possible for a compliance panel exploring the effects of an undeclared measure for the purpose
of the close nexus test to dete rmine whether it " actually undermine{s} the compliance otherwise
achieved by the implementing Member".266 This is because:
{A}t the time of the jurisdictional inquiry into its terms of reference, a panel might
not be in a position to determine whether this i s the case, because it will not be
possible to determine whether the "connected" measures potentially undermine
compliance without determining first whether the declared measures "taken to
comply" fully achieved compliance with the recommendations and ruli ngs of the DSB.
… To find otherwise would limit compliance proceeding{s} to examining whether
closely connected measures affect compliance achieved by the declared measures
"taken to comply"; situations where a Member has taken measures achieving only
partial compliance, or has omitted to take measures, would be excluded from scrutiny.
As we have found earlier, the scope of Article 21.5 proceedings is not limited in such a
way.267 (emphasis added)
6.135. Consistent with this line of reasoning, and in the light of the United States' request that the
Panel find that the European Union's alleged compliance "steps" have not brought the
European Union and relevant member States into conformity with their obligations under the
covered agreements, we will proceed with our a nalysis of the effects of A350XWB LA/MSF with a
view to understanding the extent to which A350XWB LA/MSF could undermine any compliance that
the European Union might otherwise have achieved with the adopted recommendations and rulings
in this dispute.268
6.136. Turning to the effects of A350XWB LA/MSF, we recall that the A350XWB is a redesigned
version of the Original A350, which was the subject of the United States' unsuccessful claims of
adverse effects in the original proceeding because no commitment to provide LA/MSF for the
Original A350 was found to exist at the time of the establishment of the original panel. 269
According to Christophe Mourey, Airbus Senior Vice President for Contracts, the Original A350 was
launched "as a significantly improved version of the A330".270 Similarly, Mourey explains that the
smaller versions of the A350XWB are considered to be "eventual replacement{s} of the A330" 271,
with the largest version of the A350XWB expected to bring an end to the alleged "effective"
monopoly that Boeing experi enced with the 777 for "several years" due to the relatively poor
performance of the A340 and the ultimate termination of that programme in 2011. 272 Numerous
other pieces of evidence are consistent with these views, revealing that there is a close
relationship between not only the general design, physical characteristics and end -uses of the
A350XWB and, in particular, the A330, A340 and A380, but also how Airbus chose to position the
A350XWB on the market relative to the A330 and A340. 273 Such evidence includes the A350XWB
Business Case itself as well as an explicit statement by Airbus in [***], which clearly establish

266 Appellate Body Report, US – Zeroing (EC) (Article 21.5 – EC), para. 256. (emphasis original)
267 Appellate Body Report, US – Zeroing (EC) (Article 21.5 – EC), para. 256.
268 We note in this regard that the Appellate Body in US – Zeroing (EC) (Article 21.5 – EC) found that
the undeclared measures at issue in that dispute "could" or "may" have undermined the United States'
implementation of the recommendations and rulings of the DSB, to the extent they involved the use of zeroing.
(Appellate Body Report, US – Zeroing (EC) (Article 21.5 – EC), paras. 250, 251, 252, and 256).
269 See above para. 6.53.
270 Christophe Mourey, Senior Vice President Contracts, Airbus, "Statement on Current Competitive
Conditions in the LCA Industry", 4 July 2012, (Mourey Statement), (Exhibit EU-8) (BCI), para. 89.
271 Mourey Statement, (Exhibit EU-8) (BCI), para. 89.
272 Mourey Statement, (Exhibit EU-8) (BCI), para. 116.
273 See e.g. Ameet Sachdev, "Airbus redesigns its strategy for long haul: A350 line to carry bulk of the
load", Chicago Tribune, 18 July 2006, (Exhibit EU-99); Scott Hamilton, "A350 Redesign Threatens Boeing 777;
Boeing prepares 787 for Challenge", Leeham.net, 6 June 2006, (Original Exhibit US-141), (Exhibit USA-27);
"Time for a new, improved model: Airbus gets to work on its medium-sized aircraft, but deeper problems
remain", The Economist, 20 July 2006, (Exhibit USA-28). This and other evidence is examined and discussed in
various parts of our Report, including below at paras. 6.1296-6.1369 and 6.1724-6.1760.

that the A350XWB family was originally conceived and designed by Airbus to win sales against a
range of Boeing LCA that includes aircraft falling within the market for twin -aisle LCA in which the
pre-A350XWB LA/MSF subsidies were found to cause adverse effects in the original proceeding. 274
While the European Union argues that the A350XWB today competes in its own separate "product
market" with only the Boeing 787, the United States contests the European Union's assertions,
submitting that all twin -aisle Airbus and Boeing LCA continue to compete in the same product
market.275 In any case, even accepting the European Union's submissions in full would imp ly that
any A350XWB sales won by Airbus would be lost sales of the 787 for Boeing.276
6.137. Finally, we recall that A350XWB LA/MSF was intended, has been and is being used, to
finance part of the development costs of the A350XWB in a similar proportion to the dev elopment
costs financed by the pre -A350XWB LA/MSF agreements concluded after the 1992 Agreement. 277
Thus, it is apparent that, as the United States argues, one of the effects of A350XWB LA/MSF was
the financing of a significant portion of the development cos ts of a new twin -aisle LCA 278 that
Airbus anticipated would effectively replace the two models of twin -aisle LCA (the A330 and A340)
that had been: (a) launched, developed and brought to market with the assistance of
pre-A350XWB LA/MSF; and (b) sold into a c ustomer space in which the United States' LCA
industry was found to have suffered serious prejudice in the original proceeding. Recalling that the
adopted recommendation in this dispute called upon the European Union and relevant member
States to "take app ropriate steps to remove the adverse effects" or "withdraw the subsidy", we
find that this effect, when considered in the light of the nature of A350XWB LA/MSF compared with
the pre-A350XWB LA/MSF subsidies, could undermine the European Union's compliance actions.
6.4.1.5.3.3 Timing
6.138. In evaluating the compliance panel's analysis of the timing of the undeclared measures at
issue in US – Zeroing (EC) (Article 21.5 – EC), the Appellate Body agreed with the parties (the
European Communities and the United States) that the timing of a measure "cannot be
determinative" of whether it bears a sufficiently close nexus with a Member's implementation of
the recommendations and rulings of the DSB so as to fall within the scope of a proceeding initiated
under Article 21.5 of the DSU .279 Thus, the Appellate Body explained that the relevant inquiry for
the purpose of determining whether an undeclared measure may fall within the scope of a
compliance proceeding is not whether it was taken after the adopted recommendations and rulings
with the intention to comply, but rather whether despite being "issued before the adoption of the
recommendations and rulings of the DSB, {that measure} still {bears} a sufficiently close nexus,
in terms of nature, effects, and timing, with those recommendatio ns and rulings, and with the
declared measures 'taken to comply', so as to fall within the scope of Article 21.5 proceedings".280
6.139. After examining the nature and effects of the undeclared measures relative to the adopted
recommendations and rulings, and the declared measures "taken to comply", the Appellate Body
in US – Zeroing (EC) (Article 21.5 – EC) went on to find that the undeclared measures fell within

274 "Presentation to the EADS Board", 7 November 2006 (slides 1-45) and "A350XWB Business Case:
Assumptions, Sensitivities and Limitations, Presentation to EADS BoD – status", 2 November 2006,
(slides 46-68), (A350XWB Business Case Presentation), (Revised), (Exhibit EU-130) (HSBI), slides 11, 21, 51,
92, and 93; and Letter, Airbus [***], [***] (Exhibit EU-393) (HSBI).
275 We evaluate the merits of the parties' submissions with respect to the relevant "product markets" for
276 By referring to Boeing lost sales of the 787, we are simply highlighting that were the
European Union's product market arguments to be correct, the A350XWB would be in competition only with the
787, necessarily implying that as a matter of fact, Boeing would lose sales of the 787 to the A350XWB, the
development costs of which are partly financed by A350XWB LA/MSF. Thus, our reference to Boeing lost sales
in this passage is not a reference to "lost sales" within the meaning of Article 6.3(c) of the SCM Agreement.
277 Agreement between the European Community and the Government of the United States concerning
the Application of the GATT Agreement on Trade in Civil Aircraft on Trade in Large Civil Aircraft (the 1992
Agreement). See also Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.66-7.69.
278 In making this factual finding, we are not saying that Airbus could not have launched and developed
the A350XWB without A350XWB LA/MSF. We are merely noting that one of the undisputed effects of A350XWB
LA/MSF was that it financed part of the development costs of the A350XWB. The merits of the
United States' submissions concerning the extent to which Airbus could have launched and brought to market
the A350XWB in the absence of LA/MSF are examined below at paras. 6.1535-6.1723.
279 Appellate Body Report, US – Zeroing (EC) (Article 21.5 – EC), para. 224.
280 Appellate Body Report, US – Zeroing (EC) (Article 21.5 – EC), para. 226. (emphasis original)

the scope of the compliance dispute because the fact that their issuance predated the adoption of
the recommendations and rulings of the DSB was "not sufficient to sever the pervasive links that
{were} found to exist, in terms of nature and effects". 281 In our view, a similar conclusion is
warranted with respect to the A350XWB LA/MSF measures.
6.140. The A350XWB LA /MSF measures were formally concluded between [***]282, that is,
approximately between [***] before the recommendations and rulings in the original proceeding
were adopted. Likewise, while some of the European Union's alleged compliance "steps" took place
after the recommendations and rulings were adopted283, others relate to events that occurred over
a period of time that either ended well before the recommendations and rulings were adopted
(indeed, in some cases, even before the United States' made its reques t for consultations in this
dispute) or overlapped with the adoption of the recommendations and rulings. 284 Thus, the
conclusion of the A350XWB LA/MSF measures as well as most of the European Union's alleged
compliance "actions" took place prior to the adoption of the recommendations and rulings by the
DSB.
6.141. We recall that among the different events pre -dating the adopted recommendations and
rulings of the DSB, which the European Union maintains have brought it into conformity with its
obligations under the S CM Agreement, is the alleged "amortization of benefit" of the LA/MSF
subsidies provided for the A330/A340 and A330 -200 by virtue of the end of the anticipated
marketing lives of these LCA. As already noted, the European Union considers that these events,
which in terms of their timing are closely connected with the launch of the A350XWB and the
conclusion of the four A350XWB LA/MSF agreements 285, demonstrate that the relevant LA/MSF
subsidies have been "withdrawn", within the meaning of Article 7.8 of the SCM Agreement and,
therefore, that it has complied with the recommendations and rulings of the DSB. We examine the
European Union's submissions concerning the relevance of the alleged "amortization of benefit" for
the purpose of compliance with Article 7.8 of the SCM Agreement elsewhere in this Report.
However, for the purpose of the close nexus test, we note that the events the European Union
relies upon to demonstrate compliance are consistent with our finding, based on evidence including
Airbus' own stated views, that the A350XWB was anticipated to be a replacement for the A330 and
A340. In particular, to the extent that the timing of the launch of the A350XWB reflected Airbus'
own expectations about when the marketing lives of the A330 and A340 would come t o an end
and, therefore, when it would need to launch a replacement LCA model, it could be argued that the
timing of the A350XWB LA/MSF measures, to the extent that they are intended to fund part of the
A350XWB's development costs, is related to the same e ssential considerations motivating the
European Union's claim that it has "withdrawn" A330/A340 and A330 -200 LA/MSF subsidies – that
is, the anticipated end of the relevant aircraft's marketing lives.
6.142. The United States maintains that the timing of the A350 XWB LA/MSF measures can be
connected with the adoption of the recommendations and rulings by the DSB because all four
agreements were concluded after the panel issued its interim report to the parties in
September 2009. Moreover, according to the United States, certain HSBI evidence from a
document prepared by one of the Airbus governments in the first half of 2009 concerning the
A350XWB project demonstrates that "the A350XWB grew from a deliberative process that took
place in the shadow of the DSB's future rulings and recommendations".286
6.143. We recall that Airbus launched the A350XWB as a redesigned version of the Original A350
at a time when it must have been aware that the original panel was considering the merits of the
United States' challenge to the WTO -consistency of: (a) the LA/MSF agreements entered into
between Airbus and the Airbus governments with respect to each and every new model of Airbus

281 Appellate Body Report, US – Zeroing (EC) (Article 21.5 – EC), para. 234.
282 The precise dates on which the various legal instruments making up the A350XWB LA/MSF measures
are set out below at paras. 6.226, 6.236, 6.249 and 6.257-6.258 where we evaluate the merits of the
United States' claims of subsidization.
283 See above paras. 6.8-6.24.
284 See above paras. 6.25-6.40.
285 The European Union asserts that the anticipated marketing lives of the A330/A340 and A330-200
came to an end in [***] and [***], respectively. We examine the European Union's submissions in more
detail below at paras. 6.872-6.879.
286 United States' second written submission, para. 108 (quoting HSBI evidence in the same paragraph
and footnote 205).

LCA ever brought to market; (b) an alleged commitment on the part of the Airbus government to
provide LA/MSF f or the Original A350; and (c) an alleged unwritten LA/MSF Programme. The
A350XWB Business Case reveals that Airbus launched the A350XWB in December 2006
contemplating that the Airbus governments would provide financial assistance of a different kind to
LA/MSF. In April 2007, the UK Minister for Industry and the Regions, Margaret Hodge, revealed in
the House of Commons Trade and Industry Committee, that the UK Government was in
"discussions" and "negotiations" with Airbus on "the support that might be requir ed with
developing" the A350XWB, explaining further that it would "have to be very conscious of the WTO
rules and constraints in the support" eventually provided. 287 At the same Committee meeting, it
was also disclosed that in terms of "launch investment or something equivalent to launch
investment, given the WTO issues, so far they {i.e. Airbus} have been non-specific".288
6.144. In January 2008 it was reported in the New York Times that Airbus executives had said
that they expected to "begin discussions with Europe an governments in the second half of {2008}
about providing some of the initial financing for its new widebody jet, the A350 -XWB".289 Airbus
commenced formal negotiations with the Airbus governments for A350XWB LA/MSF in [***] after
the launch of the A350XWB .290 Three of the four A350XWB LA/MSF agreements were finally
concluded shortly after the issuance of the interim report by the panel to the parties; and although
the "framework" agreement of the fourth LA/MSF agreement had been entered into shortly before
the original panel's interim report was issued to the parties, the "implementing" legal instrument
under this contract was concluded, like the other three LA/MSF measures, shortly after the original
panel issued its interim report.291
6.145. While we do not believe the coincidence in the timing of the conclusion of the A350XWB
LA/MSF contracts and the issuance of the panel's interim report to the parties demonstrates that
the former was tied to the latter, the facts described in the previous paragraphs strongly sugg est
that Airbus and the Airbus governments were considering their options with respect to how to
finance the A350XWB, including by means of LA/MSF, in the light of the ongoing WTO dispute. This
understanding is, in our view, confirmed by the statements con tained in one of the HSBI
documents referred to by the United States, which we believe reveals not only that it was the
opinion of one of the Airbus governments that A350XWB LA/MSF could be affected by the outcome
of the WTO dispute because of the fact tha t it was of the same nature as previous LA/MSF, but
also that this particular government was proceeding in negotiations with Airbus with these
considerations in mind.292
6.146. Finally, the European Union observes that the United States could have requested the
establishment of a new panel to review the WTO consistency of the four A350XWB LA/MSF
measures several years ago 293, suggesting that this fact should also weigh against bringing the
A350XWB LA/MSF measures into the scope of this proceeding. We disagree. In our view, the fact
that it may have been possible for a party to challenge an undeclared measure in an original
proceeding initiated under Article 6.2 of the DSU does not preclude it from bringing a claim against
the same measure in an Article 21.5 compliance proceeding if it considers it has a "particularly
close relationship" to the adopted DSB recommendations and rulings, and the measures declared
to be "measures taken to comply". Provided that an undeclared measure satisfies the close nexus
test, we do not see why a complaining Member should be barred from having recourse to the
original panel in an Article 21.5 proceeding to determine whether that measure affects a

287 UK House of Commons Trade and Industry Committee, "Recent Developments with Airbus", Ninth
Report of Session 2006-07, Volume II: Oral and written evidence, 25 July 2007, (Exhibit EU-177), pp. 4-5.
288 UK House of Commons Trade and Industry Committee, "Recent Developments with Airbus", Ninth
Report of Session 2006-07, Volume II: Oral and written evidence, 25 July 2007, (Exhibit EU-177), p. 5.
289 Nicola Clark, "Airbus to seek government aid for A350 in second half", The New York Times,
16 January 2008, (Exhibit USA-434).
290 European Union's response to Panel question No. 101 (citing Statement by Tom Williams, Executive
Vice President, Programmes, Airbus SAS, 17 May 2013, (Exhibit EU-354) (BCI), para. 3; Meeting agenda,
[***], (Exhibit EU-392) (BCI); Letter, Airbus [***], [***], (Exhibit EU-393) (HSBI); and Letter, Airbus
Operations GmbH, [***], (Exhibit EU-394) (HSBI)). See also UK Department of Trade and Industry Annual
Report 2006-2007, p. 107, (Exhibit USA-38) in relation to the receipt of an application for launch investment
for the Airbus A350.
291 See above fn 282.
292 United States' second written submission, para. 108 (quoting HSBI evidence in the same paragraph
and fn 205).
293 European Union's first written submission, para. 103.

responding Member's compliance with the adopted recommendations and rulings, regardless of
whether it could have been challenged in an original proceeding prior to the end of the compliance
period.
6.147. Moreover, in the context of the present dispute, we note that the United States' claims
with respect to A350XWB LA/MSF are not only focused on the al leged effects of those measures
considered in isolation, but also their effects considered together with the effects of the pre -
A350XWB LA/MSF subsidies. In this light, the fact that the United States chose to pursue its claims
against the A350XWB LA/MSF m easures in a compliance dispute in which the alleged continued
effects of the pre -A350XWB LA/MSF will be determined (instead of an original panel), not only
avoids the parties having to address essentially the same questions in two separate proceedings,
but it also reflects the nature of one part of the United States' claims of non-compliance with
respect to the effects of the pre -A350XWB LA/MSF measures, which could only be resolved by an
evaluation of the parties' submissions concerning the effects of the pre-A350XWB LA/MSF and
A350XWB LA/MSF together.
6.148. In conclusion, therefore, although we can find some similarities and common connections
between the timing of the A350XWB LA/MSF measures and the European Union's alleged
compliance "actions", as well as the recommendations and rulings adopted by the DSB, we are not
convinced that the evidence conclusively demonstrates that the timing of A350XWB LA/MSF, in
and of itself, is such that the A350XWB LA/MSF agreements must be considered to be "closely
connected" measures for the purpose of this compliance dispute. Nevertheless, in the light of the
above facts and considerations, we are of the view that the fact that the A350XWB LA/MSF
measures predate the adoption of the recommendations and rulings by the DSB in th is dispute,
does not sever the links we have found to exist, in terms of nature and effects.
6.4.1.5.4 Conclusion
6.149. We have found above that the A350XWB LA/MSF measures have a similar nature to the
pre-A350XWB LA/MSF measures, which are, of course, the subject of bot h the adopted DSB
recommendations and rulings and most of the European Union's alleged compliance actions,
because they are all: (a) loan agreements; (b) containing the same four "core" repayment terms ;
(c) entered into by essentially the same parties (Airbus and the Airbus governments); and (d) for
the purpose of financing the development costs of Airbus LCA (in particular, a new model of Airbus
twin-aisle LCA). In addition, we have concluded that to the extent that A350XWB LA/MSF was
intended to be used t o finance part of the development costs of a model of Airbus LCA that was
anticipated to replace the A330 and A340 (both of which had been: (a) launched, developed and
brought to market with the assistance of pre -A350XWB LA/MSF; and (b) sold into a custome r
space in which the United States' LCA industry was found to have suffered serious prejudice in the
original proceeding), the effects of A350XWB LA/MSF could undermine the European Union's
compliance. Finally, although there are indications that the timing of A350XWB LA/MSF may have
taken account of the outcome of the original panel proceeding, the evidence is not conclusive in
this respect, confirming only that Airbus and the Airbus governments were considering their
options with respect to how to finance the A350XWB, including by means of LA/MSF, in the light of
the ongoing WTO dispute. Accordingly, we have found that the fact that the A350XWB LA/MSF
measures were concluded before the recommendations and rulings were adopted by the DSB does
not sever the link we have found to exist in terms of their nature and effects with those
recommendations and rulings and the European Union's alleged compliance "actions".
6.150. For these reasons, we find that the United States has established that the A350XWB
LA/MSF measures satisfy the close nexus test and, therefore, that they are "closely connected"
with the adopted DSB recommendations and rulings and the European Union's alleged compliance
"actions", such that they should be brought within the scope of this proceeding. We find additional
support for this conclusion in two considerations.
6.151. First, we note that the European Union has stated in this proceeding that, in the light of
the guidance provided by the Appellate Body in US – Large Civil Aircraft (2nd complaint), it do es
not generally disagree with the view that all of the LA/MSF measures challenged in this dispute,
from A300 LA/MSF to A350XWB LA/MSF, "may be aggregated for purposes of assessing their
alleged present causal link to the launch of a particular product" pr ovided that they are " shown to

exist at present and thus not withdrawn". 294 In US – Large Civil Aircraft (2 nd complaint), the
Appellate Body explained that:
{A} panel may group together subsidy measures that are sufficiently similar in their
design, structure, and operation in order to ascertain their aggregated effects in an
integrated causation analysis and determine whether there is a genuine and
substantial causal relationship between these multiple subsidies, taken together, and
the relevant market phen omena identified in Article 6.3 of the SCM Agreement … .295
(emphasis added)
6.152. Because the European Union maintains that the only limitation on the aggregation of all of
the LA/MSF measures at issue in this dispute is that they currently exist and, therefore, that they
have, to this extent, not been "withdrawn", it seems to us that, ultimately, the European Union
itself does not deny that all of the LA/MSF measures are "similar in their design, structure, and
operation", or that, for this reason, it would be ap propriate to consider "their aggregated effects in
an integrated causation analysis". In our view, the European Union's position with respect to the
permissibility of the aggregation of the effects of the LA/MSF measures supports our conclusion
with respect to the close nexus that exists between the A350XWB LA/MSF measures and the pre -
A350XWB LA/MSF measures.
6.153. Second, as already noted, the United States' non-compliance claims with respect to pre -
A350XWB LA/MSF is partly based on its view that these subsidies continue to cause adverse
effects in the post -implementation period when considered in conjunction with the alleged effects
of the A350XWB LA/MSF measures . In our view, were the A350XWB LA/MSF measures excluded
from the scope of this compliance proceeding , this aspect of the United States' non-compliance
complaint with respect to the pre -A350XWB LA/MSF measures could not be fully resolved. This is
an additional reason why we believe that, in the light of the close nexus that exists between the
A350XWB LA/M SF measures, the pre -A350XWB LA/MSF subsidies and the adopted
recommendations and rulings, the A350XWB LA/MSF measures fall within the scope of our terms
of reference.
6.154. Finally, having found that A350XWB LA/MSF falls within the scope of this compliance
proceeding, we consider it unnecessary to pursue the United States' additional independent
arguments that A350XWB LA/MSF falls within our terms of reference solely on the grounds that it:
(a) replaces an original actionable subsidy with a new subsidy; or (b) c ircumvents the
European Union's compliance by negating or undermining a "measure taken to comply".
6.155. We now turn to examine the European Union's three other objections to the scope of the
United States' claims in this dispute.
6.4.2 Whether certain claims made by the United States are within the scope of this
compliance proceeding
6.4.2.1 Introduction
6.156. The European Union submits that the United States' prohibited subsidy claims against the
A380 LA/MSF subsidies, and the United States' threat of serious prejudice claims in r elation to the
market for LCA in the European Union, are outside of the scope of this compliance proceeding. In
its first written submission, the European Union requested that the Panel issue a preliminary ruling
to this effect or grant the requested relie f in its final Report. 296 The Panel communicated its
decision in relation to the European Union's requests on 27 March 2013, finding that the
United States' prohibited export subsidy claims under Articles 3.1(a) and 3.2 of the
SCM Agreement and the United States' threat of serious prejudice claims were within the scope of
the compliance dispute, but excluding the United States' prohibited import substitution claims
under Articles 3.1(b) and 3.2 of the SCM Agreement. In the communication informing the parties
of its decision, the Panel announced that it would issue the reasoning motivating its findings in due
course. This reasoning is set out in the following subsections.

294 European Union's response to Panel question No. 38, para. 105. (emphasis original)
295 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1285.
296 European Union's first written submission, para. 161, fn 184.

6.4.2.2 The United States' claims under Article 3.1(a) of the SCM Agreement
6.4.2.2.1 Arguments of the European Union
6.157. The European Union argues that the United States' claims under Article 3.1(a) of the
SCM Agreement against the A380 LA/MSF measures are outside of the Panel's terms of reference
because, in the absence of any adopted recommendations and rulings pursuant to Article 4.7 of
the SCM Agreement, the relevant European Union member States had no compliance obligation in
relation to the United States' original Article 3.1(a) claims against the same LA/MSF measures.
According to the European Union, this m eans that there is no basis for the Panel to accept
jurisdiction over the United States' renewed Article 3.1(a) claims under Article 21.5 of the DSU
and, consequently, that those claims should be excluded from the scope of this compliance
proceeding.297
6.158. The European Union finds support for its position in inter alia the EC – Bed Linen
(Article 21.5 – India) case, which the European Union maintains stands for the proposition that a
complainant in an Article 21.5 dispute should not "ordinarily" be entitled to b ring a claim against
an unchanged measure that was unsuccessfully challenged (in the sense that there were "no
relevant recommendations and rulings" in relation to the same claim) in an original proceeding. 298
Moreover, the European Union submits that the Un ited States errs when it relies upon the panel
and Appellate Body findings in US – Upland Cotton (Article 21.5 – Brazil) and US – Oil Country
Tubular Goods Sunset Reviews (Article 21.5 – Argentina) to substantiate its view that a
compliance panel is entitled to "re-consider the same claims against the same unchanged measure
whenever the Appellate Body was unable to complete the analysis in the original proceedings". 299
According to the European Union, the facts of both disputes relied upon by the United States can
be distinguished from the present set of circumstances as they each involved "measures taken to
comply" within the meaning of Article 21.5 of the DSU. The European Union emphasizes that the
same cannot be said for the situation that is before the Panel in the present proceeding.300
6.159. The European Union furthermore argues that by seeking to have its Article 3.1(a) claims
re-heard, the United States is attempting to use the present compliance dispute as if it were
established to provide an opportunity for "remand" back to the original panel to complete the
analysis that could not be completed by the Appellate Body, regardless of whether jurisdiction over
those claims could independently be established under Article 21.5 of the DSU. 301 The
European Union maintains that the United States is not entitled to use Article 21.5 proceedings in
this way; and that should the United States want to pursue Article 3.1(a) claims against the A380
LA/MSF subsidies, the United States would need to initiate a new original panel proceeding.302
6.160. Finally, the European Union submits that accepting the United States' Article 3.1(a) claim
regarding the A380 LA/MSF subsidies would undermine the European Union's due process rights.
According to the European Union, if the United States were permitted to renew its claims under
Article 3.1(a), the European Union would be deprived of a compliance period to remedy any
Article 3.1(a) violation before the United States pursues countermeasures.303
6.4.2.2.2 Arguments of the United States
6.161. The United States submits that its Article 3.1(a) claims against the A380 LA/MSF measures
are properly within the scope of this compliance proceeding. The United States recalls that in the
original proceeding, the Appellate Body overturned the panel's findings but was unable to complete
the analysis in relation to the Article 3.1(a) claims against the A380 LA/MSF measures. The
United States submits that where a Member raises a legal issue before the original panel, but the
panel and the Appellate Body make no findings on that i ssue, the party may raise the issue again

297 European Union's first written submission, paras. 115, 119-120, 125-129, and 131-133; and second
written submission, paras. 40-45.
298 European Union's first written submission, paras. 124-125.
299 European Union's second written submission, para. 43. (emphasis original)
300 European Union's second written submission, paras. 45-47.
301 European Union's first written submission, para. 132.
302 European Union's first written submission, para. 115.
303 European Union's first written submission, para. 133; and second written submission para. 42.

under Article 21.5. 304 The United States recalls that an Article 21.5 proceeding does not allow
parties to re -litigate claims that the DSB has already decided. 305 However, according to the
United States, a compliance panel may properly reconsider a claim against an unchanged measure
when the Appellate Body was unable to complete the analysis in the original proceeding and that
such claims are not precluded from the scope of a subsequent compliance proceeding.306
6.162. The Unit ed States argues that preventing a complaining party from raising claims in a
compliance proceeding that were left unresolved on appeal in the original proceeding would mean
that complaining parties would always have to begin new proceedings in order to ob tain a ruling
on their merits. The United States argues that such a result would make it impossible to make
efficient use of the original panelists and their relevant expertise and, thereby, undermine the
purpose and effect of compliance proceedings.307
6.163. The United States submits that the mere absence of adopted recommendations and rulings
with respect to its Article 3.1(a) claims from the original proceeding does not preclude it from
properly raising the same claims again in this compliance dispute.
6.4.2.2.3 Evaluation by the Panel
6.164. In this compliance proceeding, the United States seeks to raise claims under Article 3.1(a)
of the SCM Agreement against the same unchanged A380 LA/MSF measures it challenged on the
same legal basis in the original proceeding.
6.165. We recall th at in the original proceeding the panel found that the United States had
substantiated its Article 3.1(a) claims with respect to the German, Spanish and UK A380 LA/MSF
measures, but not the French A380 LA/MSF measures. 308 On appeal, the Appellate Body reversed
the original panel's findings, concluding that the panel had erred in interpreting and applying
Article 3.1(a) and footnote 4 of the SCM Agreement.309 After articulating the correct interpretation
of these provisions, the Appellate Body found itself unable to "complete the analysis" due to a lack
of sufficient factual findings or undisputed facts on the panel record. 310 Thus, the Appellate Body
reversed the original panel's recommendation under Article 4.7 of the SCM Agreement that "the
subsidizing Member granting each subsidy found to be prohibited withdraw it … within 90 days" 311,
leaving the United States' claims unresolved.
6.166. As we see it, the main question raised by the parties' arguments is whether the
United States is entitled to have its unresolved Artic le 3.1(a) claims settled in this compliance
dispute, given that no specific recommendations and rulings were adopted by the DSB in relation
to those claims in the original proceeding.
6.167. The European Union finds support for its position in EC – Bed Linen (Ar ticle 21.5 –
India).312 We note, however, that in that dispute, India was not allowed to bring its claims against
a particular measure in the compliance proceeding because India had failed to make out a prima
facie case in relation to exactly the same claims in the original proceeding. Thus, the
Appellate Body ruled that a complainant who had failed to make out a prima facie case in the
original proceeding regarding an element of the measure that remained unchanged since the
original proceeding was not entitl ed to re -litigate the same claim with respect to the unchanged

304 United States' first written submission, para. 33.
305 United States' first written submission, para. 33 (citing Appellate Body Report, US – Upland Cotton
(Article 21.5 – Brazil), para. 210).
306 United States' first written submission, para. 33; and second written submission, paras. 124-131
(citing Appellate Body Reports, US – Upland Cotton (Article 21.5 – Brazil), para. 210; US – Oil Country Tubular
Goods Sunset Reviews (Article 21.5 – Argentina), paras. 149-150; and US – Zeroing (EC) (Article 21.5 – EC),
para. 424).
307 United States' second written submission, para. 131.
308 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.689.
309 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1102-1103.
310 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1104 and
1415(b).
311 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1104 and 1416.
312 European Union's first written submission, paras. 124-125 (citing Appellate Body Report, EC – Bed
Linen (Article 21.5 – India), paras. 87-88).

element of the measure in the Article 21.5 proceeding. 313 In the same vein, in US – Shrimp
(Article 21.5 – Malaysia), the Appellate Body ruled that a complainant may not reassert the same
claim against an unchanged aspect of the measure that had been found to be WTO -consistent in
the original proceeding. 314 The claims that the complainant sought to re -argue had been
definitively rejected in the original proceeding.
6.168. In our view, both EC – Bed Linen (Article 21.5 – India) and US – Shrimp (Article 21.5 –
Malaysia) may be distinguished from the present dispute. As already noted, the reason why no
recommendations and rulings were adopted in respect of the United States' original Article 3.1(a)
claims is that those claims were left unresolved on appeal. The United States is not attempting to
re-litigate claims with respect to which it failed to make out a prima facie case or that were
otherwise definitively rejected in the original proceeding. The United States' reassertion of the
Article 3.1(a) claims made in the original proceeding against the unchanged A380 LA/MSF
measures thus materially differs from the situations in EC – Bed Linen (Article 21.5 – India) and
US – Shrimp (Article 21.5 – Malaysia).
6.169. Questions concerning unresolved claims with respect to which there were no DSB
recommendations and rulings also arose in the US – Oil Country Tubular Goods Sunset Reviews
(Article 21.5 – Argentina) and US – Upland Cotton (Article 21.5 – Brazil) disputes.
6.170. In US – Oil Country Tubular Goods Sunset Reviews (Article 21.5 – Argentina) Argentina
attempted to re -argue a claim against an aspect of the original measure. Not unlike the
United States' position in the present dispute, Argentina sought to raise a claim that was heard in
the original proceeding but that was left unresolved and that did not give rise to the adoption of
any specific recommendations and rulings, and, therefore, the imposition of a specific compliance
obligation on the United States. In the original proceeding, Argentina had challenged the volume of
imports analysis undertaken in the USDOC's original sunset review determination. The claim was
left unresolved due to the panel's exercise of judicial economy. In the compliance proceeding,
Argentina raised the same claim. The volume of imports analysis from the USDOC's original sunset
review determination had been relied upon by the USDOC in the "Section 129 Determination" that
implemented the United States' compliance obligations. The compliance panel concluded that
because the USDOC's original volume of imports analysis had become an "integral part" of the
Section 129 Determination (the "measure taken to comply"), Argentina could properly pursue the
same claim that was left unresolved in the original proceeding.315
6.171. The Appellate Body upheld the compliance panel's ruling, relying on a similar line of
reasoning. The Appellate Body recalled that the volume of imports analysis that Argentina sought
to challenge in the compliance dispute had formed part of the factual basis of the USDOC's original
likelihood of dumping determination that was found to be inconsistent with Article 11.3 of the
AD Agreement for other reasons. The Appellate Body then explained that the DSB's adoption of
this ruling of inconsistenc y meant that the United States had an obligation to bring its measure
into conformity with Article 11.3 of the AD Agreement, and that it was up to the United States to
decide how best to achieve that conformity. The Appellate Body found that the analysis h ad
become "an integral part" of the "measure taken to comply", and could therefore be challenged on
the basis of the same claims left unresolved in the original proceeding.316
6.172. We note that the Appellate Body's findings in US – Oil Country Tubular Goods Suns et
Reviews (Article 21.5 – Argentina) addressed a number of more systemic concerns that the

313 In EC – Bed Linen (Article 21.5 – India), the Appellate Body found that a complainant who had failed
to make out a prima facie case in the original proceeding regarding an element of the measure that remained
unchanged since the original proceeding was not entitled to re-litigate the same claim with respect to the
unchanged element of the measure in the Article 21.5 proceeding. (Appellate Body Report, EC – Bed Linen
(Article 21.5 – India), para. 93)
314 In US – Shrimp (Article 21.5 – Malaysia), the Appellate Body ruled that a complainant may not
reassert the same claim against an unchanged aspect of the measure that had been found to be
WTO-consistent in the original proceeding. (Appellate Body Report, US – Shrimp (Article 21.5 – Malaysia),
paras. 96-97)
315 Panel Report, US – Oil Country Tubular Goods Sunset Reviews (Article 21.5 – Argentina), paras. 7.91
and 7.97.
316 Appellate Body Report, US – Oil Country Tubular Goods Sunset Reviews (Article 21.5 – Argentina),
paras. 142-152.

United States argued weighed in favour of excluding Argentina's claims. In particular, the
United States submitted that allowing Argentina to pursue a claim with re spect to which there
were no specifically adopted rulings and recommendations would place it in the position of having
to guess what the original panel might have thought were the WTO -inconsistencies in USDOC's
original volume of imports analysis. Moreover , were USDOC's analysis to be found
WTO-inconsistent at the compliance stage, the United States would not be able to benefit from a
"reasonable period of time" to bring itself into conformity. The Appellate Body rejected the
United States' concerns, ruling that because the original panel had found that USDOC's original
likelihood of dumping determination had lacked a proper factual basis, "USDOC could not assume
that its findings regarding the alleged decline in the volume of imports were WTO -consistent".
Furthermore, the Appellate Body noted that the parties had made arguments and
counter-arguments on the volume of imports analysis in both the original and compliance
proceedings, and that this was not a situation where Argentina was unfairly getting a "seco nd
chance", as would be the case where the measure had been found to be WTO -consistent in the
original proceeding, or where the complainant had failed to make out a prima facie case.317 Finally,
the Appellate Body pointed to the aim of Article 21.5 of the DS U, which it explained was to
promote "prompt compliance … by making it unnecessary for a complainant to begin new
proceedings and by making efficient use of the original panelists and their relevant experience".
For the Appellate Body, these considerations supported the compliance panel's finding that the
volume of imports analysis was properly before it.318
6.173. The question that arose in US – Upland Cotton (Article 21.5 – Brazil) was whether Brazil
was entitled to re -argue a claim against one specific aspect of the United States' "measure taken
to comply", with respect to which the Appellate Body had reversed the original panel's findings,
but failed to "complete the analysis" because of insufficient factual findings or undisputed facts on
the record. Again, not unlike the United States' position in the present dispute, Brazil sought to re-
litigate a claim that was left unresolved and did not give rise to the adoption of any specific
recommendations and rulings, or, therefore, the imposition of a specific complian ce obligation on
the United States.
6.174. In the original proceeding, Brazil had claimed that the United States' export credit
guarantees provided under the General Sales Manager 102 (GSM 102) programme for a number of
agricultural products (including pig and po ultry meat) circumvented the United States' export
subsidy commitments under the Agreement on Agriculture. The panel dismissed Brazil's claim as it
related to the application of the programme to pig and poultry meat. However, on appeal, the
Appellate Body reversed the panel's finding, but was unable to "complete the analysis" because
there were insufficient factual findings or undisputed facts on the record. Thus, Brazil's original
claim concerning the WTO -consistency of the United States' export credit gua rantees for pig and
poultry meat under the GSM 102 programme was left unresolved. The GSM 102 programme was
found to be WTO -inconsistent for other reasons, and was ultimately subject to adopted
recommendations and rulings calling on the United States to br ing its measures into conformity
with its WTO obligations.
6.175. In implementing the adopted rulings and recommendations, the United States revised the
GSM 102 programme with respect to all agricultural products, including pig and poultry meat. In
the compliance proceeding, Brazil renewed its claim that the export credit guarantees provided for
pig and poultry meat under the revised programme were inconsistent with the Agreement on
Agriculture. The United States, however, argued that Brazil's claims were outside of the scope of
the compliance proceeding because the export credit guarantees for pig and poultry meat were
individual measures that were not subject to the DSB's recommendations and rulings in the
original proceeding.
6.176. While recognizing that the provisio n of export credit guarantees for pig and poultry meat
had not been the subject of specific rulings and recommendations in the original proceeding, the
compliance panel found that Brazil was nevertheless entitled to pursue its claim on the basis of a
number of considerations, including the particularly close relationship between the export credit

317 Appellate Body Report, US – Oil Country Tubular Goods Sunset Reviews (Article 21.5 – Argentina),
para. 150.
318 Appellate Body Report, US – Oil Country Tubular Goods Sunset Reviews (Article 21.5 – Argentina),
para. 151.

guarantees and the revised GSM 102 programme, which was itself the "declared measure taken to
comply".319
6.177. The Appellate Body agreed with the compliance panel's conc lusions, but relied upon a
somewhat different line of reasoning. The Appellate Body's evaluation of the matter proceeded in
two parts. First, the Appellate Body determined whether Brazil's claims concerned the properly
identified "measure taken to comply"; and second, the Appellate Body assessed whether there
were any limitations on the claims that Brazil was entitled to raise in respect of that measure.
6.178. The Appellate Body began the first of its two inquiries by stating that while "the DSB's
recommendations and rulings are a relevant starting point for identifying the 'measures taken to
comply' … they are not dispositive as to the scope of such measures." 320 The Appellate Body then
explained that it could "not see why the scope of the DSB's recommendations and rulings should
necessarily limit the scope of the 'measures taken to comply' … when the measures actually 'taken'
… are broader than the DSB's recommendations and rulings". 321 Thus, after recalling how the
revised GSM 102 programme applied to all eligible commodities (including pig and poultry meat) in
the same way, the Appellate Body found that it was appropriate to consider the revised GSM 102
programme in an "integrated manner" and, accordingly, find the totality of the new programme
(including its covera ge of pig and poultry meat) to be a "measure taken to comply". The
Appellate Body thereby concluded that the changes made to the export credit guarantees provided
for pig and poultry meat could be challenged in the compliance proceeding, even though they were
not the subject of any specific recommendations and rulings in the original proceeding.322
6.179. Turning to the limitations on the claims that Brazil was entitled to raise against the
"measure taken to comply", the Appellate Body found that Brazil was not precluded from renewing
the claim it had made in the original proceeding with respect to the export credit guarantees for
pig and poultry meat because the merits of that claim had not been resolved. Thus, the
Appellate Body distinguished Brazil's situation fr om that of India in EC – Bed Linen (Article 21.5 –
India), finding that to permit Brazil to raise its claim in the compliance proceeding would not mean
that it is "unfairly getting a 'second chance' to make a case that it failed to make out in the original
proceeding such that the finality of the DSB's recommendations and rulings would be
compromised".323
6.180. Finally, as it did in US – Oil Country Tubular Goods Sunset Reviews (Article 21.5 –
Argentina), the Appellate Body found support for its conclusions in the purpose of Article 21.5
proceedings, which it recalled it had previously described to be the promotion of "prompt
compliance … by making it unnecessary for a complainant to begin new proceedings and by
making efficient use of the original panelists and their relevant experience".324
6.181. We understand the panel and Appellate Body findings in US – Oil Country Tubular Goods
Sunset Reviews (Article 21.5 – Argentina) and US – Upland Cotton (Article 21.5 – Brazil) to stand
for the proposition that where a particular c laim has been left unresolved in an original proceeding
for reasons of judicial economy or because of the Appellate Body's inability to "complete the
analysis", a complainant will not ordinarily be precluded from pursuing that claim against the same
aspect of the originally challenged measure in an Article 21.5 compliance dispute when it forms an
"integral part" of the "measure taken to comply". 325 In such circumstances, the fact that an

319 The compliance panel's main considerations were that: (a) the revised GSM 102 export credit
guarantees as applied to pig and poultry meat were measures with a "particularly close relationship to the
declared measure taken to comply and to the recommendations and rulings of the DSB"; (b) Brazil's claim
against the original GSM 102 programme as applied to pig and poultry meat was left unresolved in the original
proceeding; and (c) the Appellate Body had "recently" found in US – Oil Country Tubular Goods Sunset
Reviews (Article 21.5 – Argentina) that "a claim relating to an aspect of a measure on which the panel in the
original proceeding had exercised judicial economy was properly within the scope of Article 21.5 of the DSU".
(Panel Report, US – Upland Cotton (Article 21.5 – Brazil), paras. 9.25-9.26).
320 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 202.
321 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 202.
322 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), paras. 202-207.
323 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 210.
324 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 212 (citing Appellate Body
Report, US – Oil Country Tubular Goods Sunset Reviews (Article 21.5 – Argentina), para. 151).
325 We understand the Appellate Body's guidance in EC – Fasteners (Article 21.5 – China) to accord with
this reading. See Appellate Body Report, EC – Fasteners (Article 21.5 – China), para. 5.15 and fn 90 thereto.

original claim may not have given rise to any specific recommendations and rulings adopted by the
DSB will not prevent a compliance panel from bringing it within its scope of consideration. Indeed,
to allow a complainant to bring such a claim would be an efficient use of WTO dispute settlement
procedures and consistent with th e goal of achieving prompt compliance with the covered
agreements.
6.182. In our view, the circumstances in US – Oil Country Tubular Goods Sunset Reviews
(Article 21.5 – Argentina) and US – Upland Cotton (Article 21.5 – Brazil) are similar to the
situation in thi s dispute. Like the complainants in those cases, in this compliance proceeding the
United States attempts to re-argue claims that: (a) were left unresolved in the original proceeding;
and (b) were not subject to any specific recommendations and rulings adopted by the DSB.
6.183. As the European Union observes, one difference between the current proceeding and US –
Oil Country Tubular Goods Sunset Reviews (Article 21.5 – Argentina) and US – Upland Cotton
(Article 21.5 – Brazil) is that, in those disputes, the ques tion of the permissibility of the
complainants' renewed claims arose in the context of the existence of a "measure taken to
comply" that incorporated or covered a particular aspect of an original measure whose WTO -
consistency was challenged (but left undec ided) in the original proceeding. In contrast, there is no
dispute between the parties that the A380 LA/MSF measures are neither "measures taken to
comply" within the meaning of Article 21.5 of the SCM Agreement, nor part of, or covered by, any
one or more other "measures taken to comply".
6.184. We do not consider this distinction to mean that we must exclude the United States' claims
from the scope of this compliance proceeding. In this regard, we note that it is common ground
between the parties that the A380 L A/MSF measures are properly before us for the purpose of
evaluating the merits of the United States' claims concerning the European Union's compliance
with the requirements of Article 7.8 of the SCM Agreement. Thus, by raising claims against the
A380 LA/MSF measures that were left unresolved in the original proceeding, the United States is
not asking the Panel to review the consistency with the covered agreements of a measure that
does not already fall within the scope of this compliance proceeding, albeit not as a "measure
taken to comply". Moreover, by allowing the United States' to pursue its unresolved claims it would
not be "unfairly getting a 'second chance' to make a case that it failed to make out in the original
proceeding such that the finality of the DSB's recommendations and rulings would be
compromised".326
6.185. In these circumstances, we can see no reason why we should be prevented from
considering the United States' claims simply because the A380 LA/MSF measures are neither
"measures taken to comply" within the meaning of Article 21.5 of the SCM Agreement, nor part of,
or covered by, any one or more other "measures taken to comply". As we see it, to accept that the
United States' unresolved Article 3.1(a) claims should be excluded because of the absenc e of any
relevant "measures taken to comply", in a situation where the A380 LA/MSF measures are already
properly before us would unduly elevate form over substance.
6.186. The European Union argues that accepting the United States' Article 3.1(a) claim would
undermine its due process rights, and, in particular, its right to a "reasonable period of time" to
remedy any Article 3.1(a) violation before the United States pursues countermeasures. 327
Essentially the same argument made by the United States in US – Oil Count ry Tubular Goods
Sunset Reviews (Article 21.5 – Argentina) was dismissed by the Appellate Body on the grounds
that inter alia the parties to that dispute had made extensive arguments and counter-arguments in
relation to the relevant claims, and that it wou ld be consistent with the purpose of Article 21.5
disputes to allow the complainant to pursue those claims. 328 In our view, the same reasoning can
be used to dismiss the European Union's due process concerns in the present dispute.

326 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 210. See also
Appellate Body Report, EC – Fasteners (Article 21.5 – China), para. 5.15 and fn 90.
327 European Union's first written submission, para. 140 (citing Panel Report, US – Countervailing
Measures on Certain EC Products (Article 21.5 – EC), paras. 7.72 and 7.76).
328 Appellate Body Report, US – Oil Country Tubular Goods Sunset Reviews (Article 21.5 – Argentina),
paras. 150-151.

6.4.2.2.4 Conclusion
6.187. Thus, for all of the above reasons, we find that the United States' claims under
Articles 3.1(a) and 3.2 of the SCM Agreement concerning the A380 LA/MSF subsidies are within
the scope of this compliance proceeding.
6.4.2.3 The United States' claims under Article 3.1(b) of the SCM Agreement
6.4.2.3.1 Arguments of the European Union
6.188. The European Union submits that the United States' claims under Article 3.1(b) of the
SCM Agreement against the A380 LA/MSF subsidies are outside the scope of this compliance
proceeding for a number of reaso ns. First, as argued in relation to the United States' claims
against the same measures under Article 3.1(a), the European Union submits that the
United States' Article 3.1(b) claims must fall outside of the scope of this compliance proceeding
because no r elevant recommendations and rulings were adopted by the DSB and, therefore, no
"measures taken to comply" exist in relation to the United States' particular claim.329
6.189. According to the European Union, the United States' allegations under Article 3.1(b)
constitute new claims, which the United States could have been pursued in the original proceeding
against the same A380 LA/MSF measures, but which the United States chose to abandon. 330 The
European Union maintains that there is nothing in Article 21.5 of the DSU or any considerations in
equity that would justify allowing a complaining Member to abandon a claim during the original
proceeding, only to then attempt to revive it during the compliance proceeding. 331 Indeed, the
European Union recalls that "a complaining Member ordinarily would not be allowed to raise claims
in an Article 21.5 proceeding that it could have pursued in the original proceeding, but did not".332
6.190. The European Union does not accept that the United States should be permitted to pursue
its Article 3 .1(b) claims against the A380 LA/MSF subsidies in this dispute because of the
United States' alleged lack of awareness of the relevant facts at the relevant time. According to the
European Union, a Member cannot pursue a new claim in a compliance proceedin g on the basis
that at the time it submitted its original panel request, it was not aware of facts that serve as the
basis for that new claim.333 The European Union submits that the jurisdiction of a compliance panel
cannot turn on assertions by a complainin g Member about the facts it allegedly did not know at a
particular point in time. Moreover, the European Union submits arguendo that even if such a
justification were acceptable, at the time the United States submitted its original panel request,
the United States was already aware of the facts on which it relies in support of its Article 3.1(b)
claims, as shown by the explicit reference to these facts in some of the documents identified by
the United States as available evidence during the original consult ation process. 334 The
European Union submits that relevant information with respect to the A380 LA/MSF measures was
communicated to the United States pursuant to the transparency provisions of the "1992
Agreement" between the United States and the European Union.335 Thus, the European Union
argues that nothing was preventing the United States from raising its 3.1(b) claims in the original
proceeding.336
6.191. The European Union also argues that the United States' right to raise its Article 3.1(b)
claim lapsed with the authority of the panel established under the United States' second panel

329 European Union's first written submission, paras. 143-144 and 150; and second written submission,
paras. 50 and 57.
330 European Union's first written submission, paras. 134-140, 146, and 150; and second written
submission, para. 53.
331 European Union's first written submission, para. 140.
332 European Union's first written submission, paras. 145 and 146 (citing Appellate Body Reports, US –
Upland Cotton (Article 21.5 – Brazil), para. 211; and US – Zeroing (EC) (Article 21.5 – EC), para. 432); and
second written submission, para. 50.
333 European Union's second written submission, para. 55.
334 European Union's second written submission, para. 55, and fns 49 and 50.
335 Referring to the Agreement between the European Economic Community and the Government of the
United States of America concerning the application of the GATT Agreement on Trade in Civil Aircraft on Trade
in Large Civil Aircraft.
336 European Union's first written submission, paras. 141, 147, and 148.

request against the alleged subsidization of Airbus LCA in DS347. The European Union recalls that
the United States' April 2006 panel request in DS347 included an Article 3.1(b) claim against the
A380 LA/MSF measures. Thus, according to the European Union, since the DSB's authority for the
establishment of that second panel lapsed on 7 October 2007, the United States is not permitted
to nullify the effect of that lapse by raising the same claims anew in this compliance proceeding.337
6.192. Finally, the European Union submits that allowing the United States to raise claims under
Article 3.1(b) during this proceeding would violate principles of due process, as it would deprive
the European Union of its entitlement to a compliance period. 338 The European Union adds that
should the United States choose to pursue these claims it must request the establishment of a new
panel.339
6.4.2.3.2 Arguments of the United States
6.193. The United States accepts that in a compliance proceeding, complainants are ordinarily
precluded from bringing claims against unchanged measures if "they could have been litigated
before the original Panel, but were not". 340 However, the United States argues that when it
submitted its original panel req uest in 2005, it was not aware that French, German, Spanish and
UK LA/MSF subsidies for the A380 were contingent on the use of domestic over imported goods,
and that such information was not publicly available. 341 The United States argues that it could not
have raised its Article 3.1(b) claims in 2005. 342 According to the United States, it should therefore
be permitted to raise those claims in this compliance proceeding.
6.194. The United States additionally argues that its Article 3.1(b) claim is closely related to the
claims the United States did bring in the original proceeding as well as the corresponding
recommendations and rulings of the DSB. Thus, the inclusion of this claim in this proceeding would
promote the prompt compliance of those rulings and recommendat ions as well as the efficient use
of the original panelists and their relevant experience.343
6.195. Finally, the United States submits that the fact that it included the same Article 3.1(b)
claim in its second panel request (i.e., in DS347), and that the authority for the constitution of the
panel in that dispute lapsed in 2007, does not preclude the possibility of raising this claim once
again in this compliance proceeding.344
6.4.2.3.3 Evaluation by the Panel
6.196. The key question that lies at the centre of the parties' disagreem ent about whether the
United States' Article 3.1(b) claims against the A380 LA/MSF subsidies fall within the scope of this
proceeding is whether the United States is entitled to raise a claim in this compliance dispute
against an unchanged measure that was challenged in the original proceeding on the basis of other
legal provisions – in other words, can the United States bring a claim against the A380 LA/MSF
subsidies that it did not bring in the original proceeding?
6.197. We recall that the Appellate Body indicated in US – Upland Cotton (Article 21.5 – Brazil)
that "{a} complaining Member ordinarily would not be allowed to raise claims in an Article 21.5
proceeding that it could have pursued in the original proceeding, but did not". 345 A complainant
may not ordinarily use a compliance proceeding to raise, for the first time, a new claim about an
unchanged measure, as this may improperly provide a "second chance" to that complainant to
make a claim, jeopardizing the principles of fundamental fairness and due process.

337 European Union's first written submission, para. 142; and second written submission, para. 52.
338 European Union's first written submission, para. 149; and second written submission, para. 51.
339 European Union's second written submission, para. 56.
340 United States' second written submission, para. 133.
341 United States' second written submission, para. 135.
342 United States' second written submission, para. 136 (citing Appellate Body Reports, US – Upland
Cotton (Article 21.5 – Brazil); and EC – Bed Linen (Article 21.5 – India)).
343 United States' second written submission, para. 137.
344 United States' second written submission, para. 137.
345 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 211.

6.198. Both parties agree with this principle 346, and the United States does not contest that it
would not ordinarily be permitted to introduce Article 3.1(b) claims against the A380 LA/MSF
measures.347 However, the United States maintains that it was unable to rai se the relevant claim
in 2005 due to insufficient information. According to the United States, it was not at that time
aware that the French, German, Spanish and UK LA/MSF agreements for the A380 were each
allegedly contingent on the use of domestic over i mported goods because the relevant information
was not public.348 The United States argues that in these circumstances, it may properly introduce
claims under Article 3.1(b) in this compliance proceeding that it did not raise in the original
proceeding.
6.199. We are not convinced that, as a matter of law, the United States is entitled to introduce a
claim under Article 3.1(b) against the unchanged A380 LA/MSF contracts in this compliance
proceeding on the basis that it did not have sufficient information at the ti me of the original panel
request. We note that it is generally accepted that a complainant may not amend its panel request
to include new claims, nor cure defects in its panel request in subsequent submissions to the
panel349, including in situations where n ew information may come to light for either of the parties
once the panel request has been filed. That being so, we find it difficult to see how the acquisition
of new information could alone justify a complainant pursuing a new claim about an unchanged
measure in a compliance proceeding.
6.200. Moreover, even if the acquisition of new information could, as a matter of law, justify a
complainant pursuing a new claim in a compliance proceeding, we are not convinced that the facts
before us support the United States' contention that it was unaware of facts that could potentially
be relevant to its present Article 3.1(b) claim when it submitted its original panel request. 350 For
example, in its submissions concerning Article 3.1(b) in this compliance proceeding, the
United States emphasizes how "{t}he governments are open about the quid pro quo, … this means
that Airbus must use domestic components instead of imports"; that all "of the parties are open
about how this system operates "351; and that "the parties openly tout how the workshare
agreements allocate parts of the production process to particular countries and sites within those
countries."352 The United States also refers to evidence "{a}s of 2001". 353 Other evidence the
United States relies upon also appears to have be en publicly available by the time the
United States filed its first panel request in this dispute. 354 It is furthermore apparent that by the
time the United States submitted its first panel request on 31 May 2005, it did in fact already have
other information that was potentially relevant to a claim that the A380 LA/MSF contracts were
inconsistent with Article 3.1(b) of the SCM Agreement. As noted by the European Union, such

346 European Union's first written submission, paras. 145 and 146; and United States' second written
submission, para. 133.
347 United States' second written submission, para. 133 (referring to Appellate Body Report, US –
Upland Cotton (Article 21.5 – Brazil), paras. 210-211, as qualified by the Appellate Body Report, US – Zeroing
(EC) (Article 21.5 – EC), paras. 426-432).
348 United States' second written submission, paras. 135 and 136.
349 See e.g. Appellate Body Reports, EC and certain member States – Large Civil Aircraft, para. 642; and
EC – Bananas III, para. 142.
350 European Union's second written submission, para. 55 and fn 49.
351 United States' first written submission, para. 203. (underline added)
352 United States' first written submission, para. 205. (underline added)
353 United States' first written submission, para. 205 and fn 317 (citing "Integrated Airbus building up
for A380", Interavia Business & Technology, Vol. 5, Issue 654, 1 June 2001, (Exhibit USA-304); and
Pierre Sparaco, "Airbus Thinks Bigger, Not Faster: A symbol of Europe's transformation, the manufacturer –
now a unified company – is offering a complete product line from narrowbodies to an aircraft larger than a
747", Aviation Week & Space Technology, 18 June 2001, (Exhibit USA-305)).
354 "Integrated Airbus building up for A380", Interavia Business & Technology, Vol. 5, Issue 654,
desarrollo de Airbus A380", ABC Periódico Electrónico S.A., 3 October 2003, (Exhibit USA-89); "Renégotiation
du Programme A3XX", Response from the Ministry of Economy, Trade and Industry to Question n. 21523 from
M. Louis Souvet, published in the JO Sénat, 22 June 2000, p. 2227, (Exhibit USA-90); "Le gros-porteur d'airbus
pourrait créer 10.000 emplois en Midi-Pyrénées en 2008: Le lancement de l'Airbus 380 soutient l'activité
aéronautique", Les Echos, p. 50, n. 18765, 21 October 2002, (Exhibit USA-91); "Airbus A380: Jacques Chirac
26 June 2000, (Exhibit USA-93); "EADS agrees to raise Spanish share of A380-report", Reuters,
22 January 2004, (Exhibit USA-308).

information was identified in the Statement of Available Evidence attached to the Uni ted States'
consultations request in the original proceeding.355
6.201. In our view, the above considerations suggest that the United States was, or should have
been, aware of information potentially relevant to an Article 3.1(b) claim when it requested the
establishment of the original panel. Thus, even if it were possible for a complainant in an
Article 21.5 proceeding to raise a claim that it did not pursue in the original proceeding in relation
to an unchanged measure in a situation where it was unaware of poten tially relevant facts at the
moment of filing its original panel request, we consider that the facts and circumstances of the
present dispute would not support the United States' submission that it is entitled to raise such a
claim in this proceeding.356
6.202. Finally, the United States argues that its Article 3.1(b) claims against the A380 LA/MSF
subsidies should be brought into this compliance proceeding because they are allegedly "closely
related" to both the Article 3.1(a) claims the United States did raise in the original proceeding and
the adopted recommendations and rulings, and finding that they fall within the compliance Panel's
terms of reference would promote prompt compliance with the adopted recommendations and
rulings and the efficient use of the original panel's experience.357 We recall that the Appellate Body
has clarified that certain measures that are closely related to the declared measures to comply,
based on their respective nature, timing and effects, may fall within the scope of an Article 21.5
proceeding. However, we observe that this principle applies to the measures at issue, not the
claims that may be raised against them. Moreover, we must bear in mind that Article 21.5 of the
DSU strikes a balance between, on one hand, the promotion of "prompt resolution of disputes" and
the "efficient use of the original panel and its relevant experience", and on the other hand, the
"limitations on the types of claims that may be raised in Article 21.5 proceedings".358 In the light of
the availability to the Un ited States, at the time of the original proceeding, of the information it
now relies on for this claim in this compliance proceeding, allowing the United States to introduce
new claims under Article 3.1(b) against the unchanged A380 contracts would, as we see it, upset
this balance.
6.4.2.3.4 Conclusion
6.203. Thus, for all of the above reasons, we find that the United States' claims under
Articles 3.1(b) and 3.2 of the SCM Agreement concerning the A380 LA/MSF measures are outside
the scope of this compliance proceeding.

355 Statement of Available Evidence, Panel Report, EC and certain member States – Large Civil Aircraft,
annex A. The exhibits identified by the European Union as potentially having relevance are: Boletín Oficial de
5 June 2003, (Original Exhibit US-38); Collin (Yvon), Senate Report No. 73 (2003-2004), (Original Exhibit
US-120); Collin (Yvon), Senate Report No. 87 (2001-2002), (Original Exhibit US-121); French Ministry of
Transport Press Release, "Accord pour le Financement de l’Airbus A380", 15 March 2002, (Original Exhibit
US-45); House of Commons, Minutes of evidence taken before the Welsh Affairs Committee, testimony of Mr.
chantier de construction du site d'assemblage de L'A380", Les Echos No. 18.698, 17 July 2002, (Original
Exhibit US-220); "Lending Support: Modernising the Government’s Use of Loans, A Performance and
Innovation Unit Report", March 2002, (Original Exhibit US-102); Press Release, Ministry of Science and
Technology, "El Ministerio Aportará al Desarollo {de A380} 376 Millones de Euros Hasta 2013",
2 October 2003, (Original Exhibit US-126); Welsh Enterprise Institute, "Reaching for the Skies or Waiting for
the Wings to Fall off? The Welsh Assembly, Grant Aid and British Aerospace", Paper 8, November 2000,
(Original Exhibit US-228).
356 The Panel observes that on 23 September 2005, four months after the United States submitted its
request for the establishment of the first panel (DS316), the DSB agreed to initiate procedures for developing
information concerning serious prejudice under Annex V of the SCM Agreement. On 24 February 2006, less
than two months before the United States submitted its second panel request, i.e. DS347, which already
included Article 3.1(b) claims, the Facilitator in the Annex V procedures submitted his report to the Panel. (See
Panel Report, EC and certain member States – Large Civil Aircraft, paras. 1.7, 1.8 and annex C). We do not fail
to see that the information contained in that report could have improved the United States' knowledge of the
measures at issue in the original proceeding, including the specific terms of the A380 financing agreements.
However, in light of the evidence submitted by the United States itself in this and the original proceedings, we
consider that sufficient information was accessible to the United States to formulate claims under Article 3.1(b)
of the SCM Agreement when it filed its first panel request.
357 United States' second written submission, para. 137.
358 Appellate Body Report, US – Softwood Lumber IV (Article 21.5 – Canada), para. 72.

6.4.2.4 The United States' claim of threat of displacement or impedance under
Article 6.3(a) of the SCM Agreement
6.4.2.4.1 Arguments of the European Union
6.204. The European Union submits that claims concerning the alleged threat of displacement and
impedance of imports are out side the Panel's terms of reference. 359 The European Union submits
that a claim of threat of serious prejudice is distinct from a claim of actual, present serious
prejudice.360 The European Union asserts that, contrary to the requirements of Article 6.2 of the
DSU, it was not clear from the United States' compliance panel request which "problem" the
United States was alleging was caused by the measures at issue.
6.205. The European Union contrasts the United States' compliance panel request with its panel
request in the original proceeding. The European Union points out that in that panel request, the
United States specifically referred to subsidies "causing or threatening to cause serious prejudice
to the interests of the United States through displacement and impeda nce of imports". 361 The
European Union considers that the "clear contrast" between the wording of the claims in the panel
request in the original proceeding, and the wording of the claim in the Article 21.5 compliance
panel request "must be given meaning".
6.206. The European Union argues that the plain meaning of the claims under Article 6.3(a) in the
United States' compliance panel request, interpreted in the light of the different language used in
the panel request for the original proceeding, suggests that the panel request in the compliance
proceeding refers only to actual, rather than threatened, displacement and impedance of
imports.362 The European Union submits that the United States thus failed to provide a brief
summary of the legal basis of the complaint s ufficient to present the problem clearly, pursuant to
Article 6.2 of the DSU. The European Union argues that the United States cannot broaden the
scope of the compliance proceeding by introducing a separate claim of threat of displacement and
impedance of imports after the filing of its compliance panel request.
6.4.2.4.2 Arguments of the United States
6.207. The United States rejects the European Union's contentions that its compliance panel
request does not comply with the requirements of Article 6.2 of the DSU and that i ts claims under
Article 6.3 (a) of the SCM Agreement are outside the Panel's terms of reference. The United States
considers that the European Union misinterprets both the SCM Agreement and the panel request in
this proceeding.
6.208. The United States observes that the SCM Agreement explicitly states that "the term
'serious prejudice' … includes threat of serious prejudice". 363 The United States considers that the
interpretations set out in past panel and Appellate Body reports confirm that "serious prejudice"
includes the threat of serious prejudice. 364 The United States points out that in Indonesia – Autos,

359 European Union's first written submission, paras. 58, 151, 157, and 159-161.
360 European Union's first written submission, para. 159 (citing Appellate Body Report, US – Upland
Cotton (Article 21.5 – Brazil), para. 244 ("{A} threat of serious prejudice claim does not necessarily capture
and provide a remedy with respect to the same scenario as a claim of present serious prejudice")).
361 European Union's first written submission, paras. 158-159 (comparing WT/DS316/23, (dated
30 March 2012, circulated 3 April 2012), para. 8(c)(i), with WT/DS316/6, (dated 10 April 2006, circulated
11 April 2006), para. 8, subpara. 3, point 2 (we note this second document is in fact the lapsed second panel
request, also numbered WT/DS347/3, although the relevant wording does not differ to the first panel request,
WT/DS316/2 (dated 31 May 2005, circulated 3 June 2005) – both provide that the United States claims that
the measures at issue "are causing or threatening to cause serious prejudice to the interests of the
United States through displacement and impedance of imports of large civil aircraft of the United States into
the EC", within the meaning of Article 6.3 of the SCM Agreement).
362 European Union's first written submission, para. 159 (citing Appellate Body Report, US – Upland
Cotton (Article 21.5 – Brazil), para. 244).
363 United States' second written submission, para. 72 (citing footnote 13 to Article 5(c) of the
SCM Agreement, which reads: "The term 'serious prejudice to the interests of another Member' is used in this
Agreement in the same sense as it is used in paragraph 1 of Article XVI of GATT 1994, and includes threat of
serious prejudice").
364 United States' second written submission, paras. 69-71 (citing Panel Report, US – Upland Cotton
(Article 21.5 – Brazil), para. 7.1493 and fn 1555; and Panel Report, Korea – Commercial Vessels, para. 7.589

neither the United States nor the European Communities referenced "threat of serious prejudice"
in their panel requests 365, yet both made specific threat claims i n their written submissions, and
the panel ultimately made findings on those claims 366; similarly, in Korea – Commercial Vessels,
the European Communities made no specific threat claims in its panel request 367, yet the panel
itself raised the question of threa t of serious prejudice, indicating that it saw no need to
differentiate claims of actual and threatened prejudice. 368 The United States refutes the
European Union's reliance on the Appellate Body's statement that "a threat of serious prejudice
claim does not necessarily capture and provide a remedy with respect to the same scenario as a
claim of present serious prejudice". 369 The United States considers that this statement merely
indicates that a threat of serious prejudice claim may not encompass an actual serious prejudice
claim – it says nothing about the reverse situation, arising here, in which a serious prejudice claim
encompasses a threat of serious prejudice claim.370
6.209. The United States argues that its compliance panel request does not refer to either actua l
serious prejudice or threatened serious prejudice, but refers to "subsidies … inconsistent with
Articles 5(c), 6.3(a), 6.3(b), and 6.3(c)".371 The United States notes that the original panel request
described the relevant violation as consisting of subsidi es that "appear to be causing adverse
effects to U.S. interests within the meaning of … Articles 5(c), 6.3(a), 6.3(b), and 6.3(c) of the
SCM Agreement because the measures … are causing or threatening to cause serious prejudice to
the interests of the Unit ed States".372 Thus, referring to the original panel request, which the
United States "emphasizes is unnecessary", would suggest that the inconsistency with
Articles 6.3(a) and (b) is the same: serious prejudice and threat of serious prejudice.373
6.4.2.4.3 Evaluation by the Panel
6.210. The question before the Panel is whether the United States' panel request, in referring to a
claim of displacement and impedance of imports within the meaning of Article 6.3(a), but not
explicitly to a threat of displacement and impedance, sat isfies the requirements of Article 6.2 of
the DSU such that the threat of displacement and impedance of exports is within the Panel's terms
of reference and may properly be considered by this Panel.
6.211. Article 6.2 of the DSU provides, in relevant part, that "{t}he request for the establishment
of a panel shall … provide a brief summary of the legal basis of the complaint sufficient to present
the problem clearly". If the measures or the claims are insufficiently identified, the "matter" is
outside the panel's terms of reference. The Appellate Body has indicated that to satisfy the
requirements of Article 6.2, the panel request should explain succinctly how or why the measure at
issue is considered by the complaining party to be violating the WTO obligation in question. While
the identification of the relevant treaty provision claimed to have been violated is always
necessary for meeting the standard of clarity required by Article 6.2 of the DSU, it may not always

("{T}he concept of serious prejudice includes threat of serious prejudice (just as the term 'injury' in the
SCM Agreement includes 'threat of material injury')")).
365 United States' second written submission, para. 71 (citing Indonesia – Autos, United States' request
for the establishment of a panel, WT/DS59/6, 12 June 1997; and Indonesia – Autos, European Communities'
request for the establishment of a panel, WT/DS54/6, 12 May 1997).
366 United States' second written submission, para. 71 (citing Panel Report, Indonesia – Autos,
paras. 8.445 and 8.448).
367 United States' second written submission, para. 71 (citing Panel Report, Korea – Commercial Vessels,
European Communities' request for the establishment of a panel, WT/DS273/2, 11 June 2003).
368 United States' second written submission, para. 71 (citing Panel Report, Korea – Commercial Vessels,
paras. 7.529 and 7.589).
369 United States' second written submission, para. 69 (citing Appellate Body Report, US – Upland
Cotton (Article 21.5 – Brazil), para. 244).
370 United States' second written submission, para. 69.
371 United States' second written submission, para. 69 (citing WT/DS316/23, (dated 30 March 2012,
circulated 3 April 2012), para. 8).
372 United States' second written submission, para. 69 (citing WT/DS316/6, (11 April 2006), para. 8 (We
note this document is in fact the lapsed second panel request, also numbered WT/DS347/3, although the
relevant wording does not differ to the first panel request, WT/DS316/2 (dated 31 May 2005, circulated
3 June 2005) – both provide that the United States claims that the measures at issue "are causing or
threatening to cause serious prejudice to the interests of the United States through displacement and
impedance of imports of large civil aircraft of the United States into the EC", within the meaning of Article 6.3
of the SCM Agreement).
373 United States' second written submission, para. 69.

be sufficient. The Appellate Body has stated tha t the simple listing of an article of an agreement
may, in some circumstances, be sufficient. However, there may also be circumstances where this
would not satisfy the standard of Article 6.2 – for example, where an article sets out not one
distinct obligation, but rather multiple obligations, the listing of articles of an agreement may fall
short of the standard required by Article 6.2.374
6.212. The United States' panel request states in relevant part:
8. The subsidies listed in paragraph 5 also result in the fo llowing inconsistencies with
the SCM Agreement:
…
(c) all of the subsidies listed in paragraph 5 are inconsistent with Articles 5(c),
6.3(a), 6.3(b) and 6.3(c) because they are specific subsidies within the meaning
of Articles 1 and 2, and result in
(i) displacement and impedance of imports of large civil aircraft of the
United States into the market of the EU within the meaning of
Article 6.3(a).375
6.213. In its first written submission, the United States alleges that it continues to experience
serious prejudic e in the form of displacement and impedance, and/or threat thereof , in its LCA
imports into the EU market under Article 6.3(a) of the SCM Agreement.376
6.214. While actual, or present serious prejudice is a distinct phenomenon from threatened
serious prejudice, an d the evidence required to demonstrate each is necessarily different 377, we
note that as a legal interpretative matter, the term "serious prejudice to the interests of another
Member" as used in the SCM Agreement explicitly includes the threat of serious pre judice. The
obligation with respect to serious prejudice is contained in Article 5(c) of the SCM Agreement.
Article 5(c) of the SCM Agreement provides, in footnote 13, that: "The term 'serious prejudice to
the interests of another Member' is used in this A greement in the same sense as it is used in
paragraph 1 of Article XVI of GATT 1994, and includes threat of serious prejudice".378 Article 6.3(b)
of the SCM Agreement provides that "{s}erious prejudice in the sense of paragraph (c) of Article 5
may arise in any case where … the effect of the subsidy is to displace or impede the exports of a
like product of another Member from a third country market".
6.215. The United States' panel request did not refer only to the article of the SCM Agreement,
but also identified the obligation and the specific form of serious prejudice it was alleging. By
referring to inconsistency with Article 5(c) of the SCM Agreement, the United States indicated the
obligation in question was the obligation not to cause serious prejudice to the interests of another
Member, including the threat of serious prejudice. As the threat of serious prejudice is expressly
included in the definition of serious prejudice in the SCM Agreement, the European Union could
have anticipated that the United States' concern might cover both actual and threatened serious
prejudice. The reference to "displacement or impedance of imports of large civil aircraft of the
United States into the market of the EU within the meaning of Article 6.3(a)" put the
European Union on notice as to the particular form of serious prejudice alleged, and the particular

374 Appellate Body Report, Korea – Dairy, para. 124.
375 EC and certain member States – Large Civil Aircraft, Recourse to Article 21.5 of the DSU by the
United States: Request for the establishment of a panel, WT/DS316/23, (dated 30 March 2012, circulated
3 April 2012).
376 United States' first written submission, para. 247. See also United States' first written submission
paras. 276, 279, 359, 514, 519, and 533.
377 See Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 244 ("A claim of serious
prejudice may relate to a different situation than a claim of threat of serious prejudice. A claim of present
serious prejudice relates to the existence of prejudice in the past, and present, and that may continue into the
future. By contrast, a claim of threat of serious prejudice relates to the prejudice that does not yet exist, but is
imminent such that it will materialize in the near future. Therefore, a threat of serious prejudice claim does not
necessarily capture and provide a remedy with respect to the same scenario as a claim of present serious
prejudice."). (emphasis original)
378 (emphasis added)

market in which it was alleged to have occurred. Whether that displacement or impedance is
actual or threatened could then be elaborated and appropriately developed through argumentation
and evidence in the parties' submissions.379
6.216. We consider that, on balance, the reference to an alleged inconsistency with
SCM Agreement Article 6.3(a) in the form of "displacement or impedance of imports … within the
meaning of Article 6.3(a)" as set out in the United States' panel request, in these circumstances
encompasses the threat of displacement or impedance such that it satisfies the requirements of
Article 6.2 in this regard.
6.217. As to whether this conclusion should be altered in light of the different wording used by the
United States in its panel request in the original proceeding and in the panel request for this
compliance proceeding, we note that the two panel requests are distinct procedural documents.
We are aware of situations where , within the same proceeding, panels have examined the
terminology used in requests for consultations to confirm the interpretation of terms in the related
panel request. 380 However, in this instance the separate panel requests relate to separate
proceedings. There does not, in our view, appear to be a basis for treating the language of the
United States' original panel request as probative of the meaning to be attributed to the
compliance panel request.
6.4.2.4.4 Conclusion
6.218. For all of the above reasons, we find that the United States' panel request adequately
provides a summary of the legal basis of the complaint in satisfaction of the requirements of
Article 6.2 of the DSU, and that the United States' claim of threat of displacement or impedance
under Article 6(3) of the SCM Agreement is within the Panel's terms of reference in this compliance
proceeding.
6.5 Prohibited subsidy claims
6.5.1 Introduction
6.219. We now proceed to address the second of the three sets of issues raised by the parties in
this compliance dispute, namely, wh ether the United States has demonstrated that the A380 and
A350XWB LA/MSF measures are prohibited subsidies within the meaning of Articles 3.1 and 3.2 of
the SCM Agreement. We start by examining the merits of the United States' allegation that the
A350XWB LA/MSF measures constitute specific subsidies under the terms of Article 1.1 of the SCM
Agreement.
6.5.2 Whether LA/MSF for the A350XWB is a subsidy
6.5.2.1 Arguments of the United States
6.220. The United States claims that France, Germany, Spain and the United Kingdom each
contractually agreed to provide LA/MSF of, in total, EUR 3.5 billion 381 to Airbus entities for
developing the A350XWB aircraft, and that each of the relevant agreements is a specific subsidy.
The United States argues that LA/MSF is a financial contribution wi thin the meaning of
Article 1.1(a)(1) of the SCM Agreement, which confers a benefit pursuant to Article 1.1(b) of the

379 We note that in this dispute, particular features of the facts may imply present and future effects;
given the ordinary time lag between orders and deliveries of LCA, in certain situations, order data may be
indicative to some degree of future displacement or impedance when those aircraft are eventually delivered.
(Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.1783-7.1784. See also
Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1199; and United States'
first written submission, para. 514 ("Notwithstanding the arguments and data above, should the Panel find that
there is no impedance of Boeing single aisle LCA based on the delivery data, the United States requests that
the Panel conduct a threat analysis based on order data. The order data demonstrates that Boeing LCA are also
threatened with displacement and/or impedance in the EU single-aisle market")).
380 See e.g. Panel Report, US – Lamb, para. 5.36.
381 See, for example, United States' first written submission, para. 8. We note that the sum of the
amounts to be provided under the contracts appears to be in the order of EUR [***] when the amounts
denominated in GBP are converted to EUR at historical conversion rates as at the date of the UK contract.

SCM Agreement because it is provided on terms more favourable than the market would
provide.382 In support of this position, the United States refers to various government statements
and media reports, which it argues demonstrate that LA/MSF was provided on non -commercial
terms, and compares the alleged rates of return anticipated in the relevant LA/MSF contracts to a
constructed market benchm ark; a comparison which the United States considers demonstrates
that LA/MSF is provided at below-market rates of return.
6.5.2.2 Arguments of the European Union
6.221. The European Union agrees that the A350XWB LA/MSF agreements are each financial
contributions within the meaning of Article 1.1(a)(1) of the SCM Agreement, but considers that the
United States has failed to demonstrate that those measures confer a benefit pursuant to
Article 1.1(b) of the SCM Agreement. While the European Union agrees that the proper ques tion
regarding "benefit" is whether each of the relevant LA/MSF measures is provided at below -market
rates of return383, it submits that the United States understates the rates of return expected under
the contracts, and overstates the market benchmark rates of return. 384 The European Union
disagrees with the United States with respect to the risks involved with both the form of financing
and the project in question, and the implications of those risks for what returns a market lender
would likely have sought i n return for providing financing of a comparable project on comparable
terms and conditions. The European Union states that, for various reasons, the approach proposed
by the United States "is a methodology that lacks financial and economic robustness and that does
not withstand scrutiny".385
6.5.2.3 Evaluation by the Panel
6.222. We recall that the existence of a subsidy is to be determined pursuant to Article 1.1 of the
SCM Agreement.
6.223. Article 1.1 of the SCM Agreement provides that:
1.1 For the purpose of this Agreement, a subsidy shall be deemed to exist if:
(a)(1) there is a financial contribution by a government or any public body
within the territory of a Member (referred to in this Agreement a
"government"), i.e. where:
(i) a government practice involves a direct transfer of funds (e.g. grants,
loans, and equity infusion), potential direct transfers of funds or liabilities
(e.g. loan guarantees); …
and
(b) a benefit is thereby conferred.
6.224. Thus, there is a subsidy where: (a) a financial contribution by a government or public body
within the territory of a Member (b) confers a benefit. 386 Before turning to evaluate the merits of
the parties' arguments with respect to these two elements of the definition of a subsidy, we first
set out our understanding of the terms and conditions of LA/MSF for the A350XWB.
6.5.2.3.1 Key features of LA/MSF for the A350XWB
6.225. The terms under which the French, German, Spanish and UK LA/MSF measures were
agreed and provided for the A350XWB are set out in separate national -level contracts or other
legal instruments entered into by each relevant European Union member State government or
government body and the various Airbus entities. The European Union provided the relevant

382 United States' first written submission, paras. 8, 105, 106, 113, 136-138, and 366-368.
383 European Union's second written submission, para. 280.
384 See e.g. European Union's second written submission, paras. 280, 291, 294-304, and 305-352.
385 European Union's second written submission, para. 293.
386 SCM Agreement Articles 1.1(a)(1) and 1.1(b).

contracts on 5 October 2012 following our decision to agree to the United States' request of
20 July 2012 to seek this information in accordance with Article 13 of the DSU. The key features of
the LA/MSF measures as described in the documents submitted by the European Union are set out
in the following subsections.
6.5.2.3.1.1 French A350XWB LA/MSF
6.226. The terms of French government LA/MSF for the A350XWB are set out in two legal
instruments: a Protocole d'accord (French A350XWB Protocole) dated [***]387; and a Convention
d'avance recuperable (French A350XWB Convention) dated [***].388 Airbus SAS and the French
State were parties to both instruments, with no other Airbus entity being involved.
6.227. Under the terms of the French A350XWB Protocole, the French Government agreed to
provide Airbus with [***].389 Eligible expenses are defined as technical feasibility studies and
validation work for the A350XWB programme up to the date of Aircraft Type Certification 390
[***].391 The French A350XWB Protocole envisages that such expenses would cover [***]392,
including: [***].393
6.228. Annex 4 of the French A350XWB Protocole contains an anticipated schedule of
disbursements which reveals when and in what amounts the parties envisaged the government
funding would be provided over a period of years. The same schedule of disbursements is affirmed
in the French A350XWB Convention. The French A350XWB Protocole provides that in the event of
[***].394
6.229. The amounts of funding disbursed by the French Government are to be repaid with interest
through [***] levies charged on revenues generated from aircraft deliveries. 395 The obligation to
repay the LA /MSF is therefore triggered only if there is an aircraft delivery. Thus, both the
reimbursement of principal and the payment of interest are dependent upon the success of the
A350XWB programme.
6.230. The French A350XWB Protocole provides for [***] levies in the following amounts:
[***]396 [***].397 However, the French A350XWB Protocole specifies that the final levies to be
charged are to be determined on [***] depending on whether [***].398 If, as of that date,
[***]. After [***], levy amounts will only be re -calculated if there are delays or if deliveries are
not made according to the anticipated schedule. Moreover, in the event of either: (a) a

387 Protocole d'accord entre l'État et la Société Airbus relatif au programme A350XWB [***], (French
A350XWB Protocole), (Exhibit EU-(Article 13)-01) (BCI), and annexes (Exhibits EU-(Article 13)-02 to EU-
(Article 13)-13) (BCI/HSBI).
388 French A350XWB Convention d'avance récupérable (CAR) [***], (French A350XWB Convention),
(Exhibit EU-(Article 13)-11) (BCI).
389 French A350XWB Protocole, (Exhibit EU-(Article 13)-01) (BCI), art. 3.1.
390 Annex 2 to the French A350XWB Protocole: Liste des dépenses éligibles [***], (Annex 2 to the
French A350XWB Protocole), (Exhibit EU-(Article 13)-03) (BCI), para. 1. See also French A350XWB Protocole,
(Exhibit EU-(Article 13)-01) (BCI), art. 2.3. Aircraft Type Certification is determinative of certain airworthiness
and noise requirements.
391 See Annex 1 to the French A350XWB Protocole: Définition du programme et de la famille d'avions
A350XWB (Annex 1 to the French A350XWB Protocole), (Exhibit EU-(Article 13)-02) (BCI).
392 French A350XWB Protocole, (Exhibit EU-(Article 13)-01) (BCI), art. 2.3; Annex 2 to the French
A350XWB Protocole, (Exhibit EU-(Article 13)-03) (BCI), para. 1; and French A350XWB Convention, (Exhibit
EU-(Article 13)-11) (BCI), art. 2.
393 French A350XWB Protocole, (Exhibit EU-(Article 13)-01) (BCI), annex 2, para. 2. See also Exchange
of Letters between Fabrice Brégier, Director General of Airbus, and French Director General of Civil Aviation
(DGAC) [***] and [***], (Exhibit EU-(Article 13)-10) (BCI).
394 French A350XWB Protocole, (Exhibit EU-(Article 13)-01) (BCI), arts. 4.2, 4.3, and 3.2.
395 French A350XWB Protocole, (Exhibit EU-(Article 13)-01) (BCI), art. 6.
396 The [***]. Neither the value of global sales nor the anticipated amount of the [***] is specified in
the French A350XWB Protocole, nor is it specified in the French A350XWB Convention. (See French A350XWB
Protocole, (Exhibit EU-(Article 13)-01) (BCI), art. 6.3).
397 French A350XWB Protocole, (Exhibit EU-(Article 13)-01) (BCI), art. 6.3. We note that no information
on the anticipated sales price or amount of revenue is included in the LA/MSF contract.
398 The A350XWB programme industrial launch on 1 December 2006 was for [***], the A350-800, -900
(baseline variant), and -1000. [***]. (See e.g. Annex 1 to the French A350XWB Protocole, (Exhibit EU-
(Article 13)-02) (BCI)).

rescheduling of disbursements, or (b) delays in deliveries, the precise amount of levies (as we
understand it, for the next tranche of deliveries) are to be recalculated according to a formula, so
as to achieve the required interest rate.
6.231. The French A350XWB Protocole states that the expected amount of interest payable will be
[***]. The interest of [***] is expected to be reali sed upon delivery of [***] aircraft, which is
less than the overall expected number of deliveries. 399 The French A350XWB Protocole states that
once the last payment (we understand this to mean disbursement) has been effected and within
three months, the defi nitive rate of return is to be determined, taking into account the
disbursements made by the French State over the whole duration of the operation, as the average
of the following two rates:
(i) [***]; and
(ii) [***]400 [***].401
6.232. Royalties are payable under the French LA/MSF contract. The obligation to pay a royalty is
triggered if there is an aircraft delivery once the principal has been reimbursed, which the contract
states is expected to be by delivery [***], which is less than the overall expected num ber of
deliveries.402 The amount of the royalty is expressed as 1% of the [***]403 [***]. The obligation
to pay royalties [***].404
6.233. An anticipated schedule of deliveries is included as an annex to the French A350XWB
Protocole. It is the same as that included in the Spanish and UK LA/MSF contracts, and detailed in
the document identified by the European Union as the A350XWB business case -related document
seen by the member States.405 The anticipated schedule includes [***].
6.234. In the event of default on the obligations to make payments, there is no security over
assets of the contracting company, or assets of any related company. There is no surety or
guarantee implicating any other entity.
6.235. Finally, the French A350XWB LA/MSF contract does not make specific provision fo r what is
to occur in the event of discontinuation of the A350XWB programme. However, as the obligations
to pay levies, interest and royalties are dependent on successful deliveries, were the programme
to be discontinued, no new payment obligations would b e triggered (though Airbus would have a
continued obligation to pay any levies or royalties due on any aircraft already delivered ). The
French State has [***]. Airbus may [***].406 Due to the success -dependent nature of the
repayment obligations, programme discontinuation would not [***].
6.5.2.3.1.2 German A350XWB LA/MSF
6.236. German LA/MSF is set out in the Darlehensvertrag (German KfW A350XWB Loan
Agreement)407 and annexes, dated [***]. The parties are the Kreditanstalt für Wiederaufbau

399 French A350XWB Protocole, (Exhibit EU-(Article 13)-01) (BCI), art. 6.3.
400 [***].
401 French A350XWB Protocole, (Exhibit EU-(Article 13)-01) (BCI), art. 6.5. We note that [***]. We
also note that [***]. Thus, under the French contract, the ultimate rate remains, as of today, undetermined.
402 The total number of expected deliveries is HSBI, but is included in the [***] at Annex 4 to the
Protocole (Exhibit EU-(Article 13)-05) (HSBI).
403 [***] is to be determined [***]. Neither the value of global sales nor the anticipated amount of
[***] is specified in the agreement.
404 French A350XWB Protocole, (Exhibit EU-(Article 13)-01) (BCI), art. 7.4.
405 [***] presentation, [***], (Business case-related document), (Exhibit EU-(Article 13)-35) (HSBI),
p. 12. This is also the same schedule as that included in the document the European Union refers to as the
"business case", which the European Union asserts was never seen by the member States: that is, the
A350XWB Business Case Presentation, (Exhibit EU-130) (HSBI), slides 50-51.
406 French A350XWB Protocole (Exhibit EU-(Article 13)-01) (BCI), art. 7.4.
407 Darlehensvertrag, or Loan Agreement, between Kreditanstalt für Wiederaufbau (KfW) and Airbus
Operations GmbH and Airbus SAS to grant a loan to part-finance the development costs of the Airbus
A350XWB, [***] (German KfW A350XWB Loan Agreement), (Exhibit EU-(Article 13)-14) (English translation)
(BCI/HSBI).

(KfW) (a development bank of the German Government408); and Airbus Operations GmbH,
Hamburg, which is identified as the borrower, and Airbus SAS, Toulouse, which is identified as a
co-borrower.
6.237. Under the German KfW A350XWB Loan Agreement, KfW agreed to provide Airbus with
[***] of eligible costs incurred by the borrower for the A350XWB programme, to a maximum of
[***]. Three tranches of funding were envisaged: [***].409 Eligible costs include: [***].410
6.238. Reimbursement of the principal is by per -aircraft levies. The obligation to make levy
payments is triggered only if there is an aircraft delivery. Levy amounts are [***]: [***].411 Full
repayment of the loan is envisaged to occur with the delivery of [***]. [***]. The agreement
states that [***].412
6.239. An HSBI anticipated delivery schedule is included in an annex. Unlike the other contracts,
this schedule differs to that included in the A350XWB business case -related documents. 413 The
German delivery schedule [***]. The European Union submits that overall deliveries were
expected to be in line with the total sta ted in the Airbus base case for the A350XWB, and has
explained that the schedule in the German LA/MSF agreement is different to the delivery schedule
in the other agreements and in the business case because [***].414 The German delivery
schedule [***].
6.240. Periodic interest is payable on outstanding principal. This interest is charged separately to
the levies. The interest is calculated from the date on which the first disbursement sum is debited
from the KfW account, with a period of three months, and is p ayable for the first time on
30 September 2010. [***].415 Apart from the specific set of circumstances described below416, the
obligation to make periodic interest payments on the outstanding principal appears to continue for
as long as the programme continues.
6.241. An annual [***] fee of [***], and a semi-annual [***] fee of [***] are also charged.417
Additionally, KfW will [***].
6.242. Royalties are due on deliveries that occur once the principal has been reimbursed.
Royalties are payable for [***] after the date on which the principal is repaid, which is expected
to be by delivery [***].418 The payment of royalties is thus dependent on the programme's
continuation past delivery [***]. The royalty is expressed as a percentage of the borrower's share
of the sales price, and are [***]: [***]. The anticipated sales price or the borrower's share of
that sales price is not specified in the agreement.

408 See Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1248.
409 German KfW A350XWB Loan Agreement, (EU-(Article 13)-14) (English translation) (BCI/HSBI),
section 3.2. The European Union submits that [***]. (See Statement of Airbus Operations GmbH Account with
KfW as at 31 August 2012, dated 8 September 2012, (Exhibit EU-(Article 13)-36) (BCI)).
410 Annex 1.4(b)(ii) to German KfW A350XWB Loan Agreement, (Exhibit EU-(Article 13)-19) (English
translation) (BCI), para. 2.
411 German KfW A350XWB Loan Agreement, (EU-(Article 13)-14) (English translation) (BCI/HSBI),
sections 6.1-6.3.
412 German KfW A350XWB Loan Agreement, (EU-(Article 13)-14) (English translation) (BCI/HSBI),
section 6.7.
413 Compare: German KfW A350XWB Loan Agreement, (EU-(Article 13)-14) (English translation)
(BCI/HSBI); with Business case-related document, (Exhibit EU-(Article 13)-35) (HSBI), p. 12; and A350XWB
Business Case Presentation, (Exhibit EU-130) (HSBI), slides 50-51.
414 European Union's response to Panel question No. 131, paras. 93-95.
415 The United States' expert, Dr Jordan, applies these terms and using historical data provides an
estimate of 3.34%, to which the European Union does not object, and which the European Union's expert,
Professor Whitelaw, subsequently uses in his own calculations.
416 See below para. 6.245.
417 Annex 13.1(a) to German KfW A350XWB Loan Agreement, (Exhibit EU-(Article 13)-26) (English
translation) (BCI), arts. 4.1 and 4.4.
418 This is [***] deliveries referenced in the German KfW A350 Loan Agreement [***]. (German KfW
A350XWB Loan Agreement, (EU-(Article 13)-14) (English translation) (BCI/HSBI), section 1.1).

6.243. In terms of [***], the contract refers to: [***]419, [***]. In a letter from EADS N.V.,
annexed to the loan agreement, dated [***] and titled [***], EADS [***].420 [***] and [***]
guarantee the performance of Airbus' payment obligations but do not ensure repayment of the
loan in the event that the programme is not as successful as anticipated and deliveries are not
made in accordance with the expected schedule. Default interest is payable where either the
borrower (Airbus Operations GmbH), or Airbus SAS, fails to make payments (except for interest
payments). The applicable default interest rate is a rate set out in the German Civil Code.
6.244. In addition, the German Federal Government has provided [***]421, [***].422
6.245. If the programme is discontinued, [***].423 Further, [***]. Additionally, [***]. The
European Union states that fees are non -refundable, and that Airbus would not get back sums it
paid out as fees.
6.246. There are a number of conditions to Airbus' release from obligations on discontinuation of
the programme. The programme [***]. [***].
6.247. The contract also includes a [***].424 [***].
6.248. The contract is not time limited; rights and obligations under the co ntract continue until
Airbus' obligations have been discharged in full.
6.5.2.3.1.3 Spanish A350XWB LA/MSF
6.249. The LA/MSF agreement with Spain is formalised in a Convenio de Colaboración425 (Spanish
A350XWB Convenio) dated [***], between the Spanish Ministry of Industry, T ourism and
Commerce and Airbus Operations S.L. A prior Real Decreto 426 dated 6 November 2009 and
published 9 November 2009 indicated the government's commitment to provide the sums and,
broadly, some conditions of LA/MSF.
6.250. Under the Spanish A350XWB Convenio, Spain agreed to provide a maximum of
EUR 332,228,670427 for eligible expenses for non -recurrent costs for the participation of Airbus
Operations S.L. in the A350XWB development programme, corresponding to preliminary design,
engineering design, wind tunnel tests, structural tests, wing tests, certification documentation, and
cost of fabrication of prototype and trial aircraft, including modifications, tools and equipment. 428

419 European Aeronautical Defence and Space Company (EADS). The company is now called the Airbus
Group. We primarily use the title EADS in this proceeding, reflecting its name during the relevant time-period.
420 Annex 13.1(a) to German KfW A350XWB Loan Agreement, (Exhibit EU-(Article 13)-26) (English
translation) (BCI).
421 European Union's comments on the United States' response to Panel question No. 161, para. 10
(citing German KfW A350XWB Loan Agreement, (Exhibit EU-(Article 13)-14) (English translation) (BCI/HSBI),
sections 4.4 and 12.5(b)(ii)).
422 European Union's comments on the United States' response to Panel question No. 161, para. 10.
423 German KfW A350XWB Loan Agreement, (Exhibit EU-(Article 13)-14) (English translation)
(BCI/HSBI), section 8.8.
424 Annex 13.1(a) to German KfW A350XWB Loan Agreement, (Exhibit EU-(Article 13)-26) (English
translation) (BCI), [***].
Operations S.L relativo a su participación en el programa de desarrollo del avión Airbus A350XWB [***]
(Spanish A350XWB Convenio), (Exhibit EU-(Article 13)-29) (BCI/HSBI).
reembolsables a la filial española de Airbus SAS denominada Airbus Operations S.L para su participación en el
programa de desarrollo de la nueva familia de aviones Airbus A350XWB, Boletín Oficial del Estado,
9 November 2009, (Exhibit USA-46).
427 Spanish A350XWB Convenio, (Exhibit EU-(Article 13)-29) (BCI/HSBI), Tercera, p. 3; Real Decreto
española de Airbus SAS denominada Airbus Operations S.L para su participación en el programa de desarrollo
de la nueva familia de aviones Airbus A350XWB, Boletín Oficial del Estado, 9 November 2009, (Exhibit
USA-46), art. 6.1.
reembolsables a la filial española de Airbus SAS denominada Airbus Operations S.L para su participación en el
programa de desarrollo de la nueva familia de aviones Airbus A350XWB, Boletín Oficial del Estado,
9 November 2009, (Exhibit USA-46), art. 4.2.

The Spanish A350XWB Convenio and the Real Decreto envisage EUR 41,493,300 being disbur sed
in 2009.429 The schedule of remaining disbursements is HSBI.
6.251. As we understand it, under the terms of the Spanish agreement [***]. The obligation to
make levy payments is triggered only if there is an aircraft delivery.
6.252. Levy amounts are [***]: [***]430 [***]. The rate of interest , set by reference to the
interest rate of 10-year government bonds, is [***].431
6.253. The contract on the Panel record does not include a delivery schedule. However, the
Spanish contract anticipates payments in line with the delivery sc hedule anticipated by business
case-related documents432 and included in the French and UK A350XWB contracts.
6.254. Royalties are due on deliveries that occur once the principal has been reimbursed. The
royalty amount is [***] per aircraft. The obligation to pay a royalty is triggered if there is an
aircraft delivery once the principal has been repaid. The payment of royalties is dependent on the
success of the program. The [***].
6.255. In the event of default on obligations to make payments, there is no security over a ssets
of the contracting company, or assets of any related company. There is no surety or guarantee
implicating any other entity.
6.256. In the event that the participation of Airbus Operations SL in the A350XWB programme is
cancelled by Airbus SAS, [***]. In the event of [***]. If, [***].433 [***].
6.5.2.3.1.4 UK A350XWB LA/MSF
6.257. A Repayable Investment Agreement 434 dated [***] was concluded between the UK
Secretary of State for Business, Innovation and Skills, and both Airbus Operations Ltd and the
European Aeronautic Defence and Space Company (EADS) NV.
6.258. A [***] was set out in an exchange of letters dated [***].435 A [***] was set out in an
exchange of letters dated [***].436 A [***] was set out in a letter dated [***].437 These
[***].438 We refer to the UK A350XWB Repayable Investment Agreement and these [***] letters
collectively as the "UK A350XWB LA/MSF contract".

429 The European Union submits that this disbursement occurred in [***]: European Union's response
to Panel question No. 133, fn 182.
430 "[***]": Spanish A350XWB Convenio, (Exhibit EU-(Article 13)-29) (BCI/HSBI), Novena, p. 5.
reembolsables a la filial española de Airbus SAS denominada Airbus Operations S.L para su participación en el
programa de desarrollo de la nueva familia de aviones Airbus A350XWB, Boletín Oficial del Estado,
9 November 2009, (Exhibit USA-46), art. 5.
432 Business case-related document, (Exhibit EU-(Article 13)-35) (HSBI), p. 12. This schedule was
included in the document the European Union refers to as the "business case", which the European Union
asserts was never seen by the member States: that is, A350XWB Business Case Presentation, (Exhibit EU-130)
(HSBI), slides 50-51.
433 Spanish A350XWB Convenio, (Exhibit EU-(Article 13)-29 (BCI/HSBI), [***].
434 Repayable Investment Agreement in relation to the Airbus A350XWB, [***], (UK A350XWB
Repayable Investment Agreement), (Exhibit EU-(Article 13)-30) (BCI/HSBI).
435 Exchange of letters between the UK Department for Business, Innovation and Skills, and Airbus
Operations Ltd and EADS NV [***], (First set of [***] to UK A350XWB LA/MSF contract), (Exhibit EU-
(Article 13)-31) (BCI/HSBI).
436 Exchange of letters between the UK Department for Business, Innovation and Skills, and Airbus
Operations Ltd [***], (Second set of [***] to UK A350XWB LA/MSF contract), (Exhibit EU-(Article 13)-32)
(BCI/HSBI)).
437 Exchange of letters between the UK Department for Business, Innovation and Skills, and Airbus
Operations Ltd [***], (Third set of [***] to UK A350XWB LA/MSF contract), (Exhibit EU-(Article 13)-33)
(BCI/HSBI).
438 The first iteration of the agreement contains the material terms and conditions. The [***] did not
materially modify those terms and conditions, [***]. However, the last [***], occurring [***] after the
initial agreement, provided that [***]. It provided an [***], up to the total amount initially agreed. It may

6.259. Under each iteration of the contract, the United Kingdom agreed to finance [***] of costs
incurred by Airbus Operations Ltd to a maximum of GBP 340,000,000.439 [***]. This would cover
design and development costs which Airbus either paid or incurred a commitment to pay. Eligible
cost items include: [***].440
6.260. Disbursements are only available during an "availability period", from [***].441 [***].
Further changes to the disbursements schedule [***]. The final disbursements schedule is HSBI.
6.261. Reimbursement of the principal is envisaged by per -aircraft levies. The obligation to make
levy payments is triggered only if there is an aircraft delivery. [***].442 [***].443 In the UK
agreement, [***].444 The agreement contains a clause stating that [***].445
6.262. The agreement contains an HSBI anticipated delivery schedule, which is the same as that
included in the A350XWB business case -related documents provided by the European Union446,
and in the French contract. It differs to that included in the German contract.
6.263. Periodic interest is payable on outstanding principal, due [***] at a rate of [***].447 The
obligation to pay periodic interest only applies either [***], or [***], whichever is later.448 Thus,
while the interest falls due periodically and is not in this respect dependent on the success of the
programme, as it is only payable for a period that is either [***], payment of interest [***] is
therefore dependent on the success of the programme [***].
6.264. Royalties are due on deliveries that occur once the principal has been reimbursed. The first
royalty payment is expected on [***]. The royalty amount is expressed as a percentage of actual
revenue: [***]. The anticipated actual revenue is not specified in the ag reement. The obligation
to pay a royalty ends on delivery [***].
6.265. [***] is provided in the form of a [***]. If there is a change in control [***].
Additionally, while [***], the contract expressly [***]. Airbus Operations Ltd [***].
6.266. In the event that obli gations are not performed, default interest is also due at [***]
above the relevant interest rate, that is, [***].

thus be possible to characterize the UK LA/MSF as having been provided via [***]. However, both parties
appear to agree that LA/MSF was provided by the United Kingdom in the form of a single instance of LA/MSF
and under a single contract, albeit with some [***] at various stages. The UK LA/MSF is therefore treated as a
single loan in this proceeding. (See [***] documents (First set of [***] to UK A350XWB LA/MSF contract,
(Exhibit EU-(Article 13)-31) (BCI/HSBI); Second set of [***] to UK A350XWB LA/MSF contract, (Exhibit EU-
(Article 13)-32) (BCI/HSBI); and Third set of [***] to UK A350XWB LA/MSF contract, (Exhibit EU-(Article 13)-
33) (BCI/HSBI)); United States' response to Panel question No. 110, paras. 2-3; and European Union's
comments on the United States' response to Panel question No. 110, para. 1.
439 UK A350XWB Repayable Investment Agreement, (Exhibit EU-(Article 13)-30) (BCI/HSBI), clauses 2.1
and 4.3(c)(i).
440 UK A350XWB Repayable Investment Agreement, (Exhibit EU-(Article 13)-30) (BCI/HSBI), p. 43,
schedule 3 (Eligible Cost Parameters).
441 UK A350XWB Repayable Investment Agreement, (Exhibit EU-(Article 13)-30) (BCI/HSBI), p. 2,
section 1 (Interpretation: 'Availability period').
442 [***].
443 UK A350XWB Repayable Investment Agreement, (Exhibit EU-(Article 13)-30) (BCI/HSBI), p. 11,
section 4 (Repayment, Prepayment and Cancellation), clause 5.3.
444 UK A350XWB Repayable Investment Agreement, (Exhibit EU-(Article 13)-30) (BCI/HSBI), p. 11,
section 4 (Repayment, Prepayment and Cancellation), clause 5.5.
445 UK A350XWB Repayable Investment Agreement, (Exhibit EU-(Article 13)-30) (BCI/HSBI), p. 11,
section 4 (Repayment, Prepayment and Cancellation), clause 5.4.
446 Business case-related document, (Exhibit EU-(Article 13)-35) (HSBI), p. 12. This schedule was
included in the document the European Union refers to as the "business case", which the European Union
asserts was never seen by the member States: that is, the A350XWB Business Case Presentation, (Exhibit
EU-130) (HSBI), slides 50-51.
447 UK A350XWB Repayable Investment Agreement, (Exhibit EU-(Article 13)-30) (BCI/HSBI), p. 4.
448 UK A350XWB Repayable Investment Agreement, (Exhibit EU-(Article 13)-30) (BCI/HSBI), p. 4,
section 1.1 [***] and p. 13, section 5, clauses 7.1 and 7.2 (Interest).

6.267. If the principal is not repaid by either [***], or [***], whichever is later, then the
[***].449 Nor, if the programme effectively ends after [***], is there any further obligation to
pay interest. Therefore, in the event of programme discontinuation at a point beyond ten years
after the date of the first drawdown, it appears Airbus has no further obligation to repay the
principal, or to pay interest.
6.5.2.3.1.5 Similarities and differences between the A350XWB LA/MSF contracts and
the LA/MSF measures examined in the original proceeding
6.268. The following section describes features in common and differences between the contracts
at issue in this proceeding and the contracts at issue in the original proceeding.450
6.269. Disbursements operate via substantially the same mechanisms as in the original
proceeding. Funds are either: (a) transferred in advance of actual development costs being
incurred, or (b) disbursed up to th e agreed amounts after actual costs have been incurred. As in
the original proceeding, when funds are disbursed in advance, costs actually incurred may be
subsequently audited or reviewed by the governments and the funding amounts adjusted to
ensure that total borrowing does not exceed the level of development costs it was agreed would be
financed.451 In several of the contracts currently at issue (the French and Spanish contracts),
provision is made for the [***].
6.270. Like the contracts in the original proceeding, reimbursement of the loan principal in all four
contracts currently at issue is by per-aircraft levies. The levy is charged upon aircraft delivery, and
thus levies are expected to be paid according to a pre -determined anticipated aircraft delivery
schedule. Repayment of the principal may thus be said to be levy-based. In the original
proceeding, the levy -based nature of repayment obligations was an important aspect of the
contracts. Because loan repayments and, in general, any additional returns (intere st payments)
were charged via levies, this made the loans essentially success-dependent – the obligation to
make a levy-based payment was not triggered until a successful delivery was made.
6.271. In two of the current contracts (the French and Spanish A350XWB co ntracts), [***],
which will be achieved if deliveries are made in accordance with the anticipated schedule.
6.272. In two of the current contracts (the German and UK A350XWB contracts), interest
payments are [***]. For those two contracts, while the [***]. The G erman A380 LA/MSF
contract examined in the original proceeding also included a [***].452
6.273. As in the original proceeding, repayments usually start with the delivery of the first
aircraft.453 In some instances, repayment begins only after Airbus has made a speci fied number of
aircraft deliveries. Although the amount of the per -aircraft levies varies between the different
contracts, it appears in nearly all cases to be [***]. In this way, the contracts are back-loaded.
This is significant because the repayment str ucture puts off a significant proportion of expected
payments until later in time. In principle, the further into the future returns are expected, the less
certain are returns because, in general, there is less certainty regarding the occurrence of
potentially negative effects of possible intervening events. Further, if the number of expected
deliveries turns out to have been too optimistic, it is the latter payments that will not be made. If,
then, it is with latter payments that the bulk of reimbursement was to be made, the lender stands
to lose more than had the repayment schedule involved equal payments or if it had been front -
loaded. The back -loaded nature of such a reimbursement schedule contributes to the overall risk
associated with LA/MSF.

449 UK A350XWB Repayable Investment Agreement, (Exhibit EU-(Article 13)-30) (BCI/HSBI), p. 11,
section 4 (Repayment, Prepayment and Cancellation), clause 5.4.
450 See Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.373-7.375.
451 See Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.373.
452 See Loan Contract between the Federal Republic of Germany and Airbus Deutschland GmbH on the
grant of an interest-bearing, conditionally repayable loan for the partial financing of the development costs for
the Airbus A380, 19 March 2002, (German A380 LA/MSF contract), (Original Exhibit US-72), (Exhibit USA-83)
(BCI), section 6.
453 See Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.374.

6.274. The Spanish and UK A350XWB contracts, like some of the contracts at issue in the original
proceeding, provide a "[***]"; [***]. However, the UK contract differs from those other
contracts in that it [***]. Thus, the UK contract provides for interest payments for a period
[***]. The UK LA/MSF contract is also the only one of the LA/MSF contracts that [***], which is
expected and required by delivery [***]. Although it provides a " [***]" during which [***] on
initial deliveries and [***], it: (a) nonetheless requires [***] during that time and so ensures at
least [***]; and (b) because the levy amounts, once due, [***], they are not weighted more
heavily towards [***]. The UK agreement for the A350XWB therefore has some elements in
respect of which it is not as back -loaded as the other contracts ( [***] that are applied), and
some elements in which it is more back-loaded than the French and German contracts ([***]).
6.275. Royalties operate via substantially the same mechanisms as in the original proceeding.
Royalty payments on a per-aircraft basis are called for on deliveries made in excess of the number
needed to secure repayment of the disbursed principal plus any interest. In all four A350XWB
LA/MSF contracts, royalties become due once the principal has been repaid and upon the
successful delivery of the remaining aircraft that are expected to be delivered under the business
case and anticipated delivery schedule, and in some cases upon any aircraft deliveries that occur
beyond those anticipated by Airbus. Royalties are thus also success-dependent. This was also the
case under those of the contracts in the original proceeding that involved royalties. We note that
the number of aircraft expected to generate royalties may be different under the four contracts
because some contr acts charge a different levy amount and so may achieve repayment of the
principal sooner, thereby commencing generating royalty revenues earlier and over a longer
period.
6.276. In the original proceeding, there was no form of security for the repayment of the l oan
principal and interest; no assets or collateral were nominated against which the lender could make
a claim in the event that payment obligations were not met. 454 The loan was thus said to be
unsecured. In the original proceeding, the governments' claims on revenues generated from the
delivery of LCA were, in some cases, guaranteed by one of the companies forming part of the
Airbus economic entity. The obligation to make a levy payment remained triggered by a successful
delivery, and thus remained success -dependent. The guarantee of the performance of this
obligation did not alter the fact that the loan was to be repaid only by the cash flows associated
with the project (that is, the loan was levy -based and success -dependent) and no other form of
security e xisted for the repayment of the loan principal and interest (that is, the loan was
unsecured). Thus, in the original proceeding the panel noted that, notwithstanding this form of
guarantee or surety, there was no obligation on Airbus or any company forming part of the Airbus
economic entity to fully or partially repay LA/MSF in the event that the delivery targets stipulated
in the contractual repayment schedules were not achieved.
6.277. Similarly, in this proceeding, no security or collateral is nominated or pro vided by another
entity for repaying LA/MSF either if Airbus does not fulfil its obligations or in the event that
delivery targets are not met or if the programme fails or is discontinued. While the UK contract

6.278. In this proceeding, other entities – [***].455 As in the original proceeding, [***] with
respect to LA/MSF for the A350XWB do not ensure repayment of loan principal in the event that
Airbus fails to make the number of deliveries needed to reimburse the full amount of financing
obtained from the European Union member States. In this instance neither the [***] nor the
[***] therefore overcomes the levy -based, success dependent and unsecured nature of the
LA/MSF contracts. However, the [***] would provide some assurance of the payment of [***]
under the two contracts in question, thus ensuring some return beyond the cash flows generated
by the project itself.
6.279. As described above, three of the contracts currently at issue – the German, Spanish and
UK contracts – make provision for what is to happen i n the event of discontinuation of either the
programme as a whole or the participation of the Airbus entity operating in the relevant EU

454 See Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.375 ("{T}he
scheduled repayments are not secured by any lien on Airbus assets").
455 Both the UK and German A350XWB LA/MSF contracts directly [***] to ensure that payments that
fall due (thanks to aircraft deliveries) are made. [***] A350XWB LA/MSF contracts [***].

member State's territory. The Spanish contract's discontinuation provision confirms that no
repayment must be made if the programme is discontinued.
6.280. The UK A350XWB LA/MSF contract provides that in the event the programme fails or is
discontinued, then Airbus' interest payment obligation effectively ends on a date [***] years after
the first disbursement.456 Under the UK contract, the United Kingdom will receive cash inflows from
interest payments for a period of [***] years from commencement of disbursements, even
despite programme discontinuation.
6.281. The German A350XWB LA/MSF contract provides that in the event the programme f ails or
is discontinued, then Airbus may [***], and that in that case Airbus will be [***]. It is our
understanding that this therefore refers to [***]. This would mean that, barring some limited
circumstances, Airbus [***]. Under the German A350XWB contract, Airbus' [***].457 This results
in a [***].
6.282. We note that without such [***] provisions in the German and UK contracts, there would
have been [***], despite a failure to make deliveries. That is, [***]. However, the inclusion of
the [***], renders the full repayment of these contracts more success-dependent.
6.283. As the French and Spanish contracts [***], these two contracts would not require an
explicit [***] to be success-dependent; they will remain success-dependent in any event because
the entirety of the return is earned via successful deliveries. The Spanish [***] provision appears
to merely confirm the full success dependency of Spanish LA/MSF for the A350XWB.
6.284. The French and Spanish A350XWB LA/MSF contracts [***] that are different to the
contracts examined in the original proceeding. Neither do they incorporate provisions that [***].
Thus, while the French A350XWB LA/MSF contract [***] in the event of programme
discontinuation, [***].
6.285. In summary, we consider that though the German and UK contracts migh t differ to all
other LA/MSF contracts in respect of the [***] provisions, the effect of this difference is to act as
a counterpoint to the provisions on [***], so that they remain effectively success -dependent
(although under the UK contract, [***] is payable for [***] years after the first disbursements
are made, [***]).
6.286. In the original proceeding, despite a number of variations in the terms and conditions of
each of the legal instruments making up the contractual framework of the challenged LA/MSF
measures, the panel ultimately agreed with the parties that numerous similarities in the type and
form of financing could be found. 458 Overall, we consider that the LA/MSF contracts for the
A350XWB resemble the contracts at issue in the original proceeding, based on the type of terms,
including the similarity of disbursement mechanisms, the levy -based repayments of the principal
along an anticipated schedule of deliveries and the imposition of royalties, the fact that no security
is provided for the debt amount, a nd the existence of conditional guarantees that are limited only
to the performance of obligations. There are some pertinent differences, including provisions
regarding programme discontinuation, which may contribute to lessening the success -dependent
aspect of the LA/MSF provided under the German and UK A350XWB contracts. However, as
described above, we consider that this effect is limited in both instances, as in the case of the UK
contract it is time limited, with a [***] on the interest that might be pa id despite failure to make
deliveries, and in the case of the German contract because we consider it is a rather narrow
preservation of the KfW's right to continued interest payments on the principal. Despite these
differences between the A350XWB contracts , we consider that, overall, the repayment of the
LA/MSF is back-loaded, primarily levy-based, dependent on the sales of aircraft and unsecured. To
this extent, the A350XWB LA/MSF contracts share the same core features as the LA/MSF measures
considered in the original proceeding.

456 Dr James Jordan, NERA, "Comparison of A350 XWB LA/MSF Interest Rates with Market Benchmarks",
18 October 2012, (Jordan Report), (Exhibit USA-475) (BCI/HSBI), para. 11.
457 See German KfW A350XWB Loan Agreement, (EU-(Article 13)-14) (English translation) (BCI/HSBI),
section 8.8.
458 Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.374, 7.410, and 7.525.

6.287. Finally, we note that the European Union has at no stage argued that a project-specific risk
premium should not be used in the construction of the appropriate market benchmark for LA/MSF.
In our view, this recognises that the full repayment of the A350XWB LA/MSF contracts is, overall,
dependent upon revenues from sales of A350XWB, like LA/MSF for other aircraft.
6.288. We now proceed to consider whether the A350XWB LA/MSF is a subsidy.
6.5.2.3.2 Financial contribution
6.289. The parties do not dispute th e characterization of LA/MSF for the A350XWB as a financial
contribution falling under Article 1.1(a) of the SCM Agreement.459 The United States describes
LA/MSF as "funding" and "financing" that shares characteristics of the LA/MSF measures at issue in
the original proceeding. 460 The European Union characterises LA/MSF as a "loan" within the
meaning of Article 1.1(a)(1)(i) of the SCM Agreement461, explaining furthermore that while
disbursements have begun, [***].462
6.290. We recall that in the original proceeding, the panel found that despite the fact that some of
the amounts due under the French, German and Spanish A380 LA/MSF contracts had not yet been
disbursed, the fact that such disbursements represented part of the total (and maximum) amount
of funding that it was agreed and planned would be transferred to Airbus for that programme,
meant that the relevant LA/MSF measures involved a direct transfer of funds within the meaning of
Article 1.1(a)(1)(i) of the SCM Agreement.463 In our view, the same conclusions can be re ached in
relation to the A350XWB LA/MSF measures. Thus, t o the extent that some of the disbursements
specifically envisaged under the A350XWB LA/MSF contracts are yet to be made, we do not
consider that this should preclude the entirety of the envisaged LA /MSF measures from being
characterised as a direct transfer of funds.
6.291. The European Union's characterisation of LA/MSF as direct transfers of funds in the form of
"loans" is consistent with the approach taken by this panel in the original proceeding 464, and we
see no reason to take a different approach in this compliance proceeding. However, we note that
LA/MSF differs substantially from conventional loans involving the scheduled repayment of a loan's
principal plus a pre-determined amount of interest.465 For example, the success-dependent nature

459 See European Union's first written submission para. 366; and United States' second written
submission, paras. 98 and 279. Neither party questions whether LA/MSF is provided by a government or any
public body within the territory of a member within the meaning of Article 1.1(a)(1) of the SCM Agreement.
With respect to the French, Spanish, UK and German LA/MSF contracts, the entities providing the financing
are, respectively: the French State, as represented by the Minister for Ecology, Energy and Sustainable
Development, the Defence Minister, the Minister for the Budget, and the Secretary of State in charge of
Transport, and the Management Unit of Aeronautical Armament Operations of the Defence Ministry; the
Spanish State, as represented by the Spanish Ministry of Industry, Tourism and Commerce; the UK State, as
represented by the UK Secretary of State for Business, Innovation and Skills; and the German Kreditanstalt für
Wiederaufbau (KfW). The European Union has not contested KfW's status as a public body. We agree that
LA/MSF is provided by a government or public body within the territory of a Member within the meaning of
Article 1.1(a)(1) of the SCM Agreement.
460 United States' first written submission, para. 147.
461 European Union's first written submission, para. 366.
462 European Union's second written submission, paras. 276-277. With regards to the UK contract, the
European Union initially stated that [***], as disbursements were scheduled to occur no earlier than [***].
However, the European Union later clarified that disbursements were made as follows: In [***].
Disbursements were scheduled and made by the UK Government in [***]. With respect to the [***], the
European Union stated that [***]. (See European Union's response to Panel question Nos. 47 (para. 157)
(citing, inter alia, KfW bank account statement, (Exhibit EU-134) (BCI)), 86 (para. 335), 128 (para. 86); UK
A350XWB Repayable Investment Agreement, (Exhibit EU-(Article 13)-30) (BCI/HSBI), section 1 and
clause. 4.3(d); First set of [***] to UK A350XWB LA/MSF contract, (Exhibit EU-(Article 13)-31) (BCI/HSBI);
Second set of [***] to UK A350XWB LA/MSF contract, (Exhibit EU-(Article 13)-32) (BCI/HSBI); and Third set
of [***] to UK A350XWB LA/MSF contract, (Exhibit EU-(Article 13)-33) (BCI/HSBI)).
463 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.378.
464 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.379.
465 With respect to how LA/MSF may differ to a conventional loan, we note that EADS does not appear to
treat LA/MSF as a financial liability. (See CompetitionRx Report, "Supplementary expert report on the financial
viability and funding of the A350XWB development programme", 19 September 2013 (Supplemental
CompetitionRx Report), (Exhibit EU-420) (BCI/HSBI), paras. 99-102). EADS also represents its enterprise
value to investors both "with" and "without" LA/MSF, indicating that it does not appear to treat LA/MSF as a

of LA/MSF means that, if Airbus fails to achieve a particular level of deliveries, it would not be
required under the contracts to fully repay the principal, much less provide the lenders the stated
rate of return. On t he other hand, Airbus would be required to make payments beyond those
necessary to reimburse the principal amount and achieve the stated rate of return if it achieves
higher levels of deliveries. The significant differences between conventional loans and L A/MSF play
an important role in our analysis of whether the financial contribution confers a benefit, below.
6.292. As the parties do not appear to dispute the characterisation of LA/MSF as a financial
contribution, and as we have characterised LA/MSF to be a "d irect transfer of funds" within the
meaning of Article 1.1(a)(1)(i) of the SCM Agreement, the remainder of our evaluation is
concerned with the "benefit" element of the subsidy analysis pursuant to Article 1.1(b) of the
SCM Agreement.
6.5.2.3.3 Benefit
6.293. The parties disagree as to whether LA/MSF for the A350XWB confers a "benefit" pursuant
to Article 1.1(b) of the SCM Agreement. While there is no definition of "benefit" in the
SCM Agreement, it is well established that a benefit is conferred if a "financial contributi on" is
offered on terms that are more advantageous than those that would have been available to the
recipient on the market. 466 In this respect, the parties have advanced multiple lines of argument,
various expert reports and considerable evidence in support of their respective positions.
6.294. The United States initially argued that the A350XWB LA/MSF measures conferred a
"benefit" upon Airbus on the basis of various government statements and media reports adduced
in its first written submission, which it submits reveal that the fundamental purpose of LA/MSF "is
to provide financing that is not commercially available due to the enormous risks and costs
associated with launching new models of LCA". 467 According to the United States, this evidence is
enough, on its ow n, to establish "a prima facie case as to the existence of a subsidy, because it
establishes the existence of a financial contribution, and that the market would not have provided
Airbus with that financing on the terms that it obtained from the government".468
6.295. After receiving copies of the relevant A350XWB LA/MSF contracts following our decision to
accept the United States' request to "seek information" in accordance with Article 13 of the DSU,
the United States focused its submissions on demonstrating that the "rates of return" associated
with each of the challenged LA/MSF measures were below the interest rates that would have been
charged by a market lender for financing on the same terms and conditions as A350XWB LA/MSF.
Recalling that the panel and the p arties agreed in the original proceeding that the appropriate
question was whether "the rates of return obtained by the member States {are} lower than a
corresponding market benchmark" 469, the United States advances its own estimates of the "rates
of return" associated with each of the four A350XWB LA/MSF measures as well as comparable
market interest rate benchmarks, arguing that this evidence demonstrates that the A350XWB

conventional debt instrument. (See Gerard Adsuar, Corporate Executive, EADS Finance and Treasury, "Cash
Drivers and Enterprise Value", EADS presentation, Global Investor Forum, 1-2 April 2009, (Exhibit USA-33)).
466 Panel Report, Canada – Aircraft, paras. 9.112 and 9.120; and Appellate Body Report, Canada –
Aircraft, paras. 155 and 157-158 (affirming the panel in relevant respects).
467 United States' first written submission, para. 137 (citing UK House of Commons Business, Innovation
and Skills Committee, "Full Speed ahead: maintaining UK excellence in motorsport and aerospace", Sixth
Report of Session 2009-10, Report, formal minutes, and oral and written evidence, 9 March 2010, (Exhibit
USA-44), p. 10; "Repayable Launch Investment", UK Department for Business, Innovation and Skills website,
accessed February 2012, (Exhibit USA-63); Investissements d’avenir, convention 'opérateur ONERA' Action:
'recherche dans le domaine de l’aéronautique', 31 July 2010, (ONERA Agreement), (Exhibit USA-54), art. 3.1;
and J. Hartmann and J. Hildebrand, "Wie Airbus und Boeing um die Luftoheit kampfen", Welt Online,
22 March 2010, (Exhibit USA-67)); second written submission, paras. 280-282; and HSBI version of the
United States' second written submission, para. 281 (citing HSBI material in the UK Industrial Development
Advisory Board memorandum, 16 April 2010, (UK Appraisal), (Exhibit EU-(Article 13)-34) (HSBI)).
468 United States' second written submission, para. 282 (citing Appellate Body Report, Canada – Aircraft,
469 European Union's second written submission paras. 282-283 (citing Appellate Body Reports, EC and
certain member States – Large Civil Aircraft, paras. 834 and 838; and Japan – DRAMs (Korea), para. 174); and
United States' second written submission para. 283 (citing Appellate Body Report, EC and certain member
States – Large Civil Aircraft, paras. 873-874 and 924).

6.296. In relation to the first element of the comparison, th e United States proposes to use the
"rates of return" "cited in the LA/MSF Agreements". 470 However, because the United States argues
that there is no funding instrument available on the market that offers all of the particular features
of LA/MSF, the United States submits that, for the second element of the comparison, a proxy
market interest rate benchmark should be used.471
6.297. The United States constructs its proposed market interest rate benchmarks on the basis of
the interest rate that would have been offered to Airbus by a market lender for Airbus' general
borrowing activities, plus a project-specific risk premium that represents the additional return that
a lender would require for offering financing on the particular project -specific terms of LA/MSF. 472
The U nited States argues that a comparison of its estimated rates of return for each of the
challenged A350XWB LA/MSF measures and the corresponding market interest rate benchmarks
reveals that "the commercial benchmark rates are higher than the actual rates th at France,
Germany, Spain and the UK actually charged Airbus for LA/MSF for the A350XWB." 473 Thus, the
United States concludes that the A350XWB LA/MSF measures confer a "benefit" upon Airbus within
the meaning of Article 1.1(b) of the SCM Agreement.474
6.298. The European Union argues that the government statements and media reports which the
United States relies upon are not sufficient to demonstrate that the A350XWB LA/MSF measures
confer a "benefit" upon Airbus. In order for the United States to make out its case, the
European Union submits that the United States must demonstrate that the rates of return achieved
by the European Union member States are, in fact, below those that would have been obtained by
a market lender for similar financing.475 Moreover, the European Union adds that to the extent that
the United States argues that the relevant evidence suggests that LA/MSF and its key features
would never be available on the market under any circumstances 476, this is both: (a) contrary to
the original panel's finding that certain features of LA/MSF do not inherently involve below -market
rates477, and (b) factually false: the European Union points to the existence of other market
instruments as evidence against such a proposition.478
6.299. While the European Union agrees that th e proper question regarding "benefit" is whether
the LA/MSF is provided at below-market rates479, it submits that the United States understates the
rates of return expected under the contracts, and overstates market benchmark rates of return. 480
The European Union states that, for various reasons, the approach proposed by the United States
"is a methodology that lacks financial and economic robustness and that does not withstand
scrutiny".481 In particular, the European Union disagrees with the United States with respect to
what rates were anticipated under the contracts, the risks involved with both the form of financing
and the project in question, and the returns a market lender would likely have sought for financing
for the project under such terms and conditions.
6.300. Before turning to evaluate the merits of the parties' arguments, we first clarify our
understanding of the United States' reliance on the government statements and media reports
submitted with its written submissions.

470 United States' second written submission, para. 284.
471 United States' first written submission, paras. 129-138, 365, and 389; and second written
submission, paras. 283, 288, and 289; United States' opening statement (public), para. 37 ("{T}he benchmark
advocated by the United States … uses a constructed benchmark precisely because there is no market analog
for LA/MSF".)
472 United States' second written submission, para. 285 (citing Appellate Body Report, EC and certain
member States – Large Civil Aircraft, paras. 860-62 and 874; and Jordan Report, (Exhibit USA-475)
(BCI/HSBI), paras. 12-22).
473 United States' second written submission, para. 286.
474 E.g. United States' second written submission, paras. 286 and 413.
475 European Union's first written submission, para. 370; and second written submission, para. 283
(citing Appellate Body Reports, EC and certain member States – Large Civil Aircraft, paras. 834 and 838; and
Japan – DRAMs (Korea), para. 174).
476 European Union's first written submission, paras. 371-373, and 352 (third bullet point); and second
written submission, paras. 284-289.
477 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.531.
478 European Union's second written submission, paras. 285-286.
479 European Union's second written submission, para. 280.
480 See e.g. European Union's second written submission paras. 291, 280, 294-304, and 305-52.
481 European Union's second written submission, para. 293.

6.301. As already noted, the United St ates submits that certain government statements and
media reports demonstrate that LA/MSF is not commercially available and, therefore, that the
A350XWB LA/MSF measures confer a "benefit" to Airbus. In making this submission, we do not
understand the United States to argue that LA/MSF -like financing instruments could never exist in
the marketplace, but only that such measures would not be provided on the terms and conditions
of the challenged LA/MSF contracts (including rates of return). 482 In our view, the U nited States'
line of argument is not inconsistent with the original panel's approach to the question of benefit,
because it pertains to the particular terms and conditions of the instruments, and does not imply
that all LA/MSF, by definition, would necess arily involve below-market rates of return. Further, we
consider that the government statements and media reports in question are not inconsistent with
how we understand the United States to be arguing its case. The statements in question, as we
understand it, concern not whether the market would provide funding for LCA on any terms
whatsoever, but rather whether the market would provide financing – with the particular
characteristics – on terms and conditions (including rates of return) that would make it functionally
available to the borrower.
6.302. To the extent that the European Union's submissions imply that the only evidence relevant
to the benefit analysis that we must perform in this dispute is a comparison of rates, we disagree.
While the analysis of whe ther a financial contribution involving a direct transfer of funds confers a
"benefit" would usually involve comparing rates of return with a market benchmark rate, we do
not preclude that other evidence may be relevant as to whether or not a benefit is conferred.
6.303. With respect to whether the government and press statements offered by the
United States are sufficient to establish a prima facie case in this dispute 483, we recall that these
statements were primarily submitted with the United States' first writt en submission, before the
actual A350XWB LA/MSF contracts were made available by the European Union in responding to
our request for information pursuant to Article 13 of the DSU. As we see it, our evaluation of
whether LA/MSF confers a benefit should proc eed from a consideration of the entirety of the
parties' arguments and evidence. In addition to the cited statements, the United States' case
involves, inter alia, the use of rates of return under the A350XWB LA/MSF contracts as compared
against a benchmar k. We therefore do not consider that our evaluation of whether the
United States has made its case should exclusively focus on the statements presented by the
United States mainly in its first written submission.
6.304. In keeping with the treatment of similar ev idence in the original proceeding, we will
therefore take the cited government and press statements into account as relevant, making our
own judgment as to their weight and probative value. 484 We will likewise take other evidence
concerning the availability of funding into account as relevant.
6.305. We now turn to evaluate the evidence and arguments before us, following the approach
developed by the parties in the course of their submissions. In the light of the parties' arguments,
we will examine whether the rate s of return expected by the relevant European Union member
States under the A350XWB LA/MSF contracts are lower than what would have been required by a
market lender for financing on similar terms. This is the same basic approach as that taken by the
panel in the original proceeding.
6.5.2.3.3.1 Expected rates of return of the A350XWB LA/MSF contracts
6.306. We commence our benefit analysis by determining the rates of return 485 of the A350XWB
LA/MSF contracts in order to compare these to a market benchmark. The parties' argume nts in

482 United States' first written submission, paras. 8, 106, 117, 129-38, and 330; and second written
submission, paras. 278-293.
483 We recall that the Appellate Body has defined a "prima facie" case in WTO proceedings as "one
which, in the absence of effective refutation by the defending party, requires a panel, as a matter of law, to
rule in favour of the complaining party presenting the prima facie case". (Appellate Body Report, EC –
Hormones, para. 104).
484 See Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1919.
485 The United States uses the terms "rate of return" and "interest rate" of the contracts, and refers to
various rates, including a rate of periodic interest charged on outstanding principal. (See e.g. United States'
second written submission, para. 284). The European Union refers to the "internal rate of return" (IRR) of the
contracts. (See e.g. European Union's second written submission, paras. 291 and 294-304). For the sake of

relation to the different rates of return they have advanced raise the following main questions: (a)
whether the expected rates of return of the LA/MSF contracts should include cash inflows expected
from royalties; (b) whether the German contract's expected rate of return should include cash
inflows from certain fees; and (c) issues concerning the accuracy of internal rates of return
estimated by the European Union.
Whether rates of return should include cash inflows expected from royalties
6.307. The parties disagree about whether, in principle, revenue from royalty payments should be
included in the cash inflows used to calculate the expected rates of return of the A350XWB LA/MSF
contracts. The parties appear to agree that revenues from royalty payments s hould be treated in
accordance with the original proceeding 486, but appear to differ in their interpretation of how
royalties were treated in that proceeding.
6.308. According to the United States' expert, Dr Jordan, in the original proceeding the panel
"validated" the approach of excluding royalties, and "doubted the legitimacy of interest rate
calculations that factored in royalty payments".487 The United States submits that:
Although the {p}anel described this approach as not fully accounting for the effects of
royalty payments, it discounted the importance of such royalty payments, saying
"although ostensibly required by the terms of the LA/MSF agreements, royalty
payments may never be made if attached to a number of aircraft sales, which …
cannot realistically ever be achieved". Moreover, the {p}anel did not endorse the EU's
methodology for determining the actual rates of return, instead describing it as "at
most, the outer limit".488 (emphasis added by the United States)
6.309. The United States adds, however, that "{s} ince the true rates of return lie somewhere
between the approach used by {United States' experts} NERA and that used by the EU during the
merits phase, NERA relies on its own approach for the purposes of this compliance dispute".489
6.310. The European Union argues that using the rates identified by the United States
inappropriately excludes revenues from royalties on aircraft that are anticipated by the "base case"
number of expected aircraft deliveries, and therefore underestimates the returns expected under
the L A/MSF contracts. 490 The European Union submits that such an approach is, in fact,
inconsistent with the panel's approach in the original proceeding. 491 The European Union provides
its own estimates of the rates of return, in the form of internal rates of retur n (IRRs) including
cash inflows from royalty revenues expected in the base case, calculated using certain aircraft
price information.492
6.311. In addition, the European Union also states that even these figures "are conservatively
low … because all four of the A3 50XWB agreements would require [***]".493 That is, the IRRs
offered by the European Union are stated to be a reflection only of the return to the member
States that could be anticipated based on [***]. The European Union considers that "actual
programme life deliveries can be expected to be higher than the conservative number of deliveries
used for capital budgeting in the launch business case".494

clarity, we use "rates of return" as a generic term, and refer to the European Union's proposed rates as
"internal rates of return", or IRR estimates.
486 European Union's second written submission, para. 297; and United States' response to Panel
question No. 91, paras. 350-351.
487 Jordan Report, (Exhibit USA-475) (BCI/HSBI), para. 8.
488 United States' second written submission, para. 284 (quoting Panel Report, EC and certain member
States – Large Civil Aircraft, paras. 7.412 and 7.414).
489 United States' second written submission, fn 421.
490 European Union's second written submission, paras. 291 and 294-304.
491 European Union's second written submission, para. 297.
492 The aircraft price information is not disclosed in the A350XWB contract documentation and has not
been made available to the Panel or the United States in this proceeding.
493 European Union's second written submission, para. 301.
494 European Union's second written submission, para. 302.

6.312. We observe that the panel stated in the original proceeding, with regards to the contracts
then at issue:
As we understand it, the royalties foreseen under these contracts represent a share in
the revenues generated from sales of the financed LCA after the full amount of
LA/MSF has been repaid. In our view, the fact that such payments were expressly
provided for in t hese contracts indicates that the EC member State governments to
some degree anticipated they could enhance the rate of return that would otherwise
be achieved on their investment.495
… like the IRRs determined for contracts that did not provide for royalti es, the IRRs
established on the basis of royalty payments are inherently speculative and depend on
achieving the number, timing, and (for some contracts) the forecast prices of
deliveries projected in the relevant Airbus business case. Thus, while we recog nize the
inclusion of royalty payment provisions into the LA/MSF contracts is itself evidence of
a certain expectation that royalties would be paid; we nevertheless consider that the
IRRs established by the European Communities, taking royalty payments into account,
could only represent, at most, the outer limit of what the EC member State
governments could have reasonably expected at the time of concluding the
contracts.496
6.313. While the original panel noted that the royalties due in accordance with the base ca se
represented the "outer limit" of what the relevant member States could have expected at the time
of concluding the contracts, the original panel did proceed with its analysis using IRRs that
included royalty revenues. We therefore disagree with the Unit ed States' interpretation that the
panel "validated" the approach of excluding revenues from royalties.
6.314. We consider that if there is no relevant factual difference in how royalties are envisaged
under the LA/MSF contracts in this proceeding, royalties sho uld, in principle, be included in the
calculations determining the expected rates of return of the LA/MSF contracts in this proceeding,
consistent with the original panel's approach.
6.315. The parties appear to agree that there are no relevant factual difference s in how royalties
are envisaged under the contracts that would necessitate a deviation from the panel's approach in
the original proceeding.497 In particular, the parties appear to agree that royalty payments for the
A350XWB are [***].498 We are satisfied that royalties are generally expected under the A350XWB
LA/MSF contracts in proportions that are similar to those for the A380 contracts. 499 For the A380
contracts, the panel accepted in the original proceeding to proceed using the royalty revenues
expected on deliveries up to the level of deliveries anticipated in the base case.
6.316. Like in the original proceeding, we accept that royalties are more speculative than other
payments because they are both success -dependent and premised on the deliveries forecast
farther into the future, and are thus more subject to uncertainty compared with payments made

495 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.410.
496 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.414.
497 European Union's second written submission, para. 297; and United States' response to Panel
question No. 91, paras. 350-351.
498 United States' comments on the European Union's response to Panel question No. 91, para. 250;
European Union's comments on the United States' response to Panel question No. 91, paras. 799-800; and
Percentage of aircraft deliveries forecast in program business case anticipated to fully repay MSF, (Exhibit
EU-376) (HSBI).
499 See Percentage of aircraft deliveries forecast in program business case anticipated to fully repay
MSF, (Exhibit EU-376) (HSBI), p. 4. The contracts anticipate deliveries after repayment of principal as follows.
French contract: Repayment of principal expected by delivery [***], which is less than the overall expected
HSBI number of deliveries included in the schedule. German contract: Repayment expected by delivery of the
"first [***] aircraft". While the German payment schedule [***], the German contract cites the HSBI base
case as being relevant to the [***]. Spanish contract: Repayment of principal expected by delivery [***].
The contract [***]. The UK contract delivery schedule [***], and thus expects royalties on that basis.
(Annex 8 to the French A350XWB Protocole, (Exhibit EU-(Article 13)-09) (HSBI); German KfW A350XWB Loan
Agreement, (EU-(Article 13)-14) (English translation) (BCI/HSBI), section 6.1; UK A350XWB Repayable
Investment Agreement, (Exhibit EU-(Article 13)-30) (BCI/HSBI). See also European Union's comments on the
United States' response to Panel question No. 91, paras. 738-740).

for the purpose of repaying principal. We consider they are nevertheless relevant to include in
order to reflect the maximum rates of return that the governments could expect if the base case
number of deliveries were to occur in accordance with the anticipated schedules of deliveries
expected under the contracts. 500 Uncertainties that are relevant to the risks that a market lender
may take into account when determining th e rate of return it would seek for financing a particular
project, on particular terms, are dealt with further below in determining the project -specific risk
premium a market lender might add for such financing.
6.317. Therefore, consistent with the panel's appr oach in the original proceeding, the value of
royalty payments – up to the level of deliveries in the base case and anticipated delivery
schedule – is relevant to establishing the rates of return the European Union member States could
have expected, taking the A350XWB LA/MSF contracts and base case at face value. In this
proceeding, we therefore include revenues from royalties expected on deliveries foreseen in the
base case in determining the rates of return expected under the LA/MSF contracts.
6.318. With regard to the European Union's statement that including only royalties based on the
total number of deliveries forecast by Airbus in its base case results in a "conservative" estimate
because the A350XWB contracts provide for [***], we do not agree. The Europea n Union's
submissions appear to rest on the premise that the actual outcome of the A350XWB programme
may differ, that is, be more successful, than the projected outcome in terms of deliveries. This
may be the case. However, there is no evidence that this i s what was anticipated by the relevant
European Union member States at the time that the relevant LA/MSF contracts were concluded.
Thus, just as we accept the inclusion of royalties into the calculation of the rates of return, despite
the possibility that the delivery forecast upon which they are based might never be achieved, so
too do we find it unnecessary to qualify the European Union's member States' expectations as
"conservative" because of the possibility that the A350XWB programme might be more succ essful
than anticipated. Moreover, if the number of deliveries "used for capital budgeting in the launch
business case"501 is ordinarily understood to be "conservative", as the European Union suggests,
such conservative nature of estimates would presumably b e taken into account by a sophisticated
lender such as a the relevant European Union member States when deciding upon the acceptability
of a rate of return. We therefore do not agree with the European Union that the rates of return
calculated on the basis of the base case delivery schedule and the relevant contractual repayment
provisions would necessarily be "conservatively low". 502 Indeed, we note in this regard, that
analyses conducted by Steer Davies Gleave and CompetitionRx suggest that the numbers of
aircraft produced and delivered per year anticipated in the A350XWB base case scenario are, in
historic terms, not conservative.503
6.319. Having recalled that the original panel accepted the inclusion of royalties in the calculation
of the maximum returns under the relevant LA/MSF contracts, and given that the parties agree
there is no relevant factual difference in this proceeding with respect to how royalties become due
under the A350XWB LA/MSF contracts compared with the pre -A350XWB LA/MSF contracts, we
conclude t hat, in principle, it would be appropriate to include revenues from royalties in
accordance with the "base case" expectations and anticipated schedule of deliveries in calculating
the rates of return of the A350XWB LA/MSF measures. We are therefore prepare d to accept the
European Union's IRRs to the extent that they reflect such anticipated revenues.

500 Moreover, as will be discussed in greater detail in the section concerning an appropriate market
benchmark below, the United States proposes to judge the A350XWB contracts' expected returns as being over
a period of around 20 years. That time-frame would only be relevant if aircraft sales attracting royalty
payments were accepted as contributing to the expected returns. (Repayment of the principal in full via levies
is expected to occur [***].) It appears that under this argument (which will be detailed later), the
United States seeks to acknowledge the full amount of time over which anticipated cash outflows and inflows
are expected to occur, including royalties.
501 European Union's second written submission, para. 302.
502 Only those royalties payable in accordance with the anticipated delivery schedule are included in
Professor Whitelaw's estimation of the IRRs.
503 Professor Thomas Hoehn, CompetitionRx, "Financial Viability and Funding Implications of the
A350XWB Development Programme", 13 January 2013, (CompetitionRx Report), (Revised), (Exhibit EU-127)
(BCI/HSBI), paras. 116 and 117. See also Max Kingsley-Jones, "Paris Air Show: A350 XWB ready to rock",
FlightGlobal News, 5 June 2009, (Exhibit USA-428), p. 5.

Whether rates of return should include cash inflows from fees
6.320. The parties disagree about whether cash inflows from certain fees should be incorporated
into th e estimate of the returns of the German A350XWB LA/MSF contract. In particular, the
United States excludes, while the European Union includes, revenues from two types of fees
charged by Germany in estimating the returns. 504 The United States further submits that if the
fees are included in the calculation of the German contract's rate of return, then an amount should
likewise be included for such fees for the benchmark 505, on the basis that they are normal fees for
services that would have been charged by a mar ket lender. 506 In addition, the United States
proposes to add an amount to the benchmark for all the other contracts , whether or not
administrative fees were considered in the contract, on the basis that such other amounts would
have been incurred by Airbus in connection with market lending and that the waiver of such
normal fees is an advantageous feature of the LA/MSF contracts. 507 We address in this section the
question of whether to include each of the German fees in the IRR calculations.
6.321. Several fees are mentioned in the German A350XWB LA/MSF contract. A [***] is
expressly mentioned in the contract as forming part of the [***] and is not at issue as it has been
included by both the United States' expert, Dr Jordan, and the European Union's expert, Professor
Whitelaw, in their reports setting out their estimations of returns under the A350XWB LA/MSF
contracts.508
6.322. Two further fees are mentioned in the German A350XWB contract: an annual [***] fee,
at the rate of [***] and a semi-annual [***] fee, at the rate of [***], due in [***] and [***]
each year.509 The United States' expert, Dr Jordan, did not include these fees in estimating the
German rate. The European Union's expert, Professor Whitelaw, responded that this was
inappropriate and provided an estimate of th e German IRR that purports to include the two
fees.510 The annual [***] fee appears to total approximately EUR [***] over the anticipated
period of LA/MSF according to the German schedule of deliveries and Airbus' base case; and the
semi-annual [***] fee app ears to total approximately EUR [***] over the same anticipated
period of LA/MSF.
6.323. In this section, we discuss the characterisation of the fees and whether revenues from
those fees should be included in the IRR estimates. The parties make related arguments regarding
an adjustment to a market benchmark rate of return. Those arguments are introduced here to
provide context, but are dealt with in the section below concerning the market benchmark rate of
return.
6.324. In response to Professor Whitelaw's addition of t he fees to the IRR calculation, Dr Jordan
opined that "the fees Professor Whitelaw includes, as well as the fee included in the Jordan Report,
are fees for particular services. Such fees should be added as well to the market benchmark under

504 Jordan Report, (Exhibit USA-475) (BCI/HSBI), para. 7 and table 1; Professor Robert Whitelaw,
"Response to Dr Jordan's report on the benefits of MSF", 13 December 2012, (Whitelaw Response to Jordan),
(Exhibit EU-121) (BCI/HSBI), para. 4; Professor Robert Whitelaw, "Rebuttal of Dr Jordan's Reply to My
Comments on His Initial Report", 21 June 2013, (Second Whitelaw Response to Jordan), (Exhibit EU-396)
(BCI/HSBI), paras. 28-9.
505 Dr James Jordan, NERA, "Reply to Professor Whitelaw's Response to Jordan Report", 20 May 2013,
(Jordan Reply), (Exhibit USA-505) (BCI), para. 12 and fn 20.
506 United States' response to Panel question No. 161.
507 Jordan Reply, (Exhibit USA-505) (BCI), para. 12 and fn 20.
508 Jordan Report, (Exhibit USA-475) (BCI/HSBI), para. 7 and table 1, n 2; Whitelaw Response to
Jordan, (Exhibit EU-121) (BCI/HSBI), para. 4. This fee expressly comprises part of the periodic interest rate
under the contract.
509 Whitelaw Response to Jordan, (Exhibit EU-121) (BCI/HSBI), para. 7 and table thereto;
Annex 13.1(a) to German KfW A350XWB Loan Agreement, (Exhibit EU-(Article 13)-26) (English translation)
(BCI), arts. 4.1 and 4.4.
510 Our review of Professor Whitelaw's submission leads us to believe that fee amounts used in the
calculation of the IRR have not always been taken into account on the precise dates on which they are
envisaged to occur. We note, however, that this apparent error does not make a significant difference to the
overall IRR of the German A350XWB LA/MSF contract.

the assumption that market lenders would charge the same fees for the same services.
Alternatively, the fees can be omitted from both LA/MSF rates and market benchmarks".511
6.325. The United States additionally argues that "by turning to the {member State}
governments to financ e the A350XWB program, Airbus avoided {underwriting fees, loan
commitment fees, and administrative} fees. Accordingly, if the actual IRR for LA/MSF for the
A350XWB is understood to include fees like the "[***]" and "[***]" fees in the German LA/MSF
contract, then the corresponding Airbus corporate borrowing rates for all four governments also
should include underwriting and other fees."512
6.326. As discussed below, the European Union considers that commercial fees – administrative
and other fees charged on a comme rcial loan – would be properly included in a benchmark only if
they are analogous to those charged by the relevant member State. Moreover, according to the
European Union:
To determine whether and what "analogous commercial fees" should be included in a
benchmark, it is first necessary to understand the nature and characteristics of the
fees included in the challenged instrument; without that understanding, it is
impossible to know what "commercial fees" would be "analogous" and properly
included in a benchmark.513
6.327. The European Union submits that the United States has failed to establish that the [***]
fee and the [***] fee under the German contract are analogous to underwriting fees, loan
commitment fees, and/or administrative fees and, thus, that the Unite d States has failed to
establish that those fees should properly form part of a suitable benchmark.514
6.328. The European Union argues that the [***] and [***] fees due under the German
A350XWB LA/MSF contract are not charged "for the costs of issuing and adminis tering" the loan,
but are instead a part of the return earned by KfW, as the lender. The European Union submits
that both fees "enhance the return to the lender". 515 The European Union considers that the cash
inflows from fees should be added to the calculation of the expected internal rates of return.516
6.329. The European Union submits that the [***] fee "is merely another form of interest
payment" that is "[***]".517 The European Union asserts that there is nothing that Airbus receives
in return for the [***] fee, other than the loan itself.518
6.330. In terms of the [***] fee, the European Union maintains that this fee is:
{S}imilarly part of the return to the lender, as a form of interest payment. This
element of the structure of KfW's return was designed to segregate a p ortion of the
return that KfW would earn [***]. For convenience purposes, and to [***], the loan
agreement foresees Airbus paying KfW separately [***]. Collectively, these
payments constitute the return to KfW, [***]. Obtaining that [***].519
6.331. Accordingly, the European Union states that there is nothing that Airbus receives in return
for the [***] fee, other than the loan itself.520
6.332. As regards the parties' characterisation of the [***] and [***] fees due under the
German A350XWB LA/MSF contract, we observe that the nature of the fees is not entirely clear
from the contract and is not expressly set out in the contract. Neither of these fees is described in
the contract in terms of either reimbursing the loan principal or contributing to the amount of

511 Jordan Reply, (Exhibit USA-505) (BCI), para. 12 and fn 20.
512 United States' response to Panel question No. 161, para. 6.
513 European Union's comments on the United States' response to Panel question No. 161, para. 6.
514 European Union's comments on the United States' response to Panel question No. 161, para. 12.
515 European Union's comments on the United States' response to Panel question No. 161, para. 3.
516 European Union's comments on the United States' response to Panel question No. 161, para. 9.
517 European Union's comments on the United States' response to Panel question No. 161, para. 9.
518 European Union's comments on the United States' response to Panel question No. 161, para. 11.
519 European Union's comments on the United States' response to Panel question No. 161, para. 10.
520 European Union's comments on the United States' response to Panel question No. 161, para. 11.

periodic interest payable on the outstanding principal. By contrast, as already noted, the [***] –
that is not at issue – is mentioned in the contract as forming part of the periodic interest rate.
6.333. With respect to the [***] fee, we note that the German contract's str ucture includes
"[***]" versus "[***]" amounts. Different obligations apply to sums due in different forms. This
lends some weight to the European Union's explanation that the [***] fee is only given the name
of a "fee" to highlight that it is actually a [***] portion of the interest rate. We note the
European Union's submission that both fees "enhance the return to the lender". 521 We note that
commercial lenders may well include fee obligations in a loan contract as a means to enhance or
secure revenues soug ht in return for providing the loan. We are willing to proceed with the
remainder of the benefit analysis using an IRR that includes revenues from this fee as reflecting
the returns to Germany under the contract.
6.334. With respect to the [***] fee, we consider that it would be appropriate to include cash
inflows from this fee in the IRR estimates. The distinction applied for the [***] fee (in terms of
"[***]" versus "[***]" rules) similarly applies to the [***] fee. However, we also recognise that
the [***] fee is essentially a function of the fact that the loan is provided by KfW: the [***] and
corresponding fee means that, functionally, the [***]. We note that the [***] makes the lending
offered on essentially the same terms as for the other contracts (that is, [***]). In these
circumstances, we do not distinguish between the Member and its public body, and the distinction
between which State entity is the lender and which [***] is, in our view, immaterial. We
therefore include the fee as part of the returns Air bus must pay in return for the transfer of risk to
Germany, and as relevant to the question of what a market lender would require to assume the
same risks.
6.335. In general, fees and charges associated with, for example, the administration, processing
or management of a market loan might not form part of the returns on that loan per se, and may
be intended to compensate the lender for the value of services that they perform for the recipient,
but are ultimately revenue that comes to the lender in return for providing the loan. Such fees and
charges could, in principle, vary depending on the lender and type of lending. However, in our
view, this does not make them irrelevant for an analysis of whether a "benefit" has been conferred
pursuant to Article 1.1(1)(b) of the SCM Agreement. We consider that in this proceeding it is
appropriate to view such amounts as part of the borrowing rate, in order to see whether an
advantage has been conferred on the recipient compared to what would have been available on
the market. We therefore consider that the amounts charged by the member State should in any
event be factored into a consideration of whether a benefit has been conferred.
6.336. Thus, it is in our view appropriate to include the amounts expected to be paid by Airbus in
the form of fees due under the German A350XWB LA/MSF contract in the estimation of that
contract's IRR.
Quality and accuracy issues and the European Union's failure to provide the panel with
information
6.337. We now turn to highlight several quality and accuracy issues with the IRR estimates
provided by the European Union. At the outset, we wish to note that, despite being requested, the
European Union has not provided information and explanations that would have enabled us to
resolve the quality and accuracy issu es we have identified. This has impacted our ability to
independently verify the European Union's estimates of the IRRs. The United States urges us to
discard the IRR estimates because of the quality and accuracy issues, mainly because the revised
estimates provided by the European Union cannot be verified.522
6.338. The first of the quality and accuracy issues we have identified primarily concerns
undisclosed aircraft pricing information on the basis of which royalty amounts have been
determined in three of the LA/MSF contracts, and repayment levies for one of the contracts.523 The

521 European Union's comments on the United States' response to Panel question No. 161, para. 3.
522 See United States' comments on the European Union's response to Panel questions Nos. 163-165
(consolidated answer).
523 For the [***] contracts, royalty payments are based on a percentage of actual aircraft prices. By
contrast, in the [***] contract royalty amounts are not based on a percentage of aircraft prices but are

anticipated aircraft prices on which the value of these payments depend are not included in the
contracts. It is therefore not possible to know the precise value of such payments from the terms
of the contracts themselves. Anticipated aircraft prices do not appear in the presentation
purportedly provided to the relevant European Union member States as the basis for their decision
to provide LA/MSF. 524 Nor are anticipated aircraft prices inclu ded in, for example, the document
identified by the European Union as the Business Case for the A350XWB.525
6.339. The European Union did not disclose the calculations or cash flow amounts underlying its
estimated IRRs when it first submitted them. 526 Moreover, when specifically requested to provide
the relevant calculations, the European Union submitted cash flow analyses in which the
anticipated pricing and royalty revenue information had been redacted. 527 However, in the context
of its arguments concerning the appro priate market interest rate benchmark to apply to the
A350XWB LA/MSF measures, the European Union submitted calculations that included the
anticipated royalty revenue information that had been used to determine the IRRs.528 We reviewed
this information and f ound several potential errors in the calculation of the IRRs (and the
additional benchmark calculations).
6.340. A first error we discovered was a failure to convert USD into GBP , a mistake that was
confirmed by the European Union529 and had a material effect on t he IRR estimates. The
European Union provided recalculations of the IRRs, but with the revised expected royalty and levy
revenue information fully redacted. This meant that no further verification could be made of the
European Union's revision of the propo sed IRRs. In respect of the redacted information, the
European Union referred to the Panel's communication of 16 September 2013. That
communication concerned recurring cost data redacted from an A350XWB business -case related
document, and revenue data redacted from the CompetitionRx Report. In that communication, the
Panel stated that:
Given the exceptional nature of the European Union's acute sensitivities to disclosing
the specified recurring cost and revenue data, the Panel has decided to grant the
European Union's request to exclude this information from its answer to Panel
Question 126. The Panel does so, however, without prejudice to further consideration
of this matter at a later stage in these proceedings, should the Panel conclude that the
information not provided by the European Union is necessary for it to complete its
work.530
6.341. The European Union's request not to disclose certain information that had been sought in
Question 126 was granted in the context of the exploration of a different issue: the viability of the
A350XWB programme. Importantly, in our communication, we never excluded the possibility that
we might need or that we might ask for the same, or other, information of a sensitive nature at a
later stage in the course of this proceeding.
6.342. A second error we identified in the European Union's calculations is an inconsistency
between Professor Whitelaw's estimate of the number of aircraft expected to repay the loan
principal for the [***] A350XWB LA/MSF contract and the number stated in the relevant contract

expressly set out and are independent of aircraft prices. With respect to the [***] contract, the value of the
levy payments is also based on aircraft prices. However, as we understand it, under the [***] contract,
returns are to be [***]. This makes the value of revenues due from levies under the [***] contract
somewhat less dependent on aircraft prices.
524 Business case-related document, (Exhibit EU-(Article 13)-35) (HSBI). Exhibit EU-(Article-13)-35
(HSBI) is a twelve-slide EADS presentation containing overviews of then-current A350XWB orders, anticipated
air traffic growth worldwide, the A350XWB LCA family, and projected A350XWB deliveries.
525 A350XWB Business Case Presentation, (Exhibit EU-130) (HSBI), slide 55. The implications of the lack
of key information for the question whether the relevant European Union member States provided LA/MSF on
non-commercial terms are discussed elsewhere in this report, following our market benchmark analysis.
526 Whitelaw Response to Jordan, (Exhibit EU-121) (BCI/HSBI), para. 7.
527 Professor Robert Whitelaw, "Internal rates of return anticipated under A350XWB EU Member State
loans", Further Report, 19 September 2013, (Further Whitelaw Response), (Exhibit EU-421) (BCI/HSBI),
tables 1-5.
528 Professor Robert Whitelaw, "Calculation of the Macaulay Duration of the Financing Agreements for
the A350XWB", (Exhibit EU-380) (BCI/HSBI).
529 European Union's response to Panel question No. 163, paras. 2 and 4.
530 Panel's communication of 16 September 2013, para. 4.

itself.531 In response, the European Union and Professor Whitelaw first stated only that the error
resulted from a misunderstanding concerning aircraft revenues. 532 Professor Whitelaw corrected
the number of aircraft deliveries on which he based his conclusions for the French contract without
providing further explanation or underlying calculations. Professor Whitelaw did not initially correct
any other figures on the basis of such a misunderstanding. 533 Subsequently, when again asked
what the mista ke was534, the European Union described, in a submission that is HSBI 535, how it
related to the use of economic conditions from a different time -period than those used in the base
case and contract. The European Union then stated that the same mistake would have affected the
German contract.536 We are unable to verify whether the apparent error has been satisfactorily
corrected and whether it would affect the German contract's IRR as alleged by the
European Union.
6.343. In addition, we also identified that Professor W hitelaw's calculation of the German
contract's IRR appears to be based on the more ambitious schedule of anticipated deliveries that
was included in the earlier -produced business case documents and in the other A350XWB LA/MSF
contracts, rather than the [***] schedule of deliveries actually included in the German
contract.537 If Professor Whitelaw had used the schedule of anticipated deliveries and the detailed
schedule of anticipated payments based on that anticipated schedule, which were both actually
included in the contract, he would have estimated a different IRR. For example, Professor
Whitelaw's calculations expect the amortization of the loan principal occurring in [***], whereas
the German schedule does not expect this until [***]. Professor Whitelaw's calculations of the
levy, interest and royalty revenues would appear to have been affected by this error. 538
Additionally, Professor Whitelaw's calculation of the interest and the fees also do not appear to
commence from the date of anticipated first drawdo wn, contrary to what is required under the
contract, [***].539 However, based on our own interpretation of the schedule of expected
revenues included in the German contract, we consider that the difference is not material enough
to discard the IRRs proposed by the European Union.
6.344. The United States, in the context of our questions seeking to confirm the above errors and
requesting accurate calculations, submits that the "numerous opportunities for inadvertent errors
in these types of calculations … raises the possibility that the new calculations are themselves
flawed." The United States argues that the inability to verify the IRRs should invalidate them
altogether and that, instead, the rates initially proposed by the United States, which do not include
royalty revenues, should be preferred and used as representations of the returns to the relevant
European Union member States.540

531 See Panel question No. 129.
532 On 23 August 2013, the Panel asked the European Union, in Panel question No. 129(a): "Please
explain how Professor Whitelaw derived this figure and why it differs from the relevant figure on page 4 of
Exhibit EU-376 (HSBI) and in Article 6.3 of the French Protocole d'Accord (Exhibit EU(Article 13)-1 (BCI and
HSBI))". The European Union responded that: "Professor Whitelaw [***]". (European Union's response to
Panel question No. 129, para. 88).
533 Further Whitelaw Response, (Exhibit EU-421) (BCI/HSBI), paras. 18-20.
534 On 31 March 2014, the Panel asked the European Union in Panel question No. 164 (ii): "What was
the mistake that Professor Whitelaw made in [***] provided by Airbus that caused him to initially [***] for
the French A350XWB LA/MSF contract?". The European Union's response is in the HSBI version of the
European Union's response to Panel question No. 164, para. 5 (lines 5-6 and 6-7) and HSBI version of
European Union's response to Panel question No. 165, para. 11 (line 6).
535 See HSBI version of the European Union's response to Panel question No. 164, para. 5 (lines 5-6 and
6-7), and the HSBI version of European Union's response to Panel question No. 165, para. 11 (line 6); we also
note what is at A350XWB Business Case Presentation, (Exhibit EU-130) (HSBI), slide 66; and CompetitionRx
Report, (Exhibit EU-127) (BCI/HSBI), paras. 133-136.
536 European Union's response to Panel question No. 164.
537 Compare Professor Whitelaw's calculation of the Internal Rate of Return for the A350XWB LA/MSF
contract with Germany [***] (Further Whitelaw Response, (Exhibit EU-421) (BCI/HSBI), table 2), with [***]
(Annex 1.4(f) to German KfW A350XWB Loan Agreement [***], (Exhibit EU-(Article 13)-23) (Original German
version (Revised) and English translation) (BCI/HSBI)).
538 This may also have affected Professor Whitelaw's calculation of the Macaulay duration of the German
contract, discussed below.
539 [***].
540 United States' comments on the European Union's response to Panel question Nos. 163-165,
paras. 1-12 (consolidated answer).

6.345. The European Union's earlier provision of estimated revenues in the context of its
submissions concerning the appropriate market benchmark541 was followed by a choice to withhold
the same or very similar information that would have enabled verification of its purported
corrections to the IRR calculations. The European Union justified its failure to disclose the
requested information on g rounds of sensitivity. 542 We find this difficult to square with the
European Union's provision of the same or similar information – from which we were able to
identify errors and other inconsistencies – in order to corroborate its arguments concerning one
aspect of the appropriate market benchmark. In the absence of the relevant information, we are
unable to judge whether or not the initial errors have been corrected, and whether or not there are
new ones.543 Without the full information underlying the European Union's estimates, we cannot be
certain that those expected IRRs are correct and are not overstated.
Conclusion on expected rates of return of the A350XWB LA/MSF contracts
6.346. In summary, we conclude that subject to the understanding that IRR estimates incl uding
the expected returns from royalties represent the complete return that could be expected under
the relevant A350XWB LA/MSF contracts if the base case number of deliveries were to occur as
forecast, it is in principle appropriate to include those reve nues in the calculation of the maximum
rate of return that the relevant European Union member States could have anticipated under the
contracts. With respect to the fees due under the German A350XWB LA/MSF contract, we accept
the inclusion of such fee reve nues as cash flows that should be included in calculating the
contract's estimated IRR, both in view of the probable nature of the fees in this proceeding – in
particular involving the assumption of risks by the relevant member State – and so that any
advantage conferred by the difference between what would have been available on the market and
what was accepted by the member States, may be gauged.
6.347. We have noted some concerns about the European Union's IRR estimates, including that
the [***] levies and the revenues from royalties for three contracts appear to have been subject
to multiple errors deriving from the underlying aircraft pricing information, and the recalculations
are unable to be verified, therefore not permitting us or the United States to kno w whether the
identified errors persist or further errors have been made. However, we consider that it is
preferable to proceed on the basis of the European Union's unvalidated IRRs than to use the rates
of return advanced by the United States, which do no t take into account: (a) expected royalty
revenues up to the base case, and (b) revenues from fees and charges. We thus proceed with the
remainder of our analysis on the basis of the IRR estimates presented by the European Union.
6.348. As a result of our conclus ions above, the following IRRs will be used in our analysis to
represent the expected rates of return of the A350XWB LA/MSF contracts, for the purposes of
comparison with a market benchmark rate of return:

541 Professor Robert Whitelaw, "Calculation of the Macaulay Duration of the Financing Agreements for
the A350XWB", (Exhibit EU-380) (BCI/HSBI).
542 Certain (subsequently impugned) information was provided, as HSBI, supporting the
European Union's factual claims with respect to the Macaulay durations of the LA/MSF contracts.
(Professor Robert Whitelaw, "Calculation of the Macaulay Duration of the Financing Agreements for the
A350XWB", (Exhibit EU-380) (BCI/HSBI)).
543 For example, it appeared from the initial calculations that a particular escalation rate had been
applied to the royalty revenues, contrary to what is provided in HSBI contained in the A350XWB Business Case
Presentation, (Exhibit EU-130) (HSBI), at slides 52 and particularly the HSBI at slide 66. We are unable to tell
whether this was also the case in the revised calculations.

Table 1: European Union's proposed IRRs including royalties to base case and fees
Contract Internal Rate of Return proposed by the European Union,
which includes EU estimate of royalties to base case, and fees
French A350XWB LA/MSF contract [***]
German A350XWB LA/MSF contract [***]
Spanish A350XWB LA/MSF contract [***]
UK A350XWB LA/MSF contract [***]

6.5.2.3.3.2 Market benchmark rate of return
6.349. We now proceed with our evaluation of the parties' submissions concerning the rate of
return that a market lender would have demanded for provid ing financing on the same or similar
terms as LA/MSF for the A350XWB.
6.350. The United States argues that no market instrument exists that would offer all of the key
features of LA/MSF on the terms and conditions accepted by the EU member State
governments.544 Accordingly, in seeking to show that the A350XWB LA/MSF measures are
provided at below -market rates, the United States compares the LA/MSF rates of return with a
constructed market benchmark rate. To this end, the United States proposes a market benchmark
rate constructed from: (a) a general borrowing rate that the recipient (Airbus) would have to pay
to a market lender, plus; (b) a project -specific risk premium that represents the additional return
that a lender would require for offering financing on the pa rticular terms of the relevant LA/MSF
contracts.
6.351. We recall that the parties adopted a similar approach to derive the market benchmark rate
of return used in the original proceeding, with the European Union disagreeing with the values
proposed by the United States only as regards the project-specific risk premium.545 In this dispute,
however, the parties have expressed differing views about both the general corporate borrowing
rate and the project-specific risk premium, disagreeing about not only what the val ues of the two
components should be, but also from what bases these values should be derived. We examine the
parties' positions in relation to both of these matters in the following subsections, starting with the
parties' arguments concerning the general corporate borrowing rate.
General corporate borrowing rate
6.352. The parties' submissions concerning the appropriate general corporate borrowing rate that
should be used for the purpose of constructing the market benchmark rate of return raise one
initial threshold question – whether to use the rates derived from the data and regression models
used in the original proceeding or evidence of EADS' actual general borrowing costs at the relevant
times.
6.353. The general corporate borrowing rates proposed by the United State s are based on the
same data used to derive the general corporate borrowing rates applied in the original proceeding,
updated to account for the timing of the conclusion of the relevant A350XWB LA/MSF contracts.
We recall that in the original proceeding, t he United States constructed a corporate borrowing rate
for each of the four European Communities member States, using limited bond data then available
regarding the relevant Airbus companies for the time periods in question, and regression models
and other techniques to fill data gaps. 546 The constructed corporate borrowing rate for each of the
four European Communities member States was the sum of a government borrowing rate (said to
be a "risk free" borrowing rate) derived from government bonds and a "gene ral corporate risk
premium", or credit spread, derived from Aérospatiale and BAE Systems bond data for borrowing

544 United States' second written submission, paras. 288 and 289.
545 Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.433-7.434.
546 A full explanation of the approach may be found in the Ellis-Jordan Report, 10 November 2006
(Exhibits USA-474 and 506) (BCI).

in France and the United Kingdom (that is, the spread between French and UK risk -free rates) and
the performance of similarly -rated bonds. The corporate risk premium was applied over the
relevant country-specific risk-free rate to arrive at a corporate rate for each contract.547
6.354. The United States maintains that this approach was "accepted by the Panel, the
Appellate Body, and the parties to the di spute"548 in the original proceeding. Thus, in this
proceeding, the United States proposes to use the same data and regression models applied in
relation to the bonds issued by BAE Systems and Aérospatiale, but to update the results on the
basis of the recen t performance of a selection of similarly -ranked but otherwise unrelated
bonds.549 The United States' expert Dr Jordan also updates the government bond -based risk-free
rates.550 Dr Jordan reports that he "also considered alternative methods for determining the Airbus
corporate borrowing rate based on European and UK corporate bond markets". However, according
to Dr Jordan, the use "of these methods would not change the overall conclusion that A350XWB
LA/MSF is granted at below-market interest rates".551
6.355. The results of Dr Jordan's calculations to determine the Airbus corporate borrowing rate,
during the relevant years552 are as follows:
Table 2: United States' proposed Airbus corporate borrowing rate for [***]
EU member State Government bond
yield
Corporate credit
spread
Airbus corporate
borrowing rate
(government bond
yield + corporate
credit spread)
France 3.65% 2.14% 5.79%
Germany 3.22% 2.14% 5.36%
Spain 3.97% 2.14% 6.11%
UK 3.65% 1.14% 4.79%

547 See Ellis-Jordan Report, 10 November 2006 (Exhibit USA-474/506) (BCI), pp. 1 and 7.
548 United States' second written submission, para. 285 (citing Appellate Body Report, EC and certain
member States – Large Civil Aircraft, paras. 860-862, and 874); and United States' opening statement
549 The United States' expert Dr Jordan explains that he updates the government borrowing rates for
each of France, Germany, Spain and the United Kingdom using 10-year government bond data for the years
now in question, obtained from the OECD. To arrive at the updated general corporate risk premium, he uses
"the regression models described in the Original NERA report" to extend the corporate risk premium analysis
from the original proceeding to [***]. (Jordan Report, (Exhibit USA-475) (BCI/HSBI), para. 13, table 2, and
n 2 thereto). The Original NERA report is exhibited in this proceeding as the Ellis-Jordan Report,
10 November 2006 (Exhibit USA-474/506 (exhibited twice)) (BCI).
550 Jordan Report, (Exhibit USA-475) (BCI/HSBI), para. 13, table 2, and n 1 thereto.
551 Jordan Report, (Exhibit USA-475) (BCI/HSBI), para. 13, table 2, and n 2 thereto.
552 Jordan Report, (Exhibit USA-475) (BCI/HSBI), para. 13 and table 2.

Table 3: United States' proposed Airbus corporate borrowing rate for [***]
EU member State Government bond
yield
Corporate credit
spread
Airbus corporate
borrowing rate
(government bond
yield + corporate
credit spread)
France 3.12% 2.20% 5.32%
Germany 2.74% 2.20% 4.94%
Spain 4.25% 2.20% 6.45%
UK 3.61% 2.20% 4.75%

6.356. In the original proceeding, the European Communities did not reject the entirety of the
United States' construction of the proposed interest rate benchmarks but sought to discredit only
the project -specific risk premium component. The European Communities applied the same
general government risk -free rates and corporate borrowing premium used in the United States'
calculations when deriving its own proposed market-based benchmark rates of return.553 However,
in this proceeding, the European Union rejects the United States' approach, arguing that it is
"exaggerated" when compared to the observed borrowing rate of the Airbus parent company,
EADS – the availability of which, the European Union argues, is a relevant factual difference.554
6.357. The European Union considers that, unlike in the original proceeding, the borrowing history
and bond data of Airbus' parent company, EADS, was directly observable at the time the A350XWB
LA/MSF contracts were concluded. 555 The European Union concedes that the use of what it terms
"surrogates" for the corporate rate was "arguably understandable" in the original proceeding
because, prior to the formation of EADS in July 2000, there was no readily observable market
indication of company -specific borrowing cost for all of the member companies of the
four-company consortium that constituted Airbus. 556 However, "the situation had changed
dramatically" by the time the A350XWB LA/MSF agreements were concluded. "{B}y that point in
time Airbus was no longer a four -company consortium, and instead had become, many years
earlier, an integrated company". 557 The European Union's expert, Professor Whitelaw, asserts that
it "is possible to establish from market data the company's actual cost of long -term borrowing",
that is, "EADS' actual, long -term borrowing rates at the date of the agreements, expressed as the
yield on its longest-term bond".558
6.358. The European Union refers to the EADS Finance B.V. 5.5% coupon 03/18 medium -term
note (MTN) 559, a bond issued 24 Septe mber 2003 and maturing 25 September 2018. 560 The
European Union cites the relevant yield on this bond as a rate of 4.14% for EADS' actual cost of
long-term debt for the agreements with France, Germany and Spain, and 4.69% for the
agreement with the United Ki ngdom due to conversion from EUR to GBP. 561 The European Union
considers that "there is no need, let alone justification, for Dr. Jordan to estimate, using a

553 Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.432-7.433.
554 European Union's second written submission, paras. 309-310.
555 Whitelaw Response to Jordan, (Exhibit EU-121) (BCI/HSBI), paras. 10-11.
556 European Union's second written submission, para. 309.
557 European Union's second written submission, para. 310.
558 Whitelaw Response to Jordan, (Exhibit EU-121) (BCI/HSBI), paras. 8 and 11-12, and fns 10 and 13.
559 EADS Finance B.V. 03/18 MTN 5.5% coupon Eurobond (effective interest rate 5.6%) maturing
25 September 2018, ISIN XS0176914579, traded on the Frankfurt Stock Exchange. It was swapped during
2005 into variable rate of 3M-Euribor + 1.72%. See EADS Financial Statements 2009, (Exhibit EU-163), p. 65.
560 Whitelaw Response to Jordan, (Exhibit EU-121) (BCI/HSBI), paras. 8 and 11-12, and fns 10 and 13.
561 Whitelaw Response to Jordan, (Exhibit EU-121) (BCI/HSBI), para. 12.

surrogate approach, what can be directly observed as the premium the markets charge EADS for
corporate debt".562
6.359. The results of Dr Jordan's calculations to determine the Airbus corporate borrowing rate,
during the relevant years 563, compared to the rate cited by the European Union's expert,
Professor Whitelaw, are as follows:
Table 4: Respective proposals for Airbus corporate borrowing rate for [***]
EU member State
US expert Dr Jordan's estimate
of Airbus corporate borrowing
rate
(government bond yield +
corporate credit spread)
EU expert Professor Whitelaw's
estimate of Airbus corporate
borrowing rate
(based on EADS bond yield)
France 5.79% 4.14%
Germany 5.36% 4.14%
Spain 6.11% 4.14%
UK 4.79% 4.69%

Table 5: Respective proposals for Airbus corporate borrowing rate for [***]
EU member State
US expert Dr Jordan's estimate
of Airbus corporate borrowing
rate
(government bond yield +
corporate credit spread)
EU expert Professor Whitelaw's
estimate of Airbus corporate
borrowing rate
(based on EADS bond yield)
France 5.32% 4.14%
Germany 4.94% 4.14%
Spain 6.45% 4.14%
UK 4.75% 4.69%

6.360. We agree with the European Union that while the corporate borrowing rate was derived in
the original proceeding in the same way that the United States proposes in this proceeding, the
integration of the Airbus entities and the availability of the EADS bond data are relevant factual
differences between the original proceeding and this proceeding that justify a departure from the
approach taken in the original proceeding.
6.361. As we see it, it is preferable to derive a market benchmar k on the basis of data pertaining
to the borrowing entities' own market -based borrowing, rather than generic estimates, where it is
possible to do so.
6.362. We recall that it is well established that a "financial contribution" will confer a "benefit"
upon a recipient when it places that recipient in a more advantageous position compared with the
position of that recipient in the absence of the financial contribution .564 We consider that a market

562 European Union's second written submission, para. 311 (citing Whitelaw Response to Jordan,
(Exhibit EU-121) (BCI/HSBI), para. 12.) (emphasis original)
563 Jordan Report, (Exhibit USA-475) (BCI/HSBI), para. 13 and table 2.
564 See Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.1090-7.1091,
7.1123-7.1124, and 7.1181-1182 (citing Panel Report, Canada – Aircraft, para. 9.112), cited with approval in

benchmark should approximate as closely as possible lending on the sa me, or similar, terms and
conditions to the particular recipient . We find support for this understanding in the context
provided by Article 14(b) of the SCM Agreement, which provides that:
A loan by a government shall not be considered as conferring a benefit, unless there is
a difference between the amount that the firm receiving the loan pays on the
government loan, and the amount the firm would pay on a comparable commercial
loan which the firm could actually obtain on the market. In this case the benefi t shall
be the difference between these two amounts. (emphasis added)
6.363. In our view, the actual market borrowing observable for the economic entity indicated as
the recipient in the contract would appear to be a logical starting point. We consider that this is
consistent with the panel's approach, albeit in a different context, in the original proceeding:
In principle, we agree with the view that the returns associated with market financing
actually provided to Airbus for the same project as LA/MSF would ser ve as an
appropriate basis from which to derive the relevant project -specific risk premium.
Indeed, such an approach would be preferable to the one used by the United States to
calculate its own proposed project-specific risk premium.565
6.364. We consider that us ing relevant bond data directly observable at the time that the
A350XWB LA/MSF contracts were concluded – to the extent that such data reflects borrowing by
the relevant entities – would, in principle, be similarly preferable to a regression model estimate
that uses data from a generic selection of bonds that are rated similarly to the old Aérospatiale
and BAE Systems bonds. In this regard, we note that in the original proceeding, the United States'
own experts also expressed a preference for using directly observable data in the methodology
they used to derive the general corporate risk premium:
In some of the more recent years, the credit spread has been directly observable for
two of the Airbus operating companies, BAE Systems and Aerospatiale, as they i ssued
publicly traded bonds. … Because BAE and Aerospatiale did not issue new bonds in
each year since 1967, we developed a regression model to estimate what the credit
spread for those issuers would have been in the years for which no data points are
available.566
6.365. Thus, the United States' experts in the original proceeding used directly observable data
where such data were available, relying on regression models only where directly observable data
were not available for the relevant companies.
6.366. In this procee ding, however, the United States questions the extent to which the EADS
bond data may be used to construct the relevant corporate borrowing rates, arguing that the data
do not reflect the borrowing costs of the relevant national -level Airbus entities that were parties to
the LA/MSF contracts. In any case, the United States considers that even if the EADS bond data
were used, the LA/MSF measures would still constitute subsidies, if they were adjusted to properly
account for the relevant dates of the A350XWB LA/MSF agreements and the differences in the
maturity and duration of the EADS bond instrument compared with the LA/MSF contracts. We
examine the United States contentions in the following subsections.
Whether the EADS bond reflects the identity of the borrower
6.367. The United States questions whether the bond representing the corporate borrowing of
EADS – Airbus' parent company 567 – is a good reflection of the general corporate rate associated

Appellate Body Report, Canada – Aircraft, para. 149. See also Appellate Body Report, Canada – Aircraft,
paras. 157-158; and Appellate Body Report, US – Countervailing Measures on Certain EC Products, para. 102.
565 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.480.
566 Ellis-Jordan Report, (Original Exhibit US-80), (Exhibit USA-474/506 (exhibited twice)) (BCI), p. 12.
567 As the panel described in the original proceeding, EADS N.V. is the parent company of Airbus. In
October 2006 EADS purchased BAE Systems' 20% interest in Airbus SAS, and Airbus SAS became a wholly-
owned subsidiary of EADS. (See Panel Report, EC and certain member States – Large Civil Aircraft,
section VII.E.1 Attachment: Corporate History of Airbus, p. 360, paras. 1-7 and fns thereto, and para. 7.183).

with the recipients or borrowers, which are principally Airbus entiti es or subsidiaries based in the
territory of the member States with which the relevant contract is concluded.
6.368. The United States and Dr Jordan state that the assumption that EADS is the only company
whose corporate risk must be considered is "a questionabl e and unexplained simplification". 568 In
this regard, the United States observes that "[***]".569 The United States appears to consider
that this means the yield on the EADS bond reflects only the corporate borrowing rate of EADS and
not the specific entities that are party to the contracts, and thus does not accurately represent the
cost of corporate risk involved with each of the contracts at issue.
6.369. The European Union counters that "Professor Whitelaw's reference to EADS' corporate
borrowing rate is entirely appropriate, because EADS [***]. Thus, the yield on the EADS bond he
selected represents the cost of corporate risk for these instruments". 570 The European Union
continues: "While certain of EADS' subsidiaries are also party to the loan agreements, that doe s
not mean that the corporate risk of these loans could be any greater than the corporate risk of
EADS, which [***]. If anything, adding an entity would lower the risk."571
6.370. In respect of the four contracts, the Airbus subsidiary operating in the relevant co untry is,
as we understand it, the party that receives LA/MSF. There is no evidence before us of directly
observable borrowing rates for those subsidiaries. In the German and UK contracts, Airbus SAS
(Toulouse) is an additional obligor, incurring liability for obligations therein. There is no evidence of
directly observable borrowing rates for Airbus SAS (Toulouse). In only one of the contracts – the
UK contract – is EADS a party to the contract. As EADS is not the recipient, or a party to the
remaining three contracts, we now consider whether its borrowing appropriately reflects borrowing
for the recipient entities, given that entity-specific borrowing rates do not appear to be available.
6.371. As we understand it, the degree to which the borrowing risks, and th erefore borrowing
costs, for a firm will mirror those of its parent or a related entity may vary according to: (a) how
closely the entities are linked, and (b) the degree to which the particular terms and conditions of a
borrowing instrument implicate the related entity or assets of a related entity.572 There is evidence
before the Panel that credit rating agencies, on whose ratings bond-purchasers and other investors
rely, view the debt of EADS and the other Airbus entities as closely related, so that the
performance of one entity affects the risk associated with the other.573 Some credit rating agencies
appear to view the entities as interchangeable. 574 In practice, it appears that Airbus subsidiary
entities would be rated no higher than the parent and their gen eral corporate borrowing costs
would consequently be the same, or higher. 575 In relation to a contract where there is an explicit

568 United States' response to Panel question No. 105, para. 378.
569 United States' response to Panel question No. 105, para. 378.
570 European Union's comments on the United States' response to Panel question No. 105 (citing Second
Whitelaw Response to Jordan, (Exhibit EU-396) (BCI/HSBI), paras. 4-10 and 31).
571 Second Whitelaw Response to Jordan, (Exhibit EU-396) (BCI/HSBI), para. 31.
572 Moody's Investors Service, Rating Methodology, The Application of Joint Default Analysis to
Government Related Issuers, April 2005, (Exhibit EU-138/381 (exhibited twice)), p. 1. See also Moody's
Investors Service, Special Comment, The Incorporation of Joint-Default Analysis into Moody's Corporate,
Financial and Government Rating Methodologies, February 2005, (Exhibit USA-507).
573 Moody's Rating Action, Moody's confirms EADS A1 rating: Approximately €6 Billion of Debt Securities
Affected, Global Credit Research, Moody's Investors Service, 9 March 2007, (Exhibit EU-384).
574 For example, in March 2001, when Airbus was still partly owned by BAE Systems and not fully owned
by EADS, CreditSuisse/First Boston stated that "{w}e believe EADS is a proxy for Airbus". (CreditSuisse/First
Boston, "European Aeronautic Defence and Space Company (EADS): Valuation remains inconsistent with
risks", Equity Research, 14 March 2001, (Exhibit EU-405)).
575 We note that Standard & Poor's describe how, even if a subsidiary is stronger, it will not be rated
higher than its parent:

A strong subsidiary owned by a weak parent generally is rated no higher than the parent. The
key reasons {are}:
The ability of and incentive for a weak parent to take assets from the subsidiary or burden it with
liabilities during financial stress; and
The likelihood that a parent's bankruptcy would cause the subsidiary's bankruptcy, regardless of
its stand-alone strength.

(Standard & Poor's, Corporate Criteria: Parent/Subsidiary Links; General Principles; Subsidiaries/Joint
Ventures/Nonrecourse Projects; Finance Subsidiaries; Rating Link to Parent, October 28 2004, p. 2). We also

joint obligation or guarantee by the parent, borrowing costs are closer to that parent's borrowing
rate than if there is no expl icit guarantee and only implicit support that might arise from a parent -
subsidiary relationship.576
6.372. The borrowing rate is thus expected to be closest to the parent company's borrowing rate
where the parent is explicitly a co-contractor [***]. The German and UK contracts implicate EADS
directly as a co -contractor [***].577 We therefore agree with the European Union that the
reference to EADS' corporate borrowing rate is appropriate for those two contracts.578
6.373. General borrowing rates may, however, be higher than the parent company rate where the
parent does not expressly ensure performance of the contractual obligations. 579 With respect to
the French and Spanish contracts, the extent to which EADS debt would reflect the borrowing costs
of the subsidiaries might refl ect only the implicit, uncertain support that might arise from the
relationship. A market participant might thus demand a return under a similar agreement – where
EADS does not guarantee performance – that is higher than the yield on the EADS bond . We
therefore consider that the benchmark rate for borrowing by solely the French Airbus entity, Airbus
SAS (Toulouse) or the Spanish Airbus entity, Airbus Operations SL, could be higher than the EADS
borrowing rate. We agree with the United States that it may ind eed be a simplification to use the
unadjusted price of EADS debt as directly representing the quantified corporate risk associated
with the Airbus entities' debt with respect to the French and Spanish contracts.
6.374. We note therefore that for the French and Sp anish contracts the EADS bond may be an
understatement of the corporate credit rate. However, we consider that using the EADS bond for
all four contracts, on the understanding that it may well be an underestimate for at least the
French and Spanish contrac ts, is preferable than the United States' proposed alternative. We
proceed with the remainder of this analysis on the assumption that for the French and Spanish
contracts the EADS bond may be somewhat low, and will evaluate the significance of this possibl e
understatement once we are in a position to perform the comparison between the IRRs of the
A350XWB LA/MSF contracts and the market benchmark, further below.
6.375. To the extent that the United States argues that country -specific rates are required only
because the LA/MSF agreements were concluded in different countries, we do not consider this
justifies using the Aérospatiale and BAE Systems bond data regression models rather than the
EADS bond as a basis for the corporate rate for all recipient entities. Whil e the contracts in
question were negotiated with the member States and thus in different countries, that is no reason
to assume that the relevant market on which financing would be available would be limited to the
country within which in the present insta nce the LA/MSF agreements were concluded, particularly
as regards financing that pertains to a transnational group of entities. There is no evidence that
the market for finance is limited to single countries, particularly in a situation, like the present one,
where the relevant firms are transnational and operating across a highly integrated market. EADS
itself is an issuer incorporated in The Netherlands and the bond in question was traded on the
Frankfurt stock exchange. In other words, we consider that i n the present case financing from any
country that would have been available to EADS or Airbus would be relevant. Thus, we see no
reason why a country -specific rate would necessarily be preferable in this regard. Further, if we
were to accept that EADS' bo rrowing would be stronger than that of the national Airbus entities, it

note that Moody's states that a "joint-default analysis" "formally incorporates the following principle: The risk
that two obligors will both default should be less than or equal to the default risk of the stronger obligor".
(Moody's Investors Service, Rating Methodology, The Application of Joint Default Analysis to Government
Related Issuers, April 2005, (Exhibit EU-138/381 (exhibited twice)), p. 1). See also Moody's Investors Service,
Special Comment, The Incorporation of Joint-Default Analysis into Moody's Corporate, Financial and
Government Rating Methodologies, February 2005, (Exhibit USA-507)).
576 See also Moody's Investors Service, Special Comment, The Incorporation of Joint-Default Analysis
into Moody's Corporate, Financial and Government Rating Methodologies, February 2005, (Exhibit USA-507).
577 See "Key Features of LA/MSF for the A350XWB" section, above.
578 European Union's comments on the United States' response to Panel question No. 105 (citing Second
Whitelaw Response to Jordan, (Exhibit EU-396) (BCI/HSBI), paras. 4-10 and 31).
579 Standard & Poor's, Corporate Criteria: Parent/Subsidiary Links; General Principles; Subsidiaries/Joint
Ventures/Nonrecourse Projects; Finance Subsidiaries; Rating Link to Parent, 28 October 2004, p. 2; Moody's
Investors Service, Rating Methodology, The Application of Joint Default Analysis to Government Related
Issuers, April 2005, (Exhibit EU-138/381 (exhibited twice)), p. 1. See also Moody's Investors Service, Special
Comment, The Incorporation of Joint-Default Analysis into Moody's Corporate, Financial and Government
Rating Methodologies, February 2005, (Exhibit USA-507).

does not necessarily follow that the spread between country -specific "risk-free" rates would be the
measure of the difference in borrowing by the entities. We do not consider that the United States'
preferred approach would necessarily address the United States' concerns. In sum, we consider
that those concerns are not enough to reject the use of the EADS bond as an observable reference
point for general borrowing rates for those entities, in this proceeding.
6.376. Having disposed of the United States' arguments for preferring its proposed constructed
corporate borrowing rate, and having determined the threshold question in favour of using the
EADS bond as the basis for the general corporate borrowing rate to be used in the construction of
the market benchmark (subject to the understanding that it may well underestimate the cost of
lending for the French and Spanish Airbus entities) we now turn to the United States' criticisms of
the methodology used by the European Union to derive the relevant corporate borrowing rate from
the EADS bond. The United States concerns relate to: (i) the proper point in time to observe the
EADS bond yield; and (ii) whether the resulting corporate borrowing rates sh ould be adjusted to
reflect the differences between the structure and term of LA/MSF borrowing compared with the
EADS bond. Finally, we deal with the point raised by the United States in the context of the
inclusion of normal fees and charges in making an assessment of "benefit".
Relevant dates for observing the EADS bond yield
6.377. The first main issue presented by the United States concerning the EADS bond rate
involves the relevant time at which the value of the EADS bond yield to maturity should be
observed. There are two sub -issues that arise in this regard: first, whether the approach of the
European Union's expert, Professor Whitelaw – which averages the yield over a period
representing the time during which the contracts were concluded – is an appropriat e way of
determining the EADS bond rate; and second, which date is relevant for deriving the yield at the
time of the French contract.
6.378. The European Union's expert, Professor Whitelaw, obtains the figures that he proposes as
the relevant benchmark corporat e borrowing rate by averaging the EADS bond's yield to maturity
over [***] months. He takes as his start point [***] (the date of the French A350XWB
Convention), and his end point is [***], the date of the UK LA/MSF agreement [***]. Professor
Whitelaw derives the average yield to maturity of the EADS 5.5% 03/18 MTN bond for the period
of [***]. According to the European Union and Professor Whitelaw this is the period over which all
four LA/MSF agreements were concluded. Professor Whitelaw reveals that the a verage yield to
maturity (YTM) on the bond was computed for the [***] for each of the three euro denominated
LA/MSF contracts, with an adjustment based on the average EUR to GBP swap rates being made
for the UK LA/MSF contract. 580 Professor Whitelaw's result s are a rate of 4.14% for EADS' actual
cost of long-term borrowing for the French, German and Spanish LA/MSF agreements, and 4.69%
for the UK LA/MSF agreement.581
6.379. Dr Jordan, the United States' expert, criticises the manner in which Professor Whitelaw
derives the results for EADS' actual cost of long -term debt based on the EADS bond, submitting
that the seven-month averaging period used by Professor Whitelaw is an "inconsistent approach to
selecting a yield based on the signing dates of the agreements" and pr oduces a downward bias in
the selected yield.582 In particular, Dr Jordan maintains that:
Professor Whitelaw's corporate borrowing rates are based on yields that include time
periods after the LA/MSF loan agreements were finalized. They also do not use
consistent periods of time around the loan agreement dates, and they are affected by
the downward trends in yields … the borrowing cost of EADS after [***] has no
relevance for the analysis of the EADS corporate borrowing rate in the case of the
French loan. Y et Professor Whitelaw's corporate borrowing rate is nonetheless based
on later dates. The inclusion in Professor Whitelaw's seven -month average of
irrelevant periods after the agreement dates also similarly occurs in the case of the

580 Whitelaw Response to Jordan, (Exhibit EU-121) (BCI/HSBI), para. 12, fn 12 ("The methodology is as
follows. Based on the average 10-year interest rate swap rates in EUR and GBP, I convert the EADS Euro yield
to a multiplicative credit spread. I then apply this multiplicative credit spread to the GBP swap rate to get the
GBP equivalent EADS yield. Source: Bloomberg.").
581 Whitelaw Response to Jordan, (Exhibit EU-121) (BCI/HSBI), para. 12.
582 Jordan Reply, (Exhibit USA-505) (BCI), para. 16. (footnote omitted)

[***] [***] Because the yield of the EADS Finance MTN was decreasing during
[***].583
6.380. The United States and Dr Jordan thus first criticise the approach of averaging the yield
over a [***]-month period, and second, argue that the relevant date of the French contract is not
[***] and that the [***] date should be used instead.
6.381. First, as regards the averaging approach, Dr Jordan presents the following chart to
illustrate his arguments:
Figure 1: EADS bond yield to maturity during contracting period

6.382. Dr Jor dan's observation of the EADS bond yield according to various dates 584 (with
Professor Whitelaw's average for comparison) are illustrated in the following table:

583 Jordan Reply, (Exhibit USA-505) (BCI), paras. 24-28.
584 Jordan Reply, (Exhibit USA-505) (BCI), table 6; and Jordan Materials in Response to Panel Questions
Nos. 110, 111, 112, and 114, (Exhibit USA-567) (BCI/HSBI), supplement to table 6.

Table 6: Respective proposals for EADS bond yield values
EU member State and
relevant date of
conclusion of loan
agreement
6 month
average
prior to date
of loan
agreement
1 month average
prior to date of
loan agreement
Yield on day of
loan agreement
Whitelaw average
yield over 7
months starting

France

([***])585

Germany

Spain

United Kingdom

6.383. This table shows the rates available for cer tain periods in the lead up to, and on the date
of conclusion of the contract. For the French agreement, under Professor Whitelaw's averaging
approach, the EADS yield is between 157 and 97 basis points lower than it would be under
Dr Jordan's approach. For the German agreement, the EADS yield is between 0 and 17 basis
points higher than under Dr Jordan's approach. For the Spanish agreement, under
Professor Whitelaw's averaging approach the EADS yield is between 55 and 18 basis points lower
than under Dr Jor dan's approach. For the UK agreement, under Professor Whitelaw's averaging
approach, the EADS yield is between 30 and 20 basis points lower than it would be under
Dr Jordan's approach.
6.384. We recall that the Appellate Body has also explained that:
Under a "benefit" analysis, a comparison is made between the terms and conditions of
the financial contribution when it is granted with the terms and conditions that would
have been offered on the market at that time … a panel's assessment of benefit
should focus on the relevant market benchmark at the time the financial contribution
is granted to the recipient. That benchmark entails a consideration of what a market

585 In their submissions, the parties have referred to the date of the conclusion of the French A350XWB
Protocole as [***]. We note that the French A350XWB Protocole is signed and dated [***]. [***] is the date
of a cover letter enclosing copies of the French A350XWB Protocole sent to the Director General of Airbus. A
subsequent letter from the Direction générale de l'aviation civile (DGAC) (French Civil Aviation Authority),
dated 10 October 2009, Exhibit EU-(Article 13)-10, referring to the French A350XWB Protocole, describes it as
A350XWB Protocole in an annex. (Exchange of Letters between Fabrice Brégier, Director General of Airbus, and
French Director General of Civil Aviation (DGAC) [***] and [***], (Exhibit EU-(Article 13)-10) (BCI)).
Additionally, the CompetitionRx Report states that "{t}he first RLI {repayable launch investment} funding
agreement was signed on [***]" and uses this day for a relevant pinpoint reference date. (CompetitionRx
Report, (Exhibit EU-127) (BCI/HSBI), para. 84 and fn 2, p. 18). We consider the correct date for the French
A350XWB Protocole to be [***]. Yields on both dates are shown in the tables of calculations for the sake of
completeness.

participant would have been able to secure on the market at that time. 586 (emphasis
original)
The Appellate Body further stated that:

The comparison is to be performed as though the {actual and benchmark} loans were
obtained at the same time … the assessment focuses on the moment in time when the
lender and borrower commit to the transaction587
6.385. Mindful of this guidance, we consider that borrowing costs should be observed at the time
that each particular contract was concluded. Averaging the borrowing rate of contracts concluded
over a time -period during which there were different market borrowing rates may l ead to
distortions. Professor Whitelaw's averaging approach could artificially lower a higher market
borrowing rate, leading to a misplaced finding that there was no subsidisation. It could also
artificially increase a lower market borrowing rate, and crea te a danger that a benefit might be
found in a case where LA/MSF was really obtained at, or above, market rate. In such an instance
there could be a misplaced finding of subsidisation.
6.386. As observed by Dr Jordan, Professor Whitelaw's averaging approach woul d result in the
application of corporate borrowing rates derived over time periods that are different for the four
LA/MSF contracts.588 For example, in the present case, the market rate for the UK loan agreement,
coming later, would be distorted upwards by h igher yields from the time when the French
agreement was concluded – some [***] earlier (according to Professor Whitelaw). The market
rate for the French loan agreement, however, would not be judged against market rates from
[***] prior to its conclusion, when the bond yields were even higher and would have likewise
distorted the rates upwards. We do not see a justification for judging the four LA/MSF agreements
by different standards in this respect. We are concerned that doing so would give unjustifiably
inconsistent results for each of the agreements.
6.387. Professor Whitelaw's averaging approach would also incorporate data from after the
conclusion of three of the four contracts. Market rates for debt after the conclusion of a contract do
not seem to us to be a good measure of what the market would have offered at the time it was
concluded. While market rates for debt in the lead -up to the conclusion of a contract could provide
empirical evidence of the "going market rates" and may be indicative of what the mar ket might
have been willing to offer and accept, and may thus inform what is known and predicted about
market rates at the time of conclusion, we find it difficult to see how what actually happens after
the conclusion of an agreement is relevant for the pu rposes of establishing a market benchmark
against which to assess whether a benefit is conferred pursuant to Article 1.1 of the
SCM Agreement. Rather, the expectations of future performance may be relevant.
6.388. The Panel therefore considers that Professor Whitelaw's approach of observing the average
daily yield to maturity over a [***]-month period during which the four contracts were signed,
does not provide the yields "at the time" that the terms, and thus rates, of the individual contracts
were negotiated a nd agreed. We are therefore unable to accept that Professor Whitelaw's
approach is consistent with the Appellate Body's guidance that: (a) the benchmark entails a
consideration of what a market participant would have been able to secure on the market at th at
time, and (b) that the assessment focuses on the moment in time when the lender and borrower
commit to the transaction. We therefore reject the averaging approach in favour of the yields from
a consistent time -period up to the date of the conclusion of the individual contract, as calculated
by Dr Jordan.
6.389. In terms of which of the consistent periods provided by Dr Jordan – the average yield over
the six months prior to the date of the relevant contract, the average yield over the month prior to
the contract, and the yield on the day of the contract – we consider that the yield on the day of
the signature of contract may reflect atypical fluctuations. Parties agreeing to a complex loan
contract may rather set the rates in the lead -up to the conclusion of th e contract, and prior to the

586 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 706.
587 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 835-836.
588 Jordan Reply, (Exhibit USA-505) (BCI), para. 27. Professor Whitelaw's use of the [***] period gives
an average yield for [***].

actual day on which the contract is signed. To this extent, the one-month average would appear to
be a reasonable proxy for the parties' expectations. This also seems consistent with the approach
taken in the CompetitionRx Repo rt in relation to finding the cost of EADS debt at the reference
date of [***].589 The six -month average may be less likely to reflect expectations during the
finalisation period, but may also be a helpful indication of market expectations. We therefore carr y
out our benchmarking assessment using the average yields one -month prior and six-months prior
to the conclusion of the contract, in the form of a range.
6.390. We next address the second issue raised by the United States' criticism of how the
European Union observes the EADS bond yield: the date used by Professor Whitelaw for the French
LA/MSF contract. The United States argues that the date [***] (the date of the French A350XWB
Convention) that is used by Professor Whitelaw is not the relevant date, and that, rather, the date
of the French A350XWB Protocole, [***], [***], should be the relevant date. 590 The
United States and its expert, Dr Jordan, consider that taking the [***] date is "arbitrary" and,
when combined with Professor Whitelaw's averaging approach, " leads to a significant downward
bias in the corporate borrowing rate".591 Dr Jordan states that:
[***]592
6.391. The European Union submits that the date of the French A350XWB Convention, [***],
should be used rather than the date of the French A350XWB Protocole. The European Union
submits that the Protocole was a preparatory act to the Convention, and simply defines the
financing agreement in broad terms, giving rise to only limited legal rights and obligations.
According to the European Union, such rights and obliga tions were subject to, and entered into
force only with, the conclusion of the French A350XWB Convention. The European Union adds that
for previous Airbus financing, termination measures terminated the second instrument, which it
views as confirmation that the operative document for establishing the entry into force of the
relevant instrument is that of the second instrument.593
6.392. We note that in this proceeding, this would be a material issue only if Professor Whitelaw's
averaging approach were used. Having r ejected that approach, whichever of the dates, either
[***] or [***], is used, we note that there is not a material difference in the yields. However, for
the sake of completeness, we lay out our analysis of the issue below.
6.393. We note again that the Appella te Body has stated that in the context of a benefit analysis
under Article 1.1 of the SCM Agreement, "the assessment focuses on the moment in time when
the lender and borrower commit to the transaction".594
6.394. Although it came earlier in time, the French A350X WB Protocole is in fact the substantive
agreement. The French A350XWB Protocole sets out the terms and conditions, including the
amounts to be disbursed to Airbus and the terms on which the sum was to be repaid, and any
royalties paid, and including the an ticipated schedule of deliveries – thus determining the returns
that could be expected by the member State government. At that point in time, both parties had
committed to the financial contribution's form and understood it to involve a particular anticipa ted
rate of return (subject to our concerns about the royalty revenue, discussed above, which issues
were not resolved by the French A350XWB Convention in any event). We note that a letter dated
[***] provides that the amount "is to be attributed via the s ubsequent French A350XWB

589 CompetitionRx Report, (Exhibit EU-127) (BCI/HSBI), para. 84 and fn 2 (p. 18).
590 United States' comments on the European Union's response to Panel question No. 99, para. 275 and
fn thereto. The United States also cites Jordan Reply, (Exhibit USA-505) (BCI), paras. 24-33; and
CompetitionRx Report, (Exhibit EU-127) (BCI/HSBI), para. 7, which refers to [***] as the date "when Airbus
concluded the first funding agreement with a Member State".
591 United States' response to Panel question No. 113, para. 10 (citing Jordan Reply, (Exhibit USA-505)
(BCI), para. 25).
592 Jordan Reply, (Exhibit USA-505) (BCI), paras. 26-27. As we have noted above, this appears to be a
slight error: the date of the contract is [***].
593 European Union's comments on the United States' response to Panel question No. 105, paras. 890-
891. (footnotes omitted)
594 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 835-836.

Convention, according to the conditions detailed in the French A350XWB Protocole of [***]".595
We consider that, as a factual matter, the earlier French A350XWB Protocole committed the sums
on the particular terms, while the later French A350XWB Convention dealt with the practicalities of
providing those sums to the recipient. In other words, the French A350XWB Convention was the
means of carrying out the commitment made in the earlier French A350XWB Protocole, or the step
that implemented the commitment made under the French A350XWB Protocole.
6.395. As we see it, this aspect of our benchmark analysis in this proceeding involves comparing
the market rates at the time that the contracting parties agreed on the details that gave rise to the
expected rates of return. It is our view that the relevant bargain that fixed these rates of return
took place in [***], whether or not the later French A350XWB Convention was solely an act by
which the government provided the funds.
6.396. We also note that in i ts earlier submissions, the European Union expressly recognised that
the earlier date is relevant:
{T}he United States claims, again, that the 2006 "commitments" by France,
Germany, Spain and the United Kingdom to support the A350XWB – in a yet
unspecified form and on unspecified terms and conditions – are tantamount to a
subsidy that causes adverse effects. The United States does so despite recognising
that the terms of A350XWB MSF were agreed to between Airbus and each of the
member States considerably l ater, and over a significant period of time, beginning in
June 2009. Thus, MSF for the A350XWB could, at most, constitute a measure subject
to challenge as an alleged subsidy after each of the four loans was brought into
existence over a period of time beginning in June 2009 … .596 (footnotes omitted)
6.397. In another example, the European Union stated in its submission:
Each of these factors relates to the period after the launch of the A350XWB in
December 2006, but before the conclusion of the first financing ag reement in
June 2009, and demonstrates that the financing agreement played no role in Airbus'
commitment to the A350XWB.597
6.398. In addition, the CompetitionRx Report, submitted by the European Union, uses [***] as
the "Reference Date" for "when Airbus concluded the first funding agreement with a member
State"598, and states that "{t}he first RLI {repayable launch investment} funding agreement was
signed on [***]", using that date for a pinpoint reference date.599
6.399. In summary, we consider that the date of the French A 350XWB Protocole, signed on
[***], copies of which were relayed with a cover letter dated [***], should be used as the
relevant point in time when the French Government committed to the terms and conditions of
LA/MSF, rather than the date of the French A35 0XWB Convention signed on [***] that attributed
the funds.
Whether to adjust the EADS bond yield: maturity and duration
6.400. We now evaluate the United States' argument that the EADS bond yield should be adjusted
to account for the fact that its duration and re payment structure is different to the LA/MSF
agreements.600 The United States seeks to adjust the EADS bond yield based on similarly -rated
bonds with a term of 20 years, on the grounds that the LA/MSF loans have a much longer term to
maturity, or period, tha n the EADS bond. The European Union counters that the term to maturity
is not determinative because LA/MSF and the EADS bond have similar exposure when payment

595 Exchange of Letters between Fabrice Brégier, Director General of Airbus, and French Director General
of Civil Aviation (DGAC) [***] and [***], (Exhibit EU-(Article 13)-10) (BCI)).
596 European Union's first written submission, para. 360.
597 European Union's first written submission, para. 1105.
598 CompetitionRx Report, (Exhibit EU-127) (BCI/HSBI), paras. 7, 8, and 12 (pp. 8 and 9).
599 CompetitionRx Report, (Exhibit EU-127) (BCI/HSBI), para. 84 and fn 2 (p. 18).
600 United States' response to Panel question No. 102, paras. 368-369; and comments on the
European Union's response to Panel question Nos. 163-165, para. 6 (consolidated answer). See also Jordan
Reply, (Exhibit USA-505) (BCI), para. 3, p. 2, and fn 3.

structure is taken into account. The European Union considers this is shown when the "Macaulay
duration" measure is used as a basis for comparison. For the European Union, this negates the
need for the United States' proposed 20-year adjustment. The parties disagree as to whether the
contracts' and bond's Macaulay durations appropriately reflect all relevant differences associated
with the different terms of the instruments.
6.401. The EADS bond is a medium-term note (MTN) issued on 24 September 2003 and maturing
25 September 2018601, and thus had a term to maturity of 15 years when issued. By the time the
various contracts were concluded, the bond had a remaining term to maturity of between 8 and
9 years. The LA/MSF contracts are expected to reimburse the principal approximately [***] years
after the commencement of disbursements and are expected to deliver a return, via levies and
royalties, for [***] years after the commencement of disbursements.602
6.402. The United States and its expert, Dr Jordan, observe that, as a general principle, investors
holding a longer -term instrument would typically require a higher yiel d – that is, annual return
realized by holding the instrument to maturity – than investors holding a shorter -term
instrument.603 The United States argues that, "ideally, the corporate borrowing rate component of
the benchmark rates of return would be based on a debt instrument with the same maturity as the
actual loan under analysis. Otherwise, the comparison between the benchmark rate of return and
the rate of return for the actual loan under consideration could be affected by the differences in
maturities, and would thus distort the determination of the existence and/or magnitude of the
subsidy".604 The United States points out that while the EADS bond's term to maturity, or length of
borrowing, would be 8 -9 years, the LA/MSF borrowing period would be "much lo nger than 10
years".605 The United States submits that using a debt instrument with a maturity of 8 -9 years
would artificially reduce, or understate, the corporate borrowing rate component of the benchmark
rate.606 The United States also submits that using 10 -year instruments, as it did in its preferred
approach to deriving a corporate rate, and before the original panel, is "quite conservative" and
"by using 10-year financing to construct the commercial benchmark rate, the parties and the Panel
have been underestimating the magnitude of the subsidies".607
6.403. The United States submits that in order to correct for the difference in maturities, the
EADS yield should be adjusted. The United States' expert proposes to add the term spread (or
term premium) of corporate b onds with 20 -year maturities, and with the same credit rating as
EADS' debt, to the yield of the EADS bond.608 To support its proposal to adjust the bond yield for a
20-year term to maturity, the United States points to EU arguments made elsewhere in the current
proceeding that LA/MSF should be amortized over a period of 21 years609, and to evidence that the

601 EADS Finance B.V. 03/18 MTN 5.5% coupon Eurobond maturing 25 September 2018, ISIN
XS0176914579, traded on the Frankfurt Stock Exchange. Details of this bond issue are provided with
Professor Robert Whitelaw, "Comments on Elements of the 'Responses of the United States to the Second Set
of Additional Questions from the Panel'", 1 May 2014, (Whitelaw Comments on US Responses), (Exhibit EU-
508) (BCI).
602 According to the "corrected'" figures provided by the European Union, the French LA/MSF contract
expects the loan principal to be paid off after a period of [***], with the maximum life of the instrument with
royalties expected to extend to a period of approximately [***]; the German LA/MSF contract expects the
loan principal to be paid off after a period of [***], with the maximum life of the instrument with royalties
expected to extend to a period of approximately [***]; the Spanish LA/MSF contract expects the loan
principal to be paid off after a period of [***], with the maximum life of the instrument with royalties
expected to extend to a period of approximately [***]; and the UK LA/MSF contract expects the loan principal
to be paid off after a period of approximately [***], with the maximum life of the instrument with royalties
expected to extend to a period of approximately [***]. (See also Whitelaw Comments on US Responses,
(Exhibit EU-508) (BCI), para. 10).
603 United States' response to Panel question No. 95, para. 352.
604 United States' response to Panel question No. 95, para. 353.
605 United States' response to Panel question No. 95, paras. 353-354.
606 United States' response to Panel question No. 95, paras. 353-354.
607 United States' response to Panel question No. 95, para. 355.
608 Jordan Reply, (Exhibit USA-505) (BCI), para. 20 (providing the following example at fn 30: "As an
example of the use of term spreads to adjust maturity, suppose we take the maturity of the EADS note to be
9 years in January 2010 with a yield of 4.15%. Further suppose that the 10-year to 9-year yield spread is
0.15% and the 20-year to 10-year yield spread is 0.70%. The adjusted 20-year yield of the EADS note is then
5.00%, (i.e., 4.15% + 0.15% + 0.70%)").
609 Jordan Reply, (Exhibit USA-505) (BCI), p. 3 and fn 8 (citing European Union's first written
submission, para. 206).

UK Government's assessment used [***] as a basis for suggesting appropriate rates of return on
the UK contract, consistent with a view that an instrument w ith a life of 20 years is appropriate to
benchmark LA/MSF.610
6.404. The United States' proposal to correct for what the EADS bond yield would be if it had 20
years remaining until maturity would appear to add between [***] and [***]611 basis points to
the general corporate borrowing rate component of the benchmark.
6.405. With respect to the fact that it did not propose such an adjustment in the original
proceeding, the United States points out that in the original proceeding it had noted that the use of
a 10 -year maturit y would understate the actual maturity and therefore it had understated the
actual credit spreads associated with the LA/MSF contracts, which were open ended or had a
maturity that was significantly longer than 10 years.612
6.406. In response to the United States' proposal to adjust the yield to take into account the
differences in the terms of the instruments, the European Union submits that if the Macaulay
duration financial analysis measure is used to compare the EADS bond with the LA/MSF contracts,
the instruments are in fact similar and no adjustment need be made. The European Union argues
that the Macaulay duration measure is appropriate for comparing the relative risks to an investor
relating to the remaining term of the EADS bond and the term of the LA/MSF co ntracts. The
European Union states in this regard that:
In assessing the comparability of two financial instruments, it is not their absolute
maturity (i.e., the date of their final payment) that is decisive, but the average life of
their cash flows, whic h adjusts for the characteristics of their cash flow profiles. For
example, it is not meaningful to compare, without adjustment, (i) the maturity of a
loan with periodic repayments of principal and interest to (ii) the maturity of a bond
without periodic repayments. In fact, a bond, with principal due at maturity, will have
a longer effective cash flow life than a loan with the same maturity that requires
principal repayments throughout the life of the loan. To measure the effects of
differences in the timi ng and magnitude of cash flows, financial analysts determine
what is known as the "Macaulay duration" of a financing instrument, which is
equivalent to its weighted average cash flow life.
When available market instruments have a cash flow profile different in some respects
from that of the financing agreements for the A350XWB, it is necessary to compare
their respective Macaulay durations {– equivalent to their weighted average cash flow
lives –} to assess the suitability of the market instrument. Indeed, to serve as the
basis for an element of the benchmark for the A350XWB -related financing
agreements, a bond should have approximately the same Macaulay duration as the
expected repayment stream associated with the A350XWB financing agreements.613
6.407. The European Union submits that the Macaulay duration of the EADS bond, to its
remaining term, is similar to the Macaulay durations of the LA/MSF contracts. To support its

610 Jordan Reply, (Exhibit USA-505) (BCI), p. 3 and fn 8 (citing UK Appraisal, (Exhibit EU-
(Article 13)-34) (HSBI). Additionally, we note that the contracts are expected to deliver the anticipated return
over the projected life of the A350XWB programme, and that in a different context Professor Whitelaw has
noted that "US estimates of programme life cycle for capital budgeting – 5 years of development followed by
15 years of deliveries – although not identical to, is consistent with the programme life assumed by Airbus in
capital budgeting". (Professor Robert Whitelaw, "Comments on US and NERA's Discussion of MSF Benefit and
Effects on Product Launch", 27 June 2012, (Exhibit EU-7) (BCI/HSBI), para. 25).
611 Using the approach accepted by the Panel in the preceding sections, the adjustment would be
between [***] and [***] basis points. (See Jordan Materials in Response to Panel Questions Nos. 110, 111,
112, and 114, (Exhibit USA-567) (BCI/HSBI), supplements to tables 6, 7 and 9 (pp. 2-7)). Using Professor
Whitelaw's averaging approach the adjustment seems to be between [***] and [***] basis points for the
individual contracts. (Jordan Reply, (Exhibit USA-505) (BCI), para. 20 and table 4; European Union's response
to Panel question No. 166, para. 18; and United States' comments on the European Union's response to Panel
question No. 166, para. 16).
612 United States' response to Panel question No. 95, para. 355 (citing Panel Report, EC and certain
member States – Large Civil Aircraft, para. 7.432 and fn 2579). See also Ellis-Jordan Report, (Original Exhibit
US-80), (Exhibit USA-474/506 (exhibited twice)) (BCI), pp. 7-8 and 11.
613 United States' response to Panel question No. 92, paras. 351-352.

contention, the European Union provides a number of calculations by Professor Whitelaw 614, which
it revised to take into account errors identified by the Panel but without providing revised
underlying revenues to enable a verification of the updated results.615
6.408. The United States contends that the Macaulay duration measure is not a useful metric in
this c ontext for two reasons: because: (a) it "captures only one type of risk – interest rate
changes – and does not account for others, such as the increased uncertainty associated with
repayments scheduled for a more distant point in time", and "the maturity o f a debt instrument is
highly probative of general riskiness, because a longer time horizon increases the amount of time
over which events can upset expectations"616; and (b) because a Macaulay duration "is an accurate
tool only if the timing and amount of r epayments are fixed in advance. … Where the repayment
schedule is flexible, as with success -dependent, levy-based LA/MSF, that tool is not useful, and
can be deceptive". 617 In respect of this latter point, the United States submits that LA/MSF is
provided "without an actual maturity", is "open -ended borrowing" and involves "variability in the
repayment stream that is undetermined ex ante"618 which is more akin to a bond with embedded
options.619 The United States submits that the Macaulay duration measure is thus "a flawed
measure of a bond's price sensitivity to interest rate changes for a bond with embedded options
{and} misleads the user because it masks the fact that changes in the expected cash flows must
be recognised for bonds with embedded options".620
6.409. The E uropean Union counters that the Macaulay durations of the LA/MSF contracts are
appropriate to measure interest rate risk, and would reflect the compensation that lenders require
for bearing interest rate risk. 621 With respect to the variability of the cash f lows under the LA/MSF
contracts, the European Union considers that the United States' argument is based on principles
that do not apply to LA/MSF (that is, the decision to exercise embedded options is itself dependent
on interest rate risk), and that, in a ny event, "any variability of the repayment stream is reflected
in the … project-specific risk premium".622
6.410. We note that the risk, and thus the rates of return, implied by the term and structure of a
particular debt instrument is a complex matter. In our vie w, an instrument's maturity or term to
maturity is relevant, as under normal circumstances borrowing via longer -maturity instruments
costs more than borrowing via shorter -maturity instruments.623 It is our understanding that this is
due to, inter alia : the p otential for intervening events (for example macroeconomic factors) to
negatively affect returns; opportunity cost compared to other more favourable investment
opportunities that arise and could have been pursued if one had invested in a shorter -term
instrument; and the chance that future returns could be worth less – for example through
inflation.
6.411. We note that experts' analyses submitted in this proceeding refer to the length of the term
of the instrument as defining whether it is an appropriate basis for a comparison borrowing rate.
The experts refer to the "longest -term" bond available as the best match for the LA/MSF

614 Professor Whitelaw addresses the graduated nature of disbursements by generating a Macaulay
duration for the disbursements too, and subtracting this from the initial estimate of the LA/MSF duration to
arrive at a (shorter) final result. (See Professor Robert Whitelaw, "Calculation of the Macaulay Duration of the
Financing Agreements for the A350XWB", (Exhibit EU-380) (BCI/HSBI); and Professor Robert Whitelaw,
"Update on certain calculations of IRRs and Macaulay durations", 14 April 2014, (Whitelaw Updated
Calculations), (Exhibit EU-507) (BCI/HSBI)).
615 Professor Robert Whitelaw, "Calculation of the Macaulay Duration of the Financing Agreements for
the A350XWB", (Exhibit EU-380) (BCI/HSBI); and Whitelaw Updated Calculations, (Exhibit EU-507)
(BCI/HSBI). We note that we would expect the corrections would not be so significant as to change the basic
arguments made by the parties.
616 See United States' response to Panel question No. 166, paras. 36 and 41.
617 United States' response to Panel question No. 166, para. 36. (footnotes omitted)
618 United States' comments on the European Union's response to Panel question No. 92, para. 254.
619 United States' response to Panel question No. 166, paras. 39-44.
620 Frank J Fabozzi (ed.), The Handbook of Fixed Income Securities, (McGraw-Hill, 2005), p. 187; and
Frank J. Fabozzi (ed.), Fixed Income Analysis, 2nd edn (Wiley, 2007), pp. 175-176, (Exhibit USA-589) (cited in
United States' response to Panel question No. 166, 16 April 2014, para. 39).
621 See Whitelaw Comments on US Responses, (Exhibit EU-508) (BCI), comment on Panel question
No. 166, paras. 11-12.
622 European Union's comments on the United States' response to Panel question No. 166, para. 166.
623 Neither party has argued that the circumstances in question were anything other than normal, or
that there was a relevant flat or inverted yield curve pattern prevailing in market borrowing rates.

instruments. For example, when initially proposing the EADS bond as a basis for the value of
general corporate borrowing, the European Union's expert, Professor Whitelaw, asserts that "the
company's actual cost of long -term borrowing" is shown by "EADS' actual, long -term borrowing
rates at the date of the agreements, expressed as the yield on its longest -term bond". 624
CompetitionRx likewise chose the longest-term bond as the best basis for comparison rates.625
6.412. However, an instrument's structure is also relevant. The risk of lending long might be
different depending on the rate at which a debt is amortised under the relevant instrument,
because if the principal is reduced more quickly, then less is at stake into the future. While a debt
might extend over the same period of time as another, an instrument that amortises more quickly
reduces the sum that is exposed to the risks of lending long. Abso lute maturities do not
demonstrate how rapidly the loan principal will be amortised where payments are made
throughout the life of the instrument, and thus how much of the debt is exposed to the risks of
lending long.
6.413. As we understand it, a bond's Macaula y duration is derived from the weighted average
time to each coupon or principal payment. 626 Both parties appear to agree that, "{i}n layman's
terms, the more bond payments occur later in a bond's life, the higher the Macaulay duration".627
6.414. The Macaulay durat ion measure is typically used for a different purpose to the one for
which the European Union is currently asking the Panel to use it. Macaulay durations provide
information to a potential investor about certain risks involved with bonds. Bonds have assure d
payments, and the instrument's price as traded may vary when general interest rates rise or fall.
The Macaulay duration measure is a tool that gives standardised information about the
comparative interest rate sensitivity of the prices of bonds that make more than one coupon
payment throughout the bond's life, compared to the interest rate sensitivity of the prices of zero -
coupon bonds that only make one payment, due at maturity (where the full amount of the debt is
exposed to risks).628 The Macaulay duration measure is used most often to compare how volatile,
responsive or sensitive are the prices of fixed -income securities (bonds) to changes in general
interest rates.
6.415. We note that the instruments being compared in this proceeding are not two bonds, but a
bond and a specific type of loan. There are differences between how the two types of instrument
work.
6.416. Nevertheless, in our view, the Macaulay duration measure is useful for illustrating how an
instrument's term structure – in addition to its maturity or te rm period – is relevant to its risk
profile.629 The measure illustrates the principle that an instrument that amortises more quickly
reduces the sum that is exposed to the risks of lending long. For example, it can illustrate the
difference between a 10-year loan, where the principal is due at year 10, compared to a loan with
yearly repayments. For the latter loan, with part of the principal paid off each year, the lower

624 Whitelaw Response to Jordan, (Exhibit EU-121) (BCI/HSBI), paras. 8 and 11-12, and fns 10 and 13.
625 See e.g. CompetitionRx Report, (Exhibit EU-127) (BCI/HSBI), paras. 72-74 and, in particular,
para. 76.
626 Zvi Bodie, Alex Kane, and Alan J. Marcus, Investments, 9th edn (McGraw-Hill/Irwin, 2011), pp. 509-
518, (Exhibit EU-379), p. 513; and Frank J Fabozzi (ed.), The Handbook of Fixed Income Securities, (McGraw-
Hill, 2005), pp. 206-207. We note commentary that while measures of duration are expressed in years, it is
not useful to think of duration as a measure of time. Rather, "the proper interpretation is that duration has the
price volatility of a zero-coupon bond with that number of years to maturity. Thus, when a manager says that a
bond has a duration of four years, it is not useful to think of this measure in terms of time, but rather that the
bond has the price sensitivity to rate changes of a four-year zero-coupon bond. … As a second example,
consider the duration of an option that expires in one year. Suppose that it is reported that its duration is 60.
… It simply means that the option tends to have the price sensitivity to rate changes of a 60-year zero-coupon
bond". (Frank J Fabozzi (ed.), The Handbook of Fixed Income Securities, (McGraw-Hill, 2005), pp. 206-207.)
627 United States' response to Panel question No. 166, para. 37; and European Union's comments on the
United States' response to Panel question No. 166, para. 162.
628 Frank J Fabozzi (ed.), The Handbook of Fixed Income Securities, (McGraw-Hill, 2005), pp. 206-207.
629 As Professor Whitelaw noted in the original proceeding, "yields are a function of the combination of
the probability of default and the expected loss given default". The Macaulay duration measure appears to give
an indication of the expected loss given default, while term to maturity or term period bears on probability of
default. (See Professor Robert Whitelaw Rebuttal Report, 24 May 2007, (Whitelaw Rebuttal Report), (Original
Exhibit EC-11), (Exhibit EU-123/USA-483 (exhibited twice)) (BCI/HSBI), para. 39).

Macaulay duration reflects the lower risk that the full amount of the principal will not be repaid
over time. Thus, when assessing the comparability of a bond and a loan, the instruments' absolute
maturity may not fully account for varying exposure due to their different repayment structures.
6.417. In principle, then, if an adjustment is made to ta ke into account differences in maturity,
account must also be taken of differences that may exist in term structure. Thus, we consider it
would be an oversimplification to adjust the EADS bond yield solely by adding the term spread, or
term premium, of sim ilarly-ranked 20 -year corporate bonds, given that the structure of the
A350XWB LA/MSF contracts means the loan principal will not be exposed for the full length of that
term.
6.418. However, we are not convinced that similarities in Macaulay durations render any
differences in terms to maturity entirely irrelevant. The amount of time into the future over which
an instrument is projected to exist has its own relevance. That is, the further into the future
certain events are anticipated to take place, the more likel y it is that one or more intervening
events may occur to impede their fulfilment.630 We agree with the United States that the Macaulay
duration measure does not account for the increased uncertainty associated with repayments
scheduled for a more distant poi nt in time.631 This contributes to the probability of default. Thus,
while we do not believe it would be appropriate to adjust the EADS bond yield by adding the term
spread, or term premium, of similarly -ranked 20-year corporate bonds, neither do we think th at it
would be appropriate to fully ignore the relevance of a longer term or loan period.
6.419. We additionally note that, comparing the instruments' Macaulay durations, it seems that
several of the LA/MSF contracts' term structures involve more exposure than th e EADS bond.
Professor Whitelaw calculates the Macaulay duration of the EADS bond to be 7.42 "years". The
(corrected) Macaulay durations of the contracts, as calculated by Professor Whitelaw, are: France:
[***] "years", Germany: [***] "years", Spain: [***] "years", and the United Kingdom between
[***] and [***] "years".632
6.420. Finally, with respect to the United States' submission that LA/MSF involves "variability in
the repayment stream that is undetermined ex ante "633 which is more akin to a bond with
embedded options634 and that Macaulay's duration is thus "a flawed measure" 635, we agree with
the European Union that such variability of the repayment stream is to be reflected in the project -
specific risk premium.636
6.421. The European Union has satisfied us that the United States' proposal to adjust the EADS
bond by adding the term spread of similarly -ranked 20 -year bonds is not appropriate. As the
United States has not presented us with any alternative adjustment, we therefore proceed on the
basis of the unadjusted EADS bon d yields, noting that: (a) the increased uncertainty with respect
to repayments scheduled for a more distant point in time means that the EADS bond yield likely
gives a conservative estimate of the corporate borrowing rate component of the benchmark rate
for all four contracts ; and (b) the higher Macaulay durations of the [***] contracts, when
compared to the Macaulay duration of the EADS bond, further suggests that the EADS bond yield
would represent a conservative estimate for those three contracts.

630 See Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.414.
631 United States' response to Panel question No. 166, para. 36.
632 See Professor Robert Whitelaw, "Calculation of the Macaulay Duration of the Financing Agreements
for the A350XWB", (Exhibit EU-380) (BCI/HSBI); Second Whitelaw Response to Jordan, (Exhibit EU-396)
(BCI/HSBI), para. 7; Whitelaw Updated Calculations, (Exhibit EU-507) (BCI/HSBI). We note that when
questioned concerning the accuracy of the initial calculations, the European Union failed to disclose the
underlying figures on which these calculations were based.
633 United States' comments on the European Union's response to Panel question No. 92, para. 254.
634 United States' response to Panel question No. 166, paras. 39-44.
635 United States' response to Panel question No. 166, para. 39.
636 European Union's comments on the United States' response to Panel question No. 166, para. 166;
and Whitelaw Comments on US Responses, (Exhibit EU-508) (BCI), comment on Panel question No. 166,
para. 13.

Whether to add to the corporate rate an amount for normal fees and charges associated
with general corporate borrowing on the market
6.422. As a final matter, the United States proposes an adjustment to represent normal fees and
charges that Airbus would incur for ma rket financing. In response to Professor Whitelaw's addition
of the fees to the calculation of the German contract's IRR, Dr Jordan, the United States' expert,
opined that "the fees Professor Whitelaw includes, as well as the fee included in the Jordan Rep ort,
are fees for particular services. Such fees should be added as well to the market benchmark under
the assumption that market lenders would charge the same fees for the same services.
Alternatively, the fees can be omitted from both LA/MSF rates and market benchmarks".637
6.423. The United States additionally argues that "by turning to the {member State}
governments to finance the A350XWB program, Airbus avoided {underwriting fees, loan
commitment fees, and administrative} fees. Accordingly, if the actual IRR f or LA/MSF for the
A350XWB is understood to include fees like the "[***]" and "[***]" fees in the German LA/MSF
contract, then the corresponding Airbus corporate borrowing rates for all four governments also
should include underwriting and other fees." 638 Thus, the United States proposes to add to the
corporate borrowing rates for all four governments a sum representing underwriting fees 639, loan
commitment fees640 and administrative fees.
6.424. The European Union maintains that to determine whether and what "analogous commercial
fees" should be included in a benchmark, it is first necessary to understand the nature and
characteristics of the fees included in the challenged instrument. Without that understanding, the
European Union argues that it is impossible to know w hat "commercial fees" would be "analogous"
and properly included in a benchmark. 641 The European Union submits that the United States has
failed to establish that the [***] fee and the [***] fee under the German LA/MSF contract are
analogous to underwriting fees, loan commitment fees and/or administrative fees and, thus, that
they should properly form part of a suitable market benchmark rate.642
6.425. We note that the European Union does not reject the principle that it may be appropriate
to include commercially cha rged fees as part of a market benchmark, and provides its own
calculation of potentially relevant fee amounts, were we to decide to adjust the market benchmark
for that purpose.643
6.426. In our view, it is not necessary that any fees charged for the lending at is sue be
"analogous" to the commercial fees charged by a market lender in order for it to be appropriate to
include such fees into the relevant market benchmark. Indeed, such an approach would neglect
the potentially advantageous waiver of any such fees that might be relevant to a benefit analysis.
6.427. As we see it, in this proceeding it is appropriate to have regard to fee amounts normally
charged as part of the borrowing rate, in order to determine whether the A350XWB LA/MSF
measures confer an advantage on Air bus to compared against what would have been available on
the market. We therefore consider that, in principle, a difference between the sums that the

637 Jordan Reply, (Exhibit USA-505) (BCI), para. 12 and fn 20.
638 United States' response to Panel question No. 161, para. 6.
639 United States' response to Panel question No. 161, para. 4 (arguing in the light of the results of a
study concerning the underwriting fees associated with equity-linked securities and the incremental increase in
underwriting fees for debt instruments with longer maturities and non-investment grade credit risk, that "the
total underwriting fees for a complex, risky, and long-maturity debt instrument like LA/MSF likely would be
even higher than 2.44 percent", referring to Enrique Schroth, "Innovation, Differentiation, and the Choice of an
Underwriter: Evidence from Equity-Linked Securities", The Review of Financial Studies (2006), Vol. 19, No. 3,
pp. 1041-1080, (Exhibit USA-585), p. 1049, table 3, and panel b).
640 United States' response to Panel question No. 161, para. 5 and fn 8 (indicating that in 2001, banks
would charge loan commitment fees on general corporate lines of credit which could include, on average, an
upfront fee of 18.6 basis points, annual fees of 4.5 basis points, and usage fees of 19.6 basis points.) The
United States also notes that other administrative fees including accounting and legal fees are charged by
banks and other financial intermediaries but does not expressly offer a numerical estimate of the value of such
fees.
641 European Union's comments on the United States' response to Panel question No. 161, para. 6.
642 European Union's comments on the United States' response to Panel question No. 161, para. 12.
643 European Union's comments on the United States' response to Panel question No. 161, paras. 13-30,
and especially para. 16.

market would have generally charged by way of normal fees and expenses for comparable
financing to LA/MSF, and the amounts, if any, charged by the relevant member State for LA/MSF
financing, should be factored into a consideration of whether a benefit has been conferred.
6.428. However, we have concerns about the applicability of some of the estimates provided by
the United States. We agree with the European Union that the United States' underwriting fee
estimate – more than 244 basis points 644 – derives from an analysis of complex, equity -linked,
derivative and innovative instruments that it is not clear would match the kind of normal fees
Airbus would face if it turned to the market for funding for the A350XWB. 645 While we note that
there is evidence that underwriting fees for various types of debt instruments were on average 14
basis points over the 1975 -2004 period 646, we are prepared to accept, in this instance, the
underwriting fee for the EADS bond itself, estimated by the European Union to translate to an
adjustment to the bond yield of approximately [***] basis points, calculated on
23 September 2003.647 The United States offers estimates of average additional fees on corporate
lines of credit such as upfront fees of 18.6 basis points, annual fees of 4.5 basis points, and usage
fees of 19.6 basis points, as well as noting the existence of other fees for services inclu ding
accounting and legal services, but not offering express estimates to be added in this instance. 648
We note that corporate lines of credit are different instruments to a bond or a success -dependent
loan and it is thus not clear what types of fees would b e appropriate to add to this particular
benchmark instrument. In addition, the evidence provided by the United States dates from
2001.649 In view of the different instrument types and potential market fluctuations between the
time of the data on which the ev idence is based and the time the contracts were concluded, we
consider that it would be appropriate to use estimates that reflect the fees associated with the
particular market benchmark. We therefore decline to use the estimates offered by the
United States of fees additional to the underwriting fees, and use only the estimate of a fee for the
EADS bond put forward by the European Union. We note, however, that were we to add further
average fees, this would adjust that amount upwards.
Conclusion on the appropriate general corporate borrowing rate
6.429. In conclusion, we have determined to use the yield on the EADS bond identified by the
European Union as the basis for the corporate borrowing rate. We consider, however, that the
EADS bond yield may be lower than rates that would be required for borrowing by its Airbus
subsidiaries alone (that is, the EADS bond yield may understate the corporate borrowing rate for
the French and Spanish contracts). We have also determined that the EADS bond's yields should
be observed over consistent time periods in the lead up to each of the four individual contracts, in
the form of a range of the one -month and six -month average yields prior to the date of the
individual contracts. We find that the United States' proposal to adjust the EADS bond yield for a
20-year maturity by adding the term premium of similarly -ranked bonds with a 20-year remaining
term is not appropriate. However, we use the unadjusted yields of the EADS bond on the
understanding that it is likely to be a conserv ative reflection of the corporate borrowing rate that
should be used to construct the relevant market benchmark for the LA/MSF contracts given that:
(a) the increased uncertainty with respect to repayments scheduled for a more distant point in
time means t hat the EADS bond yield likely gives a conservative estimate of the corporate
borrowing rate component of the benchmark rate for all four contracts ; and (b) the higher
Macaulay durations of the [***] contracts, when compared to the Macaulay duration of the EADS
bond, further suggests that the EADS bond yield would represent a conservative estimate for those
three contracts. Finally, we have also accepted, in principle, the addition of a sum representing

644 United States' response to Panel question No. 161, (BCI), para. 4.
645 European Union's comments on the United States' response to Panel question No. 161, paras. 14-16.
646 See Kim Dongcheol et al, "The Impact of Commercial Banks on Underwriting Spreads: Evidence from
Three Decades", Journal of Financial and Quantitative Analysis (2008), Vol. 43, No. 4, pp. 975-1000, (Exhibit
USA-586), p. 976.
647 European Union's comments on the United States' response to Panel question No. 161, para. 16 and
fn 41; and Whitelaw Comments on US Responses, (Exhibit EU-508) (BCI), para. 16.
648 The evidence on the panel record covers a sample period of 13 September 1996 to 3 October 1997.
(See Arie Melnik and Doron Nissim, "Debt Issue Costs and Issue Characteristics in the Market for U.S. Dollar
Denominated International Bonds", European Finance Review (2003), Vol. 7, pp. 277–296, (Exhibit USA-588),
p. 281).
649 O. Emre Ergungor, "Theories of Loan Commitments", Cleveland Federal Economic Review (2001),
Q3, pp. 2-19, (Exhibit USA-587).

market based fees and, for the purposes of this procee ding, will use the amount proposed by the
European Union.
6.430. The quantitative implications of our findings on the corporate borrowing rate are as
follows:
Table 7: Corporate borrowing rate estimates
EU member State
Corporate borrowing
rate as reflected by yield
on EADS bond (range:
between average yield
1-month prior, and 6-
months prior, to date of
individual contract)
Representative sum for
normal market fees
Total corporate
borrowing rate
component of
market benchmark
rate
France [***] to [***] [***] [***] to [***]
Germany [***] to [***] [***] [***] to [***]
Spain [***] to [***] [***] [***] to [***]
United Kingdom [***] to [***] [***] [***] to [***]

Project-specific risk premium
6.431. The parties agree that the final component of a market interest rate benchmark against
which to compare the rates of return anticipated under the A350XWB LA/MSF measures should be
a project-specific risk premium reflecting the risk associated with providing financing on the same
or similar terms as LA/MSF for the A350XWB programme.650
6.432. In the original proceeding, a premium was added to the price of general corporate
borrowing to reflect the fact that LA/MSF involves more risk for a lender than such general
corporate borrowing. This additional risk derived, in part, from the fact that rather than being
repaid from the firm's general assets, the LA/MSF loans "are model -specific, that is, they are
provided to fund the development of specific aircraft models and are to be repaid from the cash
flows associated with the same specific model and so a commercial lending rate would reflect not
only the riskiness of the borrower but also the riskiness of the individual projects." 651 The project-
specific risk premium was thus added to reflect certain risks for the lender associated with the
form of financing as well as the risks associated with the particular aircraft development project.652
6.433. The United States presents two alternatives for a project -specific risk premium in this
proceeding. The first, and preferred, United S tates' project -specific risk premium is a figure
calculated by its expert, Dr Jordan, which we call the Jordan Risk Premium (JRP). 653 The JRP is the
average of two figures introduced by the parties in the original proceeding in relation to the risk
associated with the A380 programme. As a secondary argument, the United States relies upon the
risk premium proposed by Professor Whitelaw in the original proceeding for the A380 programme
(the Whitelaw Risk Premium (WRP) 654) on the understanding that it was found to be understated

650 See e.g. European Union's response to Panel question No. 94, fn 578 ("As both Parties agree, the
benchmark would also include a risk premium to reflect to {sic} risk-sharing features of the MSF loans").
651 Ellis-Jordan Report, (Original Exhibit US-80), (Exhibit USA-474/506 (exhibited twice)) (BCI), p. 4.
652 See Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.432 (citing
Ellis-Jordan Report, (Original Exhibit US-80), (Exhibit USA-474/506 (exhibited twice)) (BCI), pp. 1-23). The
project-specific risk was defined as the "risk that the particular project will fail to perform as originally forecast
and, therefore, that repayments, if any, will be insufficient to cover the full investment and interest".
(Ellis-Jordan Report, (Original Exhibit US-80), (Exhibit USA-474/506 (exhibited twice)) (BCI), p. 6 (cited in
Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 860)).
653 The JRP is a figure derived from two HSBI figures and is therefore itself HSBI. See Jordan Report,
654 The WRP is an HSBI figure. See Jordan Report (Exhibit USA-475) (BCI/HSBI), para. 15; and Jordan
Reply, (Exhibit USA-505) (BCI/HSBI), para. 5, table 2, n 2.

or a "minimum" project-specific risk premium. The United States argues that even if the "too -low"
WRP is used, this would bring the market benchmark above the internal rates of return of the
A350XWB LA/MSF contracts, showing that there is a "benefit" and, therefore, that the A350XWB
LA/MSF measures are subsidies. 655 Thus, both of the United States' proposed risk premia use
figures that the United States argues were advanced as project -specific risk premia in the original
proceeding.
6.434. The European Union has not proposed a project -specific risk premium of its own for the
A350XWB programme, and rejects both of the risk premia advanced by the United States.
According to the European Union, the JRP was not used as a project -specific risk premium in t he
original proceeding656; and the United States has not shown that the WRP is an appropriate risk
premium for the A350XWB.657
6.435. The parties' arguments raise the following main questions: first, whether the JRP was
applied for the A380 in the original proceedin g or whether, even if not applied in the original
proceeding, the JRP is sufficiently argued to be a relevant premium in this proceeding; and,
second, whether the risks associated with the A350XWB and A380 aircraft development
programmes are sufficiently s imilar such that the same "understated" project -specific risk
premium applied for the A380 may be used to reflect the project -specific risk associated with the
A350XWB.
6.436. We commence our evaluation by examining the United States' preferred alternative, the
JRP.
United States' preferred project-specific risk premium
6.437. The United States' preferred project -specific risk premium, the JRP, is an HSBI figure
calculated by its expert, Dr Jordan. 658 To derive the JRP, Dr Jordan explains that he uses "the
average of two very similar risk premia" 659 introduced during the original proceeding and applied
for the A380. The two figures that Dr Jordan averages to obtain the JRP are both HSBI numbers.
The first we call the Supplier Pass-On Figure (SPOF); the second we call the Corrected Interpolated
Bond-Based Figure (CIBBF).
6.438. The United States submits that the JRP is an appropriate project -specific risk premium for
the A350XWB. The United States recalls that in the original proceeding the WRP was found to be
an "understated" or "t oo low" premium for the A380. 660 The United States notes that the JRP is
higher than the WRP. In the United States' view, this appropriately accounts for higher risks
associated with the A350XWB project when compared against the A380. 661 However, according to
the United States, the JRP is still "conservative" because its inputs, the CIBBF and the SPOF,
continue to reflect the "understated" nature of the WRP.662 The United States characterises the JRP

655 Given United States arguments on the methodology of deriving the corporate general borrowing rate,
discussed above. (Jordan Report, (Exhibit USA-475) (BCI/HSBI), para. 24; and Jordan Reply, (Exhibit USA-
505) (BCI), p. 3 (para. 3)).
656 European Union's first written submission, paras. 313-315 (citing Whitelaw Response to Jordan,
(Exhibit EU-121) (BCI/HSBI), para. 15); and Whitelaw Rebuttal Report, (Original Exhibit EC-11), (Exhibit EU-
123/USA-483 (exhibited twice)) (BCI/HSBI), paras. 31-32).
657 European Union's second written submission, para. 321.
658 The JRP is [***] basis points above the HSBI figure that was introduced by Professor Whitelaw as a
premium for LA/MSF for the A380 and other Airbus LCA projects and eventually applied, on the understanding
that it was understated, by the panel and the Appellate Body in the original proceeding. See Jordan Report,
659 Jordan Report, (Exhibit USA-475) (BCI/HSBI), para. 14.
660 United States' second written submission, para. 285 (citing Jordan Report, (Exhibit USA-475)
(BCI/HSBI), paras. 14-22).
661 Jordan Report, (Exhibit USA-475) (BCI/HSBI), para. 22.
662 Dr Jordan states that the CIBBF and the SPOF "only sought to address issues raised by the
United States and to confirm the original risk-sharing supplier analysis" and do "not address the flaws in the
original risk-sharing supplier analysis pointed out by the Panel and Appellate Body". Hence, "the Panel and
Appellate Body's criticism of Professor Whitelaw's first risk premium – i.e., that it is artificially depressed as the
result of LA/MSF from the Airbus governments to Airbus for the A380 – continues to apply" to the JRP. (See
Jordan Report, (Exhibit USA-475) (BCI/HSBI), para. 20 (citing Appellate Body Report, EC and certain member

as based on "the method advanced by the EU and Professor Robert Whitelaw during the merits
phase, further adjusted based on the specific criticisms of that approach reflected by the Panel and
the Appellate Body".663 Dr Jordan states that the SPOF and the CIBBF "were higher than the
original Whitelaw risk premium, and th ey are remarkably consistent with each other", concluding
that the "two risk premia were a valid (though still conservative) basis on which to assess the
project-specific risk premium for LA/MSF for the A350XWB".664
6.439. The European Union rejects the suggestion that it proposed or accepted the JRP, the CIBBF
or the SPOF as reflecting an appropriate risk premium in the original proceeding. 665 The
European Union states that the JRP would be "an overstated benchmark for the A380" contracts666,
and questions the applica bility of this "overstated benchmark" to the A350XWB contracts. 667 The
European Union asserts that the United States has failed to properly substantiate its assertion that
the risk associated with the A350XWB contracts should be higher than that for the A380 contracts,
such that employing a premium applied for the A380 is "conservative" for the A350XWB.668
6.440. In our view, if the JRP inputs – the CIBBF and SPOF – were not accepted or even
presented as an appropriate risk premium in the original proceeding, then th e United States
cannot rely on the JRP without further adequately explaining why it or its inputs can be used as a
risk premium or the basis for a risk premium in this proceeding, and how it responds to any need
for adjustment. In making our assessment of these matters we first review how the SPOF and
CIBBF were treated in the original proceeding.
6.441. The SPOF was raised in the original proceeding in the context of using Airbus' risk -sharing
supplier contracts to derive a market risk premium. The United States had argued that
Professor Whitelaw's estimate of the risk premium charged by risk sharing suppliers to Airbus "was
affected by the fact that [***] and that this reduced the suppliers' required rates of return" 669,
implying that the returns on supplier contra cts "cannot be viewed as fully commercial". 670 In
response, Professor Whitelaw calculated the SPOF to represent the maximum premium that might
be charged by a risk sharing supplier if the full benefits of any government funding had been
passed on to Airbus671, a prospect that he doubted, stating that he was "not aware of any evidence
to suggest" it would happen, and that suppliers "may have considerable negotiating power and
little incentive"672 to act in this way. The European Union argued in the original proceeding that the
United States "offered no evidence that government financing for the risk sharing suppliers affects
the terms of the finance contracts agreed with Airbus. Moreover, … even if this were the case, the
resulting change to the benchmark rate woul d be negligible".673 It thus appears to us that neither
Professor Whitelaw nor the European Union proposed the SPOF as an appropriate premium for the
A380 but only used it in a comparative manner, to indicate that its own premium was sound. The
United States did not propose or accept the SPOF or Professor Whitelaw's risk -sharing supplier -
based premium.674
6.442. Moreover, we note that the Appellate Body questioned one of the assumptions on which
the SPOF was based, noting that " from an economic perspective, any subsid ies that the risk -
sharing suppliers may have received need not have been necessarily passed on to Airbus in the
form of a lower rate of return. Whether any subsidy given to the risk -sharing suppliers passed

663 United States' second written submission, para. 285 (citing Jordan Report, (Exhibit USA-475)
(BCI/HSBI), paras. 14-22).
664 Jordan Reply, (Exhibit USA-505) (BCI), para. 37.
665 European Union's first written submission, para. 315 (citing Whitelaw Response to Jordan, (Exhibit
EU-121) (BCI/HSBI), para. 15); and second written submission, para. 314 (citing Whitelaw Rebuttal Report,
(Original Exhibit EC-11), (Exhibit EU-123/USA-483 (exhibited twice)) (BCI/HSBI), paras. 31-32).
666 European Union's second written submission, paras. 316-318.
667 European Union's second written submission, paras. 317-318.
668 European Union's second written submission, para. 321.
669 Jordan Report, (Exhibit USA-475) (BCI/HSBI), para. 16 (citing Whitelaw Rebuttal Report, (Original
Exhibit EC-11), (Exhibit EU-123/USA-483 (exhibited twice)) (BCI/HSBI), paras. 30-31).
670 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.476.
671 See European Union's second written submission, para. 314 (citing Whitelaw Rebuttal Report,
(Original Exhibit EC-11), (Exhibit EU-123/USA-483 (exhibited twice)) (BCI/HSBI), paras. 31-32).
672 Whitelaw Rebuttal Report, (Original Exhibit EC-11), (Exhibit EU-123/USA-483 (exhibited twice))
(BCI/HSBI), para. 30.
673 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.478.
674 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.475.

through to Airbus would have depended on Airbus' market power or negotiating leverage." 675 We
note that the United States has not presented arguments to support the underlying assumptions of
the SPOF in this regard.
6.443. We therefore consider that the SPOF was not presented, argued, agreed, or accepted as a
basis for a risk premium for the A380 in the original proceeding, and that in this proceeding the
United States must present additional argumentation and evidence to support its use as a basis for
a premium for the A350XWB.
6.444. The CIBBF was an arguendo modification by the European Union of a cross -check
advanced by the United States. The United States' expert, Dr Ellis, had used a statistical
probability analysis of A380 project risk from the UK Department of Trade and Industry (DTI)'s
critical project appraisa l, as well as "market information, including bond ratings and yields" 676 to
generate likely credit ratings for the A380 project. His analysis had generated B to CCC ratings,
which are "low -grade junk bond credit classifications". 677 This confirmed the United States' risk
premium in that proceeding. 678 The European Union's expert, Professor Whitelaw, then corrected
the results of the analysis using certain original data 679, the source of which was apparently not
available to the United States.680 Professor Whitelaw's correction resulted in what he considered
would be best matched by a BB rating for the A380 project, although in fact it was not quite within
that category.681 Professor Whitelaw then used the difference between yields on B-rated bonds and
the yields on BB -rated bonds to derive a figure which he stated "compared favourably" with the
WRP.682 Professor Whitelaw then stated that "even if I were to interpolate between the BB and B
categories", to account for the fact that his result was not quite within the BB cate gory, this would
give the CIBBF as a figure which, he noted, is "substantially lower than the … risk premium applied
by Ellis".683 Thus, the CIBBF results from the interpolation made by Professor Whitelaw.684
6.445. It appears that the CIBBF was not proposed as a pr emium by the European Union in the
original proceeding. Professor Whitelaw advocated not the interpolation between BB and B bond
yields, but only the BB bond yields, as "comparing favourably" with the WRP .685 Professor
Whitelaw criticised the bond -based appr oach of the United States' expert, Dr Ellis, because he
stated that it would not take into account the difference in the repayment mechanisms of a typical
corporate bond and LA/MSF 686, with which the panel agreed. 687 Further, the
European Communities only relied on the underlying bond-based analysis as a cross-check.688 The
United States objected to the correction Professor Whitelaw made, on the grounds that it was

675 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 915-916.
676 Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.441 and 7.449; Jordan
Report, (Exhibit USA-475) (BCI/HSBI), para. 17; and Jordan Reply, (Exhibit USA-505) (BCI), para. 38.
677 Whitelaw Rebuttal Report, (Original Exhibit EC-11), (Exhibit EU-123/USA-483 (exhibited twice))
(BCI/HSBI), para. 41. We note that these were stated to be based on Moody's credit rating methodology.
678 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.441.
679 Jordan Report, (Exhibit USA-475) (BCI/HSBI), para. 17 (citing Whitelaw Rebuttal Report, (Original
Exhibit EC-11), (Exhibit EU-123/USA-483 (exhibited twice)) (BCI/HSBI), paras. 36-45); and Jordan Reply,
(Exhibit USA-505) (BCI), para. 38, fns 39 and 40.
680 See Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.477.
681 Whitelaw Rebuttal Report, (Original Exhibit EC-11), (Exhibit EU-123/USA-483 (exhibited twice))
(BCI/HSBI), paras. 41-44.
682 Whitelaw Rebuttal Report, (Original Exhibit EC-11), (Exhibit EU-123/USA-483 (exhibited twice))
(BCI/HSBI), para. 43.
683 Whitelaw Rebuttal Report, (Original Exhibit EC-11), (Exhibit EU-123/USA-483 (exhibited twice))
(BCI/HSBI), para. 41.
684 Jordan Report, (Exhibit USA-475) (BCI/HSBI), para. 17.
685 Whitelaw Rebuttal Report, (Original Exhibit EC-11), (Exhibit EU-123/USA-483 (exhibited twice))
(BCI/HSBI), paras. 5 and 36. See also Panel Report, EC and certain member States – Large Civil Aircraft,
para. 7.449.
686 See e.g. Whitelaw Rebuttal Report, (Original Exhibit EC-11), (Exhibit EU-123/USA-483 (exhibited
twice)) (BCI/HSBI), para. 38; and Professor Robert Whitelaw, "Economic Assessment of Member State
Financing", 3 February 2007, (Whitelaw Report), (Original Exhibit EC-11), (Exhibit USA-482) (HSBI), p. 8.
687 See Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.466.
688 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.474.

based on information of which the source was undisclosed, and consequently was not able to be
verified.689
6.446. We therefore consider that the CIBBF was not accepted or even argued to be an
appropriate risk premium for the A380 in the original proceeding, and that in this proceeding the
United States must present additional argumentation and evidence to support its use as a basis for
a premium for the A350XWB.
6.447. Having found that the JRP inputs – the SPOF and the CIBBF – were not accepted or even
argued to be an appropriate risk premium for the A380 in the original proceeding, we now turn to
evaluate whether the reasons that the United States offers for relying on the SPOF and the CIBBF
could otherwise justify the use of the JRP as a premium in this proceeding.
6.448. The United States' expert, Dr Jordan, states that his reasons for using the CIBBF and SPOF
numbers to derive the JRP were that "{t}hese calculations were higher than the original Whitelaw
risk premium, and they are remarkably consistent with each other. Therefore, I concluded that
these two risk premia were a valid (though still conservative) basis on whic h to assess the
project-specific risk premium for LA/MSF for the A350 XWB". 690 Dr Jordan also notes that his
average is "similar" to the [***].691
6.449. In our view, the simple fact that the CIBBF and SPOF figures are higher than the original
risk premium692, and that they are similar to one or more other figures, does not demonstrate that
an average of the CIBBF and SPOF is an appropriate risk premium in this proceeding. It appears
that the United States considers that because the WRP was considered to be understated in the
original proceeding, an appropriate figure would necessarily be higher – and because the CIBBF
and SPOF are higher, then they are a good basis for a risk premium. We disagree. That a figure is
higher than an understated figure is not of itself suff icient reason to accept it as an appropriate
risk premium. Nor is any similarity between two or more figures, if none of those figures are
convincingly argued to be a good reflection of the risks involved. Any project -specific risk premium
would still need to have a valid basis that links it to the risks involved with the form of funding and
the risks of the particular project.
6.450. The United States claims that the JRP is a preferable premium because it is "adjusted
based on the specific criticisms … reflected by the Panel and the Appellate Body".693 As we see it, if
the JRP were preferable because it was adjusted based on particular criticisms of the WRP, then
the adjustment would need to correct for the reason or reasons the WRP was found to be
understated. The main reason that Professor Whitelaw's original premium was, ultimately, found to
be understated was that it was based on distorted risk perceptions. 694 Neither the SPOF nor the
CIBBF appear to relate to this criticism. The SPOF does not correspond to the am ount by which
LA/MSF to Airbus reduces the perceived level of risk associated with financing the A380. Rather, it
is an estimate of the additional benefit to suppliers from other government funding to them
directly, if the full amount of that benefit were to be passed on to Airbus. Like for the SPOF, the
United States does not link the CIBBF input to the main reason for the WRP being "too low" – its
basis on distorted risk perceptions. The United States' justification for using the SPOF and the
CIBBF appears limited to the fact that they are similar, and higher than the WRP.

689 See Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.477. Dr Jordan
appears to accept the correction made by Professor Whitelaw to the original bond-based analysis and thus the
question of whether or not Professor Whitelaw's re-running of the statistical analysis is independently verifiable
is, as we understand it, no longer an issue. (See Jordan Reply, (Exhibit USA-505) (BCI), para. 38 and fns 39
and 40).
690 Jordan Reply, (Exhibit USA-505) (BCI), para. 37.
691 See Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.453.
692 We note that the CIBBF is 114 basis points above the WRP (Professor Whitelaw's project-specific risk
premium from the original proceeding). The SPOF is 122 basis points above the WRP. The JRP is above the
WRP by some 118 basis points.
693 United States' second written submission, para. 285 (citing Jordan Report, (Exhibit USA-475)
(BCI/HSBI), paras. 14-22).
694 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 921 ("It was
reasonable for the Panel to conclude that LA/MSF reduces the level of risk of an LCA project perceived by the
risk-sharing suppliers").

6.451. We note that Dr Jordan states that the JRP is based on figures that "do not address the
flaws" identified in the original proceeding. 695 Instead of rendering the proposed number
"conservative", it simply seems to us that that the JRP is not connected to the original criticisms
and so does not respond to them in a way that would make the JRP more valid than the
understated WRP proposed by the European Union in the original proceeding. Rathe r than seeking
to explain that the numerical difference between the JRP and the WRP corresponds to and
accounts for the reasons the WRP was understated, the United States only observes that its inputs
are "higher". To us, this is not sufficient reason to c onclude that the JRP is a valid premium.
Indeed, by such reasoning any number higher than the WRP would be appropriate: an approach
which would be highly unlikely to accurately gauge the particular risks. Accordingly, we consider
that this reasoning fails to show that the JRP is preferable to the WRP because it is "adjusted"
based on the specific criticisms of the WRP made by the panel and the Appellate Body in the
original proceeding.
6.452. Thus, the United States has not offered sufficient argumentation to exp lain why the JRP
might be a good potential risk premium. The United States has not addressed criticisms made in
the original proceeding about the reliability of the input figures as an accurate reflection of project
risks.
6.453. Lastly, the United States submits that the JRP is confirmed by observing the spread, or
difference, between rates of return on generic investment -grade and below -investment grade
debt. According to the United States, the general corporate borrowing rate would correspond to
investment-grade debt, and the project -specific LA/MSF would correspond to below -investment
grade debt – therefore the difference between these two is a good match for the project -specific
risk premium that would be charged by a general market finance participant. 696 In this regard, the
United States submitted that:
{T}he yield spread between investment -grade industrial companies and
below-investment grade industrial companies between June 2009 and June 2010
indicates that the project -specific risk -premium for LA/MSF is a pproximately 3 to
5 percent.697
6.454. The JRP falls within this range. However, the United States has not explained why the
general corporate borrowing rate would correspond to investment -grade debt, and the
project-specific LA/MSF would correspond to below -investment grade debt. Nor has the
United States addressed the criticism originally raised by the European Union regarding the
different repayment structures of bonds and the relative risk associated with LA/MSF agreements,
which the panel noted undermined the u se of such a bond -based analysis in the original
proceeding.698
6.455. In summary, as neither the CIBBF basis nor the SPOF basis for the United States' proposed
JRP premium were proposed by either party, used, or accepted as a project -specific risk premium
in the original proceeding, we consider that the United States should in this proceeding provide
evidence and argument to demonstrate that the JRP nonetheless provides a good reflection of
project risk for the challenged LA/MSF measures. In our view, the reasons that the United States
advances to justify its reliance on the JRP, (namely that: (a) the JRP uses the method advanced by
the European Union and Professor Whitelaw in the original proceeding, (b) the JRP responded to
specific criticisms of the WRP made by the panel and Appellate Body in the original proceeding, (c)
the two figures on which the JRP is based were "higher" than the WRP and (d) the two figures on

695 Jordan Report, (Exhibit USA-475) (BCI/HSBI), para. 20 (citing Appellate Body Report, EC and certain
member States – Large Civil Aircraft, para. 921).
696 United States' response to Panel question No. 114, para. 12 (stating that "investment grade debt can
provide a good proxy for EADS' corporate borrowing rate, and non-investment-grade debt can provide a good
proxy for EADS' project specific borrowing rate for the A350XWB. Therefore, the difference between them is a
valid proxy for the project-specific borrowing rate for the A350XWB" and "these figures … confirm the
conclusions of the Jordan Report.").
697 United States' response to Panel question No. 116(b), para. 20. We additionally address the
United States' arguments regarding the 3-5% yield spread in a different context – how it reflects lending
conditions – further below.
698 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.466.

which the JRP is based are "similar" to one another) are not convincing and we are thus unable to
accept the JRP in this proceeding.
6.456. We now turn to consider the United States' alternative line of argument, whereby it
proposes that even if the original "understated" risk premium used for the A380 is applied, a
subsidy will result.
United States' alternative argument for a project-specific risk premium
6.457. The United States argues that even if the "understated" risk premium proposed by
Professor Whitelaw in the original proceeding in connection with the A380 (the WRP) is used, this
would bring the market benc hmark above the internal rates of return of the A350XWB LA/MSF
contracts from [***], resulting in a benefit and thus a subsidy; and that in the case of [***]
LA/MSF, a subsidy would also result if the WRP were added to the general corporate borrowing
rate component of the market benchmark adjusted to account for the differences between the
EADS bond instrument and LA/MSF identified by the United States (discussed above).699
6.458. The European Union argues that in relying upon the WRP that was used in the original
proceeding, the United States has failed to compare the risks associated with the A380 with those
of the A350XWB. In particular, the European Union maintains that the United States advances
argument and evidence on the risks associated with the A350XWB in the absolute, yet it fails to
state what the risks were for the A380 in a way that could allow them to be measured against one
another.700 The European Union disagrees that the WRP would be an "understated" benchmark for
the A350XWB programme, submitting tha t the A350XWB is a less -risky compared with the A380
programme and that the A350XWB LA/MSF contracts themselves involved relatively less risk
compared with the A380 LA/MSF contracts. Thus, according to the European Union, the risk
premium associated with t he provision of LA/MSF for the A350XWB should be lower than that
applied for the purpose of the A380 LA/MSF contracts. 701 Furthermore, the European Union
considers that the terms of the different A350XWB contracts differ such that the application of at
least two different risk premia could be justified.
6.459. In our view, the question that is at the centre of the parties' disagreement is whether the
United States has demonstrated that the project -specific risks of the A350XWB programme are
sufficiently similar to those of the A380 programme such that it would be reasonable to conclude
that the WRP could be used as the project-specific risk premium for the A350XWB.
Risk differences that may affect the project-specific risk premium
6.460. The parties' arguments concerning the relative project -specific risks associated with the
A380 and A350XWB programmes have focused on the following issues: (a) the risk that the A380
or A350XWB programmes would fail or not be as successful as anticipated, whether because of a
failure to develop or sell the aircraft as expected (programme risk); (b) the extent to which market
lenders were, as a general matter, willing to accept risk at the time of the provision of A380 and
A350XWB LA/MSF (the price of risk); and (c) the risk associated with the different terms of the
A380 and A350XWB LA/MSF contracts as well as the risks associated with the different terms of
the four individual A350XWB LA/MSF contracts (contract risk).
Programme risk
6.461. An assessment of the relative risks associated with the two aircraft development
programmes is a complex factual analysis, with respect to which the parties have submitted a
significant volume of argumentation and expert evidence. The parties' submissions with regard to

699 Jordan Report, (Exhibit USA-475) (BCI/HSBI), para. 24, and Jordan Reply, (Exhibit USA-505) (BCI),
para. 3, p. 3; United States' comments on the European Union's response to Panel question Nos. 163-165,
para. 6 (consolidated answer).
700 European Union's second written submission para. 321; and comments on the United States'
response to Panel question No. 104, paras. 794-797.
701 The European Union does not indicate whether it considers that the WRP could be used, as a "not

programme risks have analysed the followi ng two broad categories: "development" risk and
"market" risk.
a Development risk
6.462. Development risk is defined by the European Union as "the risk that the manufacturer will
fail to develop and secure certification for the new aircraft". 702 As we understand it, in this
proceeding the parties consider that development risk relates to the likelihood that Airbus will not
be able to deliver the aircraft as and when promised 703 and covers the development of the
programme, from conceptualisation through to certification.
6.463. Before addressing the parties' arguments, we believe it is important to briefly explain the
factual context within which the A350XWB programme was launched and developed. Airbus had
originally planned to develop a new single -variant twin -aisle LCA with a metal fuselage, the
Original A350704, described as an "update of {the} successful A330".705 The Original A350 did not
use certain new technologies – being used by Boeing for the fuselage of the Boeing 787 – due to a
"technological gap" between the two compani es that led Airbus to lack confidence that it could
apply those technologies. 706 The Original A350 was described as "the lowest investment, and
lowest risk"707 design that would fit with Airbus' plans. After key clients rejected the Original A350
as "merely a cheap derivative of the A330" 708, Airbus was "forced" 709 to redesign the A350 into a
new family of more innovative aircraft. Rather than the Original A350, industry leaders "said
Airbus should develop a new family 'that incorporates even more of the new techno logies the
{Boeing} 787 is doing'."710 Airbus took the decision to end the Original A350 programme in favour
of a redesigned aircraft in around the first to second quarter of 2006.711
6.464. In comparing the risk profiles of the A350XWB and the A380, with respect to the
applicability of the WRP that was used to reflect the minimum risk premium for all aircraft in the
previous proceeding, including the A380, the United States draws attention to particular aspects
that it submits render the A350XWB at least as risky, i f not more risky, than the A380. In
particular, the United States contends that the A350XWB programme entailed unique and
significant technology risks712, incorporating "risky new technologies, such as the extensive use of
carbon fiber reinforced plastic (CF RP)".713 The United States submits that "while the use of
composites on the A350 XWB depends on Airbus's prior experience in using composite -related
technologies, the risks related to the high volume of usage of carbon fiber on the A350 XWB are

702 European Union's second written submission, para. 322. The United States does not appear to have
objected to this characterization of the issue, which we believe is consistent with our findings in the original
proceeding. (See Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.356 (referring to
"development risk, ie. the risk that Airbus will fail in its attempt to design and build the new aircraft").
703 Issues concerning the consequences of development delays or failure appear to arise – in this
proceeding – in discussions concerning market risk, further below.
704 The Original A350 commercial launch and authorisation to offer was on 10 December 2004. EADS
shareholders approved the Original A350 industrial launch on 7 October 2005. (See Panel Report, EC and
certain member States – Large Civil Aircraft, paras. 7.113 and 7.296, and fn 2272 (citing, inter alia,
Jean-Michel Belot and Tim Hepher, "Airbus A350 Unleashes New War with Boeing", Reuters,
10 December 2004, (Original Exhibit US-139))). See also Robert Wall, "Airbus Gets Go-Ahead for A350",
Aviation Week & Space Technology, 9 October 2005, (Exhibit USA-47); and Scott Hamilton, "A350 Redesign
Threatens Boeing 777; Boeing prepares 787 for Challenge", Leeham.net, 6 June 2006, (Original Exhibit US-
141), (Exhibit USA-27).
705 "Time for a new, improved model: Airbus gets to work on its medium-sized aircraft, but deeper
problems remain", The Economist, 20 July 2006, (Exhibit USA-28).
706 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 15.
707 Scott Hamilton, "A350 Redesign Threatens Boeing 777; Boeing prepares 787 for Challenge",
Leeham.net, 6 June 2006, (Original Exhibit US-141), (Exhibit USA-27).
708 Scott Hamilton, "A350 Redesign Threatens Boeing 777; Boeing prepares 787 for Challenge",
Leeham.net, 6 June 2006, (Original Exhibit US-141), (Exhibit USA-27).
709 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI).
710 Dominic Gates, "Airplane Kingpins tell Airbus: Overhaul A350", The Seattle Times, 29 March 2006,
(Exhibit USA-24).
711 See e.g. "Time for a new, improved model: Airbus gets to work on its medium-sized aircraft, but
deeper problems remain", The Economist, 20 July 2006, (Exhibit USA-28).
712 Jordan Reply, (Exhibit USA-505) (BCI), para. 57.
713 Jordan Report, (Exhibit USA-475) (BCI/HSBI), para. 22.

greater than those associated with the previous generation technologies for large composite
aerostructures, i.e., the A380".714
6.465. The European Union argues that the United States does not put forward adequate
evidence, and that the available evidence does not support the United States' arguments.715 The
European Union also states that it has difficulty reconciling the United States' arguments made in
the context of its adverse effects claims – that the A350XWB built off A380 technology – with its
arguments that the A350XWB w ould encounter new technological challenges and consequently
greater risks. 716 The European Union denies that, in fact, the risk was higher for the A350XWB
than for the A380 717, and puts forward several arguments in response to the United States'
submissions. Among them, the European Union submits that actions pursued by Airbus mitigated
technology-related risk for the A350XWB, and, in addition, that risks were already lower and
certain maturity levels were reached, by the time that the A350XWB LA/MSF contracts were
concluded.718
6.466. As we see it, the main factual questions in this proceeding as regards development risk
relate to (i) technical or technology -related risks: that is, whether the development risks of the
A350XWB, which used new materials very extensively, were greater than the development risks
arising with respect to the A380, an aircraft of unprecedented size; and (ii) risk mitigating or
attenuating factors: particularly: (a) whether actions pursued by Airbus such as those taken under
the "DARE" program me (Develop And Ramp -Up Excellence, explained further below) reduced the
A350XWB development risks in comparison to the A380 project; and (b) whether the fact that the
development of the A350XWB was at a comparatively advanced stage when LA/MSF was provide d
means that the risks were relatively lower.
6.467. We commence our analysis below by evaluating the relative risks involved with new
technology used in the A350XWB and the A380, the principal consideration raised by the
United States.
i Technological risk
6.468. Evidence provided by both parties indicates that there were a number of technological
leaps involved with the A350XWB. 719 These were primarily associated with new materials and
structural concepts used to make a lighter and more efficient aircraft.
6.469. The A350XWB i s a family of several aircraft variants which incorporate a high volume of
lightweight carbon fibre reinforced plastic or polymer (CFRP, a type of composite material)
compared to earlier aircraft designs. The A380 has a metal fuselage, and some composite
components720, comprising 25% of structure weight.721 The Original A350 was planned to comprise

714 United States' response to Panel question No. 104, para. 374 (citing United States' second written
submission, paras. 568-575; and Declaration of Larry Schneider, Senior Vice President of Product
Development, Boeing Commercial Aircraft, "The Relevance of Prior Commercial Aircraft Experience to Existing
Model Improvements and New Aircraft Developments", 17 October 2012, (Schneider Declaration), (Exhibit
USA-354) (BCI), paras. 22-29).
715 European Union's first written submission, paras. 330-333; and comments on the United States'
response to Panel question No. 104, paras. 794-797.
716 European Union's comments on the United States' response to Panel question Nos. 91-107 ("overall
comment"), para. 711.
717 See European Union's second written submission, paras. 330-333.
718 European Union's second written submission, para. 332 (citing A350XWB Chief Engineering
Statement, (Exhibit EU-18) (BCI/HSBI), paras. 13-17 and 33-59); and first written submission, paras. 1110-
1129.
719 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI); Statement by Gordon
McConnell, Michel Lacabanne, Chantal Fualdes, François Cerbelaud and Burkhard Domke, A350XWB Chief
Engineering, 13 December 2012, (A350XWB Chief Engineering Rebuttal), (Exhibit EU-128) (BCI/HSBI);
A350XWB Production Statement by Philippe Launay, 14 January 2013, (A350XWB Production Statement),
(Exhibit EU-129) (BCI/HSBI); Schneider Declaration, (Exhibit USA-354) (BCI); Declaration of Michael Bair,
Senior Vice President of Marketing, Boeing, "Products and Competition in the LCA Industry" 16 August 2012,
(Bair Declaration), (Exhibit USA-339) (BCI).
720 For example, a glass-reinforced aluminium composite material (see David Learmount, "A350 avionics
to expand on A380 systems", Flightglobal News, 24 July 2007, (Exhibit USA-471)) and a composite inlet. (See
A350XWB Production Statement, (Exhibit EU-129) (BCI/HSBI), para. 23; and "Airbus' "Silent Secret" to Engine
Noise Reduction", Netcomposites, 2 September 2005, (Exhibit USA-464)).

some 39% composites 722 with an aluminium -lithium fuselage. The A350XWB uses new materials
more extensively than both these earlier designs. The A350XWB is made of approximately 52-53%
composite materials723, and comprises more than 50% CFRP 724, including a fuselage that is over
50% CFRP.725 Other componentry also uses composites. In addition to composites such as CFRP,
the model uses other advanced materials, including advanc ed metals such as titanium and
advanced aluminium alloys, some of which were new applications of such materials. These
advanced materials are used in "over 70 per cent" of the airframe. 726 At the time of the
A350XWB's launch, Louis Gallois, then -CEO of Airbu s and co -CEO of EADS, stated: "Made from
more than 60% new materials it will be a revolutionary step forward in the use of composites and
advanced metals".727
6.470. In terms of the volume and extensive use of new materials, the United States has
submitted evidenc e showing that the use of carbon fibre reinforced plastics and other new
composites technology in the A350XWB, for example in over half of the fuselage and wings 728,
passenger doors 729, and flap support structures (FSS) 730 in place of either metal, or fibreglass
composites, is new and unprecedented. It appears that this novelty and its challenges were known
at the time of the aircraft's launch, and thus would have informed the assessment of risk at the
time of the conclusion of the contracts for LA/MSF for the A3 50XWB.731 Indeed, Airbus itself has
emphasized that it considers the A350XWB to be a "fundamentally new" aircraft.732
6.471. In particular, the Airbus Chief Engineering team emphasises that the design of a
pressurized fuselage made out of carbon fibre reinforced pla stic "is a first for Airbus … {I}n
previous Airbus aircraft programmes, CFRP had been used only in much smaller quantities and
only on non-pressurized structures of the aircraft, such as the horizontal tail plane, vertical fin,
moveable surfaces, and nacelles, or for the centre wing box". 733 In respect of the fuselage, Airbus
"also used, for the first time, more advanced aluminium-lithium for some fuselage floor beams and
fuselage frames of the A350XWB".734
6.472. With respect to the use of the carbon fibre reinforce d plastics for the wing, there is
evidence on the record that "the design of the composite A350XWB wing is a truly new, fully
integrated structural and aerodynamic design" 735 and that while the A380 features a composite
wing centre box and metal wings, the A 350XWB features both a composite centre box and
composite wings, which called for a completely new design of the structural interface between the

721 Guy Hellard and Dr Roland Thévenin, "Composites in Airbus: a long story of innovations and
experiences", Airbus presentation, Global Investor Forum 2008, (Exhibit EU-189/USA-440 (exhibited twice)),
slide 6.
722 Scott Hamilton, "A350 Redesign Threatens Boeing 777; Boeing prepares 787 for Challenge",
Leeham.net, 6 June 2006, (Original Exhibit US-141), (Exhibit USA-27).
723 Guy Hellard and Dr Roland Thévenin, "Composites in Airbus: a long story of innovations and
experiences", Airbus presentation, Global Investor Forum 2008, (Exhibit EU-189/USA-440 (exhibited twice)),
slide 6; A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 9 and diagrams at paras. 69
and 73.
724 See e.g. CompetitionRx Report, (Exhibit EU-127) (BCI/HSBI), para. 4.
725 "A350XWB – Technology", Airbus website, accessed 3 October 2012, (Exhibit USA-427).
726 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 9. See also Robert Wall,
"Airbus Relaunches A350", Aviation Week, 10 December 2006, (Exhibit EU-98) ("On the materials split, the
latest A350 iteration has 52% composites, up from less than 40% on earlier versions, with aluminium and
aluminium-lithium making up 20%, titanium 14% and steel 7%").
727 Speech by Louis Gallois, "Industrial launch of the A350XWB", Paris, 4 December 2006, (Exhibit EU-
179).
728 "A350XWB – Technology", Airbus website, accessed 3 October 2012, (Exhibit USA-427).
729 The A350XWB passenger doors are the first commercial aircraft passenger doors to be made entirely
out of carbon fiber reinforced plastic. (See Eva Riefer, EADS/Eurocopter Press Release, "Eurocopter delivers the
first Airbus A350 XWB jetliner passenger door, highlighting its innovative capabilities in composite technology",
23 May 2012, (Exhibit USA-466)).
730 European Commission, Decision C(2011) 6496 final, Aide d'État N414/2010 – Belgique – Aide au
projet de 'Flap Support Structures' de SABCA ('Projet FSS'), 5 October 2011, (Exhibit USA-441).
731 See A350XWB Production Statement, (Exhibit EU-129) (BCI/HSBI), para. 3.
732 A350XWB Chief Engineering Rebuttal, (Exhibit EU-128) (BCI/HSBI), para. 3 (citing Schneider
Declaration, (Exhibit USA-354) (BCI)).
733 A350XWB Chief Engineering Rebuttal, (Exhibit EU-128) (BCI/HSBI), para. 10. (emphasis original)
734 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 69.
735 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 94.

centre box and the wing, the "wing root joint". 736 Further, the wing covers have a completely new
design using new composite materials, and the wing's lower cover is "the biggest carbon fibre part
ever produced in civil aviation".737
6.473. Due to the use of new materials with the A350XWB, other innovations were made in
regards to new adaptations and integration. Airbus des cribes how "the choice of composites also
had a knock -on effect on the choice (and integration) of systems in the composite fuselage". 738
New adaptations had to be made to the aircraft's fuel system, and Airbus developed a new landing
gear integration concept not previously applied on its aircraft. 739 Other innovative technology was
designed to be incorporated into and combined with the new composite structure, for example: an
adaptation of the composite inlet developed for the A380, to be produced with differe nt materials
and a different design. 740 While several of these innovations had been successfully used on
previous aircraft, they would need to be newly adapted to an aircraft built out of fundamentally
different materials. The Airbus Chief Engineering team n otes that "for every technology or
component, Airbus (and Boeing) engineering has to expend significant engineering time, effort and
resources to modify, adapt and integrate each technology into the aircraft in order to achieve an
optimised aircraft struct ure. The modifications are even more significant if the technology has to
be adapted to entirely different design solutions, from metallic aircraft {such as the A380} to
composite aircraft like the A350XWB."741
6.474. Airbus statements on the record indicate that there were skills and resource challenges
associated with the A350XWB's use of new materials and concepts. Airbus states that the choice of
a completely new structural concept like a composite fuselage for the A350XWB also called for new
skills and compete ncies in the Airbus workforce. Airbus gives the example of a design engineer
specialized in a very specific aspect of systems installation for aluminium fuselage structures, that
has to learn new requirements and design principles to perform design tasks o n a CFRP composite
fuselage. According to Airbus, such a fuselage "requires a completely different set of skills and
know-how to be applied, including, for example, the design solutions for lightning strike protection
and systems that are not required on a luminium structures."742 EADS' 2006 Outlook identified one
of the key risks that would be faced by Airbus in relation to the A350XWB was the "availability of
trained personnel and other resources, particularly with respect to the industrialisation of certain
composites".743
6.475. The use of new materials necessitated new testing and gathering of data: "{W}hile
mechanical data on metallic materials are readily available, [***]".744
6.476. In addition, "the move from aluminium to composite materials has also necessitated many
changes and adaptations to production facilities, at the level of component production, sub -
assembly and final assembly". As a result, "the {final assembly line} and {sub -assembly lines} for
the A350XWB differ significantly" from facilities for earlier Air bus programmes. 745 Indeed, it
appears that Airbus had to invest "vast" sums in new facilities 746, and make substantial
investments to developing new jigs and tools. 747 Jigs used in previous Airbus programmes were
not able to be used for the new composite aircraf t because composites "have very different
properties, such as heat resistance, tensile strength, processing characteristics, different
manufacturing concept and industrialization". 748 Tooling requirements were also significantly

736 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 101.
737 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 102.
738 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 26.
739 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), paras. 108-110.
740 A350XWB Production Statement, (Exhibit EU-129) (BCI/HSBI), para. 23. See also, concerning the
Original A350 design, "Airbus' "Silent Secret" to Engine Noise Reduction", Netcomposites, 2 September 2005,
(Exhibit USA-464).
741 A350XWB Chief Engineering Rebuttal, (Exhibit EU-128) (BCI/HSBI), para. 35.
742 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 26.
743 "Risk Factors", EADS Financial Statements and Corporate Governance, Book 2, 2006, pp. 8-13,
(Exhibit USA-496), p. 13.
744 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 16.
745 A350XWB Production Statement, (Exhibit EU-129) (BCI/HSBI), para. 11.
746 A350XWB Production Statement, (Exhibit EU-129) (BCI/HSBI), para. 13.
747 A350XWB Production Statement, (Exhibit EU-129) (BCI/HSBI), para. 22.
748 A350XWB Production Statement, (Exhibit EU-129) (BCI/HSBI), para. 23. See also Guy Hellard and
Dr Roland Thévenin, "Composites in Airbus: a long story of innovations and experiences", Airbus presentation,

different to those for tradit ional metallic aircraft because of, inter alia, the emphasis on accuracy
within tolerances and thermal stability. Further, the use of the new composites involves large
single moulded pieces of componentry (as opposed to earlier aircraft that used multiple sections)
and so large new moulds had to be fabricated. 749 The United States notes that the European
Commission and at least one of the member States (Spain) noted that the development of large
composite aerostructures requires designing a new manufacturing process, new tooling, new
moulds and new machines.750
6.477. The United States also refers to statements by Dr Schneider, a Boeing engineering expert,
to illustrate the kinds of technology challenges Boeing met with when developing the 787, an
aircraft that used CFRP:
The A350XWB is Airbus's first aircraft to utilize a composite fuselage and composite -
metallic hybrid wing. Based on Boeing's experience making a similar technology leap
for the 787 program, we appreciate that significant design and manufacturing work is
required to resolve the design and manufacturing challenges created by the decision
to use composite technology in these applications. But we also know – and have on
many occasions explained – that our ability to undertake and resolve these challenges
drew heavily on our prior experience designing and producing composites for our
earlier commercial aircraft programs.751
6.478. In response, the European Union argues that Airbus' composite aircraft involved less
technological development risk than the Boeing 787. A ccording to the European Union, the
United States "ignores evidence submitted by the European Union that Airbus is not attempting
the riskier full -fuselage carbon -fibre barrel option Boeing is using on its 787, but instead has
chosen a less risky four -panel solution for the fuselage of the A350XWB." 752 In our view, whether
the A350XWB might have been even riskier than it was – had Airbus, for example, attempted a
fuselage fully moulded from CFRP – does not affect how the A350XWB, in the design iteration
attempted, compares to the A380 in terms of development risk. As the European Union itself
insists753, the relevant comparison here is between the A380 and the A350XWB, and not with
Boeing's technological innovations. The United States' submissions regarding deve lopment risk do
not appear to allude to delays experienced by Boeing in the use of carbon fibre plastics, as the
European Union suggests754, nor to submit that the consequences of composites technology risks
would mimic delays experienced with respect to the Boeing 787, but rather indicate that there are
significant risks associated with new and potentially unpredictable technology. We further note
evidence that the four -panel design was, again, new and had not before been tried on other
composite aircraft. 755 The panel -based design was also considered in contrast to an aluminium
structure: "At the time the A350XWB was designed, we evaluated the relative merits of an
aluminium structure compared to a possible CFRP structure – be it composite barrels or panels."756

Global Investor Forum 2008, (Exhibit EU-189/USA-440 (exhibited twice)), slide 10, citing Dr Roland Thévenin,
"Composites in Airbus".
749 A350XWB Production Statement, (Exhibit EU-129) (BCI/HSBI), para. 24.
750 European Commission, Decision C(2010) 6472 final, State aid N 4/2010 and N7/2010 – Spain –
Individual R&D aid to Alestis Aerospace S.L., 29 September 2010, (Exhibit USA-157), paras. 56-57 (cited in
United States' response to Panel question No. 104). See also Jordan Report, (Exhibit USA-475) (BCI/HSBI),
fn 36.
751 United States' response to Panel question No. 104; and Schneider Declaration, (Exhibit USA-354)
(BCI), paras. 22-29.
752 European Union's second written submission, para. 330 (citing A350XWB Chief Engineering
Statement, (Exhibit EU-18) (BCI/HSBI), paras. 72-87).
753 "{I}t is not clear what {Boeing's} Mr. Schneider's comparison of the 787 and the A350XWB, and his
statement that both are risky, contributes to the required assessment of the relative risks of the A380 and the
A350XWB". (European Union's comments on the United States' response to Panel question No. 104,
para. 807).
754 European Union's second written submission, para. 331.
755 "A350XWB – Technology", Airbus website, accessed 3 October 2012, (Exhibit USA-427).
756 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 20.

6.479. In addition to the greater amount of new materials used for the A350XWB compared to
earlier aircraft, the United States submits that relatively low levels of technological maturity
regarding those innovations was a main aspect of the risk associated with the A350XWB.757
6.480. We now turn to compare the A350XWB technological challenges to those associated with
the A380. The A380 aircraft also represented a break with previous aircraft. However, this was
mainly in terms of its unprecedented size.758 This posed various technological challenges.759 There
were challenges in terms of aerodynamics 760 and issues related to structure 761, as well as, for
example, how to meet noise and emissions limits, and ensure size compatibility with – that is, to
fit within – airport infrastructure constraints.762 Additionally, the A380 involved complex electrical
systems.763 The A380 also involved some composite materials and components. For example: a
new aluminium -fibreglass composite used for panels in the upper fuselage 764, and the new
composite i nlet developed for the A380, which "required a brand -new, digitally -commanded
machine to be created, developed and produced." 765 The use of the composites on the A380 was
cited by the Appellate Body as likely involving elevated development risk for that mode l; this
included requiring developing new fabrication processes and a need for new testing. In the original
proceeding the Appellate Body noted evidence that, at the time the A380 development programme
was commenced:
"The A380 is the first fundamentally n ew Airbus to be developed since the A320".
{Evidence on the panel record refers to} the A380 as the "biggest technology leap" in
the history of Airbus … .766
6.481. However, as observed by the Appellate Body in the original proceeding, the Morgan
Stanley report "explains that the A380 is not as technologically innovative in the use of materials,

757 United States' response to Panel question No. 104 (citing European Commission, Decision C(2010)
6472 final, State aid N 4/2010 and N7/2010 – Spain – Individual R&D aid to Alestis Aerospace S.L.,
29 September 2010, (Exhibit USA-157), paras. 56-57; and Jordan Report, (Exhibit USA-475) (BCI/HSBI),
fn 36).
758 European Union's comments on the United States' response to Panel question No. 104, para. 810
(citing "Weight Loss for Superjumbos: the A380 and the Aviation Engineering Dilemma", Der Spiegel,
21 March 2012, (Exhibit EU-412)). We note, however, that several issues described by the European Union in
its submissions were in fact problems that only became apparent at a time-period that postdates the signature
of the A380 LA/MSF contracts, meaning that it is not appropriate to import an ex post understanding of those
risks to compare to those that would be subsequently understood, and priced, in the A350XWB context.
759 "EADS: Results Analysed – A3XX Project Review – Recommendation Upgrade", Amro Aerospace &
Defence Sector Research, 13 December 2000, (Exhibit USA-490), p. 12.
760 See e.g. Robert Roedts, Ryan Somero, Chris Waskiewicz, "Airbus A380 Analysis", undated
powerpoint presentation, (Exhibit EU-110) ("Quite difficult to design an airfoil factoring in transonic effects");
Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 892, fn 2029 ("A report by
Morgan Stanley refers to the 'wake vortex' problem, which has to do with the distance required between
airplanes and which some feared would affect the attractiveness of using the A380 in certain airports". (Morgan
Stanley, "EADS, The A380 Debate" (5 September 2006) ({Original} Exhibit EC-409), p. 15) The critical project
appraisal of the A380 performed by the UK Department of Trade and Industry refers to two technological
challenges {that are HSBI}") and fn 2030.
761 Axel Flaig, Head of Aerodynamics, Airbus, "Airbus A380: Solutions to the Aerodynamic Challenges of
Designing the World's Largest Passenger Aircraft", Airbus presentation to Royal Aeronautical Society, Hamburg
Branch, January 2008, (Exhibit USA-462).
762 "Box Effects: A380 does not meet normal trends and was a major area of concentration during the
design phase": Robert Roedts, Ryan Somero, Chris Waskiewicz, "Airbus A380 Analysis", undated powerpoint
presentation, (Exhibit EU-110), slide 11.
763 The complexity of electrical systems was related to the goal of enabling flexibility for airlines to
customise the aircraft. (Mario Heinen, Airbus Senior Vice President A380, "The A380 Program", EADS/Airbus
presentation, Global Investor Forum, 19-20 October 2006, (Exhibit EU-419), p. 13-17. See also
European Union's comments on the United States' response to Panel question No. 104, para. 810).
764 GLARE, "GLAss Reinforced aluminium, a sandwich material constructed from alternating layers of
aluminium and glass fibre with bondfilm" externally developed and manufactured by a supplier in the
Netherlands. ("GLARE", Fokker Aerostructures website, accessed 10 November 2012, (Exhibit USA-470)).
765 "Airbus' "Silent Secret" to Engine Noise Reduction", Netcomposites, 2 September 2005, (Exhibit USA-
464).
766 Appellate Body Report, EC and certain member States – Large Civil Aircraft, fn 2029 (citing Airbus,
Aircraft Families/Product Viewer, A340-300, A340-500, A340-600 (Original Exhibit EC-372), p. 12), see also
para. 892 and fn 2030.

being constructed mostly of traditional metal and not using as much composites as the Boeing 787
and the planned A350XWB".767
6.482. The A380, while novel in size and design, was ma inly made of traditional metal and
fibreglass (albeit with some individually developed composite components such as the inlet). The
more traditional materials would not have involved the same unknowns, or necessitated enhanced
testing, as the new materials extensively used for the A350XWB. That is, "the A350XWB contains a
large number of novel technologies that Airbus and its suppliers had to develop as a consequence
of Airbus' choice to use CFRP on the aircraft's primary structures, the wing and the fusela ge … this
necessitated Airbus to screen, evaluate and qualify new materials and manufacturing processes
which would not have been the case with a metal aircraft."768 Traditional fabrication methods could
be used for much of the materials used in the A380, an d engineers were well versed in how the
materials would perform. Airbus' engineers specifically contrast the new composites and how little
is known about them, to "aluminium structures, where more than six decades of experience have
resulted in highly-optimized structures with little margin for improvement".769
6.483. Further, the A350XWB programme involved the parallel development of several variants
within the A350XWB "family" – the family would involve at least the A350XWB -900 baseline
model, the A350XWB-800 and A350XWB-1000 [***]. The variants were, in their own right, novel
and challenging. For example, it appears that "the A350 -1000 … distanced itself from the family's
system commonality, requiring … changes that will includes { sic} a beefed up fan structure,
different materials and a fine tuned airflow in the engine's bespoke core. Additionally, Airbus has
added an expanded wing trailing." [***] would be dependent on feedback from earlier
versions.770 While variants were, likewise, envisaged under the A380 progr amme, the evidence on
the Panel record suggests that the parallel development of multiple variants in the A350XWB
programme was more ambitious.771
6.484. We also note that the A350XWB was expected to have a higher relative programme cost
than the A380, due to highe r research and development (R&D) costs. Goldman Sachs noted in an
analysis on 21 November 2006772, just prior to the announcement that the launch of the A350XWB
had been approved773, that it expected the A350XWB to have a higher average and peak R&D cost
than the A380 programme. In that analysis, Goldman Sachs prepared the following chart to
explain its observations:

767 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 892, and fns 2029
and 2030 (citing Morgan Stanley, "EADS, The A380 Debate", 5 September 2006 (Original Exhibit EC-409),
p. 15).
768 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 59.
769 A350XWB Chief Engineering Rebuttal, (Exhibit EU-128) (BCI/HSBI), para. 13. (emphasis original)
770 David Pearson, "Supply chain continuity is main risk for Airbus A350 Program", The Wall Street
Journal, 17 January 2012, (Exhibit USA-431).
771 Max Kingsley-Jones, "Paris Air Show: A350 XWB ready to rock", FlightGlobal News, 5 June 2009,
(Exhibit USA-428). See also Jens Flottau, "Déjà vu: More problems beset the A350 program, but schedule
margins are now razor thin, a situation the manufacturer has faced before", Aviation Week & Space
Technology, 15 February 2010, (Exhibit USA-515);and David Pearson, "Supply chain continuity is main risk for
Airbus A350 Program", The Wall Street Journal, 17 January 2012, (Exhibit USA-431).
772 Goldman Sachs Investment Analysis, A350: Not an option but essential for Airbus' future, in our
view, 21 November 2006, pp. 20-22, (Exhibit USA-30), p. 21.
773 See EADS Press Release, "A350 XWB launch: EADS Gives Go Ahead for Airbus to Launch the A350
XWB", 1 December 2006, (Exhibit USA-569).

Figure 2: Goldman Sachs estimate of Airbus programme peak development costs

6.485. At launch, Louis Gallois, the then co -CEO of Airbus and EADS, confirmed that the
development cost of the A350XWB programme would be about EUR 10 billion, and indicated that
there would be additional capital expenditures of EUR 1.6 billion, some of which would be used for
other future programmes. 774 Other sources, including a press release from the Spanish
Government, indicate a cost estimate of EUR 12 billion (USD 17.8 billion) or more. 775 In our view,
higher R&D costs, combined with the evidence of the extent to which the new design and use of
new materials would necessitate the development of specialised equipment, expertise and testing,
is consistent with a view that, from a lender's perspective, the A350XWB involved significant
novelty, greater cost, greater investment, and therefore technology-related development risks that
were at least as high or higher than the risk involved with the technology involved in the
development of the A380.776

774 Speech by Louis Gallois, "Industrial launch of the A350XWB", Paris, 4 December 2006, (Exhibit EU-
179).
775 Ministerio de Industria, Turismo y Comercio, Nota de Prensa: El Gobierno autoriza préstamos por
Clark and Peggy Hollinger, "Deferrals to take toll on EAD's cash pile", Financial Times, December 2009, (Exhibit
USA-153).
776 That the A350XWB's industrialization of CFRP involves increased cost, relative to traditional
materials, is supported by HSBI at slide 56, A350XWB Business Case Presentation, (Exhibit EU-130) (HSBI).

6.486. Indeed, it appears that the Original A350's relative lack of innovation may have been
attributable to a relucta nce to incur such cost and involve such risk. 777 The lack of familiarity with
the newer technology, the level of difficulty and cost of designing and building an aircraft with the
degree of composite components and, in particular, the difficult shift from an aluminium-lithium
based fuselage to a fuselage made with carbon fibre reinforced plastic appear to have been
considerations that weighed against such features in the Original A350 and were considered a
reason to avoid redesigning the Original A350 into th e A350XWB.778 This, to us, provides further
support to the view that the A350XWB involved a high degree of R&D, and involved commensurate
development risks.
6.487. As we see it, the A380 and the A350XWB projects involved different technological
challenges. While building off certain expertise in aircraft construction and incorporating individual
components that had been developed in relation to previous aircraft, it appears that both types of
aircraft were technically very different to what had come before. However , we are satisfied that
the technological risk associated with the A350XWB was at least as high or higher than the
technological risk associated with development of the A380.
6.488. We now turn to the European Union's arguments in response to the United States'
arguments concerning development risk. First, the European Union points out what it considers to
be a logical inconsistency in the United States' line of argument.
ii Logical consistency of the United States' arguments
6.489. The European Union submits that it has difficulty reconciling the United States' arguments
concerning the adverse effects of LA/MSF – for instance, the indirect effects of the A380 LA/MSF
subsidies on Airbus' ability to launch and develop the A350XWB (examined elsewhere in this
report) – with the United States' contention that the A350XWB involved a greater technological
risk compared with the A380 and other Airbus LCA. In particular, the European Union argues that:
{O}n the one hand, to establish a genuine and substantial causal link between E U
member State financing for the A380 and the launch of the A350XWB, the
United States alleges that Airbus overcame the technological hurdles to developing the
A350XWB with its earlier development of the A380. On the other hand, to support its
proposed benchmark for the A350XWB … the United States alleges that "the A350XWB
program is at least as risky as the A380 program, and probably more so" because "the
A350XWB program suffered from unique risks that did not beset the A380
program".779
The European Union submits that "{a} neutral, even -handed review cannot reconcile these two
arguments".780

6.490. The United States maintains that "t he fact that the A350XWB incorporates new
applications of composites material" does not eliminate the "valuable lessons learned" or " critical
technologies, processes and knowledge that Airbus applied" from its prior programme. 781 Indeed,
according to the United States, many of the technologies and technical capabilities Airbus "derived

777 For example, Udvar-Hazy described the Original A350, with its single variant, metal fuselage based
on the A330, and only 39% composites as "the lowest investment, and lowest risk". (Scott Hamilton, "A350
Redesign Threatens Boeing 777; Boeing prepares 787 for Challenge", Leeham.net, 6 June 2006, (Original
Exhibit US-141), (Exhibit USA-27)).
778 "Going composite would cost more to build an airplane, this engineer told us". (Scott Hamilton,
"A350 Redesign Threatens Boeing 777; Boeing prepares 787 for Challenge", Leeham.net, 6 June 2006,
(Original Exhibit US-141), (Exhibit USA-27)).
779 European Union's comments on the United States' response to Panel questions Nos. 91-107 ("overall
comment"), para. 713.
780 European Union's comments on the United States' response to Panel questions Nos. 91-107 ("overall
comment"), para. 713.
781 United States' second written submission, para. 565 (referring to European Union's first written
submission, para. 1160).

from its experience in the development of earlier (me tallic) LCA"782 remain highly relevant today
and are even directly applied on the A350XWB, despite it having a composite fuselage and wing.783
6.491. As we see it, the United States does not argue that the challenges involved with extensive
use of composites mean th at there were no significant learning effects from the A380, and indeed
all earlier Airbus aircraft. In particular, as explained elsewhere in this Report, the United States
identifies both general learning effects in aircraft manufacturing, and also carry -over of specific
components including building on the use of composites in particular areas 784 and on -board
systems785 that likely benefitted from Airbus' prior LCA experience.
6.492. We do not consider that there is any logical reason why there cannot be incremental
improvements from one aircraft to the next (for example, building on experience of the use of
composites in various ways and in particular areas) and also a technology jump, such as the use of
composites for more than half the materials in the fuselage an d wings, with the enhanced risks
such novelty represents. That something is a new, more extensive and at least as, or conceivably
more, risky use of technology does not negate the value of the technology that preceded it as a
platform for the new technolog ical advance. For example, in other respects Airbus emphasises its
composites experience gained during the development of prior models. 786 We note that Airbus
states in business documents that it "evolved" its "step by step gain of composite experience" 787 in
previous aircraft 788 and declares in evidence in this proceeding that the degree to which
composites were used on the A350XWB aircraft involved very significant novelty. We do not
consider that Airbus' positions are contradictory, nor do we consider that the
United States' arguments are necessarily contradictory. We therefore do not find the
European Union's difficulty in reconciling the United States' submissions to compel us to determine
otherwise.
iii Mitigation
6.493. The European Union submits that two main factor s mitigated the A350XWB risks as
compared to the A380 risks. First, the European Union submits that, due to the technological
challenges of the A350XWB, Airbus changed its development process, which significantly mitigated
risks. Second, the European Union submits that the later point in the development process at
which the A350XWB LA/MSF contracts were concluded compared to the point when the A380
contracts were concluded was also a risk mitigating factor.
6.494. Turning first to the change in the development process, the European Union states that:
With respect to the A350XWB, Airbus was very conscious of the challenges posed by
the extensive use of new materials, technologies and systems in developing and
producing the aircraft, and of the consequential need to ensure the maturity of
technology linked to the use of composite materials. As a result, the company
implemented a strong and robust risk mitigation and management strategy … .789

782 European Union's first written submission, para. 1166.
783 United States' second written submission, para. 565.
784 E.g. how Airbus concedes that the certain components of the A350XWB were at least in part derived
from components on predecessor LCA models. (Schneider Declaration, (Exhibit USA-354) (BCI), para. 26;
A350XWB Chief Engineering Rebuttal, (Exhibit EU-128) (BCI/HSBI), para. 23. See also "Airbus' "Silent Secret"
to Engine Noise Reduction", Netcomposites, 2 September 2005, (Exhibit USA-464)).
785 See e.g. David Learmount, "A350 avionics to expand on A380 systems", Flightglobal News,
24 July 2007, (Exhibit USA-471); and Bill Carey, "A350: Extra Wide Responsibility" Avionics Magazine,
1 June 2009, (Exhibit EU-406/USA-429 (exhibited twice)).
786 Guy Hellard and Dr Roland Thévenin, "Composites in Airbus: a long story of innovations and
experiences", Airbus presentation, Global Investor Forum 2008, (Exhibit EU-189/USA-440 (exhibited twice)),
slide 5.
787 Olivier Criou, "A350XWB Family and Technologies", Airbus Presentation at Hamburg University of
Applied Sciences, 20 September 2007, (Exhibit USA-463).
788 Olivier Criou, "A350XWB Family and Technologies", Airbus Presentation at Hamburg University of
Applied Sciences, 20 September 2007, (Exhibit USA-463).
789 European Union's comments on the United States' response to Panel question No. 104, para. 798.

6.495. The European Union states that "both Airbus' internal processes and its appr oach to
integration of its suppliers"790 in the context of the DARE programme mitigated A350XWB
development risks due to technology, in comparison with the A380 programme.
6.496. The context of the development of the A350XWB has some bearing on our understanding
of these issues. As noted above, Airbus was "forced" 791 to redesign the Original A350 into a new
family of more innovative aircraft. The change from the Original A350 to the A350XWB, in the
context of other aircraft being developed by Airbus, posed various ch allenges – including in terms
of resources and in terms of development time. As we understand it, redesigning the Original
A350 – already apparently in its fourth design iteration 792 – into a "radically different" 793 model,
the A350XWB, required considerable e ffort. Normal lead times for the development involved with
industrialisation of new materials and the development of new skills and expertise, it seems, would
not deliver the model to market at the optimal time; and timing was important to both maintain
market competitiveness 794 as well as to avoid harsher penalties for contracts and delivery
promises that would be broken by the delay implicated with the redesign.795
6.497. As regards development time, on 8 May 2006 commentators noted that, aside from
technology matu rity challenges, even just shifting to implement the redesign would " inevitably
delay the development schedule". 796 At least a two -year delay was likely to be encountered
following the decision to pursue a new design. 797 The Original A350 aircraft was expected to enter
into service in late 2010. By contrast, a redesigned aircraft was expected to be available no earlier
than 2012.798 Reportedly, "The new plan would call for the introduction of the -900 first, with the -
800 following and the -1000 coming last in la te 2013 or early 2014." 799 The shift to the redesign
would also impact suppliers. For example, General Electric and Rolls -Royce, which "were already
well-advanced on powerplants" 800, would have to change the engines to higher "thrust" (higher
power) engines, implicating development schedules.
6.498. Both time challenges and resource challenges (worsened by the economic fallout of the
A380's problems801 as will be discussed further below) associated with the A350XWB programme
were to be dealt with via two main initiative s802: (a) a "dramatic" restructuring of the Airbus
entities (the Power8 programme) 803 and (b) a change to Airbus' product development process,
previously termed "Develop New Aircraft" (DNA) 804, to implement a new way of designing and
building aircraft called "Develop And Ramp-up Excellence" (DARE).

790 European Union's comments on United States' response to Panel question No. 104, para. 798.
(emphasis original)
791 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI).
792 Scott Hamilton, "A350 Redesign Threatens Boeing 777; Boeing prepares 787 for Challenge",
Leeham.net, 6 June 2006, (Original Exhibit US-141), (Exhibit USA-27).
793 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI).
794 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 36.
795 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 33.
796 Guy Norris, "Airline criticism of Airbus A350 forces airframer to make radical changes to fuselage,
wing and engines", Flight International, 8 May 2006, (Exhibit USA-26).
797 Scott Hamilton, "A350 Redesign Threatens Boeing 777; Boeing prepares 787 for Challenge",
Leeham.net, 6 June 2006, (Original Exhibit US-141), (Exhibit USA-27).
798 Guy Norris, "Airline criticism of Airbus A350 forces airframer to make radical changes to fuselage,
wing and engines", Flight International, 8 May 2006, (Exhibit USA-26).
799 Guy Norris, "Airline criticism of Airbus A350 forces airframer to make radical changes to fuselage,
wing and engines", Flight International, 8 May 2006, (Exhibit USA-26).
800 Guy Norris, "Airline criticism of Airbus A350 forces airframer to make radical changes to fuselage,
wing and engines", Flight International, 8 May 2006, (Exhibit USA-26).
801 See e.g. "Thomas Enders: 'Je n'exclus aucun recours en justice pour protéger la réputation
d'Airbus'", Le Monde, 13 October 2007, (Exhibit USA-8); and Aaron Karp, "Airbus/EADS officials concede
Boeing advantage, question A350 viability", Air Transport World Daily News, 6 October 2006, (Exhibit USA-9).
802 UK House of Commons Trade and Industry Committee, "Recent Developments with Airbus", Ninth
Report of Session 2006-07, Volume I: Report and formal minutes, 19 June 2007, (Exhibit USA-562), p. 10;
and A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 35.
803 For example, in approving the launch, "the Board has assumed the full implementation of the Power8
competitiveness programme". (EADS Press Release, "A350 XWB launch: EADS Gives Go Ahead for Airbus to
Launch the A350 XWB", 1 December 2006, (Exhibit USA-569)).
804 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 40.

6.499. The DARE development process aimed " to reduce the time taken to design and build new
aircraft from seven and a half years to less than six." 805 The Chief Engineering Statement appears
to refer to an even more ambitious, compressed, DARE process timeframe. 806 The key distinction
between the A350XWB development under the DARE process and earlier aircraft development
under the DNA process was that, as Airbus' engineers state, "{w}hereas under DNA the aircraft,
its technologies and systems, as well as its manufacturing technologies were developed [***]",
the DARE programme followed an unprecedented, more ambitious approach to the development
process.807 With the A350XWB, especially in view of its new materials, which would each n eed to
reach a certain level of maturity, Airbus had to develop the aircraft at a faster pace than previous
programmes, to ensure full maturity at entry into service 808, and so that it could be ready in time
to be competitive in its market slot. Airbus state s that DARE required an enormous engineering
effort.809
6.500. This rapid pace of development would be achieved, in part, by outsourcing a large amount
of the plane's development to suppliers from quite early on .810 Airbus would "increase outsourced
value to 50% of t he new A350XWB from the approximately 20% -30% level in existing aircraft
programmes."811 As well as the value of outsourcing being higher than in relation to prior
programmes, the DARE programme involved a high number of risk sharing suppliers to whom key
components were outsourced, who were geographically widely distributed. 812 With the A350XWB,
"Airbus now monitors roughly 450 suppliers and subcontractors world-wide."813 Additional evidence
lists some 55 risk sharing suppliers contributing to the A350XWB's aero structure, systems and
cabin equipment814, and notes that "Thales says its content on the A350 is 10 times its content on
the long -range A330", "the A350 represents the most -ever content for Rockwell Collins on an
Airbus platform … the company's content on t he A350 is five times what it has on the A380" and
"part of the system integration responsibility that Airbus designers had before is now transferred
to Rockwell Collins".815
6.501. We consider that the involvement of suppliers in the context of the DARE process a ffected
project risk in several ways. In addition to using increased outsourcing in a direct attempt to
develop quickly, Airbus also sought to shift the financial burden to risk sharing suppliers. Airbus'
strategy of relying more heavily than in the past o n risk -sharing partners 816 was not only to
develop the aircraft quickly, but also in a way that would reduce financial exposure. 817 While

805 UK House of Commons Trade and Industry Committee, "Recent Developments with Airbus", Ninth
Report of Session 2006-07, Volume I: Report and formal minutes, 19 June 2007, (Exhibit USA-562), p. 10.
806 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 40 (lines 5-6), and
para. 41 diagram.
807 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 40 (lines 4-5).
808 Dr Lars Scheimann, Head Officer Supply Chain Quality, "E2E Integration of Risk Sharing Partners for
smoother development & ramp-up", Airbus presentation, undated, (Exhibit EU-415), p. 14.
809 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 33.
810 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 40 (lines 4-5).
811 Moody's Investors Service, Global Credit Research, Credit Opinion: European Aeronautic Defence &
Space Co. EADS, 12 March 2007, (Exhibit USA-518). See also Daniel Michaels, "Airbus Tries New Way of
Building Its Planes", The Wall Street Journal, 12 July 2012, (Exhibit EU-417), graphic on p. 12 ("Sharing the
Load: Airbus has outsourced more of the A350{XWB} than its other planes", citing 35% outsourcing on the
A320, 30% on the A330, 25-30% on the A380, and 50% on the A350{XWB}).
812 Also Robert Wall, "Airbus Relaunches A350", Aviation Week, 10 December 2006, (Exhibit EU-98).
See also Speech by Louis Gallois, "Industrial launch of the A350XWB", Paris, 4 December 2006, (Exhibit EU-
179).
813 Daniel Michaels, "Airbus Tries New Way of Building Its Planes", The Wall Street Journal,
12 July 2012, (Exhibit EU-417), p. 13.
814 Bill Carey, "A350: Extra Wide Responsibility" Avionics Magazine, 1 June 2009, (Exhibit EU-406/USA-
429 (exhibited twice)).
815 Bill Carey, "A350: Extra Wide Responsibility" Avionics Magazine, 1 June 2009, (Exhibit EU-406/USA-
429 (exhibited twice)).
816 According to the European Union, the terms "risk-sharing partner" (RSP) and "risk-sharing supplier"
(RSS) are synonyms. Risk-sharing partners are Airbus suppliers that assume all or a portion of the
development costs for the work package outsourced to them, but are only reimbursed via revenues generated
by sales of the aircraft on which they are working. (See European Union's response to Panel question No. 140,
paras. 292-294).
817 See A350XWB Production Statement, (Exhibit EU-129) (BCI/HSBI), paras. 37-44, 56-69.

certain financial risks of delay or failure to develop aspects of the programme might have been
shifted to suppliers818, we consider that this would not mitigate the likelihood of failure or delay.
6.502. Rather, such a high number of suppliers working on a large share of the project would,
itself, create a development risk for Airbus. It is our understanding that a large amount of s upplier
input in fact means a degree of loss of control, fragmented development and increased likelihood
of development risks eventuating. 819 For example, the "heavy consequences at the end of the
{supply} chain" were referred to in Airbus presentations noti ng bottlenecks and waste 820 that
could result from heavy outsourcing. The European Union and Airbus also refer to how such
outsourcing caused problems for Boeing, who "by 2007 had lost control of the {787} program". 821
Indeed, it appears that the amount of out sourcing and supplier involvement that Airbus used for
the A350XWB was considered to be the maximum amount that could be used without losing
control of the programme.822 In other words, the amount of outsourcing and supplier involvement
was at saturation.
6.503. Airbus states that the DARE process, a fast ramp -up scenario in which tasks are no longer
"developed [***]"823, but are developed significantly more quickly 824, itself involves enhanced
risks: "{T}he product definition and design needed to be stabilized very ea rly in the development
process. This was necessary to limit the risk of late changes to the design, changes that would be
disastrous in a fast ramp -up scenario due to their significant impact on aircraft being
manufactured before the first entry into servi ce".825 The fact that Airbus sought to stabilise design
choices relatively early is explicitly stated to be necessary due to the DARE process itself, as any
late changes would be "disastrous". Due to the fast ramp -up scenario under DARE, it was
necessary to "avoid radical redesigns at late stages of the development and assembly process".826
6.504. With larger numbers of suppliers, the newer technology, combined with the DARE
process827 additionally risked bottlenecks, delays, and failure to develop and deliver the airc raft as
and when promised. If there were design or technological problems or changes, these would need
to be resolved in more risk sharing suppliers' projects and with crucial timing implications.
6.505. Thus, it is apparent that the DARE process involved a very strong element of outsourcing,
fragmentation of the supply -chain, and significant pressure to develop quickly, with potentially
disastrous consequences for time schedules if one part of the supply chain were to experience
problems. These aspects would hav e contributed to development risks associated with the
A350XWB programme. This degree of risk did not exist with the A380 where there were fewer
suppliers and more work was completed by Airbus.
6.506. The European Union argues that risk mitigation strategies depl oyed in the context of the
DARE programme mitigated technology risks associated with the A350XWB in such a way that the
risk would be less than that associated with the A380. The European Union cites "much more and

818 European Union's first written submission, para. 1107 ("{M}ajor avionics vendors have been
involved much earlier in the systems definition process than on previous aircraft, with deeper responsibility for
design and integration. This closer participation entails greater risk for the suppliers"); Bill Carey, "A350: Extra
Wide Responsibility" Avionics Magazine, 1 June 2009, (Exhibit EU-406/USA-429 (exhibited twice)). See also
Robert Wall, "Airbus Relaunches A350", Aviation Week, 10 December 2006, (Exhibit EU-98).
819 See e.g. Daniel Michaels, "Airbus Tries New Way of Building Its Planes", The Wall Street Journal,
12 July 2012, (Exhibit EU-417); and David Pearson, "Supply chain continuity is main risk for Airbus A350
Program", The Wall Street Journal, 17 January 2012, (Exhibit USA-431).
820 Dr Lars Scheimann, Head Officer Supply Chain Quality, "E2E Integration of Risk Sharing Partners for
smoother development & ramp-up", Airbus presentation, undated, (Exhibit EU-415), p. 5.
821 Daniel Michaels, "Airbus Tries New Way of Building Its Planes", The Wall Street Journal,
12 July 2012, (Exhibit EU-417), p. 12.
822 David Pearson, "Supply chain continuity is main risk for Airbus A350 Program", The Wall Street
Journal, 17 January 2012, (Exhibit USA-431).
823 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 40 (lines 4-5).
824 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 37 (lines 7-8).
825 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 37 (lines 7-12).
826 European Union's comments on the United States' response to Panel question No. 104, para. 801
(citing Christopher Drew, "Aircraft Makers Shy Away From Risky Bets in Building New Planes" New York Times,
5 May 2013, (Exhibit EU-407), and Robert Wall and Andrea Rothman, "Airbus Says A350 Design Is 'Lower Risk'
Than Troubled 787" Bloomberg, 17 January 2013, (Exhibit EU-408)).
827 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 37 (lines 7-12).

earlier testing", "extensive use of digit al and physical mock -ups and demonstrators", and
"integrated risk analysis" to "avoid radical designs at late stages of the development and assembly
process, which would have entailed significantly longer delays and significantly higher associated
costs".828 The European Union states that it had involved its suppliers much earlier, and resolved
communications problems by sharing data with all teams on a common system.829
6.507. We note that in both the internal processes (such as undertaking earlier testing and
physical rather than only digital mock -ups) and engaging with its suppliers in the way Airbus did,
the risk -mitigation strategies to which the European Union refers appear to have been a direct
attempt to avoid supply -chain management problems that would mirror those experienced with
the A380. This is borne out by statements by the European Union that: "These and other changes
for the A350XWB programme were the explicit result of a painstaking study of lessons learned
from the A380 development process. Airbus' A 350XWB programme team explicitly referred to
'missing integration & silo management' on the A380 programme, including 'no integrated
planning and continuous rescheduling', 'no end to end visibility of data (especially for design
changes)', 'no integration of processes and systems', 'no end to end responsibility and
management on both sides', and 'no harmonized working methods', which led to 'heavy
consequences' in terms of unachievable 'remain -to-do' tasks in the ramp -up to entry -into-service
of the A380."830 It appears that earlier testing and integration of components through physical, as
well as digital mock -ups was an attempt to avoid certain issues and delays that arose with
developing the A380.831
6.508. We consider that it is relevant to note here that: (a) at t he time of the A350XWB
contracts, the A380 suffered from various problems that appear to have been not, or only
tangentially, related to its technological innovations, and were due more to problems of supply -
chain integration; and (b) the extent of certain problems only became apparent at a time -period
that postdates the signature of the A380 LA/MSF contracts, meaning that it is not appropriate to
import an ex post understanding of those risks to compare to those that would be subsequently
understood, and priced, in the A350XWB context.
6.509. The A380's most significant problems arose in 2006. Certain cables were "inches too short"
because engineers handling cabin interiors used computer software that was reportedly
"outdated".832 Airbus had built a digital mock -up of the A380, but engineers in different locations
using "different versions of CATIA produced mismatching wire bundles throughout the superjumbo,
requiring early aircraft to be custom wired", a considerable remedial effort resulting in delivery
delays.833 On 13 June 2006, Airbus apparently "shocked investors when it said difficulties in
installing the wiring would cut deliveries of the A380 to nine planes in 2007 from the 25 it had
predicted".834 The A380 was reported in July 2006 to be a "debacle which could c ost EADS €2bn in
profits over the next four years and bring costly cancellations of orders". By September 2006, the
A380 "situation {had} worsened when construction and tests of the first A380s generated
demands for structural changes that would affect the wiring. The changes in configuration had to
be made manually because the software tools couldn't talk to each other". 835 The extent of the

828 European Union's comments on the United States' response to Panel question No. 104, paras. 800-
801.
829 European Union's comments on the United States' response to Panel question No. 104, para. 804.
830 European Union's comments on the United States' response to Panel question No. 104, para. 863
(citing Dr Lars Scheimann, Head Officer Supply Chain Quality, "E2E Integration of Risk Sharing Partners for
smoother development & ramp-up", Airbus presentation, undated, (Exhibit EU-415), p. 8-10).
831 John Ostrower, "A350 is a study in lessons learned by Airbus on A380", Flightglobal News,
11 May 2010, (Exhibit USA-432) ("Perhaps its most direct application of its lessons learned on A380, Airbus is
building a physical mockup of the A350 in addition to the digital mock up (DMU) built with CATIA V5 to validate
in reality what has been designed in virtual reality. When building the A380, differing versions of CATIA
produced mismatching wire bundles throughout the superjumbo, requiring early aircraft to be custom wired.")
832 Daniel Michaels, "Airbus Tries New Way of Building Its Planes", The Wall Street Journal,
12 July 2012, (Exhibit EU-417), p. 12.
833 Andrea Rothman, "Airbus vows computers will speak same language after A380 delay", Bloomberg,
28 September 2006, (Exhibit USA-430); John Ostrower, "A350 is a study in lessons learned by Airbus on
A380", Flightglobal News, 11 May 2010, (Exhibit USA-432).
834 Andrea Rothman, "Airbus vows computers will speak same language after A380 delay", Bloomberg,
28 September 2006, (Exhibit USA-430).
835 Andrea Rothman, "Airbus vows computers will speak same language after A380 delay", Bloomberg,
28 September 2006, (Exhibit USA-430).

software issue was because primarily digital, rather than physical, mock -ups were produced. It
was not until the final assembly phase, when the aircraft entered industrialisation, that the issue
came to light. The late stage of discovery of the problem was a reason that the delay and cost
implications were so significant.
6.510. These delays and A380 problems were apparently no t due to the size, weight, emissions
and noise-related technological challenges of the A380, but were due to the issue of supply and
manufacturing teams being dispersed and not integrated on the same software system.
6.511. We agree with the European Union that collaboration and support from Airbus for the
A350XWB suppliers would likely have assisted with improving supply -chain management risks. In
terms of how this reduced development risk in comparison to the A380, however, we have noted
above that the A350XWB involved larger amounts of outsourcing and would have been more risky
in this regard. In our view, had such measures to involve and support suppliers not been taken,
the A350XWB would have been a riskier project than it actually was.
6.512. In contrast to the Eu ropean Union, we consider that the risk -mitigation strategies cited by
the European Union would not have specifically mitigated risk associated with the challenges posed
by the extensive use of new materials, technologies and systems, but rather seek to ad dress risks
associated with high levels of outsourcing, supply -chain continuity, and risks of late changes that
would be "disastrous in a fast ramp -up scenario"836, in light of what was known by the time the
A350XWB programme was undertaken. As we see it, th ose risks stem from the attempt to engage
in very fast development, by not undertaking [***] development837, and more heavily involving
third parties – risk-sharing partners/risk-sharing suppliers – than had been the case with earlier
aircraft development pr ogrammes. That is, the risk mitigation strategies deployed under DARE
appear to mitigate risks stemming from the responses to the time and resource challenges, and
only marginally mitigate the riskiness of trying to develop, additionally, an aircraft that used new
materials, technologies and systems so extensively in that fast ramp-up scenario.
6.513. In our view, the attempts to improve supply -chain integration do not appear to have
cancelled out the enhanced risks from complexity and technological novelty invol ved with the
A350XWB. While it is reasonable to assume the earlier testing and physical mock -ups may have
had some positive risk mitigating effect for the A350XWB programme, it appears that these
changes addressed the amount of supplier input under the DAR E programme, and Airbus' history
of problems with integrated supply -chain management. They did not focus on mitigating risks
involved with technological advances.
6.514. We now turn to the European Union's argument that much of the technology -related
development risk had already been mitigated by the time that the A350XWB LA/MSF contracts
were concluded more than [***] years into the development process of the A350XWB. 838 The
European Union contrasts this to the A380 programme: "At the time the A380 financing
agreements were concluded, Airbus was [***] the development process for the programme, with
many technological challenges yet to be identified and addressed". 839 Before addressing this
question, we briefly review record information concerning the development stag e at which the
A350XWB contracts were signed.
6.515. DARE defines certain milestones, called "Maturity Gates" (also referred to as "Milestone
Gates") or MGs, "at which different aspects of the product development are measured and
assessed independently for key d ecisions".840 Under DARE, there are 16 such maturity gate
milestones up to certification and full rate production. It appears that the maturity gates may also

836 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 37 (lines 7-12).
837 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 40 (lines 4-5).
838 European Union's second written submission, para. 332 (citing A350XWB Chief Engineering
Statement, (Exhibit EU-18) (BCI/HSBI), paras. 13-17, and 33-59). See also European Union's first written
submission, paras. 1110-1129; and European Union's response to Panel question No. 100, para. 403.
839 European Union's second written submission, para. 332 (citing A350XWB Chief Engineering
Statement, (Exhibit EU-18) (HSBI), paras. 13-17, and 33-59); and European Union's first written submission,
paras. 1110-1129.
840 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 38.

take into account certain "technology readiness levels" and "manufacturing readiness levels". 841
Airbus appears to consider that the earliest part of the A350XWB's development (feasibility) –
passing the first two maturity gates – was technically undertaken while working towards the
Original A350 – from 2004 to 2006. 842 During this time Airbus "assessed the feasibility of various
design options for the A350XWB."843
6.516. The MG3 is the "Entry into Concept" Maturity Gate, which culminates in the "concept"
being "frozen".844 According to the European Union, Airbus began the assessment process for that
milestone at the time of the decision to pursue the redesign of the A350 (and at the same time
that the DARE process was instituted).845 This assessment process entailed certain design activities
and also other preliminary decisions regarding the aircraft's manufacturing pro cess.846 The Airbus
Chief Engineering Statement indicates that the MG3 milestone was concluded and the "concept"
was "frozen" by the time the A350XWB design and business case -related documents were
presented to the EADS Board 847, though we note that the busine ss case presentation of
2-7 November 2006 provides contemporaneous evidence that contradicts that claim. 848 We cannot
therefore be certain that the MG3 milestone had indeed been reached at that point. However,
Airbus engineers state that:
{R}eaching the point where we could launch the A350XWB in 2006 was the result of a
two-year process of pre -launch research and development. After continuous
development of composites -based technologies since 2004 (when we launched the
Original A350), … Airbus had progressively developed more advanced technologies for
the Original A350 during 2004-2006. By late 2006, Airbus was confident enough in its
ability to apply these technologies that we could contractually commit to deliver a
787-comparable LCA by 2013. Such a decisio n was not possible in 2004 because of
the technological gap between Airbus and Boeing at that time.849
6.517. In light of Airbus' decision to launch and enter into contractual commitments, while we
cannot be sure that MG3 had been reached, it seems to us that by la te 2006 assessment
processes had taken place to allow Airbus to be confident it could commit to delivering a family of
aircraft involving the extensive use of innovative composites technologies that the market
demanded.
6.518. According to Airbus, the "key novel ties that make the A350XWB so innovative were
selected" between the end of concept (MG3) and the freeze of the aircraft's architecture (MG5). 850
If this is so, the new materials were chosen between the achievement of MG3 851 sometime around
or after the A350XWB 's launch, and the point when MG5 was reached, which (for the A350XWB -
900 baseline variant) was between late 2008 852 and April of 2009.853 The new materials were thus
apparently selected between the programme's launch and the first stages of negotiations for t he
A350XWB LA/MSF contracts.

841 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), paras. 50-53 (footnote
omitted). See also "Feature: Technology Readiness Levels Demystified", NASA, 20 August 2010, (Exhibit EU-
97).
842 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 43 (line 1).
843 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 42.
844 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 43 (lines 2-3).
845 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 43; European Union's first
written submission, para. 1118.
846 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), paras. 24, 27, and 43
(identifying key issues Airbus addressed during MG3 assessment).
847 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 43 (lines 2-3).
848 A350XWB Business Case Presentation, (Exhibit EU-130) (HSBI), HSBI at slides 47, 48 (See "Other
considerations") and 55.
849 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 15.
850 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 60.
851 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 43 (lines 2-3); compare
with A350XWB Business Case Presentation, (Exhibit EU-130) (HSBI), HSBI at slide 47 and slide 55.
852 Max Kingsley-Jones, "Paris Air Show: A350 XWB ready to rock", FlightGlobal News, 5 June 2009,
(Exhibit USA-428).
853 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), paras. 50-53. (footnote
omitted)

6.519. There is some evidence on the Panel record about the stage of development that would
have been reached by the MG5 milestone. The MG5 milestone, according to the head of the
A350XWB programme in 2009, Didier Evrard, "is one of t he most important gates in our new
development process." 854 It represents the freeze of the aircraft's architecture 855, which means
that "all the equipment is at its correct location and properly connected with each other". 856 With
the MG5 milestone, Airbus has "defined all the detailed aero -lines for the fuselage, wings and
empennage." Industrially, MG5 is important because "from here, we start committing to detailed
design at all component levels", which enables long -lead items, tooling and jig production to b e
commenced.857 By the end of MG5, "the feasibility of novel technologies is demonstrated through
demonstrators and prototypes that were built in order to validate certain designs and/or raw
materials."858
6.520. For the A350XWB programme, the Maturity Gate 5 (MG5) milestone was reached for the
A350XWB-900 baseline variant in late 2008, prior to the finalisation of the terms of the LA/MSF
contracts for the project. 859 In June 2009, Airbus stated it would move on to finalise detailed
design for that variant by mid -2009. Also in June 2009, it was reported that "{a}fter the MG5
detailed definition freeze of the baseline -900, similar milestones must be achieved for the smaller
-800 and -1000 stretch over the next two years". Airbus sought to achieve MG5 for the smaller
A350XWB-800 by the end of 2009. However, the task was "not quite so straightforward for the -
1000 stretch, which is due to reach MG5 in April 2011."860
6.521. By the time the A350XWB contracts were concluded, according to the Airbus Engineering
Statement, Airbus had "conducted all necessary design reviews, and demonstrated technology
readiness levels (TRL) up to TRL6. … TRL 6 means that the functioning of a particular technology
or system has been successfully demonstrated in a relevant environment (e.g. prototype
demonstration)."861 In addition, "at this stage, Airbus demonstrated manufacturing readiness
levels (MRL) [***]"862 Tests for the wing "culminated in proving TRL5 and MRL5".863
6.522. As we see it, the question of whether technology risk had been mitigated because the
A350XWB contracts were signed relatively later, compared to the A380 contracts, must be viewed
in the light of the materials novelty described above and also the fact that multiple variants were
in parallel development. At the point when the A350XWB LA/MSF co ntracts were signed,
technology readiness levels (TRL) appear to have been reached involving (for example) prototypes
of new materials, and the manufacturing readiness levels showing that industrialisation of the
chosen raw materials would be feasible. In contrast, the A380 – as already noted – was
conceptualised as using well-known and already-industrialised materials, particularly as regards its
aluminium fuselage. The Airbus engineers state that "technical and manufacturing data is
generally accumulated over decades … The structural design and analysis methods are refined with
[***]," and engineers can take full advantage of the actual performance potential of a structural
design solution. 864 As already noted, this is the case with aluminium structures – such as the A380

854 Max Kingsley-Jones, "Paris Air Show: A350 XWB ready to rock", FlightGlobal News, 5 June 2009,
(Exhibit USA-428).
855 Max Kingsley-Jones, "Paris Air Show: A350 XWB ready to rock", FlightGlobal News, 5 June 2009,
(Exhibit USA-428).
856 Max Kingsley-Jones, "Paris Air Show: A350 XWB ready to rock", FlightGlobal News, 5 June 2009,
(Exhibit USA-428).
857 Max Kingsley-Jones, "Paris Air Show: A350 XWB ready to rock", FlightGlobal News, 5 June 2009,
(Exhibit USA-428).
858 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), paras. 50-53. (footnote
omitted)
859 Max Kingsley-Jones, "Paris Air Show: A350 XWB ready to rock", FlightGlobal News, 5 June 2009,
(Exhibit USA-428), p. 1.
860 Max Kingsley-Jones, "Paris Air Show: A350 XWB ready to rock", FlightGlobal News, 5 June 2009,
(Exhibit USA-428), p. 4.
861 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), paras. 50-53 (underline added;
footnote omitted). See also "Feature: Technology Readiness Levels Demystified", NASA, 20 August 2010,
(Exhibit EU-97), describing, for comparison, an example of a seven-year rise through TRLs 1-9 as "almost
meteoric".
862 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), paras. 50-53 (underline added;
footnote omitted). See also US Department of Defense (DoD), "Manufacturing Readiness Levels (MRLs)", MRL
Matrix Version 7.1, May 2009, (DoD Manufacturing Readiness Levels (MRLs)), (Exhibit EU-101).
863 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 97.
864 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), paras. 24-25.

– where "more than six decades of experience have resulted in highly -optimized structures with
little margin for improvement".865
6.523. As an example, after the first A350XWB LA/MSF contract was concluded, but prior to the
conclusion of the final contract, Airbus had been "forced to change some specifications of the
composite fiber in order to make it more resistant to lightning strikes".866 This was "just one major
unforeseen change that added to what Bregier describes as the 'eating up schedule margins'
situation".867 To us, this example shows that the technological and manufacturing readiness levels
achieved at MG5 were still far away from the "six decades of experience" that informed how the
materials in the A380 were to be used.
6.524. We also note furth er factors that indicate that, even as the A350XWB LA/MSF contracts
were being negotiated, significant development challenges remained. In June 2009, commentators
noted that Airbus was to "undertake an intense development programme of the A350 XWB over
the next 24 months, the likes of which it has not seen for decades. Between now and mid -2011,
when final assembly begins, the A350 engineering teams must complete the detailed design lead
variant, the -900, and prove the carbonfibre production plan for constr uction to begin, while
firming up the baseline specification for the two derivatives." 868 The same commentators noted
that a similar development process had not been undertaken with respect to the A380: "Not since
it introduced the A330/A340 family of twin a nd quadjets in 1993 has the airframer undertaken
such ambitious multi-variant parallel development".869
6.525. We thus observe that when the LA/MSF contracts were being negotiated, it appears that
significant development tasks were not only still yet to be resolve d, but were also ambitious and
time-critical. To us, this means that the picture is more complicated than the European Union's
submission that A350XWB development risk was mitigated, as compared to the A380, by the
comparatively later point after launch at which A350XWB LA/MSF was concluded.
6.526. Moreover, we note that the member States do appear to have taken on certain risks
associated with development prior to the signature of the contracts. At least one of the contracts
provides that it would finance eligible development costs incurred from [***]870, and another also
provides that it would finance development costs incurred in the pre -[***] period: in its first
iteration, the UK contract initially provided that eligible costs incurred [***] could be claimed up
to an amount of GBP [***].871 This suggests that Airbus and the UK Government intended that
the UK Government would take on the burden of providing finance for development costs incurred
prior to [***] (that is, up to the end of [***]). This would, in our v iew, shift the risk of those
already sunk costs to the government in question, who would bear the development risks if the
materials that had been chosen, and for which only prototypes and feasibility had been
demonstrated, proved to be inadequate and led to a failure to deliver the project as and when
anticipated.

865 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), paras. 24-25.
866 Jens Flottau, "Déjà vu: More problems beset the A350 program, but schedule margins are now razor
thin, a situation the manufacturer has faced before", Aviation Week & Space Technology, 15 February 2010,
(Exhibit USA-515).
867 Jens Flottau, "Déjà vu: More problems beset the A350 program, but schedule margins are now razor
thin, a situation the manufacturer has faced before", Aviation Week & Space Technology, 15 February 2010,
(Exhibit USA-515).
868 Max Kingsley-Jones, "Paris Air Show: A350 XWB ready to rock", FlightGlobal News, 5 June 2009,
(Exhibit USA-428).
869 Max Kingsley-Jones, "Paris Air Show: A350 XWB ready to rock", FlightGlobal News, 5 June 2009,
(Exhibit USA-428). See also Jens Flottau, "Déjà vu: More problems beset the A350 program, but schedule
margins are now razor thin, a situation the manufacturer has faced before", Aviation Week & Space
Technology, 15 February 2010, (Exhibit USA-515).
870 French A350XWB Protocole, (Exhibit EU-(Article 13)-01) (BCI), annex 2 (para. 2). See also Exchange
of Letters between Fabrice Brégier, Director General of Airbus, and French Director General of Civil Aviation
(DGAC) [***] and [***], (Exhibit EU-(Article 13)-10) (BCI).
871 UK A350XWB Repayable Investment Agreement, (Exhibit EU-(Article 13)-30) (BCI/HSBI). See also
UK Repayable Investment Agreement amending documents (First set of [***] to UK A350XWB LA/MSF
contract, (Exhibit EU-(Article 13)-31) (BCI/HSBI); Second set of [***] to UK A350XWB LA/MSF contract,
(Exhibit EU-(Article 13)-32) (BCI/HSBI); and Third set of [***] to UK A350XWB LA/MSF contract, (Exhibit EU-
(Article 13)-33) (BCI/HSBI)).

6.527. In this regard, we consider that at least with respect to materials novelty, the fact that the
A350XWB LA/MSF contracts were signed after the project's launch does not necessarily imply
reduced development risk compared to the A380. We recognise, however, that at the time the
corresponding A380 LA/MSF contracts were agreed, the A380 would not have been as advanced in
its own development with regards to the challenges arising from its unprecedented size.
iv Risks associated with the A350XWB arising from A380 problems
6.528. The United States argues that the A380's problems "increased perceived riskiness of the
A350 project in a way that has no analogue in the case of the A380". 872 Insofar as this relates to
development risk, we consider the following issues: (a) whether the A380's problems had an
effect, or a perceived effect, of diverting resources such as engineering resources and funds away
from the A350XWB; and (b) whether the magnitude and repeated nature of the A380 problems
would have implied systemic problems with Airbus' ability to undertake new development
programmes that would have been taken into account by a market lender.
6.529. The United States describes how in October 2006 Airbus was "still mired in t he
"monumental task" of bringing the A380 into commercial service". 873 The A380 had reportedly
been draining Airbus engineering and financial resources away from new projects 874, and the
A350XWB in particular: in 2005, "a shortage of design engineers may be th e more serious
problem. With engineers still heavily involved on the A380 and the A400M, there isn't enough
extra talent available to launch the A350 at this time".875 The United States and Dr Jordan observe
that in October 2006, while lowering EADS corporat e credit ratings, Standard & Poor's (S&P)
stated "the delay of the A380 program could have wider effects, such as delaying the introduction
of the A350XWB, which is already scheduled for introduction years after Boeing Co.'s competing
787".876
6.530. We note evidence on the record that the A380's problems were considered a threat to the
development of the A350XWB, and that close to launch, competition for resources devoted to
repairing the A380's problems may have endangered the development of the A350XWB
altogether.877 The new aircraft programme would have to compete with the A380 for engineering
and financial resources implicated by the initial A380 delays. Indeed, this was reportedly one
reason Airbus originally preferred to design the cheaper, lower risk Original A350: "The
development of the A380 has demanded the money, time and engineering resources to the point
where many believe this to be an underlying reason why the A350 began as a cheap derivative of
the A330".878 During the redesign period, it was observed that "engineering and financial resources
{for the A350XWB} will be stretched, as Airbus is still contending with manufacturing problems
with its much -hyped A380 jumbo jet that have delayed deliveries by another six months". 879 By
2007, financial resources wer e implicated: Airbus was forecasting an IRR for the entire A380

872 United States' comments on the European Union's response to Panel question No. 100, para. 277
(citing Jordan Reply, (Exhibit USA-505) (BCI), para. 43).
873 United States' first written submission, para. 113 (citing "Thomas Enders: 'Je n'exclus aucun recours
"Airbus/EADS officials concede Boeing advantage, question A350 viability", Air Transport World Daily News,
6 October 2006, (Exhibit USA-9); and Mark Piling, "Dream date", Airline Business, 1 April 2004, (Exhibit
USA-10)).
874 Dominic Gates, "Airplane Kingpins tell Airbus: Overhaul A350", The Seattle Times, 29 March 2006,
(Exhibit USA-24).
875 Robert Wall, "A350 Faces Busy Time Until Industrial Launch", Aviation Week & Space Technology,
20 June 2005, (Original Exhibit US-83), (Exhibit USA-23).
876 Jordan Reply, (Exhibit USA-505) (BCI), para. 47.
877 Aaron Karp, "Airbus/EADS officials concede Boeing advantage, question A350 viability", Air Transport
World Daily News, 6 October 2006, (Exhibit USA-9).
878 Scott Hamilton, "A350 Redesign Threatens Boeing 777; Boeing prepares 787 for Challenge",
Leeham.net, 6 June 2006, (Original Exhibit US-141), (Exhibit USA-27).
879 Ameet Sachdev, "Airbus redesigns its strategy for long haul: A350 line to carry bulk of the load",
Chicago Tribune, 18 July 2006, (Exhibit EU-99).

project of 13%, compared to the 19% forecast in 2005. 880 Airbus would have to sell more aircraft
to break even, and pay compensation and offer discounts on orders of the delayed A380.881
6.531. The A380's problems also implied systemic problems with Airbus' capacity to develop and
secure certification for new aircraft as and when promised. During the time when the redesign of
the Original A350 was being considered, the A380's problems were acknowledged t o be harming
Airbus' reputation and relationship with customers. For example, Airbus' then -CEO Christian Streiff
reportedly acknowledged that the June 2006 "news about the {A380} delay harmed the
company's credibility with customers and shareholders. … 'Ye s, Airbus is in the middle of a serious
crisis in our relationship with our customers'". 882 In 2007, it was reported that "the problems that
have stemmed from the A380 are symbolic of Airbus as a company: poor product management,
overly ambitious plans, fractionalisation and friction".883
6.532. At the time of the A350XWB contracts, Airbus was providing reassurance to the market
that the A350XWB would not suffer the same problems as the A380. In press reports Airbus
indicated that the problems had been caused by stru ctural issues with the company and that
increased integration, changes to Airbus' structure, as well as risk -mitigation strategies pursued
under DARE were undertaken in a direct attempt to deal with the known effects of the A380's
problems and to permit th e A350XWB to go ahead. 884 Despite these mitigation measures, the
A380's problems – and certain issues associated with the A400M885 – were still reported as bearing
on the A350XWB project at the time of the conclusion of the A350XWB contracts. 886 In June 2009,
commentators opined that the "next two years are critical if Airbus is to avoid a repeat of the
A380's production dramas". 887 In our view, risk mitigation efforts, even as they addressed
structure and supply chains, were not generally considered to have entire ly removed the risks of a
repeat of the A380's problems.
6.533. The European Union appears to accept that the A380 problems posed challenges for the
A350XWB, but counters that the A380 had had its own problems in this regard. The
European Union states that "{a} r eview of just one analyst report from around the time of the
A380 launch demonstrates that, like the A350XWB, the A380 programme was affected by
challenges associated with other projects", amongst them "larger programmes such as Eurofighter,
Tiger, and … NH90", and "the ramp -up in export production at MBD and Dassault Aviation", all of
which were advancing at the same time as the A380, and all of which competed with the A380 for
EADS working capital. 888 The European Union considers that the EADS offering memo randum,
issued just before the launch of the A380, confirms that all of these projects, in addition to the
A340-500/600, were simultaneously competing for resources with the A380 programme.889

880 "Noel Forgeard and the A380", Commercial Aviation Report, 15 January 2007, (Original Exhibit
US-297), (Exhibit USA-148).
881 "Noel Forgeard and the A380", Commercial Aviation Report, 15 January 2007, (Original Exhibit
US-297), (Exhibit USA-148). See also Pilita Clark and Peggy Hollinger, "Deferrals to take toll on EAD's cash
pile", Financial Times, December 2009, (Exhibit USA-153).
882 Ameet Sachdev, "Airbus redesigns its strategy for long haul: A350 line to carry bulk of the load",
Chicago Tribune, 18 July 2006, (Exhibit EU-99).
883 "Noel Forgeard and the A380", Commercial Aviation Report, 15 January 2007, (Original Exhibit
US-297), (Exhibit USA-148).
884 See e.g. Keith Campbell, "Airbus determined to avoid A380 mistakes in the A350 project",
Engineering News Online, 10 May 2010, (Exhibit EU-416).
885 Jordan Reply, 20 May 2013 (Exhibit USA-505) (BCI/HSBI), para. 50 (citing Standard & Poor's Global
Credit Portal Ratings Direct, European Aeronautic Defence and Space Co. N.V., 14 October 2009, (Exhibit
USA-514), p. 3).
886 Jens Flottau, "Déjà vu: More problems beset the A350 program, but schedule margins are now razor
thin, a situation the manufacturer has faced before", Aviation Week & Space Technology, 15 February 2010,
(Exhibit USA-515).
887 Max Kingsley-Jones, "Paris Air Show: A350 XWB ready to rock", FlightGlobal News, 5 June 2009,
(Exhibit USA-428), p. 6.
888 CreditSuisse/First Boston, "European Aeronautic Defence and Space Company (EADS): Valuation
remains inconsistent with risks", Equity Research, 14 March 2001, (Exhibit EU-405), p. 41.
889 European Union's comments on the United States' response to Panel questions Nos. 91-107 ("overall
comment"), para. 762 (citing EADS Final International Offering Memorandum, 9 July 2000, (EADS Offering
Memorandum), (Exhibit EU-55), pp. 68 (A340-500/600), 80 (Eurofighter), 82 (Tiger, NH90), 84-87
(Eurofighter), 101-103 (MBD), 110-111 (Dassault Aviation), and 125 (NH90)).

6.534. We note that independent analysis on the record indicates that th e A400M, the Tiger and
NH90 helicopter programmes were doing well at the time of the A380's industrial launch:
Was the A3XX destined to be the hero or the villain of the piece {with respect to
EADS' IPO offering}? What would form the supporting cast was a lso a little uncertain.
In this respect, the news has been most encouraging, with major orders or
commitments secured for the Airbus A400 M, the Tiger and NH 90 helicopters, and the
Meteor beyond visual range missile.890
6.535. This suggests that those programmes were not suffering development problems, would not
become a resource drain in the way that the problematic A380 would later affect the A350XWB at
the time of the A350XWB LA/MSF contracts.
6.536. We therefore consider that the perception that engineering and fina ncial resources would
not have been available for the A350XWB due to the A380's problems, and the reputational
damage caused by the A380 problems, would not have been encountered to the same degree at
the time of the A380 contracts.
6.537. We believe that the A380's problems would have additionally affected how a market lender
would have viewed risks involved with the A350XWB programme. In particular, the A350XWB's
ambitious ramp-up schedule would, in our view, have been seen by a market lender in the light of
the A380's failure to keep to what was described in 2007 as "an overly -ambitious plan" involving
an "aggressive" turnaround time. 891 We consider that this would likely have coloured a market
actor's views of the ramp -up and production schedule planned for the A 350XWB, and increased
perceptions of the risk involved with such a schedule. We also consider that supply -chain related
A380 problems would affect a lender's perceptions of the risk involved with the higher proportion
of sub-contracting on the A350XWB.
6.538. In our view, the A380's problems would have additionally affected how a market lender
would have viewed risks involved with certain terms and conditions of the A350XWB contracts and,
in particular, the risk that planned variants would not eventuate. In the A3 50XWB contracts,
repayments appear to fall due on the delivery of [***].892 There is a risk that [***]. The French
A350XWB LA/MSF contract appears to be the only contract that makes provision for this, providing
that there will be [***].893 The A380 contracts were similarly based on a business case that
comprised [***].894 Several variants were not developed or proved unacceptable to the market in
view of the problems the programme experienced.895 In our view, a market actor would likely have
been less convinced th at it would prove feasible to [***], in the wake of such problems.
Experiences with the A380's problems, then, would in our view inform a market lender's view of
the risks involved with LA/MSF for the A350XWB programme.
6.539. In conclusion, as regards developme nt risk overall, the sum of the evidence on the record
indicates that the A350XWB was particularly technologically innovative. The A380 involved its own
technological challenges, for example, the wake vortex problem, weight and structure, noise, and
compatibility with aircraft infrastructure, the bulk of which risk came with producing an
unprecedentedly large aircraft. However, the A380 was constructed mostly of traditional metal. In
our view, from the evidence on the record, we consider that the extent to which the A350XWB's
new materials had low levels of maturity at the start of development, and that these new materials
would necessitate new data and extensive testing, new engineering and new skills, new facilities,
new jigs and tools, and new production process, and new integration of earlier-developed systems,

890 "EADS: Results Analysed – A3XX Project Review – Recommendation Upgrade", Amro Aerospace &
Defence Sector Research, 13 December 2000, (Exhibit USA-490), p. 5.
891 "Noel Forgeard and the A380", Commercial Aviation Report, 15 January 2007, (Original Exhibit
US-297), (Exhibit USA-148).
892 See e.g. French A350XWB Protocole, (Exhibit EU-(Article 13)-01) (BCI), annex 8; and Business case-
related document, (Exhibit EU-(Article 13)-35) (HSBI), p. 12.
893 French A350XWB Protocole, (Exhibit EU-(Article 13)-01) (BCI), art 3.2.
894 Airbus, "A380 Launch Business Case, [***]", December 2001, (A380 Business Case), (Exhibit EU-
20) (HSBI), p. 9.
895 UK House of Commons Trade and Industry Committee, "Recent Developments with Airbus", Ninth
Report of Session 2006-2007, Volume I: Report and formal minutes, 19 June 2007, p. 8, (Exhibit USA-25)
(citing "Last A380 freighter order scrapped", Financial Times, 3 March 2007).

all of which was expected to involve a higher peak R&D cost, means that on balance, the
A350XWB's technological risk was at least as high or higher than the A380.
6.540. Aspects of the A350XWB development programme seem to have further increased
development risks, relative to the A380: Under the ambitious DARE programme, the larger
number of risk sharing suppliers meant that: (a) Airbus decreased control over the development of
the aircraft; and (b) the ra mped-up development schedule meant any problems would be
"disastrous"896. We thus consider that the A350XWB faced additional development risks that were
better understood in the wake of the A380's problems. In our view, actions taken to resolve
communications and integration issues would have only partly offset these additional risks.
6.541. The fact that the A350XWB LA/MSF contracts were concluded at a relatively later point
during the development programme would have had some risk -mitigating effect when compared
against the A380, but we consider that this must be viewed in the light of the extensive use of new
materials used on the A350XWB and the initial lower maturity of those materials compared to
more traditional materials, and the increased outsourcing and faster development programme.
6.542. In our view, therefore, the mitigation factors identified by the European Union (i) would
not have fully offset the increased and better understood risks associated with the ramped -up
DARE development programme and high level of outsourcing, and (ii) would not have fully offset
the technology risks associated with new materials and their lower maturity levels at the start of
development. Taking the above facts into consideration, we consider that the development risks
associated with the A350XWB were at least as high as, or sufficiently similar to , those associated
with the A380.
b Market risk
6.543. In this section, we compare the "market risk" (also referred to by the parties as
"marketing risk") associated with the A380 project against that associated with the A350XWB
project. The European Union defines market risk as "the risk that the new aircraft will not sell as
well as anticipated"897, a definition to which the United States does not object.
6.544. The European Union argues that market risk must also be examined in determining the
relative risks involved with the A350XWB and the A380 programmes. 898 The United States accepts
that the A380 was "quite risky", in part due to "uncertainty about the size and nature of VLA
demand", but considers that this "does not offset what had become certain and demonstrated risks
for the A350 XWB program [***]".899 The parties' arguments concern risks regarding: (a)
predictions about the size of the respective markets for the two aircraft models; and (b) conditions
of competition within that respective market.
i Risk related to market forecasts
6.545. The European Union submits that the aerospace industry has "considerably more
experience in forecasting demand" for the middle to large wide -body aircraft market segment than
for the very large aircraft (VLA) market segment. 900 The European Union states that the A380 was
"designed to enter an untested market segment" 901, whereas the segment into which the
A350XWB was to be sold was comparatively much better known. According to the European Union,

896 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 37 (lines 7-12).
897 European Union's second written submission, para. 322. This formulation differs slightly from the
discussion in the original proceeding, where "market risk" was characterised as "the risk that Airbus will fail to
deliver enough completed aircraft to repay principal and interest". (Panel Report, EC and certain member
States – Large Civil Aircraft, para. 7.356). As the United States has not objected to the definition, we do not
consider the different definition to be material.
898 European Union's second written submission, paras. 318-322 and 329.
899 United States' comments on the European Union's response to Panel question No. 100, para. 279.
900 European Union's second written submission, para. 323-326 (citing Whitelaw Response to Jordan,
(Exhibit EU-121) (BCI/HSBI), para. 9). See also European Union's response to Panel question No. 100,
22 May 2013, para. 403; and comments on United States' response to Panel questions Nos. 91-107 ("overall
comment"), paras. 686-687, 746-749 and 877.
901 European Union's comments on the United States' response to Panel question No. 114, para. 50.

this is shown by diverging predictions of market demand for large aircraft 902 in the A380's
category903, in contrast to converging predictions regarding market demand for twin -aisle
aircraft904, the category to which the A350XWB belongs. 905 The European Union states that there
was thus reduced general market risk for the A350XWB programme. The European Union also
submits that the A350XWB business case was "conservative" and this reduced market risk
compared to the A380. 906 Further, according to the Eu ropean Union, more firm orders for the
A350XWB at the time of the LA/MSF contracts indicates less market risk. 907 The United States
submits that the global financial and economic crisis was likely to affect airlines, and thus the
market for the A350XWB, in a manner not experienced at the time of the A380 LA/MSF
contracts.908
6.546. We commence our consideration of these questions by comparing, below, the predictions
of the A380 and the A350XWB markets at the times of the respective LA/MSF contracts. 909
Forecasts are gen erally given in terms of categories relating to capacity. The A380 appears to
typically have 525 seats in a 3-class configuration. The relevant predictions for the A380, available
on the Panel record, thus appear to be as follows:

902 European Union's second written submission, para. 324 (citing Airbus Global Market Forecast
2000-2019, July 2000, (Exhibit USA-68/EU-160 (exhibited twice)), p. 29)); and Extract from Boeing Current
Market Outlook 2000, Appendices, pp. 45-46, (Exhibit USA-81), p. 45); European Union's comments on the
United States' response to Panel questions Nos. 91-107 ("overall comment"), paras. 746-749; and
European Union's comments on the United States' response to Panel question No. 114, para. 50.
903 The A380 was expected to have 555 seats at the time of its industrial launch. ("EADS: Results
Analysed – A3XX Project Review – Recommendation Upgrade", Amro Aerospace & Defence Sector Research,
13 December 2000, (Exhibit USA-490), p. 11).
904 European Union's second written submission, para. 324; and comments on the United States'
response to Panel questions, paras. 746-749.
905 We note that A350XWB passenger aircraft have between 270 and 350 seats. See e.g.
François Caudron, Vice President, Head of A350 Customer and Business Development, "A350XWB Programme
Update", Airbus presentation to Deutsche Bank, 1 July 2010, (Exhibit USA-443), p. 4.
906 European Union's second written submission, para. 326.
907 European Union's second written submission, para. 327.
908 Jordan Reply, (Exhibit USA-505) (BCI), para. 63 (citing Standard & Poor's Global Credit Portal
Ratings Direct, European Aeronautic Defence and Space Co. N.V., 14 October 2009, (Exhibit USA-514), p. 3).
909 This analysis does not pre-judge the issue of the relevant product market, discussed below.

Table 8: Comparative table of 20-year aircraft demand forecasts 1997 – 2002
 1997-
2016
1998-
2017
1999-
2018
2000-
2019910
2001-
2020
2002-
2021
Airbus

Very large aircraft:911

comprising: 912
500 seaters
600 seaters
800 seaters
1,000 seaters

Freighters (over 80t)913

Total

1,208 914

1,235 915

575
404
223
33

315 916

1,550 917

Boeing

Large aircraft (747 -400,
and larger),

including:
500+seats

Total

1,180 918

1,040 919

933 920

1,010 921

800 922

1,010 923

1,091 924

944 925
Rolls Royce926

Over 400 seats

Freighters (over 60t)

Total

980

550

1,530

910 Boeing's 2000 forecast is dated September 2000 and covers the period 2000-2019. (Extract from
Boeing Current Market Outlook 2000, Appendices, pp. 45-46, (Exhibit USA-81)). Airbus' 2000 forecast is dated
July 2000 and covers the period 1999-2019. (Airbus Global Market Forecast 2000-2019, July 2000,
(Exhibit USA-68/EU-160 (exhibited twice))).
911 We note that Airbus predicts demand for seats and demand for aircraft separately. (See Airbus
Global Market Forecast 2000-2019, July 2000, (Exhibit USA-68/EU-160 (exhibited twice)), pp. 62-63 (appendix
C), and pp. 74-75. See also Extract from Airbus Global Market Forecast 2000, July 2000, p. 74, (Airbus Global
Market Forecast 2000), (Exhibit EU-71); and European Union's second written submission, paras. 388-390).
912 Airbus Global Market Forecast 2000-2019, July 2000, (Exhibit USA-68/EU-160 (exhibited twice)),
p. 6.
913 747 freighters are not over 80 tons and are thus seemingly excluded. ("EADS: Results Analysed –
A3XX Project Review – Recommendation Upgrade", Amro Aerospace & Defence Sector Research,
13 December 2000, (Exhibit USA-490), pp. 16-17).
914 Airbus Global Market Forecast 1999, (Exhibit USA-285), p. 29.
915 Airbus Global Market Forecast 2000-2019, July 2000, (Exhibit USA-68/EU-160 (exhibited twice)),
p. 6. See also Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1092.
916 Airbus Global Market Forecast 2000-2019, July 2000, (Exhibit USA-68/EU-160 (exhibited twice)),
pp. 55 and 86.
917 Airbus Global Market Forecast 2000-2019, July 2000, (Exhibit USA-68/EU-160 (exhibited twice)),
pp. 6 and 54. See also Airbus Global Market Forecast 2000, (Exhibit EU-71), p. 74.
918 Boeing Current Market Outlook 1997-2016, March 1997, pp. 1-14, (Exhibit EU-166), p. 3. This
appears to include freighters ("cargo jets").
919 Summary of Boeing Market Outlook 20-year forecasts 1998 to 2011, (Exhibit EU-73).
920 Summary of Boeing Market Outlook 20-year forecasts 1998 to 2011, (Exhibit EU-73).
921 Extract from Boeing Current Market Outlook 2000, Appendices, pp. 45-46, (Exhibit USA-81), p. 45.
Includes freighters.
922 CreditSuisse/First Boston, "European Aeronautic Defence and Space Company (EADS): Valuation
remains inconsistent with risks", Equity Research, 14 March 2001, (Exhibit EU-405), p. 61.
923 Extract from Boeing Current Market Outlook 2000, Appendices, pp. 45-46, (Exhibit USA-81), p. 45.
924 Summary of Boeing Market Outlook 20-year forecasts 1998 to 2011, (Exhibit EU-73).
925 Summary of Boeing Market Outlook 20-year forecasts 1998 to 2011, (Exhibit EU-73).
926 "EADS: Results Analysed – A3XX Project Review – Recommendation Upgrade", Amro Aerospace &
Defence Sector Research, 13 December 2000, (Exhibit USA-490), pp. 16-17.

6.547. As noted in the original proceeding, "{t}he A380 programme was launched in the face of
basic disagreement between Airbus and Boeing about the size of the potential market for the
aircraft."927 By way of background, at the time the A380 was planned and launched, Airbus and
Boeing had made different predictions of the future of air travel. Boeing in the late 1990s predicted
that future air travel would be more fragmented, and that intermediate to large-sized twin-aisle
aircraft would be needed to service more direct flights between regional centres. Airbus considered
that future air travel would be between major cities, or "hubs"; it foresaw an expanded need for
VLA that could enable many passengers to fly on few, well -travelled routes at a minimised cost.928
Airbus foresaw significant demand for superjumbos with high seat capacity. Whilst Boeing
predicted there would be some demand for VLA, and agreed that a market did exist for those
aircraft, it steadily reduced its predictions of that demand, and thus disagreed with Airbus about
the size of that market.
6.548. At the time of the A380 LA/MSF contracts, Airbus and Boeing did not use exactly the same
methodology in making their predictions. Airbus differ entiates between the 747 -400 and the
A380.929 Boeing includes the 747 -400 model aircraft in a "large aircraft" category which also
includes a proposed 747X and the A3XX (the A380). It is not clear that the categorisation used in
the manufacturers' respective forecasts, and thus the numbers they predicted within those
categories, is entirely comparable. What is more, Airbus' predictions were, in part, based on a
methodology that broke down demand in terms of neutral numbers of seats and used an algorithm
to convert the seats in existing aircraft into neutral "seat" categories.930
6.549. In March 2001, CreditSuisse/First Boston noted that a divergence in demand predictions
was in part attributable to a different definition of the aircraft category:
Airbus and Boeing dis agree over the exact number of aircraft that will be required in
the very large category. For a start, Airbus and Boeing disagree over the definition of
the category, with Airbus looking at all aircraft over 400 seats, with a forecast demand
over 20 years of 1,500 aircraft. Boeing, on the other hand, defines the very large
segment as those aircraft with more than 500 seats, and believes demand will be
around 800 aircraft. Including demand for 400 -500 seaters, Boeing forecasts demand
for 1,010 aircraft. This has dropped from its own forecast of four years ago of nearer
1,500 aircraft.931
6.550. In addition to differing predictions, CreditSuisse/First Boston considered Airbus' predictions
should be approached with caution: "{g}iven all {Airbus'} numbers are based on th e most
optimistic (internal) demand forecast in an as yet unproven market, in which new competition may
well arise, we have to remain cautious about Airbus' forecast".932
6.551. However, as Amro Aerospace and Defence Sector Research noted, there appears to have
been confirmation for Airbus' predictions from impartial, well-informed forecasts:
Rolls-Royce {forecasts} are more likely to be seen as impartial than Airbus or Boeing.
Given that Rolls -Royce supplies its Trent engines for the Boeing 777 and the Airbus
A330 and will supply Trent engines for the Airbus A340 -500/600 and the A3XX, there
is no reason why Rolls -Royce should favour one sort of market development over
another. … With regard to for { sic} large aircraft with more than 400 seats and for
large freighte r aircraft, Rolls -Royce forecasts a demand for 1,530 aircraft, Airbus

927 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1927.
928 See e.g. United States' first written submission, para. 139.
929 Airbus includes the 747-400 model aircraft in the 400-seat category, along with the 777-300 and the
A340-600, and classes two other 747s (747HD and 747SR) in the size category of 500 seats and over. (Airbus
Global Market Forecast 2000-2019, July 2000, (Exhibit USA-68/EU-160 (exhibited twice)), p. 74).
930 Airbus Global Market Forecast 2000-2019, July 2000, (Exhibit USA-68/EU-160 (exhibited twice)),
pp. 62-63.
931 CreditSuisse/First Boston, "European Aeronautic Defence and Space Company (EADS): Valuation
remains inconsistent with risks", Equity Research, 14 March 2001, (Exhibit EU-405), p. 61.
932 CreditSuisse/First Boston, "European Aeronautic Defence and Space Company (EADS): Valuation
remains inconsistent with risks", Equity Research, 14 March 2001, (Exhibit EU-405), p. 63.

forecasts 1,550 (the freighter element being restricted to over 80t, hence excluding
the Boeing 747) and Boeing forecasts 1,010 aircraft.933
6.552. Thus, in 2000, a point in time relevant to the A380 contracts, Boeing predicted demand for
800 aircraft in the "above 500 seats" category, and 1,010 VLA overall, a prediction which appears
to include freighters and 747 -sized aircraft.934 In its 2000 forecast, Airbus predicted 1,235 large
passenger aircraft, and 1,550 large aircraft overall, including 315 freighters over 80 t capacity.935
Additionally, HSBI forecasts included in the A380 business case for a later period indicate a clear
divergence between the two manufacturers. 936 Thus, at the time the A380 w as launched, Airbus
and Boeing's demand predictions diverged. We note, however that Airbus' 2000 demand
predictions appear to converge somewhat with independent predictions of overall demand for large
aircraft.
6.553. We now turn to compare market demand predictions relevant to the A350XWB and LA/MSF
for the A350XWB. The A350XWB "family", with its several variants, appears to us to span several
aircraft categories used in forecasting demand. The A350XWB -800 appears to be considered with
other "small" widebody, twin-aisle aircraft.937 The A350XWB-900 and A350XWB-1000 appear to be
considered "medium" or "intermediate" widebody twin-aisle aircraft.938 [***] are included in most
demand predictions, but [***] may differ, making comparisons somewhat unclear. That is, the
A350XWB is above 70 t, and may be considered a [***] depending on the weight category used
by the forecaster.
6.554. The relevant predictions available from the Panel record appear to be as follows939:

933 "EADS: Results Analysed – A3XX Project Review – Recommendation Upgrade", Amro Aerospace &
Defence Sector Research, 13 December 2000, (Exhibit USA-490), pp. 16-17.
934 Boeing's Current Market Outlook 2000-2019 states that categories are "based on 36-/32 inch mixed
class configuration (includes freighter and combi airplanes in appropriate passenger category; …)". ("Demand
for Air Travel", extract from Boeing Current Market Outlook 2000, pp. 20-27, (Exhibit EU-167), p. 45)
935 We note that Airbus' relevant demand prediction includes an additional year of deliveries, as it
appears to take into account the years 1999-2019, whereas Boeing's prediction at that time appears to be a
prediction for the years 2000-2019. (Airbus Global Market Forecast 2000-2019, July 2000, (Exhibit USA-68/EU-
160 (exhibited twice)), p. 74)
936 See HSBI numbers included in A380 Business Case, (Exhibit EU-20) (HSBI), pp. 11-12.
937 See Rolls Royce Market Outlook 2006-2025, August 2006, (Exhibit EU-184), p. 42. It appears that
Boeing classifies twin-aisle aircraft with 180 to 250 seats in a three-class configuration as "small" twin-aisles.
(See Declaration of Francisco-Javier Riaza-Carballo, Former Vice President, A380 Programme Business
Directorate, Airbus, 25 May 2007, (Declaration of Francisco-Javier Riaza-Carballo), (Exhibit EU-15) (BCI/HSBI),
para. 16 (citing Boeing Current Market Outlook 2006, p. 38 (not available on Panel record))). Boeing also
classes the Boeing 767 in this category. (See Boeing Current Market Outlook 2005-2024, (Exhibit EU-159),
pp. 33-35).
938 See Rolls Royce Market Outlook 2006-2025, August 2006, (Exhibit EU-184), p. 42.
939 The European Union submits comparisons, prepared by Steer Davis Gleave, in the CompetitionRx
Report, (Exhibit EU-127) (BCI/HSBI), pp. 107-114. We note that in some instances the figures used in that
comparison, including Airbus and Boeing figures, differ to those contained in the original documents on the
Panel record. This may be due to the inclusion of [***] in predictions, or different aircraft categorisation. We
have not included some figures from sources that do not relate to comparable categories, or cover a different
time-period.

Table 9: Comparative table of 20-year aircraft demand forecasts 2004 – 2011
Forecasts: 2004-
2023
2005-
2024
2006-
2025
2007-
2026
2008-
2027
2009-
2028
2010-
2029
2011-
2030
Airbus
Twin aisles

Small, and

Intermediate,
and [***]

Large–Very Large,
and [***]

5,668940

3,868941

1,800942

1,665943

5,944944

1,698945

6,245946

4,237947

2,008948

1,729949

6,240950

4,330951

1,910952

1,740953

Boeing
Twin aisles

Small954

Medium

Medium
widebody [***]

Large aircraft

3,500955

5,620956

3,183957

2,437958

178959

907960

6,000+961

3,450962

6,700963

210964

740965

7,100966

210967

720968

7,330969

820970

940 Airbus Global Market Forecast 2006-2025, (Exhibit EU-158), p. 5 (sum of small twin-aisle and
intermediate twin-aisle and long-range [***]). Steer Davis Gleave uses 5,267. (See CompetitionRx Report,
(Exhibit EU-127) (BCI/HSBI), pp. 107-114). EADS refers to "some 5,700" aircraft in the A350XWB's category
over 20 years from 2006: EADS Press Release, "A350XWB Family Receives Industrial Go-Ahead",
1 December 2006, (Exhibit USA-145).
941 Airbus Global Market Forecast 2006-2025, (Exhibit EU-158), p. 5. Not including [***], prediction is
for 3,745 small twin-aisles. See also Declaration of Francisco-Javier Riaza-Carballo, (Exhibit EU-15)
(BCI/HSBI), para. 16 (citing Airbus Global Market Forecast 2006-2025); and Steer Davis Gleave, in
CompetitionRx Report, (Exhibit EU-127) (BCI/HSBI), pp. 107-114.
942 Airbus Global Market Forecast 2006-2025, (Exhibit EU-158), p. 5. Steer Davis Gleave uses 1,522,
which possibly excludes [***].
943 Airbus Global Market Forecast 2006-2025, (Exhibit EU-158), p. 5. Steer Davis Gleave uses 1,263.
944 John Leahy, Chief Operating Officer, Customers, Airbus, "Global Market Forecast 2009-2028",
17 September 2009, (Airbus Global Market Forecast Presentation 2009-2028), (Exhibit EU-401), p. 14.
945 Airbus Global Market Forecast Presentation 2009-2028, (Exhibit EU-401), p. 14.
946 Airbus Global Market Forecast Presentation 2009-2028, (Exhibit EU-401), pp. 14 and 15. Airbus also
stated that 5,802 new twin-aisles would be demanded in 2009-2028, excluding [***]. (François Caudron, Vice
President, Head of A350 Customer and Business Development, "A350XWB Programme Update", Airbus
presentation to Deutsche Bank, 1 July 2010, (Exhibit USA-443), p. 9)
947 Airbus Global Market Forecast Presentation 2009-2028, (Exhibit EU-401), p. 14. Steer Davis Gleave
uses 4,097. This accords with the sum of Airbus' 2009-2028 forecast for 250-and 300-seat categories,
excluding [***]. (François Caudron, Vice President, Head of A350 Customer and Business Development,
"A350XWB Programme Update", Airbus presentation to Deutsche Bank, 1 July 2010, (Exhibit USA-443), p. 9).
948 Airbus Global Market Forecast Presentation 2009-2028, (Exhibit EU-401), p. 14. Steer Davis Gleave
uses 1,705. This accords with the sum of Airbus' 2009-2028 forecast for 350-and 400-seat categories,
excluding [***]. (See François Caudron, Vice President, Head of A350 Customer and Business Development,
"A350XWB Programme Update", Airbus presentation to Deutsche Bank, 1 July 2010, (Exhibit USA-443), p. 9).
949 Airbus Global Market Forecast Presentation 2009-2028, (Exhibit EU-401), pp. 14 and 15. Steer Davis
Gleave uses 1,318, which possibly excludes [***].
950 John Leahy, Chief Operating Officer, Customers, Airbus, "Airbus Global Market Forecast 2010-2029",
13 December 2010, (Airbus Global Market Forecast Presentation 2010-2029), (Exhibit EU-403).
951 Airbus Global Market Forecast Presentation 2010-2029, (Exhibit EU-403).
952 Airbus Global Market Forecast Presentation 2010-2029, (Exhibit EU-403).
953 Airbus Global Market Forecast Presentation 2010-2029, (Exhibit EU-403). Includes [***].
954 Boeing classifies twin-aisle aircraft with 180 to 250 seats in a three-class configuration as "small"
twin-aisles. See Declaration of Francisco-Javier Riaza-Carballo, (Exhibit EU-15) (BCI/HSBI), para. 16 (citing
Boeing Current Market Outlook 2006, p. 38 (not available on Panel record)). Boeing also classes the Boeing
767 in this category. (See Boeing Current Market Outlook 2005-2024, (Exhibit EU-159), pp. 33-35).
955 Declaration of Francisco-Javier Riaza-Carballo, (Exhibit EU-15) (BCI/HSBI), para. 16 (citing Boeing
787 program fact sheet, 2007 (not available on Panel record)).
956 Boeing Current Market Outlook 2005-2024, (Exhibit EU-159), pp. 3 and 33-35.

Forecasts: 2004-
2023
2005-
2024
2006-
2025
2007-
2026
2008-
2027
2009-
2028
2010-
2029
2011-
2030
Rolls Royce

200–250 seats

300–350 seats

Large aircraft

Medium [***]

Large [***]

2,017971

3,246972

1,024973

241974

549975

Pratt &
Whitney976

Small widebodies

Medium
widebodies
Large aircraft
Very large aircraft

2,920

2,545

925

375+

2,985

2,802

1,025

957 Boeing Current Market Outlook 2005-2024, (Exhibit EU-159), pp. 33-35.
958 Boeing Current Market Outlook 2005-2024, (Exhibit EU-159), pp. 33-35.
959 Boeing Current Market Outlook 2005-2024, (Exhibit EU-159), pp. 33-35.
960 Boeing Current Market Outlook 2005-2024, (Exhibit EU-159), pp. 3 and 33-35. Appears to include

961 Ameet Sachdev, "Airbus redesigns its strategy for long haul: A350 line to carry bulk of the load",
Chicago Tribune, 18 July 2006, (Exhibit EU-99).
962 Steer Davis Gleave, seemingly based on Boeing Industry Business Demand & Forecast,
September 2006 (not on Panel record) and Boeing Current Market Outlook 2006 (not on Panel record). See
CompetitionRx Report, (Exhibit EU-127), pp. 107-114.
963 Extract from Boeing Current Market Outlook 2009-2028, p. 22, (Boeing Current Market Outlook
2009-2028), (Exhibit EU-402). Not broken down into seat category or size. Adding passenger twin-aisles and
medium widebody [***] gives 6,430 aircraft. Steer Davis Gleave uses 6,220.
964 Boeing Current Market Outlook 2009-2028, (Exhibit EU-402).
965 Boeing Current Market Outlook 2009-2028, (Exhibit EU-402). Sum of large passenger and large
[***] demand predictions is 1,010 aircraft. However, Boeing notes that these categories differ.
966 Boeing Current Market Outlook 2010-2029, (Exhibit EU-404), p. 27. Not broken down into seat
category or size. Adding passenger twin-aisles and medium widebody [***] gives 6,770 aircraft.
967 Boeing Current Market Outlook 2010-2029, (Exhibit EU-404), p. 27.
968 Boeing Current Market Outlook 2010-2029, (Exhibit EU-404), p. 27. Sum of large passenger and
large [***] demand predictions is 1,050 aircraft. However, Boeing notes that these categories differ.
969 "Long-Term Market – Overview", extract from Boeing Current Market Outlook 2011-2030, pp. 4-10,
(Boeing Current Market Outlook 2011-2030), (Exhibit EU-74), pp. 4 and 10.
970 Boeing Current Market Outlook 2011-2030, (Exhibit EU-74), pp. 4 and 10.
971 Rolls Royce Market Outlook 2006-2025, August 2006, (Exhibit EU-184), p. 41. Steer Davis Gleave
uses c. 2,920.
972 Rolls Royce Market Outlook 2006-2025, August 2006, (Exhibit EU-184), p. 41. Steer Davis Gleave
uses c. 4,200.
973 Steer Davis Gleave also uses this figure.
974 Rolls Royce Market Outlook 2006-2025, August 2006, (Exhibit EU-184), p. 41. A380F included as a
large [***].
975 Rolls Royce Market Outlook 2006-2025, August 2006, (Exhibit EU-184), p. 41. A380F included as a
large [***].
976 Steer Davis Gleave, in CompetitionRx Report, (Exhibit EU-127) (BCI/HSBI), pp. 107-114 (citing Pratt
& Whitney Aircraft Industry Overview and Forecast Update (i) dated March 2007, containing delivery forecast
for 2009-2028 (not on Panel record) and (ii) dated March 2009, containing forecasts for 2009-2028 (not on
Panel record)).

Forecasts: 2004-
2023
2005-
2024
2006-
2025
2007-
2026
2008-
2027
2009-
2028
2010-
2029
2011-
2030
Snecma977

Twin aisles

6,000

JADC978

Twin aisles

5,554

5,805

6.555. Unlike with forecasts for the A380, Airbus and Boeing do not ap pear to have disagreed
about the overall size of the twin -aisle market segment into which the A350XWB would be sold.
Both manufacturers considered there was a sizeable market for twin -aisle aircraft. Commentary
from June 2006, the time that Airbus was deci ding to pursue the A350XWB redesign, reported
converging demand predictions, for example: "Airbus, Boeing and analysts believe there is a
market for between 4,000 and 5,000 airplanes in the medium -widebody line".979 Then-co-CEO of
Airbus and EADS, Louis Gallois, noted the agreement by both competitors about the large size and
value of the market. At the announcement of the decision to launch the A350XWB, he said that,
"when the market demand is as huge as forecasted by both competitors, we cannot but grab the
opportunity".980
6.556. While the Panel record indicates converging predictions about the overall size of the twin -
aisle market, we note some limitations in the available evidence. In particular, we note the
absence of differentiation in Boeing's predictions, duri ng key years, between smaller widebody
twin-aisles and medium widebody twin -aisles.981 It seems apparent from some forecasts, in which
both Airbus and Boeing did differentiate between twin -aisles in terms of capacity, that Boeing and
Airbus may have differed , with Boeing predicting slightly higher demand for intermediate or
medium widebodies 982 (the category in which the bulk of A350XWB sales were expected). The
manufacturers' overall converging predictions for twin -aisles may thus mask some divergences
within that categorisation.
6.557. To the extent that diverging forecasts suggest that the most likely outcome may be in
between the varying predictions, then Boeing's forecasts for slightly higher "medium" widebody
demand, and less "large" aircraft demand, tend to sup port the European Union's argument that
Airbus' A350XWB market demand forecast implied less risk than Airbus' A380 market demand
forecast. However, if the convergence of Airbus' demand forecasts with other analysts' predictions
is taken into account, the d ifferences between the manufacturers' predictions for the A380's
market segment may not be so significant from the perspective of a market lender.
6.558. The European Union submits that, in light of market forecasts available at the time, Airbus'
anticipated sal es of the A350XWB were "conservative" 983, further reducing market risks for the
A350XWB.984 As we understand it, Airbus' A380 business case also took a "conservative" approach
compared with market forecasts: Airbus expected to repay principal and interest over fewer
deliveries of A380 aircraft than even Boeing's demand predictions for aircraft with over 500
seats.985 The project's breakeven point was at delivery of significantly fewer aircraft.986 The market

977 Based on either (a) Snecma Market Forecast 2006-2025, or (b) SpeedNews Aviation Industry
Suppliers Conference March 2009 (neither report on Panel record). See CompetitionRx Report, (Exhibit
EU-127) (BCI/HSBI), pp. 107-114.
978 CompetitionRx Report, (Exhibit EU-127) (BCI/HSBI), pp. 107-114 (citing Japan Aircraft Development
Corporation Worldwide Market Forecast for Commercial Air Transport, for (i) 2006-2025 and (ii) 2009-2028)
(not on Panel record).
979 Scott Hamilton, "A350 Redesign Threatens Boeing 777; Boeing prepares 787 for Challenge",
Leeham.net, 6 June 2006, (Original Exhibit US-141), (Exhibit USA-27).
980 Speech by Louis Gallois, "Industrial launch of the A350XWB", Paris, 4 December 2006, (Exhibit
EU-179).
981 It appears that Boeing classifies twin-aisle aircraft with 180 to 250 seats in a three-class
configuration as "small" twin-aisles. (See Declaration of Francisco-Javier Riaza-Carballo, (Exhibit EU-15)
(BCI/HSBI), para. 16 (citing Boeing Current Market Outlook 2006, p. 38 (not available on Panel record)).
982 Compare Airbus' 2006-2025 forecast of 1,800 medium twin-aisles, and Boeing's 2005-2026 forecast
of 2,437 medium widebody passenger aircraft.
983 European Union's second written submission, para. 326.
984 European Union's second written submission, para. 326.
985 See HSBI numbers included in A380 Business Case), (Exhibit EU-20) (HSBI), section 5.3 (p. 14).

share anticipated in the A380 business case was comparabl e to that anticipated in the A350XWB
business case 987 – despite the fact that the A350XWB would face stronger relative competition
from existing modern aircraft models in its market segment, as will be discussed further below. We
also note that the European Union itself stated in the original proceeding that the A380 business
case was the product of a "host of conservative assumptions and methodologies" and that the
corresponding delivery forecast was "realistic and sober". 988 We consider that any risk-reducing
effect that might be observed for the A350XWB project from the "conservative" nature of the base
case as compared to market forecasts would have had a similar effect on the A380 project.
6.559. The European Union further submits that by the time the first A350X WB LA/MSF
agreement was signed, there were relatively more firm orders for A350XWB aircraft. 989 The
European Union contrasts this to the A380 project, which was "entering a less predictable market,
with fewer firm orders in place when the agreements were concluded (and fewer orders, relative to
the number of aircraft required to effect repayment of principal and interest)". 990 The
European Union adds that "{a}t the time the UK loan agreement for the A380 was concluded, for
example, Airbus had secured [***] necessary to effect full repayment of principal and interest".991
The European Union submits that this lowers the marketing risks of the A350XWB relative to the
A380.992
6.560. We note that at the time the A380 UK loan agreement was concluded in March 2000, the
final business case for the A380 had not yet been produced, and the project had not yet proceeded
to industrial launch, which would take place in December 2000. The Spanish A380 LA/MSF contract
was dated 27 December 2001993, by which time industry analysts had alread y opined that "{t}he
good news is that the A3XX has got off to what we regard as a flying start", referring to
commitments received from airlines for 42 passenger and two freighter A380 aircraft. 994 Airbus
reportedly stated on 4 October 2001 that "so far it was on the right side of the average for orders
to date (including Singapore Airlines)". 995 It was also observed that "Airbus wants a good base of
orders and customers on which to formally launch the A3XX, but it does not want too many orders
on launch terms ".996 By the time the French Government announced it had finalised its funding
terms, in 2002, the A380's prospects were touted as "excellent", as evidenced by firm orders. The
French transport ministry cited 85 firm orders and 12 intentions to buy, and cons idered this
especially positive in view of the fact that the aircraft was not expected to enter into service for a
further four years.997 The German contract was concluded a few days later.
6.561. At the time of launch of the A350XWB, Aviation Week noted: "The Air bus A350XWB
industrial launch without any firm orders suggests airlines are still evaluating whether the
airframer can deliver what it's promising and that a difficult sales job could lie ahead". 998 Interest
levels in the A350XWB appeared to have waned since the Original A350 was proposed to
customers, though Airbus expected most of the Original A350 orders to carry over to the

986 See HSBI numbers included in A380 Business Case), (Exhibit EU-20) (HSBI), section 2.1.
987 Compare HSBI numbers included in A380 Business Case), (Exhibit EU-20) (HSBI), p. 5 (fourth bullet
point, line 1), and section 5.3 (p. 14) with A350XWB Business Case Presentation, (Exhibit EU-130) (HSBI),
slide 51.
988 Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.340, 7.413, and 7.1926.
989 European Union's second written submission, para. 327. See also European Union's response to
Panel question No. 100, para. 403; and comments on the United States' response to Panel questions
Nos. 91-107 ("overall comment"), paras. 686-687.
990 European Union's second written submission, para. 327.
991 European Union's comments on the United States' response to Panel question No. 114, para. 51
(citing UK A380 LA/MSF Contract, (Original Exhibit US-79), (Exhibit USA-87) (BCI); and United States' first
992 European Union's second written submission, para. 327.
993 Panel Report, EC and certain member States – Large Civil Aircraft, fn 1507 (citing Original Exhibit
US-73 (BCI)).
994 "EADS: Results Analysed – A3XX Project Review – Recommendation Upgrade", Amro Aerospace &
Defence Sector Research, 13 December 2000, (Exhibit USA-490), pp. 7-8.
995 "EADS: Results Analysed – A3XX Project Review – Recommendation Upgrade", Amro Aerospace &
Defence Sector Research, 13 December 2000, (Exhibit USA-490), p. 13.
996 "EADS: Results Analysed – A3XX Project Review – Recommendation Upgrade", Amro Aerospace &
Defence Sector Research, 13 December 2000, (Exhibit USA-490), p. 20.
997 French Ministry of Transportation, Press Release, "Accord pour le Financement de l'Airbus A380",
15 March 2002, (Exhibit EU-141).
998 See also Robert Wall, "Airbus Relaunches A350", Aviation Week, 10 December 2006, (Exhibit EU-98).

A350XWB. Delays due to the A380's problems were also assessed as likely to disrupt major airline
expansion strategies, and to erode d emand for Airbus widebodies. 999 The European Union's
submissions show that [***] A350XWB aircraft were on order between December 2006 and
[***]1000, and by [***] Airbus had secured firm orders for [***] A350XWB aircraft.1001 Other
evidence indicates that there may have been two aircraft orders in 2006, 278 in 2007, 137 in 2008
and 27 in 2009, totalling 444 orders for A350XWB by the end of 2009. 1002 It appears that at the
time the first A350XWB LA/MSF contracts were being negotiated 1003, Airbus had secured orders of
around [***] to [***] aircraft, or between [***]1004 and [***]1005 of A350XWB deliveries
needed to secure the repayment of principal and payment of interest. Airbus had secured between
[***] and [***] of all deliveries anticipated under the delivery schedule expected to achieve the
rate of return envisaged by the contracts.1006
6.562. At the time of the A380 LA/MSF contracts, between [***] and [***] A380 orders had
been secured, or between [***] and [***] of A380 deliveries expected to repay principal and
interest. Airbus had secured between [***] and [***] of all deliveries anticipated under the
delivery schedule expected to achieve the rate of return envisaged by the contracts. It therefore
appears that at the time the contracts were concluded for the two projects, there were
proportionately more A350XWB orders than A380 orders.
6.563. In our view, the difference in orders at the time the LA/MSF contracts were being
negotiated should be understood in the light of the overall structure of expected sales. Airbus did
not expect to deliver many A380s during the years immediately after launch. Airbus was very clear
that it anticipated most A380 demand to occur in the latter part of the project and toward the end
of the 20-year forecast period: only 360 "very large and economical aircraft like the Airbus A3XX"
would be demanded between 2000 and 2009, and the remaining 875 between 2010 and 2019. 1007
The [***] firm orders for the A380 reported to have been secured by 2002 would have
represented [***] of the total large aircraft demand Airbus had forecast to 2009 (of which Airbus
sought only a share). Thus, while in absolute terms Airbus had secured fewer A380 orders at the
time of conclusion of the LA/MSF contracts, A380 orders should be viewed in the light of the
A380's differently predicted demand pattern. In this regard, while we recognise that the A350XWB
programme had achieved more orders than the A380 programme at the relevant time, it is
apparent that orders for both projects were close in terms of projections.

999 Jordan Reply, (Exhibit USA-505) (BCI), para. 44 (citing Standard & Poor's Global Credit Portal
Ratings Direct, Research Update: EADS Outlook Revised to Negative Due to A380 Delivery Disruption; 'A'
Ratings Affirmed, 14 June 2006, (Exhibit USA-508), p. 4).
1000 European Union's first written submission, paras. 1106 and 1120 (citing Ascend database, Orders,
data request as of 26 June 2012, (Exhibit EU-19)).
1001 European Union's first written submission, para. 327; and United States' second written submission,
para. 326.
1002 Ascend database, Orders, data request as of 26 June 2012, (Exhibit EU-19). Another report states
that "Airbus said Wednesday that it secured 290 orders in 2007 for the A350XWB". (See Nicola Clark, "Airbus
to seek government aid for A350 in second half", The New York Times, 16 January 2008, (Exhibit USA-434)).
1003 Information relating to the later contracts is not available on the Panel record.
1004 That is, [***].
1005 That is, [***].
1006 European Union's comments on the United States' response to Panel question No. 91, para. 810.
This includes versions not yet launched. (French A350XWB Protocole, (Exhibit EU-(Article 13)-01) (BCI),
annexes; German KfW A350XWB Loan Agreement, (EU-(Article 13)-14) (English translation) (BCI/HSBI);
Annex 1.4(f) to German KfW A350XWB Loan Agreement [***], (Exhibit EU-(Article 13)-23) (Original German
regula la concesión directa de anticipos reembolsables a la filial española de Airbus SAS denominada Airbus
Operations S.L para su participación en el programa de desarrollo de la nueva familia de aviones Airbus
A350XWB, Boletín Oficial del Estado, 9 November 2009, (Exhibit USA-46); UK A350XWB Repayable Investment
Agreement, (Exhibit EU-(Article 13)-30) (BCI/HSBI); Further Whitelaw Response, (Exhibit EU-421)
(BCI/HSBI); Professor Robert Whitelaw, "Calculation of the Macaulay Duration of the Financing Agreements for
the A350XWB", (Exhibit EU-380) (BCI/HSBI)).
1007 Airbus Global Market Forecast 2000-2019, July 2000, (Exhibit USA-68/EU-160 (exhibited twice)),
pp. 6 and 74-86.

6.564. As a further factor, the Uni ted States' expert, Dr Jordan, considers that the 2007 -2009
economic crisis would have had negative effects on the airline industry that would in turn
negatively affect marketing conditions for the A350XWB project.1008
6.565. There is evidence on the Panel record t hat market demand in the commercial passenger
aircraft industry is sensitive to general economic conditions, due in part to the sensitivity of
passenger air travel demand to such conditions. 1009 At the time of the A350XWB LA/MSF contracts
there were indeed si gnificant predictions that client airlines, and therefore the market, would be
hard hit by a negative financial and economic environment. In April 2009, during the period in
which Airbus was negotiating terms for the LA/MSF contracts1010, the Financial Times reported that
the recession would affect airlines, Airbus' potential market:
{A}irlines {are} deferring or cancelling orders for aircraft placed during the boom
years. As in previous cycles, the first sector to suffer is demand for more expensive
wide-body airliners. Qantas, China Southern and Cathay Pacific have all in recent days
announced plans to delay delivery of some 93 mainly long -range aircraft, including
nine Airbus A380 superjumbos. Air France -KLM a couple of weeks ago said it was
planning to dela y delivery of two A380s. … The problem {Airbus and Boeing} face is
with deliveries next year and beyond. Cash -strapped customers will increasingly seek
either to delay or cancel orders for aircraft they can no longer afford, or negotiate
more favourable terms … The current cycle is proving more challenging than those in
the past largely because of the credit crunch. Industry analysts estimate a $10bn -
$30bn shortfall in funding … France has offered €5bn in loans to help airlines buy
Airbus aircraft. Both manufacturers admit … they are bracing for more custom er
deferrals and cancellations. Yet they remain relatively optimistic that the cycle will
turn and pick up in 2011 … Most industry watchers believe this is wishful thinking …
the manufacturers will probably be forced to cut production by 20 -30 per cent, if not
by as much as 40 per cent, according to a recent UBS study.1011
6.566. In October 2009, credit agency Standard & Poor's likewise predicted that "Airbus'
operating results and deliveries could be hit by the current negative economic environment, which
has led to a significant drop in air traffic and airlines reducing capacity. In our view, this is
particularly true for the years 2010 and 2011".1012
6.567. Downward trends in demand were also evident when the A380 contracts were being
concluded. As the United States pointed out in the original proceeding, there was a downturn in
the market for large civil aircraft in 2001 –2003 following the events of 11 September 2001,
exacerbated by the start of the war in Iraq and the outbreak of Severe Acute Respiratory
Syndrome (SARS) in Asia.1013 Indeed, this period was, up until then, the only time the aircraft
industry had experienced negative growth. However, at that time the manufacturers appear to
have taken into account such general market conditions in their predictions. For example, Airbus
noted that:
Compared with the 1999 {Global Market Forecast}, Airbus forecasters have increased
their estimate of annual traffic growth for the first decade by 0.1 percentage points,
and reduced that for the following ten years by 0.3 percentage po ints. This reflects a

1008 Jordan Reply, (Exhibit USA-505) (BCI), para. 63 (citing Standard & Poor's Global Credit Portal
Ratings Direct, European Aeronautic Defence and Space Co. N.V., 14 October 2009, (Exhibit USA-514), p. 3).
1009 "Risk Factors", EADS Financial Statements and Corporate Governance, Book 2, 2006, pp. 8-13,
(Exhibit USA-496), p. 10.
1010 European Union's response to Panel question No. 101 (citing Statement by Tom Williams, Executive
Vice President, Programmes, Airbus SAS, 17 May 2013, (Exhibit EU-354) (BCI), para. 3); Meeting agenda,
[***], (Exhibit EU-392) (BCI); Letter, Airbus [***], [***], (Exhibit EU-393) (HSBI); and Letter, Airbus
Operations GmbH, [***], (Exhibit EU-394) (HSBI). See also UK Department of Trade and Industry Annual
Report 2006-2007, p. 107, (Exhibit USA-38), in relation to the receipt of an application for launch investment
for the Airbus A350.
1011 Paul Betts, "Airbus and Boeing's plans fly in the face of sense", Financial Times, 21 April 2009,
(Exhibit USA-504).
1012 Standard & Poor's Global Credit Portal Ratings Direct, European Aeronautic Defence and Space Co.
N.V., 14 October 2009, (Exhibit USA-514), p. 3.
1013 This was agreed by both parties in the original proceeding. (See Panel Report, EC and certain
member States – Large Civil Aircraft, paras. 4.387, 4.390, 4.486, and 7.1987).

change, following the faster-than expected recovery of the economies of several Asian
nations, in the long term outlook of the independent economic forecasts used by
Airbus as an input to its forecasting models. The result is a modest reduction by
one-tenth of a percentage point of the average annual growth in {revenue
passenger-kilometres} projected over the next twenty years.1014
6.568. To us this indicates that to the extent that there was a market downturn, it was apparently
taken into acco unt by Airbus when predicting demand for the A380. We thus consider that the
economic environment appears to have been taken into account in predictions of market demand
at the time the A380 LA/MSF contracts were concluded.
6.569. By contrast, by the time the A35 0XWB LA/MSF contracts were being negotiated, the
Financial Times stated that "Airbus and Boeing look to be in denial" and that their plans "fly in the
face of sense" in view of "the worst recession in decades, which has sent air traffic into a tailspin
and many airlines into the red". 1015 Further, demand predictions used in the A350XWB LA/MSF
contracts business case appear to be those prepared for the industrial launch of the A350XWB in
2006 – that is, predictions that predate the 2007 -2009 financial and econo mic crisis.1016 In 2006,
Airbus had predicted that it would be delivering the A350XWBs into an "up" cycle.1017
6.570. We consider that the A350XWB market demand predictions were likely to be subject to a
negative economic environment that would affect Airbus' clients, and which was known at the time
the A350XWB LA/MSF contracts were concluded, but was not taken into account in the predictions
of market demand on which the contracts appear to have been based. We consider that a market
lender would have taken this into account in their market lending rate.
ii Risk related to conditions of competition within market segment
6.571. The European Union considers that conditions of competition between Airbus and Boeing
were more favourable to Airbus for the A350XWB project than the A380 project1018, due to delays
in the entry-into-service of the Boeing 787. 1019 The European Union points to "the impact that the
multi-year delays in the entry -into-service of the 787, known at the time the A350XWB financing
agreements were concluded in [***], have had on the market risk of the A350XWB" 1020 and
states that the United States "points to no parallel development that offered the A380 a similar
boost at the time the A380 MSF loan agreements were concluded".1021
6.572. We are not persuaded by the European Union's argument. The A380 was far larger than
any existing aircraft, and its clearest competitor was the Boeing 747, a model near the end of its
programme life which would likely need to be redesigned in order to improve its
competitiveness.1022
6.573. This is in contrast to the A350XWB. The A350XWB family [***]1023 was launched to
compete directly in a market segment that already comprised several modern, successful

1014 Airbus Global Market Forecast 2000-2019, July 2000, (Exhibit USA-68/EU-160 (exhibited twice)),
p. 13.
1015 Paul Betts, "Airbus and Boeing's plans fly in the face of sense", Financial Times, 21 April 2009,
(Exhibit USA-504).
1016 A350XWB Business Case Presentation, (Exhibit EU-130) (HSBI), slides 50-51.
1017 See also Robert Wall, "Airbus Relaunches A350", Aviation Week, 10 December 2006, (Exhibit EU-
98).
1018 European Union's second written submission, para. 328; and comments on the United States'
response to Panel questions Nos. 91-107 ("overall comment"), paras. 691-692.
1019 European Union's second written submission, para. 328; and comments on the United States'
response to Panel questions Nos. 91-107 ("overall comment"), paras. 752-753.
1020 European Union's comments on the United States' response to Panel questions Nos. 91-107
1021 European Union's comments on the United States' response to Panel questions Nos. 91-107
1022 "EADS: Results Analysed – A3XX Project Review – Recommendation Upgrade", Amro Aerospace &
Defence Sector Research, 13 December 2000, (Exhibit USA-490), pp. 9-10.
1023 Some A350XWB variants overlap, and compete with either or both the Boeing 777 and 787.

competitor models: the already successful Boeing 777 and the new 787 1024 as well as Airbus' own
existing twin-aisle aircraft, the A330 and A340. 1025 The A350XWB would also possibly encounter a
potential updated 777. 1026 Boeing was doing well in the segment. The European Union asserts in
another context that Boeing's launch of the 787 in 2004 caused the market share of the A33 0 to
drop at a time when the A340 was already failing because it could not effectively compete with the
more fuel -efficient 777. 1027 In 2005 Airbus reportedly sold only fifteen A340 aircraft whereas
Boeing sold approximately ten times as many 777 aircraft. As of July 2006, Boeing had reportedly
captured 75% of all new aircraft orders thus far that year. 1028 According to the European Union,
such developments "clarified that Airbus aircraft within the twin -aisle market had lost their
competitive edge to the Boeing 787".1029 The A350XWB was perceived as a strategic necessity in
order for Airbus to compete effectively in that valuable segment.1030
6.574. The Boeing 787 programme already had a head start of between two and three years at
the time Airbus decided to pursue the A350X WB redesign. 1031 Prior to the A350XWB's launch,
Airbus' then-CEO Christian Streiff reportedly "conceded that {Airbus} now is up to a whole decade
behind rival Boeing … in terms of development and efficiency". 1032 The decision to pursue the
A350XWB redesign, inst ead of the cheaper and less risky Original A350, also delayed Airbus'
reinsertion into the segment, delaying the entry into service of a new widebody by another two
years.1033 As Dr Jordan notes, the "A350XWB {was} scheduled for introduction years after Boein g
Co.'s competing 787"1034, further extending the 787's head start. Dr Jordan points to reports that
"Boeing had a jump -start on its rival, only to see its own development problems erode that
enviable position".1035 By February 2010, while A350XWB LA/MSF was still being negotiated, it was
observed that as the A350XWB programme was experiencing delays (related to late design
changes due to the new materials being used, and inability to provide data to suppliers so that
they could start production of key parts), "A irbus' {A350XWB} woes may now be contributing to
restoring some of Boeing's lead".1036
6.575. As we see it, the delays announced to the 787 programme would have, at most, put the
competitor aircraft on a more level footing. The delays would not have enhanced the A35 0XWB's
competitive edge in a way that would reduce its market risk compared to the A380. Nor would the
delays negate the fact that the A350XWB was in direct competition with other modern aircraft,
including the 777.

1024 Scott Hamilton, "A350 Redesign Threatens Boeing 777; Boeing prepares 787 for Challenge",
Leeham.net, 6 June 2006, (Original Exhibit US-141), (Exhibit USA-27); and Guy Norris, "Airline criticism of
Airbus A350 forces airframer to make radical changes to fuselage, wing and engines", Flight International,
8 May 2006, (Exhibit USA-26).
1025 Dominic Gates, "Airplane Kingpins tell Airbus: Overhaul A350", The Seattle Times, 29 March 2006,
(Exhibit USA-24).
1026 European Commission, Decision C(2001) 6498 final, State aid N493/2010 – Spain – R&D aid to
Industria de Turbopropulsores, S.A. (ITP) for Trent XWB LPT, 20 September 2011 (Exhibit USA-154), para. 55.
See also Ameet Sachdev, "Airbus redesigns its strategy for long haul: A350 line to carry bulk of the load",
Chicago Tribune, 18 July 2006, (Exhibit EU-99).
1027 European Union's first written submission, para. 1108. See also "Time for a new, improved model:
Airbus gets to work on its medium-sized aircraft, but deeper problems remain", The Economist, 20 July 2006,
(Exhibit USA-28).
1028 "Time for a new, improved model: Airbus gets to work on its medium-sized aircraft, but deeper
problems remain", The Economist, 20 July 2006, (Exhibit USA-28).
1029 European Union's first written submission, para. 1108.
1030 Goldman Sachs Investment Analysis, A350: Not an option but essential for Airbus' future, in our
view, 21 November 2006, pp. 20-22, (Exhibit USA-30), p. 20.
1031 Dominic Gates, "Airplane Kingpins tell Airbus: Overhaul A350", The Seattle Times, 29 March 2006,
(Exhibit USA-24).
1032 Aaron Karp, "Airbus/EADS officials concede Boeing advantage, question A350 viability", Air
Transport World Daily News, 6 October 2006, (Exhibit USA-9).
1033 Scott Hamilton, "A350 Redesign Threatens Boeing 777; Boeing prepares 787 for Challenge",
Leeham.net, 6 June 2006, (Original Exhibit US-141), (Exhibit USA-27).
1034 Jordan Reply, (Exhibit USA-505) (BCI), para. 47.
1035 Jordan Reply, (Exhibit USA-505) (BCI), para. 52 (citing Jens Flottau, "Déjà vu: More problems beset
the A350 program, but schedule margins are now razor thin, a situation the manufacturer has faced before",
Aviation Week & Space Technology, 15 February 2010, (Exhibit USA-515)).
1036 Jordan Reply, (Exhibit USA-505) (BCI), para. 52 (citing Jens Flottau, "Déjà vu: More problems beset
the A350 program, but schedule margins are now razor thin, a situation the manufacturer has faced before",
Aviation Week & Space Technology, 15 February 2010, (Exhibit USA-515)).

6.576. In our view, the existence of several m odern, already successful competitor aircraft in the
A350XWB's market segment would mean that, even if market demand forecasts were accurate,
Airbus would have more difficulty achieving its hoped -for market share in the case of the
A350XWB than it would in the case of the A380.
6.577. Moreover, with those other aircraft available, customers would be more likely to favour a
competitor aircraft in the event that there were delays, or failure to develop the A350XWB as and
when promised. This is in marked contrast to the situation with the A380, where it was noted by
commentators in 2007 that:
{A}irlines can't cancel their orders easily. If airlines cancel they are stuck with having
inadequate capacity, which would erode profit. If airlines were to select other aircr aft
they … wouldn't be available in the desired time-frame.1037
6.578. Thus, any A350XWB development risks would have had serious consequences in relation to
market demand in view of the competition in the segment. We therefore consider that, at the time
of the conclusion of the respective LA/MSF contracts, this competition was a factor that would have
increased the market risks for the A350XWB relative to the A380's market risks.
6.579. In conclusion, therefore, our sense is that the A380 and A350XWB experienced market
risks that were of a different nature. At the relevant points in time, the A380's market success or
failure rested in large part on the correct identification of the existence and size of the market
segment, whereas the A350XWB's success or failure would dep end upon how it would be received
by customers in a market segment that was already relatively well known and served by existing
aircraft, including the 787. Moreover, the A350XWB would need to be competitive not only in
terms of innovation but, crucially, in terms of timing. Competition within the sector would mean
that the consequences of any delays could be very detrimental to market success. For these
reasons, we consider that while the "market" or "marketing" risks experienced by the A380 and
A350XWB were different in nature, they were overall comparable in importance.
Price of risk
6.580. This section deals with the issue of changed lending conditions and market appetite for
risk. The main question in this regard is whether the financial environment – in par ticular the
global financial and economic crisis prevailing at the time – meant that a market lender would
have demanded a higher return at the time financing was being sought for the A350XWB than at
the time it would have been sought for the A380, even if the aircraft development and marketing
risks were similar. The parties consider that this issue corresponds to "risk acceptable to the
finance industry at different moments of its own market cycle" 1038, a factor noted to be a relevant
consideration by the pa nel in the original proceeding. 1039 The European Union terms this issue the
"price of risk".1040
6.581. The United States submits that LA/MSF for the A350XWB "was finalised at a point in time
when lending conditions were historically tight" with the implication that " the true A350XWB risk
premium should likely be higher than the A380 risk premium". 1041 According to the United States,
at the time of the A350XWB contracts, the effects of the 2008 global financial and economic crisis
continued to linger and constrain the ava ilability of credit, which would have affected lending
conditions for the A350XWB project. 1042 The United States submits evidence presented by
Dr Jordan concerning the yield spread between investment -grade and below -investment grade
debt, showing the addition al yield that investors demand to invest in the lower -rated debt.
According to Dr Jordan, "because the risks related to providing project -specific financing for the

1037 "Noel Forgeard and the A380", Commercial Aviation Report, 15 January 2007, (Original Exhibit US-
297), (Exhibit USA-148).
1038 Jordan Report, (Exhibit USA-475) (BCI/HSBI), para. 22; European Union's second written
submission, para. 344; Whitelaw Response to Jordan, (Exhibit EU-121) (BCI/HSBI), para. 23.
1039 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.468.
1040 European Union's second written submission, para. 334; and Whitelaw Response to Jordan,
(Exhibit EU-121) (BCI/HSBI), para. 23. The United States appears to raise no objection.
1041 Jordan Report, (Exhibit USA-475) (BCI/HSBI), para. 22.
1042 United States' comments on the European Union's response to Panel question No. 100, para. 277
(citing Jordan Reply, (Exhibit USA-505) (BCI), paras. 43-54).

A350XWB are undoubtedly much higher than th{o}se related to investment -grade debt, non -
investment grade debt provides a better assessment of the effect of credit conditions on potential
financing for the A350XWB".1043 The United States points to Dr Jordan's statements that this yield
spread remained high in [***] when the LA/MSF agreements were fin alised, relative to pre -2007
("pre-crisis") levels. 1044 Specifically, the United States notes Dr Jordan's evidence that the yield
spread between investment -grade industrial companies and below -investment grade industrial
companies ranged from 1% to 2% in a pre-crisis period (2006-2007), peaked at almost 7% during
the financial crisis (late 2008 -early 2009), and then remained elevated at 3.5% to 5% in the
[***].1045
6.582. The European Union rejects the evidence put forward by Dr Jordan that "yield spread
remained high" in [***] when the A350XWB LA/MSF agreements were finalised, relative to their
levels in 2006/2007 because, in the European Union's view, this does not show the price of risk
was "at least" as expensive, or "more" expensive than it was at the time the A380 LA/MSF
agreements were finalised, in [***].1046
6.583. The European Union further argues that the United States' claim that "lending conditions
were historically tight" is contradicted by a lack of change between certain credit spreads in 2001
and [***].1047 The Europ ean Union also submits that the United States' claim that in [***]
financial markets were "still suffering from a historic crisis that severely constrained the availability
of credit"1048 is effectively rebutted by evidence showing there was appetite for debt during that
period, including for EADS debt: "in January 2009, in the midst of the darkest days of the financial
crisis, EADS issued a EUR 1 billion corporate bond, with an effective rate of a mere 4.6 per
cent"1049, that is, a relatively low rate, indicatin g market acceptance and demand for the particular
debt. The European Union states that "in August 2009, EADS placed a EUR 1 billion 7 -year bond
on the capital markets, an issue that was nine times over -subscribed during its 30 minute offer
period"1050 and also observes that secondary bond yield curves show robust demand for EADS debt
such that "its yield had fallen significantly by [***]".1051 The European Union also points to
opinions on the evidentiary record of "marked improvement in general market conditions evident
from early 2009".1052
6.584. We turn first to the European Union's submission regarding the market's appetite for EADS
debt in the form of bonds. While we note that this standard may be appropriate to gauge the
market appetite for general corporate debt related to Airbus, we recall that the project-specific risk
premium is intended to relate to the higher risks associated with the form of financing and key
features of LA/MSF, in addition to the risks associated with the particular aircraft development
programme. Under the terms of the LA/MSF agreements, LA/MSF is project -specific and
repayment is to occur via the cash flows deriving from sales; likewise, achieving full returns are
effectively dependent on the success of a particular project. This would mean i t does not
correspond to general debt with respect to which risk of default is diversified across the company's
operations and follows the entity's overall financial position rather than the profits or losses of a
single project undertaken by the entity. T his is, after all, the reason for adding a project -specific

1043 Jordan Reply, (Exhibit USA-505) (BCI), para. 62.
1044 Jordan Reply, (Exhibit USA-505) (BCI), paras. 59-64.
1045 United States' response to Panel question No. 103; and Jordan Reply, (Exhibit USA-505) (BCI),
para. 62 and chart 4 (p. 35).
1046 European Union's comments on the United States' response to Panel questions Nos. 91-107
("overall comment"), paras. 716 and 786-790.
1047 European Union's second written submission, para. 335; and Whitelaw Response to Jordan, (Exhibit
EU-121) (BCI/HSBI), para. 24.
1048 Jordan Report, (Exhibit USA-475) (BCI/HSBI), para. 22.
1049 European Union's second written submission, para. 337 (citing Whitelaw Response to Jordan,
(Exhibit EU-121) (BCI/HSBI), para. 26 (in turn citing EADS Financial Statements 2009, (Exhibit EU-163),
p. 65)).
1050 European Union's comments on the United States' response to Panel question No. 103, para. 791
(citing CompetitionRx Report, (Exhibit EU-127) (BCI/HSBI), para. 404).
1051 European Union's second written submission, para. 337 (citing Whitelaw Response to Jordan,
1052 European Union's comments on the United States' response to Panel question No. 103, para. 791
(citing Hans J. Blommestein, Vincenzo Guzzo, Allison Holland and Yibin Mu, "Debt Markets: Policy Challenges in
the Post-Crisis Landscape", OECD Journal: Financial Market Trends (2010), Vol. 2010, Issue 1, (Exhibit
USA-521), pp. 10-11).

risk premium. The European Union's evidence of appetite for debt on bond markets in the crisis
period, particularly appetite for EADS debt (indicated by the relatively low effective rate of an
EADS bond issued in January 2009 1053 and apparent oversubscription of an EADS bond issued in
August 2009 1054), is less relevant for determining the risks attaching to the key features of
LA/MSF.
6.585. Turning to the United States' submission, we tend to agree with the E uropean Union that
the high yield spread between investment -grade and below-investment grade debt in [***] when
the A350XWB LA/MSF agreements were finalised, relative to levels in 2006/2007, does not show
the price of risk was "at least" as expensive, or " more" expensive than it was at the time the A380
LA/MSF agreements were finalised, in [***]. The peak in the spread at the time of the A350XWB
LA/MSF contracts provides information about how risk was priced at that point, but does not
enable us to judge wh ether the spread was more marked than that existing at the time of the
A380 LA/MSF contracts.
6.586. According to the information submitted by the European Union on European Union and
world gross domestic product (GDP) from 1969 onwards, it is apparent that there was a dramatic
drop in world GDP growth, and an even more dramatic drop in European Union GDP growth, in the
second half of 2008.1055 By comparison, a trough between the years 2000 and 2003 was not nearly
as marked. According to the figures submitted by the European Union, between 2000 and 2001
world GDP growth dipped from 3.27% to 1.87%, before recovering to 3.87% by 2004. World GDP
growth remained relatively stable for the next few years. In 2007 world GDP growth was at
3.47%, before dropping to an average of -0.69% in 2008, rising to an average of 0.22% in 2009
and recovering to 3.38% in 2010. From the chart submitted, it appears that it may have dropped
to below -2% growth between 2008 and 2009. In Europe, this was apparently even more
marked.1056 This eviden ce of a general trend may indicate that, while not represented on Dr
Jordan's graphs included in his report, the statement identifying the "pre -crisis" period is likely
valid for the [***] period as well as the 2006 -2007 period. However, it appears that th ere is no
identifiable evidence on the Panel record linking the finance industry to the general market as
indicated by such GDP data.
6.587. The United States has submitted various State Aid Decisions 1057 and relevant HSBI
evidence in UK documents concerning the A3 50XWB.1058 Neither the State Aid Decisions, nor the

1053 European Union's second written submission, para. 337 (citing EADS Financial Statements 2009,
(Exhibit EU-163), p. 65).
1054 European Union's comments on the United States' response to Panel question No. 103, para. 791
(citing CompetitionRx Report, (Exhibit EU-127) (BCI/HSBI), para. 404).
1055 EU and World GDP table and graph, (Exhibit EU-72).
1056 EU and World GDP table and graph, (Exhibit EU-72).
1057 European Commission, Decision C(2001) 6498 final, State aid N493/2010 – Spain – R&D aid to
Industria de Turbopropulsores, S.A. (ITP) for Trent XWB LPT, 20 September 2011, (Exhibit USA-154);
European Commission, Decision C(2011) 995 final, State aid (SA.30282) N204/2010 – Sweden – R&D aid to
Volvo Aero, S.A. (ITP) for Trent XWB ICC, 23 February 2011, (Exhibit USA-155); European Commission,
Decision C(2010) 2141 final, Aide d'état N527/2009 – France – Daher-Socata "Trappes de train principal A350
XWB" (projet MLGD), 14 April 2011, (Exhibit USA-156); European Commission, Decision C(2010) 6472 final,
State aid N 4/2010 and N7/2010 – Spain – Individual R&D aid to Alestis Aerospace S.L., 29 September 2010,
(Exhibit USA-157); European Commission, Decision C(2009) 6874 final, State aid N357/2009 –
United Kingdom – Individual R&D aid to GKN ASL, 15 September 2009, (Exhibit USA-158); European
Commission, Decision C(2011) 264 final, State aid (SA.30169) N3/2010 – Spain – State loan for R&D to
AERNNOVA, 26 January 2011, (Exhibit USA-159); European Commission, Decision C(2010) 4937 final, State
aid N5/2010 and N6/2010 – Spain – State loan for R&D to ARESA, 20 July 2010, (Exhibit USA-160); European
Commission, Decision C(2009) 9960 final, State aid N296/2009 'F2F' and N297/2009 'Airducts', 2 Individual
aeronautics R&D-aids to Diehl Aircabin GmbH, Germany, 15 December 2009, (Exhibit USA-161); European
Commission, Decision K(2009) 5733, State aid N276/2009 – Germany – Aircraft Supplier Scheme, Aeronautics
R&D Scheme, 15 July 2009, (Exhibit USA-162); European Commission, Decision C(2011) 6496 final, Aide
d'État N414/2010 – Belgique – Aide au projet de 'Flap Support Structures' de SABCA ('Projet FSS'),
5 October 2011, (Exhibit USA-441); European Commission, Decision C(2010) 2140 final, Aide d'État
N525/2009 – France – Aide au projet de case de train principal de Sogerma (Projet MLGB), 14 April 2010,
(Exhibit USA-444).
1058 United States' second written submission (HSBI version), para. 281 (second sentence), and fn 55
(citing UK Appraisal, (Exhibit EU-(Article 13)-34) (HSBI), para. 11); and comments on the European Union's
response to Panel question No. 100 (citing UK Appraisal, (Exhibit EU-(Article 13)-34) (HSBI), paras. 11-12).

United States' HSBI evidence, however, provide a comparison to the time -period during which
LA/MSF for the A380 was being negotiated.
6.588. Given the United States has not provided the yield spreads that would al low us to make a
full evaluation of the merits of its submission, we are unable to accept its argument that a market
lender would have demanded a higher return at the time financing was being sought for the
A350XWB than at the time it would have been sought for the A380.
Contract risk
6.589. The European Union points to risk differences arising from: (a) the terms of the A350XWB
contracts compared to the A380 contracts, and (b) the terms of the four individual A350XWB
contracts. With respect to the first set of di fferences, the European Union submits that risk
reducing terms of the A350XWB contracts should mean reduced risk, and hence a lower risk
premium, than for the A380. With respect to the second set of differences, the European Union
submits that these differ ences between the A350XWB contracts justify the application of at least
two separate risk premia.
a Whether the terms of the A350XWB contracts reduce risk compared to the terms
of the A380 contracts
6.590. The European Union argues that differences in the terms of the LA/MSF agreements for the
A380 and the A350XWB reduce the risk for the A350XWB and, hence, the benchmark. 1059 The
European Union argues that "in addition to differences between the risk profiles of the projects at
issue, differences between the financing instruments at issue may also affect the riskiness – and,
hence, the market price – of a financing agreement".1060
6.591. The European Union states that, "{f}or example, the [***], whereas the [***]".1061
6.592. The United States submits, in response, that [***].1062 According to the United States,
there is no basis for the European Union to conclude that the existence of [***] "may justify a
significantly lower risk premium for the A350XWB financing agreements, as a whole, than for the
A380 financing agreements, as a whole".1063 According to the United States, in respect of "[***]",
the A380 LA/MSF contracts and the A350XWB LA/MSF contracts are, as a whole, [***].1064
6.593. We note that in the original proceeding, the project -specific risk premium was intended to
be a premium that took into account both risk associated with the project itself, and risk related to
the terms of, or the form of, financing. Indeed, the rationale for adding a project -specific premium
was because, under the LA/MSF contracts, the repayment of the principal and m ost of the returns
were dependent on deliveries and thus dependent on the success or failure of the project.

1059 European Union's second written submission, paras. 339-340 (citing Appellate Body Report, EC and
certain member States – Large Civil Aircraft, para. 890; and Appellate Body Report, Japan – DRAMs (Korea),
para. 174); and response to Panel question No. 100, paras. 404-405 (citing UK Appraisal, (Exhibit EU-
(Article 13)-34) (HSBI), para. 4 (second to last bullet point), paras. 22-3 and annex A) (erroneously cited by
the European Union as Exhibit USA-498 and by the United States as Exhibit EU-497)).
1060 European Union's response to Panel question No. 100, para. 404. (emphasis original; footnotes
omitted)
1061 European Union's second written submission (BCI version), para. 340 (citing UK A380 LA/MSF
Contract, (Original Exhibit US-79), (Exhibit USA-87) (BCI) (erroneously cited in European Union's submission
as Exhibit EU-87, referring to schedule 3 – which we note does not appear to be fully included in that exhibit);
and UK A350XWB Repayable Investment Agreement (Exhibit EU-(Article 13)-30 (BCI/HSBI) (European Union's
submission erroneously referring to Exhibit USA-496), clause 7.2); and European Union's response to Panel
question No. 100, para. 405.
1062 United States' comments on the European Union's response to Panel question No. 100, paras. 276-
280 (referring to German A380 LA/MSF Contract (Original Exhibit US-72), (Exhibit USA-83) (BCI), section 6).
1063 European Union's response to Panel question No. 100, para. 405.
1064 United States' comments on the European Union's response to Panel question No. 100, para. 280.

6.594. As identified by the European Union, under the [***] LA/MSF contracts for the A350XWB,
[***] in the event that deliveries are not made (unless [***]1065); thus some returns may accrue
to those member State governments even in the event of delays to the programme.
6.595. In the original proceeding, as the United States points out, [***], which would likewise
constitute "risk-reducing" terms, existed with respect to [***] LA/MSF at issue in that proceeding.
At least one of the A380 contracts considered in the original proceeding – the German A380
contract – contained a mechanism that similarly "protected" returns. Professor Whitelaw's risk
premium was nevertheless applied in that proceeding and, moreover, on the understanding that it
was a minimum risk premium and would be understated for that contract. 1066 We therefore do not
consider that such features in this proceeding should in and of themselves render the WRP
inapplicable.
b Whether the different A350XWB contracts should have different risk premia
6.596. The European Union considers that differences between the terms of the four A350XWB
LA/MSF agreements "could justify the application of, at least, two different risk premiums for those
agreements"1067 in this proceeding.
6.597. As legal support for its submission, the European Union points to Article 14(b) of the
SCM Agreement1068, which provides that the benchmark for a financial contribution in the form of a
loan is "the amount th e firm would pay for a comparable commercial loan". 1069 For the
European Union, "Article 14(b), therefore, implies that, where two allegedly subsidised loans are
not themselves 'comparable', they cannot be compared to the same market benchmark – at least
not without further adjustment. Instead, each requires its own market benchmark in the form of a
comparable commercial loan".1070
6.598. The European Union submits in this regard that the four individual A350XWB contracts
involve different amounts of risk because the [***] contracts protect against risks related to
[***], whereas the [***] contract does not. In the case of [***] and [***] LA/MSF for the
A350XWB, this is because "[***]".1071 The European Union submits that in the case of [***].1072
The European Union argues th at these mechanisms significantly reduce the member States'
exposure to [***].1073 The European Union acknowledges that [***].1074
6.599. The European Union also submits that, for those contracts that contain such "risk -
reducing" features, market risk is more signific ant than development risk.1075 In this respect, the
European Union states:

1065 [***].
1066 See Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.481; and Appellate
Body Report, EC and certain member States – Large Civil Aircraft, para. 923.
1067 European Union's response to Panel question No. 100, para. 406.
1068 European Union's response to Panel question No. 100, para. 401.
1069 (emphasis added)
1070 European Union's response to Panel question No. 100, para. 401 (citing European Union's second
written submission, paras. 1006-1007).
1071 European Union's response to Panel question No. 93, paras. 360-361.
1072 European Union's response to Panel question No. 93, paras. 360-361.
1073 European Union's response to Panel question No. 100, para. 406.
1074 European Union's comments on the United States' response to Panel questions Nos. 91-107
("overall comment"), para. 684.
1075 European Union's comments on the United States' response to Panel questions Nos. 91-107
("overall comment"), para. 684.

Development risk materialises either in the form of delays or programme termination.
Both represent a risk to profit -dependent equity holders,91 but are not a material risk
for the EU member States as lenders. … the basic return to the EU member States on
the A350XWB loans is dependent on deliveries, not profits, and [***]. Accordingly,
although delays caused by technological problems would decrease Airbus' profits on
the programme, they have no impact on the basic returns enjoyed by [***].
EU means [***]. Indeed, under Prof. Whitelaw's calculations of the IRRs, delays in the A350 XWB
delivery schedule would tend to reduce the IRRs, because [***]".1079
6.602. We understand the European Union's argument reg arding the effect of [***] to be very
similar to its argument regarding the comparative risks of the terms of the A350XWB and A380
LA/MSF contracts, outlined above, namely that [***]. We note that for the German contract, the
contractual terms that the European Union has identified as "risk reducing" apply in circumstances
involving [***]. That is, if foreseen development risks, such as technology risks, were to
eventuate, it appears that the "risk reducing" terms may not apply. In light of this we also fin d it
difficult to agree that the importance of development risk, including technology risks, is eclipsed by
market risk.
6.603. With respect to the European Union's claim that the [***]1080, we have difficulty with this
argument. We note that [***]. We agree with the United States in this regard.1081 [***].
6.604. We recognise that there are some differences between the risk profiles of the four
A350XWB contracts, just as there were with respect to the contracts in the original proceeding –
including between the four A380 co ntracts – for which the same premium (the WRP) was used.
In the original proceeding, as the United States points out, [***], which would constitute "risk -
reducing" terms, existed in at least [***] A380 LA/MSF contract. Professor Whitelaw's risk
premium was nevertheless applied in that proceeding as a minimum premium for all contracts,
which allowed a finding with respect to "benefit".
6.605. We have difficulty with the European Union's assertion that for the three contracts
containing "risk reducing" terms, marke t risks would be more important than development risks,
including technological risks. As we understand it, the consequences of development risk are that
there may be delays in the development programme and consequent delivery delays, or that the
programme may be discontinued, and thus aircraft may not exist that could have repaid the
principal and deliver a return. It is our understanding that delays or programme failure at the
development stage could well exacerbate marketing risks, as there would be no, or fewer, aircraft

1076 European Union's comments on the United States' response to Panel question No. 114, para. 46.
(underline added)
1077 United States' comments on the European Union's response to Panel question No. 100, para. 276.
1078 See German A380 LA/MSF Contract, (Original Exhibit US-72), (Exhibit USA-83) (BCI), section 6.
1079 United States' comments on the European Union's response to Panel question No. 93, para. 259.
(emphasis original)
1080 European Union's response to Panel question No. 93, paras. 360-361.
1081 See United States' comments on the European Union's response to Panel question No. 93,
para. 259.

to market. It is thus unclear to us how development risks – involving the risk that there would be
no, or fewer, aircraft in existence – could be less important than risks that an aircraft may not sell
as well as has been hoped, once it was in existence.
6.606. It is also our understanding that for the [***] contract, programme discontinuation would
mean that the contractual terms that the European Union has identified as "risk reducing" would
no longer apply, except for in narrow circumstances involving [***]. If foreseeable development
risks, such as technology risks, were to eventuate, the risk reducing terms would no longer apply.
6.607. For these reasons, we are not persuaded that certain terms render the agreements
significantly different so as to require the application of two or more different project -specific risk
premia in this proceeding.
Conclusion on risk differences that may affect the project-specific risk premium
6.608. Having reviewed the risk differences that may affect the project -specific risk premium, our
conclusions are as follows. With respect to development risks (the risk that Airbus will not be able
to deliver the planned aircraft as and when anticipated), we consider that the risks associated with
the A350XWB were approximately similar to, if not slightly higher than, the A380. With respect to
market risk (the risk that the aircraft will not sell as well as anticipated), we consider that the
A350XWB marketing risks would not have been much lower than A380 marketing risks. With
respect to the price of risk (risk acceptable to the finance industry at different moments of its own
market cycle), we are unable to accept the United States' arguments because it did not discharge
its evidentiary burden. In summary, we consider that in principle, the overall project-specific risks
are sufficiently similar to allow the risk premium applied for A380 LA/MSF in the original
proceeding to be applied to A350XWB LA/MSF.
6.609. With respect to the differences between the terms of the A350XWB contracts compared
with the terms of the A380 contracts, we consider that the A350XWB LA/MSF contracts containing
such "risk-reducing" terms are no less risky than at least [***] A380 LA/MSF contract that also
contained similar terms in the original proceeding. We recall tha t for that contract,
Professor Whitelaw's risk premium was nevertheless applied in the original proceeding, on the
understanding that it "understated" the risk associated with the A380 programme. Thus, we see
no reason why the same risk premium cannot also apply to the A350XWB LA/MSF measures.
Similarly, as regards the differences in the terms of the individual A350XWB contracts, we are not
persuaded that the differences in certain terms affecting the respective contracts' risk profiles
would require the ap plication of two or more different project -specific risk premia in this
proceeding. Once again, we recall that despite differences in the terms of the A380 LA/MSF
measures examined in the original proceeding, the same WRP was applied.
6.610. Therefore, as regards project-specific risk, we consider that the risks would be sufficiently
similar to allow a valid risk premium applied to the A380 in the original proceeding to be applied to
the A350XWB. We thus consider that Professor Whitelaw's risk premium (the WRP) fr om the
original proceeding could be applied to benchmark LA/MSF for the A350XWB. Thus, if the rates of
return are below the market benchmark applying this understated risk premium, it would follow
that there is a benefit and, therefore, a subsidy.
6.611. As a fi nal issue, the parties have raised certain arguments regarding the potentially
understated nature of the market benchmark. We now briefly address those arguments.
6.5.2.3.3.3 Whether LA/MSF affected or distorted the market benchmark rate
6.612. We now examine whether the pr oposed market benchmark may be affected by the
provision of LA/MSF (either LA/MSF for other aircraft programmes or as expected to be provided
for the A350XWB project). This issue arose in the original proceeding only with respect to the
project-specific ri sk premium component of the market benchmark. The European Union's
arguments raise a more complex set of questions in this proceeding, regarding the corporate
borrowing as well the project -specific risk premium component of a market benchmark. For this
reason, we address this in a separate section to either the project -specific risk premium or the
corporate borrowing rate. The European Union argues that with respect to the extent to which the
WRP is underestimated, in the view of the European Union, the App ellate Body could not have
meant by its findings that the provision of LA/MSF distorted risk supplier perceptions and thus the

WRP. The implications of this argument would appear to be to negate a finding that the original
WRP was indeed an understated pre mium. In particular, the European Union argues that: (a)
LA/MSF affects only the corporate borrowing rate component of the benchmark and does not affect
the project-specific risk premium; (b) the amount of any distortion is "negligible" as reflected in
corporate credit ratings; and (c) LA/MSF enhances, rather than reduces, the risk -sharing
suppliers' perceptions of risk.
6.613. By way of background, in the original proceeding, with regard to the potential effects of
LA/MSF on the benchmark, the panel addressed arguments that:
i. LA/MSF for a particular project reduces the actual risk that the project will fail; and
correspondingly LA/MSF for a project reduces market participants' perceptions of risk
associated with their participation in that project; thus LA/MSF to Airbus for the
particular project reduces the level of risk associated with risk -sharing supplier
financing for the project, thereby limiting the comparability of risk -sharing supplier
financing with LA/MSF1082;
ii. Prior LA/MSF to Airbus reduces the actual risk associated with Airbus itself, and
market participants' perceptions of risk associated with Airbus and the project ;
therefore, for this reason alone, LA/MSF distorts the risk -sharing supplier
benchmark1083;
iii. Risk sharing participants may have also received la unch aid-like financing or other
government subsidies which reduces their cost of capital and therefore the returns
required on contracts with Airbus, implying that the returns on their contracts cannot
be viewed as fully commercial.1084
6.614. The Appellate Body accepted that the risk premium proposed by Professor Whitelaw in the
original proceeding was understated because, at least, expectations of LA/MSF for each project
would have distorted risk sharing suppliers' perceptions of the project risk.1085
6.615. In this proceeding the United States argues that, as in the original proceeding, the effects
of LA/MSF on the risk perception of risk sharing suppliers "lower{} the projected minimum returns
necessary for them to participate in the program". 1086 The United States and its e xpert Dr Jordan
state that the criticism of the basis for the risk premia introduced in the original proceeding
continues to apply: those premia will be artificially depressed as the result of LA/MSF from the
Airbus governments. 1087 The United States submits that "{t}he very fact that Airbus receives
massive amounts of LA/MSF is at least one factor that substantially reduces the risk incurred by
such risk -sharing suppliers". 1088 In the United States' view, as noted above, this renders its
proposed risk premium (t he JRP) "conservative", and its alternative, Professor Whitelaw's risk -
sharing supplier-based premium (WRP) "too-low".
Whether effects on risk perception of LA/MSF are only relevant to the corporate rate or
the project-specific risk premium
6.616. We now turn to the European Union's submission that if LA/MSF has an effect on risk
perceptions, this is taken into account in the corporate rate, and does not affect the project -

1082 Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.476 and 7.480; and
Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 899-903.
1083 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.476 (citing the US
adoption of Brazil's argument, US Second Confidential Oral Statement, para. 40); Appellate Body Report, EC
and certain member States – Large Civil Aircraft, paras. 899-906.
1084 Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.476 and 7.480, and
fns 2697 and 2713.
1085 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 899-900.
1086 United States' second written submission, para. 636.
1087 Jordan Report, (Exhibit USA-475) (BCI/HSBI), para. 20; and United States' second written
submission, para. 285.
1088 United States' second written submission, para. 291.

specific risk premium.1089 The implication of this argument would appear to be to negate a find ing
that the original WRP was understated due to the distorting effect of LA/MSF on risk perceptions of
risk sharing supplier s. The European Union submits that LA/MSF might "enhance EADS' credit
rating, thus reducing the perception of corporate risk and th e company's resulting financial cost …
this factor stems not from EADS loans, but from the importance of EADS to the States at
issue".1090
6.617. The European Union submits that:
In fact, and contrary to the US assertion, neither the original panel nor the
Appellate Body found that EU member State financing affects project risk. The original
panel found that "LA/MSF reduces the {overall} level of risk associated with risk -
sharing supplier financing", specifically declining to tie that reduced risk to the project
risk premium of the benchmark. Similarly, the Appellate Body held that "LA/MSF
provided to Airbus results in a{n overall} rate of return of the risk -sharing suppliers
that understates the level of risk that would be factored in by a market lender in the
absence of LA/MSF". Again, this is a broad statement that carefully avoids tying the
effect of EU member State financing to the project risk premium .1091 (emphasis
original; footnotes omitted)
6.618. We consider this to be an incorrect interpretation of the findings ma de in the original
proceeding. We recall that the original issue of risk sharing supplier perceptions of risk was related
to the fact that the suppliers are rational, profit -maximising entities. The Appellate Body noted
that the terms that these suppliers negotiate with Airbus depend on how risky they perceive the
specific project being undertaken to be. The Appellate Body stated that "LA/MSF reduces the risk
that the project will fail (by, for example, reducing the risk that it will run into financial diff iculties)
and that it will not generate the revenues necessary to pay suppliers". 1092 The Appellate Body thus
explicitly affirmed the general economic principle that both prior LA/MSF and LA/MSF for a
particular project reduced the perceptions of risk sharing suppliers because it reduced actual risk
associated with the particular project.1093 The Appellate Body stated:
The European Union asserts that LA/MSF cannot have altered the risk perception of
risk-sharing suppliers. We are not persuaded by the European Union's argument. The
very purpose of LA/MSF is to provide funding for the development of an LA/MSF
model. LA/MSF provided the financial means to undertake the development of an LCA
project. By providing funding for a significant share of the development cos ts, LA/MSF
makes it more likely that the project will be developed, and the successful
development of a project means that there will be an LCA to sell, thereby reducing the
marketing risk of the project. Indeed, the European Communities expressly
acknowledged before the Panel that the nature of LA/MSF is to reduce development
and marketing risk.1094
6.619. We therefore consider that the European Union is wrong to the extent that it submits that
the panel and the Appellate Body found in the original proceeding that LA/MSF for the particular
project, or prior LA/MSF, has no effect on actual and perceived project -specific risk from the
perspective of risk sharing suppliers. With regard to how prior and expected LA/MSF may affect
the benchmark, the European Union has no t presented any new facts or arguments that have
persuaded us that the economic principles taken into account in the original proceeding should not
apply in this proceeding.

1089 European Union's comments on the United States' response to Panel questions Nos. 94 108 and 109
(collective comment), para. 779.
1090 Whitelaw Response to Jordan, (Exhibit EU-121) (BCI/HSBI), paras. 41-45.
1091 European Union's comments on the United States' response to Panel question Nos. 94, 108 and 109
(collective comment), para. 778.
1092 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 899. (emphasis
added)
1093 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 899-907.
1094 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 904-905.

Whether the amount of any effect of LA/MSF is "negligible" as reflected in corpor ate
credit ratings
6.620. The European Union further argues that risk sharing suppliers' perception s of risk
associated with, for example, the A380 project would only have been distorted to a negligible
degree by LA/MSF as reflected in corporate credit ratings. 1095 The European Union's expert,
Professor Whitelaw, stated that this was shown by the way it is factored into the "government
related issuer" status accorded to EADS, the Airbus parent company, by certain credit rating
agencies.
6.621. As we see it, the European Union in this proceeding seeks to recast the issue of the
distorting effect of LA/MSF as a question regarding how credit ratings agencies take LA/MSF into
account, and thus how corporate credit ratings might be distorted due to received and expected
LA/MSF. As already noted, we do not consider that this was the issue in the original proceeding.
Nevertheless, as the European Union has raised the issue, we consider that the credit agency
attribution of government -related issuer/entity (GRI/GRE) status may have an additional, albeit
limited, effect on the corporate borrowing rate component of the market benchmark rate, for the
reasons explained below.
6.622. Prior, or anticipated, LA/MSF does not appear to be a consideration with relation to
Moody's and Standard & Poo r's definitions of a Government Related Issuer/Entity (GRI/GRE).
Rather, an entity will be said to be a GRI/GRE due to the level of government ownership; whether
it is tasked with performing a public function; and possibly the importance to the government of
the goods and/or services it provides. 1096 Therefore it seems LA/MSF for particular projects would
not be taken into account in the credit agencies' decision to define an entity as a GRI/GRE, which
is the first step in rating such entities.
6.623. Prior LA/MSF, or expected ongoing LA/MSF, is likely taken into account by a credit rating
agency in a separate step, that is, the entity's baseline credit assessment (for Moody's) or stand -
alone credit profile (for Standard & Poor's). This step is essentially an assessment of how likely it is
that an entity with GRI status will in fact need a "bail-out" by the government, as opposed to how
likely that entity will get such a "bail-out". This assessment will include ongoing support (such as
subsidies) as contributing towards the entity's overall financial position. It will not include bail -outs
or extraordinary support. LA/MSF, in our opinion, would fall towards the end of 'ordinary, normal
and predicted' on the spectrum of support because it is negotiated as part of involv ement in a
project, and is incorporated into the business operations and expectations of the entity with
respect to its cash flows, rather than being an unexpected capital injection in response to crisis or
extreme financial distress in order that the enti ty can meet its obligations to, for example,
bondholders. It appears to us that the provision of such ordinary support is incorporated into the
baseline credit assessment or stand -alone credit profile. Such ordinary support indeed affects
whether the company is strong or struggling. The provision of such ordinary support makes it less
likely that the entity is going to need a bail-out, or extraordinary support.1097
6.624. LA/MSF could conceivably be a factor considered in assigning the level of support that a
GRI/GRE might enjoy. This third step is essentially an assessment of how likely it is that a
government will in fact step in to assist an entity if it is in financial distress – that is, whether the
entity will get a government bail-out if it needs it. Moody's co nsidered in mid-2005 that EADS has
a "medium" level of support: "European Aeronautic Defence & Space Co. ('EADS'), parent of Airbus

1095 See European Union's second written submission, para. 345-347. (emphasis added)
1096 Moody's defines a GRI as an entity with full or partial government ownership (20% or greater) or
control, or a special charter/public policy mandate from the national or local government, and which does not
have taxing authority. (Moody's Investors Service, Rating Methodology, The Application of Joint Default
Analysis to Government Related Issuers, April 2005, (Exhibit EU-138/381 (exhibited twice)), pp. 1 and 2; and
Moody's Investors Service, Special Comment, Rating Government-Related Issuers in European Corporate
Finance, June 2005 (Exhibit USA-517), p. 2). Standard & Poor's states that "GREs are often partially or totally
controlled by a government (or governments) and they contribute to implementing policies or delivering key
services to the population. … some entities with little or no government ownership might also benefit from
extraordinary government support due to their systemic importance or their critical role as providers of crucial
goods and services". (Standard & Poor's, Global Credit Portal Ratings Direct, General Criteria, Enhanced
Methodology And Assumptions For Rating Government-Related Entities, 29 June 2009 (Exhibit USA-519), p. 3).
1097 See Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 906.

Industrie, was assigned medium support. EADS is widely recognized as a successful example of
common European industrial poli cy. As a result, any possible support to EADS may be better
positioned as in line with common European interest than other GRIs. Again, Moody's view is that
the national security aspect of EADS' activities may also provide an incentive for additional
support."1098 In 2007, Moody's decided to – unusually – increase the level of potential support
from medium -high to high "to reflect the accumulation of indices that Airbus is perceived as
economically, socially and politically critical for a wide range of stakeho lders".1099 This was still an
assessment of the likelihood of a bailout, but providing project -specific LA/MSF, and ensuring the
terms by which EADS was a successful example of common European industrial policy, may have
factored into assessing governments to have an elevated interest in the survival of the company,
and the maintenance of its obligations to bondholders and debtholders.
6.625. We turn now to the amount of distortion that might be indicated by the ratings
methodology. In terms of a quantification of th e effect of LA/MSF, the European Union has stated
that it considers the "the effect of the GRI status on EADS' cost of debt was negligible, based on
estimates performed by two investment banks, Unicredit and Barkley's { sic} Capital, which found
a decrease of 4 basis points and 5 basis points, respectively, for every one notch improvement in
EADS' credit rating. Accordingly, at most, the existence of MSF could account for a fraction of the
present 1-notch improvement in EADS' credit rating through its GRI st atus – i.e., a fraction of 4 to
5 basis points. Even the three -notch difference in the GRI and baseline ratings during the period
2007-2012 resulted in an improvement of only 12 to 15 basis points in the cost of long -term debt;
again, the existence of MSF could account for a fraction of that impact."1100
6.626. We note that the premise that the European Union's expert, Professor Whitelaw, uses to
find the value of any allocation of GRI status appears to be faulty. Professor Whitelaw appears to
claim that the (margin al) difference between Moody's and Standard & Poor's ratings will indicate
the value of "GRI status". In this regard he claims that "{i}n any event, the effect of EADS'
classification as a GRI on its bond yield is negligible … To measure the GRI impact, th e banks
varied the Moody's rating one and two notches, while holding the S&P rating constant (S&P does
not have a GRI rating status). In its report, [***] estimates that the current bond yield would
change [***] basis points for each notch change from Mood y's A1 to A3. [***] estimates the
current yield would change approximately [***] basis points per notch over the same credit
designations."1101 While not fully explained, this appears to be a claim that the reason the
difference between Moody's and Standard & Poor's ratings could provide an estimate of the value
of the GRI/GRE status is because Standard & Poor's "does not have a GRI rating status". To the
extent that this is an assertion that Standard & Poor's has no methodology for taking into account
the effect of government support on government related entities, we consider that this is incorrect,
as Standard & Poor's has an equivalent method of according ratings based on "Government
Related Entity" status.
6.627. We further note that the United States has submitted that:
In general, there is no simple way to disentangle the effects of particular subsidies
from the rating agencies' baseline credit assessments and stand -alone credit profile.
To do so, it would be necessary (i) to isolate the effects of particular subsidies from
the effects of other subsidies and others aspects of the company's relationship with
the government, and (ii) to quantify the incremental change in credit rating due to
those effects. Moody's and S&P do not provide sufficient information to reverse-
engineer the unsubsidized baseline credit assessment accurately. Moreover, in this
particular case, Airbus would most likely not exist at all in the absence of LA/MSF, as
the original panel found. Therefore, unless one makes exceedingly forgiving
assumptions about Airbus' condition absent LA/MSF, as Prof. Wessels does in the

1098 Moody's Investors Service, Special Comment, Rating Government-Related Issuers in European
Corporate Finance, June 2005, (Exhibit USA-517), p. 9.
1099 Moody's Investors Service, Global Credit Research Announcement, Moody's confirmation of EADS
highlights government's role as odd rescuers, 12 March 2007, (Exhibit EU-139).
1100 European Union's response to Panel question No. 94, para. 373 (citing Whitelaw Response to
Jordan, (Exhibit EU-121) (BCI/HSBI), paras. 43 and 45). See also European Union's second written submission,
paras. 343-347.
1101 Whitelaw Response to Jordan, (Exhibit EU-121) (BCI/HSBI), paras. 41-45.

adverse effects context, it is not possible to determine a credit rating for Airbus (or by
extension, EADS) in the absence of LA/MSF.1102
6.628. We find this argument compelling. We note the limitations adverted to in the agencies'
documentation, for example that the baseline credit assessment is a "precisely defined input" and
should not be construed as a "stand -alone" rating, thereby limiting the relevance of the
European Union's argume nt that the distorting effect of LA/MSF is captured in the difference
between the baseline credit assessment and the purported value of the GRI status. We therefore
consider the United States' argument that quantification is not possible on the basis of th e
information provided by the ratings agencies to be more persuasive than the European Union's
quantification.
6.629. Overall, GRI/GRE status may have had an impact, albeit to a small degree, on the
corporate credit rating of EADS. This might be attributable to t he receipt of LA/MSF for aircraft
prior to the A350XWB, as "regular, ongoing support", affecting the baseline assessment and,
possibly, in factoring in the likelihood of the extension of extraordinary support. It is possible also,
in our view, that LA/MSF had an effect on the ranking of the likelihood of support for a GRI/GRE
(likelihood that EADS would get a bail -out) and a corresponding effect on the perceptions of
bondholders. However, this is a different issue to whether the receipt of prior LA/MSF or t he
expectation of LA/MSF for the particular aircraft development programme contributed to an actual
or perceived decrease in either general corporate borrowing risks, or risks involved with the
A350XWB project from the perspective of risk sharing suppliers participating in the project.
Whether LA/MSF enhances, rather than reduces, perceptions of risk
6.630. As an additional issue, the European Union responds to the United States' submissions,
and indeed to the Appellate Body's findings in this regard, by stating that there is no reason why
the effect on perceived project risk of LA/MSF is any different to financing from a market -based
source, and that "the effect of perceived project risk works both ways". 1103 By this, the
European Union appears to mean that the existence of LA/MSF gives the member States a claim to
cash flow associated with the delivery of an aircraft, which would make risk sharing suppliers see
member States "as rival claimants" for cash flow on deliveries of aircraft, "a factor that enhances,
rather than reduces, their perception of risk". 1104 This appears to be an argument that any
distortion to the benchmark caused by LA/MSF would be to increase rather than decrease the
perceptions of risk held by the risk-sharing suppliers.
6.631. Professor Whitelaw's argument is based on the premise that the only way in which the risk
sharing suppliers would experience reduced perception of project risk is if Airbus could forego
funding for LCA and rely on its own corporate funds, with participation by risk sharing
suppliers.1105 We do not find this argument compelling, and consider that it is at odds with the
general economic principle articulated in the original proceeding , namely that , in particular, risk
sharing suppliers participating in the aircraft development project perceive that there will be more
funds with which to produce the aircraft. We consider that the European Union's argument is at
odds with both: (a) the principle that LA/MSF for a particular project reduces the actual risk that
project will fail; and correspondingly LA/MSF for a project reduces market participants' perceptions
of risk associated with their participation in that project1106; and (b) the principle that prior LA/MSF
to Airbus reduces the actual risk associated with Airbus itself, and market part icipants' perceptions
of risk associated with Airbus and the project; therefore, for this reason alone, LA/MSF distorts the

1102 United States' response to Panel question No. 115.
1103 European Union's second written submission, paras. 345-346 (citing Whitelaw Response to Jordan,
(Exhibit EU-121) (BCI/HSBI), paras. 34-35).
1104 European Union's second written submission, para. 347. (emphasis original)
1105 Whitelaw Response to Jordan, (Exhibit EU-121) (BCI/HSBI), para. 38.
1106 Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.476 and 7.480
("{G}overnment support for the A380 in the form of LA/MSF reduces the level of risk associated with risk-
sharing supplier financing, thereby limiting its comparability with LA/MSF"); and Appellate Body Report, EC and
certain member States – Large Civil Aircraft, paras. 899-903).

risk sharing supplier benchmark. 1107 Accordingly, we are not persuaded by the European Union's
arguments in this regard.
6.5.2.3.4 Conclusion on whether the IRRs of the A350XWB LA/MSF measures are lower
than the relevant market benchmark rate
6.632. Considering the above, applying the WRP to give a benchmark rate for LA/MSF for the
A350XWB gives the following results:
Table 10: Approximate difference between rates of return and market benchmark rate
EU member
State
Expected
Internal Rate
of Return
(IRR) of
LA/MSF
contracts
Corporate borrowing
rate as reflected by
yield on EADS bond

Normal
market
fees
WRP1108 Amount by which
benchmark
exceeds IRR

 A B C D (B+C+D)-A
France [***] [***] to [***] [***] WRP ([***] +WRP)-
[***] to
([***]+WRP)-

Germany [***] [***] to [***] [***] WRP ([***] +WRP)-
[***] to
([***]+WRP)-

Spain [***] [***] to [***] [***] WRP ([***] +WRP)-
[***] to
([***]+WRP)-

United Kingdom [***] [***] to [***] [***] WRP ([***] +WRP)-
[***] to
([***]+WRP)-

6.633. In view of these calculations, we find that the (likely understated) rate of return that a
market lender would require for lending on similar t erms and conditions to the A350XWB LA/MSF
contract is in each case higher than the (likely overstated) IRR calculated by the European Union
as representing the rates of return that the member States expected and accepted. We consider
that Airbus paid a low er rate of return for LA/MSF for the A350XWB than would have been
available to it on the market, that this constituted terms more advantageous than the market
would provide, and that consequently a benefit has thereby been conferred pursuant to Article 1.1
of the SCM Agreement.
6.5.2.3.5 Additional evidence and considerations concerning whether LA/MSF was
offered on better-than commercial terms
6.634. While we have already determined on the basis of a market benchmark analysis that the
A350XWB LA/MSF measures confer a bene fit, certain evidence on record, in our view, confirms
that conclusion.

1107 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.476 (referring to the US
adoption of Brazil's argument, US Second Confidential Oral Statement, para. 40); and Appellate Body Report,
EC and certain member States – Large Civil Aircraft, paras. 899-906.
1108 The WRP (Whitelaw Risk Premium) is an HSBI figure from the original proceeding, as detailed in
paragraphs 6.433 and 6.457 above. (See Jordan Report (Exhibit USA-475) (BCI/HSBI), para. 15.)

6.5.2.3.5.1 Absence of written project appraisals, analyses or evaluations of the
A350XWB project, and other information
6.635. We recall that in response to the United States' request for the Panel to exercise its
authority under Article 13 of the DSU to "seek information" in relation to the A350XWB LA/MSF
measures, we asked the European Union to provide four categories of documents, including
"project appraisals" relating to the "development and/or financing of the A350XWB" undertaken by
the governments of France, Germany, Spain and the United Kingdom, and A350XWB "{b}usiness
cases provided by EADS/Airbus" to the same governments, or to "any of Airbus' risk -sharing
suppliers".1109
6.636. In terms of "project ap praisals", the European Union submitted one project appraisal
undertaken by the UK Government, and referred to the annexes of the French and German
A350XWB LA/MSF contracts, asserting that these "address, inter alia, prospects for the A350XWB
programme".1110 The European Union subsequently explained that the governments of France and
Spain did not prepare a "formal project appraisal when deciding to offer financing for the
A350XWB", and that the government of Germany "relied upon" material contained in "many" of
the "large number of appendices" to the German A350XWB LA/MSF contract "in deciding whether
to provide financing for the project". 1111 In response to further questioning, the European
confirmed that, like the French and Spanish governments, the German Gove rnment also did not
"formulate" any independent appraisals, analyses or evaluations of the A350XWB project "when
deciding whether to provide" LA/MSF for the A350XWB programme.1112
6.637. In terms of the A350XWB business case, the European Union provided "a business case-
related document" that Airbus subsidiaries in France, Germany, Spain and the United Kingdom
apparently "shared with the governments of France, Germany (including KfW), Spain and the
United Kingdom, as well as, in substance, with various of its [***]".1113 This document consists of
twelve slides from an EADS presentation dated [***] containing information about then -current
A350XWB orders and customers, anticipated air traffic growth worldwide, the models of LCA
anticipated to form part of the A350XWB fami ly, the market position and performance of the
A350XWB relative to the 777 and the 787, and the projected number of A350XWB deliveries. The
document contains no information or analyses regarding: (i) the amount, form and terms of the
LA/MSF requested by, a nd/or offered to, Airbus; (ii) any IRR or net present value (NPV) analyses
of the A350XWB project on the basis of different scenarios, as of the time of the LA/MSF request;
(iii) any sensitivity analyses of the viability of the A350XWB project, in the ligh t of different
assumptions, at the time of the LA/MSF request; (iv) the risks associated with the A350XWB
project at the time of the LA/MSF request; and (v) key information as to anticipated revenues
that, given the structure of LA/MSF, would have been necessary in order to perform an IRR or NPV
analysis.1114
6.638. A presentation of the A350XWB business case that was relied upon by the Board of EADS
to launch the A350XWB programme was submitted by the European Union to substantiate
arguments advanced in its second w ritten submission. 1115 The European Union subsequently
clarified that the A350XWB business case presentation had not been provided in response to our
Article 13 DSU request for A350XWB "business cases" because it was "never presented either to
the EU member States or to any of Airbus' risk-sharing suppliers".1116 We note that other evidence

1109 See United States' Article 13 request of 20 July 2012 (Panel ruling issued on 4 September 2012),
para. 13, Annex E-1.
1110 European Union's response to the Panel's request of 4 September 2012 pursuant to Article 13.1 of
the DSU, para. 3.
1111 European Union's response to Panel question No. 96(b).
1112 European Union's response to Panel question No. 124(a).
1113 European Union's response to the Panel's request of 4 September 2012 pursuant to Article 13.1 of
the DSU, para. 4.
1114 [***] presentation, [***], (Business case-related document) (Exhibit EU-(Article 13)-35) (HSBI).
1115 "Presentation to the EADS Board", 7 November 2006 (slides 1-45) and "A350XWB Business Case:
Assumptions, Sensitivities and Limitations, Presentation to EADS BoD – status", 2 November 2006, (slides 46-
68) ("A350XWB Business Case Presentation"), (Exhibit EU-130) (Revised) (HSBI).
1116 European Union's response to Panel question 96(a).

indicates that [***]1117, but no such document was introduced as evidence by the European Union
or otherwise submitted in response to our questions.
6.639. According to the United Stat es, the European Union's account of the facts surrounding the
disclosure of the A350XWB business case to the relevant European Union member States "appears
to be incomplete", suggesting that the European Union has withheld information. 1118 In this
connection, the United States refers to a statement made to the UK Parliament by Ian Lucas, then-
Parliamentary Under -Secretary of State , Department for Business, Innovation and Skills, in
June 2009, revealing that the UK Government performed a "detailed analysis of the company's
business case"1119 before finalizing the A350XWB LA/MSF agreement with Airbus.
6.640. The European Union dismisses the United States' contentions, explaining that when
considered in context, the relevant "statement by a UK politician" refers to a "conc ept" not a
"specific document".1120 In particular, the European Union notes that the full statement at issue
reads as follows:
{a}s part of our usual due diligence process when considering launch investment
requests, the Government have carried out a detailed assessment of the possible
provision of support to Airbus for the A350XWB aircraft. This includes detailed analysis
of the company's business case, technical viability of the project, the potential market,
and anticipated benefits to the UK aerospace indu stry and the wider economy. As a
result of this analysis we are proceeding with negotiations with the company.1121
6.641. According to the European Union, the reference to "the company's business case, technical
viability of the project, the potential market, and anticipated benefits to the UK aerospace industry
and the wider economy" is a reference to "the factors subject to the UK Government's
'assessment' and 'analysis', culminating in a document – i.e., the 'UK government document
regarding A350XWB'" (the UK App raisal).1122 Indeed, the European Union submits that the
"detailed analysis" mentioned by the UK Parliamentary Under -Secretary of State " is the analysis
contained" in the UK Appraisal. 1123 In this regard, the European Union identifies, at most, eight
sentences from four paragraphs of the UK Appraisal, which the European Union submits confirms
that the "detailed analysis of the company's business case" referred to by the UK Parliamentary
Under-Secretary of State was contained in that document.1124
6.642. In our view, the few sentences the European Union has quoted from four paragraphs of the
UK Appraisal are not compatible with a "detailed analysis of the company's business case". The UK
Appraisal was based in part on the "due diligence" undertaken in three analyses performe d by
three separate entities – [***] and the [***]. Indeed, the European Union explains that the UK
Appraisal drew its conclusions on the basis of the analyses performed by those entities.1125 Thus, it
is possible that the UK Minister of State's reference to a "detailed analysis" of factors including "the
company's business case" might well have been a reference to the work performed by these
entities. We note, however, that the European Union did not provide a copy of the three separate
analyses undertaken by [***] and the [***] in response to our explicit request for those
documents.1126 This makes it impossible for us to understand the source of the information used to
reach the conclusions made in the UK Appraisal and, therefore, we are unable to verify the
European Union's assertions concerning the meaning of the UK Minister of State's statement.
6.643. Thus, accepting the accuracy of the information provided by the European Union, it is
apparent that when the governments of France, Germany and Spain agreed to provid e,
respectively, [***] to Airbus for the A350XWB project under the LA/MSF contracts (which, we

1117 The European Union has not provided information described in HSBI material (A350XWB Chief
Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 48 (lines 1 and 8-9)).
1118 United States' comments on the European Union's response to Panel question No. 96(a).
1119 UK House of Commons Hansard, written answers for 29 June 2009, (Exhibit USA-152), p. 4.
1120 European Union's response to Panel question No. 123(a).
1121 UK House of Commons Hansard, written answers for 29 June 2009, (Exhibit USA-152), p. 4.
1122 European Union's response to Panel question No. 123(a).
1123 European Union's response to Panel question No. 123(c). (emphasis added)
1124 European Union's response to Panel question No. 123(c). (emphasis added)
1125 European Union's response to Panel question No. 123(e).
1126 European Union's response to Panel question No. 123(e).

recall, are unsecured and success -dependent loan agreements with generally back -loaded
repayment terms), they each did not undertake their own independent writte n appraisal, analysis
or evaluation of the A350XWB project. This contrasts with t he approach taken by the
United Kingdom, which performed "a detailed assessment of the possible provision of support to
Airbus for the A350XWB aircraft" as "part of {the} usua l due diligence process when considering
launch investment requests". 1127 That the governments of France, Germany and Spain did not
perform a written appraisal, analysis or evaluation of the A350XWB project is also a departure
from the approaches taken by these European Union member States in relation to previous grants
of LA/MSF, when they did prepare their own critical appraisals of the projects.1128
6.644. The European Union maintains that all four European Union member States possessed
additional information about the A350XWB project that would have enabled them to undertake
their own separate appraisals, analyses and evaluations. 1129 For example, the European Union
explains that relevant information was disclosed to the European Union member States during the
course o f negotiations for LA/MSF, which Airbus' Executive Vice President for Programmes
characterized as having been "difficult and intensive"1130, following [***].1131 The European Union
also specifically refers to certain information contained in a number of the anne xes to the French
and German LA/MSF Contracts, a letter from Airbus to [***] and the [***].1132
6.645. We note that there is no record of the content of the [***], with the European Union
pointing to only one item on the agenda for that meeting – [***] – to substantiate its factual
assertion. Moreover, the only details of note that are clarified in the one and a half page Airbus
letter to [***] that were not already set out in the "business case related document" are the
percentage of the [***] workshare in the A350XWB project and the amount of requested LA/MSF
from the [***] Government.1133 It is apparent, however, from the nature of the information
contained in the relevant annexes to the French and German LA/MSF contracts that the Airbus
governments received more information about the nature of the A350XWB project over the course
of negotiations. We agree with the European Union that much of this information should have
enabled the Airbus governments to analyse and form their own views about a number of important
aspects of the A350XWB project relating to its costs and its anticipated commercial success.
However, we see nothing in the relevant information that would have enabled the governments to
analyse and form their own views about the development risks associated with the project or
about the anticipated revenue streams necessary to determine the contractual rates of return and,
therefore, the overall feasibility and attractiveness of the A350XWB programme.
6.646. The European Union argues that because of the sales -dependent nature of the returns the
European Union member States expected to achieve from the LA/MSF contracts, the marketing
risks associated with the A350XWB project were of "much greater importance" to the
European Union member States than the "technological risk".1134 On this basis, the
European Union appears to suggest that there was, therefore, no need for Airbus to provide the
European Union member States governments with any sensitivity analyses of the viability of the
A350XWB project or information on the risks associated with the A350XWB at the time that
LA/MSF was requested.1135
6.647. We recall, however, that the European Union accepts that one aspect of the project -
specific risk associated with the provision of LA/MSF for the A350XWB is precisely the risk that
Airbus would not be able to successfully develop the aircraft. Indeed, the fact that the parties'
respective views on the development risk associated with the A350XWB have informed the
identification of the appropriate project specific risk premium in the co nstruction of the market

1127 UK House of Commons Hansard, written answers for 29 June 2009, (Exhibit USA-152), p. 4.
1128 The European Union points out that in the light of the United States' "abrogation" of the 1992
Agreement, "there was no requirement that any of the EU member States undertake a critical project appraisal
before committing to provide financing for the A350XWB". (European Union's response to Panel question
No. 96(b).)
1129 European Union's response to Panel question Nos. 123, 124 and 125.
1130 See European Union's response to Panel question No. 123, para. 54.
1131 Statement by Tom Williams, Executive Vice President, Programmes, Airbus SAS, 17 May 2013,
(Exhibit EU-354) (BCI), para. 3.
1132 European Union's response to Panel question Nos. 123(a), 124 and 125.
1133 Letter, Airbus [***], [***], (Exhibit EU-393) (HSBI).
1134 European Union's response to Panel question No. 124.
1135 European Union's response to Panel question No. 124.

interest rate benchmark for LA/MSF, implies that such considerations should normally be expected
to form part of a market lender's due diligence. In this regard, we note that the "technical
viability" of the A350XWB project was, in fact, part of the "detailed analysis" performed by the UK
Government. This suggests that not only did the UK Government consider the development risk
associated with the A350XWB to be an important part of its overall appraisal, but also that the UK
Government possessed information enabling it to assess the technical risks associated with the
project. As already noted, however, we find no such detailed information in the documents the
European Union asserts were in the possession of the European Union member States. This implies
that the UK Government undertook its analysis of the "technical viability" of the A350XWB on the
basis of information that did not come from Airbus.
6.648. Moreover, we note that there is also no evidence that the European Union member Stat es
received any information from Airbus about the projected revenues of the A350XWB programme.
Indeed, the European Union was unable to confirm that the European Union member States had
that information at the time of concluding the LA/MSF contracts. 1136 Yet, in the absence of such
information, there would have been no basis for the French, German and UK governments to
accurately determine the IRRs of their respective LA/MSF contracts, including royalties , on the
basis of the schedule of anticipated deliveries.
6.649. In the light of the above facts and considerations, we come to the following conclusions
about the method and facts used by the European Union member States to inform their decisions
to agree to provide A350XWB LA/MSF:
i. Despite having engaged in A350XWB LA/MSF negotiations [***] using the services
of "multiple" "legal and financial advisors" and having apparently conducted their
own "due diligence" 1137, the governments of France, Germany and Spain did not
"formulate" or undertake any written appraisal of the A350XWB project;
ii. To the extent that France, Germany and Spain did undertake any appraisal, analysis
or evaluation of the A350XWB project, there is no written record and, moreover, any
such unwritten appraisal, analysis or evaluation was based on informati on provided
by Airbus that did not address the development risks of the A350XWB project;
iii. The "detailed analysis" performed by the UK Government of the "technical viability"
of the A350XWB project , which we recall we have found to pose the same or a
greater challenge to Airbus than the A380 in terms of development risk, was based
on information that was not provided by Airbus about the technical specifications
and/or development risks associated with the A350XWB; and
iv. The information on projected revenue streams that would have been required for the
governments of France, Germany and the United Kingdom to accurately determine
the IRRs of their respective LA/MSF contracts, including royalties, on the basis of the
schedule of anticipated deliveries was not provided to those European Union member
States.
6.650. In considering the relevance of these findings to our previous conclusion that the
governments of France, Germany, Spain and the UK provided A350XWB LA/MSF on below -market
interest rate terms, we are guided by the following passage from the Appellate Body's report in the
original proceeding:
Because the assessment {of whether a loan confers a benefit within the meaning of
Article 1.1(b) of the SCM Agreement} focuses on the moment in time when the lender
and borrower commit to the transaction, it must look at how the loan is structured

1136 The Declaration sworn by [***], Controller for the A350XWB programme at Airbus, indicates that
the pricing information used to generate the IRRs provided in this dispute dates from [***]. (See Declaration
by [***], Controller, A350XWB Programme Airbus, 10 April 2014 (Exhibit EU-506) (HSBI)). However, neither
Airbus nor the European Union is able to confirm that this information was known to the EU member State
governments on signing the respective A350XWB LA/MSF contracts.
1137 Statement by Tom Williams, Executive Vice President, Programmes, Airbus SAS,
17 May 2013 (Exhibit EU-354) (BCI), paras. 3 and 6.

and how risk is factored in, rather than looking at how the loan actually performs over
time.{} Such an ex ante analysis of financial transactions is commonly used and
appropriate fina ncial models have been developed for these purposes. The analysis
from a financial perspective proceeds as follows. The investor commits resources to an
investment in the expectation of a future stream of earnings that will provide a
positive return on the investment made. In deciding whether to commit resources to a
particular investment, the investor will consider alternative investment opportunities.
The investor will make its decision to invest on the basis of information available at
the time the decis ion is made about market conditions and projections about how
those economic conditions are likely to develop (future demand and price for the
product, future costs, etc.). The information will be, in most cases, imperfect. The
investor does not have perfe ct foresight and thus there is always some likelihood, in
some instances a sizeable one, that the investor's projections will deviate significantly
from what actually transpires. Hence, determining whether the investment was
commercially rational is to be ascertained based on the information available to the
investor at the time the decision to invest was made.1895
1895 Such an ex ante approach is wholly consistent with the manner in which financial methods
have been developed to test projec tions through sensitivity analysis and scenario building. 1138
(footnote original)

6.651. Although the Appellate Body's statement was made to emphasize that the "commercial
rationality"1139 of a loan must be judged on the basis of the parties' expectations existing at the
time of the conclusion of the loan contract, it is apparent that it also recognizes that a commercial
investor would be normally expected to perform a certain degree of due diligence in relation to the
current and future "economic conditions" of a part icular project before agreeing to enter into a
loan contract. In our view, the conclusions we have reached about the method and facts used by
the European Union member States to inform their decisions to agree to provide Airbus with
approximately EUR [***] in A350XWB LA/MSF suggest that they have each, to differing degrees,
fallen short of the standard that one would expect a commercial lender to normally satisfy. As we
see it, this evidence suggests that the European Union member States entered into the A3 50XWB
LA/MSF contracts in a manner that is inconsistent with that of a commercial lender, thereby
confirming our finding of subsidisation.
6.5.2.3.5.2 Government evaluations and statements
6.652. The United States argues that a number of UK Government documents and statement s,
and one agreement between the French State and the Office national d’études et de recherches
aérospatiales (ONERA), demonstrate that A350XWB LA/MSF was not provided on commercial
terms. Among the documents the United States relies upon in relation to the UK A350XWB LA/MSF
measures, are various public UK Government documents, which state that LA/MSF is "necessary to
supplement market financial support" and that the fundamental rationale of launch investment is
to address the apparent "unwillingness of cap ital markets to fund {LCA} projects with such high
product development costs, high technological and market risks and such long pay back
periods".1140 We also note that the UK Appraisal (which was not made public) makes similar

1138 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 836 (footnote
omitted).
1139 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 836.
1140 See UK House of Commons Business, Innovation and Skills Committee, "Full Speed ahead:
maintaining UK excellence in motorsport and aerospace", Sixth Report of Session 2009-10, Report, formal
minutes, and oral and written evidence, 9 March 2010, (Exhibit USA-44), p. 10 (para. 17); "Repayable Launch
Investment", UK Department for Business, Innovation and Skills website, accessed February 2012, (Exhibit
USA-63); and "Aerospace and Defence Industries Launch Investment", UK Department of Trade and Industry
website, 2006 accessed 21 October 2006 (Original Exhibit US-106), (Exhibit USA-120).

statements that are HSBI. 1141 Another UK Government document refers to "a clearly identified
need" for government funding.1142
6.653. While, as in the original proceeding, we recognise that having committed public monies, it
is possible that public officials would be inclined to publicly describe g overnment participation in
Airbus projects as essential1143, the internal documents echo those views, which suggests they are
properly reflective of the UK Government's actual position. This provides further support for our
conclusion that LA/MSF for the A350XWB – especially in the UK context – confers a "benefit".
6.654. While we are less certain that the ONERA Agreement 1144 provides relevant evidence of the
French Government's non -commercial behaviour vis-à-vis A350XWB LA/MSF, not least because it
postdates the A350XWB LA/MSF contracts and because the extent to which it governs the French
grant of LA/MSF for the A350XWB is not clear, we consider that it provides a statement of the
French Government's views in this regard, and that this also lends further support to ou r
conclusion above.
6.5.2.4 Conclusion on whether A350XWB LA/MSF is a subsidy
6.655. LA/MSF is a financial contribution involving a direct transfer of funds, in the form of a loan,
pursuant to Article 1.1(a)(1)(i) of the SCM Agreement.
6.656. With respect to the parties' disp ute as to whether a benefit is conferred by such financial
contribution pursuant to Article 1.1(b), the rates expected under the A350XWB LA/MSF contracts
are lower than a relevant market benchmark. We therefore conclude that a "benefit" has thereby
been conferred and the French, German, Spanish and UK LA/MSF agreements for the A350XWB
each constitute a subsidy within the meaning of Article 1.1 of the SCM Agreement.
6.5.2.5 Specificity
6.657. The United States claims that the French, German, Spanish and UK A350XWB LA/MSF
subsidies are specific within the meaning of Article 2 of the SCM Agreement. 1145 The European
Union does not contest the United States' claims of specificity.
6.658. We note that each of the challenged financial contributions is negotiated with and provided
to the relevant Airbus subsidiary, with the parent company (EADS) in some instances acting as a
co-contractee or guarantor. It follows that the subsidies granted under each of the contracts are
explicitly limited to "certain enterprises" within the meaning of Art icle 2.1(a) of the SCM
Agreement. We therefore find that each of the subsidies granted pursuant to the challenged
A350XWB LA/MSF contracts is specific within the meaning of Article 2.1(a) of the SCM Agreement,
and can therefore be challenged under Part III of the Agreement.
6.5.3 Whether the LA/MSF measures for the A380 and A350XWB are prohibited export
subsidies
6.5.3.1 Introduction
6.659. In this compliance proceeding, the United States claims that the LA/MSF subsidies granted
by the European Union member States in connectio n with the A380 and A350XWB programmes

1141 HSBI version of the United States' second written submission, para. 281 (citing HSBI material in the
UK Appraisal, (Exhibit EU-(Article 13)-34) (HSBI), para. 4 (bullet point 3, lines 1-2)).
1142 Such need "is usually founded in either market failure or where there are clear government
distributional objectives that need to be met". (UK Treasury, "the Green Book: appraisal and evaluation in
Central Government", 2003 edn, updated in July 2011, (Exhibit EU-352), para. 3.2).
1143 See Panel Report, EC and certain member States – Large Civil Aircraft, para. 1919.
1144 "Reimbursable advances permit the State and industry to share the risk linked to the development
of new aircraft. Taking account of the capital intensiveness required for such development operations, recourse
to this system is generally necessary to supplement market financial support." (Investissements d’avenir,
convention 'opérateur ONERA' Action: 'recherche dans le domaine de l’aéronautique', 31 July 2010, (ONERA
Agreement, (Exhibit USA-54), art. 3.1).
1145 United States' first written submission, para. 533. See also United States' second written submission
(HSBI version), para. 588.

are de facto contingent upon export performance and are, therefore, prohibited subsidies within
the meaning of Article 3.1(a) and footnote 4 of the SCM Agreement.1146 We recall that the
United States made the same claims in relation to the A380 LA/MSF measures in the original
proceeding, with the panel finding that the United States had substantiated them with respect to
the German, Spanish and UK A380 LA/MSF measures, but not the French A380 LA/MSF
measures.1147 On appeal, the Appellate Body reversed the original panel's findings, concluding that
the panel had erred in interpreting and applying Article 3.1(a) and footnote 4 of the
SCM Agreement.1148 However, after articulating the correct interpretation of these provisions, the
Appellate Body found itself unable to "complete the analysis" due to a lack of sufficient factual
findings or undisputed facts on the panel record. 1149 We concluded earlier in this Report that the
United States is entitled to pursue its Article 3.1(a) claims against the A380 LA/MSF measures in
this compliance dispute, and we now proceed to examine their merits, together with the merits of
the United States' Article 3.1(a) claims against the A350XWB LA/MSF measures, in the following
subsections. We start by re calling the findings made by the Appellate Body in the original
proceeding and exploring the guidance provided for how to determine whether a subsidy is de
facto contingent upon export performance within the meaning of Article 3.1(a) and footnote 4 of
the SCM Agreement.
6.5.3.2 Findings of the original panel and Appellate Body
6.660. Before the original panel, the United States argued that each of the A380 LA/MSF
contracts1150 constituted a prohibited subsidy contingent in fact upon export performance within
the meaning of Article 3.1(a) and footnote 4 of the SCM Agreement.1151 The original panel, citing
footnote 4 of the SCM Agreement and the Appellate Body report in Canada – Aircraft, articulated
three elements necessary to find a prohibited de facto export subsidy: (a) the " granting" of a
subsidy (b) that is "tied to" (c) "actual or anticipated exportation or export earnings." 1152 The
original panel found the first element satisfied because the original panel report had earlier
concluded that the A380 LA/MSF measures were specif ic subsidies within the meaning of
Articles 1 and 2 of the SCM Agreement granted to Airbus by the relevant European Union member
States.1153 The original panel then concluded that when the relevant European Union member
States granted the A380 LA/MSF measures to Airbus the governments "anticipated exportation or
export earnings" vis-à-vis the A380, thus satisfying the third element. 1154 The original panel
considered that the second element, i.e. the "tied to" element establishing contingency between
the granting of a subsidy and export performance, "may be demonstrated where the subsidy was
granted because the granting authority anticipated export performance." 1155 Applying this legal
standard, the original panel examined the evidence 1156 and concluded that the German, Spanish,
and UK A380 LA/MSF subsidies were de facto contingent on export performance. The original panel

1146 The United States does not argue that any such subsidy is de jure contingent on export
performance.
1147 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.689.
1148 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1102 and 1103.
1149 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1104 and
1415(b).
1150 The United States also argued that LA/MSF measures regarding other Airbus LCA constituted
prohibited export subsidies before the original panel, but such claims are not at issue in this compliance
proceeding.
1151 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.582. The United States
also argued that the contracts were contingent in law upon export performance, but these claims were rejected
by the original panel, were not at issue before the Appellate Body, and are not at issue in this compliance
proceeding.
1152 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.630.
1153 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.650.
1154 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.654.
1155 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.644. (emphasis original)
1156 This evidence "included not only evidence showing that compliance with the sales-dependent
contractual repayment terms would necessarily involve exportation, but also evidence of the three
governments' anticipation of export performance, the fact that they counted upon and expected Airbus to fully
repay the loaned principal plus interest, as well as other contractual provisions and information advanced by
the United States that revealed at least part of the respective government's motivation for entering into each
contract". (Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.690) (footnote omitted)

concluded, however, that the French A380 LA/MSF measure was not de facto contingent on export
performance.1157
6.661. Both the European Union and the United States appealed certain aspects of the original
panel's findings in this context. The Appellate Body report affirmed the original panel's findings
that the A380 LA/MSF measures were specific subsidies within the meaning of
Articles 1 and 2 of the SCM Agreement that had been granted to Airbus by the relevant
European Union member States. 1158 The Appellate Body also upheld the original panel's findings
that all four relevant European Union member State governments anticipated exportation or
export earnings vis-à-vis the A380 when they granted Airbus the A380 LA/MSF subsidies.1159
6.662. The Appellate Body, however, found that the original panel had articulated the incorrect
legal standard governing the evaluation of de facto export contingency. According to the
Appellate Body, the correct legal standard was not whether the subsidy was granted because the
granting authority anticipated export performance, but, rather, whether the granting of the
subsidy was "geared to induce the promotion of future export performance by the reci pient".1160
We will refer to this test as the Export Inducement Test. In promulgating the Export Inducement
Test, the Appellate Body articulated essential qualities of subsidies that the test – and, therefore,
Article 3.1(a) of the SCM Agreement – is designed to discipline. In particular, the Appellate Body
explained that the Export Inducement Test is satisfied "when the subsidy is granted so as to
provide an incentive to the recipient to export in a way that is not simply reflective of the
conditions of supply and demand in the domestic and export markets undistorted by the granting
of the subsidy."1161 Moreover, the Appellate Body stated that "{e}xport-contingent subsidies will …
favour a recipient's export sales over its domestic sales."1162
6.663. The Appellate Body also offered guidance concerning analytic tools with which a panel may
attempt to detect such qualities. Specifically, the Appellate Body indicated that this inquiry could
be based on a comparison of "the ratio of anticipated export and domestic sales of the subsidized
product that would come about in consequence of the granting of the subsidy" and "the situation
in the absence of the subsidy." 1163 We will refer to the former as the Anticipated Ratio, the latter
as the Baseline Ratio, and the comparison and inter pretation of these two ratios as the Ratios
Analysis. The Appellate Body report stated that a Baseline Ratio could be derived from historic
sales data concerning the "same product" (or, in this case, the "same LCA model") "before the
subsidy was granted." 1164 This Report will refer to this as the Historic Baseline Method. The
Appellate Body also stated that a Baseline Ratio could, alternatively, be based on "the hypothetical
performance of a profit -maximizing firm in the absence of the subsidy". 1165 We will refer to this
method as the Hypothetical Baseline Method.
6.664. Having concluded that the original panel had applied the incorrect legal standard governing
de facto export contingency, the Appellate Body reversed the original panel's findings that the
German, Spanish and UK A380 LA/MSF contracts were de facto contingent on export performance
and that the French A380 LA/MSF contract was not. 1166 The Appellate Body then attempted to
complete the legal analysis, but concluded that the original panel's findings and the undis puted
evidence on the record only established that when the relevant member States granted Airbus the
A380 LA/MSF measures they anticipated exportation or export earnings, and thus did not resolve
the Export Inducement Test. 1167 The Appellate Body then attempted to perform a Ratios Analysis,

1157 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.689.
1158 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 929.
1159 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1080.
1160 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1044. The
Appellate Body explained that the legal standard espoused by the original panel improperly "equated the
standard of export contingency with the reason(s) for granting a subsidy". (Appellate Body Report, EC and
certain member States – Large Civil Aircraft, para. 1063)
1161 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1045.
1162 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1053.
1163 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1047. (emphasis
original)
1164 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1047 and 1099.
1165 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1047.
1166 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1083 and 1103.
1167 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1091 and
1097-1098.

but found that there was insufficient evidence on the record with which to do so. Unable to
establish whether the requisite contingency existed between the granting of the A380 LA/MSF
measures and export performance, the A ppellate Body left the claim of whether the A380 LA/MSF
measures constitute prohibited de facto export subsidies unresolved.1168 We resolve this claim now
along with the United States' claim that the A350XWB LA/MSF measures are also prohibited de
facto export subsidies within the meaning of Article 3.1(a) of the SCM Agreement.
6.5.3.3 Arguments of the United States
6.665. The United States argues that the French, German, Spanish and UK LA/MSF contracts for
both the A380 and A350XWB programmes are prohibited de facto export s ubsidies within the
meaning of Article 3.1(a) and footnote 4 of the SCM Agreement. Regarding the A380 LA/MSF
contracts, the United States asserts that the original panel and the Appellate Body have already
concluded that the these measures are subsidies granted to Airbus in anticipation of exportation or
export earnings, and therefore the only unresolved issue is whether they were "tied to", i.e.
contingent upon, export performance. The United States argues that a Ratios Analysis was the
"single missing element {in the Appellate Body report} that prevented a successful demonstration
that the {A380} LA/MSF measures were export contingent in fact" 1169, and that the A380 Baseline
Ratio was the only part missing from the Appellate Body's Ratios Analysis. 1170 The United States
then calculates an A380 Anticipated Ratio of 2:8 1171, calculates an A380 Baseline Ratio of 2:5,
performs a Ratios Analysis, and concludes that the Ratios Analysis demonstrates that the A380
LA/MSF contracts are de facto contingent on export performan ce.1172 Further, the United States,
relying on both publicly available evidence and the A350XWB LA/MSF contracts themselves, argues
that the A350XWB measures were granted in anticipation of exportation or export earnings. 1173
The United States then calculates an A350XWB Anticipated Ratio of 2:21 1174, calculates an
A350XWB Baseline Ratio of 2:11 1175, performs a Ratios Analysis, and concludes that the Ratios
Analysis demonstrates that the A350XWB LA/MSF contracts are de facto contingent on export
performance.1176 In other w ords, the United States concludes that these subsidies are de facto
contingent upon export performance because the Ratios Analyses show that in the presence of the
subsidies Airbus would export a greater proportion of A380s and A350XWBs than Airbus would i n
the subsidies' absence.
6.5.3.4 Arguments of the European Union
6.666. The European Union argues that neither the A380 LA/MSF measures nor the A350XWB
LA/MSF measures are prohibited de facto export subsidies. The European Union pursues three
main lines of reasoning in this context. First, the European Union asserts that even if the
United States has established that the relevant measures are specific subsidies, that the member
States granted them to Airbus in anticipation of export performance or export earnings, and ha s
performed valid Ratios Analyses with respect to each set of measures, the record is still insufficient
to demonstrate de facto export contingency. This is so because the United States insufficiently
supports its demonstration of de facto export contingency with reference to terms in the subsidies
themselves that make the subsidies contingent on export performance. Second, the
European Union argues that the manner in which the United States calculates its Anticipated and
Baseline Ratios in this context is fatally flawed. Third, the European Union argues that even if the
United States has produced a viable Ratios Analysis with respect to either the A380 or the
A350XWB that the United States interprets as indicating that the LA/MSF measures directed at
these LCA are de facto contingent on export performance, the United States has misinterpreted
that Ratios Analysis. This is so because any relevant "skewing" of the Ratios Analysis is not the
result of any export -contingent qualities of the relevant subsidies, b ut is the result of changes in
LCA demand patterns in the marketplace.

1168 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1101 and 1104.
1169 United States' second written submission, para. 304.
1170 United States' first written submission, paras. 166 and 186.
1171 This report will present Anticipated and Baseline Ratios as the ratio of domestic sales (the first
number) to export sales (the second number).
1172 United States' first written submission, paras. 183 and 187-188.
1173 United States' first written submission, paras. 190-192; and second written submission, para. 298.
1174 United States' first written submission, para. 195.
1175 United States' first written submission, para. 196.
1176 United States' first written submission, para. 199.

6.5.3.5 Arguments of the third parties
6.5.3.5.1 Brazil
6.667. Brazil considers that the Appellate Body's relevant guidance regarding export contingency
indicates that a demonstration of export contingency with respect to a given subsidy does not
require the construction of a Ratios Analysis. 1177 Rather, Brazil considers that a Ratios Analysis is
one possible piece of evidence that could meaningfully inform an export -contingency inquiry
regarding a particular subsi dy. In this context, Brazil notes that demonstrating de jure export
contingency requires no actual or potential trade effects test and thus, because a Ratios Analysis –
the creation of which Brazil characterizes as "difficult and often uninformative" 1178 – is precisely
that kind of test, Brazil argues that requiring the performance of a Ratios Analysis to demonstrate
de facto export contingency would create two different legal standards regarding de jure and de
facto export contingency.1179 Brazil argues that such a result would contradict the Appellate Body's
explicit guidance in its report in Canada – Aircraft that the standard for de jure and de facto export
contingency is the same. 1180 Nevertheless, Brazil allows for the possibility that a Ratios Analysis,
by its elf, could demonstrate that a particular subsidy is export -contingent under certain
circumstances.1181
6.5.3.5.2 Canada
6.668. Canada argues that the Appellate Body has established that the Export Inducement Test
governs whether a subsidy is de facto contingent on anticipated exportation, and that a Ratios
Analysis provides a "framework" under which to assess this test. 1182 Canada cautions, however,
that a Ratios Analysis should not be assessed in isolation, but, rather, its relevance must be
assessed in conjunction with consider ation of the total configuration of relevant facts. 1183 Canada
further argues that the United States has failed to demonstrate that either the A380 LA/MSF
measures or the A350XWB LA/MSF measures are de facto contingent on export performance. 1184
Canada asserts t hat the United States has relied on faulty information when calculating the
Anticipated Ratio for the A380 and has failed to demonstrate that the manner in which it calculates
the Baseline Ratios with respect to the A380 and A350XWB accords with the Appell ate Body's
guidance regarding how to construct Baseline Ratios. 1185 Finally, Canada asserts that the
United States fails to demonstrate that any alleged shift occurring in its Ratios Analyses that the
United States argues indicates that the A380 and A350XWB L A/MSF measures are de facto
contingent on export performance is not simply due to changes in market conditions rather than
the grant of the A380 and A350XWB LA/MSF measures.1186
6.5.3.5.3 China
6.669. China considers that the Appellate Body's relevant guidance regarding expor t contingency
indicates that the Export Inducement Test is the sole standard with which to determine de facto
export contingency.1187 China considers that a determination of de facto export contingency, which
is governed by the Export Inducement Test, must fu rther be inferred from the total configuration
of the facts constituting and surrounding the grant of the relevant subsidy. 1188 It is therefore
China's view that a Ratios Analysis may be relevant in resolving the Export Inducement Test, but
cannot independently resolve the Export Inducement Test in the absence of an analysis regarding

1177 Brazil's third-party submission, paras. 32-56.
1178 Brazil's third-party submission, para. 54.
1179 Brazil's third-party submission, paras. 49-51.
1180 Brazil's third-party submission, paras. 41 and 56.
1181 Brazil's third-party response to Panel question No. 2.
1182 Canada's third-party submission, paras. 6-7.
1183 Canada's third-party response to Panel question No. 2, paras. 9-11.
1184 Canada's third-party submission, para. 9.
1185 Canada's third-party submission, paras. 10-13.
1186 Canada's third-party submission, paras. 14-17.
1187 China's third-party response to Panel question No. 2, paras. 1-3.
1188 China's third-party response to Panel question No. 2, para. 4.

the total configuration of the facts constituting and surrounding the grant of the relevant
subsidy.1189
6.5.3.5.4 Japan
6.670. Japan asserts that an assessment of de facto export contingency must b e based on
evidence that the total configuration of the facts indicates that the granting of the subsidy provides
an incentive to Airbus to export LCA to a greater extent than it would in the absence of the
subsidy.1190 A Ratios Analysis may be considered alo ng with all other relevant facts. 1191 Japan has
reservations about the reliability of the data that the United States uses to calculate its relevant
Anticipated Ratios, and questions whether the manner in which the United States calculates
Anticipated Ratios is consistent with Appellate Body guidance. 1192 Japan raises similar concerns
regarding the United States' Baseline Ratios.1193 Finally, Japan asks the Panel to consider whether
any relevant rise in Airbus' export sales relative to domestic sales are caused by t he grant of the
A380 and A350XWB measures as opposed to other factors.1194
6.5.3.6 Evaluation by the Panel
6.671. Article 3.1(a) of the SCM Agreement reads:
Except as provided in the Agreement on Agriculture, the following subsidies, within
the meaning of Article 1, shall be prohibited:
(a) subsidies contingent, in law or in fact4, whether solely or as one of several other
conditions, upon export performance, including those illustrated in Annex I5

1189 China's third-party response to Panel question No. 2, paras. 5-7.
1190 Japan's third-party submission, para. 11.
1191 Japan's third-party response to Panel question No. 2, paras. 6-12.
1192 Japan's third-party submission, paras. 15-18.
1193 Japan's third-party submission, paras. 19-25.
1194 Japan's third-party submission, paras. 26-30.
1195 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 346 (citing
Appellate Body Report, Canada – Aircraft, para. 169).
1196 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1037 (citing
Appellate Body Report, Canada – Aircraft, para. 166).

and therefore a "tie" between the granting of a subsidy and actual or anticipated exportation
meets the legal standard of "contingent" in Article 3.1(a) of the SCM Agreement.1197
6.675. The Appellate Body has explained that de facto export contingency "can be established by
recourse to the following test: is the granting of the subsidy geared to induce the promotion of
future export performance by the recipient?", i.e. the Export Inducement Test. 1198 The
Appellate Body has further explained that the Export Inducement Test is satisfied "when the
subsidy is granted so as to provide an incentive to the recipient to export in a way that is not
simply reflective of the conditions of supply and demand in the domestic and export markets
undistorted by the granting of the subsidy." 1199 This test "must be assessed on the basis of the
information available to the granting authority at the time the subsidy is granted."1200
6.676. The standard for determining de facto export contingency "is an objective standard" 1201,
the evidence of which "'must be inferred from the total configuration of the facts constituting and
surrounding the granting of the subsidy', which may include … : (i) the design and structure of the
measure granting the subsidy; (ii) the modalities of oper ation set out in such a measure; and
(iii) the relevant factual circumstances surrounding the granting of the subsidy that provide the
context for understanding the measure's design, structure, and modalities of operation." 1202 Thus,
although the standard is "not satisfied by the subjective motivation of the granting government to
promote the future export performance of the recipient" 1203, the reasons for which an authority
grants a subsidy may still be a relevant consideration.1204
6.677. The Appellate Body has indicated that an assessment of de facto export contingency "could
be based on a comparison between … the ratio of anticipated export and domestic sales of the
subsidized product that would come about in consequence of the granting of the subsidy" and "the
situation in the absence of the subsidy" 1205, i.e. a Ratios Analysis. Where the Ratios Analysis
"shows, all other things being equal, that the granting of a subsidy provides an incentive to skew
anticipated sales toward exports … this would be an indication" of de facto export contingency.1206
The Appellate Body has also provided numeric examples illustrating when the Ratios Analysis
would and would not evidence de facto export contingency.1207
6.678. With these legal standards in mind, we now turn to examine the United States' c laims
under Article 3.1(a) of the SCM Agreement regarding each of the challenged A380 and A350XWB
LA/MSF measures. We do so in three parts. First, we discuss whether the United States has
demonstrated the granting of relevant subsidies. Second, we consider whether the United States
has established that such subsidies were granted in anticipation of exportation or export
earnings.1208 Third, we evaluate whether the United States has demonstrated that the granting of
such subsidies was tied to, or contingent upon, such anticipation.

1197 Appellate Body Report, EC and certain member States – Large Civil Aircraft, fn 2323 (citing
Appellate Body Report, Canada – Autos, para. 107).
1198 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1044.
1199 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1045.
1200 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1049.
1201 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1050. The
Appellate Body has also ruled that "'the export orientation of a recipient may be taken into account as a
relevant fact, provided that it is one of several facts which are considered and is not the only fact supporting a
finding'" of export contingency. (Appellate Body Report, EC and certain member States – Large Civil Aircraft,
1202 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1046 (quoting
Appellate Body Report, Canada – Aircraft, para. 167). (emphasis original; footnote omitted)
1203 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1050.
1204 See Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1050-1051
and 1063.
1205 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1047. (emphasis
original)
1206 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1047.
1207 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1048.
1208 In the original proceeding, the United States limited its claims under Article 3.1(a) of the
SCM Agreement regarding the A380 LA/MSF measures to alleged contingency based on anticipated, rather
than actual, exportation or export earnings. Consistent with that approach, in this compliance proceeding, the
United States appears to limit its claims under Article 3.1(a) with respect to both the A380 and A350XWB

6.5.3.6.1 Granting of a subsidy
6.679. The original panel, as affirmed by the Appellate Body, found that each of the A380 LA/MSF
measures granted to Airbus by the relevant member States was a specific subsidy within the
meaning of Articles 1 and 2 of the SCM Agreement. Earlier in this Report, we found that each of
the A350XWB LA/MSF measures granted to Airbus by the relevant member States is a specific
subsidy within the meaning of Articles 1 and 2 of the SCM Agreement. The United States has
therefore established the first of the three elements that it must demonstrate under
Article 3.1(a) of the SCM Agreement with respect to both the A380 LA/MSF measures and the
A350XWB LA/MSF measures.
6.5.3.6.2 Anticipated exportation or export earnings
6.5.3.6.2.1 A380
6.680. The original panel, as affirmed by the Appellate Body, found that each of the A380 LA/MSF
contracts was granted in anticipation of exportation or export earnings. 1209 We detect nothing on
the record of this compliance proceeding that calls this finding into question. The United States has
therefore established the third of the three elements that it must demonstrate under Article 3.1(a)
with respect to the A380 LA/MSF measures.
6.5.3.6.2.2 A350XWB
6.681. Neither the original panel nor the Appellate Body had occasion to make findings regarding
whether the relevant European Union member States anticipated exportation or export earnings at
the time such governments granted the A350XWB LA/MSF subsidies to Airbus. The United States,
therefore, offers evidence in this compliance proceeding that it claim s establishes such anticipation
with respect to each European Union member State government. Such evidence takes two main
forms, i.e. publicly available information and the terms of the A350XWB LA/MSF contracts
themselves. We summarize this evidence here:
 The United States argues that by "the point at which the member States finalized their
commitment to provide LA/MSF" for the A350XWB, Airbus' order book reflected that Airbus
had received 505 orders for the A350XWB, "of which 462 were for non -EU sales."1210 The
United States argues that such numbers "are public, and certainly were known to Airbus
governments at the time of each decision {to grant A350XWB LA/MSF}."1211
 The United States claims that "Airbus executives regularly highlighted the predominantly
foreign customer base for the A350 XWB in their slideshow presentations". 1212 In support of

LA/MSF measures to alleged contingency based on anticipated, rather than actual, exportation or export
earnings. (See United States' first written submission, paras. 178-201)
1209 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.654; and Appellate Body
Report, EC and certain member States – Large Civil Aircraft, para. 1080 (affirming the original panel's finding).
See also United States' first written submission, paras. 172-176 (citing materials upon which the original panel
relied in this context, including Airbus Global Market Forecast 2000-2019, July 2000, (Exhibit USA-68/EU-160
(exhibited twice)); Airbus, Briefing 3rd quarter, 1998, (Original Exhibit US-359), (Exhibit USA-69); "Airbus
Launches A3XX Program, Sees Strong Demand in Asia", Aviation Now, February 2000, (Exhibit USA-70);
"Airbus bets the company", The Economist, 16 March 2000, (Original Exhibit US-363), (Exhibit USA-71);
Department of Trade and Industry Press Release, "Byers Announces £530 Million Government Investment in
Airbus", 13 March 2000, (Original Exhibit US-360), (Exhibit USA-72); "Blair Says Airbus will Repay 530 Mln Stg
UK Gvt Investment", AFX.com, 18 January 2005, (Original Exhibit US-361), (Exhibit USA-73); and Spanish
A380 LA/MSF Contract, (Original Exhibit US-73), (Exhibit USA-88) (BCI)). The United States further claims that
evidence it offers to calculate its A380 Anticipated Ratio further demonstrates the requisite level of anticipation
of exportation by the relevant member State governments in this context. (United States' first written
submission, fn 258)
1210 United States' first written submission, para. 177 (citing Ascend database, Gross Orders and Year
End Backlog A330, A350, 777 and 747, 1990-2011, as of 14 February 2012, (Exhibit USA-293) (summarizing
raw Ascend database order information)) (emphasis original). See also Ascend database, Boeing and Airbus
Deliveries in Units 2001-2011, Commercial Operators, data request as of 13 January 2012, (Exhibit USA-112)
(providing raw Ascend database order information).
1211 United States' first written submission, para. 194.
1212 United States' first written submission, para. 177. (emphasis original)

this claim, the United States cites five slideshow presentations given by Airbus
entities' officers and employees dated between 2007 and 2010, inclusive.1213
 The United States claims that "Airbus' parent company EADS trumpeted in its 'Vision 2020'
long-term corporate strategy" in a publication that states, inter alia, "{t}oday, EADS exports
about 75 % of its products; some 50 % of our revenues are generated outside Europe.
While maintaining our European base we are fostering our footprint in the U.S. As a third
pillar, we are spurring our presence in emerging countries so as to be part of their dynamic
success story."1214
 The United States argues that "{b}y 2009, statements by the fo ur Airbus member States
also confirmed their anticipation that A350 XWB sales would be heavily skewed in favor of
exports."1215 The United States provides an example of such a statement made by UK Prime
Minister Cameron "when he officially opened Airbus' new factory devoted to A350 XWB
wings in Wales" 1216 where he stated that "{t}he Government is committed to building a
more balanced economy with stronger manufacturing, exports and private investment,
creating jobs and opportunities across the UK. I welcome the o pening of Airbus's new state
of the art facility which will contribute to this and support our programme to create
sustainable economic growth."1217
 The United States also argues that the terms of the A350XWB LA/MSF subsidies
demonstrate that their design, st ructure and modalities of operation establish that the
relevant European Union member States anticipated exportation of the A350XWB at the
time the governments granted the A350XWB LA/MSF measures. Indeed, the United States
argues that "the contracts for this most recent set of LA/MSF have the same de jure features
that previously led the Panel to conclude A380 LA/MSF was granted in anticipation of a large
number of exports." 1218 Specifically, the United States argues that the A350XWB measures
are success -dependent, levy -based, back -loaded, and unsecured, as were the LA/MSF
measures regarding the A380. 1219 Moreover, the A350XWB LA/MSF measures "reflect{} an
anticipation of a specific number of sales, many of which would necessarily have to be
export sales. As with the A380, the LA/MSF contracts were … structured so that full
repayment of the loan will be achieved after Airbus achieves a certain level of sales." 1220 The
United States argues that the European Union market could not absorb such sales volumes,
and therefor e the relevant European Union governments must have anticipated "a large
number of exports." 1221 Therefore, "{t}he EU member States would not have granted the
financing unless they expected Airbus to actually meet the stated goals".1222
6.682. The European Union does n ot materially contest either the probative value of the
United States' evidence regarding this issue or the United States' conclusion that the relevant
European Union member States anticipated exportation or export earnings vis-à-vis the A350XWB

1213 United States' first written submission, fn 275 (citing Fabrice Brégier, Chief Operating Officer,
Airbus, "A350 XWB programme status", EADS presentation, North America Investor Forum 2010,
18 March 2010, (Exhibit USA-74); Barry Eccleston, President and CEO, Airbus North America, "Cowen and
company 28th Annual Aerospace/Defence Conference", Airbus presentation, 6 February 2007, (Exhibit USA-75);
Andy Shankland, Vice President Marketing, Airbus, "A350 XWB, Market update", Airbus presentation, Airbus
Innovation days, 11–12 May 2009, (Exhibit USA-76); Nali Rafanimanana, A350XWB Product Marketing
Manager, "A350 XWB, Shaping Efficiency", Airbus presentation, 9 June 2009, (Exhibit USA-77); and Colin
Stuart, Vice President Marketing, Airbus, "Airbus commercial update", Airbus presentation, Aircraft Finance and
Commercial Aviation 2007, 1 March 2007, (Exhibit USA-78)).
1214 United States' first written submission, para. 177 (citing EADS, "EADS – Taking off into its second
decade", undated, p. 2, (Exhibit USA-79)).
1215 United States' first written submission, para. 177.
1216 United States' first written submission, para. 177.
1217 United States' first written submission, para. 177 (quoting Airbus Press Release, "British Prime
Minister opens new Airbus wing factory for A350 XWB", 13 October 2011, (Exhibit USA-80)).
1218 United States' second written submission, para. 310.
1219 United States' first written submission, para. 190.
1220 United States' first written submission, para. 191.
1221 United States' second written submission, para. 310.
1222 United States' first written submission, para. 191.

at the tim e the governments granted the A350XWB LA/MSF measures to Airbus. 1223 We
furthermore detect no material reason to doubt the United States' conclusion on this score. 1224
Indeed, we recall that both the original panel and the Appellate Body considered that the
European Union member States knew Airbus to be an export -oriented company1225 and found that
the A380 LA/MSF measures were granted in anticipation of exportation based upon substantially
similar types of evidence that the United States offers here to demonstrate that the A350XWB
LA/MSF contracts were granted in anticipated of exportation. We therefore conclude that the
United States has established the third of the three elements that it must demonstrate under
Article 3.1(a) with respect to the A350XWB LA/MSF measures.
6.5.3.7 "Tied to" anticipated exportation or export earnings
6.683. The United States submits that the granting of each of the A380 and A350XWB LA/MSF
contracts was in fact "tied to", i.e. contingent upon, anticipated exportation or export earnings.
The United States appears to rely on a combination of two general types of evidence to
demonstrate such contingency. First, the United States relies on the evidence that it also uses to
establish anticipation of exportation or export earnings. This includes purported asp ects of the
design, structure and modalities of operation of the contracts themselves, discussed in the
preceding section above. Second, the United States performs two Ratios Analyses, one regarding
the A380 and one regarding the A350XWB, both of which the United States argues indicate that
the A380 and A350XWB LA/MSF measures are de facto contingent on export performance. The
United States argues that these Ratios Analyses, when coupled with the evidence already
discussed above demonstrating that the relev ant European Union member State governments
anticipated exportation or export earnings with respect to the A380 and A350XWB when they
granted the A380 and A350XWB LA/MSF subsidies to Airbus, demonstrate that the subsidies were
geared to induce the promotio n of future export performance by Airbus, thereby satisfying the
Export Inducement Test and establishing that the measures are de facto contingent on export
performance.
6.684. The European Union responds that the United States' approach to demonstrating de facto
export contingency with respect to the A380 and A350XWB LA/MSF measures is fatally flawed in
three respects. First, the European Union argues that the United States has provided insufficient
evidence to demonstrate de facto export contingency because a Ra tios Analysis is incapable of
resolving the Export Inducement Test even when combined with a finding of anticipation of
exportation or export earnings. Second, the European Union argues that the United States has
calculated invalid Anticipated Ratios and B aseline Ratios with respect to both relevant aircraft.
Third, the European Union argues that the United States has misinterpreted the results of its
offered Ratios Analyses, even assuming their technical validity. We consider such issues below.
6.5.3.7.1 Probative value of a Ratios Analysis
6.685. We begin by considering to what extent a Ratios Analysis can resolve the Export
Inducement Test. We note that neither the United States nor the European Union argues that a
Ratios Analysis is independently capable of resolving the Export Inducement Test in all cases as a
matter of law. Rather, both parties appear to agree that a Ratios Analysis, if and when it can be
performed, may constitute a material consideration in resolving the Export Inducement Test.1226
6.686. We recall that the Appe llate Body report in the original proceeding established that the
Export Inducement Test governs de facto export contingency inquiries under Article 3.1(a) of the
SCM Agreement. Further, "{t}he existence of de facto export contingency … must be inferred from

1223 We note that certain HSBI information, of which the European Union has explained the member
States were aware when they granted the A350XWB LA/MSF measures, stresses non-EU demand for the
A350XWB. (Business case-related document, (Exhibit EU-(Article 13)-35) (HSBI), slides 3-4 and 6-7)
1224 The United States further claims that evidence that it offers to calculate its A350XWB Anticipated
Ratio further demonstrates the requisite level of anticipation of exportation by the relevant member States
governments in this context. (United States' first written submission, fn 258).
1225 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.678; and Appellate Body
Report, EC and certain member States – Large Civil Aircraft, para. 1094.
1226 See e.g. United States' second written submission, para. 304; and European Union's response to
Panel question No. 21.

the total configuration of the facts". 1227 The word "must" signals that an examination of the total
configuration of the facts is mandatory. The Appellate Body further explained that these facts "may
include" the design, structure and modalities of operation of the challenged measure, and the facts
surrounding its grant. 1228 That the Appellate Body specifically articulated these considerations
signals their significance. The words "may include", however, suggest that other relevant
considerations within the to tal configuration of the facts may exist. 1229 This suggestion appears to
foreshadow the introduction of the Ratios Analysis in the Appellate Body report. The
Appellate Body report then states that "where relevant evidence exists, the assessment could be
based on" a Ratios Analysis. 1230 In this context, we understand the words "the assessment" to
refer to the assessment of the Export Inducement Test. 1231 The phrase "could be" suggests that
the assessment need not be based on a Ratios Analysis, even when a Ratios Anal ysis can be
performed. The phrase "where relevant evidence exists" suggests that it may be possible to
resolve the export-contingency issue on the basis of other evidence, such as the design, structure
and modalities of operation of the challenged measure, in cases where the evidence required to
perform a Ratios Analysis does not exist.
6.687. An initial question therefore emerges as to whether a panel can determine that a subsidy is
de facto contingent upon export performance without first performing a Ratios Ana lysis. The
answer to this question is clearly "yes", as demonstrated by the Appellate Body report's discussion
of Canada – Aircraft, set forth below:
{I}n Canada – Aircraft, the panel examined several pieces of evidence before
determining that the subsidie s granted to certain companies in the Canadian
aerospace sector under the measure at issue – the Technology Partnerships Canada
("TPC") programme – were in fact tied to anticipated exportation. For example, the
Terms and Conditions of the programme require d that funding decisions be based on,
inter alia, whether the funded projects would generate export sales and increase the
international competitiveness of the funded companies. Moreover, applicants were
required to indicate whether the project to be funde d would increase exports, and to
distinguish between domestic and export sales when reporting actual and future sales.
In our view, the design and structure of the TPC programme, as evidenced by various
documents relating to the TPC programme, as well as t he high export potential of the
funded projects, demonstrated that the granting of subsidies under the programme
was geared to induce applicants for funding to increase exports and, consequently, to
promote export performance by Canadian companies . In the subsequent Article 21.5
proceedings, the revised TPC programme, which removed the selection criteria
relating to exportation as a basis for funding decisions, as well as the stated
objectives of the programme to enhance exportation, was found not to consti tute an
export-contingent subsidy. In other words, the relevant evidence did not indicate that
the revised measure was geared to induce the promotion of future export
performance by the recipients.1232 (emphasis added; footnotes omitted)
6.688. Thus, the Appellate Body concluded that the measure at issue in Canada – Aircraft would
have satisfied the Export Inducement Test, even in the absence of any Ratios Analysis, due to its
design and structure, considered in context with the high export potential of the funded pr ojects.
This conclusion clarifies that performing a Ratios Analysis is not necessary in order to resolve the
Export Inducement Test, and further confirms that the design, structure and modalities of
operation of a subsidy are powerful considerations in resolving the Export Inducement Test.

1227 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1046. (emphasis
original; underline added; internal quotation marks omitted)
1228 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1046.
1229 See Appellate Body Report, Canada – Aircraft, para. 169 ("We agree with the Panel that what facts
should be taken into account in a particular case will depend on the circumstances of that case."). (emphasis
original)
1230 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1047. (emphasis
added)
1231 See Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1099 ("We
recall our finding that, where such evidence exists, the assessment of whether the granting of a subsidy
provides such an incentive could be made on the basis of a {Ratios Analysis}.").
1232 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1055.

6.689. In this context, we take the opportunity to note another relevant dimension of the Export
Inducement Test and Ratios Analysis. When elaborating on the consistency of the Export
Inducement Test with relevant provisions of the SCM Agreement, and particularly its coherence
with the Illustrative List of Export Subsidies in Annex I, the Appellate Body stated that "{e}xport -
contingent subsidies will … favour a recipient's export sales over its domestic sales." 1233 Although
the statement may leave open the question regarding the potential universe of products to which a
panel may make reference when evaluating such relative favouritism 1234, this statement suggests
that the Export Inducement Test is satisfied where a subsidy is geared to induce: (a) a particular
recipient company (b) to discriminate against domestic sales in favour of export sales (c) in a
manner contrary to relevant market forces of supply and demand. The presence of the
discriminatory element appears particularly salien t because many production subsidies may be
anticipated to lead to the recipient increasing the supply of a relevant product, and therefore
providing an incentive to that recipient to export that product in a way that is unreflective of the
conditions of supply in the domestic market undistorted by the granting of the subsidy. The
Appellate Body has, however, cautioned that such facts would not by themselves establish that the
subsidy satisfies the Export Inducement Test: "The mere fact that such subsidies m ay increase the
company's production sold in the export market does not bring them under the discipline of Part II
of the SCM Agreement."1235 The Appellate Body also explained that "we do not suggest that the
standard is met merely because the granting of the subsidy is designed to increase a recipient's
production, even if the increased production is exported in whole." 1236 Thus, whatever evidence a
panel may use to evaluate the Export Inducement Test (e.g. a Ratios Analysis), the probative
value of such evidenc e will largely depend on its capacity to meaningfully indicate whether a
subsidy provides an incentive to the recipient firm to favour export over domestic sales.
6.690. With this in mind, a further question emerges as to what extent a Ratios Analysis, in cases
where it has been performed, determines the outcome of the Export Inducement Test. Regarding
this question, the Appellate Body's guidance that the assessment of the Export Inducement Test
"could be based on" a Ratios Analysis suggests that a Ratios Analysis is not necessarily conclusive
of the Export Inducement Test, but can rather form a significant part of that assessment. As if to
underscore this point, the Appellate Body concludes a relevant paragraph in its report as follows:
Where the evidence shows, a ll other things being equal, that the granting of the
subsidy provides an incentive to skew anticipated sales towards exports … this would
be an indication that the granting of the subsidy is in fact tied to anticipated
exportation1237 (emphasis added)
6.691. The following paragraph in the Appellate Body report is set out in full below. As indicated
by the emphasized text, it contains apparently inconclusive language regarding the dispositive
nature of the Ratios Analysis:
The following numerical examples illustrate when the granting of a subsidy may, or
may not, be geared to induce promotion of future export performance by a recipient.
Assume that a subsidy is designed to allow a recipient to increase its future production
by five units. Assume further that the exist ing ratio of the recipient's export sales to
domestic sales, at the time the subsidy is granted, is 2:3. The granting of the subsidy

1233 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1053.
1234 The Export Inducement Test itself does not refer to any specific reference product. We therefore
note that, in its explanation of why the measure in Canada – Aircraft would have satisfied the Export
Inducement Test (but not on the basis of a Ratios Analysis, which references "the subsidized product",
specifically), the Appellate Body explained that the relevant measure was "geared to induce applicants for
funding to increase exports and, consequently, to promote export performance by Canadian companies."
(Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1055) (emphasis added).
We also recall that one of the relevant considerations in Canada – Aircraft in this context was "TPC's record of
funding in the export field". (Appellate Body Report, EC and certain member States – Large Civil Aircraft,
fn 2352). It is not entirely clear to us whether such language suggests that subsidies geared to induce future
export performance of a WTO Member overall, or of a particular company across all its product lines (e.g. a
subsidy programme under which benefits were made available only to inherently export-oriented sectors, or to
companies in order to develop new, export-oriented products) may satisfy the Export Inducement Test.
1235 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1054.
1236 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1045. (emphasis
added)
1237 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1047.

will not be tied to anticipated exportation if, all other things being equal, the
anticipated ratio of export sales to dome stic sales is not greater than the existing
ratio. In other words, if, under the measure granting the subsidy, the recipient would
not be expected to export more than two of the additional five units to be produced,
then this is indicative of the absence of a tie. By contrast, the granting of the subsidy
would be tied to anticipated exportation if, all other things equal, the recipient is
expected to export at least three of the five additional units to be produced. In other
words, the subsidy is designed in such a way that it is expected to skew the recipient's
future sales in favour of export sales, even though the recipient may also be expected
to increase its domestic sales.1238 (emphasis original; underline added)
6.692. Two paragraphs later, however, the Appella te Body report recalls that de facto export
contingency is:
{T}o be established on the basis of the total configuration of the facts, including the
design, structure, and modalities of operation of the measure granting the subsidy.
Indeed, the conditional relationship between the granting of the subsidy and export
performance must be objectively observable on the basis of such evidence in order for
the subsidy to be geared to induce the promotion of future export performance by the
recipient.1239 (emphasis added)
6.693. Moreover, in the very next paragraph, when discussing the perceived deficiencies of the
original panel report's analysis of the United States' Article 3.1(a) claim, the Appellate Body
explained that the focus of the de facto contingency issue is on:
{W}hat the government did, in terms of the design, structure, and modalities of
operation of the subsidy, in order to induce the promotion of future export
performance by the recipient. Indeed, whether the granting of a subsidy is conditional
on future expo rt performance must be determined by assessing the subsidy itself , in
the light of the relevant factual circumstances … . 1240 (emphasis original; footnote
omitted)
6.694. Later in its report, the Appellate Body again states that "{t}he issue of whether {the
Export Inducement Test} is met must be assessed on the basis of an examination of the measure
granting the subsidy and the facts surrounding the granting of the subsidy, including the design,
structure, and modalities of operation of the measure."1241
6.695. The Appellate Body report, therefore, is consistent in its emphasis on examining the
challenged measure's design, structure and modalities of operation when evaluating whether that
measure is de facto contingent on export performance. In contrast, the Appellate Body report does
not generally afford the Ratios Analysis equal stature. The Appellate Body report never states that
a Ratios Analysis can independently resolve the Export Inducement Test or that the performance
of a Ratios Analysis is a substitute for analysing ei ther the total configuration of the facts or the
relevant subsidy itself when attempting to detect whether that subsidy is contingent on export
performance. This strongly suggests to us the primacy – indeed, necessity – of examining the
subsidy itself when evaluating whether that subsidy is de facto contingent on export performance,
and further suggests to us that, in the absence of such an examination, a Ratios Analysis should
not independently resolve the Export Inducement Test.
6.696. In light of this observati on, we find it helpful to more specifically articulate the nature of
the relationship between the performance of an analysis of the design and structure of a subsidy

1238 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1048.
1239 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1050.
1240 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1051.
1241 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1056. See also
Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1052 ("Rather, where a
subsidy is granted to a recipient that is expected to export, this fact must be considered together with other
relevant factors, including the design, structure, and modalities of operation of the subsidy, as well as other
relevant factual circumstances surrounding the granting of the subsidy, in order to determine whether the
granting of subsidy is, as explained above, geared to induce the promotion of future export performance by the
recipient, and therefore 'in fact tied to … anticipated exportation'."). (emphasis original; underline added)

itself and a Ratios Analysis. The Appellate Body separately described the analysis of a su bsidy's
design and structure, on the one hand, and a Ratios Analysis, on the other hand, in the context of
discussing what evidence is material in a panel's evaluation of export contingency. The two
analyses, thus, must be distinct, at least to some apprec iable degree. In other words, the latter
cannot be simply a method of expressing the former analysis per se. We therefore recall that a
Ratios Analysis is, in essence, a comparison of the expected sales behaviour of a firm in the
absence and presence of a subsidy. We further recall that the firm's relevant sales behaviour in the
presence of the subsidy for purposes of conducting a Ratios Analysis is "the ratio of anticipated
export and domestic sales of the subsidized product that would come about in conseq uence of the
granting of the subsidy". 1242 The Appellate Body did not specify from what source such
expectations should arise. 1243 In our view, however, such expectations must be formed in the
presence of meaningful knowledge of a subsidy's terms including its d esign and structure (or
perhaps demonstrated expectations of such aspects that ultimately prove accurate), or else it
appears difficult to discern any meaningful manner in which a Ratios Analysis could assist in
detecting whether that subsidy is export contingent. This reasoning further appears consistent with
the Appellate Body's explanation that the Export Inducement Test – and, therefore, by extension,
a Ratios Analysis – "must be assessed on the basis of the information available to the granting
authority at the time the subsidy is granted" 1244 because, of course, a grantor will always have
meaningful knowledge regarding a subsidy that it grants. We therefore conclude that from
whatever source expectations regarding a firm's sales behaviours arise in the context of calculating
a relevant Anticipated Ratio, such expectations must be formed in the light of an understanding of
the subsidy's design and structure. In our minds, these observations underscore that a Ratios
Analysis is not a substitute for analysing a subsidy itself, yet it may be material insofar as it can be
interpreted as examining sales behaviours that reflect relevant influences of a subsidy.
6.697. Other aspects of the Appellate Body report, considered alongside the character of a Ratios
Analysis, further resonate with this reasoning. We recall that the Appellate Body, citing the need to
preserve distinct roles for Parts II and III of the SCM Agreement, has stressed that the discipline
contained in Article 3.1(a) in Part II of the SCM Agreement is not effects-based, but must be
activated by something in the "subsidy itself". 1245 In keeping with such guidance, the
Appellate Body has stressed that:
In setting out {the Export Inducement Test}, we do not suggest that the issue as to
whether the granting of a subsidy is in fact tied to anticipated exportation could be
based on an assessment of the actual effects of that subsidy. Rather, we emphasize
that it must be assessed on the basis of the information available to the granting
authority at the time the subsidy is granted.1246 (emphasis added)
6.698. We recall that a Ratios Analysis is a comparison of "the ratio of anticipated export and
domestic sales of the subsidized product that would come about in consequence of the granting of
the subsidy" and "the situation in t he absence of the subsidy." 1247 In other words, rather than
examining a subsidy itself, a Ratios Analysis examines what effects a subsidy is anticipated to have
on a recipient's sales behaviours. Hinging the outcome of the Export Inducement Test on such an
effects-based inquiry appears in tension with the Appellate Body's explanation that the
SCM Agreement's effects-based disciplines inhabit Part III, rather than Part II, of that agreement.
6.699. Additionally, there appears a related practical problem with using a Ratios Analysis as the
sole tool with which to detect export contingency within a relevant subsidy. That is, such

1242 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1047. (emphasis
original)
1243 Certain statements appear to suggest that such expectations should emanate from the granting
authority. (See e.g. Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1043
("Consistent with this understanding, it is the granting authority that 'anticipates' that exportation will occur
after the granting of the subsidy, and that grants a subsidy on the condition of such anticipated exportation.")
(emphasis original); and 1049 (explaining that the Export Inducement Test "must be assessed on the basis of
the information available to the granting authority at the time the subsidy is granted.") (emphasis added))
1244 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1049.
1245 See e.g. Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1049,
1051, and 1054.
1246 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1049.
1247 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1047. (emphasis
original)

ratification assumes that the presence or absence of shifts in a firm's sales behaviours upon which
the Ratios Analysis focusses correlate with the presence or absence of de facto export contingency
exhibited by a subsidy such that an examination of the subsidy itself becomes presumptively
superfluous in the accurate resolution of the Export Inducement Test. In our view, this assumption
is unreasonable. A Ratios Analysis compares a firm's sales behaviours regarding a specific product
vis-à-vis the relevant domestic and export markets occurring in the presence and absence of a
subsidy. As explained above, the manner in which a Ratios Analysis is c onstructed will likely
ensure that it captures, in some manner and to some degree, the relevant subsidy's influence. The
capacity of a Ratios Analysis, therefore, to isolate not only the impact of a subsidy on such sales
behaviours, generally, but further isolate the impact of export -contingent aspects of that subsidy
on such sales behaviours, specifically, is critical to its probative value. The Appellate Body
appeared to appreciate this; we note that the Appellate Body used the phrase "all other things
being equal" or "all other things equal" four times when discussing the probative value of a Ratios
Analysis:
 "Where the evidence shows, all other things being equal , that the granting of the subsidy
provides an incentive to skew anticipated sales towards ex ports, in comparison with the
historical performance of the recipient or the hypothetical performance of a profit -
maximizing firm in the absence of the subsidy, this would be an indication that the granting
of the subsidy is in fact tied to anticipated exp ortation within the meaning of
Article 3.1(a) and footnote 4 of the SCM Agreement."1248 (emphasis added)
 "The granting of the subsidy will not be tied to anticipated exportation if, all other things
being equal, the anticipated ratio of export sales to domest ic sales is not greater than the
existing ratio."1249 (emphasis original; underline added)
 "By contrast, the granting of the subsidy would be tied to anticipated exportation if, all other
things equal, the recipient is expected to export at least three of the five additional units to
be produced. In other words, the subsidy is designed in such a way that it is expected to
skew the recipient's future sales in favour of export sales, even though the recipient may
also be expected to increase its domestic sales."1250 (emphasis added)
 "Where the evidence shows, all other things being equal , that the granting of the subsidy
provides an incentive to skew anticipated sales towards exports, in comparison with the
hypothetical performance of a profit -maximizing firm in the absence of the granting of the
subsidy, this would be an indication that the granting of the subsidy is in fact tied to
anticipated exportation within the meaning of Article 3.1(a) and footnote 4 of the SCM
Agreement."1251 (emphasis added)
6.700. In our view, this phrase reflects the importance of isolating the effects of a subsidy on a
firm's sales behaviours when performing a Ratios Analysis.
6.701. It appears, however, that there are significant reasons to doubt that a panel will be able to
use a Ratios Analysis to isol ate either the impact of a subsidy on a firm's relevant sales
behaviours, generally, or the impact of export -contingent aspects of that subsidy on such sales
behaviours, specifically, to a reasonably precise degree. For example, isolating the influence (or
lack thereof) of a subsidy, generally, on a subsidy recipient's relevant sales behaviour appears to
carry inherent and significant uncertainties. This is so because whatever data a panel may use to
calculate relevant Anticipated and Baseline Ratios, all v ariables that may likely and materially
affect the data sets underlying each ratio will never truly be equal, and controlling for them would
appear a challenging proposition. 1252 Such variables include, for example, changes in demand,

1248 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1047.
1249 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1048.
1250 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1048.
1251 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1100.
1252 We recall that an Anticipated Ratio focusses on expectations regarding a subsidy recipient's sales
behaviours after the granting of the subsidy. We also recall that the Appellate Body described two methods for
formulating a Baseline Ratio, i.e. the Historic Baseline Method and the Hypothetical Baseline Method. Thus, a
comparison between the Anticipated Ratio and a Baseline Ratio will involve comparing either the same firm's
sales behaviours at different times or different firms' sales behaviours at potentially the same or different
times.

lawsuits, changing regul ation of markets, and changes in the relevant firm's management and
marketing strategies.1253 Moreover, even if a panel can reasonably isolate the influence (or lack
thereof) of a subsidy, generally, on a company's relevant sales behaviours in the context of
performing a Ratios Analysis, the Ratios Analysis can still yield misleading results when attempting
to detect export -contingent aspects of that subsidy. For example, assume that a government
grants a production subsidy to a firm that already satisfies the small, static demand for its product
in its home country. Further assume that the subsidy provides no incentive to the firm to favour
export sales over domestic sales. On these facts, it can be anticipated that the firm's expanded
production will be dedic ated exclusively to exports, thus skewing the Ratios Analysis in a manner
indicating the presence of de facto export contingency even though all other things – other than
the grant of the subsidy – have been held equal. This situation, therefore, yields a false positive
under the Export Inducement Test. In fact, the Appellate Body has stressed that this very scenario
should not run afoul of the Export Inducement Test: "{W}e do not suggest that the standard is
met merely because the granting of the subsidy i s designed to increase a recipient's production,
even if the increased production is exported in whole." 1254 Similar false positives could arise if a
production subsidy allows a firm to lower prices across all sales of a specific product, and the
company's export markets are known to exhibit higher elasticity of demand than does the relevant
domestic market.1255 Further, false negatives could arise if, for example, a subsidy is contingent on
a recipient firm meeting certain export targets, but such a condition is not anticipated to
meaningfully alter the recipient firm's historic sales behaviours for the foreseeable future.
6.702. In light of the above discussion, we conclude that a Ratios Analysis is incapable of
establishing that a given subsidy is de facto contingent on export performance in the absence of
any meaningful analysis regarding how a subsidy's design and structure contributes to the
presence of an incentive for a recipient to favour export sales over domestic sales. In cases in
which a Ratios Analysis has been performed, however, it may form a material aspect of the
analysis of whether a subsidy is contingent on export performance. We consider that this
conclusion accords with the great weight of the Appellate Body's guidance on this matter, and
resonates with relevant considerations regarding the design and structure of the SCM Agreement
and the inherent characteristics of a Ratios Analysis.
6.703. In so concluding, we note the United States' argument that examining the design,
structure and modalities of operatio n of a subsidy transforms the de facto export contingency
examination into a de jure analysis.1256 Indeed, it is true that de facto contingency can exist where
"a subsidy … is neutral on its face, or by necessary implication … does not differentiate between a
recipient's exports and domestic sales". 1257 We agree that the Appellate Body's emphasis on
examining the subsidy itself in this context indicates a potential degree of overlap between the
evidence used to establish de jure and de facto export contingency. It is far from clear, however,
that this potential overlap would make de facto and de jure export contingency inquiries
indistinguishable. To the contrary, any logical analysis of export contingency, whether de jure or
de facto , will start with an examinati on of the challenged measure in order to explore its
relationship of conditionality with actual or anticipated exportation. Indeed, as discussed above, in
Canada – Aircraft, far from forbidding examination of the subsidy's terms, the Appellate Body in
that case ratified the panel's substantial examination of the subsidy programme's terms and
conditions in determining that the subsidy was de facto export contingent.1258 Thus, although "the
evidence needed to establish de facto export contingency goes beyond a l egal instrument and
includes a variety of factual elements concerning the granting of the subsidy in a specific case" 1259,
this does not amount to a directive to ignore the legal instrument in a de facto contingency
inquiry.

1253 Indeed, one need only examine the Risk Factors section of an LCA company's annual report to see
the vast array of dynamic factors that can significantly alter relevant sales behaviours. (See e.g. Boeing Annual
Report 2011, (Exhibit EU-105), form 10-K and pp. 6-15).
1254 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1045. (emphasis
original)
1255 Such false positives may be particularly likely to arise if the relevant Anticipated Ratio was formed
on the basis of expectations formed in light of knowledge of the relevant markets in which the recipient
operates.
1256 United States' second written submission, paras. 306-310.
1257 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1056.
1258 See Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1055 (citing
the Canada – Aircraft analysis with approval).
1259 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1038.

6.5.3.7.2 Sufficiency of the United States' evidence
6.704. Given our conclusion that a Ratios Analysis is incapable of independently resolving the
Export Inducement Test and the prominence of the United States' relevant Ratios Analyses in its
submissions in this proceeding, we believe it prudent at this s tage to review what evidence the
United States offers in support of its claims that the A380 and A350XWB LA/MSF measures are de
facto contingent on export performance. We do so with an eye for determining whether the
United States has offered sufficient ev idence to potentially meet its burden of establishing a
prima facie case that the subsidies in question are de facto export contingent. As discussed below,
we conclude that the United States has not met its burden in this context with respect to any A380
or A350XWB LA/MSF measure.
6.5.3.7.2.1 A380
6.705. The United States describes the evidence that demonstrates de facto export contingency
regarding the A380 LA/MSF measures as follows:
The EU itself concedes the validity of the Panel's findings on "anticipation." In
combination with the results of the numerical test {i.e. the Ratios Analysis}, as well as
circumstantial evidence of de facto export contingency, including statements by EU
member officials and Airbus executives' statements, this same evidence also
demonstrates that LA/MSF for the A380 is de facto contingent on anticipated export
performance.1260 (footnotes omitted)
6.706. Thus, the United States purportedly relies on three types of evidence to support its
argument that it has demonstrated that the A380 LA/MSF measures are de facto contingent on
export performance at this stage of this dispute: (a) A Ratios Analysis indicating the presence of
de facto export contingency; (b) the evidence underlying the original panel's and the
Appellate Body's confirmation that the relevant Eu ropean Union member States anticipated
exportation or export earnings when they granted the A380 LA/MSF measures; and (c) other
circumstantial evidence including statements by European Union member State officials and Airbus
executives' statements. All of the pieces of "circumstantial evidence … including statements by EU
member officials and Airbus executives' statements" that the United States cites with respect to
the A380 in this context, however, were before and considered by the original panel during its
assessment of anticipation of exportation1261, an assessment that the Appellate Body subsequently
affirmed. The United States thus effectively relies only on a Ratios Analysis and the evidence that
was found to demonstrate anticipation of exportation to e stablish that the A380 LA/MSF measures
are de facto contingent on export performance.
6.707. The issue, therefore, becomes whether the United States' A380 Ratios Analysis, assuming
that it supports the reasoning that the A380 LA/MSF measures are de facto export contingent,
would be sufficient to establish such contingency when paired with the evidence demonstrating
anticipation of export performance. We answer this question in the negative. We have already
concluded that a Ratios Analysis is independently insuffi cient to demonstrate that a subsidy is
de facto export contingent. Rather, the United States must offer some analysis of the design,
structure and modalities of operation of the A380 subsidies themselves and some explanation
regarding how those subsidies p rovide an incentive to Airbus to favour export sales over domestic
sales. The United States' offered evidence pertaining to anticipation of exportation does not,
however, materially contribute to performing such tasks and establishing export contingency. We
first note that a finding of anticipated exportation pertains to an entirely different substantive
element of the Article 3.1(a) analysis and, therefore, such a finding cannot meaningfully underlie a
finding of de facto export contingency. Indeed, the Ap pellate Body has emphasized that the issue
of anticipated exportation is "quite separate from, and should not be confused with , the
examination of whether the subsidy is 'tied to' actual or anticipated exports". 1262 Nevertheless,

1260 United States' second written submission, para. 309.
1261 See United States' second written submission, para. 309 (citing United States' first written
submission, paras. 172-177 (describing such evidence)); and Panel Report, EC and certain member States –
Large Civil Aircraft, paras. 7.651-7.654 (describing same evidence). We note that paragraphs 172-176 of
United States' first written submission discuss the A380, while paragraph 177 discusses evidence with respect
to the A350XWB.
1262 Appellate Body Report, Canada – Aircraft, para. 172. (emphasis original)

despite the legal and concept ual distinctions between anticipation of exportation and export
contingency, we cannot completely discount the possibility that the record evidence underlying a
finding of the former cannot underlie a finding of the latter. In this vein we further recall t hat the
Appellate Body has indicated that evidence underlying anticipation of exportation can be relevant
to an export contingency inquiry.1263
6.708. Our attention therefore turns to considering whether the evidence underlying the finding of
anticipation of exporta tion for the A380 supports a finding of de facto export contingency to any
meaningful degree. We conclude that it does not. We discern no language in the Appellate Body
report indicating that the evidence that assisted in establishing anticipation of expor tation
materially supported a finding of de facto export contingency. We further detect no language in the
Appellate Body report indicating that such evidence materially helped populate the total
configuration of the facts relating to de facto export contingency or in any way assisted in the
identification of anything in the A380 LA/MSF subsidies themselves even potentially displaying
export contingency. To the contrary, the Appellate Body stated that "the Panel's findings do not
shed light on the question as to whether the fact that Airbus was anticipated to make a significant
number of export sales under the LA/MSF contracts is not simply reflective of conditions of supply
and demand undistorted by the granting of the subsidies." 1264 We similarly detect nothi ng in the
record suggesting that the A380 LA/MSF measures provide an incentive to Airbus to favour export
LCA sales over domestic LCA sales. 1265 In contrast, the record appears wholly consistent with the
notion that Airbus would wish to sell as many A380s as it could, wherever demand for such LCA
existed, even in the presence of A380 LA/MSF. Because the evidence underlying a finding of
anticipation of exportation, therefore, does not meaningfully contribute to a finding of de facto
export contingency, and the only remaining piece of evidence (i.e. an A380 Ratios Analysis) is
independently incapable of demonstrating such contingency, we find that the United States' claim
under Article 3.1(a) of the SCM Agreement regarding the A380 LA/MSF measures is unsupported
by sufficient evidence, and therefore fails.
6.5.3.7.2.2 A350XWB
6.709. The United States also argues that the A350XWB LA/MSF measures are de facto contingent
on export performance. Aside from offering a Ratios Analysis regarding the A350XWB, the
United States supports this argument with the same evidence that the United States used to
establish that the relevant European Union member State governments anticipated exportation
when they granted the A350XWB LA/MSF measures. 1266 Such evidence consists of: (a) the
A350XWB 2009 order book; (b) presentations highlighting Airbus' foreign customer base, Airbus'
export orientation, and Airbus' intention to exploit emerging economies; (c) certain statements by
officials of relevant European Union member State governments indicating a desir e to strengthen
the economies and exports of such member States and welcoming Airbus manufacturing facilities
in the territories of such member States as part of that goal; and (d) that the repayment
mechanisms contained in the A350XWB LA/MSF contracts ind icated that the European Union
member States must have been anticipating large numbers of exports of the A350XWB. We detect
nothing in this evidence, however, that indicates that the A350XWB LA/MSF measures provide an
incentive to Airbus to favour export s ales over domestic sales. The United States has offered no

1263 See Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1063.
1264 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1091.
1265 We note that the only way in which we discern that the A380 LA/MSF subsidies could be cast as
being geared to induce the promotion of future export performance by Airbus (i.e. that the measures were
granted to an export-oriented company because the grantor expected large numbers of exports, necessarily
increasing Airbus' and the European Union's absolute export levels and likely the European Union's export
orientation) has already been rejected by the Appellate Body as a basis upon which to find that the A380
LA/MSF measures are de facto export contingent.
1266 See United States' first written submission, paras. 189 ("For the same reasons that A380 LA/MSF is
de facto export-contingent, LA/MSF for the A350 XWB is as well. Namely, the nature, structure, and modalities
of operation indicate that it was geared to induce exportation, and the comparison of ratios shows a higher
share of anticipated exports with the subsidy than without.") (emphasis added), 190 (arguing that the
A350XWB LA/MSF contracts display relevant similarities with the A380 LA/MSF measures, namely that
repayment would be spread out over a large number of mainly export sales due to the success-dependent,
levy-based, back-loaded, and unsecured nature of the contracts), and 191 (arguing that the A350XWB LA/MSF
contracts were structured in anticipation of a large number of sales, many of which would necessarily have to
be export sales given the size of the EU market); and second written submission, para. 310 (making similar
arguments).

other relevant analysis how the design, structure and modalities of operation of the A350XWB
subsidies do so. We further detect nothing in the evidence offered by the United States in this
context, or anywhere else in the record, indicating that the A350XWB LA/MSF measures do so.
Rather, the record appears wholly consistent with the notion that Airbus would wish to sell as
many A350XWBs as it could, wherever demand for such LCA existed, even in the presence of
A350XWB LA/MSF.1267
6.710. Thus, as it did with respect to the A380 LA/MSF measures, the United States relies on two
types of evidence to demonstrate that the A350XWB LA/MSF measures are de facto contingent on
export performance, i.e. a Ratios Analysis a nd evidence establishing anticipation of exportation
that appears to offer no significant indication of the presence of de facto export contingency. We
recall that such evidence failed to establish de facto export contingency with respect to the A380
LA/MSF measures. We see no reason to alter that conclusion with respect to the A350XWB LA/MSF
measures. We conclude, therefore, that the United States' claim under Article 3.1(a) of the SCM
Agreement regarding the A350XWB LA/MSF measures is unsupported by suffi cient evidence, and
therefore fails.
6.5.3.7.3 Validity of the United States' Ratios Analyses
6.711. Immediately above, we concluded that the United States has offered insufficient evidence
in support of its claims that the A380 and A350XWB LA/MSF measures are de facto contingent on
export performance. Nonetheless, given the novel nature of the Export Inducement Test, and
certain ambiguities surrounding its relationship with a Ratios Analysis, we will proceed to consider
the validity of the United States' Ratios Analyses re garding the A380 and A350XWB LA/MSF
measures. This section proceeds in four parts. First and second, we examine the validity of the
United States' Anticipated Ratios for the A380 and A350XWB, respectively. Third, we examine the
validity of the United States' Baseline Ratios for the A380 and A350XWB. Finally, in light of those
examinations, we consider the utility of further examining the United States' Ratios Analyses.
6.5.3.7.3.1 Anticipated Ratio: A380
6.712. Consistent with the Appellate Body's guidance, the A380 Anticipa ted Ratio is the ratio of
anticipated export and domestic sales of the A380 that would come about in consequence of the
granting of the A380 LA/MSF measures. 1268 The United States argues that the Appellate Body
found that the A380 Anticipated Ratio could be c alculated from the Airbus 2000 Global Market
Forecast (the 2000 GMF), which the original panel had also considered. 1269 The United States
argues that the 2000 GMF forecasts the sales of 1,235 very large aircraft (VLA) between 2000 and
2019, and all these deli veries were anticipated to be satisfied by Airbus LCA, and "in particular"
the A380.1270 Because the 2000 GMF forecasts that the "Europe" market will account for 20% of
the projected 1,235 VLA deliveries, with 80% going to markets outside Europe 1271, the
United States calculates the A380 Anticipated Ratio as 1:4 (or 2:8).1272
6.713. The European Union responds to the United States' offered A380 Anticipated Ratio on three
fronts.1273 First, the European Union argues that because the 2000 GMF was issued before the

1267 We note that the only way in which we discern that the A350XWB LA/MSF subsidies could be cast as
being geared to induce the promotion of future export performance by Airbus (i.e. that the measures were
granted to an export-oriented company because the grantor expected large numbers of exports, necessarily
increasing Airbus' and the European Union's absolute export levels and likely the European Union's export
orientation) has already been rejected by the Appellate Body as a basis upon which to establish that a subsidy
is de facto export contingent.
1268 See Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1099
(describing the Anticipated Ratio).
1269 United States' first written submission, para. 183; and second written submission, paras. 318-325.
1270 See United States' response to Panel question No. 23, para. 63 (clarifying that the United States
argues that all projected 1,235 VLA sales were projected to be A380 sales).
1271 Airbus Global Market Forecast 2000-2019, July 2000, (Exhibit USA-68/EU-160 (exhibited twice)),
pp. 36-37.
1272 United States' first written submission, para. 183. The United States notes that this ratio may be
understated because the "Europe" market used in the 2000 GMF is geographically larger than the
European Union. (United States' first written submission, para. 184)
1273 See generally European Union's first written submission, paras. 405-412; and second written
submission, paras. 386-400.

conclusion of the challenged A380 LA/MSF measures, it cannot evidence the A380 Anticipated
Ratio. Second, the European Union argues that the 2000 GMF is a demand, rather than sales,
forecast, and thus cannot logically evidence the A380 Anticipated Ratio. Third, the Eur opean Union
argues that the 2000 GMF does not segregate data regarding the A380 specifically enough to draw
any conclusions regarding levels of anticipated sales for the A380.
The Airbus 2000 GMF: treatment by the Appellate Body
6.714. The United States argues that the Appellate Body concluded that the 2000 GMF provides a
sufficient evidentiary basis upon which to calculate the A380 Anticipated Ratio. In support of this
argument, the United States offers no evidence that the Appellate Body calculated an A380
Anticipated Ratio from the 2000 GMF, points to no explicit language in the Appellate Body report
stating that the 2000 GMF provides a sufficient basis upon which to calculate the A380 Anticipated
Ratio, and cites no language from the Appellate Body report indic ating that the Appellate Body
considered that it knew what the A380 Anticipated Ratio was. Nevertheless, the United States
argues that the Appellate Body never found that it could not calculate the A380 Anticipated Ratio,
finding only that it could not cal culate the A380 Baseline Ratio, and therefore the 2000 GMF must
have been sufficient to calculate the former.1274
6.715. We reject the United States' argument in this context. First, although it is true that the
Appellate Body found that it lacked an evidentiary ba sis upon which calculate an A380 Baseline
Ratio1275, it also explicitly indicated that it could not calculate an A380 Anticipated Ratio based on
the evidence before it: "{T}he evidence does not clearly indicate the proportion of export and
domestic sales Airbus would be expected to make under the LA/MSF contracts in question ."1276 In
fact, this statement appears in the very paragraph that discusses the 2000 GMF. Thus, even if the
United States is correct that the Appellate Body report focused principally on the i nability to
calculate an A380 Baseline Ratio in this context, we cannot infer from this fact that the
Appellate Body considered the A380 Anticipated Ratio to be a non-issue.
6.716. We therefore conclude that the Appellate Body report did not find that the 2000 GM F
provides a sufficient evidentiary basis upon which to calculate the A380 Anticipated Ratio. To the
contrary, we conclude that the Appellate Body found that the 2000 GMF provided an inadequate
evidentiary basis upon which to calculate the A380 Anticipated Ratio. For this independent reason,
we find that the 2000 GMF provides an inadequate basis upon which to calculate the A380
Anticipated Ratio.
The Airbus 2000 GMF: supply or demand forecast
6.717. The European Union argues that the 2000 GMF is a pure LCA demand forecast, and is
therefore incapable of illustrating an Anticipated Ratio for A380 sales because demand for LCA is
unaffected by supply-side financing instruments such as LA/MSF. 1277 The Appellate Body explained
that the 2000 GMF is a forecast "based on an es timate of fleet development of airlines around the
world, or of the regional distribution of global aircraft demand" and thus "relates to only the

1274 United States' first written submission, para. 183; second written submission, paras. 318-319; and
response to Panel question No. 32.
1275 The Appellate Body concluded that the original panel's findings and the undisputed facts on the
record were insufficient bases upon which to resolve the Export Inducement Test because they left open the
following issues: (a) "At what level would Airbus be anticipated to sell in the domestic and export markets
undistorted by the granting of the subsidies under the LA/MSF contracts in question", and (b) "the extent to
which Airbus would be expected to export in the absence of the … subsidies." (Appellate Body Report, EC and
certain member States – Large Civil Aircraft, para. 1098) (emphasis original). See also Appellate Body Report,
EC and certain member States – Large Civil Aircraft, paras. 1099-1101 (discussing absence of evidence with
which to calculate an A380 Baseline Ratio).
1276 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1092 (emphasis
added). See also Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1094
("Moreover, as noted above, the {2000) GMF forecast of 1,235 sales globally and 247 sales in 'Europe' is
reflective of conditions of supply and demand in an industry that is highly export-oriented.").
1277 See European Union's second written submission, paras. 396-397.

existing condition of worldwide demand by airlines".1278 Further, the Appellate Body states in the
paragraph discussing the 2000 GMF that:
{T}he evidence does not clearly indicate the proportion of export and domestic sales
Airbus would be expected to make under the LA/MSF contracts in question. Thus, the
evidence does not give an indication as to the proportion of its production that Airbus
would be expected to sell in the domestic and export markets undistorted by the
granting of the LA/MSF subsidies at issue. The evidence therefore does not help to
show whether the LA/MSF subsidies were granted so as to give Airbu s an incentive to
skew its future sales in favour of export sales.1279 (emphasis added)
6.718. Consistent with this treatment, the Appellate Body never describes the 2000 GMF as a
supply forecast. Moreover, the 2000 GMF is consistent with the Appellate Body's description of it
as a demand forecast. Most strikingly, the 2000 GMF explicitly states that it is "a pure demand
forecast"1280, and consistently refers to data regarding LCA deliveries as relating to "demand". 1281
We therefore conclude that the 2000 GMF is, at least principally, a demand forecast rather than a
supply forecast, suggesting that it is of limited relevance for calculating the A380 Anticipated
Ratio, which focusses on the anticipated numbers of export and domestic sales (i.e. supply) of the
A380.
6.719. We recognize, however, the possibility that the 2000 GMF could function as both a demand
and supply forecast for certain purposes. This would be so if it were anticipated that Airbus would
supply its VLA (including, of course, the A380) to various markets in propor tion to the relative VLA
demand levels in those markets. The Appellate Body report suggests that the Appellate Body, to
some extent, accepted this assumption: "The fact that demand by non -European airlines was
projected at 988 {VLA} and demand by European airlines at 247 {VLA} simply shows that Airbus
is an export -oriented company." 1282 This interpretation, however, critically undermines the
United States' case in this context. This is so because if Airbus' VLA sales – including A380 sales –
in the presence of the A380 LA/MSF measures were anticipated to occur in the domestic market
and export market in accordance with demand distribution, then this is simply to say that the
A380 LA/MSF measures do not induce Airbus to sell A380s contrary to relevant market for ces at
all. In other words, the 2000 GMF would constitute evidence that the A380 LA/MSF measures do
not provide an incentive to Airbus to favour export sales over domestic sales, in turn strongly
suggesting that even if the United States could produce a Ratios Analysis using the 2000 GMF that
indicated skewing indicative of export contingency, such a result would be a false positive.
6.720. We therefore conclude that the 2000 GMF either cannot evidence the A380 Anticipated
Ratio because it cannot logically eviden ce the anticipated sales of the A380 in the relevant
domestic and export markets, or supports the conclusion that the A380 LA/MSF measures are not
de facto contingent on export performance.

1278 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1092 (emphasis
added; footnote omitted). The Appellate Body report also states that "{a}mong the evidence examined by the
Panel, the only piece that shows market conditions undistorted by the granting of the subsidies under the
LA/MSF contracts at issue relates to the demand side, namely the projected demand for LCA by airlines
worldwide", i.e. the 2000 GMF. (Appellate Body Report, EC and certain member States – Large Civil Aircraft,
para. 1098) (emphasis added)
1279 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1092. We note
that this statement as a whole is somewhat ambiguous. The first sentence references sales "under the LA/MSF
contracts", or relating to the Anticipated Ratio. The second sentence references sales "in the domestic and
export markets undistorted by the granting of the LA/MSF subsidies", or relating to the Baseline Ratio. It is
therefore unclear how the second sentence follows from the first. The language in the third sentence, however,
directly suggests that the 2000 GMF is generally unhelpful in this context.
1280 Airbus Global Market Forecast 2000-2019, July 2000, (Exhibit USA-68/EU-160 (exhibited twice)),
p. 11.
1281 See e.g. Airbus Global Market Forecast 2000-2019, July 2000, (Exhibit USA-68/EU-160 (exhibited
twice)), pp. 3 ("Demand for passenger aircraft deliveries"), 10 (caption of text box stating that "{d}emand is
forecast in 19 categories {of LCA}"), 11 ("demand for aircraft deliveries"), and 27 (section heading reading
"Demand for passenger aircraft deliveries").
1282 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1092.

The Airbus 2000 GMF: anticipation of the A380 LA/MSF measures
6.721. The United States and European Union dispute whether the 2000 GMF can be properly said
to reflect the anticipation of the receipt of the A380 LA/MSF measures because it was authored
before the conclusion of at least certain such measures. 1283 We recall our earlie r discussion in
which we recognized that the expectations regarding a relevant firm's sales behaviour upon which
an Anticipated Ratio is based must have been formed in the presence of meaningful knowledge of
a subsidy's terms including its design and structure (or perhaps demonstrated expectations of such
aspects that ultimately prove accurate). We appreciate, therefore, the parties' disagreement on
this score. In our view, however, our discussion in the preceding section effectively moots this
issue. Immed iately above, we concluded that the 2000 GMF is a demand, rather than supply,
forecast. We detect no logical way, therefore, in which the 2000 GMF can reflect the influence of
supply-side financing, such as A380 LA/MSF, that may meaningfully assist in the formulation of an
A380 Anticipated Ratio. The United States has further provided no basis upon which to reason that
demand for LCA was somehow influenced by Airbus' receipt of A380 LA/MSF in a relevant manner.
Under the circumstances, therefore, we decline to address this issue any further.
The Boeing 2000 CMO
6.722. The United States proposes that the Boeing 2000 Current Market Outlook (the 2000 CMO)
may be used as "a potential alternative to Airbus's 2000 GMF for calculating the {A380 Anticipated
Ratio}."1284 The United States derives an A380 Anticipated Ratio of 1:4.84 from this document. 1285
The document is dated September 2000, and forecasts how many LCA deliveries will occur
between 2000 and 2019 to certain geographic markets (e.g. Europe; Asia -Pacific) by type of
aircraft (e.g. twin -aisle; 747 and larger). 1286 The aircraft types include both Boeing and Airbus
LCA.
6.723. We detect two fundamental problems with the United States' attempts to use the 2000
CMO as a basis upon which to calculate the A380 Anticipated Ratio. First , the Boeing 2000 CMO
appears to be an LCA demand forecast, and therefore suffers from the same flaws from which the
2000 GMF suffers in this context, discussed above. 1287 Second, the United States offers no
evidence indicating that Boeing knew or anticipated the terms of any of the challenged A380
LA/MSF measures at the time Boeing produced the 2000 CMO. In our view, therefore, even if
Boeing had produced the document with the knowledge or belief that Airbus had received and/or
would receive member State fina ncial assistance regarding the A380 programme, and further
assuming that the document reflects Boeing's best guess regarding what Airbus' A380 sales
behaviour was anticipated to be in the presence of member State financial assistance, such
anticipation is of the wrong kind in this context. We again recall that the expectations regarding a
relevant firm's sales behaviour upon which an Anticipated Ratio is based must have been formed in
the presence of meaningful knowledge of a subsidy's terms including its d esign and structure (or
perhaps demonstrated expectations of such aspects that ultimately prove accurate). We detect no
evidence in the record, however, demonstrating that Boeing displayed any such knowledge or
prescience regarding the A380 LA/MSF contracts in drafting the 2000 CMO.1288 We therefore reject
the 2000 CMO as a basis upon which to calculate an A380 Anticipated Ratio.

1283 See e.g. United States' response to Panel question No. 24; and European Union's comments on the
United States' response to Panel question No. 24.
1284 United States' second written submission, para. 316.
1285 United States' second written submission, para. 316.
1286 Extract from Boeing Current Market Outlook 2000, Appendices, pp. 45-46, (Exhibit USA-81); and
"Demand for Air Travel", extract from Boeing Current Market Outlook 2000, pp. 20-27, (Exhibit EU-167).
1287 Extract from Boeing Current Market Outlook 2000, Appendices, pp. 45-46, (Exhibit USA-81), cover
page ("World demand for commercial airplanes"). (emphasis added)
1288 We note that even if Boeing had anticipated that the A380 would receive LA/MSF-type measures, no
previously granted LA/MSF measure has been found to be contingent on export performance. We further note
that, as discussed at length further above, that the aspects of the A380 LA/MSF subsidies themselves that the
United States has identified in this context, which Boeing may have been able to anticipate to some degree had
it anticipated that the A380 programme would receive member State financial support, do not materially
contribute to any finding that the A380 LA/MSF measures are contingent on export performance.

Other supporting evidence offered by the United States
6.724. The United States offers three other pieces of evidence that it argues " support the use of
an {A380} 'anticipated' ratio at least as high as {1:4}". 1289 The United States describes this
evidence as follows:
 In its 1999 GMF, Airbus predicted that large civil aircraft operators around the
world would need to acquire a total of 1,208 new passenger aircraft with more
than 400 seats during the 1999 -2018 period. Airbus stated that the Asia -Pacific
region was "dominating demand" for aircraft of that size, and that 55 percent of
the orders for such aircraft would come from that region, includi ng China. By
contrast, Airbus predicted that the market in "Europe" ( i.e. EU and also non-EU
European countries) would represent only 23 percent of total demand for
aircraft with more than 400 seats – implying an even smaller share for the EU
alone.
 Airbus repeated this assertion in its application for German LA/MSF for the
A380, in which it forecast that [***].
 As noted above, in 1999 and 2000, Airbus published a series of "A3XX Briefings"
that discussed the fact that most demand for the A380 would be outs ide
Europe. For example, the Third Quarter 1999 edition stated: "The market for
large { } aircraft will be concentrated: both geographically, with over half the
projected deliveries expected to go to airlines domiciled in the Asia -Pacific
region, and in te rms of customers, with 20 airlines taking more than 7{0}% of
aircraft."1290 (emphasis original; bold original; footnotes omitted)
6.725. We emphasize that the United States never argues that we can use such evidence as a
basis upon which to calculate a reasonably re liable A380 Anticipated Ratio that indicates the
presence of de facto export contingency. We conclude, however, that even if the United States had
asked us to do so, we cannot. The 1999 GMF 1291 was on the record before the Appellate Body, and
the Appellate Body never indicated that this GMF materially contributed to the calculation of the
A380 Anticipated Ratio. 1292 Further, the 1999 GMF appears to be a demand rather than supply
forecast and therefore suffers from the same flaws from which the 2000 GMF suffers. T he German
A380 LA/MSF application was also on the record before the Appellate Body, and the Appellate Body
only indicated that the document contributed to a finding of anticipation of exportation, rather than
export contingency.1293 Further, it does not appea r to contain any specific information regarding
into what geographic markets the A380, specifically, was expected to be sold. 1294 Like the
1999 GMF, the Third Quarter 1999 A3XX Briefing was on the record before the Appellate Body, and
the Appellate Body never indicated that it materially contributed to the calculation of the A380
Anticipated Ratio.1295 Moreover, the relevant excerpt from the Third Quarter 1999 Briefing, quoted
above, refers only to markets for, and deliveries of, "large aircraft" with no indicati on what LCA
comprise this category and no indication regarding what numbers of A380s were predicted to be

1289 United States' first written submission, para. 185. (emphasis added)
1290 United States' first written submission, para. 185. (Airbus, Briefing 3rd quarter, 1998, (Original
Exhibit US-359), (Exhibit USA-69); Airbus Global Market Forecast 1999, (Exhibit USA-285); Daimler Chrysler
Aerospace Airbus, "Launch aid application regarding the development project Airbus A3XX", request to the
Bundesministerium für Wirtschaft und Technologie, 21 October 1999, (Original Exhibit US-357), (Exhibit USA-
286) (BCI); and [[HSBI]] Exhibit USA-294 (HSBI)).
1291 Airbus Global Market Forecast 1999, (Exhibit USA-285). In fact, the United States itself takes the
position that the 1999 GMF is even less relevant than the 2000 GMF for purposes of calculating the A380
Anticipated Ratio. (See United States' second written submission, para. 320)
1292 See Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1073.
1293 See Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1073, 1079,
and 1095.
1294 Daimler Chrysler Aerospace Airbus, "Launch aid application regarding the development project
Airbus A3XX", request to the Bundesministerium für Wirtschaft und Technologie, 21 October 1999, (Original
Exhibit US-357), (Exhibit USA-286) (BCI), pp. 2 (indicating how many A380s were expected to be sold until
2021, but not indicating into what markets they were expected to be sold) and 15 (indicating that [***]).
1295 See Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1073.

sold into what geographic markets. 1296 In our view, such deficiencies demonstrate that these
additional documents cannot be used to determine a reasonably reliable A380 Anticipated Ratio.
6.726. We therefore conclude that we either cannot calculate an A380 Anticipated Ratio to any
reasonable degree of accuracy from the relevant evidence offered by the United States, or that the
evidence offered by the United States regarding the A380 Anticipated Ratio indicates that the A380
LA/MSF subsidies are not de facto contingent on export performance.
6.5.3.7.3.2 Anticipated Ratio: A350XWB
6.727. The United States uses Airbus' publicly available A350XWB order book data as from the
end of [***]1297 – the year in which Airbus and the member States began concluding the
A350XWB LA/MSF contracts – to calculate the A350XWB Anticipated Ratio. 1298 The United States
claims that such data were "certainly … known to {the relevant member State} governments at
the time of each decision {to conclude the A350XWB LA/MSF contracts}, providing the best
available proxy for the foreign versus domestic distribution of Airbus' future deliveries of A350
XWBs."1299 The United States claims such data reveal an Anticipated Ratio of 1:10.7, or
approximately 2:21 in whole numbers, in [***].1300 The United States asserts that this number is
conservative. This is so because using Airbus order data as they existed at the beginning of
[***], the month in which Airbus concluded the first A 350XWB LA/MSF contract, would result in a
higher Anticipated Ratio of 1:21 instead of 2:21.1301
6.728. The European Union first argues that because the data that the United States uses from
the Airbus A350XWB order book precede the conclusion of the A350XWB LA/MSF m easures, they
cannot evidence the A350XWB Anticipated Ratio 1302, and, therefore, the United States' argument
suggests that "the ratios with and without the financing arrangements are the same". 1303 In
response to the United States' claim that taking the data fro m Airbus' order book as of [***]
yields a much higher A350XWB Anticipated Ratio, the European Union asserts that "simply varying
the end of the relevant data period by six months (from the [***]) produces wild and arbitrary
changes in the result achieved" and therefore "merely serves to illustrate that the whole approach
adopted by the United States, and the data on which it seeks to rely, is misconceived, unreliable
and arbitrary". 1304 Finally, the European Union argues that "the Appellate Body has already
considered {the} type of evidence {upon which the United States relies in this context} and
rejected it" because "this type of evidence relates only to the existing condition of worldwide
demand by airlines and that it does not help to demonstrate that finance is granted so as to give
Airbus an incentive to skew its future sales in favour of exports."1305
6.729. We conclude that we cannot use the Airbus [***] order book data to calculate an
A350XWB Anticipated Ratio that advances the United States' claim to any reasona bly reliable
degree under the circumstances. At the outset, we note that it is somewhat unclear to us precisely
how the United States wishes to cast the A350XWB order data as evidencing the A350XWB
Anticipated Ratio. The A350XWB Anticipated Ratio is the ra tio of anticipated domestic to export
sales of the A350XWB that would come about in consequence of the granting of the A350XWB
LA/MSF measures. We further note that the A350XWB order data that the United States offers in
this context are not a forecast of anticipated A350XWB order levels, but actual order levels that

1296 Airbus, Briefing 3rd quarter, 1998, (Original Exhibit US-359), (Exhibit USA-69).
1297 Ascend database, Gross Orders and Year End Backlog A330, A350, 777 and 747, 1990-2011, as of
14 February 2012, (Exhibit USA-293).
1298 The United States claims that examining backlog order data from 2006, when the A350XWB was
launched, would be relevant as well, but claims that such relevant data are unavailable. (United States' first
written submission, fn 309)
1299 United States' first written submission, para. 194 (footnote omitted). See also United States' second
written submission, paras. 326-327.
1300 United States' first written submission, para. 195.
1301 United States' second written submission, paras. 327-328 (citing European Union's first written
submission, para. 1120 (in turn citing A350XWB orders that were taken "{b}y [***]" in Ascend database,
Orders, data request as of 26 June 2012, (Exhibit EU-19))).
1302 European Union's first written submission, para. 421; and second written submission, para. 412.
1303 European Union's second written submission, para. 413.
1304 European Union's second written submission, para. 413.
1305 European Union's first written submission, para. 422 (citing Appellate Body Report, EC and certain
member States – Large Civil Aircraft, para. 1092). (emphasis original; footnotes omitted)

had accumulated up until a specific point in time. We therefore detect two conceptual ways in
which the United States may attempt to use such actual order data to evidence the A350XWB
Anticipated Ratio. Both methods rely on the notion that a snapshot of Airbus' A350XWB order book
vis-à-vis certain geographic markets at a specific point in time will evidence Airbus' anticipated
proportional levels of future A350XWB deliveries into, or future A35 0XWB orders with respect to,
those geographic markets. First, the United States appears to suggest that, because Airbus
expected to receive the A350XWB LA/MSF subsidies from the member States since the launch of
the A350XWB in December 2006, all A350XWB or ders that had accumulated up until either [***]
evidence the Anticipated Ratio because such order data actually reflect Airbus' A350XWB sales
behaviour vis-à-vis certain geographic markets in the presence of anticipation of receipt of the
A350XWB LA/MSF su bsidies. Airbus would, therefore, be expected to continue with such sales
behaviour following the grant of the A350XWB LA/MSF subsidies. 1306 Second, Airbus may not have
had relevant anticipation of the receipt of the A350XWB LA/MSF measures before [***], but as of
that month it did have such relevant anticipation going forward, and thus the A350XWB order
book, beginning at that time, evidenced what Airbus' likely A350XWB sales behaviour would be
moving forward.1307
6.730. The first method described above suffers from t wo fundamental flaws. We recall that the
expectations regarding a relevant firm's sales behaviour upon which an Anticipated Ratio is based
must have been formed in the presence of meaningful knowledge of a subsidy's terms including its
relevant design and structure (or perhaps demonstrated expectations of such aspects that
ultimately prove accurate). But, because the United States supports its export -contingency
arguments without any reference to material aspects of the subsidies themselves that produce
export contingency, and the first A350XWB LA/MSF contract was concluded in [***], we lack any
basis upon which to conclude that Airbus anticipated anything relevant regarding the subsidies at
any point during which the A350XWB order data accumulated. 1308 Moreover, the nature of the
order data is troubling for another reason. The A350XWB order book, at any given point in time,
represents a snapshot of the geographic distribution of accumulated A350XWB sales, not the total
number of anticipated sales into any given geographic market. We further note that all of Airbus'
A350XWB sales will occur in one of the two relevant markets in this context (i.e. the domestic
market and export market). This, of course, means that with each A350XWB order received the
snapshot changes, in turn altering the A350XWB Anticipated Ratio, often to a significant degree.
As the United States itself notes, the A350XWB Anticipated Ratio, calculated on the basis of the
A350XWB order book, changes significantly from [***] to year -end [***]. The United States
points to no reason why the A350XWB LA/MSF subsidies, or Airbus' anticipated receipt of such
subsidies, can account for such dynamism. Neither does the United States point to any relevant
range of domestic-to-export sales that the dynamic Anticipated Ratio operates within or upon what
ratio such dynamic shifts may converge. In our view, we cannot use data that display such
significant dynamism, in the absence of any explanation of how to control or account for it, to
produce a reasonably reliable A350XWB Anticipated Ratio.
6.731. The second method described above supports the conclusion that the A350XWB LA/MSF
measures are not de facto contingent on export performance. This is so because it compels the
conclusion that Airbus would be expected to follow materially the same sales behaviour both in the
presence and absence of the A350XWB LA/MSF measures.
6.732. We therefore conclude that we either cannot calculate an A350XWB Anticipated Ratio to
any reasonable degree of accuracy from the relevant evidence offer ed by the United States, or
that the evidence offered by the United States regarding the A350XWB Anticipated Ratio indicates
that the A350XWB LA/MSF subsidies are not de facto contingent on export performance.

1306 See United States' second written submission, para. 327.
1307 See United States' first written submission, para. 194.
1308 Even if Airbus had anticipated that the A350XWB programme would receive LA/MSF-type measures,
no previously granted LA/MSF measure has been found to be contingent on export performance. We further
note that, as discussed at length further above, that the aspects of the A350XWB LA/MSF subsidies themselves
that the United States has identified in this context, which Airbus may have been able to anticipate to some
degree had it anticipated the A350XWB programme would receive member State financial support, do not
materially contribute to any finding that the A350XWB LA/MSF measures are contingent on export
performance.

6.5.3.7.3.3 Baseline Ratios: A380 and A350XWB
6.733. The United States also offers A380 and A350XWB Baseline Ratios. The United States
constructs these two ratios in a similar manner, relying upon historic sales data of the Boeing 747
from the 1997 -2001 period for the A380 Baseline Ratio 1309 and historic sales data of the Boeing
777 from the 2004 -2009 period for the A350XWB Baseline Ratio. 1310 The European Union raises
multiple objections in relation to both Baseline Ratios.1311
6.734. We recall that the Appellate Body has articulated two permissible methods with which to
construct Bas eline Ratios, i.e. the Historic Baseline Method and the Hypothetical Baseline
Method.1312 The Historic Baseline Method involves the use of sales data of the "same product" or,
in this case, the "same LCA model". 1313 It is apparent that sales data pertaining to t he 777 and
747 do not satisfy this criterion with respect to the A350XWB or A380. These data, therefore,
cannot be used to calculate Baseline Ratios for either the A350XWB or A380 under the Historic
Baseline Method.1314
6.735. The Hypothetical Baseline Method shoul d reflect "the hypothetical performance of a profit -
maximizing firm in the absence of the subsidy". 1315 In our view, there are a number of reasons
why the sales data the United States relies upon relating to the 777 and 747 cannot be used to
construct the hyp othetical sales performance of a profit -maximizing firm with respect to the
A350XWB or A380 in the absence of the relevant subsidies.
6.736. First, we note that LCA are imperfect substitutes and display material differences that can
affect customer preferences i n the context of complex sales campaigns in which customers
consider a multitude of factors. Moreover, as we explain in more detail elsewhere in this Report,
the 777 does not only compete with the A350XWB, but also the A330 (and over the 2004 -2009
period, also the A340). Similarly, the A350XWB competes with three families of Boeing twin -aisle
LCA, the 767, 777 and 787. 1316 The variance between LCA products (or LCA models) and their
relative competitive interactions are likely to lead to differences in sales be haviours regarding such
products, including differences in relevant geographic sales distributions.1317 It is also true that the
territory in which an LCA is produced has important implications for the geographic spread of its
sales.
6.737. The United States, however, argues that differences resulting from the fact that Airbus and
Boeing produce LCA in different territories (having, therefore, different domestic and export
markets), strengthen rather than vitiate, the validity of the 777 and 747 sales data. This is so
because the record shows that Airbus and Boeing can each sell LCA into their respective domestic
markets more easily than the other. Thus, according to the United States, adjusting the relevant
sales data to control for this difference would " result in an even wider gap between the

1309 United States' first written submission, paras. 186-187. The United States does not dispute that the
Appellate Body determined that it could not calculate an A380 Baseline Ratio using the original panel's findings
and the undisputed evidence on the record of the original proceeding. (See e.g. United States' first written
1310 United States' first written submission, para. 196.
1311 See e.g. European Union's second written submission, paras. 401-422.
1312 It is not entirely clear to us whether the United States considers the 777 and 747 Baseline Methods
to be exercises of the Historic and/or Hypothetical Baseline Methods.
1313 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1047 and 1099.
1314 We note that if we were to treat the A350XWB order data that had accumulated up until [***] as
evidencing the A350XWB Baseline Ratio, this would directly suggest the conclusion that the A350XWB LA/MSF
measures are not de facto export contingent under a Ratios Analysis. This is so because the A350XWB
Anticipated and Baseline Ratios would rely on the same order data, resulting in identical ratios.
1315 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1047. We note
that the original panel and Appellate Body left open the possibility that, without direct A380 LA/MSF, the A380
would not have been launched. Thus, this analysis appears to technically assume that, in the absence of A380
LA/MSF, the Baseline Ratio would be something other than 0:0. As discussed above, however, even adopting
this assumption arguendo, we still must reject the United States' A380 Baseline Ratio.
1316 See below paras. 6.1362-6.1370 and 6.1406-6.1410.
1317 See Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1099
(explaining that historic sales of one Airbus LCA model would be of limited relevance in determining a Baseline
Ratio for a different Airbus LCA model because, inter alia, "each … {Airbus} LCA model was … new, distinct and
developed under a different project", a general concern that appears to apply equally as among Airbus and
Boeing LCA).

{Anticipated and Baseline} ratios, and thus an even more pronounced pattern of de facto export
contingency."1318
6.738. In our view, the United States' observation attempts to control for differences between the
geographic locations of LCA manufacturers but not the relevant products themselves. Moreover, it
suggests that there may well be differences beyond those relating to the LCA products themselves
that may need to be factored into an assessment of the geographic locations in which a
hypothetical profit maximizing LCA producer could sell the A380 or the A350XWB. For instance,
Boeing and Airbus may have historic or political advantages in selling their LCA into different
geographic export markets as well. All of these considerations s uggest that the historic sales data
concerning the 777 and the 747 would not be reliable proxies for a hypothetical profit -maximizing
firm's sales of the A350XWB and the A380 in the absence of the subsidy.
6.739. Second, it is uncontested that Airbus and Boeing possess incumbency advantages of
varying degrees with respect to different LCA customers (arising from, for example, the desire for
commonality by LCA purchasers), making it easier for Airbus and Boeing to sell their LCA –
including twin-aisle LCA – to tho se different respective customer bases. Because a hypothetical
profit maximizing producer selling the A380 and the A350XWB would not, by definition, have the
same incumbency advantages as Boeing, relying upon Boeing's historic sales data pertaining to
the 777 and 747 would appear to be problematic.
6.740. Third, we note that one of the years for which the United States presents historic sales
data in relation to the 747 is 2001, when it would have been facing competition from the
subsidized A380. Likewise, the 77 7 competed against the subsidized A350XWB for orders in the
latter part of the 2004 -2009 period. Thus, the actual 747 and 777 sales data the United States
relies upon are, at least in part, affected by sales of the very subsidized Airbus aircraft which the
United States' proposed Baseline Ratios are supposed to approximate.
6.741. Finally, we note that because Airbus and Boeing are different companies, they are likely to
possess other relative sales advantages (or disadvantages) and employ different marketing
strategies. Thus, it does not necessarily follow that Boeing's sales experience would be an
appropriate proxy for that of a hypothetical profit maximizing LCA producer trying to sell the
A350XWB or the A380. This is not to say that data pertaining to the sale s of an actual LCA product
of an LCA company that is different to Airbus can never serve as a basis upon which to construct
the hypothetical sales of the another competitive product in the absence of relevant subsidization.
Nevertheless, such considerations illustrate that in order to be reliable, adjustments must be made
to account for the complexities of the LCA marketplace. In our view, the United States has not
done enough to account for these factors.
6.742. Thus, for all of the above reasons, we cannot acce pt the United States' Baseline Ratios
with respect to either the A380 or A350XWB, and decline to further examine the parties'
arguments on this subject.
6.5.3.7.3.4 Ratios Analyses: A380 and A350XWB
6.743. The United States claims that comparing its A380 and A350XWB Baseline Ratios and
Anticipated Ratios yields Ratios Analyses that indicate that the A380 and A350XWB LA/MSF
measures are de facto contingent on export performance. The European Union disputes these
claims. Above, we have concluded that the United States has not p rovided Baseline Ratios or
Anticipated Ratios with respect to either the A380 or the A350XWB that advance the United States'
claim under Article 3.1(a) of the SCM Agreement. In the absence of such ratios, A380 and
A350XWB Ratios Analyses are not possible a nd arguments concerning those analyses become
effectively moot. Under such circumstances, we decline to further address the parties' arguments
regarding the Export Inducement Test and Ratios Analyses.

1318 United States' second written submission, para. 315. See also United States' response to Panel
question No. 33 (arguing, incorrectly in our view, that it is the European Union's burden to demonstrate that
differences between the relevant LCA detract from the relevance of the 777 and 747 sales data in this context).

6.5.3.8 Conclusion
6.744. We find that the United States has failed to demonstrate that any A380 LA/MSF measure
or A350XWB LA/MSF measure is de facto contingent on export performance. We therefore reject
the United States' claim under Article 3.1(a) of the SCM Agreement with respect to such measures.
6.5.4 Whether the LA/MSF measu res for the A350XWB are prohibited import
substitution subsidies
6.5.5 Introduction
6.745. The United States claims that each of the four A350XWB LA/MSF measures is contingent
on the use of domestic over imported goods, and therefore each is a prohibited subsid y under
Articles 3.1(b) and 3.2 of the SCM Agreement. The United States argues that this is so because
each measure is contingent on Airbus producing certain LCA components – including but not
limited to A350XWB components – in the territories of the member States granting the A350XWB
LA/MSF measures, components that Airbus will then use in downstream LCA production activities.
6.5.6 Arguments of the United States
6.746. The United States argues that the French, German, Spanish, and UK A350XWB LA/MSF
measures1319 are de jure and/or de facto contingent on the use of domestic over imported goods,
and are therefore prohibited subsidies under Articles 3.1(b) and 3.2 of the SCM Agreement.1320 In
so arguing, the United States refers to two types of relevant agreements among the member
States and Airbus. First, the United States refers to so -called "workshare agreements" (the
Workshare Agreements) between Airbus and the member States. In this context, the United States
claims that Airbus has long pursued a decentralized but coordinated produc tion strategy in which
its LCA production activities occur, inter alia , within the territories of the relevant member
States.1321 The United States claims that the member States:
{G}ranted LA/MSF for {the A350XWB} in exchange for a commitment by Airbus to
locate a fixed share of the total production work for the aircraft in each country. These
"workshare agreements" required Airbus to produce certain components in the
territory of each of the relevant member States, and then use those subassemblies
and components in the production of the finished aircraft. As the grant of LA/MSF was
tied to these workshare agreements, it was contingent upon the use of domestic
goods and, therefore, inconsistent with Article 3.1(b) of the SCM Agreement.1322
6.747. The United States submi ts press reports, government documents and statements of
government officials that it claims demonstrate the existence of these Workshare Agreements.
6.748. Second, the United States refers to the A350XWB LA/MSF contracts themselves, which the
United States argue s reflect the Workshare Agreements and contain terms that display de jure
and/or de facto contingency on the use of domestic over imported goods. The United States

1319 The United States also claims that the A380 LA/MSF measures are prohibited subsidies under
Article 3.1(b) of the SCM Agreement in this compliance proceeding. We recall our earlier finding in this Report,
however, that that claim is outside the scope of this proceeding.
1320 See generally United States' first written submission, paras. 202-216 and 230-239; and second
written submission, paras. 331-356.
1321 United States' first written submission, para. 203.
1322 United States' first written submission, para. 202. See also United States' first written submission,
paras. 203 ("These 'workshare agreements' amount to a requirement that, to receive LA/MSF, Airbus must
manufacture certain components of the aircraft within the EU, which accordingly become domestic products of
the EU, and then use those domestic products in its aircraft."), 204 ("The workshare agreements also specify
where Airbus will produce certain components of its large civil aircraft. In other words, the workshare
agreements determine not only how much of the work must take place in each EU member State, but they also
require the conduct of certain manufacturing tasks in specific countries.") (emphasis original), and 230
("Nonetheless, publicly available evidence confirms that France, Germany, Spain, and the UK granted LA/MSF
for the A350 XWB in exchange for workshare commitments that required the company to produce components
in each country and use them in the finished aircraft.").

asserts that such contingency arises from two types of provisions in the contracts. 1323 First, the
United States asserts that all four A350XWB LA/MSF contracts are conditioned on Airbus producing
specific Airbus LCA components in the relevant member States' territories. 1324 Those components,
therefore, become domestic goods of the relevant member State s, and are then used in
downstream Airbus LCA production activity. Second, the United States asserts that the [***]
A350XWB LA/MSF contracts are conditioned on Airbus maintaining certain minimum levels of
domestic employment in connection with the A350XWB programme, levels that cannot be
maintained without Airbus engaging in significant A350XWB production -related activities in those
member States. 1325 Such activities will, therefore, produce Airbus LCA -related goods that then
become domestic goods of those Eur opean Union member States and are then used in
downstream A350XWB production activity. 1326 The United States concludes, therefore, that the
contracts "effectively require{} Airbus to source a large part of its components" from domestic
sources.1327
6.5.7 Arguments of the European Union
6.749. The European Union makes several arguments in support of its position that no A350XWB
LA/MSF measure involves the granting of a subsidy contingent on the use of domestic over
imported goods, whether in law or in fact. At times, the subst ance of these arguments appears to
overlap somewhat. First, the European Union argues that the Panel must interpret Article 3.1(b) of
the SCM Agreement in light of and in harmony with Article III:8(b) of the GATT 1994, which
exempts the practice of providi ng subsidies exclusively to domestic producers from the national
treatment disciplines of Article III of the GATT 1994. The European Union argues that
consideration of these GATT provisions, especially given their jurisprudential relationship with
Article 3.1(b) of the SCM Agreement, compels the conclusion that production subsidies given to
exclusively domestic producers cannot violate Article 3.1(b) of the SCM Agreement.1328 Second,
the European Union appears to argue that Airbus only produces one relevant "g ood" in this
context, finished LCA, and therefore the United States' argument is predicated on the erroneous
assumption that Airbus is producing and "using" multiple distinct goods in its LCA production
processes. Third, the European Union appears to argue that any "good" produced in one member
State, if destined for use in another member State, is not a "domestic good" for purposes of
Article 3.1(b) of the SCM Agreement.1329 Thus, insofar as this geographic production and use
pattern occur, Article 3.1(b) is immaterial. Fourth, the European Union characterizes the A350XWB
LA/MSF measures as "production" or "development" subsidies that, although they may be
contingent on the production of certain goods in the relevant European Union member States'
respective territories, are not contingent on the use of domestic over imported goods. Fifth, the
European Union asserts that the contracts do not use the words "contingent" or "conditional" in
any material manner and therefore their text does not support the United States' Article 3.1(b)
claim.1330 Sixth, the European Union claims that because labour is not a "good", even if certain
A350XWB LA/MSF contracts are conditioned on the maintenance of certain domestic employment
levels, such requirements are not disciplined by A rticle 3.1(b). Finally, the European Union argues
that certain provisions in the contracts related to employment levels are qualified in ways as to
make them not contingent on such levels within the meaning of Article 3.1(b).1331
6.5.8 Arguments of the third parties
6.5.8.1 Canada
6.750. Canada argues that the A350XWB LA/MSF subsidies are not contingent on the use of
domestic over imported goods. Canada argues that Article 3.1(b) of the SCM Agreement only

1323 United States' first written submission, para. 209.
1324 United States' second written submission, paras. 338-355.
1325 United States' second written submission, paras. 338-355.
1326 See United States' first written submission, paras. 214-216.
1327 United States' first written submission, para. 239.
1328 European Union's second written submission, paras. 428-444.
1329 European Union's second written submission, paras. 463 (arguing in context of A380 components),
481 (apparently referencing same reasoning with respect to A350XWB components), 485 (same), 489 (same),
and 496 (same).
1330 European Union's first written submission, paras. 456, 464, 468, 470, and 475.
1331 European Union's first written submission, paras. 457, 464, 468, 470, and 475.

covers situations where a subsidy requires a recipient to purchase goods, and does not cover
situations, such as this one, where subsidies require a recipient to produce certain goods. 1332
Canada also notes that Article III:8(b) of the GATT 1994 allows WTO Members to provide subsidies
only to their domestic producers. 1333 Further, because "the GATT and SCM Agreement do not limit
a subsidizing Member's ability to define the level of production required for subsidy eligibility
purposes" Members may explicitly or implicitly require the production of intermediate goods. 1334
However, because " most manufacturers produce intermediate goods as part of the production of
their final goods, the United States' position would negate the right of a subsidizing Member to
require a subsidy recipient to produce goods".1335
6.5.8.2 Japan
6.751. Japan considers that de jure contingency in the context of Article 3.1(b) of the
SCM Agreement should be established on the basis of the words actually used in the measure and
not on the basis of factors not linked to such words 1336, and that the same standard for
establishing "implicit " de jure contingency should be applied under Article 3.1(a) and under
Article 3.1(b).1337 Thus, Japan considers that, when establishing de facto contingency under
Article 3.1(b), the Panel should make its assessment on the basis of the total configuration of the
facts constituting and surrounding the granting of the subsidy, including the design, structure, and
modalities of operation of the measure granting the subsidy, and not on the government's
motivation for granting the subsidy. 1338 Finally, Japan consider s that because the United States
apparently argues that the existence of Workshare Agreements was a condition for the A350XWB
LA/MSF subsidies to be granted to Airbus, the Panel should examine whether the granting of the
A350XWB LA/MSF measures is indeed c onditioned on the existence of such Workshare
Agreements, and whether the Workshare Agreements indeed required the use of domestic over
imported goods.1339
6.5.9 Evaluation by the Panel
6.752. This section analyses the United States' claim under Article 3.1(b) of the SCM Agreement.
It proceeds in three parts. First, it discusses the evidence upon which the United States relies to
support its claim. Second, it reviews relevant legal provisions and considerations. Finally, it
evaluates whether the United States has presented a valid claim under Article 3.1(b).
6.5.9.1 Factual background
6.753. The United States argues that two general types of evidence demonstrate that each
A350XWB LA/MSF measure is contingent on the use of domestic over imported goods: (a) publicly
available information regarding the existence of Workshare Agreements; and (b) the terms of each
A350XWB LA/MSF contract. The sections below address each in turn.
6.5.9.1.1 Publicly available information
6.754. The United States offers the following publicly available information in support of i ts
argument that each A350XWB LA/MSF contract is contingent upon the use of domestic over
imported goods:
 A July 2006 Reuters article discussing, inter alia , the United Kingdom's expectations
regarding its workshare regarding Airbus' LCA programmes.1340

1332 Canada's third-party submission, para. 19.
1333 Canada's third-party submission, para. 20.
1334 Canada's third-party submission, para. 20.
1335 Canada's third-party submission, para. 25.
1336 Japan's third-party submission, para. 33.
1337 Japan's third-party submission, para. 45.
1338 Japan's third-party submission, para. 34.
1339 Japan's third-party submission, paras. 57-58.
1340 James Regan and Jason Neely, "Airbus ministers back company over A380, A350", Reuters,
16 July 2006, (Exhibit USA-310).

 A December 2006 statement by a French parliamentarian made in the context of discussing
potential French government funding of the A350XWB programme, which he apparently
envisioned would involve the development of complete product lines.1341
 A December 2006 record of statements made by UK Minister for Industry and the Regions
Margaret Hodge to Parliament in which she underscored the general importance of Airbus
production activities occurring within the United Kingdom for the United Kingdom economy,
and especially with respect to securing work related to composites technology. She stated,
inter alia:
All the detailed negotiations are currently taking place. As soon as they have
reached a conclusion, we will be able to talk about them more openly. Our aim
is to secur e Britain's best interest in the development of the new A350 XWB,
and we are engaged in close negotiations on those issues with EADS and with
the other Governments who have a stake in its development and production. I
understand the hon. Gentleman's point that we want not only to secure the
20 per cent but to ensure that we maintain our research and production
capabilities in respect of the wings.1342
 A February 2007 Le Monde article reporting, inter alia, that certain of the relevant member
States were contesting the allocation of work for section 15/21 of the A350XWB.1343
 A February 2007 Airbus press release forecasting that France, Germany, Spain, and the
United Kingdom would receive 35%, 35%, 10%, and 20% of work for the A350XWB,
respectively.1344
 A March 2007 sp eech about Airbus by Peter Hintze, Parliamentary State Secretary in the
German Ministry of Economics and Technology, at the Debate in the European Parliament in
Strasburg, in which he states:
Policymakers are responsible for setting the framework. And the y should make
sure that a fair balance of opportunities and burdens prevails among the
participating European nations. We are talking here about jobs and
technological capabilities. The fair sharing of opportunities and burdens among
France, Spain, the UK, and Germany seems to be successful.1345
 A June 2007 UK House of Commons document discussing, inter alia , A350XWB work
allocation:
14. The potential distribution of work across countries for the A350 XWB was of
particular concern to the UK for both political and technological reasons.
Traditionally, the allocation of work packages for Airbus planes has roughly
reflected the shareholding of the original partners – that is, 35% each for
France and Germany, 20% for the UK, and 10% for Spain. Following the sale o f
BAE Systems' 20% stake in the company to EADS, however, the UK was left
with no share in the company, consequently reducing its negotiating position
with EADS.

1341 Statement of M. Michel Billout, Sénat, (session ordinaire 2006-2007), Séance du 13 décembre 2006,
Compte rendu intégral des débats, Journal Officiel de la République française, pp. 10174-10176, (Exhibit USA-
102).
1342 UK House of Commons Hansard Debates, Column 104WH, Colloquy of Mr. Steve Webb and Minister
for Industry and the Regions, Margaret Hodge, 6 December 2006, (Exhibit USA-303/USA-360 (exhibited
twice)).
21 February 2007, (Exhibit USA-22).
1344 Airbus Press Release, "Power8 prepares way for 'new Airbus'", 20 February 2007, (Exhibit USA-94).
1345 Peter Hintze, Parliamentary State Secretary, German Ministry of Economics and Technology, "The
Future of the European Aviation Industry", speech to European Parliament, Strasburg, 14 March 2007, (Exhibit
USA-101) (English translation).

15. An additional concern was that Germany and Spain in particular were in a
position to make a case for some of the work usually undertaken by the UK,
because of their growing competence in composite materials, some of it
relevant to wing manufacture. …
16. The UK Government maintained a continuous dialogue with Airbus and its
parent, EADS, up to the final announcement in February 2007. The outcome for
Airbus UK was a positive one: a 20% share of the workload for the A350 XWB,
in line with that which it had achieved for previous aircraft. Overall wing
assembly will take place at Broughton. Design and manufacture of the trailing
edge will happen at Filton. …
…
18. Overall, both Airbus UK and the Government said they were pleased with
the work packages allocated to the UK. The company's Managing Director,
Iain Gray, told us that securing wing leader ship for the A350 XWB was "a
massive success". The DTI said this "represents a good outcome for the UK, and
is the result of sustained action by the UK Government to achieve a position on
the A350 XWB that provides the most positive platform for the future ". It noted
also that it should leave the UK well -placed to win future work on the
anticipated replacement for the A320.1346 (footnotes omitted)
 A February 2009 speech on aviation policy by Dr Heinz Riesenhuber, who the United States
claims was a member of th e German Bundestag at the time, stating, inter alia , that
Germany should help secure the long -term success of German aviation industrial sites by
conditioning the provision of financial assistance to the A350XWB on obtaining certain work
allocations from Airbus.1347
 An August 2009 German Government report indicating that: "'The Federal Government will
tie further measures to commitments by the company {i.e. Airbus} that it will maintain
competencies in Germany.'"1348
 An August 2009 Bundestag report on federal finances stating:
The Federal Government is prospectively prepared to support the financing of
development costs of civil aerospace projects on a pro rata basis by providing
interest-bearing, sales-dependent refundable loans. The government intends to
subsidize the development costs of the Airbus A 350 XWB on a pro rata basis,
by guarantees pursuant to European and international laws.1349
 An August 2009 article from The Guardian reporting that the United Kingdom would invest
GBP 340 million in the A350XWB programme, and stating that:
The loan will create and sustain more than 1,200 jobs at Filton and at Airbus
UK's Broughton plant in north Wales. Ministers also hope it will help create and
sustain more than 5,000 jobs within the supply chain across the UK.

1346 UK House of Commons Trade and Industry Committee, "Recent Developments with Airbus", Ninth
Report of Session 2006-07, Volume I: Report and formal minutes, 19 June 2007, (Exhibit USA-562), pp. 10-
11.
1347 Dr Heinz Riesenhuber, "Wir müssen alles daran setzen, den deutschen Luftfahrtstandort auch
künftig international wettbewerbsfähig zu halten", Speech on aviation policy, 2 July 2009, (Exhibit USA-99).
See United States' first written submission, fn 352 (erroneously citing this document as Exhibit USA-100).
1348 United States' first written submission, para. 236 (translating and quoting Bundesministerium fur
Wirtschaft und Technologie, Bericht des Koordinators fur die Deutsche Luft- und Raumfahrt, August 2009,
(Exhibit USA-100), p. 55). We note that Exhibit USA-100 is undated, but the European Union does not contest
the United States' dating of the document to August 2009.
1349 Deutscher Bundestag, Unterrichtung durch die Bundesregierung, Finanzplan des Bundes 2009 bis
2013, 7 August 2009, (Exhibit USA-97), p. 24. The United States interprets the term "pro rata" in this context
as meaning that the German Government would fund the A350XWB in proportion to the work share it received
on the programme. (United States' first written submission, para. 235).

…
Ian Godden, chief executive of the Society of British Aerospace Companies,
said: "The announcement {to give LA/MSF} is very welcome. The Airbus
A350 XWB is an extremely important programme for the future of the UK
aerospace industry and this investment secures vital work across the sector.
"Over 5,000 jobs are created or supported across the UK supply chain by the
A350 programme. The significant technological advances of the composite
materials being used means that the importance of the A350 programme in
developing the skills and technology for the future sustainability of the UK
aerospace industry cannot be exaggerated."1350
 A September 2009 Reuters article reporting that France, Germany, Spain, and the
United Kingdom had been allocated approximately 37.5%, 34 %, 10%, and 18% of work for
the A350XWB, respectively.1351
 A December 2009 Spanish Government document stating that Spain was set to grant
EUR 332 million in financial assistance to the A350XWB programme, that Airbus Operations
had been assigned certain resp onsibilities in connection with the programme and that Spain
had obtained an approximately 11% work allocation for the programme.1352
 An entry in the 2011 German federal budget entry apparently regarding German A350XWB
LA/MSF that states that the "funding is generally based on Germany's work -share regarding
development and manufacture."1353
6.5.9.1.2 The A350XWB LA/MSF contracts
6.755. The United States asserts that the terms of the A350XWB LA/MSF contracts demonstrate
that such measures are de jure and/or de facto contingent on the use of domestic over imported
goods. We discuss these terms below. The terms cited below include those cited by the
United States in its written submissions in support of its Article 3.1(b) claim. We also cite other
terms in the contracts that we cons ider helpful in understanding the nature of the contracts as a
whole in this context.
6.5.9.1.2.1 France
6.756. We recall that the French A350XWB LA/MSF measure is set out in two legal instruments,
i.e. the French A350XWB Protocole and the French A350XWB Convention. Airbus S AS and the
French State were parties to both instruments, with no other Airbus entity being involved.
6.757. The French A350XWB LA/MSF contract makes a [***] available to Airbus in connection
with the A350XWB programme, which the measure envisions will be disburs ed [***]. The French
A350XWB Protocole states that "[***]"1354, and further specifies that "[***]."1355 "[***]".1356
Annex 2 of the French A350XWB Protocole provides a list of "[***]" and specifies that
"[***]."1357 Paragraph 2 of annex 2 reads as follows:

1350 "Airbus receives £340 m government boost to save thousands of jobs" The Guardian,
14 August 2009, (Exhibit USA-96).
1351 Tim Hepher and Tracy Rucinski, "Spain to double share of work on Airbus A350", Reuters,
18 September 2009, (Exhibit USA-301).
1352 Consejo de Ministros: Referencia, Ministerio de la Presidencia, Secretaria de Estado de
Comunicación, 11 December 2009, (Exhibit USA-103), pp. 35-36.
1353 Bundesministerium für Wirtschaft und Technologie, "Bundeshaushaltsplan 2011, Einzelplan 09",
(Exhibit USA-50), p. 50.
1354 French A350XWB Protocole, (Exhibit EU-(Article 13)-01) (BCI), art. 1.1. (emphasis added)
1355 French A350XWB Protocole, (Exhibit EU-(Article 13)-01) (BCI), art. 2.1. (emphasis added)
1356 French A350XWB Protocole, (Exhibit EU-(Article 13)-01) (BCI), art. 2.1. (emphasis added)
1357 French A350XWB Protocole, (Exhibit EU-(Article 13)-01) (BCI), annex 2 (para. 1). (emphasis added)

[***].1358 (emphasis added)

6.758. The French A350XWB Protocole and French A350XWB Convention also contain provisions
creating mechanisms that allow the French state [***]. For instance, Airbus [***]1359, [***].1360
Moreover, Annex 5 of the French A350XWB Protocole obligates Airbus to provide a [***] to the
French state and provides that "{l}e montant définitif de la participation de l'Etat sera calculé sur
la base de ce relevé. L'unité de management Aéronautique demandera, le cas échéant, [***]."1361
6.5.9.1.2.2 Germany
6.759. It will be recalled that t he German LA/MSF measure is set out in the German KfW
A350XWB Loan Agreement and annexes thereto. The parties are KfW and Airbus Operations
GmbH, Hamburg, which is identified as the borrower, and Airbus SAS, Toulouse, which is identified
as a co-borrower.
6.760. The German KfW A350XWB Loan Agreement makes [***] available to Airbus in
connection with the A350XWB programme, which the agreement envisions will be disbursed to
Airbus in [***].1362 Section 2.2 of the German KfW A350XWB Loan Agreement provides that
"{t}he l oan may be used solely for the purpose [***]."1363 The [***]."1364 Annex 1.4(b)(i)
provides cost estimates with reference to certain categories of costs that appear to relate to the
following categories of costs defined as "[***]" in Annex 1.4(b)(ii): " [***]".1365 The enumerated
categories of costs in Annex 1.4(b)(i) appear to be broken out in greater detail in Annex 1.4(a)(ii).
Annex 1.4(a)(ii) "[***]", but the Annex also clarifies that this list "[***]".1366 The [***] is HSBI
but it contains language that appears to explicitly envision the [***] of certain A350XWB
components in Germany.1367
6.761. The German contract also sets forth certain [***] in connection with the A350XWB
programme for Airbus in Article 15.5:
[***]1368 [***].1369 (emphasis added; footnote added)

1358 French A350XWB Protocole, (Exhibit EU-(Article 13)-01) (BCI), annex 2. In a subsequent exchange
of letters, France and Airbus appeared to agree that the terms "[***]" and "[***]", as the terms are used in
Article 2.1 of the French A350XWB Protocole, denote no preference for geographic location. (Exchange of
Letters between Fabrice Brégier, Director General of Airbus, and French Director General of Civil Aviation
(DGAC) [***] and [***], (Exhibit EU-(Article 13)-10) (BCI)). Even if this is so, however, it less than clear to
us that this understanding would void the language "[***]", "[***]" and "[***]", as used in Annex 2 of the
Protocole (italicized in body text above), insofar as such language indicates the site at which the textually
associated development/production activities must be performed. We consider it unnecessary to resolve this
ambiguity, however, because even if such language does mandate the site at which the associated production
activities must occur it would not change the manner in which we dispose of the United States' claim.
1359 French A350XWB Protocole, (Exhibit EU-(Article 13)-01) (BCI), arts. 8.1-8.2; and French A350XWB
Convention, (Exhibit EU-(Article 13)-11) (BCI), art. 3. The French A350XWB Protocole also provides in
article 8.2 that if [***].
1360 French A350XWB Convention, (Exhibit EU-(Article 13)-11) (BCI), art. 3.2.
1361 French A350XWB Protocole, (Exhibit EU-(Article 13)-01) (BCI), annex 5. See also French A350XWB
participation plafond de l'Etat au financement des travaux."). (emphasis added)
1362 German KfW A350XWB Loan Agreement, (Exhibit EU-(Article 13)-14) (English translation)
(BCI/HSBI), sections 2.1 and 3.2.
1363 German KfW A350XWB Loan Agreement, (Exhibit EU-(Article 13)-14) (English translation)
(BCI/HSBI), section 2.2. (emphasis added)
1364 German KfW A350XWB Loan Agreement, (Exhibit EU-(Article 13)-14) (English translation)
(BCI/HSBI), section 1.1.
1365 German KfW A350XWB Loan Agreement, (Exhibit EU-(Article 13)-14) (English translation)
(BCI/HSBI), annex 1.4(b)(ii) (para. 1).
1366 German KfW A350XWB Loan Agreement, (Exhibit EU-(Article 13)-14) (English translation)
(BCI/HSBI), annex 1.4(a)(ii) (p. 2).
1367 See e.g. German KfW A350XWB Loan Agreement, (Exhibit EU-(Article 13)-14) (English translation)
(BCI/HSBI), annex 1.4(a)(ii), pp. 2, and 17-18.
1368 [***]." (German KfW A350XWB Loan Agreement, (Exhibit EU-(Article 13)-14) (English translation)
(BCI/HSBI), section 1.1).

6.762. The German KfW A350XWB Loan Agreement also contains the following terms apparently
relating to Germany's [***] in connection with the A350XWB programme:
[***].1370
6.763. The German contract further sets forth certain reporting mechanisms through which the
grantor can [***] related to the A350XWB programme and its fulfilment of its [***]
obligations.1371 Further, the measure requires Airbus to submit a [***], whenever that may be. If
this document indicates that the loan amount [***].1372
6.5.9.1.2.3 Spain
6.764. It will be recalled that the Spanish LA/MSF measure is formalised in the Spanish A350XWB
Convenio, concluded between the Spanish Ministry of Industry, Tourism and Commerce and Airbus
Operations S.L. (the Spanish Airbus affiliate). The prior Real Decreto indicated the government's
commitment to provide the sums and, broadly, some conditions of LA/MSF. The stated purpose of
the Spanish A350XWB Convenio is as follows:
MITYC {i.e. the Spanish Ministry of Industry, Tourism, a nd Commerce} y la empresa
desarrollo del avión AIRBUS A350,XWB {sic}… .1373
6.765. The Real Decreto grants refundable advanced payments to Airbus that are intended to
cover development cos ts of activities entrusted by Airbus SAS to Airbus Operations, S.L. for the
development of the A350XWB.1374 Under the Spanish A350XWB Convenio, Spain agreed to provide
a maximum of EUR 332,228,6701375 for eligible expenses for such non -recurrent costs,
corresponding to preliminary design, engineering design, wind tunnel tests, structural tests, flight
tests, certification documentation, and cost of fabrication of prototype and trial aircraft, including
modifications, tools and equipment. 1376 The maximum total amount of the refundable advanced
payments can be equivalent to either 36% of the expected non -recurrent costs of the project at
the moment of submitting the request, i.e. EUR 332,228,670, or the real non -recurrent costs of
the project if they were less than 36% of the expected costs.1377 Moreover, the Spanish A350XWB
Convenio provides:

1369 German KfW A350XWB Loan Agreement, (Exhibit EU-(Article 13)-14) (English translation)
(BCI/HSBI), section 15.5.
1370 German KfW A350XWB Loan Agreement, (Exhibit EU-(Article 13)-14) (English translation)
(BCI/HSBI), section 15.4.
1371 See generally German KfW A350XWB Loan Agreement, (Exhibit EU-(Article 13)-14) (English
translation) (BCI/HSBI), sections 1.4 and 16.2-16.5, and annex 16.1(a).
1372 German KfW A350XWB Loan Agreement, (Exhibit EU-(Article 13)-14) (English translation)
(BCI/HSBI), sections 1.1, 8.1, and 8.7.
1373 Spanish A350XWB Convenio, (Exhibit EU-(Article 13)-29) (BCI/HSBI), p. 2.
reembolsables a la filial española de Airbus SAS denominada Airbus Operations S.L para su participación en el
programa de desarrollo de la nueva familia de aviones Airbus A350XWB, Boletín Oficial del Estado,
9 November 2009, (Exhibit USA-46), art. 4.1.
1375 Spanish A350XWB Convenio, (Exhibit EU-(Article 13)-29) (BCI/HSBI), p. 3; Real Decreto
española de Airbus SAS denominada Airbus Operations S.L para su participación en el programa de desarrollo
de la nueva familia de aviones Airbus A350XWB, Boletín Oficial del Estado, 9 November 2009, (Exhibit USA-
46), art. 6.1.
reembolsables a la filial española de Airbus SAS denominada Airbus Operations S.L para su participación en el
programa de desarrollo de la nueva familia de aviones Airbus A350XWB, Boletín Oficial del Estado,
9 November 2009, (Exhibit USA-46), art. 4.2.
reembolsables a la filial española de Airbus SAS denominada Airbus Operations S.L para su participación en el
programa de desarrollo de la nueva familia de aviones Airbus A350XWB, Boletín Oficial del Estado,
9 November 2009, (Exhibit USA-46), art. 5; and Spanish A350XWB Convenio, (Exhibit EU-(Article 13)-29)
(BCI/HSBI), Tercera, p. 3.

concesión de anticipos reembolsables a un tipo de interés del [***] según se detalla
en este Convenio.
integración de los siguientes elementos, estabilizador horizontal, carena ventral,
empresa … .1378
6.766. Moreover, the Real Decreto clarifies that:
Airbus SAS ha concluido el proceso de reparto de los trabajos correspondientes al
S.L., tiene asignada esta responsabilidad y ninguna otra empresa establecida en
6.767. The Real Decreto further explains:
El desarrollo y su posterior producción se van a realizar de una forma novedosa
en relación a anteriores modelos, Airbus SAS será el arquitecto e integrador del
conjunto del avión, reservándose a través de sus filiales nacionales en Francia,
Alemania, Reino Unido y España el desarrollo y producción de determinados
elementos estratégicos del mismo. Otros equipos y grandes subconjuntos del avión se
externalizan a unos pocos y selectos subcontratistas de primer nivel que se
responsabilizan del diseño d esarrollo y producción de determinados subconjuntos del
avión.

Airbus A350 XWB, Airbus Operations, A.L., tiene la responsabilidad en determinadas
actividades de diseño no específi co así como del desarrollo y posterior producción en
carena ventral, y las secciones 19 y 19.1.1380
6.768. Spain disbursed EUR 41,493,300 in [***] under the Spanish A350XWB LA/MSF
measures.1381 The schedule of remaining disbursements is HSBI . In this regard, the Spanish
A350XWB Convenio imposes upon Airbus the obligation to demonstrate, by different means, the
use of the refundable advanced payments, including the preparation of annual technical and
economic reports on the activities that were financed using those payments.1382

1378 Spanish A350XWB Convenio, (Exhibit EU-(Article 13)-29) (BCI/HSBI), p. 3. The United States
asserts that Airbus S.L.'s operations include "Centres of Excellence" (i.e. factories) in Getafe, Puerto Real and
Illescas, which specialize in the horizontal tail plane. (United States' second written submission, para. 349
(citing "Airbus In Spain" Airbus website, accessed 11 October 2012, (Exhibit USA-459) (stating that these
centres "are responsible for the manufacture of the horizontal tail plane for all Airbus aircraft."))
reembolsables a la filial española de Airbus SAS denominada Airbus Operations S.L para su participación en el
programa de desarrollo de la nueva familia de aviones Airbus A350XWB, Boletín Oficial del Estado,
9 November 2009, (Exhibit USA-46), p. 93092.
reembolsables a la filial española de Airbus SAS denominada Airbus Operations S.L para su participación en el
programa de desarrollo de la nueva familia de aviones Airbus A350XWB, Boletín Oficial del Estado,
9 November 2009, (Exhibit USA-46), p. 93091.
1381 European Union's response to Panel question No. 133, fn 182.
reembolsables a la filial española de Airbus SAS denominada Airbus Operations S.L para su participación en el

6.5.9.1.2.4 United Kingdom
6.769. It will be recalled that the UK LA/MSF measure is formalized in the UK A350XWB
Repayable Investment Agreement, concluded between the UK Secretary of State for Business,
Innovation and Skills, and both Airbus Operations Ltd and EADS NV.
6.770. Under the agreement, and its [***], the United Kingdom agreed to finance [***] of costs
incurred by Airbus Operations Ltd in connection with the A350XWB programme to a maximum of
GBP 340,000,000. 1383 The UK A350XWB LA/MSF measure states that "[***]."1384 "[***]" are
"the design and development costs in relation to the Project [***].1385 The "[***]" is defined as
"[***]".1386 The "[***]" is defined as "[***]".1387 The "Equipment" "means [***] A350"1388,
which Schedule 5 describes in more detail. Schedule 3 states that "[***]".1389
6.771. Such terms thus indicate that Airbus must perform certain A350XWB -related production
tasks in the United Kingdom in order to receive certain disbursements under the UK LA/MSF
measure. We note, however, that the agreement also provides that "[***]."1390
6.772. The UK contract and subsequent amendments also set forth certain reporting mechanisms
through which the United Kingdom can monitor Airbus' ongoing expenses related to the A350XWB
programme.1391 Further, the contract provides that any "[***]", and that following a draw down,
"[***]".1392
6.773. The UK contract further includes a section entitled "[***]", which we set out in substantial
part below:
[***]1393 [***]1394
[***].1395 (footnotes added; bold text original)

programa de desarrollo de la nueva familia de aviones Airbus A350XWB, Boletín Oficial del Estado,
9 November 2009, (Exhibit USA-46), art. 10.
1383 UK A350XWB Repayable Investment Agreement, (Exhibit EU-(Article 13)-30) (BCI/HSBI),
clauses 2.1 and 4.3(c)(i).
1384 UK A350XWB Repayable Investment Agreement, (Exhibit EU-(Article 13)-30) (BCI/HSBI),
clause 2.2. (emphasis added)
1385 UK A350XWB Repayable Investment Agreement, (Exhibit EU-(Article 13)-30) (BCI/HSBI),
clause 1.1. (emphasis added)
1386 UK A350XWB Repayable Investment Agreement, (Exhibit EU-(Article 13)-30) (BCI/HSBI),
clause 1.1. (emphasis added)
1387 UK A350XWB Repayable Investment Agreement, (Exhibit EU-(Article 13)-30) (BCI/HSBI),
clause 1.1. (emphasis added)
1388 UK A350XWB Repayable Investment Agreement, (Exhibit EU-(Article 13)-30) (BCI/HSBI),
clause 1.1. (emphasis added)
1389 UK A350XWB Repayable Investment Agreement, (Exhibit EU-(Article 13)-30) (BCI/HSBI),
schedule 3.
1390 UK A350XWB Repayable Investment Agreement, (Exhibit EU-(Article 13)-30) (BCI/HSBI),
clause 19.7.
1391 See e.g. UK A350XWB Repayable Investment Agreement, (Exhibit EU-(Article 13)-30) (BCI/HSBI),
clauses 4.3(a) and 18, and schedules 1 (para. 3) and 2 (para. 1); and First set of [***] to UK A350XWB
LA/MSF contract, (Exhibit EU-(Article 13)-31) (BCI/HSBI), paras. 4 and 5.
1392 UK A350XWB Repayable Investment Agreement, (Exhibit EU-(Article 13)-30) (BCI/HSBI),
clauses 4.3(b)-4.3(c).
1393 Schedule 4 provides this number for all years from [***]. The number varies over time but reaches
a maximum of [***].
1394 "[***]" is defined as

"[***]." (UK A350XWB Repayable Investment Agreement, (Exhibit EU-(Article 13)-30)
(BCI/HSBI), clause 1.1)
1395 UK A350XWB Repayable Investment Agreement, (Exhibit EU-(Article 13)-30) (BCI/HSBI),
clauses 20-20.4.

6.5.9.1.2.5 Relevant contingencies in the A350XWB LA/MSF contracts
6.774. We recall that the United States argues that the A350XWB LA/MSF contracts contain terms
that make them de jure and/or de facto contingent on the use of domestic over imported goods.
The United States argues that this is so because the contracts require the recipients to prod uce
LCA components in the grantors' territories, components that Airbus then uses to manufacture its
LCA. After reviewing the contracts' terms, therefore, it would appear a logical next step to explore
the extent to which the contingencies that exist withi n the contracts reasonably relate to the
performance of activities that may result in the production of LCA goods in the respective
territories of the grantors. We detect four such kinds of contingencies in the contracts' terms:
 First, we note that it appe ars that the only activities that the contracts subsidize are
A350XWB development and production activities. That is, subsidy payments depend on the
recipient incurring expenses arising from such activities, and the subsidy payments are
intended to cover a t least a portion of those specific expenses. It further appears that all
four contracts contain terms that require some, if not all, such specific reimbursable
expenses to arise from activities performed in the territory of the grantor. 1396 We refer to
such contingencies as "Domestic A350XWB Development Contingency".
 Second, the [***] contracts appear to condition subsidy payments on the recipient [***]
on the development and/or production phases of the A350XWB programme in the territory
of the grantor (Domestic A350XWB Employment Contingency)1397.
 Third, the [***] contract appears to condition subsidy payments on the recipient
maintaining a [***] (Domestic A350XWB Workshare Contingency)1398.
 Fourth, the [***] contract appears to condition subsidy payments on the re cipient
maintaining certain [***]1399 (Domestic Non-A350XWB Workshare Contingency).
6.775. We detect no other types of contingencies in the contracts that could be understood to
reasonably relate to the United States' claim under Article 3.1(b) of the SCM Agreement. We
further note that no contingency identified above explicitly requires the use of domestic over
imported goods. This does not mean, however, that they may not operate so as to amount to such
a contingency, whether alone or in combination. We recall that the United States bases its
argument that the A350XWB LA/MSF contracts are contingent on the use of domestic over
imported goods on the presence of terms that require Airbus to produce "domestic" LCA
components that Airbus will then use in downstream prod uction activity. In order to properly and
thoroughly understand how the United States' claim relates to the A350XWB LA/MSF contracts
moving forward, therefore, we consider here to what extent these contingencies operate so as to
result in the production of "domestic" goods.
6.776. In our view, all four types of identified contingencies may potentially be interpreted as
supporting the United States' contention that the subsidies condition their receipt, at least in part,
on the recipients producing LCA goods in the grantors' respective territories. Domestic A350XWB
Development Contingency does this perhaps most explicitly. Insofar as the contracts require
certain A350XWB development work involving A350XWB components to occur in the territory of

1396 See e.g. French A350XWB Protocole, (Exhibit EU-(Article 13)-01) (BCI), annex 2; German KfW
A350XWB Loan Agreement, (Exhibit EU-(Article 13)-14) (English translation) (BCI/HSBI), annex 1.4(a)(ii),
pp. 2 and 17-18; Spanish A350XWB Convenio, (Exhibit EU-(Article 13)-29) (BCI/HSBI), p. 3; Real Decreto
española de Airbus SAS denominada Airbus Operations S.L para su participación en el programa de desarrollo
de la nueva familia de aviones Airbus A350XWB, Boletín Oficial del Estado, 9 November 2009, (Exhibit USA-
46), p. 93091; and UK A350XWB Repayable Investment Agreement, (Exhibit EU-(Article 13)-30) (BCI/HSBI),
clauses 1.1, 2.2 and 20.2(b)(i), and schedule 3.
1397 See e.g. German KfW A350XWB Loan Agreement, (Exhibit EU-(Article 13)-14) (English translation)
(BCI/HSBI), section 15.5; and UK A350XWB Repayable Investment Agreement, (Exhibit EU-(Article 13)-30)
(BCI/HSBI), clause 20.1.
1398 See e.g. German KfW A350XWB Loan Agreement, (Exhibit EU-(Article 13)-14) (English translation)
(BCI/HSBI), sections 15.4(a)-15.4(c).
1399 See e.g. UK A350XWB Repayable Investment Agreement, (Exhibit EU-(Article 13)-30) (BCI/HSBI),
clauses 20.2-20.3.

the grantor, such dev elopment work may likely be a precursor to the actual production of those
components in the same member State's territory. Moreover, certain contracts appear to
enumerate specific A350XWB components to be produced in the grantor's territory. Domestic
A350XWB Employment Contingency may also result in the production of LCA goods in the
territories of the relevant grantors if the [***] cannot practically be maintained without the
associated [***] engaging in the production of LCA goods. This appears particular ly likely to be
the case given that both the [***] contracts appear to specifically contemplate such [***], at
least in part, being applied to the [***].1400 Domestic A350XWB Workshare Contingency may
similarly result in the production of LCA goods in the rel evant grantors' territories if such
workshares cannot be practically maintained without the recipient engaging in activities leading to
the production of LCA goods. This appears particularly likely to be the case given that the [***]
contract appears to sp ecifically contemplate a certain percentage of the [***].1401 Similarly, it
appears likely that Domestic Non -A350XWB Workshare Contingency will lead to the production of
LCA goods in the territory of the [***] given that the [***] specifically envisions that such
workshares will involve, for example, the "[***]" of certain LCA components. 1402 In the light of
these observations, we assume arguendo in the analysis that follows that all four contingencies
identified above exist and, when satisfied, result in the man ufacture of LCA -related goods in the
territories of the respective grantors.
6.5.9.2 Legal provisions and considerations
6.777. Article 3.1(b) of the SCM Agreement reads:
Except as provided in the Agreement on Agriculture, the following subsidies, within
the meaning of Article 1, shall be prohibited:
…
(b) subsidies contingent, whether solely or as one of several other conditions, upon
the use of domestic over imported goods.
Under Article 3.2 of the SCM Agreement, a Member shall neither grant nor maintain such
subsidies.

6.778. Like Article 3.1(a), Article 3.1(b) sets forth a single legal standard. 1403 That is, a subsidy
must be "contingent, whether solely or as one of several other considerations, upon the use of
domestic over imported goods." The Appellate Body has further e xplained that the word
"contingent" means "conditional" or "dependent for its existence on something else". 1404 Unlike
Article 3.1(a), however, Article 3.1(b) contains no reference to contingency "in law or in fact".
Nevertheless, the Appellate Body has found that Article 3.1(b)'s scope covers both de jure and de
facto contingency.1405 The evidence used to demonstrate de jure and de facto contingency may
differ. Contingency "'in law' is demonstrated 'on the basis of the words of the relevant legislation,
regulation or other legal instrument.'" 1406 The Appellate Body has also explained that "such
conditionality can be derived by necessary implication from the words actually used in the
measure."1407 Consistent with the Appellate Body's guidance regarding evaluations of de facto

1400 See e.g. UK A350XWB Repayable Investment Agreement, (Exhibit EU-(Article 13)-30) (BCI/HSBI),
clause 20.1 and schedule 4 (providing time-frame for the [***] of the A350XWB, and allowing potential
modification of such targets in case of improved "[***]"); and German KfW A350XWB Loan Agreement,
(Exhibit EU-(Article 13)-14) (English translation) (BCI/HSBI), section 15.5 (relating certain [***] of the
A350XWB programme).
1401 See German KfW A350XWB Loan Agreement, (Exhibit EU-(Article 13)-14) (English translation)
(BCI/HSBI), section 15.4.
1402 See UK A350XWB Repayable Investment Agreement, (Exhibit EU-(Article 13)-30) (BCI/HSBI),
clause 20.3.
1403 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1037 (explaining
that "the legal standard for export contingency expressed in Article 3.1(a) is the same for both de jure and de
facto contingency").
1404 Appellate Body Report, Canada – Aircraft, para. 166.
1405 Appellate Body Report, Canada – Autos, paras. 139-143.
1406 Appellate Body Report, Canada – Autos, para. 123 (quoting Appellate Body Report, Canada –
Aircraft, para. 167). (emphasis original)
1407 Appellate Body Report, Canada – Autos, para. 123. (footnote omitted)

contingency under Article 3.1(a), we feel it appears reasonable to conclude that an evaluation of
de facto contingency under Article 3.1(b) should be objectively assessed with respect to the total
configuration of facts constituting and surrounding the granting of the subsidy which include (i) the
design and structure of the measure granting the subsidy; (ii) the modalities of operation set out
in such a measure; and (iii) the relevant factual circumstances surrounding the granting of the
subsidy that provide the context for understanding the measure's design, structure, and modalities
of operation.1408
6.5.9.3 The United States' Article 3.1(b) claim
6.779. This section evaluates whether the United States has presented a valid claim under
Article 3.1(b) of the SCM Agreement. It does so by considering whether the Workshare
Agreements and the terms of the A350XWB LA/MSF contracts demonstrate that the granting of the
A350XWB LA/MSF subsidies was contingent on the use of domestic over imported goods.
6.5.9.3.1 The Workshare Agreements
6.780. The United States claims that the relevant member States granted A350XWB LA/MSF to
Airbus in exchange for commitments from Airbus to locate certain LCA production activities in the
member States' territories and then use the LCA components made in such domestic production
activities in downstream LCA production activities. The United States characterizes this exchange
of commitments as Workshare Agreements. The United States appears to argue that both the
publicly available evidence, discussed above, and the terms of the A350XWB LA/MSF contracts,
also discussed above, evidence that the conclusion of the A350XWB LA/MSF contracts was
contingent on the conclusion of the Workshare Agreements, and therefore the A350XWB LA/MSF
contracts are contingent on the use of domestic over imported goods.
6.781. Insofar as the United States claims that the Workshare Agreements exist in a form distinct
from the A350XWB LA/MSF contracts, we find that the United States' claim is not supported by
sufficient evidence. In our view, the publicly available evidence discussed above is a vague and
ambiguous foundation upon which to establish the existence of any material agreements between
Airbus and the relevant member States regarding the domestic production and use of LCA
components beyond what the A350XWB LA/MSF contracts themselves exhibit. Similarly, insofar as
such publicly available evidence is simply meant to inform our interpretation of the A350XWB
LA/MSF contracts' terms, we find such evidence either duplicative or too vague and a mbiguous as
to impart any further material meaning to the contracts' terms. Indeed, such evidence appears to
generally pertain to speculation surrounding, discussions about, and/or references to the
A350XWB LA/MSF contracts. 1409 Thus, we limit our analysis in this context to the terms of the
A350XWB LA/MSF contracts, to which we now turn.
6.5.9.3.2 The A350XWB LA/MSF contracts
6.782. The United States claims that the terms of the A350XWB LA/MSF contracts demonstrate
that the contracts are de jure and/or de facto contingent on the use of domestic over imported
goods. The United States bases this claim on the alleged existence of a common element in each
of the contracts. That is, each contract requires Airbus to produce Airbus LCA components in the
territory of the member State granting the contract lest Airbus become ineligible to receive the
subsidy, at least in part. In other words, at least in part, payment under each A350XWB LA/MSF
measure is contingent on Airbus engaging in domestic LCA production activities. The United States
then reasons that, because Airbus uses the LCA components produced in those domestic
production activities in downstream LCA production, the contracts "effectively require{} Airbus to
source a large part of its components" from domestic sources. 1410 In su m, the United States'

1408 See European Union's first written submission, para. 434 (advocating the "total configuration of the
facts" standard in the Article 3.1(b) context).
1409 We note in this respect that, at the time it made its first submission, the United States did not yet
have access to the LA/MSF contracts associated with the A350XWB. The European Union provided these
contracts in response to the Panel's request under Article 13 of the DSU made after the first submissions of the
parties. Panel's communication of 4 September 2012 (containing request for information from the
European Union under Article 13 of the DSU). It is thus unsurprising that in its first submission the
United States relies upon such publicly available evidence.
1410 United States' first written submission, para. 239.

argument hinges on the question of whether , by conditioning the A350XWB LA/MSF subsidies'
receipt on the production of "domestic" LCA goods, the A350XWB LA/MSF contracts are effectively
contingent on the use of domestic over imported goods.
6.783. In evaluating the United States' claim, we begin by noting the European Union's assertion
that a proper understanding of Article 3.1(b)'s disciplines should be formulated in light of an
examination of Article III and, more specifically, Article III:8(b) of the GATT 1994. We detect
nothing improper about the suggestion that we may consider provisions of the GATT 1994 as
relevant context when interpreting provisions of the SCM Agreement. Indeed, that we may do so
appears well established. The SCM Agreement cross -references the GATT 1994 on numerous
occasions, and both the GATT 1994 and the SCM Agreement appear in Annex 1A of the
WTO Agreement which the Appellate Body has emphasized "is a 'Single Undertaking'". 1411
Consistent with the principle of effective treaty interpretation, the Appellate Body has indicated
that the SCM Agreement should not be considered in isolation from the GATT 1994.1412 Moreover,
the Appellate Body has more specifically indicated that because Article III of the GATT 1994 and
Article 3.1(b) of the SCM Agreement both discipline subsidies that are contingent on the use of
domestic over imported goods a degree of consistency is called for in their interpretation. 1413 We
therefore turn to consider whether Article III of the GATT 1994 helps inform our present analysis.
6.784. Article III of the GATT 1994 enshrines the principle of national treatment. The "broad and
fundamental purpose of Article III is to avoid protectionism in the application of internal tax and
regulatory measures".1414 To this end, "Article III obliges Members of the WTO to provide equality
of competitive conditions for imported products in relation to domestic products". 1415 The
Appellate Body has explained that this purpose "must be remembered when considering the
relationship between Art icle III and other provisions of the WTO Agreement ".1416
Article III:8(b) of the GATT 1994 provides, however:
The provisions of this Article shall not prevent the payment of subsidies exclusively to
domestic producers , including payments to domestic producers derived from the
proceeds of internal taxes or charges applied consistently with the provisions of this
Article and subsidies effected through governmental purchases of domestic products.
(emphasis added)
6.785. In effect, Article III:8(b) of the GATT 1994 confirms that, without more, the mere payment
of subsidies to firms so long as they engage in domestic production activities should not be
interpreted as imparting to such subsidies a discriminatory element as among domestic and
foreign goods in a manner that A rticle III may discipline. Indeed, if this were not the case, then it
appears that the only way for a WTO Member to avoid a payment of subsidies being prohibited
under WTO law would be to offer the subsidy payments to firms worldwide. We recall that
Article III:4 of the GATT 1994 – like Article 3.1(b) of the SCM Agreement – prohibits subsidies that
are contingent on the use of domestic over imported goods, notwithstanding the presence of
Article III:8(b) of the GATT 1994. This suggests that the act of grant ing subsidies to firms so long

1411 Appellate Body Report, Korea – Dairy, para. 74 (quoting Panel Report, Korea – Dairy, para. 7.38).
1412 Appellate Body Report, Brazil – Desiccated Coconut, pp. 14 (explaining that "{t}he relationship
between the GATT 1994 and the other goods agreements in Annex 1A is complex and must be examined on a
case-by-case basis" and that "'the question for consideration is … whether Article VI creates rules which are
separate and distinct from those of the SCM Agreement, and which can be applied without reference to that
Agreement, or whether Article VI of GATT 1994 and the SCM Agreement represent an inseparable package of
rights and disciplines that must be considered in conjunction'" (quoting Panel Report, Brazil – Desiccated
Coconut, para. 227)), and 16 (concluding "that the negotiators of the SCM Agreement clearly intended that,
under the integrated WTO Agreement, countervailing duties may only be imposed in accordance with the
provisions of Part V of the SCM Agreement and Article VI of the GATT 1994, taken together." (underline
original)).
1413 Appellate Body Report, Canada – Autos, para. 140 (supporting its conclusion that
Article 3.1(b) of the SCM Agreement disciplines not only de jure, but also de facto, contingency with the fact
that Article III:4 of the GATT 1994, which also disciplines subsidies contingent on the use of domestic over
imported goods, disciplines both species of contingency).
1414 Appellate Body Report, Japan – Alcoholic Beverages II, p. 16. (footnote omitted)
1415 Appellate Body Report, Japan – Alcoholic Beverages II, p. 16. (footnote omitted)
1416 Appellate Body Report, Japan – Alcoholic Beverages II, p. 16.

as they engage in domestic production activities, without more, should not be equated to making
those subsidies contingent on the use of domestic over imported goods and hence prohibited.1417
6.786. This suggestion accords with the man ner in which subsidies have been found to be
contingent on the use of domestic over imported goods in the past. Subsidies found to be so
contingent have contained elements requiring firms to use certain amounts of domestic goods as
production inputs, i.e. to discriminate between upstream sources of domestic and imported goods
in favour of the former. 1418 We detect no GATT or WTO dispute settlement report, however, in
which it was found, or in which it was even seriously suggested, that a subsidy could be
characterized as being contingent on the use of domestic over imported goods simply because the
subsidy was only available to a firm so long as it engages in domestic production activities. The
lack of precedent on that score is unsurprising because the manner in which relevant consumption
choices vis-à-vis domestic and imported goods may be altered as a result of only providing
subsidies to firms engaged in domestic production activities is fundamentally different from the
discriminatory dynamic described earli er in this paragraph. That is, rather than conditioning the
availability of the subsidy on discrimination between upstream sources of goods, the practice of
providing subsidies to firms only so long as they engage in domestic production activity can and
will many times have an effect occurring downstream from the mandated domestic production
activity, i.e. increased consumption of domestic goods due to quantitative and/or qualitative
enhancements to the goods produced pursuant to the mandated domestic produ ction activities. In
this manner, such subsidies may limit competitive opportunities for relevant imported goods in
certain markets.
6.787. Significant problems arise, however, if such alterations in the conditions of competition
caused by a WTO Member only provi ding subsidies to firms so long as they engage in domestic
production activities become the focus and determinant of whether a subsidy should be disciplined
as being contingent on the use of domestic over imported goods. First, as the panel in EC –
Commercial Vessels appeared to appreciate, if such effects were to form the basis upon which to
discipline a subsidy under Article III:4 of the GATT 1994, "Article III:8(b) would be deprived of its
effectiveness as production subsidies can have such an effect in many instances." 1419 Second,
disciplining such effects under Article 3.1(b) of the SCM Agreement transforms the provision into
an effects -based provision, thereby significantly blurring – and with respect to at least certain
subsidies, potentially erasing – the line between the disciplines of Part II of the SCM Agreement
and the effects -based disciplines on actionable subsidies contained in Part III of the
SCM Agreement. The Appellate Body has explicitly cautioned against such blurring in recent
jurisprudence.1420 It follows, therefore, that such an interpretation of contingency on the use of
domestic over imported goods cannot stand.
6.788. This interpretation, however, is the very one that we must adopt if we are to accept the
United States' claim. That claim hinges on the question of whether, by conditioning the A350XWB
LA/MSF subsidies' receipt on the production of domestic LCA goods, the A350XWB LA/MSF

1417 To be clear, in noting this suggestion, we need not address, let alone resolve, the question of
whether Article III:8(b) is an exemption, which clarifies that Article III is inherently inapplicable to subsidies
paid exclusively to domestic producers, or an exception, which removes from the scope of Article III:4
measures that would otherwise be covered by that provision.
1418 See e.g. Panel Reports, Indonesia – Autos; US – Upland Cotton; and Appellate Body Report, Canada
– Autos, paras. 118-146 (finding itself unable to complete the legal analysis regarding whether the relevant
subsidies were contingent on the use of domestic over imported goods, but indicating that if certain Canadian
value added requirements in the relevant subsidies could not be satisfied without the recipients using domestic
goods as production inputs then the requirements would be contingent on the use of domestic over imported
goods). See also GATT Panel Report, Italy – Agricultural Machinery, paras. 5-16 (finding that an extension of
credit facilities exclusively to purchasers of domestically produced agricultural machinery was inconsistent with
Article III:4 of the GATT 1947 and indicating that Article III:8(b) of the GATT 1947 would have covered the
practice of payment of subsidies to domestic producers of such machinery).
1419 Panel Report, EC – Commercial Vessels, paras. 7.73-7.74 (reasoning that although the subsidy at
issue, which was only available to domestic producers, might lower the price of the relevant domestic product
and therefore "may adversely affect the conditions of competition between domestic and Korean products that
effect is not relevant to whether Article III:8(b) applies to the aid.").
1420 The Appellate Body, citing the need to preserve distinct roles for Parts II and III of the
SCM Agreement, has stressed that the discipline contained in Article 3.1(a) in Part II of the SCM Agreement is
not effects-based, but must be activated by something in the subsidy itself. (See Appellate Body Report, EC
and certain member States – Large Civil Aircraft, paras. 1049, 1051, and 1054). It appears reasonable to us
that such guidance should apply equally to Article 3.1(b).

contracts are contingent on the use of domestic over imported goods. Given our discussion above,
we must answer this question in the negative. It may well be that the contracts are contingent on
the domestic manufacture of certain LCA -related goods. It may well be that the contracts,
therefore, affect the domestic/import composition of a supply of inputs to which a down stream
entity applies its business judgment at a given production stage when making input -sourcing
decisions1421, thereby displacing or impeding competitive opportunities for relevant substitute
imported goods. Part III of the SCM Agreement is concerned with such event chains. Article 3.1(b)
is not. Its discipline is narrow and specific, activated by a subsidy that appropriates an entity's
judgment by conditioning its receipt on that entity discriminating among inputs with respect to
their domestic or imported nature, whether in law or in fact. 1422 None of the contingencies in the
A350XWB LA/MSF contracts identified above operate in this manner with respect to any entity. 1423
Rather, they ensure that the member States are subsidizing a domestic producer. Article 3.1(b),
therefore, does not discipline them.
6.789. We note that this conclusion holds true with respect to all four contingencies identified in
the A350XWB LA/MSF contracts despite certain differences they display. We recall that the
A350XWB LA/MSF contracts' paymen ts are aimed at reimbursing expenses arising from A350XWB
development and/or production activities. We have earlier assumed arguendo that all four
contingencies, when satisfied, result in the production of LCA-related goods in the territories of the
respective grantors. Given their nature, Domestic A350XWB Development Contingency, Domestic
A350XWB Employment Contingency, and Domestic A350XWB Workshare Contingency will result in
the production of A350XWB-related goods in the territories of the relevant membe r States. Thus,
the domestic production activities that these three contingencies mandate appear to be among the
very activities that the A350XWB LA/MSF contracts aim to subsidize. Domestic Non -A350XWB
Workshare Contingency differs because, by its nature, this contingency results in production of
non-A350XWB-related goods. Such production is not what the A350XWB LA/MSF contracts aim to
subsidize. The question may arise, therefore, as to whether this factual distinction affects the
applicability of Article 3.1(b)'s legal discipline. It does not. For reasons explained above,
Article 3.1(b) does not prohibit subsidies merely because they require the recipient to engage in
domestic production activities. We detect no textual or logical reason to conclude that this principle
should cease to apply merely because the subsidisation is aimed at something other than the
required domestic production activities.
6.5.9.4 Conclusion
6.790. We find that the United States' claim that the A350XWB LA/MSF subsidies are prohibited
subsidies un der Articles 3.1(b) and 3.2 of the SCM Agreement because they are de jure and/or
de facto contingent on the use of domestic over imported goods is unsupported by sufficient
evidence and therefore fails.
6.791. Having articulated our findings with respect to the q uestions raised by the European Union
concerning the scope of this proceeding, and the United States' prohibited subsidy claims against
the A380 and A350XWB LA/MSF subsidies, we now turn to examine the third and final set of issues
raised in this dispute, namely, the United States' claims that the European Union and certain
member States have failed to comply with Article 7.8 of the SCM Agreement.

1421 We recognize that, in this case, the recipient of the relevant subsidies, i.e. Airbus, is the same entity
that we have assumed produces and uses the relevant "domestic" goods. This fact, however, is immaterial.
The United States' Article 3.1(b) claim fails because Article 3.1(b) does not discipline how the relevant
subsidies presumably result in the use of domestic over imported goods, whoever the user may be. This basic
conceptual flaw endures whatever formal corporate architectures are superimposed over the events leading to
such use.
1422 Alternately stated, that a subsidy in fact results in the use of domestic over imported goods cannot
by itself demonstrate that that subsidy is contingent on the use of domestic over imported goods, whether in
law or in fact.
1423 To be clear, we do not suggest that in order for a subsidy to be contingent on the use of domestic
over imported goods the subsidy must actually result in an observable change a relevant entity's
input-sourcing behaviour.

6.6 Whether the European Union and certain member States have complied with
Article 7.8 of the SCM Agreement
6.6.1 Introduction
6.792. The difficult interpretative question that we believe lies at the centre of the United States'
non-compliance claims in this dispute is how to give meaning to the requirement in Article 7.8 of
the SCM Agreement to "take appropriate steps to remove the adverse effects" or "withdraw the
subsidy" in the context of the substantive disciplines of Article 5 of the SCM Agreement, which
focus not on the existence of a particular type of measure (as other disciplines found in the WTO
covered agreements), but rather on the trade effects that may be attributed to a measure,
whether or not it continues to exist . In grappling with this conundrum, the parties (and certain
third parties) have expressed profoundly different views about not only whether the
European Union and certain member States have complied with the terms of Article 7.8, but also,
more fundamentally, the extent to which the European Union and certain member States have any
ongoing compliance obligation at all with respect to subsidies found to cau se adverse effects in the
original proceeding that allegedly ceased to exist by the time of the DSB's adoption of the panel
and Appellate Body recommendations and rulings on 1 June 2011.
6.793. In the subsections that follow, we begin our evaluation of the merit s of the parties'
arguments by focusing on this latter threshold question. After dismissing the European Union's
contentions in this regard and concluding that the fact that a subsidy found to cause adverse
effects in an original proceeding may no longer e xist by the time of the DSB's adoption of
recommendations and rulings does not ipso facto mean that a responding Member will have no
compliance obligation with respect to that subsidy under the terms of Article 7.8 of the
SCM Agreement, we examine the exte nt to which the United States has established that the
European Union and certain member States have failed to comply with Article 7.8 of the
SCM Agreement by failing to "withdraw the subsidy" or "take appropriate steps to remove the
adverse effects".
6.6.2 Whether the European Union and certain member States have a compliance
obligation with respect to subsidies that allegedly ceased to exist by 1 June 2011
6.6.2.1 Arguments of the European Union
6.794. The European Union argues that it follows from the express terms of Artic le 7.8 of the
SCM Agreement that it has no obligation to adopt any compliance measures with respect to any of
the challenged subsidies that ceased to exist prior to the beginning of the implementation
period.1424 The European Union points out that the languag e of Article 7.8 explicitly imposes the
obligation to "take appropriate steps to remove the adverse effects" or "withdraw the subsidy" on
the Member " granting or maintaining " the subsidy or subsidies found to have caused adverse
effects in an original proc eeding. For the European Union, this means that in order for the
United States to prevail in this compliance dispute, one of the first things it must demonstrate is
that the European Union and its member States are " granting or maintaining " the relevant
subsidies – in other words, that the challenged subsidies continue to exist. 1425 Thus, according to
the European Union, where the challenged subsidies have ceased to exist before the beginning of
the implementation period, "the Panel should conclude that the co rresponding subsidies are
outside of the scope of the DSB recommendations and rulings and, therefore, that the
European Union had no obligation to adopt 'measures taken to comply' with respect to those
subsidies".1426
6.795. The European Union finds contextual supp ort for its interpretation of Article 7.8 in
Article 4.7 of the SCM Agreement and various provisions of the DSU. In addition, the
European Union argues that its understanding of the scope of Article 7.8 is consistent with the
Appellate Body's statement tha t the recommendations made by the panel in the original

1424 European Union's first written submission, paras. 232-233 and 244; second written submission,
paras. 98, 195, and fn 742; and response to Panel question No. 6.
1425 European Union's first written submission, paras. 30, 33-34, 36-37, 225, and 244; and response to
Panel question No. 6.
1426 European Union's first written submission, para. 244; and response to Panel question No. 6.

proceeding "do not concern subsidies that have been 'extinguished' or 'extracted'". 1427 According
to the European Union, the Appellate Body's statement confirms that subsidies that ceased to exist
"prior to the adoption of DSB recommendations and rulings … , are simply not covered by those
recommendations and rulings".1428
6.6.2.2 Arguments of the United States
6.796. The United States submits that the fact that one or more subsidies may have ceased to
exist prior to the adoption of the rulings and recommendations in this dispute does not "excuse the
EU from the Article 7.8 obligation triggered by its earlier violations of Article 5". 1429 For the
United States, the findings of adverse effects made by the panel and the Appellat e Body in the
original proceeding define the European Union's compliance obligation. Because these were made
notwithstanding the allegation that certain subsidies had ceased to exist, the United States
submits that the same alleged events cannot now mean t hat the European Union and its member
States have no compliance obligation. 1430 According to the United States, the European Union's
argument "would nullify the findings under Article 5, at least insofar as they applied to subsidies
that had expired before th e reference period, by leaving them without a remedy under
Article 7.8".1431 Thus, the United States argues that in the light of the adopted rulings and
recommendations, the European Union has an obligation to "take appropriate steps to remove the
adverse effects" or "withdraw the subsidy" in respect of all of the challenged subsidy measures.1432
6.6.2.3 Arguments of the third parties
6.6.2.3.1 Brazil
6.797. Brazil argues that the focus of Article 7.8 of the SCM Agreement is to remedy the specific
problem found to exist that nullified or impaired the benefits under the SCM Agreement accruing to
the complaining Member. According to Brazil, the focus in Part III of the SCM Agreement on
"actionable subsidies" is on the adverse effects caused by the use of a subsidy, not on the
existence of the subsidy itself. Brazil maintains that this is also the focus of Article 7.8 of the SCM
Agreement, which requires an implementing Member to "take appropriate steps to remove the
adverse effects" or "withdraw the subsidy". However this "option" may be int erpreted, Brazil
submits that in order to be correct, it should lead to bringing a Member found to have acted
inconsistently with Article 5 back into conformity with its obligation not to cause adverse effects
through the use of subsidies.
6.798. Brazil emphasize s that as clarified by the panel and the Appellate Body in the original
proceeding, there is no need to demonstrate that the subsidy benefit continues to exist for a
finding of current adverse effects. Therefore, Brazil submits that the fact that a subsidy was
granted in the past, that the "benefit" has expired, and that the subsidy no longer exists does not
prevent a finding of adverse effects caused by past subsidies. Brazil considers that this is
particularly relevant for launch aid subsidies, which may continue to cause adverse effects long
after they have been granted and repaid due to the presence of aircraft models that otherwise
would not have been competing in the market.
6.799. Referring to various passages of the Appellate Body's findings in the origina l proceeding,
Brazil argues that as long as there exists a genuine and substantial relationship of cause and effect
between those (past) subsidies and the adverse effects found to exist after the implementation
period ended, the measure cannot be understoo d as having been brought into conformity, as the
appropriate steps would not have been taken to remove the adverse effects or to withdraw the
subsidy in a manner that is consistent with the SCM Agreement's obligation not to cause adverse
effects. Thus, in Brazil's view, the expiry or extinction of the benefit and more generally the fact
that the subsidy can be considered as "terminated" because no new payments are due can only be

1427 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 757.
1428 European Union's first written submission, para. 232; and second written submission, paras. 98,
195, and fn 742.
1429 United States' second written submission, para. 268.
1430 United States' second written submission, paras. 265-273; and comments on the European Union's
response to Panel question No. 6.
1431 United States' first written submission, para. 140.
1432 United States' first written submission, para. 17; and response to Panel question No. 5.

understood as constituting compliance if these intervening events can be demon strated to be
sufficient to break the causal link that existed between the subsidy and the adverse effects found
to exist. According to Brazil, such "intervening events" do not constitute either "appropriate steps"
or the "withdrawal" of the subsidy. Howev er, they may be of such a nature that they render
further implementation efforts moot, because the adverse effects no longer exist.1433
6.6.2.3.2 Canada
6.800. Canada submits that the only subsidies the effects of which must be assessed in
compliance proceedings under Article 7.8 of the SCM Agreement are subsidies in existence at the
end of the six -month implementation period within which a subsidizing Member must remove
adverse effects. Thus, according to Canada, the proper counterfactual analysis to perform under
Article 7.8 is as follows: in the absence of the subsidies that existed at the end of the
implementation period, what would be the situation of the relevant producers? In Canada's view,
that situation can then be compared to the actual situation of the relevant produ cers in order to
determine whether the subsidies have caused serious prejudice.1434
6.6.2.4 Evaluation by the Panel
6.6.2.4.1 The scope of Article 7.8 of the SCM Agreement
6.801. We start our analysis of the parties' submissions by reviewing the text of Article 7.8 of the
SCM Agreement, which reads as follows:
When a panel report or an Appellate Body report is adopted in which it is determined
that any subsidy has resulted in adverse effects to the interests of another Member
within the meaning of Article 5, the Member granting or mai ntaining such subsidy
shall take appropriate steps to remove the adverse effects or shall withdraw the
subsidy.
6.802. Article 7.8 specifies what an implementing Member must do following the adoption of a
panel and/or Appellate Body report in which it is determin ed that any subsidy has caused adverse
effects within the meaning of Article 5 of the SCM Agreement. In such a situation, Article 7.8
specifies that the "Member granting or maintaining such subsidy shall take appropriate steps to
remove the adverse effects or shall withdraw the subsidy". The fact that the reference to "granting
or maintaining such subsidy" is made in the present continuous tense, could be taken to suggest
that the obligation to "take appropriate steps to remove the adverse effects" or "with draw the
subsidy" was intended to come into play whenever an implementing Member continues to grant or
maintain a subsidy found to have caused adverse effects in an original proceeding. Because a
Member cannot be said to be "granting or maintaining" a subs idy that no longer exists, it could be
argued that the obligation in Article 7.8 should only apply to a Member found to have acted in
violation of Article 5, whenever the subsidies found to have caused adverse effects continue to
exist during the implement ation period. Thus, when read in isolation, the text of Article 7.8 may
arguably be viewed to suggest that a Member found to have caused adverse effects through the
use of a subsidy would have no obligation to "take appropriate steps to remove the adverse
effects" or "withdraw the subsidy" if the subsidy at issue no longer exists at the time of the DSB's
adoption of the adverse effects findings.
6.803. However, in our view, such an interpretation of Article 7.8 would be at odds with the
provisions of the DSU that govern when and how compliance obligations are incurred and
discharged and, therefore, cannot be reconciled with the context and object and purpose of
Article 7.8, which as we discuss below, is intended to clarify how an implementing Member found
to have caused adverse effects through the use of subsidies is to come into conformity with its
obligations under Article 5 of the SCM Agreement. It is particularly this latter function of
Article 7.8, when considered in the light of the effects-based nature of the disciplines of Article 5,

1433 Brazil' third-party submission, paras. 13-21 (citing Appellate Body Report, EC and certain member
States – Large Civil Aircraft, paras. 709-712, fn 1644; and Appellate Body Report, US – Upland Cotton
(Article 21.5 – Brazil), paras. 223, 236, and 238); and third-party response to Panel question No. 1.
1434 Canada's third-party submission, para. 29; third-party statement, paras. 10-17; and third-party
response to Panel question No. 1.

that renders the interpretation of the scope of Article 7.8 advanced by the European Union
problematic. Thus, as we explain in more detail in the sections that follow, a reading of Article 7.8
that takes its proper context and o bject and purpose into account reveals that the
European Union's submission that it does not have an obligation to adopt any compliance
measures in relation to subsidies that allegedly ceased to exist before 1 June 2011 cannot be
sustained.
6.6.2.4.1.1 WTO compliance obligations are intended to bring about conformity with the
covered agreements, thereby maintaining the balance of Members' rights and
obligations
6.804. As already noted, Article 7.8 is one of the "special or additional rules and procedures on
dispute settlement contained in the covered agreements" which prevail over the general DSU rules
and procedures to the extent that there is a conflict between them. 1435 This does not, however,
mean that Article 7.8 must be applied in isolation to the rules of the DSU. On the c ontrary, it is
well established that the "special or additional rules and procedures contained in the covered
agreements" must be applied in conjunction with the rules of the DSU. It is only where the two
sets of rules "cannot be read as complementing each other that the special or additional rules are
to prevail".1436 Thus, a first important part of the context of Article 7.8 are the rules of the DSU
governing when and how WTO compliance obligations are incurred and discharged.
6.805. A violation of WTO-law carries with it an obligation to bring the WTO -inconsistent measure
into conformity with the covered agreement that is the basis of the infringement. The primary
source of this obligation is Article 19.1 of the DSU. This provision prescribes that where a panel or
the Appellate Body finds that a measure is inconsistent with a covered agreement, "it shall
recommend that the Member concerned bring the measure into conformity with that
agreement".1437
6.806. In discharging its obligations under Article 19.1 in this dispute, the panel recommended
that the "Member granting each subsidy found to have resulted in … adverse effects 'take
appropriate steps to remove the adverse effects or … withdraw the subsidy'". 1438 Similarly, after
stating that the panel's recommendation calling upon t he European Union and its member States
to "take appropriate steps to remove the adverse effects" or "withdraw the subsidy" stood to the
extent it had upheld the panel's adverse effects findings, the Appellate Body concluded by stating
that:
The Appellate Body recommends that the DSB request the European Union 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.1439 (emphasis added)
6.807. Article 21.1 of the DSU places compliance with adopted recommendations at the forefront
of the dispute settlement system, stipulating that "{p}rompt compliance with recommendations
and rulings of the DSB is essential in order to ensure eff ective resolution of disputes to the benefit
of all Members". It is clear from the text of Article 19.1 that such compliance will require the
implementing Member to bring its WTO -inconsistent measure into conformity with the covered
agreement that is the source of the infringement of WTO law.
6.808. That the conformity of an otherwise WTO -inconsistent measure with the relevant covered
agreement defines the notion of compliance that applies in WTO dispute settlement is also
apparent from the language of Article 21 .5. Elsewhere in this Report, we have noted that this
provision describes the process that disputing parties must follow in order to resolve any

1435 See above at para. 6.2.
1436 Appellate Body Report, Guatemala – Cement I, para. 65. (emphasis original) In the same
paragraph, the Appellate Body explained that a "special or additional provision should only be found to prevail
over a provision of the DSU in a situation where adherence to the one provision will lead to a violation of the
other provision, that is, in the case of a conflict between them."
1437 (emphasis added)
1438 Panel Report, EC and certain member States – Large Civil Aircraft, para. 8.7.
1439 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1418.

"disagreement as to the existence or consistency with a covered agreement of measures taken to
comply with the recommendations and rulings".1440
6.809. Thus, Articles 19 and 21 of the DSU provide that any violation of the covered agreements
will attract an obligation to remedy that breach of WTO law 1441, and this remedy requires an
implementing Member to bring its WTO -inconsistent measure into conformity with the covered
agreement that was the source of the infringement. 1442 In other words, as both the United States
and the European Union appear to accept, once a Member is found to have breached its WTO
obligations, it will be unde r an obligation to cease its WTO -inconsistent conduct for as long as the
violation of the covered agreement continues.1443
6.810. This understanding of how and when a compliance obligation will be incurred and
discharged finds support in other aspects of the dispute settlement system, including its object and
purpose. Article 3.2 of the DSU specifies that the WTO dispute settlement system "serves to
preserve the rights and obligations of Members under the covered agreements " and that
recommendations and rulings " cannot add to or diminish " these rights and obligations. 1444
Similarly, Article 3.3 reads as follows:
The prompt settlement of situations in which a Member considers that any benefits
accruing to it directly or indirectly under the covered agreements are being i mpaired
by measures taken by another Member is essential to the effective functioning of the
WTO and the maintenance of a proper balance between the rights and obligation of
Members. (emphasis added)
6.811. Article 3.4 requires all adopted recommendations and rul ings to be "aimed at achieving a
satisfactory settlement of the matter in accordance with the rights and obligations under {the
DSU} and the covered agreements ".1445 Moreover, Article 3.5 stipulates that all solutions to
disputes "formally raised under the co nsultation and dispute settlement provisions of the covered
agreements shall be consistent with those agreements and shall not nullify and impair benefits
accruing to any Member under those agreements , nor impede the attainment of any objective of
those agreements".1446
6.812. Finally, Article 3.7 identifies a preference for solutions that are "mutually acceptable to the
parties … and consistent with the covered agreements ", but explains that where this is not
possible, "the first objective of the dispute settlement mechanism is usually to secure the
withdrawal of the measures concerned if these are found to be inconsistent with the provisions of
any of the covered agreements".1447
6.813. Thus, it is apparent that the WTO dispute settlement system is intended to function in a
way that maintains the balance of rights and obligations in the covered agreements; and one of
the principal ways in which the system endeavours to achieve this balance is by directing Members
to respect the provisions of the covered agreements throughout a ll stages of a dispute. In our
view, this focus on securing conformity with the covered agreements implies that one of the
fundamental objectives of Article 7.8 of the SCM Agreement must be to bring an implementing
Member found to have caused adverse effec ts to the interests of another Member back into

1441 Although Article 22 of the DSU envisages the possibility that an implementing Member may pay
compensation to a complainant or have WTO concessions or other obligations suspended if it fails to comply
with adopted recommendations and rulings within a reasonable period of time, Article 22.1 makes clear that
such measures are only "temporary" and not to be "preferred to full implementation of a recommendation to
bring a measure into conformity with the covered agreements". The temporary nature of compensation and the
suspension of concessions is also confirmed in Article 3.7 of the DSU.
1442 Article 22.2 envisages the possibility that compliance with rulings and recommendations might also
be achieved in some "other" way. Article 26.1(d) of the DSU suggests that this possibility is reserved to
disputes involving non-violation complaints, which as opposed to violation complaints, may be definitively
settled through the payment of compensation.
1443 United States' response to Panel question No. 5; and European Union's response to Panel question
No. 5.
1444 (emphasis added)
1445 (emphasis added)
1446 (emphasis added)
1447 (emphasis added)

conformity with its obligations under Article 5 of the SCM Agreement. This suggests that the
obligation to "take appropriate steps to remove the adverse effects" or "withdraw the subsidy" that
is prescribed in Article 7.8 should be interpreted to operate in a way that secures an implementing
Member's conformity with Article 5.
6.6.2.4.1.2 WTO case law supports the conclusion that the remedies envisaged in
Article 7.8 are intended to restore conformity with an implementin g Member's
obligations under Article 5 of the SCM Agreement
6.814. That the remedies provided for in Article 7.8 of the SCM Agreement are intended to bring
an implementing Member back into conformity with its obligations under Article 5 was among the
considerations relied upon by the panel and Appellate Body in US – Upland Cotton (Article 21.5 –
Brazil) when determining the scope of the United States' compliance obligations at issue in that
dispute.
6.815. One of the questions that arose in US – Upland Cotton (Article 21.5 – Brazil) was whether
Brazil was entitled to pursue a claim that the United States had failed to comply with its
obligations under Article 7.8 of the SCM Agreement by providing two kinds of recurring subsidies
to cotton farmers after the end of the imp lementation period under the same subsidy programmes
used to make the subsidy payments found in the original proceeding to cause adverse effects. 1448
The United States objected to Brazil's claim, arguing that the obligation that fell upon it as an
implementing Member under Article 7.8 concerned only those subsidies that were the subject of
the adopted rulings and recommendations in the original proceeding, and not any future subsidies
with respect to which no adverse effects findings had been made. The panel e xplained the
interpretative problem that arose as a result of this particular set of facts in the following terms:
Under Article 7.8 of the SCM Agreement the United States was obligated, with respect
to subsidies subject to the "present" serious prejudice finding of the original panel, to
"take appropriate steps to remove the adverse effects or … withdraw the subsidy".
It is clear from the context that the adverse effects that must be removed are the
adverse effects of the subsidy that has been determined to have resulted in adverse
effects. Since the original panel made a finding of present serious prejudice in respect
of subsidies provided during MY 1999-2002, the question arises whether the obligation
to take appropriate steps to remove the adverse effec ts only applies to payments of
subsidies made in those years.1449 (emphasis added)
6.816. In answering this question, a fundamental consideration for the panel was the need to
ensure that Article 7.8 was interpreted in the light of the substantive obligation in Article 5 to avoid
causing adverse effects through the use of subsidies. Thus, after recalling that similar "conformity -
based" considerations had been taken into account by panels and the Appellate Body in previous
Article 21.5 proceedings involving the questi on of compliance with the obligation to "withdraw the
subsidy without delay" for the purpose of Article 4.7 of the SCM Agreement1450, the panel opined
as follows:
Thus, the concept of "withdrawal" must in any event be interpreted to mean that a
Member must cease to act in a WTO-inconsistent manner with respect to that subsidy.

1448 Both parties agreed that the subsidies found to have caused adverse effects in the original
proceeding were "the Step 2, market loss assistance, marketing loan and counter-cyclical payments made
during the MY 1999-2002". All of these were recurring subsidies paid to cotton farmers once every marketing
year (MY) for the purpose of supporting their harvesting, production and marketing activities in the same MY.
However, the focus of Brazil's claim in the Article 21.5 dispute were marketing loans and counter-cyclical
payments made to farmers in the period after September 2005.
1449 Panel Report, US – Upland Cotton (Article 21.5 – Brazil), paras. 9.77-9.78.
1450 See Appellate Body Report, Brazil – Aircraft (Article 21.5 – Canada), para. 45; and Panel Reports,
Brazil Aircraft (Article 21.5 – Canada), para. 6.8; and Canada – Aircraft (Article 21.5 – Brazil), para. 5.10.
These cases stand for the proposition that in order to comply with the requirement to "withdraw the subsidy
without delay" in Article 4.7 of the SCM Agreement, an implementing Member will have to ensure that its
conduct with respect to the measure found to be a prohibited subsidy brings it into conformity with the
substantive obligation that triggered the compliance obligation in the first place, namely, Articles 3.1 and 3.2 of
the SCM Agreement. See further below, at paras. 6.1080-6.1085.

If a failure to cease conduct inconsistent with a Member's obligations under Article 3
of the SCM Agreement is inconsistent with the obligation to withdraw the subsidy in
Article 4.7 of the SCM Agreement, we see no logical reason why the same concept
should not also apply to the obligation that arises under Article 7.8 of the
SCM Agreement to withdraw the subsidy or to take appropriate steps to remove the
adverse effects of a subsidy that has been determined to result in adverse effects. In
our view, the remedy under Article 7.8 must be viewed in its relationship to the
obligation in Article 5 not to cause through the use of any subsidy referred to in
Articles 1.1 and 1.2 of the SCM Agreement adverse effects to the interests of other
Members. It must serve to restore conformity with the Member's obligation to avoid
causing adverse effects through the use of any subsidy . … The interpretation
advocated by the United States, whereby the obliga tion under Article 7.8 of the
SCM Agreement is limited to the removal of the adverse effects caused by subsidies
granted in a particular period of time, implies that it would not be possible to review in
an Article 21.5 proceeding whether a Member causes a dverse effects by continuing to
grant subsidies under the same conditions and criteria as the subsidies found to have
caused adverse effects. Such an interpretation fails to take into account the
relationship between Article 7.8 and Article 5 of the SCM Agreement and thus fails to
interpret Article 7.8 in its proper context.1451 (emphasis added)
6.817. The panel went on to conclude that the two kinds of recurring subsidy payments made to
cotton farmers after the end of the implementation period were subject to the ad opted
recommendations and rulings and, therefore, that the United States had a compliance obligation
with respect to those subsidies under the terms of Article 7.8 of the SCM Agreement.1452
6.818. On appeal, the Appellate Body upheld the panel's conclusions. In doin g so, one of the
reasons the Appellate Body used to reject the United States' contentions was that it could not
accept an interpretation of Article 7.8 that would nullify the effectiveness of the disciplines in
Article 5 of the SCM Agreement. The Appellate Body explained this particular concern in the
following terms:
Brazil and several of the third participants have cautioned that accepting the
United States' approach would deny effective relief to WTO Members who successfully
demonstrate that subsidies pr ovided by another Member have resulted in adverse
effects. …
…
… Under such an approach, a complaining Member that has demonstrated that
subsidies provided by another Member have resulted in adverse effects would obtain
relief only with respect to any lin gering effects of the subsidies provided during the
period examined by the panel. As Australia notes, such panel findings would
essentially be declaratory in nature, because there would be no impact on subsidies
granted or maintained after the panel made i ts finding. The complaining Member
would have to initiate another dispute to obtain relief with respect to payments made
after the period examined by the panel, even if those subsidies are recurring
payments or otherwise of the same nature as those found t o have resulted in adverse
effects. Even if the complaining Member were to succeed in its claims a second time,
the subsidizing Member could provide further subsidies after the second panel's ruling,
and the complaining Member would have to initiate yet another dispute, and this cycle
could continue. As Brazil and several of the third participants have warned, the
inability of a complaining Member to obtain relief against subsidies that result in
adverse effects to its interests would seriously undermine th e disciplines contained in
Articles 5 and 6 of the SCM Agreement.1453 (emphasis added; footnotes omitted)
6.819. In our view, this passage of the Appellate Body's reasoning very clearly reveals that the
need to secure the effectiveness of the subsidy disciplines in Article 5 was an important

1451 Panel Report, US – Upland Cotton (Article 21.5 – Brazil), para. 9.79.
1452 Panel Report, US – Upland Cotton (Article 21.5 – Brazil), para. 9.81.
1453 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), paras. 241 and 245.

consideration for the Appellate Body when interpreting the scope of the United States' obligations
under Article 7.8. As we understand it, the logic of the Appellate Body's ruling implies that the
scope of Article 7.8 should not be interpreted in a way that would render adverse effects findings
made in original proceedings merely "declaratory in nature", as this would preclude a complaining
Member from obtaining relief from the adverse effects caused by a Member's use of subsidies in
violation of its substantive obligations. In order to avoid such an outcome, it would be necessary to
interpret the scope of an implementing Member's compliance obligations under Article 7.8 in a way
that gives full effect to that Member's obligation u nder Article 5 of the SCM Agreement not to
cause adverse effects through the use of subsidies found to have caused adverse effects in the
original proceeding.
6.6.2.4.1.3 The effects-based disciplines of Article 5 imply that the non -existence of a
subsidy found to cau se adverse effects will not necessarily define the scope of an
implementing Member's compliance obligations under Article 7.8
6.820. In exploring the merits of the European Union's interpretation of the scope of an
implementing Member's compliance obligations und er Article 7.8, it is important to recall that
Article 5 of the SCM Agreement imposes an effects-based discipline on a Member's use of
subsidies. In particular, Article 5 contemplates that a Member may be found to be in violation of its
obligations, whenever it is demonstrated that a subsidy granted or maintained in the past causes
or threatens to cause certain types of economic harm to the interests of another Member. The
Appellate Body explicitly recognized the effects-based nature of Article 5 in the ori ginal proceeding
when it confirmed that the fact that a subsidy granted in the past may no longer exist will not
necessarily bring about the end of its effects. Thus, in upholding the panel's finding that there is no
requirement in Article 5 of the SCM Agreement to demonstrate the existence of a "present" or
"continuing" benefit in order to make out a case of adverse effects, the Appellate Body explained:
In focusing on the causing of adverse effects through the use of any subsidy, Article 5
envisages that the use of the subsidy and the adverse effects may not be
contemporaneous. … {T}he provision of subsidies and their effects need not coincide
temporally and there may be a time lag. By its terms, Article 5 of the SCM Agreement
imposes an obligation on Memb ers not to cause adverse effects to the interests of
other Members through the use of any subsidy as defined in Article 1. We disagree
with the proposition that this obligation does not arise in respect of subsidies that
have come to an end by the time of the reference period. In fact, we do not exclude
that, under certain circumstances, 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.
… We wish to emphasize, h owever, that {the} effects of a subsidy will ordinarily
dissipate over time and will end at some point after the subsidy has expired . Indeed,
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.1454 (emphasis added; footnote omitted)
6.821. Similarly, in US – Upland Cotton, the Appellate Body explained that:
Whether the effect of a subsidy begins and expires in the year in which it is paid or
begins in one year and continues in any subs equent year, and how long a subsidy can
be regarded as having effects, are fact -specific questions . The answers to these
questions may depend on the nature of the subsidy and the product in question. We
see nothing in the text of Article 6.3(c) that exclud es a priori the possibility that the
effect of a "recurring" subsidy may continue after the year in which it is paid .
Article 6.3(c) deals with the "effect" of a subsidy, and not with the financial accounting
of the amount of the subsidy.

1454 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 712-713.

… We do not agree with the proposition that, if subsidies are paid annually, their
effects are also necessarily extinguished annually .1455 (emphasis added; footnote
omitted)
6.822. In our view, it follows from the effects-based nature of the disciplines in Article 5 and the
role that Article 7.8 is intended to play in bringing an implementing Member into conformity with
its obligations under the SCM Agreement, that there may well be particular factual circumstances
when the obligation to "take appropriate steps to remove the adverse effects" or "withdraw the
subsidy" will apply to subsidies found to have caused adverse effects in an original proceeding,
irrespective of whether those subsidies continue to exist in the implementation period. In other
words, because the remedies provided for under Article 7.8 are intended to bring an implementing
Member into conformity with its obligations under Article 5, the fact that it is possible under these
disciplines to find that a subsidy no longer being granted or maintained causes adverse effec ts,
necessarily implies that the mere fact that a subsidy granted in the past no longer exists cannot
alone exclude it from the scope of an implementing Member's Article 7.8 compliance obligations.
Thus, contrary to the European Union's position, a subsidy found to have caused adverse effects in
an original proceeding need not always continue to exist during the implementation period in order
for an implementing Member to have a compliance obligation with respect to that subsidy under
the terms of Article 7.8 of the SCM Agreement.
6.6.2.4.1.4 The Appellate Body's statements in the original proceeding concerning the
scope of the panel's recommendations
6.823. The European Union draws support for its position that it does not have a compliance
obligation with respect to subsidie s that ceased to exist prior to 1 June 2011 from the following
Appellate Body statements made in the original proceeding:
{W}e understand the recommendations made by the Panel to be collective, in the
sense that they concern all those subsidies ultimately found to be prohibited subsidies
or actionable subsidies causing adverse effects. They do not concern subsidies that
have been "extinguished" or "extracted" . Such recommendations request the
European Union to withdraw those subsidies and/or remove adverse effects; panels or
the Appellate Body are not required to make recommendations pursuant to
Articles 4.7 and 7.8 with respect to subsidy measures that are found to be
"extinguished" or "extracted".1456 (emphasis added)
6.824. We note that the Appellate Body's stateme nts were made in the context of the
Appellate Body's rejection of the European Union's argument that the subsidies challenged in the
original proceeding had already been "withdrawn", for the purpose of Article 7.8 of the
SCM Agreement, through a number of alleged "extinction" and "extraction" events that took place
prior to the end of 2006. In particular, the statements the European Union relies upon were made
after the Appellate Body had: (a) rejected the merits of the European Union's "extraction"
arguments1457; and (b) found that it could not "complete the legal analysis" in respect of the
European Union's "extinction" arguments.1458 Thus, after concluding that it did not "need to decide
whether the subsidies alleged … to have been extinguished or extracted wer e thereby 'withdrawn'"
because of the absence of "affirmative findings that the sales transactions and 'cash extractions'
resulted respectively in the 'extinction' or 'extraction' of subsidies" 1459, the Appellate Body set out
three lines of argument that it c onsidered would have led it to reject the European Union's
"withdrawal" arguments "{e}ven if the European Union had been successful in its arguments on
'extinction' and 'extraction'". 1460 The above -quoted statements were part of the second of the
three lines of argument presented by the Appellate Body.
6.825. It follows, therefore, that the statements the European Union relies upon were part of an
alternative line of reasoning advanced by the Appellate Body on an arguendo basis. To this extent,
they did not form part of the reasoning that was actually used by the Appellate Body to dispose of

1455 Appellate Body Report, US – Upland Cotton, paras. 476 and 482.
1456 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 757.
1457 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 737-749.
1458 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 718-736.
1459 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 754.
1460 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 755.

the European Union's appeal. In this light, we are not persuaded that the statements the
European Union relies upon should be characterized as conclusive Appellate Body findings which
support the European Union's submission that it does not have a compliance obligation with
respect to subsidies that ceased to exist prior to the adoption of the recommendations and rulings
in the original proceeding.
6.826. Furthermore, we note that while the Appellate Body states that the adopted
recommendations in this dispute "do not concern subsidies that have been 'extinguished' or
'extracted'", it is in our view significant that in the very next sentence the Appellate Body does not
proclaim that pane ls and the Appellate Body must refrain from making recommendations with
respect to "extinguished" or "extracted" subsidies. Rather, the Appellate Body confirms only that
"panels or the Appellate Body are not required to make recommendations" 1461 with respect to
"extinguished" or "extracted" subsidies. Had the Appellate Body wanted the second last sentence
of the relevant paragraph to be interpreted as an unequivocal finding that the adopted
recommendations in this dispute establish no compliance obligation wit h respect to any
"extinguished" or "extracted" subsidy, it is difficult to understand why the Appellate Body limited
itself to stating only that a panel is "not required" to make recommendations with respect to
"extinguished" or "extracted" subsidy measures.
6.827. Indeed, to the extent that the Appellate Body explicitly confirmed in the very same report
that subsidies which no longer exist may be found to cause adverse effects within the meaning of
Article 5, it would be odd, in the light of how compliance is de fined and supposed to be achieved
under the provisions of the DSU and Article 7.8 of the SCM Agreement, to interpret the
Appellate Body's statements as automatically carving out any "extinguished" or "extracted"
subsidies found to cause adverse effects in the original proceeding from the European Union's
compliance obligations. In this respect, we find the following passages from the Appellate Body's
consideration of the European Union's appeal against the panel's findings with respect to its
arguments concerning the alleged "extinction" of subsidies instructive:
In the present case, we are not in a Part V context where the question arises as to the
rate of subsidization present in the product that is being countervailed. Nor do any of
the sales transactions in this dispute amount to a full privatization of a previously
state-owned company. Instead, the issue is whether, as alleged by the
European Union, sales of shares between private entities, and sales conducted in the
context of partial privatizations, el iminate all or part of past subsidies, and whether
this, in turn, results in a change that should be taken into account in assessing
whether past subsidies are causing present adverse effects under Article 5 of the
SCM Agreement.
Neither of the participant s question that the past rulings in the privatization cases
stand for the proposition that a presumption of extinction arises where there is a full
privatization. We recall that, in both cases, the full privatizations involved sales at fair
market value an d at arm's length, and that there was a complete transfer of
ownership and control. In a partial privatization as well as in private -to-private sales,
not all of the elements of a full privatization are present. Therefore, consistent with
the Appellate Body's guidance, a fact -intensive inquiry into the circumstances
surrounding the changes in ownership would be required in order to determine the
extent to which there are sales at fair market value and at arm's length, accompanied
by transfers of ownership a nd control, and whether a prior subsidy could be deemed
to have come to an end. Moreover, a panel assessing claims under
Part III of the SCM Agreement would have to examine whether the transactions are of
a nature, kind, and amount so as to affect an adver se effects analysis and attenuate
the link sought to be established by the complaining party under Articles 5 and 6 of
the SCM Agreement between the alleged subsidies and their alleged effects. 1462
(emphasis added)

1461 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 755. (emphasis
added)
1462 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 724-725.

6.828. In the first of the above-quoted paragraphs, the Appellate Body appears to explain that the
issue that is raised by the European Union's "extinction" arguments should be resolved on the
basis of two questions: first, whether the relevant "sales of shares between private entities, and
sales conducted in the context of partial privatizations, eliminate all or part of past subsidies" 1463;
and second, "whether this, in turn, results in a change that should be taken into account in
assessing whether past subsidies are causing present adverse effects under Ar ticle 5 of the
SCM Agreement". In our view, there would have been no need for the Appellate Body to identify
the second line of inquiry had it considered that an "extinguished" subsidy may never cause
adverse effects within the meaning of Article 5 of the SCM Agreement, and thereby attract a
compliance obligation under the terms of Article 7.8.
6.829. The Appellate Body appears to elaborate and confirm this position in the second of the
above-quoted paragraphs. In particular, after recalling that " a presumption o f extinction arises
where there is a full privatization", the Appellate Body explains that for the purpose of determining
whether a "partial privatization" or any one or more "private -to-private" sales transactions
extinguish a subsidy, "a fact -intensive inquiry into the circumstances surrounding the changes in
ownership would be required in order to determine the extent to which there are sales at fair
market value and at arm's length, accompanied by transfers of ownership and control, and
whether a prior subsidy could be deemed to have come to an end". The Appellate Body then
moves on to clarify that in cases involving claims made under Part III of the SCM Agreement, such
a "fact-intensive inquiry" would not be enough to dispose of a claim of adverse effec ts against an
"extinguished" subsidy. In this respect, the Appellate Body identifies what appears to be an
additional requirement, namely, an examination of "whether the transactions are of a nature, kind,
and amount so as to affect an adverse effects anal ysis and attenuate" the causal link between the
alleged subsidies and their alleged effects. Again, we can see no reason why the Appellate Body
would have introduced this additional analytical step had it considered that an "extinguished"
subsidy may never cause adverse effects within the meaning of Article 5 of the SCM Agreement
and, thereby, attract a compliance obligation under the terms of Article 7.8. On the contrary, we
understand the Appellate Body's statement to mean that while the possibility that the "extinction"
of a subsidy may bring about the end of its effects cannot be excluded, whether this may be the
case for any given subsidy will ultimately be a question of fact. Indeed, such an understanding of
the relationship between the "extinction" of a subsidy and its effects would be entirely consistent
with the effects-based nature of the disciplines of Article 5.
6.830. The above considerations suggest that the Appellate Body statements relied upon by the
European Union were not intended to indicate that "extinguished" or "extracted" subsidies found to
cause adverse effects in an original proceeding can never be the subject of an implementing
Member's compliance obligations. In our view, such an understanding of the relevant statements
would not only be i nconsistent with the Appellate Body's stated view about the importance of
evaluating the merits of a claim of adverse effects against subsidies that no longer exist on a
case-by-case and fact-specific basis, but it would also render the disciplines of Arti cle 5 completely
ineffective in cases involving adverse effects caused by "extinguished" or "extracted" subsidies
that continue to be observed in the implementation period.1464
6.831. We also find the conclusions drawn by the European Union from the Appellate Body
statements it relies upon to be at odds with how panels and the Appellate Body have given effect
to the obligation under Article 19.1 of the DSU to make recommendations whenever a measure is
found to be inconsistent with a covered agreement. Thus, for examp le, in China – Raw Materials,
the Appellate Body was called upon to determine whether the panel had acted consistently with its
obligations under the DSU when it made a recommendation in accordance with Article 19.1 that
covered a number of expired (and no n-expired) measures. The relevant passage from the
Appellate Body's findings is set out below:
We note that, in making its recommendations, the Panel was concerned about making
recommendations on what it viewed to be "expired" measures. The Panel noted, fo r

1463 We examine the Appellate Body's reversal of the original panel's findings with respect to the
European Union's "extinction" arguments, and the implications of what this means in terms of how to
determine whether a subsidy has been "extinguished" in more detail below at paras. 6.928-6.944 and 6.958-
6.972.
1464 While we do not exclude the possibility that the "extinction" or "extraction" of a subsidy may bring
its effects to an end, whether this is so will be a fact-specific matter.

example, that previous panels had found that it would not be appropriate to make
recommendations on measures that no longer exist. The DSU does not specifically
address whether a WTO panel may or may not make findings and recommendations
with respect to a measure that expires or is repealed during the course of the panel
proceedings. Panels have made findings on expired measures in some cases and
declined to do so in others, depending on the particularities of the disputes before
them. In the present disp ute, China takes issue with the recommendations made by
the Panel, and not with its findings on particular measures. In US – Upland Cotton,
the Appellate Body drew a distinction between the question of whether a panel can
make findings with respect to an e xpired measure and the question of whether an
expired measure is susceptible to a recommendation under Article 19.1 of the DSU:
The Appellate Body in US – Certain EC Products confirmed that the
3 March Measure had ceased to exist. It noted that there was a n obvious
inconsistency between the finding of the panel that "the 3 March Measure
is no longer in existence" and the panel's subsequent recommendation
that the Dispute Settlement Body (the "DSB") request the United States
to bring the 3 March Measure into conformity with its WTO obligations.
Thus, the fact that a measure has expired may affect what
recommendation a panel may make. It is not, however, dispositive of the
preliminary question of whether a panel can address claims in respect of
that measure. (footnote omitted)
Contrary to the Panel's approach in this dispute , the Appellate Body indicated that the
fact that a measure has expired "may affect" what recommendation a panel may
make. The Appellate Body did not suggest that a panel was precluded from making a
recommendation on such a measure in a particular case. In general, in cases where
the measure at issue consists of a law or regulation that has been repealed during the
panel proceedings, it would seem there would be no need for a panel to make a
recommendation in order to resolve the dispute . The same considerations do not
apply, in our view, when a challenge is brought against a group or "series of
measures" comprised of basic framework legislation and implementing regulations,
which have not exp ired, and specific measures imposing export duty rates or export
quota amounts for particular products on an annual or time -bound basis, as is the
case here. The absence of a recommendation in such a case would effectively mean
that a finding of inconsiste ncy involving such measures would not result in
implementation obligations for a responding member, and in that sense would merely
be declaratory. This cannot be the case.
Article 3.7 of the DSU provides that "[t]he aim of the dispute settlement mechanism is
to secure a positive solution to a dispute." This is affirmed in Article 3.4 of the DSU,
which stipulates that "[r]ecommendations or rulings made by the DSB shall be aimed
at achieving a satisfactory settlement of the matter in accordance with the right s and
obligations under this Understanding and under the covered agreements." In our view,
in order to "secure a positive solution to the dispute" and to make "sufficiently precise
recommendations and rulings so as to allow for prompt compliance", it was
appropriate for the Panel in this case to have recommended that the DSB request
China "to bring its measures into conformity with its WTO obligations such that the
'series of measures' does not operate to bring about a WTO -inconsistent result".1465
(emphasis added; footnotes omitted)
6.832. The above passage is particularly instructive for a number of reasons. First, the
Appellate Body states that the DSU is silent about whether a panel may or may not make
recommendations with respect to expired measures. Second, the Appellate Body recalls that WTO
dispute settlement practice is varied in this regard, depending upon the "particularities of the
disputes". Third, the Appellate Body confirms that it did not suggest in US – Upland Cotton
(Article 21.5 – Brazil) that a panel is precluded from making a recommendation with respect to an
expired measure. Fourth, it is apparent that at the heart of the Appellate Body's decision to uphold
the panel's recommendation is the concern that, on the particular set of facts in China – Raw

1465 Appellate Body Report, China – Raw Materials, paras. 263-265.

Materials, the absence of any recommendation with respect to the WTO -inconsistent measures
(which included both expired and non -expired measures) would not have resolved the dispute
between the parties because there would have been no implementation obli gations with respect to
WTO-inconsistent measures that, if maintained and applied, would have continued to breach WTO
law. Such an outcome would have rendered the panel's findings of inconsistency "merely …
declaratory", a result that the Appellate Body concluded could "not be the case".
6.833. Thus, not only does the above passage from China – Raw Materials reveal that the
Appellate Body does not consider that a panel is precluded from making Article 19.1
recommendations with respect to expired measures, but it also suggests that a panel could be
expected to make such recommendations whenever necessary to ensure that an effective remedy
is made available to a complaining Member seeking to put an end to ongoing infringements of the
covered agreements.
6.834. Indeed, it is evident from the disputes where panels and the Appellate Body have refrained
from making recommendations with respect to measures that have ceased to exist, that the expiry
of such measures has resulted in, or coincided with, the non-existence or cessat ion of the
violations caused by those measures. Thus, in US – Certain EC Products, the Appellate Body found
that the panel had erred when it recommended that the United States bring the measure at issue
in that dispute (an increased bonding requirement on certain EC products) into conformity with its
obligations, because the panel had itself found that the relevant bonding requirements no longer
existed.1466 There was therefore no factual basis to support a claim of violation against the
United States with respect to the challenged measure. Similarly, in EC – Approval and Marketing of
Biotech Products, the panel recommended that the European Communities bring the general de
facto moratorium on approvals of biotech products into conformity with its obligations u nder the
SPS Agreement "if, and to the extent that, that measure has not already ceased to exist". 1467
Again, the non -existence of the de facto moratorium would signal the cessation of
WTO-inconsistent conduct.
6.835. On the other hand, in disputes where doubts have existed about whether the formal
removal or amendment of a measure has actually resulted in bringing a violation of the covered
agreements to an end, panels and the Appellate Body have been careful to frame their
recommendations in a way that ensures they cover the WTO -inconsistency resulting from the
allegedly expired or amended measure. Thus, in EC – Commercial Vessels the panel recommended
that the European Communities bring one of the challenged measures in that dispute (the TDM aid
scheme), which had formally expired soon after the panel's establishment, into conformity with its
obligations under the DSU to the extent that it was still operational . Although it was clear to the
panel "that where national aid schemes have expired, no new applications for TDM aid can be
submitted", the panel could not "determine with certainty whether and to what extent it is possible
that subsidies continue to be provided pursuant to applications made before the expiry of those
schemes".1468 Likewise, in Dominican Republic – Import and Sale of Cigarettes, the Appellate Body
qualified its recommendation with respect to a challenged measure (a tax stamp requirement) that
had been affected by an amendment to the general tax stamp regime between panel and
Appellate Body proceedings in a way that appeared to remove the WTO -inconsistency found at the
panel stage, by limiting its scope to the tax stamp requirement "if, and to the extent that, the said
modifications to the tax stamp regime" did not already bring that measure into conformity.1469
6.836. The above examples appear to confirm what is suggested in China – Raw Materials ,
namely, that the principle guiding whether a panel or the Appellate Body should make an
Article 19.1 recommendation (and thereby impose a compliance obligation) with respect to a WTO-
inconsistent measure is whether the infringement of the covered agreements has ceased (or will
cease) prior to the adoption of the respective reports. Where it is known that this will be the case,
a recommendation should not be made (e.g. US – Certain EC Products). On the other hand, where
this outcome cannot be definitively confirmed, it will be incumbent upon a panel and the
Appellate Body to ensure that a recommendation (and therefore a compliance obligation) exists
with respect to the WTO-inconsistent measure (e.g. EC – Commercial Vessels , Dominican
Republic – Import and Sale of Cigarettes).

1466 Appellate Body Report, US – Certain EC Products, paras. 81-82.
1467 Panel Report, EC – Approval and Marketing of Biotech Products, paras. 8.16 and 8.36.
1468 Panel Report, EC – Commercial Vessels, paras. 8.3 and 8.4.
1469 Appellate Body Report, Dominican Republic – Import and Sale of Cigarettes, para. 129.

6.837. The common sense underlying this principle was perhaps most clearly articulated by the
panel in India – Autos where it stated that "as a matter of logic, there can be no sense in making
… a recommendation {under Article 19 of the DSU} if a Panel is of the view that the violation at
issue has ceased to exist when its recommendation is being made". 1470 This is because Article 19
of the DSU "envisages a situation where a violation is in existence".1471
6.838. Thus, when the Appellate Body statements from the original proceeding that the
European Union relies upon are considered in the light of the dispute settlement practice with
respect to Article 19.1 of the DSU, it is difficult to agree with the European Union's submission that
they should be understood to support the proposition that it has no compliance obligation under
the terms of Article 7.8 of the SCM Agreement with respect to subsidies that ceased to exist prior
to 1 June 2011. On the contrary, in the light of the effects-based disciplines of Article 5, our review
of the dispute settlement practice surrounding Article 19.1 of the DSU suggests that the scope of
the European Union's compliance obligations can not be determined by simply looking at whether
the subsidies found to cause adverse effects in the original proceeding ceased to exist prior to the
beginning of the implementation period. It follows, therefore, that the European Union's contention
that it has no compliance obligation at all with respect to subsidies found to cause adverse effects
in the original proceeding, solely because they allegedly ceased to exist prior to 1 June 2011,
cannot be accepted.
6.6.2.4.2 Conclusion
6.839. Although, when read in isolation, th e text of Article 7.8 could arguably be understood to
support the European Union's view that an implementing Member will have no obligation to "take
appropriate steps to remove the adverse effects" or "withdraw the subsidy" when that Member
does not continue to grant or maintain a subsidy found in original proceedings to cause adverse
effects, a reading of this provision in its proper context (including in conjunction with Articles 19
and 21 of the DSU), and in the light of the object and purpose of the WTO dispute settlement
system, suggests that the European Union's interpretation of Article 7.8 cannot be sustained.
6.840. Ultimately, we find the European Union's submission to be problematic because it is based
on a conception of compliance that ignores the effects-based disciplines of Article 5. If accepted, it
would mean that any Member able to demonstrate in an original proceeding that a subsidy, which
has ceased to exist, causes adverse effects to its interests, would have no possibility of obtaining
relief for that WTO -inconsistent conduct were it to continue into the implementation period and
beyond. In other words, the European Union's interpretation of Article 7.8 would mean that a
Member could be found to be in continued violation of WTO law, yet have no d uty to redress the
infringement of its obligations, thereby rendering any findings of adverse effects in an original
proceeding purely declaratory. Needless to say, such an outcome would upset the balance of WTO
rights and obligations and, thereby, frustra te the very purpose of the WTO dispute settlement
system.
6.841. Thus, for all of the above reasons, we find that the European Union has failed to
demonstrate that the mere fact that one or more of the challenged subsidies may have ceased to
exist prior to 1 Jun e 2011 ipso facto means that the European Union and certain member States
do not have a compliance obligation under the terms of Article 7.8 of the SCM Agreement in
respect of those subsidies.
6.842. With the above analysis and conclusions in mind, we now turn t o evaluate the merits of
the United States' claim that the European Union and certain member States have failed to comply
with the requirement to "withdraw the subsidy" under the terms of Article 7.8 of the
SCM Agreement.

1470 Panel Report, India – Autos, para. 8.25. (emphasis added)
1471 Panel Report, India – Autos, para. 8.15. (emphasis original; underline added)

6.6.3 Whether the European Union and certain member States have failed to "withdraw
the subsidy" within the meaning of Article 7.8 of the SCM Agreement
6.6.3.1 Arguments of the United States
6.843. The United States argues that the European Union and its member States have failed to
"withdraw the subsidy", wit hin the meaning of Article 7.8 of the SCM Agreement, in relation to
almost all of the subsidies found to have caused adverse effects in the original proceeding. 1472 In
particular, the United States argues that the European Union and its member States have fai led to
take up this compliance option because: (a) they have failed to take any affirmative action to
"remove" or "take away" any of the relevant subsidies from the Airbus recipients; and (b) the
alleged "expiry", "extinction" and/or "extraction" events re lied upon by the European Union to
demonstrate "withdrawal" do not amount to the "withdrawal" of a subsidy for the purpose of
Article 7.8 of the SCM Agreement.
6.844. The United States recalls that the ordinary meaning of the word "withdraw" suggests that
the "withdrawal" of a subsidy for the purpose of Articles 4.7 and 7.8 of the SCM Agreement "refers
to the 'removal' or 'taking away' of that subsidy".1473 Drawing from the Appellate Body's findings in
US – Upland Cotton (Article 21.5 – Brazil), the United States maintains that the "withdrawal" of a
subsidy for the purpose of Article 7.8 will "usually" involve "at least some affirmative step that
terminates the subsidy on an on-going basis", recalling furthermore that an implementing Member
would "normally 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".1474
6.845. According to the United States, most of what is described in the European Union's
compliance notification of 1 December 2011, as explained and elaborated by the European Union
in this proceeding, involves no affirmative action at all on the part of the European Union or its
member States, and relies merely on the alleged "expiry" of subsidies through th e passage of
time1475, or their alleged "extinction" and "extraction". The United States maintains that the
European Union's assertion of compliance on this basis is untenable because it is premised on the
view that a subsidy may "expire", and thereby be "wit hdrawn" for the purpose of Article 7.8 of the
SCM Agreement, by operation of "relatively short" amortization periods, "extinction" or
"extraction" events effected "through non -governmental transactions", or the repayment of
financial contributions "on subs idized terms".1476 The United States submits that accepting such a
position would mean that inaction on the part of a subsidizing Member will always be sufficient to
withdraw subsidies, turning the "situation that the Appellate Body identified as 'usual' – affirmative
action being necessary to withdraw subsidies – into an exception to a general rule that inaction is
enough".1477
6.846. The United States recalls that the Appellate Body rejected the European Union's line of
argument in the original proceeding when it found that, even assuming, arguendo, that the alleged
"extinction" and "extraction" transactions had brought the subsidies at issue to an end prior to the
beginning of the 2001 -2006 period, this did not mean that the European Union had "withdrawn"
those subsi dies for the purpose of Article 7.8. For the United States, the logic behind the
Appellate Body's ruling is "that an event cannot 'withdraw' a measure that has not yet been found
to be a subsidy" 1478, implying that the alleged "expiry", "extinction" and/or "e xtraction" of
subsidies prior to 1 June 2011 cannot amount to the "withdrawal" of subsidies for the purpose of

1472 The United States does not challenge the European Union's alleged withdrawal of the subsidies
relating to the Bremen Airport runway extensions and the Mühlenberger Loch aircraft assembly site that were
found to cause adverse effects in the original proceeding. (United States' first written submission, fns 13 and
1473 United States' first written submission, para. 19 (citing Appellate Body Report, Brazil – Aircraft
(Article 21.5 – Canada), para. 45 (cited in Appellate Body Report, EC and certain member States – Large Civil
Aircraft, para. 754)).
1474 United States' first written submission, para. 19 (quoting Appellate Body Report, US – Upland
1475 United States' first written submission, paras. 5 and 34-104; and second written submission,
paras. 40-48.
1476 United States' second written submission, para. 40.
1477 United States' second written submission, para. 40.
1478 United States' second written submission, para. 272 (quoting Appellate Body Report, EC and certain
member States – Large Civil Aircraft, para. 756).

Article 7.8. The United States also recalls that both the panel and the Appellate Body in the
original proceeding found that the subsidies provided to Airbus caused adverse effects, irrespective
of whether those subsidies had actually expired before the start of the relevant reference period.
The United States observes that it was this set of findings that defined the adopted rulings and
recommendations which triggered the European Union's obligation to "withdraw the subsidy". In
this light, the United States argues that the alleged "expiry", "extinction" and/or "extraction" of
subsidies prior to the adoption of the rulings and recommendations canno t now be an automatic
basis for concluding that the European Union has complied with the obligation to "withdraw the
subsidy".1479
6.6.3.2 Arguments of the European Union
6.847. The European Union argues that all of the pre -A350XWB subsidies challenged by the
United States have already been "withdrawn" for the purpose of Article 7.8 of the SCM Agreement,
as a result of their "expiry", "extinction" and/or "extraction" prior to the end of the implementation
period. According to the European Union, this conclusion necessarily follows from what it considers
to be the fact that a subsidy can only be "withdrawn" for the purpose of Article 7.8 if it exists at
the time that a compliance obligation is incurred. 1480 Thus, the European Union maintains that if a
subsidy that was the subjec t of adopted adverse effects findings no longer exists after the end of
the implementation period, the Member responsible for originally granting that subsidy will have
procured its "withdrawal" and, thereby, be in full compliance with its obligations unde r Article 7.8
of the SCM Agreement.
6.848. Although the European Union acknowledges that it is possible to find that a subsidy causes
present adverse effects even after it has expired, the European Union does not accept that this
implies that expired subsidies t hat continue to cause present adverse effects cannot be found to
have been "withdrawn" for the purpose of Article 7.8 of the SCM Agreement. In this respect, the
European Union argues that the prohibition against the use of subsidies that cause adverse effe cts
that is found in Article 5 of the SCM Agreement does not affect the determination that must be
made in compliance proceedings, which in the case of actionable subsidies, are governed by
Article 7.8.1481 The European Union emphasizes in this regard that Ar ticle 7.8 explicitly identifies
the "withdrawal" of the subsidy as one of two options available to an implementing Member to
come into full compliance with its obligations, and thereby provide the complaining Member with
the remedy it is due, not unlike th e "withdrawal" of a subsidy required under Article 4.7 of the
SCM Agreement and the "withdrawal" of a measure envisaged under Article 3.7 of the DSU. 1482
Thus, from a remedial perspective, the European Union argues that the explicit text of Article 7.8
does not require that the "withdrawal" of a subsidy achieve the removal of any continued adverse
effects.1483 Indeed, according to the European Union, such an interpretation of Article 7.8 would
deprive an implementing Member of the choice of compliance options env isaged under the explicit
terms of that provision, thereby rendering the possibility of "withdrawing" the subsidy "inutile".1484
6.849. The European Union does not deny that the "withdrawal" of a subsidy for the purpose of
Article 7.8 of the SCM Agreement will "usua lly" or "normally" require affirmative action of some
kind on the part of the implementing Member. However, according to the European Union, the
"temporal circumstances" of this dispute, which include the existence of a recommendation to
"withdraw" subsidies granted 43 years ago, are not "usual" or "normal", and therefore justify the
conclusion that the expiry of the relevant measures through the "diminishment of the subsidy"
over time has brought the European Union into compliance with its obligations.1485

1479 United States' second written submission, paras. 266-274.
1480 European Union's first written submission, paras. 30 and 36; and second written submission,
paras. 75 and 77.
1481 European Union's first written submission, para. 544 and fn 660; second written submission,
para. 567 and fn 742; and response to Panel question No. 46(a).
1482 European Union's second written submission, para. 97.
1483 European Union's first written submission, paras. 30-31, 166 and 544; and second written
submission, paras. 528-535.
1484 European Union's first written submission, paras. 538-539 and 544; second written submission,
para. 568; and response to Panel question Nos. 3-5 and 45.
1485 European Union's second written submission, paras. 83-90.

6.850. Finally, the European Union considers that the United States errs when it argues that the
Appellate Body's rejection of its "extinction" and "extraction" arguments in the original proceeding
means that "an event cannot 'withdraw' a measure that has not been found to be a subsidy". 1486
This is because, according to the European Union, the Appellate Body has in previous disputes
expressed precisely the opposite view: namely, that "'compliance with the recommendations and
rulings of the DSB can be achieved before the recommendations and rulings of the DSB are
adopted'".1487 Indeed, the European Union notes that the United States relies upon this very line of
jurisprudence to argue that the A350XWB LA/MSF measures, all of which predate the adopted
recommendation and ru lings in this dispute, are "measures taken to comply" for the purpose of
Article 21.5 of the DSU. 1488 In this light, the European Union maintains that the Appellate Body's
"extinction" and "extraction" findings in the original proceeding do not support the vi ew that
"pre-adoption measures" cannot secure compliance with Article 7.8 of the SCM Agreement. Rather,
the Appellate Body's findings should be understood to stand for the proposition "that the
determination {of} whether a measure or event achieves 'withdrawal' of a subsidy is 'best left to a
compliance panel' charged with interpreting and applying Article 7.8 of the SCM Agreement".1489
6.6.3.3 Arguments of the third parties
6.6.3.3.1 Australia
6.851. Australia argues that the European Union is required to take affirmative action to withdraw
all current subsidies to Airbus that had been found to be non -compliant, or take affirmative action
to remove the adverse effects of those subsidies.1490
6.6.3.3.2 Brazil
6.852. Brazil recalls that Article 7.8 of the SCM Agreement is a "special and additional" proced ural
rule, which imposes a particular means to achieve the objectives of Articles 3 and 9 of the DSU of
securing an effective resolution of the dispute and of brining the measure into conformity.
According to Brazil, the goal of the "measure taken to comply" is to bring the inconsistent measure
into conformity. In the context of actionable subsidy findings, Brazil argues that Article 7.8
provides that the means to do this consists of the taking of "appropriate steps to remove the
adverse effects" or to "wit hdraw the subsidy". For Brazil, this objective of bringing the measure
into conformity is important when assessing whether the steps taken by the implementing Member
were "appropriate" or not. Similarly, the phrase "withdraw the subsidy" must be given mean ing
with this objective in mind.
6.853. Brazil argues that in the context of an actionable subsidy case, the alleged "withdrawal" of
the subsidy must be appropriate to remove the adverse effects found to have been caused by the
use of the subsidies. Otherwise, it is not a meaningful "withdrawal" for purposes of implementation
of an actionable subsidies finding. Thus, according to Brazil, where the finding of present adverse
effects was based on the use of a subsidy from the past which no longer existed at the tim e of the
reference period for adverse effects, the "withdrawal" of the subsidy must be understood as more
than the simple reiteration of the fact that the subsidy no longer exists. In such circumstances,
"withdrawal" requires an additional action, which mi ght consist of "taking away" that subsidy.
Alternatively, the implication is that in cases of "dead subsidies" like LA/MSF that have long lasting
effects in the marketplace, when it would no longer be possible to "withdraw the subsidy", the
implementing Member is under an obligation to remove the adverse effects.1491
6.6.3.3.3 Canada
6.854. Canada argues that a subsidy may be "withdrawn" for the purpose of Article 7.8 of the
SCM Agreement by removing either the financial contribution or the benefit. Moreover, according

1486 European Union's second written submission, para. 91.
1487 European Union's second written submission, para. 94 (quoting Appellate Body Report, US – Zeroing
(EC) (Article 21.5 – EC), para. 224).
1488 European Union's second written submission, para. 93.
1489 European Union's second written submission, para. 94.
1490 Australia's third-party statement, para. 8; Australia's third-party response to Panel question No. 1.
1491 Brazil's third-party submission, paras. 11 and 21; and third-party statement, para. 14.

to Canada, there are similarities between the situation where the benefit provided by a subsidy
has expired and that where the benefit has been withdrawn. In both cases, a benefit is no longer
being conferred on the recipient and, as a result, a subsidy no longe r exists. Therefore, in
Canada's view, if a subsidy has expired, the Member should also be found to have complied with
its obligations.1492
6.6.3.3.4 China
6.855. China argues that the proposition that the correct interpretation of both "options" available
under Article 7.8 o f the SCM Agreement "must result in bringing a Member found to have acted
inconsistently with Article 5 back into conformity with its obligation not to cause adverse effects
through the use of subsidies" is at odds with the principle of effective treaty in terpretation and the
"legitimate expectations of the parties to a treaty {which} are reflected in the language of the
treaty itself". 1493 Indeed, according to China, for the option to "withdraw the subsidy", a
requirement "not to cause adverse effects through the use of subsidies" is not mentioned in
Article 7.8. Reading that requirement into the option to "withdraw the subsidy" would not only
impute "into a treaty words that are not there", but it would also reduce such an option to
"redundancy or inutility" because that option would be effectively equal to the option to "remove
the adverse effects".
6.856. Moreover, China maintains that if a subsidy were " withdrawn", however that word is
interpreted, the Member concerned would no longer be in violation of Article 5 because the
relevant Member could no longer be said to be causing adverse effects "through the use of
subsidies". Since the subsidy is "withdrawn", it is no longer in existence , and the Member cannot
be deemed to be "using" the subsidy anymore.1494
6.6.3.3.5 Japan
6.857. Japan submits that in order to understand whether the European Union has "withdrawn"
the subsidies, the Panel should ask whether the benefit has been removed from the recipient.
Japan recalls that the Appellate Body has explained in this regard that the deter mination of a
benefit under Article 1.1(b) of the SCM Agreement is an ex ante analysis that does not depend
upon how the particular financial contribution actually performed after it was granted.
Furthermore, Japan observes that the Appellate Body has obse rved that "the nature, amount, and
projected use of the challenged subsidy may be relevant factors to consider in an assessment of
the period over which the benefit from a financial contribution might be expected to flow". 1495
Japan emphasizes, however, that the assessment of the period of the life of a benefit should focus
on the projected period or sales amount properly anticipated by the granting Member when the
subsidy is granted even though other relevant factors must be also considered.1496
6.6.3.4 Evaluation by the Panel
6.6.3.4.1 Introduction
6.858. The parties' submissions concerning the extent to which the European Union and certain
member States have failed to "withdraw the subsidy" raise two broad questions: First, whether all
of the pre -A350XWB subsidies challenged by the Uni ted States1497, as a matter of fact , "expired"
or were "extinguished" and/or "extracted" prior to the end of the implementation period, that is,
before 1 December 2011; and second, whether the "expiry", "extinction" and/or "extraction" of
any such subsidies m eans that the European Union and certain member States have "withdrawn"
those subsidies for the purpose of Article 7.8 of the SCM Agreement. We examine each of these
questions in turn.

1492 Canada's third-party statement, paras. 34-39; and third-party response to Panel question No. 1.
1493 China's third-party response to Panel question No. 1 (quoting Appellate Body Report, EC – Computer
Equipment, para. 83).
1494 China's third-party response to Panel question No. 1.
1495 Japan's third-party statement, para. 14 (quoting Appellate Body Report, EC and certain member
1496 Japan's third-party statement, paras. 9-19.
1497 By this we mean all of the subsidies the United States challenges in this dispute apart from the
A350XWB LA/MSF subsidies.

6.6.3.4.2 The alleged "expiry", "extinction" and "extraction" of subsidies
6.6.3.4.2.1 Overview of the parties' arguments
6.859. Drawing from certain findings and observations made by the Appellate Body in the original
proceeding, the European Union argues that the "lives" of almost all of the subsidies challenged in
this proceeding came to an end by virtue of their "expiry", "extinction" and/or "extraction", prior to
1 December 2011. In particular, according to the European Union, the ex ante "lives" of all of the
LA/MSF subsidies provided for the A300, A310, A320 and A330/A340 1498, and all of the capital
contribution subsidies, came to an end by reason of the amortization of benefit well before the end
of the implementation period. 1499 Separately, the European Union argues that the "lives" of the
French, Spanish, and UK LA/MSF subsidies for the A300, A310, A32 0 and A330/A340 came to an
end prior to 1 December 2011 when Airbus actually repaid of all of the outstanding principal plus
interest due under those contracts, thereby removing the financial contributions provided by the
relevant member States. Moreover, the European Union submits that the "lives" of all of the
challenged subsidies predating the A350XWB LA/MSF subsidies were brought to an end through
the following "intervening events": (a) two one -time removals of cash and cash equivalents by
DaimlerChrysler and SEPI from their respective subsidiaries, DASA and CASA, in the lead up to the
creation of EADS in 2000 (the "extraction" of benefit ); and (b) the alleged partial privatization of
Aérospatiale in 1999, the sale and issuance of EADS shares to the gene ral public by the EADS
partners in the context of the creation of EADS and its public float in 2000, and the 2006 sale by
BAE Systems of its 20% ownership stake in Airbus SAS to EADS (the "extinction" of benefit).1500
6.860. The United States rejects the European Union's assertions and submits, on the basis of two
main lines of argument, that none of the "lives" of the challenged subsidies in this dispute have
come to an end. 1501 First, the United States asserts that the panel in the original proceeding
framed its findi ngs of subsidization "in the present tense", implying that the subsidies at issue
were in existence during the 2001 -2006 reference period. As the panel's findings were upheld by
the Appellate Body and adopted by the DSB, the United States argues that the E uropean Union is
not entitled to now "reopen" them and argue in this compliance dispute that the "lives" of the very
same subsidies expired during or before the original 2001 -2006 reference period.1502 Second, and
in any case, the United States submits that the European Union errs when it argues that the "lives"
of all of the challenged subsidies that predate the A350XWB LA/MSF subsidies have come to an
end because of the alleged amortization, "extraction" or "extinction" of "benefit", or the repayment
of "financial contributions". According to the United States, none of the particular methodologies or
theories applied by the European Union to identify the "lives" of the challenged subsidies can be
validly applied in this dispute because, in one way or another, each fails to properly account for
the "trajectory" of the benefit of the relevant subsidies or is based on a misplaced understanding
of the relevant facts and applicable legal principles.1503
6.861. Before evaluating the merits of the parties' submissions, we first set out our understanding
of the findings and statements made by the Appellate Body in the original proceeding related to
the notion of the "life" of a subsidy and its relevance to the matters raised in this compliance
proceeding.

1498 The European Union argues that the benefit associated with the French LA/MSF subsidies for the
A330-200 and French and Spanish LA/MSF provided for the A340-500/600 would amortize at different
moments between [***] and [***]. The European Union argues that this implies "there is some basis to
conclude that {the subsidies provided under these agreements} will amortize before the end of these
proceedings". (European Union's first written submission, paras. 208-209)
1499 According to the European Union, all but [***] and [***] of the respective "benefit" associated
with the German and Spanish regional development grants would amortize before the end of the
implementation period. (European Union's first written submission, paras. 222-223).
1500 European Union's first written submission, paras. 197-354; and second written submission,
paras. 117-268.
1501 United States' second written submission, paras. 175 and 398.
1502 United States' second written submission, paras. 145-146, 174, 185 and 190.
1503 United States' second written submission, paras. 138-265; and response to Panel question
Nos. 143-145 and 150-152.

6.6.3.4.2.2 The "life" of a subsidy
6.862. In the original proceeding, the Appellate Body articulated its views on the relevance of the
"life" of a subsidy to an adverse effects analysis in a number of places in its report. The
Appellate Body first introduced and discussed the notion of the "life" of a subsidy in its review of
the European Union's appeal against the panel's finding that there is no requirement in Article 5 of
the SCM Agreement to demonstrate the existence of a "present" or "continuing" benefit in order to
make out a case of adverse effects.1504 We recall that the European Union had argued on appeal
that the panel's rejection of its submissions concerning the need to demonstrate a "present" or
"continuing" benefit was based on an erroneous interpretation and application of Articles 1, 5 and
6 of the SCM Agreement. The Appellate Body, however, did not accept the European Union's
position, finding instead that "Article 5 envisages that the use of the subsidy and the adverse
effects may not be contemporaneous", and that the "provision of su bsidies and their effects need
not coincide temporally". 1505 Moreover, the Appellate Body disagreed "with the proposition that
{Article 5} does not {apply} in respect of subsidies that have come to an end by the time of the
reference period", declaring that it could not "exclude that, under certain circumstances, 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" .1506 Accordingly, the Appellate Body dismissed the
European Union's appeal and upheld the panel's finding that the United States was not required to
show that Airbus continued to benefit from the relevant subsidies at the time of the alleged
adverse effects.1507 The Appellate Body thereby clearly indicated that the "life" of a subsidy will not
necessarily define the duration of its effects.
6.863. The Appellate Body was equally explicit about the importance to an adverse effects
analysis of considering how the "life" of a subsidy has "materalized over time", suggesting that this
would involve assessing the extent to which the "value" of the subsidy "projected" at the time of
its grant may be "affected" by subsequent "intervening events". Thus, the Appellate Body
explained that:
At the time of the grant of a subsidy, the su bsidy will necessarily be projected to have
a finite life and to be utilized over that finite period. In order properly to assess a
complaint under Article 5 that a subsidy causes adverse effects, a panel must take
into account that a subsidy provided accr ues and diminishes over time, and will have
a finite life. The adverse effects analysis under Article 5 is distinct from the "benefit"
analysis under Article 1.1(b) of the SCM Agreement and there is consequently no need
to re -evaluate under Article 5 the a mount of the benefit conferred pursuant to
Article 1.1(b). Rather, an adverse effects analysis under Article 5 must consider the
trajectory of the subsidy as it was projected to materialize over a certain period at the
time of the grant. Separately, where it is so argued, a panel must assess whether
there are "intervening events" that occurred after the grant of the subsidy that may
affect the projected value of the subsidy as determined under the ex ante analysis.
Such events may be relevant to an adverse effects analysis because they may affect
the link that a complaining party is seeking to establish between the subsidy and its
alleged effects.
In sum, a panel's analysis of the adverse effects must take into account how the
subsidy has materialized over t ime. As part of this analysis, a panel must assess how
the subsidy is affected, both by the depreciation of the subsidy that was projected
ex ante and the "intervening events" referred to by a party that may have occurred
following its grant.1508 (emphasis added; footnote omitted)
6.864. The Appellate Body further explained that:
It is relevant, in our view, to examine the trajectory of the life of a subsidy in order to
determine whether a Member is causing, through the use of any subsidy, adverse

1504 Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.218-7.221.
1505 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 712.
1506 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 712. (emphasis
added)
1507 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 698-715.
1508 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 709-710.

effects to the inte rests of another Member within the meaning of Article 5 of the
SCM Agreement. Moreover, 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.1509 (emphasis added)
6.865. Finally, the Appellate Body also made the following statements of note, which we believe
provide varying degrees of guidance about how to determine the "life" of a subsidy:
We understand the participants to agree with the basic proposition t hat a subsidy has
a life, which may come to an end, either through the removal of the financial
contribution and/or the expiration of benefit.1510 (underline added)
{T}he fact that a subsidy is "deemed to exist" under Article 1.1 once there is a
financial contribution that confers a benefit does not mean that a subsidy does not
continue to exist after the act of granting the financial contribution .1511 (underline
added)
We also note that, in a Part V context, the Appellate Body has found that an
investigating authority may presume, for purposes of an administrative review under
Article 21.2 of the SCM Agreement, "that a 'benefit' continues to flow from an untied,
non-recurring 'financial contribution' ", although this presumption is not
irrebuttable.1512 (underline added)
The nature, amount, and projected use of the challenged subsidy may be relevant
factors to consider in an assessment of the period over which the benefit from a
financial contribution might be expected to flow. A panel may consider, for example,
as part of its ex ante analysis of benefit, whether the subsidy is allocated to purchase
inputs or fixed assets; the useful life of these inputs or assets; whether the subsidy is
large or small; and the period of time over which the subsidy is expected to be u sed
for future production.1513 (emphasis original; underline added; footnote omitted)
{I}n order properly to assess a claim under Article 5 of the SCM Agreement, a panel
must take into account in its ex ante analysis how a subsidy is expected to materialize
over time. A panel is also required to consider whether the life of a subsidy has ended,
for example, by reason of the amortization of the subsidy over the relevant period or
because the subsidy was removed from the recipient. Moreover, we have emphasized
that the effects of a subsidy will generally diminish and come to an end with the
passage of time.1514 (underline added)
Although we neither endorse nor reject the specific amortization methodology
proposed by the European Union in this case, we see no reason to disagree with the
notion that allocation of a subsidy over the anticipated marketing life of an aircraft
programme may be one way to assess the duration of a subsidy over time. 1515
(underline added)
6.866. Taken together, we understand the above Appellate Body fi ndings and observations to
have clarified that: (a) a subsidy which no longer exists may be found to cause adverse effects;
(b) understanding how the "life" of a subsidy has "materialized over time" will help to inform an
assessment of its effects; and (c) the "life" of a subsidy may be determined by examining the
extent to which its "projected value" at the time of grant has been altered by any one or more
subsequent "intervening events". We note that, in its analysis, the Appellate Body at no point
equated the end of the "life" of a subsidy with the "withdrawal" of a subsidy for the purpose of

1509 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 714.
1510 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 709.
1511 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 708.
1512 Appellate Body Report, EC and certain member States – Large Civil Aircraft, fn 1643 (quoting
Appellate Body Report, US – Lead and Bismuth II, para. 62; and citing Appellate Body Report, US –
Countervailing Measures on Certain EC Products, para. 84).
1513 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 706-707.
1514 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1236.
1515 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1241.

Article 7.8 of the SCM Agreement. Indeed, the Appellate Body was not called upon to resolve such
a question. Yet, in this compliance proceeding, the European Union h as relied upon the
Appellate Body's guidance in relation to the "life" of a subsidy principally for the purpose of
demonstrating that it has complied with the obligation to "withdraw the subsidy".
6.867. With these points of clarification in mind, we now turn to evaluate the parties' submissions
with respect to the alleged facts and events the European Union argues demonstrate that the
"lives" of almost all of the challenged subsidies came to an end before the end of the
implementation period.
6.6.3.4.2.3 Whether the Europea n Union is precluded from asserting that the "lives" of
the challenged subsidies came to an end before 1 June 2011
6.868. The United States argues that the European Union's submissions concerning the "lives" of
the challenged subsidies must be dismissed on the gr ounds that the panel, in the original
proceeding, found that the same subsidies were, as a matter of fact, in existence during the
2001-2006 reference period. We disagree with the United States' characterization of the original
panel's findings. The panel' s findings of subsidization in the original proceeding concerned the
extent to which the relevant measures challenged by the United States constituted a subsidy at
the time that they were provided. Apart from examining and rejecting the European Union's
submissions concerning the alleged "extraction" of subsidies 1516, the panel made no specific
findings related to the "lives" of the relevant subsidies that were upheld by the Appellate Body and
adopted by the DSB.1517 Accordingly, we see no merit in the United States' first line of argument in
response to the European Union's assertions concerning the end of the "lives" of the challenged
subsidies as it is premised on an incorrect reading of the original panel's findings.
6.6.3.4.2.4 "Expiry" through the amortization of benefit
Arguments of the European Union
6.869. The European Union argues that the "lives" of a number of the challenged subsidies came
to an end, and therefore "expired", by virtue of the amortization of "benefit" . In particular, the
European Union recalls that the A ppellate Body found in the original proceeding that "the nature,
amount, and projected use of the challenged subsidy" will be relevant to determining its ex ante
life and that, for this purpose, a panel may consider, for example, "whether the subsidy is
allocated to purchase inputs or fixed assets; the usual life of these inputs or assets; whether the
subsidy is large or small; and the period of time over which the subsidy is expected to be used for
future production".1518 In the light of this and other Appell ate Body guidance, the European Union
asked PwC to determine the ex ante period of time over which the subsidies found in the original
proceeding to cause adverse effects were expected to benefit Airbus, and whether, on the basis of
that time period, they were fully amortized as of 1 December 2011. 1519 According to the
European Union, the report produced by PwC, the "PwC Amortization Report", "is based on the
actual terms of the measures at issue and consistent with the Appellate Body's guidance regarding
the ex ante determination of the proper amortization of the benefit of a subsidy, taking into
account the nature, amount, and projected use of the subsidy". 1520 The European Union maintains
that the conclusions reached by PwC demonstrate that the benefit conferre d through the following
subsidy measures was amortized prior to the end of the implementation period:

1516 We address the European Union's arguments concerning the same "extraction" events in the context
of this proceeding below, at paras. 6.923-6.927.
1517 The original panel also examined and rejected the European Union's arguments concerning the
"extinction" of subsidies. These findings were overturned on appeal. However, the Appellate Body was unable
to "complete the analysis" due to insufficient factual findings. We evaluate the merits of the European Union's
reliance on the same "extinction" events for the purpose of this proceeding below, at paras. 6.928-6.1055.
1518 European Union's first written submission, paras. 197 and 201 (citing Appellate Body Report, EC and
certain member States – Large Civil Aircraft, paras. 706 and 707).
1519 PwC Amortization Report, (Exhibit EU-5) (BCI/HSBI).
1520 European Union's second written submission, para. 185. The European Union explains that the PwC
Amortization Report is also guided by the Report of the Informal Group of Experts to the Committee on
Subsidies and Countervailing Measures, as well as countervailing duty laws from different jurisdictions.
(European Union's first written submission, para. 203).

 The French, German and Spanish LA/MSF subsidies for the A300, A310, A320 and
A330/A340 and the UK LA/MSF subsidies for the A320 and A330/A340, because at the time
they were provided, it was anticipated that the "Loan Life" of each of the LA/MSF
agreements would come to an end before 1 December 2011 or, in any case, it was
anticipated that the "Marketing Life" of each of the financed LCA programmes would come to
an end before the end of the implementation period1521;
 The French and German government capital contributions of 1987, 1988, 1989, 1992 and
1994, because the "Useful Life of Assets" in which Airbus invested the relevant capital came
to an end before 1 December 2011 or, in any case, it was anticipated that the "Marketing
Life" of each of the LCA programmes benefitting from the capital contributions would come
to an end; and
 The German Government's capital contribution of 1992, because it was considered to be
"inseparable" from the German Government's contribution of 1989, which was itself "related
to the A320 aircraft program".1522
Arguments of the United States
6.870. The United States argues that the "lives" of the challenged subsidies cannot be determined
on the basis of the amortization of benefit methodologies proposed in the PwC Amortization Report
presented by the European Union. The United States submits that none of the three approaches to
amortization used in the PwC Amortization Report submitted by the European Union are valid
because in each case, they do not properly reflect the nature of the challenged subsidies and how
they "materialize" over time. For instance, as a general matter, the United States argues that the
type of straight -line amortization that appears to have been undertaken in the PwC Amortization
Report does not reflect the "trajectory" of subsidies such as LA/MSF 1523, which the United States
argues are best understood to involve "an arc rising as payments are made for commercial
deliveries, and tailing off until the point at which a commercial entity would no longer receive some
return from its original funding". 1524 Moreover, the United States explains that contrary to what is
suggested by the European Union, the Appellate Body did not conclu de that the amortization
period for accounting purposes automatically defines the ex ante life of a subsidy. Rather, the
United States recalls that the Appellate Body referred to amortization as only one "example" of a
methodology that a panel might consid er applying when evaluating whether the life of a subsidy
has come to an end. Thus, according to the United States, "{w}here, as in the present instance,
the amortization period for accounting purposes is not the best measurement of the life of a
subsidy", it is merely an option and should not be relied upon.1525
6.871. More specifically, the United States argues that the "Useful Life of Assets" approach that is
proposed in the PwC Amortization Report is inappropriate because it is an accounting tool used by
companies in their financial reporting of tangible assets such as property, plant and equipment.
However, the United States notes that the subsidies at issue "are not used to purchase such
tangible assets, but rather to defray the risk associated with commercializ ing and producing new
models"1526 of LCA. Moreover, the United States maintains that the 21 -year "Marketing Life"
approach used by the European Union has "no value as an analytical tool" because it is premised
on the view that the life of a subsidy should be gauged solely "by its primary effects" and should
not include its "secondary effects". According to the United States, such an approach fails to reflect
how a subsidy "materializes" over time. Similarly, the United States dismisses the "Loan Life"

1521 The European Union argues that the benefit associated with the French LA/MSF subsidies for the
A330-200 and French and Spanish LA/MSF provided for the A340-500/600 would amortize at different
moments between [***] and [***]. The European Union argues that this implies "there is some basis to
conclude that {the subsidies provided under these agreements} will amortize before the end of these
proceedings". (European Union's first written submission, paras. 208-209)
1522 According to the European Union, all but [***] and [***] of the respective "benefit" associated
with the German and Spanish regional development grants would amortize before the end of the
implementation period. (European Union's first written submission, paras. 222-223; and PwC Amortization
Report, (Exhibit EU-5) (BCI/HSBI), paras. 116 and 118)
1523 United States' response to Panel question No. 145, para. 63.
1524 United States' response to Panel question No. 145, para. 69.
1525 United States' second written submission, paras. 173 and 175; opening statement (public),
para. 16; and response to Panel question No. 144, paras. 56-57.
1526 United States' response to Panel question No. 144, para. 59.

approach used by the European Union because "it too ignores the secondary effects of LA/MSF,
and the implications that such effects have for how the subsidy materializes over time". 1527 Thus,
the United States argues that the amortization techniques applied in the Pw C Report are "useless
in the context of this dispute".1528
Evaluation by the Panel
LA/MSF
6.872. Relying upon the analysis and conclusions contained in the PwC Amortization Report, the
European Union submits that the lives of a number of the challenged LA/MSF subsi dies can be
most appropriately determined by amortizing them over the period of time it was anticipated
Airbus would take to fully repay the loaned principal plus interest. 1529 While appearing to
acknowledge that the life of the relevant LA/MSF subsidies migh t also be determined by looking at
the expected marketing life of each of the financed LCA programmes 1530, PwC explains that "the
market life does not account for the fact that repayment of principal and interest brings the benefit
to Airbus from the below ma rket interest element of MSF to an end". 1531 Accordingly, the PwC
Amortization Report applies the "loan life approach" (Loan Life) as the "primary methodology to
determine the amortization of MSF" 1532, and then confirms its results by applying the "marketing
life methodology" (Marketing Life).1533 The results of PwC's calculations are set out in the following
table.
Table 11: PwC ex ante "lives" analysis for LA/MSF
LA/MSF Agreement Start Year of
LA/MSF
Expected
Repayment1534
(Loan Life)
Expected
Last Order1535
(Marketing
Life)
Expected
Last Delivery
France
A300B 1971 [***] [***] [***]
A300B2/B4 1974 [***] [***] [***]
A300-600 1981 [***] [***] [***]
A310 1980 [***] [***] [***]
A310-300 1984 [***] [***] [***]
A320 1987 [***] [***] [***]
A330/A340 1986 [***] [***] [***]
A330-200 1996 [***] [***] [***]
A340-500/600 1999 [***] [***] [***]

1527 United States' response to Panel question No. 144, paras. 60-61. The United States also argues that
each of the three proposed amortization methodologies "rests on inaccurate and/or unsupported factual
assumptions, and therefore is unsound even as a matter of accounting". (United States' response to Panel
question No. 144, para. 62)
1528 United States' response to Panel question No. 144, para. 62.
1529 European Union's first written submission, para. 205.
1530 "We consider it particularly appropriate to allocate the benefit over expected market life, as the
pricing and repayment profile of an MSF loan takes account of and reflects the anticipated and actual market
success of the funded LCA program". (PwC Amortization Report, (Exhibit EU-5) (BCI/HSBI), para. 36).
1531 PwC Amortization Report, (Exhibit EU-5) (BCI/HSBI), para. 55.
1532 PwC Amortization Report, (Exhibit EU-5) (BCI/HSBI), paras. 53 and 56-62.
1533 PwC Amortization Report, (Exhibit EU-5) (BCI/HSBI), paras. 63-70.
1534 Including, where relevant, royalties determined in accordance with the terms of the specific LA/MSF
agreement and/or the contemporaneous forecast delivery schedule.
1535 PwC based these dates on the "respective business case and therein contained expected delivery
schedules … {subtracting} three years from the date of last delivery to arrive at the expected year of last
order". Where "no business case {was} available, … the duration of a generic LCA market life of 18 years {was
used} to obtain the expected end date of LCA market life". PwC Amortization Report, (Exhibit EU-5)
(BCI/HSBI), annex 2.

LA/MSF Agreement Start Year of
LA/MSF
Expected
Repayment1534
(Loan Life)
Expected
Last Order1535
(Marketing
Life)
Expected
Last Delivery
Germany
A300B 1971 [***] [***] [***]
A300B2/B4 1977 [***] [***] [***]
A300-600 1982 [***] [***] [***]
A310 1977 [***] [***] [***]
A310-300 1983 [***] [***] [***]
A320 1983 [***] [***] [***]
A330/A340 1987 [***] [***] [***]
Spain
A300B/B2/B4 1974 [***] [***] [***]
A300-600 1982 [***] [***] [***]
A310 1979 [***] [***] [***]
A310-300 1983 [***] [***] [***]
A320 1984 [***] [***] [***]
A330/A340 1988 [***] [***] [***]
A340-500/600 1998 [***] [***] [***]
UK
A320 1985 [***] [***] [***]
A330/A340 1988 [***] [***] [***]

6.873. The rationale behind the European Union's "Loan Life" approach appears to reflect the view
that the "benefit" conferred upon Airbus by LA/MSF materializes with each repayment that is made
out of the revenues obtained from delivered aircraft. Thus, according to the European Union, once
Airbus has discharged all of its repayment obligations, the LA/MSF agreements will no longer
confer a "benefit", and therefore no longer constitute subsidies under the terms of Article 1.1 of
the SCM Agreement.
6.874. Despite its various criticisms of the European Union's arguments, the United States
appears to accept that the ex ante lives of the LA/MSF subsidies will be dictated by the extent to
which the contracting parties expected Airbus to continue to have outstanding repayment
obligations.1536 However, while the European Union argues that the contracting parties' repayment
expectations were defined in the actual terms of the LA/MSF agreements, read alone or in
conjunction with the expected delivery schedules, the United States maintains that the parties'
repayment expectations should be determined on the basis of the repayment obligations that a
hypothetical commercial provider of financing such as LA/MSF would have demanded Airbus to
assume. According to the United States, because of the "product creating" nature of LA/MSF, a
commercial provider of LA/MSF -like financing would ensure that any repayment t erms included a
"bonus" in the event that the programme "performed better than initial projections", thereby
requiring Airbus to continue to make repayments over the entirety of "the actual commercial life of
the aircraft, from launch until delivery of the last aircraft of the model in question".1537
6.875. The European Union maintains that the United States' submission that the life of the
subsidies provided through LA/MSF is equivalent to the "actual commercial life" of the funded
aircraft, is inconsistent with th e Appellate Body's guidance and must be rejected. 1538 For the
European Union, the United States' view that LA/MSF is a "creation subsidy", which must be
amortized over the life of the product it creates, erroneously conflates the effects of the subsidy
with its benefit.1539 For the European Union, the United States' line of argument ignores the fact
that the terms of the relevant LA/MSF agreements envisaged that repayment would continue over
a defined period of time "[***]".1540 Moreover, to the extent that the Unit ed States argues that
the anticipated repayment period of the LA/MSF measures should be set on the basis of the
alleged expectations of commercial investors and lenders, as opposed to the relevant member

1536 United States' second written submission, paras. 175-178.
1537 United States' second written submission, para. 178. See also United States' second written
submission, paras. 176-183; and response to Panel question No. 149, para. 69.
1538 European Union's second written submission, paras. 133-136.
1539 European Union's second written submission, paras. 160-165; and closing statement (non-public),
paras. 9-10.
1540 European Union's second written submission, paras. 151-159.

State governments, the European Union submits that the United States "seeks to double-count the
amount of any benefit" because the degree to which LA/MSF departs from market -based financing
is already captured in the calculation of the "benefit" provided to Airbus. 1541 Furthermore, drawing
upon an opinion expressed by its experts, PricewaterhouseCoopers1542, the European Union argues
that there are many possibilities for commercial investors and lenders to structure their finance
relationships, including by using success -dependent, levy -based and back -loaded repay ment
terms, which inherently require the lender to agree to take on part of the risk of project failure.
Thus, the European Union maintains that the United States is incorrect when it argues that, in
order to reflect the expectations of market lenders, the proper amortization period should be the
actual life of the funded LCA programme.1543
6.876. In our view, the United States' focus on the hypothetical commercial lender is misplaced
because it reveals nothing about what the expectations of the subsidizing governments were at the
time they agreed to the terms of the challenged LA/MSF measures. The expectations the
United States relies upon to define the lives of LA/MSF subsidies are, in fact, not related to the
provision of subsidies at all, but rather associated wit h the provision of market-based financing.
While we can see how such expectations will play a role in identifying the market interest rate
benchmark used to test the commerciality of LA/MSF, it is difficult to understand how they could
be used to define th e expectations of the subsidizing governments. Indeed, had the governments
held the expectations described by the United States, the terms of LA/MSF would have been
different, and there would have been no subsidization. Thus, by seeking to determine the li ves of
the challenged LA/MSF subsidies on the basis of expectations that were not used for the purpose
of the original subsidy findings, the United States' line of argument does not appear to speak to
the relevant question.
6.877. As we understand it, the "Loan Life" approach advanced by the European Union appears to
be focused on the expectations surrounding the mere duration of the existence of a "financial
contribution" – in the present instance, the LA/MSF loans. However, as already noted, the
Appellate Body's discussion of the ex ante life of a subsidy in the original proceeding tended to
focus on the projected uses to which a subsidy has been put, rather than the expected duration of
a financial contribution. Thus, for example, the Appellate Body explained that:
The nature, amount and projected use of the challenged subsidy may be relevant
factors to consider in an assessment of the period over which the benefit from a
financial contribution might be expected to flow. A panel may consider, for example,
as part of its ex ante analysis of benefit, whether the subsidy is allocated to purchase
inputs or fixed assets; the useful life of those inputs or assets; whether the subsidy is
large or small; and the period of time over which the subsidy is expected to be use d
for future production.1544 (emphasis original; underline added)
Moreover, arguably, the same logic applied to a "financial contribution" in the form of a
grant, for example, could mean that its ex ante "life" would be over as soon as it was
provided to the recipient. Yet, according to the Appellate Body:
{T}he fact that a subsidy is "deemed to exist" under Article 1.1 once there is a
financial contribution that confers a benefit does not mean that a subsidy does not
continue to exist after the act of granti ng the financial contribution .1545 (underline
added)
6.878. Thus, it is unclear to us whether the "Loan Life" approach advocated by the
European Union would be the most appropriate methodology for determining the "projected value"
of the subsidies provided under the LA/MSF agreements. Given that it was expected that the
nature, amounts and projected use of the LA/MSF subsidies would enable Airbus to develop and
bring to market one or more of its LCA products, we believe that it would be at least equally
appropriate t o equate the ex ante lives of the relevant LA/MSF subsidies with the anticipated

1541 European Union's second written submission, para. 155.
1542 PwC Rebuttal Report, (Exhibit EU-120) (BCI).
1543 European Union's second written submission, paras. 156-159 (citing the PwC Rebuttal Report,
(Exhibit EU-120) (BCI), paras. 36 and 40).
1544 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 707.
1545 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 708.

marketing lives of the relevant LCA that it was expected would be developed and brought to
market with LA/MSF. In other words, because of the anticipated "product creating" na ture of
LA/MSF, we see no reason why the ex ante lives of the challenged LA/MSF subsidies should not be
defined by the expected marketing lives of the funded LCA programmes. In this respect, we recall
that the Appellate Body found "no reason to disagree wi th the notion that allocation of a subsidy
over the anticipated marketing life of an aircraft programme could be one way to assess the
duration of a subsidy over time".1546
6.879. Ultimately, however, we believe it is not necessary for us to express any definitive views
on which of the two methodologies relied upon by the European Union to determine the ex ante
lives of the LA/MSF subsidies should be accepted, because it is apparent that under either
methodology, the ex ante lives of most of the identified LA/MSF subsidies will have come to an end
before the end of the implementation period. Indeed, in our estimation, the outcome would be
exactly the same, were the "marketing life" defined in terms of the last date of delivery, and not
the last date of order, as it h as been in the PwC Amortization Report. Thus, we find that the
European Union has demonstrated that the ex ante lives of the following LA/MSF subsidies
"expired" before 1 June 2011 as a result of the amortization of benefit : the French, German and
Spanish government LA/MSF for the A300B/B2/B4, A300 -600, A310, A320, A330/A340; and the
UK government LA/MSF for the A320 and A330/A340.1547
Capital contribution subsidies
6.880. The United States challenges the European Union's compliance with the adopted findings
and rec ommendations in relation to the following capital contribution subsidies found to cause
adverse effects in the original proceeding: (a) four French government equity infusions into
Aérospatiale in 1987, 1988, 1992 and 1994; and (b) the German Government's acquisition of a
20% interest in Deutsche Airbus GmbH (Deutsche Airbus) in 1989, and the subsequent transfer of
that interest to Messerschmitt-Bölkow-Blohm GmbH (MBB), the 100% controlling parent of
Deutsche Airbus, in 1992.
6.881. Drawing from the work of its experts PwC, the European Union argues that the lives of five
of the challenged capital contributions should be determined by amortizing their benefit over the
Useful Life of Assets in which Aérospatiale and Deutsche Airbus respectively invested the relevant
capital.1548 It is argued in the PwC Amortization Report that this would be the most appropriate
methodology to apply because, in the case of Aérospatiale, the capital contributions "enabled the
company to finance increases in its fixed assets" 1549, while with respect to Deutsche Airbus, the
relevant capital contribution coincided with a "substantial increase in intangible fixed assets" and
"enabled the company to fund production". 1550 The following table sets out the results of PwC's
analysis.

1546 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1241.
1547 Furthermore, we find that the European Union has also established that the ex ante lives of the
French government LA/MSF subsidies for the A330-200 and the French and Spanish government LA/MSF
subsidies for the A340-500/600 "expired", respectively, in [***] and [***] – that is, after the end of the
implementation period.
1548 European Union's first written submission, paras. 212 and 215.
1549 PwC Amortization Report, (Exhibit EU-5) (BCI/HSBI), para. 83.
1550 PwC Amortization Report, (Exhibit EU-5) (BCI/HSBI), paras. 103-104.

Table 12: PwC ex ante "lives" analysis for capital contributions
Capital
Contribution
Maximum
Useful Life of
Assets
Expected
Amortization
of Benefit
Expected Last
Order
(Marketing
Life)
Expected Last
Delivery
Aérospatiale
1987 13.3 years 2002 [***]1551 [***]1552
1988 13.3 years 2003 [***] [***]
1992 13.3 years 2006 [***]1553 [***]1554
1994 13.3 years 2008 [***] [***]
Deutsche Airbus1555
1989 15 years 2004 [***] [***]1556
1990 15 years 2005 [***] [***]
1991 15 years 2006 [***] [***]

6.882. According to PwC, it wo uld be inappropriate to amortize the benefit of the 1992 German
government share transfer using the "Useful Life of Assets" method because "[***]".1557 Thus, for
this particular subsidy, the PwC Amortization Report amortized the benefit over the expected
"marketing life" of the A320 programme, because it was considered to be "inseparable" from the
German Government's contribution of 1989, which was itself "related to the A320 aircraft
program".1558 On this basis, the PwC Amortization Report concludes that the lif e of the 1992
German government capital contribution subsidy expired in [***]1559, which reflects the expected
marketing life of the A320 programme at the time of the German Government's A320 LA/MSF
measure.
6.883. Alternatively, the PwC Amortization Report submits that the benefit of the 1987 and 1988
French government capital contributions and the 1989 German government capital contribution
could also be amortized over the expected "Marketing Life" of the A320 programme because, in its
assessment, both sets of cont ributions were utilized for the purpose of production of the A320. 1560
Likewise, and for similar reasons, PwC submits that the benefit of the 1992 and 1994 French
government capital contributions could also be validly amortized over the expected "Marketing
Life" of the A330/A340 programme.1561 To this end, the PwC Amortization Report explains that:
The financial statements of Aérospatiale and Aérospatiale Group disclose a rise in
work-in-progress inventory and advances to suppliers due to new LCA programs and
increasing production of those products Aérospatiale was in the process of bringing to
market. … Aérospatiale launched the A320 program in 1984 with the first delivery in
1988 and the A330/A340 Basic program in 1987 with the first delivery in 1993. In our
view, the capital contributions in {1987} and {1988} are attributable to the A320
program and the contributions in 1988 and 1989 are attributable to the A330/A340
Basic program. The substantial capital contributions enabled Aérospatiale to
implement the programs successfully by serving as working capital to the firm and to
manufacture and deliver the aircraft at issue. The large capital requirements reflected
in the increase in assets and the comparatively smaller capital contributions can be
linked to specifi c aircraft programs. We therefore consider that the market life of the

1551 A320 programme.
1552 A320 programme.
1553 A330/A340 programme.
1554 A330/A340 programme.
1555 The 1989 Deutsche Airbus capital contribution was provided in three disbursements in 1989, 1990
and 1991. The PwC Amortization Report applies its amortization methodology to each of these disbursements,
as shown in this table.
1556 A320 programme.
1557 PwC Amortization Report, (Exhibit EU-5) (BCI/HSBI), para. 108.
1558 PwC Amortization Report, (Exhibit EU-5) (BCI/HSBI), paras. 116 and 118.
1559 PwC Amortization Report, (Exhibit EU-5) (BCI/HSBI), para. 118.
1560 PwC Amortization Report, (Exhibit EU-5) (BCI/HSBI), paras. 84, 106 and 116-117.
1561 PwC Amortization Report, (Exhibit EU-5) (BCI/HSBI), para. 84. As already noted above, PwC
determined that the expected "marketing lives" of the A320 and the A330/A340 programmes came to an end
in, respectively, [***] and [***].

above programs could also serve as a valid method to determine the amortization
period of the capital contributions.1562
6.884. Similarly, the PwC Amortization Report asserts that the 1989 German government capital
contribution was "made in place of the outstanding balance on an approved A320 production loan",
because of a change in the German Government's financing policy. 1563 The PwC Amortization
Report explains that it was agreed that the DM 505 m illion capital contribution would be provided
[***].1564 Thus, while preferring to "amortize" the life of the 1989 capital contribution over the
Useful Life of Assets purchased with that funding, PwC nevertheless observes that:
As described, the DM 505 m was disbursed [***]. As an accounting matter, the
{1989 German government} capital contribution increased DA's available equity
capital to DM 2 bn rather than specifically serving as operating capital for the A320
program. However, as an accounting matter, [***]. Yet, the fact that the
disbursements under the equity infusion by way of share purchase [***]. Thus,
although the form of the financial contribution changed, the dedication of funds to the
A320 program persisted. The capital contribution of 1989 can th erefore be tied to the
A320 program and amortized over the expected market life of this program.1565
6.885. The United States' position with respect to the French and German government capital
contributions and the German government share transfer is that they were all "product creating"
subsidies. Thus, to the extent that each one was used by Airbus to develop and bring to market
the A320, A330/A340, A340-500/600 and the A380, the United States argues that their respective
lives should be determined on the basis of the actual commercial life of the aircraft they helped to
create.1566
6.886. We recall that the panel in the original proceeding found that the impact of the relevant
French and German government subsidies was to ensure "the continued existence and financial
stability of the respective national entities engaged in the Airbus enterprise" and that "{t}hose
entities were a necessary element of the overall Airbus effort, as it is clear … that without their
participation in the overall effort, Airbus would not have been a ble to continue to develop, launch
and produce LCA in fulfilment of the goal of developing a full range of LCA for the market". 1567
These findings suggest that all six of the challenged measures helped to secure the continued
participation of Aérospatiale and Deutsche Airbus in the Airbus Consortium's efforts to develop a
full range of LCA. In other words, the relevant subsidies worked to not only substantially improve
the financial positions of the respective companies, but also to enable them to continue wit h their
development and production of LCA. This conclusion finds additional support in the panel's more
specific findings with respect to the challenged measures.
6.887. Starting with the four capital contributions to Aérospatiale, the panel found that the
subsidies were provided at a time when Aérospatiale "required the additional equity to fund
investments in fixed assets and inventory, and advances to suppliers, in connection with the
development of new aircraft".1568 In particular, Aérospatiale "required additional equity capital … in
order to fund new investments, such as the ramp -up for manufacture of the A320 … and the
launch of the A330/A340". 1569 Indeed, in its arguments to the panel, the European Union
acknowledged that Aérospatiale could not have undertaken t hese investments without the
government subsidies. 1570 Moreover, at all relevant times, the evidence reviewed by the panel

1562 PwC Amortization Report, (Exhibit EU-5) (BCI/HSBI), para. 84.
1563 PwC Amortization Report, (Exhibit EU-5) (BCI/HSBI), para. 97.
1564 PwC Amortization Report, (Exhibit EU-5) (BCI/HSBI), para. 98.
1565 PwC Amortization Report, (Exhibit EU-5) (BCI/HSBI), para. 106.
1566 United States' response to Panel question Nos. 143 and 145. According to the United States,
because "'Credit Lyonnais {which conferred the subsidy on behalf of France} considered the Aérospatiale
investment to be a long term investment'", and in the light of the allegedly "'good prospects'" for the
A330/A340 programme at the time of the 1992 capital contribution, "it is likelier that the 1992 and 1994 equity
infusions helped launch the A380 in 2000, rather than the A340-500/600 in 1997". (United States' response to
Panel question No. 143, fn 155 (quoting Panel Report, EC and certain member States – Large Civil Aircraft,
para. 7.1369))
1567 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1957.
1568 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1957.
1569 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1364.
1570 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1957.

revealed that Aérospatiale's financial condition was relatively poor, with only uncertain prospects
for the immediate future.1571 Thus, after carefully considering to totality of the evidence, the panel
concluded that each of the four French government capital contributions were "inconsistent with
the usual investment practice of private investors in France", implying that no market investor
would have agreed to make the same equity infusions in Aérospatiale on the same terms as the
French Government.1572
6.888. Turning to the German Government's 1989 capital contribution and subsequent share
transfer, we recall that these took place in the context of the German Government's 1989
restructuring of Deutsche Airbus, which was prompted by Deutsche Airbus' near failure and the
desire on the part of the German Government to "create a 'realistic chance of placing the Airbus
program under full private industry responsibility over the longer term and thus reducing the level
of state financial assistance for Airbus'". 1573 As part of the German Government's restructuring
plan, it was agreed that Deutsche Airbus would, inter alia , receive a DM 505 million capital
contribution from German KfW, and in return, KfW would hold a 20% interest in Deutsche Airbus
for ten years, after which it would be sold to MBB. 1574 Moreover, for at least the first eight years of
this investment, KfW agreed that any profits generated by Deutsche Airbus would be used first to
build up Deutsche Airbus' capital base and to form a special reserve to compensate Deutsche
Airbus for exchange rate losses. At the time, Deutsche Airbus "anticipated that it would require
additional financing for the A320 pr ogramme, and the start-up of the A330/A340 programme"1575,
with its financial position being "exceedingly poor". 1576 Indeed, the European Union acknowledged
that by 1989, Deutsche Airbus was on "the verge of bankruptcy". 1577 Thus, after carefully
reviewing these an d other relevant facts, the panel found that KfW's 20% equity interest in
Deutsche Airbus was not "consistent with the usual investment practice of private investors in
Germany".1578
6.889. As regards the 1992 transfer of KfW's 20% interest in Deutsche Airbus to MBB , the panel
found that the earlier than expected (1992 instead of 1999) transfer was triggered by the German
Government's decision to cancel the DM 4.1 billion exchange rate loss insurance scheme agreed
under the 1989 restructuring plan. In essence, the early transfer of KfW's 20% interest was one of
the measures designed to compensate Deutsche Airbus for the loss of this assistance, which had
been anticipated to continue until 2000. 1579 Thus, it is apparent that the 1992 share transfer
transaction was inheren tly connected with the 1989 restructuring plan, and in particular, the
exchange rate insurance measure, which we understand was not limited to any one or more
specific LCA products. After examining the prices paid by MBB for KfW's 20% interest in Deutsche
Airbus, the panel concluded that the transfer had conferred a benefit, and was therefore a subsidy,
because it had been made at "considerably less than its market value".1580
6.890. As we see it, in the light of the Appellate Body's guidance, the core question that must be
answered when determining the ex ante life of a particular subsidy is what were the expectations
of the parties to the subsidy transaction about how it would "materialize over time" at the moment
it was provided. All of the above-mentioned subsidies involved one-off non-commercial substantial
investments of financial resources of some kind. The panel's findings from the original proceeding
reveal that, to differing degrees, each subsidy was provided in order to enable Aérospatiale and
Deutsche Airbus to continue with LCA development and production activities, including (but not
specifically limited) to the A320 and A330/A340 programmes. Furthermore, it is equally apparent
that in continuing to support these activities, it must have also been expected that the relevant
subsidies would make a significant contribution to the continued existence of the two Airbus
entities, and therefore the Airbus Consortium. In this light, it would not, in our view, be
unreasonable to consider that the parties' expectations at the time of the provision of the subsidies

1571 Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.1363-7.1374.
1572 Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.1360-7.1380.
1573 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1247.
1574 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1248.
1575 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1247.
1576 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1276.
1577 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1276.
1578 Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.1272-7.1288.
1579 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1298.
1580 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1299.

was that they would "materialize" over a period of time extending beyond the anticipated duration
of the A320 and A330/A340 programmes.
6.891. In contrast, the European Union maintains that the "benefit" associat ed with these
subsidies should be amortized over the "Useful Life of the Assets" that were allegedly purchased
with the relevant funding. We note, however, that PwC appears to have based its preference for
applying the "Useful Life of Assets" methodology o n its post facto observations about how the
subsidies appear to have been used on the basis of how the movement of certain unspecified
amounts of cash were recorded in the relevant companies' accounts. We have been unable to find
any evidence on the record to demonstrate that the parties held these expectations at the time
that the subsidies were provided. Thus, we are not convinced that it would be appropriate to
determine the ex ante lives of the challenged subsidies on the basis of PwC's "Useful Life of
Assets" approach. In particular, we have doubts about the appropriateness of measuring the ex
ante lives of subsidies that were expected to provide critical support to the ongoing LCA operations
and existence of Aérospatiale and Deutsche Airbus (and theref ore also the Airbus Consortium) on
the basis of accounting conventions relating to how to amortize the book value of fixed assets,
which in the absence of contemporaneous evidence , reveal very little, if anything, about the
parties' expectations at the time of subsidization.
6.892. This does not, however, mean that we accept the United States' view that the ex ante lives
of the challenged subsidies should be equated with the actual marketing lives of the LCA
programmes they "create". First, we note that the United States has advanced very little argument
to support its contentions concerning the ex ante lives of these measures, with its specific
submissions on this point limited to two paragraphs in its response to Panel question No. 143.
Second, the evidence befo re us provides little, if any, support for the view that the "projected
value" of the relevant subsidies was expected to "materialize" over the actual marketing lives of
the A320, A330/A340, A340 -500/600 and A380 programmes. Indeed, as we understand it, th e
A380 programme had not even been conceived at the relevant times.
6.893. In the light of the above considerations, we believe that the ex ante lives proposed by the
European Union understate what would have been the most likely expectations of the parties with
respect to how the relevant subsidies would "materialize over time" at the moment they were
provided. Nevertheless, for the purpose of evaluating the merits of the United States' non -
compliance claims, we are willing to accept that the European Union's analysis demonstrates that
the ex ante "lives" of these subsidies came to an end before 1 June 2011.1581
Regional development grants
6.894. The United States' non -compliance complaint concerns 11 regional development grants
found to constitute specific subsidies in t he original dispute. The specific grants were those made
by: (a) authorities in Germany and Spain for the construction of manufacturing and assembly
facilities in, respectively, Nordenham (Germany) and Tablada, San Pablo, La Rinconada, Illescas,
Puerto Santa María and Puerto Real (Spain); and (b) the regional governments of Andalusia and
Castilla-La Mancha to Airbus in Puerto Real, Sevilla (two grants) and Illescas (Spain).1582
6.895. The European Union does not argue that the ex ante lives of these subsidies came to an
end before the end of the implementation period. Indeed, the European Union accepts that Airbus
continued to "benefit" from these subsidies even beyond the end of the implementation period .
However, in order to inform our further analysis of the United States' non-compliance claims, and
in particular, the United States' allegation that the European Union and relevant member States
have failed to "take appropriate steps to remove the adverse effects" we review the merits of the

1581 According to the "Useful Life of Assets" methodology applied by PwC, the ex ante "lives" of the
French government capital contributions provided in 1987, 1988, 1992 and 1994 would have come to end,
respectively, nine, eight, five and three years before the beginning of the implementation period. Likewise, the
three relevant German Government measures provided in 1989, 1990 and 1991 would have come to an end,
respectively, [***] years before the beginning of the implementation period. Thus, our overall conclusion with
respect to these measures is not undermined by our view that the European Union's submissions are likely to
understate their ex ante "lives".
1582 The specific grants and relevant amounts are described in Panel Report, EC and certain member
States – Large Civil Aircraft, paras. 7.1206-7.1211.

European Union's assertion s concerning the end of the lives of these subsidies in the following
paragraphs.
6.896. Relying upon the PwC Amortization Report, and in particular, the "Useful Life of Assets"
approach to amortizing "benefit", the European Union argues that: (a) all but 8% of t he value of
the German regional development grant was amortized by the end of the compliance period; and
(b) all but 34% of the value of the six other regional development grants, provided to EADS -CASA
and Airbus Spain, were also amortized by the end of th e compliance period. 1583 According to the
European Union, the remaining four challenged regional development grants provided by Spanish
authorities are no longer being used for civil aircraft purposes, and therefore, cannot be part of the
Panel's evaluation of the United States' claims of continued serious prejudice in this dispute.1584
6.897. The United States rejects the European Union's submission that the four regional
development subsidies allegedly used for military aircraft purposes do not benefit Airbus' civil
aircraft facilities, arguing that the European Union has "not presented any evidence that this is the
case".1585 In addition, the United States argues that all of the regional development grants at issue
were "product creating" subsidies necessary for the pur pose of the development of the A380. As
such, the United States maintains that their respective lives should be determined on the basis of
the actual commercial life of the A380.1586
6.898. We do not understand the United States to contest the European Union's submission that
four of the challenged regional development grants provided by Spanish authorities between 2001
and 2004 were directed to Airbus' military aircraft operations at EADS -CASA's facilities in San
Pablo. Indeed, the United States has provided no specific response to the separate report prepared
by PwC and submitted by the European Union – the PwC San Pablo South Industrial Site Report –
which "assessed whether San Pablo South site is used exclusively for the manufacture, assembly
and transformation o f military aircraft". 1587 The 20-page report explains that the EADS -CASA site
has three buildings that are used to: (a) assemble the A400M, the C -212, CN-235 and C-295 (all
four military aircraft); (b) conduct testing activities relating to the A400M and othe r military
aircraft; and (c) monitor test flights of military aircraft. 1588 It concludes that "there is no indication
that the San Pablo South site has been used or will be used for manufacturing, assembling or
transforming civil aircraft".1589
6.899. Thus, the United States' objection to the European Union's assertions with respect to these
four regional development grants appears to be based on the alleged absence of any evidence
demonstrating that Airbus' military aircraft operations at the San Pablo South Industria l Site did
not meaningfully benefit Airbus' LCA activities. However, in our view, in the light of the
United States' failure to contest the conclusions reached in the PwC San Pablo South Industrial Site
Report, it was for the United States to advance such evidence, not the European Union. Therefore,
in the absence of any argumentation or evidence presented on the part of the United States to
show that the four regional development grants provided for Airbus' military aircraft activities, also
contributed to Airbus' LCA activities, we cannot accept that they should be taken into account in
our analysis, and consequently exclude them from our evaluation of the merits of the
United States' non-compliance claims.
6.900. In this light, we will limit our assessment of th e European Union's assertions about the
"lives" of the regional development grant subsidies to the following seven measures: (a) the 2002
grant of EUR 6.14 million to Airbus Germany's facility in Nordenham; (b) the 2001 grant of

1583 European Union's first written submission, paras. 222-223; and PwC Amortization Report,
(Exhibit EU-5) (BCI/HSBI), paras. 121-145.
1584 European Union's first written submission, paras. 220-221; second written submission, para. 187;
and PricewaterhouseCoopers, "Assessment of the use of the San Pablo South industrial site relating to the WTO
Dispute DS316", 30 November 2011, (Exhibit EU-6) (BCI/HSBI).
1585 United States' first written submission, para. 103; and response to Panel question No. 143, fn 150.
1586 United States' response to Panel question Nos. 143 and 145.
1587 PricewaterhouseCoopers, "Assessment of the use of the San Pablo South industrial site relating to
the WTO Dispute DS316", 30 November 2011, (Exhibit EU-6) (BCI/HSBI), p. 16.
1588 PricewaterhouseCoopers, "Assessment of the use of the San Pablo South industrial site relating to
the WTO Dispute DS316", 30 November 2011, (Exhibit EU-6) (BCI/HSBI), paras. 37-46.
1589 PricewaterhouseCoopers, "Assessment of the use of the San Pablo South industrial site relating to
the WTO Dispute DS316", 30 November 2011, (Exhibit EU-6) (BCI/HSBI), p. 16.

EUR 2.2 million to EADS -CASA for its facility in Sevilla; (c) the 2003 grant of EUR 13.1 million to
Airbus Spain for its facility in Puerto Real; (d) the 2003 grant of EUR 37.9 million to Airbus Spain
for its plant in Illescas; (e) the 2003 grant of EUR 5.9 million to EADS -CASA for a new facility in
Puerto de Santa María; (f) the 2003 grant of EUR 17.5 million to Airbus' facilities in Puerto Real;
and (g) the 2004 grant of EUR 7.6 million to Airbus Spain for it facility in Illescas.
6.901. Again, in the light of the Appellate Body's guidance, the core question that we believe must
be answered when determining the ex ante life of a particular subsidy is what were the
expectations held about how the subsidy would "materialize over time" when it was provided.
6.902. During the original proceeding, t he panel found that the regional development subsidies
were provided with respect to individual Airbus or EADS-CASA "facilities" or "plants" "in connection
with the production of LCA". 1590 Furthermore, when combined with the infrastructure subsidies
provided for the Mühlenberger Loch and the Bremen Airport runway projects, the original panel
found that the regional development grant subsidies provided "essential support to the
development and production of Airbus LCA, relieving Airbus of significant expenses i n connection
with the development of facilities for the production of, most particularly, the A380".1591
6.903. On appeal, the Appellate Body agreed with the European Union that "the Panel did not
specifically refer to {the regional grant subsidies} in its causatio n analysis, thus making it difficult
to discern on what basis it inferred that such regional grants complemented or supplemented
LA/MSF and contributed to Airbus' ability to launch and bring to market its models of LCA". 1592
Nevertheless, the Appellate Body f ound the factual findings that were made by the panel to
provide "a sufficient basis for concluding that such regional grants were used to expand Airbus'
manufacturing sites or EADS -CASA's LCA-related activities, thus supporting the Panel's inference
that such regional grants 'provided essential support to the development and production of Airbus
LCA, relieving Airbus of significant expenses in connection with the development of facilities for the
production'"1593 of LCA.
6.904. The PwC Amortization Report provides additional insights into the intended purpose of the
regional development grants. In particular, it is apparent from PwC's review of "application
documents" that the 2002 grant to Airbus Germany's facility in Nordenham was intended to
purchase capital asse ts that would be used to contribute to the establishment of production
facilities for the A380.1594 Likewise, PwC's review of documents related to the six Spanish regional
development grants reveals that each was intended to be spent on "some or all of four d ifferent"
categories, namely: "land and property"; "constructions"; "capital assets"; and/or "planning,
engineering and project management". 1595 Moreover, PwC's analysis explains that these grants
"were used to establish production facilities for LCA", although it notes that "there is no link to the
development of a particular product/aircraft program."1596 We note, however, that other evidence
before us suggests that Airbus' Illescas and Puerto Real sites – recipients of four of the six Spanish
regional development grants totalling EUR 67.2 million1597 – manufacture and/or contribute to the

1590 Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.1206-7.1211 and
7.1218.
1591 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1958.
1592 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1399.
1593 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1399.
1594 PwC Amortization Report, (Exhibit EU-5) (BCI/HSBI), paras. 122 and 131-132.
1595 PwC Amortization Report, (Exhibit EU-5) (BCI/HSBI), paras. 137-138.
1596 PwC Amortization Report, (Exhibit EU-5) (BCI/HSBI), para. 131. (emphasis added) The PwC Report
also states that the Illescas site – which received two of the regional development grants totalling
EUR 45.5 million – "manufactures parts and components" for Airbus LCA. (PwC Amortization Report, (Exhibit
EU-5) (BCI/HSBI), para. 125)
1597 This amount accounts for the clarifications provided in the PwC Amortization Report about the
proportion of the 2003 grant of EUR 17.5 million for Airbus' facilities in Puerto Real, and the 2004 grant of
EUR 7.6 million to Airbus Spain for its facility in Illescas, that were financed via the European Regional
Development Fund and, therefore, "specific" within the meaning of Article 2.2 of the SCM Agreement. (PwC
Amortization Report, (Exhibit EU-5) (BCI/HSBI), table 21 and fn 51. See also Panel Report, EC and certain
member States – Large Civil Aircraft, para. 7.1236 and fn 4276). The United States has not contested PwC's
clarifications in this context.

production of parts and components for all Airbus LCA, including, specifically, the A330/A340,
A350XWB and A380.1598
6.905. In this light, we are not convinced that choosing to amortize th e "benefit" of the seven
regional development grant subsidies over the "Useful Life of Assets" that were allegedly
purchased with the relevant funds is the most appropriate method for determining their ex ante
lives. Nevertheless, we consider the "Useful L ife of Assets" approach advanced by the
European Union to more closely mirror what the parties' expectations might have been about how
the subsidies would "materialize over time" when they were provided than the methodology
advocated by the United States, which is to allocate the relevant subsidies over the actual
marketing life of the A380. We can find little, if any, support for the view that the expectations
surrounding the relevant subsidies at the time they were provided was that Airbus would use them
for the actual marketing life of the A380.
6.906. Ultimately, however, we believe it is not necessary for us to express a definitive view on
what would be the most appropriate methodology for determining the ex ante lives of the seven
regional development grant subsidies because even if we were to accept the European Union's
contentions in full, the relevant subsidies would be continuing to "benefit" Airbus well beyond the
end of the implementation period.1599
Conclusion with respect to the "expiry" of subsidies
6.907. Thus, in summary, our conclusions with respect to the European Union's submissions
concerning the alleged "expiry" of subsidies are as follows:
 The European Union has demonstrated that the ex ante "lives" of the French, German and
Spanish government LA/MSF su bsidies for the A300B/B2/B4, A300 -600, A310, A320,
A330/A340, and the UK government LA/MSF subsidies for the A320 and A330/A340,
"expired" before 1 December 2011 (and, therefore, before the end of the implementation
period)1600;
 The European Union has demons trated that the ex ante "lives" of the capital contribution
subsidies "expired" before 1 December 2011 (and, therefore, before the end of the
implementation period); and
 Even accepting the entirety of the European Union's assertions, the ex ante "lives" of five of
the regional development grant subsidies will not "expire" until sometime between 2054 and
2058, with the other two "expiring" around 2014 (and, therefore, after the end of the
implementation period).
6.6.3.4.2.5 "Intervening events"
Introduction
6.908. The European Union argues that two kinds of events have brought the ex ante "lives" of
some or all of the subsidies predating the A350XWB LA/MSF subsidies to an end before the end of
the implementation period. These events are: (a) two one -time removals of cash and c ash

1598 "Airbus centres of excellence", Airbus website, accessed 21 May 2012, (Exhibit USA-306); and
"Airbus In Spain" Airbus website, accessed 11 October 2012, (Exhibit USA-459). See further discussion of this
evidence below at paras. 6.1843-6.1845.
1599 In this respect, we note that the PwC Amortization Report envisages that: (a) the German subsidies
provided for the Nordenham facility would eventually fully amortize by way of straight-line depreciation of the
purchased fixed assets in [***]; (b) the Spanish subsidies provided for the Sevilla facilities would fully
amortize by way of straight-line depreciation in [***]; and (c) significant portions of the Spanish government
subsidies would eventually fully amortize by way of straight-line depreciation of the purchased "constructions"
and "land & property" assets between [***] to [***] and [***] to [***], respectively. PwC Amortization
Report, (Exhibit EU-5) (BCI/HSBI), annex 3.
1600 Furthermore, we find that the European Union has also established that the ex ante lives of the
French government LA/MSF subsidies for the A330-200 and the French and Spanish government LA/MSF
subsidies for the A340-500/600 "expired", respectively, in [***] and [***] – that is, after the end of the
implementation period.

equivalents by DaimlerChrysler and SEPI from their respective subsidiaries, DASA and CASA, in
the lead up to the creation of EADS in 2000 (the "extraction" of benefit ); and (b) the alleged
"partial privatization" of Aérospatiale in 1999, the sale and i ssuance of EADS shares to the general
public by the EADS partners in the context of the creation of EADS and its public float in 2000, and
the 2006 sale by BAE Systems of its 20% ownership stake in Airbus SAS to EADS (the "extinction"
of benefit).
6.909. Apart f rom rejecting the European Union's assertions with respect to the existence and
impact of these two kinds of alleged "intervening events", the United States submits that the ex
ante "lives" of the A300/A310 and A340 LA/MSF subsidies have, respectively, increased as a result
of the following two additional "intervening events": (a) the launch of the A330/A340 including
derivatives; and (b) the termination of the A340 programme in 2011.1601
6.910. Below we evaluate the merits of the parties' arguments with respect to each of these
alleged events. Before doing so, however, we briefly set out our understanding of what may
constitute an "intervening event", in the light of the Appellate Body's guidance from the original
proceeding and the parties' submissions in this compliance dispute.
What is an "intervening event"?
6.911. In the original proceeding, the Appellate Body described an "intervening event" to be one
that "occurred after the grant of {a} subsidy that may affect the projected value of {that} subsidy
as determined und er the ex ante analysis".1602 The European Union has similarly argued that an
"intervening event" is one that triggers the end of the "life" of a subsidy at a point in time that is
different to what would normally have been the case in the light of ex ante projections.1603 As we
understand it, an "intervening event" will be one that takes place after the grant of a subsidy and
alters its ex ante "life" – that is, an event that changes how a subsidy has "materialized over time"
relative to the expectations held at the time it was granted. It follows, therefore, that an
"intervening event" cannot be an event that was contemplated and used to inform the
expectations that shaped the ex ante life of a subsidy when first granted.
6.912. According to the United States, the Appe llate Body's statements concerning the need to
determine the "life" of a subsidy, in the light of "intervening events", suggest that an "intervening
event" may not only decrease the "projected value" of a subsidy, but also "act to increase the
value of the subsidy or prolong its life".1604 While the European Union accepts that an "intervening
event" may either decrease or increase the ex ante life of a subsidy, the European Union submits
that in a compliance dispute, the latter kind of "intervening event" may only be included in an
adverse effects analysis when it has been: (a) identified in the panel request in accordance with
Article 6.2 of the DSU; and (b) established that it constitutes a "measure taken to comply", within
the meaning of Article 21.5 of the DSU, which has extended the "projected value" of the relevant
subsidy beyond the end of the implementation period.1605
6.913. In our view, there is no reason why an "intervening event" must be defined in terms of
circumstances that will only ever decrease the ex ante "life" of a subsidy. We see nothing in the
language used by the Appellate Body to describe an "intervening event" that would prevent the
possibility of finding that an event occurring after the granting of a subsidy might increase the ex
ante "life" of a subsidy. While the extent to which any one or more particular events may be
characterized as such will, of course, ultimately depend upon the particular facts, one
circumstance that might be considered to increase the ex ante life of a subsidized loan, fo r
example, could be the unplanned adjustment of its terms in a way that increases the amount of
subsidization. We therefore agree with the parties that an "intervening event" may either increase
or decrease the ex ante life of a subsidy.
6.914. We have difficult y, however, accepting the European Union's argument that the only way
an "intervening event" that is alleged to increase the ex ante life of a subsidy may be raised in a

1601 United States' first written submission, paras. 180-183; and response to Panel question No. 150.
1602 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 709.
1603 European Union's response to Panel question No. 7, para. 35.
1604 United States' response to Panel question No. 150, para. 72.
1605 European Union's response to Panel question No. 150, para. 315.

compliance dispute is by properly identifying it as a "measure taken to comply" in the
complainant's panel request initiating the Article 21.5 DSU dispute settlement process.
6.915. We recall that the core issue that must be resolved in a compliance dispute is whether the
implementing Member has complied with the DSB's adopted rulings and recomme ndations. In a
case involving findings of adverse effects, an implementing Member must either "take appropriate
steps to remove the adverse effects" or "withdraw the subsidy". Where a complainant believes that
this requirement has not been satisfied, it ma y bring a dispute under Article 21.5 of the DSU,
identifying the subsidies it considers place the implementing Member in non -compliance. Apart
from identifying the specific legal basis under the SCM Agreement, the complainant need not, in its
request to in itiate a compliance panel , explain exactly how those subsidies continue to cause the
particular form of adverse effects it believes it is suffering. Once the complainant clearly identifies
the relevant subsidies and the legal bases supporting its claims wi th sufficient clarity and detail,
the implementing Member will know what the dispute is about, and it will then be up to the
complainant to justify its claims on the basis of arguments and evidence presented during the
panel process. In our view, part of t his justification may, where relevant and necessary, need to
include an explanation of the extent to which the subsidies clearly identified in the request to
initiate the Article 21.5 proceeding continue to exist beyond their ex ante "lives" as a result of an
"intervening event".
6.916. Thus, as we see it, a complainant will not always be required to identify an "intervening
event" that is alleged to increase the ex ante life of a subsidy that is clearly specified in its request
to establish a panel in a complian ce dispute under Article 21.5 of the DSU. In our view, such
information would not normally be required to ensure that an implementing Member understands
what the compliance dispute is about. However, where relevant and necessary, a complainant will
need to identify and describe such an event in the process of presenting its arguments in order to
justify its claims. In the present dispute, we do not believe that the nature of the alleged
"intervening events" the United States relies upon was such that they s hould have been identified
in its panel request in order for the European Union to have understood what the compliance
dispute is about. We are therefore unable to agree with the European Union's submission placing a
jurisdictional limit on the United States' ability to raise the existence of the two alleged
"intervening events" which it argues extend the ex ante "lives" of the challenged subsidies.
6.917. With the above considerations in mind, we now proceed to review the parties' arguments
concerning the different types of "intervening events" they allege have altered the ex ante "lives"
of the challenged subsidies.
"Extraction" of benefit
Arguments of the European Union
6.918. The European Union argues that two "extractions" of cash and cash equivalents allegedly
amounting to EUR 3.133 billion by DaimlerChrysler from DASA and EUR 342.4 million by SEPI from
CASA in the year 2000, achieved the removal of the benefit of all subsidies previously received by
these companies, and therefore brought the lives of those subsidie s to an end before the end of
the implementation period. 1606 While accepting that it raised the same two alleged cash
"extraction" events before the panel and Appellate Body in the original proceeding, the
European Union submits that the merits of its argumen ts were not decided upon by the
Appellate Body. Rather, the European Union argues that the Appellate Body merely "took issue
with the explanations provided by the European Union", in particular, finding that "the
European Union had not sufficiently explain ed how the specific subsidies … were reflected in the
value of those companies, and how cash removed or extracted represented the remaining or
unused value of these subsidies". 1607 In addition, the European Union maintains that the
Appellate Body found that "the assessment of whether the cash extractions constituted withdrawal
of the subsidies in the sense of Article 7.8 of the SCM Agreement was not timely, and should

1606 European Union's first written submission, paras. 248-291; and response to Panel question No. 13.
1607 European Union's first written submission, paras. 256-257.

rather be made by an adjudicator in compliance proceedings". 1608 Thus, the European Union
argues that the two alleged cash "extractions" are properly before this compliance panel.
6.919. The European Union furthermore argues that the United States' reliance on certain
statements made by the Appellate Body in US – Upland Cotton (Article 21.5 – Brazil) to support its
view that the European Union is legally precluded from making the same cash "extraction"
arguments allegedly rejected during the original proceeding, is misplaced. In particular, the
European Union argues that the statements relied upon by the Uni ted States stand only for the
proposition that complainants are not entitled to "re-argue" claims that were settled during original
proceeding.1609 In contrast, as the respondent in this compliance proceeding, the European Union
submits that it is legally ent itled to argue any defence it considers appropriate, even if it was
unable to "establish" this defence in the original proceeding. 1610 According to the European Union,
the situation of a respondent is different to that of a complainant in a compliance proceed ing
because whereas a complainant may choose to re -argue a claim that was lost during original
proceedings by "starting anew under Article 6 of the DSU", a respondent does not have this
opportunity. Thus, for the European Union, a respondent's right to dev elop any facts and
arguments it considers appropriate for its defence in a proceeding under Article 21.5 of the DSU
"creates the necessary balance between the rights of complainants under Article 6 of the DSU and
the due process rights of respondents". 1611 The European Union submits that it is also important
that a respondent be allowed to raise any defence it considers appropriate in compliance
proceedings in order to ensure that the "DSB would not risk authorizing suspension of concessions
or other counterme asures where, in the language of Article 22.8 of the DSU, the WTO -
inconsistency has been removed".1612
6.920. Turning to the substance of its arguments, the European Union argues that there are a
number of factors establishing that the alleged cash extractions from DASA and CASA achieved the
removal of the residual value of subsidies previously received by the two companies. In essence,
the European Union argues that because of the way that subsidies affect the market value of a
company, the transfers of cash to Daim lerChrysler and SEPI, "in effect, extracted the value of any
residual benefits from prior subsidies – i.e. the present value of future increased cash flow
generated by the benefits from those subsidies, up to the amount of the cash withdrawn". 1613 In
addition, the European Union argues that the facts show that the cash extracted from DASA and
CASA: (a) could not be "re -injected" into those companies, nor into EADS, because the two
companies stopped being subsidiaries of DaimlerChrysler and the Spanish State (t hrough SEPI);
and (b) would not be "re -injected" because of the serious disincentive to reinvestment of the
extracted funds caused by the change in the nature of the interests of DaimlerChrysler and the
Spanish State in EADS and its LCA subsidiaries.1614
Arguments of the United States
6.921. The United States argues that the European Union's assertion that a series of alleged cash
extractions by DaimlerChrysler from DASA and by SEPI from CASA in the year 2000 constituted
"intervening events" that brought the "lives" of the residual value of subsidies received by DASA
and CASA prior to 2000 to an end must be rejected. The United States recalls that the
European Union made the same cash "extraction" arguments in the original proceeding, and that
these were rejected by the panel, whose findings were upheld by the Appellate Body. Moreover,
the United States notes that the acceptance of adopted panel and Appellate Body reports is
unconditional for both parties. In this light, the United States submits that the European Union is

1608 European Union's first written submission, para. 256.
1609 European Union's first written submission, para. 261; and second written submission,
paras. 199-200.
1610 European Union's first written submission, para. 264.
1611 European Union's first written submission, paras. 263-264.
1612 European Union's first written submission, para. 265.
1613 European Union's first written submission, paras. 277-282; and second written submission,
paras. 202-218.
1614 European Union's first written submission, paras. 286-289; and second written submission,
para. 221.

precluded, as a matter of law, from making the same arguments once again in this compliance
proceeding.1615
6.922. In any case, the United States advances a number of reasons to explain why the two
alleged cash "extractions" did not result in the removal of t he "benefit" and, therefore, the expiry
of the relevant subsidies as argued by the European Union.1616 To begin, the United States submits
that the European Union has failed to satisfy the "minimum" threshold for its "extraction"
argument to prevail in this proceeding. The United States recalls that the Appellate Body described
this "minimum" standard, which reflected the first element of the test the European Union had
itself advanced in the original proceeding, as requiring the European Union "to explain how the
specific subsidies received by DASA and CASA were reflected in the balance sheets of those
companies, and how the cash removed or 'extracted' represented the remaining or unused value
of these subsidies". 1617 According to the United States, the arguments advanced by the
European Union do not provide either of these explanations. First, the United States submits that
the European Union's discussion of how European accounting principles, as applied by Airbus, treat
subsidies to DASA and CASA, does not provi de any information as to how the particular subsidies
at issue in this proceeding were treated on their balance sheets. Second, the United States argues
that the European Union has done nothing more than merely assert, without substantiating on the
basis o f evidence, that the alleged "extractions" actually removed the residual value of the
relevant subsidies. The United States recalls that this was precisely one of the reasons for the
Appellate Body's rejection of the European Union's "extraction" argument in the original
proceeding.1618 Finally, the United States also argues that the European Union has failed to show
how the transactions at issue actually "extracted" any cash from the relevant companies, and
thereby how they satisfied the second element of the test it had advanced during the original
proceeding. According to the United States, the DASA and CASA transactions did not remove any
cash from the relevant companies but simply shifted assets among corporate balance sheets for a
net zero effect.1619
Evaluation by the Panel
6.923. The United States argues that the European Union's "extraction" of subsidies arguments
were already reviewed and rejected by both the panel and the Appellate Body in the original
proceeding and that, consequently, the European Union is legally precluded from advancing those
arguments again in this compliance proceeding.
6.924. We agree with the United States. The European Union's argument that the two alleged
cash "extractions" of EUR 3.133 billion by DaimlerChrysler from DASA and EUR 342.4 million by
SEPI from CASA in the year 2000 achieved the removal of the benefit of all subsidies previously
received by these companies was already considered and dismissed by both the panel and the
Appellate Body in the original proceeding. As the United States points out, the Appellate Body's
findings on this question were explicit:
We are not persuaded by the arguments advanced by the European Union under the
first ground of its "extraction" theory. … Beyond its general assertions, the
European Union provides no persuasive evidence as to how the specific subsidies
provided to Dasa and CASA increased the "incremental value" of those companies,
and therefore how the cash "removed" could be deemed to remove that value. …
…
Given that the link between the subsidie s and the cash "extracted" has not been
sufficiently demonstrated by the European Union, we need not consider the
European Union's further argument that the Panel improperly relied on the "joint

1615 United States' first written submission, para. 46; second written submission, paras. 191-199; and
opening statement (public), paras. 23-25 (citing, in particular, Appellate Body Report, US – Upland Cotton
(Article 21.5 – Brazil), para. 210).
1616 United States' second written submission, paras. 200-215.
1617 United States' second written submission, paras. 202 and 206 (citing Appellate Body Report, EC and
certain member States – Large Civil Aircraft, para. 746).
1618 United States' second written submission, paras. 206-211.
1619 United States' second written submission, paras. 212-215.

control" exercised through the Contractual Partnership to whi ch both DaimlerChrysler
and SEPI belonged …
In the light of the foregoing, although we do not a priori exclude the possibility that all
or part of a subsidy may be "extracted" by the removal of cash or cash equivalents,
we uphold the ultimate finding by th e Panel, in paragraphs 7.276 and 7.288 of the
Panel Report, that the "cash extractions" from Dasa and CASA did not remove a
portion of past subsidies.1620 (emphasis original)
6.925. These Appellate Body findings and conclusions were adopted by the DSB, which means
that pursuant to Article 17.14 of the DSU, the European Union must "unconditionally" accept them.
As the Appellate Body has previously explained:
As the Appellate Body found in EC – Bed Linen (Article 21.5 – India), a complainant
who had failed to make out a prima facie case in the original proceedings regarding an
element of the measure that remained unchanged since the original proceedings may
not re-litigate the same claim with respect to the unchanged element of the measure
in the Article 21.5 proceeding s. Similarly, a complainant may not reassert the same
claim against an unchanged aspect of the measure that had been found to be WTO-
consistent in the original proceedings. Because adopted panel and Appellate Body
reports must be accepted by the parties to a dispute, allowing a party in an
Article 21.5 proceeding to re -argue a claim that has been decided in adopted reports
would indeed provide an unfair "second chance" to that party .1621 (emphasis original;
underline added; footnotes omitted)
6.926. The European Union argues that to deny it the possibility of raising for a second time its
assertions about the alleged "extraction" of subsidies would create an imbalance "between the
rights of complainants {to start a new original proceeding} under Article 6 of the DSU a nd the due
process rights of respondents". 1622 However, were the European Union's position accepted, it
would mean that a respondent (but not a complainant) would be entitled to re -argue in an
Article 21.5 proceeding potentially the entirety of a case that wa s already ruled upon by the
original panel and Appellate Body and adopted by the DSB. In our view, such a possibility would
transform original panel and Appellate Body proceedings into fora for reviewing a respondent's
draft arguments and defences, renderi ng them virtually meaningless, thereby undermining the
effective operation of the WTO dispute settlement system. Moreover, contrary to what the
European Union maintains, the fact that both parties in a dispute must "unconditionally" accept an
adopted Appellate Body report suggests that a complainant would not be able to successfully re -
litigate exactly the same case a second time in a new proceeding under Article 6 of the DSU.
Rather, the fact that a complainant is required to "unconditionally" accept adopt ed Appellate Body
findings suggests that a panel asked to entertain a re -litigated claim might well find, as we do in
respect of the European Union's "extraction" arguments, that it had already been decided and,
therefore, decline to review its merits.
6.927. Thus, we are not persuaded by the European Union's submissions concerning its right to
raise and elaborate, for a second time, the same arguments about the alleged "extraction" of
subsidies that were considered and dismissed by both the panel and the Appella te Body in the
original proceeding. Accordingly, we will not consider the European Union's "extraction" arguments
any further in this dispute.
"Extinction" of benefit
Arguments of the European Union
6.928. The European Union argues that the alleged partial priva tization of Aérospatiale in 1999,
the transactions leading to the creation of EADS in 2000, and BAE Systems' 2006 sale of its 20%

1620 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 746 and
748-749. The same result was confirmed in the Appellate Body's findings and conclusions found at
paragraph 1414(d)(iii) of its report.
1621 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 210.
1622 European Union's first written submission, para. 264.

ownership stake in Airbus SAS to EADS, were "intervening events" that resulted in the "extinction"
of the benefit of all of th e subsidies at issue that were granted prior to these transactions, thereby
bringing them to an end before the end of the implementation period.1623
6.929. The European Union submits that the Appellate Body confirmed, in the original proceeding,
that partial privati zations and private -to-private sales for fair market value and at arm's length,
accompanied by transfers of ownership and control, may have the effect of bringing the life of a
prior subsidy to an end. According to the European Union, in making this allege d finding, the
Appellate Body explained that an assessment of whether a subsidy has been "extinguished"
requires a "fact -intensive inquiry into the circumstances surrounding the changes in
ownership … in order to determine the extent to which there are sal es at fair market value and at
arm's length, accompanied by transfers of ownership and control, and whether a prior subsidy
could be deemed to have come to an end". 1624 The European Union submits that the
Appellate Body thus explained that the following three criteria must be evaluated in order to
determine whether a subsidy has been extinguished: "(i) whether the transaction was for fair
market value, (ii) whether it was at arm's length, and (iii) to what extent there was a transfer of
ownership and control". 1625 For the European Union, in order to meet the Appellate Body's
"transfer of ownership and control" standard, "the new owners' interest must be sufficiently
substantial in order to allow the new private owner to ensure that the company is run on market
terms".1626
6.930. The European Union maintains that the United States errs when it argues that a fourth
criteria must be evaluated, namely, any "other factors" establishing that "a prior subsidy ha{s}
come to an end". The European Union submits that, when read in its proper context, the
Appellate Body's guidance requiring a panel to evaluate "whether a prior subsidy could be deemed
to have come to an end", is simply intended to confirm that there is "a rebuttable presumption
that a transaction that results in a change of control and which is done at arms' length and for fair
market value extinguishes the residual value of the subsidy previously received by the
recipient".1627 Thus, the European Union argues that the legal test for extinction that is advanced
by the United States misrepresents the Appellate Body report in the original proceeding.1628
6.931. Applying the three-criteria legal standard it believes was proclaimed by the Appellate Body,
the European Union argues that all three of the relevant share transactions were "inter vening
events" that "extinguished" all pre-existing subsidies provided to the relevant companies.
6.932. First, the European Union submits that the 1999 partial privatization of Aérospatiale took
place for fair market value because of inter alia the fact that: ( a) 17% of the shares in the new
entity Aérospatiale-Matra (ASM) were sold to institutional and public investors on the Paris Bourse;
(b) the share price paid by Lagardère, the owner of a 33% share interest in ASM, was identical to
the share price for the p ublic offering; (c) five highly reputed investment banks assisted in the
determination of the market value for the respective contributions to the ASM; and (d) the public
offering was managed by legally -authorized financial institutions under strict disclo sure and
transparency requirements established under French law and regulation.1629
6.933. The European Union argues that the ASM transaction was at arm's length because the
French State and Lagardère were independent entities and were independently advised by
sophisticated advisors, which protected their respective client's interests in the transaction by
ensuring proper, market-based valuation of their respective contributions to ASM.1630

1623 European Union's first written submission, paras. 292-354.
1624 European Union's first written submission, paras. 292-296 (quoting Appellate Body Report, EC and
certain member States – Large Civil Aircraft, para. 725).
1625 European Union's first written submission, paras. 297-299.
1626 European Union's first written submission, paras. 301-302; and second written submission,
para. 244.
1627 European Union's second written submission, para. 229.
1628 European Union's second written submission, paras. 224-239.
1629 European Union's first written submission, paras. 312-313 and 317; and second written submission,
paras. 250-252.
1630 European Union's first written submission, para. 318; response to Panel question No. 15; and
comments on the United States' response to Panel question No. 8, paras. 25-33.

6.934. With respect to the transfer of ownership and control requirement, the European Union
notes that the transfer of more than 50% of the ownership from the State to private owners
brought about a qualitative change in control in Aérospatiale, which was apparent from the fact
that the relevant Shareholder's Agreement made Lagardère a "pr ivileged partner" allowing it to
enjoy effective control over ASM through the ability to exercise extraordinary influence over the
company's decision -making. Moreover, the French State was afforded a "golden share" to
safeguard its national defence interes ts. The European Union argues that this special provision
would not have been necessary had the merger not resulted in the loss of control by the French
State. Finally, the European Union argues that the economic realities of the merger also support a
finding that it resulted in a qualitative change in control in Aérospatiale Société Nationale
Industrielle (Aérospatiale). In this regard, the European Union points to the fact that the French
State owned only 47.7% of the shares, compared with at least 50% he ld by Lagardère and other
newly created private shareholders.1631
6.935. Second, as regard the private-to-private share transactions leading to the creation of EADS
in 2000, the European Union submits that all of the shareholders in EADS (with the exception of
the employees entitled to 15% of the issued shares) paid a market price for their shares, which
was established by reference to the value of the company as determined by independent
investment banks. In addition, the European Union submits that the transaction s were at arm's
length because the founding companies were independent from each other and pursued their own
interests, and the new private shareholders, by the very nature of acquiring publicly traded shares,
acted as independent entities and in their own interests.1632
6.936. The European Union argues that the new ownership structure in EADS brought about a
qualitative change to the way that the four founding companies exercised their influence over
EADS' LCA-related activities. In particular, the European Union asserts that having paid a market
price for their investments, the founding company shareholders, and especially those that were
private companies (i.e. DaimlerChrysler and Lagardère), had an interest in managing EADS in a
manner that would ensure market returns. Moreover, the European Union argues that, as a matter
of economic reality, the collective of newly -created shareholders, which owned a 30% stake in
EADS, pursued the same interest of obtaining market returns. Thus, for the European Union, over
60% of the ownership interest in EADS was in private hands (DaimlerChrysler, Lagardère via
Société de gestion de l'aéronautique, de la défense et de l'espace (SOGEADE), and free float), and
this fact meant that EADS "can but be managed in the same way as any pri vately owned, non -
subsidized company". 1633 In addition, the European Union highlights that the creation of EADS
resulted in DaimlerChrysler and Lagardère having joint -control of the newly created entity. At the
same time, the Spanish State "lost control" of C ASA, which became part of EADS, thereby falling
under the joint -control of the former shareholders of ASM and DASA. Similarly, the creation of
EADS allowed DaimlerChrysler to obtain indirect control over ASM, which became part of EADS;
and Lagardère (throu gh the French strategic shareholder) obtained indirect control over DASA,
which also became part of EADS. This ownership and control structure did not exist prior to the
creation of EADS.1634
6.937. Finally, as regards BAE Systems' sale of its 20% stake in Airbus to EADS in 2006, the
European Union argues that the price established for this ownership interest reflects its market
value because it was determined by private, independent investment banks and advisors, and was
subsequently audited by PwC and found to be v alid.1635 Furthermore, the European Union submits
that EADS and BAE Systems acted at arm's length, since neither company controlled the other,
and both acted independently to advance its own interest.1636

1631 European Union's first written submission, paras. 319-323; second written submission, para. 253;
and response to Panel question No. 14.
1632 European Union's first written submission, paras. 326-339.
1633 European Union's first written submission, paras. 339-343; and second written submission,
paras. 255-257.
1634 European Union's response to Panel question No. 18, paras. 51-53 (explaining the implication of
paragraph 10 of the European Commission, Merger Procedure, Case No. COMP/M.1745 – EADS, 11 May 2000,
(EADS Merger Decision), (Original Exhibit US-479), (Exhibit USA-323)).
1635 European Union's first written submission, paras. 346 and 351; second written submission,
paras. 258-260; and response to Panel question No. 16.
1636 European Union's first written submission, para. 351; and second written submission, para. 261.

6.938. On the question of transfer in ownership and control, th e European Union maintains that
the transaction brought about a qualitative change in control over Airbus, because by withdrawing
from its position as a 20% shareholder of Airbus, BAE Systems was no longer able to exercise the
"important influence" this ownership interest gave it over Airbus' business decisions. In particular,
the European Union explains that through its 20% shareholding in Airbus, BAE Systems was not
only entitled to nominate a number of representatives to Airbus' Shareholder and Executive
Committees, but it also gave it [***] rights with respect to decisions taken on the basis of [***]
in the Shareholder Committee, which included [***]. In addition, certain decisions which required
[***] in the Shareholder Committee, were subject [***], to BAE Systems' right to [***]. Thus,
from EADS' perspective, the European Union argues that acquiring BAE Systems' stake in Airbus
meant [***], thereby allowing it to exercise full control over Airbus.1637
Arguments of the United States
6.939. The United States argue s that the European Union errs when it submits that the
transactions giving rise to the 1999 ASM merger, the creation of EADS in 2000, and the 2006
EADS acquisition of shares in Airbus held by BAE Systems, were "intervening events" that
"extinguished" the benefit of all pre -existing subsidies, and thereby bring the "lives" of those
subsidies to an end. According to the United States, the European Union's submissions are based
on an erroneous understanding of the guidance provided by the Appellate Body in th e original
proceeding about how to perform an "extinction" analysis. When this guidance is correctly applied
to the facts of the relevant transactions, the United States maintains that it must be concluded
that they do not "extinguish" the benefit conferred to Airbus through the relevant subsidies. In any
case, the United States is of the view that the same conclusion should be arrived at even applying
the European Union's own interpretation of the Appellate Body's guidance to the relevant facts.1638
6.940. The Unite d States submits that the Appellate Body explained that an assessment of
whether a transaction involving the sale of shares "extinguished" subsidies requires "a fact
intensive inquiry" into at least the following three matters: (a) whether the transaction was at fair
market value and at arm's length; (b) whether the transaction involved a transfer in ownership
and control; and (c) "whether a prior subsidy could be deemed to have come to an end". 1639
However, according to the United States, the three Members of the Appellate Body Division that
served on the appeal could not agree on what additional factors were necessary, and in this
regard, "took the unusual step of issuing separate views". 1640 In this light, the United States
argues that the Appellate Body did no t endorse a single "approach" to resolve the question,
implying that the best way to evaluate the merits of the European Union's "extinction" arguments
must be to test them separately against each of the three individual Appellate Body member
opinions.1641
6.941. For the United States, Appellate Body "Member A" considered that partial privatizations
and private-to-private transactions could not extinguish pre -existing subsidies. On this basis, the
United States argues that the transactions giving rise to the 1999 AS M merger, the creation of
EADS in 2000, and the 2006 EADS acquisition of shares held by BAE Systems in Airbus, cannot be
found to "extinguish" the benefit of all pre-existing subsidies.1642
6.942. The United States notes that Appellate Body "Member B" found that a conclusion as to the
"extinction" of subsidies would depend on the facts of the case, and that "{a}n important
consideration in this context is to what extent the partial privatization or private -to-private
transactions resulted in a transfer of control to new owners who paid fair market value for shares
in the company". 1643 Focussing on the "important" question of control, the United States argues
that none of the relevant transactions resulted in a transfer of control. According to the

1637 European Union's first written submission, paras. 347-350 and 352-353; and second written
submission, para. 262.
1638 United States' second written submission, paras. 216-264; and response to Panel question Nos. 8
and 9.
1639 United States' second written submission, paras. 217, 230 and 233 (citing Appellate Body Report,
EC and member States – Large Civil Aircraft, para. 725).
1640 United States' second written submission, para. 217.
1641 United States' second written submission, paras. 228-236.
1642 United States' second written submission, para. 238.
1643 United States' first written submission, para. 50.

United States, the whole point of the transactions leading to the creation of EADS in 2000 was not
to change control of Airbus. 1644 Likewise, the United States submits that BAE Systems had no
"control" to transfer when it sold its shares in Airbus to EADS because it never "control led" Airbus
in the sense of determining policy or directing operations. Thus, the United States argues that the
sale of BAE Systems' shares in Airbus resulted only in a transfer of shares by one (non -controlling)
co-owner of Airbus to another (controlling) co-owner.1645 As regards the ASM merger, the
United States argues that while private shareholders did become new minority owners of the
company, there was no transfer of control to Lagardère because the French State remained the
largest shareholder and conti nued to name more members to the Supervisory Board than any
other entity.1646 Thus, the United States submits that the European Union's "extinction" arguments
find no support in the views expressed by Appellate Body "Member B".
6.943. The United States recalls that Appellate Body "Member C" expressed "no small measure of
doubt that an acquisition of shares, concluded at arm's length and for fair market value,
constitutes relevant circumstances warranting the conclusion that an extinction of benefit has
taken place". Moreover, the United States highlights that "Member C" found that "nothing about
{share purchases on arm's length terms} extracts the value of any asset, including the benefit of
any subsidy granted. That subsidy continues to benefit the recipient, even if the ownership of the
recipient's shares changes from one day to another". 1647 The United States submits that the
transactions alleged to give rise to the three "extinction" events all involved the sale and purchase
of shares, and that in each case, the Europ ean Union has provided no basis to conclude that the
changes in ownership and/or corporate re -organizations that took place changed the value of past
subsidies to Airbus. Thus, in the light of the views expressed by Appellate Body "Member C", the
United States argues that the European Union's "extinction" arguments must be rejected.
6.944. Finally, the United States argues that even if the test were as argued by the
European Union, namely, whether the sales transactions at issue were made at arm's length for
fair market value, resulting in a transfer of ownership and control, the European Union's case
would still fail because, in the United States' view, the three alleged "extinction" events did not:
(a) give rise to any economically relevant transfer of control o r ownership1648; or (b) involve arm's
length sales for fair market value.1649
Evaluation by the Panel
6.945. Before turning to evaluate the merits of the parties' submissions, we first describe the
basic facts surrounding the transactions which the European Union maintains have "extinguished"
the challenged subsidies, and then set out our understanding of the findings and observations
made by the Appellate Body with respect to the original panel's findings concerning the
European Union's "extinction" arguments in the original proceeding.
Factual background
6.946. In this dispute, all of the events which the European Union argues have "extinguished" the
lives of the pre -A350XWB subsidies formed part of a chain of corporate transactions that resulted
in the consolidation of the o riginal Airbus partners' LCA -related activities under one single
corporate entity, the European Aeronautic, Space and Defence Company (EADS), by 2006.
6.947. We recall that prior to 2001, the family of Airbus LCA was produced by a consortium of
French, German, S panish and (from 1979) United Kingdom aerospace companies (the Airbus
partners), operating in a form of partnership arrangement through the French entity, Airbus GIE.
The Airbus Industrie consortium was originally established in 1970 between the French aer ospace

1644 United States' second written submission, para. 239.
1645 United States' second written submission, para. 240; and comments on the European Union's
response to Panel question No. 18.
1646 United States' second written submission, para. 240; response to Panel question No. 9; and
comments on the European Union's response to Panel question Nos. 14 and 15.
1647 United States' first written submission, paras. 50 and 54; and second written submission, para. 241.
1648 United States' second written submission, paras. 257-260.
1649 United States' second written submission, paras. 261-264; response to Panel question Nos. 8, 10
and 11; and comments on the European Union's response to Panel question No. 15.

manufacturer, Aérospatiale1650, and the German aerospace manufacturer, Deutsche Airbus GmbH
(Deutsche Airbus). 1651 The Spanish aerospace manufacturer, Construcciones Aeronáuticas S.A.
(CASA) became a member of the consortium in 1971. 1652 British Aerospace Co rporation, a
United Kingdom aerospace manufacturer, subsequently joined the consortium in 1979.1653 Through
this partnership arrangement, the Airbus partners in France, Germany, Spain and the
United Kingdom produced specific parts of Airbus LCA, which were th en assembled in France by
Aérospatiale.1654 The entity Airbus groupement d'intérêt économique (GIE) did not carry out any
production activities; rather, it coordinated the production efforts of the Airbus partners, allocated
revenues and profits to each of th e partners and assumed responsibility for areas such as
marketing, sales, aircraft delivery and customer service.
6.948. In 2000, the Airbus partners consolidated their LCA-related activities under EADS. The first
"step" in this consolidation involved each of th e French, German and Spanish Airbus partners
placing their Airbus -related design, engineering, manufacturing and production assets and
activities (including their corresponding membership interests in Airbus Industrie GIE) into legal
entities that would be come wholly owned subsidiaries of the newly formed EADS, in return for
shares in EADS representing the agreed values of the Airbus partners' corresponding

1650 Aérospatiale was founded in 1970 through the merger of three French aerospace companies, Sud
Aviation, Nord Aviation and Société d'Etudes et de Réalisation d'Engins Balistiques. It was owned directly and
indirectly by the French Government until its merger with Matra Hautes Technologies in 1999 to form
Aérospatiale-Matra S.A. (ASM). The French Government sold a portion of its shares in ASM in a public offering
in 1999. In 2000, ASM joined with DASA and CASA to form EADS. In connection with the formation of
Airbus SAS in 2001, the LCA business of ASM was transferred to an Airbus SAS subsidiary, Airbus France SAS.
Therefore, from 1998 until its liquidation in 2001, the French Airbus partner was ASM. (Panel Report, EC and
certain member States – Large Civil Aircraft, para. 7.183 and fn 2054).
1651 Deutsche Airbus was founded in 1967 to assume work for the development of a European widebody
aircraft that had originally begun in 1965 as a joint venture among five German companies: Blohm-Hamburger
Flugzebau GmbH, Messerschmitt AG, Vereinigte Flugtechnische Werke (VFW), Siebel and Dornier. By 1969, the
first three of these companies had merged to form Messerschmitt-Bölkow-Blohm GmbH (MBB). MBB originally
held 60% of the interests in Deutsche Airbus, with Dornier and VFW each holding 20%. MBB took over VFW in
1981. Prior to Daimler-Benz AG acquiring control of MBB in 1989, the German federal states of Bavaria,
Hamburg and Bremen held 52.3% of the capital stock of MBB. In late 1989, as part of the German
Government's plans to restructure Deutsche Airbus, Daimler-Benz A.G. acquired control of MBB by merging its
subsidiary Deutsche Aerospace AG (DASA) with MBB. Deutsche Airbus has been a wholly owned subsidiary of
DASA since 1992. In 2000, DASA merged with ASM and CASA to form EADS. In 2001, EADS transferred
DASA's LCA operations to an Airbus SAS subsidiary, Airbus Deutschland GmbH. (Panel Report, EC and certain
member States – Large Civil Aircraft, para. 7.183 and fn 2055).
1652 CASA was founded in 1923 and was Spain's largest aerospace and defence manufacturer. CASA was
99% owned by SEPI, a Spanish government holding company entrusted with the management and
privatisation of certain Spanish government controlled companies. In 2000, CASA was merged into the EADS
structure. In 2001, CASA's LCA activities were transferred to an Airbus SAS subsidiary, Airbus España SL.
(Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.183 and fn 2056).
1653 British Aerospace Corporation was formed in 1977 as a Crown corporation without shares, wholly
owned by the United Kingdom government. Its formation was the result of the merger of the United Kingdom
aerospace companies Hawker Siddeley Aviation Ltd, Hawker Siddeley Dynamics Ltd, Scottish Aviation Ltd and
the British Aircraft Corporation (Holdings) Ltd. In 1981, the assets and business of the British Aerospace
Corporation were transferred to the newly incorporated British Aerospace PLC, a United Kingdom public limited
company. The United Kingdom government sold 51.57% of its shares in British Aerospace PLC in a public
offering in 1981 and, subject to retaining a share to ensure that the company remained under United Kingdom
control, sold the remainder of its shares in British Aerospace PLC in 1985. In 1999, British Aerospace PLC
merged with Marconi Electronic Systems to become BAE Systems PLC (BAE Systems). In 2001, BAE Systems
placed its LCA business into Airbus UK Limited in exchange for a 20% share in Airbus SAS. (Panel Report, EC
and certain member States – Large Civil Aircraft, para. 7.183 and fn 2057).
1654 By 1999, Aérospatiale was the partner responsible for flight control systems, cockpits, power plant
integration, ground and flight testing, complex structural sections, equipped subassemblies and technical
publications. DASA produced the major fuselage sections containing hydraulic equipment, secondary flight
control systems, wing assemblies and commercial furnishing, as well as equipping the wings furnished by BAE
Systems. DASA also carried out final assembly of A321 and A319 aircraft, as well as some cabin outfitting and
customization of the cabins of the A300/A310 and the A320 family. BAE Systems was the partner in charge of
the wings for the entire Airbus product line, and equipped wings for the A320 family by installing hydraulic,
electrical and environmental control system hardware. CASA's role in the Airbus consortium was to produce the
carbon fibre horizontal tails used in all Airbus aircraft, including integrated fuel tanks. CASA also designed
fuselage panels and interior panels for the A320 family and produced nose and landing gear doors for the
A300/A310 family and passenger doors for the A330/A340 family. (Panel Report, EC and certain member
States – Large Civil Aircraft, para. 7.183 and fn 2058)

contributions.1655 In 2001, EADS and BAE Systems placed their Airbus -related assets and
operations and t heir membership rights in Airbus GIE under the common control of a newly -
created holding company, Airbus SAS.1656 Finally, in 2006, EADS purchased BAE Systems'
20% interest in Airbus SAS, and Airbus SAS became a wholly-owned subsidiary of EADS.
a The 1999 merger of Aérospatiale and Matra Haute Technologies
6.949. In 1999, Aérospatiale merged with Matra Hautes Technologies (MHT) to form ASM. At the
time of the merger, the French State directly and indirectly held a 99.98% stake in Aérospatiale.
Matra Hautes Technologies was a private entity, active in the provision of design, construction and
maintenance services for large-scale space, missile, telecommunications and information systems,
and wholly owned by the Lagardère Group.
6.950. The decision of the French State to direct Aérospatiale into a merger with MHT followed the
Airbus governments' declaration of 9 December 1997 calling for the consolidation of the European
aeronautic and defence industries, and the French Government's approval of a project elaborated
for this speci fic purpose by Aérospatiale and Lagardère in May 1998. 1657 The merger of
Aérospatiale with MHT was a first "step" in this process of consolidation 1658, and was effectively
launched when the French State transferred its 45.76% interest in Dassault Aviation to
Aérospatiale in December 1998. 1659 Thus, in announcing the French Government's decision to
transfer its interest in Dassault Aviation to Aérospatiale, the French Finance Ministry said that the
agreement between Aérospatiale and Dassault Aviation was designed to promote a concerted
strategy for the French aeronautics industry in the broader context of alliances that needed to be
concluded in the near -term between the principal European actors. 1660 Shortly after the Dassault
transfer, the French State and Lagardère en tered into an agreement to merge Aérospatiale and
MHT on 15 February 1999, in which they set out the initial financial terms and valuations of the
deal.1661 Subsequently, a shareholders' agreement was signed on 14 April 1999 confirming many
of the previously agreed terms, including valuations. This agreement also prescribed specific
aspects of the parties' relationship as the principal shareholders of ASM pursuant to which they
undertook to [***].1662
6.951. In exchange for MHT's assets, Lagardère obtained 31.45% of the shares of ASM. Lagardère
acquired an additional 1.55% of shares from the French State, thereby obtaining a total interest of

1655 These subsidiaries are Airbus France S.A.S., Airbus Deutschland GmbH and Airbus España SL.
1656 Airbus SAS, a société par actions simplifiée (a joint stock or limited liability company) incorporated
under French law, was created in 2001 in order to hold all of the LCA-related design, engineering,
manufacturing and production activities of the former Airbus Industrie consortium located in France, Germany,
Spain and the United Kingdom (organized into French, German, Spanish and British operating subsidiaries) and
all of their membership interests of the Airbus partners in Airbus GIE.
1657 Aérospatiale-Matra Shareholders' Agreement, 14 April 1999, (ASM Shareholders' Agreement),
Aérospatiale de conclure des alliances stratégiques et de lui faire des propositions d'ouverture du capital de
regrouper les activités de la société Aérospatiale et de la société Matra Hautes Technologies, ce rapprochement
ayant vocation à être ultérieurement étendu aux autres acteurs nationaux et européens de l'industries
aéronautique et de défense. Ce projet a recueilli l'accord de principe du gouvernement.").
1658 ASM Shareholders' Agreement, (Exhibit EU-59) (BCI), art. 1.1 ("[***]").
1659 We recall that the United States' challenged this transaction in the original proceeding, arguing that
it amounted to a subsidy under the terms of Articles 1.1(a)(i) and 1.1(b) of the SCM Agreement. The
Appellate Body reversed the panel's findings, which had accepted the merits of the United States' position.
However, in the absence of sufficient factual findings and uncontested facts on the record, the Appellate Body
was unable to complete the analysis. (Panel Report, EC and certain member States – Large Civil Aircraft,
paras. 7.1381-7.1414; and Appellate Body Report, EC and certain member States – Large Civil Aircraft,
paras. 1013-1027).
1660 Panel Report, EC and certain member States – Large Civil Aircraft, fn 4617 (citing French Finance
Ministry, Communiqué de presse, 15 May 1998 and a number of other media reports submitted as evidence in
the original proceeding).
1661 See e.g. Sénat, No. 414 (session ordinaire 1998-1999), Rapport d'information, au nom de la
restructuration de l’Industrie aéronautique européenne, pp. 144-145, 155, (Rapport du Sénat), (Original
Exhibit US-573), (Exhibit USA-327), p. 155.
1662 ASM Shareholders' Agreement, (Exhibit EU-59) (BCI), art. 1.1 ("[***]").

33% in the new venture. Simultaneous with its sale of these shares to Lagardère, the French State
launched a public offering of A SM shares, selling a total of 17% of ASM shares to institutional and
public investors on the Paris Bourse. An additional 2.3% of the allotted shares were purchased by
ASM itself and resold to its employees on preferential terms. This left the French State owning
47.7% of the shares in the newly merged company.
6.952. The European Union characterizes the above series of transactions as the "partial
privatization" of Aérospatiale, and argues that this event "extinguished" the relevant subsidies.
Accordingly, we und erstand the European Union's "extinction" arguments to be focused on the
following transactions, which transformed the French State's almost 100% interest in Aérospatiale
into a 47.7% stake in ASM: (a) the agreement between the French State and Lagardère o n the
valuation of the merging entities' respective assets, pursuant to which the French State would hold
68.55% of the nominal shares and Lagardère 31.45%; and (b) the transfer of 18.55% of the
French State's interest to private shareholders. The same ser ies of transactions was the subject of
the European Union's "extinction" arguments in the original proceeding.1663
b The "overall EADS transaction"
6.953. The EADS was incorporated under the laws of The Netherlands as a public limited liability
company ( naamloze venno otschap, n.v.) in December 1998 to inter alia "hold, co -ordinate and
manage participations or other interests in … the aeronautic, defense, space and/or
communication industry". 1664 Following the conclusion in 1999 of "Business Combination
Agreements" between the owners of ASM, DASA and CASA 1665, and the subsequent regulatory
approval of the European Commission on 11 May 2000 1666, the aeronautic, space and defence
activities of the French, German and Spanish partners in Airbus Industrie GIE were consolidated
into EADS on 10 July 2000. 1667 The Business Combination Agreements envisaged that the assets
contributed by each of the merging entities would be exchanged for 56.46% of the shares in EADS
in the case of ASM, 37.29% of the shares in EADS for DaimlerChrysler, and 6.25% of the shares in
EADS for SEPI. These relative asset valuations were agreed by reference to the net book value
shown in the accounts of ASM, DASA and SEPI for the financial year ending 31 December 1999.1668
6.954. At the same time as the completion of the merger, a "global offering" of EADS shares was
organized involving the issuance of new shares by EADS and the sale of a portion of EADS shares
held by the French State, Lagardère and BNP Paribas and AXA. 1669 The shares made available
through the "global offering" we re issued to three categories of purchasers on the following basis:
(a) 6.47% of total EADS shares to institutional investors (at a price of EUR 19.00 per share); (b)
9.95% of total EADS shares to individuals purchasing via the retail market (at a discount ed price
of EUR 18.00 per share); and (c) 1.5% of total EADS shares to "qualifying employees of the EADS
group" (at a price of EUR 15.30 per share – a 15% discount from the retail offering price). 1670 It
was expected that EADS' shares would be listed on the P aris, Frankfurt, Madrid, Bilbao, Barcelona
and Valencia stock ex changes. The following diagram shows the ownership structure of EADS
following the above transactions:

1663 See Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.204.
1664 EADS Reference Document, Financial Year 2000, (Exhibit EU-61), pp. 8 and 10; EADS Offering
Memorandum, (Exhibit EU-55), p. 145.
1665 EADS Offering Memorandum, (Exhibit EU-55), p. 140.
1666 EADS Merger Decision, (Original Exhibit US-479), (Exhibit USA-323).
1667 A description of the relevant contributions (which in the case of ASM, Dasa and CASA included
100% of their LCA activities related to the Airbus Industrie Consortium) and the internal restructuring that
preceded the merger can be found in EADS Offering Memorandum, (Exhibit EU-55), pp. 140-144.
1668 EADS Offering Memorandum, (Exhibit EU-55), p. 144.
1669 EADS Offering Memorandum, (Exhibit EU-55), p. 11. BNP Paribas and AXA are described as the joint
owners of Istroise de Particiations "the French Financial Institutions". Istroise de Participations would ultimately
hold an indirect shareholding in EADS through its 26% participation in Désirade and the latter's 50%
participation in SOGEADE, which after the "global offering" was expected to hold a 30% interest in EADS. (See
further EADS Ownership Structure Diagram below).
1670 EADS Offering Memorandum, (Exhibit EU-55), pp. 11-12.

Figure 3: EADS Ownership Structure Diagram1671

(1) EADS Participations B.V. will exercise the voting rights attaching to these EADS shares pledged by SOGEADE,
DaimlerChrysler and SEPI, who will retain title to their respective shares.

(2) The French State and DaimlerChrysler will exercise the voting rights attaching to these EADS shares (in the case of the
French State such shares being placed with Caisse des Dépots et Consignations ) in the same way that EADS
Participations B.V. will exercise the voting rights pooled in the Contractual Partnership.

(3) Shares to be distributed without payment of consideration by the French State to certain former shareholders of
Aerospatiale Matra as a result of the privatization of Aerospatiale Mat ra in June 1999.

(4) Almost all the balance is held by the City of Hamburg.

(5) Acting through a jointly organized company, Istroise de Participations.

6.955. Separately, in June 2000, the EADS founding partners and BAE Systems announced the
combination of their respective Airbus activities into Airbus Integrated Company (Airbus SAS).
Under the Combination Agreement, all of the Airbus -related design, engineering and
manufacturing assets located in France, Germany, Spain and the United Kingdom would be
transferred to Airbus SAS, which transfer was expected to be completed on 1 January 2001. EADS
would hold an 80% interest in Airbus SAS, with the remaining 20% held by BAE Systems.1672
6.956. In its submissions, the European Union has not specifically identified which of the many
transactions that were involved in and, indeed indispensable to, the events described above
allegedly "extinguished" the relevant subsidies. 1673 Rather, the European Union's arguments have
repeatedly referred to "the creation of EADS", "the overall EADS transaction", "the transaction"

1671 Reproduced from EADS Offering Memorandum, (Exhibit EU-55), p. 132.
1672 EADS Offering Memorandum, (Exhibit EU-55), p. 123.
1673 A description of the many transactions that were necessary in order to merge the relevant entities
into EADS and undertake the "global offering" is provided in various parts of the EADS Offering Memorandum,
(Exhibit EU-55). Several of these transactions can be found explained in summary form at pages 132-145 of
this Exhibit.
BNP PARIBAS
and AXA5 Lagardère
Dasa AG
DCLRH
EADS Public
Contractual Partnership
(Managed by EADS
Participations B.V.)
SOGEADE
Désirade
30.65%
SOGEPA French State

Spanish State

DaimlerChrysler

30%
50%
26% 74%
65.48%1 1.14%2,3
50%
5.48%
93.83%4
SEPI
30%
2.73%2

and "the EADS transaction" 1674, suggesting that its position is based on the impact of all of the
transactions considered together. We note, however, that because of the inter -related and
inter-dependent nature of many of the relevant transactions, it is difficult to fully assess the extent
to which the overall "EADS transaction" "extinguishes" the relevant subsidies without a proper
understanding of each of the individual transactions that made the events described above
possible. In this regard, we recall that in the original proceeding, the Appellate Body faulted the
panel for having "failed to explain or provide any citations to precisely which of the {EADS} sales
transactions were on the stock exchange". 1675 In light of th e European Union's arguments, we
understand the European Union to have based its "extinction" contentions on the following: (a) the
agreement between the Airbus partners to combine their activities on the basis of the valuations of
the merging entities' re spective assets, pursuant to which, at least initially, 56.46% of the shares
in EADS would be held by the ASM shareholders, 37.29% of the shares in EADS would be held by
DaimlerChrysler, and 6.25% of the shares in EADS would be held by SEPI; and (b) the is suance
and sale of all of the shares that were part of the "global offering". We do not understand the
European Union's "extinction" arguments to pertain to the transfer of Airbus' LCA assets into
Airbus SAS. We will evaluate the merits of the European Union's "extinction" arguments
concerning the "overall EADS transaction" with the first two of these three sets of transactions in
mind.
c The 2006 sale of BAE Systems' 20% interest in Airbus SAS
6.957. As already noted, in 2001, EADS and BAE Systems placed their Airb us-related assets and
operations and their membership rights in Airbus GIE under the control of a newly -created holding
company, Airbus SAS, with EADS owning 80% of Airbus SAS and BAE Systems owning the
remaining 20%. 1676 As part of this transaction, BAE Syst ems negotiated a Shareholders'
Agreement with EADS that included a "put" option, which it exercised in 2006, selling its 20%
interest to EADS for EUR 2.75 billion.1677 The European Union argues that this sale "extinguished"
a portion of all pre-existing relevant subsidies.
Findings made in the original proceeding
6.958. In the original proceeding, the European Union had argued that a series of transactions,
including those briefly described above 1678, "extinguished" all or part of the challenged subsidies,
and therefore, could not be found to cause adverse effects to the interests of the United States
under Part III of the SCM Agreement. The European Union's submissions were, in essence, based
on its interpretation of the findings made by the panels and Appellate Body in US – Lead and
Bismuth II and US – Countervailing Measures on Certain EC Products (the "privatization cases"),
which the European Union argued had established a "principle" that the sale of a company at
arm's-length and for fair market value presumptively "removes any benefit of prior subsidies" to
the purchaser of that company.1679
6.959. For the original panel, the European Union's submissions raised a threshold question as to
"whether a subsidy which is found to exist must additionally be found to confer a presen t, or
continuing, benefit on the recipient firm producing the subsidized product in order for that subsidy
to be potentially capable of causing adverse effects for purposes of Article 5 of the
SCM Agreement."1680 The panel answered this question in the negati ve, disagreeing with the

1674 Throughout its submissions, the European Union refers to "the creation of EADS", "the overall EADS
transaction", "the transaction", "the EADS transaction", without specifying exactly which of the many
transactions that resulted in the creation of EADS actually "extinguished" the relevant subsidies. (See e.g.
European Union's first written submission, paras. 325, 332 and 334; and second written submission,
para. 255).
1675 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 730.
1676 See above paras. 6.948 and 6.955.
1677 European Union's first written submission, paras. 345-346 (citing, inter alia, BAE Systems Interim
Report, 12 September 2006, (Exhibit EU-64), p. 10; and BAE Systems Press Release, "BAE Systems completes
disposal of its Airbus Shareholding", 13 October 2006, (Exhibit EU-65)).
1678 In the original proceeding, the European Union argued that a fourth set of transactions also
"extinguished" the challenged subsidies. The European Union does not repeat these allegations for the purpose
of this compliance dispute. (See Panel Report, EC and certain member States – Large Civil Aircraft,
para. 7.204).
1679 Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.202-7.204.
1680 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.214.

European Union and finding that there is no requirement in Article 5 of the SCM Agreement to
demonstrate the existence of a "present" or "continuing" benefit in order to make out a case of
adverse effects.1681 Nevertheless, the panel proceeded to make alternative findings on whether, as
the European Union had argued, "in the context of a claim under Part III of the SCM Agreement,
the existence of a benefit conferred by a financial contribution provided to a recipient is
presumptively extinguished by the subsequent sale of the recipient to an arm's -length purchaser
for fair market value."1682 The panel concluded that the European Union's position was unfounded.
6.960. Noting, inter alia, that the Appellate Body had indicated in US – Countervailing Measures
on Certain EC Products that the findings of the panel in that dispute should be confined to the
"very precise set of facts and circumstances" of that case, the panel considered that it would not
be appropriate to recognize the "principle" of ext inction argued by the European Union.1683 Rather,
according to the panel:
{T}o the extent that prior reports of the Appellate Body support the conclusion that,
in a dispute under Part III of the SCM Agreement, changes in the ownership of a
subsidized producer give rise to a rebuttable presumption that the benefit conferred
by prior subsidies is extinguished … this would only be where (i) benefits resulting
from a prior nonrecurring financial contribution, (ii) are bestowed on a state -owned
enterprise, and (iii) following a privatization at arm's length and for fair market value,
(iv) the government transfers all or substantially all the property and retains no
controlling interest in the privatized producer.1684
6.961. The panel then turned to examine whether the sales transactions at issue possessed these
four characteristics, finding that the European Union had not demonstrated that they "fulfil{led} all
of the above criteria".1685 The European Union appealed the panel's findings.
6.962. The Appellate Body upheld the panel's co nclusion that there is no requirement to
demonstrate that a subsidy confers a present, or continuing, benefit in order to establish that it
causes adverse effects within the meaning of Article 5 of the SCM Agreement. However, the
Appellate Body reversed th e panel's alternative findings concerning the alleged "extinction" of
subsidies.1686
6.963. The Appellate Body faulted the panel's evaluation of the European Union's "extinction"
arguments because it considered that the panel had failed to sufficiently examine the
circumstances surrounding the transactions at issue. In particular, the Appellate Body found that
the panel had not made sufficient factual findings with respect to whether the relevant sales
transactions were at arm's length and for fair market value, or the extent to which the change in
ownership transferred the control in the companies concerned. 1687 Moreover, in the light of the
absence of sufficient factual findings and undisputed facts on the record, the Appellate Body
explained that it was unable to "complete the analysis".1688
6.964. Thus, in contrast to the European Union's arguments concerning the alleged "extraction" of
subsidies, the European Union's submissions in relation to the "extinction" of subsidies were left
unresolved at the end of the original proc eeding. It is therefore incumbent upon us to review the
merits of the European Union's contentions, as they have been presented and debated by the
parties in this compliance dispute, in the light of the Appellate Body's guidance. In this respect,
however, we note that although ultimately reversing the original panel's findings, the

1681 Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.218-7.221.
1682 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.224.
1683 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.239 (citing
Appellate Body Report, US – Countervailing Measures on Certain EC Products, para. 117).
1684 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.248.
1685 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.249.
1686 While the Appellate Body agreed with the panel's finding that Article 5 does not require a showing,
by the complainant, of a "continuing benefit" during the reference period, the Appellate Body proceeded to
examine the European Union's appeal against the panel's rejection of its "extinction" arguments "in the light of
{its} finding … that 'intervening events' are relevant under an adverse effects analysis". (Appellate Body
Report, EC and certain member States – Large Civil Aircraft, fn 1655)
1687 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 735.
1688 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 727-736.

Appellate Body Division serving in the original dispute issued three separate opinions on the
question that lies at the centre of the European Union's arguments, namely, whether "partial
privatizations and private-to-private sales" transactions, such as those at issue in this proceeding,
can extinguish prior subsidies.
6.965. The United States maintains that the three separate opinions demonstrate that the
Appellate Body did not endorse a single approach to resolve the question, implying that the best
way to evaluate the merits of the European Union's "extinction" arguments would be to test them
separately against each of the three opinions. 1689 The European Union, however, points out that
elsewhere in its report, the Appellate Body explicitly stated that "in order to properly address the
relevance of these transactions … the Panel should have assessed whether each of the sales was
on arm's length terms and for fair market value, and to what extent they involved a transfer in
ownership and control to new owners". 1690 For the European Union, the Appellate Body's separate
opinions can be reconciled in a manner that is consistent with this statement, implying that the
Appellate Body not only accepted that it is possible for "partial privatizations and private-to-private
sales" transactions to "extinguish" a subsidy, but also that this could be demonstrated by showing
that the relevant sales transactions: (a) were made at "arm's length"; (b) were for "fair market
value"; and (c) resulted in a transfer of ownership and control from the State to new private
owners.
6.966. The Appellate Body report reveals that the three separate opinions were issued because
the Appellate Body Division serving on the appeal wa s unable to reach a "common view" about
whether "partial privatizations and private -to-private sales" transactions may extinguish a prior
subsidy.1691 Despite this lack of common ground, the Appellate Body nevertheless proceeded to
reverse the panel's dismissal of the European Union's arguments, judging that the panel had failed
to make sufficient factual findings. However, in the absence of a single clearly articulated
Appellate Body view about the extent to which "partial privatizations and private -to-private sales"
transactions may extinguish a prior subsidy and, therefore, the legal standard that should have
guided the original panel's factual analysis, it is not apparent to us exactly what elements must or
must not be established in order to accept or reje ct the European Union's "extinction" arguments
in this compliance dispute. In this light, we have decided to examine the merits of the
European Union's "extinction" arguments through the logic of each of the three separate opinions.
Unlike the European Union, we do not believe that the three separate opinions can be reasonably
reconciled. Indeed, as already noted, the Appellate Body itself revealed that the reason why three
separate opinions had to be expressed was because it was unable to reach a "common v iew" on
the matter.
6.967. The first of the three Appellate Body Members was clear about the extent to which the
principles emerging from the "privatization cases" could be extended to the relevant transactions,
explicitly finding that "this rule does not apply t o partial privatizations or to private -to-private
sales".1692 The European Union, however, argues that this Appellate Body member used the words
"'partial privatizations or private -to-private sales' to cover transactions which involve less than a
complete or substantial transfer of ownership and control". The European Union understands this
statement to mean that the first Appellate Body member recognized that "the {privatization} rule
does cover transactions that involve a substantial transfer of ownership and control", implying that
"partial privatizations or private-to-private sales" involving a substantial transfer of ownership and
control may be found to have extinguished a subsidy.1693
6.968. The full statement made by the first Appellate Body member reads as follows:
Noting that the Appellate Body has previously ruled in privatization cases that a full
privatization, conducted at arm's length and for fair market value involving a complete
or substantial transfer of ownership and control, "extinguished" prior subsi dies, one

1689 United States' second written submission, para. 235.
1690 European Union's second written submission, para. 225 (quoting Appellate Body Report, EC and
certain member States – Large Civil Aircraft, para. 733).
1691 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 726.
1692 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 726(a).
1693 European Union's second written submission, para. 236. (emphasis original)

Member is of the view that this rule does not apply to partial privatizations or to
private-to-private sales.1694
6.969. In our view, this opinion simply recognizes that the "privatization" line of cases will apply
in factual circumstances where there is a "full privatization, conducted at arm's length and for fair
market value involving a complete or substantial transfer of ownership and control". It follows,
therefore, that by finding that "this rule" does not apply to "partial privatizations or to privat e-to-
private sales", the first Appellate Body member must have rejected the possibility that such
transactions could have the characteristics of a "full privatization". Had this Appellate Body
member considered that "partial privatizations or private-to-private sales" could potentially involve
"a substantial transfer of ownership and control", in the way asserted by the European Union,
there would have been no need for this Appellate Body member to state that the "privatization"
line of cases could not be extended to "partial privatizations or private -to-private sales", as quite
clearly, under this line of thinking, they could. We are, therefore, not persuaded by the
European Union's interpretation of the first Appellate Body member's separate opinion. As al ready
observed, we understand this Appellate Body member to have expressed a very clear and simple
view: the privatization line of cases does not apply to "partial privatizations and to private -to-
private sales" transactions. Applying this logic to the cas e at hand would lead us to reject the
European Union's "extinction" arguments.
6.970. The third Appellate Body member to articulate a view expressed "no small measure of
doubt that an acquisition of shares, concluded at arm's length and for fair market value,
constitutes relevant circumstances warranting the conclusion that an extinction of benefit has
taken place".1695 This Appellate Body member went on to explain inter alia that:
A subsidy granted to a recipient company contributes to the net asset value of that
company. The value of that asset permits the recipient to enjoy an enhanced stream
of future earnings over the life of the asset. The asset is the property of the recipient.
The recipient's shareholders enjoy the right to the dividends that may be declared b y
the recipient and to any capital gains that arise from the enhanced earnings
attributable to the recipient. When shares change hands on an arm's -length basis and
for fair market value, the buyer pays a price that, in the estimation of the buyer,
places a proper value on the future earnings of the recipient. Those earnings derive
from all the assets of the recipient, including the benefit of any subsidy paid to the
recipient. One shareholder may not accurately value or properly manage the assets of
the recipient. Precisely for this reason, sales of shares take place: the buyer believes
that the assets, properly managed, will be worth more over time than the price paid,
and the seller believes the opposite. Time will tell who is correct. The central point is
that a sale of shares, whether or not it conveys control, transfers rights in the shares
to a new owner. The assets of the company, to which the shares attach, do not
change at all. Nor could it be otherwise, because the buyer would then not acquire the
full benefit of the bargain: the buyer would pay for an asset (the subsidy) that had in
the very sales transaction been "extinguished". Shares in listed companies are traded
on stock exchanges with great frequency and without any fear that sales on the
market diminish the underlying value of the assets owned by these companies. The
changing price of listed securities reflects the different valuations that buyers and
sellers place upon companies and their underlying assets. However, nothing about
these trades extracts the value of any asset, including the benefit of any subsidy
granted. That subsidy continues to benefit the recipient, even if the ownership of the
recipient's shares changes from one day to another. Given that the Appellate Body in
this case doe s not need to come to any final view on the issue of extinction in the
context of a partial privatization or private -to-private sales, these matters do not
require more definitive determination.1696 (emphasis added)
6.971. In our view, the third Appellate Body member's opinion all but rejected the possibility of
finding that a transfer of shares for fair market value and at arm's length may extinguish a pre -
existing subsidy. Nevertheless, it is difficult for us to understand how it left any room to accept the

1694 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 726(a).
1695 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 726(c).
1696 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 726(c).

European Union's "extinction" arguments. In this regard, we note specifically that the third
Appellate Body member considered that " nothing" about a share transfer "extracts the value of
any asset, including the benefit of any subsidy granted . That subsidy conti nues to benefit the
recipient, even if the ownership of the recipient's shares changes from one day to another ". As we
see it, applying this logic to the case at hand would lead us to reject the European Union's
"extinction" arguments.
6.972. Finally, in contrast to the first and third separate opinions, the second Appellate Body
member accepted that the " rationale" of the "privatization cases" may equally apply in situations
of a partial privatization or private -to-private share transfers. However, this Member re called that
there is "'no inflexible rule' that a 'benefit' derived from pre -privatization financial contributions
expires following privatization at arm's length and for fair -market value". For this Member, the
particular facts of the case at hand would b e the key, and an "important question in this context
{would be} to what extent the partial privatization or private -to-private transactions resulted in a
transfer of control to new owners who paid fair market value for shares in the company". 1697 Thus,
the s econd Appellate Body member appears to have cautiously advocated for a fact -specific
approach to determining whether the rationale of the "privatization cases" may apply to "partial
privatizations or private-to-private" sales transactions. As we understand it, this logic implies that
the merits of the European Union's "extinction" arguments should be determined by assessing
whether the relevant sales transactions: (a) were made at "arm's length"; (b) were for "fair
market value"; and (c) "resulted in a transfer of control" from the State to new private owners.1698
In the remainder of this subsection, we examine the extent to which this was the case with respect
to each of the three alleged "extinction" events.
The 1999 merger of Aérospatiale and Matra Haute Technologies
a Were the relevant transactions made at "arm's length"?
6.973. In the original proceeding, we recalled that although the "concept of 'arm's length' is not
defined in the SCM Agreement", the "compliance panel in US – Countervailing Measures on Certain
EC Products (Article 21.5 – EC) considered various dictionary definitions of the term, all of which
highlighted the independence of parties in arm's length transactions". 1699 Consistent with this
standard, we will examine the European Union's assertions regarding the relevant transactions by
determining the extent to which they involved two independent, unrelated, parties acting in their
own interests. Both the European Union and the United States appear to have broadly accepted
this definition for the purpose of this dispute.1700
6.974. According to the European Union, the arm's length nature of the merger between
Aérospatiale and MHT is evidenced by the fact that the French State and Lagardère were
independent entities, "independently advised by sophisticated advisors, w hich protected their
respective client's interests in the transaction". 1701 The United States, on the other hand, argues
that the merger was not an arm's length transaction because it was "uniquely tailored to
Lagardère", suggesting that the French State did not pursue its own independent interest with
respect to the relevant transactions. 1702 The United States finds support for this allegation in a
number of documents, including a report by the "Production and Exchanges" Commission of the
French National Parliam ent, which the United States maintains expresses "strong disapproval for
the terms that Lagardère was able to obtain":

1697 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 726(b).
1698 It is unclear to us whether the second Appellate Body member's emphasis on the fact-specific
nature of the analysis of these three elements means that, as the United States argues, other factors might
also need to be considered. However, given our ultimate conclusions with respect to the merits of the
European Union's "extinction" arguments, we believe it unnecessary for us to express any views on this matter.
1699 Panel Report, EC and certain member States – Large Civil Aircraft, fn 2175 (citing Panel Report,
US – Countervailing Measures on Certain EC Products (Article 21.5 – EC), paras. 7.133-7.134).
1700 European Union's first written submission, para. 298; comments on the United States' response to
Panel question No. 8; and United States' response to Panel question No. 8.
1701 European Union's first written submission, para. 318; second written submission, para. 251; and
comments on the United States' response to Panel question No. 8.
1702 United States' second written submission, para. 261; and response to Panel question No. 8.

It would seem that the terms of the merger are quite favorable to Lagardère SCA.
According to M. Elie Cohen, a member of the Council of E conomic Analysis, a realistic
valuation would give 20% of Aérospatiale's capital to Lagardère SCA. In such
circumstances, one has to wonder about a possible undervaluation of Aerospatiale in
the merger. Your rapporteur {i.e. the author of the report} deplo res this situation,
which has resulted in a "lagardization" of a public company … .1703
6.975. Similarly, the United States points to an article appearing in The Economist, which inter
alia commented that the merger was "{a} botched privatization at a bargain price ", described by
"Airbus alumni … as the hold -up of the century". 1704 Moreover, the United States argues that the
fact that the ASM merger was undertaken as part of a "French government plan 'to promote a
concerted strategy for the French aeronautics industry in the broader context of alliances that
need{ed} to be completed … between the principal European {aerospace} actors'" means that the
parties to the merger "were not acting independently, but rather the French State was attempting
to promote the very companies it was buying".1705
6.976. We recall that the French State's motivation for entering into the merger was explicitly to
strengthen the position of the French aeronautics and defence industry in the European -wide
consolidation that was agreed between the Airbus governments on 9 December 1997.1706 The ASM
merger was, therefore, not a "partial privatization" for the purpose of partly disengaging the
French State from the LCA business, but rather it was intended from the very beginning to create
a larger French aeronau tics and defence company for the purpose of participating in the planned
European-wide consolidation. Because Matra -Haute Technologies was an important player in the
French aeronautics and defence industry, it is apparent that the objectives pursued by the French
State must have extended beyond those of its own economic interests in the specific transaction,
overlapping with those of Lagardère. We are, therefore, not persuaded that the French State,
although independently advised by "highly reputed investme nt banks", acted solely in its own
independent interests. Rather, in choosing to merge Aérospatiale with Matra Haute Technologies
for the purpose of enabling the French aeronautics and defence industry to be better placed in the
European-wide industry consolidation, the French State also naturally advanced at least part of the
interests of Lagardère.1707
6.977. Thus, on the basis of the evidence that is before us, we find that the European Union has
failed to demonstrate that the 1999 merger of Aérospatiale with Matr a Haute Technologies was an
"arm's length" transaction.
b Were the relevant transactions for "fair market value"?
6.978. The European Union argues that the transactions involved in the merger of Aérospatiale
with Matra Haute Technologies were all made at a "fair ma rket price". The European Union asserts
that in the lead up to the merger, both Aérospatiale and Matra Haute Technologies were valued by
independent investment banks, and that the share price established on the basis of those
evaluations reflected market value and was applied to all shareholders of the newly merged entity
(with the exception of the 2.3% stake sold to employees). Furthermore, the European Union
explains that, as required by French law, the merger was reviewed by the Commissaires à la
Scission, which it describes as a panel of independent experts appointed by the Paris Commercial
Tribunal.1708 For the United States, however, the valuations used to establish the price of the share
sale transactions did not reflect the "fair market value" of Aérosp atiale's assets relative to those of

1703 United States' response to Panel question No. 8 (translating and quoting Assemblée Nationale, Avis
2000 (No. 1805), 14 October 1999, (Original Exhibit US-593), (Exhibit USA-328). See also United States'
second written submission, para. 261 (citing same exhibit)).
1704 United States' response to Panel question No. 8 (quoting "Airbus: The Making of a Jumbo Problem",
The Economist, 9 November 2006, (Exhibit USA-522)).
1705 United States' response to Panel question No. 8 (quoting Panel Report, EC and certain member
States – Large Civil Aircraft, para. 7.1410 and fn 4617).
1706 See above para. 6.950. The strategic nature of the ASM merger transaction for the French State is
also further discussed in the following subsections.
1707 We recall in this regard that the ASM Shareholders' Agreement prescribed specific aspects of the
parties' relationship as the principal shareholders of ASM pursuant to which they undertook to [***]. See
above para. 6.950.
1708 European Union's first written submission, paras. 312 and 317.

MHT. In particular, the United States argues that the total number of shares Lagardère received as
part of the merger "dwarfed" the value of the MHT assets contributed to the transaction,
suggesting that the French Stat e overly compensated Lagardère for its participation, and
undervalued Aérospatiale. According to the United States, this conclusion finds support in the
statements and assertions made in a number of documents.1709
6.979. First, the United States refers to the above -quoted statement made by the rapporteur of
the "Production and Exchanges" Commission of the French National Parliament as well as a report
of the French Senate, in which the author expresses the view that "from a patrimonial and
strategic perspective, it w ould have been desirable to value the new {ASM} group more
highly".1710 According to the United States, both documents reveal that "Lagardère and those who
purchased shares following the partial flotation" received a "sweetheart deal". 1711 The
European Union, however, dismisses the relevance of the two reports, asserting that they express
the political "views of Members of the French Parliament that were opposing the French
government".1712
6.980. Turning first to the statement made in the French Senate report, we note th at the passage
quoted by the United States does not express the view that the French Government undervalued
Aérospatiale relative to a market benchmark, but only that a higher valuation would have been
desirable from a patrimonial and strategic perspective . It is unclear to us whether declaring that a
higher valuation would have been preferred from a patrimonial and strategic perspective is
synonymous with saying that the agreed valuation was below "fair market value". Indeed, the
strategic concerns for whi ch a higher valuation would have been preferred are identified in the
report to be the risks associated with publicly disclosing Aérospatiale's value at a time when
restructuring efforts in the European aerospace industry were stumbling in the face of dive rging
valuations of aerospace companies. 1713 Nevertheless, it is apparent from another statement made
in the French Senate report that its author considered it was important to verify that the assets
contributed by Aérospatiale relative to MHT had not been undervalued.1714 However, it is also clear
that one of the reasons why the author ultimately concludes that the French Government could
have achieved a better result in the ASM merger was because of the strong demand for
participation in the public float.1715
6.981. The valuation doubts raised in the extract the United States relies upon from the
"Production and Exchanges" Commission report are premised on an assessment made by "M. Elie
Cohen, a member of the Council of Economic Analysis". However, the details of M. Cohe n's
assessment are neither specifically discussed in the extract of the report submitted as evidence,
nor otherwise presented in this proceeding. In this light, the statement at issue cannot be viewed
to represent anything more than the opinion of the Comm ission's rapporteur, which we recall the
European Union asserts was a Member of French Parliament that opposed the French Government.
Thus, when considered in isolation, the two reports the United States relies upon do not appear to
be particularly convincing or probative in relation to the question at issue.

1709 United States' second written submission, paras. 261-262; and response to Panel question Nos. 8
and 10.
1710 United States' response to Panel question No. 8 (quoting Rapport du Sénat, (Original Exhibit US-
573), (Exhibit USA-327), pp. 144-145 and 155).
1711 United States' second written submission, para. 261; and response to Panel question No. 10 (in both
places citing Rapport du Sénat, (Original Exhibit US-573), (Exhibit USA-327), pp. 144-145 and 155; and
de loi de finances pour 2000 (No. 1805), 14 October 1999, (Original Exhibit US-593), (Exhibit USA-328)).
1712 European Union's comments on the United States' response to Panel question No. 8.
1713 Rapport du Sénat, (Original Exhibit US-573), (Exhibit USA-327), p. 144 ("À l'heure où la
1714 Rapport du Sénat, (Original Exhibit US-573), (Exhibit USA-327), p. 145 ("En outre, et surtout il
importe de vérifier que la valorisation de l'actif public n'a pas été minorée par rapport à celle de l'actif apporté
par Lagardère SCA ce qui serait synonyme de perte sèche pur l'Etat").
1715 Rapport du Sénat, (Original Exhibit US-573), (Exhibit USA-327), p. 155 ("{L}es conditions de la

6.982. The United States submits that the below -market return achieved by the French State
from its sale of shares in the ASM merger is also evidenced by the statements made in two media
reports, the first o f which was published by Reuters only four days before the French State and
Lagardère agreed upon the initial terms and valuations of the merger. The Reuters report asserted
that:
Analysts and industry sources have said the deal has been held up by big dif ferences
in the valuations put forward by the Lagardère group and the treasury.
Union officials said on Thursday they feared Lagardère may receive preferential
treatment on the merger terms and would only pay a small amount of cash to get a
third of the new group.
Bernard Devert, a CGT union official for the aerospace branch, told reporters that
Lagardère may pay only about 1.2 billion francs to win a third of the
Aérospatiale-Matra group.
He did not give a source for the figure, which is lower than the two to five billion
Francs reported in the French press and which market analysts estimate Lagardère
may have to pay.
…
The unions fear that for political reasons the government will give in to Lagardère's
demands for a 33 percent stake and accept only a minimal cash payment.
"They cannot admit that, to achieve a political agreement, Aérospatiale might be
deliberately undervalued," Aérospatiale CFDT union official Jacques Debesse told
reporters.
In a letter made available to Reuters, Aérospatiale's CGT board m ember Christian
Saulnier wrote to Prime Minister Lionel Jospin charging that valuations of 40 billion
francs for the aerospace group seriously underestimated its worth.
"This undervaluation puts the national company at an extreme disadvantage
compared to Bae (British Aerospace) and DaimlerChrysler Aerospace on the European
chessboard" the letter said.1716
6.983. The second media report the United States relies upon was published in The Economist in
2006. This particular report made the following comments of note:
{The Aérospatiale-Matra merger} was completed in June 1999 once all the formalities
had been gone through. Part of this process was a review of the deal by court -
appointed accountants. Their job was first to ascertain whether the MHT shares were
worth at leas t their value of {EUR} 618m in Lagardère's books. This they had no
trouble doing, and their report is a matter of public record. The trickier task was to
justify the one -third share of the much bigger company allotted to Lagardère. Their
full report on thi s aspect is not a matter of public record, but their findings are
contained in a document, a copy of which was obtained by The Economist, that
Aérospatiale Matra had to file with the French stock exchange before the sale of
shares to the public.
The expert s clearly found themselves in a difficult position, as they noted. The
document talks of "three key limiting factors" in their assessment process which
"could affect the exchange value to an extent that is difficult to put into figures". One
factor was "li mited or late access to certain important information". Another was
"uncertainties beyond the normal range of forecasting" and a third was "assumptions
underlying the preparation of cash -flow projections". The basic justification for

1716 "FOCUS – Aérospatiale-Matra merger in weeks – official", Reuters, 11 February 1999, (Original
Exhibit US-596), (Exhibit USA-329).

handing over as much a s one -third of the shares to Lagardère was the strategic
importance of the transaction for the French aerospace and defences industries and
"risks for the Lagardère group".
One leading Paris analyst, Jean Gatty, put a value on MHT in the range of
{EUR} 750m-1.4 billion. After the first day of dealing in the shares of Aérospatiale
Matra, the one -third stake that Lagardère got in return for MHT was worth
{EUR} 2.8 billion. No wonder that at a recent aviation conference in Monte Carlo,
attended by the legendar y former Airbus boss, Jean Pierson, an Aérospatiale man to
the core … , Airbus alumni were calling it "the hold-up of the century". Airbus veterans
are bitter at what "the Lagardère boys", as they are known within the aircraft maker,
have done to the organization they built up to take on Boeing.1717
6.984. The European Union does not appear to have specifically responded to the United States'
reliance on the 1999 Reuters report. However, the European Union dismisses the relevance of the
report appearing in The Economist, saying that the statements reporting the views of unnamed
"Airbus alumni" at an unspecified "aviation conference" would probably amount to "unfounded
'hearsay'" in the national courts of the United States.1718
6.985. Considered in isolation, the above two media reports, in our view, at best reveal that
certain individuals close to Aérospatiale or connected with the ASM merger were of the view that
the French State would not, and did not, achieve "fair market value" for the sale of its shares in
ASM. However, in the absence of other corroborating evidence that is more closely tied to the
actual valuations performed by the relevant investment banks, we are reluctant to accept this
evidence as a basis to reject the European Union's assertions concerning the "fair market value" of
the relevant transactions. In this regard, we note that the statements reported in The Economist
about the findings of the so -called "court -appointed accountants" tasked with examining the
valuation of MHT reflect those reported in the Aéros patiale Matra Offering Memorandum to have
been made by "a panel of independent experts" appointed under French law to review the
transaction. Although we suspect that the "panel of independent experts" cited in both these
sources is what the European Union refers to as the Commissaires à la Scission, we cannot be
certain because a copy of the Commissaires' report has not been submitted as evidence.
6.986. The Aérospatiale Matra Offering Memorandum quotes from the report of the "panel of
independent experts" when describing the details of the contribution of MHT's assets to the merger
transaction:
In accordance with French law, a panel of independent experts was named for the
purpose of examining the valuation of MHT shares and the fairness of the exchange
ratio adopted by the parties.
In rendering its report on March 27, 1999, the panel noted three qualifying factors
regarding its examination. These factors are as follows (translated from the French):
"(i) Limited or late access to certain significant items of inf ormation for
reasons relating to time constraints or confidentiality and equally related
to the inherent tension of negotiations of such importance;
(ii) Cash flow forecasts are qualified by the assumptions made in their
preparation: future dollar exchange rates, the prospects of the defense,
space and aircraft activities, notably in a base case year; in addition, a
certain number of future contracts (in the space and defense sector) were
included in the forecasts on the basis of coefficients of probability which
are necessarily subjective;
(iii) the existence of specific uncertainties, going beyond the inherently
difficult nature of all forecasts. In particular, the operation of the two
partners is likely to be subject to the effects of off balance sheet

1717 "Airbus: The Making of a Jumbo Problem", The Economist, 9 November 2006, (Exhibit USA-522).
1718 European Union's comments on United States' response to Panel question No. 10.

commitments, the ultimate disposition of which is by nature uncertain;
this observation is notably applicable to the participation of Aérospatiale
in the Airbus consortium, which has substantial off balance sheet
commitments.
These uncertainties may affect t he exchange ratio parity retained in
proportions which are difficult to quantify."
With respect to the exchange ratio, the panel noted the following (translated from the
French):
"the exchange ratio was established on the basis of two approaches:
- one based on stock market comparisons;
- the other relying on the cash flow forecasts of the two groups.
(i) The comparative approach is, in this particular case, unreliable in its
application given the absence of groups which are completely comparable
to Aérospa tiale and MHT and because of the low level of earnings
generated by the Aérospatiale group in the past.
(ii) the evaluation of the two groups by the discounted cash flow method
seems to be the better approach, notwithstanding the difficulties of
application described above.
In a financial perspective, we note that the 31.45% exchange ratio
retained falls within the range of evaluations put forth by the financial
advisors. On a broader level, this transaction is of a strategic nature for
the French aircraft and defense industries and presents risks to the
Lagardère group which justify the exchange ratio retained.
We have no other observations regarding the relative values attributed to
the shares of the two companies participating in the transaction nor on
the equitable nature of the exchange ratio … ."1719 (emphasis original)
6.987. Thus, in delivering their opinion on the ASM merger, the "independent experts" appointed
under French law to review the valuations used in the merger transaction felt the need to highlight
three "qualifying factors", which in our view, suggests that they had doubts about the reliability of
the final 31.45% "exchange ratio" retained for MHT. In summary, these factors were: (a) limited
or late access to "significant items of information"; (b) the assumptions underlying the cash -flow
forecasts used for the purpose of making the valuations, including "subjective" probability
coefficients relating to "a certain number of future contracts"; and (c) "specific uncertainties, going
beyond the inherent ly difficult nature of all forecasts", including the effects of "off balance sheet
commitments", in particular, as regards the operations of the Airbus consortium. Indeed, although
the "independent experts" went on to note that from "a financial perspectiv e", the "exchange
ratio" fell "within the range of evaluations put forth by the financial advisors", they also made a
point of explaining that "on a broader level", the "exchange ratio" could be justified by the
strategic importance of the merger for the French Government and the risks that it posed to MHT's
owner, Lagardère. Thus, the "panel of independent experts" clearly found that the public policy
goals of the transaction for the French State could explain at least part of the "exchange ratio" that
was finally agreed.
6.988. When considered in the light of the other statements reported in the Reuters article and in
The Economist, as well as the opinion expressed in the "Production and Exchanges" Commission
report, these conclusions suggest that there were reas ons to believe that the valuation of MHT
accepted by the French State was greater than what would have been acceptable in the absence of
the strategic importance of the deal, and consequently, that Aérospatiale's relative contribution to
the merger was probably undervalued.

1719 Aérospatiale-Matra Offering Memorandum, 25 May 1999, (Exhibit EU-58), p. 25.

6.989. The final document the United States relies upon to support its arguments is a report
prepared by its expert, Lauren D. Fox (the Fox Report). 1720 The same report was submitted by the
United States in the original proceeding for the purpose of substantiating its claims of subsidization
pertaining to the 1998 transfer of the French State's 45.76% interest in Dassault Aviation to
Aérospatiale in the lead up to the creation of ASM. The United States maintains that, to the extent
that the Fox Re port concludes that the Dassault transfer to Aérospatiale resulted in a substantial
loss in value for the French Government, it also demonstrates that the French State received less -
than-fair market value for the shares sold in the ASM merger.1721
6.990. As part of its evaluation of whether the Dassault share transfer was on market terms, the
Fox Report reviewed the valuations performed by three of the investment banks used by
Aérospatiale and MHT to establish the value of their merger. Although the European Union
submitted the relevant valuation reports in the original proceeding, it has not done so in this
compliance proceeding, even though it asserts that the ASM merger was on market-terms because
of, inter alia , the very fact that these three "internationally ren owned" investment banks were
involved in its valuation.1722
6.991. After explaining that corporate valuations of public and private companies are generally
conducted using three standard analyses – discounted cash flow (DCF), comparable company
analysis and compara ble transaction analysis – the Fox Report notes that "the DCF valuation
results achieved by the banks, using management financial projections, were more than 25%
higher than the average of the comparable company and comparable transaction analyses
conducted".1723 The Fox Report reveals that this caused the banks to base their final valuations
entirely on DCF analysis, excluding the comparables analyses. However, while Fox agrees that the
group of comparable companies were not "strong on the basis of geography", she explains that:
{S}uch a different result from 2 of the 3 methodologies should have also suggested
that management figures for future years were over -optimistic, and that a critical
review of the underlying assumptions driving future growth and profit ability would
have been appropriate. This was not done.1724
6.992. Moreover, on the basis of information provided by the European Union in the original
proceeding, the Fox Report goes on to find that the:
{O}perating projections for Aérospatiale and MHT appear to si gnificantly overstate
realistic long -term growth and profitability expectations by applying higher revenue
and income growth rates and higher margins, beginning immediately, compared with
ratios that had been achieved in the two prior years for which infor mation has been
made available.
These projections appear particularly unrealistic in the context of contemporary media
reports addressing the periodic financial distress of the French aeronautics industry,
and particularly Aérospatiale. Even Aérospatiale-Matra's own banker, [***], describes
the year 1999 (in April 1999) as an historic lowpoint for the financial ratios of the two
companies, particularly MHT.1725

1720 Lauren D. Fox, "1998 Dassault Share Transfer Valuation Report", 21 May 2007, (Fox Report),
(Original Exhibit US-595), (Exhibit USA-330) (HSBI). The United States submitted the same report in the
original proceeding to substantiate its claim that the 1998 transfer of the French State's 45.76% interest in
Dassault Aviation was a subsidy within the meaning of Article 1.1 of the SCM Agreement. (See Panel Report,
EC and certain member States – Large Civil Aircraft, para. 7.1388)
1721 United States' second written submission, para. 262.
1722 European Union's second written submission, para. 252.
1723 Fox Report, (Original Exhibit US-595), (Exhibit USA-330) (HSBI), p. 4. Although this United States'
exhibit is labelled HSBI, the quoted text does not appear as HSBI.
1724 Fox Report, (Original Exhibit US-595), (Exhibit USA-330) (HSBI), p. 4. Although this United States'
exhibit is labelled "HSBI", the quoted text does not appear as HSBI, in the same way that it did when the
exhibit was submitted in the original proceeding.
1725 Fox Report, (Original Exhibit US-595), (Exhibit USA-330) (HSBI), p. 5, including Exhibits 2, 2a and
2b thereto (footnotes omitted) (citing inter alia, the following reports: "France Demurs on DASA Deal for
Aérospatiale", Wall Street Journal, 7 September 1999; "Aérospatiale on Creditwatch Negative – S&P", Financial
Times, 29 May 1998; and "New Alliances Emerge from French Aerospace Shakeup", Aerospace Media

6.993. In our view, the concerns raised in the Fox Report (including in the HSBI sections of its
Exhibit 5) about the valuation of the ASM merger closely reflect the qualifications made by the
"panel of independent experts" in their own analysis. We note, however, that in criticising the
operating projections used to arrive at a final valuation of ASM, the Fox Report challenges the
reliability of the financial projections used for not only MHT's business, but also Aérospatiale.1726 It
follows, therefore, that the expert report the United States relies upon as evidence of the
less-than-fair market value of the ASM m erger, ultimately concludes that the valuation of the
newly merged entity was overall above its "fair market value". In this light, in order to understand
whether the return obtained by the French State for the contribution of Aérospatiale to ASM was
below market, it would be necessary to know whether the French State's relative share of the
newly (overly) valued company, was less than what it should have otherwise obtained compared
with the contribution made by MHT. However, presumably, because the Fox Rep ort was originally
prepared for another purpose, it does not undertake this final step of the analysis.
6.994. Finally, we note that in responding to the United States' arguments in relation to the arm's
length nature of the merger transaction, the European Union recalls that as part of the deal,
Lagardère undertook to pay the French State up to FF 1.15 billion, if ASM underperformed the CAC
40 by 8% over a two-year period following the initial public offering (IPO). Although this obligation
is noted in the Fox R eport1727, it is unclear whether its value to the French State was taken into
account in the analysis that is presented in the Fox Report of the investment banks ' transaction
valuations. Furthermore, although the undertaking given by Lagardère concerning the share price
of ASM following the Aérospatiale -MHT merger is described in the Aérospatiale -Matra Offering
Memorandum1728, there is no indication in this document of whether or the extent to which its
value to the French State was taken into account in the rele vant investment banks' valuations. In
this regard, we note that because of the conditional nature of Lagardère's undertaking, Lagardère's
final liability could range from FF 1.15 billion to zero, depending upon how the ASM shares traded
following the merger. Thus, in the absence of any evidence disclosing how the relevant investment
banks decided to account for Lagardère's undertaking 1729, we have no basis to determine the
extent to which Lagardère's commitment impacted the transaction value.
6.995. In conclusion, t herefore, it is apparent from the evidence we have reviewed that in the
light of the explicit public policy goals that the French Government sought to pursue through the
merger of Aérospatiale with MHT, and the perceived risks that an operation of this kin d apparently
posed to the Lagardère Group, significant doubts were raised about the agreed valuations by not
only politicians that opposed the French Government's plans, but also individuals close to
Aérospatiale (including Union officials) and the "indepe ndent experts" appointed to review the
transaction under French law. We note, however, that the Fox Report concluded that the deal
valuations were "inflated" based on an assessment of the individual valuations of both Aérospatiale
and MHT. Moreover, it is unclear whether the Fox Report's analysis of the investment banks '
transaction valuations accounted for Lagardère's undertaking in relation to the share price of ASM
in the years following the merger . Thus, overall, we find that the evidence the United States relies
upon does not establish a sufficient basis to conclude that the transactions at issue in the creation
of ASM were not undertaken at "fair market value".
c Did the relevant transactions "result{} in a transfer of control"?
6.996. We recall that in this s ubsection of our Report, we are examining the extent to which the
European Union has made out its claims of "extinction" on the basis of the separate opinion
articulated by the second Appellate Body member concerning the extent to which "partial
privatizations and private -to-private" share transfers may "extinguish" a subsidy. Thus, before
proceeding to examine the merits of the parties' arguments in relation to the ASM transaction, we
must first consider how the second Appellate Body member's reference to the "transfer of control"
should be understood.

Publishing, 18 August 1996). Although this United States' exhibit is labelled "HSBI", the quoted text does not
appear as HSBI, in the same way that it did when the exhibit was submitted in the original proceeding.
1726 Fox Report, (Original Exhibit US-595), (Exhibit USA-330) (HSBI), p. 5 (citing Exhibits 2, 2a and 2b).
1727 Fox Report, (Original Exhibit US-595), (Exhibit USA-330) (HSBI), p. 3.
1728 Aérospatiale-Matra Offering Memorandum, 25 May 1999, (Exhibit EU-58), p. 24.
1729 We recall that although presented by the European Communities in the original proceeding, the
relevant investment banks' valuation reports have not been submitted as evidence in this compliance
proceeding.

6.997. As already noted, the second Appellate Body member's separate opinion cautiously
accepted that the rationale of the privatization cases could equally apply to "partial privatizations
and private-to-private" sales transactions. However, for this Member, there is "no 'inflexible rule'
that a 'benefit' derived from pre -privatization financial contributions expires following privatization
at arm's length and for fair market value". All would depend upon the partic ular facts of the case
at hand, and an "important question in this context is to what extent the partial privatization or
private-to-private transactions resulted in a transfer of control to new owners who paid fair market
value for shares in the company".1730
6.998. The European Union maintains that the correct focus of a panel's evaluation of the extent
to which the requisite "transfer of control" has been established must be on the qualitative nature
of the change in control that results from a change in ownership and, in particular, the extent to
which that change in control allows the new owners to seek a profit. According to the
European Union, this focus is "an important reflection of the rationale underlying the privatization
cases".1731 Thus, the European Union argues that in order to establish that an arm's length
transfer of a government's interest in a State -owned company to a private entity for "fair market
value" has "resulted in a transfer of control", and therefore "extinguished" all or a portion of
existing subsidies, the "new owner's interest must be 'sufficiently substantial' in order to 'allow the
new private owner to ensure that the company is run on market terms'".1732
6.999. As we understand it, the European Union's position implies that a State -owned entity that
receives subsidies may be found to no longer benefit from those subsidies whenever the
subsidizing government transfers a "sufficiently substantial" portion of its control and ownership
interest, through an arm's length transaction for fair market valu e, to new private owners on
terms that allow the company to be managed in a way that is profitable. In other words, the
European Union considers that the extent to which the change in control associated with an arm's
length sale on fair market terms of a S tate's "sufficiently substantial" interest in a previously
State-owned and controlled enterprise allows a new owner to run that company on market terms
will determine whether the benefit of past subsidies is "extinguished".
6.1000. In our mind, the European Union's position raises a number of significant questions,
including the following: What would be the implication of applying the European Union's
"qualitative change in control" standard to a situation where it is decided that a failing State -
owned enterprise, which is restructured with the aid of subsidies1733, will be managed in a way that
seeks to make a profitable return on the market value of the subsidies provided by the
government? Would the fact that a government tries to run such a company on market terms after
infusing it with capital that would not have been provided by a private investor mean that those
subsidies have been extinguished? Would the answer to this question be different if the
government had sold a "sufficiently substantial" portion of the same restructured and subsidized
company to a private entity that intended to make a market return on its investment? Our
understanding of the European Union's position is that at least a portion of the subsidies would be
extinguished in the latter circums tance; and we do not consider that the rationale of the
"privatization" cases was intended to imply that the subsidies in the former scenario would be
"extinguished". Yet, the only material distinction we can see between the two situations would be a
decision taken by the subsidizing government to operate the relevant company on market terms
instead of selling a "sufficiently substantial" portion of its interest to a private party so that it may
do the same. The same subsidies would have been provided to the same company, which would be
run, post-subsidization, according to the same market principles. The only difference would be the
identity of the owners.
6.1001. We doubt whether the second Appellate Body member's separate opinion on the notion of
the "transfer o f control" was intended to have these implications. Nevertheless, even assuming
that the European Union's position does reflect the second Appellate Body member's views on the
matter, the evidence before us does not support a finding that the ASM transacti on involved the
degree of "transfer of control" necessary to "extinguish" the relevant subsidies.

1730 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 726(b).
1731 European Union's first written submission, paras. 299-302.
1732 European Union's second written submission, para. 244. See also European Union's first written
submission, paras. 301-302 (making same argument).
1733 For example, the government may decide to provide a State-owned entity with equity capital in
circumstances that would be inconsistent with the usual practice of private investors.

6.1002. According to the European Union, the "transfer of more than 50 percent of the ownership
{of Aérospatiale} from the state to private owners" through the ASM t ransaction satisfies the
"transfer of control" standard because it "brought about a qualitative change in the control of
Aérospatiale", compelling ASM "to operate exclusively on market principles in order to seek the
market return that the majority of its owners expected to achieve on their investment". For the
European Union, this qualitative change in control came about by virtue of not only Lagardère's
"privileged partner" status, which allegedly gave it the ability to enjoy "effective control" over the
company's key decisions, but also the "economic realities" of the transaction, which created a
majority of private shareholders and thereby assured the newly merged entity's market
orientation.1734
6.1003. The United States, on the other hand, argues that the French State did not relinquish its
control in ASM as a result of the relevant transactions, recalling inter alia that it retained a 48%
interest, making it the largest shareholder, and that it obtained a "valuable 'golden share'"
enabling it to "retain at least a certain amount of strategic control over ASM".1735
6.1004. We note that under the terms of the ASM Shareholders' Agreement, Lagardère became
the French State's "Privileged Strategic Partner"1736 and both parties' declared that they would "act
in concert" vis-à-vis the company, within the meaning of article 356 -1-3 of the Law of
24 July 1996.1737 Both parties therefore agreed that the following decisions would be taken jointly
with a view to giving effect to the principle of industry consolidation that was at the centre o f the
merger: (a) approval of multi-year strategic plans; (b) acquisitions or divestitures of assets having
a value in excess of FF 1 billion; and (c) strategic alliances and strategic industrial and financial
cooperation agreements.1738
6.1005. The same Shareholder s' Agreement accorded Lagardère the right to appoint four
members of the 16-member Supervisory Board, and to jointly appoint two other members with the
French State, which itself was accorded the right to appoint six Supervisory Board members.
Another four Supervisory Board members were to represent employees. The French State and
Lagardère agreed to appoint Jean -Luc Lagardère as the President of the Supervisory Board. 1739
The French State and Lagardère were also empowered to jointly appoint the Management Boa rd,
taking into account proposals made by Lagardère 1740, and each held the same right to request the
removal of any of its members, as well as the chair of the Supervisory Board. 1741 Finally, the
French State retained a "golden share", pursuant to Decree No. 99 -97 adopted on
15 February 1999, which entitled it to: (a) approve share purchases resulting in ownership
interests exceeding 10% or any multiple thereof, (b) appoint a non -voting seat on the Supervisory
Board for a member appointed by the Ministry for Defe nce, and (c) block any decision relating to
the ballistic missile business.1742
6.1006. In our view, the above formal indicia do not show that the French State surrendered
control of ASM to Lagardère or to any other shareholder. Rather, it is apparent that the French
State moved from a position of complete control over Aérospatiale to complete control over ASM,

1734 European Union's first written submission, paras. 319-324; and second written submission,
para. 253.
1735 United States' second written submission, para. 259; and response to Panel question No. 9.
1736 ASM Shareholders' Agreement, (Exhibit EU-59) (BCI), preamble.
1737 ASM Shareholders' Agreement, (Exhibit EU-59) (BCI), art. 11. The European Union explains that
Article 356-1-3 of the Law of 24 July 1996 reads in relevant part: "Sont considérées comme agissant de
règlements". (European Union's first written submission, fn 404)
1738 ASM Shareholders' Agreement, (Exhibit EU-59) (BCI), art. 7.
1739 Aérospatiale-Matra Offering Memorandum, 25 May 1999, (Exhibit EU-58), p. 139 ("The French State
and Lagardère have announced their intention to appoint Jean-Luc Lagardère to the post of President of the
Supervisory Board").
Privilégié, compte tenu de propositions du Partenaire Stratégique Privilégié").
1741 ASM Shareholders' Agreement, (Exhibit EU-59) (BCI), art. 6.5.
1742 Aérospatiale-Matra Offering Memorandum, 25 May 1999, (Exhibit EU-58), p. 28; and ASM
Shareholders' Agreement, (Exhibit EU-59) (BCI), preamble.

in respect of the matters covered by its "golden share", and joint-control with respect to all other
matters. We do not see how the fact that Lagardère was giv en the right to make proposals in
relation to certain issues means that Lagardère exercised "effective control" over ASM's
business1743, given that Lagardère was represented by fewer Board members than the French
State and, at best, could take certain decisions only in concert with the French State. Moreover, to
the extent that the French Government's strategic goals for the merger were recalled in various
parts of the ASM Shareholders' Agreement, it is apparent that the French State (and not
Lagardère) from t he outset established the general direction that the company was expected to
follow. These key features of the transaction appear to us to do anything but leave Lagardère free
to manage the merged entity in accordance with only its own economic and strategic interests.
6.1007. The European Union argues that the "economic reality" of the deal, which resulted in the
French State holding 47.7% of ASM, and private investors holding the remainder, created a
"collective of shareholders whose common interest was that the company would maximise its
profits so that they would obtain a market return on the share price they paid". 1744 According to
the European Union, this majority private ownership "dictated a new economic reality for the
company, the actions of which were requi red to adhere to the profit -maximising objectives of its
private shareholders".1745
6.1008. We recognize that a private shareholder will want to seek a market -based return on its
investment, and that this is no doubt what Lagardère and all those that participated in the ASM
IPO had in mind. The fact remains, however, that these private shareholders did not have
exclusive control over ASM, and they could not, therefore, "dictate" its operations. As already
noted, the French State retained complete control over ASM in r espect of the matters covered by
its "golden share", and joint-control with Lagardère in respect to all others. In this context, the
"profit-maximising objectives" of its private shareholders could only be pursued if they were
shared by the French State. T hus, ultimately, the "economic reality" of the ASM transaction would
be the one that could be agreed with the French State , with the exception of matters covered by
the "golden share", where the "economic reality" would be determined exclusively by the Fre nch
State.
6.1009. On this final point, we recall that the "independent panel of experts" report into the
valuation of MHT and the fairness of the exchange ratio agreed between Lagardère and the French
State observed that one element of uncertainty "going beyond the inherently difficult nature of all
forecasts" was likely to be "the effect of {the substantial} off -balance sheet commit ments"
associated with "the participation of Aérospatiale in the Airbus consortium". At the very least, this
statement suggests that ASM's business prospects would be intimately linked with the
performance of the Airbus Industrie consortium. 1746 It is, therefore, instructive, in our view, to
recall that the transfer of the French State's 45.76% interest in Dassault Aviation to Aérospatial e
had been considered necessary in order to increase the chances that the planned "privatization" of
Aérospatiale could occur as soon as possible, which was itself necessary to improve the French
Government's position in its negotiations with other Airbus governments over the terms of the
consolidation of the European aerospace industry. 1747 Likewise, the United States argues that "the
French government set for itself the political goal to 'create a national champion' in the aerospace
and defense industry, whi ch would be better positioned to negotiate with its British and German
counterparts".1748 Moreover, according to the United States:
Press reports also confirmed that the ASM merger plan was adopted in reaction to a
prospective merger between Dasa and BAE, whi ch would have resulted in the French

1743 European Union's first written submission, para. 319.
1744 European Union's first written submission, para. 323.
1745 European Union's first written submission, para. 323.
1746 At the time of the ASM merger, the Airbus Consortium was made up of CASA (a company wholly-
owned and controlled by the Spanish State), and Deutsche Airbus and British Aerospace (both of which had
been to different degrees previously owned and controlled by Germany and the United Kingdom), in addition to
Aérospatiale. (Panel Report, EC and certain member States – Large Civil Aircraft, section VII.E.1 Attachment:
Corporate History of Airbus, pp. 360-361).
1747 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1409; United States'
response to Panel question No. 8; and European Union's comments on the United States' response to Panel
question No. 8.
1748 United States' response to Panel question No. 8 (quoting "Aérospatiale-Matra Merger in Weeks –
Official", Reuters, 11 February 1999, (Exhibit USA-560).

industry being "clearly outgunned" and "threatened" its "traditional dominance of the
Airbus partnership". … For this reason, "Prime Minister Jospin secretly endorsed a bold
plan to privatize Aérospatiale and merge it w ith Matra, a large defense contractor
controlled by Lagardère. Jospin reasoned that since the government would retain a
large stake, it could still pretty much call the shots. 'We had to be as industrially
strong as possible to stay in the game', remembers Frederic Lavenir, a key high -
ranking Finance Ministry official who helped structure the merger."1749
6.1010. The European Union denies the accuracy of these reported assertions 1750, and there is no
way for us to verify their correctness or give them more than only very limited probative value.
Nevertheless, we believe that they are broadly in line with our own assessment of the deal that
was actually struck in the light of the evidence we have reviewed. Accordingly, for all of the above
reasons, we find that the Europea n Union has failed to demonstrate that the nature of the
"transfer of control" that resulted from the ASM merger enabled the new private owners to
manage ASM on market terms, solely in pursuit of their own economic and strategic interests.
d Conclusion with respect to the 1999 merger of Aérospatiale and Matra Haute
Technologies
6.1011. Thus, when considered in the light of each of the three separate opinions issued by the
Members of the Appellate Body Division serving in the original appeal on the question whether
"partial privatizations and private -to-private sales" transactions can "extinguish" prior subsidies,
we find that the 1999 merger of Aérospatiale with MHT did not "extinguish" the relevant subsidies.
The "overall EADS transaction"
a Were the Relevant Transactions Made at "Arm's Length"?
6.1012. In this subsection of our analysis, we will examine whether the "overall EADS transaction"
was made at "arm's length" 1751 by determining the extent to which the European Union has
established that it involved two or more independe nt, unrelated, parties acting in their own
interest. We recall that the European Union's submissions are based on only two of the three sets
of transactions which we understand resulted in the creation of EADS, namely: (a) the agreement
between the Airbus partners to combine their activities on the basis of the valuations of the
merging entities' respective assets, pursuant to which, at least initially, 56.46% of the shares in
EADS would be held by the ASM shareholders, 37.29% of the shares in EADS would be held by
DaimlerChrysler, and 6.25% of the shares in EADS would be held by SEPI; and (b) the issuance
and sale of shares part of the "global offering".1752
6.1013. The European Union argues that the "overall EADS transaction" was done at "arm's
length" because each o f the parties "retained reputed investment banks to assess the proposed
deal and establish the relative value of the merging entities". The European Union's core
submission in this regard appears to be that the French, German and Spanish parties were each
independently advised by leading experts in the fields of investment, financing, accounting and
law, in accordance with "common practice in high-stakes merger and acquisition transactions".1753
6.1014. The United States maintains that because of the "EADS transactio n" involved only a
corporate restructuring of pre -existing French, German, Spanish and UK corporate entities into a
single entity known as EADS, "an inquiry into whether the consolidation was at arm's length … is
not relevant". 1754 More specifically, the Unit ed States argues that the shares purchased by

1749 United States' response to Panel question No. 8, fn 16 (quoting Jean Rossant, "Birth of a Giant: The
inside story of how Europe's toughest bosses turned Airbus into a global star: EADS", BusinessWeek,
10 July 2000, (Exhibit USA-561), p. 170).
1750 European Union's comments on the United States' response to Panel question No. 8.
1751 See our initial discussion of the "arm's length" standard, above at para. 6.973-6.973.
1752 See above para. 6.956-6.956.
1753 European Union's first written submission, paras. 327-334.
1754 United States' response to Panel question No. 11.

employees did not represent "arm's length" transactions because those purchasers were "related
to the owners of and sellers of the shares, and whose interests were intertwined with them".1755
6.1015. We note that the EAD S Offering Memorandum confirms that a number of investment
banks, accounting and law firms were involved in advising the different owners of the French,
German and Spanish Airbus partners in relation to their relative asset valuations and the "global
offering". Thus, there is no evidence before us to suggest that the main actors were not
independently advised. We recall, however, that in dismissing the European Union's "extraction"
arguments in the original proceeding, we found that:
Although the European C ommunities characterizes DaimlerChrysler as a "minority
shareholder" in EADS following the contribution of Dasa's aerospace -related assets
and activities to EADS, DaimlerChrysler and a grouping of the French government,
Lagardère and French financial insti tutions were to jointly control EADS through a
contractual partnership, to which the Spanish government, through SEPI, was also a
party. The former "owners" of the aeronautics -related assets and activities of Dasa
and CASA ( i.e., DaimlerChrysler and the Sp anish government, respectively), were to
jointly control the new "owner" of those assets and activities (EADS and subsequently
Airbus SAS) through the EADS contractual partnership, to which both Dasa and SEPI
were parties. Although the EADS transaction alt ered the legal ownership of the
aeronautics-related assets and activities of Dasa and CASA, it was structured so as to
maintain the overall interests of DaimlerChrysler and the Spanish government in
Airbus Industrie as a whole.2218 (emphasis original; footnotes omitted)
2218 Rather than holding and exercising their membership interests in Airbus Industrie directly
through subsidiaries such as Dasa and CASA, DaimlerChrysler (through Dasa) and the Spanish
government (through SEPI) were members of a contractual partnership that exercised voting
rights in respect of 65.48 percent of the outstanding shares of EADS. As a practical matter, the
nature of control that DaimlerChrysler and the Spanish government exercised over the LCA
activities of Airb us through EADS was substantially the same as the control that they had
previously exercised over the LCA activities of Airbus as members of the Airbus Industrie
consortium."1756 (footnote original)

6.1016. As we found in the original proceeding, and for the reasons we explain in more detail
below1757, the "overall EADS transaction" did not substantially alter the nature of the control over
Airbus' LCA activities. Following the combination of the French, German and Spanish Airbus
partners under the umbrella of EADS, the entities that controlled this portion of Airbus' LCA
activities did not change. To this extent, we agree with the United States that, when it comes to
Airbus' LCA activities, the "overall EADS transaction" is best characterized as a corporate
restructuring and consolidation of activities previously undertaken by the same entities. Thus,
unlike the ASM merger, which saw two economic actors operating in related fields merge what
were essentially separate business activities, the combination of the LCA activi ties of ASM, DASA
and CASA, simply modified the corporate structure through which pre -existing business activities
would be pursued in the future. In this light, it might well be possible to argue (as we understand
the United States does) that the Airbus p artners in this aspect of the "EADS transaction" were
related parties that did not pursue entirely independent interests with respect to all aspects of the
transaction.1758 However, in our assessment, the United States has not done enough to convince
us that this is indeed what transpired in the present circumstance. Thus, while this aspect of the
"EADS transaction" involved the consolidation of the French, German and Spanish Airbus partners'
existing LCA activities under a new corporate but substantially unch anged control structure, this
alone is not a sufficient basis to convince us that the related parties did not act independently in

1755 United States' response to Panel question No. 11.
1756 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.275.
1757 See below paras. 6.1025-6.1035.
1758 In this respect, we note that footnote 48 of the SCM Agreement stipulates that, in the context of a
countervailing duty investigation, two entities may be deemed to be "related" for the purpose of defining a
"domestic industry" when inter alia "together they directly or indirectly control a third person, provided that
there are grounds for believing or suspecting that the effect of the relationship is such as to cause the producer
concerned to behave differently from non-related producers". The same text appears in footnote 11 of the
Anti-Dumping Agreement.

pursuit of their own interests in agreeing to the valuations of their respective asset contributions or
the issuance and sale of EADS shares through the "global offering".
6.1017. We are also unconvinced by the United States' argument that the EADS shares purchased
by "employees" were not made at "arm's length" simply because of the existence of a shareholder-
employer-employee relation ship. Our understanding of this particular aspect of the "global
offering" is that it did not involve a negotiation between the Airbus partners, EADS and their
employees. Rather, it appears that the Airbus partners agreed on issuing a particular number of
shares at a discounted price to qualifying employees unilaterally within the context of the "overall
EADS transaction".
6.1018. Thus, on the basis of the evidence that is before us, we are unable to agree with the
United States' contention that the transactions l eading to the consolidation of the French, German
and Spanish Airbus activities under the umbrella of EADS were not made at "arm's length".
Accordingly, we find that the European Union has established that both the valuations and the
resulting share transf ers that formed part of the "EADS transaction" were undertaken at "arm's
length".
b Were the relevant transactions for "fair market value"?
6.1019. The European Union maintains that the valuations of the assets contributed by the
French, German and Spanish Airbus p artners to the "EADS transaction" were set at "fair market
value" because: (a) they were agreed in the light of the due diligence carried out by reputable
finance, accounting and legal experts advising each of the relevant parties independently; and (b)
they were approved (as far as the contribution of CASA and the French State's interests in ASM
were concerned) by Spanish and French "privatization authorities".1759 In addition, according to the
European Union, the prices paid by institutional investors in the "global offering" were set at levels
representing "fair market value" as they reflected the value attributed to EADS by the investment
banks.1760 While the European Union appears to have explicitly accepted that the price set for the
shares sold to "employee s" was not market -based1761, it argues that this fact cannot "cast any
doubt on the 'fair market value' … of the transaction as a whole".1762
6.1020. The United States argues that the "EADS transaction" is "not the type of transaction that
qualifies as a candidate for an extinction event" because it merely involves a corporate
restructuring. For this reason, the United States maintains that "an inquiry into whether the
consolidation was … for fair market value is not relevant". More specifically, however, the
United States submits that the fact that the "global offering" was made at different prices to three
categories of purchasers implies that "as a matter of logic, at least two of the three categories of
shares must have been at non-fair market value prices, because only one such price exists".1763
6.1021. In essence, the only reason the United States advances to support its contentions about
the non-fair market value of the share sale transactions is that the "global offering" involved three
different prices, instead of one. The United States makes no argument and introduces no evidence
in respect of the valuations that were used to establish the EUR 19.00 per share price paid by
institutional investors. Thus, the United States does not appear to contest the "fair market value"
of the EUR 19.00 share price. The question before us is therefore whether the EUR 18.00 share
price paid by "retail" investors and the EUR 15.30 share price paid by "employees" were "fair
market" prices. The fact that these prices were less than the agreed "fair market value" of an
EADS share suggests that they cannot also represent the "fair market value" of an EADS share,
unless more than one "fair market value" of EADS exists. However, the European Union does not
make this argument. Rather, after asserti ng that the discounting of shares offered to "retail"
investors and "employees" is a common practice in IPOs, the European Union submits that this

1759 European Union's first written submission, paras. 326-334 and 339.
1760 European Union's first written submission, para. 339.
1761 "All of the shareholders in EADS (with the exception of the employees), paid for their shares a
market price established by reference to the value of the company as determined by independent investment
banks". (European Union's first written submission, para. 339)
1762 European Union's comments on the United States' response to Panel question No. 11.
1763 United States' response to Panel question No. 11.

fact alone cannot "cast doubt on the 'fair market value' of the transaction as a whole ".1764 This
suggests to us that the European Union accepts that the EADS share prices paid by "retail"
investors and "employees" were not strictly consistent with the "fair market value" of EADS. 1765
Nevertheless, in the light of its view that such pricing practices are "typical" for IPOs, the
European Union submits that the "fair market value" of the "EADS transaction" overall cannot be
questioned.
6.1022. The European Union draws support for this latter proposition from the panel's "extinction"
findings in US – Countervailing Measures on Cer tain EC Products (Article 21.5 – EC), which the
European Union asserts involved "privatization transactions" on terms that were "almost identical
with the terms of the EADS transaction in 2000". However, even assuming that the
European Union's factual assertions were correct, we would be reluctant to accept the implications
the European Union draws from the panel findings in US – Countervailing Measures on Certain EC
Products (Article 21.5 – EC) for the purposes of this proceeding, because the specific ques tion that
is now before us was simply not at issue in that case. Indeed, the European Union has not pointed
to any specific finding made by the panel in US – Countervailing Measures on Certain EC Products
(Article 21.5 – EC) on the question the United States' arguments have raised.
6.1023. Ultimately, however, we believe it is not necessary for us to come to any definitive view
on this matter for the purpose of the "extinction" analysis that we must perform in respect of the
"creation of EADS" because, for the reas ons we explain in the following subsection, the relevant
transactions do not involve the degree of "transfer of control" needed to establish the "extinction"
of subsidies, in the light of our understanding of the views expressed by the second Appellate Body
member's separate opinion.
6.1024. Thus, for all of the above reasons, we find that the European Union has established that
the valuations of the assets contributed by the French, German and Spanish Airbus partners to the
"EADS transaction" reflected their "fair market value" and that, consequently, the EUR 19.00 share
price paid by institutional investors also reflected the "fair market value" of EADS. However, in the
light of the findings we make in the following subsection of our analysis, we make no ruling on
whether the European Union has established that the share prices paid by "retail" investors and
"employees" were equally at "fair market" levels, and we express no views about what the
consequences would be for the "fair market value" of the "overall EADS transaction", were those
prices found to be below "fair market value".
c Did the relevant transactions "result{} in a transfer of control"?
6.1025. We recall that in this subsection of our Report, we are examining whether the
European Union has made out its claims of "extinction" on the basis of the separate opinion
articulated by the second Appellate Body member concerning the extent to which "partial
privatizations and private -to-private" share transfers may "extinguish" a subsidy. In our analysis
of the extent to which the 1999 merger of Aérospatiale and MHT resulted in the requisite "transfer
of control", we expressed some misgivings about the European Union's interpretation of the
second Appellate Body member's views on the concept of "control". In particular, we raised a
number of questions about whether the "qualitative change in control" test laid out by the
European Union was a correct interpretation of the second Appellate Body member's separate
opinion. Nevertheless, we went on to evaluate the alleged "ext inction" event by this standard,
concluding that the evidence does not support a finding that the ASM transaction involved the
degree of "transfer of control" necessary to "extinguish" the relevant subsidies. We now proceed to
examine the "EADS transaction " on the basis of the same test – namely, whether the "new
owner's interest {is} 'sufficiently substantial' in order to 'allow the new private owner to ensure
that the company is run on market terms'".
6.1026. The European Union maintains that the "EADS transactio n" brought about a qualitative
change in the way that the "four founding companies exercised their influence over EADS' LCA -
related activities". First, according to the European Union, the fact that these companies "paid a

1764 European Union's comments on the United States' response to Panel question No. 11. (emphasis
added)
1765 As already noted, the European Union appears to have explicitly accepted that the price set for the
shares sold to "employees" was not market-based. See above para. 6.1019.

market price for their ownership" meant that they "needed to manage EADS in a manner that
would ensure a market return on their investment", particularly as regards DaimlerChrysler and
Lagardère. Second, the European Union notes that in addition to DaimlerChrysler and Lagardère,
the EADS transaction created an additional "collective of 30 percent of newly -created private
shareholders, who equally pursued the interests of obtaining a market return on their
investments". Thus, the European Union submits that "with a total of over 60 percent private
ownership … EADS can but be managed in the same way as any privately owned, non -subsidised
company".1766
6.1027. The United States, on the other hand, argues that the consolidation of the Airbus
partner's LCA-related activities under EADS through the transac tions at issue did not result in any
transfer of ownership and control. Rather, according to the United States, the EADS consolidation
was "carefully designed to preserve the pre -existing balance of ownership, responsibility for
production, and workshare a llocations that had already existed". 1767 The United States finds
support for its assertion in inter alia the following statements appearing in the European
Commission's Decision approving the combination of the Airbus partners under the European
Communities' Merger Regulation:
Most of the parties' activities in commercial aircraft are already integrated through
Airbus (formed in 1967 as a Groupement d'Interet Economique (GIE) under French
law), where each of Aérospatiale -Matra and DASA hold 37.9% of shares an d where
CASA holds 4.2% of shares, the remaining 20% of shares being British Aerospace
Systems ("BAe Systems").
After the operation, EADS will therefore own 80% of shares in Airbus. However, there
is no indication that the operation will affect the quality or nature of control of Airbus.
First the proposed transaction does not lead to a change from joint to sole control by
EADS, because BAe Systems maintains its veto rights vis -à-vis all strategic decisions.
Secondly, the remaining shareholders do not obtain additional veto rights or additional
board members. And finally, the proposed transaction has no impact on the work
share distribution between the Airbus Partners. Accordingly, there is no indication that
the operation will after the competition position of Airbus.1768 (emphasis original)
6.1028. As regards the combination between the EADS partners and BAE Systems that was
announced in June 2000, the United States relies upon a press release issued by the European
Commission on 18 October 2000 stating inter alia:
The proposed transaction constitutes a restructuring and rationalisation of the existing
legal partnership between the parties. EADS and BAES have agreed to contribute all of
their Airbus activities to AIC. Upon completion of the transaction, EADS and BAES w ill
hold respectively 80% and 20% of the shares in AIC, which in turn will hold all of the
shares in the parties' Airbus operating companies, that is those in France, Germany
and Spain which were already combined through EADS and those in the UK. EADS will
have sole control over AIC.1769
6.1029. According to the European Union, the Commission's merger Decision supports its own
submission that the EADS transaction resulted in a "significant change in control". In particular,
the European Union argues that it follows f rom what is stated in paragraph 10 of the merger
Decision that: "(a) EADS is a new company, which did not previously exist; and, (b) EADS would
be under the joint control of the former shareholders of ASM and DASA, but would not be under
the joint control of the former shareholders of CASA". 1770 For the European Union, these facts
illustrate "a first 'change in control'", namely, "the Spanish state 'loses control' over CASA, which
becomes part of EADS" and "through their joint -control over EADS, the French and German
strategic shareholders indirectly acquire control over CASA, which they did not have before the

1766 European Union's first written submission, paras. 340-343.
1767 United States' second written submission, paras. 257-258; and response to Panel question No. 11.
1768 EADS Merger Decision, (Original Exhibit US-479), (Exhibit USA-323), paras. 15-16.
1769 European Commission Press Release, "European Commission Clears the Creation of the Airbus
Integrated Company",18 October 2000, (Original Exhibit US-496), (Exhibit USA-324).
1770 European Union's response to Panel question No. 18.

transaction".1771 In addition, the European Union points out that following the EADS transaction,
the "German strategic shareholder indirectly acquired con trol over ASM, which became part of
EADS"; and likewise, the "French strategic shareholder indirectly acquired control over DASA,
which became part of EADS".1772
6.1030. The United States argues that the European Union's statements are "irrelevant" to
question at hand, which it sees as whether the EADS transaction resulted in the "transfer control
over Airbus from the original owners to new owners". The United States notes that prior to the
EADS transaction, ASM, DASA and CASA "affected control of Airbus only insofar as they were the
mechanisms through which French, German and Spanish interests, respectively, exercised
ownership and control over Airbus". Following the EADS transaction, the same interests exercised
control of Airbus "directly through their ownership of EADS, so those instrumentalities were no
longer needed".1773
6.1031. We note that the changes that occurred in the organization and control of Airbus' LCA
activities before and after the EADS transaction are explained in the EADS Offering Memorandum
in the following terms:
Current Organization and Control of Airbus Industrie
Airbus Industrie is currently organized under French law as a groupement d'intérêt
economique (i.e., an economic industry grouping), which is a form of consortium. As
such, it is an independent c orporate entity whose primary purpose is to increase the
economic activities of its Members, each of whom remains jointly and severally liable
with the other Members for the obligations of Airbus Industrie. The current Members
of Airbus Industrie are Aéros patiale Matra (with a 37.9% interest), Dasa (37.9%),
CASA (4.2%) and BAE SYSTEMS (20%).
Airbus Industrie is currently jointly controlled by Members and governed by its
Members' Assembly, its Supervisory Board and its Executive Board. The allocation of
voting rights corresponds proportionally to the Members' interests in Airbus Industrie
and each of the Members has important rights relating to the determination of
commercial policy. However, under the statutes and internal regulations, important
decisions are to be reached unanimously and, if this fails, by a majority of 81% of the
voting rights for certain decisions.
Effect on Airbus Industrie of EADS formation
Airbus Integrated Company
All functions relating to Airbus aircraft programs are currently perfor med partly by the
members under contractual arrangements with Airbus Industrie and partly within
Airbus Industrie itself. The EADS Members have decided to place those functions
carried out by the EADS Members under the common control of an integrated
company, Airbus Integrated Company, so as to rationalize resources and facilities
within a single organization, to overcome the limitations and drawbacks of the present
form of consensual agreement and to implement a unified strategy with respect to
research an d development, manufacturing processes and purchasing. EADS
Management believes that such integration will enable Airbus Industrie to manage its
cost base more effectively, improve customer service and reach decisions more
rapidly. …
Membership of Airbus Industries after the formation of EADS
The formation of EADS will reduce the number of Members ultimately controlling
Airbus Industrie from four to two: EADS, holding 80% of the membership interests,
and BAE SYSTEMS, holding the remaining 20%. Since BAE SYS TEMS will continue

1771 European Union's response to Panel question No. 18.
1772 European Union's response to Panel question No. 18.
1773 United States' comments on the European Union's response to Panel question No. 18.

inter alia to have veto rights relating to the business plan and the appointment of the
senior management, it will continue to share in the control of Airbus Industrie. 1774
(emphasis original)
6.1032. In our view, this description of the impact of the "overall EADS transaction" on Airbus'
LCA business does not support a finding that it resulted in a "significant change in control". On the
contrary, as the European Commission itself found, the terms of the consolidation of the French,
German and Span ish Airbus partners' LCA activities under EADS indicate that this aspect of the
"EADS transaction" was not intended to "affect the quality or nature of control of Airbus".1775
6.1033. Prior to the EADS transaction, Airbus Industrie was "jointly controlled" by the co nsortium
members, with each member having "important rights relating to the determination of commercial
policy". After the transaction, Airbus SAS would be 80% owned by EADS and 20% owned by BAE
Systems, with the latter having "veto rights" over certain decisions. In particular, while EADS' 80%
shareholding meant that it would have "effective management control", BAE Systems' "specific
minority rights" gave it the right to block certain "strategic decisions, such as acquisitions and
divestitures valued at m ore than U.S.$500 million, approval of the three -year Business Plan (but
not the annual budgets or the launch of new programs) as well as actions which would dilute" its
own ownership interest.1776 However, in relation to [***], BAE Systems was entitled to [***].1777
6.1034. The key decisions concerning the operations of EADS (including in relation to its
participation in Airbus SAS) were to be taken by the EADS Board of Directors, which initially would
comprise 11 members: four nominated by DaimlerChrysler; four nominat ed by SOGEADE; one by
SEPI; and two Directors with "no connection with the DaimlerChrysler, SOGEPA { Société de
gestion de participations aéronautiques} or Lagardère groups or the French State", nominated one
each by DaimlerChrysler and SOGEADE. The initial Board of Directors also had two Chairmen, one
each to be chosen from the DaimlerChrysler-nominated and SOGEADE-nominated Directors.1778 All
decisions of the Board of Directors would require a vote in favour of at least seven Directors, with
the exception of decisions aimed at bringing about "any major change to the CASA Industrial Plan
and/or its implementation" for a period of three years, which SEPI could block. 1779 The French
State continued to maintain its veto right over decisions affecting the ballistic mi ssiles business
contributed through the assets of ASM. 1780 Thus, EADS' decision -making structure was such that
DaimlerChrysler and SOGEADE held "joint control" over most decisions, with the exception of
those affecting the "CASA Industrial Plan and/or its imp lementation". We do not understand the
latter to have excluded CASA's Airbus LCA activities.
6.1035. Overall, we consider that, although not identical, the quality and nature of the control of
Airbus' LCA activities after the "overall EADS transaction" remained s ubstantially the same to what
it was before, with all of the four Airbus Industrie consortium partners continuing, to varying
degrees, to hold blocking rights over important decisions affecting their individual strategic and
commercial interests. While the ownership structure of the Airbus business changed, introducing a
new indirect "public" shareholding of 30%, its effective control remained in the hands of the same
French, German, Spanish and UK strategic interests that owned and operated Airbus Industri e. In
our view, these facts do not evidence the existence of " new owners " with a "sufficiently
substantial" interest in the Airbus LCA business such that they are able "to ensure that the
company is run on market terms". Thus, even by the European Union's own standard, we find that
the EADS transaction did not result in the requisite "transfer in control" to "extinguish" a subsidy.

1774 EADS Offering Memorandum, (Exhibit EU-55), pp. 73-74.
1775 EADS Merger Decision, (Original Exhibit US-479), (Exhibit USA-323), para. 16.
1776 EADS Offering Memorandum, (Exhibit EU-55), p. 123.
1777 European Union's first written submission, para. 349 (citing the EADS – BAE Systems – Airbus SAS,
Shareholders' Agreement, 11 July 2001, (Exhibit EU-70) (BCI), clause 7.2).
1778 EADS Reference Document, Financial Year 2000, (Exhibit EU-61), p. 131; and EADS Offering
Memorandum, (Exhibit EU-55), p. 126.
1779 EADS Reference Document, Financial Year 2000, (Exhibit EU-61), pp. 18 and 131; and EADS
Offering Memorandum, (Exhibit EU-55) p. 134.
1780 EADS Reference Document, Financial Year 2000, (Exhibit EU-61), p. 21.

d Conclusion with respect to the "overall EADS transaction"
6.1036. Thus, when considered in the light of each of the three separate opi nions issued by the
Members of the Appellate Body Division serving in the original appeal on the question whether
"partial privatizations and private -to-private sales" transactions can "extinguish" prior subsidies,
we find that the "overall EADS transaction" did not "extinguish" the relevant subsidies.
The 2006 sale of BAE Systems' shareholding in Airbus SAS
a Were the relevant transactions made at "arm's length"?
6.1037. In this subsection of our analysis, we examine whether the 2006 sale by BAE Systems of
its 20% interest in Airbus SAS was made at "arm's length" 1781 by determining the extent to which
the European Union has established that it involved two or more independent, unrelated, parties
acting in their own interest.
6.1038. The European Union recalls that EADS and BAE Systems did not control each other at the
time of the relevant transaction, and for this reason were independent companies that pursued
their own interests. 1782 The United States, however, submits that BAE Systems' sale of its 20%
share interest was not an "arm's length" transaction because "the UK government orchestrated the
transaction to protect its own political interests, at the expense of BAE's bargaining position".
According to the United States, in the absence of the UK Government's alleged interferenc e, BAE
Systems "might have attempted to sell its stake … to a company other than EADS, thus attracting
competitive bids and ultimately earning more money", or BAE Systems would have been able to
sell its interest in Airbus without regard to the concessions EADS made to the UK Government in
relation to: (a) the future location of work packages; (b) the future decision -making process of
EADS; (c) the future establishment of a R&D centre in the United Kingdom; or (d) the appointment
of a UK-government-approved Director to the EADS Board.1783
6.1039. The European Union rejects the United States' assertions, arguing first of all that the
United States is wrong in suggesting that BAE Systems might have sold its stake in Airbus to a
different purchaser because the EADS -BAE Systems Shareholders' Agreement afforded [***].1784
We do not agree with the European Union on this point of fact. In our view, [***], but only that
[***]. Moreover, we note that the specific Article of the Shareholders' Agreement the
European Union relies upo n stipulates that [***] elsewhere in the Shareholders' Agreement.
Thus, [***] was not unqualified. However, because the copy of the Shareholders' Agreement
submitted by the European Union as evidence is heavily redacted, neither we nor the United States
can determine exactly what the cited [***] covered. In this light, we see no reason to reject the
United States' assertion that it was possible for BAE Systems to have "attempted to sell its
stake … to a company other than EADS". Nevertheless, we do not cons ider that this possibility is
alone enough to demonstrate that the transaction was not concluded on an "arm's length" basis.
Rather, in order to be persuaded of this point, we would have to accept that BAE Systems decided
not to attempt to sell to a differ ent purchaser because of the interference of the UK Government –
in other words, that the BAE Systems decision to sell its interest in Airbus SAS to EADS (without
attempting to explore a potentially different purchaser) was conditioned by the UK Government.
6.1040. Similarly, in order to accept that the four undertakings made by EADS to the UK
Government at the time of the share transfer affected BAE Systems' bargaining position, and
therefore the "arm's length" nature of the sale, we would have to be persuaded th at they were a
condition on the completion of the transaction or otherwise influenced the deal that was struck.
The European Union argues that "the agreement through which BAE sold its shares to EADS does
not include any such provisions", noting further th at the United States "has not provided any
references, or citations to that agreement in order to substantiate its assertion".1785 It is unclear to
us exactly what "agreement" the European Union refers to when it makes this submission, as the

1781 See our initial discussion of the "arm's length" standard, above at para. 6.973.
1782 European Union's first written submission, para. 351.
1783 United States' second written submission, para. 263; and response to Panel question No. 8.
1784 European Union's comments on the United States' response to Panel question No. 8 (citing the EADS
– BAE Systems, Shareholder Agreement regarding Airbus SAS, Article 15, (Exhibit EU-411) (BCI)). In fact, the
Shareholders' Agreement extends this right to both EADS and BAE Systems in respect of [***].
1785 European Union's comments on the United States' response to Panel question No. 8.

European Union has itself not supported its statements about the absence of any conditions in the
"agreement" with reference to any particular piece of evidence. We note, however, that the
EADS-BAE Systems Shareholders' Agreement (which we do not understand to be the "agr eement"
cited by the European Union) imposes an obligation on EADS to [***]. In particular, Article 7.7(e)
of the Shareholders' Agreement reads as follows:
[***]1786
6.1041. The United States argues that there was no commercial reason for BAE Systems or EADS
to agree to these terms as they only favour the interests of the UK Government. Thus, by
requesting EADS to enter into negotiations prior to the sale of BAE Systems' interest in Airbus, the
United States maintains that the UK Government sought "[***]".1787 In our view, this account of
the UK Government's motivations finds reflection in the following statement contained in a report
prepared by UK House of Commons Trade and Industry Committee:
The potential political ramifications of the sale of BAE Systems' stake were also of
concern to the DTI {UK Department of Trade and Industry}. Hence, prior to the sale,
the Government actively engaged at ministerial and official level with EADS and Airbus
in order to agree { sic} certain concessions from the parent company. In June 2006,
the DTI announced that EADS had agreed to transfer to the Government the
undertakings given to BAE Systems by EADS in 2000. The details of the undertakings
are confidential, but essentially are designed to ensure that any decisions on the
location of work packages affecting the UK are made on commercial grounds, without
political influence or pressure. EADS also agreed to create a "transparency
mechanism" with regard to decisions about location of work; to establish a UK
research and development centr e; and to appoint a non -executive director to the
EADS board agreed by the UK government. EADS also said it would consider a
secondary listing on the London Stock Exchange, although it has subsequently decided
not to pursue this.1788
6.1042. The European Union submit s that the United States reference to Article 7.7(e) of the
Shareholders' Agreement is misplaced because "for example, it is not clear whether, under the law
governing the Shareholders' Agreement, [***]".1789 We note, however, that the European Union
does not contend that the undertakings made by EADS in the Shareholders' Agreement were not
enforceable by BAE Systems. Thus, even assuming arguendo that the UK Government could not
actually [***] in its own capacity, it is apparent that BAE Systems could have com pelled EADS'
performance. Indeed, it is difficult to see why BAE Systems would have agreed to insert this and
other provisions favouring the UK Government's interests into the Shareholders' Agreement 1790, if
it did not consider that it had a right to compel E ADS to perform its obligations. In this regard, we
recall that the UK Government maintained a shareholding in BAE Systems at the relevant time,
which interest was described by a member of UK House of Commons Trade and Industry
Committee as a "golden share" "of strategic interest to the UK".1791
6.1043. Nevertheless, we agree with the European Union when it suggests that the fact that EADS
undertook certain commitments for the UK Government in conjunction with the sale of BAE

1786 EADS – BAE Systems – Airbus SAS, Shareholders' Agreement, 11 July 2001, (Exhibit EU-70) (BCI),
art. 7.7(e).
1787 United States' response to Panel question No. 8.
1788 UK House of Commons Trade and Industry Committee, "Recent Developments with Airbus", Ninth
Report of Session 2006-07, Volume I: Report and formal minutes, 19 June 2007, (Exhibit USA-562), para. 32
and appendix 7 at p. Ev 55.
1789 European Union's comments on the United States' response to Panel question No. 8.
1790 Article 7.7 of the EADS-BAE Systems Shareholders' Agreement sets out a number of undertakings
made by EADS in respect of [***]. (EADS – BAE Systems – Airbus SAS, Shareholders' Agreement,
11 July 2001, (Exhibit EU-70) (BCI))
1791 UK House of Commons Trade and Industry Committee, "Recent Developments with Airbus", Ninth
Report of Session 2006-07, Volume I: Report and formal minutes, 19 June 2007, (Exhibit USA-562), p. Ev 20.
We rely upon the existence of the UK Government's "golden share" in BAE Systems merely as evidence of the
existence of a formal shareholding relationship between BAE Systems and the UK Government. As there is no
evidence before us on the nature of the rights that the "golden share" afforded the UK Government, we make
no finding about the extent to which it enabled the UK Government to control the general or any specific
operations of BAE Systems.

Systems' interest in Airbus SAS does not a utomatically imply that the sales transaction was not
done at "arm's length". 1792 As already noted, in our view, in order to accept the
United States' contentions, we would have to be convinced that the sale of BAE
Systems' shareholding was conditioned upon t he relevant commitments undertaken by EADS
vis-à-vis the UK Government or otherwise influenced by those commitments. On this particular
point, however, we note that when asked directly by a member of the UK House of Commons
Trade and Industry Committee wha t role was played by the UK Government in the sale of BAE
Systems' interest in Airbus SAS to EADS 1793, the UK Minister of State (Industry and Region),
Margaret Hodge MBE, MP, twice replied that in "the end the Government decided that this was a
commercial iss ue for BAE." 1794 Moreover, in further discussions in the same Committee, it is
suggested that the UK Government may have used its existing orders for the Airbus A400M as
leverage in negotiations with EADS1795, and that at least a part of the commitments obtained from
EADS may have been sought by the UK Government within the context of its negotiations with
EADS and Airbus in relation to the implementation of the Power8 programme.1796
6.1044. Thus, there is no doubt that the UK Government sought to protect its industrial in terests
once it discovered that BAE Systems had decided to sell its 20% shareholding in Airbus SAS.
However, the evidence we have examined is, in our view, insufficient to demonstrate that the UK
Government actually "orchestrated" the sales transaction or influenced its terms in such a way
that compromised the independence of its two parties, EADS and BAE Systems. While EADS
provided the UK Government with four commitments relating to its future operations in the UK
following BAE Systems' divestment, it is not apparent from the evidence the United States has
submitted that those commitments formed part of the deal that was struck in relation to EADS'
acquisition of 100% ownership in Airbus SAS. Accordingly, we find that the European Union has
established tha t BAE Systems' 2006 sale of its 20% interest in Airbus SAS was undertaken at
"arm's length".
b Were the relevant transactions for "fair market value"?
6.1045. The European Union explains that the sales price for BAE Systems' 20% stake in Airbus
SAS was established on the basis of a valuation prepared by an independent investment bank,
Rothschild, jointly chosen by BAE Systems and EADS in accordance with the terms of the EADS -
BAE Systems Shareholders' Agreement. Moreover, the European Union recalls that prior to the
approval of the sale by BAE Systems' shareholders, BAE Systems also appointed PwC to conduct
an audit of Airbus SAS to assess the adequacy of the sales price provided by Rothschild. Thus,
according to the European Union, the EUR 2.75 billion sales price re flected the market value of
BAE Systems' shareholding.1797
6.1046. The United States, on the other hand, argues that "real questions … exist" as to whether
the BAE Systems –EADS share transfer was made for "fair market value". The United States finds
support for this submission in a statement made by the BAE Systems' Chairman to its
shareholders when he explained that "{t}he Price determined by Rothschild was significantly lower
than had been expected by the general market", but the "terms of the Shareholders' Agreeme nt
preclude the Company from discussing with Rothschild the basis of Rothschild's determination of

1792 European Union's comments on the United States' response to Panel question No. 8.
1793 UK House of Commons Trade and Industry Committee, "Recent Developments with Airbus", Ninth
Report of Session 2006-07, Volume I: Report and formal minutes, 19 June 2007, (Exhibit USA-562), pp. Ev
19-20 ("Q114 Mr Hoyle: In the case of BAE did the Government support BAE in allowing it to go ahead with the
sale or did they actually say 'We do not wish to see the sale proceed'?" and "Q115 Mr Hoyle: … so what role did
we play and what influence have we got?'").
1794 UK House of Commons Trade and Industry Committee, "Recent Developments with Airbus", Ninth
Report of Session 2006-07, Volume I: Report and formal minutes, 19 June 2007, (Exhibit USA-562), pp. Ev
19-20.
1795 UK House of Commons Trade and Industry Committee, "Recent Developments with Airbus", Ninth
Report of Session 2006-07, Volume I: Report and formal minutes, 19 June 2007, (Exhibit USA-562), p. Ev 20
(Q116).
1796 UK House of Commons Trade and Industry Committee, "Recent Developments with Airbus", Ninth
Report of Session 2006-07, Volume I: Report and formal minutes, 19 June 2007, (Exhibit USA-562), p. Ev 21
(Q120).
1797 European Union's first written submission, paras. 346 and 351.

the Price".1798 The United States also submits that HSBI contained in the Letter of Engagement
between EADS, BAE Systems and Rothschild, suggests that the sales price did not reflect "fair
market value".1799 Finally, the United States maintains that a second valuation of BAE Systems'
shareholding, which was apparently commissioned by BAE Systems prior to the Rothschild
valuation, "may provide a more accurate valuati on of Airbus near the time that BAE exercised its
put option", and in light of the European Union's failure to provide this valuation when requested,
the United States asks the Panel to draw the inference that it "indicates that the BAE share
transfer was not priced at fair market value".1800
6.1047. As we understand it, one of the first steps in establishing the value of BAE Systems' stake
in Airbus SAS was for EADS and BAE Systems to each appoint an investment bank to perform a
separate valuation with a view to rea ching a negotiated agreement on price. 1801 When EADS and
BAE Systems could not find common ground, they appointed Rothschild to act as an "independent
expert" and determine the final value that would be binding in the event that the sale went ahead.
Rothschild made its determination after receiving information from EADS, Airbus and BAE
Systems1802, through a process (which is HSBI) defined in the Rothschild Letter of Engagement.1803
The EADS-BAE Systems Shareholders' Agreement required that the price be determined f ollowing
a set of specific instructions, including the following:
[***]1804
6.1048. In our view, the fact that the valuation instructions agreed in the Shareholders'
Agreement explicitly required consideration of the [***] of Airbus and the application of a [***]
strongly suggests that the Rothschild valuation of BAE Systems' shareholding was market -based.
Although it is true that the Chairman of BAE Systems at the time informed its shareholders that
Rothschild's determination of price was "significantly lower than ha d been expected by the general
market", we note that only three days after being informed of this price, BAE Systems announced
its intention to audit the Airbus Group (in accordance with Article 10.6 of the Shareholders'
Agreement) "in order to assist the Board in assessing its recommendation with regard to the
Proposed Disposal".1805 The results of this audit, which were conducted by PwC, led the Board of
BAE Systems to conclude that:
Airbus is facing a challenging short to medium term outlook, in particular with respect
to certain of its principal programmes. The Board believes that a significant amount of
management focus, time and investment will be required to address the issues
currently facing Airbus to improve its operation and financial performance and thereby
to increase its value. Inevitably, there are risks involved in such a recovery
programme and, having reviewed the Audit, the Board is concerned about the possible
cash requirements of the Airbus business in the medium term.
The Board therefore bel ieves that it is in the best interests of the Company to exit at
the Price determined by the independent expert. In arriving at this judgement, it
weighed with the Board that if it does not proceed with the Proposed Disposal, it may

1798 United States' second written submission, para. 264 (quoting Dick Olver, BAE Chairman, Letter to
BAE Shareholders, 11 September 2006, (Exhibit USA-331)).
1799 United States' comments on the European Union's response to Panel question No. 16 (quoting a
particular passage on page 2 and discussing other specific parts of the Rothschild Letter of Engagement,
(Exhibit EU-351) (HSBI)).
1800 United States' comments on the European Union's response to Panel question No. 16.
1801 Article 14.6.2, EADS – BAE Systems – Airbus SAS, Shareholders' Agreement, 11 July 2001, (Exhibit
EU-70) (BCI); Douglas Barrie and Robert Wall, "Divorce Proceedings: Investment institutions called in to
resolve dispute of Airbus valuation", Aviation Week & Space Technology, 12 June 2006, (Exhibit USA-416);
Dick Olver, BAE Chairman, Letter to BAE Shareholders, 11 September 2006, (Exhibit USA-331).
1802 Dick Olver, BAE Chairman, Letter to BAE Shareholders, 11 September 2006, (Exhibit USA-331).
1803 Rothschild Letter of Engagement, (Exhibit EU-351) (HSBI).
1804 EADS – BAE Systems – Airbus SAS, Shareholders' Agreement, 11 July 2001, (Exhibit EU-70) (BCI),
arts. 14.6.1 and 14.6.2.
1805 Dick Olver, BAE Chairman, Letter to BAE Shareholders, 11 September 2006, (Exhibit USA-331).

be necessary to retain BAE Systems' interest in Airbus for an extended period to be
confident that it could be sold for materially more than the Price.1806
6.1049. We also note that less than one week after BAE Systems served upon EADS a formal
notice of exercise of its put option, and before Rothschild was engaged to perform its valuation,
Airbus announced delays to its A380 programme and as a result, anticipated shortfalls in earnings
before interest and taxes (EBIT) for the years 2007 to 2010 of approximately EUR 500 million per
annum relative to Airbus' original forecasts. 1807 It was reported that EADS share price fell 26% in
one day as a result of these announcements.1808 Indeed, such was the seriousness of the delays in
the A380 programme, that Airbus' then -co-CEO, Noel Forgeard, and EADS t hen-co-chairman and
the head of Airbus, Gustav Humbert, resigned on 2 July 2006 (the same day that Rothschild
informed EADS and BAE Systems of its valuation).1809
6.1050. Having considered the above arguments and evidence, we find the United States'
objection to the European Union's assertions concerning the "fair market value" of the price at
which BAE Systems transferred its Airbus shareholding to EADS without merit. The main piece of
evidence the United States relies upon to support its position is BAE Systems' opi nion that the
Rothschild price was "significantly lower than market expectations". However, the Board of BAE
Systems ultimately appeared to accept this valuation, not because it was binding if it wanted to
proceed with the sale, but rather because inter al ia it felt that it would have to wait for an
"extended period" to obtain a better deal. Furthermore, we find it difficult to accept that the
valuation was not market -based in the light of the price calculation rules agreed in the
Shareholders' Agreement, w hich presumably, BAE Systems could have argued had not been
followed. Finally, the fact that the final valuation may have been less than initially anticipated by
BAE Systems may be partly explained by the delays in the A380, which had a significant impact on
Airbus' market value and market perceptions of its business. Thus, for all of the above reasons, we
find that the European Union has demonstrated that the 2006 sale by BAE Systems of its 20%
shareholding in Airbus SAS was for "fair market value".
c Did the relevant transactions "result{} in a transfer of control"?
6.1051. Once again, we recall that in this subsection of our Report, we are examining whether the
European Union has made out its claims of "extinction" on the basis of the separate opinion
articulated b y the second Appellate Body member concerning the extent to which "partial
privatizations and private -to-private" share transfers may "extinguish" a subsidy. In our analysis
of the extent to which the 1999 merger of Aérospatiale and MHT resulted in the req uisite "transfer
of control", we expressed some misgivings about the European Union's interpretation of the
second Appellate Body member's views on the concept of "control". In particular, we raised a
number of questions about whether the "qualitative chan ge in control" test laid out by the
European Union was a correct interpretation of the second Appellate Body member's separate
opinion. Nevertheless, we went on to evaluate the alleged "extinction" event by this standard,
concluding that the evidence does not support a finding that the ASM transaction involved the
degree of "transfer of control" necessary to "extinguish" the relevant subsidies. In the previous
subsection we also found that by the measure of the same "qualitative change in control" test, the
"overall EADS transaction" did not result in the requisite "transfer in control" that could
"extinguish" a subsidy. We now proceed to examine the 2006 sale of BAE Systems' 20% interest in
Airbus SAS to EADS on the basis of the same test – namely, whether the "new owner's interest
{is} 'sufficiently substantial' in order to 'allow the new private owner to ensure that the company
is run on market terms'".
6.1052. The European Union argues that EADS' acquisition of BAE Systems' stake in Airbus SAS,
which resulted in EADS obtaining 100% control over Airbus' activities, meant that EADS could

1806 BAE Systems Press Release, "Board of BAE Systems PLC to recommend that shareholders vote in
favour of proposed disposal of its Airbus shareholding", 6 September 2006, (Exhibit EU-66); and Dick Olver,
BAE Chairman, Letter to BAE Shareholders, 11 September 2006, (Exhibit USA-331).
1807 Dick Olver, BAE Chairman, Letter to BAE Shareholders, 11 September 2006, (Exhibit USA-331).
1808 David Gow, "BAE's plan to sell Airbus stake in jeopardy", The Guardian, 3 July 2006, (Exhibit
USA-415). We recall, in this regard, that part of the valuation rules set in the Shareholders' Agreement
required the independent expert to use Airbus' "[***]" as one element in the construction of a price.
1809 David Gow, "BAE's plan to sell Airbus stake in jeopardy", The Guardian, 3 July 2006, (Exhibit
USA-415).

manage this business without any need to consider the rights that BAE Systems had negotiated
under the EADS -BAE Systems Shareholders' Agreement. The European Union maintains that th is
brought about a "qualitative change in control" over Airbus SAS in the sense that EADS' ability to
determine policy and direct the operations of Airbus increased.1810
6.1053. The United States argues that EADS' purchase of the BAE Systems' interest in Airbus
resulted only in one (minority) co -owner of Airbus (BAE Systems) selling shares to another
(majority and controlling) shareholder (EADS). As such, according to the United States, the
transaction did not result in the transfer of ownership or control to a new ow ner. It simply resulted
in the further consolidation of Airbus ownership within EADS.1811
6.1054. As already noted, prior to the 2006 sales transaction, EADS held an 80% ownership
interest in Airbus SAS providing it with "effective management control", and BAE System s a 20%
interest with "specific minority rights", including "veto rights" over certain matters. At the
completion of the 2006 sales transaction, Airbus SAS became a 100% owned and controlled
subsidiary of EADS. To the extent that EADS was left to manage Airbus' activities without any need
to consider the "specific minority rights" of BAE Systems, it is apparent that some "qualitative
change in control" of Airbus did take place. However, we are not convinced that this change was
as significant as the European Union claims, as EADS already held "effective management control"
over Airbus' LCA activities prior to the transaction and, moreover, there is no indication that after
the completion of the transaction, Airbus would be run by EADS in a manner that was dr amatically
different to how it had been operated when BAE Systems was involved. In any case, there is no
doubt that the share sale transaction did not create a "new private owner". The ownership and
control of Airbus SAS that changed hands was not transfer red to a new private entity, but rather
consolidated into the hands of the existing owner, EADS. We cannot see how these features of the
transaction satisfy the elements of the "qualitative change in control" standard posited by the
European Union, which w e recall would require that the "new owner's interest {is} 'sufficiently
substantial' in order to 'allow the new private owner to ensure that the company is run on market
terms'". We find, therefore, that even by the European Union's own standard, the 2006 sale of BAE
Systems' 20% interest in Airbus SAS to EADS did not result in the degree of "transfer in control"
needed to "extinguish" a subsidy.
d Conclusion with respect to the 2006 sale of BAE Systems' 20% interest in Airbus
SAS
6.1055. Thus, when considered in the light of each of the three separate opinions issued by the
Members of the Appellate Body Division serving in the original appeal on the question whether
"partial privatizations and private -to-private sales" transactions can "extinguish" prior subsidies ,
we find that the 2006 sale of BAE Systems' 20% interest in Airbus SAS to EADS did not
"extinguish" the relevant subsidies.
Subsequent aircraft based on the design and technology of the A300 and the A310
Arguments of the United States
6.1056. The United States ar gues that even if the commercial life of a specific aircraft model
ends, the life of a subsidy that contributed to its existence may extend to subsequent models that
are based on the original. Thus, the United States argues that the end of the commercial l ives of
the A300 and A310 programmes in 2007 did not bring about the end of the lives of the respective
LA/MSF subsidies, because Airbus originally envisioned two subsequent aircraft, the A330 and
A340, as derivatives of the A300, and based the fuselages o f both aircraft on those of the A300
and A310.1812 According to the United States, these facts depict "intervening events" that show
how the subsidies provided for the A300 and A310 "materialized over time", and therefore, in

1810 European Union's first written submission, paras. 347-350 and 352-353; and second written
submission, para. 262.
1811 United States' second written submission, para. 260.
1812 United States' second written submission, para. 182 (citing Guy Norris and Mark Wagner, Airbus
A340 and A330, 1st edn (MBI, 2001), (Exhibit USA-320)).

keeping with the Appellate Body's guidance, demonstrate that the "lives" of the A300 and A310
LA/MSF subsidies continue with the A330 and A340.1813
Arguments of the European Union
6.1057. The European Union submits that there are at least three reasons why the Panel should
dismiss the United States' argument concerning the alleged continuation of the "lives" of the A300
and A310 LA/MSF subsidies after the termination of the respective aircraft programmes. First, the
European Union notes that the United States has failed to overcome the jurisdictional limitations
which the European Union contends exist when a complainant alleges that the life of a subsidy has
been extended because of an "intervening event". 1814 Second, the European Union maintains that
the United States' position is inconsistent with the Appellate Body's conclusion that "as a matter of
logic, … LA/MSF for the A300 and A310 are likely to cause minimal, if any, adverse effects during
the 2001 -2006 reference period". 1815 And, third, the European Union argues that the
United States' allegations are inconsistent with the terms of the LA/MSF agreements, which in the
case of the A300 and A310, did not require revenues from sales of the A330/A340 to be used for
the purpose of making repayments under the respective LA/MSF agreements.1816
Evaluation by the Panel
6.1058. We understand the United States to argue that the launch of the A330/A340 amounted to
an "intervening event" that extended the ex ante lives of the LA/MSF subsidies provided for the
A300 and A310, because of the fact that the A330 and A340 were orig inally conceived as
derivatives of the A300, with a fuselage based on those of the A300 and A310. In our view, the
United States' position conflates the life of the A300 and A310 LA/MSF subsidies with their indirect
effects.
6.1059. We have found above that it would be not unreasonable to equate the ex ante lives of the
A300 and A310 LA/MSF subsidies to the expected "Marketing Lives" of the two specific LCA that
were directly financed by those measures or to the expected "Loan Lives" of the relevant LA/MSF
agreements. On either bases, the ex ante lives of the A300 and A310 LA/MSF subsidies were
projected to come to an end somewhere between 1987 and 2004. While it is true that Airbus
launched the A330/A340 at the beginning of this period in 1987, this does not mean that these
later models of Airbus LCA extended the "lives" of the A300 and A310 LA/MSF subsidies beyond
what was expected at the time the A300 and A310 LA/MSF agreements were concluded. There is
simply no evidence before us to suggest that the "projected v alue" of the A300 and A310 LA/MSF
subsidies was affected by the launch of the A330/A340. In contrast, there is considerable evidence
and adopted panel and Appellate Body findings confirming that the indirect effects of the
A300/A310 LA/MSF subsidies did in fact contribute to Airbus' ability to launch and bring to market
the A330/A340 as and when it did. 1817 Thus, for example, the panel found in the original
proceeding that the "learning", scope and financial effects of "LA/MSF provided for the previous
LCA models, the A300, A310 and A320, played a significant role in placing Airbus in a position to
be able to launch the A330/A340 project in 1987." 1818 Therefore, by arguing that the design
commonalities of the A300/A310 and A330/A340 as originally launched evidence an "intervening
event" that extended the "lives" of the A300/A310 LA/MSF subsidies, the United States conflates
the "lives" of those subsidies with their "indirect effects". Accordingly, we are not persuaded by the
United States' contentions concerning the "lives" of the A300/A310 LA/MSF subsidies.

1813 United States' second written submission, para. 182.
1814 European Union's comments on the United States' response to Panel question No. 150, para. 185.
1815 European Union's second written submission, para. 169.
1816 European Union's second written submission, para. 170.
1817 A more detailed explanation and discussion of the direct and indirect effects of LA/MSF is set out
below at paras. 6.1492-6.1514.
1818 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1939 and fn 5654.

Termination of the A340 programme
Arguments of the United States
6.1060. The United States argues that the end of the A340 -500/600 programme in 2011 was an
"intervening event" that turned the subsidy that would have bee n provided through the
below-market repayments outstanding at the time of the programme's termination into a subsidy
paid in the form of a grant to Airbus equivalent to the amount of outstanding debt on the relevant
LA/MSF loans. To the extent that this gr ant did not confer any advantage on the "defunct"
A340-500/600, the United States argues that it should be considered to be a generalized subsidy
to Airbus, whose life would reflect the life of productive assets or the average life of a generic
aircraft programme, ending in approximately 2028.1819
Arguments of the European Union
6.1061. The European Union maintains that the United States errs when it argues that the
premature termination of the A340 -500/600 programme converted the benefit provided through
this LA/MSF measure, from the below-market interest rates charged on the repayment of principal
used to develop the A340 -500/600, into a grant equal to the outstanding debt for the purpose of
benefitting all Airbus LCA in general. According to the European Union, Airbus had no outstanding
debt for the relevant members State governments to forgive when the A340 -500/600 programme
was terminated because like all other LA/MSF agreements, repayment obligations under the
A340-500/600 LA/MSF measures were success -dependent, meaning that Airbus incurred debts
only upon the sale of LCA. The European Union highlights that it is this characteristic of LA/MSF
that gives it its risk -sharing qualities, recalling further that it was this very quality of LA/MSF that
was captured in the project-specific risk premium used in the original proceeding to determine the
existence of benefit. In this light, the European Union submits that to argue that a generalized
subsidy was provided to Airbus following the termination of the A340 -500/600 programme is like
arguing that the same LA/MSF contract conferred a "second subsidy".1820
Evaluation by the Panel
6.1062. The United States characterizes the termination of the A340 programme as an
"intervening event" that extended the ex ante lives of the LA/MSF subs idies provided for the
A340-500/600, by essentially turning the outstanding debt owed under the relevant LA/MSF
agreements into a cash grant that Airbus used for the purpose of its other LCA models. In our
view, the termination of the A340 programme in or around November 2011 is not an event that
can be said to have altered the expectations held at the time of the grant of the relevant LA/MSF
subsidies about how the "projected value" of those subsidies would "materialize over time". It
cannot, therefore, amount to an "intervening event".
6.1063. First, we note that the termination of the A340 programme only one year ahead of the
expected duration of its marketing life did not prevent Airbus from using the relevant LA/MSF
subsidies, precisely as originally envisaged , to develop and bring to market the A340 -500/600
derivatives. Second, as suggested by the European Union, the fact that the repayment terms of
the relevant LA/MSF agreements were unsecured and success -dependent reveals that the possible
termination of the A340 programme before the full repayment could be achieved was an inherent
feature of the LA/MSF agreements themselves. As we see it, this implies that the French and
Spanish governments (and Airbus) must have included in their anticipated scenarios for t he use of
the LA/MSF subsidies, the possibility that the A340 programme may not have been as successful
as planned. Indeed, it is precisely because the full repayment of the LA/MSF agreements could not
be guaranteed and was dependent upon the fortunes of t he A340 -500/600 that both the
European Union and the United States agreed that it was appropriate (and required) for the
relevant European Union member States to charge a product -specific risk premium on their loans.
It follows, therefore, that the possibi lity of the termination of the A340 programme before full
repayment of the LA/MSF loans was not an unexpected event, and must have been contemplated

1819 United States' second written submission, paras. 180-182, and 183; and response to Panel question
No. 150, para. 72.
1820 European Union's second written submission, paras. 173-181.

and used to inform the expectations about how the "projected value" of the relevant LA/MSF
subsidies would "materialize over time" when they were granted.
6.1064. Thus, we do not agree with the United States when it argues that the termination of the
A340 programme in or around November 2011 was an "intervening event" that extended the ex
ante lives of the French and Spanish government LA/MSF subsidies provided for the A340 -
500/600.
Conclusion with respect to the alleged "intervening events"
6.1065. Thus, in summary, our conclusions with respect to the parties' submissions concerning
the existence of the four kinds of "intervening events" analysed above are as follows:
i. the European Union is precluded from advancing, for a second time, the same
arguments about the alleged "extraction" of subsidies that were considered and
rejected by both the panel and the Appellate Body in the original proceeding and,
therefore, the subject of the rulings and recommendations adopted by the DSB;
ii. the European Union has not established that the alleged partial privatization of
Aérospatiale in 1999, the transactions leading to the creation of EADS i n 2000, and
BAE Systems' 2006 sale of its 20% ownership interest in Airbus SAS to EADS,
"extinguished" the benefit of all of the subsidies at issue that were granted prior to
these transactions;
iii. the fact that the fuselages of the original A330 and A340 wer e based on the
A300/A310 does not render the 1987 launch of the A330/A340 an "intervening
event" that extended the "lives" of the A300/A310 LA/MSF subsidies; and
iv. the termination of the A340 programme in November 2011 does not constitute an
"intervening eve nt" that extended the ex ante "lives" of the French and Spanish
government LA/MSF subsidies provided for the A340-500/600.
6.6.3.4.2.6 Repayment of "financial contributions"
Arguments of the European Union
6.1066. The European Union makes one final argument to support its sub mission that the "lives"
of a number of the relevant LA/MSF subsidies came to an end before the end of the
implementation period. In particular, the European Union maintains that where the principal of a
subsidized loan, plus any interest due under the terms of that loan, are repaid by the recipient, the
financial contribution that was initially granted is returned to the government, and the subsidy
ends. According to the European Union, the Appellate Body made an express finding to this effect
in the original proceeding when it stated that "the removal of the financial contribution" results in
the "life" of a subsidy coming "to an end".1821 On this basis, the European Union argues that to the
extent that Airbus has repaid the entirety of the principal and inte rest owed to the European Union
member State governments under the subsidized terms of certain LA/MSF agreements, the
financial contributions provided thereunder must have been removed, implying that the subsidy
must have come to an end.1822 The European Union submits that this conclusion should be reached
with respect to the following LA/MSF measures: French LA/MSF for the A300B/B2/B4, A300 -600,
A310-300, A320, A330/A340 and A330 -200; Spanish LA/MSF for the A300B/B2/B4, A300 -600,
A320 and A330/A340; and UK LA/MSF for the A320 and A330/A340.1823

1821 European Union's first written submission, para. 162 (citing Appellate Body Report, EC and member
States – Large Civil Aircraft, para. 709); and second written submission, para. 107 (same).
1822 European Union's first written submission, para. 163; and second written submission, paras. 104-
110.
1823 European Union's first written submission, paras. 168-181.

Arguments of the United States
6.1067. The United States maintains that the European Union is wrong when it argues that full
repayment of the principal loaned to Airbus plus interest on the basis of the subsidized terms of
the LA/ MSF agreements removes the "financial contributions" provided to Airbus in a way that
results in the expiration of the LA/MSF subsidies. On the contrary, the United States submits that
the full repayment of LA/MSF on terms found to confer a benefit conveys the full amount of the
subsidy upon its recipient, and therefore cannot bring about the end of the life of those subsidies.
For the United States, in order to achieve the expiry of a subsidy, any such repayment would have
to take account of both the finan cial contribution and the subsidy element, namely, the
below-market terms of the subsidy.1824
6.1068. The United States submits that, contrary to the position taken by the European Union,
the Appellate Body did not find in the original proceeding that the "removal of the financial
contribution" results in the expiry of a subsidy. According to the United States, the
Appellate Body's statement that the life of a subsidy may come to an end "either through the
removal of the financial contribution and/or the expiration of the benefit" does not support the
European Union's position. In the United States' view, the Appellate Body's statement was simply
"an analytical starting point" reflecting "a position on which the parties agreed", but which the
Appellate Body did not end orse. Indeed, the United States asserts that the Appellate Body found
that once a subsidy exists, there is no need to inquire as to whether the financial contribution also
exists, recalling the Appellate Body's observation that "the fact that a subsidy is 'deemed to
exist' … once there is a financial contribution that confers a benefit does not mean that a subsidy
does not continue to exist after the act of granting the financial contribution".1825
Evaluation by the Panel
6.1069. The European Union submits that the li ves of a number of the challenged LA/MSF
subsidies came to an end when Airbus made its final repayment of principal plus interest to the
relevant governments pursuant to the terms of the relevant LA/MSF agreements. Accordingly, the
European Union argues th at the lives of the following LA/MSF subsidies came to an end between
1994 and 2011:
Table 13: Expected vs actual repayment of LA/MSF
LA/MSF
Agreement
Start Year of
LA/MSF
Expected
Repayment1826
(Loan Life)
Actual
Repayment
France
A300B 1971 [***] 1994
A300B2/B4 1974 [***] 1994
A300-600 1981 [***] 1996
A310-300 1984 [***] 1995
A320 1987 [***] 1999
A330/A340 1986 [***] 20111827
A330-200 1996 [***] 20111828

1824 United States' second written submission, paras. 150-156; and opening statement (public),
para. 12.
1825 United States' second written submission, para. 152 (citing Appellate Body Report, EC and certain
member States – Large Civil Aircraft, para. 709).
1826 Including, where relevant, royalties determined in accordance with the terms of the specific LA/MSF
agreement and/or the contemporaneous forecast delivery schedule.
1827 Airbus and the French State agreed to a financial settlement of the "outstanding payment
obligations" under the relevant LA/MSF agreement, which was verified through a "fairness opinion" issued by
PwC, and executed on 3 November 2011. Under the terms of this settlement, "Airbus agreed to pay the French
State the present value of the remaining payment obligations, including outstanding principal and interest"
[***]. According to the European Union, the settlement "achieved full repayment" of French LA/MSF for the
A330/A340. (European Union's first written submission, paras. 176-177)
1828 Airbus and the French State agreed to a financial settlement of the "outstanding [***]" under the
relevant LA/MSF agreement, which was verified through a "fairness opinion" issued by PwC, and executed on 3
November 2011. According to the European Union, full repayment of principal plus interest had already been

LA/MSF
Agreement
Start Year of
LA/MSF
Expected
Repayment1826
(Loan Life)
Actual
Repayment
Spain
A300B/B2/B4 1974 [***] 1994
A300-600 1982 [***] 1995
A320 1984 [***] 1999
A330/A340 1988 [***] [***]1829
UK
A320 1985 [***] 19991830
A330/A340 1988 [***] 20101831

6.1070. The European Union finds support for its submission that the repayment of the LA/MSF
agreements has brought the subsidy to an end in the following statement made by the
Appellate Body in the original proceeding:
We understand the participants to agree with the basic proposition that a subsidy has
a life, which may come to an end, either through the removal of the financial
contribution and/or the expiration of benefit.1832 (emphasis added)
6.1071. For the European Union, the full repayment of the LA/MSF agreements implies that the
financial contributions provided to Airbus have been "returned" 1833 and, therefore, consistent with
the Appellate Body's statement, no subsidies conti nue to exist. In our view, the European Union
has misunderstood the totality of the Appellate Body's guidance on this point.
6.1072. First, we note that the Appellate Body statement relied upon by the European Union
refers to the "removal" of a financial contribu tion. However, it is less than clear to us that the
repayment of a loan on its subsidized terms amounts to the same thing. Rather, it could be argued
that the full repayment of a subsidized loan implies that a subsidized financial contribution has
been provided to the recipient in its entirety, not removed or "returned", as the European Union
argues.
6.1073. Second, while it is true that the repayment of a loan on its subsidized terms would bring
about the end of the financial contribution, in the sense that there would be no longer any financial
contribution in existence, the Appellate Body explicitly recognized in the original proceeding that
this, alone, will not necessarily mean that the relevant subsidy has ceased to exist. Specifically, in
the paragraph immed iately preceding the statement the European Union relies upon, the
Appellate Body explained that:
{T}he fact that a subsidy is "deemed to exist" under Article 1.1 once there is a
financial contribution that confers a benefit does not mean that a subsidy d oes not
continue to exist after the act of granting the financial contribution .1834 (emphasis
added)
6.1074. Finally, we note that even accepting that the lives of the relevant LA/MSF subsidies came
to an end in accordance with the European Union's assertions, the im plication for understanding
the extent to which the relevant subsidies existed at the end of the implementation period would
be not unlike the findings we have already made in relation to the European Union's submissions
concerning their ex ante lives – namely, that the lives of the French and Spanish government
LA/MSF subsidies for the A300B/B2/B4, A300 -600, A310, A320, A330/A340; and the UK
government LA/MSF subsidies for the A320 and A330/A340, came to an end before 1 June 2011.
On this basis, we believe it is unnecessary to make any definitive findings in relation to the merits
of the European Union's submissions concerning the extent to which the actual repayment of the

achieved in [***], with the delivery of the [***] aircraft. (European Union's first written submission,
paras. 180-181)
1829 Nominal amount of principal only.
1830 Target rate of [***] return achieved, but royalties ongoing.
1831 Target rate of [***] return achieved, but royalties ongoing.
1832 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 709.
1833 European Union's first written submission, para. 163.
1834 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 708.

relevant LA/MSF measures on subsidized terms has brought about the end of the "lives " of the
challenged subsidies.
6.6.3.4.2.7 Overall conclusion with respect to the "expiry", "extraction" and
"extinction" of subsidies
6.1075. In this subsection of our Report, we have examined the European Union's assertions
concerning the "lives" of the challenged subsidie s as the first part of our analysis of the merits of
the parties' arguments concerning the extent to which the European Union and certain member
States have complied with the obligation to "withdraw the subsidy" for the purpose of Article 7.8 of
the SCM Agreement.
6.1076. We have found that the European Union has established that the ex ante "lives" of the
French, German and Spanish government LA/MSF subsidies for the A300B/B2/B4, A300 -600,
A310, A320, A330/A340, and the UK government LA/MSF subsidies for the A320 and A330/A340,
all came to an end before the end of the implementation period. We have also concluded that the
European Union has demonstrated that the ex ante "lives" of the French and German government
capital contribution subsidies came to an end before the end of the implementation period. We are
satisfied that the European Union has shown that the ex ante "lives" of these subsidies have
"expired" not because they were somehow brought to a premature end by, for example, having
been repaid or because of the alignment of their terms with a market benchmark. Rather, we have
determined that the "lives" of these subsidies have come to an end because the total period of
time over which their "projected value" was expected to "materialize" has passively transpired in
the absence of any "intervening event". In other words, we have found that the ex ante "lives" of
the relevant subsidies have "expired" simply because they have been fully provided to Airbus as
originally planned and expected. With respect to all ot her subsidies at issue in this dispute, the
European Union has failed to demonstrate that they "expired", or were "extinguished" or
"extracted", before the end of the implementation period.
6.1077. We now turn to examine whether the fact that the ex ante "lives" o f: (a) the French,
German and Spanish LA/MSF subsidies for the A300B/B2/B4, A300 -600, A310, A320, A330/A340;
(b) the UK LA/MSF subsidies for the A320 and A330/A340; and (c) the French and German capital
contribution subsidies, all came to an end before the end of the implementation period means that
the European Union and certain member States have "withdrawn" those subsidies for the purpose
of Article 7.8 of the SCM Agreement.
6.6.3.4.3 Implications of the "expiry" of certain subsidies for determining whether they
have been "withdrawn" for the purpose of Article 7.8 of the SCM Agreement
6.1078. We recall that elsewhere in this Report, we considered and rejected the European Union's
submission that it did not have a compliance obligation in this dispute with respect to any s ubsidy
found to have caused adverse effects in the original proceeding that ceased to exist prior to the
DSB's adoption of the panel and Appellate Body rulings and recommendations on 1 June 2011. In
doing so, we found that in the light of the provisions of the DSU governing when and how a
compliance obligation may be incurred and discharged under the covered agreements, and
consistent with WTO case law, including the reasoning used by the panel and Appellate Body to
support their findings in respect of the scope of the United States' compliance obligations in US –
Upland Cotton (Article 21.5 – Brazil), one of the fundamental objectives of Article 7.8 of the
SCM Agreement is to bring an implementing Member into conformity with its obligations under
Article 5 of the SCM Agreement. In our view, the logical implication of these findings is that it
cannot be concluded on the sole basis of the "expiry" of the relevant LA/MSF and capital
contribution subsidies that the European Union and certain member States have ipso facto
complied with the obligation to "withdraw the subsidy" with respect to those measures. Rather, in
the light of the effects -based nature of the subsidy disciplines of Article 5, the extent to which
these passive "expiry" events may be found to amo unt to the "withdrawal" of subsidies for the
purpose of Article 7.8 will depend upon the extent to which they bring the European Union and
certain member States into conformity with Article 5 of the SCM Agreement.
6.1079. According to the European Union, however, an interpretation of Article 7.8 of the
SCM Agreement that fails to acknowledge that the "expiry", "extinction" and/or "extraction" events
it relies upon in this proceeding will always amount to the "withdrawal" of subsidies for the
purpose of Article 7.8 , would not only be inconsistent with how similar language has been

interpreted and applied in the context of Article 4.7 of the SCM Agreement and Article 3.7 of the
DSU, but it would also be at odds with the Appellate Body's recognition that the expiry of a subsidy
may, in circumstances that are not "usual" or "normal", such as the present, be sufficient to bring
an implementing Member into compliance with Article 7.8. Indeed, for the European Union, such
an interpretation of Article 7.8 would be tantamount to reading an implementing Member's right to
"withdraw the subsidy" out of Article 7.8 of the SCM Agreement because it would make the
availability of this compliance option subject to the "removal of adverse effects", thereby rendering
the specific treaty language inutile. We are not convinced by the European Union's submissions on
all three of these points.
6.6.3.4.3.1 Article 4.7 of the SCM Agreement and Article 3.7 of the DSU
6.1080. Both parties draw support for their respective views about what it means to "withdraw
the subsidy" for the purpose of Article 7.8 of the SCM Agreement from how the obligation to
"withdraw the subsidy without delay" in Article 4.7 of the SCM Agreement has been interpreted
and applied in previous disputes. Article 4.7 of the SCM Agreement describes the remedy available
to a complaining Member in a dispute involving prohibited subsidies under Part II of the
SCM Agreement. This provision prescribes that where a measure is found to be a prohibited
subsidy, a panel shall recommend that the subsidizi ng Member "withdraw the subsidy without
delay". Panels and the Appellate Body have had occasion to consider the meaning of this obligation
in a number of proceedings, including in the Brazil – Aircraft (Article 21.5 – Canada) and Canada –
Aircraft (Article 21.5 – Brazil) disputes.
6.1081. In Brazil – Aircraft (Article 21.5 – Canada), the panel was asked to determine whether
the continued provision of regional aircraft subsidies by Brazil under a subsidy programme
(PROEX) that had been found to be inconsistent with Articles 3.1(a) and 3.2 of the SCM Agreement
during the original proceeding meant that Brazil had not complied with its obligation to "withdraw
the subsidy without delay" under the terms of Article 4.7 of the SCM Agreement. The panel
concluded that Brazil' s continued provision of a prohibited subsidy after the end of the
implementation period was indeed inconsistent with Brazil's compliance obligations. Without
venturing to define what it means to "withdraw the subsidy", the panel explained its reasons for
arriving at this conclusion by opining that:
{A} Member cannot be deemed to have withdrawn prohibited subsidies if it has not
ceased to act in a manner inconsistent with the WTO Agreement in respect of those
subsidies. We are therefore of the view that the DSB's recommendation that Brazil
withdraw the prohibited subsidies in question clearly includes an obligation on the part
of Brazil to cease violating the SCM Agreement by the end of the implementation
period in respect of the measures in question.1835 (emphasis added)
6.1082. The same question addressed by the panel was put to the Appellate Body on appeal.
After observing that the ordinary meaning of the word "withdraw" has been defined as "remove" or
"take away" and "to take away what has been enjoyed; to take from "1836, the Appellate Body
noted that Brazil continued to provide the WTO -inconsistent PROEX subsidies after the end of the
implementation period, and concluded that "to continue to make payments under an export
subsidy measure found to be prohibited is not co nsistent with the obligation to 'withdraw'
prohibited export subsidies, in the sense of 'removing' or 'taking away'".1837
6.1083. In Canada – Aircraft (Article 21.5 – Brazil), Brazil argued that Canada had failed to
comply with its obligation under Article 4.7 to "w ithdraw the subsidy without delay" by continuing
to provide regional aircraft subsidies under a subsidy programme (the Technology Partnerships
Canada programme or TPC) that had been the object of prohibited subsidy findings during the
original proceeding. Like the panel in Brazil – Aircraft (Article 21.5 – Canada), the panel in Canada
– Aircraft (Article 21.5 – Brazil) did not attempt to interpret the term "withdraw the subsidy".
Instead, it simply noted that it was:

1835 Panel Report, Brazil – Aircraft (Article 21.5 – Canada), para. 6.8.
1836 Appellate Body Report, Brazil – Aircraft (Article 21.5 – Canada), para. 45 (citing Concise Oxford
English Dictionary (Clarendon Press, 1995), p. 1609; and Black's Law Dictionary (West Publishing, 1990),
p. 1602).
1837 Appellate Body Report, Brazil – Aircraft (Article 21.5 – Canada), para. 45.

{S}ufficient to conclude … that a Member cannot be understood to have withdrawn a
prohibited subsidy if it has not ceased to provide such a subsidy, as that Member
therefore would not have ceased to violate its WTO obligations in respect of such a
subsidy. In our view, therefore, Canada's obliga tion arising from the DSB's
recommendation in this dispute includes the obligation to cease providing prohibited
export subsidies to the regional aircraft sector under the TPC. 1838 (emphasis original;
underline added)
6.1084. The panel then went on to examine whethe r the facts demonstrated that the TPC
subsidies provided after the end of the implementation period were prohibited export subsidies,
finding that this was not the case and, therefore that Canada had come into compliance with its
obligations. Significantly, in our view, the panel's finding of compliance was based on the fact that
the Canadian government had modified the terms and objectives of the TPC in a way that
eliminated the export performance conditionality from the granting of those subsidies. In oth er
words, Canada was found to have complied with its obligation under Article 4.7 to "withdraw the
subsidy without delay" despite continuing to subsidize the regional aircraft sector.
6.1085. As we read them, the above panel and Appellate Body findings in the Brazil – Aircraft
(Article 21.5 – Canada) and Canada – Aircraft (Article 21.5 – Brazil) disputes stand for the
following two important propositions. First, compliance with the obligation in Article 4.7 to
"withdraw the subsidy without delay" will be achieved when an implementing Member has ceased
to violate the prohibited subsidy disciplines of Articles 3.1 and 3.2 of the SCM Agreement.1839 In
our view, this notion of what it means to comply with the obligation to "withdraw the subsidy" for
the purpose of Article 4.7 is consistent with our conclusion that the requirement in Article 7.8 to
"take appropriate steps to remove the adverse effects" or "withdraw the subsidy" will be satisfied
when an implementing Member no longer causes adverse effects through the use of subsidies,
within the meaning of Article 5 of the SCM Agreement.
6.1086. The second proposition that we believe is supported by the above cases is that a Member
may "withdraw" a subsidy, for the purpose of Article 4.7, by not only "removing" or "taking away"
a subsidy in the sense of bringing the "life" of a subsidy to an end, but also by modifying the terms
of an otherwise prohibited export subsidy in a way that eliminates the export performance
condition that is the source of the infringement of Articles 3.1(a) and 3.2 of the SCM Agreement.
The European Union argues that the obligation to "withdraw the subsidy" in both Articles 4.7 and
7.8 of the SCM Agreement must be given the same meaning and that, therefore, the former
possibility for achieving compliance with Article 4.7 must also be available to an implementing
Member faced with a compliance obligation under Article 7.8. 1840 In our view, however, the fact
that the "removal" or "taking away" of a subsidy, in the sense of bringing the "life" of a subsidy to
an end, may suffice to bring an implementing Member into compliance with Article 4.7 does not
undermine our interpretation of what is needed to "withdraw the subsidy" for the purpose of
Article 7.8. This is because the availability of this particular compliance option under Article 4.7
results from the fact that the prohibition in Articles 3.1(a) and 3.2 is based on the mere existence
of a particular type of subsidy, irrespective of its trade effects . Specifically, Article 3.2 prescribes
that a Member "shall neit her grant nor maintain subsidies" referred to in Article 3.1. In contrast,
the subsidy disciplines set out in Article 5 of the SCM Agreement are expressed in terms that are
very different, specifying that "{n}o Member should cause, through the use of any
subsidy, … adverse effects to the interests of other Members". As explained elsewhere in this
Report, this language has been interpreted to regulate a Member's use of subsidies on the basis of
their trade effects, not their continued existence . Thus, in the light of the purpose of Article 7.8
and the effects -based disciplines of Article 5, it is only logical, in our view, to find that the
"removal" or "taking away" of a subsidy, in the sense of bringing the "life" of a subsidy to an end,
may not always ipso facto suffice to bring an implementing Member into compliance with its
obligation to "withdraw the subsidy" for the purpose of Article 7.8 of the SCM Agreement.
6.1087. We find additional support for our interpretation of Article 7.8 in the language of
Article 3.7 of the DSU, which reads in relevant part as follows:

1838 Panel Report, Canada – Aircraft (Article 21.5 – Brazil), para. 5.10.
1839 We find additional support for this proposition in Appellate Body Report, US – FSC (Article 21.5 –
EC II), para. 84.
1840 See e.g. European Union's response to Panel question No. 5.

In the absence of a mutually agreed solution, the first objective of the dispute
settlement mechanism is usually to secure the withdrawal of the measures concerned
if these are found to be inconsistent with the provisions of any of the covered
agreements. The provision of compensation should be resorted to only if the
immediate withdrawal of the measure is impracticable and as a temporary measure
pending the withdrawal of the measure which is inconsiste nt with a covered
agreement. (emphasis added)
6.1088. When the above language is considered in the light of the terms of Articles 19 and 21 of
the DSU, as well as other provisions of the DSU 1841, it is in our view evident that the "withdrawal"
of measures contemplate d in Article 3.7 is intended to bring an otherwise WTO -inconsistent
measure into conformity with the covered agreements, in the same way that the more specific
obligation to "withdraw the subsidy" in Articles 4.7 and 7.8 of the SCM Agreement is intended to
bring an implementing Member into conformity with, respectively, Articles 3.1, 3.2 and 5 of the
SCM Agreement. In this regard, we understand Article 3.7 of the DSU to be a more general
expression of the compliance objective that is articulated in Articles 4.7 and 7.8 for the purpose of
Parts II and III of the SCM Agreement. It follows, therefore, that as is the case with the obligation
to "withdraw the subsidy" under Articles 4.7 and 7.8, the "withdrawal" of measures that is referred
to in Article 3.7 of t he DSU should be understood in the light of the nature of the particular
obligation(s) with respect to which an implementing Member must achieve conformity in any given
dispute. Where pursuant to any such obligation a continued infringement of a covered ag reement
can only be established on the basis of the existence of a particular type of measure, the mere
"removal" or "taking away" of that measure, in the sense of its termination, will be sufficient to
conclude that the measure has been "withdrawn", there by bringing the relevant Member into
conformity with the covered agreements. On the other hand, where the relevant obligation
imposes a prohibition or discipline that is based on the existence of certain trade effects , as
opposed to the existence of a meas ure, the mere "removal" or "taking away" of the relevant
measure, in the sense of its termination, may not bring an end to the undesired trade effects. In
this latter situation, the mere "removal" or "taking away" of a measure would be insufficient to
establish that the "withdrawal" of measures envisaged in Article 3.7 has been achieved.
6.1089. It follows from the above analysis that rather than supporting the European Union's
submissions on the interpretation of the obligation to "withdraw the subsidy" in Article 7.8, the fact
that the notions of compliance advanced through Article 4.7 of the SCM Agreement and Article 3.7
of the DSU are focused on achieving conformity with the covered agreements, suggests that the
interpretation of the obligation in Article 7.8 t o "withdraw the subsidy" that we have canvassed
above fits squarely within the same logic. Thus, the reason why the "removal" or "taking away" of
a subsidy, in the sense of bringing the "life" of a subsidy to an end, may have a different impact on
the exte nt to which an implementing Member has complied with Article 4.7 compared with
Article 7.8 is not because of any fundamental difference in the intellectual framework used to
interpret the respective obligations to "withdraw the subsidy". Rather, the differ ence is due to the
diverse nature of the obligations that give rise to the respective compliance obligation – the former
being based on the mere existence of a prohibited subsidy, whereas the latter being focused on
the trade effects of a subsidy, irrespective of its continued existence.
6.6.3.4.3.2 The Appellate Body's statements in US – Upland Cotton (Article 21.5 –
Brazil)
6.1090. In examining the United States' appeal against the panel's finding concerning the
measures falling within the scope of its compliance obligation in US – Upland Cotton (Article 21.5 –
Brazil), the Appellate Body reviewed the operation of Article 7.8 of the SCM Agreement, explaining
inter alia that:
Pursuant to Article 7.8, the implementing Member has two options to come into
compliance. The implementing Member: (i) shall take appropriate steps to remove the
adverse effects; or (ii) shall withdraw the subsidy. The use of the terms "shall take"
and "shall withdraw" indicate that compliance with Article 7.8 of the SCM Agreement
will usually involve so me action by the respondent Member. This affirmative action
would be directed at effecting the withdrawal of the subsidy or the removal of its

1841 See above discussion, at paras. 6.804-6.813.

adverse effects. A Member would normally 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.1842 (emphasis added; footnote omitted)
6.1091. As we understand it, the thrust of the guidance provided by the Appellate Body in this
passage is relatively clear: an implemen ting Member will not "usually" be able to come into
compliance with the obligation in Article 7.8 to "withdraw the subsidy" without taking some form of
affirmative action. Thus, an implementing Member may not "normally" be found to have
"withdrawn" a subsi dy, for the purpose of Article 7.8, by simply letting the life of that subsidy
expire over time. Logically, therefore, it will only be in circumstances that are not "usual" or
"normal" that the "withdrawal" of a subsidy may be achieved by leaving a subsidy to expire
passively over the ordinary course of its expected life.
6.1092. According to the European Union, the Appellate Body's statements must be understood
within the specific temporal context of the lives of the subsidies at issue in a particular dispute. In
this respect, the European Union recalls that a number of the LA/MSF subsidies at issue in this
proceeding were provided over 43 years ago, which for the European Union means that it "is fair
to say" that the temporal circumstances of the current proceedi ng are not "normal" or "usual"
compared with previous disputes. Moreover, the European Union asserts that it has demonstrated
how the challenged subsidies have "accrued and diminished" over time, and the extent to which
they have expired in accordance with their expected lives before the end of the implementation
period. In this light, the European Union maintains that "it is perhaps not surprising, and certainly
not precluded" that the "expiry" events it relies upon "would have an impact on the way in whic h
the EU compliance is assessed against the requirements of Article 7.8". Thus, the European Union
submits that the United States errs when it argues that the European Union "may not rely on the
passage of time to establish withdrawal of a subsidy (because the benefit has expired, or the life of
the subsidy has otherwise come to an end)."1843
6.1093. Contrary to what appears to be the European Union's position, we do not understand the
above Appellate Body statements to support the proposition that the mere expiry of a subsidy at
the end of its expected life before the end of an implementation period will always suffice to
establish that an implementing Member has "withdrawn" the subsidy for the purpose of Article 7.8.
Rather, as already noted, the logical implication of the Appellate Body's statement is that it will
only be in circumstances that are not "usual" or "normal" that allowing a subsidy to expire
passively over the ordinary course of its expected life will be sufficient to establish compliance.
6.1094. While it is t rue that the Appellate Body has declared that a subsidy has a "finite life",
which "accrues and diminishes over time", and which "comes to an end" 1844, the Appellate Body
has never equated the end of the life of a subsidy with the cessation of its effects. On the contrary,
the Appellate Body has explicitly found that the effects of a subsidy may well persist beyond its
expected life, and that ultimately, the extent to which this may be the case will be a fact -specific
matter. Although the age of a subsidy will be an important factor to consider when making this
assessment, it will not alone be determinative. Thus, the simple fact that the anticipated life of a
subsidy may have expired before the end of the implementation period does not preclude that the
subsidy may be continuing to cause adverse effects in the post -implementation period. Ultimately,
therefore, we cannot accept the European Union's reliance on the Appellate Body's statements to
support its contention that the passive "expiry" events it relies up on mean that it has complied
with the obligation to "withdraw the subsidy" because, as already noted, equating these events
with the "withdrawal" of subsidies for the purpose of Article 7.8 would render any findings of
adverse effects made against such exp ired subsidies in original proceedings purely declaratory,
and to this extent render the effects-based disciplines of Article 5 of the SCM Agreement inutile.
6.6.3.4.3.3 Article 7.8 envisages two different pathways to achieve the same
compliance objective
6.1095. As already noted, Article 7.8 of the SCM Agreement provides an implementing Member
with two options for coming into compliance with the adopted rulings and recommendations in a

1842 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 236.
1843 European Union's second written submission, paras. 83-90.
1844 Appellate Body Report, EC and certain Member States – Large Civil Aircraft, para. 709.

dispute involving findings of adverse effects. The implementing Member in such a dispute s hall
either "take appropriate steps to remove the adverse effects" or "withdraw the subsidy". The
European Union argues that an interpretation of what it means to "withdraw the subsidy" that is
informed by the need for an implementing Member to achieve con formity with Article 5 of the
SCM Agreement would deprive this compliance option of any independent meaning from the option
to "take appropriate steps to remove the adverse effects", effectively reading it out of the
SCM Agreement contrary to the principle of effective treaty interpretation.
6.1096. In our view, however, finding that the two compliance options referred to in Article 7.8
must be interpreted in a way that brings an implementing Member into conformity with the
effects-based disciplines of Article 5 of the SCM Agreement does not deprive them of independent
meaning. In particular, we do not see how saying that either of the two options must be
understood in a way that achieves the same result necessarily implies that they must have an
identical meaning . Indeed, it is apparent from their express terms that they provide an
implementing Member with potentially two different pathways to achieve the same compliance
objective.
6.1097. Starting with the option to "withdraw the subsidy", it is apparent that this complia nce
avenue is intended to focus an implementing Member's efforts on the subsidy found to have
caused adverse effects. Thus, an implementing Member found to have caused adverse effects
through the use of a subsidy is given the option to come into conformity with Article 5 of the
SCM Agreement by "withdrawing", i.e. "removing" or "taking away", the subsidy that was found to
cause adverse effects . As already noted, the "withdrawal", "removal" or "taking away" of a
prohibited subsidy for the purpose of Article 4.7 of the SCM Agreement may be achieved by not
only bringing the "life" of a subsidy to an end, but also by simply modifying the terms of the
relevant subsidy in a way that eliminates the prohibited export performance condition. Other ways
of "removing" o r "taking away" a prohibited subsidy in a manner that brings an implementing
Member into conformity with Articles 3.1 and 3.2 of the SCM Agreement might also be possible
and will, naturally, depend upon the particular facts of the case at hand.
6.1098. We see no r eason why the option to "withdraw the subsidy" that is provided for in
Article 7.8 should not be given a parallel meaning. Indeed, both parties argue that the same terms
in Article 4.7 and 7.8 of the SCM Agreement must be given a consistent meaning. Thus, just as it
is possible for an implementing Member to "withdraw", i.e. "remove" or "take away", a prohibited
export subsidy by adjusting its terms to eliminate the prohibited export performance condition, so
too should it be possible to find that an impleme nting Member has "withdrawn", i.e. "removed" or
"taken away", a subsidy found to cause adverse effects when the terms or conditions of that
subsidy have been modified in a way that ensures it no longer causes adverse effects. In this light,
it follows that the option to "withdraw the subsidy" that is provided for in Article 7.8 should be
understood to refer to any conduct on the part of an implementing Member in relation to the
subsidy found to cause adverse effects, which brings that Member into conformity with its
obligations under Article 5 of the SCM Agreement.
6.1099. In contrast, the fact that the option in Article 7.8 to "take appropriate steps to remove
the adverse effects" does not explicitly refer to the subsidy, in our view, suggests that it is
intended to refer to an approach to compliance that would see an implementing Member coming
into conformity with its obligations under Article 5 of the SCM Agreement without taking any
specific action in relation to the subsidy found to cause adverse effects, but ra ther through other
more effects-based or market-focused solutions. Again, while the range of such compliance actions
will vary and ultimately depend upon the facts of a particular case, one could envisage that in a
particular market situation, an implement ing Member might be able to take certain kinds of
WTO-consistent regulatory, policy or other initiatives that would alter the effects of a subsidy in
the marketplace, and thereby remove its adverse effects. In our view, the very existence of this
possibility suggests that the drafters of the SCM Agreement had in mind that the option to
"withdraw the subsidy" might not always be a desirable course of action for an implementing
Member.
6.1100. It follows from the above analysis that finding that the two compliance op tions provided
for in Article 7.8 must be interpreted in a way that brings an implementing Member into conformity
with its obligations under Article 5 of the SCM Agreement does not render the option to "withdraw
the subsidy" inutile. While the efforts of a n implementing Member taking up the option to
"withdraw", "remove" or "take away" the subsidy, will be focused on the subsidy itself ; an

implementing Member wanting to "take appropriate steps to remove the adverse effects" may
pursue a different course act ion that is unrelated to the subsidy measure itself. An implementing
Member will, of course, be free to choose between any possible alternative means of pursuing
these two compliance options. However, as the Appellate Body has emphasized, whatever
approach an implementing Member finally decides upon must be "sufficient to bring that Member
into compliance with its WTO obligations".1845
6.6.3.4.4 Conclusion with respect to whether the European Union and certain member
States have "withdrawn" the subsidy for the purpose of Article 7.8
6.1101. As with the European Union's position with respect to the question whether it has any
compliance obligation at all in this dispute, the European Union's interpretation of the obligation to
"withdraw the subsidy" is, in our view, problematic b ecause it is premised on a conception of
compliance that disregards the effects -based disciplines of Article 5. The European Union argues
that by showing that the "life" of a subsidy has "expired" before the end of the implementation
period, an implementin g Member will have "procured" the "withdrawal" of that subsidy for the
purpose of Article 7.8 of the SCM Agreement. In such circumstances, the European Union argues
that a complaining Member would have received a complete remedy in a compliance dispute
involving adopted findings of adverse effects, even when the subsidy found to cause adverse
effects in the original proceeding continues to cause adverse effects into and beyond the end of
the implementation period. Thus, according to the European Union:
{T}here may be market effects of offending measures even after their withdrawal –
whether this concerns prohibited or actionable subsidies, or measures that are
inconsistent with other covered agreements. Such measures may well result in the
protection, creation, or growth of industries that would otherwise be less competitive,
or result in significant changes to supply chains or customer relationships in response
to these measures. In each case, the effects thereof may continue beyond the
withdrawal of the offending measure. Nonetheless, the covered agreements, including
in Article 7.8 of the SCM Agreement, stipulate that the offending measure's
withdrawal is a complete remedy, and there is no additional requirement to remove
any lingering effects of that withdrawn measure.1846 (footnote omitted)
6.1102. If it is true, however, that Article 7.8 articulates a compliance rule that is intended to
clarify how an implementing Member found to have caused adverse effects through the use of
subsidies is to restore conformity with its obligations under Article 5 of the SCM Agreement, it
must follow that the obligation to "withdraw the subsidy" should be interpreted in a way that does
not undermine this intended outcome. This means that the passive "expiry" events the
European Union relies upon as the sole basis to demonstrate that it has "withdrawn" the relevant
subsidies for the purpose of Article 7.8 cannot be characterized as such, because the very same
subsidies were found in the original proceeding to cause adverse effects over a period of time that
followed the full or partial "expiry" of almost all of those subsidies. Indeed, we cannot see how the
end of the ex ante lives of the relevant LA/MSF and capital contribution subsidies before
1 June 2011 could alone bring the European Union and certain member States into conformity with
their obligations under Article 5 of the SCM Agreement when even the European Union does not
argue that the "expiry" of those subsidies must have necessarily brought an end to their effects in
the marke tplace and, therefore, that their potential to continue to cause adverse effects has
ceased to exist. In this connection, we recall that the ex ante "lives" of the relevant LA/MSF and
capital contribution subsidies "expired" prior to 1 June 2011 not because they were, for example,
repaid by Airbus to the relevant European Union member State governments or because their
terms were aligned with a market benchmark, but rather simply because they were fully paid out
to Airbus in accordance with the expectations held by Airbus and the subsidizing governments at
the time they were granted.1847 In our view, these facts and considerations cannot alone support a

1845 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 206.
1846 European Union's response to Panel question No. 46(a), para. 122.
1847 The extent to which the full or partial repayment of a subsidy or the alignment of its terms with a
market benchmark may amount to the "withdrawal" of a subsidy for the purpose of Article 7.8 of the
SCM Agreement are questions that are not before us and we, therefore, make no specific findings as to
whether such actions may suffice to bring an implementing Member into conformity with its obligations under
the SCM Agreement. We note, however, that the United States does not challenge the European Union's
alleged "withdrawal" of the subsidies in relation to the Bremen Airport runway extension and the Mühlenberger

finding that the European Union and certain member States have "withdrawn" the relevant
subsidies for the pur pose of restoring conformity with their obligations under Article 5 of the
SCM Agreement. Thus, we find that the United States has established that the European Union has
failed to "withdraw the subsidy" for the purpose of Article 7.8 of the SCM Agreement.
6.1103. We now turn to examine the extent to which the United States has demonstrated that the
European Union and certain member States have failed to "take appropriate steps to remove the
adverse effects" with respect to all of the subsidies the United States considers continue to cause
adverse effects within the meaning of Article 5(c) of the SCM Agreement.
6.6.4 Whether the European Union and the relevant member States have complied with
the requirement to "take appropriate steps to remove the adverse effects" unde r the
terms of Article 7.8 of the SCM Agreement
6.6.4.1 Introduction
6.1104. In their submissions concerning the extent to which the European Union and relevant
member States have complied with the obligation to "take appropriate steps to remove the
adverse effects", the parties have advanced multiple lines of argument and adduced a significant
volume of evidence, including numerous reports produced specifically for this proceeding by
experts in the fields of economics, accounting and finance as well as LCA technology and
production. While the parties' submissions have covered a wide variety of issues, their overall and
principal focus has been on the question whether, in the light of the European Union's alleged
compliance "steps", the challenged subsidies continue to cause serious prejudice to the interests of
the United States after 1 December 2011, that is, after the end of the implementation period.1848
6.1105. In essence, the United States argues that the European Union's 36 alleged compliance
"steps" are fundamentally based on "inaction" and the mere passage of time, and for this reason,
in the light of the nature of the "profound" effects of the challenged subsidies, have done nothing
to bring the European Union and its relevant member States into conformity with their obligati ons
under the SCM Agreement. According to the United States, the subsidies at issue in this
compliance dispute, not unlike the LA/MSF and other subsidies found to cause adverse effects in
the original proceeding, continue to explain why Airbus has been abl e to develop and bring to
market a full range of LCA, allowing Airbus to win sales and market share from the United States'
LCA industry, thereby, causing serious prejudice to the United States' interests within the meaning
of Article 6.3(a), (b) and (c) of the SCM Agreement.1849
6.1106. The European Union contests the entirety of the United States' claims, arguing, first of
all, that the United States' claims concerning the continued adverse effects of the challenged
subsidies fail to account for not only the allege d "withdrawal" of some or all of the challenged
subsidies before the end of the implementation period, but also the alleged requirement that
"present subsidization" must be shown to exist in the post -implementation period in order to find
that the European Union has failed to "take appropriate steps to remove the adverse effects". 1850

Loch aircraft assembly site, both of which were found to cause adverse effects in the original proceeding.
According to the European Union, the terms of these subsidies were aligned to a market benchmark before the
end of the implementation period.
1848 Although the European Union had initially characterized its submissions concerning the
United States' claims of continued serious prejudice as "alternative" arguments advanced solely for the purpose
of consideration in the event that "the compliance Panel {were to} find that there are present subsidies",
arguing explicitly that the Panel would be legally entitled to review the United States' claims only if it concluded
that there are "present subsidies", the European Union subsequently clarified that the Panel should consider its
arguments "if the Panel concludes that some of the subsidies have not been withdrawn". (European Union's
first written submission, paras. 30, 476 and 492, and fn 639; second written submission, para. 500; and
response to Panel question No. 45) (emphasis original). We recall that we found in the previous part of this
Report that the European Union has failed to demonstrate that any of the subsidies challenged by the
United States in this compliance dispute have been "withdrawn" for the purpose of Article 7.8 of the SCM
Agreement.
1849 United States' first written submission, paras. 240-532; and second written submission,
paras. 357-747.
1850 See e.g. European Union's first written submission, paras. 30, 476, 482, 484, 489, 492, 503, 506,
515-516, 537-551, 647-648, 715, 723, 801, 817, 827, 858, 868, 926, 937, 965-966, 974, 984-985, 990, 992,

Secondly, and in the alternative, the European Union argues that the United States' submissions
fail to satisfy two threshold requirements for demonstrating non-compliance, namely, that Boeing's
like LCA products: (a) are non -subsidized; and (b) compete with Airbus in the three relevant
product markets with respect to which the United States claims to have experienced serious
prejudice. Finally, the European Union submits that the United States has failed to substantiate its
claims of continued serious prejudice because the United States' arguments inter alia ignore the
impact of the passage of time and a number of non -subsidized Airbus investments on the causal
link between the challenged subsidies and the instances of serious prejudice alleged to exist in the
post-implementation period.1851
6.1107. We recall that in Section 6.6.2 of this Report, we evaluated and dismissed the European
Union's submissions concerni ng the alleged "withdrawal" of the challenged subsidies and the
purported requirement to demonstrate "present subsidization" in the context of Article 7.8 of the
SCM Agreement. As the European Union's first line of argument in response to the United States '
claims of non -compliance with the obligation to "take appropriate steps to remove the adverse
effects" is premised on essentially the same submissions, we see no need to re -examine their
merits here. In this light, we will begin our evaluation of the mer its of the United States' continued
adverse effects claims by examining the European Union's arguments concerning the
United States' alleged failure to satisfy two purported threshold requirements for making out its
case, namely, that: (a) the United State s is required to demonstrate that Boeing's like LCA
products are "non-subsidized"; and (b) the United States must show that it has brought its serious
prejudice claims with respect to the appropriate product markets. After evaluating the merits of
the parties' positions in relation to both alleged threshold matters, we turn to examine the parties'
arguments with respect to the continued effects of the challenged subsidies and, therefore, the
extent to which the United States has demonstrated serious prejudi ce to its interests in the
post-implementation period.
6.1108. Before proceeding with this analysis, however, we first address the European Union's
submission that the delivery of Airbus LCA ordered pursuant to "lost sales" found to have been
caused by the challenged subsidies in the original proceeding means that the European Union and
certain member States have "removed" those adverse effects and, therefore, complied with their
obligations in relation to those "lost sales" under Article 7.8 of the SCM Agreement.
6.6.4.2 The delivery of Airbus LCA ordered pursuant to "lost sales" found in the original
proceeding
6.1109. We recall that one of the 36 alleged compliance "steps" which the European Union argues
has brought it into conformity with the adopted recommendations and ruling s in this dispute is the
completion of performance under sales contracts relating to orders for Airbus LCA found to
constitute "lost sales" in the original proceeding. The European Union explains that what it means
when it refers to the completion of perfo rmance of a sales contract, is the delivery of an LCA to a
customer in accordance with the terms of the order found to constitute a "lost sale" causing
serious prejudice to the United States' interests in the original proceeding. The European Union
maintains that by delivering the LCA to its customer in this way, "the {lost} sales are … completed
and cease to exist in the present". For the European Union, this implies that the United States
cannot "demonstrate that significant lost sales … , as found in the original proceedings, have not
been removed" and, therefore, that the European Union and certain member States have not
achieved compliance with respect to those specific "lost sales".1852
6.1110. We note that underlying the European Union's submission is the premise that a "lost sale"
is an ongoing event that continues to exist until the time of delivery and, consequently, also the
notion that, in the light of the prospective nature of WTO remedies, the European Union has a
compliance obligation with respect to tha t "lost sale" until it is delivered. According to the

1031, 1091, 1095-1099, 1132, 1156, and 1204; and second written submission, paras. 498-499, 523-577,
728, 734, 822, 863-864, 871, 873, 1203, 1208, and 1559.
1851 European Union's first written submission, paras. 476-1242; and second written submission,
paras. 497-1695.
1852 European Union's first written submission, paras. 805-816, 1034-1042 and 1218-1219; second
written submission, para. 1212; and response to Panel question No. 39.

European Union, the panel in US – Large Civil Aircraft (2 nd complaint), "recognised this when it
explained that the delivery of an aircraft may bring the lost sale to an end".1853
6.1111. The particular passage f rom the panel report in US – Large Civil Aircraft (2 nd complaint),
which the European Union relies upon reads as follows:
{T}he Panel considers that given the particularities of LCA production and sale, the
effects of the {Business and Occupation (B&O) tax} subsidies 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).1854
Elsewhere in its report, the panel in US – Large Civil Aircraft (2 nd complaint) appeared to repeat
this view when it stated that:
{T}he phenomena of "price suppression" and "lost sales" do not begin and end at the
time at which an LCA is ordered. Rather, given the particularities of LCA production
and sale, these forms of serious prejudice 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). …
… Because we regard price suppression and lost sales to exist from the time an order
for LCA is made, up to and including its delivery, 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.1855
6.1112. In our view, the European Union's submission responds to an argument that the
United States does not make. As already noted, the United States' position in this dispute is that
the European Union and certain m ember States have failed to comply with the obligation in
Article 7.8 of the SCM Agreement to "take appropriate steps to remove the adverse effects" not
because any of the "adverse effects" found to have been caused by the challenged subsidies in the
original proceeding have not been "removed", but rather because the challenged subsidies
continue to cause the same types of "adverse effects" today. Although, at times, the United States
formulates this submission in different ways 1856, the very limited reference s the United States
makes in this context to the ongoing effects of the "lost sales" found in the original proceeding
have been consistently presented under headings or in sections of its written submissions that
clearly indicate they are intended to form part of the United States' arguments concerning the
continuation of the adverse effects in the form of "lost sales".1857 Indeed, in its request for findings
in this dispute, the United States asks the Panel to make only one finding in this regard – that "the
United States continues to experience serious prejudice in the form of lost sales". 1858 In this light,
we understand the very few United States' statements made in relation to the ongoing effects of
the "lost sales" found by the panel in the original proceedi ng to be intended to highlight the

1853 European Union's first written submission, para. 806 (citing Panel Report, US – Large Civil Aircraft
(2nd complaint), para. 7.1812).
1854 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1812.
1855 Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.1685-7.1686.
1856 For instance, the United States submits that the European Union "has done nothing to remove the
adverse effects found by the original panel in the form of lost sales", maintaining that those lost sales "have
had on-going effects on sales in the form of options and purchase rights that the customers have exercised and
may exercise in the future" thereby bestowing incumbency advantages on Airbus. (United States' first written
submission, paras. 412-413 and 416) Similarly, referring to one instance of lost sales found by the original
panel involving South African Airways, the United States argues that the "EU has done nothing to remove the
adverse effects of this lost sale", noting that "Airbus has retained the revenues … and Boeing continues to have
'failed to obtain' this sale and has experienced the consequent loss of revenues and other benefits".
(United States' first written submission, para. 441) We note that the United States makes no parallel
arguments in relation to the findings of displacement made in the original proceeding.
1857 See e.g. heading to Section VI.G.2 to the United States' first written submission ("U.S. LCA industry
continues to experience significant lost sales"), and the argumentation in section VI.E of the United States'
second written submission, which is clearly focused on the United States' allegation that it "continues to
experience significant lost sales".
1858 United States' first written submission, para. 533 (emphasis added). See also United States' second
written submission, para. 748 (making same request).

United States' view that those "lost sales" have contributed to the continuation of the adverse
effects of the challenged subsidies today by, for example, having "had on -going effects on sales in
the form of options and p urchase rights that customers have exercised and may exercise in the
future"1859 and by giving Airbus incumbency advantages over Boeing.1860
6.1113. It follows, therefore, that even if the European Union were correct in its assertion that the
delivery of Airbus LCA ord ered pursuant to "lost sales" caused by the challenged subsidies in the
original proceeding means that the European Union and certain member States no longer have a
compliance obligation with respect to those "lost sales", this would not lead us to dismiss the
United States' claim that the European Union and certain member States have failed to comply
with the adopted recommendations and rulings.
6.6.4.3 Whether the United States must demonstrate that the "like product" is
non-subsidized
6.6.4.3.1 Arguments of the European Union
6.1114. The European Union submits that in order for the United States to make out its claims of
displacement or impedance of exports within the meaning of Article 6.3(b) of the SCM Agreement,
the United States must demonstrate, by virtue of Article 6.4, that the United States' product being
allegedly displaced or impeded in any relevant third country market is a "non -subsidized like
product". According to the European Union, the United States cannot make this demonstration in
this compliance proceeding because of the adopted findings concerning the subsidization of Boeing
LCA in US – Large Civil Aircraft (2nd complaint).1861
6.1115. While acknowledging that the original panel already addressed and rejected essentially
the same line of legal argument the European Union relies upon in this proceeding with respect to
the interpretation of the relationship between Articles 6.3(b) and 6.4 of the SCM Agreement, the
European Union maintains that the fact that there is now a multilateral determination that the
United States' "like products" are subsidized means that the relevant factual circumstances have
changed such that there is now a new "matter" before the compliance Panel that must be
resolved.1862 Furthermore, the European Union submits that there are also "cogent reasons" to
review the original panel's interpretation of the relationship between Articles 6.3(b) and 6.4 of the
SCM Agreement, namely 1863: (i) the interpretation was not the subject of an exchange of
arguments between the parties and third parties 1864; (ii) the interpret ation "extinguishes" or
"diminishes" the "element of causation" that is present in Articles 5, 6.3(b) and 6.4 1865; and
(iii) the interpretation was based on considerations that were erroneous for other reasons.1866
6.1116. The European Union goes on to offer what it de scribes to be "an approach that is
consistent with the principle of harmonious and effective interpretation", pursuant to which the
European Union maintains that the "element of causation" remains present in all claims that can
be made under Article 6, as opposed to the approach it asserts was taken by the panel in the

1859 United States' first written submission, para. 412.
1860 United States' first written submission, para. 413. We note, furthermore, that in arguing that there
is no basis for the European Union's view that the delivery of an LCA found to have been the subject of the
original panel's lost sales findings means that the European Union and certain member States have complied
with their obligations under Article 7.8 of the SCM Agreement, the United States asserts inter alia that "{b}y
the EU's logic, a subsidy causing serious prejudice that is the subject of an adopted DSB finding is only WTO-
inconsistent until its concrete effects reach their apex in the marketplace", concluding that "the reality is that
deliveries have in no way mitigated the massive adverse effects that the U.S. LCA industry continues to suffer,
including in the form of lost sales". (United States' second written submission, paras. 678-679 (emphasis
added))
1861 European Union's first written submission, para. 696; and second written submission, para. 707.
1862 European Union's second written submission, paras. 708-712.
1863 European Union's second written submission, paras. 713 and 727.
1864 European Union's second written submission, para. 714.
1865 European Union's first written submission, paras. 658-679; and second written submission,
paras. 716-717. The European Union also appears to submit that the same "cogent reasons" compel us to
reconsider the original panel's findings with respect to the "non-subsidized like product rule" in Article 6.5 of
the SCM Agreement, in the context of the United States' lost sales claims under Article 6.3(c).
(European Union's first written submission, fn 856)
1866 European Union's first written submission, paras. 680-686.

original proceeding.1867 The European Union explains that its proposed interpretation would result
in the application of a "non-subsidized like product rule" to all "price effects"1868 claims made under
Article 6.3(c) and all "volume effects" 1869 claims under Article 6.3(b), but not "volume effects"
claims made under Article 6.3(a).1870
6.1117. The European Union justifies the application of a "non -subsidized like product rule" to
"price effects" claims because, in its view, it would be "very difficult if not impossible" to make an
"objective assessment" regarding which of two subsidized products (a subsidized product and a
subsidized like product) caused serious prejudice in the form of "price undercutting". Acc ording to
the European Union, both subsidized products will "be causing the same price effects" or, "in any
event, both of the subsidies {will be} necessarily pushing in the same direction". The
European Union submits that the application of a "non-subsidized like product rule" in this situation
would avoid the "pointless deadlock and inefficiencies that would otherwise result, for all Members,
if two Members were to pursue matters to the bitter end, and find themselves in a situation where
both were subsidizing and both retaliating at the same time against each other".1871
6.1118. Similarly, the European Union submits that a "non -subsidized like product rule" should
apply to claims of "volume effects" in third country markets in order to prevent what the
European Union asserts would be "an imbroglio of subsidies, countervailing duties and retaliation"
that would arise in the absence of such a rule. In particular, the European Union explains that
without a "non -subsidized like product rule", it would be possible for a Member to make out a
claim of serious prejudice in relation to sales of a subsidized like product into a third country
market (and, thereby, ultimately be entitled to claim retaliation) even while the importing country
could itself impose countervailing duties against imports of the same subsidized like product found
to cause injury to its domestic industry. For the European Union, such an outcome would be
"fundamentally contradictory".1872
6.1119. On the other hand, the European Union argues that a "non -subsidized like product rule"
would not apply in the context of "volume effects" claims arising in the market of the subsidizing
Member because "one of the essential purposes of WTO subsidies law is to preserve the market
access afforded by tariff bindings". Moreover, the European Union argues that the fact that a
complaining Member might itself be subsidizing "does not prevent an objective assessment of the
existence of the volume effect because it will, if anything, tend to lead to an underestimate of such
volume effect".1873
6.1120. Finally, the European Union maintains that the application of its legal interpretation to the
facts of this dispute leads to the conclusion that the United States' serious prejudice claims made
under Article 6.3(b) of the SCM Agreement must be preclu ded from this proceeding or otherwise
rejected by the Panel.1874
6.6.4.3.2 Arguments of the United States
6.1121. The United States submits that the "non-subsidized like product" arguments advanced by
the European Union in this compliance dispute were already addressed and rej ected in the
unappealed findings from the original proceeding that were adopted by the DSB, implying that the
European Union is not entitled to reopen the matter.1875

1867 European Union's first written submission, paras. 658-679; and second written submission,
paras. 716-726.
1868 The European Union defines "price effects" to be "price undercutting" and "price suppression/
depression". (European Union's first written submission, fn 875)
1869 The European Union defines "volume effects" to be "displacement", "impedance" and "lost sales",
including a "change in relative shares of the market". (European Union's first written submission, fn 876)
1870 European Union's first written submission, paras. 687-698.
1871 European Union's first written submission, para. 690.
1872 European Union's first written submission, paras. 692-693; and second written submission,
paras. 720-722.
1873 European Union's first written submission, para. 691.
1874 European Union's first written submission, paras. 699-708.
1875 United States' second written submission, paras. 404, 405-406, 409, 410, and 412.

6.1122. According to the United States, the European Union's submission that there is a new
"matter" before the compliance Panel in the light of the alleged "changed facts" is premised on a
mischaracterization of the original panel's findings. In particular, the United States recalls that the
original panel's rejection of the European Communities' argume nts regarding the relationship
between Articles 6.3(b) and 6.4 was based on a legal interpretation, rendering the factual question
of the subsidization of the United States' like products "irrelevant in this case". 1876 Furthermore,
the United States disagrees with the European Union that there are "cogent reasons" for the
compliance Panel to review the original panel's findings, rejecting the European Union's criticisms
of how the original panel understood "causation" in Article 6.4 as well as the relationship between
Articles 6.3(b) and 6.4.1877
6.1123. The United States submits that the European Union's proposed alternative interpretation
that would introduce a "non -subsidized like product rule" is "seriously flawed", including for the
same reasons it was dismissed in the original case 1878, and that if the compliance Panel does
entertain the European Union's argument, it should reach the same result. 1879 The United States
argues that under the European Union's interpretation, complaining Members could never establish
a claim under Article 6.3(b) if their products were even minimally subsidized or subsidized to a
degree that did not create an action under the SCM Agreement1880, for example if the subsidy was
non-specific, or did not otherwise fall within the scope of Article 1 of the SCM Agreement.1881 The
United States also argues that the European Union's interpretation would create an incentive for
successful complainants to start retaliating by providing unlimited subsidies to its like product,
while the affected Member would have no recourse against the new subsidizing Member due to the
alleged "non-subsidized like product requirement".1882
6.1124. Finally, the United States submits that the European Union does not explain why "a
non-subsidized like product requirement would only apply to ce rtain showings of serious prejudice
under Article 6.3, but not others".1883 As regards "price effects", the United States responds that if
a complainant's like products can sell at lower prices due to its own subsidization, the price effects
of the subsidizat ion by the responding Member will be less pronounced or similarly
underestimated.1884 As regards "volume effects" the United States observes that "subsidization
from the complaining Member and the responding Member will push in the same direction in terms
of volume effects in the subsidizing Member market, just as they would in a third country
market".1885 The United States thus views the European Union's approach as containing a
self-contradiction. As regards "volume effects" in third country markets, the United States
considers that it is not clear that it would be fundamentally contradictory if a complainant could be
countervailed by a third country Member and could make successful claim under Article 6.3(b), nor
is it clear why a Member's domestic countervailing duty law is relevant.1886
6.6.4.3.3 Evaluation by the Panel
6.1125. Articles 6.3(b) and 6.4 of the SCM Agreement provide, in relevant part, that:
6.3 Serious prejudice in the sense of paragraph (c) of Article 5 may arise in any
case where one or several of the following apply:
…
(b) the effect of the subsidy is to displace or impede the exports of a like
product of another Member from a third country market;

1876 United States' second written submission, paras. 413-415.
1877 United States' second written submission, paras. 417-420.
1878 United States' second written submission, paras. 416 and 426.
1879 United States' second written submission, para. 407.
1880 United States' second written submission, para. 433.
1881 United States' second written submission, para. 435-436.
1882 United States' second written submission, paras. 433 and 434.
1883 United States' second written submission, para. 427.
1884 United States' second written submission, paras. 427-429.
1885 United States' second written submission, paras. 430-431.
1886 United States' second written submission, para. 430.

…
6.4 For the purpose of paragraph 3(b), the displacement or impeding of exports
shall include any case in which , subject to the provisions of paragraph 7, it has been
demonstrated that there has been a change in relative shares of the market to the
disadvantage of the non-subsidized like product … .
6.1126. In the original proceeding, the European Communities advanced esse ntially the same line
of argument that is relied upon by the European Union in this compliance dispute to support its
submission that the United States' serious prejudice claims under Article 6.3(b) of the
SCM Agreement must be rejected. In particular, the European Communities argued that by virtue
of the operation of Article 6.4 (in particular, the "non -subsidized like product" language) the
United States could only make out a case of displacement or impedance of exports from a third
country market by demonstrating that the United States' like product was non-subsidized.1887
6.1127. The original panel started its evaluation of the merits of the European
Communities' position by examining the parties' arguments concerning the meaning of the
"non-subsidized like product " language appearing in Article 6.4, finding that it "may well require
that a complaining Member demonstrate, in the circumstances of that provision, that its like
product … is not subsidized". 1888 The original panel then set about examining another question,
namely, "whether Article 6.4 is the necessary or exclusive mechanism for demonstrating
displacement or impedance of exports to a third country market under Article 6.3(b), or
whether … displacement and impedance under Article 6.3(b) can be demonstrated wi thout
reference to Article 6.4". 1889 The European Communities had argued that Article 6.4 was the
"exclusive basis" on which a claim under Article 6.3(b) could be demonstrated. The United States
disagreed, pointing to the "shall include" language in the first sentence of Article 6.4 in support of
its view.
6.1128. The original panel recalled that the panel in Indonesia – Autos had previously considered
the meaning of Article 6.4, quoting certain passages from that panel report and agreeing with that
panel that:
Article 6.4 describes a particular situation, where the like product of the complaining
Member is not subsidized, in which situation a demonstration that market share of the
subsidized product complained of increased suffices to make a prima facie case of
displacement or impedance under Article 6.3(b).1890
6.1129. The original panel then noted that the United States was not relying upon Article 6.4, but
rather seeking to demonstrate serious prejudice solely on the basis of the terms of Article 6.3(b).
In this light, unders tanding the relationship between Articles 6.3(b) and 6.4 became decisive –
were the original panel to find that Article 6.4 is the exclusive means through which Article 6.3(b)
claims could be made out, the European Communities would have prevailed. However , the original
panel agreed with the United States that Article 6.4 does not set out the "exclusive basis" on which
to establish Article 6.3(b) serious prejudice claims. In particular, the original panel found "nothing
in the text of Article 6.4, or in its object and purpose, … {to} suggest that the analysis set out
therein is the exclusive means of demonstrating displacement or impedance of exports for
purposes of Article 6.3(b)". 1891 The panel explained that the use of the phrase "shall include" in
Article 6.4 indicates that "there may be other circumstances not set out in Article 6.4, in which a
Member could demonstrate displacement or impedance for purposes of Article 6.3(b)". Thus, the
panel concluded that "{r}ather than limiting the circumstances in which Article 6.3(b) may be
satisfied, we read Article 6.4 as simply setting out additional guidance for the application of
Article 6.3(b) in certain particular circumstances".1892

1887 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1761.
1888 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1765.
1889 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1766.
1890 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1767.
1891 Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.1763-7.1769.
1892 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1769.

6.1130. While the original panel went on to express its own views about what those particu lar
circumstances were, those opinions did not form part of the reasoning which it ultimately relied
upon to dispose of the European Communities' arguments. This is apparent from the original
panel's recognition that the United States did "not purport to r ely on the special rule set out in
Article 6.4, but rather, asserts that it has demonstrated that displacement or impedance of its
exports from third country markets is the effect of the subsidies in dispute". 1893 Thus, the original
panel's finding that the l anguage of Article 6.4 did not prescribe the exclusive means through
which a complaining Member could demonstrate displacement or impedance for the purpose of
Article 6.3(b) was sufficient to dispose of the European Communities' argument.
6.1131. The European Union did not appeal the original panel's findings on this point; and the
panel report, as modified by the Appellate Body in relation to other matters, was adopted by the
DSB. Notwithstanding these facts, t he European Union argues that the Panel in this compl iance
dispute should rule on what is essentially the same legal question that was resolved in the original
proceeding and/or review and modify the original panel's legal findings. To this end, we
understand the European Union's submissions to raise the fol lowing two threshold questions:
(i) whether the fact that there has been a multilateral finding of subsidization in US – Large Civil
Aircraft (2 nd complaint) means that there is a new "matter" that must be addressed in this
compliance proceeding; and (ii) whether there are "cogent reasons" to review the original panel's
interpretation of the relationship between Articles 6.3(b) and 6.4 of the SCM Agreement that
formed the basis of the relevant legal findings adopted by the DSB in the original proceeding.
6.6.4.3.3.1 Whether there is a new "matter"
6.1132. The European Union explains that it did not appeal the original panel's findings
concerning the relevance of Article 6.4 to the United States' claims of serious prejudice under
Article 6.3(b) of the SCM Agreement because, in i ts view, the panel's reasoning rested in part on
the difficulty that a panel would have in determining that a "like product" is not subsidized 1894, and
at that time, there were no adopted findings in the US – Large Civil Aircraft (2nd complaint) dispute
in re lation to the subsidization of Boeing's LCA. 1895 However, now that the DSB has adopted
recommendations and rulings to this effect, the European Union considers that the relevant factual
circumstances have changed because there is a multilateral determination that Boeing LCA are
subsidized.1896 The European Union maintains that these new factual circumstances mean that
there is a new "matter" before the compliance Panel and, therefore, that the compliance Panel is
not precluded from addressing the European Union's arguments concerning the interpretation of
Articles 6.3(b) and 6.4 of the SCM Agreement.1897 Thus, according to the European Union, even if
this Panel were to consider "itself bound by the interpretation of the relevant provisions that it
previously set out in the original panel report", all this would mean is that this compliance Panel
would take that interpretation and apply it to the new set of facts placed before it by the
European Union.1898
6.1133. The United States submits that the European Union mischaracterizes the panel's
reasoning, as the original panel's interpretation of the relationship between Article 6.3(b) and
Article 6.4 was a text -based legal interpretation. 1899 While, according to the United States, the
original panel observed that the European Communiti es' interpretation was impractical and would
enormously complicate the task of adjudicating claims brought under Article 6.3(b) because panels
would have to consider whether the complainant itself provides any subsidy to a "like product" 1900,
the United States asserts that this was a general observation relating to all panels and not
reflective of any particular difficulty in this dispute that could be altered by a multilateral finding of
subsidization. In this respect, the United States recalls that the Unite d States relied on
Article 6.3(b) and did not rely on Article 6.4 in the original proceeding. Thus, the United States
maintains that the original panel's rejection of the European Union's position regarding the

1893 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1768.
1894 European Union's first written submission, para. 656.
1895 European Union's first written submission, paras. 656-657; and second written submission,
para. 710.
1896 European Union's first written submission, para. 657.
1897 European Union's second written submission, paras. 709-710.
1898 European Union's second written submission, para. 710.
1899 United States' second written submission, paras. 413-415.
1900 United States' second written submission, para. 415.

relationship between Articles 6.3(b) and 6.4 rendered the factual question of the subsidization of
the United States' like products "irrelevant in this case".1901
6.1134. The European Union's submission that the compliance Panel is not precluded from
determining the merits of essentially the same legal argumen ts that were already considered and
dismissed in the original proceeding is premised on its view that there is a new "matter" before the
compliance Panel because: (a) the original panel's reasoning rejecting the European Communities'
arguments was partly b ased on the original panel's difficulty in determining whether Boeing LCA
were subsidized; and (b) with the adoption of the recommendations and rulings in US – Large Civil
Aircraft (2nd complaint) there is now a multilateral determination that Boeing's LCA are subsidized.
In our view, the European Union's position does not accurately reflect the original panel's findings.
6.1135. As already noted, the original panel dismissed the European Communities' submissions
not only because the United States' serious prejudice claims were based on Article 6.3(b) and not
Article 6.4, but also because it found that the "shall include" language in Article 6.4 indicates that
this provision does not prescribe the exclusive means by which the United States was required to
make out those claims. In other words, the original panel rejected the European
Communities' arguments because it found that, as a matter of law , resort to Article 6.4 (and,
therefore, the relevance of the "non-subsidized like product" language) is only one way of showing
displacement and impedance in third country markets for the purpose of Article 6.3(b). 1902 Thus, it
was the panel's interpretation of the relationship between Articles 6.3(b) and 6.4 that decided the
matter. Moreover, while the original panel referred to the difficulties associated with having to
determine that the "like product" was "non -subsidized", it did so only in general terms as part of
its dismissal of the European Communities' legal interpretation of the relevant provisions. In
particular, the original panel reasoned:
We consider that the contrary interpretation suggested by the EC – that Article 6.4 is
the exclusive basis for a finding of displacement or impedance for purposes of
Article 6.3(b) – would lead to the absurd result that the SCM Agreement establishes a
remedy for displacement or impedance of exports in third country markets only in
situations where the complaining Member's product is demonstrated to be
unsubsidized – effectively, a sort of "clean hands" requirement for complaining
Members as a prerequisite to a claim under Article 6.3(b). Not only is there no basis in
the text for such a requirement, but, as a practical matter, such a requirement would
enormously complicate the task of panels considering claims under Article 6.3(b). Not
only would they have to consider whether the challenged measures at issue in the
dispute constitute subsidies, but they would have to consider whether the Member
challenging those measures itself provides any subsidy with respect to the exported
like p roduct. Moreover, while the European Communities states that it asserts only
that the complaining Member's like product must not benefit from specific subsidies,
there is nothing in the term "non -subsidized like product" which suggests such a
limitation. Thus, to accept the European Communities' interpretation would leave open
the possibility that a complaining Member would be precluded from pursuing a claim
under Article 6.3(b) (and 6.3(c)), because its like product benefits from subsidies that
do not fall within the definition of Article 1 of the SCM Agreement. We cannot imagine
on what basis a panel might undertake to examine this question. We simply cannot
accept that so much can be derived from the mere use of the term "non -subsidized
like product" in A rticle 6.4. We therefore reject the European Communities' view that
Article 6.4 is the exclusive basis for a finding of displacement or impedance under
Article 6.3(b) of the SCM Agreement.1903 (bold text original; italics added; footnote
omitted)
6.1136. It is plain, therefore, that the original panel's reasoning rejecting the European
Communities' arguments was not partly based on any difficulty in determining whether Boeing LCA
were subsidized. Indeed, the extent to which Boeing LCA were subsidized played no role at all in
the original panel's legal analysis, which was ultimately decisive.

1901 United States' second written submission, paras. 413-415.
1902 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1769.
1903 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1770.

6.1137. Moreover, we note that while the European Union argues that the adopted
recommendations and rulings in US – Large Civil Aircraft (2nd complaint) mean that there is now a
multilateral finding of subsidization in relation to Boeing LCA, the European Communities had
similarly argued in the original proceeding that the adopted recommendations and rulings in the
US – FSC dispute and related proceedings demonstrated that the United States had subsidized
Boeing LCA prior to the end of 2006. 1904 The original panel, however, did not have to determine
the merits of the European Communities' assertion because, as already noted, the extent to which
Boeing LCA were subsidized by the end of 2006 did not play a role in its disposal of the European
Communities' submissions. The original panel's evaluation of the European Communities'
arguments hinged on its interpretation of the relationship between Articles 6.3(b) and 6.4, not any
findings of fact concerning the subsidization of Boeing "like products".
6.1138. Thus, we find that the adopted recommendations and rulings in US – Large Civil Aircraft
(2nd complaint) in relation to the subsidization of Boeing LCA do not mean there is now a new
"matter" before the co mpliance Panel as regards the European Union's reliance on Article 6.4 to
reject the United States' claims made under Article 6.3(b).
6.6.4.3.3.2 "Cogent reasons"
6.1139. The European Union submits that there are "cogent reasons" for the compliance Panel to
review the original panel's interpretation of the relationship between Articles 6.3(b) and 6.4 of the
SCM Agreement, namely 1905: (i) the interpretation was not the subject of an exchange of
arguments between the parties 1906; (ii) the interpretation "extinguishes" or "diminishes" the
"element of causation" in Article 51907; and (iii) the interpretation is erroneous for other
reasons.1908 The United States submits that the European Union's request amounts to an appeal of
the original panel's findings, which the European Union is not entitled to reopen in this compliance
proceeding because those findings were unappealed and were adopted by the DSB in the original
proceeding.1909
6.1140. We note that the concept of "cogent reasons" has generally been raised in cases where
panels have departed or been asked to depart from previous adopted Appellate Body findings in
different disputes.1910 In contrast, the European Union asks us in this compliance proceeding to
depart from the original panel's adopted legal interpretation in the same dispute. In our view, t he
European Union is not entitled to have the compliance Panel review the merits of the original
panel's unappealed and adopted findings. Article 17.14 of the DSU provides that adopted
Appellate Body reports "shall" be "unconditionally accepted by the part ies to the dispute".
Moreover, as explained by the Appellate Body in EC – Bed Linen (Article 21.5 – India):
{A}n unappealed finding included in a panel report that is adopted by the DSB must
be treated as a final resolution to a dispute between the partie s in respect of the
particular claim and the specific component of a measure that is the subject of that
claim.
{I}t {is} abundantly clear that a panel finding which is not appealed, and which is
included in a panel report adopted by the DSB, must be accep ted by the parties as a
final resolution to the dispute between them, in the same way and with the same
finality as a finding included in an Appellate Body Report adopted by the DSB – with

1904 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1762 and fn 5262.
1905 European Union's first written submission, para. 657, and second written submission, paras. 713
and 727.
1906 European Union's second written submission, para. 714.
1907 European Union's first written submission, paras. 658, 674, and 698; and second written
submission, para. 716.
1908 European Union's second written submission, para. 716. The European Union also appears to submit
that the same "cogent reasons" compel us to reconsider the original panel's findings with respect to the
"non-subsidized like product rule" in Article 6.5 of the SCM Agreement, in the context of the United States' lost
sales claims under Article 6.3(c). (European Union's first written submission, fn 856)
1909 United States' second written submission, paras. 404, 405-406, 409, 410, and 412.
1910 See e.g. Appellate Body Reports, US – Stainless Steel (Mexico), paras. 160-162; US – Continued
Zeroing, para. 362; Panel Reports, China – Rare Earths, paras. 7.55-7.61; US – Countervailing and
Anti-Dumping Measures (China), paras. 7.315-7.317.

respect to the particular claim and the specific component of the m easure that is the
subject of the claim.1911 (emphasis original)
6.1141. Furthermore, while the Appellate Body in US – Stainless Steel (Mexico) explained that
"{e}nsuring 'security and predictability' in the dispute settlement system … implies that, absent
cogent reasons, an adjudicatory body will resolve the same legal question in the same way in a
subsequent case"1912, in the same dispute the Appellate Body also stated:
We note that the mandate of an Article 21.5 panel includes the task of assessing
whether the measur es taken to comply with the rulings and recommendations
adopted by the DSB in the original proceedings achieve compliance with those rulings.
Therefore, panels established under that provision are bound to follow the legal
interpretation contained in the o riginal panel and Appellate Body reports that were
adopted by the DSB.1913 (emphasis added)
6.1142. This latter statement, in particular, strongly suggests that a compliance panel would be
committing a legal error if it were to review and reconsider the merits of a legal interpretation
developed by the panel serving in the original proceeding of the same dispute, when that legal
interpretation was left unappealed and ultimately the subject of recommendations and rulings
adopted by the DSB.
6.1143. Thus, we are not convinced that the European Union is entitled to reopen the original
panel's findings with respect to its arguments concerning the relevance of Article 6.4 of the
SCM Agreement to the United States' claims under Article 6.3(b). In any case, even if it were
legally permissible for a compliance panel to review a legal interpretation developed by an original
panel that was unappealed and adopted by the DSB in the same dispute, we are of the view that
the explanations provided by the European Union do not amount to "cog ent reasons". We are
guided in this regard by the discussion of the panel in US – Countervailing and Anti -Dumping
Measures (China) , where after having identified and reviewed the considerations thought "to
underlie the Appellate Body's conclusion that, abs ent 'cogent reasons', an adjudicatory body will
resolve the same legal question in the same way in a subsequent case", the panel reasoned as
follows:
From the foregoing we conclude that a panel must take the Appellate Body's prior
interpretation as a poin t of departure in its interpretative analysis. However, a panel
may confront the issue, e.g. because it has been raised by a party, of whether there
are any arguments or there is any evidence submitted to the panel that would provide
"cogent reasons" to re ach a different interpretation. In our view, bearing in mind the
Appellate Body's particular function in the WTO dispute settlement system, reasons
that could support but would not compel a different interpretative result to the one
ultimately adopted by t he Appellate Body would not rise to the level of "cogent"
reasons. To our minds, "cogent" reasons, i.e. reasons that could in appropriate cases
justify a panel in adopting a different interpretation, would encompass, inter alia: (i) a
multilateral interpretation of a provision of the covered agreements under Article IX:2
of the WTO Agreement that departs from a prior Appellate Body interpretation; (ii) a
demonstration that a prior Appellate Body interpretation proved to be unworkable in a
particular set of circumstances falling within the scope of the relevant obligation at
issue; (iii) a demonstration that the Appellate Body's prior interpretation leads to a
conflict with another provision of a covered agreement that was not raised before the
Appellate Body; or (iv) a demonstration that the Appellate Body's interpretation was
based on a factually incorrect premise.1914
6.1144. Assuming that the principle of "cogent reasons" could even apply to the present situation,
we find this exposition of the reasons that may lead a panel to take a different interpretative
approach to a particular matter that was the subject of adopted recommendations and rulings to

1911 Appellate Body Report, EC – Bed Linen (Article 21.5 – India), para. 93.
1912 Appellate Body Report, US – Stainless Steel (Mexico), para. 160. (emphasis added)
1913 Appellate Body Report, US – Stainless Steel (Mexico), fn 309.
1914 Panel Report, US – Countervailing and Anti-Dumping Measures (China), paras. 7.315-7.317. See
also Panel Report, China – Rare Earths, paras. 7.55-7.61 and fn 127.

be a useful description of the kinds of considerations that would be relevant to a determination of
whether "cogent r easons" exist. In our view, the arguments the European Union has advanced in
support of its request that we reopen the original panel's findings are of a fundamentally different
nature to the types of considerations identified in US – Countervailing and Anti-Dumping Measures
(China). Moreover, we are not convinced that the European Union has demonstrated that the same
arguments should otherwise compel us to review the original panel's findings. We explain our
views in the following subsections.
The Panel's interpretation was not debated between the parties and third parties
6.1145. The European Union asserts that the original panel's interpretation of Articles 6.3 and 6.4
was not the subject of an exchange of arguments between the parties and third parties in the
original proceeding but rather emerged for the first time in the panel report. 1915 The
European Union submits that when a panel's interpretation "has not been the subject of prior
argument amongst the parties and third parties, it is entirely appropriate that such arguments
should be carefully considered by a compliance Panel". 1916 The European Union emphasizes its
view that the United States itself disagrees with the interpretation in the original panel report.1917
6.1146. We note that it is well established that panels are not obliged to follow the arguments and
legal interpretations advanced by the parties in making an "objective assessment of the matter",
and are free to develop their own legal reasoning within the bounds of their terms of reference. As
the Appellate Body has observed on several occasions:
{N}othing in the DSU limits the faculty of a panel freely to use arguments submitted
by any of the parties – or to develop its own legal reasoning – to support its own
findings and conclusions on the matter under its c onsideration. A panel might well be
unable to carry out an objective assessment of the matter, as mandated by Article 11
of the DSU, if in its reasoning it had to restrict itself solely to arguments presented by
the parties to the dispute.1918
6.1147. Thus, a panel i s perfectly entitled to make an objective assessment of the matter on the
basis of its own legal reasoning that does not necessarily follow the arguments of the parties and
third parties. In our view, this conclusion suggests that the fact that the legal r easoning
underpinning a panel's resolution of a particular matter may not have been based on the
arguments advanced by the parties and third parties cannot be a "cogent reason" that would
justify reviewing a panel's unappealed and adopted findings.
6.1148. In any case, we note that the legal interpretation relied upon by the panel in the original
proceeding did, in fact, draw from and address the arguments presented by the parties. In
particular, the European Communities had argued inter alia that Article 6.4 is the exclusive means
of demonstrating displacement and impedance under Article 6.3(b), which would only be available
if a complainant were able to demonstrate that its like product was non -subsidized.1919 On the
other hand, the United States had argued that Arti cle 6.4 is not the exclusive means of
demonstrating displacement and impedance under Article 6.3(b) but provides further guidance for
the application of Article 6.3(b) in certain circumstances. 1920 The parties' views concerning the
relationship between Articl es 6.3(b) and 6.4 were further explored by the panel in one of its
questions, with respect to which the parties were also given an opportunity to comment on each
other's replies.1921 It is apparent, therefore, that the parties were not denied an opportunity t o
present their views with respect to the very legal question that was at the centre of the original
panel's analysis.
6.1149. The European Union considers it "highly significant" that the United States asks the
compliance Panel to reconsider the arguments the Un ited States advanced in the original

1915 European Union's second written submission, para. 714.
1916 European Union's second written submission, paras. 713, 714, and 727.
1917 European Union's second written submission, para. 715.
1918 Appellate Body Reports EC – Hormones, para. 156; and US – Certain EC Products, para. 123.
1919 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1766.
1920 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1766.
1921 Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.1764 and 7.1766,
fns 5261, 5263, 5266-5270, 5274, and 5275.

proceeding were the matter to be reopened. 1922 It is clear, however, that the United States does
not request us to review the original panel's interpretation. Indeed, the United States submits that
the original panel correctly rejected the European Union's proposed interpretation of Articles 6.3(b)
and 6.4, and that "{t}he result should be the same in this compliance proceeding – if the
{European Union's} non -subsidized like product argument is addressed at all". 1923 The
United States request that the compliance Panel reconsider the interpretation the United States
proposed in the original proceeding is made only on the condition that the compliance Panel allow
the parties to re-argue the original panel's unappealed findings.1924 Thus, we can see no support in
the United States' position in this dispute for the European Union's request to reopen the original
panel's findings.
The Panel's interpretation eliminates or diminishes the requirement to show "causation"
6.1150. The European Union argues that the original p anel's legal findings "diminish" or
"extinguish" the need to demonstrate "causation" for the purpose of establishing the "phenomena"
described in Articles 6.4 and 6.5 of the SCM Agreement.1925 In particular, the European Union
maintains that "the original panel's interpretation stands for the proposition that a temporal
coincidence between subsidy on the one hand and relevant volume changes in third country
markets or price changes in any market on the other hand, will automatically result in a finding of
inconsistency", thereby obviating the need to demonstrate causation. 1926 According to the
European Union, such an interpretation has "extraordinary implications" for the application of the
adverse effects disciplines in the SCM Agreement. For instance, the European Union asserts that
"environmental subsidies" would be "in effect, prohibited", simply because "they happen to
temporally coincide with one of the phenomena described in Articles 6.4 or 6.5".1927
6.1151. In our view, the European Union misinterprets the original panel's findings. We recall that
the original panel determined that the United States was not required to show that its "like
product" was unsubsidized to make out its claim under Article 6.3(b) because: (i) the
United States did n ot rely upon Article 6.4; and (ii) the original panel rejected the European
Communities' submission that Article 6.4 is the exclusive means through which to establish serious
prejudice within the meaning of Article 6.3(b). In particular, the original panel found that the "shall
include" language in the first sentence of Article 6.4 indicates that resort to Article 6.4 is only one
way of showing displacement and impedance in third country markets. Thus, the original panel's
observations concerning the conten t of Article 6.4 – i.e. the original panel's view that Article 6.4
describes "a particular situation … in which a demonstration that market share of the subsidized
product … increased" would suffice to make out a prima facie case of serious prejudice under
Article 6.3(b) – were ultimately irrelevant to the panel's disposition of the matter. Rather, as
already noted, it was the original panel's interpretation of the relationship between Articles 6.3(b)
and 6.4 that enabled it to decide the relevant question. In other words, the legal basis of the
original panel's finding did not concern the issue of "causation", as the European Union argues, but
rather the question whether Article 6.4 is the exclusive means through which to demonstrate
serious prejudice within the meaning of Article 6.3(b).
The Panel's interpretation is erroneous for other reasons
6.1152. The European Union takes issue with several "other related matters referenced by the
original panel".1928 In particular, the European Union challenges the original panel's: (i) description
of Article 6.4 as a "special rule"1929; (ii) conclusions, drawn from the "shall include" language in the
first sentence of Article 6.4, about the relationship between Articles 6.3(b) and 6.4 1930;
(iii) concerns regarding the European Commu nities' original submission that any subsidy, no

1922 European Union's second written submission, paras. 707 and 715.
1923 United States' second written submission, para. 437.
1924 United States' second written submission, para. 426.
1925 European Union's first written submission, paras. 658-679; and second written submission,
paras. 716-726.
1926 European Union's second written submission, para. 716.
1927 European Union's second written submission, para. 716.
1928 European Union's first written submission, paras. 680-686.
1929 European Union's first written submission, para. 681.
1930 European Union's first written submission, para. 682.

matter how small or non -specific it was, would render Article 6.3 unavailable 1931; (iv) reference to
preparatory work1932; and (v) view of how its interpretation fits with the overall architecture of
Article 6 of the SCM Agreement.1933
6.1153. In our view, the European Union's submissions articulate reasons why the
European Union disagrees with the original panel's findings concerning the relationship between
the relevant provisions and certain "other related matters referenced" in the panel report. We note
that a number of the points made by the European Union were already raised and dismissed
during the original panel proceeding. 1934 To the extent that they were not, the European Union's
submissions appear to be arguments that a party might raise in an appeal of a legal interpretation
before the Appellate Body – which this compliance Panel is not. The fact that a party disagrees
with a legal interpretation developed by an original panel, that has not been appealed and was the
subject of adopted DSB recommendations and rulings, cannot be a "cogent reason" for a
compliance panel in the same dispute to reopen those findings.
6.6.4.3.3.3 Conclusion
6.1154. Thus, for all of the above reasons, we find that: (i) the adopted recommendations and
rulings in US – Large Civil Aircraft (2nd complaint) in relation to the subsidization of Boeing LCA do
not mean there is now a new "matter" before the compliance Panel as regards the
European Union's reliance on Article 6.4 to reject the United States' claims made u nder
Article 6.3(b); and (ii) even assuming that it is legally permissible for a compliance panel to review
a legal interpretation developed by an original panel that was unappealed and adopted by the DSB
in the same dispute, the European Union has failed to identify any "cogent reasons" for doing so.
Accordingly, we dismiss the European Union's request for the compliance Panel to reject the
United States' claims under Article 6.3(b) and (c) of the SCM Agreement in the light of the adopted
recommendations a nd rulings in US – Large Civil Aircraft (2 nd complaint) in relation to the
subsidization of Boeing LCA.
6.6.4.4 Whether the United States brought its claims with respect to appropriate
product markets
6.6.4.4.1 Arguments of the United States
6.1155. The United States submits that there are three separate product markets relevant to its
claims of serious prejudice in this dispute: the market for single -aisle passenger aircraft; the
market for twin -aisle passenger aircraft; and the market for very large passenger aircraft. 1935
According to the United States, the alleged aircraft markets reflect the following competitive
relationships between different Airbus and Boeing LCA:

1931 European Union's first written submission, paras. 683-684.
1932 European Union's first written submission, para. 685.
1933 European Union's first written submission, para. 686.
1934 Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.1763, 7.1764,
7.1769-7.1770, and fn 5275.
1935 The United States maintains that freighter aircraft are also properly characterized as "large civil
aircraft". However, the United States argues that freighter aircraft do not compete in the same product
markets as passenger aircraft, there being at present: (a) the market for medium-sized twin-aisle freighter
aircraft (where the A330F and the 767F compete); and (b) the market for large or very large freighter aircraft
(where the 777F and the 747F are sold). The United States has presented no separate data relating to Airbus
sales or deliveries of freighter aircraft in the post-implementation period. (See, e.g. United States' response to
Panel question Nos. 40 and 154). This is the period upon which we later focus in resolving the United States'
claims under Article 6.3 of the SCM Agreement. (See below para. 6.1779 et seq.). Thus, we ultimately limit our
examination of the United States' claims under Article 6.3 of the SCM Agreement to passenger aircraft.

Table 14: Competitive relationships between LCA according to the United States
Market of Competition Subsidized Product Like Product
Single-Aisle Aircraft A318, A319, A319neo,
A320, A320neo, A321,
A321neo
737-600, 737-700, 737
MAX 7, 737-800, 737
MAX 8, 737-900ER, 737
MAX 9
Twin-Aisle Passenger
Aircraft
A330-200, A330-300,
A340-300, A340-500,
A340-600, A350XWB-
800, A350XWB-900,
A350XWB-1000
767-300ER, 787-8, 787-
9, 777-200ER, 777-
200LR, 777-300ER
Very Large Aircraft A380 747-8

6.6.4.4.2 Arguments of the European Union
6.1156. The European Union rejects the United States' characterization of the three alleged
passenger aircraft markets. According to the European Union, there are currently more than three,
and up to six or seven, passenger 1936 aircraft markets in the LCA industry. For the
European Union, the potential aircraft markets reflect the following competit ive relationships
between different Airbus and Boeing LCA:
Table 15: Competitive relationships between LCA according to the European Union
Market of Competition Subsidized Product Like Product
Single-Aisle Aircraft
Current versions, near-
term delivery
A318, A319, A320, A321 737-600, 737-700, 737-
800, 737-900ER
New generation, end of
decade delivery
A319neo, A320neo,
A321neo
737 MAX 7, 737 MAX 8,
737 MAX 9
Twin-Aisle Aircraft
 None 767-300ER
Smaller, medium-range,
near-term delivery
A330-200, A330-300 None
New generation,
deliveries further into the
future
A350XWB-800,
A350XWB-900,
A350XWB-1000
787-8, 787-9
Larger, longer-range,
near-term delivery
None 777-200ER, 777-200LR,
777-300ER
Smaller, very large
aircraft
None 747-8
Larger, new generation,
very large aircraft
A380 None

1936 The European Union does not dispute the United States' assertion concerning the existence of
different product markets for freighter and passenger aircraft.

6.6.4.4.3 Evaluation by the Panel
6.6.4.4.3.1 Introduction
6.1157. During the original Appellate Body proceeding the parties appeared to accept (or at least
did not object to the notion) that competition in the LCA industry could b e viewed as taking place
in three distinct passenger aircraft product markets, namely, the single -aisle, twin-aisle and VLA
markets.1937 However, in this compliance proceeding, the European Union argues that this
portrayal of competition in the LCA industry i s no longer justified. According to the
European Union, passenger LCA are today bought and sold in up to six or seven distinct product
markets, two of which are allegedly "temporal" monopoly markets where either Airbus or Boeing is
at present the sole credible supplier. The European Union also appears to argue that there may be
no product market at all in which the 767 -300ER is currently sold. 1938 The European Union has
made extensive submissions to support its view of present -day competition in the LCA sector ,
referring to multiple pieces of evidence including two separate declarations from an Airbus Senior
Vice President 1939 as well as an expert report by a competition policy economist. 1940 The
United States, on the other hand, submits that the same three passenger LCA product markets
relied upon by the Appellate Body in the original proceeding to "complete the analysis" continue to
exist today. The United States has also presented extensive arguments and referred to multiple
pieces of evidence, including one declaration from a Boeing Senior Vice President1941 and an expert
report from a competition policy economist. 1942 Before turning to examine the merits of the
parties' respective positions, we first recall the Appellate Body's findings with respect to the
relevant product markets in the original proceeding, highlighting the extent to which these findings
and the accompanying guidance provided by the Appellate Body on how to identify relevant
product markets can assist the Panel's own task of determining whether the Unit ed States has
properly framed its claims of serious prejudice.
6.6.4.4.3.2 Product market findings in the original proceeding
The need to identify relevant product markets in serious prejudice disputes
6.1158. In the original proceeding, the Appellate Body overturned the pan el's ruling that the
United States was entitled to bring its claims of serious prejudice on the basis of a single
"subsidized product", finding that the panel erred in concluding that it was not required "to make
an independent determination of the 'subsid ized product', as opposed to relying on the
United States' identification of the product".1943
6.1159. According to the Appellate Body, the original panel was required to make "an independent
and objective assessment" of the serious prejudice claims put forward by t he United States,
including whether it was appropriate to examine all Airbus LCA as a single "subsidized product"
and all Boeing LCA as a single "like product". This necessitated a determination of whether the
"like product" and the "subsidized product" co mpeted in the same product market or different
product markets. 1944 In the Appellate Body's view, such an analysis called upon the panel to

1937 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1177-1178. The
European Union's main argument in the original proceeding was that there were, in fact, five relevant product
markets. The Appellate Body explicitly declared that it had "not endorsed the five product market approach
proposed by the European Communities". (Appellate Body Report, EC and certain member States – Large Civil
Aircraft, para. 1226).
1938 The European Union seems to suggest that there is no market for the 767. (European Union's
response to Panel question No. 70, para. 285 (citing Christophe Mourey, Senior Vice President Contracts,
Airbus, Supplemental Statement on Current Competitive Conditions in the LCA Industry, 12 December 2012,
(Supplemental Mourey Statement), (Exhibit EU-124) (BCI/HSBI), paras. 33-34))
1939 Mourey Statement, (Exhibit EU-8) (BCI); and Supplemental Mourey Statement, (Exhibit EU-124)
(BCI/HSBI).
1940 Dr David Sevy, "Comment on the Declaration of Dr Chetan Sanghvi", 24 June 2013, (Sevy
Declaration), (Exhibit EU-395).
1941 Bair Declaration, (Exhibit USA-339) (BCI).
1942 Expert Declaration of Dr Chetan Sanghvi, NERA, 21 May 2013, (Sanghvi Declaration), (Exhibit
USA-530).
1943 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1129, 1137
(citing Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1653), and 1174.
1944 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1129.

analyse the nature and extent of actual or potential competition between different models of
Airbus LCA by carefully sc rutinizing "the competitive conditions of the market". 1945 This included
evaluating the merits of the European Union's allegation that there were five distinct product
markets of Airbus and Boeing LCA.1946
6.1160. The Appellate Body derived the panel's obligation from the language in Articles 6.3(a) and
6.3(b) of the SCM Agreement, and in particular, the focus of these provisions on the existence of
displacement or impedance of imports and exports into or from a particular market. The
Appellate Body interpreted this foc us to mean that a "subsidized product" may only be found to
displace or impede the importation or exportation of a "like product" if it is determined that the
two products compete in the same product market.1947 Thus, in order for a serious prejudice claim
under Articles 6.3(a) and 6.3(b) of the SCM Agreement to succeed, the Appellate Body found that
a complainant must ensure that it has correctly identified the relevant product market where any
displacement or impedance is alleged to occur. 1948 Elsewhere in its report, the Appellate Body
came to the same conclusion with respect to claims of serious prejudice in the form of lost sales
within the meaning of Article 6.3(c) of the SCM Agreement – namely, that such lost sales can only
exist in situations where the "su bsidized product" and the "like product" compete in the same
market.1949 It follows, therefore, that when considering the merits of a serious prejudice claim
under Articles 6.3(a), 6.3(b) and 6.3(c) of the SCM Agreement, a panel must make an objective
assessment of the competitive relationship between specific products and thereby determine the
extent to which a complainant has brought its case with respect to the correct product markets.
Implications of the need to identify relevant product markets in serious prejudice
disputes
6.1161. The Appellate Body findings reveal that in order to show that a "subsidized product"
causes serious prejudice to a "like product" for the purpose of making out a claim under Article 6.3
of the SCM Agreement, it must first be demonstrate d that the two products in question are in
actual or potential competition. Thus, a key threshold question that will need to be addressed in
serious prejudice disputes will be the extent to which the "subsidized product" and the "like
product" compete in t he same product market. Where a complainant cannot demonstrate that
these two products compete in the same product market, it will be unable to substantiate a claim
of serious prejudice. In other words, a finding that the two products are in separate produ ct
markets will imply that those products are so distinct from one another, and that the competitive
relationship between them is so remote that, as a matter of law , any degree or amount of
subsidization of a respondent's product cannot logically cause ser ious prejudice to the complaining
Member's interests through its effects on the complainant's product. Thus, the Appellate Body's
ruling appears to imply that the identification of relevant product markets will be a critical, and
potentially decisive, part of the analysis that will have to be undertaken in all serious prejudice
disputes.
Product markets applied by the Appellate Body to "complete the analysis"
6.1162. Having concluded that in the absence of an objective determination of the relevant
product markets the original panel's conclusion that there was a single "subsidized product" and a
single "like product" could not stand, the Appellate Body reversed the panel's findings of
displacement.1950 The Appellate Body then considered whether it was able to "complete the
analysis" regarding the existence of a single or multiple product markets. 1951 As it reviewed the
undisputed factual findings made by the panel, the Appellate Body opined that it was not apparent
that the panel had engaged "in a thorough and meaningful m anner" with the evidence regarding
the factors that the Appellate Body identified as being relevant to assessing the conditions of

1945 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1129. (emphasis
added)
1946 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1131.
1947 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1118-1119.
1948 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1128-1130.
1949 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1214.
1950 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1174.
1951 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1139-1147.

competition in the LCA market. The Appellate Body therefore considered that the panel's findings
did not allow it to draw conclusions as to the proper scope of the relevant product market(s).1952
6.1163. Nevertheless, for two Members of the Appellate Body Division the particular
circumstances of the dispute were such that they believed it was possible to "complete the
analysis" with respec t to the United States' claims of displacement. 1953 The particular
circumstances that rendered this possible were the following:
a. The European Union's appeal of the panel's finding of displacement was "limited", since it
did not request the Appellate Body to " reverse the displacement findings in their
entirety".1954
b. The European Union acknowledged that "displacement could be assessed on the basis of
either three or five product markets".1955
c. There was uncontested evidence of Airbus' and Boeing's volume of sales and m arket
shares for each of the relevant markets at issue.1956
6.1164. The two Appellate Body Members therefore proceeded to "complete the analysis" on the
basis of the following three product markets:
a. The product market for single-aisle LCA;
b. The product market for twin-aisle LCA; and
c. The product market for very large aircraft.1957
6.1165. The Appellate Body explained that by proceeding in this manner, it was examining the
data from the perspective proposed by the European Union, to the extent that it was not contested
by the United States. Importantly, the Appellate Body did not make its own finding that the above
segments represented distinct product markets. Nevertheless, the fact that the parties did not
object to the possibility of evaluating the merits of the United States' displacement claims on the
basis of the above three product segments shows that the product market delineation the
United States advances in the present dispute was, at the time, accepted by the European Union.
6.1166. Finally, in rejecting the European Union's appeal against the panel's findings of lost sales
with respect to the Emirates A380 sales campaign, it is notable that the Appellate Body confirmed
the original panel's view that the A380 and 747 were direct competitors in this sales campaign.
Thus, after reviewing the factual basis of the panel's findings, the Appellate Body concluded that:
In our view, the Panel's findings that there is competition between the Airbus A380
and the Boeing 747 and that Airbus and Boeing competed for the Emirates sale even
though formal offers may not have been requested or made, provided a sufficient
basis for the Panel's finding of lost sales.1958
6.1167. While the Appellate Body's apparent acceptance of the existence of competition between
the A380 and the 747 during the Emirates sales ca mpaign in 2000 is not dispositive of the
question whether the same products compete in the alleged market for VLA for the purpose of the
present dispute, the Appellate Body's conclusions strongly suggest that, at the time, the

1952 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1142.
1953 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1174 and 1205.
1954 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1175. The
European Union did not seek reversal of the findings of displacement in the single-aisle, 200-300 seat and
300-400 LCA (or twin-aisle) markets of China, Korea and the European Union, and the single-aisle LCA market
of Australia.
1955 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1176.
1956 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1177.
1957 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1178.
1958 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1228.

Appellate Body was not willing to accept that the two LCA products were sold into different product
markets.
Guidance for how to identify relevant product markets
6.1168. Although the Appellate Body explicitly declined to make any findings with respect to the
relevant product markets for the purpose of the original proceeding, it does appear to have
provided a degree of guidance on how such markets might be identified.
6.1169. The Appellate Body explained that "two products would be in the same market if they
were engaged in actual or potential compe tition in that market". 1959 The Appellate Body clarified
that this would be the case when two products are "sufficiently substitutable so as to create
competitive constraints on each other". 1960 Although the Appellate Body did not explicitly qualify
the nature or degree of competitive constraints that need to be present in order to conclude that
two products are substitutable, it did refer with approval to the views of one particular
commentator who explains that the relevant market for the purpose of competition policy should
consist of "the set of products (and geographical areas) that exercise some competitive constraint
on each other". 1961 Moreover, the Appellate Body also explained that where the evidence shows
that the competitive relationship is not direct and "at most, indirect or remote", this must be
properly taken into account in the analysis.1962
Demand-side substitutability
6.1170. The Appellate Body described demand -side substitutability as the situation when "two
products are considered substitutable by consumers" .1963 According to the Appellate Body, the
absence of demand -side substitutability between two products would suggest that they are likely
to compete in two distinct markets, rather than in a single market. 1964 Thus, demand-side
substitution will be an "indispen sable"1965 and "critical"1966 criterion to consider when identifying
product markets.
6.1171. In terms of the factors that should be considered when trying to determine the
demand-side substitutability of two products, the Appellate Body noted that an examination of
physical characteristics, general end-uses and consumer preferences could be useful. However, the
Appellate Body emphasized that these "should not be treated as the exclusive factors" to consider
when deciding whether two products exert competitive constraints on each other.1967 The extent to
which "customers procure a range of products to satisfy their needs" may also "give an indication
that all such products could be competing in the same market". 1968 The Appellate Body also
suggested that a test commonly used i n the field of competition regulation to ascertain whether
two products exercise competitive constraints on each other, the so -called "Small but Significant
Non-Transitory Increase in Prices" test (the SSNIP test or hypothetical monopolist test), could be
used to help guide the identification of relevant product markets 1969, explaining further that this
test could be implemented through the use of cross -price elasticity and price correlation
analyses.1970

1959 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1122 (citing
Appellate Body Report, US – Upland Cotton, para. 408).
1960 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1120.
1961 Appellate Body Report, EC and certain member States – Large Civil Aircraft, fn 2467. (emphasis
added)
1962 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1136.
1963 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1121.
1964 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1134.
1965 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1121.
1966 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1134.
1967 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1120. (emphasis
added)
1968 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1120.
1969 Appellate Body Report, EC and certain member States – Large Civil Aircraft, fn 2468.
1970 Appellate Body Report, EC and certain member States – Large Civil Aircraft, fn 2492 (citing G.J.
Stigler and R.A. Sherwin, "The Extent of the Market", (1985) 28 Journal of Law and Economics 555).

Supply-side substitutability
6.1172. According to the Appellate Body, a consideration of substitutability on the supply-side
may also be required in order to determine whether two products compete in the same product
market. For example, the Appellate Body noted that "evidence on whether a supplier can switch its
production at limited or prohibitive cost from one product to another in a short period" could be
used to inform the question of whether two products are in a single product market.1971
6.6.4.4.3.3 Whether the United States has demonstrated the existence of three product
markets for passenger LCA
6.1173. Mindful of the Appellate Body's guidance concerning the importance of identifying
relevant product markets and the way in which this must be done, we now turn to examine
whether the United States has established the existence of the th ree allegedly distinct passenger
LCA product markets it has used for the purpose of bringing its serious prejudice complaint. We
begin our assessment by answering what is essentially a fundamental threshold question raised by
the European Union, namely, wh ether the United States has sought to substantiate the existence
of the alleged single -aisle, twin-aisle and very large LCA product markets using the appropriate
kind of evidence. After addressing the European Union's contentions on this point, we respond to a
second general overarching criticism the European Union has made of the United States' product
market arguments, namely, that they fail to support the existence of the three alleged LCA product
markets because they do not demonstrate that " significant competitive constraints" exist between
the full range of aircraft the United States maintains fall within the scope of the same relevant
product market. Finally, we turn to evaluate the merits of the United States' product market
submissions. After setting out our own understanding of the general conditions of competition that
exist in the LCA industry today, we proceed to assess the arguments and evidence the parties
have advanced and relied upon to support their different positions with respect to the ex istence of
the three alleged LCA product markets.
Whether the United States has sought to establish the existence of the relevant product
markets using the appropriate kind of evidence
6.1174. The European Union submits that the United States has failed to demons trate the
existence of the three separate passenger LCA product markets it relies upon to make its claims of
serious prejudice, in part because the United States has not presented any quantitative analysis in
support of its allegations of demand -side substitutability between the relevant LCA products. By
not doing so, the European Union maintains that the United States has ignored the "requirement"
to "perform the very analyses that the Appellate Body directed must be performed for the very
same claims involving the very same sector at issue in this very dispute".1972
6.1175. The European Union recalls that, after noting that two products will be in the same
product market when they are substitutable, the Appellate Body referred to and briefly explained
how the SSNIP test is commonly used to ascertain whether two products exercise a competitive
constraint on each other, and thereby, determine their substitutability. 1973 According to the
European Union, the SSNIP test was cited by the Appellate Body as one example of the t ype of
quantitative analysis that the United States was required to use to identify the relevant product
markets in the LCA industry.1974 The European Union acknowledges, however, that the SSNIP test
would be an "imperfect tool" to use for this purpose, as it s results would not be "meaningful"
without "information on prices covering a significant period of time". 1975 Indeed, the
European Union "recognizes that there may be instances where the requisite data is unavailable
and thus quantitative tools may not provi de a definitive answer". 1976 Nevertheless, the
European Union argues that "{w}hatever the merits of a SSNIP test in the circumstances at hand",

1971 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1122.
1972 European Union's comments on the United States' response to Panel question No. 157, paras. 238,
241, 246 and 248.
1973 European Union's response to Panel question Nos. 51 (para. 234) and 56 (para. 267).
1974 European Union's response to Panel question No. 51, para. 239; and comments on the
United States' response to Panel question No. 51, paras. 244 and 362.
1975 European Union's comments on the United States' response to Panel question Nos. 51 (para. 363)
and 157 (paras. 331 and 333).
1976 European Union's response to Panel question No. 56, para. 269.

the United States is not entitled to "jettison any effort to apply an alternative quantitative market
definition to ol {or multiple quantitative tools}, in favour of a purely qualitative approach". 1977
Thus, the European Union argues that the lack of any quantitative analysis in the
United States' relevant product market submissions means that they offer "no methodology or
basis to draw lines between stronger competitive relationships that place products in the same
market, and weaker relationships that are insufficient to do so" 1978, and must, therefore, be
rejected.
6.1176. The United States maintains that the Appellate Body did no t, as the European Union
asserts, state that a complainant must advance "substantial evidence, rooted in quantitative and
analytical rigour" when identifying the relevant product markets in a serious prejudice dispute. 1979
Rather, according to the United States, the Appellate Body's reference to the SSNIP test was a
"passing reference in a footnote" made for the purpose of identifying a test commonly used to
ascertain whether two products are in the same market.1980 Thus, in the view of the United States,
the App ellate Body's reference to the SSNIP test did not establish a "threshold legal
requirement".1981 Furthermore, the United States submits that a requirement that product markets
"must be established with quantitative evidence would be illogical because there ar e situations
where quantitative analysis is not possible or is simply not necessary because of the qualitative
evidence available or for other analytical reasons".1982 In this regard, the United States argues that
"historical information on negotiated prices covering a significant period of time would be needed
to conduct a relevant quantitative analysis of LCA markets". 1983 Moreover, even if available, the
United States submits that such pricing information would not be sufficient in the present instance
because: (a) the small number of sales transactions means there are insufficient data points to
properly analyse the complicated products at issue; (b) LCA are differentiated products making
any market definition derived from a SSNIP test relatively unreliable, p articularly if measured from
a limited data set; and (c) this dispute involves subsidies that "have already affected the products
available in the market", implying that any quantitative analysis would need to be corrected for
such pre-existing effects.1984
Did the United States have an obligation to present quantitative evidence?
6.1177. In asserting that the Appellate Body made "eminently clear" that "complainants must
provide evidence, in the form of quantitative market definition tools such as the SSNIP test, of
sufficient quantitative and analytical rigour to enable the assessment of products markets based
on demand -side substitutability" 1985, the European Union refers most often to the following two
paragraphs from the Appellate Body's report:
Our interpretation is consistent with the fundamental economic proposition that a
market comprises only those products that exercise competitive constraint on each
other.2467 This is the case when the relevant products are substitutable. 2468 Although
physical characteristics, end-uses, and consumer preferences may assist in deciding
whether two products are in the same market, they should not be treated as the
exclusive factors to consider in deciding whether those products are sufficiently
substitutable so as to create competi tive constraints on each other. Indeed, whether
two products compete in the same market is not determined simply by assessing
whether they share particular physical characteristics or have the same general uses;
it may also be relevant to consider whether customers demand a range of products or
whether they are interested in only a particular product type. In the former case,

1977 European Union's response to Panel question No. 157; and comments on the United States'
response to Panel question No. 157, para. 334.
1978 European Union's comments on the United States' response to Panel question No. 157, para. 334.
1979 United States' comments on the European Union's response to Panel question No. 157, para. 112
(quoting European Union's response to Panel question No. 157, para. 333). (emphasis original)
1980 United States' comments on the European Union's response to Panel question No. 157, para. 113.
1981 United States' comments on the European Union's response to Panel question No. 157, para. 113.
1982 United States' comments on the European Union's response to Panel question No. 157, para. 113.
1983 United States' response to Panel question No. 157, para. 114. (emphasis original)
1984 United States' response to Panel question No. 157, paras. 115-121; and Sanghvi Declaration,
(Exhibit USA-530), paras. 29 and 42.
1985 European Union's comments on the United States' response to Panel question No. 56, para. 362;
and response to Panel question No. 157.

when customers procure a range of products to satisfy their needs, this may give an
indication that all such products could be competing in the same market.
Demand-side substitutability—that is, when two products are considered substitutable
by consumers —is an indispensable, but not the only relevant, criterion to consider
when assessing whether two products are in a single market. Rath er, a consideration
of substitutability on the supply -side may also be required. For example, evidence on
whether a supplier can switch its production at limited or prohibitive cost from one
product to another in a short period of time may also inform the question of whether
two products are in a single market. (emphasis original)
2467 The term "market" has been defined as "{g}enerally, any context in which the sale and
purchase of goods and services takes place." ( Macmillan Dictionary of Mo dern Economics, 4th
edn, D.W. Pearce, J. Cairns, R. Elliot, I. McAvinchey, R. Shaw (eds) (Palgrave McMillan, 1992),
p. 266) Another definition of the term "market" is "{a} collection of homogenous transactions. A
market is created whenever potential sellers of a product are brought into contact with potential
buyers and a means of exchange." ( Dictionary of Economics, 2nd edn, G. Bannock, R.E. Baxter,
E. Davis (eds) (The Economist Books, 1999), p. 262) See also European Court of Justice,
Judgment, Case 27/76 , United Brands Company and United Brands Continental BV v.
Commission [1978] ECR 207 ; and US Supreme Court, Brown Shoe Co., Inc. v. United States,
370 US 294 (1962). The recently revised merger guidelines issued by the US Department of
Justice and the Federal Trade Commission also provide a useful reference for understanding the
word "market". (See US Department of Justice and the Federal Trade Commission, Horizontal
Merger Guidelines, 19 August 2010) The term "market" has also been defined for purposes of EU
competition law. (See European Commission Notice on the definition of relevant market for the
purposes of Community competition law, p ublished in the Official Journal of the European
Communities, C Series, No. 372 (9 December 1997)) One commentator sub mits that a market
definition, both from a product and geographical point of view, "is not of interest by itself, but
only as a preliminary step towards the objective of assessing the market power of the firms
under analysis." (M. Motta, Competition Policy : Theory and Practice , p. 101) Thus, since a
market definition "is instrumental only to the assessment of market power, the relevant market
should not be a set of products, which 'resemble' each other on the basis of some characteristics,
but rather the se t of products (and geographical areas) that exercise some competitive
constraint on each other." (Ibid., p. 102) (footnote original)

2468 Motta, supra, footnote 2647, p. 103. A test that is commonly used to ascertain whether two
products exercise competit ive constraint on each other, and thus "should guide the analysis of
market definition in both the product and the geographic dimension", is the so -called "Small but
Significant Non-Transitory Increase in Prices" test ("SSNIP", also described as the "hypot hetical
monopolist" test). (Ibid., p. 102) Put simply, this test asks whether or not a hypothetical seller of
a certain product would find it profitable to raise the price of that product by a certain amount. If
the price increase is found to be profitable , this would generally indicate that the product does
not face significant competitive constraint from other products, and that it should therefore be
considered to be in a separate market. Conversely, if the increase in price is found not to be
profitable, this indicates that the product should not be considered to be in a separate market, as
there exist other products that exercise competitive constraint on the seller. The test should, in
such cases, continue to consider a wider market until a profitable hypothetical price increase is
found, thus indicating the scope of the relevant market. (Ibid., p. 105)1986 (footnote original)

6.1178. In our view, there is nothing in the above Appellate Body statements to suggest that it
believes a complainant bringing a serious prejudice complaint must identify the relevant product
markets by using evidence that is "rooted in" quantitative analyses . In the above passage, the
Appellate Body observes that any determination of the substitutability of two products cannot be
limited t o considerations of "physical characteristics, end -uses, and consumer preferences";
declaring that "it may also be relevant to consider whether customers demand a range of products
or whether they are interested in only a particular type". Moreover, while emphasizing that
considerations of demand -side substitutability will be "indispensable" to an analysis of relevant
product markets, the Appellate Body explains that it may also be necessary to consider the extent
to which two or more products are substitutable on the supply-side. Thus, as we understand it, the
passage from the Appellate Body's report that is relied upon by the European Union simply stands
for the proposition that in determining whether two products are sufficiently substitutable so as to
create competitive constraints on each other, and therefore form part of the same product market,

1986 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1120-1121.

it will be important to explore and analyse the particular characteristics and features of demand
and, in certain situations, supply.
6.1179. Importantly, in setting o ut the above guidance on how to identify relevant product
markets, the Appellate Body did not clarify whether the factors and criteria it chose to describe
should be analysed using quantitative or qualitative methods. Indeed, the words "qualitative" and
"quantitative" do not appear anywhere in the Appellate Body's explanation. This may have been
because it is conceivable that the factors and criteria it chose to refer to could be analysed,
assuming the availability of relevant and reliable data, using both methods of analysis. In this
light, we see the Appellate Body's reference in footnote 2468 to the SSNIP test to represent the
identification of one example of a quantitative tool of analysis that it considered may be usefully
applied, depending upon the ci rcumstances, to inform the determination of relevant product
markets, without being decisive. The fact that the Appellate Body identified this test as one "that is
commonly used to ascertain whether two products exercise competitive constraints on each
other"1987 is, in our view, a clear indication that the Appellate Body did not intend to declare that
the SSNIP test, or by implication any other quantitative methods of analysis, must be applied in
each and every serious prejudice dispute to identify relevant p roduct markets. Thus, as we
understand it, and contrary to the European Union's assertions, the Appellate Body did not in the
above paragraphs establish a rule that complainants in serious prejudice cases must use the
SSNIP test, or any other quantitative methods of analysis, when determining the existence of
relevant product markets. Rather, as part of its effort to highlight the need to undertake an
objective evaluation of all relevant factors bearing upon the extent to which two products are
substitutable, and therefore place competitive constraints on each other, the Appellate Body
referred to the SSNIP test as one tool that it considered might be usefully applied to guide the
determination of relevant products markets.
6.1180. Our understanding of the Appellate Body's guidance is confirmed by its statements
elsewhere in its report. In faulting the panel's decision during the original proceeding to evaluate
the merits of the United States' serious prejudice claims on the basis of only one "subsidized
product" and one "like product" that encompassed all LCA, the Appellate Body noted that the
original panel had "failed to test, in any way, the scope of the market in particular countries by, for
example, analyzing cross -price elasticity". 1988 In a footnote attached to t his observation, the
Appellate Body explained that cross -price elasticity is "one of the tools that can help when
implementing the SSNIP test", together with the "price correlation tests favoured by Stigler and
Sherwin".1989 The Appellate Body concluded by sa ying that "{s}uch an analysis would have
assisted the Panel in reaching more solid conclusions as to the extent of the relevant market in
this case".1990 Again, the Appellate Body did not conclude that the panel's findings in the original
proceeding could not be upheld because of the absence of any analysis of cross -price elasticities.
Rather, the Appellate Body found that our analysis with respect to the existence of one or more
"subsidized products" and "like products" would have been "assisted" and our conc lusions "more
solid" had we performed such analysis. We are not convinced that in making this finding, the
Appellate Body intended to establish a requirement that the United States, and by extension all
complainants in serious prejudice cases, must use qua ntitative analyses to identify relevant
product markets.
The importance of reliable pricing information
6.1181. In the present proceeding, the United States has sought to substantiate the existence of
the three product markets it relies upon without using a SSNIP test or analysing cross -price
elasticities or price correlations. The parties agree that in order to perform these kinds of analyses,
a significant volume of historical price information would be necessary. 1991 Indeed, because the
price of an LCA product will invariably depend upon the particular characteristics of any individual

1987 (emphasis added)
1988 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1134.
1989 Appellate Body Report, EC and certain member States – Large Civil Aircraft, fn 2492.
1990 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1134. (emphasis
added)
1991 European Union's response to Panel question No. 157; and United States' response to Panel
question No. 157. While the United States submits that accurate historical price information covering a
significant period of time would be necessary to produce relevant quantitative analyses of LCA markets, it
argues that such price information would not alone be sufficient to produce meaningful quantitative analyses.

sales campaign or negotiation with a particular client, it is apparent that the prices that would be
most informative and meaningful for the purpose of conducting a quantitative analy sis of
demand-side substitution in the LCA industry are those that are actually paid by customers, net of
all discounts, rebates and other concessions, which in this sector are not only systematically
applied but also [***] and variable. 1992 However, neither party has suggested that historical
pricing data of this kind, which is among the most commercially sensitive information for both
Airbus and Boeing (and no doubt many of their customers), is, or even could be made, readily
available. Indeed, we note that when asked to disclose the anticipated A350XWB price information
used by Professor Whitelaw to derive the internal rates of return of the four A350XWB LA/MSF
contracts challenged by the United States in this proceeding, the European Union redacted the
price data from its response. 1993 Similarly, no information was provided by the European Union
concerning the price concessions used to interpret the results of the NPV analyses conducted in the
Supplemental Mourey Statement.
6.1182. According to the European Union, limi tations on the availability of the data needed to
perform quantitative analyses do not render the use of such tools of no assistance to the task of
identifying relevant product markets. In such circumstances, the European Union argues that the
solution is to seek alternatives, or to employ multiple tools, rather than to abandon such tools
entirely.1994 The European Union finds support for this view in various passages of the Sevy
Declaration. We note, however, that the one example that is cited in the Sevy Dec laration of a
quantitative study that managed to model demand using a "limited amount of data" 1995 and at the
same time provide "significant insights into substitution", relied upon information on " prices, sales
and physical characteristics of (essentially) a ll cars sold in five European markets during
1970-1999".1996 Indeed, the Sevy Declaration identifies no quantitative tool of analysis that is
commonly used by competition authorities to implement the "hypothetical monopolist test" that
can be meaningfully app lied without reliable information on prices. 1997 This is not surprising as
consideration of marketplace responses to changes in prices 1998 lies at the heart of what is
described in the Sevy Declaration as the "HMT logic". 1999 Thus, while asserting the fundamental
importance of quantitative tools of analyses to the task of competition authorities to define
relevant markets, including with respect to differentiated products, we do not understand the Sevy
Declaration to suggest that any such analyses could be meaningfu lly undertaken without reliable
information on prices. 2000 On the contrary, in a number of paragraphs, the Sevy Declaration

1992 Mourey Statement, (Exhibit EU-8) (BCI), para. 67. See also below, paras. 6.1216-6.1217.
1993 European Union's response to Panel question No. 132; and United States' comments on the
European Union's response to Panel question No. 132.
1994 European Union's comments on the United States' response to Panel question No. 51, paras. 361-
363; and response to Panel question No. 157, paras. 331-334.
1996 Frank Verboven, Catholic University of Leuven, "Quantitative Study to Define the Relevant Market in
the Passenger Car Sector", Report commissioned by the Directorate General of Competition of the European
Commission, 17 September 2002, (Exhibit USA-572), p. 16 (cited in the Sevy Declaration, (Exhibit EU-395),
fn 34). (emphasis added)
1997 The Sevy Declaration appears to identify "critical loss analysis" as one alternative to the SSNIP test.
However, it is apparent from the description of this analysis included in the Sevy Declaration that information
on prices will be fundamental to its implementation. (Sevy Declaration, (Exhibit EU-395), paras. 38 and 42,
and fn 26). Moreover, the OECD describes "critical loss analysis" as "not an alternative to the {hypothetical
monopolist test} but a way to implement this test". The OECD's description of how to perform a "critical loss
analysis" also reveals that its proper implementation will depend upon the availability of price information that
is very similar if not identical to that needed to determine cross-price elasticities of demand. (See also,
United States Department of Justice and the Federal Trade Commission, Horizontal Merger Guidelines, p. 12).
1998 See general discussion of the "hypothetical monopolist test" in United States Department of Justice
and the Federal Trade Commission, Horizontal Merger Guidelines, pp. 8-13. See also European Commission,
Commission Notice on the definition of relevant market for the purpose of Community competition law, Official
Journal of the European Communities, C372/5, 9 December 1997, (Notice on Market Definition),
(Exhibit USA-551), paras. 15-19, and in particular, para. 39, which identifies a number of different
"quantitative tests that have been specifically designed for the purpose of delineating markets", all of which
require pricing information.
1999 Sevy Declaration, (Exhibit EU-395), para. 43 and fn 23.
2000 That the types of quantitative analyses identified in the Sevy Declaration used to implement the
"hypothetical monopolist test" (i.e. the SSNIP test and critical loss analysis) require reliable pricing data in
order to be meaningfully applied is also apparent from the European Commission's Notice on Relevant Product
Markets, which after identifying a number of different price-dependent "quantitative tests that have been
specifically designed for the purpose of delineating markets", explains that the "Commission takes into account
available quantitative evidence capable of withstanding rigorous scrutiny for the purposes of establishing

accepts that reliable information on LCA prices would be necessary to conduct the types of price
elasticity analyses needed to implemen t the SSNIP test 2001, twice highlighting that leading
competition authorities have the legal means to compel disclosure of such information.2002
6.1183. The European Union alleges that, unlike the United States, it has presented rigorous
quantitative analyses in this dispute of the degree of demand-side substitutability between several
pairings of Airbus and Boeing LCA in the form of the net present value (NPV) analyses contained in
the Supplemental Mourey Statement.2003 The Supplemental Mourey Statement calculates the NPVs
of the revenue and cost streams generated by a number of different aircraft operating on,
allegedly, typical missions over the course of a 15 -year life-span with a commercial airline. The
Supplemental Mourey Statement goes on to interpret the size of the NPV differences between each
pair of examined aircraft in the light of their (alleged and undisclosed) individual pricing, and
draws conclusions about the extent to which it would be feasible for the manufacturer of the
disadvantaged aircraft to offset th e NPV disadvantage through price discounting. Where it is
considered not possible for the disadvantaged aircraft manufacturer to offset the NPV gap without
resort to loss -making sales, the Supplemental Mourey Statement infers that this is a strong
indication that the pair of aircraft in question do not exercise significant competitive constraints on
one another, and therefore, that they are not in the same product markets. 2004 The
European Union submits that the NPV analyses presented in the Supplemental Moure y Statement
demonstrate that a rigorous quantitative approach to product market delineation, based on a
comparison methodology routinely performed in the industry, is feasible.2005
6.1184. Although not entirely clear, a similar analytical approach to the one applied in the
Supplemental Mourey Statement appears to have been contemplated in the Sevy Declaration,
where it is described as a method that "examining authorities" might want to apply where "e.g.,
data limitations were to prevent the performance of a full -blown SSNIP test".2006 We evaluate the
probative value of the European Union's NPV analyses in the sections that follow. 2007 However, for
present purposes, we note that despite being characterized as an approach that could be usefully
applied to overcome data challe nges, it is apparent that the NPV analyses contained in the
Supplemental Mourey Statement, not unlike the other quantitative methods identified by the
European Union that aim to inform the assessment of demand -side substitutability, require
information on LCA prices in order to provide meaningful insights; and in the case of the analyses
submitted by the European Union, the United States argues that the information on price
concessions used to interpret their results is unsubstantiated.2008
The challenge of p erforming meaningful quantitative analyses of demand for LCA
products
6.1185. Apart from having expressed strong reservations about the feasibility of the quantitative
methods of analysis advocated by the European Union in the absence of reliable price information ,
the United States has advanced three other lines of argument to support its contention that it
would be "virtually impossible" 2009 to perform the kinds of quantitative analyses the

patterns of substitution in the past". (Notice on Market Definition, (Exhibit USA-551)). It is difficult to imagine
how the use of unreliable pricing information in this kind of quantitative analyses could withstand this standard
of inquiry. (Notice on Market Definition, (Exhibit USA-551), para. 39)
2001 Sevy Declaration, (Exhibit EU-395), paras. 48-49, 51, and 53.
2002 Sevy Declaration, (Exhibit EU-395), paras. 39 and 43.
2003 European Union's second written submission, para. 633; comments on the United States' response
to Panel question No. 50, para. 335; and Supplemental Mourey Statement, (Exhibit EU-124) (BCI/HSBI),
paras. 32-61.
2004 European Union's comments on the United States' response to Panel question No. 61, para. 439;
and Supplemental Mourey Statement, (Exhibit EU-124) (BCI/HSBI).
2005 European Union's comments on the United States' response to Panel question No. 61, para. 445.
2006 Sevy Declaration, (Exhibit EU-395), fn 23 (describing an approach whereby consideration would be
given to "the values attached by customers to particular goods, to assess the extent to which small or large
price concessions would induce switching between these goods and whether these can be considered close
substitutes. This assessment may form a basis for assessing whether a product exercises significant
competitive constraints on another, in a logic that is comparable to that of a critical loss analysis").
2007 See below paras. 6.1249-6.1276.
2008 United States' response to Panel question No. 61, paras. 207 and 208.
2009 United States' response to Panel question No. 60, para. 201. See also United States' response to
Panel question Nos. 56 (para. 182) and 60 (paras. 199 and 203).

European Union submits the Appellate Body declared must be carried out in th is dispute.2010 The
first two of these concern the alleged conceptual and practical difficulties associated with
identifying an appropriate way to model LCA customer demand and gather the necessary data to
derive reliable estimates of this demand. These argum ents focus on the complicated
multi-dimensional nature of LCA purchase decisions, the relative infrequency of LCA sales, and the
fact that the LCA are differentiated products. 2011 The European Union rejects each of these
United States explanations for not hav ing submitted any quantitative analyses in this dispute,
arguing that the fact there may be "some data challenges" associated with the proper application
of particular quantitative methods, does not justify abandoning them altogether. 2012 According to
the European Union, such difficulties may be overcome by making adjustments or by otherwise
factoring them into the analysis, as is commonly done by national competition authorities, which
apply the very same techniques to differentiated products even where data availability is
limited.2013
6.1186. We agree with the European Union that the complicated dynamics surrounding the
purchase and sale of LCA do not make it impossible to apply the SSNIP test or other quantitative
methods of analysis implementing the "HMT logic" to t he LCA industry. However, it is apparent
that the multi-faceted nature of a customer's demand for LCA products does make the application
of such methods a significant challenge. As we explain in more detail in the section that
follows2014, an LCA customer's p urchase decision will be influenced by a host of non -price factors.
According to the Mourey Statement, these include not only a range of factors affecting an aircraft's
economic value to a customer's particular business model, but also subjective considera tions
involving "unquantifiable judgements" which "can be equally significant". 2015 Likewise, in the
Sanghvi Declaration, LCA demand is described as spanning "multiple dimensions" with "subtle,
unobserved, linkages across those dimensions that are idiosyncrat ic to each customer and model
family at each point in time". 2016 Given the multiplicity of (sometimes "unquantifiable") factors
shaping demand for LCA, any attempt to reliably measure the cross -price elasticities of the range
of LCA products at issue in this dispute would, first and foremost, require building a model of
demand that appropriately accounted for how all of these different considerations interact. The
European Union has not ventured any suggestions about what such a model might look like.
However, one economist who has endeavoured to undertake such analysis has recognized that
"demand for aircraft is very complex, and estimating the demand for aircraft is a formidable
research agenda in itself". 2017 In any case, even assuming that an appropriate model of demand
could be devised, it is clear that a significant amount of reliable (price and non -price) data would
be needed for it to be used to derive meaningful results.
6.1187. Even where econometric analyses are not used, and where, for example, the "HMT logic"
is applied by simply asking the question whether customers would substitute away from one LCA
product to another in the event of a SSNIP (ceteris paribus), it is apparent that the probative value
of such analyses for the purpose of identifying the true bo undaries of competition between LCA
products would not be guaranteed. This follows from the fact that LCA are differentiated products,
and as such, they are all imperfect substitutes with the degree of substitutability of any two
products lying somewhere b etween no - and perfect -substitution.2018 As explained by the
Organisation for Economic Cooperation and Development (OECD), two particular problems can
arise when seeking to identify a relevant product market in this context:

2010 See above para. 6.1176.
2011 United States' response to Panel question Nos. 56, 60 and 157; and Sanghvi Declaration,
(Exhibit USA-530), paras. 33-34, 42, 47, and 50.
2012 European Union's comments on the United States' response to Panel question No. 157, paras. 247-
250.
2013 European Union's comments on the United States' response to Panel question Nos. 51 (paras. 269-
271 and 363) and 157; and Sevy Declaration, (Exhibit EU-395), paras. 35-55 and 66.
2014 We describe the conditions of competition in the LCA industry in more detail in the following section,
at paras. 6.1213-6.1222.
2015 Mourey Statement, (Exhibit EU-8) (BCI), para. 65.
2017 Benkard, C. L., A dynamic analysis of the market for wide-bodied commercial aircraft, NBER
Working Paper No. 7710, NBER: Cambridge MA, 2000, p. 19.
2018 United States' response to Panel question No. 50; and European Union's response to Panel question
No. 50.

Two problems with respect to marke t definition in the case of differentiated products
can arise. The first concerns the continuity of the substitution chain in cases there are
no clear gaps or stark distinctions between products or if suppliers are densely and
evenly distributed in space. This renders the identification of the boundary of the
market by the HMT difficult. In such instances, markets will tend to be defined broadly
yielding small market shares that would understate market power.
The second problem is due to the binary nature o f the market definition exercise that
classifies products as either "in" the market or "out" of the market. It implies that all
competitors in the market are effective competitors offering perfect substitutes while
those outside the market do not impose an y competitive constraints on the products
in the relevant market at all. Such an approach will overstate the impact of imperfect
substitutes in the relevant market and understate the competitive constraints posed
by imperfect substitutes outside the releva nt market. The market definition/market
share approach gauges the competitive constraints that one product imposes on the
others in the candidate market by the size of its market share and not by the intensity
of competition. This is an acceptable proxy if market shares convey at least some
information about the intensity or closeness of competition.2019 (footnotes omitted)
6.1188. It follows, therefore, that the outcome of a market definition exercise in the context of
differentiated products will not necessarily ans wer the question about where to draw the line
between products that are sufficiently substitutable to form a separate product market and those
that are not. As noted by the European Union in its submission to the 2012 OECD Competition
Committee Roundtable on Market Definition, the answer to this question will not always be clear:
Differentiated {product} markets are usually characterized by a continuum of
substitution and a varying intensity of competition interaction between the products in
question. This increases the challenge to identify precise boundaries of the relevant
market. While much has been written in academic literature on how best to define
markets, the fact is that in many differentiated product industries, there is no clearly
right way to draw boundaries that are not to some extent inevitably arbitrary.
The difficulties in establishing the precise relevant market are remedied by taking into
account in the competitive assessment that the chosen market definition may be less
informative than in other cases. Market shares are also less informative in the case of
differentiated product markets than in homogeneous product markets. Indeed market
shares may over- or underestimate the effects of a transaction depending inter alia on
the closeness of s ubstitution between the relevant products. However, although
market shares might not fully reflect the competitive interaction, they can still give an
indication of the market power of the party/parties in question. In addition, the
definition of the relev ant market helps to scope the competitive landscape and
structure the subsequent competitive assessment.2020 (footnotes omitted)
6.1189. Thus, not only would the task involved in undertaking an econometric analysis of demand
in the LCA industry pose significant metho dological and data challenges, it is also recognized that
the probative value of any market definition exercise using the "HMT logic" for the purpose of
understanding the degree of competition between any two LCA products might well be limited.
The extent to which the SSNIP test may be applied in serious prejudice disputes
6.1190. The third line of argument the United States advances in support of its submission that it
would be "virtually impossible" to apply the SSNIP test in the present dispute is rooted in the
different regulatory focus of merger analysis compared with an evaluation of adverse effects under
the SCM Agreement. Simply explained, the United States' position is that because the SSNIP test,
as it is usually applied in merger cases , is intended to gu ide the identification of relevant product
markets for the purpose of determining the effects of the future conduct of a merged entity on

2019 OECD Policy Roundtables, Competition Committee, Background Note on Market Definition, 2012,
(Exhibit USA-549), p. 48.
2020 OECD Policy Roundtables, Competition Committee, Background Note on Market Definition, 2012,
(Exhibit USA-549), European Union submission, at pp. 337-338.

competition, it "starts with the assumption that the market before the {theoretical} price increase
{i.e. the SSNIP} reflects competitive conditions".2021 However, according to the United States, the
same assumption cannot be maintained in a serious prejudice dispute because an evaluation of the
merits of a serious prejudice claim is focused on the existence and nature of past and present
competitive relationships, which may themselves be affected by the government subsidization
alleged to cause adverse effects. Thus, the United States argues that any use of the SSNIP test to
identify relevant product markets for the purpose of a serious prejudice dispute must account for
the fact that the prevailing market prices used as the starting point for running the SSNIP test
might be distorted by the effects of the very conduct that is being investigated. 2022 If no
adjustments are made t o account for this possibility, the United States argues that the resulting
product market definition could be overly narrow, a potential outcome the United States describes
with the aid of the following example:
As an example, imagine several companies ma ke identical products using the same
manufacturing process and sell those products at identical prices. If one company
later receives a significant subsidy that is used to lower prices, it will take sales away
from its competitors. If the subsidy is very l arge, it may reduce its prices to such a
degree that it captures all sales. Once that has occurred, a SSNIP test would identify a
monopoly market, despite the fact that the products are identical, due to a complete
lack of substitution between the subsidiz ed product and any other products. Yet it
would clearly be a mistake to treat these identical products as being in different
markets, as the only difference between them is the subsidy itself. The proper
benchmark is the market as it would have existed abs ent the disciplined conduct. 2023
(footnote omitted)
6.1191. According to the United States, this potential failing of the SSNIP test when applied in the
context of an inquiry into serious prejudice is not unlike that already recognized to exist by
competition authorities, including the European Commission, when applying the SSNIP test in the
context of non-merger competition analyses. In this respect, the United States points out that the
European Commission's Notice on Market Definition explains that:
Generally, and in particular for the analysis of merger cases, the price to take into
account will be the prevailing market price. This may not be the case where the
prevailing price has been determined in the absence of sufficient competition. In
particular for the inve stigation of abuses of dominant positions, the fact that the
prevailing price might already have been substantially increased will be taken into
account.2024
6.1192. Similarly, the United States notes that the OECD has also acknowledged the same
potential shortcomings, explaining the problem in the following terms:
In merger cases, the usual benchmark price the analysis starts from is the prevailing
price. This is because in merger analysis the question is whether a merger will create
or increase market power. The an alysis focuses on possible future effects of the
merger as compared to the current situation and increases of prices above the
currently prevailing level are considered. The analysis in merger cases therefore is in
general prospective. In monopolisation ca ses or in cases of an abuse of a dominant
position, the potential anticompetitive effects may already have occurred. As a result,
the analysis may be retrospective and the prevailing price may already be higher as
compared to the but -for price. A mechanical application of the HMT in retrospective
harm cases, taking the prevailing price as the benchmark price could lead to overly
broad markets and an underestimation of a firm's market power. This is known as the
cellophane fallacy.
…

2021 United States' comments on the European Union's response to Panel question No. 51.
2022 United States' response to Panel question Nos. 51 and 157; and comments on the European Union's
response to Panel question No. 51.
2023 United States' response to Panel question No. 51, para. 164.
2024 Notice on Market Definition, (Exhibit USA-551), para. 19 (cited in United States' response to Panel
question No. 51, fns 238 and 239).

It could also happen that the prevailing price is below the competitive price. This could
be the case if the firm receives subsidies. If these payments cause the prices of
products and services to remain at a level below the competitive price, a "reverse
cellophane fallacy" could occur. Due to the artificially low prices, consumers are not
willing to consider alternative products, which they would have accepted as attractive
substitutes at a higher, competitive price. In this case, there is a risk to define the
relevant product market too narrowly, as important substitutes are not included in the
market. This could lead to an overestimation of market power. 2025 (emphasis original;
footnotes omitted)
6.1193. Thus, the United States argues that the only way the SSNIP test could be used to guide
the identification of relevant product markets in the present dispute would be if it were applied to
a price of Airbus LCA that were "adjusted to exclude the effect of the {challenged} subsidies" 2026,
that is, in a counterfactual world without the challenged subsidies.2027 For the United States, such
an adjustment would need to be "enormous in scale" as "the subsidies at issue caused the
products to enter the market".2028 The Sanghvi Declaration posits that any such adjustment would
need to be "sufficient to price the new Airbus model just high enough so that no one chooses to
buy it." 2029 Even so, the United States maintains that in the specific context of this dispute, it
would be "impossible" to accurately calculate this price because, as explained by Dr Sanghvi, it
would be necessary to have "a detailed understanding of the demand curve, which … requires data
of a sort that are not in evidence here due to the idiosyncrasies of the LCA marketplace".2030
6.1194. The European Union argues that the United States' position is "repl ete with fallacious
logic and legally improper assumptions". 2031 The European Union's principle criticism of the
United States' contentions is that they seek to reverse the sequence of analysis that it maintains
was allegedly prescribed by the Appellate Body in the original proceeding. According to the
European Union, the Appellate Body provided "unequivocal guidance, in this very dispute, that a
proper market delineation is a 'prerequisite for assessing' whether adverse effects exist". 2032 For
the European Union, this means that the United States was required, as a matter of law, to first
identify the relevant product markets, and then only after such product markets were properly
defined, examine in the "second step" of the analysis whether the alleged subsidies have caused
serious prejudice.2033 To the extent that they rely upon the alleged effects of the subsidies at issue
on Airbus' ability to develop and market its LCA products, the European Union submits that the
United States' product market arguments are inconsistent with the framework of analysis that was
established by the Appellate Body and, for this reason, must be rejected.
6.1195. The European Union also maintains that the United States' approach to product market
delineation cannot be accepted because it "simp ly assumes the causation that the United States
has set out to prove – i.e. it assumes, based solely on the findings in the original proceedings, that

2025 OECD Policy Roundtables, Competition Committee, Background Note on Market Definition, 2012,
(Exhibit USA-549), pp. 39-42 (cited in United States' response to Panel question No. 51, fn 266). The
United States asserts that the Sevy Declaration also "acknowledges that 'adjustments to the SSNIP test … are
usually undertaken to prevent the 'cellophane fallacy' or the 'reverse cellophane fallacy'' but concludes that
because there are 'methodological issues' in calculating the proper adjustment in the LCA industry the Panel
should rely on prevailing market prices anyway". (United States' response to Panel question No. 157 (quoting
Sevy Declaration, (Exhibit EU-395), paras. 59 and 66)).
2026 United States' response to Panel question Nos. 51, 60 (para. 199) and 157 (citing Sanghvi
Declaration, (Exhibit USA-530), paras. 27-32 and 44-47, 54 and 79).
2027 Similarly, the Sanghvi Declaration explains that "in competition economics, we recognize that past
actions may already have impacted the marketplace so that currently observed marketplace conditions can no
longer be taken as the representative benchmark. This is the case in this dispute, where decades of
product‐creating subsidies have so fundamentally distorted the marketplace in favor of Airbus that it is
impossible to rely on current competitive conditions to define the market, as the EU attempts to do". (Sanghvi
Declaration, (Exhibit USA-530), para. 11)
2028 United States' response to Panel question No. 60, para. 199.
2029 Sanghvi Declaration, (Exhibit USA-530), para. 46. (emphasis original)
2030 United States' response to Panel question No. 60, para. 199 (citing Sanghvi Declaration,
(Exhibit USA-530), para. 47).
2031 European Union's comments on the United States' response to Panel question No. 157, para. 252.
2032 European Union's second written submission, paras. 608-611 and 661-665; comments on the
United States' response to Panel question No. 51 (para. 255) and 157 (para. 253); and response to Panel
question No. 79, paras. 325-327.
2033 European Union's comments on the United States' response to Panel question No. 51, para. 256.

EU subsidies exist at present and are a present genuine and substantial cause of present adverse
effects". However, according to the European Union, this question of causation is at the very heart
of this compliance dispute.2034 The European Union submits that the United States is not entitled to
make such assumptions, but must demonstrate that the challenged su bsidies actually cause the
alleged effects "under current factual conditions" on the basis of positive evidence. Thus, the
European Union argues that the United States errs as a matter of law when it contends that the
alleged effects of the subsidies at is sue must be taken into account in identifying the relevant
product markets.2035
6.1196. Finally, relying upon certain statements made in the Sevy Declaration, the
European Union argues that the United States is wrong when it allegedly submits that quantitative
market definition tools can only be applied when there is a "competitive 'clean slate'". According to
the European Union, the Sevy Declaration makes clear that "market definition tools are regularly
applied in the competition and antitrust law context, even wher e markets are distorted or
otherwise exhibit imperfect competition – including in the case of abuse of dominant position,
which is the closest analogue to the alleged competitive harm here." 2036 In any case, the
European Union submits that the modifications t o the SSNIP test that are proposed by the
United States and presented in the Sanghvi Declaration on the premise that market delineation
must be conducted in a counterfactual world without the alleged effects of the challenged
subsidies, are based on unsoun d reasoning and radically different from the types of modifications
which the Sevy Declaration submits are actually utilised in the competition regulatory context. 2037
In this regard, the European Union emphasizes that while the Sevy Declaration recognizes th at it
may be necessary to make adjustments when applying the SSNIP test in order to avoid the
"cellophane fallacy" or the "reverse cellophane fallacy", it does not conclude that any such
corrections would be warranted on the existing set of facts. Rather, the European Union argues
that the Sevy Declaration criticizes "the very ability to make any such correction in a
methodologically appropriate way"2038, concluding that this could not justify a departure from "the
use of rigorous quantitative market definitio n tools on the basis of the current market
situation".2039
6.1197. We note that there is no disagreement between the parties about whether the fact that a
firm's anti-competitive behaviour (or a subsidy) may distort a product's prevailing prices will, as a
general matter, need to be taken into account when applying the SSNIP test for the purpose of
identifying relevant product markets in non-merger competition cases. While the European Union
asserts that its expert, Dr Sevy, has explained that "such distortions do no t preclude"2040 the use
of market definition tools, we do not understand the Sevy Declaration to stand for the proposition
that the application of the SSNIP test would invariably proceed without making any adjustments or
consideration of additional factors, w here there is a significant risk of the "cellophane fallacy" or
the "reverse cellophane fallacy". Indeed, it is clear to us that Dr Sevy, like the European
Commission and the OECD, accepts that in such circumstances it would be appropriate to qualify
or adjust the results of a SSNIP analysis in a way that avoids these possible outcomes.2041
6.1198. Conceptually, we see no reason why the same considerations used to inform the
application of the SSNIP test in the context of non -merger competition cases should not also be
taken into account when applying the same test in the context of the serious prejudice disciplines
of the SCM Agreement. As with non -merger competition analysis, the focus of an evaluation of
serious prejudice is on conduct that is alleged to have taken place in the past for the purpose of
drawing conclusions about the present. 2042 In other words, in both regulatory contexts, a

2034 European Union's comments on the United States' response to Panel question No. 51,
paras. 256-257, 263-264, and 356-357.
2035 European Union's comments on the United States' response to Panel question No. 51, paras. 265,
346, and 358-359.
2036 European Union's response to Panel question No. 51, paras. 266 and 355 (citing Sevy Declaration,
(Exhibit EU-395), paras. 16-20).
2037 See Sevy Declaration, (Exhibit EU-395), paras. 56-66.
2038 European Union's comments on the United States' response to Panel question Nos. 51 (para. 360)
and 157 (paras. 255-256) (citing Sevy Declaration, (Exhibit EU-395), paras. 56-66).
2040 European Union's comments on the United States' response to Panel question No. 51, para. 355.
2042 We recall that in the original proceeding, we explained that an adverse effects complaint requires a
panel to make a finding about "whether there are 'present' adverse effects caused by the subsidies in dispute"

determination of the extent to which a firm is acting anti -competitively, or a government is,
through the use of subsidies, causing adverse effects in the form of serious prejudice, will be
based upon evidence of past competitive relationships. Thus, just as it is possible to arrive at an
erroneous conclusion about the true nature of competition between two or more products in the
context of non -merger analysis when the SSNIP test is applied to a prevailing price that is
influenced by the very anti -competitive conduct that is being investigated, so too must the same
potential for error exist when applying the SSNIP test to a prevailing price in an industry affected
by subsidies in order to identify relevant product markets for the purpose of conducting a serious
prejudice analysis. In both situations, the same dilemma arises because of the impact of the
investigated conduct on the competitive relationships that define the prevailing market prices used
as the starting point of the SSNIP test. Thus, irrespective of the regulatory context , the SSNIP
test, as it is normally applied in merger analysis, suffers from the same potential deficiencies.
6.1199. In our view, the most striking example of the potential shortcomings of applying an
unadjusted or unqualified SSNIP test in the context of a serious prejudice dispute arises when a
subsidy transforms a formally vigorous competitive relationship into one of no competition at all or
competition that is insignificant (i.e. competition incapable of inducing a degree of demand
substitution that would prevent a profitable SSNIP from taking place) .2043 In such circumstances,
the application of an unadjusted or unqualified SSNIP test would point in the direction of an
absence of competitive constraints between the subsidized product and the like product. This in
turn would imply that any adverse trade effects of the subsidized product on the like product could
not be addressed under the terms of Articles 5 and 6 of the SCM Agreement, even if it were
perfectly clear that the lack of sufficient competition was caused by the subsidy. We see nothing in
the text of Articles 5 and 6 of the SCM Agreement that would support such a finding, which would
leave WTO Members without a remedy under the SCM Agreement against the use of subsidies to
marginalize or completely eradicate the ability of a like product to compete in international trade.
In this regard, we note that the European Union appeared to advance precisely this view in the
original US – Large Civil Aircraft (2nd complaint) dispute, where it claimed that one of the effects of
the challenged subsidies to Boeing was to create an "absence of 'real' competition" betwee n the
787 and the Original A350 and the A330, thereby causing "lost sales" to Airbus in a number of
sales campaigns:
In some sales campaigns, US subsidies resulted in a "lack" of competition between the
original A350 and the 787. Due to the 787's subsidy-based attributes – innovative
technology, earlier availability and low pricing … airlines either did not ask Airbus to
offer its competing original A350, or did not seriously consider the Airbus proposal.
This absence of "real" competition is a direct effec t of the 787 subsidies . Airbus was
unable to compete on an equal footing in many sales campaigns because {of} US
subsidies for the 787 programme …
The technological features of the 787 played an important role in this campaign,
particularly the fuel effic iency of the 787. … Airbus was thus faced with a wide
performance gap between the A330/original A350 and the 787's subsidy-based
economics.2044 (emphasis added)
6.1200. The fact that the subsidized 787 imposed very strong competitive constraints on the
Original A350 and A330 (which, for their part, allegedly imposed only very weak, if any,
competitive constraints on the 787) did not prevent the European Union from claiming that it had
suffered serious prejudice within the meaning of Article 6.3 of the SCM Agreement as a result of

and that because "it is impossible to assess the 'present' situation, as immediate data is not available … a
review of the past is necessary to draw conclusions about present adverse effects". (Panel Report, EC and
certain member States – Large Civil Aircraft, para. 7.1694)
2043 While the ability to impose a profitable SSNIP on one product suggests an absence of competitive
constraints between that product and other products, this does not necessarily mean that there is no
substitution of demand away from the product subject to the SSNIP towards other products, but only that the
degree of substitution between those products does not render the SSNIP unprofitable. Thus, the application of
the SSNIP test may point to the absence of competition between two or more products, even when a degree of
demand-side substitution (that cannot prevent a profitable SSNIP) actually exists between those products,
signalling a competitive relationship that may be relatively insignificant.
2044 US – Large Civil Aircraft, EC FWS, Annex D, (Exhibit EU-483) (HSBI), paras. 6 and 10. Similar
statements and considerations are found throughout this exhibit in relation to specific sales campaigns,
including in paragraphs 21, 31-32, and 76 (HSBI).

the United States' subsidization of the 787. Yet in this proceeding, the European Union maintains
that such considerations are essentially irrelevant to the application of the SSNIP test. According
to the European Union, taking the alleged dis torting effects of the challenged subsidies into
account when identifying relevant product markets would effectively prejudge the causation
elements of the United States' serious prejudice claims. The European Union maintains that this
would be not only in consistent with the Appellate Body's alleged direction to identify relevant
product markets before entertaining issues of causation in serious prejudice disputes, but it would
also result in the identification of product markets on the basis of the assumed , and
unsubstantiated, adverse effects of the challenged subsidies.
6.1201. We do not share the European Union's perspective. As already noted, the Appellate Body
found in the original proceeding that a panel tasked with evaluating the merits of a claim of
serious prejudice under the SCM Agreement has an obligation to independently determine
"whether the alleged subsidized and like products compete in the same market or multiple
markets".2045 The Appellate Body characterized this assessment of the relevant product ma rket or
markets as "a prerequisite for assessing whether displacement within the meaning of Article 6.3(a)
and 6.3(b) could be found to exist as alleged by the United States".2046 In making these
statements, we understand the Appellate Body to have declared t hat the identification of relevant
product markets is a precondition for any finding of serious prejudice. However, the
Appellate Body was careful not to pronounce that the SSNIP test must be applied as the decisive
criterion for determining product market s in each and every serious prejudice dispute. Moreover,
the Appellate Body gave no guidance at all about whether any potential application of the SSNIP
test in a serious prejudice dispute should follow the same principles used by competition
authorities when applying it in merger analysis and/or non-merger cases.
6.1202. In our view, the United States' reliance on the alleged product development and market
presence effects of the challenged subsidies does not contradict the Appellate Body's guidance.
This is because the United States does not call the relevance of the SSNIP test into question on the
basis of the actual instances of serious prejudice that it alleges are caused by the challenged
subsidies in this dispute. The United States does not, for example, arg ue that the utility of the
SSNIP test should be doubted in this dispute because of its claim that the challenged subsidies
have caused lost sales to Boeing within the meaning of Article 6.3(c) of the SCM Agreement.
Rather, the United States argues that the application of a SSNIP test in this and all serious
prejudice disputes should be guided by essentially the same principles used by competition
authorities to inform the employment of the same test in non -merger competition
investigations.2047 As the evidence before us reveals, these principles include taking action to
qualify or adjust the results or application of the SSNIP test when there is a significant risk that
the prevailing market has been distorted by the investigated conduct. Thus, in the MasterCard
case, the European Commission decided to "attribute higher value to evidence derived from
product characteristics and past switching behaviour than the results of a SSNIP test" because of
the "significant" "risk of a cellophane fallacy" .2048 The European Com mission did not decide to
downplay the probative value of a SSNIP analysis in this investigation after having come to any
definitive conclusion about whether the prices at issue were distorted by anti -competitive
behaviour, but rather because it considered there was a significant risk that this could be the case.
This, of course, reflects the European Commission's guidelines on market definition, which explain
that "the fact that the prevailing price might already have been substantially increased will be
taken into account" where it "has been determined in the absence of sufficient competition". 2049
That competition authorities may act to temper or modify the results of a SSNIP test in non -

2045 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1128.
2046 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1128.
2047 See e.g. United States' response to Panel question No. 51, paras. 159, 161, and 163 (citing the
Notice on Market Definition, (Exhibit USA-551) and the OECD Policy Roundtables, Competition Committee,
Background Note on Market Definition, 2012, (Exhibit USA-549)).
2048 Commission Decision of 19/XII/2007, relating to a proceeding under Article 81 of the EC Treaty,
COMP/C.34.579 MasterCard, paras. 286-287 and fn 322 (cited in OECD Policy Roundtables, Competition
Committee, Background Note on Market Definition, 2012, (Exhibit USA-549), European Commission
submission, at p. 337). (emphasis added) The European Commission nevertheless "executed a SSNIP test in
the acquiring markets … to verify some findings in the market studies submitted by MasterCard". The European
Commission explained that while it did "not attribute decisive importance to it, it notes that the results (28393
to 28395) of its hypothetical analysis tend to confirm the findings based on product characteristics and on past
behaviour of merchants".
2049 Notice on Market Definition, para. 19 (Exhibit USA-551).

merger competition investigations on the basis of a reasonable suspicion of market power is also
supported by the views of commentators, who have, inter alia, noted that:
The {cellophane} fallacy is most likely to arise in cases where there is already a
dominant company, or more generally where it is suspected that the party or parties
under investigation have already exercised some degree of market power. In any such
case, competition authorities or claimants can, and often do, invoke the cellophane
fallacy to refute attempts by the defendants to demonstrate a wider market ba sed on
a SSNIP … applied to prevailing prices.2050 (emphasis added)
6.1203. Again, for the reasons we have explained above 2051, we see no grounds for rejecting the
equal relevance of the same principles when applying the SSNIP test for the purpose of identifying
relevant product markets in a serious prejudice dispute. Thus, where there is a significant risk that
the competitive relationships that define the prevailing market conditions have been impacted by a
WTO Member's use of subsidies, the SSNIP test may not provide reliable results, and for this
reason, such results should be qualified or adjustments should be made to account for the
potential market distortions. Ultimately, however, in the light of our findings concerning the lack of
any legal obligation upon the Un ited States to advance quantitative evidence, as well as the
practical difficulties and complex challenges that applying an accurate SSNIP test pose in this
dispute, we believe it is not necessary for us to come to any definitive conclusion about the exten t
to which it would have been necessary to qualify or adjust the results of any SSNIP test in this
proceeding.
Conclusion
6.1204. In evaluating the merits of the European Union's argument that the United States has
failed to advance the appropriate type of evide nce in this compliance dispute to substantiate its
claims of serious prejudice, we have found that, contrary to the European Union's assertions, the
Appellate Body did not in the original proceeding declare that the United States was required to
rely upon evidence that is "rooted in" quantitative analysis when identifying relevant product
markets. While the three quantitative methods of analysis the Appellate Body explicitly referred to
in its report (the SSNIP test, cross -price elasticity of demand, and pr ice correlation analysis) may
serve to inform a determination of the extent to which different products are substitutable, we
detect nothing in the Appellate Body's report to suggest that these or any other quantitative
methods of analysis must, as a legal matter, always be used to inform a determination of relevant
product markets in a serious prejudice dispute.
6.1205. As explained by the parties, in order to generate accurate and meaningful results for the
purpose of identifying relevant product markets in this dispute, the three methods of quantitative
analysis referred to by the Appellate Body would need to be implemented using a significant
volume of historical information on the prices actually paid by LCA customers. Reliable pricing
information would also b e necessary to perform and/or interpret the results generated by the two
other forms of allegedly relevant quantitative analysis identified by the European Union (namely,
critical loss analysis and NPV analysis). While we have raised doubts about the avail ability of such
actual pricing data, it is apparent that even with this information, the task of performing a reliable
econometric analysis of the demand for LCA products would face a number of significant
methodological and data challenges. These include deciding how to appropriately model demand
for LCA products, which is itself highly complex and influenced by a multiplicity of factors that are
sometimes subjective and "unquantifiable". When these and other particular characteristics of LCA
demand are co nsidered in the light of the recognized difficulties associated with identifying
relevant product markets made up of differentiated products, it is apparent that producing
accurate and reliable quantitative evidence of the degree of demand -side substitutio n between
different LCA products would be a formidable task.
6.1206. We have also emphasized that because of its focus on past and present competitive
relationships, the same considerations used to inform the application of the SSNIP test in the

2050 G. Niels, H. Jenkins, J. Kavanagh, Economics for Competition Lawyers (Oxford University Press,
2011) p. 67. See also, M. Motta, Competition Policy: Theory and Practice (Cambridge University Press, 2005),
p. 105.
2051 See above paras. 6.1198-6.1199.

context of non-merger competition analysis should be taken into account when applying the SSNIP
test in the context of a serious prejudice dispute. On this basis, we have found that in order to
apply the SSNIP test in a serious prejudice case, where the focus is on the past and present effects
of actionable subsidies, it may be necessary to account for the risk that prevailing market prices
may already have been distorted by the particular government conduct that is the subject of a
WTO Member's complaint. Thus, in the same way that competition authorities will endeavour to
adjust or modify the SSNIP test when it is applied in non -merger competition analysis when there
is a risk of the "cellophane fallacy" or the "reverse cellophane fallacy", it makes sense, in our view,
to ensure that any application of the SSNIP test in a serious prejudice dispute proceeds cautiously,
in consideration of the risk of the potential distortive effects of the conduct alleged to have caused
adverse effects on existing commercial relationships. W e note, however, that because we have
dismissed the European Union's objections to the United States' reliance on purely qualitative
evidence on other grounds, we need not definitively determine the extent to which it would have
been necessary to take any such considerations into account for the purpose of applying the SSNIP
test in the present dispute.
6.1207. In conclusion, therefore, we find that, contrary to the European Union's assertions, the
United States was not under an obligation to identify relevant LCA product markets using
quantitative analysis. Moreover, on the basis of the evidence and arguments that have been
presented, we do not see how, in the absence of, in particular, accurate pricing information, the
United States could have generated meaningful results from the application of any of the allegedly
relevant quantitative methods of analysis identified by the European Union for implementing the
SSNIP test or the hypothetical monopolist test. In such circumstances, it is our understanding that
competition authorities would not always choose to perform or rely upon the application of the
SSNIP test to identify relevant product markets. Indeed, the European Commission will only take
into account "available quantitative evidence" for the purpose of ident ifying relevant product
markets when it is "capable of withstanding rigorous scrutiny" 2052; a decision that will "depend{}
to a large extent on the availability of the necessary data, the specificities of the case in question
and the respective time constrain t of the procedure". 2053 In fact, the "most common and more
easily available evidence" that is used by the European Commission to identify relevant product
markets in its competition practice is of a "qualitative nature", and includes evidence of
substitution in the recent past ("normally … fundamental for market definition") 2054, as well as the
views of customers and any relevant company documents (whether internally or externally
produced) used as a basis to take price and marketing decisions.2055
6.1208. In this light, and bearing in mind that the United States was under no obligation to have
advanced its serious prejudice complaint using quantitative analysis, we see no reason to fault the
United States' decision not to use the SSNIP test or any other price -based quantitative analysis to
substantiate its view that there are three relevant product markets in the LCA industry. In our
view, the United States was entitled to advance its case using any and all evidence it believes
establishes the existence of the three releva nt products markets; and it is our task to make an
objective assessment of the probative value of that evidence in the light of the European Union's
submissions, irrespective of whether it was of a quantitative or qualitative nature.
The requisite degree or intensity of competition
6.1209. The European Union has repeatedly argued in this dispute that the United States has
failed to establish the existence of the three alleged passenger LCA product markets because it has
not shown that all of the aircraft that alleg edly compete in each of the three distinct product
markets exercise " significant competitive constraints" on each other. 2056 According to the
European Union, the guidance for determining relevant product markets provided by the

2052 Notice on Market Definition, para. 39 (Exhibit USA-551).
2053 OECD Policy Roundtables, Competition Committee, Background Note on Market Definition, 2012,
(Exhibit USA-549), European Commission submission, at p. 336.
2054 Notice on Market Definition, para. 39 (Exhibit USA-551).
2055 Notice on Market Definition, paras. 39-41 (Exhibit USA-551); OECD Policy Roundtables, Competition
Committee, Background Note on Market Definition, 2012, (Exhibit USA-549), European Commission
submission, at p. 336.
2056 See e.g. European Union's second written submission, paras. 626-704 (emphasis added); and
response to Panel question Nos. 48, 49, 50, 52-56, 70-71, 75, and 79, paras. 213, 215, 221-225, 227, 230,
232, 250, 253, 255, 258, 261, 277, 288-291, 303, and 327. (emphasis added)

Appellate Body in the original proceeding implies that "an aircraft that fails to exercise significant
competitive constraints on another cannot be placed in the same product market with that other
aircraft".2057 Thus, the European Union submits that in the absence of evidence showing that all of
the models of aircraft the United States maintains compete with each other in separate product
markets are "closely competitive" 2058, the United States' product market arguments must fail. We
disagree with the European Union and do not share its under standing of the Appellate Body's
guidance.
6.1210. We recall that after explaining that "a market comprises only those products that exercise
competitive constraint on each other", the Appellate Body declared in the original proceeding that
two products should be considered to fall within the same product market whenever they are
"sufficiently substitutable so as to create competitive constraints on each other". 2059 Contrary to
what is suggested by the European Union, the Appellate Body did not qualify this statement by
clarifying that the required competitive constraints must be "significant". Indeed, in the view of the
commentator cited by the Appellate Body to support the above statements, a relevant product
market "should" be comprised of the "set of products (and geographical areas) that exercise some
competitive constraint on each other". 2060 While the same commentator is paraphrased by the
Appellate Body as having explained how the results of the SSNIP test may reveal the absence of
"significant competitive constraint" between two or more products, and therefore the existence of
separate markets2061, the same paraphrased explanation also highlights that another outcome of
the SSNIP test could be that two or more products do, in fact, exert "competitive constraint"
(without qualification) on each other, thereby forming part of the same product market.2062
6.1211. Thus, to the extent that the Appellate Body provided any guidance at all on the requisite
degree or intensity of competition that must exist between two products in order to find that they
fall within the same product market for the purpose of applying the serious prejudice disciplines of
the SCM Agreement, it is apparent that the Appellate Body did not articulate a standard that
requires showing that two products impose " significant competitive constraints" on each other or
that those products are "closely competitive". Indeed, we can see no textual basis for interpreting
the word "market" that appears in Article 6.3(a), (b) and (c) of the SCM Agreement in a way that
would mean that "serious prejudice" could only ever be found to exist in the context of product
markets where there is vigorous ("significant" or "close") competition, as opposed to markets
where competition between products is relatively weak or, in certain ci rcumstances, even markets
where strong competitive constraints are imposed by one product on one or more other products,
which themselves impose little, if any, competitive constraint on the stronger competitor. In this
regard, it is important to recall th at the fundamental purpose of identifying relevant product
markets in a serious prejudice dispute is to determine whether certain specific trade effects have
been caused by the use of subsidies . In our view, the fact that the competitive relationships
examined for this purpose may have been shaped by the very subsidies that are claimed to cause
adverse trade effects implies that it may be necessary, depending upon the circumstances, to
account for the distorting impact of those subsidies in the assessment o f relevant product
markets.2063 Otherwise, as already noted, the adverse trade effects of a subsidy that transforms
an otherwise vigorous competitive relationship into one of no competition at all or competition that
is insignificant could never be addressed under the disciplines of Articles 5 and 6 of the
SCM Agreement; and WTO Members would be left without a remedy under the SCM Agreement
against the use of subsidies to marginalize or completely eradicate the ability of a like product to
compete in international trade.

2057 European Union's response to Panel question No. 50, para. 230.
2058 European Union's response to Panel question Nos. 50, 55, 76, and 77, paras. 229, 264, 305, and
322.
2059 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1120.
2060 Appellate Body Report, EC and certain member States – Large Civil Aircraft, fn 2467 (citing
M. Motta, Competition Policy: Theory and Practice, p. 102). (emphasis added)
2061 Appellate Body Report, EC and certain member States – Large Civil Aircraft, fn 2468 ("If the price
increase is found to be profitable, this would generally indicate that the product does not face significant
competitive constraint from other products, and that it should therefore be considered to be in a separate
market."). (emphasis added)
2062 Appellate Body Report, EC and certain member States – Large Civil Aircraft, fn 2468 ("Conversely, if
the increase in price is found not to be profitable, this indicates that the product should not be considered to be
in a separate market, as there exist other products that exercise competitive constraint on the seller.").
(emphasis added)
2063 See above at paras. 6.1190-6.1203.

6.1212. With these considerations in mind, we now turn to explore the merits of the arguments
and evidence the parties have advanced and relied upon to support their different positions with
respect to the existence of the alleged single -aisle, twin-aisle and very large LCA product markets.
We begin this assessment by describing the general conditions of competition in the LCA industry.
General conditions of competition in the LCA industry
6.1213. The parties' submissions concerning the general conditions of c ompetition that are today
observable in the LCA industry have on occasion drawn from, elaborated and built upon or
confirmed the continued relevance of large parts of the description of the general conditions of
competition in the LCA industry that was included in our report from the original proceeding.2064 In
our view, this description, which we note was not specifically appealed or otherwise disturbed by
the Appellate Body, remains, on the whole, an accurate depiction of the general conditions of
competition that exist in the LCA industry today, and we incorporate it mutatis mutandis into this
Report. However, the parties' submissions in this dispute have also sought to describe and analyse
a number of more recent developments in the LCA industry and the ext ent to which these might
have altered the conditions of competition from those existing during the original proceeding. In
this section of our Report, we set out our understanding of the current conditions of competition in
the LCA industry in the light of both our previous findings as well as the parties' latest
submissions, with a view to identifying the general context within which competition between
Airbus and Boeing takes place.
6.1214. The defining features of the LCA industry today continue to be those we identified in the
original proceeding: significant entry costs, strong learning effects and considerable uncertainty.
Huge sunk costs must be invested into the development of an aircraft years before any revenues
are obtained from customers, and such inves tments need to be made on a regular basis to
enhance and/or expand a product offering in order to ensure a producer's long -term viability.
These up-front investments, which it is generally accepted cannot be recouped without the sale of
many hundreds of aircraft, make achieving significant economies of scale a critical part of the LCA
business. Learning effects, which result primarily from a more experienced workforce, and imply
that per unit production costs fall as output accumulates over time, represent dynamic scale
economies. The static and dynamic ("learning curve") economies of scale achieved in the context
of one model of LCA can influence the development and production costs of other models. These
effects can be captured by economies of scope. A ste ady stream of orders and deliveries is
therefore imperative. Yet the technical and design challenges associated with developing new
aircraft, often at the cutting -edge of modern technology, coupled with the complexity of
forecasting customer demand sometim es decades in advance, mean that the business
environment of an LCA producer is characterized by considerable uncertainty. 2065 These
fundamental features of the LCA industry give incumbent firms an important advantage over new
entrants and set the parameters within which competition takes place.2066
6.1215. At present, Airbus and Boeing continue to be the world's only LCA producers offering a
full range of aircraft. 2067 Several other companies, including Bombardier, Commercial Aircraft
Corporation of China, Ltd. (COMAC), M itsubishi Aircraft Corporation, Sukhoi and United Aircraft
Corporation, are attempting to enter the LCA industry with single -aisle aircraft having around 100-
150 seats. However, the parties have emphasized the relative weakness of these new potential
entrants, with Boeing's Vice President for Commercial Airplanes, Michael Bair, asserting that "it will
be several years before any of {their} products compete in a significant way with Airbus and
Boeing single -aisle LCA" 2068, "as customers perceive significant, an d often prohibitive, risks in

2064 Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.1716-7.1728. See also
United States' first written submission, paras. 295-300; Mourey Statement, (Exhibit EU-8) (BCI), paras. 45-46
(confirming the continued relevance of the Statement of Christian Scherer as well as the Statement of Rod P.
Muddle (Original Exhibit EC-19), which we relied upon for parts of our description of the conditions of
competition).
2065 Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.1717, 7.1726-1727, and
7.1936.
2066 For one example of how Airbus and Boeing have utilized their advantage as incumbent producers of
LCA, see Glennon J. Harrison, "Challenge to the Boeing-Airbus Duopoly in Civil Aircraft: Issues for
Competitiveness", US Congressional Research Services, 25 July 2011, (Exhibit USA-117), p. 25.
2067 United States' first written submission, para. 298.
2068 Bair Declaration, (Exhibit USA-339) (BCI), para. 9.

ordering {their} aircraft". 2069 Similarly, while noting the fact that Bombardier has offered a "fuel -
efficient aircraft" in competition against the Airbus A320 "new engine option" aircraft (A320neo),
Airbus' Vice President for Contracts, Christophe Mourey, explains that "the competition has not yet
been significant or widespread". 2070 Thus, as it was during the original proceeding, the LCA
industry continues to be characterized by what is effectively an Airbus-Boeing duopoly.
6.1216. Customers for LCA continue to be mainly airlines and aircraft leasing companies
worldwide.2071 As in the original proceeding, the parties have in this dispute emphasized the
diversity and idiosyncratic nature of customer preferences as well as the complexity of the ir
purchase decisions. 2072 The core of the parties' submissions on this topic reflect the following
passages from our report in the original proceeding:
Customers choose among the various LCA models available those they deem most
suitable for their needs at t he time of ordering. In making their purchase decisions,
customers will consider such matters as the route structure to be served by the
aircraft, the structure of the existing fleet, and operating costs, with a view to
minimizing costs and maximizing reve nues. Some airlines purchase a mix of LCA
models to serve a variety of needs, while others may limit themselves to one LCA
model because of the efficiencies generated by the operation of a single aircraft type.
Once an airline orders any particular LCA mod el from a given manufacturer,
efficiencies in operating a fleet of similar aircraft (including those related to spare
parts, maintenance and training) favour follow -on orders of the same models, as well
as orders of other aircraft models from the same manu facturer, in order to take
advantage of commonalities across an LCA fleet.5186 Leasing companies both purchase
new LCA on a speculative basis for subsequent lease to airline customers, and act as
intermediaries between airlines and manufacturers offering L CA financing or operating
leases.5187 …
…
When choosing aircraft, airlines evaluate the economics of the competing aircraft from
both Airbus and Boeing, and the impact those factors will have on the revenues that
the aircraft can be expected to generate ov er its economic life of approximately 30
years.5198 In doing so, customers quantify and weigh numerous factors, including
price, net of concessions such as cash discounts, scheduled pre -delivery payments,
provisions for price escalation, 5199 and guarantees related to performance,
maintenance, or residual value;5200 financing, including consideration of elements such
as direct financing support by the manufacturer; date of delivery; engine
manufacturers; the make -up of existing LCA in the purchaser's fleet a nd cost of
change and cost of diversifying, 5201 and direct operating costs, such as fuel
efficiency.5202 Each customer has different cost -related concerns, and so different
aspects may be valued differently by different customers or at different times. 5203
Each of the technical, physical and economic characteristics of aircraft under
consideration is translated by customers into a revenue or cost element that is
included in their assessment of an offer and its net present value. Despite the
complexity of the factors involved in a sales campaign, LCA customers, as well as LCA
manufacturers, are generally able to account for these factors in assessing the
economic value of a sales proposal. 5204 Thus, competition between Boeing and Airbus
is driven by the performance characteristics of the aircraft that the two manufacturers
have developed and the price (net of all concessions) and sales terms at which they
offer their respective LCA. Since both Airbus and Boeing offer a range of competing
LCA models suited for various customer needs, price is a significant factor in a
customer's purchase determination, but not necessarily determinative.5205

2069 Bair Declaration, (Exhibit USA-339) (BCI), para. 30.
2070 Mourey Statement, (Exhibit EU-8) (BCI), fn 23. The European Union agrees that "other single-aisle
market entrants do not, at present, 'play a significant role in LCA competition … during the period at issue and
are unlikely to do so in the immediate future'". (European Union's first written submission, fn 753 (quoting
United States' first written submission, para. 315))
2071 There is no dispute between the parties that the geographical market for LCA is worldwide.
2072 Mourey Statement, (Exhibit EU-8) (BCI), paras. 45-71; and Bair Declaration, (Exhibit USA-339)
(BCI), paras. 5, 11, and 17.

5186 US, FWS, para. 712. For example, the United States notes that AirAsia purchased 40 Airbus
A320s and t ook options on 40 more in December 2004 after a vigorous competition between
Boeing and Airbus. Air Asia's subsequent orders – an additional 20 A320s in 2005, followed by a
firm order for 40 more A320s in July 2006 (plus 30 additional options) – allegedly flowed directly
from the choice the airline made in the 2004 campaign, rather than from a new competition
between the producers. AirAsia Press Release: AirAsia Firms Up Option for 40 More Airbus A320s
and Signs Another 30 Options (July 20, 2006), Exhibit US-378. The European Communities also
recognizes this tendency to follow a purchase from one manufacturer with further purchases of
that manufacturer's LCA. EC, FWS, para. 1421. (Footnote original)
5187 Statement of Rod P. Muddle, Exhibit EC-19, paras. 18-26. (Footnote original)
5198 Airbus North America Holdings Inc., Key Determinants of Competitiveness in the Global Large
Civil Aircraft Market: An Airbus Assessment (March 2005) at 17-18 ("Airbus, Key Determinants"),
Exhibit US-379 (BCI). (Footnote original)
5199 Because LCA are often delivered years after the original order, both Airbus and Boeing
generally apply a standard "price escalation" formula that adjusts the order price (in order year
dollars) for inflation in aircraft manufacturing costs to determine the price payable for the aircraft
on delivery (in delivery year dollars). (Footnote original)
5200 Residual value refers to the value of the aircraft upon resale by the original customer. For
example as part of its sale of 120 aircraft to easyJet in 2 002, Airbus guaranteed the residual
value of Boeing aircraft owned by easyJet by offering to purchase the Boeing aircraft itself, if
necessary, at a predetermined minimum price. Airbus also guaranteed that the cost of
maintenance would not exceed easyJet's cost of maintaining its existing Boeing aircraft. EasyJet,
Proposed Purchase of Airbus Aircraft and Notice of Extraordinary General Meeting at 8 -9
(25 February 2003), Exhibit US-380. (Footnote original)
5201 Statement of Rod P. Muddle, Exhibit EC-19. (Footnote original)
5202 Operating costs can be impacted by price concessions. For example, according to the
United States, when Airbus determined that its four -engine A340 was losing sales to Boeing's
more fuel -efficient two -engine 777 during recent periods o f high jet fuel prices, Airbus
announced that the additional fuel burn penalty could be "traded off" by financial compensation
to A340 operators. Andrea Crisp, Squaring Up, Airline Business (1 April 2006), Exhibit US-381.
(Footnote original)
5203 The Europ ean Communities asserts that subjective factors can also be important in an
airline's evaluation and final purchase decision, including the value of product features such as
cabin width and aesthetics; the long -term viability of a supplier and product; lon g-term risks of
new technology and materials; risks associated with a single engine choice; and operational risks
of two -engined versus four -engined aircraft. See, Statement of Rod P. Muddle, Exhibit EC-19,
para. 99. In our view, these subjective elements are encompassed by the general consideration
of the characteristics of the various aircraft models for sale, and are not distinct elements.
(Footnote original)
5204 See, Statement of Rod P. Muddle, Exhibit EC-19, paras. 48 -50. See, also, Statement of
Christian Scherer, Exhibit EC-14 (BCI), paras. 69-77. (Footnote original)
5205 Statement of Christian Scherer, Exhibit EC-14 (BCI), para. 60.2073 (Footnote original)
6.1217. Thus, a customer's decision to acquire one or more LCA will depend upon its individual
assessment of a multiplicity of factors bearing on the overall value of the aircraft package it is
offered, in the context of its particular business model, strategic goals and any relevant subjective
considerations at the time of purchase. Because no two customers w ill have exactly the same
business model, strategic goals or subjective appreciation of a particular aircraft, their ultimate
valuations of the same aircraft can vary widely. Nevertheless, it is possible to identify a number of
factors, other than price, t hat will invariably play a significant role in any customer's purchase
decision. Among these are the date of delivery, fleet commonality, range capabilities, seating and

2073 Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.1720 and 7.1725.

cargo capacities, and operating costs (including fuel, spare parts, training and maint enance costs)
of the particular LCA being considered.2074
6.1218. According to the European Union, a number of developments since the original
proceeding have "in recent sales" 2075 elevated the importance of these factors in a customer's
overall purchase decision. The European Union advances three reasons for this alleged
phenomenon: rising fuel costs; increased air traffic demand; and delays in the availability of new
generation aircraft. The European Union argues that rising fuel prices (which have translated into
higher operating costs) have "incentivised airlines to update their older fleets with more fuel
efficient aircraft and to focus on fuel efficiency in their expansion plans". 2076 Moreover, the
European Union asserts that increased air traffic demand has "led to significant congestion and slot
constraints at hub airports" and, in conjunction with rising fuel costs, has driven an increase in the
attractiveness of larger aircraft (having a greater range and capacity) across all segments. 2077 The
European Union also subm its that delays in the availability of new generation models have
"increased demand for current generation twin -aisle aircraft among customers requiring capacity
in the short or medium term". 2078 The European Union argues that these events justify its
seven-product-markets view of the LCA industry. The United States does not deny the existence of
the trends that the European Union identifies. Indeed, in some instances, the United States
appears to explicitly recognize them. 2079 However, for the United States, these developments do
not justify a departure from the three -product-markets view of the LCA industry applied by the
Appellate Body in the original proceeding. 2080 The parties' disparate views on this matter are
reviewed in the section that follows.
6.1219. Faced with a continuum of customer preferences that are themselves shaped by changing
economic conditions, and in the light of the multiplicity of factors affecting a customer's purchase
decision as well as the particularly onerous costs and considerable risks associated with developing
and bringing an LCA to market, Airbus and Boeing have sought to meet the demand for LCA by
producing the fewest possible product lines to satisfy a wide array of requirements.2081 In doing so,
Airbus and Boeing have developed a comparable, but not identical, range of single -aisle and
twin-aisle LCA products in the knowledge that the producer which satisfies the core performance
demands of the largest number of customers will win more sales. However, in the same way that a
customer's demands for a particular type of LCA will change over time, so too will the suitability of
existing models of LCA to meet those requirements. Changes of this kind are not only driven by
factors affecting demand, such as an increase in air traffic or a rise in fue l costs, but also the
supply-side decisions taken by the producers themselves, for example, the introduction of a
technologically superior offering. For Airbus and Boeing, these dynamics require them to
continually assess and reassess their strategic suppl y choices, and in this sense, represent one
critical dimension of their competitive interaction. Thus, as explained by the European Union, the
decision to develop a new model of LCA or update an existing offering will be guided by each
producer's individua l perceptions about not only the "present and anticipated future customer
demands and needs" and "the suitability of existing aircraft to meet those demands and needs",

2074 Mourey Statement, (Exhibit EU-8) (BCI), paras. 51-54; and Bair Declaration, (Exhibit USA-339)
(BCI), para. 17.
2075 Mourey Statement, (Exhibit EU-8) (BCI), para. 71.
2076 European Union's second written submission, para. 657; and Mourey Statement, (Exhibit EU-8)
(BCI), paras. 15-21 and 31-38.
2077 European Union's second written submission, para. 657; and Mourey Statement, (Exhibit EU-8)
(BCI), paras. 22-38.
2078 European Union's second written submission, para. 659; and Mourey Statement, (Exhibit EU-8)
(BCI), paras. 39-43.
2079 For instance, the United States attributes the commercial failure of the A340 to "sharply higher fuel
prices". (United States' first written submission, paras. 307-308; and Bair Declaration, (Exhibit USA-339)
(BCI), para. 40). Moreover, Boeing's 2012 Current Market Outlook identifies "fuel cost" and "environment"
considerations as the "drivers" of its market forecast for the next 20 years. The same document also states
that "older, less efficient airplanes will be replaced with more efficient, newer generation airplanes".
(Randy Tinseth, "Current Market Outlook", Boeing presentation, July 2012 (Exhibit USA-337) p.18). Likewise,
the United States recognizes that delays in bringing the 787 to market created additional opportunities for both
companies to sell their current generation of mid-sized aircraft (albeit more so for Airbus). (United States' first
written submission, paras. 304-305; and Bair Declaration, (Exhibit USA-339) (BCI), para. 38)
2080 United States' response to Panel question No. 64.
2081 United States' response to Panel question No. 48.

but also "the competitiveness of its various products, compared to the various products of its
competitor".2082
6.1220. As in the original proceeding, technological innovation remains a key element of
competition between Airbus and Boeing. An aircraft that is technologically superior to another will
often force the competitor to respond with its own n ew or improved products.2083 Thus it was that
Airbus responded to Boeing's launch of the technologically advanced 787 in 2004 with the launch
of the A350XWB in 2006 (after realising that the Original A350, which itself was launched in
December 2004 "as a sign ificantly improved version of the A330" and a rival to the 787,
encountered limited sales success). 2084 Similarly, Boeing replied to Airbus' introduction of the
fuel-efficient A320neo in December 2010 with its own fuel -efficient version of the 737NG, the
737MAX in August 2011. 2085 Likewise, in 1997, Airbus launched two derivatives of the A340, the
A340-500/600, which Boeing responded to in 2000 by launching two enhanced versions of 777,
the 777-200LR and the 777-300ER.2086 And again, Boeing reacted to Airbus' launch of the A380 in
2000 with the introduction of a larger version of its 747, the 747-8I, in 2005.2087
6.1221. Another result of the focus of Airbus and Boeing on innovation is that existing LCA can
become outdated or obsolete, sometimes ahead of original expectations. Thus, it is apparent that
the new generation aircraft recently introduced by both producers were originally conceived, or are
now anticipated, to eventually replace older aircraft: the 767 (by the 787), the A330 (by the
A350XWB), the Airbus A320 "current engine option" aircraft (A320ceo) (by the A320neo) and the
737NG (by the 737MAX).2088 Similarly, Airbus officially brought the A340 programme to an end in
November 2011, after rising fuel prices rendered this family of aircraft a relatively less attractive
option compared with Boeing's 777 family, which with two instead of four engines, performed
better over similar missions. 2089 The demise of the A340 programme was also no doubt
accelerated by Airbus' decision to launch the A350XWB. 2090 Similarly, Airbus terminated the
A300/A310 programmes in 2007 when it became apparent that customers were switching to its
newer, more technological advanced, products.2091
6.1222. Driven by this pattern of competitive interaction, Airbus and Boeing today offer a slightly
different range of si ngle-aisle and twin -aisle aircraft compared with the period examined during
the original proceeding. The strategic choices that each company has made about the models of
aircraft offered to potential customers represent each company's individual conclusion s about the
best placement of its products in the overall continuum of customer profiles that will maximize
profits, in the light of the other producer's supply decisions.
6.1223. Thus, the LCA industry today continues to be an effective Airbus -Boeing duopoly, wi th
each producer having a comparable range of aircraft to offer potential customers, and where
competition takes place between these two players at different levels, including with respect to
price, technology and the timing and availability of new and imp roved aircraft, reflecting the
complex and often idiosyncratic nature of aircraft demand.

2082 European Union's response to Panel question No. 48.
2083 United States' response to Panel question No. 48.
2084 Bair Declaration, (Exhibit USA-339) (BCI), paras. 38 and 41; and Mourey Statement, (Exhibit EU-8)
(BCI), para. 89. See also Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.296.
2085 Mourey Statement, (Exhibit EU-8) (BCI), paras. 78-79; and Bair Declaration, (Exhibit USA-339)
(BCI), para. 25.
2086 Bair Declaration, (Exhibit USA-339) (BCI), para. 40; and Mourey Statement (Exhibit EU-8) (BCI),
para. 116.
2087 Mourey Statement, (Exhibit EU-8) (BCI), para. 139; and Bair Declaration, (Exhibit USA-339) (BCI),
para. 47.
2088 Mourey Statement, (Exhibit EU-8) (BCI), para. 89; Bair Declaration, (Exhibit USA-339) (BCI),
paras. 25 and 38; and United States' first written submission, para. 306.
2089 Bair Declaration, (Exhibit USA-339) (BCI), para. 40; and Mourey Statement, (Exhibit EU-8) (BCI),
para. 116.
2090 Bair Declaration, (Exhibit USA-339) (BCI), para. 41; and Mourey Statement, (Exhibit EU-8) (BCI),
paras. 89 and 116.
2091 European Union's first written submission, paras. 168-172 and 1225. See also Airbus Press Release,
"A300, A310 Final Assembly To Be Completed by July 2007", 7 March 2006, (Exhibit EU-116).

The three alleged product markets for passenger LCA
6.1224. In this section of our Report, we evaluate the extent to which the parties' arguments
demonstrate the existence o f the alleged single -aisle, twin -aisle and very large passenger LCA
product markets. We begin our assessment by reviewing the evidence the United States and the
European Union have advanced to show that Airbus and Boeing, as a general matter, do or do not
view the LCA industry to comprise of the three separate product markets that are the subject of
the United States' serious prejudice complaint. We then proceed to examine the merits of the
parties' positions with respect to each of these alleged product ma rkets individually. However,
before embarking upon this analysis, we first address the European Union's request that the Panel
reject a number of exhibits submitted by the United States with its responses to our first set of
questions concerning the three alleged LCA product markets.
6.1225. In its comments on the United States' response to Panel question No. 63, the
European Union requested the Panel to exclude the " newly-filed evidence cited in footnotes 338,
344, 348, 352, 353, 356, 357, 358, 358 {sic}, 363, 364, 365, 366, 367, 368, 369, and 370 as
evidence that was not necessary for purposes of responding to questions, within the meaning of
paragraph 15 of the Working Procedures, and by the express terms of the compliance Panel's
question itself". The evidence cited in the relevant footnotes corresponds to the following 13
exhibits: Exhibits USA -492 and 532 (non -BCI); and USA -527 (HSBI), 530 -531 (HSBI), 533 -535
(HSBI), 537 (HSBI) and 539-542 (HSBI).
6.1226. We note that the United States relied upon all of the contested pieces of evidence and
related arguments for the purpose of responding to more than just Panel question No. 63. 2092 In
particular, the United States either specifically or in general referred to the very same exhibits and
related arguments in its responses t o Panel question Nos. 40, 48, 49, 50, 52 and 53, all of which
focused on closely related, if not the same, aspects of the alleged competitive relationships
between Airbus and Boeing LCA products for the purpose of identifying relevant product markets.
The European Union did not object to the United States' reliance on the evidence submitted with
its response to Panel question No. 63 for this purpose. Moreover, despite having challenged the
United States submission of the 13 exhibits for the purpose of respo nding to Panel question 63,
the European Union responded fully and extensively to the United States' responses to all of the
above questions, including Panel question No. 63, in its own comments on the United States'
responses to the Panel's questions.2093
6.1227. In the light of these facts and considerations, we decline the European Union's request to
exclude the relevant evidence and find instead that the United States was entitled to rely upon
Exhibits USA-532 (non-BCI) and Exhibits USA -527, 530-531, 533-535, 537, and 539 -542 (HSBI)
as "evidence necessary for purposes of rebuttals and answers to questions", within the meaning of
paragraph 15 of the Working Procedures, and we will consider them accordingly.
Marketing materials and presentations
6.1228. According to the Un ited States, because of the importance of the overall product lines to
both customers and producers, Airbus and Boeing frequently use a single -market, or "all LCA",
view to help analyse competition in the LCA industry and to plan future production and
development.2094 However, the United States submits that both producers also subdivide the

2092 In addition, the United States first referred to Exhibit USA-492 in its opening public statement at the
meeting of the Panel with the parties on 16 April 2012. See further, Panel's Decision of 28 June 2013
concerning the late submission of this exhibit, Annex F-4.
2093 The European Union's comments on the United States' response to Panel question No. 63 spanned
17 pages (compared to the 8 pages used by the United States to respond to the same question). Similarly, the
European Union's comments on the United States' response to Panel question Nos. 40, 48, 49, 50, 52, and 53
covered 51 pages (compared to the 20 pages used by the United States to respond to the same questions).
2094 United States' second written submission, paras. 450-451 (citing three slides from a presentation
made by John Leahy, Chief Operating Officer of Airbus, in 2012, which compare market shares, number of
deliveries and revenues of Airbus and Boeing with respect to all LCA (John Leahy, Chief Operating Officer,
Customers, Airbus, "Airbus and Boeing World Market Share" and "Delivery Comparison over the last 15 years",
slides 7 and 18 from "Commercial Review" EADS/Airbus presentation, EADS New Year Press Conference,
16 January 2012, (Exhibit USA-12); and John Leahy, Chief Operating Officer, Customers, Airbus, "2011 gross
market share", slide 8 from "Commercial Review", EADS/Airbus presentation, EADS New Year Press

overall market into sub -segments, and that when they do so, they commonly use the three
product market segmentation applied by the Appellate Body in the original proceeding .2095 To
support this submission, the United States has presented a number of Airbus and Boeing
marketing materials and presentations, which were not specifically prepared for the purpose of this
dispute settlement proceeding.2096
6.1229. As regards Airbus, the United States presents two slides from two presentations made in
2010 and 2012. The first Airbus slide (Figure 4) identifies the total value of LCA demand by
"market segmentation" in terms of a "single -aisle market", a "twin -aisle market" and a "VLA
market". This slide indicates that in 2010 Airbus saw itself as having "an approach adapted to each
market", with the A320 family operating in the single -aisle space worth "$1 ,206B", the A330 and
A350XWB families falling within the twin -aisle market worth "$1 ,216B", and the A380 part of the
very large aircraft segment worth "$446B".
Figure 4: Airbus Innovation Days Presentation, May 20102097

6.1230. The second slide (Figure 5) the United States has introduced as evidence of
Airbus' perception of the exist ence of three product markets shows Airbus' 20 -year forecast for
future demand in 2012 for passenger and freighter LCA, which once again, is divided into three
segments "single -aisle aircraft", "twin -aisle aircraft" and "very large aircraft". 2098 For each
segment, the slide reveals Airbus' expectations with respect to the number of aircraft it will take to
fulfil the forecast demand.

Conference, 16 January 2012, (Exhibit USA-436)). See also Bair Declaration, (Exhibit USA-339) (BCI),
para. 13.
2095 United States' second written submission, para. 452.
2096 United States' second written submission, paras. 452-457.
2097 Ian Dawkins, "Market Segmentation", slide 6 from "Airbus Innovation Days", Airbus presentation,
11 May 2010, (Exhibit USA-336).
2098 John Leahy, Chief Operating Officer, Customers, Airbus, "Airbus GMF demand forecast" slide 27
from "Commercial Review", EADS/Airbus presentation, EADS New Year Press Conference 2012,
16 January 2012, (Exhibit USA-335), slide 27. HSBI evidence suggests that Airbus split the market for LCA into
the same three segments in 2006 (A350XWB Business Case Presentation, (Exhibit EU-130) (HSBI), slide 87).

Figure 5: EADS Presentation, January 20122099

6.1231. In addition to the statements of Mr Michael Bair, Boeing' s Senior Vice President for
Marketing, which explain how in Boeing's view, there are three competitive aircraft markets, the
United States has submitted one slide from Boeing's 2012 Current Market Outlook presentation
(Figure 6). This slide depicts the num ber of planes in Boeing's "backlog" in terms of models
forming part of the "single -aisle" (737), "twin -aisle" (767, 787 and 777) and "large" (747)
segments.
Figure 6: Boeing Current Market Outlook Presentation, July 20122100

6.1232. The Eu ropean Union responds to the United States' submissions by arguing that the
materials at issue are irrelevant to the question of product markets because they provide no

2099 John Leahy, Chief Operating Officer, Customers, Airbus, "Airbus GMF demand forecast" slide 27
from "Commercial Review", EADS/Airbus presentation, EADS New Year Press Conference 2012,
16 January 2012, (Exhibit USA-335).
2100 Randy Tinseth, "Current Market Outlook", Boeing presentation, July 2012, (Exhibit USA-337).

insights into the extent to which competitive constraints exist between the relevant mo dels of LCA
falling within the alleged single -aisle, twin -aisle and VLA markets. 2101 In any case, the
European Union argues that the United States has selectively chosen the materials it relies upon in
order to best fit its case. 2102 In this respect, the Europea n Union refers to the two Airbus and
Boeing "Global Market Forecast" documents (Figures 7 and 8) which it argues show that both
companies view the twin -aisle segment to be made up of two separate smaller and mid -sized
twin-aisle product markets, as opposed to the unitary twin -aisle market asserted by the
United States.
Figure 7: Airbus Global Market Forecast 2006-2025

6.1233. The information presented in Figure 7 reveals Airbus' 20 -year forecast in 2006 of the
expected volume and value of total new passenger and freighter aircraft deliveries worldwide. This
is the same subject matter of the information presented in Figure 5, which dates from 2012. The
tables in the Airbus 2006 document divide passenger and freight LCA into four segments: "single-
aisle & small jet freighters"; "small twin -aisle & regional freighters", "intermediate twin -aisle &
long-range freighters"; and "large aircraft & large freighters". We note, however, elsewhere in the
same document, Airbus presents its forecast for new deliveries of passenger only LCA in India and
China on the basis of only three product segments: single-aisle, twin-aisle and VLA.2103
Figure 8: Boeing Current Market Outlook 2006-2025
DELIVERIES BY SIZE2104
2006–2025 Market value Market share Deliveries Market share
Size category 2005 $B $ value New airplanes Units
Regional jets 90 4% 3,450 13%
 Single aisle
 90 to 175 seats 890 34% 14,440 53%
 More than 175 seats 190 7% 2,100 8%
Total single aisle 1,080 41% 16,540 61%
 Twin aisle
 Small 520 20% 3,270 12%
 Medium 650 25% 2,960 11%
 Large 260 10% 990 3%
Total twin aisle 1,430 55% 7,220 26%
TOTAL >> 2,600 100% 27,210 100%

2101 European Union's second written submission, para. 619.
2102 European Union's second written submission, para. 619; and comments on the United States'
response to Panel question No. 63.
2103 Airbus Global Market Forecast 2006-2025, (Exhibit EU-158), pp. 13 and 17.
2104 Boeing Current Market Outlook 2006-2025, (Exhibit EU-183), p. 40.

6.1234. The information set out in Figure 8 shows what Bo eing's expectations were in 2006 with
respect to the number of "new airplane deliveries" to 2025. The table presents "market value" and
"market share" information by size of the relevant aircraft, distinguishing between three broad
categories of aircraft: regional jets, single -aisle and twin -aisle. The single -aisle data is further
divided into two segments by number of seats, namely, aircraft with 90-175 seats and aircraft with
more than 175 seats. The information pertaining to the twin -aisle segment is spl it into small,
medium and large aircraft. The same document presents data concerning "fleet size and
development" in essentially the same way. 2105 However, when it comes to showing the number
and market value of deliveries on a regional basis, Boeing's 2006 C urrent Market Outlook (CMO)
divides the same data (i.e. the 27,210 total worldwide deliveries) into only four categories:
"regional jets"; "single -aisle"; "twin -aisle"; and "747 and larger" aircraft. 2106 Similarly, Boeing's
2012 CMO presents the forecast numb er and market value of deliveries by four segments:
"regional jets"; "single-aisle"; "twin-aisle"; and "large" aircraft.2107
6.1235. Finally, the United States argues that it is not only Airbus and Boeing that commonly
divide the LCA market into three segments, but it is also frequently something that is done by
their customers.2108 To illustrate this assertion, the United States cites HSBI evidence concerning a
communication between Boeing and an LCA customer where the latter indicates its intention to
have separate pr ocurement processes, one concerning narrow -body aircraft and one involving
wide-body LCA.2109
6.1236. To the extent that the marketing materials, presentations and communications submitted
by the parties in this dispute evidence the views held by Airbus and Boeing (a nd one customer)
about the sources (and limits) of competition in the LCA industry, we believe they would be highly
relevant to our task of determining the existence of relevant product markets.2110 However, we are
not convinced that the information we have r eviewed presents a clear picture of the extent to
which Airbus and Boeing consider competition takes place exclusively across the three passenger
LCA product markets asserted by the United States. Nevertheless, on balance, the documents
show that Airbus and Boeing will, more often than not, analyse and present their commercial LCA
activities on the basis of one single -aisle, one twin-aisle and one VLA segment. To this extent, we
believe that the documents we have reviewed lend a degree of support to the con tinued existence
of the three LCA passenger markets relied upon by the Appellate Body to "complete the analysis"
in the original proceeding, which the United States relies upon to make its serious prejudice
complaint in this compliance dispute.
The alleged market for single-aisle passenger LCA
6.1237. The United States submits that all of the planes in Boeing's 737 family compete in one
and the same LCA product market as all of the models of the Airbus A320 family. The
European Union agrees that competition exists between Airbus and Boeing single -aisle products.
However, in its view, this competition takes place in two separate product markets: one for airlines
seeking near-term delivery of LCA products, where the current versions of the A320 family
compete with the current versions of the 737NG family; and another for airlines that seek delivery
by the end of the decade , where effective competition takes place solely between the new
generation of Airbus and Boeing single -aisle products, namely, the A320neo and its d erivatives
versus the 737MAX and its derivatives. 2111 There is, therefore, no dispute between the parties
about whether the A320ceo and its derivatives compete in one and the same product market as
the 737NG and its derivatives. Neither do the parties have different views about whether their new
generation of LCA products and derivatives compete with each other. The parties' disagreement is
limited to the extent to which both producers' range of new generation single -aisle products
compete with their current versions.

2105 Boeing Current Market Outlook 2006-2025, (Exhibit EU-183), pp. 38-39.
2106 Boeing Current Market Outlook 2006-2025, (Exhibit EU-183), pp. 38-39.
2107 Randy Tinseth, "Current Market Outlook", Boeing presentation, July 2012, (Exhibit USA-337), p. 17.
2108 United States' response to Panel question No. 48, para. 142.
2109 Exhibit USA-184 (HSBI).
2110 See above para. 6.1207.
2111 European Union's first written submission, paras. 600-606; and Mourey Statement, (Exhibit EU-8)
(BCI), paras. 75-84.

6.1238. In their submissions, the parties have overwhelmingly focused upon the question of
demand-side substitutability. The parties' arguments have given little attention to considerations
of supply-side substitutability, in relation to which they both agree that the full range of Airbus and
Boeing single -aisle LCA products may be produced on the same assembly lines. 2112 Thus, the
debate between the United States and the European Union has almost exclusively addressed the
extent to which: (a) the physical a nd performance characteristics, end -uses and customers of the
different Airbus and Boeing single -aisle aircraft; (b) the existence and nature of any pricing
constraints between these aircraft; and (c) the evidence with respect to a number of sales
campaigns, demonstrate a level of demand -side substitution between current and new generation
single-aisle aircraft that is sufficient to confirm the United States' view that there is only one
single-aisle LCA product market. We explore the merits of the parties' positions with respect to
these matters in the sections that follow.
Physical and performance characteristics, end-uses and customers
6.1239. The data the parties have submitted in relation to the basic physical and performance
characteristics of Airbus' and Boei ng's range of single -aisle aircraft is reproduced in the following
table:
Table 16: Basic physical and performance characteristics of Airbus and Boeing
single-aisle LCA2113
Model Typical
Seats
(Airbus /
Boeing)
MTOW (t)
(Airbus /
Boeing)
Max Range
(nm)
(Airbus /
Boeing)
Length
(m)
Wing Span
(m)
(Airbus /
Boeing)
2011
List
Price
(USD M)
A318 107 68 / 75 3,250 / 3,055 31.4 34.1 / 35.5 65.2
737-600 108 / 110 66 / 72.8 3,130 / 3,235 31.2 34.3 59.4
A319 124 75.5 / 83.2 3,700 / 3,130 33.8 34.1 / 35.5 77.7
737-700 124 / 126 70 / 77.2 3,150 / 3,445 33.6 35.8 70.9
A319neo 124 / 126 75.5 / 83.2 4,200 / 3,560 33.8 35.80 / 35.5 83.9
737 MAX 7 124 / 126 73 / 79.8 3,510 / 3,800 33.6 35.8 / 35.9 77.7
A320 150 78 / 86 3,300 / 2,880 37.5 34.10 / 35.5 85.0
737-800 159 / 162 79 / 87.1 3,070 / 3,085 39.5 35.8 84.4
A320neo 150 79 / 87 3,750 / 3,295 37.5 35.80 / 35.5 91.2
737 MAX 8 159 / 162 82 / 90.6 3,330 / 3,620 39.5 35.8 / 35.9 95.2
A321 185 / 183 93.5 / 103.1 3,200 / 2,345 44.5 34.10 / 35.5 99.7
737-900ER 173 / 180 85.1 / 93.9 3,210 / 2,845 42.1 35.8 89.6
A321neo 185 / 183 93.5 / 103.1 3,750 / 2,735 44.5 35.80 / 35.5 105.9
737 MAX 9 173 / 180 88.1 / 97.4 3,480 / 3,355 42.1 35.8 / 35.9 101.7

6.1240. The information in Table 16 reveals that the mode ls of aircraft compared in each
derivative pairing of Airbus and Boeing single -aisle LCA have very similar seating capacities,
maximum take -off weights (MTOW), lengths and wing -spans, irrespective of whether they are
current or new generation models. Howev er, in terms of maximum flying range and 2011 list
prices, Table 16 shows that there is overall a noticeable difference between new and current
generation LCA.2114 For the most part, this reflects the (approximately 15% -16%) superior fuel -
efficiency of the re -engined new generation LCA compared with the current version aircraft 2115,

2112 European Union's response to Panel question No. 78, para. 324 and fn 537; and United States'
comments on the European Union's response to Panel question No. 78. In its response, the European Union
argues, however, that "even though the A320ceo and A320neo, and the 737NG and 737MAX, may be produced
on the same final assembly lines, that would not put them in the same product market given overwhelming
evidence of the lack of competitive constraints that current technology single-aisle LCA exercise on new
technology single-aisle LCA".
2113 The data used in this table are sourced from the information provided by Airbus and Boeing in the
Mourey Statement, (Exhibit EU-8) (BCI), tables 1 and 2; and Bair Declaration, (Exhibit USA-339) (BCI),
para. 20. Where the parties have given different data for the same characteristic, both submissions have been
included in the table.
2114 Both parties have explained the differences in the maximum flying range figures furnished by Airbus
and Boeing by suggesting that these result from the application of different calculation methodologies.
(European Union's response to Panel question No. 159; and United States' response to Panel question No. 159)
2115 European Union's second written submission, para. 682; and Supplemental Mourey Statement,
(Exhibit EU-124) (BCI/HSBI), paras. 13-24.

which allows the former to fly essentially the same take -off weights further and sell at a higher list
price.
6.1241. Both parties agree that the new generation single -aisle LCA products have a clear
fuel-burn advantage over Airbus and Boeing current version offerings. However, unlike the
European Union, the United States does not accept that this superiority has created two distinct
single-aisle LCA product markets. According to the United States, not only are the new generation
and current version products physically very similar 2116, but the customers interested in the
A320neo and the 737MAX will be mostly the same – namely, airline companies wanting to capture
the fuel -efficiency benefits of t he new generation products on routes already flown with the
A320ceo and 737NG. 2117 Thus, the United States argues that when a customer opts for the
A320neo, it selects an A320 with new engines to fly essentially the same missions it operates with
current version aircraft. For the United States, this reality is also reflected in not only the fact that
Airbus considers both the A320neo and A320ceo to form part of the same "A320 Family" 2118, but
also Airbus' claim in a slide that compares the performance characteris tics of the 737 -800, the
A320ceo and the A320neo, and concludes that the "A320 is the market leader".2119
6.1242. According to the European Union, none of the Airbus marketing materials and
presentations the United States relies upon to support the existence of only one single-aisle LCA
product market can be used to determine the existence of product markets because they in no
way speak to the question of demand -side substitutability. The European Union asserts that the
materials at issue only shed light upon the gene ral physical characteristics of certain single -aisle
product offerings, which it submits, is not enough to establish the existence of significant
competitive constraints between those aircraft.2120
6.1243. In our view, the fact that the physical attributes of the cu rrent version and new
generation of Airbus and Boeing single -aisle LCA products are very similar is a relevant and
important consideration when evaluating the extent to which a customer may view those products
to be substitutable. While similarities in the physical attributes of two or more products are not
alone enough to determine whether they place competitive constraints on each other, the degree
of commonality between two or more products may provide meaningful insights into the extent to
which those p roducts serve the same purpose and therefore, potentially, the same customers.
Indeed, it is recognized that a high degree of similarity between two or more products may also
signal negligible or insignificant switching costs, making it easier for customer s to substitute
between those products. Furthermore, we note that LCA "product homogeneity" and "seating
capacities" are two physical attributes of LCA products that, together with "flight ranges", "prices,
fuel efficiency, and other performance characteri stics", were identified by the Appellate Body as
factors that may be relevant to consider when determining the demand -side substitutability of
different aircraft.2121
6.1244. In this light, it is instructive to find that Airbus has itself emphasized the high degree of
commonality between the A320ceo and the A320neo in a number of publicly available
presentations and documents. Thus, at the 2012 Airbus Innovation Days, Airbus described the
A320neo as a "minimum change aircraft" having "maximum commonality with {the} A320ceo" and
the "same Type Certification and Type Rating". 2122 Another (undated) slide from an Airbus
presentation emphasizes the "high level of commonality" and "seamless operation of both current
and future A320s", identifying, in particular, a greater than "95%" commonality in "spare parts", a

2116 United States' second written submission, paras. 460 and 462-463.
2117 United States' second written submission, para. 466.
2118 United States' second written submission, para. 464 (copying a slide from John Leahy, Chief
Operating Officer, Customers, Airbus, "2011 Airbus orders, deliveries and backlog" slide 13 from "Commercial
Review", EADS/Airbus presentation, EADS New Year Press Conference 2012, 16 January 2012, (Exhibit
USA-343), slide 13, which inter alia shows that Airbus counted its 2011 orders, deliveries and backlog for the
A320neo as orders, deliveries and backlog for the "A320 Family").
2119 United States' second written submission, para. 465 (copying a slide from "The A320 is the Market
Leader", Airbus presentation slide, (Exhibit USA-478)). While this slide does not explicitly reveal any
performance data with respect to the A320neo, it specifically concludes that the "A320neo is more efficient,
flies farther".
2120 European Union's second written submission, para. 686; and comments on the United States'
response to Panel question No. 63, para. 501.
2121 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1134.
2122 "Programme Update", Airbus presentation, Williams Innovation Days, May 2012, (Exhibit USA-342).

"91%" commonality in "tooling and GSE", a difference of "5 days" when it comes to "maintenance
training", and "just two hours of self -study for pilot familiarization training" 2123. Similarly, two
Airbus employees closely involved in the A320neo project explain in an article appearing in an
industry journal that:
The A320neo series … has a target of 95% spare parts commonality with the existing
models, enabling the new aircraft to fit seamlessly into existing A320 Family fleets and
customers' operations. … The A320neo series is a programme which uses innovative
new engine and aero -structural technologies to provide a significant improvement in
performance for the A319, A320 and A321 aircraft . Whilst striving to deliver this
benefit to the operators, Airbus is also keen on minimizing the changes to a proven
product. Changing only what is necessary to integrate the new engines, keeping the
rest of the aircraft in harmony with the operators' existing economic and logistical
models, can ensure the future operators a simpler, lower cost service entry. 2124
(emphasis added)
6.1245. The same article goes on to explain that "{t}he 95% commonality of spare parts defined
in Airbus' objectives is not just a marketing figure", but rather the result of a careful study of the
spare parts that would be needed by an operator, on the basis of "key assumptions" "relating to
the fleet size, aircraft utilisation, logistics and economics", which reflect the " experience with all
Airbus operators and represent the average A320 Family mission ".2125 The article concludes, inter
alia, that:
{The A320neo programme} is a true demonstration of engineering excellence which is
critical in today's competitive 'single aisle' market . Alongside the aircraft market
leading performance, the success of the A320 Family is also a recognition of Airbus'
constant strive to improve the product with the customer in mind .2126 (emphasis
added)
6.1246. In our view, the information and statements contained in the above -quoted presentations
and documen ts submitted by the United States do more than merely identify a high degree of
commonality between the physical attributes of the A320neo series and those of the A320ceo
series. The evidence provided by the United States also suggests that Airbus relies u pon this
commonality as part of a commercial strategy that is focused upon marketing the new generation
products as updated, more fuel -efficient, versions of its current single -aisle products for the
purpose of serving essentially the same missions already operated by existing single -aisle
customers. This is consistent with Boeing's own assessment of the commercial interest in the
737MAX, which is described in the Bair Declaration as coming mainly from operators that will
"generally seek to capture benefits of greater fuel efficiency on routes already serviced by
in-service A320s and 737s rather than trade that efficiency for greater range".2127
6.1247. The European Union submits that even if the marketing materials and presentations the
United States relies upon could be understood to inform an evaluation of the substitutability of
new generation and current version single -aisle LCA products, they could, at most, only be taken
to represent the producer and marketing teams' perspectives on substitutability, which cannot ,

2123 "A320/A320neo: A High Level of Commonality", Airbus presentation slide, January 2012,
(Exhibit USA-479).
2124 Andrew Mason, Project Manager, New Programmes IP, Airbus Material, Logistics and Suppliers, and
Graham Jackson, A320neo Operability Technical Integrator, Airbus Engineering, "Ensuring A320neo series
commonality with the existing A320 Family", Airbus Technical Magazine – FAST 49, January 2012,
(Exhibit USA-344), p. 2.
2125 Andrew Mason, Project Manager, New Programmes IP, Airbus Material, Logistics and Suppliers, and
Graham Jackson, A320neo Operability Technical Integrator, Airbus Engineering, "Ensuring A320neo series
commonality with the existing A320 Family", Airbus Technical Magazine – FAST 49, January 2012,
(Exhibit USA-344), p. 4. (emphasis added)
2126 Andrew Mason, Project Manager, New Programmes IP, Airbus Material, Logistics and Suppliers, and
Graham Jackson, A320neo Operability Technical Integrator, Airbus Engineering, "Ensuring A320neo series
commonality with the existing A320 Family", Airbus Technical Magazine – FAST 49, January 2012,
(Exhibit USA-344), p. 7.
2127 Bair Declaration, (Exhibit USA-339) (BCI), para. 26.

alone, be used to understand how customers view the relevant aircraft.2128 We note, however, that
the United States is not advancing the above information as evidence of customers' preferences,
but only Airbus' own perceptions of those preferences. In our v iew, this type of evidence may be
highly relevant to the task of identifying LCA product markets, especially given Airbus' long -
standing experience with the A320 in an industry that includes only one other effective competitor;
and a fortiori when, as in the present instance, it appears that this competitor takes the same view
of the single -aisle aircraft product space that we believe can be objectively inferred from the
evidence the United States has advanced of Airbus' own perceptions. Thus, we see the pu blicly
expressed views and opinions of Airbus of the commercial relationship between, and positioning of,
the A320neo series and the A320ceo series to be an important part of the configuration of facts
that we must consider in making our determination of relevant product markets.
6.1248. In the light of the above considerations, we find that the new generation and current
versions of Airbus and Boeing single-aisle aircraft are not only physically very similar, but also that
it is highly likely that they will be use d by the majority of customers for the purpose of operating
the same or similar missions. This implies that when seeking to purchase a single -aisle aircraft,
the majority of customers will be faced with making a potential choice between at least two
aircraft from each manufacturer, one from a current version and another from the new generation
of products.
Pricing constraints
6.1249. Apart from the similarities in physical attributes, end -uses and customers, the
United States argues that the existence of effective competition between the current and new
generation of single-aisle LCA products is evidenced by the pricing pressures that the two sets of
LCA place on each other. 2129 The United States' allegation concerning the existence of pricing
pressure on current versions of Airbus and Boeing single-aisle aircraft by new generation models is
primarily based on evidence from the 2011 -2012 Norwegian Air Shuttle sales campaign. We
consider the parties' arguments with respect to this evidence in the next subsection of our
Report.2130 As regards the existence of alleged pricing constraints imposed by current versions of
single-aisle aircraft on new generation aircraft, the United States relies upon not only the views
expressed by Boeing's Senior Vice President for Commercial Ai rplane Marketing in the Bair
Declaration2131, but also the following statements by Airbus' Chief Financial Officer (CFO) in 2011,
as well as Airbus' Senior Vice President for Contracts in the Supplemental Mourey Statement:
{Airbus} has sought to increase the A320neo price by approximately $7-8 million over
the baseline A320, which is estimated to be one -half of the net present value of the
lifetime fuel burn improvement.2132
Airlines will be able to take the advertised and guaranteed fuel burn advantages of the
new generation aircraft and apply what they know about fuel prices and their own
operations to estimate these present values. This will allow them to quantify the
advantage that operating new generation aircraft offers to the airlines' bottom line
over current generation aircraft. In practice, Boeing and Airbus have had to "share"
the cost -savings and value advantages from the new generation neo and MAX with
single-aisle customers.2133
6.1250. The United States argues that these statements confirm that neither Airbus n or Boeing is
able to increase the prices of their new generation single -aisle offerings by the entire NPV of their
enhanced fuel efficiency because this would neutralize any operating cost advantage over current

2128 European Union's comments on the United States' response to Panel question No. 63, paras. 481,
482, and 501.
2129 Bair Declaration, (Exhibit USA-339) (BCI), paras. 27 and 29; and United States' response to Panel
question No. 63.
2131 Bair Declaration, (Exhibit USA-339) (BCI), para. 27.
2132 John Ostrower, "EADS CFO confirms A320neo pricing premium", Flightglobal News, 11 August 2011,
(Exhibit USA-346).
2133 Supplemental Mourey Statement, (Exhibit EU-124) (BCI/HSBI), para. 23.

models, thereby leaving customers with littl e incentive to switch to the new models. 2134 Thus,
according to the United States, current versions of Airbus and Boeing single -aisle LCA products
exert a constraint on both companies' pricing of their new generation models.
6.1251. Unlike the United States, the Eur opean Union argues that the current versions of Airbus
and Boeing single -aisle LCA products do not place any significant pricing constraints on their
respective new generation models. 2135 For the European Union, the only significant pricing
constraints that affect the sale of Airbus and Boeing new generation aircraft result exclusively from
the competitive pressures that the 737MAX and the A320neo place on each other. Thus, according
to the European Union, the A320ceo and the 737NG do not significantly constra in the prices of the
A320neo and the 737MAX. In our view, the European Union's submission does not accurately
reflect the competitive pressures that we believe are faced by the new generation of Airbus and
Boeing single-aisle LCA products.
6.1252. As already menti oned, the current versions and new generation models of Airbus and
Boeing single-aisle aircraft are intended to perform largely the same missions2136, implying that for
any existing route currently served by a single -aisle aircraft, a customer will potentiall y have four
different series of single -aisle aircraft to choose from. W e recall that a customer's decision to
purchase an LCA product will depend upon its individual assessment of a multiplicity of factors
bearing on the overall value of the package it is offered, in the context of its particular business
model, strategic goals and any relevant subjective considerations at the time of purchase. For a
customer looking to purchase a single -aisle aircraft, this assessment will no doubt take into
account the tr ade-offs that must be made between paying a higher price for an LCA with lower
operating costs (new generation aircraft) and paying a lower price for an LCA with higher
operating costs (current version aircraft). Where, all other factors being equal, the r esult of such
an evaluation shows that the price of a new generation aircraft is at a level that erodes the
benefits of its lower operating costs to a point where a particular customer would be left worse -off
compared with the situation it would be in were that customer to buy a lower priced but less
efficient current version aircraft, it would obviously not make economic sense for that particular
customer to purchase the new generation product. The relatively high price of the new generation
LCA would have tilted the customer's economic incentive in favour of purchasing a current version
of LCA. It follows that in setting the price for new generation products, Airbus and Boeing will not
only have to consider each other's pricing on the 737MAX and A320neo, b ut also the 737NG and
A320ceo. This suggests that current versions of Airbus and Boeing single -aisle LCA do impose
pricing constraints on their new generation models, a conclusion we believe can be supported by
the following passages from the Bair Declaration and the Supplemental Mourey Statement:
From customer's perspective, the only meaningful difference between the {current
version and new generation aircraft} is an operating cost difference driven by the
improved fuel efficiency of the new engines on th e neo and the MAX. Neither Airbus
nor Boeing is able to increase prices for the newer models by the net present value of
their enhanced fuel efficiency, since that would neutralize their operating cost
advantage over earlier models and thereby leave custom ers with little incentive to
adopt the newer models . Indeed, pricing for the A320neo and 737MAX is generally
constrained by the market presence of earlier models, as the value of the latter's fuel
burn disadvantage tend to diminish on a dollar -for-dollar basis as neo and MAX prices
increase.2137 (emphasis added)
Airlines will be able to take the advertised and guaranteed fuel burn advantages of the
new generation aircraft and apply what they know about fuel prices and their own
operations to estimate these pre sent values. This will allow them to quantify the
advantage that operating new generation aircraft offers to the airlines' bottom line
over current generation aircraft. In practice, Boeing and Airbus have had to "share"

2134 United States' second written submission, para. 466 (citing Bair Declaration, (Exhibit USA-339)
(BCI), paras. 27-28).
2135 European Union's comments on the United States' response to Panel question No. 63,
paras. 509-510.
2136 See above para. 6.1246.
2137 Bair Declaration, (Exhibit USA-339) (BCI), para. 27.

the cost -savings and value advantage s from new generation neo and MAX with
single-aisle customers.2138 (emphasis added)
6.1253. According to the European Union, however, the performance differences of the re-engined
new generation aircraft compared with current models of single -aisle LCA have such a dr amatic
impact on the value they offer customers that airlines able to wait until the end of the decade to
take delivery of a single -aisle LCA will invariably choose from either Airbus' or Boeing's range of
new generation products.2139 In other words, as we understand it, the European Union argues that
the fuel-burn superiority of new generation aircraft over current versions is so great that it would
be highly unlikely for a customer to face a situation whereby the value of the operating cost
advantages of the A320neo and 737MAX could be outweighed by a lower priced A320ceo or
737NG.
6.1254. The European Union finds support for its argument in the Supplemental Mourey
Statement, which presents a NPV analysis of the revenue and cost streams generated from
operating the A 320neo and A320ceo on missions demanded by their "typical" customers over a
15-year life-span, assuming the same delivery date, but in the light of changing fuel prices. 2140
The analysis shows that the A320neo has a greater NPV than the A320ceo at all levels of fuel
price, improving as the fuel price increases. The Supplemental Mourey Statement considers the
size of the A320neo's NPV advantage and concludes that the price concessions that would have to
be made to the A320ceo in order "to persuade a typical, economically rationale airline" to purchase
that aircraft instead of the A320neo would be "[***]".2141 The European Union maintains that
these results, which it argues are derived from the application of a comparison methodology that is
"standard practice" and "regularly used throughout the industry" 2142, demonstrate that the two
series of Airbus and Boeing single-aisle aircraft do not fall within the same product market.
6.1255. The United States advances several criticisms of the European Union's NPV analysis,
arguing in the light of these, that the European Union has failed to demonstrate that new
generation and current versions of Airbus and Boeing single -aisle aircraft are in separate product
markets. Indeed, to the extent that the United States considers the European Union's NPV analysis
to be relevant at all to the question of identifying LCA product markets, the United States argues
that the results of the Supplemental Mourey Statement support the existence of competition
between all models of Airbus and Boeing single-aisle aircraft.2143
a Accounting for price and non-price factors in the NPV analysis
6.1256. The first alleged shortcoming the United States identifies in the European Union's NPV
analysis is derived from its own understanding of how an appropriate NPV analysis shou ld be
undertaken and interpreted. According to the United States, a valid NPV analysis for LCA products
should involve "determining the price of the two products {being compared} and quantifying the
value advantage of all relevant non -price factors".2144 The United States points out that the NPV
analysis conducted in the Supplemental Mourey Statement takes neither of these two steps. In
particular, the United States notes that aircraft prices were not used in the calculation of the NPVs
for the A320neo and the A320ceo. Moreover, even when aircraft prices were taken into account to
examine the extent to which discounting might overcome the NPV advantage of the A320neo over
the A320ceo, the United States highlights that no data was disclosed to support the allega tion that

2138 Supplemental Mourey Statement, (Exhibit EU-124) (BCI/HSBI), para. 23. See also, John Ostrower,
"EADS CFO confirms A320neo pricing premium", Flightglobal News, 11 August 2011, (Exhibit USA-346), which
reports that Airbus "has sought to increase the A320neo price by approximately $7-8 million over the baseline
A320, which is estimated to be one-half of the net present value of the lifetime fuel burn improvement".
2139 European Union's first written submission, paras. 605-606. The European Union explains that
deliveries of the new generation products are scheduled to begin in 2015 (for the A320neo) and 2017 (for the
737MAX).
2140 Supplemental Mourey Statement, (Exhibit EU-124) (BCI/HSBI), paras. 17-18; and European Union's
comments on the United States' response to Panel question No. 61, para. 439.
2141 Supplemental Mourey Statement, (Exhibit EU-124) (BCI/HSBI), para. 24; and European Union's
second written submission, paras. 682-683.
2142 European Union's comments on the United States' response to Panel question No. 61, para. 445.
2143 United States' response to Panel question No. 61, paras. 205-225; and Sanghvi Declaration, (Exhibit
USA-530), paras. 86-90.
2144 United States' response to Panel question No. 61 (citing Sanghvi Declaration, (Exhibit USA-530),
paras. 42-50).

it would not be possible for the A320ceo to compete with the A320neo by making appropriate price
concessions.2145 Similarly, the United States notes that the NPV analysis conducted in the
Supplemental Mourey Statement does not account for a number o f important non -price factors
that the United States argues "regularly drive LCA prices", such as delivery date and fleet
commonality.2146 For the United States, all of these alleged flaws undermine the probative value of
the European Union's NPV analysis.
6.1257. Contrary to the United States, the European Union asserts that the NPV analysis
contained in the Supplemental Mourey Statement did in fact take account of actual aircraft prices,
by interpreting the results of the NPV comparisons in the light of the price co ncessions that would
be necessary and commercially feasible to bridge the value advantage of new generation aircraft
over current versions. According to the European Union, it was not necessary to incorporate
aircraft prices into the cash flows used to mak e the NPV calculations themselves because the
purpose of the analysis was to evaluate the differences in NPVs created by non-price factors.2147
6.1258. Similarly, the European Union argues that the United States' criticism about the lack of
consideration of non-price factors in the NPV analysis is without merit. With respect to the absence
of consideration of the effects of "fleet commonality", the European Union submits that "when
performing general NPV comparisons on an aircraft -to-aircraft basis", "there is genera lly no basis
on which to generate a meaningful value that could be included in the NPV comparisons for" fleet
commonality because it is a customer -specific factor.2148 While the European Union acknowledges
that "fleet commonality" "will add significant cost a dvantage" in, particularly, the single -aisle
aircraft segment, it asks how it would be possible to value this effect for the purpose of conducting
a "generic" assessment of NPVs given that there will be airline customers with a mix of both Airbus
and Boeing aircraft.2149 Thus, according to the European Union, the fact that the effects of "fleet
commonality" were not accounted for in the NPV analysis does not undermine those
calculations.2150
6.1259. The European Union responds to the United States' criticism about the f ailure of the NPV
analysis to take differences in the date of delivery into account by suggesting that this would not
have been appropriate, or in any case, by arguing that it would not have shown that new
generation and current versions of Airbus and Boei ng single-aisle aircraft all compete in the same
market. According to the European Union, the fact that an airline may decide to purchase a current
version over a new generation aircraft because of its availability does not reflect the existence of
competition between the two aircraft, but rather simply the customer's "need for quick delivery
positions at which {time} new technology aircraft are not available". 2151 The European Union does
not accept that this dynamic reflects the existence of effective competi tion between the two
aircraft products.
6.1260. We agree with the European Union that it was not necessary to include the actual prices
of the A320ceo and A320neo into the calculation of their respective NPVs in order to show the
extent to which one aircraft will outperform the other over the same distance flown by the same
customer in the light of changing fuel prices . However, in the absence of any consideration of
aircraft pricing, it is difficult to see how the NPVs generated in the Supplemental Mourey
Statement may be interpreted to demonstrate anything more than simply the mathematical results
they produce, namely, that the A320neo has a sizeable operating cost advantage over the
A320ceo, when delivered on the same date to a "typical" customer, and that this a dvantage will
increase with higher fuel prices. Given the multiplicity of price and non-price factors that will have
a bearing upon a customer's purchase decision, it does not necessarily follow that an aircraft with
an operating cost advantage over anothe r will not be considered by a customer to be potentially
substitutable with the poorer performing aircraft. While operating costs (including fuel -efficiency)
will invariably play a significant role in any customer's purchase decision, there are other facto rs

2145 United States' response to Panel question No. 61, paras. 207-208; and Sanghvi Declaration,
(Exhibit USA-530), paras. 86-87.
2146 United States' response to Panel question No. 61, paras. 209-212; and Sanghvi Declaration,
(Exhibit USA-530), paras. 6, 57, 66, and 76.
2147 European Union's comments on the United States' response to Panel question No. 61, para. 452.
2148 European Union's comments on the United States' response to Panel question No. 61, para. 454.
2149 European Union's comments on the United States' response to Panel question No. 61, fn 796.
2150 European Union's comments on the United States' response to Panel question No. 61, para. 454.
2151 European Union's comments on the United States' response to Panel question No. 61, para. 446.

that will also play an important role. Among the most important of these are price, fleet
commonality and date of delivery. 2152 Thus, in order to draw a meaningful conclusion about the
extent to which the operating cost advantage of the A320neo over the A3 20ceo may influence a
customer's purchase decision, it would in our view be necessary to ensure that all of the most
important relevant factors that regularly affect a customer's decision to buy an aircraft are taken
into account, including price.
6.1261. Moreover, we share the view expressed in the Sanghvi Declaration that had prices been
taken into account in the NPV analyses, the only situation in which the A320neo would have been
able to maintain the same NPV advantage over the A320ceo that is generated in the Supplemental
Mourey Statement would be if the two aircraft were in close competition:
{B}ecause Mr. Mourey fails to consider the import of his NPV calculations on pricing,
his NPV calculations are only relevant to the purchasing decision in the case where
customers reap the full benefit of the cash flow improvements induced by the
improved features of the new Airbus models. Such a scenario implies that Airbus is
unable to command a pricing premium for its new aircraft despite the maintained
assumption that those aircraft yield more value to customers. What prevents a
supplier from raising his price? Competition. Thus, the only circumstance in which Mr.
Mourey's NPV calculations would be at all relevant actually implies that Airbus faces
extremely tight and binding competitive constraints in the pricing of even its new
models, such that it is unable to extract the value of its models to customers. But then
this is hardly a monopoly. Thus, if his NPV work has any relevance, it is to show
competition.37
Maintaining this assumption, Airbus, as a rational profit -maximizing monopolist, should raise the
price of its new models to the point that the purchase of the new Airbus model leaves the
customer just marginally better off than the purchase of the incumbent Boeing models. After all,
that is why Airbus would have incurred the very substantial R&D costs (and why it obtained the
subsidization of those launch costs) required to innovate an aircraft that offered such remarkable
value. Thus, once Airbus prices optimally in the marketplace – i.e., prices commensurate to its
assumed monopoly power and with knowledge of the immense magnitude of the incremental
value proposition its new model offers a purchaser – that higher price would have to be deducted
from the NPV of the cash flows associated with advantages in product characteristics. In other
words, the NPV calculations as presented are an inaccurate representation of the competitive
distances between the models he examines.2153 (footnote original)

6.1262. Thus, the fact that the improved operating performance of the A320neo over the A320ceo
generates a specific NPV advantage that allegedly cannot be overcome by price discounting implies
that Airbus is unable to increase the price of its ne wer generation models to capture the full
benefit of their enhanced fuel efficiency. As observed in the Sanghvi Declaration, such an outcome
implies the exact opposite to the absence of competition.
6.1263. In terms of other important factors affecting a customer's purchase decision, we note that
one of the key assumptions used in the NPV analyses is that new generation and current version
A320s would be delivered on the same dates. Thus, the NPV advantage that is calculated in the
Supplemental Mourey Statement do es not test what the value difference might have been for a
"typical" customer were the availability of the two aircraft to differ. Yet the Supplemental Mourey
Statement recognizes the potentially decisive importance of delivery dates to an airline's purch ase
decision when it explicitly states that "depending upon the timing of the airlines' need and the
relative delay in delivery positions between current and new generation aircraft, purchasing an
A320ceo or 737NG could be the economically superior option" .2154 The same potentially critical

2152 See above para. 6.1217.
2154 Supplemental Mourey Statement, (Exhibit EU-124) (BCI/HSBI), paras. 4 and 25. In the same way,
the Supplemental Mourey Statement explains and shows how delivery dates may be decisive in a particular
customer's decision to purchase a current generation twin-aisle aircraft (the A330 or the 777) instead of a

impact of delivery date differences to a customer's purchase decision is also described in the
Mourey Statement, which explains that the "value of an earlier delivery slot to an airline may, in
fact, be so high that it can make the difference between an airline purchasing Airbus or Boeing
aircraft".2155 The European Union, however, submits that this fact is not a sign that the current
version and new generation models of Airbus and Boeing single -aisle aircraft are sufficiently
substitutable such that they should be considered to fall within the same product market. We are
unable to agree with the European Union's point of view.
6.1264. As we have previously observed, the available date of delivery of a particular aircraft will
weigh heavily in the economic assessment that a potential customer will undertake of the value of
that aircraft to its business model and strategic objectives. 2156 Thus, a customer that prefers to
wait for a new generation model of single -aisle aircraft will decide no t to buy a current version
because, having compared the economics of both options (e.g. buying a relatively higher priced
aircraft with relatively low operating costs that is not available in the near term vs buying a lower
priced aircraft with higher operating costs that is available in the near term), the best value for its
business model and strategic objectives, is the new generation aircraft. Conversely, a customer
may decide to buy a current version over a new generation aircraft, notwithstanding the operating
cost advantage of the latter, because as identified in the Supplemental Mourey Statement, the
economics of waiting for a delivery date makes the new generation aircraft a worse business
proposition than buying a current version.2157
6.1265. In our view, it would be misleading and incorrect to conclude that, in both of the above
scenarios, there was no competition between the new generation and current version of Airbus and
Boeing single -aisle LCA products simply because of the mere existence of differences in the
economic values of the two product offerings to a particular customer. This is because the
perceived differences in economic value may simply reflect the delivery date advantage (alone or
in combination with other non -price factor advantages)2158 that enabled one set of products to be
chosen by a customer ahead of the other products . In this light, we would agree with the
United States that the superiority of the new generation aircraft over current versions delivered on
the same date does not establish that the two sets of LCA are not substitutable. Rather, to the
extent that delivery dates may (alone or in combination with other non -price factors) play a
decisive role in a customer's purchase decision, it is apparent that airlines wanting to purchase
aircraft that can perform single -aisle missions are likely to view the current versions and new
generation models of Airbus and Boeing single -aisle LCA to be potential substitutes. The Sanghvi
Declaration describes this competitive dynamic in the following terms:
The theme of the EU's argument is that more modern, fuel ‐efficient planes are in
separate markets than older models with similar capacity and range characteristics.
For example, in the single aisle space, Mr. Mourey suggests that no purchasers of the
new Airbus A320neo or Boeing 737MAX models would consider pur chasing the
incumbent A320ceo or 737 models. Mr. Mourey declared that the new models were so
popular in the marketplace that demand far outstripped developmental and productive
capacity. Consequently, there was a prohibitively long backlog for delivery of the new
models. But this development effectively removed the new models from customers'
choice sets. What did they choose to purchase in the effective absence of the new
models? Mr. Mourey declares that they flocked in droves to the incumbent models. In
other words, Mr. Mourey has detailed a perfect natural experiment that establishes
clearly that in the absence of the new models, customers purchase the old models
with similar mission capabilities.2159 (footnote omitted)
6.1266. Thus, unlike the European Union, we do not see a customer's delivery date preferences to
signal the existence of different single -aisle aircraft markets. Rather, to the extent that delivery
dates will play an important role in a customer's purchase decision, they would seem, in our view,

better performing new generation twin-aisle aircraft (the A350XWB or the 787). (Supplemental Mourey
Statement, (Exhibit EU-124) (BCI/HSBI), paras. 45-48)
2155 Mourey Statement, (Exhibit EU-8) (BCI), para. 54.
2156 See above para. 6.1217.
2157 See e.g. Supplemental Mourey Statement, (Exhibit EU-124) (BCI/HSBI), paras. 4 and 25.
2158 See e.g. below discussion concerning advantages of fleet commonality, paras. 6.1266-6.1269.

to rep resent a factor that Airbus and Boeing will take into account in devising the terms and
conditions of their aircraft offers with a view to winning a sale.
6.1267. We come to a similar conclusion with respect to the absence of any consideration of the
effects of f leet commonality in the European Union's NPV analysis. As with the absence of any
consideration of different delivery dates, this omission does not invalidate the mathematical results
of the NPV calculation per se, or the conclusion that the A320neo has an operating cost advantage
over the A320ceo for a "typical" customer that will increase with higher fuel prices, when both
aircraft are delivered on the same date. However, in our view, it does undermine the probative
value of the NPV analysis to the Europe an Union's submission that there are two separate
single-aisle aircraft markets.
6.1268. We recall that the potential importance ("significant cost advantage") of fleet
commonality to a customer's purchase decision in, particularly, the single -aisle aircraft segm ent,
has been explicitly recognized by the European Union. Indeed, to the extent that fleet
commonality will reduce spare parts, maintenance and training costs, it is apparent that it will
decrease an aircraft's direct operating costs, which are among the most significant non -price
factors that will be invariably considered by all customers when making their purchase
decisions.2160 Thus, as with delivery dates, the absence of any kind of consideration of the effects
of fleet commonality in the NPV analysis und ertaken in the Supplemental Mourey Statement
undermines the conclusions that the European Union has drawn from its results with respect to the
existence of two separate single-aisle aircraft markets.
6.1269. We note that the only reason the European Union has specifically advanced to justify not
having conducted one or more NPV analyses using different assumptions for fleet commonality is
that this factor is likely to differ with each and every customer. While we recognize this to be a
potential complication, we do not believe that it would have been necessary for the
European Union to conduct a different NPV analysis for each and every possible combination and
mix of Airbus and Boeing aircraft fleets in order to test the conclusions reached on the basis of the
NPVs that were in fact calculated in the Supplemental Mourey Statement. For instance, one
approach that might have been explored could have involved calculating alternative NPVs for the
A320neo, A320ceo, 737NG and the 737MAX assuming that the potential custome r possessed:
(a) a 100% Boeing aircraft fleet; or (b) a 100% Airbus fleet. The results of the NPV analysis using
these two assumptions could then have been qualitatively assessed in the light of available
information about the extent to which potential cus tomers' fleet characteristics match or closely
resemble those assumptions. In any case, the fact remains that the absence of any consideration
of fleet commonality in the NPVs calculated in the Supplemental Mourey Statement undermines
their probative value for the purpose of demonstrating the European Union's assertions concerning
the nature of competition between single-aisle aircraft.
b NPV analyses for limited pairings of aircraft
6.1270. A second criticism the United States makes of the NPV analysis of the A320n eo and the
A320ceo set out in the Supplemental Mourey Statement is that it has an overly limited scope,
because it does not compare the NPVs of the 737NG with the A320neo or the A320ceo with the
737MAX. The United States argues that this omission leaves th e question whether the
European Union's approach actually supports a conclusion that all of these models of aircraft fall
within the scope of the same market unanswered. 2161 Similarly, the United States notes that the
European Union did not carry out an NPV a nalysis of the 737MAX and the A320neo pairing or the
737NG and the A320ceo combination of aircraft. By not doing so, the United States argues that
the European Union has failed to demonstrate that its NPV approach would have rendered the two
sets of produc ts in different markets. The United States characterizes this omission as significant
because "it prevents any checking of the validity of {the European Union's} methodology".2162
6.1271. The European Union explains that "the role of Mr. Mourey's NPV comparisons is to
demonstrate the flaws in the United States product market delineation" 2163, recalling that the

2160 See e.g. Mourey Statement, (Exhibit EU-8) (BCI), para. 51.
2161 United States' response to Panel question No. 61, para. 222.
2162 United States' response to Panel question No. 61, para. 223.
2163 European Union's comments on the United States' response to Panel question No. 61, para. 453.

burden to demonstrate the existence of the three alleged product markets the United States relies
upon to bring its serious prejudice complaint is on the United States, not the European Union.
6.1272. We agree with the European Union that the burden of establishing the existence of the
three alleged LCA product markets lies with the United States. However, as we understand it, the
point being made by the United States is not that the European Union was required to have
undertaken an NPV analysis for all pairings of single -aisle aircraft. Rather, the United States
appears to be arguing that the failure to conduct NPV comparisons of, particularly, those pairings
of LCA that the European Union argues compete in different product markets (737NG vs A320ceo;
737MAX vs A320neo) means that the probative value of the methodology and results of the
Supplemental Mourey Statement cannot be tested by examining the extent to which they w ould
have supported the European Union's own preferred market delineation.
6.1273. As we have explained above, the NPV analysis conducted with respect to the A320neo
and A320ceo in the Supplemental Mourey Statement cannot alone demonstrate that new
generation and current versions of Airbus and Boeing single -aisle LCA products compete in
separate markets, because both the NPV analysis and the European Union's interpretation of that
analysis, fail to account for a number of the important factors other than fuel-burn efficiency that
will typically affect a customer's purchase decision. Moreover, to the extent that it is recognized in
the Supplemental Mourey Statement that a typical customer may decide, in the light of differences
in delivery dates, to purchase a curre nt version of Airbus or Boeing single -aisle LCA over a new
generation LCA, we believe that the Supplemental Mourey Statement actually supports the
United States' contention that all single -aisle aircraft are potentially substitutable. Thus, had the
European Union performed and interpreted the additional NPV analyses referred to by the
United States on the basis of the same approach used in the Supplemental Mourey Statement, it is
our view that they too would have suffered from the same flaws and therefore f ailed to
substantiate the European Union's position that new generation and current version Airbus and
Boeing single-aisle aircraft are not in the same market.
c The NPV analysis is distorted by subsidies
6.1274. The United States' final criticism of the NPV analysi s conducted for the A320neo and
A320ceo in the Supplemental Mourey Statement is that it does not "account for the fact that the
LCA market has already been distorted by the subsidies at issue in this proceeding". 2164 According
to the United States, any valid NPV analysis "would have to adjust the data to account for the
distortionary effects of the subsidies through a counterfactual inquiry". By not doing so, the
United States, quoting the Sanghvi Declaration, states that the European Union "has plunged
head-long into the pitfall of the reverse cellophane fallacy: they utilize the qualitatively different
substitution patterns observed in the post -conduct world to draw inferences regarding
substitutability in the counterfactual world".2165
6.1275. The European Union argues that the United States' position is legally and factually flawed
for the reasons which are essentially the same as those the European Union relies upon to respond
to the United States' similar criticism of the utility of the SSNIP test in serious prejudic e
disputes.2166
6.1276. Having already determined that the NPV analysis of the A320neo and A320ceo that is
conducted in the Supplemental Mourey Statement does not substantiate the conclusions the
European Union has drawn from its results with respect to the existence of two separate
single-aisle aircraft markets, we find that it is unnecessary to evaluate the merits of the
United States' particular argument with respect to the alleged distortions caused by subsidies. We
note, however, that in keeping with the market d efinition logic we have described above, it would
be expected that in order to avoid the type of problem that is associated with the "reverse
cellophane fallacy", some account of subsidies suspected of distorting the competitive relationships
underlying the NPV comparison might well have been necessary.

2164 United States' response to Panel question No. 61, para. 214.
2165 United States' response to Panel question No. 61, para. 214 (quoting Sanghvi Declaration,
(Exhibit USA-530), para. 79).
2166 European Union's comments on the United States' response to Panel question No. 51, para. 444.
See above paras. 6.1194 and 6.1195.

Sales campaigns
6.1277. The United States submits that the existence of competition between current and new
generation Airbus and Boeing single-aisle aircraft can also be demonstrated by the evidence it has
presented with respect to two particular sales campaigns – the 2011 American Airlines and
2011-2012 Norwegian Air Shuttle campaigns. In the 2011 American Airlines campaign, the
United States asserts that "Airbus' offer of A320ceos and A320neos threatened to comple tely
displace the Boeing 737NG as the airline's single -aisle aircraft".2167 According to the United States,
the threat of losing American Airlines, a long time all -Boeing customer, led Boeing to launch the
737MAX2168, a move which resulted in American Airlines u ltimately deciding to split the order, and
purchase a combination of current and new generation aircraft from both Airbus and Boeing. 2169
Likewise, as regards the 2011 -2012 Norwegian Air Shuttle campaign, the United States submits
that certain HSBI evidence r eveals that Boeing's offer of current and new generation aircraft was
affected by Airbus' new generation of single -aisle aircraft, thereby showing that all models of
Airbus and Boeing single-aisle LCA compete in the same market.2170
6.1278. The European Union, on th e other hand, submits that the results of the 2011 American
Airlines and 2011 -2012 Norwegian Air Shuttle sales campaigns evidence the absence of
competition between the relevant new and current generation of Airbus and Boeing single -aisle
products. While a cknowledging that the A320neo "replaced" the 737NG at American Airlines, the
European Union maintains that this does not establish the existence of "significant competitive
constraints 'under current factual conditions'", but rather only that the 737NG doe s not compete
with the A320neo because of the latter's superior fuel -burn efficiency. 2171 Similarly, the
European Union argues that the HSBI evidence concerning the Norwegian Air Shuttle campaign
does not prevent a finding that current and new generation sing le-aisle LCA should be properly
classified in separate product markets. 2172 We disagree with the European Union's characterization
of the implications that can be drawn from these sales campaigns.
6.1279. The American Airlines 2011 sales campaign involved a "record order" of 460 different
derivatives of current version and new generation Airbus and Boeing single -aisle aircraft. In
particular, American Airlines entered into agreements to purchase 130 A320neos, 130 A320ceos,
100 737MAXs and 100 737NGs.2173 There is no dispute between the parties that prior to this order,
American Airlines had been a long -standing all -Boeing customer, a fact that would have given
Boeing an important advantage in the competition against Airbus due to the synergies arising from
running a flee t of all -Boeing aircraft.2174 However, in the Bair Declaration, it is explained that the
American Airlines sales campaign followed shortly after Airbus' launch of the A320neo, prior to
which there had been "much debate amongst the producers, engine suppliers, and customers
regarding the merits of re -engining existing models as compared to investing in all -new
single-aisle LCA programs". 2175 [***]2176, which was an important consideration for American
Airlines during the 2011 sales campaign.2177 Thus, at the end of August 2011, Boeing launched the
re-engined 737MAX and offered it to American Airlines, which became one of its first customers.

2167 United States' response to Panel question No. 63.
2168 United States' first written submission, para. 314; and Bair Declaration, (Exhibit USA-339) (BCI),
para. 25.
2169 "Boeing launches new 737 'MAX' to take on A320neo", Sydney Morning Herald, 31 August 2011,
(Exhibit USA-116).
2170 United States' response to Panel question Nos. 49 and 50; comments on the European Union's
response to Panel question Nos. 55 and 73; and Exhibit USA-531 (HSBI).
2171 European Union's comments on the United States' response to Panel question No. 63, paras. 503-
504.
2172 European Union's comments on the United States' response to Panel question No. 63,
paras. 505-507.
2173 "Boeing launches new 737 'MAX' to take on A320neo", Sydney Morning Herald, 31 August 2011,
(Exhibit USA-116).
2174 As we noted in the original proceeding, "once an airline orders any particular LCA model from a
given manufacturer, efficiencies in operating a fleet of similar aircraft (including those related to spare parts,
maintenance and training) favour follow-on orders of the same models, as well as orders of other aircraft
models from the same manufacturer, in order to take advantage of commonalities across an LCA fleet". (Panel
Report, EC and certain member States – Large Civil Aircraft, para. 7.1720). See also above, para. 6.1216.
2175 Bair Declaration, (Exhibit USA-339) (BCI), para. 25.
2176 Bair Declaration, (Exhibit USA-339) (BCI), para. 25.
2177 "Boeing launches new 737 'MAX' to take on A320neo", Sydney Morning Herald, 31 August 2011,
(Exhibit USA-116).

One reported account of the American Airlines order asserts that " Boeing's decision to offer
{American Airlines} its best-selling 737 with a new engine, rather than building an all-new aircraft,
was seen as forced by the competition from the Airbus A320neo".2178
6.1280. Rather than showing that the 737NG does not compete with the A320neo, the 2011
American Airlines sales campaign, in our view, represents a clear example of one aspect of the
very essence of competition between Airbus and Boeing – namely, the introduction of
technologically superior products for the purpose of winning the competition for single-aisle aircraft
customers. Unlike the European Union, we do not believe that the acknowledged fuel -burn
superiority of the new generation of Airbus and Boeing single -aisle LCA necessarily means that
they do not compete with current versions of their single -aisle offerings. In this regard, we recall
that both manufacturers' new generation aircraft are specifically intended to operate missions that
will largely overlap those already serviced by current versions. This implies that, for each mission,
the majority of customers will have a potential choice between at least two aircraft from each
manufacturer, one from a current version and another from the new generation of products.
6.1281. However, for the European Union, it was precisely during the 2011 American Airlines
campaign "that Boeing recognised t hat the 737NG was unable to compete with the A320neo in
terms of fuel efficiency, which spurred Boeing to launch the 737MAX". 2179 The European Union
makes a similar, albeit less developed, argument with respect to the 2011 Qantas/Jetstar, AirAsia,
GoAir, IndiGo, Lufthansa, TAM and Cebu Pacific Air sales campaigns, where it submits the fact that
Boeing had not yet launched the 737MAX at the time meant that "it could not offer a truly
competitive product to the A320neo".2180
6.1282. As we understand it, the European Union's submission implies that each and every time
Airbus or Boeing decide to introduce a technologically superior LCA into the market to perform
largely the same missions already serviced by existing aircraft, the new superior offering would
face no competiti on at all from existing models, thereby creating a monopoly market for the
relevant producer until the other producer introduced an aircraft of equivalent or superior
technology. We find this to be an overly simplistic proposition that is very difficult to reconcile with
the conditions of competition in the LCA industry. As we have previously explained, technological
innovation is a key feature of the competition that takes place between Airbus and Boeing for new
and existing customers. Airbus and Boeing will introduce new LCA products that are technologically
advanced precisely to win the competition against each other's existing aircraft, a dynamic that we
believe is reflected in the 2011 American Airlines sales campaign, as well as the other 2011 sales
campaigns referred to by the European Union.2181
6.1283. We come to a similar conclusion with respect to the 2011 -2012 Norwegian Air Shuttle
sales campaign. In January 2012, Norwegian Air Shuttle ordered 222 single -aisle aircraft,
comprised of 100 A320neos, 100 737MAX s and 22 737NGs. 2182 Like American Airlines, prior to its
2012 order, Norwegian Air Shuttle had operated an all -Boeing fleet of aircraft.2183 The 2012 order

2178 "Boeing launches new 737 'MAX' to take on A320neo", Sydney Morning Herald, 31 August 2011,
(Exhibit USA-116).
2179 European Union's comments on the United States' response to Panel question No. 63, para. 503.
2180 Mourey Statement, (Exhibit EU-8) (BCI), para. 82; Supplemental Mourey Statement, (Exhibit EU-
124) (BCI/HSBI), para. 19. See also European Union's comments on the United States' response to Panel
question No. 62.
2181 We note that the United States has not specifically denied the European Union's contention that
Airbus won orders in 2011 from GoAir, IndiGo, Lufthansa and TAM because of the superiority of the A320neo
over the 737NG. Moreover, our understanding of the 2011 Qantas/Jetstar, AirAsia and Cebu Pacific Air orders
suggests that the same reason can explain why Airbus made the respective sales.
2182 EADS Press Release, "Norwegian commits to 100 A320 neo aircraft", January 2012, (Exhibit USA-
189); and Boeing Press Release, "Boeing and Norwegian announce order for 100 737MAX, 22 Next-Generation
737s", January 2012, (Exhibit USA-191).
2183 Boeing Press Release, "Boeing and Norwegian announce order for 100 737MAX, 22 Next-Generation
737s", January 2012, (Exhibit USA-191); and Andrew Parker, "Norwegian carrier aims high with 222 aircraft
orders", Financial Times, January 2012, (Exhibit USA-192).

represented Airbus' first sale of aircraft to Norwegian Air Shuttle 2184, and at the same time,
Boeing's largest ever sale to a European airline.2185
6.1284. In our view, the HSBI evidence submitted by the United States reveals information that
supports the existence of a negotiating dynamic between Boeing and Norwegian Air Shuttle that is
consistent with the existence of c ompetition between the 737NG and the A320neo, as well as the
737MAX. Although the European Union describes parts of the information disclosed in the
United States' HSBI evidence as "curious" and offers its own HSBI explanations for what is stated
in the relevant Exhibit, it has not questioned the authenticity of the statements made by Boeing in
that Exhibit, which we consider to be clear and unambiguous. Thus, while the European Union's
alternative explanations are such that might elucidate what could have taken place in one or more
other sales campaigns , we are not convinced on the basis of the evidence before us that they
accurately reflect what happened in the 2011-2012 Norwegian Air Shuttle campaign. Indeed, given
the nature of the HSBI document the United States submitted as evidence, it is difficult for us to
understand the statements at issue as providing anything less than an accurate account of the
actual dynamics and status of negotiations between Boeing and Norwegian Air Shuttle for the
purpose of Boeing's decision-makers.
6.1285. Another criticism the European Union raises about the United States' HSBI evidence
relating to the 2011 -2012 Norwegian Air Shuttle campaign is that even if the Boeing statements
relied upon by the United States are taken at face v alue, they do not prevent a finding that the
A320neo and 737MAX are in a separate product market compared with the 737NG. 2186 We note,
however, that in advancing this criticism, the European Union does not exclude the possibility that
the same statements migh t also support the existence of competition between those models of
LCA. Thus, the European Union's criticism does not undermine the relevance of the United States'
HSBI evidence to its demonstration of the existence of only one single-aisle LCA product market.
Conclusion with respect to the alleged product market for single-aisle passenger LCA
6.1286. We recall that the parties' disagreement with respect to the existence and nature of
competition between Airbus and Boeing single -aisle aircraft is limited to the q uestion of whether
both producers' range of new generation aircraft compete with their current version offerings. Our
careful review of the parties' arguments and the evidence that has been submitted in this dispute
has led us to conclude that the degree o f demand-side substitution that exists between these two
lines of single -aisle aircraft is sufficient to confirm the United States' contention that, for the
purpose of the serious prejudice disciplines of the SCM Agreement, all Airbus and Boeing
single-aisle aircraft compete in one and the same product market. We come to this conclusion on
the basis of all of the above considerations, which we summarize as follows.
6.1287. First, there is a high degree of commonality in the physical attributes, end -uses and
customers of all new generation and current versions of Airbus and Boeing single -aisle aircraft. In
particular, all aircraft in both producers' range of single -aisle aircraft have very similar, if not
identical, seating capacities, wing -spans, lengths and MTOWs. The one feature that clearly
distinguishes new generation aircraft from current versions is their (15% -16%) superior fuel-burn
efficiency, which enables them to fly the same take -off weights further. However, rather than
taking advantage of these additiona l range capabilities for the purpose of servicing extended
routes, a typical single-aisle aircraft customer will seek to exploit the fuel-burn advantage of a new
generation aircraft in order to reduce operating costs over the same routes and missions already
serviced by current version aircraft. Thus, the new generation of Airbus and Boeing single -aisle
aircraft may be viewed as updated, more fuel efficient, versions of their current single -aisle
offerings, principally intended to serve the same missions al ready operated by existing single-aisle
customers. It follows that a typical customer wanting to purchase a single -aisle aircraft will have a
potential choice between two aircraft from each manufacturer, one from a current version and
another from the new generation of products.

2184 Meera Bhatia, "Norwegian airlines order $21.5 Billion in Boeing, Airbus jets to Squeeze SAS",
Bloomberg, January 2012, (Exhibit USA-193).
2185 Andrew Parker, "Norwegian carrier aims high with 222 aircraft orders", Financial Times,
January 2012, (Exhibit USA-192).
2186 European Union's comments on the United States' response to Panel question No. 63, para. 508.

6.1288. Second, the superior fuel -efficiency of the new generation of Airbus and Boeing
single-aisle aircraft does not mean they are impervious to competition from current versions. While
the NPV analysis presented by the European Union in the Supplemental Mourey Statement
demonstrates that the A320neo has a fuel -burn advantage over the A320ceo, when the two
aircraft are delivered on the same date , both parties accept that this advantage may be overcome
when a customer with a need for near t erm capacity finds that the cost of waiting for the
availability of a new generation aircraft outweighs the benefits of its improved fuel -efficiency. Of
course, this is possible because a customer's evaluation of the economic value of the terms and
conditions of the aircraft package it is offered will not only depend upon the fuel -burn performance
of the aircraft being considered, but also other factors such as price, operating costs (other than
fuel-burn efficiency), seating, range and cargo capabilities a s well as delivery dates. Thus, to the
extent that the European Union's NPV analysis shows that the A320ceo cannot overcome the
fuel-burn advantage of the A320neo by price discounting 2187 when both aircraft are delivered on
the same date, it does not automatically follow that it will never be possible for the A320ceo to be
offered at a price that, in the light of other potentially important terms and conditions such as
delivery dates, will overcome the fuel -burn efficiency of the A320neo. In our view, these
considerations not only demonstrate that current versions of Airbus and Boeing single-aisle aircraft
compete with new generation models, but also that this competition will inevitably involve
reciprocal pricing constraints, the degree of which will depend up on and vary with the particular
characteristics of different customer requirements and sales campaigns.
6.1289. Third, we do not understand the 2011 AirAsia, Cebu Pacific Air, GoAir, IndiGo, Lufthansa,
Qantas/Jetstar and TAM sales campaigns, in which Airbus won a significant number of orders for
the A320neo, to be examples of situations where customers found new generation and current
versions of Airbus and Boeing single -aisle aircraft not to compete. Rather, in our view, the fact
that several airlines chose to pu rchase the A320neo over the 737NG, simply suggests that each of
the relevant customers found the A320neo to be a better fit with its business model and strategic
objectives, in the light of the economic value offered by each aircraft, including the propose d
terms and conditions of sale. In order to accept that the 737NG did not compete with the A320neo
in these sales, we would have to be convinced that in the absence of the A320neo, the same
airlines would have preferred to purchase no aircraft at all – in other words, that at the time of the
sales, the A320neo had a temporary monopoly. However, the little evidence that is before us with
respect to these sales does not support such a proposition. Moreover, given the conditions of
competition in the LCA industry and the other findings we have made above, it is difficult for us to
accept that the A320neo was sold in a (temporary) monopoly market.
6.1290. Similarly, the fact that Airbus managed to win a considerable number of sales from
all-Boeing customers, American Airlines and Norwegian Air Shuttle, in 2011 and 2012, suggests to
us that the terms and conditions of the A320neo, considered in the light of its performance
characteristics, were able to overcome the potentially "significant cost advantage" that Boeing
would have had in these campaigns because of the all -Boeing fleets of single -aisle aircraft
operated by these customers. In this light, the fact that Boeing launched the 737MAX during the
latter stages of the American Airlines campaign in response to the pres ence of the A320neo
illustrates the role that technological innovation plays in improving the competitiveness of
Airbus' and Boeing's single-aisle offerings. In our view, this fact does not show that the 737NG did
not compete sufficiently with the A320neo to conclude that the two aircraft are in different product
markets, but only that the A320neo, on the terms and conditions it was offered in that sales
campaign, was a very strong competitor.
6.1291. Thus, in both sets of sales campaigns, the success of the A320ne o over the 737NG, with
or without the 737MAX, does not imply that the relevant customers did not consider all of those
aircraft to be substitutable, but only that the particular characteristics of the A320neo compared
with the 737NG represented a better va lue proposition for their businesses, when considered in
the light of the terms and conditions of the respective Airbus and Boeing aircraft offers. To the
extent that the reason for the success of the A320neo can be attributed to its superior fuel -burn
efficiency, the sales campaigns therefore demonstrate how Airbus and Boeing use technological
innovation as a part of their strategy to win the competition for single-aisle aircraft customers.

2187 We recall that the European Union has not disclosed the information on price concessions that was
used in the Supplemental Mourey Statement to arrive at this conclusion. See above para. 6.1262.

6.1292. For all of the above considerations, and in the light of the totality of the evidence we have
reviewed, we find that the United States has established that all Airbus and Boeing single-aisle LCA
offerings exercise a sufficient degree of competitive constraint on each other such that they should
all be considered to fall within the same product market for the purpose of the serious prejudice
claims that it brings under the SCM Agreement.
The alleged market for twin-aisle passenger LCA
6.1293. The United States maintains that the Boeing 767, 777, and 787 families of passenger LCA
compete in one and the same product market as the Airbus A330 and A350XWB families. 2188 While
acknowledging that a wider variance exists between the basic features and characteristics of these
aircraft compared with Airbus and Boeing single -aisle offerings, t he United States argues that
there is significant overlap across all models making them potentially attractive to a broad range of
customers.2189 The European Union, on the other hand, argues that there are a number of
separate markets for these five families of Airbus and Boeing passenger LCA. In particular, the
European Union submits that the A350XWB and the 787 closely compete in the same product
market for technologically advanced and fuel -efficient new generation aircraft, and that the A330
and 777 are each sold in their own separate monopoly markets for smaller, medium -range aircraft
(in the case of the A330) and larger, longer -range aircraft (in the case of the 777) that are
available for near -term delivery. As regards the 767, the European Union maintai ns that its
allegedly "outdated" and "inferior" technology means that it does not compete in the same product
market as the A330 and that, in any case, it has been replaced by the 787.2190
6.1294. Not unlike the arguments made in relation to the alleged product mark et for single-aisle
LCA, the parties' submissions with respect to the degree of competition between the 767, 777,
787, A330 and A350XWB have focused mainly on demand-side substitutability , with only very
limited argumentation being advanced in respect of supply-side substitutability .2191 Thus, the
debate has centred on the extent to which: (a) the physical and performance characteristics,
end-uses and customers of the 767, 777, 787, A330 and A350XWB; (b) the existence and nature
of any pricing constraints betw een different pairings of these LCA products; and (c) the evidence
concerning a number of sales campaigns, demonstrate that the 767, 777, 787, A330, and
A350XWB are sufficiently substitutable from the customer's perspective to consider them to all fall
within the same product market. We explore the merits of the parties' arguments regarding each
one of these three areas in the following sub-sections.

2188 The United States also argues that the alleged market for twin-aisle passenger LCA includes the
A340. We note, however, that the market presence of this family of Airbus LCA came to an end before the
beginning of the post-implementation period when Airbus terminated the A340 programme in November 2011.
Accordingly, the A340 family of Airbus LCA is no longer available and cannot, therefore, fall within the scope of
the alleged twin-aisle market for passenger LCA that exists today.
2189 United States' second written submission, paras. 471-484.
2190 European Union's first written submission, paras. 607-619; second written submission,
paras. 626-628; and response to Panel question No. 70.
2191 Although the parties agree that all Airbus and Boeing "minor models of a given twin-aisle family
(e.g. the 777-200ER and 777-300ER) are produced on the same assembly lines, and {that} the same line can
shift between minor models with little disruption to the production process", they draw different conclusions
about what this implies for the purpose of demonstrating the existence of one or multiple twin-aisle product
markets. (Bair Declaration, (Exhibit USA-339) (BCI), para. 32; European Union's response to Panel question
No. 78; and United States' comments on the European Union's response to Panel question No. 78). In our
view, the relevance and merits of the parties' positions will ultimately depend upon our findings with respect to
the extent to which the five families of Airbus and Boeing twin-aisle LCA are sufficiently substitutable from the
perspective of demand. Were we to accept the United States' view that all five families are sufficiently
substitutable, then it would be unnecessary to examine the issue of supply-side substitutability, as we would
have already found that the relevant products compete against each other. The fact that Boeing and Airbus
may be able to "shift {their production activities} between minor models with little disruption" would add little
to the analysis in terms of understanding the range of products falling within the scope of the relevant market.
On the other hand, were we to agree with the European Union's submissions concerning the absence of the
required demand-side substitutability between the relevant products, then the above facts pertaining to the
degree of supply-side substitutability existing between the "minor models" of Airbus and Boeing LCA (and, in
particular, the absence of any supply-side substitutability between LCA families), would not undermine the
European Union's multiple product markets theory.

Physical and performance characteristics, end-uses and customers
6.1295. The following table contains the information provided by the parties in relation to some of
the basic physical and performance characteristics of the 767, 777, 787, A330, and A350XWB:
Table 17: Basic physical and performance characteristics of Airbus and Boeing twin-aisle
LCA2192
Model Typical
Seats
(Airbus /
Boeing)

MTOW (t)
(Airbus /
Boeing)
Max Range
(nm)
(full capacity)
(Airbus /
Boeing)
Length
(m)
Wing Span
(m)
(Airbus /
Boeing)
2011
List
Price
(USD M)
767-300ER 214/218 187/206 5,600/5,960 55 48 173.1
787-8 246/242 228/251 7,350/7,770 57 60 193.5
A330-200 246/245 238/262 6,850/6,890 59 60 200.8
A350XWB-
800
276/256 259/286 8,200/7,750 61 65 236.6
787-9 280/280 247/277 7,600/8,155 63 60 227.8
A330-300 300/275 235/259 5,600/5,635 64 60 222.5
777-200ER 302/314 298/328 7,350/7,510 64 61 244.7
777-200LR 269/314 347/383 9,200/9,290 64 65 275.8
A350XWB-
900
315/299 268/295 7,750/7,195 67 65 267.6
A350XWB-
1000
369/344 308/340 8,000/7,775 74 65 299.7
777-300ER 360/386 351/388 7,650/7,825 74 65 298.3

6.1296. The data in Table 17 re veal that there is greater variation in the basic physical and
performance characteristics of the 767, 777, 787, A330 and A350XWB families of Airbus and
Boeing LCA compared with the differences existing between the A320 and 737 families. It is also
apparent that relatively more variation exists not only across families but also between models
within the same family. Nevertheless, it is apparent that there are also a number of overlaps and
points of similarity between all 11 models of twin-aisle aircraft.
6.1297. In terms of typical seating capacity, the possibilities offered by Boeing's six aircraft range
from 218 seats on the 767 -300ER to 386 seats on the 777 -300ER, with a difference of 81 seats
between the smallest and largest models of 777 (using the average of Airbus and Boeing seating
estimates). Likewise, Airbus' five aircraft can seat from 246 passengers on the A330 -200 to 369
passengers on the A350XWB-1000, with a difference of 91 seats between the smallest and largest
models of A350XWB (using the average of Airbus and Boeing seating estimates). When considered
in terms of aircraft families, there is a clear and substantial overlap between the typical seating
capacities offered by four of the five families, with the 767 -300ER being only 27 to 31 and 42 to
56 seats smaller than the A330-200 and A350XWB-800, respectively.
6.1298. The maximum flying ranges of Boeing's aircraft stretch from 5,960nm (nautical miles) for
the 767 -300ER to 9,290nm for the 777 -200LR. Again, Airbus' offerings operate within a flying
range that overlaps these possibilities, extending from 5,600nm for the A330 -300 to 8,200nm on
the A350XWB-800. In terms of aircraft families, there is a clear and substantial overlap between
the maximum flying ranges of the 777, 787 and A350XWB families, with the ma ximum range of
the A330-200 coming within 500-900nm of the maximum flying ranges of the 787 -8 and the 777-
200ER, and 400-900nm of the maximum flying range of the A350XWB-900. The A330-300 and the
767-300ER share a very similar maximum flying range, with bo th aircraft capable of flying to
within 900nm and 1,250nm, respectively, of the maximum flying range of the A330-200.

2192 Not including the A380 and the 747-8I. The data used in this table are obtained from the Mourey
Statement, (Exhibit EU-8) (BCI), table 6; and Bair Declaration, (Exhibit USA-339) (BCI), para. 31. As already
noted, the parties have attributed the divergence in the figures they have provided to different sets of rules
and assumptions used by Airbus and Boeing to derive the underlying data. (European Union's response to
Panel question No. 159; United States' comments on the European Union's response to Panel question
No. 159).

6.1299. The seating capacity and flying range options offered by the five families of Airbus and
Boeing twin-aisle LCA can be represented graphically as follows2193:
Figure 9: Twin-aisle seating capacity and flying range options

Eight aircraft within
band of 244-308 seats
Eight aircraft with
max. flying range
between 6,870
and 7,975nm

6.1300. It is apparent from this chart that, depending upon whether a customer is most
interested in seating capacity or flying range, it will have multiple combinations of Airbus and
Boeing LCA possessing comparable physical and performance characteristics to consider, with
eight different models available for customers interested in exploring the economics of aircraft that
have either the ability to carry f rom 244 to 308 passengers 2194 or the potential to fly distances
ranging from 6,870nm to 7,975nm. 2195 Moreover, six different models would be available for
customers interested in aircraft having both the ability to carry from 244 to 308 passengers and a
maximum flying range from 6,870nm to 7,975nm. Thus, in terms of seating capacity and
maximum flying range, the five families of Airbus and Boeing twin -aisle LCA cover a broad
spectrum of overlapping end -uses2196, with four of these families being positioned relativel y close
to each other.
6.1301. Both parties agree that although relevant to a determination of product markets,
overlapping end-uses alone are not enough to demonstrate that two or more LCA products place
competitive constraints on each other.2197 Nevertheless, in the light of the "high degree of overlap"
between the potential uses of Airbus and Boeing twin -aisle aircraft, the United States argues that

2193 For each aircraft, the seating and maximum flying range numbers used for the purpose of this chart
represent the average of the values provided by Airbus and Boeing that are set out in the above table.
2194 The three models that are situated outside of the two extremes of this seating range are: (a) the
767-300ER (216 seats); (b) the A350XWB-1000 (356 seats); and (c) the 777-300ER (373 seats).
2195 The three models that are situated outside of the two extremes of these maximum flying ranges
are: (a) the A330-300 (5,618nm); (b) the 767-300ER (5,780nm); and (c) the 777-200LR (9,245nm).
2196 Bair Declaration, (Exhibit USA-339) (BCI), paras. 34-36; Mourey Statement, (Exhibit EU-8) (BCI),
paras. 99, 107 and 115 (explaining that the "787 and the smaller versions of the A350XWB are about the same
size as the A330, but with longer range. They can thus do the same missions for which the A330 is generally
ordered", that the 767 and the A330 "are roughly the same size, though the 767 is a bit smaller, and they
have a comparable range", and that the "777, like the largest version of the A350XWB … has a higher seating
capacity than the A330. As a result, airlines generally use the 777 and the A330 for different missions").
2197 European Union's response to Panel question Nos. 52 and 75-77; United States' comments on the
European Union's response to Panel question Nos. 52 and 75; second written submission, para. 473; and Bair

when all of the factors affecting a customer's purchase decision are taken into account, the value
of the various at tributes of different aircraft to a customer's business may be reduced or
eliminated through pricing concessions, making all five families of twin -aisle aircraft potentially
substitutable.2198
6.1302. According to the European Union, however, Airbus and Boeing twin -aisle offerings "differ
significantly in performance characteristics, and thus in their suitability to meet mission
requirements demanded by customers to serve route networks".2199 For certain pairings of aircraft,
the European Union maintains that these differences are so great that they cannot be overcome or
would be "very difficult" to overcome by price discounting. 2200 Thus, the European Union submits
that the operating and maintenance cost advantages of the new generation of Airbus and Boeing
twin-aisle LCA, the A350XWB and 787 families, are so great that customers able to wait for
delivery positions do not consider them to be substitutable with any version of the A330, 767 or
777, leaving them to compete against each other in their own separate twin -aisle product market
for technologically advanced LCA. 2201 On the other hand, for aircraft customers in search of
additional capacity in the short -term (i.e. customers that cannot wait for delivery positions to
become available for the A350XWB and 787), the European Union submits that a choice will be
made between the A330 and 777 families, both of which it asserts offer superior performance
compared to the 767. 2202 In this connection, the European Union maintains that the choice
between the A330 and 777 families will be guided by the relative performance advantages of each
aircraft over the other on missions for which they are optimized. In particular, the European Union
argues that the "weak performance of the 777 for missions (in terms of medium -term range and
number of passengers) that the A330 is optimised for" implies that a customer wanting to fly a
relatively shorter route with fewer passengers will prefer the A330. Likewise, the "weak
performance of the A330 on missions (longer range and more passengers) that the 777 was
designed for (if the A330 is even capable of flying those missions at all)" demonstrates that
airlines do not generally find the two models of LCA to be substitutable.2203
6.1303. The United States disagrees with the European Union, arguing that the implications of the
relative performance advantages of the five families of twin -aisle aircraft are not so great as to
demonstrate that they cannot all be considered to fall within the same product market. The
United States emphasizes that the impact of relative pe rformance advantages will vary depending
upon the demand conditions faced by a particular airline in the context of its specific business
model. Thus, according to the United States, where, for example, an airline operates a relatively
short route for which there is strong passenger demand, it may make economic sense for it to use
a longer -range twin -aisle aircraft with a greater seating capacity, than a smaller shorter -range
twin-aisle aircraft that would normally be more efficient moving fewer passengers over the same
distance. Conversely, an airline may want to operate at higher frequencies that better fit its
network and thus choose smaller twin-aisles over larger twin-aisles that could also profitably serve
the same routes.2204
6.1304. It is undisputed that the ne w generation of Airbus and Boeing twin -aisle LCA have
operating cost and maintenance cost advantages over the 767, 777 and A330 families. 2205

2198 United States' second written submission, paras. 447 and 473; response to Panel question No. 48;
comments on the European Union's response to Panel question No. 48; Bair Declaration, (Exhibit USA-339)
(BCI), paras. 17 and 36; and Sanghvi Declaration, (Exhibit USA-530), para. 57.
2199 European Union's second written submission, para. 649.
2200 European Union's second written submission, paras. 633-643 (discussing the results of the NPV
analyses conducted in the Supplemental Mourey Statement, (Exhibit EU-124) (BCI/HSBI), paras. 32-63); and
response to Panel question No. 158. We examine the merits of the NPV analyses in the next subsection.
2201 European Union's first written submission, para. 612; and second written submission, paras. 628
and 636-637.
2202 European Union's first written submission, para. 618; second written submission, paras. 634-635;
response to Panel question No. 70; and Mourey Statement, (Exhibit EU-8) (BCI), paras. 107-114.
2203 European Union's first written submission, paras. 614-615; second written submission, paras. 638-
642; and Mourey Statement, (Exhibit EU-8) (BCI), paras. 115-128.
2204 United States' second written submission, paras. 471-473; comments on the European Union's
response to Panel question No. 75; and Bair Declaration, (Exhibit USA-339) (BCI), paras. 16-17 and 34-36.
2205 United States' second written submission, paras. 477 and 483; Bair Declaration, (Exhibit USA-339)
(BCI), paras. 39 and 41; European Union's first written submission, para. 612; Mourey Statement, (Exhibit
EU 8) (BCI), paras. 129-135; and Sophie Pendaries, Head of A350XWB Marketing, Airbus, "Statement on the

However, as explained elsewhere in this Report, the technological superiority of one model of
Airbus or Boeing LCA ov er others does not automatically mean that it will not be in a competitive
relationship with other models of technologically inferior Airbus and Boeing LCA.
6.1305. We recall that the introduction of technologically advanced models of LCA plays a key role
in the competition between Airbus and Boeing for new and existing customers. As the
European Union recognizes "Airbus and Boeing compete to improve aircraft technology and apply
new technologies to their existing and new product offerings to maximise the suitabil ity of their
products to meeting today's customer needs and those needs that customers and/or
manufacturers anticipate for the future." 2206 Moreover, according to the European Union,
"{t}echnological innovation that translates into a substantial customer valu e advantage for a
manufacturer's product over the competitor's product will often force the competitor to respond
with its own new or improved products". 2207 Of course, an aircraft producer will be "forced" to
respond in this way when its older products consi stently lose potential sales to the more modern,
technologically advanced, offerings of its competitor. Thus, the very purpose of the technological
innovation undertaken by Airbus and Boeing is to draw customers away from each other's existing
range of LCA s and, thereby, win the competition for new sales. As explained in the Pendaries
Statement:
Generally speaking, for an aircraft programme to be competitive in the market , it is
necessary that the aircraft incorporates state -of-the-art technology, so that i t offers
customers significant benefits over older, similar -sized aircraft. A manufacturer aims
at achieving those levels of improvements – mainly in terms of lower operating costs
and/or higher revenue potential – that cannot normally be offset with price discounts
on the older generation aircraft. The lower costs or higher revenues are enjoyed, year
after year, for the very long product life of the aircraft, resulting in a present value
advantage that a manufacturer of older generation aircraft cannot eas ily offset with
price discounts.2208 (emphasis added)
6.1306. While it cannot be excluded that as a result of this competitive dynamic, Airbus and/or
Boeing may be able to introduce an LCA that is so far advanced and/or specifically designed for a
particular application compared to all others that it captures an entirely new segment of demand
that did not previously exist (and, therefore, cannot be satisfied in any way by existing LCA), the
fact that both Airbus and Boeing generally endeavour to produce aircraft to sa tisfy multiple
requirements for the purpose of meeting aggregate demand (which is itself varied and influenced
by a multitude of factors) 2209, suggests that it is likely that even the newest, most technologically
advanced, models of LCA will be in a competiti ve relationship with older models of existing LCA.
Certainly, the evidence we have reviewed concerning Airbus' original and ongoing sales and
marketing expectations for the A350XWB suggests that this is, indeed, what Airbus anticipates will
be the case for the A350XWB – namely, that it will have to compete with more than just the 787 in
order to maximize sales.
6.1307. That the A350XWB family was originally conceived and designed by Airbus to win sales
against more than just the 787 family finds support in a numbe r of documents, starting with the
A350XWB Business Case 2210, which we recall sets out the business rationale that informed the
decision to launch the new development project. Similarly, another HSBI document, the letter from
Airbus to the [***] provides expli cit confirmation of this fact. 2211 Moreover, a slide from a
PowerPoint presentation made by EADS at the A350XWB "launch briefing" in December 2006
compares various performance characteristics of the A350XWB -900 ("Seats (3 -class), Design
range, MWE per seat, B lock fuel per seat, Cash Operating Cost per seat" and "Noise Classification

Market Significance of Technological Innovations to the A350XWB Programme", 5 July 2012, (Pendaries
Statement), (Exhibit EU-17) (BCI).
2206 European Union's response to Panel question No. 48.
2207 European Union's response to Panel question No. 48.
2208 Pendaries Statement, (Exhibit EU-17) (BCI), para. 10.
2209 See above paras. 6.1219-6.1222. See also European Union's response to Panel question Nos. 48
and 49; Mourey Statement, (Exhibit EU-8) (BCI), paras. 44-71; United States' response to Panel question
Nos. 48 and 49; and Bair Declaration, (Exhibit USA-339) (BCI), paras. 10-12 and 16-17.
2210 A350XWB Business Case Presentation, (Exhibit EU-130) (HSBI), slides 11, 21, 51, 92, and 93.
2211 Letter, Airbus [***], [***] (Exhibit EU-393) (HSBI).

at London") with those of the 787-9 and the 777-200ER.2212 In our view, the fact that Airbus chose
to highlight the alleged performance advantages of the A350XWB -900 over the 787 -9 and the
777-200ER at the time of launch suggests that it must have expected potential customers to be
interested in learning about the relative performance characteristics of all three aircraft . This
understanding of Airbus' expectations is not only reflecte d in what was reported in the media
around the time of A350XWB's launch 2213, but it is also confirmed in the statement made by
Christian Scherer, Airbus Head of Future Programmes, in the original proceeding, where he
explained that:
The A350XWB-800 was design ed to compete against the 787 -8 and 787 -9 while the
A350XWB-900 and A350XWB -1000 were designed to compete against Boeing's
300-400 seat LCA, i.e., the 777 family.2214
6.1308. In the years since it was launched, Airbus has continued to market the A350XWB family
as an alternative to both the 787 and the 777 . Thus, for example, a slide from an Airbus
PowerPoint presentation made in 2008 makes a side -by-side comparison of the A350XWB family
with the 787 and the 777 , describing the former as "One New Family of technically superior
aircraft" and the latter as "Two aircraft types a generation apart". 2215 Similarly, on 22 June 2011,
Airbus made a PowerPoint presentation to participants at the "EADS – Le Bourget Investor
Breakfast Meeting" that included a slide showing the three versions of the A350XWB family directly
opposite two boxes representing the 787 and the 777 families. As with the 2008 presentation, the
2011 slide described the A350XWB family as "One New Family of technically superior aircraft" and
the 787 and the 777 families as "Two aircraft types a generation apart". 2216 More recently, in
2012, Airbus Chief Operating Officer (COO) for Customers, John Leahy, was quoted as saying:
I've got to give (Boeing) credit on the 777; if you need lift in the long -range widebody
market now, that's the plane. The day we deliver the first A350 -1000, the 777-300ER
will become obsolete.2217
6.1309. Likewise, in the Pendaries Statement, the "significance of the technological innovations
applied to the A350XWB in securing the aircraft's competitiveness in the marketplace "2218 is
explained through a series of comparisons between the performance characteristics of the
A350XWB and those of the 787, the 777 and the 767 .2219 For example, it is asserted in the
Pendaries Statement that the innovations incorporated i nto the A350XWB have not only made it
"competitive vis -à-vis other new generation aircraft, such as the 787 and potential future
improved 777 models", but also "significantly better {in terms of performance and economics}
compared to current, similar-sized aircraft, such as Boeing's current 777 and 767."2220 In our view,
the fact that the Pendaries Statement seeks to highlight the " competitiveness" of the
technologically advanced A350XWB by focusing on its relative performance advantages over the
787, 777, and 767 is consistent with what is already suggested in the other evidence we have
reviewed above, namely, that the A350XWB was developed for the specific purpose of winning
sales from a range of customers that would otherwise be potentially interested in the performance

2212 "A350 XWB – xtra efficiency", slide 22 from "Taking the lead: the A350 XWB", EADS/Airbus
presentation, 4 December 2006, (Exhibit USA-350), slide 22.
2213 See also Robert Wall, "Airbus Relaunches A350", Aviation Week, 10 December 2006, (Exhibit EU-
98); "Time for a new, improved model: Airbus gets to work on its medium-sized aircraft, but deeper problems
remain", The Economist, 20 July 2006, (Exhibit USA-28); Scott Hamilton, "A350 Redesign Threatens Boeing
777; Boeing prepares 787 for Challenge", Leeham.net, 6 June 2006, (Original Exhibit US-141), (Exhibit USA-
27); Ameet Sachdev, "Airbus redesigns its strategy for long haul: A350 line to carry bulk of the load", Chicago
Tribune, 18 July 2006, (Exhibit EU-99); and Guy Norris, "Airline criticism of Airbus A350 forces airframer to
make radical changes to fuselage, wing and engines", Flight International, 8 May 2006, (Exhibit USA-26).
2214 Statement by Christian Scherer, Executive Vice President and Head of Future Programmes, Airbus,
"Commercial Aspects of the Aircraft Business from the Perspective of a Manufacturer", 5 February 2007,
(Scherer Statement), (Exhibit EU-361) (BCI), para. 20.
2215 "A350XWB Shaping efficiency", Airbus presentation slide, July 2008, (Exhibit USA-451).
2216 Thomas Enders and Fabrice Brégier, "Le Bourget Investor and Analyst Breakfast Meeting",
EADS/Airbus presentation, 22 June 2011, (Exhibit USA-114), p. 3.
2217 Dominic Gates, "Boeing may overtake Airbus as No. 1 Jet-Maker in 2012", The Seattle Times
quoting from Bloomberg News, 17 January 2012, (Exhibit USA-11), p. 2.
2218 Pendaries Statement, (Exhibit EU-17) (BCI), para. 1. (emphasis added)
2219 Pendaries Statement, (Exhibit EU-17) (BCI), paras. 2 and 11-48.
2220 Pendaries Statement, (Exhibit EU-17) (BCI), paras. 11-12.

characteristics of, at least, all three families of Boeing aircraft. As we see it, there would be no
need to assert that the A350XWB possesses "lower fuel burn, extended range and increased
payload capabilities, lower maintenance costs, lower emissions and decreased noise generation"
compared with "similar -sized aircraft such as Boeing's current 777 and 767" in order to
demonstrate its "competitiveness in the marketplace", if the A350XWB were not intended to target
customers for whom such perfo rmance differences would, according to the European Union, be
potentially decisive.
6.1310. The evidence before us also suggests that Airbus intended to win sales away from the
787 not only using the A350XWB, but also the A330 . Thus, in a slide from a PowerPoint
presentation made by John Leahy in 2007, the performance of the A330 (the "super efficient
twin") is compared to that of the 787, with the same slide concluding that the "787 fuel &
maintenance cost advantage is more than offset by the A330s additional rev enue".2221 We agree
with the United States that the "relevance of such a comparison is, of course, to suggest that a
customer should order the A330 instead of the 787; in other words, it should win the competition
between the two".2222 Indeed, that the A330 was at the time in a competitive relationship with the
787 is also recognized in the Mourey Statement, which explains that "as a result of Boeing's launch
of the 787 {in 2004}, for a number of years, the A330 saw its prices, orders and market share
drop dramat ically, with airlines ordering the 787 based on promised deliveries as of 2008". 2223
Information concerning the anticipated competitive relationship between the 787 and the A330 can
also be found in the A350XWB Business Case. 2224 Ultimately, the European Union does not argue
that "Airbus is presently unable to secure any A330 sales {from the 787}, or that it is impossible
for Airbus ever to [***]", but only that:
{W}here the A330 and 787 are offered with similar delivery timing, several factors
have further increased the present gap between these two aircraft with respect to the
value that they offer customers when performing typical missions, such that the A330
at present is less able to compete for such sales [***] than it was in the pre -2007
period.2225 (emphasis added)
6.1311. Unlike the European Union, and for the reasons set out above and further elaborated
below2226, we do not understand the lack of near -term delivery positions for one aircraft compared
to another to necessarily mean that they do not impose any competitive constraints on each other.
6.1312. Turning to the competitive relationship between the A330 and the 777, the
European Union's position is that despite their somewhat overlapping end -uses these two families
do not, at present, compete with each other because the y offer markedly different economics for
customers in need of aircraft to perform the range of missions for which each family is specifically
designed and optimized. In our view, one of the implications of the European Union's line of
argument is that ther e are only two types of customers interested in the A330 and 777 at
present – either: (a) customers looking for an aircraft to move a relatively large number of
passengers over relatively long routes (who would favour the 777); or (b) customers wanting an
aircraft to fly a smaller number of passengers on medium -haul routes (who would choose the
A330). We find this particular perspective to be overly simplistic and at odds with the
European Union's own description of the core features of aircraft demand.
6.1313. As already noted, a customer's decision to purchase an LCA will be guided by the overall
value of the aircraft package it is offered, in the light of a number of factors, including its particular
business model; and one of the key determinants of an airline's business model will be the types
of missions it intends to operate. This, of course, means that a customer's choice of aircraft will be
largely driven by its own forecast of passenger demand and route structures over the anticipated
commercial life of an aircraft. The Mourey Statement explains that passenger demand is a
multi-faceted parameter that for any particular route will vary "at all times of the day or from one

2221 John Leahy, Chief Operating Officer, Customers, Airbus, "Market Update", Airbus presentation,
20 June 2007, (Exhibit USA-348), p. 8.
2222 United States' response to Panel question No. 63.
2223 Mourey Statement, (Exhibit EU-8) (BCI), para. 88.
2224 A350XWB Business Case Presentation, (Exhibit EU-130) (HSBI), slides 11 and 21.
2225 European Union's response to Panel question No. 158.
2226 See above paras. 6.1264-6.1266 and below paras. 6.1323-6.1326.

season or year to the next", not only between different airlines but also for an individual airline.2227
Moreover, passenger demand conditions will "evolve over time", and consequently impact an
airline's "fleet and route strategies as well as the aircraft developed to serve them". 2228 Thus, the
process of forecasting required seating capacity and route structures over the commercial life of
any particular aircraft for a potential LCA customer is likely to be highly complex, bringing with it a
certain measure of risk. If an airline finds that it has over -estimated demand relative to the
performance characteristics of the aircraft it has purchased, it will be unable to maximize the value
of its investment, and potentially make a loss. Conversely, if demand is under -estimated, an
airline will be short of capacity and therefore lose out on potential pro fits.2229 In our view, these
considerations suggest that:
i. LCA customers are likely to contemplate multiple possible manifestations of
passenger demand in the business plans used for the purpose of evaluating the
economics of a particular aircraft (which we recall will typically have a 15-20 year life
cycle);
ii. LCA customers will be interested in exploring the economics of the largest possible
range of LCA options capable of effectively servicing the greatest number of possible
manifestations of contemplated demand2230; and
iii. an LCA customer's tolerance to the risk that its passenger demand forecast may turn
out to be incorrect will play an important role in its purchase decision.
6.1314. Given these features of aircraft demand, we find it difficult to see how the simple fact that
the A330 may be better suited than the 777 to perform the particular range of medium -range
missions for which it is specifically designed necessarily implies that it will face no competition
from the 777. If relative performance advantages over optimized missions were a sufficient basis
to identify relevant product markets in the LCA sector, it seems to us that most, if not all, of the
Airbus and Boeing twin -aisle families of LCA would be in separate, narrowly defined, monopoly
markets because, in one way or another, all Airbus and Boeing twin -aisle LCA are differentiated in
terms of their performance characteristics. Indeed, on this basis, it might even be argued that
different models within the same family of twin-aisle LCA could be in separate product markets.
6.1315. That the potential customer base for the A330 is likely to at least overlap with the range
of customers that will be interested in the 777 finds support in a number of Airbus' marketing
materials. In particular, in a Market Update presentatio n made by Airbus' COO, John Leahy, in
2007, the order backlog of the A330 is compared to that of the 777 (as well as the 767), with the
accompanying caption reading "{t}he A330 is the clear leader of its generation and the right
choice for investors". 2231 Similarly, in a Market Update presentation made in November 2010 by
Mark Pearman Wright, Head of Airbus Leasing and Investor Marketing, a slide compares the net
orders obtained from December 2006 to October 2010 by the A350XWB and the A330 with those
of the 7 77 and the 787. The same slide presents a pie chart showing that those net orders give
Airbus a 60% "market share", leaving Boeing with a 40% "market share". 2232 Another Airbus
PowerPoint presentation made in 2011 once again compares the order backlog for A33 0 with the
777 (and the 767), noting that the "A330 has a stronger order backlog" and that its "sales
momentum {is} sustained by unique market attributes". The same presentation also contains a

2227 Supplemental Mourey Statement, (Exhibit EU-124) (BCI/HSBI), para. 91.
2228 Supplemental Mourey Statement, (Exhibit EU-124) (BCI/HSBI), para. 91.
2229 Mourey Statement, (Exhibit EU-8) (BCI), para. 152; and United States' response to Panel question
No. 61, para. 212.
2230 In other words, all things being equal, it is likely that airlines will be most interested in aircraft that
can be used to serve a range of different routes and missions that are compatible with its business model, not
necessarily only those with respect to which an aircraft is optimised.
2231 John Leahy, Chief Operating Officer, Customers, Airbus, "Market Update", Airbus presentation,
20 June 2007, (Exhibit USA-348), p. 8.
2232 Mark Pearman Wright, Head of Leasing and Investor Marketing, Airbus, "Airbus Market Update",
EADS/Airbus presentation, Redburn Aviation Conference, November 2010, (Exhibit USA-477).

slide showing photos of the A330s used by four different airli nes, with the caption reading
"A330-300: displacing 777-200 fleets" and "{l}ower costs, higher comfort".2233
6.1316. Evidence of the existence of at least an overlapping potential customer base for the A330
and the 777 can also be found in an article published by aspireaviation.com in 2012, which reports
and examines the decision by Airbus to offer new, higher gross weight, variants of the A330 -300.
Among the points highlighted in this article is that according to Airbus' COO, John Leahy, the new
"improved 240-tonne A330-300 will be able to cover 94% of the 777 -200ER missions, versus the
first 212 tonne A330 -300 product examples which only covered 65% of the Boeing 777 -200ER
markets with a range of 3,900nm". 2234 It also states that as "the A330 -300 is becoming more
capable and more fuel efficient, Airbus is pitching the aircraft as a 'perfect 777 -200ER
replacement'", once again quoting a statement made by John Leahy. 2235 In addition, the article
reveals that Malaysia Airlines announced that it intended to consider the new A3 30 as a potential
replacement for its existing fleet of 777-200ERs:
We'll be looking at Airbus' announcement to see if it can do the job of the 777s. We'd
love to have new models like the 787 or the A350, and maybe one day we will, but
right now we need to simplify the fleet and operate four types of plane instead of
maybe six or seven.2236
6.1317. The European Union maintains that the marketing materials and presentations the
United States relies could, at most, only be taken to represent the producer and marketing
teams' perspectives on substitutability, which cannot, alone, be used to understand how customers
view the relevant aircraft.2237 We note, however, that the United States is not advancing the above
information as evidence of customers' preferences, but merely Airbus' own perceptions of those
preferences. In our view, this type of evidence may be highly relevant to the task of identifying
LCA product markets, especially given Airbus' long -standing experience in an industry that
includes only one other effective competitor; and a fortiori when, as in the present instance, it
appears that this competitor takes the same view of the alleged competitive relationships between
aircraft that we believe can be objectively inferred from the evidence the United States has
advanced of Airbus' own perceptions. Thus, we see the publicly expressed views and opinions of
Airbus of the commercial relationship between, and positioning of, its two families of twin -aisle
aircraft relative to Boeing's aircraft to be an important part o f the configuration of facts that we
must consider in making our determination of relevant product markets.
6.1318. In addition to the above -mentioned evidence, the United States points to a number of
examples of airlines having chosen to operate a range of differ ent twin-aisle aircraft on the same
routes, arguing that they support the view that there is a degree of overlap in the use of all
twin-aisle aircraft and, therefore, that "one must be wary of narrowly defining bright lines to
segment a product space with such complex patterns of customer demand and product uses". 2238
For instance, the United States observes that in 2009, Singapore Airlines flew 735 round trips with
the 777-200ER and no round trips with the A330 -300 on the Singapore to Taipei route. However,
in 2011, Singapore Airlines operated 890 missions on the same round trip with the A330 -300 and
did not use the 777 -200ER for this purpose. Similarly, the United States points out that in 2009,
Malaysia Airlines flew 144 round trips with the 777 -200ER on the Kuala Lumpur to Brisbane route
and no round trips with the A330 -300, but in 2011, Malaysia Airlines flew 175 round trips on that
route with the A330-300 and no round trips with the 777.2239

2233 Richard Carcaillet, Director, Airbus A380 Product Marketing, "Product Line Update", Airbus
presentation, 2011, (Exhibit USA-340).
2234 "Airbus is right on A330 improvement strategy", Aspire Aviation, 12 July 2012, (Exhibit USA-349),
p. 1.
2235 "Airbus is right on A330 improvement strategy", Aspire Aviation, 12 July 2012, (Exhibit USA-349),
p. 3.
2236 "Airbus is right on A330 improvement strategy", Aspire Aviation, 12 July 2012, (Exhibit USA-349),
p. 2.
2237 European Union's comments on the United States' response to Panel question No. 63, paras. 481,
482, and 483.
2238 United States' comments on the European Union's response to Panel question No. 75.
2239 Bair Declaration, (Exhibit USA-339) (BCI), para. 39.

6.1319. The European Union argues that Singapore Airlines' and Malaysian Ai rlines' replacement
of the 777 -200ER with the A330 -300 on regional routes demonstrates the distinct role for which
the two aircraft are suited, as well as the influence of Airbus' post-launch investments in the A330.
According to the European Union, both S ingapore Airlines and Malaysia Airlines originally ordered
the 777-200ER in 1995 due to mainly its range and size advantage over other aircraft (as well as
for reasons of twin-aisle fleet commonality, in the case of Singapore Airlines). The European Union
asserts, however, that both airlines nonetheless started operating the aircraft on some regional
routes "where its long range was not required". As far as Malaysia Airlines is concerned, the
European Union submits that "over the years, the airline was forc ed to use the 777 -200ER more
and more for regional routes, as the airline's network to Europe diminished, while its network to
Asia increased". Moreover, the European Union maintains that at the time, "Malaysia Airlines' old
A330-300s were unable to fly th e Kuala Lumpur -Brisbane route without uneconomical payload
limitations". In 2010, Malaysia Airlines ordered a more modern version of the A330 -300, capable
of performing those missions more efficiently than the 777 -200ER. Similarly, the European Union
points out that Singapore Airlines decided to lease eight A330s in 2009 and 11 A330s in 2010 for
the purpose of operating regional to medium -haul missions including the Singapore to Brisbane
route.2240 Thus, the European Union argues that after having operated the 777-200ER on the
Singapore to Taipei and Kuala Lumpur to Brisbane regional routes for some time, both airlines
replaced that aircraft with the A330 -300, "in recognition of the fact that the latter was better
suited for regional routes, being lighter and, therefore, more efficient on such routes". On this
basis, the European Union concludes that "this evidence is inconsistent with the product market
delineation proposed by the United States".2241
6.1320. We disagree with the conclusions the European Union draws from the evidence
concerning the Singapore Airlines and Malaysia Airlines experience of using the A330 -300 and the
777-200ER on the same regional routes. First, in relation to Malaysia Airlines, it is not entirely
clear to us that the evidence substantiates one of the European Union's main contentions. We
note, in particular, that the European Union maintains that one of the reasons why Malaysia
Airlines flew the 777-200ER on the Kuala Lumpur to Brisbane route was because the version of the
A330-300 it was flyin g at the time was "uneconomical" on that route. 2242 Yet the facts that are
before us suggest that Malaysia Airlines would have been flying its existing "uneconomical" A330
fleet on the Kuala Lumpur to Brisbane route in 2011 because the new A330s ordered only in 2010
could not have been delivered for service in 2011. 2243 Second, and in any case, even if the A330s
flown by Malaysia Airlines on the Kuala Lumpur to Brisbane route in 2011 were newer versions of
the A330 -300 (as was the case for Singapore Airlines), we do not consider that the two
airlines' choices of one LCA over the other means that they did not and cannot today exercise
competitive constraints on each other.
6.1321. Although most suited to operate medium to long -haul missions, the 777-200ER was used
by both Malaysia Airlines and Singapore Airlines until 2011 on regional routes that could also be
serviced by the A330 -300. This is not, however, an unusual occurrence because according to the
European Union it is "commonplace" in the industry for airlines to oper ate the "777 on some
shorter routes to maximise the use of the aircraft, reflecting operations constraints in the use of
aircraft on long -haul routes".2244 Moreover, in the case of Malaysia Airlines, the increased use of
the 777-200ER on regional routes was a lso driven by a change in the pattern of demand. Faced
with diminishing demand for its medium to long -haul missions and increasing demand on regional
routes, Malaysia Airlines had to organize its fleet in such a way that would maximize its overall
value to its business. This meant utilizing the 777 on sub -optimal missions, which nevertheless
must have made more economic sense to Malaysia Airlines than using its existing fleet of A330s.
6.1322. The decision by Malaysia Airlines and Singapore Airlines to use the 777 -200ER until 2011
on routes that could otherwise have been served by the A330 -300 because of inter alia the

2240 European Union's second written submission, paras. 1597-1598.
2241 European Union's response to Panel question No. 75.
2242 European Union's response to Panel question No. 75.
2243 In 2010, the delivery backlog for the A330 was [***]. Crawford Hamilton, Head of A330 Marketing,
Airbus, "Statement on the Market Significance of Technological and Production Improvements to the A330
Programme" 5 July 2012, (A330 Marketing Statement), (Exhibit EU-12) (BCI), para. 61 (figure 9). That
Malaysia Airlines was flying its existing fleet of A330s in 2011 also appears to be supported by certain HSBI
evidence. (See [[HSBI]] Exhibit EU-366 (HSBI), p. 2).
2244 European Union's response to Panel question No. 75, fn 491.

A330-300's "uneconomical payload limitations" and older technology 2245 shows how, for the two
airlines, the superior relative performance of the 777 (e ven on sub -optimal missions) made it a
more attractive proposition than the A330 at the relevant time. However, when the A330's
technology was updated, both airlines replaced the 777 -200ER with the newer version of the
A330-300 finding that it was a better fit to their operations than the previously superior 777. Thus,
in our view, the Malaysia Airlines and Singapore Airlines switch away from the 777 to the A330
provides not only a clear example of demand -side substitutability between two differentiated
products, but it also demonstrates the important and undisputed role that technological
development plays in a customer's choice of aircraft, highlighting a key dimension of competition
between Airbus and Boeing.
6.1323. Another important factor that will influence a customer's choice of aircraft and,
sometimes, even be decisive, is the timeliness of its availability. Yet, despite recognizing this fact,
one of the implications of the European Union's assertion that the A330 and the 777 are, at
present, sold into their own separate "temporal" monopoly markets because of, inter alia, their
near-term availability relative to the A350XWB and the 787 2246, is that Airbus and Boeing do not
compete on the delivery terms they offer aircraft customers.
6.1324. Unlike the European Union, we do not understand the lack of near-term delivery positions
for the A350XWB and the 787 to necessarily mean that they do not impose any competitive
constraints on the A330 or the 777. Once again, we recall that a customer's choice of aircraft will
depend upon its assessment of the economic value associated with the totality of the terms and
conditions attached to the deal it is offered. Thus, a customer that prefers to wait for an A350XWB
or the 787 to become available sometime in the future may decide not to buy the A330 or the 777
because, having compared the economics of both options (e.g. buying a relatively higher priced
aircraft with relatively low operating costs that is not available in the near term vs buying a lower
priced aircraft with higher operating costs that is available in the near term), the best value for its
business model and strategic objectives, is the new generation aircraft. Conversely, a customer
may decide to buy the A330 or the 777 instead of the A350XWB or the 787, notwithstandin g the
operating cost advantage of the latter because the economics of waiting for a delivery date makes
the new generation aircraft a worse business proposition than buying a current version. The
Mourey Statement describes this particular scenario (as it r elates to the A330) in the following
terms:
The lack of available near -term delivery positions can make the purchase of a 787
commercially unviable, compared to an A330 that is available much sooner and
delivers operating cost reductions soon – even if not to the same extent as the 787.
With deliveries available only many, many years into the future, purchasing the 787
would entail having to continue to operate less efficient aircraft for a longer period of
time, and thus bearing higher costs.
The same logic applies to the A350XWB, the smaller models of which are of a similar
size as the A330. These models have not entered into service yet, and production
rates will be relatively low during the first few years. Given the already existing large
order backlog, there is a similar lack of available near-term delivery status.
…
Thus, in contrast to the 787 and the A350XWB, the A330 has been available for near -
term delivery, and, due to production ramp -up, in numbers sufficient to meet
demand. As a result, the A330 has been very attractive to airlines, not only as a
replacement aircraft, to quickly reduce fuel costs, but also as aircraft for fleet
expansion. The A330 has been an attractive offer in this context, as much later
delivery positions for the 787 or A350XW B would mean to forego additional revenues
and additional flights, and thus foregoing additional profits.2247

2245 European Union's response to Panel question No. 75.
2246 European Union's first written submission, paras. 505 and 613; response to Panel question No. 70;
and Mourey Statement, (Exhibit EU-8) (BCI), paras. 39-43, 54, 101-102, and 106.
2247 Mourey Statement, (Exhibit EU-8) (BCI), paras. 101-102 and 106.

6.1325. Indeed, it is precisely because of the important role that the availability of an aircraft may
play in comparing the economic value of different aircraft that a potential customer may explicitly
demand a particular delivery date or request Airbus and Boeing to compete on delivery terms
during the course of a sales campaign. 2248 Fully aware that the timing of the availability of an
aircraft may be potentia lly decisive for certain customers, Airbus and Boeing will endeavour to
offset any known disadvantage in delivery terms by making other concessions or by offering
"interim lift" solutions until the desired LCA are available. 2249 Moreover, where possible, they will
also try to "ramp -up" production activities and thereby offer a greater number of near -term
delivery positions, whenever they sense an opportunity to make more sales. As explained in the
A330 Marketing Statement:
{T}o make sure that we can offer airl ines the delivery positions that they need, we
have continuously ramped -up our A330 production, in an effort to keep our backlog
under control … In our experience, striving for a backlog of around [***] years worth
of production has allowed us to offer airlines the delivery positions that they need. The
large increase in orders during 2007 to 2009, and the corresponding growth in the
backlog, led us to increase production capacity, returning to a backlog with our
preferred [***] year range.
…
{T}he advantag e that available near -term delivery slots provide Airbus in terms of
selling its aircraft is currently particularly strong in case of the A330. Other aircraft
with similar (or better) range, payload capabilities and/or fuel efficiency that airlines
would like to take delivery of, i.e., the A350XWB and the 787, are not available in the
near-term. Thus, recently even more so than normally, Airbus' ability to offer
attractive, near-term delivery positions has been a crucial factor in securing orders for
the A330.2250
6.1326. Thus, rather than being an advantage that places the A330 and 777 in "temporary"
monopoly markets of their own, we see the relative near -term availability of both aircraft
compared with the current, longer -term, delivery prospects for the A350XWB and the 787, as a
"temporary" advantage with respect to one of the factors that customers interested in aircraft
capable of performing the range of overlapping missions covered by the four families of LCA will
take into account in their purchase decisions.
6.1327. Finally, it is apparent that the range of missions and operating performance offered by
the 767 are somewhat limited compared with the larger versions of the 787, and the 777 and
A350XWB families. Nevertheless, it is recognized in the Mourey Statement that t he 767 and the
A330 "are roughly the same size" offering a "comparable range". 2251 Moreover, there is evidence
before us suggesting that Boeing continues to consider the two LCA families to be in
"competition"2252, with the United States pointing out that the sa les and marketing life of the
767-300ER has not come to an end, having achieved 49 orders in the five years since 2007. 2253
This fact is acknowledged in the Supplemental Mourey Statement, which similarly states that

2248 See e.g. [[HSBI]] Exhibit EU-362 (HSBI), and [[HSBI]] Exhibit EU-366 (HSBI); [[HSBI]] Exhibit
USA-184 (HSBI).
2249 According to the Scherer Statement, depending upon the particular circumstances of a sale, two
possible examples of concessions that might be offered to overcome a disadvantage in delivery terms could be:
(a) "a further net price discount"; or (b) assistance "with securing interim leases for additional aircraft".
(Scherer Statement, (Exhibit EU-361) (BCI), para. 77). Other evidence showing that delivery dates are a point
of competition in the LCA industry can be found in the following HSBI documents: [[HSBI]] Exhibit USA-196
(HSBI); [[HSBI]] Exhibit USA-204 (HSBI); [[HSBI]] Exhibit USA-219 (HSBI); [[HSBI]] Exhibit USA-220
(HSBI); [[HSBI]] Exhibit USA-221 (HSBI); [[HSBI]] Exhibit USA-227 (HSBI); and [[HSBI]] Exhibit USA-231
(HSBI).
2250 A330 Marketing Statement, (Exhibit EU-12) (BCI), paras. 60 and 62. See also Mourey Statement,
(Exhibit EU-8) (BCI), paras. 104-106.
2251 Mourey Statement, (Exhibit EU-8) (BCI), para. 107.
2252 "767 Overview", Boeing presentation, July 2012, (Exhibit USA-532) (comparing the "relative trip
costs" of three versions of the 767 with the A330-200, and asserting that the "767 uses less fuel than the
competition"); United States' response to Panel question Nos. 49 and 50.
2253 United States' second written submission, para. 476; and Bair Declaration, (Exhibit USA-339) (BCI),
para. 38. The European Union does not deny that the 767-300ER continues to be sold.

"Boeing continues to sell {the 767 -300ER} in small quantities to a small number of airlines that
each have their own specific reason to buy them in small numbers". 2254 In this light, it is
instructive to note that the Mourey Statement asserts that sales of both the 767 and the A330
were significantly affected by the introduction of the 787 in 2004 2255, suggesting the possibility
that customers were choosing Boeing's new generation aircraft over both the A330 and the 767 .
Other evidence shows that in 2007 Airbus was marketing the A330 by comparing its sale s
performance and operating characteristics against not only the 777 and 787, but also the 767.2256
This is consistent with the assertions made in the Bair Declaration, where it is explained that
Boeing launched the 787 in response to the relative success of the A330 against the 767 ,
explaining, furthermore, that delivery delays for the 787 created additional sales opportunities for
existing twin -aisle LCA, with the A330 capturing "the vast majority of these". 2257 It is common
ground that the initial success of t he 787 led Airbus to respond by launching the Original A350 "as
a significantly improved version of the A330", followed by the A350XWB in December 2006 as "an
eventual replacement of the A330". 2258 As an "eventual replacement" of an aircraft, which at the
time, was considered by Airbus to be a better performing rival to the 767, it can only logically
follow that the A350XWB would inevitably appeal to a range of customers including some of those
that may have been interested in exploring the suitability of the 767 or the A330.
6.1328. Thus, although the 767 was clearly intended to serve a range of end-uses that are closest
to those for which the A330 was specifically designed, the above summary of the
inter-relationships between the launch, development and marketing of the five families of Airbus
and Boeing twin-aisle aircraft suggests that the potential customer base of the 767 was (and today
continues to be) credibly targeted by at least the smaller versions of the A330, A350XWB and 787.
6.1329. Ultimately, therefore, the ar guments and evidence we have reviewed in this subsection
lead us to conclude that in terms of end -use and potential customers, Airbus and Boeing have
chosen to position their five families of twin -aisle aircraft in slightly different but comparable and
sometimes overlapping positions on the continuum of customer needs and requirements, starting
with the 767 and A330 at one end of the spectrum and the larger versions of the 777 and
A350XWB families at the other extremity.
Pricing constraints
6.1330. The United States maintains that different combinations of Airbus and Boeing twin -aisle
aircraft impose competitive constraints (including with respect to pricing) on each other such that
"chains of substitution" are created linking all five families of LCA together into one and the same
product market. 2259 Drawing from the Sanghvi Declaration and the practice of the European
Commission, the United States explains the logic behind its "chains of substitution" line of
argument in the following terms:
To illustrate the chains of substitution analysis, the evidence of customer behavior
may establish switching between products A and B, making them substitutes. The
evidence may also establish that products B and C are substitutes, without
establishing that A and C are substitutes. In such circumstances, as the European
Commission observes, "{e}ven if products A and C are not direct demand substitutes,
they might be found to be in the same relevant product market since their respective
pricing might be constrained by substitution to B". This analysis may be repeated,
leading to a "chain of substitution" in which some products that do not directly

2254 Supplemental Mourey Statement, (Exhibit EU-124) (BCI/HSBI), para. 32.
2255 Mourey Statement, (Exhibit EU-8) (BCI), para. 88.
2256 John Leahy, Chief Operating Officer, Customers, Airbus, "Market Update", Airbus presentation,
20 June 2007, (Exhibit USA-348), p. 8.
2257 Bair Declaration, (Exhibit USA-339) (BCI), para. 38.
2258 Mourey Statement, (Exhibit EU-8) (BCI), para. 89.
2259 United States' second written submission, paras. 476-477 and 483; response to Panel question
Nos. 48 and 49; Bair Declaration, (Exhibit USA-339) (BCI), paras. 38, 39 and 41; Sanghvi Declaration,
(Exhibit USA-530), paras. 33-42 and 61-65.

compete may nevertheless constrain each other's pricing because of their shared
relationship with other products.2260 (emphasis added; footnotes omitted)
6.1331. According to the United States, the study undertaken in the Sanghvi Declaration of
certain evidence that allegedly shows potential demand -side substitution between various pairings
of aircraft demonstrates the presence of such "chains of substi tution" across all five families of
Airbus and Boeing twin-aisle LCA.
6.1332. The Sanghvi Declaration reviews 22 pieces of evidence "in the form of LCA sales
campaign documents, Boeing and Airbus marketing materials, and the statements of Boeing and
Airbus experts"2261, and deduces from these that there is direct competition between: (a) the 767
family and the A330 family; (b) the A330 family and the 777 and 787 families; and (c) the 777
and 787 families and the A350XWB family. 2262 In the light of the "chains of substit ution" theory,
the Sanghvi Declaration concludes that these relationships "yield a single market for twin -aisle
LCA".2263 Thus, the United States explains that if "the 767 competes with the A330, and the A330
competes with the 787 and 777, and the 787 and 777 compete with the A350XWB, they must all
be in the same market, even if there is little direct competition between models at the extreme
ends of the spectrum".2264
6.1333. The European Union rejects the United States' submissions, arguing that the analysis
conducted and conclusions reached in the Sanghvi Declaration are "severely flawed" for a number
of reasons. First, the European Union maintains that the sources of evidence and information
examined in the Sanghvi Declaration were "cherry -picked by Boeing counsel", unrepresentative
and uninformative with respect to the nature of competition between the relevant aircraft,
implying that they cannot be used to draw any "useful", "robust and meaningful" conclusions
about market definition. 2265 Second, the European Union cri ticizes the analysis contained in the
Sanghvi Declaration because of its alleged failure to reveal the criteria used to determine that two
or more LCA products "appeared competitively" in the evidence under review. Moreover, the
European Union submits that merely stating that two or more aircraft may have "appeared
competitively" is insufficient to establish the strength of the competitive relationship between
those products so as to enable a determination of whether they exercise significant competitive
constraints on each other and, therefore, should be considered to fall within the same product
market.2266 Third, the European Union submits that the application of the "chains of substitution"
theory "is not conceptually sound where, as in the LCA industry, pr ices are set with respect to
individual customers through the process of bargaining (in contrast to markets with posted

2260 United States' response to Panel question No. 49, para. 153 (citing Sanghvi Declaration,
(Exhibit USA-530), paras. 36-38 and quoting Notice on Market Definition, (Exhibit USA-551), para. 57).
2261 While acknowledging that substitution patterns "are measured by the cross-price elasticity of
demand" when studied quantitatively, the Sanghvi Declaration asserts that the "market for LCA simply does
not present us with a large set of data as do consumers' purchases of consumer packaged goods, where
thousands or even millions of sales are individually tracked with all pertinent pricing and geographic
information". Thus, in the light of the "highly complex, 'lumpy' purchases that are made infrequently, for
delivery over many years" and the "multiple dimensions" of an LCA consumer's purchase decision, including
the "subtle, unobserved, linkages across those dimensions that are idiosyncratic to each customer and model
family and each point in time", the Sanghvi Declaration concludes that "one cannot perform reliably the types
of econometric cross-price elasticity estimation that are often performed in competition analysis". (Sanghvi
Declaration, (Exhibit USA-530), paras. 42 and 61). See further our own discussion of the challenge of
performing meaningful quantitative analyses of demand for LCA products above, at paras. 6.1185-6.1189.
2262 Sanghvi Declaration, (Exhibit USA-530), para. 65; "Examples in evidence of LCA Modern
Competition, tables 1, 2 and 3" from Expert Declaration of Dr Chetan Sanghvi, NERA, 21 May 2013, (Exhibit
USA-559) (HSBI), table 3. The Sanghvi Declaration also presents its conclusions by individual models (in
table 2), finding direct competitive relationships to exist between: (a) the 767 and the "A330 and the A330-
200"; (b) the A330, the "777, 777-200, 787 and 787-7"; (c) the 777 and the "A330-300, the A350-1000, and
the A350XWB"; (d) the 777-200 and the A350-900; and (e) the 787-8 and the A350XWB-800.
2264 United States' response to Panel question No. 61.
2265 European Union's comments on the United States' response to Panel question No. 50,
paras. 316-319; Sevy Declaration, (Exhibit EU-395), paras. 84-93.
2266 European Union's comments on the United States' response to Panel question No. 50,
paras. 321-326; and Sevy Declaration, (Exhibit EU-395), para. 86.

prices)".2267 Drawing from the opinion expressed in the Sevy Declaration, the European Union
explains that:
{A} "chain of competition" work s in markets with posted prices because, as "long as
two products have an important (potential) customer overlap, it is expected that their
prices will be related, through competition for overlapping customers". In other words,
"if product A has a large customer overlap with product B, and B has a large customer
overlap with product C", then one does not need to establish an overlap between the
customers of A and C to reasonably assume a relationship between the prices charged
{for} A and the prices charged {for} C, because those prices are "mediated by the
price of product B, which applies jointly and similarly to all customers, including the
ones overlapping with A and the ones overlapping with C" … .
The same relationships do not apply in the LCA markets, however. Dr. Sevy explains
that, because prices are set individually in each transaction , prices charged for B to
customers which also buy A may have no relationship to prices charged for B to
customers that also buy C. One cannot assume that prices will be overlapping or
interdependent along the chain from A to B to C, and without confidence regarding
this interdependence, the chain of substitution breaks down. 2268 (emphasis original;
footnotes omitted)
6.1334. Finally, the European Union dismisses the conclusions reached in the Sanghvi Declaration,
arguing that they are arrived at without any explanation of a methodology or basis to "draw lines
between stronger competitive relationships that place products in the same market, and weaker
relationships that are insuff icient to do so". Thus, according to the European Union, if the logic of
the "chains of substitution" theory as applied in the Sanghvi Declaration were applied to all LCA
products, there would be grounds to find that there is only one LCA product market, r ather than
the three markets proposed by the United States. Specifically, the European Union argues that "by
consistently applying his own assumptions and methodology to single -aisle and very large
aircraft … Dr. Sanghvi {would be led} to conclude that sin gle-aisle LCA and so -called 'very large
aircraft' 'appear competitively' with twin -aisle LCA, and are thus within the same 'chains of
substitution'".2269
6.1335. We are not convinced that the "chains of substitution" analysis presented in the Sanghvi
Declaration is s ufficiently robust to demonstrate that all five families of Airbus and Boeing LCA
impose pricing constraints on each other. In order to accept the conclusions stated in the Sanghvi
Declaration, one would have to be satisfied that a degree of pricing interd ependence will always
exist between the aircraft situated at either end of the "chains of substitution". Thus, for example,
one would have to consider that the alleged pricing constraints imposed by the 767 on the A330
would generally be reflected in the p ricing of the A330 in competitions against other Boeing LCA.
However, as explained in both the Sevy Declaration and the Sanghvi Declaration, as well as the
Mourey Statement and the Bair Declaration, pricing for LCA is determined through a process of
bi-lateral bargaining between LCA suppliers and customers, with net prices, in particular, being
highly confidential. Moreover, because of the important role that non -price factors may play in a
potential customer's assessment of the economic value of a particul ar aircraft package, the net
price that Airbus and Boeing will be prepared to offer for the same model of LCA is likely to vary
between different customers, depending upon the extent to which they are able to satisfy the
relevant customer's demands that ar e not price-related. Ultimately, therefore, the net price of an
Airbus or Boeing LCA will be a function of the specific circumstances of a particular sales campaign
and negotiation.
6.1336. Returning to the above example, our observations in relation to the "chai ns of
substitution" analysis imply that the fact that Airbus may have offered the A330 at a certain price
in a competition with the 767 does not necessarily mean that Airbus will offer the same A330 for
the same price in a different competition with other Boeing aircraft. Indeed, the very nature of

2267 European Union's comments on the United States' response to Panel question No. 50,
paras. 327-335.
2268 European Union's comments on the United States' response to Panel question No. 50,
paras. 329-330 (quoting Sevy Declaration, (Exhibit EU-395), paras. 99-104).
2269 European Union's comments on the United States' response to Panel question No. 50,
paras. 336-343; and Sevy Declaration, (Exhibit EU-395), paras. 108-115.

price formation in the LCA industry is such that one cannot simply assume there is price
interdependence between the extremities of any "chains of substitution". Rather, as emphasized in
the European Commission's Notice on Market Definition:
From a practical perspective, the concept of chains of substitution has to be
corroborated by actual evidence, for instance related to price interdependence at the
extremes of the chains of substitution, in order to lead to an extension of the relevant
market in an individual case. Price levels at the extremes of the chains would have to
be of the same magnitude as well.2270
6.1337. Thus, while a "chains of substitution" analysis may be a useful tool for identifying relevant
product markets in a world of differentiated products, it is difficult to attribute anything more than
only very low probative value to the exercise performed in the Sanghvi Declaration, in the absence
of any evidence of price interdependence between the ends of the "c hains of substitution" the
United States asks us to accept. Ultimately, not unlike other methods of determining the demand -
side substitutability of different Airbus and Boeing aircraft, the application of a "chains of
substitution" analysis in the LCA sect or suffers from the same significant methodological and data
challenges (including with respect to the availability of reliable pricing information) that make
producing accurate and reliable quantitative evidence of demand -side substitutability between
different aircraft a formidable task.2271
6.1338. As it did in response to the United States' allegations concerning the existence of one
single product market comprising of all Airbus and Boeing single -aisle aircraft, the European Union
presents a number of NPV compari sons of different combinations of the five families of Airbus and
Boeing twin -aisle offerings, arguing that they demonstrate that the United States' twin -aisle
product market theory cannot be sustained. The Supplemental Mourey Statement performs eight
such comparisons: one each between the A330 -200 and the 767 -300ER, and the A330 -200 and
the 787-8; and two each between the A330-300 and the 787-9, the A330-200 and the 777-200ER,
and the A330 -300 and the 777 -200ER.2272 According to the European Union, the result s of these
NPV comparisons reveal that "for many of the aircraft that the United States claims exercise
significant competitive constraints on one another, price cannot realistically offset the differences
in cost and revenues of operating the aircraft". 2273 Thus, the European Union argues that the NPV
analyses set out in the Supplemental Mourey Statement confirm the absence of "any real
competitive relationship, or significant competitive constraints" between: (a) the 767 and any
Airbus (or Boeing) LCA; (b) the 787 and the A330; and (c) the 777 and the A330.2274
6.1339. The United States criticizes the European Union's NPV comparisons on the following four
main grounds: (a) that they fail to account for aircraft prices and a number of non-price factors
that regularly dr ive an airline's purchase decision; (b) that they apply certain operating
assumptions that favour one or another manufacturer's LCA products without explanation or
justification; (c) that they are conducted for limited pairings of aircraft only; and (d) th at they
ignore the fact that the LCA market has already been distorted by the subsidies at issue in this
proceeding.2275 The first, third and fourth of these alleged shortcomings are essentially the same
as those advanced by the United States in response to t he European Union's reliance on the NPV
comparisons of the A320ceo and the A320neo. The European Union's response to the same three
lines of criticism, as they relate to the existence of the alleged twin -aisle LCA product market,
mirrors that which we have described elsewhere in this Report. 2276 We therefore incorporate our
prior discussion and evaluation of the parties' arguments on these three points mutatis mutandis
into this section of our Report, and proceed to examine the merits of the exchange of views
concerning the operating assumptions used in the relevant NPV comparisons of the different
pairings of twin-aisle aircraft.
6.1340. The United States' main objection to the assumptions used in the Supplemental Mourey
Statement to generate the relevant NPV outcomes is that they reflect a set of customer

2270 Notice on Market Definition, (Exhibit USA-551), para. 58.
2271 See above paras. 6.1181-6.1189 and 6.1205.
2272 Supplemental Mourey Statement, (Exhibit EU-124) (BCI/HSBI), paras. 32-63.
2273 European Union's second written submission, para. 633.
2274 European Union's second written submission, paras. 633-643.
2275 United States' response to Panel question No. 61, paras. 205-225.
2276 See above paras. 6.1257-6.1259 and 6.1275.

preferences that are very near to the optimized operating conditions for one or another of the two
manufacturer's aircraft. While the United States accepts that customers whose preferences closely
align with those conditions will view the relevant aircraft more favourably on a non-price basis, the
United States asserts that "other customers (or even the same customer when considering other
parts of its fleet network) will find themselves preferring a range of features that is in between
available models". According to the United States, such other customers will view the NPV gap
between models very differently, reducing the level of pricing concession required for the less
favoured aircraft to offset the feature disadv antage, or in some cases even reversing which LCA
model is most preferable.2277
6.1341. Thus, the United States submits that the results of the four NPV comparisons undertaken
for the two pairs of A330 and 777 are simply a function of the particular assumptions used in
respect of passenger demand and route distance. In the cases where the A330 -200 and the
A330-300 have a superior NPV over the 777 -200ER, the United States maintains it is because the
passenger demand and route assumptions applied in the analysis favour the particular
characteristics of the A330, which has a smaller passenger capacity and shorter maximum flying
range compared to the 777 -200ER. On the other hand, the United States argues that in the
situations when the 777 -200ER has the NPV advantage, it is because the particular assumptions
used in relation to passenger demand and routes are much closer to the larger carrying capacity
and longer flying capabilities of the 777. The United States points out that these examples ignore
the possibility that di fferent customers may project demand somewhere in between the
assumptions used in the Supplemental Mourey Statement, or that customers might want to use an
aircraft for a shorter route now, but a longer route in the future. For these customers, the
United States argues that the NPV gap will be different and, indeed, there will be a point where, in
the light of the particular customer requirements, the NPVs may well be identical. 2278 The
United States makes similar observations in relation to the NPV comparison of the A330-200 with
the 767 -300ER, arguing that the A330's advantage is a function of the passenger demand
assumptions. According to the United States, this advantage is reversed when a different set of
credible assumptions are used.2279
6.1342. The European Union responds to the United States' criticism by arguing that the analyses
set out in the Supplemental Mourey Statement were "designed to compare NPVs generated by a
pair of aircraft in performing missions typically demanded by such aircraft ", that is, "missio ns for
which such aircraft are routinely and typically operated". 2280 Moreover, according to the
European Union, "aside from hypothesizing that there must be customers with" different needs,
the United States offers no justification for its assertion that the results of the NPV comparisons
are of little use to identifying relevant product markets because they do not explore the outcomes
that would be generated on the basis of assumptions corresponding to other types of missions. In
contrast, the European Union asserts that the assumptions applied in the Supplemental Mourey
Statement are all carefully explained and justified. Thus, for example, the European Union asserts
that the Supplemental Mourey Statement justifies the choice of applying a route assumption o f
2400nm for the first of the two comparisons made between NPVs of the A330 -200 and the
777-200ER on the grounds that it "is the average sector over which {the A330 -200} is typically
flown".2281 Moreover, in the second comparison between the NPVs of these two aircraft, the
assumptions are modified in order "to reflect typical missions for which the 777 -200ER is preferred
over the A330-200". Likewise, a route of 1800nm is used for one of the comparisons between the
A330-300 and the 777 -200ER "because this is th e average sector over which {the A330 -300} is
typically flown".2282 Yet again, the second comparison made between these two aircraft "considers
a typical scenario in which the 777 -200ER possesses a greater competitive advantage – where its
greater performance at long haul ranges is put to use". Accordingly, the Supplemental Mourey
Statement "'assum{es} a much longer 6000nm sector, typical of {the 777 -200ER's} range

2277 United States' response to Panel question No. 61, para. 216.
2278 United States' response to Panel question No. 61, paras. 217-219.
2279 United States' response to Panel question No. 61, para. 220.
2280 European Union's comments on the United States' response to Panel question No. 61, paras. 457
(emphasis original) and 458.
2281 European Union's comments on the United States' response to Panel question No. 61, para. 462
(citing Supplemental Mourey Statement, (Exhibit EU-124) (BCI/HSBI), paras. 33 and 53).
2282 European Union's comments on the United States' response to Panel question No. 61, para. 465
(citing Supplemental Mourey Statement, (Exhibit EU-124) (BCI/HSBI), para. 41).

advantage', and where 'the A330-300 is at the edge of its performance limits and therefore will be
forced to trade payload/passenger capacity to reach the required range'".2283
6.1343. It is apparent from the European Union's own description of the methodology used to
undertake the NPV analyses for the A330 and the 777 that the passenger demand and route
assumptions were intended to mirror the optimized operating conditions with respect to which one
of the two aircraft would generally be expected to have a competitive advantage over the other. It
is not surprising, therefore, that the aircraft whose competitive advantage was reflected in the
assumptions used in a particular comparison generated a superior NPV. The European Union
argues that this approach makes sense because aircraft customers are "savvy" and "unlikely to
consider an aircraft for a mission for whi ch it lacks the appropriate performance and
economics".2284
6.1344. We agree that it is unlikely that an aircraft customer will be interested in exploring the
economics of an aircraft that obviously cannot service the range of missions it operates or would
like to operate. However, in our view, to accept that the differences in NPVs of the A330 and 777
when performing optimized missions demonstrates that the two aircraft do not impose competitive
constraints on each other would be akin to finding that only two types of customers are presently
interested in considering the two aircraft – either: (a) customers looking for an aircraft to move a
relatively large number of passengers over relatively long routes (who would favour the 777); or
(b) customers wanting an aircra ft to fly a smaller number of passengers on medium -haul routes
(who would choose the A330). For the reasons we have already set out above, we find the
European Union's position to be overly simplistic and at odds with even its own description of the
core features of aircraft demand. 2285 In any case, to the extent that other factors such as price,
delivery date and fleet commonality will invariably play an important role in a potential customer's
evaluation of the economic significance of a particular aircraft to its business, merely showing that
an LCA will have an NPV advantage over another on the basis of the assumptions applied in the
Supplemental Mourey Statement would not, in our view, be enough to demonstrate the absence of
demand-side substitutability between the two aircraft.
6.1345. Thus, not unlike our conclusions with respect to the NPV analyses presented for the
purpose of showing that the A320neo and A320ceo do not exercise competitive constraints on
each other, we find that the NPV comparisons presented i n the Supplemental Mourey Statement
for the eight relevant pairings of Airbus and Boeing twin -aisle LCA fail to demonstrate the absence
of "any real competitive relationship, or significant competitive constraints" between: (a) the 767
and any Airbus (or Boeing) LCA; (b) the 787 and the A330; and (c) the 777 and the A330. In our
view, in the light of the observations and findings we have made in this and the previous
subsection of our Report, all that the NPV analyses ultimately demonstrate is that excluding price,
fleet commonality, delivery date and other non-price factors that might be potentially relevant to a
customer's purchase decision, one of the two twin -aisle LCA compared in seven of the eight
analyses will have an NPV advantage over the other beca use of its superior performance on
missions for which that aircraft has been specifically designed. 2286 However, for the reasons we
have already explained, we are not convinced that such an advantage would be alone enough to
demonstrate that the aircraft with the inferior NPV does not impose any competitive constraints on
the other.
Sales campaigns
6.1346. The United States argues that the existence of the alleged competitive relationships
between the A330 and the 787, and the A330, A350XWB and the 777, are also subs tantiated by
the HSBI and other evidence it has introduced revealing Boeing's offers and strategic
considerations, as well as the requests made by certain customers, in a number of sales

2283 European Union's comments on the United States' response to Panel question No. 61, para. 466
(quoting Supplemental Mourey Statement, (Exhibit EU-124) (BCI/HSBI), para. 59).
2284 European Union's comments on the United States' response to Panel question No. 61, para. 458.
2285 See above paras. 6.1311-6.1322.
2286 One of the comparisons shows how the NPV of the A330-200 will be greater than that of the 787-8
when the latter is delivered five years after the former, thereby allegedly showing how delivery dates may be
decisive in a particular customer's decision to purchase a current generation twin-aisle aircraft (the A330 or the
777) instead of a better performing new generation twin-aisle aircraft (the A350XWB or the 787).
(Supplemental Mourey Statement, (Exhibit EU-124) (BCI/HSBI), paras. 45-48)

campaigns.2287 The particular twin-aisle sales campaigns the United States refers to involved four
airlines, resulting in: (a) US Airways ordering 92 Airbus aircraft, including 22 A350XWB -800s, 60
A320 family aircraft and ten A330 -200s, in 2007; (b) TAM ordering 22 A350XWBs and four
A330-200s in 2008; and (c) Cathay Pacific Ai rlines ordering 30 A350XWBs and 15 A330 -300s
between 2010 and 2011. 2288 The United States finds additional support for its position in HSBI
evidence of Boeing's commercial considerations in two sales campaigns conducted in 2010
involving Thomas Cook (for single-aisle aircraft) and Malaysia Airlines (for twin-aisle aircraft).2289
6.1347. The European Union questions the probative value of the United States' sales campaign
evidence for a number of reasons. First, while recognizing that the results of any sales campaign
will reflect a particular customer's preferences between aircraft, the European Union submits that
this does not necessarily mean that all of the aircraft considered by that particular customer are
equally substitutable and, therefore, within the same produc t market. The European Union
emphasizes that before coming to any conclusions about the demand-side substitutability of two or
more aircraft offered for consideration in a particular sales campaign, it would be necessary to
conduct a detailed examination o f the underlying reasons for a purchase decision so that the
competitive dynamic between the relevant products may be evaluated in its proper context. Thus,
the European Union argues that sales campaign evidence must be considered cautiously, and
ultimately used "solely as confirmation of a product market delineation made on the basis of other,
including quantitative, evidence" because, on its own, evidence showing that two aircraft were
offered in a sales campaign is legally and factually insufficient to e stablish general demand -side
substitutability.2290 Second, to the extent that the evidence the United States relies upon reveals
only Boeing's view of the alleged competitive dynamics of a particular sales campaign, the
European Union argues that it is "irrel evant" and "uninformative" for the purpose of establishing
demand-side substitutability because it provides no indication of the perspective held by
customers.2291
6.1348. In our view, evidence showing that Airbus and Boeing presented or formally offered one
or more LCA products for consideration in a particular sales campaign will be highly relevant to our
task of determining the existence of relevant product markets. As sophisticated players with
long-standing experience in working with, understanding, influencing and anticipating, the needs
of potential customers in an industry that has been an effective duopoly for at least a number of
decades, it is difficult to believe that Airbus or Boeing would go to the expense of participating in a
sales campaign if either c ompany did not believe it had a reasonable chance of convincing a
customer to purchase its own LCA products ahead of those of its rival or, at the very least,
imposing some level of competitive constraint on its rival's offering. Indeed, in the light of th ese
and other particular conditions of competition in the LCA industry, we found in the original
proceeding that one would expect competition between Airbus and Boeing aircraft to exist even in
situations where both manufacturers do not make or are not requested to make any formal offers:
Given the importance of LCA costs to the customers' successful operations, we cannot
accept the implication that customers knowledgeable about the market would not
consider the competitive products available from the two p roducers in most cases,
even if formal offers are neither requested nor made in a particular instance.2292
6.1349. We recall that the Appellate Body relied upon these factual findings to dismiss the
European Union's appeal against the original panel's conclusion tha t an order for A380s made by
Emirates Airlines in 2000 constituted "lost sales" to the United States' LCA industry,

2287 United States' response to Panel question Nos. 49, 50 and 55.
2288 United States' response to Panel question Nos. 49, 50, 67 and 68; [[HSBI]] Exhibit USA-204
(HSBI); EADS Press Release, "TAM airlines orders 20 A320 Family and five A350-900 aircraft", 8 June 2010,
(Exhibit USA-210); [[HSBI]] Exhibit USA-213 (HSBI); [[HSBI]] Exhibit USA-219 (HSBI); EADS Press Release,
"Malaysia Airlines orders 17 A330s", 31 March 2010, (Exhibit USA-238); Malaysia Airlines Press Release, "MAS
and Airbus sign MOU for orders of up to 25 A330-300s", 22 December 2009, (Exhibit USA-239); [[HSBI]]
Exhibit USA-370 (HSBI); [[HSBI]] Exhibit USA-527 (HSBI); [[HSBI]] Exhibit USA-533 (HSBI); and [[HSBI]]
Exhibit USA-538 (HSBI).
2289 United States' response to Panel question Nos. 49 and 50; [[HSBI]] Exhibit USA-534 (HSBI); and
[[HSBI]] Exhibit USA-537 (HSBI).
2290 European Union's response to Panel question No. 55, paras. 259 and 264; and European Union's
comments on the United States' response to Panel question No. 53.
2291 European Union's comments on the United States' response to Panel question No. 63 (HSBI).
2292 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1722.

notwithstanding the absence of any formal aircraft offer having been made on the part of Boeing.
In particular, the Appellate Body understoo d the original panel's factual findings to mean that,
given "the conditions of competition in the LCA industry, it was not necessary for Boeing to have
made a formal offer to Emirates Airlines – or 'turn up' to use the European Union's expression – for
sales to qualify as sales that Boeing 'failed to obtain'" as "even in the absence of a formal offer
from Boeing, Emirates could be expected to have considered products manufactured by Boeing
before making its purchase decision".2293 Thus, as we see it, evidence that both Airbus and Boeing
actually did participate in the same sales campaign should, a fortiori, be interpreted to strongly
suggest that the relevant customer's ultimate purchase decision would have been informed by its
consideration of the relative strengths and weaknesses of both companies' aircraft compared to its
own needs – in other words, evidence that, at the very least, would tend to support a finding that
the products in question were in competition with each other for the relevant customer's sales.
6.1350. Similarly, while we accept that Boeing's views about the degree of competition that exists
between its own aircraft and those offered by Airbus in a particular sales campaign cannot, alone,
demonstrate the existence of demand-side substitutability , w e consider that such views, when
expressed in the context of analyses and/or statements made contemporaneously with a particular
sales campaign, will be highly relevant to our task of identifying relevant product markets. Indeed,
as already noted, the Euro pean Commission regularly takes such evidence into account in its own
product market determinations in competition cases. 2294 Thus, we do not agree with the
European Union when it argues that such evidence is "irrelevant" and "uninformative" to the
analysis that must be performed.
6.1351. Turning to the specific sales campaigns, the European Union submits that, when properly
interpreted, the HSBI evidence presented by the United States in relation to the US Airways, TAM
and Malaysia Airlines campaigns demonstrates tha t the respective aircraft offered by Airbus and
Boeing are not in the same product market. Because the substance of the parties' submissions
concerning these sales campaigns is HSBI, it cannot be disclosed in this Report. Nevertheless, the
crux of the Euro pean Union's argument is that the United States' evidence shows that even
according to Boeing, the aircraft offered by Airbus and Boeing in these three sales campaigns
generated substantially different NPVs for the relevant customers, which the European Union
maintains is "hardly evidence" that the relevant product pairings are in the same product
market.2295
6.1352. Likewise, the European Union argues that the evidence the United States has introduced
in relation to the Cathay Pacific sales campaigns confirms that a vailability and operating cost
differences between the relevant aircraft demonstrate that they are in separate product markets.
Moreover, the European Union submits that the aircraft offered by Airbus and Boeing were
evaluated by Cathay Pacific for the pur pose of fulfilling different requirements as well as "to
improve {Cathay Pacific's} leverage over the LCA manufacturers". The European Union also argues
that the United States' evidence is contradicted by "all other evidence of the competitive dynamics
in the sales campaign".2296
6.1353. Finally, the European Union submits that the United States misrepresents the contents of
the HSBI evidence pertaining to the 2010 sales campaign involving Thomas Cook, asserting that it
fails to demonstrate that all of the aircraft referred to by the United States were considered to be
potential substitutes, but only Airbus and Boeing new generation aircraft.2297
6.1354. In October 2007, US Airways signed a contract to purchase 92 aircraft from Airbus,
including 22 A350XWB -800s, 60 A320 family aircraft and ten A330 -200 aircraft.2298 The evidence
submitted by the United States reveals that Boeing had offered US Airways one of the twin -aisle
aircraft which the European Union argues does not compete with one of the two Airbus twin -aisle

2293 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1223.
2294 See above para. 6.1207.
2295 European Union's comments on the United States' response to Panel question No. 63, paras. 490,
494, and 496 (HSBI).
2296 European Union's comments on the United States' response to Panel question Nos. 63 (HSBI), 67,
and 68; and second written submission, paras. 1352-1359.
2297 European Union's comments on the United States' response to Panel question No. 63 (HSBI).
2298 EADS Press Release, "US Airways firms up order for 92 Airbus aircraft: order includes 33 A350
XWBs", 5 October 2007, (Exhibit USA-201).

aircraft eventually ordered.2299 Boeing's internal assessment of the NPVs offered by both aircraft
showed that [***].2300 The European Union does not deny that Boeing participated in this sales
campaign with the aircraft in question. However, according to the European Union, the NPV [***]
demonstrates that the customer could not have considered both aircraft to be credible competitors
for the sales. We are not convinced by the European Union's submissions.
6.1355. First, it is apparent that the HSBI evidence showing the NPV compariso n was an internal
document prepared by Boeing specifically for the purpose of informing its business decisions
concerning the US Airways sales campaign. It is difficult to understand why Boeing would have
wanted to make such a comparison if it did not believe that it had some relevance to the particular
competition with Airbus in the US Airways sales campaign. This, of course, implies that Boeing
must have considered that the same comparison would have been at least a potentially relevant
consideration for the customer too. Second, it is accepted by both parties that the size of an
aircraft's NPV advantage over another will vary (and, indeed, may sometimes reverse) depending
upon the assumptions used in the calculation. This suggests that Boeing's assessment of the NPV
[***] could only reflect the true competitive distance between the two products, if it accounted
for all of the price and non -price factors expected to inform the US Airways' purchase decision. It
is apparent, however, that this was not the cas e. Third, and as already explained, given the
differentiated nature of LCA products, the simple fact that one aircraft may have a [***] NPV
advantage over another does not necessarily preclude the possibility that the two aircraft may be
competitors. Such an advantage may simply reflect the fact that the specific characteristics of one
particular aircraft are a better match for a customer's needs, making it the superior choice in the
competition to win the relevant customer's sales . Accordingly, to the exte nt that the HSBI
evidence submitted by the United States reveals what Boeing's actual commercial considerations
were at the time of the US Airways sales campaign, we find that it supports the contention that
the twin-aisle aircraft presented by Airbus and Boeing compete in the same product market.
6.1356. TAM Linhas Aéreas ordered 22 A350XWBs and four A330 -200s in January 2008. 2301 The
HSBI evidence introduced by the United States consists of six pages of an internal presentation
made by Boeing for the purpose of inf orming and devising its initial offer in this sales campaign. A
number of pages in this presentation reveal how Boeing identified the key opportunities and
defined the core of its campaign strategy by inter alia highlighting how different aircraft from two
of its three families of twin -aisle LCA could compete against two families of Airbus twin -aisle
aircraft. The same presentation also generated NPV comparisons under two different sets of
assumptions for two pairings of Airbus and Boeing aircraft (which th e European Union argues do
not compete in the same product market) showing, [***].2302 Similarly, the HSBI evidence
presented by the United States in respect of the 2010 Malaysia Airlines sales campaign reveals
that Boeing considered that, under certain assum ptions, its own twin -aisle offering would [***]
the relevant Airbus aircraft (which the European Union argues does not compete in the same
product market as the Boeing aircraft).2303
6.1357. Again, the European Union maintains that the disparity in the NPVs of the d ifferent
aircraft presented in the United States' Exhibits demonstrates that the relevant product pairings do
not compete in the same product market. However, for the same reasons expressed above, we are
not persuaded by the European Union's arguments.2304 In our view, the evidence presented in both
the HSBI Exhibits relating to the TAM Linhas Aéreas and Malaysia Airlines sales campaigns
supports the United States' submission that the relevant Airbus and Boeing LCA were competing
for the same customer sales.
6.1358. In [***], Cathay Pacific [***]. One of the HSBI documents the United States relies
upon is an extract of [***]. This document explicitly states that [***] two families of Boeing

2299 James Wallace, "Boeing seeking prize US Airways order", Seattle Post, 14 May 2007,
(Exhibit USA-205); Daniel Michaels, L. Lynn Lunsford and Melanie Trottman, "Airbus seals US Airways order, in
a big boost for A350 jetliner", The Wall Street Journal, 18 June 2007, (Exhibit USA-206); and [[HSBI]]
Exhibit USA-533 (HSBI).
2300 [[HSBI]] Exhibit USA-533 (HSBI).
2301 EADS Press Release, "Brazilian carrier TAM to acquire 22 A350 XWBs and four additional
A330-200s", 29 June 2007, (Exhibit USA-208).
2302 [[HSBI]] Exhibit USA-538 (HSBI), pp. 2-6.
2303 [[HSBI]] Exhibit USA-537 (HSBI), p. 2.
2304 See above para. 6.1355.

twin-aisle aircraft and two families of Airbus twin -aisle aircraft in combinations which, according to
the European Union, do not compete with each other in the same product market. 2305 A very
similar presentation, also showing that [***].2306 In response [***], Boeing offered the LCA that
[***], and conducted an analysis of the various st rengths and weaknesses of its proposals vis-à-
vis the relevant Airbus aircraft. The same analysis reveals that Boeing examined the NPVs of one
particular pairing of Airbus and Boeing twin -aisle LCA (which the European Union argues do not
compete in the same product market), showing that the Boeing aircraft [***].2307
6.1359. According to the European Union, this evidence does not demonstrate that the relevant
twin-aisle aircraft were in competition with each other because, at least as regards the A350XWB
and the 777 -300ER pairing, the European Union maintains that Cathay Pacific evaluated the two
aircraft for different requirements. The European Union finds support for this assertion in the fact
that Cathay Pacific ordered both the A350XWB and the 777 -300ER in 2010. 2308 The
European Union argues that the 777 -300ER was ordered "because it met the airline's need for
early delivery positions", with the A350XWB being ordered for later delivery when it would become
available. Additionally, the European Union argues that [***] demonstrates that the two aircraft
cannot compete "on this basis".2309
6.1360. In our view, the HSBI evidence submitted by the United States very clearly and explicitly
demonstrates that Cathay Pacific was interested in considering different combinations of Airbus
and Boeing twin-aisle LCA which the European Union argues do not compete in the same product
market. While the HSBI evidence reveals that, like other customers, Cathay Pacific was interested
in acquiring a specific number of aircraft over a range of differe nt delivery windows, we do not see
this to imply that Cathay Pacific intended to consider the relevant combinations of Airbus and
Boeing LCA [***] for different requirements. Rather, the evidence suggests that Cathay Pacific
was interested in seeing what c ombinations of aircraft each producer could offer to meet its
delivery preferences. Thus, as we have already explained, the fact that one aircraft may have been
chosen over one or more others because of its availability reflects its competitive advantage, not
its position in a "temporal monopoly" market.
6.1361. Finally, the United States argues that HSBI evidence pertaining to an offer made by
Boeing to Thomas Cook in 2010 shows that one pairing of twin -aisle aircraft which the
European Union asserts do not place competitive constraints on each other, actually do compete in
the same product market. The evidence the United States relies upon is a two -page extract from
an internal Boeing presentation, the cover page of which suggests that it concerns an offer made
by Boeing of single-aisle aircraft. The second page of the United States' exhibit (numbered page
eight of the presentation) sets out Boeing's assessment of the value of one of its models of
twin-aisle aircraft compared with existing Airbus and Boeing twin -aisle aircraft flown by
Thomas Cook.2310 The European Union argues that the United States misrepresents the contents of
this evidence, which according to the European Union shows that the only Airbus and Boeing twin -
aisle aircraft in actual competition were those that the European Union accepts impose competitive
constraints on each other.2311 In our view, the HSBI evidence suggests that Boeing expected there
to be a sales opportunity for twin-aisle aircraft with Thomas Cook sometime in the near future, and
that for this purpose, Boeing had identified its main competitor to be an Airbus aircraft which the
European Union accepts falls within the same product market as the relevant Boeing aircraft. While
there is discussion of other Airbus and Boeing twin -aisle LCA, it is apparent that this is not for the
purpose of identifying the aircraft that are expected to compete for the future sales opportunity.
Accordingly, we do not see this evidence to demonstrate that Boeing considered that Thomas Cook
would be interested in more than one pair of Airbus and Boeing twin -aisle aircraft for the purpose
of the sales campaign expected in the future. Nevertheless, the evidence does show (once again)
the important role that technological innovation plays in a customer's choice of a ircraft and,
therefore, ultimately, the competition between Airbus and Boeing for sales.

2305 [[HSBI]] Exhibit USA-527 (HSBI), pp. 3-4.
2306 [[HSBI]] Exhibit EU-255 (HSBI).
2307 [[HSBI]] Exhibit USA-536 (HSBI).
2308 Cathay Pacific Press Release, "Cathay Pacific signs agreement with Boeing to purchase six more
777-300ER aircraft", 21 September 2010, (Exhibit EU-252).
2309 European Union's comments on the United States' response to Panel question Nos. 63 and 68
(HSBI); and [[HSBI]] Exhibit EU-256 (HSBI).
2310 [[HSBI]] Exhibit USA-534 (HSBI).
2311 European Union's comments on the United States' response to Panel question No. 63 (HSBI).

Conclusion with respect to the alleged product market for twin-aisle LCA
6.1362. We recall that the parties' disagreement about the existence of one single product market
for the five families of twin -aisle LCA is grounded on differences of views concerning: (a) the
extent to which the new generation of technologically advanced Airbus and Boeing twin -aisle
products compete with all others; (b) the extent to which the A330 and 7 77 are sold in their own
separate "temporal" monopoly markets; and (c) the extent to which the 767 has any competitive
relationship at all with the other four families of twin -aisle LCA. Our careful consideration of the
parties' submissions and the evidenc e they have introduced leads us to conclude that the
United States has demonstrated that, for the purpose of the serious prejudice disciplines of the
SCM Agreement, all five families of Airbus and Boeing twin -aisle passenger aircraft may be
considered to fall within the same product market. We come to this conclusion on the basis of the
above considerations, which we summarize as follows.
6.1363. First, in terms of basic physical characteristics and end -uses, the five families of Airbus
and Boeing twin -aisle LCA ar e, as a whole, able to satisfy a relatively broad spectrum of mission
requirements starting with the regional routes serviced by the smaller 767 and A330 families of
aircraft and ending with the larger capacity, long -haul, missions for which the bigger ver sions of
the 777 and A350XWB were specifically designed. Compared with the high degree of commonality
that exists between the physical attributes and end -uses of their single -aisle offerings, it is
apparent that the five families of Airbus and Boeing twin -aisle aircraft exhibit greater differences,
even as between models within the same family (e.g. the seating capacities of the 777 -200LR vs
777-300ER or the A350XWB -800 vs A350XWB -1000). Nevertheless, within the range of potential
customer needs that may be satisfied by the five families of LCA, there are notable overlaps, with
six versions of four families (the A330 -200, 777 -200ER, A350XWB -900, 787 -8, 787 -9 and
A350XWB-800) positioned relatively close to each other. This suggests that while the potential
customer-base for Airbus and Boeing twin -aisle aircraft is likely to be more varied than the
potential customer -base for their single -aisle aircraft, any individual customer is likely to have
multiple combinations of relatively closely -matched Airbus and Boeing twin-aisle aircraft to choose
from.
6.1364. Second, unlike the European Union, we do not consider the superior operating
performance of the new generation of Airbus and Boeing twin -aisle aircraft compared with their
current generation models signals that they are sold into separate product markets. While it is
common ground that the A350XWB and the 787 will have a general operating cost advantage over
existing models of Airbus and Boeing twin -aisle aircraft, it is equally accepted by both parties that
the impact of this advantage on the aircrafts' respective NPVs will diminish and eventually reverse
as, e.g. the delivery date of the new generation product is delayed relative to the current
generation aircraft. Indeed, because of the important role that delivery considerations play in a
potential customer's purchase decision, Airbus and Boeing will regularly compete with each other
on the timing of the availability of their aircraft, including by "ramping up" production whenever
possible and/or by offering "interi m lift" solutions. Thus, rather than being an advantage that
places the A330 and 777 in "temporary" product markets of their own, we see the relative near -
term availability of both aircraft compared with the current, longer-term, delivery prospects for the
A350XWB and the 787, as a "temporary" advantage with respect to one of the factors that
customers interested in aircraft capable of performing the range of overlapping missions covered
by the four families of LCA will take into account in their purchase decisions.
6.1365. Of course, the multi-faceted nature of aircraft demand means that non-price factors other
than delivery terms (e.g. fleet commonality) might also serve to diminish the performance
advantages of new generation aircraft over current generation air craft, thereby creating more
room for price discounting to play a greater role in a customer's purchase decision. In this respect,
we recall that the European Union does not assert that the A330 does not compete at all with the
787, but only that "it is le ss able to compete" with the 787 when offered "with similar delivery
timing" and "[***]". Likewise, the evidence we have reviewed concerning Airbus' original and
ongoing sales and marketing expectations for the A350XWB suggests that Airbus anticipates that
the A350XWB will have to compete with more than just the 787 in order to maximize sales, an
expectation which we believe is confirmed in the sales campaign evidence we have reviewed to the
extent that they reveal the presence of both generations of Airbus and Boeing twin-aisle aircraft.
In our view, these and other considerations suggest that the 787 and the A350XWB do not merely
face competitive constraints from each other, but also from other twin-aisle aircraft.

6.1366. Third, when it comes to the competitive r elationship between the A330 and the 777, we
see no merit in the European Union's submission that the two aircraft families do not impose any
competitive constraints on each other to the extent that each one has an allegedly insurmountable
NPV advantage over the other when performing missions for which they were specifically designed.
As already noted, we have found the European Union's reliance on the NPV analyses conducted in
the Supplemental Mourey Statement to be unconvincing for a number of reasons. To begin with,
the allegedly insurmountable NPV advantages calculated for different aircraft in the Supplemental
Mourey Statement are premised on either Airbus or Boeing passing on the full economic benefit of
the operating cost advantage of one aircraft ove r another to the customer. Thus, for example, the
allegedly insurmountable NPV advantage of the A330 over the 777 assumes that Airbus would
pass on the full value of the operating cost advantage of flying the A330 on optimized missions
over the 777 to the customer. In other words, the full amount of the allegedly insurmountable NPV
advantage would exist only if Airbus chose not to capture all or part of it by raising prices. 2312 As
pointed out in the Sanghvi Declaration, such an inability to raise prices impli es competition. In any
case, the conclusions the European Union draws from the NPV comparisons of the A330 and the
777 ignore the possibility that there may well be customers interested in exploring the economics
of both aircraft for the purpose of a range of missions that are somewhere in between the missions
for which they were specifically designed or, indeed, that any given customer will anticipate that
the aircraft purchased will be used for a range of missions that may change over time. Likewise,
because of the multi -faceted nature of aircraft demand, it cannot be excluded that the NPV
advantage of the A330 over the 777 when flying optimized missions could be diminished (and
perhaps even reversed) when non -price factors such as delivery terms and fleet commonality are
taken into account. All of these considerations confirm what we believe is suggested in the
marketing materials and sales campaign evidence we have reviewed, namely, that at least part of
the potential customer base for both aircraft is li kely to want to consider the economics of both
aircraft, particularly as regards the A330-200 and the 777-200ER.
6.1367. Finally, we note that the evidence we have examined reveals that the competitive
relationships between all five families of Airbus and Boeing twin-aisle aircraft have been constantly
evolving, reflecting not only changing demand conditions but also the pace and nature of aircraft
innovation. Thus, the introduction of the relatively fuel -efficient 787 at a time of increasing fuel
prices drew inte rest away from existing, less -efficient, models of twin -aisle aircraft that would
otherwise have been considered by potential customers, causing Airbus to respond with its own
new generation aircraft, the A350XWB, which had a very similar impact on the mar ket. Likewise,
the improvements made to the A330 since it was launched have enhanced its competitive position
vis-à-vis the 767 (once its main rival) as well as the 777 and the 787. However, in our view, to say
that every time a newly introduced technologi cally advanced or more efficient aircraft wins sales
against existing models means that it faces no competitive constraints from aircraft that were not
chosen by those customers, would be incorrect and an oversimplification of the complicated
dynamics of competition in the LCA industry.
6.1368. Airbus and Boeing invest in aircraft innovation precisely because they want to win the
competition for sales against existing models of LCA . The multi-faceted nature of aircraft demand
and the large number of sales that mus t be achieved in order to make a new aircraft programme
successful, mean that Airbus and Boeing will generally endeavour to make those investments in
aircraft that can satisfy multiple requirements for the purpose of meeting aggregate demand ,
suggesting th at even the newest, most technologically advanced, aircraft are likely to face
competitive constraints from existing models of LCA. In this competitive landscape, it is apparent
that the oldest twin-aisle LCA, the 767, stands out as being, overall, the wea kest competitor of all
five families of Airbus and Boeing twin-aisle aircraft. Nevertheless, it is undisputed that the aircraft
continues to win sales, albeit in small quantities and from relatively few customers. 2313 In the light

2312 We recall that in the single-aisle segment, Airbus and Boeing have "shared" the operating cost
advantages of the enhanced fuel efficiency of their new generation offerings by increasing their prices relative
to current generation models by less than the full amount of the value of their operating cost advantages. As
already explained, the fact that both manufacturers have not been able to capture the full amount of these
benefits implies the existence of competitive constraints.
2313 Data from the Ascend database indicates that in the six years from 2007 to 2012, Boeing sold a
total of 75 767-300ERs to the following customers: LAN Airlines (Chile); ANA and Japan Airlines (Japan);
Uzbekistan Airways (Uzbekistan); Azerbaijan Airlines (Azerbaijan); MIAT – Mongolian Airlines (Mongolia); Air
Asthana (Kazakhstan); and one "unannounced commercial customer". (Ascend database, Boeing and Airbus
Deliveries in Units 2001-2011, Commercial Operators, data request as of 13 January 2012, (Exhibit USA-112);

of what we know about the co nditions of competition in the LCA industry, the fact that even a
limited number of customers have chosen the 767 suggests that, under certain conditions, the 767
continues to be capable of imposing competitive constraints on other models of Airbus and Boe ing
twin-aisle LCA.2314 Moreover, just as there are sales where the 767 has been successful, it is also
likely that there will be sales where the 767 has not been purchased but where it might well have
been considered and/or chosen by a customer, had the more modern aircraft not been presented.
In these situations too, it is possible that the 767 will have imposed competitive constraints on the
selected alternative.
6.1369. Ultimately, therefore, not unlike the competitive relationships existing between other
versions of Airbus and Boeing twin -aisle LCA, the competitive relationship between the 767, as a
stand-alone proposition 2315, and the four more modern families of Airbus and Boeing twin -aisle
aircraft will differ in intensity depending upon the particular circumstan ces of a sales campaign or
needs of the customer. Overall, however, it is apparent that apart from cases involving the smaller
version of the A330, the 767 is likely to impose only relatively weak competitive constraints on the
remaining versions of Airbus and Boeing twin -aisle aircraft, particularly the larger versions of the
A350XWB and the 777 families. But, as we see it, the fact that the 767 is today a relatively weak
competitor to its Airbus rivals, only confirms the strong competitive constraints whi ch those
aircraft have been able to impose on its ability to win sales, revealing the extent to which Airbus
has the upper -hand in the competition with Boeing for certain sales. To find, in these
circumstances, that the 767 should be considered to fall wit hin its own separate product market
would mean that we would be legally precluded to determine whether the cause of the 767's
inability to win sales was any one or more of the subsidies the United States argues have brought
about the market presence of the very Airbus aircraft that impose those competitive constraints .
For the reasons already explained, we are unable to find any support for such an approach in the
SCM Agreement.2316
6.1370. Thus, for all of the above considerations, and in the light of the totality o f the evidence
we have reviewed, we find that the United States has established that all five families of Airbus
and Boeing twin -aisle LCA exercise differing but overall sufficient degrees of competitive
constraints against each other such that they should all be considered to fall within the same
product market for the purpose of the serious prejudice claims that it brings under the
SCM Agreement.
The alleged market for very large passenger aircraft
6.1371. The United States argues that the A380 and the 747 -8I compete in one and the same
VLA product market. As the largest (although not identical) aircraft available in the market, the
United States submits that the A380 and the 747 -8I are imperfectly substitutable with each other
as both may be used to cover essent ially the same long -haul, slot -constrained and high
passenger-demand missions. 2317 The European Union, however, submits that the A380 and the
747-8I are sold in two separate monopoly markets. 2318 In the European Union's view, the
considerable differences that exist between these two LCA products, particularly as regards seating
capacity and technologies, generate an insurmountable potential revenue and operating cost
advantage in favour of the A380, thereby placing it in a different product market to the 747-8I.2319

and Ascend database, Boeing and Airbus Deliveries in Units (2001-2013), Commercial Operators, data request
as of 30 March 2014, (Exhibit USA-577))
2314 We recall that the 767-300ER has the lowest list price of all Airbus and Boeing twin-aisle LCA, being
approximately USD 50 million less expensive than the A330-300 (its nearest rival by maximum flying range)
and approximately USD 30 million cheaper than the A330-200 (its nearest Airbus rival in terms of maximum
seating capacity).
2315 In considering whether the 767 should be found to fall within the same product market as other
Airbus and Boeing twin-aisle LCA, we believe it is important to recall that LCA purchases can involve multiple
models of LCA in bundled aircraft sales, in which case, other factors may come into play, bringing the
combination of one or more 767s with other Boeing LCA into a stronger competitive position than would be the
case if the 767s were presented in a competition on their own.
2316 See above paras. 6.1209-6.1211.
2317 United States' second written submission, para. 492; and response to Panel question Nos. 50
(para. 156), 52 (para. 166) and 63 (para. 247).
2318 European Union's first written submission, para. 621.
2319 European Union's first written submission, paras. 620-633.

6.1372. As with their previous discussions on market definition, the parties' arguments with
respect to the degree of competition between the A380 and the 747 -8I have focused on
demand-side substitutability .2320 In particular, the debate has centred on the extent to which:
(a) the physical and performance characteristics, end-uses and customers of the A380 and 747-8I;
(b) the existence and nature of any pricing constraints between the two LCA products; and (c) the
evidence concerning a number of sales campaigns, demo nstrate that the A380 and 747 -8I are
sufficiently substitutable from the customer's perspective to consider them to fall within the same
product market. We explore the merits of the parties' arguments regarding each one of these
three areas of discussion in the following sub-sections.
Physical and performance characteristics, end-uses and customers
6.1373. The following table contains the information provided by the parties in relation to some of
the basic physical and performance characteristics of the A380 and the 747-8I:
Table 18: Basic physical and performance characteristics of Airbus and Boeing VLA2321
Model Typical
Seats
(Airbus /
Boeing)

MTOW (t)
(Airbus /
Boeing)
Max Range
(nm)
(full capacity)
(Airbus / Boeing)
Length
(m)
Wing Span
(m)
(Airbus / Boeing)
2011
List
Price
(USD M)
A380-800 525 / 555 560 / 633.9 8,500 / 7,870 72.72 /
72.70
79.75 / 79.80 375.3
747-8I 405 / 467 447.7 / 493.5 7,600 / 7,760 76.30 68.50 332.9

6.1374. When considered in the light of the information presented in Table s 16 and 17, the data
in Table 18 show that the A380 and 747 -8I are the largest civil aircraft produced by both
manufacturers. Although the dimensions of these two LCA products are not identical, the lengths
of their bodies are very close and wing spans similar. The A380 is a larger aircraft than the 747-8I,
with its seating capacity spreading over two full decks, whereas the 747 -8I has an upper deck that
extends only part of the way along the length of its body. Reflecting its greater overall size and
passenger carrying capacity2322, the A380 has a noticeably higher MTOW. Moreover, based on the
data provided by the European Union, the A380 is also able to fly up to 900nm further than the
747-8I. However, according to the United States, the maximum flying range of the A380 is only
110nm greater than that of the 747-8I.
6.1375. As already noted, Boeing launched the 747 -8I in 2005 in response to Airbus' launch of
the A380 in 2000. 2323 The 747-8I is one of several derivatives of the original 747 -100, which was
launched in 19 66. It has a larger fuselage compared with the 747 -400, with new engines and
wings.2324 As a derivative aircraft, the 747 -8I was granted an Amended Type Certificate, which
limits the extent of the modifications that can be incorporated into its design. 2325 The 747-8I has a
lower overall per trip fuel -burn and greater cargo capacity than the A380. 2326 However, the A380

2320 Again, the parties do not engage in any meaningful discussion of the supply-side substitutability of
the respective LCA. Although certain statements in the Bair Declaration suggest that the development and
production processes of the two LCA are broadly similar, neither party has at any stage in this proceeding even
suggested that any degree of supply-side substitution exists between the 747-8I or the A380, respectively, and
each manufacturer's other models of LCA. (Bair Declaration, (Exhibit USA-339), para. 44)
2321 The data used in this table are obtained from the Mourey Statement, (Exhibit EU-8) (BCI), table 7
and the Bair Declaration, (Exhibit USA-339) (BCI), para. 43. With respect to certain characteristics, the parties
have provided the Panel with differing information, as reflected in the table. As already noted, the parties have
attributed the divergence in figures to different sets of rules and assumptions used by Airbus and Boeing to
derive the data. (European Union's response to Panel question No. 159; and United States' comments on the
European Union's response to Panel question No. 159)
2322 Supplemental Mourey Statement, (Exhibit EU-124) (BCI/HSBI), para. 71. See also, UK Advertising
Standards Authority, ASA Adjudication on Boeing United Kingdom Ltd, 7 August 2013, (Exhibit USA-574), p. 3.
2323 See above para. 6.1220. There are two versions of the 787-8; one for passengers, the 747-8I
(Intercontinental), and one for cargo, the 747-8F (Freighter). The United States' serious prejudice claims
concern only the 747-8I. The United States does not argue that the 747-8F is sold in the same product market
as the A380 and the 747-8I.
2324 United States' first written submission, para. 303.
2325 Mourey Statement, (Exhibit EU-8) (BCI), para. 156.
2326 Bair Declaration, (Exhibit USA-339), para. 45; Mourey Statement, (Exhibit EU-8) (BCI), para. 152;
and Supplemental Mourey Statement, (Exhibit EU-124) (BCI/HSBI), para. 71.

has a lower per/passenger operating cost (when flying at maximum capacity) than the 747 -8I.2327
Moreover, while the 747 -8I uses a predominantly mechanica l system to control its flying
operations, the A380 uses relatively modern "fly -by-wire" technology, which is considered to be
lighter and more efficient. 2328 The A380 is also quieter than the 747 -8I, achieving, for example, a
"Quota Count" at the UK airports of London Heathrow and Gatwick of 0.5 for arrival and 2 for
departure (compared to 1 and 2, respectively, for the 747-8I).2329
6.1376. The United States accepts that a number of distinguishing features of the A380 (including
its greater seating capacity) may render it a more attractive option than the 747 -8I in the eyes of
certain customers. 2330 However, for the United States, such unique characteristics do not mean
that the two LCA do not compete in the same product market. 2331 In this respect, the
United States recalls that all LCA are differentiated products, and that despite their differences, the
A380 and the 747-8I are the only two LCA specifically developed by Airbus and Boeing to serve the
high-capacity (greater than 400 seats), slot -constrained, long-haul routes operated by commercial
airlines.2332 Consistent with this common end -use and potential customer base, the United States
submits that Airbus and Boeing each "regularly attempts to develop customer interest in its very
large aircraft by comparing its attributes to those of the other producer's VLA model".2333 Thus, the
United States argues that customers serving or wanting to operate high-capacity, slot-constrained,
long-haul missions, can and do perceive the two LCA products to be the "closest substitutes for
each other"2334, a fact that, according to the United States, "became immediately evident when Air
France, Singapore Airlines and Qantas" ordered the A380 to replace their respective fleets of older
747s.2335
6.1377. The European Union, however, argues that the larger passen ger capacity and advanced
technologies of the A380 mean that, for customers that are relatively confident about their ability
to fill the A380, the A380 has an insurmountable per/seat operating cost advantage and generates
higher revenues compared with the 747-8I, placing it in a separate product market. 2336 The
European Union maintains that factors such as the growth in global passenger demand, slot
constraints at congested hub airports, rising fuel costs and noise limitations have all "greatly
magnified" this advantage.2337 The European Union denies that the decisions of certain airlines to
purchase the A380 ahead of the 747-X (subsequently designated as the 747-8I) for the purpose of
operating the same routes once serviced by the 747 -400 evidences that customer s perceive the
two aircraft to be substitutable.2338 Rather, according to the European Union, such decisions can be
explained by the change in the conditions of competition since the time that the 747 -400s were
purchased2339 – conditions which, in the view of th e European Union, have inter alia resulted in
greater demand for larger aircraft such as the A380. 2340 Thus, the European Union argues that the

2327 See below para. 6.1378.
2328 Mourey Statement, (Exhibit EU-8) (BCI), para. 155.
2329 Mourey Statement, (Exhibit EU-8) (BCI), para. 173. The Mourey Statement also asserts that the
A380 has "proven to be very popular among air travellers", partly because of its "general appeal as the largest
LCA, but mainly {due} to the cabin comfort that the A380 provides". (Mourey Statement, (Exhibit EU-8) (BCI),
para. 170)
2330 United States' second written submission, para. 488; response to Panel question No. 53, para. 175;
comments on the European Union's response to Panel question No. 53; and Bair Declaration, (Exhibit
USA-339) (BCI), para. 45.
2331 United States' second written submission, para. 487; response to Panel question No. 53, para. 175;
and comments on the European Union's response to Panel question No. 53.
2332 United States' second written submission, para. 487; Bair Declaration, (Exhibit USA-339),
paras. 44-47. A slot constrained route is described in the Bair Declaration as one that "involves at least one
destination airport where aircraft landing slots are so scarce that it would be very difficult for an airline to
increase passenger traffic by increasing the frequency of flights". (Bair Declaration, (Exhibit USA-339), fn 2)
2333 United States' second written submission, para. 487.
2334 United States' response to Panel question No. 53, para. 174.
2335 United States' second written submission, para. 489.
2336 European Union's first written submission, paras. 626-629; second written submission, para. 691;
response to Panel question No. 49, para. 222; Mourey Statement, (Exhibit EU-8) (BCI), paras. 151-152, and
160; and Supplemental Mourey Statement, (Exhibit EU-124) (BCI/HSBI), paras. 67-69.
2337 European Union's second written submission, para. 693.
2338 European Union's second written submission, para. 703; and Supplemental Mourey Statement,
(Exhibit EU-124) (BCI/HSBI), paras. 78, 89-90.
2339 European Union's second written submission, para. 703.
2340 Mourey Statement, (Exhibit EU-8) (BCI), paras. 140-144; and Supplemental Mourey Statement,

A380 and 747 -8I serve different customer needs and, for this reason, are not considered by
customers to be substitutable products.2341
6.1378. Although the European Union denies the existence of anything more than "weak or
minimal" competition between the 747-8I and the A3802342, the Mourey Statement recognizes that
the two aircraft "are the closest to one another" in terms of size 2343, and moreover, "have similar
range capabilities", meaning that they can both "generally be used for the same long -haul
routes".2344 The parties, therefore, seem to agree that the differences between the A380 and the
747-8I in terms of size and flying range d o not preclude the possibility that, in general, the two
aircraft may be used to serve the same long -haul routes. Moreover, we do not understand the
parties to disagree with the proposition that, when seating capacity is determined on the basis of
the same rules and assumptions2345, the A380 offers customers lower per/seat operating costs and
greater potential revenues than the 747 -8I for missions requiring a seating capacity that
approaches the A380's maximum; and conversely that the 747 -8I offers lower per/s eat operating
costs than the A380 for missions requiring a passenger seating capacity that approaches its
maximum.2346 Thus, as we see it, the essential point of divergence between the parties is focused
on the conclusions that can be drawn about the degree o f demand-side substitutability that exists
between the A380 and the 747-8I as a result of their relative performance advantages.
6.1379. As we have previously explained, a customer's choice of aircraft will be largely driven by
its own forecast of passenger deman d over the anticipated commercial life of an aircraft. The
European Union's position is that the A380 is the only economically acceptable option for
customers expecting passenger demand to be consistently close to its maximum seating capacity.
For such cus tomers, the European Union maintains that the 747 -8I is not a viable alternative,
leaving the A380 in its own separate monopoly market. Thus, as we understand it, the
European Union's line of argument is premised on the view that the A380 will only ever be
seriously considered by typical LCA customers for the purpose of flying routes or missions that
cannot also be effectively serviced by the 747 -8I.2347 In our view, however, a number of features
of the demand and supply of LCA products suggest that the potential customer base of the A380 is
likely to be broader, encompassing not only airlines projecting consistently high levels of
passenger demand, but also airlines with lower or varying projections of passenger demand
overlapping the capacities of the A380 and the 747-8I.

2341 European Union's second written submission, para. 691. See also, Mourey Statement, (Exhibit EU-8)
(BCI), paras. 160-176.
2342 See e.g. Supplemental Mourey Statement, (Exhibit EU-124) (BCI/HSBI), para. 65; and
European Union's second written submission, para. 690.
2343 Supplemental Mourey Statement, (Exhibit EU-124) (BCI/HSBI), para. 79.
2344 Mourey Statement, (Exhibit EU-8) (BCI), para. 149.
2345 The parties have explained that the maximum three-class seating capacity figures provided for the
A380 and the 747-8I were calculated on the basis of different assumptions, including with respect to the space
between adjacent seats ("seat pitch"). (European Union's response to Panel question No. 159; and
United States' comments on the European Union's response to Panel question No. 159). The figures furnished
by the European Union are based on Airbus' "ground rules", and contemplate a greater seat pitch than those
applied by Boeing, which were used to derive the figures presented by the United States. One industry analyst
has described the latter as dating "from the 1980s", offering a "somewhat tight" fit for today's business class,
and "more equivalent to business, premium economy and economy rather than first, business and economy".
The same analyst has described the Airbus ground rules to be "more realistic" and "more reflective of today's
capacity". (Leeham News and Comment, "Comparing the 747-8I and the A380 after the Advertising Battle
Commenced", 28 November 2012, (Exhibit EU-172), p. 1). This information suggests that, in practice, the
difference in seating capacity for potential customers may be closer to the European Union's estimates than
those of the United States. However, ultimately, this will depend upon the specific layout and level of comfort
chosen by individual customers in accordance with their particular business model.
2346 United States' response to Panel question No. 53; European Union's first written submission,
paras. 626-627; second written submission, paras. 694-695; Mourey Statement, (Exhibit EU-8) (BCI),
paras. 152 and 160-165; Supplemental Mourey Statement, (Exhibit EU-124) (BCI/HSBI), paras. 71 and 74-75.
The European Union argues that when the seating capacity of a particular mission is expected to be "much
lower" than necessary to warrant purchasing the A380, customers will opt for the 777-300ER or the A350XWB-
1000 instead of the 747-8I, because of the smaller twin-aisle aircrafts' better per/seat economics compared
with the 747-8I. We note, however, that this statement appears to rest on the assumption that the relevant
customer would be looking for an aircraft with a much smaller "3-class" seating capacity than the 747-8I, as
according to the European Union, the 777-300ER holds 100 seats less than the 747-8I.
2347 If this were not the premise underlying the European Union's argument, the European Union would
have to be arguing that the A380 competes with the 747-8I for the same customers, which would imply that
both aircraft are sold into the same product market.

6.1380. We recall that passenger demand (and therefore required seating capacity) is a
multi-faceted parameter that for any particular route will vary "at all times of the day or from one
season or year to the next", not only between different airlines but also for an individual airline.2348
Moreover, passenger demand conditions will "evolve over time", and consequently impact an
airline's "fleet and route strategies as well as the aircraft developed to serve them". 2349 Thus, the
process of forecasting req uired seating capacity over the commercial life of any particular aircraft
for a potential LCA customer is likely to be highly complex, bringing with it a certain measure of
risk. If an airline finds that it has over -estimated demand relative to the seatin g capacity of the
aircraft it has purchased, it will be unable to maximize the value of its investment, and potentially
make a loss. Conversely, if demand is under -estimated, an airline will be short of capacity and
therefore lose out on potential profits.2350 As already noted, these considerations suggest that:
i. LCA customers are likely to contemplate multiple possible manifestations of
passenger demand in the business plans used for the purpose of evaluating the
economics of a particular aircraft;
ii. LCA customers will be interested in exploring the economics of the largest possible
range of LCA options capable of effectively servicing the greatest number of possible
manifestations of contemplated demand2351; and
iii. an LCA customer's perception of, and tolerance to, the risk that its passenger
demand forecast may turn out to be incorrect will play an important role in its
purchase decision.
6.1381. In this context, it is instructive to find that "Airbus sales of the A380 lag behind original
forecasts", with "certain airlines having been reluctant to increase their capacity, as they find it
difficult to assess the risk of over -estimating passenger demand, and not being able to fill large
aircraft such as the A380". 2352 Moreover, when combined with "very volatile" fuel prices, "th e
uncertain development of passenger demand makes it difficult for airlines to assess the extent of
the advantage of the A380 in terms of fuel efficiency per seat, and the risk of its larger per -trip
costs".2353 In our view, this suggests that certain airline s today operating, or wanting to operate,
long-haul missions are unable to forecast, with a sufficient degree of certainty, the increase in
seating capacity that would be needed to make the A380 their one and only option.2354 For such
airlines, it is apparent that the demand conditions which the European Union argues would
demonstrate the absence of "significant" competition between the A380 and the 747 -8I have yet
to materialize. These general and A380 -specific features of LCA demand do not weigh in favour of
the argument that the A380's potential customers will only ever seriously consider purchasing it
for the purpose of missions that cannot also be serviced by the 747 -8I. In our view, this implies
that at present there are customers that will explore the ec onomics of both the A380 and the
747-8I for the purpose of performing comparable missions.
6.1382. The existence of an overlapping customer base for the A380 and the 747 -8I would also
appear to be consistent with the pattern of competitive interaction that drives Airbus' and Boeing's
supply decisions. We recall that Airbus and Boeing have sought to meet demand for LCA by
developing the fewest possible product lines to satisfy a wide array of requirements. In doing so,
both manufacturers have produced a comparable, but not identical, range of offerings in the
knowledge that the producer that satisfies the core performance demands of the largest number of
customers will win more sales. Inevitably, each company's strategic supply choices will reflect its
conclusion about the best placement of its products in the overall continuum of customer profiles,

2348 Supplemental Mourey Statement, (Exhibit EU-124) (BCI/HSBI), para. 91.
2349 Supplemental Mourey Statement, (Exhibit EU-124) (BCI/HSBI), para. 91.
2350 Mourey Statement, (Exhibit EU-8) (BCI), para. 152; and United States' response to Panel question
No. 61, para. 212.
2351 In other words, all things being equal, it is likely that airlines will be most interested in aircraft that
can be used to serve a range of different routes and missions.
2352 Mourey Statement, (Exhibit EU-8) (BCI), para. 145.
2353 Mourey Statement, (Exhibit EU-8) (BCI), para. 146.
2354 However, Mourey describes the lack of demand as a "temporary phenomenon" and predicts that
"the general growth in air traffic demand that has materialized over the last decade, and that continues to be
projected for the future" makes Airbus "confident that {it} will sell a large number of A380s in the years to
come". (Mourey Statement, (Exhibit EU-8) (BCI), para. 147)

relative to the products of the other company. 2355 Thus, in order to accept that the A380's relative
performance advantage over the 747 -8I places it in a monopoly market, we would have to accept
that the A380 was developed to exclusively serve a particular customer space that the 747 (or
indeed any other aircraft) could not attract.
6.1383. We note, however, that it is apparent from multiple references in the A380 Business Case
that the [***].2356 Moreover, a number of Airbus presentations since the launch of the A380
consistently promote its attributes in comparison with those of the 747. Thus, for example, in a
slide presentation titled "A380 Update: Four Years in Service", the A380's maximum take-off and
landing weights are compared to those of the 747 -400 and the 747 -8I, with the accompanying
narrative claiming "best in class" performance on the part of the A380. 2357 Two other Airbus
"update" presentations from 2011 and 2012 claim that "airlines' preferred choice"2358 and the "VLA
of choice"2359 is the A380 over the 747 -8I. The 2012 "update" also presents the number of orders
for the 747 -8I in a pie -chart used to show the "existing VLA order book", forecasting an "open
20-year demand", and ass erting that "the A380 will dominate this market". 2360 Likewise, in an
earlier Airbus presentation from 2005, the number of airports expected to be ready for the larger
A380 in 2006 and 2010 are identified in terms of the percentage of all worldwide 747 flight s that
are handled by the same airports. 2361 In our view, this information (some of which was already
raised during the original proceeding) 2362 strongly suggests that, outside of the context of this
proceeding, Airbus has consistently maintained the view that t he potential customers of the A380
will also be likely to seriously consider the 747 -8I in a segment of the LCA market that is covered
by no other aircraft.
6.1384. Finally, and in any event, it does not automatically follow from the A380's distinct
per/seat operating cost and potential revenue advantage on long -haul missions where passenger
demand is consistently above the level that can be satisfied by the 747 -8I, that airlines will not
seriously consider both aircraft as potential alternatives in a sales campai gn. It is important to
recall that the A380's per/seat operating cost and revenue advantage over the 747 -8I will
decrease the closer the expected seating capacity of a particular mission is to the maximum
seating capacity of the 747 -8I. The smaller the dif ference, the greater is the possibility that the
A380's advantage might be overcome by a combination of other factors informing a customer's
purchase decision, including price, fleet commonality and/or delivery date. 2363 All this suggests
that even on routes where it is anticipated that the required seating capacity is likely to exceed
what is offered by the 747 -8I, it may well make sense and be normal for a customer to consider
both LCA, as each will be part of a sales package having its own advantages and di sadvantages
relative to the customer's business model. Moreover, as explained by the United States:
{A} customer's best projection may be that it can fill a larger aircraft, but depending
upon the finances and risk tolerance of the customer, {it} may decid e to forgo
potential profits it could earn with a larger aircraft and instead operate a smaller

2355 See further, above, paras. 6.1219-6.1223.
2356 For example, the A380 Business Case reveals that it was expected that the project would result in
the "[***]". Thus, it was anticipated that the A380 family would "[***]. (A380 Business Case, (Exhibit
EU-20) (HSBI), pp. 5, 7, 13, and 30)
2357 "A380 Update: Four Years in Service", Airbus presentation, 15 October 2011, (Exhibit USA-353),
pp. 1-2.
2358 Richard Carcaillet, Director, Airbus A380 Product Marketing, "Product Line Update", Airbus
presentation, 2011, (Exhibit USA-340), p. 5.
2359 Richard Carcaillet, Director, Airbus A380 Product Marketing, "A380 Product Update", Airbus
presentation, October 2012, (Exhibit USA-492), p. 1.
2360 Richard Carcaillet, Director, Airbus A380 Product Marketing, "A380 Product Update", Airbus
presentation, October 2012, (Exhibit USA-492), p. 2.
2361 Andreas Sperl, Chief Financial Officer, Airbus, "Update on the A380 program", 20 June 2005,
(Exhibit USA-111), p. 4.
2362 See e.g. Appellate Body Report, EC and certain member States – Large Civil Aircraft,
paras. 1226-1227 (citing, in addition to the A380 Business Case, (Exhibit EU-20) (HSBI), the EADS Offering
Memorandum, (Exhibit EU-55)).
2363 This would also be true taking into account the allegedly better "residual value" that the A380 is
likely to have over the 747-8I. See e.g. Mourey Statement, (Exhibit EU-8) (BCI).

aircraft to ensure that it does not lose substantial amounts of money in the event
demand is weaker than projected.2364
6.1385. It follows, therefore, that even in a situa tion where a potential customer forecasts levels
of passenger demand that would bring the A380's performance advantage into play, that customer
may prefer to purchase the smaller 747 -8I, if it concludes that the risk of losing money were too
high in the event that its demand forecast proved to be overly optimistic.
6.1386. Thus, in the light of the above considerations, we find that despite some appreciable
differences in physical and performance characteristics, the A380 and 747 -8I are sufficiently
similar to be considered by airlines wanting to purchase an LCA to operate long -haul,
slot-constrained missions requiring a maximum seating capacity in excess of 400 passengers. Not
only are the two LCA the largest aircraft produced by Airbus and Boeing, but they were a lso
specifically developed to serve, at the very least, an overlapping customer base. In our view, the
fact that the A380 has an operating cost and potential revenue advantage over the 747 -8I when
the required seating capacity approaches its maximum, does not necessarily imply that it stands
alone in a product market of its own. This is because given the complicated dynamics of a
customer's purchase decision, the A380's advantage may simply reflect its ability to out-compete
the 747 -8I for customers falling within the outer -limit of the spectrum of airlines that will be
interested in exploring the economics of both LCA for the purpose of operating the particular range
of missions contemplated in their individual business plans.
Pricing constraints
6.1387. The United States submits that the existence of competition between the A380 and the
747-8I in one and the same product market is also evidenced by the pricing pressure that each
aircraft imposes upon the other.2365 The United States finds specific support for this view in certain
pieces of HSBI, which allegedly reveal Boeing's NPV analyses and pricing considerations with
respect to both aircraft in the 2007 Emirates and 2006 British Airways sales campaigns. 2366 In
addition, the United States argues that the existence of reciprocal pricing constraints follows
logically from the dynamics of sales negotiations in the LCA industry, where "companies bargain
over prices based on the best alternative to negotiated agreement (BATNA) faced by each
player".2367 Thus, as we understand it, the United States argues that because the 747 -8I will
typically be the only potential BATNA to the A380 for customers wanting to purchase an aircraft to
serve high-capacity, slot-constrained long-haul routes, it will naturally be used by those customer s
to obtain pricing concessions on the A380 (and vice versa).2368 The United States submits that this
is precisely what is recognized in the Mourey Statement, where it is stated that despite the
purported advantages of the A380 over the 747, potential custome rs will attempt to convince
Airbus that they are seriously considering the Boeing alternative in order "to put pricing pressure
on Airbus", a dynamic which Mourey states is "usually facilitated by Boeing's offering of cheap
747-8s".2369
6.1388. While the European Union accepts that the A380's presence has caused significant pricing
pressure on the 747-8I2370, the European Union denies that the 747-8I constrains Airbus' pricing of

2364 United States' response to Panel question No. 61, para. 212.
2365 United States' second written submission, para. 488; response to Panel question Nos. 53 (para. 176
(HSBI)) and 54 (para. 177); and comments on the European Union's response to Panel question No. 54.
Bair Declaration, (Exhibit USA-339) (BCI), para. 45; United States' response to Panel question Nos. 53
(para. 176 (HSBI)) and 54 (para. 177); and comments on the European Union's response to Panel question
No. 54.
2366 United States' response to Panel question Nos. 53 (para. 176 (HSBI)) and 58; [[HSBI]]
Exhibit USA-539 (HSBI); and [[HSBI]] Exhibit USA-557 (HSBI).
2367 United States' response to Panel question No. 54, para. 177; and Sanghvi Declaration,
(Exhibit USA-530), paras. 40-41. The Sanghvi Declaration explains that "each party's … BATNA is simply what
that party can assure itself of without coming to terms with the other party, so that it constitutes the lower
bound on what it must obtain in any bargain that is struck. Because even the EU's expert concedes that there
are effectively only two LCA manufacturers, the typical BATNA … to Airbus is Boeing, and vice-versa (especially
with regard to the sale of new LCA models)."
2368 United States' comments on the European Union's response to Panel question No. 54, para. 187.
2369 United States' comments on the European Union's response to Panel question No. 54, para. 187
(quoting Mourey Statement, (Exhibit EU-8) (BCI), para. 165).
2370 See e.g. European Union's second written submission, para. 693.

the A380 in any substantial way. 2371 The European Union dismisses the probative value of the
HSBI evidence relied upon by the United States with respect to the 2007 Emirates and 2006
British Airways sales campaigns, arguing that in both cases, the NPV calculations used to inform
Boeing's analysis are based on fundamentally flawed assumptions and, th ereby, depict an
erroneous picture of the competitive interaction between the two aircraft. 2372 The European Union
furthermore submits that the existence of alternatives or potential substitutes for a product
"implies nothing about the intensity of the compet itive relationship between products".2373 For the
European Union, the fact that alternative and substitute products may exist "merely begs – and
cannot answer – the question of whether particular 'alternative' aircraft exercise significant
competitive constraints on one another".2374 Thus, that the 747-8I may be the "closest alternative"
to the A380 does not, according to the European Union, reveal the degree of competition that
exists between the two products, and for this reason, it is legally and factually ins ufficient to
establish the requisite demand-side substitutability.2375
6.1389. Similarly, the European Union maintains that the simple fact that Airbus might decide to
offer price concessions on the A380 in a sales campaign where Boeing has also offered the 747 -8I
does not necessarily imply the existence of price competition with the 747 -8I, as some [***] will
always be granted in a sales negotiation, irrespective of whether [***].2376 In this regard, the
European Union notes that, contrary to what would normally be exp ected in a relationship of
significant price competition, the availability of the 747-8I has not resulted in [***].2377
6.1390. We agree with the European Union that the mere fact that one aircraft may be an
"alternative" to another for the purpose of flying the sam e missions says little about the degree of
competition that exists between those aircraft. However, given that the only two aircraft in the
LCA industry capable of carrying more than 400 passengers on long -haul missions are the A380
and the 747-8I, it is d ifficult to disagree with the proposition that airlines looking for aircraft with
such qualities will explore the economics of both offerings, including by seeking to obtain price
concessions from Airbus and Boeing and, more generally, by playing one aircr aft package off the
other in negotiations with the two manufacturers. While the European Union asserts that this
dynamic may not be the reason why Airbus would offer price concessions in sales campaigns
involving the A380, it does not argue that Boeing's pricing of the 747-8I will never impact the level
of price concessions granted on the A380. Likewise, the Mourey Statement does not deny that the
pricing of the 747 -8I may affect the concessions offered by Airbus on price of the A380. Rather,
the Mourey Statement simply declares that Boeing's pricing of the 747 -8 would never be enough
to "convince an airline that needs an aircraft of the size of the A380 to switch and go for a
sub-optimal aircraft".2378
6.1391. Turning to the NPV analyses and pricing considerations fo und in the HSBI evidence
concerning the 2007 Emirates and 2006 British Airways sales campaigns, we agree with the
European Union that certain of the assumptions used in Boeing's NPV calculations appear to favour
the 747-8I over the A380, in the sense that they determine the potential economic values of the
two aircraft on the basis of data that brings to light the relative strengths of the Boeing offering
over the A380. Naturally, the use of these assumptions also impacts the price concessions
considered in the analyses for the purpose of understanding the level of pricing that could
potentially render the choice of one aircraft superior to the other. It is apparent, however, that the
analyses contained in the United States' HSBI exhibits were, in fact, prep ared contemporaneously
with Boeing's participation in the two sales campaigns and, to this extent, used to inform Boeing's

2371 European Union's first written submission, para. 631; second written submission, para. 693;
response to Panel question No. 54, para. 258 and fn 434; and comments on the United States' response to
Panel question No. 54, para. 392.
2372 European Union's comments on the United States' response to Panel question Nos. 53 and 58
(HSBI).
2373 European Union's comments on the United States' response to Panel question No. 54, para. 394.
2374 European Union's comments on the United States' response to Panel question No. 54, paras. 281
and 394.
2375 European Union's comments on the United States' response to Panel question No. 53,
paras. 381-382.
2376 European Union's first written submission, para. 629; and Mourey Statement, (Exhibit EU-8) (BCI),
para. 166.
2377 European Union's first written submission, para. 631; and Indexed A380 Revenue Evolution,
2001-2011, (Exhibit EU-75) (BCI).
2378 Mourey Statement, (Exhibit EU-8) (BCI), para. 165.

own internal decision -making. Moreover, parts of the HSBI evidence relating to the Emirates
campaign reveal that certain of the assum ptions the European Union complains about were used
because Emirates had apparently indicated that it would be willing to consider them. 2379
Nonetheless, there is nothing before us to suggest that the two analyses exhausted Boeing's
considerations in both campaigns. Likewise, there is no indication as to whether Boeing considered
the assumptions used in its NPV calculations to reflect the most probable mission scenarios for its
potential customers. In this light, we see the HSBI evidence relied upon by the Uni ted States to
represent no more than Boeing's view that at a certain point in time during the 2007 Emirates and
2006 British Airways sales campaigns, [***].
6.1392. As it did with respect to a range of pairings of Airbus and Boeing twin -aisle aircraft, the
European Union has submitted its own NPV analyses of the A380 and the 747 -8I, specifically
prepared and presented in the Supplemental Mourey Statement for the purpose of this dispute.
The Supplemental Mourey Statement's analyses calculate the NPVs of the cost an d revenue
streams of each aircraft when used in a "typical" configuration to fly a route of 6000nm over 15
years, applying a 75% load factor, in the light of a set of seven operating assumptions that are all
HSBI.2380 The European Union submits that the resul ts of this NPV comparison show that on "any
mission where the greater capacity of the A380 is justified" 2381, the A380 has an NPV advantage
over the 747 -8I that is "so immense that it would be infeasible for Boeing to offset it with price
discounts, and thereby induce customers not to select the A380".2382
6.1393. The United States criticizes the European Union's A380 and 747-8I NPV analyses on much
the same grounds that it used to criticize the other NPV analyses presented by the European Union
in this dispute, namely, that they: (a) fail to account for aircraft prices and a number of non-price
factors that regularly drive an airline's purchase decision; (b) apply certain operating assumptions
without explanation or justification; and (c) ignore the fact that the LCA mar ket has already been
distorted by the subsidies at issue in this proceeding. 2383 Likewise, the European Union's response
to the United States' criticism mirrors that which we have described elsewhere in this Report. 2384
We incorporate our prior discussion and ev aluation of the parties' arguments on these points
mutatis mutandis into this section of our Report.
6.1394. Thus, not unlike the conclusions we have reached with respect to the NPV analyses
presented for other pairings of aircraft, we find that the NPV compariso n analysis conducted in the
Supplemental Mourey Statement for the A380 and 747-8I fails to demonstrate that the two aircraft
do not compete with one another in the same product market. In our view, all that the NPV
analyses ultimately demonstrate is that, excluding price, fleet commonality, delivery date and
other factors that might be potentially relevant to a customer's purchase decision, the A380 will
have a significant operating cost and revenue advantage over the 747 -8I on missions where the
latter can not satisfy the demand for seating capacity, which demand can only be met by one
aircraft in the LCA industry – the A380. For the reasons we have already explained, we are not
convinced that this advantage can alone demonstrate that the A380 and the 747 -8I do not
compete in one and the same product market.
6.1395. Finally, the European Union also argues that the fact that [***] evidences a lack of
[***] from the 747-8I. In our view, however, there are at least two reasons to suggest that this
may not necessarily be the case: first, our understanding is that [***]; and second, because, in
any case, the existence of pricing pressure may be demonstrated not only by evidence of [***].
The evidence the European Union has presented reveals nothing about whether or not the latter
has taken place.

2379 [[HSBI]] Exhibit USA-247 (HSBI), pp. 2-3. However, no such evidence has been presented to
suggest that the same was also true with respect to the British Airways campaign.
2380 European Union's response to Panel question No. 53, para. 254; and Supplemental Mourey
Statement, (Exhibit EU-124) (BCI/HSBI), para. 71.
2381 European Union's response to Panel question No. 53, para. 255.
2382 European Union's second written submission, para. 693.
2383 United States' response to Panel question No. 61, paras. 205-225.
2384 See above paras. 6.1256-6.1275 and 6.1342-6.1345.

Sales campaigns
6.1396. The United States has also specifically argued that the existence of demand -side
substitution and effective competition between the 747 -8I and the A380 is substantiated by
evidence from the Emirates, Hong Kong Airli nes, Asiana Airlines and Skymark sales campaigns
which resulted in the respective airlines ordering 71 A380s between 2007 and 2012. 2385 For each
of these sales campaigns, the United States submits HSBI evidence of Boeing's negotiating
strategy, including value and pricing considerations, which the United States argues demonstrates
that the A380 and the 747-8I actively competed against each other to win the relevant sales.2386
6.1397. As it did in relation to the United States' arguments concerning the relevance of sales
campaign evidence for the purpose of demonstrating the existence of the twin -aisle product
market, the European Union argues that evidence showing that two aircraft were present or
offered in a particular sales campaign is legally and factually insufficie nt to establish general
demand-side substitutability. Thus, according to the European Union, before coming to any
conclusions about the demand -side substitutability of two or more aircraft presented in a sales
campaign, it would be necessary to conduct a d etailed examination of the underlying reasons for a
purchase decision so that the competitive dynamic between the relevant products may be
considered in its proper context. For the European Union, therefore, sales campaign evidence must
be considered cauti ously, and ultimately used "solely as confirmation of a product market
delineation made on the basis of other, including quantitative, evidence".2387
6.1398. More specifically, the European Union maintains that the HSBI evidence advanced by the
United States with re spect to the Emirates sales campaign is unreliable or, in any case,
inconsistent with the existence of competition between the A380 and the 747 -8I, because it is
based on flawed assumptions and/or inaccurately described in the United States' submissions.2388
As regards the Asiana Airlines campaign, the European Union argues that information specific to
Boeing's considerations that is revealed in the United States' HSBI evidence shows that the 747-8I
could not compete with the A380. In any case, the European Union argues that evidence of
Boeing's view about the degree of competition between the two aircraft in the Asiana Airlines sales
campaign is insufficient to establish the requisite degree of demand -side substitutability. 2389
Likewise, the European Union argues that the United States' HSBI evidence concerning the
Hong Kong Airlines campaign is also unreliable because it reveals nothing about the customer's
views concerning the substitutability of the A380 and the 747 -8I.2390 Moreover, as with the Asiana
Airlines campaign, the European Union submits that the HSBI evidence of Boeing's considerations
in the Hong Kong Airlines campaign highlight the superiority of the A380 over the 747 -8I, implying
that the two aircraft do not fall within the same product market. 2391 Finally, the European Union
argues that the United States' HSBI evidence concerning the Skymark campaign is incomplete and
cannot, therefore, substantiate the entirety of the United States' assertions. Moreover, the
European Union maintains that the HSBI eviden ce the United States did, in fact, submit is not
informative and, when properly considered, only shows the extent to which the A380 is a superior
aircraft to the 747-8I.2392
6.1399. As already explained, we do not share the European Union's reservations concerning th e
probative value of sales campaign evidence the United States relies upon. In our view, evidence of
the participation of both Airbus and Boeing in a particular airline's sales campaign would strongly
suggest that a customer's ultimate purchase decision wi ll be informed by its consideration of the

2385 United States' first written submission, paras. 483-486 and 493-503; and response to Panel
question No. 49.
2386 United States' response to Panel question Nos. 49, 50, and 53; [[HSBI]] Exhibit USA-539 (HSBI);
[[HSBI]] Exhibit USA-540 (HSBI); [[HSBI]] Exhibit USA-541 (HSBI); and [[HSBI]] Exhibit USA-542 (HSBI).
2387 European Union's response to Panel question No. 55, paras. 259 and 264; and comments on the
United States' response to Panel question No. 53.
2388 European Union's second written submission, paras. 1492-1494; comments on the United States'
2389 European Union's comments on the United States' response to Panel question No. 63,
paras. 519-520.
2390 European Union's comments on the United States' response to Panel question Nos. 63, paras. 66,
522, and 555.
2391 European Union's comments on the United States' response to Panel question No. 63, para. 523.
2392 European Union's comments on the United States' response to Panel question No. 63,
paras. 524-526.

relative strengths and weaknesses of either company's respective offerings. Similarly, while we
accept that Boeing's own views about the degree of competition between the A380 and the 747 -8I
in a relevant sales ca mpaign cannot, alone, demonstrate the existence of demand -side
substitutability, we do believe that such views, when expressed in the context of analyses and/or
statements made contemporaneously with a particular sales campaign, will be highly relevant to
our task of identifying relevant product markets.2393
6.1400. Turning to the specific sales campaigns at issue, we note that it is apparent from the
United States' HSBI evidence, that Boeing offered the 747-8I as an alternative to the A380 to each
of the relevant air lines. The same evidence reveals that Boeing framed its negotiating strategy,
economic valuations and pricing considerations in the context of its own expectations about the
likely advantages and disadvantages of the A380 to each of those airlines. Thus, the United States'
HSBI evidence clearly shows that Boeing not only saw an opportunity to sell the 747 -8I to each of
the relevant airlines, but also that it would have to compete with the A380 to win those sales.
These contemporaneous views about the existe nce of active competition between the A380 and
the 747 -8I are consistent with the evidence we have reviewed about Airbus' own original and
current expectations (outside of this proceeding) for the A380's placement in the LCA market.2394
6.1401. The European Union doe s not question the authenticity of the United States' HSBI
evidence, but only the fairness and accuracy of the analyses undertaken by Boeing or the
conclusions that can be drawn from Boeing's statements and considerations with respect to the
degree of comp etition that actually exists between the A380 and the 747 -8I. Thus, the
European Union does not dispute that Boeing genuinely offered the 747 -8I with the intention of
winning sales against the A380. In our view, when considered in the light of the consider ations we
have expressed in the previous paragraph, this fact strongly suggests that the relevant airlines
must have been seriously interested in exploring the value of both company's offerings in each of
the sales campaigns. In any event, we are not convi nced by the European Union's specific
criticisms of the United States' HSBI evidence. As we have previously explained, parts of the HSBI
evidence relating to the Emirates sales campaign reveal that certain of the assumptions the
European Union complains ab out were used because Emirates had apparently indicated that it
would be willing to consider them. 2395 This suggests that this aspect of Boeing's analysis was not
contrived to achieve a skewed outcome, but rather driven by the demands of the potential
customer. Moreover, contrary to the European Union, we do not believe that the superior value
proposition to a customer of one LCA over another necessarily signals the absence of competition.
Thus, even assuming that the European Union were correct in arguing that the United States' HSBI
evidence relating to the Asiana Airlines, Hong Kong Airlines and Skymark sales campaigns
confirms the superior value proposition of the A380, this would not necessarily mean that it did not
compete for those sales with the 747 -8I. As we see it, such evidence might simply reflect the fact
that the A380 was better placed to win the competition against the 747-8I for those sales.
6.1402. That the 747-8I and the A380 regularly compete for the same customers finds additional
support in the Qant as and British Airways sales campaigns that resulted in the order of 20 A380s
in 2006 and 2007. In our view, the arguments and evidence the United States has advanced with
respect to these orders clearly demonstrate that Qantas and British Airways seriousl y considered
both Airbus and Boeing offerings to be in active competition for their sales.2396 The European Union
does not contest the existence of competition between the A380 and the 747 -8I in these sales
campaigns. Rather, as it does with respect to the ab ove-mentioned A380 orders made by
Emirates, Asiana Airlines, Hong Kong Airlines and Skymark, the European Union maintains that the
United States' submissions reveal only that the 747 -8I and the A380 were one another's "best
alternatives", without demonstra ting that they exercised "significant competitive constraints" on

2393 We recall that it is the practice of the European Commission to take such evidence into account in its
own product market determinations for the purpose of competition policy. See above paras. 6.1207 and
6.1236.
2394 See above para. 6.1383.
2395 See above para. 6.1391.
2396 United States' response to Panel question Nos. 58 (paras. 190-191) and 67 (paras. 304 and
307-308); EADS Press Release, "Qantas signs firm order for eight additional A380s", 21 December 2006,
(Exhibit USA-246); EADS Press Release, "British Airways to buy 12 Airbus A380 aircraft for long haul fleet",
27 September 2007, (Exhibit USA-256); Angela Jameson, "Boeing and Airbus in BA fleet dogfight", The Times,
18 October 2006, (Exhibit USA-257); Pete Harrison and Jason Neely, "British Airways ditches Boeing jumbo for
Airbus A380", Reuters, published in USA Today, 27 September 2007, (Exhibit USA-259); [[HSBI]]
Exhibit USA-258 (HSBI); [[HSBI]] Exhibit USA-548 (HSBI); and [[HSBI]] Exhibit USA-557 (HSBI).

each other.2397 We recall, however, that for reasons previously explained, the European Union's
position with respect to the requisite degree of competition needed to show that two products fal l
within the same product market finds no support in the guidance provided by the Appellate Body
in the original proceeding, nor in the text of the SCM Agreement.2398 Moreover, in at least one of
above sales campaigns, Airbus appears to have explicitly recogn ized the existence of "intense"
competitive pressure, with its then -CEO, Tom Enders, describing the British Airways sales
campaign as having involved "an intensive year -long competitive evaluation". 2399 Furthermore, it
was reported in the press that in order to win the British Airways orders, Airbus was compelled to
offer significant price discounts:
Analysts said BA had probably received significant discounts as Boeing and Airbus
battled for the high-profile orders.
"With the A380 likely to have been heavily discounted, and a reasonable discount on
24 787s also applied, we'd estimate the real value of the order at around 3 billion
pounds ($6 billion)", said analyst Andrew Fitchie at Collins Stewart.
{British Airways Chief Executive, Willie} Walsh declined to d iscuss discounts, which
are common in the industry, but said: "I'm very pleased with the way Boeing and
Airbus approached this".2400
6.1403. We find the British Airways order also particularly instructive because it represented the
first time that British Airways had selected an Airbus aircraft over a Boeing for the purpose of
operating long-haul routes. In other words, British Airways chose the A380 over the 747 -8I to fly
routes that were previously flown by its older fleet of 747s, routes which could today be equall y
serviced by both the 747 -8I and the A380 whenever demand conditions did not exceed the
maximum seating capacity of the Boeing offering.
6.1404. Finally, the European Union submits that evidence from a number of sales campaigns
where airlines purchased small qua ntities of both the A380 and the 747 -8I, confirms that the two
LCA products are not interchangeable, and therefore, in different product markets. In particular,
the European Union refers to: (a) the orders made by Transaero within the space of two months i n
2011 for four A380s and four 747 -8Is; (b) the Korean Air A380 and 747 -8I orders made in 2008
and 2009; and (c) the 2006 Lufthansa order for 20 747 -8Is, which closely followed an order for
the A380.2401 According to the European Union, it would "make little sense" for these airlines to
have purchased both aircraft within such a short period of time if they were considered to be
interchangeable. Thus, the European Union concludes that "these purchases suggest that the
airlines view the aircraft as serving diff erent roles in their fleets – and, thus, as not
substitutable".2402
6.1405. While we agree with the European Union that the evidence before us suggests that the
three airlines purchased the A380 and the 747 -8I to fill different capacity segments of their
operations, we do not believe that this alone implies that the two LCA were sold to each customer
in the absence of effective competition. The A380 and the 747 -8I are not perfect substitutes. That
the A380 and the 747 -8I may have been ordered to serve different missio ns might therefore be
explained by the fact that they are differentiated products with their own relative strengths and
weaknesses depending upon the particular mission. Again, as we have stated already on a number
of occasions, the fact that one LCA will have a superior economic value to another under certain
demand conditions, does not render it impervious to competition. One aircraft's economic

2397 European Union's comments on the United States' response to Panel question No. 67,
paras. 572-577.
2398 See above paras. 6.1209-6.1212.
2399 EADS Press Release, "British Airways to buy 12 Airbus A380 aircraft for long haul fleet",
27 September 2007, (Exhibit USA-256).
2400 Pete Harrison and Jason Neely, "British Airways ditches Boeing jumbo for Airbus A380", Reuters,
published in USA Today, 27 September 2007, (Exhibit USA-259).
2401 European Union's response to Panel question No. 55, fn 440 (citing information and statements
made and reported in Boeing Press Release, "Korean Air Announce Order for New 747-8 Intercontinental",
4 December 2009, (Exhibit EU-322); and "Lufthansa orders Airbus, Boeing jets", Reuters, 6 December 2006,
(Exhibit EU-360)).
2402 European Union's response to Panel question No. 55, para. 263.

advantage over another might simply reflect that it is better placed to win the competition for
sales between t wo imperfectly substitutable products. Thus, the evidence and argument the
European Union has advanced with respect to the Transaero, Korean Air and Lufthansa orders of
both A380s and 747 -8Is are not necessarily inconsistent with finding that the two produ cts fall
within the same product market.
Conclusion with respect to the alleged product market for VLA
6.1406. We recall that the essential point of disagreement between the parties as to whether the
A380 and the 747-8I should be considered to fall within the sam e product market for the purpose
of this compliance dispute is centred on the conclusions that can be drawn about the degree of
demand-side substitutability that exists between the two products as a result of their relative
performance advantages. Our care ful consideration of the parties' positions leads us to conclude
that the United States has satisfied its burden of demonstrating that, for the purpose of this
dispute, both the A380 and 747-8I may be considered to compete against each other in one single
product market for VLA – a market space that is characterized by long -haul, slot -constrained
missions requiring a carrying capacity that is generally above that which can be offered by other
twin-aisle LCA, and therefore in excess of 400 passengers. We come to this conclusion on the basis
of all of the above considerations, which we summarize as follows.
6.1407. First, the A380 and 747 -8I are the largest civil aircraft produced by Airbus and Boeing,
and can both be generally used to cover the same long -haul routes.2403 While the A380's larger
seating capacity and relatively modern technologies means that it has a per/seat operating cost
and revenue advantage over the 747 -8I, this advantage will decrease the closer the expected
seating capacity of a particular mission i s to the maximum seating capacity of the 747 -8I. The
smaller the difference, the greater is the possibility that the A380's advantage might be overcome
by a combination of other factors informing a customer's purchase decision, including price, fleet
commonality and/or delivery date.2404 Thus, it is apparent from the conditions of competition in the
LCA industry that the A380 and the 747 -8I will have a potential customer base that will include
airlines with mission requirements that overlap the capabilities of the two aircraft. 2405 Therefore,
contrary to the European Union, we do not see the A380's operating cost and revenue advantage
over the 747 -8I on missions where passenger capacity is close to its maximum to demonstrate
that it is sold in its own monopoly market. Rather, to the extent that the A380's advantage may be
determinative in a particular sale, we believe that it shows how Airbus will be better positioned to
win the competition against Boeing for a potential customer falling within the outer -limit of t he
spectrum of airlines that will be interested in exploring the economics of both aircraft for the
purpose of operating the range of long-haul missions contemplated in its business plan.
6.1408. Second, as the only two aircraft capable of flying well over 400 pa ssengers on long-haul
routes, it is difficult to believe that airlines interested in purchasing LCA with capabilities such as
those of the A380 and the 747 -8I would not try to negotiate and obtain price discounts from
Airbus and Boeing on the basis of the strength of each company's respective sales offer, even
when the superiority of one aircraft over the other may be relatively apparent. The
European Union does not deny that the A380 faces a degree of pricing pressure from the 747 -8I;
but for the European Union, any such pressure does not constrain Airbus' competitive behaviour
vis-à-vis potential customers looking for an aircraft with a maximum seating capacity that
approaches that of the A380. As already noted, however, the characteristics of LCA demand a nd
supply suggest that the A380's potential customer base will be larger than simply airlines wanting
to fly 525 passengers on long -haul missions. In any case, the fact that Airbus may face relatively
less pricing pressure from the 747 -8I when a potential customer is looking for an LCA with a
seating capacity that approximates the maximum capacity of the A380 does not necessarily signal
the absence of reciprocal pricing constraints. Rather, as we see it, such a situation might simply
reflect what could be e xpected to occur naturally in a market for differentiated products that are
imperfect substitutes. Indeed, given that there will be a range of customer demands for LCA with a
passenger capacity exceeding 400 seats, one would expect to find differing degree s of reciprocal
pricing constraints between the A380 and the 747 -8I, depending upon how close a particular
customer's needs reflect the relative advantage of one aircraft over the other. At either end of this

2403 See above para. 6.1378.
2404 See above para. 6.1384.
2405 See above paras. 6.1379-6.1383.

range of customer needs, one aircraft will impo se greater pricing pressure on the other. However,
this does not imply the absence of competition, but only that the competitive constraints imposed
by one LCA on the other will be more or less intense depending upon which product more closely
satisfies the relevant needs of a potential customer.
6.1409. Finally, although we have no evidence before us of actual customer evaluations of the
economics of the A380 and the 747 -8I, the United States' HSBI evidence of Boeing's analysis of
the competitive interaction between the two aircraft in the 2007 Emirates and 2006 British Airways
sales campaigns suggests that, according to Boeing, at a certain point in time during those
campaigns, [***]. This is consistent with not only the evidence showing that Airbus considered
competition for the British Airways' sales to be "intense", but also the evidence we have reviewed
from four other sales campaigns (Asiana Airlines, Hong Kong Airlines, Skymark and Qantas), in
which it is apparent that Boeing presented the 747 -8I as an alternative to the A380 with a view to
winning sales from the relevant customers. Furthermore, that the A380 and the 747 -8I will
generally compete for the same potential customers also finds support in the multiple references
made in a number of different Airbu s documents, not specifically prepared for the purpose of this
proceeding, which suggest that Airbus has consistently maintained the view that the A380's
potential customer base will overlap 747 -8I in a segment of the LCA market that is filled by no
other aircraft.
6.1410. Thus, for all of the above reasons, we find that the United States has established that, for
the purpose of evaluating its claims of serious prejudice under Article 6.3 of the SCM Agreement,
the A380 and 747 -8I may be considered to compete agains t each other in one single product
market for VLA. We note that this conclusion reflects the Appellate Body's explicit confirmation of
the original panel's finding that "there is competition between the Airbus A380 and the Boeing 747
and that Airbus and Boeing competed for the Emirates" Airlines A380 orders in 2000.2406
Overall conclusion with respect to the existence of three separate product markets for
passenger LCA
6.1411. In this section of our Report, we have found that the United States has demonstrated
that it would be appropriate to evaluate the merits of its claims of serious prejudice in this
compliance dispute on the basis of the following three separate product markets: (a) the product
market for single-aisle aircraft in which Airbus and Boeing sell the A320neo, A320ceo, 737MAX and
737ng families of LCA; (b) the product market for twin -aisle aircraft in which Airbus and Boeing
sell the A330, A350XWB, 767, 777 and 787 families of LCA; and (c) the product market for VLA in
which Airbus and Boeing sell the A380 and the 747.
6.1412. In coming to this conclusion, we have explained how the LCA industry today continues to
be an effective Airbus -Boeing duopoly, with each producer having a comparable range of aircraft
to offer potential customers, and where competition take s place between these two players at
different levels, including with respect to price, technology and the timing and availability of new
and improved aircraft in line with their responses to the complex, constantly evolving and often
idiosyncratic nature of aircraft demand. From the perspective of aircraft customers, there are no
perfect substitutes within this competitive landscape, only different degrees of imperfect
substitution. Finding exactly where to draw a line between these relationships in order to define
the precise boundaries within which relevant "product markets" may exist poses a number of
significant evidentiary and conceptual challenges.2407
6.1413. Throughout this proceeding, the European Union has emphasized that its objection to the
United States' delineation of three product markets does not mean that it considers there is only

2406 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1227-1228.
2407 See discussion above at paras. 6.1185-6.1189 where inter alia, we note that the European Union
has itself recognized the difficulties associated with trying to divide the continuum of competitive relationships
that exist between differentiated products into one or more separate product markets, stating in its submission
to the 2012 OECD Competition Committee Roundtable on Market Definition that:

While much has been written in the academic literature on how best to define markets, the fact
is that in many differentiated product industries, there is no clearly right way to draw boundaries
that are not to some extent inevitably arbitrary.

very minimal competition between Airbus and Boeing. On the contrary, according to the
European Union, the vast majority of LCA orders are for aircraft that compete in three of the six
(or seven) product markets it advances, with 87% of sales in the period 2007-2012 (92% in 2012)
being for aircraft which the European Union alleges face significant competitive constraints from an
aircraft of the other airframe manufacturer, namely, the 737NG and A320ceo families, the 737MAX
and A320neo families, and the 787 and A350XWB families. 2408 The European Union does not deny
that differing degrees of less -than-vigorous competition exist between other combinations of
Airbus and Boeing aircraft or that, in some cases, an LCA product of one manufacturer may impose
significant competitive constraints on another LCA product without having to face any or the same
level of competitive constraint from that product itself. Thus, for example, the Euro pean Union
accepts that there is at present "limited" or "very little" competition between the new and current
generations of Airbus and Boeing single -aisle and twin-aisle aircraft, respectively2409; that there is
"little" or "weak" competition between the A330 and all three families of Boeing twin-aisle LCA2410;
and that there is "very limited" or "very weak" competition between the A380 and the 747-8.2411
6.1414. While we do not agree with the entirety of the European Union's assertions concerning
the degree of competiti on that exists between these and other combinations of Airbus and Boeing
LCA, it is apparent that, ultimately, the European Union's objection to the three product markets
advanced by the United States is based on its view that two products can only ever be found to fall
within the same product "market", within the meaning of Article 6.3(a), (b) and (c) of the
SCM Agreement, when they impose significant competitive constraints on each other.2412 However,
as explained above, we do not understand the Appellate Body to have made any conclusive
statements or findings in the original proceeding on the requisite degree or intensity of competition
for this purpose. 2413 Moreover, we recall that even in the context of competition policy, decisions
about whether an existing competitive constraint is sufficiently strong enough to find that two
products fall within the same product market will at times need to account for the extent to which
existing competitive relationships may have been distorted by subsidization. An existin g
competitive constraint that is weak may appear to be stronger when the effects of subsidization
are taken into account.2414
6.1415. In any case, we see no textual basis to interpret the word "market" that appears in
Article 6.3(a), (b) and (c) of the SCM Agreement in a way that would mean that "serious
prejudice" could only ever be found to exist in the context of product markets where there is
vigorous ("significant" or "close") competition , as opposed to markets where competition between
products is relatively we ak or, in certain circumstances, even markets where strong competitive
constraints are imposed by one product on one or more other products, which themselves impose
little, if any, competitive constraint on the stronger competitor. Accepting the European Union's
contentions about the degree or intensity of competition that must exist in order to establish that
two products fall within the same product market would imply that the adverse effects of a subsidy
that transforms an otherwise vigorous competitive relationship into one of no competition at all or
competition that is insignificant could never be addressed under the disciplines of Articles 5 and 6
of the SCM Agreement; and WTO Members would be left without a remedy under the
SCM Agreement against the use of subsidies to marginalize or completely eradicate the ability of a
like product to compete in international trade.
6.1416. In the light of these and other considerations, our careful assessment of the extensive
arguments and evidence submitted by the parties , including multiple expert reports and HSBI

2408 European Union's response to Panel question Nos. 48, 49, 54, and 71; and comments on the
United States' response to Panel question Nos. 48, 63, and 64.
2409 European Union's first written submission, paras. 491, 602, 604, and 718; second written
submission, paras. 636, 639, and 677; Mourey Statement, (Exhibit EU-8) (BCI), para. 82; and Supplemental
Mourey Statement, (Exhibit EU-124) (BCI/HSBI), paras. 10, 13, 19 and 22.
2410 European Union's first written submission, para. 860; Supplemental Mourey Statement, (Exhibit
EU-124) (BCI/HSBI), paras. 10, 26, 35, 43, 50-51, and 60.
2411 European Union's first written submission, para. 629; second written submission, para. 690;
response to Panel question No. 58; Mourey Statement, (Exhibit EU-8) (BCI), para. 176; and Supplemental
Mourey Statement, (Exhibit EU-124) (BCI/HSBI), para. 65.
2412 See e.g. European Union's first written submission, para. 580; and response to Panel question
No. 50.
2413 See above paras. 6.1209-6.1211.
2414 The error that would arise in the absence of accounting for such distortive effects of subsidies is
known in competition policy as the "reverse cellophane fallacy". See above paras. 6.1190-6.1203.

concerning marketing strategies and sales campaigns, leads us to conclude that it would be
appropriate to examine the United States' claims of serious prejudice on the basis of the three
separate product markets we have identified above. We wish to emphasize, however, that in
making this finding, it is not our view that the degree of competition existing within each of these
markets will be identical between all pairings or combinations of aircraft. There will be weaker and
stronger competitive relationships within each market depending upon the particular
circumstances of a sale. Moreover, important competitive relationships may also exist between
pairings or combinations of aircraft across two, or even all three, of the product markets.2415 Thus,
while it is apparent that the three product markets the United States has chosen to rely upon to
bring its complaint of non -compliance do not exhaustively capture how competition takes place
between aircraft in the LCA sect or at all times, we are satisfied that at present (as in the original
proceeding)2416 they represent the three segments within which most competitive interactions
between the relevant aircraft will commonly take place.
6.1417. We now proceed to evaluate the merits of the United States' submissions concerning the
alleged present-day effects of the challenged subsidies in the three relevant product markets.
6.6.4.5 The effects of the challenged subsidies
6.6.4.5.1 Arguments of the United States
6.1418. The United States argues that the European Union's 36 alleged compliance "steps" lay out
"an 'inaction plan'"2417 that, for the most part, relies upon formalities, legal arguments concerning
the passage of time and events from the past that did not preclude the panel and the
Appellate Body from making findings of adverse effects in the original proceeding. According to the
United States, the European Union's predominantly "passive" approach to compliance does nothing
to remove the adverse effects caused by the use of subsidies because it fails to addr ess the
profound supply -creating effects of the challenged subsidies, which continue to endure in the
post-implementation period, causing serious prejudice to the United States' interests within the
meaning of Article 6.3(a), (b) and (c) of the SCM Agreement.2418
6.1419. The United States submits that in conducting its analysis of these alleged effects, the
Panel should proceed in the same way that it did in the original proceeding, that is, by:
(a) aggregating the effects of all of the challenged LA/MSF subsidies and determining the extent to
which they are a "genuine and substantial" cause of the claimed instances of serious prejudice;
and (b) determining the extent to which the effects of the other non -LA/MSF subsidies
"complement and supplement" the effects of the LA/MSF subsidies. 2419 According to the
United States, these determinations should be made on the basis of a "unitary" analysis of
causation that applies a counterfactual focused on understanding what the market situation would
look like in the relevant reference period "but for" the effects of the challenged subsidies.
6.1420. The United States recalls that the adopted panel and Appellate Body findings confirmed
that the aggregated effects of LA/MSF enabled Airbus to launch and bring to market a full range of
LCA pr oducts at a time and in a manner that would otherwise have been impossible, thereby
profoundly affecting Airbus' ability to compete with the United States' LCA industry in the

2415 It is asserted in the Mourey Statement that the 747-8 may sometimes face competition from the
smaller, but more "efficient", 777-300ER, as well as the A350XWB-1000. (Mourey Statement, (Exhibit EU-8)
(BCI), paras. 152-176). According to the United States, there is "relatively little record evidence of substitution
between single-aisle and twin-aisle LCA, or between twin-aisle LCA and very large LCA". (United States'
response to Panel question No. 50). We note that different combinations of aircraft might also be sold in
bundles, in this way competing with each other across two or even all three of the product markets.
2416 We recall that during the original Appellate Body proceeding, the parties appeared to accept (or at
least did not object to the notion) that competition in the LCA industry could be viewed as taking place in three
distinct passenger aircraft product markets, namely, the single-aisle, twin-aisle and VLA markets. The
Appellate Body went on to "complete the analysis" on the basis of the same three product markets. See
discussion above, paras. 6.1157 and 6.1162-6.1167.
2417 United States' first written submission, para. 257.
2418 United States' first written submission, paras. 240-289 and 317-532; second written submission,
paras. 357-403 and 494-747; response to Panel question Nos. 38-44, 154-159, and 162; and comments on
the European Union's response to Panel question Nos. 38-39, 45-47, 147-153, and 157-159.
2419 United States' first written submission, paras. 282-284; second written submission, paras. 383-386;
and response to Panel question No. 38.

2001-2006 reference period. The United States emphasizes that these findings led the panel and
Appellate Body to conclude that the very design, structure and operation of LA/MSF made it likely
that Airbus would not have existed at all in the 2001 -2006 reference period in the absence of
LA/MSF and, therefore, that the LA/MSF subsidies were a "genuine and substantial" cause of
various forms of serious prejudice to the United States' interests. 2420 In this light, the
United States maintains that the European Union's alleged failure to take any steps to eliminate
the "product effects" of LA/M SF means that the same effects of LA/MSF have endured to the
present day, with Airbus' product offering still being composed of LCA models that the panel and
the Appellate Body found in the original proceeding could not have been launched and brought to
market without LA/MSF.
6.1421. Similarly, the United States argues that Airbus' newest model of LCA, the A350XWB,
could not have been launched and/or developed as and when it was in the absence of LA/MSF
because the programme could not have been viable or otherwise funded by Airbus without the
provision of LA/MSF in [***] and [***], and/or in any case, the significant learning and financial
effects of the pre -A350XWB LA/MSF subsidies. In particular, the United States maintains that the
conclusion of the A350XWB LA/MSF contracts after December 2006 does not imply that Airbus did
not need the government subsidies to launch and/or develop the programme, as the formalization
of LA/MSF agreements months or a few years after a programme's commercial launch is not
unusual, and follows a similar pattern to the provision of prior LA/MSF. Moreover, according to the
United States, evidence shows that the European Union member States had committed to
providing A350XWB LA/MSF before it was launched. In any case, the United States submits that
both from a technical and financial perspective, Airbus could not have launched and brought the
A350XWB to market in the absence of inter alia the experience Airbus gained in designing,
developing, managing and producing all of its other model s of LCA that would likely not have
existed without the pre-A350XWB LA/MSF subsidies.2421 Thus, the United States argues that there
is no basis to find that Airbus could have developed, produced and sold the full range of LCA that it
currently offers in the absence of the challenged LA/MSF subsidies.2422
6.1422. The United States rejects the European Union's contention that the effects of the
challenged subsidies have dissipated through the passage of time, recalling that the
Appellate Body explained in US – Upland Cotton (Article 21.5 – Brazil) that a Member charged with
complying with Article 7.8 of the SCM Agreement "would normally 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 wil l dissipate on their own". 2423 According to the United States, the European Union's
reliance on the passage of time fails to come to terms with the long-lasting and profound effects of
the LA/MSF subsidies, without which the panel and Appellate Body in the original proceeding found
that it would be likely that Airbus would not exist.2424
6.1423. The United States also disagrees with the European Union's view that certain post -launch
investments in the A320 and A330 have eliminated the "genuine and substantial" causal
relationship between the challenged LA/MSF subsidies and the claimed instances of serious
prejudice.2425 The United States argues, inter alia, that the incremental improvements in the two
models that were funded by post -launch investments were only possible beca use of the effects of
the WTO-inconsistent subsidies that enabled Airbus to develop and bring to market the original
A320 and A330 in the first place. 2426 In any case, the United States maintains that the aircraft
improvements at issue are not of the kind tha t could eliminate the "genuine and substantial"
causal relationship between the LA/MSF subsidies and the presence of the A320 and A330 in the
product market in the post-compliance period.2427

2420 United States' first written submission, paras. 326-347; and second written submission, paras. 397
and 401.
2421 United States' second written submission, paras. 550 and 559-672.
2422 United States' first written submission, paras. 321-325 and 348-399; United States' second written
submission, paras. 358, 401-402, 494, 548-672.
2423 United States' second written submission, para. 395 (quoting Appellate Body Report, US – Upland
Cotton (Article 21.5 – Brazil), para. 236).
2424 United States' second written submission, paras. 397 and 400.
2425 United States' second written submission, paras. 503-525.
2426 United States' second written submission, paras. 511-515.
2427 United States' second written submission, paras. 516-525.

6.1424. Thus, the United States argues that the aggregated effects of the c hallenged LA/MSF
subsidies, including those provided for the A350XWB, have allowed Airbus to be present on the
LCA market with a full range of aircraft models which Airbus continues to sell and deliver today,
thereby constituting a "genuine and substantial " cause of serious prejudice to its interests in the
form of: (i) displacement and impedance of imports of Boeing LCA into the European Union's
single-aisle, twin -aisle and VLA markets, within the meaning of Article 6.3(a) of the
SCM Agreement; (ii) displacement and impedance of exports of Boeing LCA from the single -aisle,
twin-aisle and VLA markets in six third countries, within the meaning of Article 6.3(b) of the
SCM Agreement; and (iii) significant lost sales, within the meaning of Article 6.3(c).2428
6.1425. Finally, according to the United States, the non-LA/MSF subsidies that it challenges in this
dispute continue to contribute to the serious prejudice experienced by the United States' LCA
industry in the same way they were found to cause serious prejudice to i ts interests in the original
proceeding. In particular, the United States recalls that the French and German government equity
infusions were found by the Appellate Body to have had "a genuine connection with Airbus' ability
to develop and bring to market particular models of LCA, both by guaranteeing the continued
existence and financial stability of Aérospatiale and Dasa, and by enhancing those companies'
borrowing capacity in the wake of further investments in production and development of particular
models of LA/MSF -financed Airbus LCA". 2429 Likewise, the United States notes that the
Appellate Body reached a similar conclusion with respect to the challenged infrastructure -related
regional development subsidies, which the United States asserts were found to have "a genuine
causal link with the creation or expansion of production facilities for various models of Airbus
LCA".2430 In the light of the European Union's alleged failure to take any steps to eliminate the
effects of these measures, the United States concludes that the same effects continue to endure
today, thereby contributing to the forms of serious prejudice it claims under Article 6.3(a), (b) and
(c) of the SCM Agreement.2431
6.6.4.5.2 Arguments of the European Union
6.1426. The European Union argues that the United States has failed to demonstrate that the
challenged subsidies cause serious prejudice to the United States' interests in the
post-implementation period and, therefore, that the European Union and certain member States
have failed to comply with the requirement in Article 7.8 of the SCM Agreement to "take
appropriate steps to remove the adverse effects". Accordingly, the European Union asks the Panel
to dismiss the entirety of the United States' non-compliance claims.
6.1427. The European Union maintains that the Unite d States errs when it argues that the
LA/MSF subsidies provided for the A350XWB were, alone or together with previous pre -A350XWB
subsidies, essential to Airbus' ability to launch and bring to market the A350XWB. According to the
European Union, the United States' position is untenable because the facts show that not only was
the A350XWB launched three years before the relevant LA/MSF agreements were concluded, but
also inter alia that Airbus had obtained more than 400 aircraft orders by that time and was
committed to the programme and able to fund it regardless of any financing from the
European Union member States. Similarly, the European Union asserts that the A350XWB
programme did not benefit from any "spill-over" effects of the pre-A350XWB subsidies because the
aircraft was a completely new design, distinguishing it from all other Airbus wide -body offerings.
Thus, the European Union argues that the United States' allegations concerning the effects of the
challenged subsidies on the launch and bringing to market of the A350XWB cannot be
sustained.2432

2428 United States' first written submission, paras. 348 and 407-533; second written submission,
paras. 673-747; and response to Panel question Nos. 40, 154, and 162.
2429 United States' first written submission, paras. 400-403 and 406 (quoting Appellate Body Report, EC
and certain member States – Large Civil Aircraft, para. 1390).
2430 United States' first written submission, paras. 400 and 404-406 (quoting Appellate Body Report, EC
and certain member States – Large Civil Aircraft, para. 1397).
2431 United States' first written submission, paras. 90-103 and 406; and second written submission,
para. 385.
2432 European Union's first written submission, paras. 1080-1204; and second written submission,
paras. 870-1203.

6.1428. The European Union submits that the United States' arguments concerning the effects of
the pre -A350XWB subsidies on all other relevant models of Airbus LCA are also flawed. At the
heart of the European Union's objection, is the view that the United States' position is based on a
mistaken counterfactual derived from an improper application of the "but for" causation standard
utilized in previous serious prejudice disputes.
6.1429. Referring to certain Appellate Body statements made in the original proceeding and US –
Upland Cotton (Article 21.5 – Brazil)2433, the European Union recalls that the "but for" standard will
not always be sufficient to demonstrate causation in an adverse effects dispute. According to the
European Union, the fact that a "but for" analysis may reveal that a subsidy is a " necessary" cause
of certain effects does not always mean that the same subsidy will also be a " substantial" cause of
those effects.2434 In this light, and given the time that has passed between the provision of the
challenged subsidies, the end of the reference period used in the original proceeding and the post -
implementation period, the European Union argues that the correct counterfactual in this dispute
should not be whether Airbus wo uld have been able to offer and sell the relevant LCA without the
challenged subsidies (as the United States allegedly posits), but rather whether absent certain
events that took place in that time interval, such as the non -subsidized investments in the A3 20
and A330, "'the product originally launched with subsidies {would} be competitive in the LCA
markets today'".2435 The European Union submits that it is only by adopting a counterfactual of this
kind that the Panel will be able to properly account for how a "key non-attribution" factor in this
dispute2436, the passage of time, has attenuated the effects of the pre -A350XWB LA/MSF subsidies
such that they no longer can be said to be a "genuine and substantial" cause of the instances of
serious prejudice the United States claims to have suffered in the post-implementation period.2437
6.1430. The European Union argues that the United States' submissions are deficient in this
regard because they fail to respect the Appellate Body's specific guidance, including the statement
that "the effects of any subsidy can be expected to diminish and eventually come to an end with
the passage of time". 2438 Consequently, given the unusually long periods of time at issue in this
dispute – with certain LA/MSF subsidies being almost 45 years old – the European Union argues
that the United States is not entitled to rely upon the counterfactual and "product effect" findings
from the original proceeding and merely presume that the same effects and counterfactual are
valid in the post-implementation period.2439
6.1431. Moreover, according to the European Union, Airbus' post-launch investments in the A320
and A330 are events that must be taken into account when considering the impact of the passage
of time on the effects of the original LA/MSF subsidies. The Europ ean Union asserts that the
ongoing need to match the competition's improved technology in the LCA industry means that the
passage of time will have necessarily diminished the importance of all pre -A350XWB subsidies on
the current market presence of the air craft those subsidies originally financed and/or helped bring
to market. 2440 The European Union asserts that this dynamic is reflected in the significant
post-launch investments that Airbus made in the A320 and A330, which enabled Airbus to sustain
and improv e the two aircraft's competitiveness and better meet the changing conditions of
demand.2441 The European Union maintains that it is these later -in-time, non -subsidized
investments, and not the challenged subsidies, that are "the" substantial cause of the A320 and
A330 families' current sales and market shares. Thus, the European Union submits that the

2433 See e.g. European Union's first written submission, para. 637 (quoting Appellate Body Reports, EC
and certain member States – Large Civil Aircraft, para. 1233; and US – Upland Cotton (Article 21.5 – Brazil),
para. 374).
2434 European Union's first written submission, paras. 637-642 (quoting Appellate Body Reports, EC and
certain member States – Large Civil Aircraft, para. 1233; and US – Upland Cotton (Article 21.5 – Brazil),
para. 374); and second written submission, paras. 600-607.
2435 European Union's second written submission, para. 603 (quoting United States' second written
submission, para. 506).
2436 European Union's first written submission, para. 727.
2437 European Union's first written submission, paras. 554-557 and 640-651; and second written
submission, paras. 584-598.
2438 European Union's first written submission, para. 640 (quoting Appellate Body Report, EC and certain
member States – Large Civil Aircraft, para. 1238); second written submission, para. 588; and comments on
the United States' response to Panel question No. 42.
2439 European Union's second written submission, paras. 594-595.
2440 European Union's first written submission, para. 728.
2441 European Union's first written submission, paras. 729 and 876.

non-subsidized investments in the A320 and A330 have severed the chain of causation between
the pre -A350XWB subsidies and the claimed forms of serious prejudice to the
United States' interest in the post-implementation period.2442
6.1432. In any event, the European Union argues that the United States has failed to
demonstrate how and why any effects of the challenged LA/MSF and non -LA/MSF subsidies should
be, respectively, a ggregated and cumulated in the Panel's evaluation of the merits of the
United States' serious prejudice claims. The European Union maintains that the United States'
argument for aggregating the effects of the challenged LA/MSF subsidies is flawed because i t
ignores the distinct markets in which different subsidies allegedly cause adverse effects. The
European Union submits that the United States' arguments fail because they disregard the need to
aggregate the effects of the challenged LA/MSF subsidies on a market-by-market basis in order to
follow the market -based logic of the serious prejudice analysis that must be performed in this
compliance dispute. 2443 Moreover, the European Union argues that the United States has simply
failed to present any arguments and evidence to substantiate its request that the Panel cumulate
the effects of all of the remaining non-LA/MSF subsidies.2444
6.1433. Finally, and in the alternative to the above, to the extent that the Panel were to find that
the effects of any of the challenged subsi dies continue to support the launch, development and
production of Airbus LCA2445, the European Union argues for various, non -subsidy related reasons,
that the United States has failed to demonstrate serious prejudice in the form of: (i) displacement
and impedance of imports of Boeing LCA into the European Union's single-aisle, twin-aisle and VLA
markets, within the meaning of Article 6.3(a) of the SCM Agreement; (ii) displacement and
impedance of exports of Boeing LCA from the single -aisle, twin-aisle and VLA markets in six third
countries, within the meaning of Article 6.3(b) of the SCM Agreement; and (iii) significant lost
sales, within the meaning of Article 6.3(c).2446
6.6.4.5.3 Arguments of the third parties
6.6.4.5.3.1 Australia
6.1434. Australia argues that the European Union is requir ed to take affirmative action to
withdraw all current subsidies to Airbus that had been found to be non -compliant, or take
affirmative action to remove the adverse effects of those subsidies. Moreover, according to
Australia, where a complaining Member has shown a lack of appropriate action by the
implementing Member, it will have established a prima facie case of non-compliance. The burden
of demonstrating the intervening events which break the nexus between the non -compliant
measures, the adverse effects, and bringing the measures into compliance should then rest with
the implementing Member.2447
6.6.4.5.3.2 Brazil
6.1435. Brazil recalls that the Appellate Body in US – Upland Cotton (Article 21.5 – Brazil) stated
that "compliance with Article 7.8 of the SCM Agreement will usuall y involve some action by the
respondent Member" and that a "Member would normally 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". 2448 Thus, according to Brazil, an implementing Member will be generally
expected to take an affirmative, appropriate, action and cannot be considered as having complied
with Article 7.8 of the SCM Agreement if it does not actively intervene to remove the adverse
effects.

2442 European Union's first written submission, paras. 730-799 and 877-924; and second written
submission, paras. 739-821.
2443 European Union's second written submission, paras. 569-574; response to Panel question No. 38;
and comments on the United States' response to Panel question No. 38.
2444 European Union's first written submission, para. 714.
2445 European Union's first written submission, paras. 716, 859, and 966.
2446 European Union's first written submission, paras. 800-857, 925-964, and 1031-1079; second
written submission, paras. 1207-1695; response to Panel question No. 39; and comments on the
United States' response to Panel question Nos. 40, 43, 44, 154, and 162.
2447 Australia's third-party statement, paras. 8-9; and third-party response to Panel question No. 1.
2448 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 236.

6.1436. Brazil submits that in determining whether the adverse effects of subsidies found in an
original proceeding have been removed, the characteristics of the market and industries involved
must be fully taken into account. Concepts such as "displacement a nd impedance", "price
undercutting" and "increase in the world market share", referenced in Article 6.3 of the SCM
Agreement, should be construed in a manner that incorporates the lasting effects of such market
phenomena. Moreover, due attention must be pa id to the particularities of the product concerned:
the adverse effects of non -recurring subsidies granted to aircraft producers are likely to last much
longer than the effects of non -recurring subsidies by producers of non -durable goods. In the case
of aircraft producers, the adverse effects may last for a long period in the future even when the
events mentioned in Article 6.3 take place in a well-defined period in the past.2449
6.6.4.5.3.3 Canada
6.1437. Canada argues that only subsidies that have neither expired nor been withd rawn by the
end of the reasonable period of time provided to a Member to implement DSB recommendations
should serve as the basis of the analysis of serious prejudice in compliance proceedings. According
to Canada, there must be consistency between the two options available to a Member under
Article 7.8 of the SCM Agreement, namely, a Member must either withdraw the subsidies that
cause adverse effects or remove the adverse effects caused by those subsidies, by the end of the
reasonable period of time it has to comply with the DSB recommendation. If a subsidy has been
withdrawn or has expired, Canada maintains that a Member cannot be asked to remove the
adverse effects of that subsidy.
6.1438. Canada submits that as is the case in initial proceedings, the proper meth od to make this
assessment in compliance proceedings is to conduct a counterfactual analysis to determine what
would be the situation in the absence of the subsidies at issue. In the single -aisle LCA product
market, Canada argues that the Panel should dete rmine the impact of any subsidies that continue
to exist and whether this impact causes serious prejudice. With respect to the VLA product market,
Canada disagrees with the European Union that the purpose of the Panel's counterfactual analysis
should be to determine whether in the absence of LA/MSF for the A380 this aircraft would still
have been launched. According to Canada, the proper counterfactual analysis consists of assessing
what the situation would be if the European Union had withdrawn the subsidy by the end of the
reasonable period of time by, for example, increasing the rate of return on the A380 LA/MSF
subsidies.2450
6.6.4.5.3.4 Japan
6.1439. Japan submits that the removal of adverse effects for the purpose of Article 7.8 of the
SCM Agreement would be established if the Member granting a beneficial financial contribution
makes it no longer possible for the grantee enterprise to use the benefits conferred by the financial
contribution to lower the sales price of its products, for example, by having the benefit returned to
the grantor government. In such a situation, Japan argues that the adverse effects of the subsidies
should be considered to have been removed. I f a grantee enterprise in this circumstance is still
commercially able to sell its products at a competitive price, it would be, by definition, more
economically efficient to allow it to do that, rather than to disable it to do that. According to Japan,
this interpretation of what it means to "remove" the adverse effects finds support in the Appellate
Body's rul ings in EC and certain member States – Large Civil Aircraft and US – Upland Cotton
(Article 21.5 – Brazil).2451

2449 Brazil's third-party submission, para. 12; and third-party statement, para. 15.
2450 Canada's third-party submission, paras. 42-50; and third-party statement, paras. 16-19.
2451 Japan's third-party statement, paras. 20-26; and third-party submission, paras. 65-70 (citing
Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 236; and Appellate Body Report, EC
and certain member States – Large Civil Aircraft, paras. 710, 713-714, and 744-745).

6.6.4.5.4 Evaluation by the Panel
6.6.4.5.4.1 Introduction
6.1440. Consistent with the panel's approach to evaluating the effects of the subsidies at issue in
the original proceeding2452, the United States' submissions in this compliance dispute have first of
all sought to demonstrate that the challenged LA/MSF subsidies are a "genuine and substantial"
cause of various forms of serious prejudice within the meaning of Article 6.3 of the
SCM Agreement, before attempting to show that the effects of the non -LA/MSF subsidies may be
cumulated with those of the LA/MSF subsidies, to the extent that they are, themselves, a
"genuine" cause of the same forms of serious prejudice. We do not understand the European Union
to have raised any objections to this general approach, which we intend to follow in evaluating the
merits of the United States' claims. Thus, in the remainder of this subsection of our Report, we
examine the parties' arguments co ncerning the effects of the challenged subsidies in essentially
two parts: First, we focus on the parties' submissions with respect to the question whether the
challenged LA/MSF subsidies are a "genuine and substantial" cause of serious prejudice to the
United States' interests within the meaning of Article 6.3(a), (b) and (c) of the SCM Agreement.
After answering this question in the affirmative, we examine the extent to which the non -LA/MSF
subsidies can be said to be a "genuine" cause of the same forms of serious prejudice and, thereby,
whether the United States is entitled to cumulate the effects of the non -LA/MSF subsidies with
those of the LA/MSF subsidies. However, before turning to evaluate these substantive matters, we
first address the parties' arg uments with respect to the following two preliminary matters: (a) the
relevant reference period that should be used for the purpose of assessing the merits of the
United States' claims of serious prejudice; and (b) the extent to which the United States has
demonstrated that it is entitled to aggregate the effects of the challenged LA/MSF subsidies.
6.6.4.5.4.2 The relevant reference period
6.1441. The United States maintains that a panel tasked with having to determine a responding
Member's compliance with an original panel an d/or Appellate Body recommendation made in
accordance with Article 7.8 of the SCM Agreement, must consider all relevant data from a period
of time that permits it to fulfil its prescribed mandate. For the United States, this means that a
compliance panel c alled upon to determine whether a responding Member has acted consistently
with the requirement to "take appropriate steps to remove the adverse effects", should consider all
pertinent evidence relating to factors including the subsidies in question, the p roducts at issue, the
conditions of competition and the nature and timing of the responding Member's asserted
compliance measures, as well as any measures that negate or undermine that Member's
compliance with the adopted rulings and recommendations.2453 Thus, in the light of the nature and
timing of the European Union's alleged compliance "steps" (some of which date as far back as

2452 The Appellate Body described the approach taken by the panel in, inter alia, the following terms:

Having determined that each of the LA/MSF measures enabled launches of particular
Airbus LCA models and therefore were a substantial cause of the displacement and
significant lost sales of Boeing LCA, the Panel sought to determine whether non-LA/MSF
subsidies "complemented and supplemented" the effects of LA/MSF measures, even if
each of the non-LA/MSF subsidies, taken individually, would not have enabled launches of
particular Airbus LCA models, and therefore would not have been a substantial cause of
the displacement and significant lost sales. Once the Panel determined that LA/MSF
subsidies were a substantial cause of the observed displacement and lost sales, it was not
necessary to establish that non-LA/MSF subsidies were also substantial causes of the
same phenomena. … Given that the Panel had determined that LA/MSF subsidies were a
substantial cause of the alleged market phenomena, it was permissible and sufficient for
the Panel to assess whether a genuine causal connection between non-LA/MSF subsidies
and the same market phenomena existed such that these non-LA/MSF subsidies
complemented or supplemented the effects of LA/MSF. … {T}he Panel was not required,
in those circumstances, to establish that non-LA/MSF subsidies were themselves a
substantial cause or "necessary to enable a launch decision at a particular point in time".

(Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1378) (footnote omitted)

See also the description of the panel's approach in the original proceeding in Appellate Body Report, US –
Large Civil Aircraft (2nd complaint), paras. 1282 and 1287-1289.
2453 United States' response to Panel question No. 34, para. 85.

1997 and many of which predate the original 2001 -2006 reference period), the United States
argues that it would be appropriate and particularly important for the Panel in this compliance
dispute to take a long -term perspective.2454 To this end, the United States submits that the Panel
should evaluate the merits of its non -compliance claims on the basis of all relevant data and
evidence, starting from 1997 through to the most recent period for which data are reasonably
available, with a particular focus on the period from 2007 to the present.2455
6.1442. Although appearing to initially object to the United States' submissions concerning the
consideration of evidence from a time -interval that starts before the end of the implementation
period2456, the European Union subsequently clarified that it sees "no legal reason for limiting the
reference period, from which data is gathered, to after the end of th e implementation period".2457
Indeed, not unlike the United States, the European Union maintains that in order to assess
whether "displacement" exists after the end of the implementation period, "it may be useful to
look at the evolution of market shares and delivery volumes subsequent to the end of the
reference period used in the original proceedings".2458 The European Union cautions, however, that
the Panel's analysis must ultimately place particular emphasis on data post -dating the
implementation period, beca use a finding of non -compliance with the requirement to "take
appropriate steps to remove the adverse effects" can only be made in respect of the market
situation that exists after 1 December 2011.2459
6.1443. It is well established that a panel tasked with reviewin g the merits of claims made under
Article 6.3(a), (b) and (c) of the SCM Agreement must focus its efforts on determining the extent
to which the challenged subsidies are a "genuine and substantial" cause of serious prejudice in the
present2460, or as the comp liance panel in US – Upland Cotton (Article 21.5 – Brazil) termed it,
"under current factual conditions ".2461 However, as we explained in the original proceeding, the
unavailability of immediate data means that "it is impossible to assess the 'present' situat ion, …
and thus a review of the past is necessary to draw conclusions" about the present.2462
6.1444. The parties agree that as far as the findings that must be made in this proceeding are
concerned, it may be possible and even appropriate for the Panel to examine data from a historical
period that predates the end of the implementation period. We share this view. Moreover, we see
no need to make any a priori choice of reference period. In the absence of any specific guidance
on this issue in the relevant legal provi sions2463, we consider that our duty to conduct an objective
assessment of the matter pursuant to Article 11 of the DSU would be best served if we were to
examine the entirety of the evidence put forward by the United States, and the full rebuttal
evidence advanced by the European Union, including the most recent information where relevant
and reliable. Given the nature of the United States' arguments concerning the lasting effects of the
challenged subsidies, the relatively long marketing lives of the subsidi zed LCA products, and the
timing of some of the European Union's declared compliance measures, this approach we believe
implies that parts of our analysis must be informed by developments over a relatively long period
of time. Thus, rather than make a priori judgements as to a defined and limited reference period,
we will consider all the relevant information that has been put before us, and assess it in the light
of the parties' arguments. We will do so, however, recognizing that the United States will onl y
succeed in its non -compliance claims if it can establish the existence of present serious prejudice
to its interests within the meaning of Article 6.3(a), (b) and (c) of the SCM Agreement in the
post-implementation period , that is, present serious prejud ice in the period after
1 December 2011. For this reason, our ultimate conclusion on the extent to which the

2454 United States' first written submission, para. 289; and second written submission, para. 390.
2455 United States' first written submission, para. 289; and second written submission, paras. 387-394.
2456 European Union's first written submission, para. 568 ("In short, the Panel must assess the existence
of present adverse effects 'under current factual conditions' in a reference period that postdates the end of the
implementation period on 1 December 2011"). (footnote omitted)
2457 European Union's response to Panel question No. 34(c), para. 90.
2458 European Union's response to Panel question No. 34(a), para. 85.
2459 European Union's response to Panel question No. 34(a), para. 85; and comments on the
United States' response to Panel question No. 34(c), para. 133.
2460 Panel Reports, US – Upland Cotton (Article 21.5 – Brazil), para. 10.18; and EC and certain member
States – Large Civil Aircraft, paras. 7.1694 and 7.1714
2461 Panel Report, US – Upland Cotton (Article 21.5 – Brazil), paras. 10.104 and 10.248. (emphasis
original)
2462 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1694.
2463 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1693.

United States has established its claims of serious prejudice will be focused on the most recent
market data presented by the parties in this dispu te from the post-implementation period, as it is
only with respect to the effects found to exist in the period after 1 December 2011 that the
European Union and certain member States may be found to have failed to comply with its
obligation to "take approp riate steps to remove the adverse effects" by the end of the
implementation period.
6.6.4.5.4.3 Aggregation of the effects of the LA/MSF subsidies
6.1445. In the original proceeding, the panel undertook a collective assessment of the effects of
the challenged subsidies throu gh a process of "cumulation". 2464 As explained by the
Appellate Body, this process involved an assessment of the extent to which the effects of the
challenged LA/MSF subsidies were a "genuine and substantial" cause of serious prejudice, followed
by a determination of whether the effects of the non -LA/MSF subsidies were a "genuine" cause of
the same forms of serious prejudice, such that they could be "cumulated" with those of the
LA/MSF subsidies. The Appellate Body upheld the panel's approach, finding that it was permissible
under Article 6.3 of the SCM Agreement.2465
6.1446. The original panel began its evaluation of the effects of the challenged LA/MSF subsidies
by focusing on Airbus' earliest LCA programme, the A300. After recalling its findings concerning
the profit -enhancing and risk -reducing nature of LA/MSF 2466, and the significant level of risk
associated with the A300, which was Airbus' first LCA programme, as well as the history and risks
of developing LCA in general 2467, the panel concluded that "LA/MSF was necessary for Airbus to
have launched the A300 as originally designed and at the time that it did". 2468 The panel went on
to consider the effects of LA/MSF on each successive model of Airbus LCA, on a model -by-model
basis. Not unlike its findings in respect of the A30 0, the panel's conclusions about the effects of
LA/MSF on Airbus' subsequent models of LCA were informed by its evaluation of the content and
probative value of various pieces of evidence adduced by the United States.2469 The panel's
analysis considered not only the direct effects of the LA/MSF subsidies provided for the purpose of
one specific LCA programme, but also the indirect "learning", scope and financial effects of those
subsidies on other Airbus LCA programmes. 2470 In the light of the panel's findings wi th respect to
these two types of effects on Airbus' operations, the panel concluded that "Airbus' ability to
launch, develop, and introduce to the market, each of its LCA models was dependent on subsidized

2464 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1288.
2465 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1378.
2466 Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.1888-7.1912.
2467 In order to establish the "background and context" for its adverse effects analysis, the panel set out
its understanding of the "basic structure of the LCA industry overall, and the nature and conditions of
competition for LCA products". In doing so, the panel observed that the production and bringing to market of
LCA is an "enormously complex and expensive undertaking"; that entry into the industry "requires huge
up-front investments"; and that "{e}conomies of scale arising from the huge sunk development cost give
incumbent firms a considerable competitive advantage". The panel furthermore explained that "{l}earning
effects induce dynamic economies of scale which reinforce incumbents' advantage" and that "{e}conomies of
scope make it difficult to enter one market segment only". (Panel Report, EC and certain member States –
Large Civil Aircraft, para. 7.1717). The panel referred back to these considerations in its evaluation of the
effects of the LA/MSF subsidies.
2468 Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.1933-7.1934.
2469 Apart from the Dorman Report, the United States sought to substantiate its arguments concerning
the effects of LA/MSF by introducing evidence of number of Airbus or EC member State public statements, one
EC State Aid Decision, and the Airbus business cases for the A380, A340-500/600, and the A330-200. (Panel
Report, EC and certain member States – Large Civil Aircraft, paras. 7.1913-7.1931)
2470 Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.1935-7.1948. See also
Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1269, 1281, 1352, 1355,
and 1356. Although the original panel did not specifically refer to these effects as "direct" and "indirect"
effects, we believe that the "direct" and "indirect" effects nomenclature provides a useful way of understanding
the panel's evaluation of the effects of the LA/MSF subsidies. In this regard, we note that the nomenclature
used by the United States to describe what are essentially the same effects is "primary" and "secondary"
effects. (See e.g. United States' second written submission, paras. 400-402). While the European Union
accepts that LA/MSF can have "primary" and "secondary" effects, the European Union maintains that the
United States errs when it argues that the original panel and Appellate Body recognized that such effects last
as long as the benefitting LCA programmes remain in production. (See e.g. European Union's response to Panel
question 46, paras. 114, 117, 119, and 123)

LA/MSF"2471, and therefore, that the LA/MSF subsidies were a "genuine and substantial" cause of
serious prejudice to the United States' interests.2472
6.1447. According to the United States, the original panel's evaluation of the effects of the
challenged LA/MSF subsidies was conducted on an "aggregated" basis2473, a characterization which
the European Union does not dispute. In our view, the original panel's analysis of the effects of the
challenged LA/MSF subsidies is largely consistent with the Appellate Body's subsequent guidance
on when and how to aggregate subsidies .2474 In US – Large Civil Aircraft (2 nd complaint), the
Appellate Body explained that:
{A} panel may group together subsidy measures that are sufficiently similar in their
design, structure, and operation in order to ascertain their aggregated effects in an
integrated causation analysis and determine whether there is a genuine and
substantial causal relationship between these multiple subsidies, taken together, and
the relevant market phenomena identified in Article 6.3 of the SCM Agreement … .2475
6.1448. That the origi nal panel considered the challenged LA/MSF measures to share a similar
"design, structure and operation" is apparent from inter alia the panel's description of the key
features of the challenged LA/MSF measures, which were characterized as unsecured, non -
commercial "loans" with back -loaded and success-dependent repayment terms provided to Airbus
for the specific purpose of developing LCA. 2476 It is also apparent from the panel's causation
analysis that it explored the effects of the LA/MSF subsidies on both an individual and integrated
basis. As already noted, the panel's effects analysis identified two types of LA/MSF effects – direct
and indirect effects. The panel examined the impact of these two types of effects on Airbus'
operations on a model-by-model basis. In doing so, the panel explained the extent to which alone,
and in combination, the direct and indirect effects of LA/MSF operated to enable Airbus to launch,
develop and bring to market each model of LCA that existed in the 2001 -2006 reference
period.2477 The panel's findings with respect to these effects ultimately led to the conclusion that
the challenged LA/MSF subsidies were a "genuine and substantial" cause of serious prejudice to
the United States' interests.2478
6.1449. By asking the Panel to aggregate the e ffects of the challenged LA/MSF subsidies in this
proceeding, we understand the United States to be arguing that the Panel should follow essentially
the same approach used to analyse causation in the original proceeding 2479, an approach that was

2471 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1949.
2472 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1377-1378.
2473 United States' first written submission, para. 282; second written submission, para. 383; and
comments on the European Union's response to Panel question No. 38, para. 75.
2474 We note that the Appellate Body did not characterize the original panel's approach to determining
the effects of the challenged LA/MSF subsidies as involving "aggregation". However, in its subsequent
description of the panel's analysis in US – Large Civil Aircraft (2nd complaint), the Appellate Body appears to
suggest that it may have considered the panel's approach to be broadly in line with an "aggregated" effects
analysis. (See, in particular, Appellate Body Report, US – Large Civil Aircraft (2nd complaint),
paras. 1287-1288)
2475 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1285.
2476 Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.367-7.375 and 7.1881.
2477 Although the panel did not explicitly refer to indirect effects in its discussion of the impact of LA/MSF
on the A300 programme, the panel's analysis of the effect of LA/MSF on the A310 programme cited evidence
which clearly demonstrated that the development and bringing to market of the A300-600 was also impacted
by the indirect "learning" effects resulting from the launch and development of the A310. (Panel Report, EC
and certain member States – Large Civil Aircraft, para. 7.1935 (citing a report in the 24 February 1986 edition
of Aviation Week & Space Technology, quoting an Airbus executive as having stated that: "'In the 1980s, we
were able to widen our family by launching the A310 that incorporated many systems and power plant
improvements that had occurred in the years since the A300 was designed', … 'Then we turned around and put
many of the A310 improvements back into the A300 and came up with an updated aircraft that we designated
the A300-600. The same philosophy will be followed with our new aircraft. Additionally, there is a strong
possibility that the A320/A330/A340 technology can be used as well to create an advanced A300 and/or A310
in the 1990s'.").
2478 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1377-1378.
2479 United States' first written submission, para. 282 ("{T}he United States considers that an integrated
analysis of the effects of all of the LA/MSF is appropriate … This was the approach followed by the original
Panel and affirmed by the Appellate Body"). See also United States' second written submission, para. 383.

affirmed by t he Appellate Body.2480 While generally not disagreeing with the view that LA/MSF
subsidies "may be aggregated for purposes of assessing their alleged present causal link to the
launch of a particular product and, subsequently, {any} present adverse effects" 2481, the
European Union maintains that in this compliance dispute, the Panel may proceed to aggregate the
effects of the challenged LA/MSF subsidies only if they are "shown to exist at present and thus not
withdrawn".2482
6.1450. Having previously rejected the European Union's submissions concerning the alleged
withdrawal of the LA/MSF subsidies and the purported requirement to demonstrate "present
subsidization" in the context of Article 7.8 of the SCM Agreement2483, we see no basis to support
the European Union's objectio n to the United States' request to aggregate the effects of the
LA/MSF subsidies. In our view, there is no impediment to conducting an evaluation of the effects of
challenged LA/MSF subsidies in this proceeding in essentially the same manner as the panel i n the
original dispute. However, as both parties have emphasized, in this compliance proceeding, our
evaluation of the effects of the LA/MSF subsidies must be undertaken with a view to determining
the merits of the United States' claims of serious prejudice in three different product markets – the
single-aisle, the twin-aisle and the VLA markets – rather than one single LCA product market (as
the panel did in the original proceeding).2484
6.1451. In this respect, we recall that while the Appellate Body overturned the panel's "one single
product market" finding in the original proceeding 2485, it nevertheless affirmed the panel's
evaluation of the effects of the LA/MSF subsidies 2486, ultimately concluding that they were a
sufficient basis to establish that the LA/MSF subsidie s were a "genuine and substantial" cause of
Boeing lost sales and displacement in the single -aisle, twin-aisle and VLA markets. 2487 Given our
finding that it would be appropriate to consider the United States' serious prejudice claims in this
dispute on the b asis of the same three LCA product markets used by the Appellate Body to
"complete the analysis" in the original proceeding 2488, we believe that the same approach used to
assess the direct and indirect effects of LA/MSF in the original proceeding may be equal ly
applicable to our task of determining the effects of the LA/MSF subsidies in the current proceeding.
Thus, in this compliance dispute, we will follow the same analytical path affirmed by the
Appellate Body in the original proceeding to determine the eff ects of the challenged LA/MSF
subsidies. We will do so bearing in mind that in reviewing the parties' arguments with respect to
the extent to which the LA/MSF subsidies provide a relevant and identifiable competitive
advantage to Airbus, we must not combin e the effects of multiple LA/MSF subsidies in a way that
absolves the United States from its burden of demonstrating that the challenged LA/MSF subsidies
are a "genuine and substantial" cause of serious prejudice in each of the relevant product
markets.2489
6.6.4.5.4.4 The effects of the LA/MSF subsidies
Introduction
6.1452. In this part of our evaluation of the United States' submissions concerning the effects of
the challenged subsidies, we examine the extent to which the United States has demonstrated that
the effects of the challenged LA/MSF subsidies are a "genuine and substantial" cause of the forms
of serious prejudice the United States alleges it continues to experience in the
post-implementation period.

2480 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1378.
2481 European Union's response to Panel question No. 38, para. 105. (emphasis original)
2482 European Union's response to Panel question No. 38, para. 105. (emphasis original)
2483 See above paras. 6.839-6.841 and 6.1101-6.1103.
2484 United States' response to Panel question No. 38, para. 99; comments on the European Union's
response to Panel question No. 38, para. 75; and European Union's second written submission,
paras. 569-574.
2485 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1137.
2486 See e.g. Appellate Body Report, EC and certain member States – Large Civil Aircraft,
paras. 1264-1266, 1269-1272, and 1377-1378.
2487 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1414(l), (m), (o),
and (p).
2488 See above Section 6.6.4.4.
2489 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1290.

6.1453. In keeping with how the parties have presented their arguments, our evaluation of the
United States' serious prejudice claims will proceed on the basis of a "unitary" analysis of
causation.2490 The Appellate Body clarified in the original proceeding that when performing a
"unitary" analysis, the effects of the relevant subsid ies should be determined by conducting a
counterfactual analysis, which "entails comparing the actual market situation that is before the
adjudicator with the market situation that would have existed in the absence of the challenged
subsidies".2491 In this proceeding, the parties have advanced profoundly different views about what
the appropriate counterfactual should look like, including the role that the counterfactuals used in
the original proceeding should play in its identification. Accordingly, we begin our evaluation of the
merits of the parties' arguments by addressing their disagreement with respect to the appropriate
counterfactual.
6.1454. After finding that, consistent with the Appellate Body's guidance, the appropriate
counterfactual should be "the market situation {in the post -implementation period} that would
have existed in the absence of the challenged subsidies", and that its identification should be
informed by the counterfactuals used in the original proceeding, we recall the panel and
Appellate Body findings concerning the effects of the pre -A350XWB LA/MSF subsidies that are at
issue in this compliance dispute, including the counterfactual scenarios that formed the basis of
the adopted rulings and recommendations. We then turn to evaluate the merits of the parties'
arguments concerning the effects of the pre -A350XWB LA/MSF subsidies on Airbus in the
post-implementation period before moving onto examine the effects of LA/MSF on the launch and
bringing to market of the A350XWB.
The appropriate counterfactual
6.1455. In the original proceeding, the Appellate Body clarified that when performing a "unitary"
analysis of causation, the effects of the subsidies at issue in a serious prejudice dispute should be
determined by conducting a counterfactual analysis, whic h "entails comparing the actual market
situation that is before the adjudicator with the market situation that would have existed in the
absence of the challenged subsidies ".2492 Moreover, the Appellate Body explained that "one
possible approach to the assess ment of causation is an inquiry that seeks to identify what would
have occurred 'but for' the subsidies ".2493 In our view, it follows from this guidance that the
appropriate counterfactual for the purpose of determining whether the challenged LA/MSF
subsidies are a "genuine and substantial" cause of serious prejudice to the United States' interests
in this dispute is the market situation that would have existed in the post-implementation period in
the absence of the challenged LA/MSF subsidies . This is essenti ally what we understand the
United States to argue when it asserts that "{t}he correct counterfactual analysis is … whether,
but for LA/MSF, Airbus would have been able to offer and sell {for example} the A320 and A330
as it has" in the post -implementation period.2494 The European Union, however, believes that a
different counterfactual should be applied to determine the merits of the United States' claims.
6.1456. Although explicitly recognizing that in order to make out its claims of serious prejudice
the United States "must establish a present 'genuine and substantial relationship of cause and
effect' between the alleged subsidies and the alleged market phenomena" 2495, the European Union
argues that the "proper counterfactual" for this purpose should be one that asks "for example,
whether absent 'the non -subsidized investments, … the product originally launched with subsidies

2490 The panel's serious prejudice findings in the original proceeding followed a "two-step" analysis,
reflecting the United States' presentation of its claims. A "two-step" analysis first seeks to identify the market
phenomena described in Article 6.3(a)-(d) of the SCM Agreement and then, as a second step, examines
whether there is a causal relationship between the phenomena and the challenged subsidies. While the
Appellate Body accepted the validity of this approach in the original proceeding, it explicitly stated that a
"unitary analysis" would be preferable. (Appellate Body Report, EC and certain member States – Large Civil
Aircraft (2nd complaint), paras. 1107 and 1109)
2491 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1110.
2492 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1110. (emphasis
added)
2493 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1233 (citing
Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), paras. 374-375) (emphasis added). See also
Appellate Body Report, US – Upland Cotton, paras. 435-438.
2494 United States' second written submission, para. 506.
2495 European Union's first written submission, para. 634.

{would} be competitive in the LCA markets today'". 2496 We are unable to accept the
European Union's proposed line of inquiry. In our view, the corre ct counterfactual, for the purpose
of determining the effects of the challenged LA/MSF subsidies, should not be focused on identifying
the relevant market situation in the absence of Airbus' post -launch investments in the A320 and
A330, or any other allege d non-attribution factors. Rather, as the Appellate Body has previously
emphasized, when performing a "unitary" analysis of causation by means of a "but for" test, the
appropriate counterfactual must be directed at identifying the market situation in the a bsence of
the challenged subsidies , not the market situation in the absence of any events that, over time,
have allegedly severed the causal link between the challenged subsidies and the alleged instances
of serious prejudice. While we agree with the Europ ean Union that any such events must be taken
into account in determining the market situation in the absence of the challenged LA/MSF
subsidies, they cannot, by definition, be the sole focus of a counterfactual analysis that is intended
to isolate the effects of the challenged LA/MSF subsidies.
6.1457. As we understand it, the United States' position appears to be that the starting point for
identifying the counterfactual that should be used in this compliance proceeding should be the
counterfactual that formed th e basis of the adopted serious prejudice findings. 2497 Thus, for
example, after recalling that the panel and Appellate Body found that LA/MSF caused Airbus to
launch and bring to market each of its models of LCA at a time and in a manner that would
otherwise have been impossible2498, the United States asserts:
Considering that, under the most likely counterfactual scenario, Airbus likely would
not exist at all without LA/MSF as of 2006, there is no basis {in the light of the
European Union's alleged failure to t ake any meaningful compliance steps} to posit
that, since 2006, Airbus would have come into being, and then developed, produced
and sold the A320, A330, A340, A350, and A380 LCA that it did during the 2007 -2011
period.2499 (footnote omitted)
6.1458. The European Union raises essentially two objections to the United States' line of
argument. First, the European Union argues that the United States' position relies "solely on
findings that relate to the original 2001 -2006 reference period", thereby failing to "consider t he
impact of the passage of time on the reliability of these findings" for the purpose of identifying the
market situation in the post -implementation period. 2500 The European Union submits that the
United States is not entitled to merely "(i) … start with the adverse effects found in the original
reference period; (ii) demonstrate that, allegedly, the European Union has done nothing to remove
those past adverse effects; and (iii) conclude that it has demonstrated the existence of present
adverse effects, inclu ding a causal link that exists at present". 2501 For the European Union, the
United States' approach "overlooks that the passage of time, and events occurring during the time
that passed, must, legally result in the dissipation of adverse effects". 2502 Thus, according to the
European Union, the United States only presumes causation.2503
6.1459. Second, the European Union suggests that the United States would be entitled to use the
adopted panel and Appellate Body findings as a relevant "baseline" for the appropriate
counterfactual only "where no subsidies have been withdrawn and no changes have occurred in
the markets".2504 However, for the European Union, neither of these two conditions is satisfied in
this proceeding.
6.1460. In our view, the European Union's description of the Unit ed States' submissions fails to
account for the entirety of the United States' arguments, and in particular, the fact that the

2496 European Union's second written submission, para. 603 (quoting United States' second written
submission, para. 506). In the same paragraph, the European Union states that this "is the counterfactual
formulated by the European Union".
2497 United States' first written submission, paras. 335-352; and second written submission,
paras. 367-373.
2498 United States' first written submission, paras. 335-347.
2499 United States' first written submission, para. 348.
2500 European Union's second written submission, para. 587.
2501 European Union's second written submission, para. 593. (emphasis original)
2502 European Union's second written submission, para. 593. (footnote omitted)
2503 European Union's second written submission, paras. 594-596.
2504 European Union's second written submission, para. 597.

United States' allegation of non-compliance is based upon not only its position with respect to the
nature and duration of the effects of the challenged LA/MSF subsidies, but also its rejection of each
of the European Union's notified compliance "steps" and arguments, which include those relating
to the events that have occurred during the passage of time, such as allegedly changing product
markets and post -launch investments, as well as a number of non -attribution factors. Thus, by
seeking to rely upon the adopted panel and Appellate Body findings from the original proceeding
as a starting point for the counterfactual that must be a pplied in this proceeding, we do not
understand the United States to have presumed causation. Rather, the United States has sought
to rely upon these findings as evidence of the effects of the pre -A350XWB LA/MSF subsidies in the
2001-2006 period , and upon this basis, drawn conclusions about the effects of the LA/MSF
subsidies in the post -implementation period, in the light of its own views about the nature and
duration of the effects of the LA/MSF subsidies beyond 2006.
6.1461. We are also unable to find merit in t he European Union's suggestion that the adopted
findings of the original panel and Appellate Body may only serve as a "baseline" for the
counterfactual analysis "where no subsidies have been withdrawn and no changes have occurred in
the markets". First of all, we recall that we have previously rejected the European Union's
assertions concerning the alleged withdrawal of the challenged subsidies. 2505 Therefore, we see no
need to pronounce on the virtues of the European Union's position in this part of our Repor t as
regards allegedly withdrawn subsidies (although we would, of course, take into account any
relevant evidence about developments in respect of the subsidies to the extent it has implications
for their continuing effects). Second, the fact that changes may have taken place in the relevant
markets in the years that have passed since the adoption of the original panel and Appellate Body
findings does not, in our view, preclude the relevance of those findings to the counterfactual
analysis that must be perf ormed in this compliance dispute. Irrespective of any changes that may
have taken place in the relevant markets since the end of 2006, we see the original panel and
Appellate Body findings on the effects of the pre -A350XWB LA/MSF subsidies in the 2001 -2006
period to be highly relevant to the assessment that must be performed in this dispute. These
adopted findings establish not only what the effects of the pre -A350XWB LA/MSF subsidies were in
the 2001 -2006 period, but they also describe the design, structur e and operation of those
subsidies, and therefore how LA/MSF impacted Airbus' operations until the end of 2006. Thus, not
unlike the United States, we believe it is appropriate to consider the adopted panel and
Appellate Body findings on the effects of the pre-A350XWB LA/MSF subsidies in the 2001 -2006
period as the starting point of the counterfactual analysis that must be performed in this
compliance proceeding.
6.1462. It is apparent, however, that the adopted panel and Appellate Body findings concerning
the eff ects of the pre -A350XWB LA/MSF subsidies cannot be simply transposed into the
post-implementation period and used as the basis for the United States to make out its claims.
Rather, the counterfactual analysis that must be performed in this dispute requires consideration
of the extent to which the design, structure and operation of the challenged LA/MSF subsidies
(including the new LA/MSF subsidies for the A350XWB) is such that the same or similar effects
found to exist in the 2001 -2006 reference period cont inue to be present in the
post-implementation period , in the light of the parties' submissions concerning the
European Union's notified compliance "steps" and other related arguments, including inter alia
those in respect of the impact of the passage of ti me, the post -launch Airbus investments in the
A320 and A330, and other non-attribution factors.
6.1463. Thus, in exploring the merits of the parties' causation arguments in this dispute, we will
seek to determine whether the United States has established that the re is a "genuine and
substantial relationship of cause and effect" 2506 between the challenged LA/MSF subsidies and the
United States' claims of serious prejudice by performing a counterfactual analysis that is directed
at identifying the situation in the rele vant product markets in the absence of the challenged
LA/MSF subsidies after 1 December 2011. We are mindful that this determination must be guided
by the need to ensure that the effects of factors other than the challenged LA/MSF subsidies are
not improperly attributed to those subsidies. 2507 Moreover, we recognize that the results of a "but
for" analysis will not always suffice to demonstrate causation, particularly "where a necessary
cause is too remote and other intervening causes substantially account for the market

2505 See above paras. 6.1101-6.1103.
2506 Appellate Body Report, US – Upland Cotton, para. 438.
2507 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1232.

phenomenon"2508 alleged to constitute a form of serious prejudice. Accordingly, in performing our
counterfactual analysis, we will seek to "understand the interactions between the {challenged
LA/MSF subsidies} and the various other {alleged} causa l factors, and make an assessment of
their connection to, as well as the relative importance of the {challenged LA/MSF subsidies} and of
the other factors in bringing about, the relevant effects"2509 in the post-implementation period. Our
point of departure f or this analysis will be the adopted panel and Appellate Body findings
concerning the effects of the pre -A350XWB LA/MSF subsidies in the original proceeding. We turn
to describe these findings in the next subsection of our Report.
The "product" effects of the pre-A350XWB LA/MSF subsidies in 2001-2006
6.1464. We recall that the panel in the original proceeding arrived at its ultimate causation
findings after having: (a) determined that "Airbus' ability to launch, develop, and introduce to the
market, each of its L CA models was dependent on subsidized LA/MSF" 2510; (b) found that the
"product" effect of LA/MSF was "complemented and supplemented" by the non -LA/MSF
subsidies2511; and (c) considered two "plausible" and two "unlikely" counterfactual scenarios
describing the ma rket situation in the 2001 -2006 period in the absence of the challenged
subsidies.2512 The Appellate Body carefully reviewed the panel's findings 2513, and concluded that
the panel had properly established that the effects of the challenged LA/MSF, and certain of the
non-LA/MSF, subsidies were, respectively, a "genuine and substantial" and a "genuine", cause of
various forms of serious prejudice to the United States' interests within the meaning of
Article 6.3(a), (b), and (c) of the SCM Agreement.2514
6.1465. On appeal, the European Union argued that the panel's causation findings were focused
on the two "unlikely" counterfactuals it had posited, and that the panel had incorrectly applied
these counterfactuals when establishing causation in respect of Boeing's displacement a nd lost
sales in the relevant market segments. 2515 The Appellate Body disagreed with the
European Union's characterization of the panel's findings, clarifying that "if one were to describe
the Panel as having 'focused' on particular scenarios, it would have t o be scenarios 1 and 2 –
scenarios the Panel considered 'plausible'".2516
6.1466. All four counterfactual scenarios were posited by the panel after having carefully
considered the history of LCA production 2517, the parties' arguments concerning the nature of
competition and competitors that might exist in the absence of LA/MSF and, finally, eight separate
articles from the economic literature about various aspects (including competition) of the LCA
industry and industrial organization. 2518 The panel's "plausible" counterfac tuals contemplated that

2508 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1233.
2509 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 914.
2510 Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.1879-7.1949.
2511 Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.1950-7.1961.
2512 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1984. See also the
description of the panel's assessment of causation in Appellate Body Report, EC and certain member States –
Large Civil Aircraft, paras. 1242-1260.
2513 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1242-1300 and
1306-1400.
2514 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1300,
1377-1379, 1390-1391, 1400, 1410, and 1412. The Appellate Body found that the panel's causation findings
with respect to the challenged R&TD subsidies could not stand because the panel had failed to establish "a
genuine causal link between the R&TD subsidies and Airbus' ability to launch and bring to the market its
models of LCA". (Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1411)
2515 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 228-231 and
1262.
2516 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1263.
2517 We recall that prior to the Boeing merger with McDonnell-Douglas in 1997, a third United States LCA
producer, Lockheed, had been an active producer of LCA until it exited in 1981, partly, according to the
United States, because of competition from Airbus. (Panel Report, EC and certain member States – Large Civil
Aircraft, para. 7.1979 and fn 5754)
2518 The relevant articles were: R. Baldwin & P. Krugman, "Industrial Policy and International
Competition in Wide-Bodied Jet Aircraft", in R. Baldwin, (ed.), Trade Policy Issues and Empirical Analysis
(National Bureau of Economic Research, 1988); P. Dasgupta and J. Stiglitz, "Learning-by-doing, market
structure and industrial and trade policies", Oxford Economic Papers, 40, 246, 1988; Gernot Klepper, "Entry
Into the Market for Large Transport Aircraft", European Economic Review, 34, 775, 1990; T. Breshnahan and
P. Reiss, "Entry and Competition in Concentrated Markets", Journal of Political Economy, Vol. 95 (5), 1991,

a non-subsidized Airbus would have had no market presence in the 2001 -2006 period, and that
the LCA industry would have been characterized by the existence of either a Boeing monopoly, or
a duopoly involving Boeing and another Unite d States LCA producer (possibly, McDonnell
Douglas).2519 According to the Appellate Body, under either of these scenarios:
{T}here was no need for the Panel to proceed further in its counterfactual analysis.
Without the subsidies, Airbus would not have existe d under these scenarios and there
would be no Airbus aircraft on the market. None of the sales that the subsidized
Airbus made would have occurred. As Boeing (or the other US manufacturer
envisaged by the Panel) would be the only supplier(s) of LCA, it (or they) would have
made the sales instead. Thus, the conclusion under {the two "plausible"
counterfactual} scenarios … satisfies, without more, the "genuine and substantial
relationship" standard articulated by the Appellate Body in US – Upland Cotton. This
chain of reasoning establishes that the subsidies are a sufficient cause of the lost sales
and the displacement.2520
6.1467. Given that the panel had conducted its assessment of the effects of the challenged
LA/MSF and non-LA/MSF subsidies separately2521, and that only the LA/MSF subsidies were found
to be a "genuine and substantial" cause of serious prejudice 2522, we understand the
Appellate Body's statement that "the conclusion under {the two 'plausible' counterfactual}
scenarios … satisfies, without more, the 'genuine a nd substantial relationship' standard", to mean
that the Appellate Body accepted that the existence and market presence of Airbus in the
2001-2006 period was dependent upon the effects of the challenged LA/MSF subsidies, thereby
causing serious prejudice t o the interests of the United States. Indeed, as we explain in further
detail below, the Appellate Body's ultimate conclusion in this part of its review of the panel's
causation findings was inter alia that "the Panel's analysis sufficiently established a 'genuine and
substantial' causal link between the LA/MSF subsidies and the displacement and lost sales".2523
6.1468. After affirming the panel's "plausible" counterfactuals and related causation findings, the
Appellate Body went on to explore the basis for, and impli cations of, the panel's two "unlikely"
counterfactual scenarios. Under the panel's two "unlikely" counterfactual scenarios, it was
envisaged that a non -subsidized Airbus would be competing in the 2001 -2006 period, as a "much
weaker" company "with at best a more limited offering of LCA models", against either Boeing or
Boeing and another US producer.2524 While the Appellate Body did not explicitly find that the panel
should have pursued these counterfactuals beyond what it actually did in its report, the
Appellate Body agreed with the European Union that "the Panel could have provided a fuller
analysis" under these scenarios. 2525 The Appellate Body noted, however, that an important
consideration in determining the extent to which the panel was required to do more i n its analysis
was the fact that the panel had found the two "plausible" scenarios in which Airbus would not have

pp. 977-1009; L. Cabral and M.H. Riordan, "The learning curve, market dominance, and predatory pricing",
Econometrica, 62(5), 1115, 1994; Damien Neven and Paul Seabright, "European Industrial Policy: The Airbus
Case", 1995; Thomas L. Boeder and Gary J. Dorman, "The Boeing/McDonnell Douglas Merger: The Economics,
Antitrust Law, and Politics of the Aerospace Industry", Antitrust Bulletin, Spring 2000; and C. Lanier Benkard,
"A Dynamic Analysis of the Market for Wide-Bodied Commercial Aircraft", Review of Economic Studies, 71, 581,
2004.
2519 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1984.
2520 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1264.
2521 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1377-1378.
2522 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1300,
1377-1379, 1390-1391, 1400, 1410, and 1412. We recall that as regards the non-LA/MSF subsidies, the
Appellate Body found that the panel had properly established that their effects were a "genuine" cause of
serious prejudice to the United States' interests. Indeed, according to the Appellate Body, having determined
that "LA/MSF subsidies were a substantial cause of the observed displacement and lost sales, it was not
necessary to establish that non-LA/MSF subsidies were also substantial causes of the same phenomena". Thus,
in the light of the panel's causation findings with respect to the LA/MSF subsidies, the Appellate Body
concluded that "it was permissible and sufficient for the Panel to assess whether a genuine causal connection
between non-LA/MSF subsidies and the same market phenomena existed such that these non-LA/MSF
subsidies complemented and supplemented the effects of LA/MSF". (Appellate Body Report, EC and certain
member States – Large Civil Aircraft, para. 1378)
2523 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1300.
2524 Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.1984 and 7.1993.
2525 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1267.

entered the market in the absence of subsidies to be the "most likely" state of affairs in the
2001-2006 period.2526 With this in mind, the Appellate Body explained that:
Nonetheless, looking at the Panel's analysis as a whole, we understand the Panel to
have concluded that, under {the "unlikely" counterfactual} scenarios … , a
non-subsidized Airbus would have been significantly retarded in its eff orts to develop
LCA that were capable of competing in the market and that it would not have been
able to overcome this competitive disadvantage by the end of the reference period.2527
6.1469. The Appellate Body then set about more closely examining the panel's causat ion findings
as they related to the two "unlikely" counterfactual scenarios2528, ultimately ruling that:
{T}he Panel's conclusion that a non -subsidized Airbus would not have "achieved the
market presence it did over the period 2001 to 2006", which followed fr om its views
that a non -subsidized Airbus would be a "much weaker LCA manufacturer" with "at
best a more limited offering of LCA models", provided enough of a basis to establish a
"genuine and substantial relationship of cause and effect" in this case. 2529 (footnote
omitted)
6.1470. Again, in the light of the panel's separate assessment of the effects of the challenged
LA/MSF and non -LA/MSF subsidies, as well as the finding that only the LA/MSF subsidies were a
"genuine and substantial" cause of serious prejudice, we understand the Appellate Body's
confirmation of the panel's "unlikely" counterfactual analysis and related causation findings to
mean that the Appellate Body accepted that, in the "unlikely" counterfactual scenarios, the
challenged LA/MSF subsidies were in dispensable to Airbus' ability to compete with a full range of
quality LCA products against Boeing in the 2001 -2006 period, and to this extent, the cause of
serious prejudice to the interests of the United States.
6.1471. Having upheld all four of the panel's coun terfactual scenarios and related causation
findings, the Appellate Body continued its analysis and considered whether, as argued by the
European Union, a "fuller examination of the {'unlikely'} counterfactual scenarios … along the lines
of … five questions that the European Union asserts the Panel was required to examine to
'complete the counterfactual' would lead to a different conclusion". 2530 Before doing so, however,
the Appellate Body noted that, in its written submissions, the European Union had accepted not
only "'the Panel's finding that a non-subsidised Airbus would have had a smaller 'market presence'
in 2001-2006 compared to the market share and sales that Airbus actually obtained'" but also that
"'a non -subsidized Airbus would not have been able to launch the A300, A310, and A340 LCA
projects by the 2001 -2006 reference period'".2531 Thus, the Appellate Body focused its evaluation
of the merits of the European Union's remaining arguments concerning the panel's alleged failure
to "complete the {'unlikely' } counterfactuals" on the question whether there were "'significant
findings by the Panel and substantial evidence in the record supporting the conclusion that a non -
subsidised Airbus could have launched, sold and delivered by 2001 -2006, a single-aisle LCA and a
200-300 seat twin-aisle LCA, and launched and sold a 500+ seat LCA by 2001'."2532
6.1472. The Appellate Body reviewed the European Union's submissions and found that there was
no basis to accept them, concluding as regards the potential launch of an A320 -type and an
A330-type aircraft by 1987 and 1991 that:
We are not persuaded that the evidence on record should have led the Panel to
conclude that a non -subsidized Airbus could have launched a single -aisle LCA with

2526 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1266.
2527 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1267.
2528 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1267-1269.
2529 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1270.
2530 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1273.
2531 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1273 (quoting
European Union's appellant's submission, fn 456).
2532 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1273 (quoting
European Union's appellant's submission, fn 456). The Appellate Body considered the European Union's
arguments concerning the launch an A380-type aircraft in a separate section of its report. (Appellate Body
Report, EC and certain member States – Large Civil Aircraft, paras. 1273 and 1306-1356).

100-200 seats in or about 1987, and a twin -aisle LCA with 200 -300 seats in or about
1991.2533
6.1473. Thus, after finding: (a) that "the {panel's} conclusion under {the 'plausible'
counterfactual} scenarios … satisfies, without more, the 'genuine and substantial relationship'
standard articulated by the Appella te Body in US – Upland Cotton "2534; (b) that the panel's
conclusion pursuant to "unlikely" counterfactual scenarios "provided enough of a basis to establish
a 'genuine and substantial relationship of cause and effect'" 2535; and (c) that in any case, there
was no evidence on record to support the European Union's view that a "non -subsidized Airbus
could have launched a single -aisle LCA with 100-200 seats in or about 1987, and a twin -aisle LCA
with 200-300 seats in or about 1991"2536, the Appellate Body concluded as follows:
Therefore, we reject the European Union's claims that the Panel "presumed causation"
and failed to establish the required "chain of causation" in its assessment of whether
the displacement and lost sales were the effect of the LA/MSF subsidies with in the
meaning of Article 6.3(a), (b), and (c) of the SCM Agreement. For similar reasons, we
reject the European Union's allegations that the Panel failed to make an objective
assessment of the facts under Article 11 of the DSU. Instead, we find that the Panel's
analysis sufficiently established a "genuine and substantial" causal link between the
LA/MSF subsidies and the displacement and lost sales.2537 (emphasis original)
6.1474. Similarly, in a subsequent subsection of its report, the Appellate Body rejected the
European Union's assertion that a non -subsidized Airbus could have launched and sold a 500+
seat LCA by 2001. In particular, the Appellate Body found that, even assuming Airbus could have
launched a single-aisle and twin-aisle LCA in or about 1987 and 1991, r espectively, there were no
grounds to support the European Union's contention that "without LA/MSF", Airbus could have
launched the A380 (i.e. a 500+ seat LCA) by 2000.2538
6.1475. In rejecting the European Union's appeal in the manner described above, we understand
the Appellate Body to have affirmed the panel's causation analysis, and in particular, the panel's
reliance on either the "plausible" or the "unlikely" counterfactual scenarios to establish the
required "genuine and substantial" causal link between the eff ects of the pre-A350XWB LA/MSF
subsidies and the United States' serious prejudice claims under Article 6.3(a), (b) and (c) of the
SCM Agreement. It follows, therefore, that depending upon the (different) probabilities assigned to
the relevant counterfactua ls, the effects of the pre-A350XWB LA/MSF subsidies in the 2001 -2006
period may be characterized as having been indispensable to:
a. the very existence of Airbus, implying that in the absence of the pre -A350XWB LA/MSF
subsidies, Airbus would not have been pre sent on the market (the "plausible" scenario);
or
b. the ability of Airbus to offer a full range of competitive LCA, implying that in the absence
of the pre -A350XWB LA/MSF subsidies, a "much weaker" Airbus "with at best a more
limited offering of LCA models" 2539 would have been present on the market (the
"unlikely" scenario).
6.1476. In considering how to rely upon these adopted findings for the purpose of the analysis we
must perform in this compliance dispute, we recall that the Appellate Body concluded that the
panel's "plausible" counterfactual findings "without more" satisfied the "genuine and substantial"
causation standard.2540 The Appellate Body emphasized that it could "not ignore" these findings,
and indicated that "{o}n the contrary", the panel's findings that two of the four counterfactual
scenarios were "plausible" and the other two only "unlikely", were "important considerations in

2533 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1275.
2534 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1264.
2535 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1270.
2536 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1275.
2537 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1300.
2538 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1273 and
1352-1355.
2539 Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.1984 and 7.1993.
2540 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1264.

determining the extent to which the Panel was required to further pursue the counterfactual
analysis" beyond the "plausible" scenari os.2541 Indeed, nowhere did the Appellate Body state that
the panel should have pursued such further analysis, limiting itself to agreeing with the
European Union that the panel " could have provided a fuller analysis" of the "unlikely"
scenarios.2542
6.1477. As we see it, the Appellate Body's assessment of the panel's causation analysis reveals
not only that the panel's "plausible" counterfactual findings were alone a sufficient basis to
establish causation with respect to the effects of the pre-A350XWB LA/MSF subsidies, but also that
the panel did not need to explore any other, less probable, counterfactual scenarios in order to
carry out an "objective assessment of the matter". Indeed, on this latter point, we note that in a
subsequent appeal, the Appellate Body clarif ied that a "panel is not required to identify and
explore every possible hypothetical market scenario" in a serious prejudice dispute, "especially
where the parties themselves have not elaborated upon, or substantiated the likelihood of, such
possible scenarios".2543 Moreover, according to the Appellate Body, the "extent to which a panel
may or must elaborate upon the specific details of its constructed alternative will vary by case,
but, having selected a reasonable scenario, a panel should pursue its counter factual analysis in a
coherent and consistent fashion."2544
6.1478. In the light of these considerations, we will proceed to evaluate the alleged "product"
effects of the challenged LA/MSF subsidies in the present compliance dispute by using, as the
principal starting point of our analysis, the adopted "plausible" counterfactual findings from the
original proceeding. Indeed, given the Appellate Body's conclusion that these findings were
"without more" sufficient to establish a "genuine and substantial" causal connect ion between the
effects of the pre-A350XWB LA/MSF subsidies and the claimed instances of serious prejudice to the
United States' interests in the 2001 -2006 period2545, we believe that our "objective assessment of
the matter" in this compliance dispute could p roceed solely on this basis. 2546 Nevertheless, in
keeping with the approach adopted in the original proceeding to evaluating the merits of the
United States' submissions concerning the alleged "product" effects of LA/MSF, we will also explore
the parties' arg uments concerning the effects of the challenged LA/MSF subsidies in the post -
implementation period using the "unlikely" counterfactual scenario as the starting point of our
analysis.
6.1479. Thus, in the subsections that follow we evaluate the merits of the partie s' arguments
concerning the "product" effects of the challenged LA/MSF subsidies in the post -implementation
period, using the adopted findings with respect to the effects of the pre -A350XWB LA/MSF
subsidies up until the end of 2006 as the starting point of our analysis. We begin this evaluation by
first of all determining the effects of the pre -A350XWB LA/MSF in the post -implementation period,
before examining the extent to which the challenged LA/MSF subsidies (including the pre -
A350XWB LA/MSF subsidies) c aused Airbus to launch and bring to market the A350XWB as and
when it did.

2541 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1266 and 1272.
2542 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1267. (emphasis
added)
2543 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1020.
2544 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1020.
2545 We also take into account the guidance set out in Appellate Body Report, US – Large Civil Aircraft
(2nd complaint), para. 1020.
2546 Indeed, were we to find that the United States had failed to make out its case, using the "plausible"
counterfactual scenarios (i.e. the non-existence of Airbus) as the starting basis of our inquiry, it is apparent
that even relying upon the "unlikely" counterfactual scenarios (i.e. a "much weaker" Airbus) as the point of
departure of our analysis, the United States' claims would also have to fail.

The "product" effects of the pre -A350XWB LA/MSF on the A320, A330 and A380 in the
post-implementation period2547
Introduction
6.1480. We recall that the effects of the pre -A350XWB LA/MSF subsidies in the 2001-2006 period
were found to have brought about either: (a) the very existence and market presence of Airbus,
under the two "plausible" counterfactual scenarios; or (b) the ability of Airbus to offer a full range
of competitive LCA products, pursuant to the two "unlikely" counterfactual scenarios. In our view,
it follows from these findings that in order for the United States to succeed in its argument that
the pre-A350XWB LA/MSF subsidies have essentially the same "product" effects today, we would
need to be convinced that Airbus would not, in the absence of those subsidies, have developed and
brought to market since the end of 2006 the same or comparable families of A320, A330 and A380
LCA that Airbus actually sold and delivered after 1 Decem ber 2011. In other words, using the
"plausible" counterfactual scenarios as the starting point of our evaluation, we would have to be
convinced that the United States has demonstrated that either: (a) a non -subsidized Airbus would
not exist today; or (b) that any non-subsidized Airbus entity coming into existence after the end of
2006 would not have developed and brought to market the A320, A330 and A380 (or a
comparable range of LCA products), within a period of approximately five to nine years thereafter.
6.1481. Given what we know about the complexities of LCA production and the dynamics and
history of competition in the LCA industry2548, we find it difficult to believe that any non -subsidized
Airbus entity coming into existence after the end of 2006 could have dev eloped a full range of the
same or comparable LCA within such a short space of time. Indeed, the European Union has at no
stage in this proceeding argued that, in the absence of the challenged LA/MSF subsidies, Airbus
would have come into existence at any moment after 2006 and developed a full range of LCA by
1 December 2011 (or any time thereafter). Neither has the European Union argued that a "much
weaker" non-subsidized Airbus, with "at best a more limited offering of LCA models" 2549 during the
2001-2006 pe riod, could have developed the same or comparable range of LCA that it offers
today. Rather, the European Union's core argument in response to the United States' allegations
concerning the present-day "product" effects of the challenged LA/MSF subsidies is centred around
its view that any effects found to exist up to the end of 2006 have today either: (a) dissipated
over time; or (b) been significantly attenuated by a number of non -subsidized Airbus investments
in the A320 and A330. Additionally, and in the alternative, the European Union submits that any
lingering present-day effects of the challenged LA/MSF subsidies are not the cause of any present
adverse effects because the United States' claims of Boeing lost sales and displacement in the
various LCA product markets can be explained by a number of different factors that are unrelated
to the effects of LA/MSF. We examine the first two of the European Union's responses to the
United States' arguments in the subsections that follow. The merits of the Europ ean Union's
alternative line of argument is considered in the final part of our analysis of the
United States' claims of Boeing lost sales, impedance and displacement in the various LCA product
markets.
The passage of time
6.1482. Recalling that the Appellate Body found in US – Upland Cotton (Article 21.5 – Brazil) that
compliance with Article 7.8 of the SCM Agreement "will usually involve some action by the
respondent Member"2550, and that a responding Member "would normally 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" 2551, the United States argues that the European Union's
reliance upon the passage of time to establish compliance in this dispute canno t be accepted,
because it fails to come to terms with the long -lasting and profound nature of the effects of the

2547 We examine the effects of LA/MSF on the launch and bringing to market of the A350XWB separately
below at paras. 6.1535-6.1778.
2548 See e.g. Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.1623,
7.1717-7.1718, 7.1914-7.1916, and 7.1981-7.1984.
2549 Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.1984 and 7.1993.
2550 United States' second written submission, para. 3 (quoting Appellate Body Report, US – Upland
Cotton (Article 21.5 – Brazil), para. 236).
2551 United States' second written submission, para. 395 (quoting Appellate Body Report, US – Upland
Cotton (Article 21.5 – Brazil), para. 236).

challenged LA/MSF subsidies. 2552 The United States submits that if, as the Appellate Body has
found, abstaining from taking affirmative action is "normally" insufficient, it is particularly
inadequate in the present circumstances, given that LA/MSF was found to cause adverse effects in
an industry with long product life cycles. Thus, regardless of the alleged expiry of the oldest
subsidies examined in the original proceeding, the United States claims that the challenged
LA/MSF subsidies continue to cause serious prejudice to its interests, with Airbus' present product
line still consisting of LCA created by LA/MSF; Airbus and Boeing continuing to com pete for sales;
and Airbus retaining its position as the world's largest producer of LCA. In this context, the
United States submits that if the European Union were found to be in compliance with its
obligations under Article 7.8 of the SCM Agreement in the absence of having taken any affirmative
compliance action, "then the Appellate Body's guidance would be turned on its head, since there
would be no principled reason why any responding Member with a compliance obligation under
Article 7.8 could not follow the European Union's example".2553
6.1483. The European Union rejects the United States' position, arguing that the United States
misunderstands the implications of the Appellate Body's findings for the purpose of this compliance
dispute. The European Union observes that the Appellate Body's statements in US – Upland Cotton
(Article 21.5 – Brazil) do not establish that affirmative action is necessary to conform with the
prescriptions of Article 7.8 of the SCM Agreement, but only that affirmative action will be requ ired
under "usual" or "normal" circumstances. Moreover, the European Union maintains that the
United States' arguments concerning the long -lasting nature of the effects of the challenged
LA/MSF subsidies ignore the Appellate Body's guidance that "generally , the effects of any subsidy
can be expected to diminish and eventually come to an end with the passage of time". 2554
According to the European Union, it follows from this and other Appellate Body guidance that the
importance of the passage of time to a deter mination of compliance with Article 7.8 of the
SCM Agreement will depend upon the specific temporal context of the relevant dispute. In this
respect, the European Union submits that given the "length of time that has passed since the end
of the original re ference period" and "the 1969 grant of the first subsidies at issue in the original
proceeding"2555, the temporal circumstances of the present dispute are not "usual" or "normal" 2556,
making the passage of time particularly important. Because, in the view of the European Union,
the United States has failed to account for the impact of the passage of time on the effects of the
challenged LA/MSF subsidies, the European Union submits that the United States has failed to
establish the "genuine and substantial" causal link needed to substantiate its claims of serious
prejudice.2557
6.1484. We agree with the European Union when it argues that there is no obligation to take
affirmative action in order to comply with the requirement in Article 7.8 of the SCM Agreement to
"take appropriate steps to remove the adverse effects" in situations where it is alleged that the
effects of a subsidy have dissipated over time. In our view, this conclusion necessarily follows from
the effects -based disciplines of Article 5 of the SCM Agreement. T hus, to the extent that the
United States argues that the European Union and certain member States have failed to comply
with Article 7.8 solely because of the absence of any affirmative action on their part to "remove
the adverse effects", the United States misinterprets Article 7.8 as well as the guidance provided
by the Appellate Body in previous disputes.
6.1485. Having said that, however, we do not understand the United States to have failed to
account for the passage of time in the arguments it has presented concerning the effects of the
challenged LA/MSF subsidies. On the contrary, the United States has on a number of occasions
explicitly recognized that the effects of the challenged LA/MSF subsidies will diminish over time

2552 United States' second written submission, paras. 397 and 400.
2553 United States' second written submission, para. 396.
2554 European Union's first written submission, paras. 493, 507, and 554-557 (citing, inter alia,
Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 709, 713, 714, 1236, and
2555 European Union's second written submission, paras. 590-591.
2556 European Union's first written submission, para. 34; and second written submission, paras. 83,
88-89, and 1213.
2557 European Union's first written submission, paras. 493, 507, 554-557, 640, 644, 645, 650, 727, 872,
and 874-875; second written submission, paras. 590-593; response to Panel question No. 46; and comments
on the United States' response to Panel question No. 42.

and eventually come to an end.2558 As opposed to the European Union, however, the United States
maintains that the passage of time has not brought about the end of the effects of the challenged
LA/MSF subsidies. Rather, according to the United States, because of inter alia the design,
structure and operation of LA/MSF, the magnitude of the LA/MSF subsidies and the long product
life cycles of LCA, the effects of the challenged LA/MSF subsidies are of such a profound and
long-lasting nature that, on the whole, the same "product" effects found to exist in the 2001-2006
period continue to be present today.2559
6.1486. Thus, as we see it, the disagreement between the parties is not about whether the effects
of the challenged LA/MSF subsidies may or will eventually dissipate over time, but rather whether
the passage of time has, as a matter of fact , resulted in those effects coming to an end in the
period that is relevant for this compliance dispute.
6.1487. We recall that in the original proceeding, the Appellate Body emphasized the importance
of the passage of time to the assessment of the effects of a subsidy on a number of occasions,
including through the following statements:
The Panel was of the view that the concept of "continuing benefit" may be relevant for
purposes of assessing how the effect of a subsidy is to be analyzed over time, and
considered this to be an aspect of the causation analysis to be undertaken pursuant to
Articles 5 and 6 of the SCM Agreement and part of an assessment of the "effects" of a
subsidy under these provisions. It is relevant, in our view, to examine the trajectory
of the life of a subsidy in order to determine whether a Member is causing, through
the use of any subsidy, adverse effects to the interests of another Member within the
meaning of Article 5 of the SCM Agreement. Moreover, 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 .2560 (emphasis original; underline added;
footnote omitted)
In previous sections of this Report, we have found that a challenge to subsidies
granted prior to 1 January 1995 is not precluded. We have also found, however, that,
in order properly to assess a claim under Article 5 of the SCM Agreement, a panel
must take into account in its ex ante analysis how a subsidy is expected to materialize
over time. A panel is also required to consider whether the life of a subsidy has ended,
for example, by reason of the amortization of the subsidy over the relevant period or
because the subsidy was removed from the recipient. Moreover, we have emphasized
that the effects of a subsidy will generally diminish and come to an end with the
passage of time.
Regarding the effects of subsidies over time, the Panel found that:
{w}hile the effect of a single subsidy may we ll dissipate over time , … ,
the fact that the subsidies at issue in this dispute were repeatedly granted
over the entire history of Airbus' LCA development with respect to that
same product has had rather the opposite effect , through the learning
and spill over effects, and production synergies that are inherent in this
industry, which spread the effect of LA/MSF for the development of one
model of LCA, and of other subsidies, to both subsequent and earlier
models.
We do not agree that it is only the effect of a "single subsidy" that would dissipate
over time, while multiple subsidies may have the "opposite effect". To the contrary, in
general, the effects of any subsidy can be expected to diminish and eventually come
to an end with the passage of time. This is true for single as well as multiple acts of
subsidization. The question of whether there are residual effects is a fact -specific

2558 United States' second written submission, paras. 400-402; and comments on the European Union's
2559 United States' second written submission, paras. 395-402; and comments on the European Union's
response to Panel question 46.
2560 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 714.

matter that may have to be considered. 2561 (emphasis original; underline added;
footnote omitted)
6.1488. Like the parties, we understand the Appellate Body's position to be that the effects of any
subsidy will eventually come to an end with the passage of time. Moreover, it is also apparent from
the Appellate Body's statements that the precise duration of the effects of a subsidy will depend
upon the specific facts of the case at hand, including any pertinent facts shedding light on how the
"life" of a subsidy has materialized over time. We note, however, that in emphasizing the
importance to an adverse effects analysis of considering "th e trajectory of the life of a subsidy",
"how a subsidy is expected to materialize" and "whether the life of a subsidy has ended", the
Appellate Body at no stage equated the end of the "life" of a subsidy with the complete dissipation
of its effects. On the contrary, elsewhere in its report, the Appellate Body explicitly recognized that
the "life" of a subsidy will not necessarily define the duration of its effects. For instance, in
upholding the panel's finding on the temporal scope of Article 5 of the SCM Agreement, the
Appellate Body explained:
By its terms, Article 5 of the SCM Agreement imposes an obligation on Members not
to cause adverse effects to the interests of other Members through the use of any
subsidy as defined in Article 1. We disagree with t he proposition that this obligation
does not arise in respect of subsidies that have come to an end by the time of the
reference period. In fact, we do not exclude that, under certain circumstances, a past
subsidy that no longer exists may be found to caus e or have caused adverse effects
that continue to be present during the reference period.
… We wish to emphasize, however, that {the} effects of a subsidy will ordinarily
dissipate over time and will end at some point after the subsidy has expired . Indeed,
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.2562 (emphasis added)
6.1489. Thus, the extent to which the effects of a subsidy will dissipate with the passage of time
and eventua lly come to an end will be a fact-specific matter that may be informed, but not
necessarily defined, by how the "life" of that subsidy has evolved over time.
6.1490. Turning to the effects of the challenged LA/MSF subsidies in the post -implementation
period, we recall that the ex ante lives of all of the A300, A310 and A320 LA/MSF subsidies came
to an end before the conclusion of the 2001 -2006 reference period.2563 Yet the effects of the very
same subsidies, together with the effects of all other challenged LA/MSF su bsidies, were found in
the original proceeding to be a "genuine and substantial" cause of serious prejudice to the
interests of the United States. Thus, for example, the panel in the original proceeding found that
the United States had substantiated its cl aims of significant lost sales to Boeing in the 2004 Air
Berlin and 2005 Czech Airlines and Air Asia sales campaigns involving the A320, by which time the
ex ante lives of the A300, A310 and A320 LA/MSF subsidies had already expired. The
Appellate Body upheld these findings, concluding specifically that the very same "lost sales were
the effect of the challenged LA/MSF measures".2564
6.1491. Of course, it was possible for the panel and Appellate Body to come to their respective
conclusions because of the nature of the effects of LA/MSF. We see no reason why the logic that
motivated these findings, which we explain and explore in more detail below, should not be equally
applicable for the purpose of determining the extent to which the effects of the challenged LA/MSF
subsidies in this compliance proceeding have dissipated and come to an end with the passage of
time. Indeed, in this respect, we recall that the Appellate Body has previously stated that:
{P}roceedings under Article 21.5 of the DSU do not occur in isolation , but are part of
a "continuum of events", and "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

2561 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1236-1238.
2562 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 712-713.
2563 See above paras. 6.879 and 6.1076.
2564 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1414(p).

the reasoning in the original panel report in the absence of any ch ange in the
underlying evidence in the record".2565 (footnotes omitted)
6.1492. Once again, we recall that the effects of the pre -A350XWB LA/MSF subsidies were found
in the original proceeding to have enabled Airbus to launch and bring to market the full range of
Airbus LCA that was being sold and delivered in the 2001 -2006 period. These findings were based
on the existence of two types of effects attributable to the LA/MSF subsidies: (a) direct effects –
namely, the effects of any given LA/MSF loan on Airbus' ability to launch and bring to market the
particular model of Airbus LCA specifically funded by that LA/MSF loan; and (b) indirect effects –
namely, the "learning", scope and financial effects that any given LA/MSF loan provided for the
specific purpose of one mod el of LCA may have on the ability of Airbus to launch and bring to
market another model of LCA.2566
6.1493. The United States maintains that the direct effects of LA/MSF will diminish over time as a
specifically funded "model's competitiveness diminishes with the adv ent of new competing
products and technologies, and as operators retire that model from their fleets". Accordingly, the
United States acknowledges that the direct effects of any given LA/MSF loan will "decline
significantly with the termination of any LCA programme".2567 As for the indirect effects of LA/MSF,
the United States submits that these will "persist as long as the subsequent, benefitting LCA
programmes remain in production, although {their} significance … over time will vary according to
the circumstances".2568 Thus, the United States argues that the indirect effects of LA/MSF provided
for a "relatively old model (for example the A300) will tend to diminish over time, particularly
where its sales (and thus revenue generation) are modest or low, and where the technology and
learning benefits … have more limited applicability on more recent models".2569
6.1494. The European Union disagrees with the United States' assertions concerning the duration
of the direct and indirect effects of LA/MSF. 2570 According to the Europe an Union, the
United States' position ignores the implications of the Appellate Body's guidance on the importance
of the passage of time to the identification of the effects of the challenged LA/MSF subsidies. For
example, the European Union recalls that t he Appellate Body found in the original proceeding that
"LA/MSF for the A300 and A310 are likely to cause minimal, if any, adverse effects during the
reference period 2001 -2006".2571 Moreover, the European Union maintains that the
United States' assertions fail to account for the fact that "the last of the A300 and A310 {LA/MSF}
loans … were provided around the same time that the A320 and A330/A340 basic {LA/MSF} loans
were provided".2572
6.1495. We note that while arguing that the duration of the effects of the A300/A3 10 LA/MSF
subsidies should be informed by the fact that "the last of the A300 and A310 {LA/MSF} loans …
were provided around the same time" as the LA/MSF loans for the A320 and A330/A340 basic, the
European Union has provided no explanation about the exten t to which this temporal coincidence
impacts how the direct and indirect effects of those subsidies found to exist in the original
proceeding may have evolved since the end of 2006. The European Union recalls the
Appellate Body's finding that the A300/A310 LA/MSF subsidies "are likely to cause minimal, if any,
adverse effects during the reference period 2001 -2006"; yet the European Union does not clearly
explain the implications of this finding for determining the extent to which the effects of those
subsidies may or may not continue to exist in the present.
6.1496. While it is true that the Appellate Body found in the original proceeding that the A300 and
A310 LA/MSF subsidies were "likely to cause minimal, if any, adverse effects during the reference

2565 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 386 (quoting
Appellate Body Reports, US – Softwood Lumber VI (Article 21.5 – Canada), para. 103; and Mexico – Corn
Syrup (Article 21.5 – US), para. 121).
2566 See further above, fn 2470.
2567 United States' second written submission, para. 400.
2568 United States' second written submission, para. 401.
2569 United States' second written submission, para. 402.
2570 European Union's response to Panel question No. 46, para. 120.
2571 European Union's comments on the United States' response to Panel question No. 42 (quoting
Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1241).
2572 European Union's comments on the United States' response to Panel question No. 42,
paras. 213-215.

period 2001-2006"2573, it is important to recall that the Appellate Body also upheld the entirety of
the panel's causation findings with respect to the LA/MSF subsidies. As already explained, these
findings were inextricably linked to the panel's conclusions concerning t he direct and indirect
effects of all of the LA/MSF subsidies, including those provided for the launch and development of
the A300 and A310. In particular, we recall that the panel evaluated the effects of the
pre-A350XWB LA/MSF subsidies on the launch and bringing to market of Airbus LCA on a
model-by-model basis. In exploring the effects of the LA/MSF subsidies for the A310, the panel
began its analysis by making the following observations about the importance of the experience
gained in the development and production of one model of LCA in the development and production
of subsequent models:
That static and dynamic ("learning curve") economies of scope and scale achieved in
the context of one model of LCA are an important part of the development and
production of other LCA models has also been recognized by economists. It is
undisputed that LCA projects involve complex development and production
technology. Therefore, knowledge and experience gained in the development and
production of one model of aircraf t will tend to lower the costs of development and
production of subsequent aircraft.2574 (footnote omitted)
6.1497. With these considerations in mind, the panel stated that it was satisfied that the evidence
demonstrated that "the A310 benefited from Airbus' earlier successful development of the A300".
Thus, the panel found that "had Airbus not obtained LA/MSF for the A300, and therefore not
launched, developed, and starting in 1974, sold the A300 as designed, we have little doubt that it
would not have been able to l aunch the A310 as originally designed in 1978." 2575 In other words,
the panel found that the launch and bringing to market of the A310 was not only dependent upon
the direct effects of the A310 LA/MSF subsidies, but also the indirect effects of the A300 LA/MS F
subsidies.
6.1498. In examining the effects of LA/MSF on the remaining models of Airbus LCA, the panel
made the following findings with respect to the indirect effects of the A300/A310 LA/MSF
subsidies:
As regards the A320 -
There is little doubt in our minds th at the launch of the A320 in 1984, as originally
designed, was to a very large degree made possible by Airbus' successful launches of
the A300 and A310 over the previous decade with the assistance of LA/MSF.
Therefore, it is clear that the LA/MSF for these earlier models of LCA also benefited
the launch of the A320. Moreover, as we have already noted, the cost of obtaining
market financing for the A300 and A310, compared with LA/MSF, was significant.
However, even assuming Airbus had been able to launch bot h LCA models as
originally designed in 1969 and 1978, relying on market -based financing (something
we consider would have been highly unlikely), it would have been extremely difficult,
if not impossible, to launch the A320 in 1984 as originally designed, w ithout access to
LA/MSF.5650
5650 We note, in this regard, that while the A310 was launched in 1978, it was first put in service
and delivered to a customer in 1985. Thus, the LA/MSF for the A310 project was still
outstanding, and significant revenues were not yet being generated by that LCA at the time the
decision to launch the A320 was being made and implemented. The A300 had only been in
service since 1974, and we understand most of the LA/MSF for this project was also still
outstanding at the time the decision to launch the A320 was made in 1984.2576 (footnote original)

2573 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1239-1241.
2574 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1936.
2575 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1936.
2576 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1938.

With respect to the A330/A340 -
Again, we consider that LA/MSF provided for the previous LCA models, the A300,
A310 and A320, played a significant role in placing Airbus in a position to be able to
launch the A330/A340 project in 1987. 5654 However, even assuming Airbus had been
able to launch these earlier models without access to LA/MSF, (which we consider
would have been even less likely than the launch of the A320, but fo r the earlier
provision of LA/MSF for that model, as well as for the A300 and A310), it would have
been extremely difficult, if not impossible, to launch the A330/A340 project in 1987 as
originally designed, without access to LA/MSF.
5654 Again, we note that while the A320 was launched in 1984, it was first delivered to a customer
in 1988, after the launch of the A330/A340 in 1987. Thus, revenues were not yet being
generated by this model LCA at the time the decision to launch the A330/A340 in 1987 was
made, and repayment of LA/MSF received for the A320 had not yet begun.2577 (footnote original)

Concerning the A330-200 and A340-500/600 -
{A}s previously discussed, LCA have a complex production technology which results in
strong learning effects . Knowledge and experience gained in the development and
production of one model of aircraft will lower the costs of development and production
of subsequent aircraft launches. This is particularly true for derivative aircraft, where
the subsequently launched model is a variant of an existing model, as is the case with
these LCA models. 5657 Consequently we consider that the economic viability and,
indeed the very existence of the A330 -200, is dependent on the aircraft which
preceded it, including in particu lar the original A330 aircraft from which it is derived.
The relatively small development costs of the A330 -200 in our view are a function of
the fact that it is a derivative of the A330/A340, the launch of which, as we concluded
above, would not have occu rred as and when it did but for the LA/MSF granted in
respect of that aircraft. Thus, while the particular grant of LA/MSF specific to the
A330-200 may not have been necessary to its launch, on the whole, we conclude that
LA/MSF was necessary to the launch of the A330-200, as without the grant of LA/MSF
for the development of the original model (and all models preceding that model), the
A330-200 could not have been launched when it was without significantly higher
costs. (footnote omitted)
5657 "{S}ome production stages are not specific to a particular type of aircraft, such that learning
effects which are realized in the production of a generic aircraft can influence marginal cost of
producing another generic aircraft." Klepper, Exhibit US-377. The fact that such cross effects are
strong for updated versions of an aircraft, the so -called derivatives, is illustrated for the Airbus
A300 and its derivative the A310 in Klepper, Exhibit US-377, p. 778.2578 (footnote original)

Like the A330-200, the A340-500 and 600 are derivative aircraft whose development
was dependent upon the prior development and production of the original A340 model
from which they are derived. For the reasons discussed above, in considering the
impact of LA/MSF on the launch of such a derivative aircraft, we consider it
appropriate not only to consider the LA/MSF directly linked to the particular aircraft
model but also to consider the role that LA/MSF played in the launch of the aircraft on
which it is based, as well as all o ther Airbus LCA launched before it. 2579 (footnote
omitted)

2577 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1939.
2578 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1940.
2579 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1941.

6.1499. In connection with the A380 -
Finally, but for LA/MSF provided with respect to Airbus' launches of earlier models of
LCA, we do not consider that it would have been possible for Airbus to be in a posi tion
to launch the A380 in 2000. We have found that the cost for Airbus of obtaining
market financing for the A300, A310, A320 and A330/A340 would have been
many percentage points greater than what it actually was because of LA/MSF in each
instance. Given the amount of funding transferred to Airbus under the individual
LA/MSF contracts, and in the light of the formidable risks associated with the LCA
business and the learning curve effects that are necessary to successfully participate
in this sector, we ha ve found that it would not have been possible for Airbus to have
launched all of these models, as originally designed and at the times it did, without
LA/MSF. … Thus, while the A380 business case suggests, but by no means
demonstrates, that as a stand -alone proposition the project might have been
economically viable even without LA/MSF, in our view, that conclusion rests in part on
the assumption that at the time of the launch, Airbus would have been in a position to
not only design and manufacture the A380 , i.e., had the necessary development and
production technologies available to it, but also would have been able to obtain all the
necessary financing on market terms. However, Airbus' technical capabilities derived
in part from its experience in the devel opment of its earlier model LCA funded in
significant part by LA/MSF. Moreover, because of the significant amount of debt that
developing its previous models of LCA would have generated, we consider Airbus
would not have been in a position to obtain market financing for the A380, had it not
financed the development of its earlier model LCA in significant part through
LA/MSF.2580
6.1500. The Appellate Body examined these panel findings, and explicitly referred to them in
reviewing the basis of the panel's determination that a non -subsidized Airbus operating in the
"unlikely" counterfactual scenarios would be a "much weaker manufacturer" with "at best a more
limited offering of LCA". 2581 The Appellate Body identified no error in the panel's logic and
rationale, and ultimately declared that:
{T}he Panel's conclusion that a non -subsidized Airbus would not have "achieved the
market presence it did over the period 2001 to 2006", which followed from its views
that a non -subsidized Airbus would be a "much weaker LCA manufacturer" with "at
best a more limited offering of LCA models", provided enough of a basis to establish a
"genuine and substantial relationship of cause and effect" in this case. 2582 (footnote
omitted)
6.1501. The Appellate Body also explicitly relied upon the panel's findings with respect to the
"learning" and financial effects of LA/MSF in dismissing the European Union's argument that the
panel had erred by failing to find that, in the "unlikely" counterfactual scenarios, a non -subsidized
Airbus would have been able to launch an A320-type and an A330-type aircraft "in or about" 1987
and 1991, respectively. 2583 On this particular question, the Appellate Body made inter alia the
following findings:
We are not persuaded that the evidence on record should have led the Panel to
conclude that a non -subsidized Airbus could have launched a single -aisle LCA with
100-200 seats in or about 1987, and a twin -aisle LCA with 200 -300 seats in or about
1991. As noted earlier, the Panel found that LCA development is "enormously complex
and expensive" and "requires huge up-front investments". The Panel further described
the important economies of scope and scale, as well as learning effects , that are
characteristic of the LCA industry. Moreover, Panel also found that LA/MSF covered
90-100% of the development costs of the A300 and A310 at zero interest, up to 90%
of the development costs of the A320, and 60 -90% of the development costs of the

2580 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1948.
2581 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1269.
2582 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1270.
2583 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1274-1281.

A330/A340, and that the cost of obtaining market financing for the A300 and A310
was significant compared to LA/MSF. …
… As the Panel found, "{e}conomies of scale arising from the huge sunk development
cost give incumbent firms a considerable competitive advantage" and " {l}earning
effects induce dynamic economies of scale which reinforce incumbents' advantage."
In the scenario advanced by the European Union, the A320 -type aircraft would have
been the first aircraft launched by a non -subsidized Airbus. As a new entrant to the
market with less experience, it is not very plausible that a non-subsidized Airbus could
find similar financing conditions as those that were available to Boeing as an
incumbent LCA manufacturer. The scenario is also difficult to reconcile with the Panel's
finding that "{u}ncertainty is considerable, making it very difficult to finance the huge
development cost on capital markets."
… { W}e recall the Panel's finding that LA/MSF covered 90 to 100% of the
development costs of the A300 and A310 at zero interest. The European Union does
not indicate in its appellant's submission to what extent the 'lo sses incurred from the
A300/A310 projects' went beyond the development costs, which, as noted above,
were almost entirely covered by LA/MSF. Even assuming a non -subsidized Airbus
would have suffered lower losses, it would also have had lower revenues, as i t would
not have sold any A300 and A310 LCA . The impact of this loss of revenue is not
addressed by the European Union.2584 (emphasis added; footnotes omitted)
{T}he Panel found that "{l}earning effects, both with respect to development, and in
production, are significant", and that "static and dynamic ('learning curve') economies
of scope and scale achieved in the context of one model of LCA are an important part
of the development and production of other LCA models". … Indeed, the European
Communities submitted, before the Panel, that "{t}he important role of R&D means
that the learning curve is steep and even incremental technological innovation can
translate into decisive competitive advantage in the market". Without the "incremental
technological innovatio n" from the launch of the A300 and A310, it is not plausible
that a non -subsidized Airbus would have made the same technological progress, or
would have had as much know -how as Airbus did in the early 1980s after having
launched two LCA models. We also fail to see evidence on the record that should have
led the Panel to find that the same kind of technological progress and experience
gained through Airbus' development of two LCA models could have been gained by
merely delaying the launch of an A320 -type LCA by three years. Thus, we are not
persuaded that the evidence on the record would have permitted the Panel to
conclude that, had a non -subsidized Airbus been able to launch an aircraft in the
late 1980s and/or 1990s, it would likely be technologically supe rior to the A320 and
A330.2585 (emphasis added; footnotes omitted)
6.1502. Likewise, the Appellate Body drew from the panel's factual findings concerning "the
importance of learning curve effects in the LCA industry"2586 when it rejected the European Union's
contention that a non-subsidized Airbus, operating in the "unlikely" counterfactual scenarios, could
have launched the A380 in 2000, even assuming that it could have launched an A320 -type and an
A330-type LCA in 1987 and 1991.2587 In particular, the Appellate Body explained:
In our view, the Panel's conclusion that Airbus would not have been able to launch the
A380 in 2000 relying exclusively on market financing but for LA/MSF provided in
relation to earlier models of LCA would hold even in the counterfactual scenario
posited by the European Union, in which Airbus would have been able to launch a
single-aisle LCA in 1987 and a twin -aisle LCA in 1991. While in this scenario Airbus'
debt load would have been smaller in absolute terms, Airbus' revenues would also be
smaller as a result of a narrower counterfactual product offering. As a result, in the
counterfactual scenario posited by the European Union, Airbus would not necessarily

2584 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1275-1277.
2585 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1281.
2586 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1355.
2587 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1350-1355.

have been in a stronger financial position to launch the A380 in 2000 relying
exclusively on market financing . Thus, even if the Panel would have accepted the
counterfactual posited by the European Union, this would not have invalidated its
ultimate conclusion that but for LA/MSF provided with respect to Airbus' earlier models
of LCA, it would not have been possible for Airbus to launch the A380 in 2000 relying
exclusively on market financing.2588 (emphasis added)
In our view, the counterfactual scenario posited by the European Union does not
invalidate the Panel's ultimate conclusion that Airbus' tec hnical capabilities were
derived in large part from its experience in the development of earlier models of LCA .
Given the Panel's earlier factual finding concerning the importance of learning curve
effects in the LCA industry , it can only follow that a cou nterfactual Airbus with a
narrower product offering would have accumulated less technical experience than
Airbus actually did in the development of its full range of LCA. Following this logic, a
non-subsidized Airbus that had developed fewer LCA models wou ld have accumulated
less technical experience than the subsidized Airbus actually did, which in our view
supports the Panel's conclusion that the launch of the A380 would not have occurred
in 2000 without LA/MSF.2589 (emphasis added; footnote omitted)
6.1503. Thus, the Appellate Body not only affirmed the panel's entire set of findings with respect
to "product" effects of LA/MSF, but it also explicitly used the panel's conclusions and reasoning
concerning the indirect effects of LA/MSF to dismiss the European Union's contentions about the
market presence of a non-subsidized Airbus in the "unlikely" counterfactual scenarios. In our view,
the Appellate Body's findings necessarily imply that it must have accepted that the indirect effects
of the A300/A310 LA/MSF subsidies were more than "minimal" or non -existent in the relevant
period. Indeed, given that the A300 and the A310 were the first two LCA ever brought to market
by Airbus, and that LA/MSF covered close to 100% of the development costs of the former and
90% or 100% of the development costs of the latter, it could well be expected that, at the very
least, the "learning" effects of the A300/A310 LA/MSF subsidies would have been quite strong and
long-lasting.2590 We therefore read the Appellate Body's statement that the L A/MSF subsidies for
the A300/A310 were "likely to cause minimal, if any, adverse effects during the reference period
2001-2006"2591, to have been focused on the direct effects of those subsidies. Moreover, having in
this way effectively articulated separate f indings with respect to the direct and indirect effects of
the A300/A310 LA/MSF subsidies, we understand the Appellate Body to have also signalled that
the duration of the direct and indirect effects of LA/MSF is likely to be connected in different ways
to the extent to which those effects contribute to the ongoing market presence of one or more
particular LCA over time . This characterization of the Appellate Body's findings is, we believe,
supported by not only the nature of the effects of LA/MSF, but also the facts pertaining to the
market presence of the relevant Airbus LCA.
6.1504. Starting with the nature of the direct effects of LA/MSF, we recall that LA/MSF for the
A300 and A310 covered close to 100% and between 90% and 100% of their respective
development costs and that, in the absence of this financing, Airbus could not have launched and
brought to market the six different versions of the two models of LCA between 1969 and 2004. 2592
While the market presence of both models of LCA came about because of the direc t and indirect
effects of LA/MSF, it is apparent from the findings made in the original proceeding that the direct
effects played a significant, if not critical, role. 2593 In other words, without the direct effects of the
A300/A310 LA/MSF subsidies, the A300 and A310 would simply not have existed. Indeed, the
European Union accepted during the original proceeding that even in the "unlikely" counterfactual

2588 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1352.
2589 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1355.
2590 As the first two LCA produced by Airbus, it is apparent that Airbus' experience with the A300 and
A310 would have enabled it to develop critical expertise and know-how that it would otherwise not have had in
relation to inter alia: (a) the design, development and production of LCA; (b) the management of LCA projects
and the significant risks and challenges such projects pose; and (c) the marketing and sales of LCA (including
how to establish and manage LCA customer relationships). We discuss "learning" and other indirect effects of
LA/MSF further below, at paras. 6.1510-6.1511.
2591 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1241.
2592 We recall that French, German and Spanish government interest-free LA/MSF loans were used by
Airbus to fund the development costs of the following six versions of the A300 and A310: A300B, A300B2,
A300B4, A300-600, A310-200, and A310-300.
2593 Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.1933-7.1936.

scenarios where a non -subsidized Airbus would have existed, the A300 and A310 could not have
been launched by the 2001-2006 period without LA/MSF. 2594 Thus, it is undisputed that the direct
effects of the A300/A310 LA/MSF subsidies had a profound impact, bringing about the very
existence and market presence of the A300 and A310. Logically, therefore, the duration of the
direct effects of the A300/A310 LA/MSF subsidies must have endured for the entire marketing lives
of the two aircraft models, as in the absence of those effects, the A300 and A310 would have
simply never existed and therefore never been sold or delivered.
6.1505. The facts surrounding the market presence of the A300 and A310 suggest that this may
have been what the Appellate Body had in mind when it found that the A300/A310 LA/MSF
subsidies were "likely to cause minimal, if any, adverse effects during the r eference period
2001-2006".2595 During the 2001-2006 period, only one of the six versions of the A300 and A310
developed with LA/MSF, the A300 -600, was actually present on the market and being delivered.
With the last deliveries of all other versions of the A 300 and A310 having been completed well
before 20012596, the A300 -600 was the only version of the A300/A310 capable of winning sales
from Boeing in the 2001-2006 period. The marketing lives of all other LCA specifically funded with
the challenged A300/A310 LA/MSF subsidies had, therefore, come to an end before the 2001-2006
period. Thus, when measured on the basis of marketing lives, the direct effects of the A300/A310
LA/MSF subsidies in the 2001 -2006 period were only a fraction of what they were in the past. In
our view, these facts support our understanding of the Appellate Body's findings concerning the
"minimal, if any" adverse effects caused by the A300/A310 LA/MSF subsidies in the 2001 -2006
period.
6.1506. The United States argues that the direct effects of all of the challenged LA/MSF subsidies
should be measured in essentially the same way – that is, on the basis of the duration of the
marketing life of the relevant LCA programme specifically funded by any given LA/MSF measure.
In our view, however, whether the duration of the direct effects of LA/MSF should reflect the entire
marketing life of a specifically funded LCA programme will depend upon the particular facts. Thus,
for example, where, as in the case of the A300 and A310, it is clear that the very existe nce and
ongoing market presence of a particular LCA programme is dependent upon a specific grant of
LA/MSF, it would make sense, as a matter of logic, to consider that the direct effects of that
LA/MSF would be likely to continue for the entire duration of the marketing life of the financed
aircraft, as in the absence of those direct effects, no LCA would exist.
6.1507. On the other hand, where LA/MSF provided for the specific purpose of launching and
bringing an aircraft to market is not critical to its very exis tence2597, then the direct effects of the
relevant LA/MSF funding could not normally be said to last for the entire marketing life of the
relevant programme. Such a situation might arise, for example, where LA/MSF enabled Airbus to
develop and bring to market a particular aircraft only a few years in advance of what would have
been the case without LA/MSF . Thus, for example, assuming that a particular subsidized LA/MSF
measure enabled Airbus to launch and bring to market an LCA five years ahead of when it woul d
otherwise have been possible without that LA/MSF, it is likely that the direct effects of that LA/MSF
would normally be felt for only five years. Because, in the absence of the specific LA/MSF subsidy,
the same aircraft would exist five years later 2598, it is likely that the direct effects of the relevant

2594 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1273.
2595 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1241.
2596 The final deliveries of the A300B, A300B2, and A300B4 took place in, respectively, 1974, 1983, and
1996, with the final A300-600 being delivered in July 2007. Similarly, the last deliveries of the A310-200 and
A310-300 were made in 1989 and 1998, respectively. Airbus terminated the A300/A310 programme in 2007.
(European Union's first written submission, paras. 168-172; Airbus Press Release, "A300, A310 Final Assembly
To Be Completed by July 2007", 7 March 2006, (Exhibit EU-116); and Declaration of Andrew Gordon, Head of
Airbus Market Analysis and Research, 31 January 2007, (Exhibit EU-432) (BCI), attachment B)
2597 We recall that the panel in the original proceeding found that it was likely that "the A330-200 could
have been launched even in the absence of the specific LA/MSF granted in respect of that programme" because
it was a derivative of the A330 and, therefore, required a comparatively small amount of funding to develop.
The original panel also found that the A380 business case suggested, "but by no means demonstrates", that as
a stand-alone proposition, the A380 might have been economically viable even without the A380 LA/MSF.
Ultimately, however, in respect of both models of LCA, the panel found that they could not have been launched
and brought to market in the absence of the indirect effects of other LA/MSF subsidies. (Panel Report, EC and
certain member States – Large Civil Aircraft, paras. 7.1940 and 7.1948)
2598 This example assumes that no major modications or improvements would have been made to the
original aircraft developed with LA/MSF in the five year period after its launch – in other words, that the

LA/MSF measure could no longer be said to be a "genuine and substantial" cause of its market
presence in that subsequent period. It follows, therefore, that the direct effects of the relevant
LA/MSF measure in this example would be likely to last for less than the entire marketing life of
the specifically funded LCA programme.
6.1508. In the light of the above considerations, we believe that it follows from the findings made
by the panel and the Appellate Body in t he original proceeding, that the duration of the direct
effects of any particular LA/MSF measure should be determined on the basis of the extent to which
those effects support the market presence of the specifically funded aircraft over time. Where the
facts show that the very existence and ongoing market presence of a particular aircraft
programme is dependent upon specifically designated LA/MSF funding, then as a matter of logic, it
is likely that the direct effects of that LA/MSF will continue to be felt throughout the marketing life
of the specifically funded aircraft. On the other hand, where the very existence and ongoing
market presence of an aircraft that was specifically funded with LA/MSF is no longer dependent
upon that funding, in the sense that the same aircraft would have been developed and brought to
market at some point in time without the specifically designated LA/MSF, then it would be highly
unlikely for the direct effects of that LA/MSF funding to endure throughout the entire marketing life
of the relevant LCA programme. Under such circumstances, it would be possible to explain the
ongoing market presence of the particular aircraft on the basis of some other factor unrelated to
the direct effects of LA/MSF, thereby signalling the dissipatio n of those effects and the end of the
relationship of "genuine and substantial" cause and effect.
6.1509. Turning to the nature of the indirect effects of LA/MSF, we recall that the panel's
causation findings in the original proceeding, which were entirely upheld and in large parts relied
upon by the Appellate Body, were inextricably linked to the "learning", scope and financial effects
of the LA/MSF subsidies across Airbus' different models of LCA.
6.1510. The "learning" effects of LA/MSF result from the extent to which LA/MSF enables Airbus
to launch and bring to market one particular model of LCA, and thereby develop the knowledge,
know-how and experience to support the launch and development of other models of Airbus LCA.
The panel found in the original proceeding tha t "learning effects" were "significant" in the LCA
industry, affecting both the development and production of LCA. 2599 Indeed, the panel considered
such effects to be a fundamental feature of the industry, shaping the ability of any potential new
entrant to compete with an incumbent producer. 2600 Likewise, the panel explained that economies
of scope are an important part of the development and production of LCA2601, making it difficult for
a new producer to enter only one market segment. 2602 Economies of scope arise wh en, for
example, basic aircraft design and components are shared across different models of LCA 2603,
making it possible to share inputs (and therefore spread costs) between the production processes
of different aircraft. The European Union recognizes that eco nomies of scope were among the
indirect effects found to have resulted from the pre -A350XWB LA/MSF subsidies challenged in the
original proceeding.2604

original aircraft is exactly the same as the aircraft developed five years later without LA/MSF. Where this is not
the case, it is conceivable that the market presence effects of the LA/MSF subsidies might well continue beyond
five years. However, this would be a fact-specific matter, depending upon inter alia the extent to which the
major modifications and improvements made to the original aircraft could not have been made in the absence
of its existence – for example, where the changes made resulted from "learning" experiences with that aircraft.
2599 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1623.
2600 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1717. Indeed, the notion
of "learning" effects was first studied and explored in the economic literature specifically in relation to the
aircraft sector. See discussion in C. Lanier Benkard, "Learning and Forgetting: The Dynamics of Aircraft
Production", (2000) American Economic Review, pp. 1034-154.
2601 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1936 (citing Damien
Neven & Paul Seabright, European Industrial Policy: The Airbus Case (1995), (Neven & Seabright), (Original
Exhibit US-382)).
2602 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1717 (citing
Gernot Klepper, Entry into the Market for Large Transport Aircraft, 34 European Economic Review, 775 (1990),
(Original Exhibit US-377).
2603 Neven & Seabright, (Original Exhibit US-382), p. 15.
2604 See e.g. European Union's response to Panel question No. 46, para. 115 ("Indeed, the so-called
'primary' and 'secondary' effects, as described by the United States, appear to cover all of the effects of the
subsidies that were determined to cause adverse effects" in the original proceeding). (emphasis original)

6.1511. The financial impact of launching and bringing to market one particular LA/MSF -funded
model of Airbus LCA on Airbus' ability to develop and market other models of LCA was also
identified to be an important indirect effect of LA/MSF. The financial effects of LA/MSF result from
not only the impact of the "learning" and scope effects on the cost of financing new models of LCA,
but also the revenues generated from sales and deliveries of LCA that would not exist in the
absence of LA/MSF, as well as the below -market interest rates charged on the repayment of
LA/MSF. In terms of the first of these effects, the panel found in the original proceeding that the
"knowledge and experience gained in the development and production of one model of aircraft will
tend to lower the costs of development and production of subsequent aircraft". 2605 Such lower
costs will naturally reduce financing requirements for ongoing and future projects, thereby keeping
Airbus' debt below what it would otherwise be in the absence of LA/MSF. The effect of LA/MSF on
Airbus' debt burden was also recognized by the panel when it concluded that the costs of
market-based financing for the A300, A310 and A320 would have made it "extremely difficult, if
not impossible" for Airbus to have launched, respectively, the A310, A320 and A330/A340 without
LA/MSF.2606 Likewise, the panel found that "because of the signif icant amount of debt that
developing its previous models of LCA {on the basis of market -based financing} would have
generated, … Airbus would not have been in a position to obtain market financing for the
A380".2607 Finally, in dismissing the European Union's arguments concerning the ability of Airbus to
launch the A380 in 2000 on the assumption that Airbus could have already had an A320 -type and
an A330-type aircraft on the market, the Appellate Body recognized the positive effect of LA/MSF
on Airbus' revenue streams, finding that Airbus "would not necessarily have been in a stronger
financial position … relying exclusively on market financing", given that its "revenues would also be
smaller as a result of a narrower counterfactual product offering".2608
6.1512. Given the "huge up -front investments" and "enormously complex" technologies involved
in developing LCA, it is apparent that the "learning", scope and financial effects of LA/MSF must
have played a significant, and in some cases, even critical, role in Airbus' abi lity to launch and
bring to market all of its models of LCA after the A300. Indeed, it is undisputed that "learning"
effects are fundamental to the very existence of any competitive LCA producer. This does not,
however, mean that each and every LA/MSF subs idy had exactly the same indirect effects on all
models of Airbus LCA. Rather, the extent to which one or more aircraft benefited from the indirect
effects of LA/MSF depends upon how the "learning", scope and financial effects associated with the
financing of one specific model of LCA impact the launch and bringing to market of one or more
other models. Thus, for example, as we explain in the next subsection of this Report, the
"learning" effects resulting from the A380 LA/MSF subsidies were overall relativ ely more important
in the launching and bringing to market of the A350XWB compared with those resulting from any
other individual LCA developed by Airbus with the assistance of LA/MSF.2609 Indeed, given the very
nature of "learning" effects, it is likely that they will be strongest between models of LCA that are
launched, developed and/or produced during overlapping periods of time. It is, therefore, difficult
to attribute the launch and bringing to market of the A350XWB to more than only relatively weak
"learning" effects and minor, if any, scope and financial effects associated with the A300/A310
LA/MSF subsidies. 2610 This is because, as argued by the United States, the indirect effects of
LA/MSF provided for a "relatively old model (for example the A300) will tend to diminish over time,
particularly where its sales (and thus revenue generation) are modest or low, and where the
technology and learning benefits … have more limited applicability on more recent models".2611
6.1513. In the light of the above considerations, we believe that it follows from the findings made
by the panel and Appellate Body in the original proceeding, that the duration of the indirect effects
of LA/MSF should be determined on the basis of the extent to which the "learning", scope and
financial eff ects associated with any given LA/MSF measure provided for the purpose of one
specific model of LCA support the market presence of one or more other models of LCA over time.
Thus, where the very existence and ongoing market presence of an LCA is dependent upon the
"learning", scope and financial effects resulting from one or more prior LA/MSF subsidies, it is

2605 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1936.
2606 Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.1936, 7.1938, and
7.1939.
2607 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1948.
2608 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1352.
2609 See below paras. 6.1747-6.1760.
2610 See below fns 3222 and 3248.
2611 United States' second written submission, para. 402.

likely that the indirect effects of those prior LA/MSF subsidies will continue to be felt throughout
the marketing life of the relevant aircraft programme.
6.1514. For all of the above reasons, we are therefore unable to agree with the European Union's
arguments concerning the impact of the passage of time on the effects of the challenged LA/MSF
subsidies in this dispute. The adopted findings from the original proceeding establish that the
effects of LA/MSF were twofold and profound, bringing about the very existence of Airbus in the
two "plausible" counterfactual scenarios and, therefore, its market presence with a full range of
LCA in the 2001 -2006 period. Ev en under the two "unlikely" counterfactual scenarios, it is
apparent that the direct and indirect effects of LA/MSF were significant, because in their absence,
Airbus would have been a "much weaker" company "with at best a more limited offering of LCA
models" in the 2001-2006 period. Indeed, in the two "unlikely" counterfactual scenarios, the A300,
A310 and A340 would not have been launched; and while an A320 -type and an A330-type aircraft
might have been launched sometime after 1987 and 1991, this would have been on the basis of no
previous LCA experience at all with respect to the A320 -type aircraft and considerably less
experience and know-how than was the case with the original A330 with respect to the A330 -type
LCA. This strongly suggests that the non -subsidized LCA would have been of significantly inferior
quality. Moreover, even assuming that an A320-type and an A330-type aircraft had been launched
around 1987 and 1991, respectively, Airbus could not have also launched the A380 or any
comparable LCA by 2000.2612 Thus, even under the two "unlikely" counterfactual scenarios, it is
clear that Airbus could not have had the same range and quality of aircraft on the market in the
2001-2006 period in the absence of LA/MSF. In other words, Airbus' presence on the market with
the same or comparable range of quality aircraft would still be dependent upon LA/MSF even in the
two "unlikely" counterfactual scenarios.
6.1515. Finally, in our view, the fact that under all four counterfactual scenarios posited in the
original proceeding, the very existence and ongoing market presence in the 2001 -2006 period of
each individual model of Airbus LCA depended upon the direct and indirect effects of LA/MSF,
necessarily implies that, in the absence of any other reason to explain the ongoi ng market
presence of the relevant aircraft , those effects are likely to continue throughout the marketing
lives of the different aircraft programmes into the post -implementation period. In other words, in
the light of the adopted panel and Appellate Body causation findings confirming the fundamental
and profound "product -creating" nature of LA/MSF, we do not see how, as a factual matter, the
mere passage of time could have brought the relationship of "genuine and substantial" cause and
effect between the pre-A350XWB LA/MSF subsidies and the A320, A330 and A380 to an end while
those aircraft continue to be sold.
Post-launch investments in the A320 and A330 families
6.1516. The European Union submits that the United States errs when it argues that the effects of
the challenged LA/MSF subsidies are the "genuine and substantial" cause of present serious
prejudice to the United States' interests as a result of the market presence of the A320 and A330
families. According to the European Union, the "genuine and substantia l" cause of the ongoing
market presence of the A320 and A330 families is not the LA/MSF subsidies, but rather the
"massive", allegedly, non -subsidized investments Airbus has made into the two families of LCA
since they were launched in, respectively, 1984 and 1987. The European Union argues that these
investments have turned the two aircraft families into different, significantly upgraded, products
compared to those originally launched with the assistance of LA/MSF, thereby ensuring their
continued attracti veness to customers and explaining their enduring competitiveness. For the
European Union, this means that while the challenged LA/MSF subsidies were a necessary cause of
the launch of the original A320 and A330, the effects of those subsidies are today too remote to be
a "genuine and substantial" cause of any presently arising market effects.2613

2612 We recall that in dismissing the European Union's contentions about the ability of a non-subsidized
Airbus to compete effectively in the "unlikely" counterfactual scenarios, the Appellate Body found that even
assuming that Airbus had launched an A320-type and an A330-type LCA by 1987 and 1991, respectively,
Airbus would not have developed the necessary experience and expertise to also launch the A380 in 2000.
(Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1355)
2613 European Union's first written submission, paras. 728, 740, 768, 799, 865, 876, 885, and 904; and
second written submission, paras. 735-738.

6.1517. The European Union explains that since the A320 and A330 were launched, Airbus has
invested, respective to these LCA, at least EUR [***] billion and EUR [***] billion into the
following activities: (a) "Continuing Development"; (b) "Continuing Support"; (c) the design and
manufacture of three non -subsidized variants (the A321, A319 and A318) between 1988 and
1999; and (d) the setting -up of three new A320 FALs in Hambu rg (Germany) between 1993 and
2005, and one in Tianjin (China) in 2008. The European Union maintains that the value of these
investments "dwarf{s}" the initial development cost of the A320 and A330/A340 programmes, and
that it has resulted in significant t echnological advancements, enhanced production rates,
improved lead-times and lower costs of production.2614
6.1518. The European Union defines Airbus' "Continuing Development" investments to include
"investments into product and performance improvements, continued a irworthiness, flight test
activities, the customisation of major items, hardware and software sustaining, and cost reduction
initiatives".2615 Among the notable investments made in this area with respect to the A320 were
those that resulted in the introductio n of the A320neo in 2011 and the development of
"Sharklets".2616 The European Union asserts that the A320neo, which incorporates "Sharklets" and
is powered by new more fuel -efficient engines, was the "single -most significant technological
innovation since the launch of the original A320 in 1984".2617 The European Union explains that the
introduction of the new engines was a complex endeavour, requiring Airbus engineers to address
and resolve a number of significant challenges including the substantially increased loads and
performance requirements resulting from the much larger, heavier and more powerful engines.
Likewise, the European Union asserts that the development of "Sharklets", which the
European Union describes as "wing -tip devices" that "significantly en hance the aircraft's
aerodynamics and create fuel-burn savings of up to 3.5 per cent" 2618, required not only a "[***]"
but also a new "[***]"2619, including software changes. Thus, the European Union submits that
the technological novelties associated with both the "Sharklets" and the introduction of the
A320neo are more complex than a simple update of existing technologies, requiring significant
innovation, testing and production efforts.2620
6.1519. The European Union maintains that the Airbus investments which brought a bout an
increase in the maximum take -off weight (MTOW) of the A330 were among the most important
non-subsidized technological improvements made to the A330. The European Union explains that
an increase in the MTOW means that an aircraft can either carry ad ditional cargo over a given
distance or fly a longer -range with a given payload. 2621 According to the European Union, an
increased MTOW extends the range of operations that can be performed by an aircraft, making it
attractive to a wider range of customers. A nother series of non-subsidized investments that made
a significant improvement to the A330 focused on fuel -efficiency. The European Union describes

2614 European Union's first written submission, paras. 731-798 and 876-924; and second written
submission, paras. 743-821 (referring throughout to, inter alia, Mourey Statement, (Exhibit EU-8) (BCI);
Frank Vermeire, Head of A320 Marketing, Airbus, "Statement on the Market Significance of Technological and
Production Improvements to the A320 Programme", 5 July 2012, (A320 Marketing Statement), (Exhibit EU-9)
(BCI); Roland Rischer, Christian Reitz and Michel Palomeque, A320 Chief Engineering, Airbus, "A320 Chief
Engineering Statement", 3 July 2012, (A320 Chief Engineering Statement), (Exhibit EU-10) (BCI/HSBI);
Daniel Baubil, Head of A320 Program/Single Aisle, Airbus, "Declaration Regarding Investments in and Changes
to the Production of the A320 Family", 4 July 2012, (A320 Production Statement), (Exhibit EU-11) (BCI/HSBI);
A330 Marketing Statement, (Exhibit EU-12) (BCI); Vincent Lebas and Bruno Ley, A330 Chief Engineering,
Airbus, "A330 Chief Engineering Statement", 2 July 2012, (A330 Chief Engineering Statement), (Exhibit EU-13)
(BCI/HSBI); Summary of Investments in A320 Programme, (Exhibit EU-76) (HSBI); Summary of Investments
in A330/A340 Programme, (Exhibit EU-86) (HSBI); Statement by Roland Rischer and Christian Reitz, A320
Chief Engineering, 6 December 2012, (A320 Chief Engineering Rebuttal), (Exhibit EU-125) (BCI/HSBI); and
Statement by Vincent Lebas and Bruno Ley, A330 Chief Engineering, 7 December 2012 (A330 Chief
Engineering Rebuttal), (Exhibit EU-126) (BCI/HSBI)).
2615 European Union's first written submission, fn 926.
2616 European Union's first written submission, paras. 752-754.
2617 European Union's first written submission, para. 754.
2618 European Union's first written submission, para. 752.
2619 European Union's first written submission, para. 753.
2620 European Union's first written submission, paras. 745-760; and second written submission,
paras. 753-759 (referring throughout to, inter alia, A320 Chief Engineering Statement, (Exhibit EU-10)
(BCI/HSBI); A320 Chief Engineering Rebuttal, (Exhibit EU-125) (BCI/HSBI); Mourey Statement, (Exhibit EU-8)
(BCI); and A320 Marketing Statement, (Exhibit EU-9) (BCI)).
2621 European Union's first written submission, paras. 889-895; and second written submission,
para. 791.

these to include investments made for the purpose of improving or replacing certain systems with
newer, lighter systems, as well as changes made by engine manufacturers to their engines. 2622
The European Union maintains that all of these various design and system improvements involved
significant engineering challenges and were achieved at significant cost. 2623 Thus, the
European Union submits that, collectively, Airbus' investments into the continued development of
the A330 had a "significant impact on the A330's continued market position".2624
6.1520. The European Union defines Airbus' investments into "Continuing Support" act ivities to
include "investments into technical support, which are recurring activities linked to production; jigs
and tools maintenance, to keep these usable for production, and; specific and non -recurring
activities that relate to production and developme nt aircraft maintenance".2625 In this context, the
European Union points to a number of Airbus investments into buildings, infrastructure, jigs, tools
and productivity between 2005 and 2012 to be among the most important changes contributing to
Airbus' ability to secure market share. 2626 For instance, in terms of the A320, the European Union
explains that as a result of Airbus' investments into buildings and infrastructure, Airbus has been
able to increase production capacity from [***] aircraft per month in 1990 at a single final
assembly line (FAL) in Toulouse, to [***] aircraft per month at present at all three of its A320
FALs in Toulouse, Hamburg and Tianjin. 2627 Similarly, as regards the A330, the European Union
explains that two important improvements in terms of production capacity involved the [***] and
the flexibility added to the production process. 2628 According to the European Union, these and
other investments into Airbus' "Continuing Support" activities for the A320 and A330 have not only
brought about significant improvements to Airbus' production rates and lead -times, but they have
also resulted in reductions to Airbus' costs of production.2629
6.1521. The United States submits that the "genuine and substantial" causal link found to exist
between the LA/MSF subsidie s and the market presence of the A320 and A330 in the original
proceeding has not dissipated with the post -launch investments undertaken by Airbus. According
to the United States, whatever the contribution of the improvements made to the A320 and A330
to t heir present -day competitive position, the fact remains that, both as a financial and
technological matter, the current market presence of the two aircraft could not have been
achieved without the original A320 and A330, which themselves could not have bee n launched and
brought to market in the absence of LA/MSF. In this respect, the United States recalls the panel
and Appellate Body findings concerning the important role that LA/MSF had on Airbus' ability to
launch and bring to market successive LCA programmes, including derivative aircraft. For the
United States, these findings imply that Airbus could not have been in a position to market the
present-day versions of the A320 and A330, if it had not also developed the technical expertise
and achieved the revenue streams from the original A320 and A330 that would not have existed in
6.1522. The United States furthermore argues that while the post -launch investments made by
Airbus to the original A320 and A330 may have had a meaningful impact o n their respective
performance, the relevant improvements did not require any fundamental changes to be made to
their underlying design. In this respect, the United States notes that a significant proportion of the
improvements identified by the European Union occurred prior to the end of 2006, and that this
did not preclude the panel and the Appellate Body from finding in the original proceeding that the

2622 Other technological improvements identified by the European Union affect the A330's "operational
capabilities and navigation safety", the "use of lighter, corrosion resistant materials for certain parts of the
A330's primary structures" and the introduction of a "fly-by-wire rudder" system. (European Union's first
written submission, paras. 896-900)
2623 European Union's second written submission, paras. 789-800.
2624 European Union's second written submission, para. 798.
2625 European Union's first written submission, fn 928.
2626 European Union's first written submission, paras. 774 and 909.
2627 European Union's first written submission, para. 776.
2628 European Union's first written submission, para. 910.
2629 European Union's first written submission, paras. 770-798; and second written submission,
paras. 773-779 (referring throughout to, inter alia, A320 Production Statement, (Exhibit EU-11) (BCI/HSBI);
and A320 Marketing Statement, (Exhibit EU-9) (BCI)).
2630 United States' second written submission, paras. 507-515 (citing, inter alia, Panel Report, EC and
Member States – Large Civil Aircraft, paras. 7.1940, 7.1941, 7.1984, and 7.1993; Appellate Body Report, EC
and Member States – Large Civil Aircraft, paras. 1266-1300; and Schneider Declaration, (Exhibit USA-354)
(BCI)).

market presence of the particular versions of the A320 and A330 that had benefited from those
improvements was attributable to LA/MSF. Moreover, as regards the post-2006 improvements, the
United States argues that the "Sharklets" introduced by Airbus to increase aerodynamic efficiency
did not require any fundamental redesign of the A320, but only some addit ional engineering and
optimization on the wing. Moreover, the United States asserts that the A320neo will retain 95%
airframe commonality with the current A320 family, and that the investments that brought about
the increased MTOW and range of the current A330 do not reflect any major new changes to that
aircraft. Indeed, the United States maintains that many of the relevant production and
technological improvements made to the A330 were imported from the A380 programme. Thus,
for the United States, the cur rent versions of the A320 and A330 are "overwhelmingly" based on
the fundamental design of the original A320 and A330, which were launched and brought to
market with LA/MSF; and for this reason, the United States argues that their existence continues
to be dependent upon LA/MSF.2631
6.1523. In examining the merits of the parties' positions, we find it useful to start by recalling the
following passage from the Appellate Body report in US – Large Civil Aircraft (2nd complaint), which
we believe provides important guida nce for the causation analysis that we must perform in this
compliance proceeding, including with respect to the issue of non-attribution:
When tasked with determining whether the causal link in question meets the requisite
standard of a "genuine and subst antial" causal relationship, a panel will often be
confronted with multiple factors that may have contributed, to varying degrees, to
that effect. Indeed, in some circumstances, it may transpire that factors other than
the subsidy at issue have caused a pa rticular market effect. Yet the mere presence of
other causes that contribute to a particular market effect does not, in itself, preclude
the subsidy from being found to be a "genuine and substantial" cause of that effect .
Thus, as part of its assessment o f the causal nexus between the subsidy at issue and
the effect(s) that it is alleged to have had, a panel must seek to understand the
interactions between the subsidy at issue and the various other causal factors, and
make an assessment of their connection s to, as well as the relative importance of the
subsidy and of the other factors in bringing about, the relevant effects . In order to
find that the subsidy is a genuine and substantial cause, a panel need not determine it
to be the sole cause of that effect, or even that it is the only substantial cause of that
effect. A panel must, however, take care to ensure that it does not attribute the
effects of those other causal factors to the subsidies at issue, and that the other
causal factors do not dilute the causal link between those subsidies and the alleged
adverse effects such that it is not possible to characterize that link as a genuine and
substantial relationship of cause and effect. The subsidy at issue may be found to
exhibit the requisite causal link notwithstanding the existence of other causes that
contribute to producing the relevant market phenomena if, having given proper
consideration to all other relevant contributing factors and their effects, the panel is
satisfied that the contribution of th e subsidy has been demonstrated to rise to that of
a genuine and substantial cause .2632 (emphasis original; underline added; footnotes
omitted)
6.1524. The relevant market phenomenon that is before us in this part of our analysis is the
present-day market presence of the current versions of the A320 and A330. Having closely
reviewed the parties' submissions and accompanying evidence, there is no doubt in our minds that
the post-launch investments described by the European Union were significant and instrumental to
Airbus' ability to upgrade the technologies and production processes associated with the original
A320 and A330 programmes in a way that enabled Airbus to sustain their competitiveness.
Nevertheless, we cannot see a basis for concluding that such investments have diluted the link
between the pre -A350XWB LA/MSF subsidies and the market presence of the existing A320 and
A330 aircraft families such that it is not possible or appropriate to characterize that link as "a
genuine and substantial relationship of cause and effect".

2631 United States' second written submission, paras. 516-524 (citing, inter alia, Schneider Declaration,
(Exhibit USA-354) (BCI); Airbus Press Release, "A320neo Family: Maximum benefit, minimum change",
January 2012, (Exhibit USA-355); and "A330 Family Technology" Airbus website, accessed 11 October 2012,
(Exhibit USA-461)).
2632 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 914. The Appellate Body
repeated essentially the same statement in paragraph 984 of the same report.

6.1525. Once again, we recall that pursuant to the two "plausible" counterfactual scenarios, the
effects of the pre-A350XWB LA/MSF subsidies were found to explain the very existence of Airbus in
the 2001-2006 period. Given that a significant part of Airbus' post-launch investments took place
before the end of 2006, it must logically follow that they too could not have been undertaken in
the absence of the effects of the challenged LA/MSF subsidies. For instance, Airbus' launch of the
A321, A319 and A 318 derivatives in, respectively, 1988, 1993 and 1999, could not have taken
place had Airbus not also launched and brought to market its other contemporary models of LCA,
including, of course, the original A320, with the assistance of LA/MSF. Likewise, the re would have
been no reason to establish additional A320 FALs in Hamburg and Toulouse between 1993 and
2005, had Airbus not launched and brought to market the original A320 on the basis of direct and
indirect effects of LA/MSF. Thus, the adopted findings from the original proceeding necessarily
establish that the post-launch investments taking place before the end of 2006 and, therefore, the
market presence of the upgraded versions of the A320 and A330, depended upon the effects of the
pre-A350XWB LA/MSF subsidies.
6.1526. In our view, the same is true with respect to the post -launch investments the
European Union identifies as having taken place after the end of 2006. First of all, as noted
elsewhere in this Report, the European Union does not argue in this procee ding that a
non-subsidized Airbus would have come into being some time after the end of 2006. Second, and
in any case, it is difficult to contemplate how a non -subsidized Airbus entering the LCA market in
only 2007 (at the earliest) would have been able to develop the technical know-how and have the
financial strength to launch and bring to market two aircraft comparable to those with respect to
which Airbus decided to undertake the post -2006 investments. Indeed, such a circumstance is
difficult to envisage even under the "unlikely" counterfactual scenarios posited in the original
proceeding, where Airbus would have existed as a "much weaker" competitor "with at best a more
limited offering of LCA models". In this respect, we recall that the Appellate Body found that there
was no factual basis to support the European Union's contentions in the original proceeding about
the ability of Airbus to launch an A320 -type and an A330 -type aircraft by 1987 and 1991
respectively. Thus, even assuming arguendo that a non -subsidized Airbus could have launched
such aircraft shortly after 1987 and 1991, it would not have had the same accumulated experience
and financial strength that enabled it to undertake all of the post -launch investments identified by
the European Union. It follows, therefore, that under any of the four relevant counterfactual
scenarios, Airbus could not have developed the A320neo or undertaken the same improvements to
the original A330's MTOW and fuel -efficiency in the absence of the direct and indirect e ffects of
LA/MSF.
6.1527. Thus, we are unable to accept the European Union's arguments concerning the post -
launch investments, and find that those investments although significant and instrumental to
Airbus' ability to upgrade the A320 and A330 programmes, have no t diluted the causal connection
between the "product-creating" effects of the pre-A350XWB LA/MSF subsidies and the present-day
market presence of the A320 and A330 families such that it is not possible or appropriate to
characterize that link as "a genuine and substantial relationship of cause and effect". Accordingly,
we find that the direct and indirect effects of the pre -A350XWB LA/MSF subsidies continue to be a
"genuine and substantial" cause of the market presence of the current versions of the A320 an d
A330 families, although, clearly, not the only cause.
Conclusion
6.1528. The adopted findings and recommendations from the original proceeding establish that
the direct and indirect effects of the pre -A350XWB LA/MSF subsidies on the market presence of
the A320, A330 and A380 families of Airbus LCA were profound and long-lasting, explaining (under
all four counterfactual scenarios) the very existence of the entire range of Airbus LCA that was
actually sold in the 2001 -2006 period. As we have articulated above, how ever, the direct and
indirect effects of the pre -A350XWB LA/MSF subsidies will not endure forever, but rather diminish
and eventually come to an end in different ways and degrees depending upon the extent to which
the ongoing market presence of a particula r model of Airbus LCA continues to be tied, through a
genuine and substantial relationship of cause and effect, to a specifically designated grant of
LA/MSF and/or the "learning", scope and financial effects associated with any one or more other
LA/MSF measures. For each model of Airbus LCA, the substance of this connection will be defined
by not only the nature of the particular direct and indirect effects of the LA/MSF subsidies
supporting its market presence, but also the events which over time may dilut e the impact of

those effects, in some cases, to a point where the "genuine and substantial" causation standard
may no longer be satisfied.
6.1529. Ultimately, therefore, the extent to which the effects of the pre -A350XWB LA/MSF
subsidies may dissipate over time will be a fact -specific matter. Nevertheless, it is possible to
envisage a number of different scenarios pursuant to which the "product -creating" effects of the
pre-A350XWB LA/MSF subsidies might well come to an end. One such possibility could be through
the launch of new unsubsidized models of Airbus LCA. The introduction of a new unsubsidized
model of Airbus LCA would ensure that its market presence could not be attributable to the direct
effects of LA/MSF. Yet because of the particular features of LCA pr oduction, it is highly unlikely
that a new unsubsidized model of Airbus LCA could be launched today in the absence of the
"learning", scope and financial effects associated with the LA/MSF subsidies provided for certain
(but not necessarily all) previous m odels of LCA. Indeed, as already noted, it is undisputed that
"learning" effects are fundamental to the very existence of any competitive LCA producer.
However, were a second unsubsidized LCA model to be developed, it is possible that the indirect
effects of the LA/MSF subsidies provided for the purpose of developing previous models of LCA
would play a relatively minor role in its launch and bringing to market compared with the first
unsubsidized new model of Airbus LCA. The impact of the same indirect effe cts on a third
unsubsidized new model of Airbus LCA would be even smaller as its development would most likely
be based on mainly the "learning", scope and financial effects generated from the first and second
unsubsidized models of Airbus LCA.
6.1530. The withdrawal of a subsidized Airbus LCA from the market or a significant modification to
its design or key operating features might also potentially diminish or, in some cases, bring about
the end of, the "product -creating" effects of one or more of the pre -A350XWB LA/MSF subsidies.
The termination of an LCA programme that would not have existed in the absence of the LA/MSF
subsidies implies that other existing or future models of Airbus LCA would no longer benefit from
the additional "learning", scope or financial effects that would have been generated by that
programme had it continued. Thus, for example, the termination of the A300/A310 programmes
by 2007 would have brought the additional indirect effects of those subsidies to an end, leaving
Airbus' latest models of LCA to benefit from only those indirect effects generated in the past that
continue to support their present-day market presence.2633 Likewise, to the extent that an existing
subsidized model of Airbus LCA may be modified and upgraded on the basis of innovations that are
unrelated to Airbus' existing range of subsidized LCA (in the sense that such innovations would
have been developed in the absence of the effects of the LA/MSF subsidies), it is also apparent
that over time, the direct and indirect effect s of the pre-A350XWB LA/MSF subsidies will gradually
diminish to a point where they may no longer meet the "genuine and substantial" causation
standard.
6.1531. However, as the findings we have made in this subsection of our Report indicate, we are
not convinced that the causal connection between the pre -A350XWB LA/MSF subsidies and the
current market presence of the A320, A330 and A380 has been reduced to one that is less than a
genuine and substantial relationship of cause and effect. Unlike the European Union, we do not see
how the arguments and evidence advanced in this proceeding demonstrate that the mere passage
of time or the few events which the European Union has identified to have taken place since the
beginning of 2007 (or even before then), have materia lly eroded the causal link that was found to
exist in the original proceeding up until the end of 2006 as a result of the profound and long -
lasting effects of the pre-A350XWB LA/MSF subsidies.
6.1532. First, we have found that the end of the ex ante "lives" of mos t of the pre -A350XWB
LA/MSF subsidies did not bring about the end of their effects, a conclusion that is consistent with
and follows logically from the adopted causation findings made in the original proceeding.
Moreover, as we have explained in the previo us paragraphs, the fundamental "product -creating"
nature of the pre -A350XWB LA/MSF subsidies means that their effects are likely to endure for as
long as the market presence of any model of Airbus LCA continues to be tied to those effects by
means of a gen uine and substantial relationship of cause and effect. Thus, in the absence of any
event or development capable of breaking the genuine and substantial causal link that was found
to exist in the original proceeding, the same causal connection between the d irect and indirect

2633 As regards the impact of the indirect effects of the A300/A310 LA/MSF on the launch and bringing to
market of the A350XWB, see below at fns 3222 and 3248.

effects of the pre -A350XWB LA/MSF subsidies and the A320, A330 and A380, must continue to
exist today. In this light, we see no factual basis to accept that the mere passage of time has
reduced the "product-creating" effects of the pre -A350XWB LA/MSF subsidies to only a remote or
insignificant cause of the ongoing market presence of these models of Airbus LCA.
6.1533. Second, although significant and instrumental to Airbus' ability to upgrade the
technologies and production processes associated w ith the original A320 and A330 programmes,
there is no doubt (and, indeed, the European Union does not deny) that the post -launch
investments identified by the European Union would not have been made in the absence of the
effects of the LA/MSF subsidies . T hus, for the reasons explained in more detail in our above
analysis, the post -launch investments undertaken by Airbus for the purpose of the original A320
and A330 programmes are, at best, only part of the reason why Airbus is today present in the
single-aisle and twin -aisle LCA markets with the current versions of the A320 and A330. In our
assessment, these investments have not diluted the genuine and substantial causal link between
the pre-A350XWB LA/MSF subsidies and the present -day versions of the A320 and A330 because,
ultimately, they were themselves intrinsically linked to the original, LA/MSF -dependent, A320 and
A330 programmes and, therefore, the very existence of Airbus.
6.1534. Finally, it is plain that the ongoing market presence of the A320, A330 and A 380 must be
attributable to some factor or combination of factors. Producing LCA is a highly complex and
expensive undertaking, requiring the investment of significant financial resources and, in order to
be competitive and successful, years of accumulated knowledge and experience. The adopted
causation findings from the original proceeding established that, under all four counterfactual
scenarios, the market presence of the relevant models of Airbus LCA that were sold in the
2001-2006 period could be expla ined by the effects of the pre -A350XWB LA/MSF subsidies.
Nothing the European Union has argued in this proceeding leads us to believe that any other
factors can explain the present -day market presence of the A320, A330 and A380 in a way that
diminishes the causal relationship found to exist in the original proceeding to one that does not
today continue to satisfy the genuine and substantial causation standard. Indeed, we recall in this
regard, that the European Union has not even argued that Airbus would ha ve come into existence
after the 2001 -2006 period in the absence of the effects of the pre -A350XWB LA/MSF subsidies.
Neither has the European Union argued that a "much weaker" non-subsidized Airbus, with "at best
a more limited offering of LCA models"2634 during the 2001-2006 period, could have developed the
same or comparable range of LCA that it offers today. Rather, the European Union's core argument
in response to the United States' allegations concerning the present -day "product" effects of the
challenged LA/MSF subsidies is centred on its view that "the passage of time, and events occurring
during the time that passed, must, legally result in the dissipation of adverse effects".2635 We have
carefully considered the European Union's arguments and the evidence it has introduced to
substantiate its position, finding that, in the light of the nature of the effects of the pre -A350XWB
LA/MSF subsidies, as described in the original proceeding and further elaborated in our analysis
above, it is factually unpersuasive. Accordingly, for all of the above reasons, we find that the direct
and indirect effects of the pre -A350XWB LA/MSF subsidies continue to be a genuine and
substantial cause of the present -day market presence of the A320, A330 and A380 families. In
other words, we find that in the absence of the pre -A350XWB LA/MSF subsidies, Airbus would not
be selling those aircraft today.
The "product" effects of LA/MSF on the A350XWB
Introduction
6.1535. The parties have advanced extensive arguments concerning the question of whe ther
LA/MSF enabled Airbus to launch and bring to market the A350XWB as and when it did, submitting
a significant volume of evidence including multiple detailed and voluminous expert reports
produced specifically for the purpose of this proceeding. The par ties' submissions have addressed
the effects of LA/MSF on the current market presence of the A350XWB by exploring whether this
aircraft could have been launched in December 2006 and brought to market by Airbus in the
absence of the individual and/or combin ed impacts of the direct effects of the A350XWB LA/MSF
subsidies and the indirect effects of the pre -A350XWB LA/MSF subsidies. In our view, however,

2634 Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.1984 and 7.1993.
2635 European Union's second written submission, para. 593. (emphasis added; footnote omitted)

using the "plausible" counterfactual scenarios adopted in the original proceeding as the starting
point of the effects analysis, a non-subsidized Airbus could not have launched the A350XWB at the
end of 2006, simply because a non -subsidized Airbus would not have existed in 2006; and there
is, furthermore, no evidence before us to suggest (and indeed the European Union does not argue)
that a non -subsidized Airbus would have come into being any time thereafter. Thus, under the
"plausible" counterfactual scenarios concerning the effects of the pre -A350XWB LA/MSF subsidies,
there is no doubt that the A350XWB could n ot have been launched and brought to market in the
absence of LA/MSF. We therefore agree with the United States when it argues that in the light of
the "plausible" counterfactual scenarios adopted in the original proceeding, it would "as a matter of
logic, … be impossible for a nonexistent … Airbus to launch the A350XWB in 2006".2636
6.1536. Although we consider our views on the merits of the parties' arguments in the context of
the "plausible" counterfactual scenarios to provide a sufficient basis to resolve the rel evant issues
for the purpose of this part of our findings in this compliance dispute 2637, in keeping with the
approach adopted in the original proceeding to evaluating the merits of the United States'
submissions concerning the alleged "product" effects of LA /MSF, we will evaluate the effects of
LA/MSF on the ability of Airbus to launch and bring to market the A350XWB also using the
"unlikely" counterfactual scenarios to the end of 2006 as the starting point of our analysis. Thus, in
the subsections that follow, we examine the extent to which the non -subsidized Airbus competitor
that would exist in the "unlikely" counterfactual scenarios would have launched and brought to
market an aircraft programme as expensive and technologically complex as the A350XWB. Befo re
doing so, however, we believe it is important to clarify the analytical framework we intend to use
to answer this question.
6.1537. The parties' arguments concerning the impacts of the LA/MSF subsidies on the A350XWB
programme (and particularly those of the Eur opean Union) have overwhelmingly focused on
showing the extent to which the subsidized Airbus company that actually existed in the years
between 2006 and 2010 could have launched and brought to market the A350XWB in the absence
of the individual and/or com bined impacts of the direct effects of the A350XWB LA/MSF subsidies
and the indirect effects of the pre -A350XWB LA/MSF subsidies. In other words, the
parties' arguments have sought to explain the impacts of LA/MSF on the A350XWB programme in
the light of a counterfactual that is different to the one that forms the basis of the question we
have posed. Indeed, neither party has advanced any arguments in relation to the ability of the
Airbus entity that would exist in the "unlikely" counterfactual scenarios to launch and bring to
market the A350XWB. Nevertheless, by understanding the impacts of LA/MSF on the subsidized
Airbus company that actually existed in the 2006 to 2010 period, inferences can be drawn about
the extent to which the non -subsidized Airbus com pany that would exist in the "unlikely"
counterfactual scenarios could have done the same. This is because the non -subsidized Airbus
company operating in the "unlikely" counterfactuals would be, by definition, a "much weaker"
competitor "with at best a mor e limited offering of LCA models" than the Airbus company that
actually existed.2638
6.1538. With this analytical framework in mind, we now turn to eval uate the merits of the parties'
arguments. Again, having already concluded that using the two "plausible" counterfa ctual
scenarios as the starting point of our analysis, the A350XWB could not have been launched and
brought to market as and when it was in the absence of LA/MSF, we proceed with the following
analysis solely for the purpose of understanding whether the non-subsidized Airbus company that
would have existed in the " unlikely" counterfactual scenarios could have launched and brought to
market the same or a comparable aircraft. We start by evaluating the merits of the parties'
submissions concerning the impacts of the direct effects of the A350XWB LA/MSF subsidies on the
A350XWB programme.

2636 United States' first written submission, para. 395.
2637 See above paras. 6.1475-6.1479.
2638 We describe certain features of the non-subsidized Airbus company that, in our view, would have
existed in the "unlikely" counterfactual scenarios in more detail below at paras. 6.1718-6.1722.

Whether Airbus would have launched and brought to market the A350XWB in the
"unlikely" counterfactual scenarios
The impact of the direct effects of A350XWB LA/MSF
6.1539. In this subs ection we examine the impact of the direct effects of the A350XWB LA/MSF
subsidies on the ability of the Airbus company that actually existed in the 2006 to 2010 period to
launch and bring to market the A350XWB, as and when it did, as part of our inquiry into whether a
"much weaker" non -subsidized Airbus company (that is, the Airbus company that would exist in
the "unlikely" counterfactual scenarios) could have launched the same or a comparable aircraft.
6.1540. In advancing their respective positions on the impac t of the direct effects of A350XWB
LA/MSF, the parties have relied upon a large and complex array of evidence. Such evidence
addresses events that occurred over several years in connection with the A350XWB programme,
and certain pieces of evidence bear upon multiple topics. Thus, before examining the merits of the
parties' submissions, we believe that it is helpful to first of all place all such evidence into a
meaningful context. To this end, our analysis proceeds in two parts. First, using relevant record
evidence, we set forth the factual background to the launch and bringing to market of the
A350XWB in the form of a chronological narrative of the A350XWB programme running from its
origins through to the period during which the A350XWB LA/MSF contracts we re entered into (the
Contracting Period). Second, based on our understanding of the A350XWB programme gleaned
from that narrative, we evaluate the merits of the parties' arguments concerning the impact of the
direct effects of A350XWB LA/MSF on the ability of the Airbus company that actually existed during
the 2006 to 2010 period to launch and bring to market the A350XWB programme.
a Background
i The pre-launch period
6.1541. In this subsection we examine the events surrounding the A350XWB programme
occurring before t he A350XWB's launch, i.e. before 1 December 2006. In our view, the evidence
from this period mainly pertains to three material topics: (a) the origins of the A350XWB
programme; (b) the A350XWB programme's developmental status leading up to launch; and (c)
Airbus' and EADS' financial situation leading up to launch.
A350XWB origins
6.1542. As explained elsewhere in this Report 2639, the A350XWB was not born in a vacuum.
Rather, it is a redesigned version of the Original A350. We recall that, in the original proceeding,
the United States challenged what it characterized as LA/MSF measures directed at the Original
A350. The original panel found that the United States could not challenge such measures because
they did not exist at the time that the panel was established. 2640 Before making this finding,
however, the panel had explained that "Airbus launched … the {Original} A350,
in December 2004" with press reports describing it "as a 'long -range, fuel -efficient version of
Airbus' A330 airliner and a rival to the {Boeing} 7E7' (i.e. the Boeing 787)".2641
6.1543. The evidence reveals, and the parties agree, that by early 2006 the Original A350 had
fallen into the market's disfavour. Press reports indicate that by the spring of 2006 major
customers and industry analysts had determined that the Original A350 could not effectively
compete with the Boeing 787, especially in terms of fuel efficiency. In fact, some critics judged the
Original A350 as so plainly inadequate that they called for Airbus to scrap the programme in
favour of a redesigne d aircraft.2642 The European Union itself acknowledges that "in response to

2639 See above paras. 6.53-6.54.
2640 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.314.
2641 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.296. (footnotes omitted)
2642 See e.g. Dominic Gates, "Airplane Kingpins tell Airbus: Overhaul A350", The Seattle Times,
29 March 2006, (Exhibit USA-24); "Time for a new, improved model: Airbus gets to work on its medium-sized
aircraft, but deeper problems remain", The Economist, 20 July 2006, (Exhibit USA-28); "Airbus to decide by
July on A350 design" Seattle Post - Intel, 16 May 2006, (Exhibit USA-356); and A350XWB Chief Engineering
Statement, (Exhibit EU-18) (BCI/HSBI), para. 6.

Boeing's launch of the 787 in 2004, Airbus had initially launched the Original A350. The Original
A350 was supposed to have a composite wing, but was otherwise based on the aluminium
fuselage of the A330. Customers rejected the design of the Original A350 as not being able to
match the weight savings and fuel efficiency promised by the 787."2643
6.1544. Whatever twin-aisle LCA Airbus decided to pursue, however, it is apparent that time was
of the essence. Sales of the A330 and A340 were suffering significant setbacks at this time due to
competition from Boeing. The European Union has explained that Boeing's launch of the 787 in
2004 caused the market share of the A330 to drop at a time when A340 s ales were already falling
because the aircraft could not effectively compete with the more fuel -efficient 777.2644 Indeed, the
evidence indicates that in 2005 Airbus sold only 15 A340s whereas Boeing sold approximately ten
times as many 777s. 2645 Such developments had significant implications for Airbus' overall sales
performance as well; as of July 2006, Boeing had reportedly captured 75% of all new aircraft
orders thus far that year. 2646 According to the European Union, this situation "clarified that Airbus
aircraft within the twin -aisle market had lost their competitive edge to the Boeing 787" 2647 which,
by 2006, would have a developmental head start of roughly two years on any Airbus LCA
programme that might replace the Original A350.
6.1545. A decision to terminate the Original A350 programme in favour of a redesigned twin -aisle
LCA that could effectively compete with Boeing's 787 and 777, however, was too expensive to be
taken lightly. The record indicates that the Original A350 was forecast to cost roughly EUR 4
billion, or USD 5.06 billion. 2648 In March 2006, Mr Steven Udvar -Hazy, the chairman and chief
executive of the world's second-largest airplane leasing company, warned that a decision to pursue
a revised A350 design was "'probably an $8 billion to $10 billion decision' ", or roughly twice the
cost of the Original A350.2649 In fact, such a strategy appeared so costly that in March 2006 it was
reported that some "{a}nalysts … were doubtful that Airbus can afford to could { sic} pull off a
complete new aircraft program". 2650 Nonetheless, as the spring and summer of 2006 wore on,
signs increased that Airbus was considering abandoning the Original A350 programme. In
May 2006, EADS then -co-CEO Noel Forgeard reportedly stated that such a decision "'should be
made before the Farnborough Air Show in July {2006}.'"2651
6.1546. As foreseen by Mr Forgeard, Airbus publicly unveiled the A350XWB concept at the
Farnborough Air Show in July 2006. 2652 Compared to the Original A350, the A350XWB was
expected to have a wider and composite fuselage, larger composit e wings, higher cruise speed,
and more powerful engines, among other things.2653 Press reports characterized the A350XWB as a

2643 European Union's first written submission, para. 1113. (footnotes omitted)
2644 European Union's first written submission, para. 1108.
2645 "Time for a new, improved model: Airbus gets to work on its medium-sized aircraft, but deeper
problems remain", The Economist, 20 July 2006, (Exhibit USA-28).
2646 "Time for a new, improved model: Airbus gets to work on its medium-sized aircraft, but deeper
problems remain", The Economist, 20 July 2006, (Exhibit USA-28).
2647 European Union's first written submission, para. 1108.
2648 Robert Wall, "A350 Faces Busy Time Until Industrial Launch", Aviation Week & Space Technology,
20 June 2005, (Original Exhibit US-83), (Exhibit USA-23) (putting the cost at EUR 4.35 billion); Katrin
Bennhold, "Airbus looks likely to seek state assistance", International Herald Tribune, 18 June, 2006, (Exhibit
USA-357) (putting the cost at EUR 4 billion); and Panel Report, EC and certain member States – Large Civil
Aircraft, para. 7.296 ("The development cost of the A350 was initially budgeted at approximately
EUR 4 billion."). (footnote omitted)
2649 Dominic Gates, "Airplane Kingpins tell Airbus: Overhaul A350", The Seattle Times, 29 March 2006,
(Exhibit USA-24). See also Katrin Bennhold, "Airbus looks likely to seek state assistance", International Herald
Tribune, 18 June, 2006, (Exhibit USA-357) (reporting that the A350XWB may cost twice as much as the
Original A350 to develop).
2650 Dominic Gates, "Airplane Kingpins tell Airbus: Overhaul A350", The Seattle Times, 29 March 2006,
(Exhibit USA-24).
2651 "Airbus to decide by July on A350 design" Seattle Post - Intel, 16 May 2006, (Exhibit USA-356).
2652 See e.g. Goldman Sachs Investment Analysis, A350: Not an option but essential for Airbus' future,
in our view, 21 November 2006, pp. 20-22, (Exhibit USA-30), p. 20; and UK House of Commons Hansard,
written answers for 24 July 2006, (Original Exhibit US-141), (Exhibit USA-31).
2653 Guy Norris, "Airline criticism of Airbus A350 forces airframer to make radical changes to fuselage,
wing and engines", Flight International, 8 May 2006, (Exhibit USA-26).

"major"2654 and "dramatic"2655 redesign of the Original A350 that would principally compete with
the Boeing 777 and the 787.2656
Pre-launch development progress
6.1547. Perhaps reflecting time pressure to produce a twin -aisle aircraft that could compete more
closely with Boeing's then -twin-aisle offerings than could the A330 and A340, Airbus publicly
unveiled the A350XWB in July 2006 without having yet achieved sufficient certainty that it had the
technical expertise to build the A350XWB as envisioned – particularly as regards the A350XWB's
heavy reliance on composite materials – so as to enable a launch decision. 2657 Airbus thus set out
to finalize this determination before EADS made any formal launch decision regarding the aircraft.
6.1548. Airbus did so in the context of the DARE programme. 2658 The A350XWB Chief Engineering
Statement explains that, before the advent of the A350XWB, Airbus used a design and productio n
process called "Develop New Aircraft" (DNA). 2659 However, Airbus judged this process too slow to
use for the A350XWB, which it intended to produce rapidly "in order to react as quickly as
reasonably possible to the competitive threat posed by Boeing's 787." 2660 Thus, Airbus employed a
new "front-loaded design and production process" for the A350XWB, i.e. DARE, that would ensure
that the A350XWB had attained "a given level of maturity of the aircraft design much earlier than
Airbus had achieved in previous aircraft developments."2661
6.1549. In order to control the accelerated DARE process, DARE defines certain milestones, called
"Maturity Gates" (MGs), "at which different aspects of the product development are measured and
assessed independently for key decisions". 2662 The Ch ief Engineering Statement explains that
Airbus technically engaged in the earliest portion of the A350XWB's development from 2004 to
2006, during which time Airbus "assessed the feasibility of various design options for {what
eventually became} the A350XWB ."2663 However, Airbus formally instituted the DARE programme
on a later date that is HSBI. 2664 At that time, apparently building off the work it had done with the
Original A350, Airbus began the so-called "MG3" assessment process.2665 This assessment entailed
certain design activities and also other preliminary decisions regarding the A350XWB's
manufacturing process.2666 The MG3 assessment concluded before the launch, on a date that is
HSBI2667, with the "Concept Freeze" of the A350XWB. 2668 Thus, the Chief Engineering State ment
indicates that, by 1 December 2006, Airbus had determined to an apparently acceptable degree of
certainty that it had the technical capability to produce the A350XWB, thereby readying the
aircraft for launch.2669

2654 Goldman Sachs Investment Analysis, A350: Not an option but essential for Airbus' future, in our
view, 21 November 2006, pp. 20-22, (Exhibit USA-30).
2655 Guy Norris, "Airline criticism of Airbus A350 forces airframer to make radical changes to fuselage,
wing and engines", Flight International, 8 May 2006, (Exhibit USA-26).
2656 See e.g. Guy Norris, "Airline criticism of Airbus A350 forces airframer to make radical changes to
fuselage, wing and engines", Flight International, 8 May 2006, (Exhibit USA-26); Scott Hamilton, "A350
Redesign Threatens Boeing 777; Boeing prepares 787 for Challenge", Leeham.net, 6 June 2006, (Original
Exhibit US-141), (Exhibit USA-27); and Goldman Sachs Investment Analysis, A350: Not an option but essential
for Airbus' future, in our view, 21 November 2006, pp. 20-22, (Exhibit USA-30).
2657 See e.g. A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), paras. 14-15 and 43.
2658 For a discussion regarding the DARE programme, see above para. 6.498 et seq.
2659 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 40.
2660 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 36.
2661 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 33.
2662 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 38.
2663 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 42.
2664 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 43 (line 1).
2665 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 43. See also
European Union's first written submission, para. 1118.
2666 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), paras. 24 (identifying key
issues Airbus addressed during MG3 assessment), 27 (same), and 43 (same).
2667 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 43 (line 3).
2668 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 43.
2669 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 43. See also
European Union's first written submission, para. 1118.

Airbus/EADS financial position pre-launch
6.1550. Even if Airbus determined that it had the desire and technical capability to pursue the
A350XWB programme, Airbus still had to be satisfied that it could fund the programme before it
undertook a launch decision.2670 As discussed above, the cost of launching a redesigned A350 that
could effectively compete with Boeing was assumed to be significant, with one prominent industry
analyst estimating the cost to be USD 8 -10 billion, or roughly twice the forecast cost of the
Original A350. Apart from the due caution that one would expect any profit -making company
active in the LCA industry to normally exhibit when deciding whether to make such a costly
investment, Airbus had to also factor into its considerations a number of financial difficulties it was
experiencing at the relevant time.
6.1551. First, during the pre-launch period, it was reported that Airbus had been "struggl{ing} to
complete the A380 and the military cargo A400M airplane." 2671 The situation surrounding the A380
appeared to be particularly serious. Problems ass ociated with the A380's production have already
been discussed earlier in this Report. 2672 For present purposes, we recall that Airbus first
announced a six-month delay in the A380 delivery schedule in 2005.2673 In June 2006 – the month
before Airbus unveiled th e A350XWB at the Farnborough Air Show – Airbus announced a second
delay in the A380 delivery schedule of a further six months, which was reportedly expected to cost
Airbus hundreds of millions of euros. 2674 Then, three months after unveiling the A350XWB, in
October 2006, Airbus announced a third delay in the A380 programme of an additional year. 2675
The costs of such extensive delays took several forms. First, the production problems resulted in
increased A380 development costs. 2676 Second, the problems led certain Airbus customers to
cancel their A380 orders entirely and also caused Airbus to pay significant contractual penalties to
A380 customers as a result of delivery delays. 2677 Third, because LCA customers generally pay a
substantial portion of the sale price upon delivery of the purchased LCA 2678, such programme
delays meant that Airbus would realize certain revenues from the A380 programme later than
expected for A380s that Airbus did indeed ultimately deliver.2679 EADS documents indicate that
"EBIT at Airbus was also negatively affected by €2.5 billion in 2006" 2680, in part due to the A380
difficulties, and a 2007 UK Government report indicated that "{p}artly as a result of cost overruns

2670 See Goldman Sachs Investment Analysis, A350: Not an option but essential for Airbus' future, in our
view, 21 November 2006, pp. 20-22, (Exhibit USA-30), p. 20 (reporting that "EADS has stated clearly that it
will only agree to launch the A350{XWB} when it is satisfied that the development can be both funded and
staffed.").
2671 Dominic Gates, "Airplane Kingpins tell Airbus: Overhaul A350", The Seattle Times, 29 March 2006,
(Exhibit USA-24).
2672 For discussions regarding A380 development and production problems, see above para. 6.509 et
seq.
2673 Katrin Bennhold, "Airbus looks likely to seek state assistance", International Herald Tribune,
18 June, 2006, (Exhibit USA-357) (reporting that production problems in 2005 led to the A380's "initial six-
month delay").
2674 Katrin Bennhold, "Airbus looks likely to seek state assistance", International Herald Tribune,
18 June, 2006, (Exhibit USA-357); and David Gow, "BAE's plan to sell Airbus stake in jeopardy", The Guardian,
3 July 2006, (Exhibit USA-415).
2675 Aaron Karp, "Airbus/EADS officials concede Boeing advantage, question A350 viability", Air
Transport World Daily News, 6 October 2006, (Exhibit USA-9).
2676 See generally Mario Heinen, Airbus Senior Vice President A380, "The A380 Program", EADS/Airbus
presentation, Global Investor Forum, 19-20 October 2006, (Exhibit EU-419), slide 18 (discussing increased
A380 development tasks necessary to counter production problems).
2677 See Exhibit USA-569: "For example, following the production difficulties that EADS encountered in
2006 in connection with its A380 programme … certain customers decided to cancel their A380 orders. In
addition, EBIT at Airbus was also negatively affected by €2.5 billion in 2006, in part due to the contractual
penalties to be paid to customers as a result of the delivery delays." (EADS Press Release, "A350 XWB launch:
EADS Gives Go Ahead for Airbus to Launch the A350 XWB", 1 December 2006, (Exhibit USA-569)).
2678 See e.g. Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1719 (explaining
that "the bulk of the purchase price {for LCA} is generally paid upon delivery").
2679 See also HSBI information contained on page 19, section 6.4 of the A380 Business Case, (Exhibit
EU-20) (HSBI).
2680 "Risk Factors", EADS Financial Statements and Corporate Governance, Book 2, 2006, pp. 8-13,
(Exhibit USA-496), p. 12. An Airbus press release from February 2007 further indicates that Airbus reported a
negative EBIT for 2006, and "following the A380 delays, faces significant cash needs and deteriorating profits
in the future". (Airbus Press Release, "Power8 prepares way for 'new Airbus'", 20 February 2007, (Exhibit
USA-94))

and late delivery payments to its customers, Airbus reported a loss of £389 million for 2006." 2681
In fact, the A380 problems were so severe for Airbus that they reportedly "precipitated a
management crisis that saw the demise of two CEOs in less than four months".2682
6.1552. Other developments put further strain on Airbus' finances. A weakening US dollar, which
had deteriorated by approximately 10% against the euro from November 2005 to November 2006,
was impacting Airbus' profitability.2683 A presentation given during this time by Mr Harald Wilhelm,
then-Senior Vice President Airbus Controlling, noted that the weak US dollar a long with
"substantial" R&D costs, were contributing to Airbus' "crisis". 2684 Moreover, as already noted
above, sales of the A330 and A340 were deteriorating under competitive pressure from Boeing. In
the face of such circumstances, "Airbus CEO Christian Streiff admitted that {Airbus} now is up to a
whole decade behind rival Boeing" "'in terms of development and efficiency'". 2685 EADS and Airbus
then-CFO Mr Hans Peter Ring stated that "'the situation is very serious.'"2686
6.1553. Also during this time, EADS then -co-CEO Mr Tom Enders stated that "'{t}he crisis at
Airbus is also a crisis for {Airbus' parent company} EADS.'" 2687 Indeed, as the European Union
asserts and the United States does not contest, in 2006 Airbus accounted for roughly 65% of
EADS' revenues 2688, meaning that E ADS' and Airbus' financial fortunes were intertwined. The
evidence demonstrates the significance of this relationship. Reportedly, the day after Airbus
announced the second round of A380 delays in June 2006, Standard & Poor's downgraded EADS'
credit rating outlook from stable to negative 2689 and "the EADS share price dropped by more than
30%".2690 By late September 2006, EADS share prices had fallen 28% during that calendar
year.2691 A further downgrade of EADS' credit rating accompanied Airbus' announcement of a th ird
round of A380 delays in October 2006 2692, with one Standard & Poor's report from this period
indicating that the A380 delays were "expected to significantly adversely affect EADS' financial
profile during the period 2006 -2010".2693 EADS apparently shared thi s opinion; at this time then -
CFO of EADS and Airbus, Mr Hans Peter Ring , reportedly admitted that "'{c}compared to our old
plan … the shortfall in terms of cash generation, in the timeframe until 2010, is slightly more than

2681 UK House of Commons Trade and Industry Committee, "Recent Developments with Airbus", Ninth
Report of Session 2006-2007, Volume I: Report and formal minutes, 19 June 2007, p. 8, (Exhibit USA-25).
2682 Aude Lagorce, "Airbus refuses to rule out state loans on the A350XWB", MarketWatch,
4 December 2006, (Exhibit USA-359).
2683 See "Historical Exchange Rates: Euro-Dollar, November 2005 to November 2006", OANDA website,
accessed 4 October 2013, (Exhibit USA-497). A weak US dollar relative to the Euro affects Airbus' profitability
because "although LCA are priced in US dollars, Airbus keeps its financial accounts, incurs much of its costs,
and accounts for its profits, in Euros." (Panel Report, EC and certain member States – Large Civil Aircraft,
para. 4.595)
2684 Harald Wilhelm, Senior Vice President Airbus Controlling, "Power8 Update", Airbus/EADS
presentation, 19-20 October 2006, (Exhibit USA-494), slide 5. The presentation further notes that Airbus'
"{c}ash needs are huge" because the "A380 delays imply a €6bn cash shortfall" and "{c}ash needs to fund
CAPEX and inventory beyond R&D".
2685 Aaron Karp, "Airbus/EADS officials concede Boeing advantage, question A350 viability", Air
Transport World Daily News, 6 October 2006, (Exhibit USA-9).
2686 Aaron Karp, "Airbus/EADS officials concede Boeing advantage, question A350 viability", Air
Transport World Daily News, 6 October 2006, (Exhibit USA-9).
2687 Katrin Bennhold, "Airbus looks likely to seek state assistance", International Herald Tribune,
18 June 2006, (Exhibit USA-357).
2688 European Union's second written submission, para. 1116.
2689 Standard & Poor's Global Credit Portal Ratings Direct, Research Update: EADS Outlook Revised to
Negative Due to A380 Delivery Disruption; 'A' Ratings Affirmed, 14 June 2006, (Exhibit USA-508).
2690 EADS Annual Review 2006, p. X, (Exhibit USA-418).
2691 Andrea Rothman, "Airbus vows computers will speak same language after A380 delay", Bloomberg,
28 September 2006, (Exhibit USA-430).
2692 "Credit ratings", EADS website, accessed 24 February 2012, (Exhibit USA-32); Moody's Investors
Service, Global Credit Research, Rating Action: Moody's places EADS' Ratings Under Review for Possible
Downgrade, 22 September 2006, (Exhibit USA-509); Standard & Poor's Global Credit Portal Ratings Direct,
Research Update: 'A/A-1' Ratings Placed On Credit Watch Negative On Further A380 Delays, 3 October 2006,
(Exhibit USA-510); Standard & Poor's Global Credit Portal Ratings Direct, Research Update: S&PCORRECT:
EADS Rating Cut To 'A-/A-2', L-T Still On Watch Neg, On Further Restructure Delay, 12 October 2006, (Exhibit
USA-511); and Screenshots from Bloomberg Terminal Regarding Credit Ratings, (Exhibit USA-568).
2693 Standard & Poor's Global Credit Portal Ratings Direct, Research Update: 'A/A-1' Ratings Placed On
Credit Watch Negative On Further A380 Delays, 3 October 2006, (Exhibit USA-510), p. 2.

€6 billion ($7.62 billion)'". 2694 Such financial developments caused EADS to question whether it
could afford to pursue the expensive new A350XWB programme. During this time Mr Enders
reportedly "conceded that it no longer may be feasible to pursue the A350 XWB program" and that
the company would "'discuss intensively whether we have the financial and engineering resources
to actually take on this program.'"2695
6.1554. The evidence indicates that Airbus and EADS pursued three principal avenues to mitigate
their financial problems. First, they cut cost s. During this time EADS announced that Airbus would
implement a "radical restructuring dubbed 'Power8' aimed at slashing overhead costs by 30%." 2696
In an interview in late 2007, Mr Tom Enders indicated that implementation of the Power8
programme was instrum ental in allowing Airbus to proceed with the A350XWB project. 2697 The
following passage from a Standard & Poor's report authored in the spring of 2007 summarizes the
character of this programme as follows:
EADS' Power8 restructuring program is extremely wide ranging and takes in important
areas such as the integration of operations for maximum efficiency, the outsourcing of
work, and transfer of risk to new partners. It also includes headcount reductions,
which could raise tensions at a local level. Operationa l risk is accentuated by the fact
that significant structural upheaval occurs at the same time as the group pursues
multi-billion-euro investment programs … .
The successful implementation of Power8 involves considerable risk given its depth
and scale, but is necessary if the group is to successfully adapt to a harsher
competitive environment and build a new industrial base to secure its future.2698
6.1555. Second, as discussed elsewhere in this Report, Airbus appeared to aggressively enhance
its reliance on risk -sharing partners (RSPs) relative to its previous LCA programmes 2699, and

2694 Aaron Karp, "Airbus/EADS officials concede Boeing advantage, question A350 viability", Air
Transport World Daily News, 6 October 2006, (Exhibit USA-9). See also Susanna Ray, "EADS's Enders says
Airbus deliveries may rise in 2007", Bloomberg, 19 October 2006, (Original Exhibit US-144), (Exhibit USA-34)
(putting cash shortfall figure at EUR 6.3 billion).
2695 Aaron Karp, "Airbus/EADS officials concede Boeing advantage, question A350 viability", Air
Transport World Daily News, 6 October 2006, (Exhibit USA-9). Moreover, in an interview conducted in
late 2007, Mr Enders stated that in late 2006 EADS had seriously considered the question of whether it had the
resources to proceed with the A350XWB programme. ("Thomas Enders: 'Je n'exclus aucun recours en justice
United States and European Union disagree about whether the word "ressources" in this context means
financial or engineering resources. (See European Union's second written submission, paras. 918-921
(disagreeing with the United States' interpretation of the exhibit)). Although this issue is unclear, we believe
that, due to the time-frame to which Mr Enders is referring in the quotation (i.e. late 2006, when Airbus was
facing mounting financial problems and securing guarantees of financial support for the A350XWB programme
from the member States, as discussed further below) Mr Enders was referring at least in part to financial
resources.
2696 Aaron Karp, "Airbus/EADS officials concede Boeing advantage, question A350 viability", Air
Transport World Daily News, 6 October 2006, (Exhibit USA-9). Another press reports indicated that "Airbus has
a program aimed at reducing expenses by 2 billion euros by {2010}", which was presumably the "Power8"
program. (Susanna Ray, "EADS's Enders says Airbus deliveries may rise in 2007", Bloomberg,
19 October 2006, (Original Exhibit US-144), (Exhibit USA-34) (also reporting that Mr Thomas Enders stated
that the A380 delays "have carved 'huge holes out of our resources … {and} we have to take cost-cutting
measures to compensate for this.'")).
2697 "Thomas Enders: 'Je n'exclus aucun recours en justice pour protéger la réputation d'Airbus'", Le
Monde, 13 October 2007, (Exhibit USA-8).
2698 Standard & Poor's Global Credit Portal Ratings Direct, Research Update: EADS L-T CCR Cut to
'BBB+'; Off Watch Neg; Outlook Stable; Teleconf May 11 @ 2:30PM BST, 10 May 2007, (Exhibit USA-513),
pp. 2-3.
2699 The use of RSPs in the A350XWB programme helped Airbus offload a portion of the programme's
costs, at least until the programme began generating substantial revenues, and reduced Airbus' financial risk
associated with the programme. (See European Union's response to Panel question No. 140, para. 293
(explaining that RSPs are Airbus suppliers that "assume all or a portion of the development costs for the work
package outsourced to them" but only get reimbursed via revenues that are generated by sales of the aircraft
on which they are working, and thus RSPs "finance development costs on the same risk-sharing basis as the
EU member States providing MSF loans.")). We use the terms "RSP" and "risk-sharing supplier" synonymously.

appeared to employ RSPs to the maximum extent Airbus deemed feasible.2700 We also note certain
highly relevant HSBI statements in the A350XWB Business Case in this context 2701, along with
other evidence indicat ing that RSPs took on approximately EUR 1.8 billion of the A350XWB's
development costs. 2702 Further, a Moody's report authored shortly after the A350XWB's launch
reported that EADS' "stated objective is to increase outsourced value to 50% of th e new A350XWB
from the approximately 20% -30% level in existing aircraft programmes." 2703 An Airbus
presentation authored later indicates that this 50% outsourced value was to be borne by Airbus'
RSPs, stating that Airbus had a "Make 50%/Buy 50%" strategy with its RSPs whereby "Critical
Components are kept within Airbus." 2704 We also note certain highly relevant HSBI statements in
the A350XWB Chief Engineering Statement in this context. 2705 We further note the presence of
other evidence in the record indicating that enhanced use of RSPs would have been problematic
from a general administrative standpoint.2706
6.1556. Third, Airbus engaged the member States in discussions concerning the potential grant of
financial assistance in connection with the A350XWB programme. The origins of such discussions
can be traced back to the Original A350 programme. We recall that the original panel explored
evidence relating to the status of such discussions at the time of its establishment (i.e.
October 2005). In doing so, the original panel exam ined relevant press articles, statements
attributed to Airbus, the European Commission and government Ministers and officials, German
Government documents, and EADS' financial statements. This evidence indicated that by
October 2005, the member States had agreed to provide financial assistance to Airbus, in the form
of LA/MSF, to support the Original A350 programme.2707 However, the panel found that the precise
terms of such LA/MSF measures were still under negotiation at that time. Thus, the original panel
concluded that "at some point during 2005 … the relevant EC member State governments each
agreed to support the development of the A350, but the precise details and content of this support

2700 For a discussion regarding this subject, see above para. 6.500 et seq.
2701 A350XWB Business Case Presentation, (Exhibit EU-130) (HSBI), slides 37, 44 (last line in text box)
and 64 (second bullet, first sub-bullet).
2702 See Nicola Clark, "Airbus to seek government aid for A350 in second half", The New York Times,
16 January 2008, (Exhibit USA-434) (reporting that, in October 2007, EADS then-CFO Mr Hans Peter Ring
reportedly stated that RSPs were expected to bear EUR 1.8 billion of the A350XWB's development costs);
Robert Wall, "Will It Fly? Eyes are on Airbus as it overhauls industrial setups and supplier relations to regain
competitive footing, financial health", Aviation Week & Space Technology, 5 March 2007, (Exhibit USA-523)
(reporting that "outside partners" were expected to contribute EUR 1.8 billion to the A350XWB project); and
also Robert Wall, "Airbus Relaunches A350", Aviation Week, 10 December 2006, (Exhibit EU-98) (reporting
that Airbus then-CEO and EADS then-co-CEO Louis Gallois explained that suppliers were expected to take on
approximately EUR 1.8 billion in development costs). Certain HSBI information indicates that at least Mr Ring's
statement was made after Airbus had made certain relevant decisions regarding its RSPs in connection with the
A350XWB programme, and therefore further suggests that the EUR 1.8 billion figure is reliable. (See A350XWB
Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), paras. 45 and 47 (discussing by when Airbus made
certain decisions regarding RSP involvement))
2703 Moody's Investors Service, Global Credit Research, Credit Opinion: European Aeronautic Defence &
Space Co. EADS, 12 March 2007, (Exhibit USA-518). See also Robert Wall, "Airbus Relaunches A350", Aviation
Week, 10 December 2006, (Exhibit EU-98) (reporting that "Airbus will outsource about half of the A350{XWB}
to suppliers").
2704 François Caudron, Vice President, Head of A350 Customer and Business Development, "A350XWB
Programme Update", Airbus presentation to Deutsche Bank, 1 July 2010, (Exhibit USA-443). See also Airbus
Press Release, "Power8 prepares way for 'new Airbus'", 20 February 2007, (Exhibit USA-94) (explaining Airbus'
core/non-core work vision in relation to its use of RSPs in the A350XWB programme).
2705 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 55 (line 3 text following
the full stop through the end of the paragraph).
2706 A Moody's research report on EADS explained that "{o}ther industries have found that it takes
years of effort and patience to develop the trust between supplier and customer necessary to achieve a
consistently smooth and economically efficient integration of work flow. Attempting to achieve this change
rapidly will, in Moody's opinion, be exceedingly difficult even with the global expertise now available to guide
companies through this process." (Moody's Investors Service, Global Credit Research, Credit Opinion:
European Aeronautic Defence & Space Co. EADS, 12 March 2007, (Exhibit USA-518)). Moreover, EADS itself
recognized in a 2010 investor presentation that risk-sharing is "generally difficult to implement". (Marwan
Lahoud, Chief Strategy and Marketing Officer, "What is the 'right business model' in Commercial? – the bet is
still ongoing" slide 28, EADS presentation, Global Investor Forum, 15-16 November, 2010, (Exhibit USA-363),
slide 28)
2707 The European Communities appeared to concede that there was at least an agreement in principle
to negotiate terms of LA/MSF between the member States and Airbus by October 2005. (Panel Report, EC and
certain member States – Large Civil Aircraft, para. 7.300)

were still to be finalised in October 2005 and remained subject to negotiations."2708 Airbus and the
member States reportedly suspended such negotiations in October 2005 "in a 'good -will gesture'
to Washington as talks to resolve the {WTO LCA} subsidy dispute got under way."2709
6.1557. The evidence indicates, however, that discussions between Airbus and the member States
regarding financial assistance for the A350 programme were once again progressing as it became
clear that Airbus would abandon the Original A350 in favour of the more expensive A350XWB. One
press article from May 2006 r eported that "Airbus is … considering asking European governments
to help fund up to 33 per cent of the development costs of the A350", and also reported that
"French officials said a final decision on seeking launch aid for the A350 should come before the
start of the Farnborough Air show near London in mid -July."2710 Further, by June 2006, it was
reported that "{f}acing mounting problems … Airbus look{ed} set to request state aid for the
development of {the A350}". 2711 Moreover, during this time an Airbus spoke sman called member
State financial assistance for the A350 "'indispensable' for establishing what he called a level
playing field with Boeing", and stated that "'{l}aunch aid is the only available system right
now'".2712 Industry analysts appeared to agree wi th such assessments, with one stating that
"'{t}his is no longer a mere product -development launch aid, it is a rescue package: This aid is
absolutely essential'".2713
6.1558. The member States signalled their willingness to financially aid a redeveloped A350
programme. In June 2006, the member States were reportedly "signalling that such aid would be
forthcoming".2714 Moreover, the evidence indicates that representatives of France, Germany,
Spain, and the UK attended the unveiling of the A350XWB at the Farnborough Air S how along with
EADS officials where they reportedly "confirmed their commitment to support the European
aerospace industry", "reaffirmed their agreement to support Airbus to continue to innovate and to
develop programmes in the context of international com petition", and stressed that their goal was
"to ensure a level playing field" with Boeing. 2715 It was also reported during this period that
"{a}fter a meeting between Airbus and the ministers of the European countries involved in the
company, German representative Georg Wilhelm Adamowitsch said the possible redevelopment of
the A350 was a main point of discussion, but that specifics on how it would be financed have not
been finalized." 2716 Further, Spanish Prime Minister José Luis Rodriguez Zapatero stated that
"'{w}e are willing, within logical limits, to give sufficient support to EADS to help it through these
problems'" and, reportedly, "{a}t the French Transport Ministry, a spokeswoman, Laurence
Lasserre, said the self -imposed freeze {on launch aid} could not be expected to last
indefinitely".2717 Meanwhile, the UK Minister for Industry and the Regions Margaret Hodge stated
that "my department is in regular contact with {Airbus}. Airbus is assessing its options on how to
recover its position. … The Government rema in a strong supporter of Airbus." 2718 Ms Hodge

2708 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.306. Neither party
appealed the original panel's findings with respect to LA/MSF for the A350. (Appellate Body Report, EC and
certain member States – Large Civil Aircraft, fn 15)
2709 Katrin Bennhold, "Airbus looks likely to seek state assistance", International Herald Tribune,
18 June 2006, (Exhibit USA-357).
2710 "Airbus to decide by July on A350 design" Seattle Post - Intel, 16 May 2006, (Exhibit USA-356).
2711 Katrin Bennhold, "Airbus looks likely to seek state assistance", International Herald Tribune,
18 June 2006, (Exhibit USA-357).
2712 Katrin Bennhold, "Airbus looks likely to seek state assistance", International Herald Tribune,
18 June 2006, (Exhibit USA-357).
2713 Katrin Bennhold, "Airbus looks likely to seek state assistance", International Herald Tribune,
18 June 2006, (Exhibit USA-357).
2714 Katrin Bennhold, "Airbus looks likely to seek state assistance", International Herald Tribune,
18 June 2006, (Exhibit USA-357).
2715 UK House of Commons Hansard, written answers for 24 July 2006, (Original Exhibit US-141),
(Exhibit USA-31).
2716 "Airbus to decide by July on A350 design" Seattle Post - Intel, 16 May 2006, (Exhibit USA-356).
2717 Katrin Bennhold, "Airbus looks likely to seek state assistance", International Herald Tribune,
18 June 2006, (Exhibit USA-357). See also Hans Peter Ring, Chief Financial Officer, "Safe Harbor Statement",
"Roadmap", and "Recent Press Quotes", slides 2, 11 and 12 from "A New Base for the Future", EADS
presentation, Global Investor Forum, 19-20 October 2006, (Exhibit USA-358), slide 12 (containing "Recent
Press Quotes", one of which is an undated quote from French President Jacques Chirac stating that he would
take "responsibility" to help Airbus overcome "its current difficulties" and that Airbus "will always find the State
at its side").
2718 UK House of Commons Hansard Debates, Column 1692W, Colloquy of Mr. Gordon Prentice and
Minister for Industry and the Regions Margaret Hodge, 23 October 2006, (Exhibit USA-35).

reportedly further stated during this time that "{t}he Government are working hard to safeguard
British interests and will remain in close contact with EADS and Airbus as they work through the
implications of ensuring that Airbus remains competitive."2719
6.1559. Discussions between Airbus and the member States regarding A350XWB financial
assistance appeared to come to a head by November 2006 as EADS readied itself for a launch
decision. On 30 November 2006 the Financial Times reported that:
The French government, which holds 15 per cent of EADS, was on Thursday night
understood to have agreed to provide a state guarantee for part of the {A350XWB}
financing plan.
According to people close to the discussions, some €6bn of the A350's development
cost will be funded by EADS internally and a further €4bn through financing backed by
state guarantees from the four countries supporting Airbus: France, the UK, Germany
and Spain. This could be a combination of bond issue, reimbursable loans or other
measures.
A person close to the talks said the structure of the €4bn component of the funding
had yet to be decided and was likely to remain unresolved for some time. EADS and
its shareholders are keen to avoid inflaming a trade dispute bet ween the US and
European Union over state aid to Airbus.
Boeing, the European aircraft maker's US rival, has threatened strong action if the
company relies on so called "launch aid" from the four governments for the A350
project. "The guarantee package wil l be adapted to the Boeing challenge," said one
insider, adding that the company did not need to raise the additional financing until
2010.
EADS is expected initially to fund the A350 from cash reserves, estimated by one
insider at €4bn, and €2bn in cost savings due to be achieved by 2010 from a recently
announced restructuring programme {i.e. Power8}. However, this will constrain
overall group resources. EADS is understood to be considering a st ate guaranteed,
hybrid bond issue to increase financial flexibility.2720 (emphasis added)
6.1560. The United States argues that the evidence discussed above in this section demonstrates
that, leading up to the A350XWB's launch, Airbus and EADS had come to understand that their
financial position moving forward would eventually deteriorate to the point where they would
ultimately be unable to fully fund the A350XWB programme in the absence of member State
financial assistance. In our minds, the evidence discussed above certainly suggests this conclusion,
albeit without demonstrating it to the degree of certainty the United States advocates. However,
the European Union disputes this conclusion, and offers evidence allegedly indicating that at least
EADS – but not necessarily Airbus – was in a strong financial position leading up to the A350XWB's
launch, and furthermore expected to be in a strong enough financial position in the foreseeable
future to independently fund the A350XWB programme in the absence of member State f inancial
assistance.
6.1561. One of the main pieces of evidence that the European Union offers on this front is a
report authored by Professor Thomas Hoehn of the Imperial College Business School and his
colleagues at CompetitionRx (the CompetitionRx Report). 2721 The CompetitionRx Report examines
two related issues in this context. First, the CompetitionRx Report, after a review of EADS' 2006
financial data, asserts that EADS was in a strong financial position when the A350XWB was
launched.2722 Second, the CompetitionRx Report asserts that EADS' financial projections in
existence at the time of the A350XWB's launch indicated that EADS would have been able to carry

2719 UK House of Commons Hansard Debates, Column 82W-83W, Colloquy of Mr. Patrick Mercer and
Minister for Industry and the Regions Margaret Hodge, 30 October 2006, (Exhibit USA-36).
2720 Peggy Hollinger, "Deal struck on Airbus A350 funding", Financial Times, 30 November 2006,
(Exhibit USA-334).
2721 CompetitionRx Report, (Exhibit EU-127) (BCI/HSBI).
2722 CompetitionRx Report, (Exhibit EU-127) (BCI/HSBI), pp. 58-65.

debt in excess of the monies received from the A350XWB LA/MSF measures in each of the years
from 2007 through 2011, even assuming the occurrence of challenging economic conditions. 2723
The full implication of such analyses is that, at the time of launch, the Airbus and EADS companies
that actually existed reasonably believed that they would be able to fund the entir e A350XWB
programme in the absence of member State financial assistance.2724
6.1562. The CompetitionRx Report's assertion that EADS was in a strong financial position in late
2006 is based on a snapshot of its financial indicators. Although certainly a relevant obser vation, it
is important not to overstate its value. The issue before us is not limited to the question of
whether EADS' financial position in late 2006 was strong or not, but rather whether EADS would
have thought to a reasonable degree of certainty that i ts projected future financial position would
be sufficiently healthy so as to enable it to fund the expensive and lengthy A350XWB programme
in the absence of member State financial assistance. The parts of the CompetitionRx Report
addressing this matter fo cus on EADS' projected future cash positions in late 2006 and projected
debt-capacity analyses based on these projections. We evaluate the probative value of this aspect
of the CompetitionRx Report in more detail further below.
6.1563. We detect certain other record evidence suggesting that Airbus and EADS perceived their
financial position in late 2006 to be strong enough to enable EADS to fund the A350XWB
programme moving forward without member State assistance. A June 2006 Standard & Poor's
report states that E ADS' cash generation, cash balances, existing credit facilities, and access to
capital markets meant that it could likely "cover operating and financing requirements, including
increased R&D spending for the A380 aircraft and, if launched, the A350." 2725 But this statement
occurred before Airbus unveiled the A350XWB in July 2006 and before Airbus announced the third
round of A380 delays in October 2006. It is also unclear what assumptions the authors had made
regarding the likelihood of Airbus receiving member State financial aid in connection with the
programme. We note, however, that we detect no similar statement in other Standard & Poor's
reports existing in the record after Airbus announced a third round of A380 delays. 2726 In fact, a
Standard & Poor's report from mid-October 2006, after Airbus had announced such delays, opined
that "the delay of the A380 program could have wider effects, such as delaying introduction of the
A350XWB".2727 Thus, we consider it unlikely that the June Standard & Poor's report antici pated the
full extent of EADS' financial problems at the time it was authored.
6.1564. Additionally, an EADS presentation from October 2006 states that EADS' credit rating
currently enabled it to have "continuous access to capital markets", while also noting
EADS' "strong liquidity position", "limited maturing debt in the coming years", and EADS' intent to

2723 CompetitionRx Report, (Exhibit EU-127) (BCI/HSBI), pp. 66-70 and 72. We note that the relevance
of the CompetitionRx Report's debt-capacity analysis rests on the assumption that EADS would have made its
financial resources available to Airbus for the purpose of funding the A350XWB programme. As discussed
further below, we consider this assumption to be valid.
2724 We note that the CompetitionRx Report relevant financial analyses do not account for the impact of
the indirect effects of pre-A350XWB LA/MSF on Airbus' and EADS' financial position. We discuss these effects
further below in this Report.
2725 Standard & Poor's Global Credit Portal Ratings Direct, Research Update: EADS Outlook Revised to
Negative Due to A380 Delivery Disruption; 'A' Ratings Affirmed, 14 June 2006, (Exhibit USA-508).
2726 See Standard & Poor's Global Credit Portal Ratings Direct, Research Update: 'A/A-1' Ratings Placed
On Credit Watch Negative On Further A380 Delays, 3 October 2006, (Exhibit USA-510); Standard & Poor's
Global Credit Portal Ratings Direct, Research Update: S&PCORRECT: EADS Rating Cut To 'A-/A-2', L-T Still On
Watch Neg, On Further Restructure Delay, 12 October 2006, (Exhibit USA-511); Standard & Poor's Global
Credit Portal Ratings Direct, Research Update: EADS Long-Term Ratings Remain On Watch Neg After Profit
Warning, 17 January 2007, (Exhibit USA-512); Standard & Poor's Global Credit Portal Ratings Direct, Research
Update: EADS L-T CCR Cut to 'BBB+'; Off Watch Neg; Outlook Stable; Teleconf May 11 @ 2:30PM BST,
10 May 2007, (Exhibit USA-513); Standard & Poor's Global Credit Portal Ratings Direct, European Aeronautic
Defence and Space Co. N.V., 14 October 2009, (Exhibit USA-514); Standard & Poor's Global Credit Portal
Ratings Direct, Research Update: European Aeronautic Defence and Space Co. N.V. Long-Term Rating Raised
to 'A-' On Lower Project Risks; Outlook Stable, 22 September 2010, (Exhibit USA-516); and Standard & Poor's
Global Credit Portal Ratings Direct, Research update: Aeronautic defence company EADS short-term rating
raised to 'A-1' based on our criteria; outlook still positive, 2 October 2012, (Exhibit EU-186).
2727 Standard & Poor's Global Credit Portal Ratings Direct, Research Update: S&PCORRECT: EADS Rating
Cut To 'A-/A-2', L-T Still On Watch Neg, On Further Restructure Delay, 12 October 2006, (Exhibit USA-511),
p. 2.

"keep its strong liquidity position and conservative balance sheet". 2728 The same presentation also
describes a financial "roadmap" for EADS, which included plans t o "{i}ncrease focus on cash
generation (Power8)", protect EADS' "conservative balance sheet structure", "{a}void unnecessary
capital increase", "{m} aintain strong liquidity position (minimum 3 bn € cash)", and "{r}etain
strong credit rating", stating furthermore that: "Hybrid envisageable if funding need
materializes".2729 However, the information and considerations revealed in this presentation do not
appear to indicate whether any perceived financial strengths of EADS were sufficient to enable it to
fully fund the A350XWB programme unsupported by the member States, or whether EADS could
achieve its stated financial goals without the assumption of member State financial assistance.
Indeed, and as we discuss in more detail below, the A350XWB business case presentation –
presented to the EADS Board of Directors only one month after this presentation was authored –
[***]. Insofar as [***], we consider it not eworthy that an EADS presentation in October 2006
discussing EADS' financial position, including its access to market financing, would also refer to a
financing instrument that was assumed to involve member State intervention.2730
6.1565. We also note that, in Novemb er 2006, EADS and Airbus then -CFO Mr Hans Peter Ring
reportedly stated that "{i}t's not so much the question of whether we are able to finance the
{A350XWB} program or not", but rather a question of having sufficient engineering resources. 2731
However, this statement postdates the authorship of the A350XWB Business Case. As described in
the following section, the Business Case demonstrates that Airbus and EADS assumed the receipt
of significant member State financial assistance in connection with the A350XWB p rogramme. We
detect no reasonable scenario under which Mr Ring, as Airbus and EADS CFO, would have been
unaware of the assumed receipt of such financial assistance. Therefore, we consider it very likely
that Mr Ring, in making this statement, was operating under the assumption that Airbus would
receive such assistance. Thus, it is unclear whether Mr Ring would have had the same opinion
regarding the programme's fundability in the absence of that assumption.
6.1566. Finally, we note a Goldman Sachs report authored i n November 2006 that "estimate{s}
that Airbus can fund the {A350XWB} programme". 2732 However, this report does not specify from
where such funding was expected to come. Given the significant media coverage predating this
report regarding Airbus' expected even tual request for financial assistance, the member States'
reported support for the A350XWB programme, and Airbus' consistent history of receiving LA/MSF
in connection with its previous LCA programmes, it cannot be excluded that Goldman Sachs most
likely as sumed the potential provision of some kind of financial assistance to Airbus by the
member States in connection with the A350XWB programme. Thus, we consider this statement to
be of limited probative value.
Conclusions – the pre-launch period
6.1567. In our view, the evidence arising in the pre -launch period reveals several relevant overall
themes. First, during the pre -launch period serious financial difficulties had arisen for Airbus and
EADS that adversely affected their financial condition moving forward. Seco nd, although it was
forecast to be a very expensive programme, Airbus deemed the A350XWB important enough to
pursue because of, inter alia , its considerable strategic importance to Airbus. Third, during this
time Airbus and EADS pursued multiple strategies to put themselves in a position in which they
could be sufficiently confident of their ability to fund the A350XWB programme, one of which was
to secure commitments from the member States regarding the future provision of some sort of
financial assistance in connection with the A350XWB programme. Fourth, such strategies allowed
Airbus and EADS to overcome the financial problems they faced to the point where they were
prepared to proceed with an A350XWB launch decision.

2728 Hans Peter Ring, Chief Financial Officer, "A New Base for the Future", EADS presentation, Global
Investor Forum, 19-20 October 2006, (Exhibit EU-180), slide 7.
2729 Hans Peter Ring, Chief Financial Officer, "A New Base for the Future", EADS presentation, Global
Investor Forum, 19-20 October 2006, (Exhibit EU-180), slide 11.
2730 Given that this presentation and the A350XWB Business Case Presentation were authored within
roughly a month of each other, we consider that it is highly likely that this presentation's mention of "[***]"
was in fact referring to the [***] mentioned in the A350XWB Business Case Presentation.
2731 "Cancelled A380 Orders raises red flags for Airbus", Aviation Week, 29 October 2007, (Exhibit
EU-178).
2732 Goldman Sachs Investment Analysis, A350: Not an option but essential for Airbus' future, in our
view, 21 November 2006, pp. 20-22, (Exhibit USA-30), p. 20.

ii Launch and the A350XWB Business Case
6.1568. The European Union has explained that, in preparation for the launch of the A350XWB,
the A350XWB Business Case presentation was presented to the EADS Board of Directors on
[***].2733 Reportedly, EADS had scheduled a shareholder meeting for 24 November at whi ch the
EADS Board intended to decide whether to launch the A350XWB, but it was called off because of
disagreement among EADS' shareholders over how the A350XWB would be financed. 2734 We note
that, according to the European Union, in December 2006, approximate ly half of EADS' shares
were held or controlled by Lagardère, DaimlerChrysler, and the French and Spanish States. 2735
One press report indicates that the dispute was "in part due to France's reluctance to provide the
project with repayable finance … . France and Germany are also awaiting guarantees on Airbus'
turnaround plan".2736 On 30 November 2006, however, the Financial Times reported that EADS
shareholders had resolved their differences and approved a financing package for the A350XWB,
clearing the way for l aunch of the project. 2737 The article specifically reported that the "French
government, which holds 15 per cent of EADS, was on Thursday night understood to have agreed
to provide a state guarantee for part of the financing plan." 2738 The following day, on Frid ay,
1 December 2006, EADS officially approved the launch of the A350XWB on the basis of the
Business Case.2739
6.1569. The A350XWB Business Case presentation includes a NPV analysis of a contemplated
A350XWB family of aircraft. 2740 In the base case, the Business Case pr ojected that the non -
recurring costs (NRCs) of the A350XWB programme would be EUR [***]2741 (although the
Business Case itself gives serious reasons to doubt that this was considered a reliable figure 2742),
calculates an HSBI IRR for the programme2743 and an HSBI NPV2744 that is significantly positive for
the programme assuming a certain number of aircraft delivered over a certain number of
years.2745 The Business Case also assumes the use of a particular kind of state -supported financial
instrument to help fund the A350X WB programme, specifically [***] (the Launch Financing
Instrument).2746 The Business Case describes this as "[***]" and states that the [***] would be
[***].2747 The Business Case assumes that the [***] would total EUR [***].2748 The Business
Case indicates that the Launch Financing Instrument would contribute a specific monetary value to

2733 European Union's response to Panel question No. 47, para. 132. See also A350XWB Business Case
Presentation, (Exhibit EU-130) (HSBI), cover slide.
2734 "Airbus formally launches wide-body A350", Businessweek, 4 December 2006, (Exhibit USA-136);
"Board approval of Airbus A350XWB launch delayed as EADS shareholder funding concerns dominate",
Flightglobal News, 24 November 2006, (Exhibit USA-137); and Peggy Hollinger, "Deal struck on Airbus A350
funding", Financial Times, 30 November 2006, (Exhibit USA-334).
2735 European Union's second written submission, para. 1073.
2736 "Board approval of Airbus A350XWB launch delayed as EADS shareholder funding concerns
dominate", Flightglobal News, 24 November 2006, (Exhibit USA-137).
2737 Peggy Hollinger, "Deal struck on Airbus A350 funding", Financial Times, 30 November 2006,
(Exhibit USA-334).
2738 Peggy Hollinger, "Deal struck on Airbus A350 funding", Financial Times, 30 November 2006,
(Exhibit USA-334).
2739 See EADS Press Release, "A350XWB Family receives industrial go-ahead", 1 December 2006,
(Exhibit EU-181); and Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.296.
2740 We note that the United States does not materially question the validity of the Business Case's NPV
analysis. (See United States' comments on the European Union's response to Panel question No. 127, para. 45
(indicating that the Panel should rely on the Business Case's NPV analysis))
2741 A350XWB Business Case Presentation, (Exhibit EU-130) (HSBI), slide 56. We note that the parties'
submissions and documents in evidence reflect a consistent practice of using the programme's NRC as
reflecting the programme's "cost". This Report adopts this convention. We note, however, that the
European Union has indicated that the A350XWB programme entails certain other costs, such as recurring
costs and continuing development and support costs. (See European Union's response to Panel question
No. 138, para. 289)
2742 See A350XWB Business Case Presentation, (Exhibit EU-130) (HSBI), slide 55.
2743 A350XWB Business Case Presentation, (Exhibit EU-130) (HSBI), slide 68 (second to last line of
text).
2744 A350XWB Business Case Presentation, (Exhibit EU-130) (HSBI), slide 67 (last column in chart).
2745 The number of aircraft and the number of years are HSBI. (A350XWB Business Case Presentation,
(Exhibit EU-130) (HSBI), slide 50 (first bullet))
2746 A350XWB Business Case Presentation, (Exhibit EU-130) (HSBI), slide 65 (title and first bullet).
2747 A350XWB Business Case Presentation, (Exhibit EU-130) (HSBI), slide 65 (first and second
sub-bullets).
2748 A350XWB Business Case Presentation, (Exhibit EU-130) (HSBI), slide 65 (third sub-bullet).

the programme's projected NPV. 2749 The Business Case further states that it [***].2750 The
Business Case also conducts a sensitivity analysis and a worst case scenario analysis. All such
analyses assume the use of the Launch Financing Instrument. 2751 The Business Case calculates
that the programme NPV would be [***].2752
6.1570. The assumption of the Launch Financing Instrument permeates all commercial analyses
that the Business Case performs. We conc lude, therefore, that Airbus did not contemplate or
provide for the possibility of launching the A350XWB in the absence of government financial
assistance. However, we note that such member State financial assistance to Airbus never
materialized in the for m of the Launch Financing Instrument 2753, instead materializing later as
A350XWB LA/MSF.
6.1571. The Business Case also outlines a number of risks associated with the A350XWB
programme. For instance, in this context we note certain highly relevant HSBI statements in the
Business Case, inter alia, explaining the circumstances under which the Business Case was being
presented to the EADS Board of Directors .2754 The Business Case also identifies other, more
specific risks associated with the programme that are HSBI. 2755 In our view, these risks appear
significant on their face. We further recall the significant development and marketing risks
associated with the A350XWB.2756
6.1572. Additionally, the Business Case discusses two scenarios in which Airbus did not proceed
with the A350XWB la unch in December 2006, i.e. if Airbus failed to launch the A350XWB entirely
and if Airbus [***].2757 The consequences that the Business Case assumes would result from such
scenarios (in particular, the former scenario) appear serious, albeit temporary 2758, for A irbus'
competitive position at large. Other evidence on the record supports this assessment. As early as
March 2006, Mr Steven Udvar -Hazy reportedly warned that, "{i}f Airbus sticks with {the Original
A350} … it will wind up with as little as 25 percent ma rket share against the 787." 2759 Also, in
November 2006, Goldman Sachs predicted that without the A350XWB, Airbus' overall market
share could fall to 35%, thus characterizing it as "essential for Airbus to remain a mainstream
competitor to Boeing". 2760 Significantly, the Goldman Sachs report also indicates that a failure to
launch the A350XWB would not only harm Airbus' twin-aisle market presence, but could also result
in a lower single -aisle market presence "as many airlines may want commonality, and buy larger

2749 The specific amount is HSBI. (A350XWB Business Case Presentation, (Exhibit EU-130) (HSBI),
slide 67 (second to last column in chart))
2750 A350XWB Business Case Presentation, (Exhibit EU-130) (HSBI), slide 66 (seventh bullet, second
sub-bullet).
2751 A350XWB Business Case Presentation, (Exhibit EU-130) (HSBI), slides 66 (seventh bullet, first
sub-bullet), 69, and 72-74.
2752 The specific amount is HSBI. (A350XWB Business Case Presentation, (Exhibit EU-130) (HSBI), slide
73 (last column in chart)).
2753 See European Union's response to Panel question No. 47, para. 167; and UK Appraisal, (Exhibit
EU-(Article 13)-34) (HSBI), para. 21.
2754 A350XWB Business Case Presentation, (Exhibit EU-130) (HSBI), slides 47 (third bullet) and 47-48.
2755 See e.g. A350XWB Business Case Presentation, (Exhibit EU-130) (HSBI), slides 42 (text under third
bullet), 44 (text box), 47 (third bullet), 48 (third bullet, third sub-bullet) and 71 (text under second main
bullet).
2756 For a discussion regarding the range of risks associated with the A350XWB programme, see
2757 A350XWB Business Case Presentation, (Exhibit EU-130) (HSBI), slides 53 and 90-94.
2758 A350XWB Business Case Presentation, (Exhibit EU-130) (HSBI), slide 92 (first bullet).
2759 Dominic Gates, "Airplane Kingpins tell Airbus: Overhaul A350", The Seattle Times, 29 March 2006,
(Exhibit USA-24).
2760 Goldman Sachs Investment Analysis, A350: Not an option but essential for Airbus' future, in our
view, 21 November 2006, pp. 20-22, (Exhibit USA-30). See also Aude Lagorce, "Airbus refuses to rule out
state loans on the A350XWB", MarketWatch, 4 December 2006, (Exhibit USA-359) (reporting that the
A350XWB was considered essential for Airbus to compete with Boeing in the market for mid-size, long range
jets). The European Union asserts that the A350XWB programme was essential to Airbus because the aircraft
would compete in an extremely lucrative market. (See e.g. Responses by the European Union to the Second
Set of Questions by the Panel, Introduction para. 3). In making this argument, it is not always entirely clear in
what product "market" the European Union assumes the aircraft would compete. However, it is undisputed that
the global twin-aisle LCA market is a very lucrative one, and we accept that this fact underlies the apparently
severe consequences Airbus expected to suffer if it did not proceed with the A350XWB, which are already
discussed above.

and smaller aircraft in packages". 2761 In our view, contemplation of such consequences indicates
that, although the failure to launch the A350XWB would likely not present an existential threat to
Airbus and EADS, the companies considered the A350XWB programme to be essential to Airbus'
continued relevance as a healthy competitor to Boeing in all market segments at least through the
foreseeable future.
6.1573. We take particular note of certain aspects of these events. First, according to different
press reports, disagreements among EADS' shareholders regarding how the A350XWB programme
would be funded delayed the A350XWB's launch, and such disagreements were resolved, at least
in part, with a French guarantee to provide certain financial support for the programme. Seco nd,
the assumption that the A350XWB programme would be funded in part with financing that
involved member State [***] permeated the A350XWB Business Case. Finally, the Business Case
highlighted both risks and strategic benefits associated with the A350XWB programme.
iii The post-launch period
6.1574. In this subsection, we examine certain events surrounding the A350XWB programme
occurring after the A350XWB's launch through the Contracting Period. In our view, the evidence
from this period mainly pertains to four materi al topics: (a) the developmental status of the
A350XWB programme; (b) Airbus' and EADS' financial position during this time; (c) negotiations
between Airbus and the member States concerning financial assistance for the A350XWB
programme, generally, and A350XWB LA/MSF, specifically; and (d) certain government documents
discussing the importance of member State financial assistance in connection with the A350XWB
programme.
Post-launch development progress
6.1575. After launch, Airbus continued to develop the A350XWB under the DARE programme. The
European Union argues that the progress that Airbus made in the design and development of the
A350XWB before the First Contract Date demonstrates that "Airbus was committed to the
A350XWB programme regardless of whether there would be funding from the member States, on
subsidised terms or otherwise."2762 The United States argues that Airbus' development progress on
the A350XWB programme before the measures were concluded was limited, and, in any case, the
European Union's arguments in this context ignore the fact that "the member States intervened
with LA/MSF at a time when the program could not go forward as planned in its absence."2763
6.1576. The A350XWB Chief Engineering Statement indicates that Airbus completed significant
design and de velopment work on the A350XWB programme by the First Contract Date. 2764 The
European Union asserts that such progress cost a significant amount 2765 and enabled Airbus to
book more than 400 A350XWB orders by that time. 2766 For the European Union, the implication of
such evidence is that Airbus, having made such investments in the programme coupled with the
aircraft's strategic importance to Airbus (discussed above), had reached the point of no return in
the A350XWB programme by the First Contract Date, and therefore would have continued with the
programme as planned at the First Contract Date even if A350XWB LA/MSF had not materialized.
6.1577. The United States does not necessarily disagree that Airbus had demonstrated significant
commitment to the A350XWB programme by the First Contract Date. Rather, the United States
argues that because the member States had already promised, in principle, to provide financial
assistance to Airbus, any commitments that Airbus made to the programme before the First

2761 Goldman Sachs Investment Analysis, A350: Not an option but essential for Airbus' future, in our
view, 21 November 2006, pp. 20-22, (Exhibit USA-30), p. 21. See also Andrea Rothman, "Airbus Struggles to
Win Orders, End Nosedive Triggered by A380", Bloomberg, 17 June 2007, (Exhibit USA-361) (reporting that
one industry analyst stated that the A350XWB "'is absolutely vital to the future of Airbus strategy'").
2762 European Union's first written submission, para. 1088.
2763 United States' comments on the European Union's response to Panel question No. 47, para. 148.
2764 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), paras. 44-53.
2765 European Union's first written submission, para. 1128 (second HSBI reference).
2766 European Union's first written submission, para. 1088. See also Ascend database, Orders, data
request as of 26 June 2012, (Exhibit EU-19) (supporting the European Union's claim). The European Union has
explained that Airbus was able to begin offering the A350XWB to customers shortly after launch at a date that
is HSBI. (A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 45 (line 1))

Contract Date should not be understood to demonstrate Airbus' confidence regarding its ability to
proceed with the programme in the absence of any such financial assistance. This is especially so,
the United States argues, because as of the First Contract Date, Airbus still had th e vast majority
of the programme to fund. The United States supports this point with a statement by
Mr Larry Schneider, Vice President of Product Development for Boeing Commercial Aircraft (the
Schneider Declaration). The Schneider Declaration discusses th e "relationship between
expenditures and the stages of new aircraft development" 2767, specifically "the relative
expenditures associated with the two key stages of technology maturation associated with a new
aircraft launch."2768 Mr Schneider explains that there are two relevant key stages associated with
LCA development: (a) "the higher -risk but relatively low -cost technology maturation required to
make the initial selection of a technology for inclusion in a new aircraft program"; and (b) "the
lesser-risk and extremely resource-intensive testing and scaling -up of those technologies in order
to achieve full-scale commercial production of the new aircraft." 2769 It explains that "the bulk of a
manufacturer's development expenditures are spent only after the design con cept is frozen and it
begins to manufacture … and scale-up operations for commercial production".2770 The implication is
that Airbus, at the First Contract Date, was at or near the boundary between the two general
phases of LCA production that the Schneider D eclaration describes, and not only had yet to incur
the great majority of its absolute expenses in connection with the A350XWB programme, but was
also set to significantly increase its spending rate on the programme.
6.1578. The record supports these implications. First, the European Union does not dispute the
validity of the Schneider Declaration's explanations regarding the relationships between
expenditures and the stages of aircraft production discussed above, which further appear to accord
with both reason and logic. Second, the European Union has asserted facts that, in conjunction
with the Schneider Declaration's explanations, indicate that Airbus was at or near the transition
between the two stages of production described in the Schneider Declaration at the First Contract
Date. The European Union has explained that, by the First Contract Date, Airbus had frozen the
A350XWB's design and had demonstrated that the A350XWB's relevant technologies were ready to
enter the manufacturing phase of production. 2771 Further, it is clear that Airbus had not yet
incurred the great majority of the A350XWB programme's forecast costs as of the First Contract
Date. The amount that the European Union claims that Airbus had spent on the programme by the
First Contract Date – while in and of itself considerable – is significantly less than the total cost of
the programme that Airbus forecast as of the First Contract Date, which, as discussed further
below, was approximately EUR 12 billion. Other record evidence similarly indicates tha t EADS
expected its funding levels on the programme to increase around the First Contract Date. An EADS
press release on 1 December 2006 stated that the "bulk of spending {on the A350XWB
programme will occur} in 2010 -2013."2772 Moreover, a press report from D ecember 2006 quotes
Airbus then -CEO and EADS then -co-CEO Mr Louis Gallois as stating that "'{t}he peak of our
financing needs for the {A350XWB} will be in the { sic} 2010'".2773 These statements accord with
certain HSBI evidence regarding Airbus' contemporaneo us expectations regarding when its future
funding needs would be greatest.2774
6.1579. In sum, the record demonstrates that, at the First Contract Date, although Airbus had
made significant investments in the A350XWB programme, it still had the great majority of the
programme's expenses to fund and was significantly ramping up its spending on the programme.
The evidence indicates that Airbus had anticipated this general situation arising around this time
from the beginning of the programme.

2767 Schneider Declaration, (Exhibit USA-354) (BCI), para. 2.
2768 Schneider Declaration, (Exhibit USA-354) (BCI), para. 39.
2769 Schneider Declaration, (Exhibit USA-354) (BCI), para. 39.
2770 Schneider Declaration, (Exhibit USA-354) (BCI), para. 42.
2771 European Union's second written submission, para. 890 and fns 1297-1298 (citing A350XWB Chief
Engineering Statement, (Exhibit EU-18) (BCI/HSBI), paras. 51 and 52).
2772 EADS Press Release, "A350 XWB launch: EADS Gives Go Ahead for Airbus to Launch the A350
XWB", 1 December 2006, (Exhibit USA-569).
2773 Aude Lagorce, "Airbus refuses to rule out state loans on the A350XWB", MarketWatch,
4 December 2006, (Exhibit USA-359).
2774 A350XWB Business Case Presentation, (Exhibit EU-130) (HSBI), slide 58; and CompetitionRx
Report, (Exhibit EU-127) (BCI/HSBI), para. 212 and figures 6-8.

Airbus/EADS financial position post-launch
6.1580. The financial problems that EADS had encountered in the pre -launch period continued to
affect EADS' financial position in the post -launch period. As a January 2007 S&P report stated,
"{i}n the short term, a high level of uncertainty clouds {EADS'} financial performance and future
credit profile." 2775 The report further indicated that, pending a review of the company, EADS'
long-term credit rating could also suffer a downgrade. 2776 The results of this review were
apparently reflected four months l ater in May 2007 when Standard & Poor's further downgraded
EADS' long-term debt rating to a BBB+ rating – where it remained until September 2010, after the
end of the Contracting Period 2777 – citing factors such as structural reorganizations of the
company, the A380 delays, the aborted Original A350 programme, and a weak US dollar. 2778 In
this context we further note certain highly relevant HSBI statements made in the CompetitionRx
Report.2779
6.1581. The record indicates that such problems persisted during the post -launch period. An
Aviation Week article from February 2010 reported that "Airbus remains mired in addressing A380
production problems" "that left Airbus close to €6 billion … in lost revenues in the 2007 -10 period
alone."2780 The A400M programme also continued to impair EADS' performance. A June 2009
Financial Times article reported that EADS had recently undergone a reorganization t hat came "in
response to the debacle over the development of the A400M military transport aircraft, which is
already running at least three years late with billions of euros of extra costs and with work almost
halted, while EADS and its seven European gove rnment customers haggle over the future of the
project."2781 Further, an October 2009 S&P report indicated that EADS' performance in the first half
of 2009 suffered due to "less favorable exchange rates". 2782 The European Union has further
explained that in 2010 EADS' financial performance suffered, in part, due to a weak US dollar.2783
6.1582. The onset of the financial crisis caused further financial issues for EADS. A
December 2009 Financial Times article reported that EADS then -CEO Mr Louis Gallois "confirmed
that the decision to scale back production on the … A380 and some older aircraft models amid one
of the most severe recessions in recent memory would take its toll on the group's cash cushion"
and that aircraft deferrals "'are creating an impact on the cash situatio n of Airbus'".2784 Thus, the
article reports that "EADS is facing a potential cash crunch on the … A350", and that "{a}nalysts
say that the group's cash pile could melt rapidly … raising questions over the longer term financing
of its new aircraft programmes" .2785 Moreover, a December 2009 report prepared by a research
and consulting firm for the European Commission's Directorate-General for Enterprise and Industry
explained that:
The financial crisis affects the {European aerospace industry} in two ways. The fi rst is
worsened access to credit, which endangers the funding of the operating business
(short-term) as well as the participation in large (long -term) aircraft programmes.
Scarce funding has a negative impact on the launch of projects and the allocation of

2775 Standard & Poor's Global Credit Portal Ratings Direct, Research Update: EADS Long-Term Ratings
Remain On Watch Neg After Profit Warning, 17 January 2007, (Exhibit USA-512), p. 2.
2776 Standard & Poor's Global Credit Portal Ratings Direct, Research Update: EADS Long-Term Ratings
Remain On Watch Neg After Profit Warning, 17 January 2007, (Exhibit USA-512), pp. 2-3.
2777 Screenshots from Bloomberg Terminal Regarding Credit Ratings, (Exhibit USA-568).
2778 Standard & Poor's Global Credit Portal Ratings Direct, Research Update: EADS L-T CCR Cut to
'BBB+'; Off Watch Neg; Outlook Stable; Teleconf May 11 @ 2:30PM BST, 10 May 2007, (Exhibit USA-513),
p. 2.
2779 CompetitionRx Report, (Exhibit EU-127) (BCI/HSBI), para. 313 (first and second sentences).
2780 Jens Flottau, "Déjà vu: More problems beset the A350 program, but schedule margins are now razor
thin, a situation the manufacturer has faced before", Aviation Week & Space Technology, 15 February 2010,
(Exhibit USA-515).
2781 Kevin Done and Peggy Hollinger, "Airbus set to gain aid for A350", Financial Times, 15 June 2009,
(Exhibit USA-7). See also UK Appraisal, (Exhibit EU-(Article 13)-34) (HSBI), para. 12 (second bullet).
2782 Standard & Poor's Global Credit Portal Ratings Direct, European Aeronautic Defence and Space Co.
N.V., 14 October 2009, (Exhibit USA-514), p. 2.
2783 European Union's first written submission, para. 1237.
2784 Pilita Clark and Peggy Hollinger, "Deferrals to take toll on EAD's cash pile", Financial Times,
December 2009, (Exhibit USA-153).
2785 Pilita Clark and Peggy Hollinger, "Deferrals to take toll on EAD's cash pile", Financial Times,
December 2009, (Exhibit USA-153).

resources and aggravates the situation induced by problems and delays in recent
programmes. This incorporates the potential to force the industry to reschedule new
projects (A350, New Short Range).2786 (emphasis added)
6.1583. The United States argues that such evidence indicates that Airbus and EADS continued to
understand during this time that their financial positions moving forward would deteriorate to the
point where they would ultimately be unable to fully fund the A350XWB programme in the absence
of member Sta te financial assistance. The European Union disputes this assertion and offers
evidence which allegedly indicates that at least EADS – but not necessarily Airbus – was in a
strong financial position at the First Contract Date and, furthermore, that EADS expected to be in a
strong enough financial position in the foreseeable future to independently fund the A350XWB
programme even in the absence of member State financial assistance.
6.1584. Again, the main piece of evidence the European Union offers on this front is the
CompetitionRx Report. We recall that the CompetitionRx Report purportedly demonstrates
EADS' financial health at the time of the A350XWB's launch by examining EADS' financial data, and
EADS' projected ability to carry additional debt moving forward. Th e CompetitionRx Report
performs the same analyses with respect to EADS' financial health at the First Contract Date, and
again reaches the conclusion that EADS was in a strong financial position at this time, with the
ability to carry substantial additiona l debt if the need arose. 2787 We make the same observations
regarding these analyses as we did with respect to those that the CompetitionRx Report performed
vis-à-vis EADS' financial position at the time of launch. That is, although a snapshot of EADS'
financial situation at the First Contract Date is certainly relevant , its relevance should not be
overstated because EADS also had to fund the programme years into the future, and therefore its
projected financial position moving forward from that date is very i mportant. Indeed, as discussed
above, EADS still had the vast majority of the A350XWB programme to fund at this time. The
CompetitionRx Report addresses this question by revealing EADS' projected future cash positions
at the First Contract Date and setting out a projected debt -capacity analysis based on such
projections. We evaluate these aspects of the CompetitionRx Report in more detail below.
6.1585. While the evidence discussed above suggests that EADS found itself with considerable
financial difficulties during the Contracting Period, other evidence indicates that in the post -launch
period EADS continued to pursue with some success the strategies it had begun to implement in
the pre -launch period intended to combat its financial difficulties. It appears that in the
post-launch period Airbus began to realize cost savings as a result of ongoing implementation of
Power8. From its inception in late 2006, EADS had envisioned that Power8 would take several
years to implement, with goals of "achieving EBIT contribution s of €2.1 billion from 2010 onwards
and an additional €5 billion of cumulative cash flow from 2007 to 2010." 2788 In this context, we
note a press report from March 2007 indicates that "{t}he core elements of the {Power8} plan
should be in place within 12 -18 months".2789 An Airbus presentation from June 2007 that provided
an update on the Power8 strategy indicated that it was "on track" for "2007 quick wins >
€200 million".2790 The CompetitionRx Report maintains that Power8 produced approximately
EUR 1.3 billion in s avings in 2008. 2791 A Standard & Poor's report from September 2010 – which
postdates the end of the Contracting Period – also reported that EADS had made progress on the
Power 8 programme by that time. 2792 Further, the European Union has explained that, by the F irst
Contract Date, Airbus had signed agreements with the "vast majority" of its A350XWB RSPs 2793,

2786 "Competitiveness of the EU Aerospace Industry with focus on Aeronautics Industry, within the
framework contract of sectoral competitiveness studies ENTR/06/054", Ecorys, December 2009, (Exhibit
USA-151), p. 27.
2787 CompetitionRx Report, (Exhibit EU-127) (BCI/HSBI), pp. 58-65, 67-68, 70, and 72.
2788 EADS Press Release, "A350 XWB launch: EADS Gives Go Ahead for Airbus to Launch the A350
XWB", 1 December 2006, (Exhibit USA-569), p. 12.
2789 Robert Wall, "Will It Fly? Eyes are on Airbus as it overhauls industrial setups and supplier relations
to regain competitive footing, financial health", Aviation Week & Space Technology, 5 March 2007,
(Exhibit USA-523).
2790 Fabrice Brégier, Chief Operating Officer, Airbus, "Power8 and A350XWB Updates", slides from EADS
presentation, Paris, 20 June 2007, (Exhibit USA-143).
2791 CompetitionRx Report, (Exhibit EU-127) (BCI/HSBI), annex E (para. 2).
2792 Standard & Poor's Global Credit Portal Ratings Direct, Research Update: European Aeronautic
Defence and Space Co. N.V. Long-Term Rating Raised to 'A-' On Lower Project Risks; Outlook Stable,
22 September 2010, (Exhibit USA-516), p. 2.
2793 European Union's first written submission, para. 1088.

which, we recall, were expected to take on roughly EUR 1.8 billion of the programme's
development costs. Such evidence suggests that EADS' confidence regarding its ability to address
its financial issues may have been growing during this time -period, and perhaps increasing EADS'
confidence regarding its future financial fortunes.
6.1586. There is also evidence suggesting that EADS' financial situation going forward from the
First Contract Date would display strength, although such evidence generally arises after the First
Contract Date and therefore, at least to some extent, may reflect the fact that Airbus had begun
concluding agreements with the member States for A350XW B LA/MSF. An October 2009 Standard
& Poor's research report assessed EADS' credit outlook as stable, and listed several notable
strengths of EADS, including its "strong financial flexibility". 2794 Another press report from
December 2009 reported that an indus try analyst stated that EADS' "better -than-expected cash
management meant that EADS could potentially defer the need for extra liquidity until markets
recovered" and that EADS then -CEO Mr Gallois reportedly stated that the A350XWB LA/MSF
Programme was "'fine'". The same press report, however, indicated that "{a}nalysts estimate that
EADS will receive government loans €3bn -€3.3bn {in connection with the A350XWB
programme}."2795 Further, a Standard & Poor's report from September 2010 – which somewhat
postdates the end of the Contracting Period – notes an upgrade of EADS' credit rating to an "A -"
and indicates that by that time EADS "has financially digested most of the negative effects" of the
A380 and A400M programs, and further expected EADS to "benefit from mo re favorable foreign
exchange hedge rates in the future."2796
6.1587. In our view, the evidence regarding Airbus' and EADS' financial condition in the
post-launch period discussed above displays four general themes. First, the companies faced the
persistence of sign ificant financial difficulties concerning issues that had initially arisen in the
pre-launch period. Second, the companies displayed ongoing efforts to combat such troubles,
which succeeded to some degree. Third, the companies' efforts to combat their fina ncial troubles
were upset somewhat by the onset of the financial crisis. Fourth, EADS maintained a credit rating
during this time that it found only marginally acceptable – until it was upgraded sometime after
the First Contract Date.
LA/MSF negotiations
6.1588. Evidence from the post-launch period reveals that EADS and Airbus explored their options
regarding how to fund the A350XWB programme, including the possibility of seeking financial
assistance from the member States. Part of this body of evidence is in the f orm of statements of
Airbus and EADS officers. On 4 December 2006, the Monday following the A350XWB's launch,
Airbus then -CEO and EADS then -co-CEO Mr Gallois made a speech that included the following
relevant excerpts:
The EADS Board has approved the Airbu s proposal as a value proposition. The board
is satisfied that we will be able to afford the investment through a blend of EADS'
internal financial resources, associating partnerships, and, if and when the need
arises, from funds raised on the world's capital markets. …
…
There is much talk out there about government funding.
In your heart, and in my heart, we are all aware that the B787 is a highly subsidized
aircraft. It is the core of the European case in the WTO conflict. Our competitor has
tried to div ert attention from this fact by attacking what really is an extraordinarily
transparent, and hence vulnerable, European direct funding scheme in front of the

2794 Standard & Poor's Global Credit Portal Ratings Direct, European Aeronautic Defence and Space Co.
N.V., 14 October 2009, (Exhibit USA-514), pp. 2 and 4-5.
2795 Pilita Clark and Peggy Hollinger, "Deferrals to take toll on EAD's cash pile", Financial Times,
December 2009, (Exhibit USA-153).
2796 Standard & Poor's Global Credit Portal Ratings Direct, Research Update: European Aeronautic
Defence and Space Co. N.V. Long-Term Rating Raised to 'A-' On Lower Project Risks; Outlook Stable,
22 September 2010, (Exhibit USA-516), p. 2.

WTO. You also know what our position is: there is government funding for our
industry on both side s of the Atlantic. The US and the EU should better agree on an
acceptable scheme for us all. But the time for that has not yet come.
You are asking now how we want to compete against the subsidized B787. Well, we
are currently discussing with governments h ow to secure the level playing field in
aircraft manufacturing for the future. I believe that future R+T funding will play a key
role. But other options are also on the table. I will not exclude anything and will not
be more specific at this point. We have no imminent funding need, we are only asking
for a level playing field. Hence, no decision has been taken or is even imminent. 2797
(emphasis added)
6.1589. A concurrent press report from MarketWatch also quotes Mr Gallois as stating that the
EADS Board had asked Air bus to look at all the funding options for the A350XWB, "'not excluding
any of them'", and reported that Airbus "refused to rule out government loans to fund the
10-billion euro A350-XWB".2798 Mr Gallois also reportedly emphasized that "Airbus is determined to
reach a level -playing field with Boeing." 2799 In June 2007 a Bloomberg article reported that
Mr Gallois was "counting on some form of European government assistance" in connection with the
A350XWB programme even though "the need for cash isn't urgent" becau se "Airbus has several
{financing options}".2800
6.1590. Other indications that EADS and Airbus would continue to explore the possibility of
receiving member State financial assistance comes from member State government officials. A
December 2006 press report indicat es that French Economy and Finance Minister Thierry Breton
confirmed that "France didn't exclude participating in a capital increase as part of the financing of
the wide-body aircraft" and that "'{t}he four governments concerned have announced that they
would provide guarantees at similar conditions.'" 2801 Further, a December 2006 La Tribune article
reported a French official as stating that all four relevant member State governments would
provide "guarantees" in connection with the A350XWB project, but that h alf the financing of the
A350XWB would come from savings produced by the Power8 programme. 2802 Also in
December 2006, the UK Minister for Industry and the Regions Margaret Hodge responded to a
question from a member of the British Parliament in the following manner:

2797 Speech by Louis Gallois, "Industrial launch of the A350XWB", Paris, 4 December 2006, (Exhibit
EU-179). "In considering the above evidence, we recognize that the public statements of Airbus or participant
company executives and public officials as to the need for LA/MSF in order to launch a given aircraft may
involve a degree of self-interest." (Panel Report, EC and certain member States – Large Civil Aircraft,
para. 7.1919)
2798 Aude Lagorce, "Airbus refuses to rule out state loans on the A350XWB", MarketWatch,
4 December 2006, (Exhibit USA-359).
2799 Aude Lagorce, "Airbus refuses to rule out state loans on the A350XWB", MarketWatch,
4 December 2006, (Exhibit USA-359).
2800 Andrea Rothman, "Airbus Struggles to Win Orders, End Nosedive Triggered by A380", Bloomberg,
17 June 2007, (Exhibit USA-361).
2801 Aude Lagorce, "Airbus refuses to rule out state loans on the A350XWB", MarketWatch,
4 December 2006, (Exhibit USA-359).
(Exhibit USA-37):

Le gouvernement français a toujours été en faveur du lancement de l'A350. C'est une bonne
actionnaires, seront sollicitées.

C'est ce qui a été dit. En tout cas, nous jouerons clairement notre rôle au prorata de nos

We will have to negotiate our way forward with {Airbus}. It faces considerable
challenges at present, but I agree with the hon. Gentleman that it has a good long -
term future. If we can see it through its immediate problems, and work with it and the
other countries that have an interest in ensuring that there is a good European
aerospace capacity to compete with the American capacity, that will be of benefit to
ourselves and to the company.2803
6.1591. Further, the UK Department of Trade and Industry noted in i ts 1 April 2006 to
31 March 2007 summary:
In this role over the last year, the Shareholder Executive continued to lead
Government involvement in Bombardier Aerospace (an application for launch
investment in connection with the proposed C Series aircraft) a nd Airbus (also an
application for launch investment in connection with the A350).2804
6.1592. There is also evidence suggesting that Airbus' pursuit of member State financial aid,
generally, and in the form of LA/MSF, specifically, was, at least in part, driven by a lack of other
options. We first recall that the Business Case stated that the use of the Launch Financing
Instrument was intended to [***] but, of course, the Launch Financing Instrument never
materialized. We also note certain highly relevant HSBI state ments in the Chief Engineering
Statement in this context.2805 Moreover, the UK Appraisal (discussed in more detail further below)
indicates that Airbus had explored the possibility of using certain alternate strategies that are HSBI
to fund the programme 2806, but for unexplained reasons Airbus had apparently abandoned such
strategies. In our view, this information suggests that Airbus attempted, but failed, to access
certain market financing sources. Additionally, in March 2007, members of the British House of
Commons, Mark Russell of the UK Shareholder Executive, and UK Minister for Industry and the
Regions Margaret Hodge had the following exchange regarding A350XWB LA/MSF:
Q138 Mr Binley: Minister, do you intend to provide Launch Aid support for the A350
XWB?
Margaret Hodge: We are clearly in discussion with EADS and Airbus on the sort of
support that might be required with developing the new model.
Q139 Mr Binley : Minister, the question was, do you intend? I recognise you are in
the discussions but is it your intention to provide Launch Aid support for the A350?
Margaret Hodge: I am sorry. I do not think I can tell you more, with the greatest
respect, than I have said in that statement. We are in negotiation and discussion. We
have a good record of supporting Air bus in the development of all its new models. We
have put ￡1.2 billion of Launch Aid in and secured a return so far of ￡1.3 billion for
that ￡1.2 billion investment, and we are in discussion with Airbus, as are the other
countries, around what further support they require.
Q140 Mr Binley : Let me put my question a slightly different way. You are in
discussions. You are either in discussions because you want to do something or you
are in discussions because you want to stop something. Is the emphasis on the former

2803 UK House of Commons Hansard Debates, Column 104WH, Colloquy of Mr Steve Webb and Minister
for Industry and the Regions, Margaret Hodge, 6 December 2006, (Exhibit USA-303/USA-360 (exhibited
twice)).
2804 UK Department of Trade and Industry Annual Report 2006-2007, p. 107, (Exhibit USA-38). It is
unclear exactly what this "application" was or when it occurred. However, we note that this exhibit predates
the date on which the European Union claims that Airbus formally applied to the United Kingdom for financial
assistance. Thus, it is possible that this "application" refers to an Airbus application for LA/MSF for the Original
A350.
2805 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 55 (last sentence of
paragraph).
2806 UK Appraisal, (Exhibit EU-(Article 13)-34) (HSBI), para. 21 (lines 1-2). It is not, however, entirely
clear to what extent the document was assuming that the member States would participate in such funding
strategies.

or the latter? Are Airbus pressing you to put money in or are you intending to put
money in in a more positive manner?
Margaret Hodge: We want to support the continuation of Airbus within the UK, so we
are just engaged in negotiations. I am sorry I c annot be more specific to you, but
clearly that would be inappropriate at this delicate time.
…
Margaret Hodge: We have in principle expressed pretty positively our support for
the development of the A350 wide -bodied aircraft. We have not yet, it may surpr ise
you to hear, had a specific request from EADS around the new model but we are in
discussion with them. The only other thing to say to you, as I am sure the Committee
is well aware, is that we have to be very conscious of the WTO rules and constraints in
the support we choose to give to the development of this new model.
…
Margaret Hodge: We are discussing a whole range of options in the way in which
one could possibly provide support, and I think probably Mark, who is leading on that,
might be the best person to answer it.
Mr Russell: I think it is fair to say that Airbus have been through a great deal over
the last few months and the future financing of Airbus has not been top of their
agenda. Power8 and management changes have been really what have bee n using
management time. There is no doubt, if you look out on the financing of Airbus, that
there will come a point where they will need to raise additional capital. They have not
yet provided us with detailed forecasts so we do not precisely know, but in terms of
analysts' reviews of the business it is pretty clear that they will need some sort of
support. It is not clear whether they may not just be able to raise that money from
shareholders and the capital markets. I think at the moment they are going t hrough
precisely that process of trying to understand whether they can finance it themselves.
If they conclude that they cannot then I think they will probably have a fuller
conversation with the governments. They have made it very clear that the one form of
support they would like is R&T support.
Q144 Chairman: Which we will be asking you about in some detail later, of course.
Mr Russell : Yes, of course. In terms of other sorts of support, such as launch
investment or something equivalent to launch investm ent, given the WTO issues, so
far they have been non -specific.2807 (bold text and bold -italicized text original; italics
added)
6.1593. Also in March 2007, members of the British House of Commons and Airbus UK Managing
Director Iain Gray had the following exchange regarding A350XWB LA/MSF:
Chairman: We will move on to the Government funding issue, as much as I would
like to probe you a bit further on that.
Q39 Rob Marris : You said this morning, Mr Gray, that the prospects of Airbus
moving forward were very good. You s aid it had a rosy future. You said: "The Wing
Centre of Excellence will continue to remain here in the UK", that was one of the
quotes from you. You talked about EADS making significant investments at Filton and
Broughton, and regarding partners you said t here is interest. As I understand it, you
announced the A350 XWB last December and it is due to go into service some time in
2013. Do I take it from what you said this morning that Airbus, certainly in the UK,
does not need any financial support from the Government?

2807 UK House of Commons Trade and Industry Committee, "Recent Developments with Airbus", Ninth
Report of Session 2006-07, Volume II: Oral and written evidence, 25 July 2007, (Exhibit EU-177).

Mr Gray: No, what I have said is in terms of looking forward, there are two different
aspects. There is the competitiveness which we, as industry, are responsible for, and
there is competitiveness in a more macro sense in terms of government, in dustry and
academia working in partnership, and that is hugely important for us all as we move
forward. I have not made specific comment on particular mechanisms of how that
support may come about. What I would want to place very, very strong emphasis on
is investment in new technologies. I believe that from a UK competitiveness point of
view moving forward, an absolutely fundamental aspect is related to investment in
new technology. That is an area where government, industry, the supply chain and
academia do need to work very closely together.
Q40 Rob Marris: Clearly you wish for that support, do you need it?
Mr Gray : We do need it, unambiguously we do need that .2808 (bold text and
bold-italicized text original; italics added)
6.1594. The content of certain other pres s reports during this time -period is generally consistent
with the position that A350XWB LA/MSF was viewed as important for the A350XWB programme's
future. For instance, a September 2009 Bloomberg article reporting that Airbus "needs the funds
{from the German A350XWB LA/MSF contract} to help it pay for engineering and tools required to
build prototypes of the A350 and begin production." 2809 Further, a March 2010 article from a
German publication reported that "Airbus is put under strain because politicians ca n not only bring
forward wishes to the enterprise; but even have a direct influence. The enterprise needs support
from the state to finance its major projects."2810
6.1595. Airbus' recourse to seeking financial assistance from the member States appeared to
come to a head in late 2008. In January 2008, the New York Times reported that:
Airbus expects to begin discussions with European governments in the second half of
this year about providing some of the initial financing for its new widebody jet, the
A350-XWB, company executives said Wednesday, a move that risks heightening trade
tensions with the United States over state aid to their respective aerospace industries.
…
According to one Airbus executive, once the detailed blueprints for the plane are
defined, the compa ny will be in position to present Germany, France and other
European governments with concrete requests for financing the A350 -XWB, which is
expected to cost at least €10.5 billion, or $15.4 billion, to develop.

2808 UK House of Commons Trade and Industry Committee, "Recent Developments with Airbus", Ninth
Report of Session 2006-07, Volume II: Oral and written evidence, 25 July 2007, (Exhibit EU-177). This
statement by Mr Gray is somewhat ambiguous. The United States argues that Mr Gray's statement should be
taken as meaning that Airbus, as a whole, needed financial support in connection with the A350XWB
programme. (United States' second written submission, para. 608). In contrast, the European Union argues
that the statement should be taken as meaning that the UK Airbus subsidiary needed government support if it
wished to remain competitive within the Airbus group. (European Union's first written submission, para. 1135).
In our view, given the context, Mr Gray was indicating that the UK Airbus subsidiary needed government
support if it were to pursue the development of new technologies in the context of the A350XWB programme.
It is unclear whether Mr Gray considered that, in the absence of such UK Government support, other Airbus
subsidiaries could have pursued such technologies in the absence of member State financial assistance.
However, we consider that the Airbus UK subsidiary's inability to pursue A350XWB technologies in the absence
of member State aid at least suggests that other Airbus subsidiaries would similarly not be able to do so in the
absence of member State financial assistance. Thus, we consider that Mr Gray's statement generally supports
the position that Airbus felt that it needed government support to pursue the A350XWB programme as
envisioned.
2809 Andrea Rothman and Brian Parkin, "Airbus A350 Loan Projects at Least 1,500 Deliveries (Update1)",
Bloomberg, 17 September 2009, (Exhibit USA-45).
2810 J. Hartmann and J. Hildebrand, "Wie Airbus und Boeing um die Luftoheit kampfen", Welt Online,
22 March 2010, (Exhibit USA-67).

Talks with national governments over so -called launch aid "could already begin in the
summer," said the executive, who requested anonymity because of the political
sensitivity of the issue and because he was not authorized to discuss the matter.
…
Company executives say that any government loans would have to be carefully
structured so as to be able to stand up against a possible legal challenge from Boeing
and the U.S. trade representative.2811
6.1596. The New York Times article proved accurate, and Airbus and the member States started
formalized negotiations regarding A350XWB LA/MSF in late 2008. Executive Vice President,
Programmes at Airbus SAS, Mr Tom Williams, who was a member of the Airbus team that
negotiated the A350XWB LA/MSF measures with the member States, has explained via a
declaration that Airbus formally requested A350XWB LA/MSF on [***] at a meeting with the
member State representatives. 2812 Mr Williams further explains how the different m ember States
responded to the request 2813 and the general trajectories that ensuing negotiations took with the
respective member States.2814
6.1597. Mr Williams' statement does not address why Airbus picked the time that it did to request
such formal negotiations. We r ecall, however, that EADS had anticipated from launch that its
funding needs for the A350XWB programme would begin reaching their peak levels around the
First Contract Date. Additionally, in June 2006 a senior Airbus executive had reportedly "stressed
that any decision to ask for the loans would be largely symbolic at first, since it would take at least
a year before any such aid could be drawn upon." 2815 We further note that Airbus began drawing
funds under the A350XWB LA/MSF contracts almost exactly a year f ollowing its formal request for
A350XWB LA/MSF from the member States.2816 Such evidence strongly suggests that Airbus timed
its request for initiation of formal A350XWB LA/MSF negotiations with the member States to allow
for conclusion of the A350XWB LA/MSF contracts before or around the time at which Airbus
expected its funding needs for the A350XWB programme to be the greatest.
6.1598. In our view, the evidence discussed in this section confirms that, around the time of
launch, the member States had given assurance s to Airbus that they would financially support the
A350XWB programme if and when Airbus requested it. It further demonstrates that Airbus and the
member States were in continual contact regarding the possibility of receiving such financial aid,
and although Airbus appears to have considered options other than A350XWB LA/MSF for financing
the programme, Airbus eventually requested LA/MSF-type measures from the member States. The
evidence also suggests the importance of receiving such financial assistance fr om the member
States. Certain government documents from the European Union and its member States offer
further insight into how necessary the governments believed such aid to be. We discuss these
documents next.
Government appraisals
6.1599. When assessing to what extent a company needed significant subsidies to launch and
bring to market a particular product, we would normally expect to find helpful guidance regarding
this issue in the contemporaneous assessments that the grantor(s) of such subsidies would

2811 Nicola Clark, "Airbus to seek government aid for A350 in second half", The New York Times,
16 January 2008, (Exhibit USA-434).
2812 Statement by Tom Williams, Executive Vice President, Programmes, Airbus SAS, 17 May 2013,
(Exhibit EU-354) (BCI), para. 3 (stating that this meeting occurred in "early December 2008"); and
European Union's response to Panel question No. 101, para. 408 (clarifying that the meeting occurred on
[***], specifically).
2813 Statement by Tom Williams, Executive Vice President, Programmes, Airbus SAS, 17 May 2013,
(Exhibit EU-354) (BCI), para. 5.
2814 Statement by Tom Williams, Executive Vice President, Programmes, Airbus SAS, 17 May 2013,
(Exhibit EU-354) (BCI), para. 4.
2815 Katrin Bennhold, "Airbus looks likely to seek state assistance", International Herald Tribune,
18 June, 2006, (Exhibit USA-357). (emphasis added)
2816 See European Union's response to Panel question No. 133, fn 182 and accompanying text; and
response to Panel question No. 86, para. 335.

presumably have prepared in determining whether to provide the subsidies to the relevant
company. As already noted elsewhere in this Report 2817, the Panel requested that the
European Union submit any such assessments that the member States prepared in determining
whether to grant A350XWB LA/MSF subsidies to Airbus. As further explained above, however, the
European Union informed the Panel that France, Germany and Spain prepared no such
assessments. Rather, only the UK prepared a contemporaneous written assessment of the merits
of Airbus' request for A350XWB LA/MSF (the UK Appraisal). We discuss this assessment directly
below. We then discuss two other types of government documents that, while not taking the form
of assessments of whether to provide A350XWB LA/MSF to A irbus, nonetheless contain certain
relevant content regarding the A350XWB programme and/or Airbus' potential financing options in
the absence of A350XWB LA/MSF subsidies, i.e. the French ONERA Agreement and certain
European Commission State Aid Decisions.
The UK Appraisal
6.1600. The UK Appraisal2818 is dated [***].2819 Its stated "issue" is "{c}ommencing negotiations
with Airbus on Repayable Launch Investment support for the A350 XWB". 2820 It ultimately
recommends that "officials should now enter negotiations with Airbus" regarding launch
investment.2821 The document contains discussion regarding the importance of A350XWB LA/MSF
for the A350XWB programme, including the likely consequences for the programme if no LA/MSF
were forthcoming from the member States.
6.1601. The European Union questions the UK Appraisal's relevance. First, the European Union
argues that the document is immaterial to the United States' argument that Airbus could not have
funded the A350XWB programme in the absence of LA/MSF because its administrative purpose i s
to address a "much narrower question – whether the programme would go forward in the UK
without an MSF loan from the UK."2822 Further, the European Union argues that the Panel should
disregard or minimize the weight of the UK Appraisal because "whatever the views of the UK
Government, the Panel has before it contemporaneous data enabling it to objectively assess" the
United States' arguments, and cites the A350XWB Business Case and CompetitionRx Report in
support of this statement.2823
6.1602. Before addressing the Eur opean Union's specific arguments, we first examine the most
material aspects of the UK Appraisal's content. The UK Appraisal states that the UK Government
based its analysis of whether to provide A350XWB LA/MSF on "[***]".2824 Although it is not
always clear which entities analysed what specific issues discussed in the UK Appraisal, it appears
that the document's conclusions regarding the financial positions of EADS and Airbus was based on
analysis provided by [***].2825 The Appraisal notes that the A350XWB proje ct is "a sound project

2817 For a discussion regarding this subject, see above para. 6.635 et seq.
2818 UK Appraisal, (Exhibit EU-(Article 13)-34) (HSBI). We note UK House of Commons Hansard, written
answers for 29 June 2009, (Exhibit USA-152), which reveals that in 2009, Mr Ian Lucas, then-Parliamentary
Under-Secretary of State for the Department of Business, Innovation and Skills, stated in the UK House of
Commons that the UK Government "carried out a detailed assessment of the possible provision of support to
Airbus for the A350 XWB aircraft", which included a "detailed analysis of the company's business case,
technical viability of the project, the potential market, and anticipated benefits to the UK industry and the
wider economy." The European Union has explained that the "detailed analysis" referred to in the above
quotation is the UK Appraisal. (European Union's response to Panel question No. 123, para. 60). The
European Union has also explained that the referenced "business case" should not be read to refer to the
A350XWB Business Case, but rather to a general body of "factors subject to the UK Government's 'assessment'
and 'analysis', culminating" in the UK Appraisal. (European Union's response to Panel question No. 123,
para. 43) (emphasis original). However, insofar as the term "business case" could be read to refer to a
document, the European Union asserts that the document would be Exhibit EU-(Article 13)-35.
(European Union's response to Panel question No. 123, para. 45). For a further discussion regarding this
subject, see generally above para. 6.635 et seq.
2819 UK Appraisal, (Exhibit EU-(Article 13)-34) (HSBI), p. 1.
2820 UK Appraisal, (Exhibit EU-(Article 13)-34) (HSBI), p. 1.
2821 UK Appraisal, (Exhibit EU-(Article 13)-34) (HSBI), p. 1.
2822 European Union's response to Panel question No. 47, para. 149. (emphasis original)
2823 European Union's response to Panel question No. 123, para. 67. (footnote omitted)
2824 UK Appraisal, (Exhibit EU-(Article 13)-34) (HSBI), para. 4. We note that the European Union has
provided an HSBI explanation regarding the nature of [***]. (European Union's response to Panel question
No. 123, fn 119 (lines 3-4))
2825 See UK Appraisal, (Exhibit EU-(Article 13)-34) (HSBI), para. 11.

of great strategic importance to Airbus." 2826 The Appraisal provides an HSBI estimate of the
A350XWB programme's cost 2827 that is [***] Airbus' estimate at the time (i.e. EUR 12 billion).
The UK Appraisal also provides HSBI statements rega rding EADS' and Airbus' current 2828 and
expected future financial condition.2829 More specifically, the UK Appraisal contains HSBI comments
regarding EADS' financial resources that strongly suggest that it would have been very challenging
for EADS to fully and e ffectively fund the A350XWB programme in the absence of all A350XWB
LA/MSF from all four member States.2830
6.1603. We recall that the UK Appraisal indicates that Airbus had explored the possibility of using
certain alternate strategies that are HSBI to fund the pro gramme, but for unexplained reasons
Airbus had apparently abandoned such strategies, and that certain such strategies, in our view,
suggest that Airbus attempted, but failed, to access certain market financing sources. 2831 The
document explains that "[***]".2832 Finally, the UK Appraisal also notes that another risk
associated with EADS' financial condition involved continuing financial difficulties [***].2833
6.1604. We now turn to evaluate the European Union's specific criticisms of the document. We
first address the Euro pean Union's argument that the sole question the UK Appraisal addresses is
"whether the programme would go forward in the UK without an MSF loan from the UK."2834 The
European Union therefore argues that "the document does not, and indeed cannot consistent wi th
its authors' remit, answer the question whether EADS and Airbus would and could launch the
A350XWB programme altogether without MSF loans from all four EU member States." 2835 We
dismiss this argument for two reasons. First, the UK Appraisal contains HSBI s tatements that
plainly and directly address the very question that the European Union believes that the document
leaves unanswered.2836 Second, the European Union does not appear to fully appreciate the full
implications of the questions that the UK Appraisal was intended to answer. We therefore place the
UK Appraisal in proper context. The European Union claims 2837, and the United States does not
dispute, that the document providing this context is the so-called Green Book, published by the UK
Treasury, which describes "the techniques and issues that should be considered when carrying out
assessments" of "{a}ll new policies, programmes and projects, whether revenue, capital or
regulatory", e.g. the UK Appraisal. 2838 The role of such appraisals is to determine "wheth er a
proposal is worthwhile." 2839 In order to make this determination, the government must first
establish "a clearly identified need". 2840 Such need "is usually founded in either market failure or
where there are clear government distributional objectives that need to be met." 2841 The

2826 UK Appraisal, (Exhibit EU-(Article 13)-34) (HSBI), para. 4.
2827 UK Appraisal, (Exhibit EU-(Article 13)-34) (HSBI), para. 11 (first bullet).
2828 UK Appraisal, (Exhibit EU-(Article 13)-34) (HSBI), para. 11 (second line, words 4-6).
2829 UK Appraisal, (Exhibit EU-(Article 13)-34) (HSBI), para. 11 (last two lines of paragraph).
2830 UK Appraisal, (Exhibit EU-(Article 13)-34) (HSBI), paras. 13 and 16. See also UK Appraisal, (Exhibit
EU-(Article 13)-34) (HSBI), paras. 4 (second bullet) (expressing similar conclusions) and 11 (second bullet)
(discussing another source of financial uncertainty for EADS).
2831 UK Appraisal, (Exhibit EU-(Article 13)-34) (HSBI), para. 21 (lines 1-3). It is not, however, entirely
clear to what extent the document was assuming that the member States would participate in such funding
strategies. (See also UK Appraisal, (Exhibit EU-(Article 13)-34) (HSBI), para. 12 (first bullet) (discussing a risk
to the programme that appears to further underscore the difficulty of securing market financing for the
A350XWB programme)).
2832 UK Appraisal, (Exhibit EU-(Article 13)-34) (HSBI), para. 20.
2833 UK Appraisal, (Exhibit EU-(Article 13)-34) (HSBI), para. 12 (second bullet).
2834 European Union's response to Panel question No. 47, para. 149. (emphasis original)
2835 European Union's response to Panel question No. 47, para. 149.
2836 See e.g. UK Appraisal, (Exhibit EU-(Article 13)-34) (HSBI), para. 16 (lines 2-4).
2837 European Union's response to Panel question No. 47, para. 149.
2838 UK Treasury, "The Green Book: appraisal and evaluation in Central Government", 2003 edn,
updated in July 2011, (Exhibit EU-352), para. 1.1. (footnote omitted)
2839 UK Treasury, "The Green Book: appraisal and evaluation in Central Government", 2003 edn,
updated in July 2011, (Exhibit EU-352), para. 2.3.
2840 UK Treasury, "The Green Book: appraisal and evaluation in Central Government", 2003 edn,
updated in July 2011, (Exhibit EU-352), para. 2.6.
2841 UK Treasury, "The Green Book: appraisal and evaluation in Central Government", 2003 edn,
updated in July 2011, (Exhibit EU-352), para. 3.2. "Distributional objectives" appear focussed on social
equities, rather than on the economic performance of the UK economy. (UK Treasury, "The Green Book:
appraisal and evaluation in Central Government", 2003 edn, updated in July 2011, (Exhibit EU-352),
paras. 5.33-5.41). Thus, we do not believe that the term "distributional objectives" should be read as referring
to the needs or desires of specific segments of UK industry that may benefit financially from work that would
be done in the United Kingdom on the A350XWB project. It therefore appears most likely that the document

government must then establish whether the project "is likely to be worth the cost." 2842 In doing
so, such appraisals "should take account of all benefits to the UK."2843
6.1605. Therefore, placed in its proper context, it appears entirely appropri ate that the UK
Appraisal would consider the implications for the A350XWB programme of all four relevant
member States supplying or failing to supply A350XWB LA/MSF to Airbus. This is so for the simple
reason that, as discussed in the UK Appraisal itself, Airbus' need for UK A350XWB LA/MSF and the
benefits to the UK of the UK supplying A350XWB LA/MSF to Airbus depend in large part on the
extent to which the other member State governments were also expected to grant similar financial
aid to Airbus.2844 Therefore, we detect no reason to discount any discussions in the UK Appraisal of
such topics under the theory that, by including such discussions, the authoring institution
exceeded its administrative mandate.2845
6.1606. We thus turn to the European Union's second critici sm of the UK Appraisal, i.e. that we
should discount or dismiss the UK Appraisal's financial analysis of the A350XWB programme
because "whatever the views of the UK Government, the Panel has before it contemporaneous
data {i.e. data contained in the A350XW B Business Case and the CompetitionRx Report} enabling
it to objectively assess" the United States' arguments.2846 We afford this argument little weight.
First, we note that while certain relevant data in the CompetitionRx Report may be
"contemporaneous", the report itself was prepared by the European Union for the purpose of this
litigation, while the UK Appraisal was prepared prior to the provision of LA/MSF as the basis for the
UK's decision whether to provide such LA/MSF. 2847 We further note that the UK Appra isal was
prepared a mere [***] before the First Contract Date. Under these circumstances, we are inclined
to accord the UK Appraisal significant weight. Second, and as noted above, the UK Appraisal does
not merely state unsubstantiated "views" of the UK Go vernment. Rather, its conclusions are based
on analyses performed by [***].2848 In its second round of written questions to the parties, the
Panel asked the European Union to produce these analyses. The European Union failed do so and
offered no explanation for this failure. Instead, the European Union indicated that the substance of
the analyses was already adequately reflected elsewhere in the record. 2849 In short, the
European Union, after failing to produce, without explanation, the data upon which the UK
Appraisal relies, appears to suggest that the UK Appraisal fails to support its views with data
and/or to criticize the UK Document for relying on data that had become outdated and unreliable
by the First Contract Date. The United States asks the Panel "to dr aw the appropriate inferences
with regard to the information requested but not supplied."2850
6.1607. In addressing this situation we first recall that Article 13(1) of the DSU provides that "{a}
Member should respond promptly and fully to any request by a panel for such information as the
panel considers necessary and appropriate." The Appellate Body has further explained that
"{w}here a party refuses to provide information requested by a panel under Article 13.1 of the
DSU, that refusal will be one of the relevant facts of record, and indeed an important fact, to be

would generally direct the institution appraising Airbus' request for A350XWB LA/MSF to focus on whether
Airbus' need for A350XWB LA/MSF is based on "market failure". We consider that the UK Appraisal's content
and conclusions are generally consistent with this reasoning.
2842 UK Treasury, "The Green Book: appraisal and evaluation in Central Government", 2003 edn,
updated in July 2011, (Exhibit EU-352), para. 2.6.
2843 UK Treasury, "The Green Book: appraisal and evaluation in Central Government", 2003 edn,
updated in July 2011, (Exhibit EU-352), para. 5.25. (footnote omitted)
2844 UK Appraisal, (Exhibit EU-(Article 13)-34) (HSBI), paras. 4 and 16.
2845 We also note certain HSBI statements in the UK Appraisal suggesting that a concern of the UK
Government was the extent to which Airbus may shift A350XWB production activity away from the United
Kingdom in the event that the UK Government did not provide A350XWB LA/MSF. (See e.g. UK Appraisal,
(Exhibit EU-(Article 13)-34) (HSBI), paras. 4 (fourth bullet), 14 (third bullet, last sentence) and 16 (line 9
through end of paragraph)). The fact that the UK Government expected that Airbus might go as far as
geographically shifting significant A350XWB production activities based on which countries provide LA/MSF
suggests that the UK Government understood that Airbus placed considerable importance on the receipt of
LA/MSF.
2846 European Union's response to Panel question No. 123, para. 67. (footnote omitted)
2847 We emphasize that, at this point, we do not weigh the probative value of the CompetitionRx Report
against that of the UK Appraisal in any relevant manner.
2848 UK Appraisal, (Exhibit EU-(Article 13)-34) (HSBI), para. 4.
2849 European Union's response to Panel question No. 123, para. 65 (second sentence).
2850 United States' comments on the European Union's response to Panel question No. 123, para. 20.

taken into account in determining the appropriate inference to be drawn." 2851 In this instance,
under its powers granted by Article 13.1 of the DSU, the Panel requested the European Union to
produce the ana lyses underlying the UK Appraisal's views regarding the status of the A350XWB
programme, including its financial status. The European Union failed to produce these documents
without offering any obstacle to production. Considering this failure, in conjunct ion with other
relevant evidence in the record, we feel it appropriate to draw certain inferences regarding the
character of the UK Appraisal analyses the European Union has failed to produce.
6.1608. First, we infer that the analyses upon which the UK Appraisal b ases its views regarding
the A350XWB programme – which are generally adverse to the European Union's arguments in
this context – are rigorous, professional, and, therefore, reliable. This inference is supported by
the apparently professional character of t he entities that performed such analyses and the fact
that the UK Government saw fit to rely upon them to evaluate an extremely important question
that would have significant implications for the UK economy. We further lack any evidence calling
into question the objectivity or professionalism of these entities. We also infer that the analyses
rely on data that allow for an accurate evaluation of the status of the A350XWB programme at the
First Contract Date. This inference is supported by the fact that the time difference between the
authorship of the UK Appraisal and the First Contract Date is only roughly [***]. Under the
circumstances, we feel that these two inferences are reasonable and appropriate.
6.1609. In our view, the UK Appraisal's content, especially con sidered in light of the two
inferences drawn immediately above, strongly supports the proposition that it would have been
very difficult for Airbus and EADS to effectively fund the A350XWB programme, as envisioned at
launch, in the absence of A350XWB LA/MS F.2852 We further note that this interpretation of the UK
Appraisal accords with other relevant record evidence surrounding the grant of UK A350XWB
LA/MSF. Most notably, the United States has produced a UK Government report from March 2010
containing, inter alia, testimony of Mr Ian Lucas MP, then -Parliamentary Under-Secretary of State,
before the UK House of Commons. The report explains that the government "explored with
witnesses whether {LA/MSF} was addressing a real market failure, or whether it was merely done
to maintain a level playing field with our competitors. Mr Lucas strongly argued that the scheme
was there to address the specific problems of long -term investment".2853 The report notes that the
industry representative indicated that the need for LA/MS F was primarily to secure a level playing
field with other LCA manufacturers that also received state support. 2854 However, we note that
elsewhere the report states that LA/MSF "is designed to address the unwillingness of capital
markets to fund projects with high product development costs, high technological and market risks
and long pay back periods on investment." 2855 The report notes that the UK Government had
provided LA/MSF in connection with the A350XWB programme, and then explains that in order to
receive LA/MSF, "{e}ach applicant has to demonstrate … that government investment is essential
for the project to proceed on the scale and in the timeframe specified ".2856 This report, therefore,
strongly suggests that the data on which the UK Appraisal relied in ma king its recommendation to
provide A350XWB LA/MSF to Airbus should have demonstrated that A350XWB LA/MSF was
"essential" for the A350XWB programme "to proceed on the scale and in the timeframe specified".

2851 Appellate Body Report, US – Wheat Gluten, para. 174.
2852 We recognize that the UK Appraisal's conclusions regarding the ease with which Airbus could
effectively fund the A350XWB programme in the absence of member State financial assistance were apparently
formulated on the basis of assumptions regarding aspects of the likely costs and performance of the A350XWB
programme that differed materially, but perhaps not drastically, from Airbus' contemporaneous expectations.
See UK Appraisal, (Exhibit EU-(Article 13)-34) (HSBI), paras. 7 (lines 5-6) and 9 (line1).
2853 UK House of Commons Business, Innovation and Skills Committee, "Full Speed ahead: maintaining
UK excellence in motorsport and aerospace", Sixth Report of Session 2009-10, Report, formal minutes, and
oral and written evidence, 9 March 2010, (Exhibit USA-44), para. 20.
2854 UK House of Commons Business, Innovation and Skills Committee, "Full Speed ahead: maintaining
UK excellence in motorsport and aerospace", Sixth Report of Session 2009-10, Report, formal minutes, and
oral and written evidence, 9 March 2010, (Exhibit USA-44), para. 20.
2855 UK House of Commons Business, Innovation and Skills Committee, "Full Speed ahead: maintaining
UK excellence in motorsport and aerospace", Sixth Report of Session 2009-10, Report, formal minutes, and
oral and written evidence, 9 March 2010, (Exhibit USA-44), para. 17. See also "Repayable Launch Investment",
UK Department for Business, Innovation and Skills website, accessed February 2012, (Exhibit USA-63) (making
similar statement); and "Aerospace and Defence Industries Launch Investment", UK Department of Trade and
Industry website, 2006, accessed 21 October 2006, (Original Exhibit US-106), (Exhibit USA-120) (same).
2856 UK House of Commons Business, Innovation and Skills Committee, "Full Speed ahead: maintaining
UK excellence in motorsport and aerospace", Sixth Report of Session 2009-10, Report, formal minutes, and
oral and written evidence, 9 March 2010, (Exhibit USA-44), para. 18. (emphasis added)

The ONERA Agreement
6.1610. While we do not have before us any contemporaneous assessments by the French
Government that would assist us in understanding the extent to which France considered LA/MSF
to be necessary in order for the A350XWB to proceed, the United States argues that France has a
standing policy to o nly grant LA/MSF when commercial funding is unavailable. In support of this
argument, the United States offers the ONERA Agreement, a French regulation dated
31 July 2010, setting forth the conditions under which the French Government makes certain
investments in aeronautics research. The ONERA Agreement states, in relevant part, that "{l}es
développement de nouveaux aéronefs. Compte tenu de l'intensité capitalistique re quise par ces
opérations de développement, le recours à ce dispositif est généralement nécessaire pour
compléter les concours financiers de marché." 2857 The United States asserts that this language
makes clear that the "fundamental rationale of LA/MSF is to p rovide loans for capital -intensive
undertakings that are not commercially available".2858
6.1611. The European Union argues that the ONERA Agreement "is making general statements
about financing provided by France. In making such statements, it is not surprising that a
government would wish to inform taxpayers that … its policy is to use monies … responsibly and
productively."2859 The European Union also argues that the Panel should give the ONERA
Agreement's language little weight in this context because its vague state ment that LA/MSF is
"generally" used to supplement market financing is contrary to other and more specific evidence,
such as the CompetitionRx Report.2860
6.1612. The extent to which the ONERA Agreement technically regulates the grant and thus
subsequent disbursements of French A350XWB LA/MSF to Airbus is unclear to us, given that the
ONERA Agreement, as submitted by the United States, postdates the conclusion of the French
A350XWB LA/MSF contract. We further recognize that the ONERA Agreement neither forbids
providing financial assistance to a company in connection with a project if such aid is not deemed
essential for the project to exist, nor does it conclude that the A350XWB programme, specifically,
would not go forward in the absence of member State financial assi stance. Nevertheless, in the
absence of any evidence pointing to the contrary, we consider that the French State's opinion that
concours financiers de marché" i s consistent with the view that this was likely the French State's
position with respect to A350XWB LA/MSF.
The State Aid Decisions
6.1613. The United States presents portions of certain decisions, dated from 2009 to 2011, of the
European Commission regarding whether to approve the provision of financial assistance to certain
Airbus' suppliers in connection with their work on projects related to the A350XWB (the State Aid
Decisions).2861 The United States asserts that eight of the State Aid Decisions address applicati ons

2857 ONERA Agreement, (Exhibit USA-54), art. 1.2. A subsequent amendment in 2011 appears to clarify
that the ONERA Agreement also regulates French A350XWB LA/MSF to some degree. (Avenant no 1 à la
29 juillet 2010 publiée au Journal officiel de la République française du 31 juillet 2010, PRMX1113852X,
20 May 2011, (Exhibit USA-42) (amending the ONERA Agreement in certain respects to make specific
reference to investment in the A350XWB programme)). We further note that the ONERA Agreement states that
among the main criteria used to determine which projects would receive French State aid is the "existence et
intensité des cofinancements privés", and also states that "{l}es principaux critères retenus lors de la sélection
des projets devront faire l'objet d'engagements chiffrés précis". (ONERA Agreement, (Exhibit USA-54),
art. 2.2).
2858 United States' second written submission, para. 624.
2859 European Union's second written submission, para. 1039.
2860 European Union's second written submission, para. 1040 (citing the CompetitionRx Report,
(Exhibit EU-127) (BCI/HSBI)).
2861 European Commission, Decision C(2001) 6498 final, State aid N493/2010 – Spain – R&D aid to
Industria de Turbopropulsores, S.A. (ITP) for Trent XWB LPT, 20 September 2011, (Exhibit USA-154);
European Commission, Decision C(2011) 995 final, State aid (SA.30282) N204/2010 – Sweden – R&D aid to
Volvo Aero, S.A. (ITP) for Trent XWB ICC, 23 February 2011, (Exhibit USA-155); European Commission,
Decision C(2010) 2141 final, Aide d'état N527/2009 – France – Daher-Socata "Trappes de train principal A350
XWB" (projet MLGD), 14 April 2011, (Exhibit USA-156); European Commission, Decision C(2010) 6472 final,

for State Aid by Airbus RSPs, and that these RSPs received a total of approximately
EUR 458 million of state aid as a result of such applications. 2862 The European Union does not
materially contest these assertions.
6.1614. Before discussing the specific content of the State Aid Decisions, we first put them in
proper context by identifying the ultimate issues that the decisions seek to resolve. Neither party
explicitly identifies what these issues are. However, judging from the Decisions' contents, it
appears that they are intended to determine whether the State aid in question is "necessary to
achieve an objective of common interest as an exception to the general prohibition of State
aid"2863 in the EC Treaty. Many variables appear relevant to these analyses. 2864 Among these
appear to be the risks associated with the projects and whether the applicant would be able to
pursue the project without State aid. Indeed, one decision explains that the applicant should
demonstrate the unavailability of alternative means of financing the project:
The aid scheme … provides for strict criteria as regards the presence of a concrete
market failure affecting R&D-projects: The existence of a market failure shall be made
plausible by adequate documentation in each concrete case. In partic ular, the
unavailability of other (bank -) financing documentation { sic} shall be evidenced by
documentation. Therefore, the aid is obviously intended to address duly substantiated
market failures.2865

State aid N 4/2010 and N7/2010 – Spain – Individual R&D aid to Alestis Aerospace S.L., 29 September 2010,
(Exhibit USA-157); European Commission, Decision C(2009) 6874 final, State aid N357/2009 – United
Kingdom – Individual R&D aid to GKN ASL, 15 September 2009, (Exhibit USA-158); European Commission,
Decision C(2011) 264 final, State aid (SA.30169) N3/2010 – Spain – State loan for R&D to AERNNOVA,
26 January 2011, (Exhibit USA-159); European Commission, Decision C(2010) 4937 final, State aid N5/2010
and N6/2010 – Spain – State loan for R&D to ARESA, 20 July 2010, (Exhibit USA-160); European Commission,
Decision C(2009) 9960 final, State aid N296/2009 'F2F' and N297/2009 'Airducts', 2 Individual aeronautics
R&D-aids to Diehl Aircabin GmbH, Germany, 15 December 2009, (Exhibit USA-161); European Commission,
Decision C(2011) 6496 final, Aide d'État N414/2010 – Belgique – Aide au projet de 'Flap Support Structures' de
SABCA ('Projet FSS'), 5 October 2011, (Exhibit USA-441); and European Commission, Decision C(2010) 2140
final, Aide d'État N525/2009 – France – Aide au projet de case de train principal de Sogerma (Projet MLGB),
14 April 2010, (Exhibit USA-444).
2862 United States' second written submission, para. 637 (identifying AERNNOVA, ALESTIS, ARESA,
Daher-Socata, Diehl Aircabin GmbH, GKN, SABCA, and SOGERMA as RSPs). The United States cites to portions
of the State Aid Decisions, as well as the content of other exhibits, to demonstrate that these eight suppliers
are RSPs. (United States' second written submission, fns 1075-1082). Upon inspection, it appears that certain
such citations refer to material that the United States failed to include in its exhibits. Nevertheless, we find
evidence that at least six such entities are indeed A350XWB RSPs. See European Commission,
Decision C(2010) 6472 final, State aid N 4/2010 and N7/2010 – Spain – Individual R&D aid to Alestis
Aerospace S.L., 29 September 2010, (Exhibit USA-157), paras. 54 and 60 (indicating that ALESTIS is a RSP);
François Caudron, Vice President, Head of A350 Customer and Business Development, "A350XWB Programme
Update", Airbus presentation to Deutsche Bank, 1 July 2010, (Exhibit USA-443) (indicating that GKN is a RSP);
European Commission, Decision C(2011) 264 final, State aid (SA.30169) N3/2010 – Spain – State loan for R&D
to AERNNOVA, 26 January 2011, (Exhibit USA-159), paras. 55 and 60 (indicating that AERNNOVA is a RSP);
European Commission, Decision C(2010) 4937 final, State aid N5/2010 and N6/2010 – Spain – State loan for
R&D to ARESA, 20 July 2010, (Exhibit USA-160) (indicating that ARESA is a RSP); François Caudron, Vice
President, Head of A350 Customer and Business Development, "A350XWB Programme Update", Airbus
presentation to Deutsche Bank, 1 July 2010, (Exhibit USA-443) (indicating that Diehl Aircabin is a RSP); and
European Commission, Decision C(2010) 2140 final, Aide d'État N525/2009 – France – Aide au projet de case
de train principal de Sogerma (Projet MLGB), 14 April 2010, (Exhibit USA-444), paras. 34-36 (discussing
repayment structure of aid that suggests that SOGERMA is a RSP). We further note that the European Union
does not contest that any of the eight entities identified by the United States are RSPs.
2863 European Commission, Decision C(2009) 6874 final, State aid N357/2009 – United Kingdom –
Individual R&D aid to GKN ASL, 15 September 2009, (Exhibit USA-158), para. 107.
2864 See European Commission, Decision C(2011) 264 final, State aid (SA.30169) N3/2010 – Spain –
State loan for R&D to AERNNOVA, 26 January 2011, (Exhibit USA-159), para. 88; European Commission,
Decision C(2010) 4937 final, State aid N5/2010 and N6/2010 – Spain – State loan for R&D to ARESA,
20 July 2010, (Exhibit USA-160), para. 94; and European Commission, Decision C(2009) 9960 final, State aid
N296/2009 'F2F' and N297/2009 'Airducts', 2 Individual aeronautics R&D-aids to Diehl Aircabin GmbH,
Germany, 15 December 2009, (Exhibit USA-161), paras. 104-113.
2865 European Commission, Decision C(2009) 9960 final, State aid N296/2009 'F2F' and N297/2009
'Airducts', 2 Individual aeronautics R&D-aids to Diehl Aircabin GmbH, Germany, 15 December 2009,

6.1615. With this framework in mind, we now turn to the decisions' specific relevance to this case.
The United States contends that the State Aid Decisions illustrate: (a) "{t}he high risks involved in
the LCA industry generally and for the A350 XWB program in particular"; (b) "{t}he inability to
obtain commercial financ ing for the A350 XWB program, a problem exacerbated by the global
financial crisis"; and (c) that "{a}id for the A350 XWB program has had the effect of transferring
risk from the recipient to the supporting government, thereby increasing the project's retu rns and
net present value, and allowing the project to proceed where it would not in the absence of such
aid."2866
6.1616. The European Union argues that the State Aid Decisions are immaterial because they "do
not concern Airbus' access to funds, but … instead focus {} on various other entities ".2867 Thus,
"{t}he impact of 'LA/MSF or interest -free loans' on the business case for a given company that
may participate as a supplier for the A350XWB says nothing about the viability of the Airbus
business case for the A350XWB in 2006 or in 2009". 2868 Further, the European Union argues that
even if certain suppliers could not have undertaken their projects with respect to the A350XWB
without state aid, that " is not a relevant consideration in this context, because the United States
does not challenge these measures, or the effects of any such supplier funding, in these
proceedings."2869 Finally, the European Union argues that the State Aid Decisions " consider
whether or not, absent the state aid, the specific notified project would not occur in the notifying
EU member State or the EU . They do not address the more general question of whether, absent
the state aid, the project would occur elsewhere."2870
6.1617. The European Union is correct that the State Aid Decisions do not specifically address t he
ultimate question that we must resolve, i.e. whether Airbus would have proceeded with the
A350XWB programme in the absence of A350XWB LA/MSF. Rather, the decisions more specifically
address the value of State aid to certain Airbus suppliers tasked with performing discrete projects
associated with the A350XWB programme. Moreover, because the United States does not claim
that any State aid instrument granted to any Airbus supplier constitutes a specific subsidy, we will
not consider such instruments' impac t on the A350XWB programme as part of any relevant
causation analysis.2871

2866 United States' first written submission, para. 390. (emphasis omitted)
2867 European Union's first written submission, para. 1135. (emphasis original)
2868 European Union's first written submission, para. 1153 (emphasis original). We note that the
United States claims that the eight RSPs that the State Aid Decisions address received either "below-market
loans" or "LA/MSF". (United States' second written submission, para. 637). The State Aid Decisions in question
generally either refer to the potential grant of State aid in the form of "interest free loans" or "repayable
advances", the latter of which appear to have characteristics similar to those of LA/MSF. (See European
Commission, Decision C(2001) 6498 final, State aid N493/2010 – Spain – R&D aid to Industria de
Turbopropulsores, S.A. (ITP) for Trent XWB LPT, 20 September 2011, (Exhibit USA-154), paras. 84 and 88;
European Commission, Decision C(2010) 2141 final, Aide d'état N527/2009 – France – Daher-Socata "Trappes
de train principal A350 XWB" (projet MLGD), 14 April 2011, (Exhibit USA-156), para. 1; European Commission,
Decision C(2010) 6472 final, State aid N 4/2010 and N7/2010 – Spain – Individual R&D aid to Alestis
Aerospace S.L., 29 September 2010, (Exhibit USA-157), para. 1; European Commission, Decision C(2009)
6874 final, State aid N357/2009 – United Kingdom – Individual R&D aid to GKN ASL, 15 September 2009,
(Exhibit USA-158), paras. 111 and 124-125; European Commission, Decision C(2011) 264 final, State aid
(SA.30169) N3/2010 – Spain – State loan for R&D to AERNNOVA, 26 January 2011, (Exhibit USA-159),
para. 1; European Commission, Decision C(2010) 4937 final, State aid N5/2010 and N6/2010 – Spain – State
loan for R&D to ARESA, 20 July 2010, (Exhibit USA-160), para. 1; European Commission, Decision C(2009)
9960 final, State aid N296/2009 'F2F' and N297/2009 'Airducts', 2 Individual aeronautics R&D-aids to Diehl
Aircabin GmbH, Germany, 15 December 2009, (Exhibit USA-161), paras. 34-38; European Commission,
Decision C(2011) 6496 final, Aide d'État N414/2010 – Belgique – Aide au projet de 'Flap Support Structures' de
SABCA ('Projet FSS'), 5 October 2011, (Exhibit USA-441), para. 1; and European Commission,
Decision C(2010) 2140 final, Aide d'État N525/2009 – France – Aide au projet de case de train principal de
Sogerma (Projet MLGB), 14 April 2010, (Exhibit USA-444), para. 1).
2869 European Union's second written submission, para. 1080.
2870 European Union's second written submission, para. 1054. (emphasis original)
2871 In this context we recall the European Union's point that even if certain Airbus suppliers could not
have participated in the A350XWB programme without State aid it does not mean that there may have been
other available suppliers that could have done so in the absence of State aid. The relevance of this point is
somewhat unclear to us. As referenced above, because the United States does not challenge the state aid
instruments, we will not consider such instruments' impact on the A350XWB programme as part of any
relevant causation analysis. The European Union's point may, however, be that insofar as the State Aid
Decisions discuss systemic challenges facing aerospace companies in obtaining market financing in connection

6.1618. Nevertheless, in our view, the State Aid Decisions are still material in three related ways.
First, the State Aid Decisions contain a significant amount of discussion concerning the ri sks
associated with the projects under consideration. In many cases, such risks appear to be intrinsic
to the projects themselves rather than to the lack of capability or competence of the applicant
suppliers that wish to perform them. Such discussion is r elevant because the risks associated with
the A350XWB programme constituent parts are inevitably, to some degree, risks for the
programme as a whole. In other words, if the A350XWB components that such suppliers build are
delayed or deficient, the A350XWB itself will necessarily be delayed or deficient, likely causing
problems for not just the supplier but also Airbus. 2872 Second, and relatedly, the State Aid
Decisions are relevant insofar as they discuss the perceived risks associated with the A350XWB
programme in general, which many do. Finally, the State Aid Decisions are relevant insofar as they
discuss the difficulties the applicant companies had in obtaining market financing in connection
with their A350XWB projects, especially when such difficulties are caused by issues systemic to the
aerospace industry, of which Airbus and EADS are a part. Such discussions, to some extent, would
appear to also bear on the challenges Airbus and EADS would be likely to confront in securing
market financing in the absence of A350XWB LA/MSF.2873
6.1619. We explore the content of the State Aid Decisions with respect to these three relevant
topics below. We do so by providing exemplary excerpts from the State Aid Decisions concerning
such topics. Thus, such excerpts are not intended to, and do not, exhaust all relevant discussion of
such topics in the State Aid Decisions.
Supplier project risks

6.1620. The State Aid Decisions refer to the risky nature of the projects under consideration:
 "There are significant internal and technological risks as sociated with the project. … ITP is
required to accept the technical specification of a not yet developed {low pressure turbine}
module … which presents major technological risks". The decision also emphasizes that
"{l}aunching a new engine programme entails many uncertainties."2874
 "The development of the next generation technologies for large composite aero -structures
requires designing a new manufacturing process, new tooling, new moulds and new
machines. According to Spain, a significant technological ris k is due to the exacting

with their projects, such challenges are for some reason not faced by a certain segment of aerospace
companies that Airbus could have used as A350XWB suppliers. Or, in other words, such systemic challenges
are not truly systemic, but company-specific. We find nothing in the State Aid Decisions or other record
evidence supporting this position, however.
2872 We do not have any of Airbus' contracts with its suppliers before us. Airbus may have had provisions
in such contracts that enabled it to pass on, for example, certain penalties for late deliveries caused by
deficient supplier work to suppliers under certain circumstances. But even assuming the existence of such
contractual provisions, we perceive no reasonable commercial scenario in which Airbus could have remained
financially unaffected in the face of substantial A350XWB delays or malfunctions even if such problems were
caused by suppliers. We further detect no evidence in the record that indicates that Airbus considered this to
be the case.
2873 We recall the United States' argument that the State Aid Decisions illustrate that A350XWB LA/MSF
transfers risk from Airbus onto the member States, thereby affecting the A350XWB programme's NPV. We
have before us none of the documents containing the terms and conditions under which State aid was granted
as a result of the State Aid Decisions. Therefore, although it does appear from the State Aid Decisions that the
funding mechanisms under consideration would transfer risk from the applicant onto the member State
granting the aid, and certain of their aspects may resemble those in the A350XWB LA/MSF contracts, we
consider this an uncertain foundation upon which to draw parallels between the functioning of these State aid
mechanisms and A350XWB LA/MSF. Further, the United States' general point regarding how A350XWB LA/MSF
affects the programme's expected returns is treated further below in the sections of this Report addressing the
viability of the A350XWB. We therefore decline to address the United States' assertions regarding
risk-transferring qualities of LA/MSF at this stage.
2874 European Commission, Decision C(2001) 6498 final, State aid N493/2010 – Spain – R&D aid to
Industria de Turbopropulsores, S.A. (ITP) for Trent XWB LPT, 20 September 2011, (Exhibit USA-154),
paras. 51 and 56. See also European Commission, Decision C(2011) 995 final, State aid (SA.30282)
N204/2010 – Sweden – R&D aid to Volvo Aero, S.A. (ITP) for Trent XWB ICC, 23 February 2011, (Exhibit USA-
155), para. 52 (noting that "there is a considerable degree of uncertainty concerning the Trent XWB engine
due to technical and commercial risks related to the engine.").

requirements for the application of new materials and new manufacturing concepts. The
main technical risk lies in the maturity of the technologies."2875
 "A repayable advance was considered to be the most appropriate {state aid} instr ument
taking into account … the high level of commercial and technical risks involved" with the
GKN A350XWB project.2876
 "The {AERNNOVA} project is capital-intensive with high technical and commercial risks".2877
Risks for A350XWB programme

6.1621. The State Aid Decisi ons also note that the A350XWB programme as a whole was subject
to systemic risk:
risque systémique associé à ce programme."2878
 "{I}l y a de nombreux risques liés au secteur aéronautique en général. Ces risques
qui accompagnent l'introduction de nouvelles technologies et matériaux et leur
certification."2879
 "{D}esign failures which can not be attributed to any particular partner, should be borne by
all the partners in the programme".2880
 "As noted in previous Commission decisions, there is a considerable degre e of uncertainty
regarding the commercial success of the A350 XWB. Despite a good launch base, the final
completion date is unpredictable, given repeated delays in previous programmes. Besides,
there is a possibility that Boeing will update its 777 aircraft to become a closer competitor to
the A350 XWB. Finally, the economic downturn may affect aircraft deliveries … and lower
profit margins."2881
 "In addition to technical risks, the projects face market and commercial risks, stemming
from the programme itself (difficulties likely to have an impact on the A350 XWB

2875 European Commission, Decision C(2010) 6472 final, State aid N 4/2010 and N7/2010 – Spain –
Individual R&D aid to Alestis Aerospace S.L., 29 September 2010, (Exhibit USA-157), para. 56. The A350XWB
projects under consideration in this decision pertained to the tailcone section and the belly fairing. (European
Commission, Decision C(2010) 6472 final, State aid N 4/2010 and N7/2010 – Spain – Individual R&D aid to
Alestis Aerospace S.L., 29 September 2010, (Exhibit USA-157), para. 1)
2876 European Commission, Decision C(2009) 6874 final, State aid N357/2009 – United Kingdom –
Individual R&D aid to GKN ASL, 15 September 2009, (Exhibit USA-158), para. 111. The United States claims
that the GKN A350XWB project under examination pertained to the rear spars and fixed trailing edges.
(United States' second written submission, para. 637)
2877 European Commission, Decision C(2011) 264 final, State aid (SA.30169) N3/2010 – Spain – State
loan for R&D to AERNNOVA, 26 January 2011, (Exhibit USA-159), para. 56. The AERNNOVA A350XWB project
under consideration pertained to the horizontal tail plane fixed parts and elevator and the main landing gear
bay pressure bulkhead. (European Commission, Decision C(2011) 264 final, State aid (SA.30169) N3/2010 –
Spain – State loan for R&D to AERNNOVA, 26 January 2011, (Exhibit USA-159), para. 1)
2878 European Commission, Decision C(2011) 6496 final, Aide d'État N414/2010 – Belgique – Aide au
projet de 'Flap Support Structures' de SABCA ('Projet FSS'), 5 October 2011, (Exhibit USA-441), para. 52.
2879 European Commission, Decision C(2011) 6496 final, Aide d'État N414/2010 – Belgique – Aide au
projet de 'Flap Support Structures' de SABCA ('Projet FSS'), 5 October 2011, (Exhibit USA-441), para. 53.
2880 European Commission, Decision C(2001) 6498 final, State aid N493/2010 – Spain – R&D aid to
Industria de Turbopropulsores, S.A. (ITP) for Trent XWB LPT, 20 September 2011, (Exhibit USA-154),
para. 57(a).
2881 European Commission, Decision C(2011) 995 final, State aid (SA.30282) N204/2010 – Sweden –
R&D aid to Volvo Aero, S.A. (ITP) for Trent XWB ICC, 23 February 2011, (Exhibit USA-155), para. 51 (footnote
omitted). We note that this decision, discussing commercial risks associated with the A350XWB programme,
was authored in 2011.

programme due to technological, industrial or commercial choices made by Airbus and all its
partners and subcontractors)".2882
 "{T}he inherent risks linked to the aircraft sector are numerous".2883
 "{L}es pr ogrammes aéronautiques comme l'A 350 XWB mené par Airbus et dont Daher -
Socata est partenaire, apparaissent comme particulièrement risqués".2884
Finance Challenges in Aerospace Sector

6.1622. The State Aid Decisions consistently reference the challenges that LCA and aerospace
companies face in finding financing for their projects given their risks and long timelines, a trend
that the financial crisis apparently accentuated:
 "The general difficulty of companies in the aeronautic sector to obtain external financing
from the markets has been recognised is several previous State aid decisions".2885
 "Given the technological complexity of the R&D activities to be carried out within the
projects, financial institutions do not dispose of a sufficient visibility in order to prope rly
estimate the risks or the profitability perspectives of the projects. The projects, therefore,
suffer from financial constraints which can be explained by this asymmetric information."2886
 "The Commission has come to the conclusion that the market could n ot have financed the
project alone without State aid, given the responses of the financial market to these types of
risky projects, with a significant long-term return perspective and high initial investment."2887
 "{T}he evidence in this case seems to confirm the general conclusion reached by the
Commission in previous decisions: the aeronautic sector faces specific issues (e.g.
exceptionally long duration and high costs of the R&D projects), which makes it difficult, if
not impossible, to obtain bank funding for projects like the one in question."2888
 "{T}here seems to be a general lack of financing in the aeronautic industry that prevents
the concerned enterprises to realize all the necessary adaptations to become risk -sharing
Tier-1 suppliers. The current econ omic and financial crisis largely worsened the
phenomenon."2889
 "In the present case, potential financial partners would be reticent to provide sufficient
finance to fund the project due to its capital -intensive nature, the technical and commercial
risks, the long pay-back period and the moderate and uncertain profitability."2890

2882 European Commission, Decision C(2010) 6472 final, State aid N 4/2010 and N7/2010 – Spain –
Individual R&D aid to Alestis Aerospace S.L., 29 September 2010, (Exhibit USA-157), para. 58.
2883 European Commission, Decision C(2011) 264 final, State aid (SA.30169) N3/2010 – Spain – State
loan for R&D to AERNNOVA, 26 January 2011, (Exhibit USA-159), para. 54.
2884 European Commission, Decision C(2010) 2141 final, Aide d'état N527/2009 – France – Daher-
Socata "Trappes de train principal A350 XWB" (projet MLGD), 14 April 2011, (Exhibit USA-156), para. 66.
2885 European Commission, Decision C(2001) 6498 final, State aid N493/2010 – Spain – R&D aid to
Industria de Turbopropulsores, S.A. (ITP) for Trent XWB LPT, 20 September 2011, (Exhibit USA-154),
para. 60.
2886 European Commission, Decision C(2010) 6472 final, State aid N 4/2010 and N7/2010 – Spain –
Individual R&D aid to Alestis Aerospace S.L., 29 September 2010, (Exhibit USA-157), para. 59.
2887 European Commission, Decision C(2009) 6874 final, State aid N357/2009 – United Kingdom –
Individual R&D aid to GKN ASL, 15 September 2009, (Exhibit USA-158), para. 106.
2888 European Commission, Decision C(2011) 264 final, State aid (SA.30169) N3/2010 – Spain – State
loan for R&D to AERNNOVA, 26 January 2011, (Exhibit USA-159), para. 65. (footnote omitted)
2889 European Commission, Decision C(2011) 264 final, State aid (SA.30169) N3/2010 – Spain – State
loan for R&D to AERNNOVA, 26 January 2011, (Exhibit USA-159), para. 55.
2890 European Commission, Decision C(2001) 6498 final, State aid N493/2010 – Spain – R&D aid to
Industria de Turbopropulsores, S.A. (ITP) for Trent XWB LPT, 20 September 2011, (Exhibit USA-154),
para. 48.

 The decisions generally emphasize that the applicants would not pursue the projects in the
absence of state aid because the market was unwilling to offer necessary financing or,
relatedly, the projects' expected returns in the absence of state aid were too low.2891
6.1623. In sum, the State Aid Decisions indicate that the A350XWB programme and certain of its
constituent projects entailed significant risks, and that securing market financing to fund certain
such constituent projects was infeasible due, at least in part, to systemic problems faced by
companies in the LCA and aerospace industries, in which Airbus and EADS are participants.
Therefore, in our view, the State Aid Decisions support the prop osition that EADS would have
faced considerable challenges finding market financing to fund the portions of the A350XWB
programme that were not allocated to RSPs in the absence of A350XWB LA/MSF. We recognize,
however, that the State Aid Decisions do not s pecifically discuss EADS' ability to obtain market
financing. Thus, the decisions do not take into account any potential strengths of EADS (e.g.
diversified business segments) that might allow it to overcome the financial challenges that
aerospace companies, including certain A350XWB RSPs, generally faced.
Conclusions – the post-launch period
6.1624. In our view, the evidence pertaining to the post -launch period reveals several relevant
themes. First, as of the First Contract Date, EADS had experienced certain succ esses with efforts
to mitigate its financial problems that had arisen in the pre -launch period, but EADS continued to
face financial problems moving forward. Second, although Airbus had completed significant work
on the A350XWB in the absence of A350XWB LA /MSF, the most cash -intensive portions of the
programme began to occur around or shortly after the First Contract Date. Third, statements made
by certain UK and Airbus officials, certain government appraisals including the State Aid Decisions,
and especially the UK Appraisal, support the proposition that it would have been extremely difficult
for Airbus and EADS to effectively fund the A350XWB programme in the absence of A350XWB
LA/MSF. Finally, the evidence appears to demonstrate that Airbus and the member States
continued to be in close contact regarding the eventual receipt of member State financial
assistance in connection with the A350XWB programme, and there is no material evidence that
Airbus ever questioned its assumption at launch that such financia l aid would be forthcoming if
requested.
6.1625. To conclude our factual narrative of the origins and initial development of the A350XWB
programme, we recall certain key features of the A350XWB LA/MSF contracts, which have already
been discussed at length elsewhere in this Report.2892 First, Airbus concluded an A350XWB LA/MSF
contract with each of the four relevant member States during the Contracting Period. Second, like
the relevant LA/MSF contracts examined in the original proceeding, th e A350XWB LA/MSF
contracts are provided on unsecured, back -loaded, success-dependent and below -market interest
rate repayment terms. Third, Airbus is entitled to approximately EUR [***] under those
contracts.2893 This represented roughly [***] and [***] of the A350XWB's forecast development

2891 See e.g. European Commission, Decision C(2001) 6498 final, State aid N493/2010 – Spain – R&D
aid to Industria de Turbopropulsores, S.A. (ITP) for Trent XWB LPT, 20 September 2011, (Exhibit USA-154),
paras. 59-60 and 84-85; European Commission, Decision C(2010) 2141 final, Aide d'état N527/2009 – France
– Daher-Socata "Trappes de train principal A350 XWB" (projet MLGD), 14 April 2011, (Exhibit USA-156),
paras. 78 and 82; European Commission, Decision C(2010) 6472 final, State aid N 4/2010 and N7/2010 –
Spain – Individual R&D aid to Alestis Aerospace S.L., 29 September 2010, (Exhibit USA-157), para. 64;
European Commission, Decision C(2009) 6874 final, State aid N357/2009 – United Kingdom – Individual R&D
aid to GKN ASL, 15 September 2009, (Exhibit USA-158), paras. 103 and 106; European Commission, Decision
C(2011) 264 final, State aid (SA.30169) N3/2010 – Spain – State loan for R&D to AERNNOVA, 26 January
2011, (Exhibit USA-159), paras. 63-64; European Commission, Decision C(2010) 4937 final, State aid N5/2010
and N6/2010 – Spain – State loan for R&D to ARESA, 20 July 2010, (Exhibit USA-160), paras. 70-71; European
Commission, Decision C(2009) 9960 final, State aid N296/2009 'F2F' and N297/2009 'Airducts', 2 Individual
aeronautics R&D-aids to Diehl Aircabin GmbH, Germany, 15 December 2009, (Exhibit USA-161),
paras. 107-113; and European Commission, Decision C(2010) 2140 final, Aide d'État N525/2009 – France –
Aide au projet de case de train principal de Sogerma (Projet MLGB), 14 April 2010, (Exhibit USA-444),
para. 63.
2892 For a discussion regarding this subject, see above para. 6.225 et seq.
2893 This includes the approximate value of the GBP to which Airbus is entitled under the UK A350XWB
LA/MSF measure at the time Airbus concluded the UK A350XWB LA/MSF measure.

costs at the time of launch and at the First Contract Date, respectively. The European Union has
explained that Airbus was able to and did, in fact, start receiving funds under certain contracts as
early as [***], reflecting a design that enabled Airbus to receive funds promptly upon their
conclusion.2894
6.1626. We note that the European Union has submitted evidence indicating that, at least as of
January 2013, Airbus had not yet received roughly EUR [***] to which it is entitled unde r the
A350XWB LA/MSF contracts. 2895 The European Union asserts that this fact supports its argument
that Airbus could have funded the A350XWB without A350XWB LA/MSF. 2896 In our view, this
argument carries little weight. It is necessarily premised on the assumpti on that Airbus has, in
fact, replaced or will replace a portion of the funds to which it was entitled under the A350XWB
LA/MSF measures with funds from other sources, and it can therefore be inferred that Airbus could
have replaced all the LA/MSF funds fro m other sources. The record does not support this
assumption. Even if Airbus has not received the monies that the European Union claims, Airbus
has still already received the majority of the monies to which it is entitled under the contracts.
Further, we detect no evidence demonstrating that Airbus either cannot or will not pursue its right
to receive the rest of the funds to which it is entitled under the contracts, which were structured to
provide Airbus with the right to draw funds under the contracts ov er several years. This
incremental disbursement structure, of course, is consistent with the fact that Airbus would incur
the A350XWB programme's costs over time as well.2897
b Impact
6.1627. Having reviewed the history of the A350XWB programme and the conclusion of t he
A350XWB LA/MSF contracts, we now turn to assess the extent to which the A350XWB LA/MSF
subsidies had an impact on the ability of the Airbus company that actually existed in the 2006 to
2010 period to launch and bring to market the A350XWB programme. The parties' arguments raise
essentially three core questions in this context: (a) whether the A350XWB LA/MSF measures had
any impact at all on the launch of the programme in December 2006 given that they were entered
into only after that date; (b) whether th e A350XWB programme was viable in the absence of
A350XWB LA/MSF; and (c) whether Airbus could have effectively funded the A350XWB programme
in the absence of A350XWB LA/MSF.
6.1628. We consider these questions in two parts. First, we evaluate the merits of the par ties'
arguments concerning the timing of the impact of the A350XWB LA/MSF measures. Second, we
assess whether the A350XWB programme would have been viable in the absence of the impact of
A350XWB LA/MSF, analysing the question of fundability as part of this assessment.
i The timing of the A350XWB LA/MSF
6.1629. The parties contest when the impact of the A350XWB LA/MSF measures on the A350XWB
programme began. The United States argues that Panel may and should find that the impact of
A350XWB LA/MSF began as early as th e A350XWB's launch even though the measures did not
formally exist on that date.2898 In contrast, the European Union argues that any impact could begin
no earlier than the First Contract Date.2899
6.1630. At the outset, we recall that Airbus launched the A350XWB on 1 De cember 2006. The
first A350XWB LA/MSF contract was not concluded until roughly two -and-a-half years later, on the

2894 European Union's response to Panel question Nos. 86 (para. 335) and 133 (fn 182 and
accompanying text). We further recall in this context that the terms of the [***] A350XWB LA/MSF contract
allowed Airbus to claim reimbursement for certain expenses that Airbus had incurred in connection with the
A350XWB programme even [***]. See French A350XWB Protocole, (Exhibit EU-(Article 13)-01) (BCI),
art. 2.3; Annex 2 to the French A350XWB Protocole, (Exhibit EU-(Article 13)-03) (BCI), para. 1; and French
A350XWB Convention, (Exhibit EU-(Article 13)-11) (BCI), art. 2.
2895 See European Union's second written submission, paras. 276-277 (citing certain relevant BCI and
HSBI information).
2896 See European Union's second written submission, paras. 276-277.
2897 See e.g. CompetitionRx Report, (Exhibit EU-127) (BCI/HSBI), figures 6 and 7; and A350XWB
Business Case Presentation, (Exhibit EU-130) (HSBI), slides 58 and 70.
2898 See e.g. United States' first written submission, para. 359.
2899 See e.g. European Union's first written submission, para. 1086.

First Contract Date. We have previously concluded that by the time of launch, Airbus had secured
commitments from the member States to financi ally support the A350XWB programme. The
Business Case reflects such commitments in its inclusion of the Launch Financing Instrument,
assuming its specific monetary value and certain other of its basic terms. However, the Launch
Financing Instrument never c ame into fruition, with member State financial assistance eventually
taking the form of A350XWB LA/MSF instead. The United States has provided no letters of intent,
loan contracts or other documents predating the First Contract Date that contain clear lega l
commitments to provide Airbus with LA/MSF on the terms under which it ultimately was provided
6.1631. The parties disagree on how the relevant disciplines on the SCM Agreement apply to such
a fact pattern, and offer two general analy tic approaches based on the application of a bright -line
test and a fact -based assessment. We understand the European Union to offer and advocate the
former. In particular, the European Union observes that the SCM Agreement disciplines only the
effects of "subsidies", but not the effects of "threats", "expectations" or "promises" of subsidies.2900
In this instance, the European Union argues that because it would nonsensical to say that a
subsidy can have an effect before it exists, the impact of the A350XWB LA /MSF subsidies can only
be said to have begun at the time at which the evidence establishes that the first LA/MSF contract
came into being, i.e. the First Contract Date. Thus, given that the First Contract Date postdates
the launch date, the European Union argues that the A350XWB LA/MSF measures cannot have
impacted the launch of the A350XWB.
6.1632. The United States, in contrast, maintains that we may and should find that the A350XWB
LA/MSF subsidies can be said to have impacted the launch of the A350XWB under a more
fact-based approach. In pursuing this argument, the United States does not assert that the
A350XWB LA/MSF measures or any measure containing the specific terms and conditions that are
challenged in this compliance proceeding existed at the time of lau nch per se . Rather, the
United States focusses on certain factual considerations that it argues evidence a sufficient nexus
between the member States' commitments to provide financial assistance to Airbus at the time of
launch, on the one hand, and the A35 0XWB LA/MSF contracts that ultimately resulted from those
commitments, on the other hand. According to the United States, the existence of this connection
would allow the Panel to find that the impact of the member States' financing commitments on the
A350XWB programme can effectively be treated as the impact of the A350XWB LA/MSF contracts.
In particular, the United States asserts that the member States had, by the launch date,
committed to providing A350XWB financial assistance to Airbus, most likely on s ubsidized
terms.2901 Second, the United States argues that Airbus expected to receive subsidized financial
assistance from the member States in connection with the A350XWB programme, and, based on
the member States' pattern of providing such assistance in the form of LA/MSF subsidies in the
past, Airbus must have expected that the financial assistance would eventually materialize
specifically as LA/MSF subsidies again.2902 Third, the United States observes that the promised and
expected member State A350XWB financial assistance did in fact materialize in the form of LA/MSF
subsidies.2903 Finally, the United States recalls a number of the LA/MSF contracts at issue in the
original proceeding were found to have impacted the launch of Airbus LCA even though they were
concluded after the relevant aircraft were launched. 2904 Thus, the United States essentially argues
that the impact of the pre -launch negotiations surrounding the financing that ultimately
materialized as A350XWB LA/MSF (including the impact that the expected re ceipt of the Launch
Financing Instrument had on Airbus' decision to launch the A350XWB) is part of the impact of the
A350XWB LA/MSF measures themselves.

2900 European Union's first written submission, para. 1101 and fn 1380.
2901 United States' second written submission, paras. 591 and 602; and opening statement (non-public),
para. 12.
2902 United States' second written submission, paras. 591; and opening statement (non-public),
para. 12.
2903 United States' second written submission, para. 591.
2904 United States' second written submission, para. 591. In our view, the original panel's findings were
consistent under a fact-based approach. Most notably, the LA/MSF measures in the original dispute arose
under a relatively coherent institutional framework that likely created legitimate expectations of receipt of such
specific measures at the launch of LCA at issue in that dispute. See e.g. Panel Report, EC and certain member
States – Large Civil Aircraft, paras. 7.533-7.562 (explaining certain aspects of this institutional framework).

6.1633. The European Union disputes many aspects of the United States' factual assertions on
this front. The Eu ropean Union appears to stop short of arguing that the member States had
provided no commitments to Airbus by the time of launch to provide some kind of A350XWB
financial assistance. However, the European Union argues that there is insufficient evidence to
demonstrate, at the time of launch, either that Airbus specifically expected to receive LA/MSF -type
measures in connection with the A350XWB programme or that it would eventually receive any sort
of MSF on better -than-market terms.2905 The European Union also argues that the original panel's
acceptance that certain LA/MSF contracts impacted the preceding launches of certain LCA is
immaterial because the time difference between the conclusion of such LA/MSF contracts and the
relevant LCA launches was much short er than the time difference between the A350XWB's launch
and the First Contract Date.2906
6.1634. As a general matter, we detect advantages and disadvantages associated with both the
bright-line and fact-based approaches. For example, while the bright -line approach appears to be
administratively easier to apply and perhaps offer more certainty regarding when the effects of
subsidies may be said to have begun in a manner that can be disciplined under the
SCM Agreement, we are concerned that it may insufficiently recogn ize the reality that firms can
and do meaningfully alter their behaviour based on justified expectations of government actions
even where the government has not legally committed to nor spelled out in final detail those
actions. The approach may therefore open the door to potential circumvention of the relevant
disciplines of the SCM Agreement through, for example, strategic sequencing of government
commitments to subsidy recipients. 2907 Likewise, while the fact -based approach is perhaps more
flexible, we are concerned that it may not provide a sufficiently principled basis upon which to
govern the application of disciplines of the technical and consequential nature that are contained in
the SCM Agreement.
6.1635. Ultimately, however, we consider that we do not need to come to any definitive view on
whether it would be best to apply either the bright -line or fact -based approach to resolve this
matter because irrespective of the approach we take, we reach the same material conclusion
regarding the impact of A350XWB LA/MS F on the A350XWB programme. We discuss this
conclusion in detail below by considering the impact of the A350XWB LA/MSF on the A350XWB
programme's viability with respect to both the launch date and the First Contract Date.
ii Viability
6.1636. In this section, we eva luate whether the A350XWB programme was viable at launch and
at the First Contract Date in the absence of A350XWB LA/MSF. At the outset, we note that it is
sometimes unclear to us what aspects of the programme the parties assume should be factored
into an analysis of its "viability". The European Union's CompetitionRx Report, for example,
appears to use the term in a relatively narrow manner, relating only to the base -case NPV of the
programme where a positive forecast NPV means the programme is viable and a negative forecast
NPV means the programme is non -viable.2908 The United States appears to treat viability as a
somewhat broader inquiry, including consideration of, for example, the risks associated with
unfavourable non-base-case scenarios.2909

2905 European Union's second written submission, paras. 893-948 and 959; and response to Panel
question No. 47, para. 171.
2906 European Union's second written submission, para. 892; and PwC Rebuttal Report, (Exhibit EU-120)
(BCI), pp. 20-24.
2907 We note that the bright-line approach did not appear to be the approach used by the parties, the
original panel, or the Appellate Body in the original proceeding vis-à-vis any relevant causation analysis. (See
United States' second written submission, para. 591 (making this point)). Indeed, although they disagree on
the details of certain dates, the parties agree that many of the LA/MSF contracts analysed in the original
proceeding were concluded after the launch of the relevant LCA. (See United States' second written
submission, para. 594; and PwC Rebuttal Report, (Exhibit EU-120) (BCI), table 2). Despite this, such LA/MSF
measures were found to have affected the "launch" of those LCA. (Panel Report, EC and certain member States
– Large Civil Aircraft, paras. 7.1949 and 7.2025 (concluding that LA/MSF enabled Airbus to "launch" the LCA at
issue as and when Airbus did)). To our knowledge, no party ever questioned the propriety of this approach in
the manner that is now before us.
2908 See e.g. CompetitionRx Report, (Exhibit EU-127) (BCI/HSBI), para. 46.
2909 See e.g. United States' comments on the European Union's response to Panel question No. 127,
para. 45 (arguing that the European Union's viability analyses inadequately "account for project risk").

6.1637. Nowhere in the record do we discern in the parties' arguments any authoritative definition
of the term "viability". Thus, we consider that the content of the term "viability" should be
fashioned in a manner most befitting the context in which we must use it, i.e. for t he purpose of
assessing the impact of A350XWB LA/MSF on the manner in which Airbus proceeded with the
A350XWB programme. We consider that this assessment can be appropriately made with
reference to the following question: In the absence of the impact of A3 50XWB LA/MSF, was the
A350XWB programme sufficiently attractive for Airbus to pursue at the relevant times in the light
of the alternative funding sources that were expected to be available on market terms? We
consider that a convenient shorthand formulati on of this question is to ask whether the A350XWB
programme was "viable" in the absence of A350XWB LA/MSF.
6.1638. In our view, the record reveals four main aspects of the A350XWB programme that bear
on this issue: (a) Airbus' expected ability to effectively fund the programme with financing on
market terms; (b) the programme's base-case forecast NPV; (c) the strategic reasons for Airbus to
pursue the programme not already taken into account in the base -case NPV; and (d) the
programme's risks. With respect to Airb us' ability to effectively fund the programme, we note that
neither the European Union nor the United States appear to treat this topic as part of the viability
issue. Rather, the parties analyse the viability of the programme, on the one hand, and Airbus'
ability to fund the programme, on the other, as relatively discrete topics. 2910 We recognize that
this binary approach may make sense as a practical matter under certain circumstances. However,
as our formulation of the viability issue above implies, we cons ider that it is more helpful to
conceive of the fundability inquiry as a part of the overall viability inquiry. This is so because, as a
conceptual matter, it would seem difficult to meaningfully characterize a project as viable if the
company undertaking the programme lacked the resources with which to pursue it. Further, from a
more technical standpoint, we note that both parties treat the NPV of the A350XWB programme as
a focal point of the viability issue. Although we do not know what specific methods A irbus used to
calculate the NPV of the A350XWB programme at any relevant time – including in the A350XWB
Business Case – it is our understanding that NPVs, when calculated with respect to a particular
business project, may include certain assumptions regar ding how that project will be funded. 2911
The A350XWB Business Case appears to specifically support this understanding, as it assumes that
the Launch Financing Instrument would affect the NPV of the A350XWB programme to a significant
degree. In other words, i t appears clear to us that the methods with which a company anticipates
financing a project can have material impacts on the forecast NPV – and, in turn, the viability – of
that programme from the company's perspective. For these reasons, we consider it ap propriate to
consider the fundability of the A350XWB programme in the absence of A350XWB LA/MSF as a
topic to be explored within the context of an analysis of the A350XWB programme's viability.
6.1639. This section therefore proceeds in the following parts. First, we examine Airbus' and
EADS' ability to effectively fund the A350XWB programme in the absence of A350XWB LA/MSF.
Second, we analyse the above -mentioned three factors pertaining to the viability issue with
reference to the time of launch of the A350XWB and with reference to the First Contract Date.2912
Ability to fund
6.1640. In this section, we evaluate whether, at launch and beginning at the First Contract Date,
Airbus would have had sufficient confidence in its ability to effectively fund the A350XWB
programme mov ing forward such that Airbus would have continued as and how it did with the
programme even in the absence of A350XWB LA/MSF. 2913 We stress that the European Union

2910 See e.g. United States' opening statement (non-public), para. 10 ("Because Airbus would have been
unable to proceed with the A350 XWB absent LA/MSF, the EU's assertions about the viability, or attractiveness,
of the project are beside the point. However rosy the A350's baseline sales projections might be, willingness
must not be confused with ability; wanting to market an aircraft means little without the means to do so.")
(emphasis original; footnotes omitted); and CompetitionRx Report, (Exhibit EU-127) (BCI/HSBI) (segregating
its viability and fundability analyses).
2911 See e.g. Stephen A. Ross, Randolph W. Westerfield, and Jeffrey Jaffe, Corporate Finance, 7th edn
(McGraw Hill, October 2002), pp. 477-489, (Exhibit USA-495) (describing certain methods used to calculate
NPVs).
2912 We note that this analytic structure generally comports with how the parties have presented their
evidence and arguments with respect to these issues.
2913 We recall that, at the time of launch, reportedly "EADS ha{d} stated clearly that it will only agree to
launch the A350{XWB} when it is satisfied that the development can be both funded and staffed." (Goldman

never argues that, in the absence of A350XWB LA/MSF, Airbus could have effectively funded the
A350XWB programme on its own. Rather, the European Union only argues that Airbus could have
funded the programme in the absence of A350XWB LA/MSF with the help of its parent company,
EADS. We therefore note that although the increased use of RSPs appears to be an option that
Airbus would likely be expected to accomplish on its own, all the other options the European Union
enumerates appear to allow for the possibility of, or rely on, EADS' involvement. Thus, before
analysing the availability of the potential sources of funding listed above, we first determine
whether it is reasonable to believe that Airbus could have accessed EADS' financial resources to
help fund the A350XWB programme in the absence of A350XWB LA/MSF.
6.1641. The United States argues that the origi nal panel and Appellate Body already rejected the
notion that Airbus could rely on EADS' resources to fund its LCA programmes. 2914 The
United States therefore considers the matter settled. The European Union, in contrast, argues that
the Panel should find tha t Airbus could have relied on EADS' financial resources to help fund the
A350XWB programme for two main reasons. 2915 First, the European Union recalls that the
A350XWB Business Case was presented to the EADS Board for approval, indicating that EADS was
satisfied that the programme could be properly financed. 2916 Second, the European Union asserts
that, given Airbus' importance to EADS as a business unit, EADS would never have allowed Airbus
to languish under the commercial conditions that would have arisen if Air bus had failed to bring
the A350XWB to market. On this score, the European Union asserts that "{o}ver the 2006 -2009
period, Airbus consistently accounted for around 65 percent of EADS' revenues" and that the
CompetitionRx Report demonstrates that "in this period, Airbus' order book grew significantly
faster than other divisions of EADS" such that "{i}n 2005, Airbus accounted for 80 percent of
EADS' total order book; by 2008/2009, this proportion had increased to almost 90 percent. Over
this period, almost a ll of the net increase in orders held by EADS (EUR 137.7 billion) could be
attributed to increases in the Airbus order book (EUR 135.9 billion)."2917
6.1642. We begin by examining the relevant findings of the original panel and Appellate Body on
this score. In the o riginal proceeding, the European Union argued on appeal that the panel had
"ignored the totality of the evidence allegedly demonstrating that Airbus SAS' parent companies,
EADS and BAE Systems, had the financial resources necessary to fund the {A380} in th e absence
of LA/MSF."2918 The Appellate Body explained that "{t}he only evidence that the European Union
provide{ed} in support of its contention that capital of EADS would be directed to the A380 project
{was} the general statement, in the 'Use of Proceeds' section of EADS' Offering Memorandum,
that '{a} stronger financial position would also enable EADS to timely adapt its development and
investment programs, notably in new aircraft'." 2919 The Appellate Body then rejected the
European Union's argument:
Even if the documents show that EADS and BAE Systems had financial resources
available, it does not necessarily follow that those resources would have been directed
to the A380 project. Both EADS and BAE Systems were large companies with several
business units be yond aircraft production, all of which would have competed for
internal financial resources. We are reluctant to disturb the Panel's analysis on the
basis of general statements about the overall financial situation of BAE Systems and
EADS. In order for us to interfere with the Panel's assessment of the facts, we would

Sachs Investment Analysis, A350: Not an option but essential for Airbus' future, in our view,
21 November 2006, pp. 20-22, (Exhibit USA-30), p. 20).
2914 United States' second written submission, para. 627.
2915 European Union's second written submission, para. 1113. The European Union also argues that
many pieces of evidence on which the United States relies to show that the Airbus could not have funded the
A350XWB in the absence of A350XWB LA/MSF "concern{} EADS, as often as, if not more often than,
statements concerning Airbus." (European Union's second written submission, para. 1120). We consider that
the fact that certain pieces of evidence that the United States relies on in this context reference EADS is
unremarkable. It is of little surprise that EADS, as Airbus' parent company, was participating on some level in
decisions concerning Airbus and/or the A350XWB even if it never planned to finance the A350XWB without
member State assistance. Thus, without more specific criticisms from the European Union as to the relevance
of certain pieces of evidence, this general argument is unpersuasive.
2916 European Union's second written submission, para. 1115.
2917 European Union's second written submission, para. 1116 (citing CompetitionRx Report,
(Exhibit EU-127) (BCI/HSBI), paras. 329-333).
2918 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1339.
2919 Appellate Body Report, EC and certain member States – Large Civil Aircraft, fn 2939.

have to be satisfied that the European Communities had not only submitted
documents describing the overall financial situation of these companies but also
provided explanations as to why it wa s reasonable to expect that EADS and BAE
Systems would have directed substantial additional funds to the A380 to self -finance
the project in the absence of LA/MSF.2920 (footnote omitted)
6.1643. The relevant rulings of the original panel and the Appellate Body were, therefore, rather
limited. Neither categorically rejected the possibility of EADS assisting Airbus in funding LCA
programmes. Rather, the issue pertained to the persuasive weight of evidence surrounding
EADS' willingness to do so with respect to the A380 p rogramme. Thus, we see no bar to now
evaluating the question of whether there is sufficient evidence demonstrating that it is reasonable
to expect that EADS would have directed substantial additional funds to the A350XWB to finance
the programme in the absence of LA/MSF.
6.1644. We answer this question in the affirmative. On the one hand, there appears to be little
direct evidence in the record that EADS had planned to step in and channel billions of euros in
funding to Airbus if Airbus did not receive member State financial assistance. This may not be
surprising, however, considering that Airbus appeared relatively certain from the time of launch
that it would receive some form of member State financial support in connection with the
A350XWB programme. On the other hand, we feel that several other considerations weigh in
favour of the European Union's position in this context. The A350XWB programme was a
strategically critical aircraft for Airbus, with the Business Case outlining severe consequences for
Airbus if th e programme did not go forward as proposed. The EADS Board received and
presumably understood such information. Further, the European Union has presented evidence
demonstrating the significant importance of Airbus to EADS as a business unit, a reality that we
also recognized above in our discussion of the financial situation of Airbus and EADS in the
pre-launch period. EADS, therefore, surely understood that if Airbus failed to bring the A350XWB
to market, Airbus and EADS would share the financial fallout. Moreover, the European Union
claims that "EADS has allocated significant monies secured from the entirety of its funding toolbox
to fund Airbus' LCA development activities for both the A380 and the A350XWB."2921 We recall that
the original panel described how EADS used a loan from the European Investment Bank (EIB) to
help finance the A380's development. 2922 This indicates, at least to some degree, EADS' historic
willingness to assist Airbus in financing LCA programmes. Finally, we recall that EADS was a [***]
A350XWB LA/MSF contracts. This provides evidence of EADS' willingness to involve itself in the
financing of the A350XWB programme.
6.1645. In our view, such evidence sufficiently demonstrates that Airbus could have accessed
EADS' financial resources to help fund the A350XWB programme in the absence of A350XWB
LA/MSF. We emphasize that, at present, we draw no conclusions regarding the extent of such
resources. To evaluate that issue, we turn to evaluate the availability of the specific sources of
funding that the European Union claims Airbus could have used to fund the A350XWB programme
in the absence of member State financial assistance. These sources are: (a) increased use of
RSPs; (b) disposal of non -core assets; (c) increased profitability and cash generation; (d) a
reduction in shareholder distributions; (e) equity -related financing; (f) cash reserves; and (g)
increased debt.2923 Where we detect material differences with respect to the potential availability
of such sources vis-à-vis the launch date and the First Contract Date, they are noted.
Risk-sharing partners
6.1646. The European Union argues that Airbus could have replaced at least a portion of the
funds it received from the A350XWB LA/MSF measures by increasing Airbus' reliance on RSPs in
connection with the A350XWB p rogramme. In support of this argument, the European Union
asserts that "the United States has offered no evidence suggesting that Airbus could not have
raised an additional 15 percent of the development cost from risk -sharing suppliers – which would

2920 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1343.
2921 European Union's response to Panel question No. 135, para. 116.
2922 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.730.
2923 European Union's first written submission, paras. 1143-1144; second written submission,

amount to approximately 75 percent of the amount raised by Boeing" from its own RSPs in
connection with the 787.2924
6.1647. The United States responds that it is unreasonable to assume that Airbus could have
increased its reliance on its RSPs to any significant degree. Th e United States argues that raising
an additional 15% of the A350XWB's development costs "amounts to … an 88 per cent increase
over the actual risk-sharing supplier contribution of €1.8 billion."2925 The United States asserts that
the European Union's arguments that Airbus could have increased RSP participation rates in this
manner are flawed because: (a) the European Union's reliance on Boeing's 787 experience was
already re jected by the original panel and the Appellate Body; (b) increasing RSP contributions
would have upset Airbus' "make vs. buy" strategy for the A350XWB programme; (c) the
European Union fails to account for how the absence of LA/MSF to Airbus would have increased the
risks faced, and returns demanded, by RSPs; (d) many of Airbus' RSPs needed European Union
State aid just to participate in the A350XWB programme at their actual levels; and (e) some
A350XWB Airbus RSPs are EADS subsidiaries, and, just as in the original dispute, the
European Union has not provided any evidence showing that EADS would have diverted additional
resources from other uses to the A350XWB programme.2926
6.1648. In addressing this issue, there are two pieces of information of threshold relevance,
namely, the A350XWB's forecast development costs at launch and at the First Contract Date and
the portion of the A350XWB's development costs that Airbus' RSPs actually covered. We recall that
at the time of launch, the expected development cost of the A350XWB programme was EUR [***]
and was approximately EUR 12 billion at the First Contract Date. Further, we recall that Airbus
consistently expected its RSPs to cover approximately EUR 1.8 billion of the programme's
development costs. Thus, in order to cover an additional 15% of the A350XWB's forecast
development costs at either launch or the First Contract Date, Airbus' RSPs would have had to
roughly double their investment in the programme.
6.1649. Against this background, we now consider the United States' more sp ecific criticisms of
the European Union's argument. First, we consider that the extent to which Boeing relied on its
RSPs to help finance the 787 is of limited probative value. During the original proceeding, the
European Union similarly argued that Airbus could have relied on its RSPs to a greater extent than
it did in connection with the A380 programme in light of the level of RSP reliance that Boeing
displayed in its 787 programme. The original panel rejected this argument as unsupported by
sufficient ev idence2927 and was affirmed by the Appellate Body.2928 As it did in the original
proceeding with respect to the A380, the European Union has provided us with no evidence that
merely because, reportedly, Boeing was able to finance a significant portion of the NRC s of
development of the 787 through risk -sharing supplier arrangements, Airbus would necessarily
have been able to do the same with respect to the A350XWB. Airbus and Boeing are separate and
competing companies, and there is no evidence before us to sugges t that they organize or operate
their LCA businesses in the same or similar way. Neither is there any evidence before us indicating
that Airbus' financial position was the same as Boeing's at the relevant time or that the 787 and
A350XWB programmes were equally amenable to the same or a similar degree of outsourcing. We
therefore find that the European Union's argument is unsupported by sufficient evidence.
6.1650. Second, we evaluate the United States' argument that doubling Airbus' reliance on its
RSPs would have upset Airbus' A350XWB development strategy. The European Union argues that
the United States' argument depends on the assumption "that the European Union's counterfactual
relies on Airbus replacing all A380 and A350XWB MSF with financing from risk -sharing suppliers in
a manner that would have matched Boeing's use of risk -sharing suppliers for the 787
programme."2929 We consider that this interpretation is incorrect. Rather, the United States'

2924 European Union's first written submission, para. 1142.
2925 United States' second written submission, para. 633.
2926 United States' second written submission, para. 633.
2927 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1947 ("Likewise, the
European Communities has submitted no evidence to support the contention that merely because, reportedly,
Boeing was able to finance a significant portion of the non-recurring costs of development of the 787 through
risk-sharing supplier arrangements, Airbus would necessarily have been able to do the same with respect to
the A380.").
2928 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1349.
2929 European Union's second written submission, para. 1079. (emphasis original)

argument in this respect is that if Airbus had increased its relian ce on RSPs in the manner
described by the European Union, it would likely have upset Airbus' A350XWB development
strategy. We have previously indicated that, in our view, Airbus appeared to aggressively enhance
its reliance on RSPs relative to its previous LCA programmes (which entailed significant risks to the
programme), that Airbus appeared to employ RSPs to the maximum extent Airbus deemed feasible
(i.e. the amount of outsourcing and supplier involvement was at saturation ), and that enhanced
use of RSPs would have been problematic from a general administrative standpoint .2930 In our
view, such evidence demonstrates that materially increasing reliance on RSPs in the absence of
A350XWB LA/MSF, even if Airbus had been willing to do so, would have entailed sign ificant risks
for the programme and would have been difficult.2931
6.1651. Third, we consider the United States' argument that the RSPs would be less willing to
participate in the A350XWB programme if Airbus had not received A350XWB LA/MSF because
LA/MSF "increases t he probability that the A350 XWB program will be successful, thereby
decreasing risk for {RSPs}". 2932 We recall the Appellate Body's explanation that LA/MSF reduces
the risks associated with an LCA programme from the perspective of RSPs, and therefore RSPs wi ll
demand lesser rates of return for their participation in the presence of LA/MSF than in its
absence.2933 We also recall that the European Union has explained that Airbus secured most, but
not all, of its A350XWB RSPs before the First Contract Date. 2934 Therefore, even if we measure the
impact of LA/MSF from the First Contract Date instead of launch, it is plain that it would have been
more expensive and thus more difficult for Airbus to secure at least some of the RSPs that it is in
fact using. Although we do not know when Airbus would have secured the additional RSP
involvement that it argues it could have in the absence of A350XWB LA/MSF, we perceive no
scenario in which the removal of the impact of A350XWB LA/MSF, from whenever we measure it,
would not have made the A350XWB programme more risky from the standpoint of a RSP.
Therefore, we similarly reason that, at least to some extent, it would have been more costly and
more difficult for Airbus to secure additional RSP involvement in the absence of A350XWB LA/MSF.
6.1652. Fourth, the United States argues that certain RSPs received State aid from the
European Union without which they would not have been able to participate in the A350XWB
project. The United States therefore argues that they could not have participated in the A350XWB
project at enhanced levels without enhanced state aid, and there is no evidence that such
additional State aid would have been forthcoming. 2935 The European Union argues that the
United States' argument is irrelevant "because the United States does not challenge these
measures, or the effects of any such supplier funding, in these proceedings." 2936 Further, the
European Union argues that, "{i}n any event, even if some suppliers had decided that, absent
support, they would not participate in the pr ogramme, this would not mean that other companies
around the world might not have stepped in to fill that void."2937
6.1653. In our view, we have insufficient data with which to evaluate the significance of the
parties' arguments on this issue. This is so because we lack any meaningful evidence regarding the
presence or absence of RSPs in the marketplace that had not only the financial, but also the
technical, capacity to take on additional A350XWB projects. However, we recall that the State Aid
Decisions not only ou tlined certain difficulties that the specific RSPs under discussion had
encountered when attempting to access market financing in connection with their respective
A350XWB projects, but also certain systemic challenges that aerospace companies faced in
accessing market financing to fund the types of projects that the RSPs under discussion were
pursuing vis-à-vis the A350XWB programme. Such discussions suggest that RSPs would have
encountered challenges in accessing market financing that would have allowed th em to increase
their involvement in the A350XWB programme in the absence of A350XWB LA/MSF.2938

2930 See, e.g. above paras. 6.502 and 6.1555, and evidence cited therein.
2931 For a discussion regarding this subject, see above para. 6.500 et seq.
2932 United States' second written submission, para. 636.
2933 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 899.
2934 European Union's first written submission, para. 1088.
2935 United States' second written submission, para. 642.
2936 European Union's second written submission, para. 1080.
2937 European Union's second written submission, para. 1080. (footnote omitted)
2938 We note that the European Union is correct that the State aid measures provided to Airbus RSPs
have not been challenged as subsidies in this dispute and no finding exists that they are subsidies. However,

6.1654. Finally, we evaluate the significance of the United States' assertion that some of Airbus'
RSPs were EADS subsidiaries. Specifically, the United States cites evid ence indicating that
AEROLIA, Premium AERO TEC, and EADS SOGERMA are all A350XWB RSPs and are wholly -owned
subsidiaries of EADS. 2939 The United States argues that "to postulate additional risk -sharing
contributions from these suppliers, the EU must suppose th at EADS would divert even more
resources from other uses to facilitate the A350 XWB program", and the Appellate Body had
already rejected the notion that EADS would divert resources to assist Airbus in its LCA
programmes.2940 The European Union does not conte st that these three entities are EADS
subsidiaries. However, in addition to its general argument that it is reasonable to assume that
EADS would have directed additional resources to the A350XWB programme in the absence of
A350XWB LA/MSF, the European Union counters that the United States' argument "misses the
point", because even if such subsidiaries had dropped out as RSPs "Airbus … would have had
access to a world-wide network of unrelated suppliers to replace the role of sister companies".2941
6.1655. The United States' point appears to be that if Airbus had increased its reliance on its
pre-existing RSPs, to the extent such RSPs were EADS subsidiaries, the strategy would not
meaningfully shift any costs or risks away from EADS at all. This is plainly correct, and we detect
two relevant implications that flow from it. The first is that any consideration of the further
availability of these subsidiaries' resources to the A350XWB programme is effectively subsumed in
our analyses regarding EADS' resources at large. We therefore need not address that consideration
any further at present. Second, and relatedly, it appears proper to exclude these three RSPs from
any presumed set of RSPs that were willing and able to shoulder further A350XWB development
costs and thereby shift such costs away from EADS. The significance of this exclusion, however, is
unclear. Again, we lack any meaningful evidence regarding the presence or absence of other RSPs
in the marketplace who had both the technical capacity and financial resources to shoulder
additional RSP responsibilities.
6.1656. In summary, our consideration of the parties' arguments and evidence concerning the
extent to which Airbus could have involved a greater number of RSPs in the A350XWB programme
in the absence of LA/MSF leads us to conclude that, while it was theoretically possible for Airbus to
do so by some degree, we are not persuaded that Airbus could have in practice relied upon them
to a level that would have come anywhere close to doubling their involvement compared to the
actual situation.
Disposal of non-core assets
6.1657. The European Union argues that EADS could have raised additional funds via the disposal
of non -core assets. In support of this assertion, the European Union refers to an EADS
presentation dated April 2009. One s lide of the presentation refers to "{d}isposal of non -core
assets" as an option to "{p}rotect {EADS'} conservative balance sheet structure". 2942 The
European Union, however, has produced no evidence indicating what non -core assets EADS
considered expendable, under what circumstances EADS would sell such assets, or the value of
such assets. Thus, while we accept that the disposal of certain non -core assets may have been an
option for EADS, and one that could likely have been pursued to some degree, the extent t o which
this was a credible source of funding for the A350XWB programme in the absence of A350XWB
LA/MSF at any relevant time remains speculative.

we do not believe – and the European Union does not argue – that this means that it would be proper for us to
assume that the ability of any RSP to take on additional A350XWB-related projects in the absence of A350XWB
LA/MSF can rely on the prospect of such RSPs benefitting from financial intervention by the member States,
including with additional State aid (e.g. interest-free loans).
2939 United States' second written submission, para. 643 (citing "The Group", SOGERMA website,
accessed 10 October 2012, (Exhibit USA-446), and AEROLIA/EADS press release, "Birth of the French
Aerostructures Leader and world No. 2 for Nose Fuselage subassemblies" 6 January 2009, (Exhibit USA-447)).
2940 United States' second written submission, para. 643.
2941 European Union's second written submission, para. 1081.
2942 Gerard Adsuar, Corporate Executive, EADS Finance and Treasury, "Cash Drivers and Enterprise
Value", EADS presentation, Global Investor Forum, 1-2 April 2009, (Exhibit USA-33), slide 16.

Increased profitability and cash generation
6.1658. The same EADS presentation that mentions the disposal of non -core assets, discussed
immediately above, also lists increased "profitability and cash generation" as a method of
protecting EADS' balance sheet. 2943 Under this heading, the presentation lists what appear to be
cost-cutting measures, such as Power8, R&D reduction s, working capital stretch targeting,
production resizing, capital expenditures reductions, and budget cuts. 2944 We believe that
EADS' ability to further cut costs must be evaluated in the context of its ongoing Power8
programme.
6.1659. We recall that Power8 was a response to the considerable financial challenges faced by
Airbus and EADS in the fall of 2006 and was reportedly "aimed at slashing costs by 30%". 2945
Evidence in the record indicates that this was an aggressive goal and one that entailed significant
implementation risks. EADS' own documents reveal that implementation of Power8 entailed certain
risks (e.g. work stoppages due to labour renegotiations), concluding that "EADS' future results of
operation and financial condition may be negatively affected." 2946 In March 2007 an Aviation Week
article reported that one financial analyst opined that "Power8 is 'astonishingly radical' in terms of
its scope" and that "the program is 'very complex' and given the large amount of production and
development work at stake, the risks are 'huge.'"2947 Further, a March 2007 Moody's report stated
that the Power8 programme "faces a number of challenges". 2948 Moreover, in May 2007, a
Standard & Poor's report indicated that "{t}he successful implementation of Power8 involves
considerable risk given its depth and scale". 2949 We further note a Standard & Poor's report from
October 2009 indicating that the Power8 programme had not yet been fully implemented 2950,
which appears to comport with Airbus' original expectations that it would take several ye ars to
fully implement the Power8 programme upon its inception in late 2006. 2951 Thus, it appears that
the Power8 programme had not been fully implemented by the First Contract Date, and
presumably continued to entail significant risks as of that date. 2952 Therefore, it is far from clear to
us that EADS was in a position to further cut significant costs from its budget at any relevant time,
at least without inviting disruptions and other potential problems to its operations.

2943 Gerard Adsuar, Corporate Executive, EADS Finance and Treasury, "Cash Drivers and Enterprise
Value", EADS presentation, Global Investor Forum, 1-2 April 2009, (Exhibit USA-33), slide 16.
2944 It is unclear to us whether the term "profitability and cash generation" is meant to include anything
beyond these enumerated activities.
2945 Aaron Karp, "Airbus/EADS officials concede Boeing advantage, question A350 viability", Air
Transport World Daily News, 6 October 2006, (Exhibit USA-9).
2946 EADS Press Release, "A350 XWB launch: EADS Gives Go Ahead for Airbus to Launch the A350
XWB", 1 December 2006, (Exhibit USA-569), p. 12.
2947 Robert Wall, "Will It Fly? Eyes are on Airbus as it overhauls industrial setups and supplier relations
to regain competitive footing, financial health", Aviation Week & Space Technology, 5 March 2007, (Exhibit
USA-523).
2948 Moody's Investors Service, Global Credit Research, Credit Opinion: European Aeronautic Defence &
Space Co. EADS, 12 March 2007, (Exhibit USA-518). This Moody's report appears to treat the increased use of
RSPs as part of the Power8 programme. At least one other S&P report appears to do so as well. (Standard &
Poor's Global Credit Portal Ratings Direct, Research Update: EADS L-T CCR Cut to 'BBB+'; Off Watch Neg;
Outlook Stable; Teleconf May 11 @ 2:30PM BST, 10 May 2007, (Exhibit USA-513), p. 2 (referring to the
programme's aim to "transfer … risk to new partners")). Further, an Airbus press release appears to treat the
enhanced use of RSPs as part of the overall Power8 programme. (Airbus Press Release, "Power8 prepares way
for 'new Airbus'", 20 February 2007, (Exhibit USA-94)). Insofar as we are discussing outright cost reductions, it
is unclear to us to what extent this is appropriate. As discussed, RSPs are not necessarily expected to relieve
Airbus of its development costs per se, but, rather, to generally delay Airbus' payments for such costs until
Airbus can bear them. However, we note that, insofar as increasing the use of RSPs were expected to reduce
costs for Airbus, their increased use, which we already have determined would have been extremely difficult to
implement, would have been an avenue for doing so.
2949 Standard & Poor's Global Credit Portal Ratings Direct, Research Update: EADS L-T CCR Cut to
'BBB+'; Off Watch Neg; Outlook Stable; Teleconf May 11 @ 2:30PM BST, 10 May 2007, (Exhibit USA-513),
p. 2.
2950 Standard & Poor's Global Credit Portal Ratings Direct, European Aeronautic Defence and Space Co.
N.V., 14 October 2009, (Exhibit USA-514), pp. 4 and 5.
2951 See also A350XWB Business Case Presentation, (Exhibit EU-130) (HSBI), slide 107 (performing cost
comparison that appears to support the notion that Power8 was expected to be continuing to ramp up in
2009).
2952 See also "Noel Forgeard and the A380", Commercial Aviation Report, 15 January 2007, (Original
Exhibit US-297), (Exhibit USA-148), p. 11 ("The {Power8} programme aims at annual cost savings of at least
€2bn from 2010 onwards."). (emphasis added)

Reduction in shareholder distributions
6.1660. The European Union argues that EADS could have at least partially replaced A350XWB
LA/MSF funding with reductions in shareholder distributions. The European Union asserts that
EADS "distributed approximately €3.4 billion to shareholders as dividends and s hare repurchases"
from July 2000 through year -end 2011. 2953 The European Union also asserts that EADS, as of
May 2013, was engaged in a voluntary share repurchase programme worth EUR 4.875 billion.2954
The United States responds that EADS would have been relucta nt to cut dividends because cutting
dividends generally lowers an enterprise's stock price. The United States claims that companies'
stock prices fall, on average, 9% on days on which they announce dividend cuts or omissions 2955,
and argues that EADS would no t have been willing to incur this cost when its stock price had
already fallen by roughly 50% from June 2006 to June 2009. 2956 The United States further asserts
that "'some investor groups may count on dividends being paid out every year, and skipping these
dividends will force them to liquidate part of their portfolio, leading to unnecessary transaction
costs.'"2957 Finally, the United States argues that it would have been difficult for the EADS Board to
agree to cut dividends due to routine infighting among EAD S shareholders regarding such
issues.2958
6.1661. The European Union replies that the market would have interpreted a decision to cut
dividends to fund a "robust" programme like the A350XWB favourably, because such reinvestment
would yield increased, rather than decr eased, future cash flows resulting from the A350XWB's
sales.2959 The European Union also argues that, " {i}n December 2006, and thereafter",
approximately half of EADS' shares were owned by Lagardère, DaimlerChrysler, and the French
and Spanish states, and the remaining portion owned substantially by sophisticated institutional
investors, all of whom would be indifferent between receiving dividends or accepting the capital
gains from an increased EADS share price resulting from a successful A350XWB programme. 2960
The European Union further rejects the United States' assertion that the EADS Board would not be
able to agree to cut dividends when it would mean the pursuit of a valuable programme that was
in the best interests of the company.2961
6.1662. We first note that the da ta supplied by the European Union is only partially relevant. Our
task is to determine whether EADS and Airbus could have funded the A350XWB programme if
commitments of MSF had failed to materialize either at launch or beginning at the First Contract
Date. Therefore, the relevant shareholder distribution amounts are those occurring not from the
year 2000, but from either year -end 2006 or 2009 through 2011, the last year for which we have
such data. The former amount is approximately EUR 1.07 billion, and th e latter amount is
approximately EUR 349 million.2962

2953 European Union's first written submission, para. 1139 (citing EADS Distributions to Shareholders,
EADS Consolidated Financial Statements (Statement of Cash Flows) for Years ended 2000-2011,
(Exhibit EU-91)); and second written submission, para. 1069 (same).
2954 European Union's response to Panel question No. 47, para. 158.
2955 United States' second written submission, para. 630 (quoting Tim Koller, Marc Goedhart, and David
Wessels, Valuation: Measuring and Managing the Value of Companies, 4th edn (Wiley, 2005),
(Exhibit USA-442), p. 500). We note that this exhibit explains that "{u}nless management has very compelling
arguments for withholding dividends to invest in future growth, investors are likely to react negatively to
dividend cuts. … Finally, the amount of funding freed up by cutting dividends is limited, so dividend cuts alone
are unlikely to resolve more substantial funding shortages."
2956 United States' second written submission, para. 630 (citing Chart of share price, EADS website,
accessed 20 September 2013, (revised) (Exhibit USA-437)).
2957 United States' second written submission, para. 630 (quoting Tim Koller, Marc Goedhart, and David
Wessels, Valuation: Measuring and Managing the Value of Companies, 4th edn (Wiley, 2005),
(Exhibit USA-442), p. 500).
2958 United States' second written submission, para. 631. See also Axel Flaig, Head of Aerodynamics,
Airbus, "Airbus A380: Solutions to the Aerodynamic Challenges of Designing the World's Largest Passenger
Aircraft", Airbus presentation to Royal Aeronautical Society, Hamburg Branch, January 2008, (Exhibit USA-362)
(reporting that the EADS "board … has been unable to agree … on a dividend policy … because of continuing
conflict among its core shareholders.").
2959 European Union's second written submission, para. 1071.
2960 European Union's second written submission, para. 1073.
2961 European Union's second written submission, para. 1074.
2962 EADS Distributions to Shareholders, EADS Consolidated Financial Statements (Statement of Cash
Flows) for Years ended 2000-2011, (Exhibit EU-91).

6.1663. The probative value of this data, however, is limited by two considerations. First, the
figures the European Union provides reflect actual distributions to shareholders and share
repurchases, and so do not necessarily reflect what EADS' expectations were regarding the future
availability of such funds that it could have anticipated directing to the A350XWB programme at
either launch or the First Contract Date. Second, the extent to which EADS would have bee n
willing to channel such funds to the A350XWB programme, even if EADS had anticipated their
availability, is speculative. On the one hand, we note an EADS presentation from April 2009 that
lists "{r}educed dividends" as an option to help "{p}rotect {EADS' } conservative balance
sheet"2963 and we accept that EADS' investors would likely have understood that the success of the
A350XWB programme was important to EADS' financial health. Yet, that being the case, we see no
reason to believe that a decision to cut s hareholder distributions would have been without
consequences. Indeed, we see little reason to doubt the United States' evidence or argument that
such a decision would have been, at least in part, interpreted as an indicator of EADS' financial
fragility by the market. Thus, it is still unclear to us the extent to which EADS would have felt
comfortable reducing shareholder distributions such as dividends to help fund the A350XWB
programme, and we detect no evidence of a historic practice by EADS of sacrifici ng shareholder
distributions to help finance specific projects. Further, we note that EADS' 2013 share repurchase
is being performed years after either of our reference dates and is being performed in the
presence of A350XWB LA/MSF. In our view, therefore, it is of limited probative value.
6.1664. Thus, in our view, while we accept that the reduction of shareholder distributions may
have been an option for EADS, and one that could likely have been pursued to some degree, the
extent to which this was a credible sou rce of funding for the A350XWB programme in the absence
of A350XWB LA/MSF at any relevant time remains speculative.
Equity-related financing
6.1665. The European Union argues that EADS could have raised additional funds for the
A350XWB project via equity -related f inancing. In support of its argument, the European Union
refers to an EADS presentation from April 2009 which states that "{e}quity related financing" was
in the EADS "Funding Toolbox". This presentation describes such financing in the following terms:
"Equity, convertible bonds, hybrids 2964 if simulated stressed credit metrics signal a potential need
to strengthen the capital structure."2965
6.1666. We detect little evidence on the record upon which to assess the EADS' ability to raise
funds in this manner in the absenc e of A350XWB LA/MSF. What evidence does exist appears
ambiguous. In this context, we recall the March 2007 testimony of Mr Russell of the UK
Shareholder Executive before the British House of Commons:
There is no doubt, if you look out on the financing of Airbus, that there will come a
point where they will need to raise additional capital. They have not yet provided us
with detailed forecasts so we do not precisely know, but in terms of analysts' reviews
of the business it is pretty clear that they will ne ed some sort of support. It is not
clear whether they may not just be able to raise that money from shareholders and
the capital markets.2966 (emphasis added)
6.1667. Further, the UK Appraisal mentions the possibility of EADS raising equity -type financing,
it does not discuss the ease with which EADS could do so, and does not appear to suggest that it
would have been a viable alternative to receiving A350XWB LA/MSF. 2967 Moreover, in
December 2009, EADS then-CEO Mr Gallois reportedly denied that the A350XWB would require
additional "shareholder" funding. 2968 Assuming that the shareholder financing Mr Gallois had in

2963 Gerard Adsuar, Corporate Executive, EADS Finance and Treasury, "Cash Drivers and Enterprise
Value", EADS presentation, Global Investor Forum, 1-2 April 2009, (Exhibit USA-33), slide 16.
2964 We recall that, insofar as the term "hybrid" refers to [***].
2965 Gerard Adsuar, Corporate Executive, EADS Finance and Treasury, "Cash Drivers and Enterprise
Value", EADS presentation, Global Investor Forum, 1-2 April 2009, (Exhibit USA-33), slide 15.
2966 UK House of Commons Trade and Industry Committee, "Recent Developments with Airbus", Ninth
Report of Session 2006-07, Volume II: Oral and written evidence, 25 July 2007, (Exhibit EU-177).
2967 UK Appraisal, (Exhibit EU-(Article 13)-34) (HSBI), para. 13.
2968 Pilita Clark and Peggy Hollinger, "Deferrals to take toll on EAD's cash pile", Financial Times,
December 2009, (Exhibit USA-153).

mind may amount to equity -like financing, this report suggests that EADS was considering this
financing option. However, Mr Gallois made this statement after the c onclusion of certain
A350XWB LA/MSF measures, and therefore any confidence he may have had at this time regarding
the ability to raise such financing was likely to have been affected by the presence of those
contracts.
6.1668. In our view, this evidence suggests that EADS was at least contemplating the option of
raising funds via equity -like financing, but provides almost no insight into EADS' willingness or
ability to do so in the absence of A350XWB LA/MSF. Thus, while we accept that raising
equity-related financing may have been an option for EADS, and one that could likely have been
pursued to some degree, the extent to which this was a credible source of funding for the
A350XWB programme in the absence of A350XWB LA/MSF at any relevant time remains somewhat
speculative.
EADS cash
6.1669. The European Union argues that EADS could have funded, at least in part, the A350XWB
project with cash in the absence of A350XWB LA/MSF. In support of its argument, the
European Union refers to the CompetitionRx Report, which provides HSBI projections of
EADS' gross and net cash positions from 2007 through 2011 taken from the 2007 Operating
Plan2969, and projections of EADS' gross and net cash positions from 2009 through 2013 taken
from the 2009 Operating Plan.2970 The CompetitionRx Report also provides EADS' actual gross and
net cash positions for the years 2006 through 2009. 2971 The Supplemental CompetitionRx Report
further contains EADS' actual quarterly gross and net cash balances for [***] (the Quarterly
EADS Cash Balances).2972 Further, the European Union provides EADS' actual gross cash balances
for the years 2000 through 2011.2973
6.1670. Given the manner in which the parties have structured their arguments in this context,
we find it most helpful to assess the issues associated with these cash positio ns in three parts.
First, we consider issues associated with the nature of gross and net cash (actual and projected)
positions. Second, in light of the issues discussed in the first part, we assess issues associated with
the actual and projected net cash p ositions. Finally, based on these discussions, we then identify
what conclusions we can draw from the offered cash positions.
Gross and net cash

6.1671. The United States argues that EADS' gross cash positions are misleading because
"{g}ross cash is very different from funds that could easily be diverted to the A350 XWB program,
because it does not reflect the uses to which the gross cash was put, either directly through
commitments to other EADS activities or indirectly by providing investors with confidence that
EADS has sufficient financial cushion to address future contingencies." 2974 The European Union
rejects the United States' assertion that EADS' gross cash positions are irrelevant. The
European Union argues that because "{t}he difference between gross and net cash is the amount
of financing liabilities", then "{a}s long as these can be replaced when they fall due – for example
a corporate bond that is replaced by a new corporate bond, as EADS did in 2009 – gross cash is a
relevant consideration."2975
6.1672. Gross cash is the cash, cash equivalents and securities that a company has at a given
time without deducting financial liabilities. 2976 However, funds that must cover such liabilities
cannot reasonably be diverted to other uses. Thus, EADS' gross cash positions do not r eliably

2969 CompetitionRx Report, (Exhibit EU-127) (BCI/HSBI), table 42 and annex G.1 (para. 14 and table 3)
(Net cash positions can be calculated from subtracting "Financing liabilities" from "Cash, cash equivalent and
securities").
2970 CompetitionRx Report, (Exhibit EU-127) (BCI/HSBI), table 39.
2971 CompetitionRx Report, (Exhibit EU-127) (BCI/HSBI), para. 340 and table 36.
2972 Supplemental CompetitionRx Report, (Exhibit EU-420) (BCI/HSBI), table 2.
2973 EADS Gross Cash Status, EADS Corporate Finance 2000-2011, (Exhibit EU-88) (BCI).
2974 United States' second written submission, para. 628.
2975 European Union's second written submission, fn 1612.
2976 See CompetitionRx Report, (Exhibit EU-127) (BCI/HSBI), para. 317; and United States' comments
on the European Union's response to Panel question No. 47, para. 135.

approximate how much cash was free to direct to the A350XWB programme. We note the
European Union's argument that "{a}s long as {EADS' financial liabilities} can be replaced when
they fall due – for example a corporate bond that is replaced by a ne w corporate bond, as EADS
did in 2009 – gross cash is a relevant consideration."2977 The European Union's point appears to be
that EADS' gross cash levels meaningfully approximate how much cash was free to divert to the
A350XWB programme because whatever amou nts of cash were directed to pay for financial
liabilities EADS would simply replace them with new monies. We detect two ways EADS could have
done this. First, EADS could replace the cash with that raised from debt. We address EADS' ability
to finance the A350XWB programme with debt further below, so we need not address this
possibility here. Second, EADS could replace the monies with revenues. However, we detect no
basis upon which to simply assume that EADS' scheduled payments of financial liabilities coi ncided
with incoming positive cash streams in any meaningful way. Thus, this argument does not, in our
view, salvage the materiality of EADS' gross cash positions in this context.
6.1673. We next evaluate the relevance of EADS' net cash positions. Net cash is a c ompany's
gross cash less financial liabilities at a given time. 2978 At the outset, we take note of how the
character of net cash positions interacts with the European Union's argument in this context.
EADS' net cash position at any point in time is simply the accumulated result of its positive and
negative cash flows up until that time, less financial liabilities. Thus, if EADS were to have financed
the A350XWB programme in the absence of A350XWB LA/MSF with net cash, EADS would have
had to have, at any given time, a net cash balance capable of covering not only the
A350XWB-related expenses that had accrued up until that point that had been covered by member
State financial assistance but also all its other relevant cash needs. With this in mind, we note that
at year -end 2006 and 2009, EADS had net cash balances of approximately EUR 4.2 billion and
EUR 9.8 billion, respectively, which exceed the total amount of monies to which Airbus is entitled
under the A350XWB LA/MSF measures. 2979 The net cash projections contai ned in the 2007 and
2009 Operating Plans likewise indicate expected net cash levels that appear in excess of the total
sum of monies received by Airbus under the A350XWB LA/MSF contracts for almost every year for
which they contain net cash projections.2980 Thus, it appears likely that, at least for the years such
figures cover, EADS either had or was expected to have sufficient net cash levels that – on their
face – were capable of covering the A350XWB -related expenses Airbus had accrued up until such
times that A350XWB LA/MSF had instead covered.
6.1674. It appears clear to us, however, that the face value of these net cash positions do es not
actually represent the amount of cash that EADS could or would have directed to the A350XWB
programme. First, we note that the record reflects that EADS was hesitant to substantially deplete
its cash reserves during the relevant times. An EADS presentation from October 2006 states
EADS' goal of protecting its conservative balance sheet structure and maintaining a minimum
EUR 3 billion in "cash"2981; EADS' 2006 year-end gross and net cash positions were approximately
EUR 10 billion and EUR 4.2 billion, respectively. 2982 In January 2009 – after Airbus had formally
requested A350XWB LA/MSF measures – EADS then-CEO Mr Gallois reportedly sta ted that, even
though EADS had "cash reserves" of approximately EUR 9 billion, "preserving that cash balance is
a 'top priority' as funding dries up in the credit crunch." 2983 Further, an EADS presentation from

2977 European Union's second written submission, fn 1612.
2978 See CompetitionRx Report, (Exhibit EU-127) (BCI/HSBI), para. 318; and United States' comments
on the European Union's response to Panel question No. 47, para. 135.
2979 CompetitionRx Report, (Exhibit EU-127) (BCI/HSBI), table 36.
2980 CompetitionRx Report, (Exhibit EU-127) (BCI/HSBI), table 39 and annex G.1 (table 2). Of course, as
explained above, we do not know to what extent these projected cash balances were impacted by the assumed
receipt of member State financial assistance that materialized as A350XWB LA/MSF.
2981 Hans Peter Ring, Chief Financial Officer, "Safe Harbor Statement", "Roadmap", and "Recent Press
Quotes", slides 2, 11 and 12 from "A New Base for the Future", EADS presentation, Global Investor Forum,
19-20 October 2006, (Exhibit USA-358), slide 11.
2982 CompetitionRx Report, (Exhibit EU-127) (BCI/HSBI), table 36.
2983 Emma Vandore, "Airbus A350 development on track" The Associated Press, 14 January 2009,
(Exhibit USA-139). We note that EADS' 2008 year-end net cash balance was approximately EUR 9 billion, and
therefore the above-quoted report, and likely Mr Gallois, appeared to be referring to net cash. (CompetitionRx
Report, (Exhibit EU-127) (BCI/HSBI), table 36). In contrast, EADS' 2008 year-end gross cash balance was
roughly EUR 13.7 billion. (CompetitionRx Report, (Exhibit EU-127) (BCI/HSBI), table 36)

April 2009 indicated EADS' focus on protecting i ts conservative balance sheet structure and its
specific goal of maintaining a minimum of EUR 5 billion gross cash.2984
6.1675. In our view, the record reflects compelling reasons as to why EADS would be hesitant to
deplete its cash reserves to a significant degree. For instance, EADS may well have needed the
cash to cover contingencies arising from not only its non -LCA businesses but also cost overruns
and/or revenue shortfalls associated with Airbus' LCA programmes. We recall that unexpected
A380 delays that accumul ated in the latter part of 2006 had massive expected impacts on
EADS' cash positions for multiple years into the future. Further, we recall that the A350XWB
programme itself carried significant risks, the occurrence of which would put further strain on
EADS' financial resources. In short, not only were the net cash projections themselves subject to
uncertainties, but it was also uncertain as to what specific cash needs EADS would have in the
future.
6.1676. Moreover, maintaining certain minimum levels of net cash w as important for
EADS' predicted ability to raise debt while maintaining an acceptable credit rating. The
CompetitionRx Report explains that "{a}n important aspect of the S&P methodology {which
measures EADS' debt -carrying capacity} for both 'A' and 'BBB+' ratings for EADS, is that EADS
should hold a minimum amount of Net Cash." 2985 At launch and the First Contract Date, these
minimum amounts were EUR 2 billion and EUR 2.4 billion, respectively. 2986 Therefore, it is
reasonably clear to us that at least a portion of EADS' net cash positions would have to be held in
reserve in order to maintain a proper balance between its ability to raise debt and its maintenance
of an acceptable credit rating.2987
6.1677. Additionally, EADS likely had aspirations for the use of such cash be yond spending it on
the A350XWB programme, even if such aspirations had not yet resulted in financial liabilities at the
time the relevant net cash positions were calculated. As the Appellate Body explained, "EADS … {is
a} large compan{y} with several busi ness units beyond aircraft production, all of which would
have competed for internal financial resources." 2988 We note the European Union's assertion that
EADS could have de -prioritized other programmes and channelled more resources to the
A350XWB.2989 This may be, but the extent to which this could have occurred is not clear.
6.1678. Finally, we note the United States' argument that EADS' net cash positions are flawed
because they are not less EADS' outstanding LA/MSF liabilities. 2990 Insofar as this argument
addresses the impact of pre -A350XWB LA/MSF on EADS' cash positions, we save such
considerations for the later section of this Report analysing the impact of those measures on the
A350XWB programme. Insofar as this argument addresses the A350XWB LA/MSF measures, we
consider this argument immaterial. As explained more fully in the subsection immediately below,
the only fully relevant cash position before us that likely reflects A350XWB LA/MSF disbursements
is EADS' actual 2009 year-end cash position, but that impact is im material as a practical matter to
our analysis of EADS' cash positions.2991
Actual and projected cash positions

6.1679. As is apparent from the discussion immediately above, EADS' net cash positions provide
substantially more reliable – albeit far from perfect – bases upon which to conduct our current
inquiry than do EADS' gross cash positions. Therefore, in this section, we focus on EADS' actual
and projected net cash positions.

2984 Gerard Adsuar, Corporate Executive, EADS Finance and Treasury, "Cash Drivers and Enterprise
Value", EADS presentation, Global Investor Forum, 1-2 April 2009, (Exhibit USA-33), slide 16.
2985 CompetitionRx Report, (Exhibit EU-127) (BCI/HSBI), para. 319.
2986 CompetitionRx Report, (Exhibit EU-127) (BCI/HSBI), paras. 319 and 320.
2987 CompetitionRx Report, (Exhibit EU-127) (BCI/HSBI), annex G.1 (para. 14) (Indicating interplay
between these financial considerations).
2988 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1343.
2989 European Union's response to Panel question Nos. 126 (paras. 160-173) and 135 (para. 117).
2990 United States' comments on the European Union's response to Panel question No. 47, para. 135.
2991 The impact of the Operating Plans' likely presumed receipt of member State financial aid in a form
other than A350XWB LA/MSF on its financial projections' reliability has already been discussed further above.

6.1680. We first recall our earlier observations as to why a snapshot of EADS' finances, includi ng
actual net cash positions, in 2006 and 2009 are of limited utility in the context of our present
inquiry. That is, because EADS had to fund the A350XWB programme over a long period of time
going forward from either 2006 or 2009 and therefore had to be c omfortable not only with its
present financial situation but also with how that situation would evolve over time.
6.1681. The United States further argues that the use of EADS' actual year -end 2009 cash
balance amounts to an improper ex post perspective on EADS' a bility to fund the A350XWB
programme because such data postdate the First Contract Date. 2992 We recall that the Contracting
Period extended beyond year -end [***]. Therefore, EADS would have had its actual year -end
[***] cash balances in hand before it conclud ed certain A350XWB LA/MSF contracts. Thus, in our
view, EADS' [***] actual year-end cash position is, at least to some extent, relevant.2993
6.1682. Second, the United States argues that EADS' actual cash position in 2009 reflects
disbursements made under the A350XWB LA/MSF contracts, and therefore cannot be used to
demonstrate EADS' ability to fund the A350XWB programme in the absence of A350XWB
LA/MSF.2994 According to the European Union, Airbus received approximately EUR [***] from the
A350XWB LA/MSF contracts in [***].2995 This, however, represents less than [***] of EADS'
gross and net 2009 year -end cash balances, which were approximately EUR 15.1 billion and
EUR 9.8 billion2996, respectively. In our view, this amount is too small to meaningfully impact these
cash position s. We therefore consider the United States' point, while technically valid, to be
immaterial as a practical matter in terms of adjusting such aggregate net cash positions.2997
6.1683. The United States also argues that the CompetitionRx Report does not test and veri fy as
reasonable the assumptions underlying the Operating Plans' financial projections, which include
EADS' projected net cash positions.2998 The European Union argues that this criticism is misplaced.
The European Union explains that the Operating Plans are EADS' "most important financial
planning tool"2999 because:
{T}he EADS operating plan expresses … the commercially sensitive financial
implications of the detailed operating results forecast for each of its businesses and its
planned investments. The plan inf orms management of the timing of expected cash
flows from operations, and of cash requirements to fund investments. This enables the
company to decide on the timing and amount of its investments, and to structure its

2992 United States' comments on the European Union's response to Panel question No. 47, para. 137.
2993 The European Union makes the point that the 2009 Operating Plan's projection of what EADS' cash
balance would be at the end of 2009 turned out to be less than EADS' actual year-end 2009 cash balance.
Therefore, the European Union asserts that EADS' view of its cash position was somewhat more optimistic at
the end of 2009 than it had been at the beginning of the year. (European Union's response to Panel question
No. 127, paras. 260-261). We accept this assertion as likely correct.
2994 United States' comments on the European Union's response to Panel question No. 133, para. 67.
2995 European Union's response to Panel question No. 133, fn 182 and accompanying text. See also
European Union's response to Panel question No. 86, para. 335.
2996 CompetitionRx Report, (Exhibit EU-127) (BCI/HSBI), para. 340 and table 36.
2997 The European Union appears to argue that such a correction is in any event unnecessary because
"the funds received {from LA/MSF} are spent on development costs, and are thus reflected not in gross cash,
but in the assets and expenses that result from the development process of a new aircraft." (European Union's
response to Panel question No. 133, para. 101). Further, we note that the European Union argues that
A350XWB LA/MSF payments could not have affected EADS' actual cash balances because "absent EU member
State financing for the … A350XWB, EADS and Airbus would nonetheless have launched … {the} aircraft
programme{}, and would have financed {its} development" via avenues that did not involve expending cash,
e.g. RSP financing and raising debt. (European Union's response to Panel question No. 133, para. 102). Given
our conclusion that the United States' argument that these points address is immaterial with respect to the
impact of A350XWB LA/MSF disbursements on certain of EADS' actual cash positions, we need neither accept
nor reject the European Union's assertions in this context. We question, however, whether the
European Union's former argument makes sense in light of the fungible nature of money, and observe that its
second seems to assume that we will reach certain conclusions regarding Airbus' ability to fund the A350XWB
in the absence of LA/MSF.
2998 United States' comments on the European Union's response to Panel question No. 47, para. 136.
2999 European Union's response to Panel question No. 127, fn 414.

dividend policy and long - and short -term borrowing so that it has the means to
operate its businesses while maintaining its target minimum cash balances.3000
6.1684. The European Union has also explained that the Operating Plans cover all of EADS'
operations including Airbus. 3001 Therefore, the European Union argues that EADS only has
incentives to prepare reliable Operating Plans. 3002 The Operating Plans themselves are not before
us, nor does the CompetitionRx Report perform any analysis regarding the reliability of the
documents' financial projections. However , given that EADS is a sophisticated company we
presume that it understands its businesses. Further, given the Operating Plans' importance to
EADS, we see no reason to believe that the Operating Plans' financial projections represent
anything but EADS' bes t informed judgment regarding what its future financial position will be in
the years covered by the plans.
6.1685. These conclusions, however, give us pause regarding the probative value of the
Operating Plans' financial projections in this context. If the Operat ing Plans are meant to provide
EADS with a best guess of what its financial condition would be in certain future years, then we
see no reason to doubt that such projections would include monies obtained from instruments
involving member State involvement, assuming that EADS had an expectation of such involvement
at the time the Operating Plans were authored. 3003 In our view, EADS almost certainly had such
expectations.3004 The CompetitionRx Report states that the 2007 and 2009 Operating Plans were
authored in [***] 2006 and [***] 2008, respectively. 3005 Therefore, EADS authored the 2007
Operating Plan contemporaneously with the A350XWB Business Case, which assumed the receipt
of the Launch Financing Instrument. Moreover, at the time EADS authored its 2009 Operating
Plan, Airbus was on the cusp of formally requesting financial support for the A350XWB programme
in the form of LA/MSF measures, specifically, from the member States. Thus, in our view, it is
extremely likely that the 2007 and 2009 Operating Plans' financial projections, including their cash
projections, were formulated in the presence of expectations that Airbus would fund the A350XWB
programme, at least in part, with instruments involving member State support that manifested
themselves as A350XWB LA/MSF.
6.1686. To be clear, we do not believe it necessarily to be the case that the Operating Plans
anticipated the receipt of LA/MSF -type measures, specifically, in connection with the A350XWB
programme. Indeed, the A350XWB Business Case assumed at the time of launch tha t A350XWB
member State financial assistance would take a form other than LA/MSF measures, and EADS
authored both Operating Plans before Airbus formally requested A350XWB LA/MSF from the
member States, let alone negotiated or concluded them. Moreover, we re cognize that the
CompetitionRx Report states that the Operating Plans do not contain "revenue streams" for any
LA/MSF specifically associated with the A350XWB. 3006 In our view, however, this makes it no less
likely that the Operating Plans expected some form of A350XWB member State financial assistance
and factored that assumption into its financial projections. This is problematic because the
correctness of this assumption necessarily flowed from the receipt of A350XWB LA/MSF, and
insofar as the projections a ssumed the receipt of some other form of member State financial
support they are flawed because such other support never materialized. In either instance, the
accuracy of the projections for our purposes is diminished unless we are able to control for the
influence of those assumptions.

3000 European Union's response to Panel question No. 127, para. 256. (footnote omitted)
3001 CompetitionRx Report, (Exhibit EU-127) (BCI/HSBI), para. 307.
3002 European Union's response to Panel question No. 127, paras. 254-258 and 268.
3003 We note that the CompetitionRx Report states that the 2007 and 2009 Operating Plans "include"
"{t}he A350XWB development programme". (CompetitionRx Report, (Exhibit EU-127) (BCI/HSBI), para. 307)
3004 We further note that the Business Case assumed that the Launch Financing Instrument would be
drawn upon in certain years covered by both the 2007 and 2009 Operating Plans. (A350XWB Business Case
Presentation, (Exhibit EU-130) (HSBI), slide 65 (third bullet, first sub-bullet))
3005 CompetitionRx Report, (Exhibit EU-127) (BCI/HSBI), paras. 342, 345, and 351.
3006 We note that the CompetitionRx Report explains that the Operating Plans reflects LA/MSF
"{reimbursable launch investment (RLI)} funding flows for programmes other than the A350XWB".
(CompetitionRx Report, (Exhibit EU-127) (BCI/HSBI), para. 307) (emphasis added). It is clear to us from this
statement, and other record evidence, that the term "RLI" is interchangeable with "LA/MSF". (See e.g.
A350XWB Business Case Presentation, (Exhibit EU-130) (HSBI), slide 65 (referring to [***] granted in
connection with previous Airbus LCA); and UK Appraisal, (Exhibit EU-(Article 13)-34) (HSBI), p. 1 (referring to
negotiations regarding "Repayable Launch investment")).

6.1687. Unfortunately, we lack any insight into how such assumptions regarding the receipt of
member State financial assistance played out in the Operating Plans' financial projections. Neither
the European Union nor the Competition Rx Report explains how the Operating Plans assumed the
A350XWB programme would be funded and it appears questionable whether the CompetitionRx
Report's authors were given access to such information. The CompetitionRx Report indicates that
the authors had o nly been given "extracts" from the Operating Plans 3007, and had not been given
access to "the assumptions on which the Operating Plans are based" – other than projected Airbus
LCA deliveries – or "the business/financial model which was used to create the {Pro fit and Loss
summary}, Balance Sheet and Cash Flow information that {they} received." 3008 However, we
detect no reasonable basis to presume that the expected financial involvement of the member
States leading to the receipt of perhaps billions of euros would have no material impact on
EADS' financial projections, including projected cash positions.3009
6.1688. In sum, we consider it most likely that EADS prepared the Operating Plans' financial
projections, including the cash position projections, while assuming the prese nce of significant
financial assistance from the member States. We consider it most reasonable to conclude that
such an assumption affected those financial projections, albeit in an unknown manner and to an
unknown degree. We have explained above why this is problematic in this context. It is unclear to
us, therefore, the extent to which the projected cash positions are reliable in determining the
extent to which EADS could have funded the A350XWB programme with cash in the absence of
A350XWB LA/MSF.
6.1689. Finally, we note a further significant limitation of the net cash projections offered by the
European Union in this context. The A350XWB programme is a multi -year programme. Further,
the European Union has explained that the Operating Plans only perform financia l projections for a
limited number of years because such projections become too uncertain after that temporal
horizon.3010 The costs associated with the A350XWB programme, however, were projected to
continue to arise after the temporal horizon of even the 200 9 Operating Plan's projections, and, in
fact, that temporal horizon did not even extend to the point in time at which the A350XWB
programme was expected to begin generating a positive cash flow3011 let alone to the point in time
years later when the project w as expected to reach its overall financial break -even point for
Airbus.3012 In sum, during the 2006 -2009 period, EADS was unable to project its own finances
through the time-period in which EADS expected itself to be most exposed to the significant costs
(and associated risks) of the A350XWB programme. We further make special note that this time -
period was the same one in which EADS observed other Airbus programmes (e.g. the A380 and
A400M) experience serious development and production problems.3013
Conclusions regarding EADS cash

6.1690. Given our above discussions, in our view, the most relevant cash positions at our disposal
for purposes of our present inquiry are the 2007 and 2009 Operating Plans' net cash projections,
EADS' actual end -of-year net cash balances from 2006 and 2009, and the net Quarterly EADS
Cash Balances. These positions, however, have certain issues associated with them that call into
question their reliability as bases upon which to conduct our present inquiry. Despite these
questions, however, give n the magnitude of EADS' relevant cash positions discussed above, we
consider that moving forward from either the time of launch or the First Contract Date EADS had

3007 CompetitionRx Report, (Exhibit EU-127) (BCI/HSBI), para. 15.
3008 CompetitionRx Report, (Exhibit EU-127) (BCI/HSBI), para. 309.
3009 We recall that the Business Case assumed that the Launch Financing Instrument would be fully
drawn by [***], and [***] rather than as [***]. (A350XWB Business Case Presentation, (Exhibit EU-130)
(HSBI), slide 65). This makes it unclear to us whether EADS would have considered the Launch Financing
Instrument, or any other presumed financing instrument it would receive from the member States, as a
financial liability, and therefore to what extent inclusion of such an instrument in the Operating Plans' financial
projections would impact gross and/or net cash positions. Indeed, we recall that EADS does not treat LA/MSF
loans as financial liabilities due to their peculiar nature. (See Supplemental CompetitionRx Report, (Exhibit EU-
420) (BCI/HSBI), paras. 99-102).
3010 European Union's response to Panel question No. 127, para. 266.
3011 See CompetitionRx Report, (Exhibit EU-127) (BCI/HSBI), p. 40 (figure 8).
3012 See A350XWB Business Case Presentation, (Exhibit EU-130) (HSBI), slide 70.
3013 The 2007 Operating Plan would have been even less useful on this front, as its projections ended at
roughly the same time as the A350XWB's spending profile was set to increase as its entered production
phases.

significant cash that it could have diverted to the A350XWB programme. Given the uncertaint ies
surrounding its future cash positions at each of these dates, however, and given the competing
pressures on its cash reserves, doing so would have entailed significant risks for EADS – risks that
unsecured, back-loaded and success -dependent instruments like LA/MSF tend to shift away from
EADS.
EADS debt capacity
6.1691. The European Union argues that, in the absence of A350XWB LA/MSF, EADS could have
funded the A350XWB programme, at least in part, with debt. In support of this argument, the
European Union offer s the CompetitionRx Report, which performs two funding analyses, the
purpose of which are to measure "the amount of additional financial debt EADS could incur while
maintaining its current credit rating" or the amount of additional financial debt EADS coul d incur if
it were willing to accept a certain other relative credit rating (which is HSBI) 3014 at the time of
launch and as of the First Contract Date.3015
6.1692. In doing so, the CompetitionRx Report uses the so-called S&P methodology3016, and bases
its analysis on fin ancial projections in the 2007 and 2009 Operating Plans. The report first
calculates what EADS' additional debt capacity would be for each of the five years 2007 -2011 and
2009-2013 if EADS were to maintain a "BBB+" credit rating or an "A" credit rating. 3017 Then, the
report again performs those calculations, but under the assumption that EADS was operating in a
"worst case scenario" laid out in the CompetitionRx Report. 3018 The results of such calculations are
HSBI. However, the CompetitionRx Report concludes tha t, in the absence of A350XWB LA/MSF,
EADS had significant debt capacity with which to fund the A350XWB programme even under the
worst case scenario at each reference date.3019
6.1693. We note several aspects of this debt -capacity analysis. First, the CompetitionRx R eport's
funding analyses rely on the EADS Operating Plans' financial projections, including projected cash
positions.3020 We have already explained our reservations about the value of these projections in
any purported demonstration of EADS' ability to fund t he A350XWB programme in the absence of
A350XWB LA/MSF. These reservations stem from the fact that such projections likely assume the
presence of member State financial support for the A350XWB programme, support that manifested
itself as A350XWB LA/MSF. We therefore have similar reservations regarding the probative value
of these debt-capacity analyses.
6.1694. Second, the CompetitionRx Report's calculations of EADS' additional debt capacity while
maintaining an "A" S&P credit rating are of unclear probative value t o us. The purpose of the
CompetitionRx Report's funding analysis is to measure "the amount of additional financial debt
EADS could incur while maintaining its current credit rating" 3021 or the amount of debt EADS could
raise if it were willing to accept a cer tain other relative credit rating (which is HSBI). 3022 The
relevant times with respect to which this calculation should be performed are the launch date and
the Contracting Period. But EADS' S&P credit rating was below an "A" rating from the time of
launch – when it was an "A -" – through the Contracting Period, by which time it had been
furthered lowered to a "BBB+/stable". 3023 Thus, analysing what EADS' additional debt capacity

3014 Supplemental CompetitionRx Report, (Exhibit EU-420) (BCI/HSBI), para. 101(ii).
3015 The United States generally argues that the CompetitionRx Report redacts too much of the specific
data underlying its own conclusions, and therefore the Panel cannot effectively verify those conclusions.
(United States' comments on the European Union's response to Panel question No. 47, para. 113). We consider
this argument immaterial in this context. The CompetitionRx Report was significantly redacted when originally
submitted. The European Union, at the Panel's request, submitted a revised version with certain redactions
removed, but others remain. The remaining redactions in the CompetitionRx Report generally pertain to the
report's viability analyses, however, which we have already found we need neither accept nor reject.
3016 CompetitionRx Report, (Exhibit EU-127) (BCI/HSBI), section 7.3.
3017 CompetitionRx Report, (Exhibit EU-127) (BCI/HSBI), section 9.3.
3018 CompetitionRx Report, (Exhibit EU-127) (BCI/HSBI), sections 5.4 and 9.4.
3019 CompetitionRx Report, (Exhibit EU-127) (BCI/HSBI), paras. 381, 386, 389, and 391-396.
3020 CompetitionRx Report, (Exhibit EU-127) (BCI/HSBI), paras. 312, 314, and 403; and Supplemental
CompetitionRx Report, (Exhibit EU-420) (BCI/HSBI), para. 96.
3021 Supplemental CompetitionRx Report, (Exhibit EU-420) (BCI/HSBI), para. 101(i).
3022 Supplemental CompetitionRx Report, (Exhibit EU-420) (BCI/HSBI), para. 101(ii).
3023 CompetitionRx Report, (Exhibit EU-127) (BCI/HSBI), table 41. Certain statements in the
CompetitionRx Report convince us that we should focus on what EADS' S&P rating was in this context, rather

would be with an "A" S&P credit rating appears to satisfy neither stated purpose of t he funding
analyses, unless we assume that the "A" rating is meant to be generalized to include an "A-" rating
as well. However, because EADS' calculated debt capacity is lower assuming an "A" rating, as
opposed to a "BBB+" rating, the former calculation s till appears relevant in that it could be
interpreted as a conservative debt -capacity calculation, evidencing EADS' capacity to raise debt
even assuming the presence of restrictive conditions.3024 That being said, it also appears important
to note in this con text that the S&P and other credit ratings related reports in the record illustrate
that EADS' debt load is only one of many factors that affect its credit rating.3025 Thus, even if EADS
could have raised significantly more debt and not be necessarily disqualified from maintaining a
specific credit rating due to carrying that specific debt load, it does not mean that EADS would
have been entitled to that credit rating while carrying that specific debt load.
6.1695. Third, the United States argues that the Competition Rx Report's claim that it evaluates
EADS' debt capacity under the report's "worst case scenario" is misleading because the report
assumes that certain negative portions of that scenario, especially the "deep recession" aspect of
the scenario, occur after t he latest year addressed in the report's debt -capacity analyses, i.e.
2013.3026 The European Union argues that, although the United States' argument is factually
correct, HSBI information indicates that by the occurrence of the "deep recession" aspect of the
worst case scenario the A350XWB programme would have changed in material respects so as to
make this United States argument immaterial. 3027 It is true that the worst case scenario that the
CompetitionRx Report contemplates temporally extends beyond the years for which the report
calculates EADS' worst -case-scenario projected debt capacities. 3028 In our view, however, this
argument highlights a limitation on the utility of the Operating Plans' financial projections in
projecting EADS' ability to fund long -term projects like the A350XWB, i.e. the costly project lasts
longer than EADS is willing to project its own finances.
6.1696. Fourth, according to the CompetitionRx Report, at the time of launch and at the First
Contract Date, EADS had three pre-existing debt facilities, i.e. the Euro Medium Term Note (EMTN)
Programme, a commercial paper programme and a Revolving Syndicated Credit Facility. 3029 The
CompetitionRx Report further indicates that there was still EUR 1.5 billion and EUR 500 million in
undrawn funds under the EMTN programme at approximately the time of launch and the First
Contract Date, respectively. 3030 The European Union argues that the presence of such undrawn
amounts is evidence that EADS could indeed have raised enough debt to fund the A350XWB
programme in the absence of A350XWB LA/MSF.3031 We accept that the presence of such undrawn
funds suggests EADS ability to raise at least some additional debt in the relevant time-periods.
6.1697. Fifth, we recognize that the CompetitionRx Report's projections of EADS' additional debt
capacity are just that – projections. Projections are subject to uncertainties. We have discussed
the many and significant uncertainties EADS and Airbus faced at launch and the First Contract

than ratings promulgated by, for example, Fitch or Moody's. (CompetitionRx Report, (Exhibit EU-127)
(BCI/HSBI), para. 313)
3024 We note that certain HSBI information indicates that it would be improper to consider what EADS'
debt capacity would be at a rating lower than a BBB+. (CompetitionRx Report, (Exhibit EU-127) (BCI/HSBI),
para. 313)
3025 See e.g. Moody's Investors Service, Global Credit Research, Rating Action: Moody's places EADS'
Ratings Under Review for Possible Downgrade, 22 September 2006, (Exhibit USA-509); Standard & Poor's
Global Credit Portal Ratings Direct, Research Update: 'A/A-1' Ratings Placed On Credit Watch Negative On
Further A380 Delays, 3 October 2006, (Exhibit USA-510); Standard & Poor's Global Credit Portal Ratings
Direct, Research Update: S&PCORRECT: EADS Rating Cut To 'A-/A-2', L-T Still On Watch Neg, On Further
Restructure Delay, 12 October 2006, (Exhibit USA-511); Standard & Poor's Global Credit Portal Ratings Direct,
Research Update: EADS Long-Term Ratings Remain On Watch Neg After Profit Warning, 17 January 2007,
(Exhibit USA-512); Standard & Poor's Global Credit Portal Ratings Direct, Research Update: EADS L-T CCR Cut
to 'BBB+'; Off Watch Neg; Outlook Stable; Teleconf May 11 @ 2:30PM BST, 10 May 2007, (Exhibit USA-513);
Standard & Poor's Global Credit Portal Ratings Direct, European Aeronautic Defence and Space Co. N.V.,
14 October 2009, (Exhibit USA-514); and Standard & Poor's Global Credit Portal Ratings Direct, Research
Update: European Aeronautic Defence and Space Co. N.V. Long-Term Rating Raised to 'A-' On Lower Project
Risks; Outlook Stable, 22 September 2010, (Exhibit USA-516).
3026 United States' comments on the European Union's response to Panel question No. 47, para. 138.
3027 European Union's response to Panel question No. 127, para. 263.
3028 See CompetitionRx Report, (Exhibit EU-127) (BCI/HSBI), part 5.3.
3029 CompetitionRx Report, (Exhibit EU-127) (BCI/HSBI), para. 358.
3030 CompetitionRx Report, (Exhibit EU-127) (BCI/HSBI), table 40.
3031 European Union's response to Panel question No. 135, paras. 114-115.

Date, including significant risks associated with the A350XWB p rogramme. Therefore, in order for
EADS to fund the programme with significant new debt at either launch or the First Contract Date,
one must assume that EADS would have been confident that it could effectively carry such debt
going forward despite the fina ncial uncertainties it faced. Moreover, as discussed already, EADS
would have had to do so when EADS very well would have had to carry such debt for a longer
period of time than it was comfortable projecting its own finances in the Operating Plans.
6.1698. Sixth, we note that the CompetitionRx Report supports its conclusion that EADS could
have funded the A350XWB programme by raising additional debt by asserting that, in
August 2009, EADS placed a EUR 1 billion, seven-year bond on the capital markets that was nine
times over-subscribed during its 30 -minute offer period. 3032 While such an accomplishment does
suggest EADS' ability to raise significant debt during the Contracting Period, we note that this
offering occurred after the First Contract Date, and therefore the market likely had factored the
grant of at least some A350XWB LA/MSF, and likely more to come, into its reaction to the bond
offering. Therefore, we consider its probative value to be somewhat limited.3033
6.1699. Finally, we note that the CompetitionRx Report's conclusions that EADS could comfortably
have raised enough debt to fund the A350XWB programme in the absence of A350XWB LA/MSF
contradict certain language in the UK Appraisal. We recall that we had no material reservations
regarding the objectivity or reliabil ity of the UK Appraisal's analysis on this score. 3034 We did,
however, have certain reservations concerning the reliability of the data upon which the
CompetitionRx Report relies for its debt -funding analyses. Perhaps most notably, the Operating
Plans' financial projections upon which such debt -funding analyses are based most likely assume
the presence of member State financial support for the A350XWB, support that manifested itself as
A350XWB LA/MSF. The temporal duration of the Operating Plans' projections a re, as explained
above, also somewhat limited in scope.
6.1700. In sum, we have reservations regarding the probative value of the CompetitionRx
Report's debt-capacity analyses. Nevertheless, we detect little evidence that EADS would have had
no appreciable debt-raising capacity in the relevant time periods in the absence of A350XWB
LA/MSF. Thus, we accept that this was likely an option that could have been pursued to at least
some material degree.
The A350XWB's base-case NPV, strategic benefits and risks
6.1701. Above, we examined EADS' and Airbus' ability to effectively fund the A350XWB
programme. Here, we examine the other factors that we enumerated as part of our viability
inquiry. These are the programme's base -case NPV, the programme's strategic benefits, and the
programme's risks. We examine these three issues together vis-à-vis the date of launch and the
First Contract Date in turn.

3032 CompetitionRx Report, (Exhibit EU-127) (BCI/HSBI), para. 404.
3033 We note that the European Union argues that it would have been easy for EADS to raise market
financing for the A350XWB programme because the A350XWB would compete in a lucrative market.
(European Union's second written submission, para. 1065). In our view, this is too simplistic and assumes too
much. For one, this argument directly conflicts with the fact that certain Airbus suppliers could not find market
sources to finance their A350XWB projects, as described in the State Aid Decisions. We also recall that the
A350XWB faced competition from the Boeing 777 and 787, and was assumed to be subject to significant risks.
Indeed, even the Business Case outlined a plausible worst case scenario in which the programme would have a
[***]. Further, we recall that the original panel found that Airbus could not have launched certain of its prior
LCA as and when it did without direct LA/MSF – programmes that Airbus presumably believed would be
lucrative.
3034 UK Appraisal, (Exhibit EU-(Article 13)-34) (HSBI), paras. 13 and 16 (lines 2-4). While we take
special note of the numeric amount referenced in paragraph 13 of the UK Appraisal and how it relates to the
total amount to which Airbus ultimately received under the A350XWB LA/MSF contracts, we further recall that
the UK Appraisal's conclusions regarding the ease with which Airbus could effectively fund the A350XWB
programme in the absence of member State financial assistance were apparently formulated on the basis of
assumptions regarding the likely costs of the A350XWB programme that differed materially, but perhaps not
drastically, from Airbus' contemporaneous expectations. See UK Appraisal, (Exhibit EU-(Article 13)-34) (HSBI),
paras. 7 (lines 5-6) and 9 (line1).

Launch
6.1702. We recall our earlier conclusion that, at the time of launch, Airbus and EADS assumed the
receipt of A350XWB member State financ ial assistance in the form of the Launch Financing
Instrument. Therefore, we evaluate the impact of the Launch Financing Instrument on the viability
of the A350XWB programme on 1 December 2006.3035
6.1703. We recall that the A350XWB Business Case calculated that the Launch Financing
Instrument would contribute a specific monetary value 3036 to the programme's projected NPV in
the base case. Without this contribution, the United States argues that, given the high risks
associated with the A350XWB programme, the base -case NPV would have been too low to yield a
viable programme.3037 The European Union argues that the A350XWB programme was viable at
launch even without the NPV effects of the Launch Financing Instrument. The European Union
points out that even without the instrume nt's NPV contribution the programme still had a
significant positive NPV, and that the strategic considerations of the programme would also have
proven a powerful incentive for Airbus to have launched the A350XWB in the absence of the
Launch Financing Inst rument.3038 The European Union further asserts that the perceived risks
associated with the programme were already factored into the programme's forecast NPV in the
base case and therefore could not alter the programme's viability in the manner that the
United States argues.3039
6.1704. The A350XWB Business Case forecasts a significant positive NPV for the programme in
the base case even without the Launch Financing Instrument's contribution. 3040 This alone,
however, does not necessarily convince us that the A350XWB was via ble in the absence of the
Launch Financing Instrument. The A350XWB programme was subject to significant risks and
uncertainties at the time of launch. Such risks and uncertainties are explained at length in sections
above, and we recall that many are state d in the Business Case itself. We accept that such risks
were considered in the base case, which reflects the conditions that Airbus believed would result if
the risks associated with the A350XWB programme materialized in the most likely manner. But
this does not exhaust the relevance of such risks in a viability assessment, as the European Union
suggests.3041 This is so because the possibility of unfavourable scenarios occurring – even if they
are not considered to be the most likely scenarios – and the sever ity of their downside will
obviously influence Airbus' choices regarding whether to pursue an LCA programme. 3042 We

3035 To be clear, we do not understand the United States to argue that either Airbus or EADS assumed at
the time of launch that the Launch Financing Instrument was a LA/MSF-type instrument. Further, the
United States does not challenge the Launch Financing Instrument, as a discrete measure, as a subsidy in this
compliance proceeding. Rather, it is our understanding that the United States argues that the factual
circumstances surrounding the A350XWB's launch and Airbus' later receipt of A350XWB LA/MSF compel the
Panel to treat any expectations that Airbus had at the time of launch regarding the eventual receipt of member
State financial assistance vis-à-vis the A350XWB programme as attributable to the A350XWB LA/MSF
measures challenged in this compliance proceeding. We accept the United States' position arguendo in this
section because, as explained below, even if we do so, it yields the same material conclusion as to the impact
of A350XWB LA/MSF on the A350XWB programme as does adopting the European Union's bright-line approach,
i.e. evaluating the impact of A350XWB LA/MSF starting from the First Contract Date.
3036 A350XWB Business Case Presentation, (Exhibit EU-130) (HSBI), slide 67 (second to last column in
chart).
3037 United States' second written submission, paras. 550 and 645-671; opening statement (non-public)
(BCI/HSBI), para. 16; and comments on the European Union's response to Panel question No. 47,
paras. 152-155.
3038 European Union's response to Panel question No. 47, paras. 133 and 140.
3039 European Union's response to Panel question No. 47, paras. 183-188.
3040 We note that the Business Case enumerates several key assumptions in the Business Case that
enable the launch to be "feasible". (A350XWB Business Case Presentation, (Exhibit EU-130) (HSBI), slide 79).
The receipt of the Launch Financing Instrument is not among these considerations. Of course, this may simply
be due to the fact that Airbus did not perceive the non-receipt of member State financial assistance to be a
material risk worth considering.
3041 See European Union's response to Panel question No. 47, para. 186 ("Thus, in each instance, the
worst case would have to be the most likely outcome – i.e. it would have to become the base case – to
undermine the viability of the business case."). (emphasis original)
3042 For instance, a company may calculate that there is a 49% chance that it would go bankrupt if it
launched a product and a 51% chance it would make a small amount of money. Alternately, the company may
calculate that there is a 1% chance that the company would lose a small amount of money if it launched a
product and a 99% chance that it will make an enormous amount of money. Neither loss scenario is the base

therefore recall that the "worst case scenario" in the Business Case, without the NPV effects of the
Launch Financing Instrument, [***]. We further note that the European Union has explained that
the "worst case scenario" used in the A350XWB Business Case was based on Airbus' actual
experiences with problems arising in relation to certain of its predecessor LCA programmes.3043
6.1705. Such high risks and uncertainties would normally give us considerable pause regarding an
LCA programme's viability. However, as described at length in our factual narrative above, the
A350XWB was far from a normal LCA programme to Airbus, and had significant strategic
importance for Airbus' overall competitive position in the LCA markets. We recall that the Business
Case outlined severe strategic disadvantages and costs to Airbus that were assumed to accrue in
the absence of the A350XWB programme 3044, and less severe but still app arently significant costs
for Airbus in the event of a [***] in the programme.3045 In our view, such considerations provided
sufficient incentive to go ahead with the programme assuming that it could be effectively funded,
notwithstanding the risks associated with the programme.
6.1706. We further note that, as explained further above, we consider it likely that the positive
NPV that the Business Case projects in the absence of the Launch Financing Instrument included
assumptions regarding how Airbus would in fact fu nd the programme. Insofar as this is true, it
would appear to imply that Airbus assumed that it could in fact fund the programme in the
absence of the assumed receipt of member State financial assistance, i.e. with financing on market
terms, although the r ecord does not indicate what specific form(s) Airbus assumed such alternate
financing would take. 3046 The validity of this assumption, therefore, would appear to be a
prerequisite for us to accept the base -case NPV as reliable. At this point, therefore, we no te that
further below we conclude that Airbus and EADS most likely had the necessary financial resources
to fund the A350XWB programme with financing on market terms in the absence of member State
financial assistance in the form of A350XWB LA/MSF. We furt her note that the United States has
presented no evidence, and we detect none in the record, indicating that Airbus' utilization of any
combination of alternate financial resources we find to have been at Airbus' disposal would require
a material downward adjustment to the Business Case's forecast NPV for the programme. In our
view, therefore, we see no basis upon which to call the Business Case's calculated base -case NPV
in the absence of the Launch Financing Instrument into material question as representa tive of
what Airbus and EADS considered the NPV of the A350XWB to be at the time of launch in the
absence of member State financial assistance.
6.1707. We also note that the CompetitionRx Report contains an ex post facto viability analysis of
the A350XWB programme at launch apparently assuming the absence of member State financial
assistance. The CompetitionRx Report finds that the programme had a significantly higher NPV at
launch than the Business Case concluded. 3047 The parties contest the soundness of this viabili ty
analysis. We consider it unnecessary to either accept or reject this viability analysis at this point.
We see no reason to believe that the A350XWB Business Case represents anything but Airbus' best
efforts under the circumstances to analyse the program me's NPV at launch. The United States
never argues to the contrary and in fact endorses the reliability of the analysis to some degree. 3048
However, the CompetitionRx Report does not purport to justify the Business Case's NPV analysis
as reasonable, but inste ad independently calculates an entirely new NPV for the programme. We
fail to see the materiality of an ex post facto business case that, on its face, does not reflect

case, yet a company will obviously be more tentative about launching the former product than the latter,
especially if it lacks confidence in its calculated chances of success.
3043 Declaration of Agnès Luquet, 10 September 2013, (Exhibit EU-422) (HSBI), para 4.
3044 A350XWB Business Case Presentation, (Exhibit EU-130) (HSBI), slides 53 and 91-94.
3045 A350XWB Business Case Presentation, (Exhibit EU-130) (HSBI), slide 90. The European Union has
indicated that it is appropriate to consider such strategic considerations separate from the Business Case's NPV
assessment of the A350XWB programme. (See European Union's second written submission, para. 986
(HSBI)). We detect no reason to doubt the propriety of this approach. The risks of the programme must further
be discounted by the potential upsides of the programme that the Business Case assumes might materialize
that would presumably increase the forecast NPV. (A350XWB Business Case Presentation, (Exhibit EU-130)
(HSBI), slide 71 (first main bullet))
3046 We recall that the Business Case states that it assumes the use of [***]. (A350XWB Business Case
Presentation, (Exhibit EU-130) (HSBI), slide 66 (seventh bullet, second sub-bullet)). Thus, we note that any
financing methods the Business Case assumed Airbus would use to fund the A350XWB programme in the
absence of the Launch Financing Instrument would have been non-project specific.
3047 CompetitionRx Report, (Exhibit EU-127) (BCI/HSBI), part 1.
3048 United States' comments on the European Union's response to Panel question No. 127, para. 45.

Airbus' or EADS' thinking at the time of launch, and indeed, contradicts it to a signifi cant degree.
Thus, under the circumstances, we decline to consider the CompetitionRx Report's NPV analysis of
the A350XWB's viability at launch any further.3049
First Contract Date
6.1708. The United States argues that the A350XWB LA/MSF measures had a material impac t on
the A350XWB programme's viability upon their conclusion beginning on the First Contract Date.
We understand the United States to make two related arguments in this context. The
United States' first argument appears to be that the A350XWB Business Case demonstrates that
the A350XWB programme would have been non -viable in the absence of A350XWB LA/MSF as of
the First Contract Date. The United States frames this argument in somewhat vague terms. The
United States recalls that the Business Case assumed the receipt of the Launch Financing
Instrument, which was assumed to impact the A350XWB programme's NPV by a specific
amount.3050 The United States then appears to ask the Panel to conclude that, without the effects
of the Launch Financing Instrument, the progra mme would have been non -viable at launch 3051,
and that the forecast NPV effects of the Launch Financing Instrument approximate, or perhaps are
exceeded by, the actual effect that the A350XWB LA/MSF had on the programme's forecast
NPV.3052 Thus, the United States, apparently projecting the Business Case from the time of launch
to the First Contract Date, concludes that the A350XWB programme would be non -viable without
A350XWB LA/MSF as well. The United States' second argument is that the Dorman Report 3053 –
discussed at length in the original proceeding 3054 and re -submitted by the United States in this
compliance proceeding – demonstrates that the A350XWB LA/MSF measures enhanced the NPV of
the A350XWB programme, thereby making Airbus more likely to continue to pursue th e
programme than Airbus would have in the measures' absence.3055
6.1709. In order to meaningfully address these arguments, we must first place this inquiry into its
proper context. Above, we determined that, at the time of launch, the A350XWB programme's
base-case NP V and strategic benefits provided Airbus and EADS with sufficient motivation to
pursue the programme assuming that it could be effectively funded, even in the presence of
significant programme risks and in the absence of any presumed receipt of member Stat e financial
assistance. Therefore, if we hold all such things constant with respect to the programme from the
time of launch through the Contracting Period, then we see no reason to think that the same
conclusion would not continue to hold true through the Contracting Period in the absence of
A350XWB LA/MSF. In other words, at this point in our analysis, in order for the United States to
demonstrate that the A350XWB programme had become non -viable at some point during the
Contracting Period in the absence o f the A350XWB LA/MSF contracts, the United States must
demonstrate that something relevant changed with respect to the programme between launch
and, at the latest, the end of the Contracting Period that made member State financial assistance
suddenly neces sary to produce a viable programme. More specifically, the United States must
show that the attractiveness of the programme decreased in Airbus' eyes over this time -period, a
trend for which the A350XWB LA/MSF contracts could potentially compensate. We the refore recall
that our viability analysis at this point focusses on three aspects of the A350XWB programme, i.e.
its base-case NPV, its risks, and its strategic importance to the Airbus' business as a whole. The
United States' arguments do not address how any such factors changed for the worse in
Airbus' eyes from the time of launch through the end of the Contracting Period. Therefore, even
assuming that the A350XWB LA/MSF contracts had the NPV effects that the United States claims,

3049 We note that the European Union produced a Supplemental CompetitionRx Report that expands
upon the viability analyses performed in the original CompetitionRx Report. (Supplemental CompetitionRx
Report, (Exhibit EU-420) (BCI/HSBI)). Our conclusions regarding the original CompetitionRx Report's viability
analysis similarly apply to the Supplementary CompetitionRx Report's related viability analyses.
3050 United States' response to Panel question No. 117, para. 30(c) (HSBI).
3051 United States' second written submission, paras. 550 and 645-671; opening statement (non-public)
(BCI/HSBI), para. 16; and comments on the European Union's response to Panel question No. 47, paras. 152-
155.
3052 See generally United States' second written submission, paras. 645-672; and response to Panel
question No. 117, para. 31.
3053 Dr Gary J. Dorman, NERA, "The Effect of Launch Aid on the Economics of Commercial Airplane
Programs", 6 November 2006, (Dorman Report), (Exhibit USA-299) (BCI).
3054 See e.g. Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.1882-7.1912;
and Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1245-1254.
3055 See generally United States' response to Panel question No. 117.

it has offered insuffici ent evidence with which to support its viability theories at the First Contract
Date.
6.1710. We further emphasize that, in our view, the record does not otherwise support the
United States' argument in this context. First, we discern no persuasive evidence that t he
A350XWB programme's base -case NPV, as calculated in the Business Case in the absence of
member State financial assistance, materially deteriorated from launch through the Contracting
Period. Of the economic factors that the Business Case discussed in it s sensitivity analysis, we find
evidence that only one such factor had changed in a manner adverse to Airbus during this time.
Specifically, the forecast NRC of the programme had [***] from EUR [***]3056 at launch to
approximately EUR 12 billion at the First Contract Date.3057 This likely had some negative impact
on the forecast NPV of the A350XWB programme. However, it is important not to overstate this
impact. Even if this NRC shift had negatively affected the programme's base -case NPV, we
consider that this ef fect would be offset by the likely somewhat lessening of risks associated with
the programme and especially the increased strategic importance of continuing with the
programme, discussed below.3058
6.1711. Second, we detect little information on the record indicating that the programme's risks
materially increased from launch through the Contracting Period. We do note that certain evidence
indicates that, during the Contracting Period, Airbus may have begun to anticipate delays in the
programme, although not of the magnitude of the A380 delays.3059 We further note, however, that
the European Union argues that the development progress Airbus had achieved with the A350XWB
programme by the First Contract Date meant that Airbus had materially reduced developmental
risks associated with the A350XWB by that time. 3060 The United States does not materially contest
the general assertion that risks associated with an LCA programme decrease to some degree as
the manufacturer completes developmental work with respect to that LCA, and we see no
particular reason to doubt it. 3061 Thus, the risks associated with the programme most likely
improved to some degree from Airbus' perspective during the relevant time.3062
6.1712. Third, we detect little in the record indicating that the strategic consequences fo r Airbus
of failing to pursue the A350XWB programme, as articulated in the Business Case, had lessened
from launch through the Contracting Period. In fact, certain negative consequences for Airbus of

3056 A350XWB Business Case Presentation, (Exhibit EU-130) (HSBI), slide 56 (second to last column in
chart).
3057 Pilita Clark and Peggy Hollinger, "Deferrals to take toll on EAD's cash pile", Financial Times,
December 2009, (Exhibit USA-153) (reporting that EADS then-CEO Louis Gallois indicated that EADS expected
the cost of the A350XWB project to be approximately EUR 12 billion). HSBI evidence supports the accuracy of
this figure. (European Union's response to Panel question No. 138, paras. 288-289 (HSBI))
3058 We consider that this is so notwithstanding the United States' assertions that the A350XWB's NRCs
had risen beyond EUR 12 billion by the First Contract Date, and that another relevant expectation regarding
the A350XWB programme had also deteriorated by this time. (See HSBI version of the United States'
comments on the European Union's response to Panel question No. 127, para. 37; and UK Appraisal, (Exhibit
EU-(Article 13)-34) (HSBI), paras. 7 (lines 5-6) and 9 (line1)). In so arguing, however, the United States relies
on data in the UK Appraisal. In our view, the focus of any viability analysis is properly on Airbus' and/or EADS'
perceptions regarding the A350XWB programme for the simple reason that they determined the course of the
programme. There is no evidence that either Airbus or EADS endorsed such analyses in the UK Appraisal.
Further, there is evidence that neither Airbus nor EADS shared the UK Appraisal's view that the other relevant
expectation that the United States identifies in this context had deteriorated between launch and the First
Contract Date. (Compare A350XWB Business Case Presentation, (Exhibit EU-130) (HSBI), slide 50 (first bullet),
with Business case-related document, (Exhibit EU-(Article 13)-35) (HSBI), slide 12, and CompetitionRx Report,
(Exhibit EU-127) (BCI/HSBI), tables 5 and 6).
3059 Jens Flottau, "Déjà vu: More problems beset the A350 program, but schedule margins are now razor
thin, a situation the manufacturer has faced before", Aviation Week & Space Technology, 15 February 2010,
(Exhibit USA-515) (reporting that certain analysts expected a roughly half-year delay of the A350XWB entry
into service, although it also reports that Airbus then-COO Fabrice Bregier stated that Airbus believed that it
could still make the mid-2013 goal); and Daniel Michaels, "Airbus Tries New Way of Building Its Planes", The
Wall Street Journal, 12 July 2012, (Exhibit EU-417), p. 13 (reporting that in November 2010 Airbus "disclosed
a delay of roughly six months").
3060 See e.g. European Union's first written submission, para. 1126.
3061 Indeed, we recall that the United States' Schneider Declaration indicated that this developmental
period was generally characterized by relatively high risks. See above para. 6.1577.
3062 This does not, in our view, contradict our earlier finding in any way that significant developmental
risks remained regarding the A350XWB programme at the time the A350XWB LA/MSF contracts were being
negotiated and concluded. See above para. 6.525 et seq.

abandoning the A350XWB programme at the First Contract D ate had likely grown significantly
since launch. For example, Airbus had significantly more orders for the A350XWB at the First
Contract Date than it had for the Original A350 at the time of launch. 3063 It follows that failing to
progress with the A350XWB at the First Contract Date would likely have created far greater
contractual liabilities for Airbus than would have cancelling the programme in December 2006.
Further, Airbus would have sacrificed its considerable sunk costs in the programme if it had failed
to proceed with it at the First Contract Date, along with the associated costs of re -orienting the
company away from A350XWB production. We also consider that the reputational damage from
cancelling not one, but two A350 programmes for Airbus would have be en significant. It therefore
appears that the strategic considerations associated with the A350XWB programme likely weighed
significantly more in favour of continuing with the programme during the Contracting Period than
they did at launch.
c Conclusions with respect to viability and the direct effects of A350XWB LA/MSF
6.1713. It is apparent that the A350XWB programme was of significant strategic importance to
Airbus and, in the short-term, critical for Airbus' ability to continue to be a mainstream competitor
against Boeing. The evidence shows that around the time of launch, Airbus was of the view that it
needed to develop a new generation of twin -aisle aircraft in the near term in order to compete
effectively against the Boeing 777 and 787, not only to maintain mar ket share in the twin -aisle
segment, but also to avoid losing ground in other markets with respect to customers interested in
fleet commonality. It was also important for Airbus to launch the A350XWB programme to avoid
contractual penalties arising from po tential cancellations of Original A350 orders. 3064 In our view,
these considerations would have provided Airbus with a strong commercial incentive to go ahead
with the A350XWB programme, assuming that it could find appropriate financing.
6.1714. Similarly, after purs uing the A350XWB programme for any appreciable length of time
following launch (e.g. from December 2006 to the First Contract Date) , we believe that EADS and
Airbus would have been, as a practical matter, committed to the A350XWB programme. The
economic and reputational costs of stopping the programme in mid -stream would likely have been
extremely high and would have given the companies even greater incentive to pursue the
programme than existed at the time of launch.3065
6.1715. Nevertheless, although strategically i mportant, the launch and development of the
A350XWB programme in the absence of A350XWB LA/MSF would have been more complicated,
more costly and riskier than with A350XWB LA/MSF. 3066 While we believe, on balance, that the
assortment of financial resources tha t Airbus, via EADS, had at its disposal would have been,
collectively, sufficient to effectively replace the monies Airbus is entitled to under the actual
A350XWB LA/MSF contracts, we do not share the European Union's optimism regarding how easily
EADS could have martialled those resources for the purpose of the A350XWB programme. Each of
the potentially available – and to some degree speculative – funding options would have carried its

3063 Compare Ascend database, Orders, data request as of 26 June 2012, (Exhibit EU-19) (indicating
that Airbus had secured over 400 orders for the A350XWB by the First Contract Date), with A350XWB Business
Case Presentation, (Exhibit EU-130) (HSBI), slide 53 (stating that Airbus had [***] at that time).
3064 See generally above paras. 6.1542 et seq. ("A350XWB origins") (discussing, inter alia, the
circumstances that led Airbus to believe that it had to abandon the Original A350 in favour of the A350XWB),
6.1568 et seq. ("Launch and the A350XWB Business Case") (discussing, inter alia, the Business Case's
assessment of the A350XWB's strategic importance), 6.1602 (discussing UK Appraisal's assessment of the
A350XWB's strategic importance to Airbus) and 6.1701 et seq. (discussing the strategic importance of the
A350XWB to a viability analysis).
3065 See generally, above paras. 6.1547 et seq. ("Pre-launch development progress") (discussing the
development progress made by Airbus on the A350XWB programme by the First Contract Date) and 6.1708 et
seq. (discussing consequences for Airbus if it had terminated the A350XWB programme at or around the First
Contract Date).
3066 We note, in this respect, that our conclusions concerning EADS' ability to fund the A350XWB
programme in the absence of A350XWB LA/MSF closely approximate those found in the UK Appraisal, which –
given the apparent rigour of its underlying analysis, timeliness, and objective context – in our view represents
the most credible source (albeit imperfect, particularly given the European Union's failure to produce the
underlying due diligence by [***] of analysis in the record regarding EADS' ability to proceed with the
A350XWB programme in the absence of A350XWB LA/MSF.

own risks, costs and/or difficulties. 3067 In our view, any single one of t he potentially available
options would have been insufficient on its own to replace either the absolute monetary value 3068
or the relative financial security provided through the generally back -loaded, unsecured and
success-dependent repayment terms of A350XW B LA/MSF. This is especially so because none of
the potentially available funding options would have provided Airbus with the same significant
"risk-sharing" features as LA/MSF.3069 Moreover, we cannot assess the availability of each option in
a vacuum; imple mentation of one would have generally limited the availability of others. For
example, reducing EADS' cash reserves could have put EADS' credit rating at further risk. 3070
Enhancing RSP involvement could invite production disruptions or at least required addi tional or a
diversion of management resources, which could, in turn, have adversely impacted Airbus' other
aircraft programmes and/or possibly even EADS' expected cash flows. 3071 Cutting dividends may
have shaken investor confidence in the company, making rai sing debt or equity more difficult. 3072
Moreover, we recall that EADS' financial situation, at the time of launch through the Contracting
Period, displayed considerable problems.3073
6.1716. In sum, EADS would have faced significant challenges when assembling and
implementing a combination of the funding options that were potentially available to it for a
programme with the risk profile of the A350XWB programme. All this suggests that had EADS
pursued the A350XWB programme at any relevant time in the absence of either: ( a) assurances
from the member States regarding their willingness to help finance the programme or (b) the
A350XWB LA/MSF measures themselves, EADS would have had to accept that it may have been
putting the overall health of the company at greater and, we b elieve considerable, risk. This, in
turn, leads us to believe that it is highly likely that, in the absence of A350XWB LA/MSF, Airbus
would, to some degree, have had to make certain compromises with respect to the pace of the
programme and/or the features of the aircraft.3074

3067 See generally, above paras. 6.1588 et seq. ("LA/MSF negotiations") (discussing, inter alia, evidence
suggesting that EADS' desire for LA/MSF measures stemmed from the lack of other options), 6.1600 et seq.
("The UK Appraisal") (discussing certain EADS' ability to fund the A350XWB programme in the absence of
government assistance), 6.1613 et seq. ("The State Aid Decisions") (discussing, inter alia, challenges for
aerospace companies in accessing market financing for projects) and 6.1640 et seq. ("Ability to fund")
(discussing funding options and specific issues with such options).
3068 This accords with certain statements by the European Union itself regarding how the A350XWB
programme would have been funded in the absence of A350XWB LA/MSF. (See e.g. European Union's response
to Panel question No. 135, para. 118 (arguing that "with the assistance of its financial advisors, EADS would
put in place a mix of financing … that meets the financing requirement and maximises the profits of the
programme.") (emphasis added))
3069 We note that the European Union never argues that Airbus or EADS would have funded the
A350XWB programme in any part with financing instruments resembling the A350XWB LA/MSF measures in
the absence of A350XWB LA/MSF. We further recall that the A350XWB Business Case [***]. A350XWB
Business Case Presentation, (Exhibit EU-130) (HSBI), slide 66 (seventh bullet, second sub-bullet)
3070 See above para. 6.1676.
3071 See above para. 6.1646 et seq. ("Risk-sharing partners") (discussing, inter alia, risks associated
with enhanced use of RSPs).
3072 See above para. 6.1660 et seq. ("Reduction in shareholder distributions") (discussing, inter alia,
evidence regarding market reactions to companies that announce dividend reductions).
3073 See generally, above paras. 6.1550 et seq. ("Airbus/EADS financial position pre-launch"), 6.1580 et
seq. ("Airbus/EADS financial position post-launch") and 6.1600 et seq. ("The UK Appraisal") (discussing the UK
Appraisal that contains certain relevant HSBI assessments of EADS' financial position). See also above
para. 6.1689 (discussing significant limitations of the EADS Operating Plans' financial projections that existed
during these times).
3074 Making such compromises would, in our view, be a way to reduce costs and/or risk associated with
the programme. Further, we note several pieces of evidence in the record indicating how financial troubles may
delay an LCA programme. (See e.g. UK Appraisal, (Exhibit EU-(Article 13)-34) (HSBI), para. 16 (lines 2-4); UK
House of Commons Business, Innovation and Skills Committee, "Full Speed ahead: maintaining UK excellence
in motorsport and aerospace", Sixth Report of Session 2009-10, Report, formal minutes, and oral and written
evidence, 9 March 2010, (Exhibit USA-44), para. 18 (explaining that "{e}ach {LA/MSF} applicant has to
demonstrate … that government investment is essential for the project to proceed on the scale and in the
timeframe specified") (emphasis added); "Competitiveness of the EU Aerospace Industry with focus on
Aeronautics Industry, within the framework contract of sectoral competitiveness studies ENTR/06/054", Ecorys,
December 2009, (Exhibit USA-151), p. 27 (discussing the possibility of delays in A350XWB programme in light
of economic conditions brought about by the financial crisis); Pilita Clark and Peggy Hollinger, "Deferrals to
take toll on EAD's cash pile", Financial Times, December 2009, (Exhibit USA-153) (reporting that industry
analysts had doubts regarding EADS' ability to pursue its new LCA programmes); Standard & Poor's Global
Credit Portal Ratings Direct, Research Update: S&PCORRECT: EADS Rating Cut To 'A-/A-2', L-T Still On Watch

6.1717. Thus, on balance, although we believe that the alternative funding options available to
Airbus coupled with the strong strategic reasons it had for launching and developing a new
generation twin-aisle aircraft meant that the A350XWB prog ramme would have been sufficiently
attractive and, therefore, viable to Airbus even without A350XWB LA/MSF, we consider that the
evidence demonstrates that pursuing the programme in the absence of A350XWB LA/MSF would
have been a more complicated, more cos tly and riskier endeavour. On this basis, we find that, in
the absence of A350XWB LA/MSF, whether we measure its impact from the time of launch or from
the First Contract Date, the Airbus company that actually existed in the 2006 to 2010 period would
have been able to launch and bring to market the A350XWB or an A350XWB -type aircraft.
However, in our view, without A350XWB LA/MSF, the Airbus company that actually existed could
have pursued such a programme only by a narrow margin, with a high likelihood that it would, to
some degree, have had to make certain compromises with respect to the pace of the programme
and/or the features of the aircraft.
d Implication of our findings for determining whether a non -subsidized Airbus
operating in the "unlikely" counterf actual scenarios would have launched and
brought to market the A350XWB
6.1718. In our view, it follows from our findings with respect to the impact of A350XWB LA/MSF
on the subsidized Airbus entity's ability to launch and bring to market the A350XWB that a
non-subsidized Airbus operating in the "unlikely" counterfactual scenarios would have been unable
to launch the A350XWB or an A350XWB-type aircraft by the end of 2006.
6.1719. We recall that under both "unlikely" counterfactual scenarios a non -subsidized Airbus
operating in the 2001 to 2006 period would have been a "much weaker" company "with at best a
more limited offering of LCA models". A non -subsidized Airbus would not have launched the A300,
A310 and A340; and while both an A320 -type and an A330 -type aircraft might have been
launched sometime after 1987 and 1991, respectively, this would have been on the basis of no
previous LCA experience at all with respect to the former, and considerably less experience and
know-how than was the case with the original A330 in respect of the latter. In this regard, we note
that a subsidized Airbus actually needed 15 years of combined experience in the development,
production and sale of the its first two LCA, the A300 and A310 (launched in 1969 and 1978
respectively), before it was in a position to launch the A320 in 1984. Similarly, the A330 was
launched by a subsidized Airbus, in conjunction with the A340, three years later in 1987 – that is,
after 18 years of combined experience with its first two twin-aisle aircraft.
6.1720. In our view, these facts suggest that the A320 -type aircraft that a non -subsidized Airbus
could have been selling in 2006 would have been significantly less competitive to the version that
was being marketed at the same time by the subsidized Airbus. Likewise, to the extent that a non-
subsidized Airbus would have been able to launch an A330 -type aircraft before the end of 2006, it
is difficult to imagine, in the light of the actual experiences of a subsidized Airbus, how this would
have been possible only three years after the launch of an A320-type aircraft. This also leads us to
believe that any A330 -type aircraft that a non -subsidized Airbus could have been selling in 2006
would have been significantly less advanced to the version that was being marketed at the same
time by the subsidized Airbus.
6.1721. Turning to the A380, we recall that the Appellate Body rejected the European Union's
contention that a non -subsidized Airbus operating in the "unlikely" counterfactual scenarios would
have launched the A380 in 2000, even assuming that an A320-type and an A330-type aircraft had
been launched in 1987 and 1991, respectively. In our view, given what we know about the LCA
sector and the relevant aircraft actually developed by a subsidized Airbus, these findings are a
sufficient basis to conclude that a non -subsidized Airbus existing in the "unlikely" counterfactual
scenarios could not have launched an A380 -type aircraft even by the end of 2006. While it is
possible that a non -subsidized Airbus would have been a stronger competitor at the end of 2006
(when the A350XWB was actually launched) compared to the year 2000 (when the A380 was

Neg, On Further Restructure Delay, 12 October 2006, (Exhibit USA-511), p. 2 (discussing possibility of launch
delay); and A350XWB Business Case Presentation, (Exhibit EU-130) (HSBI), slide 90 (contemplating a [***]
even in the presence of the assumed receipt of the Launch Financing Instrument, but also outlining costs of
such a delay)).

actually launched)3075, it would still have lacked the relevant experience and financial resources
needed to launch a programme as risky and ambitious as the A380 actually was in the absence of
LA/MSF. In this regard, it is important to recall that, in the "unlikely" counterfactual scenarios, any
A320-type and A330-type aircraft would be, respectively, Airbus' first LCA of any kind and Airbus'
first twin-aisle aircraft. However, the A380 was actually launched by Airbus only after having
developed, brought to market and sold four models (including several derivatives) of subsidized
twin-aisle aircraft. The A380 was Airbus' fifth subsidized twin-aisle LCA and its development was
not free of significant complications and delays even for a producer as sophisticated as Airbus. In
our view, these facts suggest that a non-subsidized Airbus existing in the "unlikely" counterfactual
scenarios could not have launched an A380-type aircraft by the end of 2006.
6.1722. In the light of these considerations, it is apparent that a non -subsidized Airbus operating
in the "unlikely" counterfactual scenarios at the end of the 2006 would not have had the same
range and quality of aircraft on the market that the subsidized Airbus did at the time of the launch
of the A350XWB. It follows, therefore, that a non -subsidized Airbus operating in the "unlikely"
counterfactual scenarios would have had neither the technical or managerial expertise n or the
financial resources that were available to the Airbus company that actually existed at the end of
2006. Accordingly, a non-subsidized Airbus existing in the "unlikely" counterfactual scenarios could
not have launched the A350XWB or an A350XWB-type aircraft by the end of 2006.
6.1723. This conclusion is, we believe, confirmed when we consider the extent to which the
indirect effects of pre-A350XWB LA/MSF contributed to the ability of the subsidized Airbus
company that actually existed over the relevant perio d to undertake the A350XWB programme as
and when it did. We describe the nature and impact of these indirect effects in the analysis that
follows.
The impact of the indirect effects of pre -A350XWB LA/MSF (confirmation of our
conclusion with respect to the "unlikely" counterfactual scenarios)
6.1724. As explained earlier in this Report, the indirect effects of LA/MSF take the form of
"learning" effects, scope effects and financial effects. In this proceeding, the United States argues
that the A350XWB programme benefitted from the following types of indirect effects:
(1) financial effects, whereby the previous subsidized financing enables launches of
subsequent models by alleviating the capital burdens that would otherwise exist; (2)
the technology and learning effec ts, where there is a transfer of technology,
knowledge and production processes that benefit subsequent LCA programs and that
otherwise would not exist; (3) economies of scope and scale effects; and (4) revenue
effects in the form of sales of earlier subsi dized LCA that provide Airbus with revenue
to help fund new launches that would not have been launched in the absence of
LA/MSF to the earlier programs.3076
6.1725. In our analysis, we consider it most helpful to collectively refer to the "technology and
learning effects" as "Learning Effects", the "financial effects" and "revenue effects" identified by
the United States as "Financial Effects", and "economies of scope and scale" as "Scope and Scale
Effects". We consider each in turn.
a Learning Effects
6.1726. The parties have advanced a large volume of evidence regarding the extent to which the
A350XWB programme benefitted from the Learning Effects of pre -A350XWB LA/MSF arising from
Airbus' previous, subsidized LCA programmes. Such evidence may be conceived of as falling into

3075 Another possibility is, of course, that in the light of its less competitive product offering or offerings,
the commercial position of a non-subsidized Airbus could have deteriorated between 2000 and 2006. We recall
in this regard, that in one of the two "unlikely" counterfactual scenarios, a non-subsidized Airbus would have
been in competition with two other, established, United States LCA producers. We found in the original
proceeding that competition in this scenario could very well be "more fierce than competition between a
subsidized new entrant … and an incumbent producer". (Panel Report, EC and certain member States – Large
Civil Aircraft, paras. 7.1984 and 7.1995)
3076 United States' second written submission, para. 401. See also United States' first written
submission, paras. 375-378 (discussing indirect effects).

two general categories. First, the United States and the European Union present a series of
duelling expert reports addressing Learning Effects. 3077 Second, there is historical record evidence
in the form of press reports, the A350XWB Business Case, Airbus/EA DS presentations and other
materials. We examine each category of evidence in turn below with a view to determining the
extent to which the A350XWB programme benefitted from Learning Effects arising from
pre-A350XWB LA/MSF.
i Expert reports
A350XWB Chief Engineering Statement
6.1727. The A350XWB Chief Engineering Statement addresses three major relevant topics: (a)
challenges Airbus faces when designing a composite aircraft like the A350XWB; (b) the new
development processes that Airbus implemented to design and cons truct the A350XWB; and (c)
the A350XWB's technological novelties.
6.1728. The Statement explains in detail the systemic and novel challenges that Airbus faced
when constructing, for the first time, an LCA with a composite fuselage. The statement explains
that such use of composites presented major challenges for Airbus in designing the A350XWB. It
asserts that "{r}eaching the point where we could launch the A350XWB in 2006 was the result of
a two-year process of pre-launch research and development"3078 during which Airbus had engaged
in a "continuous development of composite -based technologies".3079 This development is defined
by a "step -by-step process" whereby Airbus begins with many different materials, tests them,
eliminates relatively poorly performing materials, and eventually chooses a final material for a
given component.3080 Such testing starts "with very simple structures such as rods, flat plates, or
flat sandwich structures" and then gradually moves onto more complex structures.3081
6.1729. The statement also describes the DARE programme that Airbus implemented in
developing the A350XWB, including novel ways in which Airbus employed RSPs. 3082 The DARE
programme is discussed in more detail in previous sections of this Report.3083
6.1730. The statement then describes certain A350XWB techno logical novelties. The statement
first explains that the "key novelties that make the A350XWB so innovative were selected between
the end of concept (MG3) (the date of which is HSBI) 3084 and the freeze of the aircraft's
architecture (MG5)"3085 (which began at an HSBI date but concluded in April 2009). 3086 The main
such novelty was the inclusion of CFRP wings and a pressurized CFRP fuselage. 3087 The statement
also explains that, largely as a result of such composite structures, the fuselage, wings, nose
section, and tai l section of the A350XWB employ novel designs and are manufactured using new
production methods.3088 Moreover, the A350XWB's cruising speed would be faster than previous
Airbus LCA, requiring a new aerodynamic shape for the wing. 3089 Further, the statement highlights
certain new features the A350XWB has, such as new wing -tip devices, and a new fuel system, and

3077 We note that such expert reports cite to historical record evidence at times to support their
arguments.
3078 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 15.
3079 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 15.
3080 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 22.
3081 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 22.
3082 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), paras. 35-58.
3083 For discussions regarding the DARE programme, see generally above paras. 6.498 et seq.
and 6.1548 et seq.
3084 The exact date is HSBI. A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI),
para. 43 (line 3).
3085 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 60.
3086 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 50. See also
Max Kingsley-Jones, "Paris Air Show: A350 XWB ready to rock", FlightGlobal News, 5 June 2009, (Exhibit USA-
428) (reporting that MG5 for the A350XWB-900 baseline variant was reached in late 2008, while Airbus was
expected to reach MG5 with respect to other A350XWB variants later).
3087 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 63.
3088 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), paras. 69-111.
3089 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 68.

a new -concept landing gear system. 3090 However, the statement concedes that the A350XWB's
high-lift system shares certain similarities with the A380's.3091
6.1731. The statement also describes novelties in the A350XWB's on -board systems. The
statement explains that these novelties, like the structural novelties, were selected between MG3
and MG5. 3092 The statement stresses that many systems novelties were required due to th e
knock-on effects of using a pressurized composite fuselage. 3093 The statement also indicates that
the A350XWB will use a 2H2E (2 hydraulic / 2 electric) system to control the aircraft, although it is
unclear to us to what extent the statement considers this is to be a novelty.3094
Boeing Schneider Declaration
6.1732. The United States relies heavily on the Boeing Schneider Declaration in this context. In
relevant part, the Schneider Declaration concedes that the A350XWB incorporates "a set of new
technologies, manufacturing tools, and production methods."3095 However, the declaration stresses
that Airbus' experience with prior LCA programmes would still be of critical importance to the
A350XWB development process in three main respects: (a) general commercial aircraft
development experience; (b) prior experience with composite structures; and (c) prior experience
with on-board systems.3096
6.1733. The Schneider Declaration first emphasizes the importance of prior commercial aircraft
programme experience when developing a new LCA. It explains that LCA are "incredibly complex
machines", and therefore "it is almost impossible to overstate the paramount importance of prior
commercial aircraft program experience, regardless of how many new technologies, new materials
and new designs may be utilized on the new aircraft program." 3097 The declaration asserts that
prior LCA programme experience is the only way for an LCA manufacturer to gain vital experience
with respect to:
(1) the commercial implications of technology trade -offs and integration across the
entire range of systems that go into a commercial aircraft; (2) the design, integration
and production of an aircraft at a reasonable cost and in a reasonable time, including
the efficient use of computer -aided design software and commercial -scale
manufacturing tools, and (3) the management of supplier, customer and shareholder
relationships.3098
6.1734. The Schneider Declaration indicates that the manner in which Airbus' experience with the
A380 programme benefitted the A350XWB programme provides an examp le of the value of prior
LCA programme experience. The declaration asserts that the A380 programme exposed flaws in
Airbus' design and development processes, allowing Airbus to learn from such mistakes and fix
them before they could manifest themselves in the complex A350XWB DARE process. 3099 The
declaration further stresses that "when a company sets an ambitious development schedule for a
new aircraft program {i.e. DARE} … it puts a premium on all of its prior program experience." 3100
This is so because "prior c ommercial program experience is precisely what gives a manufacturer
the ability (and the credibility to sell its ability) to utilize and integrate new technologies
successfully"3101 and "{u}nder tight program development timelines, every bit of prior commerci al
expertise matters immensely in helping engineers to select and assess the commercial viability of
technologies (both proven and new) to be included on the new platform."3102

3090 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), paras. 103-111.
3091 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 107.
3092 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 113.
3093 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), paras. 115-116.
3094 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 128.
3095 Schneider Declaration, (Exhibit USA-354) (BCI), para. 15.
3096 Schneider Declaration, (Exhibit USA-354) (BCI), para. 16.
3097 Schneider Declaration, (Exhibit USA-354) (BCI), para. 17.
3098 Schneider Declaration, (Exhibit USA-354) (BCI), para. 18.
3099 Schneider Declaration, (Exhibit USA-354) (BCI), para. 19.
3100 Schneider Declaration, (Exhibit USA-354) (BCI), para. 21.
3101 Schneider Declaration, (Exhibit USA-354) (BCI), para. 20.
3102 Schneider Declaration, (Exhibit USA-354) (BCI), para. 21.

6.1735. The Schneider Declaration also stresses the importance of Airbus' prior experience with
composite structures. The declaration concedes that the A350XWB is the first Airbus LCA "to utilize
a composite fuselage and composite -metallic hybrid wing." 3103 Thus, Boeing "appreciate{s} that
significant design and manufacturing work is required to r esolve the … challenges created by the
decision to use composite technology in these applications." 3104 However, the declaration claims
that even when designing a composite fuselage, the experiences gained from manufacturing
metallic fuselages is still useful because "it provides the baseline against which to compare the
advantages and disadvantages of composites." 3105 Moreover, the declaration asserts that
Airbus' prior experience with composite structures would nonetheless be of significant value to
Airbus in t he A350XWB programme. 3106 The declaration notes that the A350XWB would build on
Airbus' evolutionary track of increased use of composite structures: (a) composite leading edges of
tailfins on the A300; (b) composite rudders on the A300 and A310 and composite vertical
stabilizers on the A310-300; (c) all-composite tail on the A320; (d) composite horizontal stabilizer
on the A340 and carbon-fibre keel beam and aft pressure bulkhead on the A340 -500/600; and (e)
composite vertical tail, horizontal stabilizers, cen tre wing box, aft pressure bulkhead, and rear
fuselage sections on the A380. 3107 The declaration asserts that the A380's composite structures,
given their large size and diversity, gave Airbus "its most significant commercial composites
experience" because Ai rbus had learned to "not just to design very large -scale composite parts,
but also to manufacture such large composite structures at a reasonable cost", and developed "'in
flight'" data regarding the performance of such composite structures in addition to the service
performance data it accumulated through its use of composites on previous LCA. 3108 The
declaration also specifically claims that the A350XWB's single -piece composite engine inlet [***],
and Airbus gained experience with certain tools used in A350X WB composite-part production from
its A380 programme. 3109 Finally, the declaration claims that certain Airbus production facilities
have specialized in certain composite production tasks over time, and have used such specialized
knowledge in connection with t he A350XWB programme. For example, the Airbus [***] built the
composite centre wing box for the A380 and will do the same for the A350XWB.3110
6.1736. The Schneider Declaration also identifies A350XWB systems and components that it
claims are derived from those used on prior Airbus LCA. These include the [***]3111, certain
aerodynamic systems such as the [***]3112, and certain aspects of the nose section (e.g. [***],
a 6-pane flight deck window system (A380), [***], and a [***].3113 The statement also identifies
certain other systems, structures, and development processes used in connection with the
A350XWB that it claims benefitted from Airbus' prior LCA experience.3114
Boeing Bair Declaration
6.1737. The United States submits the Declaration of Michael Bair, the Senior Vice President of
Marketing for Boeing Commercial Aircraft, asserting, in relevant part, that it is extremely difficult
for potential new entrants in the LCA market (i.e. Bombardier, COMAC, Mitsubishi Aircraft
Corporation, Sukhoi, and United Aircraft Corporation) to convin ce customers to purchase their LCA
because, lacking a track record of success, such new entrants' LCAs are perceived as being
relatively more risky.3115
A350XWB Chief Engineering Rebuttal
6.1738. In response to the Schneider Declaration, the European Union produces a rebuttal
statement by Mr Gordon McConnell and his colleagues at Airbus engineering (the A350XWB Chief

3103 Schneider Declaration, (Exhibit USA-354) (BCI), para. 22.
3104 Schneider Declaration, (Exhibit USA-354) (BCI), para. 22. (footnote omitted)
3105 Schneider Declaration, (Exhibit USA-354) (BCI), para. 29.
3106 The Schneider Declaration asserts that Boeing drew heavily on its own prior experiences with
composite structures when manufacturing the 787. (Schneider Declaration, (Exhibit USA-354) (BCI), para. 22)
3107 Schneider Declaration, (Exhibit USA-354) (BCI), paras. 23-24.
3108 Schneider Declaration, (Exhibit USA-354) (BCI), paras. 24 and 27.
3109 Schneider Declaration, (Exhibit USA-354) (BCI), para. 26.
3110 Schneider Declaration, (Exhibit USA-354) (BCI), para. 28.
3111 Schneider Declaration, (Exhibit USA-354) (BCI), para. 31.
3112 Schneider Declaration, (Exhibit USA-354) (BCI), para. 32.
3113 Schneider Declaration, (Exhibit USA-354) (BCI), para. 33.
3114 Schneider Declaration, (Exhibit USA-354) (BCI), paras. 31-38.
3115 Bair Declaration, (Exhibit USA-339) (BCI), para. 30.

Engineering Rebuttal ).3116 The rebuttal asserts that the Schneider Declaration's assertions
regarding the importance of Airbus' prior LCA programme experien ce when producing the
A350XWB are flawed for two main reasons. First, it claims that even if Airbus did benefit
somewhat from the use of components and systems derived from those previously used on prior
Airbus LCA, "they are of minor significance compared to the biggest technological challenge … of
the A350 XWB: its innovative composite fuselage, wing and related systems." 3117 Second, the
rebuttal argues that Mr Schneider overestimates the benefits of Airbus' "general" prior LCA
experience because such experi ence was largely not relevant when building the composite
structures of the A350XWB. 3118 This is so because composites have different characteristics than
metals3119, leading to different design and production challenges.3120
6.1739. The rebuttal first addresses the relev ance of prior LCA programme experience in
connection with the A350XWB. It asserts that Airbus never recorded "in flight" data regarding the
A380's pressurized composite structures, and therefore Airbus could not have benefitted from such
information as the Schneider Declaration claims it did. 3121 It notes that the use of a pressurized
fuselage is a first for Airbus, the addition of which presented significant engineering challenges,
and that previous composite structures on Airbus LCA were only non -pressurized.3122 Such new
experiences with composites called for new engineering skills. 3123 Such experiences made the
Airbus "engineers' previous experience with metallic aircraft considerably less relevant for the
design, integration and production of the A350 XWB."3124
6.1740. The rebuttal statement then discusses the Schneider Declaration's more specific alleged
links between the A350XWB and previous Airbus LCA programmes. We consider the following
discussions particularly relevant:
 The statement addresses Mr Schneider's content ion that the A350XWB derived its flight
control architecture from the A380, and the United States' implication that the A350XWB's
2H2E system was derived from the A380's. The statement claims that the A380 had a 2H2E
design, but the A350XWB uses a "2 hydra ulic/1 electric (2H/1E)" design. 3125 Thus, the
rebuttal statement argues that the A350XWB does not "reuse" the A380 system. However,
the statement concedes that the United States is correct that the A350XWB's hydraulics will
operate at 5,000 psi, the same as on the A380.3126
 The statement argues that the A350XWB wing design did not benefit from the A380's. It
claims that the A350XWB's wings are characterized by a specific and unique high aspect
ratio and low taper ratio, thus resulting in a new aerodynamic shape, developed using
methods unavailable when Airbus designed the A380.3127
 The statement responds to the argument that the A350XWB programme benefitted from the
lessons Airbus learned from its experience with cracks in the A380 wings. It indicates that
the lessons were irrelevant because the problems "were specific to the A380 design" and
because the cracks in the A380's wings were discovered only after the A350XWB design had
been frozen.3128

3116 A350XWB Chief Engineering Rebuttal, (Exhibit EU-128) (BCI/HSBI), para. 1.
3117 A350XWB Chief Engineering Rebuttal, (Exhibit EU-128) (BCI/HSBI), para. 3.
3118 A350XWB Chief Engineering Rebuttal, (Exhibit EU-128) (BCI/HSBI), paras. 4-5.
3119 See generally NASA contractor report 159296, "Design considerations for composite fuselage
structure of commercial transport aircraft", March 1981, (Exhibit EU-187).
3120 A350XWB Chief Engineering Rebuttal, (Exhibit EU-128) (BCI/HSBI), paras. 5-8.
3121 A350XWB Chief Engineering Rebuttal, (Exhibit EU-128) (BCI/HSBI), para. 9.
3122 A350XWB Chief Engineering Rebuttal, (Exhibit EU-128) (BCI/HSBI), para. 10. We note that the fact
that all pre-A350XWB Airbus LCA composite structures were non-pressurized renders the statement's previous
assertion that Airbus gathered no in-flight data regarding the A380's pressurized composite structures hollow,
and does not therefore rebut the Schneider Declaration's assertion that Airbus has been able to gain in-flight
data regarding the performance of composite structures, generally, from its A380 experience.
3123 A350XWB Chief Engineering Rebuttal, (Exhibit EU-128) (BCI/HSBI), para. 12.
3124 A350XWB Chief Engineering Rebuttal, (Exhibit EU-128) (BCI/HSBI), para. 14.
3125 A350XWB Chief Engineering Rebuttal, (Exhibit EU-128) (BCI/HSBI), para. 17. (emphasis original)
3126 A350XWB Chief Engineering Rebuttal, (Exhibit EU-128) (BCI/HSBI), fn 22.
3127 A350XWB Chief Engineering Rebuttal, (Exhibit EU-128) (BCI/HSBI), para. 20.
3128 A350XWB Chief Engineering Rebuttal, (Exhibit EU-128) (BCI/HSBI), para. 21.

 The statement argues that the only similarity between the A380 and the A3 50XWB
composite engine inlets "is the single piece design concept." 3129 However, the two use
different materials and design solutions, including the use of materials on the A350XWB's
inlet that received patents.
 The statement argues that the composite centre wing boxes of the A350XWB and the A380
are dissimilar because they have a different architecture, material composition, size, and
features.3130
 The statement argues that the United States exaggerates the extent to which the A350XWB
benefitted from certain ae rodynamic systems used on the A380, specifically the [***]
which the statement concedes is similar to the A380's.3131
 The statement claims that the nose sections of the A350XWB and A380 are different
because they are made of different materials. 3132 Further, the statement argues that the
only similarity between the flight deck systems of the two aircraft is the number of window
panes, i.e. six. However, the windows' designs and functionalities are different, most notably
that the A350XWB's windows do not open, wh ereas the A380's do. 3133 Moreover, although
the A350XWB's forward -swinging nose wheel is standard on Airbus and Boeing aircraft, it
required re-design for the A350XWB.3134
 The statement argues that the A350XWB's advanced systems and flight deck components
are ei ther commercially available from suppliers (including the head -up display, dual
integrated standby instrument system, and on -board airport navigation system) or standard
on most Boeing and Airbus LCA (including the "brake to vacate" function, fly -by-wire,
side-stick controls, internal displays, pilot interface with cursor control device and keyboard,
features that comprise the "common flight deck" used on other Airbus LCA).3135
 The statement asserts that certain tools and facilities that Airbus used to design the
A350XWB are owned by other entities, and are also used by other industry sectors, such as
the automobile industry in the case of wind tunnels.3136
 The statement claims that a number of other A350XWB systems that the United States
mentions in this context have "nothing in common with the corresponding systems on the
A380".3137 These include the variable frequency generators, which have different power,
systems architecture, and were developed by a different supplier than the system used on
the A380).3138 Further, the "integrated modular avionics system, interactive cockpit concept
with modular systems, and the Air Data and Inertial Reference System (ADIRS) on the
A350XWB differ from those on the A380."3139 For example, the A350XWB ADIRS system was
developed by a different supplier than it was for the A380. Moreover, the cockpit screens are
larger on the A350XWB than on the A380, and the A350XWB uses a different systems
architecture including a new Information System Architecture.3140
 The statement analyses the A350XWB's passenger/crew oxygen system, explaining that it
uses a different tank layout throughout the cabin than does the A380's.3141
 The statement responds to the Schneider Declaration's contention that Airbus reorganized
its design methods as a result of its proble ms with the A380. The statement explains that

3129 A350XWB Chief Engineering Rebuttal, (Exhibit EU-128) (BCI/HSBI), para. 23. (footnote omitted)
3130 A350XWB Chief Engineering Rebuttal, (Exhibit EU-128) (BCI/HSBI), paras. 24-25.
3131 A350XWB Chief Engineering Rebuttal, (Exhibit EU-128) (BCI/HSBI), para. 26.
3132 A350XWB Chief Engineering Rebuttal, (Exhibit EU-128) (BCI/HSBI), para. 27.
3133 A350XWB Chief Engineering Rebuttal, (Exhibit EU-128) (BCI/HSBI), para. 27.
3134 A350XWB Chief Engineering Rebuttal, (Exhibit EU-128) (BCI/HSBI), para. 28.
3135 A350XWB Chief Engineering Rebuttal, (Exhibit EU-128) (BCI/HSBI), para. 29 and fn 41.
3136 A350XWB Chief Engineering Rebuttal, (Exhibit EU-128) (BCI/HSBI), para. 30.
3137 A350XWB Chief Engineering Rebuttal, (Exhibit EU-128) (BCI/HSBI), para. 31.
3138 A350XWB Chief Engineering Rebuttal, (Exhibit EU-128) (BCI/HSBI), para. 31.
3139 A350XWB Chief Engineering Rebuttal, (Exhibit EU-128) (BCI/HSBI), para. 31. (footnote omitted)
3140 A350XWB Chief Engineering Rebuttal, (Exhibit EU-128) (BCI/HSBI), para. 31.
3141 A350XWB Chief Engineering Rebuttal, (Exhibit EU-128) (BCI/HSBI), para. 31.

the A380 and A350XWB programmes used different versions of the relevant design
software, which is commercially available, but adapted specifically for the A350XWB
project.3142 The rebuttal statement also explains that the A350XWB is the first Airbus LCA to
make use of advanced computational fluid dynamics software codes, and that Airbus used
new tools to develop the A350XWB due to its new composite structures.3143
 The statement addresses the A350XWB's [***]3144, which th e statement concedes were
derived from the A380 and A340.3145 The statement, however, asserts that no technology or
component has a "1:1 application" between any two aircraft because all aircraft differ to a
certain degree.3146
A350XWB Production Statement
6.1741. The European Union also produces a statement by Philippe Launay, Vice President Head
of A350XWB Programme Management (the A350XWB Production Statement). 3147 The A350XWB
Production Statement: (a) "outlines … the innovative steps Airbus took to implement the
production of the A350 XWB, and outlines how these compare to, and differ from, the production
of previous, non -composite-based Airbus aircraft" 3148; and (b) "describes in more detail the
differences in production systems and processes between Airbus' Final Assembl y Line ('FAL') and
Sub-Assembly Lines ('SAL') for the A350 XWB and those of earlier Airbus programmes". 3149 The
A350XWB Production Statement asserts that such innovations and differences in A350XWB
production were necessary largely because of the aircraft's h eavy use of composite structures and
Airbus' desire to accelerate the A350XWB's production rate relative to predecessor LCA
programmes.3150
6.1742. The production statement asserts that Airbus and its suppliers invested heavily in new
buildings and infrastructure in order to build the A350XWB. More specifically, the production
statement claims that "Airbus invested in an entirely new FAL, and also made significant
investments in its sub-assembly lines. Airbus and key Risk -Sharing Partners built 10 new factories
in Europe and the United States, and made extensions to three existing facilities to accommodate
the A350 XWB FAL and SAL" 3151, at a significant cost. 3152 The production statement claims that
with "very few exceptions", Airbus is using different facilities to construc t the A350XWB than it did
for the A320, A330, A340, or A380 programmes. 3153 Airbus also invested heavily in new testing
facilities for the A350XWB.3154 The production statement also stresses that Airbus and its suppliers
invested heavily in new jigs and tools to produce the composite structures for the A350XWB 3155,
and describes how Airbus and certain of its suppliers had to implement new design and production
processes with respect to the A350XWB and its composite structures.3156
6.1743. The production statement also asserts that, "{i}n order to continuously reduce costs and
reduce lead time for supply of aircraft sub -components, Airbus has changed its supplier
relationships."3157 With respect to the A350XWB programme, this "evolution" of relationships
resulted in [***] RSPs and an [***] of suppliers. 3158 Such new arrangements reduce Airbus'
costs and increases efficiency. 3159 The statement also explains that Airbus used much more

3142 A350XWB Chief Engineering Rebuttal, (Exhibit EU-128) (BCI/HSBI), para. 32.
3143 A350XWB Chief Engineering Rebuttal, (Exhibit EU-128) (BCI/HSBI), paras. 33-34.
3144 A350XWB Chief Engineering Rebuttal, (Exhibit EU-128) (BCI/HSBI), para. 35.
3145 A350XWB Chief Engineering Rebuttal, (Exhibit EU-128) (BCI/HSBI), para. 35.
3146 A350XWB Chief Engineering Rebuttal, (Exhibit EU-128) (BCI/HSBI), para. 35.
3147 A350XWB Production Statement, (Exhibit EU-129) (BCI/HSBI).
3148 A350XWB Production Statement, (Exhibit EU-129) (BCI/HSBI), para. 6.
3149 A350XWB Production Statement, (Exhibit EU-129) (BCI/HSBI), para. 7.
3150 A350XWB Production Statement, (Exhibit EU-129) (BCI/HSBI), paras. 2-5 and 10-11.
3151 A350XWB Production Statement, (Exhibit EU-129) (BCI/HSBI), para. 12.
3152 A350XWB Production Statement, (Exhibit EU-129) (BCI/HSBI), para. 13 (line 1).
3153 A350XWB Production Statement, (Exhibit EU-129) (BCI/HSBI), para. 13.
3154 A350XWB Production Statement, (Exhibit EU-129) (BCI/HSBI), para. 21.
3155 A350XWB Production Statement, (Exhibit EU-129) (BCI/HSBI), paras. 22-26.
3156 A350XWB Production Statement, (Exhibit EU-129) (BCI/HSBI), para. 29.
3157 A350XWB Production Statement, (Exhibit EU-129) (BCI/HSBI), para. 37.
3158 A350XWB Production Statement, (Exhibit EU-129) (BCI/HSBI), para. 37 and accompanying graphic.
3159 A350XWB Production Statement, (Exhibit EU-129) (BCI/HSBI), paras. 38 and 40.

procurement than it had in previous programmes, and the RSP projects were "[***]" than those
in previous programmes.3160 Further, Airbus' suppliers even "[***]" in certain instances.3161
6.1744. Further, the production statement also claims that "Airbus developed new streamlined
assembly processes for the A350 XWB." 3162 Such processes have required certain Airbus suppliers
to invest in their own supply chains and production processes which employ certain innovative
technologies.3163 The production statement claims that one supplier's experience manufacturing
787 parts facilitated the manufacturing of the A350XWB's composite fusel age.3164 Further, the
production statement claims that the relatively heavy use of composite structures in the A350XWB
required Airbus and its suppliers to change existing production facilities at both the sub -assembly
and final-assembly levels, making use of new production methods.3165 Moreover, final assembly of
the A350XWB will occur in a new facility in Toulouse, France, using a streamlined assembly
process designed to allow enhanced production rates relative to its earlier LCA programmes.3166
ii Historical record evidence
6.1745. With respect to historical record evidence, we first note the following arising before the
launch of the A350XWB:
 A September 2005 press article by NetComposites reporting that the composite engine inlet
designed for the A380 was to be modified and used in the A350.3167
 A September 2006 Bloomberg News article entitled "Airbus Vows Computers Will Speak
Same Language After A380 Delay". It reports that:
In a two-page memo to Airbus employees dated Sept. 11, {Airbus CEO} Streiff,
52, highlighted software as a key challenge in fixing wiring problems that were
"even more complex that the company envisaged earlier."
Airbus has begun putting in place "electrical engineering IT tools" common to
the French and German teams and training the Hamburg engineers on them, he
wrote in the memo obtained by Bloomberg News. "Together, as 'one Airbus,' we
will overcome these challenges," he wrote.3168
 An October 2006 BusinessWeek article reporting that the reason behind the significant A380
delays was that Airbus facilities in Germany and France working on the project were using
incompatible design software. Further, the report indicates that "{a}nother stumbling block
was the lack of a full digital mock-up of the A380."3169
6.1746. Certain information, including HSBI information, conta ined in the A350XWB Business
Case supports the position that Airbus expected to reap, and to some extent already had reaped,

3160 A350XWB Production Statement, (Exhibit EU-129) (BCI/HSBI), para. 42.
3161 A350XWB Production Statement, (Exhibit EU-129) (BCI/HSBI), para. 49.
3162 A350XWB Production Statement, (Exhibit EU-129) (BCI/HSBI), para. 50.
3163 A350XWB Production Statement, (Exhibit EU-129) (BCI/HSBI), paras. 56 and 62.
3164 A350XWB Production Statement, (Exhibit EU-129) (BCI/HSBI), para. 58. The United States has
confirmed that this supplier helped produce the 787's fuselage, wing, and pylon, all of which contain composite
materials. (United States' response to Panel question No. 156, para. 112). Although the 787 is not an Airbus
LCA programme affected by pre-A350XWB LA/MSF, this statement supports the position that companies can
and do gain experience with composite structures useful on subsequent LCA programmes even when such
LCAs materially differ.
3165 A350XWB Production Statement, (Exhibit EU-129) (BCI/HSBI), paras. 70 and 73-112.
3166 A350XWB Production Statement, (Exhibit EU-129) (BCI/HSBI), paras. 100-112.
3167 "Airbus' "Silent Secret" to Engine Noise Reduction", Netcomposites, 2 September 2005,
(Exhibit USA-464).
3168 Andrea Rothman, "Airbus vows computers will speak same language after A380 delay", Bloomberg,
28 September 2006, (Exhibit USA-430).
3169 Carol Matlack, Stanley Holmes and Gail Edmondson, "Wayward Airbus", Businessweek,
23 October 2006, (Original Exhibit US-299), (Exhibit USA-147).

Learning Effects from previous Airbus LCA programmes in connection with a variety of issues. 3170
We further note the following relevant evidence arising after launch:
 A December 2006 Flug Revue article quoting Airbus then -CEO Christian Streiff as stating
that, in the wake of the A380 wiring design problems, Airbus would harmonize its design
software.3171
 A December 2006 EADS press release s tating that the A350XWB "will have handling and
flight deck operational commonality allowing airlines to benefit from the Airbus family
concept of cross crew qualification and mixed fleet flying."3172
 A December 2006 Airbus presentation indicating that the A3 50XWB will have: (a) "A380
Systems and Cockpit commonality"; (b) "New systems" that are "Derived from the A380";
(c) 2 hydraulic / 2 electric (2H2E) flight control architecture that had been "Proven in A380
flight-test"; (d) "A380 Interactive Cockpit Conce pt with modular server systems", and
explaining that the A350XWB's "advanced systems & flight deck", including the cockpit's
heads-up display, dual integrated standby instrument system, vertical display, on -board
information system, brake to vacate functio n, and the on -board airport navigation system
were "Building on A380 experience".3173
 A January 2007 Aero-News Network article reporting that wiring issues were responsible for
delays in the A380 project, and that such wiring issues arose from Airbus' promise to its
customers that they could customize entertainment systems for each aircraft. 3174 Other
evidence discussed below refers to the A350XWB's relatively limited customization options.
 A January 2007 Commercial Aviation Report article reporting that the A38 0 delays were
caused by Airbus facilities using incompatible software, and that Airbus was trying to
improve and streamline its operations as a result.3175
 A June 2007 Airbus presentation regarding the A350XWB indicating that Airbus had received
composite win g experience from the A380 and composite fuselage experience from the
A340-500/600 and A380 and stating: "Advanced cockpit based on A380 design".3176

3170 See e.g. A350XWB Business Case Presentation, (Exhibit EU-130) (HSBI), slides 11 (referencing the
use of "A380 cockpit/systems"), 20 (referencing three "A380 systems solutions re-used for A350" (i.e. the
[***]) and one A380 system that was rejected for use on the A350), 23 (referencing the "A380 interactive
cockpit"), 32 (first bullet in text box), 43 (two text boxes at bottom of slide, bolded titles and first bullets in
each), 45 (second bullet, third sub-bullet), 55 (first bullet), 57 (third bullet, second sub-bullet), 78 (first and
fourth shaded text boxes from top of slide), 80 (text accompanying first and second underlined headers), 82
(text accompanying "(a)" subparagraph), and 84 (text accompanying "(a)" subparagraph).
3171 Sebastian Steinke, "A380 cable problems threaten Airbus", Flug Revue, December 2006, (Original
Exhibit US-298), (Exhibit USA-149).
3172 EADS Press Release, "A350 XWB Family Receives Industrial Go-Ahead", 1 December 2006,
(Exhibit USA-145).
3173 "Taking the lead: the A350 XWB", EADS/Airbus presentation, 4 December 2006, (Exhibit EU-106),
slides 2, 4, 10, and 11. The United States apparently submitted parts of this presentation in three different
exhibits. ("Building on A380 experience", slide 11 from "Taking the lead: the A350 XWB" EADS/Airbus
presentation, 4 December 2006, (Exhibit USA-144/USA-439 (exhibited twice)); and "A350 XWB systems",
slide 10 from "Taking the lead: the A350 XWB", EADS/Airbus presentation, 4 December 2006, (Exhibit USA-
366)). The European Union later explained that such exhibits were all parts of this single presentation, and
submitted it in complete form as Exhibit EU-106. This presentation is undated but both parties date it to
December 2006.
3174 "Airbus Says Wiring Issues Resolved For A380", Aero-news Network, 23 January 2007,
(Exhibit USA-146).
3175 "Noel Forgeard and the A380", Commercial Aviation Report, 15 January 2007, (Original Exhibit US-
297), (Exhibit USA-148), pp. 10-11.
3176 Fabrice Brégier, Chief Operating Officer, Airbus, "Power8 and A350XWB Updates", slides from EADS
presentation, Paris, 20 June 2007, (Exhibit USA-143). The European Union asserts that the Panel should not
rely on this presentation because it contains only "generic headings". (European Union's first written
submission, para. 1174). We see no reason to think that the relevant statements in this exhibit are untrue
simply because they could have been more detailed. The European Union also argues that Airbus gained no
relevant "CFRP experience" from the A380 composite wing. (European Union's first written submission,
para. 1185). The European Union asserts that the A380's wing is not made of composite materials. Rather,

 A July 2007 FlightGlobal News article reporting that:
Airbus says it will further develop the integrated modular avionics (IMA) concept
developed for the A380 …
…
As for the A350 flightdeck appearance, Airbus says: "We'll probably have
slightly larger information displays at the side, but otherwise it is very much an
A380 cockpit."3177
 A September 2007 FlightGlobal News article reporting that Airbus had recently changed the
design of the A350XWB's nose to "a configuration derived from the A380 with a forward -
mounted nosegear bay and new cockpit window -glazing." Also, the new design would have
"a more conventional si x-panel flightdeck windscreen similar to its big sister {i.e. the
A380}."3178
 A September 2007 Airbus presentation regarding the A350XWB. One slide is dedicated to
explaining Airbus' "step by step gain of composite experience", and referencing "primary
structures" on the A310 -300, A320, A330/A340, A380, and A350XWB. 3179 It also indicates
that the A350XWB will have a "A380 -type Nose Landing Gear bay" and that the A350XWB
derived its interactive cockpit and avionics from the A380, generally stresses the "A380
experience" coupled with "enhanced functionalities", and notes that the "Advanced cockpit
based on A380 design with dual HUD option". The exhibit also indicates that Airbus
conducted certain wind-tunnel tests at Airbus facilities.3180
 An October 2007 Airbus presen tation describing the "{e}volution composite application at
Airbus". The exhibit describes composite structures on the A300, A310, A320, A330/A340,
A340-600, A380 and A350. It also states that "{d}uring the past 30 years, AIRBUS has
continuously and progressively introduced composite technology as a consequence of
successful experience accumulated."3181
 A 2008 Airbus presentation regarding Airbus' experience with composites. The presentation
emphasises Airbus' "step by step gain of composite experience" with primary structures. The
presentation indicates that Airbus' gains in this area included experiences with the A310 -
300, A320, A330/A340, A340-600, and A380. Among the presentation's conclusions are that
Airbus has "Long -term and unique experience in composit e technologies" and has
"Comprehensive experience of primary composite parts: design, certification, and
maintenance".3182

only the A380's centre wing box connecting the wing to the fuselage was made of composites.
(European Union's first written submission, fn 1549). The United States acknowledges this as true, but asserts
that the exhibit's reference to composite wing experience gained from the A380 should be read as referring to
the experience with this wing box, rather than the entire wing. (United States' second written submission,
fn 919). We accept the United States' explanation, rather than believe that Airbus had mistakenly believed that
the A380 had a composite wing when authoring this presentation. We further note, however, that at least two
other Airbus presentations indicate that the A380 had composite wing ribs in addition to a composite centre
wing box. (Olivier Criou, "A350XWB Family and Technologies", Airbus Presentation at Hamburg University of
Applied Sciences, 20 September 2007, (Exhibit USA-463); and "Evolution composite application at Airbus",
slide from "Composite Training", Airbus presentation, VPD Conference, 17 October 2007, (Exhibit USA-493))
3177 David Learmount, "A350 avionics to expand on A380 systems", Flightglobal News, 24 July 2007,
(Exhibit USA-471).
3178 Max Kingsley-Jones, "Airbus confirms switch to A380 style nose for A350XWB", Flight Global,
21 September 2007, (Exhibit USA-467).
3179 The slide also includes a reference to another pre-A350XWB LCA but its name is illegible.
3180 Olivier Criou, "A350XWB Family and Technologies", Airbus Presentation at Hamburg University of
Applied Sciences, 20 September 2007, (Exhibit USA-463). This exhibit does not appear to contain the date to
which the United States ascribes to it, although the European Union does not contest that date.
3181 "Evolution composite application at Airbus", slide from "Composite Training", Airbus presentation,
VPD Conference, 17 October 2007, (Exhibit USA-493). (emphasis original)
3182 Guy Hellard and Dr Roland Thévenin, "Composites in Airbus: a long story of innovations and
experiences", Airbus presentation, Global Investor Forum 2008, (Exhibit EU-189/USA-440 (exhibited twice)),

 A January 2009 Associated Press article quoting Airbus then-CEO Tom Enders as saying that
Airbus had learned some "'tough lessons'" fro m previous and A380 programmes that had
put Airbus "'in a much stronger position'".3183
 A June 2009 Avionics Today article reporting that "{m}any of the avionics systems on the
A350 represent a technology continuum from systems developed for the A380, its lar ger
sister, which also will contribute to earlier systems maturity." The article also reports that
several specific A350XWB systems were derived from the A380, such as the A350XWB's
integrated modular avionics (IMA) platform, the weather radar, and the Avi onics Data
Network. It also contains statements from Greg Albert, Vice President for Airbus Programs at
Honeywell Aerospace, explaining that, regarding Honeywell's activities in connection with the
A350XWB, the company viewed its experience with the A380 a s a "'stepping stone'", and
that "'{t}he goal of maintaining hardware commonality between the A380 and A350 – that
has a lot of benefits in running an A350 development program and focusing on early
maturity'". He is also quoted as saying that, as between t he A380 and A350XWB, "'we'll
keep the hardware common at the end of the day'" despite differences between the two
aircraft.3184
 A June 2009 FlightGlobal News article indicating that A350XWB "integration testing will be
carried out using … development simulato rs along similar lines to the A380 programme",
and that A350 programme chief Didier Evrard stated that Airbus "'decided to go for a lot of
reuse'" with respect to the A350XWB's systems. It further indicates that the A350XWB's
flight control "'2H2E' (two hy draulic and two electric) architecture" had been "developed for
the A380, including the dual 345bar … hydraulic system." Further, the report states that the
A350XWB's "air system … is evolved from earlier Airbus aircraft" and the "'brake to vacate'
autobrake function under development for the A380 will also be standard."3185
 A December 2009 Financial Times article quoting EADS then -CEO Louis Gallois as stating
that the extensive production problems that Airbus experienced in connection with the A380
was "'a le sson learned for the A350'" and that customer modification options for the A350
will be limited.3186
 A May 2010 FlightGlobal News article, entitled "A350 is a study in lessons learned by Airbus
on the A380". The article reports that "Airbus is trying to avoid the mistakes of the A380". It
also reports that:
Perhaps its most direct application of its lessons learned on A380, Airbus is
building a physical mockup of the A350 in addition to the digital mock up (DMU)
built with CATIA V5 to validate in reality what has been designed in virtual
reality. When building the A380, differing versions of CATIA produced
mismatching wire bundles throughout the superjumbo, requiring early aircraft
to be custom wired.
In this same vein, Airbus has moderated itself on the cust omization of the A350
cabin … .3187
 A January 2012 Wall Street Journal article quoting Airbus then-COO Fabrice Bregier that the
main risks to the A350XWB programme arose from small suppliers faced with the need to

slides 4-6 and 24 (emphasis original). The document is undated, but both parties date the presentation to
2008.
3183 Emma Vandore, "Airbus A350 development on track" The Associated Press, 14 January 2009,
(Exhibit USA-139).
3184 Bill Carey, "A350: Extra Wide Responsibility" Avionics Magazine, 1 June 2009, (Exhibit EU-406/USA-
429 (exhibited twice)). The document is undated but the European Union does not contest the date the
United States' ascribes to it.
3185 Max Kingsley-Jones, "Paris Air Show: A350 XWB ready to rock", FlightGlobal News, 5 June 2009,
(Exhibit USA-428).
3186 Pilita Clark and Peggy Hollinger, "Gallois unperturbed by pessimists", Financial Times,
December 2009, (Exhibit USA-150).
3187 John Ostrower, "A350 is a study in lessons learned by Airbus on A380", Flightglobal News,
11 May 2010, (Exhibit USA-432).

manufacture complex components, and reports t hat Airbus had delayed the A350XWB
programme six months to ensure that, unlike the A380, the aircraft is "mature before it gets
to the industrial stage". The article also quotes Mr Bregier as saying that "'{w}e learned our
lessons from the A380'".3188
 A February 2012 Reuters article quoting Airbus then -CEO Tom Enders as stating: "'Are we
learning from this? Absolutely. We are taking lessons from the A380 programme for the
A350 programme'" and that Airbus has "'a thorough investigation underway on how we
could make these mistakes in the first place and to eradicate the sources of the
mistakes'".3189
 An April 2012 Airbus presentation espousing the A350XWB's "Commonality and Innovations"
and stating that the A350XWB had the "{b}enefit of A380 evolutions".3190
 An undated article taken from the Airbus website in May 2012 indicating that the
Airbus' "Nantes {facility} specialises in centre wing boxes for all Airbus aircraft, including the
A380 and A350 XWB. This site also is a leader in the manufacturing of structural parts in
carbon fibre reinforced plastic, such as the keel beam for the A350 XWB and A340 -500/600,
and the centre wing box for the A380 – representing an industry first."3191
 A July 2012 Aerospace International article stating that:
First up it is clear that the company has learnt significant lessons from the A380
and is incorporating them into the design of the A350XWB. It has already,
according to Tom Williams {Airbus Executive VP Programmes}, scoured the
A350 design and replaced any instances of the lighter 744 9 aluminium with the
stronger 7010. Secondly, the company will be doing extra thermal testing to
assess fatigue. One of the issues of the A380 wing cracks was that the
implications of temperature changes from low tempreture { sic} at altitude, and
the aircraft baking on a hot ramp in the sun, had not been fully investigated or
assessed … In short, the advances in the understanding of materials and
composites over the past decade, along with these hard lessons from the A380,
should insulate the A350XWB from any similar faults.3192
 Material taken from the Aerolia website in late 2012. The material indicates that a certain
Aerolia facility in Picardie, France is "specialised in the production of nose sections for the
whole Airbus family" including the A350XWB.3193
 Material taken from Airbus' website in late 2012. Such material indicates that "{m}any of
{the A350XWB's onboard} systems are derived from Airbus' A380". Further, the material
states that the A350XWB's "variable frequency generators … were first introduced w ith the
A380" and that "{a}nother A380 -proven concept is the use of two hydraulic circuits". "In
addition, A350 XWB's hydraulics will be operated at the higher pressure level of 5,000 psi.,
which also is used on the A380." Finally, the material states that the A350XWB's "advanced
wing design … combines aerodynamic enhancements already validated on the A380".3194
 Material taken from the Airbus website in late 2012, indicating that Airbus, who "pioneered
the use of composites and other advanced materials in airc raft design and manufacturing"

3188 David Pearson, "Supply chain continuity is main risk for Airbus A350 Program", The Wall Street
Journal, 17 January 2012, (Exhibit USA-431).
3189 Harry Suhartono and Tim Hepher, "Airbus learns from A380 saga", Reuters, 15 February 2012,
(Exhibit USA-433).
3190 Harry Nelson, Experimental Test Pilot, "A350 and NEO update", Airbus presentation, April 2012,
(Exhibit USA-379).
3191 "Airbus centres of excellence", Airbus website, accessed 21 May 2012, (Exhibit USA-306).
3192 Tim Robinson, "Winning the X(WB) factor", Aerospace International, July 2012, (Exhibit USA-367).
3193 "Méaulte Site", Aerolia website, accessed 10 November 2012, (Exhibit USA-469).
3194 "A350XWB – Technology", Airbus website, accessed 3 October 2012, (Exhibit USA-427).

was "continuously developing technologies to improve the speed of composite
manufacturing".3195
 An undated Airbus presentation apparently accessed online in late 2012 concerning the
A350XWB specifications. It states that "{b}uil ding on technologies from the Airbus A380,
the A350 XWB will have the same fly by wire technology" and that the "Integrated Modular
Avionics (IMA) found on the A380 will be improved upon".3196
iii Summary of learning effects on the A350XWB programme
6.1747. In our view, the evidence discussed above demonstrates that the A350XWB programme
significantly benefitted from Learning Effects arising from previous, subsidized Airbus LCA
programmes, especially (but not only) the A380 programme.
6.1748. The A350XWB was a novel aircraft in many ways, particularly with respect to its use of
composite materials to construct the wing and pressurized fuselage. Such novelties had certain
knock-on effects that required Airbus to not only modify other structures and systems on the
A350XWB from those on its prior LCA, but also required Airbus to adopt new tools and production
techniques to build the A350XWB. Thus, it is evident that the A350XWB's novelties rendered
Airbus' accumulated experience with its prior LCA programmes less applicable vis-à-vis the
A350XWB programme than a more conventional LCA programme. This does not, however, mean
that the A350XWB did not benefit from any Learning Effects attributable to Airbus' previous LCA
programmes. Indeed, as we found in the original proceeding, "learnin g effects" play a significant
role in LCA development and production, and are fundamental to shaping the ability of any entrant
to compete in the market. As we explain in more detail below, although novel in many ways
compared with Airbus' previous program mes, the A350XWB was no exception to this generally
recognized feature of the LCA industry.
6.1749. Before describing the manifestations of specific relevant Learning Effects, we address two
general lines of argument that the European Union advances. We recall that the architecture of the
A350XWB was not frozen until April 2009. 3197 The European Union argues that the Panel should
therefore discount any evidence that arose before that date indicating that Airbus expected to
apply lessons learned from previous LCA prog rammes in the A350XWB programme because
on-going changes to the A350XWB's design could, and in some cases did, invalidate such
expectations.3198 The European Union further goes to great lengths in its submissions to explain
differences between aspects of the A350XWB programme and those of previous Airbus LCA
programmes, from the LCA themselves to the production techniques used to manufacture them.
The implication appears to be that the ultimate presence of such differences eliminates or at least
significantly diminishes the probative value of evidence – or at least evidence arising before the
A350XWB's architecture freeze – indicating that those aspects of the A350XWB programme were
expected to benefit from Learning Effects.
6.1750. In our view, this implication is we ak. We have no doubt that many, and perhaps most,
aspects of the A350XWB programme display differences vis-à-vis those of prior Airbus LCA
programmes, and that the atomization and explanation of such differences would fill volumes. But
the presence of simi larities and differences between LCA programmes are not mutually exclusive.
Neither is it impossible for a "difference" or a "novelty" itself to be, at least in part, the product of
Learning Effects. Indeed, as reason and logic suggest, and as the evidence above confirms, many
"different" aspects of the A350XWB benefitted from certain evolutionary processes attributable to
predecessor Airbus LCA programmes. In other words, even when confronting novel challenges in
the design, development or production of th e A350XWB, Airbus did not do so in a vacuum, but
with decades of LCA experience made possible because of the effects of LA/MSF. Therefore, in
order to effectively rebut the evidence indicating that the A350XWB programme was expected to
benefit from Learnin g Effects arising from Airbus' experience with its prior LCA programmes, in
addition to showing the presence of differences between the aspects at issue, the European Union

3195 "Innovative Materials", Airbus website, accessed 10 November 2012, (Exhibit USA-473).
3196 "Airbus A350 XWB Specifications", Bintang.site11.com website, accessed 10 November 2012,
(Exhibit USA-468).
3197 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 50.
3198 See European Union's response to Panel question No. 47, paras. 197-207.

must also explain why such differences negated the original expectation of benefici al Learning
Effects accruing with respect to those aspects, whenever that expectation was expressed. The
European Union has, however, failed to perform this crucial latter step in many instances. Further,
even if the expected benefits of certain Learning E ffects did not ultimately materialize, Airbus
would obviously have been able to pursue the A350XWB programme with more confidence in the
presence of such expectations than it would have in their absence. In this manner, such Learning
Effects would still have benefitted Airbus to some degree.
6.1751. The European Union further attempts to downplay the significance of relevant Learning
Effects by arguing:
In the rare circumstances where there are similarities between the A350XWB's
technologies and those of previous aircraft, they are limited and insignificant in
comparison to the engineering challenges Airbus successfully mastered with the
design, integration and production of the A350XWB's novel composite fuselage, novel
composite wing and novel systems.3199
6.1752. In other words, because the "biggest" features of the A350XWB (e.g. fuselage and wings)
display "big" differences from Airbus' prior LCA, and only "smaller" features display "small"
similarities to prior Airbus LCA, the latter similarities are therefore insignifican t to a causation
analysis. We find this unpersuasive for three reasons. First, casting the importance of LCA features
in this relative manner is of limited use in the species of causation analysis in which we currently
engage. This is so because it is our task to determine whether Learning Effects had a significant
overall impact on the A350XWB programme. The presence of bigger or more costly novelties is of
limited conceptual relevance to resolving that issue, especially when considering how costly and
complex the A350XWB programme was overall. Second, we do not believe that the similarities
between certain features of the A350XWB and prior Airbus LCA are always small or the importance
of such features to be insignificant. Finally, the European Union's argument overlooks the evidence
indicating that Airbus' prior LCA experiences helped Airbus create even "novel" features.
6.1753. We now turn to the specific types of Learning Effects that we feel the evidence
demonstrates materially benefitted the A350XWB programme. This discussion should be read as
informed by our more detailed description of the evidence regarding Learning Effects, above. We
emphasize that, in drawing the conclusions below, we rely heavily on Airbus' and EADS' own
materials and officers' statements.
6.1754. First, Airbus gained managerial know-how from its prior subsidized LCA programmes. The
original panel and Appellate Body both recognized the principle that an experienced LCA
manufacturer will understand how to build LCA better than will a new LCA manufa cturer, thus
limiting risks and costs. In this compliance proceeding, we feel that the Schneider Declaration has
convincingly restated this principle as applicable even in the context of a programme like the
A350XWB, which displays significant differences from previous Airbus LCA programmes. The
record also contains specific, concrete examples of how Airbus used its experience with prior LCA
to help plan and execute the A350XWB's development. These include lessons evident in HSBI
found in the A350XWB Business Case3200, evidence that Airbus would change its design and testing
processes to avoid problems it had encountered on the A380, and evidence that Airbus' previous
managerial experience contributed to its ability to institute its new development processes. 3201 We

3199 European Union's second written submission, para. 1170.
3200 See e.g. A350XWB Business Case Presentation, (Exhibit EU-130) (HSBI), slides 43 (two text boxes
at bottom of slide, bolded titles and first bullets in each), 45 (second bullet, third sub-bullet), 55 (first bullet),
80 (text accompanying first and second underlined headers) and 91 (third bullet).
3201 See e.g. Emma Vandore, "Airbus A350 development on track" The Associated Press,
14 January 2009, (Exhibit USA-139); "Airbus Says Wiring Issues Resolved For A380", Aero-news Network,
23 January 2007, (Exhibit USA-146); "Noel Forgeard and the A380", Commercial Aviation Report,
15 January 2007, (Original Exhibit US-297), (Exhibit USA-148); Sebastian Steinke, "A380 cable problems
threaten Airbus", Flug Revue, December 2006, (Original Exhibit US-298), (Exhibit USA-149); Pilita Clark and
Peggy Hollinger, "Gallois unperturbed by pessimists", Financial Times, December 2009, (Exhibit USA-150);
Tim Robinson, "Winning the X(WB) factor", Aerospace International, July 2012, (Exhibit USA-367); Andrea
Rothman, "Airbus vows computers will speak same language after A380 delay", Bloomberg,
28 September 2006, (Exhibit USA-430); David Pearson, "Supply chain continuity is main risk for Airbus A350
Program", The Wall Street Journal, 17 January 2012, (Exhibit USA-431); John Ostrower, "A350 is a study in
lessons learned by Airbus on A380", Flightglobal News, 11 May 2010, (Exhibit USA-432); and Harry Suhartono

further note the A350XWB Chief Engineering Statement's explanation that the development of the
A350XWB actually began in 2004, i.e. during the development stage of the Original A350 and long
before the A350XWB was even unveiled in mid -2006.3202 Further, the A350XWB Chief Engineering
Rebuttal describes how Airbus used the same software, called CATIA, in designing the A350XWB
as well as prior Airbus LCA.3203
6.1755. The A350XWB programme also benefitted somewhat from Airbus' pre-existing
infrastructure and engineering r esources used for the purpose of LCA that would not have been
developed and brought to market in the absence of LA/MSF. The evidence indicates that Airbus re -
used pre -existing facilities in connection with the A350XWB programme. 3204 Moreover, there is
evidence that certain Airbus and Airbus suppliers' facilities (e.g. Airbus' Nantes facility and
Aerolia's Picardie facility) had become specialized in manufacturing certain LCA structures by virtue
of their experience with prior Airbus programmes, and applied suc h skills in connection with the
A350XWB programme.3205 Further, there is evidence that Airbus had the ability to re -direct certain
existing resources from other LCA programmes to the A350XWB programme, therefore saving
Airbus the time and expense of marshalling such resources from external sources.3206
6.1756. The A350XWB programme also benefitted from Airbus' experience with composite
materials. It is undisputed that the A350XWB was the first Airbus LCA to use composite materials
to the extent that it did, mainly due to the fact that the aircraft is the first Airbus LCA to have a
composite wing and pressurized composite fuselage. However, Airbus' competence and confidence
to use composite materials to this extent were not borne in a vacuum, but were in part the result
of Airbus' self-professed evolutionary experience with composite materials and structures. Airbus
documents describe how Airbus has used composite structures in its LCA over time in an
incremental fashion, using smaller, non -pressurized structures (i.e. relatively simple structures) in
its earlier LCA, and gradually adding composite structures to its subsequent LCA programmes,
eventually using larger and pressurised composite structures (i.e. more complex structures) in the
A350XWB programme. 3207 Certain such do cuments tout such experience in the context of

and Tim Hepher, "Airbus learns from A380 saga", Reuters, 15 February 2012, (Exhibit USA-433). We note the
European Union's argument as to why relevant Learning Effects could not accrue from Airbus' experience with
the A380 wing cracks. (A350XWB Chief Engineering Rebuttal, (Exhibit EU-128) (BCI/HSBI), para. 21). In our
view, this argument carries little weight. While the cracks in the A380's wings may have been a design-specific
problem, they still alerted Airbus to the general risks posed by thermal problems to new wing designs.
Moreover, we find the European Union's suggestion that because the A380 wing cracks were only discovered
after the A350XWB's design had been frozen Airbus would not have used such knowledge to avoid similar
problems if Airbus thought they might materialize at any point in the design or production process to be
unpersuasive.
3202 See e.g. A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 15. Although
there is no finding that the Original A350 was a subsidized LCA, this statement still reinforces the principle that
Airbus can and did gain valuable experience from certain pre-A350XWB LCA programmes that differed in
material respects.
3203 See e.g. A350XWB Chief Engineering Rebuttal, (Exhibit EU-128) (BCI/HSBI), para. 32. The
statement also explains that: (a) Airbus used a different version of CATIA in designing the A350XWB, and (b)
made further adjustments to the software for use on the A350XWB programme, as Airbus had done to CATIA
in connection with prior LCA programmes. However, different versions of the same software surely have
commonalities with which a prior user would be familiar. Further, prior experience manipulating software is
surely beneficial for a company seeking to do it again.
3204 See e.g. A350XWB Business Case Presentation, (Exhibit EU-130) (HSBI), slide 57 (third bullet,
second sub-bullet); and A350XWB Production Statement, (Exhibit EU-129) (BCI/HSBI), para. 13. Certain
evidence states that Airbus used its own wind tunnel facilities in connection with the A350XWB development.
(See Olivier Criou, "A350XWB Family and Technologies", Airbus Presentation at Hamburg University of Applied
Sciences, 20 September 2007, (Exhibit USA-463) (noting that wind tunnel testing occurred in Airbus facilities))
3205 See e.g. "Airbus centres of excellence", Airbus website, accessed 21 May 2012, (Exhibit USA-306);
and "Méaulte Site", Aerolia website, accessed 10 November 2012, (Exhibit USA-469).
3206 See e.g. A350XWB Business Case Presentation, (Exhibit EU-130) (HSBI), slides 78 (first and fourth
shaded text boxes from top of slide), 82 (text accompanying "a)" subparagraph) 84 (text accompanying "a)"
subparagraph), and 91 (first and second bullets). See also Airbus Press Release, "A300, A310 Final Assembly
To Be Completed by July 2007", 7 March 2006, (Exhibit EU-116) (indicating that engineering resources
previously dedicated to the A300 and A310 programmes could be re-directed to the Original A350
programme).
3207 See e.g. Fabrice Brégier, Chief Operating Officer, Airbus, "Power8 and A350XWB Updates", slides
from EADS presentation, Paris, 20 June 2007, (Exhibit USA-143); Olivier Criou, "A350XWB Family and
Technologies", Airbus Presentation at Hamburg University of Applied Sciences, 20 September 2007, (Exhibit
USA-463); "Innovative Materials", Airbus website, accessed 10 November 2012, (Exhibit USA-473); and

discussing the A350XWB programme, specifically.3208 The Schneider Declaration similarly describes
the value of Airbus' evolutionary experience with composite materials. 3209 Moreover, Airbus' own
documents provide a concrete example of the benefits of Airbus' prior composite experiences,
explaining that Airbus' Nantes facility gained specialized knowledge of composite materials at least
in part due to its experience with prior Airbus LCA programmes, and applied that k nowledge to the
A350XWB programme.3210
6.1757. Moreover, specific structural features of the A350XWB benefitted from Airbus' prior LCA
experience. Airbus concedes that certain components of the A350XWB were at least in part derived
from components on predecessor LCA models, such as the [***]3211, the [***]3212, the
[***]3213, the flight deck's use of a six -window configuration3214, and engine inlets. 3215 Moreover,
Airbus materials state that the A350XWB wing benefitted from the A380's aerodynamic
designs.3216 Further, the A350XWB Chief Engineering Statement also concedes that the A350XWB
wings' high-lift system bears similarities to the A380's.3217
6.1758. Certain of the A350XWB's on-board systems similarly benefitted from Airbus' prior LCA
experience. These include: variable frequency generators, use of two hydraulic circuits, specific
hydraulic pressure levels3218, fly-by-wire technology, integrated modular avionics, a common flight
deck, flight control architecture 3219, interactive cockpit, cockpit heads -up display, dual integrated

"Evolution composite application at Airbus", slide from "Composite Training", Airbus presentation, VPD
Conference, 17 October 2007, (Exhibit USA-493). See also Guy Hellard and Dr Roland Thévenin, "Composites
in Airbus: a long story of innovations and experiences", Airbus presentation, Global Investor Forum 2008,
(Exhibit EU-189/USA-440 (exhibited twice)), slides 4-6 and 24.
3208 See e.g. also Tim Robinson, "Winning the X(WB) factor", Aerospace International, July 2012,
(Exhibit USA-367) (discussing how A350XWB would benefit from Airbus' history of work with composite
materials).
3209 See e.g. Schneider Declaration, (Exhibit USA-354) (BCI), paras. 22-29.
3210 See e.g. "Airbus centres of excellence", Airbus website, accessed 21 May 2012, (Exhibit USA-306).
We further note the A350XWB Chief Engineering Statement's explanation that the A350XWB benefitted from
Airbus' "continuous development of composite-based technologies since 2004", i.e. before the A350XWB was
even unveiled in mid-2006. (A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 15).
Although there is no finding that the Original A350 was subsidized, this is also evidence that the A350XWB
programme could and did benefit from Airbus' experience with composite materials in the context of a
different, predecessor LCA programme.
3211 Schneider Declaration, (Exhibit USA-354) (BCI), para. 31; and A350XWB Chief Engineering
Rebuttal, (Exhibit EU-128) (BCI/HSBI), para. 35.
3212 Schneider Declaration, (Exhibit USA-354) (BCI), para. 32; and A350XWB Chief Engineering
Rebuttal, (Exhibit EU-128) (BCI/HSBI), para. 26.
3213 Schneider Declaration, (Exhibit USA-354) (BCI), para. 33; and A350XWB Chief Engineering
Rebuttal, (Exhibit EU-128) (BCI/HSBI), para. 35. See also Max Kingsley-Jones, "Airbus confirms switch to A380
style nose for A350XWB", Flight Global, 21 September 2007, (Exhibit USA-467). We also note that Airbus
states that the A350XWB's forward-swinging nose wheel is standard on Airbus and Boeing LCA, and that the
A350XWB and A380 both use metals to construct their nose sections, although the A350XWB's nose uses
certain new "advanced" metals in combination with composite panels. (A350XWB Chief Engineering Rebuttal,
(Exhibit EU-128) (BCI/HSBI), paras. 27 and 28)
3214 Schneider Declaration, (Exhibit USA-354) (BCI), para. 33; and A350XWB Chief Engineering
Rebuttal, (Exhibit EU-128) (BCI/HSBI), para. 27.
3215 Schneider Declaration, (Exhibit USA-354) (BCI), para. 26; and A350XWB Chief Engineering
Rebuttal, (Exhibit EU-128) (BCI/HSBI), para. 23. See also "Airbus' "Silent Secret" to Engine Noise Reduction",
Netcomposites, 2 September 2005, (Exhibit USA-464).
3216 "A350XWB – Technology", Airbus website, accessed 3 October 2012, (Exhibit USA-427).
3217 A350XWB Chief Engineering Statement, (Exhibit EU-18) (BCI/HSBI), para. 107.
3218 The A350XWB Chief Engineering Rebuttal concedes that the A350XWB and A380's hydraulics both
operate at 5000 psi. (A350XWB Chief Engineering Rebuttal, (Exhibit EU-128) (BCI/HSBI), fn 22. See also
"A350XWB – Technology", Airbus website, accessed 3 October 2012, (Exhibit USA-427)).
3219 The A350XWB Chief Engineering Rebuttal claims that the A350XWB uses a 2H1E system. (A350XWB
Chief Engineering Rebuttal, (Exhibit EU-128) (BCI/HSBI), para. 17). This contradicts the A350XWB Chief
Engineering Statement, which states that the A350XWB uses a 2H2E system. (A350XWB Chief Engineering
Statement, (Exhibit EU-18) (BCI/HSBI), para. 128). The European Union does not explain this contradiction.
Other evidence indicates that the A350XWB would use a 2H2E system. (See e.g. A350XWB Business Case
Presentation, (Exhibit EU-130) (HSBI), slide 20; "Taking the lead: the A350 XWB", EADS/Airbus presentation,
4 December 2006, (Exhibit EU-106); and Max Kingsley-Jones, "Paris Air Show: A350 XWB ready to rock",
FlightGlobal News, 5 June 2009, (Exhibit USA-428)). For its part, the A350XWB Chief Engineering Rebuttal
states that Exhibit EU-106 contains a "typographical error", but does not specify what this error is. (A350XWB
Chief Engineering Rebuttal, (Exhibit EU-128) (BCI/HSBI), fn 21). However, even if the alleged error yields the

standby instrument system, avionics, air system, information system, brake to vacate function,
and the airport navigation system.3220
6.1759. We also have little doubt that Airbus benefitted from its prior LCA experience in the form
of being able to effectively market its LCA, as descr ibed by the Bair Declaration. As recognized in
the original proceeding, "entry barriers into the LCA market are formidable. The design, testing
certification, production, marketing and after-delivery support of LCA is an enormously complex
and expensive un dertaking".3221 We further recall in this context that even after decades of
experience with LCA programmes, Airbus' A380 programme was affected by significant difficulties.
Such problems serve as a stark reminder of the risks that purchasers face in buying L CAs from
even trusted manufacturers with an established track record of success. We also recall our
previous discussion further above in the section of this Report that addresses whether the
A350XWB contracts confer a benefit to Airbus regarding the consid erable marketing risks of the
A350XWB programme. The Bair Declaration's explanation that buyers are less willing to purchase
complex LCA from unproven manufacturers therefore appears entirely reasonable and materially
unrebutted. In this manner, Airbus' ef forts to market the complex and risky A350XWB could only
have benefitted from Airbus' pre-existing stature in the marketplace.
6.1760. In our view, these considerations reveal that the Learning Effects of the pre -A350XWB
LA/MSF subsidies were wide -ranging and significant, and their accumulation central and critical to
the ability of Airbus to launch and bring the A350XWB to market as and when it did.3222
b Financial effects
6.1761. In this subsection, we evaluate the extent to which the A350XWB programme benefitted
from Financial Effects arising from pre -A350XWB LA/MSF. The United States offers arguments and

following: "2 hydraulic / 1 electric (2H/1E) flight control architecture" "{p}roven in A380 test flight" ("Taking
the lead: the A350 XWB", EADS/Airbus presentation, 4 December 2006, (Exhibit EU-106)), this does not
appear to aid the European Union's cause. We further note that online Airbus material accessed in 2012 states
that one "A380-proven concept is the use of two hydraulic circuits". ("A350XWB – Technology", Airbus website,
accessed 3 October 2012, (Exhibit USA-427) (emphasis added). Thus, it may be that whether the A350XWB
used one or two electrical circuits is beside the point. Rather, the material relevant similarity may be the use of
2 hydraulic circuits. In any event, as discussed, no matter how many electrical circuits the A350XWB's systems
used, the evidence indicates that such systems benefitted from Airbus experience with similar A380 systems.
3220 See e.g. Fabrice Brégier, Chief Operating Officer, Airbus, "Power8 and A350XWB Updates", slides
from EADS presentation, Paris, 20 June 2007, (Exhibit USA-143); EADS Press Release, "A350 XWB Family
Receives Industrial Go-Ahead", 1 December 2006, (Exhibit USA-145); Harry Nelson, Experimental Test Pilot,
"A350 and NEO update", Airbus presentation, April 2012, (Exhibit USA-379); "A350XWB – Technology", Airbus
website, accessed 3 October 2012, (Exhibit USA-427); Max Kingsley-Jones, "Paris Air Show: A350 XWB ready
to rock", FlightGlobal News, 5 June 2009, (Exhibit USA-428); Bill Carey, "A350: Extra Wide Responsibility"
Avionics Magazine, 1 June 2009, (Exhibit EU-406/USA-429 (exhibited twice)); "Airbus A350 XWB
Specifications", Bintang.site11.com website, accessed 10 November 2012, (Exhibit USA-468); David
Learmount, "A350 avionics to expand on A380 systems", Flightglobal News, 24 July 2007, (Exhibit USA-471);
"Taking the lead: the A350 XWB", EADS/Airbus presentation, 4 December 2006, (Exhibit EU-106); and
A350XWB Business Case Presentation, (Exhibit EU-130) (HSBI), slides 11, 20, and 23. We note that, at various
times, the European Union argues that certain A350XWB structures and systems are standard across Airbus
LCA or commercially available. However, we consider commonality across Airbus LCA as direct evidence of
Learning Effects. Further, the extent to which a particular feature is commercially available detracts nothing
from Airbus' prior experience with that feature.
3221 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1981. (emphasis added)
3222 We note that it appears difficult to materially attribute the same degree of importance to any
Learning Effects from the A300 and A310 LA/MSF subsidies. The specific A350XWB components and systems
that we found to have benefitted from Learning Effects generally appear to be derivations of similar
components and systems used on more recent Airbus LCA programmes such as the A380. Further, the
remaining Learning Effects we recognized, although more generalized and difficult to attribute to any specific
pre-A350XWB LCA, appear most reasonably to relate to more recent Airbus LCA. For example, given the age of
the A300 and A310 programmes, the managerial know-how, marketing knowledge, experience with composite
technologies, and infrastructure and engineering skills gained from such programmes were likely supplanted by
similar Learning Effects accumulated from Airbus' experiences with subsequent LCA programmes. This is so
even though we detect some evidence in the record indicating that Airbus could re-direct certain engineering
resources previously dedicated to the A300 and A310 programmes to the A350XWB programme. (See Airbus
Press Release, "A300, A310 Final Assembly To Be Completed by July 2007", 7 March 2006, (Exhibit EU-116)
(indicating that engineering resources previously dedicated to the A300 and A310 programmes could be
re-directed to the Original A350 programme)).

evidence identifying a number of specific Financial Effects that allegedly benefitted the A350XWB
programme.3223 In particular, the United States maintains that pre -A350XWB LA/MSF made EADS
more attractive to investors because of certain effects it allegedly had on EADS' enterprise value
and EADS' return on capital employed (ROCE). 3224 Moreover, according to the United States, the
A350XWB programme also benefitted from pre-A350XWB LA/MSF because the structure of LA/MSF
"insulated Airbus from the crises presented by the A380 program and the dire situation it was
facing with its A340 programs", thereby making it easier for Airbus to launch the A350XWB. 3225
Furthermore, the United States also argues that if Airbus had financed all of its pre -A380 LCA with
market financing instead of LA/MSF, Airbus would have been had a debt burden that would have
made it impossible to launch the A350XWB when it did. 3226 Finally, the United States submits that
insofar as Airbus used its own funds to finance the A350XWB programme, such funds were
attributable to revenues generated from sales of previous LCA that would most likely not have
existed but for LA/MSF.3227 We examine each of the United States' submissions in turn.
i Enterprise value
6.1762. The United States argues that pre -A350XWB LA/MSF made EADS more attractive to
investors by positively impacting EADS' enterprise value. The United States asserts that an
accepted method of calculating a company's performance is to compare its earnings before interest
and taxes (EBIT) to its enterprise value. Under this methodology, the United States claims that
given two companies with identical EBIT, the company with the lower enterprise value will appear
to be performing better , and thus appear more attractive to investors. The United States further
argues that the structural peculiarities of LA/MSF allow EADS to exclude the value of outstanding
LA/MSF from its enterprise value – whereas EADS would have to include the outstanding value of a
commercial loan – and thereby artificially lowering its enterprise value without affecting its
EBIT.3228 The United States therefore notes an April 2009 EADS investor presentation which states,
in relevant part, that EADS' enterprise value was EU R 2.6 billion without including the
then-outstanding amount of LA/MSF (i.e. EUR 4.9 billion) and EUR 7.5 billion with that outstanding
amount included.3229
6.1763. We feel that the United States has insufficiently substantiated its argument. We note that
the very inv estor presentation that the United States relies on in this context includes the
enterprise value of EADS with and without outstanding LA/MSF, allowing investors the choice of
which to use. We further detect no evidence, and we see no reason to believe, th at investors of
the type that would want to scrutinize aspects of EADS' financial performance, such as its EBIT
and enterprise value, would fail to account for outstanding LA/MSF as that investor would deem
most appropriate.
ii ROCE
6.1764. The United States argues that pre-A350XWB LA/MSF allows EADS to alter its ROCE 3230 to
make itself appear more attractive to investors. The United States argues that in December 2011,
EADS' Chief Strategy and Marketing Officer compared EADS' 2010 ROCE to the ROCE of other
large aerospace and defence companies. 3231 In doing so, the United States claims that "he had to
make EADS 'comparable' to those other companies by removing LA/MSF – the bulk of which is to

3223 We note that certain of these alleged financial effects go beyond the financial effects that the
original panel and Appellate Body articulated in the original proceeding.
3224 United States' first written submission, paras. 355-357.
3225 United States' first written submission, para. 372.
3226 United States' second written submission, paras. 543-545.
3227 United States' first written submission, paras. 373-374.
3228 United States' response to Panel question No. 120, paras. 41-43.
3229 Gerard Adsuar, Corporate Executive, EADS Finance and Treasury, "Cash Drivers and Enterprise
Value", EADS presentation, Global Investor Forum, 1-2 April 2009, (Exhibit USA-33). The presentation actually
uses the term "refundable advances", but the European Union appears to accept that this term refers to
LA/MSF. (See European Union's first written submission, paras. 1227-1233).
3230 A company's ROCE is calculated by dividing its earnings by its invested capital. (See generally
Carliss Y. Baldwin, "Fundamental Enterprise valuation: Return on Investment Capital (ROIC)", Harvard
Business School, 3 July 2002, (Original Exhibit US-1322), (Exhibit USA-135)).
3231 Marwan Lahoud, Chief Strategy and Marketing Officer, "Views on EADS Strategy and Value
Creation", EADS Presentation, Global Investor Forum, 15 and 16 December 2011, (Exhibit USA-13), slide 4.

Airbus LCA – from EADS' return on capital." 3232 The United States asserts that EADS' resulting
ROCE was 5%, which is lower than EADS' and Airbus' weighted average cost of capital (WACC) in
2010.3233 The United States argues that this relationship is "an indicator that, without LA/MSF,
EADS is destroying value rather than creating value for i ts commercial investors." 3234 The
United States argues that EADS, as an unsubsidized, value -destroying business would be
uncompetitive over the long-term.3235
6.1765. The European Union responds that the United States has misinterpreted the relevant
facts. The European Union asserts that EADS' ROCE "did not fall below its cost of capital by
removing the effects of MSF from earnings. Instead, for the single year considered for the
presentation at this investor conference – i.e. 2010 – EADS' ROCE was below its cost of capi tal
with and without MSF." 3236 The European Union argues that this fall was due primarily to a
weakening US dollar in 2010 and EADS intense development spending during 2010, two factors
that suppressed reported earnings for the relevant period. 3237 Moreover, the European Union
asserts that "the effects of the MSF were removed from the analysis by deducting MSF from
invested capital. Thus, removing MSF increased the ROCE, not the reverse, as the United States
erroneously asserts."3238
6.1766. Again, we feel that the United States has insufficiently substantiated its argument. The
United States points to nothing in the record indicating that when EADS presents its ROCE to
investors, it excludes LA/MSF from that calculation in any manner that would lead investors to
mistakenly believe EADS' ROCE is higher than it should be. Indeed, the very investor presentation
upon which the United States relies in this context discloses that the calculated ROCE "{e}xcludes
launch aid". 3239 We further see no reason to believe that, in the presen ce of such disclosure,
investors of the type that would scrutinize EADS' ROCE would fail to account for outstanding
LA/MSF as that investor would deem most appropriate.3240
iii Mitigation of A380 and A340 programme issues
6.1767. The United States argues that the back -loaded and delivery -based repayment terms of
Airbus' outstanding balances of pre -A350XWB LA/MSF partially insulated Airbus from the financial
fallout from the problems Airbus experienced with its A380 and A340 programmes, thereby
making it easier for Airbus to launch the A350XWB.3241 As we found in the original proceeding, the
back-loaded and delivery -based repayment terms of the pre -A350XWB LA/MSF serve to shift a
portion of the finance risk of Airbus' LCA programmes away from Airbus and onto the member
States. We have no doubt that such terms would have helped Airbus pursue future LCA
programmes by limiting its financial exposure to the potential underperformance of LCA
programmes such as the A340 and A380. However, we do not understand this "core" feature of
the LA/MSF measures to be one of its indirect effects.

3232 United States' first written submission, para. 356.
3233 United States' first written submission, para. 357.
3234 United States' first written submission, para. 357. (footnote omitted)
3235 United States' first written submission, para. 357.
3236 European Union's first written submission, para. 1235. (emphasis original; footnote omitted)
3237 European Union's first written submission, paras. 1237-1239.
3238 European Union's first written submission, fn 1625.
3239 Marwan Lahoud, Chief Strategy and Marketing Officer, "Views on EADS Strategy and Value
Creation", EADS Presentation, Global Investor Forum, 15 and 16 December 2011, (Exhibit USA-13), slide 4.
3240 We further note that the European Union's explanation that including LA/MSF in EADS' invested
capital when calculating its ROCE would further decrease it appears accurate. This is so because, by virtue of
such inclusion, EADS would appear to be making the same returns on more invested capital, indicating a less
efficient use of capital. Therefore, we see no reason to doubt the European Union's assertion that, because
EADS had a 5% ROCE in 2010 with LA/MSF excluded, if EADS had included its outstanding LA/MSF balance in
its ROCE calculation, that resulting ROCE would similarly have been below EADS' and Airbus' 2010 WACC. (See
generally Stephen A. Ross, Randolph W. Westerfield, Jeffrey Jaffe, Corporate Finance, 7th edn (McGraw Hill,
October 2002), pp. 343-345, (Exhibit USA-134) (explaining calculation and significance of ROCE); and
Carliss Y. Baldwin, "Fundamental Enterprise valuation: Return on Investment Capital (ROIC)", Harvard
Business School, 3 July 2002, (Original Exhibit US-1322), (Exhibit USA-135) (same)).
3241 United States' first written submission, para. 372.

iv The Wessels Report
6.1768. The United States argues that if Airbus had launched its subsidized LCA programmes
using market financing, Airbus' resulting debt burden would have been so great as to prohibit the
launch and development of the A350XWB at any relevant time. In this context the United States
offers a report by Professor David Wessels of the Wharton Business School (the Wessels
Report).3242 The Wessels Report purports to demonstrate that, had Airbus launch ed its pre -A380
subsided LCA with financing on market terms, Airbus' resulting debt burden would have been
approximately EUR 24.3 billion. 3243 The Wessels Report concludes that this debt burden is so
massive that it would have prohibited Airbus from launching either the A380 or the A350XWB until
at least 2019. 3244 The European Union criticizes the Wessels Report's methodology for calculating
Airbus' hypothetical debt burden under the circumstances that the report assumes.3245
6.1769. At its core, the Wessels Report restates what the original panel, as affirmed by the
Appellate Body, already found. That is, even assuming that Airbus had launched all its pre -A380
LCA with market financing rather than LA/MSF, Airbus' resulting debt burden would have made it
extremely difficult, and perhaps impossible, for Airbus to launch the A380 as and when it did. We
see no reason to question the original findings on this matter. Furthermore, we note that the
original panel found that the LA/MSF measures directed at the A380 were subsidies and, therefore,
replacing them with market financing would have been more expensive for Airbus. Thus, the
original panel's relevant findings, as affirmed by the Appellate Body and as substantively restated
in the Wessels Report, lead us to conclude that, if Airbus had financed all its pre -A350XWB LCA
with market financing, its resulting debt burden would have made it extremely difficult, and most
likely impossible, to launch the A350XWB as and when it did.
v Revenues
6.1770. We recall that, at the time of launch, Airbu s projected that the A350XWB programme's
non-recurring costs would be EUR [***], although there were reasons to doubt that this
represented a reliable figure at the time. That projected cost later rose to EUR 12 billion by the
First Contract Date. Airbus a nd EADS were, of course, responsible for funding the portion of the
A350XWB programme that would not be covered by monies received under the A350XWB LA/MSF
measures or covered by RSPs, amounting to billions of euros, with their own financial
resources.3246 Those financial resources – revenue streams and accumulated cash positions, in
particular – necessarily derived in large part from Airbus' LCA sales. This is so because, as an LCA
manufacturer, Airbus derives its revenues primarily from LCA sales, and we hav e already
established the importance of Airbus to EADS as a business unit earlier in this Report.3247
vi Summary of Financial Effects on the A350XWB programme
6.1771. In our view, the evidence discussed above demonstrates that the A350XWB programme
significantly benefi tted from two of the five Financial Effects of the pre -A350XWB LA/MSF
subsidies, which enabled Airbus to launch and bring to market all of its existing Airbus LCA
programmes – namely, the enhanced revenue and debt reduction effects.3248

3242 Professor David Wessels, "Assessing Airbus' Capacity to Fund Large Scale Projects Without LA/MSF",
17 October 2012, (Wessels Report), (Exhibit USA-364)
3243 Wessels Report, (Exhibit USA-364), p. 3.
3244 Wessels Report, (Exhibit USA-364), p. 6.
3245 See e.g. European Union's second written submission, paras. 1125-1126.
3246 We note that the European Union itself asserts that, with the help of risk-sharing suppliers/risk-
sharing partners (RSS/RSPs), Airbus and EADS self-funded the programme up until the time they began
receiving monies to which they were entitled under the A350XWB LA/MSF contracts. (European Union's first
written submission (HSBI), para. 1128)
3247 See above para. 6.1641 et seq. (discussing this issue). The European Union's general response to
the United States' line of argument regarding revenues is that it is improper for the Panel to consider the
effects of pre-A350XWB LA/MSF in this compliance proceeding. (European Union's first written submission,
paras. 1098 and 1131-1132). We have already rejected this position.
3248 We note that it appears difficult to materially attribute such Financial Effects related to revenues to
the A300 and A310 programmes. As described further above, the last deliveries of the A300-600 occurred in
July 2007, with the last delivery of the A310 having taken place in 1998. Airbus terminated both programmes
in 2007 – shortly following the A350XWB's launch – at which point they ceased producing any meaningful

c Scope and scale effects
6.1772. The importance of economies of scope and scale in the LCA industry was discussed in the
original proceeding, with the Appellate Body recalling the panel's findings that "'{e}conomies of
scale arising from the huge sunk development cost give incumbent fir ms a considerable
competitive advantage' and '{l}earning effects induce dynamic economies of scale which reinforce
incumbents' advantage.'" 3249 Similarly, the Appellate Body also noted the panel's finding that
"'static and dynamic ('learning curve') economies of scope and scale achieved in the context of one
model of LCA are an important part of the development and production of other LCA models'" 3250,
making it difficult for a new producer to enter only one market segment.3251
6.1773. The United States' submissions concern ing the scope and scale effects of the
pre-A350XWB LA/MSF measures on the A350XWB appear to generally rely on these and other
similar findings without referring to any specific evidence. While we can accept that the A350XWB
must have benefitted from the sc ope and scale effects of pre -A350XWB LA/MSF arising from the
existence of Airbus' pre-existing models of LCA, the fact that the United States has not specifically
identified such effects in relation to the A350XWB means that we can give this line of argume nt
only limited weight in our considerations.3252
d Conclusion with respect to the indirect effects of pre-A350XWB LA/MSF
6.1774. On the basis of the above evaluation of the parties' submissions and evidence, we find
that the indirect effects of pre-A350XWB LA/MSF were fundamental to Airbus' ability to launch and
develop the A350XWB programme. In particular, we have found that the Learning Effects arising
from the pre-A350XWB programmes that would not have existed in the absence of pre -A350XWB
LA/MSF were wide -ranging, significant and critical to the A350XWB programme. Likewise, the
Financial Effects of pre -A350XWB LA/MSF, in the form of significant revenue generation through
the sale of Airbus LCA and reduced financing costs (resulting in a reduced debt burden), were a lso
instrumental to the A350XWB programme. Had Airbus not benefitted from these indirect effects of
the pre-A350XWB LA/MSF measures, we have no doubt that it would not have been possible to
launch and bring to market the A350XWB.
6.1775. In our view, these findin gs confirm our conclusion that the non -subsidized Airbus entity
operating in the "unlikely" counterfactual scenarios at the end of the 2006 could not have launched
and brought to market the A350XWB or an A350XWB -type LCA. Although it is apparent that,
because of its presence on the market by the end of 2006 with one, possibly two, models of LCA, a
non-subsidized Airbus entity operating in the unlikely counterfactual scenarios would have
generated its own Learning Effects and revenues 3253, we have no doubt that these would have
been far from sufficient to put it in a position to launch the A350XWB or an A350XWB -type LCA. In
this regard, we once again recall that a non -subsidized Airbus entity operating in the "unlikely"
counterfactual scenarios would have been a "much weaker" competitor "with at best a more
limited offering of LCA models" than the subsidized Airbus company that actually existed at the
end of 2006. It would have had some experience with an A320-type LCA, and possibly, much more

revenues for Airbus. (See above para. 6.1505. Panel Report, EC and certain member States – Large Civil
Aircraft, para. 7.1622; United States' second written submission, para. 183; and European Union's first written
submission, paras. 168 and 172). Thus, it stands to reason that revenues that Airbus gained from such
programmes have dissipated over time and have been replaced by revenues generated from sales of
subsequent Airbus LCA, especially those being marketed in connection with ongoing programmes.
3249 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1276 (quoting
Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1717).
3250 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1281 (quoting
Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1936).
3251 See Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1269
(quoting Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1717).
3252 We recognize, however, that the impact of economies of scope and scale may be somewhat
intertwined and overlap with Learning Effects and Financial Effects. Thus, the extent to which the A350XWB
concretely benefitted from the economies of scope and scale that were made possible by the pre-A350XWB
LA/MSF measures is likely to have been accounted for in our above discussion of those two types of indirect
effects.
3253 We note that, although we do not specifically know what the debt burden of a "much weaker" Airbus
would have been, financing LCA on market terms would necessarily result in a higher debt burden per LCA
relative to the debt burden associated with LCA funding in the form of LA/MSF subsidies.

limited experience with an A330-type LCA. The "much weaker" non-subsidized Airbus entity would
not have had the ability to launch and bring to market an A380-type LCA. It is apparent, therefore,
that a non -subsidized Airbus would have had neither the technical expertise nor the financial
resources that were available to the actual Airbus company operating at the end of 2006 as a
result of the indirect effects of pre-A350XWB LA/MSF. In our view, the advanced technologies and
new generation concepts incorporated into the A350XW B would have represented far too great a
leap for a non -subsidized Airbus operating in the "unlikely" counterfactual scenarios in 2006.
Accordingly, we find that our assessment of the indirect effects of the pre -A350XWB LA/MSF
measures on the A350XWB confi rms our conclusion that a non -subsidized Airbus operating in the
"unlikely" counterfactual scenarios could not have launched and brought to market the A350XWB
or an A350XWB-type aircraft.
Overall conclusion with respect to the "product" effects of LA/MSF on the A350XWB
6.1776. We recall that, in the light of the "plausible" counterfactual scenarios adopted in the
original proceeding, the A350XWB could not have been launched at the end of 2006 and brought
to market in the way that it was, simply because Airbus would not have existed in 2006; and there
is, furthermore, no evidence before us to suggest (and indeed the European Union does not argue)
that a non -subsidized Airbus would have come into being any time thereafter. Thus, under the
"plausible" counterfactual scenarios adopted in the original proceeding, there is no doubt that the
A350XWB could not have been launched and brought to market in the absence of LA/MSF.
6.1777. Although we consider our views on the merits of the parties' arguments in the context of
the "plausible" counterfactual scenarios to provide a sufficient basis to resolve the relevant issues
for the purpose of this part of our findings in this compliance dispute 3254, in keeping with the
approach adopted in the original proceeding to evaluating the merits o f the United States'
submissions concerning the alleged "product" effects of LA/MSF, we have also in this part of our
Report examined the effects of LA/MSF on the ability of Airbus to launch and bring to market the
A350XWB using the "unlikely" counterfactual scenarios as the starting point of our analysis. We
have found in this respect that the "much weaker" Airbus company that would exist in the
"unlikely" counterfactual scenarios could not have launched and brought to market the A350XWB.
6.1778. Thus, using all f our of the adopted counterfactual scenarios from the original proceeding
concerning the effects of the pre -A350XWB LA/MSF subsidies until the end of 2006 as the starting
point of our analysis, it is apparent that the A350XWB could not have been launched an d brought
to market in the absence of LA/MSF.
The impact of the continued "product" effects of the LA/MSF subsidies in the relevant
product markets
Introduction
6.1779. In the previous subsection of our analysis, we found that the effects of the challenged
LA/MSF subsidies continue to be a "genuine and substantial" cause of the current market presence
of the A320, A330, A380, and A350XWB families of LCA. We concluded that in the absence of the
challenged LA/MSF subsidies, Airbus would not be selling and/or deliveri ng any of its existing
models of aircraft today, thereby accepting the United States' submissions concerning the
continued " product" effects of LA/MSF in the light of all four "plausible" and "unlikely"
counterfactual scenarios. Our task in this subsection is to determine the extent to which the
LA/MSF subsidies, through their continued "product" effects, are a "genuine and substantial" cause
of the lost sales, and market impedance and displacement the United States claims it is suffering.
For the reasons e xplained elsewhere in this Report, we will make this determination with respect
to the alleged instances of lost sales, and market impedance and displacement occurring only in
the post-implementation period .3255 Moreover, consistent with our view that the con clusions we
have already reached on the merits of the parties' submissions in the context of the "plausible"
counterfactual scenarios are a sufficient basis to discharge our duty to conduct an "objective
assessment of the matter", we will limit our assessm ent to evaluating the merits of the

3254 See above paras. 6.1475-6.1479.
3255 See above para. 6.1444.

United States' claims in the light of the findings we have made with respect to the "product"
effects of LA/MSF in the "plausible" counterfactual scenarios.
The United States' serious prejudice claims
Significant lost sales
6.1780. Before proceeding to evaluate the parties' specific "lost sales" arguments, it is useful to
recall what must be established in order to find that the effect of a subsidy is "significant" "lost
sales" within the meaning of Article 6.3(c) of the SCM Agreement. In the original proceeding, the
Appellate Body explained how a determination of "lost sales" should proceed in the context of
applying a "unitary" counterfactual analysis in the following terms:
{U}nder Article 6.3(c), "lost sales" are sales that suppliers of the complaining Member
"failed to obtain" and that instead were won by suppliers of the respondent Member.
It is a relational concept and 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. The assessment can focus on a specific sales
campaign when such an approach is appropriate given the particular characteristics of
the market or it may look more broadly at aggregate sa les in the market. The
complainant must show that the lost sales are significant to succeed in its claim.
Where lost sales are assessed under a two -step approach such as the one adopted by
the Panel in this case, the finding of lost sales in the first step is necessarily
preliminary and of limited significance in coming to a conclusion under Article 6.3(c).
Similarly to the phenomena of displacement under Article 6.3(a) and (b), a definitive
determination under Article 6.3(c) must await consideration of whether such lost sales
are the effect of the challenged subsidy. While a two-step approach to the assessment
of lost sales is permissible, in our view, the most appropriate approach to assess
whether lost sales are the effect of the challenged subsidy is thr ough a unitary
counterfactual analysis. This would involve a comparison of the sales actually made by
the competing firm(s) of the complaining Member with a counterfactual scenario in
which the firm(s) of the respondent Member would not have received the c hallenged
subsidies. There would be lost sales where the counterfactual analysis shows that, in
the absence of the challenged subsidy, 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.3256 (emphasis original)
With respect to the meaning of "significant", the Appellate Body has noted that this
term means "important, notable or consequential", and has both quantitative and
qualitative dimensions.3257 (footnote omitted)
6.1781. The U nited States argues that, in the light of the continued "product" effects of the
challenged LA/MSF subsidies and the conditions of competition in the LCA industry, eight orders for
380 individual Airbus LCA made after 1 December 2011 constitute "lost sales " within the meaning
of Article 6.3(c) of the SCM Agreement.3258 In addition, because of the allegedly strategic
importance of many of these sales to both Boeing and Airbus and their monetary value of billions
of USD, the United States argues that the "lost s ales" it has experienced are also "significant". 3259

3256 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1220.
3257 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1052 (quoting Appellate Body
Reports, US – Upland Cotton, para. 426; and citing Appellate Body Report, EC and certain member States –
Large Civil Aircraft, para. 1218).
3258 United States' first written submission, para. 413; second written submission, paras. 699-709;
response to Panel question Nos. 67 and 162; Summary Table of US Significant Lost Sales, (Exhibit USA-164);
Ascend database, Boeing and Airbus Deliveries in Units 2001-2013 (Q1), Commercial Operators, data request
as of 27 April 2013, (Exhibit USA-546). In fact, the United States submits evidence of 115 orders for
approximately 1300 Airbus LCA made between 2001 and 2013, arguing that all such orders represent "lost
sales" to the United States LCA industry, within the meaning of Article 6.3(c) of the SCM Agreement. The
United States argues that they should all be considered for the purpose of establishing whether the
European Union has complied with the rulings and recommendations of the DSB. We have decided, however, to
examine only claims of "lost sales" occurring in the post-implementation period. See above para. 6.1444.
3259 United States' first written submission, para. 413-414; and second written submission,
paras. 699-709.

The United States' "lost sales" claims occurring in the post -implementation period are identified in
the following table.
Table 19: United States' "Lost Sales" Claims in the Post-Implementation Period
Product Market / Customer LCA model No. of Orders
2012
No. of Orders
2013
Single-Aisle
China Aircraft Leasing Company A320ceo/A321ceo 28/8
easyJet A320ceo/A320neo 35/100
Norwegian Air Shuttle A320neo 100
Twin-Aisle
Cathay Pacific Airways A350XWB-1000 103260
Singapore Airways A350XWB-900 30
United Airlines A350XWB-1000 103261
Very Large Aircraft
Emirates A380 50
Transaero Airlines A380 4

6.1782. The European Union dismisses the United States' claims, advancing a number of general
and sales -specific arguments which it considers show that the challenged subsidies are not a
"genuine and substantial" cause of the "lost sales".3262 In terms of the former, the European Union
argues that the United States has failed to establish that had Airb us not won the specific "lost
sales" in question, Boeing or another United States producer would have won them, as opposed to
another non -United States producer of LCA . The European Union emphasizes that this alleged
shortcoming in the United States' submissions is particularly important in the context of the "lost
sales" alleged to have taken place in the market for single -aisle aircraft, where according to the
European Union, other LCA manufacturers such as Bombardier have attempted to enter. 3263 The
European Union also argues that the challenged subsidies cannot be a "genuine and substantial"
cause of the alleged "lost sales" because "any remaining subsidy benefits" in the
post-implementation period have been absorbed by "high labour costs". The European Union
explains this line of argument in the following terms:
{T}he United States has failed to take account of what it otherwise refers to as the
quid pro quo for the subsidies: local employment. Given that the measures, inter alia,
compensate for the higher costs associated with local employment, they do not impact
Boeing any more than environmental subsidies granted to a firm to reduce carbon
emissions to required levels would impact foreign competitors not subject to such
constraints. With high labour costs absorbing any remaining subsidy benefits, other

3260 Cathay Pacific Airways also ordered 16 additional A350XWB-1000 aircraft in 2012. We note,
however, that these were conversions of 16 A350XWB-900 aircraft that Cathay Pacific Airways had already
ordered in 2010 – i.e. before the end of the implementation period. We recall that the A350XWB-900 and
A350XWB-1000 are two closely-related aircraft, launched together as part of the same family of LCA.
Moreover, there are no facts before us to suggest that Cathay Pacific Airways intended to cancel or was
considering cancelling the orders made in 2010. In our view, these facts suggest that the actual competition
between Airbus and Boeing for the 16 (converted) orders made in 2012 did not actually take place in 2012, but
in 2010. We have therefore decided to treat only the ten new orders made by Cathay Pacific Airways in 2012
as part of the United States' claims of "lost sales" in the post-implementation period.
3261 United Airlines also ordered 25 additional A350XWB-1000 aircraft in 2013. We note, however, that
these were conversions of 25 A350XWB-900 aircraft that United Airlines had already ordered in 2010 – i.e.
before the end of the implementation period. We recall that the A350XWB-900 and A350XWB-1000 are two
closely-related aircraft, launched together as part of the same family of LCA. Moreover, there are no facts
before us to suggest that United Airlines intended or was considering to cancel the orders made in 2010. In our
view, these facts suggest that the actual competition between Airbus and Boeing for the 25 (converted) orders
made in 2013 did not actually take place in 2013, but in 2010. We have therefore decided to treat only the 10
new orders made by United Airlines in 2013 as part of the United States' claims of "lost sales" in the
post-implementation period.
3262 The European Union's submissions cover the entirety of the orders forming the basis of the
United States' "lost sales" claims, both pre- and post-implementation period. In this subsection, we examine
only those general arguments presented by the European Union which we have not already addressed
elsewhere in our Report, as well as the sales-specific submissions relating to the alleged "lost sales" occurring
in the post-implementation period only.
3263 European Union's first written submission, paras. 822-823.

factors must be causing the present market phenomena of which the United States
complains.3264
6.1783. Although we feel that the European Union has not fully explained the rationale behind this
line of argument, we und erstand it to be essentially the following: because, according to the
European Union, the "remaining … benefits" of the LA/MSF subsidies in the post -implementation
period will be inevitably used by Airbus to pay for the allegedly "higher labour costs of lo cal
employment", the effects of those subsidies will not be felt through the market presence of the
aircraft products themselves, implying that the challenged LA/MSF subsidies cannot be found to be
a "genuine and substantial" cause of the "lost sales". We are not persuaded by this argument for a
number of reasons. First, by focusing on the "remaining subsidy benefits", the European Union's
argument appears to be premised on the notion that the effects of the LA/MSF subsidies must
coincide with the continued existence of the "benefit" of the LA/MSF subsidies. However, as
previously explained, the nature of the LA/MSF subsidies is such that their effects are profound
and long -lasting, typically enduring beyond the existence of their "benefit" in the sense of
Article 1.1(b) of the SCM Agreement. Second, even assuming that part of the subsidies were used
to pay for "higher labour costs of local employment", the fact remains that those local employees
will be involved in the design, development, production and sal e of Airbus LCA. Finally, to the
extent that the European Union's argument should be understood to suggest that, in the absence
of LA/MSF, Airbus would have developed its full range of aircraft, or even one of them in a
jurisdiction other than one of the f our member States that have supported it since 1969, there is
no factual basis to substantiate such a position.
6.1784. However, we agree with the European Union when it argues that in order to demonstrate
that the "product" effects of LA/MSF are a "genuine and su bstantial" cause of the "lost sales"
occurring in the post-implementation period, it must not only be established that Airbus would not
have won those sales in the absence of the subsidies, but also that Boeing or another
United States LCA manufacturer (as opposed to a non -United States LCA producer) would have
won those sales. In this respect, we understand the United States' general position to be that
nothing has happened since the end of 2006 to suggest that the conditions of competition used as
the basis for the two "plausible" counterfactual scenarios in the original proceeding should change
in any material way for the purpose of the post -implementation period. Thus, according to the
United States, the sales won by Airbus in the post -implementation period are "lost sales" within
the meaning of Article 6.3(c) of the SCM Agreement, because in the "plausible" counterfactual
scenarios, Boeing or a duopoly involving Boeing and another United States manufacturer of LCA
(possibly McDonnell Douglas) would conti nue to be the only players in the LCA industry after
1 December 2011.
6.1785. We recall that the two "plausible" counterfactuals adopted in the original proceeding
envisaged that, in the absence of the effects of LA/MSF, there would be either a Boeing monopoly
or a duopoly consisting of Boeing and another United States manufacturer of LCA (possibly
McDonnell Douglas) existing between 2001 and 2006. Moreover, we have concluded above that in
the light of the long -lasting and profound "product" effects of the LA/MSF s ubsidies, Airbus would
not have been able to have the same aircraft present on the market in the post -implementation
period. Indeed, the European Union has not even argued that Airbus would have come into
existence any time after 2006 in the absence of LA/ MSF. Thus, the question that we must now
answer is whether in the absence of Airbus, another non-United States producer of LCA would
have entered the LCA industry in the years following 2006, such that it could have been a source
of competition to Boeing i n the "plausible" monopoly counterfactual scenario or Boeing and
another United States manufacturer of LCA in the "plausible" duopoly counterfactual scenario.
6.1786. As explained elsewhere in this Report, both parties have noted that several non -
United States co mpanies, including Bombardier (Canada), COMAC (China), Mitsubishi Aircraft
Corporation (Japan), Sukhoi (Russia) and United Aircraft Corporation (Russia), are attempting to
enter the LCA industry with single -aisle aircraft having around 100 -150 seats. Other evidence
reveals that another non -United States company, Embraer (Brazil), is also trying to enter the
lower-seating-capacity-end of the single -aisle market space. 3265 However, both parties have

3264 European Union's second written submission, para. 1228. See also European Union's first written
submission, para. 643.
3265 Glennon J. Harrison, "Challenge to the Boeing-Airbus Duopoly in Civil Aircraft: Issues for
Competitiveness", US Congressional Research Services, 25 July 2011, (Exhibit USA-117), p. 25.

emphasized the relative weakness of these potential new entrants, with Boeing's Vice President for
Commercial Airplanes, Michael Bair, asserting that "it will be several years before any of {their}
products compete in a significant way with Airbus and Boeing single -aisle LCA"3266, "as customers
perceive significant, and often prohibitive, risks in ordering {their} aircraft". 3267 Moreover, the
European Union "agrees that 'other single -aisle market entrants do not, at present, 'play a
significant role in LCA competition … during the period at issue and are unlikely to do so in the
immediate future'".3268 Of course, the difficulty of potential new entrants to compete effectively
with Airbus and Boeing reflects the high barriers to entry and significant advantages of
incumbency in the LCA industry, a fact we believe was recognized b y Embraer's CEO, Frederico
Curado, who it was reported stated in 2011 that:
Going up against Boeing and Airbus in head -to-head competition is really tough, not
only because of their size, but because of their existing product line and industrial
capacity. They can have a very quick response and literally flood the market.3269
6.1787. In our view, these facts about the nature of competition from potential new entrants in
the current duopoly consisting of Airbus and Boeing strongly suggest that it would have been
highly unlikely for a non-United States producer to have entered the LCA market in the "plausible"
counterfactual scenario that envisages a duopoly involving Boeing and another United States
manufacturer of LCA. There is no evidence or argument before us to su ggest that any one or more
of the above -mentioned non -United States companies would have been in a better competitive
position vis-à-vis a duopoly involving Boeing and another United States manufacturer of LCA than
they actually are in the present -day Airb us-Boeing duopoly. In this light, we believe it is
reasonable to conclude that competition from potential new entrants in this counterfactual scenario
would have been the same or similar to what it is today – very weak and limited to the smaller -
seating-capacity-end of the single -aisle product market or in the words of Airbus' Vice President
for Contracts, Christophe Mourey: "not yet … significant or widespread".3270
6.1788. We come to a similar conclusion in relation to how we believe the other "plausible"
counterfactual scenario (the Boeing monopoly) would have evolved between 2006 and the present
day. As a monopolist, it is reasonable to assume that Boeing would have been in a stronger
competitive position relative to any potential new entrant than in a duopoly situ ation. Boeing's
incumbency advantages would have therefore been more difficult to overcome. Nevertheless, the
very existence of a monopoly would have created strong incentives for new entrants to materialize
as well as for potential customers to purchase n ewly introduced products. Moreover, in the face of
increasing demand, Boeing may not have been able to satisfy all potential customers. However,
given the expensive, technologically complex and uncertain nature of LCA production, it is likely
that any new LCA company entering a market dominated by a Boeing monopoly could only have
done so in the single-aisle segment and only with respect to products that, technology-wise, would
have been inferior to Boeing's more advanced offerings. In our view, it is very difficult to conceive
that any new entrant (even one with years of experience in the smaller regional aircraft sector)
could have developed and brought to market by the beginning of the post -implementation period
the same range and quality of LCA that are in competition with Boeing's LCA today. Accordingly,
we find that it may well have been possible for one of the more experienced, above -mentioned,
non-United States aircraft producers to enter the LCA market by the time of the
post-implementation period in a "plausible" counterfactual scenario where Boeing is a monopolist.
However, it is likely that in the limited period of time from the end of 2006 to the beginning of the
post-implementation period, such an entity would have only been able to enter the sin gle-aisle
segment with aircraft that, as a general matter, could only impose weak competitive constraints
on Boeing.
6.1789. We now apply the two "plausible" counterfactuals we have posited above to the "lost
sales" claimed by the United States. The first point we note is that only three of the eight

3266 Bair Declaration, (Exhibit USA-339) (BCI), para. 9.
3267 Bair Declaration, (Exhibit USA-339) (BCI), para. 30.
3268 European Union's first written submission, fn 753 (quoting United States' first written submission,
para. 315).
3269 Glennon J. Harrison, "Challenge to the Boeing-Airbus Duopoly in Civil Aircraft: Issues for
Competitiveness", US Congressional Research Services, 25 July 2011, (Exhibit USA-117), p. 25 (quoting
"Airbus Ends Air Show With Huge Order", Wall Street Journal, 23 June 2011).
3270 Mourey Statement, (Exhibit EU-8) (BCI), fn 23.

instances of "lost sales" concern single -aisle aircraft. In the light of our finding that any market
presence of a new entrant operating in the post -implementation period would be, if anything,
limited to the market for single-aisle LCA, it must necessarily follow that the sales won by Airbus in
the twin-aisle and very large LCA markets were "lost sales" to the United States' industry in both
"plausible" counterfactual scenarios. Although the European Union has advanced numerous,
allegedly "non-subsidy", reasons to explain why Airbus won these sales, it is apparent that almost
all of those reasons are, in fact, based on the effects of the LA/MSF subsidies because they are
premised on Airbus being present in all five of t he relevant sales campaigns as exactly the same
competitor selling identical aircraft to those it markets today.
6.1790. The European Union submits that in the competition that led Cathay Pacific Airways to
order ten additional A350XWB -1000 aircraft in 2012, Airbu s had pre -existing commonality
advantages over Boeing. 3271 The European Union also argues, using evidence that is HSBI, that
Airbus LCA had certain other product -related advantages over Boeing LCA in this sales
campaign.3272 Likewise, in the campaign that led Si ngapore Airlines to order 30 A350XWBs in
2013, the European Union argues that Airbus had an advantage over Boeing because: (a) there
was allegedly uncertainty about the specifications, performance and availability of the 787 -10
relative to the A350XWB -900; (b) the A350XWB had an advantage in terms of "the delivery
positions themselves"; and (c) the terms of Airbus' offer provided Singapore Airlines with higher
benefits of commonality and lower fleet complexity in the long run in case that "Singapore Airline s
would opt for the A350XWB -1000".3273 Similarly, the European Union maintains that Airbus was
successful in the sales campaign that led United Airlines to order ten additional A350XWB -1000
aircraft in 2013 because the A350XWB-1000 was, for various reasons, "the only aircraft that could
satisfy the airline's requirement{s}" at the relevant time. 3274 Finally, the European Union submits
that Transaero and Emirates chose the A380 over the 747 -8 in the orders they placed in 2012 and
2013 because of inter alia , the A3 80's more advanced technologies and greater size compared
with the 747-8, which enabled it to satisfy both customers' very specific requirements.3275
6.1791. Obviously, Airbus would not have had any of these advantages in the above campaigns
for twin -aisle and very large LCA in the "plausible" counterfactual scenarios because it simply
would not have existed. In this regard, we recall that the Appellate Body found in the original
proceeding that it was not necessary for the panel to have explored the non -attribution arguments
advanced by the European Union in the context of the two "plausible" counterfactual scenarios
posited in that proceeding because:
Without the subsidies, Airbus would not have existed under these scenarios and there
would be no Airbus aircraft on the market. None of the sales that the subsidized
Airbus made would have occurred. As Boeing (or the other US manufacturer
envisaged by the Panel) would be the only supplier(s) of LCA, it (or they) would have
made the sales instead. Thus, the conclusion un der {the two "plausible"
counterfactual} scenarios … satisfies, without more, the "genuine and substantial
relationship" standard articulated by the Appellate Body in US – Upland Cotton. This
chain of reasoning establishes that the subsidies are a sufficient cause of the lost sales
and the displacement. The additional questions that the European Union asserts the
Panel should have considered would be moot. It would be pointless to attempt
delineating the features of something that would not have existed wit hout the
subsidies. It would be unnecessary to consider: (i) what particular aircraft Airbus
would have launched; (ii) their level of technology; (iii) prices; (iv) any commonality
advantage or disadvantage; or (v) any non-attribution factors.

3271 European Union's second written submission, para. 1365.
3272 European Union's second written submission, paras. 1360-1364 (HSBI) (citing, inter alia, [[HSBI]]
Exhibit USA-370 (HSBI); [[HSBI]] Exhibit EU-251 (HSBI); and [[HSBI]] Exhibit EU-256 (HSBI)).
3273 European Union's comments on the United States' response to Panel question No. 162 (HSBI) (citing
inter alia, [[HSBI]] Exhibit EU-529 (HSBI); [[HSBI]] Exhibit EU-530 (HSBI); [[HSBI]] and Exhibit EU-538
(HSBI)).
3274 European Union's comments on the United States' response to Panel question No. 162 (HSBI).
3275 European Union's second written submission, paras. 1550-1555 (HSBI) (citing inter alia, Exhibit EU-
332 (HSBI); and Exhibit EU-333 (HSBI)); comments on the United States' response to Panel question No. 162
(HSBI) (citing, inter alia, [[HSBI]] Exhibit EU-547 (HSBI); [[HSBI]] Exhibit EU-548 (HSBI); and [[HSBI]]
Exhibit EU-549 (HSBI)).

As regards t he non-attribution factors in particular, we note that the effects of other
factors can be assessed as part of a properly designed counterfactual that adjusts for
the subsidies while maintaining everything else equal. … Moreover, we agree with the
Panel that in the particular circumstances of this case the need to fully examine the
particular non -attribution factors raised by the European Communities depended on
whether a non -subsidized Airbus would have had any aircraft available to sell at the
time the re levant sales were made. If Airbus had not existed without the subsidies,
the airlines involved in the relevant sales campaigns would have had a limited choice:
purchase aircraft from Boeing or possibly from the other US manufacturer envisaged
in the Panel' s counterfactual scenario … We have difficulty understanding how the
non-attribution factors raised by the European Communities could have led an airline
in those circumstances not to purchase the desired aircraft from Boeing or the other
US manufacturer. For example, the European Union underscores that Boeing had
mishandled its relationships with some customers and that one government may have
been unhappy with Boeing over a joint venture. However, the fact remains that, in the
absence of Airbus, these air lines would have had no choice but to purchase aircraft
from Boeing or the other US manufacturer. Thus, these non -attribution factors would
not be relevant under {the} scenarios … referred to above (under which a
non-subsidized Airbus would not have entere d the market). The
European Communities also mentioned "the severe downturn in the market in
2001-2003" following the events of the 11 September 2001 attacks on the World
Trade Center ("9/11"), and exacerbated by the start of the war in Iraq and the
outbreak of SARS in Asia. Because Airbus LCA would not have been available in the
absence of subsidies, those airlines that purchased LCA during the "downturn" could
only have purchased them from Boeing or the other US manufacturer under {the
"plausible"} scenarios … .3276 (footnotes omitted)
6.1792. The European Union does, however, advance one non-attribution argument in the context
of the Singapore Airlines orders that we believe may be characterised as not being premised on
the existence and market presence of Airbus in the post-implementation period. According to the
European Union, Singapore Airlines chose the A350XWB in 2013 because it wanted to split its
order for twin -aisle LCA between Airbus and Boeing. The European Union notes that Singapore
Airlines committed to an order of 30 787 -10 aircraft at the same time as it ordered the 30 Airbus
A350WXB-900 aircraft. 3277 The European Union argues that one of the reasons why Singapore
Airlines did this was to secure the delivery of a larger number of aircraft over a particular period of
time. While the European Union's assertion may be correct, the fact that Singapore Airlines may
have wanted to split its 2013 order between both aircraft manufacturers does not help the
European Union, because in the "plausible" counterfactual s cenarios we have posited, not only
would Airbus not have existed, but the only other twin-aisle competitor would have been a
United States company. As such, to the extent that the evidence shows that Singapore Airlines
would have wanted to split its order between two LCA producers, those producers would have
been from the United States LCA industry.
6.1793. Turning to the three instances of "lost sales" in the single-aisle LCA segment, we note
that the Airbus aircraft actually purchased (the A320 and A321) offer a seating capacity that is in
excess of what a new entrant could have reasonably offered. Moreover, 200 of the 271 individual
aircraft ordered were new generation aircraft – A320neos. In our view, these facts demonstrate
that in the two "plausible" counterfactual scenarios we have posited above, Boeing would have had
a very strong competitive advantage over any new entrant in all three sales campaigns, as it could
have offered single -aisle LCA with characteristics that closely matched those demanded and
ultimately chosen by the relevant customers. Likewise, as an incumbent producer with long -
standing experience, it is apparent that the other United States LCA producer operating in one of
the two "plausible" counterfactuals would have also had a superior produc t offering compared with
any new entrant. While we recognize that seating capacity and operating cost efficiency are not
the only two factors that influence a customer's purchase decision, we find it difficult to see how
any new entrant could have develope d a credible single -aisle LCA offering that was sufficiently
advanced such that it could overcome its competitive disadvantage in these sales campaigns by

3276 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1264-1265.
3277 European Union's comments on the United States' response to Panel question No. 162; and
Singapore Airlines Press Release, "SIA To Order US$17 Billion Worth Of Aircraft From Airbus & Boeing",
30 May 2013, (Exhibit EU-531).

2012 and 2013. We recall in this regard our finding that in the "plausible" counterfactual scenario
where Boeing and another US producer would exist, it is likely that any new entrant could not
impose a greater competitive constraint on the two incumbent producers than the competitive
constraint that the non-US companies currently trying to enter the LCA market actually do against
Airbus and Boeing today (which in the words Airbus' Vice President for Contracts,
Christophe Mourey, is not "significant or widespread" 3278). Likewise, the fact that the smaller, less
advanced single -aisle aircraft that would have b een offered by a new entrant in the Boeing
monopoly scenario would be that company's first ever LCA suggests that it would have had a
difficult time to overcome its competitive disadvantage over Boeing in the three sales campaigns in
question, particularly those where the customer purchased the A320neo. Moreover, apart from
suggesting that a new entrant such as Bombardier might have won the particular sales instead of
Boeing, the European Union has identified nothing about the particular sales in question that would
make any possible new entrant's single -aisle LCA more attractive than the incumbents' LCA, given
the additional risks and uncertainty that would have been associated with its offerings.
6.1794. Again, the European Union advances a number of allegedly "n on-subsidy" reasons to
explain why the LA/MSF subsidies did not cause the "lost sales" in the single -aisle campaigns.
However, in our view, almost all of the European Union's submissions are premised on Airbus
being present in all three of the sales campai gns as exactly the same competitor selling identical
aircraft to those it markets today. In particular, the European Union argues that Airbus was able to
win the Norwegian Air Shuttle order for 100 A320neos in 2012 because of their fuel efficiency, the
alleged lack of "technical specification" of the 737MAX compared with the A320neo and a number
of other product -related advantages that it was able to offer. 3279 Likewise, the European Union
submits that China Aircraft Leasing Company chose Airbus over Boeing fo r a number of product -
related reasons that are mainly HSBI, some of which stemmed from Airbus' previous experiences
with this customer, certain characteristics of the A320 and A321, and the terms Airbus' offer. 3280
Finally, the European Union maintains that A irbus won the 2013 easyJet order for 100 A320neos
and 35 A320ceos because of the fuel efficiency of the former, the availability and flexibility that
Airbus showed in respect of delivery positions and the overall superior economics of the Airbus
offer compared with Boeing.3281
6.1795. Because Airbus would not have existed in the post -implementation period in the absence
of the effects of the LA/MSF subsidies, it is apparent that the European Union's arguments relating
to Airbus' product offering or actual experiences in the sales campaigns are of no relevance to the
question we must answer. As explained by the Appellate Body in the original proceeding, it "would
be pointless to attempt delineating the features of something that would not have existed without
subsidies."3282
6.1796. However, as it did in relation to the 2013 Singapore Airlines order for the A350XWBs, the
European Union advances one non -attribution argument in the context of the Norwegian Air
Shuttle order that we believe may be characterised as not being premised on the existence and
market presence of Airbus in the post -implementation period. According to the European Union,
Norwegian Air Shuttle chose the A320neo in 2013 because it wanted to split its order between
Airbus and Boeing single -aisle offerings. The E uropean Union notes that Norwegian Air Shuttle
ordered 100 737MAX and 22 737NGs at the same time that it ordered the 100 A320neos. 3283
According to the European Union, Norwegian Air Shuttle decided to take this action because it
considered that a "split order {between Airbus and Boeing} ensures capacity and encourages
competition", allowing the company to "hedge their bets … with regard to new and different
technologies".3284 While the European Union's assertion may be correct, the fact remains that

3278 Mourey Statement, (Exhibit EU-8) (BCI), fn 23.
3279 European Union's second written submission, paras. 1297-1298 (HSBI) (citing, inter alia, [[HSBI]]
Exhibit EU-228 (HSBI); and [[HSBI]] Exhibit EU-229 (HSBI)).
3280 European Union's second written submission, paras. 1240-1242 (HSBI) (citing, inter alia, [[HSBI]]
Exhibit EU-195 (HSBI); [[HSBI]] Exhibit EU-196 (HSBI); [[HSBI]] Exhibit EU-197 (HSBI); [[HSBI]] Exhibit
EU-198 (HSBI); and [[HSBI]] Exhibit USA-376 (HSBI)).
3281 European Union's comments on the United States' response to Panel question No. 62 (HSBI) (citing,
inter alia, Easyjet Press Release, "Easyjet plc announces fleet plans 18 June 2013" 18 June 2013, (Exhibit
EU-518); [[HSBI]] Exhibit EU-521 (HSBI); [[HSBI]] Exhibit EU-522 (HSBI); [[HSBI]] Exhibit EU-524 (HSBI);
[[HSBI]] Exhibit EU-525 (HSBI); [[HSBI]] Exhibit EU-527 (HSBI); and [[HSBI]] Exhibit EU-528 (HSBI)).
3282 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1264.
3283 European Union's second written submission, para. 1295.
3284 European Union's second written submission, para. 1301.

Norwegian Air Shuttle purchased A320neos from Airbus. The new entrant that might have existed
in the post -implementation period would not have been able to produce a credible competitor
aircraft in either of the two "plausible" counterfactual scenarios. As already note d, in the
counterfactual scenario where there would be two US incumbent producers, the aircraft at the
disposition of the new producer would not have been dissimilar to what the non -US companies
trying to enter the market today have at their disposition. S imilarly, in the "plausible"
counterfactual where Boeing would have been a monopolist, the fact that the smaller, less
advanced single -aisle aircraft that would have been offered by the new entrant would be that
company's first ever LCA suggests that it wo uld have had a difficult time to overcome its
competitive disadvantage over Boeing, particularly as regards the 737MAX, which we recall is the
closest competitor to the A320neo. Again, apart from suggesting that a new entrant such as
Bombardier might have won the particular sales instead of Boeing, the European Union has
identified nothing about the particular sales in question that would make any possible new
entrant's single-aisle LCA more attractive than Boeing's, given the additional risks and uncertain ty
that would have been associated with its offerings.
6.1797. Thus, to the extent that any non -US producer would have entered the LCA market in the
post-implementation period under either of the two "plausible" counterfactual scenarios, it is
apparent that this w ould have been possible only in the market for single -aisle LCA. Moreover, in
the light of the considerations we have outlined above, it is unlikely that any such competitor could
impose greater competitive constraints on the incumbent United States produc ers than those
actually imposed by any of the non -US companies trying to enter the LCA market today. This
implies that in the China Aircraft Leasing Company, easyJet and Norwegian Air Shuttle sales
campaigns, a new entrant could not have prevented any of t he incumbent US LCA producers from
winning the relevant sales in the absence of Airbus.
6.1798. Finally, we note that "lost sales", within the meaning of Article 6.3(c) of the SCM
Agreement, must be "significant". In the original proceeding, the panel "found that , in the light of
the number of aircraft and the dollar amounts involved in the sales, their strategic importance, the
learning effects and economies of scale they generate, and the advantages of incumbent supplier
provided by the sales, the{ lost sales in the 2001-2006 period} were significant." 3285 In our view,
this description regarding the significance of losing LCA sales to a rival LCA producer, which we
note was not specifically appealed or otherwise disturbed by the Appellate Body, remains, on the
whole, an accurate depiction of the significance of losing LCA sales to a rival LCA producer today,
and we incorporate it mutatis mutandis into this Report. We furthermore see no reason, based on
the record before us, to decline to characterize the lost sales i n the post-implementation period as
"significant" based on this description. Accordingly, we find that all of the orders identified in
Table 19 represent "significant" "lost sales" to the United States LCA industry and, therefore, that
the challenged LA/MS F subsidies continue to be a "genuine and substantial" cause of serious
prejudice to the United States within the meaning of Article 6.3(c) of the SCM Agreement.
Impedance and displacement in the relevant markets
6.1799. We begin our analysis by reviewing the guidance the Appellate Body has provided on how
to determine whether the effect of a subsidy is to impede or displace the imports or exports of a
like product into a relevant market within the meaning of Articles 6.3(a) and 6.3(b) of the
SCM Agreement. In US – Large Civil Aircraft (2 nd complaint), the Appellate Body summarized its
previous statements on the concepts of impedance and displacement in the following terms:
In EC and certain member States – Large Civil Aircraft, the Appellate Body explained
that " displacement" refers to an economic mechanism in which exports of a like
product are replaced by the sales of the subsidized product. Specifically, it found that
"displacement" connotes that there is "a substitution effect between the subsidized
product an d the like product of the complaining Member" and, in the context of
Article 6.3(b), "displacement arises where exports of the like product of the
complaining Member are substituted in a third country market by exports of the
subsidized product." The exist ence of displacement depends upon there being a
competitive relationship between these two sets of products in that market and, when

3285 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1212 (citing Panel
Report, EC and certain member States – Large Civil Aircraft, para. 7.1845).

this is the case, certain behaviour such as "{a}ggressive pricing" may "lead to
displacement of exports … in {that} particu lar market". An analysis of displacement
should assess whether this phenomenon is discernible by examining trends in data
relating to export volumes and market shares over an appropriately representative
period. With respect to "impedance", the Appellate Body expressed the view that this
concept may involve a broader range of situations than displacement and arises both
in "situations where the exports or imports of the like product of the complaining
Member would have expanded had they not been 'obstructed ' or 'hindered' by the
subsidized product", as well as when such exports or imports "did not materialize at
all because production was held back by the subsidized product". While there may be
some overlap between the concepts, "displacement" and "impedance " are therefore
not interchangeable concepts.3286 (footnotes omitted)
6.1800. In terms of the framework that should be applied to evaluate a claim of impedance or
displacement, the Appellate Body explained in the original proceeding that:
{T}he most appropriate approach to assess the effect of a subsidy under Article 6.3 of
the SCM Agreement is through a unitary counterfactual analysis. In the case of
displacement and impedance, the counterfactual analysis would involve estimating
what the sales of the complaining Mem ber would have been in the absence of the
challenged subsidy. The counterfactual sales of the complaining Member would then
be compared to its actual sales. Displacement or impedance would arise where the
counterfactual analysis shows that the sales of the complaining Member would have
declined less or would have been higher in the absence of the challenged subsidy.3287
6.1801. The United States claims that, in the light of the continued "product" effects of the
challenged LA/MSF subsidies and the conditions of compet ition in the LCA industry, the
United States LCA industry currently suffers serious prejudice in the form of displacement and/or
impedance of its LCA products in all three relevant product markets in the European Union, and in
11 third country product mark ets, within the meaning of Articles 6.3(a) and 6.3(b) of the
SCM Agreement.3288 To support its claims, the United States has introduced evidence of Airbus and
Boeing delivery volumes and market shares in all relevant product markets for each year from
2001 to 2013. Relying upon these data, the United States argues that in the absence of the
"product" effects of LA/MSF, the United States LCA industry's delivery volumes and market shares
would have been higher than they actually were in each of the relevant markets.3289
6.1802. The European Union rejects the United States claims, advancing multiple lines of
argument to support its view that the LA/MSF subsidies are not a "genuine and substantial" cause
of the claimed instances of impedance or displacement in the relevant product markets. One of the
core submissions made by the European Union in this regard is that the United States has failed to
demonstrate any clearly discernible trends (in the form of clearly declining delivery volumes and
market shares) to show that sale s of United States LCA have been either substituted in the
relevant markets or obstructed from entering those markets.3290
6.1803. An analysis of the trends in the evolution of a complainant's competitive position in a
relevant market over time may reveal inter alia that its volume of sales and market share have
generally: (a) remained stagnant; (b) decreased; (c) increased; or (d) fluctuated. Non -attribution
factors aside, the European Union maintains that the United States' displacement and impedance
claims may succ eed only if the relevant data clearly demonstrated the second of these four

3286 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1071 (citing Appellate Body
Report, EC and certain member States – Large Civil Aircraft, paras. 1119, 1160-1161, 1165-1166, and 1170).
3287 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1163.
3288 The United States also makes one conditional claim: that the United States' LCA industry is
threatened with displacement and/or impedance in the European Union product market for single-aisle LCA,
should the Panel reject its present serious prejudice claims in that market. (United States' first written
submission, para. 514; second written submission, para. 720; and response to Panel question No. 162)
3289 United States' first written submission, paras. 520-532.
3290 European Union' first written submission, paras. 845, 851, 854, 855, 951, 955, 959, 963, 1061,
1063, 1067, 1073, 1077, and 1079; second written submission, paras. 1562, 1600-1606, 1612, 1619, 1624,
1628, 1638, 1646, 1647, 1655-1656, 1658, 1661, 1667, 1674, 1678, 1681, 1685, 1688, and 1691; and
comments on the United States' response to Panel question No. 162.

possibilities. We are not persuaded by this argument as it implies that there can be no
displacement or impedance in a relevant market in a situation where the effect of a subsidy is to
prevent the like product from achieving a higher volume of sales and market share than would
otherwise be the case in the absence of the subsidy.
6.1804. While it is true that the Appellate Body faulted parts of the panel's displacement analysis
in the origi nal proceeding because of its failure to identify trends showing declining market
shares3291, it is important to recall that the Appellate Body made these findings only after having:
(a) explained that the identification of declining trends was a necessary element of the first part of
the panel's two-step approach to causation 3292; and (b) decided to limit its assessment of the
panel's displacement analysis for this purpose to the same question entertained by the panel –
namely, "whether there was an observable d ecline in the sales of Boeing". 3293 However, as we are
now undertaking a " unitary analysis" of the effects of the challenged subsidies for the purpose of
claims of both displacement and impedance, the Appellate Body's statements from the original
proceeding which the European Union draws support from do not appear to be entirely relevant to
the situation at hand.3294 Indeed, the position advocated by the European Union that would require
the United States to identify declining trends even in the context of a "uni tary analysis" of
causation is at odds with the very guidance explicitly provided by the Appellate Body in the original
proceeding, when (as already noted) it clarified that displacement or impedance will arise where:
Displacement or impedance would arise where the {unitary} counterfactual analysis
shows that the sales of the complaining Member would have declined less or would
have been higher in the absence of the challenged subsidy.3295 (emphasis added)
6.1805. Turning to the "appropriate{} representative period", we note that the United States has
submitted data for the period from 2001 to 2013.3296 For the reasons we have explained elsewhere
in this Report, we will focus on data from the post -implementation period, i.e. December 2011
through 2013 inclusive. When thi s is done, the volume of deliveries and market share information
we must consider in relation to the different product markets is the following:

3291 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1188-1190 and
1193-1198.
3292 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1170 ("{W}here
a complainant puts forward a case based on the existence of displacement as a directly observable
phenomenon and the panel opts to examine it under a two-step approach, as was done in this dispute,
displacement arises under Article 6.3(a) of the SCM Agreement where imports of a like product of the
complaining Member are declining in the market of the subsidizing Member, and are being substituted by the
subsidized product. … The identification of displacement under this approach should focus on trends in the
markets, looking at both volumes and market shares.") (emphasis added) and 1188 ("{W}e have explained
that, under the Panel's two-step approach, the analysis of displacement required an assessment of trends over
the entire reference period."). (emphasis added)
3293 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1179 ("We recall
that the Panel entertained the United States' claim of displacement on the basis of an assessment of whether
there was an observable decline in the sales of Boeing. Thus, we will limit our assessment to the question of
whether a decline in the sales of Boeing during the reference period can be observed from the data.").
3294 Moreover, even in the context of an analysis of displacement undertaken in a two-step approach to
causation, any assessment of trends in sales volumes and market share would have to be such that could shed
light on the market situation with and without the subsidies.
3295 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1163.
3296 See United States' response to Panel question Nos. 40 and 162; and Summary table of updated
Ascend Aircraft database, (Exhibit USA-578) (BCI).

Table 20: Market for single-aisle LCA
 European Union Australia China India
Delivery Data Dec.
2011 2012 2013 Dec.
2011 2012 2013 Dec.
2011 2012 2013 Dec.
2011 2012 2013
Boeing Volume (Units) 103297 59 29 43298 21 14 43299 73 123 13300 8 17
Boeing Market Share 83.3% 49.6% 29.0% 80% 77.8% 51.9% 33.3% 41.7% 55.9% 33.3% 26.7% 43.6%
Airbus Volume (Units) 23301 60 713302 13303 6 13 83304 102 973305 23306 22 22
Airbus Market Share 16.7% 50.4% 71.0% 20% 22.2% 48.1% 66.7% 58.3% 44.1% 66.7% 73.3% 56.4%

Table 21: Market for twin-aisle LCA
 European Union China Korea Singapore
Delivery Data Dec.
2011 2012 2013 Dec.
2011 2012 2013 Dec.
2011 2012 2013 Dec.
2011 2012 2013
Boeing Volume (Units) 13307 8 15 13308 7 19 0 2 3 0 0 2
Boeing Market Share 100% 30.8% 65.2% 50% 30.4% 47.5% - 50.0% 50.0% - - 25.0%
Airbus Volume (Units) 0 18 8 13309 16 21 0 2 3 0 0 6
Airbus Market Share 0.0% 69.2% 34.8% 50% 69.6% 52.5% - 50.0% 50.0% - - 75.0%

3297 Boeing delivered two 737NGs to Ryanair on 2 December 2011, two 737NGs to Ryanair on
6 December 2011, one 737NG to Ryanair on 15 December 2011, one 737NG to Ryanair on 16 December 2011,
two 737NGs to Ryanair on 20 December 2011, one 737NG to Thomson Airways on 21 December 2011, and
one 737NG to Air Berlin on 30 December 2011. (Ascend database, Deliveries made, data request as of
7 April 2014, (Exhibit EU-512))
3298 Boeing delivered one 737NG to Qantas on 6 December 2011, one 737NG to Virgin Australia on
12 December 2011, one 737NG to Virgin Australia on 21 December 2011, and one 737NG to Qantas on
27 December 2011. (Ascend database, Deliveries made, data request as of 7 April 2014, (Exhibit EU-512))
3299 Boeing delivered one 737NG to Air China on 8 December 2011, one 737NG to China Southern
Airlines on 13 December 2011, one 737NG to Hainan Airlines on 15 December 2011, and one 737NG to
Nanshan Jet on 16 December 2011. (Ascend database, Deliveries made, data request as of 7 April 2014,
(Exhibit EU-512))
3300 Boeing delivered one 737NG to SpiceJet on 22 December 2011. (Ascend database, Deliveries made,
data request as of 7 April 2014, (Exhibit EU-512))
3301 Airbus delivered one A320 to Air Berlin on 21 December 2011 and one A321 to Lufthansa on
27 December 2011. (Ascend database, Deliveries made, data request as of 7 April 2014, (Exhibit EU-512))
3302 The European Union claims that this number should be 72, not 71. (European Union's comments on
the United States' response to Panel question No. 162, para. 59).
3303 Airbus delivered one A320 to Qantas/Jetstar on 5 December 2011. (Ascend database, Deliveries
made, data request as of 7 April 2014, (Exhibit EU-512))
3304 Airbus delivered one A321 to Air China on 6 December 2011, one A320 to Hainan Airlines on
13 December 2011, one A320 to China Eastern Airlines on 21 December 2011, one A320 to Air China on
22 December 2011, one A320 to Spring Airlines on 23 December 2011, one A320 to China Southern Airlines on
23 December 2011, one A320 to Air Lease Corporation on 29 December 2011, and one A319 to Sanay Group
Company on 30 December 2011. (Ascend database, Deliveries made, data request as of 7 April 2014,
(Exhibit EU-512))
3305 The European Union claims that this number should be 99, not 97. (European Union's comments on
the United States' response to Panel question No. 162, para. 71).
3306 Airbus delivered two A320s to IndiGo on 6 December 2011. (Ascend database, Deliveries made,
data request as of 7 April 2014, (Exhibit EU-512))
3307 Boeing delivered one 777 to GECAS on 9 December 2011. (Ascend database, Deliveries made, data
request as of 7 April 2014, (Exhibit EU-512))
3308 Boeing delivered one 777 to Air China on 12 December 2011. (Ascend database, Deliveries made,
data request as of 7 April 2014, (Exhibit EU-512))
3309 Airbus delivered one A330 to China Eastern Airlines on 5 December 2011. (Ascend database,
Deliveries made, data request as of 7 April 2014, (Exhibit EU-512))

Table 22: Market for very large LCA
 European Union Australia China
Delivery Data Dec.
2011 2012 2013 Dec.
2011 2012 2013 Dec.
2011 2012 2013
Boeing Volume (Units) 0 5 5 0 0 0 0 0 0
Boeing Market Share - 55.6% 55.6% 0.0% - - 0.0% 0.0% 0.0%
Airbus Volume (Units) 0 4 4 13310 0 0 13311 2 1
Airbus Market Share - 44.4% 44.4% 100% - - 100% 100% 100%

 Korea Singapore United Arab Emirates
Delivery Data Dec.
2011 2012 2013 Dec.
2011 2012 2013 Dec.
2011 2012 2013
Boeing Volume (Units) 0 0 0 0 0 0 0 03312 0
Boeing Market Share - 0.0% 0.0% - 0.0% - 0.0% 0.0% 0.0%
Airbus Volume (Units) 0 1 2 0 5 0 23313 11 13
Airbus Market Share - 100% 100% - 100% - 100% 100% 100%

6.1806. In the l ight of the two "plausible" counterfactual scenarios we have elaborated in the
previous subsection, it is apparent that in the absence of the effects of the challenged LA/MSF
subsidies, the volume of deliveries and market shares that would have been achiev ed by the
United States' LCA industry would have been higher than its actual level. First, we recall that in
both "plausible" counterfactual scenarios, any new non -US LCA competitor would have only
entered the market with a single-aisle LCA, implying that the twin-aisle and VLA markets would
have been supplied by the United States' industry alone. Second, while it is possible that any new
non-US LCA producer entering the market after the end of 2006 might well have been able to win
a relatively small number of single-aisle aircraft orders between 1 December 2011 and the end of
2013, we have strong doubts about whether such a new entrant could have also made deliveries
over these years. In this regard, we recall that deliveries of new LCA will lag their order date by
typically at least three years, and usually many more years in respect of newly launched aircraft.
Moreover, recent experience shows that delays in the delivery of newly launched aircraft often
arise even for well -resourced and expert producers su ch as Airbus and Boeing. 3314 In order to
accept that a new producer entering the LCA market for the first time after 2006 could have
delivered a single-aisle LCA between 1 December 2011 and the end of 2013, we would have to be
satisfied that it would have bee n able to launch, develop, sell, produce and deliver a single -aisle
LCA within approximately six years, at most. In our view, such an achievement would be difficult
for even Airbus and Boeing to realize. Thus, we do not believe that any new non-United States LCA
producer entering the market in 2007, at the earliest, could have delivered a single -aisle LCA
between 1 December 2011 and the end of 2013.

3310 Airbus delivered one A380 to Qantas on 15 December 2011. (Ascend database, Deliveries made,
data request as of 7 April 2014, (Exhibit EU-512))
3311 Airbus delivered one A380 to China Southern Airlines on 16 December 2011. (Ascend database,
Deliveries made, data request as of 7 April 2014, (Exhibit EU-512))
3312 The European Union claims that this number should be one, not zero. (European Union's comments
on the United States' response to Panel question No. 162, para. 145. See also European Union's comments on
the United States' response to Panel question No. 40, fn 321 (also noting this discrepancy in previously offered
delivery data)).
3313 Airbus delivered one A380 to Emirates on 2 December 2011 and another A380 to Emirates on
16 December 2011. (Ascend database, Deliveries made, data request as of 7 April 2014, (Exhibit EU-512))
3314 See above paras. 6.509-6.510, 6.528-6.531 (A380), 6.478 (787), and 6.1711 and fns 3059 and
3188 (A350XWB).

6.1807. The European Union submits that the United States cannot demonstrate that its LCA have
been displaced or impe ded from the relevant markets without first establishing that it has "lost
sales" in those markets. In other words, the European Union argues that in order for the
United States to make out its displacement and impedance claims, it must demonstrate that th e
deliveries underlying the relevant market shares are attributable to "significant lost sales … found
during the original proceeding, or even lost sales as claimed by the United States during these
compliance proceedings".3315
6.1808. We are not convinced by the Eur opean Union's submission. In our view, there is no
textual basis in the SCM Agreement on which to reason that a showing of displacement and
impedance in a particular market for the purpose of Article 6.3(a) and (b) must be based on
findings of significant lost sales in the same market under Article 6.3(c). We fail to understand
what would be the purpose of defining market displacement and impedance, and significant lost
sales, as separate causes of action available to WTO Members under the terms of Article 6.3, if
establishing the former required demonstrating the latter. We recall in this regard that in US –
Large Civil Aircraft (2 nd complaint), the Appellate Body stressed the distinct features of market
displacement and impedance claims, compared with sign ificant lost sales, rejecting the notion of a
"dependent relationship between"3316 them:
We do not agree with the implication of the Panel's reasoning that the phenomena of
displacement and impedance necessarily follow from a finding of significant lost sales .
In EC and certain member States – Large Civil Aircraft, the Appellate Body
acknowledged the potential overlap of lost sales, and displacement and impedance, in
that both phenomena relate to a firm's sales. The Appellate Body, however, also
identified dis tinctions between these concepts. For example, the Appellate Body
observed that the assessment of displacement or impedance "has a well -defined
geographic focus", whereas the relevant geographic market for assessing lost sales is
not similarly confined, and may even extend to the world market. The Appellate Body
also noted that the fact that lost sales must be "significant" implies that the
assessment must have both quantitative and qualitative dimensions, whereas the
assessment of displacement and impedanc e is primarily quantitative in nature. 3317
(footnotes omitted)
6.1809. Furthermore, we note that in the original proceeding, the Appellate Body upheld the
panel's finding that the challenged LA/MSF subsidies were a "genuine and substantial" cause of
displacement in certain geographic markets without ever establishing that all of the delivery data
underlying the United States' claims were based on orders of Airbus LCA found to constitute
"significant lost sales". In particular, in the light of the original panel's two -step causation analysis,
the Appellate Body first reviewed delivery volumes and market share data in the relevant
geographic markets in order to discern trends in the data evidencing displacement. In the second
step of its analysis, the Appellate Body exam ined whether the subsidies were a "genuine and
substantial" cause of the displacement it had found to exist in the relevant geographic markets.
The Appellate Body reasoned that, in the light of the "plausible" counterfactual scenarios, none of
the Airbus d eliveries would have occurred and, " {a}s Boeing (or the other US manufacturer
envisaged by the Panel) would be the only supplier(s) of LCA, it (or they) would have made the
sales instead". For the Appellate Body, this was enough to "satisf{y}, without more , the 'genuine
and substantial relationship' standard articulated by the Appellate Body in US – Upland Cotton."3318
Thus, we can see no merit in the European Union's submission that the United States cannot
establish its claims of displacement or impedance fo r the purpose of Article 6.3(a) and (b) of the
SCM Agreement, without also demonstrating that all of the Airbus deliveries made in any particular
market constitute "significant lost sales" within the meaning of Article 6.3(c).
6.1810. The European Union argues tha t the United States has failed to establish that the effect
of the LA/MSF subsidies was to displace or impede Boeing's LCA from the Indian market for single-
aisle LCA in the 2011 to 2013 period because, according to the European Union, "almost all" of the

3315 European Union's first written submission, paras. 853, 855, 857, 952, 956, 960, 964, and 1068;
response to Panel question 36; and comments on the United States' response to Panel questions 36, 39, and
162.
3316 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1240.
3317 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1241.
3318 Appellate Body Report, EC and certain member States – Large Civil aircraft, para. 1264.

relevant deliveries in those years resulted from an order for A320s made by IndiGo Airlines in
2005, and Boeing had been "unwilling to sell aircraft to IndiGo Airlines in 2005". 3319 One of the
pieces of evidence the European Union relies upon to substantiate these assertions is an article in
the Seattle Times in which Boeing's "chief sales executive for India" is quoted as having stated
that "his team had also negotiated with IndiGo {in relation to the 2005 order for 100 A320s}, but
had refused to sell them so many airplanes in one purchase". The article quotes the same sales
executive as having also said that Boeing "told them it didn't make sense for an airline that hadn't
flown one flight yet'" to order 100 single -aisle LCA, given that at the relevant time, all "Indian
airlines together … have a combined fleet of 165 airliners … {a}nd even at that number, the Indian
airport infrastructure is strained to accommodate them and there is a big shortage of pilots". 3320
Similar scepticism about the extent to which Indi Go Airlines "will ever take delivery of the 100
A320s" ordered in 2005 was expressed by Boeing's Vice President for marketing in an interview
appearing in Airline Fleet & Network Management, where he is quoted as having said: "We would
think {the delivery of the 100 A320s} is a low probability, though that doesn't mean it can't
happen. One of the big challenges … is infrastructure: if infrastructure is constraining you it's
difficult to grow".3321
6.1811. It is apparent from these two accounts of Boeing's views of the Airbus sale to IndiGo
Airlines that Boeing did not believe IndiGo Airlines would be able to accept delivery of all of the
100 single -aisle LCA ordered in 2005, and for this reason, "refused" to agree to make a sale
involving that number of LCA. In our vie w, however, this fact does not demonstrate that the
deliveries of Airbus A320s made into the Indian market for single -aisle LCA do not represent lost
market share to the United States' LCA industry.
6.1812. We recall that in the "plausible" counterfactuals which s erved as the basis of the adopted
findings in the original proceeding, Airbus would not have existed in 2005 in the absence of the
pre-A350XWB LA/MSF subsidies, and there would have been either a Boeing monopoly or a
duopoly involving Boeing and another Un ited States manufacturer serving LCA customers. On the
basis of these findings alone, it is evident that Airbus could not have made the relevant deliveries
between 1 December 2011 and the end of 2013. Had Boeing refused to make all of those sales
and IndiGo Airlines maintained its request, IndiGo Airlines would have, no doubt, sought to fill its
order by approaching the other United States' producer operating in the "plausible" duopoly
counterfactual scenario. On the other hand, had Boeing refused to make t he desired number of
sales in the "plausible" monopoly scenario, it is difficult to see what else IndiGo Airlines could have
done but to negotiate a smaller order that would have been acceptable to both parties or, possibly,
spread out the delivery of 100 single-aisle LCA over a longer period of time that might have
addressed Boeing's perceptions about the potential lack of infrastructure. Thus, it is, in our view,
apparent that not only were the pre-A350XWB LA/MSF subsidies a "genuine and substantial" cause
of the deliveries made by Airbus into the Indian market for single -aisle LCA in between
1 December 2011 and the end of 2013, but also that in the absence of those subsidies, those
deliveries would have been made by the United States' LCA industry.
6.1813. Finally, the European Union advances three additional reasons why it considers that the
United States has failed to demonstrate that the LA/MSF subsidies, as opposed to other non -
subsidy factors, are a "genuine and substantial" cause of the alleged displacement and impedance
in the different LCA markets. First, the European Union submits that the United States has ignored
the fact that "present" Airbus deliveries into the Australian market for single -aisle LCA resulted
from an order for A320s made by Jetstar (Qan tas Group) in 2007 "because A320s 'were the core
aircraft in Jetstar's short haul fleet'", which made it possible for Jetstar to "avoid{} switching costs
and could benefit from the advantages of commonality". 3322 Second, the European Union argues
that the Uni ted States has failed to address "any political involvement in China that resulted in
orders and subsequent deliveries" of single -aisle LCA or "the fact that many of the A320 family
aircraft delivered to Chinese customers are, in fact, assembled in China – strengthening the

3319 European Union's second written submission, para. 1595; and comments on the United States'
response to Panel question No. 162.
3320 "Airbus boasts of orders that trounce Boeing deals", Seattle Times, 17 June 2005, (Exhibit EU-340).
3321 "AF&NM interview: Randy Baseler, VP Marketing, Boeing Commercial Airplanes", Airline Fleet and
Network Management, January/February 2006, pp. 60-63, (Exhibit EU-341),p. 62.
3322 European Union's second written submission, paras. 1587-1589 (quoting Qantas Press Release,
"Qantas unveils short haul fleet plan for the next decade", 14 November 2007, (Exhibit EU-335)); and
comments on the United States' response to Panel question No. 162.

demand for these aircraft in China for reasons wholly unrelated to the alleged subsidies". 3323 Third,
the European Union maintains that the United States has failed to account for the effect of the
development and production delays affectin g the 787 and the 747 -8 on the limited number of
sales achieved by Boeing in the markets for twin-aisle and very large LCA, respectively.3324
6.1814. In our view, all three of the additional reasons the European Union relies upon are either
entirely or partly premised on the existence of Airbus as a competitive LCA producer offering a full
range of LCA in all three LCA product markets. We have found, however, that in the "plausible"
counterfactual scenario, Airbus would not have existed at the relevant times. Thus, t he fact that
"many" of the A320 sales made in China were influenced by the fact that Airbus has local assembly
operations, is not a non-subsidy reason that can explain those sales. On the contrary, the very fact
that Airbus would not have existed at the re levant times in the absence of the effects of the
LA/MSF subsidies means that Airbus could not have invested in Chinese assembly operations and,
therefore, that LA/MSF subsidies must be a "genuine and substantial" cause of the post -
implementation period deliveries of A320 into China.
6.1815. Similarly, the fact that Jetstar's 2007 order of A320s was made because of the
advantages of commonality resulting from Jetstar's existing fleet of Airbus LCA also clearly
demonstrates that the "product" effects of the LA/MSF subsidies were a "genuine and substantial"
cause of the deliveries in question. Moreover, the fact that political considerations favouring a
producer from the European Union, as opposed to the United States, may have influenced some of
the sales of Airbus single-aisle LCA into China 3325 is, in our view, irrelevant under the "plausible"
counterfactual where the only LCA producers would be from the United States.
6.1816. Lastly, we do not see the delays in the development and production of the 787 and the
747-8 to mean that, in the absence of the "product" effects of the LA/MSF subsidies, Boeing or the
United States' LCA industry would not have won the orders corresponding to the deliveries made in
the different markets for twin -aisle and very large LCA. The fact that A irbus would not have
existed in the absence of the LA/MSF subsidies means that customers that could not wait for the
787 and 747-8 to become available would have turned to either Boeing's other twin -aisle LCA, the
767 and the 7773326, or the twin-aisle LCA of the other United States' LCA producer.
6.1817. Thus, for all of the above reasons, we find that in the absence of the "product" effects of
the challenged LA/MSF subsidies, the volume of deliveries and market shares that would have
been achieved by the United States' LCA industry between 1 December 2011 and the end of 2013
would have been higher than its actual level in all relevant product markets. Accordingly, we find
that the United States has established that the "product" effects of the challenged LA/MSF
subsidies are a "genuine and substantial" cause of displacement and/or impedance of
United States LCA in the markets for single -aisle LCA in the European Union, Australia, China and
India; twin-aisle LCA in the European Union, China, Korea and Singapore; and v ery large LCA in
the European Union, Australia, China, Korea, Singapore and the United Arab Emirates.
6.1818. In the light of these findings, we make no determination of the United States' claim of
threat of displacement and impedance in the market for single -aisle LCA in the European Union,

3323 European Union's second written submission, para. 1625; and comments on the United States'
response to Panel question No. 162.
3324 European Union's first written submission, paras. 519, 1061-1062, 1064, 1067, 1073, 1077, and
1079; second written submission, paras. 1634, 1641, 1650, 1662, 1669, and 1672; and comments on the
United States' response to Panel question Nos. 40, 43, 155, and 162.
3325 We note, in this regard, that the European Union does not specifically identify exactly which orders
of Airbus single-aisle LCA were achieved in China because of alleged political considerations, arguing only
generally that "politics in selling aircraft to Chinese customers, and in particular in obtaining governmental
approval for the purchase deal" is important. (European Union's second written submission, para. 1625; and
comments on the United States' response to Panel question No. 162 (citing Elizabeth Dwoskin, "How to sell an
airplane in China", Bloomberg Businessweek, 18 October 2012, (Exhibit EU-343)))
3326 We recall that we have found that the 767 and the 777 compete in the same twin-aisle product
market as the 787, and that there is evidence that the larger versions of the 777 may also at times challenge
for sales in the market for very large LCA.

given that the United States requested the Panel to consider this claim only if we rejected its
claims of present serious prejudice.3327
6.6.4.5.4.5 The effects of the non-LA/MSF subsidies
Introduction
6.1819. Having found that the challenged LA/MSF subsidies are a "genuine and substantial" cause
of serious prejudice to the interests of the United States, within the meaning of Article 6.3(a), (b)
and (c) of the SCM Agreement, we now turn to examine whether the United States has
demonstrated that the e ffects of the non-LA/MSF subsidies are a " genuine" cause of the same
forms of serious prejudice, such that they may be "cumulated" with those of the LA/MSF subsidies.
6.1820. We recall that the original panel "cumulated" the effects of the non -LA/MSF subsidies
after having found that those effects "complemented and supplemented" the effects of the
pre-A350XWB LA/MSF subsidies. 3328 The Appellate Body upheld the original panel's causation
findings in relation to all of the non -LA/MSF measures with respect to which it h ad confirmed the
original panel's subsidization findings, with the exception of the R&TD subsidies. 3329 In this
proceeding, the United States requests that we come to essentially the same conclusion with
respect to the allegedly ongoing effects of the followi ng non -LA/MSF subsidies: (a) the French
Government's equity infusions into Aérospatiale in 1987, 1988, 1992 and 1994; (b) the German
Government's acquisition of a 20% interest in Deutsche Airbus in 1989 and its subsequent transfer
to MBB in 1992; and (c) 1 1 German and Spanish infrastructure -related regional development
grants.3330
6.1821. Recalling the Appellate Body's affirmation of the original panel's findings concerning the
effects of these non-LA/MSF subsidies, the United States submits that their effects should be once
again "cumulated" with those of the challenged LA/MSF subsidies because they continue to
"complement and supplement" the "product" effects of LA/MSF, thereby "genuinely" contributing
to the causation of serious prejudice to the United States' inter ests in the post -implementation
period. Thus, the United States argues that "{j}ust as it was in the period examined by the
original panel, Airbus in the current period has been in a position to offer its LCA product line in
part because the equity infusio ns 'guarantee{d} the continued existence and financial stability of
Aérospatiale and Dasa, and enchanc{ed} those companies' borrowing capacity in the wake of
further investments in the production and development of particular models of LA/MSF -financed
Airbus LCA'". 3331 Likewise, the United States asserts that the Appellate Body "reached a similar
conclusion with respect to the infrastructure subsidies", namely, that they "'all have a genuine
causal link with the creation or expansion of production facilities f or various models of Airbus
LCA'".3332 The United States maintains that nothing material has changed since the original
proceeding that could justify departing from these conclusions today.3333

3327 United States' first written submission, para. 514; second written submission, para. 720; and
response to Panel question No. 162.
3328 Appellate Body Report, United States – Large Civil Aircraft (2nd complaint), para. 1288.
3329 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1381-1413. The
original panel's analysis of the effects of the non-LA/MSF subsidies included the 1998 transfer by the French
Government of its 45.76% interest in Dassault Aviation to Aérospatiale and certain infrastructure measures
relating to the Aéroconstellation industrial site and associated EIG facilities. On appeal, the Appellate Body
found that these measures did not amount to "subsidies" within the meaning of the SCM Agreement and,
therefore, declared the original panel's causation findings with respect to these measures "moot and of no legal
effect". (Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 993, 1026-1027,
1385, 1396, and fn 3064)
3330 As already noted, the United States' non-compliance claims do not include the Bremen Airport
runway extension measure and the lease on the Mühlenberger Loch industrial site, both of which were found to
be non-LA/MSF subsidies "complementing and supplementing" the effects of the pre-A350XWB LA/MSF
subsidies in the original proceeding.
3331 United States' first written submission, para. 403 (quoting Appellate Body Report, EC and certain
member States – Large Civil Aircraft, para. 1390).
3332 United States' first written submission, para. 404 (quoting Appellate Body Report, EC and certain
member States – Large Civil Aircraft, para. 1397).
3333 United States' first written submission, paras. 400-406; second written submission, para. 383; and
response to Panel question No. 38.

6.1822. The European Union responds to the United States specific arguments in essentially one
paragraph, submitting that the United States has failed to "provide arguments and evidence that
{would} enable a panel to decide whether or not to cumulate any effects" of the non -LA/MSF
subsidies with those of the LA/MSF subsidies. 3334 Furthermore, in response to a question from the
original panel, the European Union explained that although not disagreeing with the United States'
view that, in principle, the effects of the non-LA/MSF subsidies may be cumulated with those of the
LA/MSF subsidies, according to the European Union, such cumulation would be legitimate only in
relation to the effects of the non-LA/MSF subsidies that continue to exist.3335
6.1823. As we have already evaluated and dismissed the European Union's submissions
concerning the purpo rted requirement to demonstrate the continued existence of a subsidy (i.e.
"present subsidization") in the context of Article 7.8 of the SCM Agreement3336, we see no need to
revisit the European Union's line of argument for the purpose of our analysis of the United States'
request to "cumulate" the effects of the non -LA/MSF subsidies with the effects of the LA/MSF
subsidies. We therefore focus our assessment of the merits of the United States' "cumulation"
arguments on the extent to which the United States has shown that the effects of the non -LA/MSF
subsidies continue to "complement and supplement" the effects of the LA/MSF subsidies, thereby,
constituting a "genuine" cause of the instances of serious prejudice that are the subject of the
United States' claims under Article 6.3(a), (b) and (c) of the SCM Agreement.
6.1824. We start our analysis by recalling the guidance provided by the Appellate Body in US –
Large Civil Aircraft (2nd complaint) in relation to the circumstances in which it would be appropriate
to "cumulate" the effects of one set of subsidies with the effects of another set of subsidies for the
purpose of serious prejudice claims advanced under Articles 5(c) and 6.3 of the SCM Agreement.
The Appellate Body's guidance on the "cumulation" of subsidy effects
6.1825. In US – Large Civil Aircraft (2 nd complaint), the Appellate Body clarified that there are at
least two ways of conducting a collective assessment of the effects of multiple subsidies for the
purpose of conducting a serious prejudice analysis within the meaning of Articles 5(c) and 6.3 of
the SCM Agreement – "aggregation" and "cumulation". 3337 Elsewhere in this Report, we have
explained the core principles which underpin the "aggregation" of the effects of multiple subsidies
and applied those principles to our assessment of the effects of the challenged LA/MSF subsidies in
this proceeding.3338 Having found that the aggregated effects of the challenged LA/MSF subsidies
are a "genuine and substantial" cause of serious prejudice to the United States' interests, we must
now determine whether the effects of the relevant non-LA/MSF subsidies may be "cumulated" with
the effects of the LA/MSF subsidies. The Appellate Body has described the process of "cumulation"
as follows:
{A} panel may begin by analyzing the effects of a single subsidy, or an aggregated
group of subsidies, in order to determine whether it constitutes a genuine and
substantial cause of adverse effects. Having reached that conclusion, a panel may
then assess whether other subsidies—either individually o r in aggregated groups —
have a genuine causal connection to the same effects, and complement and
supplement the effects of the first subsidy (or group of subsidies) that was found,
alone, to be a genuine and substantial cause of the alleged market phenomena . The
other subsidies have to be a "genuine" cause, but they need not, in themselves,
amount to a "substantial" cause in order for their effects to be combined with those of
the first subsidy or group of subsidies that, alone, has been found to be a genuine and
substantial cause of the adverse effects.
…

3334 European Union's first written submission, para. 714.
3335 European Union's response to Panel question No. 38; and comments on the United States' response
to Panel question No. 38.
3336 See above at Section 6.6.2.
3337 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 1284-1288.
3338 See above paras. 6.1445-6.1451.

Considerations that may bear upon a panel's assessment of whether a genuine causal
connection exists include the design, structure, magnitude, and operation of the
subsidy, as well as the nexus between the subsidy and the subsidized product. In our
view, a genuine causal connection may be established in different ways. One way is to
demonstrate that the subsidy or subsidies cause effects that follow the same causal
pathway as a subsidy that has already been found to be a genuine and substantial
cause of the alleged market phenomena under Article 6.3 of the SCM Agreement. We
do not, however, consider that this is the only way in which the requisite genuine
causal connection can be established. A genuine causal connection may also be found
when a complainant succeeds in demonstrating that, even though other subsidies do
not operate along the same causal pathway, those subsidies nevertheless, either
singly or in combination, meaningfully contribute to, and thereb y complement and
supplement, the adverse effects, within the meaning of Article 6.3, caused by the first
subsidy. In other words, the effects of such other subsidy or group of subsidies must
be shown to be non -trivial in order to be found to supplement or complement effects
for which a genuine and substantial connection has already been established. 3339
(emphasis original)
6.1826. With this guidance in mind, we now turn to evaluate whether it is appropriate to cumulate
the effects of non -LA/MSF subsidies with the effe cts of the LA/MSF subsidies. We start by first of
all recalling the findings made in the original proceeding with respect to the effects of the non -
LA/MSF subsidies the United States challenges in this proceeding before going on to examine the
extent to wh ich those effects continue in the post -implementation period, such that it would be
appropriate to conclude that they remain a "genuine" cause of serious prejudice to the
United States' interests.
French and German capital contributions
Findings of the original panel and the Appellate Body
6.1827. The French government equity infusions that are the subject of the United States'
complaint were comprised of three investments into the capital of Aérospatiale in 1987, 1988 and
1994 amounting to FF 1.25 billion, FF 1.25 billion and FF 2 billion, respectively, and a 1992
acquisition through Crédit Lyonnais, at the time controlled by the French Government, of a 20%
equity interest in Aérospatiale amounting to FF 1.4 billion.3340
6.1828. The original panel and the Appellate Body described the design, structure, magnitude and
operation of these equity infusions in detail, as well as their nexus with Airbus LCA, finding that
the subsidies were provided at a time when Aérospatiale "required the additional equity to fund
investments in fi xed assets and inventory, and advances to suppliers, in connection with the
development of new aircraft". 3341 The original panel explained that Aérospatiale "required
additional equity capital … in order to fund new investments, such as the ramp -up for manufacture
of the A320 … and the launch of the A330/A340". 3342 Indeed, in its arguments to the original
panel, the European Communities had acknowledged that Aérospatiale could not have undertaken
these investments without the government subsidies. 3343 Moreover, at a ll relevant times, the
evidence reviewed by the original panel revealed that Aérospatiale's financial condition was
relatively poor, with only uncertain prospects for the immediate future.3344
6.1829. Turning to the German Government's 1989 capital contribution and s hare transfer, the
original panel explained that these took place in the context of the German Government's 1989
restructuring of Deutsche Airbus, which was prompted by Deutsche Airbus' near failure and the
desire on the part of the German Government to "c reate a realistic chance of placing the Airbus
program under full private industry responsibility over the longer term and thus reducing the level

3339 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 1287 and 1292.
3340 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 630 (citing Panel
Report, EC and certain member States – Large Civil Aircraft, para. 7.1324).
3341 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1957.
3342 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1364 (citing the
European Communities' first written submission, paras. 1134-1135).
3343 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1957.
3344 Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.1363-7.1375.

of state financial assistance for Airbus." 3345 As part of the German Government's restructuring
plan, it was agr eed that Deutsche Airbus would, inter alia , receive a DM 505 million capital
contribution from KfW, and in return, KfW would hold a 20% interest in Deutsche Airbus for ten
years, after which it would be sold to MBB. 3346 Moreover, for at least the first eight years of this
investment, KfW agreed that any profits generated by Deutsche Airbus would be used first to build
up Deutsche Airbus' capital base and to form a special reserve to compensate Deutsche Airbus for
exchange rate losses.3347 At the time, Deutsche Airbus "anticipated that it would require additional
financing for the A320 programme, and the start -up of the A330/A340 programme" 3348, with its
financial position being "exceedingly poor". 3349 Indeed, the European Communities had
acknowledged that by 1989, Deutsche Airbus was on "the verge of bankruptcy".3350
6.1830. As regards the 1992 transfer of KfW's 20% interest in Deutsche Airbus to MBB, the
original panel found that the earlier than expected (1992 instead of 1999) transfer was triggered
by the German Government's dec ision to cancel the DM 4.1 billion exchange rate loss insurance
scheme agreed under the 1989 restructuring plan. In essence, the early transfer of KfW's 20%
interest was one of the measures designed to compensate Deutsche Airbus for the loss of this
assistance, which had been anticipated to continue until 2000. 3351 Thus, it is apparent that the
1992 share transfer transaction was inherently connected to the 1989 restructuring plan, and in
particular the exchange rate insurance measure, which we understand was not limited to any one
or more specific LCA products.
6.1831. In the light of these factual findings, the original panel concluded that the aggregated
effects of the capital contribution subsidies provided by the French and German governments
"complemented and sup plemented" the "product" effects of the pre -A350XWB LA/MSF subsidies
because:
The equity investments and share transfer measures of the French and German
governments ensured the continued existence and financial stability of the respective
national entitie s engaged in the Airbus enterprise. Those entities were a necessary
element of the overall Airbus effort, as it is clear to us that without their participation
in the overall effort, Airbus would not have been able to continue to develop, launch
and produce LCA in fulfilment of the goal of developing a full range of LCA for the
market. Moreover, as noted above, Aérospatiale required the additional equity to fund
investments in fixed assets and inventory, and advances to suppliers, in connection
with the dev elopment of new aircraft. As the European Communities acknowledges
that Aérospatiale could not have undertaken these investments without the
government's assistance through equity infusions, it seems clear to us that these
equity investments directly suppo rted the development of LCA in a manner that was
as direct as LA/MSF.3352 (footnotes omitted)
6.1832. On appeal, the Appellate Body evaluated various aspects of the original panel's causation
analysis, including whether it was proper to have cumulated the effects of the capital contribution
subsidies with those of the pre-A350XWB LA/MSF subsidies. The Appellate Body upheld the original
panel's findings in all material respects. In doing so, the Appellate Body first of all noted that the
relevant subsidies:

3345 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1247. (internal quotation
marks omitted; footnote omitted)
3346 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1248.
3347 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1265.
3348 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1247.
3349 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1276.
3350 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1276.
3351 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1298.
3352 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1957. See also
Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1386-1391 (upholding the
Panel's relevant findings in this context). Although the original panel did not explicitly state that it was
considering the aggregated effects of the relevant subsidies, it is apparent from the absence of panel (or
Appellate Body) findings in relation to the effects of each of the subsidy measures individually that this is
precisely what the original panel did. In our view, the similarities between the design, structure and operation
of the subsidies, as articulated in the original panel's factual findings, are such that it would be appropriate to
continue to consider their effects in the aggregate.

{W}ere capital investments that were not necessarily tied to the development of any
particular model of Airbus LCA. However, the equity infusions at issue were …
undertaken with the specific purpose of addressing the undercapitalization of both
Aérospatiale and Deuts che Airbus, which, during the 1990s, threatened the
investment capacity—and indeed the very existence—of both companies. As the Panel
correctly noted, these equity infusions "ensured the continued existence and financial
stability" of Aérospatiale and Deut sche Airbus. Given the nature and structure of the
Airbus consortium, it would have been unlikely that Airbus could have continued to
develop and bring to the market its successive models of LCA without the participation
of each of the national companies e ngaged in the Airbus enterprise. 3353 (footnotes
omitted)
6.1833. The Appellate Body then opined that the original panel had made adequate factual
findings to support the conclusion:
{T}hat Aérospatiale and Dasa were responsible for fundamental portions of the
assembly of certain models of Airbus LCA, in particular the A300, A310, A319, A320,
and A321. The Panel further observed that the evidence suggested that "this division
of labour continued with subsequent models of Airbus LCA." This, in our view,
supports the Panel's conclusion that Aérospatiale and Dasa "were a necessary element
of the overall Airbus effort", and that without their participation "Airbus would not
have been able to continue to develop, launch and produce LCA in fulfilment of the
goal of developing a full range of LCA for the market".3354 (footnotes omitted)
6.1834. The Appellate Body further noted that statements by the European Communities made in
the course of the original proceeding bolstered the validity of the original panel's conclusions in
this context3355, ultimately agreeing with the original panel that:
"Aérospatiale required the additional equity to fund investments in fixed assets and
inventory, and advances to suppliers, in connection with the development of new
aircraft." The European Communities acknowledged that "{i}nternally generated cash
flow was not sufficient" and that "a prudent debt -to-equity ratio placed limits on the
amount of new debt that could be borne". Therefore, the Panel considered that
Aérospatiale could not have undertaken further investment in LCA development had it
not obtained the equity infusions by the French Government. This, in our view,
supports the Panel's conclusion that "these equity investments directly supported the
development of LCA in a manner as direct as LA/MSF".
Based on the above, we consider that the Panel had a sufficient basis to conclude that
the French and German equity infusions into Aérospatiale had a genuine connection to
Airbus' ability to develop and bring to the market particular models of LCA, both by
guaranteeing the continued existence and financial stability of Aérospatiale and Dasa,
and by enhancing those companies' borrowing capacity in the wake of further
investments in the production and development of particular models of LA/MSF -
financed Airbus LCA. We consider that these equity infusions provided support to
Airbus' efforts in developing and bringing to the market those models of Airbus LCA,
with corresponding effects on Boeing's LCA sales.3356 (footnotes omitted)
6.1835. Accordingly, the aggregated effect s of the French and German capital contribution
subsidies were found to be a "genuine" cause of serious prejudice to the United States' interests in
the 2001 to 2006 reference period.
Effects in the post-implementation period
6.1836. The question we must answer in this part of our analysis is whether the aggregated
effects of the capital contribution subsidies continue to be a "genuine" cause of serious prejudice to

3353 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1386.
3354 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1387.
3355 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1388.
3356 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1389-1390.

the United States' interests, notwithstanding the time that has passed since the findings made in
the original proceeding.
6.1837. We recall that elsewhere in this Report we explained that we were willing to accept, for
the purpose of evaluating the merits of the United States' non -compliance claims, that the
European Union has demonstrated that the ex ante "lives" of the capital contribution subsidies
came to an end prior to 1 June 2011, that is, before the date of the adoption of the
recommendations and rulings by the DSB in the original proceeding. 3357 However, as already
noted, the extent to which the effects of a subsidy will dissipate with the passage of time and
eventually come to an end will be a fact-specific matter that may be informed, but not necessarily
defined, by how the "life" of that subsidy has evolved over time.
6.1838. The findings of the original panel, as upheld by the Appellate Body, established that the
aggregated effects of the capital contribution subsidies not only ensured that Airbus would be able
to continue the A320 programme and launch and develop the A330/A340 programme, but they
also secured the very existence of a financially stable Airbus Consortium going forward and,
thereby, Airbus' ability to continue to launch, develop and produce other models of LCA . In our
view, the aggregated effects of the capital contribution subsidies played a fund amental role in the
market presence of Airbus' full range of LCA in the post-implementation period in much the same
(although not identical) way as the direct and indirect effects of the LA/MSF subsidies. In
particular, by securing the very existence of a financially stable Airbus Consortium and providing
significant support at a crucial time for Airbus to pursue its development and production work on
the A320 and A330/A340 programmes, the capital contribution subsidies meaningfully contributed
to the development of new Airbus LCA products in much the same way as the direct effects of the
LA/MSF subsidies. Likewise, to the extent that the launch, development and production of LCA
supported in part by the capital contribution subsidies gave rise to "learning", scope and scale, and
financial effects, it is apparent that the capital contribution subsidies must have also generated
effects that were not unlike the indirect effects of the LA/MSF subsidies. These considerations lead
us to conclude that, just as in t he original proceeding, the aggregated effects of the capital
contribution subsidies continue to "complement and supplement" the "product" effects of the
LA/MSF subsidies today by operating along a similar causal pathway. Accordingly, we find that the
aggregated effects of the capital contribution subsidies are a "genuine" cause of the "product"
effects of the challenged LA/MSF subsidies and, consequently, also the relevant instances of
serious prejudice to the United States interests caused by those subsid ies in the relevant product
markets.
Infrastructure-related regional development subsidies
Findings of the original panel and the Appellate Body
6.1839. The original panel did not make individual findings with respect to the effects of the 11
infrastructure-related regional development subsidies that are the subject of the United States'
non-compliance complaint. Rather, the original panel made one finding covering the effects of all
of the challenged infrastructure subsidies considered together, including the Mühl enberger Loch
lease agreement and the Bremen Airport runway extension measure (neither of which the
United States challenges in this proceeding 3358) and the four Spanish regional development grants
to EADS-CASA's San Pablo South facilities (which we have deci ded to exclude from our evaluation
of the merits of the United States' non-compliance complaint).3359 Nevertheless, the original panel
did make the following findings, which we believe are relevant to the analysis we must perform in
this part of our Report: ( a) that the EUR 6.14 million grant by the German Land of Lower Saxony
to Airbus Germany was used "for the extension of Airbus Germany's existing manufacturing site in
Nordenham"3360; (b) that the grants totalling EUR 75.3 million 3361 by Spanish national and loca l

3357 See above para. 6.893.
3358 See United States' first written submission, fns 13 and 64; and second written submission,
para. 265.
3359 See above paras. 6.899-6.900.
3360 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1206.
3361 This amount takes into account the clarifications provided in the PwC Amortization Report about the
proportions of the 2003 grant of EUR 17.5 million for Airbus' facilities in Puerto Real, and the 2004 grant of
EUR 7.6 million to Airbus Spain for its facility in Illescas, that were financed via the European Regional
Development Fund and, therefore, "specific" within the meaning of Article 2.2 of the SCM Agreement. (PwC

authorities to Airbus Spain and EADS -CASA were for investments in new or existing facilities
related to Airbus' LCA activities 3362; and (c) that all of the infrastructure subsidies (including those
not considered in this dispute) "provided essential support to the development and production of
Airbus LCA, relieving Airbus of significant expenses in connection with the development of facilities
… and thus enabling it to continue with the launch of successive models of LCA". 3363 On this basis,
the original panel went on to conclude that all of the infrastructure subsidies "had the same effect
on Airbus' ability to launch the LCA it launched at the time that it did" 3364 thus "complement{ing}
and supplement{ing}" the "product" effect of LA/MSF, thereby establishing a " sufficient nexus"
with Airbus LCA and with the types of serious prejudice alleged by the United States.3365
6.1840. On appeal, the Appellate Body indicated that the extent to which the 11 regional
development grants at issue in the original proceeding had benefitted Airbus' LCA programmes
was "less clear" than certain other infrastructure subsidies, stating that "{i}t would have been
useful had the Panel elaborated in its analysis how these infrastructure measures supplemented
and complemented the effects of LA/MSF".3366 Ultimately, however, the Appellate Body opined that
the factual findings made by the original panel provided "a sufficient basis for concluding that such
regional grants were used to expand Airbus' manufacturing sites or EADS -CASA's LCA -related
activities, thus supporting the Panel's inference that such regional grants 'provided essential
support to the development and production of Airbus LCA, relieving Airbus of significant expenses
in connection with the development of facilities for the production'" of LCA.3367
Effects in the post-implementation period
6.1841. As with the capital contribution subsidies, the question we must answer in this part of our
analysis is whether the aggregated effects of the seven remaining regional development grant
subsidies continue to be a "genuine" cause of serious prejudice to the United States' interests,
notwithstanding the time that has passed since the findings made in the original proceeding.
6.1842. We recall that elsewhere in this Report we explained that the European Union does not
argue that the ex ante "lives" of these subsidies came to an end before the end of the
implementation period. Indeed, even accepting the European Union's approach to determining the
ex ante "lives" of the regional development grant subsidies, Airbus would b e continuing to
"benefit" from significant portions of the grants provided by the Spanish authorities for decades to
come, with the "benefit" of the German regional development grant amortizing in 2014. 3368 This
suggests that even by the European Union's own standards3369, the effects of all but the German
regional development grant subsidies that were found to exist in the original proceeding are likely
to continue to be felt today.3370
6.1843. That the effects of the regional development grants, including the subsidies p rovided by
the German authorities, continue to play a meaningful role in the current market presence of

Amortization Report, (Exhibit EU-5) (BCI/HSBI), table 21 and fn 51. See also Panel Report, EC and certain
member States – Large Civil Aircraft, para. 7.1236 and fn 4276). The United States has not contested PwC's
clarifications in this context.
3362 Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.1207-7.1218.
3363 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1958.
3364 Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1956.
3365 Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.1956 and 7.1961.
3366 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1399.
3367 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1399. Although
the original panel did not explicitly state that it was considering the aggregated effects of the infrastructure
subsidies, it is apparent from the absence of panel (or Appellate Body) findings in relation to the effects of each
of the subsidy measures individually that this is precisely what the original panel did. In our view, the
similarities between the design, structure and operation of the seven regional development grant subsidies that
are now before us (discussed further below), are such that it would be appropriate to continue to consider their
effects in the aggregate.
3368 See above para. 6.906.
3369 We recall that the European Union argues that for the purpose of Article 7.8 of the SCM Agreement,
a subsidy that no longer exists must be found to have been "withdrawn" and cannot be found to cause
"adverse effects". See above paras. 6.794-6.795.
3370 According to the European Union, therefore, the effects of the German regional development grant
would have been present in the period from 1 December 2011 to end of 2013, which is the period with respect
to which we have made our findings of present serious prejudice to the United States' interests.

Airbus LCA is, in our view, confirmed by examining the specific facts informing the nature and
operation of those subsidies.
6.1844. We recall that all seven o f the regional development grants were provided to Airbus over
a four-year period for the purpose of covering a range of LCA -related expenses incurred or to be
incurred by Airbus Germany, Airbus Spain and EADS -CASA. While the total amount of all seven
grants represents a relatively smaller proportion of the costs associated with the funded activities
compared with the LA/MSF subsidies and the capital contribution subsidies, it is nevertheless
significant and non -trivial, amounting to approximately EUR 81.5 million. The 2002 grant of
EUR 6.14 million to Airbus Germany's facility in Nordenham was to be spent on capital assets that
would be used to contribute to the establishment of production facilities that are used only for
A380 manufacturing activities. 3371 The PwC Amortization Report reveals that each of the Spanish
regional development grants was intended to be spent on "some or all of four different" categories
of LCA-related expenses, namely: "land and property"; "constructions"; "capital assets"; and/or
"planning, engineering and project management". 3372 The PwC Amortization Report states that
"the {Spanish regional development grants} were used to establish production facilities for LCA …
{although} there is no link to the development of a particular product/aircraft program."3373 Other
record evidence indicates that Airbus' Illescas and Puerto Real sites – recipients of four of the six
Spanish grants – manufacture parts and components for all Airbus LCA sold in the post -
implementation period. In this context, we note in 2012, Airbus' website identified Puerto Real and
Illescas as Airbus "Centres of Excellence" that, taken together, contribute to development and
production of components for all Airbus LCA.3374 We further note a summary of Airbus' activities in
Spain, taken from Airbus' website and also dated 2012, that contains the following statements:
Getafe shares responsibility for the A380 horizontal tail plane with the Airbus site in
Puerto Real, which performs its final assembly and testing. These activities in clude
fuel testing, assembly of the rudder, elevators, and belly fairing, and the delivery of
the complete horizontal tail plane and belly fairing to France for final assembly with
the aircraft.
The some 500 employees at Puerto Real also focus on structura l assemblies of lifting
surfaces in carbon fibre and metallic materials, as well as in passenger doors, main
landing gear doors and fuselage panels for all Airbus aircraft.
Some of the most innovative technologies in the world are utilised in Illescas at
Airbus' Advanced Composites Centre, which manufactures horizontal tail plane and
other aircraft parts constructed of carbon fibre reinforced plastic (CFRP). Thirty
kilometres from Madrid and home to 500 employees, Illescas specialises in automated
production processes for advanced composite materials and in the manufacturing of
large lifting surfaces. The site is equipped with the most advanced systems and
processes for the design, manufacturing, inspection and repair of all types of
composite material structures.
In addition, parts for the A380 horizontal tail plane are manufactured at Illescas
before being initially assembled at Getafe.3375
6.1845. In our view, the above facts reveal that the regional development grant subsidies
continue to make a meaningful contribut ion to Airbus' ability to develop and produce parts and

3371 PwC Amortization Report, (Exhibit EU-5) (BCI/HSBI), paras. 122 and 132-134, and table 23.
3372 PwC Amortization Report, (Exhibit EU-5) (BCI/HSBI), paras. 137-138, and table 24.
3373 PwC Amortization Report, (Exhibit EU-5) (BCI/HSBI), para. 131. (first emphasis added) See also
PwC Amortization Report, (Exhibit EU-5) (BCI/HSBI), para. 124 (explaining that the Spanish Remaining
Regional Grants "were used for civil purposes").
3374 "Airbus centres of excellence", Airbus website, accessed 21 May 2012, (Exhibit USA-306). We note
that although pages two and three of this exhibit contain certain text which is somewhat incomplete, in our
view, the exhibit is nonetheless sufficiently clear on this score. The PwC Amortization Report also states that
the Illescas site – which received two of the Spanish regional development grants – manufactures Airbus LCA
parts and components. (PwC Amortization Report, (Exhibit EU-5) (BCI/HSBI), paras. 125, 127 (explaining that
the 2003 grant by the government of Andalusia was intended to be used for the "expansion and modernisation
of Airbus' facilities in Puerto Real") and 128).
3375 "Airbus In Spain" Airbus website, accessed 11 October 2012, (Exhibit USA-459).

components of, especially, the A380, but also other non -specified Airbus LCA in the post -
implementation period. To this extent, we believe that, as in the original proceeding, the
aggregated effects of the regional development grants continue to "complement and supplement"
the "product" effects of the LA/MSF subsidies in two ways. First, the grants "complement and
supplement" the direct effects of LA/MSF insofar as they meaningfully contribute to Airbu s' ability
to produce the LCA connected to the LCA programmes that would not have existed as and when
they did in the absence of LA/MSF. Second, the grants "complement and supplement" the indirect
effects arising from LA/MSF because they meaningfully contr ibute to Airbus' ability to produce its
relevant LCA, the development and production of which both give rise to the accumulation of the
beneficial "learning", scale and scope, and financial effects described earlier in this Report.
6.1846. While we believe that, ultimately, the effects of the regional development grant subsidies
operate via a "product "-creating causal pathway similar to the LA/MSF subsidies and the capital
contribution subsidies, it is apparent that the regional development grants are not "product "
creating or existence subsidies themselves. We detect no evidence before us indicating that Airbus
or any of its range of LCA would not have existed in the absence of the regional development grant
subsidies. Nevertheless, by meaningfully contributing to Airbus' ongoing LCA development and
production efforts in the ways described above, we believe that the regional development grants
continue to be a "genuine" cause of the "product" effects of the challenged LA/MSF subsidies and,
consequently, also the re levant instances of serious prejudice to the United States' interests
caused by those subsidies in the relevant product markets.3376
Conclusion
6.1847. For all of the above reasons, we find that the aggregated effects of the capital
contribution subsidies and the agg regated effects of the seven regional development grant
subsidies that are before us continue to "complement and supplement" the "product" effects of the
LA/MSF subsidies. In our view, the effects of the non -LA/MSF subsidies continue to be a "genuine"
cause of serious prejudice to the United States' interests and can, therefore, be "cumulated" with
the effects of the challenged LA/MSF subsidies.
7 CONCLUSIONS AND RECOMMENDATIONS
7.1. In the light of the reasoning and findings set out in this Report, we reach the f ollowing
conclusions:
a. In relation to the 36 alleged compliance "steps" notified by the European Union in its
Compliance Communication of 1 December 2011 –
i. two can be characterized as "actions" concerning the degree of ongoing subsidization
of Airbus LCA in response to the recommendations and rulings adopted in the original
proceeding – namely, "step" 28, the imposition of additional fees for the use of the
Bremen Airport runway extension, and "step" 29, revision of the terms of the
Mühlenberger Loch lease agreement3377;
ii. the remaining 34 alleged compliance "steps" are not "actions" relating to the ongoing
(or even past) subsidization of Airbus LCA, but rather the assertion of facts or the
presentation of arguments for the purpose of supporting the European Union's theory
of compliance. Thus, apart from the "actions" identified in "steps" 28 and 29, the
European Union's affirmation of compliance is not grounded in any specific conduct
on the part of the European Union and certain member States with respect to the
subsidies provided to Airbus or the adverse effects those subsidies were found to
have caused in the original proceeding. Rather, fundamentally, the European Union's
assertion of full compliance is based on its understanding of the scope and nature of
its obligations arising out of the adopted recommendations and rulings as well as its
own interpretation of the applicable law and legal provisions, including Article 7.8 of
the SCM Agreement.

3376 See above paras. 6.1797-6.1817.
3377 As already noted, the United States ultimately included neither of these two measures in its claims
of non-compliance against the European Union and certain member States in this dispute.

b. In relation to the European Union's requests for preliminary ruli ngs concerning the
scope of this compliance proceeding –
i. the French, German, Spanish and UK A350XWB LA/MSF measures are within the
scope of this compliance proceeding;
ii. the United States' prohibited subsidy claims against the French, German, Spanish
and UK A380 LA/MSF measures under Article 3.1(a) of the SCM Agreement are
within the scope of this compliance proceeding;
iii. the United States' prohibited subsidy claims against the French, German, Spanish
and UK A380 LA/MSF measures under Article 3.1(b) of the SCM Agreement are
outside the scope of this compliance proceeding; and
iv. the United States' claims of threat of displacement and impedance under
Article 6.3(a) are within the scope of this compliance proceeding.
c. In relation to the United States' prohibited sub sidy claims against the A380 and
A350XWB LA/MSF measures –
i. The United States has demonstrated that the French, German, Spanish and UK
A350XWB LA/MSF measures are specific subsidies within the meaning of Articles 1
and 2 of the SCM Agreement;
ii. The United Sta tes has failed to demonstrate that the French, German, Spanish and
UK A350XWB LA/MSF subsidies are prohibited export and/or prohibited import
substitution subsidies within the meaning of Articles 3.1 and 3.2 of the
SCM Agreement; and
iii. The United States has failed to demonstrate that the French, German, Spanish and
UK A380 LA/MSF subsidies are prohibited export subsidies within the meaning of
Articles 3.1(a) and 3.2 of the SCM Agreement.
d. In relation to the United States' claim that the European Union and certain member
States have failed to comply with Article 7.8 of the SCM Agreement –
i. the fact that one or more of the subsidies challenged in this proceeding may have
ceased to exist prior to 1 June 2011 does not ipso facto mean that the
European Union and ce rtain member States do not have a compliance obligation
under the terms of Article 7.8 of the SCM Agreement in relation to those subsidies;
 As regards the "lives" of the pre-A350XWB LA/MSF subsidies
ii. the European Union has demonstrated that the ex ante "lives" of the French, German
and Spanish LA/MSF subsidies for the A300B/B2/B4, A300 -600, A310, A320,
A330/A340, the UK LA/MSF subsidies for the A320 and A330/A340, and the capital
contribution subsidies, "expired" before 1 June 2011;
iii. the European Union has d emonstrated that the ex ante "lives" of the French LA/MSF
subsidies for the A330 -200 and the French and Spanish LA/MSF subsidies for the
A340-500/600 "expired", respectively, in [***] and [***];
iv. even accepting the entirety of the European Union's assertion s, the ex ante "lives" of
five of the regional development grant subsidies will not "expire" until sometime
between 2054 and 2058, with the other two having "expired" around 2014;
v. the European Union's submissions concerning the alleged "extraction" of subs idies
were already considered and rejected by both the panel and the Appellate Body in
the original proceeding and, for this reason, the European Union is not entitled to
have the Panel evaluate the merits of the same arguments, for a second time, in this
compliance dispute;

vi. the European Union has failed to demonstrate that the alleged partial privatization of
Aérospatiale in 1999, the transactions leading to the creation of EADS in 2000, and
BAE Systems' 2006 sale of its 20% ownership stake in Airbus SAS to EADS, were
"intervening events" that resulted in the "extinction" of the benefit of all of the
subsidies at issue in this proceeding that were granted prior to those transactions, in
the light of each of the three separate opinions expressed by the Appe llate Body
Division serving in the original proceeding on the question whether "partial
privatizations and private -to-private sales" transactions can "extinguish" prior
subsidies; and
vii. the ex ante "lives" of the subsidies identified in subparagraphs ii, ii i, and iv have
"expired" not because they were somehow brought to a premature end by, for
example, having been repaid or because of the alignment of their terms with a
market benchmark, but rather simply because the total period of time over which
their "projected value" was expected to "materialize" has transpired in the absence
of any "intervening event". In other words, the ex ante "lives" of the relevant
subsidies have "expired" simply because they have been fully provided to Airbus as
originally planned and expected.
 As regards whether the European Union and certain member States have
complied with the obligation to "withdraw the subsidy"
viii. the fact that the ex ante "lives" of the subsidies identified in subparagraphs ii, iii, and
iv passively "expired" before the end of the implementation period does not amount
to the "withdrawal" of those subsidies by the European Union and certain member
States for the purpose of Article 7.8 of the SCM Agreement;
ix. the European Union and certain member States have, there fore, failed to comply
with the obligation to "withdraw the subsidy" for the purpose of Article 7.8 of the
SCM Agreement;
 As regards whether the European Union and certain member States have
complied with the obligation to "take appropriate steps to remov e the adverse
effects"
x. the European Union has failed to establish that the United States' claims under
Article 6.3(b) and (c) of the SCM Agreement should be rejected on the grounds that
the United States' like product is not "unsubsidized" within the meani ng of
Articles 6.4 and 6.5 of the SCM Agreement;
xi. the United States has brought its continued adverse effects claims with respect to
appropriately defined product markets for LCA, namely, the global markets for
single-aisle LCA, twin-aisle LCA and VLA;
xii. the direct and indirect effects of the aggregated pre -A350XWB LA/MSF subsidies
continue to be a "genuine and substantial" cause of the current market presence of
the A320, A330 and A380 families of Airbus LCA using either the "plausible" or
"unlikely" counterfactual scenarios adopted in the original proceeding in relation to
the effects of the same subsidies in the 2001 to 2006 period as the starting point of
the analysis;
xiii. the direct and indirect effects of the aggregated LA/MSF subsidies, with the exception
of the LA/MSF subsidies provided for the A300 and A310, are a "genuine and
substantial" cause of the current market presence of the A350XWB family of Airbus
LCA using either the "plausible" or "unlikely" counterfactual scenarios adopted in the
original proceeding in relation to the effects of the pre-A350XWB LA/MSF subsidies in
the 2001 to 2006 period as the starting point of the analysis;
xiv. the "product" effects of the LA/MSF subsidies identified in subparagraphs xii and xiii
are a "genuine and substantial" cause of the displacement and/or impedance of the
imports of a like product of the United States into the markets for single -aisle, twin-

aisle and very large LCA in the European Union, within the meaning of Article 6.3(a)
of the SCM Agreement, constituting serious prejudice to the interests of the
United States within the meaning of Article 5(c) of the SCM Agreement;
xv. the "product" effects of the LA/MSF subsidies identified in subparagraphs xii and xiii
are a "genuine and substantial" cause of the displaceme nt and/or impedance of
exports from the market for single -aisle LCA in Australia, China and India, the
market for twin -aisle LCA in China, Korea and Singapore and the market for very
large LCA in Australia, China, Korea, Singapore and the United Arab Emira tes, within
the meaning of Article 6.3(b) of the SCM Agreement, constituting serious prejudice
to the interests of the United States within the meaning of Article 5(c) of the
SCM Agreement;
xvi. the "product" effects of the LA/MSF subsidies identified in subpar agraphs xii and xiii
are a "genuine and substantial" cause of significant lost sales in the global markets
for single-aisle, twin-aisle and very large LCA, within the meaning of Article 6.3(c) of
the SCM Agreement, constituting serious prejudice to the int erests of the
United States within the meaning of Article 5(c) of the SCM Agreement;
xvii. the effects of the aggregated capital contribution subsidies and certain regional
development grants "complement and supplement" the "product" effects of the
aggregated L A/MSF subsidies and, therefore, are a "genuine" cause of serious
prejudice to the interests of the United States within the meaning of Article 5(c) of
the SCM Agreement;
xviii. the United States has failed to demonstrate that the regional development grants
provided for the San Pablo facility in Spain that is used for Airbus' military aircraft
activities benefit Airbus' LCA activities, thereby failing to establish that those
subsidies "complement and supplement" the "product" effects of the LA/MSF
subsidies; and
xix. having found that the United States has established that the challenged subsidies
cause present serious prejudice to its interests within the meaning of Article 5(c) of
the SCM Agreement, we make no findings with respect the United States' conditional
claim that the challenged subsidies threaten to cause serious prejudice to its
interests.
7.2. By continuing to be in violation of Articles 5(c) and 6.3(a), (b) and (c) of the SCM
Agreement, the European Union and certain member States have failed to comply with th e DSB
recommendations and rulings and, in particular, the obligation under Article 7.8 of the
SCM Agreement "to take appropriate steps to remove the adverse effects or … withdraw the
subsidy".
7.3. Under Article 3.8 of the DSU, in cases where there is an infri ngement of the obligations
assumed under a covered agreement, the action is considered prima facie to constitute a case of
nullification or impairment. We conclude that, to the extent that the measures at issue are
inconsistent with the SCM Agreement, they have nullified or impaired benefits accruing to the
United States under that Agreement.
7.4. We therefore conclude that the European Union and certain member States have failed to
implement the recommendations and rulings of the DSB to bring its measures into conformity with
its obligations under the SCM Agreement. To the extent that the European Union and certain
member States have failed to comply with the recommendations and rulings of the DSB in the
original dispute, those recommendations and rulings remain operative.