-
WORLD TRADE
ORGANIZATION
WT/DS353/AB/R 12 March 2012
(12-1313)
Original: English
UNITED STATES MEASURES AFFECTING TRADE IN LARGE CIVIL
AIRCRAFT
(SECOND COMPLAINT)
AB-2011-3
Report of the Appellate Body
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I. Introduction
.................................................................................................................................
1 A. The European Communities' Claims before the Panel
.................................................. 6 B. The Panel's
Findings
.....................................................................................................
8 C. Appellate Proceedings
.................................................................................................
15
II. Arguments of the Participants and the Third Participants
........................................................ 20 A.
Claims of Error by the European Union Appellant
.................................................. 20
1. Annex V to the SCM Agreement
.....................................................................
20 2. Financial Contribution Scope of Article 1.1(a)(1) of the
SCM Agreement
..............................................................................................
24 3. Specificity Allocation of Patent Rights
........................................................ 28 4.
Adverse Effects
...............................................................................................
31
(a) Collective assessment of the aeronautics R&D subsidies
and the B&O tax rate reductions and their effects
.................................... 31
(b) Collective assessment of the tied tax subsidies and the
remaining subsidies and their effects
................................................. 35
5. Article 11 of the DSU
.....................................................................................
37 B. Arguments of the United States Appellee
..................................................................
38
1. Annex V to the SCM Agreement
.....................................................................
38 2. Financial Contribution Scope of Article 1.1(a)(1) of the
SCM Agreement
..............................................................................................
44 3. Specificity Allocation of Patent Rights
........................................................ 48 4.
Adverse Effects
...............................................................................................
51
(a) Collective assessment of the aeronautics R&D subsidies
and the B&O tax rate reductions and their effects
.................................... 51
(b) Collective assessment of the tied tax subsidies and the
remaining subsidies and their effects
................................................. 55
5. Article 11 of the DSU
.....................................................................................
57 C. Claims of Error by the United States Other Appellant
............................................. 59
1. NASA Procurement Contracts and USDOD Assistance Instruments
............ 59 (a) Financial contribution Application of the
"purchase of
services" test
......................................................................................
59 (b)
Benefit................................................................................................
66
2. Washington State B&O Tax Rate Reduction
.................................................. 71 (a) Financial
contribution Revenue foregone
....................................... 71 (b) Specificity Article
2.1(a) of the SCM Agreement ........................... 75
3. City of Wichita Industrial Revenue Bonds (IRBs) Specificity
.................... 77 4. Adverse Effects
...............................................................................................
80
(a) Technology effects of the aeronautics R&D subsidies
...................... 80 (b) Price effects of the tied tax
subsidies ................................................. 94
D. Arguments of the European Union Appellee
.......................................................... 103 1.
NASA Procurement Contracts and USDOD Assistance Instruments
.......... 103
(a) Financial contribution Application of the "purchase of
services" test
....................................................................................
103
(b)
Benefit..............................................................................................
110
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2. Washington State B&O Tax Rate Reduction
................................................ 117 (a) Financial
contribution Revenue foregone .....................................
117 (b) Specificity Article 2.1(a) of the SCM Agreement
......................... 119
3. City of Wichita Industrial Revenue Bonds (IRBs) Specificity
.................. 121 4. Adverse Effects
.............................................................................................
124
(a) Technology effects of the aeronautics R&D subsidies
.................... 124 (b) Price effects of the tied tax
subsidies ............................................... 133
E. Arguments of the Third Participants
..........................................................................
145 1. Australia
........................................................................................................
145
(a) Financial contribution
......................................................................
145 (b) Specificity
........................................................................................
149 (c) Adverse effects
................................................................................
150
2. Brazil
.............................................................................................................
153 (a) Annex V to the SCM Agreement
...................................................... 153 (b)
Financial contribution
......................................................................
154 (c) Specificity
........................................................................................
155 (d) Adverse effects
................................................................................
155
3. Canada
..........................................................................................................
158 (a) Annex V to the SCM Agreement
...................................................... 158 (b)
Financial contribution
......................................................................
158 (c) Specificity
........................................................................................
159 (d) Adverse effects
................................................................................
160
4. China
.............................................................................................................
162 (a) Annex V to the SCM Agreement
...................................................... 162 (b)
Specificity
........................................................................................
163 (c) Adverse effects
................................................................................
164
5. Japan
.............................................................................................................
164 (a) Specificity
........................................................................................
164 (b) Adverse effects
................................................................................
165
6. Korea
.............................................................................................................
170 (a) Annex V to the SCM Agreement
...................................................... 170 (b)
Specificity
........................................................................................
171 (c) Adverse effects
................................................................................
171
III. Issues Raised in This Appeal
..................................................................................................
172 IV. The Measures at Issue
.............................................................................................................
177
A. Introduction
...............................................................................................................
177 B. US Federal Government Measures
............................................................................
177
1. Aeronautics R&D Measures
.........................................................................
178 (a) NASA
..............................................................................................
178 (b)
USDOD............................................................................................
180
2. Allocation of Patent Rights
...........................................................................
182 3. FSC/ETI and Successor Legislation
.............................................................
185
(a) Provisions of the US Internal Revenue Code relating to FSCs
....... 186
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(b) FSC Repeal and Extraterritorial Income Exclusion Act of 2000
..... 187 (c) American Jobs Creation Act of 2004
............................................... 187 (d) Tax
Increase Prevention and Reconciliation Act of 2005................
188
C. State and Local Measures
..........................................................................................
189 1. State of Washington
......................................................................................
189
(a) Measures under House Bill 2294
..................................................... 189 (b) City
of Everett local B&O tax rate reduction
.................................. 192 (c) Project Olympus Master
Site Agreement ........................................ 193
2. Wichita (Kansas) Industrial Revenue Bonds
................................................ 194 3. State of
Illinois
..............................................................................................
196
V. Procedures under Annex V to the SCM Agreement
................................................................
198 A. Introduction
...............................................................................................................
198 B. The Panel's Preliminary Ruling
.................................................................................
198 C. Overview of the Claims and Arguments on Appeal
................................................... 201 D.
Evaluation of the European Union's Claim of Error on Appeal
................................ 204
1. The European Union's Request for Reversal of the Panel's
Findings in Paragraph 7.22 of the Panel Report
..............................................................
204
2. The European Union's Request for Completion of the Analysis
.................. 208 (a) Interpretation of relevant provisions of
the SCM Agreement
and the DSU
.....................................................................................
208 (b) The European Union's remaining requests for completion
of
the analysis
.......................................................................................
221 (c) The European Union's additional requests
....................................... 227
E. Conclusion
.................................................................................................................
228 VI. NASA Procurement Contracts and USDOD Assistance Instruments
..................................... 229
A. Financial Contribution
..............................................................................................
229 1. Introduction
...................................................................................................
229 2. The Panel's Findings
.....................................................................................
230
(a) The Panel's interpretation of Article 1.1(a)(1)(i) of the
SCM Agreement
...............................................................................
231
(b) The Panel's assessment of the NASA measures
.............................. 234 (c) The Panel's assessment of
the USDOD measures ........................... 238
3. The Panel's General Approach
......................................................................
242 4. What is the Proper Characterization of the NASA/USDOD
Measures at
Issue?
............................................................................................................
246 (a) NASA procurement contracts
.......................................................... 246 (b)
USDOD assistance instruments
....................................................... 250 (c) The
Panel's description of the transactions in its analysis of
serious prejudice
..............................................................................
252 (d) Summary of the main characteristics of the measures
..................... 253
5. The Types of Financial Contributions Covered by Article
1.1(a)(1) of the SCM Agreement
......................................................................................
254
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6. Do the NASA and USDOD Measures Raised on Appeal Constitute
Financial Contributions within the Meaning of Article 1.1(a)(1) of
the SCM Agreement?
..........................................................................................
258
B. Benefit
........................................................................................................................
260 1. The Panel's Findings
.....................................................................................
260
(a) NASA
..............................................................................................
260 (b)
USDOD............................................................................................
261
2. Did the Panel Err in Determining Benefit?
................................................... 263 C. Scope of
the Panel's Benefit Findings as regards the NASA Measures
..................... 278
1. The Panel's Findings
.....................................................................................
279 2. Is the United States' Claim Properly within the Scope of
This Appeal? ....... 283 3. Did the Panel Err under Article 1.1(b)
of the SCM Agreement? ................... 286
D. Article 11 of the DSU Amount of USDOD R&D Funding
Potentially Relevant to LCA
.........................................................................................................
290 1. The Panel's Findings
.....................................................................................
291 2. Did the Panel Make an Objective Assessment of the Matter
under
Article 11 of the DSU in Making the Challenged Statement?
...................... 293 VII. NASA/USDOD Allocation of Patent
Rights Specificity
..................................................... 300
A. Introduction
...............................................................................................................
300 B. The Panel's Findings
.................................................................................................
303 C. The Panel's Arguendo Approach
...............................................................................
306 D. Did the Panel Err in the Interpretation of Article 2.1(a) of
the
SCM Agreement?
.......................................................................................................
308 E. Did the Panel Err in the Application of Article 2.1(a) of
the
SCM Agreement?
.......................................................................................................
313 F. Did the Panel Err by Failing to Address the European
Communities'
Allegation of De Facto Specificity under Article 2.1(c)?
........................................... 327 VIII. Washington
State Business and Occupation (B&O) Tax Rate Reduction
.............................. 331
A. Financial Contribution Revenue Foregone
............................................................ 331 1.
The Panel's Findings
.....................................................................................
331 2. When Does a Government Forego Revenue Otherwise Due?
...................... 334 3. Assessment of the Panel's Analysis
under Article 1.1(a)(1)(ii) of the
SCM Agreement
............................................................................................
338 B. Specificity
...................................................................................................................
344
1. The Panel's Findings
.....................................................................................
345 2. Assessment of the Panel's Analysis under Article 2.1(a) of
the
SCM Agreement
............................................................................................
347 IX. City of Wichita Industrial Revenue Bonds (IRBs) Specificity
............................................ 355
A. Background
................................................................................................................
355 B. The Panel's Findings
.................................................................................................
355 C. Assessment of the Panel's Analysis under Article 2.1(c) of
the
SCM Agreement
.........................................................................................................
359 X. Adverse Effects
.......................................................................................................................
367
A. Introduction
...............................................................................................................
367
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1. Background Information
...............................................................................
371 (a) Relevant markets, the reference period, and the
temporal
assessment of relevant market phenomena
...................................... 371 (b) Key aspects of the
LCA industry .....................................................
374
2. The Panel's Approach to Causation
.............................................................. 378
3. The Panel's Analysis of "Technology Effects" and "Price Effects"
.............. 382
(a) The Panel's analysis of the "technology effects" of the
aeronautics R&D subsidies
..............................................................
382
(b) The Panel's analysis of the "price effects" of the subsidies
............. 384 4. Order of Analysis of the Issues on Appeal
Relating to the Panel's
Serious Prejudice Findings
...........................................................................
385 B. Technology Effects
.....................................................................................................
385
1. Introduction
...................................................................................................
385 2. Background Information regarding the Boeing 787
..................................... 387 3. The Panel's Analysis
of the Effects of the Aeronautics R&D Subsidies
on Boeing
......................................................................................................
389 4. The United States'
Appeal.............................................................................
394 5. Specific Grounds of Appeal Raised by the United States
............................. 398
(a) Whether the Panel erred by "extrapolating findings" with
respect to three NASA composites programmes to all of the R&D
programmes
............................................................................
398
(b) Whether the Panel erred by not finding that the NASA
research was too far removed from the commercial technologies used
on the 787
........................................................... 405
(c) Whether the Panel erred in its appreciation of the role of
Boeing and its suppliers in the development of the technologies
used on the 787
........................................................... 409
(d) Whether the Panel erred in its appreciation of the relevance
of NASA's public dissemination of the results of the NASA R&D
..... 417
(e) Whether the Panel erred in its assessment of the magnitude
of the NASA aeronautics R&D subsidies
............................................ 420
(f) Conclusion
.......................................................................................
422 6. The Panel's Counterfactual Analysis
............................................................
423
(a) Introduction
......................................................................................
423 (b) The Panel's counterfactual analysis: the first stage
......................... 428 (c) The Panel's counterfactual
analysis: the second stage .................... 432
7. The Panel's Analysis of the Effects of the Aeronautics
R&D Subsidies on Airbus
......................................................................................................
434
8. The United States' Appeal relating to the Second Stage of the
Panel's Analysis of the Technology Effects of the Aeronautics
R&D Subsidies...... 438 (a) Significant lost sales
........................................................................
439 (b) Threat of displacement and
impedance............................................ 445 (c)
Significant price suppression
........................................................... 454 (d)
Conclusion
.......................................................................................
468
C. Article 11 of the DSU
.................................................................................................
469
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D. Price Effects
...............................................................................................................
478 1. Background on the 100-200 Seat and 300-400 Seat LCA Markets
.............. 479
(a) 100-200 seat LCA market
................................................................
480 (b) 300-400 seat LCA market
................................................................
481
2. The European Communities' Price Effects Claim before the
Panel.............. 481 3. The Panel's Analysis and Findings
............................................................... 485
4. Assessment of the Panel's Causation Analysis under Articles
5(c)
and 6.3(b) and (c) of the SCM Agreement
.................................................... 492 (a)
Whether the Panel conducted a proper causation analysis
.............. 492 (b) Whether the Panel conducted a proper
analysis of significant
price suppression, significant lost sales, and displacement and
impedance
........................................................................................
507
(c) Overall assessment of the Panel's analysis of the price
effects of the tied tax subsidies
....................................................................
518
(d) Completion of the analysis
.............................................................. 519
5. Conclusion
....................................................................................................
533
E. Collective Assessment of the Subsidies and Their Effects
.......................................... 533 1. Introduction
...................................................................................................
533 2. Assessment of the European Union's Claims of Error on Appeal
................ 536
(a) Introduction
......................................................................................
536 (b) Different approaches to collective assessment
................................ 537 (c) The approach taken by the
Panel to a collective assessment of
the effects of the subsidies at issue
.................................................. 543 (d) Whether
the Panel erred in declining to assess collectively the
effects of the aeronautics R&D subsidies and the effects of
the B&O tax rate reductions
..................................................................
546
(e) Whether the Panel erred in declining to assess collectively
the effects of the tied tax subsidies and the effects of the
remaining subsidies
...........................................................................................
555
3. Conclusion
....................................................................................................
568 XI. Findings and Conclusions
.......................................................................................................
569
ANNEX I Notification of an Appeal by the European Union
ANNEX II Notification of an Other Appeal by the United
States
ANNEX III Procedural Ruling and Additional Procedures to Protect
Sensitive Information
ANNEX IV Procedural Ruling and Additional Procedures on the
Conduct of the Oral Hearing
ANNEX V HSBI Annex
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Short Title Full case title and citation
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2001:XIII, 6829
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Short Title Full case title and citation
EC Bananas III (Article 21.5 Ecuador II) / EC Bananas III
(Article 21.5 US)
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Importation, Sale and Distribution of Bananas Second Recourse to
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adopted 22 December 2008
EC Bed Linen Appellate Body Report, European Communities
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Communities Customs Classification of Certain Computer Equipment,
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Communities Selected Customs Matters, WT/DS315/AB/R, adopted 11
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EC and certain member States Large Civil Aircraft
Appellate Body Report, European Communities and Certain Member
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Short Title Full case title and citation
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2011
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omitted, as indicated [[HSBI]]
Short Title Full case title and citation
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DSR 2000:III, 1619
US FSC Panel Report, United States Tax Treatment for "Foreign
Sales Corporations", WT/DS108/R, adopted 20 March 2000, as modified
by Appellate Body Report WT/DS108/AB/R, DSR 2000:IV, 1675
US FSC (Article 21.5 EC)
Appellate Body Report, United States Tax Treatment for "Foreign
Sales Corporations" Recourse to Article 21.5 of the DSU by the
European Communities, WT/DS108/AB/RW, adopted 29 January 2002, DSR
2002:I, 55
US FSC (Article 21.5 EC)
Panel Report, United States Tax Treatment for "Foreign Sales
Corporations" Recourse to Article 21.5 of the DSU by the European
Communities, WT/DS108/RW, adopted 29 January 2002, as modified by
Appellate Body Report WT/DS108/AB/RW, DSR 2002:I, 119
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, 4721
US FSC (Article 21.5 EC II)
Panel Report, United States Tax Treatment for "Foreign Sales
Corporations" Second Recourse to Article 21.5 of the DSU by the
European Communities, WT/DS108/RW2, adopted 14 March 2006, as
upheld by Appellate Body Report WT/DS108/AB/RW2, DSR 2006:XI,
4761
US FSC (Article 22.6 US)
Decision by the Arbitrator, United States Tax Treatment for
"Foreign Sales Corporations" Recourse to Arbitration by the United
States under Article 22.6 of the DSU and Article 4.11 of the SCM
Agreement, WT/DS108/ARB, 30 August 2002, DSR 2002:VI, 2517
US Gambling Appellate Body Report, United States Measures
Affecting the Cross-Border Supply of Gambling and Betting Services,
WT/DS285/AB/R, adopted 20 April 2005, DSR 2005:XII, 5663 (Corr.1,
DSR 2006:XII, 5475)
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Short Title Full case title and citation
US Gasoline Appellate Body Report, United States Standards for
Reformulated and Conventional Gasoline, WT/DS2/AB/R, adopted 20 May
1996, DSR 1996:I, 3
US Hot-Rolled Steel Appellate Body Report, United States
Anti-Dumping Measures on Certain Hot-Rolled Steel Products from
Japan, WT/DS184/AB/R, adopted 23 August 2001, DSR 2001:X, 4697
US Large Civil Aircraft United States Measures Affecting Trade
in Large Civil Aircraft, WT/DS317
US Large Civil Aircraft (2nd complaint)
Panel Report, United States Measures Affecting Trade in Large
Civil Aircraft (Second Complaint), WT/DS353/R, circulated to WTO
Members 31 March 2011
US Line Pipe Appellate Body Report, United States Definitive
Safeguard Measures on Imports of Circular Welded Carbon Quality
Line Pipe from Korea, WT/DS202/AB/R, adopted 8 March 2002, DSR
2002:IV, 1403
US Oil Country Tubular Goods Sunset Reviews
Appellate Body Report, United States Sunset Reviews of
Anti-Dumping Measures on Oil Country Tubular Goods from Argentina,
WT/DS268/AB/R, adopted 17 December 2004, DSR 2004:VII, 3257
US Section 211 Appropriations Act
Appellate Body Report, United States Section 211 Omnibus
Appropriations Act of 1998, WT/DS176/AB/R, adopted 1 February 2002,
DSR 2002:II, 589
US Shrimp Appellate Body Report, United States Import
Prohibition of Certain Shrimp and Shrimp Products, WT/DS58/AB/R,
adopted 6 November 1998, DSR 1998:VII, 2755
US Softwood Lumber III Panel Report, United States Preliminary
Determinations with Respect to Certain Softwood Lumber from Canada,
WT/DS236/R, adopted 1 November 2002, DSR 2002:IX, 3597
US Softwood Lumber IV Appellate Body Report, United States Final
Countervailing Duty Determination with Respect to Certain Softwood
Lumber from Canada, WT/DS257/AB/R, adopted 17 February 2004, DSR
2004:II, 571
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, 4865
US Sonar Mapping GATT Panel Report, United States Procurement of
a Sonar Mapping System, GPR.DS1/R, 23 April 1992, unadopted
US Steel Safeguards Appellate Body Report, United States
Definitive Safeguard Measures on Imports of Certain Steel Products,
WT/DS248/AB/R, WT/DS249/AB/R, WT/DS251/AB/R, WT/DS252/AB/R,
WT/DS253/AB/R, WT/DS254/AB/R, WT/DS258/AB/R, WT/DS259/AB/R, adopted
10 December 2003, DSR 2003:VII, 3117
US Upland Cotton Appellate Body Report, United States Subsidies
on Upland Cotton, WT/DS267/AB/R, adopted 21 March 2005, DSR 2005:I,
3
US Upland Cotton Panel Report, United States Subsidies on Upland
Cotton, WT/DS267/R, Corr.1, and Add.1 to Add.3, adopted 21 March
2005, as modified by Appellate Body Report WT/DS267/AB/R, DSR
2005:II, 299
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Short Title Full case title and citation
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, 809
US Upland Cotton (Article 21.5 Brazil)
Panel Report, United States Subsidies on Upland Cotton Recourse
to Article 21.5 of the DSU by Brazil, WT/DS267/RW and Corr.1,
adopted 20 June 2008, as modified by Appellate Body Report
WT/DS267/AB/RW, DSR 2008:III, 997 to DSR 2008:VI, 2013
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,
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,
323
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ABBREVIATIONS USED IN THIS REPORT
Abbreviation Description
1983 Presidential Memorandum
Memorandum to the Heads of Executive Departments and Agencies:
Government Patent Policy, Public Papers 248, 18 February 1983
(Panel Exhibit EC-560)
1987 Executive Order Executive Order 12591, Facilitating Access
to Science and Technology, 10 April 1987 (Panel Exhibit EC-561)
1992 Agreement 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, done at Brussels on 17 July 1992,
Official Journal of the European Union, L Series, No. 301 (17
October 1992) 32
ACT programme NASA Advanced Composites Technology Program
Additional Procedures Additional Procedures to Protect Sensitive
Information adopted by the Appellate Body Division in its
Procedural Ruling dated 15 April 2011 (contained in Annex III to
this Report)
AJCA American Jobs Creation Act of 2004, Public Law No. 108-357,
118 Stat. 1418 (Panel Exhibit EC-626)
Anti-Dumping Agreement Agreement on Implementation of Article VI
of the General Agreement on Tariffs and Trade 1994
AS programme NASA Aviation Safety Program
AST programme NASA Advanced Subsonic Technology Program
ATCAS Advanced Composite Technology Fuselage Program
ATP USDOC Advanced Technology Program
B&O business and occupation
B&P bid and proposal
Bayh-Dole Act Patent and Trademark Law Amendments Act of 1980,
codified at United States Code, Title 35, chapter 18, sections
200-212 (Patent Rights in Inventions Made with Federal Assistance)
(Panel Exhibit EC-558)
BCA Boeing Commercial Airplanes
BCI business confidential information
Board NASA Inventions and Contributions Board
Cabral model Economic model developed by Luis M.B. Cabral,
Professor of Economics at New York University's Stern School of
Business, in the Cabral Report
Cabral Report Professor L.M.B. Cabral, "Impact of Development
Subsidies Granted to Boeing" (New York University and CEPR, March
2007) (Panel Exhibit EC-4)
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Abbreviation Description
CHRA Corporate Headquarters Relocation Act of 2001, Illinois
Public Act 92-0207 (Panel Exhibit EC-216)
DSB Dispute Settlement Body
DUS&T programme USDOD Dual Use Science and Technology
Program
EDGE Economic Development for a Growing Economy
ETI extraterritorial income
ETI Act FSC Repeal and Extraterritorial Income Exclusion Act of
2000, Public Law No. 106-519, 114 Stat. 2423 (Panel Exhibit
EC-625)
FAR Federal Acquisition Regulation
FIP foreground intellectual property
FPDS Federal Procurement Data Base
FPDS-NG Federal Procurement Data Base Next Generation
FSC Foreign Sales Corporation
House Bill 2294 Washington State House Bill 2294, 58th
Legislature, 2nd Special Session (Washington, 2003) (Panel Exhibit
EC-54)
HPCC programme NASA High Performance Computing and
Communications Program
HSBI highly sensitive business information
HSR programme NASA High-Speed Research Program
IDS Integrated Defense Systems
ILFC International Lease Finance Corporation
IR&D independent research and development
IRBs industrial revenue bonds
ITAR International Traffic in Arms Regulations
ITR International Trade Resources
JAL Japan Airlines
KDFA bonds Kansas Development Finance Authority Bonds
LA/MSF launch aid/member State financing
LCA large civil aircraft
LCF Boeing 747 large cargo freighter
LERD Limited Exclusive Rights Data
ManTech programme USDOD Manufacturing Technology Program
MSA Project Olympus Master Site Development and Location
Agreement between the Boeing Company and the State of Washington,
County of Snohomish, City of Everett and Certain Other Governmental
Units and Authorities of or in the State of Washington, 19 December
2003 (Panel Exhibit EC-58)
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Abbreviation Description
NASA United States National Aeronautics and Space
Administration
OTAs other transaction agreements
Panel Report Panel Report, United States Measures Affecting
Trade in Large Civil Aircraft (Second Complaint), WT/DS353/R
Peisen Study Peisen et al., Case Studies: Time Required to
Mature Aeronautic Technologies to Operational Readiness (SAIC and
GRA, Inc., November 1999) (Panel Exhibit EC-795)
QAT programme NASA Quiet Aircraft Technology Program
R&D research and development
R&T Base programme NASA Research and Technology Base
Program
R&TD research and technological development
RDT&E research, development, test, and evaluation
RTM resin transfer moulding
SALE Singapore Aircraft Leasing Enterprise
SCM Agreement Agreement on Subsidies and Countervailing
Measures
Space Act National Aeronautics and Space Act of 1958, Public Law
No. 85-568, as amended (Panel Exhibit EC-286)
Space Act Agreements agreements between NASA and Boeing
undertaken pursuant to NASA's authority under the Space Act
Spirit Spirit AeroSystems
Subsidies Committee Committee on Subsidies and Countervailing
Measures
TIPRA Tax Increase Prevention and Reconciliation Act of 2005,
Public Law No. 109-222, 120 Stat. 345 (Panel Exhibit EC-627)
Tokyo Round Subsidies Code Tokyo Round Agreement on
Interpretation and Application of Articles VI, XVI and XXIII of the
General Agreement on Tariffs and Trade, BISD 26S/56, entered into
force 1 January 1980
TRL technology readiness level
USDOC United States Department of Commerce
USDOD United States Department of Defense
USDOL United States Department of Labor
Vienna Convention Vienna Convention on the Law of Treaties, done
at Vienna, 23 May 1969, 1155 UNTS 331; 8 International Legal
Materials 679
VS programme NASA Vehicle Systems Program
Working Procedures Working Procedures for Appellate Review,
WT/AB/WP/6, 16 August 2010
WTO World Trade Organization
WTO Agreement Marrakesh Agreement Establishing the World Trade
Organization
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WORLD TRADE ORGANIZATION APPELLATE BODY
United States Measures Affecting Trade in Large Civil Aircraft
(Second Complaint) European Union1, Appellant/Appellee United
States, Other Appellant/Appellee Australia, Third Participant
Brazil, Third Participant Canada, Third Participant China, Third
Participant Japan, Third Participant Korea, Third Participant
AB-2011-3 Present: Bautista, Presiding Member Unterhalter,
Member Zhang, Member
I. Introduction
1. The European Union and the United States each appeals certain
issues of law and legal
interpretations developed in the Panel Report, United States
Measures Affecting Trade in Large
Civil Aircraft (Second Complaint)2 (the "Panel Report"). The
Panel was established on 17 February
2006 to consider a complaint by the European Communities
regarding a number of US measures
1This dispute began before the entry into force of the Treaty of
Lisbon amending the Treaty on
European Union and the Treaty establishing the European
Community (done at Lisbon, 13 December 2007) on 1 December 2009. On
29 November 2009, the World Trade Organization received a Verbal
Note (WT/L/779) from the Council of the European Union and the
Commission of the European Communities stating that, by virtue of
the Treaty of Lisbon, as of 1 December 2009, the "European Union"
replaces and succeeds the "European Community". On 13 July 2010,
the World Trade Organization received a second Verbal Note
(WT/Let/679) from the Council of the European Union confirming
that, with effect from 1 December 2009, the European Union replaced
the European Community and assumed all the rights and obligations
of the European Community in respect of all Agreements for which
the Director-General of the World Trade Organization is the
depositary and to which the European Community is a signatory or a
contracting party. We understand the reference in the Verbal Notes
to the "European Community" to be a reference to the "European
Communities". Thus, although the European Communities was a party
in the Panel proceedings, and the Panel referred to the European
Communities in its Report, it is the European Union that filed a
Notice of Appeal in this dispute after the entry into force of the
Treaty of Lisbon, and we will thus refer to the European Union in
this Report in its capacity as appellant and as appellee. However,
when referring to events that took place during the Panel
proceedings, or quoting from the Panel Report, we refer to the
European Communities.
2WT/DS353/R, 31 March 2011.
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affecting trade in large civil aircraft ("LCA").3 The European
Communities claimed that the
United States has provided subsidies to US producers of LCA,
namely, The Boeing Company and the
McDonnell Douglas Corporation (prior to its merger with
Boeing4), and that such subsidies are
prohibited and/or actionable under the Agreement on Subsidies
and Countervailing Measures
(the "SCM Agreement").
2. The European Communities' claims before the Panel related to
measures from three US States
and municipalities therein, as well as to a number of US Federal
Government measures, all allegedly
providing subsidies to Boeing, as follows5:
(a) State and local measures:
(i) State of Washington and municipalities therein: the
provision of tax
incentives by the State of Washington through five measures
under
House Bill 22946 ("House Bill 2294"); the provision of tax
reductions from
the City of Everett's business and occupation ("B&O") tax
pursuant to
3Panel Report, paras. 1.1-1.3. The Panel took note of the
European Communities' definition of "large civil aircraft" (LCA) as
follows:
In accordance with the 1992 Agreement between the European
Communities and the Government of the United States of America
concerning the application of the GATT Agreement on Trade in Civil
Aircraft on trade in large civil aircraft, large civil aircraft
("LCA") included all aircraft as defined in Article 1 of the GATT
Agreement on Trade in Civil Aircraft, except engines as defined in
Article 1.1(b) thereof, that are designed for passenger or cargo
transportation and have 100 or more passenger seats or its
equivalent in cargo configuration. Boeing produces or markets the
following families of LCA: 717, 737, 747, 757, 767, 777, and
787.
(Panel Report, footnote 20 to para. 2.1 (quoting Request for the
Establishment of a Panel by the European Communities, originally
circulated as WT/DS317/5 (as amended by WT/DS353/2, WT/DS317/Add.1
and corrected by WT/DS353/2/Corr.1, WT/DS317/5/Add.1/Corr.1),
footnote 4))
4The Panel explained that, prior to 1997, two firms produced LCA
in the United States: The Boeing Company and McDonnell Douglas
Corporation. McDonnell Douglas merged with Boeing in 1997.
Following the merger, Boeing became the sole US producer of LCA.
Boeing is divided into several different business segments and
units: Boeing Commercial Airplanes ("BCA") is the segment that
produces LCA and parts; Boeing's Integrated Defense Systems ("IDS")
segment focuses on defence, intelligence, communications, and
space; Boeing's Phantom Works unit conducts research and
development ("R&D") for both the BCA and IDS segments of the
company; and Boeing Capital Corporation ("BCC") provides
asset-backed lending and leasing to support other Boeing business
units by arranging, structuring, and providing financing to assist
in the sale and delivery of Boeing LCA products. The Panel noted
that, unless otherwise indicated, the references in its Report to
"Boeing" included McDonnell Douglas. (See Panel Report, paras. 2.1
and 7.1 and footnote 1004 thereto, and footnote 1042 to para. 7.33)
We follow the same approach in this Report.
5A detailed description of the measures at issue relevant to
these appellate proceedings is contained in Part IV of this
Report.
6Washington State House Bill 2294, 58th Legislature, 2nd Special
Session (Washington, 2003) "An Act related to retaining and
attracting the aerospace industry to Washington state" (Panel
Exhibit EC-54). These five measures are: (i) a business and
occupation ("B&O") tax rate reduction; (ii) B&O tax credits
for preproduction development, computer software and hardware, and
property taxes; (iii) sales and use tax exemptions for computers,
construction, and equipment; (iv) leasehold excise tax exemptions;
and (v) property tax exemptions. (Panel Report, paras. 7.41 and
7.42)
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Ordinance No. 2759-047; and the provision of various incentives,
including
training facilities and infrastructure improvements, in
connection with the
production of Boeing's 787 under the Project Olympus Master
Site
Development and Location Agreement between the Boeing Company
and the
State of Washington (the "MSA")8;
(ii) State of Kansas and municipalities therein: the provision
by the City of
Wichita of property and sales tax abatements through the
issuance of
industrial revenue bonds ("IRBs")9; and the issuance by the
State of Kansas
of Kansas Development Finance Authority Bonds ("KDFA bonds") to
fund
the development and production of a portion of the fuselage for
Boeing's 787
in Wichita, along with payments by the State of Kansas of the
interest on
such bonds10; and
(iii) State of Illinois and municipalities therein: the
provision by Cook County
and the City of Chicago of four separate incentives in
consideration for
Boeing's decision to relocate its corporate headquarters from
Seattle,
Washington State to Chicago in 200111; and
7City of Everett Ordinance No. 2759-04 (2004) (Panel Exhibit
EC-61); Panel Report,
paras. 7.306-7.309. 8Project Olympus Master Site Development and
Location Agreement between the Boeing Company and
the State of Washington, County of Snohomish, City of Everett
and Certain Other Governmental Units and Authorities of or in the
State of Washington, 19 December 2003 (Panel Exhibit EC-58). The
European Communities argued that the following eight measures
referred to in the MSA constitute specific subsidies: (i) specific
road improvements for the benefit of Boeing's LCA production
facilities in Everett; (ii) the waiver of landing fees for Boeing's
747 large cargo freighters ("LCFs") at Paine Field to lower the
costs of transporting 787 components to Everett; (iii) improvements
to rail-barge transfer capabilities and expansion of the South
Terminal facility to facilitate the transportation of 787
components to Everett; (iv) the freezing of rates for water,
sanitary sewer, solid waste, and process wastewater services
utilized by Boeing's LCA production facilities in Everett; (v) the
provision of coordinators to Boeing to help start up Project
Olympus; (vi) the creation of a workforce development programme and
the provision of an "Employment Resource Center" to train Boeing's
employees who will work on the assembly of the 787; (vii) the
extension to 747 LCFs of tax and other incentives provided to the
787; and (viii) the assumption of litigation costs that Boeing
incurs in relation to the MSA. (Panel Report, para. 7.357; see also
para. 4.37)
9Panel Report, paras. 7.648-7.664. 10Panel Report, paras. 4.47
and 7.822-7.826. 11Panel Report, paras. 7.893-7.902. The four
incentives granted by Cook County and the City of
Chicago are: (i) the reimbursement of up to 50% of the
relocation expenses incurred by an "eligible business"; (ii) the
granting of 15-year Economic Development for a Growing Economy
("EDGE") tax credits to an "eligible business", instead of the
normal 10-year tax credit available under the EDGE Tax Credit Act;
(iii) the abatement or refund of a portion of property taxes of an
"eligible business" for up to 20 years; and (iv) the payment of $1
million by the City of Chicago to retire the lease of the previous
tenant of Boeing's new headquarters building. The first three
incentives are derived from the Corporate Headquarters Relocation
Act of 2001 (Illinois Public Act 92-0207 (Panel Exhibit EC-216))
(the "CHRA"). (Panel Report, paras. 7.893-7.902)
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(b) Federal measures:
(i) US National Aeronautics and Space Administration ("NASA"):
payments to
Boeing and the provision of access to NASA facilities,
equipment, and
employees pursuant to contracts and agreements entered into
under eight
aeronautics research and development ("R&D")
programmes12;
(ii) US Department of Defense ("USDOD"): payments to Boeing and
the
provision of access to USDOD facilities for aeronautics R&D
relating to
"dual use" technologies, pursuant to contracts and agreements
entered into
under 23 research, development, test, and evaluation
("RDT&E")
programmes13;
(iii) NASA/USDOD: the allocation of intellectual property rights
to Boeing
under contracts and agreements entered into with NASA and the
USDOD14;
and payments by NASA and the USDOD for independent research
and
development ("IR&D") expenditures and bid and proposal
("B&P")
reimbursements, notably relating to basic research, applied
research,
development, and systems and other concept formulation
studies15;
(iv) US Department of Commerce ("USDOC"): payments to Boeing and
the
provision of access to USDOC facilities, equipment, and
employees to
perform aeronautics R&D under eight Advanced Technology
Program
("ATP") projects, falling into three general categories16;
(v) US Department of Labor ("USDOL"): a payment of $1.5 million,
made to
Edmonds Community College under the High Growth Job Training
Initiative,
12Panel Report, paras. 7.942-7.947. The eight NASA R&D
programmes that funded the R&D contracts
and agreements are: (i) the Advanced Composites Technology
Program ("ACT programme"); (ii) the High-Speed Research Program
("HSR programme"); (iii) the Advanced Subsonic Technology Program
("AST programme"); (iv) the High Performance Computing and
Communications Program ("HPCC programme"); (v) the Aviation Safety
Program ("AS programme"); (vi) the Quiet Aircraft Technology
Program ("QAT programme"); (vii) the Vehicle Systems Program ("VS
programme"); and (viii) the Research and Technology Base Program
("R&T Base programme"). (Ibid., para. 7.944)
13Panel Report, paras. 7.1113-7.1123. The 23 USDOD RDT&E
programmes identified by the European Communities in its panel
request are set out in paragraph 7.1113 of the Panel Report.
14Panel Report, paras. 7.1260-7.1265. 15Panel Report, paras.
7.1315-7.1318. 16Panel Report, paras. 7.1213-7.1223. The three
categories into which the eight ATP projects fall are:
(i) improving the manufacturing of lightweight composite and
metal structures and materials; (ii) improving electronics
components; and (iii) improving manufacturing efficiency and supply
chain logistics. (Ibid., para. 7.1222) The eight USDOC projects are
listed in paragraph 7.1213 of the Panel Report.
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for the training of aerospace industry workers for the
development and
production of Boeing's 78717; and
(vi) Foreign Sales Corporation ("FSC") / extraterritorial income
("ETI") and
successor legislation: the provision of federal tax exemptions
to Boeing
under the original provisions of the US Internal Revenue Code
relating to
foreign sales corporations and successor legislative acts,
including
grandfathering clauses and transitional rules.18
3. According to the European Communities, all of the above
measures provided Boeing's LCA
division with subsidies amounting to $19.1 billion over the
period 1989-2006.19
17Panel Report, paras. 7.1355 and 7.1357. 18Panel Report, paras.
7.1378-7.1385. The FSC/ETI subsidies were provided pursuant to the
following
four pieces of US legislation: (i) Sections 921-927 of the US
Internal Revenue Code enabled certain corporations in certain
locations
outside the customs territory of the United States (FSCs) to
obtain a tax exemption on a portion of their "foreign trade income"
(in essence, the gross receipts of an FSC attributable to the lease
or sale outside of the United States of "export property" produced
within the United States). In addition, dividends from exempt and
non-exempt income to the shareholder generally qualified for a full
dividends-received deduction. This measure also allowed US parent
companies of FSCs to defer the payment of taxes on certain "foreign
trade income" that would normally be subject to immediate taxation
and to avoid paying taxes on dividends received from their FSCs
related to "foreign trade income". (Panel Report, para. 7.1379)
(ii) The FSC Repeal and Extraterritorial Income Exclusion Act of
2000 (Public Law No. 106-519, 114 Stat. 2423 (Panel Exhibit
EC-625)) (the "ETI Act") was enacted on 15 November 2000 in
response to the findings made by the panel and Appellate Body in
the original US FSC dispute, and repealed the provisions in the US
Internal Revenue Code relating to the taxation of FSCs, subject to
certain grandfathering clauses and transitional rules. The ETI Act
also introduced an exclusion from income taxation of ETI (gross
income of a taxpayer attributable to "foreign trading gross
receipts", that is, gross receipts by certain qualifying
transactions involving the sale or lease of "qualifying foreign
trade property" not for use in the United States). (Panel Report,
paras. 7.1380-7.1383) (iii) The American Jobs Creation Act of 2004
(Public Law No. 108-357, 118 Stat. 1418 (Panel Exhibit EC-626))
(the "AJCA") was enacted on 22 October 2004 in response to the
findings made by the panel and the Appellate Body in the US FSC
(Article 21.5 EC) compliance dispute. Section 101 of the AJCA
repealed the exclusion of ETI but included a "transitional rule for
2005 and 2006" allowing US taxpayers to claim 80% of ETI tax
benefits with respect to certain transactions in 2005 and to claim
60% of ETI tax benefits with respect to certain transactions in
2006. The AJCA also indefinitely grandfathered the ETI Act scheme
in respect of certain transactions, and left undisturbed the FSC
benefits pursuant to certain transactions that had been
grandfathered under the ETI Act. (Panel Report, para. 7.1384) (iv)
The Tax Increase Prevention and Reconciliation Act of 2005 (Public
Law No. 109-222, 120 Stat. 345 (Panel Exhibit EC-627)) (the
"TIPRA") was enacted on 17 May 2006 in response to the findings
made by the panel and the Appellate Body in the US FSC (Article
21.5 EC II) second compliance dispute. Section 513(a) of the TIPRA
repealed section 5(c)(1)(B) of the ETI Act that allowed for the
continuation of FSC benefits in respect of transactions occurring
pursuant to a binding contract in effect on 30 September 2000.
Section 513(b) of the TIPRA repealed the provisions in section
101(f) of the AJCA that allowed for the continuation of ETI tax
benefits in respect of transactions occurring pursuant to a binding
contract in effect on 17 September 2003. Section 513(c) of the
TIPRA provides that "{t}he amendments made by this section shall
apply to taxable years beginning after the date of the enactment of
this Act". (Panel Report, para. 7.1385)
19Panel Report, paras. 7.1605 and 7.1606. The European
Communities further estimated that Boeing would receive
approximately $4.6 billion in subsidies pursuant to these measures
between 2007 and 2024. (Ibid., para. 7.1606 and footnote 3371
thereto)
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A. The European Communities' Claims before the Panel
4. The European Communities requested the Panel to find that the
United States acted
inconsistently with its obligations under the SCM Agreement.
First, the European Communities
submitted that the State of Washington's House Bill 2294 tax
incentives and the FSC and ETI federal
taxation schemes constitute prohibited subsidies, within the
meaning of Article 3.1(a) and in violation
of Article 3.2 of the SCM Agreement.20
5. Second, the European Communities argued that, through various
measures provided by the
US Federal Government and the States of Washington, Kansas, and
Illinois, and municipalities
therein, the United States provided actionable subsidies to
Boeing's LCA division, which caused
serious prejudice to the interests of the European Communities,
within the meaning of Articles 5(c)
and 6.3 of the SCM Agreement.21 In particular, the European
Communities requested the Panel to find
that serious prejudice was caused by means of:
(a) significant price suppression, within the meaning of Article
6.3(c) of the
SCM Agreement, with respect to orders of Airbus' A330, Original
A350,
A350XWB-800, A320, and A340 families of LCA, or, in the
alternative, threat of
significant price suppression with respect to deliveries of
Airbus' A330,
A350XWB-800, A320, and A340 families of LCA22;
(b) significant lost sales, within the meaning of Article 6.3(c)
of the SCM Agreement,
with respect to orders of Airbus' A330, Original A350, A320, and
A340 families of
LCA, or, in the alternative, threat of significant lost sales
with respect to deliveries of
Airbus' A330, A320, and A340 families of LCA23;
(c) displacement and impedance, within the meaning of Article
6.3(a) of the
SCM Agreement, with respect to orders of Airbus' A330 and
Original A350 families
of LCA, or, in the alternative, threat of displacement or
impedance with respect to
deliveries of Airbus' A330 and A350XWB-800 families of
LCA24;
20Panel Report, para. 3.1(a) (referring to European Communities'
first written submission to the Panel,
para. 24). 21Panel Report, para. 3.1(b). 22Panel Report, para.
3.1(b)(i) (referring to European Communities' first written
submission to the
Panel, paras. 1387, 1455, and 1654). 23Panel Report, para.
3.1(b)(ii) (referring to European Communities' first written
submission to the
Panel, paras. 1446 and 1654). 24Panel Report, para. 3.1(b)(iii)
(referring to European Communities' first written submission to
the
Panel, paras. 1455 and 1654).
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(d) displacement and impedance, within the meaning of Article
6.3(b) of the
SCM Agreement, with respect to orders of Airbus' A330, Original
A350, A320, and
A340 families of LCA, or, in the alternative, threat of
displacement or impedance
with respect to deliveries of Airbus' A330, A350XWB-800, A320,
and A340 families
of LCA25; and
(e) threat of significant price suppression with respect to
future orders of Airbus' A330,
A350XWB-800, A320, and A350XWB-900/1000 families of LCA.26
6. Third, the European Communities contended that the United
States acted inconsistently with
its obligations regarding support to the LCA industry, as set
forth in the 1992 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 27 (the
"1992 Agreement"), and that the United States' breach of that
Agreement constitutes serious prejudice
to the European Communities' interests, within the meaning of
Article 5(c) of the SCM Agreement.28
7. On 24 November 2006, the European Communities filed a request
for preliminary rulings
concerning the information-gathering procedure contained in
Annex V to the SCM Agreement. The
European Communities submitted two alternative requests. First,
it requested the Panel to rule that
the Annex V procedure had been initiated and that, consequently,
the United States had an obligation
to respond to certain questions put to it by the European
Communities in a communication dated
25 May 2006. In the alternative, the European Communities asked
the Panel to exercise its discretion
under Article 13 of the Understanding on Rules and Procedures
Governing the Settlement of Disputes
(the "DSU") to put some or all of these questions to the United
States.29
25Panel Report, para. 3.1(b)(iv) (referring to European
Communities' first written submission to the
Panel, paras. 1455, 1640, and 1654). 26Panel Report, para.
3.1(b)(v) (referring to European Communities' first written
submission to the
Panel, para. 1654). 27Done at Brussels on 17 July 1992, Official
Journal of the European Union, L Series, No. 301
(17 October 1992) 32. 28Panel Report, para. 3.1(c) (referring to
European Communities' first written submission to the Panel,
para. 1055). 29Panel Report, para. 7.19.
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B. The Panel's Findings
8. During the course of the Panel proceedings, the Panel adopted
additional procedures for the
protection of business confidential information ("BCI") and
highly sensitive business information
("HSBI"), and issued a number of rulings relating to these
procedures and other issues.30 On 30 July
2007, the Panel issued a Preliminary Ruling declining the
requests that had been made by the
European Communities relating to the information-gathering
procedure set out in Annex V to the
SCM Agreement.31 The Panel considered that initiation of an
Annex V procedure requires some form
of action on the part of the Dispute Settlement Body ("DSB").32
Having examined the minutes of the
various DSB meetings where the European Communities' request to
initiate such a procedure was
considered, the Panel found it "clear" that "the DSB never took
any action to initiate an Annex V
procedure", or designate a DSB representative, as required by
Annex V.33 Accordingly, the Panel
denied the European Communities' request to rule that an Annex V
procedure had been initiated, as
well as various additional requests that were dependent upon
that request.34 The Panel also declined
the European Communities' alternative request, explaining that
it did not, in the circumstances of this
dispute, consider it necessary or appropriate to exercise its
discretion under Article 13 of the DSU to
seek information from the United States before having reviewed
the parties' first written
submissions.35
30BCI and HSBI procedures were adopted by the Panel on 19
February 2007, at the request of, and
following consultations with, the parties. The procedures were
modified several times over the course of the proceedings and the
Panel issued a number of rulings in connection with them. The final
version of these procedures is attached to the Panel Report as
Annex D. (Panel Report, para. 1.11) On 21 December 2006, Brazil
requested the Panel to grant it certain enhanced third party
rights, and on 22 December 2006, Canada requested the Panel to
grant it any enhanced third party rights granted to Brazil. Both
parties to the dispute submitted comments and opposed the requests.
On 23 February 2007, the Panel informed the parties and third
parties that it had decided not to grant enhanced third party
rights to any third party in the proceedings. (Panel Report, paras.
1.14, 7.14, and 7.15)
31Panel Report, paras. 7.19-7.24. 32Panel Report, para. 7.21.
33Panel Report, para. 7.20. 34Panel Report, para. 7.22. In this
regard, the Panel rejected requests that it: (i) "rule that the
United States {was} under an obligation to cooperate and answer
the questions that had been put to it in the European Communities'
letter to the Facilitator dated 23 May 2006"; (ii) "rule that Mr.
Mateo Diego-Fernndez was effectively designated as a facilitator in
that procedure, and in the event that the Panel {did} not make this
ruling, nevertheless to provide the relief set forth in the
preceding and following points"; and (iii) "adopt such working
procedures that would allow the completion of the Annex V procedure
in due time before the deadline for the filing of the European
Communities' first written submission". (Ibid. (quoting Request for
preliminary rulings by the European Communities, 24 November 2006
("European Communities' request for preliminary rulings"), para.
58))
35Panel Report, para. 7.23.
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9. The Panel Report was circulated to Members of the World Trade
Organization (the "WTO")
on 31 March 2011. In its Report, the Panel found the following
state and local measures to constitute
specific subsidies within the meaning of Articles 1 and 2 of the
SCM Agreement36:
(a) State of Washington and municipalities therein: (i) the
Washington State B&O tax
rate reduction provided for in House Bill 2294; (ii) the B&O
tax credits for
preproduction development, computer software and hardware, and
property taxes
provided for in House Bill 2294; (iii) the sales and use tax
exemptions for computer
hardware, peripherals, and software provided for in House Bill
229437; (iv) the City
of Everett B&O tax rate reduction38; and (v) the workforce
development programme
and the Employment Resource Center provided under the MSA39;
(b) State of Kansas and municipalities therein: the state and
local property and sales tax
abatements granted to Boeing through the issuance of IRBs40;
and
(c) State of Illinois and municipalities therein: (i) the
reimbursement of a portion of
Boeing's relocation expenses provided for in the Corporate
Headquarters Relocation
Act of 200141 (the "CHRA"); (ii) the 15-year Economic
Development for a Growing
Economy ("EDGE") tax credits provided for in the CHRA; (iii) the
abatement or
refund of a portion of Boeing's property taxes provided for in
the CHRA; and (iv) the
payment to retire the lease of the previous tenant of Boeing's
new headquarters
building.42
10. The Panel was not satisfied, however, that the European
Communities had established that the
following state measures constitute specific subsidies within
the meaning of the SCM Agreement:
(i) the Washington State sales tax exemptions for construction
services and equipment, the leasehold
36Panel Report, para. 7.1431(a)(i)-(iv), (b)(i), and
(c)(i)-(iv), respectively. 37The Panel estimated the amounts of the
subsidy provided to Boeing's LCA division through the three
House Bill 2294 tax incentives that it found to be specific
subsidies to be: (i) $13.8 million (B&O tax rate reduction);
(ii) $42.4 million (B&O tax credits) (of which, tax credit for
preproduction development ($21.3 million), computer software and
hardware ($20 million), and property taxes ($1.1 million)); and
(iii) $8.3 million (sales and use tax exemption for computer
hardware, peripherals and software). (Panel Report, paras. 7.254,
7.257, 7.258, 7.300, and 7.302)
38The Panel estimated the amount of the subsidy provided to
Boeing's LCA division by means of the City of Everett B&O tax
rate reduction through 2006 to be $2.2 million. (Panel Report,
para. 7.354)
39The Panel estimated the amount of subsidies provided to
Boeing's LCA division by means of the workforce development
programme and the Employment Resource Center over the period
1989-2006 to be $11 million. (Panel Report, para. 7.644)
40The Panel estimated the amount of the subsidy provided to
Boeing through the issuance of IRBs to be $475.8 million. (Panel
Report, para. 7.819)
41Illinois Public Act 92-0207 (Panel Exhibit EC-216). 42The
Panel estimated the amount of the subsidy provided through the four
incentives at issue to be
$11 million over the period 2002-2006. (Panel Report, para.
7.939)
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tax exemption, and the property tax exemption granted pursuant
to House Bill 229443; (ii) the
measuresother than the workforce development programme and the
Employment Resource
Centergranted pursuant to the MSA44; or (iii) the State of
Kansas' issuance of KDFA bonds.45
11. The Panel also found the following US Federal Government
measures to constitute specific
subsidies within the meaning of Articles 1 and 2 of the SCM
Agreement:
(a) NASA: (i) the payments made to Boeing pursuant to
procurement contracts entered
into under the eight aeronautics R&D programmes at issue;
and (ii) the access to
NASA facilities, equipment, and employees provided to Boeing
pursuant to
procurement contracts and agreements under the National
Aeronautics and Space Act
of 195846 (the "Space Act") entered into under the eight
aeronautics R&D
programmes at issue ("Space Act Agreements")47;
(b) USDOD: (i) the payments made to Boeing pursuant to
assistance instruments entered
into under the 23 RDT&E programmes at issue; and (ii) the
access to USDOD
facilities provided to Boeing pursuant to assistance instruments
entered into under the
23 RDT&E programmes at issue48; and
43Panel Report, paras. 7.303 and 7.1432(a)(i)-(iii). 44The
measures found not to be specific subsidies are: (i) the I-5 and SR
527 expansion projects, the
construction of a rail-barge transfer facility, and the
expansion of the South Terminal by the Port of Everett; (ii)
Snohomish County's waiver of 747 LCF landing fees at Paine Field;
(iii) the alleged commitment made by the City of Everett and
Snohomish County to freeze utility rates charged to Boeing; (iv)
the provision of coordinators to Boeing pursuant to the MSA; (v)
tax and other incentives related to the 747 LCFs; and (vi) the
assumption by Washington State of costs to Boeing for MSA-related
legal proceedings. (Panel Report, paras. 7.645 and
7.1432(a)(iv)-(ix))
45Panel Report, paras. 7.890 and 7.1432(b)(i). 46Public Law No.
85-568, as amended (Panel Exhibit EC-286). 47Panel Report, paras.
7.1041, 7.1049, and 7.1431(d)(i)-(ii). The Panel estimated the
amount of the
subsidy provided to Boeing's LCA division in the form of
payments under R&D contracts to be $1.05 billion over the
period 1989-2006, and the amount of the subsidy provided to
Boeing's LCA division in the form of access to NASA facilities,
equipment and employees under NASA R&D contracts and agreements
to be $1.55 billion over this same period. Thus, the Panel
estimated the total amount of the subsidy provided through the
eight NASA aeronautics R&D programmes over the 1989-2006 period
to be $2.6 billion. (Ibid., paras. 7.1109 and 7.1110)
48Panel Report, paras. 7.1188, 7.1198, and 7.1431(e)(i)-(ii).
The Panel found that it was unable to provide an estimate of the
amount of the subsidy under the 23 USDOD RDT&E programmes over
the period 1991-2006 because it was "unclear". The European
Communities had estimated that, out of the $45 billion in RDT&E
funding that Boeing received from the USDOD over the period
1991-2005, approximately $4.3 billion related to "dual use"
R&D. For its part, the United States estimated the total amount
of any USDOD subsidy to Boeing for "dual use" R&D to be
significantly less than $308 million over the period 1991-2006.
(Ibid., paras. 7.1203, 7.1204, 7.1209, and 7.1210)
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(c) FSC/ETI and successor legislation: the tax exemptions and
tax exclusions provided
to Boeing under FSC/ETI legislation, including the transition
and grandfathering
provisions of the FSC Repeal and Extraterritorial Income
Exclusion Act of 200049
(the "ETI Act") and the American Jobs Creation Act of 200450
(the "AJCA").51
12. The Panel was not persuaded that the European Communities
had demonstrated that the
following federal measures constitute specific subsidies: (i)
the USDOD's payments to Boeing
pursuant to procurement contracts under the 23 aeronautics
RDT&E programmes at issue52; (ii) the
USDOD's grant of access to government facilities pursuant to
procurement contracts under the
23 aeronautics RDT&E programmes at issue53; (iii) the
USDOC's payments to joint
ventures/consortia in which Boeing participated through the
ATP54; (iv) the allocation of intellectual
property rights under NASA/USDOD R&D procurement contracts
and agreements55; (v) the
reimbursement of IR&D and B&P expenses under NASA/USDOD
R&D procurement contracts and
agreements56; or (vi) the USDOL's payment to Edmonds Community
College under the High Growth
Job Training Initiative.57
13. The Panel further found that the FSC/ETI and successor act
subsidies constitute prohibited
export subsidies within the meaning of Articles 3.1(a) and 3.2
of the SCM Agreement.58 However, the
Panel considered that the European Communities had failed to
demonstrate that the Washington State
tax measures provided for in House Bill 2294 are inconsistent
with Articles 3.1(a) and 3.2 of the
SCM Agreement.59
14. The Panel determined that the above measures provided
Boeing's LCA division with
subsidies amounting to "at least $5.3 billion" over the period
1989-2006.60 The Panel declined to take
account of the estimated future subsidy amounts associated with
these measures.61
49Supra, footnote 18, item (ii). 50Supra, footnote 18, item
(iii). 51Panel Report, paras. 7.1406 and 7.1431(f)(i). The Panel
estimated the amount of the subsidy
provided to Boeing through the FSC/ETI legislation over the
period 1989-2006 to be approximately $2.199 billion. (Ibid., para.
7.1429)
52Panel Report, paras. 7.1171 and 7.1432(c)(i). 53Panel Report,
paras. 7.1171 and 7.1432(c)(ii). 54Panel Report, paras. 7.1257 and
7.1432(e)(i). 55Panel Report, paras. 7.1312 and 7.1432(d)(i).
56Panel Report, paras. 7.1354 and 7.1432(d)(ii). 57Panel Report,
paras. 7.1375 and 7.1432(f)(i). 58Panel Report, paras. 7.1464 and
8.2(a). 59Panel Report, paras. 7.1590 and 8.2(b). 60Panel Report,
para. 7.1433. 61Panel Report, paras. 7.153-7.158.
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15. At the outset of its analysis of the European Communities'
claims of serious prejudice, the
Panel made a number of findings regarding the relevant
"markets", "subsidized products", and "like
products" for purposes of its analysis. The parties agreed, and
the Panel found, that "the LCA market
is a global market geographically".62 The European Communities
further divided the global LCA
market into five market segments, or product markets, on the
basis of the flight range and seating
capacity of the various LCA families.63 Its serious prejudice
claim focused on three of these product
markets: (i) the 100-200 seat LCA market