• Copy the reference
  • Tutorial video
Source(s) of the information:

Lawyers, other representatives, expert(s), tribunal’s secretary

Second Recourse to article 21.5 of the DSU by the United States - Report of the Panel

ABBREVIATIONS

AbbreviationDescription
A320ceo Airbus A320 "current engine option" aircraft
A320neo Airbus A320 "new engine option" aircraft
A350XWB Airbus A350 "eXtra widebody" aircraft
A380 Airbus A380 aircraft
ANA All Nippon Airways
BCI business confidential information
BEIS UK Department of Business, Energy & Industrial Strategy
CEO Chief Executive Officer
CORDIS Community Research and Development Information Service
CMO current market outlook
DSB Dispute Settlement Body
DSU Understanding on Rules and Procedures Governing the Settlement of Disputes
EADS European Aeronautic Defence and Space Company
EC European Communities
EFFICOMP Efficient Composite parts manufacturing programme
EUR Euro
GATT 1994 General Agreement on Tariffs and Trade 1994
GBP British pound
GmbH Gesellschaft mit beschränkter Haftung
HSBI highly sensitive business information
IRR internal rate of return
KfW Kreditanstalt Für Wiederaufbau
LA/MSF Launch Aid/Member State Financing
LCA large civil aircraft
LPA large passenger aircraft
LuFo Luftfahrtforschungsprogramm (Aviation Research Programme)
NERA National Economics Research Associates
NPV net present value
PROFIT Programa de Fomento de la Investigación Técnica (Funding Programme for Technological Research)
PwC PricewaterhouseCoopers
R&TD Research and Technological Development
RSP risk-sharing partner
RSS risk-sharing supplier
SCM Agreement Agreement on Subsidies and Countervailing Measures
TRL Technology readiness level
UK United Kingdom
US United States
USD United States Dollar
VLA very large aircraft
WTO World Trade Organization

1 INTRODUCTION

1.1 PRIOR PROCEEDINGS IN DS316

1.1.
This is the second recourse to Article 21.5 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) concerning the alleged failure by the European Union to comply with the Dispute Settlement Body's (DSB) recommendations and rulings in the original proceeding in EC and Certain member States – Measures Affecting Trade in Large Civil Aircraft.
1.2.
On 1 June 2011, the DSB adopted the Appellate Body report, and the panel report as modified by the Appellate Body report, in EC and Certain member States – Measures Affecting Trade in Large Civil Aircraft. The DSB's recommendations called upon the European Union to secure compliance with its WTO obligations in respect of "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). The recommendations and rulings also covered certain infrastructure measures, equity infusions and regional development grants.
1.3.
On 1 December 2011, the European Union informed the DSB of the steps taken to implement the DSB's recommendations.1 The United States disagreed with the European Union regarding the sufficiency of the compliance steps communicated by the European Union to the DSB. Following consultations, and at the request of the United States, on 13 April 2012, the DSB referred the parties' disagreement to a compliance panel established under Article 21.5 of the DSU.
1.4.
On 28 May 2018, the DSB adopted the reports of the panel and the Appellate Body in the first compliance proceeding. The compliance panel report, as modified by the Appellate Body report, found that the European Union had failed to comply with the DSB recommendations and rulings in connection with LA/MSF for the A350XWB2 and the A380 models of LCA.
1.5.
Prior to the adoption of the panel and the Appellate Body reports in the first compliance proceeding, the European Union notified the DSB on 17 May 2018 of the adoption of a series of additional measures, which the European Union considered to have brought the European Union into full substantive compliance with the DSB's recommendations and rulings. At the meeting of the DSB on 28 May 2019, the United States again expressed its disagreement that the European Union had achieved full substantive compliance with the DSB's recommendations and rulings.3

1.2 COMPLAINT BY THE EUROPEAN UNION

1.2.1 Request for consultations

1.6.
On 29 May 2018, the European Union4 requested consultations with the United States pursuant to Articles 4 and 21.5 of the DSU, Article XXIII:1 of the General Agreement on Tariffs and Trade 1994 (GATT 1994), and Articles 7.1 and 30 of the Agreement on Subsidies and Countervailing Measures (SCM Agreement).5 The European Union indicated that its request was made with respect to a "disagreement", under Article 21.5 of the DSU, "as to the existence or consistency with a covered agreement of measures taken to comply with the recommendations and rulings" of the DSB in EC and Certain member States – Measures Affecting Trade in Large Civil Aircraft.6
1.7.
The European Union and the United States held consultations on 27 June 2018, but the consultations failed to resolve the dispute.

1.2.2 Panel establishment and composition

1.8.
On 31 July 2018, the European Union requested the establishment of a panel pursuant to Article 21.5 of the DSU with standard terms of reference.7 At its meeting on 27 August 2018, the DSB agreed, pursuant to Article 21.5 of the DSU, to refer the dispute to the original panel, if possible.8
1.9.
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 European Union and certain member States in document WT/DS316/39 and to make such findings as will assist the DSB in making the recommendations or in giving the rulings provided for in those agreements.

1.10.
On 17 September 2018, the European Union requested the Director-General to determine the composition of the Panel, pursuant to Article 8.7 of the DSU, read together with Article 21.5 of the DSU.
1.11.
In accordance with these provisions and given the unavailability of two members of the original panel, the Panel was composed on 28 September 2018 as follows9:

Chairman: Mr Hugo Cayrús

Members: Mr Christian Etter

Mr Thinus Jacobsz

1.12.
Australia, Brazil, Canada10, China, India, Japan and the Russian Federation notified their interest in participating in the Panel proceedings as third parties.

1.3 PANEL PROCEEDINGS

1.3.1 General

1.13.
The Panel held an organizational meeting with the parties on 19 October 2018.
1.14.
After consulting the parties, the Panel adopted its Working Procedures11 and timetable on 23 October 2018. The Panel made various modifications to its timetable throughout the proceeding. On 16 September 2019, the Panel informed the parties of the expected date of the issuance of the Interim Report.
1.15.
The European Union and the United States filed their first written submissions on 26 October 2018 and 19 December 2018, respectively. Third parties filed their written submissions on 11 January 2019. The second written submissions of the European Union and the United States were filed on 28 January 2019 and 21 March 2019, respectively.
1.16.
The Panel held one substantive meeting with the parties on 7-8 May 2019. A session with the third parties took place on 8 May 2019. 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 also opened to the public by means of a delayed video showing.12
1.17.
The Panel posed questions to the parties and third parties on 10 May 2019.
1.18.
On 10 September 2019, the Panel issued the descriptive part of its Report to the parties. The Panel issued its Interim Report to the parties on 17 October 2019. The Panel issued its Final Report to the parties on 25 November 2019.

1.3.2 Protection of Business Confidential Information and Highly Sensitive Business Information

1.19.
Before the organisational meeting, the European Union sent a letter to the Panel asking the Panel to adopt additional procedures for the protection of confidential and highly sensitive business information. After consulting the parties, the Panel adopted the Additional Procedures to Protect Business Confidential Information and Highly Sensitive Business Information (BCI/HSBI Procedures) on 23 October 2018.13

1.3.3 Canada's request to participate in the proceeding as a third party

1.20.
On 30 November 2018, Canada sent a letter to the Chairman of the Panel, the parties and the Chair of the DSB, requesting the Panel's authorization to participate in these compliance proceedings as a third party.14 In its letter, Canada submitted that it had omitted to notify the DSB of its third-party interest due to internal coordination issues.15 Canada further submitted that it had a "substantial interest" in the present dispute in light of Canada's participation as the responding party in Canada – Measures Concerning Trade in Commercial Aircraft.16 Canada also submitted that it would not be unprecedented for the Panel to accept its request, nor would it interfere with the due process rights of the parties to the proceeding.17
1.21.
The Panel asked the parties and third parties to comment on Canada's request, considering that Canada made its request more than three months after the Panel was established on 27 August 2018. The European Union indicated it has no objection to Canada's request.18 The United States also agreed with Canada's request.19 Third parties provided no comments on Canada's request.
1.22.
On 7 December 2018, the Panel informed the parties and third parties that it had decided to accept Canada's request. In reaching it decision, the Panel carefully considered the relevant provisions of the DSU and the relevant practice concerning third-party notifications made after panel composition. The Panel also considered that Canada's incorporation to the proceeding would not disturb the development of the proceeding and would not impair the due process rights of the parties, who had, in fact, expressed no objections on Canada's request.

1.3.4 Preliminary ruling on the Panel's terms of reference

1.23.
On 21 December 2018, following the United States' issuance of its first written submission, the European Union requested the Panel to rule that the United States' claims in relation to certain European research and technological development (R&TD) measures are not within or properly within the scope of this compliance proceeding. The European Union asked "the Panel, urgently and on a preliminary basis, to find that the United States' claims in relation to the R&TD measures are not properly within the scope of the Panel's terms of reference".20
1.24.
After seeking the views of the United States, the Panel decided on 11 January 2019 to deny the European Union's request for a preliminary ruling, finding that the mere fact that the R&TD measures are not specifically identified in the European Union's panel request should not preclude the Panel from considering the United States' arguments related to the R&TD measures. The Panel indicated that its decision to deny the European Union's request for a preliminary ruling and consider the United States' arguments concerning the R&TD measures was without prejudice to either party's right to advance further arguments regarding whether the United States is otherwise precluded from raising claims concerning those measures, or regarding the merits of the United States' claims. Accordingly, the Panel invited the parties to address the matters related to these measures in their submissions to the Panel.21
1.25.
The Panel's findings and underlying reasoning in relation to the European Union's preliminary ruling request are set out in section 7.3 below.

1.3.5 Request to file an additional submission regarding the future of the A380 LCA programme

1.26.
On 25 February 2019, the European Union requested leave to file an additional submission addressing the implications of Airbus' announcement on 14 February 2019 to wind down the A380 programme and to complete all deliveries by 2021.22 The European Union argued that Airbus' announcement has a direct bearing on the object of these compliance proceedings. Specifically, the European Union argued that the announcement is a "relevant fact that provides evidence of compliance with the DSB's recommendations and rulings"; "is an event that falls within the terms of the European Union's Panel Request"; and "is inextricably linked to, and falls within a continuum of, measures that have explicitly been identified in the EU Panel Request as achieving compliance under Article 7.8".23 The European Union further argued that it is necessary for the Panel to take this event into account as part of its mandate of determining whether the European Union has achieved compliance.24
1.27.
After seeking the views of the United States, the Panel decided on 28 February 2019 to grant the European Union's request to file the additional submission regarding Airbus' 14 February 2019 announcement. Taking into account the timing of the European Union's request, the Panel also decided to extend the United States' deadline to file its second written submission by two weeks to ensure that the United States had an adequate opportunity to address the European Union's additional submission.25

1.3.6 Request relating to the United States' comments

1.28.
On 12 July 2019, the European Union requested the Panel to issue a ruling rejecting as "untimely filed" certain arguments and evidence contained in the United States' comments on the European Union's responses to the Panel's questions following the substantive meeting.26 The European Union requested the Panel to either: (i) reject as "untimely filed" certain new arguments and evidence; or alternatively, (ii) afford the European Union an opportunity to comment on the alleged new arguments and evidence, if the Panel were to decline to reject those arguments and evidence as untimely filed.27 The European Union additionally requested the Panel to deny various United States requests to pose unnecessary additional questions to the European Union, and further deny what the European Union considers to be an assertion made by the United States that the European Union did not engage in good faith in the first compliance proceedings.28 The European Union argued that the United States' belated and untimely filing of new arguments and evidence, as well as its invitation to the Panel to pose additional questions to the European Union, appear designed to prolong the proceeding, and raised serious due process concerns.29
1.29.
On 5 August 2019, the Panel declined the European Union's request to reject the United States' arguments and evidence but decided to provide the European Union an opportunity to comment on certain of the arguments and evidence that the European Union had identified. The Panel additionally declined the European Union's request to deny any United States requests to pose additional questions to the European Union. The Panel did not consider it necessary to address the European Union's request concerning whether the European Union engaged in good faith in the first compliance proceeding.
1.30.
The Panel's findings and underlying reasoning in relation to the European Union's ruling request are set out in Annex D-1 of this Report.

2 FACTUAL ASPECTS

2.1 PRODUCT AT ISSUE

2.1.
The product at issue in this dispute is the same as the product that was the subject of the original proceeding and the first compliance proceeding, i.e. LCA, as distinguished from smaller (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 unladen weight exceeding 15,000 kg").30

2.2 MEASURES AT ISSUE

2.2.
On 17 May 2018, the European Union filed a communication informing the DSB that the European Union has adopted a series of additional measures to comply that, in the European Union's view, constitute "appropriate steps to address the remaining and additional elements of the DSB's recommendations and rulings, either through the withdrawal of subsidies or the removal of the adverse effects".31 Those measures are discussed in further detail in section 7.2 below.

3 PARTIES' REQUESTS FOR FINDINGS AND RECOMMENDATIONS

3.1.
The European Union requests that the Panel find that the European Union and certain member States have achieved full substantive compliance with the recommendations and rulings of the DSB, within the meaning of Article 7.8 of the SCM Agreement. Specifically, the European Union submits that it has withdrawn the A380-related LA/MSF subsidies and the German and UK LA/MSF subsidies for the A350XWB. In the event that the Panel finds that these subsidies have not been withdrawn, the European Union submits that appropriate steps have been taken to remove their adverse effects. Additionally, the European Union submits that it has taken appropriate steps to remove the adverse effects of the French and Spanish A350XWB LA/MSF subsides.32
3.2.
The United States requests that the Panel reject the entirety of the European Union's claims that the European Union has brought its measures "into full compliance with its WTO obligations".33

4 ARGUMENTS OF THE PARTIES

4.1.
The arguments of the parties are reflected in their executive summaries, provided to the Panel in accordance with paragraph 22 of the Working Procedures adopted by the Panel (see Annexes B‑1 and B-2).

5 ARGUMENTS OF THE THIRD PARTIES

5.1.
The arguments of Brazil, Canada and Japan are reflected in their executive summaries, provided in accordance with paragraph 22 of the Working Procedures adopted by the Panel (see Annexes C-1, C-2 and C-3). Australia, China, India and the Russian Federation did not submit written or oral arguments to the Panel.

6 INTERIM REVIEW

6.1.
On 17 October 2019, the Panel issued its Interim Report to the parties. On 31 October 2019, the European Union and the United States submitted their written requests for review. On 14 November 2019, the parties submitted comments on the other parties' written requests for review.
6.2.
The parties' requests made at the interim review stage as well as the Panel's discussion and disposition of those requests are set out in Annex A-4.

7 FINDINGS

7.1 INTRODUCTION

7.1.1 Procedural background

7.1.
This proceeding represents the second occasion on which a Panel has been established under Article 21.5 of the DSU to rule on whether the European Union has achieved compliance with the DSB's adopted recommendations and rulings in EC and certain member States – Large Civil Aircraft.

7.1.1.1 Original proceeding

7.2.
In the original proceeding in this dispute, the United States claimed that the European Communities and certain of its member States had caused, through the use of specific subsidies, adverse effects to the United States' interests in the form of serious prejudice under Articles 5(c) and 6.3 of the Agreement on Subsidies and Countervailing Measures (SCM Agreement). The original panel found that the United States had demonstrated that the European Communities 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 SCM Agreement, through the use of specific subsidies. These findings pertained to the use of LA/MSF for the A300, A310, A320, A330, A330-200, A340, A340-500/600, and A380 LCA models; the use of certain challenged equity infusions and infrastructure measures, and research and technological development (R&TD) funding provided by the European Communities and certain member States.34 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.35
7.3.
On appeal, the Appellate Body reversed the original panels' finding 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, and was unable to complete the legal analysis with regard to Article 3.1(a).36 The Appellate Body, however, upheld the original panel's conclusion that the effects 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 Agreement.37 In addition, the Appellate Body upheld the original panel's findings that the effects of the challenged equity infusions and infrastructure measures "complemented and supplemented" the effects of the challenged LA/MSF measures38, while reversing the original panel's finding that the R&TD subsidies "complemented and supplemented" the effects of the LA/MSF measures.39
7.4.
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 2011.40 The DSB recommended that the European Communities and certain member States comply with the Panel's recommendation pursuant to Article 7.8 of the SCM Agreement, 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'".41

7.1.1.2 First compliance proceeding

7.5.
Following the adoption of the original panel report and the Appellate Body report, on 1 December 2011, the European Union filed a communication informing 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 rulings".42 On 9 December 2011, the United States requested to hold consultations with the European Union and the four member States, alleging that the European Union had failed to comply with the recommendations and rulings of the DSB.43 On 13 April 2012, the DSB referred the parties' disagreement to a first compliance panel established under Article 21.5 of the DSU.44 The first compliance panel circulated its report on 22 September 2016.
7.6.
The panel in the first compliance proceeding concluded that the United States had failed to demonstrate that the A380 and 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.45 The first compliance panel, however, rejected the European Union's argument that the expiration of the lives of certain subsidies amounted to "withdrawal" of those subsidies for the purpose of Article 7.8.46 The first compliance panel concluded that the effects arising from the LA/MSF subsidies provided for the A300, A310, A320, A330, A330-200, A340, A340-500/600, A380 and A350XWB, caused serious prejudice to the United States' interests within the meaning of Article 6.3(a), (b) and (c) of the SCM Agreement in the single-aisle LCA, twin-aisle LCA and Very Large Aircraft (VLA) markets.47 By continuing to be in violation of Articles 5(c) and 6.3(a), (b) and (c) of the SCM Agreement, the first compliance panel concluded that the European Union and certain member States had failed to comply with the DSB recommendations and rulings.48
7.7.
The report of the compliance panel was appealed by both parties, and the Appellate Body circulated its report on 15 May 2018. The Appellate Body reversed the compliance panel's interpretation of Article 7.8 of the SCM Agreement, as well as its finding that the European Union's compliance obligations extended to the LA/MSF subsidies provided for the A300, A310, A320, A330, A330-200, A340, and A340-500/600. According to the Appellate Body, no compliance obligation existed in relation to these LA/MSF subsidies because, in each case, the "lives" of the subsidies had expired before the end of the European Union's implementation period - 1 December 2011.49 The Appellate Body also reversed the compliance panel's findings under Articles 6.3(a), 6.3(b), and 6.3(c) of the SCM Agreement insofar as they related to the single-aisle LCA market.50 However, the Appellate Body upheld the compliance panel's conclusions that the European Union and certain member States had failed to comply with the DSB recommendations and rulings insofar as the "lives" of the LA/MSF subsidies provided for the A380 and A350XWB had not expired, and continued to cause adverse effects in the twin-aisle LCA and Very Large Aircraft (VLA) markets in the post-implementation period.51 The DSB adopted the Appellate Body report and the report of the compliance panel, as modified by the Appellate Body report, on 28 May 2018.52

7.1.1.3 Second compliance proceeding

7.8.
Prior to the DSB's adoption of the reports of the panel and the Appellate Body in the first compliance proceedings, the European Union informed the DSB on 17 May 2018 that it had adopted a series of additional measures that, in the European Union's view, constitute "appropriate steps to address the remaining and additional elements of the DSB's recommendations and rulings, either through the withdrawal of subsidies or the removal of the adverse effects".53 In a statement at the DSB meeting of 28 May 2018, the United States expressed the view that the European Union had not yet fully complied with the recommendations and rulings of the DSB.54
7.9.
On 29 May 2018, the European Union requested consultations with the United States with respect to their "disagreement", under Article 21.5 of the DSU, "as to the existence or consistency with a covered agreement of measures taken to comply with the recommendations and rulings" of the DSB.55 The United States and the European Union held consultations on 27 June 2018, but the consultations failed to resolve the dispute. On 27 August 2018, the DSB referred the parties' disagreement to a second compliance panel established under Article 21.5 of the DSU.56

7.1.2 The Panel's task in this compliance proceeding

7.10.
The European Union initiated this compliance proceeding in light of its disagreement with the United States as to whether it has achieved full substantive compliance with the recommendations and rulings of the DSB following the adoption of the panel and the Appellate Body reports in the first compliance proceeding.
7.11.
As in the first compliance proceeding, our task here is to decide and resolve the dispute between the parties arising out of their "disagreement as to the existence or consistency with a covered agreement of measures taken to comply with the recommendations and rulings". We must evaluate whether the European Union has achieved full, substantive, compliance with the requirements of Article 7.8 of the SCM Agreement, which defines an implementing Member's obligation in compliance disputes involving actionable subsidies57 in the following terms:

Where 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 maintaining such subsidy shall take appropriate steps to remove the adverse effects or shall withdraw the subsidy.

7.12.
In this proceeding, the European Union asserts that it has taken steps that achieve full substantive compliance with the DSB's recommendations and rulings. Through these steps, the European Union argues that it has demonstrated that there are currently no non-withdrawn subsidies that cause present adverse effects, and thus, it can no longer be demonstrated that the European Union is causing nullification or impairment to the United States or the US LCA industry that would entitle the United States to adopt countermeasures.58 Specifically, the European Union argues that it has withdrawn all of the A380 LA/MSF subsidies and the German and UK A350XWB LA/MSF subsidies that were found to cause adverse effects in the preceding stages of this dispute, thereby achieving full substantive compliance in respect of those subsidies and their adverse effects. In addition, the European Union argues that it has also demonstrated that it has taken steps to remove any adverse effects of those subsidies and the French and Spanish A350XWB LA/MSF subsidies. The European Union maintains that it has no compliance obligations with respect to any other subsidies.
7.13.
Rather than achieving compliance, the United States argues that the actions taken by the European Union have exacerbated the European Union's non-compliance. The United States contends that the European Union has failed to demonstrate the withdrawal of any of the LA/MSF subsidies covered by the DSB's recommendations and rulings. The United States argues that a series of amendments to the original A380 LA/MSF agreements and the original German A350XWB LA/MSF agreement have both increased the amount of the subsidies provided to Airbus and prolonged their "lives". The United States furthermore argues that the repayment of the UK A350XWB LA/MSF simply reflects Airbus' fulfilment of the terms of an agreement that was already found to constitute a WTO‑inconsistent subsidy, and not a step that achieves compliance. In addition, the United States maintains that the European Union has failed to remove the extensive, on-going adverse effects that the LA/MSF subsidies were found to cause. Finally, the United States submits that the European Union has maintained and expanded the use of certain research and technological development (R&TD) subsidies, which alone or together with the LA/MSF subsidies at issue in this dispute, continue to cause adverse effects to the United States' interests.
7.14.
We begin our assessment of the merits of the parties' submissions by reviewing the steps the European Union alleges have either withdrawn the LA/MSF subsidies or otherwise removed the adverse effects of any of the LA/MSF subsidies that have not been withdrawn.59 We then turn to examine the United States' contention that our assessment of the European Union's compliance must take into account the alleged effects of a series of R&TD measures, which the European Union maintains are not properly within the scope of this proceeding, before addressing the disagreement between the parties as to whether the European Union and certain member States have complied with their obligations under Article 7.8 of the SCM Agreement.

7.2 THE EUROPEAN UNION'S 17 MAY 2018 COMPLIANCE COMMUNICATION TO THE DSB

7.2.1 Introduction

7.15.
On 17 May 2018, the European Union informed the DSB that it had adopted a series of measures, which according to the European Union "achieve the withdrawal of the subsidies at issue, constitute appropriate steps to remove their adverse effects, or both"60, thereby bringing the European Union into compliance with the DSB's recommendations and rulings.61
7.16.
The European Union identified the measures or steps that it allegedly took to achieve compliance listing 18 numbered items.62 Certain of the measures or steps took place in close proximity with the adoption of the recommendations and rulings in the first compliance proceeding; while others did not, and either pre-dated or post-dated the adoption of the recommendations and rulings in this dispute, or the European Union's compliance communication of 17 May 2018.
7.17.
We briefly describe below our understanding of the European Union's compliance measures, as articulated in the European Union's 17 May 2018 compliance communication to the DSB and further discussed in the parties' submissions in this dispute. The European Union's asserted measures or steps taken to achieve compliance are broadly divided into two main categories: (i) measures alleged to achieve withdrawal of the A380 and A350XWB LA/MSF subsidies and to contribute to removal of their adverse effects (section 7.2.2 below); and (ii) measures alleged to constitute appropriate steps to remove the adverse effects of any non-withdrawn A380 and A350XWB LA/MSF subsidies (section 7.2.3 below).

7.2.2 Measures alleged to achieve withdrawal of the A380 LA/MSF and A350XWB LA/MSF subsidies and to contribute to the removal of their adverse effects within the meaning of Article 7.8 of the SCM Agreement

7.2.2.1 The [***] amendments to the French, German, Spanish and UK A380 LA/MSF agreements (measures 1–4)

7.18.
The first compliance measures the European Union lists in its 17 May 2018 notification to the DSB are four amendments made to the original A380 LA/MSF agreements between Airbus and France, Germany, Spain and the United Kingdom. The German A380 LA/MSF amendment was concluded on [***], the French A380 LA/MSF amendment on [***], the UK A380 LA/MSF amendment on [***], and the Spanish A380 LA/MSF amendment on [***].63 The European Union argues that these amendments "achieve prospective consistency {of the A380 LA/MSF measures} with a contemporaneous market benchmark" thereby procuring the "withdrawal of the subsidies conferred by each of the A380 MSF loans".64
7.19.
According to the European Union, Airbus and the four member States concluded the four A380 LA/MSF loan amendments at a point in time when Airbus faced faltering demand for the A380 and needed to make a critical decision as to whether to continue the programme or [***].65 The European Union submits that the amendments were advantageous to the member State lenders because failing to do so would mean "the member State lenders would have suffered significant losses on their MSF investments, given the risk sharing and success-dependent nature of the A380 MSF loans".66 Thus, in the view of the European Union, the amendments would "enable the lenders to salvage their investments".67
7.20.
The four A380 LA/MSF amendments are discussed in further detail in section 7.4.5.1.2.1 below. While the terms of the amendments differ, a core feature of each amendment [***]. In this respect, the European Union explains that the amendments are designed to ensure that Airbus would receive [***].68 In particular, Emirates Airlines had been the main A380 customer and considered ordering additional A380 aircraft [***].69
7.21.
The United States submits that the [***] amendments represent nothing more than "Airbus' successful attempt to shift from itself to the funding governments the mounting costs of keeping the A380 program{me} alive" following "many years of lower-than-anticipated demand for the A380, as well as massive problems pertaining to production and supply chain".70 Rather than achieving the withdrawal of the subsidies, the United States argues that the amendments "increased the projected amounts of the subsidies and prolonged their lives"71, and therefore, "{i}n agreeing to these amendments, the Airbus governments conformed to their decades-old pattern of propping up Airbus' risky LCA ventures with massive subsidies".72 Accordingly, the United States argues that the [***] amendments fail to bring the European Union into compliance with the DSB's recommendations and rulings in respect of the A380 LA/MSF subsidies.

7.2.2.2 The [***] amendment to the German A350XWB LA/MSF agreement (measure 5)

7.22.
The European Union identifies a [***] amendment to the German A350XWB LA/MSF Agreement as one of the compliance steps. According to the European Union, this amendment ensures that the German A350XWB LA/MSF contract is consistent "with a contemporaneous market benchmark, such that the subsidy conferred by German A350XWB MSF is withdrawn".73
7.23.
Airbus and Kreditanstalt für Wiederaufbau (KfW) signed the original German A350XWB LAMSF agreement on [***]. Under the loan agreement, Airbus was entitled to draw-down [***] for the purpose of funding a portion of the development costs related to the Airbus A350XWB.74 Airbus drew [***]. Airbus drew-down [***].75 On [***], Airbus and KfW agreed to amend the original loan agreement.76 The preamble to the amendment states that Airbus had "asked KfW to [***] the arrangements it had entered into in order to [***] on the loan tranches, and to provide {Airbus} with new [***] for these [***]".77 The preamble also states that "[***]".78 Overall, the European Union submits that the [***] amendment retains the basic structure of the original A350XWB LA/MSF loan by continuing to provide for (a) [***]79; (b) repayments of principal over deliveries of A350XWB aircraft80; (c) [***]81, and (d) [***].82
7.24.
The United States submits that, like the [***] A380 LA/MSF amendments, the [***] amendment to German LA/MSF for the A350XWB "increased the pre-existing LA/MSF subsidy and prolonged its life", which "made Airbus better off financially than it otherwise would have been".83 Accordingly, the United States argues that the amendment took the European Union further out of compliance with the DSB's recommendations and rulings from the first compliance proceeding.

7.2.2.3 Repayment of outstanding UK A350XWB LA/MSF in 2018 (measure 6)

7.25.
The European Union asserts that on [***], Airbus repaid the full outstanding principal and interest accrued under the UK A350XWB LA/MSF loan contract, such that the subsidy conferred by UK A350XWB LA/MSF has been withdrawn.84 Specifically, the European Union refers to a payment of [***] made to the UK Department of Business, Energy & Industrial Strategy (BEIS) on [***].85
7.26.
The United States does not dispute that Airbus made the specified payment on [***]. The United States disputes, however, that this payment amounts to [***].86 Furthermore, the United States argues that repaying a subsidised loan on its own subsided terms does not result in withdrawal for purposes of Article 7.8 of the SCM Agreement, in line with findings by the first compliance panel.87 Accordingly, the United States considers that the European Union has failed to achieve compliance with the DSB's recommendations and rulings in respect of UK A350XWB LA/MSF.

7.2.2.4 Withdrawal, through amortisation of the "benefit" conferred by the A380 and A350XWB LA/MSF agreements (measures 7 and 888)

7.27.
The European Union also refers to the amortisation of the "benefit" conferred by the A380 LA/MSF agreements and A350XWB LA/MSF agreements in its 17 May 2018 compliance notification.89 In the course of this proceeding, the European Union submitted an analysis conducted by TradeRx GmbH of the expected life of the A380 LA/MSF and A350XWB LA/MSF subsidies found to have been conferred by the original panel and the first compliance panel. Consistent with the approach taken by TradeRx, in its submissions to the Panel, the European Union argues that the full amortization of the benefit under the Spanish A380 LA/MSF loan will occur by [***], thereby achieving the withdrawal for purposes of Article 7.8 and bringing the European Union into compliance with respect to that subsidy.90 The European Union does not argue that any of the other A380 LA/MSF or A350XWB LA/MSF subsidies have been withdrawn through full amortization of benefit.
7.28.
The United States has criticized the European Union's reliance on the TradeRx report and the approach followed in that report. The United States thus disagrees that the TradeRx analysis can provide a basis for finding that any of the LA/MSF loans have been withdrawn for purposes of Article 7.8. In addition, the United States considers that the European Union's argument that Spanish A380 LA/MSF has been withdrawn fails to take into account that the Spanish government negotiated to amend the terms and conditions of A380 LA/MSF in [***], which extended the life of Spanish A380 LA/MSF "well past [***]", according to the United States.91

7.2.3 Measures alleged to constitute appropriate steps to remove the adverse effects of the A380 LA/MSF and A350XWB LA/MSF subsidies within the meaning of Article 7.8 of the SCM Agreement

7.2.3.1 Amortisation of the "benefit" conferred by the A380 LA/MSF agreements and A350XWB LA/MSF agreements (measures 9 and 14)

7.29.
In addition to addressing the alleged amortization of benefit in connection with its argument that the A380 LA/MSF and A350XWB LA/MSF subsidies have been withdrawn for purposes of Article 7.8 (see section 7.2.2.4 above), the European Union submits that the amortisation of the benefit conferred by the French, German, Spanish and UK A380 LA/MSF and A350XWB LA/MSF subsidies is also a relevant factor that must be taken into account in determining whether the A380 LA/MSF and A350XWB LA/MSF subsidies continue at present to be a genuine and substantial cause of present adverse effects, for purposes of assessing whether the European Union has taken steps to remove adverse effects of any non-withdrawn subsidies.92
7.30.
As explained in paragraph 7.28, the United States rejects the approach taken in the TradeRx report to assess the expected life of each of the loans.93 The United States also submits that the European Union has not established that an assessment of the supposed reduction in benefit through amortization of LA/MSF is relevant to assessing whether the adverse effects of the subsidies continue, considering the "product effects" causal pathway that was established to exist.94

7.2.3.2 Non-subsidised investments in A380 and A350XWB family aircraft (measures 10 and 15)

7.31.
As an additional compliance "step", the European Union submits that alleged significant post-launch, non-subsidised investments that Airbus made in the A380 and A350XWB families of LCA, which, according to the European Union, attenuate the requisite causal link between the subsidy and any alleged present adverse effects, such that the A380 or A350XWB LA/MSF can no longer be considered a genuine and substantial cause of sales or deliveries of either aircraft or any associated adverse effects.95 For both the A380 and the A350XWB programmes, the European Union alleges that Airbus has invested in the continuingdevelopment of the aircraft, including the development of new model variants and continuing support for the two programmes.96
7.32.
The United Sates submits that the European Union's arguments concerning "non-subsidised" investments in the A380 and A350XWB are "a recycled version of the EU's failed 'non-subsidized investment' arguments from the first compliance proceeding and should be rejected once again".97 In this regard, the United States submits that the European Union unsuccessfully argued that the causal link between LA/MSF and the continued market presence of the A320 and A330 families was attenuated by "'massive' and allegedly non-subsidized investments Airbus made with its own funds", in connection with "{c}ontinuing {d}evelopment", "{c}ontinuing {s}upport", the design and manufacture of new variants of the A320 and A330 families, and setting up new A330 production lines.98 The United States submits that the compliance panel rejected this line of argument on the basis that the subsidies had enabled the existence of the aircraft in the first place, and there would have been nothing to improve absent the subsidies.99

7.2.3.3 Reduced draw down of principal under the French A380 LA/MSF agreement and the French and UK A350XWB LA/MSF agreements (measures 11 and 16)

7.33.
The European Union further submits that the reduced draw-down of the loan amounts under the French A380 LA/MSF agreement and the French and UK A350XWB LA/MSF agreements are measures taken to comply.100 The European Union considers that the reduced draw-down of the full amount of these loans means that the "monetary consequences" of the LCA programme risks assumed by the lenders are correspondingly reduced, and therefore, the subsidies can no longer be considered a genuine and substantial cause of sales or deliveries of A380 aircraft, or any adverse effects.101
7.34.
The United States argues that the European Union failed to establish that less than full drawdown reduces the ex ante benefit of the subsidy. The United States also rejects the European Union's argument that Airbus' drawing down of less than the full amount of any of the LA/MSF subsidies should have any bearing on the Panel's assessment of whether the causal link established between the existing subsidies and Airbus' ability to offer and deliver the A380 and A350XWB continues in the post-implementation period.102

7.2.3.4 Attenuation of the causal link between A380 LA/MSF and A350XWB LA/MSF and the launches of the A380 and the A350XWB due to the passage of time (measures 13 and 17)

7.35.
The European Union has also identified as an additional measure taken to comply the alleged attenuation of the causal link between A380 LA/MSF and A350XWB LA/MSF and the launches of the A380 and A350XWB due to the passage of time. In the case of both aircrafts, the European Union argues that A380 and A350XWB LA/MSF had limited accelerating effects on the development of the two aircraft, and therefore the subsidies can no longer be considered a cause of the actual launch of either aircraft, and of resulting sales or deliveries or any associated adverse effects.103
7.36.
The United States argues that the European Union's counterfactual assessment of the launch dates of the A380 and A350XWB is flawed and based on a misreading of the findings by the original panel and compliance panel and therefore should be rejected.104 In particular, the United States argues that the European Union's argument contradicts previously adopted DSB findings from the first compliance proceeding that both the A380 LA/MSF and A350XWB LA/MSF subsidies were a cause of adverse effects found to have occurred in the 2011-2013 period.105

7.2.3.5 Cancellation or completion of A380 deliveries and pending deliveries, and the completion or conversion of A350XWB deliveries in certain country markets (measures 12 and 18)

7.37.
Finally, the European Union identifies as further steps to remove the adverse effects of existing A380 LA/MSF or A350XWB LA/MSF subsidies the cancellation or completion of A380 deliveries and pending deliveries and completion or conversion of A350XWB deliveries. Specifically, the European Union has referred to the cancellation or completion of A380 deliveries corresponding to the Transaero 2012 and Emirates 2013 orders, and delivery of any outstanding A380 aircraft to certain country markets covered by the finding of impedance in the VLA market106; and the completion or conversion to other aircraft of A350XWB deliveries corresponding to the Cathay Pacific 2012, Singapore Airlines 2013 and United Airlines 2013 orders of the A350XWB.107 The European Union maintains that the cancellation or completion of deliveries, or conversion to other aircraft brings to an end the adverse effects arising from those orders.
7.38.
The United States addresses the European Union's arguments in the context of addressing the European Union's overall claim that it has taken appropriate steps to remove the adverse effects of the A380 and A350XWB LA/MSF subsidies, arguing that the alleged actions fail to bring the European Union into compliance with Article 7.8 of the SCM Agreement.108

7.2.4 Observations regarding the European Union's measures or steps taken to achieve compliance

7.39.
These measures or steps alleged to achieve withdrawal or to constitute appropriate steps to remove adverse effects encompass: a series of amendments to the A380 and German A350XWB LA/MSF agreements; the alleged full repayment of outstanding principal and accrued interest under the UK A350XWB LA/MSF agreement; and the passive amortization of benefit of the Spanish A380 LA/MSF subsidy. The European Union refers to a broader array of steps that allegedly attenuate or dilute the causal link between the subsidy and alleged present adverse effects established in the original proceeding or the first compliance proceeding such that the challenged subsidies are no longer a "genuine and substantial" cause of adverse effects. We note that the European Union has not provided evidence indicating that the notified measures and steps were taken by the relevant member States for the specific purpose of achieving compliance with Article 7.8 of the SCM Agreement.
7.40.
We now examine the merits of the European Union's compliance claims based on our understanding of the scope and nature of the obligations reflected in the adopted recommendations and rulings as well as prior interpretation of the applicable legal provisions, including Article 7.8.

7.3 THE EUROPEAN UNION'S REQUEST FOR A PRELIMINARY RULING THAT THE UNITED STATES' CLAIMS AGAINST CERTAIN RESEARCH AND TECHNOLOGICAL DEVELOPMENT MEASURES ARE OUTSIDE THE PANEL'S TERMS OF REFERENCE

7.3.1 Procedural background

7.41.
In its first written submission filed on 19 December 2018, the United States identified a series of research and technological development (R&TD) measures provided to Airbus, which it argues are subsidies the Panel is required to take into account in assessing the European Union's compliance with the DSB's recommendations and rulings.109
7.42.
On 21 December 2018, the European Union submitted a request for a preliminary ruling that the United States' claims in relation to the R&TD measures referred to in the United States' first written submission are not properly within the Panel's terms of reference as defined by Articles 6.2 and 7.1 of the DSU. The United States submitted written comments on this request, and on 11 January 2019 the Panel sent a communication to the parties declining the European Union's request, indicating that the full reasoning supporting the Panel's decision would be set out in its final report.110
7.43.
In its communication of 11 January 2019, the Panel explained to the parties that the mere fact that the R&TD measures are not specifically identified in the European Union's panel request should not preclude the Panel from considering the United States' arguments related to the R&TD measures.111 The Panel's decision was, therefore, without prejudice to any finding on the extent to which the United States is entitled to advance substantive claims regarding the consistency of the R&TD measures with the European Union's compliance obligations under Article 7.8 of the SCM Agreement. The parties advanced further arguments on this matter in their subsequent written submissions and at the Panel's substantive meeting with the parties.

7.3.2 The R&TD measures the United States challenges in this proceeding and relevant findings from previous stages of this dispute

7.44.
In its first written submission, the United States identified the following R&TD measures that existed at the time of the original proceeding, each of which were found to be specific subsidies:

a. Grants for LCA-related R&TD projects in which Airbus participated pursuant to the:

i. Second Framework Programme for Community Activities in the Field of Research and Technological Development (1987-1991) ("Second Framework Programme");

ii. Third Framework Programme for Community Activities in the Field of Research and Technological Development (1990-1994) ("Third Framework Programme");

iii. Fourth Framework Programme of the European Community Activities in the Field of Research and Technological Development and Demonstration (1994-1998) ("Fourth Framework Programme");

iv. Fifth Framework Programme of the European Community for Research, Technological Development and Demonstration Activities (1998-2002) ("Fifth Framework Programme");

v. Sixth Framework Programme of the European Community for Research, Technological Development and Demonstration Activities, Contributing to the Creation of the European Research Area and to Innovation (2002-2006) ("Sixth Framework Programme");

b. French government grants for LCA-related R&TD projects in which Airbus participated, between 1986 and 2005;

c. German federal government grants for LCA-related R&TD projects in which Airbus participated (LUFO I, LUFO II, and LUFO III);

d. Grants from three German sub-federal public entities for LCA-related R&TD projects in which Airbus participated;

e. Spanish government loans for LCA-related R&TD projects in which Airbus participated under the PTA programme; and

f. UK government grants for LCA-related R&TD projects in which Airbus participated under the CARAD programme.112

7.45.
In addition to the R&TD measures that existed at the time of the original proceeding, the United States' claims in this proceeding cover the Seventh Framework Programme for Research and Technological Development (2007-2013) (Seventh Framework Programme) and the Horizon 2020 Programme (2014-2020) (Eighth Framework Programme).113 These R&TD measures did not exist at the time of the original proceeding.
7.46.
The original panel found that the majority of the R&TD measures challenged by the United States constituted specific subsidies to Airbus that caused serious prejudice to the United States' interests under Articles 5(c) and 6.3(a), (b), and (c) of the SCM Agreement.114 Specifically, the panel found that the R&TD subsidies "enabled Airbus to develop features and aspects of its LCA on a schedule that it would otherwise have been unable to accomplish" and that "{w}hile … the impact of pre-competitive R&TD subsidies on Airbus' market presence was perhaps more attenuated, compared with the other subsidies at issue or with R&TD subsidies that funded research and technology actually used on LCA that were launched, {the panel} believe{d} that combined with the others, the RT&D subsidies complemented and supplemented the impact of LA/MSF".115
7.47.
On appeal, the European Union argued that the original panel failed to establish that any of the "features and aspects" of its LCA developed with funding from R&TD subsidies impacted Airbus' product launch decisions.116 The European Union further argued that the original panel failed to provide an evidentiary basis and a reasoned and adequate explanation for its causation finding, in violation of Article 11 of the DSU.117 The United States argued, to the contrary, that the original panel correctly found that the R&TD subsidies "complemented and supplemented" the product effects of LA/MSF, because they enabled Airbus to "develop features and aspects of its LCA on a schedule that it would otherwise have been unable to accomplish".118
7.48.
The Appellate Body considered that the original panel did not have a sufficient basis to find that the R&TD subsidies complemented and supplemented the effects of LA/MSF, finding as follows:

With respect to the other R&TD subsidies, we agree with the European Union that a general finding that they enabled Airbus to develop "features and aspects" of its LCA on a schedule that otherwise it would have been unable to accomplish does not provide a sufficient basis to determine that R&TD subsidies "complemented and supplemented" the "product effect" of LA/MSF in enabling Airbus to launch particular models of LCA. … {A} competitive advantage, in our view, must be reflected either in technologies incorporated in models of LCA actually launched by Airbus, or in technologies that make the production process of those LCA more efficient. Without specific findings that technology or production processes funded by R&TD subsidies contributed to Airbus' ability to launch and bring to the market particular models of LCA, the Panel did not have a sufficient basis to conclude that those subsidies "complemented and supplemented" the "product effect" of LA/MSF.119

7.49.
On this basis, the Appellate Body found that the original panel had erred under Articles 5(c) and 6.3(a), (b), and (c) of the SCM Agreement when it found that the R&TD subsidies "complemented and supplemented" the "product effect" of LA/MSF without establishing a genuine causal link between those R&TD subsidies and Airbus' ability to launch and bring to market its models of LCA. The Appellate Body, therefore, found that the original panel failed to conduct an objective assessment of the matter, including an objective assessment of the facts - as required by Article 11 of the DSU - and reversed the panel's finding that the effect of R&TD subsidies was the displacement of Boeing LCA from the EC and relevant third country markets, and significant lost sales, within the meaning of Article 6.3(a), (b), and (c) of the SCM Agreement.120

7.3.3 Whether the United States' claims against the R&TD measures are outside the Panel's terms of reference

7.3.3.1 Introduction

7.50.
The European Union argues that the United States' complaint against the R&TD measures is not properly within the Panel's terms of reference because the R&TD measures are not identified in the European Union's panel request.121 In the absence of any reference to the specific R&TD measures in the European Union's panel request, the European Union argues that the proper course of action for the United States would have been to follow the guidance of the Appellate Body in US – Continued Suspension/Canada – Continued Suspension, and initiate its own Article 21.5 proceeding in which the United States could have raised its specific complaint against those measures.122 According to the European Union, the United States' failure to do so means that its complaint against the R&TD measures cannot now form part of this Panel's terms of reference.123
7.51.
The United States argues that the challenged R&TD measures are identified in the European Union's panel request as a matter of fact, because they fall within the scope of the "{n}on-subsidised investments in the A380 {and A350XWB} family aircraft" referred to on pages 5 and 6 of the European Union's panel request.124 In any case, the United States argues that the R&TD measures fall within the Panel's terms of reference regardless of whether they are referred to in the European Union's panel request because they are part of the United States' rebuttal argument against the European Union's assertion of full, substantive, compliance.125 In this respect, the United States maintains that the European Union's reliance on certain Appellate Body statements made in US – Continued Suspension/Canada – Continued Suspension is misplaced. On the contrary, according to the United States, the US – Continued Suspension/Canada – Continued Suspension disputes support its own position because in both proceedings the panels and the Appellate Body found that where substantive compliance is alleged by an original respondent, the matter to be examined by a panel is not limited to the measures explicitly listed in the original respondent's panel request.126
7.52.
The parties' submissions concerning the extent to which the United States' complaint against the challenged R&TD measures is within the Panel's terms of reference raise two broad questions: (i) whether the challenged R&TD measures are referred to in the European Union's panel request as a matter of fact; and (ii) whether the United States' claims against those measures may nevertheless fall within the scope of this compliance proceeding even if the measures are not specifically referred to in the European Union's panel request. We address each of these questions in turn.

7.3.3.2 Are the R&TD measures identified in the European Union's panel request?

7.53.
The European Union's panel request provides a list of measures taken to comply with the recommendations and rulings of the DSB. Under the heading "Measures that Constitute Appropriate Steps to Remove Adverse Effects, under Articles 7.8, 5 and 6.3 of the SCM Agreement" the European Union lists "{n}on-subsidised investments in A380 family aircraft" and "{n}on-subsidised investments in A350XWB family aircraft". In explaining those measures, the European Union's panel request provides that:

Airbus has also undertaken significant non-subsidised investments in the A380, and in A380-related continuous support and development (Measure x, listed above). Currently, neither A380 MSF nor any other subsidy at issue is a genuine and substantial cause of sales or deliveries of A380 aircraft, or any associated adverse effects.

Additionally, Airbus has undertaken significant non-subsidised investments in the A350XWB, and in A350XWB-related continuous support and development (Measure xv, above). Neither A350XWB MSF nor any other subsidy at issue is currently a genuine and substantial cause of sales or deliveries of the A350XWB or any associated adverse effects.127

7.54.
The United States submits that the reference in the European Union's panel request to "{n}on-subsidised investments in A380 family aircraft" and "{n}on-subsidised investments in A350XWB family aircraft" identifies investments related to the support and development of the A380 and the A350XWB, as measures taken to comply. In the United States' view, since the EU panel request does not limit the scope of such investments, either temporally or factually, the R&TD measures, which enable Airbus to develop technological improvements that the EU alleges are critical to Airbus's current competitiveness, are therefore covered by the EU panel request. In addition, the United States argues that while the European Union describes the investments as "non-subsidized", this is a rebuttable characterization. In sum, the United States argues that if the EU panel request includes investments in development of new technologies, including the development of successor aircraft, and the use of financial resources to enable production, it certainly includes the funding under the R&TD measures referenced in the United States' first written submission, which go directly to those purposes.128
7.55.
The European Union argues that the United States' characterisation of the language in its panel request is incorrect because, according to the European Union, the relevant language must be understood to be limited to non-subsidised investments made by Airbus.129 These investments are related to the existing A380 and A350XWB families and programmes, and cover Airbus initiatives affecting the "continuing development" of these aircraft130, and the continuing support "to maintain and improve production facilities".131 The European Union also points out that in its first written submission the United States asserts that "{the EU's non-subsidized investment argument here} is a recycled version of the EU's failed 'non-subsidized investment' arguments from the first compliance proceeding and should be rejected once again". According to the European Union, this directly indicates that the United States understands that the non-subsidized investments do not relate to the R&TD measures, as was the case in the first compliance proceeding.132
7.56.
On its face, the European Union's panel request refers to "non-subsidized" investments by Airbus related to "continuous support and development" of the A380 and A350XWB. This general language is broad and potentially covers any "investments" in the continuous support and development of the A350XWB and the A380, which the European Union maintains are not subsidized. To this extent, we agree with the United States when it argues that the description of the covered investments as "non-subsidized" does not preclude the possibility that the panel request might be able to cover the R&TD measures identified by the United States, because the fact that the European Union describes them as "non-subsidized" merely reflects the European Union's own legal characterization of the relevant measures. However, the content of the European Union's first written submission appears to confirm that the European Union's panel request does not cover the R&TD measures challenged by the United States.
7.57.
Although a party's subsequent submissions during panel proceedings cannot be relied upon to cure a defect in a panel request, they may be consulted to confirm or clarify the meaning of the words used in the panel request.133 The European Union's first written submission does not mention R&TD measures in any form, and only refers specifically to targeted investments for the A380 and the A350XWB undertaken by Airbus.134 In particular, the European Union refers to "substantial investments {by Airbus} … in continuing development … and continuing support for the A350XWB programme {which included} investments into … the development of the ultra-long-range A350XWB-900ULR".135 The European Union argues that these investments sustain and renew the aircrafts' competitiveness and that it is these investments, rather than the historical subsidies at the time of launch, that explain the current market presence and competitiveness of the aircraft.136 Almost identical investments, and arguments, are made regarding the A380.137 This is consistent with the European Union's description of similar Airbus actions in the first compliance proceeding, which the European Union argued severed the chain of causation between the LA/MSF subsidies and the relevant adverse effects. In particular, before the original compliance panel, the European Union argued that "the genuine and substantial 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".138 These investments included "(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"139, which are the same types of investments as those referenced at this stage of the dispute (mutatis mutandis).
7.58.
In our view, the content of the European Union's first written submission clarifies that the reference in the European Union's panel request to the "non-subsidized investments …" does not encompass the R&TD measures challenged by the United States. Indeed, nothing in the European Union's first written submission or any other submission in this dispute suggests that the European Union intended to include more than these initiatives in its panel request. Moreover, as already noted, reading the European Union's panel request in this way would be consistent with the arguments related to non-subsidised investments advanced in the original compliance dispute. Furthermore, we note that the United States, in responding to the European Union's "non-subsidized investments" arguments, equated those arguments with the European Union's unsuccessful "non‑subsidized investment" arguments from the first compliance proceeding. The R&TD measures did not form part of that proceeding and we can thus infer that the United States, in equating the two sets of arguments, likely understood the allegedly non-subsidised investments to have been made by Airbus, and not to refer to the R&TD measures provided by the European Union, as was the case in the first compliance proceeding.
7.59.
Thus, in our assessment, there is no factual basis to accept the United States' understanding of the reference to "non-subsidised investments" in the European Union's panel request as including the R&TD measures it seeks to challenge in this proceeding. Accordingly, we find that the European Union's panel request does not, as a factual matter, include a reference to the R&TD measures challenged by the United States.

7.3.3.3 Do the challenged R&TD measures fall within the Panel's terms of reference, even though they are not specifically identified in the European Union's panel request?

7.60.
The European Union argues that since the R&TD measures are not identified in the European Union's panel request, as a procedural matter, the proper recourse for an original complainant that considers the original respondent has excluded particular measures or claims from an Article 21.5 proceeding would be to file its own request for the establishment of a panel under Article 21.5. Thus, according to the European Union, "if the United States wished to challenge the WTO-consistency of the R&TD measures, it was required …, as specifically directed by the Appellate Body" in the US – Continued Suspension/Canada – Continued Suspension disputes to file its own panel request.140 Having not done so, the European Union submits that United States' claims against the R&TD measures are outside the Panel's terms of reference and thus cannot be examined by the Panel in this dispute.141
7.61.
The United States argues that the R&TD measures are part of the Panel's terms of reference regardless of whether they are covered by the European Union's panel request, because they are part of the United States' rebuttal to the European Union's assertion of full, substantive, compliance. The United States argues that the Panel could only reach such a finding after considering the full scope of the relevant issues bearing on the European Union's allegation of substantive compliance. In this respect, the United States argues that the European Union cannot be found to have complied with its obligations under Article 7.8 of the SCM Agreement if the R&TD measures at issue (either alone or together with the LA/MSF subsidies) cause adverse effects to the US LCA industry.142 Citing the panel and Appellate Body reports in US – Continued Suspension/Canada – Continued Suspension disputes, the United States argues that, where an original respondent asserts substantive compliance in an Article 21.5 proceeding, the matter to be examined by the Panel is not limited to what is explicitly listed in the original respondent's panel request. Furthermore, the United States emphasizes that an implementing Member should not be permitted to seek a finding that it has achieved full, substantive, compliance by submitting a panel request that identifies only a subset of the relevant measures taken to comply or otherwise artificially limits the scope of a compliance proceeding.143
7.62.
We begin by observing that Article 7.1 of the DSU establishes that a panel's terms of reference are defined by the "matter" referred to in the request for its establishment; and the requirements for identifying the "matter" set out in the request for establishment are prescribed in Article 6.2 of the DSU, which in relevant part, provides that:

The request for the establishment of a panel shall … identify the specific measures at issue and provide a brief summary of the legal basis of the complaint sufficient to present the problem clearly.

7.63.
Both Articles 6.2 and 7.1 apply to panels established to examine compliance disputes within the meaning of Article 21.5 of the DSU, but their requirements must be adapted for that purpose.144 Thus, it has been found that a panel request in an Article 21.5 proceeding must refer to the recommendations and rulings of the DSB made in the original proceeding, in addition to identifying the specific measures and the legal basis of the complaint.145
7.64.
When a dispute is brought under Article 21.5 of the DSU by an original complainant, the compliance panel's terms of reference will be defined by the complainant, who will identify in its request for establishment, one or more of the respondent's declared or undeclared measures "taken to comply" as the focus of its complaint. However, in what are known as "reverse" compliance proceedings, it is the respondent from the original proceeding that requests the establishment of a panel to confirm that its alleged compliance actions bring it into conformity with its WTO obligations. In such compliance disputes, a strict reading and application of the requirements of Articles 6.2 and 7.1 of the DSU would mean that the panel's terms of reference would be set entirely by the original respondent. In our view, this would make it possible for an original respondent to confine the scope of the "reverse" compliance dispute to only those measures that it considers show compliance, leaving measures that the original complainant may consider to show non-compliance, outside of the scope of the proceeding. Thus, a strict interpretation of the requirements of Articles 6.2 and 7.1, as they apply in a "reverse" Article 21.5 proceeding, would mean that an implementing Member could be found to be in compliance simply because of the way it has defined the panel's terms of reference when, in fact, other measures (not included in the "reverse" compliance panel's terms of reference) could show non-compliance.
7.65.
According to the European Union, the Appellate Body specifically addressed this matter in the US – Continued Suspension / Canada – Continued Suspension disputes, where it allegedly found that the correct course of action for an original complainant to take, when it considers that an original respondent has excluded certain measures or claims from its request for the establishment of a panel in a "reverse" Article 21.5 proceeding, is to file its own separate request for the establishment of a panel under Article 21.5. The United States disagrees with the European Union's characterization of the Appellate Body's findings in the Continued Suspension disputes. For the United States, the Appellate Body statements the European Union relies upon constitute obiter dictum as they were made by the Appellate Body only after it had resolved the particular issue on appeal.146 Moreover, the United States notes that the Appellate Body did not find the existence of a requirement on an original complainant to bring its own case, but only advised that an original complaining party "may" file its own request if it considers that the implementing measure is inconsistent with provisions of the WTO agreements not covered in the implementing Member's panel request.147
7.66.
The Continued Suspension disputes arose out of a disagreement between the European Communities, on the one hand, and Canada and the United States, on the other, about whether the European Communities had complied with the recommendations and rulings of the DSB in the EC – Hormones dispute. In EC – Hormones, a European Communities' import ban on meat from cattle treated with certain hormones was found to be inconsistent with Article 5.1 of the SPS Agreementbecause it was not based on a proper risk assessment.148 Following the adoption of the EC – Hormones panel and Appellate Body reports, Canada and the United States suspended concessions against imports of EC products as a result of the European Communities' failure to implement the recommendations and rulings within a reasonable period of time. Subsequently, the European Communities adopted Directive 2003/74/EC, which repealed and replaced the measure found to be WTO-inconsistent, claiming that it had thereby implemented the DSB's recommendations and rulings.149 The United States and Canada considered that the new EC measure did not bring the European Communities into conformity with its WTO obligations, and continued to suspend concessions. The European Communities subsequently initiated the Continued Suspension original panel proceedings (not "reverse" Article 21.5 compliance proceedings), claiming that Canada and the United States were acting inconsistently with Article 22.8 of the DSU by continuing to suspend concessions after the measure found to be WTO-inconsistent had been removed.
7.67.
Before the panels, the European Communities argued that once it had adopted Directive 2003/74/EC, Canada and the United States were not entitled to continue to suspend concessions but were required to initiate an Article 21.5 compliance panels to resolve any disagreement about whether the newly adopted measure brought the European Communities into compliance.150 The panels rejected this argument, finding nothing in the text of Article 21.5 requiring Canada or the United States to bring such a case. The panels were not convinced that Article 21.5 was the "only avenue available to address a claim of compliance by a Member", noting that other possibilities were available, including resorting to a new original panel (as the European Communities had done in those disputes). Furthermore, the panels did not "believe that proceedings under Article 21.5 are open only to the original complainant"151, finding that a respondent could also initiate an Article 21.5 proceeding to establish that its alleged compliance measures brought it into conformity with its obligations.
7.68.
Contrary to the panels, the Appellate Body found that the appropriate procedural avenue to resolve a disagreement as to whether an inconsistent measure has been removed is an Article 21.5 compliance panel. For the Appellate Body, the panels recognized this by stating that the task of each panel in the underlying dispute was to "perform functions similar to {those} of an Article 21.5 panel".152 Thus, the Appellate Body concluded that:

… recourse to Article 21.5 panel proceedings is the propercourse of action within the procedural structure of the DSU in cases where, as in this dispute, a Member subject to the suspension of concessions has taken an implementing measure and a disagreement arises as to whether "the measure found to be inconsistent with a covered agreement has been removed" within the meaning of Article 22.8. Therefore, we share the European Communities' view that Article 21.5 panel proceedings are the procedures to be followed where there is disagreement as to whether Directive 2003/74/EC has achieved substantive compliance.153

7.69.
The Appellate Body then went on to reject the European Communities' appeal against the panels' finding that a respondent is not precluded from initiating Article 21.5 proceedings. The Appellate Body agreed with the panels that such a course of action would be open to a respondent "to obtain confirmation of the consistency with the WTO agreements of its implementing measure". However, in making this finding, the Appellate Body recognized that where a respondent does request an Article 21.5 compliance panel, the panel request may be incomplete, as a respondent "cannot be expected to speculate as to the violations that could possibly be raised against its measure by other Members".154 It was in this context that the Appellate Body made the statements the European Union relies upon in this dispute to argue that the R&TD measures identified by the United States do not fall within the scope of this proceeding. Specifically, the Appellate Body observed that where a respondent triggers an Article 21.5 proceeding, and the complainant considers the implementing measure does not achieve compliance, the complainant:

… may file its own {panel request} under Article 21.5 identifying those provisions that it considers should be examined by the Article 21.5 panel. … The original complainant would be expected to do so as soon as possible after adoption of an implementation measure or after the filing of the original respondent's panel request, so that both Article 21.5 panel requests may be referred to the original panel wherever possible, allowing review of all the issues relating to substantive compliance in the same Article 21.5 proceedings.155

7.70.
In our view, these Appellate Body statements firmly advocate the view that claims and measures not included in an original respondent's request for a "reverse" Article 21.5 compliance panel should be brought into the scope of the same Article 21.5 proceeding by having the complainant identify them in its own, separate, request for establishing an Article 21.5 panel.156 Yet, we see nothing in the Appellate Body's statements pointing to the existence of any requirement on a complainant to take this course of action. The Appellate Body report does not identify any specific obligation in the DSU, stating only that a complainant "may" file its own request for establishment, adding that it would be "expected" to do so expeditiously. Moreover, we note that in the same disputes, both the panels and the Appellate Body ruled that Canadian and United States' claims against the European Communities' alleged compliance measure, that were not identified in the European Communities' request for establishment, could be examined.
7.71.
In response to the European Communities' assertion of compliance, Canada and the United States argued that Directive 2003/74/EC was inconsistent with Articles 5.1 and 5.7 of the SPS Agreement. Neither of these two provisions was identified in the European Communities' panel request. Nevertheless, despite the lack of any reference to these provisions in the panel requests, the panels concluded that it was appropriate to consider the complainants' claims because understanding whether the European Communities was in substantive compliance with its obligations under the SPS Agreement was a prerequisite to determining whether the European Communities had made out its own claim under Article 22.8 of the DSU. Accordingly, the panels concluded that "nothing in the DSU prevents the Panel from considering the compatibility of the EC implementing measure with the SPS Agreement if this is necessary in order to make the findings required by {its} terms of reference".157
7.72.
The Appellate Body upheld the panels' finding, concluding that it was necessary to evaluate whether the European Communities brought itself into conformity with the DSB's recommendations and rulings. The Appellate Body explained:

It is evident from the panel requests that the consistency of the United States' and Canada's continued suspension with Article 22.8 was linked to the European Communities' implementation of the DSB's recommendations and rulings in EC – Hormones. We fail to see how the claims explicitly listed in the panel requests by the European Communities could be resolved in isolation from the question of whether {the relevant measure} has brought the European Communities into compliance with these DSB's recommendations and rulings.158

7.73.
Thus, the panels and the Appellate Body in the Continued Suspension disputes decided that it was appropriate to address claims under Articles 5.1 and 5.7 of the SPS Agreement even though those legal provisions were not identified in the European Communities' panel request. The panels and the Appellate Body concluded that it was necessary to determine the merits of the complainants' claims in order to assess whether the European Communities had achieved full substantive compliance with the DSB's recommendations and rulings, which was in turn relevant to address the European Communities' claim that the complaining parties were acting inconsistently with Article 22.8 of the DSU by continuing to suspend concessions.
7.74.
Having carefully reviewed the reasoning and findings from the panel and Appellate Body reports in the Continued Suspension disputes the parties rely upon, we find they do not provide any clear guidance for determining whether the United States is entitled to have the merits of its claims against the R&TD measures examined in this "reverse" Article 21.5 dispute. Ultimately, however, we do not consider it is necessary to decide this legal question, because even assuming, arguendo, that the absence of any reference to the challenged R&TD measures in the European Union's panel request could not prevent the United States from raising claims, we believe we would be precluded from addressing them on other procedural grounds, which we identify and explain in the sections that follow.

7.3.4 The United States' claims against R&TD measures that were subject to findings in the original proceedings or were in existence at the time of the first compliance proceeding

7.75.
The European Union claims that the United States is precluded in these second compliance proceedings from raising claims against the R&TD measures that were subject to findings in the original proceedings. The European Union argues that allowing the United States to challenge these measures again would provide the United States with an unfair second chance to make a case that it failed to make out in the original proceeding.159 Specifically, the European Union argues that none of the R&TD measures were found to be WTO-inconsistent in the original proceeding, permitting the United States to raise claims against them now would disturb the finality of the DSB's recommendations and rulings.160 In any event, the European Union argues that the United States could have challenged those measures in the first compliance proceeding but chose not to do so.161 By declining to challenge any of the R&TD measures in the first compliance proceeding when it had the opportunity to do so, the European Union argues that the United States has essentially forfeited its right to make any further claim against these measures.162
7.76.
The European Union also notes that it did not incur, upon the conclusion of the first compliance proceeding, any compliance obligations with respect to the R&TD measures163 and that the United States' decision not to challenge the Seventh Framework Programme in the firstcompliance proceedings constitutes a final resolution of the matter.164
7.77.
The United States argues that there is no basis to exclude from the Panel's consideration any of the R&TD measures that were subject to findings in the original proceeding or the Seventh Framework Programme. With respect to the measures raised in the original proceeding, the United States argues that the Appellate Body's findings were confined to the original panel's failure to make "specific findings"165 and that the test applied by the original panel "was insufficiently demanding to justify its conclusion".166 According to the United States, the Appellate Body did not evaluate whether the evidence before the original panel would support specific findings that the R&TD subsidies contributed to Airbus's ability to launch and bring to market any LCA model167 and thus the matter was not resolved on the merits. Accordingly, the United States contends that it would not be getting an unfair second chance to make a case that it failed to make out in the original proceeding.168
7.78.
The United States also argues that the European Union and member States have continued to provide funding to Airbus in the form of grants under the Seventh Framework Programme and that funding under this Framework Programme is "of the same nature" as the earlier funding.169 The United States therefore argues that it should be permitted to challenge this Framework Programme on the grounds that it was not part of the original proceeding.170
7.79.
Finally, the United States also argues that it should be permitted to raise a claim against the R&TD measures on systemic grounds. The United States contends that a finding that the measures cannot be challenged in a second compliance proceeding because they were not challenged in a first compliance proceeding would incentivize complaining parties to pursue claims that were not in themselves necessary to resolve the dispute in the interest of preserving the right to pursue potential claims against those measures in potential future proceedings. According to the United States, this would be inefficient and would be contrary to the objective of the prompt settlement of disputes enshrined in Article 3.3 of the DSU.171 Additionally, the United States argues that preclusion on this ground "would impose a burden on the original complainant to identify all measures that are inconsistent with the original respondent's compliance obligations, no later than the original complainant's first request for the establishment of a compliance panel".172 On the United States' understanding of the European Union's argument, this would mean that the original complainant's right to challenge such measures would be forever waived within the confines of the dispute. The United States suggests that this would infringe on the due process rights of original complainants, along with the objective of promoting prompt compliance with the recommendations or rulings of the DSB.173
7.80.
Article 17.14 of the DSU provides that Appellate Body reports adopted by the DSB shall be "{...} unconditionally accepted by the parties to the dispute". Past panels and Appellate Body have interpreted this obligation to mean that adopted Appellate Body reports must be treated by the parties as a final resolution to their dispute.174 Consequently, as explained in US – Upland Cotton (Article 21.5 – Brazil), "allowing a party in an Article 21.5 proceeding to re-argue a claim that has been decided in adopted reports would … provide an unfair 'second chance' to that party".175 In contrast, where claims against a measure have not been decided on the merits in the original proceeding "they are not covered by the recommendations and rulings of the DSB" and, therefore, "a Member should not be entitled to assume that those aspects of the measure are consistent with the covered agreements."176 Thus, although compliance proceedings cannot be used to "re-open" issues that were decided on the merits in the original proceeding177, claims that are not decided on the merits in the original proceeding can be reasserted in compliance proceedings.178 Accordingly, in considering whether the United States is entitled to raise claims against the R&TD measures in this second compliance proceeding, a first threshold question we believe must be answered is whether the challenged R&TD measures were the subject of adopted findings and recommendations in the original proceeding.
7.81.
As explained in paragraph 7.46, the original panel found that the majority of the R&TD measures challenged by the United States in this proceeding constituted specific subsidies that caused serious prejudice to the United States' interests under Articles 5(c) and 6.3(a), (b), and (c) of the SCM Agreement.179 The panel found that the R&TD subsidies "enabled Airbus to develop features and aspects of its LCA on a schedule that it would otherwise have been unable to accomplish".180 As a result, the original panel found that "{w}hile … the impact of pre-competitive R&TD subsidies on Airbus' market presence was perhaps more attenuated, compared with the other subsidies at issue, … we believe that combined with the others, the RT&D subsidies complemented and supplemented the impact of LA/MSF".181
7.82.
On appeal, the Appellate Body found that the original panel did not have a sufficient basis to find that the R&TD subsidies complemented and supplemented the effects of LA/MSF. In particular, the Appellate Body observed that a general finding that the subsidies enabled Airbus to develop "features and aspects" of its LCA on a schedule that it otherwise would have been unable to accomplish does not provide a sufficient basis to determine that R&TD subsidies "complemented and supplemented" the product effect of LA/MSF in enabling Airbus to launch particular models of LCA.182 In reaching this finding, the Appellate Body held that:

Without specific findings that technology or production processes funded by R&TD subsidies contributed to Airbus' ability to launch and bring to the market particular models of LCA, the Panel did not have a sufficient basis to conclude that those subsidies "complemented and supplemented" the "product effect" of LA/MSF.

In failing to provide a sufficient evidentiary basis for its finding that the effect of non‑LA/MSF subsidies was the displacement of Boeing LCA from the EC and relevant third country markets and significant lost sales … the Panel failed to conduct an objective assessment of the matter, including an objective assessment of the facts, as required by Article 11 of the DSU.183

7.83.
We understand the Appellate Body to have rejected the original panel's analytical approach, finding that the application of the approach actually undertaken lead the panel to fail to conduct an objective assessment of the matter. However, the Appellate Body did not reject the merits of the United States' claims.
7.84.
While the European Union disagrees with this characterization of the Appellate Body findings in the original proceeding, it argues that the United States is not entitled to advance any claims against the original R&TD measures in this second Article 21.5 compliance proceeding, because the United States failed to pursue such claims in the first Article 21.5 compliance proceeding. According to the European Union, the United States' failure to raise such claims during the first compliance proceeding when it had that opportunity means that the United States has essentially forfeited its right to raise these claims here. Importantly, in this regard, the European Union notes that because of the United States' decision not to renew its challenge against the Second through Sixth Framework Programmes, and other member State R&TD measures, at the time of the first compliance panel, the European Union did not incur any compliance obligations with respect to those measures upon the conclusion of the first compliance proceeding. The European Union maintains that the same logic applies in respect of the Seventh EU Framework Programme, which existed at the time of the first compliance proceeding – the United States' failure to raise claims against that measure at the time of the first compliance means that it has forfeited its right to do so in this second compliance proceeding.
7.85.
In discussing the merits of their respective positions on this matter, both parties rely upon the Appellate Body's statement 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 proceedings, but did not".184 The European Union argues that the Appellate Body's statement supports the conclusion that the United States is not entitled to have its challenge against the original R&TD measures and the Seventh Framework Programme heard in this dispute. The United States argues that the specific reference does not support the European Union's argument, as that statement signifies only that the United States may not, in this proceeding, raise claims that it could have raised in the first Article 21.5 compliance proceeding and says nothing about the relationship between the first and second successive compliance proceedings, which the United States alleges should be treated differently.185
7.86.
We note that since US– Upland Cotton (Article 21.5 – Brazil), the Appellate Body has explained that its use of the word "ordinarily" was not intended to mean that such claims could never be brought, and that certain situations could exist which would allow an aspect of a previously challenged measure to be challenged in compliance proceedings to the extent that aspect was incorporated into the measure "taken to comply".186 For example, in US – Zeroing (EC) (Article 21.5 – EC), the European Communities sought to challenge an arithmetical error made to the determination of dumping challenged in the original dispute, which was subsequently incorporated into the United States' measure "taken to comply" (a revised anti-dumping determination). The European Communities had not challenged this aspect of the original determination during the first panel stage. Nevertheless, the Appellate Body found that the European Communities was entitled to challenge the arithmetical error because it was now an integral part of a new measure – the measure "taken to comply".
7.87.
The circumstances surrounding this second compliance proceeding are different to those that arose in US - Upland Cotton (Article 21.5 – Brazil) and US – Zeroing (EC) (Article 21.5 – EC). In this proceeding, the United States challenges the same measures that were challenged in the original proceeding. This compliance proceeding does not involve the question of whether an original complainant can challenge in a first compliance proceeding new aspects of an original measure that did not exist at the time of the original proceeding, as in US - Upland Cotton (Article 21.5 – Brazil), or an pre-existing feature of a new measure, as in US – Zeroing (EC) (Article 21.5 – EC). We recall that the United States' claims against the R&TD measures were not decided on the merits in the original proceeding. Accordingly, in our view, the United States would have been entitled to raise claims against the previously-challenged R&TD measures in the first compliance proceeding. Thus, the question that is now before us is whether, by failing to take that "second chance", the United States should be barred from making those claims in this second compliance dispute.
7.88.
In considering this question, we begin by recalling that in the first compliance proceeding, the United States claimed that the A380 LA/MSF measures constituted prohibited import substitution subsidies under Article 3.1(b) of the SCM Agreement. The European Union argued that the United States' was not entitled to advance those claims because the United States "could have been pursued {them} in the original proceeding against the same A380 LA/MSF measures", but it instead chose to abandon them.187 The United States argued that it should be permitted to pursue its Article 3.1(b) claims against the A380 LA/MSF subsidies in the compliance proceeding because at the time of the original proceeding, it was not aware of information (subsequently acquired by the time of the compliance proceeding), allegedly showing that French, German, Spanish and UK LA/MSF subsidies for the A380 were contingent on the use of domestic over imported goods.
7.89.
The first compliance panel was not convinced that, as a matter of law, the United States was entitled to raise a claim under Article 3.1(b) against the unchanged A380 LA/MSF measures in that compliance proceeding on the basis that it did not have sufficient information at the time of the original panel request. The compliance panel found that it was difficult to see how the acquisition of new information alone could justify a complainant pursuing a new claim about an unchanged measure in a compliance proceeding.188 In addition, the panel found that the evidence did not support the United States' contention that it was unaware of facts that could potentially be relevant to its fresh Article 3.1(b) claim.189 Accordingly, the first compliance panel found that the United States was precluded from raising its Article 3.1(b) claims because it could have raised those claims, but didn't, in the original proceeding.
7.90.
In this proceeding, the United States' challenges R&TD measures that were the subject of unresolved claims at the original stage of this dispute. The United States had the opportunity to raise claims against all of these measures, as well as the Seventh Framework Programme, in the first compliance proceeding. The United States did not take this "second chance". Moreover, in contrast to the situation in the first compliance proceeding as regards its Article 3.1(b) claims against the A380 LA/MSF subsidies, the United States has advanced little explanation of why it decided not to raise claims against the R&TD measures in the first compliance proceeding.
7.91.
The United States argues that its claims should not be precluded simply because they were not raised in the first compliance proceeding because this "would impose a burden on the original complainant to identify all measures that are inconsistent with the original respondent's compliance obligations, no later than the original complainant's first request for the establishment of a compliance panel".190 We note, however, that the United States was fully aware of the R&TD measures, having previously challenged them in the original proceeding. Thus, the present set of facts do not present a situation where an original complainant became aware of a new set of measures only after the first compliance proceeding. Furthermore, the United States' concern arises identically in the context of a first compliance proceeding following an original proceeding, in that parties are required to bring all relevant claims against a measure at the original panel stage, and cannot raise new claims in the compliance proceeding that could have been pursued in an original proceeding.191
7.92.
Finally, the United States argues that its claims against the R&TD measures should be reviewed in this proceeding because the significance or relevance of the R&TD measures to the question of EU compliance has increased over time.192 We note, however, that the R&TD work conducted under the majority of the challenged R&TD measures came to an end prior to the conclusion of the original proceeding. To the extent that the United States considered this R&TD work continued to bear on the question of compliance, it is therefore unclear why the United States could not have challenged them in the first compliance proceeding. Again, by not asserting any claim against the R&TD measures in the first compliance proceeding, the European Union had no basis to assume that it had compliance obligations in this dispute with respect to the R&TD measures.193
7.93.
Thus, for all of the foregoing reasons, we find that the United States is not entitled to raise claims in this second compliance proceeding against the R&TD measures that were the subject of findings in the original proceeding, as well as the Seventh Framework Programme, which was not addressed in the original proceeding, but could have been challenged by the United States in the first compliance dispute.

7.3.5 The United States' claims against the Eighth Framework Programme

7.94.
This section addresses whether the United States is entitled to raise claims against the Eighth Framework Programme, an alleged subsidy programme which did not exist at the time of establishment of the first compliance proceeding.194
7.95.
The European Union argues that the United States may not raise any claims against the Eighth Framework Programme as it does not constitute a "measure taken to comply" within the meaning of Article 21.5 of the DSU.195 The European Union argues that for a measure to be properly before a compliance panel, it must not only be specifically identified in a panel request, but must also constitute a "measure taken to comply" within the meaning of Article 21.5 of the DSU.196 Accordingly, the European Union argues that by not including it in its panel request, the European Union did not declare the Eighth EU Framework Programme to be a measure taken to comply.197 However, the European Union recognizes that the parties' characterization of a measure as one taken to comply is not dispositive and that it is up to the Panel to determine its jurisdiction, which may involve examining measures that the implementing Member has not declared to be measures taken to comply.198 In this regard, the European Union argues that the Eighth Framework Programme cannot be characterized as an "undeclared measure taken to comply", because it does not have a "particularly close relationship" or a "close nexus" with the adopted DSB recommendations and rulings or the declared measures taken to comply in terms of their timing, nature and effect.199
7.96.
The United States objects to the European Union's strict reliance on what is known as the "close nexus test", arguing that the European Union "does not engage with the first compliance panel's warning 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'".200 Even so, the United States argues that the Eighth Framework Programme bears a sufficiently close nexus to the European Union's declared measures taken to comply and the DSB's recommendations and rulings, and presents arguments related to each of the requisite elements.
7.97.
Both parties accept that Article 21.5 proceedings concern measures "taken to comply" with the recommendations and rulings of the DSB.201 Such measures may include measures declared by the implementing Member to bring it into compliance, but also include other measures that were not expressly declared as a "measure taken to comply" by the original respondent. Such undeclared measures taken to comply are measures that may "operate{} to undermine or effectively nullify the declared 'measures taken to comply' or otherwise circumvent that Member's compliance obligations".202 As the Eighth Framework Programme is not a declared measure "taken to comply" by the European Union, the question arises as to whether it may be brought into the scope of this proceeding as an "undeclared" measure taken to comply by application of what is described as the "close nexus" test.
7.98.
Panels and the Appellate Body have applied the "close nexus" test in order to assess whether an undeclared measure "taken to comply" may fall within a panel's terms of reference in the context of standard compliance proceedings.203 Thus far, the "close nexus" test has been applied to allow complainants to initiate compliance proceedings to review measures that have not been specifically declared by an implementing member as measures "taken to comply". The test has not yet been applied in a "reverse" compliance proceeding to allow an original complainant to challenge an undeclared measure which is not identified in the original respondent's request for panel establishment. Although the United States objects to the European Union's strict reliance on the close nexus test, it fails to set out any reasons for not applying the test, merely relying on the possibility that another approach may be taken.
7.99.
In considering whether the "close nexus" test should apply in this "reverse" compliance proceeding, we recall that our analysis in this section proceeds on the basis of the premise that an original complainant in a "reverse" compliance proceeding is entitled to raise claims against measures not specifically identified by the original respondent in its panel request.204 Given this premise, we believe it makes sense to apply the "close nexus" test to determine whether a measure not identified by an original respondent in its panel request may fall within a "reverse" compliance panel's terms of reference. In our view, such an approach would effectively define the types of measures that an original complainant may bring into a "reverse" compliance dispute in the same way that measures that are not declared by an implementing Member to be "measures taken to comply" can be brought within the scope of a normal compliance dispute – namely, when they have a particularly close relationship with the measures taken to comply and/or the recommendations and rulings of the DSB.
7.100.
Under the "close nexus" test, any 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.205 As explained by the first compliance panel:

Determining whether {a measure is susceptible to review} requires 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 undeclared 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.206

7.101.
Thus, in order for the United States' claims against the Eighth Framework Programme to fall within our terms of reference, we must determine whether a particularly close relationship exists between that Programme and the recommendations and rulings of the DSB, and the declared measures taken to comply.
7.102.
We recall that the DSB's recommendations and rulings from the first compliance proceeding concern the A380 and A350XWB LA/MSF measures.207 The declared measures taken to comply in this dispute are the actions which the European Union alleges have withdrawn the LA/MSF subsidies and/or the alleged steps taken by the European Union and certain member States to remove their adverse effects. Application of the "close nexus" test requires us to assess the proximity of the Eighth Framework Programme with these declared measures taken to comply and the recommendations and rulings of the DSB in connection with LA/MSF. This involves examining the timing, nature and effects of each of these.

7.3.5.1 Timing

7.103.
The European Union argues that there is a temporal disconnect between the more recent Framework Programmes, including the Eighth Framework Programme, and the development of the A380 and A350XWB. In particular, as the A380 and A350XWB were launched in 2000 and 2006 respectively, the European Union argues that the A380 and A350XWB were launched, developed, tested, and certified before the Eighth Framework Programme even began208, and thus this Framework Programme cannot be a measure taken to comply.
7.104.
The United States does not deny that there is a temporal disconnect between the R&TD activities funded through the Eighth Framework Programme and Airbus's original development of the A380 and A350XWB but contends that this disconnect is irrelevant.209 However, the United States argues that the Eighth Framework Programme's funding overlaps the continuing investment that the European Union has cited as a measure taken to comply both in time and in the topic areas covered, and that thus, it complements and supplements the effects of the original LA/MSF for those aircraft by maintaining and enhancing the market presence of the aircraft that the older financing enabled.210 Consequently, according to the United States, there is a close nexus in terms of timing between the Eighth Framework Programme and LA/MSF.
7.105.
The European Union is correct that the funding provided under the Eighth Framework Programme was disbursed for activities taking place after the launch, development, testing and certification of the A380 and A350XWB. We note, however, that the funding provided under the Eighth Framework Programme overlaps with the continuing investment in post-launch support allegedly undertaken by Airbus in relation to both the A380 and the A350XWB, which the European Union has cited as a measure taken to comply. Accordingly, the R&TD work performed under the Eighth Framework Programme coincides with several of the European Union's compliance actions. To this extent, it cannot be excluded from the timing of the Eighth Framework Programme, that the R&TD work funded thereunder could undermine the European Union's alleged compliance actions, especially if the nature and effect of that work can be linked with the continued development and market presence of the A380 and the A350XWB.

7.3.5.2 Nature

7.106.
According to the European Union, unlike the LA/MSF subsidies for the A380 and the A350XWB, the funding available under the Eighth Framework Programme does not pertain to the financing of the development of a specific aircraft programme. Instead the European Union argues that the funding available under the Eighth Framework Programme is provided for conducting the early stages of research into new technologies that may or may not be applied on future aircraft development programmes.211 The European Union's argument is that the general nature of the research funded by the Eighth Framework Programme simply cannot be equated with particular instances of LA/MSF that were found to enable the launch of specific types of aircraft "as and when" they were launched.212
7.107.
The United States argues that the nature of the R&TD projects funded under the Eighth Framework Programme is not unlike the work funded through the LA/MSF provided for the A380 and A350XWB. Key to its arguments are the supposed overlaps between the work performed under the LA/MSF measures and the work performed in connection with the R&TD measures.213 In this regard, the United States refers to various projects and programmes linked to the development of the A380 and A350XWB (as well as the A320neo and A330neo), arguing that these projects and programmes directly impacted "several technology areas", though only certain of these arguments relate specifically to the Eighth Framework Programme.214 The United States asserts that the LA/MSF contracts "authorized Airbus to use funds to conduct technical feasibility studies and validation work, including preliminary design, wind tunnel tests, costs of prototype and trial aircraft, structural tests, wing tests, [***]".215 Similarly, the United States submits that the Large Passenger Aircraft (LPA) element of the Clean Sky 2 project funded under the Eighth Framework Programme is aimed at developing flight-test vehicles and prototypes, developing manufacturing and assembly concepts, and performing flight tests.216 According to the United States, the Clean Sky 2 project is aimed at taking technologies developed under the Seventh Framework Programme's Clean Sky project "to a higher level".217 The United States disagrees with the European Union's assertion that the Eighth Framework Programme was limited to early-stage research, arguing that in fact "some activities under the Eighth Framework {are} explicitly aimed at 'R&TD with near-term applications'".218 Moreover, the United States argues that, like LA/MSF, the Eighth Framework Programme funds both early- and late-stage R&TD.219
7.108.
We recall that the adverse effects that are the subject of the DSB's recommendations and rulings were found to have been caused by LA/MSF subsidies related specifically to the A380 and the A350XWB. The factual situation with respect to the R&TD work funded under the Eighth Framework Programme is different, and can be contrasted with the circumstances faced by the panel in the first compliance dispute, when it found there was a "close nexus" between the A350XWB LA/MSF measures and the other LA/MSF measures at issue in that dispute.220 There, the United States had argued that the A350XWB LA/MSF measures had essentially the same nature as the LA/MSF measures found to cause adverse effects in the original proceeding because both were "(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".221 This is markedly different from the form of the R&TD funding provided under the Eighth Framework Programme, which consists of a large-scale, overarching scheme through which cash grants are awarded upon application to fund particular, discrete research and development projects aimed at developing various technologies, much of which is generic and does not refer to specific aircraft programmes.222
7.109.
We agree with the United States, in principle, that the work done under the R&TD measures can overlap with LA/MSF in certain areas because the design and launch of an aircraft will involve research and technical development. Thus, where both are aimed at, for example, developing flight test vehicles and prototypes, we understand there to be an overlap in terms of scope. However, the essential point is that even to the extent that United States is correct about the overlaps between the two types of measures, the purpose and objective of each is different. On the one hand the projects funded under the Eighth Framework Programme are relatively early-stage research into various technologies and production methods which, while related specifically to aircraft and areas such as fuel efficiency and aerodynamics, are not tied to the launch and development of a specific type of aircraft or model of Airbus LCA. In other words, on the evidence presented by the United States, the R&TD projects funded under the Eighth Framework Programme are not product-specific. On the other hand, the government loans provided to Airbus under the LA/MSF measures were intended to finance the specific development and launch of the A380 and A350XWB.223 The successful execution of the contracting parties' obligations under the LA/MSF agreements would result in the launch, development and sale of a specific Airbus LCA. In contrast, the successful completion of the Airbus projects funded under the Eighth Framework Programme would allow Airbus to access a number of prototype technologies which may or may not be further developed and used on one or more of its existing or future LCA models.
7.110.
Moreover, while it is possible to say that from a general perspective, certain aspects of the work funded under the LA/MSF agreements and the Eighth Framework Programme share some common features, both sets of measures also fund work that does not overlap. Under the aeronautics component of the Eighth Framework Programme, for example, a range of projects are funded, and only a part of these are related to LCA development in the same way as LA/MSF.224 Furthermore, it appears that funding under the Eighth Framework Programme is not expressly earmarked for specific aircraft and the United States has not effectively demonstrated that the elements of the work that dooverlap are in fact related to the development of specific aircraft. Accordingly, on the basis of the above considerations, we find that there is no particularly close relationship between the nature of the Eighth Framework Programme, the declared measures taken to comply, and the DSB's recommendations and rulings.

7.3.5.3 Effects

7.111.
The European Union argues that the Eighth Framework Programme is of the same nature as the Second through Seventh Framework Programmes, "for which the European Union has, at no point during the 15-year history of this dispute, incurred any compliance obligations".225 Referring to the Second through Sixth Framework Programmes, the European Union refers to the finding of the original panel, which stated that the "impact of pre-competitive R&TD subsidies on Airbus' market presence was perhaps more attenuated, compared with the other subsidies at issue".226 According to the European Union, "pre-competitive" research of the type that has been found, in the original proceedings, not to complement and supplement the product effect of LA/MSF, is causally too far removed from the declared measures taken to comply to undermine their compliance with the DSB's recommendations and rulings. Thus, according to the European Union, the effects of the Eighth Framework Programme can be distinguished from those of the A380 and A350XWB LA/MSF subsidies on the basis of the more attenuated nature of the effects of the former, as well as the adopted findings that these subsidies did not complement and supplement the latter.227
7.112.
To demonstrate a link between the funding provided under the Eighth Framework Programme and Airbus LCA development, the United States refers to three examples of projects funded under the Eighth Framework Programme that allegedly directly benefited Airbus: (i) the EFFICOMP project, which the United States' maintains has the objective of reducing manufacturing costs and lead time of composite structure manufacturing for aerospace applications228; (ii) the Clean Sky 2 Large Passenger Aircraft Programme, which the United States considers aims to "further mature and validate key technologies such as advanced wings and empennages design, making use of hybrid laminar airflow wing developments, as well as an all-new next generation fuselage cabin and cockpit-navigation"229 and; (iii) the Graphene Flagship project, which the United States asserts is aimed at improving "existing and broadly used aeronautic products, especially those where high performance composites of epoxy resins and carbon fibres are implemented in airplane parts and fuselages".230
7.113.
On their own, according to the United States, the R&TD under the Eighth Framework Programme generally accelerates the market entry of new and derivative Airbus LCA through the additive effects of generating learning that Airbus would not otherwise enjoy.231 The United States cites examples in support of these assertions with respect to the A380, A350XWB, A320neo, and A330neo.232 The United States argues that the European Union has thus provided no support for its assertion that the impact of Eighth Framework Programme's research on Airbus's technical capabilities is more attenuated than LA/MSF. The United States notes that one of the stated goals of the Clean Sky 2 project, for example, is the development of technology to Technology Readiness Level (TRL) 6, which overlaps in part with the types of R&TD funded by LA/MSF.233
7.114.
As we have noted above, the Eighth Framework Programme does not involve product-specific financing, marking a crucial difference between that programme and LA/MSF for the A380 and A350XWB. The projects funded under the Eighth Framework Programme raised by the United States do not appear to be associated with the A380 or A350XWB, nor any apparent direct replacement model. Indeed, they do not appear to be specific to any particular model of Airbus LCA. It is thus difficult to see how, in practice, the effects of the Eighth Framework Programme would act specifically to undermine the European Union's compliance in this dispute.
7.115.
Furthermore, we note that the majority of the work performed under the Eighth Framework Programme will only have effects in the future. Thus, even if the United States were correct in arguing that the subject matter of the Eighth Framework Programme and the LA/MSF measures overlaps in scope, it has not, in our view, presented sufficient evidence to demonstrate that the research funded under the Eighth Framework Programme could result in "matured technology that Airbus used on the A380 and the A350XWB either at the time of launch, or after those aircraft were launched"234 because as the United States itself notes, flight testing of the technologies under the Clean Sky 2 Programme "is planned for late 2019 or early 2020, with production and delivery of a lower fuselage section in the 2020-2022 period".235 Similarly, the EFFICOMP project aims to "develop efficient processes and efficient certification tools for the fast-track {of} cost-effective composite aircraft of the future".236 The United States has not explained how a project that aims to begin flight tests in 2020 or the development of processes for "aircraft of the future" could be linked to: (i) Airbus' ability to launch the A380 and the A350XWB, as and when it did and, (ii) Airbus' completed post-launch investments in the A380 and the A350XWB that have resulted in technologies and production processes already in use.237
7.116.
In the light of our review of the limited evidence and arguments presented by the United States with respect to the Eighth Framework Programme, and the distinct design and objectives of the R&TD measures which are not tied to particular aircraft models, we do not see a sufficient basis to find that the effects of the Eighth Framework Programme are likely to undermine the European Union's compliance with the adopted recommendations and rulings. Unlike LA/MSF and the allegedly non-subsidized investments Airbus made into the A350XWB and the A380, the work performed under the Eighth Framework Programme is not particularly closely related to enhancing Airbus' present competitiveness of the A350XWB and A380 in the marketplace.

7.3.6 Conclusions

7.117.
In the light of the above analysis, we find that the United States' claims against the R&TD measures are outside of the scope of this second compliance proceeding. We reach this conclusion on the basis of the following considerations:

a. The R&TD measures that the United States challenges are not identified, as a matter of fact, in the European Union's panel request; and

b. Even assuming, arguendo, that the absence of any reference to the challenged R&TD measures in the European Union's panel request does not prevent the United States from raising its claims in this proceeding, the United States is nevertheless precluded from raising those claims because:

i. As regards the United States' claims against the R&TD measures that were the subject of findings in the original proceeding, as well as the Seventh Framework Programme, the United States is precluded from raising those claims because it could have brought them in the first compliance proceeding but failed to do so.

ii. As regards the United States' claims against the Eighth Framework Programme, the United States has failed to establish that the Eighth Framework Programme has "sufficiently close links" with the relevant measures taken to comply and the DSB's recommendations and rulings such that it would be appropriate to characterize the Eighth Framework Programme as a "measure taken to comply".

7.4 WHETHER THE A350XWB AND A380 LA/MSF SUBSIDIES HAVE BEEN WITHDRAWN FOR THE PURPOSE OF ARTICLE 7.8 OF THE SCM AGREEMENT

7.4.1 Introduction

7.118.
In this section, we address the European Union's claim that it has withdrawn the A350XWB and A380 LA/MSF subsidies, within the meaning of Article 7.8 of the SCM Agreement, thereby achieving full substantive compliance with the DSB recommendations and rulings.238
7.119.
The European Union maintains that a Member achieves compliance through the withdrawal of the subsidy, within the meaning of Article 7.8, when that subsidy ceases to exist. In this regard, the European Union submits that Article 1.1 of the SCM Agreement identifies a financial contribution and a benefit as two distinct constituent elements of a subsidy, and a subsidy will no longer exist when either one of the two elements is removed. Under this understanding, a subsidy would no longer be "maintained" within the meaning of Article 7.8 when either the financial contribution or the benefit no longer exists.239 The European Union finds support for its position in the ordinary meaning of the term "withdraw", as allegedly clarified by the Appellate Body in the first compliance proceeding.240
7.120.
The European Union submits that there are different means through which a Member may achieve the withdrawal of a subsidy for the purpose of Article 7.8 of the SCM Agreement. In this proceeding, the European Union has identified the following three circumstances in which it argues the lives of the A350XWB and A380 LA/MSF subsidies have ceased to exist and, therefore, been withdrawn for the purpose of Article 7.8 of the SCM Agreement: (i) the actual repayment of all outstanding principal and accrued interest under the UK A350XWB and UK A380 LA/MSF loans; (ii) the replacement of the German A350XWB LA/MSF and French, German, Spanish and UK A380 LA/MSF agreements, with amended LA/MSF agreements conferred on terms consistent with the relevant market benchmark; (iii) the amortization of the benefit of the Spanish A380 LA/MSF subsidy through the passage of time.241
7.121.
With this explanation of the European Union's claims, we first address the European Union's claims concerning the German and UK A350XWB LA/MSF subsidies before addressing the European Union's various claims concerning the A380 LA/MSF subsidies. Before doing so, we consider it helpful to first recall the guidance from the first compliance proceeding regarding the obligation to withdraw the subsidy contained in Article 7.8 of the SCM Agreement.

7.4.2 Guidance from the first compliance proceeding regarding the obligation to "withdraw" the subsidy contained in Article 7.8 of the SCM Agreement

7.122.
In the first compliance proceeding, the European Union argued before the panel that it had no obligation to adopt compliance measures with respect to subsidies that had ceased to exist prior to the DSB's adoption of the panel and Appellate Body recommendations and rulings in the original proceedings in EC and certain member States – Large Civil Aircraft on 1 June 2011.242 The panel rejected this argument based on its finding that compliance under Article 7.8 can only be achieved if "an implementing Member no longer causes adverse effects through the use of subsidies within the meaning of Article 5 of the SCM Agreement".243 The European Union requested the Appellate Body to reverse this finding.244 In doing so, the Appellate Body addressed the interpretation of what is required to achieve compliance within the meaning of Article 7.8 of the SCM Agreement.
7.123.
The Appellate Body began its analysis with an assessment of the text of Article 7.8 of the SCM Agreement, which provides:

Where 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 maintaining such subsidy shall take appropriate steps to remove the adverse effects or shall withdraw the subsidy.

7.124.
The Appellate Body observed that Article 7.8 consists of two clauses, the first of which refers to circumstances where a subsidy is found to have "resulted in adverse effects to the interests of another Member", and the second of which specifies two alternative ways that "the Member granting or maintaining such a subsidy" may come into compliance with its obligations under the SCM Agreement.245 These options are to: (i) either "take appropriate steps to remove the adverse effects"; or (ii) "withdraw the subsidy".246 In terms of the reference in Article 7.8 to "granting or maintaining" a subsidy found to have caused adverse effects, the Appellate Body considered "these terms indicate that Article 7.8 reflects an obligation to cease any conduct amounting to the 'granting or maintaining' of subsidies that cause adverse effects".247 Due to its view that Article 7.8 sets out an obligation "of a continuous nature, extending beyond subsidies granted in the past"248, the Appellate Body found it "difficult to see how a Member could be said to be 'granting or maintaining' a subsidy giving rise to a compliance obligations if that subsidy has expired and therefore no longer exists".249
7.125.
In terms of achieving "withdrawal" of a subsidy, the Appellate Body noted that the relevant dictionary definitions of the term include: "{d}raw back or remove (a thing) from its place or position"; "{t}ake back or away (something bestowed or enjoyed)"; "{c}ease to do, refrain from doing".250 The Appellate Body thus explained that "{t}his suggests that withdrawal of a subsidy, under Article 7.8 of the SCM Agreement, concerns the taking away of that subsidy, and thus that a Member 'granting or maintaining' a subsidy cease such conduct".251 In order to withdraw a subsidy, the Appellate Body proceeded to note that "an implementing Member may be able to take action to align the terms of the subsidy with a market benchmark or to otherwise modify the terms of the subsidy such that it no longer qualifies as a subsidy".252 In this vein, the Appellate Body additionally stated that it was "not clear … how an implementing Member could modify the terms and conditions of subsidies that no longer exist".253
7.126.
The Appellate Body also considered its understanding of withdrawal taking into account the context and object and purpose of Article 7.8. The Appellate Body emphasized that, while the focus of Article 5 of the SCM Agreement, as well as Article 7.8, is the causing of adverse effects through the use of a subsidy, Article 7.8 contemplates compliance action only in relation to the subsidy found to have caused adverse effects. For this reason, to the extent that the underlying subsidy has ceased to exist, the Appellate Body observed that there is no additional requirement under Article 7.8 to remove any lingering effects that may flow from that subsidy.254 The Appellate Body further noted that its understanding of the term "withdrawal" was supported in the relevant provisions of the SCM Agreement governing prohibited subsidies. In particular, the Appellate Body noted that the remedy discussed in Article 4.7 "withdraw the subsidy without delay" does not require the removal of the effects of such subsidies.255 Thus, the Appellate Body explained that "{i}t would be incongruous, in our view, if elimination of the source of the inconsistency were sufficient to comply with an implementing Members' obligations in the context of Article 4.7, but not in the context of Article 7.8".256 The Appellate Body also noted that Article 19.1 in Part V of the SCM Agreement, addressing the imposition of countervailing duties, stipulates that countervailing duties may be imposed on subsidised imports "unless the subsidy or subsidies are withdrawn".257
7.127.
Thus, the Appellate Body emphasized that the obligation to "take appropriate steps to remove the adverse effects … or withdraw the subsidy" in Article 7.8 pertains to subsidies that continue to be ''granted" or "maintained" by the implementing Member after the conclusion of the implementation period. In turn, an implementing Member is not required to withdraw a subsidy that has ceased to exist.258 Accordingly, based on this understanding, an implementing Member would have no compliance obligation with respect to subsidies that have expired or ceased to exist.
7.128.
With this guidance in mind, we turn to evaluate the merits of the parties' submissions concerning the measures and steps the European Union maintains have resulted in the withdrawal of the A350XWB and A380 LA/MSF subsidies.

7.4.3 The [***] amendment to the German A350XWB LA/MSF agreement

7.4.3.1 Main arguments of the parties

7.129.
The European Union maintains that the subsidy provided to Airbus through the original German A350XWB LA/MSF agreement has been "withdrawn", within the meaning of Article 7.8 of the SCM Agreement, by means of replacement with a new non-subsidized German A350XWB LA/MSF agreement. According to the European Union, where an implementing Member granting a financial contribution on subsidized terms varies those terms, such that there is a "substantial" modification in what the Member provides the recipient, the Member provides a new financial contribution, the benefit of which must be determined by comparing the terms of the new instrument to a contemporaneous market benchmark.259
7.130.
The European Union argues that the [***] amendment to the original German A350XWB LA/MSF agreement brought about a "substantial modification"260 to its terms as a result of the changes made to the [***], the [***], the [***], and [***].261 For the European Union, these changes resulted in a new financial contribution, the "benefit" of which must be assessed by comparing the newly agreed terms with a benchmark that reflects the relevant market conditions and positions of Airbus and the German government in 2018.262
7.131.
In assessing whether the newly amended German A350XWB LA/MSF agreement was provided on such market terms, the European Union relies on a report produced by its consultant, TradeRx, which compares the terms of the amended German A350XWB LA/MSF agreement with an alleged contemporaneous market benchmark, following the approach adopted in the first compliance proceeding to determine the internal rate of return (IRR) and applicable market benchmark for the original German A350XWB LA/MSF loan.263 The European Union points out that, according to the calculations in the TradeRx A350XWB Report, the expected IRR of the amended German A350XWB LA/MSF agreement exceeds the relevant contemporaneous market benchmark.264 The European Union thus concludes that the German A350XWB LA/MSF agreement resulting from the [***] amendment replaces the subsidized financial contribution under the original German A350XWB LA/MSF agreement with a financial contribution that does not confer a benefit, and is, therefore, not subsidized.265
7.132.
Finally, the European Union also argues, in the alternative, that it would be appropriate to view the [***] amendment to the German A350XWB LA/MSF loan agreement as an intervening event that brings the life of the German A350XWB LA/MSF loan to an end, achieving withdrawal of the subsidy for the purpose of Article 7.8 of the SCM Agreement.266
7.133.
The United States maintains that the European Union has chosen the wrong analytical framework to assess the question of withdrawal, arguing that there is no support for the European Union's submission that the [***] amendment achieved compliance with respect to the original German A350XWB LA/MSF subsidy. The United States submits that the benchmark analysis set out in TradeRx A350XWB Report might be appropriate to determine whether a new loan confers a subsidy, but it does not properly address the question of whether an amendment to a pre-existing loan provided on subsidized terms has been withdrawn. The United States argues that, in order to answer that question, it is necessary to assess the effect of the amendment on the pre-existing loan, which in the United States' view, TradeRx A350XWB Report has ignored.267
7.134.
According to the United States, the [***] amendment to the German A350 XWB LA/MSF agreement is correctly viewed as an "intervening event", or "an unplanned adjustment to the terms of the pre-existing German LA/MSF for the A350XWB", that "increased the benefit conferred by the pre-existing German LA/MSF subsidy for the A350XWB" and prolonged its "life" until at least [***].268 To assess the effect of the amendment, the United States submits a report produced by its consultant, NERA Economic Consulting, that compares the IRR of the original unamended German A350XWB LA/MSF agreement, as of [***], to the IRR of the amended German A350XWB LA/MSF agreement, as of [***].269 The NERA German A350XWB Report concludes that the IRR of the original unamended arrangement is higher than the IRR of the amended loan agreement, which the United States submits means that the amendment increased the subsidy to Airbus and that the German lender, KfW, would have been in a better financial position if it had simply left the terms of the original A350XWB LA/MSF unamended.270 Accordingly, the United States concludes that "no reasonable commercial lender in the position of the Government of Germany would have agreed to enter into the [***] Amendment".271 In addition, the United States argues that the [***] amendment "prolonged the life of the pre-existing German LA/MSF subsidy for the A350XWB to well after [***]", because the amendment was based on an expectation that A350XWB deliveries would continue [***].272
7.135.
Finally, the United States argues that even if the Panel were to accept the European Union's analytical framework as the correct one, a comparison of the IRR of the [***] amendment to the market benchmark used by TradeRx shows that no reasonable commercial lender would have agreed to the amendment's terms. The United States relies upon a second analysis of the [***] amendment performed by NERA, in which NERA calculated a revised IRR for the amended German A350XWB LA/MSF loan agreement. NERA based this calculation on a revised delivery schedule that NERA constructed after concluding that the delivery schedule used by TradeRx "is at odds with the anticipated number of deliveries in the Ascend data, the statement of Airbus executives, and the [***] anticipated in the business case for the A350XWB".273 Based on this assessment NERA concluded that, assuming that the market benchmark used by TradeRx was correct, then the IRR is actually lower than what a market lender in 2018 would have required for a similar transaction.274 In connection with NERA's updated analysis, the United States has also argued that TradeRx's market benchmark is also "likely too low", because TradeRx "appear{s} to have improperly ignored that, even under an early repayment scenario, KfW would have been entitled to [***] provided for under the terms of the original German A350 XWB LA/MSF contract".275 For these reasons, the United States argues that, even if the Panel were to agree that the European Union's analytical framework was the correct one, the European Union has failed to demonstrate that the IRR of the German A350XWB LA/MSF as modified by the [***] amendment is not lower than the market benchmark.276

7.4.3.2 Evaluation by the Panel

7.4.3.2.1 Features of the amended German A350XWB LA/MSF loan agreement

7.136.
As explained in section 7.2.2.2 above, the original German A350XWB LA/MSF agreement entitled Airbus to draw a total of [***] under a scheduled series of disbursements. Repayments were to be made through per-aircraft levies based on an estimated delivery forecast submitted in connection with the original loan agreement.277 Full repayment of the drawn-down loan principal was expected to occur by [***].278 The original agreement also required Airbus to [***].279
7.137.
The original loan agreement was [***].280 The agreement was amended [***].281 On the latter occasion, the German government lender, KfW, agreed to [***].282 Expected repayments of outstanding principal were calculated on the basis of [***].283 Under the amended [***], full repayment of principal and interest is expected to be achieved by [***]. The [***] amendment also modified [***], with [***].284
7.138.
Thus, while the [***] amendment modified certain terms of the original German A350XWB LA/MSF loan agreement, Airbus continues to be under an obligation to repay the outstanding principal and accrued interest under that loan. The German A350XWB LA/MSF agreement therefore continues to exist as an outstanding loan, albeit on modified terms. The question that arises is whether the amended terms modified the arrangement such that it no longer qualifies as a subsidy, within the meaning of the SCM Agreement.

7.4.3.2.2 The relevant analytical framework

7.139.
The European Union characterizes the [***] amendment to the German A350XWB LA/MSF loan as an act, andalternatively, an "intervening event", that achieves the withdrawal of the German A350XWB LA/MSF subsidy, within the meaning of Article 7.8 of the SCM Agreement. We note, however, that notwithstanding the European Union's alternative characterization, the fundamental reason advanced by the European Union to support its assertion of compliance on this basis is the same regardless of how the [***] amendment is described.285 Thus, irrespective of whether the amendment is properly characterized as an act, or as an "intervening event", the European Union maintains that it achieves compliance with its obligation to "withdraw the subsidy" because it has replaced the pre-existing subsidized A350XWB LA/MSF agreement with a LA/MSF agreement on terms that would have been offered to Airbus by a market lender. Accordingly, the key question we must address in order to determine the merits of the European Union's assertion of compliance is whether the [***] amendment to the German A350XWB LA/MSF agreement has resulted in the replacement or modification of the subsidized loan that was the subject of the original compliance proceeding with a market-based loan instrument.
7.140.
In considering their positions, we begin by recalling the Appellate Body's observations from the first compliance proceeding regarding the obligation to "withdraw" the subsidy in accordance with Article 7.8 of the SCM Agreement, as discussed in section 7.4.2 above. The Appellate Body emphasized that the obligation to either "take appropriate steps to remove the adverse effects … or withdraw the subsidy" in Article 7.8 pertains to subsidies that continue to be ''granted" or "maintained" by the implementing Member after the conclusion of the implementation period.286 The Appellate Body also provided guidance with respect to how an implementing Member may withdraw a subsidy that is being "granted" or "maintained" for purposes of Article 7.8, agreeing with the compliance panel that "withdrawal" may be achieved when an implementing Member takes "action to align the terms of the subsidy with a market benchmark, or to otherwise modify the terms of the subsidy such that it no longer qualifies as a subsidy".287 As discussed above, there is no question that the amended German A350XWB LA/MSF loan agreement is a measure currently being maintained by the German government. Thus, the question that remains to be resolved, in the light of the European Union's submissions, is whether the [***] amendment has aligned the terms of the A350XWB LA/MSF loan agreement with a market benchmark. In the light of the prospective nature of WTO remedies288, we understand that the alignment of an existing subsidized loan with a market benchmark need not result in the repayment of past subsidies provided under that loan, but rather, it must achieve non-subsidization with respect to the future operation of the loan.
7.141.
The European Union argues that the making of "substantial" modifications to the terms of a pre-existing subsidised loan necessarily means that the pre-existing loan has been "replaced" by a new and different loan, which must be assessed against a contemporaneous benchmark in order to determine whether the subsidy provided under the original loan has been withdrawn. In advancing this line of argument, the European Union refers to certain statements and findings made by the panel in Japan – DRAMs (Korea). Specifically, the European Union relies on the panel's statement that "the modification of an existing loan may properly be treated as the transfer of new rights to the recipient of the modified loan", in support of its view that an existing financial contribution is replaced by a "new" one whenever it is "substantially" modified.289
7.142.
In our view, the European Union's reliance on Japan – DRAMS (Korea) is misplaced. The panel in Japan – DRAMS (Korea) was called upon to inter alia determine whether Japan's investigating authority (JIA) had acted inconsistently with its WTO obligations when it determined that a series of restructuring transactions, which included modifications to the terms of pre-existing loan agreements in the form of extensions to loan maturities, reductions of interest rates, and the conversion of interest to principal, involved "direct transfers of funds" within the meaning of Article 1.1(a)(1)(i) of the SCM Agreement. Korea argued that "transactions that merely change the terms of existing claims, and do not involve the provision of money to the alleged subsidy recipient, cannot be characterized as transactions involving a 'direct transfer of funds' within the meaning of Article 1.1(a)(1)(i) of the SCM Agreement".290 In rejecting Korea's submission and finding that the JIA had not acted inconsistently with its obligations, the panel expressed the following views (parts of which the European Union relies upon):

We do not accept that the relinquishment or modification of claims may not, in certain circumstances, be treated as the transfer of new claims, giving rise to new rights and obligations. For example, once one analyses what actually occurs in the transaction, the modification of an existing loan may properly be treated as the transfer of new rights to the recipient of the modified loan. The borrower's old rights no longer exist. They have been replaced by new rights. In this sense, the modified loan may properly be treated as a new loan. Thus, the modification of a loan through debt forgiveness involves the transfer of new rights to the borrower, who is now liberated of the obligation to repay the debt, and instead has the right to use the money for free. Similarly, the modification of a loan through an extension of the loan maturity involves the transfer of new rights to the borrower, who is now entitled to borrow the money for a longer period of time. Since the new rights that are transferred in such transactions have monetary value, and may be counted in a (legal or natural) person's capital, we consider that such transactions may properly be treated as "direct transfers of funds" in the meaning of Article 1.1(a)(1)(i) of the SCM Agreement. …291

7.143.
We note that the legal question that is the focus of the above analysis is whether a modification to the terms of an existing loan may be characterized as a "direct transfer of funds" for the purpose of Article 1.1(a)(1)(i) of the SCM Agreement. This legal question arose in the context of a fact pattern where none of the modified loans at issue had been previously found to constitute subsidies. In contrast, the legal question at the centre of the European Union's submission in this dispute is whether the [***] amendment should be understood to have created a new German A350XWB loan contract that must be considered separately and independently from the pre-existing subsidized A350XWB loan, when it comes to determining whether the subsidy provided under the pre-existing A350XWB loan contract has been withdrawn for the purpose of Article 7.8 of the SCM Agreement. On the basis of these legal and factual differences alone, we do not find the panel's statements in Japan – DRAMS (Korea) to be instructive for the resolution of the matter before us. In any case, we do not understand those statements to have the same meaning and implications as the European Union.
7.144.
We understand the panel in the above passages to have said that a "modified loan may properly be treated as a new loan" to the extent that a "borrower's old rights no longer exist" and "have been replaced by new rights". In our view, in advancing this line of thinking, the panel merely meant to explain that when the terms of an existing loan are amended, a "new" loan exists, "in the sense that" the rights and obligations under the pre-existing loan have been modified. The panel did not say that the pre-existing loan no longer exists, but only that the "borrower's old rights" (those that are modified) "no longer exist" and "have been replaced by new rights". This does not mean that the pre-existing loan has been terminated and replaced. Rather, it simply means that the pre‑existing loan continues to exist in a modified form. In this regard, we note that Japan had argued that "changes to the terms of loans amount to a re-issuanceof the loan as the terms of the original loan are extinguished and replaced with new terms".292 However, the panel did not go as far as Japan in its finding, concluding only that the transactions involving the modification of loans at issue could be characterized as "direct transfers of funds" within the meaning of Article 1.1(a)(1)(i) because they involved the transfer of new rights of monetary value.
7.145.
Moreover, to the extent that we should understand the European Union submissions to suggest that the panel's finding stands for the proposition that the benefit of a new financial contribution, resulting from modifications made to an existing, subsidized, financial contribution, must be evaluated at the time of the modifications, we recall that the loans at issue in Japan – DRAMS (Korea) had not been previously found to confer a benefit. In contrast, in this dispute the German A350XWB LA/MSF agreement was previously found to constitute a subsidy within the meaning of Article 1.1 of the SCM Agreement. Thus, in our assessment, there is no basis from which to draw the implication the European Union appears to rely upon, given the different factual situation in this proceeding compared with that in Japan – DRAMS (Korea).
7.146.
Thus, for all of the above reasons, we do not consider the panel statements in Japan – DRAMS (Korea) the European Union relies upon to support its position in this dispute.
7.147.
In the light of our understanding of the panel's approach in Japan – DRAMS (Korea), we consider that the [***] amendment to the German A350XWB LA/MSF agreement altered the rights of the German government and Airbus, but it did not bring into existence a new loan agreement. There is no evidence before us, and, indeed, the European Union does not argue, that the original A350XWB LA/MSF is legally distinct from the loan agreement resulting from the [***] amendment. We note, moreover, that by the time of the [***] amendment, all required disbursements had been made and Airbus was continuing to make payments of principal and interest in accordance with the terms of the original contract, which was not terminated. Thus, we find that the original German A350XWB LA/MSF agreement continues to exist in a modified form, reflecting the revised repayment terms agreed through the [***] amendment. In our view, this implies that, contrary to the European Union's contention, the appropriate benchmark against which to measure whether the [***] amendment aligned the terms of the German A350XWB LA/MSF agreement with the market, is not a loan on the same or similar terms issued by a market lender for the first timeat the same moment as the amendment. We disagree with the European Union on this point because the analytical approach it advances would treat the amended A350XWB LA/MSF agreement in the same way as a new loan under which all terms and conditions (disbursements, interest payments, repayments) have been agreed at the time of the amendment293 when in fact, for the reasons we have explained, this is not the case.
7.148.
We recall that in all previous proceedings of this dispute, the panels and the Appellate Body explained that in order to determine whether LA/MSF confers a "benefit" on Airbus, within the meaning of Article 1.1(a)(2) of the SCM Agreement, the terms of each LA/MSF loan agreement must be compared with the terms of a comparable loan available from the market.294 In the original and first compliance proceedings, the challenged LA/MSF agreements were examined to determine whether they each conferred a benefit on Airbus by comparing the cost of the LA/MSF financing to Airbus on the agreed terms (calculated as a separate "internal rate of return" for each LA/MSF contract) to the cost that Airbus would have incurred (calculated as a "rate of return") to obtain the same or similar financing from the market at the time Airbus and the relevant Airbus government entered into the LA/MSF agreement.295 For the German A350XWB LA/MSF contract, the IRR was determined by identifying the interest rate that set the Net Present Value of the cash flows anticipated under the terms of the loan agreement to zero.296 The IRR of the German A350XWB LA/MSF agreement was compared with a constructed interest rate considered to represent the rate of return that a market lender would have achieved on a loan to Airbus on the same or similar terms, and at the same time, as the A350XWB loan agreement.
7.149.
Consistent with this approach, we believe that where funding under a subsidized loan agreement has already been disbursed and remains outstanding, an amendment to that loan to bring it into alignment with a market benchmark on a prospective basis would need to ensure that, all other things being equal, the revised repayment terms capture the overall cash-flow the market lender would have expected to achieve, at the time the recipient originally entered into the government loan contract, for the remaining duration of the particular loan.297 In this way, the recipient would be placed in the same position it would have been in at the time of the amendment, had the loan been agreed on market terms from the very beginning.
7.150.
Explained by way of example, this line of reasoning implies that a subsidized loan provided for a 10-year period at an average cost of 5% interest per annum (instead of the market rate of 7%), could be aligned with a market benchmark in year five by increasing the rate of interest to apply over the remaining five years to 7%, even if the market rate for a comparable five-year loan at the same time was higher or lower than 7%. In our view, it is only by raising the interest rate to what the market lender would have originally requested the recipient to pay over the remaining five years of the loan contract that it could be concluded that, all other things being equal, the recipient is no longer receiving a subsidized loan.
7.151.
Such an approach to determining whether a subsidized loan has been aligned to a market benchmark would ensure that the "withdrawal" of a subsidy will depend upon a Member's own actions and decisions, as opposed to exogenous factors such as the general cost of finance in an economy.298 Thus, where, for example, the general cost of money increased between the time a subsidized loan was agreed and the date of an amendment intended to align the terms of that loan with a market benchmark, an approach that requires the amended terms to reflect the contemporaneous cost of money would require the subsidizing government to charge, on a prospective basis, more for the loan than a market lender would have originally requested from the recipient over the same period of the loan. Conversely, where the general cost of money decreased between the time a subsidized loan was agreed and the date of an amendment intended to align the terms of that loan with a market benchmark, an approach that requires the amended terms to reflect the contemporaneous cost of money would require the subsidizing government to charge, on a prospective basis, less for the loan than a market lender would have originally requested from the recipient. In both situations, the determining factor for the alignment of the subsidized loan to a market benchmark would not be the government's decision to have the recipient pay what a market lender would have required at the time the loan was originally agreed, but rather movements in the cost of money. Given the characteristics of LA/MSF, other exogenous factors we believe could have the same or similar impact include the credit worthiness of Airbus and the development status of the funded LCA.
7.152.
The European Union maintains that comparing the IRR of the amended German A350XWB LA/MSF agreement with a contemporaneous market benchmark for a new loan to Airbus issued on the same or similar terms as the amended agreement is an appropriate way to test whether the German A350XWB LA/MSF agreement has been aligned with a market benchmark. The European Union justifies this approach by arguing that the German government lender, KfW, did not have the option to leave the German A350XWB LA/MSF agreement unamended because, under [***] of the unamended agreement, Airbus was entitled to force KfW to accept early repayment. The European Union maintains that such a clause is a standard term in comparable loan agreements299, which in the case of Airbus, left it with an incentive to repay the loan in [***] because market interest rates had decreased substantially since the time Airbus and KfW agreed on the original terms of the German A350XWB LA/MSF agreement, making it possible for Airbus to refinance at lower interest rates.300
7.153.
We understand the logic of the European Union's argument to be as follows: If Airbus chose to prepay the loan in accordance with [***], KfW (or a market lender in its place) would not have been in a position to realize the expected future cash-flows and IRR under the original agreement. The European Union submits that where a loan agreement entitles the borrower to prepay the loan, the borrower's choice to exercise that right makes the originally-anticipated IRR impossible for the lender to attain. In those circumstances, the European Union argues that it would be erroneous to consider that, in agreeing to amend the loan to reflect current market circumstances, the lender exchanged its allegedly "superior" IRR under the original terms of the subsidy for an allegedly "inferior" one under the amended terms. Thus, the European Union submits that the only way to determine whether the [***] amendment is on market terms is to compare the IRR of the amended German A350XWB LA/MSF agreement with a loan on the same or similar terms that could have been offered by a market lender to Airbus at the same time.301
7.154.
We agree with the European Union that, in the face of having to accept the full repayment of the outstanding principal disbursed under an existing loan concluded at a time of relatively high interest rates, a market lender would not expect to achieve the same returns anticipated under the original loan contract from an amendment that avoids full repayment and continues the loan arrangement on different terms at a time of relatively low interest rates. This situation is different from the one described in our above example, which underlies the starting point of our analytical framework, because the situation discussed in the example comes about in a context where the commercial lender is left with a choice between the continuation of an existing loan or the acceptance of revised terms. In other words, the situation described in the above example is not one where, apart from the desire of the contractual parties to amend the loan arrangement to align its terms with a market benchmark, all other things have remained the same. In contrast, in the situation posited by the European Union, the market lender is faced with a choice between accepting the early repayment of outstanding principal and accrued interest under an existing arrangement or the new repayment terms negotiated under revised terms.
7.155.
The United States argues that the European Union has provided no evidence to support its assertion that had Airbus and KfW not agreed to enter into the [***] amendment, Airbus would have opted to prepay the outstanding LA/MSF and other accrued charges.302 In other words, the United States argues that there is no factual basis to support the premise underlying the analytical framework applied by the European Union to determine whether the German A350XWB LA/MSF subsidies have been withdrawn.
7.156.
We agree with the United States that the European Union has provided no evidence showing that Airbus actually invoked, or even attempted to trigger, [***] of the German A350XWB LA/MSF agreement. Although the European Union argues that in the "negotiations leading up to the amendment, both Airbus and KfW knew that Airbus' Best Alternative to a Negotiated Agreement, or 'BATNA', was to effect prepayment"303, the European Union has presented no evidence of the discussions between the German government and Airbus about the potential early repayment of the outstanding principal under the terms of [***]. Neither is there any evidence before us showing that Airbus considered alternative market-based finance options around the time of those negotiations. Moreover, in explaining the background and motivations of the [***] amendment, its preamble makes no reference to any possible early repayment, mentioning only that KfW was asked to enter into the amendment "in order to [***] on the loan tranches, and to provide the Borrower with new [***] for these [***]".304 In the absence of any evidence showing that Airbus was, in fact, seriously considering exercising its rights under [***] in order to refinance the German A350XWB LA/MSF using market-based instruments (which the European Union maintains was a credible possibility),305 there is no sufficient basis to accept the premise underlying the European Union's submissions. In this light, we believe that the European Union's assertion of compliance with respect to the German A350XWB LA/MSF subsidies cannot be sustained.
7.157.
Consistent with the starting point of the analytical framework we have set out above, in considering whether to enter into the [***] amendment, we believe that a market lender that did not face the potential repayment of the outstanding principal and accrued interest as a credible possibility would have compared the returns available under the unamended market-based arrangement with those available under the proposed amendment. Although the parties have not undertaken this analysis, the United States' expert, NERA Consulting, conducted an assessment the expected IRR of the unamended loan contract and compared that to the expected IRR under the [***] amendments, taking into account the revised 2018 forecast delivery schedule used in the TradeRx Report.306 The European Union has not disputed the accuracy of the NERA calculation, arguing only that it addresses the wrong question.307 For present purposes, we note that NERA concludes that the IRR for the unamended German A350XWB LA/MSF agreement (which, we recall was provided on subsidized terms) is greater than the IRR of the amended agreement.308 This confirms that a market lender that did not face the potential repayment of outstanding principal and accrued interest as a credible possibility would have preferred its own market-based A350XWB LA/MSF agreement (offering greater returns than the unamended German A350XWB LA/MSF agreement) to the [***] amended version of the German A350XWB LA/MSF agreement.
7.158.
Finally, even if we were to accept that there was a credible possibility that Airbus could have invoked [***] to repay and refinance the German A350XWB LA/MSF, we are not convinced that the test for determining whether that amendment was market-based should be focused, as the European Union argues, on comparing the IRR of the amended contract with the IRR that a market lender would expect to achieve (and, therefore, request Airbus to pay) for the same or similar loan entered into at the time of the amendment. As already discussed309, such an approach would erroneously treat the [***] amended German A350XWB LA/MSF agreement in the same way as a new loan issued for the first time at the time of the amendment. In order to determine whether the terms of the amended German A350XWB LA/MSF agreement are market-based, the question that we believe must be answered is whether a market lender (not KfW) would have preferred to receive the returns associated with the amended German A350XWB LA/MSF agreement over the returns it could have expected to achieve as a result of a decision on the part of Airbus to invoke its right under [***] of the LA/MSF agreement to repay the outstanding principal and accrued interest. In this way, we believe it would be possible to determine whether the [***] amendment to the German A350XWB LA/MSF agreement left Airbus in the same position it would have been in at the time of the amendment, had the German A350XWB LA/MSF agreement been agreed with a commercial lender on market terms from the very beginning. We now turn to apply this standard to the facts surrounding the [***] amendment to the German A350XWB LA/MSF contract, as a means to make alternative findings, having already concluded that the European Union has failed to establish the factual basis underpinning its claims of compliance with respect to the German A350XWB LA/MSF subsidies.

7.4.3.2.3 Whether the [***] amendment has aligned the terms of the German A350XWB LA/MSF agreement with a market benchmark

7.159.
The European Union argues that the returns that would have been available to KfW had it decided to invest the outstanding principal and accrued interest that Airbus would have been required to repay in the event that Airbus triggered [***] of the German A350XWB LA/MSF agreement can be represented by the IRR that a market lender would have requested Airbus to pay for a loan on the same or similar terms as the [***] amendment. According to the European Union, that "return is also what KfW could have expected to receive if it accepted the prepayment and re‑invested it in a venture of similar risk profile".310 Thus, relying upon the calculations in the TradeRx A350XWB LA/MSF Report, the European Union argues that the IRR of KfW's re-investment of the funds repaid by Airbus would have been less than the IRR of the [***] amendment.311 In our view, however, it is not entirely clear whether the IRR calculated in the TradeRx Report for the alleged market benchmark represents the return that a market lender would have expected to receive from re-investing the significant amount of outstanding principal and accrued interest that Airbus would have repaid. The IRR determined by TradeRx is based on an estimate of the risk profile of the amended A350XWB LA/MSF contract, which captures Airbus' credit worthiness and the risk profile of the A350XWB project. Opportunities to invest in projects having different risk profiles with potentially overall greater returns would have no doubt been available to a market lender, particularly given what the significant value of the early repayment would have been.
7.160.
The United States argues that the European Union is wrong when it argues that KfW would have preferred the [***] amendment over the receipt of early repayment under the unamended German A350XWB LA/MSF agreement. According to the United States, the European Union's submission is flawed because if Airbus effected [***], Airbus would have retained the obligation to make [***] under the original agreement.312 Thus, the United States argues that the choice that KfW faced with was whether to: (i) receive [***] and also[***] as dictated by the original agreement; or (ii) agree to the [***] amendment.313 Given these choices, the United States' expert, NERA Consulting, calculated an IRR of investing the [***] at the alleged market-based IRR determined in the TradeRx Report and receipt of the [***], and compares that to the IRR of the amended German A350XWB LA/MSF agreement. The NERA Report concludes that the expected IRR of re-investing the early repayment and receiving [***] ([***]) is greater than the expected IRR of the amended German A350XWB LA/MSF loan agreements ([***]).314 On this basis, the United States concludes that a market lender in the German government's position as of [***] would not have agreed to enter into the [***] amendment because it would have been more beneficial to accept and re-invest the early repayment and accept the future royalty payments.315
7.161.
The European Union does not dispute the United States' assertion that [***] would be available under an early repayment scenario, nor does the European Union specifically dispute the accuracy of NERA's IRR calculations. Nevertheless, the European Union maintains that the United States and NERA err in arguing that the European Union's submissions "ignore KfW's entitlement to [***] in the case of early repayment". After confirming that [***] would have been available under both the early repayment and amendment scenarios, the European Union points out that the [***] available under the amended LA/MSF agreement provided for marginally better returns than those prescribed under the unamended A350XWB arrangement. The European Union concludes that this means that "with respect to [***], the 2018 amendment enhances KfW's position".316 Likewise, the European Union argues that the [***] terms brought about by the [***] amendment had a [***], concluding that the financial terms of the amended agreement did not alter KfW's financial position.317
7.162.
We find the European Union's response to the United States' arguments to be misplaced because it does not address the comparison between the returns available to a market lender under the [***] amendment and the returns that would have resulted if a market lender decided to re‑invest the repaid principal and receive the planned [***] under the unamended A350XWB LA/MSF agreement. Although the European Union explains that its response provides a "comparison of the expected returns under the early repayment and the 2018 amendment scenarios", in substance, the European Union compares the terms of the [***] amendment with the terms of the unamended agreement. To this extent, the European Union's submissions answer the wrong question because they proceed on the basis that the early repayment would not have occurred, leaving the market lender with a choice between the unamended or amended A350XWB LA/MSF agreements.
7.163.
As already explained, in order to determine whether the terms of the amended German A350XWB LA/MSF agreement are market-based, the question that must be answered is whether a market lender (not KfW) would have preferred the returns associated with the amended German A350XWB LA/MSF agreement over the returns it could have expected to achieve as a result of Airbus' decision to invoke its right under [***] of the LA/MSF agreement to repay the outstanding principal and accrued interest. The analysis the United States presents in the NERA Report attempts to perform this comparison. However, we are not convinced that NERA's calculation is entirely accurate. First, the IRR calculated in the repayment scenario relies upon the market benchmark IRR determined by TradeRx, which, as already noted, we believe may not necessarily reflect the alternative investment options available to a market lender.318 Second, in the absence of any further explanation, we are not convinced that the way the NERA Report has relied upon the TradeRx IRR in its calculation is appropriate, as it seems to have been used to generate the re-invested cash flows as a compound interest rate instead of in the form of an IRR. Finally, we note that in accounting for the cash flows expected from future [***] payments, the NERA Report uses the values prescribed in the unamended German A350XWB LA/MSF agreement. We recall, however, that the returns available under the unamended German A350XWB LA/MSF agreement are subsidized and, therefore, by definition less than what a market lender would have requested Airbus to pay for the same or a similar loan. In our view, this suggests that the [***] payments envisaged under the unamended German A350XWB LA/MSF agreement were less than what a market lender would have accepted. To this extent, NERA's calculation of the returns achieved from future [***] may well under-estimate the returns available to a market lender.
7.164.
Thus, in the light of the above considerations, we find that the European Union has failed to demonstrate that the [***] amendment to the German A350XWB LA/MSF agreement resulted in the "withdrawal" of the subsidy, by aligning its terms with a market benchmark. We are not convinced by the European Union's submissions under this alternative analysis, because they fail to properly address and establish that a market lender would have preferred to receive the returns anticipated under the [***] amendment over the returns that would have been available from re-investing Airbus' early repayment of the significant amount of outstanding principal and accrued interest, taking into account the value of future [***] under the unamended A350XWB LA/MSF contract. The European Union has, therefore, failed to show that the [***] amendment left Airbus in the same position it would have been in at the time of the amendment, had the German A350XWB LA/MSF agreement been originally agreed with a commercial lender that would have been faced with a real possibility that Airbus could have forced it to accept early [***] in [***].

7.4.4 Repayment of the UK A350XWB LA/MSF loan on subsidized terms

7.4.4.1 Main arguments of the parties

7.165.
The European Union argues that, on [***], Airbus fully repaid the UK A350XWB LA/MSF loan by making a payment of [***] to the UK Department of Business, Energy & Industrial Strategy (BEIS). The European Union argues that this sum reflects the total amount of outstanding principal drawn-down by Airbus as of [***], plus interest accrued since [***], less [***].319
7.166.
According to the European Union, the full repayment of a loan on its subsidized terms achieves the withdrawal of that subsidy, for the purpose of Article 7.8 of the SCM Agreement, because the repayment of the financial contribution removes one of the constituent elements of a subsidy, resulting in the life of that subsidy coming to end. The European Union submits that this is precisely what was achieved when Airbus fully repaid the UK A350XWB LA/MSF loan on [***], thereby bringing the European Union into compliance under Article 7.8 in respect of the UK A350XWB LA/MSF subsidy.320 Alternatively, the European Union argues that it would be appropriate to view the repayment of the UK A350XWB LA/MSF loan as an "intervening event" that brings the life of the UK A350XWB LA/MSF loan to an end, thereby achieving the withdrawal of the subsidy.321
7.167.
The United States acknowledges that Airbus made a payment of [***] to the UK Government on [***].322 However, according to the United States, this fact alone does not establish that Airbus repaid "the full amount of outstanding principal" or that Airbus will not draw down the principal again.323 In any case, the United States argues that the European Union has failed to withdraw the UK A350XWB LA/MSF subsidy because repaying a loan on its subsidized terms does not result in the withdrawal of the subsidy for purposes of Article 7.8 of the SCM Agreement.324 The United States submits that the first compliance panel agreed with this assessment when it criticized the same theory advanced by the European Union in that proceeding.325
7.168.
Moreover, the United States rejects the European Union's argument that the repayment of the UK A350XWB LA/MSF loan may be viewed as an intervening event that brings the life of the loan to an end. The United States argues that the full repayment to which the European Union refers, and the possibility that early repayment would occur, is "part of the spectrum of facts that informed the parties' ex ante expectation as to the life of the subsidy, and it was also an element of the contract that the first compliance panel had before it when it found that the contract transmitted a subsidy".326 The United States argues that the fact that the contract operated as it was originally envisioned cannot logically serve as an intervening event that changes the life of the benefit of the subsidy.327

7.4.4.2 Evaluation by the Panel

7.4.4.2.1 Has the UK A350XWB LA/MSF loan been fully repaid?

7.169.
The European Union asserts that Airbus repaid all outstanding principal and interest accrued less [***] totalling [***] under the UK A350XWB LA/MSF contract on [***] as part of a [***].328 In particular, on [***], Airbus informed the United Kingdom of its intention to effect [***].329 On [***], BEIS confirmed to Airbus that the payment had been received, and that the sum reflected "the Principal amount drawn down", "plus Interest accrued from [***]", "less [***]".330 BEIS confirmed that "{t}his means that the Repayable Investment has been repaid in full".331
7.170.
In explaining the amount repaid by Airbus, the European Union submits that during the [***], Airbus drew down only [***], which is less than the [***] maximum amount of funding available under the UK A350XWB LA/MSF loan agreement.332 As evidence of the amounts of receipts and repayments made, the European Union submitted Airbus accounting entries in Exhibit EU-81.333 Those entries reveal a difference of [***], which the European Union explains as the difference between: (i) interest accrued between [***] and [***]; and (ii) [***].334 Finally, the European Union explained how Airbus determined the final levy payments that were due on [***] eligible A350XWB deliveries that were made during the first quarter of 2018.335
7.171.
Our review of Airbus' accounting entries in Exhibit EU-81 and the European Union's explanations confirms that Airbus' [***] payment reflects the full amount of outstanding principal due under the UK A350XWB LA/MSF agreement, plus interest accrued since the date of the last periodic interest payment on 26 March 2018, less [***].
7.172.
We note that the European Union has further indicated that, under the terms of the UK A350XWB LA/MSF Agreement, Airbus is not permitted to re-draw funds under the loan [***].336 Specifically, Clause 4.4 of the agreement provides that [***].337 Clause 1 defines the [***].338 The United States asserts that it is not clear that Airbus will not draw down the principal again339, recalling that Airbus and the UK Government previously [***].340
7.173.
Although it is true that [***], there has been no further amendment to suggest that this will happen again. Moreover, and significantly, it is clear from [***] of the loan agreement that Airbus [***] prior to the date on which Airbus made its final payment of outstanding principal and interest. These facts suggest that Airbus is not seeking, and indeed, is not entitled to seek, further funding from the UK Government under the UK A350XWB LA/MSF contract. Similarly, we do not see a factual basis to conclude that Airbus is even considering the possibility of asking the UK government to amend the A350XWB LA/MSF agreement to allow it to draw down additional funds. The mere possibility that this may happen is, in our view, insufficient to support a finding that the full amount of funding originally contemplated under the UK A350XWB LA/MSF loan continues to be available.
7.174.
Accordingly, we agree with the European Union that the full amount of [***] was not drawn down, and that the full amount of funds available to Airbus under the UK A350XWB LA/MSF contract was not outstanding at the time of the final payment.341 We also agree with the European Union that Airbus has repaid the entirety of the principal that it actually drew down and received. In our view, this follows from the contractual terms of the UK A350XWB LA/MSF agreement, which establishes a repayment obligation with respect to the [***]342 and defines the [***].343
7.175.
We therefore find that Airbus repaid all outstanding principal and interest accrued under the UK A350XWB LA/MSF contract on [***] with a final payment totalling [***]. This represents repayment of the full amount of principal that Airbus actually drew down and received, which we consider is the amount relevant to our assessment.

7.4.4.2.2 Whether the full repayment of outstanding principal and interest under the UK A350XWB LA/MSF agreement on subsidized terms has achieved the withdrawal of the subsidy

7.176.
As it did with respect to the amendment of the German A350XWB LA/MSF agreement, the European Union characterizes Airbus' repayment of the UK A350XWB LA/MSF loan as an act, andalternatively, an "intervening event", that achieves the withdrawal of the UK A350XWB LA/MSF subsidy, within the meaning of Article 7.8 of the SCM Agreement. We note, however, that notwithstanding the European Union's alternative characterization, the fundamental reason advanced by the European Union to support its assertion of compliance on this basis is the same regardless of how the repayment is described.344 Thus, irrespective of whether the repayment is properly characterized as an act, or as an "intervening event", the European Union maintains that it achieves compliance with its obligation to "withdraw the subsidy" because, by "removing" the financial contribution, it has brought the life of the UK A350XWB LA/MSF subsidy to an end. Accordingly, the key question we must address in order to determine the merits of the European Union's assertion of compliance is whether the repayment of the UK A350XWB LA/MSF loan on subsidized terms brings the life of the UK A350XWB LA/MSF subsidy to an end.
7.177.
The European Union relied upon essentially the same line of argument in the first compliance proceeding, when it argued that the lives of most of the pre-A380 LA/MSF subsidies had come to an end because they had already been fully repaid.345 In this compliance proceeding, the European Union reiterates that position, arguing that it "is supported by, and fully consistent with the Appellate Body's finding, in the original proceedings, that 'the removal of the financial contribution', as one of the constituent elements of a subsidy, results in the 'life' of a subsidy coming 'to an end'".346
7.178.
In the first compliance proceeding, the panel expressed concerns about the European Union's understanding of the Appellate Body's statement, explaining as follows:

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.{} (emphasis added)

For the European Union, the full repayment of the LA/MSF agreements implies that the financial contributions provided to Airbus have been "returned"{} and, therefore, consistent with the Appellate Body's statement, no subsidies continue to exist. In our view, the European Union has misunderstood the totality of the Appellate Body's guidance on this point.

First, we note that the Appellate Body statement relied upon by the European Union refers to the "removal" of a financial contribution. 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.

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 immediately 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 does not continue to exist after the act of granting the financial contribution.{} (emphasis added).347

7.179.
After raising these doubts about the European Union's understanding of the Appellate Body's statement, the compliance panel ultimately refrained from making specific findings on whether the repayment of a loan on subsidized terms achieves the withdrawal of the subsidy for the purpose of Article 7.8 of the SCM Agreement, having already found that the "lives" of the relevant subsidies had expired before the end of the implementation period on other grounds.348 The European Union appealed this aspect of the first compliance panel's findings. However, the Appellate Body found it unnecessary to address that appeal, having upheld the Panel's separate findings that the pre-A380 LA/MSF subsidies expired before the beginning of the implementation period, leaving the European Union with no further compliance obligation under Article 7.8 with respect to those subsidies.349
7.180.
Fundamentally, the European Union's reliance on the same line of argument in this dispute is based on the view that the compliance panel was wrong to suggest that the repayment of a loan on subsidized terms may not amount to the "removal" of a financial contribution. The European Union advances several lines of argument in support of its submission.
7.181.
First, the European Union argues that its position "is consistent with, and flows from, the very definition of a subsidy"350, which the European Union submits requires the co-existence of two elements – a financial contribution and a benefit conferred on the recipient. Thus, according to the European Union, "{i}t follows that, when one of the two constituent elements is removed, a subsidy cannot be held to exist".351 For the European Union, this understanding is confirmed by the term "thereby" in Article 1.1(b) of the SCM Agreement, which the European Union argues indicates that a benefit can only be conferred, and can only exist, based on a financial contribution that a recipient "continues to enjoy".352
7.182.
Second, the European Union maintains that the compliance panel's analysis should be disregarded because it was based on a misreading of what the Appellate Body had in mind when it said that the "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".353 According to the European Union, the compliance panel was wrong to interpret this statement to mean that the Appellate Body explicitly recognized that the repayment of a loan on its subsidized terms does not, alone, bring the life of a subsidy to an end.354 For the European Union, the Appellate Body's statement "does not speak to the (non-)existence of a subsidy after the act of removing the financial contribution in full", which is the question before the panel in this proceeding. Rather, it is focused on the "life of the subsidy continuing after the act of granting the financial contribution".355
7.183.
Third, the European Union submits that the compliance panel's observations about the repayment of a loan on subsidized terms were driven by its interpretation of the phrase "withdraw the subsidy", which was overturned by the Appellate Body. In this light, the European Union argues that the compliance panel's views on what might or might not be argued regarding the effectiveness of the repayment of a loan on subsidized terms in achieving "withdrawal" are not instructive.356
7.184.
The United States argues that the European Union's arguments are at odds with the correct understanding of Article 7.8 of the SCM Agreement as well as Article 1 of the SCM Agreement357, and are not supported by the Appellate Body's findings in the first compliance proceeding concerning the "life" of a subsidy.358 While noting that the text of Article 7.8 permits Members to comply by withdrawing the subsidy, the United States submits that, based on its ordinary meaning, the text of Article 7.8 refers to the withdrawal of the subsidy itself, and not an element or component of the subsidy.359 The United States submits that Article 1 of the SCM Agreement defines the existence of a subsidy in terms of a financial contribution by which a benefit is conferred. According to the United States, "{t}he Appellate Body found that the evaluation of benefit requires a collective analysis of the financial contribution, the terms under which the Member conferred it, and the terms available in the market".360 Thus, the United States submits that a conclusion as to the withdrawal of a subsidy requires consideration of all of these factors.361
7.185.
The United States further contends that the Appellate Body's statement "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 the benefit", was made in the context of an analysis of Articles 5 and 6 of the SCM Agreement. The United States argues that considerations relevant for Article 5 are different from those relevant to Article 7.8, in that Article 5 "concerns the use of subsidies in a way that causes adverse effects - not the continued existence of such subsidies".362 In addition, the United States argues that the use of "and/or" in the Appellate Body's statement the European Union relies upon merely "signals an understanding that the parties agreed that the two options are not necessarily disjunctive".363 For the United States, this language leaves open the possibility that removal of a financial contribution would only bring the life of a subsidy to an end if it also entails termination of the benefit. The United States argues that the European Union now "seeks to distort the appellate report's 'and/or' into an either/or theory that would artificially cut short the lives of subsidies while the ex ante benefit remains untouched".364
7.186.
The United States submits that there may be occasions when the repayment -and removal-of the financial contribution may achieve withdrawal of a subsidy but considers that this will depend on the particular circumstances. In the case of a subsidised loan, the United States submits that the withdrawal would necessitate prospective annual interest rates that brought the loan into conformity with the loan the recipient could have obtained in the market at the time it received the subsidy.365
7.187.
Finally, the United States argues that there is no support for the European Union's argument that the compliance panel's views on whether the repayment of a loan on subsidized terms may withdraw a subsidy are somehow invalid because the compliance panel's interpretation of the phrase "withdraw the subsidy" was overturned by the Appellate Body. The United States submits that the compliance panel's analysis of whether repayment could withdraw a subsidy was not founded on its separate analysis of whether a subsidy properly found to have ended was withdrawn for purposes of Article 7.8.366
7.188.
We do not see a contradiction between the compliance panel's suggestion that the repayment of a loan on subsidized terms may not constitute the "removal" of a financial contribution and the definition of a subsidy contained in Article 1.1 of the SCM Agreement. The compliance panel's statement was focused on whether the repayment of a loan on subsidized terms amounts to the "removal" of a financial contribution, not whether the "removal" of a financial contribution brings the life of a subsidy to an end. Thus, the compliance panel's statement is not directed at understanding whether the removal of one of the constituent elements of a subsidy (the financial contribution) means that the subsidy no longer exists. It is instead focused on whether the repayment of a loan on subsidized terms means that a financial contribution has been "removed". On this particular point, the compliance panel suggests that the repayment of a loan on subsidized terms might not amount to the "removal" of the financial contribution, but rather, the full provision of a subsidized financial contribution.
7.189.
Likewise, although we agree with the European Union that the second Appellate Body statement quoted in the above passage was not directed at understanding whether the "removal" of a financial contribution automatically brings the life of a subsidy to an end, the compliance panel did not rely upon it to make that point. As already noted, the compliance panel's suggestion that the repayment of a loan on subsidized terms may not constitute the "removal" of a financial contribution does not address this question. The second Appellate Body statement quoted by the compliance panel envisages that a subsidy may "continue to exist after the act of granting the financial contribution". When considered in the light of the compliance panel's view that the full repayment of a loan on subsidized terms arguably "implies that a subsidized financial contribution has been provided to the recipient in its entirety", the compliance panel's reliance on the second Appellate Body statement suggests that it believed that the repayment of a loan on subsidized terms could be characterized as the completion of the "act of granting of a financial contribution". Thus, correctly understood, the compliance panel's position is consistent with the Appellate Body's view that a subsidy may "continue to exist after the act of granting the financial contribution".
7.190.
Turning to the third reason the European Union has advanced to support its position that the above passage from the compliance panel report should be disregarded, we note that there is no mention of, or reference to, the compliance panel's interpretation of the phrase "withdraw the subsidy". Moreover, there is no suggestion that the compliance panel's views were based on its previously articulated position that the "withdrawal" of a subsidy for the purpose of Article 7.8 of the SCM Agreement must bring an implementing Member into conformity with its obligations under Article 5 of the SCM Agreement. Indeed, the fact that this consideration was not mentioned at all (when it was the most obvious way of dismissing the European Union's submission concerning the repayment of the LA/MSF loans) suggests that the compliance panel's interpretation of what it means to "withdraw the subsidy" for the purpose of Article 7.8 did not form part of its reasoning in this part of its report. Accordingly, we find no basis to agree with the European Union's contention that the compliance panel's statements were driven by its interpretation of the phrase "withdraw the subsidy", which was overturned by the Appellate Body.
7.191.
We note that in arguing that the repayment of a loan on subsidized terms constitutes the "withdrawal" of a subsidy, the European Union elaborates a theoretical example involving the provision of a one-off cash grant of EUR 10 million that was first advanced by the United States during the substantive meeting with the Panel. The European Union compares the repayment of a one-off cash grant of EUR 10 million that is used to purchase assets of the same value with a useful life of 10 years, with the repayment of a 10-year subsidized loan of EUR 10 million used for the same purpose.367 We understand the European Union to rely upon its presentation of the outcomes of the two examples to support the logic of its submissions.
7.192.
The European Union begins its discussion of the one-off cash grant by explaining that both the financial contribution and the benefit amount to EUR 10 million. The European Union asserts that one way to determine the life of the subsidy would be to amortise the benefit of the EUR 10 million over the anticipated useful life of the purchased assets (10 years). According to the European Union, the subsidy would be considered "withdrawn" for the purpose of Article 7.8 of the SCM Agreement at the end of the 10-year period by virtue of the expiry of its benefit. To this extent, the European Union agrees with the notion that the life of a subsidy may continue even after a financial contribution has been fully provided – or, in the words of the Appellate Body, that "the 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".368
7.193.
The European Union then goes on to consider how the subsidy could be withdrawn after five years, positing two possibilities. The first option would involve removing the benefit on a prospective basis, which the European Union maintains would be achieved if the recipient repaid the unamortised benefit of the one-off cash grant amounting to EUR 5 million. With this payment, the European Union submits that the original one-off cash grant could no longer be found to confer a benefit on a prospective basis, and the subsidy would be withdrawn. The second option posited by the European Union would involve the removal of the financial contribution, which the European Union submits would be achieved if the recipient repaid the entirety of the one-off cash grant of EUR 10 million. The European Union argues that, once that payment is made, there would be no longer any financial contribution, and the subsidy would thereby be withdrawn.
7.194.
Turning to the subsidized loan of EUR 10 million, the European Union first explains that in the light of the 10-year repayment period and the 10-year useful life of the assets purchased with that loan, the subsidy would come to an end after 10 years. For the European Union, the subsidy would no longer exist after 10 years because by then the financial contribution would have been repaid in full and the benefit fully amortized. As with the one-off cash grant, the European Union goes on to explain how the subsidy could be withdrawn after five years, identifying two possible scenarios. Under the first scenario, the benefit would be removed on a prospective basis, which the European Union maintains would be achieved by aligning the prospective annual interest payments with a market benchmark. The second scenario would see the recipient repay the entirety of the loan principal – i.e. the EUR 10 million. With this payment, the European Union argues that there would be no longer any financial contribution, and the subsidy would thereby be withdrawn.
7.195.
In our view, the European Union's presentation of the above two examples overlooks important differences in the characteristics of the two types of subsidies, which when properly considered, suggest that the repayment of a loan on subsidized terms should not be understood on its own to necessarily bring the life of a subsidy to an end.
7.196.
As the European Union notes, a financial contribution in the form of a one-off cash grant involves the transfer of funds to a recipient, with those funds also immediately representing the benefit to the recipient. In contrast, the benefit of a subsidized loan accrues from the savings achieved by the recipient as a result of the below-market interest rates charged by the government. The total value of those savings (i.e. the full benefit) is not transferred immediately as in the case of a one-off cash grant. It is achieved gradually over the course of the repayment period, which will generally define the duration of the loan. Thus, the full benefit of a subsidized loan will be conferred only when the loan is repaid in full. To this extent, and contrary to the European Union's submissions, the full repayment of the principal disbursed under a subsidized loan can be best equated with the provision of a financial contribution in the form of a one-off cash grant (equivalent to the total savings resulting from below-market interest rates), not the "removal" of a subsidy. In our view, to argue otherwise would mean that Members would have different compliance obligations under Article 7.8 of the SCM Agreement in relation to the withdrawal of subsidies affording recipients the same amount of benefit, simply because of the form of the financial contribution chosen to confer that benefit. This, we believe, can be seen from the examples posited by the European Union.
7.197.
The European Union argues that the repayment after five years of the one-off cash grant of EUR 10 million and the principal of EUR 10 million disbursed under the subsidized loan, would bring the lives of the two subsidies to an end because, according to the European Union, in both cases the financial contributions would have been fully repaid, making it impossible to conclude there is ongoing subsidization.369 We note, however, that under this line of reasoning, none of the value of the benefit afforded to the recipient under the subsidized loan would have been returned to the government, whereas the entirety of the benefit conferred via the cash grant would have been repaid. The recipient of the subsidized loan would be free to keep the savings that helped or enabled it to finance the purchase of assets, while the recipient of the one-off cash grant would not be entitled to keep the government funding assistance. In the example presented by the European Union, it is not possible to determine the amount of the benefit of the subsidized loan because the interest rate savings were not specified. Assuming that the subsidized loan provided its recipient with exactly the same total value of savings as the cash grant – i.e. EUR 10 million370 – it is apparent that the Member having provided the one-off cash grant would be in a different compliance position than the Member that provided exactly the same amount of benefit to the recipient by means of a subsidized loan. We do not see any legal basis to conclude that a Member's decision to provide a recipient with a specific amount of funding assistance, by using either a loan or a grant, should determine the extent to which the recipient is required to repay the totality of that funding assistance in order to bring the subsidizing Member into compliance with its obligation to withdraw the subsidy under the terms of Article 7.8 of the SCM Agreement. In our view, these considerations suggest that the repayment of a loan on subsidized terms should not be understood to bring the life of a subsidy to an end.
7.198.
We note, furthermore, that the European Union recognizes that the repayment of principal and interest is a defining feature of a financial contribution in the form of a loan.371 Indeed, the requirement to repay principal and interest under a subsidized loan is an essential term of the agreement between the subsidizing government and loan recipient pursuant to which that form of financial contribution is transferred. In contrast, the repayment of a one-off cash grant is not an inherent feature of this type of financial contribution. The repayment of a one-off cash grant is extraneous to a subsidizing government's direct transfer of funds to a recipient. By overlooking this important difference, the parallel the European Union draws between the repayment of the two types of financial contributions used in its examples is misplaced. In order to agree with the European Union, we would need to accept that the performance of the very terms through which a subsidized loan is provided (i.e. the repayment of principal at below-market interest rates) would be, alone, enough to "remove" or "take away" the subsidy that is defined by the very existence of those terms. While we accept that the life of any subsidy will come to an end with the passage of time, we do not believe that a subsidy can be withdrawn for the purpose of Article 7.8 of the SCM Agreement simply through the execution of a condition whose performance is the very means by which the same subsidy is bestowed. In other words, we do not see how the same act – the performance of a requirement to make subsidized repayments under a government loan – can define both the provision and the withdrawal of a subsidy.
7.199.
Both parties find support for their different positions in the terms of Articles 1 and 7.8 of the SCM Agreement. According to the European Union, the very definition of a subsidy under Article 1 requires the co-existence of a "financial contribution" and a corresponding "benefit". Thus, relying upon 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 benefit", the European Union argues that the full repaymentof a loan on its subsidized terms brings the life of that subsidy to an end. The United States, however, argues that it follows from Article 7.8 that a subsidy in its entirety must be withdrawn in order to achieve compliance, not just one of its elements. In this regard, the United States maintains that the Appellate Body's use of the words "and/or" in the statement the European Union relies upon means that the Appellate Body recognized that the two options identified were not necessarily disjunctive, confirming that the removal of a financial contribution may bring the life of a subsidy to an end only if it also entails the termination of the benefit.
7.200.
As noted by the first compliance panel, the statement the European Union relies upon was not made in isolation but preceded by the Appellate Body's explanation of how the terms of Article 1 of the SCM Agreement operate to define the existence of a subsidy. After recalling, as the European Union does in this proceeding, that Article 1 stipulates that a subsidy shall be deemed to exist if there is a financial contribution that confers a benefit, the Appellate Body stated:

… the 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. This is confirmed, for example, by the text of Articles 4.7 and 7.8 of the SCM Agreement. The reference in those provisions to "withdrawing" the subsidy would be rendered meaningless if a subsidy did not continue to exist after its conferral on a recipient.372

7.201.
In a footnote attached to the last sentence of this statement the Appellate Body explained its thinking further, recalling that it had previously found in the context of Part V of the SCM Agreement, that the benefit of an "untied, non-recurring, 'financial contribution'" may continue to flow after it has been provided.373 The statement the European Union relies upon – that the life of a subsidy may come to an end "either through the removal of the financial contribution and/or the expiration of benefit" – was made by the Appellate Body at the beginning of the very next paragraph. In our view, the European Union's understanding of that statement is mistaken because it fails to account for the specific context in which it was made.
7.202.
Having twice explained that a subsidy may continue to exist after the act of granting a financial contribution is complete, we believe that it would be incongruous to understand the Appellate Body to have accepted in the very next sentence that the repayment of a loan on its subsidized terms can bring the life of a subsidy to an end. This is because, for the reasons already explained, the repayment of a loan on subsidized terms merely confirms that a subsidy has been fully provided (in the same way that the transfer of a one-off cash grant confirms the recipient has received the full subsidy). Thus, when considered in its proper context, we do not understand the Appellate Body statement the European Union relies upon to support its position. On the contrary, in the light of the Appellate Body's explanation of how the terms of Article 1 of the SCM Agreement operate to define the existence of a subsidy in the preceding paragraph of its report, the Appellate Body statement the European Union relies upon is best understood to express the view that the life of a subsidized loan may come to an end in either of two situations: when the financial contribution and the benefit have been removed; or when only the benefit is removed. This reflects our view that the repayment of a loan on its subsidized terms does not, alone, bring the life of the subsidy to an end.
7.203.
Finally, we do not see any inconsistency between the view that the repayment of a loan on subsidized terms does not, alone, bring the life of a subsidy to an end, and the Appellate Body's interpretation of a Member's compliance obligations under Article 7.8 of the SCM Agreement. We recall that in the first compliance dispute, the Appellate Body found that a Member has no compliance obligation under Article 7.8 with respect to expired subsidies. However, for the reasons explained above, we do not consider that the repayment of a loan on subsidized terms necessarily means that the subsidy has expired. The repayment of a loan on subsidized terms does not "remove", "return" or "withdraw" the subsidized loan. Rather, it merely confirms that the subsidized financial contribution has been fully provided, in the same way that the act of transferring the funding associated with a one-off cash grant confirms that the cash grant has been fully provided. Thus, just as the provision of a financial contribution in the form of a one-off cash grant does not bring the life of a subsidy to an end immediately after that grant is made, so too may the life of a subsidized loan continue to exist after it has been fully repaid on subsidized terms. In both situations, the life of the subsidy will depend upon the extent to which the recipient is continuing to use the subsidy for its originally intended purposes (in the European Union's example, the useful life of the purchased assets) without having repaid at least the remaining value of the benefit associated with the original financial contribution on a prospective basis.374
7.204.
With the above considerations in mind, we now turn to review whether the repayment of UK A350XWB LA/MSF brought the life of the subsidy provided under that loan to an end. We have found375 that Airbus made a final payment to the UK government in [***] totalling [***], which represents repayment of the full amount of outstanding principal that Airbus actually drew down and received, plus accrued interest under the subsidized UK A350XWB LA/MSF agreement. Accordingly, and in the light of our conclusions with respect to the implications of the full repayment of a subsidized loan on its subsidized terms for the expiry of a subsidy, we find that the European Union has failed to establish that Airbus' repayment of the sums outstanding under the subsidized UK A350XWB LA/MSF agreement withdrew the subsidy provided under that arrangement for the purpose of Article 7.8 of the SCM Agreement.

7.4.5 The European Union's claim that the French, German, Spanish and UK A380 LA/MSF subsidies have been withdrawn

7.205.
In this section, we address the European Union's claim that the French, German, Spanish and UK A380 LA/MSF subsidies have been withdrawn, thereby achieving compliance for purposes of Article 7.8 with respect to these subsidies. In section 7.4.5.1, we address the European Union's contention that it has achieved the withdrawal of all the A380 LA/MSF subsidies through a series of [***] amendments to the French, German, Spanish and UK A380 LA/MSF loan agreements. In section 7.4.5.2, we address the European Union's separate claim that the Spanish A380 LA/MSF subsidy has been withdrawn by means of the full amortization of the ex ante benefit over time. Finally, in section 7.4.5.3, we address the European Union's submission that an announcement made by Airbus during the course of this proceeding to "wind down" and terminate the A380 programme provides "further confirmation" and "an independent basis" to find that the European Union has withdrawn the French, German, Spanish and UK A380 LA/MSF subsidies.

7.4.5.1 The [***] amendments to the French, German, Spanish and UK A380 LA/MSF loan agreements

7.4.5.1.1 Main arguments of the parties

7.206.
The European Union argues, on similar terms to its claim concerning the [***] amendment to German A350XWB LA/MSF, that the [***] amendments to the French, German, Spanish and UK A380 LA/MSF loan agreements have achieved the withdrawal of the subsidies conferred under those arrangements. The European Union argues that all four member States concluded amendments to their respective A380 LA/MSF agreements with Airbus, such that the previous financial contributions, which were found to have been provided on subsidised terms, have now been replaced by new financial contributions that are consistent with a market benchmark, thereby bringing the member State lenders into compliance with their obligations under Article 7.8 of the SCM Agreement.376
7.207.
Relying upon the panel and Appellate Body reports in Japan – DRAMS (Korea), the European Union argues that the substantial modification of an existing loan, including the extension of the repayment period of a government loan, may be properly treated as the transfer of new rights to the recipient of the modified loan and thus, give rise to a new financial contribution.377 The European Union argues that the modifications made to the terms of the four amended A380 LA/MSF agreements can be characterized as such because they [***], and [***], allowing Airbus [***].378 Accordingly, the European Union maintains that the amended A380 LA/MSF contracts constitute new financial contributions which must be assessed against the terms of a contemporaneous market benchmark in order to determine whether they confer a benefit within the meaning of Article 1.1(a)(2) of the SCM Agreement.
7.208.
The European Union argues that the terms of the amended A380 LA/MSF agreements are consistent with those that a commercial lender, facing the possibility of the termination of the A380 programme, would have offered Airbus at the relevant time. In support of this argument, the European Union relies upon a report prepared by its consultant PwC, which analyses the transactions at issue and concludes that the behaviour of the member State governments in agreeing to the amendments was consistent with the behaviour of a market-based lender facing the possibility of the termination of the A380 programme. In particular, PwC considered the various aspects of the four restructured arrangements to assess the "net effect" of the amendments on each government lender's future returns. PwC concluded that the amendments had "net advantages" due to their impact on expected repayments which thus put the lenders in a better position than they would have been in under a programme termination scenario.379 The European Union contends that the member State lenders thus acted as rational commercial actors by agreeing to a restructuring that entailed a [***] in the face of the certainty of such losses.380
7.209.
The United States argues that there is no support for the European Union's argument that the amendments "replaced" the pre-existing A380 LA/MSF subsidies. Rather than terminate the original A380 LA/MSF contracts, the United States argues that the amendments kept the A380 LA/MSF contracts in place, under terms that were modified specifically to [***]. The United States argues that this does not conform with the requirement in Article 7.8 to "withdraw" or "take away" a pre-existing subsidy found to have caused adverse effects.381
7.210.
The United States argues that the [***] amendments are properly understood to be "intervening events" – an "unplanned adjustment to the terms of a pre-existing subsidy" – that increased the amount of the pre-existing A380 LA/MSF subsidies to Airbus and prolonged their lives.382 To assess the effect of the amendment, the United States has submitted a report by NERA Consulting, which compares the IRR of the original A380 LA/MSF loan agreements, considering only cash flows from 2018 onward, to the IRR of the amended A380 LA/MSF agreements, from 2018 onward. The NERA analysis finds that the IRRs of the original German, Spanish, and UK A380 LA/MSF are higher than the corresponding IRRs of the LA/MSF as amended, concluding that the amendments made Airbus better off – and the governments of Germany, Spain, and the UK worse off – than they would have been, absent the amendments.383 For French A380 LA/MSF, NERA concludes that the IRR of the original French A380 LA/MSF is slightly lower than the IRR of French A380 LA/MSF as amended, but finds that the results are highly sensitive to the credibility of [***].384 In this respect, the United States submits that if Airbus opts to terminate the A380 programme somewhat earlier than forecasted under the revised delivery schedule, then the IRR of the original French A380 LA/MSF contract would be higher than the IRR of French A380 LA/MSF as amended.385 NERA also assessed the IRR of the original A380 LA/MSF packages considered together, and the IRR of the amended LA/MSF packages considered together, concluding that the IRR of the original package is higher than the amended arrangements. The United States submits that this provides additional confirmation that the amendments increased the pre-existing A380 LA/MSF subsidies to Airbus.386
7.211.
In any case, even on the basis of the European Union's own argument, the United States submits that the European Union is incorrect in arguing that the [***] amendments aligned the A380 LA/MSF subsidies with a contemporaneous market benchmark. According to the United States, the European Union and the PwC report improperly assume that, absent the [***] amendments, Airbus would have terminated the A380 programme by [***], thus preventing the Airbus governments from recovering the outstanding A380 LA/MSF principal, making any alternative allowing for the potential recovery of principal attractive.387 The United States considers the European Union's argument to be flawed because it fails to recognize that a private creditor "would have had good reasons to believe that Airbus … would have sought to capture the 2018 Emirates order or a similar volume of orders from another airline customer, even in the absence of the [***] amendments".388 The United States additionally argues that the European Union and PwC analysis incorrectly ignored the risk that forecast customer demand for the A380 would not materialize, [***] which "{led} PwC to overstate the 'net advantages,' rendering its financial analysis unreliable".389 Finally, the United States argues that the European Union's argument and the conclusions in the PwC report are flawed because there is no evidence that the Airbus governments performed an adequate level of due diligence in considering whether to enter into the [***] amendments to the A380 LA/MSF agreements, which is inconsistent with the behaviour of a commercial lender.390 On the whole, the United States argues that a reasonable commercial lender could have sought better terms, such as repayment on a fixed schedule, rather than through future A380 deliveries, which "would have drastically reduced the risk of the amendments to the lenders".391

7.4.5.1.2 Evaluation by the Panel

7.4.5.1.2.1 Features of the amended A380 LA/MSF loan agreements

7.212.
The [***] amendments modify the terms of each of the original LA/MSF agreements that were concluded by France, Germany, Spain and the United Kingdom with Airbus between [***] and [***].392 The European Union asserts that Airbus and the four member States concluded the four amendments to ensure that Airbus would receive [***] at a point in time when Airbus faced faltering demand for the A380 and needed to make a critical decision as to whether to continue the programme or [***].393 The German A380 LA/MSF amendment was concluded on [***], the French A380 LA/MSF amendment on [***], the UK A380 LA/MSF amendment on [***], and the Spanish A380 LA/MSF amendment on [***].394
7.213.
While the specific amendments differ in certain respects, the four amendments share common features. As a core modification, each of the amendments [***]. The French amendment [***].395 The German amendment [***].396 The Spanish amendment [***].397 The [***] UK amendment [***].398 In addition, the LA/MSF contracts contained the following country-specific modifications:

a. In the case of the French amendment, [***]399 Airbus also agreed [***].400 The French amendment also extends the expiration date of the original French A380 LA/MSF agreement from [***].401

b. In the case of the German amendment, [***].402 Airbus was also required to [***].403 The German amendment also [***].404

c. In the case of the Spanish amendment, [***].405 The amendment also creates a new obligation for Airbus to [***].406

d. In the case of the UK amendment, Airbus also agreed to make [***].407

7.214.
Finally, in the event of the A380 programme termination, the [***] A380 LA/MSF amendment affirmed the obligation contained in the original [***] A380 LA/MSF agreement for Airbus to [***].408[***] in the event of A380 programme termination.409

7.4.5.1.2.2 The relevant analytical framework

7.215.
The analytical framework the European Union relies upon to support its submission that the [***] amendments to the French, German, Spanish and UK A380 LA/MSF agreements achieved the withdrawal of the subsidies conferred under those arrangements is similar to the analytical approach the European Union presented in relation to the [***] amendment to the German A350XWB LA/MSF agreement discussed in section 7.4.3.2.2. As with the [***] amendment to the German A350XWB LA/MSF contract, the European Union maintains that the [***] A380 LA/MSF amendments created four new financial contributions, the terms of which should be compared with a contemporaneous market benchmark in order to determine whether they confer a benefit and, therefore, continue to subsidize Airbus.410 However, unlike the approach adopted by the European Union with respect to the German A350XWB amendment, the European Union has not attempted to substantiate its assertion of compliance by presenting a calculation of the IRRs of the amended A380 LA/MSF contracts and comparing these to the rate of return that a market-based lender would have wanted to achieve on a loan to Airbus on similar terms to the amended A380 LA/MSF contracts at the time they were concluded. Rather, for the amended A380 LA/MSF contracts, the European Union argues that the appropriate benchmark against which to measure whether the revised terms are market-based is the behaviour of a commercial lender faced with the likelihood of the early termination of the A380 programme by [***].411 Thus, in order to determine whether the [***] amendments to the A380 LA/MSF agreements achieve compliance, the key question that must be answered following the European Union's suggested analytical framework is whether a commercial lender, faced with the likely termination of the A380 programme, would have entered into the A380 LA/MSF amendments on the terms agreed between Airbus and the Airbus governments.412
7.216.
In essence, we understand the European Union's submissions to be based on the following two premises: first, that the [***] amendments created new loans that replaced the original A380 LA/MSF agreements; and second, that the appropriate way to determine whether the amended A380 LA/MSF agreements continue to confer a subsidy on Airbus is to determine whether a commercial lender would have agreed to the A380 LA/MSF amendments, given the likely termination of the A380 programme.
7.217.
We recall that in our analysis of the [***] amendment to the German A350XWB LA/MSF agreement, we dismissed the European Union's reliance on the panel and Appellate Body reports in Japan – DRAMS (Korea) as a basis to support its view that a "substantial modification" to an existing loan necessarily creates a new loan (financial contribution) for the purpose of performing a benefit analysis. We found that the European Union's reliance on Japan – DRAMS (Korea) was misplaced because that dispute addressed a different legal question arising from a different set of facts compared with the legal and factual issues arising in relation to the [***] amendment to the German A350XWB LA/MSF agreement. In our view, the same conclusion can be reached mutatis mutandis in relation to the European Union's reliance on Japan – DRAMS (Korea) to support its submissions concerning the [***] amendments to the A380 LA/MSF agreements.
7.218.
As with the [***] amendment to the German A350XWB LA/MSF agreement, there is nothing in the evidence before us to suggest that the [***] A380 LA/MSF amendments brought into existence a new financial contribution. Although the amendments altered the contracting parties' rights, they did not establish new and separate loan arrangements. The [***] amendments did not terminate the original A380 LA/MSF agreements. All required disbursements under the loan agreements had been made before the [***] amendments, no new disbursements were made as a result of those amendments, and the outstanding principal and interest had not yet been fully repaid. Thus, in our view, the original A380 LA/MSF agreements continue to exist but in a restructured form, reflecting the revised repayment terms agreed between Airbus and the Airbus governments.
7.219.
For the reasons already explained in the context of our analysis of the [***] amendment to the German A350XWB LA/MSF contract, we consider that where funding under a subsidized loan agreement has been fully disbursed and remains outstanding, an amendment to that loan to bring it into alignment with a market benchmark on a prospective basis would need to ensure that the recipient is placed in the same position it would have been in at the time of the amendment, had the loan been agreed on market terms from the beginning.413 Thus, in our view, the correct approach for determining whether the revised terms of the A380 LA/MSF agreements align those contracts with a market benchmark, requires us to determine whether they leave Airbus in the same position it would have been in at the time of the amendments, had the loan contract been agreed on market terms from the beginning. We now turn to apply this standard to the facts surrounding the [***] amendments to the A380 LA/MSF agreements.

7.4.5.1.2.3 Have the [***] amendments aligned the terms of the A380 LA/MSF agreements with a market benchmark?

7.220.
We begin by noting that the amount of outstanding principal under the A380 LA/MSF agreements at the time of the [***] amendments was significant.414 As already noted, the [***] amendments release Airbus of the obligation to make levy payments on certain deliveries made during the [***] period with a view to inter alia facilitating Airbus' planned sales to an important customer that, it appears, would not otherwise have been made. However, at the same time, all four amendments [***].415 The French and German amendments also require Airbus to [***]416, and additional [***] on future deliveries are provided for in the case of the Spanish amendment.417 Thus, in broad terms, it can be said that the four amendments restructure the repayment terms of the outstanding principal and future interest payable under the pre-existing LA/MSF agreements, in a way that decreases the financial burden on Airbus in the short- to medium-term, while increasing that burden in the long-term, when Airbus and the members State governments apparently expected the market for the A380 to improve.
7.221.
The PwC report the European Union relies upon defines its objective as the assessment of "whether the negotiated restructurings of the respective A380 MSF loan agreements between Airbus (or its affiliates) and {the French, German, Spanish and UK governments} are consistent with what private creditors in a similar position would have demanded for comparable transactions at the same time, i.e. whether each restructuring measure is provided on terms consistent with the relevant and contemporaneous market benchmark".418 The PwC report undertakes this assessment in essentially four steps.
7.222.
In the first two steps, the PwC report reviews the likelihood of programme termination and the prospects of a successful turnaround at the time of the [***] amendments. After explaining that "a precondition for private creditors to support a … project restructuring" is the "likelihood of a successful turnaround" in the prospects of the financed project419, the PwC report examines the risk of A380 programme termination, finding that "there was a high risk of programme termination and therefore a high probability for the member states to lose a substantial portion of their MSF investment".420 The PwC report then goes on to explore the "turnaround prospects" of the A380 programme in the light of available demand forecasts for LCA sold into the market for Very Large LCA over the next 20 years, and the modifications Airbus anticipated would be made to the A380 to improve its competitiveness. PwC concludes that this information "suggest{s} the existence of prospects for a successful turnaround for the A380 programme".421
7.223.
In the final two steps of its analysis, PwC determines the potential losses to the Airbus governments in the event of A380 programme termination. PwC next assesses the advantages and disadvantages of the amendments from the perspective of each government lender. PwC explains that where this assessment results in a "net-advantage", the member State lenders improve their positions relative to the programme termination scenario. However, where the assessment of the amendment shows a "net-disadvantage", the degree of the disadvantage resulting from the restructured terms would need to be compared to the expected losses of the programme termination scenario because "a smaller net-negative effect in the restructuring scenario … would still lead to the conclusion that supporting the restructuring process would be the preferred behaviour of a private lender".422 This is because, according to PwC, the "main goal for a private creditor when faced with restructuring is to avoid (partly or entirely) potential losses".423 In other words, a creditor may decide to proceed with the restructuring of a loan even if the full amount of outstanding principal and future interest payments expected under the pre-existing loan could not be recovered.
7.224.
PwC concludes that the effect of the [***] amendments is a net-advantage for [***] of [***]424 and a net-advantage for [***] of [***].425 In the case of [***], PwC determines that the net effect of the [***] amendment is "neutral", with a possibility to [***] and concludes that a private creditor would have behaved in the same manner as the Spanish government.426 Finally, in the case of the [***], PwC concludes that the [***] amendment [***] even in the event of programme termination. Nevertheless, PwC ultimately assesses that the [***] amendment is market-based, because a private investor would have accepted the amendment.427
7.225.
In our view, PwC's analysis cannot be relied upon to show that the [***] amendments have brought the terms of the A380 LA/MSF agreements into line with a market benchmark.
7.226.
The PwC report finds that the market prospects were positive in 2018 for a new and allegedly more competitive version of the A380 that Airbus intended to develop. PwC arrived at this conclusion after reviewing: (i) the Airbus 2017 Global Market Forecast (predicting 1,410 new deliveries in the "Very Large Aircraft" segment between 2017 and 2037); (ii) Boeing's 2017 Current Market Outlook (predicting 3,160 deliveries in the "Medium/Large Passenger Widebody" segment over the same period); (iii) the Flight Global Fleet Forecast (predicting 405 deliveries in the "Large aircraft" segment from 2016 to 2036, and specifically 394 for the A380); (iv) two Airbus PowerPoint slides describing various planned "improvements" to the A380; and (v) certain Airbus HSBI concerning then current and future sales campaigns.428
7.227.
We note, however, that as explained by PwC, the recent history of the A380 revealed a different story, suggesting that its short to medium-term prospects were not good. As of February 2018, Airbus had not received any new A380 orders for nearly four years.429 On the contrary, several airlines had cancelled or reduced existing contractual arrangements, resulting in an order volume of 311 aircraft by the end of 2017. With 226 A380s delivered through May 2018, only 85 deliveries remained outstanding, and a substantial portion of these were apparently at risk of cancellation.430 In our view, the very fact that Airbus was close to terminating the programme suggests that a market lender would have closely scrutinized Airbus' future business plans for the A380, including the delivery forecasts for a new improved "A380plus".431 In this regard, we recall that in considering the reliability of Airbus' business case delivery forecasts, the original panel made the following statement:

In our view, the further in time the events that are the subject of a forecast are anticipated to take place, the more likely it is that one or more intervening events may impede their fulfilment. In the specific context of the LCA industry, where, as the European Communities notes, the business environment is shaped by factors "whose very foreseeablity is impossible by definition",{} the element of uncertainty that is attached to aircraft delivery forecasts that sometimes projected events over multiple decades{} cannot be ignored.432

7.228.
Moreover, in the light of the fact that the repayment terms of the amended A380 LA/MSF contracts continue to be substantially levy-based and success-dependent, we believe that the following considerations, identified by the panel in the original proceeding, would have also informed a market lender's assessment of Airbus' business forecast for the A380:

Because of the graduated levy-based and success-dependent nature of LA/MSF repayments, Airbus has an economic incentive to be optimistic in its forecasts of, inter alia, the number of aircraft likely to be sold and the pace of those sales {…} The greater the number of sales over which principal repayments and royalties must be paid, the less likely it is that Airbus will have to make those payments if the business plan estimates prove too optimistic.433

7.229.
In our assessment, the above factors suggest that a market lender would have taken a conservative approach to determining whether the business prospects of the A380 were enough to justify amending the loans, instead of accepting the losses that would have resulted from programme termination. We are not convinced that a market lender faced with the possibility of termination of the A380 programme would have concluded that the "precondition"434 for supporting the restructuring of the A380 LA/MSF loans (i.e. the "likelihood of a successful turnaround" of the A380)435 was as easily satisfied as PwC found to be the case. Thus, in our view, PwC's analysis is an insufficient basis to conclude that a market lender would have found "the existence of prospects for a successful turnaround for the A380 programme".436
7.230.
The United States appears to argue that the PwC analysis cannot be relied upon to show that the A380 LA/MSF amendments were market-based, because the European Union has failed to demonstrate the fundamental premise upon which it is based – namely, that a market lender would have believed that the 2018 amendments were necessary in order to continue the A380 programme. The United States discusses evidence which it considers demonstrates that a private creditor would have doubted that Airbus would have terminated the A380 programme by [***] absent the amendments. This evidence includes a statement by Emirates CEO that Emirates "remain{ed} committed to the {A380} programme".437 The United States submits that Airbus was also confident about market demand for the A380 and expected it to revive in the mid-2020s, that Airbus already had enough non-at-risk orders to sustain the A380 programme until [***]438, and that Airbus also had identified [***] when pitching the amendments to member State lenders.439 The United States furthermore maintains that a reasonable creditor would also have known that Airbus had the ability to continue operating the A380 programme at a loss if necessary, as it had done in the past, in order to capture future anticipated demand.440 In the light of our assessment of what a market lender's likely outlook would have been regarding future prospects for the A380 programme—and even NERA and the United States' own assessment of Airbus' A380 delivery forecasts441—we are not persuaded by the United States' assertions concerning the likely expectations surrounding the risk of A380 programme termination.
7.231.
In addition, we note that the United States points to the lack of evidence in this proceeding showing that the Airbus governments performed any due diligence in respect of the A380 amendments to support its submission that the PwC report fails to demonstrate that the [***] amendments are market-based.442 The United States contrasts this situation with the circumstances surrounding the original A380 LA/MSF agreements, where specific project appraisals were performed and the Airbus business case, which included an analysis of multiple scenarios, was reviewed.443 The European Union argues that the presence or absence of due diligence is not determinative of whether the amendments aligned the A380 LA/MSF contracts to a market benchmark, and in any event, the member States did in fact negotiate the terms of the agreement and perform due diligence, as is evident from the fact that the four amendments differ from each other, demonstrating that member States sought to optimise the outcomes.444 In our view, a market lender faced with the possible termination of the A380 programme and the recognized uncertainty in LCA delivery forecasts (particularly, given the recent history, as regards the A380) would have undertaken its own due diligence on the prospects of the A380. We recall in this regard that the first compliance panel found 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 particular project before agreeing to enter into a loan contract.445

7.232.
The evidence of discussions between Airbus and the Airbus governments the European Union relies upon does not reveal the extent to which France, Germany, Spain and the UK relied upon their own independent appraisals of the prospects for the A380 in agreeing to the amendments. The European Union's evidence confirms only that negotiations were held over a period of months to discuss the terms of the amendments.446 There is, therefore, no evidence before us showing that the Airbus governments performed any independent assessment of Airbus' business plan for the A380, including its marketing prospects, or the economic value of the terms of the amendments. While we do not think that the absence of such appraisals can alone demonstrate that the amendments fail to align the terms of the original A380 LA/MSF agreements to a market benchmark, a commercial market lender would have likely undertaken due diligence in the process of deciding whether to enter into the A380 LA/MSF amendments.
7.233.
Finally, we agree with the United States that PwC's "net-advantage/net-negative" analysis does not accurately determine the Airbus governments' "net" financial positions at the time of the [***] amendment because the comparisons applied are based on nominal future cash flows, instead of the net present value of those cash flows. By way of example, the United States recalls that the PwC report concludes that the Spanish amendment offered a [***]. The United States notes, however, that this was despite the fact that under the original Spanish A380 LA/MSF agreement and the Airbus/PwC expected delivery schedule, Airbus would pay an additional [***] in cash flows from 2020 to 2028, beyond what the [***] amendment requires in those years [***]. The United States goes on to note that under the Spanish amendment, Airbus eventually pays this [***] in cash flows [***]. Thus, the United States argues that PwC incorrectly treats [***] as being equivalent to [***].447 In our view, PwC's reply to these United States' criticisms does not address the point made by the United States448, which we consider to be valid, and it fails to convince us that the time-value of money should not have been taken into account in PwC's calculations.
7.234.
Thus, for all of the above reasons, we find that the European Union has failed to demonstrate that the [***] amendments to the A380 LA/MSF agreements bring the subsidized terms of the loans into line with market financing instruments. Accordingly, we conclude that the European Union has failed to demonstrate that the [***] amendments to the A380 LA/MSF agreements has brought it into compliance with the obligation to "withdraw the subsidy" under Article 7.8 of the SCM Agreement.

7.4.5.2 Withdrawal of the Spanish A380 LA/MSF subsidy by means of the amortization of benefit through the passage of time

7.4.5.2.1 Main arguments of the parties

7.235.
The European Union maintains that the life of a subsidized loan may be determined on the basis of the ex ante expectations held by the contracting parties with respect to its full repayment on subsidized terms.449 Accordingly, the European Union claims that the benefit of the Spanish A380 LA/MSF fully amortized [***], when it was anticipated, on the basis of the expectations held by Airbus and the Spanish government at the time loan was agreed in [***], that the principal and interest accruing to the Spanish government would have been fully repaid. In support of this submission, the European Union relies upon a report prepared by its consultant, TradeRx, which reviews the terms of the Spanish A380 LA/MSF, maps out the expected disbursements and repayment terms, and concludes that the benefit of the Spanish A380 LA/MSF contract would be fully amortized by [***].450
7.236.
The United States argues that the European Union's assessment is flawed because TradeRx's assessment of the life of the subsidy improperly relies exclusively on the "loan life" without taking into account the anticipated "marketing life" of the A380, and because the European Union ignores that amendments to the Spanish loan agreement prolonged the ex ante life of the Spanish A380 LA/MSF subsidy. The United States submits that the Appellate Body and first compliance panel both recognized that analysing a subsidy in relation to its "marketing life" is a valid way to measure the life of the LA/MSF subsidies, and by ignoring this, the United States argues that TradeRx's analysis of the ex ante life of Spanish LA/MSF for the A380 "is incomplete and thus unreliable".451 In addition, the United States argues that neither the [***] and [***] amendments to the Spanish A380 LA/MSF was anticipated at the time that the original Spanish A380 LA/MSF agreement was concluded, and therefore these two amendments may be understood to have extended the ex ante life of the Spanish A380 LA/MSF to a point in time well beyond 2018.452

7.4.5.2.2 Evaluation by the Panel

7.237.
The European Union's consultant, TradeRx, seeks to determine whether the benefit conferred by the Spanish A380 LA/MSF loan agreement has fully amortized [***] by allocating the alleged benefit of the Spanish A380 LA/MSF loan over the period during which full repayment of principal and interest, along with foreseen royalties, was expected to occur. The rationale for this approach is that the alleged benefit conferred through the financial contribution (i.e. the subsidized loan) would be enjoyed during the expected repayment period, which the European Union refers to as the expected "loan life".453
7.238.
We see a number of reasons why the European Union's approach is not an appropriate basis to establish that the Spanish A380 LA/MSF subsidy has been withdrawn for purposes of Article 7.8 of the SCM Agreement.
7.239.
First, and fundamentally, the European Union relies upon expectations about the period of time it was anticipated for Airbus to repay the loan on its own subsidized terms. For reasons already explained elsewhere in this report, we do not agree with the European Union that the repayment of the outstanding principal and accrued interest under a loan on its subsidized terms means that the subsidy has been withdrawn for the purpose of Article 7.8 of the SCM Agreement. Rather, in our view, the repayment of a loan on its subsidized terms merely confirms that the subsidized financial contribution has been fully provided, in the same way, for instance, that the act of transferring the funding associated with a one-off cash grant confirms that the cash grant has been fully provided. Therefore, the life of a subsidized loan willnot necessarily come to an end after it has been fully repaid on its subsidized terms. In both the one-off grant and subsidized loan situations, the life of the subsidy will depend upon the extent to which the recipient is continuing to use the financial contribution for its originally intended purpose without having repaid at least the remaining value of the benefit on a prospective basis.
7.240.
Second, we note that the European Union argues that the life of the Spanish A380 LA/MSF subsidy should be determined on the basis of the anticipated repayment period because, in its view, A380 LA/MSF was not found to be "critical" to the ability of Airbus to bring the A380 (and A350XWB) aircraft to market.454 In support of this line of argument, the European Union refers to the findings of the first compliance panel and the Appellate Body that the A380 and A350XWB LA/MSF loans enabled Airbus to launch these aircraft "as and when it did"455, which the European Union understands to mean that the subsidies had a limited accelerating effect on the launch of these aircraft.456 In our view, the European Union has mischaracterized the panel's findings.
7.241.
We recall that the original panel concluded that it would not have been possible for Airbus to have launched the A380 as originally designed and at the time it did without LA/MSF. However, the panel went further, observing that:

… 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.457

7.242.
Moreover, as we discuss in further detail below, after having excluded from the scope of the compliance proceedings all "indirect effects" on the A380 and A350XWB arising from pre-A380 LA/MSF, the Appellate Body went on to confirm the first compliance panel's findings that Airbus' sales and deliveries of the A380 during the 2011-2013 period were a genuine and substantial cause of serious prejudice in the VLA market in the form of significant lost sales and market displacement. In our view, it logically follows from these findings that the market presence of the A380 in the 2011-2013 period was attributable to only the direct effects of A380 LA/MSF, implying that Airbus could not have launched and subsequently developed the A380 by the end of the 2011-2013 period in the absence of A380 LA/MSF. In this respect, we note that elsewhere in its submissions, the European Union has accepted that the adverse effects caused by the market presence of the A380 in the 2011-2013 period were "attributed to the 'direct effects' of A380 LA/MSF alone".458 Thus, the original panel and Appellate Body compliance stage findings do not support the European Union's contention that A380 LA/MSF was not "critical" to the market presence of the A380.
7.243.
We note that the Spanish A380 LA/MSF agreement has been amended twice since it entered into force. The European Union has not addressed the United States' arguments that these amendments are "intervening events" extending the life of the Spanish A380 LA/MSF subsidy, other than to argue that that the United States "offers no explanation as to why, or how, any such alleged intervening events prolonged the ex ante anticipated Loan Life for the Spanish A380 MSF subsidy."459 We note, however, that the European Union has itself argued that the [***] A380 LA/MSF amendments could be characterized as "intervening events".460
7.244.
In our view, the [***] A380 LA/MSF amendments are properly considered to be "intervening events" because they were unexpected at the time the original A380 LA/MSF agreements were concluded.461 In our view, the modifications made under the amendments change the expectations regarding the anticipated repayment period. In the case of Spanish A380 LA/MSF, the [***] amendment [***] Airbus' obligation to make per-aircraft repayments on [***] that were anticipated to occur between [***]. The amendment [***] per-aircraft levies on other deliveries beyond those subject to [***], and additionally creates a new obligation for Airbus to [***]462 Thus, the [***] amendment modified the ex ante expectations regarding the repayment period for Spanish A380 LA/MSF, extending that period (notably through the obligation to pay royalties) beyond what was anticipated previously.463 In other words, even by the European Union's own "loan life" standard, the life of the Spanish A380 LA/MSF subsidy has not come to an end because the [***] amendment extended the repayment terms beyond the contracting parties' ex ante expectations.464
7.245.
For the foregoing reasons, we find that the European Union has failed to demonstrate that the Spanish A380 LA/MSF subsidy has been withdrawn for the purpose of Article 7.8 as a result of the alleged amortization of benefit by [***].

7.4.5.3 Whether Airbus' announcement to "wind down" the A380 programme achieves withdrawal of the French, German, Spanish and UK A380 LA/MSF subsidies

7.4.5.3.1 Main arguments of the parties

7.246.
The European Union claims that Airbus' announcement to "wind down" the A380 programme provides "further confirmation" and "an independent basis" to find that the European Union has withdrawn the French, German, Spanish and UK A380 LA/MSF subsidies.465 The European Union characterizes Airbus' announcement as a relevant, post-establishment "fact"466 that serves as evidence of compliance with the DSB's recommendations and rulings. The European Union submits that Airbus' announcement is "an event that falls within the terms of the European Union's Panel Request", and "is, in the context of an evolving factual and market situation, inextricably linked with measures that have explicitly been identified in the {European Union's} panel request as achieving compliance under Article 7.8."467
7.247.
The European Union maintains the Airbus' "wind down" announcement supports its claim of withdrawal of the A380 LA/MSF subsidies for two principal reasons. First, the European Union asserts that Airbus' announcement of the "wind down" of the A380 programme has triggered a requirement for Airbus to [***] the outstanding principal and interest under the [***] A380 LA/MSF agreement, scheduled to take place through [***].468 The European Union argues that this requirement "confirms {the} previous demonstration that the [***] A380 MSF subsidy is withdrawn as of [***]".469 In the alternative, the European Union argues that the [***] A380 LA/MSF subsidy will be withdrawn on [***], when final payment is made.470 Second, the European Union argues that Airbus' announcement constitutes an "intervening event" that "drastically changes 'how {the} subsid{ies} will 'materialize{} over time' relative to the expectations held at the time it was granted'', "provides certainty with respect to the repayment of the loan, and thus brings about an earlier end to the lives of the subsidies than was anticipated ex ante", thus confirming that all four A380 LA/MSF subsidies have been withdrawn.471
7.248.
The United States argues that Airbus' announcement regarding the future of the A380 programme is not a "measure taken to comply" by the European Union, and neither the announcement nor the situation it describes can be part of the Panel's terms of reference to support the European Union's argument that it has withdrawn the A380 LA/MSF subsidies.472 The United States submits that the European Union has not itself asserted that the announcement was a "measure taken to comply", and that it has instead chosen to characterize the announcement as a "fact" that is somehow relevant to the Panel's assessment. Moreover, the United States argues that any Airbus action with respect to the programme would appear to be a private business decision without government endorsement or involvement.473 While the United States appears to accept that exhibits contained in the European Union's submission in connection with the announcement can serve as relevant evidence in this dispute, the United States disputes the relevance of this evidence, describing the details contained in Airbus' 14 February 2019 press release not as "facts" but instead, as "statements of Airbus' intent or expectations".474
7.249.
In any case, the United States argues that Airbus' announcement does not involve any removal of the subsidy previously granted to Airbus and thus does not support the European Union's arguments that the A380 LA/MSF subsidies have been withdrawn. The United States argues that the European Union's arguments concerning repayment of [***] A380 LA/MSF are incorrect, as the repayment of a financial contribution on subsidized terms does not achieve the withdrawal of the subsidy. Finally, the United States argues that the announcement of the intent to terminate the A380 programme in the future does not constitute an "intervening event" that brings an end to the life of the subsidies. In this respect, the United States recalls that the A380 programme remains operational. In addition, the United States recal